DENALI CAPITAL CLO VII, LTD. DENALI CAPITAL CLO VII (DELAWARE) LLC

Transcription

1 DENALI CAPITAL CLO VII, LTD. DENALI CAPITAL CLO VII (DELAWARE) LLC U.S.$150,000,000 Class A-1LR Variable Funding Notes Due January 2022 U.S.$482,000,000 Class A-1L Floating Rate Notes Due January 2022 U.S.$42,000,000 Class A-2L Floating Rate Notes Due January 2022 U.S.$41,000,000 Class A-3L Floating Rate Notes Due January 2022 U.S.$22,500,000 Class B-1L Floating Rate Notes Due January 2022 U.S.$18,000,000 Class B-2L Floating Rate Notes Due January 2022 U.S.$57,350,000 Income Notes Due January 2022 DC FUNDING PARTNERS LLC Collateral Manager The Notes, consisting of the Class A-1LR Variable Funding Notes Due January 2022 (the "Class A-1LR Notes") in the aggregate principal amount of U.S.$150,000,000, the Class A-1L Floating Rate Notes Due January 2022 (the "Class A-1L Notes" and, together with the Class A-1LR Notes, the "Class A-1 Notes") in the aggregate principal amount of U.S.$482,000,000, the Class A-2L Floating Rate Notes Due January 2022 (the "Class A-2L Notes" and, with the Class A-1LR Notes and the Class A-1L Notes, the "Senior Class A Notes") in the aggregate principal amount of U.S.$42,000,000, the Class A-3L Floating Rate Notes Due January 2022 (the "Class A-3L Notes" and, with the Senior Class A Notes, the "Class A Notes") in the aggregate principal amount of U.S.$41,000,000, the Class B-1L Floating Rate Notes Due January 2022 (the "Class B-1L Notes") in the aggregate principal amount of U.S.$22,500,000, the Class B-2L Floating Rate Notes Due January 2022 (the "Class B-2L Notes" and, with the Class B-1L Notes, the "Class B Notes" and, with the Class A Notes, the "Notes") in the aggregate principal amount of U.S.$18,000,000 and the Income Notes Due January 2022 (the "Income Notes" and, with the Notes, the "Securities") in the notional amount of U.S.$57,350,000 are being issued by Denali Capital CLO VII, Ltd. (the "Issuer"), a recently formed limited liability company incorporated under the laws of the (continued on third page) It is a condition of issuance that each of the Class A-1LR Notes and the Class A-1L Notes be rated "AAA" by Standard & Poor s Ratings Services ("S&P") and "Aaa" by Moody s Investors Service, Inc. ("Moody s"), the Class A-2L Notes be rated at least "AA" by S&P and at least "Aa2" by Moody s, the Class A- 3L Notes be rated at least "A" by S&P and at least "A2" by Moody s, the Class B-1L Notes be rated at least "BBB" by S&P and at least "Baa2" by Moody s and the Class B-2L Notes be rated at least "BB" by S&P and at least "Ba2" by Moody s. See "Ratings". The Income Notes will not be rated. Application has been made to the Irish Financial Services Regulatory Authority, as competent authority under Directive 2003/71/EC, for this Offering Circular to be approved. Application has been made to the Irish Stock Exchange ("ISE") for the Notes (other than the Class A-1LR Notes) (such Notes, the "Offered Notes") to be admitted to the Official List and trading on its regulated market. Such approval relates only to Notes which are to be admitted to trading on the regulated market of the ISE or other regulated markets for the purposes of Directive 93/22/EEC or which are to be offered to the public in any Member State of the European Economic Area. Application has been made to the ISE for the listing particulars to be approved. Application has been made to the ISE for the Income Notes (together with the Offered Notes, the "Offered Securities") to be admitted to listing and trading on its Alternative Securities Market, which is not a regulated market (as defined by Article 1(13) of Directive 93/22/EEC). For certain factors to be considered in connection with an investment in the Notes, see "Risk Factors" and "Notices to Purchasers." THE SECURITIES HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER RELEVANT JURISDICTION, AND NEITHER THE ISSUER NOR THE CO-ISSUER WILL BE REGISTERED UNDER THE UNITED STATES INVESTMENT COMPANY ACT OF 1940, AS AMENDED (THE "INVESTMENT COMPANY ACT"). THE SECURITIES WILL BE OFFERED AND SOLD IN THE UNITED STATES TO PERSONS THAT ARE BOTH "QUALIFIED INSTITUTIONAL BUYERS" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) AND "QUALIFIED PURCHASERS" (AS DEFINED HEREIN). THE INCOME NOTES WILL BE OFFERED AND SOLD IN THE UNITED STATES TO PERSONS THAT ARE (A) "QUALIFIED INSTITUTIONAL BUYERS" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR "ACCREDITED INVESTORS" (AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT) AND (B) "QUALIFIED PURCHASERS" FOR PURPOSES OF SECTION 3(c)(7) OF THE INVESTMENT COMPANY ACT OR "KNOWLEDGEABLE EMPLOYEES" WITHIN THE MEANING OF RULE 3c-5 OF THE INVESTMENT COMPANY ACT. THE SECURITIES WILL BE OFFERED AND SOLD OUTSIDE THE UNITED STATES TO PERSONS THAT ARE NOT U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT) IN OFFSHORE TRANSACTIONS IN RELIANCE ON REGULATION S. IN MAKING ITS PURCHASE, EACH PURCHASER OF SECURITIES WILL BE REQUIRED TO MAKE OR DEEMED TO HAVE MADE CERTAIN ACKNOWLEDGMENTS, REPRESENTATIONS, AND AGREEMENTS DESCRIBED UNDER "TRANSFER RESTRICTIONS." The Notes (other than the Class B-2L Notes) are offered by the Co-Issuers and the Class B-2L Notes and the Income Notes are offered by the Issuer. The Securities will be offered through Bear, Stearns & Co. Inc. ("Bear Stearns") as initial purchaser (in such capacity, the "Initial Purchaser") to prospective purchasers from time to time in negotiated transactions at varying prices to be determined in each case at the time of sale. The Securities are offered when, as and if issued by the Co-Issuers (or, in the case of the Class B-2L Notes or the Income Notes, the Issuer), 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. It is expected that delivery of the Securities will be made on or about May 22, 2007 (the "Closing Date"), against payment in immediately available funds. See "Plan of Distribution." It is expected that the Notes (other than the Class A-1LR Notes and the Class B-2L Notes) offered and sold in the United States will be delivered in book-entry form only through the facilities of The Depository Trust Company ("DTC" or the "Depository"). The Notes (other than the Class A-1LR Notes) offered and sold outside the United States will be represented by temporary global notes which will be deposited with (in the case of the Class A-1L Notes, the Class A-2L Notes, the Class A-3L Notes and the Class B-1L Notes) a custodian for and registered in the name of a nominee of DTC for the accounts of, and in the case of the Class B-2L Notes, with a common or specialized depository on behalf of, Euroclear Bank S.A./N.V., as operator of The Euroclear System ("Euroclear") or Clearstream Banking, société anonyme ("Clearstream"). The Class B-2L Notes offered and sold in the United States and the Class A-1LR Notes will be delivered only in definitive, fully registered, certificated form. The Income Notes offered and sold in the United States will be delivered only in definitive, fully registered, certificated form. The Income Notes offered and sold outside the United States will be represented by one or more permanent global certificates in fully registered definitive form, which will be deposited with a common depository on behalf of Euroclear or Clearstream and registered in the name of a nominee of such depository. Bear, Stearns & Co. Inc. This Offering Circular is dated October 10, 2007

2 THIS OFFERING CIRCULAR CONSTITUTES A PROSPECTUS FOR THE PURPOSES OF THE PROSPECTUS DIRECTIVE AND THE LISTING OF THE OFFERED NOTES ON THE IRISH STOCK EXCHANGE. REFERENCE THROUGHOUT THE DOCUMENT TO THE "OFFERING CIRCULAR" SHALL BE TAKEN TO READ "PROSPECTUS" FOR THE PURPOSE OF LISTING THE NOTES ON THE REGULATED MARKET OF THE IRISH STOCK EXCHANGE. THIS OFFERING CIRCULAR CONSTITUTES A LISTING PARTICULARS FOR THE PURPOSES OF LISTING THE INCOME NOTES ON THE ALTERNATIVE SECURITIES MARKET OF THE IRISH STOCK EXCHANGE. REFERENCE THROUGHOUT THE DOCUMENT TO THE OFFERING CIRCULAR SHALL BE TAKEN TO READ LISTING PARTICULARS FOR THE PURPOSE OF LISTING THE INCOME NOTES ON THE ALTERNATIVE SECURITIES MARKET OF THE IRISH STOCK EXCHANGE. ii

3 (Continued from first page) Cayman Islands,and, with the exception of the Class B-2L Notes and the Income Notes, will be co-issued by Denali Capital CLO VII (Delaware) LLC, a recently formed Delaware corporation (the "Co-Issuer" and, together with the Issuer, the "Co-Issuers"), on a non-recourse basis as described herein. The Class B-2L Notes are being issued by the Issuer on a non-recourse basis as described herein. The Income Notes have the rights ascribed thereto in the Income Note Documents, as described herein. The Issuer will receive all of the net proceeds of the offering of the Securities, which will be used by the Issuer to purchase, or commit to purchase, on and after the Closing Date (defined below) and before the Effective Date (defined below) a portfolio of commercial loans (the "Portfolio Loans") and corporate or other debt obligations pledged to secure the Notes (together with the additional commercial loans and corporate or other debt obligations, including synthetic securities, that will be purchased by the Issuer from time to time and pledged to secure the Notes and certain other obligations as described herein, the "Collateral"). As described herein, the Collateral will consist primarily of commercial loans and, to a limited extent, high yield corporate or other debt obligations, that are rated below investment grade issued by U.S. and certain non-u.s. issuers and that satisfy the criteria described herein. The Class A-1LR Notes, the Class A-1L Notes, the Class A-2L Notes, the Class A-3L Notes, the Class B-1L Notes and the Class B-2L Notes will provide for the payment of Periodic Interest (as defined herein) (to the extent of funds available therefore as described herein) for each Periodic Interest Accrual Period (as defined herein) at the rate of 0.26%, 0.23%, 0.43%, 0.75%, 1.75% and 4.25% per annum, respectively, above the London interbank offered rate for three-month U.S. dollar deposits (or, for the period from the Closing Date to the first Payment Date, five-month U.S. dollar deposits) ("LIBOR") (determined as described herein); provided that Periodic Interest on the Class A-3L Notes, the Class B-1L Notes and the Class B-2L Notes will not be payable until the January 2008 Payment Date and will be calculated for the period from the Closing Date to such Payment Date based on LIBOR for eight-month U.S. dollar deposits; provided further that, solely to the extent funds are available for the payment in full of such amounts in accordance with the priority of payments described herein, the Class A-3L Notes, the Class B-1L Notes and the Class B-2L Notes will be entitled to receive, on the October 2007 Payment Date, Periodic Interest accrued with respect to the related Periodic Interest Accrual Period, and such Periodic Interest will be calculated for the period from the Closing Date to such Payment Date based on LIBOR for five-month U.S. dollar deposits. Payments on the Income Notes will not be payable at a stated rate but instead as described under "Application of Funds." Any such payments are in each case at the times and subject to the priority of payments described herein. The principal amount of the Notes will be payable at Stated Maturity in January 2022, to the extent not redeemed or paid in full before then. The Income Notes will receive certain amounts available for distribution to the Holders of the Income Notes in accordance with the Application of Funds. See "Application of Funds." Each Security will be subject to earlier repayment or redemption. The Notes, with the exception of the Class B-2L Notes, are non-recourse obligations of the Co-Issuers, and the Class B-2L Notes are non-recourse obligations of the Issuer, payable solely from the Trust Estate described herein. The Class B-2L Notes are subordinated to the Class A Notes and the Class B-1L Notes, the Class B-1L Notes are subordinated to the Class A Notes, the Class A-3L Notes are subordinated to the Senior Class A Notes and the Class A-2L Notes are subordinated to the Class A-1L Notes and the Class A-1LR Notes, in each case to the extent described herein. To the extent the assets of the Trust Estate are insufficient to pay in full all amounts due on the Notes, the Co-Issuers shall have no further obligations in respect of the Notes and any sums outstanding and unpaid shall be extinguished. The Income Notes will not be secured obligations of the Issuer. Distributions on the Income Notes will be paid solely from and to the extent of the available proceeds from the distributions on the Collateral which is the only source of such distributions in respect of the Income Notes. To the extent the Collateral is insufficient to pay distributions on or to redeem the Income Notes, the Issuer will have no obligation to pay any further amounts in respect of the Income Notes and any sums outstanding and unpaid shall be extinguished. iii

4 NOTICES TO PURCHASERS THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT, THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR THE SECURITIES LAWS OF ANY OTHER JURISDICTION AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES, OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, UNITED STATES PERSONS, UNLESS A REGISTRATION STATEMENT WITH RESPECT THERETO IS THEN EFFECTIVE UNDER THE SECURITIES ACT OR AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS AVAILABLE. THE CO-ISSUERS HAVE NO OBLIGATION OR CURRENT INTENTION TO EFFECT SUCH REGISTRATION. THE CO-ISSUERS ARE RELYING ON AN EXCLUSION FROM REGISTRATION UNDER THE INVESTMENT COMPANY ACT, AND NO TRANSFER OF A SECURITY MAY BE MADE WHICH WOULD CAUSE THE CO-ISSUERS TO BECOME SUBJECT TO THE REGISTRATION REQUIREMENTS OF THE INVESTMENT COMPANY ACT. THE SECURITIES ARE ALSO SUBJECT TO CERTAIN OTHER RESTRICTIONS ON TRANSFER DESCRIBED HEREIN. PROSPECTIVE PURCHASERS OF THE SECURITIES SHOULD PROCEED ON THE ASSUMPTION THAT THEY MUST HOLD THEIR INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE PURCHASER OF A SECURITY, BY ITS ACCEPTANCE THEREOF, REPRESENTS, ACKNOWLEDGES AND AGREES THAT IT WILL NOT RESELL, PLEDGE OR OTHERWISE TRANSFER SUCH SECURITY EXCEPT IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS AND EXCEPT (A) (1) IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER AS DEFINED IN RULE 144A PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER, WHOM THE SELLER HAS INFORMED, IN EACH CASE, THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A AND WHO IS A QUALIFIED PURCHASER FOR PURPOSES OF SECTION 3(c)(7) UNDER THE INVESTMENT COMPANY ACT, PROVIDED THAT SUCH PURCHASER DELIVERS ALL DOCUMENTS AND CERTIFICATIONS AS THE CO-ISSUERS OR THE TRUSTEE MAY REASONABLY REQUEST OR (2) SOLELY IN THE CASE OF THE INCOME NOTES, TO A PERSON WHO IS AN ACCREDITED INVESTOR (AS DEFINED IN RULE 501(a) OF THE SECURITIES ACT) WHO IS A QUALIFIED PURCHASER FOR PURPOSES OF SECTION 3(c)(7) UNDER THE INVESTMENT COMPANY ACT OR A KNOWLEDGEABLE EMPLOYEE WITH RESPECT TO THE ISSUER WITHIN THE MEANING OF RULE 3c-5 UNDER THE INVESTMENT COMPANY ACT; (B) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, PROVIDED THAT SUCH PURCHASER DELIVERS ALL DOCUMENTS AND CERTIFICATIONS AS THE CO-ISSUERS OR THE TRUSTEE MAY REASONABLY REQUEST; OR (C) TO THE CO-ISSUERS OR THEIR AFFILIATES, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAW OF ANY STATE OF THE UNITED STATES AND ANY OTHER JURISDICTION. IN ADDITION, THE PURCHASER OF A SECURITY, BY ITS ACCEPTANCE THEREOF, REPRESENTS, ACKNOWLEDGES AND AGREES THAT IT WILL NOT RESELL, PLEDGE OR OTHERWISE TRANSFER SUCH SECURITY OTHER THAN TO A NON-U.S. PERSON IN AN "OFFSHORE TRANSACTION" IN COMPLIANCE WITH REGULATION S EXCEPT TO (A) A "QUALIFIED PURCHASER" WITHIN THE MEANING OF SECTION 3(c)(7) OF THE INVESTMENT COMPANY ACT OR (B) SOLELY IN THE CASE OF THE INCOME NOTES, TO A KNOWLEDGEABLE EMPLOYEE WITH RESPECT TO THE ISSUER WITHIN THE MEANING OF RULE 3c-5 UNDER THE INVESTMENT COMPANY ACT, IN A TRANSACTION THAT DOES NOT CAUSE THE CO-ISSUERS TO BE REQUIRED TO REGISTER UNDER THE INVESTMENT COMPANY ACT AND WILL ALSO BE DEEMED TO HAVE MADE THE REPRESENTATIONS SET FORTH UNDER "TRANSFER RESTRICTIONS." FURTHER, THE CLASS A NOTES MAY NOT BE SOLD OR TRANSFERRED UNLESS SUCH SALE OR TRANSFER WILL NOT CONSTITUTE OR RESULT IN A NON-EXEMPT PROHIBITED TRANSACTION UNDER ERISA OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"). THE CLASS B-1L NOTES MAY NOT BE SOLD OR TRANSFERRED TO ANY PLAN SUBJECT TO TITLE I OF ERISA OR SECTION 4975 OF THE CODE, OR TO ANY PERSON ACTING ON BEHALF OF OR WITH "PLAN ASSETS" OF ANY SUCH PLAN, INCLUDING AN INSURANCE COMPANY GENERAL ACCOUNT, UNLESS THE PURCHASER OR TRANSFEREE IS ELIGIBLE FOR THE EXEMPTIVE RELIEF AVAILABLE UNDER ANY OF SECTION 408(b)(17) OF ERISA OR PTCE 96-23, 95-60, 91-38, 90-1 OR THE CLASS B-2L NOTES AND THE INCOME NOTES MAY NOT BE SOLD OR TRANSFERRED TO ANY PLAN iv

5 SUBJECT TO TITLE I OF ERISA OR SECTION 4975 OF THE CODE, TO ANY PERSON ACTING ON BEHALF OF OR WITH "PLAN ASSETS" OF ANY SUCH PLAN, OR TO ANY OTHER "BENEFIT PLAN INVESTOR" (AS DEFINED IN SECTION 3(42) OF ERISA) (A "BENEFIT PLAN INVESTOR"), INCLUDING AN INSURANCE COMPANY GENERAL ACCOUNT, EXCEPT IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH HEREIN UNDER "CERTAIN ERISA CONSIDERATIONS." THE NOTES, WITH THE EXCEPTION OF THE CLASS B-2L NOTES, ARE NON-RECOURSE OBLIGATIONS OF THE CO-ISSUERS AND THE CLASS B-2L NOTES ARE NON-RECOURSE OBLIGATIONS OF THE ISSUER. PRINCIPAL OF AND INTEREST ON THE NOTES WILL BE PAID SOLELY FROM AND TO THE EXTENT OF THE AVAILABLE PROCEEDS FROM THE DISTRIBUTIONS ON THE COLLATERAL, WHICH ARE THE ONLY SOURCE OF PAYMENT OF PRINCIPAL OF, INTEREST ON AND OTHER AMOUNTS PAYABLE IN RESPECT OF THE NOTES. TO THE EXTENT SUCH SOURCES OF PAYMENT ARE INSUFFICIENT TO PAY IN FULL ALL AMOUNTS DUE ON THE NOTES, THE CO- ISSUERS SHALL HAVE NO FURTHER OBLIGATIONS IN RESPECT OF THE NOTES AND ANY SUMS OUTSTANDING AND UNPAID SHALL BE EXTINGUISHED. THE INCOME NOTES ENTITLEMENT IS LIMITED TO THE PROCEEDS OF THE COLLATERAL TO THE EXTENT AVAILABLE IN ACCORDANCE WITH THE APPLICATION OF FUNDS AFTER PAYMENT OF ALL AMOUNTS PAYABLE ON EACH CLASS OF NOTES AND CERTAIN OTHER AMOUNTS IN ACCORDANCE WITH THE APPLICATION OF FUNDS. ACCORDINGLY, TO THE EXTENT THE COLLATERAL IS INSUFFICIENT TO PAY ALL AMOUNTS DUE TO THE INCOME NOTES OR REDEEM THE INCOME NOTES, THE ISSUER WILL HAVE NO OBLIGATION TO PAY ANY FURTHER AMOUNTS IN RESPECT OF THE INCOME NOTES AND ANY SUMS OUTSTANDING AND UNPAID SHALL BE EXTINGUISHED. FOR THESE REASONS, AMONG OTHERS, AN INVESTMENT IN THE SECURITIES IS NOT SUITABLE FOR ALL INVESTORS AND IS APPROPRIATE ONLY FOR AN INVESTOR CAPABLE OF (A) ANALYZING AND ASSESSING THE RISKS ASSOCIATED WITH DEFAULTS, LOSSES AND RECOVERIES ON, REINVESTMENT OF PROCEEDS OF AND OTHER CHARACTERISTICS OF, LOANS AND DEBT SECURITIES SUCH AS THE COLLATERAL, AND (B) BEARING SUCH RISKS AND FINANCIAL CONSEQUENCES THEREOF AS THEY RELATE TO AN INVESTMENT IN THE SECURITIES. EACH PURCHASER OF A SECURITY BY ITS ACCEPTANCE THEREOF ACKNOWLEDGES THAT IT IS USING ITS INDEPENDENT JUDGMENT IN ASSESSING THE OPPORTUNITIES AND RISKS PRESENTED BY THE SECURITIES FOR ITS INVESTMENT PORTFOLIO AND IN DETERMINING WHETHER THE ACQUISITION IS SUITABLE AND COMPLIES WITH SUCH PURCHASER S INVESTMENT OBJECTIVES AND POLICIES. EXCEPT AS SET FORTH IN THIS OFFERING CIRCULAR, NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS OFFERING CIRCULAR AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON. THIS OFFERING CIRCULAR DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION NOR TO ANY PERSON WHO HAS NOT RECEIVED A COPY OF EACH CURRENT AMENDMENT OR SUPPLEMENT HERETO, IF ANY. THIS OFFERING CIRCULAR IS FURNISHED SOLELY FOR THE PURPOSE OF EVALUATING THE INVESTMENT OFFERED HEREBY. THE INFORMATION CONTAINED HEREIN MAY NOT BE REPRODUCED OR USED IN WHOLE OR IN PART FOR ANY OTHER PURPOSE. NOTWITHSTANDING ANY OTHER EXPRESS OR IMPLIED AGREEMENT TO THE CONTRARY, THE ISSUER, THE CO-ISSUER, THE COLLATERAL MANAGER, THE INITIAL PURCHASER, THE TRUSTEE, THE COLLATERAL ADMINISTRATOR AND EACH RECIPIENT HEREOF AGREE THAT EACH OF THEM AND EACH OF THEIR EMPLOYEES, REPRESENTATIVES, AND OTHER AGENTS MAY DISCLOSE, IMMEDIATELY UPON COMMENCEMENT OF DISCUSSIONS, TO ANY AND ALL PERSONS, v

6 WITHOUT LIMITATION OF ANY KIND, THE TAX TREATMENT AND TAX STRUCTURE OF THE TRANSACTION AND ALL MATERIALS OF ANY KIND (INCLUDING OPINIONS OR OTHER TAX ANALYSES) THAT ARE PROVIDED TO ANY OF THEM RELATING TO SUCH TAX TREATMENT AND TAX STRUCTURE, EXCEPT WHERE CONFIDENTIALITY IS REASONABLY NECESSARY TO COMPLY WITH UNITED STATES FEDERAL OR STATE SECURITIES LAWS. THE SECURITIES ARE BEING OFFERED ONLY TO A LIMITED NUMBER OF INVESTORS (ALL OF WHICH ARE REQUIRED TO BE QUALIFIED INSTITUTIONAL BUYERS OR, SOLELY IN THE CASE OF THE INCOME NOTES, ACCREDITED INVESTORS, OR INVESTORS WHO ARE OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 903 OR RULE 904 OF REGULATION S OF THE SECURITIES ACT) THAT ARE WILLING AND ABLE TO CONDUCT AN INDEPENDENT INVESTIGATION OF THE CHARACTERISTICS OF THE SECURITIES AND RISKS OF OWNERSHIP OF THE SECURITIES. IT IS EXPECTED THAT PROSPECTIVE INVESTORS INTERESTED IN PARTICIPATING IN THIS OFFERING WILL CONDUCT AN INDEPENDENT INVESTIGATION OF THE RISKS POSED BY AN INVESTMENT IN THE SECURITIES. OFFICERS AND OTHER REPRESENTATIVES OF THE CO-ISSUERS AND THE INITIAL PURCHASER WILL BE AVAILABLE TO ANSWER QUESTIONS CONCERNING THE CO-ISSUERS, THE SECURITIES AND THE COLLATERAL AND WILL, UPON REQUEST, MAKE AVAILABLE SUCH OTHER INFORMATION AS INVESTORS MAY REASONABLY REQUEST. THIS OFFERING CIRCULAR IS NOT INTENDED TO FURNISH LEGAL, REGULATORY, TAX, ACCOUNTING, INVESTMENT OR OTHER ADVICE TO ANY PROSPECTIVE PURCHASER OF THE SECURITIES. THIS OFFERING CIRCULAR SHOULD BE REVIEWED BY EACH PROSPECTIVE PURCHASER AND ITS LEGAL, REGULATORY, TAX, ACCOUNTING, INVESTMENT AND OTHER ADVISORS. INVESTORS WHOSE INVESTMENT AUTHORITY IS SUBJECT TO LEGAL RESTRICTIONS SHOULD CONSULT THEIR OWN LEGAL ADVISORS TO DETERMINE WHETHER AND TO WHAT EXTENT THE SECURITIES CONSTITUTE LEGAL INVESTMENTS FOR THEM. NO INVITATION MAY BE MADE TO THE PUBLIC IN THE CAYMAN ISLANDS TO SUBSCRIBE FOR ANY SECURITIES. THE INITIAL PURCHASER AND THE CO-ISSUERS: (A) HAVE ONLY COMMUNICATED OR CAUSED TO BE COMMUNICATED AND WILL ONLY COMMUNICATE OR CAUSE TO BE COMMUNICATED ANY INVITATION OR INDUCEMENT TO ENGAGE IN INVESTMENT ACTIVITY (WITHIN THE MEANING OF SECTION 21 OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 ("FSMA")) RECEIVED BY THEM IN CONNECTION WITH THE ISSUE OR SALE OF ANY SECURITIES IN CIRCUMSTANCES IN WHICH SECTION 21(1) OF THE FSMA DOES NOT APPLY TO THE ISSUER; AND (B) HAVE COMPLIED AND WILL COMPLY WITH ALL APPLICABLE PROVISIONS OF THE FSMA WITH RESPECT TO ANYTHING DONE BY THEM IN RELATION TO THE SECURITIES IN, FROM OR OTHERWISE INVOLVING THE UNITED KINGDOM. NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE 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. vi

7 THE DISTRIBUTION OF THIS OFFERING CIRCULAR AND THE OFFER OR SALE OF SECURITIES MAY BE RESTRICTED BY LAW IN CERTAIN JURISDICTIONS. NONE OF THE ISSUER, THE CO-ISSUER, THE COLLATERAL MANAGER OR THE INITIAL PURCHASER REPRESENTS THAT THIS DOCUMENT MAY BE LAWFULLY DISTRIBUTED, OR THAT ANY SECURITIES MAY BE LAWFULLY OFFERED, IN COMPLIANCE WITH ANY APPLICABLE REGISTRATION OR OTHER REQUIREMENTS IN ANY SUCH JURISDICTION, OR PURSUANT TO AN EXEMPTION AVAILABLE THEREUNDER, OR ASSUME ANY RESPONSIBILITY FOR FACILITATING ANY SUCH DISTRIBUTION OR OFFERING. IN PARTICULAR, NO ACTION HAS BEEN TAKEN BY THE ISSUER, THE CO-ISSUER, THE COLLATERAL MANAGER OR THE INITIAL PURCHASER WHICH WOULD PERMIT A PUBLIC OFFERING OF ANY SECURITIES OR DISTRIBUTION OF THIS DOCUMENT IN ANY JURISDICTION WHERE ACTION FOR THAT PURPOSE IS REQUIRED. ACCORDINGLY, NO SECURITIES MAY BE OFFERED OR SOLD, DIRECTLY OR INDIRECTLY, AND NEITHER THIS OFFERING CIRCULAR NOR ANY ADVERTISEMENT OR OTHER OFFERING MATERIAL MAY BE DISTRIBUTED OR PUBLISHED IN ANY JURISDICTION, EXCEPT UNDER CIRCUMSTANCES THAT WILL RESULT IN COMPLIANCE WITH ANY APPLICABLE LAWS AND REGULATIONS. PERSONS INTO WHOSE POSSESSION THIS OFFERING CIRCULAR OR ANY SECURITIES COME MUST INFORM THEMSELVES ABOUT AND OBSERVE ANY SUCH RESTRICTIONS. THE TRUSTEE, THE FISCAL AGENT, THE COLLATERAL ADMINISTRATOR, THE PAYING AGENT AND THEIR RESPECTIVE AFFILIATES HAVE NOT PARTICIPATED IN THE PREPARATION OF THIS OFFERING CIRCULAR AND DO NOT ASSUME ANY RESPONSIBILITY FOR ITS CONTENTS. THE CO-ISSUERS ACCEPT RESPONSIBILITY FOR THE INFORMATION CONTAINED IN THIS DOCUMENT OTHER THAN THE INFORMATION IN THE SECTION ENTITLED THE COLLATERAL MANAGER HEREIN. TO THE BEST KNOWLEDGE AND BELIEF OF THE CO-ISSUERS THE INFORMATION CONTAINED IN THIS DOCUMENT IS IN ACCORDANCE WITH THE FACTS AND DOES NOT OMIT ANYTHING LIKELY TO AFFECT THE IMPORT OF SUCH INFORMATION. THE COLLATERAL MANAGER ACCEPTS RESPONSIBILITY FOR THE INFORMATION CONTAINED IN THE SECTION ENTITLED THE COLLATERAL MANAGER HEREIN. THE COLLATERAL MANAGER, HAVING TAKEN ALL REASONABLE STEPS TO ENSURE THAT THE INFORMATION CONTAINED IN THE ABOVE SECTION IS, TO THE BEST OF ITS KNOWLEDGE, IN ACCORDANCE WITH THE FACTS AND DOES NOT OMIT ANYTHING LIKELY TO AFFECT ITS IMPORT. AVAILABLE INFORMATION To permit compliance with Rule 144A under the Securities Act for resales of Securities, the Co-Issuers will make available to Holders and prospective purchasers who request such information, the information required to be delivered under Rule 144A(d)(4) under the Securities Act if at the time of the request either the Issuer or the Co- Issuer is not a reporting company under Section 13 or Section 15(d) of the Exchange Act or if either the Issuer or the Co-Issuer is not exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange Act. Copies of all such documents may be obtained free of charge from the office of the Trustee or, for so long as any Class of Notes is listed on any stock exchange, the Listing and Paying Agent, in each case as provided by the Issuer. Neither of the Co-Issuers expects to become such a reporting company or to be so exempt from reporting. vii

8 TABLE OF CONTENTS SUMMARY OF TERMS...1 RISK FACTORS...23 General; Priorities of Notes...23 Relating to the Securities...23 Relating to the Collateral Manager...30 Relating to the Collateral Obligations...32 Relating to Certain Conflicts of Interest...38 THE CO-ISSUERS...42 General...42 Activities...43 APPLICATION OF FUNDS...45 Application of Interest Proceeds...45 Application of Principal Proceeds...48 Payment of Management Fees to Successor Collateral Manager and Predecessor Collateral Manager...49 COVERAGE TESTS AND ADDITIONAL COLLATERAL DEPOSIT REQUIREMENT...50 General...50 The Overcollateralization Tests...50 The Interest Coverage Test...52 The Additional Collateral Deposit Requirement...53 CERTAIN ADDITIONAL PROVISIONS RELATING TO THE SECURITIES...55 General...55 Status and Security...55 Payments on the Notes...55 Distributions on the Income Notes...59 Determination of LIBOR...60 Optional Redemption...61 Special Redemption of Notes If the Collateral Manager Does Not Identify Investments as Contemplated by the Indenture...63 Mandatory Redemption of the Notes...63 Redemption of the Income Notes in Connection with Mandatory Redemption of the Notes...64 Certain Limitations on Payments on the Income Notes...64 Class A-1LR Commitment Fees...64 Class A-1LR Borrowings...65 Class A-1LR Prepayments...67 Reduction of Class A-1LR Commitments...68 Class A-1LR Purchaser Rating Criteria...68 Events of Default...70 Supplemental Indentures...73 Method of Payments...77 The Accounts...77 Note Valuation Report; Noteholder Reports...82 Notices...82 Certain Covenants...82 Cancellation...82 Page

9 No Gross-Up...83 Petitions for Bankruptcy...83 Subordination...83 Standard of Conduct...83 Actions of Holders Under the Indenture...84 Satisfaction and Discharge of Indenture...84 Trustee...84 Governing Law...84 Fiscal Agency Agreement...85 CERTAIN MATURITY AND PREPAYMENT CONSIDERATIONS...86 THE COLLATERAL MANAGER...89 General...89 Key Personnel of the Collateral Manager s Managing Member...89 THE MANAGEMENT AGREEMENT...92 General...92 Termination...94 Amendment...95 Disclosure and Consent Provisions Relating to "Principal Trades" and Certain Related Matters...95 SECURITY FOR THE NOTES...97 General...97 Collateral Obligations...97 Eligibility Criteria...99 The Collateral Quality Tests Ramp-Up Purchase of Collateral Obligations After the Revolving Period Dispositions of Collateral Obligations Certain Determinations Relating to Collateral Obligations Hedge Agreements Securities Lending SETTLEMENT AND CLEARING FOR GLOBAL SECURITIES Notes Income Notes Depositories TRANSFER RESTRICTIONS CERTAIN TAX CONSIDERATIONS United States Tax Considerations Tax Treatment of Issuer Tax Treatment of U.S. Holders of Notes Tax Treatment of U.S. Holders of Income Notes Tax Treatment of Non-U.S. Holders Information Reporting Requirements Circular CAYMAN ISLANDS TAX CONSEQUENCES CERTAIN ERISA CONSIDERATIONS...130

10 CERTAIN LEGAL INVESTMENT CONSIDERATIONS USE OF PROCEEDS PLAN OF DISTRIBUTION LISTING AND GENERAL INFORMATION CERTAIN LEGAL MATTERS GLOSSARY DEFINITION OF MOODY S RATING, MOODY S RECOVERY RATE AND RELATED DEFINITIONS... A-1 DEFINITION OF S&P RATING AND RELATED DEFINITIONS...B-1 FORM ADV PART II OF COLLATERAL MANAGER...C-1

11 SUMMARY OF TERMS The following summary of terms does not purport to be complete and is qualified in its entirety by, and should be read in conjunction with, the more detailed information appearing elsewhere in this Offering Circular and the documents referred to in this Offering Circular. A Glossary appears at the back of this Offering Circular. Issuer... Denali Capital CLO VII, Ltd., a recently formed limited liability company incorporated under the laws of the Cayman Islands (the "Issuer"). The activities of the Issuer will be limited as described in "The Co-Issuers Activities The Issuer." Co-Issuer... Denali Capital CLO VII (Delaware) LLC, a recently formed limited liability company organized under the laws of the State of Delaware (the "Co-Issuer" and, together with the Issuer, the "Co-Issuers"). The Co-Issuer will have no substantial assets. Securities Offered... U.S.$150,000,000 aggregate principal amount of Class A-1LR Variable Funding Notes Due January 2022 (the "Class A-1LR Notes") to be drawn from time to time as described herein, U.S.$482,000,000 aggregate principal amount of Class A-1L Floating Rate Notes Due January 2022 (the "Class A-1L Notes" and, together with the Class A-1LR Notes, the "Class A-1 Notes"), U.S.$42,000,000 aggregate principal amount of Class A-2L Floating Rate Notes Due January 2022 (the "Class A-2L Notes" and, with the Class A-1 Notes, the "Senior Class A Notes"), U.S.$41,000,000 aggregate principal amount of the Class A-3L Floating Rate Notes Due January 2022 (the "Class A-3L Notes" and, with the Senior Class A Notes, the "Class A Notes"), U.S.$22,5000,000 aggregate principal amount of the Class B-1L Floating Rate Notes Due January 2022 (the "Class B-1L Notes") and U.S.$18,000,000 aggregate principal amount of the Class B-2L Floating Rate Notes Due January 2022 (the "Class B-2L Notes" and, with the Class B-1L Notes, the "Class B Notes" and, together with the Class A Notes and the Class B-1L Notes, the "Notes"). The Notes will be issued on the Closing Date pursuant to an indenture (the "Indenture"), to be dated as of May 22, 2007, among the Co- Issuers and Deutsche Bank Trust Company Americas, as trustee (the "Trustee") and as securities intermediary. The Notes will be nonrecourse obligations of the Co-Issuers or the Issuer, as applicable, and all amounts payable in respect of the Notes will be paid solely from and to the extent of the available proceeds from the Collateral. To the extent the Collateral is insufficient to pay all amounts due on the Notes, the Co-Issuers or the Issuer, as applicable, will have no further obligations in respect of such Notes and any sums outstanding and unpaid will be extinguished. On the Closing Date, the Issuer will also issue U.S.$57,350,000 notional amount of Income Notes Due January 2022 (the "Income Notes" and, together with the Notes, the "Securities"). The Income Notes will be issued pursuant to a deed of covenant (the "Deed of Covenant") dated as of the Closing Date and subject to the fiscal agency agreement with the Income Note Conditions attached thereto (the "Fiscal Agency Agreement" and, together with the Deed of Covenant and the Income Note Conditions, the "Income Note Documents"), to be dated as of the Closing Date, between the Issuer and Deutsche Bank AG, London Branch, as fiscal agent for the Income Notes. Distributions on the Income Notes will be paid 1

12 solely from and to the extent of the available proceeds from the distributions on the Collateral which is the only source of such distributions in respect of the Income Notes. To the extent the Collateral is insufficient to pay the Income Notes, the Issuer will have no obligation to pay any further amounts in respect of the Income Notes and any sums outstanding and unpaid will be extinguished. DC Funding Partners LLC ("DC Funding" or the "Collateral Manager") will manage the Collateral and perform certain other reporting functions pursuant to a collateral management agreement with the Issuer (the "Collateral Management Agreement"). See "The Collateral Manager" and "The Management Agreement." U.S.$4,175,000 in notional amount of the Income Notes are expected to be held initially by DC Funding, its Affiliates and certain employees of Denali Capital LLC ("Denali") who are Knowledgeable Employees with respect to the Issuer. See "The Collateral Manager" and "The Management Agreement." Stated Maturity... The stated maturity date of the Securities is the January 2022 Payment Date (the "Stated Maturity"). The Securities will mature at the Stated Maturity unless redeemed or, in the case of the Notes, repaid before that date. The weighted average life of each Class of Notes is expected to be less than the number of years until their Stated Maturity. See "Risk Factors Relating to the Notes The Weighted Average Lives of the Notes May Vary" and "Certain Maturity and Prepayment Considerations." Use of Proceeds... The net proceeds of the offering of the Securities received on the Closing Date, after payment of applicable fees and expenses, are expected to equal approximately U.S.$653,574,000 (assuming no Class A-1LR Borrowing on the Closing Date) and will be used by the Issuer to: purchase a portfolio of Collateral Obligations; fund a trust account for Revolving Loans (the "Revolving Reserve Account") and a trust account for Delayed Drawdown Loans (the "Delayed Drawdown Reserve Account") to cover future draws on Revolving Loans and, except to the extent permitted under the Indenture to be funded from draws on the Class A-1LR Notes, Delayed Drawdown Loans included in the initial Collateral; enter into any Hedge Agreements; enter into any Securities Lending Agreements (and correspondingly to fund the Securities Lending Account); enter into Synthetic Security agreements (and correspondingly to fund the related accounts); fund the Closing Date Expense Account and Expense Reimbursement Account; pay up-front fees relating to the Class A-1LR Notes pursuant to the Class A-1LR Note Purchase Agreement; and undertake certain related activities. 2

13 The Issuer expects that, as of the Closing Date, it will have purchased (or entered into commitments to purchase) at least $543,750,000 in Aggregate Principal Balance of the Collateral Obligations to be included in the anticipated portfolio as of the Ramp-Up Completion Date. The Issuer will acquire the Initial Collateral from various sources, including Denali Capital CLO I, Ltd., another collateralized loan obligation issuer, the portfolio of which was managed by the Collateral Manager, in each case, at established market prices prices acceptable to the Issuer. Any proceeds not invested in Collateral Obligations, deposited into the Revolving Reserve Account, Hedging Counterparty Collateral Accounts, Synthetic Security Collateral Accounts, Synthetic Security Counterparty Accounts, Securities Lending Accounts or the Delayed Drawdown Reserve Account or allocated for application as Interest Proceeds from time to time will be invested in Eligible Investments pending the use of such proceeds to purchase Collateral Obligations or other permitted applications of the proceeds. Form, Denominations and Record Dates.. The Class A Notes (other than the Class A-1LR Notes) and the Class B Notes offered and sold outside the United States pursuant to Regulation S under the Securities Act of 1933, as amended (the "Securities Act"), initially will be evidenced by a temporary global note which will be exchangeable for a permanent global note with respect to such Class as described herein. The Income Notes offered and sold outside the United States pursuant to Regulation S under the Securities Act will be evidenced by one or more permanent physical share certificates in fully registered definitive form. The Class A Notes (other than the Class A-1LR Notes) and the Class B-1L Notes sold to Qualified Institutional Buyers and Qualified Purchasers pursuant to Rule 144A under the Securities Act will be issued in book-entry form only through the facilities of The Depository Trust Company. The Class A-1LR Notes and the Class B- 2L Notes offered and sold to Qualified Institutional Buyers and Qualified Purchasers will be issued only in definitive, registered form. The holders of the Class A-1LR Notes from time to time prior to the end of the Revolving Period will be required to be signatories to the Class A-1LR Note Purchase Agreement to be entered into among the Issuer, the Co-Issuer, Deutsche Bank Trust Company Americas, as initial Class A-1LR Note Agent (in that capacity, the "Class A-1LR Note Agent"), the purchasers of the Class A-1LR Notes and any conduit agents party thereto. The Income Notes are being offered and sold in the United States to persons that are (i) Qualified Institutional Buyers or Accredited Investors and (ii) Qualified Purchasers or Knowledgeable Employees with respect to the Issuer. The Income Notes offered and sold in the United States will be issued only in definitive, registered form. Any transfer of an Income Note to an Accredited Investor who is also a Knowledgeable Employee may be made only with the prior written authorization of the Collateral Manager (acting on behalf of the Issuer). See "Certain Additional Provisions Relating to the Securities Form, Registration, and Transfer of the Securities." 3

14 Subject to the foregoing, the Notes (other than the Class B-2L Notes) will be issued in minimum denominations of U.S.$200,000, and integral multiples of U.S.$1 in excess of that amount. The Class B-2L Notes will be issued in minimum denominations of U.S.$100,000, and integral multiples of U.S.$1 in excess of that amount. The Income Notes will be issued in minimum denominations of U.S.$100,000, and integral multiples of U.S.$1 in excess of that amount; provided that certain employees of Denali who are Knowledgeable Employees with respect to the Issuer may purchase Income Notes in minimum denominations of U.S.$25,000, and integral multiples of U.S.$1,000 in excess of that amount. No Securities will be issued in bearer form. The Securities are subject to certain restrictions on transfer. The record date (the "Record Date") for each Payment Date is the Business Day immediately preceding such Payment Date; provided, however, if Definitive Securities are issued, the Record Date for such Definitive Securities shall be 15 days (whether or not a Business Day) prior to such Payment Date. Class A-1LR Notes... General. The Co-Issuers expect to issue U.S.$150,000,000 in aggregate principal amount of Class A-1LR Notes to be drawn from time to time as described herein and to be secured by the Collateral pursuant to the Indenture. The Class A-1LR Notes are not expected to be funded on the Closing Date. The commitments (whether or not utilized) of a Holder of Class A-1LR Notes to fund a portion of each such Class A-1LR Borrowing are referred to herein as the "Class A- 1LR Commitments" of such Holder, which amount may be subject to a reduction as a result of the Note Payment Sequence Class A-1 as described herein, or as otherwise provided in the Indenture. The Class A-1LR Notes will be available for draws on a revolving basis during the Revolving Period in an aggregate principal amount at any one time outstanding of up to but not exceeding the Class A-1LR Commitments. The amount permitted to be drawn under the Class A- 1LR Notes at any time will be determined in part by application of the Collateral Quality Matrix as described herein. See "Coverage Tests and Additional Collateral Deposit Requirement General." The Class A-1LR Commitment Fees will accrue on the Class A-1LR Aggregate Undrawn Amount as determined daily for each day during each Periodic Interest Accrual Period during the Revolving Period at an annual rate of 0.17% (the "Class A-1LR Commitment Fee Rate") and will be payable in arrears on each Payment Date in accordance with the Application of Funds. Such commitment fees will be calculated on the basis of a year of 360 days and the actual number of days elapsed. Any Class A-1LR Commitment Fees accrued but not paid on prior Payment Dates shall accrue interest at the Applicable Periodic Rate with respect to the Class A-1LR Notes as determined for each Payment Date. After the Class A-1LR Required Borrowing relating to the termination of the Revolving Period, no other Class A-1LR Borrowings will be permitted and the Class A-1LR Commitments will thereafter equal the funded portion of the Class A-1LR Notes. Interest. The Class A-1LR Notes will provide for the payment of periodic interest ("Periodic Interest" with respect to the Class A-1LR Notes) (to the extent of funds available therefor as described herein) for each Periodic Interest Accrual Period (as defined herein) on the 4

15 drawn balance of the Class A-1LR Notes as determined daily for each day during each Periodic Interest Accrual Period at the rate of 0.26% per annum above the London interbank offered rate for three-month U.S. dollar deposits (or (i) for the period from the Closing Date to the first Payment Date, five-month U.S. dollar deposits or (ii) if a Periodic Interest Accrual Period with respect to the Class A-1LR Notes is less than three months, U.S. dollar deposits for such period of time described under "Certain Additional Provisions Relating to the Securities Determination of LIBOR") ("LIBOR") (determined as described herein) (the "Applicable Periodic Rate" with respect to the Class A-1LR Notes) on January 22, April 22, July 22 and October 22 of each year or, if any such day is not a Business Day, then on the next succeeding Business Day (each such date, a "Payment Date"), commencing on the October 2007 Payment Date. Interest will be calculated on the basis of a year of 360 days and the actual number of days elapsed. Payments of interest to the Class A-1LR Notes and the Class A-1L Notes will be payable pari passu between the Class A- 1LR Notes and the Class A-1L Notes as described herein. Principal. No principal will be payable in respect of the Class A-1LR Notes (and principal collections on the Collateral will be reinvested as described herein) during the Revolving Period, except in the event of a Class A-1LR Prepayment, an Optional Redemption, a Special Redemption (at the option of the Collateral Manager), a redemption made in connection with a Tax Event or a mandatory redemption of the Class A-1LR Notes caused by the failure to meet any of the Coverage Tests or a Rating Confirmation Failure. On any Payment Date on which the Class A-1LR Notes or the Class A-1L Notes receive a payment in respect of any of the foregoing (other than in connection with a Class A-1LR Prepayment), the Class A-1LR Commitments shall be reduced by an amount such that, after giving effect to such reduction in the Class A-1LR Commitments, the ratio of the Class A-1LR Commitments to the Aggregate Principal Amount of the Class A-1L Notes at such time is the same as it was immediately prior to such payment. Any reduction in the Class A-1LR Commitment will be applied to the Class A-1LR Notes pro rata in accordance with each Holder's Class A-1LR Commitment. On each Payment Date following the Revolving Period, the principal of the Class A-1LR Notes will be payable (to the extent of funds available therefor and in the order of priority described herein) until the Aggregate Principal Amount of the Class A-1LR Notes has been paid in full. In addition, all payments of principal on the Class A-1LR Notes that are made in connection with a Special Redemption or a mandatory redemption of the Class A-1LR Notes caused by a failure to meet any of the Coverage Tests or a Rating Confirmation Failure will be paid on a pro rata basis with the Class A-1L Notes as described herein. The Aggregate Principal Amount of the Class A- 1LR Notes, together with the other amounts described herein, will be due and payable at the Stated Maturity. See "Application of Funds," "Certain Additional Provisions Relating to the Securities Optional Redemption Notes," " Special Redemption of Notes If the Collateral Manager Does Not Identify Investments as Contemplated by the Indenture," " Mandatory Redemption of the Notes," " Payment on the Notes" and "Security for the Notes Ramp-Up." 5

16 Class A-1LR Borrowings. Each Holder of Class A-1LR Notes will commit to make advances to the Issuer during the Revolving Period, subject to compliance with the Class A-1LR Borrowing Conditions, upon not fewer than three Business Days notice or as otherwise described herein in an aggregate amount not to exceed such Holder s Class A-1LR Commitments. The Issuer may make Class A-1LR Borrowings from time to time on any Business Day during the Revolving Period, in accordance with the following terms: (i) the Issuer or the Collateral Manager on behalf of the Issuer shall provide notice of each Class A-1LR Borrowing to the Class A-1LR Note Agent at least (a) in the case of a Short Notice Borrowing to be made by a Swingline Holder, one Business Day, (b) in the case of a Short Notice Borrowing to be made by a Holder of Class A-1LR Notes other than a Swingline Holder, two Business Days, and (c) in the case of a Three-day Notice Borrowing, three Business Days, in each case prior to the related Class A-1LR Borrowing Date; (ii) except with respect to a Class A-1LR Required Borrowing, each Class A-1LR Borrowing shall be in a minimum amount of U.S.$1,000,000 from each Holder of Class A-1LR Notes or in an integral multiple of U.S.$200,000 in excess thereof (or the remaining available amount of the Class A-1LR Aggregate Undrawn Amount if such remaining amount is less than U.S.$1,000,000); (iii) each Class A-1LR Borrowing shall be made pro rata from each Holder of Class A-1LR Notes according to the Class A- 1LR Commitments as reflected on the books and records of the Class A-1LR Note Agent; and (iv) each Class A-1LR Borrowing shall be subject to the Class A- 1LR Borrowing Conditions and the applicable terms and conditions of the Class A-1LR Note Purchase Agreement and the Indenture. Each borrowing made under the Class A-1LR Notes is referred to herein as a "Class A-1LR Borrowing" and will be either a Short Notice Borrowing or a Three-day Notice Borrowing. "Short Notice Borrowing" means a Class A-1LR Borrowing with respect to which (a) a Swingline Holder is required to fund its Class A-1LR Advance on one Business Day's notice and (b) any Holder of Class A-1LR Notes other than a Swingline Holder is required to fund its Class A- 1LR Advance on two Business Days' notice. "Three-day Notice Borrowing" means a Class A-1LR Borrowing with respect to which each Holder of Class A-1LR Notes is required to fund its Class A- 1LR Advance on three Business Days' notice. The term "Class A- 1LR Borrowing Date" means each Business Day on which a Class A- 1LR Borrowing is made (including the Class A-1LR Required Borrowing Date); provided, however, that, in the case of any Class A- 1LR Required Borrowing in connection with termination of the Revolving Period specified in clause (iv) of the definition thereof, the Class A-1LR Borrowing Date will be a Business Day specified in the related Class A-1LR Borrowing Request occurring not earlier than three Business Days and not later than five Business Days after the 6

17 last day of the Revolving Period determined pursuant to such clause. It is not a condition to closing that the Issuer borrow any amount under the Class A-1LR Notes on the Closing Date. The interest accrued on the portion of the outstanding principal balance of the Class A-1LR Notes from a Class A-1LR Borrowing made after the end of the Due Period for the relevant Payment Date will not be payable on that Payment Date, but instead will be payable (along with interest thereon) on the next Payment Date in an amount equal to the related Class A-1LR Additional LIBOR Payment. In the case of a Short Notice Borrowing, (i) the Alternate Base Rate will apply on the Class A-1LR Advance made by a Swingline Holder during the period from and including the related Class A-1LR Borrowing Date until but excluding the third Business Day after such Swingline Holder's receipt of such Class A-1LR Borrowing Request; (ii) the amount of any requested Class A-1LR Borrowing for the purpose of funding the unfunded portions of the Revolving Loans or the Delayed Drawdown Loans may be up to, but shall not exceed, the Class A-1LR Undrawn Permitted Amount; and (iii) the Issuer shall endeavor, but is not obligated, to limit the amount of any requested Class A-1LR Borrowing for any other purpose to U.S.$2,000,000. Certain other conditions specified in the Class A-1LR Note Purchase Agreement may apply to a Short Notice Borrowing. The failure of the Issuer to make any Class A-1LR Borrowing for any reason will not constitute an Event of Default as described in clause (f) under "Certain Additional Provisions Relating to the Securities Events of Default" or a related Default. The Issuer shall be entitled to make a Class A-1LR Borrowing (not to exceed the Class A-1LR Undrawn Permitted Amount) to fund (x) unfunded commitment amounts of Revolving Loans and Delayed Drawdown Loans or (y) the purchase of any Collateral Obligation (other than a Revolving Loan or a Delayed Drawdown Loan) with respect to which the Issuer has entered into a commitment but has not settled the purchase. The Class A-1LR Required Borrowing will be required to be made in connection with the termination of the Revolving Period. On the Class A-1LR Required Borrowing Date, the Issuer will make a Class A-1LR Borrowing (such Class A-1LR Borrowing, the "Class A-1LR Required Borrowing") in the amount (not to exceed the Class A-1LR Undrawn Permitted Amount) equal to the sum of: the Collateral Obligation Funding Amount, and the Class A-1 Pro Rata Adjustment Amount. The Class A-1 Pro Rata Adjustment Amount will be applied as Principal Proceeds as described under "Application of Funds Application of Principal Proceeds"; provided that, if an Event of Default described in clause (e) or (g) under "Certain Additional Provisions Relating to the Securities Events of Default" has occurred, then the Holders of the Class A-1LR Notes shall not be required to advance any amounts in respect of the Class A-1LR Required Borrowing. 7

18 Class A-1LR Prepayments. Upon not fewer than three Business Days prior written notice from the Collateral Manager to the Trustee, the Co-Issuers, each Holder of Class A-1LR Notes and the Class A- 1LR Note Agent, principal amounts borrowed under the Class A-1LR Notes may be prepaid, in whole or in part, from Principal Proceeds (such payment, a "Class A-1LR Prepayment"), at the election of the Collateral Manager on any Business Day during the Revolving Period, other than a date from and including a Determination Date through and including the immediately succeeding Payment Date, or, if such Class A-1LR Prepayment occurs on a Payment Date, to the extent available for application as described under clause (3) of "Application of Funds Application of Principal Proceeds." No Class A-1LR Notes may be prepaid unless all Prepayment Costs (and interest thereon) (provided that the applicable Holder of the Class A- 1LR Notes has calculated such Prepayment Costs and given notice thereof as provided in the Class A-1LR Note Purchase Agreement) as of the immediately preceding Payment Date have been paid in full on or before the date of such Class A-1LR Prepayment. If Prepayment Costs are not paid on the relevant Payment Date, then interest on such Prepayment Costs shall accrue at the Applicable Periodic Rate then in effect on the Class A-1LR Notes (compounded on the succeeding Payment Dates), from such relevant Payment Date until such Prepayment Costs are paid in full to the Class A-1LR Holder. With respect to any Class A-1LR Prepayment made during any Periodic Interest Accrual Period in which more than one draw on the Class A- 1LR Notes was made, the Class A-1LR Prepayment shall be made among such drawn Class A-1LR Notes in the priority directed by the Collateral Manager. Class A-1LR Purchaser Rating Criteria. The "Class A-1LR Purchaser Rating Criteria" will be satisfied with respect to any Person as of any specified date if the short-term debt, deposit or similar obligations of such Person are on such date rated at least (x) "P-1" (and if rated "P-1", not on credit watch for possible downgrade) by Moody's and (y) "A-1" by S&P (provided, however, that, if such Person is a conduit purchaser, such Person's obligations under the Class A-1LR Note Purchase Agreement must be supported by a guarantor or liquidity provider which is rated at least "A-1" by S&P). The Class A-1LR Purchaser Rating Criteria will not apply after the Revolving Period. The Class A-1LR Note Purchase Agreement will provide that if any Holder of Class A-1LR Notes fails to satisfy the Class A-1LR Purchaser Rating Criteria, it shall (so long as it continues to satisfy the Moody's Class A-1LR Collateralization Criteria), within the thirty calendar day period (the "Initial Cure Period") following the delivery or receipt of the notice of such failure make all reasonable efforts, in good faith, subject to satisfaction of the Rating Condition with respect to each Rating Agency, to deliver to the Trustee collateral (which collateral will consist of Eligible Collateral (as defined in the Class A- 1LR Note Purchase Agreement) and any such other property as may be agreed by the Rating Agencies and such Holder of Class A-1LR Notes (such collateral, the "Posted Collateral"), pursuant to terms to be agreed by such Holder of Class A-1LR Notes and the Rating Agencies and as further stipulated in the Class A-1LR Note Purchase Agreement, to secure its obligations to the Issuer to fund future draws 8

19 (the "Collateralization Option"); provided that if such Holder of Class A-1LR Notes after making such reasonable efforts determines that it will be unable to effect the Collateralization Option, it may at its option (or it may, at its option, in lieu of effecting the Collateralization Option) (i) have its obligations guaranteed by an entity which satisfies the Class A-1LR Purchaser Rating Criteria (any such entity, a "Guarantor") through a guarantee satisfying the thencurrent guidelines of the Rating Agencies, (ii) enter into a liquidity facility with a financing provider which satisfies the Class A-1LR Purchaser Rating Criteria (any such financing provider, a "Funding Entity") (provided that the Rating Condition with respect to each Rating Agency must be satisfied with respect to any Guarantor and any Funding Entity) or (iii) transfer its Class A-1LR Notes in accordance with the Class A-1LR Note Purchase Agreement. Any action taken pursuant to items (i), (ii) or (iii) hereof, is referred to as a "Noteholder Cure." If a Holder of Class A-1LR Notes does not effect a Collateralization Option and does not effect any other Noteholder Cure, or if such Holder of Class A-1LR Notes otherwise fails to satisfy the Moody's Class A-1LR Collateralization Criteria, such Holder of Class A-1LR Notes will, by no later than the second Business Day after the end of the Initial Cure Period or the date on which it fails to satisfy the Moody's Class A-1LR Collateralization Criteria, make a Downgrade Advance. As used herein, the "Moody's Class A-1LR Collateralization Criteria" will be satisfied with respect to any Person as of any specified date if the short-term debt, deposit or similar obligations of such Person are on such date rated at least "P-2" and if rated "P-2" are not on credit watch for possible downgrade by Moody's. See "Certain Additional Provisions Relating to the Securities Class A-1LR Purchaser Rating Criteria." Class A-1L Notes... General. The Co-Issuers expect to issue approximately U.S.$482,000,000 in aggregate principal amount of Class A-1L Notes to be secured by the Collateral pursuant to the Indenture. Interest. The Class A-1L Notes will provide for the payment of Periodic Interest (to the extent of funds available therefor as described herein) for each Periodic Interest Accrual Period at the rate of 0.23% per annum above three-month LIBOR (or, for the period from the Closing Date to the first Payment Date, five-month LIBOR) (the "Applicable Periodic Rate" with respect to the Class A-1L Notes) on each Payment Date, commencing on the October 2007 Payment Date. Interest will be calculated on the basis of a year of 360 days and the actual number of days elapsed. Payments of interest to the Class A- 1L Notes and the Class A-1LR Notes will be payable pari passu among the Class A-1L Notes and the Class A-1LR Notes as described herein. Principal. No principal will be payable in respect of the Class A-1L Notes (and principal collections on the Collateral will be reinvested as described herein) during the Revolving Period, except in the event of an Optional Redemption, a Special Redemption (at the option of the Collateral Manager), a redemption made in connection with a Tax Event or a mandatory redemption of the Class A-1L Notes caused by the failure to meet any of the Coverage Tests or a Rating 9

20 Confirmation Failure. On each Payment Date following the Revolving Period, the principal of the Class A-1L Notes will be payable (to the extent of funds available therefor and in the order of priority described herein) until the Aggregate Principal Amount of the Class A-1L Notes has been paid in full. In addition, all payments of principal on the Class A-1L Notes that are made in connection with a Special Redemption or a mandatory redemption of the Class A-1L Notes caused by a failure to meet any of the Coverage Tests or a Rating Confirmation Failure will be paid on a pro rata basis with the Class A-1LR Notes as described herein. The Aggregate Principal Amount of the Class A-1L Notes, together with the other amounts described herein, will be due and payable at the Stated Maturity. See "Application of Funds," "Certain Additional Provisions Relating to the Securities Optional Redemption Notes," " Special Redemption of Notes If the Collateral Manager Does Not Identify Investments as Contemplated by the Indenture," " Mandatory Redemption of the Notes," " Payment on the Notes" and "Security for the Notes Ramp-Up." Class A-2L Notes... General. The Co-Issuers expect to issue approximately U.S.$42,000,000 in aggregate principal amount of Class A-2L Notes to be secured by the Collateral pursuant to the Indenture. Interest. No interest will be payable in respect of the Class A-2L Notes on any Payment Date unless the Holders of the Class A-1 Notes have been paid the Cumulative Interest Amount due to them on such Payment Date. The Class A-2L Notes will provide for the payment of Periodic Interest (to the extent of funds available therefor as described herein) for each Periodic Interest Accrual Period at the rate of 0.43% per annum above three-month LIBOR (or, for the period from the Closing Date to the first Payment Date, five-month LIBOR) (the "Applicable Periodic Rate" with respect to the Class A-2L Notes) on each Payment Date, commencing on the October 2007 Payment Date. Interest will be calculated on the basis of a year of 360 days and the actual number of days elapsed. Principal. No principal will be payable in respect of the Class A-2L Notes (and principal collections on the Collateral will be reinvested as described herein) during the Revolving Period, except in the event of an Optional Redemption, a Special Redemption (at the option of the Collateral Manager), a redemption made in connection with a Tax Event or a mandatory redemption of the Class A-2L Notes caused by the failure to meet any of the Coverage Tests or a Rating Confirmation Failure. Following the Revolving Period, on each Payment Date after which the Class A-1 Notes are paid in full, the principal of the Class A-2L Notes will be payable (to the extent of funds available therefor and in the order of priority described herein) until the Aggregate Principal Amount of the Class A-2L Notes has been paid in full. The Aggregate Principal Amount of the Class A-2L Notes, together with the other amounts described herein, will be due and payable at the Stated Maturity. The Class A-2L Notes are subordinated in right of payment to the Class A-1 Notes to the extent described herein. 10

21 See "Application of Funds," "Certain Additional Provisions Relating to the Securities Optional Redemption Notes," " Special Redemption of Notes If the Collateral Manager Does Not Identify Investments as Contemplated by the Indenture," " Mandatory Redemption of the Notes," " Payment on the Notes" and "Security for the Notes Ramp-Up." Class A-3L Notes... General. The Co-Issuers expect to issue approximately U.S.$41,000,000 in aggregate principal amount of Class A-3L Notes to be secured by the Collateral pursuant to the Indenture. Interest. No interest will be payable in respect of the Class A-3L Notes on any Payment Date unless the Holders of the Senior Class A Notes have been paid the Cumulative Interest Amount due to them on such Payment Date and the Overcollateralization Test with respect to the Senior Class A Notes has been satisfied. The Class A-3L Notes will provide for the payment of Periodic Interest (to the extent of funds available therefor as described herein) for each Periodic Interest Accrual Period at the rate of 0.75% per annum above three-month LIBOR (or, in the case of the period from the Closing Date to the January 2008 Payment Date, eight-month LIBOR) (the "Applicable Periodic Rate" with respect to the Class A- 3L Notes) on each Payment Date, commencing on the January 2008 Payment Date; provided that, solely to the extent funds are available for the payment in full of such amounts in accordance with the priority of payments described herein, the Class A-3L Notes will be entitled to receive, on the October 2007 Payment Date, Periodic Interest accrued with respect to the related Periodic Interest Accrual Period, and such Periodic Interest will be calculated for the period from the Closing Date to such Payment Date based on five-month LIBOR. Interest will be calculated on the basis of a year of 360 days and the actual number of days elapsed. Principal. No principal will be payable in respect of the Class A-3L Notes (and principal collections on the Collateral will be reinvested as described herein) during the Revolving Period, except in the event of an Optional Redemption, a Special Redemption (at the option of the Collateral Manager), a redemption made in connection with a Tax Event or a mandatory redemption of the Class A-3L Notes caused by the failure to meet any of the Coverage Tests or a Rating Confirmation Failure. Following the Revolving Period, on each Payment Date after which the Class A-2L Notes have been paid in full, the principal of the Class A-3L Notes will be payable (to the extent of funds available therefor and in the order of priority described herein) until the Aggregate Principal Amount of the Class A-3L Notes has been paid in full. The Aggregate Principal Amount of the Class A-3L Notes, together with the other amounts described herein, will be due and payable at the Stated Maturity. The Class A- 3L Notes are subordinated in right of payment to the Senior Class A Notes to the extent described herein. See "Application of Funds," "Certain Additional Provisions Relating to the Securities Optional Redemption Notes," " Special Redemption of Notes If the Collateral Manager Does Not Identify 11

22 12 Investments as Contemplated by the Indenture," " Mandatory Redemption of the Notes," " Payment on the Notes" and "Security for the Notes Ramp-Up." Class B-1L Notes... General. The Co-Issuers expect to issue approximately U.S.$22,500,000 in aggregate principal amount of Class B-1L Notes to be secured by the Collateral pursuant to the Indenture. Interest. No interest will be payable in respect of the Class B-1L Notes on any Payment Date unless the Holders of the Class A Notes have been paid the Cumulative Interest Amount due to them on such Payment Date, and the Overcollateralization Tests with respect to the Senior Class A Notes and the Class A Notes and the Interest Coverage Test have been satisfied. The Class B-1L Notes will provide for the payment of Periodic Interest (to the extent of funds available therefor as described herein) for each Periodic Interest Accrual Period at the rate of 1.75% per annum above three-month LIBOR (or, in the case of the period from the Closing Date to the January 2008 Payment Date, eight-month LIBOR) (the "Applicable Periodic Rate" with respect to the Class B- 1L Notes) on each Payment Date, commencing on the January 2008 Payment Date; provided that, solely to the extent funds are available for the payment in full of such amounts in accordance with the priority of payments described herein, the Class B-1L Notes will be entitled to receive, on the October 2007 Payment Date, Periodic Interest accrued with respect to the related Periodic Interest Accrual Period, and such Periodic Interest will be calculated for the period from the Closing Date to such Payment Date based on five-month LIBOR. The failure to pay in full Periodic Interest on the Class B-1L Notes as a result of insufficient funds being available therefor will not constitute an Event of Default so long as any Class A Notes are Outstanding. Any shortfall in the payment of Periodic Interest to the Class B-1L Notes on any Payment Date will be payable, together with interest thereon at the Applicable Periodic Rate, on one or more subsequent Payment Dates (to the extent that funds are available therefor and subject to the priority of distribution provisions described herein). Interest will be calculated on the basis of a year of 360 days and the actual number of days elapsed. Principal. No principal will be payable in respect of the Class B-1L Notes (and principal collections on the Collateral will be reinvested as described herein) during the Revolving Period, except in the event of an Optional Redemption, a Special Redemption (at the option of the Collateral Manager), a redemption made in connection with a Tax Event or a mandatory redemption of the Class B-1L Notes caused by the failure to meet any of the Coverage Tests or a Rating Confirmation Failure. Following the Revolving Period, on each Payment Date after which the Class A Notes have been paid in full, the principal of the Class B-1L Notes will be payable (to the extent of funds available therefor and in the order of priority described herein) until the Aggregate Principal Amount of the Class B-1L Notes has been paid in full. The Aggregate Principal Amount of the Class B-1L Notes, together with the other amounts described herein, will be due and payable at the Stated Maturity. The Class B-1L Notes are subordinated in right of payment to the Class A Notes to the extent described herein.

23 See "Application of Funds," "Certain Additional Provisions Relating to the Securities Optional Redemption Notes," " Special Redemption of Notes If the Collateral Manager Does Not Identify Investments as Contemplated by the Indenture," " Mandatory Redemption of the Notes," " Payment on the Notes" and "Security for the Notes Ramp-Up." Class B-2L Notes... General. The Issuer expects to issue approximately U.S.$18,000,000 in aggregate principal amount of Class B-2L Notes to be secured by the Collateral pursuant to the Indenture. Interest. No interest will be payable in respect of the Class B-2L Notes on any Payment Date unless the Holders of the Class A Notes have been paid the Cumulative Interest Amount due to them on such Payment Date, the Overcollateralization Tests with respect to the Senior Class A Notes, the Class A Notes and the Class B-1L Notes and the Interest Coverage Test have been satisfied, and the Holders of the Class B-1L Notes have been paid the Periodic Interest Amount (or, following the Revolving Period, after the Class A Notes have been paid in full, the Cumulative Interest Amount). The Class B-2L Notes will provide for the payment of Periodic Interest (to the extent of funds available therefor as described herein) for each Periodic Interest Accrual Period (as defined herein) at the rate of 4.25% per annum above three-month LIBOR (or, in the case of the period from the Closing Date to the January 2008 Payment Date, eight-month LIBOR) (the "Applicable Periodic Rate" with respect to the Class B-2L Notes) on each Payment Date, commencing on the January 2008 Payment Date; provided that, solely to the extent funds are available for the payment in full of such amounts in accordance with the priority of payments described herein, the Class B-2L Notes will be entitled to receive, on the October 2007 Payment Date, Periodic Interest accrued with respect to the related Periodic Interest Accrual Period, and such Periodic Interest will be calculated for the period from the Closing Date to such Payment Date based on fivemonth LIBOR. The failure to pay in full Periodic Interest on the Class B-2L Notes as a result of insufficient funds being available therefor will not constitute an Event of Default so long as the Class A Notes or the Class B-1L Notes are Outstanding. Any shortfall in the payment of Periodic Interest to the Class B-2L Notes on any Payment Date will be payable, together with interest thereon at the Applicable Periodic Rate, on one or more subsequent Payment Dates (to the extent funds are available therefor and subject to the priority of distribution provisions described herein). Interest will be calculated on the basis of a year of 360 days and the actual number of days elapsed. Principal. No principal will be payable in respect of the Class B-2L Notes (and principal collections on the Collateral will be reinvested as described herein) during the Revolving Period, except in the event of an Optional Redemption, a Special Redemption (at the option of the Collateral Manager), a redemption made in connection with a Tax Event or a mandatory redemption of the Class B-2L Notes caused by the failure to meet any of the Coverage Tests or a Rating Confirmation Failure. Following the Revolving Period, on each 13

24 14 Payment Date after which the Class B-1L Notes have been paid in full, the principal of the Class B-2L Notes will be payable (to the extent of funds available therefor and in the order of priority described herein) until the Aggregate Principal Amount of the Class B-2L Notes has been paid in full. The Aggregate Principal Amount of the Class B-2L Notes, together with the other amounts described herein, will be due and payable at the Stated Maturity. The Class B- 2L Notes are subordinated in right of payment to the Class A Notes and the Class B-1L Notes to the extent described herein. See "Application of Funds," "Certain Additional Provisions Relating to the Securities Optional Redemption Notes," " Special Redemption of Notes If the Collateral Manager Does Not Identify Investments as Contemplated by the Indenture," " Mandatory Redemption of the Notes," " Payment on the Notes" and "Security for the Notes Ramp-Up." Income Notes... General. On the Closing Date, the Issuer will also issue U.S.$57,350,000 notional amount of Income Notes. The Income Notes will not be secured by the Collateral pursuant to the Indenture. Payments on the Income Notes, as among the Holders thereof, will be made on a pro rata basis according to the proportion that the notional amount of the Income Notes registered in the name of each Holder bears to the notional amount of all Income Notes. Payments on the Income Notes will not be payable at a stated rate but instead as described under "Application of Funds." Payments on the Income Notes will be paid solely from and to the extent of the available proceeds from the distributions on the Collateral which is the only source of such distributions in respect of the Income Notes. Application of Funds... On each Payment Date and at the Stated Maturity, Interest Proceeds and Principal Proceeds, to the extent of available funds in the Collection Account, will be applied in the manner and order of priority set forth herein under "Application of Funds" and "Certain Additional Provisions Relating to the Securities Class A-1LR Prepayments." Coverage Tests and Additional Collateral Deposit Requirement... General. The "Coverage Tests" will consist of each of the Overcollateralization Tests and the Interest Coverage Test. In addition to the Coverage Tests, the Additional Collateral Deposit Requirement will apply as described herein. See "Coverage Tests and Additional Collateral Deposit Requirement The Overcollateralization Tests" and " The Interest Coverage Test" for the formulations of these tests. The ratios on which they are based are also described under such headings. The tests will be used to determine, among other things, (i) whether Notes will be redeemed in certain circumstances as described under "Certain Additional Provisions Relating to the Securities" and (ii) in the case of the Additional Collateral Deposit Requirement, whether additional Collateral Obligations may be acquired by the Issuer as described under "Application of Funds" and "Security for the Notes." The Overcollateralization Tests. The Overcollateralization Tests will consist of the Senior Class A Overcollateralization Test, the Class A Overcollateralization Test, the Class B-1L Overcollateralization Test,

25 and the Class B-2L Overcollateralization Test. Each Overcollateralization Test will be satisfied with respect to any Class of Notes on any Measurement Date if, as of any such Measurement Date, the Overcollateralization Ratio for the Class is at least equal to the specified Required Level for such Class described under "Coverage Tests and Additional Collateral Deposit Requirement General." The Required Level for each Class on any Measurement Date will vary based on the Class A-1LR Permitted Amount. The Interest Coverage Test. The Interest Coverage Test will be applicable on and after the third Payment Date and will be satisfied if, as of such date and as of any Measurement Date thereafter on which any Class A Notes remain outstanding, the Interest Coverage Ratio equals or exceeds 110%. Additional Collateral Deposit Requirement. A test that will be satisfied if, on each Payment Date following the second Payment Date, the Additional Collateral Deposit Requirement is satisfied as described under "Coverage Tests and Additional Collateral Deposit Requirement General." Such percentage will vary based on the Class A-1LR Permitted Amount. The Trustee... Deutsche Bank Trust Company Americas, as trustee (in that capacity, the "Trustee") under the Indenture, maintains its corporate trust offices at 1761 East St. Andrew Place, Santa Ana, CA Notes may be surrendered for payment or for transfer or exchange at DB Services Tennessee, 648 Grassmere Park Road, Nashville, Tennessee , Attention: Transfer Unit. In addition, Deutsche Bank Trust Company Americas will be the Income Note transfer agent and the Income Note registrar and maintain the Income Note register. The Fiscal Agent... Deutsche Bank AG, London Branch, as fiscal agent with respect to the Income Notes (in that capacity, the "Fiscal Agent") under the Fiscal Agency Agreement, maintains its principal offices at Winchester House, 1 Great Winchester Street, London, EC2N 2DB. Independent Accountants... KPMG, or any successor accounting firm selected pursuant to the Indenture, will periodically perform certain procedures with respect to the Collateral and the compliance with the Overcollateralization Tests and the Interest Coverage Test as required by the Indenture. Security for the Notes... The Notes (other than the Class B-2L Notes) will be non-recourse debt obligations of the Co-Issuers and the Class B-2L Notes will be non-recourse debt obligations of the Issuer. The Notes will be secured solely by a pledge of the Collateral by the Issuer to the Trustee pursuant to the Indenture as security for its obligations with respect to the Notes, any Hedge Agreements and the Management Agreement. See "Security for the Notes General." The Income Notes will not be secured obligations of the Issuer. The account maintained by the Issuer for deposit of share capital and certain fees will be excluded from the Collateral securing the Notes and the other Secured Obligations. In the event of any realization on the Collateral, proceeds will be allocated to the Notes in order of seniority and to certain other liabilities of the Co-Issuers in 15

26 accordance with the Application of Funds before making any payments or a final redemption payment on the Income Notes. See "Application of Funds." The Collateral Obligations will consist of Loans and certain other eligible assets, the acquisition of which, in each case, satisfies the criteria under "Security for the Notes Eligibility Criteria." The Collateral Obligations are more fully described under "Security for the Notes Collateral Obligations." Collateral Ramp-Up Period... The Issuer expects that, as of the Closing Date, it will have purchased (or entered into commitments to purchase) at least U.S.$543,750,000 in Aggregate Principal Balance of the Collateral Obligations to be included in the anticipated portfolio as of the Ramp-Up Completion Date. The "Ramp-Up Completion Date" is the earlier of (i) the Business Day after the 270th day after the Closing Date and (ii) the first date on which the Aggregate Principal Balance of the Collateral Obligations purchased (or committed to be purchased) by the Issuer with proceeds from the sale of the Securities (in each case, measured solely as of the date of purchase or commitment, as the case may be) equals at least the sum of U.S.$650,000,000 plus the drawn amount of the Class A-1LR Notes. See "Security for the Notes Ramp-Up." Revolving Period; Reinvestment in Collateral Obligations... During the Revolving Period and so long as the Revolving Period has not been terminated, the Issuer may generally (and subject to certain requirements) reinvest Principal Proceeds received with respect to the Collateral in additional or substitute Collateral Obligations in compliance with the Eligibility Criteria. The Issuer may likewise reinvest Interest Proceeds representing the portion of the purchase price of any Collateral Obligation that is allocable to accrued interest purchased with principal, provided that certain conditions relating to the Coverage Tests are satisfied. After the Revolving Period, the Issuer may generally (and subject to certain requirements) reinvest Sale Proceeds received with respect to Credit Improved Obligations and unscheduled prepayments of principal received with respect to the Collateral Obligations. See "Application of Funds," "Certain Additional Provisions Relating to the Securities The Accounts," "Security for the Notes Eligibility Criteria" and "Security for the Notes Purchase of Collateral Obligations After the Revolving Period." Mandatory Redemption of the Notes for Failure to Satisfy Coverage Tests... If the Senior Class A Overcollateralization Test is not satisfied on the last day of any Due Period (each, a "Determination Date"), available funds will be deposited in the Revolving Reserve Account (except to the extent Revolving Loans are permitted under the Indenture to be funded from draws on the Class A-1LR Notes), the Delayed Drawdown Reserve Account (except to the extent Delayed Drawdown Loans are permitted under the Indenture to be funded from draws on the Class A-1LR Notes) and/or used to redeem the Senior Class A Notes, in each case to the extent necessary for the Senior Class A 16

27 Overcollateralization Test to be satisfied, as applied pursuant to the Note Payment Sequence Class A-1 and to the Class A-2L Notes. Such funds would otherwise be available for use to purchase additional Collateral Obligations during the Revolving Period or to make interest and principal payments on the Class A- 3L Notes and the Class B Notes and, if available, to make payments on the Income Notes. If either the Class A Overcollateralization Test or the Interest Coverage Test is not satisfied on any Determination Date, funds will be used to redeem the Class A-1 Notes pursuant to the Note Payment Sequence Class A-1, then to redeem the Class A-2L Notes and then to redeem the Class A-3L Notes, in each case to the extent necessary for the Class A Overcollateralization Test or the Interest Coverage Test, as applicable, to be satisfied that would otherwise be available for use to purchase additional Collateral Obligations during the Revolving Period or to make interest and principal payments on the Class B Notes and, if available, and to make payments on the Income Notes. If the Class B-1L Overcollateralization Test is not satisfied on any Determination Date, funds will be used to redeem the Class A-1 Notes pursuant to the Note Payment Sequence Class A-1, then to redeem the Class A-2L Notes, then to redeem the Class A-3L Notes and then will be used to redeem the Class B-1L Notes, in each case to the extent necessary for the Class B-1L Overcollateralization Test to be satisfied that would otherwise be available for use to purchase additional Collateral Obligations during the Revolving Period or to make interest and principal payments on the Class B- 2L Notes and, if available, and to make payments on the Income Notes. If the Class B-2L Overcollateralization Test is not satisfied on any Determination Date, funds will be used to redeem the Class A-1 Notes pursuant to the Note Payment Sequence Class A-1, then to redeem the Class A-2L Notes, then to redeem the Class A-3L Notes, then to redeem the Class B-1L Notes and then will be used to redeem the Class B-2L Notes, in each case to the extent necessary for the Class B-2L Overcollateralization Test to be satisfied that would otherwise be available for use to purchase additional Collateral Obligations during the Revolving Period or if available, to make payments on the Income Notes. 17

