Punch Taverns Finance plc

Transcription

1 Punch Taverns Finance plc (incorporated in England and Wales with limited liability under registered number ) 125,000,000 Class A3(N) Floating Rate Secured Notes due 2015 Issue Price: 100 per cent. 400,000,000 Class M2(N) Floating Rate Secured Notes due 2029 Issue Price: 100 per cent. 175,000,000 Class B3 Floating Rate Secured Notes due 2031 Issue Price: 100 per cent. 125,000,000 Class D1 Floating Rate Secured Notes due 2032 Issue Price: 100 per cent. unconditionally and irrevocably guaranteed by Ambac Assurance UK Limited in relation to Scheduled Interest on and Scheduled Principal of the Class A3(N) Notes and in relation to Scheduled Interest on and Ultimate Principal of the Class M2(N) Notes and the Class B3 Notes (incorporated with limited liability in England and Wales on 11 September 1996 pursuant to the Companies Act 1985 with registered number ) Prospectus This Offering Circular constitutes a Prospectus for the purpose of Directive 2003/71/EC (the "Prospectus Directive"). Application to the Irish Stock Exchange Application has been made to the Irish Financial Services Regulatory Authority ( IFSRA ), as competent authority under the Prospectus Directive, for this Offering Circular to be approved. Application has been made to the Irish Stock Exchange Limited (the "Irish Stock Exchange") for admission of the 125,000,000 Class A3(N) Floating Rate Secured Notes due 2015 (the "Class A3(N) Notes"), the 400,000,000 Class M2(N) Floating Rate Secured Notes due 2029 (the "Class M2(N) Notes"), the 175,000,000 Class B3 Floating Rate Secured Notes due 2031 (the "Class B3 Notes") and the 125,000,000 Class D1 Floating Rate Secured Notes due 2032 (the "Class D1 Notes" and, together with the Class A3(N) Notes, the Class M2(N) Notes and the Class B3 Notes, the "Fourth Issue Notes"), which are to be issued by Punch Taverns Finance plc (the "Issuer") to be admitted to the official list of the Irish Stock Exchange (the "Official List") and to be admitted to trading on its regulated market. The Fourth Issue Notes are expected to be issued on or about 5 July 2007 (or such later date as may be agreed by the Issuer, the Lead Managers (as defined below), the Note Trustee (as defined below), Ambac (as defined below) and the Principal Paying Agent (as defined below)) (the "Fourth Closing Date"). Previous Note Issuance by the Issuer On 26 March 1998 (the "First Closing Date"), the Issuer issued various classes of fixed rate secured notes and floating rate secured notes and on 25 October 2000 (the "Second Closing Date"), the Issuer issued further notes and new notes. On the first Interest Payment Date following 3 November 2003 (the "Third Closing Date") the Issuer redeemed all outstanding floating rate notes issued by it on the First Closing Date and the Second Closing Date. On the Third Closing Date the existing fixed rate notes in issue (namely the per cent. Class A4 Secured Notes due 2022, the per cent. Class B Secured Notes due 2026 and the per cent. Class C Secured Notes due 2027) were redesignated as the "Class A1(R) Notes", the "Class B1 Notes" and the "Class D(R) Notes" respectively (and the Class D(R) Notes were on the Third Closing Date acquired by Punch Taverns (PTL) Limited (the "Borrower") and immediately thereafter surrendered to the Issuer for cancellation). On the Third Closing Date the Issuer also issued the 300,000, per cent. Class A2(R) Secured Notes due 2020 (the "A2(R) Notes"), the 150,000,000 Class A3(R) Floating Rate Secured Notes due 2009 (the "A3(R) Notes"), the 150,000, per cent. Class B2 Secured Notes due 2029 (the "Class B2 Notes"), the 215,000, per cent. Class C(R) Secured Notes due 2033 (the "Class C(R) Notes"), the 200,000, per cent. Class M1 Secured Notes due 2026 (the "Class M1 Notes") and the 400,000,000 Class M2 Floating Rate Secured Notes due 2026 (the "Class M2 Notes"). The Class M2 Notes and the Class A3(R) Notes are together the "Existing Floating Rate Notes". The Class A1(R) Notes, the Class B1 Notes, the Class A2(R) Notes, the Class B2 Notes, the Class C(R) Notes and the Class M1 Notes are together the "Existing Fixed Rate Notes". The Existing Floating Rate Notes and the Existing Fixed Rate Notes are together the "Existing Notes". On the first Interest Payment Date following the Fourth Closing Date, the Issuer intends to redeem all of the Existing Floating Rate Notes. The Existing Fixed Rate Notes and the Fourth Issue Notes are referred to in this Offering Circular as the "Notes" and any holders of the Notes from time to time as the "Noteholders". The primary source of funds for the payment of principal and interest on the Notes will be the right of the Issuer to receive payments of interest and repayments of principal on advances made under a secured facility agreement (the "First PTF Issuer/Borrower Facility Agreement") between, inter alios, the Issuer, the Borrower, the Guarantors, the Agent Bank and the Security Trustee dated the First Closing Date (as supplemented on the Second Closing Date and as amended and restated on or about the Third Closing Date and as further amended and restated on or about the Fourth Closing Date) and under a secured facility agreement (the "Second PTF Issuer/Borrower Facility Agreement" and together with the amended First PTF Issuer/Borrower Facility Agreement, the "Issuer/Borrower Facility Agreements", each being an "Issuer/Borrower Facility Agreement between, inter alios, the Issuer, the Borrower, the Guarantors, the Agent Bank and the Security Trustee dated the Third Closing Date (to be amended and restated on or about the Fourth Closing Date). Details of the Fourth Issue Notes The Class A3(N) Notes will not carry the same terms and conditions as, or be consolidated or form a single series with either the Class A1(R) Notes or the Class A2(R) Notes but will rank pari passu with the Class A1(R) Notes and the Class A2(R) Notes. The Class M2(N) Notes will not carry the same terms and conditions as, or be consolidated or form a single series with the Class M1 Notes but will rank pari passu with the Class M1 Notes. The Class B3 Notes will not carry the same terms and conditions as, or be consolidated or form a single series with either the Class B1 Notes or the Class B2 Notes but will rank pari passu with the Class B1 Notes and the Class B2 Notes. The Class D1 Notes will rank subordinate to the Class C (R) Notes. Guarantee Ambac Assurance UK Limited ("Ambac") will on the Fourth Closing Date issue a financial guarantee (the "Second Financial Guarantee") pursuant to and in accordance with the terms of a second guarantee and reimbursement agreement (the "Second Guarantee and Reimbursement Agreement") dated the Fourth Closing Date and made between, inter alios, the Issuer, the Borrower and Ambac. The Class A3(N) Notes will be unconditionally and irrevocably guaranteed as to Scheduled Interest and Scheduled Principal as provided in the Second Financial Guarantee. The Class M2(N) Notes and the Class B3 Notes will be unconditionally and irrevocably guaranteed as to Scheduled Interest and Ultimate Principal as provided in the Second Financial Guarantee. The Class D1 Notes and the Existing Notes will not benefit from the Second Financial Guarantee. Obligations of the Issuer Only The Notes will be the obligations of the Issuer only and will not be guaranteed by, or be the responsibility of, any other person, other than Ambac, in respect of its financial guarantee of Scheduled Interest on and Scheduled Principal of the Class A2(R) Notes and the Class A3(N) Notes and in respect of its financial guarantee of Scheduled Interest on and Ultimate Principal of the Class M2(N) Notes and the Class B3 Notes. It should be noted in particular that the Notes will not be obligations of, and will not be guaranteed by, Ambac (other than to the extent described above), the Note Trustee, the Security Trustee, the Arranger, the Lead Managers, the Liquidity Facility Providers, any Hedge Provider, the Account Bank, the Agent Bank, the Paying Agents, any Obligor or any other company in the Punch Group (each as defined below) other than the Issuer (together the "Other Parties"). Ratings It is expected that the Class A3(N) Notes will, when issued, be assigned a AAA rating by Fitch Ratings Ltd ("Fitch"), a AAA rating by Standard & Poor s Rating Services, a division of The McGraw Hill Companies, Inc. ("S&P") and a Aaa rating by Moody s Investors Service Limited ("Moody s" and, together with Fitch and S&P, the "Rating Agencies"). It is expected that the Class M2(N) Notes will, when issued, be assigned a AAA rating by Fitch, a AAA rating by S&P and a Aaa rating by Moody s. It is expected that the Class B3 Notes will, when issued, be assigned a AAA rating by Fitch, a AAA rating by S&P and a Aaa rating by Moody s. It is expected that the Class D1 Notes will, when issued, be assigned a BBB rating by Fitch, and a BBB rating by S&P. The ratings of the Class A3(N) Notes, the Class M2(N) Notes and the Class B3 Notes will be based on the financial strength and claims paying ability of Ambac. The security ratings assigned by the Rating Agencies do not address the likelihood of the receipt of any Step-Up Amounts (as defined herein) or any redemption premium by Noteholders. The payment of Step-Up Amounts is subordinated, inter alia, to the payment of interest on and the repayment of principal of the Notes and, for the avoidance of doubt, Step-Up Amounts on the Class A3(N) Notes, the Class M2(N) Notes and the Class B3 Notes are not guaranteed by Ambac. A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the assigning rating organisation. Each security rating should be evaluated independently of any other rating and, amongst other things, will depend on the performance of the business of the Securitisation Group from time to time and (in the case of the Class A3(N) Notes, the Class M2(N) Notes and the Class B3 Notes) events affecting Ambac. Risk Factors For a discussion of certain risks and other factors that should be considered in connection with an investment in the New Notes, see the section entitled Risk Factors beginning on page 27. Arranger The Royal Bank of Scotland Lead Managers and Bookrunners Citi The Royal Bank of Scotland The date of this Offering Circular is 2 July 2007

2 Responsibility Statement The Issuer accepts responsibility for all of the information contained in this Offering Circular other than the Ambac Information (as defined below). 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 (other than the Ambac Information) contained in this document is in accordance with the facts and does not omit anything likely to affect the import of such information. Ambac accepts responsibility for the information contained in Ambac Assurance UK Limited, Form of Second Financial Guarantee, Appendix I Financial Statements of Ambac Assurance UK Limited and paragraphs 10, 11, 12 and 14 of the section entitled General Information below (together, the "Ambac Information"). To the best of the knowledge and belief of Ambac (having taken all reasonable care to ensure that such is the case), the Ambac Information is in accordance with the facts and does not omit anything likely to affect the import of such information. No representation, warranty or undertaking, express or implied, is made and no responsibility or liability is accepted by Ambac as to the accuracy or completeness of any information contained in this Offering Circular (other than the Ambac Information) or any other information supplied in connection with the Notes (including, for the avoidance of doubt, the Fourth Issue Notes) or their distribution. Other than in respect of the Ambac Information, Ambac has not separately verified the information contained herein and no representation, warranty or undertaking, express or implied, is made and no liability accepted by Ambac as to the accuracy or completeness of such information. Each person receiving this Offering Circular acknowledges that such person has not relied on Ambac or any of its affiliates in connection with its investigation of the information contained herein (other than the Ambac Information). Representations about the Fourth Issue Notes No person is authorised to give any information or to make any representation in connection with the offering or sale of the Fourth Issue Notes other than those contained in this Offering Circular. Any such representation or information should not be relied upon as having been authorised by the Issuer or any of the Other Parties or any of their respective directors, affiliates or advisers. Neither the delivery of this Offering Circular nor any sale, allotment or solicitation made in connection with the offering of the Fourth Issue Notes shall, under any circumstances, create any implication or constitute a representation that there has been no change in the affairs of the Issuer, or in the other information contained herein since the date hereof. None of the Other Parties has separately verified the information contained herein. Accordingly, no representation, warranty or undertaking, express or implied, is made and no responsibility or liability is accepted by any Other Party as to the accuracy or completeness of the information contained in this document or any other information supplied in connection with the Fourth Issue Notes or their distribution. The statements in this paragraph are without prejudice to the responsibility of the Issuer. Each person receiving this document acknowledges that such person has not relied on any Other Party (other than Ambac in relation to the Ambac Information only) nor on any other person affiliated with any of them in connection with any investigation of the accuracy of the information or its investment decision. Financial condition of the Issuer, the Estate and Ambac Neither the delivery of this document nor any offer, sale or solicitation made in connection with the issue of the Fourth Issue Notes (the "Issue") shall, in any circumstances, constitute a representation, or create any implication, that there has been no adverse change in the condition (financial or otherwise) of the Issuer or any other member of the Punch Group or Ambac or any of their affiliates or the information contained herein is correct at any time subsequent to the date of this Offering Circular. Unless otherwise indicated, the information contained in this document relating to the Estate (as defined below) is given as at 2 July Certain information has been extracted from the Valuation Report set forth in this Offering Circular. For a description of the methodology used and certain assumptions and qualifications regarding the accuracy of such information, see Valuation Report below. The valuation information presented in this Offering Circular should not be treated as a projection or forecast by DTZ (as defined below), the Issuer, the Punch Group, Ambac, the Arranger, the Lead Managers, or their respective affiliates and representatives. Summary of Selling Restrictions The distribution of this Offering Circular and the offering of the Fourth Issue Notes in certain jurisdictions may be restricted by law. None of the Issuer, the Other Parties or any other member of the Punch Group or any of their respective affiliates or advisers represents that the Fourth Issue Notes may at any time be lawfully 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 the facility of such sale. Persons into whose possession this Offering Circular (or any part thereof) comes are required by the Issuer, the Arranger and the Lead Managers to inform themselves about and to observe any such restrictions. For a description 2

3 of certain further restrictions on offers, sales and deliveries of the Fourth Issue Notes and on the distribution of this Offering Circular, see Subscription and Sale below. This Offering Circular does not constitute an offer to sell or a solicitation of an offer to buy the Fourth Issue Notes and neither this Offering Circular nor any part hereof may be used for or in connection with an offer to, or solicitation by, any person in any jurisdiction or in any circumstances in which such offer or solicitation is not authorised or to any person to whom it is unlawful to make such offer or solicitation. Accordingly, the Fourth Issue Notes may not be offered or sold, directly or indirectly, and neither this Offering Circular nor any part hereof or any other offering circular, prospectus, form of application, advertisement, other offering materials nor other information may be issued, distributed or published in any country or jurisdiction (including the United Kingdom), except in circumstances that will result in compliance with all applicable laws, orders, rules and regulations. In particular, the Fourth Issue Notes are being offered for sale outside the United States to non-us persons in accordance with Regulation S ("Regulation S") under the US Securities Act of 1933, as amended (the "Securities Act"). The Fourth Issue Notes have not been, nor will be, registered under the Securities Act or any state securities laws, and include Fourth Issue Notes in bearer form that are subject to US tax law requirements. The Fourth Issue Notes may not be offered, sold or delivered, directly or indirectly, within the United States or to, or for the benefit of, any US persons (as defined in the Securities Act) except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. See further Subscription and Sale below. The Fourth Issue Notes are subject to certain restrictions on transfer as described in the section entitled Subscription and Sale. Stabilisation In connection with the issue of the Fourth Issue Notes, The Royal Bank of Scotland plc (the "Stabilising Manager") (or persons acting on behalf of the Stabilising Manager) may over-allot Fourth Issue Notes (provided that the aggregate principal amount of Fourth Issue Notes allotted does not exceed 105 per cent. of the aggregate principal amount of the relevant class of Fourth Issue Notes) or effect transactions with a view to supporting the market price of the Fourth Issue Notes at a level higher than that which might otherwise prevail. However, there is no assurance that the Stabilising Manager (or persons acting on behalf of the Stabilising Manager) will undertake 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 Fourth Issue 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 Fourth Issue Notes and 60 days after the date of the allotment of the Fourth Issue Notes. Any stabilisation action or over-allotment shall be conducted in accordance with all applicable laws and rules. Currency References in this Offering Circular to ", pounds or Sterling" are to the lawful currency for the time being of the United Kingdom of Great Britain and Northern Ireland (the "United Kingdom"). References in this document to ", euro and EUR" are to the single currency introduced at the third stage of European Economic and Monetary Union pursuant to the Treaty establishing the European Community, as amended from time to time. References in this document to "$ or dollars" are to the lawful currency for the time being of the United States of America (the "United States" or "US"). Interpretation Capitalised terms used in this Offering Circular, unless otherwise indicated, have the meanings set out in this Offering Circular. An index of terms defined in this Offering Circular is included in the section entitled Index of Defined Terms below. 3

4 TABLE OF CONTENTS SUMMARY... 5 CORPORATE STRUCTURE OF THE PUNCH GROUP AS AT THE FOURTH CLOSING DATE... 8 KEY PARTIES TO THE TRANSACTION...10 KEY CHARACTERISTICS OF THE FOURTH ISSUE NOTES AND THE EXISTING FIXED RATE NOTES...12 SUMMARY OF THE TRANSACTION AND THE TERMS AND CONDITIONS OF THE FOURTH ISSUE NOTES AND RELATED MATTERS...14 RISK FACTORS...26 SUMMARY OF PRINCIPAL DOCUMENTS...53 USE OF PROCEEDS THE ISSUER THE PARENT THE BORROWER AMBAC ASSURANCE UK LIMITED AMBAC ASSURANCE CORPORATION RELATIONSHIP BETWEEN AMBAC ASSURANCE UK LIMITED AND AMBAC ASSURANCE CORPORATION FORM OF SECOND FINANCIAL GUARANTEE THE UNITED KINGDOM PUB INDUSTRY BUSINESS OF THE PUNCH GROUP AND INFORMATION REGARDING THE PORTFOLIO SUMMARY DETAILS OF MEMBER COMPANIES OF THE PUNCH GROUP MANAGEMENT/KEY SHAREHOLDERS OF THE PUNCH GROUP EXPECTED AVERAGE LIFE OF THE FOURTH ISSUE NOTES TERMS AND CONDITIONS OF THE NOTES GLOBAL NOTES SUBSCRIPTION AND SALE TAXATION GENERAL INFORMATION INDEX TO FINANCIAL STATEMENTS APPENDIX I FINANCIAL STATEMENTS OF AMBAC ASSURANCE UK LIMITED APPENDIX II FINANCIAL STATEMENTS OF THE BORROWER APPENDIX III FINANCIAL STATEMENTS OF THE ISSUER APPENDIX IV VALUATION REPORT INDEX OF DEFINED TERMS

5 SUMMARY This section contains a summary of the Punch Group and the Securitisation Group (each as defined below) and of the Transaction (as defined below). This summary does not purport to be complete and should be read in conjunction with, and is qualified in its entirety by reference to, the more detailed information appearing elsewhere in this Offering Circular. Capitalised terms used in this Offering Circular but not otherwise defined herein are defined in the master definitions and construction schedule signed by Freshfields Bruckhaus Deringer and Slaughter and May for identification purposes and dated on or about the Fourth Closing Date (the "Amended Master Definitions and Construction Schedule") or the other Relevant Documents (as defined below). An index of terms defined in this Offering Circular is included in the section entitled Index of Defined Terms below. For the purposes of this Offering Circular, the term "Securitisation Group" means Punch Taverns Holdings Limited and each of its subsidiaries from time to time (other than Punch Taverns (DC) Holdings Limited (and each of its subsidiaries), Punch Taverns (CMS) Limited, Punch Taverns (OS) Limited, Punch Taverns (Fradley) Limited and Punch Taverns (IB) Limited (and each of its subsidiaries)) (as described below) and "Securitisation Group Entity" or "Securitisation Group Entities" means one or more of such companies. The "Punch Group" comprises Punch Taverns plc and each of its subsidiaries from time to time (including the companies in the Securitisation Group). The term "Transaction" means the acquisition of pubs by the Securitisation Group on or immediately before the Fourth Closing Date, the amendment of the Relevant Documents, the issuance of the Fourth Issue Notes, the use of the proceeds thereof and the entry into by the Issuer of the related hedging arrangements as more particularly described in this Offering Circular. The Punch Group At the date of this Offering Circular, the corporate structure of the Punch Group is divided into three principal sub-groups, two of which own and operate leased and tenanted pubs: the Securitisation Group and the "Punch Taverns B Sub-Group" (comprising Punch Taverns (PMH) Limited (formerly Punch Taverns B Holdings Limited) and each of its subsidiaries from time to time), and one of which, the "Spirit Sub-Group" (comprising Spirit Group Holdings Limited and each of its subsidiaries from time to time), owns and operates both managed and leased and tenanted pubs. A further, smaller pub-owning sub-group, the "Avebury Sub-Group" as at the date of this Offering Circular, also owns and operates leased and tenanted pubs. In addition, as at the date of this Offering Circular, Punch Taverns (PGRP) Limited ("PGRP") and Punch Taverns (Branston) Limited ("Branston") each own and operate a number of leased and tenanted pubs. Certain of the pubs owned and operated by the Avebury Sub-Group, PGRP and Branston will be acquired by the Borrower on or immediately before the Fourth Closing Date (see The Transaction and the Securitisation Group Acquisition of pubs on or immediately before the Fourth Closing Date below). Punch Taverns plc ("Punch") is the ultimate parent of the Punch Group comprising, inter alia, the Securitisation Group, the Punch Taverns B Sub-Group, the Spirit Sub-Group, the Avebury Sub-Group, PGRP and Branston. Punch's entire issued ordinary share capital is listed on the London Stock Exchange (see Management/Key Shareholders of the Punch Group below). The initial public offering of shares in Punch was completed in May As at the date of this Offering Circular, Punch is a member of the FTSE 100 Index. The Securitisation Group The Securitisation Group was formed as a result of the amalgamation and refinancing in November 2003 of two separate securitisation structures: Punch Taverns Holdings Limited and its subsidiaries, in which notes were issued by the Issuer (namely, Punch Taverns Finance plc) (the "PTF Sub-Group") and Punch Taverns (PRAF) Limited and its subsidiaries, for which the issuer was Punch Funding II Limited (the "PFII Sub- Group"). The Securitisation Group owned, as at 3 March 2007, 4,002 leased and tenanted pubs and is the subject of a securitisation involving separate financing and security arrangements, pursuant to the issue by the Issuer of a series of fixed and floating rate notes in November 2003 as more particularly described in this Offering Circular. The PTF Sub-Group was formed in connection with the acquisition by the Punch Group of a portfolio of pubs from Bass PLC in In October 2000 the PTF Sub-Group was enlarged by the transfer of the leased pub portfolio of the Inn Business Group (which was acquired by the Punch Group in September 1999) and the leased pub portfolio of Punch Taverns (Fradley) Limited. Prior to its amalgamation and refinancing in November 2003, the PTF Sub-Group was the subject of a securitisation involving separate financing and security arrangements, pursuant to the issue by the Issuer of a series of fixed and floating rate notes in March 1998 and October 2000, in order to finance the acquisition of such pub portfolios. The PFII Sub-Group was formed in connection with the acquisition by the Punch Group in September 1999 of a group of companies which owned and operated the UK pub business of Allied Domecq PLC. This pub 5

6 business consisted of a leased and managed estate. In spring 2002 the leased and managed business of the Punch Group was separated and the managed business was transferred to Spirit Group Holdings Limited. Prior to its amalgamation and refinancing in November 2003, the PFII Sub-Group was the subject of a securitisation involving separate financing and security arrangements, pursuant to the issue by Punch Funding II Limited of a series of fixed and floating rate notes in June 2000 as amended pursuant to the demerger of the managed business in spring On the Fourth Closing Date, the Issuer will issue the Fourth Issue Notes and the Securitisation Group will acquire 238 leased and tenanted pubs as further described below. Avebury Sub-Group On 5 August 2005, Punch acquired, through its wholly owned subsidiary, Punch Taverns (PGE) Limited ("PGE"), Avebury Holdings Limited and its subsidiaries. The Avebury Sub-Group was the subject of a securitisation involving separate financing and security arrangements (comprising Avebury Properties Limited ("APL") and Punch Taverns (Avebury) Limited (formerly Avebury Taverns Limited) ("ATL"), owning and operating 378 leased and tenanted pubs as at 28 April 2007). On 25 May 2007, all outstanding notes issued by APL in connection with the securitisation were redeemed in full by APL. On 21 May 2007, 286 pubs of the Avebury Sub-Group were transferred to Punch Taverns (APL278) Limited ("APL278") and 35 pubs of the Avebury Sub-Group were transferred to Punch Taverns (APL35) Limited ("APL35"), each a wholly owned subsidiary of APL. On 25 May 2007, APL278 transferred 278 of these pubs to the Borrower. The pubs in the Avebury Sub-Group were leased by APL to ATL, which was the intermediate landlord between APL and the tenant. On 26 May 2007, as part of this restructuring, the intermediate leases then between the Borrower and ATL in respect of the 278 pubs were surrendered and the operations of these pubs were assumed by the Borrower. It is proposed that as part of the Transaction, on or immediately before the Fourth Closing Date, the 35 pubs owned by APL35 will be transferred to the Borrower, the intermediate lease between the Borrower and ATL will be surrendered and the operations of these pubs will be assumed by the Borrower (see The Transaction and the Securitisation Group Acquisition of pubs on or immediately before the Fourth Closing Date below). PGRP and Branston As at 28 April 2007, PGRP owned 297 leased and tenanted pubs and Branston owned 106 leased and tenanted pubs. It is proposed that as part of the Transaction, on or immediately before the Fourth Closing Date, 114 pubs owned by PGRP and 90 pubs owned by Branston will be transferred to the Borrower (see The Transaction and the Securitisation Group below). The Transaction and the Securitisation Group Recent acquisitions and disposals of pubs before the Fourth Closing Date As at 3 March 2007, the total number of pubs owned by the Securitisation Group (the "Estate") comprised 4,002 pubs. On 16 May 2007, the Borrower disposed of certain of the business and assets comprising 419 pubs of the Securitisation Group. The disposal was effected by PGE entering into a business and asset sale agreement, pursuant to which PGE procured the disposal of those 419 pubs, and the associated business, assets and goodwill, by the Borrower to Admiral Taverns (869) Limited. On 25 May 2007, as described above, 278 pubs were acquired by the Borrower from APL278. In addition, on 25 May 2007, the Borrower disposed of certain of the business and assets comprising 59 pubs of the Securitisation Group portfolio to PGRP. A further four pubs were disposed of by the Borrower as individual disposals in the period between 3 March 2007 and the Fourth Closing Date. The acquisitions and disposals of these pubs involved the entry into a number of intra-group business and asset sale agreements before the Fourth Closing Date pursuant to which the business, assets and goodwill comprising such pubs were transferred under the relevant business and asset sale agreement. Acquisition of pubs on or immediately before the Fourth Closing Date The Transaction will involve the acquisition, on or immediately before the Fourth Closing Date, by the Borrower of certain of the business and assets comprising 35 pubs of APL35, certain of the business and assets comprising 114 pubs of PGRP and certain of the business and assets comprising 90 pubs of Branston. These acquisitions will each involve the entry into of a business and asset sale agreement on or immediately prior to the Fourth Closing Date pursuant to which the business, assets and goodwill comprising such pubs will be transferred to the Borrower under the relevant business and asset sale agreement as further described below. 6

7 Transitional measures following the Closing Date In order to ensure an orderly transfer of the respective businesses of the Avebury Sub-Group, PGRP and Branston to the Borrower, for a period of time following the Fourth Closing Date there will be transitional provisions such that each of PGRP, Branston and the relevant members of the Avebury Sub-Group are appointed as agent of the Borrower in relation to the operation of such businesses. Estate The acquisitions and disposals referred to above, together with the remaining portfolio of the Securitisation Group, will increase the size of the Estate to 4,037 pubs as at the Fourth Closing Date. The diagram entitled Corporate Structure of the Punch Group as at the Fourth Closing Date set out below shows the organisational structure of the Punch Group (and, within it, the Securitisation Group) as it will be at the Fourth Closing Date. Those companies that form the securitisation net of the Securitisation Group as at the Fourth Closing Date are indicated within the appropriate shaded box. Issue of the Fourth Issue Notes and use of proceeds It is proposed that the Issuer will, on the Fourth Closing Date, advance the proceeds of the issue of the Fourth Issue Notes to the Borrower who will, amongst other things, apply such proceeds in the following manner: (i) (ii) (iii) (iv) in repayment of the term advances then outstanding to the Issuer in respect of the Existing Floating Rate Notes; in making the acquisitions of the business, assets and goodwill of the Avebury Sub-Group, PGRP and Branston as described above; in meeting costs and expenses of the Transaction; and in repayment in part of the Borrower Subordinated Loans (as further described below) and other subordinated amounts owed to Punch Taverns Holdings Limited. Further details as to the proposed uses of the proceeds of the issue of the Fourth Issue Notes are set out in Use of Proceeds below. Cash resources and the Securitisation Group at the Fourth Closing Date On the Fourth Closing Date, the cash resources of the Securitisation Group will be as follows: (a) Controlled Cash Account - 20,000,000; (b) Collection Account - 5,000,000 plus an amount equal to the aggregate of (i) the then debit balance of the Operating Account; (ii) an amount necessary to satisfy any cheques drawn by the Borrower but not presented; and (iii) an amount equal to the aggregate of amounts estimated by the Borrower to be payable in the ordinary course of business by the Borrower less the aggregate of the amounts estimated by the Borrower to be receiveable in the ordinary course of business by the Borrower in each case from the Fourth Closing Date to the first Interest Payment Date falling after the Fourth Closing Date; and (c) Acquisition Reserve Account approximately 100,000. For further details relating to the operation of the Borrower's bank accounts see the section below entitled Summary of Principal Documents Issuer/Borrower Facility Agreements Other Covenants Cash Flow Collection. 7

8 CORPORATE STRUCTURE OF THE PUNCH GROUP AS AT THE FOURTH CLOSING DATE 8

9 Unaudited aggregated financial information in relation to the Securitisation Group The table below shows certain unaudited financial information of the earnings before interest, taxes, depreciation and amortisation, exceptional items and profits and losses on disposal of pubs (the "Unaudited EBITDA Information") for the Estate on an aggregated basis for the 52 weeks ended 20 August 2005, the 52 weeks ended 19 August 2006 and the 28 weeks ended 3 March The historical data in the table below reflects the relevant information available to management in respect of the Estate as at the Fourth Closing Date. Due to its nature and variety of sources (as described below), the Unaudited EBITDA Information shows the aggregate performance of pubs in the Securitisation Group but does not give a true picture of what the consolidated EBITDA of the Securitisation Group would have been had the formation of the Estate occurred at the beginning of each of the periods set out in the tables below. The Unaudited EBITDA Information is not indicative of actual results which will be achieved in the future. Estate (as at the Fourth Closing Date) (m) 2005 (1) 2006 (2) 2007 (3) No of pubs at end of period... 3,614 3,985 4,037 Turnover ( m) Gross profit ( m) Operating costs ( m) (4)... (34.3) (33.6) (17.9) Aggregated EBITDA ( m) Notes: (1) For the 52 weeks ended 20 August 2005 (2) For the 52 weeks ended 19 August 2006 (3) For the 28 weeks ended 3 March 2007 (4) Operating costs have been calculated by aggregating outlet specific operating costs for the pubs in the Estate together with an apportionment of central overheads based on a figure of 6,400 per annum for the average number of pubs in the Punch Group's ownership for each period. The unaudited, aggregated financial information has been prepared by aggregating the relevant financial information available to management in respect of those pubs which, as of the Fourth Closing Date, will comprise the Estate. The pubs comprising the Estate have been under Punch ownership as follows: (a) 3,581 pubs have been in the Estate since at least September further acquisitions were made during the year ended 20 August (b) 313 pubs were acquired as part of the Punch Group's acquisition of the Avebury Sub-Group on 5 August These pubs were integrated with the Punch Group's systems with effect from 18 September 2005 and the unaudited aggregated financial information set out above in respect of these pubs commences from 18 September The financial information in respect of such pubs is consistent with that collected from the rest of the Punch Group's pub portfolio. (c) 90 Branston pubs were acquired as individual acquisitions over the period from 17 February 2006 to 5 March 2007, 37 in the year ended 19 August 2006 and 52 in the 28 weeks ended 3 March 2007 and one in the week ended 10 March The unaudited aggregated financial information set out above in respect of each of these pubs commences from the date of their acquisition by the Punch Group. (d) 9 previously managed pubs were converted to leased and acquired by the Securitisation Group during the year ended 19 August The unaudited aggregated financial information set out above in respect of each of these pubs commences from the date of its conversion. (e) 114 PGRP pubs were acquired by PGRP in November The unaudited aggregated financial information set out above in respect of these pubs commences from the date of their acquisition by the Punch Group. Valuation of Estate DTZ Debenham Tie Leung Limited of One Curzon Street, London W1A 5PA ("DTZ") has valued the Estate and its report dated 2 July 2007 with respect to the Estate (the "Valuation Report") is reproduced in its entirety in Appendix IV - Valuation Report below. In the view of DTZ, and subject to the assumptions and qualifications set out in the Valuation Report, the Estate had a market value of 3,070,000,000 as at 2 July 2007, being the date of the valuation set out in the Valuation Report. 9

10 KEY PARTIES TO THE TRANSACTION The Issuer: Borrower: Note Trustee: Security Trustee: Ambac: Liquidity Facility Providers: Account Bank: Punch Taverns Finance plc (the "Issuer") is a company incorporated with limited liability in England and Wales whose registered office is at Jubilee House, Second Avenue, Burton-upon-Trent, Staffordshire DE14 2WF (telephone number: +44 (0) ). The Issuer's primary purpose is to issue the Notes and to lend the proceeds thereof to the Borrower. The issued share capital of the Issuer is 50,000 ordinary shares of 1 each, of which 2 have been issued fully paid and 49,998 have been issued partly paid and one of which is owned by Neil Preston on trust for Punch Taverns Holdings Limited (the "Parent") and the remainder of which are held by the Parent. Punch Taverns (PTL) Limited, a company incorporated in England and Wales whose registered office is at Jubilee House, Second Avenue, Burton-upon-Trent, Staffordshire DE14 2WF (telephone number: +44 (0) ). Deutsche Trustee Company Limited. The Note Trustee will be appointed pursuant to the Third Supplemental Trust Deed to be entered into on the Fourth Closing Date between the Issuer, the Parent and the Note Trustee to represent the interests of the holders of the Notes under the Trust Deed. Deutsche Trustee Company Limited. The Security Trustee will hold the security granted under the Issuer Deed of Charge for the benefit of the Issuer Secured Creditors and will be entitled to enforce the security granted in its favour under the Issuer Deed of Charge. The Security Trustee will also hold the security granted under the Punch Taverns Deeds of Charge for the benefit of the Punch Taverns Secured Parties and will be entitled to enforce the security granted in its favour under the Punch Taverns Deeds of Charge. Ambac Assurance UK Limited, a company incorporated in England and Wales whose registered office is at Level 7, 6 Broadgate, London EC2M 2QS (telephone number: +44 (0) ) which is authorised to issue, inter alia, financial guarantees, and is licensed to offer insurance services in the United Kingdom. At the date of this Offering Circular, Ambac's financial strength is rated "AAA"/"Aaa"/"AAA" by S&P, Moody's and Fitch respectively. Ambac will only guarantee the payment of Scheduled Interest on and Scheduled Principal of the Class A2(R) Notes and Class A3(N) Notes and the payment of Scheduled Interest on and Ultimate Principal of the Class M2(N) Notes and the Class B3 Notes. One or more banks each of which, as at the Fourth Closing Date, has a rating assigned to its short-term unsecured, unsubordinated and unguaranteed debt obligations of at least "A-1"/"P-1"/"F1" (or its longterm equivalent) by the Rating Agencies or such other short-term or long-term rating as is appropriate for the ratings (or in the case of the Class A2(R) Notes, the Class A3(N) Notes, the Class M2(N) Notes and the Class B3 Notes, the Underlying Rating) assigned by the Rating Agencies to the Notes then outstanding from time to time (the "Liquidity Facility Requisite Rating"). At the Fourth Closing Date, the Liquidity Facility Providers are expected to be Lloyds TSB Bank plc and The Royal Bank of Scotland plc. A bank which has a rating assigned to its short-term unsecured, unsubordinated and unguaranteed debt obligations of at least of "A- 1+"/"P-1"/"F1" (or its long-term equivalent) by the Rating Agencies or such other rating as is approved by the Rating Agencies from time to time. The Account Bank will provide cash management services pursuant to the Bank Agreement. At the Fourth Closing Date, the Account Bank will be Barclays Bank PLC acting through its branch at West Midlands Corporate Banking Centre, 15 Colmore Row, Birmingham B3 2EP. 10

11 Agent Bank: Principal Paying Agent: Luxembourg Paying Agent: Irish Paying Agent: Deutsche Bank AG, London Branch of Winchester House, 1 Great Winchester Street, London EC2N 2DB. The Agent Bank will provide Note and interest rate calculation services to the Issuer pursuant to the Agency Agreement. Deutsche Bank AG, London Branch. The Principal Paying Agent will make repayments of principal of, and payments of interest on, the Notes on behalf of the Issuer while the Notes are in bearer form. Deutsche Bank Luxembourg S.A. The Luxembourg Paying Agent will provide note payment services to the Issuer pursuant to the Agency Agreement. Deutsche International Corporate Services (Ireland) Limited. The Irish Paying Agent will provide note payment services to the Issuer pursuant to the Agency Agreement. Hedge Providers: The Royal Bank of Scotland plc, acting through its office at 135 Bishopsgate, London EC2M 3UR (in such capacity, the "Initial Hedge Provider") unless and until the Initial Hedge Provider ceases to have a rating assigned to its short-term unsecured, unsubordinated and unguaranteed debt obligations by the Rating Agencies of at least "A- 1"/"P-1"/"F1" (or in the case of Fitch its long-term equivalent) and a rating assigned to its long term unsecured, unsubordinated and unguaranteed debt obligations by S&P of at least "A+" and by Moody's of at least "A1" (the "Hedge Provider Requisite Ratings") in which event the Issuer may, unless the Initial Hedge Provider takes the relevant action required of it as set out in more detail in the Hedges, enter into replacement hedging arrangements with a replacement hedge provider (the "Replacement Hedge Provider", the Initial Hedge Provider and each Replacement Hedge Provider being a "Hedge Provider", which expression shall also include any other swap counterparty with which the Issuer enters into any hedging arrangement (other than the Borrower in respect of the Issuer/Borrower Swap Agreement)) being an entity which has the Hedge Provider Requisite Ratings. Servicer: Financial Adviser: Escrow Agent: Punch Taverns (PTL) Limited, a company incorporated in England and Wales whose registered office is at Jubilee House, Second Avenue, Burton-upon-Trent, Staffordshire DE14 2WF, will provide certain corporate adminstiration services to and on behalf of the Issuer pursuant to the Servicing and Cash Management Agreement. Ernst & Young LLP (the "Financial Adviser"). The Financial Adviser will provide to the Security Trustee certain advisory services relating to the financial position of the Securitisation Group. Deutsche Bank AG, London Branch of Winchester House, 1 Great Winchester Street, London EC2N 2DB (the "Escrow Agent") will act as escrow agent under the Deed of Escrow. The Escrow Agent is required to have a rating assigned to its short-term unsecured, unsubordinated and unguaranteed debt obligations by the Rating Agencies of at least "A-1"/"P-1"/"F1". 11

12 KEY CHARACTERISTICS OF THE FOURTH ISSUE NOTES AND THE EXISTING FIXED RATE NOTES Class A1(R) Notes Class A2(R) Notes (1) Class A3(N) Notes (1) Class M1 Notes Class M2(N) Notes (1) Class B1 Notes Class B2 Notes Class B3 Notes (1) Class C(R) Notes Class D1 Notes Denomination 10,000, of Notes (2) 100,000 1,000, 10,000, 100,000 50,000 minimum and 1,000 thereafter 1,000, 10,000, 100,000 50,000 minimum and 1,000 thereafter 10,000, 100,000 1,000, 10,000, 100,000 50,000 minimum and 1,000 thereafter 1,000, 10,000, 100,000 50,000 minimum and 1,000 thereafter Total Nominal Amount 270,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000,000 Issue Price N/A 100 per cent. 100 per cent. 100 per cent. 100 per cent. N/A 100 per cent. 100 per cent. 100 per cent. 100 per cent. Interest Rate (3) per cent per cent. 3 month Note LIBOR (13) plus a margin of 0.13 per cent per cent. 3 month Note LIBOR (13) plus a margin of 0.20 per cent per cent per cent 3 month Note LIBOR (13) plus a margin of 0.24 per cent per cent. 3 month Note LIBOR (13) plus a margin of 0.82 per cent. Step-Up Fee Rate N/A N/A N/A N/A 0.30 per cent. from the Interest Payment Date falling in July 2014 N/A N/A 0.36 per cent. from the Interest Payment Date falling in July 2014 N/A 1.23 per cent. from the Interest Payment Date falling in July 2014 Frequency of Payments of Interest Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Frequency of Amortisation of Principal (4) Quarterly commencing on the Interest Payment Date falling in July 2015 Quarterly commencing on the Interest Payment Date falling in October 2010 Quarterly commencing on the Interest Payment Date falling in October 2007 Quarterly commencing on the Interest Payment Date falling in April 2009 Quarterly commencing on the Interest Payment Date falling in October 2020 Quarterly commencing on the Interest Payment Date falling in July 2022 Quarterly commencing on the Interest Payment Date falling in October 2026 Quarterly commencing on the Interest Payment Date falling in July 2029 Quarterly commencing on the Interest Payment Date falling in July 2029 Quarterly commencing on the Interest Payment Date falling in July 2031 Early Redemption Premium The greater of par and spens The greater of par and spens N/A The greater of par and spens N/A The greater of par and spens The greater of par and spens N/A The greater of par and spens N/A Payment dates for interest and principal payments (5) Expected Average Life Expected Maturity Date (7) 15 January 15 April 15 July 15 October of each year, the first Interest Payment Date being 15 January January 15 April 15 July 15 October of each year, the first Interest Payment Date being 15 January January 15 April 15 July 15 October of each year, the first Interest Payment Date being 15 October January 15 April 15 July 15 October of each year, the first Interest Payment Date being 15 January January 15 April 15 July 15 October of each year, the first Interest Payment Date being 15 October January 15 April 15 July 15 October of each year, the first Interest Payment Date being 15 January January 15 April 15 July 15 October of each year, the first Interest Payment Date being 15 January January 15 April 15 July 15 October of each year, the first Interest Payment Date being 15 October January 15 April 15 July 15 October of each year, the first Interest Payment Date being 15 January January 15 April 15 July 15 October of each year, the first Interest Payment Date being 15 October years 8.54 years 2.97 years (6) years 7.03 years (6) years years 7.03 years (6) years 7.03 years (6) Final Maturity Date (8) Expected AAA (10) S&P Rating (9) Expected AAA (10) Fitch Rating (9) AAA AAA A AAA BBB+ BBB+ AAA BBB+ (12) BBB AAA AAA AA (11) AAA BBB+ BBB+ AAA BBB BBB Expected Moody's Rating (9) Aa3 Aaa Aaa A1 Aaa Baa1 Baa1 Aaa Baa3 N/A Form at Bearer Bearer Bearer Bearer Bearer Bearer Bearer Bearer Bearer Bearer issue (2) Listing Listed on the Luxembourg Stock Exchange Listed on the Luxembourg Stock Exchange Application for listing on the Irish Stock Exchange has been made Listed on the Luxembourg Stock Exchange Application for listing on the Irish Stock Exchange has been made Listed on the Luxembourg Stock Exchange Listed on the Luxembourg Stock Exchange Application for listing on the Irish Stock Exchange has been made Listed on the Luxembourg Stock Exchange Application for listing on the Irish Stock Exchange has been made Clearing Clearstream, Luxembourg and Euroclear Clearstream, Luxembourg and Euroclear Clearstream, Luxembourg and Euroclear Clearstream, Luxembourg and Euroclear Clearstream, Luxembourg and Euroclear Clearstream, Luxembourg and Euroclear Clearstream, Luxembourg and Euroclear Clearstream, Luxembourg and Euroclear Clearstream, Luxembourg and Euroclear Clearstream, Luxembourg and Euroclear Common Code ISIN XS XS XS XS XS XS XS XS XS XS The Existing Fixed Rate Notes are indicated by the shaded columns in the table above 12

13 Notes: (1) The Class A2(R) Notes and the Class A3(N) Notes have the benefit of the First Financial Guarantee and the Second Financial Guarantee respectively as to the payment of Scheduled Interest and Scheduled Principal. The Class M2(N) Notes and the Class B3 Notes have the benefit of the Second Financial Guarantee as to the payment of Scheduled Interest and Ultimate Principal see Form of Second Financial Guarantee below. (2) See Terms and Conditions of the Notes Condition 1 Form, Denomination and Title below. (3) See Terms and Conditions of the Notes Condition 4(d) Rates of interest and Step-Up Fee Rates below. (4) Principal of the Notes will amortise quarterly in an amount equal to the corresponding payments received by the Issuer from the Borrower under the Issuer/Borrower Facility Agreements. (5) See Terms and Conditions of the Notes Condition 4(b) Interest Payment Dates and Interest Periods below. (6) See the table in the section entitled Expected Average Life of the Fourth Issue Notes below. (7) Based on the earlier of the full amortisation of such Notes or the exercise by the Issuer of its right to redeem on or before the Interest Payment Date on which the margin above Note LIBOR increases. See Expected Average Life of the Fourth Issue Notes below. (8) See Terms and Conditions of the Notes Condition 5(a) Final Redemption below. (9) No rating is assigned in respect of payments of Step-Up Amounts. All ratings are the ratings which are expected to be assigned to the Notes at the Fourth Closing Date. The AAA/Aaa/AAA ratings assigned to the Class A3(N) Notes, the Class A2(R) Notes, the Class M2(N) Notes and the Class B3 Notes are based on the claims paying ability of Ambac under the Financial Guarantees. (10) The current ratings assigned to this class of Notes are A/A by S&P and Fitch. (11) The current rating assigned to this class of Notes is A by Fitch. (12) The current rating assigned to this class of Notes by S&P is BBB. (13) In the case of the Interest Period commencing on the Fourth Closing Date, this will be the rate obtained by linear interpolation of LIBOR for three month sterling deposits and LIBOR for four month sterling deposits.. 13

14 SUMMARY OF THE TRANSACTION AND THE TERMS AND CONDITIONS OF THE FOURTH ISSUE NOTES AND RELATED MATTERS The following is only a summary of, and should be read in conjunction with, and is qualified in its entirety by reference to, the more detailed information which appears elsewhere in this Offering Circular. EXISTING NOTES Previous note issuance by the Issuer: On 26 March 1998 (the "First Closing Date"), the Issuer issued various classes of fixed rate secured notes and floating rate secured notes and on 25 October 2000 (the "Second Closing Date"), the Issuer issued further notes and new notes. On the first Interest Payment Date following 3 November 2003 (the "Third Closing Date") the Issuer redeemed all outstanding floating rate notes issued by it on the First Closing Date and on the Second Closing Date. On the Third Closing Date the existing fixed rate notes in issue (namely the per cent. Class A4 Secured Notes due 2022, the per cent. Class B Secured Notes due 2026 and the per cent. Class C Secured Notes due 2027) were redesignated as the "Class A1(R) Notes", the "Class B1 Notes" and the "Class D(R) Notes" respectively (and the Class D(R) Notes were on the Third Closing Date acquired by Punch Taverns (PTL) Limited (formerly known as Punch Pub Company (PTL) Limited) (the "Borrower") and immediately thereafter surrendered to the Issuer for cancellation). On the Third Closing Date the Issuer also issued the 300,000, per cent. Class A2(R) Secured Notes due 2020 (the "Class A2(R) Notes"), the 150,000,000 Class A3(R) Floating Rate Secured Notes due 2009 (the "Class A3(R) Notes"), the 150,000, per cent. Class B2 Secured Notes due 2029 (the "Class B2 Notes"), the 215,000, per cent. Class C(R) Secured Notes due 2033 (the "Class C(R) Notes"), the 200,000, per cent. Class M1 Secured Notes due 2026 (the "Class M1 Notes") and the 400,000,000 Class M2 Floating Rate Secured Notes due 2026 (the "Class M2 Notes"). The Class M2 Notes and the Class A3(R) Notes are together the "Existing Floating Rate Notes". The Class A1(R) Notes, the Class B1 Notes, the Class A2(R) Notes, the Class B2 Notes, the Class C(R) Notes and the Class M1 Notes are together the "Existing Fixed Rate Notes". The Existing Floating Rate Notes and the Existing Fixed Rate Notes are together the "Existing Notes". Redemption of Existing Floating Rate Notes: As part of the Transaction, it is intended that the Existing Floating Rate Notes will be redeemed on the first Interest Payment Date in respect of such classes of Notes following the Fourth Closing Date, being 16 July 2007 (the "FRN Redemption Date"). The Note Trustee has consented to release the security to which the holders of the Existing Floating Rate Notes under the Relevant Documents and Ambac (as financial guarantor of the Class A3(R) Notes) have had recourse on condition that such holders and Ambac obtain a beneficial interest in an equivalent amount of cash (or other suitable liquid asset) sufficient to pay in full all amounts due in respect of the Existing Floating Rate Notes which will be 14

15 Changes to the Existing Documents DESCRIPTION OF THE FOURTH ISSUE NOTES Fourth Issue Notes: Ratings: outstanding on the FRN Redemption Date, including interest accrued to the date of redemption. All such cash will be held in an account in the name of the Note Trustee with the Escrow Agent pursuant to a deed of escrow between, inter alios, the Escrow Agent, the Issuer and the Note Trustee (the "Deed of Escrow"). Such cash (or other suitable liquid asset) will be held on trust for the holders of the Existing Floating Rate Notes and Ambac on the terms of the Trust Deed. Accordingly, amounts standing to the credit of such account will be applied to redeem in full such Existing Floating Rate Notes and pay all accrued interest thereon on the FRN Redemption Date. Certain of the Relevant Documents will be amended on or about the Fourth Closing Date to provide for, inter alia, the issue of the Fourth Issue Notes and the advance of the Fourth Term Advances. Descriptions of the principal terms of the Relevant Documents as to be amended on or about the Fourth Closing Date are contained in the section entitled Summary of Principal Documents below. On the Fourth Closing Date, it is expected that the Issuer will issue: (a) 125,000,000 Class A3(N) Floating Rate Secured Notes due 2015 (the "Class A3(N) Notes"); (b) 400,000,000 Class M2(N) Floating Rate Secured Notes due 2029 (the "Class M2(N) Notes"); (c) 175,000,000 Class B3 Floating Rate Secured Notes due 2031 (the "Class B3 Notes"); and (d) 125,000,000 Class D1 Floating Rate Secured Notes due 2032 (the "Class D1 Notes"). Any reference to the "Fourth Issue Notes" shall be a reference to the Class A3(N) Notes, the Class M2(N) Notes, the Class B3 Notes and the Class D1 Notes. The denomination, form and issue price of the Fourth Issue Notes together with the other principal characteristics of the Fourth Issue Notes are specified in Key Characteristics of the Fourth Issue Notes and the Existing Fixed Rate Notes above. It is a condition of issue of the Fourth Issue Notes that each class of Fourth Issue Notes is assigned the relevant rating by Fitch, S&P and Moody's as follows: Class of Fourth Issue Notes Class A3(N) Notes Class M2(N) Notes S&P Moody's Fitch AAA Aaa AAA AAA Aaa AAA Class B3 Notes AAA Aaa AAA Class D1 Notes BBB Not rated BBB The ratings of the Class A3(N) Notes, the Class M2(N) Notes and the Class B3 Notes (the "Fourth Issue Guaranteed Notes"), and together with the Class A2(R) Notes, the "Guaranteed Notes" will be based on the financial strength and claims paying ability of Ambac. Any reference in this Offering Circular to the "Underlying 15

16 Listing: Status and form: Rating" of any class of Guaranteed Notes is a reference to the credit rating which would be assigned to Notes of that class in the absence of the relevant Financial Guarantee and therefore based on, amongst other things, the then characteristics of the Securitisation Group. A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the assigning rating organisation, and each security rating should be evaluated independently of any other rating. A security rating in respect of the Fourth Issue Notes (other than the Fourth Issue Guaranteed Notes for so long as they have the benefit of the Second Financial Guarantee) will, inter alia, depend on certain underlying characteristics of the Securitisation Group's businesses from time to time. The security ratings assigned by the Rating Agencies do not address the likelihood of the receipt of any Step- Up Amounts or any redemption premium by Noteholders. The Second Financial Guarantee does not guarantee the payment of any Step-Up Amounts. It will also be a condition of the issue of the Fourth Issue Notes that Fitch, Moody's and S&P have confirmed that the then ratings of the Existing Fixed Rate Notes will not be downgraded as a result of the issue of the Fourth Issue New Notes. As specified in Key Characteristics of the Fourth Issue Notes and the Existing Fixed Rate Notes above, application has been made to the Irish Stock Exchange for each class of the Fourth Issue Notes to be admitted to the Official List and to trading on the Irish Stock Exchange's regulated market. The Existing Fixed Rate Notes are currently listed on the Luxembourg Stock Exchange. The Class A3(N) Notes carry substantially the same terms and conditions (other than the applicable interest rate and principal repayment and the benefit of the Second Financial Guarantee) as, and will rank pari passu in point of security with, the Class A1(R) Notes and the Class A2(R) Notes. The Class M2(N) Notes carry substantially the same terms and conditions (other than the applicable interest rate and principal repayment and the benefit of the Second Financial Guarantee) as, and will rank pari passu in point of security with, the Class M1 Notes (other than in respect of any Class M2(N) Step-Up Amounts (as defined below)). The Class B3 Notes carry substantially the same terms and conditions (other than the applicable interest rate and principal repayment and the benefit of the Second Financial Guarantee) as, and will rank pari passu in point of security with, the Class B1 Notes and the Class B2 Notes (other than in respect of any Class B3 Step-Up Amounts (as defined below)). The Class D1 Notes will rank as described below. Each class of Notes was or (in the case of the Fourth Issue Notes) will be constituted by the trust deed entered into on 26 March 1998 between the Issuer and Deutsche Bank International Trust Co. (Jersey) Limited (the "Original Trust Deed") as amended and restated on 20 August 1999 and as supplemented and further amended by a first supplemental trust deed between the same parties dated 25 16

17 October 2000 (the "First Supplemental Trust Deed"), by a second supplemental trust deed between the Issuer, the Note Trustee and Ambac dated 3 November 2003 (the "Second Supplemental Trust Deed") and by a third supplemental trust deed between the Issuer, the Note Trustee and Ambac to be dated the Fourth Closing Date (the "Third Supplemental Trust Deed"), and together with the Original Trust Deed, the supplemental trust deed dated 20 August 1999, the First Supplemental Trust Deed and the Second Supplemental Trust Deed, the "Trust Deed", which expression includes such trust deed as from time to time modified in accordance with the provisions thereof and any deed or other document expressed to be supplemental thereto.) Each class of the Fourth Issue Notes together with the other classes of Notes will be secured by the Issuer Security (see Security for the Fourth Issue Notes below). The Trust Deed contains provisions requiring the Note Trustee to have regard to the interests of all classes of Noteholders as if they formed a single class, but where there is, in the Note Trustee's opinion, a conflict between such interests, the Trust Deed requires the Note Trustee to have regard only to the interest of the holders of the most senior class of Notes then outstanding, provided that prior to the occurrence of the earlier of (i) (if there are Class A Notes outstanding) an Ambac Class A Trigger Event, (if there are no Class A Notes outstanding but there are Class M Notes outstanding) an Ambac Class M Trigger Event, or (if there are no Class A Notes or Class M Notes outstanding but there are Class B Notes outstanding) an Ambac Class B Trigger Event (in each case which is continuing) and (ii) an Ambac Termination Event (which is continuing), or unless there are no Class A Notes, Class M Notes or Class B Notes but there are Class C(R) Notes outstanding, the Note Trustee shall act only as directed by Ambac (except in the case of powers, authorities or discretions that may be exercised by the Note Trustee if, in its opinion, the interests of the Noteholders of all classes would not be materially prejudiced by such exercise). The Note Trustee shall ignore for these purposes any amounts outstanding in respect of any Class M2(N) Step-Up Amounts, Class B3 Step-Up Amounts and Class D1 Step-Up Amounts (each as defined below). In addition, the Issuer Deed of Charge contains provisions which result in the Security Trustee having regard to the interests of Ambac and the Class A1(R) Noteholders in circumstances where there is a conflict of interests between Ambac and the Class A1(R) Noteholders on one hand, and the other Issuer Secured Creditors (which include the other Noteholders) on the other hand. The Trust Deed contains provisions limiting the powers of the Class M Noteholders, the Class B Noteholders, the Class C(R) Noteholders and the Class D1 Noteholders, inter alia, to pass any Extraordinary Resolution which may affect the interests of the Class A Noteholders (see further Condition 11 in Terms and Conditions of the Notes below). For these purposes an "Extraordinary Resolution" means a resolution passed at a meeting of the relevant class of Noteholders duly convened and held in accordance with the provisions of the Trust Deed by a majority consisting of not less than three-quarters of the persons voting thereat upon 17

18 a show of hands or, if a poll is duly demanded, by a majority consisting of not less than three-quarters of the votes given on such poll. The Trust Deed also contains provisions limiting the power of the Note Trustee to take action at the request of Noteholders of a particular class if it would be materially prejudicial to the Noteholders of a higher ranking class. The Fourth Issue Notes will be obligations of the Issuer only, and will not be guaranteed by, or be the responsibility of, any person, other than, in respect of Scheduled Interest on, and Scheduled Principal of the Class A3(N) Notes (the "Class A3(N) Guaranteed Amounts"), in respect of Scheduled Interest on, and Ultimate Principal of the Class M2(N) Notes (the "Class M2(N) Guaranteed Amounts") and in respect of Scheduled Interest on, and Ultimate Principal of the Class B3 Notes (the "Class B3 Guaranteed Amounts" and, together with the Class A3(N) Guaranteed Amounts and the Class M2(N) Guaranteed Amounts, the "Fourth Issue Notes Guaranteed Amounts") and together with Scheduled Interest on, and Scheduled Principal of, the Class A2(R) Notes (the "Class A2(R) Guaranteed Amounts" and, together with the Fourth Issue Notes Guaranteed Amounts, the "Guaranteed Amounts"), Ambac pursuant to the Second Guarantee and Reimbursement Agreement (as more particularly described in the section entitled Second Financial Guarantee below). It should be noted, in particular, that the Fourth Issue Notes will not be obligations of, and will not be guaranteed by, the Note Trustee, the Security Trustee, the Arranger, the Lead Managers, the Liquidity Facility Providers, any Hedge Provider, the Account Bank, the Agent Bank, the Paying Agents, any Obligor or any other company in the Punch Group other than the Issuer (the "Other Parties"). "Scheduled Interest" in respect of a particular class of Notes means interest payable in respect of that class of Notes as specified in Condition 4 (but excluding, for the avoidance of doubt, any Step-Up Amounts in respect of that class of Notes). "Scheduled Principal" in respect of a particular class of Notes, means on any Interest Payment Date the amount of the Scheduled Amortisation Amount for such class of Notes set out opposite such Interest Payment Date in the relevant sub-paragraph of Condition 5(b) as well as (without double counting) the final redemption amount payable in respect of that class of Notes in accordance with Condition 5(a). "Ultimate Principal" in respect of a particular class of Notes, means the final redemption amount payable in respect of that class of Notes in accordance with Condition 5(a). Subject to the satisfaction of certain conditions precedent, the net proceeds of the issue of the Class A3(N) Notes, the Class M(2) Notes, the Class B3 Notes and the Class D1 Notes will, on the Fourth Closing Date, be applied by the Issuer as described in Use of Proceeds below, and the obligations of the Issuer under all classes of Notes will on the Fourth Closing Date be secured over all of the assets and undertaking of the Issuer. The obligations of the Issuer (other than in relation to the Class M2(N) Step-Up Amounts, the Class B3 Step-Up 18

19 Interest and Step-Up Amounts on the Fourth Issue Notes Amounts and the Class D1 Step-Up Amounts) will rank in the following order in point of security and as to payments of interest and repayments of principal: (i) (ii) (iii) (iv) (v) first, pari passu, the Class A Notes; second, pari passu, the Class M Notes; third, pari passu, the Class B Notes; fourth, pari passu, the Class C(R) Notes; and fifth, pari passu, the Class D1 Notes. If amounts are outstanding under the Liquidity Facility Agreement, and/or due to Ambac pursuant to the Guarantee and Reimbursement Agreements, and/or due by the Issuer to any Hedge Provider (other than in respect of the Hedging Subordinated Amounts), the Issuer's obligations in respect thereof will rank in priority to its obligations in respect of all classes of Notes. The payment of any Step-Up Amount is subordinated to payments of interest on, and repayments and prepayments of principal on, each class of Notes and (in the case of the Class M2(N) Step-Up Amounts and the Class B3 Step-Up Amounts) does not benefit from the Second Financial Guarantee and failure to pay any such Step-Up Amount will not constitute an Event of Default (see Terms and Conditions of the Notes below). The holders of the Class A3(N) Notes, the Class M2(N) Notes, the Class B3 Notes and the Class D1 Notes will be entitled to receive payments and Step-Up Amounts (if applicable) on their respective Notes on any Interest Payment Date only to the extent that the Issuer has funds available for such purpose after making payment on such Interest Payment Date in respect of all liabilities ranking in priority to the liability to pay the Step-Up Amounts on the relevant Class of Notes. Interest on the Fourth Issue Notes is payable by reference to successive interest periods (each an "Interest Period"). Interest will be payable quarterly in arrear in pounds sterling on 15 January, 15 April, 15 July and 15 October in each year subject to adjustment for non-business days (each, an "Interest Payment Date"). The first Interest Period in respect of the Fourth Issue Notes will commence on (and include) the Fourth Closing Date and, subject to adjustment as specified herein for non-business days, end on (but exclude) 15 October The rate of interest payable from time to time in respect of each class of Fourth Issue Notes will be determined by the Agent Bank on each Interest Payment Date in respect of the Interest Period commencing on that date (save in respect of the first Interest Period commencing on the Fourth Closing Date, where such rate of interest will be determined by the Agent Bank on the Fourth Closing Date) (each an "Interest Determination Date") and will, on each such date, be communicated to the Irish Stock Exchange. The rate of interest in respect of each class of the Fourth Issue Notes for each Interest Period beginning on an Interest Determination Date shall be the aggregate of: (a) 19 the Relevant Margin; and

20 Final redemption: Scheduled redemption: Optional redemption: (b) the rate determined in accordance with Condition 4(d)(i)(B) ("Note LIBOR"). Each class of Floating Rate Notes (other than the Class A3(N) Notes) shall accrue Step-Up Amounts from and including the relevant Step-Up Date applicable to that class of Notes in respect of each Interest Period commencing on or after such Step-Up Date until (but excluding) the date on which the relevant class of Notes is redeemed in full. The Step-Up Amounts in relation to each Floating Rate Note (other than the Class A3(N) Notes) shall be calculated by applying the relevant Step-Up Fee Rate to the then Principal Amount Outstanding of the relevant Floating Rate Note and multiplying the resultant figure by the actual number of days in the Interest Period divided by 365. References to any "Class M2(N) Step-Up Amount","Class B3 Step-Up Amount" and/or "Class D1 Step-Up Amount", shall be construed accordingly. The "Step-Up Fee Rate" means, in relation to the Class M2(N) Notes, 0.30 per cent. per annum (the "Class M2(N) Step-Up Fee Rate"), in relation to the Class B3 Notes, 0.36 per cent. per annum (the "Class B3 Step-Up Fee Rate") and in relation to the Class D1 Notes, 1.23 per cent. per annum (the "Class D1 Step-Up Fee Rate"). "Step-Up Amount" means each of the Class M2(N) Step- Up Amount, the Class B3 Step-Up Amount and the Class D1 Step-Up Amount or, as the context requires, any combination of the same. "Step-Up Date" means, in relation to the Class M2(N) Notes, the Interest Payment Date falling in July 2014 (the "Class M2(N) Step-Up Date"), in relation to the Class B3 Notes, the Interest Payment Date falling in July 2014 (the "Class B3 Step-Up Date") and in relation to the Class D1 Notes, the Interest Payment Date falling in July 2014 (the "Class D1 Step-Up Date"). The Step-Up Amounts in respect of the Class M2(N) Notes, the Class B3 Notes and the Class D1 Notes are not addressed in the ratings attributed to such Notes by the Rating Agencies. The final maturity dates of the Fourth Issue Notes are specified in Key Characteristics of the Fourth Issue Notes and the Existing Fixed Rate Notes above. Unless previously redeemed in full in accordance with their terms and conditions, the Fourth Issue Notes will mature at their Principal Amount Outstanding (as defined in Condition 5(f)) on the final Interest Payment Date falling in the year referred to in Conditions 5(a) (i) to (x) (as the case may be), in respect of each class of Notes. Prior to enforcement of security for the Notes, the Fourth Issue Notes will be subject to scheduled pro rata redemption in part in quarterly instalments commencing on the Interest Payment Date set out in Conditions 5(b)(i) to (x) (as the case may be) subject always to Condition 16. On giving not more than ten nor fewer than five Business Days' prior written notice, the Fourth Issue Notes may, at the option of the Issuer, be redeemed in whole or in part subject to certain conditions and in the amounts more 20

21 Substitution/Redemption for taxation or other reasons: Withholding tax: Additional issues, new issues and replacement issues: particularly described in Condition 5(d) (See Terms and Conditions of the Notes below). As more particularly described in Condition 5(e) (See Terms and Conditions of the Notes below), in the event of: (a) certain changes in tax law (or the application or official interpretation thereof), including in the event that the Issuer is or will be obliged to make any withholding or deduction from payments in respect of the Notes; or (b) it becoming unlawful due to a change in law for the Issuer to fund, to make or to continue to make advances available pursuant to the Issuer/Borrower Facility Agreements; or (c) certain changes in tax law affecting the amounts paid or to be paid to the Issuer under the Issuer/Borrower Facility Agreements, including in the event that the Borrower is obliged or will be obliged to make withholding or deduction from payments in respect of the facilities made available thereunder by the Issuer, the Issuer may, subject to the conditions set out in Condition 5(e): (i) with the approval of the Note Trustee and (prior to the occurrence of an Ambac Termination Event) Ambac, either arrange for the substitution of a company which is tax resident in an alternative jurisdiction (subject to certain conditions); or (ii) issue Notes in registered form; or (iii) redeem all (but not some or part only) of the Notes at their Principal Amount Outstanding together with accrued (but unpaid) interest thereon (in accordance with Condition 5(e)); or (iv) take such other action as is appropriate in the circumstances subject to obtaining the approval of the Note Trustee and (prior to the occurrence of an Ambac Termination Event) Ambac in order to mitigate the effect of the relevant occurrence. Payments of interest, Step-Up Amounts, principal and premium (if any) on the Fourth Issue Notes will be made subject to any applicable withholding or deduction for or on account of any tax and none of the Issuer, Ambac and/or any Paying Agent will be obliged to pay any additional amount as a consequence thereof. Under the terms of the Second Financial Guarantee, in the event that any payments by Ambac are made subject to any applicable withholding or deduction for or on account of any United Kingdom tax, Ambac will not be obliged to pay any additional amounts to the relevant Noteholder. The Issuer will be entitled (but not obliged), subject to certain conditions at its option from time to time on any date, without the consent of the Noteholders, to raise further funds by the creation and issue of: (a) additional notes in respect of any existing class of Notes (including for the avoidance of doubt, the Fourth Issue Notes) which will be in bearer form and carry the same terms and conditions in all respects 21

22 Purchases: Second Financial Guarantee: (b) (save as regards the first Interest Period) as, and so that the same shall be consolidated and form a single series and rank pari passu with, the relevant class of Notes ("Additional Notes"); or new notes of a new class which may rank pari passu with, ahead of or after any class of Notes then in issue ("New Notes"), save that no New Notes which rank ahead of the Class A Notes may be issued. The issuance of Additional Notes and/or New Notes will be subject to certain conditions as more particularly described in the Trust Deed and Condition 15 set out in Terms and Conditions of the Notes below. Such conditions include if certain criteria relating to the principal amount outstanding of the Notes following the issuance would be fulfilled, the passing by the Class C(R) Noteholders of an ordinary resolution to approve such issuance. An "ordinary resolution" means, with respect to the Class C(R) Noteholders, a resolution passed: (a) at a meeting of the Class C(R) Noteholders duly convened and held in accordance with the Trust Deed, the quorum for which shall be one or more Class C(R) Noteholders present in person holding Class C(R) Notes and/or persons present in person holding voting certificates and/or being proxies in respect thereof and being or representing in the aggregate the holders of not less than 50 per cent. (or, at any adjourned meeting not less than 25 per cent.) of the aggregate Principal Amount Outstanding of the Class C(R) Notes; and (b) by a majority consisting of not less than 50 per cent. of the persons voting thereat upon a show of hands or if a poll is duly demanded by a majority of not less than 50 per cent. of the votes given on such poll. The Issuer is not permitted to purchase Notes. The Borrower (but no other member of the Securitisation Group) and other members of the Punch Group outside the Securitisation Group may, at any time, purchase any class of Notes. Any Notes purchased by the Borrower (if not otherwise disposed of to a third party outside the Punch Group within two weeks of such purchase) shall be surrendered to the Issuer for cancellation against full discharge and satisfaction of an amount of the relevant Term Facility equal to the aggregate Principal Amount Outstanding of the Notes so surrendered and any accrued but unpaid interest thereon. The Fourth Issue Guaranteed Notes will be issued with the benefit of a financial guarantee substantially in the form set out in Form of Second Financial Guarantee below (the "Second Financial Guarantee") which will be issued pursuant to a guarantee and reimbursement agreement to be dated the Fourth Closing Date between, inter alios, the Issuer, the Note Trustee and Ambac (the "Second Guarantee and Reimbursement Agreement"). Pursuant to the Second Financial Guarantee, Ambac will unconditionally and irrevocably agree to pay to the Note Trustee all sums due and payable but unpaid by the Issuer in respect of the Fourth Issue Notes Guaranteed Amounts. Each class of Fourth Issue Notes (other than 22

23 Second Guarantee and Reimbursement Agreement: Liquidity Facility: the Class D1 Notes) will have the benefit of the Second Financial Guarantee. It will be a condition to the requirement that Ambac make payments under the Second Financial Guarantee that, to the extent that amounts are available to be drawn under the Liquidity Facility to make payments of interest and principal with respect to the Fourth Issue Guaranteed Notes, the Issuer is obliged first to make drawings in such amounts under the Liquidity Facility Agreement. In so far as Ambac makes payment under the Second Financial Guarantee in respect of any Fourth Issue Notes Guaranteed Amounts, Ambac will be subrogated to the rights of the Class A3(N) Noteholders, the Class M2(N) Noteholders and/or the Class B3 Noteholders (as applicable) against the Issuer in respect of any payments made. Pursuant to the Second Guarantee and Reimbursement Agreement, the Issuer will be obliged, inter alia, to reimburse Ambac in respect of any payment made by Ambac under the Second Financial Guarantee and will be obliged to pay any fees and expenses incurred by Ambac in respect of the provision of the Second Financial Guarantee. On the Fourth Closing Date, (a) the existing liquidity facility agreement entered into by the Issuer on 3 November 2003 will be terminated and the facilities made available thereunder will be cancelled and (b) the Issuer will enter into a new liquidity facility agreement (the "Liquidity Facility Agreement") with one or more banks (the "Liquidity Facility Providers") which each have the Liquidity Facility Required Rating and Deutsche Bank AG (in its capacity as the Liquidity Facility Agent ). At the Fourth Closing Date, the Liquidity Facility Providers are expected to be Lloyds TSB Bank plc and The Royal Bank of Scotland plc. Under the terms of the Liquidity Facility Agreement, the Liquidity Facility Providers will provide a 364-day renewable committed facility in a maximum aggregate principal amount of 294,000,000 (the "Liquidity Facility"). A proportion of the Liquidity Facility will be available for drawing by the Issuer in circumstances where, subject as set out below, the Issuer has insufficient funds available on an Interest Payment Date falling within such 364-day period to pay in full any of the items specified in paragraphs (a) to (p) (inclusive) of Summary of Principal Documents Issuer Deed of Charge Priority of Payments Pre-Enforcement below (such shortfall of funds being a "Liquidity Shortfall"). The maximum aggregate amount of the Liquidity Facility available to be drawn in respect of payments of interest and Scheduled Amortisation Amounts in respect of the Class B Notes, the Class C(R) Notes and the Class D1 Notes will be 113,000,000. In addition, the maximum aggregate amount of the Liquidity Facility available to be drawn in respect of payments of interest and Scheduled Authorisation Amounts in respect of the Class D1 Notes will be 18,000,

24 The Liquidity Facility Providers may, in their discretion, if requested to do so by the Issuer, renew the commitment period of the Liquidity Facility for a further 364-day period. The Liquidity Facility will not be available for the purpose of meeting any Liquidity Shortfall which arises only in respect of payments of any Step-Up Amounts. The Borrower will covenant to procure that the Issuer maintains at all times a liquidity facility on substantially the same terms as the Liquidity Facility. Security for the Fourth Issue Notes: Hedging Arrangements: The Fourth Issue Notes and the other obligations of the Issuer to the Issuer Secured Creditors (including the Noteholders and Ambac) will be secured by first ranking security over, inter alia, all of the Issuer's right, title and interest in its assets pursuant to the Issuer Deed of Charge between, among others, the Issuer, the Security Trustee, the Note Trustee (on behalf of itself and the Noteholders), Ambac, the Liquidity Facility Providers, any Hedge Provider, the Agent Bank, the Account Bank, the Borrower, the Servicer, the Principal Paying Agent, the Luxembourg Paying Agent and the Irish Paying Agent (together, other than the Issuer, but including the Noteholders, the "Issuer Secured Creditors") subject to and in accordance with the terms thereof. See further Summary of Principal Documents Issuer Deed of Charge below. Although the Note Trustee (on behalf of the Noteholders) will have the benefit of the security created pursuant to the Issuer Deed of Charge, the interests of the Noteholders in the proceeds of enforcement of such security will rank behind Ambac's rights to receive guarantee fees and certain other amounts under the Guarantee and Reimbursement Agreements (as defined below), the Hedge Providers' rights to payments under the Hedges (or, as applicable, any replacement hedging arrangements) and the Liquidity Facility Providers' rights to payments under the Liquidity Facility Agreement and will rank (in the case of the Class A Noteholders) pari passu with Ambac's rights to receive reimbursement for amounts in respect of Scheduled Interest and Scheduled Principal paid by Ambac to the Class A2(R) Noteholders and the Class A3(N) Noteholders under the Financial Guarantees (as defined below), (in the case of the Class M Noteholders) pari passu with Ambac's rights to receive reimbursement for amounts in respect of Scheduled Interest and Ultimate Principal paid by Ambac to the Class M2(N) Noteholders under the Second Financial Guarantee and (in the case of the Class B Noteholders) pari passu with Ambac's rights to receive reimbursement for amounts in respect of Scheduled Interest and Ultimate Principal paid by Ambac to the Class B3 Noteholders under the Second Financial Guarantee in accordance with the terms set out in the Issuer Deed of Charge and the other Relevant Documents. On the Fourth Closing Date, the Borrower will terminate the existing interest rate swap transactions entered into by it on the Third Closing Date with The Royal Bank of Scotland plc and on or prior to the Fourth Closing Date, the Issuer will enter into an ISDA Master Agreement and interest rate swap transactions evidenced by confirmations which supplement and form part of the ISDA Master 24

25 Governing Law: Agreement (and schedule thereto) with the Initial Hedge Provider (the "Hedges") to hedge the Issuer's liabilities in respect of its floating rate obligations under the Class A3(N) Notes, the Class M2(N) Notes, the Class B3 Notes and the Class D1 Notes. The terms of the Hedges broadly will require: (a) the Initial Hedge Provider to pay to the Issuer an amount or amounts calculated with reference to Note LIBOR for three month sterling deposits; and (b) the Issuer to pay to the Initial Hedge Provider an amount or amounts calculated by reference to fixed rates of interest. See further Summary of Principal Documents Hedging below. Back-to-back hedging arrangements will be entered into between the Issuer and the Borrower. See further Summary of Principal Documents Issuer/Borrower Swap Agreement below. The Fourth Issue Notes will be governed by English law. 25

26 RISK FACTORS The following is a summary of certain aspects of the Notes and the related transaction about which prospective Noteholders should be aware. This summary is not intended to be exhaustive and prospective Noteholders should also read the detailed information set out in this Offering Circular and reach their own views prior to making any investment decision. (1) RISKS RELATING TO THE ISSUER Special Purpose Vehicle Issuer The Issuer is a special purpose financing entity with no business operations other than the issuance of the Notes (including, for the avoidance of doubt, the Fourth Issue Notes and any Additional Notes and New Notes), the lending of the proceeds to the Borrower under the Issuer/Borrower Facility Agreements and the entry into certain ancillary arrangements. After the Fourth Closing Date, the Issuer's only material assets will be the Liquidity Facility, its rights under the Hedges and the Issuer/Borrower Swap Agreement, the Borrower's obligation to repay the Term Advances under the Issuer/Borrower Facility Agreements and the related guarantee and security from each of Punch Taverns (VPR) Limited, Punch Taverns (FH) Limited, Punch Taverns (MH) Limited, Punch Taverns (PR) Limited, Punch Taverns (BS) Company Limited, the Parent, Punch Taverns Properties Limited and Punch Taverns (Trent) Limited (the Guarantors and, together with the Borrower, the Obligors ). Therefore, the Issuer is subject to all risks to which the Borrower is subject, to the extent that such risks could limit funds available to the Borrower to enable it to satisfy in full and on a timely basis its obligations under the Issuer/Borrower Facility Agreements and the Issuer/Borrower Swap Agreement. For a further description of certain of these risks see Risks Relating to the Business of the Securitisation Group - The Borrower's ability to meet its obligations in respect of the Issuer/Borrower Facility Agreements below. In the event that the Issuer is unable on any Interest Payment Date to pay in full interest on and scheduled principal of the Notes and all other payment obligations ranking in priority thereto, the Issuer will be able (subject to satisfaction of the conditions for drawing) to draw funds available for such purposes under the Liquidity Facility Agreement (see Risks Relating to the Notes - Hedging Arrangements/Liquidity Facility Agreement below). The maximum amount available to be drawn under the Liquidity Facility Agreement following the Fourth Closing Date is expected to be 294,000,000 although the amount available under the Liquidity Facility Agreement for drawing in respect of certain classes of Notes may be lower. The Liquidity Facility will not be available to meet any payment of the Class M2(N) Step-Up Amounts, the Class B3 Step-Up Amounts or the Class D1 Step-Up Amounts. Other than pursuant to the Issuer/Borrower Facility Agreements and the related security therefor, amounts available to be drawn under the Liquidity Facility Agreement, amounts payable to it under the Issuer/Borrower Swap Agreement and the Hedges and interest accrued on amounts standing to the credit of the Issuer's bank accounts, the Issuer will not have any other funds available to it to meet its obligations under the Notes and/or any other payment obligations ranking in priority to the Notes. However, to the extent that the Issuer is unable, on any Interest Payment Date, to make payments of Scheduled Interest on and, as applicable, Scheduled Principal of the Class A2(R) Notes and the Class A3(N) Notes and/or payments of Scheduled Interest on and, as applicable, Ultimate Principal of the Class M2(N) Notes and the Class B3 Notes and no amount is available to be drawn under the Liquidity Facility to make such payments and/or the Liquidity Facility Providers fail to put the Issuer into funds on the relevant Interest Payment Date to make such payments, Ambac will be obliged to make a payment under the Financial Guarantees to ensure timely payment of Scheduled Interest on, and repayment of Scheduled Principal of, the Class A2(R) Notes and the Class A3(N) Notes and of Scheduled Interest on, and repayment of Ultimate Principal of, the Class M2(N) Notes and the Class B3 Notes, in each case on the relevant Interest Payment Date. (2) RISKS RELATING TO AMBAC Reliance by Ambac on Ambac Assurance The ratings of Ambac are based primarily on the ratings of and the capital support and reinsurance provided by Ambac Assurance (as defined in the section Ambac Assurance Corporation below) to Ambac pursuant to the Ambac Support Agreements (see Relationship Between Ambac Assurance UK Limited and Ambac Assurance Corporation below). Any downgrade of the ratings of Ambac Assurance would very likely result in a downgrade of the ratings of Ambac, which could, in turn, have a material adverse effect on Ambac's ability to perform its obligations under the Financial Guarantees. 26

