International Swaps and Derivatives Association, Inc. Introduction to the 1992 ISDA Master Agreement Nacional Financiera Auditorium - Mexico City May 7,

International Swaps and Derivatives Association, Inc.International Swaps and Derivatives Association, Inc.

Introduction to the 1992 ISDA Master AgreementIntroduction to the 1992 ISDA Master Agreement

Nacional Financiera Auditorium - Mexico CityNacional Financiera Auditorium - Mexico City

May 7, 2001May 7, 2001

International Swaps and Derivatives Association, Inc.International Swaps and Derivatives Association, Inc.

Introduction to the 1992 ISDA Master AgreementIntroduction to the 1992 ISDA Master Agreement

Nacional Financiera Auditorium - Mexico CityNacional Financiera Auditorium - Mexico City

May 7, 2001May 7, 2001

John P. EmertJohn P. EmertAssistant General CounselAssistant General Counsel

Bank of AmericaBank of America

Emilio JimenezEmilio JimenezVice President and Vice President and

Assistant General CounselAssistant General CounselJPMorgan Chase & Co.JPMorgan Chase & Co.

2

ISDA Agreement Structure ISDA Agreement Structure (2001)(2001)

ISDA Agreement Structure ISDA Agreement Structure (2001)(2001)

1997 Government Bond OptionDefinitions

1992 Master Agreement (Multicurrency-Cross Border)

Sets master agreement structure Incorporates Confirmations Includes representations, events

of default/termination eventsand covenants

Specifies early terminationprovisions

Schedule used to make changesto standard provisions

Confirmations (Short Form) Incorporate definitions Specify economic terms of each transaction Include any individual modifications

1998 FX and CurrencyOption Definitions

1991 Definitions Specify payment calculations Define floating rates in 20

currencies Include provisions for swaps,

caps, collars, floors, swap options and FRAs

1993 CommodityDerivatives Definitions

1994 Credit Support Annex (New York law)

1996 Credit SupportAnnex (Japanese law)

1996 Equity Derivatives Definitions

1999 Credit

Derivatives

Definitions

EMU Protocol1998 Supplement to the1991 Definitions

1997 Bullion Definitions

1998 EURODefinitions

2000 Supplement to the 1993 Commodity Derivatives Definitions

2

1995 Credit Support Annex (English law)

1995 Credit SupportDeed (English law)

2000 ISDA Definitions

3

Section 1 - InterpretationSection 1 - InterpretationSection 1 - InterpretationSection 1 - Interpretation

Interpretive PriorityInterpretive Priority

Single AgreementSingle Agreement

Interpretive PriorityInterpretive Priority

Single AgreementSingle Agreement

4

Section 2 - Payment and Section 2 - Payment and Delivery ObligationsDelivery Obligations

Section 2 - Payment and Section 2 - Payment and Delivery ObligationsDelivery Obligations

Conditions PrecedentConditions Precedent Change of AccountChange of Account Payment NettingPayment Netting Tax Withholding/Gross-UpTax Withholding/Gross-Up Default Interest/Other Default Interest/Other

AmountsAmounts

Conditions PrecedentConditions Precedent Change of AccountChange of Account Payment NettingPayment Netting Tax Withholding/Gross-UpTax Withholding/Gross-Up Default Interest/Other Default Interest/Other

AmountsAmounts

5

On-Going Netting - Section 2(c)On-Going Netting - Section 2(c)(Not Close-out Netting)(Not Close-out Netting)

On-Going Netting - Section 2(c)On-Going Netting - Section 2(c)(Not Close-out Netting)(Not Close-out Netting)

PartyA

PartyA Net: $75

PartyB

PartyB

Gross: $100

Gross: $25

Section 3 - RepresentationsSection 3 - RepresentationsSection 3 - RepresentationsSection 3 - Representations

Purposes:Purposes: Facilitate Due DiligenceFacilitate Due DiligenceEstablish Factual Establish Factual Underpinnings of AgreementUnderpinnings of Agreement

Remedies:Remedies: Event of Default/LiquidationEvent of Default/LiquidationAgreement Measure of Agreement Measure of Damages/Other RemediesDamages/Other Remedies

Purposes:Purposes: Facilitate Due DiligenceFacilitate Due DiligenceEstablish Factual Establish Factual Underpinnings of AgreementUnderpinnings of Agreement

Remedies:Remedies: Event of Default/LiquidationEvent of Default/LiquidationAgreement Measure of Agreement Measure of Damages/Other RemediesDamages/Other Remedies

6

Section 3 - Representations Section 3 - Representations (cont.)(cont.)

