VALLAURIS II CLO PLC - Irish Stock Exchange

maturity of such Notes will be the sum of all payments to be received on such Notes, other than
payments of stated interest which are unconditionally payable in money at least annually during the
entire term of a debt instrument (‘‘Qualified Stated Interest’’). Prospective U.S. Holders of the
Mezzanine Notes should note that, because interest on the Mezzanine Notes is not unconditionally
payable in money on each Payment Date (and, therefore, will not be Qualified Stated Interest), all of
the stated interest payments on the Mezzanine Notes will be included in the stated redemption prices
at maturity of such Notes, and must therefore be accrued by U.S. Holders pursuant to the rules
described below.
A U.S. Holder of such Class of Notes issued with OID will be required to accrue and include
in gross income the sum of the daily portions of total OID on such Notes for each day during the
taxable year on which the U.S. Holder held such Notes, generally under a constant yield method,
regardless of such U.S. Holder’s usual method of accounting for U.S. federal income tax purposes
and without regard to the timing of the payments on such Notes. In addition, a U.S. Holder should
include any de minimis OID in gross income proportionately as stated principal payments are
received. Such de minimis OID should be treated as gain from the sale or exchange of property and
may be eligible as capital gain if the Note is a capital asset in the hands of the U.S. Holder.
In the case of Notes that provide for a floating rate of interest, the amount of OID to be
accrued over the term of such Notes will be based initially on the assumption that the floating rate in
effect for the first interest period of the Notes will remain constant throughout their term. To the
extent such rate varies with respect to any interest period, such variation will be reflected in an
increase or decrease of the amount of OID accrued for such period. Under the foregoing method,
U.S. Holders of the Mezzanine Notes may be required to include in gross income increasingly greater
amounts of OID and may be required to include OID in advance of the receipt of cash attributable
to such income.
In the absence of controlling authority, the Issuer intends to accrue any remaining discount on
the Mezzanine Notes (which generally will equal the excess of the Note’s stated principal amount
over its issue price) over the period that starts on the Closing Date and ends on the last day of the
Non-Call Period based on a constant yield method.
The Issuer intends to take the position, and the foregoing discussion assumes, that the Notes
will not be classified as ‘‘contingent payment debt obligations’’ for purposes of calculating OID.
However, it is possible that the IRS will take a contrary view and seek to so classify some or all of
the Notes. If the IRS were successful in so classifying the Notes, among other consequences, any gain
recognized upon the sale, redemption, retirement or other disposition of such Notes might be treated
as ordinary income rather than capital gain.
As a result of the complexity of the OID rules, each U.S. Holder of the Notes should consult
its own tax advisor regarding the impact of the OID rules on its investment in such Notes.
Election to Treat All Interest as OID The OID rules permit a U.S. Holder of a Note to elect to
accrue all interest, discount (including any de minimis discount or original issue discount) in income
as interest, based on a constant yield method. The election to accrue interest and discount on a
constant yield method with respect to a Note cannot be revoked without the consent of the IRS.
Disposition of the Notes In general, a U.S. Holder of a Note initially will have a basis in such
Note equal to the cost of such Note to such U.S. Holder, (i) increased by any amount includable in
income by such U.S. Holder as OID with respect to such Note, and (ii) reduced by any amortised
premium and by payments on such Note, other than payments of stated interest on a Senior Note.
Upon a sale, exchange, redemption, retirement or other taxable disposition of a Note, a U.S. Holder
will generally recognize gain or loss equal to the difference between the amount realized on the sale,
exchange, redemption, retirement or other taxable disposition (other than amounts attributable to
accrued interest on a Senior Note, which will be taxable as described above) and the U.S. Holder’s
tax basis in such Note. Except to the extent of accrued interest not previously included in income,
gain or loss from the disposition of a Note generally will be long-term capital gain or loss if the U.S.
Holder held the Note for more than one year at the time of disposition, provided that such Note is
held as a ‘‘capital asset’’ (generally, property held for investment) within the meaning of Section 1221
of the Code.
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