cheyne finance plc - irish stock exchange

INFORMATION MEMORANDUM

CHEYNE FINANCE PLC U.S.$3,000,000,000

CAPITAL NOTE PROGRAMME Under this Capital Note Programme (the “Capital Note Programme”), Cheyne Finance PLC (the “Issuer”) may from time to time issue capital notes (the “Capital Notes”) denominated in any currency agreed between the Issuer and the relevant Placement Agent (as defined below). The Capital Notes are secured, limited recourse debt obligations of the Issuer which are subordinated as described herein.

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Reference should be made to the “Glossary” or the Terms and Conditions of the Capital Notes for a description of the capitalised terms used in this Information Memorandum.

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The maximum aggregate Fixed Dollar Equivalent Nominal Amount of all Capital Notes from time to time outstanding under the Capital Note Programme will not exceed U.S.$3,000,000,000, subject to increase as described herein.

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The Capital Notes may be issued on a continuing basis through the Placement Agent specified under “Summary of the Capital Note Programme” and any additional Placement Agent(s) appointed under the Capital Note Programme from time to time by the Issuer (each a “Placement Agent” and together the “Placement Agents”), which appointment may be for a specific issue or on an ongoing basis. References in this Information Memorandum to the “relevant Placement Agent” shall, in the case of an issue of any Capital Notes being (or intended to be) placed by more than one Placement Agent, be to all Placement Agents agreeing to place such Capital Notes. The Capital Notes will be issued in one or more Series as designated in the applicable Pricing Supplement, which will contain certain specific terms and conditions of the relevant Series of Capital Notes. The Placement Agent(s) may place the Capital Notes in individually negotiated transactions at varying prices. Please refer to the section of this document entitled “Plan of Distribution” (page 106).

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In accordance with the Terms and Conditions of the Capital Notes, the Capital Notes may be issued in the form of Senior Capital Notes, Mezzanine Capital Notes, Junior Capital Notes or Combination Capital Notes. The Senior Capital Notes rank and will rank pari passu and without any preference among themselves and rank in priority to the Mezzanine Capital Notes and the Junior Capital Notes. The Mezzanine Capital Notes rank and will rank pari passu and without any preference among themselves and rank in priority to the Junior Capital Notes. The Junior Capital Notes rank and will rank pari passu and without any preference among themselves. The Combination Capital Notes consist of a Senior Capital Note Component, a Mezzanine Capital Note Component and/or a Junior Capital Note Component (in each case as defined in the Terms and Conditions of the Capital Notes) in the Combination Capital Note Ratio (as defined in the Terms and Conditions of the Capital Notes). The Capital Notes will be subordinated in right of payment to, inter alia, any medium term notes and commercial paper issued by the Issuer pursuant to its Euro MTN and Euro CP programmes.

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Application has been made to the Irish Stock Exchange Limited (the "Irish Stock Exchange") for certain Capital Notes issued under the Capital Note Programme during the period of 12 months from the date of this Information Memorandum to be admitted to the official list of the Irish Stock Exchange (the "Official List"), subject to the rules of the Irish Stock Exchange and for such Notes to be admitted to trading on the Irish Stock Exchange. The Irish Stock Exchange is a regulated market for the purposes of Directive 93/22/EC. The Capital Note Programme provides that the Capital Notes may be listed on such other or further stock exchange(s) as may be agreed between the Issuer and the relevant Placement Agent(s). The Issuer may also issue unlisted Capital Notes. The applicable Pricing Supplement in respect of the issue of any Capital Notes will specify whether or not such Capital Notes will be listed on the Irish Stock Exchange (or any other exchange(s)). Application has been made to the Irish Financial Services Regulatory Authority, as a component of the Central Bank and Financial Services Authority of Ireland (“IFSRA”) in its capacity as competent authority under the Prospectus (Directive 2003/71/EC) Regulations 2005 (the “2005 Regulations”). IFRSA has only approved this document in relation to the Capital Notes which are to be listed on the Irish Stock Exchange or any other EU Regulated Market and IFSRA has neither reviewed nor approved this document in relation to any unlisted Capital Notes.

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This Information Memorandum (referred to herein as this “Information Memorandum”) constitutes a base prospectus for the purpose of Directive 2003/71/EC (the “Prospectus Directive”). A copy of this Information Memorandum or base prospectus (referred to herein as this “Base Prospectus”, which term may be used interchangeably with “Information Memorandum” to refer to this document), which has been approved by IFSRA in relation to Capital Notes admitted to the Official List of the Irish Stock Exchange and issued during the period of 12 months from the date of this Information Memorandum, has been delivered to IFSRA and the Registrar of Companies in Ireland as required under the 2005 Regulations.

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The Capital Notes will be obligations solely of the Issuer and will not be guaranteed by, or be the responsibility of, any other entity including the Placement Agent, Morgan Stanley & Co. International Limited (“Morgan Stanley”), Cheyne Capital Management Limited (“CCML” or the “Manager”), Cheyne Capital International Limited (“CCIL”) or any of their respective Affiliates.

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Neither this Information Memorandum nor any other information supplied in connection with the Capital Note Programme or any Capital Notes (i) is intended to provide the basis of any credit or other evaluation or (ii) should be considered as a recommendation by the Issuer, Morgan Stanley (as a Placement Agent or in any other capacity) or any of the Placement Agents that any recipient of this Information Memorandum or any other information supplied in connection with the Capital Note Programme or any Capital Notes should purchase any Capital Notes. Each investor contemplating purchasing any Capital Notes should make its own independent investigation of the financial condition and affairs, and its own appraisal of the creditworthiness, of the Issuer. The attention of potential investors is drawn to the section on “Risk Factors” on page 20 for a discussion of certain factors to be considered in connection with an investment in the Capital Notes. Neither this Information Memorandum nor any other information supplied in connection with the Capital Note Programme or the issue of any Capital Notes constitutes an offer or invitation by or on behalf of the Issuer, Morgan Stanley (as a Placement Agent or in any other capacity) or any of the Placement Agents to any person to subscribe for or to purchase any Capital Notes.

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The Senior Capital Notes will receive a rating from one or more of the Rating Agencies prior to their initial issuance. The Mezzanine Capital Notes are expected to receive a rating of A from Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies Inc. (“S&P”) and a rating of A3 from Moody’s Investors Service Limited (“Moody’s”). The Junior Capital Notes will be unrated. The ratings of the Combination Capital Notes will be confirmed in the relevant Combination Capital Note Pricing Supplement. The payment of the Variable Margin component of interest in respect of any Class of Capital Notes will be unrated.

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Initial Placement Agent MORGAN STANLEY

The date of this Information Memorandum is29th July], 2005.

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The Issuer accepts responsibility for the information contained in this Information Memorandum. To the best of the knowledge and belief of the Issuer (having taken all reasonable care to ensure that such is the case) the information contained in this Information Memorandum is in accordance with the facts and does not omit anything likely to affect the import of such information.

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CCML accepts responsibility for the information contained in the first four paragraphs of the section of this document entitled “The Manager” (page 76) (the “Cheyne Information”). To the best of the knowledge and belief of CCML (which has taken all reasonable care to ensure that such is the case), the Cheyne Information is in accordance with the facts and does not omit anything likely to affect the import of the Cheyne Information. Neither CCML nor CCIL accepts any responsibility for any other information contained in this Information Memorandum. Save for the Cheyne Information, neither CCML nor CCIL has separately verified the information contained herein. No representation, warranty or undertaking, express or implied, is made and no responsibility or liability is accepted by CCML or CCIL as to the accuracy or completeness of any information contained in this Information Memorandum (other than the Cheyne Information) or any other information supplied in connection with the Capital Notes or their distribution.

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QSR Management Limited (“QSR”) accepts responsibility for the information contained in the first paragraph of the section of this document entitled “The Administrator” (page 78) (the “QSR Information”). To the best of the knowledge and belief of QSR (which has taken all reasonable care to ensure that such is the case), the QSR Information is in accordance with the facts and does not omit anything likely to affect the import of the QSR Information. QSR accepts no responsibility for any other information contained in this Information Memorandum. Save for the QSR Information, QSR has not separately verified the information contained herein. No representation, warranty or undertaking, express or implied, is made and no responsibility or liability is accepted by QSR as to the accuracy or completeness of any information contained in this Information Memorandum (other than the QSR Information) or any other information supplied in connection with the Capital Notes or their distribution.

Potential purchasers should determine for themselves the relevance of the information contained in this Information Memorandum as supplemented from time to time and their decision to purchase any of the Capital Notes should be based upon such investigation as they themselves deem necessary. This Information Memorandum should not be considered as a recommendation by Morgan Stanley (as a Placement Agent or in any other capacity) or any of the Placement Agents to purchase any of the Capital Notes. Each purchase of Capital Notes shall be deemed to be an acknowledgement by the purchaser that it has made such investigation and evaluation of the creditworthiness of the Issuer as it deems appropriate.

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This Information Memorandum is to be read in conjunction with all documents which are deemed to be incorporated herein by reference (see “Documents Incorporated by Reference” below). This Information Memorandum shall, save as specified herein, be read and construed on the basis that such documents are so incorporated and form part of this Information Memorandum but not for the purposes of the aforementioned approval by IFSRA.

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Neither Morgan Stanley (as a Placement Agent or in any other capacity) nor any of the Placement Agents have independently verified the information contained herein. Accordingly, no representation, warranty or undertaking, express or implied, is made and no responsibility or liability is accepted by Morgan Stanley (as a Placement Agent or in any other capacity) or any of the Placement Agents as to the accuracy or completeness at any time of the information contained or incorporated in this Information Memorandum or any other information provided by the Issuer, CCML or QSR in connection with the Capital Note Programme or the Capital Notes or their distribution. Neither Morgan Stanley (as a Placement Agent or in any other capacity) nor any of the Placement Agents accepts any liability in relation to the information contained in or incorporated by reference in this Information Memorandum or any other information provided by the Issuer, CCML or QSR in connection with the Capital Note Programme or the Capital Notes. The statements made in this paragraph are made without prejudice to the responsibility of the Issuer under the Capital Note Programme.

None of Morgan Stanley (as a Placement Agent or in any other capacity), CCML, QSR nor any of the Placement Agents accepts any responsibility, express or implied, for updating this Information Memorandum

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and therefore it should not be assumed that the information contained herein is necessarily accurate, complete or up-to-date at any given time.

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No person is or has been authorised by the Issuer, Morgan Stanley (as a Placement Agent or in any other capacity), CCML or any of the Placement Agents to give any information or to make any representation not contained in or not consistent with this Information Memorandum or any other information supplied in connection with the Capital Note Programme or the Capital Notes and, if given or made, such information or representation must not be relied upon as having been authorised by the Issuer, Morgan Stanley (as a Placement Agent or in any other capacity), CCML or any of the Placement Agents.

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Neither the delivery of this Information Memorandum nor the offering, sale or delivery of any Capital Notes shall in any circumstances imply that the information contained herein concerning the Issuer is correct at any time subsequent to the date hereof or that any other information supplied in connection with the Capital Note Programme is correct as of any time subsequent to the date indicated in the document containing the same. Morgan Stanley (as a Placement Agent or in any other capacity) and the Placement Agents expressly do not undertake to review the financial condition or affairs of the Issuer during the life of the Capital Note Programme or to advise any investor in the Capital Notes of any information coming to their attention. Investors should review, inter alia, the most recently published documents incorporated by reference into this Information Memorandum when deciding whether or not to purchase any Capital Notes.

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The Capital Notes have not been and will not be registered under the United States Securities Act of 1933, as amended (the “Securities Act”), and are subject to U.S. tax law requirements and the Issuer has not registered and does not intend to register as an investment company under the U.S. Investment Company Act of 1940, as amended (the “Investment Company Act”). The Capital Notes may not be offered or sold directly by the Issuer within the United States or to, or for the account or benefit of, U.S. persons as defined in Regulation S under the Securities Act ("U.S. Persons") or United States persons as defined under the U.S. Internal Revenue Code of 1986, as amended. Further, the Capital Notes may not be resold, pledged, exchanged, or otherwise transferred within the United States or to or for the account or benefit of U.S. Persons except in transactions registered under, or exempt from or not subject to the registration requirements of, the Securities Act, and then only under the limited circumstances described under “Plan of Distribution” below.

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This Information Memorandum does not constitute an offer to sell or the solicitation of an offer to buy any Capital Notes in any jurisdiction to any person to whom it is unlawful to make the offer or solicitation in such jurisdiction. The distribution of this Information Memorandum and the offer or sale of any Capital Notes may be restricted by law in certain jurisdictions. The Issuer, Morgan Stanley (as a Placement Agent or in any other capacity) and the Placement Agents do not represent that this Information Memorandum may be lawfully distributed, or that any Capital Notes 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, Morgan Stanley (as a Placement Agent or in any other capacity) or the Placement Agents which would permit a public offering of any Capital Notes or distribution of this document in any jurisdiction where action for that purpose is required. Accordingly, no Capital Notes may be offered or sold, directly or indirectly, and neither this Information Memorandum 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 Information Memorandum or any Capital Notes may come must inform themselves about, and observe, any such restrictions on the distribution of this Information Memorandum and the offering and sale of Capital Notes. In particular, there are restrictions on the distribution of this Information Memorandum and the offer or sale of Capital Notes in the United States, the United Kingdom, Ireland and the other jurisdictions listed in “Plan of Distribution” below.

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None of the Issuer, Morgan Stanley (as a Placement Agent or in any other capacity), CCML or the Placement Agents make any comment about the treatment for taxation purposes of payments or receipts in respect of the Capital Notes.

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To ensure compliance with U.S. Treasury Department regulations, we advise you that this Information Memorandum was not written and is not intended to be used and cannot be used by any taxpayer for the purpose of avoiding United States federal, state or local tax penalties that may be imposed on the taxpayer. This Information Memorandum was written to support the promotion or marketing of the Capital Notes to be issued pursuant to this Information Memorandum. Each taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor.

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All references in this document to “euro”, “EUR” and “€” refer to the currency introduced at the start of the third stage of European economic and monetary union pursuant to the Treaty establishing the European Community, as amended and all references in this document to “Dollars”, “U.S. dollars”, “U.S.$” and “$” refer to the currency of the United States of America.

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In connection with the issue of any Tranche of Capital Notes, the Placement Agent or Placement Agents (if any) named as the Stabilising Manager(s) (or persons acting on behalf of any Stabilising Manager(s)) in the applicable Pricing Supplement may over-allot Capital Notes (provided that, in the case of any Tranche of Capital Notes to be admitted to the Official List of the Irish Stock Exchange, the aggregate principal amount of Capital Notes allotted does not exceed 105 per cent. of the aggregate principal amount of the relevant Tranche) or effect transactions with a view to supporting the market price of the Capital Notes of the Series (as defined below) of which such Tranche forms part at a level higher than that which might otherwise prevail. However, there is no assurance that the Stabilising Manager(s) (or persons acting on behalf of a Stabilising Manager) will undertake such stabilisation action. Any stabilisation action may begin on or after the date on which adequate public disclosure of the terms of the offer of the relevant Tranche of Capital Notes is made and, if begun, may be ended at any time, but it must end no later than the earlier of 30 days after the issue date of the relevant Tranche of Capital Notes and 60 days after the date of the allotment of the relevant Tranche of Capital Notes.

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TABLE OF CONTENTS

General Description of the Capital Note Programme......................................................................................... 7 Summary of the Capital Note Programme......................................................................................................... 8 Risk Factors ................................................................................................................................................... 18 Form of the Capital Notes .............................................................................................................................. 28 Terms and Conditions of the Capital Notes ..................................................................................................... 30 Pricing Supplement for Capital Notes ............................................................................................................. 63 Pricing Supplement for Combination Capital Notes ........................................................................................ 67 Use of Proceeds ............................................................................................................................................. 69 Description of the Issuer................................................................................................................................. 70 Capitalisation and Indebtedness...................................................................................................................... 71 The Manager.................................................................................................................................................. 74 The Administrator.......................................................................................................................................... 76 The Security Trustee ...................................................................................................................................... 79 The Issuer’s Business ..................................................................................................................................... 81 Irish Taxation............................................................................................................................................... 102 Plan of Distribution...................................................................................................................................... 104 General Information ..................................................................................................................................... 113 Glossary....................................................................................................................................................... 115

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All capitalised words and expressions used in this Information Memorandum have the meanings set out herein unless the context otherwise requires.

Physical copies of the Placement Agreement (the “Placement Agreement”) to be dated on or around 3rd August, 2005 between the Issuer and Morgan Stanley as initial Placement Agent and any other Placement Agent(s) appointed in accordance with the Placement Agreement from time to time by the Issuer and the Agency Agreement, the Deed of Covenant, the Security Trust Deed and the Common Terms Agreement (each as defined in the Terms and Conditions of the Capital Notes) and all of the documents deemed to be incorporated herein by reference, unless such documents have been modified or superseded as specified above, are available for inspection during normal business hours at the registered office of the Issuer and at the specified office (outside the United States) of the Irish Paying Agent for the time being in Dublin.

If the terms of the Capital Note Programme are modified or amended in a manner which would make this Information Memorandum, as supplemented, inaccurate or misleading, a new Information Memorandum will be prepared.

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GENERAL DESCRIPTION OF THE CAPITAL NOTE PROGRAMME

Under the Capital Note Programme, the Issuer may from time to time issue Capital Notes denominated in any currency agreed between the Issuer and the relevant Placement Agent, subject as set out herein. A summary of the terms and conditions of the Capital Note Programme and the Capital Notes appears below. The applicable terms of any Capital Notes will be set out in the Terms and Conditions of the Capital Notes endorsed on, attached to, or incorporated by reference into, the Capital Notes, as modified and supplemented by the applicable Pricing Supplement attached to, or endorsed on, such Capital Notes.

This Information Memorandum and any supplement will only be valid for listing Capital Notes on the Official List of the Irish Stock Exchange during the period of 12 months from the date hereof in an aggregate Fixed Dollar Equivalent Nominal Amount (as defined in the Terms and Conditions of the Capital Notes) which, when added to the aggregate Fixed Dollar Equivalent Nominal Amount then outstanding of all Capital Notes, does not exceed U.S.$3,000,000,000.

In addition, the Issuer may issue Capital Notes to the U.S. Capital Notes Issuer, in which case the U.S. Capital Notes Issuer will purchase interests in such Capital Notes and issue U.S. Capital Notes in the United States. The U.S. Capital Notes will only be offered for sale in the United States and are not being offered pursuant to this Information Memorandum.

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SUMMARY OF THE CAPITAL NOTE PROGRAMME

The following summary does not purport to be complete and is taken from, and is qualified in its entirety by, the remainder of this Information Memorandum and, in relation to the terms and conditions of any particular Tranche (as defined in the Terms and Conditions of the Capital Notes) of Capital Notes, the applicable Pricing Supplement. Words and expressions defined in “Form of the Capital Notes”, “Terms and Conditions of the Capital Notes” and “Glossary” below shall have the same meanings in this summary, unless the context otherwise requires. References to a specific "Condition" are to the relevant numbered Condition in the Terms and Conditions of the Capital Notes.

Issuer:................................................ Cheyne Finance PLC.

Description: ....................................... Capital Note Programme.

Placement Agents:............................. Morgan Stanley & Co. International Limited and/or any other placement agent appointed in accordance with the Placement Agreement.

Principal Paying Agent and Calculation Agent: ............................

The Bank of New York.

Programme Size:............................... Up to U.S.$3,000,000,000 or the Fixed Dollar Equivalent Nominal Amount outstanding at any time. The Issuer may increase the amount of the Capital Note Programme in accordance with the terms of the Placement Agreement.

Classes of Capital Notes: ................... The Capital Notes issued shall be either Senior Capital Notes, Mezzanine Capital Notes, Junior Capital Notes or Combination Capital Notes. See “Status and Subordination” below.

Form of Capital Notes:...................... Subject to Condition 1(b), the Capital Notes will be issued in bearer form as described in “Form of the Capital Notes”.

Interest: ............................................. Subject to the conditions to payment in Condition 5(f) and the order of priority of interest payments set out in Condition 5(b) in respect of the relevant Class of Capital Notes, the Holder of a Capital Note will be entitled to interest on each Interest Payment Date in an amount equal to the sum of the Fixed Interest, the Deferred Interest (if any), the Additional Interest (if any) and the Variable Margin (if any) (in each case as defined in Condition 5). Where it is not possible to pay any part of the interest (excluding Variable Margin) in respect of any Capital Notes on an Interest Payment Date, the amount not paid will be deferred. Where on any Interest Payment Date which is (or would be, were it not for the fact that the relevant Profit Distribution Date was not a Currency Business Day) a Profit Distribution Date, the Issuer is in Normal Operations and has Distributable Profits, the Holder, subject to the priority of interest payments set out in Condition 5(b) and to such payment not causing a Restricted Investments Event, a Restricted Funding Event or an Enforcement Event, will also be entitled to the Variable Margin (if any). See Condition 5 for further details.

Issue Price: ........................................ The Capital Notes may be issued at an issue price of par or at a discount or premium to par as specified in the applicable Pricing Supplement.

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Expected Maturity Date:................... The Expected Maturity Date of a Capital Note shall be determined dependent on the Maturity Type of such Capital Note.

One of the following three Maturity Type options shall be specified in the applicable Pricing Supplement:

Fixed Maturity Capital Notes

The Expected Maturity Date (as defined in the Terms and Conditions of the Capital Notes) of each Capital Note issued as a Fixed Maturity Capital Note (as defined in the Terms and Conditions of the Capital Notes) shall be specified in the applicable Pricing Supplement.

Automatic Rolling Maturity Capital Notes

Each Automatic Rolling Maturity Capital Note (as defined in the Terms and Conditions of the Capital Notes) shall, on issue, have an initial Expected Maturity Date as specified in the applicable Pricing Supplement and which initial Expected Maturity Date shall be at least two years from the Issue Date of such Automatic Rolling Maturity Capital Note. On each Interest Payment Date, the Expected Maturity Date of an Automatic Rolling Maturity Capital Note shall be automatically extended to the Interest Payment Date following the existing Expected Maturity Date unless either the relevant Capital Noteholder elects in accordance with Condition 9(b) (in respect only of his Automatic Rolling Maturity Capital Note and subject as specified in the sixth paragraph of Condition 1(a)) to stop the extension of such Automatic Rolling Maturity Capital Note or the then Expected Maturity Date of such Automatic Rolling Maturity Capital Notes reaches the Automatic Rolling Maturity Maximum Expected Maturity Date (as defined in the Terms and Conditions of the Capital Notes) in respect thereof, at which point no further extension of the Expected Maturity Date may occur.

Optional Rolling Maturity Capital Notes

Each Optional Rolling Maturity Capital Note (as defined in the Terms and Conditions of the Capital Notes) shall, on issue, have an initial Expected Maturity Date as specified in the applicable Pricing Supplement. On each Interest Payment Date, the Capital Noteholder shall have the option, in respect only of his Optional Rolling Maturity Capital Note and in accordance with Condition 9(c), to extend the Expected Maturity Date of an Optional Rolling Maturity Capital Note to the Interest Payment Date following the existing Expected Maturity Date up to the Optional Rolling Maturity Maximum Expected Maturity Date (as defined in the Terms and Conditions of the Capital Notes) (subject as specified in the sixth paragraph of Condition 1(a)). If, at any time, the Capital Noteholder fails to exercise its option to extend the Expected Maturity Date in accordance with Condition 9(c), the option will lapse and no further extension of the Expected Maturity Date may occur.

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Legal Maturity Date:......................... In respect of each Capital Note, the Legal Maturity Date shall be either (i) the Interest Payment Date specified as such in the applicable Pricing Supplement or (ii) the Interest Payment Date that falls within the designated period (as specified in the applicable Pricing Supplement) after the Expected Maturity Date for that Capital Note, provided that in each case the Legal Maturity Date shall fall no earlier than three years after the Expected Maturity Date (regardless of any Business Day adjustments) without Rating Agency Approval.

Redemption at or following the Expected Maturity Date:...................

Each Capital Note will become due and payable on the Expected Maturity Date relating to such Capital Note and shall (subject as provided in Condition 8(a)) be redeemed by the Issuer at the Redemption Amount specified in the applicable Pricing Supplement together with accrued interest.

If on an Interest Payment Date on or after the Expected Maturity Date of a Capital Note either the Issuer has insufficient funds to redeem such Capital Note in full (after allowing for the payment by the Issuer of all Prior Ranking Obligations ranking in priority to the relevant Class of Capital Notes due and payable on that date, and taking into account the order of interest priority in Condition 5(b), the Redemption Priority (as defined in Condition 8(c)) and any restriction on payments (including those in Conditions 5(f) and 8(b)) due to the then operating state of the Issuer) or the Conditions to Redemption set out in Condition 8(b) are not satisfied in respect of such Capital Note, the redemption of such Capital Note shall be deferred (and the Capital Note shall remain outstanding) until the next following Interest Payment Date upon which sufficient funds are available and the Conditions to Redemption are satisfied in respect of such Capital Note.

Redemption at the option of the Capital Noteholders: .........................

If so specified in the applicable Pricing Supplement and subject as specified in the sixth paragraph of Condition 1(a) and to any required deferral of payment as specified in the Terms and Conditions of the Capital Notes, each Capital Note shall become due and payable for the purposes of, and subject to, Conditions 8(b) and 8(c) and may be redeemed in such amounts and on (or following, in the case of deferral as described in the following paragraph) such Interest Payment Dates as are specified in the applicable Pricing Supplement (provided that such redemption may not be made within a period of 2 years from the Issue Date of such Capital Note, except upon the occurrence of an “extraordinary event” for the purposes of Rule 203(b)(3)-2 under the United States Investment Advisers Act of 1940, as amended), by the Holder thereof giving to the Issuer and the Principal Paying Agent such notice as is specified in the applicable Pricing Supplement.

If a Capital Note which is scheduled to be redeemed on its Put Payment Date in accordance with Condition 8(d) is not redeemed as a result of either the Issuer having insufficient funds to effect such redemption or the Conditions to Redemption set out in Condition 8(b) not being satisfied in respect of such Capital Note, the redemption of such Capital Note shall be deferred (and such Capital

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Note shall remain outstanding) until the next following Interest Payment Date on which funds are available therefor and the Conditions to Redemption are satisfied in respect of such Capital Note. If such Capital Note has not been redeemed at the Expected Maturity Date of such Capital Note, the redemption provisions of Condition 8(a) shall apply in priority to Condition 8(d).

Where the applicable Pricing Supplement specifies a Maximum Redemption Amount in connection with any optional redemption pursuant to Condition 8(d), to the extent that the Issuer receives Investor Redemption Notices (as defined in Condition 8(d)(ii)) in respect of the relevant Series of Capital Notes which together specify an aggregate principal amount exceeding the aggregate Maximum Redemption Amount of such Series, then the principal amount of each of such Capital Notes so redeemed on the relevant Interest Payment Date shall be reduced on a pro rata basis accordingly so that the aggregate principal amount of the Capital Notes of the relevant Series redeemed on such Interest Payment Date shall equal the Maximum Redemption Amount.

The amount payable upon redemption of a Capital Note (or, where specified in the applicable Pricing Supplement, part thereof) pursuant to the put option redemption right specified in Condition 8(d) shall be the Put Redemption Amount (as specified in the applicable Pricing Supplement), together with accrued interest for such Capital Note or, as the case may be, such part thereof being redeemed on the relevant Interest Payment Date. No Investor Redemption Notice may be given by a Capital Noteholder during a period of Restricted Investments or Restricted Funding or after the occurrence of an Enforcement Event, as the case may be.

Redemption at the option of the Issuer:................................................

Issuer Call Option

If so specified in the applicable Pricing Supplement, and subject to any required deferral of payment as specified in the Terms and Conditions of the Capital Notes, the Issuer may, upon not less than 30 nor more than 60 days’ notice to the Capital Noteholders in accordance with Condition 16 (which notice shall be irrevocable and shall specify the date fixed for redemption) and to the Security Trustee, declare any Capital Notes, and such Capital Notes shall thereby become, due and repayable for the purposes of Condition 8(b) and 8(c) in whole or in part, at their Issuer Call Option Redemption Amount together with accrued interest for such Capital Notes or, as the case may be, such part thereof being redeemed, on the relevant Interest Payment Date on the next following applicable Issuer Call Option Date(s) specified in the applicable Pricing Supplement.

If a Capital Note which is scheduled to be redeemed on an Interest Payment Date in accordance with Condition 8(e)(i) is not redeemed as a result of either the Issuer having insufficient funds to effect such redemption or the Conditions to Redemption set out in Condition 8(b) not being satisfied in respect of such Capital Note, the redemption of such Capital Note shall be deferred (and such Capital Note shall remain outstanding) until the next following

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Interest Payment Date on which funds are available therefor and the Conditions to Redemption are satisfied in respect of such Capital Note. If such Capital Note has not been redeemed at the Expected Maturity Date of such Capital Note, the redemption provisions of Condition 8(a) shall apply in priority to Condition 8(e)(i).

Clean Up Redemption Option

Subject to the payment in full of all Secured Obligations on or prior to the date of the proposed redemption of the Capital Notes pursuant to Condition 8(e)(ii), if the aggregate principal amount of Capital Notes Outstanding on any Profit Distribution Date is or will be less than U.S.$100 million (or the Fixed Dollar Equivalent Nominal Amount thereof) the Issuer may, upon not less than 30 nor more than 60 days’ notice to the Capital Noteholders in accordance with Condition 16 (which notice shall be irrevocable and shall specify the date fixed for redemption) and to the Security Trustee, redeem all, but not some only, of the Capital Notes Outstanding at their Redemption Amount together with interest accrued to the date of redemption.

Restricted Funding or Enforcement Early Redemption: ......

The Issuer shall:

(i) for so long as it is in a period of Restricted Funding or after the occurrence of an Enforcement Event (but prior to the occurrence of an Insolvency Event); and

(ii) subject to, and with effect from the date of, the payment in full of and/or provision for all Prior Ranking Obligations in respect of the relevant Class of Capital Notes,

be obliged to redeem all of the Capital Notes Outstanding of such Class (regardless of whether or not the Expected Maturity Date of any Capital Notes within that Class has occurred) at their outstanding Redemption Amounts together with interest accrued to the date of redemption. Any such redemption shall be effected in whole or in part (provided that any redemption in part shall not affect the Issuer’s obligation to redeem the remaining part of such Capital Notes) on the next following (and, if necessary, each subsequent) Interest Payment Date which is (or would be, were it not for the fact that the relevant Profit Distribution Date was not a Currency Business Day) a Profit Distribution Date, by the Issuer giving not less than 30 nor more than 60 days’ notice (which notice may be given prior to, but subject to, the redemption condition set out in sub-paragraph (ii) above) to the Security Trustee or Receiver (as the case may be), the Principal Paying Agent and, in accordance with Condition 16, the relevant Capital Noteholders (which notice shall be irrevocable).

Prior to the occurrence of an Enforcement Event, any redemption by the Issuer in accordance with Condition 8(f) shall be made in the following order (and in all cases subject to the redemption condition in sub-paragraph (ii) above relating to that Class of Capital Notes):

(a) firstly, in satisfaction of all Fixed Interest, Deferred

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Interest, Additional Interest and all outstanding Redemption Amounts to the Senior Capital Noteholders pari passu and in proportion to the amounts due and payable;

(b) secondly, in satisfaction of all Fixed Interest, Deferred Interest, Additional Interest and all outstanding Redemption Amounts to the Mezzanine Capital Noteholders pari passu and in proportion to the amounts due and payable; and

(c) thirdly, in satisfaction of all Fixed Interest, Deferred Interest, Additional Interest and all outstanding Redemption Amounts to the Junior Capital Noteholders pari passu and in proportion to the amounts due and payable.

Following the occurrence of an Enforcement Event (but prior to the occurrence of an Insolvency Event), any redemption by the Issuer in accordance with Condition 8(f) shall in all cases be made in accordance with the Payment Priority.

Insolvency Event Early Redemption: ............................

Upon the occurrence of an Insolvency Event, all Secured Obligations (including the Capital Notes) shall become immediately due and payable. In particular, if the Security Trustee delivers to the Issuer an Insolvency Event Notice, and regardless of whether or not the Expected Maturity Date of any Capital Notes Outstanding has occurred, the Issuer shall be obliged immediately to redeem the Capital Notes in accordance with the Payment Priority at their respective Redemption Amounts, together with interest accrued to the date of redemption.

Redemption for Taxation Reasons:... Subject to the Issuer being able to make payment in full of all Secured Obligations on or prior to the date of the proposed redemption of the Capital Notes pursuant to Condition 8(h) and electing to do so, the Issuer shall, in so doing, redeem all Capital Notes Outstanding in whole, but not in part, and regardless of whether or not the Expected Maturity Date of any Capital Notes has occurred, by giving not less than 30 nor more than 60 days’ notice (which notice may be given prior to, but subject to, the redemption condition set out immediately above) to the Principal Paying Agent, the Security Trustee and, in accordance with Condition 16, the Capital Noteholders (which notice shall be irrevocable), at their respective Redemption Amounts together with interest accrued to the date of redemption if either (a)(i) the Issuer has or will become obliged to make any payment of principal, premium, if any, or interest (including discount) in respect of the Capital Notes and the Coupons (if any) subject to any withholding or deduction for or on account of any present or future taxes or duties of whatever nature imposed or levied by or on behalf of Ireland or any political subdivision or any authority thereof or therein having power to tax and (ii) the Issuer has used reasonable endeavours, pursuant to its obligations under Condition 14, to find a substitute issuer or to change its domicile or residence and is unable to do so or (b) the U.S. Capital Notes Issuer has or will become obliged to make any

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payment of principal, premium, if any, or interest (including discount) in respect of the U.S. Capital Notes subject to any withholding or deduction for or on account of any present or future taxes or duties of whatever nature imposed or levied by or on behalf of the United States or any political subdivision or any authority thereof or therein having power to tax; provided that no notice of such redemption may be given by the Issuer earlier than 90 days prior to the earliest date on which the Issuer or, as the case may be, the U.S. Capital Notes Issuer would be obliged to make a payment in respect of the Capital Notes or, as the case may be, the U.S. Capital Notes subject to such withholding or deduction were such payment then due.

Denomination of Capital Notes:........ The Capital Notes will be issued in such denominations as may be agreed between the Issuer and the relevant Placement Agent and as specified in the applicable Pricing Supplement (subject to a minimum denomination of U.S.$250,000 or the equivalent thereof in the Specified Currency).

Currencies of Capital Notes:............. The Capital Notes will be issued in U.S. dollars, euro and any other currency as may be agreed between the Issuer and the relevant Placement Agent and as specified in the applicable Pricing Supplement.

Taxation: ........................................... At the date of this Information Memorandum, all payments in respect of the Capital Notes will be made without deduction for or on account of withholding taxes imposed within Ireland. If the Issuer is subject to any deduction for or on account of withholding taxes in the future, all payments of principal, premium (if any) and interest in respect of the Capital Notes will be made net of such withholding taxes and without the Issuer being obliged to pay additional amounts in respect thereof. The Issuer has a right to redeem the Capital Notes following certain tax events, as described in the Terms and Conditions of the Capital Notes.

Security: ............................................ The due payment of principal and interest in respect of the Capital Notes is secured by a first fixed and floating charge over the assets and undertaking of the Issuer (other than U.S.$2,000 representing a profit to the Issuer, the U.S. Capital Notes Issuer and Cheyne Finance LLC to be divided as between the Issuer, the U.S. Capital Notes Issuer and Cheyne Finance LLC as agreed between them), granted in favour of the Security Trustee pursuant to the Security Trust Deed. The Security Trustee holds the benefit of the charge on trust for itself, the Capital Noteholders and the other Secured Creditors specified therein on and subject to the terms of the Security Trust Deed. See “The Security Trustee” below.

For the avoidance of doubt, the Combination Capital Notes will be secured to the same extent as the Class of Capital Notes that comprises each Capital Note Component (as defined in the Terms and Conditions of the Capital Notes).

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Custody Arrangements: .................... The Issuer has entered into a Global Custody Agreement, pursuant to which the Custodian has undertaken to hold Investments received by it as custodian and trustee under the Global Custody Agreement for the benefit of and to the order of the Issuer. The Custodian may keep such Investments in its vaults or arrange for the deposit of the Investments, in certificated or uncertificated form, with or through one or more rating agency approved sub-custodians and Clearing Systems. The Custodian is obliged to require each such Clearing System or sub-custodian to identify the Investments held by it as being held for the account of the Custodian (or the applicable sub-custodian) for the benefit of the Issuer. Cash will be deposited with a bank whose short-term unsecured, unsubordinated and unguaranteed debt obligations are rated A-1+ by S&P and P-1 by Moody’s. The Global Custody Agreement provides for the replacement of the Custodian as custodian and trustee in the event that the Custodian’s short-term unsecured, unsubordinated and unguaranteed debt obligations are not rated A-1+ by S&P and P-1 by Moody’s, unless otherwise agreed with the Rating Agencies. All of the Issuer’s rights to the Investments deposited with the Custodian, and against the Custodian under the Global Custody Agreement, are charged in favour of the Security Trustee by way of first floating charge under the terms of the Security Trust Deed. No steps have been taken to create or perfect security over the Issuer’s rights to the Investments in any jurisdiction other than England and Wales or Ireland.

Status and Subordination: ................ The Capital Notes constitute secured, limited recourse debt obligations of the Issuer, secured as described in the preceding paragraphs and with (subject as provided in the Terms and Conditions of the Capital Notes) each Class subordinated to the Prior Ranking Obligations of the Issuer ranking in priority to that Class as described below.

The Senior Capital Notes rank and will rank pari passu and without preference among themselves and rank in priority to the Mezzanine Capital Notes and the Junior Capital Notes. The Mezzanine Capital Notes rank and will rank pari passu and without preference among themselves and rank in priority to the Junior Capital Notes. The Junior Capital Notes rank and will rank pari passu and without preference among themselves. The Combination Capital Notes consist of a Senior Capital Note Component and/or a Mezzanine Capital Note Component and/or a Junior Capital Note Component in the Combination Capital Note Ratio (in each case as defined in the Terms and Conditions of the Capital Notes).

The Capital Notes will be subordinated in right of payment to, inter alia, the payment in full of any medium term notes and commercial paper issued by the Issuer pursuant to its Euro MTN and Euro CP programmes and various obligations of the Issuer (including fees, expenses and certain indemnities).

For the purposes of subordination and Conditions 2, 5, 8, 9, 17 and 18 of the Terms and Conditions of the Capital Notes (and the defined terms used therein), the Combination Capital Notes will not

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be treated as separate Classes of Capital Notes but each Capital Note Component of the Combination Capital Notes will be treated as Capital Notes of the Class represented by such Capital Note Component.

Save to the extent set out in the Terms and Conditions of the Capital Notes in relation to the issuance and transfer of Combination Capital Notes, the Terms and Conditions of the Capital Notes applicable to each Combination Capital Note, including the terms on which amounts are due and payable in respect thereof and the rights of any Holders therefor, are the same as the Terms and Conditions of the Capital Notes applicable to the Capital Note Components relating thereto. The Capital Note Components of the Combination Capital Notes are not separately transferable; however, a Holder may exchange all or some of its Combination Capital Notes for proportional interests in the underlying Classes of Capital Notes represented by the applicable Capital Note Components, subject to the requirements of the underlying Classes of Capital Notes regarding Specified Denominations, as described in Condition 1.

Ratings: ............................................. The Senior Capital Notes will receive a rating from one or more of the Rating Agencies prior to their initial issuance.

The Mezzanine Capital Notes are expected to receive the following ratings on the Closing Date:

S&P A

Moody’s A3

The Junior Capital Notes will be unrated.

The ratings of the Combination Capital Notes will be confirmed in the relevant Combination Capital Note Pricing Supplement.

Ratings are not a recommendation to buy or sell or hold a security.

The above mentioned Moody’s rating of the Mezzanine Capital Notes addresses the expected loss to Holders of such Mezzanine Capital Notes and relates to the ultimate payment of principal and interest (excluding Variable Margin) in respect of such Mezzanine Capital Notes on or before the Legal Maturity Date. The rating does not address the risk that interest payments in respect of such Mezzanine Capital Notes may be deferred prior to this date, whether as a result of the Issuer being in Restricted Funding or the occurrence of an Enforcement Event or otherwise and does not apply to any redemption at the option of the Capital Noteholders pursuant to Condition 8(d) of the Terms and Conditions of the Capital Notes.

Moody’s ratings address the credit risk factors associated with the Mezzanine Capital Notes issued under the Capital Note Programme. Other risks have not been addressed but may have a significant effect on yield to investors.

The above mentioned S&P rating of the Mezzanine Capital Notes addresses the ability of the Issuer to make ultimate payment of

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principal and interest (excluding Variable Margin) in respect of such Mezzanine Capital Notes on or before the Legal Maturity Date. The rating does not address the risk that interest payments in respect of such Mezzanine Capital Notes may be deferred prior to this date, whether as a result of the Issuer being in Restricted Funding or the occurrence of an Enforcement Event or otherwise and does not apply to any redemption at the option of the Capital Noteholders pursuant to Condition 8(d) of the Terms and Conditions of the Capital Notes.

The payment of the Variable Margin component of interest in respect of any Capital Note will be unrated.

An explanation of the significance of such credit ratings may be obtained from the Rating Agencies furnishing the same. These ratings are subject to revision or withdrawal at any time, and there is no assurance that they will remain unchanged.

Listing: .............................................. Application has been made to the Irish Stock Exchange Limited (the "Irish Stock Exchange") for certain Notes issued under the Programme during the period of 12 months from the date of this Information Memorandum to be admitted to the official list of the Irish Stock Exchange (the "Official List"), subject to the listing rules of IFSRA, a component of the Central Bank and Financial Services Authority of Ireland ("IFSRA") in its capacity as competent authority under the Prospectus (Directive 2003/71/EC) Regulations 2005 (the “2005 Regulations”) and the rules of the Irish Stock Exchange and for such Notes to be admitted to trading on the Irish Stock Exchange. The Irish Stock Exchange is a regulated market for the purposes of Directive 93/22/EC." The Capital Note Programme provides that the Capital Notes may be listed on such other or further stock exchange(s) as may be agreed between the Issuer and the relevant Placement Agent(s). The Issuer may also issue unlisted Capital Notes. The applicable Pricing Supplement in respect of the issue of any Capital Notes will specify whether or not such Capital Notes will be listed on the Irish Stock Exchange (or any other exchange(s)). IFRSA has only approved this document in relation to the Capital Notes which are to be listed on the Irish Stock Exchange or any other EU Regulated Market and IFSRA has neither reviewed nor approved this document in relation to any unlisted Capital Notes

Governing Law: ................................ The Capital Notes will be governed by, and construed in accordance with, English law.

Selling Restrictions: .......................... There are restrictions on the offer, sale and transfer of the Capital Notes in the United States, the European Economic Area, the United Kingdom, Ireland, the other jurisdictions listed in "Plan of Distribution" and such other jurisdictions as may be required in connection with the offering and sale of a particular Tranche of Capital Notes.

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RISK FACTORS

An investment in the Capital Notes involves certain risks. There can be no assurance that the Issuer’s Investments will be successful, that its investment objectives will be achieved, that the Capital Noteholders will receive the full amounts payable by the Issuer under the Capital Notes or that they will receive any return on their investment in the Capital Notes.

Each potential investor in the Capital Notes must determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should:

(a) have sufficient knowledge and experience to make a meaningful evaluation of the Capital Notes, the merits and risks of investing in the Capital Notes and the information contained or incorporated by reference in this Information Memorandum or any applicable supplement;

(b) have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the Capital Notes and the impact the Capital Notes will have on its overall investment portfolio;

(c) have sufficient financial resources and liquidity to bear all of the risks of an investment in the Capital Notes, including Capital Notes with principal or interest payable in one or more currencies, or where the currency for principal or interest payments is different from the potential investor's currency;

(d) understand thoroughly the terms of the Capital Notes; and

(e) be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic, interest rate and other factors that may affect its investment and its ability to bear the applicable risks.

Capital Notes are complex financial instruments. Sophisticated institutional investors generally do not purchase complex financial instruments as stand-alone investments. They purchase complex financial instruments as a way to reduce risk or enhance yield with an understood, measured, appropriate addition of risk to their overall portfolios. A potential investor should not invest in Capital Notes unless it has the expertise (either alone or with a financial adviser) to evaluate how the Capital Notes will perform under changing conditions, the resulting effects on the value of the Capital Notes and the impact this investment will have on the potential investor's overall investment portfolio.

The following does not purport to be an exhaustive analysis of the risks to which the Issuer and potential investors may be subject, and is qualified in its entirety by all other sections of this Information Memorandum. Words and expressions defined in “Glossary” below shall have the same meanings in this section, unless the context otherwise requires.

1. Operational and Business Risks

The Issuer is a dynamic investment company which may raise funds and invest in assets in a wide variety of different ways (see “The Issuer’s Business” below). These activities involve a number of operational and business risks, including, but not limited to:

(a) Market risk – The Issuer faces market risk, which could lead to realised losses if it becomes a forced seller of assets in a declining market environment or following ratings downgrades or credit losses in respect of its assets. The Issuer is required to mark to market its assets frequently for the purposes of calculating certain capital ratios. On some occasions marks may not be available to the Issuer and any marks received by the Issuer may not be accurate and/or realisable. Credit defaults or downgrades, to the extent that they occur, may adversely affect the ability of the Issuer to comply with the Capital Tests or other tests to which it is subject and may cause a Restricted Funding Event, a Restricted Investments Event or an Enforcement Event, which in turn may materially adversely affect the Issuer’s ability to pay interest and principal due in respect of the Capital Notes.

(b) Liquidity risk – The Issuer faces liquidity risk as the average life of its liabilities is typically shorter than the average life of its assets. The Issuer will address these risks by managing the

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Investments and its liabilities in compliance with the Liquidity Tests. The Issuer is not, however, required to match the maturities of the Capital Notes with those of any underlying assets, and the Issuer will not maintain any liquidity facilities to support the repayment of Capital Notes. To the extent that the Issuer is unable to refinance its liabilities, it may be forced to sell its assets at below market value resulting in losses to Holders of the Capital Notes.

(c) Investment risk – The Issuer will face reinvestment risk to the extent that any assets it holds are repaid, prepaid or sold. To the extent that funds from these assets are invested in assets with lower spreads, any Distributable Profits available to be distributed to the Capital Notes may be adversely affected. In addition, the Issuer may from time to time raise additional capital and seek to increase the size of the asset portfolio, and the spreads on assets which may be purchased at such times will affect the level of Distributable Profits.

(d) Refinancing risk – The Issuer will not generally term fund its assets and will be required to regularly refinance its liabilities. To the extent that such liabilities are refinanced at wider spreads, any Distributable Profits available to the Capital Notes may be adversely affected.

(e) Currency risk – The Issuer faces currency risk to the extent there is any currency mismatch between any of its assets and liabilities. To hedge these exposures, the Issuer will enter into hedge agreements in accordance with procedures designed to reduce such risk. However, there can be no assurance that such hedge agreements will eliminate all such risks.

(f) Interest rate risk – The Issuer faces interest rate risk to the extent there is any fixed/ floating interest rate mismatch between any of its assets and liabilities. To hedge these exposures, the Issuer will enter into hedge agreements in accordance with procedures designed to reduce such risk. However, there can be no assurance that such hedge agreements will eliminate all such risks.

(g) Counterparty risk – The Issuer faces counterparty risk as a result of entering into repo, securities lending, hedging, liquidity, credit derivative and other derivative transactions. Default or non-performance by such counterparties may result in the Issuer incurring losses, being unhedged and/or otherwise being exposed to increased funding and/or liquidity risk.

(h) Concentration risk – The assets held by the Issuer are subject to concentration risk with respect to, among other things, obligors, regions, industries and servicers.

(i) Leverage risk – The Capital Notes represent the most junior securities in a leveraged capital structure. As a result, any deterioration in the performance of the assets of the Issuer, including defaults and losses or a reduction in the yield or other factors, will be borne first by the Holders of the Capital Notes (in accordance with their relative priority). With respect to each Class of Capital Notes, the risks associated with leverage will generally be more pronounced with respect to the more subordinated Classes of Capital Notes. For example, the risks to a Holder of a Mezzanine Capital Note are expected to be more significant than the risks to a Holder of a Senior Capital Note, and the risks to a Holder of a Junior Capital Note are expected to be more significant than the risks to a Holder of a Mezzanine Capital Note or, as the case may be, of a Senior Capital Note. In addition, such leverage may change over time and may magnify the adverse impact of, among other things, asset or counterparty defaults or realised losses from asset sales on the Holders of Capital Notes. Any such adverse effect may be more pronounced with respect to more subordinated Classes of Capital Notes. Accordingly, changes in the market value of the Capital Notes generally, and of any Series of Capital Notes within any Class of Capital Notes, could be greater than changes in the market value of the assets of the Issuer. The leveraged nature of the Capital Notes generally, and of any Series of Capital Notes within any Class of Capital Notes, and the related risks to investors in such Capital Notes may also be affected by, among other things, any financing transactions,

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repurchase agreements, securities lending agreements and/or credit derivatives contracts which the Issuer enters into (see also “8. Designated Collateral or Other Assets” below).

Although these risks are subject to monitoring and control pursuant to the funding and investment criteria agreed with the Rating Agencies (see “The Issuer’s Business – Specific Investment and Funding Criteria” below), potential investors should note that:

(a) these criteria may not address all of the risks inherent in the operation of the Issuer’s business;

(b) these criteria are subject to change at any time with the consent of the Rating Agencies;

(c) these criteria have been principally formulated with the aim of maintaining the ratings of the Senior Notes in priority to the other Rated Notes and the Rated Notes in priority to the Junior Capital Notes and the U.S. Junior Capital Notes (and therefore may not adequately protect the position of the Holders of the Capital Notes and the U.S. Capital Notes and, in particular, the Junior Capital Notes and the U.S. Junior Capital Notes); and

(d) there may be other criteria agreed with the Rating Agencies that are not disclosed, which could impact on, among other things, the operating flexibility of the Issuer and/or any returns on the Capital Notes.