Section 3 - Representations Section 3 - Representations (cont.)(cont.)

Basic RepresentationsBasic Representations Absence of Certain EventsAbsence of Certain Events Absence of LitigationAbsence of Litigation Accuracy of Specified InformationAccuracy of Specified Information Tax RepresentationsTax Representations Additional Non-Standard Additional Non-Standard

RepresentationsRepresentations

Basic RepresentationsBasic Representations Absence of Certain EventsAbsence of Certain Events Absence of LitigationAbsence of Litigation Accuracy of Specified InformationAccuracy of Specified Information Tax RepresentationsTax Representations Additional Non-Standard Additional Non-Standard

RepresentationsRepresentations

7

8

Section 4 - AgreementsSection 4 - AgreementsSection 4 - AgreementsSection 4 - Agreements

Purpose/RemediesPurpose/Remedies Furnish Specified InformationFurnish Specified Information Maintain AuthorizationsMaintain Authorizations Comply with LawsComply with Laws Tax AgreementTax Agreement Payment of Stamp TaxPayment of Stamp Tax

Purpose/RemediesPurpose/Remedies Furnish Specified InformationFurnish Specified Information Maintain AuthorizationsMaintain Authorizations Comply with LawsComply with Laws Tax AgreementTax Agreement Payment of Stamp TaxPayment of Stamp Tax

9

Events of DefaultEvents of DefaultEvents of DefaultEvents of Default

Section 5(a)(i)Section 5(a)(i) Failure to Pay or DeliverFailure to Pay or DeliverSection 5(a)(ii)Section 5(a)(ii) Breach of AgreementBreach of AgreementSection 5(a)(iii)Section 5(a)(iii) Credit Support DefaultCredit Support DefaultSection 5(a)(iv)Section 5(a)(iv) MisrepresentationMisrepresentationSection 5(a)(v)Section 5(a)(v) Default under Specified Default under Specified

TransactionsTransactionsSection 5(a)(vi)Section 5(a)(vi) Cross DefaultCross DefaultSection 5(a)(vii)Section 5(a)(vii) BankruptcyBankruptcySection 5(a)(viii)Section 5(a)(viii) Merger Without AssumptionMerger Without Assumption

Section 5(a)(i)Section 5(a)(i) Failure to Pay or DeliverFailure to Pay or DeliverSection 5(a)(ii)Section 5(a)(ii) Breach of AgreementBreach of AgreementSection 5(a)(iii)Section 5(a)(iii) Credit Support DefaultCredit Support DefaultSection 5(a)(iv)Section 5(a)(iv) MisrepresentationMisrepresentationSection 5(a)(v)Section 5(a)(v) Default under Specified Default under Specified

TransactionsTransactionsSection 5(a)(vi)Section 5(a)(vi) Cross DefaultCross DefaultSection 5(a)(vii)Section 5(a)(vii) BankruptcyBankruptcySection 5(a)(viii)Section 5(a)(viii) Merger Without AssumptionMerger Without Assumption

Section 5(a)

10

Default under Default under Specified TransactionsSpecified Transactions

Default under Default under Specified TransactionsSpecified Transactions

Specified Transactions (defined in Section Specified Transactions (defined in Section 14)14) means derivatives transactions outside ISDAmeans derivatives transactions outside ISDA betweenbetween

Specified Transactions (defined in Section Specified Transactions (defined in Section 14)14) means derivatives transactions outside ISDAmeans derivatives transactions outside ISDA betweenbetween

PARTY ACredit Support ProviderSpecified Entity

PARTY BCredit Support ProviderSpecified Entity

and

Section 5(a)(v)Section 5(a)(v)

11

Cross DefaultCross DefaultCross DefaultCross Default

Default in respect of borrowed moneyDefault in respect of borrowed money Threshold AmountThreshold Amount

Default in respect of borrowed moneyDefault in respect of borrowed money Threshold AmountThreshold Amount

Section 5(a)(vi)Section 5(a)(vi)