27 The Ambac Support Agreements are not, and should not be regarded as, guarantees by Ambac Assurance of the payment of any indebtedness, liability or obligations of the Issuer, of the Guaranteed Notes or the Financial Guarantees, and do not confer any rights on third parties. The Class A2(R) Noteholders, the Class A3(N) Noteholders, the Class M2(N) Noteholders and the Class B3 Noteholders will have no recourse against Ambac Assurance or any other affiliate of Ambac. Ambac is authorised by the UK Financial Services Authority to carry out and effect "credit", "suretyship" and "miscellaneous financial loss" insurance business in the United Kingdom and, pursuant to the EC third non-life insurance directive (No. 92/49/EEC), various European countries (such authorisation being the "Insurance Business Authorisation"). The Insurance Business Authorisation may be revoked, withdrawn or restrictively modified by the UK Financial Services Authority. Such revocation, withdrawal or restrictive modification could have a material adverse impact on Ambac, including its ability to generate new business or increased costs of regulatory compliance. Concentration of business of Ambac and Ambac Assurance Each of Ambac and Ambac Assurance is engaged exclusively in the business of writing financial guarantees (and in the case of Ambac Assurance, related lines of business), including in respect of securities sold in public offerings and private placements, and obligations under credit default swaps. Although it is Ambac's and Ambac Assurance's policy to diversify and manage its exposures to single obligors and to particular business sectors, it may have individual large exposures to single obligors or particular business sectors; if a material adverse event or series of events occurs with respect to one or more of these concentrations that is more severe than the assumptions used by Ambac or Ambac Assurance, such event or series of events could result in losses to Ambac or Ambac Assurance and could harm Ambac's or Ambac Assurance's business which could, in turn, have a material adverse effect on Ambac's ability to perform its obligations under the Financial Guarantees. (3) RISKS RELATING TO THE NOTES Issuer Security Although the Note Trustee (on behalf of the Noteholders) will have the benefit of the security interests created under the Issuer Deed of Charge, the obligations of the Issuer to Ambac, the Liquidity Facility Providers, the Hedge Providers and certain other Issuer Secured Creditors (including the Note Trustee) will rank in priority to the obligations of the Issuer to the Noteholders. Priorities in respect of the Notes Payments of interest on each class of Notes will rank pari passu between themselves and (except in the case of Step-Up Amounts) before repayments of principal thereon. Scheduled repayments of principal on each class of Notes will rank pari passu between themselves. Payments of interest on and repayments of principal of the Class A Notes will be made in priority to payments of interest on and repayments of principal of the Class M Notes. Payments of interest and repayments of principal of the Class M Notes (other than Class M2(N) Step-Up Amounts) will be made in priority to payments of interest on and repayments of principal of the Class B Notes. Payments of interest on and repayments of principal of the Class B Notes (other than Class B3 Step-Up Amounts) will be made in priority to payments of interest on and repayments of principal of the Class C(R) Notes. Payments of interest on and repayments of principal of the Class C(R) Notes will be made in priority to payments of interest on and repayments of principal of the Class D1 Notes. Payments of Step-Up Amounts will only be made to the extent that the Issuer has available funds after payment of all amounts to be paid in priority thereto (including all other payments of interest and principal on the Notes). Scheduled repayments of principal and scheduled payments of interest on each class of Notes will rank subordinate to, among other things, payments of fees, remuneration and expenses to certain third parties and other amounts to be paid in priority thereto. If, on any Interest Payment Date, the Issuer has insufficient funds to make payments of interest on or principal of the Class M Notes, the Class B Notes, the Class C(R) Notes and the Class D1 Notes (to the extent that such class of Notes is not the then most senior class of Notes outstanding) and/or any Step-Up Amounts, then the Issuer's liability to make such payments will be deferred until the next Interest Payment Date and there will be no event of default for failure to make such payments. All accrued interest and outstanding principal, if not previously paid will be deferred as set out in Condition 16. There can be no assurance that, at maturity of the Class M Notes, the Class B Notes, the Class C(R) Notes or the Class D1 Notes (as the case may be), the Issuer will have sufficient 27

28 assets or income to pay holders of the Class M Notes, the Class B Notes, the Class C(R) Notes or the Class D1 Notes (as the case may be) in full any deferred payment of principal or interest. If New Notes were to be issued following the Fourth Closing Date, and such New Notes were to rank pari passu with a class of Notes, then scheduled repayments of principal and payments of interest on such class of Notes would be made, both prior to and following the delivery of an Issuer Enforcement Notice by the Security Trustee to the Issuer, pari passu with any scheduled repayments of principal and payments of interest on such New Notes (but after scheduled repayments of principal and payments of interest on any class of Notes senior to such New Notes). If New Notes were to be issued following the Fourth Closing Date, and such New Notes were to rank in priority to a class of Notes (other than the Class A Notes), then scheduled repayments of principal and payments of interest on such New Notes would be made, both prior to and following the delivery of an Issuer Enforcement Notice by the Security Trustee to the Issuer, in priority to any scheduled repayments of principal and payments of interest on such class of Notes (and any Notes junior to such class of Notes). In addition, New Notes may be issued which will have the benefit of a financial guarantee or monoline insurance policy. If this were to be the case certain payments to the applicable financial guarantor or monoline insurer may rank, both prior to and following the delivery of an Issuer Enforcement Notice by the Security Trustee to the Issuer, in priority to any payments of principal and interest on any Notes junior to such New Notes. Priority and Rights of Certain Other Parties Issuer Deed of Charge All amounts of interest, principal, commitment fees and mandatory costs payable under or in connection with the Liquidity Facility Agreement, all amounts to be paid to the Hedge Providers (other than the Hedging Subordinated Amounts) under or in connection with the Hedges or any replacement hedging arrangements, all amounts to be paid to Ambac under or in connection with the Guarantee and Reimbursement Agreements (including any additional amount payable to Ambac in respect of withholding taxes) and fees and any payments of amounts to the Security Trustee and amounts owed under the Security Trustee's indemnity and certain other fees and expenses of third parties will, in accordance with the Issuer Deed of Charge, be paid prior to the payment of interest and principal on the Notes (limited, in the case of mandatory costs of each of the Liquidity Facility Providers only, up to a maximum aggregate rate of 0.20 per cent. per annum on the maximum aggregate amount available to be drawn under the Liquidity Facility Agreement) (see Summary of Principal Documents Issuer Deed of Charge Priority of Payments below). In addition, unless it is satisfied at that time that it is adequately indemnified, the Security Trustee shall have absolute discretion to refrain from taking any action under the Issuer Deed of Charge. Punch Taverns Deeds of Charge Liabilities owed to the Security Trustee (and any receiver appointed upon enforcement of the security created under the Issuer Deed of Charge) and certain minimum capital expenditure amounts rank in priority to the other Punch Taverns Secured Creditors under the Punch Taverns Deeds of Charge and will continue to do so notwithstanding the arrangements contemplated by the Transaction (see Summary of Principal Documents Punch Taverns Deeds of Charge Priority of Payments). Conflicts of Interest The Trust Deed will contain provisions that the Note Trustee shall, as regards all the powers, trusts, authorities, duties and discretions vested in it by the Trust Deed, the Relevant Documents or the Notes (including the Conditions) except where expressly provided otherwise have regard to the interests of Noteholders of all classes provided that: (i) the Note Trustee shall have regard only to the interests of the holders of Class A Notes (if there are any Class A Notes outstanding) if, in the Note Trustee's opinion, there is a conflict between the interests of: (a) (b) the Class A Noteholders; and the holders of any other class of Notes; (ii) (if there are no Class A Notes outstanding and for so long as there are any Class M Notes outstanding) the Note Trustee shall have regard only to the interests of the holders of Class M Notes if, in the Note Trustee's opinion, there is a conflict between the interests of: (a) the Class M Noteholders; and 28

29 (iii) (iv) (b) the holders of any other class of Notes; (if there are no Class A Notes or Class M Notes outstanding and for so long as there are any Class B Notes outstanding) the Note Trustee shall have regard only to the interests of the holders of Class B Notes if, in the Note Trustee's opinion, there is a conflict between the interests of: (a) (b) the Class B Noteholders; and the holders of any other class of Notes; (if there are no Class A Notes, no Class M Notes and no Class B Notes outstanding and for so long as there are any Class C(R) Notes outstanding) the Note Trustee shall have regard only to the interests of the holders of Class C(R) Notes if, in the Note Trustee's opinion, there is a conflict between the interests of: (a) (b) the Class C(R) Noteholders; and the holders of any other class of Notes, provided that prior to the occurrence of the earlier of (i) (if there are Class A Notes outstanding) an Ambac Class A Trigger Event, (if there are no Class A Notes outstanding but there are Class M Notes outstanding) an Ambac Class M Trigger Event or (if there are no Class A Notes or Class M Notes outstanding but there are Class B Notes outstanding) an Ambac Class B Trigger Event or (ii) an Ambac Termination Event (in each case which is continuing) or unless there are no Class A Notes, Class M Notes or Class B Notes but there are Class C(R) Notes outstanding, the Note Trustee shall act only as directed by Ambac and none of the holders of any class of Notes shall have any claim against the Note Trustee for so doing. The proviso in the preceding sentence shall not apply in the case of powers, authorities or discretions that may be exercised by the Note Trustee only if, in its opinion, the interests of the Noteholders of all classes would not be materially prejudiced by such exercise and provided further that in exercising any such power, trust, authority, duty or discretion, the Note Trustee shall disregard any Step-Up Amount for the purposes of determining whether a particular class of Notes is outstanding. The Issuer Deed of Charge will contain provisions requiring the Security Trustee to have regard to the interests of Issuer Secured Creditors with respect to all powers, trusts, authorities, duties and discretions of the Security Trustee (except where expressly provided otherwise), but requiring the Security Trustee to have regard only to: (a) (b) (c) if there are any Class A Notes outstanding, the interests of Ambac unless and until such time as an Ambac Class A Trigger Event or an Ambac Termination Event has occurred (in each case, which is continuing) in which event the Security Trustee shall have regard only to the interests of the Class A Noteholders (and for these purposes, in determining the interests of the Class A Noteholders as a whole, in respect of the Class A2(R) Notes and the Class A3(N) Notes only, the Security Trustee shall (provided that no Ambac Termination Event has occurred) have regard to the interests of Ambac only) if in the Security Trustee's opinion there is a conflict between the interests of the Class A Noteholders and any other Issuer Secured Creditors (or any of them); following the redemption in full of the Class A Notes and no amount being due to Ambac or Ambac having no outstanding claim against the Issuer under the Guarantee and Reimbursement Agreements, if there are any Class M Notes outstanding, the interests of Ambac unless and until such time as an Ambac Class M Trigger Event or an Ambac Termination Event has occurred (in each case, which is continuing) in which event the Security Trustee shall have regard only to the interests of the Class M Noteholders (and for these purposes, in determining the interests of the Class M Noteholders as a whole, in respect of the Class M2(N) Notes only, the Security Trustee shall (provided that no Ambac Termination Event has occurred) have regard to the interests of Ambac only) if in the Security Trustee's opinion there is a conflict between the interests of the Class M Noteholders and any other Issuer Secured Creditors (or any of them); following the redemption in full of the Class A Notes and the Class M Notes and no amount being due to Ambac or Ambac having no outstanding claim against the Issuer under the Guarantee and Reimbursement Agreements, if there are any Class B Notes outstanding, the interests of Ambac unless and until such time as an Ambac Class B Trigger Event or an Ambac Termination Event has occurred (in each case, which is continuing) in which event the Security Trustee shall have regard only to the interests of the Class B Noteholders (and for these purposes, in determining the interests of the Class B Noteholders as a whole, in respect of the 29

30 (d) (e) (f) Class B3 Notes only, the Security Trustee shall (provided that no Ambac Termination Event has occurred) have regard to the interests of Ambac only) if in the Security Trustee's opinion there is a conflict between the interests of the Class B Noteholders and any other Issuer Secured Creditors (or any of them); following the redemption in full of the Class A Notes, the Class M Notes and the Class B Notes and no amount being due to Ambac or Ambac having no outstanding claim against the Issuer under the Guarantee and Reimbursement Agreements, the interests of the Note Trustee on behalf of the Class C(R) Noteholders, if, in the Security Trustee's opinion, there is a conflict between the interests of the Class C(R) Noteholders and any other Issuer Secured Creditors (or any of them); or following the redemption in full of the Class A Notes, the Class M Notes, the Class B Notes and the Class C(R) Notes and no amount being due to Ambac or Ambac having no outstanding claim against the Issuer under the Guarantee and Reimbursement Agreements, the interests of the Note Trustee on behalf of the Class D1 Noteholders, if, in the Security Trustee's opinion, there is a conflict between the interests of the Class D1 Noteholders and any other Issuer Secured Creditors (or any of them); or following the redemption in full of all the Notes outstanding, the interests of the person appearing highest in the order of priority of payments to whom any amounts are owed under the Issuer Deed of Charge. In exercising its powers, trusts, authorities, duties and discretions the Security Trustee shall disregard any Step-Up Amounts for the purposes of determining whether there is any class of Notes outstanding. In addition, certain actions and certain amendments to and/or waivers of the Relevant Documents will not be permitted without the prior written consent of Ambac but only for so long as there are any Guaranteed Notes outstanding and no Ambac Termination Event has occurred and either Financial Guarantee is in full force and effect (or amounts are otherwise due to Ambac, or Ambac has an outstanding claim against the Issuer under either Guarantee and Reimbursement Agreement) (see Summary of Principal Documents Issuer Deed of Charge Priority of Payments Consents). Hedges The Hedges will be governed by and form part of an ISDA Master Agreement (including a schedule, credit support annex and one or more confirmations) entered into by the Issuer and the Initial Hedge Provider on or about the Fourth Closing Date. The Hedge Providers will be Issuer Secured Creditors under the Issuer Deed of Charge and payments to them in respect of payments due to be made by the Issuer under the Hedges or any replacement hedging arrangements (except to the extent that such payments constitute Hedging Subordinated Amounts) will rank ahead of payments of principal and interest in respect of the Class A Notes subject to the provisions of the Issuer Deed of Charge. If a Hedge Provider fails to provide the Issuer with the amount due under the Hedges (or any replacement hedging arrangements, as applicable) on any date, or if the Hedges (or any replacement hedging arrangements, as applicable) are otherwise terminated, the Issuer may have insufficient funds to make payments due on the Notes. The notional amount of the Hedges will be calculated on the assumption that the Principal Amount Outstanding of the Class A3(N) Notes, the Class M2(N) Notes, the Class B3 Notes or the Class D1 Notes, as applicable, will reduce in accordance with the provisions for scheduled mandatory redemption set out in Condition 5(b). If there is a payment or other early repayment (in whole or in part) of any of the Class A3(N) Notes, the Class M2(N) Notes, the Class B3 Notes or the Class D1 Notes, as applicable, or if an event of default or termination event occurs under the terms of the Hedges, then a termination payment may become due and payable by the Issuer under the Hedges. Any termination payment due from the Issuer to a Hedge Provider on termination in whole or in part of the Hedges (or any replacement hedging arrangements, as applicable) and any related costs (other than Hedging Subordinated Amounts) will rank in priority to payments due to the Noteholders. At the same time as the Issuer will enter into the Hedges, the Issuer also will enter into a back-to-back hedging arrangement with the Borrower pursuant to the Issuer/Borrower Swap Agreement. As at the Fourth Closing Date, the estimated aggregate mark-to-market value of the Hedges is expected to be approximately 40.8 million against the Issuer. Neither the Issuer nor the Borrower has recorded that mark-to-market loss on its income statement, or the related liability on its balance sheet. 30

31 Hedging Arrangements/Liquidity Facility Agreement If, at any time after the Fourth Closing Date, (a) the credit rating assigned by a Rating Agency in respect of the short-term or (as applicable) long-term debt obligations of the Initial Hedge Provider and/or the Liquidity Facility Providers falls below the relevant Hedge Provider Requisite Ratings or the Liquidity Facility Requisite Rating (as the case may be) (subject to the right of the Initial Hedge Provider to remedy such event as set out in more detail in the terms of the Hedges), or (b) the Initial Hedge Provider defaults in respect of its obligations under the Hedges resulting in a termination of the Hedges, or (c) any of the Liquidity Facility Providers defaults in respect of its obligations under the Liquidity Facility Agreement, the Issuer may be obliged, inter alia, to enter into replacement hedges or a replacement liquidity facility agreement (respectively) with another appropriately rated entity. A failure to procure such replacement hedges or replacement liquidity facility may constitute an event of default under the Notes or the Issuer/Borrower Facility Agreements. In such circumstances, there may be a downgrading of the Notes or any class of them (see Summary of Principal Documents Hedging and Summary of Principal Documents Liquidity Facility Agreement below). Minimum denomination of Fourth Issue Notes So long as the Fourth Issue Notes are represented by a Temporary Global Note or a Permanent Global Note (each as defined below) and Euroclear and Clearstream, Luxembourg so permit, the Notes will be tradeable only in the minimum authorised denomination of 50,000 and higher integral multiples of 1,000 up to and including 99,000. It is possible, therefore, that the Notes may be traded in amounts in excess of 50,000 that are not integral multiples of 50,000. In such a case a Noteholder who, as a result of trading such amounts, holds a principal amount of less than 50,000 (a) may not be able to trade such holding and (b) may not receive a definitive note in respect of such holding (should Definitive Notes (as defined in the Conditions) be printed) unless such Noteholder purchases a principal amount of Notes such that its holding amounts to at least 50,000. Marketability Application has been made to the Irish Stock Exchange for the Fourth Issue Notes to be admitted to the Official List and to trading on the Irish Stock Exchange's regulated market. However, the Fourth Issue Notes will be new securities for which there is no established trading market. An active trading market may not develop or, if developed, may not be maintained. Consequently, prospective purchasers of the Fourth Issue Notes should be aware that they may have to hold the Fourth Issue Notes until their maturity. In addition, the market value of the Fourth Issue Notes may fluctuate with changes in prevailing rates of interest. Consequently, any sale of Fourth Issue Notes by Noteholders in any secondary market that may develop may be at a discount to the original purchase price of such Fourth Issue Notes. Change to covenants in the Issuer/Borrower Facility Agreements The covenants contained in the Issuer/Borrower Facility Agreements restrict the ability of each member of the Securitisation Group to change the way in which it operates its business. However, the pub industry in Great Britain has undergone many changes in recent years and may undergo further changes in the future that could make continued operation of the Securitisation Group under these covenants more difficult or impractical. Changes to the covenants, including without limitation the financial covenants, may be required over time due to changes in the businesses of the Securitisation Group including as a result of any additional offering or note issues of the Issuer or any other company in the Punch Group. The Security Trustee and the Note Trustee may, at the request of the Borrower, agree to the modification, disapplication, amendment or waiver of a covenant if (in certain circumstances) the consent of Ambac is obtained (if applicable), and each of the Security Trustee and the Note Trustee are of the opinion that the interests of the Issuer Secured Creditors, including the Noteholders, will not be materially prejudiced as a result of the modification, disapplication, amendment or waiver. Where the Rating Agencies have confirmed in writing to the Issuer that an action under or in relation to the Relevant Documents or the Notes will not result in the withdrawal, reduction or any other adverse action with respect to the then current rating of the Notes and (for so long as there are any Guaranteed Notes outstanding) the Underlying Rating (a "Rating Confirmation"), the Security Trustee and the Note Trustee, in considering whether such action is materially prejudicial to the interests of the Issuer Secured Creditors or, as the case may be, the Noteholders (the "No Material Prejudice Test") shall (and, in relation to any Rating Confirmation by Fitch only, where the Security Trustee or the Note Trustee (as the case may be) considers that such Rating Confirmation is an appropriate test or the only appropriate test to apply in that circumstance) be entitled to take into account such Rating Confirmation provided that the Security Trustee and the Note Trustee shall 31

32 continue to be responsible for taking into account, for the purpose of the No Material Prejudice Test, all other matters which would be relevant to such No Material Prejudice Test. Rating It is expected that, at the Fourth Closing Date, the Notes will have the ratings set out in the table under the heading Key Characteristics of the Fourth Issue Notes and the Existing Fixed Rate Notes above. Such ratings reflect timely payment of interest on and repayment of principal of the Notes. In respect of each class of the Floating Rate Notes, however, no such ratings are being assigned to timely or ultimate payment of any Step-Up Amounts. A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the assigning Rating Agencies or the relevant rating organisation, and each security rating should be evaluated independently of any other rating. A security rating, amongst other things, will depend on certain underlying characteristics of the business of the Securitisation Group from time to time (see Risks Relating to the Business of the Securitisation Group Risks Relating to Business Operations below). In addition, where a particular matter (including the determination of material prejudice by the Security Trustee and/or Note Trustee and changes to certain of the operational covenants) involves the Rating Agencies being requested to provide a Rating Confirmation, such Rating Confirmation may or may not be given at the sole discretion of the Rating Agencies. It should be noted that, depending on the timing of delivery of the request and any information needed to be provided as part of any such request, it may be the case that the Rating Agencies cannot provide their confirmation in the time available or at all, and they will not be responsible for the consequences thereof. Confirmation, if given, will be given on the basis of the facts and circumstances prevailing at the relevant time and in the context of cumulative changes to the transaction since the Fourth Closing Date. A Rating Confirmation represents only a restatement of the opinions given at the Fourth Closing Date and cannot be construed as advice for the benefit of any parties to the transaction. No assurance can be given that a requirement to seek a Rating Confirmation will not have a subsequent impact upon the business of the Borrower. (4) RISKS RELATING TO THE BUSINESS OF THE SECURITISATION GROUP The Borrower's ability to meet its obligations in respect of the Issuer/Borrower Facility Agreements The Borrower's ability to meet its obligations under the Issuer/Borrower Facility Agreements and the Issuer/Borrower Swap Agreement following the Fourth Closing Date will continue to depend upon the performance of the business of the Securitisation Group and its general financial obligations other than under the Issuer/Borrower Facility Agreements. The performance of the business is influenced by, but is not necessarily limited to, (i) the future of the pub industry generally (as to which see The United Kingdom Pub Industry and Risks Relating to Business Operations below) and the continuing diversification between outlets offering a wider range of beer and non-beer related products, food and catering, (ii) the ability of the Borrower to re-let any pub following an expiry or termination of the existing lease, and (iii) general economic factors affecting the economic well-being of consumers such as interest rates, inflation, levels of direct taxation on alcoholic and non-alcoholic beverages and the value added tax treatment of beer, non-beer and food items sold in pubs. With regard to the other financial obligations of the Securitisation Group, it should be noted that there is no restriction in the Issuer/Borrower Facility Agreements on the amount of financial indebtedness which the Securitisation Group may incur provided that it is made on a fully subordinated basis (save for a capped amount in respect of finance leases and hire purchase agreements which need not be on a subordinated basis) and provided further that (save as aforesaid) it is serviced only out of Restricted Payments for so long as payment restrictions are applicable. Risks Relating to Business Operations Concentration in Great Britain All of the pubs in the Estate are located in Great Britain and, therefore, the Securitisation Group's results of operations are substantially influenced by general economic conditions in Great Britain. Specifically, consumer confidence and personal disposable income are influenced, amongst other things, by macroeconomic factors such as inflation, interest rates, rates of taxation imposed both directly and indirectly on consumers, wage rates, levels of employment and the availability of consumer credit. Adverse changes in the economic climate in Great Britain could have a negative impact on the Securitisation Group's performance (see Business of the Punch Group and Information Regarding the Portfolio below). 32

33 General risks The liquidation value of the Securitisation Group may be adversely affected by risks relating generally to the interests in real property, including changes in political and economic conditions or in the public house and restaurant industries, declines in property values, variations of supply of and demand for pubs, declines in occupancy rates in its accommodation, increases in interest rates, changes in rental terms including the tenants' responsibility for operating expenses, changes in governmental rules, regulations and fiscal policies, terrorism, acts of God, natural disasters, and other factors which are beyond the control of the Issuer, the Borrower, the other Obligors and the members of the Securitisation Group. Declining Sales of Beer in Great Britain A significant portion of the Securitisation Group's turnover is currently derived from the sale of beer to its customers. In recent years, sales of all beer (by volume) in Great Britain have decreased, principally as a result of pub customers showing increased demand for non-beer products, such as wine and other alcoholic beverages, increased expenditure on food and a decline in the number/proportion of male pub visitors. Growing health and drink-driving concerns, as well as the ability to purchase canned or bottled beer at lower prices in many off-licences and supermarkets, have also contributed to the downward trend in beer sales at pubs. Accordingly, the Securitisation Group's pubs will continue to offer a broad selection of non-beer alcoholic drinks, as well as a wide range of food, to continue to attract customers. If the Securitisation Group is not able to develop its income streams from other products, a continued decline in the British beer market could have an adverse effect on the Securitisation Group's turnover and overall financial performance. In addition, retailers could be affected to an even greater extent by a decline in the UK beer market or in the ability of pubs to attract customers and any such decline could result in an increase in retailer defaults and business failures which could adversely affect the Securitisation Group's financial performance. Competition with other pubs, Off-licences and Restaurants etc. The Securitisation Group's pubs compete for consumers with a wide variety of pubs and restaurants as well as off-licences, supermarkets and takeaways, some of which may offer higher amenity levels or lower prices and be backed by greater financial and operational resources. The Securitisation Group's pubs may not be successful in competing against any or all of these alternatives and a sustained loss of customers to other pubs or leisure activities or increased consumption at home could have a material adverse effect on its business operations and prospects. Varying Consumer Perceptions and Public Attitudes In Great Britain, consumption of alcoholic beverages has become the subject of considerable social and political attention in recent years due to increasing public concern over alcohol-related social problems including drink-driving and adverse health consequences associated with the misuse of alcohol, including alcoholism. Changes in consumer tastes in both food and drink and demographic trends over time may affect the appeal of the Securitisation Group's pubs to consumers. The Securitisation Group's success will depend in part on its ability to anticipate, identify and respond to these changing conditions in the context of the life-cycle economics of the leisure industry. Tenancy Agreements There is a general risk that rental and other payments owing to landlords in the Securitisation Group (including, for example, for the supply of beer and other products to the tenants and for receipts from AWPs) will not be paid on the due date or will not be paid at all. A sufficient aggregation of such late or non-payments would affect the profitability of the Securitisation Group. Continued failure by a particular tenant to pay the rental and other payments due to the landlord would usually result in the departure of the tenant and the leasing of the relevant pub to a new tenant. There may be a period following the departure of the former tenant, and before a replacement tenant can be found, where cashflow to the Securitisation Group is reduced or the relevant pub may become vacant. In addition, the rent and other payments payable by the replacement tenant may not be as high as those payable by the former tenant. Dependence on Volume Discounts The profitability of the Securitisation Group is affected by its ability to exceed, across the Estate as a whole, volume targets in its beer supply contracts that enable it to earn significant volume discounts and/or avoid the payment of liquidated damages. Management has sought to enhance the ability of the Securitisation Group to achieve these objectives by negotiating more favourable volume targets in its beer supply contracts, and increasing the overall size of the Estate (and therefore the volume of 33

34 beer purchased by the Securitisation Group) through acquisitions. However, volumes purchased through the Estate could be negatively affected by the factors described in the preceding four risk factors, which in turn could significantly decrease the Securitisation Group's operating margins. Change in Supplier Dynamics In recent years, there has been a consolidation in the brewing and distribution industry in the United Kingdom. This consolidation could have the effect of exposing the Securitisation Group to reliance on a limited number of suppliers, and those suppliers may be able to exert pressures on the Securitisation Group that could have the effect of raising prices paid by it for goods bought or delivered, reducing margins and adversely affecting results of operations. The Punch Group has entered into agreements with all of its key suppliers (see Supply Arrangements below and the section entitled Business of the Punch Group and Information Regarding the Portfolio below). Termination of these agreements, variation of their terms or the failure of a party to comply with its obligations under these agreements could have a negative effect on the operations and financial performance of the Securitisation Group. Fluctuations in the Property Market The property market may develop so that rents may increase such that they affect the economic viability of one or more of the tenanted pubs. Equally, a downturn in the United Kingdom property market may lead to a reduction in the Securitisation Group's freehold property values over time. Guaranteeing income and optimising profit The Securitisation Group leases its pubs to retailers, each of which is generally free to operate and manage the pub as he sees fit, subject to the terms of his lease or tenancy agreement. Since a substantial proportion of the Securitisation Group's turnover is currently derived from wet product sales to its retailers, declining sales due to local factors over which the Securitisation Group may have no direct control, such as poor pub management, marketing, or changing local demographic trends, may also result in a decline in the Securitisation Group's sales to that pub. In the absence of noncompliance, the Securitisation Group cannot arbitrarily remove an under-performing retailer by terminating the lease or tenancy agreement early or by refusing to renew the relevant agreement automatically at the end of its term. The Securitisation Group also receives fixed rental payments from each of its retailers, at a rate negotiated when the lease is signed. Rental rates for a given pub are assessed by the Securitisation Group on the basis of its likely level of retail trading. If the Securitisation Group initially underestimates the likely level of retail trading for a pub, subject to the terms of the Relevant Documents, the Securitisation Group may agree to a lower fixed rent and consequently receive a smaller overall share of the pub's profits until the next rent review. Persistent under-performance by retailers or inaccurate assessments when negotiating rents would, in the aggregate, result in a decrease in the Securitisation Group's turnover and overall financial condition. Competition for high quality retailers All of the Securitisation Group's pubs are operated by retailers who are lessees or tenants. Individuals seeking to enter the pub operating business have several alternatives to being a lessee or tenant, any one or more of which may prove to be more attractive depending on personal circumstances. These include becoming an employee of a managed pub company, acquiring a pub freehold or leasehold outright or joining one of numerous other leased or tenanted pub companies as a lessee or tenant. Licensed restaurants, cafes and bars can also offer attractive business opportunities for the type of retailers that the Securitisation Group would like to attract. The Securitisation Group may not be successful in convincing prospective retailers of the benefits of leasing its pubs and the Securitisation Group may lose high quality retailers as a result. Seasonality and weather Attendance at the Securitisation Group's pubs in the United Kingdom is generally higher during holiday periods, such as Christmas and New Year, and over bank holidays. Frequenting of pubs is slightly lower during the winter months than in summer. Attendance levels at the Securitisation Group's pubs is also adversely affected by persistent rain or other inclement weather. A sustained period of cold or inclement weather, particularly during the peak summer months or over the holidays, could have a negative effect on turnover generated by the Securitisation Group's pubs and, in turn, could have an adverse effect on the results of the Securitisation Group's operations. 34

35 Supply Arrangements In the 52 week period ending on 3 March 2007, over 80 per cent. of beer supplied to the Punch Group was supplied by Scottish & Newcastle UK, Carlsberg UK, Coors and InBev UK under various supply agreements, some of which contain minimum volume obligations. If the Punch Group were to be unable to satisfy its minimum volume obligations under its supply agreements and failed to meet its obligation to pay any liquidated damages due, the relevant supplier might have a right to terminate its supply agreement with the Punch Group. In circumstances where this agreement was terminated, or circumstances where other supply and distribution contracts were terminated, the Securitisation Group may be required to source beer and non-beer products from elsewhere. It is expected that this would not cause significant difficulties to the operation of the Estate other than the potential short-term disruption inherent in any change in a major supplier and/or distributor, since there are alternative sources of supply in the market and the Punch Group's estates are sufficiently large to ensure that competitive terms would be available (see Business of the Punch Group and Information Regarding the Portfolio Products and Services below). The Punch Group is continuing to streamline its wet product supply arrangements with a view to rationalising supply across the Punch Group as a whole so that Punch Taverns (PPCS) Limited ("Supplyco") becomes the sole entity contracting with suppliers (see Summary of Principal Documents - Supply Agreement and Business of the Punch Group and Information Regarding the Portfolio - Products and Services - Beer Supply and other Wet Products below). Such streamlining will result in the Securitisation Group (including, for the avoidance of doubt, the Borrower) becoming increasingly dependent on Supplyco for the supply of its wet products under the Supply Agreements (as defined below). Any failure by Supplyco to supply wet products adequately to the Securitisation Group or to perform its obligations to counterparties under the supply agreements (for example, as to satisfying minimum purchase obligations) could adversely affect the business of the Securitisation Group which, in turn, could adversely affect the ability of the Borrower to meet its obligations under the Issuer/Borrower Facility Agreements and the other Relevant Documents. Supplyco is not a member of the Securitisation Group and there can be no assurance that it will continue to be a member of the Punch Group. If the Punch Group does not effectively streamline its wet product supply arrangements so that Supplyco becomes the sole entity contracting with suppliers, wet products may continue to be supplied to the Securitisation Group under different supply arrangements, some of which have been inherited by the Punch Group as part of its acquisitions. Any failure by a member of the Punch Group to perform its obligations to counterparties under these inherited supply agreements (for example, as to satisfying minimum purchase obligations) could adversely affect the business of the Securitisation Group which, in turn, could adversely affect the ability of the Borrower to meet its obligations under the Issuer/Borrower Facility Agreements and the other Relevant Documents. Acquisitions of Pubs A number of the pubs forming part of the Estate have been acquired by the Punch Group in a series of transactions involving the acquisition from third parties of large numbers of pubs and/or companies owning pubs. Over time further such pubs may be acquired by the Securitisation Group. There are certain other legal, commercial and tax risks inherent in any such acquisition although such risks generally reduce with time. Although sellers in such transactions have provided or will be asked to provide certain warranties to the Punch Group in connection therewith, such warranties are or will be limited in terms of the amount claimable and the period in which claims can be made (and in many cases such periods may have expired). The Securitisation Group may, therefore, suffer loss in respect of which no remedy may be available (whether against the relevant seller or any other person). In addition, in order to streamline the ownership and operation of the pubs, various transfers of pubs have had to be effected which of themselves potentially give rise to certain tax issues for the Securitisation Group. Regulation General The Securitisation Group's operations are subject to regulation, and further changes in regulations could adversely affect results of operations, including through higher costs. More restrictive regulations could lead to increasing prices to consumers which, in turn, may adversely affect demand and therefore revenues and profitability. See the sections below for additional information on the regulation to which the Securitisation Group is subject. In particular, some examples of the regulatory changes which may affect the Securitisation Group's cost base include: 35

36 (a) (b) (c) additional EU or UK employment legislation (in particular, (i) the level of the National Minimum Wage, which is under annual review by the Low Pay Commission and (ii) the maximum number of hours an employee may be permitted to work and the extent to which they may voluntarily opt out) which could further increase labour costs of tenants; competition, consumer protection and environmental laws which could adversely affect the Securitisation Group's operations; and clarification from the courts as to what constitutes "reasonable adjustment" to prevent disabled customers being placed at a substantial disadvantage in terms of access to the Disability Discrimination Act 1995, which may require further alteration and expenditure to that already made to certain of the pubs in the Securitisation Group. Business regulation In addition to crime and disorder, the licensed trade, in common with most areas of industry, faces increasing regulation in the fields of employment, health and safety and access for the disabled. The general trend is to restrict the flexibility in the workforce and also to make small businesses subject to the same procedures and laws as large businesses. The compliance with this regulation has an effect on the trade in as much as licensees have to devote more time to compliance and, therefore, less time to the trade. To counteract this, support in the form of guidance to the relevant legislation is provided to tied tenants by the Securitisation Group companies. Competition Law and Tied Estates Tied pub tenancy arrangements that require tenants to obtain beer (and other beverages) from a nominated supplier may constitute a breach of Article 81 (formerly Article 85) of the EC Treaty ("Article 81") and/or Chapter 1 Competition Act ("Chapter 1") in circumstances where the tie arrangements contribute significantly to the foreclosure of the U.K. market. If an agreement is in breach of Article 81/Chapter 1, it is null and void. A serious breach of Article 81/Chapter 1 can give rise to the imposition of fines. In addition, a breach of Article 81/Chapter 1 can also give rise to claims for damages against one or more parties to the contract in question. Following the decision of the European Court of Justice in Courage v Crehan, it is possible that the benefit of the right to claim damages for breach of Article 81 could extend to a party to the contract, particularly where that party has a weak bargaining position. The European Commission has accepted, however, that where a lease/tenancy agreement incorporates a policy of multi-sourcing and periodic tendering, such a lease can operate to reduce foreclosure - such that the tie arrangements should not infringe Article 81/Chapter 1. TISC Investigation During the second half of 2004, the House of Commons Trade and Industry Select Committee (the "TISC") conducted an inquiry into pub companies. Their report, which was published on 21 December 2004, did not recommend any further legislation but instead highlighted a number of issues relating to tenants and encouraged pub companies to address them voluntarily through a code of conduct. The TISC did, however, recommend that its successor body in the following session of Parliament should conduct a further review of the industry. In the event that such a review is undertaken, it may recommend further legislation to regulate the pub industry. The Punch Group already has its own code of conduct in place - and as such it already complies with the best practice recommendations outlined by the Committee. Licensing Reform The retail sale of alcohol in the United Kingdom is a highly regulated industry governed by the licensing system. The law covers all premises where alcohol is sold, such as pubs, bars, off-licences, restaurants, hotels and supermarkets. Until 24 November 2005, the law governing the sale of alcohol in England and Wales was set out in the Licensing Act In order to sell alcohol for consumption on the premises, pubs required a full "on-licence" which was generally held by the pub's manager or landlord. That person had to attend a local magistrates' court and satisfy the Justices that he or she was a fit and proper individual to hold such a licence and that he or she was not disqualified from holding such a licence. Other types of licence that could be granted by the Justices included certificates which extended the permitted hours for selling alcohol where the sales were ancillary to music, dancing or the availability of food, public entertainment licences for music, dancing and certain live performances, and "amusements with prizes" permits. 36

37 On-licences were granted for three years and could be revoked at any time for serious cause, including violation by the manager or landlord or his or her employees of any law or regulation, such as those regulating the minimum age of patrons or employees. The retail sale of alcohol in England and Wales is now governed by a licensing system set out in the Licensing Act Pubs now operate under a "premises licence" which is granted to the operating company by the licensing authority, which is part of the local authority. The premises licence regulates the sale of alcohol, the hours that alcohol can be sold, entertainment, such as live music, karaoke and discos and the sale of hot food after 11:00 p.m. Alcohol can only be sold from premises that benefit from such a premises licence. In the case of a pub, the premises licence will generally permit the consumption of alcohol on or off the premises. The sale of alcohol must also be made under the authority of a "designated premises supervisor", who must hold a "personal licence". This is obtained by way of examination and by reference to the Criminal Records Bureau. Personal licences must be renewed every ten years but premises licences are valid for the life of the business or until revoked or surrendered. Breach of a condition of a licence could result in it being revoked or, more likely, reviewed and the operating parameters reduced or additional control measures added. On the sale of a business, the premises licence is, upon application, transferred to the new owner. As set out above, the Licensing Act 2003 has transferred the operation of the licensing system from local magistrates' courts to local authorities, and therefore from the courts to local government. However, licence holders will retain the right of appeal to a magistrates' court. The Licensing Act 2003 has introduced greater flexibility with respect to pub opening hours and the provision of entertainment. Whilst longer opening hours will have implications in terms of operating costs, the change may benefit pubs where there is a demand for later hours drinking and entertainment. The law governing the sale of alcohol in Scotland is currently set out in the Licensing (Scotland) Act 1976 (as amended) and is administered through local authority licensing boards. There are currently seven different types of licence in Scotland, depending broadly upon the type of premises from which the alcohol will be sold, in addition to a separate system for clubs. Licences must be renewed every three years and can be held by "non-natural persons" such as limited companies, with an individual nominee named in the licence application who has day-to-day responsibility for the licensed premises. Current grounds for refusal of an application for a new licence or the renewal of an existing licence include that the applicant (or the person on whose behalf or for whose benefit the premises will be managed) is not a fit and proper person to be the holder of the licence, that the premises are unsuitable or inconvenient for the sale of alcohol, that the sale of alcohol would create a public nuisance or that the licence would lead to an over-provision of licensed premises in the locality. In parallel with the reforms in England and Wales, the Scottish Parliament has enacted the Licensing (Scotland) Act 2005 (the "2005 Licensing Act"), which received Royal Assent on 21 December 2005 but which will not come into effect until February The 2005 Licensing Act will introduce, in line with England and Wales, a dual system of premises licences and personal licences, and premises licences once granted will continue for an unlimited period of time until the occurrence of a number of specified events. The 2005 Licensing Act will also abolish the present system of statutory permitted licensing hours (other than those authorised for off-sales), the actual opening hours being authorised by the terms of the relevant premises licence and dependent on an approved operating plan. An 18 month transition period will commence in February 2008, during which existing licensees will have to submit applications for new premises and personal licences, ahead of the full implementation of the new licensing regime on 1 September The 2005 Licensing Act does not contain any provisions under which existing pubs are guaranteed their existing licence rights, which means that the benefit of existing licences and extensions thereto could be lost when an application for a new premises licence is submitted. It is too early to predict what impact the new regime may have on the business of the Securitisation Group. However, it is likely that the Securitisation Group will incur additional costs during the transitional period and more stringent licensing requirements could be imposed on the operations of the Securitisation Group in Scotland in the future, which could further increase costs. Employment legislation The Working Time Regulations (the "WT Regulations") control the hours employees are legally allowed to work. Under the legislation, workers may only be required to work a 48 hour week (although they can choose to opt out and work longer if they wish). The WT Regulations also lay down rights and protections in areas such as minimum rest time, days off and paid leave. Many employees of the Punch Group are covered by the WT Regulations. The retention of the ability to opt out and the guidance as to who is covered by the WT Regulations may possibly change in the future. 37

38 In addition, under the Part-Time Workers (Prevention of Less Favourable Treatment) Regulations 2000, part-time workers can claim the same rights as full-time workers. Similar provisions apply to employees employed under fixed-term contracts under the Fixed-Term Employees (Prevention of Less Favourable Treatment) Regulations 2002, under which employees engaged under fixed-term contracts can claim the same rights as employees engaged under permanent contracts. The WT Regulations may affect the ability of the Punch Group to operate the Securitisation Group efficiently, which in turn may adversely affect its cost base and its ability to meet its obligations under the Issuer/Borrower Facility Agreements and the other Relevant Documents. Fiscal-Related Matters The Securitisation Group's activities are affected by a number of fiscal-related matters. These matters include duty on alcoholic beverages, VAT and other business taxes. Changes in legislation which affect all or any of these matters may adversely affect the financial performance of the Securitisation Group. Potential Change to Drink Driving Laws The European Commission has recommended that all countries in the EU adopt the same drink and drive limits (see further the section entitled The United Kingdom Pub Industry Regulatory Environment Drink Driving). If the Government were to carry out a review of the legal blood limit for drivers and opted to reduce the legal blood alcohol limit, it could discourage customers who drive to pubs from visiting pubs. Any such change could adversely affect trading in the Securitisation Group's rural and suburban pub sites. Legislation relating to smoking In November 2004, the Government published a White Paper on smoking in public places in England and Wales. The White Paper set out the Department of Health's proposals for the prohibition of smoking in enclosed places including restaurants and pubs that serve food from 2008, although premises not preparing and selling food would be permitted to allow smoking. In October 2005, the Government published the Health Bill, which provided that from the summer of 2007, smoking would be prohibited in public places, including pubs and restaurants that serve food. However, in February 2006, faced with heavy criticism of its food based proposal, the Government gave Members of Parliament ("MPs") the chance to vote on whether to retain the food based ban, opt for a smoking ban in all pubs (except private members' clubs) or opt for a total ban in all pubs and private members' clubs. A majority of MPs voted to amend the Health Bill to legislate for an outright ban in all pubs and private members' clubs in England and Wales and this was enacted in the Health Act 2006 in July Subject to certain limited exceptions set out in the Health Act 2006 (which do not apply to licensed premises), from 1 July 2007 it will be against the law to smoke in England in all enclosed and substantially enclosed public places, and all enclosed and substantially enclosed premises that are used as a place of work. This includes, without limitation, pubs, bars, restaurants and clubs, regardless of whether food is sold or not. The Health Act 2006 devolved powers to the National Assembly for Wales to make regulations for a ban on smoking in enclosed public places in Wales. Welsh Assembly Members voted in favour of The Smoke-free Premises etc. (Wales) Regulations 2007 on 30 January 2007 and the regulations came into force on 2 April The regulations prohibit smoking in enclosed or substantially enclosed public places, including workplaces and bars. Licensees are required to remove all ashtrays, display no-smoking notices, and refuse service to anyone continuing to smoke in public. Whilst it is too early to assess the impact of the smoking ban in Wales, over a longer period of time, the smoking ban could discourage customers who smoke from using pubs and this may have an adverse effect on the results of the Securitisation Group's businesses in Wales, which represented 4.9 per cent. of total Securitisation Group turnover in the period of 28 weeks to 3 March In Scotland, the Scottish Parliament enacted the Smoking, Health and Social Care (Scotland) Act 2005, which imposed a complete ban on smoking in pubs from 26 March The initial trading experience since the Scottish ban took effect has been benign, with growth in food sales and a limited slow down in drink sales, although it is still too early to make a definitive judgement. Over a longer period of time, the smoking ban could discourage customers who smoke from using pubs and this may have an adverse effect on the results of the Securitisation Group's businesses in Scotland which represented 6.5 per cent. of total Securitisation Group turnover in the period of 28 weeks to 3 March Evidence from Scotland shows that many licensed premises will seek to provide outside areas for smokers, by the provision of facilities such as smoking shelters, canopies or other covered outside areas which, combined with the use of outdoor space heaters, allow use in most weathers. 38

39 Legislation prohibiting smoking will affect all of the pubs in the Securitisation Group within the relevant jurisdiction. Such legislation may have the effect of discouraging smokers from visiting pubs and restaurants, who may prefer to drink, eat and smoke at home. This may have the effect of reducing the number of customers who visit pubs in the Securitisation Group, although it is too early to say with any degree of certainty as to how the prohibition will affect England. Legislation relating to gambling In April 2005, the Gambling Act 2005 was enacted and as part of the legislation new gaming regulations will come into force with effect from September The new legislation will include changes to the operation of amusement machines with prizes ("AWPs") and one of the key changes to the current legislation in this area is that the use of AWPs by persons aged under 18 years of age will be illegal except on low stake and prize machines. The government has indicated that category C machines will retain the existing maximum permissible 25 prize until this is reviewed in due course, and the maximum permissible stake will be increased from 30p to 50p. The effective date of the stake increase is understood to be 1 September 2007, but the industry is lobbying the Government for an earlier increase in stake and prize monies. The Gambling Act 2005 has also paved the way for casino operators to develop larger, regional casinos, similar to those operating in Las Vegas, USA. At present, the Government proposes to license eight small, eight large and one regional casino which may have an adverse impact on the number of customers using the Securitisation Group's AWP machines. It is possible that the number of regional casinos may be increased (eight were originally proposed), but this is considered to be unlikely until after There will also be changes to the categories of machines permitted in casinos, licensed betting offices, bingo halls, amusement arcades, family entertainment centres and motorway service stations, some of which may increase the competitive threat to the Securitisation Group in respect of gaming. There is also a risk that the legislation may not effectively safeguard pubs in retaining their existing rights in relation to the number of AWPs they are licensed for. However, the Government has confirmed that pubs will retain their existing rights in respect of AWPs. The new gaming law could nevertheless reduce the Securitisation Group's turnover from AWPs and reduce the number of customers using the pubs in the Securitisation Group. Legislation relating to noise The Physical Agents Directive 2001 (the "Directive") is currently under discussion in the retail industry relating to the regulation of noise in the workplace. For further information see the section entitled The United Kingdom Pub Industry below. The current United Kingdom noise limit for workplaces is 90 decibels averaged over an eight hour day but if the Directive were to come into effect that limit would be reduced to 85 decibels. The European Parliament has agreed that the industry in the United Kingdom should agree a code of conduct as to how the Directive is to be implemented in the United Kingdom. The Government is required to introduce regulations in response to the Directive by February 2008 and has launched a consultation document to assist with this process. A small number of the pubs in the Estate that play loud music and have other live entertainment could be affected by the proposed change in the law. However, it is believed that noise levels in the majority of the pubs in the Estate would fall below the revised limit. Exposure of the Securitisation Group to Funding Risks in relation to the Punch Group's Defined Benefits Pension Schemes The Punch Group operates three defined benefit pension schemes (each a "Pension Scheme" and together, the "Pension Schemes".) The Pubmaster Pension Scheme; The Spirit Group Pension Scheme; and The Spirit Group Retail Pension Plan. These are all closed to new entrants. As at 19 August 2006, the total net liability in respect of the Pension Schemes was approximately 17.6 million calculated on an IAS 19 basis. There are currently no other defined benefit pension schemes in the Punch Group. However, the Punch Group may purchase companies over the course of time and even if those companies are outside the Securitisation Group, an exposure may nonetheless arise under the Pensions Act The primary liability for funding the Pension Schemes rests with the participating employer companies, none of which are members of the Securitisation Group. However, by virtue of the Pensions Act 2004, there will be risks for the whole of the Securitisation Group arising from the operation of the Pension 39

40 Schemes. Many of these are generic risks associated with the operation of UK defined pension schemes generally. In summary, the main risk factors are: (a) (b) (c) (d) In relation to both schemes, the Pensions Act 2004 will allow the Pensions Regulator to impose a scheme funding target and employer contribution rate if those matters cannot be agreed between the scheme trustees and the employers. The trustees of each Pension Scheme have the power to wind up the relevant scheme in certain circumstances, although these circumstances are, generally, within the control of each of the principal employers. The Pensions Regulator also has a statutory power to order a Pension Scheme to be wound up. Winding up the schemes would result in a statutory obligation on the various participating employers to fund the schemes by reference to a "buyout basis". Additionally, regulations provide that a similar statutory debt would be triggered if an employer participating in a multi-employer scheme went into liquidation. The Pensions Act 2004 gives powers to the Pensions Regulator to require funding or funding guarantees (in the form of a contribution notice or financial support direction) for defined benefit pension schemes in various circumstances from a person who is "associated" or "connected" with a participating employer. If the Security Trustee were to enforce its security over the shares of the Borrower so that it were entitled to exercise, or control the exercise of, one third or more of the voting power at any general meeting of the Borrower, the Security Trustee would come within the definition of connected/associated person. This would mean that the Pensions Regulator could seek to issue a contribution notice or financial support direction on it at that time, provided the other requirements were met, including that it considered it was reasonable to do so. In deciding whether to issue a contribution notice or financial support direction, the Pensions Regulator must also take into account a number of other factors including the actual connection that the person has with the pension scheme and the employer and the financial circumstances of the person. The trustees of each Pension Scheme have control over the investment of the relevant scheme's assets and could (having taken appropriate investment advice and consulted with the employers) alter the investment profile of the schemes. For example, they could exchange equity investments for bonds, which would typically increase the employer funding obligations in relation to the schemes because of the lower rate of return expected from lower risk bonds. The foregoing risks are linked to the funding level of the schemes, which can be adversely affected by a number of factors including: (i) (ii) (iii) (iv) (v) (vi) reducing bond yields (low yields mean a pension obligation is assessed as having a high value); increasing life expectancy (which will make pensions payable for longer and, therefore, more expensive to provide); investment returns below expectation; actual and expected price inflation (many benefits are linked to price inflation and, ignoring any compensating change in the value of assets and future expected investment returns, an increase in inflation will result in higher benefits being paid), subject to the limits set out in the Pension Schemes' governing documentation; funding volatility as a result of the mismatch between the assets held and the assets by reference to which the scheme liabilities are calculated; and other events occurring which make past service benefits more expensive than anticipated in the actuarial assumptions by reference to which past pension contributions were assessed, including unanticipated changes to legislation or tax laws. Employer obligations to their pension schemes (including any statutory debt) generally rank as unsecured and non-preferential obligations of the employer, with some limited exceptions. Environmental legislation Environmental legislation establishing a new contaminated land regime was brought into force in April This legislation places liability for clean-up costs on the owner or occupier of contaminated land where no person can be found who has caused or knowingly permitted the presence of the substances which have led to the pollution. The term "owner" means a person (other than a mortgagee or (in Scotland) heritable creditor not in possession) who, whether in his own right or as 40

41 trustee for any other person, is entitled to receive the rack rent from the land, or where the land is not let at a rack rent, would be so entitled if it were so let. Thus, if land which falls within the title to any of the pubs and the freehold or heritable title (or, in the case of long leaseholds for a rent which is less than rack rent, such long leasehold title) is contaminated, then where the person cannot be found who caused or knowingly permitted such contamination to occur, the Securitisation Group might be liable for the costs of cleaning up such contamination. In such circumstances, the Securitisation Group may have insufficient monies available to it to repay in full all amounts due under the Issuer/Borrower Facility Agreements. If the Issuer or the Security Trustee were to take possession of any one or more of the pubs following enforcement of the security created pursuant to the Punch Taverns Deeds of Charge, and contamination of the type described above were to be discovered at any such pub, then the Issuer or Security Trustee might be liable for the costs of cleaning up such contamination. This might lead to the Issuer having insufficient funds available to pay all amounts due to the Noteholders and the Noteholders might suffer a loss as a result. Other environmental legislation concerning statutory nuisance also places liability on the owner or occupier in some circumstances instead of the person responsible for the nuisance. In the relevant legislation, the concept of "owner" has not been defined and could include any person with a proprietary interest in the property. The owner or occupier would be responsible where the nuisance arises from any defect of a structural character and where the person responsible for such nuisance cannot be found or the nuisance has not yet occurred. Owners and occupiers may also have liabilities at common law. Property issues Compulsory Purchase Any property in the United Kingdom may at any time be acquired by a local authority or government department, generally in connection with proposed redevelopment or infrastructure projects. In the event of a compulsory purchase order being made in respect of a pub, compensation would be payable on the basis of the open market value of all owners' and tenants' proprietary interests in that pub at the time of the related purchase and will be paid by the Borrower into the Disposal Proceeds Account. In the case of an acquisition of the whole of that pub, the relevant freehold, heritable or long leasehold estate and any lease would both be acquired and the tenant would cease to be obliged to make any further rental payments to the Borrower, under the relevant lease. The risk to Noteholders is that the amount received from the proceeds of purchase of the relevant freehold, heritable or long leasehold estate may be inadequate to cover the loss of cashflow from such pub and thus the Borrower's ability to meet its obligations under the Issuer/Borrower Facility Agreements may be prejudiced. This may in turn adversely affect the ability of the Issuer to pay interest on and principal of the Notes. There may be a delay between the compulsory purchase of a property and the payment of compensation, the length of which will largely depend upon the ability of the property owner and the entity acquiring the property to agree on the open market value. Should such a delay occur in the case of any pub, then, unless the Borrower has other funds available to it, this delay may prejudice either party's ability to meet its obligations under the Issuer/Borrower Facility Agreements. Frustration A lease could, in exceptional circumstances, be frustrated under English or Scots law (as applicable). Under English law, frustration may occur where a supervening event so radically alters the implications of the continuance of a lease for a party thereto that it would be inequitable for such lease to continue. Under the equivalent Scots law principle of rei interitus, a lease will (subject to express agreement to the contrary) terminate if the leased property is damaged or destroyed to the extent that it is no longer tenantable or if an event occurs which otherwise precludes performance of the parties' rights and obligations under the lease. Leasehold Interests in pubs The interest held in 230 pubs in the Estate is comprised either wholly or partly under a leasehold title (the "Leasehold Pubs"). There are a further 37 adjoining or ancillary leasehold titles (e.g. car parks). Of these, approximately 90 pubs contain forfeiture provisions pursuant to which the landlord may terminate the lease upon the insolvency of the tenant. The termination of any such lease by a landlord could deprive the Securitisation Group of any capital value in the relevant leasehold interest as well as the ongoing income from the relevant pub. 41

42 Where the interest held in a pub is comprised either wholly or partly under a leasehold title and that pub is damaged or destroyed such that the business cannot be operated from that pub until rebuilding or repair work is undertaken, there is a risk that the landlord may have a right to break where the property cannot be rebuilt within a certain period. There is also a risk, for both freehold (or, in Scotland, heritable) and leasehold pubs, that the property cannot be rebuilt within a certain specified period and that an operational tenant will cease to operate its business either because it is not viable to wait for rebuilding or repair, because it wishes to continue to operate from an alternative site and it then chooses not to return or because it loses its licence to operate. Such damage or destruction could deprive the Securitisation Group of capital value in the relevant Leasehold Pub and/or ongoing income from the relevant operational tenant. In the case of a further two Leasehold Pubs the landlord has an option to break at any time on six or twelve months' notice. No compensation would be payable if such options were exercised and the Securitisation Group would be deprived of the capital value in the relevant Leasehold Pub as well as ongoing income. Four leases, which relate to Leasehold Pubs, are missing, and so it has not been possible to identify whether any of the risk factors described in the preceding paragraphs apply to those pubs. In relation to seven of the Leasehold Pubs the contractual term of the relevant lease has expired. In relation to a further 22 leases the term will expire prior to the end of There can be no guarantee that the Securitisation Group will be successful in negotiating a new lease of each such pub or, if it is successful, as to what terms will then apply. The capital value of each such pub will reflect the risk of renewal, but the termination of any lease without renewal will deprive the Securitisation Group of any ongoing income from the relevant pub. Registration of Mortgages Application will be made after the Fourth Closing Date to register the mortgages over the pubs in England and (as applicable) to register the standard securities over the pubs in Scotland, in each case granted to the Security Trustee by the Securitisation Group, at the Land Registry or (as applicable) the Registers of Scotland. To the extent that mortgages and standard securities are not registered, the mortgages over the pubs in England will take effect in equity only and the standard securities over the pubs in Scotland will not take effect at all and in either case will be capable of being overridden by dispositions of the land to bona fide third parties for valuable consideration. In addition, equitable and other interests created before the grant of these equitable mortgages or standard securities could gain priority. The existence of any such prior ranking interests would constitute a default under the Issuer/Borrower Facility Agreements if the existence thereof were to have a material adverse effect on the business of the Securitisation Group. It should be noted that, under the terms of the Issuer/Borrower Facility Agreements and the Punch Taverns Deeds of Charge, the Borrower will (as appropriate) be required to apply for registration of: (i) (ii) (iii) (iv) the mortgages in respect of the pubs in England and Wales within the priority period established by the Land Registry searches; the standard securities in respect of all of the pubs in Scotland over which security can be taken, as soon as practicable after the Fourth Closing Date; the standard securities in respect of the remainder of the pubs in Scotland, as soon as practicable and not later than six months after the Fourth Closing Date; and in the case of permitted acquisitions in England and Wales and any permitted acquisition in Scotland following the Fourth Closing Date, as soon as practicable after such permitted acquisition and (in the case of a permitted acquisition in England or Wales) within the priority period established by H.M. Land Registry searches. The Borrower will use all reasonable endeavours to ensure that registration of such mortgages and standard securities is completed (in the case of the applications referred to in paragraphs (i), (ii) and (iii)) no later than one year after the Fourth Closing Date and (in the case of the applications referred to in paragraph (iv)) no later than one year after the date of such permitted acquisition. Rent reviews The tenancy agreements and leases to which certain of the pubs in the Estate are subject contain open market rent review provisions. Some of these are on an upwards only basis but with reference to the initial rent or the rent fixed at the previous open market review date (as the case may be). Those leases may also provide for annual rent reviews by reference to movements in the Retail Prices Index. Therefore, it is possible that rents in respect of certain pubs which do not have unqualified upwards 42

43 only provisions could fall if the open market rental value at the time of review is below the rent then payable. Valuations of pubs The valuation figure shown as the market value of the portfolio of pubs set out in the Valuation Report will not necessarily be consistent with the figures contained in the Borrower's historical financial information. This may be because, among other reasons, the portfolio of pubs valued in connection with the Valuation Report is that which will constitute the Estate as at the Fourth Closing Date rather than the date of the publication of the Borrower's historical financial information. The Estate There are certain risks that arise in connection with the Estate, including without limitation, title to the pubs, landlord consents in relation to Leasehold pubs, mortgagee in possession liability and restrictive covenants. Registered Title Reports Short form registered title table reports were prepared by various firms of solicitors in connection with the Transaction for all the pubs to be acquired by the Borrower from the Avebury Sub-Group, PGRP and Branston (the "Registered Title Reports"). Slaughter and May have prepared an overview report on the Registered Title Reports (the "Overview Report"). In addition, Slaughter and May, TLT, Ford & Warren and Campbell Smith prepared registered title reports on a sample of 300 pubs in the PTF Sub- Group, 300 pubs in the PFII Sub-Group, 10 previously unreported pubs in a sub-group which comprised Punch Taverns (Red) Limited and its subsidiaries and which was acquired by the Borrower on the Third Closing Date and all previously unreported pubs in Punch Taverns (Fradley) Limited and PGRP in the Estate as part of the amalgamation and refinancing of the PTF Sub-Group and PFII Sub- Group in 2003 and in respect of all pubs acquired from APL278 on 25 May 2007 (the "Previous Title Reports"). Slaughter and May have prepared reports on all the standard form leases which are used in connection with the Estate. The Registered Title Reports and the Previous Title Reports address in respect of each pub, inter alia, (i) the registered proprietor; (ii) the quality of the title; (iii) the existence of any registered financial charges or securities and restrictions on disposal; and (iv) the existence of any restriction against use as a public house. In respect of the leasehold title, details of the lease, rent and other material issues have been addressed. All but two pubs were found to have title which was registered or in the course of registration. Not all of the usual conveyancing searches and enquires were made by the reporting solicitors, notably local authority, Environmental Agency, Coal Authority and Network Rail searches. These searches would reveal matters such as whether or not roads, drains and sewers serving the relevant pubs are adopted and maintained at the public expense, whether or not any relevant pubs were subject to a compulsory purchase order, whether or not any statutory notices have been served in respect of any relevant pub (such as in relation to breach of planning or building regulation control), breach of Public Health Acts or breach of fire regulations and give the planning history for a property. The solicitors did not check on the existence or validity of liquor licences or justices' and other trade licences in respect of all pubs. The solicitors did not address the state of repair of the properties or environmental issues. In each case, the solicitors who prepared the Registered Title Reports and the Previous Title Reports may not have sufficient professional indemnity insurance to honour in full any claim that might arise. Landlord's consents Certain of the pubs in the Estate are leasehold properties. In respect of five of the Leasehold Pubs which are the subject of the Business Sale Agreements the landlord's consent is required under the relevant lease to transfer the legal interest and title in those pubs to the Borrower (the "Transfer Consent Leasehold pubs"). Landlord's consent to the transfer of the legal interest and title has not yet been obtained and the legal interest in these pubs therefore has not yet been transferred to the Borrower. Pursuant to the terms of the Business Sale Agreements, Branston, PGRP and the Avebury Sub-Group (the "Sellers"), as applicable, have each covenanted to use reasonable endeavours (at its own cost) to obtain the consent of the relevant landlords to the transfer of such Leasehold Pubs and have each covenanted to allow the Borrower into occupation of such Leasehold Pubs pending receipt of the landlord's consent. There are three properties in the Estate where landlord consent to assign is still outstanding following the amalgamation and refinancing of the PTF Sub-Group and PFII Sub- Group in 2003 and there are nineteen properties where landlord consent to assign is required in respect of those pubs acquired from APL278 on 25 May Should the Borrower take occupation of 43

44 such Leasehold Pubs without the receipt of the relevant landlord's consent, this may constitute a breach of the alienation clause in the relevant lease and could allow the relevant landlord to try to forfeit or irritate the lease. Termination of the Borrower's lease would, in these circumstances, deprive it of any cash flow under the leases in place between it and the tenants of such pubs. This may adversely affect the ability of the Borrower to pay interest and to repay principal under the Issuer/Borrower Facility Agreements which may adversely affect the ability of the Issuer to pay interest and to repay principal under the Notes. In respect of one of the Leasehold Pubs, which is also a Transfer Consent Leasehold pub, the landlord's consent is required under the relevant lease to the creation of a charge of the legal interest and title in that pub. Until (i) the relevant consents to transfer have been obtained and (ii) the completion of the registration of the transfer of each such pub to the Borrower at H.M. Land Registry or the Registers of Scotland, as applicable, legal title to each of those pubs in the Estate will remain in the Sellers, as applicable. Furthermore, until (i) the aforesaid consent to charge has been obtained, and (ii) the completion of the registration of the charge of each such pub to the Security Trustee at H.M. Land Registry or the Registers of Scotland, as applicable, no legal charge or standard security will be created. Until such registration, the Security Trustee's charge would (i) in the case of pubs in England and Wales take effect in equity or, in the case of pubs in Scotland, not take effect at all and, in either case, would be capable of being overridden by dispositions of the land to bona fide third parties for valuable consideration, and any equitable or other interest created could gain priority, and (ii) take effect subject to the right of the relevant landlord to forfeit or (in Scotland) irritate the relevant lease to the extent of any breach of the alienation provisions until such consents have been obtained. The Borrower covenants in the Issuer/Borrower Facility Agreements to use all reasonable endeavours to obtain the relevant consents. Mortgagee in possession liability Where the Security Trustee takes enforcement proceedings under the Punch Taverns Deeds of Charge or any standard security granted pursuant to them, it may be deemed to be, in respect of pubs in England, a mortgagee in possession and, in respect of pubs in Scotland, a heritable creditor in possession if there is a physical entry into possession of any pub or an act of control or influence which may amount to possession (such as receiving rental income directly from a relevant tenant). A mortgagee or heritable creditor in possession may incur liabilities to third parties in nuisance and negligence and, under certain statutes (including environmental legislation), can incur the liabilities of a property owner. Save in certain circumstances in respect of the appointment of an administrative receiver, the Security Trustee is not obliged to act (including becoming a mortgagee or heritable creditor in possession in respect of a pub) unless it is satisfied at that time that it is adequately indemnified or secured. Under the terms of the Punch Taverns Deeds of Charge, payments to the Security Trustee in respect of any such indemnity rank first in point of priority of payments, both prior to and following service of a Borrower Enforcement Notice. This may adversely affect the funds available to the Borrower to make payments of interest and principal in respect of the Advances and therefore also the funds available to the Issuer to make payments of interest and principal in respect of the Notes. Restrictive covenants Approximately 77 of the pubs in the Estate, and one of the pubs which is the subject of the Registered Title Reports, are subject to restrictive covenants or title conditions affecting the whole or part of those pubs, not to use those pubs (or relevant parts, as appropriate) for the sale of alcohol or as a pub. Such restrictions are typically found in portfolios of this type. A successful claim by a party claiming the benefit of such a covenant or condition might result in the cessation of the current use and frustration of the relevant occupational lease. There is no evidence of title indemnity insurance having been taken out in respect of the breach of those covenants or conditions. There may be other pubs in England and Wales which are affected by restrictive covenants or title conditions the effect of which is unknown because no details were provided to H.M. Land Registry on first registration, but it is expected that such pubs will be less than one per cent. of the Estate. Many of these are old covenants or conditions and in some cases do not appear to affect the pub itself. Insurance General Management believes that the properties owned or used by the Securitisation Group are adequately covered by insurance placed with reputable insurers and with commercially reasonable deductibles 44

45 and limits. Insurance policies held or maintained by the Securitisation Group cover such risks as material damage, business interruption, loss of rent and third party liability. However, certain types of risk are not insured fully either because such insurance is not available or because Management believes that the premium costs are disproportionate to the risks in question (such as full terrorism cover and environmental impairment liability cover). Uninsured loss The Issuer/Borrower Facility Agreements require the Borrower to carry insurance with respect to the pubs in accordance with terms set out in the Issuer/Borrower Facility Agreements. There are however, certain types of losses (such as losses resulting from wars, terrorism, nuclear radiation, radioactive contamination, heave or settling of structures) which may be or become either uninsurable or not economically insurable, or are otherwise not covered by the required insurance policies. Other risks might become uninsurable (or not economically insurable) in the future. The Borrower's ability to repay the Term Advances may be affected adversely if such an uninsured or uninsurable loss were to occur, which may adversely affect the ability of the Issuer to pay interest on and repay principal of the Notes. (5) GENERAL LEGAL AND TAXATION CONSIDERATIONS Implementation of Basel II risk-weighted asset framework may result in changes to the risk-weighting of the Notes On 14 November 2005, the Basel Committee on Banking Supervision published an updated version of a revised framework (the "Framework") to replace the 1988 Capital Accord, which placed enhanced emphasis on market discipline and sensitivity to risk. It was envisaged that the Framework would come into effect at the beginning of 2007 or, in the case of the advanced approaches that are permitted under the Framework, the beginning of 2008, although it is likely that different implementation dates will be adopted in different countries. The text of the Capital Requirements Directive, which implements the Framework within the EEA, was finalised in June The Capital Requirements Directive is in the process of being transposed into national law or regulation by the EEA member states and has been implemented into revised regulatory requirements in the UK. The new requirements could affect the risk weighting of the Notes in respect of certain Noteholders if those Noteholders are regulated in a manner that would be affected by the requirements. Consequently, prospective Noteholders should consult their own advisors as to the consequences to and effect on them of the application of the Framework and the Capital Requirements Directive. The Issuer cannot predict the precise effects of potential changes that might result from the adoption of the new requirements. European Economic and Monetary Union It is possible that, prior to the maturity of the Notes, the United Kingdom may become a participating Member State in the European economic and monetary union and the euro may become the lawful currency of the United Kingdom. In that event, (a) all amounts payable in respect of the Notes may become payable in euro, (b) applicable provisions of law may allow the Issuer to redenominate the Notes into euro and take additional measures in respect of the Notes and (c) the introduction of the euro as the lawful currency of the United Kingdom may result in the disappearance of published or displayed rates for deposits in sterling used to determine the rates of interest on the Notes or changes in the way those rates are calculated, quoted and published or displayed. The introduction of the euro could also be accompanied by a volatile interest rate environment which could adversely affect the Borrower's ability to repay the Term Advances as well as adversely affect Noteholders. It cannot be said with certainty what effect, if any, adoption of the euro by the United Kingdom will have on investors in the Notes. Introduction of International Financial Reporting Standards For accounting periods beginning on or after 1 January 2005, the statutory accounts of United Kingdom companies with listed debt (such as the Issuer) are required to comply with International Financial Reporting Standards ("IFRS") or with new UK Financial Reporting Standards ("new UK FRS") which are based on IFRS. (In the following, unless otherwise stated, references to IFRS include references to new UK FRS.) If taxed on the basis of their accounts, the tax position of special purpose companies such as the Issuer might be different from its cash position. HM Revenue & Customs ( HMRC ) indicated that, as a policy matter, it did not wish the tax neutrality of securitisation special purpose companies in general to be disrupted as a result of the transition to IFRS and has accordingly introduced a special corporation tax regime for "securitisation companies" in the form of the Taxation of Securitisation Companies Regulations 2006 (the "Securitisation Regulations"), made in December 2006 under section 84 of the Finance Act

46 In the Tax Deed of Covenant, the Issuer will make certain representations and give covenants not to do anything (or permit anything to be done) which will result in it ceasing to satisfy the conditions to qualify as a securitisation company within the scope of the Securitisation Regulations. To the extent that the Issuer is required to take any action (including the making of an election pursuant to paragraph 13 of the Securitisation Regulations) in order to qualify as a securitisation company for these purposes, the Issuer will covenant to take any such action within any time limit prescribed by legislation. The Securitisation Regulations have only recently been made and they may be the subject of further amendment. In addition, it is expected that advisors will rely significantly upon guidance from HMRC when advising on the scope and operation of the Securitisation Regulations. While HMRC has published draft guidance on the Securitisation Regulations, that guidance has yet to be finalised, and so may also be the subject of amendment. Taxation United Kingdom Taxation Position of the Borrower Under current UK taxation law and practice, payments of principal to be made by the Borrower under the Issuer/Borrower Facility Agreements are not deductible for tax purposes. Unless the Borrower disposes of a capital asset, and applies the proceeds thereof (net of any tax payable as a result of the disposal) to make repayments of principal under the Issuer/Borrower Facility Agreements, it is necessary for the Borrower to fund such repayments of principal out of taxed income from the general operations of the Securitisation Group. It is envisaged that the Borrower will fund the repayment of principal out of such post-tax income and the management of the Borrower believes that, on a conservative basis, the Borrower will have sufficient post-tax income to enable full and timely repayments of principal and interest due under the Issuer/Borrower Facility Agreements but there can be no assurance of this. There can be no assurance that taxation law and practice will not change in a manner (including, for example, a rise in the rate of corporation tax), which would adversely affect the amount of post-tax income of the Borrower and therefore affect the Borrower's ability to repay amounts of principal under the Issuer/Borrower Facility Agreements. Further, under transfer pricing and thin capitalisation rules applying to UK transactions, the Borrower's entitlement to tax relief in respect of interest payable may be subject to adjustment. In particular, if the transactions that would have been entered into as between independent enterprises differ from the actual transactions entered into between connected persons so that less (or no) interest would have been payable by a borrower had the arm's length transactions been entered into, for instance because it would not have been able to borrow as much, the deductions for such interest would be by reference to the arm's length interest. Such adjustments may restrict the Borrower's tax relief by way of deductions in respect of interest payable under the Borrower Subordinated Loans. In certain circumstances the transfer pricing regime allows the other party to the provision to elect to undertake sole responsibility for any tax liability of the Borrower which would result from such an adjustment. The other parties to the Borrower Subordinated Loan Agreements have made, or are expected to make, such elections. If such elections are made and accepted, the Borrower should be in no worse a position as regards having sufficient income after tax to pay principal and interest under the Issuer/Borrower Facility Agreements if an adjustment is made to restrict the Borrower's entitlement to tax relief in respect of interest payable under the Borrower Subordinated Loan Agreements than if no such adjustment were made. No such election is expected to be made with regard to the Issuer/Borrower Facility Agreements or the Issuer/Borrower Swap Agreement or any other agreement to which the Borrower is party with a connected person. If the Issuer does not receive all amounts of principal due from the Borrower under the Issuer/Borrower Facility Agreements, it may not have sufficient funds to enable it to meet its payment obligations under the Notes and/or any other payment obligations ranking in priority to, or pari passu with, the Notes. Tax degrouping issues (CGT and SDLT) November 2003 Reorganisation On or about the Third Closing Date, the Punch Group undertook certain reorganisation steps to consolidate the secured assets in the Borrower involving a series of share-for-share exchanges resulting in the transfer of the shares in all the transferor companies (other than PGRP) or the holding companies of their sub-groups to the Parent and the transfer of the goodwill, business and assets of those transferor companies to the Borrower. In principle, these intra-group transfers gave rise to the 46

47 possibility that any chargeable gain rolled over on the transfers could, in certain circumstances, be triggered in the Borrower if the Borrower were to become degrouped for tax purposes from the Punch Group within six years of the transfers. However, such reorganisation was structured in such a way that (a) no gain would arise in the Parent on any deemed disposal of the shares in the relevant transferor companies or the holding companies of their sub-groups triggered by a degrouping, and (b) provided that the relevant transferor companies remain subsidiaries of the Parent, no degrouping charge would be triggered in the Borrower in respect of any gain rolled over on the transfer to it of their goodwill, business and assets. The Parent has covenanted in favour of the Security Trustee not to dispose of the shares in the relevant transferor companies and steps were taken in certain documents that should discourage a liquidator of each of the relevant transferor companies from dissolving it during the relevant period. In relation to the assets transferred from PGRP, in respect of which these structural precautions were not taken, the potential degrouping charge, were the Borrower to be degrouped from PGRP within six years was estimated to be approximately 500,000. May 2007 Reorganisation On 25 May 2007, the Borrower acquired 278 pubs from APL278. These transfers give rise to two potential liabilities in the Borrower. The potential liabilities are as follows: (a) (b) any chargeable gain which was carried forward in the assets acquired by the Borrower could be triggered if the Borrower leaves the Punch Group for tax purposes within six years of the date of transfer (a "Degrouping Charge"); and relief from stamp duty land tax in relation to the transfer of land to the Borrower could be clawed back if the Borrower leaves the Punch Group within three years of the transfer ("SDLT Clawback"). In order to consolidate the secured assets in the Borrower, the Borrower will also acquire goodwill, businesses and assets from the Avebury Sub-Group, PGRP and Branston on or before the Fourth Closing Date (as described in the Summary above). Degrouping Charges and SDLT Clawback may equally arise on these transfers. The combined potential exposure to contingent tax liabilities relating to the May 2007 transfers and the Fourth Closing Date transfers is estimated to be approximately 29.1 million, comprising 15.5 million in respect of possible Degrouping Charges and 13.6 million in respect of SDLT Clawback. On 25 May 2007, the Borrower also disposed of 59 pubs to PGRP. As a result the direct risk of Degrouping Charges and SDLT Clawback arising on the original transfer of those pubs to the Borrower has been removed. However a more remote chance of a secondary tax liability has now arisen. This secondary tax liability may arise in the Borrower if: PGRP leaves the Borrower's SDLT group within three years of the transfer or in pursuance of arrangements made within three years of the transfer; any SDLT assessed on PGRP as a result remains unpaid six months after the date on which it became payable; and H.M. Revenue and Customs serves a notice on the Borrower requiring payment of such tax. The potential secondary liability that could arise in these circumstances is estimated to be approximately 384,000. It is possible that further asset transfers may take place within the Punch Group in the future, including between the Borrower and companies outside the Securitisation Group. No tax on chargeable gains or stamp duty land tax should arise on such intra-group transfers, but a subsequent degrouping of the transferee (or group company) could in certain circumstances (as outlined above) give rise to a primary or secondary charge to tax in the transferee or the transferor (respectively). The effect of the Tax Deed of Covenant is to prohibit any such transfers into the Securitisation Group without the consent of the Security Trustee. Other Transfers Between the November 2003 reorganisation and the May 2007 reorganisation the following other asset transfers have taken place from companies outside the Securitisation Group to the Borrower: (a) 23 pubs were transferred from PGRP to the Borrower on 9 January 2004; (b) 8 pubs were transferred from Spirit Managed Pubs Limited to the Borrower on 6 July 2006; (c) 44 pubs were transferred from Punch Taverns (Barton) Limited to the Borrower on 19 July 2006; and (d) 1 pub was transferred from Spirit Managed Pubs Limited to the Borrower on 27 February

48 No tax on chargeable gains or stamp duty land tax arose on those intra-group transfers, but the subsequent degrouping of the transferee (or group company) could in certain circumstances (as outlined above) give rise to a primary or secondary charge to tax in the transferee. The combined potential exposure to contingent tax liabilities relating to these other transfers is estimated to be approximately 8.5 million, comprising 6.8 million in respect of possible Degrouping Charges and 1.7 million in respect of SDLT Clawback. European Union Directive on the Taxation of Savings Income On the basis of advice received, the directors of the Issuer expect that all payments to be made under the Notes can be made without withholding or deduction for or on account of tax. Nonetheless, investors should note that the Council of the European Union has adopted a Directive on the taxation of savings income. Each Member State is required to provide to the tax authorities of other Member States details of payments of interest or other similar income paid by a person within its jurisdiction to an individual resident in that other Member State except that Belgium, Luxembourg and Austria will instead impose a withholding system in relation to such payments for a transitional period (see further Taxation United Kingdom Taxation Payment of Interest by the Issuer on the Fourth Issue Notes below). Withholding tax in respect of the Notes and the Hedges In the event that any withholding or deduction for or on account of tax is required to be made from payments due under the Fourth Issue Notes or any other Notes (as to which see the section entitled Taxation United Kingdom Taxation below), neither the Issuer nor any Paying Agent nor any other person will be obliged to pay any additional amounts to Noteholders or to otherwise compensate Noteholders for the reduction in the amounts they will receive as a result of such withholding or deduction. If such a withholding or deduction is required to be made, the Issuer will have the option of redeeming all outstanding Notes in full at their Principal Amount Outstanding (together with accrued interest). For the avoidance of doubt, neither the Note Trustee nor Noteholders will have the right to require the Issuer to redeem the Notes in these circumstances. On the basis of advice received, the Issuer expects that all payments to be made under the Hedges can be made without withholding or deduction for or on account of any tax. In the event that any such withholding or deduction is required to be made from any payment due under the Hedges (whether that payment is to be made by the Issuer or by the Initial Hedge Provider), the amount to be paid will be increased to the extent necessary to ensure that, after any such withholding or deduction has been made, the amount received by the party to which that payment is being made is equal to the amount that that party would have received had such withholding or deduction not been required to be made. If the Issuer or the Initial Hedge Provider is obliged to pay such an increased amount as a result of its being obliged to make such a withholding or deduction, it may terminate the transactions under the relevant Hedges (subject to the Initial Hedge Provider's obligation to use its reasonable efforts to transfer its rights and obligations under the relevant Hedges to a third party hedging provider such that payments made by and to that third party hedging provider under the relevant Hedges can be made without any withholding or deduction for or on account of tax). If a transaction under the Hedges is terminated, the Issuer may be unable to meet its obligations under the Notes, with the result that the Noteholders may not receive all of the payments of principal and interest due to them in respect of the Notes. If the Issuer is obliged to pay an increased amount as a result of its being obliged to make such a withholding or deduction, this will be initially funded by the Issuer by way of a drawing under the Liquidity Facility. However, the Borrower will then be obliged to pay to the Issuer by way of Periodic Fee an amount equal to the amount by which the sum to be paid by the Issuer to the Initial Hedge Provider is increased. In such circumstances, the Borrower may (but will not be obliged to) prepay in full the outstanding Floating Rate Term Advances. If the Borrower chooses to prepay the relevant Term Advances, the Issuer may then redeem the relevant Notes. If the Borrower does not prepay all of the relevant Term Advances and does not pay the full amount of any Periodic Fee due to the Issuer, the Issuer may be unable to meet its obligations under the Notes, with the result that the Noteholders may not receive all of the payments of principal and interest due to them in respect of the Notes. Withholding tax in respect of the Issuer/Borrower Facility Agreements and the Issuer/Borrower Swap Agreement On the basis of advice received, the Issuer believes that all payments made under the Issuer/Borrower Facility Agreements can be made without deduction or withholding for or on account of any UK tax. In the event that any withholding or deduction for or on account of tax is required to be made from any payment due to the Issuer under the Issuer/Borrower Facility Agreements, the amount to be paid by 48