2. Operating States

In addition to compliance with the funding and investment criteria referred to in paragraph 1 above, the Issuer will operate in one of four operating states, namely Normal Operations, Restricted Investments, Restricted Funding or the operating state arising as a result of the occurrence of an Enforcement Event (see “The Issuer’s Business” below). During these operating states the Issuer will be subject to different controls on its business activities, some of which may have an adverse effect on the rights of, and returns to, the Capital Noteholders. Any such adverse effect may be more pronounced with respect to more subordinated Classes of Capital Notes. In particular:

(a) during a period of Normal Operations:

(i) the Issuer is obliged to make certain payments irrespective of whether it is making a profit, and such payments may cause the net asset value of certain Classes of Capital Notes to deteriorate (and the related risk may be more pronounced with respect to more subordinated Classes of Capital Notes);

(ii) redemption of certain of the Capital Notes in accordance with their terms could, without causing a failure of the Capital Tests and therefore without causing a failure of the Conditions to Redemption (see Condition 8 of the Terms and Conditions of the Capital Notes), cause a downgrade in the rating of other Capital Notes and/or cause the net asset value of other Capital Notes to deteriorate; and

(iii) the Issuer may not redeem Capital Notes unless certain conditions are met (see Condition 8 of the Terms and Conditions of the Capital Notes) which may, among other things, favour Holders of those Capital Notes within a Class which have an earlier Legal Maturity Date, Put Payment Date or Issuer Call Option Date (each as defined in the Terms and Conditions of the Capital Notes) or favour Holders of Capital Notes that have reached their Expected Maturity Date compared to Holders of Capital Notes that are the subject of a put or call option (see Condition 8(c) of the Terms and Conditions of the Capital Notes) or favour Holders of more senior Classes of Capital Notes;

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(b) during a period of Restricted Investments:


(ii) the Issuer may not redeem Capital Notes unless certain conditions are met (see Condition 8 of the Terms and Conditions of the Capital Notes and “The Issuer’s Business – Restricted Investments Restrictions” below), which may, among other things, favour Holders of those Capital Notes within a Class which have an earlier Legal Maturity Date, Put Payment Date or Issuer Call Option Date (each as defined in the Terms and Conditions of the Capital Notes) or favour Holders of Capital Notes that have reached their Expected Maturity Date compared to Holders of Capital Notes that are the subject of a put or call option (see Condition 8(c) of the Terms and Conditions of the Capital Notes) or favour Holders of more senior Classes of Capital Notes;

(iii) the Issuer may redeem Senior Capital Notes and Mezzanine Capital Notes at their respective Legal Maturity Dates so as to avoid entering a period of Restricted Funding, even if the Minor Capital Tests are not being or would not be met;

(iv) the Issuer may not pay interest on the Junior Capital Notes except pursuant to a redemption of such Junior Capital Notes in accordance with Conditions 8(b) or 8(c) of the Terms and Conditions of the Capital Notes; and

(v) the Issuer may not pay the Variable Margin on any Capital Notes; and

(c) during a period of Restricted Funding or following the occurrence of an Enforcement Event:


(ii) the Issuer may not pay interest on any Class of the Capital Notes until all Prior Ranking Obligations in respect of that Class have been paid in full;

(iii) although prior to an Insolvency Event the Issuer shall be obliged to redeem the Capital Notes as described in Condition 8(f) of the Terms and Conditions of the Capital Notes, such redemption may be deferred because:

(A) the Issuer may not redeem any Class of the Capital Notes until all Prior Ranking Obligations in respect of that Class have been paid in full; and

(B) prior to an Insolvency Event, payments in respect of Senior Obligations will not be accelerated; and

(iv) the Issuer may be required to liquidate some or all of its assets in order to redeem any maturing Senior Obligations or other obligations ranking in priority to the Capital Notes or to avoid the occurrence of a Restricted Funding Event or an Enforcement Event. In such circumstances, the Capital Notes will be affected such that, among other things, losses may occur and returns may be diminished (and the related risk may be more pronounced with respect to more subordinated Classes of Capital Notes).

Following an Enforcement Event, the Issuer will not be able to revert to any of Normal Operations, Restricted Investments or Restricted Funding (see “The Issuer’s Business” below).

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3. Credit Ratings

A credit rating represents a Rating Agency’s opinion regarding credit quality and is not a guarantee of performance or a recommendation to buy, sell or hold any securities. A credit rating is subject to revision or withdrawal at any time by the assigning Rating Agency. The credit ratings do not address the timely payment of interest or the payment of the Variable Margin in respect of any Capital Note.

4. Returns

Any Variable Margin paid on the Capital Notes will be dependent upon the performance of the Issuer and is at the sole and absolute discretion of the board of directors of the Issuer as to the maximum amount which it would be legally possible and prudent (in the interests of the Holders of the outstanding Capital Notes as a whole) to pay, having regard to the profits and any reserves of the Issuer (and after taking into account, inter alia, accrued income on the assets, accrued financing costs relating to senior liabilities and the Capital Notes (but excluding Variable Margin), realised losses and other fees, costs and expenses of the Issuer, the U.S. Capital Notes Issuer and Cheyne Finance LLC, including the amortisation over time of the initial upfront costs of the Issuer, the U.S. Capital Notes Issuer and Cheyne Finance LLC). The performance of the Issuer will be subject to a wide variety of different factors, including, without limitation, the competitive environment in which it is operating, defaults on its assets, the costs of refinancing its maturing liabilities, whether the Issuer buys credit derivative protection in respect of assets to which it is not otherwise exposed and the spreads on assets purchased from time to time.

5. Subordination

The Capital Notes are subordinated in right of payment to all Prior Ranking Obligations of the Issuer. In addition, (a) the Mezzanine Capital Notes are subordinated to the Senior Capital Notes and (b) the Junior Capital Notes are subordinated to the Senior Capital Notes and the Mezzanine Capital Notes (see Conditions 2, 5 and 8 of the Terms and Conditions of the Capital Notes).

The fact that the Issuer may, for so long as it is in a period of Normal Operations or Restricted Investments (and subject to the limitations referred to in paragraph 2 above), redeem, and pay interest on, the Capital Notes on or following their respective due dates for redemption in accordance with their terms could mean that such redemptions are effected, as between each Class of Capital Notes, otherwise than in accordance with the subordination ranking referred to in the preceding paragraph.

6. Voting

Under certain circumstances, Holders of the Mezzanine Capital Notes and/or the Junior Capital Notes will be bound by Extraordinary Resolutions passed by the Holders of Capital Notes which rank in priority to them (see Condition 17 of the Terms and Conditions of the Capital Notes).

The interests of Holders of Capital Notes of different Series within a Class may vary depending on the specific terms of each such Series (for example, but without limitation, as to Distribution Rate and/or Expected Maturity Date) and therefore, in the event that such Holders of Capital Notes within a Class are voting as a Class, the interests of such Capital Noteholders may not always be aligned.

7. Limited Recourse and Limitation of Action

The Issuer’s obligation to make payment to its Secured Creditors (including the Capital Noteholders) is limited to amounts received by it in respect of its assets. Prior to the occurrence of an Enforcement Event, the Issuer will be required to make payments (subject to having available funds on the date on which each such payment falls due) unless such payments are deferred as a result of the Issuer being in Restricted Investments or Restricted Funding, or if such payments would cause a Restricted Investments Event, a Restricted Funding Event or an Enforcement Event (see “The Issuer’s Business” below). Following the occurrence of an Enforcement Event, amounts received by the Issuer will be applied pursuant to the Payment Priority. Accordingly, to the extent that such amounts are not sufficient to meet the claims of any Capital Noteholders, such claims will not be paid and will be extinguished and no recourse in connection therewith may be had against the Issuer or against any incorporator, shareholder, member, director, manager, officer, advisor, administrator or employee of the Issuer or any of the Affiliates of the Issuer.

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Without prejudice to the preceding paragraph, if the Issuer issues any Series of Capital Notes, the return of which is linked to a designated Sub-Portfolio pursuant to Condition 18(b), the Issuer’s obligation to make payment to the Capital Noteholders in respect of such Series may be limited (in whole or in part) to the relevant Sub-Portfolio, and the rights of the Capital Noteholders of such Series to be paid may correspondingly be limited to the performance of such Sub-Portfolio and no further recourse in connection therewith may be had against the Issuer. In addition, the returns on the Capital Notes linked to a particular Sub-Portfolio may be adversely affected by the performance of the other parts of the Portfolio in that the costs of meeting Prior Ranking Obligations may extend to the relevant Sub-Portfolio.

Each Capital Noteholder will be deemed to have covenanted and agreed that, prior to the date which is two years and one day after all sums outstanding and owing by the Issuer (whether contingently or otherwise) in respect of all Secured Obligations have been paid or discharged in full, it will not take, or join in, any corporate action or other steps or legal proceedings for the winding up, examinership, dissolution or re-organisation of the Issuer or for the appointment of a receiver, administrator, administrative receiver, trustee, liquidator, examiner, sequestrator or similar officer of the Issuer or of any or all of the Issuer's revenues and assets or any analogous proceedings in any jurisdiction.

The Capital Notes do not represent obligations of, nor are they insured or guaranteed by, the Manager, CCIL, the Administrator, the Senior Note Dealers, any Capital Note Placement Agent, the Security Trustee, the Custodian, Morgan Stanley, the Euro Paying Agents, the U.S. Issuing and Paying Agents or any of their respective affiliates. None of the Manager, CCIL, the Administrator, the Senior Note Dealers, the Capital Note Placement Agent(s), the Security Trustee, the Custodian, Morgan Stanley, the Euro Paying Agents, the U.S. Issuing and Paying Agents or any of their respective owners, beneficiaries, agents, officers, directors, employees, affiliates, successors or assigns will be obliged to make payments in respect of the Capital Notes.

8. Designated Collateral or Other Assets

As part of its funding or investment activities the Issuer may enter into credit derivative contracts, repurchase agreements, committed repurchase agreements and/or securities lending agreements in respect of which either the Issuer or the relevant counterparty may post specific assets as collateral or otherwise deliver assets to the other party under the relevant contract or agreement. In such circumstances, any one, or combination, of the following may apply:

(a) any such assets will not be available to pay amounts due to any other Secured Creditors (including the Capital Noteholders) in any circumstances;

(b) any such assets will not be available to pay amounts due to any other Secured Creditors (including the Capital Noteholders) until such contracts or agreements terminate;

(c) the Issuer will have a contractual right to the repurchase or delivery of “equivalent” assets at a future point, such equivalent assets being available to pay amounts due to any other Secured Creditors (including the Capital Noteholders) upon such repurchase or delivery; or

(d) the Issuer will have a contractual obligation to sell or deliver “equivalent” assets at a future point, such “equivalent” assets not being available to pay amounts due to any other Secured Creditors (including the Capital Noteholders) upon such sale or delivery,

subject to any rights of set-off between the Issuer and the relevant counterparty (see “The Security Trustee – The Security Trustee’s Role” below).

In addition, the Issuer has reserved the right, subject to the satisfaction of certain conditions, to create and issue future Capital Notes the return of which is linked to a designated part of the Issuer’s assets and liabilities (i.e. a sub-portfolio).

9. Absence of Market and Restrictions on Transfer

Potential investors should view the Capital Notes as a long term investment. There can be no assurance that there will be any secondary market in the Capital Notes. Further, the Capital Notes may be subject to transfer restrictions. The market value of the Capital Notes (whether actionable or indicative) will vary over

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time and may be significantly less than par (or even zero) in certain circumstances. There is no obligation on the Issuer, the Manager, CCIL, the Administrator, any Placement Agent or any of their respective affiliates to make a market in the Capital Notes.

10. Reliance on the Manager and the Administrator

The Issuer is reliant on the Manager to make funding and investment decisions on its behalf and on the Administrator to implement those decisions, in accordance with the terms of the Management Agreement and the Administrative Advisory Services Agreement respectively. As a result, the success of the Issuer is highly reliant upon the performance of the Manager and the Administrator.

11. Conflicts of Interest

Various potential and actual conflicts of interest may arise from the overall activities of the Manager, its Affiliates and certain funds managed by the Manager. Without prejudice to the generality of the foregoing, the Manager, its Affiliates, certain funds managed by the Manager and their respective directors, officers, partners, employees and agents may, among other things:

(a) serve as directors, partners, officers, employees, agents, nominees or signatories for, any obligor in respect of any Investment and or any reference entity under any Investment Derivative Contract (each such obligor or reference entity being referred to herein as a “Relevant Entity”);

(b) receive fees for services rendered to any Relevant Entity;

(c) be a secured or unsecured creditor of, or hold an equity interest in, any Relevant Entity;

(d) invest for its own account in any Relevant Entity, and may do so in each case without regard to the interests of any Secured Creditors (including the Capital Noteholders) and shall have no liability therefor; or

(e) invest for its own account in any Euro Notes and/or U.S. Notes, which it may choose to hold or to sell to the Issuer or any third party on an arm's length basis. Such party may do so in each case without regard to the interests of any Secured Creditors (including the Capital Noteholders) and shall have no liability therefor. Further, any purchase of Euro Notes and/or U.S. Notes by the Issuer from such party may be financed by amounts received from Secured Creditors (including the Capital Noteholders) or future investors. CCML as Manager to the Issuer will be required to consider any such purchase or repurchases requests from its Affiliates with due consideration of its fiduciary duties to the Issuer.

The Manager, CCIL and any of their respective Affiliates may engage in any other business and furnish investment management, advisory and administrative services to other clients who may include Relevant Entities or other entities engaged in activities which are similar to those of the Issuer. In providing services to other clients, the Manager, CCIL and any of their respective Affiliates may recommend activities that would compete with, or otherwise adversely affect, the Issuer or the Capital Noteholders. In connection with the foregoing activities, the Manager, CCIL and any of their respective Affiliates may from time to time come into possession of information that limits the ability of the Manager or CCIL to make an investment, and the Issuer’s investments may be constrained as a consequence of the inability of the Manager, CCIL or any of their respective Affiliates to use such information for management or advisory purposes or otherwise to take actions that would be in the best interests of the Issuer. None of the Manager, CCIL or any of their respective Affiliates shall be liable for any such conflicts of interests and shall not be liable to account for any profit.

Morgan Stanley is a full service securities firm engaged in, among other things, securities trading and brokerage activities, as well as providing investment banking, investment management, administrative and financial advisory services. Notwithstanding its role as, among other things, a Placement Agent, in the ordinary course of its business Morgan Stanley and its Affiliates may have positions in, and may effect transactions in, securities and instruments of the Issuer, the U.S. Capital Notes Issuer, Cheyne Finance LLC, the Manager, CCIL and any of their respective Affiliates and may also perform or seek to perform investment banking, investment

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management, administrative and/or financial advisory services for such parties (including acting as counterparty in certain derivative contracts with the Issuer) or for other parties engaged in activities similar to those of the above-mentioned parties. Neither Morgan Stanley or its Affiliates shall be liable for any such conflicts of interest and shall not be liable to account for any profit derived therefrom.

12. Taxation

Special tax considerations may apply to certain types of taxpayers. Prospective investors should consult their own tax advisers to determine any tax implications of investing. Tax laws may change and, as a result, the ability of the Issuer to make payments on the Capital Notes may be affected.

In the event that any withholding tax is imposed on payments of interest or any other amounts on the Capital Notes:

(a) the Holders of the Capital Notes will not be entitled to receive grossed-up amounts to compensate for the consequences of such withholding tax; and

(b) the Issuer may, in certain circumstances, redeem the relevant Capital Notes in accordance with the Terms and Conditions of the Capital Notes.

If withholding or deduction for or on account of any present or future taxes or duties is required by law with respect to payments of principal and interest on any Senior Notes, the Issuer will, with certain exceptions, be required to pay additional amounts so that the net amounts received by the holders of such Senior Notes after such withholding or deduction equals the amounts of principal and interest that would otherwise have been receivable in respect of such Senior Notes in the absence of such withholding or deduction. In such circumstances the Issuer or Cheyne Finance LLC (as appropriate) may elect to redeem the relevant Senior Notes. Such withholding or deduction could arise in limited circumstances, including (a) a change of tax law or (b) in respect of the U.S. MTNs only, the Depositary becoming unwilling or unable to continue to act as Depositary with respect to the Euro MTNs issued to Cheyne Finance LLC and the failure to appoint a successor Depositary in a timely manner, which would result in the issuance by the Issuer of definitive registered Euro MTNs. Any payment of additional amounts or redemption of Senior Notes could have a material adverse effect on the Issuer's ability to make payments on the Capital Notes.

13. Special Considerations Regarding Matters of Irish Law

Preferred Creditors under Irish Law and Floating Charges

It is unclear how the Irish courts would interpret the charges purported to be created pursuant to the Security Trust Deed. It is possible that they would be construed as creating fixed or floating charges. It is of the essence of a fixed charge that the person creating the charge does not have liberty to deal with the assets which are the subject matter of the security in the sense of disposing of such assets or expanding or appropriating the monies or claims constituting such assets.

Floating charges have a number of weaknesses including ranking after (a) certain preferential creditors, (b) insolvency remuneration expenses and liabilities and (c) fixed charges. They also have weak priority against purchasers (who are not on notice of any negative pledge) and charges over the assets concerned and against lien holders, execution creditors and creditors with rights of set off (see “Examinership under Irish law” below).

When applying the proceeds of assets subject to a fixed security which may have been realised in the course of a liquidation or receivership, the claims of a limited category of preferential creditors will take priority over the claims of creditors holding the relevant fixed security.

The holder of a fixed security over the book debts of a tax resident company (which would include the Issuer) may be required, by notice in writing from the Irish Revenue Commissioners, to pay to them sums equivalent to those which the holder received in payment of debts due to it by the company. Where the holder of the security has given notice to the Revenue Commissioners of the creation of the security within 21 days of its creation, the holder’s liability is limited to the amount of certain outstanding tax liabilities of the company (including liabilities in respect of value added tax) arising after the issuance of the Revenue Commissioners’ notice to the holder of fixed security.

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The Revenue Commissioners may also attach any debt due to a tax resident company by another person in order to discharge any liabilities of the company (such as the Issuer) in respect of outstanding tax, whether the liabilities are due on its own account or as an agent or trustee. The scope of this right of the Revenue Commissioners has not yet been considered by the Irish courts and it may override the rights of holders of security (whether fixed or floating) over the debt in question. In relation to the disposal of assets of any tax resident company which are subject to security, a person entitled to the benefit of the security may be liable for tax in relation to any capital gains made by the company on a disposal of those assets on exercise of the security.

Examinership under Irish Law

The Irish Companies (Amendment) Act 1990, as amended, prohibits certain steps being taken except with the leave of the court against a company after the presentation of a petition for the appointment of an examiner. This prohibition continues, if an examiner is appointed, for so long as the examiner remains appointed (maximum period of 100 days). Prohibited steps include steps taken to enforce any guarantees or security, the commencement or continuation of proceedings or execution or other legal process or the levying of distress against the company or its property and the appointment of a receiver. The primary risks to the holders of Capital Notes if an examiner were to appointed to the Issuer are: (a) the potential for a scheme of arrangement being approved involving the writing down of the debt due by the Issuer to the Capital Noteholders as secured by the Security Trust Deed; (b) the potential for the examiner to seek to set aside any negative pledge in the Notes prohibiting the creation of security or the incurring of borrowings by the Issuer to enable the examiner to borrow to fund the Issuer during the protection period; and (c) in the event that the Issuer subsequently goes into liquidation, the examiner’s remuneration and expenses (including certain borrowings incurred by the examiner on behalf of the Issuer) will take priority over the Secured Obligations.

14. Risks related to Capital Notes issued at a substantial discount or premium

The market values of securities issued at a substantial discount or premium from their principal amount tend to fluctuate more in relation to general changes in interest rates than do prices for conventional interest-bearing securities. Generally, the longer the remaining term of the securities, the greater the price volatility as compared to conventional interest-bearing securities with comparable maturities.

15. Risks related to Capital Notes generally

EU Savings Directive

If, following implementation of this Directive, a payment were to be made or collected through a Member State which has opted for a withholding system and an amount of, or in respect of tax were to be withheld from that payment, neither the Issuer nor any Paying Agent nor any other person would be obliged to pay additional amounts with respect to any Capital Note as a result of the imposition of such withholding tax. If a withholding tax is imposed on payment made by a Paying Agent following implementation of this Directive, the Issuer will be required to maintain a Paying Agent in a Member State that will not be obliged to withhold or deduct tax pursuant to the Directive.

Change of law

The conditions of the Capital Notes are based on English law in effect as at the date of this Information Memorandum. No assurance can be given as to the impact of any possible judicial decision or change to English law or administrative practice after the date of this Information Memorandum.

16. Legal investment considerations may restrict certain investments

The investment activities of certain investors are subject to legal investment laws and regulations, or review or regulation by certain authorities. Each potential investor should consult its legal advisers to determine whether and to what extent (1) Capital Notes are legal investments for it, (2) Capital Notes can be used as collateral for various types of borrowing and (3) other restrictions apply to its purchase or pledge of any Capital

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Notes. Financial institutions should consult their legal advisors or the appropriate regulators to determine the appropriate treatment of Capital Notes under any applicable risk-based capital or similar rules.

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FORM OF THE CAPITAL NOTES

Subject to Condition 1(b) of the Terms and Conditions of the Capital Notes, the Capital Notes will be issued in bearer form. Subject to the final paragraph of this Section, each Tranche will be initially issued in the form of a temporary global capital note in bearer form (a “Temporary Global Capital Note”) which will be delivered on or prior to the original issue date to a common depositary (the “Common Depositary”) for Euroclear Bank S.A./N.V. as operator of the Euroclear System (“Euroclear”) and Clearstream Banking, société anonyme (“Clearstream, Luxembourg”). Whilst any Capital Note is represented by a Temporary Global Capital Note, payments of principal, interest (if any) and any other amount payable in respect of the Capital Notes due prior to the Exchange Date (as defined below) will be made against presentation of the Temporary Global Capital Note only to the extent that certification (in a form to be provided) to the effect that the beneficial owners of interests in such Capital Note are not United States persons or persons who have purchased for resale to any United States person, as required under section 1.163-5(c)(2)(i)(D) of the U.S. Treasury regulations (the “D Rules”), has been received by Euroclear and/or Clearstream, Luxembourg and Euroclear and/or Clearstream, Luxembourg, as applicable, has given a like certification (based on the certifications it has received) to the Principal Paying Agent.

On and after the date (the “Exchange Date”) which is 40 days after a Temporary Global Capital Note is issued, interests in such Temporary Global Capital Note will be exchangeable (free of charge) upon a request as described therein for interests in a permanent global capital note in bearer form (a “Permanent Global Capital Note”) of the same Series against certification of beneficial ownership as described above unless such certification has already been given. The Holder of a Temporary Global Capital Note will not be entitled to collect any payment of interest, principal or other amount due on or after the Exchange Date unless, upon due certification, exchange of the Temporary Global Capital Note for an interest in a Permanent Global Capital Note or for definitive Capital Notes is improperly withheld or refused.

A Capital Noteholder’s rights under Condition 8(d), 9(b) or 9(c) of the Terms and Conditions of the Capital Notes may not be exercised while the relevant Capital Note is represented by a Temporary Global Capital Note. If such rights are exercised in respect of a Capital Note represented by a Permanent Global Capital Note, upon certification of beneficial ownership, if required, as described above, a new Permanent Global Capital Note will be issued outside the United States in respect of the new Series created (or, if a Permanent Global Capital Note representing the new Series already exists, then its nominal amount will be increased) as a result of such exercise (and the nominal amount of the Permanent Global Capital Note representing the existing Series will be accordingly reduced). If such rights are exercised in respect of a definitive Capital Note, such definitive Capital Note must be surrendered outside the United States to the Principal Paying Agent (together with all unmatured Coupons appertaining thereto), and, if applicable, a new definitive Capital Note (together with all the appropriate unmatured Coupons) will be issued outside the United States in replacement therefor as soon as reasonably practicable thereafter upon certification of beneficial ownership, if required, as described above.

Subject to Condition 1(b) of the Terms and Conditions of the Capital Notes, payments of principal, interest (if any) or any other amounts on a Permanent Global Capital Note will be made outside the United States through Euroclear and/or Clearstream, Luxembourg, against presentation or surrender outside the United States (as the case may be) of the Permanent Global Capital Note without any requirement for certification. Unless otherwise stated in the applicable Pricing Supplement, each Permanent Global Capital Note (other than with regard to the Underlying Capital Notes) will be exchangeable (free of charge), in whole but not in part, for definitive Bearer Capital Notes with, where applicable, interest coupons and talons attached upon the occurrence of an Exchange Event. For these purposes, “Exchange Event” means that either (a) an Enforcement Event has occurred or (b) the Issuer has been notified that both Euroclear and Clearstream, Luxembourg have been closed for business for a continuous period of 14 days (other than by reason of holiday, statutory or otherwise) or have announced an intention permanently to cease business or have in fact done so and no alternative clearing system is available. The Issuer will promptly give notice to Capital Noteholders in accordance with Condition 16 if an Exchange Event occurs. In the event of the occurrence of an Exchange Event, Euroclear and/or Clearstream, Luxembourg (acting on the instructions of any Holder of an interest in such Permanent Global Capital Note) may give notice to the Principal Paying Agent requesting exchange. Any such exchange shall occur not later than 60 days after the receipt of the first relevant notice by the Principal Paying Agent.

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The following legend will appear on all Capital Notes and on all interest coupons relating to such Capital Notes:

“ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE INTERNAL REVENUE CODE.”

The sections referred to provide that United States Holders, with certain exceptions, will not be entitled to deduct any loss on Capital Notes or interest coupons and will not be entitled to capital gains treatment of any gain on any sale, disposition, redemption or payment of principal in respect of such Capital Notes or interest coupons.

Capital Notes which are represented by a Global Capital Note will be transferable only in accordance with the rules and procedures for the time being of Euroclear or Clearstream, Luxembourg, as the case may be.

Any reference to Euroclear and/or Clearstream, Luxembourg shall, whenever the context so permits, be deemed to include a reference to any additional or alternative clearing system specified in the applicable Pricing Supplement.

Where any Capital Note (other than an Underlying Capital Note) is represented by a Global Capital Note and the Global Capital Note (or any part thereof) has become due and repayable in accordance with the Terms and Conditions of the Capital Notes and the applicable Pricing Supplement of such Capital Note and payment in full of the amount due has not been made in accordance with the provisions of the Global Capital Note then, unless within the period of seven days commencing on the relevant due date, payment in full of the amount due in respect of the Global Capital Note is received by the bearer in accordance with the provisions of the Global Capital Note, the Global Capital Note will become void at 8.00 p.m. (London time) on such day. At the same time, holders of interests in such Global Capital Note credited to their accounts with Euroclear and/or Clearstream, Luxembourg, as the case may be, will become entitled (subject to the provisions in the Terms and Conditions of the Capital Notes) to proceed directly against the Issuer on the basis of statements of account provided by Euroclear and/ or Clearstream, Luxembourg, on and subject to the terms of a deed of covenant (the “Deed of Covenant”) to be dated on or around 3rd August, 2005 executed by the Issuer.

No Capital Note may be directly offered or sold by the Issuer in the United States or to, or for the account or benefit of, a U.S. Person, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and otherwise in accordance with the laws of the United States, including U.S. federal income tax laws. No Capital Note may be resold to, or for the account or benefit of, a U.S. Person until the Distribution Completion Date (as defined in the Terms and Conditions of the Capital Notes) relating thereto shall have occurred, and then only (i) in Eligible Secondary Market Transactions (as defined in the Terms and Conditions of the Capital Notes) or (ii) to a Qualified Institutional Buyer (as defined in Rule 144A under the Securities Act) who is also a Qualified Purchaser (as defined in the Investment Company Act).

The Capital Notes are subject to U.S. tax law requirements and may not be offered, sold or delivered within the United States or its possessions or to a United States person, except in certain transactions permitted by U.S. Treasury regulations. Terms used in this paragraph have the meanings given to them by the U.S. Internal Revenue Code of 1986, as amended, and U.S. Treasury regulations thereunder.

Capital Notes to be issued by the Issuer which comprise Underlying Capital Notes will be issued in the form of a Permanent Global Capital Note in bearer form and deposited with a custodian on behalf of the Depository and shall be held subject to the terms of the Depositary Agreement.

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TERMS AND CONDITIONS OF THE CAPITAL NOTES

The following are the Terms and Conditions of the Capital Notes which will be incorporated by reference into each Global Capital Note (as defined below) and each definitive Capital Note, in the latter case only if permitted by the Irish Stock Exchange and any relevant authority and agreed by the Issuer (as defined below) and the relevant Placement Agent (as defined below) at the time of issue but, if not so permitted and agreed, such definitive Capital Note will have endorsed thereon or attached thereto such Terms and Conditions. The applicable Pricing Supplement in relation to any Tranche of Capital Notes may specify other terms and conditions which shall, to the extent so specified or to the extent inconsistent with the following Terms and Conditions, replace or modify the following Terms and Conditions for the purpose of such Capital Notes. The applicable Pricing Supplement (or the relevant provisions thereof) will be endorsed upon, or attached to, each Global Capital Note and definitive Capital Note.

This Capital Note is one of a Series (as defined below) of Capital Notes (as defined below) issued by Cheyne Finance PLC (the “Issuer”) pursuant to the Agency Agreement (as defined below).

References herein to the “Capital Notes” shall, unless the context otherwise requires (in which case the definition in the Common Terms Agreement shall apply), be references to the Capital Notes of this Series and shall mean:

(i) in relation to any Capital Notes represented by a global Capital Note (a “Global Capital Note”), units of the lowest Specified Denomination (as defined below) in the Specified Currency (as defined below);

(ii) any Global Capital Note; and

(iii) any definitive Capital Notes in bearer form (“Bearer Capital Notes”) and definitive Capital Notes in registered form (“Registered Capital Notes”) issued in exchange for a Global Capital Note.

The Capital Notes and the Coupons (as defined below) have the benefit of an Agency Agreement (such Agency Agreement as amended and/or supplemented and/or restated from time to time, the “Agency Agreement”) dated on or around 3rd August, 2005 and made between the Issuer, The Bank of New York as issuing and principal paying agent (the “Principal Paying Agent”), The Bank of New York as calculation agent (in such capacity, the “Calculation Agent”) and as security trustee (in such capacity, the “Security Trustee”), AIB/BNY Management (Ireland) Ltd. as Irish paying agent (the “Irish Paying Agent”) and any other paying agents to be appointed thereunder (together with the Principal Paying Agent and the Irish Paying Agent, the “Paying Agents”, which expression shall include any additional or successor paying agents). Interest bearing definitive Bearer Capital Notes (unless otherwise indicated in the applicable Pricing Supplement (as defined below)) have interest coupons (“Coupons”) and, if indicated in the applicable Pricing Supplement, talons for further Coupons (“Talons”) attached on issue. Any reference herein to Coupons or coupons shall, unless the context otherwise requires, be deemed to include a reference to Talons or talons. Global Capital Notes and Registered Capital Notes do not have Coupons or Talons attached on issue.

The Pricing Supplement for this Capital Note (or the relevant provisions thereof) is attached to or endorsed on this Capital Note and supplements these Terms and Conditions and may specify other terms and conditions which shall, to the extent so specified or to the extent inconsistent with these Terms and Conditions, replace or modify these Terms and Conditions for the purposes of this Capital Note. References to the “applicable Pricing Supplement” are to the Pricing Supplement (or the relevant provisions thereof) attached to or endorsed on this Capital Note.

Any reference to “Capital Noteholders” or “Holders” in relation to any Capital Notes shall mean (in the case of Bearer Capital Notes) the holders of the Capital Notes and (in the case of Registered Capital Notes) the persons in whose name the Capital Notes are registered and shall, in relation to any Capital Notes represented by a Global Capital Note, be construed as provided below. Any reference to “Couponholders” shall mean the holders of the Coupons and shall, unless the context otherwise requires, include the holders of the Talons.

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The Capital Noteholders (other than holders of the Underlying Capital Notes) and the Couponholders are entitled to the benefit of the Deed of Covenant (the “Deed of Covenant”) dated on or around 3rd August, 2005 and made by the Issuer. The original of the Deed of Covenant is held by the common depositary for Euroclear (as defined below) and Clearstream, Luxembourg (as defined below).

Physical copies of the Agency Agreement, the applicable Pricing Supplement, the Deed of Covenant, the Common Terms Agreement (such agreement, as amended and/or supplemented and/or restated from time to time, the “Common Terms Agreement”) and the Security Trust Deed (as defined in Condition 3) are available for inspection during normal business hours at the registered office of the Issuer and the specified office (outside of the United States) of the Irish Paying Agent for the time being in Dublin save that, if this Capital Note is an unlisted Capital Note of any Series, the applicable Pricing Supplement will only be available for inspection by a Capital Noteholder holding one or more unlisted Capital Notes of that Series and such Capital Noteholder must produce evidence satisfactory to the Issuer or the relevant Paying Agent as to its holding of such Capital Notes and identity. The Capital Noteholders and the Couponholders are deemed to have notice of, and are entitled to the benefit of, all the provisions of the Agency Agreement, the Deed of Covenant, the Common Terms Agreement and the applicable Pricing Supplement which are applicable to them. The statements in these Terms and Conditions include summaries of, and are subject to, the detailed provisions of the Agency Agreement.

Words and expressions defined in the Common Terms Agreement or the Agency Agreement or used in the applicable Pricing Supplement shall have the same meanings where used in these Terms and Conditions unless the context otherwise requires or unless otherwise stated and provided that, in the event of inconsistency between the Common Terms Agreement, the Agency Agreement or the applicable Pricing Supplement, the applicable Pricing Supplement will prevail.

As used herein:

“Additional Interest” has the meaning set out in Condition 5(d);

“Applicable Dollar Equivalent Amount” means, in relation to a Capital Note denominated in Dollars, the outstanding principal amount thereof and, in relation to a Capital Note denominated in a currency other than Dollars, the amount in Dollars equivalent to the outstanding principal amount thereof based upon the Applicable Exchange Rate;

“Applicable Exchange Rate” means, in respect of each Capital Note denominated in a currency other than Dollars, the exchange rate between the Specified Currency (or, in the case of Capital Notes other than Capital Notes issued under the Agency Agreement, the currency in which such Capital Note is denominated) and Dollars specified as such in the applicable Pricing Supplement or otherwise in the terms of issue thereof;

“Automatic Rolling Maturity Capital Note” means a Capital Note in respect of which the Expected Maturity Date automatically rolls forward, subject to (i) the Capital Noteholder’s right to elect that it should not do so or (ii) the Automatic Rolling Maturity Maximum Expected Maturity Date, as described in Condition 9(b), such Capital Note being neither a Fixed Maturity Capital Note nor an Optional Rolling Maturity Capital Note;

“Automatic Rolling Maturity Maximum Expected Maturity Date” means, in respect of each Tranche of Capital Notes, the date specified as such in the Pricing Supplement relating to such Tranche of Capital Notes;

“Average Outstanding Capital Note Fraction” means, in respect of any Capital Note, the average Dollar Equivalent of such Capital Note that is outstanding on each day during the relevant Profit Accrual Period divided by the average Dollar Equivalent of all of the Capital Notes of the same Class that are outstanding on each day during the relevant Profit Accrual Period;

“Benchmark Rate” means, in respect of any Series of Capital Notes, the rate (which rate may be zero) specified as such in the applicable Pricing Supplement and calculated in accordance with Condition 5(c);

“Block” has the meaning set out in Condition 8(d)(ii);

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“Business Day” means any day (other than a Saturday or Sunday) on which banks and foreign exchange markets are open for the transaction of commercial business in London, New York and Dublin and on which the Trans-European Automated Real-Time Gross Settlement Express Transfer (TARGET) System is operating;

“Capital Note Component” means a Senior Capital Note Component, a Mezzanine Capital Note Component or a Junior Capital Note Component, as the case may be;

“Capital Notes” means the four Classes of secured subordinated capital notes which may be issued by the Issuer (being the Senior Capital Notes, the Mezzanine Capital Notes, the Junior Capital Notes and the Combination Capital Notes), whether pursuant to the Agency Agreement, any other capital note programme of the Issuer, or otherwise;

“Capital Notes Outstanding” means all the Capital Notes for the time being outstanding or, if the context requires, all the Capital Notes of a particular Class or, as the case may be, Series for the time being outstanding;

“Certificateless Depositary Interest” means, in respect of a Series of Capital Notes, the registered beneficial interest that shall, at all times prior to the issuance of registered definitive certificates in respect thereof, represent the right to receive 100 per cent. of the principal, premium (if any) and interest and any voting or other rights of the relevant underlying Global Capital Note of such Series, and that is issued by the Depositary to the U.S. Capital Notes Issuer;

“Class” means the Senior Capital Notes, the Mezzanine Capital Notes, the Junior Capital Notes or the Combination Capital Notes, as the case may be;

“Closing Date” means 3rd August, 2005;

“Combination Capital Note Ratio” means the ratio specified as such in the applicable Pricing Supplement, such ratio to be expressed in terms of the proportion of each Capital Note Component to each other Capital Note Component(s) in a Combination Capital Note in the following order – Senior Capital Notes: Mezzanine Capital Notes : Junior Capital Notes;

“Combination Capital Notes” means the Class of Capital Notes consisting of any combination of a Senior Capital Note Component, a Mezzanine Capital Note Component and a Junior Capital Note Component in the Combination Capital Note Ratio;

“Combined Ordinary Resolution” means a Directing Resolution or (as the case may be) Directing Resolutions in substantially similar form considered on a poll at meetings of the Holders of each Class of Capital Notes Outstanding duly convened and held and in respect of which more than 50 per cent. (or such other proportion as for the time being shall be the minimum proportion of shareholders’ votes then required under Irish law for the purpose of passing an ordinary resolution of the shareholders of the Issuer) of the votes cast thereon were cast in favour;

“Combined Special Resolution” means a Directing Resolution or (as the case may be) Directing Resolutions in substantially similar form considered on a poll at meetings of the Holders of each Class of Capital Notes Outstanding duly convened and held and in respect of which not less than two-thirds (or such other proportion as for the time being shall be the minimum proportion of shareholders’ votes then required under Irish law for the purpose of passing a special resolution of the shareholders of the Issuer) of the votes cast thereon were cast in favour;

“Currency Business Day” means a day which is both:

(a) a Business Day; and

(b) in relation to any sum payable in a Specified Currency other than euro, pounds sterling or Dollars, a day on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealing in foreign exchange and foreign currency deposits) in the principal financial centre of the country of the relevant Specified Currency;

“Deferred Interest” has the meaning set out in Condition 5(d);

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“Depositary” means The Bank of New York as depositary under the Depositary Agreement;

“Depositary Agreement” means the depositary agreement dated on or around 3rd August, 2005 and made between, inter alios, the Issuer and the Depositary, as amended and/or supplemented and/or restated from time to time;

“Distributable Profits” means the amount (expressed in Dollars) determined by the Issuer’s board of directors (upon the recommendation of the Manager) in its sole and absolute discretion two Business Days before each Profit Distribution Date as being the maximum amount legally possible and prudent (in the interests of the Holders of the Capital Notes Outstanding as a whole), having regard to the profits and any reserves of the Issuer (and after taking into account, inter alia, accrued income on the Investments, accrued financing costs relating to Senior Funding and the Capital Notes (but excluding Variable Margin), realised losses and other fees, costs and expenses of the Issuer, the U.S. Capital Notes Issuer and Cheyne Finance LLC including the amortisation over time of the initial upfront costs of the Issuer, the U.S. Capital Notes Issuer and Cheyne Finance LLC) to pay by way of Variable Margin on the Capital Notes Outstanding and as a Performance Fee to the Receivables Trustee;

“Distribution Completion Date” shall mean, in relation to a Tranche, the first day following the expiration of 40 days after the day on which all relevant Placement Agents through whom the Capital Notes in such Tranche have been initially purchased shall have certified to the Principal Paying Agent that the distribution of the Capital Notes in such Tranche purchased by them has been completed;

“Distribution Rate” means, in respect of any Series of Capital Notes, the rate specified as such in the applicable Pricing Supplement, as varied in accordance with the relevant Distribution Rate Schedule (if any);

“Distribution Rate Schedule” means in relation to any Series of Capital Notes, the schedule identified as such (if any) in the Pricing Supplement in relation to such Series;

“Dollar Equivalent” means, on any day of determination, in relation to an amount denominated in Dollars, that amount and, in relation to an amount denominated in an Optional Currency, the amount in Dollars equivalent to that amount of such Optional Currency based upon the then Exchange Rate;

“Eligible Secondary Market Transaction” means a transaction exempt from or not subject to the registration requirements of the Securities Act in which (a) neither the Issuer nor any of its affiliates is involved and (b) no Placement Agent, transferor, transferee or other person involved in such transaction (i) has been engaged to act, or is otherwise acting, as an agent of or intermediary for the Issuer or any of its affiliates in connection with such transaction or (ii) has received or will receive any compensation from the Issuer or any of its affiliates in connection with such transaction;

“Exchange Event” has the meaning set out in Condition 1(a) and (with respect to the Underlying Capital Notes) Condition 1(b);

“Exchange Rate” means, for each currency and at any time, the value of that currency in Dollars using the spot rate of exchange available to the Manager, acting on behalf of the Issuer, in the foreign exchange markets at the relevant time on any Business Day (expressed such that one unit of the currency equals a fraction or a number of Dollars);

“Expected Maturity Date” for a Capital Note means, depending on the Maturity Type specified in the applicable Pricing Supplement:

(a) in the case of a Fixed Maturity Capital Note, the Interest Payment Date specified as such in the applicable Pricing Supplement;

(b) in the case of an Automatic Rolling Maturity Capital Note, the Interest Payment Date specified as such in the applicable Pricing Supplement, in each case as extended, if applicable, pursuant to Condition 9(b); and

(c) in the case of an Optional Rolling Maturity Capital Note, the Interest Payment Date specified as such in the applicable Pricing Supplement or, if the Capital Noteholder has delivered a Maturity Extension Notice as described in Condition 9(c), the date specified as such in the

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Maturity Extension Notice (or, if the Capital Noteholder has delivered more than one Maturity Extension Notice, the date specified as such in the latest Maturity Extension Notice so delivered);

“Extraordinary Resolution” means, in relation to any Class of Capital Note, either (i) a resolution passed (at a meeting of the Holders of such Class of Capital Notes duly convened and held in accordance with the Agency Agreement and at which the quorum for passing such resolution shall be one or more persons holding or representing at least 66 2/3 per cent. of the aggregate principal amount of Capital Notes Outstanding of the relevant Class) by a majority of at least 66 2/3 per cent. of the votes cast at such meeting or (ii) a resolution in writing signed by, or on behalf of, the Holders of not less than 66 2/3 per cent. in principal amount outstanding of Capital Notes Outstanding of that Class;

“Fixed Dollar Equivalent Nominal Amount” means, in relation to a Capital Note denominated in Dollars, the nominal amount thereof and, in relation to a Capital Note denominated in a currency other than Dollars, the amount in Dollars equivalent to the nominal amount thereof based upon the Fixed Exchange Rate;

“Fixed Exchange Rate” means, in respect of each Capital Note denominated in a currency other than Dollars, the exchange rate between the Specified Currency (or, in the case of Capital Notes other than Capital Notes issued under the Agency Agreement, the currency in which such Capital Note is denominated) and Dollars specified as such in the applicable Pricing Supplement or otherwise in the terms of issue of such Capital Notes;

“Fixed Interest” has the meaning set out in Condition 5(c);

“Fixed Margin” means, in respect of any Capital Note, the percentage specified as such in the applicable Pricing Supplement, as varied in accordance with the relevant Fixed Margin Schedule (if any);

“Fixed Margin Schedule” means, in relation to any Series of Capital Notes, the schedule identified as such (if any) in the Pricing Supplement in relation to such Series;

“Fixed Maturity Capital Note” means a Capital Note in respect of which the Expected Maturity Date is determined on issue and may not be changed, such Capital Note being neither an Automatic Rolling Maturity Capital Note nor an Optional Rolling Maturity Capital Note;

“Interest Accrual Date” means each Profit Distribution Date and, in respect of a Series of Capital Notes for which the Distribution Rate is equal to zero at all times, each such other date as is specified in the applicable Pricing Supplement or, if any such Interest Accrual Date is not a Business Day, the next following Business Day;

“Interest Accrual Period” means the period from (and including) an Interest Accrual Date (or the Interest Commencement Date) to (but excluding) the next (or first) Interest Accrual Date;

“Interest Commencement Date” means the Issue Date or (if different) the date specified as such in the applicable Pricing Supplement;

“Interest Payment Date” means, in relation to any Interest Accrual Period, the Interest Accrual Date on which the next following Interest Accrual Period starts or, if such Interest Accrual Date is not a Currency Business Day, the next following Currency Business Day, provided that no further interest or other sum shall be due from the Issuer in respect of any such postponed payment (except in relation to payment on the date on which the relevant Capital Note is redeemed, in which event interest shall accrue to (but excluding) the date of redemption and shall be paid on the date on which the relevant Capital Note is redeemed);

“Investor Redemption Net Asset Value” means, in respect of each Capital Note, the product of the Outstanding Capital Note Fraction relating to such Capital Note and the Redemption Net Asset Value relating to that Class of Capital Notes;

“Issue Date” means, in respect of each Capital Note, its date of issue as specified in the applicable Pricing Supplement;

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“Issue Price” means, in respect of each Capital Note, its issue price as specified in the applicable Pricing Supplement;

“Junior Capital Note Component” means, in respect of each Combination Capital Note, the amount (if any) of such Combination Capital Note comprised of Junior Capital Notes;

“Junior Capital Noteholders” means the Holders for the time being of the Junior Capital Notes;

“Junior Capital Notes” means the Class of Capital Notes that is subordinated to both the Senior Capital Notes and the Mezzanine Capital Notes;

“Junior Capital Notes Outstanding” means all the Junior Capital Notes for the time being outstanding;

“Legal Maturity Date” means, in respect of each Capital Note, either (i) the Interest Payment Date specified as such in the applicable Pricing Supplement or (ii) the Interest Payment Date that falls within the designated period (as specified in the applicable Pricing Supplement) after the Expected Maturity Date for that Capital Note, provided that in each case the Legal Maturity Date shall fall no earlier than three years after the Expected Maturity Date (regardless of any Business Day adjustments) without Rating Agency Approval;

“London Business Day” means any day (other than a Saturday or Sunday) on which banks and foreign exchange markets are open for the transaction of commercial business in London;

“Management Agreement” means the Investment and Funding Management Agreement dated on or around 3rd August, 2005 and made between, inter alios, the Issuer, the U.S. Capital Notes Issuer, Cheyne Finance LLC, Cheyne Capital Management Limited and Cheyne Capital International Limited as amended and/or supplemented and/or restated from time to time;

“Manager” means Cheyne Capital Management Limited or any successor manager appointed in accordance with the Management Agreement;

“Maturity Type” means, in respect of a Capital Note:

(a) a Fixed Maturity Capital Note;

(b) an Automatic Rolling Maturity Capital Note; or

(c) an Optional Rolling Maturity Capital Note,

in each case as specified in the applicable Pricing Supplement;

“Maximum Redemption Amount” means, in respect of each Tranche of Capital Notes, the amount specified as such in the Pricing Supplement relating to such Tranche of Capital Notes;

“Mezzanine Capital Note Component” means, in respect of each Combination Capital Note, the amount (if any) of such Combination Capital Note comprised of Mezzanine Capital Notes;

“Mezzanine Capital Noteholders” means the Holders for the time being of the Mezzanine Capital Notes;

“Mezzanine Capital Notes” means the Class of Capital Notes that is subordinated to the Senior Capital Notes, but ranks in priority to the Junior Capital Notes;

“Mezzanine Capital Notes Outstanding” means all the Mezzanine Capital Notes for the time being outstanding;

“Optional Currency” means any currency other than Dollars;

“Optional Rolling Maturity Capital Note” means a Capital Note in respect of which the Capital Noteholder has the right to elect to roll the Expected Maturity Date forward up to the Optional Rolling Maturity Maximum Expected Maturity Date, as described in Condition 9(c), such Capital Note being neither an Automatic Rolling Maturity Capital Note nor a Fixed Maturity Capital Note;

“Optional Rolling Maturity Maximum Expected Maturity Date” means, in respect of each Tranche of Capital Notes, the date specified as such in the applicable Pricing Supplement;

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“Outstanding Capital Note Fraction” means, in respect of any Capital Note, the Applicable Dollar Equivalent Amount of such Capital Note divided by the Applicable Dollar Equivalent Amount of all of the Capital Notes Outstanding of the same Class;

“Payment Business Day” means a day (other than a Saturday or a Sunday) which is a Currency Business Day and upon which banks and foreign exchange markets are open for business in the place of presentation and on which dealings in the Specified Currency may be carried on in such place of presentation;

“Placement Agent” means each financial institution appointed from time to time as a placement agent under the Placement Agreement;

“Placement Agreement” means the capital note placement agreement dated on or about 3rd August, 2005 and made between the Issuer, Morgan Stanley and any other Placement Agent;

“Profit Accrual Period” means the period from (and including) a Profit Distribution Date (or the Closing Date) to (but excluding) the next (or first) Profit Distribution Date;

“Profit Distribution Date” means the 20th day of March, June, September and December in each year or, if such Profit Distribution Date is not a Business Day, the next following Business Day;

“Put Payment Date” means, in connection with any Capital Note which was to be redeemed pursuant to Condition 8(d), the Interest Payment Date on which such redemption was originally scheduled to be effected before the effect of any deferral as a result of the application of Condition 8(b) and 8(c);

“Put Redemption Amount” means (as specified in the applicable Pricing Supplement) any one of (a) the lower of (i) the Investor Redemption Net Asset Value and (ii) the outstanding principal amount, (b) the outstanding principal amount or (c) such other amount as is specified in the applicable Pricing Supplement;

“Rated Notes” means the Euro Rated Notes and the U.S. Rated Notes;

“Redemption Amount” means, in respect of each Tranche of Capital Notes, the amount specified as such in the applicable Pricing Supplement;

“Redemption Net Asset Value” means on any date of determination (subject to a minimum of zero):

(a) in respect of the Senior Capital Notes, the lesser of the Dollar Equivalent of (i) the sum of the Market Value of Investments plus the sum of the Market Value of Hedge Agreements minus the amounts required to repay or redeem all outstanding Prior Ranking Obligations ranking in priority to the Senior Capital Notes and (ii) the outstanding principal amount of Senior Capital Notes Outstanding;

(b) in respect of the Mezzanine Capital Notes, the lesser of the Dollar Equivalent of (i) the sum of the Market Value of Investments plus the sum of the Market Value of Hedge Agreements minus the amounts required to repay or redeem all outstanding Prior Ranking Obligations ranking in priority to the Mezzanine Capital Notes (including the Senior Capital Notes) and (ii) the outstanding principal amount of Mezzanine Capital Notes Outstanding; and

(c) in respect of the Junior Capital Notes, the lesser of the Dollar Equivalent of (i) the sum of the Market Value of Investments plus the sum of the Market Value of Hedge Agreements minus the amounts required to repay or redeem all outstanding Prior Ranking Obligations ranking in priority to the Junior Capital Notes (including the Senior Capital Notes and the Mezzanine Capital Notes) and (ii) the outstanding principal amount of Junior Capital Notes Outstanding;

“Registrar” means The Bank of New York, or its replacement, in its capacity as registrar in respect of the U.S. Notes;

“Regulation S” means Regulation S under the Securities Act;

“Securities Act” means the United States Securities Act of 1933, as amended;

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“Senior Capital Note Component” means, in respect of each Combination Capital Note, the amount (if any) of such Combination Capital Note comprised of Senior Capital Notes;

“Senior Capital Noteholders” means the Holders for the time being of the Senior Capital Notes;

“Senior Capital Notes” means the Class of Capital Notes that ranks in priority to both the Mezzanine Capital Notes and the Junior Capital Notes;

“Senior Capital Notes Outstanding” means all the Senior Capital Notes for the time being outstanding;

“Senior Notes” means Euro Senior Notes and U.S. Senior Notes;

“Series” means a Tranche of Capital Notes together with any further Tranche or Tranches of Capital Notes which are (i) expressed to be consolidated and form a single series and (ii) identical in all respects including, inter alia, as to listing, Expected Maturity Date, Legal Maturity Date, Interest Accrual Dates, Interest Payment Dates, Benchmark Rate, Fixed Margin and Variable Margin and voting rights but excluding their respective Issue Dates, Interest Commencement Dates and/or Issue Prices;

“Share Trustees” means the principal holders for the time being of the shares in the Issuer;

“Specified Currency” means the currency of the Series of Capital Notes specified in the applicable Pricing Supplement;

“Specified Denominations” means the denomination(s) of the Capital Notes specified in the applicable Pricing Supplement;

“Tranche” means Capital Notes of a particular Class which are identical in all respects (including as to Issue Date and Interest Commencement Date);

“Underlying Capital Notes” means Capital Notes purchased by the U.S. Capital Notes Issuer from the Issuer pursuant to the Capital Note Purchase Agreement with corresponding terms to a U.S. Capital Note;

“United States” means the United States of America (including the States and the District of Columbia, its territories, its possessions and other areas subject to its jurisdiction);

“U.S. Capital Note” means each secured capital note issued by the U.S. Capital Notes Issuer pursuant to the U.S. Capital Note Program;

“U.S. Capital Note Program” means the U.S.$3,000,000,000 U.S. Capital Note program to be established by the U.S. Capital Notes Issuer;

“U.S. Capital Notes Issuer” means Cheyne Finance Capital Notes LLC; and

“Variable Margin” in relation to each Series of Capital Notes means, in respect of any Profit Accrual Period, to the extent applicable as set out in the applicable Pricing Supplement:

(a) in respect of a Senior Capital Note, an amount equal to the product of:

(i) the Average Outstanding Capital Note Fraction;

(ii) the Distributable Profits; and

(iii) the relevant Distribution Rate for that Series;

(b) in respect of a Mezzanine Capital Note, an amount equal to the product of:


(ii) the Distributable Profits minus the Variable Margin payable in respect of the Senior Capital Notes Outstanding; and

(iii) the relevant Distribution Rate for that Series; and

(c) in respect of a Junior Capital Note, an amount equal to the product of:

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(ii) the Distributable Profits minus the Variable Margin payable in respect of the Senior Capital Notes Outstanding and the Mezzanine Capital Notes Outstanding; and

(iii) the relevant Distribution Rate for that Series,

in each case as converted into the Specified Currency using the Exchange Rate as at the relevant Interest Payment Date.