12

BankruptcyBankruptcyBankruptcyBankruptcy

Insolvency-related eventsInsolvency-related events

Actual liquidationActual liquidation

Actions by a secured partyActions by a secured party

Insolvency-related eventsInsolvency-related events

Actual liquidationActual liquidation

Actions by a secured partyActions by a secured party

Section 5(a)(vii)Section 5(a)(vii)

13

Termination EventsTermination EventsTermination EventsTermination Events

Section 5(b)(i)Section 5(b)(i) IllegalityIllegality

Section 5(b)(ii)Section 5(b)(ii) Tax EventTax Event

Section 5(b)(iii)Section 5(b)(iii) Tax Event Upon MergerTax Event Upon Merger

Section 5(b)(iv)Section 5(b)(iv) Credit Event Upon MergerCredit Event Upon Merger

Section 5(b)(v)Section 5(b)(v) Additional Termination Additional Termination EventEvent

Section 5(b)(i)Section 5(b)(i) IllegalityIllegality

Section 5(b)(ii)Section 5(b)(ii) Tax EventTax Event

Section 5(b)(iii)Section 5(b)(iii) Tax Event Upon MergerTax Event Upon Merger

Section 5(b)(iv)Section 5(b)(iv) Credit Event Upon MergerCredit Event Upon Merger

Section 5(b)(v)Section 5(b)(v) Additional Termination Additional Termination EventEvent

Section 5(b)Section 5(b)

Early TerminationEarly TerminationEarly TerminationEarly Termination

ReasonReason

Events of DefaultEvents of Default

BankruptcyBankruptcy OtherOther

Termination EventTermination Event IllegalityIllegality Tax Event Upon MergerTax Event Upon Merger Tax EventTax Event Credit Event Upon MergerCredit Event Upon Merger Additional Termination EventAdditional Termination Event

ReasonReason

Events of DefaultEvents of Default

BankruptcyBankruptcy OtherOther

Termination EventTermination Event IllegalityIllegality Tax Event Upon MergerTax Event Upon Merger Tax EventTax Event Credit Event Upon MergerCredit Event Upon Merger Additional Termination EventAdditional Termination Event

TERMINATION MECHANICS: TERMINATION MECHANICS: How to TerminateHow to TerminateTERMINATION MECHANICS: TERMINATION MECHANICS: How to TerminateHow to Terminate

1992 ISDA Master Reference1992 ISDA Master ReferenceSections 6(a) + (b); Pages 8-9Sections 6(a) + (b); Pages 8-91992 ISDA Master Reference1992 ISDA Master ReferenceSections 6(a) + (b); Pages 8-9Sections 6(a) + (b); Pages 8-9

Who may terminateWho may terminate

Non-defaulting Party or Non-defaulting Party or AutomaticAutomatic**

Non-defaulting PartyNon-defaulting Party

either partyeither party Burdened PartyBurdened Party Affected PartyAffected Party non-Affected Partynon-Affected Party non-Affected Party or either non-Affected Party or either

party (if there are two Affected party (if there are two Affected Parties)Parties)

Who may terminateWho may terminate

Non-defaulting Party or Non-defaulting Party or AutomaticAutomatic**

Non-defaulting PartyNon-defaulting Party

either partyeither party Burdened PartyBurdened Party Affected PartyAffected Party non-Affected Partynon-Affected Party non-Affected Party or either non-Affected Party or either

party (if there are two Affected party (if there are two Affected Parties)Parties)

*only applies if elected in only applies if elected in ScheduleSchedule

*only applies if elected in only applies if elected in ScheduleSchedule

14

15

Event of DefaultEvent of Default

Credit Event Upon MergerCredit Event Upon Merger

Additional Termination EventAdditional Termination Event

Other Termination EventsOther Termination Events

Event of DefaultEvent of Default

Credit Event Upon MergerCredit Event Upon Merger

Additional Termination EventAdditional Termination Event

Other Termination EventsOther Termination Events

Early TerminationEarly TerminationEarly TerminationEarly Termination

all Transactions terminatedall Transactions terminated all Transactions terminatedall Transactions terminated all Transactions terminatedall Transactions terminated