28 See "Certain Additional Provisions Relating to the Securities Mandatory Redemption of the Notes Mandatory Redemption of the Notes for Failure to Satisfy Coverage Tests." Certain Consequences of Failure to Satisfy the Additional Collateral Deposit Requirement... As described under "Coverage Tests and Additional Collateral Deposit Requirement," even if the Overcollateralization Tests and the Interest Coverage Test are satisfied, on each Payment Date after the second Payment Date, Interest Proceeds that would otherwise be used for payments that are junior in right of payment to the Additional Collateral Deposit Requirement as described under "Application of Funds Application of Interest Proceeds", will be used to purchase additional Collateral or to pay principal of the Notes in the amount of the Additional Collateral Deposit Requirement, in each case as described herein. Mandatory Redemption of the Notes Upon Rating Confirmation Failure... The Issuer will request, within five Business Days after the Ramp-Up Completion Date, that: (i) S&P confirm in writing, by the Business Day after the 34th day after the Ramp-Up Completion Date, that it has not reduced, suspended or withdrawn the ratings initially assigned to any of the Notes and that it has not placed any Class of Notes on credit watch with negative implications, or (ii) the Collateral Manager (on behalf of the Issuer) obtain an accountant s certificate confirming that, among other things, as of the Ramp-Up Completion Date, the Coverage Tests are met; the Aggregate Principal Balance of Collateral Obligations that the Issuer purchased or committed to purchase as of the Ramp-Up Completion Date (without giving effect to any reductions of that amount that may have resulted from scheduled principal payments, principal prepayments or dispositions made with respect to any Collateral Obligations on or before the Ramp-Up Completion Date) is at least equal to U.S.$650,000,000 plus the drawn amount of the Class A-1LR Notes; and the Collateral Obligations comply with all of the requirements of the Collateral Quality Tests and the Concentration Limitations described herein. Upon receipt, the Issuer shall deliver the accountant s certificate to the Trustee and the Rating Agencies. If no such accountant s certificate is obtained, the Issuer or the Collateral Manager (on behalf of the Issuer) will request that Moody s and S&P each confirm in writing, by the Business Day after the 34th day after the Ramp-Up Completion Date, that it has not reduced, suspended or withdrawn the ratings initially assigned to any of the Notes and that it has not placed any Class of Notes on credit watch with negative implications. 18

29 If the Trustee does not receive, in each case before the Payment Date following the 34-day period, either: from S&P, evidence of the written confirmation of the matters described in clause (i) above, or an accountant s certificate confirming satisfaction of the matters described in clause (ii) above (or, if no such accountant s certificate is obtained, from Moody s and S&P evidence of written confirmation of the matters described in the preceding paragraph), (either such event, a "Rating Confirmation Failure"), all Interest Proceeds remaining after payment of amounts referred to in clauses (1) and (3) through (14) of "Application of Funds Application of Interest Proceeds" will be used to pay the Notes in the Note Payment Sequence on the next Payment Date and each Payment Date thereafter until the original ratings are confirmed. If necessary, after the foregoing payments are made out of Interest Proceeds on any Payment Date, Principal Proceeds available after application in accordance with clause (1) of "Application of Funds Application of Principal Proceeds" will be used to pay each Class of the Notes in the Note Payment Sequence on such Payment Date until the original ratings are confirmed. See "Certain Additional Provisions Relating to the Securities Mandatory Redemption of the Notes Mandatory Redemption of the Notes Upon Rating Confirmation Failure." Optional Redemption... Upon the occurrence of a Tax Event or at any time after the Payment Date in July 2011, the Holders of a Majority of the Income Notes may require the Issuer or Co-Issuers, as applicable, to redeem the Notes, in whole but not in part, and all or a portion of the Income Notes from Principal Proceeds and all other funds available for that purpose in the Collection Account, the Payment Account, the Revolving Reserve Account, and the Delayed Drawdown Reserve Account in accordance with the redemption procedures described under "Certain Additional Provisions Relating to the Securities Optional Redemption." Notes to be redeemed shall, on the Redemption Date, become payable at their Redemption Price. From and after their respective Redemption Dates, the redeemed Notes will cease to bear interest and the Income Notes will not be entitled to any payments. The redemption price payable in connection with the Optional Redemption of any Class of Notes will be the sum of the outstanding principal amount of the redeemed portion of the Note on the Redemption Date, plus its accrued interest. The redemption price payable in connection with the Optional Redemption of the Income Notes will be the entire remaining amount of available funds after all prior applications as described under "Certain Additional Provisions Relating to the Securities Optional Redemption." Notwithstanding the foregoing, the proceeds from the sale of any Collateral Obligations remaining in the Trust Estate following an Optional Redemption of a directed portion (representing less than all) of the Income Notes shall be applied to pay the 19

30 redemption price of any Income Notes that remain outstanding after such Optional Redemption. See "Certain Additional Provisions Relating to the Securities Optional Redemption." Special Redemption... Notes will be redeemed, in whole or in part, by the Issuer or the Co- Issuer, as applicable, on any Payment Date during the Revolving Period if the Collateral Manager has been unable, for at least 90 consecutive Business Days, to identify appropriate Collateral Obligations in sufficient amounts that meet the Eligibility Criteria to permit the investment of all or a portion of the funds then deposited in the Collection Account and the Collateral Manager elects, in its sole discretion, to designate all or a portion of those funds as a Special Redemption Amount by notification to the Trustee and each Rating Agency, subject to certain conditions to a Special Redemption. See "Certain Additional Provisions Relating to the Securities Special Redemption of Notes If the Collateral Manager Does Not Identify Investments as contemplated by the Indenture." Collateral Manager... DC Funding Partners LLC, a Delaware limited liability company ("DC Funding" or the "Collateral Manager") will perform certain advisory and administrative functions with respect to the Collateral for the Issuer as collateral manager. U.S.$4,175,000 in notional amount of the Income Notes are expected to be held initially by DC Funding, its Affiliates and certain employees of Denali who are Knowledgeable Employees with respect to the Issuer. See "The Collateral Manager" and "The Management Agreement." The Collateral Manager will be entitled to compensation as described in "The Management Agreement Compensation." The Administrator... Maples Finance Limited (the "Administrator") will act as administrator for the Issuer in the Cayman Islands and will perform certain administrative and related services for the Issuer. The Administrator maintains its offices at P.O. Box 1093GT, Boundary Hall, Cricket Square, George Town, Grand Cayman, Cayman Islands. Option to Acquire Credit Enhancement... The Indenture will provide that Holders of any Class of Notes may elect to acquire bond insurance, a surety bond or similar credit enhancement supporting the payment of principal and/or interest on such Class of Notes, on terms and conditions acceptable to such Holders. Any Class of Notes subject to such enhancement will be designated as insured Notes of such Class. Premiums and other expenses for any such enhancement will be payable from amounts otherwise payable to such Class of insured Notes or in such other manner chosen by such Holder, but in no event shall such amounts be paid by the Issuer. Any insured Notes of a Class for substantially all other purposes will be treated as Notes of such Class, except that the issuer of the bond insurance policy, surety bond or other such credit enhancement will generally be deemed to be the Holder of the insured Notes of such Class enhanced by such entity and will in such capacity be entitled to exercise the rights otherwise exercisable by Holders of such insured Notes. Certain U.S. Federal Income Tax Considerations...See "Certain Tax Considerations United States Tax Considerations" herein. 20

31 Certain ERISA Considerations... Fiduciaries and other persons investing "plan assets" of employee benefit or other plans subject to Title I of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code") (each, a "Plan"), should consider the fiduciary investment standards and prohibited transaction rules of ERISA and Section 4975 of the Code before authorizing an investment of "plan assets" of any Plan in the Notes. Each person purchasing a Class A Note will be deemed to have made certain representations regarding the prohibited transaction rules of ERISA and Section 4975 of the Code. The Class B-1L Notes may not be sold or transferred to any Plan, or to any person acting on behalf of or with "plan assets" of any Plan, including an insurance company general account, unless the purchaser or transferee is eligible for the exemptive relief available under any of Section 408(b)(17) of ERISA or PTCE 96-23, 95-60, 91-38, 90-1 or Neither the Class B-2L Notes nor the Income Notes may be sold or transferred to any Plan, or to any person acting on behalf of or with "plan assets" of any Plan, or to any other "benefit plan investor" (as defined in Section 3(42) of ERISA) (a "Benefit Plan Investor"), including an insurance company general account, except in accordance with the restrictions set forth herein. See "Certain ERISA Considerations." Legal Investment... Institutions whose investment activities are subject to legal investment laws and regulations or to review by certain regulatory authorities may be subject to conditions on investment in the Securities. See "Certain Legal Investment Considerations." Rating of the Notes... It is a condition to the issuance of the Notes that each Class of the Class A-1 Notes be rated "AAA" by Standard & Poor s Ratings Services ("S&P") and "Aaa" by Moody s Investors Service, Inc. ("Moody s"), that the Class A-2L Notes be rated at least "AA" by S&P and at least "Aa2" by Moody s, that the Class A-3L Notes be rated at least "A" by S&P and at least "A2" by Moody s, that the Class B-1L Notes be rated at least "BBB" by S&P and at least "Baa2" by Moody s and that the Class B-2L Notes be rated at least "BB" by S&P and at least "Ba2" by Moody s. Each of S&P and Moody s is sometimes referred to herein as a "Rating Agency." No rating of the Income Notes has been sought or obtained in connection with the issuance thereof. The ratings of the Notes by S&P address solely the likelihood of timely payment of the Periodic Interest Amount on and the ultimate payment of the Aggregate Principal Amount of each Class of Class A-1 Notes and the Class A-2L Notes and the ultimate payment of the Cumulative Interest Amount and the Aggregate Principal Amount of the Class A-3L Notes, the Class B-1L Notes and the Class B-2L Notes. The ratings of the Notes by Moody s address the ultimate cash receipt of all required payments as provided by the governing documents, and are based on the expected loss to the Noteholders of each Class relative to the promise of receiving the present value of such payments. A rating is not a recommendation to purchase, hold or sell securities, inasmuch as such rating does not comment as to market price or suitability for a particular investor and may be 21

32 subject to revision or withdrawal at any time by the assigning rating organization. Security ratings are subject to revision or withdrawal at any time by the assigning Rating Agency. In the event that any rating initially assigned to the Notes is subsequently lowered for any reason, no person or entity is obligated to provide any additional support or credit enhancement with respect to the Notes, nor will any other remedies be available to Noteholders. The Issuer has not requested a rating on the Notes by any rating agencies other than S&P and Moody s, although data with respect to the Collateral may have been provided to other rating agencies solely for informational purposes. There can be no assurance that, if a rating is assigned to the Notes by any other rating agency, such rating will be as high as that assigned by the applicable Rating Agencies. Listing... Application has been made to the Irish Stock Exchange for the Notes (other than the Class A-1LR Notes) to be admitted to the Official List and trading on its regulated market. Such approval relates only to the 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 93/22/EEC or which are to be offered to the public in any Member State of the European Economic Area. Application has been made to the Irish Stock Exchange for the listing particulars to be approved. Application has been made to the Irish Stock Exchange for the Income Notes to be admitted to listing and trading on its Alternative Securities Market, which is not a regulated market (as defined by Article 1(13) of Directive 93/22/EEC). 22

33 RISK FACTORS General; Priorities of Notes The Issuer intends to invest in securities and other financial assets with certain risk characteristics as provided in the Indenture and the Management Agreement. See "Security for the Notes." There can be no assurance that the Issuer s investments will be successful, that its investment objectives will be achieved, that investors will receive their initial investments under the Notes or that they will receive any return (or avoid any loss, including total loss) on their investment in the Notes. Prospective investors are therefore advised to review this entire Offering Circular carefully and should consider, among other things, the following factors (along with, among other things, the inherent risks of investment activities) before deciding whether to invest in the Notes. Except as is otherwise stated below, the factors are generally applicable to all the Notes, although the degree of risk associated with each Class of Notes may vary. In particular, the priorities of payment of the Notes are generally in the order of their alphabetic or numerical designation from Class A-1 (the highest priority) to Class B- 2L (the lowest) and the priorities of payment of the Notes are generally higher than priorities of payment of the Income Notes. Relating to the Securities 23 The Securities Will Have Limited Liquidity There is currently no market for the Securities. Although the Initial Purchaser may from time to time make a market in the Securities, the Initial Purchaser is under no obligation to do so. If the Initial Purchaser commences any market-making, it may discontinue the same at any time. There can be no assurance that a secondary market for any Securities will develop, or if a secondary market does develop, that it will provide the Holders of the Securities with liquidity of investment or that it will continue for the life of the Securities. In addition, the Securities are subject to certain transfer restrictions and can only be transferred to certain transferees as described under "Transfer Restrictions." The restrictions on the transfer of Securities may further limit their liquidity. Consequently, an investor in the Securities must be prepared to hold the Securities for an indefinite period or until their Stated Maturity. The Class A-1LR Notes are also subject to additional transfer restrictions during the Revolving Period as described under "Summary of Terms Terms of the Class A-1LR Borrowings." The Subordination of the Class A-2L Notes, the Class A-3L Notes, the Class B-1L Notes, the Class B-2L Notes and the Income Notes Will Affect Their Right to Payment in Relation to the More Senior Notes The Class A-2L Notes are subordinated in right of payment of interest and principal to the Class A-1 Notes and certain other amounts in the manner and to the extent described in this Offering Circular. Payments of interest on the Class A-2L Notes will not be made until due and unpaid interest on the Class A-1 Notes and certain other amounts (including certain management fees payable to the Collateral Manager and any successor Collateral Manager, and certain hedging termination payments and certain administrative fees) have been paid. No payments of principal of the Class A-2L Notes will be made until principal of and due and unpaid interest on the Class A-1 Notes and certain other amounts have been paid in full. The Class A-3L Notes are subordinated in right of payment of interest and principal to the Senior Class A Notes and certain other amounts in the manner and to the extent described in this Offering Circular. Payments of interest on the Class A-3L Notes will not be made until due and unpaid interest on the Senior Class A Notes and certain other amounts (including certain management fees payable to the Collateral Manager and any successor Collateral Manager, and certain hedging termination payments and certain administrative fees) have been paid. No payments of principal of the Class A-3L Notes will be made until principal of and due and unpaid interest on the Senior Class A Notes and certain other amounts have been paid in full. The Class B-1L Notes are subordinated in right of payment of interest and principal to the Class A Notes in the manner and to the extent described in this Offering Circular. Payments of interest on the Class B-1L Notes will not be made until due and unpaid interest on the Class A Notes, and certain other amounts (including certain management fees payable to the Collateral Manager and any successor Collateral Manager, and certain hedging

34 termination payments and certain administrative fees) have been paid. No payments of principal of the Class B-1L Notes will be made until principal of and due and unpaid interest on the Class A Notes and certain other amounts have been paid in full. The Class B-2L Notes are subordinated in right of payment of interest and principal to the Class A Notes and the Class B-1L Notes in the manner and to the extent described in this Offering Circular. Payments of interest on the Class B-2L Notes will not be made until due and unpaid interest on the Class A Notes and the Class B-1L Notes, and certain other amounts (including certain management fees payable to the Collateral Manager and any successor Collateral Manager, and certain hedging termination payments and certain administrative fees) have been paid. No payments of principal of the Class B-2L Notes will be made until principal of and due and unpaid interest on the Class A Notes and the Class B-1L Notes and certain other amounts have been paid in full. No payments will be made out of Interest Proceeds on the Income Notes on any Payment Date until due and unpaid interest on the Notes and certain amounts (including certain amounts due under any Hedge Agreements and certain management fees payable to the Collateral Manager and any successor Collateral Manager, and certain hedging termination payments and certain administrative fees) have been paid on the Payment Date in accordance with the Application of Funds. No payments will be made out of Principal Proceeds on the Income Notes until principal of each Class of Notes and certain other amounts payable out of Principal Proceeds on each Payment Date have been paid in full. In addition, the Income Notes will not be redeemed until each Class of Notes and certain other amounts have been paid in full. In addition, the Co-Issuers will have only nominal equity capitalization. Consequently, to the extent that any losses are suffered by any of the Holders of any Notes, the losses will be borne first by the Holders of the Income Notes, and then by the Holders of each Class of Notes, serially in inverse order of their alphabetic or numerical designations. See "Application of Funds." Interest Proceeds May Be Used to Reinvest in Priority to any Payments to Holders of Income Notes During the Revolving Period, if the Additional Collateral Deposit Requirement is not met on any Determination Date, a portion of the Interest Proceeds that might otherwise have been paid to the Holders of the Income Notes on the related Payment Date will instead be deposited in to the Collection Account as Principal Proceeds and used to purchase additional Collateral Obligations. In addition, the Collateral Manager may, in its discretion, seek to amend the Indenture without the consent of the Holders of the Income Notes to permit the Issuer to use Interest Proceeds remaining after payment of amounts referred to in clauses (1) to (20) under "Application of Funds Application of Interest Proceeds" to purchase Notes in the order of their seniority at a discount to satisfy (or reduce the non-compliance with) the Additional Collateral Deposit Requirement. The Controlling Class Will Control Many Rights under the Indenture; However, Some Rights of the Controlling Class to Sell the Collateral in Connection with an Event of Default Are Limited Under the Indenture, many rights of the Holders of the Securities will be controlled by a Majority of the Controlling Class. Remedies pursued by the Holders of the Controlling Class upon an Event of Default could be adverse to the interests of the Holders of Securities subordinated to the Controlling Class. After any realization on the Collateral, proceeds will be allocated in accordance with the Application of Funds pursuant to which the Notes and certain other amounts owing by the Co-Issuers will be paid in full before any allocation to the Income Notes, and each Class of Notes (along with certain other amounts owing by the Co-Issuers) will be paid serially in alphabetic or numeric order until it is paid in full before any allocation is made to the next Class of Notes or the Income Notes. However, the ability of the Controlling Class to direct the sale and liquidation of the Collateral is subject to certain limitations. See "Certain Additional Provisions Relating to the Securities Events of Default." 24

35 25 The Issuer is Highly Leveraged, which Increases Risks to Investors The Issuer will be substantially leveraged. Use of leverage is a speculative investment technique and involves certain risks to investors in the Securities. The leverage provided to the Issuer by the issuance of the Securities will result in interest expense and other costs incurred in connection with the borrowings that may not be covered by the net interest income, dividends, and appreciation of the Collateral Obligations. The use of leverage generally magnifies the Issuer s risk of loss, particularly for the more subordinate Securities. In certain circumstances, such as in connection with the exercise of remedies following an Event of Default, Holders of the Controlling Class may require the Issuer to dispose of some or all of the Collateral Obligations under unfavorable market conditions, thus causing the Issuer to recognize a loss that might not otherwise have occurred. In certain circumstances, the Holders of the Controlling Class are entitled to direct the sales of Collateral Obligations and may be expected to do so in their own interest, rather than in the interests of the more subordinate Securities. The Issuer Is Newly Formed and Has No Significant Operating History The Issuer is a newly formed entity and has no significant operating history. The Issuer will have no material assets other than the Collateral. The Indenture provides that the Issuer is not permitted to engage in any business or activity other than the issuance and sale of the Securities, the issuance of its ordinary shares, the acquisition and disposition of and investment and reinvestment in Collateral Obligations, certain activities conducted in connection with the payment of amounts in respect of the Securities and the management of the Collateral, and other activities incidental or related to the foregoing. Income derived from the Collateral will be the Issuer s principal source of cash. The Co-Issuer Is Newly Formed and Has No Material Assets The Co-Issuer is a newly formed Delaware limited liability company and has no prior operating history. The Co-Issuer will have no material assets. The Indenture provides that the Co-Issuer is not permitted to engage in any business activity other than the co-issuance and sale of the Notes (other than the Class B-2L Notes), the issuance of its share capital, and other activities incidental or related to the foregoing. The Securities Are Non-Recourse Obligations; Investors in the Securities Must Rely on Available Collections from the Collateral and Will Have No Other Source for Payment The Class A Notes and the Class B-1L Notes are non-recourse debt obligations of the Co-Issuers and the Class B-2L Notes and the Income Notes are non-recourse obligations of the Issuer. The Notes are payable solely from the Collateral pledged by the Issuer to secure the Notes. None of the security holders, members, officers, directors, partners, or incorporators of the Issuer, the Co-Issuer, the Collateral Manager, the Initial Purchaser, the Trustee, the Fiscal Agent, the Administrator, the Collateral Administrator, any of their respective affiliates, or any other person will be obligated to make payments on the Notes. The Issuer s ability to make interest payments and principal repayments on the Securities will be constrained by the terms of the Indenture and the Fiscal Agency Agreement. Holders of the Notes must rely solely on collections received on the Collateral pledged to secure the Notes for the payment of interest and principal on the Notes, and there can be no assurance that those collections will be sufficient to pay all amounts due on the Notes. If distributions on the Collateral are insufficient to make payments on the Notes, no other assets will be available for payment of the deficiency and, following liquidation of all of the Collateral, the Co-Issuers will not have any obligation to pay any deficiency, which shall be extinguished and shall not revive. The Income Notes are payable solely from the proceeds of the Collateral to the extent available in accordance with the Application of Funds after payment of all amounts payable on each Class of Notes and certain other amounts in accordance with the Application of Funds. The Income Notes will have the economic characteristics of an equity investment in the Issuer by reason of, among other things, (i) the junior priority of the Income Notes in distribution of funds pursuant to the Indenture, (ii) the associated subordination of the Income Notes to the Notes and (iii) the absence of any equity capital in the Issuer junior to the Income Notes. The Issuer may not have sufficient funds available on a Redemption Date to repay the purchase price of the Income Notes or the full amount of the notional amount of the Income Notes as of the Closing Date. Therefore, the repayment in full of the price paid by Holders of the Income Notes and the realization of the notional amount of the Income Notes will depend on the payments made on the Income Notes on each Payment Date before the Redemption Date in addition to any final repayment made on the Income Notes on the Redemption Date.

36 The Issuer May Not Be Able to Invest and Reinvest Available Funds in Appropriate Collateral The amount of Collateral Obligations purchased on the Closing Date, the amount and timing of the purchase of additional Collateral Obligations before the Ramp-Up Completion Date, and the subsequent reinvestment of Principal Proceeds, will affect the cash flows available to make payments on, and the return to the Holders of, the Securities. Reduced liquidity and relatively lower volumes of trading in certain Collateral Obligations, in addition to restrictions on investment represented by the Eligibility Criteria, could result in periods during which the Issuer is not able to fully invest its available cash in Collateral Obligations, and it is unlikely that the Issuer s available cash will be fully invested in Collateral Obligations at any time. The longer the period before reinvestment of cash or cash-equivalents in Collateral Obligations and the larger the amount of uninvested cash or cash equivalents, the greater the adverse impact may be on aggregate interest collected and distributed by the Issuer, thereby resulting in lower yield than could have been obtained if the net proceeds associated with the offering of the Securities and all Principal Proceeds were immediately and fully reinvested. The associated reinvestment risk on the Collateral Obligations will be borne by the Holders of the Securities, beginning with the Income Notes. Although the Collateral Manager may mitigate this risk to some degree during the Revolving Period by repaying draws under the Class A-1LR Notes or leaving amounts undrawn or by declaring a Special Redemption, the Collateral Manager is not required to do so. Any Special Redemption may result in a lower yield on the Issuer s assets than could have been obtained if the net proceeds from the offering of the Securities and all Principal Proceeds were immediately and fully reinvested and no Special Redemption had taken place. Generally, Principal Proceeds (together with Interest Proceeds, but only to the extent used to pay for accrued interest on Collateral Obligations, and Sale Proceeds received on the Collateral Obligations) will be reinvested during the Revolving Period (and, with respect to Sale Proceeds received on Credit Improved Obligations and unscheduled prepayments of principal received with respect to the Collateral Obligations, subject to certain conditions described herein, after the Revolving Period) in substitute Collateral Obligations or temporarily reinvested in the Eligible Investments pending reinvestment in substitute Collateral Obligations in accordance with the Application of Funds. The earnings with respect to substitute Collateral Obligations will depend, among other factors, on reinvestment rates available in the marketplace at the time and on the availability of investments acceptable to the Collateral Manager that satisfy the criteria under "Security for the Notes Eligibility Criteria." The need to satisfy the criteria and identify acceptable investments may require the purchase of substitute Collateral Obligations having lower yields than those initially acquired or require that Principal Proceeds be held temporarily in cash or Eligible Investments, which will reduce the yield earned by the Issuer. Any decrease in the yield on the Collateral Obligations will reduce the amounts available to make payments of principal and interest on the Notes and payments on the Income Notes. The Issuer expects that, as of the Closing Date, it will have purchased (or entered into commitments to purchase) at least U.S.$543,750,000 in Aggregate Principal Balance of the Collateral Obligations to be included in the anticipated portfolio as of the Ramp-Up Completion Date. The "Ramp-Up Completion Date" is the earlier of (i) the Business Day after the 270th day after the Closing Date and (ii) the first date on which the Aggregate Principal Balance of the Collateral Obligations purchased (or committed to be purchased) by the Issuer with proceeds from the sale of the Securities (in each case, measured solely as of the date of purchase or commitment, as the case may be) equals at least the sum of U.S.$650,000,000 plus the drawn amount of the Class A-1LR Notes. There Can Be No Assurance That the Class A-1LR Notes Will Be Fully Drawn After the Class A-1LR Required Borrowing, no other Class A-1LR Borrowings will be permitted and the Class A-1LR Commitments will thereafter equal the funded portion of the Class A-1LR Notes. The Class A-1LR Notes are not expected to be drawn on the Closing Date. The Issuer shall make Class A-1LR Borrowings in an aggregate principal amount not to exceed the full amount of Class A-1LR Commitments beginning on the Closing Date and continuing until the end of the Revolving Period, except in the case of a termination of the Revolving Period specified in clause (iv) of the definition thereof. In addition, the failure of the Issuer to make any Class A- 1LR Borrowing for any reason will not constitute an Event of Default or a related Default pursuant to the Indenture, and the failure of the Issuer to draw all of the Class A-1LR Notes prior to the end of the Revolving Period will not constitute an Event of Default or a related Default pursuant to the Indenture. The maximum amount which may be drawn under the Class A-1LR Notes will be determined by operation of the Collateral Quality Matrix and subject to 26

37 the Class A-1LR Borrowing Conditions. If the conditions to borrowing cannot be met or the Holders of the Class A- 1LR Notes otherwise fail to fund, such failure will have possible negative consequences with respect to the yield to maturity of Notes and the Issuer s ability to fulfill its obligations to third persons with respect to the foregoing. Changes in Tax Law Could Result in the Imposition of Withholding Taxes with Respect to Payments on the Securities, and the Issuer Will Not Gross-Up Payments to Holders Although no withholding tax is imposed by the United States or the Cayman Islands on payments on the Securities, there can be no assurance that, as a result of any change in any applicable law, treaty, rule, regulation, or interpretation thereof, the payments with respect to the Notes would not in the future become subject to withholding taxes. If any withholding tax is imposed on payments on any Notes, the Holders of the Notes, other than the Holders of the Class A-1LR Notes with respect to an Indemnifiable Tax, will not be entitled to receive grossed-up amounts to compensate for such withholding tax. The Securities Are Subject to Transfer Restrictions The Securities have not been registered under the Securities Act, under any U.S. state securities or "blue sky" laws, or under the securities laws of any other jurisdiction and are being issued and sold in reliance upon exemptions from registration provided by those laws. No Securities may be sold or transferred unless: the sale or transfer is exempt from the registration requirements of the Securities Act (for example, in reliance on exemptions provided by Rule 144A or Regulation S under the Securities Act) and applicable state securities laws, and the sale or transfer does not cause either of the Co-Issuers or the pool of Collateral to become subject to the registration requirements of the Investment Company Act. See "Transfer Restrictions." In addition, the Securities are subject to substantial transfer restrictions related to ERISA. See "Certain ERISA Considerations." Investors Should Review United States Federal Income Tax Considerations Applicable to the Securities Prospective investors should review carefully the material under "Income Tax Considerations Certain U.S. Federal Income Tax Considerations." Investors Should Review ERISA Considerations Applicable to the Securities Prospective investors should review carefully the ERISA considerations set forth in "Certain ERISA Considerations." Non-Compliance with Restrictions on Ownership of the Securities under the United States Investment Company Act of 1940 Could Adversely Affect the Issuer Neither of the Co-Issuers has registered with the United States Securities and Exchange Commission (the "SEC") as an investment company pursuant to the Investment Company Act. The Issuer has not so registered in reliance on an exception for investment companies organized under the laws of a jurisdiction other than the United States whose investors resident in the United States are solely Qualified Purchasers or, solely in the case of the Income Notes, Knowledgeable Employees with respect to the Issuer and which do not make a public offering of their securities in the United States. Counsel for the Issuers will opine, in connection with the sale of the Securities by the Initial Purchaser, that neither the Issuer nor the Co-Issuer is on the Closing Date an investment company required to be registered under the Investment Company Act (assuming, for the purposes of such opinion, that the Securities are sold by the Initial Purchaser 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 Issuer or the Co-Issuer is required to register as an investment company, possible consequences include, but are not limited to, the SEC applying to enjoin the violation, investors suing the Issuer or the Co-Issuer, as applicable, to recover any damages caused by the violation and any contract to which the Issuer or the Co-Issuer, as applicable, is a party made in violation or whose 27

38 performance involves a violation of the Investment Company Act being unenforceable unless enforcing such contract would produce a more equitable result. Should the Issuer or the Co-Issuer be subjected to any or all of the foregoing or to any other consequences, the Issuer or the Co-Issuer, as the case may be, would be materially and adversely affected. The Securities are only permitted to be transferred to Qualified Institutional Buyers in transactions meeting the requirements of Rule 144A or, solely in the case of the Income Notes, to Accredited Investors in transactions exempt from registration under the Securities Act, or in an offshore transaction, to a non-u.s. Person, complying with Rule 903 or Rule 904 of Regulation S. The Securities being offered in the United States are being offered only to persons that are also Qualified Purchasers or, solely with respect to the Income Notes, Knowledgeable Employees with respect to the Issuer. Any non-permitted transfer will be voided and the Issuer or the Co-Issuer, as applicable, can require the transferee to sell its Securities to a permitted transferee. See "Transfer Restrictions." The Weighted Average Lives of the Notes May Vary The Stated Maturity of the Securities is the January 2022 Payment Date. The weighted average life of each Class of Notes is expected to be shorter than the number of years until their Stated Maturity. See "Certain Maturity and Prepayment Considerations." The weighted average life of a Class of Notes will be affected by the amount and timing of payments of principal of the Notes and the amount and timing of payments received on the Collateral Obligations. The amount and timing of payments of principal on the Notes will be affected by, among other things, any Optional Redemption of the Notes, a failure of any Coverage Test, a Rating Confirmation Failure, any failure by the Collateral Manager to invest or reinvest uninvested proceeds of the offering of the Notes in Collateral Obligations, a redemption of the Notes made in connection with a Tax Event, any Special Redemption of one or more Classes of Notes, and an Event of Default by the Issuer in the payment of the Notes and an acceleration of the principal of the Notes in connection with an Event of Default. The rate of principal payments of the Notes will also be determined by the amount and timing of payments on the Collateral, which will be dependent on, among other things, the financial condition of the obligors on or issuers of the Collateral and the characteristics of the Collateral Obligations, including the existence and frequency of exercise of any prepayment, optional redemption, or sinking fund features, the prevailing level of interest rates, the redemption price, the actual default rate and the actual level of recoveries on any Defaulted Collateral Obligations, the frequency of tender or exchange offers for the Collateral Obligations and any sales of Collateral Obligations, dividends or other distributions received on any obligations that at the time of acquisition, conversion, or exchange do not satisfy the requirements of a Collateral Obligation (including voting and non-voting common and preferred stock, warrants, and options), as well as the risks unique to investments in obligations of foreign issuers. See "Security for the Notes." The Indenture Requires Mandatory Redemption of the Notes for Failure to Satisfy Coverage Tests If any Coverage Test is not satisfied on any Determination Date on which Notes of the relevant Class are outstanding, Interest Proceeds available on the related Payment Date in accordance with the Application of Funds (and, to the extent Interest Proceeds are insufficient, Principal Proceeds available on the Payment Date in accordance with the Application of Funds) are required to be applied to pay principal of the Notes in the order of priority described herein to the extent necessary for the Coverage Test to be satisfied. See "Summary of Terms Mandatory Redemption of the Notes for Failure to Satisfy Coverage Tests." The application of Interest Proceeds and Principal Proceeds to pay principal of the Notes to the extent necessary to restore the Coverage Tests to certain minimum required levels could result in an elimination, deferral, or reduction in the amounts available to make interest and principal payments on one or more classes of Notes and payments on the Income Notes, which would adversely affect the returns to the Holders of the Notes and the Income Notes. The Indenture Requires Mandatory Redemption of the Notes Upon Rating Confirmation Failure If any rating by S&P of any Class of Notes is not confirmed by the Business Day after the 34th day after the Ramp-Up Completion Date by S&P, or if the Trustee does not receive an accountant s certificate confirming the matters described in "Summary Mandatory Redemption of the Notes Upon Rating Confirmation Failure" as of the Ramp-Up Completion Date, as set forth under the Indenture, Interest Proceeds and, if Interest Proceeds are insufficient, Principal Proceeds, are required to be diverted in accordance with the Application of Funds and used to pay the Notes in the Note Payment Sequence on the next Payment Date and each Payment Date after that until each rating is reinstated. The application of Interest Proceeds and Principal Proceeds to pay the Notes in the Note 28

39 Payment Sequence to the extent necessary for one or more ratings to be reinstated could result in an elimination, deferral, or reduction in one or more payments on one or more Classes of Notes, which would adversely affect the returns to the Holders of those Classes of Notes. The Indenture Permits Special Redemption of Notes Based on the Collateral Manager s Inability to Identify Investments The Collateral Manager is permitted under the Indenture to elect to have all or a portion of the funds then in the Collection Account available to be invested in additional Collateral Obligations applied to a Special Redemption of the Notes, in whole or in part, on one or more Payment Dates during the Revolving Period because it has been unable, for at least 90 consecutive Business Days, to identify additional Collateral Obligations that are deemed appropriate by the Collateral Manager in its sole discretion and meet the Eligibility Criteria in sufficient amounts to permit the investment of some or all of the funds then in the Collection Account available to be invested in additional Collateral Obligations. On the first Payment Date following the Due Period for which the notice of a Special Redemption is effective in accordance with the Indenture, the Special Redemption Amount will be applied in accordance with "Application of Funds Application of Principal Proceeds," to the extent available (which includes for this purpose uninvested proceeds specified by the Collateral Manager), to pay the principal of the Notes. The application of funds in that manner could result in an elimination, deferral, or reduction of amounts available to make payments on Notes subordinate in priority to the Notes being amortized. See "Certain Additional Provisions Relating to the Securities Special Redemption of Notes If the Collateral Manager Does Not Identify Investments as Contemplated by the Indenture." The Securities Are Subject to Optional Redemption and, in the case of the Class A-1LR Notes, Optional Prepayment Subject to satisfaction of certain conditions, on any Payment Date upon the occurrence of a Tax Event or at any time after the Payment Date in July 2011, the Holders of a Majority of the outstanding Income Notes may require that the Notes be redeemed, in whole or in part, and all or a portion of the Income Notes be redeemed, as described under "Certain Additional Provisions Relating to the Securities Optional Redemption." In case of an Optional Redemption of the Securities, the Collateral Manager may be required to aggregate Collateral Obligations to be sold together in one block transaction, thereby possibly resulting in a lower realized value for the Collateral Obligations sold. There can be no assurance that the market value of the Collateral will be sufficient for the Holders of the Income Notes to direct an Optional Redemption of the Securities. A decrease in the market value of the Collateral would adversely affect the Proceeds from their sale. Consequently, the conditions precedent to the exercise of an Optional Redemption may not be met. If the Securities are redeemed, the Holders of the Securities may not be able to invest the proceeds of the redemption of the Securities in investments providing a return equal to or greater than the Holders of the Securities expected to obtain from their investment in the Notes. In addition, at the direction of the Collateral Manager, upon the terms and subject to the conditions of the Indenture, the Co-Issuers shall have the right to make Class A-1LR Prepayments on any date that is a Business Day during the Revolving Period, other than a date from and including a Determination Date through and including the immediately succeeding Payment Date (unless such Class A-1LR Prepayment is to be made on a Payment Date). See "Application of Funds Class A-1LR Prepayments." Future Ratings of the Notes Are Not Assured and Limited in Scope; the Income Notes Are Not Rated It is a condition to the issuance of the Notes that they be rated as provided under "Summary of Terms Ratings." A credit rating is not a recommendation to buy, sell, or hold securities and is subject to revision or withdrawal at any time. There is no assurance that a rating will remain for any given period or that a rating will not be lowered or withdrawn entirely by each Rating Agency if in its judgment circumstances in the future so warrant. Any such action could have an adverse effect on the Holders of Notes. If a rating initially assigned to a Class of Notes is subsequently lowered for any reason, no person is obligated to provide any additional credit support or credit enhancement. No rating of the Income Notes will be sought or obtained in connection with their issuance. 29

40 30 Anti-Money Laundering Provisions 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, imposes anti-money laundering obligations on different types of financial institutions, including banks, broker-dealers and investment companies. The USA PATRIOT Act requires the Secretary of the United States Department of the Treasury (the "Treasury") to prescribe regulations to define the types of investment companies subject to the USA PATRIOT Act and the related anti-money laundering obligations. It is not clear whether the Treasury will require entities such as the Issuer to enact anti-money laundering policies. It is possible that the Treasury will promulgate regulations requiring the Co-Issuers or the Initial Purchaser or other service providers to the Co-Issuers, in connection with the establishment of anti-money laundering procedures, to share information with governmental authorities with respect to investors in the Notes and/or the Income Notes. Such legislation and/or regulations could require the Co-Issuers to implement additional restrictions on the transfer of the Notes and/or the Income Notes. As may be required, the Issuer reserves the right to request such information and take such actions as are necessary to enable it to comply with the USA PATRIOT Act. The Transparency Directive of the European Union May Negatively Affect Liquidity As part of the harmonization of transparency requirements, the European Union has adopted a directive known as the Transparency Directive that, among other things, regulates issuers of securities that are offered to the public or admitted to trading on a European Union regulated market. The Transparency Directive was transposed into Irish law on June 13, The listing of Notes on any European Union stock exchange subjects the Issuer to regulation under this directive. The Indenture will not require the Issuer to apply for, list or maintain a listing for any Class of Notes on a European Union stock exchange if compliance with this directive (or other requirements adopted by the European Commission or a relevant member state) becomes burdensome in the sole judgment of the Collateral Manager. Should the Notes be delisted from any exchange, the ability of the holders of such Notes to sell such Notes in the secondary market may be negatively affected. Recent Market Developments May Negatively Affect the Value, Rating and Liquidity of the Notes Recently, there have been significant and well-publicized dislocations in the market for collateralized debt obligations, structured product securities, bank loans and other fixed income instruments. Such market changes include, but are not limited to, increased delinquencies and defaults in residential mortgage backed securities, particularly, but not limited to, securities backed by "sub-prime" mortgage loans, bankruptcy filings by a number of residential mortgage originators, significant changes in credit spreads, an increased rate of downgrades of assets underlying collateralized debt obligations, significantly reduced liquidity for both assets underlying collateralized debt obligations and for collateralized debt obligation securities, steep reductions in the market value or a lack of verifiable market quotes for both assets underlying collateralized debt obligations and for collateralized debt obligation securities and an inability of funds investing in similar assets to meet increasing investor redemption demands due to reduced liquidity and uncertain market values. Such changes may materially and adversely affect the performance of the portfolio of assets securing the Notes, as well as the value, rating and liquidity of the Notes. INVESTORS SHOULD ASSESS FOR THEMSELVES THE EXTENT OF SUCH MARKET CHANGES AND THE LIKELY CONSEQUENCES OF SUCH MARKET CHANGES INCLUDING THE EFFECT OF SUCH CHANGES ON THE VALUE, LIQUIDITY AND PERFORMANCE OF THE NOTES. Relating to the Collateral Manager The Issuer Will Depend on the Managerial Expertise Available to the Collateral Manager and its Key Personnel The success of the Issuer will be highly dependent on the managerial expertise available to the Collateral Manager. The Collateral Manager does not directly employ employees to manage investments but will instead rely on the employees of Denali, which is the managing member of the Collateral Manager. Denali will be responsible for all portfolio management activities of the Collateral Manager. As a result, the Issuer will be highly dependent on

41 the managerial expertise of certain individuals comprising Denali s management team. There is no requirement that there be employment arrangements with those individuals for the benefit of the Collateral Manager, and the Issuer will not be a direct beneficiary of such arrangements that may exist from time to time. The individuals comprising Denali s management team are also actively involved in other investment activities and will not be able to devote their full time and attention to the Issuer s business and affairs. The loss of any of these individuals could have a material adverse effect on the performance of the Issuer. See "The Collateral Manager Key Personnel of the Collateral Manager s Managing Member." The Collateral Manager Will Have Limited Control of the Administration and Amendment of Collateral Obligations The Collateral Manager will cause the Issuer to exercise or enforce, or refrain from exercising or enforcing, its rights in connection with the Collateral Obligations or any related documents or will refuse amendments or waivers of the terms of any Collateral Obligation and related documents in accordance with its ordinary business practices as if the Collateral Manager were administering the Collateral Obligations for its own account. The authority of the Collateral Manager to cause the Issuer to change the terms of the Collateral Obligations will generally not be restricted by the Indenture or the Management Agreement. As a result, the Issuer will be relying on the Collateral Manager s ordinary business practices with respect to the servicing of the Collateral Obligations. The Holders of the Securities and the Issuer will not have any right to compel the Issuer or the Collateral Manager to take or refrain from taking any actions other than in accordance with its ordinary business practices. In addition, when the Issuer holds a Participation, the Issuer generally will have no right to enforce compliance by the borrower with the loan or credit agreement or other instrument evidencing the related loan obligation, no rights of set-off against the borrower, no direct interest in the collateral supporting the loan obligation, and no right to vote with respect to amendments of, or waivers of defaults under, the loan obligation. However, most participation agreements relating to Participations in loans provide that the Participating Institution may not vote in favor of any amendment, modification, or waiver that forgives principal, interest, or fees; reduces principal, interest, or fees that are payable; postpones any payment of principal (whether a scheduled payment or a mandatory prepayment), interest or fees; or releases any material guarantee or security without the consent of the participant (at least to the extent the participant would be affected by the amendment, modification, or waiver). A Participating Institution voting in connection with a potential waiver of a default by an obligor may have interests different from those of the Issuer, and the Participating Institution might not consider the interests of the Issuer in connection with its vote. In addition, many participation agreements relating to Participations in loans that do provide voting rights to the participant further provide that if the participant does not vote in favor of amendments, modifications, or waivers, the Participating Institution may repurchase the Participation at par. In the event of the insolvency of the Participating Institution, the Issuer may be treated as a general creditor of the Participating Institution with respect to a Participation and may not benefit from any set-off between the Participating Institution and the borrower and may not be able to proceed against the collateral supporting the loan obligation. As a result, the Issuer is subject to the credit risk of both the borrower and the Participating Institution. An investment by the Issuer in a Synthetic Security related to a Loan involves many of the same considerations relevant to Participations. See " Relating to the Collateral Obligations Investing in Loans Involves Particular Risks" and " Investing in Synthetic Securities Involves Particular Risks" below. A modification that would increase the commitment of a lender, reduce the interest rate, or postpone the final maturity of an obligation under a participation agreement, or release all of the collateral for an obligation, generally requires the affirmative vote of the participating lender for a loan in which the Issuer owns a Participation, or of the Issuer for a Loan purchased by assignment, for the increase, reduction, or postponement to be binding. The exercise of remedies may also be subject to the vote of a specified percentage of the lenders under the loan obligation. The Collateral Manager will have the authority to cause the Issuer to consent to certain amendments, waivers, or modifications to the Collateral Obligations requested by obligors or the lead agents for participation agreements relating to Participations (subject to operating procedures intended to reduce the risk that the Issuer would be deemed to be engaged in a trade or business in the United States for United States federal income tax purposes). The Collateral Manager may, subject to the transaction documents, cause the Issuer to extend or defer the maturity, adjust the outstanding balance of any Collateral Obligation, reduce or forgive interest or fees, release material collateral or guarantees, or otherwise amend, modify, or waive the terms of any related loan agreement, including its payment terms. The Collateral Manager will make determinations in accordance with its servicing 31

42 standards under the Management Agreement. Any amendment, waiver, or modification of a Collateral Obligation could postpone the expected maturity of the Notes or reduce the likelihood of timely and complete payment of interest or principal under the Notes or payment in respect of the Income Notes. Performance History of the Collateral Manager May Not Be Indicative of Future Results Any prior investment results of the Collateral Manager, and the persons associated with it or any other entity may not be indicative of the Issuer s future investment results. The nature of, and risks associated with, the Issuer s future investments may differ substantially from those investments and strategies undertaken historically by the Collateral Manager, and the persons associated with it or any other entity. There can be no assurance that the Issuer s investments will perform as well as the past investments of the Collateral Manager, and the persons associated with it or any other entity. In addition, since the investment criteria that govern investments in the Collateral Obligations do not govern the Collateral Manager s investments and investment strategies generally, investments in the Collateral Obligations conducted in accordance with the investment criteria that govern investments in the Collateral Obligations, and the results they yield, may differ substantially from other investments undertaken by the Collateral Manager. Notwithstanding the inapplicability of the results obtained and expected to be obtained from the past investments of the Collateral Manager, a period of increased volatility in market conditions, including interest rate environments, can have an adverse effect on the realized and unrealized returns to investors in the past investments of the Collateral Manager. There can be no assurance that current economic conditions and the effects of increased interest rate and corresponding price volatility will not adversely impact the investment returns ultimately realized by investors or continued compliance with, among other things, applicable coverage requirements described in this Offering Circular. Relating to the Collateral Obligations In General, the Collateral Obligations Are Subject to Various Risks The Collateral Obligations are subject to credit, liquidity, and interest rate risks, among others. The Eligibility Criteria and the Collateral Quality Tests have been established to address certain assumed deficiencies in payment occasioned by defaults with respect to the Collateral Obligations. If any deficiencies exceed certain modeled scenarios, however, payments on the Securities could be adversely affected. To the extent that a default occurs with respect to any Collateral Obligation securing the Notes and the Issuer (on the advice of the Collateral Manager) sells or otherwise disposes of the Collateral Obligation, it is not likely that the proceeds of the sale or other disposition will be equal to the amount of principal and interest owing to the Issuer on the Collateral Obligation. The value of the Collateral Obligations generally will fluctuate with, among other things, the financial condition of the obligors on or issuers of the Collateral Obligations and, with respect to Synthetic Securities, both the financial condition of the related Synthetic Security counterparties and the obligors on or issuers of the Reference Obligations, general economic conditions, the condition of certain financial markets, political events, developments or trends in any particular industry, changes in currency exchange rates and changes in prevailing interest rates. In addition, the occurrence of natural disasters and certain other unanticipated events beyond the control of the Co-Issuers, the Initial Purchaser, the Collateral Manager, the Trustee, the Fiscal Agent and the Collateral Administrator may affect the value and performance of the Collateral Obligations. The ability of the Issuer to sell Collateral Obligations before their maturity is subject to certain restrictions under the Indenture including those described under "Security for the Notes Dispositions of Collateral Obligations." Investing in Loans Involves Particular Risks The Collateral Obligations will consist primarily of Dollar and Euro-denominated senior secured and senior unsecured loans, which are required by the Indenture to be obligations of corporations, partnerships, or other entities organized under the laws of the United States (or any of its states) or of foreign obligors meeting specified criteria, 32

43 or Synthetic Securities the Reference Obligations of which are such loans. See "Security for the Notes Collateral Obligations." Loans may become non-performing for a variety of reasons. Non-performing loans may require substantial workout negotiations or restructuring that may entail, among other things, a substantial reduction in the interest rate or a substantial write-down of the principal of a loan. In addition, because of the unique and customized nature of a loan agreement and the private syndication of a loan, loans typically may not be purchased or sold as easily as publicly traded securities, and historically the trading volume in the bank term loan market has been small relative to the corporate bond market. Loans may encounter trading delays due to their unique and customized nature, and transfers may require the consent of an agent bank or borrower. Investments in loans are also subject to interest rate risk and reinvestment risk. Prepayments of loans in the Issuer s portfolio are likely to be made during any period of declining interest rates. Prepayments would force the Issuer to replace the loans with lower-yielding investments. The Issuer may acquire interests in loans either directly (by assignment) or indirectly (by participation or through Synthetic Securities). The Issuer may not originate any loans. The purchaser of an assignment of a loan obligation typically succeeds to all the rights and obligations of the selling institution and becomes a lender under the loan or credit agreement with respect to the debt obligation. In contrast, a Participation acquired by the Issuer in a portion of a loan obligation held by a Participating Institution or a security or other debt obligation typically results in a contractual relationship only with the Participating Institution, not with the borrower. The Issuer would have the right to receive payments of principal, interest, and any fees to which it is entitled under a Participation only from the Participating Institution and only upon receipt by the Participating Institution of those payments from the borrower. The Issuer will be subject to restrictions on the amount of Participations that may be acquired for inclusion in the Collateral. See "Security for the Notes Eligibility Criteria." Certain of the loans in the Issuer s portfolio may be unsecured or secured by collateral worth less than the outstanding balance of the loan. In addition to the general risks associated with loans described above, unsecured loans will not be secured by substantial collateral or any collateral and secured loans may be substantially undersecured. Without collateral and with materially inadequate collateral, the ability of the holder of the loan to recover amounts due from the borrower may be substantially limited. Investing in Below Investment-Grade Obligations Involves Particular Risks A substantial amount of the Collateral Obligations will consist of loans, bonds, and other obligations that are below investment grade, including high-yield loans and securities. Those Collateral Obligations will have greater credit and liquidity risk than investment grade obligations. The bonds are also often unsecured and may be subordinated to certain other obligations of their issuer. The lower rating of those Collateral Obligations reflects a greater possibility that adverse changes in the financial condition of an issuer or in general economic conditions or both may impair the ability of their issuer to make payments of principal or interest. These Collateral Obligations may be speculative. Risks of below investment-grade Collateral Obligations may include (among others): limited liquidity and secondary market support, in the case of fixed-rate high-yield debt securities, substantial market place volatility resulting from changes in prevailing interest rates, subordination to the prior claims of senior lenders and creditors, the operation of mandatory sinking fund or call and redemption provisions during periods of declining interest rates that could cause the Issuer to reinvest premature redemption proceeds in lower-yielding debt obligations, the possibility that earnings of the below investment-grade issuer may be insufficient to meet its debt service, and 33

44 the declining creditworthiness and potential for insolvency of a below investment-grade issuer during periods of rising interest rates and economic downturn. An economic downturn or an increase in interest rates could severely disrupt the market for below investment-grade obligations and could adversely affect the value of outstanding below investment-grade obligations and the ability of their issuers to repay principal and interest. Issuers that are below investment grade may be highly leveraged and may not have available to them more traditional methods of financing. The risk associated with obligations of below investment-grade issuers is generally greater than is the case with investment grade issuers. For example, during an economic downturn or a sustained period of rising interest rates, below investment-grade issuers may be more likely to experience financial stress, especially if they are highly leveraged. During those periods, timely service of debt obligations may also be adversely affected by specific issuer developments, or the issuer s inability to meet specific projected business forecasts or the unavailability of additional financing. The risk of loss from default by the issuer is significantly greater for the holders of below investment-grade obligations because those obligations may be unsecured and may be subordinated to obligations owed to other creditors of the issuer. In addition, the Issuer may incur additional expenses to the extent it is required to seek recovery upon a default on such an obligation or participate in its restructuring. As a result of the limited liquidity of below investment-grade obligations, their prices have at times experienced significant and rapid decline when a substantial number of holders decided to sell. In addition, the Issuer may have difficulty disposing of certain below investment-grade obligations because there may be a thin trading market for them. To the extent that a secondary trading market for below investment-grade obligations does exist, it is generally not as liquid as the secondary market for highly rated obligations. Reduced secondary market liquidity may have an adverse impact on the Issuer s ability to dispose of particular Collateral Obligations in response to a specific economic event, such as a deterioration in the creditworthiness of the issuer of the Collateral Obligation. Investing in Structured Finance Obligations Involves Particular Risks A portion of the Collateral Obligations may consist of Structured Finance Obligations and Synthetic Securities the Reference Obligations of which are Loans, Structured Finance Obligations, or High-Yield Bonds. Structured Finance Obligations may present risks similar to those of the other types of Collateral Obligations in which the Issuer may invest and, in fact, the risks may be of greater significance in the case of Structured Finance Obligations. Moreover, investing in Structured Finance Obligations may entail a variety of unique risks. Among other risks, Structured Finance Obligations may be subject to prepayment risk, credit risk, liquidity risk, market risk, structural risk, legal risk, and interest rate risk. In addition, certain Structured Finance Obligations may provide that non-payment of interest is not an event of default in certain circumstances and the holders of the securities will therefore not have available to them any associated default remedies. During the period of non-payment, unpaid interest will generally be capitalized and added to the outstanding principal balance of the related security. Furthermore, the performance of a Structured Finance Obligation will be affected by a variety of factors, including its priority in the capital structure of its issuer the availability of any credit enhancement, the level and timing of payments and recoveries on and the characteristics of the underlying receivables, loans, or other assets that are being securitized, bankruptcy remoteness of those assets from the originator or transferor, the adequacy of and ability to realize on any related collateral, and the skill of the manager of the Structured Finance Obligation in managing securitized assets. The price of a Structured Finance Obligation, if required to be sold, may be subject to certain market and liquidity risks for securities of its type at the time of sale. Investing in Synthetic Securities Involves Particular Risks As described above, a portion of the Collateral Obligations may consist of Synthetic Securities the Reference Obligations of which are Loans, Structured Finance Obligations, or High-Yield Bonds. Investments in these types of assets through the purchase of Synthetic Securities present risks in addition to those inherently associated with direct purchases of such assets. With respect to Synthetic Securities, the Issuer will usually have a contractual relationship only with the counterparty of the Synthetic Security, and not the reference obligor on the Reference Obligation. The Issuer will have no right to enforce compliance by the reference obligor with the Reference Obligation nor any rights of set-off against the reference obligor, nor have any voting or other consensual 34

45 rights of ownership with respect to the Reference Obligation. The Issuer will not directly benefit from any collateral supporting the Reference Obligation and will not have the benefit of the remedies that would normally be available to a holder of the Reference Obligation. In addition, in the event of the insolvency of the Synthetic Security counterparty, the Issuer will be treated as a general creditor of the counterparty and will not have any claim of title with respect to the Reference Obligation. Consequently, the Issuer will be subject to the credit risk of the counterparty as well as that of the reference obligor and concentrations of Synthetic Securities entered into with any one counterparty will subject the Securities to an additional degree of risk with respect to defaults by that counterparty. One or more Affiliates of any Initial Purchaser may act as counterparty with respect to all or a portion of the Synthetic Securities, which relationship may create certain conflicts of interest. See " Relating to Certain Conflicts of Interest The Issuer Will Be Subject to Various Conflicts of Interest Involving the Initial Purchaser" below. In addition, Synthetic Securities may involve initial and ongoing expenses above the costs associated with the related direct investments. The Issuer will be subject to restrictions on the amount of Synthetic Securities it may own at any one time. Many of the Collateral Obligations Will Be Illiquid Many of the Collateral Obligations purchased by the Issuer will have no, or only a limited, trading market. The Issuer s investment in illiquid Collateral Obligations may restrict its ability to dispose of investments in a timely fashion and for a fair price, as well as its ability to take advantage of market opportunities, although the Issuer is generally prohibited by the Indenture from selling Collateral Obligations except under certain limited circumstances described under "Security for the Notes Dispositions of Collateral Obligations." Illiquid Collateral Obligations may trade at a discount from comparable, more liquid investments. In addition, the Issuer may invest in privately placed Collateral Obligations that may or may not be freely transferable under the laws of the applicable jurisdiction or due to contractual restrictions on resale, and even if those privately placed Collateral Obligations are transferable, the prices realized from their sale could be less than those originally paid by the Issuer or less than what may be considered their fair value. Insolvency Considerations With Respect to Issuers of Collateral Obligations May Affect the Issuer s Rights Various laws enacted for the protection of creditors may apply to the Collateral Obligations. If, in a lawsuit brought by a creditor or representative of creditors of an obligor under a Collateral Obligation (such as a trustee in bankruptcy), a court were to find that the obligor did not receive fair consideration or reasonably equivalent value for incurring the indebtedness evidenced by the Collateral Obligation and, after giving effect to the indebtedness and the use of the proceeds thereof, the obligor (i) was insolvent, (ii) was engaged in a business for which the remaining assets of the obligor constituted unreasonably small capital, or (iii) intended to incur, or believed that it would incur, debts beyond its ability to pay them as they mature, the court could determine to invalidate, in whole or in part, the indebtedness as a fraudulent conveyance, to subordinate the indebtedness to existing or future creditors of the obligor, or to recover amounts previously paid by the obligor in satisfaction of the indebtedness. There can be no assurance as to what standard a court would apply to determine whether the obligor was "insolvent" or that, regardless of the method of valuation, a court would not determine that the obligor was "insolvent," in each case, after giving effect to the incurrence of the Collateral Obligation and the use of its proceeds. In addition, in the event of the insolvency of an obligor under a Collateral Obligation, payments made on the Collateral Obligation may be subject to avoidance as a "preference" if made within a certain period before insolvency (which may be as long as approximately one year). In general, if payments on a Collateral Obligation are avoidable, whether as fraudulent conveyances or preferences, the payments can be recaptured either from the initial recipient (such as the Issuer) or from subsequent transferees of the payments (such as the Holders of the Securities). To the extent that any payments are recaptured from the Issuer, the resulting reduction in payments on the Securities will be borne by the Holders of the Securities. A court in a bankruptcy or insolvency proceeding would be able to direct the recapture of any payment from a Holder of the Securities to the extent that the court has jurisdiction over the Holder or its assets. Since there is no judicial precedent relating to structured securities such as the Notes, there can be no assurance that a Holder of Securities will be able to avoid recapture on this basis. The preceding discussion is based on principles of United States federal and state laws. Insofar as Collateral Obligations that are obligations of non-united States obligors are concerned, the laws of certain foreign 35

46 jurisdictions may provide for avoidance remedies under factual circumstances similar to, or broader or narrower than, those described above, with consequences that may or may not be analogous to those described above under United States federal and state laws. 36 International Investing Involves Particular Risks A portion of the Collateral Obligations may consist of obligations of Group A Country Obligors or Group B Country Obligors. Investing outside the United States may involve greater risks than investing in the United States. These risks may include: fluctuations of currency exchange rates (i.e., the cost of converting foreign currency into U.S. Dollars), moratoriums and devaluations, less publicly available information; varying levels of governmental regulation and supervision; and the difficulty of enforcing legal rights in a foreign jurisdiction and uncertainties as to the status, interpretation and application of laws. Moreover, foreign companies may be subject to accounting, auditing, and financial reporting standards, practices, and requirements different from those applicable to U.S. companies. There generally is less governmental supervision and regulation of exchanges, brokers and issuers in foreign countries than there is in the United States. For example, there may be no comparable provisions under certain foreign laws with respect to insider trading and similar investor protection securities laws that apply with respect to securities transactions consummated in the United States. Foreign markets also have different clearance and settlement procedures, and in certain markets there have been times when settlements have failed to keep pace with the volume of securities transactions, making it difficult to conduct transactions. Delays in settlement could result in periods when assets of the Issuer are uninvested and no return is earned on them. The inability of the Issuer to make intended purchases of Collateral Obligations due to settlement problems or the risk of intermediary counterparty failures could cause the Issuer to miss investment opportunities. The inability to dispose of a Collateral Obligation due to settlement problems could result either in losses to the Issuer due to subsequent declines in the value of the Collateral Obligation or, if the Issuer has entered into a contract to sell the security, could result in possible liability to the purchaser. Transaction costs of buying and selling foreign securities, including brokerage, tax, and custody costs, also are generally higher than those involved in domestic transactions. Furthermore, foreign financial markets, while generally growing in volume, have, for the most part, substantially less volume than U.S. markets, and securities of many foreign companies are less liquid and their prices more volatile than securities of comparable domestic companies. In certain foreign countries there is the possibility of expropriation, nationalization, or confiscatory taxation; limitations on the convertibility of currency or the removal of securities, property, or other assets of the Issuer; political, economic, or social instability; or adverse diplomatic developments, each of which could have an adverse effect on the Issuer s investments in the foreign countries (which may make it more difficult to pay U.S. Dollar-denominated obligations such as the Collateral Obligations). The economies of individual non-u.s. countries may also differ favorably or unfavorably 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, resource self-sufficiency, and balance of payments position. To mitigate a portion of the risk of fluctuation of currency exchange rates, upon the Issuer's acquisition of any Euro-denominated Collateral Obligation the Issuer will be required to enter into a Hedge Agreement with respect thereto, although the Issuer does not expect to own any such Euro-denominated Collateral Obligations as of the Closing Date. In any case, there can be no assurance that the Collateral Obligations and Eligible Investments, together with any Hedge Agreements, will in all circumstances generate sufficient Interest Proceeds to make timely payments of interest on the Notes. Moreover, the benefits of any Hedge Agreements may not be achieved in the event of the early termination of the Hedge Agreements, including termination upon the failure of the related Hedge Counterparty to perform its obligations under the Hedge Agreement. See "Security for the Notes Hedge Agreements." Lender Liability Considerations and Equitable Subordination Can Affect the Issuer s Rights with Respect to Collateral Obligations In recent years, a number of judicial decisions in the United States have upheld the right of borrowers to sue lenders and bondholders on the basis of various evolving legal theories (collectively termed "lender liability").

47 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 debtor or has assumed a degree of control over the debtor resulting in the creation of a fiduciary duty owed to the debtor or its other creditors or shareholders. Because of the nature of the Collateral Obligations, the Issuer may be subject to allegations of lender liability. In addition, under common law principles that in some cases form the basis for lender liability claims, a court may elect to subordinate the claim of the offending lender to the claims of the disadvantaged creditors, a remedy called "equitable subordination," if a lender: 37 intentionally takes an action that results in the undercapitalization of a borrower to the detriment of other creditors of the borrower, engages in other inequitable conduct to the detriment of the other creditors, engages in fraud with respect to, or makes misrepresentations to, the other creditors, or uses its influence as a lender to dominate or control a borrower to the detriment of other creditors of the borrower. Because the Collateral Obligations are primarily Loans, the Issuer may be subject to claims from creditors of an obligor that Collateral Obligations issued by the obligor that are held by the Issuer should be equitably subordinated. However, the Collateral Manager does not intend to engage in conduct that would form the basis for a successful cause of action based on lender liability or the equitable subordination doctrine. Nonetheless, no assurances can be given that actions taken in good faith by the Collateral Manager will not result in losses to issuers of Collateral Obligations, and that the Issuer will not be liable for any such losses. Furthermore, the Issuer and the Collateral Manager may be unable to control the conduct of lenders under a loan syndication agreement requiring less than a unanimous vote, yet the Issuer may be subject to lender liability or equitable subordination for such conduct. The preceding discussion is based on principles of United States federal and state laws. Insofar as Collateral Obligations that are obligations of non-united States obligors are concerned, the laws of certain foreign jurisdictions may impose liability on lenders or bondholders under factual circumstances similar to, or broader or narrower than, those described above, with consequences that may or may not be analogous to those described above under United States federal and state laws. Notes May Be Affected by Interest Rate Risks, Including Mismatches Between the Notes and the Collateral Obligations The Notes bear interest at a rate based on LIBOR as determined on the second Business Day prior to the first day of the relevant Periodic Interest Accrual Period or, for purposes of determining LIBOR in respect of each draw on the Class A-1LR Notes, on the date on which such draw on the Class A-1LR Notes is made. See "Certain Additional Provisions Relating to the Securities Determination of LIBOR." Although the Collateral Obligations will consist primarily of obligations that bear interest at floating rates, there may be a timing mismatch between the Notes and the Floating Rate Obligations as the interest on the Floating Rate Obligations may adjust more or less frequently, on different dates and based on different indices than the interest rates on the Notes. As a result of these mismatches, an increase or decrease in LIBOR for the relevant maturity could adversely affect the ability of the Issuer to make interest payments on the Notes (including due to a rise or a decline in the value of previously issued Collateral Obligations or other Collateral that bear interest at a fixed rate as LIBOR decreases or increases, as applicable) and to make payments or final payments on the Income Notes. To mitigate a portion of the interest rate mismatch, the Issuer may enter into Hedge Agreements that are subject to a Rating Condition, although it does not expect to do so as of the Closing Date. However, there can be no assurance that the Collateral Obligations and Eligible Investments, together with any Hedge Agreements, will in all circumstances generate sufficient Interest Proceeds to make timely payments of interest on the Notes. Moreover, the benefits of any Hedge Agreements may not be achieved in the event of the early termination of the Hedge Agreements, including termination upon the failure of the related Hedge Counterparty to perform its obligations under the Hedge Agreement. See "Security for the Notes Hedge Agreements." The Collateral Manager may direct the Issuer to reduce the notional amount of, or otherwise adjust the terms of, any Hedge Agreement outstanding at any time, subject, in the case of any reduction or adjustment made on or after the Ramp-Up Completion Date, to obtaining a Rating Confirmation.

48 Changes in Tax Law Could Result in the Imposition of Withholding Taxes with Respect to Payments on the Collateral Obligations, and the Obligors on the Collateral Obligations Will Not Gross-Up Payments to the Issuers The Collateral Obligations are required not to be subject to withholding tax at the time of acquisition by the Issuer unless the issuer of the Collateral Obligation is required to make gross-up payments. With respect to Collateral Obligations that are not subject to withholding tax at the time of acquisition by the Issuer, however, there can be no assurance that, as a result of any change in any applicable law, treaty, rule, or regulation or interpretation of any of them, payments on the Collateral Obligations might not in the future become subject to U.S. or other withholding tax. If any withholding tax should become applicable to payments on the Collateral Obligations that is not compensated for by a gross-up provision under the Collateral Obligations, the withholding tax would reduce the amounts available to make payments on the Securities. There can be no assurance that remaining payments on the Collateral Obligations would be sufficient to make timely payments of interest on and payment of principal at the applicable Stated Maturity of the Notes or to permit sufficient payments with respect to the Income Notes to achieve any desired performance (or to avoid losses). The Issuer Has the Right to Engage in Securities Lending, which Involves Counterparty Risks and Other Risks The Collateral Obligations may be loaned for a term of 90 days or less to banks, broker-dealers, or other financial institutions (other than insurance companies) that have, or are guaranteed by entities that have long term and short-term debt ratings or a guarantor with those ratings at the time of the loan, of at least "A1" (and not "A1" but on credit watch with negative implications) and "P-1" (and not on credit watch for possible downgrade) by Moody s and a long-term senior unsecured debt rating of at least "A" by S&P. See "Security for the Notes Securities Lending." The loans must be secured by cash or direct registered debt obligations of the United States of America, in an amount at least equal to 102% of the current Market Value of the loaned Collateral Obligations, determined on a daily basis. However, if the borrower of a loaned Collateral Obligation defaults on its obligation to return the loaned Collateral Obligation because of insolvency or otherwise, the Issuer could experience delays and costs in gaining access to the collateral posted by the borrower (and in extreme circumstances could be restricted from selling the collateral). If the borrower defaults, the Issuer could suffer a loss to the extent that the realized value of the cash or securities securing the obligation of the borrower to return a loaned Collateral Obligation (less expenses) is less than the amount required to purchase the Collateral Obligation in the open market. This shortfall could be due to, among other factors, discrepancies between the mark-to-market and actual transaction prices for the loaned Collateral Obligations arising from limited liquidity or availability of the loaned Collateral Obligations and, in extreme circumstances, the loaned Collateral Obligations being unavailable at any price. The Rating Agencies may downgrade any of the Notes if a borrower of a Collateral Obligation or, if applicable, the entity guaranteeing the performance of the borrower has been downgraded by one of the Rating Agencies such that the Issuer is not in compliance with the Securities Lending Counterparty rating requirements. The Securities Lending Counterparties may be Affiliates of the Initial Purchaser or Affiliates of the Collateral Manager, which may create certain conflicts of interest. See " Relating to Certain Conflicts of Interest The Issuer Will Be Subject to Various Conflicts of Interest Involving the Collateral Manager" and The Issuer Will Be Subject to Various Conflicts of Interest Involving the Initial Purchaser" below. Relating to Certain Conflicts of Interest In General, the Transaction Will Involve Various Potential and Actual Conflicts of Interest Various potential and actual conflicts of interest may arise from the overall advisory, investment, and other activities of the Collateral Manager and its Affiliates and from the conduct by the Initial Purchaser and its Affiliates of other transactions with the Issuer, including acting as counterparty with respect to Hedge Agreements, Securities Lending Agreements and Synthetic Securities. The following briefly summarizes some of these conflicts, but is not intended to be an exhaustive list of all such conflicts. 38

49 The Issuer Will Be Subject to Various Conflicts of Interest Involving the Collateral Manager Various potential and actual conflicts of interest may arise for the Collateral Manager with respect to its obligations to the Issuer from the overall investment activities of the Collateral Manager and its Affiliates, for the accounts of its other clients. For example, the Collateral Manager, its Affiliates and their respective clients may invest in loans, securities, and other obligations that would be appropriate for inclusion in the Issuer s portfolio of Collateral Obligations, as well as in loans, securities, and other obligations that are senior to, or have interests different from or adverse to, the loans and or other investments that are pledged to secure the Notes. Furthermore, the Collateral Manager and its Affiliates may serve as general partners or managers of special-purpose entities organized to issue other collateralized loan obligations ("CLOs" or "Credit Opportunity Funds") secured or backed primarily by corporate loans and collateralized debt obligations ("CDOs") secured by corporate debt obligations. The Collateral Manager and its Affiliates may also have ongoing relationships with, render services to, or engage in transactions with, companies whose loan obligations or securities are pledged to secure the Notes and may now or in the future own (as portfolio investments or otherwise) loan obligations or equity or debt securities issued by issuers of or obligors on, Collateral Obligations or other Collateral. The Collateral Manager and its Affiliates may possess information relating to issuers of Collateral Obligations or other Collateral that (i) may constrain the Issuer s investments as a consequence of the Collateral Manager s inability to use such information for advisory purposes or otherwise to take actions that would be in the best of interests of the Issuer or (ii) is not known to the employees of the Collateral Manager responsible for monitoring the Collateral and performing the other obligations of the Collateral Manager under the Management Agreement. The Collateral Manager, its Affiliates and their respective clients may at certain times be simultaneously seeking to purchase or dispose of investments for the respective accounts of the Issuer, any similar entity for which it serves as manager or advisor, and for its clients or Affiliates. Neither the Collateral Manager nor any of its Affiliates has any affirmative obligation to offer any investments to the Issuer or to inform the Issuer of any investments before offering any investments to other funds or accounts that the Collateral Manager or any of its Affiliates manage or advise. Furthermore, the Collateral Manager may be bound by affirmative obligations in the future, whereby the Collateral Manager is obligated to offer certain investments to funds or accounts that it manages or advises before or without the Collateral Manager offering those investments to the Issuer. The Collateral Manager will endeavor to resolve conflicts with respect to allocating opportunities to acquire or resell Collateral Obligations among the accounts it manages in a manner that it deems equitable, to the extent possible under the prevailing facts and circumstances and given the investment parameters of the accounts. In this respect, the Issuer will be purchasing Collateral for investment purposes and not for immediate trade or other disposition. Other accounts managed by the Collateral Manager may have different investment parameters and for that reason, among others, be allocated opportunities to acquire or resell assets not offered to the Issuer, including assets expected to be held only for the short term or for trading purposes. Further, the Collateral Manager may direct the acquisition of Collateral Obligations from, or the disposition of Collateral Obligations to, its Affiliates or any other account managed by the Collateral Manager in a transaction conducted on an arm s-length basis for an established fair market value and if the Collateral Manager has complied with its policies and procedures with respect to the acquisition or disposition and the acquisition or disposition otherwise complies with the requirements of the United States Investment Advisers Act of The Collateral Manager currently serves as the portfolio manager for a number of CLOs, CDOs and a Credit Opportunity Fund secured or backed by collateral consisting of assets similar to the Collateral Obligations, which may create conflicts in allocating its time and services among the Issuer and the Collateral Manager s other accounts. On the Closing Date, the Collateral Manager, one or more of its Affiliates and certain employees of Denali who are Knowledgeable Employees with respect to the Issuer or their transferees expect to purchase and are expected (but are not required) to hold a portion of the Income Notes. Upon the removal or resignation of the Collateral Manager, the Holders of a Majority of the Income Notes may direct the Issuer to appoint a replacement Collateral Manager if a Majority of each Class of the Notes does not disapprove the replacement Collateral Manager. Securities held by the Collateral Manager or any of its Affiliates (including any securities held by certain 39

50 employees of Denali) will have no voting rights with respect to any vote in connection with removal of the Collateral Manager for "cause" or, after such removal, any vote to appoint a replacement Collateral Manager in accordance with the Management Agreement, and will be deemed not to be outstanding in connection with any vote to remove the Collateral Manager for "cause" or, after such removal, any vote to appoint a replacement Collateral Manager. Securities held by the Collateral Manager or any of its Affiliates (including any securities held by certain employees of Denali) will have voting rights with respect to all other matters as to which the Holders of the Securities are entitled to vote, including any vote to direct an Optional Redemption. See "The Management Agreement" and "Certain Additional Provisions Relating to the Securities Optional Redemption." The Collateral Manager and its Affiliates may own equity or other securities of issuers of or obligors on Collateral Obligations or other Collateral and may have provided and may provide in the future, advisory and other services to issuers of Collateral. The Collateral Manager will be entitled to the Incentive Management Fee under the Management Agreement, which may create an incentive for the Collateral Manager to cause the Issuer to make more speculative investments in Collateral Obligations than it would otherwise make in the absence of the Incentive Management Fee. See "The Management Agreement Compensation." The Issuer expects to acquire substantially all of the Collateral Obligations to be acquired by the Closing Date during an accumulation period before the Closing Date (the "Accumulation Period") with financing provided by an affiliate of Bear Stearns. The Issuer will be required to repurchase the participations providing that financing by the Closing Date with the proceeds of the issuance of the Securities. The Collateral Obligations purchased before the Closing Date will be chosen by the Collateral Manager on behalf of the Issuer or acquired from Denali Capital CLO I, Ltd. ("Denali CLO I"), another collateralized loan obligation issuer managed by the Collateral Manager and in which the Collateral Manager and its Affiliates held a minority of the preferred shares. None of the income from the Collateral Obligations purchased by the Issuer before the Closing Date will be retained by the Issuer. As a result, investors in the Securities will be assuming the risk of market value and credit quality changes in the Collateral Obligations from the date the Collateral Obligations are acquired during the Accumulation Period but will not receive the benefit of interest earned on the Collateral Obligations during that period. In addition, the Collateral Manager and its Affiliates may act as the Securities Lending Counterparty under any Securities Lending Agreement entered into by the Issuer. For certain matters relating to the disclosure and consent provisions for "principal trades," see "The Management Agreement Disclosure and Consent Provisions Relating to Principal Trades. " The Issuer Will Be Subject to Various Conflicts of Interest Involving the Initial Purchaser It is expected that the Issuer will acquire the Initial Collateral to be acquired on the Closing Date from various sources including Denali CLO I, in each case, at established market prices acceptable to the Issuer. Certain of such loans or securities will be loans or securities of issuers for which Bear Stearns has acted as underwriter, agent, placement agent or principal or of which Bear Stearns is an equity owner. The price to be paid by the Issuer for such loans or securities may be higher or lower, based on market conditions at the time of purchase from such sellers (including Denali CLO I), than the prices the Issuer would have paid had such loans or securities all been purchased from such sellers on the Closing Date. After the Closing Date, the Issuer with the advice of the Collateral Manager may acquire from or through Bear Stearns or other sources Collateral at current market prices which will be negotiated by or on behalf of the Issuer at such time. In addition, from time to time the Collateral Manager may sell Collateral through Bear Stearns. Bear Stearns will also receive compensation for the sale of the Securities. See "Use of Proceeds" and "Plan of Distribution" herein. Bear Stearns has also entered into certain indemnification agreements with the Collateral Manager relating to, among other things, the acquisition of the Initial Collateral. The Initial Purchaser and its Affiliates may from time to time have various banking, securities-related and other commercial relationships with the Collateral Manager or the Issuer, as well as with one or more issuers of the Collateral Obligations. In addition, the Initial Purchaser and its Affiliates may act as counterparty with respect to one or more Synthetic Securities in the Issuer's portfolio or as the Hedge Counterparty under any Hedge Agreements or as the Securities Lending Counterparty under any Securities Lending Agreement entered into by the Issuer. 40

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52 THE CO-ISSUERS General Denali Capital CLO VII, Ltd. (the "Issuer") was incorporated in the Cayman Islands on July 11, 2006, for the express purpose of issuing the Securities and the ordinary shares, acquiring, disposing of and holding the assets described herein and engaging in the related transactions contemplated hereby. The Issuer has no significant prior operating experience. The purposes for which the Issuer has been established are unrestricted, as set forth in clause 3 of its Memorandum of Association, however, the business activities in which the Issuer may engage will be limited by the Indenture to the issuance of the Securities and the ordinary shares, the acquisition of and investment and reinvestment in Collateral as described herein and certain activities conducted in connection with the payment of amounts in respect of the Notes and the Income Notes and the management of the collateral. Cash flow derived from the Collateral and other collateral securing the Notes will be the Issuer s only sources of cash. The registered office of the Issuer is located at the offices of Maples Finance Limited, P.O. Box 1093GT Boundary Hall, Cricket Square, George Town, Grand Cayman, Cayman Islands, (345) , and the registered number of the Issuer is The proceeds of the offering of the Securities will be used to purchase Collateral, to fund the Deposit and the Expense Reimbursement Account and to pay organizational, structuring, legal and offering fees and expenses. The Issuer has appointed Maples Finance Limited in the Cayman Islands as Administrator to perform certain administrative functions on its behalf. Either of the Issuer or the Administrator may terminate the Administration Agreement by giving at least fourteen (14) days' notice in writing to the other party at any time within twelve months of the happening of any of the following events: (i) if the other party goes into liquidation or is dissolved (except as a voluntary liquidation or dissolution for the purposes of reconstruction or amalgamation upon terms previously approved in writing by the party otherwise entitled to serve notice) or commits any other act of bankruptcy under applicable laws; or (ii) if the other party commits any breach of its obligations under the Administration Agreement and (if such breach shall be capable of remedy) fails within thirty (30) days of notice served on it requiring it so to do to make good such breach. Either of the Issuer or the Administrator may terminate the Administration Agreement at any time by giving at least three (3) months notice in writing to the other party. Notice of any termination shall be provided to the Notes Trustee and any rating agencies for the time being rating the Securities (if any). Upon termination of the Administration Agreement, the Administrator shall, at the expense of the Issuer or its liquidator, as the case may be, deliver to the Issuer, or as it shall direct, all books of account, records, registers, correspondence, documents and all assets relating to the affairs of or belonging to the Issuer and in the possession of or under the control of the Administrator and shall take all necessary steps to vest in the Issuer or any new administrator or liquidator, as the case may be, any assets previously held in the name of or to the order of the Administrator on behalf of the Issuer. The Administration Agreement does not specifically provide a procedure for the appointment of a replacement administrator. The Administrator's principal office is at P.O. Box 1093GT, Boundary Hall, Cricket Square, George Town, Grand Cayman, Cayman Islands. The Issuer's authorized share capital is U.S.$50,000 and consists of 50,000 ordinary shares of U.S.$1.00 par value each (the "Issuer Ordinary Shares"). As of the Closing Date, 250 Issuer Ordinary Shares will have been issued and will be fully paid-up. All of the issued and outstanding Issuer Ordinary Shares of the Issuer will be held in trust by Maples Finance Limited by Maples Finance Limited as share trustee (in such capacity, the "Share Trustee") under the terms of a declaration of trust (the "Declaration of Trust"). Under the terms of the Declaration of Trust, the Share Trustee holds the issued Issuer Ordinary Shares in trust until the Termination Date (as defined in the Declaration Trust) and may only dispose or otherwise deal with such shares with the approval of the Trustee for 42

53 so long as there are Notes outstanding. Prior to the Termination Date, the trust is an accumulation trust, but the Share Trustee has the power with the consent of the Trustee, to benefit the Noteholders or Qualified Charities (as defined in the Declaration of Trust). It is not anticipated that any distribution will be made while any Notes are outstanding. Following the Termination Date, the Share Trustee will wind up the trust and make a final distribution to charity. The Share Trustee has no beneficial interest in, and derives no benefit (other than its fee for acting as Share Trustee) from, its holding of Issuer Ordinary Shares. The Directors of the Issuer are responsible for the management and administration of the Issuer. Currently, the Directors are Guy Major and Carrie Bunton. The Directors of the Issuer can be contacted at the registered office of the Issuer. The Co-Issuer was formed on May 7, 2007 under the laws of the State of Delaware and its registered office is 850 Library Avenue, Suite 204, Newark, Delaware 19711, (302) The Co-Issuer will not have any substantial assets and will not pledge any assets to secure the Notes. The sole Director of the Co-Issuer is Donald Puglisi, and its registered number is The Director of the Co-Issuer can be contacted at the registered office of the Co-Issuer. The Co-Issuer will not have any substantial assets and will not pledge any assets to secure the Notes. The Co-Issuer has been established as a special purpose company for the purpose of issuing the Securities, the acquisition and management of the Collateral Interests and other related transactions. The Co-Issuer will be capitalized only to the extent of its common equity of U.S.$10 and will have no assets other than its equity capital. The Issuer will own 100% of the stock of the Co-Issuer. Activities General Article 3 of the Issuer Charter of the Issuer provides that the objects for which the Issuer is established are unrestricted. However, the objects of the Issuer will be restricted pursuant to the terms of the Indenture and the Income Note Documents as described below in " The Issuer." Section 2.3 of the limited liability company agreement of the Co-Issuer provides that the purpose of the Co-Issuer is to engage in any lawful act or activity for which limited liability companies may be organized under Delaware Law and to engage in any and all activities necessary or incidental thereto. The Issuer and Co-Issuer each have been formed as special-purpose vehicles for the issuance of the Notes and the Income Notes, as applicable, and related activities as stated above. The Issuer The Indenture and the Income Note Documents provide that the activities of the Issuer are limited to the following: (i) (ii) (iii) (iv) acquisition and disposition of, and investment and reinvestment in, Collateral Obligations and Eligible Investments; entering into, and performing its obligations under, the Indenture, the Fiscal Agency Agreement, the Income Note Conditions, the Deed of Covenant, the Hedge Agreements, the Securities Lending Agreements, the Management Agreement, the Collateral Administration Agreement, the Administration Agreement, the Purchase and Placement Agency Agreement, and the Class A-1LR Note Purchase Agreement; the issuance and sale of the Securities and the Issuer Ordinary Shares; the pledge of the Collateral as security for its obligations in respect of the Notes and the Hedge Agreements; 43

54 (v) (vi) (vii) entering into certain pre-closing warehousing arrangements and the agreements relating thereto; acting as the sole member of the Co-Issuer; and undertaking certain other activities incidental to the foregoing. The Co-Issuer The Indenture, the certificate of formation and limited liability company agreement of the Co-Issuer provide that the activities of the Co-Issuer are to be limited to the following: (i) (ii) the co-issuance and sale of the Notes (other than the Class B-2L Notes); and undertaking certain other activities incidental to the foregoing. [remainder of page intentionally blank] 44

55 APPLICATION OF FUNDS Collections received on the Collateral during the related Due Period will be segregated into Interest Proceeds and Principal Proceeds and applied on each Payment Date in the priority below under " Application of Interest Proceeds" and " Application of Principal Proceeds," respectively (collectively, the "Application of Funds"). Application of Interest Proceeds On each Payment Date, Interest Proceeds with respect to the related Due Period (other than Interest Proceeds previously used to purchase accrued interest in respect of Collateral Obligations or otherwise used as permitted under the Indenture) will be distributed in the following order of priority: (1) to the payment of any registration and filing fees owed by the Co-Issuers (without limit) and then to payment of Administrative Expenses up to the Administrative Expense Cap as follows: FIRST, in the following order of priority, (x) (y) (z) fees, expenses, and indemnities of the Trustee and the Fiscal Agent, and then fees, expenses, and indemnities of the Collateral Administrator; and then Class A-1LR Note Agent Expenses; and SECOND, in the following order of priority, (x) (y) (z) fees and expenses of the Administrator, and then fees and expenses of the Co-Issuers (including fees and expenses of counsel and surveillance, credit estimate, and other fees owing to the Rating Agencies) and any other person (except the Collateral Manager) if specifically provided for in the Indenture and to the expenses (but not fees) of the Collateral Manager if payable under the Management Agreement; and then accrued and unpaid Prepayment Costs, Class A-1LR Additional Costs and Class A-1LR Tax Gross-Up Amounts (and, in each case, any interest thereon) to the extent not previously paid to the Holders of the Class A-1LR Notes; (2) the excess, if any, of the Administrative Expense Cap over the amounts paid pursuant to clause (1) above to deposit into the Expense Reimbursement Account up to U.S.$50,000; (3) to the payment of FIRST, any accrued and unpaid Successor Management Fee then payable, and SECOND, accrued and unpaid Senior Management Fee then payable; (4) to the payment of all amounts due to the Hedge Counterparties under the Hedge Agreements other than any Defaulted Hedge Termination Payments; (5) to the payment of (i) the Cumulative Interest Amount with respect to the Class A-1LR Notes and such Payment Date and Class A-1LR Commitment Fees with respect to such Payment Date (including interest on any Class A-1LR Commitment Fees accrued, but not paid, on prior Payment Dates), allocated pari passu based on amounts due, and (ii) the Cumulative Interest Amount with respect to the Class A-1L Notes and such Payment Date, allocated between items (i) and (ii) pari passu based on amounts due; 45

56 (6) to the payment of the Cumulative Interest Amount with respect to the Class A-2L Notes and such Payment Date; (7) if the Senior Class A Overcollateralization Test is not satisfied on the related Determination Date, to the payment of principal of the Class A-1 Notes and the deposit of other amounts as otherwise provided in the Note Payment Sequence Class A-1 and then to the payment of principal of the Class A-2L Notes, in that order, until each such Class is paid in full, to the extent necessary so that the Senior Class A Overcollateralization Test would be met on a pro forma basis after giving effect to any payments in reduction of the principal of Notes made through this clause, or until paid in full; (8) (a) on the initial Payment Date, if amounts available are sufficient to pay the Cumulative Interest Amount with respect to the Class A-3L Notes in full, to the payment of such amount on such date or, if not, no such Cumulative Interest Amount shall be paid on such date and all remaining amounts available shall be deposited into the Payment Account and (b) commencing on the second Payment Date, to pay the Cumulative Interest Amount with respect to the Class A-3L Notes and such Payment Date; (9) if the Class A Overcollateralization Test or the Interest Coverage Test is not satisfied on the related Determination Date, to the payment of principal of the Class A Notes and the deposit of other amounts as otherwise provided in the Note Payment Sequence Class A-1, then to the payment of principal of the Class A-2L Notes and then to the payment of principal of the Class A- 3L Notes, in each case in the amount necessary so that the Class A Overcollateralization Test and the Interest Coverage Test would be met on a pro forma basis after giving effect to any payments in reduction of the principal of Notes made through this clause, or until paid in full (Interest Proceeds to be applied pursuant to this clause (9) before the application of any Principal Proceeds as described under " Application of Principal Proceeds" below on the current Payment Date); (10) (a) on the initial Payment Date, if amounts available are sufficient to pay the Cumulative Interest Amount with respect to the Class B-1L Notes in full, to the payment of such amount on such date or, if not, no such Cumulative Interest Amount shall be paid on such date and all remaining amounts available shall be deposited into the Payment Account and (b) commencing on the second Payment Date, to pay the Cumulative Interest Amount with respect to the Class B-1L Notes and such Payment Date; (11) if the Class B-1L Overcollateralization Test is not satisfied on the related Determination Date, to the payment of principal of the Notes (other than the Class B-2L Notes) and the deposit of other amounts in the Note Payment Sequence in the amount necessary so that the Class B-1L Overcollateralization Test would be met on a pro forma basis after giving effect to any payments in reduction of the principal of Notes made through this clause, or until paid in full (Interest Proceeds to be applied pursuant to this clause (11) before the application of any Principal Proceeds as described under " Application of Principal Proceeds" below on the current Payment Date); (12) (a) on the initial Payment Date, if amounts available are sufficient to pay the Periodic Interest Amount with respect to the Class B-2L Notes in full, to the payment of such amount on such date or, if not, no such Periodic Interest Amount shall be paid on such date and all remaining amounts available shall be deposited into the Payment Account and (b) commencing on the second Payment Date, to pay the Periodic Interest Amount with respect to the Class B-2L Notes and such Payment Date; (13) if the Class B-2L Overcollateralization Test is not satisfied on the related Determination Date or, during the Revolving Period, in the event that a Rating Confirmation Failure has occurred and is continuing, in order to receive a Rating Confirmation, to the payment of principal of the Notes and the deposit of other amounts in the Note Payment Sequence in the amount necessary to either cure the Rating Confirmation Failure or so that the Class B-2L Overcollateralization Test would be met on a pro forma basis after giving effect to any payments in reduction of the principal of Notes made through this clause or until paid in full (Interest Proceeds to be applied pursuant to this clause (13) before the application of any Principal Proceeds as described under " Application of Principal Proceeds" below on the current Payment Date); 46

57 47 (14) to the payment of the Cumulative Interest Amount with respect to the Class B-2L Notes and such Payment Date, to the extent not paid pursuant to clauses (12) and (13); (15) (I) during the Revolving Period, on each Payment Date after the second Payment Date, an amount equal to the lesser of (i) 50% of the amount available to be applied pursuant to this clause (15) and (ii) the Additional Collateral Deposit Requirement will be applied to purchase additional Collateral Obligations as directed by the Collateral Manager or the Issuer meeting certain specified requirements set forth in the Indenture and described herein and (II) following the termination of the Revolving Period, an amount equal to the lesser of (i) 50% of the amount available to be applied pursuant to this clause (15) and (ii) the Additional Collateral Deposit Requirement will be applied to the payment of the Notes in the order of priority described in the Note Payment Sequence; (16) to the payment of any unpaid Administrative Expenses in the priority as specified in clause (1), but only up to an amount equal to 0.005% per annum of the Maximum Investment Amount for the related Determination Date on the related Determination Date; (17) solely with respect to Payment Dates other than the initial Payment Date, to deposit in the Collection Account as Principal Proceeds amounts representing Principal Proceeds previously used to pay amounts referred to in clauses (1), (3) through (5), (6), (8), (10(b)), (12(b)) and (16) above and not previously restored to the Collection Account or, if not restored to the Collection Account, used to purchase Collateral Obligations; (18) to the payment to the Collateral Manager of accrued and unpaid Subordinated Management Fee then due; (19) [reserved]; (20) pro rata to the payment of (x) any Defaulted Hedge Termination Payments and (y) if such payment is permitted under the confirmation relating thereto, any Defaulted Synthetic Termination Payment; (21) to the payment of any remaining Administrative Expenses not paid under clauses (1) and (16) above in the respective priorities specified in clause (1); (22) except as described below, to the Holders of the Income Notes until the Holders of the Income Notes have realized an Average Annual Income Note Return of 10% per annum; (23) to the payment of accrued and unpaid Tier I Incentive Management Fee then due and payable; (24) except as described below, to the Holders of the Income Notes until the Holders of the Income Notes have realized an Income Note Internal Rate of Return of 10% per annum; (25) to the payment of accrued and unpaid Tier II Incentive Management Fee then due and payable; and (26) except as described below, remaining Interest Proceeds, to the Holders of the Income Notes. For purposes of clause (5) above, the interest accrued on the portion of the outstanding principal amount of the Class A-1LR Notes from a Class A-1LR Borrowing made after the end of the Due Period for the relevant Payment Date will not be payable on that Payment Date, but instead will be payable (along with interest thereon) on the next Payment Date in an amount equal to the related Class A-1LR Additional LIBOR Payment. In accordance with the Application of Funds, principal payments will be allocated to the Holders of the Class A-1LR Notes and the Class A-1L Notes pursuant to the Note Payment Sequence Class A-1. In addition, principal of the Class A-1LR Notes may be repaid from time to time by Class A-1LR Prepayments as described herein. For purposes of clauses (22), (24) and (26) above, if on or prior to the first or second Payment Date the Issuer has not received a Rating Confirmation in connection with the Ramp-Up Completion Date, the amounts payable pursuant to any such clause on any such Payment Date shall not be distributed to the Holders of the Income Notes, but shall instead be credited to the Collection Account and distributed as Interest Proceeds on the Payment Date immediately succeeding receipt of such Rating Confirmation.