Save to the extent set out herein, in relation to the issuance and transfer of Combination Capital Notes, the Terms and Conditions applicable to each Combination Capital Note, including the terms on which amounts are due and payable in respect thereof and the rights of any Holders therefor, are the same as the Terms and Conditions applicable to the Senior Capital Notes, the Mezzanine Capital Notes and the Junior Capital Notes relating thereto to the extent of, respectively, the principal amount (if any) of such Senior Capital Note Component, Mezzanine Capital Note Component and Junior Capital Note Component thereof. The principal amount of each of the Senior Capital Note Component, the Mezzanine Capital Note Component and the Junior Capital Note Component comprising each Combination Capital Note is included in (and is not in addition to) the respective aggregate principal amount of the relevant Class of Capital Notes to which such Capital Note Component relates. The Capital Note Components of the Combination Capital Notes are not separately transferable; however, a Holder may exchange all or some of its Combination Capital Notes for proportional interests in the underlying Classes of Capital Notes represented by the applicable Capital Note Components, subject to the requirements of the underlying Classes of Capital Notes regarding Specified Denominations, as described in Condition 1. A Capital Noteholder whose Capital Notes constitute the Capital Note Components of a Combination Capital Note (including a Holder that received such Capital Notes upon exchange of a Combination Capital Note for the underlying Classes of Capital Notes) will not have the right to exchange such Capital Notes for a Combination Capital Note. For the purposes of the Terms and Conditions of the Capital Notes and the Agency Agreement, each Capital Note Component of a Combination Capital Note shall be deemed to be issued and outstanding whilst comprised in the Combination Capital Note but without any double counting of the principal balance of the Combination Capital Note in determining the principal balance of (i) the Senior Capital Notes Outstanding, the Mezzanine Capital Notes Outstanding or the Junior Capital Notes Outstanding and therefore of (ii) the Capital Notes Outstanding.

In relation to each Series of Capital Notes, the applicable Pricing Supplement(s) will (for the purposes of Condition 17) specify the number of votes attributable to each Specified Denomination (which shall be calculated on the basis of one vote per U.S.$1,000 of Fixed Dollar Equivalent Nominal Amount, with fractions being disregarded).

1. Form, Denomination, Title and Further Issues

(a) Form, Denomination and Title

Subject to paragraph (b) below, the Capital Notes are in bearer form and, in the case of definitive Capital Notes, serially numbered, in the Specified Denomination(s). Capital Notes of one Specified Denomination may not be exchanged for Capital Notes of another Specified Denomination.

Definitive Bearer Capital Notes are issued with Coupons attached.

Subject to paragraph (b) below, each Tranche will initially be issued in the form of a temporary Global Capital Note in bearer form (a “Temporary Global Capital Note”) which will be delivered outside the United States on or prior to the relevant Issue Date to a common depositary (the “Common Depositary”) for Euroclear Bank S.A./N.V. as operator of the Euroclear System (“Euroclear”) and Clearstream Banking, société anonyme (“Clearstream, Luxembourg”). Whilst any Capital Note is represented by a Temporary Global Capital Note, payments of principal, interest (if any) and any other amount payable in respect of the Capital Notes due prior to the Exchange Date (as defined below) will be made against presentation outside the United States of the Temporary Global Capital Note only to the extent that certification (in a form to be provided) to the effect that the beneficial owners of interests in such Capital Note are not United States persons or persons who have

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purchased for resale to any United States person, as required under section 1.163-5(c)(2)(i)(D) of the U.S. Treasury regulations (the “D Rules”), has been received by Euroclear and/or Clearstream, Luxembourg, and Euroclear and/or Clearstream, Luxembourg, as applicable, has given a like certification (based on the certifications it has received) to the Principal Paying Agent. Capital Notes may not be offered, sold, transferred or delivered to United States persons (as defined in the D Rules) for the period of 40 days from the Issue Date. Furthermore, the Capital Notes have not been registered under the Securities Act, and may not be offered, sold or resold within the United States or to, or for the account or benefit of, U.S. Persons (as such term is defined therein) except pursuant to an exemption from registration thereunder.

On and after the date (the “Exchange Date”) which is 40 days after the Temporary Global Capital Note is issued, interests in such Temporary Global Capital Note will be exchangeable (free of charge) upon a request as described below for interests in a permanent Global Capital Note in bearer form (a “Permanent Global Capital Note”) of the same Series against certification of beneficial ownership as described above unless such certification has already been given. The Holder of a Temporary Global Capital Note will not be entitled to collect any payment of interest, principal or other amount due on or after the Exchange Date unless, upon due certification, exchange of the Temporary Global Capital Note for an interest in a Permanent Global Capital Note is improperly withheld or refused.

Subject to paragraph (b) below, payments of principal, interest (if any) or any other amounts on a Permanent Global Capital Note will be made outside the United States through Euroclear and/or Clearstream, Luxembourg, against presentation or surrender outside the United States (as the case may be) of the Permanent Global Capital Note without any requirement for certification. Unless otherwise stated in the applicable Pricing Supplement, each Permanent Global Capital Note (other than with regard to Underlying Capital Notes) will be exchangeable (free of charge), in whole but not in part, for definitive Bearer Capital Notes with, where applicable, Coupons and Talons attached upon the occurrence of an Exchange Event. For these purposes, “Exchange Event” means that either (a) an Enforcement Event has occurred or (b) the Issuer has been notified that both Euroclear and Clearstream, Luxembourg, have been closed for business for a continuous period of 14 days (other than by reason of holiday, statutory or otherwise) or have announced an intention permanently to cease business or have in fact done so and no alternative clearing system is available. The Issuer will promptly give notice to Capital Noteholders in accordance with Condition 16 if an Exchange Event occurs. In the event of the occurrence of an Exchange Event, Euroclear and/or Clearstream, Luxembourg (acting on the instructions of any Holder of an interest in such Permanent Global Capital Note) may give notice to the Principal Paying Agent requesting exchange. Any such exchange shall occur not later than 60 days after the receipt of the first relevant notice by the Principal Paying Agent.

A Capital Noteholder’s rights under Condition 8(d), 9(b) or 9(c) may not be exercised while the relevant Capital Note is represented by a Temporary Global Capital Note. If such rights are exercised in respect of a Capital Note represented by a Permanent Global Capital Note, upon certification of beneficial ownership (if required), as described above, a new Permanent Global Capital Note will be issued outside the United States in respect of the new Series created (or, if a Permanent Global Capital Note representing the new Series already exists, then its nominal amount will be increased) as a result of such exercise (and the nominal amount of the Permanent Global Capital Note representing the existing Series will be accordingly reduced). If such rights are exercised in respect of a definitive Bearer Capital Note, such definitive Bearer Capital Note must be surrendered outside the United States to the Principal Paying Agent (together with all unmatured Coupons appertaining thereto), and, if applicable, a new definitive Bearer Capital Note (together with all the appropriate unmatured Coupons) will be issued outside the United States in replacement therefor as soon as reasonably practicable thereafter upon certification of beneficial ownership, if required, as described above.

A Combination Capital Note may be exchanged (free of charge), in whole but not in part, for the Capital Note Components thereof at the offices of the Principal Paying Agent outside the United States in accordance with the provisions set out herein and in the Agency Agreement.

Subject as set out below and in Condition 1(b), title to the Bearer Capital Notes and Coupons will pass by delivery and title to the Registered Definitive Notes will pass upon registration of transfers in accordance with the provisions of the Agency Agreement. The Issuer and the Paying Agents will (except as otherwise required

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by law) deem and treat the bearer of any Capital Note or Coupon and the registered holder of any Registered Definitive Notes as the absolute owner thereof (whether or not overdue and notwithstanding any notice of ownership or writing thereon or notice of any previous loss or theft thereof) for all purposes but, in the case of any Global Capital Note, without prejudice to the provisions set out in the next succeeding paragraph and in Condition 1(b).

For so long as any of the Capital Notes are represented by a Temporary Global Capital Note or a Permanent Global Capital Note (a “Global Capital Note”) held on behalf of Euroclear and/or Clearstream, Luxembourg, each person (other than Euroclear or Clearstream, Luxembourg) who is for the time being shown in the records of Euroclear or of Clearstream, Luxembourg as the Holder of a particular nominal amount of such Capital Notes (in which regard any certificate or other document issued by Euroclear or Clearstream, Luxembourg, as to the nominal amount of such Capital Notes standing to the account of any person shall be conclusive and binding for all purposes save in the case of manifest error) shall be treated by the Issuer and the Paying Agents as the Holder of such nominal amount of such Capital Notes for all purposes other than with respect to the payment of principal or interest on such nominal amount of such Capital Notes, for which purpose the bearer of the relevant Global Capital Note shall be treated by the Issuer and any Paying Agent as the Holder of such nominal amount of such Capital Notes in accordance with and subject to the terms of the relevant Global Capital Note and the expressions “Capital Noteholder”, “holder” and “holder of Capital Notes” and related expressions shall be construed accordingly.

Capital Notes which are represented by a Global Capital Note held on behalf of Euroclear and/or Clearstream, Luxembourg, will be transferable only in accordance with the rules and procedures of Euroclear and Clearstream, Luxembourg, as the case may be.

Any reference herein to Euroclear and/or Clearstream, Luxembourg, shall, whenever the context so permits, be deemed to include a reference to any additional or alternative clearing system specified in the applicable Pricing Supplement.

Where any Capital Note (other than an Underlying Capital Note) is represented by a Global Capital Note and the Global Capital Note (or any part thereof) has become due and payable in accordance with these Terms and Conditions and the applicable Pricing Supplement and payment in full of the amount due has not been made in accordance with the provisions of the Global Capital Note then, unless within the period of seven days commencing on the relevant due date, payment in full of the amount due in respect of the Global Capital Note is received by the bearer in accordance with the provisions of the Global Capital Note, the Global Capital Note will become void at 8.00 p.m. (London time) on such day. At the same time, holders of interests in such Global Capital Note credited to their accounts with Euroclear and/or Clearstream, Luxembourg, as the case may be, will become entitled (subject to the provisions of these Terms and Conditions) to proceed directly against the Issuer on the basis of statements of account provided by Euroclear and/or Clearstream, Luxembourg on and subject to the terms of the Deed of Covenant.

(b) Form and Transfers of Capital Notes comprising Underlying Capital Notes

Capital Notes issued by the Issuer which comprise Underlying Capital Notes will be issued in the form of a Permanent Global Capital Note in bearer form and deposited with a custodian on behalf of the Depositary and shall be held subject to the terms of the Depositary Agreement.

The Depositary will issue to the U.S. Capital Notes Issuer a Certificateless Depository Interest in respect of each Permanent Global Capital Note which comprises an Underlying Capital Note. For so long as any of the Underlying Capital Notes is represented by a Permanent Global Capital Note held by a custodian on behalf of the Depositary, each person (other than the Depositary) who is for the time being shown in the records of the Depositary as the holder of a particular nominal amount of such Underlying Capital Notes shall be treated by the Issuer and the Paying Agents as the holder of such nominal amount of such Underlying Capital Notes for all purposes other than with respect to the payment of principal or interest on such nominal amount of such Underlying Capital Notes, for which purpose the bearer of the relevant Permanent Global Capital Notes shall be treated by the Issuer and any Paying Agent as the holder of such nominal amount of such Underlying Capital

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Notes in accordance with and subject to the terms of the relevant Permanent Global Capital Note and the expressions “Noteholder”, “holder” and “holder of Capital Notes” and related expressions shall be construed accordingly.

In relation to any Permanent Global Capital Notes issued by the Issuer which comprise Underlying Capital Notes, any such Permanent Global Capital Notes will be exchangeable (free of charge), in whole but not in part, for definitive Registered Capital Notes without Coupons or Talons attached upon the occurrence of an Exchange Event. For these purposes, “Exchange Event” means that the Depositary has notified the Issuer that it is unwilling or unable to continue as Depositary and a successor Depositary is not appointed by the Issuer within 240 days of such notification. The Issuer will promptly give notice to the holder of the Underlying Capital Notes in accordance with Condition 16 if an Exchange Event occurs. Any such Exchange Event shall occur not later than 60 days after the receipt of the first relevant notice by the Principal Paying Agent. The Issuer shall appoint a registrar (the “Registrar”) in relation to such definitive Registered Capital Notes.

Upon the terms and subject to the conditions set forth in the Agency Agreement, a Registered Capital Note in definitive form may be transferred in whole or in part (in the authorised denominations set out in the applicable Pricing Supplement). In order to effect any such transfer (i) the registered holder or registered holders must (A) surrender the Registered Capital Note for registration of the transfer of the Registered Capital Note (or the relevant part of the Registered Capital Note) at the specified office of the Registrar with the form of transfer thereon duly executed by the registered holder or registered holders thereof or his or their attorney or attorneys duly authorised in writing and (B) complete and deposit such other certifications as may be required by the Registrar and (ii) the Registrar must, after due and careful enquiry, be satisfied with the documents of title and the identity of the person making the request. Any such transfer will be subject to such reasonable regulations as the Issuer and the Registrar may from time to time prescribe. Subject as provided above, the Registrar will, within three business days (being for this purpose a day on which banks are open for business in the city where the specified office of the Registrar is located) of the request (or such longer period as may be required to comply with any applicable fiscal or other laws or regulations), authenticate and deliver, or procure the authentication and delivery of, at its specified office to the transferee or (at the risk of the transferee) send by uninsured mail, to such address as the transferee may request a new Registered Capital Note in definitive form of a like aggregate nominal amount to the Registered Capital Note (or the relevant part of the Registered Capital Note) transferred. In the case of the transfer of part only of a Registered Capital Note in definitive form, a new Registered Capital Note in definitive form in respect of the balance of the Registered Capital Note not transferred will be so authenticated and delivered or (at the risk of the transferor) sent to the transferor provided such transferor is the registered holder of the Registered Capital Notes.

In the event of a partial redemption of Capital Notes under Condition 8, the Issuer shall not be required to register the transfer of any Registered Capital Note, or part of a Registered Capital Note, called for partial redemption.

2. Status of the Capital Notes

The Capital Notes are secured, limited recourse debt obligations of the Issuer, with (subject as provided in these Terms and Conditions) each Class subordinated to the Prior Ranking Obligations of the Issuer ranking in priority to that Class. The Senior Capital Notes rank and will rank pari passu and without any preference among themselves and rank in priority to the Mezzanine Capital Notes and the Junior Capital Notes. The Mezzanine Capital Notes rank and will rank pari passu and without any preference among themselves and rank in priority to the Junior Capital Notes. The Junior Capital Notes rank and will rank pari passu and without any preference among themselves. The Combination Capital Notes consist of a Senior Capital Note Component and/or a Mezzanine Capital Note Component and/or Junior Capital Note Component in the Combination Capital Note Ratio.

For the purposes of subordination and Conditions 2, 5, 8, 9, 17 and 18 (and the defined terms used therein), the Combination Capital Notes will not be treated as separate Classes of Capital Notes but each Capital Note Component of the Combination Capital Notes will be treated as Capital Notes of the Class represented by such Capital Note Component.

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If any order of a court of competent jurisdiction is made or any effective resolution is passed for the winding up of the Issuer or the Issuer shall be taken to have commenced winding up in accordance with the Articles of Association of the Issuer, the Issuer shall make payment in accordance with Condition 11 and applicable law.

3. Security

The due payment of principal and interest in respect of the Capital Notes is secured by a first fixed and floating charge over the assets and undertaking of the Issuer (other than U.S.$2,000, representing a profit to the Issuer, the U.S. Capital Notes Issuer and Cheyne Finance LLC, to be divided between the Issuer, the U.S. Capital Notes Issuer and Cheyne Finance LLC as agreed between them) granted in favour of the Security Trustee pursuant to a Security Trust Deed dated on or around 3rd August, 2005 (as amended from time to time, the “Security Trust Deed”) between the Issuer and the Security Trustee. The Security Trustee holds the benefit of the charge on trust for itself, the Capital Noteholders and the other Secured Creditors specified therein on and subject to the terms of the Security Trust Deed. For the avoidance of doubt, the Combination Capital Notes will be secured to the same extent as the Class of Capital Notes that comprises each Capital Note Component.

4. Covenants

The Issuer shall:

(a) ensure that its obligations under the Capital Notes, together with certain of its other obligations, are secured pursuant to the Security Trust Deed by way of a first fixed and floating charge over the Security Assets granted in favour of the Security Trustee;

(b) ensure that no Capital Notes or Senior Funding of the Issuer are issued or entered into if such issue would cause a breach of any restriction on borrowings or the raising of finance contained in the Memorandum and Articles of Association of the Issuer or a breach of a relevant issuance limit under any other debt programme of the Issuer;

(c) promptly inform the Rating Agencies and the Security Trustee of any breach of the covenants contained in this Condition 4;

(d) ensure that it shall not make any payment on any Capital Notes except in accordance with the Capital Notes Programme Documents;

(e) make all reasonable efforts to ensure that at all requisite times the Portfolio is managed with due consideration of the Investment Purchase Criteria and the Compliance Tests; and

(f) ensure that, so long as any sum is outstanding from it under any Capital Note or under any other agreement, it shall not have any subsidiaries other than the U.S. Capital Notes Issuer and Cheyne Finance LLC.

The Issuer has entered into certain other covenants in favour of the Security Trustee in the Security Trust Deed, in addition to the covenants listed above in favour of the Capital Noteholders, the benefits of which are held on trust for the Secured Creditors on and subject to the terms of the Security Trust Deed.

5. Interest

(a) Interest Payment

Subject to these Terms and Conditions (and in particular, but without limitation, to Condition 5(f)), each Capital Note bears interest on its outstanding principal amount from (and including) the Interest Commencement Date and such interest (excluding Variable Margin) will be payable in respect of each Interest Accrual Period in arrear on the relevant Interest Payment Date and, in respect of Variable Margin relating to each Profit Accrual Period, in arrear, on each Interest Payment Date which is (or would be, were it not for the fact that the relevant

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Profit Distribution Date was not a Currency Business Day) also a Profit Distribution Date, in the Specified Currency of such Capital Note until redemption of such Capital Note.

(b) Interest Payable

The interest payable from time to time in respect of each Series of Capital Notes Outstanding will be calculated in the manner set out below.

The interest payable on each Interest Payment Date in respect of each Series of Capital Notes Outstanding will (subject to Conditions 5(d) and 5(f) below) be an amount equal to the sum of:

(x) the Fixed Interest;

(y) the relevant Deferred Interest (if any) and Additional Interest (if any); and

(z) the Variable Margin (if any).

Interest due on each Interest Payment Date in respect of each Series of Capital Notes Outstanding which have an Interest Payment Date on such date and which may be paid in accordance with Condition 5(f) shall be paid, subject to Condition 5(f), from available funds on that date and in the following order of priority:

(i) first, in or towards payment, on a pro rata basis (subject as provided below), by reference to the amount of interest due or overdue and payable (including any Deferred Interest and Additional Interest, but excluding Variable Margin) on each relevant Senior Capital Note, of all interest due or overdue and payable (including any Deferred Interest and Additional Interest but excluding Variable Margin) on all relevant Senior Capital Notes Outstanding;

(ii) secondly, in or towards payment, on a pro rata basis (subject as provided below), by reference to the amount of interest due or overdue and payable (including any Deferred Interest and Additional Interest, but excluding Variable Margin) on each relevant Mezzanine Capital Note, of all interest due or overdue and payable (including any Deferred Interest and Additional Interest but excluding Variable Margin) on all relevant Mezzanine Capital Notes Outstanding;

(iii) thirdly, in or towards payment, on a pro rata basis, by reference to the amount of interest due or overdue and payable (including any Deferred Interest and Additional Interest, but excluding Variable Margin) on each relevant Junior Capital Note, of all interest due or overdue and payable (including any Deferred Interest and Additional Interest but excluding Variable Margin) on all relevant Junior Capital Notes Outstanding;

(iv) fourthly, in or towards payment, on a pro rata basis, by reference to the amount of Variable Margin due and payable on each relevant Senior Capital Note, of any Variable Margin due and payable (if any) on the Senior Capital Notes Outstanding;

(v) fifthly, in or towards payment, on a pro rata basis, by reference to the amount of Variable Margin due and payable on each relevant Mezzanine Capital Note, of any Variable Margin due and payable (if any) on the Mezzanine Capital Notes Outstanding; and

(vi) sixthly, in or towards payment, on a pro rata basis, by reference to the amount of Variable Margin due and payable on each relevant Junior Capital Note, of any Variable Margin due and payable (if any) on the Junior Capital Notes Outstanding.

In relation to sub-paragraphs (i) and (ii) above, the available funds shall be applied in payment of interest due or overdue and payable relating to any of the Senior Capital Notes and/or Mezzanine Capital Notes, respectively, for which the relevant Interest Payment Date is their Legal Maturity Date and which are due to be redeemed pursuant to Condition 8 in priority to other payments at the same level in the order of priority.

The relevant proportion of Distributable Profits in respect of each Profit Accrual Period shall be payable as Variable Margin (subject to Condition 5(f)) only on an Interest Payment Date which is (or would be, were it not

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for the fact that the relevant Profit Distribution Date was not a Currency Business Day) also a Profit Distribution Date and in the order of priority as specified in Condition 5(b)(iv) to (vi) above.

(c) Fixed Interest

The Fixed Interest in respect of each Capital Note and each Interest Accrual Period shall be equal to the sum of (a) the relevant Benchmark Rate and (b) the relevant Fixed Margin, such sum multiplied by (i) the relevant Day Count Fraction multiplied by (ii) the outstanding principal amount of the applicable Capital Note.

(i) ISDA Determination of the Benchmark Rate

Where ISDA Determination is specified in the applicable Pricing Supplement as the manner in which the Benchmark Rate is to be determined, the Benchmark Rate for an Interest Accrual Period will be a rate equal to the Floating Rate that would be determined by the Calculation Agent under an interest rate swap transaction if the Calculation Agent were acting as Calculation Agent for that swap transaction under the terms of an agreement incorporating the 2000 ISDA Definitions, as published by the International Swaps and Derivatives Association, Inc. and as amended and updated as at the Issue Date of the first Tranche of the relevant Capital Notes (the “ISDA Definitions”) and under which:

(A) the Floating Rate Option is as specified in the applicable Pricing Supplement;

(B) the Designated Maturity is a period specified in the applicable Pricing Supplement; and

(C) the relevant Reset Date is either (1) if the applicable Floating Rate Option is based on the London interbank offered rate (“LIBOR”) or on the Euro-zone interbank offered rate (“EURIBOR”), the first day of that Interest Accrual Period or (2) in any other case, as specified in the applicable Pricing Supplement.

For the purposes of this sub-paragraph (i), Floating Rate, Calculation Agent, Floating Rate Option, Designated Maturity and Reset Date have the meanings given to those terms in the ISDA Definitions.

Unless otherwise stated in the applicable Pricing Supplement, the minimum amount of Fixed Interest shall be deemed to be zero.

(ii) Screen Rate Determination of the Benchmark Rate

Where Screen Rate Determination is specified in the applicable Pricing Supplement as the manner in which the Benchmark Rate is to be determined, the Benchmark Rate for each Interest Accrual Period will, subject as provided below, be either:

(A) the offered quotation; or

(B) if more than one offered quotation is available, the arithmetic mean (rounded if necessary to the fifth decimal place, with 0.000005 being rounded upwards) of the offered quotations,

(expressed as a percentage rate per annum) for the Benchmark Rate which appears or appear, as the case may be, on the Relevant Screen Page as at 11.00 a.m. (London time, in the case of LIBOR, or Brussels time, in the case of EURIBOR) on the Interest Determination Date, as determined by the Calculation Agent. If five or more of such offered quotations are available on the Relevant Screen Page, the highest (or, if there is more than one such highest quotation, one only of such quotations) and the lowest (or, if there is more than one such lowest quotation, one only of such quotations) shall be disregarded by the Calculation Agent for the

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purpose of determining the arithmetic mean (rounded as provided above) of such offered quotations.

The Agency Agreement contains provisions for determining the Benchmark Rate in the event that the Relevant Screen Page is not available or if, in the case of (A) above, no such offered quotation appears or, in the case of (B) above, fewer than three such offered quotations appear, in each case as at the time specified in the preceding paragraph.

If the Benchmark Rate is specified in the applicable Pricing Supplement as being other than LIBOR or EURIBOR, such Benchmark Rate will be determined as provided in the applicable Pricing Supplement.

(iii) Day Count Fraction

The “Day Count Fraction” means, in respect of the calculation of an amount of interest (excluding Variable Margin) in accordance with this Condition 5:

(A) if “Actual/365” or “Actual/Actual” is specified in the applicable Pricing Supplement, the actual number of days in the Interest Accrual Period divided by 365 (or, if any portion of that Interest Accrual Period falls in a leap year, the sum of (1) the actual number of days in that portion of the Interest Accrual Period falling in a leap year divided by 366 and (2) the actual number of days in that portion of the Interest Accrual Period falling in a non-leap year divided by 365);

(B) if “Actual/365 (Fixed)” is specified in the applicable Pricing Supplement, the actual number of days in the Interest Accrual Period divided by 365;

(C) if “Actual/365 (Sterling)” is specified in the applicable Pricing Supplement, the actual number of days in the Interest Accrual Period divided by 365 or, in the case of an Interest Payment Date falling in a leap year, 366;

(D) if “Actual/360” is specified in the applicable Pricing Supplement, the actual number of days in the Interest Accrual Period divided by 360;

(E) if “30/360”, “360/360” or “Bond Basis” is specified in the applicable Pricing Supplement, the number of days in the Interest Accrual Period divided by 360 (the number of days to be calculated on the basis of a year of 360 days with 12 30-day months (unless (1) the last day of the Interest Accrual Period is the 31st day of a month but the first day of the Interest Accrual Period is a day other than the 30th or 31st day of a month, in which case the month that includes that last day shall not be considered to be shortened to a 30-day month, or (2) the last day of the Interest Accrual Period is the last day of the month of February, in which case the month of February shall not be considered to be lengthened to a 30-day month)); and

(F) if “30E/360” or “Eurobond Basis” is specified in the applicable Pricing Supplement, the number of days in the Interest Accrual Period divided by 360 (the number of days to be calculated on the basis of a year of 360 days with 12 30-day months, without regard to the date of the first day or last day of the Interest Accrual Period unless, in the case of the final Interest Accrual Period, the final Interest Payment Date is the last day of the month of February, in which case the month of February shall not be considered to be lengthened to a 30-day month).

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(d) Deferral of Interest

If on any Interest Payment Date the Issuer:

(i) has insufficient funds (after allowing for the payment by the Issuer of all Prior Ranking Obligations ranking in priority to the relevant Class of Capital Notes due and payable on that date, and taking into account the priority for payment in Condition 5(b) and any restrictions on payments (including those in Condition 5(f)) due to the then operating state of the Issuer) to pay; or

(ii) is not permitted to pay (pursuant to Condition 5(f)),

the interest otherwise payable (including Deferred Interest as determined on the previous Interest Payment Date and Additional Interest relating to such Deferred Interest, but excluding any Variable Margin) on any Capital Notes Outstanding which have an Interest Payment Date on such date, any such unpaid interest will be deferred in accordance with the following paragraph, and the available funds on such Interest Payment Date will be distributed in accordance with Condition 5(f) and the order of priority in Condition 5(b).

The amount of interest payable (including Deferred Interest as determined on the previous Interest Payment Date and Additional Interest relating to such Deferred Interest, but excluding Variable Margin) but not paid in respect of any Capital Notes on any Interest Payment Date relating to such Capital Note (each such amount being referred to as “Deferred Interest”) shall be deferred until the next following Interest Payment Date for such Capital Note. Any interest so deferred will bear interest during the following Interest Accrual Period at a rate equal to the sum of the applicable Benchmark Rate and the Fixed Margin for the following Interest Accrual Period for such Capital Note from such date. Payment of such additional interest (“Additional Interest”) will be due on the next following Interest Payment Date for such Capital Note.

Failure to pay Variable Margin on a Capital Note as a result of insufficient funds or in accordance with Condition 5(f) will not result in such Variable Margin being deferred, and the Issuer shall have no obligation to make whole such unpaid amounts (whether at redemption of such Capital Note or otherwise).

Failure by the Issuer (1) to pay all interest due and payable (excluding Variable Margin) on any Senior Capital Notes and/or any Mezzanine Capital Notes at their respective Legal Maturity Dates will constitute a Euro Capital Note Event of Default and (2) to pay all interest due and payable (excluding Variable Margin) on any Capital Notes at their respective Expected Maturity Dates will (after the expiry of any applicable cure period as agreed with the Rating Agencies from time to time) constitute a Restricted Investments Event.

(e) Calculation of Interest Amounts

(i) The Calculation Agent will, in relation to each Series of Capital Notes Outstanding and in respect of each Interest Accrual Period:

(x) determine each Benchmark Rate and calculate the Fixed Interest, Deferred Interest (if any) and Additional Interest (if any); and

(y) calculate the amount of interest (excluding Variable Margin) payable (subject to Condition 5(f)) in respect of each Interest Accrual Period on or as soon as practicable after the determination of the Benchmark Rate and the calculation of the Fixed Interest, Deferred Interest (if any) and Additional Interest (if any) under (x) above.

(ii) The Calculation Agent will, in relation to each Series of Capital Notes Outstanding with a Distribution Rate greater than zero and in respect of each Profit Accrual Period calculate, in respect of each Series of Capital Notes Outstanding, on or as soon as practicable after the determination by the Issuer’s board of directors of the Distributable Profits, the Variable Margin (if any) payable (subject to Condition 5(f)) (and, in the event that no such determination has been made by the Issuer’s board of directors on or before the Profit

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Distribution Date, the Calculation Agent will calculate the Variable Margin for each Series to be zero).

(iii) No notice to the Holders of the Capital Notes need be given of any determination or calculation under sub-paragraphs (i) and (ii) above.

(iv) All determinations and calculations by the Calculation Agent for the purposes of this Condition 5(e) shall (in the absence of negligence, wilful default or manifest error) be binding on the Issuer and all Holders of Capital Notes and (in the absence as aforesaid) no liability to the Issuer or the Holders of the Capital Notes shall attach to the Calculation Agent in connection with the exercise or non-exercise by it of its powers, duties and discretions pursuant to this Condition 5(e).

(f) Conditionality

Notwithstanding the foregoing provisions:

(i) no payment of Variable Margin may be made in respect of any Capital Note, under any circumstances, while the Issuer is in a period of Restricted Investments or Restricted Funding or following the occurrence of an Enforcement Event or if the payment of such Variable Margin would cause (regardless of any applicable cure periods) a Restricted Investments Event, a Restricted Funding Event or an Enforcement Event;

(ii) no payment of interest may be made in respect of any Junior Capital Note while the Issuer is in a period of Restricted Investments or if the payment of such interest would cause (regardless of any applicable cure periods) a Restricted Investments Event, except in relation to Junior Capital Notes which are being redeemed in accordance with Condition 8(b)(ii) or unless all outstanding Prior Ranking Obligations in respect of the Junior Capital Notes have been paid and/or provisioned for in full; and

(iii) no payment of interest may be made in respect of any Capital Note:

(A) while the Issuer is in a period of Restricted Funding or following the occurrence of an Enforcement Event; or

(B) if any payment of interest in respect of any Capital Note would cause (regardless of any applicable cure periods) a Restricted Funding Event or an Enforcement Event, as the case may be,

unless all outstanding Prior Ranking Obligations ranking in priority to the relevant Class of Capital Notes have been paid and/or provisioned for in full (and, for the avoidance of doubt, following the occurrence of an Enforcement Event, such payments shall be made in accordance with the Payment Priority).

6. Resale and Transfer

No Capital Note may be offered or sold in the United States or to, or for the account or benefit of, a U.S. Person, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. No Capital Note, other than any interest in a Capital Note that constitutes an Underlying Capital Note, may be resold to, or for the account or benefit of, a U.S. Person until the Distribution Completion Date relating thereto shall have occurred, and then (i) only in Eligible Secondary Market Transactions or (ii) to a Qualified Institutional Buyer (as defined in Rule 144A under the Securities Act) who is also a Qualified Purchaser (as defined in the Investment Company Act). Except as otherwise defined, terms used in this paragraph have the meanings given to them by Regulation S.

The Capital Notes are subject to U.S. tax law requirements and may not be offered, sold or delivered within the United States or its possessions or to a United States person, except in certain transactions permitted by U.S.

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Treasury regulations. Terms used in this paragraph have the meanings given to them by the U.S. Internal Revenue Code of 1986, as amended, and U.S. Treasury regulations thereunder.

7. Payments

(a) Method of Payment

Subject as provided below:

(i) payments in a Specified Currency (other than euro) will be made by transfer on the relevant Interest Payment Date to an account in the relevant Specified Currency maintained by the payee with, or by a cheque in such Specified Currency drawn on, a bank in the principal financial centre of the country of such Specified Currency; and

(ii) payments in euro will be made by credit or transfer on the relevant Interest Payment Date to a euro account (or any other account to which euro may be credited or transferred) specified by the payee.

Payments will be subject in all cases to any fiscal or other laws and regulations applicable thereto in the place of payment, but without prejudice to the provisions of Condition 14.

Notwithstanding the foregoing and subject to paragraph (d) below, all payments (other than in the case of the Underlying Capital Notes) shall be made outside the United States by transfer to an account outside the United States or by cheque mailed to an address outside the United States.

(b) Presentation of definitive Bearer Capital Notes and Coupons

Subject to paragraph (f) below, payments of principal in respect of definitive Bearer Capital Notes will be made only against presentation and surrender (or, in the case of part payment of any sum due, endorsement) of definitive Bearer Capital Notes, and payments of interest in respect of definitive Bearer Capital Notes will be made only against presentation and surrender (or, in the case of part payment of any sum due, endorsement) of Coupons, in each case on or after the relevant Interest Payment Date at the specified office of any Paying Agent outside the United States in compliance with the D Rules.

Upon the date on which any Bearer Capital Note in definitive form becomes due and repayable, unmatured Coupons and Talons (if any) relating thereto (whether or not attached) shall become void and no payment or, as the case may be, exchange for further Coupons shall be made in respect thereof.

If the due date for redemption of any definitive Bearer Capital Note is not an Interest Payment Date, interest (if any) accrued in respect of such Bearer Capital Note from (and including) the preceding Interest Accrual Date or, as the case may be, the Interest Commencement Date shall be payable only against surrender of the relevant definitive Bearer Capital Note.

(c) Payments in respect of Global Capital Notes

Payments of principal and interest (if any) in respect of Capital Notes represented by any Global Capital Note will be made against presentation or surrender, as the case may be, of such Global Capital Note on or after the relevant Interest Payment Date at the specified office of any Paying Agent (other than in the case of the Underlying Capital Notes) outside the United States in compliance with the D Rules. A record of each payment made against presentation or surrender of any Global Capital Note, distinguishing between any payment of principal and any payment of interest, will be made on such Global Capital Note by the Paying Agent to which it was presented and such record shall be prima facie evidence that the payment in question has been made.

(d) Payments in respect of Registered Capital Notes

Payments of principal in respect of each Registered Capital Note will be made against presentation and surrender (or, in the case of part payment of any sum due, endorsement) of the Registered Capital Note at the specified office of the Registrar or any of the Paying Agents. Such payments will be made by transfer to the

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Designated Account (as defined below) of the holder of the Registered Capital Note appearing in the register of holders of the Registered Capital Notes maintained by the Registrar (the “Register”) at the close of business on the third business day (being for this purpose a day on which banks are open for business in the city where the specified office of the Registrar is located) before the relevant due date. For these purposes, “Designated Account” means the account maintained by a holder with a Designated Bank and identified as such in the Register and “Designated Bank” means a bank located in New York City.

Payment of interest will be made on the due date in the manner provided in the preceding paragraph. Payment of the interest due in respect of each Registered Capital Note on redemption will be made in the same manner as payment of the principal amount of such Registered Capital Note.

(e) Payments in respect of Combination Capital Notes

On each date on which payments of principal, interest or other payments (if any) are due in respect of any Combination Capital Note, each relevant Noteholder will receive the aggregate of the amounts payable (if any) under the relevant Capital Note Components as calculated in accordance with Conditions 5 and 8. No other payments shall be made on a Combination Capital Note.

(f) General provisions applicable to payments

The Holder of a Global Capital Note shall be the only person entitled to receive payments in respect of Capital Notes represented by such Global Capital Note and the Issuer will be discharged by payment to, or to the order of, the Holder of such Global Capital Note in respect of each amount so paid. Each of the persons shown in the records of Euroclear or Clearstream, Luxembourg as the beneficial holder of a particular nominal amount of Capital Notes represented by a Global Capital Note held on behalf of Euroclear and/or Clearstream, Luxembourg, must look solely to Euroclear or Clearstream, Luxembourg, as the case may be, for his share of each payment so made by the Issuer to, or to the order of, the Holder of such Global Capital Note.

Notwithstanding the foregoing provisions of this Condition, Dollar payments of principal and/or interest in respect of the Capital Notes (other than the Underlying Capital Notes) will be made at the specified office of a Paying Agent in the United States if:

(i) the Issuer has appointed Paying Agents with specified offices outside the United States with the reasonable expectation that such Paying Agents would be able to make payment in Dollars at such specified offices outside the United States of the full amount of principal and interest on the Capital Notes in the manner provided above when due;

(ii) payment of the full amount of such principal and interest at all such specified offices outside the United States is illegal or effectively precluded by exchange controls or other similar restrictions on the full payment or receipt of principal and interest in Dollars; and

(iii) such payment is then permitted under United States law without involving, in the opinion of the Issuer, adverse tax consequences to the Issuer.

If the date of presentation of any Capital Note is not a Payment Business Day (as defined below), then the relevant Holder shall not be entitled to payment of the amount until the next following Payment Business Day and shall not be entitled to any further interest or other payment in respect of such delay.

8. Redemption and purchase

(a) Redemption at or following the Expected Maturity Date

Each Capital Note will become due and payable on the Expected Maturity Date relating to such Capital Note and shall (subject as provided herein) be redeemed by the Issuer at the Redemption Amount specified in the applicable Pricing Supplement together with accrued interest.

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If on an Interest Payment Date on or after the Expected Maturity Date of a Capital Note either the Issuer has insufficient funds to redeem such Capital Note in full (after allowing for the payment by the Issuer of all Prior Ranking Obligations ranking in priority to the relevant Class of Capital Notes due and payable on that date, and taking into account the order of interest priority in Condition 5(b) and the Redemption Priority (as defined in Condition 8(c)) and any restriction on payments (including those in Conditions 5(f) and 8(b)) due to the then operating state of the Issuer) or the Conditions to Redemption set out in Condition 8(b) (the “Conditions to Redemption”) are not satisfied in respect of such Capital Note, the redemption of such Capital Note shall be deferred (and the Capital Note shall remain outstanding) until the next following Interest Payment Date upon which sufficient funds are available and the Conditions to Redemption are satisfied in respect of such Capital Note.

(b) Conditions to Redemption

(i) If the Issuer is in Normal Operations, the Issuer shall redeem Capital Notes in accordance with the Redemption Priority, but only to the extent that such redemption would not cause:

(A) a breach of any Capital Test;

(B) a Restricted Investments Event;

(C) a Restricted Funding Event; or

(D) an Enforcement Event,

and, in the event that any such Capital Notes are not redeemed in accordance with this paragraph (b)(i), the provisions of paragraph (b)(ii) below shall apply to such Capital Notes.

(ii) If the Issuer is in Restricted Investments or is unable to redeem certain Capital Notes under paragraph (b)(i) above, the Issuer may not redeem such Capital Notes which are due and payable solely pursuant to Condition 8(d) and/or 8(e)(i) and shall only redeem Capital Notes which are then due and payable pursuant to Condition 8(a) in accordance with the Redemption Priority, but only to the extent that such redemption would not cause a Restricted Funding Event or an Enforcement Event and that:

(A) the redemption of such Capital Notes would prevent the occurrence of a Euro Capital Note Event of Default which would otherwise arise due to a Capital Note (other than any Junior Capital Note) not being redeemed on its Legal Maturity Date;

(B) following such redemption, the only cause of the Issuer (regardless of any applicable cure period) being in a period of Restricted Investments would be a failure to redeem Capital Notes Outstanding by their Expected Maturity Date and/or a breach of the Capital Note Maturity Test;

(C) the result of such redemption would enable the Issuer to return to Normal Operations; or

(D) all outstanding Prior Ranking Obligations ranking in priority to the relevant Class of Capital Notes have been paid and/or provisioned for in full,

and, in the event that any Capital Notes are not redeemed in accordance with this paragraph (b)(ii), the redemption of such Capital Notes shall be deferred.

(iii) If the Issuer is in Restricted Funding or an Enforcement Event has occurred, the provisions of Condition 8(f) or, as the case may be, Condition 8(g), shall apply.

Failure by the Issuer (1) to redeem any of the Capital Notes, other than Junior Capital Notes, at their Legal Maturity Date will constitute a Euro Capital Note Event of Default and (2) to redeem any of the Capital Notes at

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their Expected Maturity Date will, after the expiry of any applicable cure period as agreed with the Rating Agencies from time to time, constitute a Restricted Investments Event.

In determining whether the Conditions to Redemption have been satisfied in respect of any Capital Note, such determination will be made assuming the prior redemption of all Capital Notes at a more senior position in the Redemption Priority (and taking into consideration the effect of such redemption on, inter alia, the Capital Tests).

If the Conditions to Redemption are not met for the full amount due and payable relating to Capital Notes at a certain position in the Redemption Priority, none of such relevant Capital Notes at that position in the Redemption Priority shall be redeemed.

(c) Redemption Priority

Where any Capital Notes are to be redeemed pursuant to Condition 8(a), 8(d) or 8(e)(i), the Conditions to Redemption shall be considered in accordance with the following priority (the “Redemption Priority”) and subject to the Conditions to Redemption being satisfied in respect of each Capital Note, the Capital Notes then due and payable shall be redeemed from available funds in accordance with the Redemption Priority:

(A) first, all Senior Capital Notes at their Legal Maturity Date;

(B) secondly, all Mezzanine Capital Notes at their Legal Maturity Date;

(C) thirdly, all Senior Capital Notes prior to their Legal Maturity Date, but on or following their Expected Maturity Date, in Legal Maturity Date order (starting from the earliest to mature);

(D) fourthly, all Mezzanine Capital Notes prior to their Legal Maturity Date, but on or following their Expected Maturity Date, in Legal Maturity Date order (starting from the earliest to mature);

(E) fifthly, the Junior Capital Notes on or following their Expected Maturity Date in Legal Maturity Date order (starting from the earliest to mature);

(F) sixthly, all Senior Capital Notes prior to their Expected Maturity Date but on or following their Put Payment Date in their Put Payment Date order (starting from the earliest to be redeemed);

(G) seventhly, all Mezzanine Capital Notes prior to their Expected Maturity Date but on or following their Put Payment Date in their Put Payment Date order (starting from the earliest to be redeemed);

(H) eighthly, all Junior Capital Notes prior to their Expected Maturity Date but on or following their Put Payment Date in their Put Payment Date order (starting from the earliest to be redeemed);

(I) ninthly, all Senior Capital Notes prior to their Expected Maturity Date and any Put Payment Date but on or following their Issuer Call Option Date in their Issuer Call Option Date order (starting from the earliest to be redeemed);

(J) tenthly, all Mezzanine Capital Notes prior to their Expected Maturity Date and any Put Payment Date but on or following their Issuer Call Option Date in their Issuer Call Option Date order (starting from the earliest to be redeemed); and

(K) eleventhly, all Junior Capital Notes prior to their Expected Maturity Date and any Put Payment Date but on or following their Issuer Call Option Date in their Issuer Call Option Date order (starting from the earliest to be redeemed).

Where Capital Notes appear in exactly the same position in the Redemption Priority taking into consideration, inter alia, their Class and their Legal Maturity Date (for Capital Notes at or following their Expected Maturity Date), their Put Payment Date (for Capital Notes prior to their Expected Maturity Date but on or following their Put Payment Date) or their Issuer Call Option Date (for Capital Notes prior to their Expected Maturity Date or

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Put Payment Date), they shall be treated as comprising a single Capital Note solely for the purposes of determining whether the Conditions to Redemption have been satisfied.

(d) Redemption at the option of the Capital Noteholders

(i) Put Option Redemption Right

If so specified in the applicable Pricing Supplement, and subject as specified in the sixth paragraph of Condition 1(a) and to any required deferral of payment as specified in these Terms and Conditions, each Capital Note shall become due and payable for the purposes of, and subject to, Conditions 8(b) and 8(c) and may be redeemed in such amounts and on (or following, in the case of deferral as described in the following paragraph) such Interest Payment Dates as are specified in the applicable Pricing Supplement (provided that such redemption may not be made within a period of 2 years from the Issue Date of such Capital Note, except upon the occurrence of an “extraordinary event” for the purposes of Rule 203(b)(3)-2 under the United States Investment Advisers Act of 1940, as amended), by the Holder thereof giving to the Issuer and the Principal Paying Agent such notice as is specified in the applicable Pricing Supplement.

If a Capital Note which is scheduled to be redeemed on its Put Payment Date in accordance with this Condition 8(d) is not redeemed as a result of either the Issuer having insufficient funds to effect such redemption or the Conditions to Redemption set out in Condition 8(b) not being satisfied in respect of such Capital Note, the redemption of such Capital Note shall be deferred (and such Capital Note shall remain outstanding) until the next following Interest Payment Date on which funds are available therefor and the Conditions to Redemption are satisfied in respect of such Capital Note. If such Capital Note has not been redeemed at the Expected Maturity Date of such Capital Note, the redemption provisions of Condition 8(a) shall apply in priority to this Condition 8(d).

Where the applicable Pricing Supplement specifies a Maximum Redemption Amount in connection with any optional redemption pursuant to this Condition 8(d), to the extent that the Issuer receives Investor Redemption Notices (as defined in sub-paragraph (ii) below) in respect of the relevant Series of Capital Notes which together specify an aggregate principal amount exceeding the aggregate Maximum Redemption Amount of such Series, then the principal amount of each of such Capital Notes so redeemed on the relevant Interest Payment Date shall be reduced on a pro rata basis accordingly so that the aggregate principal amount of the Capital Notes of the relevant Series redeemed on such Interest Payment Date shall equal the Maximum Redemption Amount.

The amount payable upon redemption of a Capital Note (or, where specified in the applicable Pricing Supplement, part thereof) pursuant to this Condition 8(d) shall be the Put Redemption Amount (as specified in the applicable Pricing Supplement), together with accrued interest for such Capital Note or, as the case may be, such part thereof being redeemed on the relevant Interest Payment Date.