(presumption)(presumption) only Affected Transactionsonly Affected Transactions

all Transactions terminatedall Transactions terminated all Transactions terminatedall Transactions terminated all Transactions terminatedall Transactions terminated

(presumption)(presumption) only Affected Transactionsonly Affected Transactions

TERMINATION MECHANICSTERMINATION MECHANICS: : Effect of TerminationEffect of Termination

1992 ISDA Master Reference1992 ISDA Master ReferenceSection 6(c); Page 9Section 6(c); Page 9

1992 ISDA Master Reference1992 ISDA Master ReferenceSection 6(c); Page 9Section 6(c); Page 9

16

Early Termination PaymentEarly Termination PaymentEarly Termination PaymentEarly Termination Payment

ComponentsComponents

SETTLEMENT AMOUNT: net value of amounts SETTLEMENT AMOUNT: net value of amounts (based on Market Quotation or Loss) which would have (based on Market Quotation or Loss) which would have been payable under each Terminated Transaction after been payable under each Terminated Transaction after the Early Termination Date (“ETD”) had there not been the Early Termination Date (“ETD”) had there not been an ETD (this may be owed by or to the determining an ETD (this may be owed by or to the determining party)party)

PlusPlus UNPAID AMOUNTS owed to the determining party UNPAID AMOUNTS owed to the determining party on or before the ETD on or before the ETD

LessLess UNPAID AMOUNTS owed by the determining party UNPAID AMOUNTS owed by the determining party on or before the ETD.on or before the ETD.

ComponentsComponents

SETTLEMENT AMOUNT: net value of amounts SETTLEMENT AMOUNT: net value of amounts (based on Market Quotation or Loss) which would have (based on Market Quotation or Loss) which would have been payable under each Terminated Transaction after been payable under each Terminated Transaction after the Early Termination Date (“ETD”) had there not been the Early Termination Date (“ETD”) had there not been an ETD (this may be owed by or to the determining an ETD (this may be owed by or to the determining party)party)

PlusPlus UNPAID AMOUNTS owed to the determining party UNPAID AMOUNTS owed to the determining party on or before the ETD on or before the ETD

LessLess UNPAID AMOUNTS owed by the determining party UNPAID AMOUNTS owed by the determining party on or before the ETD.on or before the ETD.

17

TimelineTimelineTimelineTimeline

The following diagram gives an example of how certain payments would fall within Unpaid Amounts and how others would fall within Market Quotation where there The following diagram gives an example of how certain payments would fall within Unpaid Amounts and how others would fall within Market Quotation where there are two swaps and Party B is the Defaulting Party.are two swaps and Party B is the Defaulting Party.

ThursdayThursday MondayMonday TuesdayTuesday ThursdayThursday MondayMonday WednesdayWednesday FridayFriday

January 7January 7 January 11January 11 January 12January 12 January 14January 14 February 8February 8 February 10February 10 February 12February 12

Swap 1Swap 1 Party A givesParty A gives Swap 2 Swap 2 Party B’s Party B’s Party A Party A Early TerminationEarly Termination Swap 2Swap 2 Payment Date:Payment Date: notice ofnotice of Payment Date:Payment Date: failure to pay failure to pay designates designates Date. Date. scheduled scheduled Party BParty B failure tofailure to Party A wouldParty A would on January 7on January 7 February 10 February 10 Also Also Swap Swap Payment Date.Payment Date. owes $150,000owes $150,000 Party B.Party B. have owedhave owed becomesbecomes as the Early as the Early 1 Payment Date: 1 Payment Date: Party AParty A and failsand fails $75,000. $75,000. Event ofEvent of Termination Termination Party B owesParty B owes would havewould have to pay.to pay. Default.Default. Date. Date. $100,000.$100,000. owed $75,000.owed $75,000.

The following diagram gives an example of how certain payments would fall within Unpaid Amounts and how others would fall within Market Quotation where there The following diagram gives an example of how certain payments would fall within Unpaid Amounts and how others would fall within Market Quotation where there are two swaps and Party B is the Defaulting Party.are two swaps and Party B is the Defaulting Party.

