1. Overview of the ISDA Credit Support Documentation and Brazilian Collateral Issues Hotel Inter-Continental Sao Paulo, Brazil August 6, 2002 Robert G. Pickel Executive Director and Chief Executive Officer ISDA Robert G. Pickel Executive Director and Chief Executive Officer ISDA

2. Nycorp:954035Nycorp:954035 Basics of Collateralization  Risk Reduction  Market and Regulatory Forces  Disadvantages of Other Methods - Guarantees, Credit Insurance or Bond, Letter of Credit, Triple-A Subs  Drawbacks Operational systems and legal support Operational systems and legal support Costs of collateral and support may be significant Costs of collateral and support may be significant Legal risk : applicable law and procedures may vary from jurisdiction to jurisdiction Legal risk : applicable law and procedures may vary from jurisdiction to jurisdiction  Risk Reduction  Market and Regulatory Forces  Disadvantages of Other Methods - Guarantees, Credit Insurance or Bond, Letter of Credit, Triple-A Subs  Drawbacks Operational systems and legal support Operational systems and legal support Costs of collateral and support may be significant Costs of collateral and support may be significant Legal risk : applicable law and procedures may vary from jurisdiction to jurisdiction Legal risk : applicable law and procedures may vary from jurisdiction to jurisdiction

3. Nycorp:954035Nycorp:954035 ISDA Credit Support Documents -- A Time of Change  Lessons of 1997-1998 Reduce time frames Reduce time frames Revise dispute resolution process Revise dispute resolution process Broaden the role of ISDA documents Broaden the role of ISDA documents  Opportunity to make structural changes Simplify architecture Simplify architecture Reduce size of document Reduce size of document  Result: 2001 ISDA Margin Provisions and forms of Amendment to existing credit support documents  Lessons of 1997-1998 Reduce time frames Reduce time frames Revise dispute resolution process Revise dispute resolution process Broaden the role of ISDA documents Broaden the role of ISDA documents  Opportunity to make structural changes Simplify architecture Simplify architecture Reduce size of document Reduce size of document  Result: 2001 ISDA Margin Provisions and forms of Amendment to existing credit support documents

4. Nycorp:954035Nycorp:954035 Background and Structure of 1994 ISDA Credit Support Annex (NY Law)  Bilateral, mark-to-market form  Cash and securities posted as collateral  Parties can add other forms of credit support  Computation and delivery, substitution and return mechanics  Annex also covers: Dispute resolution Dispute resolution Holding and using collateral; Distributions Holding and using collateral; Distributions Events of Default; Rights and Remedies Events of Default; Rights and Remedies Representations; Expenses Representations; Expenses  Bilateral, mark-to-market form  Cash and securities posted as collateral  Parties can add other forms of credit support  Computation and delivery, substitution and return mechanics  Annex also covers: Dispute resolution Dispute resolution Holding and using collateral; Distributions Holding and using collateral; Distributions Events of Default; Rights and Remedies Events of Default; Rights and Remedies Representations; Expenses Representations; Expenses

5. Nycorp:954035Nycorp:954035 Background and Structure  Part of Schedule to ISDA Master  Underlying assumption that NY law applies; NY law ISDA Master  Paragraph 13 of ISDA Credit Support Annex is equivalent of the Schedule to the ISDA Master Agreement  Part of Schedule to ISDA Master  Underlying assumption that NY law applies; NY law ISDA Master  Paragraph 13 of ISDA Credit Support Annex is equivalent of the Schedule to the ISDA Master Agreement