(ii) Exercise of Redemption Option

To exercise the right to require redemption of a Capital Note pursuant to sub-paragraph (i) above, the Holder of such Capital Note must deliver, at the specified offices of the Calculation Agent and the Principal Paying Agent at any time during normal business hours falling within the notice period, a duly completed and signed notice of exercise in the form (for the time being current and substantially in the form as set out in the Agency Agreement) obtainable from the specified office of the Principal Paying Agent (an “Investor Redemption Notice”) and (if the Capital Note (other than an Underlying Capital Note) is represented by a Global Capital Note) Block (as defined below) such Capital Note or (if the Capital Note is in

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definitive form) deliver such Capital Note (together, in the case of Bearer Capital Notes, in definitive form with all unmatured Coupons appertaining thereto) to the Principal Paying Agent outside the United States (or, in the case of the Registered Capital Notes, to the Registrar) with the Investor Redemption Notice.

Any Investor Redemption Notice given by a Holder of any Capital Note pursuant to this paragraph may not be revoked.

As used in these Conditions, “Block” means that the relevant Capital Noteholder irrevocably blocks the relevant Capital Note in Euroclear or Clearstream, Luxembourg to the order of the Principal Paying Agent and gives to Euroclear or Clearstream, Luxembourg all appropriate authorisations and instructions to enable such Capital Note to be cancelled and exchanged into a Capital Note of the relevant new Series.

(iii) Conditions to exercise of Capital Noteholder redemption option

No Investor Redemption Notice may be given during a period of Restricted Investments or Restricted Funding or after the occurrence of an Enforcement Event, as the case may be.

(e) Redemption at the option of the Issuer

(i) Issuer Call Option

If so specified in the applicable Pricing Supplement, and subject to any required deferral of payment as specified in these Terms and Conditions, the Issuer may, upon not less than 30 nor more than 60 days’ notice to the Capital Noteholders in accordance with Condition 16 (which notice shall be irrevocable and shall specify the date fixed for redemption) and to the Security Trustee, declare any Capital Notes, and such Capital Notes shall thereby become, due and payable for the purposes of Condition 8(b) and 8(c), in whole or in part, at their Issuer Call Option Redemption Amount together with accrued interest for such Capital Notes or, as the case may be, such part thereof being redeemed, on the relevant Interest Payment Date on the next following applicable Issuer Call Option Date(s) specified in the applicable Pricing Supplement.

If a Capital Note which is scheduled to be redeemed on an Interest Payment Date in accordance with this Condition 8(e)(i) is not redeemed as a result of either the Issuer having insufficient funds to effect such redemption or the Conditions to Redemption set out in Condition 8(b) not being satisfied in respect of such Capital Note, the redemption of such Capital Note shall be deferred (and such Capital Note shall remain outstanding) until the next following Interest Payment Date on which funds are available therefor and the Conditions to Redemption are satisfied in respect of such Capital Note. If such Capital Note has not been redeemed at the Expected Maturity Date of such Capital Note, the redemption provisions of Condition 8(a) shall apply in priority to this Condition 8(e)(i).

(ii) Clean Up Redemption Option

Subject to the payment in full of all Secured Obligations on or prior to the date of the proposed redemption of the Capital Notes pursuant to this Condition 8(e)(ii), if the aggregate principal amount of Capital Notes Outstanding on any Profit Distribution Date is or will be less than U.S.$100 million (or the Fixed Dollar Equivalent Nominal Amount thereof) the Issuer may, upon not less than 30 nor more than 60 days’ notice to the Capital Noteholders in accordance with Condition 16 (which notice shall be irrevocable and shall specify the date fixed for redemption) and to the Security Trustee, redeem all, but not some only, of the Capital Notes Outstanding at their Redemption Amount together with interest accrued to the date of redemption.

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(f) Restricted Funding or Enforcement Early Redemption

The Issuer shall:

(i) for so long as it is in a period of Restricted Funding or after the occurrence of an Enforcement Event (but prior to the occurrence of an Insolvency Event); and

(ii) subject to, and with effect from the date of, the payment in full of and/or provision for all Prior Ranking Obligations in respect of the relevant Class of Capital Notes,

be obliged to redeem all of the Capital Notes Outstanding of such Class (regardless of whether or not the Expected Maturity Date of any Capital Notes within that Class has occurred), at their outstanding Redemption Amounts together with interest accrued to the date of redemption. Any such redemption shall be effected in whole or in part (provided that any redemption in part shall not affect the Issuer’s obligation to redeem the remaining part of such Capital Notes) on the next following (and, if necessary, each subsequent) Interest Payment Date which is (or would be, were it not for the fact that the relevant Profit Distribution Date was not a Currency Business Day) a Profit Distribution Date by the Issuer giving not less than 30 nor more than 60 days’ notice (which notice may be given prior to, but subject to, the redemption condition set out in subparagraph (ii) above) to the Security Trustee or Receiver (as the case may be), the Principal Paying Agent and, in accordance with Condition 16, the relevant Capital Noteholders (which notice shall be irrevocable).

Prior to the occurrence of an Enforcement Event, any redemption by the Issuer in accordance with this Condition 8(f) shall be made in the following order (and in all cases subject to the redemption condition in sub-paragraph (ii) above relating to that Class of Capital Notes):

(a) firstly, in satisfaction of all Fixed Interest, Deferred Interest, Additional Interest and all outstanding Redemption Amounts to the Senior Capital Noteholders in respect of Senior Capital Notes Outstanding pari passu and in proportion to the amounts due and payable;

(b) secondly, in satisfaction of all Fixed Interest, Deferred Interest, Additional Interest and all outstanding Redemption Amounts to the Mezzanine Capital Noteholders in respect of Mezzanine Capital Notes Outstanding pari passu and in proportion to the amounts due and payable; and

(c) thirdly, in satisfaction of all Fixed Interest, Deferred Interest, Additional Interest and all outstanding Redemption Amounts to the Junior Capital Noteholders in respect of Junior Capital Notes Outstanding pari passu and in proportion to the amounts due and payable.

Following the occurrence of an Enforcement Event (but prior to the occurrence of an Insolvency Event), any redemption by the Issuer in accordance with this Condition 8(f) shall in all cases be made in accordance with the Payment Priority.

(g) Insolvency Event Early Redemption

Upon the occurrence of an Insolvency Event, all Secured Obligations (including the Capital Notes) shall become immediately due and payable. In particular, if the Security Trustee delivers to the Issuer an Insolvency Event Notice, and regardless of whether or not the Expected Maturity Date of any Capital Notes Outstanding has occurred, the Issuer shall be obliged immediately to redeem the Capital Notes in accordance with the Payment Priority at their respective Redemption Amounts, together with interest accrued to the date of redemption.

(h) Redemption for Taxation Reasons

Subject to the Issuer being able to make payment in full of all Secured Obligations on or prior to the date of the proposed redemption of the Capital Notes pursuant to this Condition 8(h) and electing to do so, the Issuer shall, in so doing, redeem all Capital Notes Outstanding in whole, but not in part, and regardless of whether or not the Expected Maturity Date of any Capital Notes has occurred, by giving not less than 30 nor more than 60 days’ notice (which notice may be given prior to, but subject to, the redemption condition set out immediately above) to the Principal Paying Agent, the Security Trustee and, in accordance with Condition 16, the Capital

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Noteholders (which notice shall be irrevocable), at their respective Redemption Amounts together with interest accrued to the date of redemption if either (i)(A) the Issuer has or will become obliged to make any payment of principal, premium, if any, or interest (including discount) in respect of the Capital Notes and the Coupons (if any) subject to any withholding or deduction for or on account of any present or future taxes or duties of whatever nature imposed or levied by or on behalf of Ireland or any political subdivision or any authority thereof or therein having power to tax and (B) the Issuer has used reasonable endeavours, pursuant to its obligations under Condition 14, to find a substitute issuer or to change its domicile or residence and is unable to do so or (ii) the U.S. Capital Notes Issuer has or will become obliged to make any payment of principal, premium, if any, or interest (including discount) in respect of the U.S. Capital Notes subject to any withholding or deduction for or on account of any present or future taxes or duties of whatever nature imposed or levied by or on behalf of the United States or any political subdivision or any authority thereof or therein having power to tax; provided that no notice of such redemption may be given by the Issuer earlier than 90 days prior to the earliest date on which the Issuer or, as the case may be, the U.S. Capital Notes Issuer would be obliged to make a payment in respect of the Capital Notes or, as the case may be, the U.S. Capital Notes subject to such withholding or deduction were such payment then due.

(i) Purchase

Provided that the Issuer is in Normal Operations and there are no Capital Notes Outstanding the redemption of which has been delayed pursuant to Condition 8(b) or otherwise with Rating Agency Approval, the Issuer may, at any time, in agreement with the relevant Holder of such Capital Note, purchase Capital Notes (provided that, in the case of definitive Bearer Capital Notes, all unmatured Coupons appertaining thereto are purchased therewith) in any manner and at any price, provided also that such purchase does not cause (i) the Issuer (regardless of any applicable cure periods) to enter Restricted Investments or Restricted Funding or (ii) an Enforcement Event. If purchases are made by tender, tender offers must be made available to all Capital Noteholders of the relevant Class or Classes.

(j) Cancellation

All Capital Notes which are redeemed shall be cancelled (together with, in the case of definitive Bearer Capital Notes, all unmatured Coupons appertaining thereto), but without prejudice to the Issuer’s rights under Condition 18 to issue further Capital Notes. All Capital Notes which are purchased by the Issuer may, at the option of the Issuer, be cancelled (together with, in the case of definitive Bearer Capital Notes, all unmatured Coupons appertaining thereto), held, resold or reissued, provided that any such Capital Notes that are resold or reissued shall be treated as new Capital Notes requiring (except in the case of Underlying Capital Notes) new certifications of beneficial ownership, as described in Condition 1(a).

9. Expected Maturity Date

The provisions of Condition 9(a), 9(b) or 9(c), as the case may be, shall apply depending upon the Maturity Type of the Capital Note as specified in the applicable Pricing Supplement.

(a) Fixed Maturity Capital Notes

The Expected Maturity Date of each Capital Note issued as a Fixed Maturity Capital Note shall be specified in the applicable Pricing Supplement.

(b) Automatic Rolling Maturity Capital Notes

Each Automatic Rolling Maturity Capital Note shall, on issue, have an initial Expected Maturity Date as specified in the applicable Pricing Supplement and which initial Expected Maturity Date shall be at least two years from the Issue Date of such Automatic Rolling Maturity Capital Note. On each Interest Payment Date, the Expected Maturity Date of an Automatic Rolling Maturity Capital Note shall be automatically extended to the Interest Payment Date following the existing Expected Maturity Date unless either the relevant Capital Noteholder elects (in respect only of his Automatic Rolling Maturity Capital Note and subject as specified in the

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sixth paragraph of Condition 1(a)) to stop the extension on such Automatic Rolling Maturity Capital Note or the then Expected Maturity Date of such Automatic Rolling Maturity Capital Note reaches the Automatic Rolling Maturity Maximum Expected Maturity Date in respect thereof, at which point no further extension of the Expected Maturity Date may occur. To stop the extension, the Capital Noteholder must give to the Calculation Agent and the Principal Paying Agent at least 10 Business Days (or such other period as the Issuer may agree) prior to the relevant Interest Payment Date, a duly completed and signed notice of determination of the maturity in the form (for the time being current and substantially in the form as set out in the Agency Agreement) obtainable from the specified office of the Principal Paying Agent (a “Maturity Determination Notice”) and (if the Automatic Rolling Maturity Capital Note (other than Underlying Capital Notes) is represented by a Global Capital Note) Block (as defined in Condition 8(b)(iii)) such Automatic Rolling Maturity Capital Note or (if the Automatic Rolling Maturity Capital Note is in definitive form) deliver such Automatic Rolling Maturity Capital Note (together, in the case of Bearer Capital Notes in definitive form, with all unmatured Coupons appertaining thereto) to the Principal Paying Agent (or, in the case of the Registered Capital Notes, to the Registrar) with the Maturity Determination Notice.

(c) Optional Rolling Maturity Capital Notes

Each Optional Rolling Maturity Capital Note shall, on issue, have an initial Expected Maturity Date as specified in the applicable Pricing Supplement. On each Interest Payment Date, the Capital Noteholder shall have the option, in respect only of his Optional Rolling Maturity Capital Note and in accordance with this Condition 9(c), to extend the Expected Maturity Date of an Optional Rolling Maturity Capital Note to the Interest Payment Date following the existing Expected Maturity Date up to the Optional Rolling Maturity Maximum Expected Maturity Date (subject as specified in the sixth paragraph of Condition 1(a)). To exercise such option, the Capital Noteholder must (i) give to the Calculation Agent and the Principal Paying Agent at least 10 Business Days (or such other period as the Issuer may agree) prior to the relevant Interest Payment Date, a duly completed and signed notice of extension in the form (for the time being current and substantially in the form as set out in the Agency Agreement) obtainable from the specified office of the Principal Paying Agent (a “Maturity Extension Notice”), (ii) (other than in the case of Underlying Capital Notes) provide the certification of beneficial ownership described in Condition 1(a) and (iii) (if the Optional Rolling Maturity Capital Note (other than Underlying Capital Notes) is represented by a Global Capital Note) Block such Optional Rolling Maturity Capital Note or (if the Optional Rolling Maturity Capital Note is in definitive form) deliver such Optional Rolling Maturity Capital Note (together, in the case of Bearer Capital Notes in definitive form, with all unmatured Coupons appertaining thereto) to the Principal Paying Agent (or, in the case of the Registered Capital Notes, to the Registrar) with the Maturity Extension Notice. A determination of extension pursuant to this Condition 9(c) may not be revoked. If, at any time, the Capital Noteholder fails to exercise its option to extend the Expected Maturity Date in accordance with this Condition 9(c), the option will lapse and no further extension of the Expected Maturity Date may occur.

10. Prescription

The Capital Notes and the Coupons will become void unless presented for payment within a period of 12 years (in the case of principal) and six years (in the case of interest) from the due date of payment.

There shall not be included in any Coupon sheet issued on exchange of a Talon any Coupon the claim for payment in respect of which would be void pursuant to this Condition or Condition 7(b) or any Talon which would be void pursuant to Condition 7(b).

11. Limited Recourse and Limitation of Action

The Issuer’s obligation to make payment to its Secured Creditors (including the Capital Noteholders) is limited to amounts received by it in respect of its assets which, following the occurrence of an Enforcement Event, will be applied pursuant to the Payment Priority. Accordingly, to the extent that such amounts are not sufficient to meet the claims of any Capital Noteholders following the occurrence of an Enforcement Event, such claims will not be paid and will be extinguished and no recourse in connection therewith may be had against the Issuer or

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against any incorporator, shareholder, member, director, manager, officer, advisor, administrator or employee of the Issuer or any of the Affiliates of the Issuer.

Without prejudice to the preceding paragraph, if the Issuer issues any Series of Capital Notes, the return of which is linked to a designated Sub-Portfolio pursuant to Condition 18(b), the Issuer’s obligation to make payment to the Capital Noteholders in respect of such Series may be limited (in whole or in part) to the relevant Sub-Portfolio and no further recourse in connection therewith may be had against the Issuer.

No Capital Noteholder shall, until the expiry of two years and one day after all sums outstanding and owing by the Issuer (whether contingently or otherwise) in respect of all Secured Obligations have been paid or discharged in full, take, or join in, any corporate action or other steps or legal proceedings for the winding-up, examinership, dissolution or re-organisation of the Issuer or for the appointment of a receiver, administrator, administrative receiver, trustee, liquidator, examiner, sequestrator or similar officer of the Issuer or of any or all of the Issuer’s revenues and assets or any analogous proceedings in any jurisdiction.

The Holder of a Capital Note shall not have any right to repayment of all or part of the outstanding principal amount of the Capital Note or to any interest thereon, except in accordance with Conditions 5 and 8.

12. Replacement of Capital Notes, Coupons and Talons

Should any Capital Note, Coupon or Talon be lost, stolen, mutilated, defaced or destroyed, it may be replaced at the specified office of the Principal Paying Agent outside the United States (or, in the case of Registered Capital Notes, at the specified office of the Registrar) upon payment by the claimant of such costs and expenses as may be incurred in connection therewith and on such terms as to evidence, indemnity and/or security as the Issuer may reasonably require. Mutilated or defaced Capital Notes, Coupons or Talons must be surrendered outside the United States before replacements will be issued.

13. Agents

The names of the initial Principal Paying Agent, the other initial Paying Agents, the initial Calculation Agent and their initial specified offices are set out below.

The Issuer is entitled to vary or terminate the appointment of any Paying Agent and/or appoint additional or other Paying Agents and/or approve any change in the specified office through which any Paying Agent acts, provided that:

(i) there will at all times be a principal paying agent and a calculation agent and, after issuance of Registered Capital Notes, a registrar;

(ii) so long as the Capital Notes are listed on any stock exchange or admitted to listing by any other relevant authority, there will at all times be a Paying Agent with a specified office in such place as may be required by the rules and regulations of the relevant stock exchange or other relevant authority;

(iii) it will ensure that it maintains a Paying Agent in a Member State of the European Union that is not obliged to withhold or deduct tax pursuant to European Council Directive 2003/48/EC or any law implementing or complying with, or introduced in order to conform to, such Directive;

(iv) there will at all times be a Paying Agent in a jurisdiction within continental Europe, other than the jurisdiction in which the Issuer is incorporated; and

(v) save in the circumstances described in Condition 7(e) and except with regard to the Underlying Capital Notes, all Paying Agents and their specified offices are outside the United States.

In addition, the Issuer shall forthwith appoint a Paying Agent having a specified office in New York City in the circumstances described in Condition 7(e). Any variation, termination, appointment or change in a Paying Agent

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shall only take effect (other than in the case of insolvency, when it shall be of immediate effect) after not less than 30 nor more than 45 days’ prior notice thereof shall have been given to the Capital Noteholders in accordance with Condition 16.

In acting under the Agency Agreement, the Paying Agents and the Calculation Agent act solely as agents of the Issuer and do not assume any obligation to, or relationship of agency or trust with, any Capital Noteholders or Couponholders. The Agency Agreement contains provisions permitting any entity into which any Paying Agent or Calculation Agent is merged or converted or with which it is consolidated or to which it transfers all or substantially all of its assets to become the successor paying agent or calculation agent (as the case may be).

14. Taxation

All payments of principal, premium, if any, and interest (including discount) in respect of the Capital Notes and Coupons by the Issuer will be made without withholding or deduction for or on account of any present or future taxes or duties of whatever nature imposed or levied by or on behalf of Ireland or any political subdivision or any authority thereof or therein having power to tax unless such withholding or deduction is required by law. In such event (i) all payments of principal, premium, if any, and interest in respect of the Capital Notes and Coupons will be made net of such withholding taxes and without the Issuer being obliged to pay additional amounts thereof and (ii) the Issuer may, in accordance with Condition 8(h) redeem the Capital Notes, in whole but not in part, at their Redemption Amount together with interest accrued to the date of redemption.

Subject as provided below, in the event the Issuer satisfies the Principal Paying Agent that it has or will on the occasion of the next payment due in respect of the Capital Notes of any Class become obliged by any applicable law to withhold or deduct for or on account of or would suffer additional taxation in respect of its income imposed by any jurisdiction as a result of any change in, amendments or additions to, any applicable laws or regulations of Ireland or any other jurisdiction so that it would be unable to make payment of the full amount that would otherwise be due but for the imposition of such tax due, the Issuer (with the consent of the Principal Paying Agent and save as provided below) shall use all reasonable endeavours to arrange for the substitution of a company incorporated in another jurisdiction approved by the Principal Paying Agent as the principal obligor under the Capital Notes of such Class, or to change its domicile or residence for taxation purposes to another jurisdiction approved by the Principal Paying Agent, subject to (i) Rating Agency Approval in respect of any such substitution or change of domicile or residence (subject to receipt of such information and/or opinions as the Rating Agencies may require) with respect to such substitution or change; (ii) an opinion of nationally recognised tax counsel that such substitution or change of domicile or residence will not have a material adverse effect on the U.S. federal income tax or characterisation of the Issuer or the U.S. Capital Notes Issuer; and (iii) the Issuer determining that such substitution or change shall not prejudice the interests of any Class of Capital Notes, and if it so determines that it is prejudicial to the interests of other Classes of Capital Notes, such other Classes may also be subject to substitution or change, provided that the Issuer determines that the combined substitutions or changes of the Classes taken together shall not prejudice the interests of any Class of Capital Notes, in accordance with this Condition 14.

Notwithstanding the above, if any taxes, duties or charges of whatever nature arise:

(a) due to the connection of any Capital Noteholder with Ireland otherwise than by reason only of the holding any Capital Note or receiving principal or interest in respect thereof; or

(b) by reason of failure by the relevant Capital Noteholder to comply with any applicable procedures required to establish non-residence or other similar claim for exemption from such tax; or

(c) in respect of payment to an individual which is required to be made pursuant to European Council Directive 2003/48/EC or any law implementing or complying with, or introduced in order to conform to, such Directive; or

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(d) as a result of presentation for payment by or on behalf of a Capital Noteholder who would have been able to avoid such withholding or deduction by presenting the relevant Capital Note to another Paying Agent in a Member State of the European Union,

the requirement to arrange for the substitution of the Issuer as principal obligor and/or the change of domicile or residence of the Issuer for taxation purposes shall not apply.

15. Exchange of Talons

On and after the Interest Payment Date on which the final Coupon comprised in any Coupon sheet matures, the Talon (if any) forming part of such Coupon sheet may be surrendered at the specified office of a Paying Agent in exchange for a further Coupon sheet including (if such further Coupon sheet does not include Coupons to (and including) the final date for the payment of interest due in respect of the Capital Note to which it appertains) a further Talon, in each case outside the United States and subject to the provisions of Condition 10.

16. Notices

All notices regarding the Bearer Capital Notes will be deemed to be validly given if published (i) in a leading English language daily newspaper of general circulation in London and (ii) if and for so long as the Capital Notes are listed on the Irish Stock Exchange, in a daily newspaper of general circulation in Ireland. The Issuer shall also ensure that notices are duly published in a manner which complies with the rules and regulations of any stock exchange (or any other relevant authority) on which the Capital Notes are for the time being listed or by which they have been admitted to listing. Any such notice will be deemed to have been given on the date of the first publication or, where required to be published in more than one newspaper, on the date of the first publication in all required newspapers.

Unless any definitive Capital Notes are issued, there may (provided that, in the case of Capital Notes listed on a stock exchange, such stock exchange agrees), so long as any Global Capital Notes representing the Capital Notes are held in their entirety on behalf of Euroclear and/or Clearstream, Luxembourg or, in the case of Capital Notes which are Underlying Capital Notes, the U.S. Capital Notes Issuer, be substituted for such publication in such newspaper(s), the delivery of the relevant notice to Euroclear and/or Clearstream, Luxembourg, (for communication by them to the Holders of the Capital Notes), or, as the case may be, the U.S. Capital Notes Issuer and, in addition, for so long as any Capital Notes are listed on a stock exchange or are admitted to listing by another relevant authority and the rules of that stock exchange or other relevant authority so require, such notice will be published in a daily newspaper of general circulation in the place or places required by that stock exchange. Any such notice shall be deemed to have been given to the Holders of the Capital Notes on the same day on which the said notice was given to Euroclear and/or Clearstream, Luxembourg.

Notwithstanding the foregoing, all notices to the Holders of Underlying Capital Notes will be deemed to be validly given if delivered to the U.S. Capital Notes Issuer or such other Holder of such Underlying Capital Notes from time to time.

Notices to be given by any Capital Noteholder shall be in writing and given by lodging the same, together (in the case of any Capital Note in definitive form) with the relative Capital Note or Capital Notes, with the Principal Paying Agent. Whilst any of the Capital Notes are represented by a Global Capital Note, such notice may be given by any Holder of a Capital Note to the Principal Paying Agent through Euroclear and/or Clearstream, Luxembourg, as the case may be, in such manner as the Principal Paying Agent and Euroclear and/or Clearstream, Luxembourg, as the case may be, may approve for this purpose. The Issuer and the Principal Paying Agent shall be entitled to rely on any such notice purporting to be given on behalf of the relevant Capital Noteholder without being obliged to check its validity or authenticity or the authority of any person purporting to sign or otherwise give it on behalf of such Capital Noteholder.

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17. Meetings of Capital Noteholders and Modifications

(a) Meetings of Holders of Capital Notes of a Class

(i) The Agency Agreement contains provisions for convening meetings of the Holders of each Class of Capital Notes to consider the sanctioning by Extraordinary Resolution of a modification of the Capital Notes or any related provisions of the Agency Agreement or the Deed of Covenant. Such a meeting may be convened by the Principal Paying Agent (on behalf of the Issuer) or Capital Noteholders holding not less than 25 per cent. in principal amount outstanding of the Capital Notes of each Class. A resolution passed at any such meeting shall be binding on all the Holders of the relevant Class of Capital Notes, whether or not they are present at the meeting.

(ii) Any Extraordinary Resolution of the Capital Noteholders of any Class shall only be effective provided that the terms thereof shall not adversely affect the then current ratings of the Rated Notes. The Rating Agencies shall be notified of any Extraordinary Resolutions put to Capital Noteholders.

(iii) An Extraordinary Resolution to sanction a modification of these Conditions or the provisions of any of the relevant documents or a waiver or authorisation of any breach or proposed breach of any of these Conditions or the provisions of any of the relevant documents will not take effect unless it is sanctioned by an Extraordinary Resolution of each of the Senior Capital Noteholders, the Mezzanine Capital Noteholders and the Junior Capital Noteholders.

(iv) Subject to paragraphs (ii) and (iii) above, an Extraordinary Resolution passed at a meeting of the Senior Capital Noteholders shall be binding on all Senior Capital Noteholders, Mezzanine Capital Noteholders and Junior Capital Noteholders irrespective of the effect upon them.

(v) Subject to paragraphs (ii), (iii) and (iv) above, an Extraordinary Resolution passed at a meeting of the Mezzanine Capital Noteholders shall be binding on all Mezzanine Capital Noteholders and Junior Capital Noteholders irrespective of the effect upon them.

(b) Meetings of Holders of Capital Notes Outstanding to direct the Share Trustees

If the Issuer proposes amending the Memorandum or Articles of Association of the Issuer (other than a change in its name or in respect of the number and remuneration of directors) or requires the Share Trustees to take any other action which under the Share Trustee’s Deed of Covenant (the “Share Trustee’s Deed of Covenant”) cannot be approved by the Share Trustees as principal shareholders of the Issuer without a Directing Resolution (as defined below) and the Rating Agencies have confirmed that their ratings of the Rated Notes would not be affected by such proposed amendments or action, the Issuer (or its agent) shall notify the Principal Paying Agent. The Principal Paying Agent (on behalf of the Issuer) shall convene a meeting of the Holders of each Class of Capital Notes Outstanding as soon as reasonably practicable in accordance with the provisions of the Agency Agreement. The business of each such meeting shall be to consider whether such amendment should be made, or such other action should be taken, by the Issuer by the consideration of a resolution to direct the Share Trustees to vote in favour of such amendment or action (a “Directing Resolution”).

Pursuant to the Share Trustee’s Deed of Covenant, the Share Trustees shall cast their votes in favour of the amendment or other action (where such amendment or other action requires approval by an ordinary resolution) if the Directing Resolutions are passed as a Combined Ordinary Resolution or (where such amendment or other action requires approval by a special resolution) if the Directing Resolutions are passed as a Combined Special Resolution, but otherwise the Share Trustees shall vote against such amendment or other action.

The Principal Paying Agent shall notify the Share Trustees immediately of the result of any business conducted at such meetings. The Share Trustees will only be bound to act in accordance with votes cast on Directing Resolutions considered at meetings of the Holders of each Class of the Capital Notes Outstanding as aforesaid (and subject to being indemnified to its reasonable satisfaction in respect of all liabilities which it may incur in

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so acting). A Directing Resolution passed at any such meeting(s) (or, as the case may be, the voting thereon) shall be binding on all the Capital Noteholders of the relevant Class, whether or not they are present at the relevant meeting, and on all Couponholders.

(c) Other modifications

The Principal Paying Agent, the Security Trustee and the Issuer may agree, without the consent of the Capital Noteholders or the Couponholders, to any modification of the Capital Notes, the Coupons, the Agency Agreement or the Deed of Covenant which is of a formal, minor or technical nature or is made to correct a manifest error, to comply with mandatory provisions of the law of the jurisdiction in which the Issuer is incorporated or to enable the Capital Notes to be listed by any listing authority, provided (in each case) that such modification shall not adversely affect the then current ratings of the Rated Notes.

Any such modification shall be binding on the Capital Noteholders and any such modification shall be notified to the Capital Noteholders and the Rating Agencies in accordance with Condition 16 as soon as practicable thereafter.

18. Further Issues and Ring-fenced Issues

(a) Further issues

The Issuer may from time to time, without the consent of the Capital Noteholders, create and issue further Capital Notes either (i) so as to be consolidated and form a single Series with the existing Capital Notes of any Class or (ii) to form a new Series of any Class upon such terms as to interest, premium, redemption and otherwise as the Issuer may, in its absolute discretion, at the time of the issue thereof determine; provided that:

(i) no Enforcement Event has occurred;

(ii) all Capital Tests are satisfied following such issuance, or, if any Capital Tests were not satisfied immediately prior to such issuance, the non-compliance of each such Capital Test which was not satisfied immediately prior to such issuance shall not be worsened following such issuance; and

(iii) confirmation is received from the Rating Agencies that there will be no adverse change to the credit rating of any of the existing Rated Notes as a result of such issue.

(b) Ring-fenced issues

The Issuer may, from time to time, without the consent of the Capital Noteholders, create and issue a Series of Capital Notes the return of which is linked to a designated Sub-Portfolio provided that, inter alia:

(i) no Restricted Investments Event, Restricted Funding Event or Enforcement Event has occurred;

(ii) all Capital Tests are satisfied following such issuance, or, if any Capital Tests were not satisfied immediately prior to such issuance, the non-compliance of each such Capital Test which was not satisfied immediately prior to such issuance shall not be worsened following such issuance; and

(iii) confirmation is received from the Rating Agencies that there will be no adverse change to the credit rating of any of the existing Rated Notes as a result of such issue.

19. Contracts (Rights of Third Parties) Act 1999

No rights are conferred on any person under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Capital Note, but this does not affect any right or remedy of any person which exists or is available apart from that Act.

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20. Governing Law and Submission to Jurisdiction

(a) Governing law

The Agency Agreement, the Deed of Covenant, the Security Trust Deed and the Capital Notes are governed by, and shall be construed in accordance with, English law.

(b) Submission to jurisdiction

The Issuer agrees, for the exclusive benefit of the Capital Noteholders and the Couponholders, that the courts of England are to have jurisdiction to settle any disputes which may arise out of or in connection with the Capital Notes and/or the Coupons and that accordingly any suit, action or proceedings (together referred to as “Proceedings”) arising out of or in connection with the Capital Notes and the Coupons may be brought in such courts.

The Issuer hereby irrevocably waives any objection which it may have now or hereafter to the laying of the venue of any such Proceedings in any such court and any claim that any such Proceedings have been brought in an inconvenient forum and hereby further irrevocably agrees that a judgment in any such Proceedings brought in the English courts shall be conclusive and binding upon it and may be enforced in the courts of any other jurisdiction.

Nothing contained in this Condition shall limit any right to take Proceedings against the Issuer in any other court of competent jurisdiction, nor shall the taking of Proceedings in one or more jurisdictions preclude the taking of Proceedings in any other jurisdiction, whether concurrently or not.

(c) Appointment of process agent

The Issuer appoints Ogier Corporate Services (UK) Limited at its registered office for the time being as its agent for service of process, and undertakes that, in the event of Ogier Corporate Services (UK) Limited ceasing so to act or ceasing to be registered in England, it will appoint another person as its agent for service of process in England in respect of any Proceedings. Nothing herein shall affect the right to serve proceedings in any other manner permitted by law.

(d) Other documents

The Issuer has in the Agency Agreement, the Security Trust Deed and the Deed of Covenant submitted to the jurisdiction of the English courts and appointed an agent for service of process in terms substantially similar to those set out above.

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PRICING SUPPLEMENT FOR CAPITAL NOTES

Set out below is the form of Pricing Supplement which will comprise the details of the final terms of, and will be completed for, each Tranche of Capital Notes (other than Combination Capital Notes) issued pursuant to the Capital Note Programme and which constitutes “Final Terms” for the purposes of the Prospectus Directive.

[Date]

Cheyne Finance PLC Issue of [Aggregate Nominal Amount of Tranche] [Title of Capital Notes] Capital Notes

under the Capital Note Programme of up to U.S.$3,000,000,000

This document constitutes the Pricing Supplement relating to the final terms of the issue of the Tranche of Capital Notes described herein and constitutes “Final Terms” for the purposes of the Prospectus Directive. Terms used herein shall be deemed to be defined as such for the purposes of the Conditions set forth in the Information Memorandum dated 29th July, 2005. This Pricing Supplement must be read in conjunction with such Information Memorandum.

[Include whichever of the following apply or specify as “Not Applicable” (N/A). Note that the numbering should remain as set out below, even if “Not Applicable” is indicated for individual paragraphs or sub-paragraphs. Italics denote directions for completing the Pricing Supplement.]

[When completing any final terms or adding any other final terms or information, consideration should be given as to whether such terms or information would constitute "significant new factors” and consequently would trigger the need for a supplement to the Information Memorandum under Article 16 of the Prospectus Directive.]

1. Issuer: Cheyne Finance PLC

2. (i) Class: [Senior / Mezzanine / Junior Capital Notes]

(ii) Series and Tranche Number: [ ]

(if fungible with an existing Series, details of that Series, including the date on which the Capital Notes become fungible)

3. Specified Currency: [ ]

4. (i) Fixed Exchange Rate: [ ]

(ii) Applicable Exchange Rate: [ ]

5. Number of Votes per Specified Denomination (Fractions being Disregarded):

[ ]

6. Aggregate Nominal Amount: [ ]

– Tranche Issued: [ ]

7. Issue Price: [ ] per cent. [plus accrued interest from [insert date] (in the case of fungible issues only, if applicable)] The Capital Notes may be placed by the Placement Agent(s) to purchasers in individually negotiated transactions at varying prices. In addition a discount may be applied to the Issue Price.

8. Specified Denominations: [ ] (subject to a minimum of U.S.$250,000 or the equivalent thereof in the Specified Currency)

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9. (i) Issue Date of this Tranche: [ ]

(ii) Interest Commencement Date (if different from Issue Date of this Series):

[Not Applicable/[insert date]]

10. (i) Maturity Type: [Fixed Maturity Capital Note/Automatic Rolling Maturity Capital Note/Optional Rolling Maturity Capital Note]

(ii) Expected Maturity Date: [Not Applicable/[insert date]]

(iii) Automatic Rolling Maturity Maximum Expected Maturity Date:


(iv) Optional Rolling Maturity Maximum Expected Maturity Date:


(v) Legal Maturity Date: [Interest Payment Date in [insert date]/ Interest Payment Date following [interest period] after the Expected Maturity Date [(such Expected Maturity Date as amended in accordance with the provision of Condition [9(b)/9(c)])/[insert date]]

(For the avoidance of doubt, no Capital Note shall have an Expected Maturity Date which falls less than one year after the Issue Date of such Capital Note.)

LISTING

11. (i) Listing: [Ireland/None/specify other]

(ii) Listing Agent: [ ]

PROVISIONS RELATING TO INTEREST (IF ANY) PAYABLE

12. (i) Interest Payment Dates: [ ] in each year [(or, if any such day is not a Currency Business Day, the next following Currency Business Day)] (to include Profit Distribution Dates (ignoring any Business Day adjustment))

(ii) Party Responsible for Calculating the Rate of Interest and Interest Amount (if not the Calculation Agent):

[Not Applicable/give details]

(iii) Benchmark Rate: [ ]

(iv) ISDA Determination: [Not Applicable/Applicable]

? Floating Rate Option: [ ]

? Designated Maturity: [ ]

? Reset Date: [ ]

(v) Screen Rate Determination: [Not Applicable/Applicable]

? Reference Rate: [ ]

(Either LIBOR, EURIBOR or other, although additional information is required if other – including fallback provisions in the Agency Agreement)

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? Interest Determination Date(s):

[ ]

(Second London Business Day prior to the start of each Interest Accrual Period if LIBOR (other than Sterling or euro LIBOR), first day of each Interest Accrual Period if Sterling LIBOR and the second day on which the TARGET System is open prior to the start of each Interest Accrual Period if EURIBOR or euro LIBOR)

? Relevant Screen Page: [ ]

(In the case of EURIBOR, if not Telerate Page 248 ensure it is a page which shows a composite rate or amend the fallback provisions appropriately)

(vi) Fallback provisions, rounding provisions and any other terms relating to the method of calculating the Benchmark Rate, if different from those set out in the Conditions:

[ ]

(vii) Fixed Margin: [Not Applicable/[ ] per cent.]

(viii) Fixed Margin Schedule: [Not Applicable/give details]

(ix) Day Count Fraction: [ ]

(x) Distribution Rate (for calculation of Variable Margin):

[Not Applicable/[ ] per cent.]

(xi) Distribution Rate Schedule (for calculation of Variable Margin):

[Not Applicable/give details]

PROVISIONS RELATING TO REDEMPTION

13. Redemption Amount: [Outstanding principal amount/insert amount]

14. Issuer Call Option: [Not Applicable/Applicable]

(i) Issuer Call Option Date(s): [(a) in whole on the Interest Payment Date in [insert date] and each [insert details] Interest Payment Date thereafter or (b) in part on [insert schedule]]

(ii) Issuer Call Option Redemption Amount:

[Outstanding principal amount/[insert amount]]

15. Put Option: [Not Applicable/Applicable]

(i) Put Option Dates: [(a) Exercisable in whole on the Interest Payment Date in [insert date] [and each Interest Payment Date in [insert details] thereafter] or (b) in part on [insert schedule]]

(ii) Put Option Notice Period: [Not Applicable/give details]

(iii) Put Redemption Amount: [Lower of Investor Redemption Net Asset Value and outstanding principal amount/ Outstanding principal amount/give details]

(iv) Put Redemption Schedule: [Not Applicable/give details of Interest Payment

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Dates and proportion of the relevant Capital Notes to be redeemed]

(v) Maximum Redemption Amount: [Not Applicable/[ ] per cent. of Tranche/ Series]

GENERAL PROVISIONS APPLICABLE TO THE CAPITAL NOTES

16. Form of Global Note on issue: [Temporary/Permanent]

17. Talons for Future Coupons to be Attached to Definitive Capital Notes (and dates on which such Talons mature):

[Yes/No. If yes, give details]

18. Other Terms or Special Conditions: [Not Applicable/give details]

DISTRIBUTION

19. Name of relevant Placement Agent(s): [ ]

20. Additional Selling Restrictions: [Not Applicable/give details]

21. Stabilising Manager [Not Applicable/Placement Agent/other]

OPERATIONAL INFORMATION

22. Delivery: Delivery [against/free of] payment

23. Additional Paying Agent(s) (if any): [ ]

24. (i) ISIN: [ ]

(ii) Common Code: [ ]

25. Details of additional/alternative clearing systems:

[ ]

26. Rating on Issue Date: [ ]

LISTING APPLICATION

This Pricing Supplement comprises the details required to list the issue of [title and amount] Capital Notes described herein pursuant to the listing of the U.S.$3,000,000,000 Capital Note Programme of Cheyne Finance PLC.

RESPONSIBILITY

The Issuer accepts responsibility for the information contained in this Pricing Supplement.

Signed on behalf of the Issuer:

By...................................... Duly authorised

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PRICING SUPPLEMENT FOR COMBINATION CAPITAL NOTES

Set out below is the form of Pricing Supplement which will comprise the details of the final terms of, and will be completed for, each Tranche of Combination Capital Notes issued pursuant to the Capital Notes Programme and which and constitutes “Final Terms” for the purposes of the Prospectus Directive.

[Date]

Cheyne Finance PLC Issue of [Aggregate Nominal Amount of Tranche] Combination Capital Notes

under the Capital Note Programme of up to U.S.$3,000,000,000

This document constitutes the Pricing Supplement relating to the final terms of the issue of the Tranche of Combination Capital Notes described herein and constitutes “Final Terms” for the purposes of the Prospectus Directive. Terms used herein shall be deemed to be defined as such for the purposes of the Conditions set forth in the Information Memorandum dated 29th July, 2005. This Pricing Supplement must be read in conjunction with such Information Memorandum, together with the Pricing Supplements relating to the relevant Capital Note Components.

[Include whichever of the following apply or specify as “Not Applicable” (N/A). Note that the numbering should remain as set out below, even if “Not Applicable” is indicated for individual paragraphs or sub-paragraphs. Italics denote directions for completing the Pricing Supplement.]

[N.B. Unless otherwise agreed with the Rating Agencies, all Capital Note Components comprising this Combination Capital Note must have identical terms relating to their maturity.]

1. Issuer: Cheyne Finance PLC

2. (i) Class: Combination Capital Notes


(if fungible with an existing Series, details of that Series, including the date on which the Notes become fungible)

3. Capital Note Components:

(i) Class: [Senior/Mezzanine/Junior Capital Notes]






4. Combination Capital Note Ratio: [expressed as follows – Senior Capital Notes: Mezzanine Capital Notes: Junior Capital Notes]

5. Issue Price: [ ] per cent. [plus accrued interest from [insert date] (in the case of fungible issues only, if applicable)] The Capital Notes may be placed by the Placement Agent(s) to purchasers in individually negotiated transactions at varying prices. In addition a discount may be applied to the Issue Price.

6. Specified Denominations: [ ] (this to be the aggregate of the denominations of the relevant Capital Note Components)

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7. Issue Date of this Tranche: [ ]

LISTING

8. Listing in addition to Capital Note Components

[Ireland/None/specify other]

GENERAL PROVISIONS APPLICABLE TO THE CAPITAL NOTES

9. Other Terms or Special Conditions: [Not Applicable/give details]

DISTRIBUTION

10. Name of relevant Placement Agent(s): [ ]

11. Additional selling restrictions: [Not Applicable/give details]

OPERATIONAL INFORMATION

12. Delivery: Delivery [against/free of] payment

13. Additional Paying Agent(s) [ ]

14. (i) ISIN: [ ]

(ii) Common Code: [ ]

15. Rating on Issue Date: [ ]

LISTING APPLICATION

This Pricing Supplement comprises the details required to list the issue of the Tranche of Combination Capital Notes described herein pursuant to the listing of the U.S.$3,000,000,000 Capital Note Programme of Cheyne Finance PLC.

RESPONSIBILITY

The Issuer accepts responsibility for the information contained in this Pricing Supplement.

Signed on behalf of the Issuer:

By.................................. Duly authorised

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USE OF PROCEEDS

The net proceeds from the initial issuance of the Euro Notes will be applied by the Issuer (i) in the acquisition of Investments and otherwise for the purposes of its business as described in “The Issuer’s Business” below and (ii) in meeting the payment of the initial upfront costs of establishing the Issuer, the U.S. Capital Notes Issuer and Cheyne Finance LLC. Thereafter, the net proceeds from each subsequent issuance of the Euro Notes will be applied by the Issuer (i) in the acquisition of Investments and otherwise for the purposes of its business as described in “The Issuer’s Business” below and (iii) in the payment of the ongoing costs and expenses of the Issuer, the U.S. Capital Notes Issuer and Cheyne Finance LLC.

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DESCRIPTION OF THE ISSUER

The Issuer was incorporated and registered on 4th November, 2004 under The Companies Acts 1963 to 2003 of Ireland (the “Companies Law”) as a company with limited liability having registered number 393262 and being domiciled at, and having its registered office at, 2nd Floor, 11-12 Warrington Place, Dublin 2, Ireland (with telephone number +353 1 66 44 700). The Issuer converted to a public limited company on 14th June 2005. The Issuer is a special purpose vehicle which was established for the limited purpose of carrying on business as an investment company, issuing asset-backed securities (including the Capital Notes), with no limitation on its corporate duration. The Issuer has two wholly-owned subsidiaries: Cheyne Finance Capital Notes LLC (the “U.S. Capital Notes Issuer”), a limited liability company organised under the laws of the State of Delaware, and Cheyne Finance LLC, a limited liability company organised under the laws of the State of Delaware. The sole business of the U.S. Capital Notes Issuer is the purchase of Capital Notes from the Issuer and the issuance of U.S. Capital Notes in the United States of America, and the sole business of Cheyne Finance LLC is the purchase of Euro Senior Notes from the Issuer and the issuance of U.S. Senior Notes in the United States of America. The Issuer has no other subsidiaries.

Corporate Objectives

Clause 2 of the Memorandum of Association of the Issuer describes the principal objects of the Issuer. Amongst other things, the principal objects are to carry on the business of financing and refinancing assets (including, without limitation, financing and refinancing of financial assets) with or without security in whatever currency and to acquire or enter into by purchase, lease, hire or otherwise and to sell or hire or otherwise deal in financial assets or instruments (including, without limitation, debentures, debenture stock, bonds, notes, euro bonds, swaps and hedges of any kind whatsoever (including, without limitation, credit default, interest rate and currency swaps and hedges)) and to do all of the foregoing as principal, agent or broker and to carry on the business of purchasing, acquiring, holding, collecting, discounting, negotiating, managing, selling, disposing of and otherwise trading or dealing directly or indirectly in real or personal property of whatsoever nature, to exercise and enforce all rights and powers conferred by or incidental to the ownership or holding of any of the foregoing or of any legal or equitable interest therein including, without limitation, the enforcement of any security interest in relation thereto.

The Issuer currently has no intention to make any material change to the above corporate objectives. The Issuer has entered into the Security Trust Deed for the benefit of the Secured Creditors, which contains further restrictions on the activities of the Issuer. For a description of the investment policy to be followed by the Issuer in pursuit of the objectives, see “The Issuer’s Business”. The Issuer currently has no intention to carry on any business other than that set out in this section (“Description of the Issuer”) or the section “The Issuer’s Business” (or any related activities). In addition, in order to preserve the Top Ratings relating to the Euro Senior Notes (to which the Capital Notes are subordinated) and the U.S. Senior Notes, and to maintain the ratings assigned to the Capital Notes (if any) and the U.S. Capital Notes (if any) on their respective issue dates, restrictions on the operation of the Issuer’s business have been agreed with the Rating Agencies (see “Ratings” below for more detail).

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CAPITALISATION AND INDEBTEDNESS

The authorised share capital of the Issuer is €100,000 divided into 100,000 ordinary shares of a nominal value of €1.00 each. The issued and paid-up share capital as at 29th July, 2005 is €38,100. The issued shares are held by Eurydice Charitable Trust Limited, Badb Charitable Trust Limited and Medb Charitable Trust Limited (each a “Share Trustee” and together the “Share Trustees”) and four nominee shareholders (the “Nominee Shareholders”) as per the table below.

Share Trustees No. of Shares Owned

Badb Charitable Trust Limited 30 Herbert Street Dublin 2 Ireland

12,698

Eurydice Charitable Trust Limited 30 Herbert Street Dublin 2 Ireland

12,699

Medb Charitable Trust Limited 30 Herbert Street Dublin 2 Ireland

12,699

Nominee Shareholders No. of Shares Owned

Patrick Molloy Solicitor 30 Herbert Street Dublin 2 Ireland

1

Anthony Walsh Solicitor 30 Herbert Street Dublin 2 Ireland

1

Garry Ferguson Solicitor 30 Herbert Street Dublin 2 Ireland

1

Petrina Smyth Solicitor 30 Herbert Street Dublin 2 Ireland

1

The Nominee Shareholders hold one share each on trust for the Share Trustees under the terms of the declarations of trust dated 20th June, 2005. The Share Trustees are charitable trust companies incorporated under the laws of Ireland as companies limited by guarantee. The Nominee Shareholders will share in any profits of the Issuer and will apply any income derived by them from the Issuer solely for charitable purposes.

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Interest Payments and Distributions

Subject to the Terms and Conditions of the Capital Notes and any applicable Pricing Supplement, the Issuer intends to make interest payments on each Capital Note no less frequently than quarterly in accordance with the terms and conditions of the Capital Notes.

The Issuer may accumulate surpluses or make distributions, at its discretion. To the extent that the Issuer has Distributable Profits, Profit Distribution Dates with respect thereto are expected to occur on a quarterly basis. The ordinary shares have no dividend rights.

Save for the security created under or in accordance with the Security Trust Deed, the Issuer has as at the date hereof created no other mortgages or charges over its assets or revenues and is not otherwise permitted to create any security interests.

Winding-up

On a winding-up, the repayment of each Class of Capital Notes will be subordinated to the repayment of all Prior Ranking Obligations of the Issuer ranking in priority to that Class. The Holders of the Capital Notes will be paid out of any remaining proceeds of the Issuer after the application of proceeds in satisfaction of all such other creditors.

Administrative and Management Board

The Directors of the Issuer are:

Function Material Outside Interests Christopher Byrne Director Partner in Law Firm Brian Buckley Director Director Kenneth Naughton Director Financial Accountant

The business address of the head office of the Issuer is:

2nd Floor 11-12 Warrington Place Dublin 2 Ireland Telephone number: +353 1 66 44 700

The business address of each of the Directors of the Issuer is as follows:

1. Whiteley Chambers, Don Street, St Helier, Jersey, JE4 9WG, Channel Islands in respect of Christopher Byrne.

2. 2nd Floor, 11-12 Warrington Place, Dublin 2, Ireland in respect of Brian Buckley and Kenneth Naughton.

The following is a brief description of each Director’s experience:

Christopher Byrne is a partner of Ogier & Le Masurier, which is associated with the Ogier Group Partnership, the ultimate parent of Ogier SPV Services Limited, the secretary and corporate services provider to the Issuer.

Brian Buckley is a Fellow of the Institute of Chartered Accountants in Ireland (F.C.A.), is a director of a number of other entities, and has worked in the financial industry since 1993.

Kenneth Naughton is a graduate of the Chartered Association of Certified Accountants in Ireland (F.C.C.A.), is a director of a number of other entities, and has worked in the finance industry since 1992.

Auditors

The Issuer has appointed KPMG (Chartered Accountants and Registered Auditors) as its auditors.