ThursdayThursday MondayMonday TuesdayTuesday ThursdayThursday MondayMonday WednesdayWednesday FridayFriday

January 7January 7 January 11January 11 January 12January 12 January 14January 14 February 8February 8 February 10February 10 February 12February 12

Swap 1Swap 1 Party A givesParty A gives Swap 2 Swap 2 Party B’s Party B’s Party A Party A Early TerminationEarly Termination Swap 2Swap 2 Payment Date:Payment Date: notice ofnotice of Payment Date:Payment Date: failure to pay failure to pay designates designates Date. Date. scheduled scheduled Party BParty B failure tofailure to Party A wouldParty A would on January 7on January 7 February 10 February 10 Also Also Swap Swap Payment Date.Payment Date. owes $150,000owes $150,000 Party B.Party B. have owedhave owed becomesbecomes as the Early as the Early 1 Payment Date: 1 Payment Date: Party AParty A and failsand fails $75,000. $75,000. Event ofEvent of Termination Termination Party B owesParty B owes would havewould have to pay.to pay. Default.Default. Date. Date. $100,000.$100,000. owed $75,000.owed $75,000.

18

Timeline Timeline (cont’d)(cont’d)Timeline Timeline (cont’d)(cont’d)

Unpaid AmountsUnpaid Amounts

includes amount Party B failed to pay on includes amount Party B failed to pay on January 7.January 7.

includes amount Party A did not have to includes amount Party A did not have to pay on January 12 (failure to satisfy pay on January 12 (failure to satisfy condition precedent that there be no condition precedent that there be no Event of Default or Potential Event of Event of Default or Potential Event of Default).Default).

includes the payment scheduled for includes the payment scheduled for February 10 (would have been payable on February 10 (would have been payable on Early Termination Date).Early Termination Date).

excludes the payment scheduled for excludes the payment scheduled for February 12 even though portion of February 12 even though portion of relevant calculation period has run as of relevant calculation period has run as of Early Termination Date.Early Termination Date.

Unpaid AmountsUnpaid Amounts

includes amount Party B failed to pay on includes amount Party B failed to pay on January 7.January 7.

includes amount Party A did not have to includes amount Party A did not have to pay on January 12 (failure to satisfy pay on January 12 (failure to satisfy condition precedent that there be no condition precedent that there be no Event of Default or Potential Event of Event of Default or Potential Event of Default).Default).

includes the payment scheduled for includes the payment scheduled for February 10 (would have been payable on February 10 (would have been payable on Early Termination Date).Early Termination Date).

excludes the payment scheduled for excludes the payment scheduled for February 12 even though portion of February 12 even though portion of relevant calculation period has run as of relevant calculation period has run as of Early Termination Date.Early Termination Date.

Market QuotationMarket Quotation

includes discounted value of includes discounted value of payment scheduled for February payment scheduled for February 12, as well as replacement 12, as well as replacement value (based on Market value (based on Market Quotations) of all subsequent Quotations) of all subsequent payments due under Swaps 1 payments due under Swaps 1 and 2.and 2.

Market QuotationMarket Quotation

includes discounted value of includes discounted value of payment scheduled for February payment scheduled for February 12, as well as replacement 12, as well as replacement value (based on Market value (based on Market Quotations) of all subsequent Quotations) of all subsequent payments due under Swaps 1 payments due under Swaps 1 and 2.and 2.

19


ComponentsComponents Swap 1Swap 1 Swap 2 Swap 2

Market QuotationMarket Quotation(determined by Party A)(determined by Party A) $1,100,000$1,100,000 ($1,400,000)($1,400,000)

Unpaid AmountsUnpaid Amountspayable to Party Apayable to Party A 150,000 150,000 - -

100,000100,000

Unpaid AmountsUnpaid Amountspayable to Party Bpayable to Party B - - 75,000 75,000

ComponentsComponents Swap 1Swap 1 Swap 2 Swap 2

Market QuotationMarket Quotation(determined by Party A)(determined by Party A) $1,100,000$1,100,000 ($1,400,000)($1,400,000)

Unpaid AmountsUnpaid Amountspayable to Party Apayable to Party A 150,000 150,000 - -

100,000100,000

Unpaid AmountsUnpaid Amountspayable to Party Bpayable to Party B - - 75,000 75,000

20

CalculationCalculation

Sum of Market QuotationsSum of Market Quotations $1,100,000$1,100,000(Settlement Amount)(Settlement Amount) (1,400,000)(1,400,000)

($300,000)($300,000)