6. Nycorp:954035Nycorp:954035 ISDA Agreement Structure 2002 1992 Master Agreement (Multicurrency-Cross Border)  Governs the legal and credit relationship of the parties  Includes representations, events of default/termination events and covenants  Incorporates Confirmations  Schedule used to make changes to standard provisions Confirmations (short form)  Incorporate Definitions  Specify economic terms of each transaction  Include Transaction-specific modifications Credit Support Documents: Offering protection against credit risk  2001 ISDA Margin Supplement (incorporating 2001 ISDA Margin Provisions) 1995 Credit Support Annex (Transfer – English Law) 1994 Credit Support Annex (New York Law) 1995 Credit Support Deed (Security Interest – English Law) 1996 Credit Support Annex (Japanese Law) Protocols: amending Master Agreement 2001 Euro Protocol 2000 EMU Protocol (Greece) 1998 EMU Protocol Confirmations (long form) Definitions: for use in documenting Transactions  2000 Definitions (replace the 1991 Definitions (as amended by the 1998 Supplement)  1999 Credit Derivatives Definitions (plus three Supplements published in 2001)  1998 Euro Definitions  1998 FX and Currency Option Definitions (plus revised Annex A)  1997 Bullion Definitions  1997 Government Bond Option Definitions  1996 Equity Derivatives Definitions  1993 Commodity Derivatives Definitions (as amended by the 2000 Supplement)

7. Nycorp:954035Nycorp:954035 Paragraph 1 Interpretation (a)Definitions and Inconsistency (b)Secured Party and Pledgor Interpretation (a)Definitions and Inconsistency (b)Secured Party and Pledgor

8. Nycorp:954035Nycorp:954035 Paragraph 2 Security Interest  Grant by Pledgor of first priority security interest thereon and right of set-off  Immediate release of security interest and lien upon Transfer of Posted Collateral to Pledgor Security Interest  Grant by Pledgor of first priority security interest thereon and right of set-off  Immediate release of security interest and lien upon Transfer of Posted Collateral to Pledgor

9. Nycorp:954035Nycorp:954035 Credit Support Obligations Worksheets and Examples  Identify all relevant defined terms (assigned vs. calculated);  Establish numerical inputs for all “assigned” defined terms; and  Do the arithmetic to derive all “calculated” defined terms.  Identify all relevant defined terms (assigned vs. calculated);  Establish numerical inputs for all “assigned” defined terms; and  Do the arithmetic to derive all “calculated” defined terms. The following worksheets and examples demonstrate the mechanics used in Paragraph 3 of the ISDA Credit Support Annex to calculate Credit Support Obligations (including Delivery Amounts and Return Amounts), based on the following three steps:

10. Nycorp:954035Nycorp:954035 Delivery Amount Worksheet “Assigned” Defined TermsSecured PartyPledgor (Party B) (Party A) 1.ExposureA.[ ]B. n/a 2.Independent AmountA.[ ]B.[ ] 3.ThresholdA. n/aB.[ ] 4.Min. Transfer AmountA. n/aB.[ ] 5.Value of Posted Credit A.[ ]B. n/a Support “Calculated” Defined TermsSecured PartyPledgor (Party B) (Party A) 6.Credit Support AmountA. n/aB.1A + 2B - 2A - 3B 7.Delivery AmountA. n/aB.6B - 5A, iff 7B (4B)

11. Nycorp:954035Nycorp:954035 Delivery Amount Worksheet Example 1 “Assigned” Defined TermsSecured PartyPledgor (Party B) (Party A) 1.ExposureA. 500B. n/a 2.Independent AmountA. 0B. 250 3.ThresholdA. n/aB. 100 4.Min. Transfer AmountA. n/aB. 50 5.Value of Posted CreditA. 250B. n/a Support “Calculated” Defined TermsSecured PartyPledgor (Party B) (Party A) 6.Credit Support AmountA. n/a B.500 + 250 - 0 - 100 = 650 7.Delivery AmountA. n/a B.650 - 250 (iff (50)) = 400