49 the Borrower will be increased to the extent necessary to ensure that, after any such withholding or deduction has been made, the amount received by the Issuer is equal to the amount that the Issuer would have received had such withholding or deduction not been required to be made. In the event that the Borrower is required to make such an increased payment to the Issuer, the Borrower may (but will not be obliged to) prepay any outstanding Term Advances made under the Issuer/Borrower Facility Agreements, which are affected by such withholding or deduction, in full. If the Borrower chooses to prepay the Term Advances, the Issuer may then redeem the relevant Notes. If the Borrower does not have sufficient funds to enable it to gross-up payments to the Issuer, the Issuer's ability to meet its payment obligations under the Notes could be adversely affected. Similarly, on the basis of advice received, the Issuer believes that all payments to be made under the Issuer/Borrower Swap Agreement can be made without withholding or deduction for or on account of any tax. In the event that any such withholding or deduction is required to be made from any payment to be made by the Borrower under the Issuer/Borrower Swap Agreement, the amount to be paid by the Borrower will be increased to the extent necessary to ensure that, after any such withholding or deduction has been made, the amount received by the Issuer is equal to the amount that the Issuer would have received had such withholding or deduction not been required to be made. In the event that any such withholding or deduction is required to be made from any payment to be made by the Issuer under the Issuer/Borrower Swap Agreement as a result of a change in law after the Fourth Closing Date, the Issuer will not be required to pay any additional amounts to the Borrower in respect of such withholding or deduction. If the Borrower is obliged to pay such an increased amount under the Issuer/Borrower Swap Agreement or is obliged to receive an amount from the Issuer net of any withholding or deduction for or on account of tax, the Borrower may (but will not be obliged to) prepay in full the Floating Rate Term Advances. If the Borrower chooses to prepay such Term Advances, the Issuer may then redeem the corresponding class(es) of Notes. If the Borrower does not have sufficient funds to enable it to gross-up payments to the Issuer under the Issuer/Borrower Swap Agreement, the Issuer's ability to meet its payment obligations under the Notes could be adversely affected. Insolvency Considerations Receivership At any time after the security created pursuant to the Punch Taverns Deeds of Charge has become enforceable, the Security Trustee may, or in certain circumstances can be required to pursue a number of different remedies (provided that it is indemnified and/or secured to its satisfaction). One such remedy is the appointment of a receiver over specific property or over all, or part, of the Punch Taverns Mortgaged Properties. Likewise, at any time after the Issuer Security has become enforceable, the Security Trustee may or in certain circumstances can be required to (provided that it is indemnified and/or secured to its satisfaction) pursue a number of different remedies. One such remedy is the appointment of a receiver of all or part of the assets and undertaking of the Issuer. It should be noted that the authority for a receiver of an English company exercising his powers in Scotland applies only to a charge created as a floating charge and there is no similar authority for the exercise by a receiver of an English company of the powers in relation to a charge created as a fixed charge (such as the standard securities granted pursuant to the Punch Taverns Deeds of Charge (the "Punch Taverns Standard Securities")). The provisions of the Enterprise Act 2002 (the "Enterprise Act") amending the corporate insolvency provisions of the Insolvency Act 1986 (the "Insolvency Act") came into force on 15 September 2003 and are discussed in further detail in Enterprise Act below. As a result of the amendments made to the Insolvency Act by the Enterprise Act, the holder of a qualifying floating charge created on or after 15 September 2003 will be prohibited from appointing an administrative receiver (and consequently be unable to prevent the chargor entering administration), unless the qualifying floating charge falls within one of the exceptions set out in sections 72A to 72GA of the Insolvency Act. As the Supplemental Punch Taverns Deed of Charge, the Punch Taverns Second Priority Deed of Charge and the Issuer Deed of Charge are entered into after 15 September 2003, the Security Trustee will not be entitled to appoint an administrative receiver over the assets of any Security Provider or the Issuer unless the floating charges in such documents fall within one of the exceptions. 49

50 One such exception (the "capital market exception") is in respect of, in certain circumstances, the appointment of an administrative receiver pursuant to an agreement which is or forms part of a "capital market arrangement" (which is broadly defined in the Insolvency Act). This exception will apply if a party incurs or, when the agreement in question was entered into was expected to incur, a debt of at least 50,000,000 and if the arrangement involves the issue of a "capital market investment" (also defined in the Insolvency Act but, generally, a rated, traded or listed debt instrument). Although there is as yet no case law on how this exception will be interpreted, based on the advice of counsel, the Issuer considers that the exception will be applicable to the transactions described in this Offering Circular. However, the Secretary of State for Trade and Industry may, by secondary legislation, modify the exceptions to the prohibition on appointing an administrative receiver and/or provide that the exception shall cease to have effect. No assurance can be made that any such modification or provisions in respect of the capital market exception will not be detrimental to the interests of the Noteholders. A receiver would generally be in this case the agent of the relevant company until the company's liquidation, and thus, whilst acting within his powers, will enter into agreements and take actions in the name of, and on behalf of, the company. The receiver will be personally liable on any contract entered into by him in carrying out his functions (except in so far as the contract provides otherwise) but will have an indemnity out of the assets of the company. If, however, the receiver's appointor unduly directed or interfered with or influenced the receiver's actions, a court may decide that the receiver was the agent of his appointor and that his appointor should be responsible for the receiver's acts and omissions. The Security Trustee is entitled to receive remuneration and reimbursement for its and the receiver s respective expenses and an indemnity out of the assets of the relevant Obligor and the Issuer for their potential liabilities. Such payments to the Security Trustee will rank ahead of the interest and principal due under the Issuer/Borrower Facility Agreements and will rank ahead of payments by the Issuer under the Notes. Accordingly, should the Security Trustee become liable for acts of such a receiver, the amount that would otherwise be available for payment to the Noteholders may be reduced. If the company to which the receiver is appointed goes into liquidation, then as noted above the receiver will cease to be that company's agent. At such time he will then act either as agent of his appointor or as principal according to the facts existing at that time. If he acts as agent of his appointor, then for the reasons set out in the foregoing paragraph, the amount that would otherwise be available for payment to the Noteholders may be reduced. If the receiver acts as principal and incurs a personal liability, he will have a right of indemnity out of the assets in his hands in respect of that liability and the amount that would otherwise have been available for payment to the Noteholders (subject to any claims of the Security Trustee to such amount) would be reduced accordingly. Small Companies Moratorium Certain "small companies", for the purposes of putting together proposals for a company voluntary arrangement, may seek court protection from their creditors by way of a "moratorium" for a period of up to 28 days, with the option for creditors to extend this protection for up to a further two months (although the Secretary of State for Trade and Industry may, by order, extend or reduce the duration of either period). A "small company" is defined for these purposes by reference to whether the company meets certain tests relating to a company's balance sheet, total turnover and average number of employees in a particular period (although the Secretary of State for Trade and Industry may, by order, modify the moratorium eligibility qualifications and the definition of "small company"). During the period for which a moratorium is in force in relation to a company, inter alia, no winding up may be commenced or administrator or administrative receiver appointed to that company, no security created by that company over its property may be enforced (except with the leave of the Court), no other proceedings or legal process may be commenced or continued in relation to that company (except with the leave of the Court) and the company's ability to make payments in respect of debts and liabilities existing at the date of the filing for the moratorium is curtailed. ln addition, if the holder of security (the "chargee") created by that company consents or if the Court gives leave, the company may dispose of the secured property as if it were not subject to the security. Where the property in question is subject to a security which as created was a floating charge, the chargee will have the same priority in respect of any property of the company directly or indirectly representing the property disposed of as he would have had in respect of the property subject to the security. Where the security in question is other than a floating charge, it shall be a condition of the chargee's consent or the leave of the Court that the net proceeds of the disposal shall be applied towards discharging the sums secured by the security. 50

51 Certain small companies may, however, be excluded from being eligible for a moratorium (although the Secretary of State for Trade and Industry may, by order, modify such exclusions), including those which, at the time of filing for the moratorium, are party to a capital market arrangement under which a party incurs or, when the agreement in question was entered into was expected to incur, a debt of at least 10,000,000 and which involves the issue of a capital market investment. The definitions of "capital market arrangement" and "capital market investment" are broadly equivalent to those used in the exception to the prohibition on appointment of an administrative receiver under the Insolvency Act and, similarly, the Issuer considers that the exclusion will apply both in respect of the Issuer and the Security Providers in the context of the transactions described in this Offering Circular. There is also an exclusion from being eligible for a moratorium for companies that have incurred a liability (including a future contingent liability) of at least 10,000,000 and therefore the Issuer considers that this exclusion would also apply in respect of the Issuer, the Borrower and the other Security Providers in the context of the transactions described in this document. Enterprise Act As described in Receivership above, the provisions of the Enterprise Act amending the corporate insolvency provisions of the Insolvency Act came into force on 15 September In addition to the introduction of a prohibition on the appointment of an administrative receiver the amendments include (a) the ring fencing, on the commencement of insolvency proceedings in respect of a company, of a certain percentage of the realisations from assets secured by a floating charge (after the payment of preferential creditors), such realisations to be used to satisfy unsecured debts; (b) the abolition of the categories of preferential debt payable to the Crown, including debts due to HMRC in respect of PAYE and in respect of VAT and social security contributions; and (c) the replacement of the existing administration regime in its entirety with a new, streamlined administration procedure. By virtue of the relevant prescribing order, the ring fencing of a percentage of certain floating charge realisations for the benefit of unsecured creditors applies to floating charges which are created on or after 15 September The amount available for unsecured creditors will depend upon the value of the chargor's "net property", being the amount of the chargor's property which would be available for satisfaction of debts due to the holder(s) of any debentures secured by a floating charge. The prescribing order provides for 50 per cent. of the net property under 10,000 and 20 per cent. of net property over 10,000 to be made available for the satisfaction of the chargor's unsecured debts, subject to an overall cap on the ring-fenced fund of 600,000. Accordingly, with respect to the floating charges granted under the Supplemental Punch Taverns Deed of Charge, the Punch Taverns Second Priority Deed of Charge and the Issuer Deed of Charge, floating charge realisations upon the enforcement of the security created under the Supplemental Punch Taverns Deed of Charge, the Punch Taverns Second Priority Deed of Charge and/or the Issuer Security, respectively, will be reduced by the operation of the ring fencing provisions. Liquidation Expenses Prior to the House of Lords decision in the case of Re Leyland Daf in 2004, the general position was that in a liquidation of a company, the liquidation expenses ranked ahead of unsecured debts and floating chargees' claims. Re Leyland Daf reversed this position so that liquidation expenses could no longer be recouped out of assets subject to a floating charge. The Government has introduced legislation, broadly, to restore the pre-leyland Daf position, subject to rules restricting the application of this to expenses approved by the floating chargee or the court. When the legislation comes into force, floating charge realisations upon the enforcement of the security created pursuant to the Punch Taverns Deeds of Charge and/or the Issuer Security, respectively, would potentially be reduced by the amount of any liquidation expenses. Recharacterisation of Fixed Security Interest There is a possibility that a Court could find that the fixed security interests expressed to be created by the security documents governed by English law could take effect as floating charges as the description given to them as fixed charges is not determinative. Where the Security Provider is free to deal with the secured assets without the consent of the chargee, the Court would be likely to hold that the security interest in question constitutes a floating charge, notwithstanding that it may be described as a fixed charge. In particular it should be noted that the Borrower is, in order to carry out effective estate management, permitted to agree to amendments, waivers and consents to, and under, the provisions of any occupational lease entered into between any Security Provider and the operator of a pub (which shall include, for the avoidance of doubt, a tenancy at will) in respect of a Punch Taverns Mortgaged Property (each a "Lease Agreement"), including in respect of the payment of rents. 51

52 Whether the fixed security interests will be upheld as fixed security interests rather than floating security interests will depend, among other things, on whether the Security Trustee has the requisite degree of control over the Security Provider's ability to deal in the relevant assets and the proceeds thereof and, if so, whether such control is exercised by the Security Trustee in practice. If the fixed security interests are recharacterised as floating security interests, the claims of (i) the unsecured creditors of the relevant Security Provider or, as the case may be, the Issuer in respect of that part of Security Provider's or, as the case may be, the Issuer's net property which is ring fenced as a result of the Enterprise Act (see Enterprise Act above); and (ii) certain statutorily defined preferential creditors of the relevant Security Provider or, as the case may be, the Issuer, may have priority over the rights of the Security Trustee to the proceeds of enforcement of such security. In addition, the expenses of a liquidation (when the new legislation reversing the Leyland Daf decision comes into force) or administration would also rank ahead of the claims of the Security Trustee as floating charge holder. It should be noted that under Scots law there is no equivalent concept of the recharacterisation of fixed security interests as floating security interests. A receiver appointed by the Security Trustee would be obliged to pay preferential creditors out of floating charge realisations in priority to payments to the Punch Taverns Secured Parties and the Issuer Secured Creditors (including the Noteholders), respectively. Following the coming into force of the Enterprise Act on 15 September 2003, the only remaining categories of preferential debts are certain amounts payable in respect of occupational pension schemes, employee remuneration and levies on coal and steel production. If the Security Trustee were prohibited from appointing an administrative receiver by virtue of the amendments made to the Insolvency Act by the Enterprise Act, or failed to exercise its right to appoint an administrative receiver within the relevant notice period and the Security Provider or, as the case may be, the Issuer were to go into administration, the expenses of the administration would rank ahead of the claims of the Security Trustee as floating charge holder. Furthermore, in such circumstances, the administrator would be free to dispose of floating charge assets without the leave of the court, although the Security Trustee would have the same priority in respect of the property of the company representing the proceeds of disposal of such floating charge assets, as it would have had in respect of such floating charge assets. Other General Considerations Forward-looking Statements This Offering Circular contains certain statements which may constitute forward-looking statements. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as "target", "expect", "intend", "believe" or other words of similar meaning. By their nature, forward-looking statements are inherently predictive, speculative and involve risk and uncertainty. As such statements are inherently subject to risks and uncertainties, there are a number of factors that could cause actual results and developments to differ materially from those expressed in or implied by such forward-looking statements. Such risks and uncertainties include but are not limited to (a) risks and uncertainties relating to the United Kingdom economy, the United Kingdom pub industry, consumer demand, beer consumption levels and government regulation and (b) such other risks and uncertainties detailed herein. All written and oral forward-looking statements attributable to the Punch Group and the Issuer or persons acting on their behalf are expressly qualified in their entirety by the cautionary statements set forth in this paragraph. Prospective purchasers of the Notes are cautioned not to put undue reliance on such forward-looking statements. Neither the Punch Group nor the Issuer will undertake any obligation to publish any revisions to these forward-looking statements to reflect circumstances or events occurring after the date of this document. The Issuer believes that the risks described above are the principal risks inherent in the transaction for Noteholders, but the inability of the Issuer to pay interest, principal or other amounts on or in connection with the Fourth Issue Notes may occur for other reasons and the Issuer does not represent that the above statements regarding the risk of holding the Fourth Issue Notes are exhaustive. Although the Issuer believes that the various structural elements described in this document lessen some of these risks for Noteholders, there can be no assurance that these measures will be sufficient to ensure payment to Noteholders of interest, principal or any other amounts on or in connection with the Fourth Issue Notes on a timely basis or at all. 52

53 SUMMARY OF PRINCIPAL DOCUMENTS The following is a summary of certain provisions of the principal documents relating to the transactions described herein, including the Issuer/Borrower Facility Agreements, the Punch Taverns Deeds of Charge, the Liquidity Facility Agreement, the Hedges, the Issuer/Borrower Swap Agreement, the Issuer Deed of Charge, the Bank Agreement, the Servicing and Cash Management Agreement, the Financial Advisory Services Agreement, the Tax Deed of Covenant, the Financial Guarantees and the Guarantee and Reimbursement Agreements, and is qualified in its entirety by reference to the detailed provisions of the Relevant Documents. Capitalised terms not otherwise defined in this summary shall have the meanings given to them in the Amended Master Definitions and Construction Schedule (as defined below). ISSUER/BORROWER FACILITY AGREEMENTS The Issuer/Borrower Facility Agreements will be amended and restated on the Fourth Closing Date pursuant to a master deed of release and amendment to be entered into on or about the Fourth Closing Date between, inter alios, the Issuer, the Borrower, the Guarantors, Ambac, the Note Trustee and the Security Trustee (the Second Master Amendment Deed ). The terms of each of the Issuer/Borrower Facility Agreements will remain substantially the same in all material respects save for the principal amounts of the Term Advances (as defined below) which have been made and/or will be made thereunder and the rates of interest applicable thereto and except as otherwise described below. The Term Facilities Following the Fourth Closing Date, the following will remain outstanding under the Issuer/Borrower Facility Agreements: (a) (b) (c) (d) (e) (f) a term loan facility in a maximum aggregate principal amount of 270,000,000 (the "Term A1(R) Facility" and each advance thereunder the "Term A1(R) Advance"); a term loan facility in a maximum aggregate principal amount of 300,000,000 (the "Term A2(R) Facility" and each advance thereunder the "Term A2(R) Advance"); a term loan facility in a maximum aggregate principal amount of 200,000,000 (the "Term M1 Facility and each advance thereunder the "Term M1 Advance"); a term loan facility in a maximum aggregate principal amount of 140,000,000 (the "Term B1 Facility" and each advance thereunder the "Term B1 Advance"); a term loan facility in a maximum aggregate principal amount of 150,000,000 (the "Term B2 Facility" and each advance thereunder the "Term B2 Advance"); and a term loan facility in a maximum aggregate principal amount of 215,000,000 (the "Term C(R) Facility" and each advance thereunder the "Term C(R) Advance"), each of which were fully drawn by the Borrower on or prior to the Third Closing Date. In addition, the Issuer/Borrower Facility Agreements will provide that, subject to the satisfaction of certain conditions precedent as to drawing, the following new term loan facilities will be made available to the Borrower either by way of cash advance, or by way of set-off against amounts owed by the Borrower to the Issuer, under the Issuer/Borrower Facility Agreements on the Fourth Closing Date: (a) (b) (c) (d) a term loan facility in a maximum aggregate principal amount of 125,000,000 (the "Term A3(N) Facility" and each advance thereunder the "Term A3(N) Advance"); a term loan facility in a maximum aggregate principal amount of 400,000,000 (the "Term M2(N) Facility" and each advance thereunder the "Term M2(N) Advance"); a term loan facility in a maximum aggregate principal amount of 175,000,000 (the "Term B3 Facility" and each advance thereunder the "Term B3 Advance"); and a term loan facility in a maximum aggregate principal amount of 125,000,000 (the "Term D1 Facility" and each advance thereunder the "Term D1 Advance"). The Term A1(R) Facility, the Term A2(R) Facility, the Term A3(N) Facility (together the "Term A Facilities"), the Term M1 Facility, the Term M2(N) Facility (together the "Term M Facilities"), the Term B1 Facility, the Term B2 Facility, the Term B3 Facility (together the "Term B Facilities"), the 53

54 Term C(R) Facility and the Term D1 Facility, are together referred to as the "Term Facilities". The aggregate principal amount of the Term Facilities will not exceed 2,100,000,000. The Term A3(N) Facility, the Term M2(N) Facility, the Term B3 Facility and the Term D1 Facility are together referred to as the "Floating Rate Term Facilities" and the Fourth Issue Term Facilities. The Term A1(R) Facility, the Term A2(R) Facility, the Term M1 Facility, the Term B1 Facility, the Term B2 Facility and the Term C(R) Facility are together referred to as the "Fixed Rate Term Facilities". The Term A1(R) Advance, the Term A2(R) Advance, the Term A3(N) Advance (together the "Term A Advances"), the Term M1 Advance, the Term M2(N) Advance (together the "Term M Advances"), the Term B1 Advance, the Term B2 Advance, the Term B3 Advance (together the "Term B Advances"), the Term C(R) Advance and the Term D1 Advance are together referred to as the "Term Advances". The Term A3(N) Advance, the Term M2(N) Advance, the Term B3 Advance and the Term D1 Advance are together referred to as the "Floating Rate Term Advances" and the Fourth Issue Term Advances. The Term A1(R) Advance, the Term A2(R) Advance, the Term M1 Advance, the Term B1 Advance, the Term B2 Advance and the Term C(R) Advance are together referred to as the "Fixed Rate Term Advances". Use of Proceeds of Floating Rate Term Advances The Floating Rate Term Advances will be applied by the Borrower on the Fourth Closing Date as described in the section entitled Use of Proceeds below. Conditions Precedent to Drawdown of Floating Rate Term Facilities It will be a condition precedent to the Issuer making any of the Floating Rate Term Facilities available to the Borrower, if certain conditions are met on the Fourth Closing Date, that the Security Trustee is satisfied, inter alia, in relation to the following: (a) (b) (c) (d) (e) (f) (g) the Fourth Issue Notes have been issued and the subscription proceeds received by or on behalf of the Issuer; delivery has been made of the due diligence reports, written undertakings addressed to the Security Trustee from the Securitisation Group's solicitors (in a form acceptable to the Security Trustee) to hold to the order of the Security Trustee the title deeds to and documents related to the Punch Taverns Mortgaged Properties (as defined in the Amended Master Definitions and Construction Schedule) and the legal opinions addressed to, inter alios, the Security Trustee and the Issuer and delivery has been made to the Issuer of the Valuation Report with confirmation that the Security Trustee and Ambac may have the benefit of the Valuation Report; delivery has been made of solvency certificates from each Obligor; the Relevant Documents have been duly executed by the parties thereto; deeds of release and discharge and, where appropriate, non-crystallisation certificates have been duly executed or provided in respect of all the existing security and any other security affecting or appearing to affect the Punch Taverns Mortgaged Properties or any of them; evidence that various insurance policies remain in place; and all requisite tax clearances have been obtained. Further Term Facilities and New Term Facilities The Issuer/Borrower Facility Agreements provide that the Borrower may also at any time by written notice to the Issuer (with a copy thereof provided to the Security Trustee, the Note Trustee and the Rating Agencies) request a further term facility (a "further Term Facility" and each advance thereunder a "further Term Advance") or a new term facility (a "New Term Facility" and each advance thereunder a "New Term Advance"). A further Term Facility is one which ranks pari passu with an existing Term Facility, and a New Term Facility is one which may rank no higher than the Term A Facilities but which may rank pari passu with the existing Term A Facilities, or after the Term A Facilities but ahead of or pari passu with the Term M Facilities, or after the Term M Facilities but ahead of or pari passu with the Term B Facilities, or after the Term B Facilities but ahead of or pari passu with the Term C(R) Facility, or after the Term C(R) Facility but ahead of or pari passu with or after the Term D1 Facility. Each further Term Facility or New Term Facility will be financed by the 54

55 issue by the Issuer of Additional Notes or New Notes respectively, and will only be permitted if, inter alia, the following conditions precedent are satisfied: (a) (b) (c) (d) Additional Notes or New Notes in an amount corresponding to the further Term Advance(s) or New Term Advance(s) respectively have been issued; the aggregate principal amount of the further Term Facilities and/or New Term Facilities drawn at any one time is for a minimum aggregate principal amount of 5,000,000; the Rating Agencies confirm to the Issuer that: (i) (ii) in respect of a request for a further Term Facility only, the Additional Notes to be issued by the Issuer for the purpose of financing the further Term Facility are assigned the same rating as the then current rating of the class of Notes that originally funded the relevant Term Facility; and the then current rating of the existing Notes (and, for so long as there are Guaranteed Notes outstanding, the Underlying Rating) would not be adversely affected notwithstanding the completion of the proposed issue of Additional Notes and/or New Notes; no Borrower Event of Default or Potential Borrower Event of Default and/or breach of financial covenant (as described below in Summary of the Principal Documents Issuer/Borrower Facility Agreements Financial Covenants) has occurred and is subsisting at the relevant drawdown date or would occur as a result of the further Term Advances or New Term Advances; and (e) (i) to the extent that the further Term Facility and/or New Term Facility is to be used to purchase a Permitted Business, a first fixed charge expressed by way of legal mortgage (or security that is expressed to be by way of legal mortgage, but only takes effect as an equitable mortgage) (or, in Scotland, a standard security or, as appropriate, assignation in security) in respect of such Permitted Business and/or other relevant security interests over any newly acquired Permitted Business will be given in favour of the Security Trustee (for the benefit of all of the Punch Taverns Secured Parties) at the relevant drawdown date, such Permitted Business being thereafter a Punch Taverns Mortgaged Property; or (ii) to the extent that the proceeds of a further Term Facility and/or New Term Facility are not used for the purposes described in (e)(i) above, they will be used: (A) (B) (C) (D) (E) to repay or prepay the principal amount outstanding of any existing Term Facility; for general corporate purposes; for the payment of interest and fees and the prepayment of principal payable under the Borrower Subordinated Loan Agreements and/or any other subordinated loan arrangements between the Borrower and any member of the Punch Group other than a member of the Securitisation Group (an "Excluded Group Entity"); for the payment of dividends to the extent permitted by the Relevant Documents; or for the making of loans to any other Obligor or Excluded Group Entity, provided that, in the case of the circumstances set out in paragraphs (C) to (E), the conditions applicable to Restricted Payments have been satisfied (see Restrictions on Payments outside the Securitisation Group below). The Borrower acknowledges that the aggregate principal amount of any further Term Facility or New Term Facility shall be determined after taking into account the number of Pubs in the Portfolio, at the time such further Term Facility or New Term Facility is requested, which were acquired from Excluded Group Entities on terms that payment of all or part of the purchase price therefor is deferred or otherwise remains outstanding on a subordinated basis. For these purposes: "Permitted Business" means a business or a Pub or other real or heritable property centred around the ownership and/or operation of premises from which hospitality, catering and other incidental services (including accommodation) are to be provided in the United Kingdom, the primary activity of which is that of owning/operating public houses (in all cases, with or without ancillary restaurant facilities, bars or nightclubs); and 55

56 "Pub" means a public house (which for the avoidance of doubt includes a bar or nightclub) in England, Wales or Scotland. Interest The rate of interest payable on the Term Facilities made available or to be made available under the Issuer/Borrower Facility Agreements will be the rate per annum determined (with respect to the corresponding class of Notes) in accordance with Condition 4(d). The interest rate on the Term M2(N) Advances will be subject to a step-up in respect of all Loan Interest Payment Dates from and including the Loan Interest Payment Date falling in July 2014, by an increase in rate equal to the Class M2(N) Step-Up Fee Rate. The interest rate on the Term B3 Advances will be subject to a step-up in respect of all Loan Interest Payment Dates from and including the Loan Interest Payment Date falling in July 2014, by an increase in rate equal to the Class B3 Step-Up Fee Rate. The interest rate on the Term D1 Advances will be subject to a step-up in respect of all Loan Interest Payment Dates from and including the Loan Interest Payment Date falling in July 2014, by an increase in rate equal to the Class D1 Step-Up Fee Rate. See further Condition 4(e) in Terms and Conditions of the Notes below. If, on any Loan Interest Payment Date, the Borrower has insufficient funds to make payments of interest on or principal of the Class M Facilities, the Class B Facilities, the Class C(R) Facility and the Class D1 Facility and/or any Step-Up Amounts, the Borrower's liability to make such payments will be deferred until the next Loan Interest Payment Date and there will be no event of default under the Issuer/Borrower Facility Agreements for failure to make such payments. The Borrower is permitted to set-off any net payment owed to it on any Loan Interest Payment Date (as defined below) by the Issuer under the Issuer/Borrower Swap Agreement against its obligation to pay the floating rate of interest on the Term A3(N) Advance, the Term M2(N) Advance, the Term B3 Advance and the Term D1 Advance on the corresponding Loan Interest Payment Date. See further the section entitled Issuer/Borrower Swap Agreement below. The interest rate payable per annum on any outstanding further Term Advance or New Term Advance will be equal to the sum of: (a) (b) either: (i) the rate of interest (including any margin) payable by the Issuer on the relevant issue of Additional Notes or New Notes (as applicable) made or to be made by the Issuer to fund such further Term Advance or New Term Advance; or (ii) if the Issuer has entered into hedging arrangements in relation to some or all of such Additional Notes or New Notes, the rate of interest (including any margin) calculated on the basis that matches the basis on which payments are to be made by the Issuer to the counterparty under such hedging arrangements; and a rate equal to any step-up fee rate then applicable to the relevant issue of Additional Notes or New Notes (as applicable) made or to be made by the Issuer to fund such further Term Advance or New Term Advance. Under the Issuer/Borrower Facility Agreements, the Borrower agrees to pay by way of a fee (the "Periodic Fee") or otherwise on each relevant interest payment date in respect of the Term Facilities made available under the Issuer/Borrower Facility Agreements (each a "Loan Interest Payment Date") such amounts as are necessary to enable the Issuer to pay or provide for certain amounts falling due to be paid by the Issuer on that date as provided in Issuer Deed of Charge Priority of Payments below including but not limited to fees, costs, charges, liabilities and other amounts due to the Security Trustee and the Note Trustee (and their respective advisers), the Paying Agent, the Liquidity Facility Providers and the Hedge Providers together with an amount which will result in the Issuer retaining a small profit. Repayment Scheduled Repayment Amounts: Each of the Floating Rate Term Facilities and each of the Fixed Rate Term Facilities will be repayable by instalments (each a "Scheduled Repayment Amount") on each Loan Interest Payment Date in an amount equal to the redemption amounts specified for the corresponding class of Floating Rate Notes or Fixed Rate Notes (each, a "Scheduled Amortisation Amount") set out opposite the Interest Payment Date next following the relevant Loan Interest Payment Date in the columns headed Scheduled Amortisation Amount in Condition 5(b) (see Terms and Conditions of the Notes 5. Redemption, Puchase and Cancellation). The final Scheduled Repayment Amount (subject to such amounts not having been prepaid prior to that date as described below) therefore will be the instalment due in respect of the Term D1 Facility in October

57 Mandatory prepayment from disposal proceeds: The Borrower is obliged to use the net sale proceeds arising from a Permitted Disposal (the "relevant Net Sale Proceeds") to prepay the Term Advances in each of the following circumstances: (a) (b) if prepayment of advances is required under the Issuer/Borrower Facility Agreements; or to the extent that the relevant Net Sale Proceeds remain credited to the Disposal Proceeds Account 18 months after the sale of the Pub which gave rise to the relevant Net Sale Proceeds, in each case such prepayment being made on the Loan Interest Payment Date immediately following the date upon which the relevant Net Sale Proceeds become required to be applied in accordance with the above in prepayment of the Term Advances as follows: (i) (ii) first, in prepayment of the Floating Rate Term Advances in their respective order of priority; and second, in prepayment of the Fixed Rate Term Advances in their respective order of priority. In addition, if on any Financial Quarter Date the Debt Service Cover Ratio is less than or equal to 1.35:1, then any amounts by which the aggregate amount standing to the credit of the Disposal Proceeds Account exceeds 10,000,000 shall be applied on the next Loan Interest Payment Date to prepay the Term Advances. If, at the end of the two Financial Quarters immediately following such Financial Quarter Date, the Debt Service Cover Ratio is less than 1.35:1 any amounts by which the aggregate amount standing to the credit of the Disposal Proceeds Account exceeds 5,000,000 at the end of such period of two Financial Quarters shall be used to prepay the Term Advances, in each case in accordance with the order of priorities set out in (i) and (ii) above. Optional Prepayment: The Borrower is entitled to prepay, in whole or in part, any of the Term Facilities. Prepayment shall be in the following amounts but, for the avoidance of doubt, not necessarily in the following order and otherwise subject to and in accordance with the following: (i) (ii) in respect of the Floating Rate Term Facilities prepayments will be at par; and in respect of each Fixed Rate Term Facility prepayments will be at an amount equal to the higher of par and the amount calculated in accordance with the formula set out in Condition 5(d)(iii)(B) (spens formula) in respect of the class of Notes corresponding to the relevant Fixed Rate Term Facility (see Terms and Conditions of the Notes below), together, in each case, with all accrued but unpaid interest on the relevant Term Facility up to (but excluding) the date of prepayment in respect of such amount prepaid. All prepayments will be used by the Issuer to redeem in whole or in part the relevant class of Notes which funded the relevant Term Facility. Any amounts prepaid in respect of the Term Facilities will not be permitted to be re-drawn or reborrowed by the Borrower. Purchase of Notes The Borrower (but no other member of the Securitisation Group) may, subject to the provisions of the Issuer/Borrower Facility Agreements, purchase Notes. There is no restriction on the class (or order in which any class) of Notes may be so purchased. Any Notes so purchased (if not otherwise disposed of to a third party outside the Punch Group within two weeks of the purchase) will be offered for cancellation to the Issuer for surrender against full discharge and satisfaction of an amount of the relevant Term Facility equal to the aggregate Principal Amount Outstanding of the Notes and any unpaid accrued interest thereon. Representations and Warranties No independent investigation with respect to the matters warranted in the Issuer/Borrower Facility Agreements will be made by the Issuer or the Security Trustee, other than a search on the Fourth Closing Date against each Obligor in the relevant file held by the Registrar of Companies and at the Companies Court in respect of winding-up petitions and, where applicable, in the Register of Inhibitions and Adjudications in Scotland. In relation to such matters, the Issuer and the Security Trustee will, save as previously disclosed, rely entirely on the representations and warranties given by each Obligor. These include warranties, which may be limited by a materiality and/or knowledge qualification in certain circumstances (in particular as only certain properties have been reported on), as to the following and other matters: (a) due incorporation; 57

58 (b) all necessary governmental and other consents, approvals, licences and authorisations necessary to carry on its business; (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) no litigation, arbitration, administrative proceedings, or governmental or regulatory investigations, proceedings or disputes have been commenced or threatened against any Obligor or any of its respective assets or revenues; no Encumbrances (as defined in the Amended Master Definitions and Construction Schedule) exist over all or any of its present or future revenues, undertakings or assets other than certain permitted Encumbrances save as revealed in the due diligence reports in relation to property matters to be delivered to the Security Trustee on or before the Fourth Closing Date (the "Property Due Diligence Reports"); no Borrower Event of Default or Potential Borrower Event of Default has occurred and is subsisting; each security document to which it is a party creates the security interest which that security document purports to create and the claims of the Punch Taverns Secured Parties against it will rank at least pari passu with the claims of all its other unsecured creditors save those whose claims are preferred solely by any bankruptcy, insolvency, liquidation or other similar laws of general application; save to the extent disposed of as a Permitted Disposal or as otherwise permitted by the Relevant Documents or as revealed in the Property Due Diligence Reports or where legal ownership remains vested in one of the Charging Companies, it is the absolute legal and beneficial owner of, and has a good and marketable title in its own name to, its interest in all of the Punch Taverns Mortgaged Properties in respect of which it purports to create security under the Punch Taverns Deeds of Charge; it is not aware of any event or circumstance which would require any adverse change to any Property Due Diligence Report if it were to be reissued at the Fourth Closing Date; each of the Pubs in the Estate have liquor licences in full force and effect; each of the Material Contracts (as defined in the Master Definitions and Construction Schedule) is in full force and effect and constitutes a legal, valid and binding obligation of the parties thereto and is enforceable in accordance with its terms (subject to rights of creditors generally, to equitable principles of general application, the time barring of claims and to the laws of insolvency); each insurance policy is in full force and effect and there are no outstanding claims under any such insurance policy which are not expected to be covered by insurance; buildings insurance is maintained in respect of each Punch Taverns Mortgaged Property in an amount at least equal to or not materially less than the aggregate full replacement cost as determined in accordance with the commercial property market generally of the relevant Punch Taverns Mortgaged Property; (m) as at the Fourth Closing Date, not less than 93 per cent. of the lease agreements are substantially in the form of the standard agreements and have not been varied in any material way since their grant (other than with the consent of the Security Trustee or as permitted by the Relevant Documents); (n) (o) the acquisition of Pubs by the Borrower from PGRP, Branston and the Avebury Sub-Group as described in this Offering Circular were each effected in accordance with all applicable laws and the memoranda and articles of association of each Securitisation Group Entity; it has not received written notification from any competition authority regarding the validity of the Tie Arrangements in any lease agreement, nor is it currently a party to, or in receipt of written notification from any party regarding the intention of any such party to commence proceedings under any applicable competition law to challenge the validity of the Tie Arrangements; and (p) the number of pubs comprising the Portfolio as at the Fourth Closing Date is 4,037. For these purposes "Tie Arrangements" means the arrangements whereby a tenant is obliged to purchase alcoholic and non-alcoholic beverages and other products pursuant to a lease agreement. Certain of the representations and warranties will also be repeated on the date on which any advance under a further Term Facility or New Term Facility is made, and on each Loan Interest Payment Date, 58

59 by reference to the facts and circumstances then existing and subject, in certain cases, to their being limited by reference to a materiality and/or knowledge qualification. Financial Information The Borrower is required to deliver to, inter alios, the Security Trustee, the Principal Paying Agent, the Note Trustee and (prior to the occurrence of an Ambac Termination Event) Ambac: (a) (b) (c) the audited annual financial statements and related auditor's reports for the Borrower (where such statutory accounts are required to be produced by law) and the audited consolidated financial statements (including balance sheet, profit and loss and cashflow statements) and related auditor's reports of the Securitisation Group for such Financial Year in each case as soon as the same become available but in any event within 120 days after the end of each of its Financial Years; the unaudited semi-annual financial statements for the Borrower as soon as the same become available, but in any event within 120 days after the end of the second Financial Quarter of each of its Financial Years; and the unaudited semi-annual financial statements for the Securitisation Group as soon as the same become available, but in any event within 120 days after the end of the second Financial Quarter of each of its Financial Years. In addition, the Borrower shall produce an investor report (the "Investor Report") setting out, inter alia: (i) (ii) (iii) the consolidated net assets of the Securitisation Group as at the end of the relevant Financial Quarter; the EBITDA, Debt Service, Debt Service Cover Ratio, Excess Cash and Free Cash Flow; whether or not a Borrower Event of Default or Potential Borrower Event of Default has occurred and if it has occurred a description thereof and the action taken or proposed to be taken to remedy it; (iv) whether or not the financial covenants (as described in Summary of Principal Documents Issuer/Borrower Facility Agreements Financial Covenants below) have, when tested at the end of the Financial Quarter, been observed and supported by reasonably detailed calculations; (v) (vi) the amount of CapEx expended in the Financial Quarter to which the Investor Report relates; and whether the Restricted Payments Conditions were satisfied in respect of the Financial Quarter to which the Investor Report relates and the Permitted Restricted Payments made during such Financial Quarter, relating to each of the first and second Financial Quarters of each Financial Year which shall be published on Bloomberg (or such other electronic news services as may be approved by the Note Trustee) within five days of the date of publication of the unaudited half yearly financial statements of Punch and the Borrower shall procure that an Investor Report containing such above information relating to each of the third and fourth Financial Quarters of each Financial Year shall be published on Bloomberg (or such other electronic news services as may be approved by the Note Trustee) within five days of the date of publication of the audited annual financial statements of Punch. For these purposes "CapEx" means capital expenditure in the repair, renewal and maintenance of the internal and external fabric of the Punch Taverns Mortgaged Properties and their fixtures and fittings (excluding for the avoidance of doubt exceptional items) and/or any enhancements to or improvements in value of any Punch Taverns Mortgaged Properties. In addition, the Borrower shall, as soon as reasonably practicable, after the same is supplied or made available, furnish the Security Trustee with such general information as is filed or required to be filed with the Registrar of Companies or to be made generally available through the relevant companies announcement office of any internationally recognised stock exchange in respect of any Obligor, in each case, as the Finance Director of the Borrower, acting in good faith, considers material to the interests of the Punch Taverns Secured Parties and the Security Trustee. Financial Covenants Under the terms of the Issuer/Borrower Facility Agreements, each of the members of the Securitisation Group has agreed to conduct its future operations and business subject to a debt 59

60 service cover ratio covenant (the "DSCR Covenant") and a net worth covenant (the "Net Worth Covenant"). These covenants will provide as follows: (a) (b) DSCR Covenant: The ratio of EBITDA to Debt Service (the "Debt Service Cover Ratio") calculated as at each Financial Quarter Date both (i) in respect of the period of two consecutive Financial Quarters ended on such Financial Quarter Date and (ii) in respect of the Relevant Period ended on such Financial Quarter Date shall be not less than 1.25:1. Certificates of compliance with the Debt Service Cover Ratio Covenant will be provided within 45 days after the end of the relevant Financial Quarter; and Net Worth Covenant: Net Worth will not at any time be less than 200 million. The Debt Service Cover Ratio will be tested after each Financial Quarter by reference to (i) the unaudited consolidated financial statements of the Securitisation Group to be delivered by the Borrower to, inter alios, the Security Trustee within 45 days after the end of each Financial Quarter and (ii) by reference to the audited consolidated financial statements of the Securitisation Group to be delivered by the Borrower to, inter alios, the Security Trustee within 120 days after the end of each of its Financial Years. The Net Worth is to be tested annually, commencing with the Financial Year ending 21 August 2004, by reference to the most recent audited consolidated financial statements of the Securitisation Group subject to any necessary adjustment on a continuing basis as demonstrated by the financial statements delivered pursuant to the Issuer/Borrower Facility Agreements. As set out in Summary of Principal Documents Financial Advisory Services Agreement below, the Security Trustee may request the Financial Adviser to verify the calculations of the Borrower required in relation to the financial covenants described above. For these purposes: "Accounting Principles" means the accounting principles, standards, conventions and practices, from time to time and at any time generally accepted in the United Kingdom and which implement the requirements of the Companies Act 1985 (as amended by the Companies Act 1989) and of any other legislation or regulation, compliance with which is required by law in connection with the preparation of accounts by companies incorporated with limited liability, or compliance with which is generally adopted and practised by such companies in the United Kingdom in effect from time to time and consistently applied; "Debt Service" means, in respect of any Relevant Period, Financial Quarter, Free Cash Flow Test Period or any other period, the aggregate of all Interest Charges and principal repayments which fell due, or which have fallen due, to be paid by any Securitisation Group Entity (other than the Issuer) (but which, for the avoidance of doubt, shall not include amounts prepaid in respect of the Term Facilities), during such Relevant Period, Financial Quarter or Free Cash Flow Test Period or other period (as the case may be) pursuant to the Issuer/Borrower Facility Agreements and/or the Punch Taverns Deeds of Charge; "EBITDA" means, for any Relevant Period, Financial Quarter or Free Cash Flow Test Period as the case may be, the consolidated earnings of the Securitisation Group calculated in accordance with the Accounting Principles during such period before the deduction of: (a) (b) (c) taxation; any Interest Charges; any amount attributable to amortisation of goodwill or other intangible assets and any deduction for depreciation; and after adjusting to exclude items referred to in (i) to (vi) below: (i) (ii) (iii) (iv) (v) fair value adjustments and other non-cash provisions; items treated as extraordinary or non-operating exceptional items, as determined by reference to Financial Reporting Standard 3 or any replacement accounting standard thereof; any dividends declared and payable by any Securitisation Group Entity to any person who is not a Securitisation Group Entity; earnings in respect of any minority interests; any losses or gains arising from a sale of any Punch Taverns Mortgaged Property; and 60

61 (vi) any amount attributable to the writing up or writing down of any assets of any Securitisation Group Entity after the Third Closing Date, or, in the case of a company becoming a subsidiary after the Third Closing Date, after the date of it becoming a subsidiary; "Financial Indebtedness" means in relation to any Obligor at any time any indebtedness incurred (other than between Obligors) in respect of: (a) (b) (c) (d) (e) (f) (g) (h) (i) the principal amount, and the capitalised element (if any), of money borrowed or raised and debit balances at banks and premiums, if any, and capitalised interest in respect thereof; the principal, premiums (if any) and capitalised interest (or the issue price thereof if issued at a discount) in respect of any debenture, bond note, loan stock or similar debt instrument; liabilities in respect of any letter of credit, standby letter of credit, acceptance credit, bill discounting or note purchase facility and any receivables purchase, factoring or discounting arrangements (save to the extent there is no recourse to such Obligor in respect thereof); rental or hire payments under any finance lease and hire purchase agreement; the deferred purchase price of assets or services save for any such arrangement entered into in the ordinary course of trading and having a term not exceeding six months from the date on which the liability was originally incurred; liabilities in respect of any foreign exchange agreement, currency swap or interest purchase or swap or other derivative transactions or similar arrangements (other than the Issuer/Borrower Swap Agreement) provided that where under any applicable law, the parties to any such agreement, swap, transaction or arrangement are entitled to net off their respective liabilities to each other under that or any other agreement, swap, transaction or arrangement, the amount of Financial Indebtedness of the relevant member of the Securitisation Group shall be the net exposure to the relevant counterparty of the relevant member of the Securitisation Group under all such agreements, swaps, transactions or arrangements with such counterparty as the relevant member of the Securitisation Group is entitled under the applicable law to net off against each other (being the net amount payable by such party on termination or closing out of all such arrangements determined on a mark to market basis); all obligations to purchase, redeem, retire, decrease or otherwise acquire for value any share capital of any person or any warrants, rights or options to acquire such share capital pursuant to transactions which in each such case have the commercial effect of borrowing or which otherwise finance its or the Securitisation Group's operations or capital requirements; any other transaction having the commercial effect of borrowing entered into by such Obligor (including sale and leaseback transactions); and all Financial Indebtedness of other persons (other than Obligors) of the kinds referred to in paragraphs (a) to (h) above guaranteed or indemnified directly or indirectly in any manner by such Obligor or having the commercial effect of being guaranteed or indemnified directly or indirectly by such Obligor or any other form of financial assurance; "Financial Quarter" means the period beginning on (and including) the Third Closing Date and ending on (and including) 13 December 2003 and thereafter each period beginning on (but excluding) a Financial Quarter Date and ending on (and including) the next Financial Quarter Date; "Financial Quarter Date" means, in respect of the financial year current at the time of the Third Closing Date, 13 December 2003, 6 March 2004, 29 May 2004 and 21 August 2004 and, thereafter, the date on which the quarterly accounting period of the Borrower ends, being: (a) (b) (c) (d) for the first Financial Quarter, the date which is 16 weeks after the fourth Financial Quarter Date in the immediately preceding Financial Year; for the second Financial Quarter, the date which is 12 weeks after the previous Financial Quarter Date; for the third Financial Quarter, the date which is 12 weeks after the previous Financial Quarter Date; and for the fourth Financial Quarter, the date which is 12 weeks, or, in the case of 53 week Financial Year, 13 weeks after the previous Financial Quarter Date; 61

62 "Financial Year" means the 52 week or 53 week (as the case may be) period ending on the Financial Quarter Date falling in August of each year, being, in respect of the Financial Year in which the Third Closing Date falls, the 52 week period ending on (and including) 21 August 2004; "Interest Charges" means, in respect of any Relevant Period, Financial Quarter, Free Cash Flow Test Period or other period, the aggregate amount of interest which was payable during such period by any Securitisation Group Entity in respect of Financial Indebtedness (including any guarantee fees and any other commitment, fronting and similar fees in respect thereof, amounts in the nature of interest, discount charges and the interest element of rental under finance leases) plus (without double counting): (a) (b) (c) any amounts paid or payable under interest rate hedge arrangements (having set-off or netted off all amounts paid to any Securitisation Group Entity thereunder and provided that if, after such set-off or netting an amount was paid to such Securitisation Group Entity such amount will be deducted from the calculation of Interest Charges) during the relevant period; any amounts of guarantee fee paid or payable by the Issuer and/or the Borrower during the relevant period to Ambac under the Guarantee and Reimbursement Agreements in respect of the provision of the Financial Guarantees; and any amounts in respect of commitment fees or interest accrued on any Liquidity Facility Drawing or Liquidity Facility Stand-by Drawing paid or payable by the Issuer to the Liquidity Facility Providers under the Liquidity Facility Agreement during the relevant period, less any interest earned by any Securitisation Group Entity on any of its accounts during such period and excluding: (a) (b) any amounts payable (A) to any other Securitisation Group Entity (except the Issuer) and (B) any interest paid or payable out of or by way of Permitted Restricted Payments during the relevant period; and amounts payable by the Borrower from Excess Cash as permitted by the Issuer/Borrower Facility Agreements during the relevant period, in respect of any tax liability of the relevant lender resulting from and in respect of the Borrower Subordinated Loans; "Net Worth" means, in each case calculated on a consolidated basis at the end of Securitisation Group's Financial Year, the sum of: (a) (b) (c) the carrying value of the Securitisation Group's net assets as shown in the net asset statement delivered pursuant to each Issuer/Borrower Facility Agreement; the outstanding principal amount of the Borrower Subordinated Loans (including all accumulated or capitalised interest thereon); and any fully subordinated Financial Indebtedness of any Securitisation Group Entity provided that, by its terms, any and all amounts due and payable thereunder are serviced out of Permitted Restricted Payments; "Relevant Period" means the period of four Financial Quarters (or prior to the fourth Financial Quarter Date following the Third Closing Date such number of full Financial Quarters since the Third Closing Date) ending on the date in respect of which the relevant calculation falls to be made; and "Sinking Fund Account" means an account of the Borrower to be opened in accordance with the provisions of the Issuer/Borrower Facility Agreements if the aggregate of all Scheduled Repayment Amounts due and payable by the Borrower in accordance with the Issuer/Borrower Facility Agreements on the Loan Interest Payment Date falling in July 2026 is less than the aggregate of all Scheduled Repayment Amounts due and payable by the Borrower in accordance with the Issuer/Borrower Facility Agreements on the Loan Interest Payment Date falling in April 2026 (the "Sinking Fund Condition"). Restrictions on Payments outside the Securitisation Group Save as described below in Restrictions on Activities, the making of distributions and/or loans by Obligors to third parties or Excluded Group Entities (except as otherwise permitted by the Relevant Documents) and/or payments or prepayments under any subordinated debt out of cash within the Securitisation Group ("Restricted Payments") are restricted save as set out below: (a) Prior to the security under the Punch Taverns Deeds of Charge becoming enforceable the Obligors will be permitted to make Restricted Payments (ignoring, for these purposes, the Restricted Payments to be made as described in paragraph (b) below) (each such amount 62

63 (b) being a "relevant amount") on any date during a Free Cash Flow Test Period. Restricted Payment Excess Cash in respect of such Free Cash Flow Test Period may be used (such date being a "Restricted Payment Date") by a Securitisation Group Entity to make Restricted Payments for so long as and to the extent that the following conditions are satisfied (the "Restricted Payment Conditions"): (i) no Borrower Event of Default or Potential Borrower Event of Default has occurred and is subsisting or would occur as a result of such Restricted Payment being made; (ii) the ratio of (1) EBITDA less any CT Payments paid during the appropriate period to (2) the aggregate of Debt Service and any amount payable during the appropriate period by the Borrower into the Sinking Fund Account in accordance with the Issuer/Borrower Facility Agreements (the "Sinking Fund Amounts") in each case calculated as at the immediately preceding Financial Quarter Date, both (A) in respect of the Financial Quarter ended on such Financial Quarter Date and (B) in respect of the Relevant Period ended on such Financial Quarter Date, was greater than 1.5:1; (iii) (iv) (v) the balance standing to the credit of the Controlled Cash Account is equal to or greater than 15,000,000 and the payment would not result in the balance standing to the credit of the Controlled Cash Account being less than 15,000,000; the payment would not result in the amount equal to the balance standing to the credit of the Collection Account less (i) an amount equal to the then debit balance of the Operating Account and (ii) an amount equal to the aggregate of amounts estimated by the Borrower to be payable in the ordinary course of business by the Securitisation Group Entities during the period commencing on (and including) the Restricted Payment Date and ending on (and including) the immediately following Loan Interest Payment Date less the aggregate of amounts estimated by the Borrower to be receivable in the ordinary course of business by the Securitisation Group Entities during such period, being less than zero; and the amount of the Restricted Payment when made does not exceed the then Available Excess Cash Amount, any payment made in accordance with the above and any payment permitted under paragraph (b) below being a "Permitted Restricted Payment". Notwithstanding paragraph (a) above, the following Restricted Payments may be made on any day from Excess Cash: (i) (ii) a payment by the relevant Obligor of an amount equal to an amount of tax due and payable on the accrual of interest, or that would have been due and payable but for relief claimed under Chapter IV of Part X of the Income and Corporation Taxes Act 1988 by the recipient of such interest on the Borrower Subordinated Loans; a payment by the Borrower in amounts in total equal to payments under certain indemnities given by the Borrower to VPR, Fradley, CMG, PGRP, Branston, APL278 and APL35 in connection with the acquisition by the Borrower of the businesses of such companies (the "Hive-Down Indemnities"); or (iii) a payment to any Excluded Group Entity in consideration for the surrender of any amounts which are available for surrender by that Excluded Group Entity by way of group relief subject to and in accordance with the applicable provisions of the Tax Deed of Covenant, provided that, in each case, any such payment when made does not exceed the then Available Excess Cash Amount. Any or all of the foregoing restrictions/provisions may be modified or disapplied at the request of the Borrower at any time, for so long as the Security Trustee determines that the interests of the Issuer Secured Creditors, including the Noteholders, will not be materially prejudiced as a result of the modification or disapplication and (prior to the occurrence of an Ambac Termination Event) the consent of Ambac is obtained. Where the Rating Agencies have given a Rating Confirmation, the Security Trustee, in considering whether such action is materially prejudicial to the interests of the Issuer Secured Creditors, shall (and in relation to any Rating Confirmation by Fitch only, where the Security Trustee considers that such Rating Confirmation is an appropriate test or the only appropriate test to apply in that circumstance) be entitled to take into account such Rating Confirmation provided that the Security Trustee shall continue to be responsible for taking into account, for the purpose of the 63

64 No Material Prejudice Test, all other matters which would be relevant to such No Material Prejudice Test. For these purposes: "Available Excess Cash Amount" means at any time during a Free Cash Flow Test Period an amount equal to Excess Cash calculated for such Free Cash Flow Test Period less the aggregate of all amounts of Excess Cash previously applied by Securitisation Group Entities during such Free Cash Flow Test Period in accordance with the Issuer/Borrower Facility Agreements; "Cash Flow Test Date" means 6 March 2004, 21 August 2004 and thereafter the Financial Quarter Date falling at the end of the fourth Financial Quarter of each Financial Year; "CT Payment" means a payment from the Borrower to Punch Taverns (PPCS) Limited in an amount equal to amounts due from Punch Taverns (PPCS) Limited to Carlsberg Tetley by way of compensation payments under a compensation agreement entered into between Punch Taverns (PPCS) Limited and Carlsberg Tetley; "Excess Cash" means as at any Cash Flow Test Date (the "Relevant Cash Flow Test Date") and in respect of the Free Cash Flow Test Period commencing on the Relevant Cash Flow Test Date, the aggregate of: (a) (b) the amount calculated as being the amount which when deducted from Free Cash Flow in respect of the Free Cash Flow Test Period immediately preceding the Relevant Cash Flow Test Date would result in the ratio of (i) Free Cash Flow for such immediately preceding Free Cash Flow Test Period less such amount to (ii) the aggregate of Debt Service and the Sinking Fund Amounts (calculated in respect of the Free Cash Flow Test Period immediately preceding the Relevant Cash Flow Test Date) being equal to: (A) if the balance standing to the credit of the Controlled Cash Account is equal to or greater than 20,000,000, 1.0:1; or (B) if the balance standing to the credit of the Controlled Cash Account is less than 20,000,000, 1.1:1, (such amount being referred to herein as "Current Period Excess Cash"); and (1) if the ratio of EBITDA to the aggregate of Debt Service and any Sinking Fund Amounts calculated as at the Relevant Cash Flow Test Date and each of the three immediately preceding Cash Flow Test Dates (subject to appropriate adjustment in respect of the Cash Flow Test Dates falling prior to the Cash Flow Test Date in August 2005) both in respect of the two consecutive Financial Quarters ended on such Cash Flow Test Dates and in respect of each Relevant Period ended on such Cash Flow Test Dates is or has been, greater than 1.50:1, an amount equal to (A B) and (2) at all other times an amount equal to: (A B) 3 in each case where: A is the cumulative total of all amounts of Current Period Excess Cash calculated for each Free Cash Flow Test Period in the period between the Third Closing Date and the Cash Flow Test Date immediately preceding the Relevant Cash Flow Test Date; and B is the aggregate of all amounts of Excess Cash applied in accordance with the Issuer/Borrower Facility Agreements during the period commencing on (and including) the Third Closing Date and ending on (but excluding) the Relevant Cash Flow Test Date, provided that in respect of the first Free Cash Flow Test Period only, Excess Cash will be a deemed amount agreed with the Rating Agencies; "Free Cash Flow" means in respect of any Free Cash Flow Test Period, EBITDA calculated in respect of such Free Cash Flow Test Period less the aggregate of (i) all provisions released during such Free Cash Flow Test Period, (ii) the Minimum Maintenance CapEx Amount (to the extent not already deducted in calculating EBITDA), (iii) amounts equal to CT Payments payable during such Free Cash Flow Test Period, (iv) any net taxes payable in such Free Cash Flow Test Period (excluding any deferred tax) but plus any provisions charged during such Free Cash Flow Test Period; 64

65 "Free Cash Flow Test Period" means the period commencing on (and including) the Third Closing Date and ending on (but excluding) 6 March 2004 and thereafter each period commencing on (and including) a Cash Flow Test Date and ending on (but excluding) the next following Cash Flow Test Date; "Restricted Payment Excess Cash" means, as at the Relevant Cash Flow Test Date and in respect of the Free Cash Flow Test Period commencing on the Relevant Cash Flow Test Date, the aggregate of: (a) (b) the amount calculated as being the amount which when deducted from Free Cash Flow in respect of the Free Cash Flow Test Period immediately preceding the Relevant Cash Flow Test Date would result in the ratio of (i) Free Cash Flow for such immediately preceding Free Cash Flow Test Period less such amount to (ii) Debt Service (calculated in respect of the Free Cash Flow Test Period immediately preceding the Relevant Cash Flow Test Date) being equal to 1.1:1, (such amount being referred to herein as "Current Period Restricted Payment Excess Cash"); and (1) if the ratio of EBITDA to the aggregate of Debt Service and any Sinking Fund Amounts calculated as at the Relevant Cash Flow Test Date and each of the three immediately preceding Cash Flow Test Dates (subject to appropriate adjustment in respect of the Cash Flow Test Dates falling prior to the Cash Flow Test Date in August 2005) both in respect of the two consecutive Financial Quarters ended on each such Cash Flow Test Date and in respect of each Relevant Period ended on each such Cash Flow Test Dates is or has been, greater than 1.50:1, an amount equal to (A B) and (2) at all other times an amount equal to the greater of zero and: (A B) 3 in each case where: A is the cumulative total of all amounts of Current Period Restricted Payment Excess Cash calculated for each Free Cash Flow Test Period in the period between the Third Closing Date and the Cash Flow Test Date immediately preceding the Relevant Cash Flow Test Date; and B is the aggregate of all amounts of Excess Cash applied in accordance with the Issuer/Borrower Facility Agreements during the period commencing on (and including) the Third Closing Date and ending on (but excluding) the Relevant Cash Flow Test Date, provided that in respect of the first Free Cash Flow Test Period only, Restricted Payment Excess Cash will be a deemed amount agreed with the Rating Agencies. Capital Expenditure/Permitted Acquisitions/Permitted Disposals Capital Expenditure The Issuer/Borrower Facility Agreements permit the Borrower to make capital expenditures on any date during a Free Cash Flow Test Period out of Excess Cash (the "CapEx Amount") calculated in respect of such Free Cash Flow Test Period provided that any CapEx Amount so expended does not exceed the then Available Excess Cash Amount. The Borrower shall expend in each Financial Year the Minimum Maintenance CapEx Amount in respect of the Pubs forming part of the Estate and at the end of each Financial Year, pay any Maintenance CapEx Shortfall in respect of such Financial Year into a designated account of the Borrower (the "Maintenance CapEx Account") in accordance with the Punch Taverns Deeds of Charge and the Issuer/Borrower Facility Agreements and such amount is to be used first on CapEx which should have been made in such preceding Financial Year before the then current Financial Year's Minimum Maintenance CapEx Amount must be spent. For the avoidance of doubt, the Minimum Maintenance CapEx Amount in a Financial Year that the Borrower is required to spend in that Financial Year shall not be reduced by the amount standing to the credit of the Maintenance CapEx Account. For these purposes: "Minimum Maintenance CapEx Amount" means in respect of each Financial Year an amount in total equal to 1,000 adjusted upwards at the start of each Financial Year in accordance with the percentage increase in the UK retail prices index since the start of the last Financial Year multiplied by the total number of Pubs forming part of the Estate at the start of such Financial Year; and 65

66 "Maintenance CapEx Shortfall" in respect of a Financial Year means such portion (if any) of the Minimum Maintenance CapEx Amount in respect of such Financial Year as is neither expended on CapEx during such Financial Year nor credited to the Maintenance CapEx Account at the end of such Financial Year. The Borrower will only be permitted to apply amounts standing to the credit of the Disposal Proceeds Account in respect of CapEx Amounts if the weighted average return on the Financial Quarter Date immediately preceding the date upon which such CapEx Amounts are to be expended (the "Weighted Average Return") on all CapEx Amounts spent on all trading Pubs during the 24 months preceding the relevant Financial Quarter (each such period being the "WAR Period") is at least 12 per cent. The Borrower will certify the Weighted Average Return for each WAR Period and the CapEx Amounts expended in respect of each Financial Quarter in a certificate provided to the Security Trustee within 45 days of the end of each such Financial Quarter. If the Weighted Average Return falls below 12 per cent., no amounts standing to the credit of the Disposal Proceeds Account shall be expended in respect of CapEx by the Borrower, until such time as either (i) the Weighted Average Return over a WAR Period is equal to or in excess of 12 per cent. or (ii) the Rating Agencies confirm that their then current ratings of the Notes and (if there are any Guaranteed Notes outstanding, the Underlying Rating) would not be adversely affected and Ambac approve the recommencement of expenditure of amounts standing to the credit of the Disposal Proceeds Account in each Financial Year in respect of CapEx. The Weighted Average Return is calculated as follows: A B C where: A is the unaudited Annualised Contribution (as defined in the Amended Master Definitions and Construction Schedule) of the trading Pubs on which CapEx Amounts have been expended during the relevant WAR Period (the "Relevant Pubs"); B is the unaudited Outlet EBITDA, calculated in respect of the 13 four-week periods ended prior to the date of commencement of the works in respect of which such CapEx Amounts have been expended, of the Relevant Pubs; and C is the aggregate of all CapEx Amounts actually expended by the Borrower during the relevant WAR Period on the Relevant Pubs. The Minimum Maintenance CapEx Amount may be modified at the request of the Borrower at any time provided that the Security Trustee determines that the Noteholders will not be materially prejudiced by such increase or decrease and (prior to the occurrence of an Ambac Termination Event) the consent of Ambac is obtained. Where the Rating Agencies have given a Rating Confirmation, the Security Trustee, in considering whether such action is materially prejudicial to the interests of the Issuer Secured Creditors, shall (and in relation to any Rating Confirmation by Fitch only, where the Security Trustee considers that such Rating Confirmation is an appropriate test or the only appropriate test to apply in that circumstance) be entitled to take into account such Rating Confirmation provided that the Security Trustee shall continue to be responsible for taking into account, for the purpose of the No Material Prejudice Test, all other matters which would be relevant to such No Material Prejudice Test. Permitted Disposals Pursuant to the terms of the Issuer/Borrower Facility Agreements, the Borrower undertakes in favour of the Security Trustee not to complete the disposal of any Punch Taverns Mortgaged Property or any of its other assets or undertakings without the prior written consent of the Security Trustee. The consent of the Security Trustee will not be unreasonably withheld or delayed if no Borrower Event of Default or Potential Borrower Event of Default has occurred and is subsisting at the time of the relevant disposal and the applicable following conditions are satisfied in respect of Punch Taverns Mortgaged Properties ("Permitted Disposals"): (a) the Outlet EBITDA of the Pub proposed to be disposed of calculated in respect of the Relevant Period ending on the Financial Quarter Date immediately preceding the date of completion of the proposed disposal (the "Proposed Disposal Date"), when aggregated with the Outlet EBITDA of all Pubs disposed of by the Borrower during the Financial Year in which the Proposed Disposal Date falls calculated for each such Pub in respect of the Relevant Period 66

67 (b) (c) (d) ending on the Financial Quarter Date immediately preceding the date of disposal of such Pub, does not exceed 7.5 per cent. (or such other percentage level as may be agreed between the Borrower, the Rating Agencies and (prior to the occurrence of an Ambac Termination Event) Ambac and notified in writing to the Security Trustee) of: (A) (B) in respect of any disposal proposed to be made during the period commencing on the Fourth Closing Date and ending on (and including) 18 August 2007, 283,849,068 (the "Closing Outlet EBITDA"); and in respect of any disposal proposed to be made after 18 August 2007, the total Outlet EBITDA for the Financial Year immediately preceding the Financial Year in which the Proposed Disposal Date falls calculated in respect of all Pubs forming part of the Estate during such Financial Year; and the Outlet EBITDA of the Pub proposed to be disposed of calculated in respect of the Relevant Period ending on the Financial Quarter Date immediately preceding the Proposed Disposal Date, when aggregated with the Outlet EBITDA of all Pubs disposed of by the Borrower since the Fourth Closing Date calculated for each such Pub in respect of the Relevant Period ending on the Financial Quarter Date immediately preceding the date of disposal of such Pub, does not exceed 25 per cent. (or such other percentage level as may be agreed between the Borrower, the Rating Agencies and (prior to the occurrence of an Ambac Termination Event) Ambac and notified in writing to the Security Trustee) of: (A) (B) in respect of any disposal proposed to be made during the period commencing on the Fourth Closing Date and ending on (and including) 18 August 2007, the Closing Outlet EBITDA; and in respect of any disposal proposed to be made after 18 August 2007, the total Outlet EBITDA for the Financial Year last ended prior to the Proposed Disposal Date calculated in respect of all Pubs forming part of the Estate during such Financial Year; the Net Pub Sales Proceeds are deposited in the Disposal Proceeds Account; and the Borrower takes all reasonable steps necessary to obtain the best price reasonably obtainable for any Pub disposed of having regard to the prevailing market conditions and all relevant circumstances in relation to such Pub which may affect such price. The consent of the Security Trustee will also not be unreasonably withheld or delayed in respect of a disposal of any amount of Pubs in excess of the conditions in (a) and (b) above if no Borrower Event of Default or Potential Borrower Event of Default has occurred and is subsisting at the time of the relevant disposal and the Security Trustee is satisfied that (i) the Net Pub Sale Proceeds will be in an amount sufficient to repay or defease (A) the same proportion of the principal amount outstanding of the Notes as the Outlet EBITDA of that part of the Estate so sold calculated in respect of the Relevant Period ending on the immediately preceding Financial Quarter Date bears to the aggregate Outlet EBITDA of all Pubs forming part of the Estate during such Relevant Period calculated in respect of the Relevant Period ending on the immediately preceding Financial Quarter Date (inclusive of any redemption premium payable by the Issuer) together with accrued interest thereon plus (B) a percentage of the principal amount outstanding under the Notes prior to such repayment being made calculated by the Rating Agencies at such time in order to ensure that the ratings of the Notes (and if there are any Guaranteed Notes outstanding, the Underlying Rating) are at least equal to the ratings of the Notes when originally issued or (if higher) the then current rating of the Notes and (ii) that the proceeds of such disposal will be applied in repayment of the Term Facilities (see Repayment Mandatory prepayment from disposal proceeds above). Where under the Issuer/Borrower Facility Agreements, the Security Trustee is required (when acting in its capacity as trustee and not just for its own account) to be "reasonable" or "not unreasonable" or to act "reasonably" or "not unreasonably", such provisions will be construed solely by reference to what is "reasonable" or "not unreasonable" or acting "reasonably" or "not unreasonably" from the perspective of the beneficiaries of the Issuer Secured Creditors in whose interests the Security Trustee is required to act. For these purposes: "Net Pub Sales Proceeds" means the proceeds of the sale of any Pub less required transaction costs including, without limitation, legal fees, agency fees and taxes; and 67

68 "Outlet EBITDA" means EBITDA for a particular Pub or Permitted Business calculated on the basis of the earnings of that Pub or Permitted Business (as the case may be) but disregarding any centralised overheads or costs, and any provisions or payments in respect of taxation of the Securitisation Group. Any or all of the foregoing restrictions/provisions may be modified or disapplied at the request of the Borrower at any time, for so long as the Security Trustee determines that the interests of the Issuer Secured Creditors, including the Noteholders, will not be materially prejudiced as a result of the modification or disapplication and, (prior to the occurrence of an Ambac Termination Event), the consent of Ambac is obtained. Where the Rating Agencies have given a Rating Confirmation, the Security Trustee, in considering whether such action is materially prejudicial to the interests of the Issuer Secured Creditors, shall (and in relation to any Rating Confirmation by Fitch only, where the Security Trustee considers that such Rating Confirmation is an appropriate test or the only appropriate test to apply in that circumstance) be entitled to take into account such Rating Confirmation provided that the Security Trustee shall continue to be responsible for taking into account, for the purpose of the No Material Prejudice Test, all other matters which would be relevant to such No Material Prejudice Test. Permitted Acquisitions The Borrower is only be permitted to acquire a Permitted Business (a "Permitted Acquisition") provided that: (a) (b) (c) (d) (e) no Borrower Event of Default or Potential Borrower Event of Default has occurred and is subsisting; such acquisition is made on arm's length terms or, if not on arm's length terms, is on terms more advantageous for the Borrower or the relevant Securitisation Group Entity than arm's length taken as a whole; the balance standing to the credit of the Controlled Cash Account is equal to or greater than 15,000,000 and any payment made in respect of such acquisition would not result in the balance standing to the credit of the Controlled Cash Account being less than 15,000,000; in relation to any acquisition made on or after the first Financial Quarter Date following the Third Closing Date only, either the ratio of EBITDA to the aggregate of Debt Service and any Sinking Fund Amounts as at the immediately preceding Financial Quarter Date both in respect of the period of two consecutive Financial Quarters ended on such Financial Quarter Date (but in respect of an acquisition made prior to the second Financial Quarter Date following the Third Closing Date, in respect of the Financial Quarter commencing on the Third Closing Date only) and in respect of the Relevant Period ended on such Financial Quarter Date (1) was not less than 1.35:1 or (2) if as at the immediately preceding Financial Quarter Date was less than 1.35:1, the independent consultant appointed in accordance with the Issuer/Borrower Facility Agreements has approved in writing such acquisition; either the Security Trustee is satisfied that: (i) (ii) the acquisition is financed in full or in part out of a further Term Advance or a New Term Advance; and/or the acquisition is financed in full or in part out of moneys standing to the credit of the Disposal Proceeds Account and/or the Acquisition Reserve Account provided that: (A) (B) the Average Expected Gross Yield of the Permitted Business to be acquired (in the case of any Permitted Business in respect of which the purchase price is equal to or greater than 1,000,000, as certified by a qualified independent third party to the Security Trustee (with a copy to the Rating Agencies and (prior to the occurrence of an Ambac Termination Event) Ambac)) is not less than 8.7 per cent.; and the Average Expected Gross Yield of all Permitted Businesses acquired (excluding for the avoidance of doubt, the Permitted Business proposed to be acquired) during the 12 month period ending on the date of the proposed acquisition is not less than 9.5 per cent.; and (C) where the acquisition is to be made by the Borrower after the date falling 18 months after the date upon which the first Permitted Acquisition was made by the Borrower after the Third Closing Date, Outlet EBITDA for the Relevant Period ended on the immediately preceding Financial Quarter Date calculated in respect of all Eligible Permitted Businesses other than those Eligible Permitted Businesses which were acquired by the Borrower more than 66 months prior to the relevant 68

69 (iii) Financial Quarter Date, divided by the sum of (i) the aggregate purchase price paid for such Eligible Permitted Businesses and (ii) the aggregate capital expenditure incurred by the Borrower in respect of such Eligible Permitted Businesses was not as at the immediately preceding Financial Quarter Date less than 9.5 per cent. (the "Historic Acquisition Condition"); and/or the acquisition is financed in full or in part out of Excess Cash provided that either the Profitability Conditions are satisfied, or the Restricted Payment Conditions are satisfied and the amount of Excess Cash applied or to be applied in respect of such acquisition does not exceed the then Available Excess Cash Amount; and (iv) (1) the Security Trustee is granted security over the Permitted Business; (2) legal opinions as to the validity and enforceability of such security are provided to the Security Trustee, such opinions to be in form and substance satisfactory to the Security Trustee; (3) a certificate of title is obtained in respect of any real or heritable property to be acquired, such certificate to be in form and substance satisfactory to the Security Trustee; and (4) the Security Trustee has been provided with a valuation of the Permitted Business from a reputable valuer satisfactory to it, such valuation to be as at a date being not more than 24 months prior to the date of the proposed acquisition and to be prepared on the basis as if the Permitted Business were part of the Estate, or, payment of the purchase price in respect of such Permitted Business is deferred or otherwise left outstanding until such time as the Security Trustee is satisfied that each of the conditions set out in (i) to (iv) above is satisfied provided that, in such circumstances, the Security Trustee is satisfied that (A) the Average Expected Gross Yield of the Permitted Business to be acquired is not less than 8.7 per cent. and (B) the Average Expected Gross Yield of all Permitted Businesses acquired (excluding for the avoidance of doubt, the Permitted Business proposed to be acquired) (a) where the date of the proposed acquisition is on or after the first anniversary of the Third Closing Date, during the 12 month period ending on the date of the proposed acquisition or (b) where the date of the proposed acquisition was prior to the first anniversary of the Third Closing Date, during the period from (and including) the Third Closing Date to (and including) the date of the proposed acquisition, is not less than 9.5 per cent. For these purposes: "Average Expected Gross Yield" means in respect of any Permitted Business or Permitted Businesses, an estimate, made by the Borrower, of the Outlet EBITDA for such Permitted Business or Permitted Businesses which, in the Borrower's reasonable opinion (assuming that any capital expenditure intended to be incurred in the 12 month period immediately following the completion of the acquisition by the Borrower of such Permitted Business or Permitted Businesses (as the case may be) has been incurred and disregarding any initial letting costs or rent-free periods), would be receivable by the Borrower from the relevant Permitted Business or Permitted Businesses (as the case may be) for the 12 month period immediately following the completion of the acquisition of the Permitted Business or Permitted Businesses (as the case may be) by the Borrower, divided by the aggregate of (i) the purchase price of the acquired Permitted Business or Permitted Businesses (as the case may be) and (ii) an amount equal to any capital expenditure intended to be incurred in the 12 month period immediately following the completion of the acquisition by the Borrower of such Permitted Business or Permitted Businesses (as the case may be), expressed as a percentage; "Eligible Permitted Business" means any Permitted Business acquired by the Borrower since the Third Closing Date and which has been part of the Estate for a period of not less than 18 months and which continues to be part of the Estate; and "Profitability Conditions" means the conditions for the acquisition of a Permitted Business set out in (e)(ii)(a) and (B) above. Any or all of the provisions may be modified or disapplied at the request of the Borrower at any time with respect to a particular acquisition provided that the Security Trustee determines that the Noteholders will not be materially prejudiced as a result of such modification or disapplication and (prior to the occurrence of an Ambac Termination Event), the consent of Ambac is obtained. Where the Rating Agencies have given a Rating Confirmation, the Security Trustee, in considering whether such action is materially prejudicial to the interests of the Issuer Secured Creditors, shall (and in relation to any Rating Confirmation by Fitch only, where the Security Trustee considers that such Rating Confirmation is an appropriate test or the only appropriate test to apply in that circumstance) be entitled to take into account such Rating Confirmation provided that the Security Trustee shall 69

70 continue to be responsible for taking into account, for the purpose of the No Material Prejudice Test, all other matters which would be relevant to such No Material Prejudice Test. Restrictions on Activities The Obligors are also restricted from carrying on certain activities including the following: (a) (b) making or permitting disposals (other than Permitted Disposals, as to which see Permitted Disposals above) of: (i) (ii) fixed tangible assets not being a Punch Taverns Mortgaged Property by a Securitisation Group Entity if the value of the aggregate net consideration received by such Obligor in respect of such disposal and all other such disposals by the Securitisation Group Entity over the immediately preceding 12 month period would exceed 500,000; and any single asset not being a Punch Taverns Mortgaged Property, a fixed tangible asset or a cash generating asset where the proceeds of such sale would exceed 250,000, (save for any disposal of any worn-out, excess to requirements or obsolete assets provided that such are not required for the efficient operation of its business and any disposal of stock in trade or fixtures and fittings by a Securitisation Group Entity in its ordinary course of trade) provided that any such disposal not so restricted is made on arm's length terms; engaging in any activity whatsoever which is not a Permitted Business or incidental to or necessary in connection with any of the activities which the Relevant Documents provide or envisage that the Borrower will engage in; (c) having any subsidiaries or subsidiary undertakings (as defined in the Companies Act 1985) other than any New Subsidiary acquired by the Borrower in accordance with the Issuer/Borrower Facility Agreements; (d) (e) (f) entering into any binding contract or arrangement or understanding (not being in respect of a Permitted Acquisition or a Permitted Disposal or any other activity otherwise permitted under the Relevant Documents) with any Connected Third Party the consideration under which whether by way of a single payment or in aggregate exceeds 1,000,000 without giving prior notice to the Security Trustee; amending, varying, waiving or modifying any of the material terms of, or terminating, the Management Services Agreement (save to the extent that any amendment, variation, waiver or modification of any term thereof would have a more advantageous result for the Borrower than an adherence to the relevant term); or entering into any further or new hedges unless the Rating Agencies have confirmed that the terms of such hedges and/or the entry into the hedges would not adversely affect the then current rating of the Notes (and for so long as there are any Guaranteed Notes outstanding, the Underlying Rating). For these purposes: "Connected Third Party" means any entity in or over which (i) any affiliate of the Issuer or any member of the Punch Group or (ii) any director or officer of any such entity or (iii) any person or entity connected with or affiliated to any such director or officer (persons or entities referred to in (i), (ii) and (iii) each being a "controller") has a controlling interest whether by virtue of the fact that the controller holds over 30 per cent. of the voting rights in the third party (whether on the board of directors or as shareholder), or has the right to exercise a dominant influence over the third party through the terms of the constitutional documents of the third party or through a contract with the third party or with another person or entity which is also interested in the third party); and "New Subsidiary" means a company acquired by the Borrower pursuant to a Permitted Acquisition. Other Indebtedness No Obligor is permitted save for "Permitted Financial Indebtedness" (as defined in the Amended Master Definitions and Construction Schedule) without the prior consent of the Security Trustee to incur, create or permit to subsist any Financial Indebtedness except as contemplated by the Relevant Documents. No amendment to this provision will be permitted prior to the occurrence of an Ambac Termination Event unless the consent of Ambac is obtained. 70

71 Sinking Fund If the Sinking Fund Condition is satisfied, the Borrower will, on the Loan Interest Payment Date falling in July 2026, open the Sinking Fund Account and credit thereto on such Loan Interest Payment Date and on each subsequent Loan Interest Payment Date, an amount determined in accordance with the Issuer/Borrower Facility Agreements until the credit balance of the Sinking Fund Account is at least equal to aggregate of the principal amount outstanding of the Term B2 Advances and the Term C(R) Advance at such time. Failure to pay any amount required to be paid to the Sinking Fund Account will constitute a Borrower Event of Default. Other Covenants Cash Flow Collections The Borrower has agreed to maintain certain bank accounts in accordance with the provisions of the Bank Agreement (see Summary of Principal Documents Bank Agreement below). Collection Account All moneys received by the Borrower are credited to the Collection Account and are available to the Borrower only (i) with the agreement of the Account Bank and the Security Trustee and for the purpose of discharging indebtedness owed by the Borrower to the Account Bank arising from a debit balance on an operating account maintained by the Borrower with the Account Bank (the "Operating Account"); or (ii) with the consent of the Security Trustee, in each case in accordance with the Punch Taverns Deeds of Charge, and amounts so withdrawn shall be transferred into the Operating Account or the Controlled Cash Account. If, at any time, the Collection Account has a credit balance in excess of 4,000,000 (after deducting (i) the then debit balance of the Operating Account, (ii) an amount necessary to satisfy all cheques drawn by the Borrower but not presented and (iii) an amount equal to the aggregate of amounts estimated by the Borrower to be payable in the ordinary course of business by the Borrower during the next 30 days less the aggregate of amounts estimated by the Borrower to be receivable in the ordinary course of business by the Borrower during the next 30 days), such excess shall be applied as follows: (i) (ii) in meeting an amount equal to the Scheduled Repayment Amounts and interest payable on the Term Advances then outstanding plus any net amounts payable by the Borrower under the Issuer/Borrower Swap Agreement (if any) plus amounts payable to Ambac, in each case, payable on the next Loan Interest Payment Date or Interest Payment Date (as applicable); and/or in transferring the Excess (if any) to the Controlled Cash Account, unless the Security Trustee otherwise agrees in writing. For these purposes "Excess" means the amount standing to the credit of the Collection Accounts in excess of (a) 4,000,000 and (b) the amount stated in (i) above. Controlled Cash Account The Borrower is required to maintain a balance held in the Controlled Cash Account of at least 15,000,000 unless amounts are required to be withdrawn therefrom to meet a shortfall in relation to the Term Facilities. To the extent of withdrawals, the Borrower is obliged to replenish the Controlled Cash Account to a balance of at least 15,000,000 on subsequent Loan Interest Payment Dates. Moneys standing to the credit of the Controlled Cash Account may be withdrawn with the prior written consent of the Security Trustee: (i) (ii) on any Loan Interest Payment Date, for application, inter alia, as described in Summary of Principal Documents Punch Taverns Deeds of Charge Priority of Payments below (to the extent that there are insufficient moneys standing to the credit of the Collection Account to make on such Loan Interest Payment Date the payments or provisions in full in accordance with the relevant priority of payments), or on any other date, to discharge a debit balance on the Operating Account where there are insufficient funds standing to the credit of the Collection Account (provided such transfer would not result in the Operating Account having a credit balance), to pay the Issuer in satisfaction of any obligation owed by the Borrower under the terms of any Relevant Documents, to make Permitted Acquisitions and Permitted Restricted Payments or to be applied for capital expenditure (provided that in each case such withdrawal does not result in the balance standing to the credit of the Controlled Cash Account being less than 15,000,000). 71

