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A. General Overview: With the ratification and signing of the Maastricht Treaty, each
participating country has agreed to become a part of an overarching economic jurisdiction
which will issue a single currency, the euro (which will be subdivided into "cents"), to be
used in each participating country. The euro will be issued by a European Central Bank,
whose monetary policies will be implemented through and coordinated with existing
central banks of each participating country. The euro also will replace the Ecu as a unit
of account, with one euro being equal to one Ecu. Monetary union will be accomplished
in a series of stages scheduled to be completed as of January 1, 2002.

B. Current stage:

1. Participating countries have been determined. The 11 initial participants in monetary union
will be: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg,
the Netherlands, Portugal and Spain.

2. Relevant regulations have been adopted by the European Commission. The key regulations
establish the following rules (which, in the case of Article 235 regulations, apply
directly to all countries in the European Union, regardless of whether that country
is a participant in EMU; Article 109l(4) regulations only directly apply to
countries participating in EMU, but may be applied in other countries in the
European Union):

a. Continuity of contract: Introduction of the euro will not:(i) alter any term of any legal
instrument, (ii) discharge or excuse performance under any legal
instrument, or (iii) give a party the right to alter or terminate the legal
instrument.

- V
: As is the case for each of the regulations of the European Commission, there is no
extraterritorial application (regulations only apply within the
European Union). As a result, the issue of continuity of contract
remains open under U.S. law.(Article 235 regulation).

b. No prohibition, no compulsion; conversion rules: See below, under "Transition Period".

(Article 109l(4) regulation).

c. Redenomination of debt: Upon commencement of the transitional period, participating

countries are authorized to redenominate their outstanding debt from their
existing national currency unit to the euro at the official exchange rates
described below. (Article 1091(4) regulation).
d. Netting and set-off: National legal provisions of participating countries which permit or
impose netting or set-off shall apply to the euro and national currency
units as if they were the same currency unit, with conversion
accomplished as described below. (Article 109l(4).

3. Indicative exchange rates of the euro for each participating national currency have been
issued. The anticipated result is that market rates for each currency will converge
towards these projected rates by the end of 1998. The actual conversion rates will
not be determined until the commencement of the transition to the euro; however,
these final rates will be irrevocable.

C. Next stage: the Transitional Period

1. General summary of transition: As of January 1, 1999, the currency of each participating

country will cease to exist as independent currencies. Each national currency will
be replaced by the euro at an official exchange which will be determined as of the
close of business on December 31, 1998. Each national currency unit (an "NCU")
currently issued by participating countries, such as the Deutschemark or the Lira,
will remain legal tender but will exist solely as a denomination of the euro.
NCU's and the euro will exist side-by-side during the transitional period,
scheduled to end as of December 31, 2001.

2. No prohibition, no compulsion: During the transitional period, the euro and NCU's may be
used interchangeably to make payments by "bank money" (i.e., wire transfer): any
amount denominated in either the euro or the NCU of a participating country and
payable within that participating country by crediting an account of the creditor
may be paid by the debtor in either the euro or the relevant NCU, and the amount
shall credited to the account of the creditor in the denomination (either euro or the
relevant NCU) selected by the creditor as the denomination of its account.

- contractual performance: regulations require that contracts which specify performance in an

NCU are in any event to be performed in that NCU, and that contracts
which specify performance in the euro are in any event to be performed in
the euro.

3. Conversion rules: (i) official conversion rates shall be expressed in terms of one euro per the
applicable amount of NCU, (ii) conversion rates shall have six significant figures
and shall not be rounded further when making conversions, (iii) the use of inverse
rates (euros per one NCU) will not be permitted , (iv) conversion from one NCU
into another shall be accomplished by first converting the initial NCU into the
euro (using the rate of one euro per amount of the initial NCU) and then
reconverting from the euro amount to the second NCU amount (using the rate of
one euro per amount of the second NCU), (vi) after conversion, amounts may be
rounded to the nearest euro cent (or, in the case of amounts expressed in an NCU,
to the nearest NCU).
D. Final stage: As of January 1, 2002, NCU's shall no longer be issued. Euro notes and coins
will be introduced and, within six months, NCU's will no longer be accepted as legal
tender.

E. No Exit: The Maastricht Treaty only contemplates entry into EMU; its drafters refused to
contemplate exit from EMU. Thus, although a participating country may become subject
to economic sanctions for failure to comply with required financial criteria, the Treaty
would have to be amended to allow a country to be expelled or legally exit. Any country
which would choose to exit EMU on its own would raise Act of State issues, as well as
other legal issues discussed below.