12. Nycorp:954035Nycorp:954035 Delivery Amount Worksheet Example 2 “Assigned” Defined TermsSecured PartyPledgor (Party B) (Party A) 1.ExposureA. 500B. n/a 2.Independent AmountA. 700B. 300 3.ThresholdA. n/aB. 200 4.Min. Transfer AmountA. n/aB. 50 5.Value of Posted CreditA. 300B. n/a Support “Calculated” Defined TermsSecured PartyPledgor (Party B) (Party A) 6.Credit Support AmountA. n/aB. 500+300 - 700 - 200 = (100) = 0 7.Delivery AmountA. n/aB. 0

13. Nycorp:954035Nycorp:954035 Return Amount Worksheet “Assigned” Defined TermsSecured PartyPledgor (Party B) (Party A) 1.ExposureA.[ ]B. n/a 2.Independent AmountA.[ ]B.[ ] 3.ThresholdA. n/aB.[ ] 4.Min. Transfer AmountA.[ ]B. n/a 5.Value of Posted CreditA.[ ]B. n/a Support “Calculated” Defined TermsSecured PartyPledgor (Party B) (Party A) 6.Credit Support AmountA. n/aB.1A + 2B - 2A - 3B 7.Return AmountA. 5A - 6B iff B. n/a 7A (4A)

14. Nycorp:954035Nycorp:954035 Return Amount Worksheet Example 1 “Assigned” Defined TermsSecured PartyPledgor (Party B) (Party A) 1.ExposureA. 500B. n/a 2.Independent AmountA. 0B. 300 3.ThresholdA. n/aB. 600 4.Min. Transfer AmountA. 50B. n/a 5.Value of Posted CreditA. 300B. n/a Support “Calculated” Defined TermsSecured PartyPledgor (Party B) (Party A) 6.Credit Support AmountA.n/aB. 500 + 300 - 0 - 600 = 200 7.Return Amount A.300 - 200 B. n/a (iff (50))=100

15. Nycorp:954035Nycorp:954035 Return Amount Worksheet Example 2 “Assigned” Defined TermsSecured PartyPledgor (Party B) (Party A) 1.ExposureA. 500B. n/a 2.Independent AmountA. 700B. 300 3.ThresholdA. n/aB. 200 4.Min. Transfer AmountA. 50B. n/a 5.Value of Posted CreditA. 300B. n/a Support “Calculated” Defined TermsSecured PartyPledgor (Party B) (Party A) 6.Credit Support AmountA. n/aB. 500+300 - 700 - 200 = (100) = 0 7.Return Amount A. 300 - 0 (iff B. n/a (50)) = 300

16. Nycorp:954035Nycorp:954035 Paragraph 4 (a)Conditions Precedent - no Event of Default, Potential Event of Default or Specified Condition/no Early Termination Date (b)Transfers - next Local Business Day after demand (c)Calculations - by Valuation Agent as of the Valuation Time for each Valuation Date (d)Substitutions - permitted unless otherwise specified (a)Conditions Precedent - no Event of Default, Potential Event of Default or Specified Condition/no Early Termination Date (b)Transfers - next Local Business Day after demand (c)Calculations - by Valuation Agent as of the Valuation Time for each Valuation Date (d)Substitutions - permitted unless otherwise specified Conditions Precedent, Transfers, Calculations and Substitutions

17. Nycorp:954035Nycorp:954035 Paragraph 5 Dispute Resolution  Notify other party and Valuation Agent  Undisputed amount is transferred  Parties consult  If dispute relates to Exposure, obtain Market Quotations  If dispute relates to Value of Credit Support, resolve in manner stipulated in Paragraph 13 Dispute Resolution  Notify other party and Valuation Agent  Undisputed amount is transferred  Parties consult  If dispute relates to Exposure, obtain Market Quotations  If dispute relates to Value of Credit Support, resolve in manner stipulated in Paragraph 13