72 Subject to receiving the prior written consent of the Security Trustee, the Borrower will withdraw all amounts standing to the credit of the Controlled Cash Account prior to the Issuer being required to make a drawing under the Liquidity Facility Agreement. Acquisition Reserve Account On the Third Closing Date, the Borrower established an account (the "Acquisition Reserve Account") with a credit balance of 10,000,000. As at the Fourth Closing Date, the balance standing to the credit of the Acquisition Reserve Account will be approximately 100,000. Moneys standing to the credit of the Acquisition Reserve Account are only permitted to be withdrawn with the prior written consent of the Security Trustee or provided that: (a) (b) no Borrower Event of Default or Potential Borrower Event of Default has occurred and is subsisting; and such moneys will be applied either (A) in or towards a Permitted Acquisition and the Security Trustee is granted security in a form and substance satisfactory to it over such Permitted Business thereby acquired or (B) for any other use provided that the Borrower certifies to the Security Trustee, and the Security Trustee determines, that such moneys are surplus to the collateral required to secure the obligations of the Borrower under the Issuer/Borrower Facility Agreements and (prior to the occurrence of an Ambac Termination Event) the consent of Ambac is obtained. Where the Rating Agencies have given a Rating Confirmation, the Security Trustee in considering whether such moneys are surplus to collateral required to secure the obligations of the Borrower under the Issuer/Borrower Facility Agreements shall (and, in relation to any Rating Confirmation by Fitch only, where it considers such Rating Confirmation is an appropriate test or the only appropriate test to apply in that circumstance) be entitled to take into account such Rating Confirmation provided that the Security Trustee shall continue to be responsible for taking into account for the purpose of such determination, all other matters which would be relevant to such determination. Disposal Proceeds Account Moneys standing to the credit of the Disposal Proceeds Account may be withdrawn with the prior written consent of the Security Trustee. Such consent will not be unreasonably withheld or delayed if the Borrower satisfies the Security Trustee at the time that withdrawal is requested that: (a) (b) no Borrower Event of Default or Potential Borrower Event of Default has occurred and is subsisting; and such moneys will be applied: (i) (ii) (iii) in or towards a Permitted Acquisition in accordance with the Issuer/Borrower Facility Agreements provided that at the time of completion of such acquisition the Security Trustee is granted security in a form and substance satisfactory to it over such Permitted Business thereby acquired; or for CapEx in accordance with the Issuer/Borrower Facility Agreements provided that (A) the Debt Service Cover Ratio as at the Financial Quarter Date immediately preceding the date of the proposed withdrawal was not less than 1.35:1 or (B) if the Debt Service Cover Ratio as at the Financial Quarter Date immediately preceding the date of the proposed withdrawal was less than 1.35:1, an Independent Consultant has approved in writing such CapEx; or for any other use provided that the Borrower certifies to the Security Trustee, and the Security Trustee determines, that such moneys are surplus to the collateral required to secure the obligations of the Borrower under the Issuer/Borrower Facility Agreements, and provided that (prior to the occurrence of an Ambac Termination Event) the consent of Ambac is obtained. Where the Rating Agencies have given a Rating Confirmation, the Security Trustee in considering whether such moneys are surplus to collateral required to secure the obligations of the Borrower under the Issuer/Borrower Facility Agreements shall (and, in relation to any Rating Confirmation by Fitch only, where it considers such Rating Confirmation is an appropriate test or the only appropriate test to apply in that circumstance) be entitled to take into account such Rating Confirmation provided that the Security Trustee shall continue to be responsible for taking into account for the purpose of such determination, all other matters which would be relevant to such determination. In addition, the consent of the Security Trustee to the withdrawal of amounts standing to the credit of the Disposal Proceeds Account shall be deemed to be given if at the time of that withdrawal: 72

73 (i) (ii) no Borrower Event of Default or Potential Borrower Event of Default has occurred and is subsisting; and such moneys will be applied in making a prepayment or repayment of the Term Facility or any further Term Facility in accordance with the Issuer/Borrower Facility Agreements. If on any Financial Quarter Date the Debt Service Cover Ratio is less than or equal to 1.35:1, then any amounts by which the aggregate amount standing to the credit of the Disposal Proceeds Account exceeds 10,000,000 shall be applied on the next Loan Interest Payment Date to prepay the Term Advances in accordance with the provisions of the Issuer/Borrower Facility Agreements and at the end of the period of two Financial Quarters immediately following such Financial Quarter Date, the Obligors shall, if as at the Financial Quarter Date upon which such period of two Financial Quarters ends, the Debt Service Cover Ratio is less than 1.35:1, be obliged to use the amount by which the aggregate amount standing to the credit of the Disposal Proceeds Account exceeds 5,000,000 at the end of such period of two Financial Quarters to prepay the Term Advances in accordance with the provisions of the Issuer/Borrower Facility Agreements. Other Covenants Independent Consultant If at any time the Debt Service Cover Ratio is less than or equal to 1.35:1, the Borrower will agree to the appointment by the Borrower and the Security Trustee of an independent consultant (the "Independent Consultant") selected by the Financial Adviser and (prior to an Ambac Termination Event) Ambac pursuant to the terms of an advisory agreement in a form to be agreed between the Independent Consultant, the Security Trustee and the Borrower, to provide the Borrower with such financial advisory and monitoring services as the Security Trustee considers necessary or desirable or as may be required by S&P and/or Fitch, including (without limitation) the collation of information in respect of the Borrower, its assets, undertaking and financial condition, a management and performance review and the making of recommendations to the Borrower and the Security Trustee of the steps which such Independent Consultant considers should be taken to ensure that the Noteholders receive or continue to receive full and timely payments of interest and principal in respect of the Notes in accordance with the Conditions. The appointment of any Independent Consultant so appointed will terminate if the ratio of (A) EBITDA to (B) Debt Service calculated for the immediately preceding Financial Quarter as at any eight consecutive Financial Quarter Dates following such appointment is greater than 1.35:1. The Borrower will be required to comply with any recommendations of the Independent Consultant if either: (a) (b) on any Financial Quarter Date following the appointment of such Independent Consultant but prior to the termination thereof as described above, the ratio of EBITDA to Debt Service calculated as at such Financial Quarter Date in respect of the Financial Quarter ended on such Financial Quarter Date is less than 1.30:1; or on any of the four Financial Quarter Dates immediately following the Financial Quarter Date upon which the appointment of an Independent Consultant has been terminated as described above, the ratio of EBITDA to Debt Service calculated as at such Financial Quarter Date in respect of the Financial Quarter ended on such Financial Quarter Date is less than 1.35:1, until the next succeeding Financial Quarter Date upon which, in the case of (a) above, the ratio of EBITDA to Debt Service calculated as at such Financial Quarter Date in respect of the Financial Quarter ended on such Financial Quarter Date is greater than 1.30:1 and in the case of (b) above, the ratio of EBITDA to Debt Service calculated as at such Financial Quarter Date in respect of the Financial Quarter ended on such Financial Quarter Date is greater than 1.35:1. For the avoidance of doubt, the Borrower will not be required to comply with any recommendation of any Independent Consultant other than in the circumstances set out above and in any event shall not be required to comply with any recommendation of any such Independent Consultant if to so comply would result in a breach of any Relevant Documents. No amendments to the provisions relating to the appointment and removal of any Independent Consultant will be permitted (prior to the occurrence of an Ambac Termination Event) unless the prior consent of Ambac is obtained. Other Covenants General Each of the Borrower and each other Obligor will provide the Security Trustee with the benefit of certain other positive and negative covenants including, without limitation: (a) provision of on-going financial and other information and compliance certificates to the Security Trustee; 73

74 (b) (c) (d) (e) (f) (g) (h) (i) maintenance of insurance; notification of events of default; notification of all material litigation, arbitration or administrative proceedings against the relevant company; repair and maintenance of all the Securitisation Group assets; conduct of business and maintenance of business as a going concern; maintenance of all necessary licences and consents; procuring that the Issuer has the benefit of a liquidity facility upon substantially the same terms as the Liquidity Facility; and obtaining a valuation of each of the Punch Taverns Mortgaged Properties by a date falling no later than the fifth anniversary of the date on which such Punch Taverns Mortgaged Property became or was intended to become subject to a legal mortgage under the Punch Taverns Deeds of Charge or a Punch Taverns Standard Security and every five years (or within such shorter period as may from time to time be required in order to enable the Issuer to comply with its ongoing obligations to either the Luxembourg Stock Exchange or the Irish Stock Exchange in respect of the listing of the Notes) thereafter provided that either S&P or Fitch may at any time after the fifth anniversary of the Third Closing Date require a valuation to be carried out three years after the most recent valuation. The occurrence of a breach of certain of these and other covenants may be limited by reference to a materiality qualification. Each Obligor will grant a negative pledge in favour of the Security Trustee not to create any encumbrances or security ranking pari passu with or in priority to the security created under the Punch Taverns Deeds of Charge other than a "Permitted Encumbrance" (as defined in the Amended Master Definitions and Construction Schedule). Events of Default The Issuer/Borrower Facility Agreements contain standard events for a full recourse facility that may lead to a default and acceleration of amounts outstanding (each a "Borrower Event of Default"). These will include, inter alia: (a) (b) (c) (d) any of the Obligors failing to pay any amount of principal and/or interest (excluding any Step-up Amounts) within two Business Days of the due date therefor; any Financial Indebtedness (other than any Financial Indebtedness arising under the Relevant Documents or between Obligors) of any Obligor in an amount in aggregate exceeding 500,000 not being paid when due or being declared to be or otherwise becoming due and payable prior to its specified maturity; any Obligor becoming subject to insolvency proceedings or being unable to pay its debts as they fall due; or any representation or statement made or repeated by an Obligor in any of the Relevant Documents proving incorrect or misleading in any material respect unless the underlying circumstances leading to the misrepresentation are remedied within 30 days after the earlier of the Obligor's knowledge of the misrepresentation and the date of notices from the Security Trustee to remedy such breach. The occurrence of a Borrower Event of Default is, in certain circumstances, limited by a materiality provision. Where the Borrower fails to make all or part of a payment due under the Issuer/Borrower Facility Agreements on a particular Loan Interest Payment Date, the Issuer will be entitled to draw down on the Liquidity Facility to cover any shortfall subject to certain maximum amounts which may be drawn under the facility and in respect only of certain payments (see Summary of Principal Documents Liquidity Facility Agreement below). During the next succeeding Interest Period, the Borrower will be obliged to pay to the Issuer at least 1/12th of the amounts so drawn under the Liquidity Facility in relation to each week of the then current Interest Period. Any cash received by the Issuer in respect thereof will be credited to and held in an account of the Issuer held with the Account Bank (the "Issuer Cash Collateralisation Account") until the next succeeding Interest Payment Date. If the Borrower pays in full the amount in respect of the amounts drawn under the Liquidity Facility as described above, 74

75 no Borrower Event of Default under the Issuer/Borrower Facility Agreements will occur notwithstanding the failure to pay on the immediately preceding Loan Interest Payment Date. In respect of certain other events, the mere occurrence of the event will not in itself entitle the Security Trustee to accelerate the repayment obligations of the Borrower immediately following the expiry of any applicable grace period. In particular, in the event of any failure by the Borrower to comply with the financial covenants under the Issuer/Borrower Facility Agreements, the Securitisation Group shall have 30 days in which to remedy such breach (i) through a reduction in the Term Facilities; (ii) through the subscription by the Parent or Punch or a third party of a sufficient amount of new share capital in any relevant Securitisation Group Entity or (iii) through the deposit of funds (in each case, on a subordinated basis acceptable to the Security Trustee and the Rating Agencies and for a term not less than the final maturity date of the Notes then outstanding); and/or (iv) through other remedial action provided that the Security Trustee determines that the Noteholders will not be materially prejudiced as a result of such action and (prior to the occurrence of an Ambac Termination Event) the consent of Ambac is obtained. In the case of (i) above, the reduction in the Term Facilities will be deemed to cure a breach of the DSCR Covenant if the reduction is in an amount sufficient such that, had such reduction been effected prior to such breach, no breach would have occurred. In the case of (ii) and (iii) above, the subscription of new share capital in any relevant Securitisation Group Entity and/or a deposit of funds will be deemed to cure: (i) (ii) a breach of the Net Worth Covenant if the amount of the subscription proceeds and/or deposit (as the case may be) is sufficient such that, had such subscription or deposit been made prior to such breach no breach (as reported in the relevant financial ratio compliance certificate delivered by the Borrower pursuant to the terms of the Issuer/Borrower Facility Agreements) would have occurred; or a breach of the DSCR Covenant if the subscription proceeds and/or deposit is in an amount which is sufficient to generate interest which, if it had been available as earnings to the Securitisation Group at the time the relevant financial ratio compliance certificate delivered by the Borrower pursuant to the terms of the Issuer/Borrower Facility Agreements was prepared, would have meant that no such breach would have been reported. Any deposit may be withdrawn if, following breach of the DSCR Covenant/Net Worth Covenant (as the case may be), such covenant is not breached for four consecutive Financial Quarters without taking into account the benefit of the deposit or subscription and the Financial Adviser has provided advice satisfactory to the Security Trustee as to the continued satisfaction of the DSCR Covenant/Net Worth Covenant on an on-going basis notwithstanding the release of such deposit. In determining, inter alia, whether any subscription of share capital or deposit of funds or other remedial action taken would have cured or prevented any breach of the DSCR Covenant and/or the Net Worth Covenant, the Security Trustee may also seek and may rely upon the advice of the Financial Adviser. The occurrence of a Potential Borrower Event of Default or Borrower Event of Default (or of any other event where the Security Trustee believes the security created by the Punch Taverns Deeds of Charge to be threatened or in jeopardy or prejudiced) will entitle the Security Trustee to serve a notice which will result in the floating charges contained in the Punch Taverns Deeds of Charge over the assets, property and undertaking of each member of the Securitisation Group which provides security to the Security Trustee pursuant to the Punch Taverns Deeds of Charge (each a "Security Provider") to crystallise in whole or in part so as to become fixed charges (except in relation to those assets situated in or governed by the laws of Scotland ("Scottish Assets"), in respect of which the relevant floating charges will crystallise only on the appointment of a receiver thereunder). The floating charges created by the Security Providers under the Punch Taverns Deeds of Charge will automatically (except in relation to the Scottish Assets as aforesaid) crystallise so as to become fixed charges on the occurrence of, inter alia, an insolvency event in relation to any Security Provider. Following crystallisation of any floating charge over any bank accounts, moneys standing to the credit of such accounts will not be capable of being withdrawn unless the prior written consent of the Security Trustee to any such withdrawal is given. In each of these circumstances, there will not be an automatic event of default under the Notes. For these purposes "Potential Borrower Event of Default" means the occurrence of any event which with the giving of notice, any relevant certificate, the lapse of time, determination of materiality or fulfilment of any other condition (or any combination of the foregoing) might reasonably be expected to become a Borrower Event of Default. 75

76 Governing law The Issuer/Borrower Facility Agreements are governed by English law. PUNCH TAVERNS DEEDS OF CHARGE The deed of charge dated 9 April 1998 between, inter alios, the Borrower, the Issuer and the Security Trustee (the "Original Punch Taverns First Priority Deed of Charge") as supplemented and amended by a first supplemental deed of charge dated 27 October 2000 (the "First Supplemental Punch Taverns Deed of Charge"), a second supplemental deed of charge dated 8 August 2003 ( the "Second Supplemental Punch Taverns Deed of Charge"), a third supplemental deed of charge dated 3 November 2003 (the "Third Supplemental Punch Taverns Deed of Charge"), a fourth supplemental deed of charge dated 31 March 2004 (the"fourth Supplemental Punch Taverns Deed of Charge"), a fifth supplemental deed of charge dated 6 July 2006 (the "Fifth Supplemental Punch Taverns Deed of Charge") a sixth supplemental deed of charge dated 6 July 2006 (the "Sixth Supplemental Punch Taverns Deed of Charge"), a seventh supplemental deed of charge dated 19 July 2006 (the "Seventh Supplemental Punch Taverns Deed of Charge"), a tenth supplemental deed of charge dated 20 November 2006 (the "Tenth Supplemental Punch Taverns Deed of Charge"), an eleventh supplemental deed of charge dated 8 December 2006 (the "Eleventh Supplemental Punch Taverns Deed of Charge"), a twelfth supplemental deed of charge dated 31 January 2007 (the "Twelfth Supplemental Punch Taverns Deed of Charge"), a thirteenth supplemental deed of charge dated 27 February 2007 (the "Thirteenth Supplemental Punch Taverns Deed of Charge") and a fourteenth supplemental deed of charge dated 25 May 2007 (the "Fourteenth Supplemental Punch Taverns Deed of Charge") will be further supplemented and amended and restated on the Fourth Closing Date by a fifteenth supplemental deed of charge dated on or about the Fourth Closing Date between, inter alios, each Obligor, certain other members of the Securitisation Group (the "Charging Companies"), the Issuer and the Security Trustee (the "Fifteenth Supplemental Punch Taverns Deed of Charge", and together with the First Supplemental Punch Taverns Deed of Charge, the Second Supplemental Punch Taverns Deed of Charge, the Third Supplemental Punch Taverns Deed of Charge, the Fourth Supplemental Punch Taverns Deed of Charge, the Fifth Supplemental Punch Taverns Deed of Charge, the Sixth Supplemental Punch Taverns Deed of Charge, the Seventh Supplemental Punch Taverns Deed of Charge, the Tenth Supplemental Punch Taverns Deed of Charge, the Eleventh Supplemental Punch Taverns Deed of Charge, the Twelfth Supplemental Punch Taverns Deed of Charge, the Thirteenth Supplemental Punch Taverns Deed of Charge and the Fourteenth Supplemental Punch Taverns Deed of Charge, the "Supplemental Punch Taverns Deeds of Charge"), the Original Punch Taverns First Priority Deed of Charge as so supplemented and amended (and as may be from time to time further amended and restated) being referred to as the "Punch Taverns First Priority Deed of Charge". Under the terms of the Punch Taverns First Priority Deed of Charge, each of the Obligors and the Charging Companies have provided or will provide the Security Trustee with the benefit of, inter alia, the following security (the Punch Taverns Security ) over their respective property, assets and undertaking: (a) (b) (c) (d) (e) a first fixed charge expressed by way of legal mortgage (or, in Scotland, a standard security or, as appropriate, assignation in security) over the Pubs legally and/or beneficially owned by it including all estates or interests in such property and all buildings, trade and other fixtures, fixed plant and machinery from time to time on such freehold, heritable or leasehold property (together the "Punch Taverns Mortgaged Properties"); an assignment by way of first fixed security of all of its right, title, interest and benefit in and to the Relevant Documents and all rights in respect of and incidental thereto; an assignment by way of first fixed security of all of its right, title, interest and benefit in and to the Supply Agreements (as defined in the Amended Master Definitions and Construction Schedule); an assignment by way of first fixed security over all of its right, title, interest and benefit, present and future, in and to each of the Insurance Policies (as defined in the Amended Master Definitions and Construction Schedule) under which it is an insured party and to all claims payable and paid thereunder (which may take effect as a floating charge and thus rank behind the claims of certain preferential and other creditors); an assignment by way of security of all intellectual property rights, statutory licences, consents and authorisations, present and future, held by it or otherwise used by it in connection with its business and all rights in and in respect of and incidental thereto (other than those governed by 76

77 (f) (g) (h) (i) the law of Scotland) (which may take effect as a floating charge and thus rank behind the claims of certain preferential and other creditors); a first fixed charge over all book debts and other debts, rents and all moneys and liabilities whatsoever (including the loans made to other members of the Securitisation Group), and all other moneys and liabilities whatsoever for the time being due, owing or payable to it (other than those governed by the law of Scotland) and all rights in and in respect of and incidental thereto (which may be subject to the obtaining of third party consents and may take effect as a floating charge and thus rank behind the claims of certain preferential and other creditors); in the case of the Borrower, a first fixed charge over all of its right, title, interest and benefit, present and future, in and to all moneys at any time and from time to time standing to the credit of, the Collection Account, the Controlled Cash Account, the Acquisition Reserve Account, the Disposal Proceeds Account and the Maintenance CapEx Account together with all rights relating or attached thereto (which may take effect as a floating charge and thus rank behind the claims of certain preferential and other creditors); a charge by way of first fixed security over all of its right, title, interest and benefit, present and future, in and to Eligible Investments in which moneys standing, from time to time, to the credit of the Collection Account, the Controlled Cash Account, Disposal Proceeds Account, the Acquisition Reserve Account and the Maintenance CapEx Account (as the case may be), may be invested (which may take effect as a floating charge and thus rank behind the claims of certain preferential and other creditors); and a first floating charge over the whole of its undertaking and all its property, assets and rights, both present and future, not effectively charged by the first ranking fixed security (but extending over all of its Scottish Assets). In addition, pursuant to a second priority deed of charge dated 3 November 2003 entered into by, inter alios, the Borrower, the other Obligors and the Security Trustee (as amended and restated from time to time, including on or about the Fourth Closing Date, the "Punch Taverns Second Priority Deed of Charge" and, together with the Punch Taverns First Priority Deed of Charge, the "Punch Taverns Deeds of Charge"), the Borrower and certain other members of the Securitisation Group have granted second ranking security over all of the assets which they respectively charged, assigned or mortgaged by way of security under the Original Punch Taverns First Priority Deed of Charge (as supplemented and amended prior to the Third Closing Date) for the benefit of the Punch Taverns Secured Parties. The terms of the Punch Taverns Second Priority Deed of Charge are and will be substantially the same, mutatis mutandis, as the Punch Taverns First Priority Deed of Charge save that the security granted thereunder shall be expressed to be second ranking security ranking behind the security created pursuant to the Punch Taverns First Priority Deed of Charge and that no standard securities or assignations in security in relation to the Pubs situated in Scotland are granted pursuant to the Punch Taverns Second Priority Deed of Charge. The Punch Taverns First Priority Deed of Charge and the Punch Taverns Second Priority Deed of Charge (including each Punch Taverns Standard Security granted pursuant thereto) are together referred to as the "Punch Taverns Deeds of Charge". The security created by the Punch Taverns Deeds of Charge will be held by the Security Trustee on trust for the benefit of itself, any receiver of any Security Provider, the Account Bank, the Issuer and the Borrower Subordinated Loan Providers (together the "Punch Taverns Secured Parties"), upon and subject to the terms thereof. Each Security Provider will agree with the Security Trustee and the Punch Taverns Secured Parties that while any amounts remain due and outstanding under the Issuer/Borrower Facility Agreements, it will not take any steps or pursue any action for the purpose of recovering any debts due or owing to it by any other Security Provider or the Issuer or, as applicable, to petition or procure the petitioning for the winding-up or administration of any Security Provider or the Issuer or the appointment of an administrative receiver in respect of any such company or take or omit to take any steps whatsoever that may otherwise threaten or prejudice the security created in favour of the Security Trustee under the Punch Taverns Deeds of Charge. Each of the Punch Taverns Secured Parties will agree that, unless an enforcement notice under the Issuer/Borrower Facility Agreements (a "Borrower Enforcement Notice") has been served, it will not take any steps whatsoever to direct the Security Trustee to enforce the security created in its favour under the Punch Taverns Deeds of Charge nor will it take any steps or pursue any action whatsoever for the purpose of recovering any debts due or owing to it by any Securitisation Group Entity or to 77

78 appoint or procure the appointment of an administrative receiver for or making of an administration order against, or the winding-up or liquidation of, any such company. At any time after the amounts outstanding under the Issuer/Borrower Facility Agreements shall have become due and repayable and the security created by the Punch Taverns Deeds of Charge shall have become enforceable, the Issuer will not be entitled to proceed directly against any Security Provider unless the Security Trustee, having become bound so to proceed, fails to do so within three days and such failure is continuing. Upon the service of a Borrower Enforcement Notice pursuant to the terms of the Issuer/Borrower Facility Agreements, all payments under or arising from the Issuer/Borrower Facility Agreements and/or the Punch Taverns Deeds of Charge (subject as provided below) will be required to be made to the Security Trustee or to its order. All rights or remedies provided for by the Punch Taverns Deeds of Charge or available at law or in equity will be exercisable by the Security Trustee (unless otherwise expressly provided in the Punch Taverns Deeds of Charge). In addition, the Security Trustee will have certain powers with respect to the protection of the security granted under the Punch Taverns Deeds of Charge upon the occurrence of a Potential Borrower Event of Default and/or a Borrower Event of Default. Priority of Payments Pre-Enforcement Prior to the occurrence of a Borrower Event of Default (which is subsisting), the Borrower may draw on the Operating Account, or, on each Loan Interest Payment Date with the consent of the Security Trustee (such consent not to be unreasonably withheld), withdraw moneys from the Collection Account and the Controlled Cash Account to make the following payments or provisions as set out below in the following order of priority (the "Borrower Pre-Enforcement Priority of Payments") (and in each case only if and to the extent that payments or provisions of a higher order of priority have been made in full) (including in each case any amount in respect of value added tax payable thereon) (for the avoidance of doubt after meeting on-going operating costs and expenses except where such costs and expenses are expressly dealt with in paragraphs (a) to (v) below): (a) (b) (c) first, to pay or provide for the amounts then due or to be provided to the Security Trustee in respect of the fees or other remuneration and indemnity payments (if any) then payable to, and any costs, charges, liabilities and expenses then incurred by, the Security Trustee and any amounts payable to the Security Trustee under and in connection with the Punch Taverns Deeds of Charge; second, to pay or to provide for all amounts then due and payable in respect of the Borrower's obligations to pay any outstanding amounts to the Account Bank in respect of any debit balance on the Operating Account as set out in the Bank Agreement; third, to pay or provide for pari passu and pro rata: (d) (e) (f) (g) (i) (ii) to the Issuer any amounts due and owing by the Borrower to the Issuer by way of Periodic Fee under the Issuer/Borrower Facility Agreements other than to the extent that such Periodic Fee is in respect of the amounts described in paragraph (r) below; remuneration then payable to any independent consultant appointed in accordance with the Issuer/Borrower Facility Agreements; fourth, to pay into the Maintenance CapEx Account the amount (if any) required to be deposited in such account pursuant to the Issuer/Borrower Facility Agreements; fifth, to pay or provide for pro rata the amounts then due and payable to the Issuer: (i) (ii) in respect of the Borrower's obligations to pay interest then due and payable in respect of the Term A1(R) Advance, the Term A2(R) Advance and the Term A3(N) Advance; and under the Issuer/Borrower Swap Agreement; sixth, to pay or provide for pari passu and pro rata the amounts then due and payable in respect of the Borrower's obligations to pay principal and other amounts then due and payable in respect of the Term A1(R) Advance, the Term A2(R) Advance and the Term A3(N) Advance; seventh, to pay or provide for pari passu and pro rata the amounts then due and payable to the Issuer in respect of the Borrower's obligations to pay interest then due and payable in respect of the Term M1 Advance and the Term M2(N) Advance (other than the proportion of the interest 78

79 (h) (i) (j) (k) (l) (m) (n) (o) (p) (q) (r) (s) (t) (u) (v) on the Term M2(N) Facility calculated by applying the Class M2(N) Step-Up Fee Rate to the outstanding Term M2(N) Advance (the "Term M2(N) Step-Up Amounts")); eighth, to pay or provide for pari passu and pro rata the amounts then due and payable to the Issuer in respect of the Borrower's obligations to pay principal and other amounts then due and payable in respect of the Term M1 Advance and the Term M2(N) Advance (other than the Term M2(N) Step-Up Amounts); ninth, to pay or provide for pari passu and pro rata the amounts then due and payable to the Issuer in respect of the Borrower's obligations to pay interest then due and payable in respect of the Term B1 Advance, the Term B2 Advance and the Term B3 Advance (other than the proportion of the interest on the Term B3 Facility calculated by applying the Class B3 Step-Up Fee Rate to the outstanding Term B3 Advance (the "Term B3 Step-Up Amounts")); tenth, to pay or provide for pari passu and pro rata the amounts then due and payable in respect of the Borrower's obligations to pay principal and other amounts then due and payable in respect of the Term B1 Advance, the Term B2 Advance and the Term B3 Advance (other than the Term B3 Step-Up Amounts); eleventh, to pay or provide for the amounts then due and payable to the Issuer in respect of the Borrower's obligations to pay interest then due and payable in respect of the Term C(R) Advance; twelfth, to pay or provide for the amounts then due and payable in respect of the Borrower's obligations to pay principal and other amounts then due and payable in respect of the Term C(R) Advance; thirteenth, to pay or provide for the amounts then due and payable to the Issuer in respect of the Borrower's obligations to pay interest then due and payable in respect of the Term D1 Advance (other than the proportion of the interest on the Term D1 Facility calculated by applying the Class D1 Step-Up Fee Rate to the outstanding Term D1 Advance (the "Term D1 Step-Up Amounts ")); fourteenth, to pay or provide for the amounts then due and payable in respect of the Borrower's obligations to pay principal and other amounts then due and payable in respect of the Term D1 Advance (other than the Term D1 Step-Up Amounts); fifteenth, (if the Sinking Fund Condition has been satisfied on the Loan Interest Payment Date falling in July 2026) to pay amounts (if required) to be credited to the Sinking Fund Account in accordance with the Issuer/Borrower Facility Agreements; sixteenth, to pay or provide for the amounts then due and payable or to be provided in respect of the Borrower's liability or possible liability for all amounts of tax payable by the Borrower; seventeenth, to pay to the credit of the Controlled Cash Account such amount (if any) as is required to result in a credit balance thereof of at least 15,000,000; eighteenth, to pay or provide for pari passu and pro rata any amounts due and owing to the Issuer by way of Periodic Fee under the Issuer/Borrower Facility Agreements in respect of: (i) (ii) the amounts then required by the Issuer to satisfy the Issuer's obligations set out in paragraph (q) below under Issuer Deed of Charge Priority of Payments Pre- Enforcement or (as applicable) in paragraph (p) below under Issuer Deed of Charge Priority of Payments Post-Enforcement; and the amounts then required by the Issuer to satisfy the Issuer's obligations in relation to any Hedging Subordinated Amounts; nineteenth, to pay or provide for amounts then due and payable to the Issuer in respect of the Borrower's obligations to pay Term M2(N) Step-Up Amounts; twentieth, to pay or provide for amounts then due and payable to the Issuer in respect of the Borrower's obligations to pay Term B3 Step-Up Amounts; twenty-first, to pay or provide for amounts then due and payable to the Issuer, in respect of the Borrower's obligations to pay Term D1 Step-Up Amounts; and twenty-second, to pay or provide for the payments of tax due and payable on the accrual of interest on the Borrower Subordinated Loans or under the Hive Down Indemnities in accordance with the Issuer/Borrower Facility Agreements. 79

80 Notwithstanding the above, moneys may be withdrawn from the Collection Account and/or the Controlled Cash Account (with the consent of the Security Trustee) on any day other than a Loan Interest Payment Date and applied inter alia (i) in making Permitted Restricted Payments, (ii) in making Permitted Acquisitions and (iii) in or towards CapEx, in each case in accordance with the Issuer/Borrower Facility Agreements and in making payments to the Issuer Cash Collateralisation Account the amounts (if any) required to be deposited in such account pursuant to the Issuer/Borrower Facility Agreements. In addition, amounts required to make CT Payments may also be withdrawn with the consent of the Security Trustee on any day in accordance with the Issuer/Borrower Facility Agreements. Post-Enforcement Pre-Acceleration Upon the service of a Borrower Enforcement Notice but prior to the Term Advances being declared immediately due and payable (i) no amount may be withdrawn from the Controlled Cash Account except with the prior consent of the Security Trustee, (ii) if not already crystallised, any floating charge created under the Punch Taverns Deeds of Charge will crystallise (except in relation to Scottish Assets, over which such floating charge will crystallise only on the appointment of a receiver) and (iii) no Security Provider shall be able to make any payments or make any dividend or distribution without the prior consent of the Security Trustee. Post-Acceleration All moneys received or recovered by the Security Trustee (or a receiver appointed on its behalf) from any Obligor following service of a Borrower Enforcement Notice and the acceleration of the Term Advances will be applied (unless otherwise required by operation of law) (including in each case any amount in respect of value added tax payable thereon): (a) first, to pay or provide for pro rata the amounts then due and payable: (i) to the Security Trustee in respect of the fees or other remuneration and indemnity payments then payable to, and any costs, charges, liabilities and expenses then incurred by, the Security Trustee under the Punch Taverns Deeds of Charge; and (b) (c) (ii) to the Receiver in respect of the fees or other remuneration and indemnity payments then payable to, and any costs, charges, liabilities and expenses then incurred by, such Receiver under the Punch Taverns Deeds of Charge; second, to pay or provide for all amounts then due and payable in respect of the Borrower's obligations to pay any outstanding amounts to the Account Bank in respect of any debit balance on the Operating Account as set out in the Bank Agreement; third, to pay or provide for pari passu and pro rata the amounts then due or to be provided in respect thereof: (i) (ii) to the Issuer any amounts payable by the Borrower to the Issuer by way of Periodic Fee under the Issuer/Borrower Facility Agreements other than to the extent that such Periodic Fee is in respect of the amounts described in paragraph (n) below; and remuneration then payable to any Independent Consultant appointed in accordance with the Issuer/Borrower Facility Agreements; (d) fourth, to pay or provide for pari passu and pro rata all amounts then due and payable to the Issuer: (i) (ii) in respect of interest in respect of the Term A1(R) Advance, the Term A2(R) Advance and the Term A3(N) Advance; and under the Issuer/Borrower Swap Agreement; (e) (f) (g) fifth, to pay or provide for pari passu and pro rata all amounts of principal and other amounts then due and payable in respect of the Term A1(R) Advance, the Term A2(R) Advance and the Term A3(N) Advance; sixth, to pay or provide for pari passu and pro rata all amounts of interest then due and payable to the Issuer in respect of the Term M1 Advance and the Term M2(N) Advance (other than the Term M2(N) Step-Up Amounts); seventh, to pay or provide for pari passu and pro rata all amounts of principal and other amounts then due and payable in respect of the Term M1 Advance and the Term M2(N) Advance (other than the Term M2(N) Step-Up Amounts); 80

81 (h) (i) (j) (k) (l) (m) (n) eighth, to pay or provide for pari passu and pro rata all amounts of interest then due and payable to the Issuer in respect of the Term B1 Advance, the Term B2 Advance and the Term B3 Advance (other than the Term B3 Step-Up Amounts); ninth, to pay or provide for pari passu and pro rata all amounts of principal and other amounts then due and payable in respect of the Term B1 Advance, the Term B2 Advance and the Term B3 Advance (other than the Term B3 Step-Up Amounts); tenth, to pay or provide for all amounts of interest then due and payable to the Issuer in respect of the Term C(R) Advance; eleventh, to pay or provide for all amounts of principal and other amounts then due and payable in respect of the Term C(R) Advance; twelfth, to pay or provide for all amounts of interest then due and payable to the Issuer in respect of the Term D1 Advance (other than the Term D1 Step-Up Amounts); thirteenth, to pay or provide for all amounts of principal and other amounts then due and payable in respect of the Term D1 Advance (other than the Term D1 Step-Up Amounts); fourteenth, to pay or provide for pari passi and pro rata any amounts due and owing to the Issuer by way of Periodic Fee under the Issuer/Borrower Facility Agreements in respect of: (i) (ii) the amounts then required by the Issuer to satisfy the Issuer's obligations set out in paragraph (q) below under Issuer Deed of Charge Priority of Payments Pre- Enforcement or (as applicable) in paragraph (p) below under Issuer Deed of Charge Priority of Payments Post-Enforcement; and the amounts then required by the Issuer to satisfy the Issuer's obligations in relation to any Hedging Subordinated Amounts; (o) (p) (q) (r) fifteenth, to pay or provide for amounts then due and payable to the Issuer in respect of the Borrower's obligations to pay the Term M2(N) Step-Up Amounts; sixteenth, to pay or provide for amounts then due and payable to the Issuer in respect of the Borrower's obligations to pay the Term B3 Step-Up Amounts; seventeenth, to pay or provide for amounts then due and payable to the Issuer in respect of the Borrower's obligations to pay the Term D1 Step-Up Amounts; and eighteenth, the surplus (if any) to the Security Providers. Appointment of an administrative receiver The Punch Taverns Deeds of Charge will provide that the Security Trustee shall enforce the Punch Taverns Security in respect of any Obligor, by appointing an administrative receiver, if it has actual notice of either: (i) an application for the appointment of an administrator; or (ii) the giving of a notice of intention to appoint an administrator, in respect of such Obligor, the appointment of the administrative receiver to take effect upon the final day by which the appointment must be made in order to prevent an administration proceeding or (where an Obligor or the directors of an Obligor have initiated the administration) not later than that final day. In addition, the Security Trustee may (subject to Summary of Principal Documents Punch Taverns Deeds of Charge Indemnity of the Security Trustee below), following the service of a Borrower Enforcement Notice, enforce the Punch Taverns Group Security in respect of any Obligor by the appointment of an administrative receiver (if the Security Trustee has not already done so pursuant to the foregoing). The Security Trustee shall not be liable for any failure to appoint an administrative receiver, save in the case of its own gross negligence, wilful default or fraud. Indemnity of the Security Trustee The Security Trustee will not be obliged to appoint an administrative receiver unless it is indemnified and/or secured to its satisfaction. However, the Punch Taverns Deeds or Charge will provide that, if the Security Trustee is required to enforce the Punch Taverns Security by appointing an administrative receiver following receipt of actual notice of an application for the appointment of an administrator or actual notice of the giving of a notice of intention to appoint an administrator, then the Security Trustee will agree that it is adequately indemnified and secured in respect of such appointment by virtue of its rights against the Obligors under the Punch Taverns Deeds of Charge and the security which it has in respect of such rights. The Obligors will covenant in the Punch Taverns Deeds of Charge that, if the 81

82 Security Trustee appoints an administrative receiver by reason of having actual notice of an application for the appointment of an administrator or actual notice of the giving of a notice of intention to appoint an administrator, they waive any claim against the Security Trustee in respect of such appointment. The Punch Taverns Deeds of Charge will be governed by English law (other than in respect of any fixed charge over Scottish Assets, which shall be governed by Scots law). LIQUIDITY FACILITY AGREEMENT Each of the Liquidity Facility Providers will be a bank which, as at the Fourth Closing Date, has a rating assigned to its short-term unsecured, unsubordinated and unguaranteed debt obligations at least equal to the Liquidity Facility Requisite Rating. Thereafter, each of the Liquidity Facility Providers must have a rating assigned to its short-term unsecured, unsubordinated and unguaranteed debt obligations which is at least equal to the Liquidity Facility Requisite Rating. Under the terms of the Liquidity Facility Agreement, the Liquidity Facility Providers will provide a 364- day committed facility, which is renewable at the discretion of the Liquidity Facility Providers in a maximum aggregate principal amount of 294,000,000 (this amount may reduce in accordance with the terms of the Liquidity Facility Agreement subject to the consent of the Security Trustee and Ambac) (the "Liquidity Facility"). Drawings under the Liquidity Facility ( Liquidity Facility Drawings ) will be available to be made by the Issuer subject to certain conditions in circumstances where, subject as set out below, the Issuer has insufficient funds available on an Interest Payment Date falling within such 364-day period to pay in full any of the items specified in paragraphs (a) to (p) (inclusive) of Issuer Deed of Charge Priority of Payments Pre-Enforcement below (a "Liquidity Shortfall"). The maximum amount of the Liquidity Facility available to be drawn in respect of payments of interest and Scheduled Amortisation Amounts in respect of the Class B Notes, the Class C(R) Notes and the Class D1 Notes will be 113,000,000. In addition, the maximum amount of the Liquidity Facility available to be drawn in respect of payments of interest and Scheduled Amortisation Amounts in respect of the Class D1 Notes will be 18,000,000. The Liquidity Facility will not be available for the purpose of meeting any Liquidity Shortfall which arises only in respect of payments of any Step-Up Amounts. The Liquidity Facility Agreement will provide that, if at any time the rating of the short-term unsecured, unsubordinated and unguaranteed debt obligations of a Liquidity Facility Provider falls below the Liquidity Facility Requisite Rating or any Liquidity Facility Provider refuses to renew or extend the term of the Liquidity Facility or upon the occurrence of any other Liquidity Facility Relevant Event, the Issuer shall require the relevant Liquidity Facility Provider to pay into a designated bank account of the Issuer (the "Liquidity Facility Reserve Account") maintained with an appropriately rated bank an amount equal to its undrawn commitment under the Liquidity Facility Agreement (such payment constituting a Liquidity Facility Stand-by Drawing and the principal amount outstanding of Liquidity Facility Stand-by Drawings under the Liquidity Facility Agreement being the Liquidity Faciltiy Stand-by Loan ). Amounts standing to the credit of such account will be available to the Issuer for drawing in the event of there being a Liquidity Shortfall and in the circumstances provided in the Liquidity Facility Agreement. The Issuer may also, at any time, replace any Liquidity Facility Provider provided that such Liquidity Facility Provider is replaced by a bank having the Liquidity Facility Provider Requisite Rating and all amounts outstanding to such Liquidity Facility Provider are repaid in full. Any costs incurred by the Issuer in obtaining a replacement liquidity facility or in utilising the Liquidity Facility will be borne by the Borrower in accordance with the provisions of the Issuer/Borrower Facility Agreements. For these purposes: Liquidity Facility Relevant Event means any of the following events: (a) the downgrade on any day of the short-term, unsecured, unsubordinated and unguaranteed debt of a Liquidity Facility Provider to lower than the Liquidity Facility Requisite Rating; or (b) the refusal by a Liquidity Facility Provider to agree to an extension of the term of its commitment under the Liquidity Faiclity Agreement; or (c) the Issuer requesting that a Liquidity Facility Provider transfer its rights and obligations under the Liquidity Facility Agreement to a third party; or (d) if a Liquidity Facility Provider ceases to be a Qualifying Bank; and 82

83 Qualifying Bank means: (a) an institution which is beneficially entitled to interest payable under the Liquidity Facility Agreement and is for the time being a bank as defined for the purposes of Section 879 of the Income Tax Act 2007 (as in force in the United Kingdom at the Fourth Closing Date) and which is, at the time of any payment of interest to it pursuant to the Liquidity Facility Agreement, within the charge to United Kingdom corporation tax as respects such interest; or (b) a company resident in the United Kingdom for United Kingdom tax purposes; or (c) a partnership each member of which of which is a company resident in the United Kingdom for United Kingdom tax purposes; or (d) a company not so resident in the United Kingdom which carries on a trade in the United Kingdom through a permanent establishment and which brings into account interest payable in respect of that advance in computing its chargeable profits (within the meaning given by section 11(2) of the Taxes Act). The Liquidity Facility Agreement will be governed by English law. HEDGING On the Fourth Closing Date, the Borrower will terminate the existing interest rate swap transactions entered into by it on the Third Closing Date with The Royal Bank of Scotland plc. A termination payment (the "Existing Swap Termination Payment") will be payable from the Borrower to The Royal Bank of Scotland plc on the Fourth Closing Date in respect of such termination. On the Fourth Closing Date, the Issuer will enter into an ISDA Master Agreement (including a schedule, credit support annex and one or more confirmations) with the Initial Hedge Provider in relation to a series of interest rate hedging transactions (the "Hedges" and each such transaction a "Hedge"), in order to hedge the obligations of the Issuer with respect to (a) the floating rate component of interest payments under the Class A3(N) Notes, (b) the floating rate component of interest payments under the Class M2(N) Notes, (c) the floating rate component of interest payments under the Class B3 Notes and (d) the floating rate component of interest payments under the Class D1 Notes. The transactions comprising the Hedges take the form of fixed/floating interest rate swaps and/or other appropriate arrangements acceptable to the Rating Agencies from time to time. Pursuant to the terms of the Hedges, on each Interest Payment Date commencing in October 2007, and ending on the Interest Payment Date falling in October 2032, the Issuer is obliged to make fixed rate payments to the Initial Hedge Provider in sterling which the Issuer will fund using payments received by it under the Issuer/Borrower Swap Agreement. The Initial Hedge Provider is, on the corresponding Interest Payment Date, obliged to make floating rate payments in sterling (calculated by reference to Note LIBOR) to the Issuer. The amounts payable by the Issuer and the Initial Hedge Provider under the Hedges are netted so that only a net amount will be due from the Issuer or the Initial Hedge Provider (as the case may be) on an Interest Payment Date. The effective swap rate from the Issuer in respect of the transactions entered into by it on the Fourth Closing Date will be per cent. If the ratings assigned to the long-term and/or short term unsecured, unsubordinated and unguaranteed debt obligations of the Initial Hedge Provider are downgraded below the Hedge Provider Requisite Ratings, the Initial Hedge Provider will be required within the time-frame specified in the Hedges to take one of certain remedial measures which may include (i) the provision of collateral for its obligations under the Hedges; (ii) the transfer of its obligations under the Hedges to a replacement swap counterparty who has the Hedge Provider Requisite Ratings; or (iii) procuring another person who has the Hedge Provider Requisite Ratings to become a co-obligor or to guarantee the obligations of the Initial Hedge Provider. A failure by the Initial Hedge Provider to take the required remedial action following a ratings downgrade will, subject to certain conditions, give the Issuer a right to terminate the transactions entered into with the Initial Hedge Provider under the Hedges. The Servicer is obliged to maintain the Hedging Collateral Ledgers in respect of collateral transferred by the Initial Hedge Provider as more particularly described in the section entitled Summary of Principal Documents Servicing and Cash Management Agreement below and Hedging Collateral Amounts will not be applied in accordance with the applicable Issuer Priority of Payments. Accordingly, any collateral transferred by the Initial Hedge Provider in accordance with the Hedges which (i) is in excess of the termination amount that it would otherwise be required to pay to the Issuer under the Hedges; or (ii) it is entitled to have returned to it under the Hedges, will be returned to the 83

84 Initial Hedge Provider directly (and as a consequence, prior to the distribution of any amounts due to the Noteholders or the other Issuer Secured Creditors). Each transaction (or in certain circumstances part thereof) entered into under the Hedges may be terminated by one party to it if (i) an applicable event of default (including a failure to pay or certain insolvency-related events) or termination event (including an illegality or certain tax events) occurs in relation to the other party; (ii) the relevant class of Notes is redeemed, repurchased or cancelled (in each case, in full and in certain circumstances, in part) prior to their stated maturity; or (iii) an Issuer Enforcement Notice is served. If any Hedge is terminated, whether in whole or in part, prior to its stated termination date, a termination amount may be payable by one party to the other. Any such termination amount may be substantial and, if payable to the Initial Hedge Provider, will, other than in respect of the Hedging Subordinated Amounts, rank in priority to amounts due to the Noteholders. The Initial Hedge Provider may at its discretion and its own costs transfer all of its rights and obligations under the Hedges to a third party, provided that, inter alia, such third party has the Hedge Provider Requisite Ratings or its performance under the Hedges and the related transactions will be guaranteed in full by the Initial Hedge Provider. The Issuer's obligations to the Initial Hedge Provider and to any Replacement Hedge Provider under the Hedges or any replacement hedging arrangements will be secured pursuant to the Issuer Deed of Charge. Such obligations (other than in respect of Hedging Subordinated Amounts) will rank senior to the obligations of the Issuer to the Noteholders. All payments to be made by either party under the Hedges are to be made without deduction or withholding for or on account of tax unless such deduction or withholding is required or applicable by law. If one party is required to make such a deduction or withholding from any payment to be made to the other party under the Hedges (the requirement to deduct or withhold being a "Tax Termination Event" in respect of the party obliged to make such deduction or withholding), the sum to be paid will be increased to the extent necessary to ensure that, after that deduction or withholding is made, the amount received by the other party is equal to the amount which that other party would have received had that deduction or withholding not been required to be made. The Issuer will fund this cost through a liquidity drawing which is ultimately funded by the Borrower by way of the Periodic Fee. Alternatively, the Borrower may, in these circumstances, exercise its right to prepay the Term A3(N) Advance, the Term M2(N) Advance, the Term B3 Advance and the Term D1 Advance in order to fund payments on the Notes and therefore terminate the transactions under the Hedges. If a Tax Termination Event occurs, the party required to pay an increased amount may terminate the relevant Hedges, subject to the Initial Hedge Provider being required to use reasonable efforts to transfer its right and obligations in respect of the relevant Hedges to a third party swap provider such that payments made by and to that third party swap provider under the Hedges can be made without any deduction or withholding for or on account of tax. In addition, as a condition precedent to the right of the Issuer to terminate any Hedges, a Rating Confirmation must be obtained notwithstanding such termination. Should the Issuer issue Additional Notes or New Notes, which bear a floating rate of interest, the Issuer will enter into further interest rate hedging transactions with the Initial Hedge Provider or a suitably rated hedging counterparty acceptable to the Rating Agencies in order to hedge any interest rate risk associated with the payments due on such Notes. The Initial Hedge Provider will not be obliged to enter into any further swap transactions. The Hedges will be governed by English law. ISSUER DEED OF CHARGE The Issuer Deed of Charge was entered into on the Third Closing Date by, inter alios, the Issuer, Ambac, the Liquidity Facility Agent, the Note Trustee and the Security Trustee and will be amended and restated on or about the Fourth Closing Date. Under the terms of the Issuer Deed of Charge, the Issuer has granted the following security (the "Issuer Security") in favour of the Security Trustee which will hold such security on trust for the benefit of itself and the other Issuer Secured Creditors: (a) an assignment by way of a first fixed security of its right, title, interest and benefit, present and future, in, to and under the Relevant Documents to which it is a party including the security trusts created under the Punch Taverns Deeds of Charge; 84

85 (b) (c) (d) (e) an assignment by way of a first fixed security over the Issuer's whole right, title, interest and benefit in and to the Punch Taverns Security; a charge by way of a first fixed security over the amounts from time to time standing to the credit of the Issuer Transaction Account, the Issuer Cash Collateralisation Account and the Liquidity Facility Reserve Account (which security interests may take effect as a floating charge and thus rank behind the claims of certain preferential and other creditors); a first fixed charge over all investments in Eligible Investments permitted to be made pursuant to the Servicing and Cash Management Agreement (which security interests may take effect as a floating charge and thus rank behind the claims of certain preferential and other creditors); and a first floating charge over all of the property, assets and undertakings of the Issuer not already subject to fixed security (but extending over all of its Scottish Assets), all as more particularly set out in the Issuer Deed of Charge. The Issuer Security will also stand as security for amounts payable by the Issuer to, inter alios: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) the Noteholders, the Security Trustee and the Note Trustee under the Issuer Deed of Charge, the Trust Deed and the Agency Agreement; Ambac under the Guarantee and Reimbursement Agreements and the Issuer Deed of Charge; the Liquidity Facility Providers under the Liquidity Facility Agreement and the Issuer Deed of Charge; the Hedge Providers under the Hedges or any replacement hedging arrangements; the Agent Bank and the Paying Agents under the Agency Agreement and the Issuer Deed of Charge; the Financial Adviser under the Financial Advisory Services Agreement and the Issuer Deed of Charge; the Servicer under the Servicing and Cash Management Agreement and the Issuer Deed of Charge; the Account Bank under the Bank Agreement and the Issuer Deed of Charge; the Borrower under the Issuer/Borrower Swap Agreement and the Issuer Deed of Charge; the Escrow Agent under the Escrow Deed and the Issuer Deed of Charge, (such parties being together the Issuer Secured Creditors ). Priority of Payments Pre-Enforcement Prior to the occurrence of an Event of Default which has occurred and is subsisting, amounts standing to the credit of the Issuer's transaction account maintained with the Account Bank (the "Issuer Transaction Account") (other than Hedging Excluded Amounts (as defined below)) shall be applied in the following order of priority (the "Issuer Pre-Enforcement Priority of Payments") (including in each case any amount in respect of value added tax payable thereon): (a) first, to pay or provide for in no order of priority among themselves, but pro rata according to the respective amounts then due or to be provided, the fees or other remuneration and indemnity payments (if any) payable to: (i) (ii) (iii) the Security Trustee and any costs, charges, liabilities and expenses incurred by it under the provisions of the Issuer Deed of Charge and any of the other Relevant Documents, together with interest thereon as provided for therein; the Note Trustee and any costs, charges, liabilities and expenses incurred by it under the provisions of the Trust Deed and any of the other Relevant Documents, together with interest thereon as provided for therein; the Paying Agents and the Agent Bank and any costs, charges, liabilities and expenses incurred under the provisions of the Agency Agreement and any of the other Relevant Documents, together with interest thereon as provided for therein; and 85

86 (b) (c) (d) (e) (f) (g) (iv) the Escrow Agent and any costs, charges, liabilities and expenses incurred under the provisions of the Deed of Escrow and any other Relevant Document, together with interest thereon as provided for therein; second, in or towards satisfaction (after application of all amounts in the Liquidity Facility Reserve Account (if any)) of all amounts of principal, interest, commitment fees and any "Mandatory Costs" (as defined in the Liquidity Facility Agreement) due or accrued due but unpaid to the Liquidity Facility Agent under the terms of the Liquidity Facility Agreement but, in the case of the Mandatory Costs only, up to a maximum aggregate amount of 0.20 per cent. per annum of the maximum aggregate amount available to be drawn under the Liquidity Facility (the amount in excess of 0.20 per cent. per annum as aforesaid being the "Liquidity Subordinated Amount") and in the case of interest payable in respect of a Liquidity Facility Stand-by Drawing only, (A) where such Liquidity Facility Stand-by Drawing was made as a result of a Liquidity Facility Relevant Event of the type described in paragraph (b) of the definition of such term up to a maximum amount of LIBOR plus 0.10 per cent. per annum of the Liquidity Facility Stand-by Loan and (B) where such Liquidity Facility Stand-by Drawing was made as a result of a Liquidity Facility Relevant Event of the type described in paragraphs (a) or (d) of the definition of such term up to a maximum amount of LIBOR plus per cent. per annum of the Liquidity Facility Stand-by Loan (the amount of interest payable in respect of any such Liquidity Facility Stand-by Drawing in excess of such amounts being the Liquidity Stand-by Drawing Subordinated Amount ); third, to pay or provide for, in no order of priority among themselves, but pro rata to the respective amounts then due or to be provided, remuneration then payable to: (i) (ii) (iii) the Account Bank incurred under the provisions of the Bank Agreement; the Servicer together with all other costs, charges, liabilities, expenses, indemnity amounts and losses incurred under the provisions of the Servicing and Cash Management Agreement; and the Financial Adviser incurred under the provisions of the Financial Advisory Services Agreement; fourth, to pay or provide for the amounts then due or to be provided in respect of the Issuer liability or possible liability to third parties under obligations incurred in the course of the Issuer's business (including any amounts due to the Rating Agencies, the Luxembourg Stock Exchange and the Irish Stock Exchange (or any other listing authority) and any listing agents, and any amounts of corporation tax on profits due to HMRC), other than amounts to be paid under items (a), (b) or (c) above or (s) below; fifth, in or towards satisfaction, pari passu and pro rata according to the respective amounts thereof, to the extent not funded out of Hedging Excluded Amounts, of the amounts due in respect of all amounts due but unpaid to: (i) (ii) the Initial Hedge Provider under the Hedges; and any other counterparty under any other swap agreement entered into by the Issuer (other than the Issuer/Borrower Swap Agreement), such amounts to include any amounts due from the Issuer to a Hedge Provider or any other relevant counterparty on termination of any transaction under the Hedges or such other swap agreement (as the case may be) (the "Hedging Termination Payments")(other than any amounts due on termination of the transactions under the Hedges or any other relevant swap agreement due to the occurrence of an event of default in respect of which the Hedge Provider or other counterparty is the defaulting party or any additional termination event relating to a ratings downgrade of the Hedge Provider or other counterparty (the "Hedging Subordinated Amounts")) or, in the event of the transactions under the Hedges being terminated and until the entry into replacement Hedges, towards a reserve for the payment of any fees, costs and expenses which may be incurred in entering into such replacement Hedges. sixth, to pay or provide for amounts in respect of guarantee fees and all other amounts then due to Ambac pursuant to the terms of the Guarantee and Reimbursement Agreements (other than amounts provided for in items (g)(ii), (g)(iii), (h)(ii), (h)(iii), (i)(ii), (j)(ii), (k)(ii), (l)(ii) and (q) below); seventh, in or towards satisfaction on a pari passu and pro rata basis according to the respective amounts thereof of: 86

87 (h) (i) (i) (ii) (iii) all amounts of interest due or accrued but unpaid in respect of the Class A1(R) Notes; (A) all amounts due under the Guarantee and Reimbursement Agreements in respect of amounts of Scheduled Interest paid by Ambac to the Class A2(R) Noteholders together with any interest on such amounts and (B) all amounts of interest due or accrued but unpaid in respect of the Class A2(R) Notes, such amounts to be applied in the following order of priority: (x) (y) first, to pay to Ambac the amounts described at (A) above; and second, to pay to the Class A2(R) Noteholders the amounts described at (B) above; and (A) all amounts due under the Guarantee and Reimbursement Agreements in respect of amounts of Scheduled Interest paid by Ambac to the Class A3(N) Noteholders together with any interest on such amounts and (B) all amounts of interest due or accrued but unpaid in respect of the Class A3(N) Notes, such amounts to be applied in the following order of priority: (x) (y) first, to pay to Ambac the amounts described at (A) above; and second, to pay the Class A3(N) Noteholders the amounts described at (B) above; eighth, in or towards satisfaction on a pari passu and pro rata basis according to respective amounts thereof of: (i) (ii) (iii) all Class A1(R) Scheduled Amortisation Amounts due in respect of the Class A1(R) Notes in accordance with Condition 5(b)(i) and all other amounts of principal payable in respect of the Class A1(R) Notes to be redeemed on such Interest Payment Date in accordance with Condition 5; (A) all amounts due under the Guarantee and Reimbursement Agreements in respect of Class A2(R) Scheduled Amortisation Amounts paid by Ambac to the Class A2(R) Noteholders together with any interest on such amounts and (B) all Class A2(R) Scheduled Amortisation Amounts in accordance with Condition 5(b)(ii) and all other amounts of principal payable in respect of the Class A2(R) Notes redeemed on such Interest Payment Date in accordance with Condition 5, such amounts to be applied in the following order of priority: (x) (y) first, to pay Ambac the amounts described at (A) above; and second, to pay to the Class A2(R) Noteholders the amounts described at (B) above; and (A) all amounts due under the Guarantee and Reimbursement Agreements in respect of Class A3(N) Scheduled Amortisation Amounts paid by Ambac to the Class A3(N) Noteholders together with any interest on such amounts and (B) Class A3(N) Scheduled Amortisation Amounts in accordance with Condition 5(b)(iii) and all other amounts of principal payable in respect of the Class A3(N) Notes to be redeemed on such Interest Payment Date in accordance with Condition 5, such amounts to be applied in the following order of priority: (x) (y) first, to pay Ambac the amounts described at (A) above; and second, to pay to the Class A3(N) Noteholders the amounts described at (B) above; ninth, in or towards satisfaction, pari passu and pro rata according to the respective amounts thereof of: (i) (ii) all amounts of interest due or accrued but unpaid in respect of the Class M1 Notes; and (A) all amounts due under the Guarantee and Reimbursement Agreements in respect of amounts of Scheduled Interest paid by Ambac to the Class M2(N) Noteholders together with any interest on such amounts and (B) all amounts of interest due or accrued but unpaid in respect of the Class M2(N) Notes, such amounts to be applied in the following order of priority: (x) first, to pay Ambac the amounts described at (A) above; and 87

88 (j) (k) (l) (m) (n) (y) second, to pay to the Class M2(N) Noteholders the amounts described at (B) above; tenth, in or towards satisfaction pari passu and pro rata according to the respective amounts thereof of: (i) (ii) all Class M1 Scheduled Amortisation Amounts due in respect of the Class M1 Notes in accordance with Condition 5(b)(iv) and all other amounts of principal payable in respect of the Class M1 Notes to be redeemed on such Interest Payment Date in accordance with Condition 5; and (A) all amounts due under the Guarantee and Reimbursement Agreements in respect of amounts of Ultimate Principal paid by Ambac to the Class M2(N) Noteholders together with any interest on such amounts and (B) all Class M2(N) Scheduled Amortisation Amounts in respect of the Class M2(N) Notes in accordance with Condition 5(b)(v) and all other amounts of principal payable in respect of the Class M2(N) Notes to be redeemed on such Interest Payment Date in accordance with Condition 5, such amounts to be applied in the following order of priority: (x) (y) first, to pay Ambac the amounts described at (A) above; and second, to pay to the Class M2(N) Noteholders the amounts described at (B) above; eleventh, in or towards satisfaction, pari passu and pro rata according to the respective amounts thereof of: (i) (ii) all amounts of interest due or accrued but unpaid in respect of the Class B1 Notes and the Class B2 Notes; and (A) all amounts due under the Guarantee and Reimbursement Agreements in respect of amounts of Scheduled Interest paid by Ambac to the Class B3 Noteholders together with any interest on such amounts and (B) all amounts of interest due or accrued but unpaid in respect of the Class B3 Notes, such amounts to be applied in the following order of priority: (x) (y) first, to pay Ambac the amounts described at (A) above; and second, to pay to the Class B3 Noteholders the amounts described at (B) above; twelfth, in or towards satisfaction, pari passu and pro rata according to the respective amounts thereof of: (i) (ii) all Class B1 Scheduled Amortisation Amounts in respect of the Class B1 Notes in accordance with Condition 5(b)(vi) and all other amounts of principal payable in respect of the Class B1 Notes redeemed on such Interest Payment Date in accordance with Condition 5, and all Class B2 Scheduled Amortisation Amounts then due in respect of the Class B2 Notes in accordance with Condition 5(b)(vii) and all other amounts of principal payable in respect of the Class B2 Notes redeemed on such Interest Payment Date in accordance with Condition 5; and (A) all amounts due under the Guarantee and Reimbursement Agreements in respect of amounts of Ultimate Principal paid by Ambac to the Class B3 Noteholders together with any interest on such amounts and (B) all Class B3 Scheduled Amortisation Amounts then due in respect of the Class B3 Notes in accordance with Condition 5(b)(viii) and all other amounts of principal payable in respect of the Class B3 Notes to be redeemed on such Interest Payment Date in accordance with Condition 5, such amounts to be applied in the following order of priority: (x) (y) first, to pay Ambac the amounts described at (A) above; and second, to pay to the Class B3 Noteholders the amounts described at (B) above; thirteenth, in or towards satisfaction of all amounts of interest due or accrued but unpaid in respect of the Class C(R) Notes; fourteenth, in or towards satisfaction of all Class C(R) Scheduled Amortisation Amounts in accordance with Condition 5(b)(ix) and all other amounts of principal payable in respect of the Class C(R) Notes to be redeemed on such Interest Payment Date in accordance with Condition 5; 88

89 (o) (p) (q) (r) (s) (t) (u) (v) (w) fifteenth, in or towards satisfaction of all amounts of interest due or accrued but unpaid in respect of the Class D1 Notes (not including, for the avoidance of doubt, any Class D1 Step-Up Amounts); sixteenth, in or towards satisfaction of all Class D1 Scheduled Amortisation Amounts in accordance with Condition 5(b)(x) and all other amounts of principal payable in respect of the Class D1 Notes to be redeemed on such Interest Payment Date in accordance with Condition 5; seventeenth, in or towards satisfaction pari passu and pro rata according to the respective amounts thereof, of: (i) (ii) any other amounts (including the Liquidity Subordinated Amounts and the Liquidity Stand-by Drawing Subordinated Amounts, but excluding any sums referred to in paragraph (b) above) due under the Liquidity Facility Agreement to the Liquidity Facility Providers; subordinated amounts due to Ambac pursuant to the terms of the Guarantee and Reimbursement Agreements; and eighteenth, in or towards satisfaction of any Hedging Subordinated Amounts; nineteenth, in or towards satisfaction of any other amounts (but excluding any sums referred to in paragraph (d) above) due to HM Revenue & Customs; twentieth, in or towards payment of any Class M2(N) Step-Up Amounts then due and payable; twenty-first, in or towards payment of any Class B3 Step-Up Amounts then due and payable; twenty-second, in or towards payment of any Class D1 Step-Up Amounts then due and payable; and twenty-third, the surplus (if any) to the Issuer, provided that any amounts raised by the Issuer by way of an issuance of Additional Notes or New Notes and standing to the credit of the Issuer Transaction Account shall not be applied by the Issuer in accordance with the foregoing order of priority and shall be advanced (in the case of moneys raised by the Issuer by way of an Issue of Additional Notes or New Notes) on any day by the Issuer to the Borrower as a further Term Advance and/or a New Term Advance (as the case may be) in accordance with the Issuer/Borrower Facility Agreements. The Issuer Borrower Facility Agreements and the Issuer/Borrower Swap Agreement will provide that any net payment payable by the Issuer to the Borrower on a Loan Interest Payment Date under the Issuer/Borrower Swap Agreement shall be satisfied by way of set-off against amounts of interest payable by the Borrower to the Issuer under the Issuer/Borrower Facility Agreements on such Loan Interest Payment Date. Furthermore, notwithstanding the application of proceeds pursuant to the Issuer Pre-Enforcement Priority of Payments, to the extent that the Issuer receives any termination payment from a Hedge Provider on termination of any of the Hedges (or any replacement hedging arrangements) and such termination payment is not required to be paid by the Issuer to a replacement hedging provider in respect of replacement hedging transactions and the Issuer has an obligation to pay a corresponding amount to the Borrower in respect of the termination of the relevant transactions under the Issuer/Borrower Swap Agreement, the Issuer shall be entitled to make such payment directly to the Borrower on any day. For the above purposes "Hedging Excluded Amounts" means: (a) if the transactions under the Hedges (or any existing replacement hedging arrangements, as applicable) are terminated in circumstances where the Issuer enters into a replacement interest rate hedging agreement, amounts received by the Issuer: (i) from a Hedge Provider by way of termination payments relating to the termination of the transactions under the Hedges (or existing replacement hedging arrangements, as applicable) to the extent of the amount (if any) payable to the replacement hedging counterparty in consideration for the entry by such replacement hedging counterparty into the replacement interest rate hedging agreement and the replacement transactions thereunder (which amounts are to be applied by the Issuer in payment of such amounts to the replacement hedging counterparty); or (ii) from any replacement hedging provider in respect of the entry into by the Issuer of the replacement interest rate hedging agreement and the replacement transactions thereunder to the extent of the termination payment (if any) due to the replaced Hedge 89

90 (b) Provider under the Hedges or the existing replacement hedging agreements (which amounts are to be applied by the Issuer in payment of such termination payment due to the relevant Hedge Provider); and amounts outstanding to the credit of the Hedging Collateral Ledgers (as defined below) or representing amounts attributable to assets transferred as collateral by a Hedge Provider following the occurrence of a rating downgrade of such Hedge Provider (being "Hedging Collateral Amounts") (which are to be applied in returning collateral to, or in satisfaction of amounts owing by, the relevant Hedge Provider in accordance with the Hedges or, as applicable, replacement hedging arrangements). Payments may not be made from the Issuer Transaction Account on any day other than on an Interest Payment Date other than to satisfy liabilities set out in paragraph (d) above. To the extent that the Issuer's funds on the relevant Interest Payment Date are insufficient to make payments under paragraphs (a) to (p) inclusive above, the Issuer may make a drawing under the Liquidity Facility (subject to specified limits, as to which see Liquidity Facility Agreement above) or, to the extent credited thereto, the Liquidity Facility Reserve Account (see Liquidity Facility Agreement above). Post-Enforcement The Security Trustee may declare the security enforceable through the service of an Issuer Enforcement Notice, such notice to be given to, among others, the Issuer Secured Creditors. The effect of such service will be, inter alia, to crystallise the floating charges over the Issuer Transaction Account, the Issuer Cash Collateralisation Account and the Liquidity Facility Reserve Account. To the extent of the funds available, no payment may be withdrawn from the Issuer Transaction Account without the prior consent of the Security Trustee. Following the service of an Issuer Enforcement Notice, the Security Trustee is required to apply moneys available (a) in the Liquidity Facility Reserve Account to the Liquidity Facility Providers and (b) in the Issuer Transaction Account and in the Issuer Cash Collateralisation Account (after applying any Hedging Collateral Amounts in returning collateral to, or in satisfaction of amounts owing by, a Hedge Provider in accordance with the terms of the Hedges) for distribution in or towards the satisfaction of the following amounts in the following order of priority (the "Issuer Post-Enforcement Priority of Payments", the Issuer Post-Enforcement Priority of Payments and the Issuer Pre-Enforcement Priority of Payments each being an "Issuer Priority of Payments") (and in each case only to the extent that payments or provisions of a higher priority have been made in full) (unless otherwise required by law) (including in each case any value added tax payable thereon): (a) (b) first, to pay or provide for in no order of priority among themselves, but pari passu and pro rata according to the respective amounts then due or to be provided, the fees or other remuneration and indemnity payments (if any) payable to: (i) (ii) (iii) (iv) the Security Trustee and any Receiver appointed by the Security Trustee and any costs, charges, liabilities and expenses incurred by the Security Trustee and any Receiver under the provisions of the Issuer Deed of Charge and any of the other Relevant Documents, together with interest thereon as provided for therein; the Note Trustee and any costs, charges, liabilities and expenses incurred by it under the provisions of the Trust Deed and any of the other Relevant Documents, together with interest thereon as provided for therein; the Paying Agents and the Agent Bank and any costs, charges, liabilities and expenses incurred under the provisions of the Agency Agreement and any of the other Relevant Documents, together with interest thereon as provided therein; and the Escrow Agent and any costs, charges, liabilities and expenses incurred under the provisions of the Escrow Deed and any of the other Relevant Documents, together with interest thereon as provided for therein; second, to pay or provide for (after application of all amounts in the Liquidity Facility Reserve Account (if any)) all amounts of principal, interest, commitment fees and any Mandatory Costs due or accrued but unpaid to the Liquidity Facility Agent under the terms of the Liquidity Facility Agreement but, in the case of the Mandatory Costs only, up to a maximum aggregate amount of 0.20 per cent. per annum of the maximum aggregate amount available to be drawn under the Liquidity Facility (but excluding any Liquidity Subordinated Amounts and any Liquidity Stand-by Drawing Subordinated Amounts); 90

91 (c) (d) (e) (f) (g) third, to pay or provide for in any amounts then due or to be provided remuneration then payable to: (i) (ii) the Account Bank together with all other costs, charges, liabilities, expenses, indemnity amounts and losses incurred under the provisions of the Bank Agreement; and the Financial Adviser incurred under the provisions of the Financial Advisory Services Agreement; fourth, in or towards satisfaction, pari passu and pro rata, of all amounts due but unpaid (other than any Hedging Subordinated Amounts) to: (i) (ii) the Initial Hedge Provider under the Hedges; and any other counterparty under any other swap agreement entered into by the Issuer (other than the Issuer/Borrower Swap Agreement), in each case including any Hedging Termination Payment; fifth, to pay or provide for amounts in respect of guarantee fees and all other amounts then due to Ambac pursuant to the terms of the Guarantee and Reimbursement Agreements (other than amounts provided for in items (f)(ii), (f)(iii), (g)(ii), (g)(iii), (h)(ii), (i)(ii), (j)(ii), (k)(ii) and (p) below); sixth, in or towards satisfaction on a pari passu and pro rata basis according to the respective amounts thereof of: (i) (ii) (iii) all amounts of interest due or accrued but unpaid in respect of the Class A1(R) Notes; (A) all amounts due under the Guarantee and Reimbursement Agreements in respect of amounts of Scheduled Interest paid by Ambac to the Class A2(R) Noteholders together with any interest on such amounts and (B) all amounts of interest due or accrued but unpaid in respect of the Class A2(R) Notes, such amounts to be applied in the following order of priority: (x) (y) first, to pay Ambac the amounts described at (A) above; and second, to pay to the Class A2(R) Noteholders the amounts described at (B) above; and (A) all amounts due under the Guarantee and Reimbursement Agreements in respect of amounts of Scheduled Interest paid by Ambac to the Class A3(N) Noteholders together with any interest on such amounts and (B) all amounts of interest due or accrued but unpaid in respect of the Class A3(N) Notes, such amounts to be applied in the following order of priority: (x) (y) first, to pay to Ambac the amounts described at (A) above; and second, to pay the Class A3(N) Noteholders the amounts described at (B) above; seventh, in or towards satisfaction on a pari passu and pro rata basis according to the respective amounts thereof of: (i) (ii) (iii) all amounts of principal and any other amounts due in respect of the Class A1(R) Notes until redemption in full; (A) all amounts due under the Guarantee and Reimbursement Agreements in respect of the Scheduled Principal paid by Ambac to the Class A2(R) Noteholders together with any interest on such amounts and (B) all amounts of principal and any other amounts due in respect of the Class A2(R) Notes until redemption in full, such amounts to be applied in the following order of priority: (x) (y) first, to pay to Ambac the amounts described at (A) above; and second, to pay the Class A2(R) Noteholders the amounts described at (B) above; and (A) all amounts due under the Guarantee and Reimbursement Agreements in respect of the Scheduled Principal paid by Ambac to the Class A3(N) Noteholders together with any interest on such amounts and (B) all amounts of principal and other amounts due in respect of the Class A3(N) Notes until redemption in full, such amounts to be applied in the following order of priority: 91

92 (h) (i) (j) (k) (l) (x) (y) first, to pay to Ambac the amounts described at (A) above; and second, to pay the Class A3(N) Noteholders the amounts described at (B) above; eighth, in or towards satisfaction, pari passu and pro rata according to the respective amounts thereof of: (i) (ii) of all amounts of interest due or accrued but unpaid in respect of the Class M1 Notes; and (A) all amounts due under the Guarantee and Reimbursement Agreements in respect of amounts of Scheduled Interest paid by Ambac to the Class M2(N) Noteholders together with any interest on such amounts and (B) all amounts of interest due or accrued but unpaid in respect of the Class M2(N) Notes (not including, for the avoidance of doubt, any Class M2(N) Step-Up Amounts), such amounts to be applied in the following order of priority: (x) (y) first, to pay to Ambac the amounts described at (A) above; and second, to pay the Class M2(N) Noteholders the amounts described at (B) above; ninth, in or towards satisfaction, pari passu and pro rata according to the respective amounts thereof of: (i) (ii) all amounts of principal and other amounts due in respect of the Class M1 Notes until redemption in full; and (A) all amounts due under the Guarantee and Reimbursement Agreements in respect of amounts of Ultimate Principal paid by Ambac to the Class M2(N) Noteholders together with any interest on such amounts and (B) all amounts of principal and other amounts due (other than any Class M2(N) Step-Up Amounts) in respect of the Class M2(N) Notes until redemption in full, such amounts to be applied in the following order of priority: (x) (y) first, to pay to Ambac the amounts described at (A) above; and second, to pay the Class M2(N) Noteholders the amounts described at (B) above; tenth, in or towards satisfaction, pari passu and pro rata according to the respective amounts thereof of: (i) (ii) all amounts of interest due or accrued but unpaid in respect of the Class B1 Notes and the Class B2 Notes; and (A) all amounts due under the Guarantee and Reimbursement Agreements in respect of amounts of Scheduled Interest paid by Ambac to the Class B3 Noteholders together with any interest on such amounts and (B) all amounts of interest due or accrued but unpaid in respect of the Class B3 Notes (not including, for the avoidance of doubt, any Class B3 Step-Up Amounts), such amounts to be applied in the following order of priority: (x) (y) first, to pay to Ambac the amounts described at (A) above; and second, to pay the Class B3 Noteholders the amounts described at (B) above; eleventh, in or towards satisfaction, pari passu and pro rata according to the respective amounts thereof of: (i) (ii) of all amounts of principal and other amounts due in respect of the Class B1 Notes and the Class B2 Notes, until redemption in full; and (A) all amounts due under the Guarantee and Reimbursement Agreements in respect of amounts of Ultimate Principal paid by Ambac to the Class B3 Noteholders together with any interest on such amounts and (B) all amounts of principal and other amounts due (other than any Class B3 Step-Up Amounts) in respect of the Class B3 Notes until redemption in full, such amounts to be applied in the following order of priority: (x) (y) first, to pay to Ambac the amounts described at (A) above; and second, to pay the Class B3 Noteholders the amounts described at (B) above; twelfth, in or towards satisfaction of all amounts of interest due or accrued but unpaid in respect of the Class C(R) Notes; 92

93 (m) (n) (o) (p) (q) (r) (s) (t) (u) (v) (w) thirteenth, in or towards satisfaction of all amounts of principal and other amounts due in respect of the Class C(R) Notes until redemption in full; fourteenth, in or towards satisfaction of all amounts of interest due or accrued but unpaid in respect of the Class D1 Notes (not including, for the avoidance of doubt, any Class D1 Step-Up Amounts); fifteenth, in or towards satisfaction of all amounts of principal and other amounts due (other than any Class D1 Step-Up Amounts) in respect of the Class D1 Notes until redemption in full; sixteenth, in or towards satisfaction pari passu and pro rata according to the respective amounts thereof of: (i) (ii) any other amounts (including the Liquidity Subordinated Amounts and the Liquidity Stand-by Drawing Subordinated Amounts, but excluding any sums referred to in paragraph (b) above) due under the Liquidity Facility Agreement to the Liquidity Facility Providers; and subordinated amounts due to Ambac pursuant to the terms of the Guarantee and Reimbursement Agreements; seventeenth, in or towards satisfaction of any Hedging Subordinated Amounts; eighteenth, to pay or provide for remuneration then payable to the Servicer together with all other costs, charges, liabilities and expenses incurred under the provisions of the Servicing and Cash Management Agreement; nineteenth, in or towards payment of Class M2(N) Step-Up Amounts then due and payable; twentieth, in or towards payment of Class B3 Step-Up Amounts then due and payable; twenty-first, in or towards payment of Class D1 Step-Up Amounts then due and payable; twenty-second, to pay or provide for sums due or overdue to third parties under obligations incurred in the course of the Issuer's business, including the provision for, and payment of the Issuer's liability (if any) to corporation tax (insofar as payment cannot be satisfied out of profits); and twenty-third, the surplus (if any) to the Issuer. Notwithstanding the application of proceeds pursuant to the Issuer Post-Enforcement Priority of Payments, to the extent that the Issuer receives any termination payment from a Hedge Provider on termination of any Hedge (or, as applicable, any replacement hedging arrangements) and the Issuer has an obligation to pay a corresponding amount to the Borrower in respect of the termination of the relevant transactions under the Issuer/Borrower Swap Agreement, the Issuer shall be entitled to make such payment directly to the Borrower on any day. In addition, any net payment payable by the Issuer to the Borrower under the Issuer/Borrower Swap Agreement (other than a termination payment) shall be satisfied by way of set-off against amounts of interest payable at such time by the Borrower to the Issuer under the Issuer/Borrower Facility Agreements. Consents As described in Risk Factors Risks Relating to the Notes Conflicts of Interest above, the Issuer Deed of Charge contains provisions requiring the Security Trustee to have regard to the interests of the Issuer Secured Creditors as a whole with respect to all powers, trusts, authorities, duties and discretions of the Security Trustee and to deal with conflicts of interest between any such Issuer Secured Creditors. In addition, the Relevant Documents contain provisions requiring the Obligors to obtain the Security Trustee's consent to certain actions of the Obligors including in respect of the variation or waiver of any provisions of the Relevant Documents. The Relevant Documents provide that in certain circumstances the consent of the Security Trustee may be given if certain conditions are satisfied at the relevant time, including, without limitation, if the Rating Agencies confirm that the rating of the Notes (and, if there are any Guaranteed Notes outstanding, the Underlying Rating) will not be adversely affected as a result of the granting of such consent, and prior to the occurrence of an Ambac Termination Event the consent of Ambac is obtained. Each of the Issuer Secured Creditors will agree that only the Security Trustee may enforce the security created pursuant to the Issuer Deed of Charge and that it will not take any steps whatsoever to direct the Security Trustee to enforce the security created in its favour under the Issuer Deed of Charge, nor take any steps or pursue any action whatsoever for the purpose of recovering any debts due or owing to it by the Issuer or to petition or procure the petitioning for the winding-up or 93

94 administration of the Issuer or the appointment of an administrative receiver in respect of the Issuer unless an Issuer Enforcement Notice shall have been served or the Note Trustee, having become bound to serve an Issuer Enforcement Notice and/or the Security Trustee having become bound to take any steps or proceedings to enforce the said security pursuant to the Issuer Deed of Charge, fails to do so within a reasonable period of becoming so bound and such failure is continuing (in which case each of such Issuer Secured Creditors shall be entitled to take any such steps and proceedings as it shall deem necessary other than the presentation of a petition for the winding-up of, or for an administration order in respect of, the relevant chargor). The Issuer Security will become enforceable upon the occurrence of an Event of Default (as defined in Condition 9, see Terms and Conditions of the Notes below), provided that, if the Issuer Security has become enforceable otherwise than by reason of a default in payment of any amount due on the Notes, the Security Trustee will not be entitled to dispose of the assets comprising the security or any part thereof unless either a sufficient amount would be realised to allow discharge in full of all amounts owing to the Noteholders, and all amounts payable in priority thereto, as set out in Priority of Payments Post-Enforcement above, or the Security Trustee is of the opinion, which shall be binding on the Issuer Secured Creditors, reached after considering at any time and from time to time the advice of such professional advisers as are at the time selected by the Security Trustee, that the cash flow prospectively receivable by the Issuer will not (or that there is a significant risk that it will not) be sufficient, having regard to any other relevant actual, contingent or prospective liabilities of the Issuer, to discharge in full in due course all amounts owing to the Noteholders and all amounts payable in priority thereto as set out in Priority of Payments Post-Enforcement above. Appointment of an administrative receiver The Issuer Deed of Charge will provide that the Security Trustee shall enforce the Issuer Security in respect of the Issuer, by appointing an administrative receiver, if it has actual notice of either: (i) an application for the appointment of an administrator; or (ii) the giving of a notice of intention to appoint an administrator, in respect of the Issuer, such appointment of an administrative receiver to take effect upon the final day by which the appointment must be made in order to prevent an administration proceeding or (where the Issuer or the directors of the Issuer have initiated the administration) not later than that final day. In addition, the Security Trustee may (subject to Summary of Principal Documents Issuer Deed of Charge Indemnity of the Security Trustee below), following the occurrence of an Event of Default, enforce the Issuer Security in respect of the Issuer by the appointment of an administrative receiver (if the Security Trustee has not already done so pursuant to the foregoing). The Security Trustee shall not be liable for any failure to appoint an administrative receiver, save in the case of its own gross negligence, wilful default or fraud. Indemnity of the Security Trustee The Security Trustee will not be obliged to appoint an administrative receiver under the Issuer Deed of Change unless it is indemnified and/or secured to its satisfaction. However, the Issuer Deed of Charge will provide that, if the Security Trustee is required to enforce the Issuer Security by appointing an administrative receiver following receipt of actual notice of an application for the appointment of an administrator or actual notice of the giving of a notice of intention to appoint an administrator, then the Security Trustee will agree that it is adequately indemnified and secured in respect of such appointment by virtue of its rights against the Issuer under the Issuer Deed of Charge and the security which it has in respect of such rights. The Issuer will covenant in the Issuer Deed of Charge that, if the Security Trustee appoints an administrative receiver by reason of having actual notice of an application for the appointment of an administrator or actual notice of the giving of a notice of intention to appoint an administrator, it waives any claim against the Security Trustee in respect of such appointment. The Issuer Deed of Charge will be governed by English law. ISSUER/BORROWER SWAP AGREEMENT The Borrower and the Issuer will on or about the Fourth Closing Date enter into an ISDA Master Agreement and one or more interest rate swap transactions evidenced by one or more confirmations which supplement and form part of such ISDA Master Agreement and schedule thereto (together the "Issuer/Borrower Swap Agreement"). The terms of the Issuer/Borrower Swap Agreement are, and will be, in all material respects, in aggregate equivalent to those of the Hedges (as to which see the section entitled Summary of Principal Documents Hedges above) save that, inter alia, neither the Issuer nor the Borrower is required to maintain minimum ratings or to provide collateral in respect of its obligations other than pursuant to the Punch Taverns Deeds of Charge or the Issuer Deed of Charge 94