Ä 
 
 
  

  : The framework for EMU provides a
structure for legal certainty within the European Union. Nonetheless, the nature of this
structure leaves a number of potential issues for consideration under U.S. law.

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A. Continuity of Contract

1. General Summary of the Issue: Would it be possible for a party which is obligated to pay or
receive an NCU to avoid performance of a contractual obligation as a result of
EMU? Legal scholars have framed the following analysis of this issue:

a. The argument for continuity: The legal theory commonly referred to as "nominalism", the
"state theory of money" or "lex monetae" observes that money exists and
has value as a result of the authority of the sovereign nation which issues
and stands behind it. A sovereign nation has the right to decide which
currency will be accepted as a valid monetary obligation under its
jurisdiction. Moreover, since no country is in a position to dictate which
currency should be accepted in another country, the law of the currency
(lex monetae) should determine whether the currency is a legally
acceptable source of monetary value. As a result, any country
participating in EMU should have the legal right to decide to change its
lawfully issued currency from the relevant NCU to the euro.

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b. The sources of uncertainty: There is no explicit legal precedent in the U.S. for lex monetae.
It also is noted that the Uniform Commercial Code treats foreign exchange
transactions as contracts for the sale of goods, rather than as a monetary
obligation. If a court decided that it would not follow lex monetae, could
a party attempt to avoid performance under one of the following
contractual theories: impracticability, impossibility, frustration of purpose,
or indeterminability of price? Similarly, if a contract contains a force
majeure clause, would EMU trigger this provision and thereby entitle a
party to refuse to perform its obligations under that contract?

- Some legal commentators have argued that these concerns are misplaced: performance is
possible because equivalent economic value can be delivered in the
form of the euro and, since unforeseeability is an essential or
relevant element of the excuses to performance, it could be
difficult to successfully argue one of these theories given that
EMU has been forseeable since the signing of the Maastricht
Treaty.

c. Scope: The scope of the issue is significant, since it potentially applies to any
contract or instrument involving the payment of an NCU or the Ecu, or
which is based upon the rate of any such NCU or the Ecu, or any contract
or instrument which calls for the payment of a rate of interest based upon a
local rate source prevailing in a country participating in EMU, or which is
based upon any such rate.

ï 
 : In the event of litigation, there are good arguments in support of continuity of
contract. Nonetheless, given the potential arguments listed above, market
participants in the foreign exchange and derivative markets in the U.S.
expressed a desire for greater certainty.

2. How to address the uncertainty arising from this issue:

1. Legislative approaches: continuity of contract legislation

a. Where applicable: statutes have been enacted in New York, Illinois and California; legislation
is in process in Pennsylvania, Michigan and Indiana.

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b. What the legislation accomplishes: The legislation in each state is substantially the same, with
minor differences. In each case, the legislation:

(i) clearly states and codifies the legal principle that the euro is an acceptable substitute for NCU
or Ecu (including use of the euro as a substitute for
establishing values based upon NCU or Ecu values);

(ii) provides that, if a party has an obligation denominated in an NCU under any contract, that
obligation may be performed either in euro or the original
NCU(but not in any other currency);

(iii) clearly states and codifies the legal principle that the introduction or tendering of the euro, or
use of it in calculating any contractual value, does not give
rise to any unilateral right to alter or terminate a contractual
obligation

(iv) makes it clear that references to the Ecu in a contract will be replaced by the euro, and will
be replaced at the rate of one euro per one Ecu.

c. Scope of contracts covered: in each case, the legislation applies to all contracts (including
contracts which are governed by the UCC).

d. No presumption beyond EMU: The legislation was intended to apply to uncertainty relating to
EMU and (except in Illinois where timing made it impossible to
include a clarifying provision), in the event that a future
arrangement similar to EMU takes effect and legislation is not
adopted, no presumption is created as to continuity of contract.

e. Geographic scope: What happens in jurisdictions where there is no continuity legislation?

Although most master agreements relating to foreign exchange and
derivatives are governed by New York law, what about contracts
which are not governed by such master agreements? Concerns
regarding uncertainty can be addressed on a bilateral or
multilateral basis, as described below. If such additional action
cannot be taken, the existence of legislation in some states should
not create a presumption as to status of the continuity issue in other
states; continuity legislation reflects the desire by market
participants in some to states to obtain clarity; arguments
supporting continuity of contract, as described above, should
remain unaffected.

f. Retroactivity: At least one law firm has argued that the legislation in New York and Illinois
only applies to contracts entered into after the enactment of the
respective statutes. This argument is based upon the statutory
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 construction principle that a statute should not apply retroactively
unless specifically provided for in the statute. Other law firms
have noted that this argument fails to consider other statutory
construction principles: (1) that legislation is retroactive when
there is clear legislative intent, and (2) continuity legislative may
be considered to be remedial legislation which generally have
retroactive application.