18. Nycorp:954035Nycorp:954035 Paragraph 6 Holding and Using Posted Collateral (a)Care of Posted Collateral (b)Eligibility to Hold Posted Collateral; Custodians (c)Use of Posted Collateral - Broadly Permitted (d)Distributions and Interest Amount (a)Care of Posted Collateral (b)Eligibility to Hold Posted Collateral; Custodians (c)Use of Posted Collateral - Broadly Permitted (d)Distributions and Interest Amount

19. Nycorp:954035Nycorp:954035 Paragraph 7  Failure to post/return collateral or to pay distributions or interest when due for 2 Local Business Days after notice  Failure to comply with provisions regarding use of collateral for 5 Local Business Days after notice  Failure to perform any other agreement or obligation under Annex for 30 days after notice  Failure to post/return collateral or to pay distributions or interest when due for 2 Local Business Days after notice  Failure to comply with provisions regarding use of collateral for 5 Local Business Days after notice  Failure to perform any other agreement or obligation under Annex for 30 days after notice Events of Default

20. Nycorp:954035Nycorp:954035 Paragraph 8(a) Secured Party’s Rights and Remedies  Triggered by: (1)Occurrence of Event of Default or Specified Condition with respect to Pledgor; or (2)Occurrence/Designation of Early Termination Date  Exercise of Rights and Remedies (i)rights available under applicable law (NY UCC) (ii)rights under terms of Other Posted Support (iii)right to set off (iv)right to liquidate Posted Collateral Secured Party’s Rights and Remedies  Triggered by: (1)Occurrence of Event of Default or Specified Condition with respect to Pledgor; or (2)Occurrence/Designation of Early Termination Date  Exercise of Rights and Remedies (i)rights available under applicable law (NY UCC) (ii)rights under terms of Other Posted Support (iii)right to set off (iv)right to liquidate Posted Collateral

21. Nycorp:954035Nycorp:954035 Paragraph 8(b) Pledgor’s Rights and Remedies  Triggered by Occurrence/Designation of Early Termination Date as a result of an Event of Default or Specified Condition with respect to Secured Party  Exercise of Rights and Remedies (i)rights available under applicable law (ii)rights under terms of Other Posted Support (iii)Secured Party obligated to Transfer all Posted Collateral and the Interest Amount (iv)right to set off or withhold payment of remaining amounts Pledgor’s Rights and Remedies  Triggered by Occurrence/Designation of Early Termination Date as a result of an Event of Default or Specified Condition with respect to Secured Party  Exercise of Rights and Remedies (i)rights available under applicable law (ii)rights under terms of Other Posted Support (iii)Secured Party obligated to Transfer all Posted Collateral and the Interest Amount (iv)right to set off or withhold payment of remaining amounts

22. Nycorp:954035Nycorp:954035 Paragraphs 8(c)/(d) Rights and Remedies  Deficiencies and Excess Proceeds  Final Returns Rights and Remedies  Deficiencies and Excess Proceeds  Final Returns

23. Nycorp:954035Nycorp:954035 Paragraph 9 Representations  Power to grant a security interest  Sole owner of or right to transfer Eligible Collateral  Creation of a valid and perfected first priority security interest  No other security interest on any Posted Collateral  Special Representation for U.S. bank or thrift - Appendix F to User’s Guide Representations  Power to grant a security interest  Sole owner of or right to transfer Eligible Collateral  Creation of a valid and perfected first priority security interest  No other security interest on any Posted Collateral  Special Representation for U.S. bank or thrift - Appendix F to User’s Guide

24. Nycorp:954035Nycorp:954035 Paragraph 10 Expenses  Each party pays its own when performing its contractual obligations  Because the Pledgor remains the “owner” of collateral, continues to be liable to pay taxes and other charges that may be levied on collateral  Costs incurred by Secured Party in liquidating and applying collateral are payable by the Defaulting Party or (if no Defaulting Party) equally by both parties Expenses  Each party pays its own when performing its contractual obligations  Because the Pledgor remains the “owner” of collateral, continues to be liable to pay taxes and other charges that may be levied on collateral  Costs incurred by Secured Party in liquidating and applying collateral are payable by the Defaulting Party or (if no Defaulting Party) equally by both parties