58 Application of Principal Proceeds On each Payment Date, Principal Proceeds with respect to the related Due Period other than (A) (B) (C) Principal Proceeds previously reinvested in Collateral Obligations (including any related deposit into the Revolving Reserve Account or the Delayed Drawdown Reserve Account or the posting by the Issuer of cash collateral with (or for the benefit of) a Synthetic Security counterparty simultaneously with the Issuer s purchase of or entry into a Synthetic Security) or otherwise used as permitted under the Indenture, Principal Proceeds on deposit in the Revolving Reserve Account, the Delayed Drawdown Reserve Account, the Synthetic Security Collateral Account, or the Securities Lending Account, and Principal Proceeds on deposit in the Collection Account in an aggregate amount equal to the agreed Purchase Prices for Collateral Obligations with respect to which the Issuer has entered into a commitment before the end of the Due Period for their purchase, but has not settled the purchase by the end of the Due Period, will be distributed in the following order of priority (after application of the Class A-1 Pro Rata Adjustment Amount, if any, required to be made as described under "Certain Additional Provisions Relating to the Securities Class A-1LR Borrowings" and provided that, if such Payment Date is a Redemption Date, then the amounts specified in clauses (A) (C) above also shall be distributed): (1) to the payment of the amounts referred to in clauses (1) through (13) (excluding clauses 10(a) and 12(a)) under " Application of Interest Proceeds" above (and in the same manner and order of priority), in each case to the extent such amounts have not been paid from Interest Proceeds with respect to such Payment Date; provided, however, that, with respect to the payment described in clause (8) above, after the Class A-3L Notes have received an amount sufficient to pay the Periodic Interest Amount due the Class A-3L Notes for such Payment Date, to the extent any additional payments available to the Class A-3L Notes in respect of the Periodic Rate Shortfall Amount would cause the Senior Class A Overcollateralization Test not to be satisfied on the related Determination Date, no such additional payments will be made to the Class A-3L Notes and any remaining amounts shall be distributed pursuant to clauses (9) through (13) above, in the order described therein; provided further that, with respect to the payment described in clause (10) above, after the Class B-1L Notes have received an amount sufficient to pay the Periodic Interest Amount due the Class B-1L Notes for such Payment Date, to the extent any additional payments available to the Class B-1L Notes in respect of the Periodic Rate Shortfall Amount would cause the Senior Class A Overcollateralization Test or the Class A Overcollateralization Test not to be satisfied on the related determination date, no such additional payments will be made to the Class B-1L Notes and any remaining amounts shall be distributed pursuant to clauses (11) through (13) above, in the order described therein; (2) (A) if the Payment Date is a Redemption Date in the following order of priority, (i) to the payment in the Note Payment Sequence of the Redemption Prices of all of the Notes to be redeemed; (ii) to the payment of the amounts referred to in clauses (16), (18) and (20) through (25) under " Application of Interest Proceeds" above (and in the same manner and order of priority) to the extent not previously paid in full thereunder; and (iii) to the Holders of the Income Notes of the Redemption Price of any Income Notes to be redeemed; and (B) if the Payment Date is a Special Redemption Date, to the payment in the Note Payment Sequence of principal of the Notes in an aggregate amount equal to the Special Redemption Amount; (3) during the Revolving Period, to the payment of any Class A-1LR Prepayments; (4) during the Revolving Period, all remaining Principal Proceeds to the acquisition of additional Collateral Obligations in accordance with the Indenture (and, until so applied (including any related deposit into the Revolving Reserve Account or the Delayed Drawdown Reserve Account 48

59 or the posting by the Issuer of cash collateral with (or for the benefit of) a Synthetic Security counterparty simultaneously with the Issuer s purchase of or entry into a Synthetic Security), to be deposited in the Collection Account as Principal Proceeds); (5) after the Revolving Period, to the payment in the Note Payment Sequence until the Notes are paid in full; (6) to the extent not previously paid in full under (2) above, after the Revolving Period, to the payment of the amounts referred to in clauses (16), (18) and (20) through (25) under " Application of Interest Proceeds" above (and in the same manner and order of priority) to the extent not previously paid in full thereunder; and (7) after the Revolving Period, to the Holders of the Income Notes. If on any Payment Date the amount available in the Payment Account is insufficient to make the full amount of the disbursements required by the note valuation report, the Trustee shall make the disbursements called for in the order of priority under " Application of Interest Proceeds" and " Application of Principal Proceeds," to the extent funds are available therefor. The Trustee shall remit funds to pay Administrative Expenses of the Issuer or the Co-Issuer in accordance with the priority of payments under " Application of Interest Proceeds" and " Application of Principal Proceeds" above, to the extent available, to the Issuer or the Co-Issuer, as the case may be. Payment of Management Fees to Successor Collateral Manager and Predecessor Collateral Manager On any Payment Date following a replacement of the Collateral Manager, if any, accrued and unpaid Management Fees payable on that Payment Date in accordance with the Application of Funds to the Collateral Manager shall be paid to any predecessor Collateral Manager and the successor Collateral Manager as follows: (a) with respect to any accrued and unpaid Senior Management Fee, (1) first, to the successor Collateral Manager; and (2) second, to the predecessor Collateral Manager until the predecessor Collateral Manager has been paid all accrued and unpaid Senior Management Fees owed to it and thereafter only to the successor Collateral Manager; (b) with respect to any accrued and unpaid Subordinated Management Fee, (1) first, to the successor Collateral Manager; and (2) second, to the predecessor Collateral Manager until the predecessor Collateral Manager has been paid all accrued and unpaid Subordinated Management Fees owed to it and thereafter only to the successor Collateral Manager; and (c) with respect to any accrued and unpaid Tier I Incentive Management Fee, pro rata, to the successor Collateral Manager and to the predecessor Collateral Manager; (d) with respect to any Tier II Incentive Management Fee, each predecessor Collateral Manager and the successor Collateral Manager shall receive a proportion of the fee payable on each Payment Date equal to a fraction in which the numerator is the amount of the Tier II Incentive Management Fee that accrued while such person served as Collateral Manager and remains unpaid, and the denominator is the total amount of the Tier II Incentive Management Fee that has accrued and remains unpaid. 49

60 COVERAGE TESTS AND ADDITIONAL COLLATERAL DEPOSIT REQUIREMENT General The Coverage Tests will consist of the Overcollateralization Tests and the Interest Coverage Test. The Coverage Tests will be used to determine, among other things, whether Notes will be redeemed in certain circumstances as described under "Certain Additional Provisions Relating to the Securities" and whether additional Collateral Obligations may be acquired as described under "Security for the Notes." There will not be a Coverage Test applicable to the Income Notes. The Overcollateralization Tests The "Overcollateralization Tests" will consist of the Senior Class A Overcollateralization Test, the Class A Overcollateralization Test, the Class B-1L Overcollateralization Test and the Class B-2L Overcollateralization Test. Each Overcollateralization Test will be satisfied with respect to any Class of Notes on any Measurement Date if, as of such Measurement Date, the Overcollateralization Ratio for the Class is at least equal to the specified Required Level for the Class based on the Class A-1LR Permitted Amount indicated in the table below, as determined by application of the Collateral Quality Matrix: Class A-1LR Permitted Amount Senior Class A Required Level Class A Required Level Class B-1L Required Level Class B-2L Required Level ACDR Required Level % % % % % 5,000, % % % % % 10,000, % % % % % 15,000, % % % % % 20,000, % % % % % 25,000, % % % % % 30,000, % % % % % 35,000, % % % % % 40,000, % % % % % 45,000, % % % % % 50,000, % % % % % 55,000, % % % % % 60,000, % % % % % 65,000, % % % % % 70,000, % % % % % 75,000, % % % % % 80,000, % % % % % 85,000, % % % % % 90,000, % % % % % 95,000, % % % % % 100,000, % % % % % 105,000, % % % % % 110,000, % % % % % 115,000, % % % % % 120,000, % % % % % 125,000, % % % % % 130,000, % % % % % 135,000, % % % % % 140,000, % % % % % 145,000, % % % % % 150,000, % % % % % 50

61 The "Senior Class A Overcollateralization Ratio", as of any Measurement Date, is the ratio calculated by dividing (i) the Overcollateralization Ratio Numerator by (ii) the Aggregate Principal Amount of the Senior Class A Notes (including for this purpose any Periodic Rate Shortfall Amounts with respect to such Classes of Notes not paid when due, until such amounts, if any, are paid in full and assuming, for purposes of such calculation, that the Aggregate Principal Amount of the Class A-1LR Notes is equal to the Class A-1LR Permitted Amount) as of such Measurement Date. Each of the "Class A Overcollateralization Ratio" and the "Class B-1L Overcollateralization Ratio" is calculated in the same manner as the Senior Class A Overcollateralization Ratio, but includes in the denominator the Aggregate Principal Amount of the Class A-3L Notes (in the case of the Class A Overcollateralization Ratio) and the Class A-3L Notes and the Class B-1L Notes (in the case of the Class B-1L Overcollateralization Ratio) (including, in each case, any Periodic Rate Shortfall Amounts with respect to such Classes of Notes). The "Class B- 2L Overcollateralization Ratio" is calculated in the same manner as the Senior Class A Overcollateralization Ratio, but reduces the numerator by the CCC/Caa Par Reduction Amount and includes in the denominator the Aggregate Principal Amount of the Class A-3L Notes, the Class B-1L Notes and the Class B-2L Notes (including, in each case, any Periodic Rate Shortfall Amounts with respect to such Classes of Notes not paid when due, until any such amounts are paid in full). The "Overcollateralization Ratio Numerator" on any date, is the sum of: (1) the Aggregate Principal Balance of all Collateral Obligations (other than any Non-Performing Collateral Obligations, any Deep Discount Obligations, any Purchased Discount Obligations and any Collateral Obligations loaned pursuant to a Securities Lending Agreement with respect to which an "event of default" (under and as defined in the Securities Lending Agreement) is continuing and excluding the unfunded amount of any Revolving Loan or Delayed Drawdown Loan to the extent such amount is not reserved in the Revolving Reserve Account or the Delayed Drawdown Reserve Account to be applied to fund such unfunded amount); plus (2) unpaid accrued interest purchased with principal (excluding any unpaid accrued interest purchased with principal in respect of Non-Performing Collateral Obligations); plus (3) the balance of any Eligible Investments that were purchased with Principal Proceeds and the amount of Principal Proceeds on deposit in the Collection Account; plus (4) the balance of Eligible Investments on deposit in a Securities Lending Account that relate to a Securities Lending Agreement with respect to which an "event of default" (under and as defined in the Securities Lending Agreement) is continuing; plus (5) for each Collateral Obligation that is a Non-Performing Collateral Obligation or a Deep Discount Obligation, include it in either the only one of the following that applies, or if more than one applies, the one of the following that results in including for it the smallest amount: (A) (B) the aggregate of the Applicable Collateral Obligation Amounts for all included Non- Performing Collateral Obligations; plus the aggregate of the Purchase Prices for all included Deep Discount Obligations; plus (6) for each Collateral Obligation that is a Purchased Discount Obligation, the Purchase Price of such Purchased Discount Obligation; plus (7) for each Collateral Obligation that is characterized as a Current-Pay Obligation in clause (iii)(c) of the definition of such term, 95% of the Market Value of such Collateral Obligation; plus 51

62 (8) the Class A-1LR Undrawn Permitted Amount. As used in this definition, "Applicable Collateral Obligation Amount" for any Non-Performing Collateral Obligation means (a) (b) (c) If a Non-Performing Collateral Obligation has been held by the Issuer (as a Non-Performing Collateral Obligation) for 3 years or more, zero; If a Non-Performing Collateral Obligation has been held by the Issuer (as a Non-Performing Collateral Obligation) for less than 3 years, the lesser of (x) the Market Value Percentage of the Non-Performing Collateral Obligation and (y) the Applicable Percentage for the Non-Performing Collateral Obligation multiplied by if the Non-Performing Collateral Obligation is (1) any Collateral Obligation other than those in (2) to (5) below, the outstanding principal amount of the Collateral Obligation as of the relevant Measurement Date; (2) a Synthetic Security, the notional amount specified in the Synthetic Security; (3) any Zero Coupon Security or Step-Up Coupon Security, its accreted value; (4) any Revolving Loan or Delayed Drawdown Loan, the drawn portion of such Revolving Loan or Delayed Drawdown Loan, as applicable, unless the underlying instrument of such Revolving Loan or Delayed Drawdown Loan permits additional draws following an event of default in accordance with the terms of such underlying instrument (as certified in writing by the Collateral Manager); and (5) any PIK Security, its Principal Balance (if it were not a Defaulted Collateral Obligation). As used in the calculation of Market Value Percentage of the Non-Performing Collateral Obligation, the Principal Balance of any Defaulted Collateral Obligation shall be, if the Defaulted Collateral Obligation is any Collateral Obligation other than those in the following list, the outstanding principal amount of the Collateral Obligation as of the relevant Measurement Date; a Synthetic Security, the notional amount specified in the Synthetic Security; any Zero Coupon Security or Step-Up Coupon Security, its accreted value; any Revolving Loan or Delayed Drawdown Loan, the drawn portion of such Revolving Loan or Delayed Drawdown Loan, as applicable, unless the underlying instrument of such Revolving Loan or Delayed Drawdown Loan permits additional draws following an event of default in accordance with the terms of such underlying instrument (as certified in writing by the Collateral Manager); and any PIK Security, its Principal Balance. The Interest Coverage Test The Interest Coverage Test (the "Interest Coverage Test") is a test the first Measurement Date for which will be on the third Payment Date and that is satisfied if, as of the third Payment Date and any Measurement Date thereafter on which any Notes remain outstanding, the Interest Coverage Ratio equals or exceeds 110%. 52

63 The "Interest Coverage Ratio," as of any Measurement Date, is the ratio calculated by dividing: (i) the sum of (A) (B) the Interest Proceeds received or scheduled to be received (other than any interest due on any PIK Security that has been capitalized or deferred) with respect to the Due Period in which the Measurement Date occurs minus amounts payable under clauses (1), (2), (3) and (4) of "Application of Funds Application of Interest Proceeds" on the related Payment Date by (ii) all accrued and unpaid interest on the Class A Notes and scheduled Class A-1LR Commitment Fees and any accrued and unpaid interest thereon, on the related Payment Date. For purposes of the Interest Coverage Ratio, only the amount of any interest payment (including any "gross up" payment) on any Collateral Obligation in excess of any withholding tax or other deductions on account of tax of any jurisdiction on any date of determination shall be included in Interest Proceeds. The Additional Collateral Deposit Requirement On each Payment Date after the second Payment Date, even if the Overcollateralization Tests and the Interest Coverage Test are satisfied, amounts that would otherwise be used for payments that are junior in right of payment to the Additional Collateral Deposit Requirement as described under "Application of Funds Application of Interest Proceeds", will be used (i) during the Revolving Period, to purchase additional Collateral and (ii) after the Revolving Period, to pay principal of the Notes. The "Additional Collateral Deposit Requirement" with respect to any Payment Date is the amount necessary such that: (a) the sum of: (i) the Aggregate Principal Balance of the Collateral Obligations (excluding the unfunded amount of any Revolving Loan or Delayed Drawdown Loan to the extent such amount is not reserved in the Revolving Reserve Account or the Delayed Drawdown Reserve Account to be applied to fund such unfunded amount) as of the Measurement Date relating to such Payment Date, plus (ii) the Class A-1LR Undrawn Permitted Amount, plus (iii) the sum of the balance of Eligible Investments and cash in the Collection Account representing Principal Proceeds plus unpaid Accrued Interest Purchased With Principal as of such Payment Date, less (iv) the CCC/Caa Par Reduction Amount (if any), equals or exceeds: (b) the applicable percentage (set forth in the table above in " The Overcollateralization Tests" based on the Class A-1LR Permitted Amount) of the amount necessary, after giving effect to the amount applied to any redemption of the Notes caused by the failure to meet any of the Coverage Tests on such Payment Date, to repay the Aggregate Principal Amount (including any Class A-1LR Undrawn Permitted Amount) of the Notes (including for this purpose any Periodic Rate Shortfall Amounts with respect to such Notes not paid when due, until such amounts, if any, are paid in full). For purposes of the Additional Collateral Deposit Requirement, no Qualified Equity Security or Attached Equity Security shall be included as a Collateral Obligation. In addition for purposes of this requirement, (i) with respect to any Defaulted Collateral Obligation as to which there has occurred a payment default or an event of bankruptcy, only the portion equal to the Market Value (not in excess of par) of such Defaulted Collateral Obligation shall be included as a Collateral Obligation, (ii) with respect to any Deep Discount Obligation or 53

64 Purchased Discount Obligation, only an amount equal to the original purchase price of such Deep Discount Obligation or Purchased Discount Obligation (as applicable) shall be included as a Collateral Obligation, (iii) with respect to any Current-Pay Obligation that has the characteristics described in clause (iii)(c) of the definition of such term, 95% of the Market Value of such Collateral Obligation and (iv) with respect to any Collateral Obligation that it is both eligible to be included in Excess Caa/CCC Collateral Obligations and is a Deep Discount Obligation, such Collateral Obligation will not be discounted twice, but will be treated in the category that results in the largest discount to the par amount of the Collateral Obligation. [remainder of page intentionally blank] 54

65 CERTAIN ADDITIONAL PROVISIONS RELATING TO THE SECURITIES General The Notes will be issued pursuant to the Indenture, to be dated as of the Closing Date, among the Issuer, the Co-Issuer, and Deutsche Bank Trust Company Americas, as trustee. The Income Notes will be issued pursuant to the Income Note Documents. This summary does not purport to be complete and is subject to, and qualified in its entirety by reference to, the Indenture and the Fiscal Agency Agreement. Status and Security The Notes (other than the Class B-2L Notes) are non-recourse obligations of the Co-Issuers and the Class B-2L Notes are non-recourse obligations of the Issuer. The Class A-1LR Notes will rank pari passu with the Class A-1L Notes. Under the Indenture, the Issuer will grant to the Trustee a first-priority security interest in the Collateral to secure the Issuer s obligations under the Indenture, the Notes, the Hedge Agreements and the Management Agreement (collectively, the "Secured Obligations"). The Notes are payable solely from amounts received in respect of the Collateral pledged by the Issuer to secure the Notes. If the amounts received in respect of the Collateral (net of certain expenses) are insufficient to make payments on the Secured Obligations in accordance with the Application of Funds, no other assets will be available for payment of the deficiency and, following liquidation of all the Collateral, the obligations of the Issuer or the Co-Issuer, as the case may be, to pay the deficiency will be extinguished. The Income Notes are not secured obligations of the Issuer and are entitled only to proceeds of the Collateral to the extent that any proceeds are remaining on any Payment Date after payment of all interest and principal payable on each Class of Notes on that Payment Date and the satisfaction of certain other amounts payable in accordance with the Application of Funds. To the extent the Collateral is insufficient to make distributions on, or to redeem, the Income Notes, the Issuer will have no obligation to pay any further amounts in respect of the Income Notes and any sums outstanding and unpaid will be extinguished. U.S.$4,175,000 in notional amount of Income Notes are expected to be held initially by the Collateral Manager, Affiliates of the Collateral Manager and certain employees of Denali who are Knowledgeable Employees with respect to the Issuer. Payments on the Notes The Class A-1LR Notes will provide for the payment of Periodic Interest on the drawn balance of the Class A-1LR Notes, as determined daily for each day during each Periodic Interest Accrual Period (the amount of such Periodic Interest, the "Periodic Interest Amount" with respect to the Class A-1LR Notes) (to the extent of funds available therefor as described herein) at the rate of 0.26% per annum above the London interbank offered rate for three-month U.S. dollar deposits (or (i) for the period from the Closing Date to the first Payment Date, five-month U.S. dollar deposits or (ii) if a Periodic Interest Accrual Period with respect to the Class A-1LR Notes is less than three months, U.S. dollar deposits for such period of time described below under " Determination of LIBOR") ("LIBOR") (determined as described herein) (the "Applicable Periodic Rate" with respect to the Class A-1LR Notes) on January 22, April 22, July 22 and October 22 of each year, or, if any such day is not a Business Day, then on the next succeeding Business Day (each such date, a "Payment Date"), commencing on the October 2007 Payment Date. Payments of interest on the Class A-1LR Notes and the Class A-1L Notes will be payable pari passu between the Class A-1LR Notes and the Class A-1L Notes as described herein. Accrued interest on the principal amount of Class A-1LR Notes so repaid on a date other than the Payment Date will be paid to the Holders of the Class A-1LR Notes on the next succeeding Payment Date. In addition, the interest accrued on the portion of the outstanding principal balance of the Class A-1LR Notes from a Class A-1LR Borrowing made after the end of the Due Period for the relevant Payment Date will not be payable on that Payment Date, but instead will be payable (along with interest thereon) on the next Payment Date in an amount equal to the related Class A-1LR Additional LIBOR Payment. To the extent Periodic Interest accrued at the Applicable Periodic Rate with respect to any Periodic Interest Accrual Period is not paid on the related Payment Date, the amount of such interest shortfall will accrue interest at the Applicable Periodic Rate and will be paid (to the extent of funds available therefor as described herein) on one or more subsequent Payment Dates after payment of interest at the Applicable Periodic Rate with 55

66 respect to the Periodic Interest Accrual Period relating to such subsequent Payment Date (the amount of such shortfall, together with interest thereon at the Applicable Periodic Rate, the "Periodic Rate Shortfall Amount" and, together with the Periodic Interest Amount for such subsequent Payment Date, the "Cumulative Interest Amount" with respect to such Payment Date). Interest will be calculated on the basis of a year of 360 days and the actual number of days elapsed. No principal will be payable in respect of the Class A-1LR Notes (and principal collections on the Collateral will be reinvested as described herein) during the Revolving Period, except in the event of a Class A-1LR Prepayment, an Optional Redemption, a Special Redemption, a redemption made in connection with a Tax Event or a mandatory redemption of the Class A-1LR Notes caused by the failure to meet any of the Coverage Tests or a Rating Confirmation Failure. On any Payment Date on which the Class A-1LR Notes or the Class A-1L Notes receive a payment in respect of any of the foregoing (other than in connection with a Class A-1LR Prepayment), the Class A-1LR Commitments shall be reduced by an amount such that, after giving effect to such reduction in the Class A-1LR Commitments, the ratio of the Class A-1LR Commitments to the Aggregate Principal Amount of the Class A-1L Notes at such time is the same as it was immediately prior to such redemption payment. Any reduction in the Class A-1LR Commitment will be applied to the Class A-1LR Notes pro rata in accordance with each Holder's Class A-1LR Commitment. Principal of the Class A-1LR Notes will be payable (to the extent of funds available therefor as described herein) on each Payment Date following the Revolving Period, in the priority described herein, until the Payment Date on which the Aggregate Principal Amount of the Class A-1LR Notes is paid in full. In addition, all payments of principal on the Class A-1LR Notes that are made in connection with a Special Redemption or a mandatory redemption of the Class A-1LR Notes caused by the failure to meet any of the Coverage Tests or a Rating Confirmation Failure will be paid on a pro rata basis with the Class A-1L Notes as described herein. The Aggregate Principal Amount of the Class A-1LR Notes, together with the other amounts described herein, will be due and payable at the Stated Maturity. Commitment fees will accrue on the Class A-1LR Aggregate Undrawn Amount as set forth under "Certain Additional Provisions Relating to the Securities Class A-1LR Commitment Fees." The Class A-1L Notes will provide for the payment of Periodic Interest on the Aggregate Principal Amount thereof (the amount of such Periodic Interest, the "Periodic Interest Amount" with respect to the Class A-1L Notes) (to the extent of funds available therefor as described herein) for each Periodic Interest Accrual Period at the rate of 0.23% per annum above three-month LIBOR (or, for the period from the Closing Date to the first Payment Date, five-month LIBOR) (the "Applicable Periodic Rate" with respect to the Class A-1L Notes) on each Payment Date, commencing on the October 2007 Payment Date. Payments of interest on the Class A-1L Notes and the Class A- 1LR Notes will be payable pari passu between the Class A-1L Notes and the Class A-1LR Notes as described herein. To the extent Periodic Interest accrued at the Applicable Periodic Rate with respect to any Periodic Interest Accrual Period is not paid on the related Payment Date, the amount of such interest shortfall will accrue interest at the Applicable Periodic Rate and will be paid (to the extent of funds available therefor as described herein) on one or more subsequent Payment Dates after payment of interest at the Applicable Periodic Rate with respect to the Periodic Interest Accrual Period relating to such subsequent Payment Date (the amount of such shortfall, together with interest thereon at the Applicable Periodic Rate, the "Periodic Rate Shortfall Amount" and, together with the Periodic Interest Amount for such subsequent Payment Date, the "Cumulative Interest Amount" with respect to such Payment Date). Interest will be calculated on the basis of a year of 360 days and the actual number of days elapsed. No principal will be payable in respect of the Class A-1L Notes (and principal collections on the Collateral will be reinvested as described herein) during the Revolving Period, except in the event of an Optional Redemption, a Special Redemption, a redemption made in connection with a Tax Event or a mandatory redemption of the Class A-1L Notes caused by the failure to meet any of the Coverage Tests or a Rating Confirmation Failure. Principal of the Class A-1L Notes will be payable (to the extent of funds available therefor as described herein) on each Payment Date following the Revolving Period, in the priority described herein, until the Payment Date on which the Aggregate Principal Amount of the Class A-1L Notes is paid in full. In addition, all payments of principal on the Class A-1L Notes that are made in connection with a Special Redemption or a mandatory redemption of the Class A-1L Notes caused by the failure to meet any of the Coverage Tests or a Rating Confirmation Failure will be paid on a pro rata basis with the Class A-1LR Notes as described herein. The Aggregate Principal Amount of the Class A-1L Notes, together with the other amounts described herein, will be due and payable at the Stated Maturity. 56

67 No interest will be payable in respect of the Class A-2L Notes on any Payment Date unless the Holders of the Class A-1 Notes have been paid the Cumulative Interest Amount due to them on such Payment Date. The Class A-2L Notes will provide for the payment of Periodic Interest on the Aggregate Principal Amount thereof (the amount of such periodic interest, the "Periodic Interest Amount" with respect to the Class A-2L Notes) (to the extent of funds available therefor as described herein) for each Periodic Interest Accrual Period at the rate of 0.43% per annum above three-month LIBOR (or, for the period from the Closing Date to the first Payment Date, five-month LIBOR) (the "Applicable Periodic Rate" with respect to the Class A-2L Notes) on each Payment Date, commencing on the October 2007 Payment Date. To the extent Periodic Interest accrued at the Applicable Periodic Rate with respect to any Periodic Interest Accrual Period is not paid on the related Payment Date, the amount of such interest shortfall will accrue interest at the Applicable Periodic Rate and will be paid (to the extent of funds available therefor as described herein) on one or more subsequent Payment Dates after payment of interest at the Applicable Periodic Rate with respect to the Periodic Interest Accrual Period relating to such subsequent Payment Date (the amount of such shortfall, together with interest thereon at the Applicable Periodic Rate, the "Periodic Rate Shortfall Amount" and, together with the Periodic Interest Amount for such subsequent Payment Date, the "Cumulative Interest Amount" with respect to such Payment Date). Interest will be calculated on the basis of a year of 360 days and the actual number of days elapsed. No principal will be payable in respect of the Class A-2L Notes (and principal collections on the Collateral will be reinvested as described herein) during the Revolving Period, except in the event of an Optional Redemption, a Special Redemption, a redemption made in connection with a Tax Event or a mandatory redemption of the Class A-2L Notes caused by the failure to meet any of the Coverage Tests or a Rating Confirmation Failure. In connection with an Optional Redemption, a Special Redemption, a redemption made in connection with a Tax Event or a mandatory redemption of the Class A-2L Notes caused by the failure to meet any of the Coverage Tests or a Rating Confirmation Failure, no principal in respect of the Class A-2L Notes will be payable until the Aggregate Principal Amount of the Class A-1 Notes has been paid in full. Following the Revolving Period, on each Payment Date after which the Aggregate Principal Amount of the Class A-1 Notes has been paid in full, principal of the Class A-2L Notes will be payable (to the extent of funds available therefor and in the order of priority described herein) until the Aggregate Principal Amount of the Class A-2L Notes has been paid in full. The Aggregate Principal Amount of the Class A-2L Notes, together with the other amounts described herein, will be due and payable at the Stated Maturity. The Class A-2L Notes are subordinated in right of payment to the Class A-1 Notes to the extent described herein. No interest will be payable in respect of the Class A-3L Notes until the January 2008 Payment Date, except in the amounts described herein. No interest will be payable in respect of the Class A-3L Notes on any Payment Date unless the Holders of the Senior Class A Notes have been paid the Cumulative Interest Amount due to them on such Payment Date and the Senior Class A Overcollateralization Test has been satisfied. The Class A-3L Notes will provide for the payment of Periodic Interest on the Aggregate Principal Amount thereof (the amount of such periodic interest, the "Periodic Interest Amount" with respect to the Class A-3L Notes) (to the extent of funds available therefor as described herein) for each Periodic Interest Accrual Period at the rate of 0.75% per annum above three-month LIBOR (or, in the case of the period from the Closing Date to the January 2008 Payment Date, eight-month LIBOR) (the "Applicable Periodic Rate" with respect to the Class A-3L Notes) on each Payment Date, commencing on the January 2008 Payment Date; provided that, solely to the extent funds are available for the payment in full of such amounts in accordance with the priority of payments described herein, the Class A-3L Notes will be entitled to receive, on the October 2007 Payment Date, Periodic Interest accrued with respect to the related Periodic Interest Accrual Period, and such Periodic Interest will be calculated for the period from the Closing Date to such Payment Date based on five-month LIBOR. To the extent Periodic Interest accrued at the Applicable Periodic Rate with respect to any Periodic Interest Accrual Period is not paid on the related Payment Date, the amount of such interest shortfall will accrue interest at the Applicable Periodic Rate and will be paid (to the extent of funds available therefor as described herein) on one or more subsequent Payment Dates after payment of interest at the Applicable Periodic Rate with respect to the Periodic Interest Accrual Period relating to such subsequent Payment Date (the amount of such shortfall, together with interest thereon at the Applicable Periodic Rate, the "Periodic Rate Shortfall Amount" and, together with the Periodic Interest Amount for such subsequent Payment Date, the "Cumulative Interest Amount" with respect to such Payment Date). The failure to 57

68 pay in full Periodic Interest on the Class A-3L Notes as a result of insufficient funds being available therefor will not constitute an Event of Default so long as any Senior Class A Notes are Outstanding. Interest will be calculated on the basis of a year of 360 days and the actual number of days elapsed. No principal will be payable in respect of the Class A-3L Notes (and principal collections on the Collateral will be reinvested as described herein) during the Revolving Period, except in the event of an Optional Redemption, a Special Redemption, a redemption made in connection with a Tax Event or a mandatory redemption of the Class A-3L Notes caused by the failure to meet any of the Coverage Tests or a Rating Confirmation Failure. In connection with an Optional Redemption, a Special Redemption, a redemption made in connection with a Tax Event or a mandatory redemption of the Class A-3L Notes caused by the failure to meet any of the Coverage Tests or a Rating Confirmation Failure, no principal in respect of the Class A-3L Notes will be payable until the Aggregate Principal Amount of the Class A-2L Notes has been paid in full. Following the Revolving Period, on each Payment Date after which the Aggregate Principal Amount of the Class A-2L Notes has been paid in full, principal of the Class A-3L Notes will be payable (to the extent of funds available therefor and in the order of priority described herein) until the Payment Date on which the Aggregate Principal Amount of the Class A-3L Notes has been paid in full. The Aggregate Principal Amount of the Class A-3L Notes, together with the other amounts described herein, will be due and payable at the Stated Maturity. The Class A-3L Notes are subordinated in right of payment to the Senior Class A Notes to the extent described herein. No interest will be payable in respect of the Class B-1L Notes until the January 2008 Payment Date, except in the amounts described herein. No interest will be payable in respect of the Class B-1L Notes on any Payment Date unless the Holders of the Class A Notes have been paid the Cumulative Interest Amount due to them on such Payment Date, and each of the Senior Class A Overcollateralization Test, the Class A Overcollateralization Test and the Interest Coverage Test has been satisfied. The Class B-1L Notes will provide for the payment of Periodic Interest on the Aggregate Principal Amount thereof (the amount of such periodic interest, the "Periodic Interest Amount" with respect to the Class B-1L Notes) (to the extent of funds available therefor as described herein) for each Periodic Interest Accrual Period at the rate of 1.75% per annum above three-month LIBOR (or, in the case of the period from the Closing Date to the January 2008 Payment Date, eight-month LIBOR) (the "Applicable Periodic Rate" with respect to the Class B-1L Notes) on each Payment Date, commencing on the January 2008 Payment Date; provided that, solely to the extent funds are available for the payment in full of such amounts in accordance with the priority of payments described herein, the Class B-1L Notes will be entitled to receive, on the October 2007 Payment Date, Periodic Interest accrued with respect to the related Periodic Interest Accrual Period, and such Periodic Interest will be calculated for the period from the Closing Date to such Payment Date based on five-month LIBOR. To the extent Periodic Interest accrued at the Applicable Periodic Rate with respect to any Periodic Interest Accrual Period is not paid on the related Payment Date, the amount of such interest shortfall will accrue interest at the Applicable Periodic Rate and will be paid (to the extent of funds available therefor as described herein) on one or more subsequent Payment Dates after payment of interest at the Applicable Periodic Rate with respect to the Periodic Interest Accrual Period relating to such subsequent Payment Date (the amount of such shortfall, together with interest thereon, at the Applicable Periodic Rate, the "Periodic Rate Shortfall Amount" and, together with the Periodic Interest Amount for such subsequent Payment Date, the "Cumulative Interest Amount" with respect to such Payment Date). The failure to pay in full Periodic Interest on the Class B-1L Notes as a result of insufficient funds being available therefor will not constitute an Event of Default so long as any Class A Notes are Outstanding. Interest will be calculated on the basis of a year of 360 days and the actual number of days elapsed. No principal will be payable in respect of the Class B-1L Notes (and principal collections on the Collateral will be reinvested as described herein) during the Revolving Period, except in the event of an Optional Redemption, a Special Redemption, a redemption made in connection with a Tax Event or a mandatory redemption of the Class B-1L Notes caused by the failure to meet any of the Coverage Tests or a Rating Confirmation Failure. In connection with an Optional Redemption, a Special Redemption, a redemption made in connection with a Tax Event or a mandatory redemption of the Class B-1L Notes caused by the failure to meet any of the Coverage Tests or a Rating Confirmation Failure, no principal in respect of the Class B-1L Notes will be payable until the Aggregate Principal Amount of the Class A-3L Notes has been paid in full. Principal payments are not expected to begin until the end of the Revolving Period (except in the event of an Optional Redemption, a Special Redemption, a redemption made in connection with a Tax Event or a mandatory redemption of the Class B-1L Notes caused by the failure to meet any 58

69 of the Coverage Tests or a Rating Confirmation Failure) and are to continue until the Payment Date on which the Aggregate Principal Amount of the Class B-1L Notes has been paid in full. The Aggregate Principal Amount of the Class B-1L Notes, together with the other amounts described herein, will be due and payable at the Stated Maturity. The Class B-1L Notes are subordinated in right of payment to the Class A Notes to the extent described herein. No interest will be payable on the Class B-2L Notes until the October 2008 Payment Date, except in the amounts described herein. No such interest will be payable on any Payment Date unless the Holders of the Class A Notes have been paid the Cumulative Interest Amount due to them on such Payment Date, and each of the Senior Class A Overcollateralization Test, the Class A Overcollateralization Test, the Class B-1L Overcollateralization Test and the Interest Coverage Test has been satisfied, the Holders of the Class B-1L Notes have been paid the Periodic Interest Amount (or, following the Revolving Period, after the Class A Notes have been paid in full, the Cumulative Interest Amount) due to them on such Payment Date. The Class B-2L Notes will provide for the payment of Periodic Interest on the Aggregate Principal Amount thereof (the amount of such periodic interest, the "Periodic Interest Amount" with respect to the Class B-2L Notes) (to the extent of funds available therefor as described herein) for each Periodic Interest Accrual Period at the rate of 4.25% per annum above three-month LIBOR (or, in the case of the period from the Closing Date to the January 2008 Payment Date, eight-month LIBOR) (the "Applicable Periodic Rate" with respect to the Class B-2L Notes) on each Payment Date, commencing on the January 2008 Payment Date; provided that, solely to the extent funds are available for the payment in full of such amounts in accordance with the priority of payments described herein, the Class B-2L Notes will be entitled to receive, on the October 2007 Payment Date, Periodic Interest accrued with respect to the related Periodic Interest Accrual Period, and such Periodic Interest will be calculated for the period from the Closing Date to such Payment Date based on five-month LIBOR. To the extent Periodic Interest accrued at the Applicable Periodic Rate with respect to any Periodic Interest Accrual Period is not paid on the related Payment Date, the amount of such interest shortfall will accrue interest at the Applicable Periodic Rate and will be paid (to the extent of funds available therefor as described herein) on one or more subsequent Payment Dates after payment of interest at the Applicable Periodic Rate with respect to the Periodic Interest Accrual Period relating to such subsequent Payment Date (the amount of such shortfall, together with interest thereon, at the Applicable Periodic Rate, the "Periodic Rate Shortfall Amount" and, together with the Periodic Interest Amount for such subsequent Payment Date, the "Cumulative Interest Amount" with respect to such Payment Date). The failure to pay in full Periodic Interest on the Class B-2L Notes as a result of insufficient funds being available therefor will not constitute an Event of Default so long as the Class A Notes or the Class B-1L Notes are Outstanding. Interest will be calculated on the basis of a year of 360 days and the actual number of days elapsed. Principal payments on the Class B-2L Notes are not expected to begin until the end of the Revolving Period (except in the event of an Optional Redemption, a Special Redemption, a redemption made in connection with a Tax Event or a mandatory redemption of the Class B-2L Notes caused by the failure to meet any of the Coverage Tests or a Rating Confirmation Failure) and are to continue until the Payment Date on which the Aggregate Principal Amount of the Class B-2L Notes has been paid in full. No principal will be payable in respect of the Class B-2L Notes until the Aggregate Principal Amount of the Class B-1L Notes has been paid in full. The Aggregate Principal Amount of the Class B-2L Notes, together with the other amounts described herein, will be due and payable at the Stated Maturity. The Class B-2L Notes are subordinated in right of payment to the Class A Notes and the Class B- 1L Notes to the extent described herein. To the extent the assets of the Trust Estate are insufficient to pay all amounts due on the Notes, the Co- Issuers shall have no further obligations in respect of the Notes. Distributions on the Income Notes Payments on the Income Notes, as among the Holders thereof, will be based on the notional amount of the Income Notes held by each such Holder. Payments on the Income Notes will not be payable at a stated rate but instead as described under "Application of Funds." Distributions on the Income Notes will be paid solely from and to the extent of the available proceeds from the distributions on the Collateral, which is the only source of such distributions in respect of the Income Notes. All distributions on the Income Notes will be paid to the Fiscal Agent, on behalf of the Issuer, for payment to the Holders of the Income Notes on a pro rata basis according to the proportion that the notional amount of Income Notes held by each such Holder bears to the notional amount of all 59

70 Income Notes. Following the liquidation of the Collateral and the distribution of any available remaining funds following a redemption of the Notes and payment of all other obligations of the Co-Issuers (other than amounts payable by the Issuer to the Income Notes) or an Event of Default under the Indenture or otherwise (whether before, on or after the scheduled Redemption Date for the Income Notes), the Income Notes will be redeemed, whether or not the Holders thereof receive any payments in respect of such redemption. To the extent the Collateral is insufficient to make distributions on, or to redeem, the Income Notes, the Issuer will have no obligation to pay any further amounts in respect of the Income Notes and any sums outstanding and unpaid will be extinguished. The Co-Issuers will not be required to pay additional amounts to Holders of any Securities if taxes or related amounts are withheld from payments on the Securities or any payments on any item of Collateral or other investments of the Co-Issuers. However, such withholding tax on payments on items of Collateral could result in the Securities being redeemed by the Issuer. See " Mandatory Redemption of the Notes." Determination of LIBOR For purposes of calculating the Applicable Periodic Rate, the Issuer initially will appoint Deutsche Bank Trust Company Americas, as agent with respect to the determination of LIBOR (in such capacity, the "Calculation Agent"). LIBOR will be determined by the Calculation Agent in accordance with the following provisions: On the second London Business Day prior to the commencement of a Periodic Interest Accrual Period or, for purposes of determining LIBOR in respect of each draw on the Class A-1LR Notes, on the date on which the relevant Class A-1LR Borrowing Request is made (each such day, a "LIBOR Determination Date"), LIBOR shall equal the rate, as obtained by the Calculation Agent, for three-month (or (i) for the period from the Closing Date to the October 2007 Payment Date, five-month and (ii) in the case of the Class A-3L Notes, the Class B-1L Notes and the Class B-2L Notes for the period from the Closing Date to the January 2008 Payment Date, eight-month) U.S. dollar deposits which appears on Reuters Page LIBOR01 (as defined in the 2000 ISDA Definitions and as reported by Bloomberg Financial Markets Commodities News) or such other page as may replace such Reuters Page LIBOR01, as of 11:00 a.m. (London time) on such LIBOR Determination Date; provided that (i) in the case of the Class A-1LR Notes for any Periodic Interest Accrual Period having a term shorter than three months but longer than seven days, LIBOR shall be determined through the use of straight-line interpolation by reference to two rates calculated in accordance with the foregoing procedures, 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 Periodic Interest Accrual Period, and the other of which shall be determined as if such maturity were the period of time for which rates are available next longer than such Periodic Interest Accrual Period (but no longer than the period remaining before the next Payment Date); (ii) if a Periodic Interest Accrual Period with respect to the Class A-1LR Notes is less than or equal to seven days, then LIBOR shall be determined by reference to a rate calculated in accordance with the foregoing as if the maturity of the U.S. dollar deposits referred to therein were a period of time equal to seven days; and (iii) if a Periodic Interest Accrual Period includes a period during which the Alternate Base Rate is used, then such interpolation shall be used from and including the third Business Day following the date on which the relevant Class A-1LR Borrowing Request is received by the Class A-1LR Holder to but excluding the relevant Payment Date. The Calculation Agent will calculate any Class A-1LR Additional LIBOR Payment in accordance with the definition thereof. If, on any LIBOR Determination Date, such rate does not appear on Reuters Page LIBOR01 or such other page as may replace such Reuters Page LIBOR01, the Calculation Agent shall determine the arithmetic mean of the offered quotations of the Reference Banks to leading banks in the London interbank market for the applicable U.S. dollar deposits in an amount determined by the Calculation Agent by reference to requests for quotations as of approximately 11:00 a.m. (London time) on the LIBOR Determination Date made by the Calculation Agent to the Reference Banks. If, on any LIBOR Determination Date, at least two of the Reference Banks provide such quotations, LIBOR shall equal such arithmetic mean of such quotations. If, on any LIBOR Determination Date, only one or none of the Reference Banks provide such quotations, LIBOR shall be deemed to be the arithmetic mean of the offered 60

71 61 quotations that leading banks in The City of New York selected by the Calculation Agent (after consultation with the Collateral Manager) are quoting on the relevant LIBOR Determination Date for the applicable U.S. dollar deposits in an amount determined by the Calculation Agent that is representative of a single transaction in such market at such time by reference to the principal London offices of leading banks in the London interbank market; provided that if the Calculation Agent is required but is unable to determine a rate in accordance with at least one of the procedures provided above, LIBOR shall be LIBOR as determined on the previous LIBOR Determination Date. As used herein, "Reference Banks" means four major banks in the London interbank market selected by the Calculation Agent (after consultation with the Collateral Manager). As soon as possible after 11:00 a.m. (New York time) on each LIBOR Determination Date, but in no event later than 11:00 a.m. (New York time) on the Business Day immediately following each LIBOR Determination Date, the Calculation Agent will notify the Issuer, the Trustee, the Collateral Manager and for so long as any Class of Notes is listed on any stock exchange and the rules of such stock exchange so require, such stock exchange, of LIBOR for the next Periodic Interest Accrual Period. The Calculation Agent will also specify to the Issuer the quotations upon which LIBOR is based, and in any event the Calculation Agent shall notify the Issuer before 5:00 p.m. (New York time) on each LIBOR Determination Date that either: (i) it has determined or is in the process of determining LIBOR or (ii) it has not determined and is not in the process of determining LIBOR together with its reasons therefor. Upon receipt of notice of LIBOR for each Periodic Interest Accrual Period from the Calculation Agent as described in the preceding paragraph, the Trustee will determine the Applicable Periodic Rate for each Class of Notes for such Periodic Interest Accrual Period and, for so long as any Class of Notes is listed on any stock exchange, notify such stock exchange of the Applicable Periodic Rate for each Class of Notes. The determination of LIBOR by the Calculation Agent and the Applicable Periodic Rate by the Trustee (in the absence of manifest error) will be final and binding upon all parties. The Calculation Agent may be removed by the Issuer at any time. If the Calculation Agent is unable or unwilling to act as such or is removed by the Issuer, or if the Calculation Agent fails to determine LIBOR for a Periodic Interest Accrual Period, the Issuer will promptly appoint as a replacement Calculation Agent a leading bank which is engaged in transactions in U.S. dollar deposits in the international U.S. dollar market and which does not control or is not controlled by or under common control with the Issuer or its affiliates. The Calculation Agent may not resign or be removed from its duties without a successor having been duly appointed. Optional Redemption Notes. Holders of a Majority of the Income Notes may give written notice to the Issuer, the Trustee and the Collateral Manager directing an optional redemption of the Notes (with respect to the Notes, an "Optional Redemption") upon the occurrence of a Tax Event or at any time after the Payment Date in July Upon receipt of the written notice directing an Optional Redemption of the Notes, the Issuer is required to redeem the Notes (in whole but not in part) from amounts available therefor in accordance with " Redemption Procedures" described below. Any Optional Redemption of the Notes shall be made at the applicable Redemption Price (exclusive of installments of interest and principal maturing on or before that date, payment of which shall have been made or duly provided for, to the Holders of the Notes on relevant Record Dates or as otherwise provided in the Indenture). All Notes must be simulataneously redeemed and any termination payments pursuant to Hedge Agreements must be paid. The Issuer shall, at least 20 days before a Redemption Date (unless the Trustee agrees to a shorter period), notify the Trustee, the Fiscal Agent, each Hedge Counterparty and each Rating Agency of such Redemption Date, the applicable Record Date, the principal amount of Notes to be redeemed and the applicable Redemption Prices. Income Notes. On any Payment Date on or after payment in full of the Notes, all administrative and other fees (without regard to any payment limitations) payable as described under "Application of Funds" (including the Senior Management Fee, the Subordinated Management Fee and Incentive Management Fee) and all amounts owing under any Hedge Agreement to any Hedge Counterparty, (i) at the direction of a Majority of the Income Notes, the Fiscal Agent will make payments in redemption of all of the Income Notes, in an aggregate amount equal to all of the proceeds from the sale or

72 other disposition of all of the remaining Collateral less any fees and expenses owed by the Issuer (including the Redemption Price of any Notes being simultaneously redeemed), the aggregate amount to be distributed to the Holders of the Income Notes in accordance with their respective holdings, or (ii) at the unanimous direction of the Holders of the Income Notes, the Fiscal Agent will make payments in redemption of all or a directed portion (representing less than all) of the Income Notes, (with respect to the Income Notes and each of (i) and (ii), an "Optional Redemption"). Upon receipt of the written notice directing an Optional Redemption of the Income Notes, the Issuer is required to redeem the Income Notes in accordance with " Redemption Procedures" described below. Any Optional Redemption of the Income Notes shall be made at the applicable Redemption Price. Upon a distribution pursuant to (i) above, the Collateral Manager will (subject to the standard of care specified in the Management Agreement), on behalf of the Issuer (and subject to (ii) above), direct the sale of all remaining Collateral Obligations. Upon a distribution pursuant to (ii) above, the Collateral Manager will effect the sale of Collateral Obligations in accordance with the direction of a Majority of the Holders of the Income Notes. Redemption Procedures. Notice of an Optional Redemption will be given by the Trustee by first-class mail, postage prepaid, mailed not later than 15 days and not earlier than 90 days before the applicable Redemption Date, to each Holder of Notes to be redeemed at the Holder s address in the Indenture Register or otherwise in accordance with the rules and procedure of the Depository, Euroclear and Clearstream, as applicable, and to each Rating Agency. In addition, for so long as any Notes (other than the Class A-1LR Notes) are listed on the Irish Stock Exchange and so long as the rules of the exchange so require, notice of an Optional Redemption of Notes shall also be given to the Company Announcements Office of the Irish Stock Exchange. Notice of redemption having been given as provided above, the Notes to be redeemed shall, on a Redemption Date, become payable at the Redemption Price and on and after such Redemption Date (unless a default is made in the payment of the Redemption Price) the Notes (or the portion thereof to be redeemed) shall cease to bear interest. The Income Notes to be redeemed shall become payable on such Redemption Date or such later date or dates as directed in writing by the Collateral Manager. Upon final payment on a Note to be redeemed, the Holder must surrender the Note at the place specified in the notice of redemption to receive the applicable Redemption Price unless the Holder provides an undertaking to surrender the Note thereafter. Any notice of redemption may be withdrawn by the Issuer up to (a) the fifth Business Day before the scheduled Redemption Date or (b) if the Issuer has not entered in a binding agreement or agreements with an entity as described in the Indenture, the third Business Day before the scheduled Redemption Date, in either case by written notice to the Trustee and the Collateral Manager; provided, that the Collateral Manager has not delivered the sale agreement or certifications required under the Indenture in form satisfactory to the Trustee prior to such withdrawal. Notice of any withdrawal shall be sent, not later than the third Business Day before the scheduled Redemption Date (assuming the Trustee has received timely written notice from the Issuer as provided above), by the Trustee, to each Holder of Notes scheduled to be redeemed at the Holder s address in the Indenture Register by overnight courier guaranteeing next day delivery (or, to the extent the address contained in the Indenture Register is not sufficient for that purpose, by first class mail). If the Issuer withdraws any notice of redemption or is otherwise unable to complete any redemption of the Notes, the Sale Proceeds received from the sale of any Collateral Obligations sold in accordance with the Indenture may, during the Revolving Period at the Collateral Manager s discretion, be reinvested in accordance with the Eligibility Criteria. Notice of redemption shall be given by the Co-Issuers or by the Trustee in the name and at the expense of the Co-Issuers. Failure to give notice of redemption, or any defect therein, to any Holder of any Note selected for redemption shall not impair or affect the validity of the redemption of any other Notes. 62

73 Special Redemption of Notes If the Collateral Manager Does Not Identify Investments as Contemplated by the Indenture Principal payments on the Notes shall be made in whole or in part, at par without payment of any redemption premium, in accordance with the order of priority set forth in "Application of Funds" if, at any time during the Revolving Period, the Collateral Manager elects (subject to the Management Agreement) to notify the Trustee and each Rating Agency that it has been unable, for at least 90 consecutive Business Days, to identify additional Collateral Obligations that are deemed appropriate by the Collateral Manager in its sole discretion and meet the Eligibility Criteria in sufficient amounts to permit the investment or reinvestment of all or a portion of the funds then in the Collection Account available to be invested in additional Collateral Obligations (a "Special Redemption"). On the first Payment Date following the Due Period for which the notice is effective (a "Special Redemption Date"), the funds in the Collection Account or the Payment Account representing Principal Proceeds that, by operation of the preceding paragraph, are not reinvested in additional Collateral Obligations (the "Special Redemption Amount") will be available to be applied in accordance with "Application of Funds Application of Principal Proceeds" to the extent of available Principal Proceeds. Notice of payment of a Special Redemption Amount shall be given by first-class mail, postage prepaid, mailed not later than three Business Days before the applicable Special Redemption Date, to each Holder of Notes to be redeemed, at the Holder s address in the Indenture Register or otherwise in accordance with the rules and procedures of the Depository. In addition, for so long as any Notes are listed on the Irish Stock Exchange and so long as the rules of the exchange so require, notice of a Special Redemption of Notes shall also be given to the Company Announcements Office of the Irish Stock Exchange. In connection with a Special Redemption, the principal of the Notes will be paid from Principal Proceeds in an aggregate amount equal to the Special Redemption Amount in accordance with "Application of Funds Application of Principal Proceeds," to the extent available. Mandatory Redemption of the Notes General In the event of a Rating Confirmation Failure or a failure to meet any Coverage Test, a mandatory redemption of one or more Classes of Notes in whole or in part will be required. Any Mandatory Redemption could result in an elimination, deferral or reduction in interest or principal payments to one or more Classes of Notes, which would adversely affect the returns to the Holders of the Class or Classes of Notes. See "Risk Factors Relating to the Notes The Indenture Requires Mandatory Redemption of the Notes for Failure to Satisfy Coverage Tests" and " The Indenture Requires Mandatory Redemption of the Notes Upon Rating Confirmation Failure." Mandatory Redemption of the Notes for Failure to Satisfy Coverage Tests On any Payment Date with respect to which any Coverage Test (as described under "Coverage Tests and Additional Collateral Deposit Requirement") is not met on the related Payment Date, principal payments on the Notes will be made as described under "Application of Funds." Mandatory Redemption of the Notes Upon Rating Confirmation Failure Upon the event of a Rating Confirmation Failure, all Interest Proceeds remaining after payment of amounts referred to in clauses (1) and (3) through (14) of "Application of Funds Application of Interest Proceeds" will be used to pay principal of the Class A-1 Notes, the Class A-2L Notes, the Class A-3L Notes, the Class B-1L Notes and the Class B-2L Notes in the Note Payment Sequence on the next Payment Date and each Payment Date thereafter until the original ratings are confirmed. If necessary, after the foregoing payments are made out of Interest Proceeds, Principal Proceeds after application in accordance with clause (1) of "Application of Funds Application of Principal Proceeds" will be used to pay principal of each Class of the Notes in the Note Payment Sequence on each Payment Date until the original ratings are confirmed. 63

74 Upon the Collateral Manager s determination that a Rating Confirmation Failure has occurred, and if available Interest Proceeds and Principal Proceeds are insufficient to effect the redemption of the Notes at par on any subsequent Payment Date in accordance with the Application of Funds as and to the extent necessary for S&P to confirm in writing the ratings assigned by it on the Closing Date to the Notes, at the direction of the Collateral Manager, the Trustee shall sell Collateral Obligations so that the proceeds from the sale and all other funds available for the purpose in the Collection Account will be at least sufficient to redeem the Notes (to the extent necessary for S&P to confirm in writing the ratings assigned by it on the Closing Date to the Notes) and to pay all administrative and other fees, expenses, and obligations payable under the Application of Funds. Any such sale shall be conducted in such a manner that (i) after giving effect to the sale each Overcollateralization Test is satisfied or, if any Overcollateralization Test is not satisfied, the extent of compliance with the Overcollateralization Test is not reduced, (ii) if the sale occurs on or after the third Payment Date, after giving effect to the sale the Interest Coverage Test is satisfied or, if the Interest Coverage Test is not satisfied, the extent of compliance with the Interest Coverage Test is not reduced, and (iii) after giving effect to the sale each Collateral Quality Test is satisfied or, if any Collateral Quality Test is not satisfied, the extent of compliance with the Collateral Quality Test is not reduced. Redemption of the Income Notes in Connection with Mandatory Redemption of the Notes The Income Notes are not subject to Mandatory Redemption or redemption for any reason or upon the occurrence of any event. However, the Income Notes will be redeemed in accordance with the Application of Funds on or after any Payment Date on which a Mandatory Redemption of the Notes results in the payment in full of the Aggregate Principal Amount of each Class of Notes and reduction to zero of the Class A-1LR Commitments. Certain Limitations on Payments on the Income Notes Payments on the Income Notes are limited to the Collateral and any other assets (other than the Excluded Property) remaining after payment of all of the liabilities of the Co-Issuers that are senior to them pursuant to the Indenture (including payment in full of all amounts payable on each Class of Notes). Accordingly, to the extent that the proceeds from the Collateral Obligations, Eligible Investments, other Collateral and any other assets of the Issuer (other than the Excluded Property) are not sufficient to make payments on the Income Notes on any Payment Date or any final redemption payment on the Income Notes on a Redemption Date or such later date directed in writing by the Collateral Manager after the payment of all liabilities of the Co-Issuers ranking senior thereto, the Issuer will have no obligation to pay the deficiency in respect of the Income Notes and any sums outstanding and unpaid will be extinguished. In addition, the Collateral Manager may, in its discretion, seek to amend the Indenture without the consent of the Holders of the Income Notes to permit the Issuer to use Interest Proceeds remaining after payment of amounts referred to in clauses (1) to (20) under "Application of Funds Application of Interest Proceeds" to purchase Notes in the order of their seniority at a discount to satisfy (or reduce the non-compliance with) the Additional Collateral Deposit Requirement. Class A-1LR Commitment Fees Class A-1LR Commitment Fees will accrue on the Class A-1LR Aggregate Undrawn Amount as determined daily for each day during each Periodic Interest Accrual Period at an annual rate of 0.17% (the "Class A- 1LR Commitment Fee Rate") and will be payable in arrears on each Payment Date in accordance with the Application of Funds. Any Class A-1LR Commitment Fees accrued but not paid on prior Payment Dates will accrue interest at the Applicable Periodic Rate with respect to the Class A-1LR Notes as determined for each Payment Date. The Class A-1LR Commitment Fees will be computed on the basis of a 360-day year and the actual number of days elapsed during the applicable Periodic Interest Accrual Period. 64

75 Class A-1LR Borrowings Under the Class A-1LR Note Purchase Agreement, the Issuer may make Class A-1LR Borrowings on one or more Class A-1LR Borrowing Dates, in accordance with the following terms: (a) except with respect to the Class A-1LR Required Borrowing, each Class A-1LR Borrowing shall be in a minimum amount of U.S.$1,000,000 or in an integral multiple of U.S.$200,000 in excess thereof (or the remaining available amount of the Class A-1LR Aggregate Undrawn Amount if such remaining amount is less than U.S.$1,000,000); (b) each Class A-1LR Borrowing shall be made pro rata from each Holder of Class A-1LR Notes according to the Class A-1LR Commitments as reflected on the books and records of the Class A-1LR Note Agent; and (c) all Class A-1LR Borrowings shall be subject to the terms and conditions of the Class A-1LR Note Purchase Agreement and the Indenture. In addition, the maximum amount of Class A-1LR Borrowings which may be made on any Class A-1LR Borrowing Date will be determined by the operation of the Collateral Quality Matrix and subject to the Class A-1LR Borrowing Conditions. In accordance with the Class A-1LR Note Purchase Agreement, the Issuer or the Collateral Manager on behalf of the Issuer will send a Class A-1LR Borrowing Request to the Class A-1LR Note Agent by facsimile, electronic mail or other electronic messaging system no later than 10:00 a.m. (New York City time) at least (a) in the case of a Short Notice Borrowing to be made by a Swingline Holder, one Business Day, (b) in the case of a Short Notice Borrowing to be made by a Holder of Class A-1LR Notes other than a Swingline Holder, two Business Days, and (c) in the case of a Three-day Notice Borrowing, three Business Days, in each case prior to the related Class A- 1LR Borrowing Date. Such Class A-1LR Borrowing Request will be irrevocable and will be followed promptly by mailing of the original by first class mail, postage prepaid or hand delivery to the Class A-1LR Note Agent (with a copy to the Trustee) of a written Class A-1LR Borrowing Request signed by the Issuer or the Collateral Manager on behalf of the Issuer. Subject to the terms and conditions set forth in the Class A-1LR Note Purchase Agreement (including the Class A-1LR Borrowing Conditions) and in the Indenture, each Holder of Class A-1LR Notes will fund Class A-1LR Advances requested by the Issuer in a duly completed Class A-1LR Borrowing Request from time to time prior to the termination of the Class A-1LR Commitments in an aggregate principal amount at any one time outstanding up to but not exceeding such Holder's pro rata share of the Class A-1LR Commitment. Each Holder of Class A-1LR Notes will fund Class A-1LR Advances in an amount equal to its then pro rata share of the aggregate amount of the relevant Class A-1LR Borrowing upon receipt via facsimile, electronic mail or other electronic messaging system (or, in the case of the Initial Holder of the Class A-1LR Notes, upon receipt via electronic mail only) of a duly completed Class A-1LR Borrowing Request no later than 12:00 p.m. (New York City time) at least (a) in the case of a Short Notice Borrowing made by a Swingline Holder, one Business Day, (b) in the case of a Short Notice Borrowing made by a Holder of Class A-1LR Notes other than a Swingline Holder, two Business Days, and (c) in the case of a Three-day Notice Borrowing, three Business Days, in each case prior to the related Class A-1LR Borrowing Date. Each Class A-1LR Borrowing Request will set forth the following: (i) the aggregate amount of the requested Class A-1LR Borrowing and whether such Class A-1LR Borrowing is a Short Notice Borrowing or a Three-day Notice Borrowing; (ii) the Class A-1LR Borrowing Date; (iii) a representation that as of the date of such Class A-1LR Borrowing Request all of the Class A-1LR Borrowing Conditions have been satisfied and a bring-down of the Co-Issuers' representations and warranties contained in the Class A-1LR Note Purchase Agreement to the date of such Class A-1LR Borrowing Request; and (iv) the total amount of outstanding Class A-1LR Borrowings and the Class A-1LR Aggregate Undrawn Amount, before and after giving effect to the requested Class A-1LR Borrowing. In the case of a Short Notice Borrowing, (i) the Alternate Base Rate will apply on the Class A-1LR Advance made by a Swingline Holder during the period from and including the related Class A-1LR Borrowing Date until but excluding the third Business Day after such Swingline Holder's receipt of such Class A-1LR Borrowing Request; (ii) the amount of any requested Class A-1LR Borrowing for the purpose of funding the unfunded portions of the Revolving Loans or the Delayed Drawdown Loans may be up to, but shall not exceed, the Class A-1LR Undrawn Permitted Amount; and (iii) the Issuer shall endeavor, but is not obligated, to limit the amount of any requested Class A-1LR Borrowing for any other purpose to U.S.$2,000,000. Certain other conditions specified in the Class A-1LR Note Purchase Agreement may apply to a Short Notice Borrowing. 65

76 The obligation of each Holder of Class A-1LR Notes to make a Class A-1LR Advance to the Issuer on the occasion of any Class A-1LR Borrowing pursuant to the Class A-1LR Note Purchase Agreement is subject to the satisfaction of the following conditions (the "Class A-1LR Borrowing Conditions"): (a) if such Class A-1LR Advance is not being made pursuant to a Class A-1LR Required Borrowing, at the time of and immediately after giving effect to such Class A-1LR Borrowing, (i) no Event of Default shall have occurred and be continuing and (ii) each Overcollateralization Test is satisfied or, if not satisfied prior to such Class A-1LR Advance, is at least maintained or improved; (b) if such Class A-1LR Advance is being made pursuant to a Class A-1LR Required Borrowing, at the time of and immediately after giving effect to such Class A-1LR Borrowing, no Event of Default described in clause (e) or (g) under " Events of Default" below shall have occurred and be continuing; (c) the Class A-1LR Note Agent shall have received a Class A-1LR Borrowing Request given in accordance with the applicable Class A-1LR Note Purchase Agreement; and (d) (i) such Class A-1LR Borrowing, together with the aggregate principal amount of all other outstanding Class A-1LR Borrowings, shall not exceed the aggregate amount of Class A-1LR Commitments of all Holders of Class A-1LR Notes, (ii) for each Holder of Class A-1LR Notes, its pro rata share of such Class A-1LR Borrowing, together with its pro rata share of the aggregate principal amount of all outstanding Class A-1LR Borrowings, shall not exceed such Holder's Class A-1LR Commitment and (iii) such Class A-1LR Borrowing, together with the aggregate principal amount of all other outstanding Class A-1LR Borrowings, shall not exceed the Class A-1LR Permitted Amount as determined by operation of the Collateral Quality Matrix. Under the Indenture, (a) the Issuer (at the direction of the Collateral Manager) shall be entitled to make a Class A-1LR Borrowing if required to fund (to the extent there are insufficient funds held in the Collection Account, the Revolving Reserve Account or the Delayed Drawdown Reserve Account, as applicable, for such purpose, but not to exceed the Class A-1LR Undrawn Permitted Amount) the sum (the "Collateral Obligation Funding Amount") of (x) the excess, if any, of (A) the aggregate amount of all unfunded portions of all Collateral Obligations that are Revolving Loans or Delayed Drawdown Loans which, pursuant to the Indenture, may be funded through draws on the Class A-1LR Notes over (B) the aggregate amount on deposit in the Revolving Reserve Account or the Delayed Drawdown Reserve Account, as applicable, with respect to such Loans (such excess, with respect to Revolving Loans, the "Revolving Funding Amount", and with respect to Delayed Drawdown Loans, the "Delayed Drawdown Funding Amount") and (y) the excess, if any, of (A) the aggregate amount of any commitments to purchase Collateral Obligations made by the Issuer but not settled at the time of such termination of the Revolving Period over (B) the amount of any Principal Proceeds on deposit in the Collection Account (determined as of the Class A-1LR Required Borrowing Date) (such excess, the "Pending Collateral Obligation Funding Amount") and (b) on the Class A-1LR Required Borrowing Date, the Issuer (at the direction of the Collateral Manager) shall make a Class A-1LR Borrowing in an aggregate amount equal to the sum (not to exceed the Class A-1LR Undrawn Permitted Amount) of: (i) in the case of a Class A-1LR Required Borrowing made in connection with the termination of the Revolving Period specified in clause (iv) of the definition thereof, the Collateral Obligation Funding Amount; and (ii) the Class A-1 Pro Rata Adjustment Amount. Upon receipt of such Class A-1LR Borrowing, the Trustee shall make the following deposits therefrom, in the following order of priority, at the direction of the Collateral Manager: (i) the Pending Collateral Obligation Funding Amount in the Collection Account as Principal Proceeds, (ii) the Delayed Drawdown Funding Amount in the Delayed Drawdown Reserve Account, (iii) the Revolving Funding Amount in the Revolving Reserve Account and (iv) the Class A-1 Pro Rata Adjustment Amount into the Collection Account to be applied as a payment of principal on the Class A-1L Notes on the Payment Date on which it is received (or, if such amount is not received on 66

77 a Payment Date, on the next Payment Date), and such payment shall be made immediately prior to application of Principal Proceeds as described under "Application of Funds Application of Principal Proceeds"; provided that, if an Event of Default described in clause (e) or (g) under " Events of Default" below has occurred, then the Holders of the Class A-1LR Notes shall not be required to advance any amounts in respect of the Class A-1LR Required Borrowing. After the Class A-1LR Required Borrowing relating to the termination of the Revolving Period, no other Class A-1LR Borrowings will be permitted and the Class A-1LR Commitment will thereafter equal the funded portion of the Class A-1LR Notes. Class A-1LR Prepayments At the direction of the Collateral Manager, upon the terms and subject to the conditions of the Indenture, the Co-Issuers shall have the right to prepay, in whole or in part, the Class A-1LR Notes (each a "Class A-1LR Prepayment") on any date that is a Business Day during the Revolving Period, other than a date from and including a Determination Date through and including the immediately succeeding Payment Date (unless such Class A-1LR Prepayment is to be made on a Payment Date). Any Class A-1LR Prepayment shall be limited in amount to the Principal Proceeds on deposit in the Collection Account on the date of the Class A-1LR Prepayment or, if such Class A-1LR Prepayment is made on a Payment Date, such Class A-1LR Prepayment shall be made only to the extent Principal Proceeds are available for such application under clause (3) under "Application of Funds Application of Principal Proceeds." No Class A-1LR Notes may be prepaid unless all Prepayment Costs (and interest thereon) (provided that the applicable Holder of the Class A-1LR Notes has calculated such Prepayment Costs and given notice thereof as provided in the Class A-1LR Note Purchase Agreement) as of the immediately preceding Payment Date have been paid in full on or before the date of such Class A-1LR Prepayment. Except with respect to any Class A-1LR Prepayment required to be made in accordance with the order of priority set forth in "Application of Funds," the aggregate principal amount of any Class A-1LR Prepayment (taken as a whole) shall be an integral multiple of U.S.$500,000 and at least U.S.$1,000,000. Any Class A-1LR Prepayment shall be made pro rata according to the Aggregate Principal Amount of the Class A-1LR Notes; provided that, with respect to any Class A-1LR Prepayment made during any Periodic Interest Accrual Period in which one or more draws on the Class A-1LR Notes were made, the Class A-1LR Prepayment shall be made among such drawn Class A-1LR Notes in the priority directed by the Collateral Manager. In order to effect a Class A-1LR Prepayment, the Collateral Manager shall give not fewer than three Business Days written notice thereof (such Business Day, the "Class A-1LR Prepayment Notice Date") to the Trustee, the Co-Issuers, each Class A-1LR Holder and the Class A-1LR Note Agent. Such notice shall (i) specify the Business Day on which such Class A-1LR Prepayment shall occur, the amount of such Class A-1LR Prepayment (being a stated amount, subject to the limitation referred to above) and whether a draw made on the Class A-1LR Notes within the same Periodic Interest Accrual Period is being repaid, (ii) include an instruction to the Trustee to segregate and hold the amount of such Class A-1LR Prepayment in trust for the relevant Holders of Class A-1LR Notes and (iii) include a statement that the Holder of Class A-1LR Notes that calculates Prepayment Costs shall give notice to the Class A-1LR Note Agent and the Collateral Manager of the inputs used to determine "L2" in the definition of Prepayment Costs on the Business Day immediately preceding the date of such prepayment. The Trustee shall make available such notice or other facsimile transmission to each Holder of Class A-1LR Notes at the Holder's address in the Indenture Register. If Prepayment Costs are not paid on the relevant Payment Date, then interest on such Prepayment Costs shall accrue at the Applicable Periodic Rate then in effect on the Class A-1LR Notes (compounded on the succeeding Payment Dates), from such relevant Payment Date until such Prepayment Costs are paid in full to the Class A-1LR Holder. After such notice is given, the amount of such Class A-1LR Prepayment shall be payable on the date specified in such notice. The amount of any Class A-1LR Prepayment actually made shall reduce the Aggregate Principal Amount of the Class A-1LR Notes but shall not reduce the Class A-1LR Commitments. 67