95 (as applicable), the Issuer is not obliged to make any additional payment under the Issuer/Borrower Swap Agreement in circumstances where it is obliged to make a withholding or deduction from a payment made by it to the Borrower and provided that the Issuer is only required to make net payments to the Borrower to the extent that it has received the corresponding amounts from the Initial Hedge Provider under the Hedges. Under the Issuer/Borrower Swap Agreement (a) the Issuer will be obliged to make floating rate payments by reference to a notional principal corresponding to the Term A3(N) Advance, the Term M2(N) Advance, the Term B3 Advance and the Term D1 Advance and (b) the Borrower will be obliged to pay to the Issuer fixed rate payments on a corresponding notional amount. The obligation of the Borrower to make payments of interest under the Issuer/Borrower Facility Agreements in respect of the Term A3(N) Advance, the Term M2(N) Advance, the Term B3 Advance and the Term D1 Advance will be set-off against the obligations of the Issuer to make floating rate payments under the Issuer/Borrower Swap Agreement, with the result that no floating rate payments are made by either party. The net results will be that a fixed rate payment by reference to a notional principal corresponding to the aggregate of the Term A3(N) Advance, the Term M2(N) Advance, the Term B3 Advance and the Term D1 Advance (and, therefore, corresponding to the aggregate of the fixed rate payments then due by the Issuer to the Initial Hedge Provider) will be payable by the Borrower to the Issuer on each Loan Interest Payment Date. On entering into the Issuer/Borrower Swap Agreement, the Issuer will be required on the Fourth Closing Date to pay a premium to the Borrower in an amount equal to the premium received by the Issuer from the Initial Hedge Provider in respect of the entry into by the Issuer of the Hedges. The Issuer/Borrower Swap Agreement will be governed by English law. BANK AGREEMENT The Bank Agreement was entered into on the Third Closing Date by, inter alios, the Borrower, the Issuer, the Account Bank and the Security Trustee. On or before the Third Closing Date, the Issuer had established the following accounts at the Account Bank for the following respective purposes: (a) (b) (c) Issuer Transaction Account: The net proceeds of the issue of the Notes were and are to be credited to the Issuer Transaction Account pending the making of the Term Advances. Thereafter, payments of principal, interest and fees received from the Borrower under the Issuer/Borrower Facility Agreements have been and will be paid into the Issuer Transaction Account, and amounts standing to the credit of the Issuer Transaction Account will be applied in making payments of interest and principal on the Notes; Liquidity Facility Reserve Account: The proceeds of any drawings made by the Issuer under the Liquidity Facility upon the occurrence of certain specified events (see Summary of Principal Documents Liquidity Facility Agreement above) will be credited to the Liquidity Facility Reserve Account and to the extent funds are available, payments of any Liquidity Shortfall will be paid by the Issuer from the Liquidity Facility Reserve Account; and Issuer Cash Collateralisation Account: Amounts paid by the Borrower to the Issuer in relation to a drawing by the Issuer under the Liquidity Facility will be credited to the Issuer Cash Collateralisation Account and subsequently paid to the Liquidity Facility Providers in repayment of drawings under the Liquidity Facility on the next following Interest Payment Date. All of the bank accounts of the Issuer, the Borrower and the other Securitisation Group Entities will, at the Fourth Closing Date, be maintained with the Account Bank in accordance with the provisions of the Bank Agreement. Under the Bank Agreement, the Account Bank will agree to operate such bank accounts subject to certain restrictions and will have certain rights of set-off in relation thereto, and the Securitisation Group Entities and the Account Bank will be prohibited from amending the mandates in relation to such accounts without the consent of the Security Trustee. The Bank Agreement is governed by English Law. SERVICING AND CASH MANAGEMENT AGREEMENT Under a servicing and cash management agreement dated 26 March 1998 between, inter alios, the Issuer, the Borrower and the Security Trustee, as amended on or about the Fourth Closing Date (the "Servicing and Cash Management Agreement"), the Borrower, as servicer (the "Servicer"), agrees to provide certain corporate administrative services to and on behalf of the Issuer. In addition, the Servicer agrees on behalf of the Issuer to invest certain sums standing to the credit of the Issuer 95

96 Transaction Account, the Issuer Cash Collateralisation Account and the Liquidity Facility Reserve Account in Eligible Investments. For these purposes, "Eligible Investments" means: (a) (b) sterling gilt-edged securities; and sterling demand or time deposits, certificates of deposit and short-term debt obligations (including commercial paper), provided that in all cases (i) such investments have a maturity date falling no later than the next following Loan Interest Payment Date or Interest Payment Date (as the case may be) but not more than three months from the date on which such investment is purchased, where immediately following the purchase of such investment the aggregate of the cash balance of the relevant account and the proceeds scheduled to be repaid pursuant to any Eligible Investments which mature on or before the next succeeding Loan Interest Payment Date or Interest Payment Date (as the case may be) would be greater than or equal to such amount as is due and payable from the relevant account on the next succeeding Loan Interest Payment Date or Interest Payment Date (as the case may be), (ii) the shortterm unsecured, unguaranteed and unsubordinated debt obligations of the issuing or guaranteeing entity or the entity with which the demand or time deposits are made (being an authorised institution under the Financial Services and Markets Act 2000) are rated "A-1", "P-1" or "F1" (or equivalent) or higher by the Rating Agencies or are otherwise acceptable to the Rating Agencies, and (iii) interest thereon is payable without withholding or deduction for or on account of tax. Pursuant to the Servicing and Cash Management Agreement the Servicer is required to maintain ledgers in respect of the Issuer Transaction Account (the "Hedging Collateral Ledgers"), to which it will credit all cash collateral transferred by any Hedge Provider and all other amounts attributable to assets transferred as collateral by the Hedge Provider. The Servicer will also maintain a record of all other collateral (and the income in respect thereof) transferred by the Hedge Provider. Cash and other assets transferred as collateral will be applied first (subject to obtaining the consent of the Security Trustee) in returning collateral (and income thereon) to, or in satisfaction of amounts owing by, a Hedge Provider who has transferred such collateral in accordance with relevant Hedge and will not be applied in accordance with the then applicable Issuer Priority of Payments. The Issuer, with the consent of the Security Trustee and (prior to the occurrence of an Ambac Termination Event which is continuing) Ambac, may terminate the appointment of the Servicer upon giving not less than 30 days prior written notice to the Servicer of its intention to do so, provided that no such termination shall take effect until a new servicer has been appointed by the Issuer. Upon giving any such notice to terminate the appointment of the Servicer, the Issuer is required to use its reasonable endeavours to appoint a new servicer prior to the expiry of the 30 days notice period. In addition, the appointment of the Servicer will terminate automatically if either (a) default is made by the Servicer in the payment to be made by it under the Servicing and Cash Management Agreement where it has funds available to make such payment and such default continues unremedied for a period of fifteen Business Days, (b) an insolvency event occurs in respect of the Servicer or (c) the Servicer is rendered unable to perform its obligations under the Servicing and Cash Management Agreement for a period of 60 days by circumstances beyond its reasonable control. The Servicer may resign its appointment at any time by giving to the Issuer and the Security Trustee at least 60 days prior written notice, provided always that so long as any of the Notes are outstanding, no such resignation shall take effect until a replacement servicer is appointed. The Servicing and Cash Management Agreement is governed by English law. FINANCIAL ADVISORY SERVICES AGREEMENT Under the financial advisory services agreement (the "Financial Advisory Services Agreement") dated the Third Closing Date between, inter alios, the Obligors, the Financial Adviser and the Security Trustee, the Financial Adviser, acting on a capped liability basis, agrees to provide to the Security Trustee certain services relating to the financial position of the Punch Group. The Financial Adviser will receive a fee for providing such services. In addition, in certain circumstances, the Borrower will be required to ensure that the Financial Adviser verifies certain information to the Security Trustee prior to entering into certain transactions as described above. In certain circumstances the Financial Adviser may resign without a replacement being appointed. The Financial Advisory Services Agreement is governed by English Law. 96

97 TAX DEED OF COVENANT Under the terms of the Tax Deed of Covenant entered into on the Third Closing Date as amended and restated on or about the Fourth Closing Date between the Borrower, the Issuer, the Security Trustee, PGE and certain others, inter alia: (a) (b) (c) PGE will covenant not to, and will give covenants to procure that, as far as possible, members of the Punch Group will not, do anything to cause a degrouping charge to arise in any member of the Securitisation Group except, as regards future actions, with the prior written consent of the Security Trustee; PGE will give representations and covenants to the effect that neither it nor any member of the Punch Group have taken any steps and will not take any steps which have had or will have the consequence of rendering a member of the Securitisation Group liable to tax which is primarily the liability of another entity except, as regards future actions, with the prior written consent of the Security Trustee; and certain restrictions will be placed on the surrender of or claim to any amounts available for surrender by way of group relief by any member of the Securitisation Group except, as regards future actions, with the prior written consent of the Security Trustee. FINANCIAL GUARANTEES On the Third Closing Date, pursuant to a guarantee and reimbursement agreement dated 3 November 2003 between, inter alios, the Issuer, the Note Trustee and Ambac (the "First Guarantee and Reimbursement Agreement", and together with the Second Guarantee and Reimbursement Agreement, the "Guarantee and Reimbursement Agreements") Ambac issued in favour of the Note Trustee (for itself and on behalf of, inter alios, the Class A2(R) Noteholders) a financial guarantee (the "First Financial Guarantee") in respect of Scheduled Interest on and Scheduled Principal of, inter alia, the Class A2(R) Notes. It is a condition to the requirement that Ambac make payments under the First Financial Guarantee that, to the extent that amounts are available to be drawn under the Liquidity Facility to make payments of interest on the Class A2(R) Notes, the Issuer is obliged first to make drawings in such amounts under the Liquidity Facility Agreement. On or about the Fourth Closing Date, Ambac will issue in favour of the Note Trustee (for itself and on behalf of the Class A3(N) Noteholders, the Class M2(N) Noteholders and the Class B3 Noteholders) the Second Financial Guarantee (together with the First Financial Guarantee, the "Financial Guarantees") in respect of Scheduled Interest on, and Scheduled Principal of, the Class A3(N) Notes and in respect of Scheduled Interest on, and Ultimate Principal of, the Class M2(N) Notes and the Class B3 Notes (see further Form of Second Financial Guarantee below). It will be a condition to the requirement that Ambac make payments under the Second Financial Guarantee that, to the extent that amounts are available to be drawn under the Liquidity Facility to make payments of interest on the Fourth Issue Guaranteed Notes, the Issuer is obliged first to make drawings in such amounts under the Liquidity Facility Agreement. Upon any early redemption of any class of Guaranteed Notes or an Event of Default, if not cured, Ambac's obligations will continue to be to pay the Guaranteed Amounts as they fall due for payment on each Interest Payment Date. Ambac will not be obliged under any circumstances to accelerate payment under the relevant Financial Guarantee. However, if it does so, it may do so in whole or in part and the amount payable by Ambac will be the outstanding principal amount (or the pro rata amount that has become due and payable) of the relevant class of Guaranteed Notes together with accrued Scheduled Interest in respect of the relevant class of Notes (any amounts due in excess of such outstanding principal amount and any accrued Scheduled Interest thereon will not be guaranteed by Ambac under the relevant Financial Guarantee). The First Financial Guarantee is governed by English law. The Second Financial Guarantee will also be governed by English law. GUARANTEE AND REIMBURSEMENT AGREEMENTS On the Third Closing Date, the Issuer entered into the First Guarantee and Reimbursement Agreement under which it is obliged, inter alia, to reimburse Ambac in respect of any payments made by Ambac under the First Financial Guarantee and to pay any fees and expenses of Ambac in respect of the provision of the First Financial Guarantee. 97

98 On or about the Fourth Closing Date, the Issuer will enter into the Second Guarantee and Reimbursement Agreement under which it will be obliged, inter alia, to reimburse Ambac in respect of any payments made by Ambac under the Second Financial Guarantee and to pay any fees and expenses of Ambac in respect of the provision of the Second Financial Guarantee. In so far as Ambac makes payment under a Financial Guarantee in respect of any Guaranteed Amounts, it shall be subrogated to the rights of the Class A2(R) Noteholders, the Class A3(N) Noteholders, the Class M2(N) Noteholders and/or the Class B3 Noteholders (as applicable) against the Issuer in respect of any payments made. The First Guarantee and Reimbursement Agreement is governed by English law. The Second Guarantee and Reimbursement Agreement will also be governed by English law. CORPORATE SERVICES AGREEMENT On the Third Closing Date, the Issuer entered into a corporate services agreement (the "Corporate Services Agreement") with Wilmington Trust SP Services (London) Limited (formerly SPV Management Limited) (the "Corporate Services Provider") and others under which the Corporate Services Provider is entitled to charge a fee per annum payable quarterly in advance on each Loan Interest Payment Date, subject to the Issuer having sufficient funds available to pay it out of Issuer Available Funds having paid all other higher ranking amounts in the relevant Issuer Priority of Payments. The Corporate Services Agreement is governed by English law. BORROWER SUBORDINATED LOAN AGREEMENTS Punch Taverns Intermediate Holdings Limited ("PTIHL"), Punch Taverns (PRAF) Limited (formerly Punch Retail Acquisition Finance Limited) ("PRAF") and Punch Taverns (PRAC) Limited (formerly Punch Retail (Acquisition Company) Limited) ("PRAC") (together the "Borrower Subordinated Loan Providers") have made certain subordinated loans to the Borrower in an aggregate amount of 708,860,776 (the "Borrower Subordinated Loans") as at the Fourth Closing Date, pursuant to a subordinated loan agreement between the Borrower and PTIHL made on 26 March 1998 (and amended on 27 October 2000 and 3 November 2003) (the "PTIHL Subordinated Loan Agreement"), a subordinated loan agreement between the Borrower and PRAF made on 3 November 2003 (the "PRAF Subordinated Loan Agreement") and a subordinated loan agreement made between the Borrower and PRAC on 3 November 2003 (the "PRAC Subordinated Loan Agreement" and together with the PTIHL Subordinated Loan Agreement and the PRAF Subordinated Loan Agreement, the "Borrower Subordinated Loan Agreements"). The Borrower Subordinated Loans may not be repaid until two years after the redemption in full of all outstanding Notes or otherwise without the consent of the Security Trustee. On the Fourth Closing Date, it is expected that the Borrower will repay approximately 84,600,000 of the Borrower Subordinated Loans, leaving an aggregate outstanding balance of approximately 624,260,776. The Borrower Subordinated Loan Agreements are each governed by English law. SUPPLY AGREEMENT On 23 July 2003, the Borrower entered into a supply agreement with Supplyco (the "Supply Agreement") under which Supplyco agrees to supply the Borrower with wet products from various suppliers (as more particularly described in Business of the Punch Group and Information Regarding the Portfolio Products and Services below). The Supply Agreement is governed by English law. MANAGEMENT SERVICES AGREEMENT The management functions of certain members of the Punch Group are centralised pursuant to a Management Services Agreement made on 3 November 2003 and amended on 31 December 2004 and further amended and restated on 1 August 2005 (the "Management Services Agreement") between the Borrower as service provider and certain members of the Punch Group. The Management Services Agreement is governed by English law. BUSINESS SALE AGREEMENTS On 25 May 2007, 278 pubs were transferred from APL278 to the Borrower pursuant to an asset sale agreement dated 25 May 2007 between the Borrower and APL278 and on or before the Fourth Closing Date, 35 pubs will be transferred from APL35 to the Borrower pursuant to an asset sale agreement to be dated on or about the Fourth Closing Date between the Borrower and APL35,

99 pubs will be transferred from PGRP to the Borrower pursuant to a business and asset sale agreement to be dated on or about the Fourth Closing Date between the Borrower and PGRP and 90 pubs will be transferred from Branston to the Borrower pursuant to a business and asset sale agreement to be dated on or about the Fourth Closing Date between the Borrower and Branston (together, the "Business and Asset Sale Agreements"). In relation to the transfer of 278 pubs from APL278 to the Borrower, the lease of such pubs to ATL was surrendered to the Borrower on 26 May In addition, in relation to the transfer of 35 pubs from APL35 to the Borrower, it is a condition of such transfer that the lease of such pubs to ATL be surrendered within 24 hours of the completion of the transfer so that the Borrower becomes the landlord under the occupational tenancies in respect of such pubs. The Business and Asset Sale Agreements are each governed by English law. 99

100 USE OF PROCEEDS The net proceeds from the issuance of the Fourth Issue Notes (after deduction of selling concessions and management and underwriting commissions) will be 822,850,000. The net proceeds of the Fourth Issue Notes will be applied by the Issuer as follows: (a) (b) 461,444,500 to redeem in full the outstanding Existing Floating Rate Notes; and the remainder to be advanced to the Borrower upon satisfaction of certain conditions precedent (as described in Summary of Principal Documents Issuer/Borrower Facility Agreements) pursuant to the Issuer/Borrower Facility Agreements by way of the Fourth Issue Term Facilities. Upon receipt by the Borrower of the Fourth Issue Term Advances from the Issuer, the Borrower will apply the proceeds in the following manner: (i) (ii) (iii) (iv) in prepaying in full on the Fourth Closing Date the term loan facilities advanced by the Issuer to the Borrower under the Issuer/Borrower Facility Agreements which correspond to the Class A3(R) Notes and the Class M2 Notes; in purchasing the business, assets and goodwill of certain pubs from the Avebury Sub-Group, PGRP and Branston; in paying transaction costs and expenses (including the payment of a fee to the Issuer in respect of selling concessions and management and underwriting commissions) of approximately 6,000,000; and in repayment in part of the Borrower Subordinated Loans and other subordinated amounts owed to Punch Taverns Holdings Limited. 100

101 Introduction THE ISSUER The Issuer was incorporated in England and Wales on 2 January 1998 (registered number ) as a public company with limited liability under the name of Doublemove Public Limited Company. The company then changed its name to Punch Taverns Finance plc pursuant to a special resolution dated 17 February 1998, was re-registered as a private limited company by a special resolution dated 25 October 2000, and then re-registered as a public company again pursuant to a special resolution dated 10 October The registered office of the Issuer is at Jubilee House, Second Avenue, Burton upon Trent, Staffordshire, DE14 2WF. The authorised share capital of the Issuer is 100,000 divided into 100,000 ordinary shares of 1 each, one of which is held by Neil Preston and 49,999 of which are held by the Parent. The remainder of the authorised share capital is unissued. English company law combined with the covenants made by the Issuer in the Relevant Documents and the role of the Security Trustee are together intended to prevent any abuse of control of the Issuer. Principal Activities The principal objects of the Issuer are set out in Clause 3 of its Memorandum of Association and are, inter alia, to carry on the business of a property investment company and an investment holding company, to enter into loan arrangements and to issue securities, financial instruments and derivative contracts, and to raise or borrow money and to grant security over its assets for such purposes and to lend money with or without security. The Issuer has not engaged, since its incorporation, in any activities other than those incidental to its incorporation, the authorisation and issue of the Notes and of the other documents and matters referred to or contemplated in this document to which it is or will be a party and matters which are incidental or ancillary to the foregoing. There is no intention to accumulate surpluses in the Issuer except in circumstances set out in Summary of Principal Documents Issuer Deed of Charge Priority of Payments above. Pursuant to the Original Trust Deed (as supplemented and amended by the First Supplemental Trust Deed), the Issuer has covenanted to observe certain restrictions on its activities which are detailed in Condition 3 of the Notes (see Terms and Conditions of the Notes below). Directors and Secretary The directors of the Issuer are: Name Business Address R G Baker JPJ Fairrie M McDermott R McDonald N Preston c/o Wilmington Trust SP Services (London) Limited Tower 42 International Financial Centre 25 Old Broad Street London EC2N 1HQ c/o Wilmington Trust SP Services (London) Limited Tower 42 International Financial Centre 25 Old Broad Street London EC2N 1HQ c/o Wilmington Trust SP Services (London) Limited Tower 42 International Financial Centre 25 Old Broad Street London EC2N 1HQ Jubilee House Second Avenue Burton upon Trent Staffordshire DE14 2WF Jubilee House Second Avenue 101

102 G Thorley Wilmington Trust SP Services (London) Limited The secretary of the Issuer is Claire Stewart. The Issuer has no employees. Capitalisation and indebtedness statement Burton upon Trent Staffordshire DE14 2WF Jubilee House Second Avenue Burton upon Trent Staffordshire DE14 2WF Tower 42 International Financial Centre 25 Old Broad Street London EC2N 1HQ The capitalisation and indebtedness of the Issuer as at the date of this Offering Circular, adjusted for the Fourth Issue Notes to be issued on the Fourth Closing Date is as follows: Share Capital Authorised: 100,000 divided into 100,000 ordinary shares of 1 each ,000 Issued: 50,000 ordinary shares of 1 each of which 2 have been issued fully paid and 49,998 have been issued partly paid... 12,602 Loan Capital Class A1(R) Notes repayable in ,000,000 Class A2(R) Notes repayable in ,000,000 Class A3(N) Notes repayable ,000,000 Class M1 Notes repayable in ,000,000 Class M2(N) Notes repayable in ,000,000 Class B1 Notes repayable in ,000,000 Class B2 Notes repayable in ,000,000 Class B3 Notes repayable in ,000,000 Class C(R) Notes repayable in ,000,000 Class D1 Notes repayable in ,000,000 2,100,000,000 Loan Capital to be repaid Existing Floating Rate Notes to be repaid on 16 July ,000,000 Class A3(R) Floating Rate Secured Notes due ,444, ,000,000 Class M2 Floating Rate Secured Notes due ,000, ,444,500 Total capitalisation and indebtedness... 2,561,457,102 Save for the foregoing, at the date of this Offering Circular, the Issuer has no borrowings or indebtedness in the nature of borrowings (including loan capital, issued or created but unissued), term loans, liabilities under acceptances or acceptance credits, mortgages, charges or guarantees or other contingent liabilities. Audited Financial Statements The audited financial statements of the Issuer as of and for the years ended 20 August 2005 and 19 August 2006 and notes thereto are set out on pages 299 to 331 below. Post-Issuance Information Other than procuring the publication of Investor Reports (as to which see Summary of Principal Documents Issuer/Borrower Facility Agreements Financial Information above) the Issuer does not intend to provide any post-issuance information in relation to any class of Notes or the performance of the Punch Taverns Mortgaged Properties. 102

103 Introduction THE PARENT The Parent was incorporated in England and Wales on 26 January 1998 (registered number ) as a private company with limited liability under the name of Trushelfco (No. 2313) Limited. The name was changed to Punch Taverns Holdings Limited by a special resolution dated 17 February The registered office of the Parent is at Jubilee House, Second Avenue, Burton upon Trent, Staffordshire, DE14 2WF. The authorised share capital of the Parent is 170,000 divided into 170,000 ordinary shares of 1 each of which 63,930 are issued and held by Punch Taverns (ES) Limited. Principal Activities The principal objects of the Parent are set out in Clause 3 of its Memorandum of Association and are, inter alia, to carry on the business of a property investment company and an investment holding company, to enter into loan arrangements and to issue securities, financial instruments and derivative contracts, and to raise or borrow money and to grant security over its assets for such purposes and to lend money with or without security. The Parent has not engaged, since its incorporation, in any activities other than those incidental to its incorporation, the authorisation and issue of the Notes and the other documents and matters referred to or contemplated in this document to which it is or will be a party and matters which are incidental or ancillary to the foregoing. Directors and Secretary The directors of the Parent and their respective business addresses are: Name R McDonald Business Address Jubilee House Second Avenue Burton upon Trent Staffordshire DE14 2WF N Preston Jubilee House Second Avenue Burton upon Trent Staffordshire DE14 2WF Wilmington Trust SP Services (London) Limited Tower 42 International Financial Centre 25 Old Broad Street London EC2N 1HQ G Thorley Jubilee House Second Avenue Burton upon Trent Staffordshire DE14 2WF The secretary of the Parent is Claire Stewart. The Parent has no employees. Capitalisation and indebtedness statement The capitalisation of the Parent at the date of this Offering Circular is as follows: Share capital Authorised: 170,000 divided into 170,000 ordinary shares of 1 each ,000 Issued: 63,930 ordinary shares of 1 each, each of which has been issued fully paid... 63,

104 At the date of this Offering Circular, the Parent has no borrowings or indebtedness in the nature of borrowings (including loan capital, issued or created but unissued), term loans, liabilities under acceptances or acceptance credits, mortgages, charges or guarantee or other contingent liabilities. 104

105 Introduction THE BORROWER The Borrower was incorporated in England and Wales on 17 February 1998 (registered number ) as a private company with limited liability under the name of Trushelfco (No. 2328) Limited. The company changed its name to Punch Taverns Limited by a special resolution dated 11 March 1998, then changed its name to Punch Pub Company (PTL) Limited by a special resolution dated 9 August 2000 and then changed its name to Punch Taverns (PTL) Limited by a special resolution dated 31 August The registered office of the Borrower is at Jubilee House, Second Avenue, Burton upon Trent, Staffordshire, DE14 2WF. The authorised share capital of the Borrower is 1,500 divided into 1,500 ordinary shares of 1 each, of which 1,402 are issued and held by the Parent. English company law combined with the covenants made by the Borrower and the Parent in the Relevant Documents and the role of the Security Trustee are together intended to prevent any abuse of control of the Borrower. Principal Activities The principal objects of the Borrower are set out in Clause 3 of its Memorandum of Association and are, inter alia, to carry on the business of a property investment company and an investment holding company, to enter into loan arrangements and to issue securities, financial instruments and derivative contracts, and to raise or borrow money and to grant security over its assets for such purposes and to lend money with or without security. Under the Issuer/Borrower Facility Agreements, the Borrower will covenant to observe certain restrictions on its activities which are further described in Summary of Principal Documents The Issuer/Borrower Facility Agreements above. Directors and Secretary The directors of the Borrower and their respective business addresses are: Name D Kemp Business Address Jubilee House Second Avenue Burton upon Trent Staffordshire DE14 2WF R McDonald F Patton N Preston A Thompson G Thorley Jubilee House Second Avenue Burton upon Trent Staffordshire DE14 2WF Jubilee House Second Avenue Burton upon Trent Staffordshire DE14 2WF Jubilee House Second Avenue Burton upon Trent Staffordshire DE14 2WF Jubilee House Second Avenue Burton upon Trent Staffordshire DE14 2WF Jubilee House Second Avenue Burton upon Trent Staffordshire DE14 2WF The secretary of the Borrower is Claire Stewart. 105

106 There are no potential conflicts of interest between any duties of the directors to the Borrower and the directors' private interests or other duties. The Borrower will at the Fourth Closing Date have approximately 700 employees. See further The United Kingdom Pub Industry Regulatory Environment Employment Legislation. Capitalisation and indebtedness statement The capitalisation and indebtedness of the Borrower at the date of this Offering Circular, adjusted for (i) the advances to be made on the Fourth Closing Date under the Term Facilities, (ii) for the repayment of the Borrower Subordinated Loans expected to be made on the Fourth Closing Date and (iii) for the repayment of the Term Advances corresponding to the Existing Floating Rate Notes to be made on the Interest Payment Date falling on 16 July 2007, is as follows: Share capital Authorised: 1,500 divided into 1,500 ordinary shares of 1 each... 1,500 Issued: 1,402 ordinary shares of 1 each, each of which has been issued fully paid... 1,402 Loan Capital Term A1(R) Advance due ,000,000 Term A2(R) Advance due ,000,000 Term A3(N) Advance due ,000,000 Term M1 Advance due ,000,000 Class M2(N) Advance due ,000,000 Term B1 Advance due ,000,000 Term B2 Advance due ,000,000 Term B3 Advance due ,000,000 Term C(R) Advance due ,000,000 Term D1 Advance due ,000,000 Punch Taverns Intermediate Holdings Limited Subordinated Loan ,195,877 Punch Retail (Acquisition Company) Limited Subordinated Loan ,463,062 Punch Retail (Acquisition Finance) Limited Subordinated Loan... 51,601,837 * 2,724,262,178 * This figure represents an estimate of the amount expected to be outstanding as at the Fourth Closing Date taking into account the expected repayment by the Borrower on the Fourth Closing Date. The actual outstanding amount on the Fourth Closing Date may differ from this amount. Save for the foregoing, at the date of this Offering Circular, the Borrower has no borrowings or indebtedness in the nature of borrowings (including loan capital, issued or created but unissued), term loans, liabilities under acceptances or acceptance credits, mortgages, charges or guarantees or other contingent liabilities. Audited Financial Statements The audited financial statements of the Borrower as of and for the years ended 20 August 2005 and 19 August 2006 and notes thereto are set out on pages 253 to 298 below. 106

107 General AMBAC ASSURANCE UK LIMITED Ambac Assurance UK Limited ("Ambac") was incorporated with limited liability in England on 11 September 1996 pursuant to the Companies Act 1985 with registered number Ambac became authorised to transact a credit, suretyship and financial loss insurance business in the United Kingdom on 8 February 1997, and remains exclusively involved in those lines of business. Ambac is also licensed to offer those insurance services in a number of other European Union countries on a freedom of services basis, and has a recently opened branch office in Milan, Italy. Ambac is authorised and regulated by the Financial Services Authority (the "FSA") of the United Kingdom. Ambac's registered office is located at Level 7, 6 Broadgate, London EC2M 2QS, United Kingdom (telephone (44) (0) ). Ambac has no subsidiaries. Ambac's legal and commercial name is Ambac Assurance UK Limited. Ambac is a direct wholly-owned subsidiary of Ambac Assurance Corporation, ("Ambac Assurance"), a monoline insurance company incorporated under the laws of the State of Wisconsin, USA. Each of Ambac and Ambac Assurance is part of the Ambac Financial Group, Inc. group of companies (see Ambac Assurance Corporation below). Ambac is dependent on Ambac Assurance in that Ambac Assurance supports Ambac through certain contractual arrangements (as described in Relationship Between Ambac Assurance UK Limited and Ambac Assurance Corporation below). Ratings Ambac has obtained "AAA/Aaa/AAA" financial strength ratings from S&P, Moody's and Fitch. Information Copies of the annual regulatory return filed by Ambac with the FSA and the annual financial statements filed with the Registrar of Companies in the United Kingdom are available upon request to Ambac at its registered office. Copies of the statutory quarterly and annual statements filed by Ambac Assurance in the United States are available at Ambac Financial Group Inc's website at or are available upon request to Ambac Assurance at its principal place of business, One State Street Plaza, New York, NY 10004, USA. Recent Developments Since 31 December 2006, the date as at which its latest audited accounts were prepared, Ambac has continued to conduct its insurance business in the United Kingdom and the other European Union countries into which it is licensed to offer insurance services, as well as initiating business operations through its newly opened branch office in Milan, Italy. There has been no significant change, nor material adverse change, in its financial or trading position or its prospects since 31 December There are no governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which Ambac is aware) during the previous 12 months which may have, or have had in the recent past, significant effects on Ambac's financial position or profitability. Directors of Ambac The following sets forth a list of the members of the board directors of Ambac by name and principal activity: Name Function Principal Activities Robert John Genader Executive Chairman of the Board, President and Chief Executive Officer, Ambac Assurance Corporation and Ambac Financial Group Inc. Douglas Renfield-Miller Executive Executive Vice President, Ambac Assurance Corporation, and Chairman and Chief Executive Officer, Ambac Assurance UK Limited (appointed Chairman and Chief Executive Officer 11 April 2005). John Wyatt Uhlein III Executive Executive Vice President, Ambac Assurance Corporation and Ambac 107

108 Financial Group, Inc. Martin Roberts Non-Executive Independent Consultant, Director, Financial Management Assurance Consultants Ltd. David William Wallis Executive Senior Managing Director, Ambac Assurance Corporation David Ronald Larwood Executive (Part-time) Financial Controller Ambac Assurance UK Limited Director, Stonebridge International Insurance Co. Ltd. Ian Marcus Dixon Executive Managing Director, Ambac Assurance UK Limited Jonathan Prestwich Scott Non-Executive Retired Project Financier The business address of Messrs. Genader, Uhlein and Wallis is One State Street Plaza, New York, NY 10004, USA. The business address of Messrs. Renfield-Miller, Dixon, Roberts, Larwood and Scott is Level 7, 6 Broadgate, London EC2M 2QS, United Kingdom. As at the date of this prospectus, the above-mentioned board members of Ambac do not have any potential conflicts of interest between any duties to Ambac, and their private interest or other duties. Insurance Regulation Ambac is authorised and regulated by the FSA in the conduct of its insurance business in the United Kingdom. Under United Kingdom regulations, Ambac is subject to certain limits and requirements, including the maintenance of a minimum margin of solvency and the establishment of loss and unearned premium reserves. Other FSA requirements include regulation of transactions with connected persons and investments made by Ambac. Financial Information The audited accounts of Ambac for the years ended 31 December 2006 and 31 December 2005 are annexed as an appendix to this prospectus. Capitalisation and Indebtedness The following table sets forth the audited capitalisation and indebtedness of Ambac prepared in accordance with the provisions of Section 225 of, and Schedule 9A to, the Companies Act 1985, and in accordance with applicable accounting standards and under the historical cost accounting rules, modified to include the revaluation of investments, and comply with the Statement of Recommended Practice issued by the Association of British Insurers as at 31 December As at 31 December 2006 ( ) Short term debt (1) 0 Long term debt (1) 0 Total Issued and Paid up Share Capital (2) 31,000,000 Profit and Loss Account 16,088,000 Capital Contributions 2,268,000 Total Shareholders' Equity 49,356,000 Notes: (1) (2) On 31 December 2006 Ambac did not have any reserves, loan capital outstanding or created but unissued, term loans or any other borrowings or indebtedness in the nature of a borrowing, including bank overdrafts and liabilities under acceptances or acceptance credits, mortgages, charges, finance lease commitments, hire purchase obligations or guarantees or contingent liabilities. As at 31 December 2006 the issued and paid up share capital of Ambac comprised 31,000,000 ordinary shares of 1 each. This was increased to 36,000,000 ordinary shares of 1 each on 8 May The authorised share capital of Ambac is 60 million. 108

109 There has been no material change in the authorised and issued share capital, capitalisation or indebtedness (including guarantees or contingent liabilities) of Ambac since 31 December (otherwise than as disclosed in Note 2, above). Auditors Ambac's auditors are KPMG Audit Plc, 8 Salisbury Square, London EC4Y 8BB. KPMG Audit Plc is registered to carry out audit work by the Institute of Chartered Accountants in England and Wales. Their reports on the audited accounts of Ambac for the years ended 31 December 2006 and 31 December 2005 annexed as an appendix to this prospectus. Ambac's auditors have not changed during the period covered by such audited accounts. Material Contracts Save as disclosed in this prospectus (see Relationship Between Ambac Assurance UK Limited and Ambac Assurance Corporation), Ambac has not entered into contracts outside the ordinary course of business that could result in Ambac being under an obligation or entitlement that is material to Ambac's ability to meet its obligations to the beneficiary of its financial guarantee. 109

110 General AMBAC ASSURANCE CORPORATION Ambac Assurance is a leading financial guarantee insurance company that is primarily engaged in insuring municipal and structured finance obligations and is the successor of the oldest municipal bond insurance company, which wrote the first municipal bond insurance policy in Ambac Assurance was incorporated in the State of Wisconsin, USA. with limited liability on 25 February Ambac Assurance maintains its principal executive offices at One State Street Plaza, New York, NY 10004, USA. Ambac Assurance is a wholly-owned subsidiary of Ambac Financial Group, Inc., a holding company that provides financial guarantee insurance and financial services to both public and private clients around the world. Financial guarantee insurance written by Ambac Assurance in both the primary and secondary markets guarantees payment when due of the principal of and interest on the obligation insured. In the case of a default on the insured obligation, payments under the insurance policy may not be accelerated by the policyholder without Ambac Assurance's consent. Ambac Assurance primarily insures newly issued obligations and seeks to maintain a diversified insurance portfolio which spreads its risk across a number of criteria, including issue size, type of bond, geographic area and issuer. At 31 March 2007, Ambac Assurance's net par outstanding and net insurance in force were US$ billion and US$ billion, respectively. Ambac Assurance has been assigned triple-a financial strength ratings by Moody's Investors Service, Inc., Standard & Poor's Ratings Services, and Fitch, Inc. These ratings are an essential part of Ambac Assurance's ability to provide credit enhancement. See Rating Agencies below. Ambac Assurance has nine wholly-owned subsidiaries, Ambac Assurance UK Limited, a UK licensed insurance company, Ambac Credit Products, LLC, Ambac Capital Services, LLC, Ambac Credit Products Limited, and Ambac Financial Services, LLC, companies that write derivative products, Ambac Private Holdings, LLC, a company that owns and invests in securities, Ambac Japan Co., Ltd., a Japanese services company which markets financial guarantees in Japan, and Connie Lee Holdings, Inc., a holding company for Connie Lee Insurance Company ("Connie Lee"). Ambac Assurance acquired Connie Lee in December Connie Lee, a triple-a rated financial guarantee insurance company, which guaranteed bonds issued primarily for college and hospital infrastructure projects, is not expected to write any new business. Financial guarantee industry overview Financial guarantee insurance generally guarantees to the holder of the underlying obligation the timely payment of principal of and interest on such obligation in accordance with such obligation's original payment schedule. Accordingly, in the case of an issuer default on the insured obligation, payments under the insurance policy may not be accelerated by the policyholder without Ambac Assurance's consent. Financial guarantee insurance provides a form of credit enhancement that benefits both the issuer and the investor. Issuers benefit because their securities are generally sold with a higher credit rating than securities sold on a stand-alone basis, resulting in interest cost savings and greater marketability. In addition, for complex financings and obligations of issuers that are not well known by investors, insured obligations receive greater market acceptance than uninsured obligations. Investors benefit from greater marketability and a reduction in the risk of loss associated with an issuer's default. Structured finance obligations Insurance on structured finance or asset-backed obligations is typically issued in connection with transactions in which the securities being issued are secured by or payable from a specific pool of assets having an ascertainable cash flow or market value and held by a special purpose issuing entity. Municipal obligations Municipal obligations and municipal bonds include taxable and tax-exempt bonds, notes and other evidences of indebtedness issued by states, political subdivisions (cities, counties, towns and villages), water, sewer and other utility districts, higher educational institutions, hospitals, transportation and housing authorities and other similar agencies. Municipal obligations are supported by the taxing authority of the issuer or the issuer's or underlying obligor's ability to collect fees or assessments for certain projects or public services. References herein to "municipal bonds" and "municipal obligations" are to debt obligations of states and other political subdivisions in the United States. 110

111 International Finance Obligations Outside of the United States, structured and asset-backed issuers, utilities, sovereign and subsovereign issuers, and other issuers are increasingly using financial guarantee products, particularly in markets throughout Western Europe. A number of important trends in international markets have contributed to this expansion. In the United Kingdom, Australia and elsewhere, ongoing privatisation efforts have shifted the burden of funding from the government to the public and private capital markets, where investors may seek the security of financial guarantee products. In Europe, Australia, Japan and the emerging markets, there is also growing interest in asset-backed securitisations. Insurance Written Ambac Assurance sells most of its insurance in the new issue US bond market. During the first quarter ended 31 March 2007, Ambac Assurance insured gross par amount of $31.5 billion, of which $13.9 billion, or 44% was related to new issue and secondary market policies on municipal bonds. Approximately $15.1 billion, or 48% of gross par written during the first quarter ended 31 March 2007 represented domestic (US) structured finance exposure. Approximately $2.5 billion, or 8% of gross par written during the first quarter ended 31 March 2007 represented international exposure. Ambac Assurance sells most of its insurance in the new issue US bond market. During the year ended 31 December 2006, Ambac Assurance insured gross par amount of $124.5 billion, of which $43.1 billion, or 35% was related to new issue and secondary market policies on municipal bonds. Approximately $62.4 billion, or 50% of gross par written during the year ended 31 December 2006 represented domestic (US) structured finance exposure. Approximately $19.0 billion, or 15% of gross par written during the year ended 31 December 2006 represented international exposure. Rating Agencies Moody's Investors Service, Inc., Standard & Poor's Ratings Services, and Fitch, Inc. periodically review the business and financial condition of Ambac Assurance and other companies providing financial guarantee insurance. Rating agency reviews focus on the insurer's underwriting policies and procedures and the quality of the obligations insured. The rating agencies frequently perform assessments of the credits insured by Ambac Assurance to confirm that Ambac Assurance continues to meet the capital allocation criteria considered necessary by the particular rating agency to maintain Ambac Assurance's triple-a financial strength ratings. A rating by Moody's Investors Service, Inc., Standard & Poor's Ratings Services, or Fitch, Inc., however, is not a "market rating" or a recommendation to buy, hold or sell any security. Ambac Assurance's ability to attract new business, or to compete with other triple-a rated financial guarantors, and its results of operations and financial condition, would be materially adversely affected by any reduction in its financial strength ratings. Reinsurance US State insurance laws and regulations (as well as the rating agencies) impose minimum capital requirements on financial guarantee insurance companies, limiting the aggregate amount of insurance which may be written and the maximum size of any single risk exposure which may be assumed. Such companies can use reinsurance to diversify risk, increase underwriting capacity, reduce additional capital needs, stabilise shareholder returns and strengthen financial ratios. See Insurance Regulatory Matters below. As a primary insurer, Ambac Assurance is required to honour its obligations to its policyholders whether or not its reinsurers perform their obligations under the various reinsurance agreements with Ambac Assurance. Ambac Assurance has surplus share treaties with various reinsurers, which provide for a program of reinsurance with respect to large risks underwritten by Ambac Assurance in the public finance and structured finance sectors. Ambac Assurance has entered into municipal bond and structured and international finance facultative reinsurance agreements. These agreements allow Ambac Assurance to reduce its large risks, to manage its portfolio of insurance by bond type and geographic distribution, and to provide additional capacity for frequent municipal bond issuers. Under these agreements, portions of Ambac Assurance's interests and liabilities are ceded on an issue-by-issue basis. A ceding commission is withheld to defray Ambac Assurance's underwriting expenses. As of 31 March 2007, Ambac Assurance had retained 90 percent of its gross insurance in force of $911.0 billion and had ceded approximately 10 percent to its treaty and facultative reinsurers. 111

112 Insurance Regulatory Matters General Law Ambac Assurance is licensed to do business as an insurance company in all 50 states of the United States, the District of Columbia, the Commonwealth of Puerto Rico, the territory of Guam and the US Virgin Islands. It is subject to the insurance laws and regulations of the State of Wisconsin, its state of incorporation, and the insurance laws and regulations of other states in which it is licensed to transact business, particularly the State of New York, which has a comprehensive financial guarantee insurance law. These laws and regulations, as well as the level of supervisory authority that may be exercised by the various state insurance departments, vary by jurisdiction, but generally require insurance companies to maintain minimum standards of business conduct and solvency, meet certain financial tests, including single risk limits and minimum policyholders' surplus and reserve levels, file certain reports with regulatory authorities, including information concerning their capital structure, ownership and financial condition, and require prior approval of certain changes in control of domestic insurance companies and their direct and indirect parents and the payment of certain dividends and distributions. In addition, these laws and regulations require approval of certain intercorporate transfers of assets and certain transactions between insurance companies and their direct and indirect parents and affiliates, and generally require that all such transactions have terms no less favourable than terms that would result from transactions between parties negotiating at arm's length. Ambac Assurance is required to file quarterly and annual statutory financial statements in each jurisdiction in which it is licensed, and is subject to single and aggregate risk limits and other statutory restrictions concerning the types and quality of investments and the filing and use of policy forms and premium rates. Additionally, Ambac Assurance's accounts and operations are subject to periodic examination by the Wisconsin Insurance Commissioner and other state insurance regulatory authorities. Investments and Investment Policy As of 31 March 2007, Ambac Assurance's investment portfolio had an aggregate fair value of US $10.3 billion and an amortized cost of $10.1 billion. The investment policy established by the board of directors for Ambac Assurance's investments is designed to achieve diversification of the portfolio. Ambac Assurance's investment policy only permits investment in investment grade fixed-income securities, consistent with its goal to achieve the highest after-tax, long-term return. Capitalisation The following table sets forth the capitalization of Ambac and subsidiaries as of March 31, 2007, December 31, 2006, and December 31, 2005, in conformity with U. S. generally accepted accounting principles. Ambac Assurance Corporation and Subsidiaries CONSOLIDATED CAPITALIZATION TABLE (Dollars in Millions) March 31, 2007 December 31, 2006 December 31, 2005 (unaudited) Long-term debt... $0 $0 $0 Stockholder's equity Common stock Additional paid-in capital... 1,532 1,509 1,453 Accumulated other comprehensive income Retained earnings... 5,434 5,259 4,510 Total stockholder's equity... $7,182 $6,992 $6,182 There has been no material adverse change in the capitalization of Ambac and subsidiaries from March 31, 2007 to the date of this Offering Circular. Directors of Ambac Assurance The following information for each director of Ambac Assurance is set forth below name, business or home address and description of principal activities performed outside the Ambac Financial Group, Inc. 112

113 group but which are significant with respect to the Ambac Financial Group, Inc. group: Name Home or Business Address Principal Activities Robert J. Genader Michael A. Callen Jill M. Considine Philip Duff Ambac Financial Group, Inc. One State Street Plaza New York, NY Avalon Argus & Associates, LLC Riverwood Drive Potomac, MD The Depository Trust & Clearing Corporation 55 Water Street New York, NY John Street Greenwich, CT W. Grant Gregory Gregory & Hoenemeyer, Inc. Two Greenwich Plaza Greenwich, CT Thomas C. Theobald Laura S. Unger Henry D. G. Wallace 8 Sound Shore Drive Suite 285 Greenwich, CT N Street, N.W. Washington, D.C Monterosso Lane Unit 201 Naples, Florida Chairman of the Board, President and Chief Executive Officer of Ambac Financial Group, Inc. and Ambac Assurance. Non-executive director; President of Avalon Argus & Associates, LLC since April 1996; Director of Intervest Corporation of New York and Intervest Bancshares Corporation. Non-executive director; Chairman and Chief Executive Officer of The Depository Trust Company and The Depository Trust & Clearing Corporation; Director of the Atlantic Mutual Insurance Companies, The Interpublic Group of Companies, Inc. and the Federal Reserve Bank of New York. Non-executive director; Chairman and CEO of Robson Ventures LLC. Presiding and non-executive director; Chairman of Gregory Hoenemeyer, Inc., Director of Double Click Inc. Non-executive director; Chairman of the Board of Columbia Mutual Funds; Director of Anixter International, Jones Lang LaSalle Incorporated, and Ventas, Inc. Non-executive director; former Acting Chairperson of the US Securities and Exchange Commission, Director of Borland Software Corporation and MBNA. Non-executive director; former Group Vice President and Chief Financial Officer of Ford Motor Company; Director of Diebold, Inc. and Hayes Lemmerz International, Inc. 113

114 RELATIONSHIP BETWEEN AMBAC ASSURANCE UK LIMITED AND AMBAC ASSURANCE CORPORATION General Ambac is a direct wholly-owned subsidiary of Ambac Assurance. Ambac does not have any subsidiaries. Ambac outsources to Ambac Assurance substantial management support functions. In addition, Ambac has the following financial support arrangements with Ambac Assurance. Net Worth Maintenance Agreement Ambac and Ambac Assurance have entered into a net worth maintenance agreement dated as of 1 January 1997 (the "Net Worth Maintenance Agreement"), which is governed by the laws of the State of Wisconsin. Pursuant to the Net Worth Maintenance Agreement, Ambac Assurance is required to cause Ambac to maintain free assets of 10,500,000 or such greater amount as may be required by FSA provided that no contribution can be required to be made which would have the effect of reducing Ambac Assurance's financial strength ratings from Standard & Poor's Ratings Services, Moody's Investors Service, Inc. or Fitch, Inc. Reinsurance Agreement The obligations of Ambac under the Second Financial Guarantee will be substantially reinsured with Ambac Assurance pursuant to a reinsurance agreement dated as of 1 January 1997 (the "Reinsurance Agreement") which is governed by the laws of the State of New York. Pursuant to the Reinsurance Agreement, a substantial portion of all liabilities on financial guarantees issued by Ambac are reinsured by Ambac Assurance. Such reinsurance is used as a risk management device and to comply with certain statutory and rating agency requirements; it does not alter or limit the obligations of Ambac under any financial guarantee. In addition, the Reinsurance Agreement also contains "stop loss" provisions that require Ambac Assurance to make payments to Ambac if Ambac's losses exceed a certain amount. Under these provisions Ambac Assurance will reimburse Ambac for the amount by which aggregate annual net losses incurred by Ambac (paid losses plus any increase in loss reserves, net of reinsurance) exceed 500,000. Noteholders should note that the Net Worth Maintenance Agreement and the Reinsurance Agreement (together, the "Ambac Support Agreements") are entered into for the benefit of Ambac and are not, and should not be regarded as, guarantees by Ambac Assurance of the payment of any indebtedness, liability or obligations of the Issuer or Ambac including the Fourth Issue Notes or the Second Financial Guarantee. Accordingly, Noteholders do not have any recourse to Ambac Assurance in respect of the Ambac Support Agreements. Information in this prospectus concerning Ambac Assurance is provided for background purposes only in view of the importance to Ambac of the Ambac Support Agreements. It does not imply that the Ambac Support Agreements are guarantees for the benefit of Noteholders. Payment of principal of and interest on the Guaranteed Notes will be guaranteed by Ambac pursuant to the Financial Guarantees and will not be additionally guaranteed by Ambac Assurance. Noteholders should note that Ambac's ability to perform its obligations under the Second Financial Guarantee and to maintain its current ratings substantially depends on the ability of Ambac Assurance to perform its obligations under the Ambac Support Agreements. 114

115 FORM OF SECOND FINANCIAL GUARANTEE Financial Guarantee Ambac Assurance UK Limited Level 7 6 Broadgate London EC2M 2QS Telephone: Fax: Registered No.: Registered in England Financial Guarantee Number: Guaranteed Obligations: Beneficiary: UK00178 Punch Taverns Finance PLC 125,000,000 Class A3(N) Secured Floating Rate Notes due ,000,000 Class M2(N) Secured Floating Rate Notes due ,000,000 Class B3 Secured Floating Rate Notes due 2031 The Note Trustee: Deutsche Trustee Company Limited or any successor trustee appointed pursuant to the Trust Deed, as trustee for the Holders of the Guaranteed Obligations. Effective Date: 5 July 2007 Ambac Assurance UK Limited ("Ambac") in consideration of the payment of the Guarantee Fee and subject to the terms of this Financial Guarantee, hereby agrees unconditionally and irrevocably to pay to the Note Trustee for the benefit of the Holders of the Guaranteed Obligations that portion of the Guaranteed Amounts which have become Due for Payment but are unpaid by reason of Non-payment. Payments Save in respect of Accelerated Payments (which may be made at the election of Ambac only), Ambac will make payments which are due under this Financial Guarantee to the Note Trustee by 11.00am London time on the later of (a) the second Business Day following Receipt by Ambac of a duly completed Notice of Demand and Certificate from the Note Trustee and (b) the applicable Scheduled Payment Date, or in either case, if that is not a Business Day, on the next succeeding Business Day. Payments due under this Financial Guarantee will be satisfied by payment in full by Ambac to the Account in the appropriate currency or currencies. Save as otherwise provided herein, payment in full to the Account shall discharge the obligations of Ambac under this Financial Guarantee to the extent of such payment whether or not such payment is properly applied by or on behalf of the Note Trustee or any Paying Agent. Save as otherwise provided herein, once payment by Ambac of an amount in respect of any Guaranteed Obligation (whether on a Scheduled Payment Date or on an Accelerated Payment Date) has been made to the Account, Ambac shall have no further obligations under this Financial Guarantee in respect of such Guaranteed Obligation to the extent of such payment. The obligations of Ambac under this Financial Guarantee shall not be affected by any redenomination of the Guaranteed Obligations into euro save that, following such redenomination, payments hereunder shall be made in euro. Insolvency In the event that the Note Trustee has notice that any payments of Guaranteed Amounts which have become Due for Payment and which have been made to the Note Trustee or to any Holder by or on behalf of the Issuer have been declared (in whole or in part) a Preference and recovered from the Note Trustee or such Holder pursuant to any Insolvency Law in accordance with a final nonappealable order of a court of competent jurisdiction, the Note Trustee on behalf of such Holders will be entitled under this Financial Guarantee to payment from Ambac upon Receipt by Ambac from the Note Trustee of a duly completed Notice of Demand and Certificate to the extent of such recovery 115

116 (such amounts being referred to herein as "Avoided Payment Amounts"). Amounts payable by Ambac pursuant to this paragraph shall be paid by Ambac to the Note Trustee, by 11.00am, London time, on the fourth Business Day following Receipt by Ambac of said Notice of Demand and Certificate, by payment to the credit of the Account. Subrogation Upon Ambac making any payment in respect of any Guaranteed Obligation(s), including for the avoidance of doubt any Accelerated Payments, to the Account hereunder Ambac shall, to the extent of any such payment, be fully and automatically subrogated pursuant to applicable law to all of the rights of the Holders' of the Affected Guaranteed Obligations to payment of the Guaranteed Amounts and/or any Accelerated Payments (as the case may be) (including, without limitation, any rights and benefits attached thereto, and any security granted at law or by contract (whether under the Issuer Deed of Charge or otherwise) in respect of the Affected Guaranteed Obligations) to the extent of such payment. UK Withholding Tax All payments by Ambac under this Financial Guarantee shall be made without withholding or deduction for, or on account of, any taxes, duties, assessments or other governmental charges of whatever nature imposed, levied, collected, withheld or assessed by the United Kingdom or any political subdivision or taxing authority therein or thereof unless such withholding or deduction is required by law. If any withholding or deduction is so required by law, Ambac shall account to the appropriate tax authority for the amount required to be withheld or deducted and shall pay the Guaranteed Amounts and Avoided Payment Amounts net of such withholding or deduction. Ambac shall not be obliged to pay any additional amount to the Note Trustee or the Holders in respect of such withholding or deduction. Scope of Guarantee This Financial Guarantee is not cancellable by Ambac for any reason, including the failure of Ambac to receive payment of any Guarantee Fee due in respect of this Financial Guarantee. The Guarantee Fee is not refundable for any reason. This Financial Guarantee does not guarantee any accelerated payment (whether by way of prepayment of the Guaranteed Obligations or otherwise), other than at the sole option of Ambac as specified in the paragraph entitled "Accelerated Payments", nor provide protection by way of guarantee or otherwise, nor against any risk (including, without limitation, the risk of failure of the Note Trustee or any Paying Agent to make any payment due to Holders of Guaranteed Amounts) other than Non-payment and insolvency claw back risk in relation to Avoided Payment Amounts, in each case as provided herein. Accelerated Payments There shall be no accelerated payment of any Guaranteed Amount due under this Financial Guarantee unless Ambac elects to make an Accelerated Payment of all or any part of the Guaranteed Obligations at its sole option. If Ambac elects to make an Accelerated Payment, it shall, not later than two (2) Business Days prior to the date on which it shall effect such payment, deliver to the Issuer and the Note Trustee, by fax or letter (to the fax number or mailing address applicable for notices given in respect of the Trust Deed) delivered by registered post or courier, a written notice duly executed by an authorised officer of Ambac, notifying the Issuer and the Note Trustee of the exercise of (1) its option hereunder and (2) the proposed Accelerated Payment Date for such Accelerated Payment. Ambac shall, unless otherwise directed by the Note Trustee, make such Accelerated Payment to the Principal Paying Agent on the proposed Accelerated Payment Date. Such notice shall be deemed to have been delivered when (a) in the case of a letter, delivered to the relevant addressee; or (b) in the case of a fax, when transmission of such fax communication has been received in a legible form and receipt has been confirmed, in each case prior to noon (London time) on a Business Day. Waiver of Defences The obligations of Ambac under this Financial Guarantee shall not be affected by any lack of validity or enforceability of or any modification or any amendment to the Guaranteed Obligations or the Trust Deed or the granting of any time, indulgence or concession by any party to the Issuer. Ambac acknowledges that there is no duty of disclosure by the Note Trustee under this Financial Guarantee but nonetheless, to the fullest extent permitted by applicable law, hereby waives for the benefit of the Note Trustee and each Holder and agrees not to assert any and all rights (whether by counterclaim, rescission, set-off or otherwise), equities and defences (including, without limitation (a) any defence of fraud by any Person (other than the Note Trustee itself) or (b) any defence based on misrepresentation, breach of warranty or non-disclosure of information by any Person), to the extent such rights, equities and defences may be available to Ambac to avoid payment of its obligations 116

117 under this Financial Guarantee in accordance with the express provisions hereof, but without prejudice to any subsequent recourse Ambac may have to or against any Person. Definitions Any capitalised terms used in this Financial Guarantee and not defined herein shall have the meaning given to them in the Conditions. For all the purposes of this Financial Guarantee, the following terms shall have the following meanings: "Accelerated Payment" means any payment of any Guaranteed Amount in advance of the Scheduled Payment Date for such Guaranteed Amount (whether by way of prepayment of any Guaranteed Amount or otherwise) made by Ambac to the Account at Ambac's sole option and in accordance with this Financial Guarantee, but subject to the Guaranteed Obligations having become due and payable by the Issuer pursuant to the Conditions. "Accelerated Payment Date" means any date on which Ambac makes an Accelerated Payment. "Account" means in respect of any payment made by Ambac on: (i) (ii) a Scheduled Payment Date, the bank account specified in the relevant Notice of Demand and Certificate; and an Accelerated Payment Date, the bank account notified by the Note Trustee to Ambac in writing at least one Business Day prior to the Accelerated Payment Date. "Affected Guaranteed Obligations" means those Guaranteed Obligations (identified in the relevant duly completed Notice of Demand and Certificate) in respect of which a Non-payment has occurred or will occur, as specified in the relevant Notice of Demand and Certificate. "Affiliate" means, in relation to any Person, any Holding Company of that Person or a Person of which that Holding Company has direct or indirect control or owns directly or indirectly more than 50 per cent. of the share capital or similar rights of ownership or control of another Person. "Business Day" means any day on which commercial banks and foreign exchange markets settle payments in London and are open for general business (including dealing in foreign exchange and foreign currency deposits). "Class A3(N) Notes" means the 125,000,000 Class A3(N) Secured Floating Rate Notes due 2015 issued by the Issuer on 5 July Class M2(N) Notes means the 400,000,000 Class M2(N) Secured Floating Rate Notes due 2029 issued by the Issuer on 5 July Class B3 Notes means the 175,000,000 Class B3 Secured Floating Rate Notes due 2031 issued by the Issuer on 5 July "Conditions" means the terms and conditions of the Notes as set out in the Second Schedule of the Trust Deed as at the date of this Financial Guarantee or as amended with the consent of Ambac (each a "Condition"). "Due for Payment" means, in relation to any Guaranteed Amounts, that the Scheduled Payment Date for such amount has been reached. For the avoidance of doubt, "Due for Payment" does not refer to any earlier date upon which payment of any Guaranteed Amounts may become due under the Guaranteed Obligations, by reason of prepayment, acceleration of maturity, mandatory or optional redemption or otherwise. "Guarantee Excluded Amounts" means, in respect of the Guaranteed Obligations: (a) (b) (c) any principal or other sums payable on an accelerated basis by the Issuer in respect of any redemption of the Notes pursuant to the Conditions including any principal or other sums payable in respect of (i) Condition 5(c), (ii) any redemption for tax or other reasons pursuant to Condition 5(e), and (iii) any redemption of the Class M2(N) Notes or the Class B3 Notes pursuant to Condition 5(b) (except to the extent that any such redemption amounts remain outstanding on the date for final redemption of the relevant class of Notes pursuant to Condition 5(a)); any Step-Up Amounts; any default interest on any of the Guaranteed Obligations; 117

118 (d) (e) any amounts which the Issuer has or would have been obliged to withhold or deduct or gross up under Condition 7 or otherwise; and principal, interest or any other amounts due in respect of any Notes which have been purchased by or beneficially belong to any member of the Issuer Group during the period in which the relevant member(s) of the Issuer Group, or any Person acting on behalf of the relevant member(s) of the Issuer Group, is Holder of the Notes, but not thereafter. "Guarantee Fee" means the guarantee fee(s) payable by the Issuer in consideration of the issue of this Financial Guarantee, as specified in the Guarantee Fee Letter. "Guarantee Fee Letter" means the letter (described on its face as "Guarantee Fee Letter") dated on or about the date of this Financial Guarantee between Ambac and the Issuer. "Guaranteed Amounts" means, with respect to any Scheduled Payment Date, the sum of (i) Scheduled Interest payable on such Scheduled Payment Date, (ii) in respect of the Class A3(N) Notes, Scheduled Principal payable on such Scheduled Payment Date and (iii) in respect of the Class M2(N) Notes and the Class B3 Notes, Ultimate Principal payable on such Scheduled Payment Date, as applicable. For the avoidance of doubt, "Guaranteed Amounts" excludes (a) any/or Scheduled Interest and for Scheduled Principal in respect of which, in either case, Ambac has made an Accelerated Payment on an Accelerated Payment Date falling prior to such Scheduled Payment Date and (b) any Guarantee Excluded Amounts. "Guaranteed Obligations" means the Class A3(N) Notes, the Class M2(N) Notes and the Class B3 Notes constituted by the Third Supplemental Trust Deed (the "Notes") and shall include, where the context so requires, the coupons relating to such Notes but shall in all cases exclude Guarantee Excluded Amounts. "Holder" means (i) if and to the extent the Guaranteed Obligations are represented by definitive Notes held outside of Euroclear Bank S.A./N.V. as operator of the Euroclear System ("Euroclear") and/or Clearstream Banking, société anonyme (together with Euroclear and any additional or alternative clearing systems nominated by the Issuer and/or the Note Trustee and approved by Ambac, the "Clearing Systems" and each, a "Clearing System"), the bearers thereof and (ii) if and to the extent the Guaranteed Obligations are represented by a temporary or permanent global Note or definitive Notes held in a Clearing System, the persons for the first time being shown in the records of the relevant Clearing System (except for a Clearing System in its capacity as an accountholder of another Clearing System) as being holders of Guaranteed Obligations (each an "Accountholder") in which regard any certificate or other document issued by the relevant Clearing System as to the principal amount of the Guaranteed Obligations standing to the account of any Accountholder shall be conclusive and binding for all purposes hereof. "Holding Company" means any Person of which the first mentioned Person is a Subsidiary. "Insolvency Law" means any applicable United Kingdom bankruptcy or insolvency law, including the Enterprise Act 2002, the Insolvency Act 2000, the Insolvency Act 1986, the Insolvency Rules 1986, the Insolvency Regulations 1994 or any legislation passed in substitution or replacement therefor or amendment thereof. "Issuer" means Punch Taverns Finance PLC. "Issuer Group" means Punch Group (Equity) Limited and/or any Person that is either an Affiliate, Holding Company or Subsidiary of such company. "Non-payment" means, as of any Scheduled Payment Date, the failure of the Issuer to pay or to have paid all or any part of the Guaranteed Amounts which are Due for Payment on such Scheduled Payment Date (or which would have been due on such Scheduled Payment Date but for such Guaranteed Amounts having become due prior to such Scheduled Payment Date by reason of prepayment, acceleration of maturity, mandatory or optional redemption or otherwise). "Note Trustee" means Deutsche Trustee Company Limited, or any successor trustee appointed pursuant to the terms of the Trust Deed. "Notice of Demand and Certificate" means a notice of demand and certificate in the form attached hereto, duly executed by the Note Trustee. "Paying Agent" has the meaning given to that term in the Trust Deed. 118

119 "Person" means any person, firm, company, body corporate, corporation, government, state or agency of a state or any association or partnership (whether or not having separate legal personality) or two or more of the foregoing. "Preference" means (i) a preference pursuant to section 239 of the Insolvency Act 1986 (as amended, varied, replaced or supplemented by any Insolvency Law from time to time) (the "Insolvency Act") (ii) an avoidance of any property disposition pursuant to section 127 of the Insolvency Act and (iii) a transaction at an undervalue pursuant to section 238 of the Insolvency Act. "Receipt" means actual delivery to Ambac at the address specified at the beginning of this Financial Guarantee (or such other address as Ambac may, from time to time, designate in writing to the Note Trustee) prior to noon, London time, on a Business Day. Delivery either on a day that is not a Business Day or after noon, London time, shall be deemed to be Receipt on the next succeeding Business Day. In all cases, "actual delivery" to Ambac shall require (i) the delivery of the original Notice of Demand and Certificate (together, if applicable, with any attachments thereto) to Ambac at its address (or such other address as Ambac shall, from time to time, designate in writing to the Note Trustee), or (ii) fax transmission of the original Notice of Demand and Certificate (together, if applicable, with any attachments thereto) to Ambac at its fax number (or such other fax number as Ambac shall, from time to time, designate in writing to the Note Trustee). If presentation is made by fax transmission, the sender shall (i) simultaneously, confirm the making of the fax transmission by making a telephone call to Ambac at its telephone number (or such other telephone number as Ambac shall from time to time designate in writing to the Note Trustee) and (ii) as soon as reasonably practicable, deliver the original Notice of Demand and Certificate (together, if applicable, with any applicable documentation) to Ambac at its address. "Scheduled Interest" means in respect of a class of Notes, interest payable thereon as specified in Condition 4 but excluding default interest and Step-Up Amounts and less any amount which the Issuer would be obliged to deduct from any amount payable pursuant to Condition 7. "Scheduled Payment Date" means in respect of a class of Notes: (i) (ii) (iii) (iv) each Interest Payment Date on which any Scheduled Interest on that class of Notes is due and payable: (in respect of the Class A3(N) Notes), each Interest Payment Date on which Scheduled Principal on the Class A3(N) Notes is due and payable; (in respect of the Class M2(N) Notes) in respect of Ultimate Principal, the Interest Payment Date falling in July 2029; and (in respect of the Class B3 Notes) in respect of Ultimate Principal, the Interest Payment Date falling in July 2031; "Scheduled Principal" means in respect of the Class A3(N) Notes, on any Scheduled Payment Date, the amount of the Class A3(N) Scheduled Amortisation Amount set out opposite such Interest Payment Date in Condition 5(b)(iii) as well as (without double-counting) the final redemption amount payable in accordance with Condition 5(a)(iii). "Subsidiary" means in relation to any Person: (i) (ii) (iii) a Person controlled, directly or indirectly, by the first mentioned Person; a Person where more than half its issued share capital (or equivalent right of ownership) of which is beneficially owned directly or indirectly by the first mentioned Person; or a Person that is a Subsidiary of another subsidiary of the first mentioned Person, and for these definitions a Person shall be treated as being controlled by the other Person if that other Person is able to direct its affairs and/or to control the composition of its board of directors or equivalent body. "Trust Deed" means the Original Trust Deed as supplemented by the First Supplemental Trust Deed, the Second Supplemental Trust Deed and as further supplemental by a third supplemental trust deed on the Fourth Closing Date between the Issuer, the Note Trustee and Ambac and together with any further deed supplemental thereto. Ultimate Principal means (i) in respect of the Class M2(N) Notes, the amount payable on each Class M2(N) Note on the Interest Payment Date falling in July 2029 in accordance with Condition 5(a)(v); and 119

120 (ii) in respect of the Class B3 Notes, the amount payable on each Class B3 Note on the Interest Payment Date falling in July 2031 in accordance with Condition 5(a)(viii), provided in each case that there shall always be excluded from any such amount principal or other sums payable in respect of (a) any redemption pursuant to Condition 5(b) (except to the extent that any such redemption amounts remain outstanding on the date for final redemption of the relevant class of Notes pursuant to Condition 5(a)) or Condition 5(c), and (b) any redemption for tax or other reasons pursuant to Condition 5(e). Miscellaneous This Financial Guarantee constitutes the entire agreement between Ambac and the Note Trustee in relation to Ambac's obligation to make payments to the Note Trustee for the benefit of the Holders of the Guaranteed Obligations in respect of Guaranteed Amounts which become Due for Payment but shall have remained unpaid by reason of Non-payment and supersedes any previous agreement between Ambac and the Note Trustee in relation thereto and, save for the provision of a Notice of Demand and Certificate as provided for herein, nothing in this Financial Guarantee constitutes a warranty or a condition precedent to this Financial Guarantee. This Financial Guarantee shall terminate upon the earlier of: (i) the payment by Ambac of an amount equal to the aggregate amount of all Guaranteed Amounts payable hereunder; and (ii) two years and one day following the last Scheduled Payment Date provided that if the Issuer becomes subject to any proceedings pursuant to Insolvency Law ("Insolvency Proceedings") during the period of two years following the last Scheduled Payment Date, then this Financial Guarantee shall terminate on the later of (a) the date of the final non-appealable conclusion or dismissal of the relevant Insolvency Proceedings without continuing jurisdiction by the court in such Insolvency Proceedings and (b) if the Holder of any Guaranteed Obligation is required to return any payment (or portion thereof) in respect of such Guaranteed Obligation that is declared a Preference as a result of such Insolvency Proceedings, the date on which Ambac has made all payments required to be made under the terms of this Financial Guarantee to the Note Trustee in respect of all Avoided Payment Amounts. A Person who is not party to this Financial Guarantee shall have no rights under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Financial Guarantee. This Financial Guarantee shall be governed by and construed in accordance with the laws of England and Wales. The courts of England and Wales shall have jurisdiction to hear and determine any suits, action or proceedings and to settle any disputes which may arise at or in connection with this Financial Guarantee and each of Ambac and the Note Trustee irrevocably submits to the jurisdiction of such courts. In witness whereof, this Financial Guarantee has been executed as a deed by (1) affixing the common seal of Ambac witnessed by two duly authorised officers on behalf of Ambac and (2) affixing the common seal of the Note Trustee witnessed by two directors or one director and the secretary of the Note Trustee and duly delivered on the date inserted above. Executed and delivered as a deed by AMBAC ASSURANCE UK LIMITED By: Name:.. Title:. By:.. Name:. Title: Executed and delivered as a deed under the common seal of DEUTSCHE TRUSTEE COMPANY LIMITED in the presence of: By: Name:.. Title: Associate Director By: Name:.. Title: Associate Director 120

121 NOTICE OF DEMAND AND CERTIFICATE Ambac Assurance UK Limited Level 7 6 Broadgate London EC2M 2QS Telephone: Fax: Registered No.: Registered in England Attention: General Counsel The undersigned, a duly authorised officer of Deutsche Trustee Company Limited (the "Note Trustee"), hereby certifies to Ambac Assurance UK Limited ("Ambac"), with reference to Financial Guarantee No. UK00178 dated 5 July 2007 (the "Financial Guarantee") issued by Ambac in respect of Punch Taverns Finance PLC 125,000,000 Class A3(N) Secured Floating Rate Notes due 2015 (the "Class A3(N) Notes"), 400,000,000 Class M2(N) Secured Floating Rate Notes due 2029 (the Class M2(N) Notes ) and 175,000,000 Class B3 Secured Floating Rate Notes due 2031 (the Class B3 Notes ) that: (i) (ii) (iii) (iv) (v) the Note Trustee is the trustee under the Trust Deed for the Holders; [the Note Trustee has calculated that the deficiency in respect of the Guaranteed Amounts which [are/were] Due for Payment on [insert Scheduled Payment Date] under the Class [] Notes (the "Affected Guaranteed Obligations") [will be/was/is] [insert applicable currency and amount] (the "Shortfall"). Of such Shortfall, [insert applicable currency and amount] is Scheduled Interest on the Affected Guaranteed Obligations; and [insert applicable currency and amount] is Ultimate Principal on the Affected Guaranteed Obligations;] OR [the Note Trustee or the Holders [has/have been] required to repay [insert applicable currency and amount] (the "Avoided Payment Amount") to the Issuer on [insert date] in connection with a Preference declared or recovered from the Note Trustee or such Holder(s) pursuant to any Insolvency Law in accordance with a final non-appealable order of a court of competent jurisdiction;] the Note Trustee is making a claim under the Financial Guarantee for the [Shortfall/Avoided Payment Amount] to be applied to the payment of the Guaranteed Amounts which [are Due for Payment/were paid but found to be a Preference]; the Note Trustee agrees that, following payment of funds by Ambac, it shall procure (a) that such amounts are applied directly to the payment of Guaranteed Amounts which [are Due for Payment/were paid but found to be a Preference]; (b) that such funds are not applied for any other purpose; and (c) the maintenance of an accurate record of such payments with respect to each Guaranteed Obligation and the corresponding claim on the Financial Guarantee and the proceeds thereof. For the purposes of (a) and (b) above, it shall be sufficient if the Note Trustee directs Ambac to make payment to the Principal Paying Agent; and payment should be made by Ambac in [currency] by credit to an account in the name of the [insert name of Note Trustee or Principal Paying Agent] with [insert name of bank] of [insert address of bank], Sort Code [], Account Number []; The Note Trustee acknowledges that the Financial Guarantee provides that, effective as of the date on which the Shortfall is credited to such account, Ambac shall, to the extent of such Shortfall, be fully and automatically subrogated, pursuant to applicable law to all of the rights of the Holders of the Affected Guaranteed Obligations to payment of any amounts in respect of such Affected Guaranteed Obligations (including, without limitation, any rights and benefits attached thereto and any security granted at law or by contract (whether under the Issuer Deed of Charge or otherwise) in respect of the Affected Guaranteed Obligations). Unless the context otherwise requires, capitalised terms used in this Notice of Demand and Certificate and not defined herein shall have the meanings provided in the Financial Guarantee. 121

122 No Person, other than Ambac, shall have any right under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Notice of Demand and Certificate but this shall not affect any such right any person may have otherwise than by virtue of such Act. This Notice of Demand and Certificate may be revoked by written notice by the Note Trustee to Ambac at any time prior to the date specified above on which Guaranteed Amounts are Due for Payment to the extent that moneys are actually received in respect of the Guaranteed Obligations prior to such date from a source other than Ambac. This Notice of Demand and Certificate shall be governed by and construed in accordance with the laws of England and Wales. IN WITNESS WHEREOF, the Note Trustee has executed and delivered this Notice of Demand and Certificate on [] 20[]. [DEUTSCHE TRUSTEE COMPANY LIMITED] By: Name (print): Title: Phone number: 122

123 Industry Background THE UNITED KINGDOM PUB INDUSTRY The Securitisation Group operates in the United Kingdom pub sector, which is itself part of the wider drinking out and eating out market (which also includes restaurants, social clubs, nightclubs and fast food outlets). The United Kingdom pub sector consists of some 60,000 licensed public houses and going to pubs, clubs and bars continues to be one of the most popular leisure activities in the United Kingdom. In 2006, the annual sales of the United Kingdom pub sector were of the order of 25.5 billion (source: Mintel report October 2006). The United Kingdom pub sector has broadly speaking three distinct business models: managed pubs (around 15 per cent. of sites), leased and tenanted pubs (around 55 per cent. of sites) and individual, independently owned pubs (around 30 per cent. of sites). Managed pubs are generally owned by a pub company or brewer and operated by a salaried manager and staff employed by the owning company which prescribes the entire product range and detail of service style. They tend to be larger than leased/tenanted pubs and individual, independently owned pubs and have a higher average weekly turnover ("AWT"). The Securitisation Group does not have any managed pubs. Leased/tenanted pubs tend to be smaller and are owned by a pub company or brewer but leased to and therefore operated by a third party tenant or lessee, who pays rent to the owner, is generally responsible for the maintenance of the pub, and is normally contracted to purchase the majority of drink products (in particular, beer) for resale from the owner. These pubs have a lower AWT than managed pubs and are typically more dependent than managed pubs on the sale of draught beer. Individual pubs (sometimes known as freehouses) are independently owned and operated by a private individual, who is responsible for the maintenance of the pub and retains any profits after the expenses of running the pub. The owner is free to decide which products to sell. Market Trends The United Kingdom pub sector is influenced by trends for both eating out and drinking out. Eating out in pubs has become increasingly popular. Nearly 15 per cent. of adults now eat a meal in a pub in an average week. The pub food market is now worth at least 6 billion per year (source: Mintel pub catering report August 2006). With a combination of changing lifestyles and pubs offering better quality food and better surroundings in which to consume it, it is expected that the growth trend will continue. Market Factors In summary, the key market drivers shaping the future of the United Kingdom drinking out and eating out market are: economic climate - overall economic growth or decline and in particular, overall changes in the level of consumer expenditure; changes in demographics - for example, over the next five years, the number of year olds (who are a key consumer group for the drinking out market) is forecast to grow by two per cent. and the number of persons aged 45 and above (who are a key consumer group for the pubrestaurant market) is forecast to grow by eight per cent.; broadened consumer appeal - an increase in the number of people visiting pubs from a wider selection of social and demographic groups (including women, families and older people) mitigating against a decrease in the frequency of visits by traditional blue collar male pub users; growth in food sales in pubs - the popularity of eating out in pubs and restaurants has increased dramatically, partly due to consumers' increasing propensity to eat out, a preference for informal dining and an improvement in the breadth and quality of the pub food offering; product trends - sales of alcohol in pubs are rising (broadly in line with inflation) and there are continued shifts in demand in the beverages sector, with declining sales of draught beer in pubs being offset by sales growth in cider, wine, spirits and soft drinks; branding - the growth in branded and formatted sites aiming to provide consistency of standards and customer service, with a view to attracting new customers, driving customer loyalty, and increasing frequency of visits; 123

124 competition - the increased number of sites and higher levels of investment over the last eight to nine years has led to supply outpacing demand. This, together with the increased price sensitivity of consumers, as well as the rising levels of home consumption (partly due to the widening gap between the on-trade and off-trade price of alcohol), has resulted in an overall increase in competition; regulation - the licensing reform in England and Wales (which has resulted in longer opening hours for existing pubs and may restrict the granting of new licences, particularly in residential areas) and in Scotland (which has yet to be implemented but which is unlikely to result in longer opening hours but may result in restrictions on certain promotional activities), changes in employment legislation (including the level of the national minimum wage), changes in gaming legislation (which may reduce income from gaming activities in certain of the pubs in the Securitisation Group), the ban on smoking in enclosed public spaces (which has been in force since March 2006 in Scotland, since 1 April 2007 in Wales and since 1 July 2007 in England) and other regulation relevant to the business of the Securitisation Group. See the section entitled Regulatory Environment below. Regulatory Environment Licensing Reform The sale of alcohol in the United Kingdom is a highly regulated industry governed by the licensing system. Licensing covers most premises where alcohol is sold, such as pubs, off-licences, restaurants and supermarkets. The retail sale of alcohol in the England and Wales was, until November 2005, governed by a licensing system set out in the Licensing Act Pubs part of the "on-trade" business - generally required a full on-licence in order to sell alcohol on the premises. The licence was generally held by the manager or landlord. That person had to satisfy the licensing authorities that he/she was a fit and proper individual to hold such a licence. The licence would not be approved if the prospective licensee would have been prevented from properly discharging his/her functions as a licensee. Under the former licensing regime, on-licences were renewed every three years and could have been revoked at any time for serious cause, Including violation by the manager or landlord or his/her employees of any law or regulation, such as those regulating the minimum age of patrons or employees, advertising and inventory control. On 24 November 2005 the Licensing Act 2003 became law. The key changes introduced by the Act are: the transfer of the management of the licensing system from local magistrates courts to local authorities, i.e. from the legal system to the local government system. However, licence holders retain the right of appeal to the magistrates court. Whilst the new regime has not fundamentally changed the regulatory structure of the licensed sector, in practice there are visible change because each pub that wishes to vary its hours of operation has to submit details of its operating plan and all pubs now face greater scrutiny from police, local residents and other relevant authorities; greater flexibility with respect to pub opening hours as the former limits on late-night trading have been relaxed for some pubs. While longer opening hours undoubtedly have cost implications, this change benefits pubs where there is a demand for an extra hour of drinking especially at weekends; and a dual system of longer-term premises licences and personal licences. Regulations determine many of the practical implications of the new legislation. The retail sale of alcohol in Scotland is currently governed by the Licensing (Scotland) Act 1976 (as amended) and is administered through local authority licensing boards. There are currently seven different types of licence in Scotland, depending broadly upon the type of premises from which the alcohol will be sold (the categories being pub, hotel, restricted hotel, off-sale, restaurant, refreshment and entertainment), in addition to a separate licensing system for clubs. Licences must be renewed every three years and can be held by "non-natural persons" such as limited companies, with individual nominees named in the licence application who have day-to-day responsibility for the licensed premises. Current grounds for refusal of an application for a new licence or the renewal of an existing licence include that the applicant (or the person on whose behalf or for whose benefit the premises will be managed) is not a fit and proper person to be the holder of the licence, the premises will be unsuitable or inconvenient for the sale of alcohol, the sale of alcohol would create a public nuisance or 124