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Financial Statements

The Issuer’s financial year end is 31st March. The Issuer will prepare and publish audited financial statements annually but no interim financial statements will be prepared. Since the date of its incorporation, save for entering into certain warehousing and ancillary agreements in anticipation of obtaining funding pursuant to the Transaction Documents, the Issuer has not commenced operations and no accounts have been made up as of the date of this Information Memorandum.

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THE MANAGER

Cheyne Capital Management Limited (“CCML” or the “Manager”) is a London-based investment manager which is authorised and regulated by the Financial Services Authority. As at the date of this Information Memorandum, CCML employs over 110 people and is located at Stornoway House, 13 Cleveland Row, London SW1A 1DH. The board of directors of CCML consists of Jonathan Lourie, Stuart Fiertz (the co-founders), Gary Ibbot, Lord George Weidenfeld (non-executive chairman) and Michael Lewis (a non-executive director).

Pursuant to the Management Agreement, CCML has appointed Cheyne Capital International Limited (“CCIL”) as its Manager Delegate to perform, at CCML’s discretion, certain obligations under the Management Agreement. CCIL is incorporated in Bermuda and its board of directors consists of Hugh Lowenstein (executive chairman), Paul Brooke and Richard Pearman.

CCML specialises in convertible bonds, credit and asset-backed securities, equities and event-driven investing. CCML is a European investment manager whose principal clients include pension funds, foundations, family offices and funds-of-funds. As of 31 May 2005, gross assets under management totalled approximately U.S.$24 billion. CCML acts as the investment manager of Cheyne Investment Grade CDOs I, 2, 3 and 4, Craft CLO I, Cheyne Mezzanine CDO I, Cheyne ABS High Grade CDO I, Cheyne CLO Investments I and various offshore funds, including the Cheyne Fund, the Cheyne Long/Short Structured Credit Fund and the Cheyne Structured Solutions Fund.

As at the date of this Information Memorandum, the structured finance team at CCML manages a U.S.$1 billion ABS portfolio for Cheyne High Grade ABS CDO Ltd, a U.S.$300 million portfolio of collateralised loan obligations for Cheyne CLO Investments I Limited and other ABS portfolios totalling approximately U.S.$348 million in the Cheyne Structured Solutions Fund and other funds managed by CCML. In addition, as at 25th July, 2005, the structured finance team manages a portfolio of approximately U.S.$2.9 billion of highly-rated ABS securities for the Issuer.

The Manager’s Role

Pursuant to the Management Agreement, the Manager has undertaken, inter alia, to provide funding management services to the Issuer, the U.S. Capital Notes Issuer and Cheyne Finance LLC, and to provide investment management services to the Issuer, including advising in respect of capital adequacy and currency, interest rate and liquidity risks associated with the Portfolio, all as more fully set out in the section entitled “The Issuer’s Business” below.

Termination of Appointment of and Substitution of the Manager

The Manager’s appointment will terminate upon the earliest of:

(a) the date on which the Secured Obligations and the U.S. Secured Obligations have been paid in full;

(b) the date on which a Substitute Manager assumes the position of Manager;

(c) the appointment of a Receiver under the Security Trust Deed;

(d) a Breach by the Manager (upon the expiry, where applicable, of a 30-day cure period) of: (i) any of the Investment Purchase Criteria, the Portfolio Parameter Tests, the Funding Restrictions, the Restricted Investment Restrictions, the Restricted Funding Restrictions, the Restricted Funding Additional Guidelines (as the same may be amended from time to time with the consent of the Rating Agencies) and certain other obligations relating to the Manager’s funding and investment management role, (ii) where the Issuer is in Normal Operations or Restricted Investments, any of the Liquidity Tests or (iii) any of its other material obligations under the Management Agreement;

(e) any proceedings being initiated against the Manager under any applicable liquidation, insolvency, composition, reorganisation or similar laws; or

(f) a failure by the Manager to maintain minimum levels of tangible net worth in an amount and for such a period as may be agreed between the Manager and the Rating Agencies.

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If any of the events described in (d) through (f) above occurs, QSR shall act as Emergency Back-Up Manager until a Substitute Manager is appointed. If the Issuer is in Normal Operations or Restricted Investments, the Emergency Back-Up Manager will use all reasonable efforts to operate under the Restricted Investments Restrictions. If the Issuer is in Restricted Funding, the Emergency Back-Up Manager will use all reasonable efforts to operate under the Restricted Funding Restrictions.

The Issuer is required to use all reasonable efforts to appoint a Substitute Manager, with the prior consent of Morgan Stanley (such consent not to be unreasonably withheld or delayed), upon the occurrence of the events set forth immediately above. The Issuer may also, with the prior consent of Morgan Stanley (such consent not to be unreasonably withheld or delayed), appoint a Substitute Manager in the event of a Breach by the Manager of certain of its other covenants or representations in the Management Agreement.

The Substitute Manager may not assume the position of Manager until (i) the person that the Issuer proposes to appoint as Substitute Manager has agreed to assume the duties and obligations of the Manager (including, without limitation, to be bound by the terms of all Transaction Documents to which the Manager is a party), (ii) the Issuer, the U.S. Capital Notes Issuer and Cheyne Finance LLC have approved such person's appointment and the terms of such appointment (such approval not to be unreasonably withheld or delayed), (iii) the Rating Agencies have confirmed in writing that such appointment will not adversely affect the then current ratings of the Rated Notes and (iv) such person has obtained all necessary consents, licences, approvals and authorisations required under law to perform its obligations as Substitute Manager.

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THE ADMINISTRATOR

QSR Management Limited (“QSR” or the “Administrator”) is a UK-based, wholly-owned subsidiary of The Bank of New York. QSR provides third-party administrative services to the structured investment vehicle (“SIV”) and asset-backed commercial paper market. QSR was established in August 2002, when The Bank of New York acquired part of the business of Quadrant Capital Limited. QSR intends to provide certain operational and technology support services to the Issuer, the U.S. Capital Notes Issuer and Cheyne Finance LLC. QSR is authorised and regulated for the conduct of its business in the United Kingdom by the Financial Services Authority.

The Administrator’s Role

Pursuant to the Administrative Advisory Services Agreement, the Issuer, the U.S. Capital Notes Issuer and Cheyne Finance LLC have each appointed the Administrator to provide certain operational and technology support services for and on behalf of the Issuer, the U.S. Capital Notes Issuer and Cheyne Finance LLC, as appropriate, in connection with a variety of transactions including:

(a) the acquisition, administration and disposal of Investments that may be made by the Issuer from time to time, in each case as selected by the Manager and notified by the Manager to the Administrator from time to time;

(b) the issuance, sale and payment of the Euro Notes and the U.S. Notes;

(c) the entering into of Hedge Agreements, Repo Agreements (including any Synthetic Portfolio Transaction) and Securities Lending Agreements;

(d) the entering into of Liquidity Arrangements and the making of drawdowns thereunder;

(e) the implementation and administration of the Transaction Documents; and

(f) related operations and activities of the Issuer, the U.S. Capital Notes Issuer and Cheyne Finance LLC.

In addition, the Administrative Advisory Services Agreement sets out more specific duties of the Administrator with regard to the Issuer including, without limitation:

(a) providing access to the Manager, and developing upgrades, to its proprietary computer applications for risk management and reporting;

(b) performing all calculations and determinations required of it or the Issuer under any agreement relating to the operations of the Issuer to which it or the Issuer is a party;

(c) preparing monthly investment reports for distribution by the Issuer to, inter alios, the Rating Agencies, the Senior Note Dealers, the Capital Note Placement Agents and the Holders of the Euro Notes and the U.S. Notes;

(d) arranging for, and managing, audits of the Issuer’s annual financial accounts ;

(e) arranging for the preparation of draft monthly management accounts containing a balance sheet, income statement and cashflow statement for final approval by the Issuer;

(f) preparing and serving, sending or delivering, as the case may be, all notices required to be prepared and served, sent or delivered by or on behalf of the Issuer under the Transaction Documents;

(g) furnishing such information, notices, certificates, opinions and other documents upon request to, inter alios, the Issuer, the Security Trustee, the Holders of the Euro Notes and the U.S. Notes, the Rating Agencies or any authorised representative of any of the foregoing in connection with, among other things, the covenants and agreements undertaken by the Issuer in certain Transaction Documents, as well as other information, certificates, opinions and other documents as may be reasonably requested from time to time;

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(h) assisting the Issuer in connection with the settlement of each issuance of Euro Senior Notes and Capital Notes, the settlement of each redemption of Euro Senior Notes and Capital Notes and the settlement upon any interest payment date of the Euro Senior Notes and Capital Notes;

(i) assisting the Issuer in connection with purchases, sales and loans of Investments, and the entry into of certain Securities Lending Agreements, Repo Agreements, Committed Repo Agreements, Hedge Agreements and Investment Derivative Contracts, in each case based upon the instructions of the Manager;

(j) identifying certain Short-Term Investments for purchase, sale or lending, or for use in repurchase arrangements, in each case provided that the Manager or the Issuer decides which such transactions shall take place and the terms of such transaction;

(k) establishing and maintaining on behalf of the Issuer with the Custodian or any Eligible Bank, such accounts in such currencies as the Issuer may reasonably require and taking such action on behalf of the Issuer in connection with the Global Custody Agreement as the Issuer may reasonably require;

(l) assisting the Issuer in (i) liaising with the Euro Paying Agents, Euro Senior Note Dealers and Euro Capital Note Placement Agents, (ii) helping to appoint the trustees, fiscal agents paying agents and any replacement Custodian and (iii) aiding in the repurchase of Euro Senior Notes and Capital Notes issued by the Issuer; and

(m) taking any action it considers necessary to maintain the ratings assigned to the Rated Notes by the Rating Agencies (including monitoring compliance with all relevant tests and reporting the extent to which such tests are in compliance to the Issuer and the Manager).

In addition, the Administrative Advisory Services Agreement provides that in the event of the termination of the Manager's appointment under the Management Agreement, the Administrator will act as the Emergency Back-up Manager. In this capacity, the Administrator agrees that, until a Substitute Manager is appointed under the Management Agreement, it will provide various investment management and funding services to the Issuer as set out in the Administrative Advisory Services Agreement, including, inter alia, investing any excess cash of the Issuer in Risk-Free Investments, arranging for the issuance by the Issuer of Euro MTNs and Euro CP and using all reasonable efforts to ensure that the Issuer does not fail any of the Capital Tests, the Market Sensitivity Tests, the Liquidity Tests or the Weighted Average Life of Funding Test.

The Administrator will be bound by certain funding conditions as set out in the Management Agreement. If the Issuer is in a period of Normal Operations or Restricted Investments, the Administrator shall use all reasonable efforts to operate under the Restricted Investments Restrictions. If the Issuer is in a period of Restricted Funding, the Administrator shall use all reasonable efforts to operate under the Restricted Funding Restrictions as set out in the "The Issuer's Business".

The Administrator will also perform certain similar duties on behalf of the U.S. Capital Notes Issuer and Cheyne Finance LLC as appropriate.

QSR acts solely as the agent of the Issuer, the U.S. Capital Notes Issuer and Cheyne Finance LLC pursuant to the terms of the Administrative Advisory Services Agreement.

Term, Termination of Appointment and Substitution of the Administrator

The Administrator’s appointment will terminate upon the earliest of:

(a) any change in any law, regulation or interpretation applicable to the Administrator rendering the performance of the Administrator’s obligations under the Administrative Advisory Services Agreement illegal or uneconomic over the medium or long term (provided that the Administrator has made all commercially reasonable actions to mitigate the effect of such a change);

(b) the date on which both the Secured Obligations and the U.S. Secured Obligations have been paid in full; or

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(c) the appointment of a Receiver under the Security Trust Deed.

Each of the Administrator, the Issuer, the U.S. Capital Notes Issuer and Cheyne Finance LLC has the right to terminate the Administrative Advisory Services Agreement on the third anniversary of the date on which the Administrative Advisory Services Agreement was signed. In the event that the Administrative Advisory Services Agreement is not terminated on its third anniversary, then it will automatically renew for a further six month term.

Each of the Issuer, the U.S. Capital Notes Issuer and Cheyne Finance LLC may remove the Administrator at any time following the occurrence (subject to a cure period) of certain removal events (which include, among other things, a wilful breach of a material obligation by the Administrator). In addition, each of the Issuer, the U.S. Capital Notes Issuer and Cheyne Finance LLC will have the power to waive any of the removal events.

The Administrator may also resign upon 45 days’ written notice to the Issuer, the U.S. Capital Notes Issuer, Cheyne Finance LLC and the Manager.

Except in relation to (b) or (c) above, no resignation or removal of the Administrator or termination of the Administrative Advisory Services Agreement shall become effective until (i) the appointment of a replacement administrator which assumes the duties and the obligations of the Administrator and (ii) confirmation by the Rating Agencies that such appointment will not result in any adverse action with respect to the then-applicable ratings of the Rated Notes.

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THE SECURITY TRUSTEE

The Bank of New York of One Canada Square, London E14 5AL has been appointed as Security Trustee pursuant to the Security Trust Deed.

The Security Trustee’s Role

Pursuant to the Security Trust Deed, the Security Trustee shall act as security trustee in respect of the security constituted by the Security Trust Deed on behalf of the Secured Creditors of the Issuer. In particular, any moneys received by the Security Trustee or a Receiver after the occurrence of an Enforcement Event will, subject to the payment of any claims having priority to the security constituted by the Security Trust Deed, be applied in accordance with the Payment Priority.

Under the Security Trust Deed, no moneys shall be applied at any point in the Payment Priority unless and until payment for all amounts at a more senior position in the Payment Priority have been discharged, except to the extent that sufficient cash has been realised from the disposal or maturity of the Security Assets to enable all such more senior obligations which are not then due and payable to be discharged as and when they fall due for payment. In respect of the obligations of the Issuer that are fee-related obligations which accrue over time, payment of and/or provision for all such fees which are currently accrued and/or payable at the next date of payment of such fees shall be sufficient to allow for payments to be made to obligations at a more junior level in the Payment Priority. In particular, payments of obligations listed below Senior Expenses in the Payment Priority (which includes payments on the Notes) may be made in accordance with the Payment Priority if the Issuer has made payment of and/or provision for fee-related Senior Expenses which are then accrued and/or payable at the next date of payment of such fees.

Following the occurrence of an Insolvency Event, all Secured Obligations of the Issuer shall become due and payable.

Pursuant to the terms of the Security Trust Deed, the Security Trustee shall ensure that:

(a) if and to the extent that Designated Investments fall to be delivered, sold, posted or otherwise designated as collateral to, or for the benefit of, a Synthetic Counterparty under the terms of a Synthetic Portfolio Transaction in accordance with its terms, such Designated Investments shall be released from the security constituted by the Security Trust Deed and (pending any redelivery or resale of Designated Investments or any release of such collateral to the Issuer) neither such Designated Investments nor the proceeds of liquidation thereof will comprise assets, or, as the case may be, moneys which are available for application by the Security Trustee in accordance with the Payment Priority, subject to any rights of set-off between the Issuer and the Synthetic Counterparty; and

(b) once all amounts payable, or contingently payable, to the Issuer by any Synthetic Counterparty have been paid, any collateral which has been posted or, as the case may be, otherwise designated as collateral by such Synthetic Counterparty in respect of any Synthetic Portfolio Transaction shall be released from the security constituted by the Security Trust Deed and neither such collateral nor the proceeds of liquidation thereof will comprise assets, or, as the case may be, moneys which are available for application by the Security Trustee in accordance with the Payment Priority.

For the avoidance of doubt, upon any redelivery or resale of Designated Investments, or any release of such collateral, to the Issuer, such Designated Investments or collateral will be subject to the security constituted by the Security Trust Deed and will comprise assets, or, as the case may be, moneys which are available for application by the Security Trustee in accordance with the Payment Priority.

Term, termination of appointment and replacement of Security Trustee

The power to appoint a new trustee under the Security Trust Deed is vested in the Issuer. Any appointment of a new trustee under the Security Trust Deed shall only be made if it would not adversely affect the then current ratings of any of the Rated Notes and shall as soon as practicable thereafter be notified by the Issuer to the Manager, the Administrator, the Custodian, the Receivables Trustee, the Euro Paying Agents, the Security Trustee, the Investment Counterparties, the Hedge Counterparties, the Repo Counterparties, the

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Securities Lending Counterparties, the Rating Agencies, the Liquidity Providers (including the Committed Repo Counterparties), the Euro Capital Note Placement Agents, the Euro Senior Note Dealers, Morgan Stanley and Morgan Stanley & Co. Incorporated.

The Security Trustee may retire at any time on giving not less than three months’ prior written notice to the Issuer without giving any reason and without being responsible for any costs, expenses or other liabilities incurred by reason of such retirement. The Issuer undertakes that in the event that the Security Trustee ceases to be a trust corporation, it will use its best endeavours to procure that a new trustee under the Security Trust Deed, being a trust corporation, is appointed as soon as reasonably practicable thereafter. The retirement or removal of any such trustee shall not become effective until a successor trustee being a trust corporation is appointed.

If, in such circumstances, no appointment of such a new trustee has become effective within 60 days of the date of such notice, the Security Trustee shall be entitled to appoint a trust corporation as trustee under the Security Trust Deed, but no such appointment shall take effect unless it has been previously approved by the Holders of the Euro Senior Notes and Capital Notes and the Security Trustee has received Rating Agency Approval in respect thereof.

The Issuer may terminate the appointment of any trustee under the Security Trust Deed if such termination would not adversely affect the then current ratings of any of the Rated Notes.

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THE ISSUER’S BUSINESS

The Issuer invests in a portfolio of Investments and funds its Investments by issuing Capital Notes and notes under a euro medium term note programme established by the Issuer (the “Euro MTN Programme”) and a euro commercial paper programme established by the Issuer (the “Euro CP Programme”), by entering into Repo Transactions and Securities Lending Transactions and, where necessary, by drawing Liquidity Advances and/or entering into Committed Repo Transactions. The Issuer does not propose to carry on any other business than that described in this section entitled “The Issuer’s Business” or the section entitled “Description of the Issuer” and any other related activities.

As set out below in “Ratings”, the Manager manages the Portfolio (as defined below) within strict guidelines in order to preserve the Top Ratings of the Euro Senior Notes (to which the Capital Notes are subordinated) and the U.S. Senior Notes and to maintain the ratings assigned to the Capital Notes (if any) and the U.S. Capital Notes (if any) on their respective Issue Dates.

As set out more fully in the later paragraphs of this section, the Issuer has entered into, or may, at the discretion of the Manager, enter into certain agreements including, inter alia, Securities Lending Agreements, Repo Agreements, Investment Derivative Contracts, Hedge Agreements and Liquidity Arrangements in each case with eligible counterparties in accordance with criteria agreed with the Rating Agencies from time to time. The Issuer has entered into, or may, at the discretion of the Manager, enter into such agreements in order, inter alia, to manage the Portfolio within the parameters of the Investment Purchase Criteria and Compliance Tests and in furtherance of the Funding Objectives and the Investment Objectives, and in connection with this, the Manager shall use all reasonable efforts to ensure that the Senior Notes have Top Ratings and to maintain the ratings assigned to the Capital Notes (if any) and the U.S. Capital Notes (if any) on their respective issue dates.

Funding Objectives

Pursuant to the Management Agreement, the Manager has undertaken to provide funding management services to the Issuer, the U.S. Capital Notes Issuer and Cheyne Finance LLC and to provide the Issuer with management services in respect of capital adequacy and currency, interest rate and liquidity risks associated with the Portfolio. The Manager has undertaken, inter alia, to use reasonable efforts to arrange for the Issuer to issue or enter into Senior Funding and/or Capital Notes and for the U.S. Capital Notes Issuer and Cheyne Finance LLC to issue U.S. Notes so as to enable the Issuer to achieve its funding objectives. The Funding Objectives include:

(a) maximising the diversity of the Issuer’s funding providers, subject to paragraphs (b) to (h) (inclusive) below;

(b) minimising the Issuer’s cost of borrowing, subject to paragraphs (a) above and (c) to (h) (inclusive) below;

(c) managing the interest rate and currency risks associated with the conduct of the Issuer’s business taking into consideration the Market Sensitivity Tests;

(d) managing the liquidity risks associated with the Investment Portfolio taking into consideration the Liquidity Tests;

(e) managing the capital adequacy of the Issuer so as to ensure compliance with the Capital Tests;

(f) complying with the funding limits agreed with the Rating Agencies from time to time (including compliance with the Weighted Average Life of Senior Funding Test);

(g) the issuance by the Issuer of Euro Senior Notes and Capital Notes and the issuance by the U.S. Capital Notes Issuer and Cheyne Finance LLC of U.S. Senior Notes and U.S. Capital Notes; and

(h) redeeming the Senior Funding and/or the Capital Notes and making payments of any interest due and payable in accordance with the respective terms and conditions of, and agreements

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documenting, the Senior Funding and/or the Capital Notes subject to paragraphs (c) to (f) (inclusive) above and, where applicable, in accordance with the applicable procedures upon entering Restricted Investments or Restricted Funding or following the occurrence of an Enforcement Event and any amended procedures as agreed with the Rating Agencies from time to time and in turn, redeeming and making payments of interest in respect of the U.S. Notes by the U.S. Capital Notes Issuer and Cheyne Finance LLC (as applicable).

Funding Restrictions

Notwithstanding the objectives set out in “Funding Objectives” above, the Manager will not arrange for the Issuer, the U.S. Capital Notes Issuer or Cheyne Finance LLC (as applicable) to issue or enter into any Senior Funding (except in relation to paragraph (d) below), U.S. Senior Notes, Capital Notes and U.S. Capital Notes if:

(a) the undertaking by the Issuer of the proposed issuance and the entering into by the Issuer of any related Hedge Agreement would result in:

(i) a breach of the relevant issuance limit under any of the Senior Debt Programmes, the Capital Note Programme or the U.S. Capital Note Program; or

(ii) the maturity date of the relevant Senior Funding and/or Capital Notes occurring after the eightieth anniversary of the Issuer’s entry into the Security Trust Deed;

(b) any Hedge Agreement proposed to be entered into in relation to the proposed issuance is not a Permitted Hedge or fails to meet certain other conditions;

(c) the issuance or entering into of such Senior Funding and/or Capital Notes would be in breach of the Restricted Investments Restrictions or the Restricted Funding Restrictions (where applicable), as described below in “Restricted Investments Restrictions” and “Restricted Funding Restrictions”, respectively;

(d) the issuance of such Capital Notes would lead to a breach of any of the Capital Tests or, if the Issuer is in breach of any of the Capital Tests, the issuance of such Capital Notes would cause such breach to worsen (except, in both cases, with Rating Agency Approval); or

(e) an Enforcement Event has occurred.

Restricted Investments Restrictions

Pursuant to the Management Agreement, the Manager has agreed that it will notify (inter alios) the Security Trustee and the Rating Agencies immediately upon becoming aware of a Restricted Investments Event. If the Manager has given such notification and for so long as (i) the Issuer does not enter Restricted Funding, (ii) no Enforcement Event has occurred with respect to the Issuer and (iii) the Issuer has not cured all existing Restricted Investments Events, the Issuer will be in a period of Restricted Investments. During Restricted Investments (or if any of the following actions would (regardless of any applicable cure periods), give rise to a Restricted Investments Event), in addition to and qualifying the Funding Objectives and Restrictions above and the Specific Investment and Funding Criteria below none of the Issuer, the Manager or CCIL (as applicable) shall:

(a) purchase new Investments unless either (i) the Issuer had committed to purchase such Investment(s) whilst in Normal Operations and prior to the occurrence of the relevant Restricted Investments Event or (ii) such purchase forms part of an Investment Switch;

(b) enter into any new Investment Derivative Contract unless either (i) the Issuer had committed to enter into such Investment Derivative Contract whilst in Normal Operations and prior to the occurrence of the relevant Restricted Investments Event or (ii) such transaction forms part of an Investment Switch;

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(c) redeem any Capital Notes under Condition 8(d) or Condition 8(e)(i) or purchase any Capital Notes under Condition 8(i) of the Terms and Conditions of the Capital Notes;

(d) redeem any Capital Notes under Condition 8(a) of the Terms and Conditions of the Capital Notes unless:

(i) the redemption of such Capital Notes would prevent the occurrence of a Euro Capital Note Event of Default which would otherwise arise due to a Capital Note (other than any Junior Capital Note) not being redeemed on its Legal Maturity Date;

(ii) following such redemption, the only cause of the Issuer being in a period of Restricted Investments (regardless of any applicable cure period) would be a failure to redeem Capital Notes Outstanding by their Expected Maturity Date and/or a breach of the Capital Note Maturity Test;

(iii) the result of such redemption would enable the Issuer to return to Normal Operations; or

(iv) all outstanding Prior Ranking Obligations ranking in priority to the relevant Class of Capital Notes have been paid and/or provisioned for in full,

provided that, if any redemption of Capital Notes is allowed in accordance with the provisions of sub-paragraphs (i), (ii) or (iii) above, such redemption shall be made in accordance with the Conditions to Redemption and the Redemption Priority (as defined in Conditions 8(b) and 8(c) respectively of the Terms and Conditions of the Capital Notes) and more generally in accordance with Condition 8 of the Terms and Conditions of the Capital Notes;

(e) pay any interest on the Junior Capital Notes unless such Junior Capital Notes are being redeemed pursuant to Condition 8(b)(ii) of the Terms and Conditions of the Capital Notes or all outstanding Prior Ranking Obligations have been paid and/or provisioned for in full;

(f) in any circumstances, pay the Variable Margin component of the interest due on any Capital Notes;

(g) pay the Performance Fee;

(h) pay any Euro Mezzanine Capital Notes Subordinated Payments unless the Issuer is (regardless of any applicable cure periods) in Restricted Investments solely as a result of its failure to redeem Capital Notes Outstanding by their Expected Maturity Date and/or as a result of a breach of the Capital Note Maturity Test and such payment shall not lead to the occurrence of a Restricted Investments Event, a Restricted Funding Event or an Enforcement Event (other than solely as a result of any such aforementioned failure or breach, and regardless of any applicable cure period) until all outstanding Prior Ranking Obligations have been paid and/or provisioned for in full; or

(i) pay any Euro Junior Capital Notes Subordinated Payments until all outstanding Prior Ranking Obligations have been paid and/or provisioned for in full.

Restricted Funding Restrictions

Pursuant to the Management Agreement, the Manager has agreed that it will notify (inter alios) the Security Trustee and the Rating Agencies immediately upon becoming aware of a Restricted Funding Event. If the Manager has given such notification and for so long as (i) no Enforcement Event has occurred with respect to the Issuer and (ii) the Issuer has not cured all existing Restricted Funding Events, taking account of terms agreed with the Rating Agencies from time to time which restrict the ability of the Issuer to cure certain Restricted Funding Events, the Issuer will be in a period of Restricted Funding. During Restricted Funding or (to the extent that the Receiver is of the opinion that following such restrictions would not adversely affect the

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interests of the Senior Creditors) if an Enforcement Event has occurred (or if any of the following actions would (regardless of any applicable cure periods) give rise to a Restricted Funding Event or an Enforcement Event), in addition to, and qualifying, the Restricted Investments Restrictions, the Funding Objectives and Funding Restrictions above and the Specific Investment and Funding Criteria below, none of the Issuer, the Manager, CCIL or any Receiver (as applicable) shall:

(a) issue any Euro Senior Notes or enter into any new Repo Transaction or Securities Lending Transaction except to fund the purchase of an Investment which the Issuer had committed to purchase whilst in Normal Operations or Restricted Investments and prior to the occurrence of the relevant Restricted Funding Event;

(b) purchase new Investments except Risk-Free Investments or any other Investments as agreed with the Rating Agencies from time to time for the purposes of improving investment returns on available funds until the Issuer requires such funds to meet the repayment of outstanding Secured Obligations, provided that this restriction on purchase of new Investments shall not apply in the event that the Issuer had committed to purchase such Investment whilst in Normal Operations or Restricted Investments and prior to the occurrence of the relevant Restricted Funding Event;

(c) enter into any new Investment Derivative Contract unless the Issuer had committed to enter into such Investment Derivative Contract whilst in Normal Operations or Restricted Investments and prior to the occurrence of the relevant Restricted Funding Event;

(d) pay any interest on the Capital Notes until all the outstanding Prior Ranking Obligations ranking in priority to the relevant Class of Capital Notes have been paid and/or provisioned for in full;

(e) redeem any Capital Notes until all the outstanding Prior Ranking Obligations ranking in priority to the relevant Class of Capital Notes have been paid and/or provisioned for in full and such Capital Notes are being redeemed in accordance with Condition 8(f) of the Terms and Conditions of the Capital Notes; or

(f) pay any Euro Mezzanine Capital Notes Subordinated Payments until all outstanding Prior Ranking Obligations have been paid and/or provisioned for in full.

Restricted Funding Additional Guidelines

Liquidity Management

Whilst the Issuer is in Restricted Funding or (to the extent the Receiver is of the opinion that following such restrictions would not adversely affect the interests of the Senior Creditors) following the occurrence of an Enforcement Event:

(i) the Issuer shall draw down all undrawn liquidity under the Liquidity Arrangements (including entering into Committed Repo Transactions) to the extent that the Manager (or the Receiver, as applicable) deems it advisable;

(ii) required cash outflows shall be met, where necessary, with the proceeds from sales or terminations (in the case of Investment Derivative Contracts) of Investments (such sale of Investments (excluding Investment Derivative Contracts) taking into consideration the Preferred Order of Sale) or terminations of Hedge Agreements;

(iii) excess cash may be invested in Risk-Free Investments or any other Investments as agreed with the Rating Agencies from time to time for the purpose of improving investment returns on available funds until the Issuer requires such funds to meet the repayment of outstanding Secured Obligations; and

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(iv) Extendible CP shall be extended to its final maturity date to the extent that the Manager (or the Receiver, as applicable) deems advisable.

Credit Risk Management

Whilst the Issuer is in Restricted Funding or (to the extent the Receiver is of the opinion that following such restrictions would not adversely affect the interests of the Senior Creditors) following the occurrence of an Enforcement Event:

(i) the Manager (or the Receiver, as applicable) shall act reasonably in order to reduce exposures to any issuer, guarantor, industry sector or country and generally to reduce the Issuer’s exposure to declining Investment credit quality (but, for the avoidance of doubt, this shall not require the Issuer to dispose of any specific Investment);

(ii) if there is a default in relation to any Investment in the Investment Portfolio, the Manager (or the Receiver, as applicable) shall, as it deems appropriate, use all reasonable efforts to arrange for the sale or termination (in the case of an Investment Derivative Contract) of such Investment and seek to terminate any related Hedge Agreement (without breach thereof);

(iii) if there is an event of default under any of the Issuer’s outstanding Hedge Agreements or any event which would result in the Hedge Counterparty no longer being a Permitted Hedge Counterparty, the Manager shall arrange for replacement Hedge Agreements to be entered into or otherwise act so as to remove any market risk caused by such Hedge Counterparty’s default; and

(iv) each Investment Derivative Contract shall be terminated (a) at any time that the Manager (or the Receiver, as applicable) deems advisable, (b) within a certain period following the earlier to occur of a Restricted Funding Event which is not subsequently cured or an Enforcement Event as specified in the relevant Investment Derivative Contract documentation, (c) on the maturity date of the Investment Derivative Contract or (d) otherwise as outlined in the Investment Derivative Contract documentation.

Enforcement

Upon the occurrence of an Enforcement Event (including an Insolvency Event), the security constituted by the Security Trust Deed shall become immediately enforceable. The Security Trustee has agreed, pursuant to the Security Trust Deed, that it will notify (inter alios) the Issuer, the Manager, Cheyne Finance LLC, the U.S. Capital Notes Issuer and the Rating Agencies as soon as reasonably practicable after it becomes aware of the occurrence of an Enforcement Event. As soon as reasonably practicable after delivery of such notification, the Security Trustee shall without further notice appoint a Qualified Person to be a Receiver of all of the Security Assets. The Receiver will manage the Security Assets and the business of the Issuer with the objective of arranging for timely payment in full of the Issuer’s obligations to the Senior Creditors and any creditors ranking in priority to the Senior Creditors in the Payment Priority and, unless in the opinion of such Receiver the interests of the Senior Creditors and any creditors ranking in priority to the Senior Creditors in the Payment Priority would be adversely affected thereby, the other Secured Creditors, in each case, prior to the occurrence (if any) of an Insolvency Event, as and when they fall due for payment. In so doing, the Receiver will ensure that the business of the Issuer is managed in accordance with the Restricted Funding Restrictions and the Restricted Funding Additional Guidelines described above, to the extent that compliance with the Restricted Funding Restrictions would not, in the opinion of the Receiver, adversely affect the interests of the Senior Creditors and any creditors ranking in priority to the Senior Creditors in the Payment Priority.

Upon the occurrence of an Insolvency Event all Secured Obligations (including the Capital Notes) shall become immediately due and payable.

Any moneys received by the Security Trustee or a Receiver after the occurrence of an Enforcement Event will, subject to the payment of any claims having priority to the security constituted by the Security Trust Deed, be applied in the Payment Priority.

Pursuant to the terms of the Security Trust Deed, the Security Trustee or a Receiver (as appropriate) shall ensure that:

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(i) if and to the extent that Designated Investments fall to be delivered, sold, posted or otherwise designated as collateral to, or for the benefit of, a Synthetic Counterparty under the terms of a Synthetic Portfolio Transaction in accordance with its terms, such Designated Investments shall be released from the security constituted by the Security Trust Deed and (pending any redelivery or resale of Designated Investments or any release of such collateral to the Issuer) neither such Designated Investments nor the proceeds of liquidation thereof will comprise assets, or, as the case may be, moneys which are available for application by the Security Trustee in accordance with the Payment Priority, subject to any rights of set-off between the Issuer and the Synthetic Counterparty; and

(ii) once all amounts payable, or contingently payable, to the Issuer by any Synthetic Counterparty have been paid, any collateral which has been posted or, as the case may be, otherwise designated as collateral by such Synthetic Counterparty in respect of any Synthetic Portfolio Transaction shall be released from the security constituted by the Security Trust Deed and neither such collateral nor the proceeds of liquidation thereof will comprise assets, or, as the case may be, moneys which are available for application by the Security Trustee in accordance with the Payment Priority.

For the avoidance of doubt, upon any redelivery or resale of Designated Investments, or any release of such collateral, to the Issuer, such Designated Investments or collateral will be subject to the security constituted by the Security Trust Deed and will comprise assets, or, as the case may be, moneys which are available for application by the Security Trustee in accordance with the Payment Priority.

Administrative and Advisory Services

Pursuant to the Administrative Advisory Services Agreement, the Issuer, the U.S. Capital Notes Issuer and Cheyne Finance LLC have appointed the Administrator to provide certain operational and technology support services for and on behalf of the Issuer, the U.S. Capital Notes Issuer and Cheyne Finance LLC, as appropriate. For a further description of the services provided by the Administrator under the Administrative Advisory Services Agreement, see the section entitled “The Administrator” above.

Ratings

CP issued under the CP Programmes are expected to receive the following ratings as at the Closing Date:

S&P ................................................................................................................................ A-1+ Moody’s......................................................................................................................... ....... P-1

MTNs issued under the MTN Programmes are expected to receive the following ratings as at the Closing Date:

S&P ................................................................................................................................ AAA Moody’s.......................................................................................................................... Aaa The Senior Capital Notes and the U.S. Senior Capital Notes will receive a rating from one or more of

the Rating Agencies prior to their initial issuance. The Mezzanine Capital Notes issued under the Capital Note Programme and the U.S. Mezzanine

Capital Notes issued under the U.S. Capital Note Program are expected to receive the following ratings as at the Closing Date:

S&P ................................................................................................................................ A Moody’s.......................................................................................................................... A3

The Junior Capital Notes and the U.S. Junior Capital Notes will be unrated.

The ratings of the Combination Capital Notes and the U.S. Combination Capital Notes will be confirmed in the applicable Pricing Supplement.

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The ratings of the Euro CP Programme and the Euro MTN Programme address the ability of the Issuer to make payments due to the Holders of the Euro CP or the Holders of the Euro MTN (as applicable) in the event that the Issuer is in a period of Restricted Funding. They do not address the probability of the Issuer being in a period of Restricted Funding.

The ratings of the U.S. CP Program and the U.S. MTN Program address the ability of the Issuer to make payments to the Holders of the Euro CP, including Cheyne Finance LLC or the Holders of the Euro MTN, including Cheyne Finance LLC (as applicable) in the event that the Issuer is in Restricted Funding (and the ability of Cheyne Finance LLC to make corresponding payments due to Holders of the U.S. CP or the Holders of the U.S. MTN (as applicable) in such event). They do not address the probability of the Issuer being in a period of Restricted Funding.

The above mentioned Moody's ratings of the Mezzanine Capital Notes and the U.S. Mezzanine Capital Notes addresses the expected loss to Holders of such Mezzanine Capital Notes and U.S. Mezzanine Capital Notes and relates to the ultimate payment of principal and interest (excluding Variable Margin) in respect of such Mezzanine Capital Notes and corresponding payments on the related U.S. Mezzanine Capital Notes on or before the Legal Maturity Date of such Mezzanine Capital Notes. The rating does not address the risk that interest payments in respect of such Mezzanine Capital Notes or U.S. Mezzanine Capital Notes may be deferred prior to the Legal Maturity Date of such Mezzanine Capital Notes, whether as a result of the Issuer being in Restricted Funding or the occurrence of an Enforcement Event or otherwise and does not apply to any redemption at the option of the Capital Noteholders or the U.S. Capital Noteholders pursuant to the relevant Conditions of the Terms and Conditions of the Capital Notes or the U.S. Capital Notes.

The above mentioned S&P rating of the Mezzanine Capital Notes and the U.S. Mezzanine Capital Notes addresses the ability of the Issuer to make ultimate payment of principal and interest (excluding Variable Margin) in respect of such Mezzanine Capital Notes and the U.S. Capital Notes Issuer to make corresponding payments on the related U.S. Mezzanine Capital Notes on or before the Legal Maturity Date of such Mezzanine Capital Notes. The rating does not address the risk that interest payments in respect of such Mezzanine Capital Notes and U.S. Mezzanine Capital Notes may be deferred prior to the Legal Maturity Date of such Mezzanine Capital Note, whether as a result of the Issuer being in Restricted Funding or the occurrence of an Enforcement Event or otherwise and does not apply to any redemption at the option of the Capital Noteholders or the U.S. Capital Noteholders pursuant to the relevant Conditions of the Terms and Conditions of the Capital Notes or the U.S. Capital Notes.

The payment of the Variable Margin component of interest in respect of any Capital Note and the corresponding payment on the related U.S. Capital Note will be unrated.

Moody’s ratings address the credit risk factors associated with the Rated Notes. Other risks have not been addressed but may have a significant effect on yield to investors.

Ratings are not a recommendation to buy or sell or hold a security. An explanation of the significance of such credit ratings may be obtained from the Rating Agencies furnishing the same. These ratings are subject to revision or withdrawal at any time, and there is no assurance that they will remain unchanged.

Pursuant to the Management Agreement, the Manager has undertaken to act as the agent of the Issuer, Cheyne Finance LLC and the U.S. Capital Notes Issuer in dealing with the Rating Agencies. In particular, the Manager has undertaken to use all reasonable efforts to ensure that each of the Senior Notes obtains and continues to hold Top Ratings and that the Capital Notes and the U.S. Capital Notes maintain the ratings assigned to them (if any) on their respective issuance dates. To that end, the Manager has established a set of operating rules (“Operating Rules”) that have been acknowledged by the Rating Agencies as a condition of the rating of the Rated Notes. These rules are additional to, and more restrictive than, those contained in the Transaction Documents. The Manager intends to manage the Portfolio within the Operating Rules; failure to comply with these Operating Rules may result in the downgrade of the ratings of the Rated Notes. The Operating Rules may be changed without the consent of, or notice to, the Holders of the Senior Notes, the Capital Notes and/or the U.S. Capital Notes, but only if the ratings of the Rated Notes will not be adversely affected thereby.

Investment Management

Overview and Objectives

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Pursuant to the Management Agreement, the Manager has undertaken to provide the Issuer with investment management services, including the management of credit, currency, interest rate and liquidity risks associated with the Investment Portfolio and related Investment Derivative Contracts, Hedge Agreements, Securities Lending Agreements, Committed Repo Agreements and Repo Agreements (including, without limitation, Synthetic Portfolio Transactions) (see the section entitled “The Manager” above). The Manager has authority under the Management Agreement to invest on behalf of the Issuer in Investments of any kind, wherever situated and whether or not producing income, and to sell or otherwise dispose of Investments on behalf of the Issuer, in any such case on any market, provided that, as at the date on which the Manager proposes to acquire such Investment:

(a) if the Issuer is in a period of Restricted Investments or Restricted Funding, the Manager complies with the Restricted Investments Restrictions or, as the case may be, the Restricted Funding Restrictions and the Restricted Funding Additional Guidelines described above; and

(b) the proposed Investment is a Permitted Investment.

In addition, the Manager may only effect a transaction on behalf of the Issuer if such transaction satisfies certain other conditions, as set out in the Management Agreement.

Investment Objectives

The Manager is further required to have regard to the Issuer’s Investment Objectives which include:

(a) achieving a stable return on the Portfolio subject to paragraphs (b) to (g) (inclusive) below;

(b) acquiring Permitted Investments;

(c) managing interest rate risks, currency risks and, where the Manager deems it appropriate, credit risks associated with the Investment Portfolio by entering into Hedge Agreements with Permitted Hedge Counterparties;

(d) managing the credit and liquidity risks associated with the Investment Portfolio and related Hedge Agreements;

(e) managing the Investment Portfolio having regard for the Investment Portfolio Parameter Tests;

(f) achieving returns which meet reasonable investor expectations; and

(g) redeeming the Senior Funding and/or the Capital Notes and making payments of any interest due and payable in accordance with the respective terms and conditions of, and agreements documenting, the Senior Funding and/or the Capital Notes, subject to paragraphs (b) to (e) (inclusive) above and, where applicable, in accordance with the procedures prescribed for the Issuer upon entering Restricted Investments, Restricted Funding or upon an Enforcement Event and any amended procedures as agreed with the Rating Agencies from time to time and in turn redeeming and making payment of interest in respect of the U.S. Notes by U.S. Capital Notes Issuer and Cheyne Finance LLC (as applicable).

Specific Investment and Funding Criteria

The following paragraphs of this section “Specific Investment and Funding Criteria” set out the provisions applicable to the management of the Portfolio as at the date of this Information Memorandum pursuant to the terms of the Management Agreement. Any of these provisions may be amended and/or supplemented as agreed with the Rating Agencies from time to time.

Investment Portfolio

The Investment Portfolio includes all Investments held at that time by the Issuer, each of which must have been a Permitted Investment at the time of purchase. The Credit Portfolio includes the Investment Portfolio together with all outstanding Hedge Agreements to which the Issuer is a party and which are entered into with

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Permitted Hedge Counterparties. The Investment Portfolio and, in certain circumstances, the Credit Portfolio are subject to certain Investment Purchase Criteria contained in the Management Agreement and summarised below. The Investment Purchase Criteria prescribe the types of Investments that the Issuer may acquire or enter into. The Manager shall manage the Investment Portfolio, and in certain circumstances, the Credit Portfolio taking into consideration the ongoing Investment Portfolio Parameter Tests. In addition, the Manager shall also manage the Portfolio with reference to the Market Sensitivity Tests, the Liquidity Tests, the Capital Tests and the Weighted Average Life of Senior Funding Test.

The Manager shall test for compliance with each of the Investment Purchase Criteria and each Investment Portfolio Parameter Test separately for each Rating Agency using, if required, the Deemed Ratings of the applicable Rating Agency for such calculation and each of the Investment Purchase Criteria or, as the case may be, each Investment Portfolio Parameter Test shall be deemed to be breached if the result of any such calculation indicates a breach of such Investment Purchase Criteria or such Investment Portfolio Parameter Test. If, after testing for compliance with the Investment Portfolio Parameter Tests in relation to a certain Rating Agency, the Issuer is required to incur additional capital charges, such additional capital charges shall only be considered when calculating the capital requirement applicable to such Rating Agency.

During the Ramp-Up Period, the Investment Portfolio Exposure for the purpose of testing for compliance with the Investment Purchase Criteria and the Investment Portfolio Parameter Tests shall be the greater of (a) the actual Investment Portfolio Exposure at such time and (b) a minimum reference exposure size as agreed with the Rating Agencies from time to time.

Eligible Investment Classes

The Issuer may purchase Permitted Investments which are of Eligible Investment Classes which meet the Investment Purchase Criteria. Eligible Investment Classes are Structured Finance, U.S. Government Agency, Sovereign, Supranational, Cash Equivalents, Financing Transactions and other Investment Classes with Rating Agency Approval.

The Issuer shall also be permitted to take exposure to the above Eligible Investment Classes synthetically in the form of Investment Derivative Contracts, subject to Rating Agency Approval of the required changes, deletions or additions to the Investment Purchase Criteria and Compliance Tests prior to the Issuer entering into the first Investment Derivative Contract. Where the Investment Portfolio comprises Investment Derivative Contracts, certain criteria and/or tests including, inter alia, the Investment Purchase Criteria, the Investment Portfolio Parameter Tests, the Market Sensitivity Tests, the Liquidity Tests and the Capital Tests may be amended to take into account the different form of Investment. Under Investment Derivative Contracts, the Issuer shall also be permitted to buy credit protection (in the form of credit default swaps, total return swaps or similar instruments) that references Investments which are not owned by the Issuer, subject to Rating Agency Approval prior to the Issuer entering into the first such Investment Derivative Contract.

The Issuer may purchase, or otherwise take exposure to, Investments that are Financing Transactions, subject to Rating Agency Approval of any required changes, deletions or additions to the Investment Purchase Criteria and Compliance Tests. Financing Transactions are Investments that benefit from external liquidity and/or specific credit enhancement and which meet certain criteria as agreed with the Rating Agencies from time to time; Financing Transactions may comprise a single security or multiple component parts, and any interest, currency or credit protection purchased in connection therewith; and Financing Transactions may include (but are not limited to) (i) an underlying debt security (which when being considered as part of a Financing Transaction, does not need to meet the Investment Purchase Criteria as an individual Investment) and credit protection purchased through a credit default swap, total return swap or similar instrument and (ii) an Investment under a repurchase agreement (or similar instrument) where the Issuer has exposure to a debt security (which, when being considered as part of a Financing Transaction, does not need to meet the Investment Purchase Criteria as an individual Investment) with the benefit of overcollateralisation (by virtue of the Issuer’s purchase price under the repurchase agreement (or similar instrument) being less than the initial market value of the debt security) as agreed under the repurchase agreement (or similar agreement) and such agreement contains a commitment from the counterparty to repurchase such debt security from the Issuer at a later point in time.

Financing Transactions and any underlying debt security which comprises a Financing Transaction may be exempt from certain tests, limits and/or criteria or may be included in certain tests or subject to certain limits and/or criteria in an amended fashion, subject to Rating Agency Approval of such exemptions or

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amendments to the tests, limits and/or criteria prior to the Issuer entering into or, as the case may be, purchasing the first Financing Transaction. In addition, new tests, limits and/or criteria may be introduced in relation to Financing Transactions, subject to Rating Agency Approval.