78 Reduction of Class A-1LR Commitments On any Payment Date on which Class A-1 Notes are repaid or redeemed other than in connection with a Class A-1LR Prepayment, the Class A-1LR Commitments shall be reduced by an amount equal to the product of (1) the amount of the Class A-1LR Commitments immediately prior to such repayment and (2) a ratio, the numerator of which is the principal amount of the Class A-1L Notes redeemed or repaid on such Payment Date and the denominator of which is the Aggregate Principal Amount of the Class A-1L Notes immediately prior to such Payment Date. Any such reduction of Class A-1LR Commitments will be applied to the Class A-1LR Commitments pro rata according to the respective amounts thereof. Any reduction or termination of the Class A- 1LR Commitments shall be permanent. The Indenture provides that the Issuer or the Class A-1LR Note Agent shall provide the Holders of the Class A-1LR Notes with no less than one day s prior written notice of any reduction in the Class A-1LR Commitments. Class A-1LR Purchaser Rating Criteria The Class A-1LR Note Purchase Agreement will provide that: If any Holder of Class A-1LR Notes fails to satisfy the Class A-1LR Purchaser Rating Criteria, it shall (so long as it continues to satisfy the Moody's Class A-1LR Collateralization Criteria), within the thirty calendar day period (the "Initial Cure Period") following the delivery or receipt of the notice of such failure, make all reasonable efforts, in good faith, subject to satisfaction of the Rating Condition with respect to each Rating Agency, to deliver to the Trustee collateral (which collateral will consist of Eligible Collateral (as defined in the Class A-1LR Note Purchase Agreement) and any such other property as may be agreed by the Rating Agencies and such Holder of Class A-1LR Notes (such collateral, the "Posted Collateral"), pursuant to terms to be agreed by such Holder of Class A-1LR Notes and the Rating Agencies and as further stipulated in the Class A-1LR Note Purchase Agreement, to secure its obligations to the Issuer to fund future draws (the "Collateralization Option"); provided that if such Holder of Class A-1LR Notes after making such reasonable efforts determines that it will be unable to effect the Collateralization Option, it may at its option (or it may, at its option, in lieu of effecting the Collateralization Option) (i) have its obligations guaranteed by an entity which satisfies the Class A-1LR Purchaser Rating Criteria (any such entity, a "Guarantor") through a guarantee satisfying the then-current guidelines of the Rating Agencies, (ii) enter into a liquidity facility with a financing provider which satisfies the Class A-1LR Purchaser Rating Criteria (any such financing provider, a "Funding Entity") (provided that the Rating Condition with respect to each Rating Agency must be satisfied with respect to any Guarantor and any Funding Entity) or (iii) transfer its Class A-1LR Notes in accordance with the Class A-1LR Note Purchase Agreement. Any action taken pursuant to items (i), (ii) or (iii) hereof, is referred to as a "Noteholder Cure." If a Holder of Class A-1LR Notes does not effect a Collateralization Option and does not effect any other Noteholder Cure, or if such Holder of Class A-1LR Notes otherwise fails to satisfy the Moody's Class A-1LR Collateralization Criteria, such Holder of Class A-1LR Notes will, by no later than the second Business Day after the end of the Initial Cure Period or the date on which it fails to satisfy the Moody's Class A-1LR Collateralization Criteria make a Downgrade Advance. If a Holder of Class A-1LR Notes effects a Collateralization Option, but fails to post or maintain daily Posted Collateral with a market value equal to the amount required to secure its obligations to the Issuer to fund future draws (the "Collateralization Option Amount"), such Holder of Class A-1LR Notes shall notify the Class A- 1LR Note Agent within one Business Day following the occurrence of such failure and such Holder of Class A-1LR Notes may cure such failure within four Business Days following the delivery of such notice. If, within such four Business Days, such Holder of Class A-1LR Notes posts Posted Collateral in an amount such that the market value of all Posted Collateral equals the Collateralization Option Amount (as calculated by such Holder of Class A-1LR Notes in accordance with the following paragraph), such Holder of Class A-1LR Notes shall not be required to deposit a Downgrade Advance; provided that, if a cure is not effected within such four Business Days, on the next Business Day thereafter, at the option of such Holder of Class A-1LR Notes, (i) the Posted Collateral shall be liquidated by such Holder of Class A-1LR Notes and the proceeds shall be applied to make the required Downgrade Advance (and any unpaid portion of the required Downgrade Advance shall be funded by such Holder of Class A- 1LR Notes on such day) or (ii) such Holder of Class A-1LR Notes shall fund the Downgrade Advance in full and the Posted Collateral shall be distributed in kind by order of the Issuer to such Holder of Class A-1LR Notes. 68

79 For purposes of this " Class A-1LR Purchaser Rating Criteria," the market value of any item of Posted Collateral shall be determined by the applicable Holder of Class A-1LR Notes on each Business Day by reference to (i) a quote for such item of Posted Collateral provided by Bloomberg or (ii) the lower of two bid side prices for such Posted Collateral provided by two independent nationally recognized dealers (which have dealt in assets of such type). If the market value of an item of Posted Collateral cannot be determined in the manner described in this paragraph, the market value of such item of Posted Collateral shall be zero. All Posted Collateral shall be deposited to an account which will constitute a part of the Class A-1LR Collateral Account identified for the applicable Class A-1LR Holder and the amount so deposited (a) shall not be considered a draw on the Class A-1LR Notes, (b) shall not accrue Periodic Interest with respect to the Class A-1LR Notes and (c) shall be considered as a portion of the Class A-1LR Aggregate Undrawn Amount and shall be used to calculate the Class A-1LR Commitment Fees payable to the applicable Class A-1LR Holder. Any accrued interest or other income on such amounts on deposit in the Class A-1LR Collateral Account shall be payable to such Class A-1LR Holder. If any Holder of Class A-1LR Notes, whether acting through its Conduit Agent or Ownership Group or on its own behalf, fails in whole or in part under any of its obligations under the Class A-1LR Note Purchase Agreement or the Indenture to make Class A-1LR Advances as and when required, and such failure continues for not less than three Business Days following receipt of written notice of failure to make such Class A-1LR Advances (such failure to cure within such three Business Day period, a "Funding Default"), the Issuer may, upon not less than 30 days' notice, from the date of such Funding Default, require that such Holder of Class A-1LR Notes transfer pursuant to the Class A-1LR Note Purchase Agreement all of its rights and obligations in respect of all Class A-1LR Notes to a purchaser that satisfies the Class A-1LR Purchaser Rating Criteria as of the date of such assignment identified by the Issuer for a price at least equal to the then current market price; provided, however, that no such transfer shall be required if at the time of such transfer, the Holder of Class A-1LR Notes has cured the Funding Default under the Class A-1LR Note Purchase Agreement which gave rise to the Issuer's right to cause such transfer and the Holder of Class A-1LR Notes is not otherwise in default of any obligation under the Class A-1LR Note Purchase Agreement or the Indenture; provided further that no Holder of Class A-1LR Notes (whether acting through its Conduit Agent or Ownership Group or on its own behalf) shall have the opportunity to cure more than one Funding Default pursuant to this paragraph and, following any subsequent Funding Default by such Holder of Class A-1LR Notes, the Issuer may require such Holder to transfer its rights and obligations in respect of its Class A-1LR Notes in accordance with the Class A-1LR Note Purchase Agreement without taking into account any cure of such Funding Default. Any failure or default under the Class A-1LR Note Purchase Agreement that creates an obligation to sell Class A-1LR Notes in accordance with the Class A-1LR Note Purchase Agreement must be cured as a result of any such transfer. Each Holder of Class A-1LR Notes acknowledges that it may incur a loss as a result of any such transfer. If any such Holder of Class A-1LR Notes cannot be replaced within such 30-day period, on the next succeeding Business Day the Issuer will demand the entire undrawn portion of such Class A-1LR Holder's Class A-1LR Commitment to be applied as a Downgrade Advance. If a Class A-1LR Holder is required to make a Downgrade Advance as described herein, on the applicable date of a Downgrade Advance (as specified above) such Class A-1LR Holder shall deposit with the Trustee cash in an aggregate amount equal to such Class A-1LR Holder's pro rata share of the Class A-1LR Undrawn Permitted Amount (or, if less, the amount specified in the Class A-1LR Note Purchase Agreement (any such deposit and any proceeds thereof, for so long as (and to the extent) it is held in the Revolving Reserve Account or the Delayed Drawdown Reserve Account, a "Downgrade Advance"). The Trustee shall hold the proceeds of a Downgrade Advance made by any Class A-1LR Holder in an account which will constitute a part of the Revolving Reserve Account or the Delayed Drawdown Reserve Account as provided in the Indenture. Any Downgrade Advance shall (A) constitute a Class A-1LR Advance, (B) reduce the Class A-1LR Undrawn Permitted Amount in the amount of such Downgrade Advance and (C) increase by a commensurate amount the principal balance of the Class A-1LR Notes held by the related Class A-1LR Holder, provided that such Downgrade Advance shall accrue interest at the Applicable Periodic Rate with respect to such Downgrade Advance. For so long as the conditions requiring any Class A-1LR Holder to make a Downgrade Advance are satisfied with respect to such Class A-1LR Holder, any amount that would otherwise be applied under the Indenture or under the Class A-1LR Note Purchase Agreement to repay the principal of the Class A-1LR Notes held by such Holder shall be deposited in the related account within the Revolving Reserve Account or the Delayed Drawdown Reserve Account (up to the amount of the Class A-1LR Commitment of such Class A-1LR Holder) and shall constitute a Downgrade Advance. Interest and other income 69

80 from amounts in any account constituting a part of the Revolving Reserve Account or the Delayed Drawdown Reserve Account established in respect of any Downgrade Advance, as applicable, shall constitute Interest Proceeds under the Indenture. If a Class A-1LR Holder fails to satisfy either the Class A-1LR Purchaser Rating Criteria or the Moody's Class A-1LR Collateralization Criteria, it shall promptly deliver notice of such failure to the Trustee, the Issuer, the Class A-1LR Note Agent and the Collateral Manager. Events of Default An "Event of Default" is defined in the Indenture as being any one of the following events: (a) a default in the payment of (i) any Class A-1LR Commitment Fee; or (ii) the Periodic Interest Amount due on any Class of Senior Class A Notes or, after the Senior Class A Notes are paid in full, the Class A-3L Notes, or after the Class A Notes are paid in full, the Class B-1L Notes, or after the Class A Notes and the Class B-1L Notes are paid in full, the Class B-2L Notes, on any Payment Date, which default or failure in the case of (i) or (ii) shall continue for a period of (A) four Business Days or (B) in the case of a default in payment due solely to an administrative error or omission by the Trustee, any Paying Agent or the Indenture Registrar, seven Business Days; provided that the Trustee has notified each Rating Agency in writing of any such administrative error or omission; (b) a default in the payment of principal of any Note when it becomes payable, at its Stated Maturity or on the Redemption Date (but not, for the avoidance of doubt, a default in the payment of any Class A-1LR Prepayment); (c) the failure on any Payment Date to disburse amounts available in the Payment Account in accordance with the order of priority stated above under "Application of Funds," and the failure continues for 3 Business Days; (d) on any Measurement Date for so long as any Senior Class A Notes are outstanding, the Senior Class A Overcollateralization Ratio is less than 102%; (e) either of the Co-Issuers or the pool of Collateral becomes an investment company under the Investment Company Act and that status continues for 45 days; (f) breach of any other covenant or other agreement of the Issuer or the Co-Issuer under the Indenture (other than any failure to satisfy any of the Collateral Quality Tests, any of the Concentration Limitations, any of the Coverage Tests, the Additional Collateral Deposit Requirement or other covenants or agreements for which a specific remedy has been provided under the Indenture), or the failure of any representation or warranty of the Issuer or the Co-Issuer made in the Indenture, or in any certificate or other writing delivered pursuant to the Indenture, or in connection with the Indenture, to be correct in any material respect when made, and the breach or failure continues for 30 days after either of the Co-Issuers has actual knowledge of it or after notice to the Issuer, the Co-Issuer, and the Collateral Manager by the Trustee or to the Issuer, the Co-Issuer, the Collateral Manager, and the Trustee by the Holders of at least 25% of the Aggregate Voting Amount of the Controlling Class by registered or certified mail or overnight courier specifying the breach or failure and requiring it to be remedied and stating that the notice is a "Notice of Default" under the Indenture; or (g) certain events of bankruptcy, insolvency, liquidation, receivership or reorganization of either the Issuer or the Co-Issuer. If an Event of Default is continuing (other than an Event of Default described in clause (e) or (g) under " Events of Default" above), the Trustee may, and upon the written direction of a Majority of the Aggregate Voting Amount of the Controlling Class, shall, declare the principal of all the Notes to be immediately payable by notice to the Issuer, and upon the declaration the unpaid principal of all the Notes, together with all its accrued and unpaid interest, and other amounts payable under the Indenture, including, without limitation, the 70

81 amounts specified in clauses (1) and (5) under "Application of Funds Application of Interest Proceeds," shall become immediately payable. The Revolving Period will terminate upon an Event of Default (subject to recommencement as described below). If an Event of Default described in clauses (e) or (g) above under " Events of Default" occurs, an acceleration will occur automatically and without any declaration or other act on the part of the Trustee or any Noteholder and the Revolving Period shall terminate automatically (subject to re-commencement as described below). If the Issuer defaults in the payment of any interest or principal of Notes of any Class other than the Controlling Class, neither the Trustee nor the Holders of a Majority of the Aggregate Voting Amount of the Controlling Class nor any other Holders may declare the interest or principal to be immediately payable. Any declaration of acceleration may under certain circumstances be rescinded by the Holders of at least a Majority of the Aggregate Voting Amount of the Controlling Class. At any time after the declaration of acceleration of maturity has been made as described above and before a judgment or decree for payment of the money due has been obtained by the Trustee, a Majority of the Aggregate Voting Amount of the Controlling Class by written notice to the Issuer and the Trustee, may rescind the declaration and its consequences if: the Issuer or the Co-Issuer has paid or deposited with the Trustee a sum sufficient to pay: all unpaid installments of interest and principal on the Notes and Class A-1LR Commitment Fees then due (other than as a result of the acceleration); all Administrative Expenses of the Co-Issuers and other sums paid or advanced by the Trustee under the Indenture; all unpaid Senior Management Fees; and all amounts then payable to any Hedge Counterparty; or the Trustee has determined that all Events of Default, other than the nonpayment of the interest on or principal of the Notes that have become due solely by the acceleration, have (A) been cured, and a Majority of the Aggregate Voting Amount of the Controlling Class by written notice to the Trustee has agreed with that determination (which agreement shall not be unreasonably withheld), or (B) been waived as provided in the Indenture; provided that any Hedge Agreement in place upon the declaration of acceleration must remain in place until such declaration is no longer capable of being rescinded or annulled. No rescission shall affect any subsequent default or impair any right resulting from the default. If an Event of Default is continuing, the Trustee will retain the Collateral intact, collect, and cause the collection of the proceeds of the Collateral and make and apply all payments and deposits and maintain all accounts in respect of the Collateral and the Notes and any Hedge Agreements (other than any amounts received under a Hedge Agreement that are used in putting a replacement hedge in place) in the manner described under "Application of Funds" unless either: (i) the Trustee determines with the assistance of the Collateral Manager that the anticipated net proceeds of a sale or liquidation of the Collateral (which shall be deemed to equal (a) the amount of a bid-side quotation for the purchase of such Collateral Obligation from an Approved Pricing Service, (b) if a bid-side quotation cannot be obtained from an Approved Pricing Service, the average of the price quotations from an Approved Pricing Service for Collateral Obligations similarly rated or (c) if neither clause (a) nor (b) is applicable, another amount certified by the Collateral Manager) would (after deduction of the reasonable expenses of the sale or liquidation) be sufficient to pay in full the amounts then due and unpaid on the Notes for principal and interest and Class A-1LR Commitment Fees, all Administrative Expenses, all other amounts (if any) then payable to the Hedge Counterparty by the Issuer (including any applicable termination payments) net of all amounts then payable to the Issuer by the Hedge Counterparty and all other amounts then payable under clause (3) under "Application of Funds Application of Interest Proceeds," and a Majority of the Aggregate Voting Amount of the Controlling Class agree with that determination; or 71

82 (ii) the Holders of a Super Majority of each of (A) the Class A-1 Notes (voting together as a single Class), (B) the Class A-2L Notes, (C) the Class A-3L Notes, (D) the Class B-1L Notes and (E) the Class B-2L Notes direct, subject to the provisions of the Indenture, the sale and liquidation of the Collateral. Before any sale of Collateral Obligations, the Trustee will be required to offer the Collateral Manager or an Affiliate of the Collateral Manager (so long as the offeree, or an institution that guarantees or commits to finance the obligations of the offeree, has a short-term unsecured debt rating of "P-1" (and is not on credit watch for possible downgrade) from Moody s and at least "A-1+" from S&P or if such offeree or institution does not have a short-term unsecured debt rating, it posts collateral as security for its obligations) the right to purchase the Collateral Obligations at a price equal to the highest bid price received by the Trustee in accordance with the Indenture. During the continuance of an Event of Default, a Majority of the Aggregate Voting Amount of the Controlling Class may institute and direct the Trustee in the conduct of any proceedings for any remedy available to the Trustee or for the exercise of any right of the Trustee under the Indenture if the direction does not conflict with any rule of law or with any express provision of the Indenture and the Trustee has been indemnified to its reasonable satisfaction. Any direction to the Trustee to undertake a sale of the Collateral shall be by the Holders of Notes representing the requisite percentage of the Aggregate Principal Amount of the Notes specified in the Indenture. The Trustee need not take any action that it determines might involve it in liability unless it has received an indemnity reasonably satisfactory to it against the liability. A Majority of the Aggregate Voting Amount of the Controlling Class may on behalf of the Holders of all the Notes, before the time a judgment or decree for the payment of money due has been obtained by the Trustee, waive any past Event of Default or event that, with notice or the lapse of time or both, would become an Event of Default and its consequences, except such a default in the payment of principal or Redemption Price of any Note or any payment of Class A-1LR Commitment Fees (which may be waived, in the case of a default in the payment of principal of any Note, with the consent of the Holder of such Note, and in the case of a default in the payment of the Class A-1LR Commitment Fees, with the consent of the Holders of the Class A-1LR Notes) or in the payment of interest on the Notes, with respect to a provision of the Indenture that cannot be modified or amended without the waiver or consent of the Holder of each outstanding Note, adversely affected by the modification or amendment, in the payment of amounts due to the Collateral Manager, the Trustee or the Hedge Counterparty, which may only be waived with the consent of the affected party, or arising as a result of an Event of Default described in clause (e) or (g) under " Events of Default." No Holder of a Note may institute any proceeding with respect to the Indenture, or for the appointment of a receiver or trustee, or for any other remedy under the Indenture, unless the Holder previously has given to the Trustee written notice of an Event of Default, the Holders of not less than 25% of the Aggregate Voting Amount of the Controlling Class shall have made written request to the Trustee to institute Proceedings with respect to the Event of Default in its own name as Trustee under the Indenture and the Trustee has received an indemnity satisfactory to it against the expenses and liabilities to be incurred in compliance with the request; the Trustee has for 30 or more days after its receipt of the notice, request and offer of indemnity failed to institute any proceeding, and no direction inconsistent with the written request has been given to the Trustee during the 30 day period by a Majority of the Aggregate Voting Amount of the Controlling Class. 72

83 If the Trustee receives conflicting or inconsistent requests and indemnity from two or more groups of Holders of the Controlling Class each representing less than a Majority of the Aggregate Voting Amount of the Controlling Class the Trustee shall take the action requested by the Holders of the largest percentage in Aggregate Voting Amount of the Controlling Class, notwithstanding any other provisions of the Indenture. In determining whether the Holders of the requisite Aggregate Voting Amount of the Notes have given any request, demand, authorization, direction, notice, consent, or waiver under the Indenture, Notes owned or beneficially owned by the Issuer, the Co-Issuer, any Affiliate of either of them, and (only (x) with respect to any matter affecting its status as Collateral Manager, or (y) in any matter with respect to an acceleration of any Class of Notes if the effect of the Collateral Manager s action or inaction as a Holder of Notes would effectively prevent acceleration) the Collateral Manager and its Affiliates shall be disregarded and not be outstanding, except that, in determining whether the Trustee shall be protected in relying on any request, demand, authorization, direction, notice, consent, or waiver, only Notes that a responsible trust officer of the Trustee has actual knowledge to be so owned or beneficially owned shall be so disregarded. Notes so owned or beneficially owned that have been pledged in good faith may be regarded as outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee s right so to act with respect to the Notes and that the pledgee is not the Issuer, the Co-Issuer, or any Affiliate of the Issuer or the Co-Issuer. Supplemental Indentures 73 Without Consent of Holders Without the consent of the Holders of any Securities, but with the consent of the parties the consent of which is required as described in the following paragraph, the Co-Issuers, in each instance when authorized by resolutions of the respective Boards of Directors, and the Trustee, at any time and from time to time subject to the requirement provided below with respect to satisfaction of the Rating Condition, may enter into one or more indentures supplemental to the Indenture, in form satisfactory to the Trustee, for any of the following purposes: (1) to evidence the succession of another person to the Issuer or the Co-Issuer and the assumption by the successor person of the obligations of the Issuer or the Co-Issuer under the Indenture and in the Notes; (2) to evidence the addition of an additional issuer or of a wholly owned subsidiary of the Issuer that, in either case, will acquire securities from the Issuer and pledge its assets to secure the obligations of the Issuer secured by the Collateral, to the extent necessary to permit the Issuer to comply with the United States Bank Holding Company Act of 1956 and the rules and regulations thereunder, if applicable, or any other statute, rule, or regulation applicable to the Issuer, and the assumption by the additional issuer or subsidiary of the obligations of the Issuer under the Indenture and in the Notes; (3) to add to the covenants of the Co-Issuers or the Trustee for the benefit of the Holders of the Notes or to surrender any right in the Indenture conferred on the Co-Issuers; (4) to convey, transfer, assign, mortgage, or pledge any property to the Trustee, or add to the conditions, limitations, or restrictions on the authorized amount, terms and purposes of the issue, authentication, and delivery of the Notes; (5) to evidence and provide for the acceptance of appointment under the Indenture by a successor Trustee and to add to or change any of the provisions of the Indenture necessary to facilitate the administration of the trusts under the Indenture by more than one Trustee, pursuant to the requirements of the Indenture; (6) to correct or amplify the description of any property at any time subject to the lien of the Indenture, or to better assure, convey, and confirm to the Trustee any property subject or required to be subject to the lien of the Indenture (including all actions appropriate as a result of changes in law) or to subject to the lien of the Indenture any additional property; (7) to modify the restrictions on and procedures for resales and other transfers of the Notes to reflect any changes in applicable law (or its interpretation) or to enable the Co-Issuers to rely on any less restrictive exemption from registration under the Securities Act or the Investment Company Act or to remove restrictions on resale and transfer to the extent not required under the Indenture;

84 (8) with the consent of the Collateral Manager and a Majority of the Controlling Class (which consent shall not be unreasonably withheld), to modify the restrictions on the sales of Collateral Obligations described in "Security for the Notes Dispositions of Collateral Obligations" or the Eligibility Criteria described in "Security for the Notes Eligibility Criteria" (and the related definitions) in a manner not materially adverse to Holders of any Class of Notes, as evidenced by an opinion of counsel (which may be supported as to factual (including financial and capital markets) matters by any relevant certificates and other documents necessary or advisable in the judgment of counsel delivering the opinion), to the effect that the modification would not be materially adverse to the Holders of any Class of the Notes; (9) to make appropriate changes for any Class of Notes to be listed on an exchange other than the Irish Stock Exchange; (10) to otherwise correct any inconsistency or cure any ambiguity or errors in the Indenture; (11) to accommodate the issuance of the Notes in book-entry form through the facilities of the Depository or otherwise; (12) to take any appropriate action to prevent the Issuer, the Holders of Securities, or the Trustee from becoming subject to withholding or other taxes, fees, or assessments or to prevent the Issuer from being treated as being engaged in a U.S. trade or business or otherwise being subject to U.S. federal, state, or local income tax on a net income basis, so long as the action will not cause the Holders of any Securities to be adversely affected to any material extent by any change to the timing, character, or source of the income from the Securities, as evidenced by an opinion of counsel (which may be supported as to factual (including financial and capital markets) matters by any relevant certificates and other documents necessary or advisable in the judgment of counsel delivering the opinion); (13) to authorize the appointment of any listing agent, transfer agent, paying agent, or additional registrar for any Class of Notes appropriate in connection with the listing of any Class of Notes on the Irish Stock Exchange or any other stock exchange, and otherwise to amend the Indenture to incorporate any changes required or requested by any governmental authority, stock exchange authority, listing agent, transfer agent, paying agent, or additional registrar for any Class of Notes in connection with its appointment, so long as the supplemental indenture would not materially and adversely affect any Holder of any Class of Notes, as evidenced by an opinion of counsel (which may be supported as to factual (including financial and capital markets) matters by any relevant certificates and other documents necessary or advisable in the judgment of counsel delivering the opinion) or a certificate of an officer of the Collateral Manager, to the effect that the modification would not be materially adverse to the Holders of any Class of Notes; (14) to amend, modify, enter into, or accommodate the execution of any contract relating to a Synthetic Security (including posting collateral under a Synthetic Security Agreement) (excluding, for the avoidance of doubt, amending the definition of "Synthetic Security"); (15) to modify the representations as to Collateral in Section 3.4 of the Indenture in order that it may be consistent with applicable laws or Rating Agency requirements; (16) to evidence any waiver by any Rating Agency as to any requirement or condition, as applicable, of the Rating Agency in the Indenture; (17) to facilitate the issuance of participation notes, combination notes, composite securities, and other similar securities; (18) to facilitate the ability of the Issuer to lend collateral pursuant to a Securities Lending Agreement; (19) to make any changes necessary to permit the Issuer to use Interest Proceeds remaining after payment of amounts referred to in clauses (1) to (21) under "Application of Funds Application of Interest Proceeds" to purchase Notes in the order of their seniority at a discount to satisfy (or reduce the degree of noncompliance with) the Additional Collateral Deposit Requirement; 74

85 (20) to modify any provision to facilitate an exchange of one security for another security of the same issuers that has substantially identical terms except transfer restrictions, including to effect any serial designation relating to the exchange; or (21) to effectuate the provision in the Indenture relating to the option to acquire credit enhancement. No supplemental indenture without the consent of Holders may be entered into if the interests of the Holders of any Class of Notes would be materially adversely affected by it. Any supplemental indenture made for the purpose set forth under clause (10) above will be deemed not to adversely affect the interests of Holders of the Securities. No supplemental indenture may be entered into that would reduce the rights, decrease the fees or other amounts payable to the Collateral Manager under the Indenture or increase the duties or obligations of the Collateral Manager without its consent. The Trustee is authorized to join in the execution of any supplemental indenture and to make any further appropriate agreements and stipulations that may be in the agreements, but the Trustee will not be obligated to enter into any supplemental indenture that affects the Trustee s own rights, duties, liabilities, or immunities under the Indenture or otherwise, except to the extent required by law. Unless notified by a Majority of the Aggregate Voting Amount of any Class of Notes that such Class would be adversely affected, the Trustee may rely on a certificate of the Collateral Manager and an opinion of counsel (which may be supported as to factual (including financial and capital markets) matters by any relevant certificates and other documents necessary or advisable in the judgment of counsel delivering the opinion) as to whether the interests of any Holder of the Notes would be materially adversely affected by any such supplemental indenture. The Trustee shall give at least 15 Business Days notice of the proposed change to the Holders of each Class of Notes (or 60 calendar days before execution, in the case of a supplemental indenture for the purpose described in clause (7) above, which shall be identified as such in a certificate of the Collateral Manager delivered to the Trustee before the date on which such notice is required to be given). If any outstanding Notes are rated by a Rating Agency, the Trustee shall enter into a supplemental indenture without the consent of Holders only if either (1) the Rating Condition with respect to each Rating Agency is satisfied with respect to the supplemental indenture or (2) the Collateral Manager and the Holders of 100% in Aggregate Voting Amount of each Class of Notes the ratings on which would be reduced or withdrawn consent to the supplemental indenture. Prior to the entry into any supplemental indenture with respect to which the Rating Condition is not expected to be satisfied for one or more Classes of Notes is not expected to be delivered, the Trustee shall provide written notice to each Holder of each Outstanding Note informing it of such fact. For so long as any Notes are outstanding and rated by a Rating Agency, the Trustee shall provide to the Rating Agency and each Hedge Counterparty a copy of any proposed supplemental indenture at least 5 Business Days before its execution by the Trustee. With Consent of Holders If the Rating Condition is satisfied with respect to each Rating Agency, with the consent of (a)(i) the Collateral Manager if the supplemental indenture would reduce the rights, decrease the fees or other amounts payable to it under the Indenture or increase the duties or obligations of the Collateral Manager, (ii) any predecessor Collateral Manager if the supplemental indenture would change any provision of the Indenture entitling that person to any fee or other amount payable to it under the Indenture so as to reduce or delay the entitlement of that person to the payment and (b) a Majority of the Notes (voting as a single class) adversely affected thereby, a Majority of the Controlling Class (as long as the Class A-1 Notes are the Controlling Class) and a Super Majority of the Income Notes adversely affected thereby, by Act of the Holders of the Notes and the Income Notes, the Trustee and the Co- Issuers may enter into a supplemental indenture to add any provisions to, or change in any manner or eliminate any of the provisions of, the Indenture or modify in any manner the rights of the Holders of the Notes or the Income Notes, as applicable. Any proposed supplemental indenture that would also necessitate a change to the Issuer Charter may only be made after a Special Resolution (as defined in the Issuer Charter) has been passed to permit the Issuer s constitutional documents to be altered to conform them to the proposed change to the Indenture as certified to the Trustee by the Issuer. 75

86 Notwithstanding anything in the Indenture to the contrary, without the consent of the Holder of each outstanding Note of each Class (if then rated) adversely affected thereby and each Holder of the Income Notes adversely affected thereby, in which case no Rating Condition need be satisfied, no supplemental indenture shall: (i) change the Stated Maturity of the principal of or the due date of any installment of interest on any Note, reduce its principal amount or the rate of interest on it, or the Default Interest Rate or the Redemption Price with respect to any Note, or change the earliest date on which Notes of any Class may be redeemed at the option of the Issuer, change the provisions of the Indenture relating to the application of proceeds of any Collateral to the payment of principal of or interest on Notes, change the Class A-1LR Commitment Fees, Class A-1LR Additional Costs, Class A-1LR Tax Gross-Up Amounts or any other amounts payable on the Class A-1LR Notes, change the terms of advances, payment priority or terms of prepayments or redemptions on the Class A-1LR Notes or to payments to the Holders of the Income Notes, or change any place where, or the coin or currency in which, Notes or their principal or interest on them is payable, or impair the right to institute suit for the enforcement of any such payment on or after their Stated Maturity (or, in the case of redemption, on or after the applicable Redemption Date); (ii) reduce the percentage of the Aggregate Voting Amount of Holders of Securities whose consent is required for the authorization of any such supplemental indenture or for any waiver of compliance with certain provisions of the Indenture or certain defaults under the Indenture or their consequences provided for in the Indenture; (iii) permit the creation of any lien ranking prior to or on a parity with the lien of the Indenture with respect to any part of the Collateral or terminate the lien on any property at any time subject hereto or deprive the Holder of any Note of the security afforded by the lien of the Indenture; (iv) reduce the percentage of the Aggregate Voting Amount of Holders of Securities whose consent is required to request the Trustee to preserve the Collateral or rescind the election to preserve the Collateral pursuant to the Indenture or to sell or liquidate the Collateral pursuant to the Indenture; (v) modify any of the provisions of the Indenture with respect to supplemental indentures or to provide that certain other provisions of the Indenture cannot be modified or waived without the consent of the Holder of each outstanding Security affected thereby; (vi) modify the definition of "Outstanding," "Controlling Class," "Majority" or "Super Majority" or the Application of Funds in the Indenture; (vii) except with respect to amendments described in clause (19) above under " Without Consent of Holders" which may be made without the consent of Holders of the Income Notes, modify any of the provisions of the Indenture in such a manner as to affect the calculation of the amount of any payment of Redemption Price or of interest or principal on any Note or any payments made in respect of the Income Notes on any Payment Date or to affect the rights of the Holders of Notes to the benefit of any provisions for the redemption of the Notes contained in the Indenture; or (viii) amend any provision of the Indenture that provides that the obligations of the Issuer or the Co- Issuer are non-recourse obligations. It shall not be necessary for any Act of Holders of Notes, or any consent of Holders of Income Notes under the above provision to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if the Act or consent approves its substance. At the cost of the Co-Issuers, for so long as any Notes are outstanding and rated by a Rating Agency, the Trustee will provide to the Rating Agency a copy of any proposed supplemental indenture at least 5 Business Days before its execution by the Trustee and a copy of the executed supplemental indenture will be mailed to the Holders of the Securities, the Collateral Manager, and each Rating Agency after its execution. 76

87 Without the approval of each Hedge Counterparty to a then existing Hedge Agreement (so long as the Hedge Counterparty is not in default under any Hedge Agreement to which it is party), no supplemental indenture will be effective, and the Co-Issuers will not consent to any supplemental indenture, that could have a material adverse effect on such Hedge Counterparty. Method of Payments Payments of principal and interest on any Note (including any Redemption Price paid on the applicable Redemption Date) and of any payments on any Income Notes will be made to the person in whose name the related Security is registered on the Business Day immediately preceding the applicable Payment Date (the "Record Date"); provided, however, if Definitive Securities are issued, the Record Date for such Definitive Securities shall be 15 days (whether or not a Business Day) prior to such Payment Date. Payments will be made (i) in the case of a Global Note, to the Depository or its designee and to the Holder or its nominee with respect to a Certificated Note or a Definitive Note, by wire transfer in immediately available funds to a United States dollar account maintained by the Depository or its nominee with respect to a Global Note and to the Holder or its designee with respect to a Certificated Note or a Definitive Note if the Holder has provided written wiring instructions to the Trustee and, if the payment is to be made by the Irish Paying Agent, the Irish Paying Agent on or before the related Record Date or, (ii) if appropriate wiring instructions are not received by the related Record Date, by check drawn on a U.S. bank mailed to the address of the Holder in the Indenture Register. Final payments of principal of the Notes will be made against surrender of the related Notes at the office designated by the Trustee. Any final distribution on each Income Note will be made only against surrender of the Income Note at the designated office of the Income Note registrar. None of the Issuer, the Co-Issuer, the Trustee, the Fiscal Agent, the Collateral Manager, the Initial Purchaser, any paying agent, or any of their respective affiliates will have any responsibility or liability for any aspects of the records maintained by the Depository or its nominee or any of its direct or indirect participants (including Euroclear or Clearstream or any of their respective direct or indirect participants) relating to payments made on account of beneficial interests in a Global Note. The Co-Issuers expect that the Depository or its nominee, upon receipt of any payment of principal or interest in respect of a Global Note held by the Depository or its nominee, will immediately credit participants accounts with payments in amounts proportionate to their respective beneficial interests in the Global Note as shown on the records of the Depository or its nominee. The Co-Issuers also expect that payments by participants (i.e., direct participants) to owners of beneficial interests in a Global Note held through the participants (i.e., indirect participants) will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers registered in the names of nominees for the customers. The payments will be the responsibility of the participants. For so long as any Notes are listed on the Irish Stock Exchange and the rules of the exchange shall so require, the Issuer and the Co-Issuers, as applicable, will have a paying agent (the "Irish Paying Agent") for the Notes in Ireland and payments on the Notes may be effected through the Irish Paying Agent. If the Irish Paying Agent is replaced at any time during the period, notice of the appointment of any replacement will be given to the Company Announcements Office of the Irish Stock Exchange. The Accounts The Indenture provides that the Trustee will establish separate segregated non-interest bearing trust accounts, which will be designated as the Collection Account, the Payment Account, the Custodial Account, the Revolving Reserve Account, the Delayed Drawdown Reserve Account, the Synthetic Security Collateral Account, the Hedge Counterparty Collateral Account, the Closing Date Expense Account, the Expense Reimbursement Account, each Synthetic Security Counterparty Account, the Class A-1LR Collateral Account and the Securities Lending Account (collectively, the "Accounts"). Collection Account. The Trustee shall deposit into the "Collection Account": all funds transferred from the Closing Date Expense Account pursuant to the Indenture, all Principal Proceeds (unless (i) simultaneously reinvested in Collateral Obligations in accordance with the Indenture, (ii) deposited into the Revolving Reserve Account or the Delayed Drawdown Reserve Account 77

88 78 or (iii) posted by the Issuer as cash collateral with (or for the benefit of) a Synthetic Security counterparty simultaneously with the Issuer s purchase of or entry into a Synthetic Security or in Eligible Investments) received by the Trustee, all Interest Proceeds received by the Trustee (unless simultaneously reinvested in accrued interest in respect of Collateral Obligations in accordance with the Indenture or in Eligible Investments), the Class A-1 Pro Rata Adjustment Amount required to be deposited under the Indenture, and all other funds received by the Trustee and not excluded above. The Issuer and the Collateral Manager may, but will not be required to, jointly deposit from time to time any monies in the Collection Account it deems, in its sole discretion, to be advisable (and may designate any amounts so deposited as Principal Proceeds or Interest Proceeds in its discretion). The Collection Account shall be maintained for the benefit of the Noteholders, the Trustee, the Collateral Manager and each Hedge Counterparty and amounts on deposit in the Collection Account will be available for application in the order of priority under "Application of Funds" and for the acquisition of Collateral Obligations under the circumstances and pursuant to the requirements in the Indenture. Amounts received in the Collection Account during a Due Period and amounts received in prior Due Periods and retained in the Collection Account under the circumstances stated above in "Application of Funds" will be invested in Eligible Investments with Stated Maturities not later than the Business Day before the next Payment Date as directed by the Collateral Manager (which may be in the form of standing instructions). All the proceeds will be retained in the Collection Account unless used to purchase Collateral Obligations during the Revolving Period in accordance with the Eligibility Criteria, to honor commitments with respect thereto entered into during the Revolving Period, or used as otherwise permitted under the Indenture. See "Security for the Notes Eligibility Criteria." The Trustee shall transfer to the Payment Account from the Collection Account for application pursuant to the Application of Funds, no later than the Business Day preceding each Payment Date, the amount set forth to be so transferred in the note valuation report for the Payment Date. In addition, on or prior to any Business Day on which a Class A-1LR Prepayment is made, the Trustee will transfer to the Payment Account from the Collection Account an equal to the amount of such Class A-1LR Prepayment. The Trustee shall pay free and clear of the lien of the Indenture, upon receipt (or withdrawal from the Collection Account if previously deposited therein), all Retained Accrued Interest, as directed by Bear Stearns. At any time during or after the Revolving Period, at the direction of the Collateral Manager, the Issuer may direct the Trustee to pay from amounts on deposit in the Collection Account on any Business Day during any Periodic Interest Accrual Period: (i) any amount required to exercise a warrant held in the Collateral in accordance with the requirements of the Indenture and the issuer order; and (ii) from Interest Proceeds only, any Administrative Expenses that require payment before the next Payment Date to the extent that the amount of the payments does not exceed the aggregate amount that may be paid on the next Payment Date under, and at the level of priority specified by the Application of Funds. Custodial Account. The Trustee will from time to time deposit collateral into the "Custodial Account", over which the Trustee will have exclusive control and sole right of withdrawal, in accordance with the Indenture. All assets or securities at any time on deposit in or otherwise to the credit of the Custodial Account will be held in trust by the Trustee for the benefit of the Noteholders, the Trustee, the Collateral Manager, each Class A-1LR Note Agent and each Hedge Counterparty. Revolving Reserve Account and Delayed Drawdown Reserve Account. Upon the purchase of any Collateral Obligation that is a Revolving Loan or Delayed Drawdown Loan, at the direction of the Collateral Manager, the Trustee may deposit Principal Proceeds into the "Revolving Reserve Account", in the case of any such Revolving Loan, and the "Delayed Drawdown Reserve Account", in the case of any such Delayed Drawdown Loan, each equal

89 to the unfunded commitment amount of the Revolving Loan or Delayed Drawdown Loan, respectively, and the Principal Proceeds so deposited shall be considered part of the Purchase Price of such Revolving Loan or Delayed Drawdown Loan (to the extent such Revolving Loan or Delayed Drawdown Loan is not otherwise funded through draws on the Class A-1LR Notes), respectively, for purposes of the Indenture; provided, however, that, during the Revolving Period, at the direction of the Collateral Manager, with respect to any Revolving Loan or Delayed Drawdown Loan, the Issuer shall have the right to reduce the aggregate amount required to be so credited at any time so long as such reduction does not result in a Commitment Shortfall at such time. In addition, upon the making of any Downgrade Advance by any Class A-1LR Holder pursuant to the Class A-1LR Note Purchase Agreement, the Trustee shall create an account which will constitute a part of the Revolving Reserve Account or the Delayed Drawdown Reserve Account, as applicable, shall deposit the proceeds of such Downgrade Advance in such account and shall thereafter apply such proceeds (and any other amounts held in or to be deposited into such account) in the manner specified in the Class A-1LR Note Purchase Agreement. Class A-1LR Undrawn Permitted Amounts that were identified and reported to the Trustee and the Collateral Administrator by the Collateral Manager in writing as being reserved against the unfunded commitment amount under a Revolving Loan or Delayed Drawdown Loan will be considered part of the Purchase Price of such Revolving Loan or Delayed Drawdown Loan, respectively, for purposes of the Indenture. The Trustee shall deposit amounts into the Revolving Reserve Account and Delayed Drawdown Reserve Account as contemplated by the definition of Note Payment Sequence Class A-1. At the direction of the Collateral Manager at any time during or after the Revolving Period, the Trustee shall withdraw funds from the Revolving Reserve Account or the Delayed Drawdown Reserve Account to fund extensions of credit pursuant to Revolving Loans or Delayed Drawdown Loans (including any Revolving Loans or Delayed Drawdown Loans which, pursuant to the Indenture, may be funded through draws on the Class A-1LR Notes), respectively. In addition, to the extent that the Issuer receives proceeds of a repayment in respect of a Revolving Loan or Delayed Drawdown Loan (except to the extent of any Class A-1LR Prepayment under the Indenture during the Revolving Period) at any time during or after the Revolving Period, the Trustee shall deposit the proceeds into the Revolving Reserve Account or the Delayed Drawdown Reserve Account, as applicable; provided, however, that, during the Revolving Period, at the direction of the Collateral Manager, with respect to any Revolving Loan or Delayed Drawdown Loan, the Issuer shall have the right to reduce the aggregate amount required to be so credited at any time so long as such reduction does not result in a Commitment Shortfall at such time. Upon the sale of a Revolving Loan or Delayed Drawdown Loan in whole or in part or the reduction in part or termination of the Issuer s commitment thereunder, an amount on deposit in the Revolving Reserve Account or the Delayed Drawdown Reserve Account, as the case may be, specified by the Collateral Manager as being equal to (i) except to the extent Delayed Drawdown Loans are permitted to be funded from draws on the Class A-1LR Notes as set forth in the Indenture, the unfunded amount of the commitment (in the case of a sale in whole or a termination of the commitment), (ii) the proportionate amount of the amount on deposit (in the case of a sale in part), or (iii) the amount by which the commitment is reduced (in the case of a reduction thereof in part) shall be transferred by the Trustee to the Collection Account as Principal Proceeds. Amounts on deposit in the Revolving Reserve Account or the Delayed Drawdown Reserve Account will be invested in Eligible Investments with Stated Maturities as directed by the Collateral Manager (which may be in the form of standing instructions) not later than the Business Day after the date of their purchase. All interest and other income from amounts in the Revolving Reserve Account and the Delayed Drawdown Reserve Account deposited to the Collection Account under the Indenture shall be considered Interest Proceeds in the Due Period in which they are so deposited. Synthetic Security Collateral Account. On or before the date on which the Issuer enters into a Synthetic Security the Trustee shall create an account which shall constitute a part of the non-interest bearing trust account established for Synthetic Security Collateral (the "Synthetic Security Collateral Account") with respect to the Synthetic Security. All Synthetic Security Collateral posted by any Synthetic Security counterparty in support of its respective obligation under a Synthetic Security shall be immediately deposited into the related Synthetic Security Collateral Account and posted to the account related to the applicable Synthetic Security. On each day on which amounts are payable to the Issuer out of Synthetic Security Collateral, the Issuer shall direct the Trustee to withdraw 79

90 amounts on deposit in the Synthetic Security Collateral Account in an amount sufficient to make the payment (including any total or partial release of Synthetic Security Collateral). The only permitted withdrawal from or application of funds on deposit in, or otherwise to the credit of, the Synthetic Security Collateral Account shall be 80 for application to the obligations of the relevant Synthetic Security counterparty under the Synthetic Security agreement or to return Synthetic Security Collateral to the relevant Synthetic Security counterparty at the termination of the relevant Synthetic Security agreement or as otherwise required by the Synthetic Security agreement, in each case as directed by the Collateral Manager. Amounts on deposit in the Synthetic Security Collateral Account will be invested in Eligible Investments having Stated Maturities as directed by the Collateral Manager (which may be in the form of standing instructions), not later than one Business Day after their purchase. Hedge Counterparty Collateral Account. The Trustee will deposit all collateral received from a Hedge Counterparty under any Hedge Agreement into the "Hedge Counterparty Collateral Account". The only permitted withdrawal from or application of funds on deposit in, or otherwise to the credit of, the Hedge Counterparty Collateral Account will be (i) for application to obligations of the relevant Hedge Counterparty to the Issuer under a Hedge Agreement if the Hedge Agreement becomes subject to early termination or (ii) to return collateral to the relevant Hedge Counterparty when and as required by the relevant Hedge Agreement. Amounts on deposit in the Hedge Counterparty Collateral Account will be invested in Eligible Investments with Stated Maturities no later than the Business Day before the next Payment Date as directed by the Collateral Manager (which may be in the form of standing instructions). Class A-1LR Collateral Account. The Trustee will deposit all Posted Collateral received from any Holder of Class A-1LR Notes under the Class A-1LR Note Purchase Agreement into an account which shall constitute a part of the "Class A-1LR Collateral Account" identified for the applicable Class A-1LR Holder. The only permitted withdrawal from or application of funds on deposit in, or otherwise to the credit of, any account which shall constitute a part of the Class A-1LR Collateral Account will be (i) for application to obligations of the relevant Holder of Class A-1LR Notes under the Class A-1LR Note Purchase Agreement or (ii) to return Posted Collateral to the relevant Holder of Class A-1LR Notes when and as required by the Class A-1LR Note Purchase Agreement. Any accrued interest on the Posted Collateral credited to the Class A-1LR Collateral Account shall be payable to the applicable Holder of Class A-1LR Notes. Closing Date Expense Account. Amounts deposited in the "Closing Date Expense Account" on the Closing Date will be withdrawn to pay certain administrative expenses of the Co-Issuers. On the Payment Date in January 2008, the Trustee will transfer all funds on deposit in the Closing Date Expense Account to the Collection Account as Principal Proceeds and close the Closing Date Expense Account. Amounts on deposit in the Closing Date Expense Account shall be invested in Eligible Investments with Stated Maturities as directed by the Collateral Manager (which may be in the form of standing instructions), no later than the Business Day before the second Payment Date. Expense Reimbursement Account. On any Payment Date and on any date between Payment Dates, the Trustee will apply amounts, if any, in the "Expense Reimbursement Account" to the payment of expenses and fees that must be paid between Payment Dates or that are due on that Payment Date under clause (1) of "Application of Funds Application of Interest Proceeds" and the Trustee shall on any Payment Date transfer to the Expense Reimbursement Account an amount equal to the excess, if any, of the Administrative Expense Cap over the amounts due under clause (1) of "Application of Funds Application of Interest Proceeds" (up to U.S.$50,000) to the Expense Reimbursement Account in accordance with clause (2) of "Application of Funds Application of Interest Proceeds." Amounts on deposit in the Expense Reimbursement Account shall be invested in Eligible Investments with Stated Maturities as directed by the Collateral Manager (which may be in the form of standing instructions), no later than the Business Day before the next Payment Date. Securities Lending Account. The Trustee will deposit all Securities Lending Collateral posted by any Securities Lending Counterparty in support of its respective obligation under a Securities Lending Agreement in a non-interest bearing trust account (the "Securities Lending Account"). The only permitted withdrawal from or

91 application of funds on deposit in, or otherwise to the credit of, the Securities Lending Account will be (i) for application to obligations of the relevant Securities Lending Counterparty to the Issuer under a Securities Lending Agreement if the Securities Lending Agreement becomes subject to early termination or in the exercise of remedies under the Securities Lending Agreement upon any "event of default" under and as defined in the Securities Lending Agreement, including liquidating the related Securities Lending Collateral, or (ii) to return collateral to the Hedge Counterparty when and as required by a Hedge Agreement. Amounts on deposit in the Securities Lending Account shall be invested in Eligible Investments with Stated Maturities as directed by the Collateral Manager (which may be in the form of standing instructions) no later than the Business Day before the next Payment Date. Payment Account. The Trustee will deposit collateral into the "Payment Account," over which the Trustee will have exclusive control and sole right of withdrawal, in accordance with the Indenture. All assets or securities at any time on deposit in or otherwise to the credit of the Payment Account will be held in trust by the Trustee for the benefit of the Noteholders, the Trustee, the Collateral Manager and each Hedge Counterparty. The only permitted withdrawal from or application of funds on deposit in, or otherwise to the credit of, the Payment Account shall be to pay amounts due and payable on the Notes and any Class A-1LR Prepayments in accordance with the terms and provisions of the Indenture, and to pay Administrative Expenses and other amounts as specified in the Indenture. In addition, on any Business Day during the Revolving Period, the Co-Issuers (at the direction of the Collateral Manager) may, subject to the limitations set forth in the Indenture, use funds in the Payment Account to make Class A-1LR Prepayments on the Class A-1LR Notes as described under "Certain Additional Provisions Relating to the Securities Class A-1LR Prepayments." Synthetic Security Counterparty Account. If any Synthetic Security requires the Issuer to secure its obligations to the Synthetic Security counterparty, the Issuer will, subject to the second succeeding sentence, (x) direct the Trustee to, and the Trustee shall, establish with the Securities Intermediary a segregated non-interest bearing trust account in respect of any such Synthetic Security (each such account, together with any account established pursuant to clause (y), a "Synthetic Security Counterparty Account" which shall be held in trust for the benefit of the related Synthetic Security counterparty or the related Synthetic Security counterparty shall have exclusive control and the sole right of withdrawal (except upon maturity of the Synthetic Security) in accordance with the applicable Synthetic Security and the Indenture or (y) cause the establishment of a segregated non-interest bearing trust account in respect of any Synthetic Security at an organization or entity (other than the Trustee) organized and doing business under the laws of the United States of America or any state thereof, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $200,000,000, subject to supervision or examination by federal or state authority, having a rating of (i) at least "Baa1" by Moody s and (ii) at least "BBB+" by S&P and having an office within the United States. Any such account set forth in clause (y) shall also constitute a Synthetic Security Counterparty Account and, except upon maturity of the Synthetic Security, the related Synthetic Security counterparty shall have exclusive control over, and the sole right of withdrawal from, such account in accordance with the applicable Synthetic Security. In addition, the Issuer may, in lieu of establishing a Synthetic Security Counterparty Account, provide cash or securities to the Synthetic Security counterparty to be held and distributed in accordance with the applicable Synthetic Security. As directed in writing by the Collateral Manager, the Trustee shall deposit (or deliver for deposit) into each Synthetic Security Counterparty Account all amounts or securities that are required to secure the obligations of the Issuer in accordance with the related Synthetic Security. The Collateral Manager shall direct any such deposit only during the Revolving Period and only to the extent that monies are available for the purchase of Collateral Obligations pursuant to the Indenture. Any income received on amounts in the Synthetic Security Counterparty Account shall, after application in accordance with the relevant Synthetic Security, be withdrawn from the Synthetic Security Counterparty Account and deposited in the Collection Account for distribution as Interest Proceeds. If the Issuer enters into a Synthetic Security in the form of a credit default swap or similar obligation that requires the Issuer to post collateral to secure the obligations of the Issuer in accordance with the related Synthetic Security, the Issuer shall, in addition to posting such collateral, deposit in the related Synthetic Security Counterparty Account an amount equal to the excess, if any, of the notional amount under such Synthetic Security over such posted collateral. Such deposit shall be made only to a Synthetic Security Counterparty Account established under clause (x) above; if the Issuer posts collateral to a Synthetic Security Counterparty Account established pursuant to clause (y) above, it shall direct the Trustee to, and the Trustee shall, establish a Synthetic Security Counterparty Account under clause (x) above with respect to the deposit of the amounts constituting the excess, if any, of the notional amount under such Synthetic Security over such posted collateral. 81

92 As directed by the Collateral Manager in writing and in accordance with the applicable Synthetic Security and the Indenture, amounts on deposit in a Synthetic Security Counterparty Account shall be invested in Eligible Investments. In connection with the occurrence of a credit event or an event of default or a termination event (each as defined in the applicable Synthetic Security) under the related Synthetic Security, amounts in any Synthetic Security Counterparty Account shall be withdrawn by the Trustee (or the Trustee shall request their withdrawal) or the Synthetic Security counterparty, as applicable, and applied toward the payment of any amounts payable by the Issuer to the related Synthetic Security counterparty in accordance with the Synthetic Security, as directed by the Collateral Manager in writing. Any excess amounts held in a Synthetic Security Counterparty Account, or held directly by a Synthetic Security counterparty, after payment of all amounts owing from the Issuer to the related Synthetic Security Counterparty in accordance with the related Synthetic Security shall be withdrawn from the Synthetic Security Counterparty Account and deposited in the Collection Account for distribution as Principal Proceeds. If the Issuer provides cash or securities directly to the Synthetic Security counterparty, the related Synthetic Security shall provide that such cash or securities shall be applied to amounts owing to the Synthetic Security counterparty and that the remainder shall be returned to the Issuer. Upon receipt thereof, the Issuer shall place any such remaining amounts or securities in the Collection Account for distribution as Principal Proceeds. Amounts on deposit in any Synthetic Security Counterparty Account shall not be considered an asset of the Issuer for the purposes of the Eligibility Criteria or the Coverage Tests, but the Synthetic Security that relates to the Synthetic Security Counterparty Account shall be so considered an asset of the Issuer (with the notional amount as the Principal Balance unless a default exists under the applicable Synthetic Security). Note Valuation Report; Noteholder Reports Promptly after receipt by the Trustee thereof, but in any event not later than each Payment Date, the Trustee shall deliver (or otherwise make available) to each Noteholder, each Holder of the Income Notes and each Rating Agency a report setting forth certain information regarding payments made on the related Payment Date, as well as information on the Collateral Obligations. In addition, beginning in October 2007, the Issuer shall provide, or procure the provision, to each Rating Agency and the Trustee, who shall forward a copy (or otherwise make available) to each Noteholder and each Holder of the Income Notes, a monthly report containing additional information with respect to the Collateral Obligations included in the Trust Estate. Except as provided herein, the Indenture provides that the information contained in these reports is confidential and may not be disclosed, except as provided therein. Notices Notices to the Holders of the Securities will be given by first-class mail, postage prepaid, to the registered Holders of the Securities at their respective addresses appearing in the Indenture Register or the Income Note register, as applicable. If and for so long as any Class of Notes is listed on the Irish Stock Exchange and the rules of the exchange so require, notice will also be given to the Company Announcements Office of the Irish Stock Exchange. Certain Covenants The Indenture contains certain covenants restricting the conduct of the Co-Issuers, including (i) restrictions on consolidations, mergers and transfers or conveyances of assets involving either Co-Issuer, (ii) restrictions on incurrence of debt other than the Notes and certain obligations incidental to the performance by each Co-Issuer of its obligations under the Indenture, (iii) restrictions on the ability of either Co-Issuer to conduct activities inconsistent with its special-purpose nature and (iv) certain restrictions on amendments of the Collateral Administration Agreement and the Management Agreement. Cancellation All Securities that are paid in full or redeemed and surrendered for cancellation will forthwith be canceled and may not be reissued or resold. 82

93 No Gross-Up All payments made by the Issuer under the Securities will be made without any deduction or withholding for or on account of any tax unless the deduction or withholding is required by any applicable law, as modified by the practice of any relevant governmental revenue authority, then in effect. If the Issuer is so required to deduct or withhold, then the Issuer will not be obligated to pay any additional amounts in respect of the withholding or deduction, other than any payments of Class A-1LR Tax Gross-Up Amounts made to Holders of the Class A-1LR Notes with respect to an Indemnifiable Tax. Petitions for Bankruptcy The Indenture provides that the Trustee, each Hedge Counterparty, the Collateral Manager, and the Holders of the Notes, and the Fiscal Agency Agreement provides that the Fiscal Agent and the Holders of the Income Notes, may not cause the filing of a petition in bankruptcy against the Issuer or the Co-Issuer before one year and one day have elapsed since the final payments to the Holders of all Notes or, if longer, the applicable preference period then in effect, including any period established pursuant to the laws of the Cayman Islands. Subordination In furtherance of the priorities of payments among the Classes of Notes, the Indenture contains express subordination provisions pursuant to which the Holders of each Class of Notes that is a junior Class agree for the benefit of the Holders of the Notes of each Priority Class with respect to the junior class that the junior class shall be subordinate and junior to the Notes of each Priority Class to the extent and in the manner provided in the Indenture. If any Event of Default has not been cured or waived and acceleration occurs under and in accordance with the Indenture, each Priority Class of Notes shall be paid in full in cash or, to the extent a Majority of the Aggregate Voting Amount of the Class consents, other than in cash, before any further payment or distribution is made on account of any junior class of Notes with respect to the Priority Class. The Holders of each junior class of Notes agree, for the benefit of the Holders of the Notes of each Priority Class in respect of the junior class, not to cause the filing of a petition in bankruptcy against the Issuer or the Co-Issuer for failure to pay to them amounts due to the junior class, of the Notes or each Class of Notes, as the case may be, or under the Indenture until the payment in full of the Priority Classes or all the Classes, as the case may be, and not before one year and a day, or if longer, the applicable preference period then in effect, has elapsed since the payment. If, notwithstanding the provisions of the Indenture, any Holder of Notes of any junior class has received any payment or distribution in respect of the Notes contrary to the provisions of the Indenture, then, until each Priority Class with respect to the junior class of Notes or each Class of Notes, as the case may be, has been paid in full in cash or, to the extent a Majority of the Aggregate Voting Amount of the Priority Class or the Class, as the case may be, consents, other than in cash in accordance with the Indenture, the payment or distribution shall be received and held in trust for the benefit of, and shall forthwith be paid over and delivered to, the Trustee, which shall pay and deliver the same to the Holders of the applicable Priority Classes of Notes or the Holders of all Classes of Notes, as the case may be, in accordance with the Indenture. If any such payment or distribution is made other than in cash, it shall be held by the Trustee as part of the Collateral and subject in all respects to the Indenture. Each Holder of Notes of any junior Class agrees with all Holders of the applicable Priority Classes that the Holder of junior Class Notes shall not demand, accept, or receive any payment or distribution in respect of the Notes in violation of the Indenture. After a Priority Class has been paid in full, the Holders of the related junior Class or Classes shall be fully subrogated to the rights of the Holders of the Priority Class. Nothing in these provisions shall affect the obligation of the Issuer to pay Holders of any junior Class of Notes. The Management Fees shall have priority only to the extent provided in the Application of Funds. Standard of Conduct The Indenture provides that, in exercising any of its or their voting rights, rights to direct and consent or any other rights as a Noteholder under the Indenture, subject to the terms and conditions of the Indenture, a Noteholder shall not have any obligation or duty to any Person or to consider or take into account the interests of 83

94 any Person and shall not be liable to any Person for any action taken by it or them or at its or their direction or any failure by it or them to act or to direct that an action be taken, without regard to whether the action or inaction benefits or adversely affects any Noteholder, the Issuer, or any other Person, except for any liability to which the Noteholder may be subject to the extent the same results from the Noteholder s taking or directing an action, or failing to take or direct an action, in bad faith or in violation of the express terms of the Indenture. Actions of Holders Under the Indenture If any Holder of a Security has notified the Trustee in writing that pursuant to such Holder s organizational documents or other documents governing such Holder s actions, the Holder is not permitted to take any affirmative action approving, rejecting or otherwise acting upon any Issuer request under the Indenture including, but not limited to, a request for the consent to a proposed amendment or waiver pursuant to the Indenture, the failure by such Holder to consent to or reject any such requested action will be deemed a consent by such Holder to the requested action. Satisfaction and Discharge of Indenture The Indenture will be discharged with respect to the Collateral upon delivery to the Trustee and the Income Note registrar for cancellation of all of the Notes and Income Notes, respectively, or, within certain limitations (including the obligation to pay interest on or principal of the Notes) upon deposit with the Trustee or the Fiscal Agent, as applicable, of funds sufficient for the payment or redemption thereof and the payment by the Co-Issuers or the Issuer, as applicable, of all other amounts due under the Indenture. Trustee Deutsche Bank Trust Company Americas will be the Trustee under the Indenture. The Co-Issuers, the Collateral Manager and their respective Affiliates may maintain other banking relationships in the ordinary course of business with the Trustee and its affiliates. The payment of the fees and expenses of the Trustee relating to the Notes is solely the obligation of the Issuer. The payment of the fees and expenses, which will be paid in accordance with the Application of Funds, is secured by a lien on the Collateral which is senior to the lien of the Holders of the Notes. The Trustee and its affiliates may receive compensation in connection with the investment of trust assets in certain Eligible Investments as provided in the Indenture. Eligible Investments may include investments for which the Trustee or its affiliates provide services. The Indenture contains provisions for the indemnification of the Trustee for any loss, liability or expense incurred without negligence, willful misconduct or bad faith arising out of or in connection with the acceptance or administration of the Indenture. Pursuant to the Indenture, as security for the payment by the Issuer of the compensation and expenses of the Trustee and any sums the Trustee may be entitled to receive as indemnification by the Issuer, the Issuer will grant the Trustee a senior lien on the Collateral, which is senior to the lien of the holders of the Secured Obligations on the Collateral. Pursuant to the Indenture, the Trustee may resign at any time by providing 30 days notice and the Trustee may be removed at any time by the Holders of a majority in Outstanding Principal Amount of each Class of Notes, at any time when an Event of Default shall have occurred and be continuing by the Holders of a Majority of the Aggregate Voting Amount of the Controlling Class, or by a court of competent jurisdiction. However, no resignation or removal of the Trustee will become effective until the acceptance of appointment by a successor Trustee pursuant to the terms of the Indenture. Governing Law The Notes, the Indenture, the Management Agreement, the Collateral Administration Agreement, the Purchase and Placement Agency Agreement, the Class A-1LR Note Purchase Agreement, the Subscription Agreements, the Securities Lending Agreements and the Hedge Agreements will be governed by the laws of the State of New York. The Income Note Documents, the Administration Agreement and the Issuer Charter will be governed by the laws of the Cayman Islands. The rights attached to the Income Notes as set forth in the Income 84

95 Note Documents will be governed by Cayman Islands law. The Issuer will irrevocably submit to the federal court sitting in the City and County of New York over any suit, action or proceeding arising out of or relating to any of the Notes, the Indenture and the Fiscal Agency Agreement. Fiscal Agency Agreement Pursuant to the Fiscal Agency Agreement, the Fiscal Agent will perform various fiscal services on behalf of the Holders of the Income Notes. The payment of the fees and expenses of the Fiscal Agent is solely the obligation of the Issuer. The Fiscal Agency Agreement contains provisions for the indemnification of the Fiscal Agent for any loss, liability or expense incurred without gross negligence, willful misconduct or bad faith on its part, arising out of or in connection with the acceptance or administration of the Fiscal Agency Agreement. [remainder of page intentionally blank] 85

96 CERTAIN MATURITY AND PREPAYMENT CONSIDERATIONS The Stated Maturity of each Class of Notes is the Payment Date occurring in January 2022, subject to prior redemption under the circumstances described herein. The average life of each Class of Notes is expected to be shorter than the number of years until the Stated Maturity, and the average lives may vary due to various factors. The average life of each Class of Notes refers to the weighted amount of time that will elapse from the date of delivery of such Notes until each dollar of the principal of such securities will be paid to the investor. Such average lives will be determined by the amount and frequency of principal payments which in turn are dependent upon, among other things, the amount of sinking fund payments and other payments received at or in advance of the scheduled maturity of Collateral Obligations (whether through sale, maturity, redemption, prepayment, default or other liquidation or disposition). The actual average life and final maturity of each Class of Notes will be affected by the financial condition of the issuers of the underlying Collateral Obligations and the characteristics of such collateral, including the existence and frequency of exercise of any optional or mandatory redemption features, the prevailing level of interest rates, the redemption price, the actual default rate and the actual level and timing of recoveries on any Defaulted Collateral Obligations, the frequency of tender or exchange offers for such item of Collateral, and the ability of the Issuer to reinvest collections in additional Collateral Obligations or reinvest proceeds in substitute Collateral Obligations satisfying the criteria set forth in the Indenture and the reinvestment rates obtained in connection with the purchase of such additional Collateral Obligations or substitute Collateral Obligations or in connection with the reinvestment of proceeds in Eligible Investments. It is expected that a substantial amount (by Principal Balance) of the Collateral will be subject to mandatory redemption or optional redemption or prepayment by the issuer thereof or obligor thereunder. Any acquisition of additional Collateral Obligations or substitute Collateral Obligations or disposition of an item of Collateral will likely change the composition and characteristics of the Collateral and the rate of payment thereon, and, accordingly, may affect the actual average life of the Notes. See "Security for the Notes Changes in Composition of Collateral." In addition, the Notes are subject to redemption at the times and under the circumstances described herein, including Optional Redemption, Special Redemption, redemption made in connection with a Tax Event or mandatory redemption caused by the failure to meet any of the Coverage Tests or a Rating Confirmation Failure as described herein. Any such redemption will affect the average lives of the Notes. Under the assumptions identified below, the Class A-1LR Notes are expected to have an average life of approximately 7.95 years and an expected final payment occurring on the Payment Date in July 2015, the Class A- 1L Notes are expected to have an average life of approximately 7.95 years and an expected final payment occurring on the Payment Date in July 2015, the Class A-2L Notes are expected to have an average life of approximately 8.17 years and an expected final payment occurring on the Payment Date in July 2015, the Class A-3L Notes are expected to have an average life of approximately 8.17 years and an expected final payment occurring on the Payment Date in July 2015, the Class B-1L Notes are expected to have an average life of approximately 8.17 years and an expected final payment occurring on the Payment Date in July 2015 and the Class B-2L Notes are expected to have an average life of approximately 8.17 years and an expected final payment occurring on the Payment Date in July There can be no assurance that the average lives and expected final payment of any Class of Notes will be as set forth above. Prospective investors should make their own determinations of the payments expected to be made in respect of the Notes. The hypothetical scenario used to determine the average lives of the Notes is as follows: (i) approximately U.S.$725,000,000 in Aggregate Principal Balance of various assumed Collateral Obligations would be purchased on the Closing Date using all funds available on the Closing Date for the purchase of Collateral Obligations; (ii) 100% of the Collateral Obligations (by Aggregate Principal Balance) will consist of Floating Rate Obligations which will have a weighted average margin of approximately %; (iii) LIBOR is assumed to be approximately 5.362% from the Closing Date to the first Payment Date and three-month LIBOR is assumed to be based on the forward LIBOR curve thereafter; (iv) from the Closing Date to the first Payment Date (to adjust for not being fully invested in Collateral) the weighted average margin is approximately -0.30% and from the first Payment Date to the second (to adjust for not being fully invested in Collateral) the weighted average margin on the Collateral Obligations purchased at closing is approximately 2.12% (in both cases, for the initial Collateral Obligations); (v) the initial Collateral Obligations have a scheduled maturity date of January 22, 2015; (vi) no Special Redemption, redemption following a Tax Event or a Rating Confirmation Failure is made; (vii) an Optional Redemption occurs on the Payment Date occurring in July 2015; (viii) the additional Collateral Obligations purchased from collections as 86

97 described herein will bear interest quarterly at the rate of 2.50% per annum above LIBOR following such purchase, and are purchased at a dollar price of par; (ix) all Collateral Obligations in the portfolio become callable or prepayable on the payment date immediately following the purchase date and are callable at their respective call price; (x) all Eligible Investments will bear interest at a rate of LIBOR minus 0.15% per annum; (xi) the additional Collateral Obligations have an initial call price of par; and (xii) the additional Collateral Obligations have a 6-year maturity. In addition, it is assumed that no calls or defaults or prepayments with respect to such additional Collateral Obligations will occur on the Stated Maturity of the Collateral Obligations. Further, the hypothetical scenario assumes that there are no defaults for two Due Periods after the date of purchase of the Collateral Obligations and there are defaults equal to 2% per annum thereafter. The principal recovery on any defaulted Portfolio Loan is assumed to be 80% and in each case such recovery is assumed to occur at the default date. It is also assumed that the Scheduled Distributions on Collateral Obligations are timely received and that such distributions are invested or reinvested at the indicated reinvestment rates until the next payment date without compounding. It is assumed that during the first Due Period no prepayments are made and thereafter prepayments for Collateral Obligations are calculated on a 40% per annum rate basis on 34.48% of the Collateral Obligations purchased at closing and on a 25% per annum rate basis on 65.52% of the Collateral Obligations purchased at closing and on any additional Collateral Obligations purchased from collections as described herein. It is assumed that during any period when the Overcollateralization Tests or the Interest Coverage Test are not satisfied, principal payments (or, in the case of the Class A-3L Notes and each Class of Class B Notes, payments of accrued and unpaid interest and then principal) will be made in respect of the Notes to the extent necessary to satisfy the Overcollateralization Tests or the Interest Coverage Test, as applicable (to the extent of funds available therefor). The Senior Management Fee and the Subordinated Management Fee are assumed to be approximately 0.525% per annum in the aggregate, and the Administrative Expenses will be 0.115% per annum during the Revolving Period and 0.07% per annum after the Revolving Period (but, in each case, not less than U.S.$55,000 per Due Period), in the aggregate, each as a percentage of the Applicable Asset Amount as of the first day of the Due Period relating to each Payment Date, subject to the availability of funds in the performance scenario. The amount payable pursuant to clause (16) under "Application of Funds Application of Interest Proceeds" will be 0.005% per annum of the Maximum Investment Amount as of the first day of the Due Period with respect to each Payment Date. For purposes of calculating the Management Fees, the Applicable Asset Amount on the first Measurement Date is assumed to be U.S.$800,000,000. For purposes of calculating the Administrative Expenses, the Applicable Asset Amount on the first Measurement Date is assumed to be U.S.$725,000,000. For purposes of calculating the amount payable under clause (16) of "Application of Funds Application of Interest Proceeds," the Maximum Investment Amount is assumed to be $800,000,000. Cash received on or before a Measurement Date is assumed to be available on the following Payment Date. Cash collected after the Measurement Date but before the immediately following Payment Date is assumed to be reinvested in Eligible Investments until the second succeeding Payment Date. The accrual date on Collateral is assumed to be the full quarterly period before the Payment Date subsequent to the Closing Date. The weighted average lives and expected final payment dates described above are included only for illustrative purposes. The usefulness of these scenarios is limited by, among other things, the predictive value of the underlying assumptions, the uncertain relevance of the assumptions as compared to other factors which have not been identified or taken into account, and assumptions incorporated with respect to the timing of cash flows, prepayments, defaults and recoveries on the Collateral and reinvestment rates. The assumptions are inherently subject to significant economic uncertainties, all of which are impossible to predict and beyond the control of the Co-Issuers. There can be no assurance that any particular performance scenario will be realized, and the performance of the Notes may be materially different from that referred to above. Such scenario is not a projection or forecast and was not prepared with a view to complying with published guidelines of the United States Securities and Exchange Commission or the American Institute of Certified Public Accountants regarding projections or forecasts. Under no circumstances should the inclusion of such information be regarded as a representation, warranty or prediction with respect to their accuracy or the accuracy or appropriateness of the underlying assumptions, or that the Notes will achieve or are likely to achieve any particular results. There can be no assurance that the actual performance of the Notes will not vary materially from the scenario and assumptions set forth herein or otherwise used by a prospective investor. Moreover, to the extent that the individual characteristics of the assumed Collateral used for such purposes 87

98 differ from the individual characteristics of the actual Collateral purchased on the Closing Date and thereafter, the actual performance of the Notes may differ. Prospective investors should conduct such financial analysis as they deem prudent, which may include the preparation of their own performance scenarios under a range of economic and other assumptions chosen by such prospective investors or their advisers. Each prospective investor must make its own evaluation of the merits and risks of investment in the Notes. See "Risk Factors." [remainder of page intentionally blank] 88

99 THE COLLATERAL MANAGER The information appearing in this section has been prepared by DC Funding which is managed by Denali and has not been independently verified by the Co-Issuers or the Initial Purchaser. The Co-Issuers and the Initial Purchaser do not assume any responsibility for the accuracy, completeness or applicability of this information. General The Collateral Manager will be DC Funding Partners LLC, a Delaware limited liability company organized in March 2001 by Denali and Mountain Line, an entity related to the Fort Worth-based Edward Bass organization. Denali is the managing member of DC Funding and is the minority owner of the equity of DC Funding. As the managing member of DC Funding, Denali will be responsible for all portfolio management activities of DC Funding on behalf of the Issuer. The Collateral Manager is located at 2001 Spring Road, Suite 220, Oak Brook, IL Certain administrative and advisory functions relating to the Collateral Obligations will be performed by the Collateral Manager which is managed by Denali. U.S.$4,175,000 in notional amount of the Income Notes are expected to be held initially by the Collateral Manager, its Affiliates and certain employees of Denali who are Knowledgeable Employees with respect to the Issuer within the meaning of Rule 3c-5 of the Investment Company Act. The Collateral Manager also serves as Collateral Manager for Denali Capital CLO III, Ltd. (July 16, 2003), Denali Capital CLO IV, Ltd. (August 25, 2004) transactions, Denali Capital CLO V, Ltd. (September 8, 2005), Denali Capital CLO VI, Ltd. (March 22, 2006) and Denali Capital Credit Opportunity Master Fund. Key Personnel of the Collateral Manager s Managing Member Set forth below is information regarding the background, principal occupations and other affiliations of certain of the principal officers of the managing member of the Collateral Manager, including those officers who will be primarily responsible for managing the Collateral Obligations and for performing the advisory and administrative functions related thereto under the Management Agreement. These individuals are currently employed by the managing member of the Collateral Manager and hold the offices indicated. Such persons may not necessarily continue to be so employed during the entire term of the Management Agreement. David P. Killion, Chief Executive Officer. Mr. Killion has been CEO of Denali since its inception in March Prior to co-founding Denali, Mr. Killion was President and CEO of First Source Financial Inc. ("First Source"). In addition to overseeing all aspects of First Source s operations, he focused on portfolio and CLO management, credit management and business development. He also served on the Board of Directors and the Investment Committee of First Source. Prior to joining First Source, Mr. Killion was President of the Corporate Finance Division of Household Commercial Financial Services ("HCFS"), a subsidiary of Household Finance Corporation. Mr. Killion was the lead executive at First Source and the HCFS Corporate Finance Division in workouts, significant restructuring and revenue enhancement initiatives. Before joining HCFS in October 1989, Mr. Killion spent twelve years at American National Bank in Chicago where he most recently headed the Corporate Strategy group and earlier headed various lending units of the bank. Mr. Killion also formally established the bank s Workout Division. Mr. Killion graduated with honors from the University of Illinois (BS, Finance) in 1972 and received his MBA from the University of Chicago in Gregory R. Cooper, Managing Director. Mr. Cooper has been a Managing Director of Denali since its inception in March Prior to co-founding Denali, Mr. Cooper was most recently a Senior Vice President of First Source and was primarily responsible for new business development. His responsibilities included initial loan screening and the overall development of new business including originating, negotiating and closing new business transactions. Prior to joining First Source, Mr. Cooper spent 11 years at Sanwa Business Credit Corporation ("SBCC") in Chicago. Mr. Cooper was responsible for originating, structuring and closing transactions at SBCC. Mr. Cooper also successfully led SBCC s effort to form an asset securitization group. Prior to joining SBCC, Mr. Cooper spent two years at Mellon Financial Services, during which time he originated transactions and participated in the Mellon Bank credit training program. Mr. Cooper attended DePaul University and has taken courses at Northwestern University s Kellogg School of Business. 89

100 Robert M. Coseo, Managing Director. Mr. Coseo has been a Managing Director of Denali since its inception in March Prior to co-founding Denali, Mr. Coseo was a Senior Vice President of First Source, responsible for new business development. His responsibilities included initial loan screening and overall new business development including originating, negotiating and closing new business transactions. While at First Source, Mr. Coseo was the primary contact involved in maintaining and developing relationships with selected new business referral sources and also assisted in portfolio management. Before joining First Source, he was a Senior Vice President in the Corporate Finance Division of HCFS, which he joined in Mr. Coseo also started up and managed a high yield bond portfolio totaling $300 million for HCFS and Household International s former life insurance subsidiary, Alexander Hamilton. Also during his tenure at HCFS, Mr. Coseo headed the Syndicated Loan Purchase Program. Mr. Coseo received a BBA from the University of Michigan in David P. Dekker, Chief Financial Officer. Mr. Dekker has been CFO of Denali since its inception in March Prior to co-founding Denali, Mr. Dekker was Senior Vice President and Chief Financial Officer of First Source. His responsibilities included accounting, financial planning, treasury and cash management, and general administration of First Source. He was also a member of First Source s Investment Committee. During his 5 years at First Source, Mr. Dekker was responsible for negotiation, implementation and compliance for First Source s CLOs. Prior to joining First Source, Mr. Dekker was Senior Vice President-Finance and Administration for HCFS and had over 16 years experience at Household International Mr. Dekker was responsible for accounting, financial planning, treasury and general administration at HCFS. He also served as a member of the HCFS Management and Investment Committees. Mr. Dekker received a BS in Accounting from Northern Illinois University in 1978 and earned his CPA in John P. Thacker, Chief Credit Officer. Mr. Thacker has been CCO of Denali since its inception in March Prior to co-founding Denali, Mr. Thacker was a Senior Vice President of First Source where he was responsible for underwriting new business transactions and managing First Source s $2.4 billion portfolio through a staff of 28 professionals organized into four deal teams. Prior to joining First Source in 1998, Mr. Thacker spent 7 years at SBCC where he was a First Vice President-Division Assistant Senior Credit Officer and Division Administration Manager responsible for all credit and administrative matters of three regional offices having an aggregate portfolio totaling $1 billion. Mr. Thacker s prior experience also includes senior credit management roles in two newly established SBCC lending units. Mr. Thacker received a BS in Business Administration (Finance) from Villanova University in 1984 and a MBA from Loyola College in Nicole Kouba, Vice President. Ms. Kouba is a Vice President responsible for transaction underwriting and portfolio management directly and through the management of a team of analysts. Prior to joining Denali in 2001, Ms. Kouba was a Corporate Banking Officer for LaSalle Bank s Leveraged Finance Division, where she was responsible for underwriting new transactions and managing a portfolio of existing club and agented leveraged transactions. Prior to joining LaSalle, Ms. Kouba served as an Associate at First Source where she was responsible for underwriting new transactions and managing a portfolio of existing transactions. Prior to First Source, Ms. Kouba was employed for 3 years at Arthur Andersen where she performed audits for small and middle-market clients. Ms. Kouba received a BS in Accounting from Northern Illinois University and received her CPA in Scott A. Marienau, Controller. Mr. Marienau is responsible for Denali s accounting, tax, audit engagements, CLO reporting, and internal and external financial reporting. He is also responsible for rating coordination with both Rating Agencies. Prior to joining Denali in 2001, Mr. Marienau was a Finance Manager for Antares Capital Corporation where he was responsible for the firm s financial planning, CLO reporting, and financial modeling. Prior to Antares, Mr. Marienau spent five years as Director - Finance for First Source. While at First Source Mr. Marienau was responsible for all facets of the organization s accounting, audit engagements, and financial planning as well as CLO compliance, modeling, and reporting. Before joining First Source upon its formation in 1995, Mr. Marienau was a Sr. Financial Analyst for HCFS where his responsibilities included financial planning and reporting for the company s three operating units. Mr. Marienau received a BBA (Accounting) from the University of Iowa and his CPA in 1991 and a MBA (Finance) from DePaul University in Kelli C. Marti, Senior Vice President. Ms. Marti is a Senior Vice President responsible for transaction underwriting and portfolio management directly and through the management of a team of analysts. Prior to joining Denali, Ms. Marti was an Assistant Vice President of Heller Financial, Inc. where she was responsible for structuring and underwriting new transactions and managing a portfolio of agented transactions. Prior to joining 90