PlusPlus Unpaid Amounts payable to Party A Unpaid Amounts payable to Party A 150,000 150,000 100,000100,000

250,000250,000

LessLess Unpaid Amounts payable to Party B Unpaid Amounts payable to Party B (75,000)(75,000) (75,000)(75,000)($125,000)($125,000)

CalculationCalculation

Sum of Market QuotationsSum of Market Quotations $1,100,000$1,100,000(Settlement Amount)(Settlement Amount) (1,400,000)(1,400,000)

($300,000)($300,000)

PlusPlus Unpaid Amounts payable to Party A Unpaid Amounts payable to Party A 150,000 150,000 100,000100,000

250,000250,000

LessLess Unpaid Amounts payable to Party B Unpaid Amounts payable to Party B (75,000)(75,000) (75,000)(75,000)($125,000)($125,000)


21


ResultResultif First Method is chosen:if First Method is chosen: no payment is due no payment is due

to to either partyeither party

if Second Method is chosen:if Second Method is chosen: Party A pays Party A pays $125,000 to $125,000 to Party BParty B

ResultResultif First Method is chosen:if First Method is chosen: no payment is due no payment is due

to to either partyeither party

if Second Method is chosen:if Second Method is chosen: Party A pays Party A pays $125,000 to $125,000 to Party BParty B

22


Possible CombinationsPossible Combinations

Events of DefaultEvents of Default First Method/Market QuotationFirst Method/Market Quotation First Method/LossFirst Method/Loss Second Method/Market QuotationSecond Method/Market Quotation Second Method/LossSecond Method/Loss

Termination EventsTermination Events Market Quotation (One Affected Party)Market Quotation (One Affected Party) Loss (One Affected Party)Loss (One Affected Party) Market Quotation (Two Affected Parties)Market Quotation (Two Affected Parties) Loss (Two Affected Parties)Loss (Two Affected Parties)

Possible CombinationsPossible Combinations

Events of DefaultEvents of Default First Method/Market QuotationFirst Method/Market Quotation First Method/LossFirst Method/Loss Second Method/Market QuotationSecond Method/Market Quotation Second Method/LossSecond Method/Loss

Termination EventsTermination Events Market Quotation (One Affected Party)Market Quotation (One Affected Party) Loss (One Affected Party)Loss (One Affected Party) Market Quotation (Two Affected Parties)Market Quotation (Two Affected Parties) Loss (Two Affected Parties)Loss (Two Affected Parties)

23

...And last but not ...And last but not (necessarily) least:(necessarily) least:...And last but not ...And last but not (necessarily) least:(necessarily) least:

Section 7Section 7 -- TransferTransferSection 8Section 8 -- Contractual CurrencyContractual CurrencySection 9Section 9 -- MiscellaneousMiscellaneousSection 10Section 10 -- MultibranchMultibranchSection 11Section 11 -- ExpensesExpensesSection 12Section 12 -- NoticesNoticesSection 13Section 13 -- Governing LawGoverning LawSection 14Section 14 -- DefinitionsDefinitionsTestimoniumTestimoniumSignature blocksSignature blocks

Section 7Section 7 -- TransferTransferSection 8Section 8 -- Contractual CurrencyContractual CurrencySection 9Section 9 -- MiscellaneousMiscellaneousSection 10Section 10 -- MultibranchMultibranchSection 11Section 11 -- ExpensesExpensesSection 12Section 12 -- NoticesNoticesSection 13Section 13 -- Governing LawGoverning LawSection 14Section 14 -- DefinitionsDefinitionsTestimoniumTestimoniumSignature blocksSignature blocks

24

MultibranchMultibranchMultibranchMultibranch

Party AParty A(Frankfurt)(Frankfurt)

Party AParty A(Frankfurt)(Frankfurt)

Party BParty B(Paris Branch)(Paris Branch)

Party BParty B(Paris Branch)(Paris Branch)

Party BParty B(London (London

Head Office)Head Office)

Party BParty B(London (London

Head Office)Head Office)Swap 1Swap 1Swap 1Swap 1

Swap 2Swap 2Swap 2Swap 2

Documents

International Swaps and Derivatives Association, Inc. Introduction to the 1992 ISDA Master Agreement Nacional Financiera Auditorium - Mexico City May 7,