- In both New York and Illinois, legislative history indicates the intent to apply to exist contracts
and to preserve the economic value of contracts.
Legislative history also indicates that the statutes were
intended to address uncertainty under existing law and, as a
result, provides a strong basis for viewing the legislation as
remedial and, therefore, retroactive.

- If legislation is retroactive, an additional issue is raised: does the legislation violate the U.S.
Constitution as a taking of property by a state? The better
argument is no, since the intent of the legislation is to
determine a neutral course to preserve the original
economic intent of the parties to the transaction.

2. Contractual provisions (for foreign exchange, derivatives, loan agreements and other
contracts): Clarification also can be accomplished on a bilateral basis by
having both parties to a contract agree to amend the contract to include
appropriate provisions relating to continuity. As an example, ISDA has
prepared a standard clause for use in master agreements or confirmations.
To the extent that a contract is governed by the law of a state where
continuity legislation has been adopted, it should be unnecessary to
include such provisions. Inclusion of such provisions, however, may be
useful for averting any dispute by ensuring that there is a complete
understanding of the implications of EMU by both parties and that there is
no expectation by either party to avoid performance. The problem with
contractual provisions is that, as a practical matter, the volume of
transactions affected by EMU may make it difficult or impossible to
amend all affected contracts. In this regard, the inclusion of a continuity
provision in one contract should not create any presumption due to its
absence in another contract: inclusion of such a provision should only
reflect the practical ability to obtain amendments with certain parties and
the general risk management goal (as opposed to legal requirement) of
diminishing uncertainty where possible.

3. EMU protocol: In order to facilitate agreement as to continuity of contracts, ISDA has

developed a multilateral approach in the form of an EMU protocol.

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a. Issues covered: The protocol comprises a series of annexes which cover the following
matters: continuity of contract, conventions relating to price
sources (see Section IV.A., below), netting (see section III.A.,
below), clarification of defined terms (see, e.g., Section III.B.,
below, regarding issues relating to business day conventions) and
bond options. Each party which signs the protocol agrees to be
bound by the annex or annexes to which it selects.

b. How the protocol operates: The protocol functions on the basis of universal offer and
acceptance. Each party which agrees to be bound by an annex to
the protocol is deemed to have reached agreement with all other
parties which select that annex. A party which signs the protocol
may revoke its participation prior to September 30, 1998; however,
revocation is only effective as to subsequent signatories to the
protocol (i.e., the party remains bound by the protocol with respect
to any other party which signed the protocol prior to the date of
revocation).

- ï 
 : There are effective tools available to address concerns regarding continuity of
contract. In the absence of these tools, good arguments remain as to continuity. It
has been argued that, even if there is continuity of contract, one party to a contract
may be damaged. In order to maintain a damages claim, however, there must be a
sustainable cause of action.

B. "No exit": what happens if a participating country exits or is expelled?

1. Breaking up is hard to do: The legal framework for EMU does not contemplate this
circumstance; it only contemplates penalties for noncompliance with
required financial ratios. As a result, there is no current mechanism for
exiting EMU.

- Nonetheless, it has been suggested that break-up could occur in one of two general manners:
planned break-up (by agreement of the countries which participate
in EMU) and catastrophic break-up (independent action by a
country or countries to cause exit).

- In any event, there may be practical barriers to break-up, such as how to treat euro in the
exiting country, or what would happen to the exiting country's
reserves (up to 50 billion euro) with the European Central Bank.

2. What would be the legal effect of break-up?

- According to the state theory of money, could it be argued that the exiting country would be
entitled to declare that a currency other than the euro is its legal
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 tender, even though that country is a party to a multilateral treaty
which presumes otherwise?

- Contractual issue: what happens if a contract calls for performance in the lawful currency of a
country ? Is euro acceptable? Is the new currency acceptable -- at
what rate?

- Argument: A national currency which exits EMU is a different currency from the national
currency which entered EMU; consequently, all conversions
(including obligations expressed in the old currency unit) must be
accomplished by first converting the old currency unit into the
euro, then reconverting from the euro to the exiting currency unit.