101 Heller, Ms. Marti served as Assistant Vice President of First Source where she was responsible for underwriting new transactions, managing a portfolio of loans, including several problem accounts, and training and supervising analysts. Prior to First Source, Ms. Marti was employed for 3 ½ years at KPMG Peat Marwick where she performed audits for clients in the financial services industry. Ms. Marti received a BS in Accounting from the University of Notre Dame, her CPA in 1992 and an MBA from Northwestern University in Karen Posch, Director. Ms. Posch is responsible for CLO compliance, supervision of the loan administration function and internal database management. She is also responsible for Trustee communication and supports the human resource function. Prior to joining Denali in 2001, Ms. Posch was with First Source since its inception in 1995, most recently as Vice President managing CLO operations and the loan administration group. Prior to joining First Source, Ms. Posch was part of the loan administration group in the Corporate Finance Division of HCFS, which she joined in During 1993 she spent one year in the Compensation Group at Household International as an Analyst responsible for executive compensation. She returned to HCFS in Ms. Posch received a BA in Psychology from Northeastern Illinois University in [remainder of page intentionally blank] 91

102 THE MANAGEMENT AGREEMENT General The Collateral Manager has selected the initial Collateral Obligations and will select all remaining Collateral Obligations. The Collateral Manager will also monitor the performance and credit quality of all of the Collateral Obligations on an ongoing basis. Pursuant to the terms of the Management Agreement and the Indenture, the Collateral Manager will direct the Issuer with respect to the investment or reinvestment of Principal Proceeds in Collateral Obligations, direct the Trustee when to deliver a Credit Risk Obligation, Credit Improved Obligation, Defaulted Collateral Obligation, Current-Pay Obligation, PIK Security or other Collateral Obligation for sale and direct the investment or reinvestment of Sale Proceeds from the sale of such Collateral Obligations in substitute or additional Collateral Obligations and Eligible Investments meeting the specifications set forth in the Indenture and described under "Security for the Notes -- Disposition of Collateral Obligations." Upon any disposition of Collateral Obligations, the Trustee, upon written direction of the Collateral Manager, will either deposit the Sale Proceeds of such disposition in the Collection Account or apply the Sale Proceeds of such disposition to the purchase of additional Collateral Obligations, all in accordance with the terms of the Indenture. Any such actions directed by the Collateral Manager may change the composition and characteristics of the Collateral Obligations included in the Collateral and the rate of payment thereon, and, accordingly, may affect the actual average life of the Notes. The Indenture places significant restrictions on the Collateral Manager s ability to advise the Issuer to buy and sell securities to be included in the Collateral, and the Collateral Manager is subject to compliance with the Indenture. As a result of the restrictions contained in the Indenture, during certain periods or in certain specified circumstances, the Issuer may be unable to buy or sell securities or to take other actions which the Collateral Manager might consider in the best interests of the Issuer and its creditors and the Holders of the Income Notes. The Collateral Manager engages in other business and furnishes investment management and advisory services to other funds which may differ from those provided by the Collateral Manager on behalf of the Issuer, as required by the Indenture. The Collateral Manager may make recommendations or effect transactions which may differ from those effected with respect to the securities included in the Collateral. In addition, the Collateral Manager may, from time to time, cause or direct another account managed by the Collateral Manager to buy or sell, or recommend to the account the buying or selling of, securities of the same or a different kind or class of the same issuer, as the Collateral Manager directs be purchased or sold on behalf of the Issuer. As compensation for the performance of its obligations under the Management Agreement, the Collateral Manager will receive, pursuant to and at the times set forth in the Indenture, and to the extent that funds are available in accordance with the Application of Funds (i) the Senior Management Fee, (ii) the Subordinated Management Fee, (iii) the Tier I Incentive Management Fee and (iv) the Tier II Incentive Management Fee each payable on each Payment Date or, to the extent there are not sufficient funds available therefor on such Payment Date, on a subsequent Payment Date. See "Application of Funds". The Management Fees will accrue if unpaid (but without the accrual of any interest thereon) and be payable on the next Payment Date on which funds are available therefor in accordance with the Application of Funds. The undrawn portion of the maximum amount then permitted (according to the actual results of the criteria within the Collateral Quality Matrix) to be drawn under the Class A- 1LR Notes will be used for purposes of calculating the Management Fees instead of the Class A-1LR Undrawn Permitted Amount. As described above, while the Notes are outstanding, to the extent that the Overcollateralization Tests or the Interest Coverage Test are not met, amounts that are junior in right of payment to such tests (including the Subordinated Management Fee and the Incentive Management Fee) will be used to effect a mandatory redemption to the extent necessary to satisfy such tests. In addition, to the extent that the Additional Collateral Deposit Requirement is not met, a portion of the amounts that are junior in right of payment to that test will be deposited into the Collection Account as Principal Proceeds and used to purchase additional Collateral. See "Coverage Tests and Additional Collateral Deposit Requirement" and "Application of Funds". The Issuer s obligations to the Collateral Manager are secured by the Indenture. 92

103 The Collateral Manager will receive reimbursement for certain expenses from the proceeds of the issuance of the Securities. The Collateral Manager will generally be responsible for its own expenses incurred in the course of performing its obligations under the Management Agreement. Generally, the Collateral Manager will not be liable to the Issuer, the Trustee, the Holders of Notes or the Holders of Income Notes for any loss incurred as a result of the actions taken or recommended by the Collateral Manager under the Management Agreement or the Indenture, except by reason of acts constituting bad faith, willful misconduct, or gross negligence in the performance of its obligations thereunder. The Collateral Manager will be entitled to indemnification by the Issuer under certain circumstances as described in the Management Agreement. In addition, the Collateral Manager has entered into certain indemnification agreements with Bear, Stearns & Co. Inc. Under certain circumstances the Collateral Manager also may resign or be removed. The "Senior Management Fee" is payable on each Payment Date (subject to availability of funds and to the Application of Funds) in an amount equal to 0.10% per annum of the Applicable Asset Amount as of the first day of the related Due Period (subject to modification as provided in the definition of "Successor Management Fee"). The Senior Management Fee is payable before any interest payments on the Notes and is calculated on the basis of a calendar year consisting of 360 days and the actual number of days elapsed during the related Periodic Interest Accrual Period. The "Subordinated Management Fee" is payable on each Payment Date (subject to availability of funds and to the Application of Funds) in an amount equal to 0.425% per annum of the Applicable Asset Amount as of the first day of the related Due Period (subject to modification as provided in the definition of "Successor Management Fee"). The Subordinated Management Fee is payable before any payments on the Income Notes and is calculated on the basis of a calendar year consisting of 360 days and the actual number of days elapsed during the related Periodic Interest Accrual Period. The "Tier I Incentive Management Fee" is a fee that accrues from the Closing Date, and is payable to the Collateral Manager if and to the extent funds are available for such purpose in accordance with the Application of Funds, in arrears on each Payment Date in an amount equal to Date: (i) with respect to any Payment Date (the "Current Payment Date") commencing on the fourth Payment (a) (b) (c) (a) if the Current Payment Date is the Initial Accrual Date, an amount equal to (x) 0.125% per annum (calculated on the basis of a 360-day year and the actual number of days elapsed from the Closing Date through the end of the related Periodic Interest Accrual Period) multiplied by (y) the quotient of (1) the sum, for each of the related Due Periods, of the Applicable Asset Amount as of the first day of each such Due Period divided by (2) the number of Payment Dates elapsed since the Closing Date (including the Current Payment Date); and after the Initial Accrual Date, if the Average Annual Income Note Return with respect to the period consisting of the four consecutive Payment Dates ending on and including the current Payment Date is greater than or equal to 10%, an amount equal to the quotient of (x) 0.125% per annum (calculated on the basis of a 360-day year and the actual number of days elapsed during the related Periodic Interest Accrual Period) multiplied by (y) the quotient of (1) the sum, for each of the four Due Periods relating to such four Payment Dates, of the Applicable Asset Amounts as of the first day of each such Due Period divided by (2) four; and if neither clause (a) nor clause (b) applies, zero; and (ii) with respect to the first three Payment Dates, zero. The "Tier II Incentive Management Fee" will accrue from the Closing Date, and be payable to the Collateral Manager if and to the extent funds are available for such purpose in accordance with the Application of Funds, in arrears on each Payment Date in an amount equal to 0.125% per annum of the Applicable Asset Amount as of the first day of the related Due Period. The Tier II Incentive Management Fee shall be calculated on the basis of a 360-day year and the actual number of days elapsed during the related Periodic Interest Accrual Period. The Tier II Incentive Management Fee will not be payable on any Payment Date unless the Income Note Internal Rate of Return exceeds 10%. 93

104 The Tier I Incentive Management Fee and Tier II Incentive Management Fee are collectively referred to as the "Incentive Management Fee." The Incentive Management Fee, the Senior Management Fee, and the Subordinated Management Fee are collectively referred to as the "Management Fees." The Collateral Manager, in its sole discretion, may waive all or any portion of the Management Fees, and may defer all or any portion of the Management Fees. Any deferred Management Fees will be retained in the Collection Account until the next Payment Date, when they will become payable in the same manner and priority as their original characterization would have required unless deferred again. The Collateral Manager will also be entitled to reimbursement of certain expenses incurred in connection with its serving as Collateral Manager. Termination The Management Agreement may be terminated, and the Collateral Manager may be removed, without payment to the Collateral Manager of any penalty, for cause upon 10 days prior written notice by the Issuer, by at least 66-2/3% of the Aggregate Voting Amount of the Controlling Class or by the Trustee, which notice shall set forth with reasonable particularity the basis for such cause; provided, however, that such notice may be waived by the Collateral Manager. For this purpose, "cause" will mean (i) the Collateral Manager breaches in any respect any provision of the Management Agreement or the Indenture applicable to it (except for any such breach that has not had, and could not reasonably be expected to have, a material adverse effect on any portion of the Collateral Obligations, any Holders of any Class of Notes or either of the Co-Issuers) and fails to cure such breach within 45 days of becoming aware of, or receiving notice of such breach, (ii) the occurrence of certain bankruptcy or insolvency events with respect to the Collateral Manager, (iii) the occurrence of an Event of Default under the Indenture which (A) results primarily from a breach by the Collateral Manager of its duties under the Indenture or the Management Agreement or (B) constitutes (1) the occurrence of an Event of Default relating to payment described in clauses (a) and (b) under "Certain Additional Provisions relating to the Notes Events of Default" or (2) the failure of the Issuer to maintain a Senior Class A Overcollateralization Ratio of at least 102%, as calculated under "Coverage Tests and Additional Collateral Deposit Requirement", (iv) the occurrence of fraud or certain criminal acts by the Collateral Manager, or (v) any four of Gregory R. Cooper, Robert M. Coseo, David P. Dekker, David P. Killion, and John P. Thacker (or any Approved Replacement (defined herein) therefor) shall fail, for any reason, for a period of 60 consecutive days to be directors, officers or management-level employees of the managing member of the Collateral Manager who have active involvement in the management of the Collateral Obligations unless one or more replacements therefor (1) has been proposed within such 60-day period and (2) not been objected to within 20 days of notice by at least 66-2/3% in Aggregate Voting Amount of all of the Holders of the Notes or the Holders of at least 66-2/3% in Aggregate Voting Amount of all of the Holders of the Income Notes. Once a person is accepted as a replacement under the circumstances described in the foregoing clause (v), such person shall be an "Approved Replacement" for purposes of such clause thereafter, and such clause (including the definition of "Approved Replacement") shall have successive application thereafter. "Incapacity" shall mean a person s death, illness, physical disability, or entry of an order by a court of competent jurisdiction adjudicating such person incompetent to manage his or her person or his or her estate. If any such event occurs, the Collateral Manager shall give written notice thereof to the Issuer, the Trustee and the Holders of all outstanding Securities promptly upon the Collateral Manager s becoming aware of the occurrence of such event. The Collateral Manager shall have the right to terminate the Management Agreement only upon 90 days prior written notice to the Issuer, the Trustee and the Rating Agencies, and the Management Agreement shall terminate automatically in the event of its assignment by the Collateral Manager in violation of the terms of the Management Agreement. Notwithstanding anything to the contrary set forth above, no termination of the Management Agreement described above shall become effective until the acceptance of appointment of a successor Collateral Manager, acceptable to the Issuer, the Trustee, the Rating Agencies and (x) prior to an Event of Default under the Indenture, a Majority of the Aggregate Voting Amount of each Class of Notes (in each case voting as a separate class) and a 94

105 Majority of the Income Notes and (y) after an Event of Default under the Indenture, at least a Super Majority of the Controlling Class, which successor agrees to perform the functions to be performed by the Collateral Manager under the Management Agreement and in the Indenture. Upon receipt of notice of termination from the Collateral Manager, the Issuer shall use its best efforts to locate a successor Collateral Manager. In the event no successor Collateral Manager shall have been appointed and approved as described in the first sentence of this paragraph within 60 days after the giving of such notice of termination, then the resigning Collateral Manager, the Issuer, and prior to an Event of Default under the Indenture only, a Super Majority of the Holders of the Notes (voting as a single class) or a Majority of the Holders of the Income Notes and after an Event of Default under the Indenture only, at least a Majority of the Controlling Class may petition any court of competent jurisdiction for the appointment of a successor Collateral Manager and any such court-appointed successor Collateral Manager shall not require the approval of any of the Holders of the Securities. Upon any termination/resignation of the Collateral Manager, the Collateral Manager will be entitled to all fees accrued by the Collateral Manager as of such date, in accordance with the Management Agreement. Amendment The Management Agreement may be amended or modified by the Issuer and the Collateral Manager, with the consent of at least a Majority of the Aggregate Voting Amount of the Controlling Class; provided that such consent of the Controlling Class shall not be required for an amendment or modification to cure any ambiguity, to correct or supplement any provisions therein, to comply with any changes in law, or to make any other provisions with respect to matters or questions arising under the Management Agreement which shall not be inconsistent with the provisions thereof or of the Indenture, so long as such amendment or modification does not affect in any material respects the interests of any Securityholder (as evidenced by an opinion of counsel (which may be supported as to factual (including financial and capital markets) matters by any relevant certificates and other documents necessary or advisable in the judgment of counsel delivering the opinion)). Disclosure and Consent Provisions Relating to "Principal Trades" and Certain Related Matters Subject to certain restrictions set forth in the Management Agreement, under the Management Agreement, the Collateral Manager is authorized to execute so much or all of the transactions for the Issuer s account with or through itself or any of its Affiliates as agent or as principal as the Collateral Manager in its sole discretion shall determine, and may execute transactions in which the Collateral Manager, its Affiliates and/or their personnel have interests as described in the Management Agreement. In all such dealings, the Collateral Manager and any of its Affiliates shall be authorized and entitled to retain any commissions, remuneration or profits which may be made in such transactions and shall not be liable to account for the same to the Issuer, and the Collateral Manager s fees as set forth in the Management Agreement shall not be abated thereby. The Issuer authorizes the Collateral Manager to effect transactions subject to applicable provisions of Section 11(a) of the Exchange Act, and Rule 11a2-2(T) thereunder (or any similar rule which may be adopted in the future), and, to the extent such section, regulation or rule applies to the Collateral Manager, the Collateral Manager will use its best efforts to provide the Issuer with information annually disclosing commissions, if any, retained by the Collateral Manager s Affiliates in connection with exchange transactions for the Issuer s account. The Collateral Manager and its Affiliates are also authorized to execute agency cross transactions (collectively, "Cross Transactions") for the Issuer s account. Cross Transactions shall include inter-account transactions in which the Collateral Manager effects transactions for the Issuer s account and the Collateral Manager or its Affiliate recommends or executes the transaction for the counterparty. In such a Cross Transaction, the Collateral Manager believes that it may have a conflicting division of loyalties and responsibilities regarding both parties to the transaction and the Collateral Manager, or any of its Affiliates, may receive commissions from both parties to such transaction. The Issuer authorizes the Collateral Manager to execute Cross Transactions for the Issuer s account and the Issuer understands that such authorization is terminable at the Issuer s option without penalty, effective upon receipt by the Collateral Manager of written notice from the Issuer. Section 206(3) of the Investment Advisers Act provides that it is unlawful for any investment adviser, directly or indirectly "acting as principal for his own account, knowingly to sell any security to or purchase any security from a client, or acting as broker for a person other than such client, knowingly to effect any sale or purchase of any security for the account of such client, without disclosing to such client in writing before the completion of such transaction the capacity in which he is acting and obtaining the consent of the client to such transaction." Transactions subject to the foregoing requirements are sometimes referred to as "principal trades." 95

106 In that connection, the Indenture provides that each of the Issuer and each Securityholder consents and agrees that, if any transaction shall be subject to the disclosure and consent requirements of Section 206(3) of the Investment Advisers Act, such requirements shall be satisfied with respect to the Issuer and all securityholders thereof if disclosure shall be given to, and consent obtained from, a Majority of the Holders of the Income Notes (excluding any such Holders that are the Collateral Manager or any Affiliate thereof or any account managed thereby). [remainder of page intentionally blank] 96

107 SECURITY FOR THE NOTES General The Notes and the Issuer s obligations under the Hedge Agreements and the Management Agreement will be secured by the following: the Collateral Obligations; all Workout Assets; the Accounts, Eligible Investments purchased with funds on deposit in those Accounts, and all income from the investment of funds in those Accounts; the Management Agreement, any Securities Lending Agreements, the Hedge Agreements, and the Collateral Administration Agreement; all cash or money delivered to the Trustee; and all proceeds with respect to the foregoing (the "Trust Estate" or the "Collateral"). The Collateral will exclude (i) amounts released from the Trustee s lien in connection with certain Synthetic Securities, Hedging Agreements, and Securities Lending Agreements in accordance with the Indenture, and (ii) the Excluded Property. Collateral Obligations A "Collateral Obligation" is any obligation or security (including a security entitlement with respect thereto) that, when the Issuer commits to purchase (or otherwise acquire) the obligation or security, is a Loan, High- Yield Bond, Structured Finance Obligation, or Synthetic Security with a Reference Obligation that is a Loan, Structured Finance Obligation, or High-Yield Bond that is denominated and payable in U.S. Dollars or Euros and: (1) in the case of any obligation that is denominated and payable in U.S. Dollars, such obligation is not convertible by its obligor into any other currency; (2) in the case of any obligation that is denominated and payable in Euros, such obligation is not convertible by its obligor into any other currency and the Issuer will have entered into one or more balanced guaranteed hedging transactions with respect to any non-u.s. dollar currency risk associated with such obligation; (3) an obligation of a U.S. obligor, a Group A Country Obligor, or a Group B Country Obligor; (4) an obligation that is eligible by its terms to be assigned to the Issuer and pledged by the Issuer to the Trustee for inclusion in the Collateral; (5) not an exchangeable or convertible security that is exchangeable or convertible at the option of its issuer; (6) not an obligation or security that has been called for redemption and is not an obligation or security that is the subject of a tender offer, voluntary redemption, exchange offer, conversion, or other similar action other than a Permitted Offer or an exchange offer in which a security that is not registered under the Securities Act is exchanged for (i) a security that has substantially identical terms (except for transfer restrictions) but is registered under the Securities Act or (ii) a security that would otherwise qualify for purchase under the Eligibility Criteria below; 97

108 (7) not a Non-Performing Collateral Obligation, or Credit Risk Obligation and is not subject by its terms to material non-credit related risks (such as the non-occurrence of certain specified catastrophes) as determined by the Collateral Manager in its sole and conclusive judgment; (8) not an equity security or a component of an equity security (other than for avoidance of doubt, a passthrough trust certificate in a trust holding Collateral Obligations) unless it is a Qualified Equity Security that is an Attached Equity Security; (9) not an obligation that will cause the Issuer to own 5% or more of the voting securities of any issuer or any securities that are immediately convertible into or immediately exercisable or exchangeable for 5% or more of the voting securities of any issuer, as determined by the Collateral Manager; (10) not a debt obligation that provides for the payment of interest less frequently than semi-annually; (11) not a debt obligation with a maturity later than two years after the Stated Maturity of the Notes; (12) not a PIK Security or Partial PIK Security as to which, at the time of its purchase by the Issuer, the issuer thereof or obligor thereon (or, in the case of a Synthetic Security, the related Reference Obligation) is deferring or capitalizing any interest due thereon (other than, in the case of a Partial PIK Security, such security providing for the payment of current interest at a rate at all times of the required Weighted Average Spread); (13) not subject to withholding tax (other than a withholding tax that relates to commitment fees with respect to a Delayed Drawdown Loan or Revolving Loan) unless the related obligor is required to make gross-up payments to the Issuer that cover the full amount of any withholding tax on an after-tax basis pursuant to the obligation s or security s underlying instrument; (14) not a Loan or Synthetic Security related to a Loan that would require the Issuer after its purchase of the Loan or Synthetic Security to advance any funds to the related borrower or Synthetic Security counterparty or permit the borrower or Synthetic Security counterparty to require that any future advances be made except for (A) (B) any Revolving Loan or Delayed Drawdown Loan if, after giving effect to the purchase thereof, no Commitment Shortfall exists, and any Synthetic Security if, simultaneously with its purchase of the Synthetic Security, the Issuer posts cash collateral with (or for the benefit of) the Synthetic Security counterparty simultaneously with the Issuer s purchase of or entry into the Synthetic Security in an amount equal to the amount of any future advances; (15) a Structured Finance Obligation that: (A) is a collateralized loan obligation, (B) has been assigned a rating by both Moody s and S&P, (C) has a Moody s Rating of "Ba2" or higher and an S&P Rating of "BB" or higher, and (D) has not been placed on the watch list for possible downgrade by Moody s or S&P; (16) not a Structured Finance Obligation from an issuer that is managed by the Collateral Manager or an Affiliate of the Collateral Manager; (17) not assigned by S&P a rating that includes the subscript "r," "t," "p," "pi," or "q" so long as S&P rates any Class of Notes; (18) an obligation that provides for a fixed amount of principal payable on scheduled payment dates or at maturity (or a fixed notional amount in the case of Synthetic Securities); (19) not a Margin Stock; and 98

109 (20) not an obligation that will cause the Issuer, the Co-Issuer, or the pool of assets to be required to be registered as an investment company under the Investment Company Act. Any "deliverable obligation" delivered to the Issuer as a result of the occurrence of any "credit event" under any Synthetic Security that is a Collateral Obligation will itself be a Collateral Obligation whether or not the "deliverable obligation" satisfies the definition of Collateral Obligation when it is delivered. Eligibility Criteria On any date during the Revolving Period, so long as no Event of Default is continuing, at the direction of the Collateral Manager, the Issuer may direct the Trustee to invest or reinvest Principal Proceeds (together with Interest Proceeds, but only to the extent used to pay for accrued interest on Collateral Obligations) in Collateral Obligations (including any related deposit into the Revolving Reserve Account or the Delayed Drawdown Reserve Account or the posting by the Issuer of cash collateral with (or for the benefit of) a Synthetic Security counterparty simultaneously with the Issuer s purchase of or entry into a Synthetic Security) if the conditions specified in the Indenture are satisfied. In addition, at any time during or after the Revolving Period, at the direction of the Collateral Manager, the Issuer may direct the Trustee to pay from amounts on deposit in the Collection Account any amount required to exercise a warrant held in the Collateral. No obligation may be purchased unless each of the conditions in the following clauses (1) through (13) (the "Eligibility Criteria") is satisfied as of the date the Issuer commits to make the purchase, in each case after giving effect to the purchase and all other purchases previously or simultaneously committed to: (1) the obligation is a Collateral Obligation; (2) each Overcollateralization Test is satisfied and, if the commitment is made on or after the third Payment Date, the Interest Coverage Test is satisfied or (3) if any such Coverage Test is not satisfied, both (A) (B) the extent of satisfaction of the Coverage Test is not reduced and the Collateral Obligation is being purchased with Principal Proceeds other than (i) Principal Proceeds received in respect of a Defaulted Collateral Obligation or (ii) Principal Proceeds received in respect of a Workout Asset that has been received in exchange for a Defaulted Collateral Obligation; (4) if any such Coverage Test is not satisfied and the Collateral Obligations are being purchased with Principal Proceeds other than Sale Proceeds, such purchase results in the satisfaction of the Coverage Tests; (5) the Diversity Test is satisfied or, if not satisfied, the extent of satisfaction is not reduced; (6) the Weighted Average Rating Factor Test is satisfied or, if not satisfied, the extent of satisfaction is not reduced; (7) each of the limits in the definition of "Concentration Limitations" is satisfied or, if any such limit is not satisfied, the extent of satisfaction is not reduced; (8) the Weighted Average Spread Test is satisfied or, if not satisfied, the extent of satisfaction is not reduced; (9) the Weighted Average Fixed Rate Coupon Test is satisfied or, if not satisfied, the extent of satisfaction is not reduced; (10) the Weighted Average Life Test is satisfied or, if not satisfied, the extent of satisfaction is not reduced; 99

110 (11) the Weighted Average Moody s Recovery Rate Test is satisfied or, if not satisfied, the extent of satisfaction is not reduced; (12) the Weighted Average S&P Recovery Rate Test is satisfied or, if not satisfied, the extent of satisfaction is not reduced; and (13) the S&P CDO Monitor Test is satisfied or, if not satisfied, the extent of satisfaction is not reduced; provided, however, that this Eligibility Criterion (13) shall not apply either to reinvestment of the proceeds from the sale of a Credit Risk Obligation, Non-Performing Collateral Obligation, or Workout Asset or to the reinvestment of Principal Proceeds in respect of Defaulted Collateral Obligations. The Issuer may, at the direction of the Collateral Manager, exchange a Collateral Obligation for another Collateral Obligation in an exchange of one security for another security of the same issuers that has substantially identical terms except transfer restrictions. Cash on deposit in the Collection Account may be invested at any time in Eligible Investments in accordance with this "Eligibility Criteria" Section pending investment in Collateral Obligations. The Indenture provides that any sale or purchase by the Issuer of a Collateral Obligation shall be conducted on an arm s length basis and, if effected with the Collateral Manager or a person Affiliated with the Collateral Manager or any fund or account for which the Collateral Manager or an Affiliate of the Collateral Manager acts as investment adviser, shall be effected in accordance with the requirements of the Management Agreement on terms no less favorable to the Issuer than would be the case if the person were not so Affiliated. Notwithstanding anything contained in the foregoing provisions to the contrary, the Issuer, at the direction of the Collateral Manager, may effect any sale of any Collateral Obligation, or any purchase of any security, loan, or participation interest in a loan, that has been consented to in writing by Holders of a Majority of all the Notes (voting as a single class) and by the Holders of a Majority of the Income Notes and of which each Rating Agency and the Trustee have been notified in writing. The Collateral Quality Tests The Collateral Quality Tests will be used primarily as criteria for purchasing Collateral Obligations. See " Eligibility Criteria." The "Collateral Quality Tests" will consist of the Diversity Test, the Weighted Average Life Test, the Weighted Average Moody s Recovery Rate Test, the Weighted Average S&P Recovery Rate Test, the Weighted Average Fixed Rate Coupon Test, the Weighted Average Spread Test, the Weighted Average Rating Factor Test, and the S&P CDO Monitor Test described below. Measurement of the degree of compliance with the Collateral Quality Tests will be required on each Measurement Date on and after the Ramp-Up Completion Date. The Diversity Test The "Diversity Test" is a test that will be satisfied if, as of any Measurement Date, the Diversity Score as of the Measurement Date is equal to or greater than the Minimum Diversity Score specified in the applicable row of the Collateral Quality Matrix. The Diversity Score is a single number that indicates collateral concentration in terms of both issuer and industry concentration. A higher Diversity Score reflects a more diverse portfolio. Weighted Average Life Test The "Weighted Average Life Test" is a test that will be satisfied as of any Measurement Date in the relevant period specified in the Indenture if the Weighted Average Life on that date of all Collateral Obligations is equal to or less than the number of years specified in the applicable row of the Collateral Quality Matrix with respect to the period in which the Measurement Date occurs. The "Weighted Average Life" is, as of any Measurement Date, the number obtained by (i) summing the products obtained by multiplying (A) the Average Life at that time of each Collateral Obligation by (B) the Principal Balance at that time of the Collateral Obligation and 100

111 (ii) dividing that sum by the Aggregate Principal Balance at that time of all Collateral Obligations. The "Average Life" is, as of any Measurement Date with respect to any Collateral Obligation (other than any Defaulted Collateral Obligation), the number obtained by dividing (i) the sum of the products of (A) the number of years (rounded to the nearest hundredth) from the Measurement Date to the respective dates of each successive scheduled payment of principal of the Collateral Obligation and (B) the respective amounts of the successive scheduled payments of principal of the Collateral Obligation by (ii) the sum of all successive scheduled payments of principal of the Collateral Obligation. Weighted Average Moody s Recovery Rate Test The "Weighted Average Moody s Recovery Rate Test" is a test that is satisfied in accordance with the application of the Collateral Quality Matrix described below. Under the Indenture, the Collateral Manager will be permitted to select, from time to time, from a table that will be included in the Indenture (the "Collateral Quality Matrix"), a different group of thresholds for satisfying or otherwise determining the following tests: the Diversity Test; the Weighted Average Moody's Recovery Rate Test; the Weighted Average Rating Factor Test; the Weighted Average Spread Test; the Weighted Average Life Test; the Class A-1LR Permitted Amount; and the amount of unhedged Fixed Rate Obligations. Therefore, notwithstanding anything to the contrary described herein, after giving effect to the proposed purchase of any Collateral, the minimum/maximum amounts required to satisfy each of such tests and the maximum amount which may be drawn under the Class A-1LR Notes may vary from time to time. Depending on the combination of thresholds in the Collateral Quality Matrix selected by the Collateral Manager at any time, except as described below, the minimum required by the Diversity Test can range from 50 to 90; the maximum permitted weighted average rating factor prescribed by Moody s can range from 1800 to 3100; the minimum required by the Weighted Average Moody's Recovery Rate Test can range from 44.75% to 55.0%; the minimum Weighted Average Spread Test can range from 1.90% to3.40%; the minimum Weighted Average Life Test can range from 4.0 years to 9.5 years; the Class A-1LR Permitted Amount can range from U.S.$0 to U.S.$150,000,000; and the amount of unhedged Fixed Rate Obligations can range from 0% to 5% of the Maximum Investment Amount. The Collateral Manager may elect to apply a different row of the table set forth below in this definition upon providing not less than one Business Day s written notice to the Issuer and the Trustee, so long as, if immediately prior to giving effect to such change in rows, any of the Interest Coverage Test, the S&P CDO Monitor Test and each Overcollateralization Test is not satisfied, then upon giving effect to such changes, such test is maintained or improved, on a pro forma basis as of the date of the most recent purchase or sale of an item of Portfolio Collateral (had such test been calculated immediately prior to such purchase or sale); provided that the Collateral Manager shall be under no obligation to elect to change the Collateral Quality Matrix. In determining whether the criteria set forth in the Collateral Quality Matrix are satisfied, the Collateral Manager may create additional rows by using the Collateral Quality Formula (which may include a combination of existing values). 101

112 Weighted Average S&P Recovery Rate Test The "Weighted Average S&P Recovery Rate Test" is a test that is satisfied as of any Measurement Date if the S&P Minimum Average Recovery Rate is greater than or equal to the level that applies based on the current S&P CDO Monitor version. "S&P Minimum Average Recovery Rate": As of any Measurement Date, a rate equal to the number obtained by (i) summing the products obtained by multiplying the Principal Balance of each Collateral Obligation by its respective S&P Priority Category Recovery Rate, (ii) dividing that sum by the sum of the Aggregate Principal Balance of all Collateral Obligations (other than Defaulted Collateral Obligations), and (iii) rounding up to the first decimal place. Weighted Average Fixed Rate Coupon Test The "Weighted Average Fixed Rate Coupon Test" is a test that is satisfied as of any Measurement Date if the Weighted Average Fixed Rate Coupon equals or exceeds 6.0%. Weighted Average Spread Test The "Weighted Average Spread Test" is a test that is satisfied as of any Measurement Date if the Weighted Average Spread as of the Measurement Date equals or exceeds the Minimum Weighted Average Spread specified in the applicable row of the Collateral Quality Matrix. Weighted Average Rating Factor Test The "Weighted Average Rating Factor Test" is a test that is satisfied as of any Measurement Date if the Weighted Average Moody s Rating Factor of the Collateral Obligations (excluding Eligible Investments) is less than or equal to the Maximum Weighted Average Moody s Rating Factor specified in the applicable row of the Collateral Quality Matrix. S&P CDO Monitor Test The "S&P CDO Monitor Test" is a test that will be satisfied on any Measurement Date if, after giving effect to the sale of a Collateral Obligation or the purchase of a Collateral Obligation, each Note Class Loss Differential of the Proposed Portfolio is positive. The S&P CDO Monitor Test shall be considered to be improved if each Note Class Loss Differential of the Proposed Portfolio is at least equal to the corresponding Note Class Loss Differential of the Current Portfolio. The S&P CDO Monitor Test is not required to be satisfied or improved upon the sale of a Credit Risk Obligation, Non-Performing Collateral Obligation or Workout Asset, and the reinvestment of the related Sale Proceeds in additional Collateral Obligations, nor to the reinvestment of Principal Proceeds in respect of Defaulted Collateral Obligations. For purposes of the S&P CDO Monitor Test, (i) (ii) (iii) (A) the S&P Rating of any S&P Unrated DIP Loan shall be "CCC-," the S&P Industry Classification for a Synthetic Security shall be that of the related Reference Obligation and not the Synthetic Security, and the S&P Rating for any Collateral Obligation that is on credit watch positive for possible upgrade by S&P shall be the S&P Rating one subcategory above the S&P Rating otherwise applicable to the Collateral Obligation, and 102

113 (B) on credit watch negative for possible downgrade by S&P shall be the S&P Rating one sub-category below the S&P Rating otherwise applicable to the Collateral Obligation. The "Note Class Loss Differential" with respect to any Measurement Date and any Class of Notes that is rated by S&P is the rate calculated by subtracting the estimated cumulative default rate for the Current Portfolio or the Proposed Portfolio, as applicable, consistent with S&P s rating of the Class of Notes on the Closing Date, determined by application of the S&P CDO Monitor proprietary computer model for the Class from the applicable Note Break-Even Loss Rate for the Class of Notes. The "Note Break-Even Loss Rate" with respect to each Class of Notes that is rated by S&P is the maximum percentage of defaults that the Current Portfolio can sustain and nevertheless sufficient funds will remain for the payment of principal of the Class of Notes in full by its Stated Maturity and the timely payment of the Periodic Interest Amount on each Class of Class A-1 Notes and the Class A-2L Notes and the ultimate payment of the Cumulative Interest Amount on the Class A-3L Notes, the Class B-1L Notes, and the Class B-2L Notes using S&P s assumptions on recoveries, defaults, and timing, and taking into account the Application of Funds and the adjusted Weighted Average Spread level. The adjusted Weighted Average Spread as of any Measurement Date is the Weighted Average Spread as of the Measurement Date minus the amount of any Spread Excess added to the Weighted Average Fixed Rate Coupon as of the Measurement Date. Ramp-Up The "Ramp-Up Completion Date" is the earlier of (i) the Business Day after the 270th day after the Closing Date and (ii) the first date on which the Aggregate Principal Balance of the Collateral Obligations purchased (or committed to be purchased) by the Issuer with proceeds from the sale of the Notes (in each case, measured solely as of the date of purchase or commitment, as the case may be) equals at least the sum of U.S.$650,000,000 plus the drawn amount of the Class A-1LR Notes. In that connection, the Issuer shall purchase Collateral Obligations on any Business Day during the period from and including the Closing Date to and including the Ramp-Up Completion Date or enter into commitments to purchase Collateral Obligations on any Business Day during the period from and including the Closing Date to and including the Ramp-Up Completion Date for purchase on or as soon as practicable thereafter (not to exceed 60 days thereafter), in each case, for inclusion in the Collateral in an Aggregate Principal Balance equal to at least U.S.$650,000,000 plus the drawn amount of the Class A-1LR Notes. No Collateral Obligations may be purchased prior to the Ramp-Up Completion Date unless immediately following the purchase of any Collateral Obligation (as certified by the Collateral Manager in writing), the remaining funds in the Collection Account, after giving effect to such purchase, are sufficient as of the date of determination to purchase Collateral Obligations with an Aggregate Principal Balance at least equal to U.S.$650,000,000 plus the drawn amount of the Class A-1LR Notes for inclusion in the Collateral (taking into account the Collateral Obligations already part of the Collateral (without giving effect to any reductions of that amount that may have resulted from scheduled principal payments, principal prepayments or dispositions made with respect to any Collateral Obligations on or before the Ramp-Up Completion Date)). The Collateral Manager or the Issuer may not enter into commitments to purchase Revolving Loans or Delayed Drawdown Loans funded through draws on the Class A-1LR Notes in an amount greater than the Class A-1LR Undrawn Permitted Amount at such time. Notwithstanding the foregoing, or any other provision of the Indenture, if the Issuer has previously entered into a commitment to purchase a Collateral Obligation to be included in the Collateral, such commitment initially not to exceed 60 days, and at the time of the commitment the Collateral Obligation complied with the definition of Collateral Obligation and the requirements set forth under " Ramp-Up," the Issuer may consummate the purchase of the Collateral Obligation notwithstanding that the Collateral Obligation fails to comply with the definition of Collateral Obligation and the requirements set out above on the date of settlement. The Issuer will purchase, or enter into binding agreements to purchase, Collateral Obligations by the Ramp- Up Completion Date, that, together with the Collateral Obligations purchased on or before the Closing Date and then held by the Issuer, will satisfy, as of the Ramp-Up Completion Date (without giving effect to any reductions of that amount that may have resulted from scheduled principal payments, principal prepayments or dispositions made with respect to any Collateral Obligations on or before the Ramp-Up Completion Date), the Collateral Quality Tests, the Concentration Limitations, the criteria set forth in the Indenture and the Overcollateralization Tests. 103

114 The Issuer or the Collateral Manager, on behalf of the Issuer, shall provide a written notice to the Issuer, the Trustee, and each Rating Agency on each of the Payment Dates set forth on the table below either (i) certifying that the Issuer has purchased, or entered into binding agreements to purchase, Collateral Obligations that, together with the Collateral Obligations purchased on or before the Closing Date by the Issuer, satisfy (without giving effect to any reductions of that amount that may have resulted from scheduled principal payments, principal prepayments or dispositions made with respect to any Collateral Obligations on or before the Ramp-Up Completion Date) the Collateral Quality Tests, the Concentration Limitations, the criteria set forth in the Indenture and the Overcollateralization Tests and have an Aggregate Principal Balance and Diversity Score of at least the amounts specified in the table below or (ii) if the Issuer is not able to so certify, specifying the circumstance and describing in reasonable detail the steps that are then being undertaken by the Issuer and the Collateral Manager to achieve the conditions specified in the Indenture in a timely manner, including a proposal to Moody s of its plan for meeting the Maximum Investment Amount and all of the Collateral Quality Tests as of the Ramp-Up Completion Date. Month of Payment Date Aggregate Principal Balance of Collateral Obligations and Eligible Investments Diversity Score October 2007 January 2008 not less than U.S.$552,500,000 plus the drawn amount of the Class A-1LR Notes not less than U.S.$585,000,000 plus the drawn amount of the Class A-1LR Notes not lower than 45 not lower than 50 If a Rating Confirmation Failure should occur, the Notes will be redeemed pursuant to the Indenture and as described in "Certain Additional Provisions relating to the Notes Mandatory Redemption of the Notes Mandatory Redemption of the Notes upon Rating Confirmation Failure". Purchase of Collateral Obligations After the Revolving Period In connection with the receipt of Sale Proceeds from the disposition of a Credit Improved Obligation or Principal Proceeds due to an unscheduled prepayment after the Revolving Period, the Collateral Manager may enter into commitments to apply such net disposition proceeds or such unscheduled prepayments (net of accrued interest and costs) to the purchase of additional Collateral Obligations having an Aggregate Principal Balance equal to or greater than the Principal Balance of the original Collateral Obligation within 90 days of receipt of such proceeds, so long as the Collateral Manager certifies as of the date of purchase that it reasonably believes at the time of such commitment that, after giving effect to such sale and subsequent purchase, (A) each of the Overcollateralization Tests, the Interest Coverage Test and the other collateral criteria described herein would be satisfied; provided, that for this purpose such tests must be passed and may not be satisfied by being maintained or improved as described herein, (B) such Collateral Obligation to be purchased has a Moody s Rating equal to or higher than the Moody s Rating of the original Collateral Obligation, (C) such Collateral Obligation to be purchased has an S&P Rating equal to or higher than the S&P Rating of the original Collateral Obligation, (D) such Collateral Obligation to be purchased has a stated maturity on or prior to the final maturity of such original Collateral Obligation, (E) the Weighted Average Life of the Collateral Obligations would not be increased, (F) the Class B-2L Overcollateralization Ratio is at least equal to the specified ACDR Required Level indicated in the table in "Coverage Tests and Additional Collateral Deposit Requirement The Overcollateralization Tests,", (G) there are no Moody's Excess Caa Collateral Obligations and (H) neither Rating Agency has reduced or withdrawn (and not restored) the rating assigned by it on the Closing Date to any Class of Notes. Dispositions of Collateral Obligations Pursuant to the Indenture and so long as no Event of Default has occurred and is continuing, the Issuer may, at the direction of the Collateral Manager, direct the Trustee to sell (and the Trustee will sell) any Collateral Obligation or Workout Asset if the sale meets the requirements in paragraphs (i) through (ix) below as certified in accordance with the Indenture: 104

115 (i) (ii) Credit Risk Securities. At the direction of the Collateral Manager, the Issuer may direct the Trustee to sell any Credit Risk Obligation at any time during or after the Revolving Period without restriction. Following any sale of a Credit Risk Obligation pursuant to the Indenture, at the direction of the Collateral Manager during the Revolving Period, the Issuer shall use commercially reasonable efforts to purchase additional Collateral Obligations (to the extent the purchase is in the best interest of the Issuer) with an Aggregate Principal Balance at least equal to the Sale Proceeds received by the Issuer with respect to the Collateral Obligation sold. For this purpose, the Principal Balance of any Revolving Loan or Delayed Drawdown Loan shall only include its funded amount. Credit Improved Obligations. At the direction of the Collateral Manager, the Issuer may direct the Trustee to sell any Credit Improved Obligation if either: (1) during the Revolving Period, the Collateral Manager in its sole judgment (which judgment shall not be called into question as the result of subsequent events) believes before the sale that it will be able to cause the Issuer to reinvest its Sale Proceeds, in compliance with the Eligibility Criteria, in one or more additional Collateral Obligations with an Aggregate Principal Balance at least equal to the Investment Criteria Adjusted Balance of the Credit Improved Obligation sold by the end of the immediately succeeding Due Period (for this purpose, the Principal Balance of (x) any Revolving Loan or Delayed Drawdown Loan shall equal its funded amount only and (y) any Collateral Obligations in which the Trustee does not have a first priority perfected security interest shall equal the principal balance of such Collateral Obligation); or (2) after the Revolving Period, the Sale Proceeds received in respect of the Credit Improved Obligation are at least equal to its Investment Criteria Adjusted Balance (for this purpose, the Principal Balance of (x) any Revolving Loan or Delayed Drawdown Loan shall equal its funded amount only and (y) any Collateral Obligations in which the Trustee does not have a first priority perfected security interest shall equal the principal balance of such Collateral Obligation); and the Trustee shall sell the Credit Improved Obligation in accordance with such direction. (iii) (iv) (v) (vi) Non-Performing Collateral Obligations and Current-Pay Obligations. At the direction of the Collateral Manager, the Issuer may direct the Trustee to sell any Non-Performing Collateral Obligation or Current-Pay Obligation at any time during or after the Revolving Period without restriction. Non- Performing Collateral Obligations may be sold regardless of price. The Collateral Manager shall use reasonable efforts to sell a Current-Pay Obligation at the best price possible. Non-qualifying Collateral Obligations. At the direction of the Collateral Manager, the Issuer may direct the Trustee to sell any obligation that at the time of acquisition, conversion, or exchange does not satisfy the requirements of a Collateral Obligation at any time during or after the Revolving Period without restriction. Withholding Tax Sales. At the direction of the Collateral Manager, the Issuer may direct the Trustee to sell any Collateral Obligation subject to withholding tax at any time during or after the Revolving Period without restriction. Optional Redemption. After the Issuer has notified the Trustee of an Optional Redemption, at the direction of the Collateral Manager, the Issuer shall direct the Trustee to sell all or a portion of the Collateral Obligations as contemplated therein if the conditions and requirements in respect of an Optional Redemption under the Indenture have been satisfied and the independent certified public accountants appointed pursuant to the Indenture have confirmed the calculations contained in any required certificate furnished by the Collateral Manager pursuant to the Indenture s Note redemption procedure provisions. After a Majority of the Income Notes have directed an Optional Redemption in accordance with the Indenture, at the direction of the Collateral Manager, the Issuer shall direct the Trustee to sell all of the remaining Collateral Obligations pursuant to the Indenture, including 105

116 provisions for the orderly liquidation of Defaulted Collateral Obligations, Collateral Obligations for which offset, redemption or payoff notices have been received and other Collateral Obligations which, in the reasonable judgment of the Collateral Manager, are subject to "credit events" or other similar pricing problems requiring an extended liquidation period (or a portion of the remaining Collateral Obligations pursuant to the Indenture and in accordance with the unanimous direction of the Holders of the Income Notes). (vii) (viii) Rating Confirmation Failure. After the Collateral Manager has determined that a Rating Confirmation Failure has occurred and if available Interest Proceeds and Principal Proceeds are insufficient to effect the redemption of the Notes at par on any subsequent Payment Date in accordance with the Application of Funds as and to the extent necessary for S&P to confirm the ratings assigned by it on the Closing Date to the Notes, the Issuer may, at the direction of the Collateral Manager, direct the Trustee to sell Collateral Obligations as contemplated in the Indenture. Discretionary Sales. At the direction of the Collateral Manager, the Issuer may direct the Trustee to sell any Collateral Obligation: (1) at any time after the Closing Date if: (A) after giving effect to the sale and the sale of any other Collateral Obligations whose sale is pending, the Aggregate Principal Balance of all Collateral Obligations sold under Discretionary Sales (in each case determined as of the date the direction to sell is given) is not greater than (x) with respect to sales during calendar year 2007, 20% of the Maximum Investment Amount as of the Ramp-Up Completion Date, and (y) with respect to sales during any calendar year thereafter, 20% of the Maximum Investment Amount as of January 1 of such calendar year (for the purpose of determining the percentage of Collateral Obligations sold during any such period, (i) the amount of any Collateral Obligation sold shall be reduced to the extent of any purchases of Collateral Obligations of the same obligor (which are pari passu with such sold Collateral Obligation) occurring within 30 Business Days of the sale (determined based on the date of any relevant trade confirmation or commitment letter) (but only for so long as (x) the Collateral Obligations purchased have not been downgraded by any of the Rating Agencies during the 30 Business Day period, (y) the Collateral Obligations have not been purchased from the Collateral Manager or any of its Affiliates acting, in each case, as principal, and (z) the purchase price of each such Collateral Obligation must not exceed the sale price of the sold Collateral Obligation) and (ii) any Synthetic Security that is a basket or portfolio of credit default swaps that is reinvested into a substantially similar basket or portfolio of credit default swaps but with a later maturity shall be treated as having been sold); and (B) during the Revolving Period the Collateral Manager in its sole judgment (which judgment shall not be called into question as a result of subsequent events) believes before the sale that it will be able to cause the Issuer within 30 days thereafter to reinvest or commit to reinvest its Sale Proceeds, in compliance with the Eligibility Criteria, in one or more additional Collateral Obligations with an Aggregate Principal Balance at least equal to the Investment Criteria Adjusted Balance of the Collateral Obligation sold (for this purpose, the Principal Balance of any Revolving Loan or Delayed Drawdown Loan shall only include its funded amount and Principal Balance shall include the principal balance of Collateral Obligations in which the Trustee does not have a first priority perfected security interest); and the Trustee shall sell the Collateral Obligations in accordance with the direction. However, if the rating by Moody s of any of the Senior Class A Notes is one or more rating sub-categories below the initial rating of the Senior Class A Notes or has been withdrawn or the rating by Moody s of the Class A-3L Notes or Class B-1L Notes is two or more rating sub-categories below the initial rating of the Class A-3L Notes or Class B- 106

117 1L Notes or has been withdrawn, no Collateral Obligations may be sold pursuant to Discretionary Sales. This restriction may be waived by written consent of a Majority of the Aggregate Voting Amount of the Controlling Class. For the purposes of this clause (viii), any withdrawal or reduction in rating shall not restrict the sale of any Collateral Obligations pursuant to Discretionary Sales if after the withdrawal or reduction Moody s has upgraded the reduced or withdrawn rating to at least the initial rating in the case of the Senior Class A Notes, or to only one subcategory below their initial rating in the case of the Class A-3L Notes and the Class B-1L Notes. (ix) Workout Assets. At the direction of the Collateral Manager, the Issuer may direct the Trustee to sell any Workout Asset at any time during or after the Revolving Period without restriction and regardless of price. Certain Determinations Relating to Collateral Obligations The Indenture provides that, notwithstanding anything to the contrary contained therein, solely for the purpose of calculations in connection with the Eligibility Criteria, the Issuer or the Collateral Manager on behalf of the Issuer shall be deemed to have purchased any Collateral Obligations as of the date on which the Issuer delivers to the Trustee a contract to purchase, a commitment letter, a confirmation or a due bill for such Collateral Obligation, in each case entitling the Issuer (or the Trustee as assignee thereof) to receive such Collateral Obligations and, in such event, the Issuer shall be deemed to have acquired, granted or delivered, as the case may be, such Collateral Obligations on such date. The Indenture provides that, notwithstanding anything to the contrary contained therein, solely for the purpose of calculations in connection with the Eligibility Criteria, the Issuer or the Collateral Manager on behalf of the Issuer shall be deemed to have sold any Collateral Obligations as of the date on which the Issuer delivers to the Trustee a contract to sell, a commitment letter, a confirmation or a due bill for such Collateral Obligation, in each case entitling the Issuer (or the Trustee as assignee thereof) to sell, and requiring the purchaser to purchase, such Collateral Obligations and, in such event, the Issuer shall be deemed to have sold such Collateral Obligations on such date. Under the circumstances described in the two preceding paragraphs, if the transaction contemplated by the contract, commitment letter, confirmation or due bill referred to therein does not settle on or before the 60th day following the scheduled settlement date (the "Deadline"), the deemed purchase or sale shall be deemed not to have occurred; provided, however, that the Collateral Manager shall have the right to extend the Deadline for an additional period (not to exceed an additional 60 days) by notice to the Trustee, which notice shall include the Collateral Manager s certification to the effect that the Collateral Manager believes that the settlement shall occur on or before the extended Deadline. Scheduled distributions with respect to any Collateral Obligation shall be determined in accordance with the applicable provisions of the Indenture. Hedge Agreements At any time and from time to time after the Closing Date, the Issuer, at the direction of the Collateral Manager, may enter into the Hedge Agreements in order to manage interest rate, currency and other risks in connection with the Issuer's issuance of, and making of payments on, the Notes and ownership and disposition of the Collateral Obligations, and shall assign its rights (but none of its obligations) under the Hedge Agreements to the Trustee pursuant to the Indenture and the collateral assignment of Hedge Agreements. The Collateral Manager, on behalf of the Issuer, shall obtain the approval of each new Hedge Agreement from each Hedge Counterparty to a then-existing Hedge Agreement. The Trustee shall, on behalf of the Issuer and in accordance with the note valuation report, pay amounts due to the Hedge Counterparties under the Hedge Agreements on any Payment Date in accordance with the Application of Funds. Each Hedge Counterparty will be required to have a debt rating by Moody s for long-term debt of "Aa3" (or, with respect to a cross-currency Hedge Agreement, "Aa2") (which rating of "Aa3" or "Aa2", as applicable, is not on credit watch for a possible downgrade) or higher if the Hedge Counterparty has only a long-term rating; or a 107

118 debt rating by Moody s for long-term debt of "A1" (or, with respect to a cross-currency Hedge Agreement, "Aa3") (which rating of "A1" or "Aa3", as applicable, is not on credit watch for possible downgrade) or higher and a debt rating by Moody s for short-term debt of "P-1" (and not on credit watch for possible downgrade) if the Hedge Counterparty has both long-term and short-term ratings, and a short-term debt rating by S&P of not less than "A-1" or, if no short-term debt rating exists, a long-term debt rating of not less than "A+" (or, with respect to a crosscurrency Hedge Agreement, a short-term debt rating by S&P of not less than "A-1+" or, if no short-term debt rating exists, a long term debt rating of not less than "AA-"). If at any time a Hedge Counterparty has: (A) no short term Moody s rating and a long-term Moody s rating and that rating is below "Aa3" or is "Aa3" (or, with respect to a cross-currency Hedge Agreement, below "Aa2" or is "Aa2") and has been placed on credit watch for possible downgrade by Moody s; or (B) both a short-term and long-term Moody s rating; and either the long-term Moody s rating is below "A1" or that rating is "A1" (or, with respect to a cross-currency Hedge Agreement, below "Aa3" or that rating is "Aa3") and has been placed on credit watch for possible downgrade by Moody s, or the short-term Moody s rating is below "P-1" or that rating is "P-1" and has been placed on credit watch for possible downgrade by Moody s, or (C) a short-term debt rating by S&P below "A-1" (or, with respect to a cross-currency Hedge Agreement, below "A-1+") or, if no short-term debt rating exists, a long-term debt rating less than "A+" (or, with respect to a cross-currency Hedge Agreement, less than "AA-") (but such Hedge Counterparty has a short-term debt rating by S&P of at least "A-3" (or, with respect to a cross-currency Hedge Agreement, at least "A-2") and, if no short-term debt rating exists, a long-term debt rating by S&P of at least "BBB-" (or, with respect to a cross-currency Hedge Agreement, at least "BBB"); and the debt ratings of such Hedge Counterparty s guarantor, if applicable, fail to equal or exceed the above criteria, then the Hedge Counterparty shall be required, at its sole expense, to, within 30 days, either: (i) post collateral as required by the Hedge Agreement to secure the Hedge Counterparty s obligations under the Hedge Agreement, in an amount and of the type sufficient to cause the Rating Condition with respect to each Rating Agency to be satisfied; (ii) obtain a guarantor whose short-term and long-term debt ratings equal or exceed the above criteria (with such guarantor s guarantee to comply with S&P s published criteria with respect to guarantees); (iii) replace itself under the related or substantially equivalent Hedge Agreement with a substitute Hedge Counterparty whose short-term and long-term debt ratings (or those of the substitute Hedge Counterparty s guarantor (with such guarantor s guarantee to comply with S&P s published criteria with respect to guarantees)) equal or exceed the above criteria; or (iv) take other actions to satisfy the Rating Condition with respect to each Rating Agency. If the Hedge Counterparty fails to comply with at least one of the obligations set forth in clauses (i)-(iv) of the preceding sentence, an additional termination event will occur under the related Hedge Agreement. Subject to the rating conditions set forth in the succeeding paragraph below, if at any time a Hedge Counterparty has: (A) no short-term Moody s rating and a long-term Moody s rating that is "A2" or below (or, with respect to a cross-currency Hedge Agreement, "A1" or below) or has been suspended or withdrawn; 108

119 109 (B) both a short-term and long-term Moody s rating; and either the long-term Moody s rating is "A3" or below (or, with respect to a cross-currency Hedge Agreement, "A2" or below) or is suspended or withdrawn, or the short-term Moody s rating is "P-2" or below, and the debt ratings of such Hedge Counterparty s guarantor fail to equal or exceed the above criteria, then such Hedge Counterparty shall be required, at its sole expense, to, within 30 days, either: (i) post collateral as required by the Hedge Agreement to secure the Hedge Counterparty s obligations under the Hedge Agreement, in an amount equal to the greatest of: (1) the next payment due under the Hedge Agreement and (2) the mark-to-market value of the Hedge Agreement and to continue to make commercially reasonable efforts or, after 30 days, best efforts, to find either a guarantor pursuant to clause (ii)(x) below or a replacement Hedge Counterparty pursuant to clause (ii)(y) below, provided that the obligation to post collateral shall continue until the completion of the requirements referenced in either of clauses (ii)(x) or (ii)(y) below, provided that the obligation to post collateral shall continue until the completion of the requirements referenced in either of clauses (ii)(x) or (ii)(y) below; or (ii) (x) obtain a guarantor that has short-term and long-term debt ratings that are equal to or exceed the above criteria and that will satisfy the Rating Condition with respect to S&P with respect to its appointment (with such guarantor s guarantee to comply with S&P s published criteria with respect to guarantees); (y) replace itself under the related or substantially equivalent Hedge Agreement with a substitute Hedge Counterparty whose short-term and long-term debt ratings (or those of its guarantor) equal or exceed the above criteria and the appointment of which will satisfy the S&P Rating Condition; or (z) take such other actions to satisfy the Rating Condition with respect to each Rating Agency. If a Hedge Counterparty has a short-term debt rating by S&P below "A-3" or, if no short-term debt rating exists, such Hedge Counterparty has a long term rating by S&P below "BBB-" or that has been suspended or withdrawn and the debt rating of such Hedge Counterparty s guarantor fails to equal or exceed the above criteria, then such Hedge Counterparty shall be required, at its sole expense, to post collateral to the Issuer to secure the Hedge Counterparty s obligations under the applicable Hedge Agreement and, while posting such collateral to the Issuer, such Hedge Counterparty will be required to transfer the applicable Hedge Agreement, in whole, but not in part, to a counterparty that satisfies (or whose guarantor (with such guarantor s guarantee to comply with S&P's published criteria with respect to guarantees) satisfies) the debt ratings set forth in the second paragraph under " Hedge Agreements" above within seven days of the failure to equal or exceed the above criteria. Each Hedge Agreement shall also provide that the failure of a Hedge Counterparty to assign its rights and obligations under the related Hedge Agreement in accordance with the terms thereof following the failure to equal or exceed the above criteria shall constitute a termination event thereunder. Any payments required to be made under the Hedge Agreements shall be made in accordance with the Application of Funds. Defaulted Hedge Termination Payments shall be subordinate to interest and principal payments on the Notes and any other payments required to be made by the Issuer under the Hedge Agreements, but senior to payments on the Income Notes pursuant to the Indenture and the Fiscal Agency Agreement. Unless the Rating Condition with respect to each Rating Agency is otherwise satisfied, following the early termination of a Hedge Agreement (other than on a Redemption Date) the Issuer, at the direction of the Collateral Manager, shall promptly, but no later than 60 days after the early termination, enter into a replacement hedge, unless, in the exercise of the Collateral Manager s reasonable business judgment, to do so would not be in the best interest of the Issuer and the Rating Condition with respect to each Rating Agency is satisfied with respect to not entering into a replacement hedge. In addition, a replacement hedge may not be entered into unless the Rating Condition with respect to each Rating Agency is satisfied with respect to the replacement hedge. The Issuer shall use commercially reasonable efforts to cause the termination of a Hedge Agreement (other than a termination resulting from the bankruptcy, insolvency, or similar event with respect to the Hedge Counterparty) to become effective simultaneously with its entering into a replacement hedge. To the extent that (i) the Collateral Manager

120 determines not to replace the Hedge Agreement and the Rating Condition with respect to each Rating Agency is satisfied with respect to the determination; or (ii) termination is occurring on a Redemption Date, the Hedge Termination Receipts shall become part of Principal Proceeds and be distributed in accordance with the Application of Funds on the next Payment Date (or on the Redemption Date, if the Notes are redeemed on the Redemption Date). The notional amounts of the Hedge Agreements outstanding at any time may be reduced or increased from time to time, by the Issuer, and the Hedge Agreements may be amended, modified, or terminated in accordance with the Hedge Agreements if the Rating Condition with respect to each Rating Agency is satisfied with respect to the reduction, increase, amendment, modification, or termination, as the case may be. Each Hedge Agreement may be terminated pursuant to its terms upon an Optional Redemption of the Notes or an acceleration of maturity of the Notes after an Event of Default. The Hedge Agreement will not be permitted to be terminated as the result of a Event of Default or any occurrence that, with notice or the lapse of time or both, would become an Event of Default unless any acceleration of maturity of the Notes resulting from the Event of Default is no longer permitted to be rescinded pursuant to the Indenture. In addition, no Hedge Agreement will be permitted to be terminated until any Optional Redemption to be made pursuant to the Indenture is no longer permitted to be withdrawn pursuant to the Indenture. Except for Hedge Agreements entered into on or before the Closing Date, the Issuer shall not enter into any Hedge Agreement unless the Rating Condition with respect to each Rating Agency is satisfied. Securities Lending The Indenture permits the Issuer to engage in a limited number of securities lending transactions as described below. The Collateral Manager may instruct the Trustee to lend Collateral Obligations that are not Defaulted Collateral Obligations for a term of 90 days or less to banks, broker-dealers, and other financial institutions (other than insurance companies) having long-term and short-term senior unsecured debt ratings or guarantors with ratings of at least "A1" (and not "A1" but on credit watch with negative implications) and "P-1" (and not on credit watch for possible downgrade) from Moody s and a long-term senior unsecured debt rating of at least "A" from S&P (each, a "Securities Lending Counterparty") pursuant to one or more agreements (each, a "Securities Lending Agreement"); provided that Collateral Obligations the Market Value of which cannot be determined under clause (i), (ii) or (iii) of that definition may not be lent pursuant to a Securities Lending Agreement. The Trustee shall release any lent Collateral Obligations to a Securities Lending Counterparty as directed by the Collateral Manager. The Securities Lending Counterparties may be Affiliates of the Initial Purchaser or Affiliates of the Collateral Manager. The duration of any Securities Lending Agreement shall not exceed the Stated Maturity of the Notes. Collateral Obligations representing no more than 15% (measured by Aggregate Principal Balance) of the Maximum Investment Amount may be loaned pursuant to Securities Lending Agreements at any time. Each Securities Lending Agreement shall be on market terms (except to the extent specified in the Indenture) and shall among other things: (i) require that the Securities Lending Counterparty return to the Issuer debt obligations that are identical (in terms of issue and class) to the lent Collateral Obligations; (ii) require that the Securities Lending Counterparty pay to the Issuer amounts equivalent to all interest and other payments that the owner of the lent Collateral Obligation is entitled to for the period during which the Collateral Obligation is lent and require that any such not be subject to withholding tax imposed by any jurisdiction unless the Securities Lending Counterparty is required under the Securities Lending Agreement to make "gross-up" payments to the Issuer that cover the full amount of the withholding tax on an after-tax basis; (iii) require that the Rating Condition with respect to each Rating Agency shall be satisfied with respect to the execution of the Securities Lending Agreement; 110

121 (iv) provide for early termination and the delivery of any lent Collateral Obligation with no penalty if the Collateral Obligation becomes a Credit Risk Obligation or is subject to redemption in accordance with its terms; (v) provide for early termination and the delivery of any lent Collateral Obligation with no penalty upon any redemption of the Securities in whole; (vi) require the Securities Lending Counterparty to post with the Trustee collateral consisting of cash or direct registered debt obligations of the United States of America that have a maturity date no later than the Business Day preceding the stated termination date of the Securities Lending Agreement to secure its obligation to return the Collateral Obligations or in the alternative post that collateral with a trustee for the benefit of the Issuer designated by the Securities Lending Counterparty that satisfies the requirements with respect to being a securities intermediary with respect to the posted collateral if that trustee would qualify to be a successor trustee under the Indenture; (vii) provide that the Securities Lending Collateral shall be maintained at all times in an amount equal to at least 102% of the current Market Value (determined daily and monitored by the Collateral Manager) of the lent Collateral Obligations and if securities are delivered to the Trustee as security for the obligations of the Securities Lending Counterparty under the related Securities Lending Agreement, the Collateral Manager on behalf of the Issuer will negotiate with the Securities Lending Counterparty a rate for the loan fee to be paid to the Issuer for lending the lent Collateral Obligations; (viii) provide the lent Collateral Obligations shall be marked-to-market on a daily basis on the basis of their Market Value; (ix) provide for early termination within 30 days at the option of the Issuer and the delivery of any lent Collateral Obligation with no penalty if the Securities Lending Counterparty is no longer in compliance with the requirements relating to the credit ratings of the Securities Lending Counterparty and the noncompliance is not cured as provided in the Indenture; and (x) contain appropriate non-recourse and non-petition provisions (to the extent the Issuer has contractual payment obligations to the Securities Lending Counterparty) equivalent (mutatis mutandis) to those in the Indenture. In addition, each Securities Lending Agreement must provide that if either Moody s or S&P downgrades a Securities Lending Counterparty such that the Securities Lending Agreements to which the Securities Lending Counterparty is a party are no longer in compliance with the requirements relating to the credit ratings of the Securities Lending Counterparty, then the Issuer, within 30 days of the downgrade, shall (i) terminate its Securities Lending Agreements with the Securities Lending Counterparty unless a guarantor for the Securities Lending Counterparty s obligations under the Securities Lending Agreements has been obtained; or (ii) reduce the percentage of the Aggregate Principal Balance of the Collateral Obligations lent to the downgraded Securities Lending Counterparty so that the Securities Lending Agreements to which the Securities Lending Counterparty is a party, together with all other Securities Lending Agreements, are in compliance with the requirements relating to the credit ratings of Securities Lending Counterparties; or (iii) take any other steps Moody s or S&P may require to cause the Securities Lending Counterparty s obligations under the Securities Lending Agreements to which the Securities Lending Counterparty is a party to be treated by Moody s or S&P, as the case may be, as if the obligations were owed by a counterparty having a rating at least equivalent to the rating that was assigned by Moody s or S&P, as the case may be, to the downgraded Securities Lending Counterparty before its being downgraded. The Collateral Manager shall instruct the Trustee in writing with respect to the administration of any Securities Lending Agreement (including with respect to any default and the exercise of rights under it). The Trustee shall not have any responsibility for evaluating the sufficiency, validity, or acceptability of any Securities Lending Agreement or for the qualifications or eligibility of any Securities Lending Counterparty. Nothing in the Indenture shall be construed to cause the Trustee to have any fiduciary duties to any Securities Lending Counterparty. 111

122 So long as any Collateral Obligation is on loan pursuant to a Securities Lending Agreement, (a) the Trustee shall have no liability for any failure or inability on its part to receive any information or take any action with respect to the Collateral Obligation because of its being on loan (including any failure to take action with respect to a notice of redemption, consent solicitation, exchange or tender offer, or similar corporate action), and (b) the loaned Collateral Obligations shall not be disqualified for return to the Trustee as a Collateral Obligation by any change in circumstance or status during the time while on loan (including any change that would cause the Collateral Obligation to be ineligible for purchase by the Issuer under the Indenture if applied to a proposed purchase of it in the open market at the time of its return from loan). [remainder of page intentionally blank] 112

123 SETTLEMENT AND CLEARING FOR GLOBAL SECURITIES Notes Upon issuance, the Notes (other than the Class A-1LR Notes) sold to non-u.s. Persons (as defined in Regulation S under the Securities Act ("Regulation S")) (each, a "non-u.s. Person") in Offshore Transactions (as defined in Regulation S) in reliance on Regulation S initially will be represented by a single, temporary global note in fully registered form without interest coupons (the "Temporary Regulation S Global Note"), which in the case of the Notes (other than the Class A-1LR Notes and the Class B-2L Notes) will be deposited with the Trustee as custodian for, and registered in the name of a nominee on behalf of The Depository Trust Company ("DTC") and, in the case of the Class B-2L Notes, will be deposited with Deutsche Bank Trust Company Americas, as common or specialized depository on behalf of, Euroclear Bank, S.A./N.V., as operator of The Euroclear System ("Euroclear") and Clearstream Banking, société anonyme ("Clearstream"). Subject to the receipt by the Trustee of a certificate in the form provided by the Indenture from the person holding such interest, a beneficial interest in the Temporary Regulation S Global Note may be exchanged for (i) after the 40th day after the later of the conclusion of the offering and the Closing Date (the "Exchange Date"), an interest in a permanent global note in fully registered form without interest coupons (the "Permanent Regulation S Global Note" and, together with the Temporary Regulation S Global Note, the "Regulation S Global Notes"), in an amount equal to the aggregate principal amount of such interest in the Temporary Regulation S Global Note or (ii) at any time for an interest in a Rule 144A Global Note (defined below) or, in the case of a Class B-2L Note, a Definitive Note (defined below), if a beneficial interest in a Regulation S Global Note will be transferred to a Qualified Institutional Buyer who is a U.S. Person (defined below), which note will be registered in the name of such person. Upon deposit of the Permanent Regulation S Global Note of a Class with the Trustee, as custodian for DTC or the common depository, as applicable, Euroclear or Clearstream, as the case may be, will credit each purchaser (or its agent or custodian) with a principal amount of Notes of such Class equal to the principal amount thereof for which it has paid. The Holder of the Regulation S Global Notes (which will be DTC or its nominee, in the case of each Class of Notes (other than the Class A-1LR Notes and the Class B-2L Notes), and the common depository, in the case of the Class B-2L Notes) shall be the only person entitled to receive payments in respect of the Notes represented by such Regulation S Global Notes, and the Co-Issuers will be discharged by payment to, or to the order of, such Holder of such Regulation S Global Notes in respect of each amount so paid. Each of the persons shown in the records of Euroclear or of Clearstream as the Holder of a particular principal amount of Regulation S Global Notes must look solely to Euroclear or Clearstream, as the case may be, for its share of each payment so made by the Co-Issuers to, or to the order of, the Holder of such Regulation S Global Notes. No person other than the Holder of the Regulation S Global Notes shall have any claim against the Co-Issuers in respect of any payments due on the Regulation S Global Notes. Payments on the Regulation S Global Notes in the case of the Class A Notes (other than the Class A-1LR Notes) and the Class B-1L Notes will be made pursuant to certain procedures established by DTC or, in the case of the Class B-2L Notes, the common depository, provided that the final payment of principal and interest will be made upon presentation and endorsement of such Regulation S Global Notes at the designated office of a Paying Agent. Definitive Notes will be issued and exchanged for each Permanent Regulation S Global Note within 30 days of the occurrence of any of the following: (i) the Notes or any of them become immediately due and payable following an Event of Default under the Indenture; (ii) either Euroclear or Clearstream is closed for business for a continuous period of 14 days (other than by reason of holiday, statutory or otherwise) or announces an intention permanently to cease business and no alternative clearance system satisfactory to the Trustee is available; or (iii) as a result of any amendment to, or change in, the laws or regulations of the Cayman Islands or of any authority therein or thereof having power to tax or in the interpretation or administration of such laws or regulations which becomes effective on or after the Closing Date, the Co-Issuers or the Paying Agents are or will be required to make any deduction or withholding from any payment in respect of the Notes which would not be required were the Notes in definitive registered form. Notwithstanding the foregoing, interests in any Temporary Regulation S Global Note or any definitive registered Note purchased by a non-u.s. Person in an Offshore Transaction in accordance with Regulation S may not be exchanged for a Definitive Note until receipt by the Trustee from the owner of such beneficial interest of a certificate in the form provided by the Indenture. 113

124 Upon issuance, the Notes (other than the Class A-1LR Notes and the Class B-2L Notes) sold in the United States to Qualified Institutional Buyers will be issued in book-entry form ("Rule 144A Global Notes") only through the facilities of DTC. So long as DTC or its nominee is the registered Holder of the Rule 144A Global Notes, DTC or such nominee, as the case may be, will be considered the absolute owner or Holder of the Notes represented by such Rule 144A Global Notes for all purposes under the Indenture and such Notes. DTC or such nominee, as the case may be, will be the only person entitled to receive payments in respect of the Notes represented by such Rule 144A Global Notes and the Co-Issuers will be discharged by payment to DTC or such nominee. Each of the persons shown in the records of DTC as the beneficial owner of a Rule 144A Global Note must look solely to DTC for its share of each payment made by the Issuer to DTC. No person other than DTC shall have any claim against the Co- Issuers in respect of any payment due under the Rule 144A Global Notes. Payments on the Rule 144A Global Notes will be made in accordance with the established procedures of DTC and the Co-Issuers will have no liability therefor. In addition, no beneficial owner of an interest in a Rule 144A Global Note will be able to exchange or transfer such interest except in accordance with the applicable procedures of DTC. None of the Issuer, the Co-Issuer, the Trustee, the Collateral Manager, the Indenture Registrar or any Paying Agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Rule 144A Global Notes or for maintaining, supervising or reviewing any records relating thereto. Definitive Notes will be issued and exchanged for each Rule 144A Global Note within 30 days of the occurrence of any of the following: (i) the Notes or any of them become immediately due and payable following an Event of Default under the Indenture; or (ii) DTC notifies the Issuer or the Trustee in writing that it is unwilling or unable to discharge properly its responsibilities as a depository with respect to the Rule 144A Global Notes or it ceases to be a "clearing agency" registered under the Exchange Act (defined below), and the Issuer is unable to locate a qualified successor within 90 days after such notice. Upon issuance, the Class B-2L Notes sold in the United States to Qualified Institutional Buyers who are U.S. Persons and the Class A-1LR Notes will be issued as definitive fully registered notes ("Definitive Notes"). Definitive Notes may be presented for registration of transfer (with the form of transfer endorsed thereon duly executed), at the office of the Indenture Registrar designated for such purpose, without service charge but upon payment of any taxes and other governmental charges as described in the Indenture. Any registration of transfer will be effected upon the Trustee being satisfied with the documents of title and identity of the person making the request, upon the receipt by the Issuer and the Trustee of any applicable certificates and opinions relating to transfer restrictions, as described below, and subject to such reasonable regulations as the Issuer may from time to time agree with the Trustee, all as described in the Indenture. The Issuer has initially appointed the Trustee as indenture registrar (the "Indenture Registrar"). Definitive Notes may be presented for payment or for transfer or exchange at the offices of the Indenture Registrar s agent, DB Services Tennessee, 648 Grassmere Park Road, Nashville, Tennessee , Attention: Transfer Unit. The Issuer reserves the right to vary or terminate the appointment of the Indenture Registrar or to appoint additional or other registrars or to approve any change in the office through which any Indenture Registrar acts, provided that there will at all times be an office or agent located in the United States at which the Definitive Notes may be presented for payment or for transfer or exchange. For so long as any Class of Notes is listed on any stock exchange and the rules of such exchange shall so require, the Issuer will have a listing agent and a paying agent (which shall be the "Listing and Paying Agent") for the Notes and payments on such Notes may be effected through the Listing and Paying Agent. In the event that the Listing and Paying Agent is replaced at any time during such period, notice of the appointment of any replacement will be given to such stock exchange in accordance with its procedures. A beneficial interest in a Regulation S Global Note may only be transferred to (a) a non-u.s. Person in an offshore transaction (as defined in Regulation S) (an "Offshore Transaction") in accordance with Regulation S (and in accordance with certain certification requirements in the Indenture) or (b) after the Exchange Date, a person who takes delivery in the form of an interest in a Rule 144A Global Note or, in the case of the Class B-2L Notes, a Definitive Note, and who delivers a written certification (in the form provided in the Indenture) to the effect that such person is a Qualified Institutional Buyer and is acquiring such interest for its own account (together with 114

125 certain other requirements set forth in the Indenture). Upon any exchange of a portion of a Regulation S Global Note for a Rule 144A Global Note or a Definitive Note, the Trustee shall endorse such Regulation S Global Note to reflect the reduction of the principal amount evidenced thereby. Definitive Notes (or any interest therein) may only be transferred in accordance with the applicable laws of any state of the United States and (a) in a transaction exempt from the registration requirements of the Securities Act involving a Qualified Institutional Buyer who is a U.S. Person as transferee (in accordance with the certification requirements of the Indenture) or (b) to a person who takes delivery in the form of a beneficial interest in a Regulation S Global Note and in such case only upon receipt by the Trustee of a written certification from the transferor (in the form provided in the Indenture) to the effect that such transfer is being made to a non-u.s. Person in accordance with Regulation S. Upon any exchange of a Definitive Note for a beneficial interest in a Regulation S Global Note, the Trustee shall endorse such Regulation S Global Note to reflect the increase in the principal amount evidenced thereby. The Indenture Registrar for the Notes will not be required to accept for registration of transfer any Note except upon presentation of a certificate substantially in the form required by the Indenture representing that these restrictions on transfer have been complied with, and, if requested by the Issuer or the Trustee, an opinion of counsel in form and substance satisfactory to the Issuer or the Trustee to the effect that such transfer has been made in compliance with an applicable exemption from the registration requirements of the Securities Act and in accordance with any applicable securities laws of any state of the United States and any other jurisdiction. See "Delivery of the Notes; Transfer Restrictions; Settlement." No Class A Note may be sold or transferred unless such sale or transfer will not constitute or result in a non-exempt prohibited transaction under ERISA or Section 4975 of the Code. In addition, (i) no Class B-1L Note may be sold or transferred to any Plan, or to any person acting on behalf of or with "plan assets" of any Plan, including an insurance company general account, unless the purchaser or transferee is eligible for the exemptive relief available under any of Section 408(b)(17) of ERISA or PTCE 96-23, 95-60, 91-38, 90-1 or 84-14, and (ii) no Class B-2L Note or Income Note may be sold or transferred to any Plan, or to any person acting on behalf of or with "plan assets" of any Plan, or to any other Benefit Plan Investor, including an insurance company general account, except in accordance with the restrictions set forth herein. See "Certain ERISA Considerations." In addition, sales or other transfers of the Notes may only be made to a purchaser or other transferee (other than a non-u.s. Person in an offshore transaction under Regulation S) that is a Qualified Purchaser in a sale or transfer that would not require the Co-Issuers to become subject to the requirements of the Investment Company Act and the Notes will bear a legend to this effect. See "Transfer Restrictions." Each prospective purchaser will be deemed to (i) represent that such prospective purchaser (a) is a Qualified Institutional Buyer and is purchasing or acquiring Notes solely for its own account or (b) is a non-u.s. Person, (ii) represent that such prospective purchaser is a Qualified Purchaser or a non-u.s. Person and (iii) have made the additional representations described under "Transfer Restrictions." Income Notes Upon issuance, the Income Notes sold to non-u.s. Persons in Offshore Transactions (as defined in Regulation S) in reliance on Regulation S, initially will be represented by one or more permanent global certificates in fully registered definitive form (each a "Global Income Note"), which will be deposited with a common depository on behalf of Euroclear or Clearstream and registered in the name of a nominee of such depositary. Subject to the receipt by the Income Note transfer agent of a certificate in the form similar to the one provided by the Fiscal Agency Agreement from the person holding such interest, a beneficial interest in each Global Income Note may be transferred prior to the expiration of a one-year period beginning on the later of the Closing Date or on the day on which the offer of the Income Notes is completed (the "Distribution Compliance Period"), only to (i) a Non-U.S. Person who certifies that it is not a U.S. Person and is not acquiring an interest in the Global Income Notes for the account or benefit of any U.S. Person or (ii) after the Distribution Compliance Period, to a U.S. Person who certifies that it is (a) an Accredited Investor or a Qualified Institutional Buyer and (b) a Qualified Purchaser or a Knowledgeable Employee with respect to the Issuer, but only if such purchaser takes in the form of a Restricted Income Notes (as defined below) registered in the name of such person. 115