125 the licence would lead to an over-provision of licensed premises in the locality. Certain classes of persons may submit objections to an application to the relevant Scottish licensing board. In parallel with the reforms in England and Wales, the Scottish Parliament has enacted the 2005 Licensing Act, which received Royal Assent on 21 December 2006 but which will not come into effect until February The key provisions of the 2005 Licensing Act include: in line with the changes implemented in England, the introduction of a dual system of premises licences and personal licences; the continuation of premises licences for an unlimited period of time until the occurrence of a number of specified events; the abolition of the present system of statutory permitted licensing hours (in relation to premises other than those authorised for off-sales), and opening hours being authorised by the terms of the relevant premises licence and dependent on the approved operating plan for the premises; the introduction of a condition attached to all premises licences to prohibit irresponsible promotional advertising or discounted pricing of alcohol where such promotion is aimed at encouraging excessive consumption; a prohibition on varying the price of alcohol during a 72 hour period; replacing the existing outright prohibition on the presence of children within licensed premises and substituting specific restrictions in terms of the approved operating plan for the premises; the appointment of Licensing Standards Officers to supervise compliance and the issuing of enforcement notices; and provision for sanctions (such as the suspension or revocation of licences) for breaches to take effect immediately notwithstanding any appeal, subject to the right of the court to recall such sanctions pending determination. An 18 month transition period will commence in February 2008, during which time existing licensees will have to submit applications for new premises and personal licences, ahead of the full implementation of the new licensing regime on 1 September The 2005 Licensing Act does not contain any provisions under which existing pubs are guaranteed their existing licence rights, which means that the benefit of existing licences and extensions thereto could be lost when an application for a new premises licence is submitted. Drink Driving The European Commission recommended in the "White Paper on European transport policy for 2010: time to decide" of October 2002 that all countries in the EU adopt the same drink and drive limit of 0.5mg/ml blood alcohol concentration. It recommends that a lower level of 0.2mg/ml be adopted for younger and inexperienced drivers. It is not known if or when these recommendations will be adopted under European and/or national legislation. The current legal limit in the United Kingdom is 0.8mg/ml (see sections 11(1) and (21) of the Road Traffic Act 1988) and as car drivers and passengers account for 40 per cent. of pub visits, such a measure may discourage customers who drive to pubs from visiting pubs. Employment Legislation The WT Regulations control the hours employees are legally allowed to work. Under the legislation, workers may only be required to work a 48 hour week (although they can choose to opt out and work longer if they wish). The WT Regulations also lay down rights and protections in areas such as minimum rest time, days off and paid leave. Many employees of the Punch Group are covered by the WT Regulations. The retention of the ability to opt out and the guidance as to who is covered by the WT Regulations may possibly change in the future. In addition, under the Part-Time Workers (Prevention of Less Favourable Treatment) Regulations 2000, part-time workers can claim the same rights as full-time workers. Similar provisions apply to employees employed under fixed-term contracts under the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations Employees engaged under fixed-term contracts can claim the same rights as employees engaged under permanent contracts. Legislation relating to smoking In November 2004, the Government published a White Paper on smoking in public places in England and Wales. The White Paper set out the Department of Health's proposals for the prohibition of 125

126 smoking in enclosed places including restaurants and pubs that serve food from 2008, although premises not preparing and selling food would be permitted to allow smoking. In October 2005, the Government published the Health Bill, which provided that from the summer of 2007, smoking would be prohibited in public places, including pubs and restaurants that serve food. However, in February 2006, faced with heavy criticism of its food based proposal, the Government gave MPs the chance to vote on whether to retain the food based ban, opt for a smoking ban in all pubs (except private members' clubs) or opt for a total ban in all pubs and private members' clubs. A majority of MPs voted to amend the Health Bill to legislate for an outright ban in all pubs and private members' clubs in England and Wales and this was enacted in the Health Act 2006 in July Subject to certain limited exceptions set out in the Health Act 2006 (which do not apply to licensed premises), from 1 July 2007 it will be against the law to smoke in England in all enclosed and substantially enclosed public places, and all enclosed and substantially enclosed premises that are used as a place of work. This includes, without limitation, pubs, bars, restaurants and clubs, regardless of whether food is sold or not. The Health Act 2006 devolved powers to the National Assembly for Wales to make regulations for a ban on smoking in enclosed public places in Wales. Welsh Assembly Members voted in favour of The Smoke-free Premises etc. (Wales) Regulations 2007 on 30 January 2007 and the regulations came into force on 2 April The regulations prohibit smoking in enclosed or substantially enclosed public places, including workplaces and bars. Licensees are required to remove all ashtrays, display no-smoking notices, and refuse service to anyone continuing to smoke in public. Whilst it is too early to assess the impact of the smoking ban in Wales, over a longer period of time, the smoking ban could discourage customers who smoke from using pubs. In Scotland, the Scottish Parliament enacted the Smoking, Health and Social Care (Scotland) Act 2005, which imposed a complete ban on smoking in pubs from 26 March The initial trading experience since the Scottish ban took effect has been benign, with growth in food sales and a limited slow down in drink sales, although it is still too early to make a definitive judgement. Over a longer period of time, the smoking ban could discourage customers who smoke from using pubs. Evidence from Scotland shows that many licensed premises will seek to provide outside areas for smokers, by the provision of facilities such as smoking shelters, canopies or other covered outside areas which, combined with the use of outdoor space heaters, allow use in most weathers. Legislation prohibiting smoking will affect all of the pubs in the Securitisation Group within the relevant jurisdiction. Such legislation may have the effect of discouraging smokers from visiting pubs and restaurants, who may prefer to drink, eat and smoke at home. Legislation relating to gambling In April 2005, the Gambling Act 2005 was enacted and as part of the legislation new gaming regulations will come into force with effect from September The new legislation will include changes to the operation of AWPs and one of the key changes to the current legislation in this area is that the use of AWPs by persons aged under 18 years of age will be illegal except on low stake and prize machines. The government has indicated that category C machines will retain the existing maximum permissible 25 prize until this is reviewed in due course, and the maximum permissible stake will be increased from 30p to 50p. The effective date of the stake increase is understood to be 1 September 2007, but the industry is lobbying the Government for an earlier increase in stake and prize monies. The Gambling Act 2005 has also paved the way for casino operators to develop larger, regional casinos, similar to those operating in Las Vegas. At present, the Government proposes to license eight small, eight large and one regional casino which may have an adverse impact on the number of customers using the Securitisation Group's AWP machines. It is possible that the number of regional casinos may be increased (eight were originally proposed), but this is considered to be unlikely until after There will also be changes to the categories of machines permitted in casinos, licensed betting offices, bingo halls, amusement arcades, family entertainment centres and motorway service stations, some of which may increase the competitive threat to the Securitisation Group in respect of gaming. There is also a risk that the legislation may not effectively safeguard pubs in retaining their existing rights in relation to the number of AWPs they are licensed for. However, the Government has confirmed that pubs will retain their existing rights in respect of AWPs. Legislation relating to noise The Physical Agents Directive 2001 (the "Directive") is currently under discussion in the retail industry relating to the regulation of noise in the workplace. The current United Kingdom noise limit for workplaces is 90 decibels averaged over an eight hour day but if the Directive were to come into effect 126

127 that limit would be reduced to 85 decibels. The European Parliament has agreed that the industry in the United Kingdom should agree a code of conduct as to how the Directive is to be implemented in the United Kingdom. The Government is required to introduce regulations in response to the Directive by February 2008 and has launched a consultation document to assist with this process. Alcohol harm reduction strategy and responsible drinking In March 2004, the Government issued its National Alcohol Harm Reduction Strategy for England based on various consultations carried out during the course of 2003 and The aim of the strategy is to prevent any further increase in harm caused by alcohol in England and Wales. The strategy contains a number of voluntary measures, which aim to forge new partnerships between the health and police services, the drinks industry and local authorities and their communities. The Government has stated that it will keep under review the effectiveness of this voluntary approach and introduce legislation if necessary. On 5 June 2007, the Government issued an update to the strategy setting out further proposals for monitoring and controlling harm caused by alcohol. Under the Licensing Act 2003, which came into force on 24 November 2005, new measures have been introduced in England and Wales empowering the police, local residents and others to seek reviews of licences, and providing licensing committees with the opportunity to impose an extended range of measures for the prevention of crime and disorder. These measures strengthen the proposals announced in the Government's consultation paper "Drinking Responsibly", which was published in January In November 2006, the Violent Crime Reduction Act 2006 introduced measures aimed at problem drinkers, such as powers for the police to ban people with previous alcohol-related offences from visiting pubs and bars in a certain area. The Act also allows for, as a last resort, the introduction of "Alcohol Disorder Zones", which will require licensed premises to contribute to the cost of alcohol-related crime and disorder in specific areas where it has been highlighted as a problem. The Government has supported the licensed trade and the pub industry in launching an industry standards document to promote broader social responsibility in selling alcohol. In February 2007, the Scottish Executive published an update to its "Plan for Action on Alcohol Problems", which was originally published in The long term aim of the plan is to create a society in which safe and sensible alcohol consumption is seen as compatible with a healthy lifestyle. The paper sets out a comprehensive programme of action for the next three years to change drinking cultures and reduce alcohol-related harm through Government action, partnership working and encouraging individuals to take personal responsibility. The 2005 Licensing Act is due to come into force at the beginning of February 2008 for a transitional 18 month period before fully coming into effect on 1 September The 2005 Licensing Act will impose a ban on 'speed drinking' promotions, provide for a means by which communities can object to licence applications and require all licensees to act on a 'no proof of age, no sale' basis. 127

128 Introduction BUSINESS OF THE PUNCH GROUP AND INFORMATION REGARDING THE PORTFOLIO The Punch Group is a leading leased and tenanted and managed pub group. Punch is the overall holding company of the Punch Group and its entire issued ordinary share capital is listed on the United Kingdom Listing Authority's Official List and admitted to trading on the London Stock Exchange following an initial public offering in May As at the date of this Offering Circular, Punch is a member of the FTSE 100 Index. As at 3 March 2007, the Punch Group portfolio comprised approximately 9,300 pubs located across Great Britain which were operated primarily by six sub-groups. These were: the Securitisation Group; the Punch Taverns B Sub-Group; the Spirit Sub-Group; the Avebury Sub-Group; PGRP; and Branston. At or before the Fourth Closing Date, the Securitisation Group will acquire a number of pubs from the Avebury Sub-Group, PGRP and Branston (see Summary - The Transaction and the Securitisation Group). The Securitisation Group, the Avebury Sub-Group, PGRP and Branston are described above in Summary The Transaction and the Securitisation Group. At the Fourth Closing Date, the number of pubs within the Securitisation Group is expected to be 4,037 and the Punch Group portfolio is expected to comprise over 8,400 pubs. The Punch Taverns B Sub-Group The Punch Taverns B Sub-Group owned, as at 3 March 2007, 3,031 leased and tenanted pubs and is the subject of a securitisation involving separate financing and security arrangements, pursuant to the issue by Punch Taverns Finance B Limited of a series of fixed and floating rate notes in July 1999, February 2000, November 2002 and July The Punch Taverns B Sub-Group was formed in November 1996 through a management buyout of the pubs business of The Brent Walker Group plc. Since then, the Punch Taverns B Sub-Group has acquired and sold various portfolios of leased and tenanted pubs. The Punch Taverns B Sub-Group was acquired by the Punch Group in December Spirit Sub-Group The Spirit Sub-Group was acquired by Punch Taverns (Redwood Bidco) Limited (a wholly owned subsidiary of Punch) in January The Spirit Sub-Group was formed as a result of the demerger of the managed pub business of Punch Group Limited and its subsidiaries on 3 March The Spirit Sub-Group then grew through a number of acquisitions, most notably the acquisition of the Scottish & Newcastle retail business from Scottish & Newcastle plc in November The principal part of the Spirit Sub-Group is the subject of a securitisation involving separate financing and security arrangements, pursuant to the issue by Spirit Issuer PLC of various debenture bonds in November The Spirit Sub-Group operated, as at 17 February 2007, 308 leased and tenanted pubs owned by Punch Taverns (Pubs) Limited, 1,026 managed pubs owned by Spirit Managed Pubs Limited and 100 managed pubs owned by Spirit Managed (Trent) Limited. Business Overview The leased and tenanted customers of the Punch Group (of which the Securitisation Group is a part) are its lessees and tenants (known as retailers), who enter into leases of between 10 and 25 years or tenancy agreements of up to 6 years to operate pubs ("Retailer Agreements"). Through these agreements, the Punch Group generates its income from three primary sources: 128

129 sales of beer and other products to retailers; rent from retailers under the lease or tenancy agreements; and income from leisure machines, derived from a profit sharing arrangement with some retailers. This diversity of income sources, coupled with relatively low administrative costs, reduces risk in the business. Each pub is managed and operated by its retailer, enabling it to retain its distinct character. The size of the Punch Group's portfolio allows the Punch Group to achieve economies of scale in negotiating supply contracts with major brewers and other suppliers, securing discounted prices for beer and other products, which are subsequently sold on to its retailers, including those within the Estate. The Spirit Sub-Group contains a number of managed pubs deriving turnover from the retail sale of drink and food to members of the public together with leisure machine and other income. The Punch Group also realises some profit from the sale of pubs, usually for alternative use. Other sources of income include the provision of insurance and other services to certain retailers but these are currently not material in the context of overall financial performance. Goals and Strategy In order to develop its business further, the Punch Group's goals are to: maximise total profitability per pub; optimise the Punch Group profit share; and expand the Punch Group pub portfolio in Great Britain. The current pub market in Great Britain is extremely dynamic (see The United Kingdom Pub Industry) and offers significant individual pub and portfolio acquisition opportunities. Management believes that the Punch Group (of which the Securitisation Group will be a part) is well placed to take advantage of these opportunities. Products and services The Punch Group offers a comprehensive range of products and business services to its retailers. These include: Beer Supply and other Wet Products The Punch Group currently contracts with various suppliers of wet products varying from major suppliers such as Anheuser-Busch, Carlsberg UK, Constellation Europe, Coors Brewers, Diageo, InBev UK and Scottish & Newcastle UK to regional breweries including Adnams, Belhaven Brewery, Black Sheep Brewery, Caledonian Brewing Company, Camerons Brewery, Fullers, Greene King, Shepherd Neame, Wadworth & Company, Marston's and Wells & Young's Brewing Company. Soft drinks are supplied to the group by Britvic and Coca Cola Enterprises. The Punch Group entity which usually contracts with suppliers as principal is Supplyco. Supplyco then resells products to the Punch Group's operating companies which, in the case of the leased and tenanted estate, resell the products to the group's retailers for use in their outlets. The Punch Group has inherited supply arrangements as part of its major acquisitions under which certain of its members have existing purchase obligations. Since the acquisitions of the Punch Taverns B Sub-Group and the Spirit Sub-Group the Punch Group has been involved in streamlining these inherited supply agreements with a view to rationalising supply across the Punch Group as a whole so that Supplyco becomes the sole or principal contracting entity where possible. The Punch Group contracting entity for legacy arrangements in respect of the Spirit Sub-Group is Spirit Supply Company Limited ("Spirit Supplyco"). Although the Spirit Sub-Group is gradually being integrated into the arrangements where Supplyco is the contracting entity with the third party supplier, given the nature of Punch Group's managed pub business and the legacy contracts in place, Spirit Supplyco remains the contracting party for a number of the contracts relating solely to the managed pub business and, on occasion, enters into new contracts where these relate exclusively to that part of Punch's estate. Over 80 per cent. of beer supplied to the Punch Group is supplied by Coors Brewers, Scottish & Newcastle UK, Carlsberg UK and InBev UK. A beer supply agreement between Scottish & Newcastle UK and Supplyco was entered into in August 2006 and will expire in August The Punch Group has recently negotiated new supply terms with Carlsberg UK which expire in December 2010 and with Inbev UK for supply until September There are currently separate legacy supply arrangements with Coors Brewers for the leased and tenanted and managed businesses which are under 129

130 negotiation with a view to consolidation. Certain of these supply arrangements contain minimum volume commitments. On 17 April 2007, the Punch Group announced the completion of a joint venture with a wholly-owned subsidiary of Constellation Brands, Inc. pursuant to which it acquired a 50% stake in the Matthew Clark drinks wholesaling and distribution business. Under the terms of the joint venture arrangements, Matthew Clark will supply wines and spirits products to the leased and tenanted pubs owned and operated by members of the Punch Group, and it is envisaged that, over time, Matthew Clark will become the exclusive supplier of such products to those pubs. This supply arrangement is subject to a fixed initial term of ten years, following which the arrangement will continue until terminated on not less than 6 months' notice by either Supplyco (the Punch Group contracting party to the supply arrangement) or Matthew Clark Wholesale Limited. The managed pub business has separate legacy arrangements in respect of wine supply entered into with various suppliers, principally Waverley TBS. There are tie arrangements provided for in the lease or tenancy agreements with the Punch Group's retailers (except those who are subject to a Guest Beer provision), under which such retailers are required to purchase all of their beer and, in certain cases, cider requirements from the Punch Group. Retailers may choose from a range of ales, lagers, stouts and ciders. Many of the tie arrangements also require retailers to purchase other products from the group, including wine, spirits, premium packaged drinks and soft drinks. In addition, some retailers purchase various non-tied wet products. Tie arrangements requiring retailers to purchase all of their beer and cider from the Punch Group are, however, more common and are typically more profitable (per unit) than ties of other products. For the 28 weeks ended 3 March 2007, income from the sale of beer to retailers in the Estate accounted for 59.3 per cent., of its overall income and 87.8 per cent. of sales of all wet products to retailers. Warehousing and Distribution Services Warehousing and distribution services in respect of wet products for the Punch Group are predominantly provided by Carlsberg UK pursuant to a warehousing and distribution agreement which expires in September Food The Punch Group has made food supply and services available to its retailers in the leased and tenanted estate through two of the UK's leading food providers, Brakes and These suppliers give retailers access to a comprehensive range of services and products which allow them to establish, refresh or extend a food offering to their customers. Services available to retailers include kitchen and menu design, production of promotional material and chef training. As part of these food initiatives, the Punch Group is able to negotiate preferential food product purchasing terms for its retailers and in certain cases, earns a retrospective commission on volumes purchased pursuant to these arrangements. Food supply and distribution arrangements for the managed pub business are provided primarily pursuant to separate arrangements with Wincanton. Leisure Machines Management Most of the Punch Group pubs offer customers use of one or more leisure machines, including AWP (amusements with prizes) and AWOP (amusements without prizes) machines, the majority of which are coin operated. The type of machine or machines in a given pub is generally determined by the format and target market of the pub. Retailers choose from a large variety of AWPs and AWOPs, including fruit and casino machines, quiz and game machines, pool tables, music systems, internet kiosks and children's equipment. Leisure machine income accounted for 3.5 per cent. of the total income of the Estate during the 28 week period ended 3 March Business Description Retailer Agreements The relationship between the Punch Group and its retailers is generally governed by the type and terms of a Retailer Agreement in place between them. The Punch Group enters into one of three main categories of Retailer Agreement with its retailers, under which the retailer operates the pub as either a lessee or a tenant and agrees to pay the rent specified in the relevant Retailer Agreement. These are the Standard Lease, the Standard Tenancy and the tenancy-at-will. As part of the lease or tenancy agreement, the retailer also agrees that the Punch Group or the Punch Group designated supplier is to be the retailer's sole source of supply for certain products. These "tie" arrangements relate primarily to the retailer's purchase of beer, sales of which generally constitute the majority of the retailer's turnover. 130

131 Standard leases are generally fully repairing, which means that the lessee is responsible for repairs to the premises during the term of the lease, and are generally fully assignable after two years (subject to the consent of the Punch Group which is not to be unreasonably withheld). Tenancy agreements, which are shorter term arrangements, involve the Punch Group undertaking to carry out repairs to the pubs, are generally not assignable and have an annual RPI review. Retailers are usually required to provide a deposit on entry into their agreement. Some forms of leases and tenancy agreements contain landlord's or tenant's options to break. Tenancy-at-will arrangements are used as transitional arrangements, before installing a retailer on a lease or tenancy agreement. Under a tenancy-at-will, a retailer operates the pub on a short-term basis with no notice period to vacate required by either Punch Group or the tenant. The use of a lease or tenancy agreement and its terms and conditions will vary according to the profit expectations, risk assessment and plans which the Punch Group and the retailer may have for the pub concerned. The table below sets out the percentage of the Estate operated under the various Retailer Agreements as at 28 April 2007: Type of Retailer Agreement % of the Estate Standard Leases Standard Tenancies Tenancy at Will Not Trading Grand Total Retailer Agreements - expiry The profile of unexpired terms in Retailer Agreements within the Estate (as at 28 April 2007) is set out below: Year of Expiry Agreement 2006/ / / / / / / / / / / Post 2016/ ,017 Open ended No Agreement Grand Total... 4,

132 Spread of annual rental income per outlet The table below sets out the spread of annual rental income per outlet in the Estate as at 28 April 2007: Annual rental income/ Number of outlets 0 5, ,000 11, ,000 17, ,000 23, ,000 29, ,000 35, ,000 41, ,000 47, ,000 53, ,000 59, >=60, Grand Total... 4,037 Rent reviews The majority of the leased pubs are subject to rent reviews every 5 years and on the last day of the term and all pubs are also adjusted for RPI annually. Following a rent review, the rent payable under a Retailer Agreement may go down as well as up. The table below shows the number of years remaining until the next rent review for the Estate: Year of Review Number of outlets 2006/ / / / / / No review or renewal is posted 2011/ Grand Total... 4,037 Historical Collection Rates Over the past two years, collection and bad debts write off rates, expressed as a percentage of collectable debt (rent plus goods supplied) for the Estate has been as follows: Collected Bad Debt 28 weeks to 3 March % 0.39% Year to 19 August % 0.55% Bad debts, when they arise, usually relate to forfeiture, bankruptcy or abandonment of outlets. Legal ownership of the Estate As at 28 April 2007, the Punch Group had either a freehold (or, in Scotland, heritable) interest or a leasehold interest of longer than or equal to 50 years' remaining duration in approximately 98 per cent. 132

133 of the pubs in the Estate. In only approximately 2 per cent. of its pubs did the Punch Group have a leasehold interest whose remaining duration was fewer than 50 years. The details of the terms of and rents due in respect of the leases of the leasehold properties are as follows: Remaining Term (Years) Total Outlets Total Ground Rent (per annum) , , , ,463 Grand Total 230 1,046,885 Geographical distribution of the Estate The table below shows the geographical distribution of the Estate: Region Number of outlets East Anglia 79 East Midlands 286 London 309 North 131 North West 397 Scotland 295 South East 875 South West 184 Wales 230 West Midlands 643 Yorks and Humber 608 Grand Total 4,037 Prior to the Closing Date the total number of pubs in the Punch Group portfolio may change due to acquisitions or disposals of individual pubs made in the ordinary course of business. However, the aggregate number of pubs in the Estate will be unchanged. Classification of the Estate The pubs in the Securitisation Group can be divided into a number of classifications of pub according to a combination of characteristics including location, customer profile and range of products sold. A number of categories have emerged which indicate the type of estate owned by the Punch Group. pubs whose sales are led by the sale of wet products are in a significant majority; pubs in which sales are led by the sale of food generate comparatively low sales but the highest rents. 133

134 The table below indicates the division of those pubs in the Securitisation Group into classifications: Classification Outlets % of the Estate Basic Local 1, Mid-market Local 1, City or Town Local Value Dining Up-market Local Premium Dining Venue Chameleon Young Local Circuit City Dry-Led Unclassified Grand Total 4, The classifications are defined as follows: "Basic Local" These pubs are typically located in high density, residential areas and act as a focus for the local community which provides a number of regular customers. Customers tend to be male low income earners. The emphasis in such pubs is on sale of beer and very little food or alternative entertainment is provided. "Mid-market Local" Typically located in mid-market residential areas, these pubs attract regular customers from the locality. Customers are a mix of middle and low income earners and alternative forms of entertainment such as quiz nights, themed evenings, and darts or pool teams are often available. "City or Town Local" These pubs are typically small, situated in town or city centres in highly competitive areas, but tend not to form part of a circuit of pubs frequented by young customers. Typical customers include local workers and shoppers who provide passing trade during the afternoon and local residents who are regular evening customers. Sale of beer forms a high proportion of sales and little food is offered. "Value Dining" These are larger pubs, in up-market areas where food sales account on average for over 25 per cent. of total sales in such pubs, which provide good pub food at a reasonable value. Customers tend to be family groups using the pubs as an alternative to eating at home or for special occasions. A high proportion of wet product sales is derived from the sale of wine and non-alcoholic drinks. "Up-market Local" These pubs tend to be large, community-based pubs situated in low density affluent suburbs where there is little competition. Regular customers tend to be middle and high earners, including professionals and females. Alternative forms of entertainment are offered and sales of food and wine are high by comparison with most other categories of pub. "Premium Dining" These pubs are an alternative to restaurants, providing high quality food in up-market low density areas, where competition is limited. Customers typically include a mixture of local residents and those who travel from further away for meals or special occasions. Sales of food account for more than 25 per cent. of total sales in such pubs on average and wet sales include a large proportion of wine or non-alcoholic drinks. 134

135 "Venue" These are pubs with a particular theme attracting a distinctive customer group as regulars. They tend to be larger pubs, often with late licences and provide an alternative venue to clubs. Trade levels are higher at weekends with sales of wet products leading. "Chameleon" These pubs tend to be located in town and city centres and attract differing types of customer at different times of the day, varying from office workers and shoppers during the afternoon and young people in the evening. Sales include high levels of premium packaged spirits, ciders and spirits. Most offer some food. "Young Local" Customers of these pubs tend to be aged between 18 and 30 years who live in the surrounding area. These pubs are not part of a circuit but provide alternative forms of entertainment including music, videos and pool tables. Trading levels are higher during evenings and sales of lager, premium packaged spirits and flavoured alcoholic beverages are high. "Circuit" These pubs are located in highly competitive central areas and form part of a circuit of pubs frequented by young people. Trade is focused on weekend evenings with sales of wet products (especially lager, premium packaged spirits or flavoured alcoholic beverages) being high. Customers spend only part of the evening at any particular pub before moving on to another similar circuit pub. Circuit pubs may have late licences to sell alcohol beyond the usual hours permitted for such sales, doormen and possibly dress codes. "City Dry-Led" These pubs are centrally located, larger pubs which offer a high level of food. Customers include office workers and shoppers, with dry-led sales, especially at lunchtime peaking on Fridays. 135

136 SUMMARY DETAILS OF MEMBER COMPANIES OF THE PUNCH GROUP Certain key companies outside the Securitisation Group Punch Taverns plc: is a public limited company incorporated in England and Wales with registered number It was formerly registered as a private company, Punch Group Limited, and by special resolution passed on 13 May 2002 was re-registered as a public company and changed its name to Punch Taverns plc. It is the overall holding company of the Punch Group and its entire issued ordinary share capital is listed on the Official List of the London Stock Exchange following an initial public offering of its shares in May It is the ultimate parent of the Securitisation Group. Punch Taverns (PGE) Limited: is a private limited company incorporated in England and Wales with registered number Its issued share capital is 62,599, divided into 1,251,983,344 non-redeemable deferred shares of 0.05 each and a special dividend share of 0.05 each. It is a direct subsidiary of Punch Taverns plc and holds the entire issued share capital of Punch Taverns (PGRP) Limited ("PGRP") Punch Taverns (PPCS) Limited, Punch Taverns Group Limited and other Punch Group subsidiaries. On the Fourth Closing Date, it will not be a member of the Securitisation Group but it will be a party to certain Relevant Documents. Punch Taverns (PPCS) Limited: is a private limited company incorporated in England and Wales with registered number Its issued share capital is 2 divided into two ordinary shares of 1 each, which are held as to 100 per cent. by Punch Taverns (PGE) Limited. On the Fourth Closing Date, Punch Taverns (PPCS) Limited will not be a member of the Securitisation Group but it will be a party to the Supply Agreement. Punch Taverns Group Limited: is a private limited company incorporated in England and Wales with registered number Its issued share capital is 996,651.31, divided into 996,651,31 shares of 0.01 each, which is held as to 100 per cent. by PGE. Punch Taverns Group Limited is the parent of Punch Taverns Investments Limited and its indirect subsidiaries include those companies of the Securitisation Group. On the Fourth Closing Date, its indirect subsidiaries will include those companies of the Securitisation Group, although Punch Taverns Group Limited will not be a member of the Securitisation Group. Punch Taverns Investments Limited: is a private limited company incorporated in England and Wales with registered number It is a wholly owned subsidiary of Punch Taverns Group Limited and is the parent of Punch Taverns Intermediate Holdings Limited. Its issued share capital is 652,621, divided into 652,622 shares of 1 each, which are held by Punch Taverns Group Limited. On the Fourth Closing Date, it will not be a member of the Securitisation Group. Punch Taverns Intermediate Holdings Limited: is a private limited company incorporated in England and Wales with registered number Its issued share capital is 609,026, divided into 609,026 shares of 1 each, which are held as to 100 per cent. by Punch Taverns Investments Limited. Punch Taverns Intermediate Holdings Limited is the parent of Punch Taverns (ES) Limited. On the Fourth Closing Date, it will not be a member of the Securitisation Group. Punch Taverns (ES) Limited: is a private limited company incorporated in England and Wales with registered number It is the parent of Punch Taverns Holdings Limited and its issued share capital consists of 197,421,744 ordinary shares of 0.25 each and 3,690,724 employee shares of 0.25 each. All of the ordinary shares are held by Punch Taverns Intermediate Holdings Limited. On the Fourth Closing Date, it will not be a member of the Securitisation Group. Companies within the Securitisation Group The Parent, the Issuer and the Borrower Punch Taverns Holdings Limited: is a private limited company incorporated in England and Wales with registered number Its issued share capital is 63,930, divided into 63,930 shares of 1 each, which is held as to 100 per cent. by Punch Taverns (ES) Limited. It is the holding company of the PTF Sub-Group and, on the Fourth Closing Date, will be the holding company of the Securitisation Group, its direct subsidiaries include the Borrower, Punch Taverns (Red) Limited, the Issuer, Punch Taverns (BS) Limited, Punch Taverns Properties Limited, Punch Taverns (Trent) Limited, Punch Taverns (RH) Limited and Punch Taverns (PPCF) Limited. It does not have, and, following the Fourth Closing Date, will not have any operations itself. 136

137 Punch Taverns Finance plc: is a public limited company incorporated in England and Wales with registered number The Issuer is a special purpose vehicle whose primary purpose is to issue the Refinancing Notes and to lend the proceeds thereof to the Borrower. Its issued share capital is 50,000, divided into 50,000 shares of 1 each, one of which is held by Neil Preston (as nominee for the Parent) and the remainder of which are held by the Parent. Punch Taverns (PTL) Limited: is a private limited company incorporated in England and Wales with registered number Its issued share capital is 1,402, divided into 1,402 shares of 1 each, which are held as to 100 per cent. by the Parent. The Borrower is and, following the Closing Date, will be the parent of Punch Taverns (Fradley) Limited and Punch Taverns (IB) Limited. Other companies Punch Taverns (BS) Company Limited: is a private limited company incorporated in England and Wales with registered number Its issued share capital is 1,000, divided into 1,000 shares of 1 each, which are held as to 100 per cent. by the Parent. Punch Taverns Properties Limited: is a private limited company incorporated in England and Wales with registered number Its issued share capital is 2, divided into 2 shares of 1 each, which are held as to 100 per cent. by the Parent. Punch Taverns (Trent) Limited: is a private limited company incorporated in England and Wales with registered number Its issued share capital is 2, divided into 2 shares of 1 each which are held as to 100 per cent. by the Parent. Punch Taverns (RH) Limited: is a private limited company incorporated in England and Wales with registered number Its issued share capital is 50,000,000, divided into 50,000,000 ordinary shares of 1 each, which are held as to 100 per cent. by the Parent. Punch Taverns (Red) Limited: is a private limited company incorporated in England and Wales with registered number Its issued share capital is 2, divided into 2 shares of 1 each, which are held as to 100 per cent. by the Parent. White Rose Inns Limited: is a private limited company incorporated in England and Wales with registered number Its issued share capital is 50,000 divided into 25,000 A Ordinary shares of 1 each and 25,000 B Ordinary shares of 1 each, which are held as to 100 per cent. by its parent Punch Taverns (Red) Limited. L&P 34 Limited: is a private limited company incorporated in England and Wales with registered number Its issued share capital is 100,000 divided into 100,000 shares of 1 each, which is held as to 100 per cent. by its parent Punch Taverns (Red) Limited. It is the parent of Punch Taverns (CMG) Limited. Punch Taverns (CMG) Limited: is a private limited company incorporated in England and Wales with registered number Its issued share capital is 339,193 divided into 339,193 shares of 1 each, which are held as to 100 per cent. by its parent, L&P 34 Limited. Punch Taverns (PPCF) Limited: is a private limited company incorporated in England and Wales with registered number Its issued share capital is 2 divided into 2 shares of 1 each, which are held as to 100 per cent. by the Parent. Punch Taverns (FH) Limited: is a private limited company incorporated in England and Wales with registered number Its issued share capital is 2,000,000,000 divided into 2,000,000,000 ordinary shares of 1 each, which are beneficially owned as to 100 per cent. by Punch Taverns (RH) Limited. Punch Taverns (VPR) Limited: is a private limited company incorporated in England and Wales with registered number Its issued share capital is 2 divided into 2 ordinary shares of 1 each, which are held as to 100 per cent. by Punch Taverns (FH) Limited. Punch Taverns (MH) Limited: is a private limited company incorporated in England and Wales with registered number Its issued share capital is 2,000,000,000 divided into 2,000,000,000 shares of 1 each, which are held as to 100 per cent. by Punch Taverns (FH) Limited. Punch Taverns (PR) Limited: is a private limited company incorporated in England and Wales with registered number Its issued share capital is 1,600,000 divided into 400,000 deferred shares of 1 each and 1,200,000 ordinary shares of 1 each, which are held as to 100 per cent. by Punch Taverns (MH) Limited. 137

138 Punch Funding II Limited: is a private limited company incorporated in the Cayman Islands with registered number Its issued share capital is 2 divided into 2 shares of 1 each, which are held as to 100 per cent. by Punch Taverns (FH) Limited. 138

139 MANAGEMENT/KEY SHAREHOLDERS OF THE PUNCH GROUP Management / Punch Taverns plc Board of Directors Position Name Business Address Age Chief Executive... Giles Thorley Jubilee House, Second Avenue, Burton upon Trent, Staffordshire DE14 2WF 40 Non-executive Chairman... Peter Cawdron Jubilee House, Second Avenue, Burton upon Trent, Staffordshire DE14 2WF 63 Finance Director... Robert McDonald Jubilee House, Second Avenue, Burton upon Trent, Staffordshire DE14 2WF 52 Commercial Director... Jonathan Paveley Jubilee House, Second Avenue, Burton upon Trent, Staffordshire DE14 2WF 43 Managing Director of the Andrew Knight Spirit Group... Jubilee House, Second Avenue, Burton upon Trent, Staffordshire DE14 2WF 40 Non-executive Director... Fritz Ternofsky Jubilee House, Second Avenue, Burton upon Trent, Staffordshire DE14 2WF 62 Non-executive Director... Ian Fraser Jubilee House, Second Avenue, Burton upon Trent, Staffordshire DE14 2WF 50 Non-executive Director... Michael Foster Jubilee House, Second Avenue, Burton upon Trent, Staffordshire DE14 2WF 61 Non-executive Director... Randl Shure Jubilee House, Second Avenue, Burton upon Trent, Staffordshire DE14 2WF 42 Non-executive Director... Phil Dutton Jubilee House, Second Avenue, Burton upon Trent, Staffordshire DE14 2WF 45 Giles Thorley - Chief Executive Giles Thorley, 40, was appointed Chief Executive of Punch in January 2003, having joined Punch as Executive Chairman in December After qualifying as a Barrister, his early career was at Nomura International plc. He successfully led the IPO of Punch in May 2002 and has seen the business through the subsequent acquisitions including Pubmaster in 2003 and Spirit Group in Giles is 139

140 also a Non-executive Director of First Choice Holidays plc and a trustee of the Rona Trust. Giles has recently been appointed Non-executive Chairman of Tragus Group Limited. Robert McDonald - Finance Director Robert McDonald, 52, was appointed Finance Director of Punch Taverns in April 2002, shortly before flotation, having held the position of Finance Director of the leased and tenanted division of Punch Group since He first joined the industry in 1982, and worked in various roles for Allied Domecq, latterly as Finance Director of Allied Domecq Inns from 1995 until that company was acquired by Punch in He is a Fellow of the Chartered Institute of Management Accountants. Jonathan Paveley - Commercial Director Jonathan Paveley, 43, was appointed Commercial Director with effect from May He joined the Group from Greene King, where he was Strategy Director, responsible for strategic development and purchasing, during which time he managed a series of major internal and acquisition initiatives. Prior to Greene King he was a member of the MBO team at the Gaymer Group and an investment banker. He joined the Punch Taverns Board in September Andrew Knight - Managing Director - the Spirit Group Andrew Knight, 40, was appointed to the Executive Board of Punch in January 2007 having served as Managing Director of Spirit Group since its acquisition by Punch in January Andrew began his career with Courage Ltd before joining Allied Breweries as a graduate trainee and then becoming Retail Area Manager with Joshua Tetley & Son. After joining Allied Domecq Retailing as Retail Marketing Executive the business was sold to Punch Group. Andrew became Commercial Director, seeing Spirit through a number of acquisitions and changes including the acquisition of Tom Cobleigh and Scottish and Newcastle Retail, and the sale of Premier Lodge to Whitbread. Peter Cawdron - Independent Non-executive Chairman Peter Cawdron, 63, was appointed Independent Non-executive Chairman in January 2007, having joined Punch as a Non-executive Director in May He retired from the Board of Grand Metropolitan plc in 1997, where he had held the position of Group Strategy Director for 10 years and Group Planning Director for 4 years. Previously, he had spent 6 years in the United States as Chief Financial Officer of D'Arcy MacManus & Masius Worldwide, Inc., the international advertising agency business based in New York and 7 years at S.G.Warburg & Co. Ltd in London. He qualified as a Chartered Accountant in 1966 at Peat, Marwick, Mitchell & Co. He is also the Chairman of GCap Media plc and a Non-executive Director of a number of companies, including Compass Group plc, ProStrakan plc, Capita Group plc and Johnston Press plc. Fritz Ternofsky - Senior Independent Non-executive Director Fritz Ternofsky, 62, was appointed Senior Independent Non-executive Director of Punch in May He was previously a member of the board of Compass from 1993 to 2000, also serving as Chief Executive for UK and Scandinavia from 1993 to He is currently a Senior Non-executive Director of Care UK plc. He is also Chairman of Close Income, Growth VCT plc, Kew Green Hotels and Wates Group, a privately owned construction company. Ian Fraser - Independent Non-executive Director Ian Fraser, 50, has been appointed as an Independent Non-executive Director, from September He is currently Chief Executive of Kwik Fit, having previously been Trading Director of Safeway Stores plc and Chief Operating Officer of Orange UK. Ian is a member of the Institute of Chartered Accountants of Scotland and qualified with Deloitte in Mike Foster - Independent Non-executive Director Mike Foster, 61, was appointed Independent Non-executive Director of Punch with effect from May Prior to his appointment he was Chief Executive of Inntrepreneur Estates from 1995 until 1998, Chief Executive of Courage Limited from 1987 until 1995, Chairman of Leisurelink Ltd from 1998 until its sale in 2001, Chairman of the British Pub & Beer Association from 1998 until 2001 and Nonexecutive Director of Geest from 1993 until He currently has three other Non-executive Directorships: W H Brakspear & Sons, Roxton Bailey Robinson Ltd and Innserve Ltd. Randl Shure - Independent Non-executive Director Randl Shure, 42, was appointed Independent Non-executive Director of Punch in October Prior to founding CapVest he was head of BT Capital Partners which he joined in 1997 after working for 12 years with Bankers Trust. He was a director of the original Punch Taverns Limited, formed for the 140

141 acquisition of the Bass portfolio. He previously served as a director of Virgin Rail and is currently a director of Young's Bluecrest Limited, Findus AB, Vaasan & Vaasan OY, IP Powerhouse and Ubiquity Software plc. Phil Dutton - Independent Non-executive Director Phil Dutton, 45, has been appointed Independent Non-executive Director of Punch. He is also appointed to the Audit Committee. Phil was until recently Finance Director of Matalan plc where he had been since Prior to this he had worked in various finance and IT roles at Asda, joining them in Executive officers Deborah Kemp - Managing Director Leased Deborah Kemp, 46, was appointed Managing Director of Punch Leased in March Prior to this appointment, she acted as Operations Director for the south and was responsible for all elements of operational implementation and strategy. Deborah has held a number of senior positions and gained a wealth of experience within the pub retailing business, having joined Punch Taverns in 1998 as Investment Director and then Property and Development Director, and has been involved in a number of significant acquisitions and mergers. Deborah's early career was at Bass where she held various operational and property roles. Francis Patton - Customer Services Director Francis Patton, 44, is responsible for the Group's relationships with its key stakeholders; retailers, shareholders, employees, the media, the city and the government. This is done through the internal communications team and frontline helpdesk, and the management of external agents for PR/IR. Francis began his career with Allied Breweries and Allied Domecq retailing in Operations. In 1999, when Allied Domecq sold its pub retailing business, he became Commercial Director for the Punch Pub Company and as the Company grew this role was split into Commercial and Customer Services with him taking up his new role as Customer Services Director for Punch Taverns in June Neil Preston - Company Secretary Neil Preston, 47, is responsible for ensuring that the company meets all its legal and regulatory requirements as a plc. He is a Fellow of the Chartered Association of Certified Accountants and has held various roles within Punch, including that of the Finance Director of Punch Group and Punch Retail (now known as Spirit Group). Prior to this he worked for Allied Domecq and started in the industry in Neil Griffiths - Property & Strategy Director Neil Griffiths, 46 was appointed Property & Strategy Director with effect from June 2005, and is responsible for the strategic development of the estate maximising profitability through acquisition, investment, rental growth and alternative use development. Neil joined Punch in 2001 and has been responsible for building the Company's industry leading acquisitions team. Neil was previously with Warner Brothers where he was international Property Director responsible for pan-european multiplex cinema development. Prior to that, Neil held senior positions with Bass plc including Head of Property and board member of Bass Leisure Entertainments as Commercial Development Director. Karen Caddick - Group Director of Human Resources Karen Caddick, 37, joined Punch in October 2006 and leads the HR function across the Punch Group. Karen started her career with Royal & Sun Alliance in 1993 and performed several HR roles including Head of HR for More Than. Karen then moved to Barclays as Head of Employee Relations & HR Policy. She also led the HR functions at Channel Five Broadcasting and The Financial Times prior to joining Punch. Karen is a Graduate of the Chartered Insurance Institute and a Fellow Graduate of The Institute of Personnel & Development. Key shareholders Punch Taverns plc's entire issued ordinary share capital is listed on the Official List of The United Kingdom Listing Authority and admitted to listing on the London Stock Exchange. Shareholders having a major interest of 3 per cent. or more in Punch as notified to Punch as at 25 June 2007 are: AXA SA (15.96 per cent.); 141

142 M&G Investments (7.20 per cent.); Lansdowne Partners Limited Partnership (6.16 per cent.); Deutsche Bank AG (6.89 per cent.); Barclays Bank PLC (4.35 per cent.); and Legal & General Investment Management Limited (3.64 per cent.). 142

143 EXPECTED AVERAGE LIFE OF THE FOURTH ISSUE NOTES The average lives of the Fourth Issue Notes cannot be predicted, as the actual rate at which Term Advances will be repaid and a number of other relevant factors are unknown. Calculations of the possible average life of the Fourth Issue Notes can be made based on certain assumptions. For example, based on the assumptions that: (a) (b) no optional prepayments are made on the Fourth Issue Notes; and the Issuer exercises its right to redeem each class of Fourth Issue Notes in full on the Interest Payment Date on which the Step-Up Amounts for that class of Notes start to accrue, the following would be the case: Class Notional Amount Estimated Average Life (1) Expected Average Life (2) Expected Maturity (2) Legal Maturity Date A3(N) ,000, years 2.97 years April 2015 April 2015 M2(N) ,000, years 7.03 years July 2014 July 2029 B ,000, years 7.03 years July 2014 July 2031 D ,000, years 7.03 years July 2014 October 2032 (1) Based on the assumption referred to in paragraph (a) above. (2) Based on the assumption referred to in paragraph (b) above. No assurance can be given that the foregoing estimates will prove in any way to be realistic and they must, therefore, be viewed with considerable caution. 143

144 TERMS AND CONDITIONS OF THE NOTES If Notes are issued in definitive form, the terms and conditions (subject to amendment and completion) of the Notes will be as set forth below and will be set forth on each Note (the "Conditions"). Whilst the Notes remain in global form, the same terms and conditions govern the Notes, except to the extent that they are not appropriate for Notes in global form. For a summary of the provisions of the Notes whilst in global form, see Global Notes below. Capitalised terms used in the Conditions which are not otherwise defined in the Conditions are defined elsewhere in this Offering Circular (see Index of Defined Terms below). The 175,000, per cent. Class A1(R) Secured Notes due 2022 (the "Original Class A1(R) Notes") and the 100,000, per cent. Class B1 Secured Notes due 2026 (the "Original Class B1 Notes") issued by Punch Taverns Finance PLC (the "Issuer") were constituted by a trust deed between the Issuer and Deutsche Bank International Trust Co. (Jersey) Limited (the "Original Trust Deed") dated 26 March 1998 as amended and restated on 20 August 1999, as further amended and restated on 25 October 2000, further amended and restated on 3 November 2003 (the "Third Closing Date") and further amended and restated on or about 5 July 2007 (the "Fourth Closing Date"). The 95,000, per cent. Class A1(R) Secured Notes due 2022 (the "Further Class A1(R) Notes" and together with the Original Class A1(R) Notes, the "Class A1(R) Notes") and the 40,000, per cent. Class B1 Secured Notes due 2026 (the "Further Class B1 Notes" and together with the Original Class B1 Notes, the "Class B1 Notes") were constituted by a first supplemental trust deed (the "First Supplemental Trust Deed") dated 25 October 2000 made between the Issuer and Deutsche Bank International Trust Co (Jersey) Limited. The 300,000, per cent. Class A2(R) Secured Notes due 2020 (the "Class A2(R) Notes" and, together with the Class A1(R) Notes, the "Existing Class A Notes"), the 200,000, per cent. Class M1 Secured Notes due 2026 (the "Class M1 Notes"), the 150,000, per cent. Class B2 Secured Notes due 2029 (the "Class B2 Notes") and the 215,000, per cent. Class C(R) Secured Notes due 2033 (the "Class C(R) Notes") were constituted by a supplemental trust deed (the "Second Supplemental Trust Deed") dated the Third Closing Date made between the Issuer, Ambac Assurance UK Limited ("Ambac") and Deutsche Trustee Company Limited (the "Note Trustee" as trustee for the holders for the time being of the Notes (as defined below)). The 125,000,000 Class A3(N) Floating Rate Secured Notes due 2015 (the "Class A3(N) Notes" and, together with the Existing Class A Notes, the "Class A Notes"), the 400,000,000 Class M2(N) Floating Rate Secured Notes due 2029 (the "Class M2(N) Notes" and, together with the Class M1 Notes, the "Class M Notes"), the 175,000,000 Class B3 Floating Rate Secured Notes due 2031 (the "Class B3 Notes" and, together with the Class B1 Notes and the Class B2 Notes, the "Class B Notes") and the 125,000,000 Class D1 Floating Rate Secured Notes due 2032 (the "Class D1 Notes") to be issued by the Issuer will be constituted by a third supplemental trust deed (the "Third Supplemental Trust Deed" and together with the Original Trust Deed, the First Supplemental Trust Deed and the Second Supplemental Trust Deed, the "Trust Deed") dated the Fourth Closing Date and made between the Issuer, Ambac and the Note Trustee. Any reference to the "Notes" shall be to the Class A Notes, the Class M Notes, the Class B Notes, the Class C(R) Notes and the Class D1 Notes or any class of them as the context may require, and shall include any further notes issued pursuant to Condition 15(a) and forming a single class with the Class A3(N) Notes, the Existing Class A Notes, the Class C(R) Notes, the Class M1 Notes, the Class M2(N) Notes, the Class B Notes and/or the Class D1 Notes, as applicable. Any reference below to a class of Notes or of Noteholders shall be a reference to the Class A1(R) Notes, the Class A2(R) Notes, the Class A3(N) Notes, the Class M1 Notes, the Class M2(N) Notes, the Class B1 Notes, the Class B2 Notes, the Class B3 Notes, the Class C(R) Notes or the Class D1 Notes, as the case may be, or to the respective holders thereof. Any reference below to the "Floating Rate Notes" shall be to the Class A3(N) Notes, the Class M2(N) Notes, the Class B3 Notes and the Class D1 Notes, or any class of them, as the context may require. Any reference below to the "Fixed Rate Notes" shall be to the Class A1(R) Notes, the Class A2(R) Notes, the Class M1 Notes, the Class B1 Notes, the Class B2 Notes and the Class C(R) Notes or any class of them, as the context may require. Any reference below to the "Exchange Notes" shall be a reference to the Class A2(R) Notes and the Class B2 Notes or any class of them, as the context may require, any reference below to the "Refinancing Notes" shall be a reference to the Exchange Notes, the Class M1 Notes and the Class C(R) Notes or any class of them, as the context may require, and any reference to the "Fourth Issue Notes" shall be a reference to the Class A3(N) Notes, the Class M2(N) Notes, the Class B3 Notes and the Class D1 Notes or any class of them, as the context may require. 144

145 In addition, for the purposes of these Conditions: "Class A Noteholders" means the Class A1(R) Noteholders, the Class A2(R) Noteholders and the Class A3(N) Noteholders; "Class A1(R) Global Notes" means, as the context requires, the Class A1(R) Temporary Global Note and/or the Class A1(R) Permanent Global Note; "Class A1(R) Definitive Notes" means the bearer notes in definitive form which may be issued in respect of Class A1(R) Notes pursuant to, and in the circumstances specified in the Trust Deed and includes any replacements for Class A1(R) Definitive Notes issued pursuant to Condition 13 and are issued substantially in the form set out in the Trust Deed; "Class A1(R) Noteholders" means the several persons who are for the time being holders of the Class A1(R) Notes (being, if and to the extent that the Class A1(R) Notes are represented by the Class A1(R) Definitive Notes, the bearers thereof and, if and to the extent that the Class A1(R) Notes are represented by the Class A1(R) Global Note, the persons for the time being shown in the records of Euroclear and Clearstream, Luxembourg (other than Clearstream, Luxembourg, if Clearstream, Luxembourg shall be an account holder of Euroclear and other than Euroclear, if Euroclear shall be an account holder of Clearstream, Luxembourg) as being holders of the Class A1(R) Notes) in which regard any certificate or other document issued by Clearstream, Luxembourg or Euroclear as to the Principal Amount Outstanding of Class A1(R) Notes standing to the account of any person shall be conclusive and binding for all purposes (other than for the purposes of payments in respect thereof the right to which shall be vested, as against the Issuer and the Note Trustee, solely in the bearer of the Class A1(R) Global Notes in accordance with and subject to their respective terms and the terms of the Trust Deed) and the words "holder" and "holders" of Class A1(R) Notes shall (where appropriate) be construed accordingly; "Class A1(R) Permanent Global Note" means a permanent global note to be issued by the Issuer pursuant to the Trust Deed representing the Class A1(R) Notes, substantially in the form set out in the Trust Deed; "Class A1(R) Temporary Global Note" means a temporary global note to be issued by the Issuer pursuant to the Trust Deed representing the Class A1(R) Notes, substantially in the form set out in the Trust Deed; "Class A2(R) Definitive Note" means the bearer notes in definitive form which may be issued in respect of Class A2(R) Notes pursuant to, and in the circumstances specified in the Trust Deed and includes any replacements for Class A2(R) Definitive Notes issued pursuant to Condition 13 and are issued substantially in the form set out in the Trust Deed; "Class A2(R) Global Notes" means, as the context requires, the Class A2(R) Temporary Global Note and/or the Class A2(R) Permanent Global Note; "Class A2(R) Noteholders" means the several persons who are for the time being holders of the Class A2(R) Notes (being, if and to the extent that the Class A2(R) Notes are represented by the Class A2(R) Definitive Notes, the bearers thereof and, if and to the extent that the Class A2(R) Notes are represented by the Class A2(R) Global Note, the persons for the time being shown in the records of Euroclear and Clearstream, Luxembourg (other than Clearstream, Luxembourg, if Clearstream, Luxembourg shall be an account holder of Euroclear and other than Euroclear, if Euroclear shall be an account holder of Clearstream, Luxembourg) as being holders of the Class A2(R) Notes) in which regard any certificate or other document issued by Clearstream, Luxembourg or Euroclear as to the Principal Amount Outstanding of Class A2(R) Notes standing to the account of any person shall be conclusive and binding for all purposes (other than for the purposes of payments in respect thereof the right to which shall be vested, as against the Issuer and the Note Trustee, solely in the bearer of the Class A2(R) Global Notes in accordance with and subject to their respective terms and the terms of the Trust Deed) and the words "holder" and "holders" of Class A2(R) Notes shall (where appropriate) be construed accordingly; "Class A2(R) Permanent Global Notes" means a permanent global note to be issued by the Issuer pursuant to the Trust Deed representing the Class A2(R) Notes, substantially in the form set out in the Trust Deed; "Class A2(R) Temporary Global Note" means a temporary global note to be issued by the Issuer pursuant to the Trust Deed representing the Class A2(R) Notes, substantially in the form set out in the Trust Deed; 145

146 "Class A3(N) Global Notes" means, as the context requires, the Class A3(N) Temporary Global Note and/or the Class A3(N) Permanent Global Note; "Class A3(N) Definitive Note" means the bearer notes in definitive form which may be issued in respect of Class A3(N) Notes pursuant to, and in the circumstances specified in, the Trust Deed and includes any replacements for Class A3(N) Definitive Notes issued pursuant to Condition 13 and are issued substantially in the form set out in the Trust Deed; "Class A3(N) Noteholders" means the several persons who are for the time being holders of the Class A3(N) Notes (being, if and to the extent that the Class A3(N) Notes are represented by the Class A3(N) Definitive Notes, the bearers thereof and, if and to the extent that the Class A3(N) Notes are represented by the Class A3(N) Global Note, the persons for the time being shown in the records of Euroclear and Clearstream, Luxembourg (other than Clearstream, Luxembourg, if Clearstream, Luxembourg shall be an account holder of Euroclear and other than Euroclear, if Euroclear shall be an account holder of Clearstream, Luxembourg) as being holders of the Class A3(N) Notes) in which regard any certificate or other document issued by Clearstream, Luxembourg or Euroclear as to the Principal Amount Outstanding of Class A3(N) Notes standing to the account of any person shall be conclusive and binding for all purposes (other than for the purposes of payments in respect thereof the right to which shall be vested, as against the Issuer and the Note Trustee, solely in the bearer of the Class A3(N) Global Notes in accordance with and subject to their respective terms and the terms of the Trust Deed) and the words "holder" and "holders" of Class A3(N) Notes shall (where appropriate) be construed accordingly; "Class A3(N) Permanent Global Notes" means a permanent global note to be issued by the Issuer pursuant to the Trust Deed representing the Class A3(N) Notes, substantially in the form set out in the Trust Deed; "Class A3(N) Temporary Global Note" means a temporary global note to be issued by the Issuer pursuant to the Trust Deed representing the Class A3(N) Notes, substantially in the form set out in the Trust Deed; "Class B Noteholders" means together the Class B1 Noteholders, the Class B2 Noteholders and the Class B3 Noteholders; "Class B1 Definitive Notes" means the bearer notes in definitive form which may be issued in respect of Class B1 Notes pursuant to, and in the circumstances specified in, the Trust Deed and includes any replacements for Class B1 Definitive Notes issued pursuant to Condition 13 and are issued substantially in the form set out the Trust Deed; "Class B1 Global Notes" means, as the context requires, the Class B1 Temporary Global Note and/or the Class B1 Permanent Global Note; "Class B1 Noteholders" means the several persons who are for the time being holders of the Class B1 Notes (being, if and to the extent that the Class B1 Notes are represented by the Class B1 Definitive Notes, the bearers thereof and, if and to the extent that the Class B1 Notes are represented by the Class B1 Global Note, the persons for the time being shown in the records of Euroclear and Clearstream, Luxembourg (other than Clearstream, Luxembourg, if Clearstream, Luxembourg shall be an account holder of Euroclear and other than Euroclear, if Euroclear shall be an account holder of Clearstream, Luxembourg) as being holders of the Class B1 Notes) in which regard any certificate or other document issued by Clearstream, Luxembourg or Euroclear as to the Principal Amount Outstanding of Class B1 Notes standing to the account of any person shall be conclusive and binding for all purposes (other than for the purposes of payments in respect thereof the right to which shall be vested, as against the Issuer and the Note Trustee, solely in the bearer of the Class B1 Global Notes in accordance with and subject to their respective terms and the terms of the Trust Deed) and the words "holder" and "holders" of Class B1 Notes shall (where appropriate) be construed accordingly; "Class B1 Permanent Global Note" means a permanent global note to be issued by the Issuer pursuant to the Trust Deed representing the Class B1 Notes, substantially in the form set out in the Trust Deed; "Class B1 Temporary Global Note" means a temporary global note to be issued by the Issuer pursuant to the Trust Deed representing the Class B1 Notes, substantially in the form set out in the Trust Deed; "Class B2 Global Notes" means, as the context requires, the Class B2 Temporary Global Note and/or the Class B2 Permanent Global Note; 146

147 "Class B2 Definitive Notes" means the bearer notes in definitive form which may be issued in respect of Class B2 Notes pursuant to, and in the circumstances specified in, the Trust Deed and includes any replacements for Class B2 Definitive Notes issued pursuant to Condition 13 and are issued substantially in the form set out in the Trust Deed; "Class B2 Noteholders" means the several persons who are for the time being holders of the Class B2 Notes (being, if and to the extent that the Class B2 Notes are represented by the Class B2 Definitive Notes, the bearers thereof and, if and to the extent that the Class B2 Notes are represented by the Class B2 Global Note, the persons for the time being shown in the records of Euroclear and Clearstream, Luxembourg (other than Clearstream, Luxembourg, if Clearstream, Luxembourg shall be an account holder of Euroclear and other than Euroclear, if Euroclear shall be an account holder of Clearstream, Luxembourg) as being holders of the Class B2 Notes) in which regard any certificate or other document issued by Clearstream, Luxembourg or Euroclear as to the Principal Amount Outstanding of Class B2 Notes standing to the account of any person shall be conclusive and binding for all purposes (other than for the purposes of payments in respect thereof the right to which shall be vested, as against the Issuer and the Note Trustee, solely in the bearer of the Class B2 Global Notes in accordance with and subject to their respective terms and the terms of the Trust Deed) and the words "holder" and "holders" of Class B2 Notes shall (where appropriate) be construed accordingly; "Class B2 Permanent Global Note" means a permanent global note to be issued by the Issuer pursuant to the Trust Deed representing the Class B2 Notes, substantially in the form set out in the Trust Deed; "Class B2 Temporary Global Note" means a temporary global note to be issued by the Issuer pursuant to the Trust Deed representing the Class B2 Notes, substantially in the form set out in the Trust Deed; "Class B3 Definitive Notes" means the bearer notes in definitive form which may be issued in respect of Class B3 Notes pursuant to, and in the circumstances specified in, the Trust Deed and includes any replacements for Class B3 Definitive Notes issued pursuant to Condition 13 and are issued substantially in the form set out in the Trust Deed; "Class B3 Global Notes" means, as the context requires, the Class B3 Temporary Global Note and/or the Class B3 Permanent Global Note; "Class B3 Noteholders" means the several persons who are for the time being holders of the Class B3 Notes (being, if and to the extent that the Class B3 Notes are represented by the Class B3 Definitive Notes, the bearers thereof and, if and to the extent that the Class B3 Notes are represented by the Class B3 Global Note, the persons for the time being shown in the records of Euroclear and Clearstream, Luxembourg (other than Clearstream, Luxembourg, if Clearstream, Luxembourg shall be an account holder of Euroclear and other than Euroclear, if Euroclear shall be an account holder of Clearstream, Luxembourg) as being holders of the Class B3 Notes) in which regard any certificate or other document issued by Clearstream, Luxembourg or Euroclear as to the Principal Amount Outstanding of Class B3 Notes standing to the account of any person shall be conclusive and binding for all purposes (other than for the purposes of payments in respect thereof the right to which shall be vested, as against the Issuer and the Note Trustee, solely in the bearer of the Class B3 Global Notes in accordance with and subject to their respective terms and the terms of the Trust Deed) and the words "holder" and "holders" of Class B3 Notes shall (where appropriate) be construed accordingly; "Class B3 Permanent Global Note" means a permanent global note to be issued by the Issuer pursuant to clause 3 of the Trust Deed representing the Class B3 Notes, substantially in the form of Part B of Schedule 1 to the Trust Deed; "Class B3 Temporary Global Note" means a temporary global note to be issued by the Issuer pursuant to the Trust Deed representing the Class B3 Notes, substantially in the form set out in the Trust Deed; "Class C(R) Global Notes" means, as the context requires, the Class C(R) Temporary Global Note and/or the Class C(R) Permanent Global Note; "Class C(R) Definitive Notes" means the bearer notes in definitive form which may be issued in respect of Class C(R) Notes pursuant to, and in the circumstances specified in, the Trust Deed and includes any replacements for Class C(R) Definitive Notes issued pursuant to Condition 13 and are issued substantially in the form set out in the Trust Deed; "Class C(R) Noteholders" means the several persons who are for the time being holders of the Class C(R) Notes (being, if and to the extent that the Class C(R) Notes are represented by the Class C(R) Definitive Notes, the bearers thereof and, if and to the extent that the Class C(R) Notes are 147

148 represented by the Class C(R) Global Note, the persons for the time being shown in the records of Euroclear and Clearstream, Luxembourg (other than Clearstream, Luxembourg, if Clearstream, Luxembourg shall be an account holder of Euroclear and other than Euroclear, if Euroclear shall be an account holder of Clearstream, Luxembourg) as being holders of the Class C(R) Notes) in which regard any certificate or other document issued by Clearstream, Luxembourg or Euroclear as to the Principal Amount Outstanding of Class C(R) Notes standing to the account of any person shall be conclusive and binding for all purposes (other than for the purposes of payments in respect thereof the right to which shall be vested, as against the Issuer and the Note Trustee, solely in the bearer of the Class C(R) Global Notes in accordance with and subject to their respective terms and the terms of the Trust Deed) and the words "holder" and "holders" of Class C(R) Notes shall (where appropriate) be construed accordingly; "Class C(R) Permanent Global Note" means a permanent global note to be issued by the Issuer pursuant to the Trust Deed representing the Class C(R) Notes, substantially in the form set out in the Trust Deed; "Class C(R) Temporary Global Note" means a temporary global note to be issued by the Issuer pursuant to the Trust Deed representing the Class C(R) Notes, substantially in the form set out in the Trust Deed; "Class D1 Global Notes" means, as the context requires, the Class D1 Temporary Global Note and/or the Class D1 Permanent Global Note; "Class D1 Definitive Notes" means the bearer notes in definitive form which may be issued in respect of Class D1 Notes pursuant to, and in the circumstances specified in, the Trust Deed and includes any replacements for Class D1 Definitive Notes issued pursuant to Condition 13 and are issued substantially in the form set out in the Trust Deed; "Class D1 Noteholders" means the several persons who are for the time being holders of the Class D1 Notes (being, if and to the extent that the Class D1 Notes are represented by the Class D1 Definitive Notes, the bearers thereof and, if and to the extent that the Class D1 Notes are represented by the Class D1 Global Note, the persons for the time being shown in the records of Euroclear and Clearstream, Luxembourg (other than Clearstream, Luxembourg, if Clearstream, Luxembourg shall be an account holder of Euroclear and other than Euroclear, if Euroclear shall be an account holder of Clearstream, Luxembourg) as being holders of the Class D1 Notes) in which regard any certificate or other document issued by Clearstream, Luxembourg or Euroclear as to the Principal Amount Outstanding of Class D1 Notes standing to the account of any person shall be conclusive and binding for all purposes (other than for the purposes of payments in respect thereof the right to which shall be vested, as against the Issuer and the Note Trustee, solely in the bearer of the Class D1 Global Notes in accordance with and subject to their respective terms and the terms of the Trust Deed) and the words "holder" and "holders" of Class D1 Notes shall (where appropriate) be construed accordingly; "Class D1 Permanent Global Note" means a permanent global note to be issued by the Issuer pursuant to the Trust Deed representing the Class D1 Notes, substantially in the form set out in the Trust Deed; "Class M Noteholders" means together the Class M1 Noteholders and the Class M2(N) Noteholders; "Class M1 Global Notes" means, as the context requires, the Class M1 Temporary Global Note and/or the Class M1 Permanent Global Note; "Class M1 Definitive Notes" means the bearer notes in definitive form which may be issued in respect of Class M1 Notes pursuant to, and in the circumstances specified in, the Trust Deed and includes any replacements for Class M1 Definitive Notes issued pursuant to Condition 13 and are issued substantially in the form set out in the Trust Deed; "Class M1 Noteholders" means the several persons who are for the time being holders of the Class M1 Notes (being, if and to the extent that the Class M1 Notes are represented by the Class M1 Definitive Notes, the bearers thereof and, if and to the extent that the Class M1 Notes are represented by the Class M1 Global Note, the persons for the time being shown in the records of Euroclear and Clearstream, Luxembourg (other than Clearstream, Luxembourg, if Clearstream, Luxembourg shall be an account holder of Euroclear and other than Euroclear, if Euroclear shall be an account holder of Clearstream, Luxembourg) as being holders of the Class M1 Notes) in which regard any certificate or other document issued by Clearstream, Luxembourg or Euroclear as to the Principal Amount Outstanding of Class M1 Notes standing to the account of any person shall be conclusive and binding for all purposes (other than for the purposes of payments in respect thereof the right to which shall be vested, as against the Issuer and the Note Trustee, solely in the bearer of the Class M1 Global Notes 148

149 in accordance with and subject to their respective terms and the terms of the Trust Deed) and the words "holder" and "holders" of Class M1 Notes shall (where appropriate) be construed accordingly; "Class M1 Permanent Global Note" means a permanent global note to be issued by the Issuer pursuant to the Trust Deed representing the Class M1 Notes, substantially in the form set out in the Trust Deed; "Class M1 Temporary Global Note" means a temporary global note to be issued by the Issuer pursuant to the Trust Deed representing the Class M1 Notes, substantially in the form set out in the Trust Deed; "Class M2(N) Definitive Note" means the bearer notes in definitive form which may be issued in respect of Class M2(N) Notes pursuant to, and in the circumstances specified in the Trust Deed and includes any replacements for Class M2(N) Definitive Notes issued pursuant to Condition 13 and are issued substantially in the form set out in the Trust Deed; "Class M2(N) Global Notes" means, as the context requires, the Class M2(N) Temporary Global Note and/or the Class M2(N) Permanent Global Note; "Class M2(N) Noteholders" means the several persons who are for the time being holders of the Class M2(N) Notes (being, if and to the extent that the Class M2(N) Notes are represented by the Class M2(N) Definitive Notes, the bearers thereof and, if and to the extent that the Class M2(N) Notes are represented by the Class M2(N) Global Note, the persons for the time being shown in the records of Euroclear and Clearstream, Luxembourg (other than Clearstream, Luxembourg, if Clearstream, Luxembourg shall be an account holder of Euroclear and other than Euroclear, if Euroclear shall be an account holder of Clearstream, Luxembourg) as being holders of the Class M2(N) Notes) in which regard any certificate or other document issued by Clearstream, Luxembourg or Euroclear as to the Principal Amount Outstanding of Class M2(N) Notes standing to the account of any person shall be conclusive and binding for all purposes (other than for the purposes of payments in respect thereof the right to which shall be vested, as against the Issuer and the Note Trustee, solely in the bearer of the Class M2(N) Global Notes in accordance with and subject to their respective terms and the terms of the Trust Deed) and the words "holder" and "holders"of Class M2(N) Notes shall (where appropriate) be construed accordingly; "Class M2(N) Permanent Global Notes" means a permanent global note to be issued by the Issuer pursuant the Trust Deed representing the Class M2(N) Notes, substantially in the form set out in the Trust Deed; "Class M2(N) Temporary Global Note" means a temporary global note to be issued by the Issuer pursuant to the Trust Deed representing the Class M2(N) Notes, substantially in the form set out in the Trust Deed; Definitive Notes means, as the context requires, the Class A1(R) Definitive Notes, the Class A2(R) Definitive Notes, the Class A3(N) Definitive Notes, the Class M1 Definitive Notes, the Class M2(N) Definitive Notes, the Class B1 Definitive Notes, the Class B2 Definitive Notes, the Class B3 Definitive Notes, the Class C(R) Definitive Notes and the Class D1 Definitive Notes; and "Noteholders" means the holders of each class of Notes then outstanding and includes, where the context so requires, any holders of any class of Additional Notes and any holders of any class of Additional Notes or New Notes. The 150,000,000 Class A3(R) Floating Rate Secured Notes due 2009 and the 400,000,000 Class M2 Floating Rate Secured Notes due 2026 (together the "Existing Floating Rate Notes") issued by the Issuer of the Third Closing Date will be redeemed by the Issuer on the first Interest Payment Date (as defined below) following the Fourth Closing Date. These conditions do not therefore refer to the Existing Floating Rate Notes. The Class A2(R) Notes were issued with the benefit of a financial guarantee (the "First Financial Guarantee") dated the Third Closing Date provided by Ambac Assurance UK Limited ("Ambac"). The First Financial Guarantee was issued pursuant to and in accordance with the terms of a guarantee and reimbursement agreement (the "First Guarantee and Reimbursement Agreement") entered into on 3 November 2003 between, inter alios, the Issuer and Ambac. The Class A3(N) Notes, the Class M2(N) Notes and the Class B3 Notes (the "Fourth Issue Guaranteed Notes", and together with the Class A2(R) Notes, the "Guaranteed Notes") will be issued with the benefit of a second financial guarantee (the "Second Financial Guarantee" and, together with the First Financial Guarantee, the "Financial Guarantees") dated the Fourth Closing Date provided by Ambac. The Second Financial Guarantee will be issued pursuant to and in 149

150 accordance with the terms of a second guarantee and reimbursement agreement (the "Second Guarantee and Reimbursement Agreement" and, together with the First Guarantee and Reimbursement Agreement, the "Guarantee and Reimbursement Agreements") to be entered into on the Fourth Closing Date between, inter alios, the Issuer and Ambac. Security for the Notes is created pursuant to, and on the terms set out in, a deed of charge (the "Original Issuer Deed of Charge") entered into on the Third Closing Date as amended, restated and supplemented on or about the Fourth Closing Date between, inter alios, the Issuer, The Royal Bank of Scotland plc (in such capacity the "Hedge Provider", and together with any person entering into replacement hedging arrangements with the Issuer, the Hedge Providers ), Ambac, the Liquidity Facility Agent, the Note Trustee and the Security Trustee (the "First Supplemental Issuer Deed of Charge", the Original Issuer Deed of Charge as supplemented and amended by the First Supplemental Issuer Deed of Charge being the "Issuer Deed of Charge"). By an agency agreement dated 26 March 1998 as supplemented by a supplemental agency agreement dated 23 October 2000 and by a supplemental agency agreement dated 3 November 2003 and as amended, restated on the Fourth Closing Date (the "Agency Agreement") and made between the Issuer, the Note Trustee, Deutsche Bank AG London Branch (the "Principal Paying Agent"), Deutsche Bank Luxembourg S.A. (the "Luxembourg Paying Agent") and Deutsche International Corporate Services (Ireland) Limited (the "Irish Paying Agent", and together with the Principal Paying Agent, the Luxembourg Paying Agent and such additional paying agents, if any are appointed from time to time in respect of the Notes, the "Paying Agents") and Deutsche Bank AG as agent bank (the "Agent Bank" and together with the Paying Agents, the "Agents") provision is made for, inter alia, the payment of principal and interest in respect of the Notes of each class. Reference to any Relevant Document (as defined below) is to include such Relevant Document as from time to time modified in accordance with its provisions and any deed or other document expressed to be supplemental to it, as from time to time so modified. References to the Note Trustee, the Security Trustee, any Paying Agent and the Agent Bank include references to its successors and, in the case of the Note Trustee and the Security Trustee, to any additional trustee appointed under the Trust Deed or, as the case may be, the Issuer Deed of Charge. The statements in these Conditions include summaries of, and are subject to, the detailed provisions of the Trust Deed, the Agency Agreement, the Financial Guarantees, the Guarantee and Reimbursement Agreements and the Issuer Deed of Charge. Copies of the Trust Deed, the Agency Agreement, the Issuer Deed of Charge, the amended and restated master definitions and construction schedule signed by Freshfields Bruckhaus Deringer and Slaughter and May for the purposes of identification on the Fourth Closing Date (the "Amended Master Definitions and Construction Schedule"), the Liquidity Facility Agreement, the Issuer/Borrower Facility Agreements, the Punch Taverns Deeds of Charge, the Punch Taverns Standard Securities, the Servicing and Cash Management Agreement, the Financial Advisory Services Agreement, the subscription agreement dated 30 October 2003 between the Lead Managers, Ambac, the Issuer, the Parent and the Obligors, the Fourth Issue Subscription Agreement, the Bank Agreement, the Tax Deed of Covenant, the Financial Guarantees, the Guarantee and Reimbursement Agreements, the Hedges and the Issuer/Borrower Swap Agreement (unless otherwise as defined herein, each as defined in the Amended Master Definitions and Construction Schedule) (together, the "Relevant Documents"), are available for inspection during normal business hours at the offices of the Irish Paying Agent (for so long as any Notes are listed on the Irish Stock Exchange), being at the date hereof at 5 Harbourmaster Place, IFSC, Dublin 1, Ireland and the Luxembourg Paying Agent (for so long as any Notes are listed on the Luxembourg Stock Exchange), being at the date hereof at Boulevard Konrad Adenauer, L-1115, Luxembourg. Capitalised terms not otherwise defined in these Conditions shall bear the meaning given to them in the Amended Master Definitions and Constructions Schedule available for inspection as described above. 1. Form, Denomination and Title The Notes, which are serially numbered, are issued in bearer form, in the case of the Class A1(R) Notes and the Class B1 Notes, in denominations of 10,000 or 100,000 each (as the case may be), in the case of the Refinancing Notes, in denominations of 1,000, 10,000 or 100,000 each (as the case may be) and, in the case of the Fourth Issue Notes, in denominations of 50,000 and in increments above 50,000 of 1,000 each up to (and including) a maximum denomination of 99,000 (as the case may be), in each case, with interest coupons and talons (respectively "Coupons" and "Talons") attached. Title to the Notes and Coupons shall pass by delivery. 150

151 The holder of any Note and the holder of any Coupon may (to the greatest extent permitted by applicable law) be deemed and treated at all times, by all persons and for all purposes (including the making of any payments), as the absolute owner of such Note or Coupon, as the case may be, regardless of any notice of ownership, theft or loss, or any trust or other interest therein or of any writing thereon. Notes in bearer form are subject to US 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 US tax regulations. Terms used in this paragraph have the meanings given them by the US Internal Revenue Code and the regulations thereunder. The holder of each Coupon (whether or not the Coupon is attached to the relevant Note) in his capacity as such shall be subject to and bound by all the provisions contained in the relevant Note. 2. Status, Priority, Financial Guarantee and Security (a) (i) The Class A Notes constitute direct, secured, unconditional and (other than as set out in clauses 5.2 and 7.2 of the Issuer Deed of Charge (together the "Issuer Priorities of Payments")) unsubordinated obligations of the Issuer and are secured over all of the assets of the Issuer pursuant to and as more fully described in the Issuer Deed of Charge (such security being the "Issuer Security" and the assets of the Issuer subject to the Issuer Security being the "Issuer Charged Property"). The Issuer Security also secures the Class M1 Notes, the Class M2(N) Notes, the Class B Notes, the Class C(R) Notes and the Class D1 Notes. The Class A Notes rank pari passu without preference or priority amongst themselves. The Issuer Security is also security for the Issuer's obligation to Ambac, the Hedge Providers, the Liquidity Facility Providers, the Paying Agents, the Note Trustee and the Security Trustee as described below. The Class A2(R) Notes have the benefit of the First Financial Guarantee which has been issued pursuant to the First Guarantee and Reimbursement Agreement under which Ambac has unconditionally and irrevocably agreed to pay to the Class A2(R) Noteholders, subject to the next paragraph, all sums due and payable but unpaid by the Issuer in respect of certain scheduled principal of and interest on the Class A2(R) Notes, all as more particularly described in the First Financial Guarantee. Under the terms of the First Financial Guarantee, Ambac does not guarantee amounts payable by the Issuer upon an early redemption of the Class A2(R) Notes pursuant to Conditions 5(c), 5(d) or 5(e). Upon any such early redemption, if not paid, Ambac's obligations will continue to be to pay the Guaranteed Amounts (as defined in the First Financial Guarantee) as they fall Due for Payment (as defined in the First Financial Guarantee) on each Interest Payment Date. Ambac will not be obliged under any circumstances to accelerate payment under the First Financial Guarantee. However, if it does so, it may do so in whole or in part and the amount payable will be the outstanding principal amount (or the pro rata amount that has become due and payable) of the Class A2(R) Notes together with (subject to the next paragraph) accrued interest (any amounts due in excess of such outstanding principal amount and any accrued interest thereon will not be guaranteed by Ambac under the First Financial Guarantee). The Fourth Issue Guaranteed Notes have the benefit of the Second Financial Guarantee which has been issued pursuant to the Second Guarantee and Reimbursement Agreement under which Ambac has unconditionally and irrevocably agreed to pay to the Class A3(N) Noteholders, subject to the next paragraph, all sums due and payable but unpaid by the Issuer in respect of certain scheduled principal of and interest on the Class A3(N) Notes, and to the Class M2(N) Noteholders and the Class B3 Noteholders, subject to the next paragraph, all sums due and payable but unpaid by the Issuer in respect of scheduled interest on and ultimate principal of the Class M2(N) Notes and the Class B3 Notes respectively all as more particularly described in the Second Financial Guarantee. Under the terms of the Second Financial Guarantee, Ambac does not guarantee amounts payable by the Issuer upon an early redemption of the Fourth Issue Guaranteed Notes pursuant to Conditions 5(c), 5(d) or 5(e). Upon any such early redemption, if not paid, Ambac's obligations will continue to be to pay the Guaranteed Amounts (as defined in the Second Financial Guarantee) as they fall Due for Payment (as defined in the Second Financial Guarantee) on each Interest 151

152 (iii) (iv) (v) (vi) Payment Date. Ambac will not be obliged under any circumstances to accelerate payment under the Second Financial Guarantee. However, if it does so, it may do so in whole or in part and the amount payable will be the outstanding principal amount (or the pro rata amount that has become due and payable) of the relevant class of Guaranteed Notes together with (subject to the next paragraph) accrued interest (any amounts due in excess of such outstanding principal amount and any accrued interest thereon will not be guaranteed by Ambac under the Second Financial Guarantee). Amounts payable under the Second Financial Guarantee will be subject to any deduction or withholding required by law and Ambac will not be under any obligation to gross up such payments. The Financial Guarantees in respect of the Guaranteed Notes constitute direct, unsecured obligations of Ambac which will rank at least pari passu with all other unsecured obligations of Ambac. The Class M Notes constitute direct, secured, unconditional and (save as set out in the Issuer Priorities of Payments) unsubordinated obligations of the Issuer and are secured by the Issuer Security. The Class M Notes rank pari passu without preference or priority amongst themselves. The Class M Notes are subordinated to, amongst other things, payment of interest and the repayment of principal under the Liquidity Facility Agreement, payments to the Hedge Providers in respect of the Hedges (or any replacement hedging arrangements entered into by the Issuer), payments to Ambac under the Guarantee and Reimbursement Agreements and payments with respect to the Class A Notes (other than any Step-Up Amounts) in accordance with the provisions of Condition 16 and the Issuer Deed of Charge. The Class B Notes constitute direct, secured, unconditional and (save as set out in the Issuer Priorities of Payments) unsubordinated obligations of the Issuer and are secured by the Issuer Security. The Class B Notes rank pari passu without preference or priority amongst themselves. The Class B Notes are subordinated to, amongst other things, payment of interest and the repayment of principal under the Liquidity Facility Agreement, payments to the Hedge Providers in respect of the Hedges (or any replacement hedging arrangements entered into by the Issuer), payments to Ambac under the Guarantee and Reimbursement Agreements and payments with respect to the Class A Notes and the Class M Notes (other than any Step-Up Amounts) in accordance with the provisions of Condition 16 and the Issuer Deed of Charge. The Class C(R) Notes constitute direct, secured, unconditional and (save as set out in the Issuer Priorities of Payments) unsubordinated obligations of the Issuer and are secured by the Issuer Security. The Class C(R) Notes rank pari passu without preference amongst themselves. The Class C(R) Notes are subordinated to, amongst other things, payment of interest and the repayment of principal under the Liquidity Facility Agreement, payments to the Hedge Providers in respect of the Hedges (or any replacement hedging arrangements entered into by the Issuer), payments to Ambac under the Guarantee and Reimbursement Agreements and payments with respect to the Class A Notes, the Class M Notes and the Class B Notes (other than any Step-Up Amounts) in accordance with the provisions of Condition 16 and the Issuer Deed of Charge. The Class D1 Notes constitute direct, secured, unconditional and (save as set out in the Issuer Priorities of Payments) unsubordinated obligations of the Issuer and are secured by the Issuer Security without preference or priority amongst themselves. The Class D1 Notes are subordinated to, amongst other things, payment of interest and repayment of principal under the Liquidity Facility Agreement, payments to the Hedge Providers in respect of the Hedges (or any replacement hedging arrangements entered into by the Issuer), payments to Ambac under the Guarantee and Reimbursement Agreements and payments with respect to the Class A Notes, the Class M Notes, the Class B Notes and the Class C(R) Notes (other than any Step-Up Amounts) in accordance with the provisions of Condition 16 and the Issuer Deed of Charge. (b) (i) The Trust Deed contains provisions requiring the Note Trustee to have regard to the interests of the holders of all classes of Notes as regards all powers, trusts, authorities, duties and discretions of the Note Trustee (except where expressly provided otherwise), but requiring the Note Trustee, in any such case, to have regard only to: 152