- Practical note: In order to accomplish this result, parties may redenominate their NCU
obligations into euro, thereby requiring re-redenomination
into the exiting currency unit.

3. What happens if break-up occurs prior to January 1, 1999?

- Euro transactions would be impossible to perform if EMU fails to materialize. It is noted that
many contracts currently being entered into for euro already
contain provisions designed to deal with this contingency.

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A. Netting: Legally, as reflected by the regulations of the European Commission, NCUs and the
euro are the same unit of currency and may be netted against each other. In theory, EMU
could result in massive netting event. Although netting is a desirable goal, it may be
unmanageable in this case: in general, parties do not have the systems capability to
monitor the netting of NCUs and the euro.

-Pragmatic approach: Industry convention, as reflected in Annex 3 to the EMU Protocol, is that
there should be no netting of NCUs unless parties expressly agree to
redenominate (convert) into euro. Good practice is that, although not legally
obligated to do so, parties should reconfirm the transaction as redenominated.

B. Settlement: Notwithstanding the occurrence of EMU, what happens to NCU obligations -- do

they continue to settle in that NCU, or should they settle in euro?

1. Industry convention: unless required by a securities depositary or by bilateral agreement to

redenominate (which may result in a need to reconfirm), settlement should
continue in the original NCU agreed to in the contract; caveat: repos involving
debt instruments which are redenominated into euro should settle in euro (need to
reconfirm?)

2. Further issue: What days are business days for settling NCUs?

- The euro has only two official holidays (Christmas; New Years Day); which holidays apply to
NCUs?

- Industry convention and the definition of business day (Annex 4) in the EMU Protocol
accomplish the result that, during the transitional period, NCUs continue
to obey the holiday schedule of the national central bank which issued the
NCU.

C. What happens to transactions involving two different NCUs?

- It might be argued that the purpose of the transaction has been frustrated, since the contract
calls for the delivery of the same item (euro, or a denomination thereof) by each
party.

- A better argument is that the transaction may still be performed, but has simply been
transformed into the economic equivalent of an annuity contract.

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D. Valuation issues:

1. Methodology for quoting prices in NCUs (expressed in terms of a non-EMU currency): The
European Commission's regulations require that any quotation of a rate be
expressed in terms of one euro per NCU and that conversion to a non-EMU
currency be accomplished by triangulation: the non-EMU currency must be
converted into euro; then the euro are converted into NCUs based upon the
official rate of 1 euro per NCU amount.

2. Issues for average rate options and barrier options:

- Use of euro rates: For contracts expressed in NCU, should quotes in NCU or euro be used?
Arguably, there will no longer be a real market for NCU after January 1,
1998. Use of any grey market NCU quote would be hard to justify. For
example industry terms for barrier options require knock-in and knock-out
of the option to occur based upon good faith and commercially reasonable
quotes. It has been that the following practices would be appropriate:

- for barrier options: take the existing NCU-denominated barrier, convert it into euro at the
irrevocable exchange rate and express the result in at least six
significant digits.

- for average rate options: after January 1, 1999, make observations in euro and convert such
observations to the relevant NCU at the official rate and perform
calculations in the manner provided for in the original contract..

- Business Day convention: In order to preserve the intent and economic value of a transaction, it
is suggested that the NCU convention for business days (as opposed to the
euro convention) continue to be used. This also would have the effect of
preserving pre-EMU measurement dates for any average rate option.

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c:Although outside the scope of this
presentation, participants also should be aware of the following additional issues:

A. Price sources for interest rates

1. Which price sources will disappear? Will they be replaced? If so, how?

2. What are satisfactory price source substitutes?

- provisions in existing contracts may provide satisfactory guidelines

- In the absence of such satisfactory guidelines, Annex 2 to the EMU Protocol provides for a
series of fallbacks to determine price based upon reasonably satisfactory
substitute information.

B. Redenomination

1. Which instruments must be redenominated and when

- public debt must be redenominated on January 4, 1999; private debt: no requirement;

discourage redenomination over conversion weekend: equities: exchange
requirements will determine

2. Practical rules for redenomination find can be found in relevant European Commission
regulations regarding issues such as rounding.

C. Renominalization: to be announced by each participating country for public debt; private debt
is not subject to requirements; equities are subject to exchange requirements

- note: if an instrument is renominalized, tax and accounting issues should be analyzed

D. Reconventioning: Changes in day count conventions announced by each participating country

for public debt; private debt is not subject to requirements;

- note: potential effect upon derivative contracts if there is a mismatch between conventions
applying to the derivative contract and physical instrument.
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