126 Subject to the receipt by the Income Note transfer agent of a certificate in the form similar to the one provided by the Fiscal Agency Agreement from the person holding such interest, a holder of a Restricted Income Note (as such term is defined below) who is a U.S. Person may at any time transfer its interest in such Income Note only (a) to a Non-U.S. Person pursuant to Regulation S or (b) to a Qualified Institutional Buyer or an Accredited Investor, in each case in transactions not requiring registration under the Securities Act, and in each case only to a transferee who is also a Qualified Purchaser or a Knowledgeable Employee with respect to the Issuer. Upon deposit of the Global Income Note with the common depository, Euroclear or Clearstream, as the case may be, will credit each purchaser (or its agent or custodian) with the number of Income Notes for which it has paid. The holder of the Global Income Note will be the only entity entitled to receive payments in respect of the Income Notes represented by such Global Income Note, and the Issuer will be discharged by payment to, or to the order of, the holder of such Global Income Notes in respect of each amount so paid. Each of the persons shown in the records of Euroclear as the holder of Global Income Notes must look solely to Euroclear, for its share of each payment so made by the Issuer to, or to the order of, the holder of such Global Income Notes. No person other than the holder of the Global Income Notes shall have any claim against the Issuer in respect of any payments due on the Global Income Notes. Payments on the Global Income Notes will be made pursuant to certain procedures established between the Paying Agent, the common depository, Euroclear and Clearstream, as the case may be. All such payments will be made by wire transfer to a United States dollar account maintained by such holder with a bank outside the United States. Definitive Income Notes ("Definitive Income Notes") will be issued and exchanged for each Global Income Note within 30 days of the occurrence of any of the following: (i) either Euroclear or Clearstream is closed for business for a continuous period of 14 days (other than by reason of holiday, statutory or otherwise) or announces an intention permanently to cease business and no alternative clearance system satisfactory to the Fiscal Agent is available, (ii) as a result of any amendment to, or change in, the laws or regulations of Cayman Islands or of any authority therein or thereof having power to tax or in the interpretation or administration of such laws or regulations which becomes effective on or after the Closing Date, the Issuer or the Fiscal Agent are or will be required to make any deduction or withholding from any payment in respect of the Income Notes which would not be required were the Income Notes in definitive registered form, or (iii) the Issuer so elects by notice to the Holders of the Income Notes in accordance with the Fiscal Agency Agreement and Euroclear or Clearstream, as applicable, does not object. The Income Notes sold in the United States to Qualified Institutional Buyers or Accredited Investors who are U.S. Persons will be represented, on issue, by definitive fully registered Income Note bearing the appropriate legend ("Restricted Income Notes"). Payments on the Definitive Income Notes and Restricted Income Notes will be made pursuant to certain procedures established by the Fiscal Agent. All such payments on such Income Notes will be made by wire transfer to a United States dollar account maintained by such holder and notified to the Fiscal Agent in writing. Depositories 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 Uniform Commercial Code and a "clearing agency" registered pursuant to Section 17A of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). DTC was created to hold securities for its participants (the "DTC Participants") and to facilitate the clearance and settlement of securities transactions between DTC Participants through electronic computerized book-entries, thereby eliminating the need for physical movement of certificates. DTC Participants include securities brokers and dealers, banks, trust companies and clearing corporations. Indirect access to the DTC system also is available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a DTC Participant, either directly or indirectly ("Indirect Participants"). 116

127 Unless and until Definitive Notes are issued, all references to actions by Holders of the Rule 144A Global Notes holding through DTC will refer to actions taken by DTC upon instructions received from beneficial owners of the Rule 144A Global Notes through DTC Participants, and all references herein to payments, notices, reports, statements and other information to Holders of Rule 144A Global Notes will refer to payments, notices, reports and statements to DTC or its nominees, as the registered Holder of the Rule 144A Global Notes, for distribution to beneficial owners of Rule 144A Global Notes through DTC Participants in accordance with DTC procedures. Clearstream is incorporated under the laws of Luxembourg as a professional depository. Clearstream holds securities for its participating organizations ("Clearstream, Luxembourg Participants") and facilitates the clearance and settlement of securities transactions between Clearstream, Luxembourg Participants through electronic bookentry changes in accounts of Clearstream, Luxembourg Participants, thereby eliminating the need for physical movement of certificates. Clearstream provides to its Clearstream, Luxembourg 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 depository, Clearstream is subject to regulation by the Luxembourg Monetary Institute. Clearstream, Luxembourg Participants are recognized financial institutions around the world, including underwriters, securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations and may include the Initial Purchaser. 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, Luxembourg Participant, either directly or indirectly. Euroclear was created to hold securities for participants of Euroclear ("Euroclear Participants") and to clear and settle transactions between Euroclear Participants through simultaneous electronic book-entry delivery against payment, thereby eliminating the need for physical movement of certificates and any risk from lack of simultaneous transfers of securities and cash. Euroclear includes various other services, including securities lending and borrowing and interfaces with domestic markets in several countries generally similar to the arrangements for cross-market transfers with DTC described above. Euroclear is operated by Euroclear Bank S.A./N.V. (the "Euroclear Operator"), under contract with Euroclear Clearance System, S.C., a Belgian cooperative corporation (the "Cooperative"). All operations are conducted by the Euroclear Operator, and all Euroclear securities clearance accounts and Euroclear cash accounts are accounts with the Euroclear Operator, 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 Initial Purchaser. 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. The Euroclear Operator is the Belgian branch of a New York banking corporation which is a member bank of the Federal Reserve System. As such, it is regulated and examined by the Board of Governors of the Federal Reserve System and the New York State Banking Department, as well as the Belgian Banking Commission. Securities clearance accounts and cash accounts with the Euroclear Operator are governed by the Terms and Conditions Governing Use of Euroclear and the related Operating Procedures of Euroclear and applicable Belgian law (collectively, the "Terms and Conditions"). The Terms and Conditions govern transfers of securities and cash within Euroclear, withdrawal of securities and cash from Euroclear, and receipts of payments with respect to securities in Euroclear. All securities in Euroclear are held on a fungible basis without attribution of specific certificates to specific securities clearance accounts. The Euroclear Operator 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. [remainder of page intentionally blank] 117

128 TRANSFER RESTRICTIONS Because of the following restrictions, purchasers are advised to consult legal counsel before making any purchase, offer, resale, pledge, or other transfer of the Securities. The Securities have not been registered under the Securities Act or any state securities laws and, accordingly, may not be reoffered, resold, pledged or otherwise transferred within the United States or to, or for the account or benefit of, U.S. Persons, except in accordance with the restrictions described herein. Terms used in this paragraph have the meanings given to them by Regulation S. Without limiting the foregoing, by holding a Security, each Holder will acknowledge and agree, among other things, that such Holder understands that neither of the Co-Issuers is registered as an investment company under the Investment Company Act. The Issuer has not so registered in reliance on an exception for investment companies organized under the laws of a jurisdiction other than the United States whose investors reside in the United States are solely Qualified Purchasers or, solely in the case of the Income Notes, Knowledgeable Employees with respect to the Issuer, and which do not make a public offering of their securities in the United States. Any sale or transfer which would violate these provisions shall be void from the time of such sale or transfer, and no sale or transfer may be made if such sale or transfer would require the Co-Issuers to become subject to the requirements of the Investment Company Act. Each transferee of a Note (except with respect to a transfer pursuant to Regulation S) will be deemed to represent at time of transfer that the transferee is a Qualified Institutional Buyer and (i) that it is a Qualified Purchaser, (ii) that it is not formed for the purpose of investing in the Notes, unless all of its beneficial owners are Qualified Purchasers, (iii) that it is not a dealer described in paragraph (a)(1)(ii) of Rule 144A unless such transferee owns and invests on a discretionary basis at least U.S.$25 million in securities of issuers that are not affiliated persons of such dealer, (iv) that it is not a plan referred to in paragraph (a)(1)(i)(d) or (E) of Rule 144A or a trust fund referred to in paragraph (a)(1)(i)(f) of Rule 144A that holds the assets of such plan, unless investment decisions are made solely by the fiduciary, trustee or sponsor of such plan, (v) that it and each account for which it is purchasing is purchasing Notes in at least the minimum denomination and (vi) that it will provide written notice of the foregoing and any other applicable transfer restrictions to any transferee. The Indenture provides that if, notwithstanding the restrictions on transfer contained therein, the Issuer determines any beneficial owner or Holder of a Note (other than a Note transferred in reliance on Regulation S) is not a Qualified Institutional Buyer and a Qualified Purchaser, the Issuer will require that such beneficial owner or Holder sell all of its right, title and interest in such Note to a person who is so qualified, with such sale to be effected within 30 days after notice of such sale requirement is given. If such sale is not effected within such 30 days, upon written direction from the Issuer to the Trustee, an investment banker selected by the Trustee and approved by the Issuer will be authorized to conduct a commercially reasonable sale of such Note to a person who does so qualify and pending transfer, no further payments will be made in respect of such Note or any beneficial interest therein. Except for interests in Notes represented by a Regulation S Global Note or a Rule 144A Global Note as described herein, the Notes will be represented by definitive registered Notes registered in the name of the purchaser thereof. Notwithstanding the foregoing, any transfer of a Class A-1LR Note during the Revolving Period must be made to a purchaser that satisfies the Class A-1LR Purchaser Rating Criteria. Unless determined otherwise by the Co-Issuers in accordance with applicable law, the Notes will bear the legend set forth below: THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), ANY STATE SECURITIES LAWS IN THE UNITED STATES OR THE SECURITIES LAWS OF ANY OTHER JURISDICTION AND MAY NOT BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, UNITED STATES PERSONS, EXCEPT AS PERMITTED BY THIS LEGEND. THE HOLDER HEREOF, BY ITS ACCEPTANCE OF THIS NOTE, 118

129 REPRESENTS, ACKNOWLEDGES AND AGREES THAT IT WILL NOT REOFFER, RESELL, PLEDGE OR OTHERWISE TRANSFER THIS NOTE EXCEPT IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS AND EXCEPT (A) IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER AS DEFINED IN RULE 144A PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER, WHOM THE SELLER HAS INFORMED, IN EACH CASE, THAT THE REOFFER, RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, PROVIDED THAT SUCH PURCHASER DELIVERS ALL DOCUMENTS AND CERTIFICATIONS AS THE CO- ISSUERS OR THE TRUSTEE MAY REASONABLY REQUIRE; (B) TO A NON-U.S. PERSON OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 903 OR 904 OF REGULATION S UNDER THE SECURITIES ACT; OR (C) TO THE CO-ISSUERS OR THEIR AFFILIATES, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAW OF ANY STATE OF THE UNITED STATES AND ANY OTHER JURISDICTION. THE HOLDER HEREOF, BY ITS ACCEPTANCE OF THIS NOTE, REPRESENTS, ACKNOWLEDGES AND AGREES THAT IT WILL NOT REOFFER, RESELL, PLEDGE OR OTHERWISE TRANSFER THIS NOTE EXCEPT TO A NON-U.S. PERSON OUTSIDE THE UNITED STATES IN COMPLIANCE WITH REGULATION S OR TO A "QUALIFIED PURCHASER" WITHIN THE MEANING OF SECTION 3(c)(7) OF THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED (THE "INVESTMENT COMPANY ACT"), IN A TRANSACTION THAT DOES NOT CAUSE THE CO-ISSUERS TO BE REQUIRED TO REGISTER UNDER THE INVESTMENT COMPANY ACT. FURTHER, THE CLASS A NOTES MAY NOT BE SOLD OR TRANSFERRED UNLESS SUCH SALE OR TRANSFER WILL NOT CONSTITUTE OR RESULT IN A NON-EXEMPT PROHIBITED TRANSACTION UNDER ERISA OR SECTION 4975 OF THE CODE. THE CLASS B-1L NOTES MAY NOT BE SOLD OR TRANSFERRED TO ANY PLAN SUBJECT TO TITLE I OF ERISA OR SECTION 4975 OF THE CODE, OR TO ANY PERSON ACTING ON BEHALF OF OR WITH "PLAN ASSETS" OF ANY SUCH PLAN, INCLUDING AN INSURANCE COMPANY GENERAL ACCOUNT, UNLESS THE PURCHASER OR TRANSFEREE IS ELIGIBLE FOR THE EXEMPTIVE RELIEF AVAILABLE UNDER ANY OF SECTION 408(b)(17) OF ERISA OR PTCE 96-23, 95-60, 91-38, 90-1 OR THE CLASS B-2L NOTES MAY NOT BE SOLD OR TRANSFERRED TO ANY PLAN SUBJECT TO TITLE I OF ERISA OR SECTION 4975 OF THE CODE, TO ANY PERSON ACTING ON BEHALF OF OR WITH "PLAN ASSETS" OF ANY SUCH PLAN, OR TO ANY OTHER "BENEFIT PLAN INVESTOR" (AS DEFINED IN SECTION 3(42) OF ERISA) (A "BENEFIT PLAN INVESTOR"), INCLUDING AN INSURANCE COMPANY GENERAL ACCOUNT, EXCEPT IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE. EACH TRANSFEREE OF A NOTE (EXCEPT WITH RESPECT TO A TRANSFER PURSUANT TO REGULATION S) WILL BE DEEMED TO REPRESENT AT TIME OF TRANSFER THAT SUCH TRANSFEREE IS A QUALIFIED INSTITUTIONAL BUYER OR A NON-U.S. PERSON AND (I) THAT IT IS A QUALIFIED PURCHASER, (II) THAT IT IS NOT FORMED FOR THE PURPOSE OF INVESTING IN THE NOTES, UNLESS ALL OF ITS BENEFICIAL OWNERS ARE QUALIFIED PURCHASERS, (III) THAT IT IS NOT A DEALER DESCRIBED IN PARAGRAPH (a)(1)(ii) OF RULE 144A UNLESS SUCH TRANSFEREE OWNS AND INVESTS ON A DISCRETIONARY BASIS AT LEAST U.S.$25 MILLION IN SECURITIES OF ISSUERS THAT ARE NOT AFFILIATED PERSONS OF SUCH DEALER, (IV) THAT IT IS NOT A PLAN REFERRED TO IN PARAGRAPH (a)(1)(i)(d) OR (E) OF RULE 144A OR A TRUST FUND REFERRED TO IN PARAGRAPH (a)(1)(i)(f) OF RULE 144A THAT HOLDS THE ASSETS OF SUCH PLAN, UNLESS INVESTMENT DECISIONS ARE MADE SOLELY BY THE FIDUCIARY, TRUSTEE OR SPONSOR OF SUCH PLAN, (V) THAT IT AND EACH ACCOUNT FOR WHICH IT IS PURCHASING IS PURCHASING NOTES IN AT LEAST THE MINIMUM DENOMINATION AND (VI) THAT IT WILL PROVIDE WRITTEN NOTICE OF THE FOREGOING AND ANY OTHER APPLICABLE TRANSFER RESTRICTIONS TO ANY TRANSFEREE. 119

130 THE INDENTURE PROVIDES THAT IF, NOTWITHSTANDING THE RESTRICTIONS ON TRANSFER CONTAINED THEREIN, THE ISSUER DETERMINES ANY BENEFICIAL OWNER OR HOLDER OF A NOTE (OTHER THAN A NOTE TRANSFERRED IN RELIANCE ON REGULATION S) IS NOT A QUALIFIED INSTITUTIONAL BUYER AND A QUALIFIED PURCHASER, THE ISSUER WILL REQUIRE THAT SUCH BENEFICIAL OWNER OR HOLDER SELL ALL OF ITS RIGHT, TITLE AND INTEREST IN SUCH NOTE TO A PERSON WHO IS SO QUALIFIED, WITH SUCH SALE TO BE EFFECTED WITHIN 30 DAYS AFTER NOTICE OF SUCH SALE REQUIREMENT IS GIVEN. IF SUCH SALE IS NOT EFFECTED WITHIN SUCH 30 DAYS, UPON WRITTEN DIRECTION FROM THE ISSUER TO THE TRUSTEE, AN INVESTMENT BANKER SELECTED BY THE TRUSTEE AND APPROVED BY THE ISSUER WILL BE AUTHORIZED TO CONDUCT A COMMERCIALLY REASONABLE SALE OF SUCH NOTE TO A PERSON WHO DOES SO QUALIFY AND PENDING TRANSFER, NO FURTHER PAYMENTS WILL BE MADE IN RESPECT OF SUCH NOTE OR ANY BENEFICIAL INTEREST THEREIN. TRANSFERS OF THE NOTES MUST GENERALLY BE ACCOMPANIED BY APPROPRIATE TAX TRANSFER DOCUMENTATION AND ARE SUBJECT TO RESTRICTIONS AS PROVIDED IN THE INDENTURE. [THE FOLLOWING INFORMATION IS PROVIDED PURSUANT TO UNITED STATES TREASURY REGULATION SECTION (b). THIS NOTE HAS BEEN ISSUED WITH ORIGINAL ISSUE DISCOUNT FOR UNITED STATES FEDERAL INCOME TAX PURPOSES. THE HOLDER OF THIS NOTE MAY OBTAIN THE INFORMATION DESCRIBED IN UNITED STATES TREASURY REGULATION SECTION (b)(1)(i) FROM THE ADMINISTRATOR, AT THE FOLLOWING ADDRESS: P.O. BOX 1093GT, BOUNDARY HALL, CRICKET SQUARE, GEORGE TOWN, GRAND CAYMAN, CAYMAN ISLANDS.] Subject to the restrictions on transfer set forth in the Indenture and the Notes and except with respect to transfer of an interest in a Regulation S Global Note or a Rule 144A Global Note (the procedure for which is set forth in the Indenture), the Holder of any Notes may transfer the same in whole or in part (in a principal amount equal to any authorized denomination) by surrendering such Notes at the office designated by the Trustee or at the designated office of any transfer agent, together with an executed instrument of assignment and transfer substantially in the form attached to the Indenture. In exchange for any Notes properly presented for transfer with all necessary accompanying documentation, the Trustee will authenticate and deliver at the office designated by the Trustee or the designated office of the transfer agent, as the case may be, to the transferee or send by first-class mail at the risk of the transferee to such address as the transferee may request, a Note or Notes, for a like aggregate principal amount and in such authorized denomination or denominations as may be requested. The presentation for transfer of any Notes will not be valid unless made at the office of the Trustee designated for such purpose or at the designated office of a transfer agent by the registered Holder in person, or by a duly authorized attorney-in-fact. The Holder of a Note will not be required to bear the costs and expenses of effecting any transfer or registration of transfer, except that the relevant Holder will be required to bear (i) the expenses of delivery by other than regular mail (if any) and (ii) if the Co-Issuers so require, the payment of a sum sufficient to cover any duty, stamp tax or governmental charge or insurance charges that may be imposed in relation thereto. The Income Notes have not been registered under the Securities Act, the securities laws of any state of the United States or the securities laws of any other jurisdiction, and are being issued and sold in reliance upon exemptions from registration provided by such laws. There is no market for the Income Notes being offered hereby and, as a result, a purchaser must be prepared to hold the Income Notes for an indefinite period of time. No Income Notes may be sold or transferred unless such sale or transfer (i) is exempt from the registration requirements of the Securities Act (for example, in reliance on exemptions provided by Rule 144A or Regulation S under the Securities Act) and other applicable securities laws, (ii) satisfies the transfer restrictions described in "Certain ERISA Considerations" herein, (iii) does not cause the Issuer to become subject to the registration requirements of the Investment Company Act, including by selling or otherwise transferring the Income Notes to a purchaser or other 120

131 transferee (other than a Non-U.S. Person) which is not a Qualified Purchaser or a Knowledgeable Employee with respect to the Issuer, and (iv) otherwise fully complies with the Income Note Documents. Unless determined otherwise by the Issuer and the Collateral Manager in accordance with applicable law, the Income Notes will bear the legend set forth below: THE INCOME NOTES HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), ANY STATE SECURITIES LAWS IN THE UNITED STATES OR THE SECURITIES LAWS OF ANY OTHER JURISDICTION AND MAY NOT BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS PERMITTED BY THIS LEGEND. THE HOLDER OF ANY INCOME NOTES REPRESENTED HEREBY, BY ITS ACCEPTANCE OF THIS INCOME NOTE, REPRESENTS, ACKNOWLEDGES AND AGREES THAT IT WILL NOT REOFFER, RESELL, PLEDGE OR OTHERWISE TRANSFER THE INCOME NOTE REPRESENTED BY THIS CERTIFICATE EXCEPT IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS AND EXCEPT (A) IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER AS DEFINED IN RULE 144A PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER, WHOM THE SELLER HAS INFORMED, IN EACH CASE, THAT THE REOFFER, RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, PROVIDED THAT SUCH PURCHASER DELIVERS ALL DOCUMENTS AND CERTIFICATIONS AS THE ISSUER OR THE INCOME NOTE TRANSFER AGENT MAY REASONABLY REQUIRE; (B) TO AN ACCREDITED INVESTOR (WITHIN THE MEANING OF RULE 501(a) UNDER THE SECURITIES ACT) IN THE UNITED STATES WHO PURCHASES THE INCOME NOTES IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (IF REQUESTED BY THE ISSUER, UPON DELIVERY OF AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE ISSUER AND SUCH OTHER DOCUMENTS AND CERTIFICATIONS AS THE ISSUER OR THE INCOME NOTE TRANSFER AGENT MAY REASONABLY REQUIRE); (C) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT; (D) TO THE ISSUER OR ITS AFFILIATES; OR (E) TO ANY OTHER PERSON OR ENTITY PURSUANT TO A VALID EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT PROVIDED THAT SUCH PURCHASER DELIVERS ALL DOCUMENTS AND CERTIFICATIONS AS THE ISSUER OR THE INCOME NOTE TRANSFER AGENT MAY REQUEST, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAW OF THE UNITED STATES AND ANY STATE OF THE UNITED STATES AND ANY OTHER JURISDICTION IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE FISCAL AGENCY AGREEMENT. IN ADDITION, EACH PURCHASER OF INCOME NOTES, BY ITS ACCEPTANCE THEREOF, REPRESENTS, ACKNOWLEDGES AND AGREES THAT IT WILL NOT RESELL, PLEDGE OR OTHERWISE TRANSFER SUCH INCOME NOTES EXCEPT TO A NON-U.S. PERSON OR TO A "QUALIFIED PURCHASER" FOR PURPOSES OF SECTION 3(c)(7) OF THE INVESTMENT COMPANY ACT OR "KNOWLEDGEABLE EMPLOYEE" WITHIN THE MEANING OF RULE 3c-5 OF THE INVESTMENT COMPANY ACT IN A TRANSACTION THAT DOES NOT CAUSE THE ISSUER TO BE REQUIRED TO REGISTER UNDER THE INVESTMENT COMPANY ACT OF FURTHER, THE INCOME NOTES MAY NOT BE SOLD OR TRANSFERRED TO ANY PLAN SUBJECT TO TITLE I OF ERISA OR SECTION 4975 OF THE CODE, TO ANY PERSON ACTING ON BEHALF OF OR WITH "PLAN ASSETS" OF ANY SUCH PLAN, OR TO ANY OTHER BENEFIT PLAN INVESTOR (AS DEFINED IN SECTION 3(42) OF ERISA), INCLUDING AN INSURANCE COMPANY GENERAL ACCOUNT, EXCEPT IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE OFFERING CIRCULAR. 121

132 TRANSFERS OF THE INCOME NOTES MUST GENERALLY BE ACCOMPANIED BY APPROPRIATE TAX TRANSFER DOCUMENTATION. Subject to the restrictions on transfer set forth in the Fiscal Agency Agreement and on the Income Notes, the Holder of any Income Notes may transfer the same in whole or in part (in any authorized denomination) by surrendering the certificate relating to such Income Notes at the specified office of the Income Note transfer agent, together with an executed instrument of assignment and transfer substantially in the form attached to the Fiscal Agency Agreement. In exchange for any certificate representing the Income Notes properly presented for transfer with all necessary accompanying documentation, the Income Note transfer agent will, within five Business Days of such request if made at the specified office of the Income Note transfer agent, to the transferee or send by first-class mail at the risk of the transferee to such address as the transferee may request a certificate in the name of the transferee representing the number of Income Notes transferred. The presentation for transfer of any Income Notes will not be valid unless made at the specified office of the Income Note transfer agent or at the designated office of a transfer agent by the registered holder in person, or by a duly authorized attorney-in-fact. The Holder of an Income Note will not be required to bear the costs and expenses of effecting any transfer or registration of transfer, except that the relevant holder will be required to bear (i) the expenses of delivery by other than regular mail (if any) and (ii) if the Issuer so requires, the payment of a sum sufficient to cover any duty, stamp tax or governmental charge or insurance charges that may be imposed in relation thereto. The Income Note register for the Income Notes will be maintained by the Income Note registrar. A duplicate copy of the Income Note register will be maintained by the Income Note transfer agent. The Income Note transfer agent will record the transfer of ownership in the register maintained by it in accordance with the Fiscal Agency Agreement and also notify the Income Note registrar of any transfer of an interest in the Income Notes. The Income Note registrar will record the transfer of ownership in the Income Note register in accordance with the Fiscal Agency Agreement. The transfer of any Income Notes will be effective once recorded in the Income Note register. None of the Issuer, the Income Note registrar or the Fiscal Agent will be required to issue or register the transfer of any Income Note or the exchange of any Income Note during a period beginning at the opening of business 15 days before any Payment Date. [remainder of page intentionally blank] 122

133 CERTAIN TAX CONSIDERATIONS United States Tax Considerations The following is a summary of certain of the United States federal income tax consequences of an investment in the Securities by purchasers that acquire their Securities in the initial offering. The discussion and the opinions referenced below are based upon laws, regulations, rulings, and decisions in effect and available on the date hereof, all of which are subject to change, possibly with retroactive effect. Prospective investors should note that no rulings have been or are expected to be sought from the United States Internal Revenue Service (the "IRS") with respect to any of the United States federal income tax consequences discussed below, and no assurance can be given that the IRS will not take contrary positions. Further, the following summary does not deal with all United States federal income tax consequences applicable to any given investor, nor does it address the United States federal income tax considerations applicable to categories of investors subject to special taxing rules (regardless of whether or not such persons constitute U.S. Holders), such as certain United States expatriates, banks, REITs, RICs, insurance companies, tax-exempt organizations, dealers or traders in securities or currencies, partnerships, natural persons, cash method taxpayers, S corporations, estates and trusts, investors that hold their Securities as part of a hedge, straddle or an integrated or conversion transaction, or investors whose "functional currency" is not the U.S. dollar. Furthermore, it does not address alternative minimum tax consequences, or the indirect effects on persons who hold equity interests in either a U.S. Holder or a Non-U.S. Holder (as these terms are defined below). In addition, this summary is generally limited to investors that acquire their Securities on the Closing Date (and, in the case of Notes, acquire their Notes for the issue price applicable to such Notes) and who will hold their Securities as "capital assets" within the meaning of Section 1221 of the Code. Investors should consult their own tax advisors to determine the United States federal, state, local, and other tax consequences of the purchase, ownership, and disposition of the Securities. As used herein, "U.S. Holder" means a beneficial owner of a Security that is an individual citizen or resident of the United States for United States federal income tax purposes, a corporation or other entity taxable as a corporation created or organized in or under the laws of the United States or any state thereof (including the District of Columbia), an estate the income of which is subject to United States federal income taxation regardless of its source or a trust where a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons (as defined in the Code) have the authority to control all substantial decisions of the trust (or a trust that has made a valid election under U.S. Treasury Regulations to be treated as a domestic trust). "Non-U.S. Holder" generally means any owner (or beneficial owner) of a Security that is not a U.S. Holder (other than a partnership). If a partnership holds Securities, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership. Partners of partnerships holding Securities should consult their own tax advisors regarding the tax consequences of an investment in the Securities (including their status as U.S. Holders or Non-U.S. Holders). Tax Treatment of Issuer Upon the issuance of the Notes, Orrick, Herrington & Sutcliffe LLP, special U.S. tax counsel to the Issuer, will deliver an opinion generally to the effect that under current law, and assuming compliance with the Indenture (and certain other documents) and based on certain factual representations made by the Issuer, although the matter is not free from doubt, the Issuer's permitted activities will not result in the Issuer being engaged in the conduct of a trade or business within the United States. Accordingly, the Issuer does not expect to be subject to net income taxation in the United States. Prospective investors should be aware that opinions of counsel are not binding on the IRS and the IRS might seek to treat the Issuer as engaged in a United States trade or business, in which event the Issuer would be subject, inter alia, to a 35% tax on such of its income as was effectively connected to the U.S. trade or business as well as a 30% "branch profits" tax when such income is viewed as having been repatriated to the Cayman Islands (thereby materially adversely effecting the Issuer's ability to make payments on the Securities). The opinion of special U.S. tax counsel is subject to several considerations. Thus, the United States Treasury Department and the IRS recently announced that they are considering taxpayer requests for specific guidance on, among other things, whether a foreign person may be treated as engaged in a trade or business within the United States by virtue of entering into credit default swaps. No guidance has been issued to date. If any future guidance concludes that foreign persons entering into certain credit default swaps will be treated as engaged in a 123

134 trade or business within the United States, such guidance would adversely impact the Issuer's ability to make payments with respect to the Securities. Additionally, it should be noted that gain or loss on a disposition by a foreign person of a United States real property interest may be subject to United States federal income tax as if the foreign person were engaged in a United States trade or business (even if the foreign person is not, in fact, so engaged). The determination of whether an asset constitutes a United States real property interest is made periodically and, therefore, it is possible that an asset that was not a United States real property interest at the time it was acquired by the Issuer could, thereafter, become a United States real property interest. Similarly, if the Issuer accepted a new security in exchange for an existing security or if the terms of an existing security were modified, the new or modified security might cause the Issuer to become engaged in a United States trade or business for United States federal income tax purposes. It is not expected that the Issuer will derive material amounts of any other items of income that will be subject to United States withholding taxes. Notwithstanding the foregoing, any commitment fee, facility fee and similar fee that the Issuer earns may be subject to a 30% withholding tax and any lending fees received under a securities lending agreement may also be subject to withholding tax. Additionally, if the Issuer is a CFC (defined below), the Issuer would incur United States withholding tax on interest received from a related United States person. The Issuer will not make any independent investigation of the circumstances surrounding the individual assets comprising the Collateral and, thus, there can be no assurance that payments of interest on and gain from the sale or disposition of the Collateral will in all cases be received free of withholding tax. The Issuer will not be required to pay additional amounts to any Holder of Notes (other than to the Holders of the Class A-1LR Notes with respect to an Indemnifiable Tax) if taxes or related amounts are withheld from payments on the Notes or from payments on any item of Collateral. However, withholding on the Collateral could result in the Securities being redeemed by the Issuer. See "Certain Additional Provisions Relating to the Securities Optional Redemption" Tax Treatment of U.S. Holders of Notes The Issuer has agreed and, by its acceptance of a Note, each Holder of a Note will be deemed to have agreed, to treat its Notes as debt of the Issuer for United States federal income tax purposes (although this shall not prevent a U.S. Holder from making a QEF election, as defined below, on a protective basis or from making protective filings under Section 6038, 6038B or 6046 of the Code). Upon the issuance of the Notes, Orrick, Herrington & Sutcliffe LLP will deliver an opinion generally to the effect that, assuming compliance with the Indenture (and certain other documents) and based on certain factual representations made by the Issuer, the Notes should be characterized as debt for United States federal income tax purposes. Prospective investors should be aware that opinions of counsel are not binding on the IRS, and there can be no assurance that the IRS will not seek to characterize any Class of Notes as other than indebtedness. Except as provided under " Alternative Characterization of the Notes" below, the balance of this discussion assumes that the Notes will be characterized as debt of the Issuer for United States federal income tax purposes. Prior to electing to acquire bond insurance, a surety bond, or similar credit enhancement supporting some or all of the payments on the Notes, U.S. Holders should consult with their own tax advisors concerning the treatment of such credit enhancement for United States federal income tax purposes (including the viability of integrating the Notes and the credit enhancement). Each U.S. Holder will include interest on the Notes in income in accordance with its regular method of accounting for United States federal income tax purposes unless the Notes are viewed as having being issued with original issue discount ("OID") in which case, generally, each U.S. Holder would be required to accrue interest on the Note on an accrual basis under a constant yield methodology, based on the original yield to maturity of the Note. Because interest on the Class A-3L Notes, Class B-1L Notes and Class B-2L Notes may be deferred without giving rise to an Event of Default, all interest (including interest on accrued but unpaid interest) will be treated as OID unless the likelihood of deferral is remote. The Issuer has not determined whether the likelihood of interest being deferred is remote for this purpose and, hence, will treat the interest on the Class A-3L Notes, Class B-1L Notes and Class B-2L Notes as OID. Additionally, the Issuer will treat any Class of Notes as having been issued with OID if (A) such Class is issued at a discount equal to or in excess of the product of 0.25% of the stated redemption price at 124

135 maturity of such Class and the anticipated weighted average life of such Class or (B) in the case of certain Classes of Notes providing for interest at a variable rate, the issue price of such Class exceeds the principal amount thereof by more than the lesser of (i) 15% or (ii) multiplied by the product of the total non-contingent principal payments and the anticipated weighted average life of the Class. Any accrued but unpaid OID included in income by a U.S. Holder will increase the U.S. Holder's basis in its Note and thereby reduce the amount of gain or increase the amount of loss recognized by the U.S. Holder on a subsequent sale or other disposition of the Note. Any OID on the Notes will likely be accruable under the special rules set forth in Section 1272(a)(6) of the Code (which apply to debt instruments that may be accelerated by reason of the prepayment of other debt obligations securing such debt instruments). If Section 1272(a)(6) does not apply, the Notes might be treated as "contingent payment debt instruments" ("CPDIs") within the meaning of Treasury Regulation Section If any such Class of Notes were considered CPDIs, among other consequences, gain on the sale of such Notes that might otherwise be capital gain would be ordinary income. Prospective investors should consult their own tax advisors regarding the potential application of Section 1272(a)(6) of the Code to the Notes and the rules governing CPDIs. In general, a U.S. Holder of a Note will have a basis in such Note equal to the cost of such Note increased by any OID and any market discount that the U.S. Holder has elected to include in income on a current basis and reduced by any amortized premium and payments of principal and OID. Upon a sale, exchange or other disposition of such a Note, a U.S. Holder will generally recognize gain or loss equal to the difference between the amount realized on the sale, exchange or other disposition (less any accrued and unpaid interest, which would be taxable as such) and the U.S. Holder's tax basis in such Note (as reduced by any accrued and unpaid interest). Such gain or loss generally will be long term capital gain or loss (other than accrued market discount if the U.S. Holder has not elected to include such discount in income on a current basis) assuming that the U.S. Holder has held the Note for more than one year at the time of disposition. In certain circumstances, U.S. Holders that are individuals may be entitled to preferential treatment for net long term capital gains; however, the ability of U.S. Holders to offset capital losses against ordinary income is limited. The Class A-1LR Notes will be entitled to the Class A-1LR Commitment Fees. Although this fee will be paid from Interest Proceeds, it is unclear whether such fees will constitute interest. Prospective investors should consult their own tax advisors regarding the proper characterization and tax treatment of such fees. Alternative Characterization of the Notes. Notwithstanding special U.S. tax counsel s opinion, U.S. Holders should recognize that there is some uncertainty regarding the appropriate classification of instruments such as the Notes. It is possible, for example, that the IRS may contend that the Class B-2L Notes and, possibly, other Classes of Notes should be treated as equity interests (or as part-debt, part-equity) in the Issuer. Such a recharacterization might result in materially adverse tax consequences to U.S. Holders. As a result, U.S. Holders of Notes may wish to consider the advisability of making a "QEF election" provided in Section 1295 of the Code on a "protective" basis (although this election may not be respected since the current QEF regulations do not authorize protective QEF elections for debt that may be recharacterized as equity). Additionally, any such characterization might necessitate those U.S. Holders of a Class of Notes that is characterized as equity to file information returns with the IRS with respect to their acquisition of the Notes (and be subject to significant penalties for failure to do so). For the consequences that would apply if any Class of Notes were characterized as equity for United States federal income tax purposes, see below under " Tax Treatment of U.S. Holders of Income Notes." Tax Treatment of U.S. Holders of Income Notes The Income Notes, although in the form of debt, will likely be characterized as equity for U.S. federal income tax purposes. Additionally, the Issuer has agreed, and, by its acceptance of an Income Note, each Holder of an Income Note will be deemed to have agreed, to treat the Income Notes as equity for U.S. federal income tax purposes. For purposes of this discussion, it is assumed that the Income Notes will be so characterized. It is noted, however, that in the event that the Income Notes were characterized as debt for United States federal income tax purposes, they would constitute CPDIs; among the consequences that would result from an application of the rules applicable to CPDIs of the Income Notes is that gain on the sale of the Income Notes that might otherwise be capital gain would constitute ordinary income. 125

136 Subject to the rules discussed below relating to "passive foreign investment companies" ("PFICs") and "controlled foreign corporation" ("CFCs"), payments on the Income Notes should be treated as dividends to the extent of the current or accumulated earnings and profits of the Issuer. Payments characterized as dividends would be taxable at regular marginal income tax rates applicable to ordinary income, and would not be entitled to the benefit of the dividends received deduction or any reduction in tax rates that may be available for certain dividends. Distributions in excess of the Issuer's earnings and profits would be non-taxable to the extent of, and would be applied against and reduce, the U.S. Holder s adjusted tax basis in the Income Notes and, to the extent in excess of such basis, would be taxable as gain from the sale or exchange of property. The tax consequences discussed in the preceding paragraph are likely to be significantly modified as a result of the application of the PFIC and CFC rules discussed below. Thus, U.S. Holders of the Income Notes will be viewed as owning stock in a PFIC and, possibly, in a CFC (depending, in the latter instance, on the percentage of voting equity that is acquired and held by certain U.S. Holders). If applicable, the rules pertaining to CFCs would generally override those pertaining to PFICs, although in certain circumstances both set of rules could apply simultaneously. Under the PFIC rules, U.S. Holders of the Income Notes (other than U.S. Holders that make a timely "QEF election", as described below) will be subject to special rules relating to the taxation of "excess distributions" with excess distributions being defined to include certain distributions made by a PFIC on its stock as well as gain recognized on a disposition of PFIC stock. For this purpose, a U.S. Holder that uses its Income Notes as security for an obligation will be treated as having made a disposition of PFIC stock. In general, Section 1291 of the Code provides that the amount of any "excess distribution" will be allocated to each day of the U.S. Holder s holding period for its PFIC stock. The amount allocated to the current year will be included in the U.S. Holder s gross income for the current year as ordinary income. With respect to amounts allocated to prior years, the tax imposed for the current year will be increased by the "deferred tax amount," which is an amount calculated with respect to each prior year by multiplying the amount allocated to such year by the highest rate of tax in effect for such year, together with an interest charge as though the amounts of tax were overdue. In order to avoid the application of the PFIC rules, U.S. Holders of Income Notes may wish to consider making the QEF election provided in Section 1295 of the Code. In lieu of the PFIC rules discussed above, a U.S. Holder of Income Notes that makes a valid QEF election will, in very general terms, be required to include its pro rata share of the Issuer s ordinary income and net capital gains, unreduced by any prior year losses, in income for each taxable year (as ordinary income and long-term capital gain, respectively) and to pay tax thereon, even if the amount of that income is not the same as the dividends paid on the Income Notes during the year. If the Issuer later distributes the income or gain on which the U.S. Holder has already paid taxes under the QEF rules, the amounts so distributed will not again be subject to tax in the hands of the U.S. Holder. A U.S. Holder s tax basis in any Income Notes as to which a QEF election has been validly made will be increased by the amount included in such U.S. Holder s income as a result of the QEF election and decreased by the amount of nontaxable distributions received by the U.S. Holder. On the disposition (including redemption or retirement) of an Income Note, a U.S. Holder making the QEF election generally will recognize capital gain or loss equal to the difference, if any, between the amount realized upon such disposition and its adjusted tax basis in the Income Note. In general, a protective QEF election should be made on or before the due date for filing a U.S. Holder s federal income tax return for the first taxable year for which the U.S. Holder has held its Income Notes. In this regard, a QEF election is effective only if certain required information is made available by the Issuer. Upon request, the Issuer will provide any U.S. Holder of Income Notes and any U.S. Holder of a Class of Notes that may reasonably be characterized as equity in the Issuer for United States federal income tax purposes with the information necessary for such U.S. Holder to make the QEF election. Nonetheless, there can be no assurance that such information will always be available. The Issuer may be treated as holding securities issued by non-u.s. corporations that are characterized as equity in one or more PFICs for United States federal income tax purposes. In that event, U.S. Holders of the Income Notes would be treated as holding an interest in these indirectly-owned PFICs. Because the U.S. Holder and not the Issuer would be required to make any QEF election with respect any such indirectly-owned PFIC, and because PFIC information statements necessary for any such election may not be made available by the PFIC, there can be no assurance that a U.S. Holder would be able to make a QEF election with respect to any particular indirectly-held PFIC. If the U.S. Holder of any Income Notes has not made a QEF election with respect to an indirectly-owned PFIC, the U.S. Holder would be subject to the consequences described above with respect to the excess distributions of such PFIC (including gain indirectly realized with respect to such PFIC on the sale of the 126

137 Issuer's interest in the PFIC and with respect to the sale by the U.S. Holder of its Income Notes). Alternatively, if the U.S. Holder has made a QEF election with respect to the indirectly-owned PFIC, the U.S. Holder would be required to include in income its share of the indirectly-owned PFIC s ordinary earnings and net capital gain. U.S. tax law also contains special provisions relating to CFCs. A foreign corporation is a CFC if "U.S. Shareholders" in the aggregate own, directly or indirectly, more than 50% of the voting power or value of the stock of such corporation. For this purpose, a United States person that owns, directly or indirectly, ten percent or more of the voting stock of a CFC is considered a "U.S. Shareholder" with respect to the CFC. If any U.S. Holder of Income Notes were properly viewed as a U.S. Shareholder of the Issuer under the CFC rules, the U.S. Holder would be subject each year to U.S. income tax (at ordinary income rates) on its pro rata share of the income of the Issuer (assuming that the Issuer is properly classified as a CFC for the year and that the U.S. Holder holds its Income Notes as of the end of the year), regardless of the amount of cash distributions received by the U.S. Holder with respect to its Income Notes during the year. Earnings subject to tax to a U.S. Holder under the CFC rules would generally not be taxed again when distributed to the U.S. Holder. In addition, if the Issuer is a CFC and a U.S. Holder is a U.S. Shareholder with respect to the Issuer, all or a portion of the income that otherwise would be characterized as capital gain upon a sale of U.S. Holder's Income Notes may be classified as ordinary income. Certain income generated by a corporation conducting a banking, financing, insurance, or other similar business is not includible in a U.S. Shareholder s income under the CFC rules. However, by its acceptance of an Income Note, each Holder will be deemed to have agreed that the Issuer is not engaged in any such business. Accordingly, if the CFC rules were to apply, a U.S. Holder of Income Notes that constitutes a U.S. Shareholder under the CFC rules would generally be subject to tax on its share of all of the Issuer s income. Prospective investors should be aware that in computing the Issuer's earnings for purposes of the CFC rules, losses on dispositions of securities in bearer form may not be allowed, while in computing the Issuer's ordinary earnings and net capital gains for purposes of the PFIC rules, losses on dispositions of securities in bearer form may not be allowed and any gain on such securities may be ordinary rather than capital. Further, prospective investors should be aware that in the event that any of the Notes is not fully paid upon maturity, the Issuer may recognize cancellation of indebtedness income for United States federal income tax purposes, without any corresponding offsetting loss (due to tax character differences or otherwise). In such a case, U.S. Holders of the Income Notes (and U.S. Holders of any Class of Notes treated as equity for United States federal income tax purposes) may also have phantom income as a result of such recognition by the Issuer (pursuant to the QEF and CFC rules discussed above), as to which an offsetting loss may not be available to the U.S. Holders. Tax Treatment of Non-U.S. Holders A Non-U.S. Holder of Securities that has no connection with the United States should generally not be subject to United States withholding tax on payments in respect of the Securities provided that the Non-U.S. Holder makes certain tax representations regarding the identity of the beneficial owner of the Securities. Information Reporting Requirements Information reporting to the IRS may be required with respect to payments on the Securities and with respect to proceeds from the sale of the Securities to Holders other than corporations and certain other exempt recipients. A "backup" withholding tax may also apply to those payments if a Holder fails to provide certain identifying information (such as the Holder s taxpayer identification number or an attestation to the status of the Holder as a Non-U.S. Holder). Backup withholding is not an additional tax and may be refunded (or credited against the Holder s United States federal income tax liability, if any) provided that certain required information is furnished to the IRS in a timely manner. Prospective investors should consult with their own tax advisors regarding whether they are required to file an IRS Form 8886 in respect of this transaction (relating to certain "reportable transactions"). Thus, for example, if a U.S. Holder were to sell its Securities at a loss, it is possible that this loss could constitute a reportable transaction and need to be reported on Form 8886 As another example, a transaction may be reportable if it is offered under conditions of confidentiality. In this regard, each Holder and beneficial holder of a Security (and each of their respective employees, representatives or other agents) is hereby advised that it is permitted to disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the transactions described herein 127

138 (including the ownership and disposition of the Securities) except where confidentiality is reasonably necessary to comply with the securities laws of any applicable jurisdiction. Significant penalties apply for failure to file Form 8886 when required, and U.S. Holders are therefore urged to consult their own tax advisors. U.S. Holders of Income Notes and U.S. Holders of any Class of Notes classified as equity for United States federal income tax purposes may be required to file Forms with the IRS under the applicable reporting provisions of the Code. For example, such U.S. Holders may be required, under Sections 6038, 6038B and/or 6046 of the Code, to supply the IRS with certain information regarding the U.S. Holder, other U.S. Holders and the Issuer if (i) such person owns at least 10% of the total value or 10% of the total combined voting power of all classes of stock entitled to vote or (ii) the acquisition, when aggregated with certain other acquisitions that may be treated as related under applicable regulations, exceeds $100,000. Upon request, the Issuer will provide U.S. Holders of Income Notes and U.S. Holders of any Class of Notes that may reasonably be recharacterized as equity for United States federal income tax purposes with information about the Issuer and its shareholders that the Issuer possesses and that may be needed to complete any Form that is so required. In the event a U.S. Holder fails to file a form when required to do so, the U.S. Holder could be subject to substantial tax penalties. Circular 230 Under 31 C.F.R. part 10, the regulations governing practice before the IRS (Circular 230), the Issuer and its tax advisors are (or may be) required to inform prospective investors that: i. Any advice contained herein, including any opinions 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 penalties that may be imposed on the taxpayer; ii. iii. Any such advice is written to support the promotion or marketing of the Securities and the transactions described herein (or in such opinion or other advice); and Each taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor. [remainder of page intentionally blank] 128

139 CAYMAN ISLANDS TAX CONSEQUENCES The following discussion of certain Cayman Islands income tax consequences of an investment in the Securities is based on the advice of Maples and Calder as to Cayman Islands law. The discussion is a general summary of present law, which is subject to prospective and retroactive change. It assumes that the Issuer will conduct its affairs in accordance with assumptions made by, and representations made to, counsel. It is not intended as tax advice, does not consider any investor s particular circumstances, and does not consider tax consequences other than those arising under Cayman Islands law. Under existing Cayman Islands laws: (i) payments of principal and interest in respect of the Notes will not be subject to taxation in the Cayman Islands and no withholding will be required on such payments to any Holder of a Note and gains derived from the sale of Notes will not be subject to Cayman Islands income or corporation tax. The Cayman Islands currently have no income, corporation or capital gains tax and no estate duty, inheritance tax or gift tax; and (ii) the Holder of any Note (or the legal personal representative of such Holder) whose Note is brought into the Cayman Islands may in certain circumstances be liable to pay stamp duty imposed under the laws of the Cayman Islands in respect of such Note. The Issuer has been incorporated under the laws of the Cayman Islands as an exempted company and, as such, has applied for and obtained an undertaking from the Governor In Cabinet of the Cayman Islands in the following form: The Tax Concessions Law (1999 Revision) Undertaking as to Tax Concessions In accordance with Section 6 of the Tax Concessions Law (1999 Revision) the Governor in Cabinet undertakes with Denali Capital CLO VII, Ltd. (the "Company"): (a) that no law which is hereafter enacted in the Islands imposing any tax to be levied on profits, income, gains or appreciations shall apply to the Company or its operations; and (b) in addition, that no tax to be levied on profits, income, gains or appreciations or which is in the nature of estate duty or inheritance tax shall be payable (i) (ii) on or in respect of the shares, debentures or other obligations of the Company; or by way of the withholding in whole or in part of any relevant payment as defined in Section 6(3) of the Tax Concessions Law (1999 Revision). These concessions shall be for a period of twenty years from the 25th day of July [remainder of page intentionally blank] 129

140 CERTAIN ERISA CONSIDERATIONS The United States Employee Retirement Income Security Act of 1974, as amended ("ERISA"), imposes requirements on employee benefit plans (as defined in Section 3(3) of ERISA) subject to Title I of ERISA ("ERISA Plans") and on persons who are fiduciaries (as defined in Section 3(21) of ERISA) with respect to such Plans. Investments by ERISA Plans are subject to ERISA s general fiduciary requirements, including the requirement of investment prudence and diversification, requirements respecting delegation of investment authority and the requirement that an ERISA Plan s investments be made in accordance with the documents governing the ERISA Plan. Each ERISA Plan fiduciary should give appropriate consideration to the facts and circumstances that are relevant to an investment in the Securities, including the role that an investment in the Securities plays in the Plan s investment portfolio. Before deciding to invest "plan assets" of any ERISA Plan in the Securities, the investing ERISA Plan fiduciary should be satisfied that investment in the Securities is a prudent investment for the ERISA Plan, that the investments of the ERISA Plan, including the investment in the Securities, are diversified so as to minimize the risk of large losses and that an investment in the Securities complies with the ERISA Plan and related trust documents. Any person who decides to invest "plan assets" of an ERISA Plan in the Securities should consider, among other factors, the factors discussed above under "Risk Factors." Section 406 of ERISA and Section 4975 of the Code prohibit ERISA Plans, as well as individual retirement accounts and Keogh plans, subject to either or both of such statutes (each, a "Plan") from engaging in certain transactions with persons that are "parties in interest" under ERISA or "disqualified persons" under Section 4975 of the Code (collectively, "Parties in Interest") with respect to such Plans. A violation of these prohibited transaction rules may result in an excise tax or other penalties and liabilities under ERISA and/or Section 4975 of the Code for such persons. Certain transactions involving the purchase, holding or transfer of the Securities might be deemed to constitute or result in prohibited transactions under ERISA and/or Section 4975 of the Code. For example, if the "plan assets" of an investing Plan were deemed to include assets of the Issuer and if any of the Collateral constitute an obligation of or is purchased from or sold to a Party in Interest with respect to such Plan, an indirect prohibited transaction in the nature of an extension of credit or a purchase or sale of assets between such Plan and such Party in Interest might be deemed to occur. In addition, if the assets of the Issuer were deemed to be "plan assets" of any Plan investors, Securities sold to a Party in Interest with respect to such Plan would constitute a prohibited extension of credit transaction, possibly subjecting such Noteholder to excise taxes under Section 4975 of the Code. Under Section 3(42) of ERISA and regulations issued by the United States Department of Labor, set forth in 29 C.F.R (collectively, the "Plan Asset Regulations"), the assets of the Issuer would be treated as "plan assets" of a Plan for purposes of ERISA and Section 4975 of the Code if the Plan acquires an equity interest in the Issuer and none of the exceptions contained in the Plan Asset Regulations applies. An equity interest is defined under the Plan Asset Regulations as any interest in an entity other than an instrument which is treated as indebtedness under applicable local law and which has no substantial equity features. Although there is no authority directly on point, it is anticipated that the Notes (other than the Class B-2L Notes) should be treated as indebtedness under local law and should not be treated as having substantial equity features for purposes of the Plan Asset Regulations. However, without regard to whether (i) the Notes are treated as an equity interest for such purposes or (ii) the assets of the Issuer are deemed to be "plan assets" of an investing Plan, the acquisition or holding of Notes by or on behalf of, or with "plan assets" of, a Plan could be considered to give rise to a prohibited transaction if the Issuer, the Trustee, the Initial Purchaser, the Collateral Manager, an issuer of an item of Collateral, or any of their respective affiliates is or becomes a Party in Interest with respect to an investing Plan. Certain exemptions from the prohibited transaction rules could apply to the acquisition of a Note by or with "plan assets" of a Plan, depending on the type and circumstances of the Plan fiduciary making the decision to acquire a Note. Included among these exemptions are: the statutory exemption in Section 408(b)(17) of ERISA available to certain service providers and to plans, provided that such service provider is not a fiduciary with respect to the "plan assets" used to acquire the Note, nor an affiliate of such a fiduciary, and that the transaction is for "adequate consideration," or Prohibited Transaction Class Exemption ("PTCE") 96-23, regarding transactions effected by certain "in-house asset managers"; PTCE 95-60, regarding investments by insurance company general accounts; PTCE 91-38, regarding investments by bank collective investment funds; PTCE 90-1, regarding investments by insurance company pooled separate accounts; and PTCE 84-14, regarding transactions effected by independent "qualified professional asset managers." However, even if the conditions specified in one or more of 130

141 these exemptions are met, the scope of the relief provided by these exemptions might or might not cover all acts which might be construed as prohibited transactions and in particular would not apply to prohibited transactions arising from the operations of the Issuer. In any event, a fiduciary or other person investing "plan assets" of any Plan should not purchase Securities if the Issuer, the Initial Purchaser, the Trustee, the Fiscal Agent, the Collateral Manager or any of their respective affiliates (a) has investment discretion with respect to the investment of such assets; (b) has authority or responsibility to give or regularly gives investment advice with respect to such assets, for a fee, pursuant to an agreement or understanding that such advice will serve as a primary basis for investment decisions with respect to such assets and that such advice will be based on the particular investment needs of such Plan; or (c) unless PTCE 95-60, or 90-1 is applicable, is an employer maintaining or contributing to such Plan. A party that is described in clause (a) or (b) of the preceding sentence is a fiduciary under ERISA with respect to the Plan and any such purchase might result in a non-exempt prohibited transaction under ERISA or Section 4975 of the Code. As a general rule, certain employee benefit plans, including governmental plans (as defined in Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of ERISA), are not subject to ERISA s requirements. Accordingly, assets of many such plans may be invested in the Notes without regard to the ERISA prohibited transaction considerations described above, subject to the provisions of other applicable federal and state law. However, any such plan which is qualified and exempt from taxation under Sections 401(a) and 501(a) of the Code may nonetheless be subject to the prohibited transaction rules set forth in Section 503 of the Code and, under certain circumstances in the case of church plans, Section 4975 of the Code. Also, some governmental plans are subject to federal, state or local laws which are, to a material extent, similar to the provisions of Section 406 of ERISA or Section 4975 of the Code (a "Similar Law"). Each governmental plan fiduciary should make its own determination as to the need for and the availability of any exemptive relief under a Similar Law. Each Holder of a Class A Note by its acquisition thereof, shall be deemed to represent to the Issuer, the Collateral Manager and the Trustee that either (i) no part of the funds being used to pay the purchase price for such Note constitutes "plan assets" of any Plan, or (ii) if the funds being used to pay the purchase price for such Note includes "plan assets" of any Plan, an exemption to the prohibited transaction rules applies. Each Holder of a Class B-1L Note by its acquisition thereof, shall be deemed to represent to the Issuer, the Collateral Manager and the Trustee that either (a) the purchaser or transferee is not a Plan and is not acquiring the Class B-1L Note with assets of a Plan or (b) it is an insurance company and such funds include only assets of its general account, and its acquisition and holding of such Note are eligible for the exemptive relief available under Section I of PTCE 95-60, or the acquisition and holding of the Class B-1L Notes by the purchaser or transferee are eligible for the exemptive relief available under any of Section 408(b)(17) of ERISA or PTCE 96-23, 91-38, 90-1 or Although there is no authority directly on point, it is anticipated that the Class B-2L Notes and the Income Notes will be treated as equity interests for purposes of the Plan Asset Regulations. An exception under the Plan Asset Regulations provides that an investing Plan s assets will not include any of the underlying assets of an entity if equity participation in the entity by "benefit plan investors" is not "significant." The Plan Asset Regulations define a "benefit plan investor" as including (i) an employee benefit plan (as defined in Section 3(3) of ERISA) that it is subject to Title I of ERISA; (ii) a plan described in and subject to Section 4975 of the Code; (iii) an entity whose underlying assets include "plan assets" by reason of a Plan s investment in the entity; and (iv) a person who is otherwise a "benefit plan investor" (as defined in the Plan Asset Regulations) (a "Benefit Plan Investor"). The Plan Asset Regulations provide that equity participation in an entity by Benefit Plan Investors is "significant" if, immediately after the most recent acquisition of any equity interest in the entity, 25% or more of the value of any class of equity interests in the entity is held by Benefit Plan Investors. For purposes of determining whether this 25% threshold has been met or exceeded, the value of any equity interests held by a person (other than such Benefit Plan Investor) who has discretionary authority or control with respect to the assets of the entity, or any person who provides investment advice for a fee (directly or indirectly) with respect to such assets, or any affiliate of such person, is disregarded. Accordingly, except as set forth below, neither the Class B-2L Notes nor the Income Notes may be acquired or held by or on behalf of, or with "plan assets" of, any Plan or other Benefit Plan Investor, including an 131

142 insurance company general account. However, the Class B-2L Notes and the Income Notes may be acquired and held by or on behalf of, or with "plan assets" of, a Plan or other Benefit Plan Investor if: (a) (1)(A) The investor is purchasing the Class B-2L Notes or Income Notes, as applicable, with assets of an "insurance company general account" (within the meaning of PTCE 95-60) (a "General Account"); (B) the investor s purchase and holding of the Class B-2L Notes or Income Notes, as applicable, are eligible for the exemptive relief available under Section I of PTCE 95-60; (C) less than 25% of the assets of such General Account constitute "plan assets" of Benefit Plan Investors; and (D) if, after the initial acquisition of Class B-2L Notes or Income Notes, as applicable, during any calendar quarter 25% or more of the assets of such General Account (as determined by such insurance company) constitute "plan assets" of any Plan or other Benefit Plan Investor and no exemption or exception from the prohibited transaction rules applies such that the continued holding of the Class B-2L Notes or Income Notes, as applicable, would not result in violations of Section 406 of ERISA or Section 4975 of the Code then such investor will dispose of all of the Class B-2L Notes or Income Notes, as applicable, then held in such General Account by the end of the next following calendar quarter; (2) the investor s purchase and holding of the Class B-2L Notes or Income Notes, as applicable, are eligible for the exemptive relief available under any of Section 408(b)(17) of ERISA or PTCE 96-23, 91-38, 90-1 or or, if the investor is an individual retirement account subject to Section 4975 of the Code, the investor's purchase and holding does not constitute a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code; and (b) After giving effect to such purchase and all other purchases occurring simultaneously therewith, less than 25% of each of the Class B-2L Notes, the Income Notes (other than any Class B-2L Notes, Income Notes held by the Collateral Manager, certain employees of Denali who are Knowledgeable Employees or Affiliates of the Collateral Manager) will be held by Benefit Plan Investors. In addition, except as otherwise provided in the Indenture, if an investor (whether or not it is a Plan or a Benefit Plan Investor) purchases a Class B-2L Note or Income Note and if, after giving effect to such purchase, the investor (or its affiliates) will own 50% or more of the aggregate par value of the Class B-2L Notes, the Income Notes, the investor should consult with its counsel regarding the effect such an investment may have on its ability (and that of its affiliates and their Plans) to purchase Class A Notes or Class B-1L Notes in reliance upon any of Section 408(b)(17) of ERISA or PTCE 96-23, 95-60, 91-38, 90-1 or Except with respect to certain secondary market transactions through the Initial Purchaser, as more fully described in the Indenture, by its purchase of the Class B-2L Notes or the Income Notes, each purchaser and transferee will be required to represent and warrant in writing to and agree with the Issuer, the Collateral Manager, the Trustee and, if applicable, the Income Note transfer agent, that (i) its purchase and holding of such Class B-2L Notes or Income Notes, as applicable, will satisfy the ERISA requirements described above and (ii) it will not assign or transfer such Class B-2L Notes or Income Notes, as applicable, unless (1) the proposed assignee or transferee delivers a letter to the Issuer evidencing its agreement to the foregoing ERISA representations and covenants with respect to its purchase, holding and transfer of such Class B-2L Notes or Income Notes, as applicable, and (2) if the investor: (x) Is not (and is not acting on behalf of) a Benefit Plan Investor, the assignee or transferee will also not be a Benefit Plan Investor; or (y) Is (or is acting on behalf of) a General Account, the assignee or transferee will be accurately identified in such letter as either another General Account or a person who is not (and is not acting on behalf of) a Benefit Plan Investor; or (z) Is (or is acting on behalf of or with "plan assets" of) a Benefit Plan Investor (other than a General Account), the assignee or transferee will be accurately identified in such letter as either a General Account, another Benefit Plan Investor or a person who is not (and is not acting on behalf of) any Benefit Plan Investor. 132

143 Each Holder of a Class B-2L Note or Income Note, by its acquisition thereof, shall be deemed to represent to the Issuer, the Collateral Manager, the Trustee and, if applicable, the Income Note transfer agent, that either (a) no part of the funds being used to pay the purchase price for such Class B-2L Note or Income Note, as applicable, constitutes "plan assets" of any Plan, or (b) if the funds being used to pay the purchase price for such Class B-2L Note or Income Note include "plan assets" of any Plan or any other Benefit Plan Investor, (1) either (i) it is an insurance company and such funds include only assets of its general account, and its acquisition and holding of such Class B-2L Note or Income Note, as applicable, are eligible for the exemptive relief available under Section I of PTCE 95-60, (ii) its acquisition and holding of such Class B-2L Note or Income Note, as applicable, are eligible for the exemptive relief available under any of Section 408(b)(17) of ERISA or PTCE 96-23, 91-38, 90-1 or or, if the investor is an individual retirement account subject to Section 4975 of the Code, the investor's purchase and holding does not constitute a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code, and (2) the ERISA restrictions set forth above have been satisfied. Any person proposing to invest assets of any Plan, or any governmental plan subject to Similar Law, in the Notes should consult with its counsel to confirm that such investment will not constitute or result in any prohibited transaction that is not subject to an exemption and will satisfy the other requirements of ERISA, the Code and, in the case of such a governmental plan, Similar Law. [remainder of page intentionally blank] 133

144 CERTAIN LEGAL INVESTMENT CONSIDERATIONS Institutions whose investment activities are subject to legal investment laws and regulations or to review by certain regulatory authorities may be subject to restrictions on investments in the Securities. Any such institution should consult its legal advisors in determining whether and to what extent there may be restrictions on its ability to invest in the Securities. Without limiting the foregoing, any financial institution that is subject to the jurisdiction of the Comptroller of Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, the National Credit Union Administration, any state insurance commission, or any other federal or state agencies with similar authority should review any applicable rules, guidelines and regulations prior to purchasing the Securities. Depository institutions should review and consider the applicability of the Federal Financial Institutions Examination Council Supervisory Policy Statement on Securities Activities, which has been adopted by the respective federal regulators. None of the Co-Issuers nor the Initial Purchaser make any representation as to the proper characterization of the Securities for legal investment or other purposes, or as to the ability of particular investors to purchase the Notes for legal investment or other purposes, or as to the ability of particular investors to purchase the Securities under applicable investment restrictions. The Co-Issuers understand that certain state insurance regulators, in response to a request for guidance, may be considering the characterization (as U.S. domestic or foreign (non-u.s.)) of certain collateralized debt obligation securities co-issued by a non-u.s. issuer and a U.S. co-issuer. There can be no assurance as to the nature of any guidance or other action that may result from such consideration. The uncertainties described above (and any unfavorable future determinations concerning legal investment or financial institution regulatory characteristics of the Securities) may affect the liquidity of the Securities. Accordingly, all institutions whose activities are subject to legal investment laws and regulations, regulatory capital requirements or review by regulatory authorities should consult their own legal advisors in determining whether and to what extent the Securities are subject to investment, capital or other restrictions. [remainder of page intentionally blank] 134

145 USE OF PROCEEDS The net proceeds of the offering of the Securities received on the Closing Date, after payment of applicable fees and expenses, are expected to equal approximately U.S.$653,574,000 (assuming no Class A-1LR Borrowing on the Closing Date) and will be used by the Issuer to (i) purchase a portfolio of Collateral Obligations; (ii) fund the Revolving Reserve Account and the Delayed Drawdown Reserve Account; (iii) enter into any Hedge Agreements; (iv) enter into any Securities Lending Agreements (and correspondingly to fund the Securities Lending Account); (v) enter into Synthetic Security agreements (and correspondingly to fund the related accounts); (vi) fund the Closing Date Expense Account and Expense Reimbursement Account; (vii) pay up-front fees relating to the Class A-1LR Notes pursuant to the Class A-1LR Note Purchase Agreement; and (viii) undertake certain related activities. PLAN OF DISTRIBUTION The Initial Purchaser has advised the Co-Issuers that it proposes to offer the applicable Securities to prospective purchasers from time to time in individually negotiated transactions at varying prices to be determined in each case at the time of sale. The price(s) paid by the Initial Purchaser for the Securities may be less than those paid by other purchasers of the Securities. The Initial Purchaser may offer or sell Securities to purchasers at negotiated prices, which may vary among different purchasers of Notes of any Class or the Income Notes. In addition to the structuring and placement fees paid to the Initial Purchaser, the Initial Purchaser may be deemed to receive compensation for the sale of the Securities to the extent that the price(s) paid by it for Securities is less than the price(s) at which they are resold. The Securities are offered when, as and if issued by the Issuer and the Co- Issuer, as applicable, 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. It is expected that delivery of the Securities will be made on or about the Closing Date, against payment in immediately available funds. The Securities have not been registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, United States persons except to (i) Qualified Institutional Buyers in reliance on Rule 144A under the Securities Act and, solely in the case of the Income Notes, to Accredited Investors or (ii) other persons or entities pursuant to other valid exemptions from the registration requirements of the Securities Act. Without limiting the foregoing, no transfer of Securities may be made except to a non-u.s. Person in an offshore transaction in compliance with Regulation S or to a Qualified Purchaser or, solely with respect to the Income Notes, to a Knowledgeable Employee with respect to the Issuer, or if such transfer would not require the Issuer or the Co-Issuer to become subject to the registration requirements of the Investment Company Act. Each of the Co-Issuers and the Initial Purchaser represents and agrees that it (i) has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act of 2000 ("FSMA")) received by it in connection with the issue or sale of any Securities in circumstances in which Section 21(a) of the FSMA does not apply to the Issuer; and (ii) has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Securities, in, from or otherwise involving the United Kingdom. No invitation may be made to the public in the Cayman Islands to subscribe for the Securities. Purchasers of Securities sold outside the United States may be required to pay stamp taxes and other charges in accordance with the laws and practices of the country of purchase in addition to the price charged to investors for the Securities. The Securities are new securities for which there currently is no market. Accordingly, no assurance can be given as to the development or liquidity of any market for the Securities. 135

146 LISTING AND GENERAL INFORMATION 1. Application has been made to the Irish Financial Services Regulatory Authority, as competent authority under Directive 2003/71/EC, for the Offering Circular to be approved. Application has been made to the Irish Stock Exchange for the Offered Notes to be admitted to the Official List and trading on its regulated market. Such approval relates 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 93/22/EEC or which are to be offered to the public in any Member State of the European Economic Area. Application has been made to the Irish Stock Exchange for the Income Notes to be admitted to listing and trading on its Alternative Securities Market, which is not a regulated market (as defined by Article 1(13) of Directive 93/22/EEC). The current estimate of total costs of listing the Offered Securities on the Irish Stock Exchange is approximately 25, Electronic copies of the Memorandum and Articles of Association of the Issuer, the Certificate of Incorporation and Bylaws of the Co-Issuer, the resolutions of the Board of Directors of the Issuer authorizing the issuance of the Offered Securities, the resolutions of the Board of Directors of the Co-Issuer authorizing the issuance of the Notes, and the execution of the Indenture and the Collateral Management Agreement may be obtained free of charge upon request at the office of a Paying Agent on behalf of the Issuer for the life of this Offering Circular. 3. Each of the Co-Issuers represents that there has been no material adverse change in its financial position since its date of creation. 4. The Issuer is not required by Cayman Islands law, and the Issuer does not intend, to publish annual reports and accounts. The Co-Issuer is not required by Delaware law, and the Co-Issuer does not intend, to publish annual reports and accounts. The Indenture, however, requires that, every year beginning in 2008, the Issuer deliver to the Trustee a certificate stating, as to each signatory thereof, that to the best of his/her knowledge, the Issuer has fulfilled all of its obligations under the Indenture, or, if there has been a default in the fulfillment of any such obligation, specifying each such default known to him/her and the nature and status thereof. 5. The Co-Issuers are not, and have not since incorporation or formation, as applicable, been, involved in any governmental, litigation or arbitration proceedings relating to claims in amounts which may have or have had a material effect on the Co-Issuers, nor, so far as each of the Co-Issuers is aware, are any such governmental, litigation or arbitration proceedings involving it pending or threatened. 6. The issuance of the Offered Securities has been authorized by the Board of Directors of the Issuer by resolutions passed on or before the Closing Date. The issuance of the Notes (other than the Class B-2L Notes) has been authorized by the Board of Directors of the Co-Issuer by the Limited Liability Company Agreement to be passed on or before the Closing Date. Since incorporation or formation, as applicable, neither the Issuer nor the Co- Issuer has commenced trading and no financial statements have been made up as at the date of this Offering Circular. 7. The Offered Securities sold in offshore transactions in reliance on Regulation S and represented by the Regulation S Global Notes have been accepted for clearance through Clearstream and Euroclear under the Common Codes indicated below. The CUSIP Numbers and International Securities Identification Numbers ("ISIN") for the Offered Securities represented by Regulation S Global Notes and Rule 144A Global Notes are as indicated below: 136

147 Regulation S Notes Rule 144A Notes Common Code ISIN ISIN CUSIP Class A-1L Notes N/A USG62591AB12 US24822XAB91 N/A Class A-2L Notes N/A USG62591AC94 US24822XAC74 N/A Class A-3L Notes N/A USG62591AD77 US24822XAD57 N/A Class B-1L Notes N/A USG62591AE50 US24822XAE31 N/A Class B-2L Notes XS US24822YAA91 N/A Income Notes XS US24822YAB74 N/A CERTAIN LEGAL MATTERS The validity of the Securities and certain other legal matters, including certain matters relating to certain United States federal tax consequences of the ownership of the Securities, will be passed upon for the Issuer and the Initial Purchaser by Orrick, Herrington & Sutcliffe LLP, New York, New York. Certain legal matters relating to Cayman Islands law will be passed on for the Issuer by Maples and Calder. As to all matters of Cayman Islands law, Orrick, Herrington & Sutcliffe LLP will rely on the opinions of Maples and Calder. [remainder of page intentionally blank] 137

148 GLOSSARY As used in this Offering Circular, the following terms have the meanings indicated below: "Accredited Investor"": The meaning specified in Rule 501(a) of Regulation D. "Accrued Interest Purchased With Principal": Interest accrued on or purchased with a Collateral Obligation as part of the price paid by the Issuer to acquire the Collateral Obligation less any amount of Interest Proceeds (applied as Interest Proceeds) applied by the Issuer to acquire the accrued interest at the time of purchase. "Act": Any request, demand, authorization, direction, notice, consent, waiver, or other action to be given or taken by Noteholders under the Indenture embodied in and evidenced by one or more instruments of substantially similar tenor signed by Noteholders in person or by agents duly appointed in writing. The instruments (and the action embodied in them) are referred to as the "Act" of the Noteholders signing the instruments. "Additional Collateral Deposit Requirement": The meaning specified in "Coverage Tests and Additional Collateral Deposit Requirement The Additional Collateral Deposit Requirement." "Administrative Expense Cap": An amount on any Payment Date equal to the excess of the sum of (a) 0.07% per annum of the Applicable Asset Amount on the related Determination Date, and (b) during the Revolving Period, an additional 0.045% per annum of the Applicable Asset Amount on the related Determination Date; over the sum of the amounts paid for Administrative Expenses pursuant to clause (1) under "Application of Funds Application of Interest Proceeds" in the twelve months preceding the current Payment Date. Notwithstanding the foregoing, with respect to any Due Period, the Administrative Expense Cap will not be less than U.S.$55,000. "Administrative Expenses": Amounts due or accrued representing (i) tax preparation, filing, and registration fees or expenses and any other filing and registration fees owed by the Co-Issuers (including all filing, registration, and annual return fees payable to the Cayman Islands government and registered office fees); (ii) fees, indemnities, and expenses of the Trustee (including all amounts in respect of compensation and reimbursement under the Indenture), the Fiscal Agent, and the Collateral Administrator; (iii) Class A-1LR Note Agent Expenses; (iv) fees, indemnities, and expenses of the Co-Issuers, of the Administrator, and of accountants, agents, and counsel for either of the Co-Issuers; (v) fees and expenses of the Rating Agencies in connection with any rating of the Notes owed by either Co-Issuer (including fees and expenses for surveillance, credit estimates, and other fees owing to the Rating Agencies); (vi) expenses and indemnities (but not Management Fees) of the Collateral Manager if payable under the Management Agreement; (vii) (viii) (ix) fees and expenses for third-party loan pricing services and accountants; accrued and unpaid Prepayment Costs, Class A-1LR Additional Costs and Class A-1LR Tax Gross-Up Amounts (and, in each case, any interest thereon) to the extent not previously paid to the Holders of the Class A-1LR Notes; and amounts due to any other person (except the Collateral Manager) if specifically provided for in the Indenture. "Affiliate" or "Affiliated": With respect to a person, (i) any other person who, directly or indirectly, is in control of, or controlled by, or is under common control with, the person or (ii) any other person who is a director, officer or employee (a) of the person, (b) of any subsidiary or parent company of the person, or (c) of any person described in clause (i) above. For the purposes of this definition, control of a person shall mean the power, direct or 138

149 indirect, (x) to vote more than 50% of the securities having ordinary voting power for the election of directors of the person or (y) to direct the corporate management and corporate policies of the person whether by contract or otherwise (this does not include the Management Agreement or any similar agreement of the Collateral Manager for other clients unless it is amended expressly to provide for those services). For the purpose of this definition, the Administrator and its Affiliates are neither Affiliates of nor Affiliated with the Co-Issuers and the Co-Issuers are neither Affiliates of nor Affiliated with the Administrator, or any of their Affiliates. "Aggregate Principal Amount": When used with respect to any of the Notes as of any date, the aggregate principal amount of the Notes outstanding on that date. Except as otherwise provided herein, the Aggregate Principal Amount of the Class A-1LR Notes at any time shall not include the Class A-1LR Aggregate Undrawn Amount or the Class A-1LR Undrawn Permitted Amount. "Aggregate Principal Balance": When used with respect to the Collateral Obligations, the sum of the Principal Balances of all the Collateral Obligations. When used with respect to a portion of the Collateral Obligations, the term Aggregate Principal Balance means the sum of the Principal Balances of that portion of the Collateral Obligations. "Aggregate Voting Amount": With respect to the Class A-1LR Notes, (i) on any day on or prior to the last day of the Revolving Period, the Class A-1LR Commitments, and (ii) on any day after the last day of the Revolving Period, the Aggregate Principal Amount of the Class A-1LR Notes. With respect to any other Class or group of Notes at any time, the Aggregate Principal Amount of that Class or group of Notes, as the case may be (except that a Class or group that includes the Class A-1LR Notes and any other Notes shall be determined by reference to the principles set forth in the preceding sentence and the Aggregate Principal Amount of the other Notes). With respect to the Income Notes, the notional amount of the Income Notes. Notwithstanding the foregoing, for purposes of terminating the Collateral Manager for "cause" and, after such removal, voting to approve a successor, the Aggregate Voting Amount shall not include any Notes or Income Notes owned by the Collateral Manager, its Affiliates or employees of Denali. "Alternate Base Rate": With respect to each applicable date, the sum of (x) 0.26% and (y) the greater of (i) the applicable USD Overnight LIBOR rate as of the relevant Overnight LIBOR Determination Date and (ii) the Federal Funds Rate plus 0.50%. "Applicable Asset Amount": On any Determination Date, an amount equal to (a) (b) the aggregate Principal Balance of all Collateral Obligations (excluding Defaulted Collateral Obligations and excluding the unfunded amount of any Revolving Loan or Delayed Drawdown Loan to the extent such amount is not reserved in the Revolving Reserve Account or the Delayed Drawdown Reserve Account to be applied to fund such unfunded amount), plus the lesser of: (i) the sum of the aggregate amounts with respect to each Defaulted Collateral Obligation that the Collateral Manager has a reasonable expectation that the Issuer will receive with respect to such Defaulted Collateral Obligation, and (ii) the lesser of (x) the Market Value Percentage of the Defaulted Collateral Obligation and (y) the Applicable Percentage for the Defaulted Collateral Obligation multiplied by (1) if the Defaulted Collateral Obligation is any Collateral Obligation other than those set out in (2) to (5) below, the outstanding principal amount of the Collateral Obligation as of the relevant Measurement Date; 139

150 (2) if the Defaulted Collateral Obligation is a Synthetic Security, the notional amount specified in the Synthetic Security; (3) if the Defaulted Collateral Obligation is any Zero Coupon Security or Step-Up Coupon Security, its accreted value; (4) if the Defaulted Collateral Obligation is any Revolving Loan or Delayed Drawdown Loan, its Principal Balance shall include any unfunded amount thereof (regardless of the nature of the contingency relating to the Issuer s obligation to fund the unfunded amount), except as otherwise expressly specified in the Indenture; and (5) if the Defaulted Collateral Obligation is any PIK Security, its Principal Balance (if it were not a Defaulted Collateral Obligation), plus (c) (d) (e) cash representing Principal Proceeds on deposit in the Collection Account plus any amount deposited on the Closing Date remaining therein, plus Eligible Investments (other than cash) purchased by the Issuer with Principal Proceeds on deposit in the Collection Account and with amounts deposited on the Closing Date, plus without duplication, (i) the Class A-1LR Undrawn Permitted Amount or (ii) solely for purposes of calculating any Management Fee, the undrawn portion of the maximum amount then permitted (according to the actual results of the criteria within the Collateral Quality Matrix) to be drawn under the Class A-1LR Notes by operation of the Collateral Quality Matrix, without giving effect to the Class A-1LR Undrawn Permitted Amount. "Applicable Collateral Obligation Amount": The meaning specified in "Coverage Tests and Additional Collateral Deposit Requirement The Overcollateralization Tests." "Applicable Percentage": The lesser of the Moody s Recovery Rate and the S&P Priority Category Recovery Rate applicable to the Collateral Obligation, set forth in the Indenture. "Applicable Periodic Rate": With respect to each Class of Notes and for each Periodic Interest Accrual Period as described under "Certain Additional Provisions Relating to the Securities Payments on the Notes." "Application of Funds": The meaning specified in "Application of Funds." "Approved Pricing Service": The Markit Loans Service provided by Markit Group Ltd. or any other nationally recognized loan pricing service approved in writing by S&P. "Attached Equity Security": A Qualified Equity Security purchased as a component of a Collateral Obligation, so long as at the time of the Issuer s commitment to purchase, the portion of the total Purchase Price paid by the Issuer for the Collateral Obligation and Attached Equity Security allocable to the Attached Equity Security does not represent more than 2% of the Purchase Price, as determined by the Collateral Manager on a commercially reasonable basis, unless the portion allocable to the Attached Equity Security that exceeds 2% of the Purchase Price is acquired using Interest Proceeds reasonably expected by the Collateral Manager to remain after the payment of all amounts payable under the Application of Funds through clause (21) on the next Payment Date. "Average Annual Income Note Return": With respect to any period consisting of four or more consecutive Payment Dates (with the last Payment Date being the current Payment Date), the number, expressed as a percentage, equal to: (i) the sum, for each such Payment Date, of (a) the aggregate amount of Interest Proceeds distributed to the Holders of the Income Notes on such Payment Date divided by (b) the notional amount of the Income Notes on the Closing Date minus the aggregate amount of Principal Proceeds distributed to the Holders of the Income Notes prior to such Payment Date multiplied by (c) four; divided by 140

