International Swaps and Derivatives Association, Inc. International Swaps and Derivatives Association, Inc. Understanding the 1992 ISDA Master Agreements New ISDA Master Agreement Hotel Inter-Continental Sao Paulo, Brazil August 6, 2002 Robert Pickel Executive Director and Chief Executive Officer ISDA

ISDA New ISDA Master Agreement  Genesis in ISDA’s “Strategic Documentation Review”  A review of certain elements of ISDA’s documentation architecture following market difficulties in 1997 and 1998  ISDA working groups addressed: termination, valuation and close-out issues force majeure and impossibility master agreement structural issues – leading to publication of Cross-Agreement Bridge

ISDA New ISDA Master Agreement Termination, Valuation and Close-Out Issues Changes to Sections 5 and 6:  Grace Periods  Market Quotation, Loss, Replacement Value and Close Out Amount

ISDA New ISDA Master Agreement: Grace Periods  Grace Periods shorter grace periods - Failure to Pay or Deliver (Section 5(a)(i)): one Local Business Day - Bankruptcy (Section 5(a)(vii)) : 15 Calendar Days - Default under Specified Transaction (Section 5(a)(v)): one Local Business Day

ISDA New ISDA Master Agreement: Market Quotation, Loss and Replacement Value  Should there be a single valuation method, or a choice between two methods?  End User concerns about consistency of application  A working group has been created to draft a new definition “Close Out Amount”

ISDA New ISDA Master Agreement Close Out Amount  Close Out Amount overriding principle is good faith and commercial reasonableness. combines elements of both Market Quotation and Loss maximizes flexibility of Non-defaulting Party does not require strict procedures of Market Quotation

ISDA New ISDA Master Agreement Illegality and Force Majeure  Illegality: events beyond parties’ control that result from changes in laws or government orders: Section 5(b)(i)  Force Majeure Event: events beyond parties’ control that fall outside Illegality but still hinder or prevent performance of party’s obligations: Section 5(b)(ii)

ISDA New ISDA Master Agreement: Illegality and Force Majeure  Illegality and Force Majeure Event: Subject to waiting period – only becomes Termination Event once waiting period expires Illegality waiting period: three Local Business Days Force Majeure Event waiting period: eight Local Business Days

ISDA New ISDA Master Agreement: Other Proposed Changes  Expanded definition of “Specified Transaction” (relevant for purposes of Default under Specified Transaction)  Interest and compensation provisions: consolidate and rationalize?  Notices NY:

ISDA New ISDA Master Agreement: Other Proposed Changes  New Master Agreement will also likely: Delete first method Include a set-off clause