Investment Purchase Criteria

The Manager shall test each Investment which is under consideration for inclusion in the Investment Portfolio (such Investment, a “Potential Investment”) for compliance with the Investment Purchase Criteria (as further described in the Management Agreement and summarised below) by applying the Investment Purchase Criteria after taking into account the addition of the Potential Investment. The Investment Purchase Criteria shall be deemed to be satisfied if, on the date of such potential purchase:

(a) the Potential Investment is of an Eligible Investment Class;

(b) the Potential Investment has either a Deemed Rating of at least A- by S&P and A3 by Moody’s or, in the case of an Investment which has an original term to maturity of 90 days or less, A-1 by S&P and P-1 by Moody’s (or it is a condition of the agreement to acquire such Investment that the Issuer shall not be obligated to acquire such Investment unless such Investment has a confirmed Deemed Rating as specified above not later than the settlement date for such purchase);

(c) the acquisition of the Potential Investment by the Issuer will not cause the Issuer to breach an Eligible Limit of an Investment Portfolio Parameter Test;

(d) the Potential Investment is denominated in an Eligible Currency;

(e) the Country of Investment of the Potential Investment is an Eligible Jurisdiction;

(f) the Potential Investment is not (i) an Investment in either capital or income notes of a structured investment vehicle, (ii) an interest only bond, (iii) the ordinary share capital of a company or the units in a unit trust (for the avoidance of doubt, the shares held by the Issuer in the U.S. Capital Notes Issuer and Cheyne Finance LLC shall not be considered an Investment for the purpose of this provision), the performance of which is calculated by reference to the dividend payable on, or change in value of, the shares of or units in one or more companies or unit trusts, (iv) a commodity, (v) an Investment which gives rise to a perpetual obligor exposure, (vi) an Investment which is not freely transferable or (vii) an Investment which is convertible into any of the foregoing;

(g) the Manager or any of its Affiliates is not acting in a managerial or servicing capacity with respect to such Potential Investment unless Rating Agency Approval has been obtained for the purchase of such Investment;

(h) the Issuer is not restricted from purchasing such Potential Investment as a result of being in Restricted Investments or Restricted Funding or as a result of the occurrence of an Enforcement Event, and the purchase of such Potential Investment would not give rise to a Restricted Investments Event, a Restricted Funding Event or an Enforcement Event (regardless of any applicable cure periods);

(i) the addition of such Potential Investment does not cause non-compliance with the Legal Final Maturity at Point of Purchase Condition or, if the Issuer is already failing to comply with such condition, such addition does not cause such non-compliance to worsen. The Legal Final Maturity at Point of Purchase Condition requires that the Legal Final Maturity of an Investment may not exceed 35 years from the date of purchase, (except for RMBS Investments and CDOs of ABS Investments, the Legal Final Maturity of which may not exceed 100 years from the date of purchase) provided that Investments representing no greater than 5 per cent. of the Investment Portfolio Exposure may comprise Investments that have a Legal Final Maturity greater than the limits specified above;

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(j) the addition of such Potential Investment does not cause non-compliance with the Expected Final Maturity at Point of Purchase Condition, or if the Issuer is already failing to comply with such condition, such addition does not cause such non-compliance to worsen. The Expected Final Maturity at Point of Purchase Condition requires that the Expected Final Maturity of the Investment may not exceed 15 years from the date of purchase provided that Investments representing no greater than 5 per cent. of the Investment Portfolio Exposure may comprise Investments that have an Expected Final Maturity greater than the limits specified above but less than 20 years from the date of purchase. However, the Expected Final Maturity of Investments which are Investment Derivative Contracts may not in any case exceed 10 years from the date of entering into such Investment Derivative Contract;

(k) the addition of such Potential Investment does not cause non-compliance with the Investment Weighted Average Life at Point of Purchase Condition, or if the Issuer is already failing to comply with such condition, such addition does not cause such non-compliance to worsen. The Expected Final Maturity at Point of Purchase Condition requires that the Weighted Average Life of an Investment may not exceed 10 years from the date of purchase provided that Investments representing no greater than 5 per cent. of Investment Portfolio Exposure may comprise Investments that have a Weighted Average Life greater than the limits specified above but less than 15 years from the date of purchase;

(l) the addition of such Potential Investment does not cause non-compliance with the Investment Derivative Contract Concentration at Point of Purchase Condition, or if the Issuer is already failing to comply with such condition, such addition does not cause such non-compliance to worsen. The Investment Derivative Contract Concentration at Point of Purchase Condition requires that the percentage of Investment Portfolio Exposure which comprises exposure to reference obligations under Investment Derivative Contracts may not exceed 35 per cent.;

(m) the addition of such Potential Investment does not cause non-compliance with the Weighted Average Life of the Investment Portfolio Condition, which requires that the Weighted Average Life of the Investment Portfolio may not exceed 7 years from the date of purchase, or if the Issuer is already failing to comply with such condition, such addition does not cause such non-compliance to worsen;

(n) the addition of such Potential Investment does not cause non-compliance with the Maximum Single Obligor at Point of Purchase – Percentage of Investment Portfolio Exposure Condition, which requires that the Issuer’s Exposure to Investments (excluding certain Cash Equivalents as agreed with the Rating Agencies from time to time) from the Single Obligor Group of the Potential Investment and with a Deemed Rating which falls within the Deemed Rating range set out in the table below shall not exceed the Maximum Single Obligor Percentage of Investment Portfolio Exposure Purchase Limit which corresponds to such Deemed Rating in the table below, or if the Issuer is already failing to comply with such condition, such addition does not cause such non-compliance to worsen;

Deemed Rating range (Moody’s/S&P)

Maximum Single Obligor Percentage of Investment

Portfolio Exposure Purchase Limit

Maximum Single Obligor Percentage of Investment Portfolio Exposure Purchase Limit (Exceptions)

Composite .............................. 4.0% 8.0% Aaa/AAA ............................... 4.0% 8.0% Aa/AA.................................... 2.0% 4.0% A/A ........................................ 0.5% 1.0%

(i) the Composite Deemed Rating range in the table above considers exposure to all Investments in a Single Obligor Group regardless of their Deemed Rating;

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(ii) certain categories of Investments as agreed with the Rating Agencies from time to time, such as Investments with a Deemed Rating of AAA with respect to S&P and Aaa with respect to Moody’s, which benefit from a guarantee from a monoline insurance company, may be subject to higher limits (as exceptions) as specified in the third column of the table immediately above; and

(o) the addition of such Potential Investment does not cause non-compliance with the Maximum Single Obligor at Point of Purchase Percentage of Net Asset Value Condition, which require that the Issuer’s Exposure to the largest Single Obligor Group, the two largest Single Obligor Groups excluding Investments with a Deemed Rating of AAA/Aaa (for S&P/Moody’s respectively) and the three largest Single Obligor Groups excluding Investments with a Deemed Rating of AA-/Aa3 (for S&P/Moody’s respectively) or above shall not exceed the Maximum Single Obligor Percentage of Net Asset Value Purchase Limit, which is set as 100 per cent. of the Net Asset Value of the Capital Notes, or if the Issuer is already not in compliance with such criteria, such addition does not cause such non-compliance to worsen. Certain Cash Equivalents as agreed with the Rating Agencies from time to time are exempt from the Maximum Single Obligor at Point of Purchase Percentage of Net Asset Value Condition.

Investment Portfolio Parameter Tests

The Manager shall test for compliance of the Investment Portfolio and, in certain cases, the Credit Portfolio, with the Investment Portfolio Parameter Tests on each Business Day and shall promptly notify the Rating Agencies of any breach of the Investment Portfolio Parameter Tests.

The Manager shall test for compliance of the Investment Portfolio with certain Eligible Limits relating to each Investment Portfolio Parameter Test, as further described in the Management Agreement and summarised below. In addition, in relation to certain of the Investment Portfolio Parameter Tests, the Manager will test for compliance of the Investment Portfolio with more restrictive operational limits as agreed with the Rating Agencies from time to time (such operational limits, the “Operational Limits”). Operational Limits are more restrictive than the related Eligible Limits and are therefore subject to breach prior to (or simultaneous with) the related Eligible Limits.

Breach of either an Eligible Limit or an Operational Limit shall result in increased capital charges in the Major Capital Adequacy Test and the Minor Capital Adequacy Test. Generally, breach of an Operational Limit will incur additional capital charges which are less onerous than the additional capital charges which will result from a breach of an Eligible Limit. In cases where multiple Investment Portfolio Parameter Tests are breached, the total additional capital charge shall depend on the nature and severity of such breaches, whether such breach relates to the Eligible Limits or the Operational Limits, and the particular combination of Investment Portfolio Parameter Tests that have been breached and may be less than the sum of the individual additional capital charges that would result if each Investment Portfolio Parameter Test were breached independently.

The Manager may, subject to Rating Agency Approval, introduce a Monte Carlo based test in order to determine the required amount of capital to support the Top Ratings of the Euro Senior Notes (the “Senior Note Simulation Model Rating Test”). After the introduction of any such Senior Note Simulation Model Rating Test, the additional capital charge incurred in the Major Capital Adequacy Test and the Minor Capital Adequacy Test following the breach of an Investment Portfolio Parameter Test which remains uncured, as described above, may be amended or removed entirely with Rating Agency Approval.

When calculating Investment Portfolio Exposure and testing for compliance with the Eligible Limits and Operational Limits of the Investment Portfolio Parameter Tests, exposures to Hedge Counterparties are not generally included. However in certain circumstances, the definition of Investment Portfolio Exposure may be amended to include exposure under certain types of individual Hedge Agreements as agreed with the Rating Agencies from time to time.

Maximum Single Obligor Percentage of Investment Portfolio Exposure Test

In relation to each Single Obligor Group and without considering certain Cash Equivalents (as agreed with the Rating Agencies from time to time), the Manager shall consider the percentage of Investment Portfolio

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Exposure, the Deemed Rating of which falls within each Deemed Rating range and shall test for compliance with the Maximum Single Obligor Percentage of Investment Portfolio Exposure Eligible Limits as set out below.

Deemed Rating range (Moody’s/S&P)


Portfolio Exposure Eligible Limit


Portfolio Exposure Eligible Limit (Exceptions)

Composite .................................. 4.0% 8.0% Aaa/AAA................................... 4.0% 8.0% Aa/AA ....................................... 4.0% 8.0% A/A............................................ 4.0% 8.0% Baa/BBB.................................... 2.0% 4.0% Ba/BB ........................................ 0.5% 1.0%

(i) The Composite Deemed Rating range in the table above considers exposure to all Investments in a Single Obligor Group regardless of their Deemed Rating;

(ii) certain categories of Investments as agreed with the Rating Agencies from time to time, such as Investments with a Deemed Rating of AAA with respect to S&P and Aaa with respect to Moody’s, which benefit from a guarantee from a monoline insurance company, may be subject to higher Eligible Limits (as exceptions) as specified in the third column of the table immediately above.

Maximum Single Obligor Percentage of Net Asset Value Test

Excluding certain Cash Equivalents as agreed with the Rating Agencies from time to time, the Issuer’s Exposure to:

(a) the largest Single Obligor Group;

(b) the two largest Single Obligor Groups calculated excluding all Investments with a Deemed Rating of AAA/Aaa for S&P/Moody’s, respectively;

(c) the three largest Single Obligor Groups calculated excluding all Investments with a Deemed Rating of AA-/Aa3 or above for S&P/Moody’s, respectively; or

(d) the five largest Single Obligor Groups calculated excluding all Investments with a Deemed Rating of A-/A3 or above for S&P/Moody’s, respectively,

shall be considered and tested for compliance with the Maximum Single Obligor Percentage of Net Asset Value Eligible Limit, which is 100 per cent. of the Net Asset Value of the Capital Notes.

Minimum Ratings Concentration Test

The Manager shall consider the percentage of Investment Portfolio Exposure which relates to Investments the Deemed Rating of which falls within each Deemed Rating range, and shall test for compliance with the Minimum Ratings Concentration Eligible Limits as set out below.

Deemed Rating range (Moody’s/S&P) Minimum Ratings

Concentration Eligible Limit

Aaa/AAA............................................................................................... 40% Aaa/AAA to Aa3/AA-............................................................................ 60% Aaa/AAA to A3/A- ................................................................................ 80% Aaa/AAA to Baa3/BBB- ........................................................................ 85% Aaa/AAA to Ba3/BB- ............................................................................ 90%

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The Issuer may only enter into contracts to acquire Investments which have a Deemed Rating of at least A- by S&P and at least A3 by Moody’s at the time at which such contract is entered into (unless it is a condition of the agreement to acquire such Investment that the Issuer shall not be obliged to acquire such Investment unless such Investment has a confirmed Deemed Rating as specified above not later than the settlement date for such acquisition). The Issuer may, however, subject to the other provisions of the Management Agreement, hold Investments the Deemed Ratings of which, after entry into the contract to acquire them, are downgraded below A- by S&P and A3 by Moody’s.

Maximum Investment Class Concentration Test

The Manager shall consider the percentage of Investment Portfolio Exposure to Investments in each Investment Class and shall test for compliance with the Maximum Investment Class Concentration Eligible Limits as set out below.

Investment Class Maximum Investment Class Concentration Eligible Limit

Structured Finance ................................................................................. 100% Sovereign............................................................................................... 100% Supranational ......................................................................................... 100% U.S. Government Agency....................................................................... 100% Cash Equivalents.................................................................................... 100% Financing Transactions........................................................................... 35%

Maximum Structured Finance Sector Concentration Test

The Manager shall consider the percentage of Investment Portfolio Exposure to Investments in each Structured Finance Sector within the Structured Finance Investment Class and shall test for compliance with the Maximum Structured Finance Sector Concentration Eligible Limits as set out below.

Structured Finance Sector

Maximum Structured Finance Sector


CDO ...................................................................................................... 40% CMBS ................................................................................................... 50% Consumer ABS ...................................................................................... 60% Corporate ABS....................................................................................... 50% Monoline Guaranteed RMBS ................................................................. 30% RMBS ................................................................................................... 55% Other Structured Finance........................................................................ 5%

The Manager may also test for compliance with any Eligible Limits agreed with the Rating Agencies from time to time in respect of sub-sectors of the Structured Finance Sectors specified in the above table.

Maximum Country of Investment Concentration Test

The Manager shall consider the percentage of Investment Portfolio Exposure which relates to Investments in each Country of Investment and shall test for compliance with the Maximum Country of Investment Concentration Eligible Limits as set out below.

Country of Investment

Maximum Country of Investment Concentration

Eligible Limit

U.S. ....................................................................................................... 100% Each of France, Germany, Italy, Spain, United Kingdom ........................ 50% Each of Austria, Belgium, Denmark, Finland, Ireland, Luxembourg, The Netherlands, Norway, Portugal, Sweden, Switzerland, Australia, Canada 25%

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and Japan............................................................................................... Each of Greece, Singapore, Hong Kong and New Zealand ...................... 10%

Minimum Currency Concentration Test

The Manager shall consider the percentage of Investment Portfolio Exposure to U.S. Dollar denominated Investments and shall test for compliance with the Minimum Currency Concentration Eligible Limit as set out below.

Currency Minimum Currency


U.S. Dollar............................................................................................ 75%

Maximum Fixed Rate Investments Test, Maximum Servicer Concentration Test and Maximum Non Public Nor Shadow Rated Investments Test

The Manager shall consider the percentage of Investment Portfolio Exposure to fixed rate Investments (the “Maximum Fixed Rate Investments Test”), to the relevant servicer in respect of each Investment (the “Maximum Servicer Concentration Test”) and to non public nor shadow rated Investments (the “Maximum Non Public Nor Shadow Rated Investments Test”). The Manager will test for compliance with the Eligible Limits of the Maximum Fixed Rate Investments Test, the Maximum Servicer Concentration Test and the Maximum Non Public Nor Shadow Rated Investments Test, respectively. Each of the Eligible Limits for these Investment Portfolio Parameter Tests will be as agreed with the Rating Agencies from time to time.

Market Sensitivity and Liquidity Tests

The exposure of the Portfolio to changes in interest rates, foreign exchange rates and liquidity risks is addressed by monitoring compliance with the Market Sensitivity Tests and the Liquidity Tests. The Manager shall test the Market Sensitivity Tests and the Liquidity Tests on each Business Day and shall endeavour to promptly remedy any breach of a Market Sensitivity Test or a Liquidity Test. If required, the Manager will apply the Market Sensitivity Tests and the Liquidity Tests separately for each Rating Agency (and may use different methodologies as agreed with such Rating Agency from time to time). Breach of a Market Sensitivity Test or a Liquidity Test shall, following the expiry of any cure period agreed with the Rating Agencies from time to time, cause a Restricted Funding Event. The Manager shall notify the Rating Agencies of any breach of a Market Sensitivity Test or Liquidity Test on the date of breach.

Interest Rate Sensitivity Tests

The variation in the Effective Net Asset Value of the Capital Notes caused by each change to the specified point (or points) on the yield curve shall not exceed the Interest Rate Sensitivity Limit (expressed as a percentage of the Effective Net Asset Value of the Capital Notes) which corresponds to such change to the specified point (or points) on the yield curve in the table below.

The Interest Rate Sensitivity Tests comprise two forms of tests, the Parallel Yield Curve Shift Tests and the Individual Point Shift Tests. The Parallel Yield Curve Shift Tests involve applying a parallel shift in the yield curve for each relevant currency by simultaneously increasing and then simultaneously decreasing every specified point on the curve by either 1 bp or 100 bps. The sensitivity of the Effective Net Asset Value of the Capital Notes to each individual stress is tested for compliance with the relevant Interest Rate Sensitivity Limits as specified below. The Individual Point Shift Tests involve separately increasing and then separately decreasing a range of specified points (such points as agreed with the Rating Agencies from time to time) along the yield curve for each relevant currency, independent of all other points on the curve by either 1 bp or 100 bps. The sensitivity of the Effective Net Asset Value of the Capital Notes to each such stress is tested for compliance with the relevant Interest Rate Sensitivity Limits as specified below.

Interest Rate Sensitivity Limit

Parallel Yield Curve Shift Tests (+/-1 bp) ............................................... +/-0.2 bps of Effective NAV Individual Point Shift Tests (+/-1 bp)...................................................... +/-0.2 bps of Effective NAV Parallel Yield Curve Shift Tests (+/-100 bp) ........................................... +/-20 bps of Effective NAV Individual Point Shift Tests (+/-100 bp).................................................. +/-20 bps of Effective NAV

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Currency Sensitivity Test

The variation in the Effective Net Asset Value of the Capital Notes caused by each specified upwards or downwards percentage shift in the value of non-U.S. Dollar Eligible Currencies to the U.S. Dollar shall not exceed the Currency Sensitivity Limit (expressed as a percentage of the Effective Net Asset Value) which corresponds to the relevant upwards or downwards percentage shift. The Currency Sensitivity Test involves separately shifting upwards and downwards the value of each of the relevant non-U.S. Dollar Eligible Currencies to the U.S. Dollar by either 1 per cent. or 10 per cent.

Currency Sensitivity Limit

Currency Sensitivity Test (+/-1 %) ........................................................... +/-2.0 bps of Effective NAV Currency Sensitivity Test (+/-10 %) ......................................................... +/-20 bps of Effective NAV

Amendments to the Market Sensitivity Tests

Certain Investments, which shall be monitored or hedged in a manner agreed with the Rating Agencies from time to time (for example Investments which have residual interest rate exposure such as Investments in home equity loan securities) shall be treated differently for the purpose of testing for compliance with the Market Sensitivity Tests and shall not be included, or shall be included in an amended manner in the Market Sensitivity Tests as agreed with the Rating Agencies from time to time.

Liquidity Tests

The Issuer is required to have Available Liquidity to cover its expected maximum net cumulative outflow needs as described below during specified periods. On each Business Day, the Manager shall test for compliance with each of the Liquidity Tests. The Manager shall use its best endeavours to promptly remedy any breach by the Issuer of a Liquidity Test and shall notify the Rating Agencies if any Liquidity Test has been breached on the date on which such breach occurs. Breach of a Liquidity Test shall constitute a Restricted Funding Event after the expiry of the relevant cure period as agreed with the Rating Agencies from time to time.

The Manager is required to monitor the cumulative maximum net cash outflow (“MNCO”) of the Issuer over specified periods of time as agreed with the Rating Agencies in order to measure compliance with the Liquidity Tests. The “n” Day MNCO is measured on any Business Day as the amount of the Issuer’s largest cumulative net cash outflow occurring during any period of up to “n” successive London and New York Business Days (or any portion thereof) in the calendar year that follows such Business Day.

Cumulative maximum net cash outflow, in respect of a period of one or more successive London and New York Business Days, means the Dollar Equivalent of the aggregate Scheduled Payments falling due during that period (or during any portion thereof) less the Dollar Equivalent of the aggregate Scheduled Receipts falling due during that period (or such portion thereof). To the extent that the Issuer issues Extendible CP, for the purpose of calculating the Liquidity Tests, the maturity of the Extendible CP may be assumed to be either the expected maturity date or the legal maturity date of the Extendible CP at the discretion of the Manager or otherwise as agreed with the Rating Agencies from time to time. The Liquidity Tests may be run in different currencies as agreed with the Rating Agencies from time to time.

The Liquidity Tests shall comprise the 1, 5, 10 and 15 Day Liquidity Tests.

In order to test for compliance with the Liquidity Tests, the Manager shall test the “n” Day Liquidity Test by considering whether the “n” Day MNCO plus any relevant Repo Margin Call Buffer and CDS Buffer is less than the aggregate value of Available Liquidity in place on that Business Day. The Repo Margin Call Buffer, the CDS Buffer and the Available Liquidity may differ depending on the Liquidity Test being considered.

Available Liquidity for the purpose of the 1, 5, 10 and 15 Day Liquidity Tests is the aggregate of the Dollar Equivalent of the undrawn notional of Liquidity Facilities, the notional of Breakable Deposits, the notional of Money Market Funds, the put price of Puttable Investments and the amount of Liquidity Eligible Committed Repos. In addition, the Dollar Equivalent of the Haircut Market Value of Liquidity Eligible Investments is also eligible for inclusion in Available Liquidity for the 10 and 15 Day Liquidity Tests only. Other sources of liquidity may be eligible for inclusion in Available Liquidity with Rating Agency Approval.

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Sources of Available Liquidity

Liquidity Facilities are liquidity facilities with eligible counterparties with a short-term rating of at least A-l/P-1 by S&P/Moody’s which may be drawn with same day availability and which also satisfy other eligibility criteria as agreed with the Rating Agencies from time to time.

Breakable Deposits are deposits with counterparties with a short-term rating of at least A-l/P-1 by S&P/Moody’s which may be withdrawn with same day availability and which meet certain additional criteria as agreed with the Rating Agencies from time to time.

Money Market Funds are short-term investments rated AAAm/Aaa by S&P/Moody’s, moneys from which may be withdrawn with same day availability and which also satisfy other eligibility criteria as agreed with the Rating Agencies from time to time.

Puttable Investments are Investments which can be put to a counterparty rated at least A-1/P-1 by S&P/Moody’s with same day availability on pre-agreed terms (in accordance with criteria agreed with the Rating Agencies from time to time).

Committed Repo Facilities are facilities under which the Issuer pays an ongoing commitment fee to a Committed Repo Counterparty for the right, with same day availability, to enter into Committed Repo Transactions with a Committed Repo Counterparty rated at least A-1/P-1 by S&P/Moody’s on pre-agreed terms and subject to additional criteria as agreed with the Rating Agencies from time to time.

Liquidity Eligible Investments are Investments held by the Issuer which meet the Liquidity Eligible Investment eligibility criteria agreed with the Rating Agencies from time to time.

Where applicable, each of the above sources of Available Liquidity shall become ineligible for the purpose of Available Liquidity following downgrade of the relevant Liquidity Provider below the threshold rating levels specified above (or as otherwise agreed with the Rating Agencies from time to time) but only following expiry of any cure period as agreed with the Rating Agencies from time to time.

Capital Tests

The Manager shall be required to manage the Portfolio in accordance with the Major Capital Tests and the Minor Capital Tests (together the “Capital Tests”). On each Business Day the Manager shall test whether the level, maturity and composition of capital held by the Issuer on such day is consistent with the requirements of the Major Capital Tests and Minor Capital Tests; however, the Capital Note Maturity Test and the Capital Note Simulation Model Rating Test shall only be tested on a weekly basis. The Manager shall calculate the Capital Tests separately for each Rating Agency (using the capital requirements agreed with the relevant Rating Agency from time to time and any additional capital requirements resulting from breaches of the Investment Portfolio Parameter Tests considered in relation to the relevant Rating Agency) and the relevant Capital Test shall be deemed to be breached if the result of any such calculation indicates a breach of such Capital Test.

Breach of a Minor Capital Test shall constitute a Restricted Investments Event after the expiry of any cure period agreed with the Rating Agencies from time to time. Breach of a Major Capital Test (except the Major Capital Loss Test) shall constitute a Restricted Funding Event after the expiry of any cure period agreed with the Ratings Agencies from time to time. Breach of the Major Capital Loss Test shall constitute an Enforcement Event after the expiry of any cure period agreed with the Rating Agencies from time to time.

Major Capital Tests

(a) The Issuer shall breach the Major Capital Adequacy Test if the aggregate Dollar Equivalent of the Market Value of the Investments and Hedge Agreements (adjusted to consider (i) the relevant Investment or counterparty specific Restricted Funding Capital Requirement Haircut, (ii) costs of terminating certain Liquidity Arrangements, (iii) additional capital requirements resulting from any breaches of Investment Portfolio Parameter Tests, and (iv) any other adjustments agreed with the Rating Agencies from time to time) is less than the then outstanding Senior Obligations.

(b) The Issuer shall breach the Major Capital Loss Test if the Net Asset Value of the total Capital Notes Outstanding is less than 50 per cent. of the Dollar Equivalent of the outstanding principal amount of the Capital Notes Outstanding.

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(c) The Maximum Leverage Tests comprise the Capital Notes Maximum Leverage Test and the Junior Capital Notes Maximum Leverage Test:

(i) The Issuer shall breach the Capital Notes Maximum Leverage Test in the event that the Dollar Equivalent of the outstanding principal amount of Capital Notes Outstanding as a percentage of the Credit Portfolio Value is less than 4 per cent.

(ii) The Issuer shall breach the Junior Capital Notes Maximum Leverage Test in the event that the Dollar Equivalent of the outstanding principal amount of Junior Capital Notes as a percentage of the Credit Portfolio Value is less than 0.75 per cent.

(d) The Issuer shall breach the Relative Leverage Test in the event that the relative Dollar Equivalent of the outstanding principal amounts of Mezzanine Capital Notes Outstanding to Junior Capital Notes Outstanding is greater than 7.5:1.

Minor Capital Tests

(a) The Issuer shall breach the Minor Capital Adequacy Test if the aggregate Dollar Equivalent of the Market Value of the Investments and Hedge Agreements (adjusted to consider (i) the relevant Investment or counterparty specific Restricted Investments Capital Requirement Haircut, (ii) costs of terminating certain Liquidity Arrangements, (iii) additional capital requirements resulting from any breaches of Investment Portfolio Parameter Tests and (iv) any other adjustments agreed with the Rating Agencies from time to time) is less than the then outstanding Senior Obligations.

(b) The Issuer shall breach the Minor Capital Loss Test if the Net Asset Value of the total Capital Notes Outstanding is less than 70 per cent. of the Dollar Equivalent of the outstanding principal amount of such Capital Notes Outstanding.

(c) The Issuer shall breach the Capital Note Simulation Model Rating Test if the implied rating of the Mezzanine Capital Notes (using methodologies agreed with the Rating Agencies from time to time for the purposes of such Capital Note Simulation Model Rating Test (which implied rating may not be the same as the public rating from the relevant Rating Agency of such Mezzanine Capital Notes)) falls below either BBB+ or Baa1 from S&P or Moody’s respectively.

(d) The Issuer shall breach the Capital Note Rating Test if the public rating of the Mezzanine Capital Notes falls below Baa1 from Moody’s.

(e) The Issuer shall breach the Capital Note Maturity Test if the results of the Capital Note Maturity Tests indicate (using methodologies and criteria agreed with the Rating Agencies from time to time) that the Issuer is unlikely to be able to redeem the Capital Notes by their respective Legal Maturity Dates predominantly through natural amortisation of the Investment Portfolio.

(f) The Issuer shall breach the Senior Note Rating Test if the Moody’s public ratings of the Euro Senior Notes are downgraded below the Top Rating relating to Moody’s.

(g) The Issuer shall breach the Net Asset Value Leverage Test if the Net Asset Value of the Capital Notes Outstanding as a percentage of the Dollar Equivalent of the outstanding principal amount of Senior Funding is less than 4.55 per cent.

Amendments to the Capital Tests

In the event that the Issuer issues Senior Capital Notes, certain of the Capital Tests may be amended with Rating Agency Approval, to take account of such Senior Capital Notes.

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After the introduction (if any) of a Senior Note Simulation Model Rating Test, the Capital Tests may be amended from time to time with Rating Agency Approval and, in particular, the Major and Minor Capital Adequacy Tests may be amended or removed entirely.

The Market Value of Investment Derivative Contracts entered into by the Issuer and which meet certain criteria as agreed with the Rating Agencies from time to time may not be included, or may be included in an amended form, in the calculation of the Capital Tests.

Weighted Average Life of Senior Funding Test

The Issuer shall breach the Weighted Average Life of Senior Funding Test in the event that the Weighted Average Life of Senior Funding falls below the Weighted Average Life of Senior Funding Limit of 3 months (or 1 month during the Ramp-Up Period). If required, the Manager will apply the Weighted Average Life of Senior Funding Test separately for each Rating Agency (and may use different methodologies as agreed with each such Rating Agency from time to time).

Breach of the Weighted Average Life of Senior Funding Test will cause a Restricted Investments Event after the expiry of any cure period agreed with the Rating Agencies from time to time.

Components of Senior Funding which meet certain criteria as agreed with the Rating Agencies may be excluded from the calculation of the Weighted Average Life of Senior Funding for the purpose of the Weighted Average Life of Senior Funding Test, or may be included in an amended manner as agreed with the Rating Agencies from time to time.

Amendments to the Investment Purchase Criteria and the Compliance Tests

The characteristics of the Investment Purchase Criteria and each Compliance Test will be agreed with the Rating Agencies from time to time. In relation to the Investment Purchase Criteria and each Compliance Test (i) the Compliance Tests, Investment Purchase Criteria and/or limits of such tests or criteria may be amended or deleted or new Compliance Tests, Investment Purchase Criteria and/or limits of such tests or criteria may be introduced, (ii) the implications of breaching such Compliance Tests or the Investment Purchase Criteria may change, (iii) the methodology used for calculating compliance with the Compliance Tests and/or the Investment Purchase Criteria may change, (iv) the applicable cure periods or implications of being in a cure period may change, (v) the reporting or testing frequency requirements may change and (vi) other Investment Purchase Criteria or Compliance Test characteristics may be amended as agreed with the Rating Agencies from time to time.

When testing for compliance with the Compliance Tests and the Investment Purchase Criteria, the Manager is also required to take into account Exposures to Investments that are subject to Repo Transactions, Committed Repo Transactions or Securities Lending Transactions (and which therefore may not be held or owned by the Issuer) and Investments posted as collateral (or any such similar arrangement) under Investment Derivative Contracts and/or Hedge Agreements.

As agreed with the Rating Agencies from time to time, certain Investments, Hedge Agreements, Senior Funding or Capital Notes, or groups of Investments, Hedge Agreements, Senior Funding or Capital Notes with specified characteristics, may be excluded, or included following amendment in certain Investment Purchase Criteria and/or Compliance Tests. In addition, the characteristics of certain Investment Purchase Criteria and/or Compliance Tests may vary depending on the characteristics of certain Investments, Hedge Agreements, Senior Funding or Capital Notes, or groups of Investments, Hedge Agreements, Senior Funding or Capital Notes, as agreed with the Rating Agencies from time to time.

Specifically, certain Investment Purchase Criteria and Compliance Tests may be amended to take into account Financing Transactions (either considering the Financing Transaction as an individual Investment or the component parts of such Financing Transaction) and Investment Derivative Contracts.

Reporting

The Issuer will publish annual audited accounts and will report on a weekly basis to the Rating Agencies regarding compliance with the contractual limits contained in the Transaction Documents and with the Operating Rules.

The Manager is also required to report to the Security Trustee, inter alia, when either Restricted Investments or Restricted Funding has ended immediately upon becoming aware of the same. The Issuer will

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cease to be in Restricted Investments if the cause of the Restricted Investments Event is cured and no other conditions which would cause a Restricted Investments Event are outstanding and uncured or upon the occurrence of a Restricted Funding Event or Enforcement Event. The Issuer will cease to be in Restricted Funding if the cause of the Restricted Funding Event is cured, taking account of terms agreed with the Rating Agencies from time to time restricting the ability of the Issuer to cure certain Restricted Funding Events, and no other conditions which would cause a Restricted Funding Event are then outstanding and uncured or upon the occurrence of an Enforcement Event.

The Administrator, using only results generated by its proprietary risk management and reporting system, shall assist the Issuer in preparing monthly investment reports for distribution to the Rating Agencies, the Senior Note Dealers, the Capital Note Placement Agents, the Holders of the Euro Notes, the Holders of the U.S. Notes, Morgan Stanley and the Liquidity Providers which shall include the following information (subject to such individual modification as to content and frequency as may be agreed between the Issuer and each such party from time to time):

(a) a breakdown of the Investments contained in the Investment Portfolio;

(b) the weighted average margin between the Credit Portfolio and LIBOR;

(c) a breakdown of total Available Liquidity;

(d) the weighted average life of the Senior Funding;

(e) if the Issuer has entered into any Repo Transactions from time to time, the aggregate principal amount of securities governed by such transactions; and

(f) whether the Issuer has breached any of the Compliance Tests.

Remuneration and Expenses

In consideration of (a) the management services to be provided by the Manager and CCIL pursuant to the Management Agreement and (b) the structuring advice and arranging and placement services provided by Morgan Stanley, the Issuer shall pay to the Receivables Trustee:

(i) a Base Fee calculated and payable, in arrear at the rate of 5 basis points per annum of the Market Value of the Investment Portfolio (excluding Cash Equivalents but including Investments which are subject to Repo Agreements, Committed Repo Agreements, Securities Lending Agreements or Investment Derivative Contracts and which are posted to a counterparty under any such agreement) (plus any applicable value added tax) on each Profit Distribution Date; and

(ii) a quarterly Performance Fee calculated and payable in arrears on each Profit Distribution Date, equal to the Residual Distributable Profits.

The payment of both the Base Fee and the Performance Fee may be deferred to a later date which falls prior to the following Profit Distribution Date with the prior agreement of the Manager, CCIL and Morgan Stanley.

The Performance Fee shall only be paid if the Issuer is in Normal Operations and such payment would not cause a Restricted Investments Event, a Restricted Funding Event or an Enforcement Event. No accrual of the Performance Fee shall arise if it is not paid in accordance with this paragraph.

In addition, the Issuer shall be required to meet other ongoing fees, costs and expenses relating to, inter alios, (i) the Administrator, (ii) the Security Trustee, (iii) the Custodian, (iv) the Principal Paying Agent, (v) the Rating Agencies and (vi) legal counsel for the Issuer, the U.S. Capital Notes Issuer, Cheyne Finance LLC, the Manager and the aforementioned parties, which fees, costs and expenses (excluding the Base Fee), when aggregated, are estimated at the date of this Information Memorandum to be the sum of (x) approximately U.S.$1,200,000 per annum and (y) approximately 0.055 per cent. per annum of the Market Value of the Investment Portfolio. The Issuer, the U.S. Capital Notes Issuer and Cheyne Finance LLC shall also incur initial

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upfront costs of approximately U.S.$15,000,000 which shall be paid on or following the Closing Date and which are expected to be amortised (for the purpose of determining Distributable Profits) over a period of time to be determined in the sole and absolute discretion of the board of directors of the Issuer.

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IRISH TAXATION

The following is a discussion of certain Irish tax consequences of an investment in the Capital Notes. It is a general summary of the present law, does not consider any investor’s particular circumstances and does not consider tax consequences other than those arising under Irish law.

Income Tax

In general, persons who are resident in Ireland are liable to Irish taxation on their world-wide income whereas persons who are not resident in Ireland are only liable to Irish taxation on their Irish source income. All persons are under a statutory obligation to account for Irish tax on a self-assessment basis and there is no requirement for the Irish Revenue Commissioners to issue or raise an assessment.

A security (which term covers the Capital Notes) issued by the Issuer may be regarded as property situate in Ireland (and hence Irish source income) on the grounds that a bearer security is deemed situated where it is physically located or that a debt is deemed to be situate where the debtor resides. However, the interest earned on such securities is exempt from income tax if paid to a person who for the purposes of Section 198 of the Taxes Consolidation Act 1997 (“TCA 1997”) is regarded as being a resident of a relevant territory. A relevant territory for this purpose is a Member State of the European Communities (other than Ireland) or not being such a Member State a territory with which Ireland has entered into a double tax treaty. Ireland has currently ratified a double tax treaty with each of Australia, Austria, Belgium, Bulgaria, Canada, China, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, India, Israel, Italy, Japan, Korea (Rep. of), Latvia, Lithuania, Luxembourg, Malaysia, Mexico, The Netherlands, New Zealand, Norway, Pakistan, Poland, Portugal, Romania, Russia, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Switzerland, United Kingdom, U.S.A. and Zambia.

If the above exemption does not apply it is understood that there is a long standing unpublished practice whereby no action will be taken to pursue any liability to such Irish tax in respect of persons who are regarded as not being resident in Ireland except where such persons:

(a) are chargeable in the name of a person (including a trustee) or in the name of an agent or branch in Ireland having the management or control of the interest; or

(b) seek to claim relief and/or repayment of tax deducted at source in respect of taxed income from Irish sources; or

(c) are chargeable to Irish corporation tax on the income of an Irish branch or agency or to income tax on the profits of a trade carried on in Ireland to which the interest is attributable.

There can be no assurance that this practice will continue to apply.

Withholding Taxes

In general, withholding tax at the rate of 20 per cent. must be deducted from interest payments made by an Irish company. However, Section 246 TCA 1997 (“Section 246”) provides that this general obligation to withhold tax does not apply in respect of, inter alia, interest payments made by the Issuer to a person, who by virtue of the law of the relevant territory, is resident for the purposes of tax in a relevant territory (see above for details). This exemption does not apply if the interest is paid to a company in connection with a trade or business which is carried on in Ireland by the company through a branch or agency.

Apart from Section 246, Section 64 TCA 1997 (“Section 64”) provides for the payment of interest on a “quoted Eurobond” without deduction of tax in certain circumstances. A quoted Eurobond is defined in Section 64 as a security which:

(a) is issued by a company;

(b) is quoted on a recognised stock exchange (this term is not defined but is understood to mean an exchange which is recognised in the country in which it is established and the Irish Stock Exchange will be a recognised stock exchange);

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(c) is in bearer form; and

(d) carries a right to interest.

There is no obligation imposed upon the Issuer to withhold tax on quoted Eurobonds where:

(a) the person by or through whom the payment is made is not in Ireland; or

(b) the payment is made by or through a person in Ireland; and

(i) the quoted Eurobond is held in a recognised clearing system (The Depository Trust Company of New York, Euroclear and Clearstream Banking, SA have been designated as recognised clearing systems); or

(ii) the person who is the beneficial owner of the quoted Eurobond and who is beneficially entitled to the interest is not resident in Ireland and has made an appropriate written declaration to this effect.

Under current Irish tax law, Capital Notes which are Underlying Capital Notes and which are exchanged for definitive Capital Notes in registered form (as described in Condition 1(b) of the Terms and Conditions of the Capital Notes) will cease to be "quoted Eurobonds" and may, accordingly, become subject to Irish withholding tax.

In certain circumstances, Irish encashment tax may be required to be withheld at the standard rate (currently 20 per cent.) from interest on any quoted Eurobond, where such interest is collected by a person in Ireland on behalf of any holder of securities who is resident in Ireland for tax purposes.

Capital Gains Tax

A Capital Noteholder will not be subject to Irish taxes on capital gains provided that such Holder is neither resident nor ordinarily resident in Ireland and such Holder does not have an enterprise, or an interest in an enterprise, which carries on business in Ireland through a branch or agency or a permanent representative to which or to whom the securities are attributable.

Capital Acquisitions Tax

If the Capital Notes are comprised in a gift or inheritance taken from an Irish domiciled, resident or ordinarily resident disponer or if the disponer’s successor is resident or ordinarily resident in Ireland, or if any of the Capital Notes are regarded as property situate in Ireland, the disponer’s successor may be liable to Irish capital acquisitions tax. As stated above, securities issued by the Issuer may be regarded as property situate in Ireland. Accordingly, if such securities are comprised in a gift or inheritance, the disponer’s successor may be liable to Irish capital acquisitions tax, even though the disponer may not be domiciled in Ireland.

Stamp duty

For as long as the Issuer is a qualifying company within the meaning of Section 110 TCA 1997, no Irish stamp duty will be payable on either the issue or transfer of the Capital Notes, provided that the money raised by the issue of the Capital Notes is used in the course of the Issuer’s business.

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PLAN OF DISTRIBUTION

The Capital Notes are being offered on a continuing basis by the Issuer through the Placement Agents pursuant to the Placement Agreement. References in this Information Memorandum to the “relevant Placement Agent” shall, in the case of an issue of any Capital Notes being (or intended to be) placed by more than one Placement Agent, be to all Placement Agents agreeing to place such Capital Notes. The Capital Notes will be issued in one or more Series as designated in the applicable Pricing Supplement, which will contain certain specific terms and conditions of the relevant Series of Capital Notes.

The Placement Agents have agreed to use reasonable efforts on an agency basis to solicit offers to purchase Capital Notes in accordance with the terms and conditions therein.

The Capital Notes may be placed by the Placement Agent(s) in individually negotiated transactions at varying prices. In addition a fee may be payable by the Issuer to the Placement Agent(s) in connection with any such placement.

Each of the Manager, CCIL and each of their respective Affiliates and certain funds managed by the Manager may invest for its own account in any Capital Notes, which it may choose to hold or to sell to the Issuer or any third party on an arm's length basis. Such party may do so in each case without regard to the interests of any Secured Creditors (including the Capital Noteholders) and shall have no liability therefor. Further, any purchase of Capital Notes by the Issuer from such party may be financed by amounts received from Secured Creditors (including the Capital Noteholders) or future investors. CCML as Manager to the Issuer will be required to consider any such purchase or repurchase requests from its Affiliates with due consideration of its fiduciary duties to the Issuer.

United States

The Capital Notes have not been and will not be registered under the Securities Act and may not be offered or sold directly by the Issuer within the United States or to, or for the account or benefit of, U.S. Persons except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. No Capital Note may be resold to, or for the account or benefit of, a U.S. Person until the Distribution Compliance Date (as defined below) relating thereto shall have occurred, and then only (i) in Eligible Secondary Market Transactions or (ii) to a Qualified Institutional Buyer (as defined in Rule 144A under the Securities Act) who is also a Qualified Purchaser (as defined in the Investment Company Act). These restrictions do not apply to any interests in Capital Notes that constitute Underlying Capital Notes. For the purposes of the foregoing, an “Eligible Secondary Market Transaction” means a transaction exempt from or not subject to the registration requirements of the Securities Act in which (a) neither the Issuer nor any of its affiliates is involved and (b) no Placement Agent, transferor, transferee or other person involved in such transaction (i) has been engaged to act, or is otherwise acting, as an agent of or intermediary for the Issuer or any of its affiliates in connection with such transaction or (ii) has received or will receive any compensation from the Issuer or any of its affiliates in connection with such transaction. Except as otherwise defined, terms used in this paragraph have the meanings given to them in Regulation S.

The Capital Notes are subject to U.S. tax law requirements and may not be offered, sold or delivered within the United States or its possessions or to a United States person, except in certain transactions permitted by U.S. Treasury regulations. Terms used in this paragraph have the meanings given to them by the U.S. Internal Revenue Code of 1986, as amended, and U.S. Treasury regulations thereunder.

In connection with any Capital Notes which are offered or sold outside the United States in transactions not subject to the registration requirements of the Securities Act pursuant to Regulation S, each Placement Agent has represented and agreed, and each further Placement Agent appointed under the Capital Note Programme will be required to represent and agree, that (a) it will not offer or sell such Capital Notes within the United States or to, or for the account or benefit of, U.S. Persons at any time and (b) following the end of the 40th day after the completion of the distribution of the Capital Notes (the “Distribution Compliance Date”), it may resell such Capital Notes to, or for the account or benefit of, U.S. Persons but only (i) in Eligible Secondary Market Transactions or (ii) to a Qualified Institutional Buyer (as defined in Rule 144A under the Securities Act) who is also a Qualified Purchaser (as defined in the Investment Company Act). Each Placement Agent has further agreed, and each further Placement Agent appointed under the Capital Note Programme will be required to agree, that it will obtain representations from each distributor, dealer or person receiving a selling concession fee or other remuneration to which it sells any Capital Notes prior to the Distribution Compliance Date

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confirming their compliance with the restrictions on offers and sales of the Capital Notes within the United States or to, or for the account or benefit of, U.S. Persons. Except as otherwise defined, terms used in this paragraph have the meanings given to them by Regulation S.

European Economic Area

In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a “Relevant Member State”), each Placement Agent has represented and agreed, and each further Placement Agent appointed under the Capital Note Programme will be required to represent and agree, that with effect from and including the date on which the Prospectus Directive is implemented in that Member State (the “Relevant Implementation Date”) it has not made and will not make an offer of Capital Notes to the public in that Relevant Member State, except that it may, with effect from and including the Relevant Implementation Date, make an offer of Capital Notes to the public in that Relevant Member State:

(a) in the period beginning on the date of publication of a prospectus in relation to those Capital Notes which has been approved by the competent authority in that Relevant Member State in accordance with the Prospectus Directive or, where appropriate, published in another Member State and notified to the competent authority in that Relevant Member State in accordance with Article 18 of the Prospectus Directive and ending on the date which is 12 months after the date of such publication;

(b) at any time to legal entities which are authorised or regulated to operate in the financial markets or, if not so authorised or regulated, whose corporate purpose is solely to invest in securities;

(c) at any time to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual turnover of more than €50,000,000, as shown in its last annual or consolidated accounts; or

(d) at any time in any other circumstances which do not require the publication by the Issuer of a prospectus pursuant to Article 3 of the Prospectus Directive.

For the purposes of this provision, the expression an “offer of Capital Notes to the public” in relation to any Capital Notes in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the Capital Notes to be offered so as to enable an investor to decide to purchase or subscribe the Capital Notes, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression “Prospectus Directive” means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.

United Kingdom

The Placement Agent has represented and agreed, and each further Placement Agent appointed under the Capital Note Programme will be required to represent and agree, that:

(a) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of section 21 of the FSMA) received by it in connection with the issue or sale of any Capital Notes in circumstances in which section 21(1) of the FSMA does not apply to the Issuer; and

(b) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to any Capital Notes in, from or otherwise involving the United Kingdom.

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Ireland

The Placement Agent has represented and agreed and each further Placement Agent appointed under the Placement Agreement will be required to represent and agree that:

(a) it has not offered or sold or will not offer or sell any Capital Notes of a Series in Ireland except in circumstances which do not require the publication of a prospectus pursuant to Article 3 of the Directive 2003/71/EC; and

(b) it has not and will not do anything in Ireland in connection with the Capital Notes of a Series which might constitute a breach of Section 9(1), 23(1), 23(6) or 23(7) of the Investment Intermediaries Act 1995.

Australia

No prospectus or other disclosure document (as defined in the Corporations Act 2001 of Australia) in relation to the Capital Notes has been lodged with the Australian Securities and Investments Commission ("ASIC"). The Placement Agent has represented and agreed, and each Placement Agent appointed under the Capital Note Programme will be required to represent and agree, that it:

(a) has not offered or invited applications, and will not offer or invite applications, for the

issue, sale or purchase of the Capital Notes in Australia (including an offer or invitation which is received by a person in Australia); and

(b) has not distributed or published, and will not distribute or publish, any draft, preliminary

or definitive information memorandum, advertisement or other offering material relating to the Capital Notes in Australia,

unless (1) the aggregate consideration payable by each offeree or invitee is at least AUD 500,000 (or its equivalent in other currencies, but disregarding moneys lent by the offeror or its associates) or the offer or invitation otherwise does not require disclosure to investors in accordance with Part 6D.2 of the Corporations Act, (2) such action complies with all applicable laws, regulations and directives, and (3) does not require any document to be lodged with ASIC. Austria

The Capital Notes shall only be offered or promoted in Austria in accordance with the Austrian Capital Markets Act, and the Austrian Investment Funds Act, all as amended. No prospectus in accordance with any of these statutes has been published, and the Capital Notes are not registered or authorized for distribution under these Austrian statutes.

Neither the Issuer nor the Manager are under the supervision of the Austrian Financial Market

Authority (Finanzmarktaufsichtsbehörde) or any other Austrian supervision authority. Neither this Information Memorandum nor any other document in connection with the Issuer is a

prospectus according to the Austrian Investment Funds Act or the Austrian Capital Markets Act or the Austrian Real Estate Investment Funds Act and neither this Information Memorandum nor any other document connected therewith may be distributed, passed on or disclosed to any other person in Austria, save as specifically agreed with Morgan Stanley & Co. International Limited. No steps may be taken that would constitute a public offering of the Capital Notes in Austria and the offering of the Capital Notes may not be advertised in Austria.

This Information Memorandum is distributed under the condition that the above obligations are

accepted by the recipient and that the recipient undertakes to comply with the above selling and transfer restrictions and confidentiality obligations.

Belgium

The offering of Capital Notes is exclusively conducted in Belgium under applicable private

placement exemptions and therefore neither the offering of Capital Notes nor any offering material (including,

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for the avoidance of doubt, this Information Memorandum) has been or will be notified or approved by, the Belgian Banking, Finance and Insurance Commission (Commission bancaire, financière et des assurances/Commissie voor het Bank-, Financie- en Assurantiewezen). The offering of Capital Notes is based on the private placement exemptions contained in the Royal Decree of 7th July, 1999 on the public character of financial transactions (Arrêté Royal relatif au caractère public des opérations financières / Koninklijk Besluit over het openbaar karakter van financiële verrichtingen) and no steps may be taken which would constitute or result in a public offering of Capital Notes in Belgium, as defined under Belgian law, nor may Capital Notes be offered for sale or sold to any person qualifying as a 'consumer' within the meaning of Article 1.7 of the Belgian law of 14th July, 1991 on consumer protection and trade practices.

Canada For Ontario and Quebec Residents Only

This Information Memorandum constitutes an offering of the Capital Notes within Canada only in

those jurisdictions and to those persons where and to whom they may be lawfully offered for sale, and therein only by persons permitted to sell the Capital Notes. This Information Memorandum is not, and under no circumstances is to be construed as, an advertisement or a public offering of the Capital Notes. No securities commission or similar authority in Canada has reviewed or in any way passed upon this document or the merits of the Capital Notes and any representation to the contrary is an offence. The offering of the Capital Notes in Canada is being made solely by this Information Memorandum provided to potential investors. No person has been authorised to give any information or to make any representations other than those contained herein or therein. The delivery of this Information Memorandum does not imply that any information contained herein is correct as of any date subsequent to the date set forth on the cover hereof. This Information Memorandum constitutes an offering of the Capital Notes in the above-mentioned provinces only.

Resale Restrictions

The distribution of the Capital Notes in Canada is being made only on a private placement basis and

is exempt from the requirement that the Issuer prepares and files a prospectus with the relevant Canadian securities regulatory authorities. Accordingly, any resale of Capital Notes must be made in accordance with applicable securities laws which may require resales to be made in accordance with exemptions from registration and prospectus requirements. Purchasers are advised to seek legal advice prior to any resale of Capital Notes.

Representations of Purchasers

Each Canadian investor who purchases Capital Notes will be deemed to have represented to the

Issuer and the Manager and the Placement Agents that: (a) such purchaser has reviewed the terms referred to above under "Resale Restrictions"; (b) where required by law, such purchaser is purchasing as principal and not as agent; (c) to the knowledge of such purchaser, the sale of any Capital Notes was not accompanied

by any advertisement in printed media of general and regular paid circulation, radio or television; and

(d) such purchaser is a "sophisticated purchaser" within the meaning of Section 43 of the

Securities Act (Quebec) or is otherwise permitted under applicable securities laws to purchase Capital Notes without the benefit of a prospectus qualified under, or registration under, such securities laws.

Taxation and Eligibility for Investment

Purchasers of Capital Notes should consult their own legal and tax advisers with respect to the tax

consequences of an investment in the Capital Notes in their particular circumstances and with respect to the eligibility of the Capital Notes for investment by the purchaser under relevant Canadian legislation.

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Additional Risks The Issuer’s investments will be denominated in currencies other than Canadian dollars. Therefore,

the value of Capital Notes to Canadian investors may be affected by fluctuations in the rate of exchange between the Canadian dollar and other currencies.

Enforcement of Legal Rights

The Issuer has been incorporated under the laws of Ireland. The Issuer and its respective directors

and officers as well as certain of the experts named herein may be located outside of Canada and, as a result, it may not be possible for Canadian purchasers to effect service of process within Canada upon the Issuer or such persons. All or a substantial portion of the assets of the Issuer and such persons may be located outside of Canada and, as a result, it may not be possible to satisfy a judgment against the Issuer or such persons in Canada or to enforce a judgment obtained in Canadian courts against the Issuer or persons outside of Canada.