151 (ii) the number of Payment Dates in such period. "Bank": Deutsche Bank Trust Company Americas, in its individual capacity and not as Trustee. "Bankruptcy Code": The United States bankruptcy code, Title 11 of the United States Code. "Business Day": A day on which commercial banks and foreign exchange markets settle payments in each of New York City, London, and any other city in which the Corporate Trust Office of the Trustee is located and, in the case of the final payment of principal of any Note, the place of presentation of the Note designated by the Trustee. To the extent action is required of the Irish Paying Agent, Dublin, Ireland shall be considered in determining "Business Day" for purposes of determining when action by the Irish Paying Agent is required. "CCC/Caa Excess": The greater of (i) the Aggregate Principal Balance of the Collateral Obligations (excluding Defaulted Collateral Obligations) with an S&P Rating of "CCC+" or below greater than 10% of the Maximum Investment Amount and (ii) the Aggregate Principal Balance of the Collateral Obligations (excluding Defaulted Collateral Obligations) with a facility rating by Moody s of "Caa1" or below (or with a facility rating of "B3" and is on any "credit watch" list with negative implications by Moody s) greater than 10% of the Maximum Investment Amount. "CCC/Caa Par Reduction Amount": An amount equal to the greater of (i) zero and (ii) the product of (a) the CCC/Caa Excess and (b) one minus the weighted average Market Value (expressed as a percentage) of the Collateral Obligations (excluding Defaulted Collateral Obligations) with (I) an S&P Rating of "CCC+" or below, if the CCC/Caa Excess has been calculated using clause (i) of the definition thereof or (II) a facility rating from Moody s of "Caa1" or below (or "B3" if Moody s has placed such Collateral Obligation on its credit watch list with the potential for developing negative credit implications) if the CCC/Caa Excess has been calculated using clause (ii) of the definition thereof. "Cede": Cede & Co. "Class": A class of Notes consisting of each of the Class A-1LR Notes; the Class A-1L Notes; the Class A- 2L Notes; the Class A-3L Notes; the Class B-1L Notes; and the Class B-2L Notes. "Class A Overcollateralization Ratio": The meaning specified in "Coverage Tests and Additional Collateral Deposit Requirement The Overcollateralization Tests." "Class A Overcollateralization Test": A test that will be satisfied on any date of determination if the Class A Overcollateralization Ratio is at least equal to the specified Required Level indicated in the table in "Coverage Tests and Additional Collateral Deposit Requirement The Overcollateralization Tests," as determined in accordance with the Collateral Quality Matrix. "Class A-1 Pro Rata Adjustment Amount": The amount (determined as of the Class A-1LR Required Borrowing Date), if any, of (A) (1) the aggregate amount of Class A-1LR Commitments multiplied by (2) the sum of the Aggregate Principal Amount of the Class A-1LR Notes and the Class A-1L Notes and the Collateral Obligation Funding Amount divided by (3) the sum of the Aggregate Principal Amount of the Class A-1L Notes and the aggregate amount of Class A-1LR Commitments over (B) the sum of the Aggregate Principal Amount of the Class A-1LR Notes and the Collateral Obligation Funding Amount. "Class A-1LR Additional Costs": With respect to any Payment Date, the amount (other than any other amount that is a tax or a stamp, registration, documentation or similar tax), as set forth in a certificate of a Holder or funding entity delivered to the Class A-1LR Note Agent, which shall forward such certificate to the Trustee on or 141

152 prior to the related Determination Date, necessary to compensate such Holder or funding entity, for (a) any increase in the cost to (or imposing a cost on) a funding entity of funding, making or maintaining its Class A-1LR Commitments or any advance resulting from a Class A-1LR Change in Law applicable to such funding entity, (b) any reduction in the amount of any sum received or to be received by such funding entity under the Class A-1LR Note Purchase Agreement or the applicable liquidity facility deemed by such funding entity to be material resulting from a Class A-1LR Change in Law applicable to such funding entity, (c) any reduction in the rate of return on the capital of a funding entity or its bank holding company as a consequence of its Class A-1LR Commitments or any advances resulting from a Class A-1LR Change in Law applicable to such funding entity or bank holding company to a level below that which such funding entity or bank holding company could have achieved but for such Class A- 1LR Change in Law (taking into consideration policies of such funding entity or bank holding company with respect to capital adequacy) or (d) to the extent resulting from a Class A-1LR Change in Law, additional costs (i) based upon or measured by the excess above a specified level of the amount of a category of deposits, or other liabilities of the funding entity that includes deposits, by reference to which LIBOR is determined, or a category of extensions of credit or other assets of the funding entity that includes the Advances that bear interest based upon LIBOR or (ii) incurred due to restrictions on the amount of such a category of Eurodollar liabilities or assets. "Class A-1LR Additional LIBOR Payment": In connection with any Class A-1LR Borrowing made after the end of a Due Period and before the related Payment Date, an amount equal to the sum of (I) the product of (i) the amount of each such Class A-1LR Borrowing, (ii) LIBOR, as calculated in accordance with the definition thereof for the period from the date of such Class A-1LR Borrowing to such related Payment Date plus 0.26% per annum and (iii) the actual number of days elapsed from such Class A-1LR Borrowing Date to such related Payment Date divided by 360 and (II) the product of (i) the amount calculated in clause (I) above, (ii) three-month LIBOR, as determined on the LIBOR Determination Date for the immediately succeeding Periodic Interest Accrual Period, plus 0.26% per annum and (iii) the actual number of days elapsed from such related Payment Date to the next succeeding Payment Date divided by 360. "Class A-1LR Advances": The advances made by the Class A-1LR Holders or their related liquidity providers to the Issuer pursuant to the Class A-1LR Note Purchase Agreement in respect of the Class A-1LR Notes. "Class A-1LR Aggregate Undrawn Amount": At any time, the excess (if any) of (i) the aggregate amount of the Class A-1LR Commitments (whether or not utilized) at such time over (ii) the Aggregate Principal Amount of the Class A-1LR Notes at such time. "Class A-1LR Borrowing": Each borrowing made under the Class A-1LR Notes made pursuant to the Indenture and the Class A-1LR Note Purchase Agreement. "Class A-1LR Borrowing Condition": The meaning specified in "Certain Additional Provisions Relating to the Securities Class A-1LR Borrowings." "Class A-1LR Borrowing Date": Each day on which a Class A-1LR Borrowing is made (including the Class A-1LR Required Borrowing Date), which day will be a Business Day occurring during the Revolving Period; provided, however, that, in the case of the Class A-1LR Required Borrowing in connection with termination of the Revolving Period specified in clause (iv) of the definition thereof, the Class A-1LR Borrowing Date will be a Business Day specified in the related Class A-1LR Borrowing Request occurring not earlier than three Business Days and not later than five Business Days after the last day of the Revolving Period determined pursuant to such clause. "Class A-1LR Borrowing Request": The meaning specified in the Class A-1LR Note Purchase Agreement. "Class A-1LR Change in Law": Means (i) the adoption of any applicable U.S. or foreign law, rule or regulation or accounting principle after the Closing Date, (ii) any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof after the Closing Date, or (iii) compliance by a Holder of a Class A-1LR Note and/or a funding entity with any request or directive issued after the Closing Date regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency. 142

153 "Class A-1LR Commitment Fees": The fees payable in respect of the Class A-1LR Aggregate Undrawn Amount which will accrue from (and including) the Closing Date to (and including) the last day of the Revolving Period at the Class A-1LR Commitment Fee Rate. "Class A-1LR Indemnifiable Tax": Any tax imposed by any governmental authority of the Cayman Islands by withholding or deduction from a payment under a Class A-1LR Note other than (a) a tax that would not have been imposed but for (i) a present or former connection between the Cayman Islands and the Holder of such Class A-1LR Note, any person holding an interest in the Class A-1LR Note through a partnership, trust, financial intermediary or otherwise or any person related to the Holder of such Class A-1LR Note or person holding an interest in the Class A-1LR Note (other than a connection arising solely from having received a payment under, or enforced, a Class A-1LR Note) or (ii) presentation of a Class A-1LR Note for payment (where presentation is required) on a day more than 30 Business Days after the date on which such payment became due except to the extent that additional amounts would have been payable on account of the withholding or deduction of taxes had presentation been made on such 30th Business Day, (b) any tax imposed on account of the location of the paying agent, (c) any estate, inheritance, gift, sales, transfer, personal property, wealth or similar tax, (d) any tax imposed due to the inability or the failure of the affected Holder of such Class A-1LR Note or person to deliver, to the Issuer and Trustee or to such governmental authority as the Issuer may direct, any document, form or certification required or reasonably requested in writing in order to allow the Issuer to make a payment without any deduction or withholding for or on account of any tax, (e) any tax imposed with respect to a payment to a Holder that is not the beneficial owner of the Class A-1LR Note that would not have been imposed had the beneficial owner directly held such Class A-1LR Notes, (f) any tax which is collectible other than by withholding or deduction from payments of principal, interest, redemption amount or Class A-1LR Commitment Fee or (g) any combination of (a), (b), (c), (d), (e) and (f) above. 143 "Class A-1LR Note Agent": Initially, Deutsche Bank Trust Company Americas. "Class A-1LR Note Agent Expenses": The expenses incurred or paid by the Class A-1LR Note Agent and payable to the Class A-1LR Note Agent pursuant to the Class A-1LR Note Purchase Agreement, which shall include any note agent fee agreed upon under a separate fee schedule; provided, that the Class A-1LR Note Agent Expenses will be payable on each Payment Date only to the extent that funds are available for such purpose in accordance with the Application of Funds. "Class A-1LR Note Purchase Agreement": The Class A-1LR Note Purchase Agreement dated as of the Closing Date among the Issuer, the Co-Issuer, the "Purchasers" parties thereto, any conduit agent party thereto and the Class A-1LR Note Agent. "Class A-1LR Permitted Amount": The maximum amount of the Class A-1LR Notes permitted to be drawn, as determined by application of the current row of the Collateral Quality Matrix and subject to the Class A- 1LR Borrowing Conditions; provided that such amount will, in connection with a redemption or repayment of the Class A-1 Notes, be multiplied by a ratio, the numerator of which is the principal amount of the Class A-1L Notes immediately prior to such redemption or repayment minus the principal amount of the Class A-1L Notes redeemed or repaid on such Payment Date and the denominator of which is the Aggregate Principal Amount of the Class A-1L Notes as of the Closing Date. "Class A-1LR Prepayment": The meaning specified in "Certain Additional Provisions Relating to the Securities Class A-1LR Prepayments." "Class A-1LR Required Borrowing Date": The last day of the Revolving Period as specified in any of clauses (i) through (iv) of the definition thereof (or, if any such date is not a Business Day, the Business Day following such date); provided, however, that, in the case of a termination of the Revolving Period specified in clause (iv) of the definition thereof, the Class A-1LR Required Borrowing Date shall be a Business Day specified in a Class A-1LR Borrowing Request occurring not earlier than three Business Days and not later than five Business Days after the last day of the Revolving Period determined pursuant to such clause. "Class A-1LR Required Reserve Amount": With respect to any Payment Date on which payments are made as a result of a redemption of the Class A-1LR Notes under the Indenture, the excess, if any, of (x) all unfunded commitments in respect of all Revolving Loans and Delayed Drawdown Loans that have not been irrevocably terminated and which are permitted under the Indenture to be funded from draws on the Class A-1LR

154 Notes over (y) amounts on deposit in the Revolving Reserve Account with respect to such Revolving Loans or amounts on deposit in the Delayed Drawdown Reserve Account with respect to such Delayed Drawdown Loans, as applicable. "Class A-1LR Tax Gross-Up Amount": The amount necessary to ensure that the net amount received by the affected Holder of Class A-1LR Notes after deduction or withholding of such Class A-1LR Indemnifiable Tax equals the full amount the affected Holder of Class A-1LR Notes would have received had no such deduction or withholding been required. "Class A-1LR Undrawn Permitted Amount": At any time, the Class A-1LR Permitted Amount minus the amount of Class A-1LR Notes then drawn. "Class B-1L Overcollateralization Ratio": The meaning specified in "Coverage Tests and Additional Collateral Deposit Requirement The Overcollateralization Tests." "Class B-1L Overcollateralization Test": A test that will be satisfied on any date of determination if the Class B-1L Overcollateralization Ratio is at least equal to the specified Required Level indicated in the table in "Coverage Tests and Additional Collateral Deposit Requirement The Overcollateralization Tests," as determined in accordance with the Collateral Quality Matrix. "Class B-2L Overcollateralization Ratio": The meaning specified in "Coverage Tests and Additional Collateral Deposit Requirement The Overcollateralization Tests." "Class B-2L Overcollateralization Test": A test that will be satisfied on any date of determination if the Class B-2L Overcollateralization Ratio is at least equal to the specified Required Level indicated in the table in "Coverage Tests and Additional Collateral Deposit Requirement The Overcollateralization Tests," as determined in accordance with the Collateral Quality Matrix. "Clearstream": Clearstream Banking, société anonyme, a corporation organized under the laws of the Duchy of Luxembourg. "Collateral Administration Agreement": The agreement dated as of the Closing Date relating to the administration of the collateral among the Issuer, the Collateral Manager, and the Collateral Administrator, as modified, amended, and supplemented and in effect from time to time. "Collateral Administrator": Deutsche Bank Trust Company Americas, a New York banking corporation, in its capacity as a collateral administrator under the Collateral Administration Agreement. "Collateral Obligation": The meaning specified in "Security for the Notes Collateral Obligations." Tests." Tests." "Collateral Quality Matrix": The meaning specified in "Security for the Notes The Collateral Quality "Collateral Quality Tests": The meaning specified in "Security for the Notes The Collateral Quality "Commitment Shortfall": The amount by which (a) the sum of (x) unfunded commitment amounts of Revolving Loans and Delayed Drawdown Loans and (y) any Collateral Obligation (other than a Revolving Loan or a Delayed Drawdown Loan) with respect to which the Issuer has entered into a commitment but has not settled the purchase exceeds (b) the sum of (i) the Class A-1LR Aggregate Undrawn Permitted Amount plus (ii) the balance standing to the credit of the Revolving Reserve Account or the Delayed Drawdown Reserve Account plus (iii) the aggregate balance of all Principal Proceeds held as cash and Eligible Investments purchased with Principal Proceeds specified in clause (C) of "Application of Funds Application of Principal Proceeds." "Concentration Limitations": The concentration limitations for the Collateral Obligations in the aggregate (measured by Aggregate Principal Balance) for purposes of the Indenture are the following: 144

155 (1) not less than 92.5% of the Aggregate Principal Balance of the Collateral Obligations (including cash and Eligible Investments representing Principal Proceeds on deposit in the Collection Account) must consist in the aggregate of (A) Investment Obligations that are Senior Secured Loans, (B) Synthetic Securities whose Reference Obligations are Senior Secured Loans, and (C) Eligible Investments; (2) not less than 95% of the Aggregate Principal Balance of the Collateral Obligations (including cash and Eligible Investments representing Principal Proceeds on deposit in the Collection Account) must consist in the aggregate of (A) Investment Obligations that are Loans, (B) Synthetic Securities whose Reference Obligations are Loans, and (C) Eligible Investments; (3) with respect to an Investment Obligation which is a Revolving Loan or a Delayed Drawdown Loan (including Delayed Drawdown Loans which, pursuant to the Indenture, may be funded through draws on the Class A-1LR Notes), not more than 10% of the Maximum Investment Amount may consist of Investment Obligations that are Revolving Loans, not more than 10% of the Maximum Investment Amount may consist of Investment Obligations that are Delayed Drawdown Loans and not more than 10% of the Maximum Investment Amount may consist of Investment Obligations that are Revolving Loans and Delayed Drawdown Loans in the aggregate; (4) if the Investment Obligation being acquired is a DIP Loan, not more than 5% of the Maximum Investment Amount may consist of Investment Obligations that are DIP Loans and not more than 2.5% of the Maximum Investment Amount may consist of Investment Obligations that are S&P Unrated DIP Loans; (5) if the Investment Obligation being acquired is a Current-Pay Obligation, not more than 5% of the Maximum Investment Amount may consist of Investment Obligations that are Current-Pay Obligations; (6) if the Investment Obligation being acquired is a PIK Security, not more than 5% of the Maximum Investment Amount may consist of Investment Obligations that are PIK Securities; (7) if the Investment Obligation being acquired is a High-Yield Bond, not more than 5% of the Aggregate Principal Balance of the Collateral Obligations (including cash and Eligible Investments representing Principal Proceeds on deposit in the Collection Account) may consist of Investment Obligations that are unsecured High-Yield Bonds; (8) if the Investment Obligation being acquired is a Structured Finance Obligation, not more than 0.75% of the Maximum Investment Amount may consist of Investment Obligations issued by a single issuer or any of its Affiliates (excluding Secondary Risk Counterparties and excluding issuers that the Collateral Manager reasonably determines are Affiliated but are not dependent upon one another for credit support and are not dependent upon a Person by which they are commonly controlled for credit support) that are Structured Finance Obligations; (9) if the Investment Obligation being acquired is a Structured Finance Obligation, with respect to Investment Obligations that are Structured Finance Obligations not more than 2% of the Maximum Investment Amount may consist of Investment Obligations that are Structured Finance Obligations; (10) if the Investment Obligation being acquired has an Attached Equity Security, not more than 10% of the Maximum Investment Amount may consist of Investment Obligations that have Attached Equity Securities; (11) if the Investment Obligation being acquired is a Zero-Coupon Security or a Step-Up Coupon Security, not more than 5% of the Maximum Investment Amount may consist of Investment Obligations that are Zero-Coupon Securities or Step-Up Coupon Securities; 145

156 (12) if the Investment Obligation being acquired is a Deep Discount Obligation, not more than 5% of the Maximum Investment Amount may consist of Investment Obligations that are Deep Discount Obligations; (13) if the Investment Obligation being acquired is the subject of a Permitted Offer, not more than 3% of the Maximum Investment Amount may consist of Investment Obligations that are the subject of a Permitted Offer; (14) if the Investment Obligation being acquired is an obligation of a Group A Country Obligor or Group B Country Obligor, not more than the indicated percentage in the table below of the Maximum Investment Amount may consist of Investment Obligations that are obligations of the indicated obligor classification: Group A Country Obligors and Group B Country Obligors 10% Group A Country Obligors domiciled in any single country 5% Group B Country Obligors domiciled in all countries 5% Group B Country Obligors domiciled in any single country 2% (15) Investment Obligations issued by any single issuer or any of its Affiliates (excluding Secondary Risk Counterparties) may not exceed 2% of the Maximum Investment Amount, except that with respect to up to each of 5 individual issuers (including any of their respective Affiliates but excluding issuers that the Collateral Manager reasonably determines are Affiliated but are not dependent upon one another for credit support and are not dependent upon a Person by which they are commonly controlled for credit support) other than single issuers of DIP Loans, the cap shall be 2.5% of the Maximum Investment Amount instead of 2% of the Maximum Investment Amount; (16) not more than 5% of the Maximum Investment Amount may consist of Fixed Rate Obligations; (17) not more than 5% of the Maximum Investment Amount may consist of Collateral Obligations that provide for the payment of interest less frequently than quarterly; (18) if the Investment Obligation being acquired is a Synthetic Security, not more than 15% of the Maximum Investment Amount may consist of Synthetic Securities; provided that not more than 5% of the Maximum Investment Amount may consist of Synthetic Securities that provide only for cash settlement; and if the Investment Obligation being acquired is a Synthetic Security that is a credit default swap, a credit linked note, or other similar instrument whose "credit events" include "restructuring," not more than 5% of the Maximum Investment Amount may consist of Synthetic Securities that are credit default swaps, credit linked notes, or other similar instruments whose "credit events" include "restructuring" and the Reference Obligation of the Synthetic Securities must be a floating rate senior secured loan and any "credit event" must settle by physical delivery only; and if the Investment Obligation being acquired is a Synthetic Security referencing a basket or portfolio of debt instruments or an index or indices in connection with a basket or portfolio of debt instruments or other similar instruments, not more than 5% of the Maximum Investment Amount may consist of Synthetic Securities that reference a basket or portfolio of debt instruments or an index or indices in connection with a basket or portfolio of debt instruments or other similar instruments; (19) if the Investment Obligation being acquired is a Participation, not more than 10% of the Maximum Investment Amount may consist of Investment Obligations that are Participations and no Investment Obligation may be a Participation in a Participation; (20) not more than 20% of the Maximum Investment Amount may consist in the aggregate of Collateral Obligations that are Participations or Synthetic Securities (in calculating the percentage in this clause (20), the Principal Balance of any Limited Exposure Synthetic Security is its Limited Exposure Amount), and the Aggregate Principal Balance of such Collateral Obligations entered into with, or issued by, (i) a single S&P Bivariate Risk Counterparty may not exceed the 146

157 percentage under the Individual S&P Bivariate Risk Counterparty Limit opposite the rating of such S&P Bivariate Risk Counterparty as set forth in the definition of "S&P Bivariate Risk Table" and (ii) all S&P Bivariate Risk Counterparties with the same or a lower credit rating (expressed as a percentage of the Maximum Investment Amount) than the S&P Bivariate Risk Counterparty for the Collateral Obligation may not exceed the percentage under the Aggregate S&P Bivariate Risk Counterparty Limit opposite the rating of the S&P Bivariate Risk Counterparty as set forth in the definition of "S&P Bivariate Risk Table"; (21) if the Collateral Obligation being acquired is a Participation, or a Synthetic Security each of (A) (B) (C) the Aggregate Principal Balance of Collateral Obligations (expressed as a percentage of the Maximum Investment Amount) entered into with, or issued by, the Secondary Risk Counterparty for the Collateral Obligation and its Affiliates (excluding issuers that the Collateral Manager reasonably determines are Affiliated but are not dependent upon one another for credit support and are not dependent upon a Person by which they are commonly controlled for credit support) may not exceed the percentage under the Aggregate Individual Counterparty Limit opposite the rating of the Secondary Risk Counterparty in the Secondary Risk Table; the Aggregate Principal Balance of Collateral Obligations entered into with, or issued by, all Secondary Risk Counterparties with the same or a lower credit rating (expressed as a percentage of the Maximum Investment Amount) than the Secondary Risk Counterparty for the Collateral Obligation may not exceed the percentage under the Aggregate Counterparty Limit opposite the rating of the Secondary Risk Counterparty in the Secondary Risk Table; and the Aggregate Principal Balance of Collateral Obligations entered into with, or issued by, (i) a single S&P Bivariate Risk Counterparty may not exceed the percentage under the Individual S&P Bivariate Risk Counterparty Limit opposite the rating of such S&P Bivariate Risk Counterparty and (ii) all S&P Bivariate Risk Counterparties with the same or a lower credit rating (expressed as a percentage of the Maximum Investment Amount) than the S&P Bivariate Risk Counterparty for the Collateral Obligation may not exceed the percentage under the Aggregate S&P Bivariate Risk Counterparty Limit opposite the rating of the S&P Bivariate Risk Counterparty in the S&P Bivariate Risk Table (in calculating the percentage in this clause (21), the Principal Balance of any Limited Exposure Synthetic Security shall be its Limited Exposure Amount); (22) not more than 7.5% of the Maximum Investment Amount may consist in the aggregate of Collateral Obligations having a Moody s Rating of "Caa1" or lower; all Moody s Failed Credit Estimate Collateral Obligations, if any, shall be included in the calculation of the 7.5% limit in this clause (22) for the purpose of determining whether the Issuer may acquire an Investment Obligation with a Moody s rating of "Caa1" or lower, but the fact that 7.5% or more of the Maximum Investment Amount consists in the aggregate of Collateral Obligations having a Moody s Rating of "Caa1" or lower at any time shall not limit the Issuer s ability to acquire Collateral Obligations that, pending receipt of a credit rating estimate from Moody s, are certified by the Collateral Manager to have an initial credit rating estimate of "B3" or higher from Moody s at such time; provided, however, that if during a period in which 7.5% or more of the Maximum Investment Amount consists in the aggregate of Collateral Obligations having a Moody s Rating of "Caa1" or lower and the Issuer has on three consecutive occasions acquired Moody s Rating Pending Credit Obligations that are determined to be Moody s Failed Credit Estimate Collateral Obligations, then the Issuer may not acquire any Collateral Obligations that do not have a Moody s Rating until the aggregate of Collateral Obligations having a Moody s Rating of "Caa1" or lower is less than 7.5% of the Maximum Investment Amount; 147

158 148 (23) if the Investment Obligation being acquired has an S&P Rating of "CCC+" or lower, not more than 7.5% of the Maximum Investment Amount may consist in the aggregate of Collateral Obligations having an S&P Rating of "CCC+" or lower; all S&P Failed Credit Estimate Collateral Obligations, if any, shall be included in the calculation of the 7.5% limit in this clause (23) for the purpose of determining whether the Issuer may acquire an Investment Obligation with an S&P rating of "CCC+" or lower, but the fact that there are S&P Failed Credit Estimate Collateral Obligations shall not limit the Issuer s ability to acquire Collateral Obligations that, pending receipt of a credit rating estimate from S&P, are assumed to have an initial credit rating estimate of "B-"or higher from S&P; (24) not more than 2% of the Maximum Investment Amount may consist of the portion of the Principal Balance of Long-Dated Collateral Obligations amortizing after the Stated Maturity of the Notes; (25) not more than 50% of the Maximum Investment Amount may be Collateral Obligations (other than Structured Finance Obligations) that are part of a senior credit facility whose aggregate principal balance is less than U.S.$125,000,000; (26) if a Collateral Obligation is being lent under a Securities Lending Agreement, not more than 15% (measured by Aggregate Principal Balance of loaned Collateral Obligations) of the Maximum Investment Amount may be loaned pursuant to Securities Lending Agreements at any time; (27) not more than 8% of the Maximum Investment Amount may consist of Collateral Obligations that are issued by obligors that belong to any single S&P Industry Classification, except that (i) the largest S&P Industry Classification (excluding "Automotive" and "Telecommunications") may represent up to 15% of the Maximum Investment Amount, (ii) the next two largest S&P Industry Classifications (excluding "Automotive" and "Telecommunications") may each represent up to 12% of the Maximum Investment Amount and (iii) the four largest S&P Industry Classifications (excluding "Automotive" and "Telecommunications") may represent, in the aggregate, up to 45% of the Maximum Investment Amount; provided, that on and after the Ramp-Up Completion Date, if the Diversity Score is less than 60 as of the date the Issuer commits to acquire the applicable Collateral Obligation, not more than 8% of the Maximum Investment Amount may consist of Collateral Obligations that are issued by obligors that belong to any single S&P Industry Classification, except that (i) the largest S&P Industry Classification (excluding "Automotive" and "Telecommunications") may represent up to 12% of the Maximum Investment Amount and (ii) the next two largest S&P Industry Classifications (excluding "Automotive" and "Telecommunications") may each represent up to 10% of the Maximum Investment Amount; (28) not more than 20% of the Maximum Investment Amount may consist in the aggregate of Collateral Obligations that are (A) being lent under a Securities Lending Agreement, (B) Participations and (C) Synthetic Securities; (29) not more than 3% of the Maximum Investment Amount may consist in the aggregate of Collateral Obligations denominated in a currency other than U.S. Dollars; (30) if the Investment Obligation being acquired is a secured Loan whose security interest is not a first priority security interest, not more than 7.5% of the Aggregate Principal Balance of the Collateral Obligations (including cash and Eligible Investments representing Principal Proceeds on deposit in the Collection Account) may consist of secured Loans whose security interest is not a first priority security interest; and (31) the Moody s Notched Rating Limitation and the S&P Notched Rating Limitation are satisfied. Subject to the rights in circumstances of the Collateral Manager to determine otherwise as set out in the Indenture, solely for the purpose of determining whether the Concentration Limitations are met, Eligible Investments and cash or direct registered debt obligations of the United States of America will be treated as Senior Secured Loans and Floating Rate Obligations.

159 "Controlling Class": The most senior Class of Securities (voting together as a Class or group and treating the Class A-1LR Notes and the Class A-1L Notes as a single Class for this purpose) any of which are at the time outstanding. "Corporate Trust Office": The corporate trust office of the Trustee at which the Trustee performs its duties under the Indenture, currently having an address of 1761 East St. Andrew Place, Santa Ana, CA 92705, Attention: CDO Business Unit - Denali Capital CLO VII, Ltd., or any other address the Trustee designates from time to time by notice to the Noteholders, the Collateral Manager, the Issuer, and each Rating Agency or the principal corporate trust office of any successor Trustee. "Coverage Tests"" The Overcollateralization Tests and the Interest Coverage Test. "Credit Improved Obligation": Any Collateral Obligation that since the date on which it was first acquired by the Issuer under the Indenture and as of the date of determination has shown improved results in credit quality since acquisition under the Indenture (in the Collateral Manager's reasonable judgment) and: (a) if a Credit Rating Event is not in effect, (i) (ii) (iii) (iv) (v) the Collateral Obligation has been upgraded or put on its credit watch list with the potential for developing positive credit implications by either of the Rating Agencies since the date the Issuer first acquired the Collateral Obligation under the Indenture; the obligor on the Collateral Obligation has raised equity capital or other capital subordinated to the Collateral Obligation that, in the Collateral Manager s reasonable judgment, has improved the liquidity or credit standing of the obligor; if the Collateral Obligation s interest rate spread has decreased (in accordance with its underlying instruments) since the date on which it was first acquired by the Issuer under the Indenture by at least 0.25%; since the date that the Collateral Obligation was first purchased by the Issuer, the ask price of the Collateral Obligation has increased in price to 101% or more of its original price; or in the reasonable judgment of the Collateral Manager, the Collateral Obligation has a market value greater than that warranted by its terms and credit characteristics (determined on the date on which the Collateral Obligation is first acquired), and (b) if a Credit Rating Event is in effect, (i) (ii) the Collateral Obligation has been upgraded or put on its credit watch list with the potential for developing positive credit implications by either of the Rating Agencies since the date the Issuer first acquired the Collateral Obligation under the Indenture; or a Majority of the Controlling Class has voted to suspend the limitations on a Collateral Obligation being a Credit Improved Obligation, and for each subsequent downgrade by Moody s after a vote to suspend the limitations pursuant to this clause (2) has occurred, a Majority of the Controlling Class must again vote to suspend the limitations on the Collateral Obligation being a Credit Improved Obligation for this clause (2) to remain applicable. A Synthetic Security shall be considered a Credit Improved Obligation if (i) (ii) the Synthetic Security itself is a Credit Improved Obligation or the Reference Obligation of the Synthetic Security would, if it were a Collateral Obligation, be a Credit Improved Obligation. "Credit Rating Event": An event that is in effect if the rating by Moody s of the Class A-1 Notes has been withdrawn or is one or more rating sub-categories below its initial rating; or 149

160 of the Class A-2L Notes, Class A-3L Notes or Class B-1L Notes has been withdrawn or is two or more rating sub-categories below their respective initial ratings. For the purposes of this definition, any withdrawal or reduction in rating shall not be effective if after the withdrawal or reduction Moody s has upgraded the reduced or withdrawn rating to at least the initial ratings in the case of the Class A-1 Notes, or to only one subcategory below their initial ratings in the case of the Class A-2L Notes, the Class A-3L Notes and the Class B-1L Notes. If the Collateral Manager has been replaced by a successor Collateral Manager pursuant to the Management Agreement after the occurrence of a Credit Rating Event, the Holders of a Majority of the Aggregate Voting Amount of the Controlling Class may direct that no existing Credit Rating Event shall apply to the successor Collateral Manager. "Credit Risk Obligation": Any Collateral Obligation (other than a Defaulted Collateral Obligation) that, in the reasonable judgment of the Collateral Manager, has a significant risk of declining in credit quality and, with a lapse of time, becoming a Defaulted Collateral Obligation. So long as a Credit Rating Event is in effect, no Collateral Obligation shall be eligible to be a Credit Risk Obligation unless, as of the date of determination, it is also the case that: (i) (ii) (iii) the Collateral Obligation has been downgraded or put on its credit watch list with the potential for developing negative credit implications by either of the Rating Agencies since the date the Issuer first acquired the Collateral Obligation under the Indenture; if the Collateral Obligation is a Loan, the spread over the applicable reference rate has been increased in accordance with the related underlying instruments since the date on which the Loan was first acquired by the Issuer under the Indenture by 0.50% or more for reasons primarily due, in the reasonable judgment of the Collateral Manager, to a deterioration in the related borrower s financial ratios or financial results and not as a result of general market conditions; or a Majority of the Controlling Class has voted to suspend the limitations on a Collateral Obligation being a Credit Risk Obligation, and for each subsequent downgrade by Moody s after a vote to suspend the limitations pursuant to this clause (iii) has occurred, a Majority of the Controlling Class must again vote to suspend the limitations on the Collateral Obligation being a Credit Risk Obligation for this clause (iii) to remain applicable. A Synthetic Security shall be considered a Credit Risk Obligation if (i) (ii) the Synthetic Security itself is a Credit Risk Obligation or the Reference Obligation of the Synthetic Security would, if it were a Collateral Obligation, be a Credit Risk Obligation. "Current-Pay Obligation": A Collateral Obligation as to which (i) (ii) (iii) an insolvency event has occurred with respect to its obligor or as to which its obligor is rated "D" or "SD" by S&P or its obligor has previously been rated "CCC-" by S&P and the rating has been withdrawn, no default as to the payment of interest and scheduled principal (other than payments of principal in the event of any bankruptcy, insolvency, receivership or similar proceedings of its obligor) with respect to the Collateral Obligation is then continuing and the Collateral Manager has delivered to the Trustee an officer's certificate to the effect that the Collateral Manager expects that the obligor will make payments on the Collateral Obligation as they become due, (A) if the rating by Moody's of the Collateral Obligation is at least "Caa1" (and not on credit watch with negative implications) the Market Value of the Collateral Obligation is at least equal to 80% of its Principal Balance (B) if the rating by Moody's of the Collateral Obligation is less than "Caa1" but is at least "Caa2" and not on credit watch with negative implications, or is "Caa1" and on credit watch with negative implications, the Market Value of the Collateral Obligation is at least equal to 85% of its Principal Balance or (C) if the rating by Moody's of the Collateral Obligation is below "Caa2" or is "Caa2" and on credit watch with negative implications, the 150

161 Market Value (as determined in accordance with the methods set out in clauses (i) through (iii) of the definition thereof) of such Collateral Obligation is at least equal to 80% of its Principal Balance, (iv) (v) if an insolvency event has occurred with respect to the obligor of the Collateral Obligation, a bankruptcy court has authorized the payment of interest payable on the Collateral Obligation, and the Collateral Manager has designated in writing to the Trustee the Collateral Obligation as a Current-Pay Obligation. If the Aggregate Principal Balance of Collateral Obligations that would otherwise be Current-Pay Obligations that are Middle-Market Current-Pay Obligations exceeds 2% of the Maximum Investment Amount, all or a portion of one or more of such Collateral Obligations with an Aggregate Principal Balance equal to the amount of the excess shall not be Current-Pay Obligations that are Middle-Market Current-Pay Obligations (and will therefore be Defaulted Collateral Obligations). The Collateral Manager shall designate in writing to the Trustee the Collateral Obligations that shall not be Current-Pay Obligations pursuant to the preceding sentence. If the Aggregate Principal Balance of Collateral Obligations that would otherwise be Current-Pay Obligations exceeds 5% of the Maximum Investment Amount (excluding the portion of Middle-Market Current-Pay Obligations treated as Defaulted Collateral Obligations pursuant to the preceding paragraph), all or a portion of one or more Collateral Obligations that would otherwise be Current-Pay Obligations with an Aggregate Principal Balance equal to the amount of the excess shall not be Current-Pay Obligations (and will therefore be Defaulted Collateral Obligations). The Collateral Manager shall designate in writing to the Trustee the Collateral Obligations that shall not be Current-Pay Obligations pursuant to the preceding sentence. The Collateral Manager may, by notice to the Issuer, the Trustee, and the Collateral Administrator, change the definition of a Current-Pay Obligation or how Current-Pay Obligations are treated in the Indenture, subject to the satisfaction of the Rating Condition with respect to each Rating Agency. "Current Portfolio": At any time, the portfolio (measured by Aggregate Principal Balance) of Collateral Obligations, Principal Proceeds held as cash on deposit in the Collection Account and other Eligible Investments purchased with Principal Proceeds on deposit in the Collection Account that exists before the sale, maturity, or other disposition of a Collateral Obligation or before the acquisition of a Collateral Obligation, as the case may be, plus, for each Collateral Obligation, an amount equal to the pro rata portion (based on the Principal Balance such Collateral Obligation bears to the Aggregate Principal Balance of all Collateral Obligations) of the Class A-1LR Undrawn Permitted Amount (after adjusting for deposit of the Revolving Funding Amount and the Delayed Drawdown Funding Amount, if any) at such time. "Deed of Covenant" means the Deed of Covenant dated May 22, 2007 constituting the Income Notes. "Deep Discount Obligation": (i) any Loan which had a Moody's Rating of at least "B3" at the time of purchase and was acquired by the Issuer for a Purchase Price less than 80% of its Principal Balance, (ii) any Loan which had a Moody's Rating below "B3" at the time of purchase and was acquired by the Issuer for a Purchase Price less than 85% of its Principal Balance, (iii) any Collateral Obligation that is not a Loan which had a Moody's Rating of at least "B3" at the time of purchase and was acquired by the Issuer for a Purchase Price less than 75% of its Principal Balance and (iv) any Collateral Obligation that is not a Loan which had a Moody's Rating below "B3" at the time of purchase and was acquired by the Issuer for a Purchase Price less than 80% of its Principal Balance. For such purpose, the Market Value Percentage of a Collateral Obligation on a day that is not a Business Day shall be deemed to be the Market Value Percentage on the immediately preceding Business Day. Notwithstanding the foregoing, if the Market Value Percentage, as determined daily for any period of 30 consecutive days, equals or exceeds (a) 90% for a Loan described in clause (i) or (ii) above or (b) 85% for a Collateral Obligation which is not a Loan described in clause (iii) or (iv) above, then such Loan or Collateral Obligation, as applicable, shall no longer be considered a Deep Discount Obligation. 151

162 "Defaulted Collateral Obligation": Any Collateral Obligation or other obligation included in the Collateral: (i) as to which a default in the payment of principal or interest is continuing (without regard to any applicable grace or notice period and without regard to any subsequent waiver of the default) beyond the lesser of three Business Days and any applicable grace or notice period, unless in the case of a failure of the obligor to make required interest payments, the obligor has resumed current Cash payments of interest previously scheduled and unpaid and has paid in full any accrued interest due and payable thereon, in which case the Collateral Obligation shall cease to be classified as a Defaulted Collateral Obligation; (ii) that is pari passu with or subordinated to other indebtedness for borrowed money owing by its obligor ("Other Indebtedness") that the Collateral Manager determines (in its reasonable judgment) to be material and the obligor has defaulted in the payment of principal or interest (without regard to any applicable grace or notice period and without regard to any waiver of the default) on the Other Indebtedness, unless, in the case of a failure of the obligor to make required interest payments, the obligor has resumed current cash payments of interest previously scheduled and unpaid on the Other Indebtedness and has paid in full any accrued interest due and payable thereon, in which case the Collateral Obligation shall cease to be classified as a Defaulted Collateral Obligation; (iii) (other than a Current-Pay Obligation or a DIP Loan) as to which (A) an insolvency event has occurred with respect to its obligor or (B) its obligor is rated "D" or "SD" by S&P, or was rated "CCC-" or lower by S&P immediately prior to the withdrawal of the rating and such rating has been withdrawn; (iv) if the Collateral Obligation is a Structured Finance Obligation, it is rated "CC" or below by S&P or "Ca" or below by Moody s, or it was rated "CC" or below by S&P but the rating has since been withdrawn or "Ca" or below by Moody s but the rating has since been withdrawn; (v) that is a PIK Security or Partial PIK Security as to which the issuer thereof or obligor thereon (or, in the case of a Synthetic Security, the related Reference Obligation) is deferring or capitalizing any interest due thereon and, therefore, not currently paying current interest at a rate at all times of at least the required Weighted Average Spread for the lesser of (i) two Payment Dates (except to the extent all interest so deferred or capitalized has subsequently been paid in full in cash, including interest thereon) and (ii) one year; (vi) that is a Participation that would, if the underlying Loan were a Collateral Obligation, be a Defaulted Collateral Obligation under any of clauses (i) through (iii) above or with respect to which the Participating Institution has defaulted in the performance of any of its payment obligations under the Participation; (vii) that is a Synthetic Security referencing a Reference Obligation that would, if the Reference Obligation were a Collateral Obligation, be a Defaulted Collateral Obligation under any of clauses (i) through (iv) above or with respect to which the Synthetic Security counterparty has defaulted in the performance of any of its payment obligations under the Synthetic Security; (viii) that is a Structured Finance Obligation whose Aggregate Principal Balance (including all other Structured Finance Obligations secured by the same pool of collateral that rank pari passu with or senior to it) exceeds the aggregate principal balance of all non-defaulted collateral available to such Structured Finance Obligations; (ix) that is a DIP Loan as to which an order has been entered converting the debtor s chapter 11 case to a case under chapter 7 of the Bankruptcy Code; or (x) that is declared to be a Defaulted Collateral Obligation by the Collateral Manager. Any Collateral Obligation that is classified as a Defaulted Collateral Obligation shall cease to be so classified if the Collateral Obligation, at any date thereafter, (1) would not otherwise be classified as a Defaulted Collateral Obligation in accordance with this definition; and (2) otherwise meets the Eligibility Criteria as of that date. 152

163 If any portion of a Collateral Obligation has a maturity later than two years after the Stated Maturity of the Notes due to a change in the payment schedule of the Collateral Obligation occurring after its acquisition by the Issuer, that portion of the Collateral Obligation shall be considered a Defaulted Collateral Obligation. "Defaulted Hedge Termination Payment": Any termination payment required to be made by the Issuer to a Hedge Counterparty pursuant to a Hedge Agreement upon a termination of the Hedge Agreement in respect of which the Hedge Counterparty is the sole Defaulting Party or Affected Party (each as defined in the Hedge Agreement), other than with respect to "Illegality" or "Tax Event" (each as defined in the Hedge Agreement). "Definitive Notes": The meaning specified in the section entitled "Settlement and Clearing for Global Securities Notes." "Delayed Drawdown Funding Amount": The aggregate amount of all unfunded portions of all Collateral Obligations that are Delayed Drawdown Loans which, pursuant to the Indenture, may be funded through draws on the Class A-1LR Notes over the aggregate amount on deposit in the Delayed Drawdown Reserve Account with respect to such Delayed Drawdown Loans. "Delayed Drawdown Loan": A Loan or any Synthetic Security with a Reference Obligation that (i) requires the Issuer to make one or more future advances to the borrower under its underlying instruments, (ii) specifies a maximum amount that can be borrowed on one or more fixed borrowing dates, and (iii) does not permit the re-borrowing of any amount previously repaid. A Loan or Synthetic Security shall only be considered to be a Delayed Drawdown Loan for so long as its unused commitment amount is greater than zero. "Determination Date": The last day of any Due Period. "DIP Loan": Any Loan (i) (ii) (iii) that has a rating assigned by Moody s (or if the Loan does not have a rating assigned by Moody s, the Collateral Manager has commenced the process of having a rating assigned by Moody s within five Business Days of the date the Loan is acquired by the Issuer) and a rating assigned by S&P (or if the Loan does not have a rating assigned by S&P, the Collateral Manager has commenced the process of having a rating assigned by S&P within two Business Days of the date the Loan is acquired by the Issuer), that is an obligation of a debtor in possession as described in Section 1107 of the Bankruptcy Code or a trustee (if appointment of a trustee has been ordered pursuant to Section 1104 of the Bankruptcy Code) (a "Debtor") organized under the laws of the United States or any state of the United States, and the terms of which have been approved by a final order of the United States Bankruptcy Court, United States District Court, or any other court of competent jurisdiction, the enforceability of which order is not subject to any pending contested matter or proceeding (as those terms are defined in the Federal Rules of Bankruptcy Procedure) and which order provides that (A) (B) (C) (D) the Loan is secured by liens on the Debtor s otherwise unencumbered assets pursuant to Section 364(c)(2) of the Bankruptcy Code, the Loan is secured by liens of equal or senior priority on property of the Debtor s estate that is otherwise subject to a lien pursuant to Section 364(d) of the Bankruptcy Code, the Loan is fully secured (based on a current valuation or appraisal report) by junior liens on the Debtor s encumbered assets, or if any portion of the Loan is unsecured, the repayment of the Loan retains priority over all other administrative expenses pursuant to Section 364(c)(1) of the Bankruptcy Code. In the case of this clause (D), before the acquisition of the Loan, the Rating Condition is satisfied with respect to each Rating Agency. 153

164 "Discount-Adjusted Spread": With respect to any Purchased Discount Obligation (excluding any Defaulted Collateral Obligation, any Partial PIK Security to the extent of any capitalized interest thereon and the unfunded commitment amounts of Revolving Loans and Delayed Drawdown Loans), the lesser of (i) the number obtained by dividing the spread (determined in accordance with the definition of "Weighted Average Spread") of such Purchased Discount Obligation by the Purchase Price (expressed as a percentage of such Purchased Discount Obligation) and (ii) the spread of such Purchased Discount Obligation plus 0.50%. "Diversity Score": A single number that indicates collateral concentration in terms of both issuer and industry concentration, calculated as set forth in Schedule 4 to the Indenture. "Diversity Test": The meaning specified in "Security for the Notes The Collateral Quality Tests." "Due Period": With respect to any Payment Date, for all purposes other than payments and receipts under Hedge Agreements, the period from the day following the last day of the immediately preceding Due Period (or in the case of the first Payment Date, from the Closing Date) and ending at the close of business on the seventh calendar day of the month in which such Payment Date occurs or, if such day is not a Business Day, on the next succeeding Business Day (or in the case of the final Payment Date or any Payment Date that is a Redemption Date, through the Business Day before such Payment Date and for payments and receipts under Hedge Agreements the period from the day after the previous Payment Date (or in the case of the first Payment Date from the Closing Date) through the Payment Date). Amounts that would otherwise have been payable in respect of a Collateral Obligation on or before the last day of a Due Period but for such day's not being designated a business day in the Underlying Instruments and/or as a result of the grace period for payment, if any, extending beyond the last day of a Due Period may, at the Collateral Manager's discretion, be considered included in collections received during such Due Period provided that such amounts are received by the third Business Day immediately preceding the Payment Date. "Eligible Investment Required Rating": With respect to Moody s, a long-term credit rating of at least "Aa2" (and not on credit watch with negative implications) from Moody s or a short-term credit rating of "P-1"( and not on credit watch for possible downgrade) and a long-term credit rating of at least "Aa3" (and not on credit watch with negative implications) from Moody s, and with respect to S&P a short-term credit rating of at least "A-1+" from S&P and, in the case of any Eligible Investment with a maturity of longer than 91 days, at least "AA" from S&P. "Eligible Investments": Any Dollar-denominated investment that, when it is pledged by the Issuer to the Trustee under the Indenture, is one or more of the following (including security entitlements with respect thereto): (i) (ii) (iii) direct Registered obligations of, and Registered obligations the timely payment of principal and interest on which is fully and expressly guaranteed by, the United States of America or any agency or instrumentality of the United States of America the obligations of which are expressly backed by the full faith and credit of the United States of America; demand and time deposits in, certificates of deposit of, bankers acceptances issued by, or federal funds sold by any depositary institution or trust company incorporated under the laws of the United States of America (including the Bank) or any state of the United States and subject to supervision and examination by federal or state banking authorities so long as the commercial paper or the debt obligations of the depositary institution or trust company (or in the case of the principal depository institution in a holding company system, the commercial paper or debt obligations of the holding company) at the time of the investment or contractual commitment providing for the investment have the Eligible Investment Required Ratings; unleveraged repurchase obligations with respect to (A) any security described in clause (i) above or (B) any other Registered security issued or guaranteed by an agency or instrumentality of the United States of America, in either case entered into with a depositary institution or trust company (acting as principal) described in clause (ii) above or entered into with a corporation (acting as principal) that has, or whose parent company has, the Eligible Investment Required Ratings; 154

165 (iv) (v) (vi) (vii) (viii) registered securities bearing interest or sold at a discount issued by any entity formed under the laws of the United States of America or any state of the United States that have a long-term credit rating of "Aa3" (and not on credit watch with negative implications) and a short-term credit rating of "P-1" (and not on credit watch for possible downgrade) from Moody s and a long-term credit rating of "AA" from S&P at the time of the investment or contractual commitment providing for the investment; commercial paper or other short-term obligations with the Eligible Investment Required Ratings and that are Registered and either bear interest or are sold at a discount from their stated amount and have a maturity of not more than 183 days from their date of issuance; a reinvestment agreement issued by any bank (if treated as a deposit by the bank), including the Bank, or a registered reinvestment agreement issued by any insurance company or other corporation or entity, in each case with the Eligible Investment Required Ratings; provided that the Rating Condition is satisfied with respect to such reinvestment agreement; money market funds (A) which funds have, at all times, a credit rating of "Aaa" and "MR1+" (and not on credit watch with negative implications) from Moody s and "AAAm" or "AAAmG" from S&P and distributions from which are not subject to United States withholding taxes or (B) that are qualified as money market funds under Rule 2a-7 under the Investment Company Act and have a credit rating of "Aaa" from Moody s and "AAAm" or "AAAmG" from S&P and distributions from which are not subject to United States withholding taxes; off-shore money market funds which funds have, at all times, credit ratings of "Aaa" and "MR1+" (and not on credit watch with negative implications) by Moody s and "AAAm" S&P if (A) (B) the ownership of the investment will not subject the Issuer to net income tax or cause the Issuer to be treated as engaged in a trade or business within the United States of America for United States federal income tax purposes and no amount earned by the Issuer with respect to the investment will be subject to withholding tax; (ix) any other investment with respect to which the Issuer has received written notification from each Rating Agency that the acquisition of the investment as an Eligible Investment will not result in a withdrawal or downgrading of any of its ratings on the Notes if (A) (B) the ownership of the investment will not subject the Issuer to net income tax or cause the Issuer to be treated as engaged in a trade or business within the United States of America for United States federal income tax purposes and no amount earned by the Issuer with respect to the investment will be subject to withholding tax; and (x) cash; and, in each case, with a stated maturity (giving effect to any applicable grace period) no later than the Business Day before the Payment Date next succeeding the date of the investment. Eligible Investments credited to the Revolving Reserve Account, the Delayed Drawdown Reserve Account, or the Synthetic Security Collateral Account must have a stated maturity no later than one Business Day after the date of their purchase. Eligible Investments may not include (1) any interest-only security, any security purchased at a price in excess of 100% of its par value, or any security whose repayment is subject to substantial non-credit related risk as determined in the reasonable judgment of the Collateral Manager; (2) any security whose rating assigned by S&P includes the subscript "r," "t," "p," "pi," or "q"; 155

166 (3) any floating rate security whose interest rate is inversely or otherwise not proportionately related to an interest rate index or is calculated as other than the sum of an interest rate index plus a spread (which spread may be zero); (4) any security purchased at a price in excess of 100% of the par value of that security; (5) any security that is subject to an exchange or tender offer; or (6) any security that has payments subject to foreign or United States withholding tax. Eligible Investments may include Eligible Investments for which the Trustee or an Affiliate of the Trustee provides services. Eligible Investments may not include obligations principally secured by real property. "Emerging Market Security": A security or obligation issued by a sovereign or non-sovereign issuer located in a country (excluding the Cayman Islands, Bermuda, the British Virgin Islands, the Netherlands Antilles, and the Channel Islands) (i) that is in Latin America, Asia, Africa, Eastern Europe, or the Caribbean or (ii) the long-term foreign currency debt obligations of which are rated below "Aa2" or "Aa2" and on credit watch with negative implications by Moody s or the foreign currency issuer credit rating of which is below "AA" by S&P. "Euro": The currency introduced at the start of the third stage of European economic and monetary union pursuant to the treaty establishing the European Communities, as amended. "Euroclear": Euroclear Bank S.A./N.V., as operator of the Euroclear system. "Excess Attached Equity Purchased With Interest": The aggregate for all such Collateral Obligations of the portion of the total Purchase Price paid by the Issuer for a Collateral Obligation with an Attached Equity Security allocable to the Attached Equity Security that exceeds 2% of the Purchase Price of the Collateral Obligation, as determined by the Collateral Manager on a commercially reasonable basis. "Excess Caa/CCC Collateral Obligations": The Moody s Excess Caa Collateral Obligations and the S&P Excess CCC Collateral Obligations except that if any Excess Caa/CCC Collateral Obligation is both a Moody s Excess Caa Collateral Obligation and an S&P Excess CCC Collateral Obligation, then that Excess Caa/CCC Collateral Obligation shall be included only once in any determination or calculation under the Indenture. "Excluded Property": U.S.$250 (attributable to the issue and allotment of the Issuer Ordinary Shares) and a U.S.$250 transaction fee paid to the Issuer, the bank account in which those amounts are credited in the Cayman Islands, and any interest earned on those amounts. "Federal Funds Rate": For any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the overnight federal funds rates as published in Federal Reserve Board Statistical Release H.15(519) or any successor or substitute publication selected by the Class A-1LR Note Agent (or, if such day is not a Business Day, for the preceding Business Day), or, if, for any reason, such rate is not available on any day, the rate determined by the Note Agent in good faith and in a commercially reasonably manner, to be the rate at which overnight federal funds are being offered in the national federal funds market at 9:00 a.m. (New York time). "Fiscal Agency Agreement": The agreement dated as of the Closing Date between the Issuer and the Fiscal Agent with respect to the Income Notes. "Fiscal Agent": Deutsche Bank AG, London Branch, as Fiscal Agent with respect to the Income Notes. "Fixed Rate Excess": As of any Measurement Date, a fraction whose numerator is the product of 156

167 (i) the greater of zero and the excess of the Weighted Average Fixed Rate Coupon for the Measurement Date over the minimum percentage specified to pass the Weighted Average Fixed Rate Coupon Test and (ii) the Aggregate Principal Balance of all Fixed Rate Obligations held by the Issuer as of the Measurement Date, and whose denominator is the Aggregate Principal Balance of all Floating Rate Obligations held by the Issuer as of the Measurement Date. In computing the Fixed Rate Excess on any Measurement Date, the Weighted Average Fixed Rate Coupon for the Measurement Date will be computed as if the Spread Excess were equal to zero. "Fixed Rate Obligation": Any Zero-Coupon Security, any Fixed Rate Step-Up Coupon Security, and any Collateral Obligation that bears interest at a fixed rate, including a Collateral Obligation that does not bear interest on a floating rate index and whose interest rate is scheduled to increase one or more times over the life of the Collateral Obligation. "Fixed Rate Step-Up Coupon Security": A security (i) that does not currently provide for the payment of interest, but that does provide for the payment of interest at a fixed rate per annum at least equal to 4.5% after the expiration of a specified period ending before its maturity or (ii) the interest rate of which is at a fixed rate per annum at least equal to 4.5% and is scheduled to increase over a specified period that has not expired. After the security s interest becomes payable, in the case of (i) above, or the scheduled period for interest rate increases has expired, in the case of (ii) above, the security will no longer be a Step-Up Coupon Security. For purposes of this definition only, references to "security" includes Loans, as applicable. "Floating Rate Obligation": Any Collateral Obligation that bears interest based on a floating rate index, including, but not limited to, any Floating Rate Step-Up Coupon Security. "Floating Rate Step-Up Coupon Security": A security (i) that does not currently provide for the payment of interest, but that does provide for the payment of interest at a floating rate per annum at least equal to a three month London interbank offered rate after the expiration of a specified period ending before its maturity or (ii) the interest rate of which is at a floating rate per annum at least equal to a three month London interbank offered rate and is scheduled to increase over a specified period that has not expired, other than due to the increase of the index of a Floating Rate Obligation. After the security s interest becomes payable, in the case of (i) above, or the scheduled period for interest rate increases has expired, in the case of (ii) above, the security will no longer be a Step-Up Coupon Security. For purposes of this definition only, references to "security" includes Loans, as applicable. "Form-Approved Synthetic Security": A Synthetic Security (i) (A) each of the Reference Obligations of which satisfy the definition of Collateral Obligation and could be purchased by the Issuer without any required action by the Rating Agencies, without satisfaction of the Rating Condition or which the Rating Agencies have otherwise approved or (B) each of the Reference Obligations of which would satisfy clause (A) above but for the currency in which the Reference Obligation is payable and the Synthetic Security is payable in Dollars, does not provide for physical settlement, and does not expose the Issuer to Dollar currency risk; (ii) the Synthetic Security Agreement of which conforms (but for the amount and timing of periodic payments, the name of the Reference Obligation, the notional amount, the effective date, the termination date, and other similar necessary changes) to a form that has been expressly identified and approved in writing in connection with a request under the Indenture by Moody s and S&P; and 157

168 (iii) that is with a counterparty with respect to which the Rating Condition has been satisfied by each of Moody s and S&P prior to the acquisition of any such Form-Approved Synthetic Security, and such approval has not been withdrawn. Moody s or S&P may at any time, by notice to the Collateral Manager, withdraw its approval of any such form. A withdrawal of approval shall have no effect on any Synthetic Security acquired, entered into, or committed to before the date on which the Collateral Manager receives the notice of withdrawal. "Group A Country Obligor": With respect to a Collateral Obligation, an obligor that is incorporated or otherwise organized in Australia, Canada, the United Kingdom, the Netherlands, or New Zealand (so long as the U.S. Dollar denominated sovereign debt obligations of the jurisdiction are rated at least "Aa2" (and not on credit watch with negative implications) by Moody s and the foreign currency issuer credit rating assigned by S&P to the jurisdiction is at least "AA"). "Group B Country Obligor": With respect to a Collateral Obligation, an obligor that is incorporated or otherwise organized in Austria, Belgium, Denmark, the Federal Republic of Germany, Finland, France, Iceland, Ireland, Liechtenstein, Luxembourg, Norway, Portugal, Spain, Sweden, or Switzerland (so long as the U.S. Dollar denominated sovereign debt obligations of the jurisdiction are rated at least "Aa2" (and not on credit watch with negative implications) by Moody s and the foreign currency issuer credit rating assigned by S&P to the jurisdiction is at least "AA"); or if the Collateral Obligation is a Structured Finance Obligation, any tax advantaged jurisdiction (including Bermuda, the British Virgin Islands, the Cayman Islands, the Netherlands Antilles, the Bahamas, the Channel Islands or any other tax neutral jurisdiction; or if the Collateral Obligation is not a Structured Finance Obligation and if at the time of acquisition of the Collateral Obligation the Collateral Manager specifies that the country of the source of substantially all of the obligor s revenues or assets is the United States, a country listed in the first paragraph of this definition, or a country listed in the definition of Group A Country Obligors, then with respect to an Aggregate Principal Balance of Collateral Obligations (that are not Structured Finance Obligations) of up to 4% of the Maximum Investment Amount (or such greater percentage as to which the Rating Condition with respect to Moody s has been satisfied); or subject to consent by at least a Majority of the Controlling Class and satisfaction of the Rating Condition with respect to each Rating Agency with respect thereto, any other jurisdiction identified from time to time by the Collateral Manager by notice to the Trustee, the Collateral Administrator and the Rating Agencies. "Hedge Agreements": Collectively, all interest rate cap, interest rate swap or currency exchange or protection agreements between the Issuer and any Hedge Counterparty, and any replacement agreement entered into pursuant to the Indenture. "Hedge Counterparty": Bear Stearns Financial Products Inc. or any other counterparty, to the extent that when the Issuer enters into any Hedge Agreement, the counterparty satisfies the requirements of the Indenture, including, in the case of any other counterparty, to the satisfaction of the Rating Condition for each Rating Agency. "Hedge Counterparty Collateral Account": The trust account established pursuant to the Indenture and as described in "Certain Additional Provisions Relating to the Securities The Accounts." "Hedge Termination Receipt": Any termination payment paid by the Hedge Counterparty to the Issuer upon any early termination of a Hedge Agreement with respect to which the Hedge Counterparty is the sole Defaulting Party or Affected Party (each as defined in the Hedge Agreements). 158

169 "High-Yield Bond": Any debt security other than a Loan, including any Structured Finance Obligation, that is either Registered or, if not Registered, (i) it is issued by an obligor that is not resident in the United States, (ii) the payments on it are not subject to United States withholding tax and (iii) it is held through a financial institution pursuant to the procedures described in Treasury regulation section (c)(3). "Holder": Of any Note, the person in whose name such Note is registered in the Indenture Register and of any Income Note, the person in whose name such Income Note is registered in the Income Note register. "Incentive Management Fee": The meaning specified in "The Management Agreement General." "Income Note Conditions": The Income Note Conditions to be annexed to the Fiscal Agency Agreement. "Income Note Documents": The Fiscal Agency Agreement, the Deed of Covenant and the Income Note Conditions. "Income Note Internal Rate of Return": With respect to any Payment Date, the internal rate of return (computed on a corporate bond equivalent yield basis) for the following cash flows, assuming all Income Notes were purchased on the Closing Date: (i) (ii) each distribution of Interest Proceeds made to the Holders of the Income Notes on any prior Payment Date and, to the extent necessary to reach the applicable Income Note Internal Rate of Return, the current Payment Date and each distribution of Principal Proceeds made to the Holders of the Income Notes on any prior Payment Date and, to the extent necessary to reach the applicable Income Note Internal Rate of Return, the current Payment Date. "Indenture Register": A register to be kept by the Indenture Registrar in which the Issuer shall provide for the registration of Notes and the registration of transfers of Notes. "Indenture Registrar": The meaning specified in "Settlement and Clearing for Global Notes Notes." "Initial Accrual Date": The first Payment Date on which the Average Annual Income Note Return with respect to the period consisting of four or more consecutive Payment Dates ending on and including such Payment Date is greater than or equal to 10%. "Initial Holder": Of any Note, any purchaser in the initial sale by Bear, Stearns & Co. Inc. or the initial placement by the Initial Purchaser, and will not include subsequent transferees. "Initial Purchaser": Bear, Stearns & Co. Inc., in the capacity of initial purchaser with respect to the Securities. "Interest Coverage Ratio": The meaning specified in "Coverage Tests and Additional Collateral Deposit Requirement The Interest Coverage Test." "Interest Coverage Test": The meaning specified in "Coverage Tests and Additional Collateral Deposit Requirement The Interest Coverage Test." "Interest Proceeds": With respect to any Due Period, the sum (without duplication) of all amounts received in cash during the Due Period (or as otherwise specified below) by the Issuer with respect to the Collateral that are: (i) payments of interest, fees, and commissions (excluding (A) accrued interest purchased with principal, (B) interest on Defaulted Collateral Obligations (except amounts received in excess of its par amount which shall be considered as Interest Proceeds), (C) interest and dividends on Workout Assets, 159

170 (D) fees and commissions from Defaulted Collateral Obligations, (E) syndication and other up-front fees and any up-front fixed payments received in connection with entering into a Synthetic Security and (F) Retained Accrued Interest); (ii) any portion of the Sale Proceeds of a Collateral Obligation (other than a Defaulted Collateral Obligation) representing accrued interest on sale; provided that the Sale Proceeds of any Defaulted Collateral Obligation in excess of its par amount shall be Interest Proceeds; (iii) all payments of principal on, or disposition proceeds from the sale of, Eligible Investments to the extent purchased with Interest Proceeds; (iv) payments with respect to the Hedge Agreements, received on or before the related Payment Date (other than any amount payable thereunder because of any early termination or notional amount reduction and any payments received pursuant to foreign currency Hedge Agreements in respect of principal payments made in connection with hedged Collateral Obligations), but not any Sale Proceeds from any of these instruments (except to the extent that they were purchased with Interest Proceeds); (v) all fees received pursuant to any Securities Lending Agreements; (vi) during the continuance of an "event of default" (under and as defined in the related Securities Lending Agreement), all interest received from the related Securities Lending Collateral; (vii) amounts in the Collection Account designated for distribution as Interest Proceeds pursuant to the Application of Funds; (viii) proceeds (excluding prepayment premiums on Collateral Obligations (and for purposes of this clause (viii), the Principal Balance of any Revolving Loans and Delayed Drawdown Loans will only include the funded amount thereof)) from the sale or final repayment of items of Collateral Obligations to the extent the amount of such proceeds from the sale or final repayment of a Collateral Obligation exceeds (1) in the case of Collateral Obligations other than Purchased Discount Obligations, the higher of the Principal Balance at the time of purchase or the Purchase Price thereof (excluding accrued interest purchased with principal) and (2) in the case of Purchased Discount Obligations, the Purchase Price thereof (excluding Accrued Interest Purchased With Principal), but only (a) if after giving effect to such disposition or repayment and the proposed designation of such proceeds as Interest Proceeds, the Concentration Limitations and the Collateral Quality Tests are satisfied, the criteria described under "Security for the Notes Ramp Up" and "Security for the Notes Purchase of Collateral Obligations After the Revolving Period" are satisfied, the Interest Coverage Test is satisfied, there is no CCC/Caa Excess, the rating on the Notes has not been withdrawn or reduced from the initial rating thereof by any Rating Agency and the sum of (1) the Aggregate Principal Balance of the Collateral Obligations in the Trust Estate as of such date plus (2) the sum of the Balance of Eligible Investments and cash in the Collection Account representing Principal Proceeds plus unpaid Accrued Interest Purchased With Principal as of such date plus (3) the undrawn amount of the Class A-1LR Commitment is at least equal to U.S.$800,000,000, (b) if the Payment Date for the relevant Due Period is on or after the Payment Date occurring in July 2008 and (c) to the extent the Collateral Manager elects to treat such proceeds as Interest Proceeds; (ix) all earnings on amounts in the Delayed Drawdown Reserve Account and the Revolving Reserve Account deposited to the Collection Account in accordance with the Indenture; and (x) amounts in the Expense Reimbursement Account on the Payment Date for the relevant Due Period. Interest Proceeds shall not include Excluded Property and Interest Proceeds shall not include earnings on amounts on deposit in the Securities Lending Account to the extent the earnings are payable by the Issuer to a Securities Lending Counterparty. 160

171 Each reference in the definition of Interest Proceeds to a Collateral Obligation shall include a Collateral Obligation that has been loaned pursuant to a Securities Lending Agreement and Interest Proceeds shall include any amounts referred to in clauses (i) through (iii) above received by the Issuer in respect of the Collateral Obligation indirectly from the related Securities Lending Counterparty pursuant to the Securities Lending Agreement. At any time when an "event of default" (under and as defined in a Securities Lending Agreement) is not continuing, any payments received by the Issuer from the related Securities Lending Collateral are Interest Proceeds. "Investment Company Act": The United States Investment Company Act of 1940, as amended. "Investment Criteria Adjusted Balance": For any Collateral Obligation other than Deep Discount Obligations and Excess Caa/CCC Collateral Obligations, its Principal Balance; for a Deep Discount Obligation, its purchase price; and for an Excess Caa/CCC Collateral Obligation, if any, the product of (x) the weighted average Market Value of all Caa/CCC Collateral Obligations, expressed as a percentage of their outstanding principal balances and (y) its Principal Balance; provided that, for purposes hereof, the Market Value of any Caa/CCC Collateral Obligation shall not exceed the par value of such Collateral Obligation. "Investment Obligation": For a Collateral Obligation that is a Synthetic Security, the reference obligation of the Synthetic Security, and otherwise the Collateral Obligation. "Issuer Charter": The memorandum and articles of association of the Issuer, as amended and restated before the Closing Date or in accordance with the Indenture. "Issuer Ordinary Shares": The meaning specified in "The Co-Issuers General." "Knowledgeable Employee": The meaning specified in Rule 3c-5 under the Investment Company Act. "Limited Exposure Amount": For any Limited Exposure Synthetic Security at any time: (i) if the Issuer will have no payment obligations in respect of Section 6(e) of the related ISDA Master Agreement between the Issuer and the Synthetic Security counterparty, the amount of the spread payment due under the Limited Exposure Synthetic Security in the following Due Period (as calculated by the Collateral Manager); or (ii) if the Issuer will have payment obligations in respect of Section 6(e) of the related ISDA Master Agreement, the cost that would be payable by the Issuer if the Limited Exposure Synthetic Security were being unwound (as calculated by the Collateral Manager), or in each case such lesser amount as the Issuer, at the direction of the Collateral Manager, may specify, subject to satisfaction of the Rating Condition with respect to each Rating Agency. "Limited Exposure Synthetic Security": A Synthetic Security that (i) has an ISDA Master Agreement as its Synthetic Security agreement; (ii) is a credit default swap where the related Synthetic Security counterparty is required only to make spread payments to the Issuer; and (iii) does not by its terms obligate the Issuer to make payments upon termination of such Synthetic Security to the Synthetic Security Counterparty or otherwise. Any other Synthetic Security the Issuer specifies will also be a Limited Exposure Synthetic Security, subject to satisfaction of the Rating Condition with respect to each Rating Agency. "Loan": Any interest in a fully committed, senior secured, unsecured, or subordinated term or revolving loan (including loans involving credit linked deposits) that is acquired by assignment or by Participation (including any DIP Loan) that is either (i) Registered or 161

172 (ii) issued by an obligor that is not resident in the United States whose payments are not subject to United States withholding tax and that is held through a financial institution pursuant to the procedures described in Treasury Regulation Section (c)(3). "London Banking Day": A day on which commercial banks and foreign exchange markets settle payments in London, England. "Long-Dated Collateral Obligation": Any Collateral Obligation with a stated maturity later than the Stated Maturity of the Notes other than a Collateral Obligation with a stated maturity later than the Stated Maturities of the Notes that includes a "put" option to its obligor at a price of at least par payable on or before the Stated Maturity of the Notes; provided that no such Collateral Obligation shall have a Stated Maturity longer than 2 years following the Stated Maturity of the Notes. "Majority": With respect to any Class or group of Notes, the Holders of more than 50% of the Aggregate Voting Amount of that Class or group of Notes, as the case may be. With respect to the Income Notes, the Holders of more than 50% of the notional amount of the Income Notes. Notwithstanding the foregoing, for purposes of terminating the Collateral Manager for "cause" and, after such removal, voting to approve a successor, a Majority shall not include any Notes or Income Notes owned by the Collateral Manager, its Affiliates or employees of Denali. "Management Fee": The meaning specified in "The Management Agreement General." "Margin Stock": The meaning specified under Regulation U issued by the Board of Governors of the Federal Reserve System, including any debt security that is by its terms convertible into Margin Stock, but does not include any obligation that at the time of acquisition, conversion, or exchange does not satisfy the requirements of Collateral Obligation received pursuant to an offer by an issuer of a Defaulted Collateral Obligation. "Market Value": As of any Measurement Date the market value (determined by the Collateral Manager and provided to the Trustee as an amount rather than as a percentage or fraction of par) of any Collateral Obligation based on: (i) (ii) (iii) (iv) the average of the bid-side prices for the purchase of the Collateral Obligation determined by an Approved Pricing Service (independent from the Collateral Manager) that derives valuations by polling broker-dealers (independent from the Collateral Manager); if the determination specified in clause (i) is not available (as reasonably determined by the Collateral Manager), the arithmetic average of bid-side quotations for the purchase of the Collateral Obligation obtained by the Collateral Manager from three broker-dealers (Independent from the Collateral Manager and the Issuer) in the relevant market; if the determination specified in clause (i) or (ii) is not available, the lower of bid-side quotations for the purchase of the Collateral Obligation obtained by the Collateral Manager from two brokerdealers (Independent from the Collateral Manager) in the relevant market; or if the determination specified in clause (i), (ii) or (iii) is not available, the bid-side market value of the Collateral Obligation as certified by the Collateral Manager to the Trustee as consistent with reasonable and customary market practice. With respect to a Collateral Obligation that is a Loan that is part of a facility with an aggregate principal balance less than U.S.$150,000,000, the Collateral Manager may instead of applying the methods set out in clauses (i) through (iii) above, apply a market value that is based on the Collateral Manager s own reasonable belief and certified in writing to the Trustee and the Rating Agencies, but in no event may such Market Value exceed the lesser of (I) an amount equal to 40% of the Principal Balance of such Collateral Obligation and (II) an amount equal to the S&P Priority Category Recovery Rate applicable to such Collateral Obligation multiplied by the Principal Balance of such Collateral Obligation; provided, that if the service specified in clause (i) above is available, the market value shall be calculated as set forth in such clause (i) so long as the Approved Pricing Service polls three or more broker/dealers as set forth in clause (i) above. 162

173 With respect to a Collateral Obligation that is a Loan that is part of a facility with an aggregate principal balance greater than U.S.$250,000,000, or any other Collateral Obligation that is not a Loan and the Market Value of such Collateral Obligation is initially determined by applying the method set out in clause (iv) above, then the Collateral Manager shall, through the application of the methods set out in clauses (i), (ii) or (iii) above, attempt to redetermine the Market Value of such Collateral Obligation on each Business Day until such time as the Collateral Manager may apply a market value that is based on the Collateral Manager's own reasonable belief and certified in writing to the Trustee and the Rating Agencies, but in no event may such Market Value exceed the greater of (I) an amount equal to 70% of the Principal Balance of such Collateral Obligation and (II) an amount equal to the S&P Priority Category Recovery Rate applicable to such Collateral Obligation multiplied by the Principal Balance of such Collateral Obligation; provided, that if the Collateral Manager is not able to determine the Market Value of such Collateral Obligation by applying the methods set out in clause (i), (ii) or (iii) above within 30 calendar days of the initial Market Value determination pursuant to this paragraph, then such Collateral Obligation shall be deemed to have a Market Value of U.S.$0. With respect to a Collateral Obligation that is a Loan that is part of a facility with an aggregate principal balance greater than or equal to U.S.$150,000,000 but less than or equal to U.S.$250,000,000, and the Market Value of such Collateral Obligation is initially determined by applying the method set out in clause (iv) above, then the Collateral Manager shall attempt to redetermine the Market Value of such Collateral Obligation on each Business Day until such time as the Collateral Manager is able to determine the Market Value of such Collateral Obligation by applying the methods set out in clauses (i), (ii) or (iii) above, provided, that if such Market Value is not so determined, then such Collateral Obligation shall be deemed to have a Market Value that is based on the Collateral Manager s own reasonable belief and certified in writing to the Trustee and the Rating Agencies, but in no event may such Market Value exceed the lesser of (I) an amount equal to 40% of the Principal Balance of such Collateral Obligation and (II) an amount equal to the S&P Priority Category Recovery Rate applicable to such Collateral Obligation multiplied by the Principal Balance of such Collateral Obligation; provided, that if the service specified in clause (i) above is available, the market value shall be calculated as set forth in such clause (i) so long as the Approved Pricing Service polls two or more broker/dealers as set forth in clause (i) above. "Market Value Percentage": For any Collateral Obligation, the ratio obtained by dividing (i) (ii) the Market Value of the Collateral Obligation by the Principal Balance of the Collateral Obligation. "Maximum Investment Amount": An amount equal to: (i) (ii) on any Measurement Date on and after the Closing Date through the Ramp-Up Completion Date, U.S.$800,000,000, and on any Measurement Date after the Ramp-Up Completion Date: (a) the aggregate Principal Balance of all Collateral Obligations plus the aggregate outstanding principal amount of any Defaulted Collateral Obligations (excluding in each case the unfunded amount of any Revolving Loan or Delayed Drawdown Loan to the extent such amount is not reserved in the Revolving Reserve Account or the Delayed Drawdown Reserve Account to be applied to fund such unfunded amount), plus (b) cash representing Principal Proceeds on deposit in the Collection Account, plus (c) Eligible Investments (other than cash) purchased by the Issuer with Principal Proceeds on deposit in the Collection Account, plus (d) the Class A-1LR Aggregate Undrawn Amount as of such Measurement Date. 163

174 "Measurement Date": Any date on which the Issuer commits to acquire or dispose of any Collateral Obligation, on which a Collateral Obligation becomes a Defaulted Collateral Obligation, that is a Determination Date, that is the Ramp-Up Completion Date, and that is the date as of which the information in a monthly report is calculated pursuant to the Indenture. "Middle-Market Current-Pay Obligation": A Current-Pay Obligation (other than with respect to item (iii) of that definition) that (i) is part of an issue or facility whose aggregate principal balance is less than U.S.$150,000,000, (ii) has a Moody s Rating of at least "Caa2," and (iii) has a Market Value which is equal to or greater than 80% of par. "Moody s": Moody s Investors Service, Inc. "Moody s Caa Collateral Obligations": The Collateral Obligations (excluding any Defaulted Collateral Obligations) that on the relevant date have a Moody s Rating of "Caa1" or below. "Moody s Excess Caa Collateral Obligations": The Principal Balance of all Moody s Caa Collateral Obligations in excess of 10% of the Maximum Investment Amount on the relevant Determination Date. "Moody s Industry Classification": The Moody s Industry Classifications in Schedule 2 of the Indenture as modified, amended, and supplemented from time to time by Moody s. "Moody s Rating Factor": The meaning specified in the Indenture. "Non-Performing Collateral Obligation": Any Defaulted Collateral Obligation and any PIK Security (other than a Partial PIK Security) as to which its issuer or obligor has previously deferred or capitalized any interest due on it and all the interest so deferred or capitalized has not subsequently been paid in full in cash by (i) (ii) if the PIK Security has a Moody s Rating of "Baa3" (and not on credit watch with negative implications) or above, the earlier of its second payment date or one year following the date of the initial deferral or capitalization of interest due on it or if the PIK Security has a Moody s Rating of "Baa3" and on credit watch with negative implications or below "Baa3," the earlier of its first payment date or six months following the date of the initial deferral or capitalization of interest due on it. Tests." Tests." "Note Break-Even Loss Rate": The meaning specified in "Security for the Notes The Collateral Quality "Note Class Loss Differential": The meaning specified in "Security for the Notes The Collateral Quality "Note Interest Rate": With respect to any specified Class of Notes, the per annum interest rate payable on the Notes of the Class with respect to each Periodic Interest Accrual Period equal to LIBOR for Eurodollar deposits for the Periodic Interest Accrual Period plus the spread specified in the "Interest Rate" rows of the tables under "Summary of Terms Notes Offered" with respect to the Notes except in the first Periodic Interest Accrual Period. "Note Payment Sequence": The application of funds in the following order: (1) to the Class A-1 Notes in the Note Payment Sequence Class A-1; 164

175 (2) to the Class A-2L Notes until the Aggregate Principal Amount of the Class A-2L Notes has been reduced to zero; (3) to the Class A-3L Notes in an amount equal to any Periodic Rate Shortfall Amount with respect to such Class A-3L Notes until such amount, if any, is paid in full, and then in an amount equal to the Aggregate Principal Amount of the Class A-3L Notes until such Aggregate Principal Amount has been reduced to zero; (4) to the Class B-1L Notes in an amount equal to any Periodic Rate Shortfall Amount with respect to such Class B-1L Notes until such amount, if any, is paid in full, and then in an amount equal to the Aggregate Principal Amount of the Class B-1L Notes until such Aggregate Principal Amount has been reduced to zero; and (5) to the Class B-2L Notes in an amount equal to any Periodic Rate Shortfall Amount with respect to such Class B-2L Notes until such amount, if any, is paid in full, and then in an amount equal to the Aggregate Principal Amount of the Class B-2L Notes until such Aggregate Principal Amount has been reduced to zero. "Note Payment Sequence Class A-1": The application of funds, concurrently, as follows: (x) the Class A- 1LR Portion (as defined below) of the amount to be applied, sequentially, first to the payment of the Class A-1LR Notes until the Aggregate Principal Amount thereof is reduced to zero, then to the deposit in the Revolving Reserve Account or the Delayed Drawdown Reserve Account, as applicable, of an amount up to the Class A-1LR Required Reserve Amount, and then any excess to the Collection Account as Principal Proceeds to be applied to the purchase of additional Collateral Obligations, as directed by the Collateral Manager or the Issuer pursuant to the Indenture and as described herein, and (y) the Class A-1L Portion (as defined below) of the amount to be applied, to the payment of the Class A-1L Notes; provided that if the Class A-1LR Commitments, the Class A-1LR Permitted Amount and the amount drawn on the Class A-1LR Notes equal zero, all amounts payable pursuant to this Note Payment Sequence Class A-1 shall be paid to the Class A-1L Notes until the Aggregate Principal Amount thereof has been reduced to zero. If the amount of the Class A-1LR Commitments is reduced pursuant to the Note Payment Sequence Class A-1 such that a potential Commitment Shortfall would occur as a result thereof, an amount sufficient to cover such potential Commitment Shortfall shall be deposited in the Revolving Reserve Account or the Delayed Drawdown Reserve Account, as applicable. For purposes of the preceding paragraph, the following terms have the following meanings, each determined as of the Determination Date relating to such Payment Date: (a) the "Class A-1 Amount" means the sum of (i) the Aggregate Principal Amount of the Class A-1LR Notes plus (ii) the Class A-1LR Undrawn Permitted Amount plus (iii) the Aggregate Principal Amount of the Class A-1L Notes; (b) the "Class A-1LR Portion" means (i) the Aggregate Principal Amount of the Class A- 1LR Notes plus the Class A-1LR Undrawn Permitted Amount divided by (ii) the Class A-1 Amount; and (c) the "Class A-1L Portion" means (i) the Aggregate Principal Amount of the Class A-1L Notes divided by (ii) the Class A-1 Amount. "Overcollateralization Ratio Numerator": The meaning specified in "Coverage Tests and Additional Collateral Deposit Requirement The Overcollateralization Tests." "Overcollateralization Test": The meaning specified in "Coverage Tests and Additional Collateral Deposit Requirement The Overcollateralization Tests." "Overnight LIBOR Determination Date": With respect to each of the days from and including the relevant Class A-1LR Borrowing Date to but excluding the third Business Day after the relevant Class A-1LR Borrowing Request is received by the Holder of Class A-1LR Notes, the second London Banking Day prior to such day. 165