153 (A) (B) (C) (D) (for as long as there are any Class A Notes outstanding), the interests of the Class A Noteholders (and for these purposes, in determining the interests of the Class A Noteholders as a whole, in respect of the Class A2(R) Notes and the Class A3(N) Notes only, the Note Trustee shall (provided that no Ambac Termination Event has occurred) have regard to the interests of Ambac only) if, in the Note Trustee's opinion, there is a conflict between the interests of the Class A Noteholders and the interests of the holders of any other classes of Notes; (if no Class A Notes are outstanding and for so long as there are Class M Notes outstanding) the interests of the Class M Noteholders (and for these purposes, in determining the interests of the Class M Noteholders as a whole, in respect of the Class M2(N) Notes only, the Note Trustee shall (provided that no Ambac Termination Event has occurred) have regard to the interests of Ambac only) if, in the Note Trustee's opinion, there is a conflict between the interests of the Class M Noteholders and the interests of the Class B Noteholders, the Class C(R) Noteholders and/or the Class D1 Noteholders; (if no Class A Notes and no Class M Notes are outstanding and for so long as there are Class B Notes outstanding) the interests of the Class B Noteholders (and for these purposes, in determining the interests of the Class B Noteholders as a whole, in respect of the Class B3 Notes only, the Note Trustee shall (provided that no Ambac Termination Event has occurred) have regard to the interests of Ambac only) if, in the Note Trustee's opinion, there is a conflict between the interests of the Class B Noteholders and the interests of the Class C(R) Noteholders and/or the Class D1 Noteholders; or (if no Class A Notes, no Class M Notes and no Class B Notes are outstanding and for so long as there are Class C(R) Notes outstanding) the interests of the Class C(R) Noteholders if, in the Note Trustee's opinion, there is a conflict between the interests of the Class C(R) Noteholders and the Class D1 Noteholders, provided that (1) if there are Class A Notes outstanding, prior to the occurrence of the earlier of an Ambac Class A Trigger Event (as defined below) or an Ambac Termination Event (as defined below) in each case which is continuing; or (2) if no Class A Notes are outstanding, prior to the occurrence of the earlier of an Ambac Class M Trigger Event (as defined below) or an Ambac Termination Event in each case which is continuing; or (3) if no Class A Notes and no Class M Notes are outstanding, prior to the occurrence of the earlier of an Ambac Class B Trigger Event (as defined below) or an Ambac Termination Event in each case which is continuing, the Note Trustee shall only act as directed by Ambac and none of the holders of any class of Notes shall have any claim against the Note Trustee for so doing. In these Conditions: an "Ambac Class A Trigger Event" will have occurred if the aggregate Principal Amount Outstanding of the Class A1(R) Notes is greater than the sum of (i) the aggregate Principal Amount Outstanding of the Class A2(R) Notes and (ii) the aggregate Principal Amount Outstanding of the Class A3(N) Notes; an "Ambac Class B Trigger Event" will have occurred if the sum of (i) the aggregate Principal Amount Outstanding of the Class B1 Notes and (ii) the aggregate Principal Amount Outstanding of the Class B2 Notes is greater than the aggregate Principal Amount Outstanding of the Class B3 Notes; an "Ambac Class M Trigger Event" will have occurred if the aggregate Principal Amount Outstanding of the Class M1 Notes is greater than the aggregate Principal Amount Outstanding of the Class M2(N) Notes; an "Ambac Event of Default" will have occurred if (a) any Guaranteed Amount which is Due for Payment has not been paid by Ambac on the date stipulated in the relevant Financial Guarantee, (b) Ambac has disclaimed, disaffirmed, repudiated and/or challenged the validity of any of its obligations under any Financial Guarantee, (c) a court of competent jurisdiction has entered a final and non-appealable order, judgment or decree for the winding-up, or the appointment of an administrator or receiver (including an administrative receiver or manager), of Ambac (or, as the case may be, of a material part of its property or assets), or (d) Ambac has presented a petition or taken any proceedings for the winding-up, or the appointment of an administrator or receiver 153

154 (ii) (including an administrative receiver or manager), of Ambac (or, as the case may be, of a material part of its property or assets) or has made or entered into any general assignment, composition, arrangement (including, without limitation, a voluntary arrangement under Part 1 of the Insolvency Act 1986) or compromise with or for the benefit of any of its creditors, or has become unable to pay its debts within the meaning of section 123(1)(e) of the Insolvency Act or has admitted in writing its inability to pay its debts as they become due; and an "Ambac Termination Event" will have occurred if (a) an Ambac Event of Default has occurred and is continuing or (b) Ambac has no further obligations, actual or contingent, under the Financial Guarantees and no amounts are then owing to Ambac under the Guarantee and Reimbursement Agreements; The Issuer Deed of Charge contains provisions requiring the Security Trustee to have regard to the interests of the secured creditors of the Issuer pursuant to the Issuer Deed of Charge (together, the "Issuer Secured Creditors") as regards all powers, trusts, authorities, duties and discretions of the Security Trustee (which, except where expressly provided otherwise, are subject to Condition 10), but requiring the Security Trustee in any such case to have regard only to: (A) (B) (C) (D) if there are any Class A Notes outstanding, the interests of Ambac unless and until such time as an Ambac Class A Trigger Event or an Ambac Termination Event has occurred (in each case which is continuing) in which event the Security Trustee shall have regard only to the interests of the Class A Noteholders (and for these purposes, in determining the interests of the Class A Noteholders as a whole, in respect of the Guaranteed Notes only, the Security Trustee shall (provided that no Ambac Termination Event has occurred) have regard to the interests of Ambac only) if, in the Security Trustee's opinion, there is a conflict between the interests of the Class A Noteholders and any other Issuer Secured Creditors (or any of them); following the redemption in full of the Class A Notes and no amount being due to Ambac or Ambac having no outstanding claim against the Issuer under the Guarantee and Reimbursement Agreements in relation to the Class A Notes, if there are any Class M Notes outstanding, the interests of Ambac unless and until such time as an Ambac Class M Trigger Event or an Ambac Termination Event has occurred (in each case, which is continuing) in which event the Security Trustee shall have regard only to the interests of the Class M Noteholders (and for these purposes, in determining the interests of the Class M Noteholders as a whole, in respect of the Class M2(N) Notes only, the Security Trustee shall (provided that no Ambac Termination Event has occurred) have regard to the interests of Ambac only) if in the Security Trustee's opinion there is a conflict between the interests of the Class M Noteholders and any other Issuer Secured Creditors (or any of them); following the redemption in full of the Class A Notes and the Class M Notes and no amount being due to Ambac or Ambac having no outstanding claim against the Issuer under the Guarantee and Reimbursement Agreements in relation to the Class A Notes and the Class M Notes, if there are any Class B Notes outstanding, the interests of Ambac unless and until such time as an Ambac Class B Trigger Event or an Ambac Termination Event has occurred (in each case, which is continuing) in which event the Security Trustee shall have regard only to the interests of the Class B Noteholders (and for these purposes, in determining the interests of the Class B Noteholders as a whole, in respect of the Class B3 Notes only, the Security Trustee shall (provided that no Ambac Termination Event has occurred) have regard to the interests of Ambac only) if in the Security Trustee's opinion there is a conflict between the interests of the Class B Noteholders and any other Issuer Secured Creditors (or any of them); following the redemption in full of the Class A Notes, the Class M Notes and the Class B Notes and no amount being due to Ambac or Ambac having no outstanding claim against the Issuer under the Guarantee and Reimbursement Agreements, the interests of the Note Trustee on behalf of the Class C(R) Noteholders, if, in the Security Trustee's opinion, there is a conflict between the interests of the Class C(R) Noteholders and any other Issuer Secured Creditors (or any of them); 154

155 (c) (iii) (E) (F) following the redemption in full of the Class A Notes, the Class M Notes, the Class B Notes and the Class C(R) Notes and no amount being due to Ambac or Ambac having no outstanding claim against the Issuer under the Guarantee and Reimbursement Agreements, the interests of the Note Trustee on behalf of the Class D1 Noteholders, if, in the Security Trustee's opinion, there is a conflict between the interests of the Class D1 Noteholders and any other Issuer Secured Creditors (or any of them); or following the redemption in full of all the Notes outstanding, the interests of the person appearing highest in the order of priority of payments to whom any amounts are owed under the Issuer Deed of Charge. in exercising its powers, trusts, authorities, duties and discretions referred to in Condition 2(b)(i) or Condition 2(b)(ii), the Note Trustee and the Security Trustee (as the case may be) shall disregard any Class M2(N) Step-Up Amounts for the purposes of determining whether there are any Class M2(N) Notes outstanding, any Class B3 Step-Up Amounts for the purposes of determining whether there are any Class B3 Notes outstanding and any Class D1 Step-Up Amounts for the purposes of determining whether there are any Class D1 Notes outstanding. All classes of Notes are subject to the provisions of the Relevant Documents. (d) The Noteholders and the other Issuer Secured Creditors will share in the benefit of the Issuer Security created upon and subject to the terms of the Issuer Deed of Charge. 3. Covenants (a) (b) (c) (d) Save with the prior written consent of the Security Trustee or as provided in or envisaged by any of the Relevant Documents and/or the Conditions, the Issuer shall not, so long as any Note remains outstanding (as such term is defined in the Amended Master Definitions and Construction Schedule): Negative pledge create or permit to subsist any encumbrance (unless arising by operation of law) or other security interest whatsoever over any of its assets or use, invest, sell or otherwise dispose of any part of its assets (including any uncalled capital) or its undertaking, present or future, or the Issuer Charged Property; Restrictions on activities (i) (ii) engage in any activity whatsoever which is not incidental to or necessary in connection with any of the activities which the Relevant Documents provide or envisage that the Issuer will engage in; or have any subsidiaries, any subsidiary undertakings (as defined in the Companies Act 1985 (as amended)) or any employees or premises; Disposal of assets transfer, sell, lend, part with or otherwise dispose of, or deal with, or grant any option or present or future right to acquire any of its assets or undertakings or any interest, estate, right, title or benefit therein; Dividends or distributions pay any dividend or make any other distribution to its shareholders or issue any further shares which are redeemable, other than in accordance with the Issuer Deed of Charge; (e) (f) Borrowings incur any indebtedness in respect of borrowed money whatsoever or give any guarantee in respect of indebtedness or of any obligation of any person except as contemplated by the Relevant Documents; Merger consolidate or merge with any other person or convey or transfer its properties or assets substantially as an entirety to any other person; 155

156 (g) (h) (i) (j) (k) No variation or waiver permit the validity or effectiveness of any of the Relevant Documents to which it is a party, or the priority of the security interests created thereby, to be amended, terminated or discharged, or consent to any variation of, or exercise any powers of consent or waiver pursuant to the terms of, the Trust Deed, these Conditions, the Issuer Deed of Charge or any of the other Relevant Documents to which it is a party, or permit any part of any of the Relevant Documents to which it is a party, or the Issuer Charged Property or any other person whose obligations form part of the Issuer Charged Property, to be released from such obligations, or dispose of the Issuer Charged Property, save as envisaged in the Relevant Documents to which it is a party; VAT apply to become part of any group with any other company or group of companies for the purposes of Section 43 of the Value Added Tax Act 1994, or any such act, regulation, order, statutory instrument or directive which may from time to time re-enact, replace, amend, vary, codify, consolidate or repeal the Value Added Tax Act 1994; Bank accounts have an interest in any bank account other than the Issuer Transaction Account, the Issuer Cash Collateralisation Account and the Liquidity Facility Reserve Account and any other account where it has an interest pursuant to the Punch Taverns Deeds of Charge, unless such account or interest therein is charged to the Security Trustee on terms acceptable to it; Surrender of group relief offer to surrender or surrender to any company any amounts which are available for surrender by way of group relief within Chapter IV of Part X of the Income and Corporation Taxes Act 1988 except for full payment at the current applicable rate of corporation tax applied to the surrendered amount on the date or dates when and to the extent that the claimant obtains the benefit of the surrender (through a reduced payment of, or on account of, corporation tax or a saving of interest on corporation tax); or Separateness (i) (ii) permit or consent to any of the following occurring: (A) (B) (C) (D) its books and records being co-mingled with those of any other person or entity; its bank accounts and the debts represented thereby being co-mingled with those of any other person or entity; its assets or revenues being co-mingled with those of any other person or entity; or its business being conducted other than in its own name; and in addition and without limitation to sub-paragraph (i) above, the Issuer shall or shall procure that, with respect to itself: (A) (B) (C) (D) separate financial statements in relation to its financial affairs are maintained; all corporate formalities with respect to its affairs are observed; separate stationery, invoices and cheques are used; and it always holds itself out as a separate legal entity. In giving any consent to the change of any of the foregoing, the Security Trustee may require the Issuer to make such modifications or additions to the provisions of any of the Relevant Documents or may impose such other conditions or requirements as the Security Trustee may reasonably deem expedient (in its absolute discretion) in the interests of the Issuer Secured Creditors, provided that (i) each of the Rating Agencies confirms in writing to the Issuer (notwithstanding that such confirmation states that the Security Trustee is not entitled to rely on it) that the then current rating of any class of the Notes and (if there are any Guaranteed Notes outstanding) the Underlying Rating will not be adversely affected in each case as a result of such modification or addition and (ii) prior to the occurrence of an Ambac Termination Event, Ambac consents in writing to such modification or additions which consent shall be deemed to be given if such consent has not been refused in writing to the Security Trustee within 10 Business Days of receipt of Ambac of notice of such modifications or additions. 156

157 4. Interest and Step-Up Amounts (a) (b) Period of Accrual The Original Class A1(R) Notes and the Original Class B1 Notes bear interest on their Principal Amount Outstanding (as defined in Condition 5(f)) from (and including) 26 March The Further Class A1(R) Notes and the Further Class B1 Notes bear interest on their Principal Amount Outstanding (as defined in Condition 5(f)) from (and including) 25 October The Class A2(R) Notes and the Class B2 Notes bear interest on their Principal Amount Outstanding (as defined in Condition 5(f)) from (and including) 28 September 2003 as if such Class A2(R) Notes and such Class B2 Notes had been issued on such date. The Class M1 Notes and the Class C(R) Notes bear interest on their Principal Amount Outstanding (as defined in Condition 5(f)) from (and including) 3 November The Class A3(N) Notes, the Class M2(N) Notes, the Class B3 Notes and the Class D1 Notes bear interest on their Principal Amount Outstanding (as defined in Condition 5(f)) from (and including) the Fourth Closing Date. The Class M2(N) Notes shall accrue step-up amounts (the "Class M2(N) Step-Up Amounts") from and including the Interest Payment Date falling in July 2014 (the "Class M2(N) Step-Up Date") in respect of each Interest Period commencing on or after the Class M2(N) Step-Up Date until (but excluding) the date on which the Class M2(N) Notes are redeemed in full. The Class B3 Notes shall accrue step-up amounts (the "Class B3 Step-Up Amounts") from and including the Interest Payment Date falling in July 2014 (the "Class B3 Step-Up Date") in respect of each Interest Period commencing on or after the Class B3 Step-Up Date until (but excluding) the date on which the Class B3 Notes are redeemed in full. The Class D1 Notes shall accrue step-up amounts (the "Class D1 Step-Up Amounts") and together with the Class M2(N) Step-Up Amounts and the Class B3 Step-Up Amounts, the "Step-Up Amounts") from and including the Interest Payment Date falling in July 2014 (the "Class D1 Step-Up Date") in respect of each Interest Period commencing on or after the Class D1 Step-Up Date until (but excluding) the date on which the Class D1 Notes are redeemed in full. Each Note (or in the case of the redemption of part only of a Note, that part only of such Note) shall cease to bear interest or any Step-Up Amounts from its due date for redemption unless, upon due presentation, payment of the relevant amount of principal or premium (if any) or any part thereof is improperly withheld or refused. In such event, interest and Step-Up Amounts will continue to accrue thereon (before and after any judgment) at the rate applicable to such Note up to (but excluding) the date on which payment in full of the relevant amount of principal or premium (if any) is made or (if earlier) the seventh day after notice is duly given by the Principal Paying Agent to the holder thereof (in accordance with Condition 14) that such payment will be made. Whenever it is necessary to compute an amount of interest or a Step-Up Amount in respect of any Note for any period (including any Interest Period (as defined below)), such interest or Step- Up Amount shall be calculated: (i) in respect of the Class A1(R) Notes and the Class B1 Notes, on the basis of months of 30 days duration and a 360 day year; (ii) (iii) in respect of the Class A2(R) Notes, the Class M1 Notes, the Class B2 Notes and the Class C(R) Notes, on the basis of actual days elapsed and actual number of days in the relevant year; and in respect of the Fourth Issue Notes, on the basis of actual days elapsed and a 365 day year. Interest Payment Dates and Interest Periods (i) Interest on each class of Notes is payable quarterly in arrear on 15 January, 15 April, 15 July and 15 October in each year (or, if such day is not a Business Day, the next succeeding Business Day unless such Business Day falls in the next succeeding calendar month in which event the immediately preceding Business Day) (each an "Interest Payment Date") in respect of the Interest Period (as defined below) ending immediately prior thereto. The first such payment in respect of the Floating Rate Notes is due on 15 October 2007 in respect of the Interest Period commencing on (and including) the Fourth Closing Date and ending in each case on (but excluding) 15 October

158 (c) (d) (ii) In these Conditions: "Interest Period" shall mean: (A) (B) (C) (D) (E) in respect of the Class A2(R) Notes and the Class B2 Notes, the period from (and including) 28 September 2003 to (and including) 14 January 2004 and, thereafter, the period from (and including) 15 January, 15 April, 15 July and 15 October in each year to (and including) the following 14 April, 14 July, 14 October and 14 January respectively; in respect of the Original Class A1(R) Notes and the Original Class B1 Notes, the period from (and including) 26 March 1998 to (and including) 14 July 1998 and thereafter the period from (and including) 15 July, 15 October, 15 January and 15 April in each year to (and including) the following 14 October, 14 January, 14 April and 14 July, respectively; in respect of the Further Class A1(R) Notes and the Further Class B1 Notes, the period from (and including) 15 October 2000 to (and including) 14 January 2001 and thereafter the period from (and including) 15 July, 15 October, 15 January and 15 April in each year to (and including) the following 14 October, 14 January, 14 April and 14 July, respectively; in respect of the Class M1 Notes and the Class C(R) Notes, the period from (and including) the Third Closing Date to (and including) 14 January 2004 and thereafter the period from (and including) 15 January, 15 April, 15 July and 15 October in each year to (and including) the following 14 April, 14 July, 14 October and 14 January, respectively; and in respect of the Fourth Issue Notes, the period from (and including) the Fourth Closing Date to (but excluding) 15 October 2007 and thereafter the period from (and including) an Interest Payment Date to (but excluding) the next following Interest Payment Date. "Business Day" means, for the purposes of this Condition 4: (A) (B) in relation to any day falling prior to the date that the United Kingdom becomes a Participating Member State, a day on which commercial banks and foreign exchange markets settle payments in (in respect of any payment on the Fixed Rate Notes) London and Luxembourg or (in respect of any payment on the Floating Rate Notes) London and Ireland; and in relation to any day falling on or after the date that the United Kingdom becomes a Participating Member State, a day on which the TARGET system is operating. Presentation of Coupons On issue, Coupons relating to the Notes are attached to the Notes. Interest payments on the Notes will be made against presentation and surrender of the appropriate Coupon in accordance with Condition 6 below, except as provided therein. Rates of interest and Step-Up Fee Rates (i) Rate of Interest on the Floating Rate Notes The rate of interest payable from time to time in respect of the Floating Rate Notes (the "FRN Rate of Interest") will be determined by the Agent Bank on each Interest Payment Date in respect of the Interest Period commencing on that date (save in respect of the first Interest Period commencing on the Fourth Closing Date, where the FRN Rate of Interest will be determined by the Agent Bank on the Fourth Closing Date) (each an "Interest Determination Date"). The FRN Rate of Interest for each Interest Period beginning on an Interest Determination Date shall be the aggregate of: (A) the Relevant Margin (as defined in Condition 4(e)); and (B) (1) the arithmetic mean of the offered quotations to leading banks (rounded to four decimal places with the mid-point rounded up) for three month sterling deposits (or three month deposits for such other currency or currency unit as may replace sterling as the lawful currency of the United Kingdom) in the 158

159 (ii) London Interbank market which appear on Telerate Screen Page No (or (aa) such other page as may replace Telerate Screen Page No on that service for the purpose of displaying such information or (bb) if that service ceases to display such information, such page as displays such information on such equivalent service (or, if more than one, that one which is approved by the Note Trustee) as may replace the Telerate Monitor) (the "Screen Rate") (rounded to four decimal places with the mid-point rounded up) calculated on the basis of the number of days in such Interest Period and the Screen Rate at or about a.m. (London time) on such date (or, in the case of the first Interest Determination Date only, a linear interpolation (rounded to four decimal places with the mid-point rounded upwards) of the offered quotations to leading banks determined as aforesaid for three month and four month sterling deposits (the "Additional Screen Rate")); or (2) if the Screen Rate (and, in the case of the first Interest Determination Date only, the Additional Screen Rate) is not then available for three month (or for the first Interest Period, for 2 month and for 3 month) sterling deposits (or three month deposits for such other currency or currency unit as may replace sterling as the lawful currency of the United Kingdom), the arithmetic mean (rounded to four decimal places with the mid-point rounded up) of the rates notified to the Agent Bank at its request by each of the Reference Banks (as defined in Condition 4(j) below) as the rate at which three month sterling deposits (or three month deposits for such other currency or currency unit as may replace sterling as the lawful currency of the United Kingdom) in an amount of 10,000,000 are offered for the same period as that Interest Period by that Reference Bank to leading banks in the London Interbank market at or about a.m. (London time) on that date (or, in the case of the first Interest Determination Date only, the rate obtained upon a linear interpolation (rounded to four decimal places with the mid-point rounded upwards) of the arithmetic means of such rates for 2 month and 3 month sterling (or such other currency or currency unit as may replace sterling as the lawful currency of the United Kingdom) deposits). If on any such Interest Determination Date, two only of the Reference Banks provide such offered quotations to the Agent Bank, the relevant rate shall be determined, as aforesaid, on the basis of the offered quotations of those Reference Banks providing such quotations. If, on any such Interest Determination Date, only one of the Reference Banks provides the Agent Bank with such an offered quotation, the Agent Bank shall forthwith consult with the Note Trustee and the Issuer for the purposes of agreeing one additional bank to provide such a quotation or quotations to the Agent Bank (which bank is in the opinion of the Note Trustee suitable for such purpose) and the rate for the Interest Period in question shall be determined, as aforesaid, on the basis of the offered quotations of such banks as so agreed. If no such bank or banks is or are so agreed or such bank or banks as so agreed does or do not provide such a quotation or quotations, then the rate for the relevant Interest Period shall be the rate in effect for the last preceding Interest Period to which sub-paragraph (1) of the foregoing provisions of this sub-paragraph (2) shall have applied. European Economic and Monetary Union If, as a result of the United Kingdom becoming a Participating Member State, it becomes impossible for the Agent Bank to determine the FRN Rate of Interest for any Interest Period in accordance with Condition 4(d)(i) above, the FRN Rate of Interest for each such Interest Period shall be determined by the Agent Bank on the following basis: (1) the Agent Bank will determine the rate for deposits in euro for a period equal to the relevant Interest Period which appears on the display page designated 248 on the Dow Jones Telerate Service (or such other page as may replace that page on that service, or such other service as may be nominated as the information vendor, for the purpose of displaying comparable rates) as of a.m. (Brussels time) on the relevant Interest Determination Date (which for the avoidance of doubt shall be two TARGET days prior to the 159

160 (iv) (iii) start of the relevant Interest Period) (the "Euro Interest Determination Date"); (2) if such rate does not appear on that page, the Agent Bank will: (a) (b) request the principal London office of each of four major banks in the London Interbank Market to provide a quotation of the rate at which deposits in euro are offered by it in the London Interbank Market at approximately a.m. (London time) on the Euro Interest Determination Date to prime banks in the London Interbank Market for a period equal to the relevant Interest Period and in an amount that is representative for a single transaction in that market at that time; and determine the arithmetic mean (rounded, if necessary, to the nearest per cent., per cent. being rounded upwards) of such quotations; and (3) if fewer than two such quotations are provided as requested, the Agent Bank will determine the arithmetic mean (rounded, if necessary, as aforesaid) of the rates quoted by major banks in any Participating Member State, selected by the Agent Bank, at approximately a.m. (Brussels time) on the first day of the relevant Interest Period for loans in euro to leading European banks for a period equal to the relevant Interest Period and in an amount that is representative for a single transaction in that market at that time and the FRN Rate of Interest for such Interest Period shall be the sum of the Relevant Margin and the rate or (as the case may be) the arithmetic mean so determined; provided, however, that if the Agent Bank is unable to determine a rate or (as the case may be) an arithmetic mean in accordance with the above provisions in relation to any Interest Period, the FRN Rate of interest during such Interest Period will be the sum of the Relevant Margin and the rate (or as the case may be) the arithmetic mean last determined in relation to the Notes in respect of a preceding Interest Period. Interest on the Fixed Rate Notes The rate of interest payable in respect of: (A) (B) (C) (D) (E) (F) the Class A1(R) Notes shall be per cent. per annum (the "Class A1(R) Rate of Interest") the Class A2(R) Notes shall be 6.82 per cent. per annum (the "Class A2(R) Rate of Interest"); the Class M1 Notes shall be per cent. per annum (the "Class M1 Rate of Interest"); the Class B1 Notes shall be per cent. per annum (the "Class B1 Rate of Interest"); the Class B2 Notes shall be per cent. per annum (the "Class B2 Rate of Interest"); and the Class C(R) Notes shall be per cent. per annum (the "Class C(R) Rate of Interest"), in each case payable in respect of each Interest Period in arrear on the immediately succeeding Interest Payment Date. Step-Up Fee Rates The "Step-Up Fee Rate" shall be: (A) (B) (C) in respect of the Class M2(N) Notes, 0.30 per cent. per annum (the "Class M2(N) Step-Up Fee Rate"); in respect of the Class B3 Notes, 0.36 per cent. per annum (the "Class B3 Step- Up Fee Rate"); and in respect of the Class D1 Notes, 1.23 per cent. per annum (the "Class D1 Step- Up Fee Rate"); 160

161 (e) (f) Relevant Margin The "Relevant Margin" shall be: (i) (ii) (iii) (iv) in respect of the Class A3(N) Notes a margin of 0.13 per cent. per annum (the "Class A3(N) Margin"); in respect of the Class M2(N) Notes a margin of 0.20 per cent. per annum (the "Class M2(N) Margin"); in respect of the Class B3 Notes a margin of 0.24 per cent. per annum (the "Class B3 Margin"); and in respect of the Class D1 Notes a margin of 0.82 per cent. per annum (the "Class D1 Margin"). Determination of the FRN Rate of Interest and Calculation of Interest Amounts and Step-Up Amounts The Agent Bank shall, on each Interest Determination Date, determine and notify the Issuer, the Note Trustee, the Principal Paying Agent, the Luxembourg Paying Agent and the Irish Paying Agent of: (i) (ii) (iii) the FRN Rate of Interest applicable to the Interest Period beginning on and including such Interest Determination Date (or in the case of the first Interest Period, beginning on and including the Fourth Closing Date) in respect of the Floating Rate Notes; the sterling amount (the "Interest Amount") payable in respect of such Interest Period in respect of the Floating Rate Notes; and the Step-Up Amounts payable in respect of such Interest Period in respect of each of the Class M2(N) Notes, the Class B3 Notes and the Class D1 Notes. The Interest Amount in respect of the Floating Rate Notes will be calculated by applying the FRN Rate of Interest for such Interest Period to the Principal Amount Outstanding of the relevant class of Floating Rate Notes, during such Interest Period. The Step-Up Amount in respect of a class of Floating Rate Notes for an Interest Period will be calculated by applying, from (and including) the Step-Up Date applicable to that class of Floating Rate Notes, the Step-Up Fee Rate for such class of Floating Rate Notes to the Principal Amount Outstanding of the relevant class of Floating Rates Notes, during such Interest Period. The "Step-Up Date" applicable to a class of Floating Rate Notes shall be: (A) (B) (C) in respect of the Class M2(N) Notes, the Class M2(N) Step-Up Date; in respect of the Class B3 Notes, the Class B3 Step-Up Date; and in respect of the Class D1 Notes, the Class D1 Step-Up Date. The Interest Amount in respect of each Fixed Rate Note (taking into account the Scheduled Amortisation Amounts (as described in Condition 5(c)) to be paid in respect of the Fixed Rate Notes (per 100,000 nominal amount) in accordance with Condition 5(c), in respect of each Interest Period shall be as follows: Interest Payment Date falling in: Class A1(R) Note Interest Amount ( ) Class A2(R) Note Interest Amount ( ) Class M1 Note Interest Amount ( ) Class B1 Note Interest Amount ( ) Class B2 Note Interest Amount ( ) Class C(R) Note Interest Amount ( ) July ,819 1,700 1,467 1,892 2,088 1,613 October ,819 1,719 1,483 1,892 2,111 1,630 January ,819 1,714 1,483 1,892 2,105 1,630 April ,819 1,696 1,463 1,892 2,082 1,608 July ,819 1,696 1,463 1,892 2,082 1,608 October ,819 1,714 1,479 1,892 2,105 1,626 January ,819 1,719 1,483 1,892 2,111 1,630 April ,819 1,682 1,451 1,892 2,065 1,595 July ,819 1,700 1,445 1,892 2,088 1,

162 October ,819 1,719 1,435 1,892 2,111 1,630 January ,819 1,719 1,411 1,892 2,111 1,630 April ,819 1,682 1,355 1,892 2,065 1,595 July ,819 1,700 1,343 1,892 2,088 1,613 October ,819 1,719 1,331 1,892 2,111 1,630 January ,819 1,685 1,320 1,892 2,111 1,630 April ,819 1,614 1,280 1,892 2,065 1,595 July ,819 1,598 1,281 1,892 2,088 1,613 October ,819 1,581 1,283 1,892 2,111 1,630 January ,819 1,543 1,270 1,892 2,105 1,630 April ,819 1,492 1,240 1,892 2,082 1,608 July ,819 1,458 1,226 1,892 2,082 1,608 October ,819 1,440 1,225 1,892 2,105 1,626 January ,819 1,410 1,214 1,892 2,111 1,630 April ,819 1,345 1,172 1,892 2,065 1,595 July ,819 1,326 1,169 1,892 2,088 1,613 October ,819 1,306 1,164 1,892 2,111 1,630 January ,819 1,263 1,151 1,892 2,111 1,630 April ,819 1,194 1,113 1,892 2,065 1,595 July ,819 1,165 1,110 1,892 2,088 1,613 October ,819 1,135 1,106 1,892 2,111 1,630 January ,819 1,092 1,091 1,892 2,111 1,630 April ,819 1,026 1,051 1,892 2,065 1,595 July , ,045 1,892 2,088 1,613 October , ,053 1,892 2,111 1,630 January , ,052 1,892 2,105 1,630 April , ,035 1,892 2,082 1,608 July , ,034 1,892 2,082 1,608 October , ,043 1,892 2,105 1,626 January , ,043 1,892 2,111 1,630 April , ,018 1,892 2,065 1,595 July , ,028 1,892 2,088 1,613 October , ,038 1,892 2,111 1,630 January , ,036 1,892 2,111 1,630 April , ,012 1,892 2,065 1,595 July , ,022 1,892 2,088 1,613 October ,032 1,892 2,111 1,630 January ,030 1,892 2,111 1,630 April ,005 1,892 2,065 1,595 July ,011 1,892 2,088 1,613 October ,017 1,892 2,111 1,630 January ,012 1,892 2,105 1,630 April ,892 2,082 1,608 July ,892 2,082 1,608 October ,892 2,105 1,626 January ,892 2,111 1,630 April ,892 2,065 1,595 July ,892 2,088 1,613 October ,892 2,111 1,630 January ,892 2,111 1,630 April ,892 2,065 1,595 July ,892 2,088 1,613 October ,774 2,111 1,630 January ,655 2,111 1,630 April ,537 2,065 1,595 July ,419 2,088 1,613 October ,301 2,111 1,630 January ,182 2,105 1,630 April ,064 2,082 1,608 July ,082 1,608 October ,105 1,626 January ,111 1,630 April ,065 1,595 July ,088 1,613 October ,111 1,630 January ,111 1,630 April ,065 1,595 July ,088 1,613 October ,111 1,

163 January ,021 1,630 April ,782 1,595 July ,604 1,613 October ,423 1,630 January ,220 1,630 April ,010 1,608 July ,608 October ,626 January ,630 April ,595 July ,613 October ,537 January ,430 April ,293 July ,201 October ,107 January ,000 April July October January April July October January April (g) (h) In the event of any partial redemption of the Class A1(R) Notes, the Class A2(R) Notes, the Class M1 Notes, the Class B1 Notes, the Class B2 Notes or the Class C(R) Notes (as the case may be) (other than through payment of Scheduled Amortisation Amounts pursuant to Condition 5(b)), the Interest Amount in respect of the relevant Fixed Rate Notes shall be calculated by or on behalf of the Issuer in respect of each relevant Fixed Rate Note by applying either the Class A1(R) Rate of Interest, the Class A2(R) Rate of Interest, the Class M1 Rate of Interest, the Class B1 Rate of Interest, the Class B2 Rate of Interest or the Class C(R) Rate of Interest (as the case may be) to the then current Principal Amount Outstanding in respect of the relevant class of Fixed Rate Notes, and the Issuer shall make notification of the applicable Interest Amount to the Agent Bank. Publication of the FRN Rate of Interest, Interest Amounts and Step-Up Amounts As soon as practicable after making the determination pursuant to Condition 4(f) or receiving notification of the applicable Interest Amount following any partial redemption of any class of Fixed Rate Notes (other than through payment of Scheduled Amortisation Amounts as aforesaid), the Agent Bank will cause the FRN Rate of Interest, the Interest Amount and the Step-Up Amount applicable to each Note for each Interest Period and the immediately succeeding Interest Payment Date to be notified to the Luxembourg Stock Exchange or the Irish Stock Exchange (for so long as the relevant class of Notes is listed on the Luxembourg Stock Exchange or the Irish Stock Exchange (as the case may be)) and will cause notice thereof to be given to the relevant class of Noteholders in accordance with Condition 14. Determination or calculation by Note Trustee If the Agent Bank or the Issuer, as the case may be, does not at any time for any reason determine the FRN Rate of Interest and/or calculate the Interest Amount or each Step-Up Amount for each class of the Notes in accordance with the foregoing Conditions, the Note Trustee shall: (i) (ii) (iii) determine the FRN Rate of Interest at such rate as (having regard to the procedure described above) it shall consider fair and reasonable in all the circumstances; and/or (as the case may be) calculate the Interest Amount for each class of Notes in the manner specified in Condition 4(f) above; and/or (as the case may be) calculate the Step-Up Amounts (if any) for the relevant Interest Period for each class of Floating Rate Notes in the manner specified in Condition 4 (f) above, 163

164 (i) (j) and any such determination and/or calculation shall be deemed to have been made by the Agent Bank, but without any liability on the part of the Note Trustee in respect of such determination or calculation. Notification to be final All notifications, opinions, determinations, certificates, calculations, quotations and decisions given, expressed, made or obtained for the purposes of this Condition 4, whether by the Reference Banks (or any of them) or the Agent Bank or the Issuer or the Note Trustee shall (in the absence of wilful default, bad faith or manifest error) be binding on the Issuer, the Reference Banks, the Agent Bank, the Note Trustee and all of the relevant Noteholders and (in such absence as aforesaid) no liability to the Noteholders shall attach to the Issuer, the Reference Banks, the Agent Bank or the Note Trustee in connection with the exercise or non-exercise by them or any of them of their powers, duties and discretions hereunder. Reference Banks and Agent Bank The Issuer shall ensure that, so long as any of the Notes remains outstanding, there shall at all times be three reference banks (the "Reference Banks") and an Agent Bank. The initial Reference Banks shall be the principal London office of each of Barclays Bank PLC, Lloyds TSB Bank PLC and HSBC Bank plc. In the event of the principal London office of any such bank being unable or unwilling to continue to act as a Reference Bank, the Issuer shall appoint such other bank as may have been previously approved in writing by the Note Trustee to act as such in its place. The Agent Bank may not resign until a successor so approved by the Note Trustee has been appointed. 5. Redemption, Purchase and Cancellation (a) (b) Final Redemption Unless previously redeemed in full as provided in this Condition 5, the Issuer shall redeem the Notes at their Principal Amount Outstanding as follows: (i) the Class A1(R) Notes on the Interest Payment Date falling in April 2022; (ii) the Class A2(R) Notes on the Interest Payment Date falling in July 2020; (iii) the Class A3(N) Notes on the Interest Payment Date falling in April 2015; (iv) the Class M1 Notes on the Interest Payment Date falling in October 2026; (v) the Class M2(N) Notes on the Interest Payment Date falling in July 2029; (vi) the Class B1 Notes on the Interest Payment Date falling in April 2026; (vii) the Class B2 Notes on the Interest Payment Date falling in July 2029; (viii) the Class B3 Notes on the Interest Payment Date falling in July 2031; (ix) the Class C(R) Notes on the Interest Payment Date falling in April 2033; and (x) the Class D1 Notes on the Interest Payment Date falling in October The Issuer may not redeem any class of Notes in whole or in part prior to that date except as provided below in Conditions 5(b), (c), (d) or (e), but without prejudice to Condition 9. Scheduled Redemption (i) Class A1(R) Notes Prior to service of an Issuer Enforcement Notice (as defined in Condition 9) the Class A1(R) Notes shall, subject to Conditions 5(c), 5(d) and 5(e) be repaid in instalments on each Interest Payment Date (except in respect of Class A1(R) Notes surrendered to the Issuer and cancelled pursuant to Condition 5(i) below) in the aggregate principal amounts (each a "Class A1(R) Scheduled Amortisation Amount") set out opposite each Interest Payment Date below on such date. The figures set out below show the Class A1(R) Scheduled Amortisation Amount per 100,000 of each Class A1(R) Note: 164

165 Interest Payment Date falling in: Class A1(R) Scheduled Amortisation Amount ( ) July ,572 October ,571 January ,571 April ,572 July ,571 October ,572 January ,571 April ,571 July ,572 October ,571 January ,572 April ,571 July ,571 October ,572 January ,571 April ,572 July ,571 October ,571 January ,572 April ,571 July ,572 October ,571 January ,571 April ,572 July ,571 October ,572 January ,571 April ,572 (ii) Class A2(R) Notes Prior to service of an Issuer Enforcement Notice, the Class A2(R) Notes shall, subject to Conditions 5(c), 5(d) and 5(e), be repaid in instalments on each Interest Payment Date (except in respect of Class A2(R) Notes surrendered to the Issuer and cancelled pursuant to Condition 5(i) below) in the aggregate principal amount (each a "Class A2(R) Scheduled Amortisation Amount") set out opposite each Interest Payment Date below on such date. The figures set out below show the Class A2(R) Scheduled Amortisation Amount per 100,000 of each Class A2(R) Note: Interest Payment Date falling in: Class A2(R) Scheduled Amortisation Amount ( ) October ,000 January ,000 April ,000 July ,000 October ,000 January ,000 April ,000 July ,000 October ,000 January ,000 April ,000 July ,

166 October ,500 January ,500 April ,500 July ,500 October ,500 January ,500 April ,500 July ,500 October ,500 January ,500 April ,833 July ,833 October ,833 January ,833 April ,833 July ,833 October ,833 January ,833 April ,833 July ,833 October ,833 January ,833 April ,833 July ,833 October ,833 January ,833 April ,833 July ,833 (iii) Class A3(N) Notes Prior to service of an Issuer Enforcement Notice, the Class A3(N) Notes shall, subject to Conditions 5(c), 5(d) and 5(e), be repaid in instalments on each Interest Payment Date (except in respect of Class A3(N) Notes surrendered to the Issuer and cancelled pursuant to Condition 5(i) below) in the aggregate principal amount (each a "Class A3(N) Scheduled Amortisation Amount") set out opposite each Interest Payment Date below on such date. The figures set out below show the Class A3(N) Scheduled Amortisation Amount per 100,000 of each Class A3(N) Note: Interest Payment Date falling in: Class A3(N) Scheduled Amortisation Amount ( ) October ,038 January ,138 April ,487 July ,531 October ,391 January ,496 April ,684 July ,251 October ,141 January ,203 April ,615 July ,509 October ,246 January ,323 April ,840 July ,812 October ,

167 January ,808 April ,044 July ,071 October ,992 January ,088 April ,494 July ,423 October ,563 January ,657 April ,064 July ,005 October ,949 January ,047 April ,363 (iv) Class M1 Notes Prior to service of an Issuer Enforcement Notice, the Class M1 Notes shall, subject to Conditions 5(c), 5(d) and 5(e), be repaid in instalments on each Interest Payment Date (except in respect of Class M1 Notes surrendered to the Issuer and cancelled pursuant to Condition 5(i) below) in the aggregate principal amount (each a "Class M1 Scheduled Amortisation Amount") set out opposite each Interest Payment Date below on such date. The figures set out below show the Class M1 Scheduled Amortisation Amount per 100,000 of each Class M1 Note: Interest Payment Date falling in: Class M1 Scheduled Amortisation Amount ( ) April ,506 July ,693 October ,679 January ,708 April ,819 July ,809 October January April July October January April July October January ,026 April ,142 July ,144 October January April ,046 July ,053 October ,060 January ,104 April ,218 July October January April July October January

168 April July October January April July October January April July October January April July October ,098 January ,163 April ,284 July ,330 October ,377 January ,450 April ,572 July ,774 October ,865 January ,859 April ,854 July ,848 October ,841 January ,834 April ,826 July ,818 October ,809 January ,798 April ,786 July ,773 October ,756 January ,736 April ,710 July ,923 October ,518 (v) Class M2(N) Notes Prior to service of an Issuer Enforcement Notice, the Class M2(N) Notes shall, subject to Conditions 5(c), 5(d) and 5(e), be repaid in instalments on each Interest Payment Date (except in respect of Class M2(N) Notes surrendered to the Issuer and cancelled pursuant to Condition 5(i) below) in the aggregate principal amount (each a "Class M2(N) Scheduled Amortisation Amount") set out opposite each Interest Payment Date below on such date. The figures set out below show the Class M2(N) Scheduled Amortisation Amount per 100,000 of each Class M2(N) Note: Interest Payment Date falling in: Class M2(N) Scheduled Amortisation Amount ( ) October ,116 January ,161 April ,288 July ,293 October ,297 January ,344 April ,

169 July ,628 October ,619 January ,711 April ,906 July ,964 October ,012 January ,110 April ,259 July ,350 October ,408 January ,515 April ,716 July ,782 October ,853 January ,972 April ,181 July ,832 October ,507 January ,434 April ,642 July ,746 October ,845 January ,982 April ,154 July ,288 October ,402 January ,549 April ,750 July ,912 (vi) Class B1 Notes Prior to service of an Issuer Enforcement Notice, the Class B1 Notes shall, subject to Conditions 5(c), 5(d) and 5(e), be repaid in instalments on each Interest Payment Date (except in respect of Class B1 Notes surrendered to the Issuer and cancelled pursuant to Condition 5(i) below) in the aggregate principal amount (each a "Class B1 Scheduled Amortisation Amount") set out opposite each Interest Payment Date below on such date. The figures set out below show the Class B1 Scheduled Amortisation Amount per 100,000 of each Class B1 Note: Interest Payment Date falling in: Class B1 Scheduled Amortisation Amount ( ) July ,250 October ,250 January ,250 April ,250 July ,250 October ,250 January ,250 April ,250 July ,250 October ,250 January ,250 April ,250 July ,250 October ,250 January ,250 April ,

170 (vii) Class B2 Notes Prior to service of an Issuer Enforcement Notice, the Class B2 Notes shall, subject to Conditions 5(c), 5(d) and 5(e), be repaid in instalments on each Interest Payment Date (except in respect of Class B2 Notes surrendered to the Issuer and cancelled pursuant to Condition 5(i) below) in the aggregate principal amount (each a "Class B2 Scheduled Amortisation Amount") set out opposite each Interest Payment Date below on such date. The figures set out below show the Class B2 Scheduled Amortisation Amount per 100,000 of each Class B2 Note: Interest Payment Date falling in: Class B2 Scheduled Amortisation Amount ( ) October ,250 January ,450 April ,450 July ,450 October ,450 January ,450 April ,450 July ,450 October ,450 January ,450 April ,450 July ,250 (viii) Class B3 Notes Prior to service of an Issuer Enforcement Notice, the Class B3 Notes shall, subject to Conditions 5(c), 5(d) and 5(e), be repaid in instalments on each Interest Payment Date (except in respect of Class B3 Notes surrendered to the Issuer and cancelled pursuant to Condition 5(i) below) in the aggregate principal amount (each a "Class B3 Scheduled Amortisation Amount") set out opposite each Interest Payment Date below on such date. The figures set out below show the Class B3 Scheduled Amortisation Amount per 100,000 of each Class B3 Note: Class B3 Scheduled Amortisation Interest Payment Date falling in: Amount ( ) July ,740 October ,428 January ,752 April ,170 July ,458 October ,758 January ,104 April ,515 July ,075 (ix) Class C(R) Notes Prior to service of an Issuer Enforcement Notice, the Class C(R) Notes shall, subject to Conditions 5(c), 5(d) and 5(e), be repaid in instalments on each Interest Payment Date (except in respect of Class C(R) Notes surrendered to the Issuer and cancelled pursuant to Condition 5(i) below) in the aggregate principal amount (each a "Class C(R) Scheduled Amortisation Amount") set out opposite each Interest Payment Date below on such date. The figures set out below show the Class C(R) Scheduled Amortisation Amount per 100,000 of each Class C(R) Note: 170

171 Class C(R) Scheduled Amortisation Interest Payment Date falling in: Amount ( ) July ,721 October ,593 January ,593 April ,593 July ,593 October ,593 January ,593 April ,593 July ,593 October ,593 January ,593 April ,593 July ,593 October ,593 January ,593 April ,977 (x) Class D1 Notes Prior to service of an Issuer Enforcement Notice, the Class D1 Notes shall, subject to Conditions 5(c), 5(d) and 5(e), be repaid in instalments on each Interest Payment Date (except in respect of Class D1 Notes surrendered to the Issuer and cancelled pursuant to Condition 5(i) below) in the aggregate principal amount (each a "Class D1 Scheduled Amortisation Amount") set out opposite each Interest Payment Date below on such date. The figures set out below show the Class D1 Scheduled Amortisation Amount per 100,000 of each Class D1 Note: Class D1 Scheduled Amortisation Interest Payment Date falling in: Amount ( ) July ,279 October ,862 January ,395 April ,958 July ,502 October ,004 (c) (d) Mandatory Redemption following Borrower Enforcement Notice If there are moneys received by the Issuer from any Obligor subsequent to the service of a Borrower Enforcement Notice pursuant to the terms of the Punch Taverns Deeds of Charge, such moneys shall be applied by the Issuer, on the next succeeding Interest Payment Date falling at least 5 Business Days after receipt of such moneys, in accordance with the provisions regulating the priority of application of payments in the manner set out in the Issuer Deed of Charge, including without limitation all amounts then due to be paid in redemption of the Notes pursuant to this Condition 5 on such Interest Payment Date without any redemption premium payable pursuant to Condition 5(d)(iii) being required to be paid by the Issuer. Optional redemption (i) On giving not more than 10 nor fewer than 5 Business Days' prior written notice to the relevant class of Noteholders in accordance with Condition 14, to Ambac (prior to the occurrence of an Ambac Termination Event) and to the Note Trustee provided that (A) on the Interest Payment Date on which such notice expires, no Issuer Enforcement Notice has been served, and (B) that the Issuer has, prior to giving such notice, certified to Ambac (prior to the occurrence of an Ambac Termination Event) and to the Note Trustee, and produced evidence acceptable to the Note Trustee (as specified in the Trust Deed) and, prior to the occurrence of an Ambac Termination Event, Ambac, that it will have the necessary funds to discharge any other amounts required under the Issuer Deed of Charge to be paid on such Interest Payment Date, the Issuer may redeem all or part of any class of Notes (provided that the minimum amount of any such redemption will be 171

172 1,000,000 in principal amount of a class of Notes and thereafter in multiples of 100,000 principal amount of such class of Notes) on any Interest Payment Date in accordance with and subject to the provisions of Condition 5(d)(ii) and (iii). (ii) (iii) The Issuer shall, on exercise of its option to redeem Notes pursuant to Condition 5(d)(i), redeem Notes of that class pro rata. Any Notes redeemed pursuant to Condition 5(d)(i) will be redeemed at the Redemption Amount (as defined below) together with accrued but unpaid interest on the Principal Amount Outstanding of the relevant Notes up to and including the relevant date of redemption. "Redemption Amount" means: (A) (B) in respect of the Floating Rate Notes, par; in respect of the Fixed Rate Notes, an amount equal to whichever is the higher of the following: (i) (ii) par; and that price (as reported in writing to the Issuer and the Note Trustee by a financial adviser approved by the Note Trustee) expressed as a percentage (and rounded up to three decimal places ( being rounded upwards)) at which the Gross Redemption Yield on the relevant Notes to be redeemed on the Relevant Date (as defined below) is equal to the Gross Redemption Yield at 3.00 p.m. (London time) on the date of the Relevant Treasury Stock and so that, for the purpose of this sub-paragraph (B), "Relevant Date" means the date which is the second business day in London prior to the date of despatch of the notice of redemption referred to in Condition 5(d)(i); "Gross Redemption Yield" means a yield calculated on the basis indicated by the Joint Index and Classification Committee of the Institute and Faculty of Actuaries, as reported in the Journal of the Institute of Actuaries, Volume 105, Part 1, 1978, page 18; and "Relevant Treasury Stock" means such government stock as the Agent Bank shall determine to be a benchmark gilt the maturity of which most closely matches the then average life of the relevant class of Notes as calculated by the Agent Bank. (e) (iv) Any amount applied in redemption of the Principal Amount Outstanding of Notes on an Interest Payment Date in accordance with this Condition 5(d) (but not in respect of any premium payable in accordance therewith (if any)) shall be applied in satisfaction of the Issuer's obligations to pay the Scheduled Amortisation Amounts in accordance with Condition 5(b). All amounts so paid in accordance with this Condition 5(d) shall be applied by applying the Redemption Amounts paid in respect of Class A1(R) Notes pro rata to reduce each of the Class A1(R) Scheduled Amortisation Amounts, the Redemption Amounts paid in respect of Class A2(R) Notes pro rata to reduce each of the Class A2(R) Scheduled Amortisation Amounts, the Redemption Amounts paid in respect of Class A3(N) Notes pro rata to reduce each of the Class A3(N) Scheduled Amortisation Amounts, the Redemption Amounts paid in respect of the Class M1 Notes pro rata to reduce each of the Class M1 Scheduled Amortisation Amounts, the Redemption Amounts paid in respect of Class M2(N) Notes pro rata to reduce each of the Class M2(N) Scheduled Amortisation Amounts, the Redemption Amounts paid in respect of the Class B1 Notes pro rata to reduce each of the Class B1 Scheduled Amortisation Amounts, the Redemption Amounts paid in respect of the Class B2 Notes pro rata to reduce each of the Class B2 Scheduled Amortisation Amounts, the Redemption Amounts paid in respect of the Class B3 Notes pro rata to reduce each of the Class B3 Scheduled Amortisation Amounts, the Redemption Amounts paid in respect of the Class C(R) Notes pro rata to reduce each of the Class C(R) Scheduled Amortisation Amounts and the Redemption Amounts paid in respect of Class D1 Notes pro rata to reduce the Class D1 Scheduled Amortisation Amounts. Substitution/Redemption for taxation or other reasons If the Issuer at any time satisfies the Note Trustee and (prior to the occurrence of an Ambac Termination Event) Ambac, immediately prior to the giving of the notice referred to below that: 172

173 (i) (ii) (iii) by reason of a change in tax law (or the application or official interpretation thereof) on the next Interest Payment Date, the Issuer would be required to deduct or withhold from any payment of principal or interest on any class of Notes (other than where the relevant holder has some connection with the United Kingdom other than the holding of the relevant class of Notes) any amount for or on account of any present or future taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by the United Kingdom or any political sub-division thereof or any authority thereof or therein; or if, due to a change in law it has become or will become unlawful for the Issuer to make, fund or allow to remain outstanding all or any advances made or to be made by it under the Issuer/ Borrower Facility Agreements; or by reason of a change in tax law (or the application or official interpretation thereof) on the next Interest Payment Date, under the Issuer/Borrower Facility Agreements, the Borrower would be required to deduct or withhold from any payment of principal, interest or other sum due and payable thereunder any amount for or on account of any present or future taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by the United Kingdom or any political sub-division thereof or any authority thereof or therein, then the Issuer may, in order to avoid the relevant event described in (i), (ii) or (iii) above, use its reasonable endeavours to arrange the substitution of a company having its tax residency in another jurisdiction approved by the Note Trustee, as principal debtor under the relevant class of Notes and as lender under the Issuer/Borrower Facility Agreements, as the case may be, provided that (A) the Note Trustee is satisfied that such substitution will not be materially prejudicial to the relevant class of Noteholders and that the position of the other Issuer Secured Creditors will not thereby be adversely affected; (B) each of the Rating Agencies has confirmed in writing that such substitution will not result in a downgrade of the then current ratings of any of the Notes and (if there are any Guaranteed Notes outstanding) the Underlying Rating; (C) for so long as the Notes are listed on the Luxembourg Stock Exchange or the Irish Stock Exchange (as the case may be) (or any other stock exchange), all applicable rules of the Luxembourg Stock Exchange or guidelines of the Irish Stock Exchange (as applicable) (or such other listing authority) have been complied with; and (D) prior to the occurrence of an Ambac Termination Event, Ambac has given its written consent to the proposed substitution (which shall be deemed to be given if such consent has not been refused in writing to the Note Trustee in each case within 10 Business Days of receipt by Ambac of notice of a proposed substitution). If the Issuer is unable to arrange a substitution as described above and, as a result, the Issuer satisfies the Note Trustee immediately before giving the notice referred to below that one or more of the events described in (i), (ii) or (iii) above (as the case may be) is continuing, then the Issuer may, on any date and having given not more than 60 nor less than 30 days' written notice (or, in the case of an event described in (ii) above, such shorter period expiring on or before the latest date permitted by relevant law) to the Note Trustee, Ambac, the Hedge Providers and the Noteholders in accordance with Condition 14 and having provided to the Note Trustee and, (prior to the occurrence of an Ambac Termination Event), Ambac, a certificate signed by two directors of the Issuer to the effect that it will have funds, not subject to the interest of any other persons, available for the purpose, of (aa) issuing Notes in registered form in accordance with the Trust Deed or (bb) redeeming all but not some only of the relevant class of Notes. Such redemption under (bb) above in respect of any Floating Rate Note shall be at par together with accrued but unpaid interest and Step-Up Amounts on its Principal Amount Outstanding up to and including the date of repayment, provided that any Floating Rate Note which is redeemed in accordance with this Condition 5(e) otherwise than on an Interest Payment Date (the "Redemption Date"), shall be redeemed at its Principal Amount Outstanding on the Redemption Date together with (i) accrued but unpaid interest up to (and including) the Redemption Date and (ii) an additional amount equal to the greater of: (A) PAO x (A B) x C/365 where: PAO is the Principal Amount Outstanding of such Note (as the case may be) to be redeemed on the Redemption Date; 173

174 A is the aggregate of (i) the prevailing FRN Rate of Interest (including the Relevant Margin) and (ii) (if applicable) the Step-Up Fee Rate for such Note, in each case for the Interest Period during which the Redemption Date falls; B is Relevant Note LIBOR (as defined below) determined on the Relevant Date for a period equal to the period from (and including) the Business Day following the Redemption Date to (and excluding) the next succeeding Interest Payment Date (the "Relevant Period"); and C is the number of days in the Relevant Period; and (B) zero; and in respect of any Fixed Rate Note, such redemption shall be in an amount calculated in accordance with Condition 5(d)(iii)(B). For the purposes of this Condition 5(e), "Relevant Note LIBOR" means the rate in the London Interbank Market displayed on the Telerate Screen Page No (or if the Screen Rate is not then available, as determined in the same manner as provided in Condition 4(d)(i)(B)), on the Relevant Date or if there is no rate published for the Relevant Period on such date, the rate determined by interpolating between the rates for the period nearest in length to but, less than, the period in question and the period nearest in length to, but more than, the period in question, displayed on the Screen Page (or if not available, as quoted by the Reference Banks). For the purposes of this Condition 5(e), "Relevant Date" means the fifth Business Day prior to the relevant Redemption Date. Without limitation to the prior provisions of this Condition 5(e), if one or more of the events described in (i), (ii) or (iii) above has occurred and is continuing, the Issuer may take such other action as is appropriate in the circumstances subject to obtaining the approval of the Note Trustee and (prior to the occurrence of an Ambac Termination Event) Ambac in order to mitigate the effect of the relevant occurrence. (f) Note Principal Payments, Redemption Amounts, Principal Amount Outstanding and Pool Factor (i) The Principal Amount Outstanding to be redeemed in respect of each Note (the "Note Principal Payment") on any Interest Payment Date under Condition 5(b) or the Redemption Amount pursuant to Condition 5(d) shall, in relation to the Notes of a particular class, be a pro rata share of the aggregate amount required to be applied in redemption of Notes of a particular class on such Interest Payment Date, as the case may be (rounded down to the nearest penny), provided always that no such Note Principal Payment or Redemption Amount may exceed the Principal Amount Outstanding of the relevant Note. (ii) Five Business Days before each Interest Payment Date (a "Calculation Date"), the Issuer shall determine or shall cause to be determined: (A) (B) if there is to be a redemption of the Notes pursuant to Condition 5(b) or 5(d), the amount of any Note Principal Payment due on the next following Interest Payment Date; the Redemption Amounts (if any) due on the next following Interest Payment Date; (C) the Principal Amount Outstanding of each Note on the next following Interest Payment Date (after deducting any Note Principal Payment due to be made on that Interest Payment Date); and (D) in respect of the Floating Rate Notes, the fraction expressed as a decimal to the sixth point (the "Pool Factor") of which the numerator is the Principal Amount Outstanding of a Note and the denominator is 50,000. Each determination by or on behalf of the Issuer of any Note Principal Payment, the Redemption Amount, the Principal Amount Outstanding and the Pool Factor of a Note shall in each case (in the absence of wilful default, bad faith or manifest error) be final and binding on all persons. The "Principal Amount Outstanding" of a Note of any class on any date shall be, in the case of the Class A1(R) Notes and the Class B1 Notes, 10,000 or 100,000 (as the case may be), in the case of the Class A2(R) Notes, the Class M1 Notes, the Class B2 Notes and the Class C(R) Notes, 1,000, 10,000 or 100,000 (as the case may be) and, in the case of the Floating Rate Notes, its original principal amount, in each case less the aggregate amount of all Note 174

175 Principal Payments in respect of a Note of the relevant class that have become due and payable and have been paid: (i) in relation to the Original Class A1(R) Notes and the Original Class B1 Notes, since 26 March 1998; (ii) in relation to the Further Class A1(R) Notes and the Further Class B1 Notes, since 25 October 2000; (iii) (iv) in relation to the Class A2(R) Notes, the Class M1 Notes, the Class B2 Notes and the Class C(R) Notes, since 3 November 2003, and in relation to the Fourth Issue Notes, since the Fourth Closing Date. The Issuer will, on each Calculation Date, cause each determination of a Note Principal Payment (if any), Redemption Amount, Principal Amount Outstanding and Pool Factor to be notified forthwith to the Agent Bank which will then forthwith notify the Note Trustee, the Paying Agents, Ambac, the Luxembourg Stock Exchange (for so long as any of the Notes are listed on the Luxembourg Stock Exchange) and the Irish Stock Exchange (for so long as any of the Notes are listed on the Irish Stock Exchange) and will cause notice of each determination of a Note Principal Payment, Redemption Amount, Principal Amount Outstanding and Pool Factor to be given in accordance with Condition 14. If the Issuer does not at any time for any reason determine a Note Principal Payment, Redemption Amount, the Principal Amount Outstanding or the Pool Factor in accordance with the preceding provisions of this paragraph, such Note Principal Payment, Redemption Amounts, Principal Amount Outstanding and Pool Factor may be determined by the Agent Bank in accordance with this paragraph and each such determination or calculation shall be deemed to have been made by the Issuer. (g) (h) (i) (j) Notice of Redemption Any such notice as is referred to in Condition 5(d) or (e) above shall be irrevocable and, upon the expiration of such notice, the Issuer shall be bound to redeem the Notes of each class at the amounts specified in these Conditions. Purchase of Notes The Issuer will not be permitted to purchase any of the Notes. The Borrower may at any time purchase Notes, subject to the provisions of the Issuer/Borrower Facility Agreements. Cancellation All Notes redeemed in full or purchased by the Borrower and surrendered to the Issuer will be cancelled upon redemption or purchase and surrender, and may not be resold or re-issued. Other information The Issuer shall, within 5 days of the date of publication of the audited annual and half yearly consolidated financial statements of Punch Taverns plc, procure the publication on Bloomberg (or such other electronic news services as may be approved by the Note Trustee) of an investor report in respect of the immediately preceding two financial quarters (the "Investor Report Period") setting out inter alia, the consolidated net assets of the Securitisation Group as at the end of the relevant Investor Report Period, the calculation of EBITDA, Debt Service, Debt Service Cover Ratio, Net Worth, Excess Cash and Free Cashflow (each such term as defined in the Amended Master Definitions and Construction Schedule) in respect of the relevant Investor Report Period and capital expenditure incurred in respect of the Investor Report Period. 6. Payments (a) Repayments of principal and payments of premium (if any) in respect of any Note will be made against presentation and surrender (or, in the case of part payment, endorsement) of such Note at the specified office of any Paying Agent. Payments of interest in respect of the Definitive Notes will (subject as provided in Conditions 6(d) and (e) below) be made only against presentation and surrender of the relevant Coupons at the specified office of any Paying Agent. Such payment will be made in sterling at the specified office of any Paying Agent by sterling cheque drawn on, or, at the option of the holder, by transfer to a sterling account maintained by the payee with, a bank in London. 175

176 (b) (c) (d) (e) (f) (g) Repayments of principal and payments of interest and premium (if any) in respect of the Notes are subject in all cases to any fiscal or other laws and regulations applicable thereto in the place of payment. The following legend will appear on all Notes in bearer form and Coupons and Talons: "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 in the legend provide that, with certain exceptions, a United States taxpayer will not be permitted to deduct any loss, and will not be eligible for capital gain treatment with respect to any gain, realised on a sale, exchange or redemption of a Note in bearer form or Coupon or Talon. On the date upon which any Note becomes due and payable in full, unmatured Coupons appertaining thereto (whether or not attached to such Note) shall become void and no payment shall be made in respect thereof. If the due date for redemption of any Note is not an Interest Payment Date, accrued interest will be paid only against presentation and surrender of the relevant Note. If any amount of principal or premium is improperly withheld or refused on or in respect of any Note or part thereof, the interest which continues to accrue in respect of such Note in accordance with Condition 4 will be paid against presentation of such Note at the specified office of any Paying Agent. The names of the Paying Agents and their initial specified offices are listed at the end of these Conditions. The Issuer reserves the right, subject to the prior written approval of the Note Trustee, at any time to vary or revoke the appointment of the Paying Agent and to appoint additional Paying Agents. The Issuer will at all times maintain a paying agent with a specified office in each of Luxembourg and Ireland. The Issuer will cause at least 30 days' notice of any change in or addition to the Paying Agents or their specified offices to be given in accordance with Condition 14. If any Global Note is presented for payment on a day which is not a business day in the place where it is so presented and (in the case of payment by transfer to a sterling account in London as referred to in paragraph (a)) in the City of London, no further payments of additional amounts by way of interest, principal or otherwise shall be due in respect of such Global Note. If a Paying Agent makes a partial payment in respect of any Note presented to it for payment, such Paying Agent will endorse on the grid endorsed on such Note (in respect of payments of principal and interest) a statement indicating the amount and date of such payment. (h) (i) If at any time there is a change in the currency of the United Kingdom such that the Bank of England recognises a different currency or currency unit or more than one currency or currency unit as the lawful currency of the United Kingdom, then references in, and obligations arising under, the Notes outstanding at the time of any such change and which are expressed in sterling shall be translated into and/or any amount becoming payable under the Notes thereafter as specified in these Conditions shall be paid in the currency or currency unit of the United Kingdom, and in the manner designated by the Paying Agent. Any such translation shall be made at the official rate of exchange recognised for that purpose by the Bank of England. (i) (ii) (iii) Where such a change in currency occurs, the Global Note in respect of the Notes then outstanding and the Conditions relating to such Notes shall be amended in the manner agreed by the Issuer, (prior to the occurrence of an Ambac Termination Event) Ambac and the Note Trustee so as to reflect that change and, so far as practicable, to place the Issuer, (prior to the occurrence of an Ambac Termination Event) Ambac, the Note Trustee and the Noteholders in the same position each would have been in had no change in currency occurred (such amendments to include, without limitation, changes required to reflect any modification to Business Day or other conventions arising in connection with such change in currency). All amendments made pursuant to this Condition 6(h) will be binding upon holders of such Notes. Notification of the amendments made to Notes pursuant to this Condition 6(h) will be made in accordance with Condition 14 which will state, inter alia, the date on which such amendments are to take or took effect, as the case may be. For the purposes of this Condition 6, "business day" shall mean a day (other than a Saturday or Sunday) on which banks are generally open for business in London and the place where the relevant Paying Agent has its specified office from time to time. 176

177 7. Taxation All payments in respect of the Notes will be made without withholding or deduction for, or on account of, any present or future taxes, duties or charges of whatsoever nature unless the Issuer, or any Paying Agent is required by applicable law to make any payment in respect of the Notes subject to any such withholding or deduction. In that event, the Issuer, or such Paying Agent (as the case may be) shall make such payment after such withholding or deduction has been made and shall account to the relevant authorities for the amount so required to be withheld or deducted. Neither the Issuer nor any Paying Agent will be obliged to make any additional payments to holders of Notes in respect of such withholding or deduction. 8. Prescription Notes shall become void unless presented for payment within a period of 10 years from the relevant date in respect thereof. Coupons shall become void unless presented for payment within a period of 5 years from the relevant date in respect thereof. After the date on which a Note or a Coupon becomes void in its entirety, no claim may be made in respect thereof. In this Condition 8, the "relevant date", in respect of a Note or Coupon, is the date on which a payment in respect thereof first becomes due or (if the full amount of the moneys payable in respect of all the Notes and/or Coupons due on or before that date has not been duly received by the Paying Agents or the Note Trustee on or prior to such date) the date on which notice that the full amount of such moneys have been received is duly given to the Noteholders in accordance with Condition Issuer Events of Default (a) The occurrence of any of the following events shall constitute an "Event of Default": (i) (ii) default is made in the payment of the principal or interest (for the avoidance of doubt, not including any Step-Up Amounts) on any Note when and as the same ought to be paid in accordance with these Conditions (subject to Condition 16); or default is made by the Issuer in the performance or observance of any obligation binding upon it under the Notes, the Trust Deed or the Issuer Deed of Charge and, in any such case (except where the Note Trustee (or, in the case of the Issuer Deed of Charge, the Security Trustee) certifies that, in its opinion, such default is incapable of remedy when no notice will be required) such default continues for a period of 14 days following the service by the Note Trustee (or, in the case of the Issuer Deed of Charge, the Security Trustee) on the Issuer of notice requiring the same to be remedied; or (iii) (iv) (v) the Issuer, otherwise than for the purposes of such amalgamation or reconstruction as is referred to in Condition 9(a)(iv) below, ceases or, through an authorised action of the board of directors of the Issuer, threatens to cease to carry on business or a substantial part of its business or the Issuer is deemed unable to pay its debts as and when they fall due within the meaning of Section 123(1) and (2) of the Insolvency Act 1986 (as that section may be amended); or an order is made or an effective resolution is passed for the winding-up of the Issuer except a winding-up for the purposes of or pursuant to an amalgamation or reconstruction the terms of which have previously been approved by the Security Trustee and the Note Trustee in writing; or (A) any steps being taken (whether out of court or otherwise) against the Issuer under any applicable liquidation, insolvency, composition, reorganisation or other similar laws (including, but not limited to, presentation of a petition for an administration order) and such steps are not, in the opinion of the Security Trustee, being disputed in good faith with a reasonable prospect of success, or (B) an administration order being granted or an administrative receiver or other receiver, liquidator or other similar official shall be appointed in relation to the Issuer or in relation to the whole or any substantial part of the undertaking or assets of the Issuer, or (C) an encumbrancer taking possession of the whole or any substantial part of the undertaking or assets of the Issuer, or (D) any distress, execution, diligence or other process shall be levied or enforced upon or sued out against the whole or any substantial part of the undertaking or assets of the Issuer and such possession or process (as the case may be) shall not be discharged or otherwise ceases to apply within 15 days, or (E) the Issuer initiating or consenting to judicial proceedings relating to itself under applicable liquidation, insolvency, composition, 177

178 (b) (vi) reorganisation or other similar laws or makes a conveyance or assignment for the benefit of its creditors generally; or any event occurs which under any applicable laws has an analogous effect to any of the events referred to in paragraphs (iii), (iv) and (v) above (for the avoidance of doubt, in respect of any events having analogous effect to any of the events referred to in paragraph (v), subject to any provisos or grace periods contained in such paragraph). If an Event of Default shall occur in relation to any class of Notes, the Note Trustee at its discretion may, and: (i) (ii) (iii) (iv) (A) if neither an Ambac Class A Trigger Event nor Ambac Termination Event has occurred (in each case which is continuing), if so requested by Ambac shall; or (B) if an Ambac Class A Trigger Event has occurred (which is continuing) but prior to the occurrence of an Ambac Termination Event, (1) if so directed, by an Extraordinary Resolution of the Class A Noteholders or (2) if directed in writing by Class A1(R) Noteholders holding at least one quarter of the aggregate Principal Amount Outstanding of the Class A Notes or (3) if directed by Ambac provided that the aggregate Principal Amount Outstanding of the Class A2(R) Notes and the Class A3(N) Notes is at least onequarter of the aggregate Principal Amount Outstanding of the Class A Notes shall; or (C) if an Ambac Termination Event has occurred (which is continuing), if so requested in writing by the holders of at least one-quarter of the aggregate Principal Amount Outstanding of the Class A Notes or if so directed, by an Extraordinary Resolution of the Class A Noteholders shall; or if there are no Class A Notes outstanding: (A) if neither an Ambac Class M Trigger Event nor Ambac Termination Event has occurred (in each case which is continuing), if so requested by Ambac shall; or (B) if an Ambac Class M Trigger Event has occurred (which is continuing) but prior to the occurrence of an Ambac Termination Event, (1) if so directed, by an Extraordinary Resolution of the Class M Noteholders or (2) if directed in writing by Class M1 Noteholders holding at least one quarter of the aggregate Principal Amount Outstanding of the Class M Notes or (3) if directed by Ambac provided that the aggregate Principal Amount Outstanding of the Class M2(N) Notes is at least one-quarter of the aggregate Principal Amount Outstanding of the Class M Notes shall; or (C) if an Ambac Termination Event has occurred (which is continuing), if so requested in writing by the holders of at least one-quarter of the aggregate Principal Amount Outstanding of the Class M Notes or if so directed, by an Extraordinary Resolution of the Class M Noteholders shall; or if there are no Class A Notes or Class M Notes outstanding: (A) if neither an Ambac Class B Trigger Event nor Ambac Termination Event has occurred (in each case which is continuing), if so requested by Ambac shall; or (B) if an Ambac Class B Trigger Event has occurred (which is continuing) but prior to the occurrence of an Ambac Termination Event, (1) if so directed, by an Extraordinary Resolution of the Class B Noteholders or (2) if directed in writing by either Class B1 Noteholders or Class B2 Noteholders holding at least one quarter of the aggregate Principal Amount Outstanding of the Class B Notes or (3) if directed by Ambac provided that the aggregate Principal Amount Outstanding of the Class B3 Notes is at least onequarter of the aggregate Principal Amount Outstanding of the Class B Notes shall; or (C) if an Ambac Termination Event has occurred (which is continuing), if so requested in writing by the holders of at least one-quarter of the aggregate Principal Amount Outstanding of the Class B Notes or if so directed, by an Extraordinary Resolution of the Class B Noteholders shall; or if an Ambac Termination Event has occurred (which is continuing) and there are no Class A Notes, Class M Notes or Class B Notes outstanding, if so requested in writing by the holders of at least one-quarter of the aggregate Principal Amount Outstanding of the Class C(R) Notes or if so directed by an Extraordinary Resolution of the holders of the Class C(R) Notes shall; or 178

179 (v) if an Ambac Termination Event has occurred (which is continuing) and there are no Class A Notes, Class M Notes, Class B Notes or Class C(R) Notes outstanding, if so requested in writing by the holders of at least one-quarter of the aggregate Principal Amount Outstanding of the Class D1 Notes or if so directed by an Extraordinary Resolution of the holders of the Class D1 Notes shall, (subject, in any case, to being indemnified to its satisfaction) give notice (an "Issuer Enforcement Notice") to the Issuer, the Security Trustee and the Principal Paying Agent which shall state that the Notes shall forthwith become, due and repayable at their Principal Amount Outstanding together with accrued interest (if any) and the security over the Issuer Security shall thereupon be capable of enforcement by the Security Trustee in accordance with the Issuer Deed of Charge. 10. Enforcement (a) At any time after the Notes have become due and repayable following the service of an Issuer Enforcement Notice and without prejudice to the rights of enforcement of the Security Trustee in relation to the Issuer Security, the Note Trustee may, at its discretion (though subject always to the provisions of Condition 2(b)(i)) and without further notice, direct the Security Trustee to take such proceedings against the Issuer to enforce the Issuer Security provided that the Note Trustee shall not be bound to direct the Security Trustee to take such action unless: it shall have been so directed: (i) (ii) (iii) (A) for so long as neither an Ambac Class A Trigger Event nor an Ambac Termination Event has occurred (in each case which is continuing), by Ambac; or (B) if an Ambac Class A Trigger Event has occurred (which is continuing) but prior to the occurrence of an Ambac Termination Event, (1) by an Extraordinary Resolution of the Class A Noteholders or (2) in writing by Class A1(R) Noteholders holding at least one quarter of the aggregate Principal Amount Outstanding of the Class A Notes or (3) in writing by Ambac if the aggregate Principal Amount Outstanding of the Class A2(R) Notes and the Class A3(N) Notes is at least one quarter of the aggregate Principal Amount Outstanding of the Class A Notes; or (C) if an Ambac Termination Event has occurred (which is continuing), in writing by the holders of at least one quarter of the aggregate Principal Amount Outstanding of the Class A Notes, or an Extraordinary Resolution of the Class A Noteholders; or if there are no Class A Notes outstanding: (A) for so long as neither an Ambac Class M Trigger Event nor an Ambac Termination Event has occurred (in each case which is continuing), by Ambac; or (B) if an Ambac Class M Trigger Event has occurred (which is continuing) but prior to the occurrence of an Ambac Termination Event, (1) by an Extraordinary Resolution of the Class M Noteholders or (2) in writing by Class M1 Noteholders holding at least one quarter of the aggregate Principal Amount Outstanding of the Class M Notes or (3) in writing by Ambac if the aggregate Principal Amount Outstanding of the Class M2(N) Notes is at least one quarter of the aggregate Principal Amount Outstanding of the Class M Notes; or (C) if an Ambac Termination Event has occurred (which is continuing), in writing by the holders of at least one quarter of the aggregate Principal Amount Outstanding of the Class M Notes, or an Extraordinary Resolution of the Class M Noteholders; or if there are no Class A Notes or Class M Notes outstanding: (A) for so long as neither an Ambac Class B Trigger Event nor an Ambac Termination Event has occurred (in each case which is continuing), by Ambac; or (B) if an Ambac Class B Trigger Event has occurred (which is continuing) but prior to the occurrence of an Ambac Termination Event, (1) by an Extraordinary Resolution of the Class B Noteholders or (2) in writing by Class B1 Noteholders and/or Class B2 Noteholders holding at least one quarter of the aggregate Principal Amount Outstanding of the Class B Notes or (3) in writing by Ambac if the aggregate Principal Amount 179

180 (b) (c) Outstanding of the Class B3 Notes is at least one quarter of the aggregate Principal Amount Outstanding of the Class B Notes; or (C) if an Ambac Termination Event has occurred (which is continuing), in writing by the holders of at least one quarter of the aggregate Principal Amount Outstanding of the Class B Notes, or an Extraordinary Resolution of the Class B Noteholders; or (iv) if an Ambac Termination Event has occurred (which is continuing) and there are no Class A Notes, Class M Notes or Class B Notes outstanding, an Extraordinary Resolution of the Class C(R) Noteholders or in writing by the holders of at least one-quarter in aggregate of the Principal Amount Outstanding of the Class C(R) Notes; or (v) if an Ambac Termination Event has occurred (which is continuing) and there are no Class A Notes, Class M Notes or Class B Notes outstanding, an Extraordinary Resolution of the Class D1 Noteholders or in writing by the holders of at least one-quarter in aggregate of the Principal Amount Outstanding of the Class D1 Notes; and it shall have been indemnified to its satisfaction; and in exercising its duty or discretion in accordance with Condition 10(a), the Note Trustee shall disregard any Step-Up Amounts for the purposes of determining whether there are any Notes of the relevant class outstanding, and the Security Trustee shall enforce the Issuer Security in accordance with the provisions of the Issuer Deed of Charge. No Noteholder or Issuer Secured Creditor shall be entitled to proceed directly against the Issuer unless the Note Trustee, having become bound so to do, fails to do so within a reasonable period and such failure shall be continuing. 11. Meetings of Noteholders, Modification and Waiver (a) (b) The Trust Deed contains provisions for convening meetings of the Noteholders and, in the circumstances set out in the Trust Deed, separate meetings of each class of Noteholders to consider any matter affecting their interests, including proposals by Extraordinary Resolution of Noteholders or the relevant class thereof, as the case may be, to modify, or to sanction the modification of, the Notes, or the relevant class thereof (including these Conditions), or the provisions of any of the Relevant Documents. Prior to the occurrence of an Ambac Termination Event (which is continuing), the Note Trustee will not be entitled to agree to any modification to these Conditions or any of the Relevant Documents unless the Note Trustee confirms to Ambac that, in the opinion of the Note Trustee, there is no conflict between the interests of Ambac as provider of the Financial Guarantees and any of the Noteholders provided that notwithstanding the foregoing the prior written consent of Ambac will always (unless an Ambac Termination Event has occurred which is continuing) be required in respect of any modification to any Ambac Reserved Rights. Ambac is entitled to receive notice of and attend meetings of Noteholders but is not entitled to vote. "Ambac Reserved Rights" means: (i) any of the matters referred to in the Relevant Documents as requiring the consent of Ambac; (c) (ii) (iii) circumstances where consent of Ambac is required in all circumstances in accordance with clause 9.4 of the Issuer Deed of Charge; and any amendment to modify or vary the terms of Conditions 4 and 5 in so far as such relates to payment of principal or interest on any class of Guaranteed Notes. An Extraordinary Resolution passed at any meeting of the Class A Noteholders shall be binding on all Class A Noteholders, the Class M Noteholders, the Class B Noteholders, the Class C(R) Noteholders and the Class D1 Noteholders irrespective of the effect upon them, except an Extraordinary Resolution (i) to sanction a Basic Terms Modification or (ii) to sanction a waiver or authorisation of any breach or proposed breach of or modification to any of the provisions of any of the Relevant Documents will not take effect unless the Note Trustee certifies that it is of the opinion that it would not be materially prejudicial to the interests of the Class M Noteholders, the Class B Noteholders, the Class C(R) Noteholders and/or the Class D1 Noteholders and (prior to the occurrence of an Ambac Termination Event) to the interests of Ambac, or it shall have been (prior to the occurrence of an Ambac Termination Event) agreed to in writing by Ambac and 180

181 (d) sanctioned by an Extraordinary Resolution of each of the Class M Noteholders, the Class B Noteholders, the Class C(R) Noteholders and the Class D1 Noteholders and subject, in certain cases, to obtaining the consent of certain of the other Issuer Secured Creditors. "Basic Terms Modification" means: (a) (b) with respect to the Class A1(R) Notes or the Class B1 Notes any: (i) (ii) (iii) (iv) (v) (vi) modification of the date fixed for final maturity of the Notes of either such class; reduction or cancellation of the principal amount payable on the Notes of either such class or the priority of redemption of the Notes of either such class; alteration of the amount of interest payable on the Notes or modification of the method of calculating the amount of interest payable on the Notes of either such class or modification of the date of payment of any interest payable of the Notes of either such class; alteration of the currency in which payments under the Notes of either such class and the Coupons appertaining thereto are to be made; alteration of the majority required to pass an Extraordinary Resolution or the manner in which such majority is constituted; the sanctioning of any such scheme or proposal for the exchange or substitution or sale of any of the Notes of any class for, or the conversion of any of the Notes of any class into, or the cancellation of any of the Notes of any class, in consideration of shares, stock, notes, bonds, debentures, debenture stock and/or other obligations and/or securities of the Issuer or of any other body corporate formed or to be formed, or for or into or in consideration of cash, or partly for or into or in consideration of such shares, stock, notes, bonds, debenture stock and/or other obligations and/or securities as aforesaid and partly for or into or in consideration of cash; or (vii) alteration of any part of paragraph (a) of this definition, of the quorum required at any adjourned meeting to consider any of the matters listed in this paragraph (a) or of the provisions contained in the Trust Deed in respect of the effectiveness of any modifications or alterations referred to in this paragraph (a) and the effectiveness of Extraordinary Resolutions of the Class A1(R) Noteholders and the Class B1 Noteholders); and in respect of the Class A2(R) Notes, the Class A3(N) Notes, the Class M1 Notes, the Class M2(N) Notes, the Class B2 Notes, the Class B3 Notes, the Class C(R) Notes or the Class D1 Notes any: (i) (ii) (iii) (iv) (v) (vi) modification of the date of maturity of such Notes; any modification which would have the effect of postponing any day for payment of interest thereon, reducing or cancelling the amount of principal or premium or the rate of interest payable in respect of such Notes; altering the currency of payment of such Notes (save in accordance with Condition 5(h)) or Coupons appertaining to such Notes; any alteration of this paragraph (b); any alteration of the majority required to pass an Extraordinary Resolution; or any alteration of the quorum required at any adjourned meeting to consider any of the matters listed in this paragraph (b) or of the provisions contained in the Trust Deed in respect of the effectiveness of any modifications or alterations referred to in this paragraph (b) and the effectiveness of Extraordinary Resolutions of the Class A2(R) Noteholders, the Class A3(N) Noteholders, the Class M1 Noteholders, the Class M2(N) Noteholders, the Class B2 Noteholders, the Class B3 Noteholders, the Class C(R) Noteholders and the Class D1 Noteholders). An Extraordinary Resolution passed at any meeting of the Class M Noteholders shall be binding on all Class M Noteholders, all Class B Noteholders, the Class C(R) Noteholders and the Class D1 Noteholders irrespective of the effect upon them, except an Extraordinary Resolution (i) to sanction a Basic Terms Modification or (ii) to sanction a waiver or authorisation of any breach or 181