Denmark

This Information Memorandum has not been and will not be filed with or approved by the Danish

Financial Supervisory Authority or any other regulatory authority in the Kingdom of Denmark. The Capital Notes have not been offered or sold and may not be offered, sold or delivered directly or

indirectly in Denmark, unless in compliance with Chapters 6 or 12 of the Danish Act on Trading in Securities and executive orders issued pursuant hereto as amended from time to time. Accordingly, this Information Memorandum may not be made available nor may interests in the Issuer otherwise be marketed and offered for sale in Denmark other than in circumstances which are deemed not to be a marketing or an offer to the public in Denmark.

France

The offering of the Capital Notes has not given rise to the registration of an informative document

with the Autorité des Marchés Financiers. Potential purchasers may subscribe to the Capital Notes only for their own account pursuant to the conditions set out in decree no. 98-880 of 1st October, 1998. The direct or indirect circulation to the public of the Capital Notes so subscribed may not occur without meeting the conditions provided for under Article L 411-1, L 411-2, L 412-2 and L 612-8 of the Code monétaire et financier. Greece

Each Placement Agent, Dealer and/or Manager has represented and agreed that no public offering of

the Capital Notes is permitted in the Hellenic Republic and consequently no advertisement of any kind, notifications, statements or other actions are permitted to be taken or made in the Hellenic Republic with a view to attracting the public in Greece to acquire or otherwise invest in the Capital Notes, other than in compliance with the laws applicable at the time in the Hellenic Republic governing the issue, offering and sale of securities, including any implementing legislation of EU Directive 2003/71/EC.

Hong Kong

The contents of this document have not been reviewed by any regulatory authority in Hong Kong.

Potential purchasers are advised to exercise caution in relation to the offer and if in any doubt about any of the contents of this document, should obtain independent professional advice.

Iceland

This Information Memorandum has been issued to potential purchasers of the Capital Notes

exclusively for the purposes of considering an investment in the Capital Notes. Accordingly, this Information Memorandum and any relevant information may not be used for any other purpose or passed on to any other person in Iceland.

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The investment described in this Information Memorandum is not a public offering of securities. It is not registered for public distribution in Iceland with the Financial Supervisory Authority pursuant to the Icelandic Act on Securities Transactions (the “Act”) No. 33/2003 and supplementary regulations.

The Capital Notes may not be offered or sold by means of this Information Memorandum or anyway

later resold other than to entitites or persons defined as Institutional Investors within No.7, Article 2, of the Act. Any resale of the Capital Notes in Iceland must take place in accordance with the provisions of the Act.

Japan

No Capital Notes have been or will be registered under the Securities and Exchange Law of Japan

(Law No.25 of 1948, as amended, hereinafter the “SEL”). Accordingly, solicitations to investors in Japan to purchase the Capital Notes may only be made on the Limited Private Placement basis as prescribed in Item 2-b, Paragraph 3 of Article 2 of the SEL.

Korea

The Placement Agent has represented and agreed, and each Placement Agent appointed under the

Capital Note Programme will be required to represent and agree, that Capital Notes have not been and will not be offered, delivered or sold directly or indirectly in Korea or to any resident of Korea or to others for re-offering or resale directly or indirectly in Korea or to any resident of Korea except as otherwise permitted under applicable Korean laws and regulations.

Each Placement Agent has undertaken, and each further Placement Agent appointed under the

Capital Note Programme will be required to undertake, to ensure that any securities dealer to which it sells Capital Notes confirms that it is purchasing such Capital Notes as principal and agrees with such Placement Agent that it will comply with the restrictions described above. Kuwait

This Information Memorandum has not been approved by the Kuwait Central Bank or the Kuwait

Ministry of Commerce and Industry, nor has any of the Issuer, the Manager or any Placement Agent received authorisation or licensing from the Kuwait Central Bank or the Kuwait Ministry of Commerce and Industry to market or sell the Capital Notes within Kuwait. Therefore, no services relating to the offering, including the receipt of applications and/or the allotment of Capital Notes or this Information Memorandum, or both may be rendered within Kuwait by any of the Issuer, the Manager or any Placement Agents or persons representing any such parties.

Luxembourg

The Capital Notes may not be offered or sold to the public in the Grand Duchy of Luxembourg, directly or indirectly, and neither this Information Memorandum nor any other circular, prospectus, form of application, advertisement or other material may be distributed, or otherwise made available in, or from or published in, the Grand Duchy of Luxembourg except for the purposes of the listing of the Capital Notes on the Luxembourg stock exchange (if applicable) and except in circumstances which do not constitute a public offer of securities.

This Information Memorandum is distributed under the condition that the above obligations are

accepted by the Issuer and any recipient and that the Issuer and any recipient each acknowledge and undertake to comply with the above.

The Netherlands

All Capital Notes (including rights representing an interest in a Global Capital Note) issued by the

Issuer shall be offered in The Netherlands in accordance with the following conditions: (a) such Capital Notes shall upon the Issue Date have a denomination of at least

EUR 100,000 (or the equivalent in other currency);

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(b) either the Issuer is not reasonably able to identify any Dutch Resident holders of the Capital Notes on the Issue Date or, to the extent Capital Notes are issued directly to such holders or issued in circumstances where the Issuer is reasonably aware of their identity on or prior to the Issue Date, such Dutch Resident holders must qualify as professional market parties ("PMPs") and be verified as such by the Issuer on or prior to such Issue Date in accordance with the Dutch Central Bank's 2005 policy rules pursuant to the Dutch Banking Act Exemption Regulation (Beleidsregel 2005 kernbegrippen markttoetreding en handhaving Wtk 1992); and

(c) all Capital Notes are held at the time of issuance through a clearing system that is

established in an EEA member state, the United States, Japan, Australia, Canada or Switzerland in which securities can only be held through a licensed bank or securities firm or directly by a member of such clearing system qualifying as a PMP.

For the purposes of this paragraph, "Dutch Resident" and "Dutch Residents" shall mean:

individuals or legal entities established, domiciled or resident in The Netherlands.

New Zealand The Capital Notes may not be offered, sold or delivered, directly or indirectly nor may any offering

memorandum, any pricing supplement or advertisement in relation to any offer of Capital Notes be distributed in New Zealand, other than:

(a) to persons whose principal business is the investment of money or who, in the course of

and for the purposes of their business, habitually invest money, or who in all the circumstances can properly be regarded as having been selected other than as members of the public; or

(b) in other circumstances where there is no contravention of the Securities Act 1978 of

New Zealand.

Norway

The Capital Notes may be offered only to institutional investors with a minimum subscription and allotment amount per investor of EUR 40,000. This Information Memorandum has neither been approved nor disapproved by the Oslo Stock Exchange nor filed with the Norwegian Register of Business Enterprises. Qatar

None of the Issuer, the Manager or the Placement Agents have been authorized, nor has any

application been made, or will be made, for such authorisation under Article (4) Law No.(14) of the Year 1995 to register the Issuer on any exchange in Qatar. Accordingly, the Capital Notes may not be offered, sold or delivered, nor may this Information Memorandum or any offering material relating to the Capital Notes be distributed in the State of Qatar by the Issuer, the Manager or the Placement Agents or any person acting on their behalf.

Saudi Arabia

This Information Memorandum has not been approved by the Saudi Arabian Monetary Agency, the

Capital Markets Authority or the Saudi Arabian Ministry of Commerce and Industry or any other authorities in Saudi Arabia, nor has any of the Issuer, the Manager or the Placement Agents received authorization or licensing from the Saudi Arabian Monetary Agency, the Capital Markets Authority or the Saudi Arabian Ministry of Commerce and Industry or any other authorities in Saudi Arabia to market or sell the Capital Notes within Saudi Arabia. Therefore, the Capital Notes may not be marketed or sold in Saudi Arabia and no services relating to the offering, including the receipt of applications or this Information Memorandum, or both, may be rendered within Saudi Arabia by any of the Issuer, the Manager or the Placement Agents or persons representing such parties.

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Singapore This Information Memorandum has not been registered as a prospectus with the Monetary Authority

of Singapore. Accordingly, this Information Memorandum and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the Capital Notes may not be circulated or distributed, nor may the Capital Notes be offered or sold, or be the subject of an invitation for subscription or purchase, whether directly or indirectly, to the public or any member of the public in Singapore other than (i) to an institutional investor or other person specified in Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the "SFA"), (ii) to a sophisticated investor, and in accordance with the conditions, specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of any other applicable provisions of the SFA.

South Africa

Nothing contained in this Information Memorandum shall constitute any kind of offer of Capital

Notes to the public for the purposes of section 141 of the Companies Act 1973, or any kind of offer of Capital Notes to the public for the purposes of sections 142-147 of the Companies Act 1973.

Spain

The Capital Notes may only be offered in Spain (i) to qualified investors and (ii) in denominations of

at least EUR 50,000. The Capital Notes have not been registered with the CNMV and accordingly no publicity may be carried out in Spain nor any document or offer material be distributed in Spain or targeted to Spanish resident investor save in compliance and in accordance with the requirements set out in Royal Decree 291/1992 as amended.

Taiwan The Capital Notes have not been and will not be registered with the Securities and Futures

Commission of the Republic of China and therefore may not be offered or sold in the Republic of China.

UAE This Information Memorandum has not been approved by the UAE Central Bank or the UAE

Ministry of Economy and Commerce, nor has any of the Issuer, the Manager or the Placement Agents received authorization or licensing from the UAE Central Bank or the UAE Ministry of Economy and Commerce to market or sell the Capital Notes within the UAE. Therefore, the Capital Notes may not be marketed or sold in the UAE and no services relating to the offering, including the receipt of applications and/or the allotment or investments or this Information Memorandum, or both, may be rendered within the UAE by any of the Issuer, the Manager or the Placement Agents or persons representing any such parties.

General

The Placement Agent has agreed and each further Placement Agent appointed under the Capital Note Programme will be required to agree that it will (to the best of its knowledge and belief) comply with all applicable securities laws and regulations in force in any jurisdiction in which it purchases, offers, sells or delivers Capital Notes or possesses or distributes this Information Memorandum and will obtain any consent, approval or permission required by it for the purchase, offer, sale or delivery by it of Capital Notes under the laws and regulations in force in any jurisdiction to which it is subject or in which it makes such purchases, offers, sales or deliveries and neither the Issuer nor any of the other Placement Agents shall have any responsibility therefor.

Neither the Issuer nor any of the Placement Agents represents that Capital Notes may at any time lawfully be sold in compliance with any applicable registration or other requirements in any jurisdiction, or pursuant to any exemption available thereunder, or assumes any responsibility for facilitating such sale.

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With regard to each Series, the relevant Placement Agent will be required to comply with such other restrictions as the Issuer and the relevant Placement Agent shall agree and as shall be set out in the applicable Pricing Supplement.

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GENERAL INFORMATION

Authorisation

The establishment of the Capital Note Programme and the issue of Capital Notes under the Capital Note Programme has been duly authorised by a resolution of the board of directors of the Issuer dated 28th July, 2005.

Listing of Capital Notes on the Irish Stock Exchange

It is expected that each Tranche of Capital Notes which is to be admitted to the Official List of the Irish Stock Exchange will be admitted separately as and when issued, subject only to the issue of a Global Capital Note or Global Capital Notes initially representing the Capital Notes of such Tranche. The listing of the Capital Note Programme in respect of Capital Notes is expected to be granted on or before 29th July, 2005.

Arthur Cox Listing Services Limited is acting solely in its capacity as listing agent for the Issuer in connection with the Capital Notes and is not itself seeking admission of the Capital Notes to the official list of the Irish Stock Exchange or to trading on the Irish Stock Exchange for the purposes of the Prospectus Directive.

Documents Available

Physical copies of the Memorandum and Articles of Association of the Issuer and the documents listed in item (iii) below may be inspected during usual business hours on any day (excluding Saturdays, Sundays, and public holidays) at the registered office of the Issuer and the specified office (outside the United States) of the Irish Paying Agent for the time being in Dublin for so long as there are any Notes outstanding.

In addition, so long as Capital Notes are capable of being issued under the Capital Note Programme, physical copies of the following documents will, when published, be available from the registered office of the Issuer and from the specified office (outside the United States) of the Irish Paying Agent for the time being in Dublin:

(a) the Memorandum and Articles of Association of the Issuer;

(b) all the audited annual financial statements and any semi-annual accounts of the Issuer published since its incorporation in November 2004;

(c) the Placement Agreement, the Agency Agreement, the Deed of Covenant, the Security Trust Deed and the forms of the Global Capital Notes, the Capital Notes in definitive form, the Coupons and the Talons, the Management Agreement, the Administrative Advisory Services Agreement, the Global Custody Agreement and the Common Terms Agreement;

(d) a copy of this Information Memorandum; and

(e) any future information memoranda, offering circulars, prospectuses and supplements including Pricing Supplements (save that a Pricing Supplement relating to an unlisted Capital Note will only be available for inspection by a Holder of such Capital Note and such Holder must produce evidence satisfactory to the Issuer or, as the case may be, the Irish Paying Agent as to its holding of such Capital Notes and as to its identity) to this Information Memorandum and any other documents incorporated herein or therein by reference.

Clearing Systems

The Capital Notes have been accepted for clearance through Euroclear and Clearstream, Luxembourg. The appropriate Common Code and ISIN for each Series and/or Tranche of Capital Notes allocated by Euroclear and Clearstream, Luxembourg will be specified in the applicable Pricing Supplement. If the Capital Notes are to clear through an additional or alternative clearing system the appropriate information will be specified in the applicable Pricing Supplement.

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Significant or Material Change

Since the date of its incorporation, save for entering into certain warehousing and ancillary agreements in anticipation of obtaining funding pursuant to the Transaction Documents, the Issuer has not commenced operations and no accounts have been made up as of the date of this Information Memorandum.

Litigation

Neither the Issuer nor any other member of the Group (meaning the Issuer and its wholly owned subsidiaries, Cheyne Finance LLC and the U.S. Capital Notes Issuer) is or has been involved in any legal, arbitration or governmental proceedings (including any proceedings which are pending or threatened of which the Issuer is aware) which may have or have had in the 12 months preceding the date of this document a significant effect on the Group’s financial position.

Auditors

The auditors of the Issuer are KPMG (Chartered Accountants and Registered Auditors).

Paying Agent

So long as any Capital Notes are listed on any relevant Official List and/or stock exchange, there will at all times be a Paying Agent with a specified office in such place outside the United States as may be required by the rules and regulations of the relevant authority or stock exchange.

EU Savings Directive

Under EC Council Directive 2003/48/EC on the taxation of savings income, Member States are required, from 1st July, 2005, to provide to the tax authorities of another Member State details of payments of interest (or similar income) paid by a person within its jurisdiction to an individual resident in that other Member State. However, for a transitional period, Belgium, Luxembourg and Austria are instead required (unless during that period they elect otherwise) to operate a withholding system in relation to such payments (the ending of such transitional period being dependent upon the conclusion of certain other agreements relating to information exchange with certain other countries). A number of non-EU countries and territories including Switzerland have agreed to adopt similar measures (a withholding system in the case of Switzerland) with effect from the same date.

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GLOSSARY

“Additional Interest” has the meaning ascribed thereto in the Terms and Conditions of the Capital Notes on page 32.

“Administrative Advisory Services Agreement” means the Administrative Advisory Service Agreement to be dated on or around 3rd August, 2005 and made between the Issuer, the U.S. Capital Notes Issuer, Cheyne Finance LLC, CCML, CCIL and QSR Management Limited.

“Administrator” means QSR Management Limited in its capacity as administrator or, if the context so requires, any successor thereof appointed from time to time in accordance with the Administrative Advisory Services Agreement.

“Affiliate” means, in relation to any Person, any other Person directly or indirectly Controlling, Controlled by, or under direct or indirect common Control with, such Person, or (in the case of a body corporate) any body corporate in the same Group as that body, provided that the Issuer shall be deemed to have no Affiliates other than the U.S. Capital Notes Issuer and Cheyne Finance LLC.

“applicable Pricing Supplement” has the meaning ascribed thereto in the Terms and Conditions of the Capital Notes.

“Agency Agreement” means, for the purposes of this Information Memorandum, the Euro Capital Note Agency Agreement.

“Appointee” means any attorney, manager, agent, delegate, nominee, custodian or other person appointed by the Security Trustee under the Security Trust Deed.

“Available Liquidity” means, in each of the Liquidity Tests, the sum of the forms of liquidity which are listed as being acceptable for consideration (i.e. given credit) in such test.

“Bank” means The Bank of New York, New York branch, in its capacity as cash deposit bank pursuant to the terms of the U.S. Capital Note Deposit Account Control and Security Agreement and the U.S. Senior Note Deposit Account Control and Security Agreement.

“Base Fee” means the aggregate fee payable by the Issuer to the Receivables Trustee as a base fee described in the section entitled “The Issuer’s Business – Remuneration and Expenses” on page 102.

“Bond Documents” means, at any time, all documents executed by the Issuer and/or Cheyne Finance LLC in connection with the issuance of Bonds which have not been fully redeemed at such time.

“Bonds” means the Euro Bonds and the U.S. Bonds.

“Breach” of any provision of, or obligation under, any document means any action or failure to take action which constitutes a breach of such provision or obligation.

“Breakable Deposits” means deposits which may be withdrawn with same day availability with banks with a short-term rating of at least A-1 by S&P and P-1 by Moody’s and which meet certain additional criteria as agreed with the Rating Agencies from time to time.

“Business Day” means any day (other than a Saturday or Sunday) on which banks and foreign exchange markets are open for the transaction of commercial business in London, New York and Dublin and on which the Trans-European Automated Real-Time Gross Settlement Express Transfer (TARGET) System is operating.

“Calculation Agent” means The Bank of New York of One Canada Square, London E14 5AL or any successor thereof.

“Capital Note” means each secured capital note issued by the Issuer pursuant to the Capital Note Programme.

“Capital Note Component” has the meaning ascribed thereto in the Terms and Conditions of the Capital Notes on page 32.

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“Capital Note Currency” means, in relation to any Capital Notes, the currency in which such Capital Notes are denominated.

“Capital Note Maturity Test” has the meaning ascribed thereto in paragraph (e) under the heading “Minor Capital Tests” in the section entitled “Specific Investment and Funding Criteria – Capital Tests” on page 100.

“Capital Note Placement Agents” means the Euro Capital Note Placement Agents and the U.S. Capital Note Placement Agents.

“Capital Note Programme” means, for the purposes of this Information Memorandum, the U.S.$3,000,000,000 Capital Note programme to be established by the Issuer pursuant to the Euro Capital Note Programme Documents.

“Capital Note Programme Documents” means the Euro Capital Note Programme Documents and the U.S. Capital Note Program Documents.

“Capital Note Purchase Agreement” means the Capital Note Purchase Agreement to be dated on or around 3rd August , 2005 and made between the Issuer and the U.S. Capital Notes Issuer.

“Capital Note Rating Test” has the meaning ascribed thereto in paragraph (d) under the heading of “Minor Capital Tests” under the section entitled “Specific Investment and Funding Criteria – Capital Tests” on page 100.

“Capital Note Simulation Model Rating Test” has the meaning ascribed thereto in paragraph (c) under the heading “Minor Capital Tests” of the section entitled “Specific Investment and Funding Criteria – Capital Tests” on page 100.

“Capital Noteholders” means the Holders for the time being of the Capital Notes.

“Capital Notes Outstanding” means all the Capital Notes for the time being outstanding or, if otherwise specified, all the Capital Notes of a particular Class or, as the case may be, Series for the time being outstanding.

“Capital Test” means the Major Capital Tests and the Minor Capital Tests.

“Cash Equivalent” means Investments which are either cash in any Eligible Currency, Breakable Deposits, Money Market Funds or other Investments agreed with the Rating Agencies from time to time. All such Investments shall be considered to be from the Cash Equivalent Investment Class.

“CCIL” means Cheyne Capital International Limited of Clarendon House, 2 Church Street, Hamilton HL11, Bermuda in its capacity as Manager Delegate.

“CCML” means Cheyne Capital Management Limited of Stornoway House, 13 Cleveland Row, London SW1A 1DH.

“CDS Buffer” means an additional liquidity requirement which takes into account potential cash outflows which could result from outstanding Investment Derivative Contracts. The methodology for calculating the CDS Buffer may vary depending on the Liquidity Tests being calculated. The methodology for calculating the CDS Buffer shall be agreed with the Rating Agencies from time to time.

“Chargor” means the Issuer as chargor under the Security Trust Deed.

“Class” means as the context may require, (i) in relation to the Capital Notes, the Senior Capital Notes, the Mezzanine Capital Notes, the Junior Capital Notes or the Combination Capital Notes, as the case may be and (ii) in relation to the U.S. Capital Notes, the U.S. Senior Capital Notes, the U.S. Mezzanine Capital Notes, the U.S. Junior Capital Notes or the U.S. Combination Capital Notes, as the case may be.

“Clearing System” means each of Clearstream, Luxembourg, Euroclear, DTC and such other clearance or depositary systems or recognised exchanges as may from time to time be approved by the Rating Agencies for use in connection with transactions relating to Debt Securities, and any depositary or nominee for any of the foregoing.

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“Clearstream, Luxembourg” means Clearstream Banking, société anonyme and shall, wherever the context so permits, be deemed to include a reference to any additional or alternative clearing system specified in the applicable Pricing Supplement in relation to any Capital Notes.

“Closing Date” means 3rd August, 2005.

“Combination Capital Note Ratio” has the meaning ascribed thereto in the Terms and Conditions of the Capital Notes on page 34.

“Combination Capital Notes” means the Class of Capital Notes consisting of any combination of a Senior Capital Note Component, a Mezzanine Capital Note Component and a Junior Capital Note Component in the Combination Capital Note Ratio.

“Commitment” has the meaning ascribed thereto in the relevant clause of the Liquidity Facility Agreement or the relevant clause of any Committed Repo Agreement.

“Committed Repo Agreement” means an agreement entered into between the Issuer and a Committed Repo Counterparty pursuant to which Committed Repo Facilities are available.

“Committed Repo Counterparty” means any counterparty to a Committed Repo Agreement, such counterparty at the time of entering into the Committed Repo Agreement being required to have either a short-term debt rating of at least A-1 by S&P and P-1 by Moody’s or to meet such other criteria as agreed with the Rating Agencies from time to time.

“Committed Repo Facilities” means facilities under which the Issuer pays an ongoing commitment fee to a Committed Repo Counterparty for the right, with same day availability, to enter into Committed Repo Transactions (in accordance with criteria required by the Rating Agencies) with such Committed Repo Counterparty on pre-agreed terms.

“Committed Repo Transactions” means transactions entered into by the Issuer pursuant to a Committed Repo Agreement.

“Common Depositary” means The Bank of New York, London branch, in its capacity as common depositary for Euroclear and Clearstream, Luxembourg.

“Common Terms Agreement” means the Common Terms Agreement to be dated on or around 3rd August, 2005 and made between, inter alios, the Issuer, the U.S. Capital Notes Issuer, Cheyne Finance LLC, Morgan Stanley, Morgan Stanley & Co. Incorporated, CCML, CCIL, the Security Trustee, the Custodian, the Receivables Trustee, the Bank, the Depositary, the U.S. Custodian, the U.S. Registrar, the Securities Intermediary, the U.S. Security Agent and the Administrator, as amended from time to time.

“Compliance Tests” means the Investment Portfolio Parameter Tests, the Liquidity Tests, the Capital Tests, the Market Sensitivity Tests and the Weighted Average Life of Senior Funding Test. The list of tests comprising the Compliance Tests may be amended from time to time with Rating Agency Approval.

“Condition” means, in respect of a Note, a numbered provision of the terms and conditions of such Note.

“Control” means that a person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the other person, whether through the ownership of voting shares, by contract or otherwise; and “Controls”, “Controlling” and “Controlled” shall be interpreted accordingly.

“Country of Investment” means:

(a) for Investments where the Investment Class is Structured Finance, the country or region within which, in the reasonable commercial judgment of the Manager, the majority of underlying assets with respect to such Structured Finance Investment is located;

(b) for Investments where the Investment Class is either Sovereign or U.S. Government Agency and for certain other Investments as agreed with the Rating Agencies from time to time, the jurisdiction of the issuer of the relevant security; or

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(c) for all other Investments, as determined using methodologies agreed with the Rating Agencies from time to time.

“Coupons” has the meaning ascribed thereto in the Terms and Conditions of the Capital Notes on page 32.

“CP” means Euro CP and U.S. CP.

“CP Programmes” means the Euro CP Programme and the U.S. CP Program.

“Credit Portfolio” means the Investment Portfolio together with all outstanding Hedge Agreements to which the Issuer is a party.

“Credit Portfolio Value” means (i) the sum of the Value of all Investments included in the Investment Portfolio and (ii) the aggregate Value of all Hedge Agreements, except for certain Investments and Hedge Agreements which may be excluded from such calculation as agreed with the Rating Agencies from time to time. Credit Portfolio Value may also, where the context so requires, include the Value of Investments which are subject to Repo Agreements, Committed Repo Agreements, Securities Lending Agreements or Investment Derivative Contracts, which are posted to a counterparty under any such agreement or otherwise as agreed with the Rating Agencies from time to time.

“cumulative net cash outflow” means, in respect of a period of one or more successive London and New York Business Days, the Dollar Equivalent of the aggregate Scheduled Payments falling due during that period (or during any portion thereof) less the Dollar Equivalent of the aggregate Scheduled Receipts falling due during that period (or such portion thereof).

“Currency Sensitivity Limit” means the limit set out in the table under the heading “Currency Sensitivity Test” in the section entitled “Specific Investment and Funding Criteria – Market Sensitivity and Liquidity Tests” on page 98.

“Currency Sensitivity Test” means the test set out under the heading “Currency Sensitivity Test” in the section entitled “Specific Investment and Funding Criteria – Market Sensitivity and Liquidity Tests” on page 98.

“Custodian” means The Bank of New York, London branch, or its replacement, in its capacity as custodian under the Global Custody Agreement.

“Debt Security” means, unless otherwise agreed with the Rating Agencies from time to time, any bond, debenture, note, stock or other security evidencing debt and all moneys, rights or property which may at any time accrue or be offered (whether by way of bonus, redemption, preference, option or otherwise) in respect of any of the foregoing and any certificates, receipts, warrants or other instruments (whether in registered or unregistered form) representing rights to receive, purchase or subscribe for any of the foregoing or evidencing or representing any other rights or interests therein (including, without limitation, any of the foregoing not constituted, evidenced or represented by a certificate or other document or instrument but an entry in the books or other permanent records of the issuer, a trustee or other fiduciary thereof, a financial intermediary or a Clearing System).

“Deed of Covenant” means:

(a) for the purposes of the Capital Note Programme, the Euro Capital Note Deed of Covenant;

(b) for the purposes of the Euro CP Programme, the Euro CP Deed of Covenant; and

(c) for the purposes of the Euro MTN Programme, the Euro MTN Deed of Covenant,

and “Deeds of Covenant” means all three of them.

“Deemed Rating” means for the relevant Rating Agency in respect of an Investment, either:

(a) the public rating assigned by such Rating Agency;

(b) the shadow rating assigned by such Rating Agency; or

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(c) the rating assigned by such Rating Agency as the Deemed Rating using methodology as agreed with such Rating Agency from time to time.

In all cases the Deemed Rating of a Cash Equivalent shall be AAA with respect to S&P and Aaa with respect to Moody’s.

“Deferred Interest” has the meaning ascribed thereto in the Terms and Conditions of the Capital Notes on page 34.

“Depositary” means the depositary appointed from time to time pursuant to the Depositary Agreement.

“Depositary Agreement” means the depositary agreement to be made on or around 3rd August, 2005 between the Issuer and The Bank of New York, New York branch, as depositary, and The Bank of New York, London Branch, as the Security Trustee, a Euro Paying Agent and the U.S. Custodian as amended from time to time.

“Designated Investments” means Investments of the Issuer designated as such for the purposes of a Synthetic Portfolio Transaction.

“Distributable Profits” has the meaning ascribed thereto in the Terms and Conditions of the Capital Notes on page 35.

“Distribution Rate” has the meaning ascribed thereto in the Terms and Conditions of the Capital Notes on page 35.

“Dollars”, “U.S. dollars”, “U.S.$” and “$” means the lawful currency from time to time of the United States of America.

“Dollar Equivalent” means, on any day of determination, in relation to an amount denominated in Dollars, that amount and, in relation to an amount denominated in an Optional Currency, the amount in Dollars equivalent to that amount of such Optional Currency based upon the then Exchange Rate. “DTC” means The Depository Trust Company, currently of 55 Water Street, New York, New York 10041, USA.

“Effective Net Asset Value” means the Dollar Equivalent of the sum of the Market Value of Investments (excluding Investment Derivative Contracts unless otherwise agreed with the Rating Agencies) plus the sum of the Market Value of Hedge Agreements minus, inter alia, the Senior Obligations provided that this definition may be amended from time to time with Rating Agency Approval.

“Eligible Bank” means any bank whose short-term debt is rated A-1+ by S&P and P-1 by Moody’s or any other bank subject to Rating Agency Approval.

“Eligible Currency” means one of the following currencies or any currency which replaces such currency: Dollars, Australian Dollars, Canadian Dollars, Danish Krone, euro, Hong Kong Dollars, Japanese Yen, New Zealand Dollars, Norwegian Krone, Pounds Sterling, Swedish Krone, Swiss Francs or any other currency subject to Rating Agency Approval.

“Eligible Investment Class” means an Investment where the Investment Class is either Structured Finance, U.S. Government Agency, Sovereign, Supranational, Cash Equivalent or Financing Transaction or other additional Investment Classes subject to Rating Agency Approval or a synthetic exposure to any of the above Investment Classes.

“Eligible Jurisdiction” means any country with a foreign currency sovereign rating of at least AA- by S&P and Aa3 by Moody’s, and shall include those countries listed in the table under the heading “Maximum Country of Investment Concentration Test” in the section entitled “Specific Investment and Funding Criteria – Investment Portfolio Parameter Tests” on page 94 or any other country as agreed with the Rating Agencies from time to time.

“Eligible Limit” means the limit described as such in each Investment Portfolio Parameter Test.

“Emergency Back-Up Manager” means QSR, in its capacity as emergency back-up manager, any other Person acting as Administrator from time to time or another Person, subject to Rating Agency Approval.

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“Enforcement Event” means any of the following:

(a) following receipt of a valid notice of a Euro Senior Note Event of Default under any Euro Senior Note, the Security Trustee, pursuant to the terms of the Security Trust Deed, having become obliged to deliver an Enforcement Event Notice;

(b) the dissolution of the Issuer or the making of a winding-up or administration order against the Issuer or the appointment of an administrator or examiner in respect of the Issuer or any analogous proceedings in respect of the Issuer are initiated, in each case whether by or on behalf of the Issuer or otherwise, and are not dismissed within 30 calendar days;

(c) the Issuer taking any action for a moratorium, voluntary arrangement, scheme of arrangement or composition with or for its creditors;

(d) an encumbrancer taking possession or a receiver being appointed in respect of the whole or any substantial part of the undertakings of the Issuer;

(e) the termination of any Hedge Agreement or Investment Derivative Contract as a consequence of either:

(i) an event of default in relation to the Issuer under either:

(1) section 5(a) of any 1992 ISDA Master Agreement (Multicurrency – Cross Border) to the extent that such provisions apply to the Issuer pursuant to the terms of the ISDA Master Agreement signed between the Issuer and the relevant counterparty; or

(2) an equivalent provision of any similar master derivative documentation; or

(ii) non-payment by the Issuer under either:

(1) section 6(d) of any 1992 ISDA Master Agreement (Multicurrency – Cross Border) to the extent that such provisions apply to the Issuer pursuant to the terms of the ISDA Master Agreement signed between the Issuer and the relevant counterparty; or

(2) an equivalent provision of any similar master derivative documentation;

(f) the cancellation of a Commitment under any Liquidity Facility or any Committed Repo Facility following the occurrence of a Liquidity Event of Default or the failure by the Issuer to pay any amount of interest or principal thereunder when due;

(g) the termination of a Repo Agreement or a Securities Lending Agreement following, respectively, a Repo Event of Default or a Securities Lending Event of Default;

(h) the Security Trustee being required, under the terms of the Security Trust Deed, to deliver an Enforcement Event Notice if (i) it has received notice from a Euro Paying Agent or the Holder of any Capital Note (except a Junior Capital Note) of a Euro Capital Note Event of Default and (ii) within three Business Days of the receipt of such notice it has not received a certificate from a Euro Paying Agent or the Manager (as appropriate) to the effect that the relevant payment has since been made in full together with all default interest, if any, owed and that the Euro Capital Note Event of Default was either (A) wholly attributable to the occurrence of a calamity or emergency outside the control of the Issuer (including (without limitation) natural disasters, nationalisation, currency restrictions, acts of terrorism, acts of war, acts of God, breakdown or failure of transmission, communications or computer facilities of third parties, postal or other strikes or industrial action or the failure or disruption of any relevant stock exchange, Clearing System, settlement system or market) or (B) wholly attributable to administrative or procedural error and reasonable steps have been taken to prevent the recurrence of such administrative or procedural error;

(i) the breach, following any applicable cure period agreed with the Rating Agencies from time to time, of the Major Capital Loss Test; or

(j) the occurrence of an Insolvency Event.

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“Enforcement Event Notice” means a notice delivered by the Security Trustee pursuant to the Security Trust Deed stating that an Enforcement Event has occurred.

“Euro Bond” means any rated secured Debt Security (other than (i) a Capital Note or (ii) a Debt Security which also constitutes a Hedge Agreement) issued by the Issuer outside the Euro Programmes and which is not a U.S. Bond.

“Euro Capital Note Agency Agreement” means the Capital Note agency agreement to be dated on or around 3rd August, 2005 and made between, inter alios, the Issuer, the Paying Agents and the Security Trustee.

“Euro Capital Note Deed of Covenant” means the Deed of Covenant defined in the Terms and Conditions of the Capital Notes on page 33.

“Euro Capital Note Event of Default” means the failure of the Issuer (a) to redeem any Capital Note (other than any Junior Capital Note) in accordance with the Terms and Conditions of the relevant Capital Note on or by the Legal Maturity Date relating to such Capital Note or (b) to pay all interest due and payable (excluding Variable Margin) on any Capital Note (other than on any Junior Capital Note) on or by the Legal Maturity Date relating to such Capital Note.

“Euro Capital Note Placement Agent” means each financial institution appointed from time to time as a placement agent under the Euro Capital Note Placement Agreement.

“Euro Capital Note Placement Agreement” means the capital note placement agreement to be dated on or around 3rd August, 2005 and made between the Issuer and Morgan Stanley or any other Euro Capital Note Placement Agent.

“Euro Capital Note Programme Documents” means the Euro Capital Note Placement Agreement, the Euro Capital Note Agency Agreement and all other documents executed by the Issuer in connection with the issuance of Capital Notes under the Capital Note Programme.

“Euro CP” means euro-commercial paper issued by the Issuer pursuant to the Euro CP Programme Documents.

“Euro CP Agency Agreement” means the Euro CP agency agreement to be dated on or around 3rd August, 2005 and made between the Issuer, the Euro CP Paying Agents and the Security Trustee.

“Euro CP Dealer Agreement” means the dealer agreement to be dated on or around 3rd August, 2005 and made between the Issuer and the Euro CP Dealers.

“Euro CP Dealer” means each financial institution appointed from time to time as a dealer under the Euro CP Dealer Agreement.

“Euro CP Deed of Covenant” has the meaning ascribed thereto in the terms and conditions set out in the relevant Global Note.

“Euro CP Paying Agent” means each paying agent appointed from time to time under the Euro CP Agency Agreement.

“Euro CP Programme” means the U.S.$10,000,000,000 Euro CP programme to be established by the Issuer pursuant to the Euro CP Programme Documents.

“Euro CP Programme Documents” means the Euro CP Agency Agreement and the Euro CP Dealer Agreement.

“Euro Junior Capital Notes Subordinated Payments” means the payment of any amounts designated as such in any of the Transaction Documents.

“Euro Mezzanine Capital Notes Subordinated Payments” means the payment of any Indemnity Cap Excess and any other payment obligations designated as Euro Mezzanine Capital Notes Subordinated Payments in any of the Transaction Documents.

“Euro MTN” means any euro medium term note issued by the Issuer pursuant to the Euro MTN Programme Documents.

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“Euro MTN Agency Agreement” means the Euro MTN agency agreement to be dated on or around 3rd August, 2005 and made between the Issuer, the Euro MTN Paying Agents and the Security Trustee.

“Euro MTN Dealer Agreement” means the dealer agreement to be dated on or around 3rd August, 2005 and made between the Issuer and the Euro MTN Dealers.

“Euro MTN Dealer” means each financial institution appointed from time to time as a dealer under the Euro MTN Dealer Agreement.

“Euro MTN Deed of Covenant” has the meaning ascribed thereto in the Terms and Conditions of the Euro MTN.

“Euro MTN Paying Agent” means each paying agent appointed from time to time under the Euro MTN Agency Agreement.

“Euro MTN Programme” means the U.S.$10,000,000,000 Euro MTN programme to be established by the Issuer pursuant to the Euro MTN Programme Documents.

“Euro MTN Programme Documents” means the Euro MTN Agency Agreement and the Euro MTN Dealer Agreement.

“Euro Notes” means the Euro Senior Notes and the Capital Notes.

“Euro Paying Agents” means each Paying Agent in respect of the Capital Notes, each Euro CP Paying Agent, each Euro MTN Paying Agent and each paying agent appointed in respect of any Euro Bonds.

“Euro Programmes” means the Euro MTN Programme, the Euro CP Programme and the Capital Note Programme.

"Euro Rated Notes" means the Euro Senior Notes, the Senior Capital Notes (if issued) and the Mezzanine Capital Notes.

“Euro Senior Note Dealers” means each Euro CP Dealer, each Euro MTN Dealer and each dealer appointed in respect of the Euro Bonds.

“Euro Senior Note Event of Default” means a default by the Issuer in the payment of any principal, premium or interest (including discount) due in respect of any Euro Senior Notes in accordance with the terms thereof.

“Euro Senior Notes” means the Euro CP, the Euro MTN and the Euro Bonds.

“Euroclear” means Euroclear Bank S.A./N.V. as operator of the Euroclear system and shall, whenever the context so permits, be deemed to include a reference to any additional or alternative clearing system specified in the applicable Pricing Supplement in relation to any Capital Notes.

“Exchange Rate” means, for each currency and at any time, the value of that currency in Dollars using the spot rate of exchange available to the Manager, acting on behalf of the Issuer, in the foreign exchange markets at the relevant time on any Business Day (expressed such that one unit of the currency equals a fraction or a number of Dollars).

“Expected Final Maturity” means the date of the final expected principal payment on an Investment, as determined in the reasonable judgment of the Manager in accordance with market convention, utilising the market’s long-term prepayment specifications for the Investment and taking account of the market’s expectations of the exercise of calls relating to such Investment.

“Expected Maturity Date” has the meaning ascribed thereto in the Terms and Conditions of the Capital Notes on page 35.

“Exposure” means, unless otherwise agreed with the Rating Agencies from time to time, the Dollar Equivalent of (a) in relation to an Investment, the principal amount outstanding of such Investment, (b) in relation to a Single Obligor Group comprising Investments, the sum of the principal amount outstanding of the Investments included in such Single Obligor Group, provided that, in both cases, such principal amount outstanding may be amended by a conversion factor for certain Investments as agreed with the Rating Agencies from time to time

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(or, for (a) and (b) above, where the Investment is an Investment Derivative Contract, the principal amount outstanding of the reference obligation under such Investment Derivative Contract) and (c) in relation to a Hedge Counterparty, the most recent net Market Value of all Hedge Agreements with such Hedge Counterparty unless, in each case, otherwise agreed with the Rating Agencies from time to time.

“Extendible CP” means any CP the maturity date of which can be extended unconditionally by same day notice given by the Manager or the Administrator at the direction of the Manager on behalf of the Issuer, subject to a maximum maturity of 364 days.

“Extraordinary Resolution” means, in relation to any Class of Capital Notes, either (i) a resolution passed (at a meeting of the Holders of such Class of Capital Notes duly convened and held in accordance with the Agency Agreement and at which the quorum for passing such resolution shall be one or more persons holding or representing at least 66 2/3 per cent. of the aggregate principal amount of Capital Notes Outstanding of the relevant Class) by a majority of at least 66 2/3 per cent. of the votes cast at such meeting or (ii) a resolution in writing signed by, or on behalf of, the Holders of not less than 66 2/3 per cent. in principal amount outstanding of Capital Notes Outstanding of that Class.

“Financing Transaction” means any financing transaction described under the heading “Eligible Investment Classes” in the section entitled “Specific Investment and Funding Criteria” on page 91. All such Investments shall be considered to be from the Financing Transactions Investment Class.

“Fixed Dollar Equivalent Nominal Amount” has the meaning ascribed thereto in the Terms and Conditions of the Capital Notes on page 36.

“Fixed Interest” has the meaning ascribed thereto in the Terms and Conditions of the Capital Notes on page 36.

“Fixed Margin” has the meaning ascribed thereto in the Terms and Conditions of the Capital Notes on page 36.

“Funding Objectives” means the funding objectives of the Issuer, including (without limitation) the objectives listed in paragraphs (a) to (h) inclusive set out in the section entitled “Funding Objectives” on page 83.

“Funding Restrictions” means the funding restrictions applicable to the Issuer listed in paragraphs (a) to (e) inclusive set out in the section entitled “Funding Restrictions” on page 84.

“Global Capital Note” has the meaning given to it in the Terms and Conditions of the Capital Notes on page 32.

“Global Custody Agreement” means the Global Custody Agreement to be dated on or around 3rd August, 2005 and made between the Issuer and the Custodian, as amended from time to time.

“Global Note” means any global note issued in respect of the Capital Notes, CP or MTN of any series.

“Group” means, in relation to a body corporate, the body corporate, any other body corporate which is its Holding Company or Subsidiary and any other body corporate which is a Subsidiary of that Holding Company.

“Haircut Market Value of Liquidity Eligible Investments” means the Market Value of Liquidity Eligible Investments as reduced by an Investment-specific factor which is set in agreement with the Rating Agencies from time to time.

“Hedge Agreement” means any agreement, other than any Investment Derivative Contract, which constitutes or provides for a rate swap transaction, basis swap, forward rate transaction, equity or equity index swap, equity or equity index option, credit or credit index swap, credit default swap, credit or credit index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of these transactions) or any combination of these transactions.

“Hedge Counterparty” means any counterparty with whom the Issuer has an outstanding Hedge Agreement.

“Holder” means the several persons who are for the time being holders of the Senior Notes, Capital Notes or the U.S. Capital Notes of any series (being, in the case of Senior Notes, Capital Notes or U.S. Capital Notes in definitive bearer form, the bearers thereof and, in the case of Senior Notes, Capital Notes or U.S. Capital Notes

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in definitive registered form, the several persons whose names are entered in the register of holders of such Senior Notes, Capital Notes or U.S. Capital Notes as the holders thereof) save that, in respect of Senior Notes, Capital Notes or U.S. Capital Notes of any series, for so long as such Senior Notes, Capital Notes or U.S. Capital Notes or any part thereof are represented by a Global Note deposited with a common depositary for Euroclear and/or Clearstream, Luxembourg or for so long as DTC or its nominee is the registered holder of a Global Note or, in respect of Senior Notes, Capital Notes or U.S. Capital Notes in definitive form held in an account with Euroclear, Clearstream, Luxembourg or DTC, each person who is for the time being shown in the records of Euroclear or Clearstream, Luxembourg (other than Clearstream, Luxembourg, if Clearstream, Luxembourg shall be an accountholder of Euroclear, and Euroclear, if Euroclear shall be an accountholder of Clearstream, Luxembourg) or, as the case may be, DTC as the holder of a particular nominal amount of the Senior Notes, Capital Notes or U.S. Capital Notes of such series shall be deemed to be the holder of such nominal amount of such Senior Notes, Capital Notes or U.S. Capital Notes (and the holder of the relevant Senior Note, Capital Note or U.S. Capital Notes shall be deemed not to be the holder) for all purposes other than with respect to the payment of principal or interest on such nominal amount of such Senior Notes, Capital Notes or U.S. Capital Notes and, in the case of DTC or its nominee, voting, giving consents and making requests pursuant to terms and the provisions of such Senior Notes, Capital Notes or U.S. Capital Notes, the rights to which shall be vested, as against (in the case of the Euro Senior Notes and the Capital Notes) the Issuer, (in the case of U.S. Senior Notes) the Cheyne Finance LLC and (in the case of the U.S. Capital Notes) the U.S. Capital Notes Issuer, solely in such common depositary or, as the case may be, DTC or its nominee and for which purpose such common depositary or, as the case may be, DTC or its nominee shall be deemed to be the holder of such nominal amount of such Senior Notes, Capital Notes or U.S. Capital Notes in accordance with and subject to the terms and the provisions of such Senior Notes, Capital Notes or U.S. Capital Notes; and the word Holders and related expressions shall (where appropriate) be construed accordingly.

“Holding Company” has the meaning ascribed thereto in Section 736 of the Companies Act 1985.

“Incremental Structuring Fee” means the performance based fee of up to U.S.$1,000,000 payable by the Issuer to Morgan Stanley pursuant to the Common Terms Agreement (with any difference between the Incremental Structuring Fee and U.S.$1,000,000 being payable by the Issuer to the Manager as the Residual Fee).

“Indemnity Cap” means, in respect of any indemnity payments by the Issuer to, or with regard to the U.S. Capital Notes Issuer or Cheyne Finance LLC, in respect of payments by the U.S. Capital Notes Issuer or Cheyne Finance LLC, respectively, to, any of the Manager, the Custodian, the Euro Paying Agents, the U.S. Issuing and Paying Agents, the U.S. Custodian, the Depositary, the Bank, the Securities Intermediary, the Capital Note Placement Agents and the Senior Note Dealers within any twelve month period (such twelve-month period to be measured on a rolling basis), an amount equal to 0.25 per cent. of the average Dollar Equivalent principal amount outstanding of the Capital Notes Outstanding, subject to a maximum of U.S.$1,000,000, during that period.

“Indemnity Cap Excess” means, in respect of any indemnity payments payable by the Issuer to, or with regard to the U.S. Capital Notes Issuer or Cheyne Finance LLC, in respect of payments by the U.S. Capital Notes Issuer or Cheyne Finance LLC, respectively, to, any of the Manager, the Custodian, the Euro Paying Agents, the U.S. Issuing and Paying Agents, the U.S. Custodian, the Depositary, the Bank, the Securities Intermediary, the Capital Note Placement Agents and the Senior Note Dealers, the amount (if any) by which such indemnity payments exceed the relevant Indemnity Cap for that period.

“Individual Point Shift Tests” has the meaning ascribed thereto under the heading “Interest Rate Sensitivity Test” in the section entitled “Specific Investment and Funding Criteria – Market Sensitivity and Liquidity Tests” on page 97.

“Insolvency Event” means a determination by the Manager or any Receiver that the Issuer is, or is about to become, unable to pay its debts as they fall due to Senior Creditors and any other persons whose claims against the Issuer are required to be paid in priority thereto, as contemplated by Section 123(1) of the United Kingdom Insolvency Act 1986 (such subsection being applied for this purpose only as if the Issuer’s only liabilities were

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those to Senior Creditors and any other persons whose claims against the Issuer are required under the Security Trust Deed to be paid in priority thereto).

“Insolvency Event Notice” means a notice delivered by the Security Trustee pursuant to the Security Trust Deed stating that an Insolvency Event has occurred.

“Interest Payment Date” has the meaning ascribed thereto in the Terms and Conditions of the Capital Notes on page 36.

“Interest Rate Sensitivity Limit” has the meaning ascribed thereto under the heading “Interest Rate Sensitivity Tests” in the section entitled “Specific Investment and Funding Criteria – Market Sensitivity and Liquidity Tests” on page 97.

“Interest Rate Sensitivity Tests” has the meaning ascribed thereto under the heading “Interest Rate Sensitivity Tests” of the section entitled “Specific Investment and Funding Criteria – Market Sensitivity and Liquidity Tests” on page 97.

“Investment” means:

(a) any Debt Security issued by any Person (including, without limitation, any asset-backed security); or

(b) any Investment Derivative Contract; or

(c) any Cash Equivalent; or

(d) any Financing Transaction,

purchased (or, where the context so requires, to be purchased, being considered for purchase, being referenced under an Investment Derivative Contract or then subject to a Repo Transaction, a Committed Repo Transaction or a Securities Lending Transaction) by the Issuer.

Where any reference is made in this Agreement or in any other Transaction Document to Investments being acquired, purchased or held, this shall be construed, in the case of Investment Derivative Contracts, as being a reference to such Investments being entered into and to exposure being maintained under such Investments.

“Investment Account” means any account established by or on behalf of the Issuer for the deposit of cash or Investments.

“Investment Class” means the class of Investments that a particular Investment shall belong to as determined in the reasonable discretion of the Manager.

“Investment Company Act” means the United States Investment Company Act of 1940, as amended.

“Investment Counterparty” means any counterparty with which the Issuer enters into an Investment Derivative Contract.

“Investment Derivative Contract” means:

(a) any derivative transaction (excluding a Hedge Agreement and any Financing Transaction) entered into for investment purposes (including without limitation credit default swaps, total return swaps and similar transactions where the Issuer is a seller of protection (howsoever described) or where the Issuer is a buyer of protection (howsoever described) in respect of reference obligations which are not included in the Investment Portfolio at the relevant time); or

(b) any other transaction (excluding a Hedge Agreement and any Financing Transaction) entered into by the Issuer with any Person for the purpose of earning income or realising a capital appreciation or both, which has or may have the effect of the Issuer assuming credit risk or benefiting from credit deterioration.

“Investment Objectives” means the investment objectives of the Issuer, including (without limitation) the objectives listed in paragraphs (a) to (g) inclusive set out in the section entitled “Investment Management” on page 90.

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“Investment Portfolio” means the cash or cash equivalents standing from time to time to the credit of the Investment Accounts together with the Investments and Related Rights purchased from time to time therewith and the income arising therefrom and the proceeds thereof. The Investment Portfolio may also, where the context so requires, include Investments which are subject to Repo Agreements, Committed Repo Agreements, Securities Lending Agreements or Investment Derivative Contracts which are posted to a counterparty under any such agreement or otherwise as agreed with the Rating Agencies from time to time.