176 "Partial PIK Security": Any Collateral Obligation with respect to which under the related underlying instruments (i) a portion of the interest due thereon is required to be paid in cash on each payment date therefor and is not permitted to be deferred or capitalized and (ii) the issuer thereof or obligor thereon (or, in the case of a Synthetic Security, the related Reference Obligor) has the right to defer or capitalize the remaining portion of the interest due thereon. "Participating Institution": An institution that creates a participation interest and that has a long-term senior unsecured debt rating or a guarantor with a long-term senior unsecured debt rating of at least "A-" by S&P and either a long-term senior unsecured debt rating or a guarantor with a long-term senior unsecured debt rating of at least "A2" and a short-term rating of "P-1" (and not on credit watch for possible downgrade) by Moody s or a longterm senior unsecured debt rating or a guarantor with a long-term senior unsecured debt rating of at least "A1" by Moody s when the participation interest is acquired by the Issuer. "Participation": A Loan acquired as a participation interest created by a Participating Institution. "Periodic Interest": With respect to each Class of Notes, interest on such Class payable on each Payment Date and accruing during each Periodic Interest Accrual Period at the Applicable Periodic Rate. "Periodic Interest Accrual Period": The following period: (i) with respect to each Class A-1LR Note in connection with a Class A-1LR Borrowing, (A) the period from the related Class A-1LR Borrowing Date to but excluding the first Payment Date thereafter; and (B) thereafter, each successive period from, and including, the preceding Payment Date to, but excluding, the next succeeding Payment Date until the principal of such Notes is paid; and (ii) in all other cases, (A) in the case of the initial Periodic Interest Accrual Period, the period from, and including, the Closing Date to, but excluding, the first Payment Date, and (B) thereafter, the period from, and including, the preceding Payment Date to, but excluding, the next succeeding Payment Date until the principal of the related Class of Notes is paid or made available for payment. "Periodic Interest Amount": With respect to the Class A-1LR Notes and the Class A-1L Notes and any Payment Date, the aggregate amount of interest accrued at the Applicable Periodic Rate during the related Periodic Interest Accrual Period on (i) with respect to the first Payment Date, the daily average Aggregate Principal Amount of such Class of Notes during such Periodic Interest Accrual Period, and (ii) thereafter, the Aggregate Principal Amount of such Class of Notes on the first day of such Periodic Interest Accrual Period (after giving effect to any payment of principal of such Class of Notes on such day). With respect to each other Class of Notes and any Payment Date, the aggregate amount of interest accrued at the Applicable Periodic Rate during the related Periodic Interest Accrual Period on the Aggregate Principal Amount of such Class on the first day of such Periodic Interest Accrual Period (after giving effect to any payment of principal of such Class of Notes on such date, including in connection with a redemption of a Class of Notes on any date during the related Periodic Interest Accrual Period). "Periodic Rate Shortfall Amount": With respect to each Class of Notes and any Payment Date, any shortfall or shortfalls in the payment of the Periodic Interest Amount on such Class of Notes with respect to any preceding Payment Date or Payment Dates together with interest accrued thereon at the Applicable Periodic Rate (net of all Periodic Rate Shortfall Amounts, if any, paid with respect to such Class of Notes prior to such Payment Date). "Permitted Offer": A tender offer, voluntary redemption, exchange offer, conversion, or other similar action pursuant to which the offeror offers to acquire a debt obligation (including a Collateral Obligation) in exchange solely for cash in an amount equal to or greater than the full stated amount of the debt obligation plus any accrued and unpaid interest and as to which the Collateral Manager has determined in its reasonable commercial judgment that the offeror has sufficient access to financing to consummate the tender offer, voluntary redemption, exchange offer, conversion, or other similar action. 166

177 "PIK Security": Any Collateral Obligation (including any Partial PIK Security) with respect to which its issuer or obligor may defer or capitalize interest due on the Collateral Obligation under the related underlying instruments. "Prepaid Collateral Obligation": Any Credit Risk Obligation that is sold by the Issuer and any Collateral Obligation that has prepaid, whether by tender, exchange, redemption before the stated maturity of the Collateral Obligation, or other prepayment. "Prepayment Costs": The meaning specified in the Class A-1LR Note Purchase Agreement. "Principal Balance": With respect to any Collateral Obligation other than those specifically covered in this definition, the outstanding principal amount of the Collateral Obligation as of the relevant Measurement Date; a Synthetic Security, the notional amount specified in the Synthetic Security; any Collateral Obligation in which the Trustee does not have a first priority perfected security interest, zero, except as otherwise expressly specified in the Indenture; any Defaulted Collateral Obligation, except as otherwise provided, zero; any Zero Coupon Security, its accreted value; any Step-Up Coupon Security, its accreted value; any Collateral Obligation that has been loaned, its Principal Balance shall be reduced by the excess of the amount of collateral required over the actual Market Value of the collateral; any Revolving Loan or Delayed Drawdown Loan, its Principal Balance shall include any unfunded amount thereof (regardless of the nature of the contingency relating to the Issuer s obligation to fund the unfunded amount), except as otherwise expressly specified in the Indenture; any PIK Security, its Principal Balance shall not include any principal amount of the PIK Security representing previously deferred or capitalized interest, and any obligation that at the time of acquisition, conversion, or exchange does not satisfy the requirements of a Collateral Obligation, zero. "Principal Proceeds": With respect to any Due Period, all amounts received (i) as Retained Accrued Interest and paid on any date as specified in the Indenture and (ii) in Cash during the Due Period by the Issuer with respect to the Collateral that are not Interest Proceeds. Principal Proceeds do not include the Excluded Property or earnings on amounts on deposit in the Securities Lending Account to the extent the earnings are payable by the Issuer to a Securities Lending Counterparty. Any proceeds from the sale of a Zero-Coupon Security (up to the par amount thereof) shall be included as Principal Proceeds. At any time when an "event of default" under a Securities Lending Agreement is not continuing, any payments received by the Issuer from the related Securities Lending Collateral shall not be Principal Proceeds. Class. "Priority Class": With respect to any specified Class of Notes, each Class of Notes that ranks senior to that "Proposed Portfolio": As of any Measurement Date, the portfolio (measured by Aggregate Principal Balance) of Collateral Obligations and Principal Proceeds held as cash on deposit in the Collection Account and other Eligible Investments purchased with Principal Proceeds on deposit in the Collection Account resulting from 167

178 the sale, maturity, or other disposition of a Collateral Obligation or a proposed reinvestment in a Collateral Obligation, as the case may be, plus, for each Collateral Obligation, an amount equal to the pro rata portion (based on the Principal Balance such Collateral Obligation bears to the Aggregate Principal Balance of all Collateral Obligations) of the Class A-1LR Undrawn Permitted Amount (after adjusting for deposit of the Revolving Funding Amount and the Delayed Drawdown Funding Amount, if any) at such time. "Purchase Price": With respect to the purchase of any Collateral Obligation (other than any obligation that at the time of acquisition, conversion, or exchange does not satisfy the requirements of a Collateral Obligation), the net purchase price paid by the Issuer for the Collateral Obligation. The net purchase price is determined by subtracting from the purchase price the amount of any accrued interest purchased with principal and any syndication and other upfront fees paid to the Issuer and by adding the amount of any related transaction costs (including assignment fees) paid by the Issuer to the seller of the Collateral Obligation or its agent. "Purchased Discount Obligation": With respect to a floating rate Collateral Obligation, an obligation that has been purchased at a Purchase Price (as a percentage of the principal balance of such obligation) of less than 100% and has been irrevocably designated immediately after the purchase thereof as a Purchase Discount Obligation in the sole discretion of the Collateral Manager in a notice delivered to the Trustee; provided that an obligation shall only be deemed to be a Purchased Discount Obligation if, as of the date of its purchase, (i) it is not a Deep Discount Obligation, (ii) each of the Coverage Tests and the Additional Collateral Deposit Requirement is satisfied and (iii) each of the Concentration Limitations and each of the Collateral Quality Tests is satisfied. "Qualified Equity Security": Any obligation that at the time of acquisition, conversion, or exchange does not satisfy the requirements of a Collateral Obligation and that is stock or evidence of an interest in or a right to buy stock, or any obligation that at the time of acquisition, conversion, or exchange does not satisfy the requirements of a Collateral Obligation but whose acquisition otherwise is a transaction in stocks or securities within the meaning of Section 864(b)(2)(A)(ii) of the Code and the regulations under the Code. Qualified Equity Securities does not include any obligation that at the time of acquisition, conversion, or exchange does not satisfy the requirements of a Collateral Obligation and that will cause the Issuer to be treated as engaged in or having income from a United States trade or business for United States federal income tax purposes by virtue of its ownership or disposition of the obligation. "Qualified Institutional Buyer": The meaning specified in Rule 144A under the Securities Act. "Qualified Purchaser": The meaning specified in Section 2(a)(51) of the Investment Company Act and Rule 2a51-2 under the Investment Company Act. "Ramp-Up Completion Date": The meaning specified in "Security for the Notes Ramp-Up." "Rating Agency": Each of Moody s and S&P or, with respect to Collateral Obligations generally, if at any time Moody s or S&P ceases to provide rating services with respect to high yield debt securities, any other nationally recognized statistical rating organization selected by the Issuer and reasonably satisfactory to a Majority of each Class of Notes. If at any time Moody s ceases to be a Rating Agency, references to rating categories of Moody s in the Indenture shall instead be references to the equivalent categories of the replacement rating agency as of the most recent date on which the replacement rating agency and Moody s published ratings for the type of security in respect of which the replacement rating agency is used. If at any time S&P ceases to be a Rating Agency, references to rating categories of S&P in the Indenture shall instead be references to the equivalent categories of the replacement rating agency as of the most recent date on which the replacement rating agency and S&P published ratings for the type of security in respect of which the replacement rating agency is used. "Rating Condition": With respect to any Rating Agency and any action taken or to be taken under the Indenture, a condition that is satisfied when such Rating Agency has confirmed to the Collateral Manager (as agent for the Issuer) in writing that no withdrawal, reduction, suspension, or other adverse action with respect to any then current rating by it (including any private or confidential rating) of any Class of Notes will occur as a result of the action. The Rating Condition with respect to any Rating Agency shall be satisfied for all purposes of the Indenture at any time when no outstanding Notes are rated by it. 168

179 "Rating Confirmation": Written confirmation from S&P that it has not reduced, suspended, or withdrawn the initial rating assigned by it to any Class of Notes. "Rating Confirmation Failure": The occurrence of either of the following: (i) failure by the Issuer or the Collateral Manager (on behalf of the Issuer) to obtain confirmation from S&P that it has not reduced, suspended, or withdrawn its Initial Rating of each Class of Notes and that it has not placed any Class of Notes on credit watch with negative implications by the Business Day after the 34th day after the Ramp-Up Completion Date, and deliver such confirmation to the Trustee, or (ii) failure by the Issuer or the Collateral Manager (on behalf of the Issuer) to deliver to the Trustee and each Rating Agency the Accountant s Certificate confirming that, as of the Ramp-Up Completion Date, (a) the Coverage Tests are met; (b) the Aggregate Principal Balance of Collateral Obligations that the Issuer purchased or committed to purchase as of the Ramp-Up Completion Date (without giving effect to any reductions of that amount that may have resulted from scheduled principal payments, principal prepayments or dispositions made with respect to any Collateral Obligations on or before the Ramp-Up Completion Date) is at least equal to $650,000,000 plus the drawn amount of the Class A-1LR Notes; and (c) the Collateral Obligations comply with all of the requirements of the Collateral Quality Tests and the Concentration Limitations; provided, however, that no Rating Confirmation Failure shall exist under this clause (ii) if, in the event no such Accountant s Certificate is delivered to Trustee, the Issuer or the Collateral Manager (on behalf of the Issuer) requests and obtains written confirmation from Moody s and S&P that it has not reduced, suspended, or withdrawn its Initial Rating of each Class of Notes and that it has not placed any Class of Notes on credit watch with negative implications by the Business Day after the 34th day after the Ramp-Up Completion Date. "Redemption Date": Any Payment Date specified for an Optional Redemption under "Certain Additional Provisions Relating to the Securities Optional Redemption." "Redemption Price": With respect to any Note and any Optional Redemption, an amount equal to (i) (ii) the outstanding principal amount of the portion of the Note being redeemed plus accrued interest on the Note. With respect to any Income Notes and any Optional Redemption, "Redemption Price" means the remaining amount payable in respect of the Optional Redemption to the Holder of the Income Note, calculated as specified in "Certain Additional Provisions Relating to the Securities Optional Redemption Income Notes." "Reference Obligation": A Loan, Structured Finance Obligation, or High-Yield Bond that, when the Issuer commits to purchase (or otherwise acquire) the Synthetic Security, (1) is not a Zero Coupon Security; (2) pays a per annum rate of 4.5% if it is a fixed rate instrument or a per annum rate at least equal to a three-month London interbank offered rate if it is a floating rate instrument; (3) the minimum price of which is at least 85% of par and (4) otherwise satisfies the definition of Collateral Obligation and on which a Synthetic Security is based. "Registered": With respect to a Collateral Obligation or Eligible Investment, means that it is issued after July 18, 1984 and is in registered form within the meaning of Section 881(c)(2)(B)(i) of the Code and the Treasury regulations promulgated thereunder. 169

180 "Regulation D": Regulation D under the Securities Act. "Regulation S": Regulation S under the Securities Act. "Retained Accrued Interest": With respect to any item of initial Collateral, any accrued and unpaid interest thereon which (i) was not included in the purchase price thereof that the Issuer paid on the Closing Date and (ii) will be paid by the Trustee from the Trust Estate, as instructed by the Issuer, to the seller thereof, pursuant to the Indenture. "Revolving Funding Amount": The aggregate amount of all unfunded portions of all Collateral Obligations that are Revolving Loans which, pursuant to the Indenture, may be funded through draws on the Class A-1LR Notes over the aggregate amount on deposit in the Revolving Reserve Account with respect to such Revolving Loans. "Revolving Loan": A Loan or any Synthetic Security with a Reference Obligation (in each case excluding any Delayed Drawdown Loan) that requires the Issuer to make future advances to (or for the account of) the borrower under its underlying instruments (including any letter of credit for which the Issuer is required to reimburse the issuing bank for under it). A Loan or Synthetic Security shall only be considered to be a Revolving Loan for so long as its unused commitment amount is greater than zero. "Revolving Period": The period from the Closing Date through the first to occur of: (i) the Payment Date after the date that the Collateral Manager notifies the Trustee, each Rating Agency, and the Administrator in writing, in the sole discretion of the Collateral Manager, that, in light of the composition of the Collateral, general market conditions, and other factors, investments in additional Collateral Obligations within the foreseeable future would either be impractical or not beneficial, (ii) the Payment Date in July 2014, (iii) (iv) the Payment Date on which all Notes are to be optionally redeemed or an earlier date after notice of an Optional Redemption chosen by the Collateral Manager to facilitate the liquidation of the Collateral for the Optional Redemption, and the date on which the Revolving Period terminates or is terminated as a result of an Event of Default that has not been waived or cured (subject to reinstatement upon the rescission of a declaration of acceleration). "Rule 144A": Rule 144A under the Securities Act. "S&P": Standard & Poor s, a division of The McGraw-Hill Companies, Inc. "S&P Bivariate Risk Counterparties": Secondary Risk Counterparties. "S&P Bivariate Risk Table": As follows: Long-Term Senior Unsecured Debt Rating of S&P Bivariate Risk Counterparty Individual S&P Bivariate Risk Counterparty Limit Aggregate S&P Bivariate Risk Counterparty Limit AAA 20.0% 20.0% AA+ 10.0% 15.0% AA 10.0% 10.0% AA- 10.0% 10.0% A+ 5.0% 10.0% A and A- 5.0% 7.5% BBB+ or lower 0.0% 0.0% 170

181 "S&P CCC Collateral Obligations": The Collateral Obligations (excluding any Defaulted Collateral Obligations) that on the relevant date have an S&P Rating of "CCC+" or below. Tests." "S&P CDO Monitor Test": The meaning specified in "Security for the Notes The Collateral Quality "S&P Excess CCC Collateral Obligations": the aggregate Principal Balance of all S&P CCC Collateral Obligations in excess of 10% of the Maximum Investment Amount on the relevant Determination Date." "S&P Industry Classification": The S&P Industry Classifications in Schedule 3 of the Indenture as modified, amended, and supplemented from time to time by S&P. "S&P Unrated DIP Loan": A DIP Loan acquired by the Issuer that does not have a rating assigned by S&P and for which the Collateral Manager has commenced the process of having a rating assigned by S&P (as specified in the definition of "DIP Loan"). "Sale Proceeds": All proceeds received (including any proceeds received with respect to any associated interest rate swap or security providing fixed annuity payments) with respect to Collateral Obligations as a result of their sales or other dispositions less any reasonable expenses expended by the Collateral Manager and the Trustee, as applicable, in connection with the sales or other dispositions, which shall be paid from such proceeds notwithstanding their characterization otherwise as Administrative Expenses. "Secondary Risk Counterparty": Any Participating Institution, any Synthetic Security counterparty, and any Securities Lending Counterparty. "Secondary Risk Table": The table below: Long-Term Senior Unsecured Debt Rating of Secondary Risk Counterparty Moody s S&P Aggregate Individual Counterparty Limit Aggregate Counterparty Limit Aaa AAA 20.0% 20.0% Aa1 AA+ 10.0% 15.0% Aa2 AA 10.0% 10.0% Aa3 AA- 7.5% 10.0% A1* A+ 5.0% 10.0% A2* A and A- 5.0% 7.5% A3 or below BBB+ or below 0.0% 0.0% * If the Secondary Risk Counterparty also has a short term rating of "P-1" by Moody s. If any Secondary Risk Counterparty s long-term senior unsecured debt rating or short-term rating is on credit watch for possible downgrade by Moody s or S&P, then for the purposes of the Secondary Risk Table, its rating by the Rating Agency putting its rating on credit watch shall be one rating notch lower for that Rating Agency. "Securities Act": The United States Securities Act of 1933, as amended. "Securities Lending Collateral": Cash or direct registered debt obligations of the United States of America that have a maturity date no later than the Business Day preceding the stated termination date of the relevant Securities Lending Agreement and that are pledged by a Securities Lending Counterparty as collateral pursuant to a Securities Lending Agreement. 171

182 "Senior Class A Overcollateralization Ratio": The meaning specified in "Coverage Tests and Additional Collateral Deposit Requirement The Overcollateralization Tests." "Senior Class A Overcollateralization Test": A test that will be satisfied on any date of determination if the Senior Class A Overcollateralization Ratio is at least equal to the specified Required Level indicated in the table in "Coverage Tests and Additional Collateral Deposit Requirement The Overcollateralization Tests," as determined in accordance with the Collateral Quality Matrix. "Senior Management Fee": The meaning specified in "The Management Agreement General." "Senior Secured Loan": A secured Loan that is not subordinated by its terms (and by its terms is not permitted to become subordinated) to any other indebtedness of the borrower for borrowed money, trade claims, capitalized leases, or other similar obligations, secured by a first priority security interest in collateral, and such collateral shall not (i) consist primarily of stock or equity of any party other than the relevant borrower or (ii) consist solely or primarily of stock or equity of such borrower. "Spread Excess": As of any Measurement Date, a fraction whose numerator is the product of (i) the greater of zero and the excess of the Weighted Average Spread for the Measurement Date over the Minimum Weighted Average Spread specified in the applicable row of the Collateral Quality Matrix and (ii) the Aggregate Principal Balance of all Floating Rate Obligations held by the Issuer as of the Measurement Date, and whose denominator is the Aggregate Principal Balance of all Fixed Rate Obligations held by the Issuer as of the Measurement Date. In computing the Spread Excess on any Measurement Date, the Weighted Average Spread for the Measurement Date will be computed as if the Fixed Rate Excess were equal to zero. "Stated Maturity": With respect to any Collateral Obligation, the maturity date specified in it or the applicable Underlying Instrument (or, if earlier, the first date on which any person may be required by the Issuer to repurchase the entire principal amount of the Collateral Obligation at or above par) and with respect to the Securities, the January 2022 Payment Date. Unless otherwise specified, "Stated Maturity" means the Stated Maturity of the Securities. "Step-Up Coupon Security": A Fixed Rate Step-Up Coupon Security or a Floating Rate Step-Up Coupon Security. "Structured Finance Obligation": Any obligation (i) secured directly by, referenced to, or representing ownership of, a pool of receivables or other assets of U.S. obligors, Group A Country Obligors, or Group B Country Obligors, including portfolio credit default swaps, synthetic collateralized debt obligations, and collateralized debt obligations, but excludes (A) (B) (C) (D) (E) (F) (G) (H) mortgage-backed securities, collateralized debt obligations backed by Emerging Market Securities, collateralized debt obligations primarily backed by asset-backed securities, market value collateralized debt obligations, securities backed by "future flow" receivables, net interest margin securitizations, collateralized debt obligations a significant portion of which are backed by bonds; collateralized debt obligations backed by other collateralized debt obligations, (ii) (iii) (iv) that has an S&P Rating and an S&P Priority Category Recovery Rate, that has a rating and a Moody s Recovery Rate assigned by Moody s, and whose acquisition or ownership by the Issuer will not cause the Issuer to be treated as engaged in a U.S. trade or business for United States federal income tax purposes or otherwise subject the Issuer to net income taxes. 172

183 In connection with the purchase of a Structured Finance Obligation, the Collateral Manager shall obtain from Moody s the applicable recovery rates with respect to the Structured Finance Obligation. For purposes of the Diversity Test, multiple Structured Finance Obligations from CDOs managed by the same Collateral Manager or multiple Structured Finance Obligations issued by the same master trust will be considered to be obligations of one issuer. "Successor Management Fee": A fee that will accrue from the date on which a successor Collateral Manager (so long as the successor Collateral Manager is not DC Funding or any Affiliate of DC Funding ("successor Collateral Manager")) becomes Collateral Manager and be payable to the successor Collateral Manager in arrears on each Payment Date (commencing with the first Payment Date after which the successor Collateral Manager becomes Collateral Manager). Any Successor Management Fee may include a base management fee of up to 0.20% per annum, and the aggregate of the successor Collateral Manager s base management fee and subordinated management fee shall not exceed 0.525% per annum of the Applicable Asset Amount as of the first day of each Due Period calculated on the basis of a 360-day year and the actual number of days elapsed. "Super Majority": With respect to the Class A-1LR Notes, the Holders of at least 66-2/3% of the Aggregate Voting Amount of the Class A-1LR Notes and with respect to any other Class or group of Notes, the Holders of at least 66-2/3% of the Aggregate Voting Amount of that Class or group of Notes, as the case may be. With respect to the Income Notes, the Holders of at least 66-2/3% of the notional amount of the Income Notes. Notwithstanding the foregoing, for purposes of terminating the Collateral Manager for "cause" and, after such removal, voting to approve a successor, a Super Majority shall not include any Notes or Income Notes owned by the Collateral Manager, its Affiliates or employees of Denali. "Swingline Holder": The initial Class A-1LR Holder specified as such in the signature pages of the Class A-1LR Note Purchase Agreement and any other Class A-1LR Holder specified as such in an Assignment and Acceptance (as defined in the Class A-1LR Note Purchase Agreement). "Synthetic Security": Any swap transaction, structured bond investment, credit linked note, or other derivative financial instrument relating to a debt instrument or a basket or portfolio of debt instruments or an index or indices in connection with a basket or portfolio of debt instruments or other similar instruments entered into by the Issuer with a Synthetic Security counterparty (other than tranches of portfolio credit default swaps such as in "bespoke" collateralized debt obligations and synthetic collateralized debt obligations) that has in the Collateral Manager's reasonable judgment, equivalent expected loss characteristics (those characteristics, "credit risk") to those of the related Reference Obligations (taking account of those considerations as they relate to the Synthetic Security counterparty), if (i) it is either (A) a Form-Approved Synthetic Security or (B) a Synthetic Security for which (1) the Rating Condition for S&P is satisfied and (2) the Collateral Manager (on behalf of the Issuer) has applied for and obtained (x) from Moody's, the Moody's Rating Factor and the Moody's Recovery Rate for such Synthetic Security in accordance with the respective definitions of Moody's Rating Factor and Moody's Recovery Rate and (y) from S&P, the S&P Priority Category Recovery Rate, and (ii) the Reference Obligations thereof have a weighted average market value of at least 80% at the time the Synthetic Security is entered into. The maturity, interest rate and other non-credit characteristics of a Synthetic Security may be different from the Reference Obligations to which the credit risk of the Synthetic Security relates. No Synthetic Security shall require the Issuer to make any payment to the Synthetic Security counterparty after its initial purchase other than any payments represented by the release of any cash collateral posted by the Issuer from the Collection Account to the Synthetic Security Counterparty Account simultaneously with the Issuer's purchase of or entry into the Synthetic Security in an amount not exceeding the amount of the posted cash collateral. Collateral may be posted only to a Synthetic Security Counterparty Account. The term Synthetic Security shall not include any Participation. Each Synthetic Security agreement shall contain appropriate non-recourse and non-petition provisions (to the extent the Issuer has contractual payment obligations to the Synthetic Security counterparty) equivalent (mutatis mutandis) to those contained in the Indenture. 173

184 A Synthetic Security whose Reference Obligation is a Senior Secured Loan shall provide that any "deliverable obligation" must be a Senior Secured Loan, secured by a first priority security interest, which shall rank at least pari passu with the Reference Obligation. The minimum coupon on a fixed rate Synthetic Security shall be at least 4.5% and the minimum margin on a floating rate Synthetic Security shall be at least 0.60%. The ownership of any Synthetic Security must not cause the Issuer to be treated as engaged in a U.S. trade or business for United States federal income tax purposes or otherwise subject the Issuer to net income taxes. Synthetic Securities may not provide for "credit events" other than "failure to pay" or "bankruptcy" or for "credit events" that include "repudiation," "obligation default," or "obligation acceleration" or any other event that could arise for non-credit related reasons. The "deliverable obligation category" of the "deliverable obligations" pursuant to any Synthetic Security shall not include "payment" and the "deliverable obligation characteristics" of the "deliverable obligations" pursuant to any Synthetic Security shall include "not subordinated." For purposes of the Coverage Tests and the Additional Collateral Deposit Requirement, unless the Rating Condition for each Rating Agency is satisfied in respect of any proposed alternative treatment, a Synthetic Security shall be included as a Collateral Obligation having the characteristics of the Synthetic Security and not of the related Reference Obligations. For purposes of the Collateral Quality Tests (other than the Diversity Test and the S&P Industry Classification with respect to the S&P CDO Monitor Test), a Synthetic Security shall be included as a Collateral Obligation having the characteristics of the Synthetic Security and not of the related Reference Obligations. For purposes of calculating compliance with the Concentration Limitations other than limits relating to payment characteristics, and all related definitions, unless otherwise specified in the Indenture or by the Rating Agencies, a Synthetic Security shall be included as a Collateral Obligation having the characteristics of its Reference Obligations and not the Synthetic Security. For purposes of calculating compliance with the Concentration Limitations relating to payment characteristics, and all related definitions, unless otherwise specified in the Indenture or by the Rating Agencies, a Synthetic Security shall be included as a Collateral Obligation having the characteristics of the Synthetic Security and not its Reference Obligation. If the Rating Condition must be satisfied to execute the purchase of any Synthetic Security, the Collateral Manager, on behalf of the Issuer, shall give each applicable Rating Agency not less than 5 days' prior notice of the purchase of or entry into any Synthetic Security. "Synthetic Security Collateral": With respect to any Synthetic Security, amounts posted to the Synthetic Security Collateral Account by the Synthetic Security counterparty in support of its obligations under the Synthetic Security, including all Eligible Investments in the Synthetic Security Collateral Account that are purchased with Synthetic Security Collateral. "Tax Event": An event that occurs if either: (i) (A) one or more Collateral Obligations that were not subject to withholding tax when the Issuer committed to purchase them have become subject to withholding tax or the rate of withholding has increased on one or more Collateral Obligations that were subject to withholding tax when the Issuer committed to purchase them and (B) in any Due Period, the aggregate of the payments subject to withholding tax on new withholding tax obligations and the increase in payments subject to withholding tax on increased rate withholding tax obligations, in each case to the extent not "grossed-up" (on an after-tax basis) by the related obligor, represent 5% or more of Interest Proceeds for the Due Period; or (ii) taxes, fees, assessments, or other similar charges are imposed on the Issuer or the Co- Issuer in an aggregate amount in any twelve-month period in excess of U.S.$2,000,000, other than any 174

185 deduction or withholding for or on account of any tax with respect to any payment owing in respect of any obligation that at the time of acquisition, conversion, or exchange does not satisfy the requirements of a Collateral Obligation. Transparency Directive : 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 amending Directive 2001/34/EC. to time. "UCC": The Uniform Commercial Code as in effect in the State of New York, and as amended from time "USD Overnight LIBOR" As of any Overnight LIBOR Determination Date, the rate per annum determined by the Calculation Agent for overnight U.S. Dollar deposits which appears on Reuters Page LIBOR01 or such other page as may replace Reuters Page LIBOR01, as of 11:00 a.m. (London time) as reported by Bloomberg Financial Markets Commodities News. "Weighted Average Fixed Rate Coupon": As of any Measurement Date, is a fraction obtained by (i) multiplying the Principal Balance of each Collateral Obligation that is (A) a Fixed Rate Obligation (other than a Fixed Rate Step-Up Coupon Security) held by the Issuer as of the Measurement Date by the current per annum rate at which it pays interest or (B) a Fixed Rate Obligation that is a Fixed Rate Step-Up Coupon Security held by the Issuer as of the Measurement Date by the current per annum rate at which it pays interest without regard to any one or more increases over the life of such Fixed Rate Step-Up Coupon Security, (for the purposes of subclauses (A) and (B) above, using only the effective after-tax interest rate determined by the Collateral Manager on any Fixed Rate Obligation after taking into account any withholding tax or other deductions on account of tax of any jurisdiction and any gross-up paid by the obligor), (ii) summing the amounts determined pursuant to clause (i), (iii) dividing the sum by the Aggregate Principal Balance of all Collateral Obligations that are Fixed Rate Obligations held by the Issuer as of the Measurement Date, and (iv) if the result obtained in clause (iii) is less than the minimum percentage specified to pass the Weighted Average Fixed Rate Coupon Test, adding to the sum the amount of any Spread Excess as of the Measurement Date. Tests." "Weighted Average Life": The meaning specified in "Security for the Notes The Collateral Quality "Weighted Average Moody s Rating Factor": The summation of the products obtained by multiplying the Principal Balance of each Collateral Obligation (excluding Eligible Investments) by its respective Moody s Rating Factor, dividing that sum by the Aggregate Principal Balance of all Collateral Obligations (excluding Eligible Investments) and rounding the result up to the nearest whole number. For purposes of the Weighted Average Rating Factor Test: (i) the Moody s Rating Factor for any Collateral Obligation (other than a collateralized loan obligation or collateralized debt obligation) that is (A) on credit watch positive for possible upgrade by Moody s shall be the Moody s Rating Factor for the Moody s Rating one sub-category above the current Moody s Rating of the Collateral Obligation otherwise applicable to it and (B) on credit watch negative for possible downgrade by Moody s shall be the Moody s Rating Factor for the Moody s Rating one sub-category below the current Moody s Rating of the Collateral Obligation otherwise applicable to it; and (ii) the Moody s Rating Factor for any Collateral Obligation that is a collateralized loan obligation or collateralized debt obligation that is (A) on credit watch positive for possible upgrade by Moody s will be 175

186 (1) if the Moody s Rating of the Collateral Obligation is "A3" or above, the Moody s Rating Factor for the Moody s Rating one sub-category above the Moody s Rating of the Collateral Obligation otherwise applicable to it and (2) if the Moody s Rating of the Collateral Obligation is below "A3," the Moody s Rating Factor for the Moody s Rating two sub-categories above the Moody s Rating of the Collateral Obligation that otherwise applicable to it and (B) on credit watch negative for possible downgrade by Moody s will be (1) if the Moody s Rating of the Collateral Obligation is "A3" or above, the Moody s Rating for the Moody s Rating one sub-category below the Moody s Rating of the Collateral Obligation otherwise applicable to it and (2) if the Moody s Rating of the Collateral Obligation is below "A3," the Moody s Rating Factor for the Moody s Rating two sub-categories below the Moody s Rating of the Collateral Obligation otherwise applicable to it. "Weighted Average Spread": As of any Measurement Date, a fraction obtained by (i) multiplying the Principal Balance of each Collateral Obligation that is a Floating Rate Obligation held by the Issuer as of the Measurement Date by the excess of the current per annum overall rate at which it pays interest over a London interbank offered rate, determined (A) by including the amount of any commitment fee payable with respect to any undrawn portion of a Revolving Loan or Delayed Drawdown Loan to the Issuer in respect of such Revolving Loan or Delayed Drawdown Loan (including revolving facility availability fees) (excluding the commitment fees with respect to the unfunded amount of any Revolving Loan or Delayed Drawdown Loan to the extent not reserved in the Revolving Reserve Account or the Delayed Drawdown Reserve Account for such purposes) in the calculation of the per annum effective after-tax interest rate, (B) with respect to any Revolving Loan and any Delayed Drawdown Loan, all earnings on amounts in the Delayed Drawdown Reserve Account and the Revolving Reserve Account deposited to the Collection Account in accordance with Section 10.3(b) during the most recent Due Period, (C) with respect to any Revolving Loan and any Delayed Drawdown Loan, by multiplying the drawn portion of such Revolving Loan or Delayed Drawdown Loan by the excess of the current per annum overall rate at which it pays interest over a London interbank offered rate, (D) with respect to any Floating Rate Obligation that does not bear interest based on a London interbank offered rate, by expressing the current interest rate on the Floating Rate Obligation as a spread above a London interbank offered rate calculated in a manner consistent with the calculation of LIBOR, (E) with respect to any Floating Rate Obligation that is a Floating Rate Step-Up Coupon Security, by expressing the then current interest rate without regard to any scheduled increases over the life of such Floating Rate Step-Up Coupon Security, and (F) by including the Discount-Adjusted Spread with respect to any Purchased Discount Obligation, (ii) summing the amounts determined pursuant to clause (i), (iii) dividing that sum by the Aggregate Principal Balance of all Floating Rate Obligations held by the Issuer as of the Measurement Date (excluding the unfunded amount of any Revolving Loan or 176

187 Delayed Drawdown Loan to the extent not reserved in the Revolving Reserve Account or the Delayed Drawdown Reserve Account for such purposes), and (iv) if the result obtained in clause (iii) is less than the minimum percentage specified to pass the Weighted Average Spread Test, adding to that sum the amount of Fixed Rate Excess as of the Measurement Date. "Weighted Average Spread Test": The meaning specified in "Security for the Notes The Collateral Quality Tests." "Workout Assets": A Loan, High-Yield Bond, or Qualified Equity Security acquired in connection with the workout or restructuring of any Collateral Obligation or Workout Asset that the Issuer does not advance any funds to purchase and that is either (i) a Qualified Equity Security or (ii) a Loan or High-Yield Bond that does not qualify as a Collateral Obligation or that the Collateral Manager otherwise designates as a Workout Asset and that satisfies clauses (1) and (17) of the definition of Collateral Obligation specified in "Security for the Notes." "Zero-Coupon Security": A security that, at the time of determination, does not make periodic payments of interest. A Zero-Coupon Security shall not include a security that is a PIK Security or a Step-Up Coupon Security. [remainder of page intentionally blank] 177

188 APPENDIX A DEFINITION OF MOODY S RATING, MOODY S RECOVERY RATE AND RELATED DEFINITIONS Definition of Moody s Rating: "Moody s Rating": With respect to any Collateral Obligation, the Moody s Default Probability Rating; provided, however, that, with respect to the Collateral Obligations generally, if at any time Moody s or any successor to it ceases to provide rating services, references to rating categories of Moody s in the Indenture 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 anything in this definition to the contrary and, for the avoidance of doubt, notwithstanding any rating previously assigned by Moody s with respect to a debt obligation or Obligor thereof (whether public, private, estimated or otherwise), the Issuer or the Collateral Manager on its behalf may present the Collateral Obligation to Moody s for an estimate of the Collateral Obligation s rating factor, from which its corresponding Moody s Rating may be determined. After it is presented and pending receipt from Moody s of the estimate, (i) if such Collateral Obligation otherwise has a Moody s Rating under the paragraph above, then the Collateral Obligation shall have such Moody s Rating and (ii) if such Collateral Obligation has no Moody s Rating, then the Collateral Manager shall designate a rating; and if the Collateral Manager certifies to the Trustee that the Collateral Manager believes that the estimate will be at least "B3," then the Collateral Obligation shall have a Moody s Rating of "B3." The Collateral Manager shall apply for such estimated rating from Moody s within three Business Days after the later of (A) the date on which the Issuer commits to purchase the Loan or Bond and (B) the date on which the Issuer is allocated a commitment to purchase the Loan or Bond. With respect to any Collateral Obligation which has an Assigned Moody's Rating described in clause (ii) of the definition thereof, the Collateral Manager shall apply for an estimated rating from Moody's with respect to such Collateral Obligation at least annually. For any Current Pay Obligation with respect to which the Moody's Rating has been withdrawn, such Moody's Rating will continue to be the rating assigned thereto immediately prior to such withdrawal unless the Collateral Manager is otherwise notified in writing by Moody's. Related Definitions: "Assigned Moody s Rating": The (i) monitored publicly available rating expressly assigned to a debt obligation (or facility) by Moody's that addresses the full amount of the principal and interest promised, (ii) the monitored estimated rating expressly assigned to a debt obligation (or facility) by Moody's that addresses the full amount of the principal and interest promised or (iii) the private rating expressly assigned to a debt obligation (or facility) by Moody s. No Assigned Moody s Rating may be based on a rating assigned by S&P or any other nationally recognized rating agency unless such rating is a monitored public rating expressly assigned by S&P or such other nationally recognized rating agency. Notwithstanding the foregoing, if the Moody s rating or ratings used to determine the Assigned Moody s Rating are on watch for downgrade or upgrade by Moody s, such rating or ratings will be adjusted down one subcategory (if on watch for downgrade) or up one subcategory (if on watch for upgrade). "Bond": A debt security (that is not a loan) that is issued by a corporation, limited liability company, partnership or trust. "Moody s Default Probability Rating": With respect to any loan, Bond or Synthetic Security, as of any date of determination, the rating determined in accordance with the following, in the following order of priority: A-1

189 (a) with respect to a Moody s Senior Secured Loan: (i) rating; and (ii) if the loan s Obligor has a corporate family rating from Moody s, such corporate family if the preceding clause does not apply, the Assigned Moody s Rating of such loan; (iii) if the preceding clauses do not apply, the rating that is one rating subcategory above the Moody's Equivalent Senior Unsecured Rating; (b) with respect to a Moody s Non-Senior Secured Loan or a Bond, the Moody s Equivalent Senior Unsecured Rating of the loan or Bond; (c) (d) Rating thereof. with respect to a Synthetic Security, the Assigned Moody s Rating thereof; and with respect to a DIP Loan, the rating that is one rating subcategory below the Assigned Moody s Notwithstanding the foregoing, if the Moody s rating or ratings used to determine the Moody s Default Probability Rating are on watch for downgrade or upgrade by Moody s, such rating or ratings will be adjusted down one subcategory (if on watch for downgrade) or up one subcategory (if on watch for upgrade). "Moody s Equivalent Senior Unsecured Rating": With respect to any loan or Bond 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) if the Obligor has a senior unsecured obligation with an Assigned Moody s Rating, such Assigned Moody s Rating; (b) if the preceding clause does not apply, but such Obligor has an issuer rating from Moody s, the Moody s Equivalent Senior Unsecured Rating shall be such issuer rating; (c) if the preceding clauses do not apply, but the Obligor has a subordinated obligation with an Assigned Moody s Rating, then (i) 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 shall be the rating which is one rating subcategory higher than such Assigned Moody s Rating, or (ii) 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) if the preceding clauses do not apply, but such Obligor has a corporate family rating from Moody s, the Moody s Equivalent Senior Unsecured Rating shall be one rating subcategory below such corporate family rating; (e) if the preceding clauses do not apply, but the Obligor has a senior secured obligation with an Assigned Moody s Rating, then: (i) if such Assigned Moody s Rating is at least "Caa3" (and, if rated "Caa3," 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 (ii) if such Assigned Moody s Rating is less than "Caa3" (or rated "Caa3" and on watch for downgrade), then the Moody s Equivalent Senior Unsecured Rating shall be "C"; A-2

190 (f) if the preceding clauses 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 shall be: (i) or higher, (ii) or lower, or one rating subcategory below the Moody s equivalent of such S&P rating if it is "BBB " two rating subcategories below the Moody s equivalent of such S&P rating if it is "BB+" (iii) otherwise determined as follows: the Collateral Manager on behalf of the Issuer, may present the Collateral Obligation to Moody s for an estimate of the Collateral Obligation s rating factor, from which its corresponding Moody s Rating may be determined. After it is presented and pending receipt from Moody s of the estimate, if the Collateral Manager certifies to the Trustee that the Collateral Manager believes that the estimate will be at least "B3," then the Collateral Obligation shall have a Moody s Rating of "B3." The Collateral Manager shall apply for such estimated rating from Moody s within three Business Days after the later of (A) the date on which the Issuer commits to purchase the Loan or Bond and (B) the date on which the Issuer is allocated a commitment to purchase the Loan or Bond; (g) if the preceding clauses 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), the Assigned Moody s Rating shall be deemed to be: (i) or higher, (ii) or lower, or one rating subcategory below the Moody s equivalent of such S&P rating if it is "BBB " two rating subcategories below the Moody s equivalent of such S&P rating if it is "BB+" (iii) otherwise determined as follows: the Collateral Manager on behalf of the Issuer, may present the Collateral Obligation to Moody s for an estimate of the Collateral Obligation s rating factor, from which its corresponding Moody s Rating may be determined. After it is presented and pending receipt from Moody s of the estimate, if the Collateral Manager certifies to the Trustee that the Collateral Manager believes that the estimate will be at least "B3," then the Collateral Obligation shall have a Moody s Rating of "B3." The Collateral Manager shall apply for such estimated rating from Moody s within three Business Days after the later of (A) the date on which the Issuer commits to purchase the Loan or Bond and (B) the date on which the Issuer is allocated a commitment to purchase the Loan or Bond; (h) if the preceding clauses 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 qualifying notations) that addresses the full amount of principal and interest promised, the Assigned Moody s Rating shall be deemed to be: (i) or higher, (ii) or lower, or one rating subcategory below the Moody s equivalent of such S&P rating if it is "BBB " two rating subcategories below the Moody s equivalent of such S&P rating if it is "BB+" (iii) otherwise determined as follows: the Collateral Manager on behalf of the Issuer, may present the Collateral Obligation to Moody s for an estimate of the Collateral Obligation s rating factor, from which its corresponding Moody s Rating may be determined. After it is presented and pending receipt from Moody s of the estimate, if the Collateral Manager certifies to the Trustee that the Collateral Manager believes that the estimate will be at least "B3," then the Collateral Obligation shall have a A-3

191 Moody s Rating of "B3." The Collateral Manager shall apply for such estimated rating from Moody s within three Business Days after the later of (A) the date on which the Issuer commits to purchase the Loan or Bond and (B) the date on which the Issuer is allocated a commitment to purchase the Loan or Bond; (i) if the preceding clauses do not apply, the Collateral Manager on behalf of the Issuer, may present the Collateral Obligation to Moody s for an estimate of the Collateral Obligation s rating factor, from which its corresponding Moody s Rating may be determined. After it is presented and pending receipt from Moody s of the estimate, if the Collateral Manager certifies to the Trustee that the Collateral Manager believes that the estimate will be at least "B3," then the Collateral Obligation shall have a Moody s Rating of "B3." The Collateral Manager shall apply for such estimated rating from Moody s within three Business Days after the later of (A) the date on which the Issuer commits to purchase the Loan or Bond and (B) the date on which the Issuer is allocated a commitment to purchase the Loan or Bond; (j) if the preceding clauses do not apply and each of the following clauses (i) through (viii) do apply, the Moody s Equivalent Senior Unsecured Rating will be "Caa1": (i) proceedings, (ii) neither the Obligor nor any of its Affiliates is subject to reorganization or bankruptcy no debt securities or debt obligations of the Obligor are in default, (iii) neither the Obligor nor any of its Affiliates has defaulted on any debt during the preceding two years, (iv) (v) the Obligor has been in existence for the preceding five years, the Obligor is current on any cumulative dividends, (vi) the fixed-charge ratio for the Obligor exceeds 125% for each of the preceding two fiscal years and for the most recent quarter, and (vii) the Obligor had a net profit before tax in the past fiscal year and the most recent quarter, (viii) the annual financial statements of such Obligor are unqualified and certified by a firm of Independent accountants of international reputation, and quarterly statements are unaudited but signed by a corporate officer; (k) if the preceding clauses do not apply but each of the following clause (i) and (ii) do apply, the Moody s Equivalent Senior Unsecured Rating will be "Caa3": (i) neither the Obligor nor any of its Affiliates is subject to reorganization or bankruptcy proceedings; and (ii) years; and no debt security or debt obligation of such Obligor has been in default during the past two (l) if the preceding clauses do not apply and a debt security or debt 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, if the Moody s rating or ratings used to determine the Moody s Equivalent Senior Unsecured Rating are on watch for downgrade or upgrade by Moody s, such rating or ratings will be adjusted down one subcategory (if on watch for downgrade) or up one subcategory (if on watch for upgrade). A-4

192 Notwithstanding the foregoing, no more than 20.0% of the Collateral Obligations, by Aggregate Principal 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 (the "Moody s Notched Rating Limitation"). "Moody s Failed Credit Estimate Collateral Obligation": A Collateral Obligation with respect to which: (a) the Collateral Manager has applied for a corporate credit estimate from Moody s; and (b) at the time of application to Moody s the Collateral Manager certifies in writing to the Trustee and the Issuer that in the best business judgment of the Collateral Manager, the Collateral Obligation is expected to receive an initial corporate credit estimate rating of at least "B3" from Moody s; and (c) the actual initial corporate credit estimate rating assigned to the Collateral Obligation by Moody s is "Caa1" or lower. "Moody s Minimum Average Recovery Rate": As of any Measurement Date, a rate equal to the number obtained by (i) summing the products obtained by multiplying the Principal Balance of each Collateral Obligation by its respective Moody s Recovery Rate, (ii) (iii) dividing the sum by the sum of the Aggregate Principal Balance of all Collateral Obligations, and rounding up to the first decimal place. "Moody s Non-Senior Secured Loan": Any loan that is not a Moody s Senior Secured Loan. "Moody's Obligation Rating": With respect to any loan or Bond as of any date of determination, 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) if it has an Assigned Moody's Rating, such Assigned Moody's Rating; or (ii) if the preceding clause does not apply, the rating that is one rating subcategory above the Moody's Equivalent Senior Unsecured Rating; and (b) With respect to a Moody's Non-Senior Secured Loan or a Bond: and (i) (ii) if it has an Assigned Moody's Rating, such Assigned Moody's Rating; or if the preceding clause does not apply, the Moody's Equivalent Senior Unsecured Rating; (c) With respect to a Synthetic Security or a DIP Loan, the Assigned Moody's Rating thereof. 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 one subcategory (if on watch for downgrade) or up one subcategory (if on watch for upgrade). "Moody s Rating Pending Credit Obligations": At any time, each Collateral Obligation with respect to which (i) the Collateral Manager has applied for a corporate credit estimate from Moody s in accordance with clause (f)(iii), (g)(iii) or (h)(iii) of the definition of Moody s Equivalent Senior Unsecured Rating or the definition of Moody s Rating, and (ii) such Moody s corporate credit estimate is pending. A-5

193 "Moody s Recovery Rate": With respect to any loan, Bond or Synthetic Security (except as described under clause (d) below), as of any date of determination, will be the recovery rate determined in accordance with the following, in the following order of priority: (a) if the loan, Bond or Synthetic Security has been specifically assigned a recovery rate by Moody s (for example, in connection with the assignment by Moody s of an estimated rating), such recovery rate; (b) if the preceding clause does not apply to the Bond or loan and the loan is a Moody s Senior Secured Loan or a Moody s Non-Senior Secured Loan, the rate determined pursuant to the table below based on the number of rating subcategories difference between the Bond s or loan s Moody s Obligation Rating and its Moody s Default Probability Rating (for purposes of clarification, if the Moody s Obligation Rating is higher than the Moody s Default Probability Rating, the rating subcategories difference will be positive and if it is lower, negative): Number of Moody s Ratings Subcategories Difference Between the Moody s Obligation Rating and the Moody s Default Probability Rating Moody s Senior Secured Loans Moody s Non-Senior Secured Loans Bonds +2 or more 60.0% 45.0% 40.0% % 42.5% 35.0% % 40.0% 30.0% % 30.0% 15.0% % 15.0% 10.0% -3 or less 20.0% 10.0% 2.0% (c) If no recovery rate has been specifically assigned with respect to a loan pursuant to clauses (a) and (b) and the loan is a DIP Loan, the recovery rate shall be 50%; or (d) in the case of the Moody s Recovery Rate for purposes of clause (i)(b) of the definition of Synthetic Security, the Moody s Recovery Rate of such Synthetic Security shall be the Moody s Recovery Rate assigned to such Synthetic Security that the Collateral Manager (on behalf of the Issuer) has applied for and obtained from Moody s. "Moody s Senior Secured Loan": (a) A loan that: (i) is not (and cannot by its terms become) subordinate in right of payment to any other obligation of the Obligor of the loan, and (ii) 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 and (b) the loan is not: (i) a DIP Loan, or (ii) 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. "Obligor": The issuer of a Bond or the obligor or guarantor under a loan, as the case may be. A-6

194 APPENDIX B DEFINITION OF S&P RATING AND RELATED DEFINITIONS Definition of S&P Rating: "S&P Rating": With respect to any Collateral Obligation as of any Measurement Date, the rating determined in accordance with the following methodology: (i) If there is an issuer credit rating of the borrower of the Collateral Obligation (the "borrower"), or the guarantor who unconditionally and irrevocably guarantees the Collateral Obligation (the "guarantor"), then the S&P Rating shall be that rating (regardless of whether there is a published rating by S&P on the Collateral Obligation held by the Issuer). (ii) If the Collateral Obligation is rated by S&P, then the S&P Rating shall be that rating. (iii) If no other security or obligation of the borrower or guarantor is rated by S&P, then the Issuer or the Collateral Manager on behalf of the Issuer, may apply to S&P for a corporate credit estimate within three Business Days after the later of (A) the date on which the Issuer commits to purchase the Collateral Obligation and (B) the date, if any, on which the Issuer is allocated a commitment to purchase the Collateral Obligation, which shall be its S&P Rating. After that application and pending receipt from S&P of the corporate credit estimate, the S&P Rating of the Collateral Obligation shall be determined by the Collateral Manager in its reasonable business judgment and certified to the Trustee; provided that: (a) if (i) the Collateral Manager has provided S&P all information necessary to determine the S&P Rating within 30 days after the Issuer commits to purchase the Collateral Obligation, and (ii) S&P has not notified the Collateral Manager within 60 days after the Issuer commits to purchase such Collateral Obligation that the information provided by the Collateral Manager is insufficient to determine the S&P Rating, the S&P Rating shall be the rating determined by the Collateral Manager until such time as S&P issues to the Collateral Manager the corporate credit estimate, or (b) if (i) either (x) the Collateral Manager has failed to comply with (a)(i) above or (y) S&P has notified the Collateral Manager within 60 days after the Issuer commits to purchase such Collateral Obligation that the information provided by the Collateral Manager is insufficient to determine the S&P Rating, and (ii) after 90 days S&P has not issued a corporate credit estimate, the Collateral Obligation shall have an S&P Rating of "CCC-"; provided that the Collateral Manager may request from S&P an extension to continue to hold the Collateral Obligation at the rating determined by the Collateral Manager until such time as S&P issues to the Collateral Manager a corporate credit estimate. (iv) If the Collateral Obligation is not rated by S&P, but another security or obligation of the borrower or guarantor is rated by S&P and neither the Issuer nor the Collateral Manager obtains an S&P Rating for the Collateral Obligation pursuant to subclause (iii) above, then the S&P Rating of the Collateral Obligation shall be the issuer credit rating or shall be determined as follows: (A) If there is a rating on a senior secured obligation of the borrower or guarantor, then the S&P Rating of the Collateral Obligation shall be one sub-category below that rating. (B) If there is a rating on a senior unsecured obligation of the borrower or guarantor, then the S&P Rating of the Collateral Obligation shall equal that rating. B-1

195 (C) If there is a rating on a subordinated obligation of the borrower or guarantor, then the S&P Rating of the Collateral Obligation shall be one sub-category above that rating. (v) If there is no issuer credit rating published by S&P and the Collateral Obligation is not rated by S&P, and no other security or obligation of the borrower or guarantor is rated by S&P and neither the Issuer nor the Collateral Manager obtains an S&P Rating for the Collateral Obligation pursuant to subclause (iii) above, then if the Collateral Obligation is rated by Moody s, then the S&P Rating of the Collateral Obligation shall be (A) one sub-category below the S&P equivalent of the rating assigned by Moody s if the Collateral Obligation is Rated "Baa3" or higher by Moody s and (B) two sub-categories below the S&P equivalent of the rating assigned by Moody s if the Collateral Obligation is rated "Ba1" or lower by Moody s. The Aggregate Principal Balance of the Collateral Obligations that may have an S&P Rating based on a rating assigned by Moody s as provided in this subclause may not exceed 20% of the Maximum Investment Amount (the "S&P Notched Rating Limitation"). (vi) With respect to a Collateral Obligation that is a DIP Loan or a Synthetic Security, and notwithstanding anything to the contrary in clauses (i) through (v) above, the S&P Rating of the Collateral Obligation that is a DIP Loan or Synthetic Security shall be the rating (including any estimated rating) assigned by S&P to the DIP Loan or Synthetic Security. (vii) Notwithstanding any issuer credit rating, with respect to a Collateral Obligation that is a Structured Finance Obligation, and notwithstanding anything to the contrary in clauses (i) through (vi) above, the S&P Rating of the Collateral Obligation that is a Structured Finance Obligation shall be the rating or credit estimate assigned thereto by S&P or such other rating as advised by S&P. Notwithstanding the foregoing, if and for so long as the Aggregate Principal Balance of Collateral Obligations consisting in the aggregate of (x) Participations and (y) Synthetic Securities exceeds 20% of the Maximum Investment Amount, then the S&P Rating for the Aggregate Principal Balance of Collateral Obligations representing that excess (determined assuming the excess is comprised of the Collateral Obligations having the lowest S&P Ratings that would otherwise be applicable as determined pursuant to clauses (i) through (vi) above) shall be the S&P Rating one sub-category below the S&P Rating of the Collateral Obligations that would otherwise be applicable as determined pursuant to clauses (i) through (vi) above. Notwithstanding anything above to the contrary, if any Collateral Obligation is on credit watch by S&P for possible upgrade or downgrade for a period, the S&P Rating of such Collateral Obligation shall be increased or reduced, as applicable, by one rating subcategory from the S&P Rating determined above. Notwithstanding the foregoing, no S&P Rating may be based on a rating assigned by Moody s or any other nationally recognized rating agency unless such rating is a monitored public rating expressly assigned by Moody s or such other nationally recognized rating agency. With respect to S&P credit estimates, for so long as any Notes remain outstanding, on or prior to each oneyear anniversary of the receipt of any credit estimate of the applicable Collateral Obligation, the Issuer shall submit to S&P a request to perform another credit estimate on such Collateral Obligation, together with all information reasonably required by S&P to perform such credit estimate and any such Collateral Obligation with respect to which the Collateral Manager has not submitted such request shall be deemed to have a credit estimate of "CCC-" until a credit estimate has been assigned thereto by S&P. Notwithstanding anything in this definition to the contrary and, for the avoidance of doubt, notwithstanding any rating previously assigned by S&P with respect to a debt obligation or obligor thereof (whether public, private, estimated or otherwise), the Issuer or the Collateral Manager on its behalf may present the Collateral Obligation to S&P for a written credit estimate, which shall be its S&P Rating. B-2

196 Related Definitions: "S&P Failed Credit Estimate Collateral Obligation": A Collateral Obligation with respect to which: (a) the Collateral Manager has applied for a corporate credit estimate from S&P; and (b) at the time of application to S&P the Collateral Manager certifies in writing to the Trustee and the Issuer that in the best business judgment of the Collateral Manager, the Collateral Obligation is expected to receive an initial corporate credit estimate rating of at least "B-" from S&P; and (c) the actual initial corporate credit estimate rating assigned to the Collateral Obligation by S&P is "CCC+" or lower. "S&P Priority Category Recovery Rate": For any Collateral Obligation, the percentage specified in the definition of "Applicable Percentage" opposite the S&P Priority Category of the Collateral Obligation. B-3

197 APPENDIX C FORM ADV PART II OF COLLATERAL MANAGER C-1

198 FORM ADV Part II - Page 1 Uniform Application for Investment Adviser Registration OMB APPROVAL OMB Number: Expires: July 31, 2008 Estimated average burden hours per response Name of Investment Adviser: DC Funding Partners LLC Address: (Number and Street) (City) (State) (Zip Code) Area Code: Telephone number: 2001Spring Rd, Stuite 220 Oak Brook IL ( 630 ) This part of Form ADV gives information about the investment adviser and its business for the use of clients. The information has not been approved or verified by any governmental authority. Table of Contents Item Number Item Page 1 Advisory Services and Fees 2 2 Types of Clients 2 3 Types of Investments 3 4 Methods of Analysis, Sources of Information and Investment Strategies 5 Education and Business Standards 6 Education and Business Background 7 Other Business Activities 8 Other Financial Industry Activities or Affiliations 9 Participation or Interest in Client Transactions 10 Conditions for Managing Accounts I I Review of Accounts 5 12 Investment or Brokerage Discretion 13 Additional Compensation 14 Balance Sheet Continuation Sheet Balance Sheet, if required Schedule F Schedule G (Schedules A B C D and E are included with Part I of this Form, for the use of regulatory bodies, and are not distributed to clients.) Potential persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.

199 FORM ADV Applicant: SEC File Number: Date: Part II - Page 2 DC Funding Partners LLC /11/ A. Advisory Services and Fees. (check the applicable boxes) For each type of service provided, state the approximate % of total advisory billings from that service. (See instruction below.) Applicant: (1) Provides investment supervisory services 100 % (2) Manages investment advisory accounts not involving investment supervisory services % (3) Furnishes investment advice through consultations not included in either service described above % (4) Issues periodicals about securities by subscription % (5) Issues special reports about securities not included in any service described above % (6) Issues, not as part of any service described above, any charts, graphs, formulas, or other devices which clients may use to evaluate securities % (7) On more than an occasional basis, furnishes advice to clients on matters not involving securities % (8) Provides a timing service % (9) Furnishes advice about securities in any manner not described above % (Percentages should be based on applicant's last fiscal year. If applicant has not completed its first fiscal year, provide estimates of advisory billings for that year and state that the percentages are estimates.) B. Does applicant call any of the services it checked above financial planning or some similar term? Yes No C. Applicant offers investment advisory services for: (check all that apply) (1) A percentage of assets under management (4) Subscription fees (2) Hourly charges (5) Commissions (3) Fixed fees (not including subscription fees) (6) Other... D. For each checked box in A above, describe on Schedule F: the services provided, including the name of any publication or report issued by the adviser on a subscription basis or for a fee applicant's basic fee schedule, how fees are charged and whether its fees are negotiable when compensation is payable, and if compensation is payable before service is provided, how a client may get a refund or may terminate an investment advisory contract before its expiration date 2. Types of clients - Applicant generally provides investment advice to: (check those that apply) A. Individuals B. Banks or thrift institutions C. Investment companies D. Pension and profit sharing plans E. F. G. Trusts, estates, or charitable organizations Corporations or business entities other than those listed above Other (describe on Schedule F) Answer all items. Complete amended pages in full, circle amended items and file with execution page (page 1).

200 FORM ADV Part II - Page 3 Applicant: SEC File Number: Date: DC Funding Partners LLC /11/ Types of Investments. Applicant offers advice on the following: (check those that apply) A. Equity securities H. United States government securities (1) exchange-listed securities (2) securities traded over-the-counter (3) foreign issuers 1. Options contracts on: (1) securities (2) commodities B. Warrants J. Futures contracts on: C. Corporate debt securities (other than commercial paper) (1) tangibles (2) intangibles D. Commercial paper E. Certificates of deposit K. Interests in partnerships investing in: F. Municipal securities (1) real estate (2) oil and gas interests G. Investment company securities: (1) variable life insurance (3) other (explain on Schedule F) (2) variable annuities L. Other (explain on Schedule F) (3) mutual fund shares 4. Methods of Analysis, Sources of Information, and Investment Strategies. A. Applicant's security analysis methods include: (check those that apply) (1) Charting (4) Cyclical (2) Fundamental Other (explain on Schedule F) (5) (3) Technical B. The main sources of information applicant uses include: (check those that apply) (1) Financial newspapers and magazines (5) Timing services (2) Inspections of corporate activities (6) (3) Research materials prepared by others (4) Corporate rating services (7) (8) Annual reports, prospectuses, filings with the Securities and Exchange Commission Company press releases Other (explain on Schedule F) C. The investment strategies used to implement any investment advice given to clients include: (check those that apply) (1) Long term purchases (5) (securities held at least a year) (2) Short term purchases (securities sold within a year) (3) Trading (securities sold within 30 days) (6) (7) Margin transactions Option writing, including covered options, uncovered options or spreading strategies Other (explain on Schedule F) (4) Short sales Answer all items. Complete amended pages in full, circle amended items and file with execution page (page 1).

201 FORM ADV Part II - Page 4 Applicant: SEC File Number: Date: DC Funding Partners LLC /11/ Education and Business Standards. Are there any general standards of education or business experience that applicant requires of those involved in determining or giving investment advice to clients? (If yes, describe these standards on Schedule F.) 6. Education and Business Background. Yes No For: each member of the investment committee or group that determines general investment advice to be given to clients, or if the applicant has no investment committee or group, each individual who determines general investment advice given to clients (if more than five, respond only for their supervisors) each principal executive officer of applicant or each person with similar status or performing similar functions. On Schedule F, give the: name formal education after high school year of birth business background for the preceding five years 7. Other Business Activities. (check those that apply) A. Applicant is actively engaged in a business other than giving investment advice. B. Applicant sells products or services other than investment advice to clients. C. The principal business of applicant or its principal executive officers involves something other than providing investment advice. (For each checked box describe the other activities, including the time spent on them, on Schedule F.) 8. Other Financial Industry Activities or Affiliations. (check those that apply) A. Applicant is registered (or has an application pending) as a securities broker-dealer. B. Applicant is registered (or has an application pending) as a futures commission merchant, commodity pool operator or commodity trading adviser. C. Applicant has arrangements that are material to its advisory business or its clients with a related person who is a- (1) broker-dealer (7) accounting firm (2) investment company (3) other investment adviser (4) financial planning firm (5) commodity pool operator, commodity trading adviser or futures commission merchant (6) banking or thrift institution (8) law firm (9) insurance company or agency (10) pension consultant (11) real estate broker or dealer (12) entity that creates or packages limited partnerships (For each checked box in C, on Schedule F identify the related person and describe the relationship and the arrangements.) Yes D. Is applicant or a related person a general partner in any partnership in which clients are solicited to invest?. No (If yes, describe on Schedule F the partnerships and what they invest in.) Answer all items. Complete amended pages in full, circle amended items and file with execution page (page 1).

202 FORM ADV Part II - Page 5 Applicant: SEC File Number: Date: DC Funding Partners LLC /11/ Participation or Interest in Client Transactions. Applicant or a related person: (check those that apply) A. As principal, buys securities for itself from or sells securities it owns to any client. B. As broker or agent effects securities transactions for compensation for any client. C. As broker or agent for any person other than a client effects transactions in which client securities are sold to or bought from a brokerage customer. D. Recommends to clients that they buy or sell securities or investment products in which the applicant or a related person has some financial interest. E. Buys or sells for itself securities that it also recommends to clients. (For each box checked, describe on Schedule F when the applicant or a related person engages in these transactions and what restrictions, internal procedures, or disclosures are used for conflicts of interest in those transactions.) Describe, on Schedule F, your code of ethics, and state that you will provide a copy of your code of ethics to any client or prospective client upon request. 10. Conditions for Managing Accounts. Does the applicant provide investment supervisory services, manage Yes investment advisory accounts or hold itself out as providing financial planning or some similarly termed services and impose a minimum dollar value of assets or other conditions for starting or maintaining an account? No (If yes, describe on Schedule F) 11. Review of Accounts. If applicant provides investment supervisory services, manages investment advisory accounts, or holds itself out as providing financial planning or some similarly termed services: A. Describe below the reviews and reviewers of the accounts. For reviews, include their frequency, different levels, and triggering factors. For reviewers, include the number of reviewers, their titles and functions, instructions they receive from applicant on performing reviews, and number of accounts assigned each. Weekly reviews are performed by middle and senior managment to ensure each client is being managed in accordance with its governing document. In addition to the reviews performed internally third party service providers such as administrators, accounting firms, and trustees independently review client and advisory activities to ensure further compliance with each clients governing document. B. Describe below the nature and frequency of regular reports to clients on their accounts. Reports are prepared monthly, quarterly, and annually by independent third party servicer providers and distributed to each client as required by each clients governing document. Middle and senior management perform a detailed review of all reports for accuracy and compliance prior to client distribution. Reporting requirements differ by client and range from detailed reports of underlying transactions to a summarized view of client activity. Answer all items. Complete amended pages in full, circle amended items and file with execution page (page 1).

203 FORM ADV Applicant: SEC File Number: Date: Part II - Page 6 DC Funding Partners LLC /11/ Investment or Brokerage Discretion. A. Does applicant or any related person have authority to determine, without obtaining specific client consent, the: (1) securities to be bought or sold? (2) amount of the securities to be bought or sold? (3) broker or dealer to be used? (4) commission rates paid? B. Does applicant or a related person suggest brokers to clients? Yes Yes Yes Yes Yes No No No No No For each yes answer to A describe on Schedule F any limitations on the authority. For each yes to A(3), A(4) or B, describe on Schedule F the factors considered in selecting brokers and determining the reasonableness of their commissions. if the value of products, research and services given to the applicant or a related person is a factor, describe:... the products, research and services whether clients may pay commissions higher than those obtainable from other brokers in return for those products and services whether research is used to service all of applicant's accounts or just those accounts paying for it; and any procedures the applicant used during the last fiscal year to direct client transactions to a particular broker in return for product and research services received. 13. Additional Compensation. Does the applicant or a related person have any arrangements, oral or in writing, where it: A. is paid cash by or receives some economic benefit (including commissions, equipment or non-research services) from a non-client in connection with giving advice to clients? B. directly or indirectly compensates any person for client referrals? (For each yes, describe the arrangements on Schedule F.) 14. Balance Sheet. Applicant must provide a balance sheet for the most recent fiscal year on Schedule G if applicant:.. has custody of client funds or securities (unless applicant is registered or registering only with the Securities and Exchange Commission); or requires prepayment of more than $500 in fees per client and 6 or more months in advance Has applicant provided a Schedule G balance sheet? Yes Yes Yes No No No Answer all items. Complete amended pages in full, circle amended items and file with execution page (page 1).

204 Schedule F of Applicant: SEC File Number: Date: Form ADV Continuation Sheet for Form ADV Part II DC Funding Partners LLC /11/2007 (Do not use this Schedule as a continuation sheet for Form ADV Part I or any other schedules.) 1. Full name of applicant exactly as stated in Item 1A of Part I of Form ADV: IRS Empl. Ident. No.: DC Funding Partners LLC Item of Form (identify) Answer 1.D Basic Fee Schedule: Management and incentive fees are market driven and negotiated with clients prior to engaging in advisory services. Management fees are determined either as a percentage of assets under management (AUM) or net asset value (NAV). Incentive fees are contingent on client returns and are determined either as a percentage of AUM or as a percentage of client total return. Quarterly management fees are billed and, depending upon the client, either prepaid or paid in arrears. In instances where management fees are prepaid clients may obtain a prorata refund of any unearned management fee upon early termination. Depending on the client agreement incentive fees may be billed and paid either quarterly or yearly. Clients may terminate advisory services at any time subject to lock ups and other terms of the client\advisor contract. In such cases where the Investment Committee decides to invest assets of funds from one CLO to a subsequent CLO, the management fees incurred by the transferred investment are in addition to the fees charged by the subsequent vehicles or such other advisers fees. 5 Education and Business Standards: A college degree and strong knowledge of the finance industry. 6 Education and Business Background Investment Committee members include: David Killion, 9/7/50, University of Illinois-BS 1972, University of Chicago - MBA CEO of Denali Capital LLC since 2001, prior to that CEO of First Source Financial, Inc. Gregory Cooper, 2/18/57, DePaul University, Managing Director of Denali Capital LLC since 2001, prior to Sr. Vice President of First Source Financial, Inc. Robert Coseo, 10/20/49, University of Michigan - BBA 1971,, Managing Director of Denali Capital LLC since 2001, prior to Sr. Vice President of First Source Financial, Inc. David Dekker, 6/14/56, Northern Illinois - BS 1978, CPA Chief Financial Officer of Denali Capital LLC since 2001, prior to that Sr Vice President and Chief Financial Officer of First Source Financial, Inc. John Thacker, 8/8/62, Villanova University - BS 1984, Loyola College - MBA Chief Credit Officer of Denali Capital LLC since 2001, prior to Sr. Vice President of First Source Financial, Inc. 8.C.3 Other Investment Advisor: Denali Capital LLC is a registered investment advisor and serves as the Managing Member of DC Funding Partners LLC. Denali Capital LLC performs advisory services on behalf of DC Funding Partners LLC. 8.D DC Funding Partners LLC is the general partner of Denali Capital Credit Opportunity Fund, L.P. Denali Capital Credit Opportunity Fund, L.P. invests in portfolios of leveraged commercial loans and related assets on behalf of its investors. DC Funding Partners performs advisory services to the partnership. Complete amended pages in full, circle amended items and file with execution page (page 1).

205 Schedule F of Applicant: SEC File Number: Date: Form ADV Continuation Sheet for Form ADV Part II DC Funding Partners LLC /11/2007 (Do not use this Schedule as a continuation sheet for Form ADV Part I or any other schedules.) 1. Full name of applicant exactly as stated in Item 1A of Part I of Form ADV: IRS Empl. Ident. No.: DC Funding Partners LLC Item of Form (identify) Answer 9.D 9.E In determining allocations of approved purchases, the Investment Committee (IC) shall take into consideration all pertinent information concerning the specific characteristics of the asset being purchased versus the investment parameters of each Fund. When an asset to be purchased is equally attractive for more than one Fund, the IC will generally allocate its anticipated assignment amount proportionally among the relevant Funds. Given limited availability, the anticipated assignment amount may be too small to proportionally allocate among all relevant Funds, in which case IC may prioritize the allocation amount to the Fund(s) whose investment parameters are best matched to the specific characteristics of the asset or which have the most available capital to invest. The IC may also take into account other similar opportunities concurrently available when allocating among its Funds (especially when there are several similar trade opportunities but each in a relatively small allocated amount) with an overall objective that each Fund receive its proportional share of all relevant trade opportunities over time. Additionally closed Funds will receive preference of allocations over Funds currently in the warehouse phase A 12.A.3 Within Denali Capital Credit Opportunity Fund, L.P. clients are restricted from withdrawing their investment for either one or three years. Additionally, a minimum investment amount of $1,000,000 is required, however, this may be waived with consent of DC Funding Partners LLC. Varying minimum investment amounts and withdrawl policies exist within other managed clients. Investment and Brokerage Discretion: The security types and amount to be bought and sold are based on each clients governing document which describes eligible investments. Investment and Brokerage Discretion: The broker\dealer to use and amount to pay is based on supply and demand for the security as determined by the market and best execution attainable. Complete amended pages in full, circle amended items and file with execution page (page 1).

206 Schedule G of Applicant: SEC File Number: Date: Form ADV Balance Sheet DC Funding Partners LLC /11/2007 (Answers in Response to Form ADV Part II Item 14.) 1. Full name of applicant exactly as stated in Item 1A of Part I of Form ADV: IRS Empl. Ident. No.: 1. The balance sheet must be: Instructions A. Prepared in accordance with generally accepted accounting principles B. Audited by an independent public accountant C. Accompanied by a note stating the principles used to prepare it, the basis of included securities, and any other explanations required for clarity. 2. Securities included at cost should show their market or fair value parenthetically. 3. Qualifications and any accompanying independent accountant's report must conform to Article 2 of Regulation S-X (17 CFR et. seq.). 4. Sole proprietor investment advisers: A. Must show investment advisory business assets and liabilities separate from other business and personal assets and liabilities B. May aggregate other business and personal asset and liabilities unless there is an asset deficiency in the total financial position. Complete amended pages in full, circle amended items and file with execution page (page 1).

207 Schedule H of Applicant: SEC File Number: Date: Form ADV Page 1 DC Funding Partners LLC /11/2007 (for sponsors of wrap fee programs) Name of wrap fee program or programs described in attached brochure: 1. Applicability of Schedule. This Schedule must be completed by applicants that are compensated under a wrap fee program for sponsoring, organizing, or administering the program, or for selecting, or providing advice to clients regarding the selection of, other investment advisers in the program (''sponsors''). A wrap fee program is any program under which a specified fee or fees not based directly upon transactions in a client's account is charged for investment advisory services (which may include portfolio management or advice concerning the selection of other investment advisers) and execution of client transactions. 2. Use of Schedule. This Schedule sets forth the information the sponsor must include in the wrap fee brochure it is required to deliver or offer to deliver to clients and prospective clients of its wrap fee programs under Rule under the federal Advisers Act and similar rules of jurisdictions. The wrap fee brochure prepared in response to this Schedule must be filed with the Commission and the jurisdictions as part of Form ADV by completing the identifying information on this Schedule and attaching the brochure. Brochures should be prepared separately, not on copies of this Schedule. Any wrap fee brochure filed with the Commission as part of an amendment to Form ADV shall contain in the upper right comer of the cover page the sponsors' registration number (801- ). 3. General Contents of Brochure. Unlike Parts I and II of this form, this Schedule is not organized in ''check-the-box'' format. These instructions, including the requests for information in Item 7 below, should not be repeated in the brochure. Rather, this Schedule describes minimum disclosures that must be made in the brochure to satisfy the sponsor's duty to disclose all material facts about the sponsor and its wrap fee programs. Nothing in this Schedule relieves the sponsor from any obligation under any provision of the federal Advisers Act or rules thereunder, or other federal or state law to disclose information to its advisory clients or prospective advisory clients not specifically required by this Schedule. 4. Multiple Sponsors. If two or more persons fall within the definition of ''sponsor'' in Item I above for a single wrap fee program, only one such sponsor need complete the Schedule. The sponsors may choose among themselves the sponsor that will complete the Schedule. 5. Omission of Inapplicable Information. Any information not specifically required by this Schedule that is included in the brochure should be applicable to clients and prospective clients of the sponsor's wrap fee programs. If the sponsor is required to complete this Schedule with respect to more than one wrap fee program, the sponsor may omit from the brochure furnished to clients and prospective clients of any wrap fee program or programs information required by this Schedule that is not applicable to clients or prospective clients of that wrap fee program or programs. If a sponsor of more than one wrap fee program prepares separate wrap fee brochures for clients of different programs, each brochure must be filed with the Commission and the jurisdictions attached to a separate copy of this Schedule. Each such brochure must state that the sponsor sponsors other wrap fee programs and state how brochures for those programs may be obtained. 6. Updating. Sponsors are required to file an amendment to the brochure promptly after any information in the brochure becomes materially inaccurate. Amendments may be made by use of a ''sticker'', i.e., a supplement affixed to the brochure that indicates what information is being added or updated and states the new or revised information, as long as the resulting brochure is readable. Stickers should be dated and should be incorporated into the text of the brochure when the brochure itself is revised. 7. Contents of Brochure. Include in the brochure prepared in response to this Schedule: (a) on the cover page, the sponsor's name, address, telephone number, and the following legend in bold type or some other prominent fashion: This brochure provides clients with information about [name of sponsor] and the [name of program or programs] that should be considered before becoming a client of the [name of program or programs]. This information has not been approved or verified by any governmental authority. (b) a table of contents reflecting the subject headings in the sponsor's brochure. (c) the amount of the wrap fee charged for each program or, if fees vary according to a schedule established by the sponsor, a table setting forth the fee schedule, whether such fees are negotiable, the portion of the total fee (or the range of such amounts) paid to persons providing advice to clients regarding the purchase or sale of specific securities under the program (''portfolio managers''), and the services provided under each program (including the types of portfolio management services);

208 Schedule H of Applicant: SEC File Number: Date: Form ADV DC Funding Partners LLC Page 2 4/11/2007 (d) a statement that the program may cost the client more or less than purchasing such services separately and a statement of the factors that bear upon the relative cost of the program (e.g., the cost of the services if provided separately and the trading activity in the client's account); (e) if applicable, a statement that the person recommending the program to the client receives compensation as a result of the client's participation in the program, that the amount of this compensation may be more than what the person would receive if the client participated in other programs of the sponsor or paid separately for investment advice, brokerage, and other services, and that the person may therefore have a financial incentive to recommend the wrap fee program over other programs or services; (f) a description of the nature of any fees that the client may pay in addition to the wrap fee and the circumstances under which these fees may be paid (including, if applicable, mutual fund expenses and mark-ups, mark-downs, or spreads paid to market makers from whom securities were obtained by the wrap fee broker); (g) how the program's portfolio managers are selected and reviewed, the basis upon which portfolio managers are recommended or chosen for particular clients, and the circumstances under which the sponsor will replace or recommend the replacement of the portfolio manager; (h) (1) if applicable, a statement to the effect that portfolio manager performance information is not reviewed by the sponsor or a third party and/or that performance information is not calculated on a uniform and consistent basis, (2) if performance information is reviewed to determine its accuracy, the name of the party who reviews the information and a brief description of the nature of the review, (3) a reference to any standards (i.e., industry standards or standards usely solely by the sponsor) under which performance information may be calculated; (i) a description of the information about the client that is communicated by the sponsor to the client's portfolio manager, and how often or under what circumstances the sponsor provides updated information about the client to the portfolio manager; (j) any restrictions on the ability of clients to contact and consult with portfolio managers; (k) in narrative text, the information required by Items 7 and 8 of Part II of this form and, as applicable to clients of the wrap fee program, the information required by Items 2, 5, 6, 9A and C, 10, 11, 13 and 14 of Part II; (l) if any practice or relationship disclosed in response to Item 7, 8, 9A, 9C and 13 of Part II presents a conflict between the interests of the sponsor and those of its clients, explain the nature of any such conflict of interest; and (m) if the sponsor or its divisions or employees covered under the same investment adviser registration as the sponsor act as portfolio managers for a wrap fee program described in the brochure, a brief, general description of the investments and investment strategies utilized by those portfolio managers. 8. Organization and Cross References. Except for the cover page requirements in Item 7(a) above, information contained in the brochure need not follow the order of the items listed in Item 7. However, the brochure should not be organized in such a manner that important information called by the form is obscured. Set forth below the page(s) of the brochure on which the various disclosures required by Item 7 are provided. Item 7(a) #7(b) #7(c) #7(d) #7(e) Page(s) cover Item 7(f) #7(g) #7(h) #7(i) Page(s) Item 7(j) #7(k) #7(l) #7(m) Page(s)

209 PRINCIPAL OFFICES OF THE CO-ISSUERS Denali Capital CLO VII, Ltd. c/o Maples Finance Limited P.O. Box 1093GT Boundary Hall, Cricket Square George Town Grand Cayman, Cayman Islands Denali Capital CLO VII (Delaware) LLC 1209 Orange Street Wilmington, Delaware COLLATERAL MANAGER DC Funding Partners LLC 2001 Spring Road, Suite 220 Oak Brook, Illinois TRUSTEE, INDENTURE REGISTRAR, AND COLLATERAL ADMINISTRATOR Deutsche Bank Trust Company Americas 1761 East St. Andrew Place Santa Ana, CA IRISH LISTING AGENT AND IRISH PAYING AGENT Grant Thornton Herbert Street Dublin 2 Ireland LEGAL ADVISORS To the Co-Issuers As to Certain Matters of United States Law Orrick, Herrington & Sutcliffe LLP 666 Fifth Avenue New York, New York To the Issuer To the Initial Purchaser Orrick, Herrington & Sutcliffe LLP 666 Fifth Avenue New York, New York To the Collateral Manager As to Certain Matters of Cayman Islands Law Maples and Calder P.O. Box 309GT Ugland House, South Church Street George Town Grand Cayman, Cayman Islands Katten Muchin Rosenman LLP 525 West Monroe Street Chicago, Illinois To the Trustee Sonnenschein Nath & Rosenthal LLP 601 South Figueroa Street Los Angeles, California 90017