182 (e) (f) (g) proposed breach of any of the provisions of the Relevant Documents will not take effect unless the Note Trustee is of the opinion that it would not be materially prejudicial to the interests of the Class B Noteholders, the Class C(R) Noteholders and the Class D1 Noteholders or it shall have been sanctioned by an Extraordinary Resolution of the Class B Noteholders, the Class C(R) Noteholders and the Class D1 Noteholders. An Extraordinary Resolution passed at any meeting of the Class B Noteholders shall be binding on all Class B Noteholders, the Class C(R) Noteholders and the Class D1 Noteholders irrespective of the effect upon them, except an Extraordinary Resolution (i) to sanction a Basic Terms Modification or (ii) to sanction a waiver or authorisation of any breach or proposed breach of any of the provisions of the Relevant Documents will not take effect unless the Note Trustee is of the opinion that it would not be materially prejudicial to the interests of the Class C(R) Noteholders and the Class D1 Noteholders or it shall have been sanctioned by an Extraordinary Resolution of the Class C(R) Noteholders and the Class D1 Noteholders. An Extraordinary Resolution passed at any meeting of the Class C(R) Noteholders shall be binding on all Class C(R) Noteholders and the Class D1 Noteholders irrespective of the effect upon them, except an Extraordinary Resolution (i) to sanction a Basic Terms Modification or (ii) to sanction a waiver or authorisation of any breach or proposed breach of any of the provisions of the Relevant Documents will not take effect unless the Note Trustee is of the opinion that it would not be materially prejudicial to the interests of the Class D1 Noteholders or it shall have been sanctioned by an Extraordinary Resolution of the Class D1 Noteholders. The Trust Deed contains provisions dealing with the effectiveness of any Extraordinary Resolution passed at any meeting of the Class M Noteholders, the Class B Noteholders, the Class C(R) Noteholders or the Class D1 Noteholders to the effect that any such Extraordinary Resolution shall not be effective for any purpose where the Class A Notes or any class of Notes ranking senior to that class remain outstanding unless either: (i) (ii) the Note Trustee is of the opinion that it would not be materially prejudicial to the interests of (prior to the occurrence of an Ambac Class A Trigger Event or, if there are no Class A Notes outstanding, an Ambac Class M Trigger Event or, if there are no Class A Notes or Class M Notes outstanding an Ambac Class B Trigger Event or an Ambac Termination Event) Ambac, otherwise following the occurrence of an Ambac Class A Trigger Event, Class M Trigger Event or Class B Trigger Event (as applicable) or an Ambac Termination Event, the holders of the most senior ranking class of Notes then outstanding (and for these purposes, in determining the interests of a class of Noteholders as a whole, in respect of any Guaranteed Notes forming part of that class of Notes only, the Note Trustee shall (provided that no Ambac Termination Event has occurred) have regard to the interests of Ambac only); or (A) (prior to the occurrence of an Ambac Class A Trigger Event or an Ambac Termination Event) it is approved by Ambac or (following the occurrence of an Ambac Class A Trigger Event or an Ambac Termination Event) sanctioned by an Extraordinary Resolution of the Class A Noteholders provided that in respect of any Guaranteed Notes, Ambac will (prior to the occurrence of an Ambac Termination Event) be treated as the relevant holder of such Guaranteed Notes and Ambac s determination will for all purposes be treated as a vote, consent or determination of the relevant holders of such Guaranteed Notes; or (B) if there are no Class A Notes outstanding, (prior to the occurrence of an Ambac Class M Trigger Event or an Ambac Termination Event) it is approved by Ambac or (following the occurrence of an Ambac Class M Trigger Event or an Ambac Termination Event) sanctioned by an Extraordinary Resolution of the Class M Noteholders provided that in respect of any Guaranteed Notes, Ambac will (prior to the occurrence of an Ambac Termination Event) be treated as the relevant holder of such Guaranteed Notes and Ambac s determination will for all purposes be treated as a vote, consent or determination of the relevant holders of such Guaranteed Notes; or (C) if there are no Class A Notes or Class M Notes outstanding, (prior to the occurrence of an Ambac Class B Trigger Event or an Ambac Termination Event) it is approved by Ambac or (following the occurrence of an Ambac Class B Trigger Event or an Ambac Termination Event) sanctioned by an Extraordinary Resolution of the Class B Noteholders provided that in respect of any Guaranteed Notes, Ambac will (prior to the occurrence of an Ambac Termination Event) be treated as the relevant holder of such Guaranteed Notes and Ambac s determination will for all purposes be treated as a vote, consent or determination of the relevant holders of such Guaranteed Notes. 182

183 (h) (i) (j) Subject as provided below, the quorum at any meeting of Noteholders, or holders of the relevant class of Notes, as the case may be, for passing an Extraordinary Resolution will be two or more persons holding or representing not less than 50 per cent. in Principal Amount Outstanding of the Notes or, as the case may be, relevant class of Notes or, at any adjourned meeting, two or more persons being or representing Noteholders, not less than one quarter in Principal Amount Outstanding of the Notes and whatever the class of the Notes then outstanding so held or represented. The quorum at any meeting of Noteholders or the relevant class of Noteholders, as the case may be, for passing an Extraordinary Resolution in respect of a Basic Terms Modification shall be two or more persons holding or representing not less than three quarters or, at any adjourned meeting, two or more persons representing not less than one quarter, of the aggregate Principal Amount Outstanding of the Notes or, as the case may be, the relevant class of Notes for the time being outstanding. It shall be necessary for the effectiveness of a Basic Terms Modification that it be sanctioned by Extraordinary Resolution of Noteholders of the relevant class passed at separate class meetings convened for that purpose unless an Issuer Enforcement Notice has been served by the Security Trustee, in which case a Basic Terms Modification can be sanctioned by an Extraordinary Resolution of the Class A Noteholders only passed at a separate meeting. The Note Trustee (on behalf of the Noteholders) may agree, without the consent of the Noteholders to: (i) (ii) (iii) (iv) any modification (except a Basic Terms Modification) of, or to any waiver or authorisation of, any breach or proposed breach of the Notes (including these Conditions) or any of the Relevant Documents which, in the opinion of the Note Trustee or, as the case may be, the Security Trustee is not materially prejudicial to, inter alia, the interests of the Noteholders; any modification which, in the opinion of the Note Trustee or, as the case may be, the Security Trustee is to correct a manifest error or is of a formal, minor or technical nature; without prejudice to Condition 5(e), the substitution of a company incorporated in any jurisdiction (the "Substitute Entity") in place of the Issuer as principal obligor under the Notes; or a change of the laws governing the Notes and/or the Relevant Documents, provided that such change would not, in the opinion of the Note Trustee (or, as the case may be, the Security Trustee), be materially prejudicial to the interests of the Noteholders, save that the Note Trustee shall not agree for the purposes of (i), (iii) and (iv) above, unless, inter alia, (a) prior to the occurrence of an Ambac Termination Event, Ambac has given its written consent and (b) each of the Rating Agencies has confirmed in writing that the proposed modification, waiver, authorisation or substitution (as the case may be) will not result in a downgrade of the then current rating of any of the Notes and (if there are any Guaranteed Notes outstanding) the Underlying Rating. Where the Rating Agencies have confirmed in writing to the Issuer that an action under or in relation to the Relevant Documents or the Notes will not result in the withdrawal, reduction or any other adverse action with respect to the then current rating of the Notes and (for so long as there are any Guaranteed Notes outstanding) the Underlying Rating (a "Rating Confirmation"), the Note Trustee in considering whether such action is materially prejudicial to the interests of the Noteholders (the "No Material Prejudice Test") shall (and, in relation to any Rating Confirmation by Fitch only, where it considers that such Rating Confirmation is an appropriate test or the only appropriate test to apply in that circumstance) be entitled to take into account such Rating Confirmation provided that the Note Trustee shall continue to be responsible for taking into account, for the purpose of the No Material Prejudice Test, all other matters which would be relevant to such No Material Prejudice Test. If the Note Trustee is unable within a reasonable time to obtain such advice or opinion, the Note Trustee may employ such other method as it considers fit for so determining and shall not (save in the case of fraud, wilful default or gross negligence) be liable to the Noteholders or any of them for such determination or for the consequences thereof. The Note Trustee may also, without the consent of the Noteholders but subject to obtaining the written consent of Ambac (prior to the occurrence of an Ambac Termination Event) and the satisfaction of certain other conditions, determine that an Event of Default shall not, or shall not subject to specified conditions, be treated as such. 183

184 (k) (l) (m) (n) Any such modification, waiver, authorisation or determination shall be binding on the Noteholders and, unless the Note Trustee or, as the case may be, the Security Trustee, agrees otherwise, any such modification shall be notified to the Noteholders as soon as practicable thereafter in accordance with Condition 14. A resolution in writing signed by or on behalf of the holders of at least 100 per cent. of the Principal Amount Outstanding of a class of Notes, whether contained in one document or several documents in the same form, each signed by or on behalf of one or more such holders of the Notes shall take effect as if it were an Extraordinary Resolution passed at a duly convened meeting of Noteholders of the relevant class. In respect of any meeting of the Class A Noteholders called to pass a resolution of the Class A Noteholders either: (i) (ii) (iii) (iv) (v) to determine the interests of the Class A Noteholders in accordance with Condition 2(b)(i) in connection with the exercise by the Note Trustee of its powers, trusts, authorities, duties or discretions; to determine the interests of the Class A Noteholders in accordance with Condition 2(b)(ii) in connection with the exercise by the Security Trustee of its powers, trusts, authorities, duties or discretions; to give a direction to the Note Trustee in accordance with Condition 9(b)(i); to give a direction to the Security Trustee in accordance with Condition 10(a)(i); or to sanction an Extraordinary Resolution in accordance with Condition 11(g)(ii), prior to the occurrence of an Ambac Termination Event, for the purposes of determining whether or not any such meeting of Class A Noteholders is quorate and for counting votes cast at any such meeting of Class A Noteholders, Ambac shall be deemed to be the holder of all the then aggregate Principal Amount Outstanding of the Class A2(R) Notes and the Class A3(N) Notes. In respect of any such meeting Ambac shall not be required to attend such meeting but shall within 15 days of receipt of notice of such meeting deliver written instructions to the Note Trustee or the Security Trustee (as the case may be) as to its vote on each of the items in the relevant notice and shall upon delivery of such written instructions be deemed to have attended such meeting and voted on behalf of the Class A2(R) Noteholders and the Class A3(N) Noteholders as set out in the written instructions. In respect of any meeting of the Class M Noteholders called to pass a resolution of the Class M Noteholders either: (i) (ii) (iii) (iv) (v) to determine the interests of the Class M Noteholders in accordance with Condition 2(b)(i) in connection with the exercise by the Note Trustee of its powers, trusts, authorities, duties or discretions; to determine the interests of the Class M Noteholders in accordance with Condition 2(b)(ii) in connection with the exercise by the Security Trustee of its powers, trusts, authorities, duties or discretions; to give a direction to the Note Trustee in accordance with Condition 9(b)(ii); to give a direction to the Security Trustee in accordance with Condition 10(a)(ii); or to sanction an Extraordinary Resolution in accordance with Condition 11(g)(ii), prior to the occurrence of an Ambac Termination Event, for the purposes of determining whether or not any such meeting of Class M Noteholders is quorate and for counting votes cast at any such meeting of Class M Noteholders, Ambac shall be deemed to be the holder of all the then aggregate Principal Amount Outstanding of the Class M2(N) Notes. In respect of any such meeting Ambac shall not be required to attend such meeting but shall within 15 days of receipt of notice of such meeting deliver written instructions to the Note Trustee or the Security Trustee (as the case may be) as to its vote on each of the items in the relevant notice and shall upon delivery of such written instructions be deemed to have attended such meeting and voted on behalf of the Class M2(N) Noteholders as set out in the written instructions. In respect of any meeting of the Class B Noteholders called to pass a resolution of the Class B Noteholders either: 184

185 (i) (ii) (iii) (iv) (v) to determine the interests of the Class B Noteholders in accordance with Condition 2(b)(i) in connection with the exercise by the Note Trustee of its powers, trusts, authorities, duties or discretions; to determine the interests of the Class B Noteholders in accordance with Condition 2(b)(ii) in connection with the exercise by the Security Trustee of its powers, trusts, authorities, duties or discretions; to give a direction to the Note Trustee in accordance with Condition 9(b)(iii); to give a direction to the Security Trustee in accordance with Condition 10(a)(iii); or to sanction an Extraordinary Resolution in accordance with Condition 11(g)(ii), prior to the occurrence of an Ambac Termination Event, for the purposes of determining whether or not any such meeting of Class B Noteholders is quorate and for counting votes cast at any such meeting of Class B Noteholders, Ambac shall be deemed to be the holder of all the then aggregate Principal Amount Outstanding of the Class B3 Notes. In respect of any such meeting Ambac shall not be required to attend such meeting but shall within 15 days of receipt of notice of such meeting deliver written instructions to the Note Trustee or the Security Trustee (as the case may be) as to its vote on each of the items in the relevant notice and shall upon delivery of such written instructions be deemed to have attended such meeting and voted on behalf of the Class B3 Noteholders as set out in the written instructions. 12. Indemnification and Exoneration of the Note Trustee and Security Trustee The Trust Deed and the Issuer Deed of Charge contain provisions governing the responsibility (and relief from responsibility) of the Note Trustee and the Security Trustee, respectively, and providing for their indemnification in certain circumstances, including provisions relieving them from taking enforcement proceedings or, in the case of the Security Trustee, enforcing the Issuer Security unless indemnified to its satisfaction. The Note Trustee and the Security Trustee and their related companies are entitled to enter into business transactions with the Issuer and any affiliates of the Issuer without accounting for any profit resulting therefrom. The Security Trustee will not be responsible for any loss, expense or liability which may be suffered as a result of any assets comprised in the Issuer Security, or any deeds or documents of title thereto, being uninsured or inadequately insured or being held by or to the order of clearing organisations or their operators or by intermediaries such as banks, brokers or other similar persons on behalf of the Note Trustee. 13. Replacement of Definitive Notes and Coupons If any Note or Coupon is mutilated, defaced, lost, stolen or destroyed, it may be replaced at the specified office of the Paying Agent. Replacement of any mutilated, defaced, lost, stolen or destroyed Note or Coupon will only be made on payment of such costs as may be incurred in connection therewith and on such terms as to evidence and indemnity as the Issuer may reasonably require. Mutilated or defaced Notes or Coupons must be surrendered before new ones will be issued. 14. Notice to Noteholders (a) Valid Notices (i) any notice regarding the Notes to Noteholders shall be deemed to have been duly given to the relevant Noteholders: (A) if published in a leading daily newspaper printed in the English language and with general circulation in London (which is expected to be the Financial Times or The Times); (B) so long as any Notes are listed on the Luxembourg Stock Exchange and the rules of that exchange so require, any notice regarding the Notes to the Noteholders shall be deemed to have been duly given if published in a leading newspaper having general circulation in Luxembourg (which is expected to be the d'wort) or, if this is not practicable, in the opinion of the Note Trustee, in another appropriate newspaper having general circulation in Luxembourg previously approved in writing by the Note Trustee; and 185

186 (C) so long as any Notes are listed on the Irish Stock Exchange and the guidelines of that exchange so require, any notice regarding the Notes to the Noteholders shall be deemed to have been duly given if published in a leading newspaper having general circulation in Ireland (which is expected to be The Irish Times) or, if this is not practicable, in the opinion of the Note Trustee, in another appropriate newspaper having general circulation in Ireland previously approved in writing by the Note Trustee. (ii) Any such notice shall be deemed to have been given on the date of such publication or, if published more than once or on different dates, on the first date on which publication is made in the manner required in one of the newspapers referred to above. (b) (c) (d) Copy Notices A copy of each notice given in accordance with this Condition 14 shall be provided to each of the Rating Agencies and (prior to the occurrence of an Ambac Termination Event) Ambac. Other Methods for Notice The Note Trustee may approve some other method of giving notice to the Noteholders or category of them if, in its opinion, such other method is reasonable having regard to market practice then prevailing and to the requirements of the stock exchange on which the Notes are then listed and provided that notice of such other method is given to the Noteholders in such manner as the Note Trustee shall require, and further provided that so long as the Notes are listed on the Luxembourg Stock Exchange or the Irish Stock Exchange (as the case may be) and the rules or guidelines (as the case may be) of that exchange so require, such notices shall always be published in a leading newspaper having general circulation in Luxembourg or Ireland (as the case may be). The persons who are for the time being the holders of the Coupons (including the holders for the time being of the Talons) will be deemed for all purposes to have notice of the contents of any notice given to the relevant class of Noteholders in accordance with this Condition 14. Notices While Notes in Global Form For so long as any of the Notes is represented by a Global Note and such Global Note is held on behalf of Euroclear Bank S.A./N.V as operator of the Euroclear System ("Euroclear") and/or Clearstream Banking, société anonyme ("Clearstream, Luxembourg"), notices to Noteholders may be given by delivery of the relevant notice to Euroclear and/or Clearstream, Luxembourg (as the case may be) for communication to the relevant accountholders rather than by publication as required by Condition 14(a). Any notice delivered to Euroclear and/or Clearstream, Luxembourg shall be deemed to have been given to Noteholders on the day after the day on which such notice was delivered to Euroclear and/or Clearstream, Luxembourg (as the case may be). So long as any of the Notes are listed on the Luxembourg Stock Exchange and the rules of that exchange so require, notices will also be published in a leading English language daily newspaper having general circulation in Luxembourg (which is expected to be the d'wort) and, so long as any of the Notes are listed on the Irish Stock Exchange and the guidelines of the exchange so require, notices will also be published in a leading newspaper having general circulation in Ireland (which is expected to be The Irish Times). 15. Additional Notes and New Notes (a) Further Issues The Issuer shall be at liberty, without the consent of the Noteholders, but subject always to the provisions of these Conditions and the Trust Deed, to raise further funds, from time to time, on any date by the creation and issue of further Class A1(R) Notes (the "Additional Class A1(R) Notes") in bearer form carrying the same terms and conditions in all respects (except in relation to the first Interest Period) as, and so that the same shall be consolidated and form a single series and rank pari passu with, the Class A1(R) Notes and/or the creation and issue of further Class A2(R) Notes (the "Additional Class A2(R) Notes") in bearer form carrying the same terms and conditions in all respects (except in relation to the first Interest Period) as, and so that the same shall be consolidated and form in a single series and rank pari passu with the Class A2(R) Notes and/or the creation and issue of further Class A3(N) Notes (the "Additional Class A3(N) Notes", together with the Additional Class A1(R) Notes and the Additional Class A2(R) Notes, the "Additional Class A Notes") in bearer form carrying the same terms and conditions in all respects (except in relation to the first Interest Period) as, and so that the same shall be consolidated and form in a single series and rank pari passu with the Class A3(N) Notes and/or the creation and issue of further Class M1 Notes (the "Additional Class M1 Notes") in bearer 186

187 form carrying the same terms and conditions in all respects (except in relation to the first Interest Period) as, and so that the same shall be consolidated and form a single series and rank pari passu with, the Class M1 Notes and/or the creation and issue of further Class M2(N) Notes (the "Additional Class M2(N) Notes", together with the Additional Class M1 Notes, the "Additional Class M Notes") in bearer form carrying the same terms and conditions in all respects (except in relation to the first Interest Period) as, and so that the same shall be consolidated and form in a single series and rank pari passu with the Class M2(N) Notes and/or the creation and issue of further Class B1 Notes (the "Additional Class B1 Notes") in bearer form carrying the same terms and conditions in all respects (except in relation to the first Interest Period) as, and so that the same shall be consolidated and form in a single series and rank pari passu with the Class B1 Notes and/or the creation and issue of further Class B2 Notes (the "Additional Class B2 Notes") in bearer form carrying the same terms and conditions in all respects (except in relation to the first Interest Period) as, and so that the same shall be consolidated and form in a single series and rank pari passu with the Class B2 Notes and/or the creation and issue of further Class B3 Notes (the "Additional Class B3 Notes", together with the Additional Class B1 Notes and the Additional Class B2 Notes, the "Additional Class B Notes") in bearer form carrying the same terms and conditions in all respects (except in relation to the first Interest Period) as, and so that the same shall be consolidated and form in a single series and rank pari passu with the Class B3 Notes and/or the creation and issue of further Class C(R) Notes (the "Additional Class C(R) Notes") in bearer form carrying the same terms and conditions in all respects (except in relation to the first Interest Period) as, and so that the same be consolidated and form a single series and rank pari passu with the Class C(R) Notes and/or the creation and issue of further Class D1 Notes (the "Additional Class D1 Notes", together with the Additional Class A Notes, the Additional Class M Notes, the Additional Class B Notes and the Additional Class C(R) Notes, the "Additional Notes") in bearer form carrying the same terms and conditions in all respects (except in relation to the first Interest Period) as, and so that the same shall be consolidated and form in a single series and rank pari passu with the Class D1 Notes provided that: (i) (ii) (iii) (iv) (v) the aggregate principal amount of all Additional Notes to be issued on such date is not less than 5,000,000; no Event of Default has occurred or would occur as a result of the issue of the Additional Notes; such Additional Notes are assigned the same ratings as are then applicable to the relevant class of Notes then outstanding; the Rating Agencies confirm that the then current rating of the Notes and (for so long as there are any Guaranteed Notes outstanding) the Underlying Rating would not be adversely affected notwithstanding the completion of the proposed issue; an amount not exceeding the proceeds of the issue of such Additional Notes will be onlent by the Issuer to the Borrower pursuant to the provisions of the Issuer/Borrower Facility Agreements; and (vi) (prior to the occurrence of an Ambac Termination Event) the consent of Ambac is obtained, provided that such consent shall not be required if: (A) (B) the Additional Notes to be issued rank after the Class A Notes as to payment of interest and principal; and either: (1) the terms of such Additional Notes provide for redemption in whole or in part (other than redemption in accordance with Condition 5(d)) only after the final maturity of the Class A2(R) Notes and the Class A3(N) Notes; or (2) at the time of issue of such Additional Notes, the Principal Amount Outstanding of the Class A Notes is less than or equal to 300 per cent. of EBITDA calculated in respect of the 12 month period ending on the immediately preceding Financial Quarter Date; or (3) the proceeds of the Additional Notes are to be advanced to the Borrower for the purpose of funding the acquisition of a Permitted Business in accordance with the Issuer/Borrower Facility Agreements, 187

188 provided that in respect of (2) and (3) above the aggregate amount of principal scheduled for redemption in accordance with Condition 5(b) for all Additional Notes and New Notes issued after the Fourth Closing Date as a proportion of the aggregate Principal Amount Outstanding for such Additional Notes and New Notes on the relevant date for redemption does not exceed the amount of principal scheduled for redemption in respect of the Class A Notes under Condition 5(b) on that date as a proportion of the aggregate Principal Amount Outstanding for the Class A Notes on the relevant date; (vii) (other than in respect of the issue of any Additional Class D1 Notes or any other Additional Notes which are subordinated to the Class C(R) Notes as to payments of interest and principal) for so long as any Class C(R) Notes are outstanding, the consent of an ordinary resolution passed at a meeting of the Class C(R) Noteholders where either: (A) following the issue of such Additional Notes the aggregate Principal Amount Outstanding of all Notes ranking pari passu with or in priority to the Class M Notes exceeds the product of (x) 5.7 and (y) EBITDA of the Securitisation Group calculated in respect of the period of four Financial Quarters ending on the Financial Quarter Date immediately preceding the proposed date of issue of such Additional Notes (the "Relevant Financial Quarter Date") having adjusted such EBITDA (1) to include earnings attributable to any Permitted Acquisition or capital expenditure made in such period of four Financial Quarters ending on the Relevant Financial Quarter Date as if such Permitted Acquisition or capital expenditure had been made at the start of such period of four Financial Quarters ending on the Relevant Financial Quarter Date and (2) to exclude any Permitted Disposals made in such period of four Financial Quarters ending on the Relevant Financial Quarter Date as if such Permitted Disposals had been made at the start of such period of four Financial Quarters ending on the Relevant Financial Quarter Date ("Adjusted Group EBITDA"); or (B) following the issue of such Additional Notes, the aggregate Principal Amount Outstanding of all Notes ranking pari passu with or in priority to the Class C(R) Notes (but for the avoidance of doubt not including any Notes or Additional Notes which are subordinated to the Class C(R) Notes as to payment of interest and principal) exceeds the product of (x) 7.5 and (y) Adjusted Group EBITDA, and for the purposes of this paragraph (vii) the expression "ordinary resolution" means a resolution passed at a meeting of one or more Class C(R) Noteholders holding not less than 50 per cent. or, at any adjourned meeting not less than 25 per cent. of the aggregate Principal Amount Outstanding of the Class C(R) Notes by a majority consisting of not less than 50 per cent. of the persons voting thereat upon a show of hands or if a poll is duly demanded by a majority of not less than 50 per cent. of the votes given on such poll; and (viii) (prior to the occurrence of an Ambac Termination Event) any conditions to the issuance of Additional Notes contained in the Guarantee and Reimbursement Agreements have been complied with (or have been waived by Ambac). (b) New Notes The Issuer shall be at liberty, without the consent of the Noteholders (but subject always to the provisions of the Trust Deed) to raise further funds from time to time and on any date by the creation and issue of new notes (the "New Notes") in bearer form which may rank pari passu with the Class A Notes (or after the Class A Notes but ahead of, pari passu with or after the Class M Notes) or pari passu with the Class M Notes (or after the Class M Notes but ahead of, pari passu with or after the Class B Notes) or pari passu with the Class B Notes (or after the Class B Notes but ahead of, pari passu with or after the Class C(R) Notes) or pari passu with the Class C(R) Notes (or after the Class C(R) Notes but ahead of, pari passu with or after the Class D1 Notes) or pari passu with the Class D1 Notes (or after the Class D1 Notes) carrying terms which differ from any class of Notes and which do not form a single series with any class of Notes provided that the conditions to the issuance of Additional Notes as set out in Condition 15(a)(i), (ii), (iv), (v), (vi) and (viii) are met in respect of the issue of such New Notes (save that references to Additional Notes in Condition 15(a)(vi)(A) and (B)(1), (2) and (3) (except in the proviso thereto) and in Condition 15(a)(viii), shall be deemed to be to New Notes). 188

189 (c) Supplemental Trust Deeds and Security Any such Additional Notes or New Notes will be constituted by a further deed or deeds supplemental to the Trust Deed and have the benefit of security pursuant to the Issuer Deed of Charge as described in Condition Subordination (a) Class M Notes (i) Interest Without prejudice to Condition 16(f) but for so long only as the Class A Notes or any further Notes ranking as to payments of interest (other than in relation to any Class M2(N) Step-Up Amounts), or principal in priority to the Class M Notes are outstanding in the event that, on any Interest Payment Date, the Issuer Available Funds, after deducting the amounts ranking in priority to the payment of any interest in respect of the Class M Notes (the "Class M Interest Residual Amount"), are not sufficient to satisfy in full the aggregate amount of interest due and, subject to this Condition 16(a)(i), payable on the Class M Notes on such Interest Payment Date, there shall instead be payable on such Interest Payment Date, by way of interest on each Class M Note only, a pro rata share of the Class M Interest Residual Amount on such Interest Payment Date calculated by dividing the Class M Interest Residual Amount by the number of Class M Notes then outstanding. In any such event, the Issuer shall create a provision in its accounts for the shortfall equal to the amount by which the aggregate amount of interest paid on the Class M Notes on any Interest Payment Date in accordance with this Condition 16(a)(i) falls short of the aggregate amount of interest payable on the Class M Notes on that date pursuant to Condition 4. Any such shortfall arising in respect of the Class M Notes shall itself accrue interest at the same rate as that payable in respect of the Class M Notes and shall be payable together with such accrued interest on any succeeding Interest Payment Date only if and to the extent that, on such Interest Payment Date, the Issuer Available Funds, after deducting the amounts ranking in priority to the payment of any interest in respect of the Class M Notes are sufficient to make such payment. "Issuer Available Funds" means on any Interest Payment Date, the funds available to the Issuer to make payments of the items specified in the Issuer Pre-Enforcement Priority of Payments. (ii) Principal Without prejudice to Condition 16(f) but for so long only as the Class A Notes or any further Notes ranking as to payments of interest or principal in priority to the Class M Notes are outstanding, in the event that, on any Interest Payment Date, the Issuer Available Funds, after deducting the amounts ranking in priority to the payment of any principal in respect of the Class M Notes (the "Class M Principal Residual Amount"), are not sufficient to pay in full the aggregate amount of principal due and, subject to this Condition 16(a)(ii), payable on the Class M Notes on such Interest Payment Date, there shall instead be payable on such Interest Payment Date, by way of principal on each Class M Note, only a pro rata share of the Class M Principal Residual Amount on such Interest Payment Date calculated by dividing the Class M Principal Residual Amount by the number of Class M Notes then outstanding. In any such event, the Issuer shall create a provision in its accounts for the shortfall equal to the amount by which the aggregate amount of principal paid on the Class M Notes on any Interest Payment Date in accordance with this Condition 16(a)(ii) falls short of the aggregate amount of principal payable on the Class M Notes on that date pursuant to Condition 5. Such shortfall shall accrue interest at the same rate as that payable in respect of the Class M Notes and shall be payable together with accrued interest on any succeeding Interest Payment Date only if and to the extent that on such Interest Payment Date the Issuer Available Funds, after deducting the amounts ranking in priority to the payment of any principal in respect of the Class M Notes, are sufficient to make such payment. (b) Class B Notes (i) Interest Without prejudice to Condition 16(f) but for so long only as the Class A Notes and/or any Class M Notes or any further Notes ranking as to payments of interest (other than in relation to any Class B3 Step-Up Amounts) or principal ranking in priority to the Class B Notes are outstanding, in the event that, on any Interest Payment Date, the Issuer Available Funds, after deducting the 189

190 amounts ranking in priority to the payment of any interest in respect of the Class B Notes (the "Class B Interest Residual Amount"), are not sufficient to satisfy in full the aggregate amount of interest due and, subject to this Condition 16(b)(i), payable on the Class B Notes on such Interest Payment Date, there shall instead be payable on such Interest Payment Date, by way of interest on each Class B Note, only a pro rata share of the Class B Interest Residual Amount on such Interest Payment Date calculated by dividing the Class B Interest Residual Amount by the number of Class B Notes then outstanding. In any such event, the Issuer shall create a provision in its accounts for the shortfall equal to the amount by which the aggregate amount of interest paid on the Class B Notes on any Interest Payment Date in accordance with this Condition 16(b)(i) falls short of the aggregate amount of interest payable on the Class B Notes on that date pursuant to Condition 4. Any such shortfall arising in respect of the Class B Notes shall itself accrue interest at the same rate as that payable in respect of the Class B Notes and shall be payable together with such accrued interest on any succeeding Interest Payment Date only if and to the extent that, on such Interest Payment Date, the Issuer Available Funds, after deducting the amounts ranking in priority to the payment of any interest in respect of the Class B Notes are sufficient to make such payment. (ii) Principal Without prejudice to Condition 16(f) and for so long only as the Class A(R) Notes and/or Class M Notes or any further Notes ranking as to payments of interest or principal ranking in priority to the Class B Notes are outstanding, in the event that, on any Interest Payment Date, the Issuer Available Funds, after deducting the amounts ranking in priority to the payment of any principal in respect of the Class B Notes (the "Class B Principal Residual Amount"), are not sufficient to pay in full the aggregate amount of principal due and, subject to this Condition 16(b)(ii), payable on the Class B Notes on such Interest Payment Date, there shall instead be payable on such Interest Payment Date, by way of principal on each Class B Note, only a pro rata share of the Class B Principal Residual Amount on such Interest Payment Date calculated by dividing the Class B Principal Residual Amount by the number of Class B Notes then outstanding. In any such event, the Issuer shall create a provision in its accounts for the shortfall equal to the amount by which the aggregate amount of principal paid on the Class B Notes on any Interest Payment Date in accordance with this Condition 16(b)(ii) falls short of the aggregate amount of principal payable on the Class B Notes on that date pursuant to Condition 5. Such shortfall shall accrue interest at the same rate as that payable in respect of the Class B Notes and shall be payable together with accrued interest on any succeeding Interest Payment Date only if and to the extent that on such Interest Payment Date the Issuer Available Funds, after deducting the amounts ranking in priority to the payment of any principal in respect of the Class B Notes, are sufficient to make such payment. (c) Class C(R) Notes (i) Interest Without prejudice to Condition 16(f) and for so long only as the Class A(R) Notes and/or the Class M Notes and/or the Class B Notes or any further Notes ranking as to payments of interest or principal in priority to the Class C(R) Notes are outstanding, in the event that, on any Interest Payment Date, the Issuer Available Funds, after deducting the amounts ranking in priority to the payment of any interest in respect of the Class C(R) Notes (the "Class C(R) Interest Residual Amount"), are not sufficient to satisfy in full the aggregate amount of interest due and, subject to this Condition 16(c)(i), payable on the Class C(R) Notes on such Interest Payment Date, there shall instead be payable on such Interest Payment Date, by way of interest on each Class C(R) Note only, a pro rata share of the Class C(R) Interest Residual Amount on such Interest Payment Date calculated by dividing the Class C(R) Interest Residual Amount by the number of Class C(R) Notes then outstanding. In any such event, the Issuer shall create a provision in its accounts for the shortfall equal to the amount by which the aggregate amount of interest paid on the Class C(R) Notes on any Interest Payment Date in accordance with this Condition 16(c)(i) falls short of the aggregate amount of interest payable on the Class C(R) Notes on that date pursuant to Condition 4. Any such shortfall arising in respect of the Class C(R) Notes shall itself accrue interest at the same rate as that payable in respect of the Class C(R) Notes and shall be payable together with such accrued interest on any succeeding Interest Payment Date only if and to the extent that, on such Interest Payment Date, the Issuer Available Funds, after deducting the amounts ranking in 190

191 priority to the payment of any interest in respect of the Class C(R) Notes, are sufficient to make such payment. (ii) Principal Without prejudice to Condition 16(f) but for so long only as the Class A(R) Notes and/or the Class M Notes and/or the Class B Notes or any further Notes ranking as to payments of interest or principal in priority to the Class C(R) Notes are outstanding, in the event that, on any Interest Payment Date, the Issuer Available Funds, after deducting the amounts ranking in priority to the payment of any principal in respect of the Class C(R) Notes (the "Class C(R) Principal Residual Amount"), are not sufficient to pay in full the aggregate amount of principal due and, subject to this Condition 16(c)(ii), payable on the Class C(R) Notes on such Interest Payment Date, there shall instead be payable on such Interest Payment Date, by way of principal on each Class C(R) Note, only a pro rata share of the Class C(R) Principal Residual Amount on such Interest Payment Date calculated by dividing the Class C(R) Principal Residual Amount by the number of Class C(R) Notes then outstanding. In any such event, the Issuer shall create a provision in its accounts for the shortfall equal to the amount by which the aggregate amount of principal paid on the Class C(R) Notes on any Interest Payment Date in accordance with this Condition 16(c)(ii) falls short of the aggregate amount of principal payable on the Class C(R) Notes on that date pursuant to Condition 5. Such shortfall shall accrue interest at the same rate as that payable in respect of the Class C(R) Notes and shall be payable together with accrued interest on any succeeding Interest Payment Date only if and to the extent that on such Interest Payment Date the Issuer Available Funds, after deducting the amounts ranking in priority to the payment of any principal in respect of the Class C(R) Notes, are sufficient to make such payment. (d) Class D1 Notes (i) Interest Without prejudice to Condition 16(f) but for so long only as the Class A(R) Notes and/or the Class M Notes and/or the Class B Notes and/or the Class C(R) Notes or any further Notes ranking in priority as to payments of interest (other than in relation to any Class D1 Step-Up Amounts) or principal to the Class D1 Notes are outstanding, in the event that, on any Interest Payment Date, the Issuer Available Funds, after deducting the amounts ranking in priority to the payment of any interest in respect of the Class D1 Notes (the "Class D1 Interest Residual Amount"), are not sufficient to satisfy in full the aggregate amount of interest due and, subject to this Condition 16(d)(i), payable on the Class D1 Notes on such Interest Payment Date, there shall instead be payable on such Interest Payment Date, by way of interest on each Class D1 Note only, a pro rata share of the Class D1 Interest Residual Amount on such Interest Payment Date calculated by dividing the Class D1 Interest Residual Amount by the number of Class D1 Notes then outstanding. In any such event, the Issuer shall create a provision in its accounts for the shortfall equal to the amount by which the aggregate amount of interest paid on the Class D1 Notes on any Interest Payment Date in accordance with this Condition 16(d)(i) falls short of the aggregate amount of interest payable on the Class D1 Notes on that date pursuant to Condition 4. Any such shortfall arising in respect of the Class D1 Notes shall itself accrue interest at the same rate as that payable in respect of the Class D1 Notes and shall be payable together with such accrued interest on any succeeding Interest Payment Date only if and to the extent that, on such Interest Payment Date, the Issuer Available Funds, after deducting the amounts ranking in priority to the payment of any interest in respect of the Class D1 Notes, are sufficient to make such payment. (ii) Principal Without prejudice to Condition 16(f) but for so long only as the Class A(R) Notes and/or the Class M Notes and/or the Class B Notes and/or the Class C(R) or any further Notes ranking in priority as to payments of interest or principal to the Class D1 Notes are outstanding, in the event that, on any Interest Payment Date, the Issuer Available Funds, after deducting the amounts ranking in priority to the payment of any principal in respect of the Class D1 Notes (the "Class D1 Principal Residual Amount"), are not sufficient to pay in full the aggregate amount of principal due and, subject to this Condition 16(d)(ii), payable on the Class D1 Notes on such Interest Payment Date, there shall instead be payable on such Interest Payment Date, by way of principal on each Class D1 Note, only a pro rata share of the Class D1 Principal Residual Amount on such Interest Payment Date calculated by dividing the Class D1 Principal Residual Amount by the number of Class D1 Notes then outstanding. 191

192 In any such event, the Issuer shall create a provision in its accounts for the shortfall equal to the amount by which the aggregate amount of principal paid on the Class D1 Notes on any Interest Payment Date in accordance with this Condition 16(d)(ii) falls short of the aggregate amount of principal payable on the Class D1 Notes on that date pursuant to Condition 5. Such shortfall shall accrue interest at the same rate as that payable in respect of the Class D1 Notes and shall be payable together with accrued interest on any succeeding Interest Payment Date only if and to the extent that on such Interest Payment Date the Issuer Available Funds, after deducting the amounts ranking in priority to the payment of any principal in respect of the Class D1 Notes, are sufficient to make such payment. (e) Step-Up Amounts Without prejudice to Condition 16(f), if, on any Interest Payment Date, the Issuer Available Funds, after deducting the amounts ranking in priority to: (i) (ii) (iii) (in the case of the Class M2(N) Notes), the Class M2(N) Step-Up Amount; (in the case of the Class B3 Notes), the Class B3 Step-Up Amount; or (in the case of the Class D1 Notes), the Class D1 Step-Up Amount; (each such amount being a "Step-Up Residual Amount") are not sufficient to satisfy in full the aggregate Step-Up Amounts due and, subject to this Condition 16(e), payable in respect of (i), (ii) or (iii) (as the case may be) on such Interest Payment Date, there shall instead be payable on such Interest Payment Date a pro rata share of the Step-Up Residual Amount calculated by dividing such Step-Up Residual Amount by the Principal Amount Outstanding of the relevant class of Notes on such Interest Payment Date. In any such event, the Issuer shall create a provision in its accounts for the shortfall equal to the amount by which the aggregate amount paid in respect of (i), (ii) or (iii) (as the case may be) on any Interest Payment Date in accordance with this Condition 16(e) falls short of the aggregate amount payable in respect of (i), (ii) or (iii) (as the case may be) on that date pursuant to Condition 4. Any such shortfall shall itself accrue interest at the same rate as that payable in respect of the relevant class of Notes and shall be payable together with such accrued interest on any succeeding Interest Payment Date only if and to the extent that, on such Interest Payment Date, the relevant Issuer Available Funds, are sufficient to make such payment. (f) General (i) Any amounts of principal or interest or Step-Up Amounts in respect of the Notes otherwise payable under these Conditions (or which would have been payable but for an insufficiency of funds on any date) which are not paid by virtue of this Condition 16 together with accrued interest thereon shall become payable on April 2035 or on such earlier date as the relevant class of Notes become immediately due and repayable under Condition 9. (ii) For the purposes of this Condition 16 the word "outstanding" shall be construed disregarding any unpaid Step-Up Amounts. (g) Notification As soon as practicable after becoming aware that any part of a payment of interest or principal or Step-Up Amount on the relevant class of Notes will be deferred or that a payment previously deferred will be made in accordance with this Condition 16, the Issuer will give notice thereof to the relevant Noteholders in accordance with Condition 14 and, so long as any of the Notes are listed on the Luxembourg Stock Exchange, to the Luxembourg Stock Exchange and, so long as any of the Notes are listed on the Irish Stock Exchange, to the Irish Stock Exchange. 17. European Economic and Monetary Union (a) (b) Notice of redenomination The Issuer may, without the consent of the Noteholders, on giving at least 30 days' prior notice to the Noteholders, the Note Trustee and the Paying Agent, designate a date (the "Redenomination Date"), being an Interest Payment Date under the Notes falling on or after the date on which the United Kingdom becomes a Participating Member State. Redenomination Notwithstanding the other provisions of these Conditions, with effect from the Redenomination Date: 192

193 (i) (ii) the Notes shall be deemed to be redenominated into euro in the denomination of euro 0.01 with a principal amount for each Note equal to the principal amount of that Note in pounds sterling, converted into euro at the rate for conversion of such currency into euro established by the Council of the European Union pursuant to the Treaty (including compliance with rules relating to rounding in accordance with European Community regulations) provided, however, that, if the Issuer determines, with the agreement of the Note Trustee, that then market practice in respect of the redenomination into euro 0.01 of internationally offered securities is different from that specified above, such provisions shall be deemed to be amended so as to comply with such market practice and the Issuer shall promptly notify the Noteholders, each stock exchange (if any) on which the Notes are then listed and the Paying Agents of such deemed amendments; if Notes have been issued in definitive form: (A) (B) the payment obligations contained in all Notes denominated in pounds sterling will become void on the Euro Exchange Date but all other obligations of the Issuer thereunder (including the obligation to exchange such Notes in accordance with this Condition 17) shall remain in full force and effect; and New Notes denominated in euro will be issued in exchange for Notes denominated in pounds sterling in such manner as the Paying Agent may specify and as shall be notified to the Noteholders in the Euro Exchange Notice; (iii) (iv) all payments in respect of the Notes (other than, unless the Redenomination Date is on or after such date as the pound sterling ceases to be a sub-division of the euro, payments of interest in respect of periods commencing before the Redenomination Date) will be made solely in euro by cheque drawn on, or by credit or transfer to a euro account (or any other account to which euro may be credited or transferred) maintained by the payee with, a bank in the principal financial centre of any Member State of the European Communities; and a Note may only be presented for payment on a day which is a business day in the place of presentation. In this Condition 17, "business day" means, in respect of any place of presentation, any day which is a day on which commercial banks are open for general business in such place of presentation and which is also a day on which the TARGET system is operating. (c) Interest Following redenomination of the Notes pursuant to this Condition 17: (i) (ii) where Notes have been issued in definitive form, the amount of interest due in respect of the Notes will be calculated by reference to the aggregate principal amount of the Notes presented for payment by the relevant holder and the amount of such payment shall be rounded down to the nearest euro 0.01; and the amount of interest payable in respect of each Note for any Interest Period shall be calculated by: (a) (b) in respect of the Floating Rate Notes, applying the relevant FRN Rate of Interest for such Interest Period to the principal amount of such Note during such Interest Period, multiplying the product by the actual number of days in such Interest Period divided by 360 and rounding the resulting figure down to the nearest euro 0.01; and in respect of the Fixed Rate Notes, applying the relevant rate of interest set out in Condition 4(d)(iii) to the principal amount of such Note, dividing the product by four and rounding the figure down to the nearest euro If interest is required to be calculated for any other period, it will be calculated on the basis of the actual number of days elapsed divided by 365 (or, if any of the days elapsed fall in a leap year, the sum of the number of those days falling in a leap year divided by 366, and the number of those days falling in a non-leap year divided by 365) provided, however, that, if the Issuer determines, with the agreement of the Note Trustee, that the market practice in respect of internationally offered euro denominated securities is different from that specified above, the above shall be deemed to be amended so as to comply with such market practice and the Issuer shall promptly 193

194 notify the Noteholders, each stock exchange (if any) on which the Notes are then listed and the Paying Agent of such deemed amendment. (d) (e) Rate of Interest Following redenomination of the Notes pursuant to this Condition, the FRN Rate of Interest for any subsequent Interest Period shall be determined by the Agent Bank in accordance with Condition 4(d)(i). Interpretation: In these Conditions: "euro" means the single currency adopted by Participating Member States; "Euro Exchange Date" means the date on which the Issuer gives notice (the "Euro Exchange Notice") to the Noteholders and the Note Trustee that replacement Notes denominated in euro are available for exchange; "Participating Member State" means a Member State of the European Communities which has adopted the euro as its lawful currency in accordance with the Treaty; the "TARGET system" means the Trans-European Automated Real-time Gross Settlement Express Transfer system; and the "Treaty" means the Treaty establishing the European Communities, as amended by the Treaty on European Union and the Treaty of Amsterdam. 18. Assignment of Rights to Ambac (a) (b) If Ambac makes a payment to or on behalf of holders of any Class of Guaranteed Notes pursuant to the First Financial Guarantee or the Second Financial Guarantee (as the case may be) in respect of Scheduled Interest and/or Scheduled Principal and/or Ultimate Principal (as applicable) the rights of the holders of the relevant class of Guaranteed Notes to claim payment from the Issuer of amounts due in respect of which payment has been made under the relevant Financial Guarantee (as the case may be) will be automatically assigned to Ambac or such other person specified by Ambac to the Note Trustee from time to time on or prior to payment by Ambac under the relevant Financial Guarantee (as the case may be) (the "Nominee") upon and to the extent of receipt of such payments by the holders of the relevant class of Guaranteed Notes. If the Notes are not held by or on behalf of a clearing system at the time that a payment of Scheduled Interest and/or Scheduled Principal and/or Ultimate Principal (as applicable) is due, the Note Trustee is authorised by the holders of each class of Guaranteed Notes to assign to Ambac or the Nominee on behalf of the relevant holders all rights of such holders to claim payment from the Issuer in respect of amounts due under the relevant class of Guaranteed Notes and in respect of which payment has been made under the First Financial Guarantee or the Second Financial Guarantee (as the case may be). 19. Contracts (Rights of Third Parties) Act 1999 No person shall have any right to enforce any term or condition of the Notes under the Contracts (Rights of Third Parties) Act Governing Law The Trust Deed, the Issuer Deed of Charge, the Agency Agreement, the other Relevant Documents, and the Notes are governed by, and shall be construed in accordance with, English law (other than certain aspects of the Relevant Documents specifically relating to Scottish Assets, which are governed by, and shall be construed in accordance with, Scots law). 194

195 GLOBAL NOTES The Fourth Issue Notes shall be initially represented by (i) in the case of the Class A3(N) Notes, a temporary global note in the principal amount of 125,000,000 (the "Class A3(N) Temporary Global Note"); (ii) in the case of the Class M2(N) Notes, a temporary global note in the principal amount of 400,000,000 (the "Class M2(N) Temporary Global Note"); (iii) in the case of the Class B3 Notes, a temporary global note in the principal amount of 175,000,000 (the "Class B3 Temporary Global Note"); and (iv) in the case of the Class D1 Notes, a temporary global note in the principal amount of 125,000,000 (the "Class D1 Temporary Global Note" and together with the Class A3(N) Temporary Global Note, the Class M2(N) Temporary Global Note and the Class B3 Temporary Global Note, the "Temporary Global Notes"), in each case without Coupons attached. Each Temporary Global Note will be deposited on behalf of the relevant subscribers of each class of Fourth Issue Notes with Deutsche Bank AG, as the common depositary (the "Common Depositary") for Euroclear and Clearstream, Luxembourg, on the Fourth Closing Date. Upon deposit of each such Temporary Global Note, Euroclear or Clearstream, Luxembourg will credit each subscriber of Fourth Issue Notes represented by such Temporary Global Note with the principal amount of the relevant Fourth Issue Notes equal to the principal amount thereof for which it has subscribed and paid. Interests in the Temporary Global Notes will be exchangeable in whole or in part on a date not earlier than 40 days after the Fourth Closing Date (the "Exchange Date"), upon certification as to non-us beneficial ownership by the exchanging Noteholder, for interests in a permanent global note in that class (respectively, the "Class A3(N) Permanent Global Note", the "Class M2(N) Permanent Global Note", the "Class B3 Permanent Global Note" and the "Class D1 Permanent Global Note" and together the "Permanent Global Notes"), without Coupons attached. The Existing Fixed Rate Notes are represented by (i) in the case of the Class A1(R) Notes, a permanent global note in the principal amount of 270,000,000 (the "Class A1(R) Permanent Global Note"); (ii) in the case of the Class A2(R) Notes, a permanent global note in the principal amount of 300,000,000 (the "Class A2(R) Permanent Global Note"); (iii) in the case of the Class M1 Notes, a permanent global note in the principal amount of 200,000,000 (the "Class M1 Permanent Global Note"); (iv) in the case of the Class B1 Notes, a permanent global note in the principal amount of 140,000,000 (the "Class B1 Permanent Global Note"); (v) in the case of the Class B2 Notes, a permanent global note in the principal amount of 150,000,000 (the "Class B2 Permanent Global Note"); and (vi) in the case of the Class C(R) Notes, a permanent global note in the principal amount of 215,000,000 (the "Class C(R) Permanent Global Note" and together with the Class A1(R) Permanent Global Note, the Class A2(R) Permanent Global Note, the Class M1 Permanent Global Note, the Class B1 Permanent Global Note and the Class B2 Permanent Global Note the "Existing Permanent Global Notes"). The expression "Global Notes" means the Temporary Global Notes, the Permanent Global Notes and the Existing Permanent Global Notes or the Temporary Global Notes, the Permanent Global Notes and the Existing Permanent Global Notes of a particular class, and the expression "Global Note" means either of them. On the exchange of a Temporary Global Note for a Permanent Global Note, the Permanent Global Note will remain deposited with the Common Depositary. Title to the Global Notes will pass by delivery. Interest and principal on each Global Note will be payable against presentation of the Global Note by the Common Depositary to the Principal Paying Agent provided that certification of non-us beneficial ownership by the relevant Noteholders has been received by Euroclear or Clearstream, Luxembourg (as described below). A record of each payment made on a Global Note, distinguishing between any payment of principal and payment of interest, will be endorsed on the relevant schedule to that Global Note by the Paying Agents (or the Paying Agents shall procure that such endorsement be made) and such record shall be prima facie evidence that the payment in question has been made. Each Permanent Global Note and Existing Permanent Global Note will only be exchangeable in whole, but not in part, for definitive Notes in denominations of (in the case of the Notes represented by the Class A1(R) Permanent Global Note or the Class B1 Permanent Global Note) 10,000 or 100,000, in the case of Notes represented by the Class A2(R) Permanent Global Note, the Class M1 Permanent Global Note or the Class C(R) Permanent Global Note) 1,000, 10,000 or 100,000 or (in the case of the Permanent Global Notes) 50,000 or above 50,000 in increments of 1,000 up to and including 99,000, in each case at the request of the bearer of the relevant Permanent Global Note or Existing Permanent Global Note against presentation and surrender of the relevant Permanent Global Note or 195

196 Existing Permanent Global Note to the Principal Paying Agent if any of the following events (each an "Exchange Event") occurs: (a) (b) (c) the Notes or any class of them become due and repayable pursuant to Condition 9; or either Euroclear or Clearstream, Luxembourg is closed for business for a continuous period of 14 days (other than by reason of holiday, statutory or otherwise) or announces an intention permanently to cease business; or as a result of any amendment to, or change in, the laws or regulations of the United Kingdom (or of any political sub-division thereof) or of any authority therein or thereof having power to tax, or in the interpretation or administration of such laws or regulations which become effective on or after the Fourth Closing Date, the Issuer is or the Paying Agents are or will be required to make any deduction or withholding from any payment in respect of the Notes which would not be required were the Notes in definitive form. Wherever a Permanent Global Note or Existing Permanent Global Note is to be exchanged for definitive Notes, the Issuer shall procure the prompt delivery (free of charge to the bearer) of such definitive Notes, duly authenticated and with Coupons and Talons (as defined in the Conditions) attached, in an aggregate principal amount equal to the principal amount of the relevant Permanent Global Note or Existing Permanent Global Note against the surrender of such Permanent Global Note or Existing Permanent Global Note at the office of the Principal Paying Agent within 30 days of the occurrence of the relevant Exchange Event. Each of the persons appearing from time to time in the records of Euroclear or Clearstream, Luxembourg as the holder of a Note other than Clearstream, Luxembourg, in the case of Euroclear, and Euroclear, in the case of Clearstream, Luxembourg, will be entitled to receive any payment so made in respect of that Note in accordance with the respective rules and procedures of Euroclear or Clearstream, Luxembourg, as appropriate. Such persons shall have no claim directly against the Issuer in respect of payments due on the Notes, which must be made to the holder of the relevant Global Note, for so long as such Global Note is outstanding. Each such person must give a certificate as to non-us beneficial ownership as of the earlier of (i) the date on which the Issuer is obliged to exchange the relevant Temporary Global Note for the relevant Permanent Global Note which date shall be no earlier than the Exchange Date, or (ii) the first Interest Payment Date, in order to obtain any payment due on the Notes. For so long as any of the Notes are represented by Global Notes, such Notes will be transferable in accordance with the rules and procedures for the time being of Euroclear or Clearstream, Luxembourg, as appropriate. For so long as any of the Notes are represented by Global Notes, each person who is for the time being shown in the records of Euroclear, or of Clearstream, Luxembourg, as the holder of a particular Principal Amount Outstanding of a particular class of Notes or Existing Notes (other than Clearstream, Luxembourg or Euroclear) will be entitled to be treated by the Issuer and the Note Trustee as a holder of such Principal Amount Outstanding of such Notes. For so long as the Notes are represented by Global Notes and such Global Notes are held on behalf of a clearing system, notices to those Noteholders whose Notes are represented by such Global Notes may be given by delivery of the relevant notice to the clearing system for communication by it to entitled accountholders in substitution for publication as required by the Conditions, provided that in the case of the Existing Notes, for so long as the Notes are listed on the Luxembourg Stock Exchange and the rules of the Luxembourg Stock Exchange so require, notices will also be published in a leading newspaper having general circulation in Luxembourg (which is expected to be d'wort) and in the case of the Floating Rate Notes, for so long as the Notes are listed on the Irish Stock Exchange and the guidelines of the Irish Stock Exchange so require, notices will also be published in a leading newspaper having general circulation in Ireland (which is expected to be The Irish Times). Such notices shall be deemed to have been given to the Noteholders in accordance with Condition 14 on the date of delivery to Euroclear and Clearstream, Luxembourg. "Noteholders" means, in relation to any Notes represented by a Global Note, each person who is for the time being shown in the records of Clearstream, Luxembourg or Euroclear as the holder of a particular Principal Amount Outstanding of such Notes (other than Clearstream, Luxembourg or Euroclear), in which regard any certificate or other document issued by Clearstream, Luxembourg or Euroclear as to the Principal Amount Outstanding of Notes standing to the account of any person shall be conclusive and binding for all purposes, and such person shall be treated by the Issuer and the Note Trustee as the holder of such Principal Amount Outstanding of such Notes for all purposes, other than for the purpose of payments in respect thereof, the right to which shall be vested, as against the 196

197 Issuer and the Note Trustee, solely in the bearer of the relevant Global Note in accordance with and subject to its terms, and for such purpose, "Noteholders" means the bearer of the relevant Global Note. 197

198 Subscription SUBSCRIPTION AND SALE The Royal Bank of Scotland plc and Citigroup Global Markets Limited (as lead managers, together the "Lead Managers", and each a "Lead Manager"), pursuant to a subscription agreement dated the date of this Offering Circular between the Lead Managers, Ambac, the Issuer, the Parent and the Obligors (as the same may be amended and/or supplemented from time to time, the "Fourth Issue Subscription Agreement"), have agreed to subscribe and pay for each class of the Fourth Issue Notes as follows: (i) (ii) (iii) (iv) the Class A3(N) Notes at an issue price of 100 per cent. of their principal amount; the Class M2(N) Notes at an issue price of 100 per cent. of their principal amount; the Class B3 Notes at an issue price of 100 per cent. of their principal amount; and the Class D1 Notes at an issue price of 100 per cent. of their principal amount, on the terms and conditions set forth therein. The Issuer will pay or procure payment to the Lead Managers of a selling concession and management and underwriting commission of 0.15 per cent. of the aggregate principal amount of the Fourth Issue Notes to be issued on the Fourth Closing Date. The Fourth Issue Subscription Agreement is subject to a number of conditions and may be terminated by The Royal Bank of Scotland plc (on behalf of itself and Citigroup Global Markets Limited), in certain circumstances prior to payment for the Fourth Issue Notes to the Issuer. The Issuer, the Parent and the Obligors have agreed to indemnify the Lead Managers against certain liabilities in connection with the issuance of the Fourth Issue Notes. In connection with the distribution of the Fourth Issue Notes, The Royal Bank of Scotland plc (as stabilising agent) may over-allot or effect transactions which stabilise or maintain the market price of a particular class of the Fourth Issue Notes at a level which might not otherwise prevail. However, there is no obligation on The Royal Bank of Scotland plc or any of its agents to do this. Such stabilising, if commenced, shall be in compliance with all applicable laws and regulations, may be discontinued at any time and must be brought to an end after a limited period. Set out below is a summary of the principal restrictions on the offer and sale of the Fourth Issue Notes and the distribution of documents relating to the Fourth Issue Notes: United Kingdom Each Lead Manager has represented to and agreed with the Issuer, the Parent and the Obligors that, inter alia: (a) (b) it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000 (the "FSMA")) received by it in connection with the issue or sale of any Fourth Issue Notes in circumstances in which section 21(1) of the FSMA does not apply to the Issuer; and it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Fourth Issue Notes in, from or otherwise involving the United Kingdom. United States of America The Fourth Issue Notes have not been and will not be registered under the United States Securities Act of 1933, as amended (the "Securities Act") and may not be offered or sold within the United States or to, or for the account or benefit of, US persons except in accordance with Regulation S under the Securities Act or pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. Terms used in this section have the meaning given to them by Regulation S under the Securities Act. Each Lead Manager has represented and agreed that it has not offered or sold, and will not offer or sell the Fourth Issue Notes (i) as part of their distribution at any time and (ii) otherwise until 40 days after the later of the commencement of the offering of the Fourth Issue Notes and the Fourth Closing Date except in accordance with Rule 903 of Regulation S under the Securities Act and, accordingly, that: 198

199 (a) (b) neither of the Lead Managers nor any of their respective affiliates (including any person acting on its behalf or any of its affiliates) has engaged or will engage in any directed selling efforts with respect to the Fourth Issue Notes; and each of the Lead Managers and their respective affiliates have complied and will comply with the offering restrictions requirement of Regulation S under the Securities Act. Each Lead Manager has also undertaken in the Fourth Issue Subscription Agreement that, at or prior to confirmation of sale, it (or any such distributor) will have sent to each distributor, dealer or person receiving a selling concession, fee or other remuneration which purchases Fourth Issue Notes from it during the restricted period a confirmation or notice in substantially the following form: In addition: (a) (b) (c) (d) (e) Ireland "The Securities covered hereby have not been registered under the United States Securities Act of 1933 as amended (the "Securities Act") and may not be offered or sold within the United States or to, or for the account or benefit of, US persons, (a) as part of their distribution at any time or (b) otherwise until 40 days after the later of the commencement of the offering and the Fourth Closing Date, except in either case in accordance with Regulation S under the Securities Act. Terms used above have the meanings given to them by Regulation S." each Lead Manager has represented and agreed that except to the extent permitted under United States Treasury Regulation Section (c)2(i)(D) (the "D Rules"), (i) it has not offered or sold, and during the restricted period that it will not offer or sell, any Fourth Issue Notes to a person who is within the United States or its possessions or to a United States person, and (ii) it has not delivered and will not deliver in definitive form within the United States or its possessions any Fourth Issue Notes that are sold during the restricted period; each Lead Manager has further represented and agreed that it has, and throughout the restricted period it will have, in effect procedures reasonably designed to ensure that its employees or agents who are directly engaged in selling Notes are aware that the Fourth Issue Notes may not be offered or sold during the restricted period to a person who is within the United States or its possessions or to a United States person, except as permitted by the D Rules; if it is a United States person, each Lead Manager has represented that it is acquiring the Fourth Issue Notes for purposes of resale in connection with their original issue and if it retains Fourth Issue Notes for its own account, it will only do so in accordance with the requirements of United States Treasury Regulation Section (c)(2)(i)(D)(6); with respect to each affiliate of the Lead Managers that acquires from it Fourth Issue Notes for the purpose of offering or selling such Fourth Issue Notes during the restricted period, each Lead Manager has either (i) repeated and confirmed the representations and agreements contained in paragraphs (a), (b) and (c) on behalf of its affiliate or (ii) agreed that it will obtain from such affiliate for the benefit of the Issuer the representations and agreements contained in paragraph (a), (b) and (c); and terms used in paragraphs (a) to (d) have the meaning given to them by Regulation S and by the United States Internal Revenue Code 1986, as amended, and regulations thereunder, including the D Rules. Each Lead Manager has represented, warranted and undertaken that: (i) (ii) it will not underwrite or place Fourth Issue Notes otherwise than in conformity with the provisions of the Investment Intermediaries Act, 1995 of Ireland, as amended, including, without limitation, Sections 9 and 23 (including advertising restrictions made thereunder) thereof and the codes of conduct made under Section 37 thereof or, in the case of a credit institution exercising its rights under the Banking Consolidation Directive (2000/12/EC of 20 March, 2000) in conformity with the codes of conduct or practice made under Section 117(1) of the Central Bank Act, 1989, of Ireland, as amended; in connection with offers or sales of Fourth Issue Notes, it has only issued or passed on, and will only issue or pass on, in Ireland, any document received by it in connection with the issue of such Fourth Issue Notes to persons who are persons to whom the documents may otherwise lawfully be issued or passed on; and 199

200 (iii) General in respect of a local offer (within the meaning of Section 38(1) of the Investment Funds, Companies and Miscellaneous Provisions Act 2005 of Ireland (the "2005 Act")) of Fourth Issue Notes in Ireland, it has complied and will comply with Section 49 of the 2005 Act. Reference should be made to the Fourth Issue Subscription Agreement for a complete description of the restrictions on offers and sales of the Fourth Issue Notes and on distribution of documents. Attention is also drawn to pages 2 and 3 of this Offering Circular. Each Lead Manager has undertaken not to offer or sell, directly or indirectly, any Fourth Issue Notes, or to distribute or publish this Offering Circular or any other material relating to the Fourth Issue Notes, in or from any country or jurisdiction except under circumstances that will result in compliance with any applicable laws and regulations. This Offering Circular does not constitute, and may not be used for the purpose of, an offer or solicitation in or from any country or jurisdiction where such an offer or solicitation is not authorised. 200

201 UNITED KINGDOM TAXATION TAXATION The following, which applies only to persons who are the absolute beneficial owners of the Fourth Issue Notes, is general in nature and is based on the Issuer's understanding of current law and HM Revenue & Customs' practice in the United Kingdom as at the date of this Offering Circular relating to certain aspects of the United Kingdom taxation. Special rules may apply to certain classes of taxpayer (such as dealers or persons who are connected with the Issuer for relevant tax purposes). Prospective Noteholders who are in any doubt about their tax position or who may be subject to tax in a jurisdiction other than the United Kingdom should seek their own professional advice. Payment of interest by the Issuer on the Fourth Issue Notes The Fourth Issue Notes will constitute "quoted Eurobonds" within the meaning of section 987 of the Income Tax Act 2007 ("ITA") as long as they are and continue to be listed on a "recognised stock exchange" within the meaning of section 1005 of the ITA. The Irish Stock Exchange is such a recognised stock exchange. Accordingly, payments of interest on the Fourth Issue Notes may be made without withholding on account of UK income tax provided the Fourth Issue Notes remain so listed at the time of payment. Recent draft legislation proposes a change to the definition of "listed on a recognised stock exchange" for the purposes of UK tax. Confirmation has been obtained from HMRC that there is no intention that the status of stock exchanges which are currently "recognised stock exchanges" should change. Consultation is currently ongoing with HMRC regarding the implications of this proposed legislative change and the provision may not be enacted as currently drafted. However on the basis of generic confirmations given by HMRC in written correspondence, it is expected that the amendments to the definition of "listed on a recognised stock exchange" should not prevent the Notes from being regarded by HMRC as "quoted Eurobonds". In all other cases an amount must be withheld on account of income tax at the lower rate (currently 20%), subject to any direction to the contrary by HMRC under an applicable double taxation treaty, and except that the withholding obligation is disapplied in respect of payments to Noteholders where the Issuer reasonably believes that the payment is an excepted payment within the meaning of section 930 of the ITA. Excepted payments include payments if the person beneficially entitled to the income in respect of which the payment is made is: (a) a UK resident company; or (b) a non-uk resident company carrying on a trade in the UK through a permanent establishment which is within the charge to corporation tax in respect of interest on the Fourth Issue Notes; or (c) falls within various categories enjoying a special tax status (including charities and pension funds); or (d) is a partnership consisting of such persons referred to in (a), (b) or (c) (unless HMRC direct otherwise). If interest has been paid subject to the withholding of United Kingdom income tax, the Issuer will not be obliged to pay any additional amount in respect of such withholding (and the attention of Noteholders is drawn to Condition 7 (Taxation)). Interest on the Fourth Issue Notes constitutes UK source income for tax purposes and, as such, may be subject to income tax by direct assessment even where paid without withholding. However, interest with a UK source received without deduction or withholding on account of UK tax will not be chargeable to UK tax in the hands of a Noteholder who is not resident for tax purposes in the UK unless that Noteholder: (i) carries on a trade, profession or vocation in the UK through a UK branch or agency or, for holders who are companies, through a UK permanent establishment, in connection with which the interest is received or to which the Fourth Issue Notes are attributable; or (ii) is a trustee of a trust with a UK beneficiary. There are exemptions for interest received by certain categories of agent (such as some brokers and investment managers). The provisions of any applicable double taxation treaty may also be relevant for such Noteholders. Any Paying Agent or other person by or through whom interest is paid to, or by whom interest is received on behalf of, an individual (whether resident in the UK or elsewhere) may be required to provide information in relation to the payment and the individual concerned to HMRC. HMRC may communicate such information to the tax authorities of other jurisdictions. Under EC Council Directive 2003/48/EC on the taxation of savings income, each Member State is required, from 1 July 2005 to provide to the tax authorities of other Member States details of payments of interest and other similar income paid by a person within its jurisdiction to or for an individual in another Member State, except that Austria, Belgium and Luxembourg will instead impose a withholding system in relation to such payments, deducting tax at rates rising over time to 35%, for a transitional period unless during such period they elect otherwise. The transitional period is to 201

202 terminate at the end of the first full fiscal year following agreement by certain non-eu countries to the exchange of information relating to such payments. Also with effect from 1 July 2005, a number of non-eu countries, and certain dependent or associated territories of certain Member States, have agreed to adopt similar measures (either provision of information or transitional withholding) in relation to payments made by a person within their respective jurisdictions to, or collected by such a person for, an individual resident in a Member State. In addition, the Member States have entered into reciprocal provision of information or transitional withholding arrangements with certain of those dependent or associated territories in relation to payments made by a person in a Member State to, or collected by such a person for, an individual resident in one of those territories. No withholding will be required where the Noteholder authorises the person making the payment to report the payment or presents a certificate from the relevant tax authority establishing exemption therefrom (whichever method or methods is or are applicable under national law implementing the Directive). The attention of the Noteholder is once again drawn to Condition 7 (Taxation). Payments by Ambac under the Second Financial Guarantee If Ambac makes any payments in respect of interest on the Class A3(N), the Class M2(N) and/or the Class B3 Notes (or other amounts due under the Class A3(N), the Class M2(N) and/or the Class B3 Notes other than the repayment of amounts subscribed for the Class A3(N), the Class M2(N) and/or the Class B3 Notes) such payments may be subject to United Kingdom withholding tax which may be either at the lower rate (currently 20 per cent.) or at the basic rate (currently 22 per cent.) or may not be subject to any withholding tax at all. If such payments are subject to United Kingdom withholding tax they may not be eligible for the exemptions described in the paragraph entitled Payment of interest by the Issuer on the Fourth Issue Notes above. The application of any United Kingdom withholding tax may be subject to relief under the provisions of an applicable double taxation treaty. Under the terms of the Second Financial Guarantee, if any payments by Ambac are made subject to a deduction of United Kingdom tax, Ambac will not be obliged to pay any additional amounts in relation thereto. Transfer of the Notes UK corporation taxpayers In general Noteholders which are within the charge to UK corporation tax (other than investment trusts, venture capital trusts, authorised unit trusts and open-ended investment companies) will be treated for tax purposes as realising profits, gains or losses (including exchange gains and losses) in respect of the Fourth Issue Notes on a basis which is broadly in accordance with their statutory accounting treatment so long as the accounting treatment is in accordance with generally accepted accounting practice as that term is defined for tax purposes. Such profits, gains and losses (or, where the Noteholder's functional currency is not sterling, then the sterling equivalent of such profits, gains and losses as computed in the Noteholder's functional currency) will be taken into account in computing taxable income for UK corporation tax purposes. Noteholders that are investment trusts, venture capital trusts, authorised unit trusts or open-ended investment companies will be subject to the same taxation treatment in respect of the Fourth Issue Notes as other Noteholders that are within the charge to UK corporation tax, other than with respect to profits, gains or losses carried to or sustained by a capital reserve in the case of investment trusts and venture capital trusts, and other than with respect to profits, gains or losses which fall to be dealt with under certain headings for gains/losses in the statement of total return for the accounting period in respect of the Fourth Issue Notes in the case of authorised unit trusts and open-ended investment companies (or for those investment trusts, venture capital trusts, authorised unit trusts or open-ended investment companies preparing accounts in accordance with international financial reporting standards, profits, gains or losses specified by order made by the UK Treasury). Such capital profits, gains or losses will not be brought into charge to UK corporation tax. Other UK taxpayers Taxation of Chargeable Gains The Fourth Issue Notes may not be treated by HMRC as constituting "qualifying corporate bonds" within the meaning of section 117 of the Taxation of Chargeable Gains Act 1992 because there is a provision for the Fourth Issue Notes to be redeemed in or redenominated in euros. Therefore a disposal (including a redemption) of a Fourth Issue Note by a Noteholder who is resident or ordinarily resident in the UK or who carries on a trade in the UK through a branch or agency to which the Fourth Issue Note is attributable and who is not subject to UK corporation tax in respect of the Fourth Issue Note may give rise to a chargeable gain or an allowable loss for the purposes of UK taxation of 202

203 chargeable gains. If by contrast the Fourth Issue Notes are treated as "qualifying corporate bonds", a disposal by a Noteholder will not give rise to any such chargeable gain or allowable loss. Accrued Income Scheme The provisions of the accrued income scheme as set out in Part 12 of the ITA (the "Scheme") may apply, in relation to a transfer of the Fourth Issue Notes, to Noteholders who are resident or ordinarily resident for tax purposes in the United Kingdom or who carry on a trade in the United Kingdom through a branch or agency to which the Note is attributable (other than Noteholders within the charge to corporation tax with respect to the Notes). On a transfer of a Class A3(N) Note with accrued interest the Scheme may apply to deem the transferor to receive an amount of income equal to the accrued interest and to treat the deemed or actual interest subsequently received by the transferee as reduced by a corresponding amount. As a result of the Step-Up Amounts, the Class M2(N) Notes, the Class B3 Notes and the Class D1 Notes will be treated as "variable rate securities" for the purposes of the Scheme. Accordingly, the Scheme may apply to deem the transferor of a Class M2(N) Note, a Class B3 Note or a Class D1 Note to receive interest on the relevant Fourth Issue Note which has accrued since the preceding interest payment date in such amount as is just and reasonable. A transferee of a Class M2(N) Note, a Class B3 Note or a Class D1 Note with accrued interest will not be entitled to any allowance under the Scheme. Stamp Duty and Stamp Duty Reserve Tax No stamp duty or stamp duty reserve tax is payable on issue of the Fourth Issue Notes or on a transfer of the Fourth Issue Notes by delivery. 203

204 GENERAL INFORMATION 1. The issue of the Fourth Issue Notes has been authorised by a resolution of the board of directors of the Issuer passed on 7 June Application has been made by the Issuer through the Listing Agent, Arthur Cox Listing Services Limited ("ACLSL") to the IFSRA, as competent authority under the Prospectus Directive, for this Offering Circular to be approved. Application has been made to the Irish Stock Exchange for the Fourth Issue Notes to be admitted to the official list of the Irish Stock Exchange (the "Official List") and to trading on the Irish Stock Exchange's regulated market, subject to the guidelines of the Irish Stock Exchange. The Irish Stock Exchange is a regulated market for the purposes of Directive 93/22/EEC. 3. It is expected that the listing of the Fourth Issue Notes on the Official List will be granted on the Fourth Issue Notes, subject only to the issue of the relevant Temporary Global Notes. The listing of the Fourth Issue Notes will be cancelled if any of the relevant Temporary Global Notes are not issued. 4. ACLSL is acting solely in its capacity as listing agent for the Issuer in relation to the Fourth Issue Notes and is not itself seeking admission to the Official List or to trading on the Irish Stock Exchange for the purposes of the Prospectus Directive. 5. The Fourth Issue Notes have been accepted for clearance through Euroclear and Clearstream, Luxembourg. The Common Code and the ISIN for each class of the Fourth Issue Notes are as follows: Common Code ISIN Class A1(R) Fixed Rate Secured Notes XS Class A2(R) Fixed Rate Secured Notes XS Class A3(N) Floating Rate Secured Notes XS Class M1 Fixed Rate Secured Notes XS Class M2(N) Floating Rate Secured Notes XS Class B1 Fixed Rate Secured Notes XS Class B2 Fixed Rate Secured Notes XS Class B3 Floating Rate Secured Notes XS Class C(R) Fixed Rate Secured Notes XS Class D1 Floating Rate Secured Notes XS None of the Issuer nor any other member of the Securitisation Group is involved in any governmental, legal or arbitration proceedings which may have, or have had, since their respective date of incorporation, a significant effect on their respective financial positions, nor is the Issuer aware that any such proceedings are pending or threatened. 7. Since the date of its incorporation, the Issuer has not, save as disclosed in this Offering Circular, entered into any contract or arrangement not being in its ordinary course of business. 8. The auditors of the Issuer and the Securitisation Group are Ernst & Young LLP. Ernst & Young LLP are a member of the Institute of Chartered Accountants in England and Wales. 9. DTZ has given and has not withdrawn its written consent to the inclusion herein of its reports, review and references to them, as applicable, in the form and context in which they appear. 10. The auditors of Ambac are KPMG Audit Plc, Chartered Accountants of 8 Salisbury Square, London EC4Y 8BB. Audited accounts have been prepared in relation to Ambac for the year ended 31 December 2005 and the year ended 31 December KPMG Audit Plc have given, and have not withdrawn, their consent to the inclusion of their reports to the audited financial statements of Ambac for the year ended 31 December 2005 and the year ended 31 December 2006 in this Offering Circular. 11. The annual accounts for Ambac for the years ended 31 December 2005 and 31 December 2006 have been audited without qualification. 12. Save as disclosed in this Offering Circular, Ambac is not, and has not been, involved in any governmental, legal or arbitration proceedings which may have, or have had during the 12 months preceding the date of this Offering Circular a significant effect on its financial position nor is Ambac aware that any such proceedings are pending or threatened. 204

205 13. Save as disclosed in this Offering Circular, since 19 August 2006 (being the date of the most recent audited accounts of the Issuer), there has been no material adverse change in the financial position or prospects of the Issuer and no significant change in the trading or financial position of the Issuer. Save as disclosed in this Offering Circular, there has been no material adverse change in the financial or trading position of the Borrower or the Securitisation Group since, 19 August 2006, being the date of the most recently published audited accounts. 14. Save as disclosed in this Offering Circular, since 31 December 2006 (being the date of the most recent audited accounts of Ambac) there has been no material adverse change in the financial position or prospects of Ambac and no significant change in the trading or financial position of Ambac. 15. Save as disclosed in this Offering Circular, the Issuer has no outstanding loan capital, borrowings, indebtedness or contingent liabilities, nor has the Issuer created any mortgage or charge or given any guarantee. 16. Neither the Issuer nor any other member of the Securitisation Group will publish interim accounts. The accounting reference date in respect of the Issuer and the Borrower is 23 August. Only the Parent will produce and publish consolidated audited financial statements (but will not itself produce non-consolidated audited financial statements). Both the Borrower and the Issuer will produce non-consolidated audited financial statements in respect of each financial year and will not produce consolidated audited financial statements. 17. The total expenses related to admission of the Fourth Issue Notes to trading are estimated at 6,000, Any website (or the contents thereof) referred to in this Offering Circular does not form part of this Offering Circular as approved by the Irish Stock Exchange. 19. Copies of the following documents in physical form may be inspected during usual business hours at the specified offices of the Luxembourg Paying Agent (for so long as any of the Notes are listed on the Luxembourg Stock Exchange) and the Irish Paying Agent (for so long as the Notes are listed on the Irish Stock Exchange) and at the registered office of the Issuer for so long as any Notes remain outstanding and for the life of this Offering Circular: (a) (b) (c) (d) (e) (f) the Memorandum and Articles of Association of the Issuer and of each other member of the Securitisation Group; the audited financial statements for the Borrower for the years ended 20 August 2005 and 19 August 2006; the audited financial statements for the Issuer for the years ended 20 August 2005 and 19 August 2006; the audited financial statements for Ambac for the years ended 31 December 2005 and 31 December 2006; the Valuation Report; prior to the Fourth Closing Date drafts (subject to modification) and, after the Fourth Closing Date, copies of the following documents: (i) (ii) (iii) (iv) (v) (vi) the Second Master Amendment Deed; the amended and restated Trust Deed and the Third Supplemental Trust Deed; the Issuer Deed of Charge and the First Supplemental Issuer Deed of Charge; the amended and restated Punch Taverns First Priority Deed of Charge; the Fifteenth Supplemental Punch Taverns Deed of Charge; the amended and restated Punch Taverns Second Priority Deed of Charge and the deed of release and amendment in respect of the Punch Taverns Second Priority Deed of Charge; (vii) the Punch Taverns Standard Securities; (viii) the Amended Master Definitions and Construction Schedule; (ix) (x) the amended and restated Agency Agreement; the Liquidity Facility Agreement; 205

206 (xi) the amended and restated Issuer/Borrower Facility Agreements; (xii) the Fourth Issue Subscription Agreement; (xiii) the amended and restated Tax Deed of Covenant; (xiv) the First Financial Guarantee; (xv) the First Guarantee and Reimbursement Agreement; (xvi) the Second Financial Guarantee; (xvii) the Second Guarantee and Reimbursement Agreement; (xviii) the Hedges and the Issuer/Borrower Swap Agreement; (xix) the Borrower Subordinated Loan Agreements; (xx) the amended and restated Servicing and Cash Management Agreement; (xxi) the Financial Advisory Services Agreement; and (xxii) the Bank Agreement. 206

207 INDEX TO FINANCIAL STATEMENTS 1. APPENDIX I: Financial Statements of Ambac Assurance UK Limited Part A: Report and Financial Statements for the year ended 31 December 2005 Part B: Report and Financial Statements for the year ended 31 December APPENDIX II: Financial Statements of the Borrower Part A: Report and Financial Statements for the year ended 20 August 2005 Part B: Report and Financial Statements for the year ended 19 August APPENDIX III: Financial Statements of the Issuer Part A: Report and Financial Statements for the year ended 20 August 2005 Part B: Report and Financial Statements for the year ended 19 August 2006 Page

208 APPENDIX I FINANCIAL STATEMENTS OF AMBAC ASSURANCE UK LIMITED Part A 208

209 209

210 210

211 211

212 212

213 213

214 214

215 215

216 216

217 217

218 218

219 219

220 220

221 221

222 222

223 223

224 224

225 225

226 226

227 227

228 Part B 228

229 229

230 230

231 231

232 232

233 233

234 234

235 235