“Investment Portfolio Exposure” means the sum of the Exposure to all Investments included in the Investment Portfolio except for certain Investments which may be excluded from such calculation as agreed with the Rating Agencies from time to time. Investment Portfolio Exposure may also, where the context so requires, include Exposure to Investments which are subject to Repo Agreements, Committed Repo Agreements, Securities Lending Agreements or Investment Derivative Contracts, which are posted to a counterparty under any such agreement or otherwise as agreed with the Rating Agencies from time to time.

“Investment Portfolio Parameter Tests” means (subject as amended from time to time in agreement with the Rating Agencies):

(a) the Maximum Single Obligor Percentage of Investment Portfolio Exposure Test set out under the heading “Maximum Single Obligor Percentage of Investment Portfolio Exposure Test” in the section entitled “Specific Investment and Funding Criteria – Investment Portfolio Parameter Tests” on page 94;

(b) the Maximum Single Obligor Percentage of Net Asset Value Test set out under the heading “Maximum Single Obligor Percentage of Net Asset Value Test” in the section entitled “Specific Investment and Funding Criteria – Investment Portfolio Parameter Tests” on page 95;

(c) the Minimum Ratings Concentration Test set out under the heading “Minimum Ratings Concentration Test” in the section entitled “Specific Investment and Funding Criteria – Investment Portfolio Parameter Tests” on page 95;

(d) the Maximum Investment Class Concentration Test set out under the heading “Maximum Investment Class Concentration Test” in the section entitled “Specific Investment and Funding Criteria – Investment Portfolio Parameter Tests” on page 96;

(e) the Maximum Structured Finance Sector Concentration Test set out under the heading “Maximum Structured Finance Sector Concentration Test” in the section entitled “Specific Investment and Funding Criteria – Investment Portfolio Parameter Tests” on page 96;

(f) the Maximum Country of Investment Concentration Test set out under the heading “Maximum Country of Investment Concentration Test” in the section entitled “Specific Investment and Funding Criteria – Investment Portfolio Parameter Tests” on page 96;

(g) the Minimum Currency Concentration Test set out under the heading “Minimum Currency Concentration Test” in the section entitled “Specific Investment and Funding Criteria – Investment Portfolio Parameter Tests” on page 97;

(h) the Maximum Fixed Rate Investments Test, the Maximum Servicer Concentration Test and the Maximum Non Public Nor Shadow Rated Investments Test, each as set out under the heading “Maximum Fixed Rate Investments Test, the Maximum Servicer Concentration Test and the Maximum Non Public Nor Shadow Rated Investments Test” in the section entitled “Specific Investment and Funding Criteria – Investment Portfolio Parameter Tests” on page 97; and

(i) such amended or other Investment Portfolio Parameter Tests as agreed with the Rating Agencies from time to time.

“Investment Purchase Criteria” means the criteria listed in paragraphs (a) to (o) inclusive of the section entitled “Specific Investment and Funding Criteria – Investment Purchase Criteria” on pages 92 to 94 or as agreed with the Rating Agencies from time to time.

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“Investment Switch” means a series of transactions whereby an Investment (or portion of the proceeds thereof) is sold and replaced by another Investment and, following such investment switch, (a) each of the Investment Portfolio Parameter Tests remains in compliance or, if any such tests were not in compliance prior to such investment switch, the non-compliance of such test shall not be worsened following such investment switch and (b) the capital requirement shall be reduced as measured in accordance with criteria agreed with the Rating Agencies from time to time.

“Issue Date” has the meaning ascribed thereto in the Terms and Conditions of the Capital Notes on page 36.

“Issue Price” has the meaning ascribed thereto in the Terms and Conditions of the Capital Notes on page 37.

“Issuer” means Cheyne Finance PLC.

“Junior Capital Note Component” has the meaning ascribed thereto in the Terms and Conditions of the Capital Notes on page 37.

“Junior Capital Notes” means the Class of Capital Notes that is subordinated to both the Senior Capital Notes and the Mezzanine Capital Notes.

"Junior Capital Noteholders" means the Holders for the time being of the Junior Capital Notes.

“Junior Capital Notes Outstanding” means all the Junior Capital Notes for the time being outstanding.

“Legal Final Maturity” means the legal maturity date of an Investment.

“Legal Maturity Date” has the meaning ascribed thereto in the Terms and Conditions of the Capital Notes on page 37.

“Liquidity Advance” means an advance which is made under the relevant Liquidity Facility Agreement for a period as requested by the Issuer, provided that such period shall not be more than 364 days.

“Liquidity Arrangements” means the Liquidity Facilities, Breakable Deposits, Committed Repo Facilities, Extendible CP, Money Market Funds, Puttable Investments and any other forms of liquidity arrangements entered into or extended to the Issuer subject to Rating Agency Approval.

“Liquidity Bank” means any bank or financial institution with which the Issuer has entered into a Liquidity Facility.

“Liquidity Eligible Committed Repo” means certain amounts available for inclusion in the Liquidity Tests as Available Liquidity taking into consideration the undrawn notional amount of Committed Repo Facilities, restrictions agreed with the Rating Agencies from time to time on the percentage of Senior Funding which comprises Repo Transactions and Committed Repo Transactions and the haircut Market Value of Investments eligible for Committed Repo Transactions.

“Liquidity Eligible Investments” means Investments held by the Issuer which meet the Liquidity Eligible Investments eligibility criteria agreed with the Rating Agencies from time to time.

“Liquidity Event of Default” has the meaning ascribed thereto in the relevant clause of the relevant Liquidity Facility Agreement or, as the case may be, of the relevant Committed Repo Agreement.

“Liquidity Facilities” means the facilities available to the Issuer (a) under the Liquidity Facility Agreements and (b) under any other liquidity facility agreements entered into by the Issuer on substantially the same terms as such Liquidity Facility Agreements.

“Liquidity Facility Agreement” means each of the Liquidity Facility Agreements entered into between the Issuer and each of the initial Liquidity Banks, a specimen of which has been signed for identification on behalf of the Issuer and the Manager.

“Liquidity Provider” means a Liquidity Bank, a Committed Repo Counterparty, a counterparty in respect of Puttable Investments, the bank of deposit in respect of Breakable Deposits or, in respect of any other Liquidity Arrangements, the relevant counterparty under such Liquidity Arrangements.

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“Liquidity Tests” means the tests set out under the heading “Liquidity Tests” in the section entitled “Specific Investment and Funding Criteria – Market Sensitivity and Liquidity Tests” on page 98.

“London Business Day” means any day (other than a Saturday or Sunday) on which banks and foreign exchange markets are open for the transaction of commercial business in London.

“London and New York Business Day” means any day (other than a Saturday or Sunday) on which banks and foreign exchange markets are open for the transaction of commercial business in London and New York.

“Major Capital Adequacy Test” has the meaning ascribed thereto in paragraph (a) under the heading “Major Capital Tests” in the section entitled “Specified Investment and Funding Criteria – Capital Tests” on page 99.

“Major Capital Loss Test” has the meaning ascribed thereto in paragraph (b) under the heading “Major Capital Tests” in the section entitled “Specific Investment and Funding Criteria – Capital Tests” on page 99.

“Major Capital Tests” means the Major Capital Adequacy Test, the Maximum Leverage Tests, the Relative Leverage Test and the Major Capital Loss Test, each of which may be amended from time to time with Rating Agency Approval. The list of tests which comprise the Major Capital Tests may also be amended from time to time with Rating Agency Approval.

“Management Agreement” means the investment and funding management agreement to be dated on or around 3rd August, 2005 and made between the Issuer, the U.S. Capital Notes Issuer, Cheyne Finance LLC, the Manager, CCIL and the Security Trustee, as amended from time to time.

“Manager” means Cheyne Capital Management Limited or, if the context so requires, any successor manager appointed in accordance with the Management Agreement but, for the avoidance of doubt, not the Emergency Back-Up Manager.

“Manager Delegate” means CCIL and any other person to whom, pursuant to the terms of the Management Agreement, the Manager delegates any of its obligations to provide investment and/or funding management services under the Management Agreement.

“Market Sensitivity Tests” means the Interest Rate Sensitivity Tests together with the Currency Sensitivity Tests.

“Market Value” means the most recent market value, sourced by either the Administrator or the Manager, using valuation sources and methodologies as agreed with the Rating Agencies from time to time and including, inter alia, third party dealer quotes.

“Maturity Type” has the meaning ascribed thereto in the Terms and Conditions of the Capital Notes on page 37.

“Maximum Fixed Rate Investments Test” has the meaning ascribed thereto under the heading “Maximum Fixed Rate Investments Test, Maximum Servicer Concentration Test and Maximum Non Public Nor Shadow Rated Investments Test” in the section entitled “Specific Investment and Funding Criteria – Investment Portfolio Parameter Tests” on page 97.

“Maximum Investment Class Concentration Eligible Limit” means the limit set out in the table under the heading “Maximum Investment Class Concentration Test” in the section entitled “Specific Investment and Funding Criteria – Investment Portfolio Parameter Tests” on page 96.

“Maximum Leverage Tests” has the meaning ascribed thereto in paragraph (c) under the heading “Major Capital Tests” in the section entitled “Specific Investment and Funding Criteria – Capital Tests” on page 100

“Maximum Non Public Nor Shadow Rated Investments Test” has the meaning ascribed thereto under the heading “Maximum Fixed Rate Investments Test, Maximum Servicer Concentration Test and Maximum Non Public Nor Shadow Rated Investments Test” in the section entitled “Specific Investment and Funding Criteria – Investment Portfolio Parameter Tests” on page 97.

“Maximum Redemption Amount” has the meaning ascribed thereto in the Terms and Conditions of the Capital Notes on page 37.

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“Maximum Servicer Concentration Test” has the meaning ascribed thereto under the heading “Maximum Fixed Rate Investments Test, Maximum Servicer Concentration Test and Maximum Non Public Nor Shadow Rated Investments Test” in the section entitled “Specific Investment and Funding Criteria – Investment Portfolio Parameter Tests” on page 97.

“Mezzanine Capital Note Component” has the meaning ascribed thereto in the Terms and Conditions of the Capital Notes on page 37.

“Mezzanine Capital Noteholders” means the Holders for the time being of the Mezzanine Capital Notes.

“Mezzanine Capital Notes” means the Class of Capital Notes that is subordinated to the Senior Capital Notes, but ranks in priority to the Junior Capital Notes.

"Mezzanine Capital Notes Outstanding" means all the Mezzanine Capital Notes for the time being outstanding.

“Minimum Currency Concentration Test” means the test set out under the heading “Minimum Currency Concentration Test” in the section entitled “Specific Investment and Funding Criteria – Investment Portfolio Parameter Tests” on page 97.

“Minor Capital Adequacy Test” has the meaning ascribed thereto in the section entitled “Specific Investment and Funding Criteria – Capital Tests” on page 100.

“Minor Capital Loss Test” has the meaning ascribed thereto in the section entitled “Specific Investment and Funding Criteria – Capital Tests” on page 100.

“Minor Capital Tests” means the Minor Capital Adequacy Test, the Minor Capital Loss Test, the Capital Note Simulation Model Rating Test, the Capital Note Rating Test, the Capital Note Maturity Test, the Senior Note Rating Test and the Net Asset Value Leverage Test, each of which may be amended from time to time with Rating Agency Approval. The list of tests which comprise the Minor Capital Tests may also be amended from time to time with the Rating Agency Approval.

“Money Market Funds” are short-term Investments rated AAAm by S&P and Aaa by Moody’s, moneys from which may be withdrawn with same day availability, and which also satisfy other eligibility criteria as agreed with the Rating Agencies from time to time.

“Moody’s” means Moody’s Investors Service Limited.

“Morgan Stanley” means Morgan Stanley & Co. International Limited of 25 Cabot Square, Canary Wharf, London E14 4QA.

“MTN” means the Euro MTN and the U.S. MTN.

“MTN Programmes” means the Euro MTN Programme and the U.S. MTN Program.

““n” Day MNCO” means, on any Business Day, the amount of the Issuer’s largest cumulative net cash outflow occurring during any period of up to “n” successive London and New York Business Days (or portion thereof) in the calendar year that follows such Business Day.

“Net Asset Value” means the Dollar Equivalent of the sum of the Market Value of Investments plus the sum of the Market Value of Investment Derivative Contracts (or for Investment Derivative Contracts which meet certain criteria agreed with the Rating Agencies from time to time, a factor of such Market Value reflecting the risk of default of the relevant Investment Counterparty) plus the sum of the Market Value of Hedge Agreements minus, inter alia, the Senior Obligations. The definition of Net Asset Value may be amended from time to time with Rating Agency Approval.

“Net Asset Value Leverage Test” has the meaning ascribed thereto under the heading “Minor Capital Tests” in the section entitled “Specified Investment and Funding Criteria – Capital Tests” on page 100.

“Normal Operations” means the normal operating state of the Issuer when:

(a) it is not in Restricted Investments;

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(b) it is not in Restricted Funding; and

(c) an Enforcement Event has not occurred.

“Note Purchase Agreement” means each of the Capital Note Purchase Agreement and the Senior Note Purchase Agreement.

“Operating Rules” has the meaning ascribed thereto under the heading “Ratings” in the section entitled “The Issuer’s Business” on page 89.

“Operational Limit” has the meaning ascribed thereto under the heading “Investment Portfolio Parameter Tests” in the section entitled “Specific Investment and Funding Criteria” on page 94.

“Optional Currency” means any currency other than Dollars.

“Parallel Yield Curve Shift Tests” has the meaning ascribed thereto under the heading “Interest Rate Sensitivity Test” in the section entitled “Specific Investment and Funding Criteria – Market Sensitivity and Liquidity Tests” on page 97.

“Paying Agents” has the meaning ascribed thereto in the Terms and Conditions of the Capital Notes on page 32.

“Payment Priority” means the following order of priority, in which moneys shall be applied, following the occurrence of an Enforcement Event in accordance with the Security Trust Deed:

(a) first, in satisfaction of or provision for all Senior Expenses accrued and/or payable, including all remuneration due to the Security Trustee, the U.S. Security Agent or any Receiver, according to the priority specified in the definition of Senior Expenses;

(b) secondly, in satisfaction of or provision for all Senior Obligations as and when the same become payable and, if more than one such Senior Obligation is payable at the relevant time, pari passu and in proportion to the amounts payable in respect thereof;

(c) thirdly, in satisfaction of or provision for the Base Fee, the fees, costs and expenses of the Administrator under the Administrative Advisory Services Agreement and any costs and expenses of the Issuer, the U.S. Capital Notes Issuer or Cheyne Finance LLC not covered by Senior Expenses, pari passu and in proportion to the amounts payable in respect thereof;

(d) fourthly, in satisfaction of or provision for all Fixed Interest, Deferred Interest, Additional Interest and all outstanding Redemption Amounts payable to the Senior Capital Noteholders in respect of Senior Capital Notes Outstanding pari passu and in proportion to the amounts payable;

(e) fifthly, in satisfaction of or provision for all Fixed Interest, Deferred Interest, Additional Interest and all outstanding Redemption Amounts payable to the Mezzanine Capital Noteholders in respect of Mezzanine Capital Notes Outstanding pari passu and in proportion to the amounts payable;

(f) sixthly, in satisfaction of or provision for all Euro Mezzanine Capital Notes Subordinated Payments pari passu and in proportion to the amounts payable;

(g) seventhly, in satisfaction of or provision for all Fixed Interest, Deferred Interest, Additional Interest and all outstanding Redemption Amounts payable to the Junior Capital Noteholders in respect of Junior Capital Notes Outstanding pari passu and in proportion to the amounts payable;

(h) eighthly, in satisfaction of or provision for any Euro Junior Capital Notes Subordinated Payments pari passu and in proportion to the amounts payable;

(i) ninthly, in satisfaction of an amount equal to the greater of (A) the remaining surplus (if any) less U.S.$2,000 and (B) zero to the Receivables Trustee pursuant to the terms of the Receivables Trust Deed; and

(j) lastly, in payment of any remaining amount following application of the amounts set out in paragraphs (a) to (i) above (which amount shall not exceed U.S.$2,000) to the Issuer, the U.S. Capital Notes Issuer

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and Cheyne Finance LLC, to be divided as between the Issuer, the U.S. Capital Notes Issuer and Cheyne Finance LLC as agreed between them.

Under the Security Trust Deed, no moneys shall be applied at any point in the Payment Priority unless and until payment for all amounts at a more senior position in the Payment Priority has been discharged, except to the extent that sufficient cash has been realised from the disposal or maturity of the Security Assets to enable all such obligations at a more senior position in the Payment Priority which are not then due and payable to be discharged as and when they fall due for payment. In respect of the obligations of the Issuer that are fee-related obligations which accrue over time, payment of and/or provision for all such fees which are currently accrued and/or payable at the next date of payment of such fees shall be sufficient to allow for payments to be made to obligations at a more junior level in the Payment Priority. In particular, the payment of obligations listed in paragraphs (b) to (j) of the Payment Priority may be made in accordance with the Payment Priority if the Issuer has made provision for fee-related Senior Expenses within paragraph (a) of the Payment Priority which are then accrued and/ or payable at the next date of payment of such fees.

“Performance Fee” means the performance fee payable by the Issuer to the Receivables Trustee as described in the section entitled “The Issuer’s Business – Remuneration and Expenses” on page 102.

“Permitted Hedge” means a Hedge Agreement with a party that on the date on which the Hedge Agreement is entered into is a Permitted Hedge Counterparty.

“Permitted Hedge Counterparty” means a counterparty to a Hedge Agreement whose short-term and long-term, unsecured and unsubordinated debt obligations (or those of any credit support provider or guarantor) are rated at least A-1 and A- respectively by S&P, and whose short-term unsecured and unsubordinated debt obligations (or those of any credit support provider or guarantor) are rated at least P-1 by Moody’s, or a counterparty to a Hedge Agreement which meets such other criteria agreed from time to time with the Rating Agencies.

“Permitted Investment” means an Investment which meets the Investment Purchase Criteria at the time the Issuer commits to purchase such Investment.

“Person” means any body corporate, government, state or agency of a state or local authority or any association or partnership (whether or not having separate legal personality) of two or more of the foregoing.

“Placement Agent” means, for the purposes of this Information Memorandum, the Euro Capital Note Placement Agents.

“Placement Agreement” means, for the purposes of this Information Memorandum, the Euro Capital Note Placement Agreement.

“Portfolio” means the Credit Portfolio together with all Senior Funding and Capital Notes.

“Potential Investment” means Investments under consideration for inclusion in the Investment Portfolio and which are tested for compliance with the Investment Purchase Criteria.

“Preferred Order of Sale” means an order of the sale of Investments excluding, inter alia, Investment Derivative Contracts, ordered in accordance with the Restricted Funding Capital Requirement Haircuts, starting with the lowest Restricted Funding Capital Requirement Haircut, or otherwise as agreed with the Rating Agencies from time to time.

“Principal Paying Agent” has the meaning ascribed thereto in the Terms and Conditions of the Capital Notes on page 32.

“Prior Ranking Obligations” means, with respect to any payment obligation of the Issuer (the “Relevant Payment Obligation”), any outstanding payment obligations of the Issuer (whether or not then due and payable) which, if an Enforcement Event were to occur, would rank in priority to the Relevant Payment Obligation under the Payment Priority. For the avoidance of doubt, Prior Ranking Obligations which are fee-based shall be deemed to have been paid and/or provisioned for in full on any date, if all such Prior Ranking

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Obligations which have accrued to such date and/or which are payable at their next scheduled date for payment have been paid and/or provisioned for in full.

“Profit Distribution Date” has the meaning ascribed thereto in the Terms and Conditions of the Capital Notes on page 38.

“Puttable Investments” means Investments which can be put to a counterparty on pre-agreed terms in accordance with criteria agreed with the Rating Agencies from time to time.

“QSR” means QSR Management Limited of One Canada Square, London E14 5AL.

“Qualified Person” means a person who:

(a) is one of, or a member of (i) Ernst & Young LLP, KPMG LLP, Deloitte & Touche LLP, PricewaterhouseCoopers LLP or of (ii) a firm which has taken over or succeeded to the practice of any one of the firms referred to in (i) above at the time when the security is enforced or (iii) an affiliate of one of the firms referred to in (i) above or, as the case may be, (ii) above; and

(b) is qualified under applicable laws to act as a Receiver of the property of the Issuer.

“Ramp-Up Period” means a period from the Closing Date to the earlier of (i) 6 months from the Closing Date or (ii) the occurrence of either a Restricted Investments Event, Restricted Funding Event or Enforcement Event.

“Rated Notes” means the Euro Rated Notes and the U.S. Rated Notes.

“Rating Agencies” means S&P and Moody’s and/or any other agency which is appointed from time to time as agreed in writing by the Issuer and the Manager and Rating Agency means any of them.

“Rating Agency Approval” means with respect to any proposed amendment, action or determination, confirmation to the Manager from the Rating Agencies, for so long as the Rated Notes are outstanding and rated by the Rating Agencies, that such specified amendment, action or determination will not result in the reduction or withdrawal of its then-current rating on the Rated Notes.

“Receivables Trust Deed” means the declaration of trust to be dated on or around 3rd August, 2005 and made by the Receivables Trustee and any agreement or deed expressed to be supplemental thereto.

“Receivables Trustee” means The Bank of New York, London branch, or its replacement, in its capacity as Receivables Trustee under the Receivables Trust Deed.

“Receiver” means each receiver and manager appointed in respect of the Issuer under the Security Trust Deed.

“Redemption Amount” has the meaning described thereto in the Terms and Conditions of the Capital Notes on page 38.

“Redemption Priority” means the order of priority as described in Condition 8(c) of the Terms and Conditions of the Capital Notes on page 33.“Regulation S” means Regulation S under the Securities Act.

“Related Rights” means any dividend, interest or other sum paid or payable (including, without limitation, any sum paid or payable under any relevant insurance policy) in relation to any U.S. Capital Notes Issuer Share, any Cheyne Finance LLC Share or any Investment (including any Investment Derivative Contract), Repo Transaction, Committed Repo Transaction or Hedge Agreement in the Portfolio and any rights (including voting rights), moneys or property accruing or offered at any time in relation to any U.S. Capital Notes Issuer Share, any Cheyne Finance LLC Share or any Investment or Hedge Agreement in the Portfolio by way of redemption, substitution, exchange, conversion, bonus or preference, under option rights or otherwise.

“Relative Leverage Test” has the meaning ascribed thereto under the heading “Major Capital Tests” in the section entitled “Specific Investment and Funding Criteria – Capital Test” on page 100.

“Relevant Payment Obligation” has the meaning ascribed thereto in the definition of “Prior Ranking Obligations” above.

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“Repo Agreement” means an agreement (other than a Committed Repo Agreement) between the Issuer and a Repo Counterparty, pursuant to which the parties may from time to time enter into Repo Transactions.

“Repo Counterparty” means a counterparty to a Repo Agreement, such counterparty (or its credit support provider or guarantor) at the time of entering into the Repo Agreement being required to have a short-term debt rating of at least A1 by S&P and P-1 by Moody’s or a counterparty which meets such other criteria as agreed with the Rating Agencies from time to time.

“Repo Event of Default” has the meaning ascribed thereto in the relevant Repo Agreement and as agreed with the Rating Agencies.

“Repo Margin Call Buffer” is a measure of potential additional cash outflows which may arise due to margin calls on Repo Transactions and Committed Repo Transactions. The methodology for calculating the Repo Margin Call Buffer may vary depending on the Liquidity Test being calculated. The methodology for calculating the Repo Margin Call Buffer shall be agreed with the Rating Agencies from time to time.

“Repo Transactions” means repurchase transactions entered into by the Issuer pursuant to a Repo Agreement, under which the Issuer agrees to sell its interest in an Investment held in the Investment Portfolio (other than a Committed Repo Agreement) to a Repo Counterparty and the subsequent purchase by the Issuer of an equivalent Investment.

“Residual Distributable Profits” means Distributable Profits after the deduction of (i.e. net of) all payments of Variable Margin made to Capital Noteholders on the relevant Profit Distribution Date.

“Residual Fee” means any difference between the Incremental Structuring Fee and U.S.$1,000,000, such fee being payable by the Issuer to the Manager pursuant to the Common Terms Agreement.

“Restricted Funding” has the meaning ascribed thereto under the heading “Restricted Funding Restrictions” in the section entitled “The Issuer’s Business – Funding Restrictions” on page 85.

“Restricted Funding Additional Guidelines” means the additional guidelines applicable to the Issuer, as set out under the heading “Restricted Funding Additional Guidelines” in the section entitled “The Issuer’s Business – Funding Restrictions” on page 85.

“Restricted Funding Capital Requirement Haircut” means an Investment specific or counterparty specific haircut, set in agreement with the Rating Agencies from time to time, which is used in the calculation of the capital required to be held by the Issuer in order to avoid breaching the Major Capital Adequacy Test.

“Restricted Funding Event” means, unless modified with Rating Agency Approval, any of the Major Capital Tests (with the exception of the Major Capital Loss Test), the Market Sensitivity Tests or the Liquidity Tests being breached and remaining unremedied following the expiry of any relevant cure period as agreed with the Rating Agencies from time to time.

“Restricted Funding Restrictions” means the restrictions listed in paragraphs (a) to (f) inclusive set out in the section entitled “The Issuer’s Business – Funding Restrictions” on pages 86.

“Restricted Investments” has the meaning ascribed thereto under the heading “Restricted Investments Restrictions” in the section entitled “The Issuer’s Business – Funding Restrictions” on page 84.

“Restricted Investments Capital Requirement Haircut” means an Investment specific or counterparty specific haircut, set in agreement with the Rating Agencies from time to time, which is used in the calculation of the capital required to be held by the Issuer in order to avoid breaching the Minor Capital Adequacy Test.

“Restricted Investments Event” means, unless modified with Rating Agency Approval, either of the following events:

(a) the Minor Capital Tests or the Weighted Average Life of Senior Funding Test being breached and remaining unremedied following the expiry of any cure period as agreed with the Rating Agencies from time to time; or

(b) failure by the Issuer to redeem any Capital Notes at their Expected Maturity Date.

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“Restricted Investments Restrictions” means the restrictions listed in paragraphs (a) to (i) inclusive set out under the heading “Restricted Investments Restrictions” in the section entitled “The Issuer’s Business – Funding Restrictions” on pages 84 to 85.

“Risk-Free Investments” means, unless otherwise agreed with the Rating Agencies from time to time, Investments rated AAA by S&P and Aaa by Moody’s which meet certain criteria as agreed with the Rating Agencies from time to time.

“S&P” means Standard & Poor’s Ratings Services, a Division of The McGraw-Hill Companies Inc.

“Scheduled Payments” means certain payments under Senior Funding, Hedge Agreements, Investment Derivative Contracts and other liabilities scheduled or expected to be made by the Issuer as agreed with the Rating Agencies from time to time.

“Scheduled Receipts” means certain payments under Investments, Hedge Agreements, Investment Derivative Contracts and other sources of income scheduled or expected to be received by the Issuer as agreed with the Rating Agencies from time to time.

“Secured Creditors” means any person to whom any Secured Obligations are owing.

“Secured Obligations” means all obligations and liabilities (whether actual or contingent and whether owed jointly or severally or in any other capacity whatsoever) of the Issuer under the Transaction Documents.

“Securities Act” means the United States Securities Act of 1933, as amended.

“Securities Intermediary” means The Bank of New York, New York branch, in its capacity as Securities Intermediary under the U.S. CP Securities Account Control Agreement.

“Securities Lending Agreement” means an agreement, on terms previously approved by the Rating Agencies, whereby the Issuer agrees to the transfer by it of its interest in an Investment held in the Investment Portfolio and the subsequent transfer to it of an equivalent Investment.

“Securities Lending Counterparty” means any counterparty with which the Issuer enters into a Securities Lending Agreement, such counterparty being required either to have a short-term debt rating of at least A-1 by S&P and P-1 by Moody’s or to meet such other criteria as agreed with the Rating Agencies from time to time.

“Securities Lending Event of Default” has the meaning ascribed thereto in the relevant Securities Lending Agreement, and as agreed with the Rating Agencies.

“Securities Lending Transactions” means transactions entered into by the Issuer pursuant to a Securities Lending Agreement.

“Security Assets” means all assets of the Chargor which are the subject of any security created by the Security Trust Deed.

“Security Trust Deed” means the Security Trust Deed to be dated on or around 3rd August, 2005 and made between the Issuer and the Security Trustee and any agreement or deed expressed to be supplemental thereto.

“Security Trustee” means The Bank of New York, London branch, in its capacity as Security Trustee under the Security Trust Deed or, if the context so requires, any replacement Security Trustee.

“Senior Capital Note Component” has the meaning ascribed thereto in the Terms and Conditions of the Capital Notes on page 39.

“Senior Capital Noteholders” means the Holders for the time being of the Senior Capital Notes.

“Senior Capital Notes” means the Class of Capital Notes that ranks in priority to both the Mezzanine Capital Notes and the Junior Capital Notes.

”Senior Capital Notes Outstanding“ means all the Senior Capital Notes for the time being outstanding.

“Senior Creditor” means each person to whom Senior Obligations are owed.

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“Senior Debt Programme Documents” means the Euro MTN Programme Documents, the Euro CP Programme Documents, the U.S. MTN Program Documents and the U.S. CP Program Documents.

“Senior Debt Programmes” means the MTN Programmes and the CP Programmes.

“Senior Expenses” means:

(a) any fees, expenses and other remuneration of the Receivables Trustee, the Security Trustee and/or any of their respective Appointees and Receivers and any amounts payable by or on behalf of the U.S. Capital Notes Issuer or Cheyne Finance LLC in respect of fees, expenses and other remuneration of the U.S. Security Agent and/or any of the agents, accountants and advisers any of them appoint under the U.S. Security Documents;

(b) any fees and expenses of the Euro Paying Agents and the Custodian and any amounts payable by or on behalf of the U.S. Capital Notes Issuer or Cheyne Finance LLC in respect of fees and expenses of the U.S. Issuing and Paying Agents, the Bank, the Depositary and the Securities Intermediary and any costs and expenses properly incurred by the Issuer, the U.S. Capital Notes Issuer and Cheyne Finance LLC for the purposes of maintaining their corporate or limited liability company existence or authority to engage in the transactions contemplated by the Transaction Documents and any outstanding Incremental Structuring Fee or Residual Fee;

(c) any indemnity payments to, or with regard to the U.S. Capital Notes Issuer or Cheyne Finance LLC in respect of indemnity payments by the U.S. Capital Notes Issuer or Cheyne Finance LLC to, the Receivables Trustee, the Security Trustee, the U.S. Security Agent and/or any of their respective Appointees and Receivers; and

(d) any indemnity payments to, or with regard to the U.S. Capital Notes Issuer or Cheyne Finance LLC in respect of payments by the U.S. Capital Notes Issuer or Cheyne Finance LLC to, any of the Manager, the Administrator, the Custodian, the Euro Paying Agents, the U.S. Issuing and Paying Agents, the U.S. Custodian, the Depositary, the Bank, the Securities Intermediary, the Capital Note Placement Agents or the Senior Note Dealers up to an amount not exceeding any relevant Indemnity Cap.

In relation to the Issuer, each of the above categories of Senior Expenses shall be deemed to include (where relevant) its obligation to reimburse the U.S. Capital Notes Issuer and Cheyne Finance LLC for all such fees, costs and expenses pursuant to the Note Purchase Agreements.

For the purposes of the Payment Priority, the above categories of Senior Expenses shall be satisfied or provisioned for according to the following priority: (a), followed by (b), followed by (c), followed by (d).

“Senior Funding” means Euro Senior Notes including, for the avoidance of doubt, Euro Senior Notes comprising Underlying Senior Notes, Repo Transactions, Committed Repo Transactions, Liquidity Advances and Securities Lending Transactions outstanding.

“Senior Note Dealers” means the Euro Senior Note Dealers and the U.S. Senior Note Placement Agents.

“Senior Note Purchase Agreement” means the Senior Note purchase agreement to be dated on or around 3rd August, 2005 and made between the Issuer and Cheyne Finance LLC.

“Senior Note Rating Test” has the meaning given to it in paragraph (f) under the heading “Minor Capital Tests” in the section entitled “Specific Investment and Funding Criteria – Capital Tests” on page 100.

“Senior Notes” means Euro Senior Notes and U.S. Senior Notes.

“Senior Obligations” means the following obligations of the Issuer:

(a) Euro Senior Notes (including, for the avoidance of doubt, Euro Senior Notes comprising Underlying Senior Notes);

(b) sums due under Liquidity Arrangements;

(c) sums due to the Hedge Counterparties under Hedge Agreements;

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(d) sums due to Investment Counterparties under Investment Derivative Contracts (except in the case of a Synthetic Portfolio Transaction where the relevant Investment Counterparty has a claim over Designated Investments and no further claims (over and above such Designated Investments) against the Issuer);

(e) sums due to Repo Counterparties under Repo Transactions; and

(f) sums due to Securities Lending Counterparties under Securities Lending Agreements,

excluding, in the case of (b) to (f) above, any obligations which comprise Euro Mezzanine Capital Notes Subordinated Payments or Euro Junior Capital Notes Subordinated Payments.

“Series” has the meaning ascribed thereto in the Terms and Conditions of the Capital Notes.

“Share Trustee” means the holder for the time being of the shares in the Issuer.

“Short-Term Investment” means any Investment with a maturity date of no more than one month after the date of its purchase by the Issuer.

“Single Obligor Group” unless specified below means a group of Investments where the same entity is responsible for the payment of interest and repayment of principal. Where the Investment is a guaranteed Investment, the Single Obligor Group of the Investment may be determined with reference to the issuer or the guarantor of such Investment. Where an Investment is an Investment Derivative Contract, the Single Obligor Group of the Investment may be determined with reference to the issuer or the guarantor (if applicable) of the reference obligation.

“Sovereign” means, with respect to an Investment, an Investment Class comprising (a) any debt security issued by any state, political subdivision or government, or any agency, instrumentality, ministry, department or other authority (including, without limiting the foregoing, the central bank) thereof and (b) any other debt security which the Manager classifies in its reasonable judgment as belonging to the Sovereign Investment Class as agreed with the Rating Agencies from time to time.

“Sovereign Agency” means any agency, instrumentality, ministry, department or other authority (including, without limiting the foregoing, the central bank) of a Sovereign.

“Structured Finance” means, with respect to an Investment, an Investment Class comprising (a) any debt security which is secured directly by, or representing ownership of, a pool of consumer receivables, auto loans, auto leases, equipment leases, residential or commercial mortgages, corporate debt or sovereign debt obligations or similar assets, including, without limitation, collateralised bond obligations, collateralised loan obligations or any similar security and (b) any other debt security which the Manager classifies in its reasonable judgment as belonging to the Structured Finance Investment Class, as agreed with the Rating Agencies from time to time.

“Structured Finance Investment” means an Investment belonging to the Structured Finance Investment Class.

“Structured Finance Sector” means the sector of Structured Finance that a particular Investment belongs to as determined in the reasonable discretion of the Manager.

“Sub-Portfolio” means, in relation to any Capital Notes (and if so specified in the Terms and Conditions of such Capital Notes), a designated part of the Portfolio to which the return in respect of such Capital Notes is linked.

“Subsidiary” has the meaning given by Section 736 of the Companies Act 1985.

“Substitute Manager” means any party appointed in accordance with the Management Agreement, who has agreed to replace CCML (or any substitute thereof) as Manager and who meets the conditions for appointment as Substitute Manager set out in the Management Agreement.

“Supranational” means, with respect to an Investment, an Investment Class comprising (a) any debt security issued by any entity or organisation established by treaty or other arrangement between two or more Sovereigns or the Sovereign Agencies of two or more Sovereigns and includes, without limiting the foregoing, the International Monetary Fund, the European Central Bank, the International Bank for Reconstruction and

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Development and the European Bank for Reconstruction and Development and (b) any other debt security which the Manager classifies in its reasonable judgment as belonging to the Supranational Investment Class as agreed with the Rating Agencies from time to time.

“Synthetic Counterparty” means a counterparty to a Synthetic Portfolio Transaction.

“Synthetic Portfolio Transaction” means a Hedge Agreement, Repo Agreement, Committed Repo Agreement, Securities Lending Agreement or, as the case may be, Investment Derivative Contract under the terms of which amounts payable or deliverable to the relevant counterparty are determined by reference to, relate to or are limited to the payment of or from the proceeds of a separately designated portfolio of Investments or Debt Securities.

“Talons” has the meaning ascribed thereto in the Terms and Conditions of the Capital Notes on page 32.

“Top Rated” or “Top Rating” means, in the case of S&P, AAA for MTN and for Bonds with original maturities exceeding 364 days and A-1+ for CP and for other Bonds and, in the case of Moody’s, Aaa for MTN and for Bonds with original maturities exceeding 364 days and P-1 for CP and for other Bonds.

“Tranche” has the meaning ascribed thereto in the Terms and Conditions of the Capital Notes.

“Transaction Documents” means:

(a) the Administrative Advisory Services Agreement;

(b) the Bond Documents;

(c) the Capital Note Programme Documents;

(d) the Capital Note Purchase Agreement;

(e) the Committed Repo Agreements;

(f) the Common Terms Agreement;

(g) the Deeds of Covenant;

(h) the Depositary Agreement;

(i) the Global Custody Agreement;

(j) the Hedge Agreements;

(k) the Investment Derivative Contracts;

(l) the documents giving effect to the Liquidity Arrangements;

(m) the Management Agreement;

(n) the Receivables Trust Deed;

(o) the Repo Agreements;

(p) the Securities Lending Agreements;

(q) the Security Trust Deed;

(r) the Senior Debt Programme Documents;

(s) the Senior Note Purchase Agreement;

(t) the U.S. Security Documents; and

(u) such other agreement(s) as may be designated as such pursuant to the Common Terms Agreement.

“Underlying Capital Note” means a Capital Note purchased by the U.S. Capital Notes Issuer from the Issuer pursuant to the Capital Note Purchase Agreement with corresponding terms to a U.S. Capital Note.

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“Underlying Senior Note” means a Euro Senior Note purchased by Cheyne Finance LLC from the Issuer with corresponding terms to a U.S. Senior Note.

“United States” means the United States of America (including the States and the District of Columbia, its territories, its possessions and other areas subject to its jurisdiction).

“United States person” means a United States person as that term is defined under the U.S. Internal Revenue Code of 1986, as amended.

“U.S. Bond” means any rated Debt Security (other than (i) a U.S. Capital Note or (ii) a Debt Security that also constitutes a Hedge Agreement) issued by Cheyne Finance LLC outside the U.S. Programs.

“U.S. Capital Note” means each secured capital note issued by the U.S. Capital Notes Issuer pursuant to the U.S. Capital Note Program.

“U.S. Capital Note Agency Agreement” means the U.S. Capital Note issuing and paying agency agreement to be dated on or around 3rd August, 2005 and made between, inter alios, the U.S. Capital Notes Issuer and the U.S. Capital Notes Issuing and Paying Agents.

“U.S. Capital Note Control and Security Agreement” means the U.S. Capital Note control and security agreement to be dated on or around 3rd August, 2005 and made between the U.S. Capital Notes Issuer, the U.S. Security Agent and the Depositary, as amended from time to time.

“U.S. Capital Note Deposit Account Control and Security Agreement” means the U.S. Capital Note deposit account control and security agreement to be dated on or around 3rd August, 2005 and made between the U.S. Capital Notes Issuer, the U.S. Security Agent and the Bank, as amended from time to time.

“U.S. Capital Note Placement Agent” means each financial institution appointed as a placement agent from time to time under the U.S. Capital Note Placement Agreement.

“U.S. Capital Note Placement Agreement” means the U.S. Capital Note placement agreement to be dated on or around 3rd August, 2005 and made between the Issuer, the U.S. Capital Notes Issuer and Morgan Stanley & Co. Incorporated or any other U.S. Capital Note Placement Agent.

“U.S. Capital Note Program” means the U.S.$3,000,000,000 U.S. Capital Note program to be established by the U.S. Capital Notes Issuer pursuant to the U.S. Capital Note Program Documents.

“U.S. Capital Note Program Documents” means the U.S. Capital Note Placement Agreement, the U.S. Capital Note Agency Agreement and all other documents executed by the U.S. Capital Notes Issuer in connection with the issuance of U.S. Capital Notes under the U.S. Capital Note Program.

“U.S. Capital Note Secured Obligations” means all obligations and liabilities (whether actual or contingent and whether owed jointly or severally or in any other capacity whatsoever) of the U.S. Capital Notes Issuer under the Transaction Documents.

“U.S. Capital Note Security Agreement” means the U.S. Capital Note security agreement to be dated on or around 3rd August, 2005 and made between, inter alios, the U.S. Capital Notes Issuer and the U.S. Security Agent, as amended from time to time.

“U.S. Capital Note Security Documents” means the U.S. Capital Note Control and Security Agreement, the U.S. Capital Note Deposit Account Control and Security Agreement and the U.S. Capital Note Security Agreement.

“U.S. Capital Notes Issuer” means Cheyne Finance Capital Notes LLC.

“U.S. Combination Capital Note” means the Class of U.S. Capital Notes with respect to which the Underlying Euro Capital Notes are Combination Capital Notes.

“U.S. CP” means commercial paper issued by Cheyne Finance LLC pursuant to the U.S. CP Program Documents.

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“U.S. CP Agency Agreement” means the U.S. CP issuing and paying agency agreement to be dated on or around 3rd August, 2005 and made between, inter alios, Cheyne Finance LLC and the U.S. CP Issuing and Paying Agents.

“U.S. CP Issuing and Paying Agents” means each issuing and paying agent appointed from time to time under the U.S. CP Agency Agreement.

“U.S. CP Placement Agent” means each financial institution appointed from time to time as a placement agent under the U.S. CP Placement Agreement.

“U.S. CP Placement Agreement” means the placement agreement to be entered into by the Issuer, Cheyne Finance LLC and the U.S. CP Placement Agents.

“U.S. CP Program” means the U.S.$10,000,000,000 U.S. CP program established by Cheyne Finance LLC pursuant to the U.S. CP Program Documents.

“U.S. CP Program Documents” means the U.S. CP Agency Agreement and the U.S. CP Placement Agreement.

“U.S. CP Securities Account Control Agreement” means the U.S. CP securities account control agreement to be dated on or around 3rd August, 2005 between Cheyne Finance LLC, the U.S. Security Agent and The Bank of New York, in its capacity as Securities Intermediary, as amended from time to time.

“U.S. Custodian” means The Bank of New York in its capacity as Custodian under the Depositary Agreement.

“U.S. Government Agency” means, with respect to an Investment, an Investment Class comprising (a) any Debt Security issued by any Sovereign Agency of the United States of America and (b) any other Debt Security which the Manager classifies in its reasonable judgment as belonging to the U.S. Government Agency Investment Class, as agreed with the Rating Agencies from time to time.

“U.S. Issuing and Paying Agent” means each U.S. Capital Notes Issuing and Paying Agent, each U.S. CP Issuing and Paying Agent, each U.S. MTN Issuing and Paying Agent and each paying agent appointed in respect of any U.S. Bonds.

“U.S. Junior Capital Noteholders” means the Holders for the time being of the U.S. Junior Capital Notes.

“U.S. Junior Capital Notes” means the Class of U.S. Capital Notes with respect to which the Underlying Capital Notes are Junior Capital Notes.

“U.S. Mezzanine Capital Noteholders” means the Holders for the time being of the U.S. Mezzanine Capital Notes.

“U.S. Mezzanine Capital Notes” means the Class of U.S. Capital Notes with respect to which the Underlying Capital Notes are Mezzanine Capital Notes.

“U.S. MTN” means any medium term note issued by Cheyne Finance LLC pursuant to the U.S. MTN Program Documents.

“U.S. MTN Agency Agreement” means the U.S. MTN issuing and paying agency agreement to be dated on or around 3rd August, 2005 and made between, inter alios, Cheyne Finance LLC and the U.S. MTN Issuing and Paying Agents.

“U.S. MTN Control and Security Agreement” means the U.S. MTN control and security agreement to be dated on or around 3rd August , 2005 between Cheyne Finance LLC, the U.S. Security Agent and the Depositary, as amended from time to time.

“U.S. MTN Issuing and Paying Agents” means each issuing and paying agent appointed from time to time under the U.S. MTN Agency Agreement.

“U.S. MTN Placement Agent” means each financial institution appointed from time to time as a placement agent under the U.S. MTN Placement Agreement.

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“U.S. MTN Placement Agreement” means the placement agreement to be dated on or around 3rd August, 2005 and made between the Issuer, Cheyne Finance LLC and the U.S. MTN Placement Agents.

“U.S. MTN Program” means the U.S.$10,000,000,000 U.S. medium term note program established by Cheyne Finance LLC pursuant to the U.S. MTN Program Documents.

“U.S. MTN Program Documents” means the U.S. MTN Agency Agreement and the U.S. MTN Placement Agreement.

“U.S. Notes” means the U.S. Senior Notes and the U.S. Capital Notes.

“U.S. Person” means a U.S. person, as that term is defined under Regulation S.

“U.S. Programs” means the U.S. MTN Program, the U.S. CP Program and the U.S. Capital Note Program.

“U.S. Rated Notes” means the U.S. Senior Notes, the U.S. Senior Capital Notes (if issued) and the U.S. Mezzanine Capital Notes.

“U.S. Registrar” means The Bank of New York, or its replacement, in its capacity as registrar in respect of the U.S. Notes.

“U.S. Secured Obligations” means the U.S. Capital Note Secured Obligations and the U.S. Senior Note Secured Obligations.

“U.S. Security Agent” means The Bank of New York in its capacity as U.S. security agent under the U.S. Senior Note Security Agreement and the U.S. Capital Note Security Agreement or, if the context so requires, any replacement U.S. security agent.

“U.S. Security Agreements” means the U.S. Capital Note Security Agreement and the U.S. Senior Note Security Agreement.

"U.S. Security Documents" means the U.S. Capital Note Control and Security Agreement, the U.S. Capital Note Deposit Account Control and Security Agreement, the U.S. Capital Note Security Agreement, the U.S. CP Securities Account Control Agreement, the U.S. MTN Control and Security Agreement, the U.S. Senior Note Deposit Account Control and Security Agreement and the U.S. Senior Note Security Agreement.

“U.S. Senior Capital Noteholders” means the Holders for the time being of the U.S. Senior Capital Notes.

“U.S. Senior Capital Notes” means the Class of U.S. Capital Notes with respect to which the Underlying Capital Notes are Senior Capital Notes.

“U.S. Senior Note Deposit Account Control and Security Agreement” means the U.S. Senior Note deposit account control and security agreement to be dated on or around 3rd August, 2005 and made between Cheyne Finance LLC, the U.S. Security Agent and the Bank, as amended from time to time.

“U.S. Senior Note Placement Agents” means each U.S. CP Placement Agent, each U.S. MTN Placement Agent and each placement agent appointed in respect of any U.S. Bonds.

“U.S. Senior Note Secured Obligations” means all obligations and liabilities (whether actual or contingent and whether owed jointly or severally or in any other capacity whatsoever) of Cheyne Finance LLC under the Transaction Documents.

“U.S. Senior Note Security Agreement” means the U.S. Senior Note security agreement to be dated on or around 3rd August, 2005 and made between, inter alios, the Issuer, Cheyne Finance LLC and the U.S. Security Agent, as amended from time to time.

“U.S. Senior Note Security Documents” means the U.S. CP Securities Account Control Agreement, the U.S. MTN Control and Security Agreement, the U.S. Senior Note Deposit Account Control and Security Agreement and the U.S. Senior Note Security Agreement.

“U.S. Senior Notes” means the U.S. CP, the U.S. MTNs and the U.S. Bonds.

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“Value” means the Dollar Equivalent of (i) in relation to an Investment, the most recent Market Value sourced for such Investment or, where the Investment is an Investment Derivative Contract, the most recent Market Value sourced for the relevant reference obligation, (ii) in relation to Hedge Agreements, the Market Value thereof and (iii) in relation to a Hedge Counterparty, the most recent net Market Value of all Hedge Agreements outstanding with such Hedge Counterparty unless, in each case, otherwise agreed with the Rating Agencies from time to time.

“Variable Margin” has the meaning ascribed thereto in the Terms and Conditions of the Capital Notes on page 39.

“Weighted Average Life of Investments” means the remaining weighted average life of an Investment as determined in the reasonable judgment of the Manager in accordance with market convention, utilising the market’s long-term prepayment expectations for the relevant Investment and taking account of the market’s expectations of the exercise of calls relating to such Investment.

“Weighted Average Life of Senior Funding” means the weighted average of the expected maturity of the Senior Funding then outstanding.

“Weighted Average Life of Senior Funding Limit” means either (i) 3 months or (ii) 1 month during the Ramp-Up Period or as amended from time to time with Rating Agency Approval.

“Weighted Average Life of Senior Funding Test” has the meaning ascribed thereto in the section entitled “Specific Investment and Funding Criteria – Capital Tests” on page 101.

“Weighted Average Life of the Investment Portfolio” means the weighted average of the Weighted Average Life of Investments in the Investment Portfolio. Certain Investments may be excluded from the calculation of the Weighted Average Life of the Investment Portfolio as agreed with the Rating Agencies from time to time.

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REGISTERED OFFICE OF THE ISSUER

Cheyne Finance PLC 2nd Floor

11-12 Warrington Place Dublin 2

PRINCIPAL PAYING AGENT IRISH PAYING AGENT

The Bank of New York AIB/BNY Fund Management (Ireland) Ltd. One Canada Square Guild House

London Guild Street E14 5AL IFSC

Dublin

PLACEMENT AGENT CALCULATION AGENT

Morgan Stanley & Co. International Limited The Bank of New York 25 Cabot Square One Canada Square

Canary Wharf London London E14 5AL

E14 4QA

SECURITY TRUSTEE

The Bank of New York One Canada Square

London E14 5AL

LEGAL ADVISERS

To Morgan Stanley & Co. International Limited as to English and U.S. law To the Issuer as to Irish law

Allen & Overy LLP Matheson Ormsby Prentice One New Change 30 Herbert Street

London Dublin 2 EC4M 9QQ

To the Manager as to English and U.S. law

Cadwalader, Wickersham & Taft LLP One World Financial Center

New York, New York, 10281

AUDITORS IRISH LISTING AGENT

KPMG Arthur Cox Listing Services Limited 1 Stokes Place Earlsfort Centre

St Stephens Green Earlsfort Terrace Dublin 2 Dublin 2