C O L T - Covenant Optimized Leverage Trading Covenant Technology Services, LLC www.ctechnologyservices.net 2005.

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C O L T - Covenant Optimized Leverage Trading Covenant Technology Services, LLC

Covenant Optimized Leverage Trading  What is COLT ?  Portfolio Financing System. Aggregate Trading & Position Management Securities Financing (Equity Repo, Stock Loan) Synthetic Financing (Portfolio Swaps) Optimized multi-broker allocation engines. Embedded Rule-Based Margin Calculator Margin Financing (Rule Based). What-if Scenario Evaluator - WISE

Risk Based Margin  What is rule-based margin ?  Beyond Reg-T, NYSE and House Requirement.  Standard Framework – Eliminated inconsistencies Rule-based model supports  Pair-Trading – Basket Enhancement  Cross-margin across all asset/security types.  Support Multi-Trading Strategies  Convertible Arbitrage with CDS  Synthetic Prime-Brokerage – Portfolio Swaps

Equity Long/Short – Pair Trading  Equity Margin – Adjustment Based Volatility Risk Liquidity Risk Concentration Risk  Basket Enhancement Weight Average Liquidity Sector Concentration Country Tier

Long/Short Basket SUMMARY SECTORNMV%GMVQUALIFY LMV 8,477,43118Basic Materials (250,761)1.55%YES SMV (7,722,183)25Communications 833, %YES GMV 16,199,61543 Consumer, Cyclical (594,549)3.67%YES NMV 755,248 Consumer, Non- cyclical (1,208,959)7.46%YES BASKET Energy 665, %YES MATCH 7,722,183 Financial 428, %YES UNMATCH 755,248 Industrial 2,015, %YES BSK_AVG_LIQ 0.04 Technology (1,133,210)7.00%YES MARGIN INDIVIDUAL REQ2,206,688 BASKET REQ847,743

Convertible Arbitrage Trading  Convertible Bond Bond Investment Value - Credit/Interest Risk Embedded Call Option - Volatility Risk  Convertible Arbitrage Strategy Naked Convertible Hedged with Equity Hedged with Equity and CDS  CDS Reference Asset.

Convertible Price Stock Price Junk Out of the Money At the Money In the Money Discount Conversion Ratio Premium Issue Price Parity Convertible Price Bond Floor Convertible in the secondary market

Hedged with CDS Symbol: OAK /01/2008 Price: Conversion Ratio: Credit Rating:S&P – BB- / Moody – Ba3 Naked Credit Requirement: 20 % Underlying Price:12.25 Parity: Premium %:24.13% Equity Hedged:Yes Hedge Ratio:10% Margin w/o CDS Requirement:20.00% CDS Hedged:Yes CDS Notional Pct:100% CDS Reference Asset:Cheapest to delivery. Margin w/CDS Requirement:13.75%

Capital Structure Arbitrage Trading  Trading asset class of same issuer. Xerox Example – Long Bond / Short Equity.  Credit versus Earning Improvement.  Debt Arbitrage – Credit Risk / Duration Debt Structure - Senior versus Junior Hybrid Hedged – Advantage.

Hybrid Credit Hedged Advantage Issuer:Dynegy Yes Energy Debt Arbitrage:Senior vs Senior Long / Short: DYN DYN Quantity:2,000,000(1,500,000) Duration:Long TermLong Term Credit Rating: S&P – CCC / Moody – CaCCC / Caa Naked Credit Margin:50%50% Debt Arbitrage:Junior vs Junior Long / Short: DYN DYN Duration:Long TermLong Term Quantity:1,000,000(3,500,000) Credit Rating: S&P – B / Moody – BCCC / Caa Naked Credit Margin:30%50% Hedged Unhedged Hybrid Hedged Senior vs Senior: Long / Margin 1,400,000 / 7.50%600,000 / 10.00% Short / Margin(1,500,000) / 7.50% Junior vs Junior: Long / Margin1,000,000 / % Short / Margin:(1,143,243) / %(1,870,270) / 50.00% (486,486) / %

Portfolio Swaps  What is it? Total Return Swap vs CFDs Synthetic Financing Vehicle. Integrated with risk-based margin.  Supports –Multi Trading Strategies/Cross-Margining. Equity Long / Short Convertible Arbitrage Credit Default Swap Capital Structure Arbitrage

COLT Advantage  Optimized Leverage Trading. Support and Optimized multi-trading strategy.  Netting across prime-brokerage houses Best Scenario Analysis  What-if Scenario Evaluator - WISE Upfront decision making