25. Nycorp:954035Nycorp:954035 Paragraph 11 Other Provisions (a)Default Interest - applicable when Secured Party fails to make a timely transfer (b)Further Assurances (c)Further Protections - Pledgor must safeguard all Posted Credit Support (d)Good Faith and Commercially Reasonable Manner (e)Demands and Notices (f)Specification of Certain Matters in Confirmations Other Provisions (a)Default Interest - applicable when Secured Party fails to make a timely transfer (b)Further Assurances (c)Further Protections - Pledgor must safeguard all Posted Credit Support (d)Good Faith and Commercially Reasonable Manner (e)Demands and Notices (f)Specification of Certain Matters in Confirmations

26. Nycorp:954035Nycorp:954035 Paragraph 13 Elections and Variables  Eligible Collateral/Valuation Percentages  Thresholds  Valuation and Timing  “Specified Conditions”  Dispute Resolution provisions where Value of Posted Credit Support not agreed  Eligibility to hold Posted Collateral; Custodians Elections and Variables  Eligible Collateral/Valuation Percentages  Thresholds  Valuation and Timing  “Specified Conditions”  Dispute Resolution provisions where Value of Posted Credit Support not agreed  Eligibility to hold Posted Collateral; Custodians

27. Nycorp:954035Nycorp:954035 Paragraph 13  Distributions and Interest Amount  Additional Representations  Other Eligible Support and Other Posted Support  Demands and Notices  Other Provisions  Distributions and Interest Amount  Additional Representations  Other Eligible Support and Other Posted Support  Demands and Notices  Other Provisions

28. Nycorp:954035Nycorp:954035 2001 ISDA Margin Provisions The New Structure  Common operational provisions – Part 1  New York Law: pledge/security interest approach – Part 2  English Law: title transfer approach – Part 3  Other jurisdictions – Part 4  Definitions – Part 5  Supplement and other Appendices (Forms of Notices) The New Structure  Common operational provisions – Part 1  New York Law: pledge/security interest approach – Part 2  English Law: title transfer approach – Part 3  Other jurisdictions – Part 4  Definitions – Part 5  Supplement and other Appendices (Forms of Notices)

29. Nycorp:954035Nycorp:954035 Issues to Consider  Nature and location of collateral  Nature and location of counterparty  Perfection issues  Tax issues  Recharacterization issues  Collateral Opinion Projects  Nature and location of collateral  Nature and location of counterparty  Perfection issues  Tax issues  Recharacterization issues  Collateral Opinion Projects

30. Nycorp:954035Nycorp:954035 ISDA Collateral Opinion Projects  ISDA is in the process of obtaining legal opinions relating to creation and perfection of security interests under the New York and English law collateral documents.  Opinions received from: AustraliaEnglandItalySingapore Austria FinlandJapanSouth Korea Belgium FranceLuxembourgSweden BermudaGermanyMalaysia Switzerland CanadaHong KongThe NetherlandsTaiwan Cayman IslandsIndonesiaNew ZealandThailand DenmarkIreland PortugalU.S.A.  Awaiting final opinions from: NorwaySouth Africa  Opinions commissioned for: British Virgin IslandsScotland  ISDA is in the process of obtaining legal opinions relating to creation and perfection of security interests under the New York and English law collateral documents.  Opinions received from: AustraliaEnglandItalySingapore Austria FinlandJapanSouth Korea Belgium FranceLuxembourgSweden BermudaGermanyMalaysia Switzerland CanadaHong KongThe NetherlandsTaiwan Cayman IslandsIndonesiaNew ZealandThailand DenmarkIreland PortugalU.S.A.  Awaiting final opinions from: NorwaySouth Africa  Opinions commissioned for: British Virgin IslandsScotland