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JAN 10TH REVIEW SESSION OM/NOS/PCS ===============================
OBJECTIVES
OM NOS 1. Cost of performing services
(50%) (50%) 2. Rules/Responsibilities
3. Market Validation
PCS 4. Commercial
CLEARING FOR NORWEGIAN & SWEDISH MARKET a. Relationships
b. Pro Forma
c. Equalize Capitalization
-------------------------------
Construction of Clearinghouse
- -----------------------------
1. Major focus areas
a. Legal construct of contracts
b. Regulatory approach
(questions exist around what
measure of review or restriction
is applicable to the services & type
of enterprise to be created)
ACTION
Commodities Future Trading Commission (CFTC) [Financial not physical]
FERC [Physical]
ah ha! - way to quickly obtain CFTC approval is to align w/ existing company
who have existing license. - Kansas
- - key lessons learned
- - physical and financial products
[cover majority of expense up front]
[based on margin calculations of risk & placed under Clearing House Control]
- - capitalization
- - type of regulation (governance)
- - are products tradable to everyone
- - investor protection against fraud/risk
- - how to legally possess margin & take control
c. Risk/Clearing Process/Structure -- contingent upon outcome of Legal and
Regulatory elements
Business Rules - how to deal with margin management/credit
- guarantees
- bankruptcy
- insurance & other aspects of risk management
- mutual fund agreement amongst largest customers, etc.
Comment
d. Uncertain whether hardest part is to obtain "clearing" approval or
"trading" approval. One relates to financial rules/regulation where the
other deals w/information to the partners, etc.
e. Clearing rules and procedures -- established based on types of products
and whether financial or physical
2. Once major areas determined -- systems, processes and infrastructure for
services looks much the same between markets
Level Services -- Models in Front of Us
- ---------------------------------------
CAPX 101
Perot Systems 100%
OM Perot Systems CALPX
CLEAR CO > 51% CLEAR CO
-
OM/PCS OM/PSC
FM/EXCLUSIVITY FM
Jan 5th Discussion Points (illegible) Kurt, Born, Ken Ed Page 2 of __
Overview of Points
ALLIANCE
OMT
contracts to:
IP to
PSC -- CLEAR CO
CAPITAL
owned by PSC
COMMERCIAL -
- - upfront: license fee + measure of consulting
- - outgoing: svcs + expertise (participation in % profits
associated w/ transaction or profitability
growth)
PSC Decision Process
- --------------------
1. Clarify intent of parties (branding & speed to market)
2. Business Core
3. Capital Requirement
4. JV - requires HRP approval
5. Capital Committee Review
6. Exit Strategy
Joint Ownership
- ---------------
OMT PSC
Contracts to: Contracts to:
Capital to: Capital to:
CLEAR CO COMMERCIAL -
up front: equalization fee ongoing 50/50 plus
owned jointly - future equalization recognition
- milestones achieved
OM Decision Process
- --------------------
1. Up front payment
2. 50/50 model preferred
3. Exclusive arrangements
4. USA commitment
5. Exit Strategy
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Market Validation Profits (per CEO of NOS)
- -------------------------
1. Deregulated
2. OTC trading happening
3. Financial instruments being used presently versus physical only
[observation - buyer becomes more protected than seller/producer in financial
clearing]
Cost Structures (FRAMEWORK FOR N AMERICA MODEL)
- ---------------
<Table>
<Caption>
Prod & Cost Clearing Settle/ Risk Finance Svc Shared
Services Commercial Acquisitions & Trading Bill Mgmt & Banking Mgmt Svcs
-------- ---------- ------------ --------- ------- ----- ---------- ----- ------
Systems - system
cost
Infrastructure - Banking
Arrangements
(and systems)
People - uncertain
Capital - 3rd Party
Liabilities
(e.g. insurance)
Indirects NORD POOL Dependent upon
(Loaded) 50/50 terms w/banking
systems. Support training
Perot to provide w/computer sys.
manual resources
Morten's 25% 80% 90% 10 ? 100% 90 100
Estimate 75% 20% 10 90 ? handle capital 10 0
--- --- --- --- --- --- --- --- ---
(units) 4 4 3 13* ** * 2 2 3-4
PSC Nordic is Clearing &
OM completely Risk Mgmt
(Norway + Sweden automated #s consolidated
Calif model) no AP/AR
clear @ day
thru bank
in Nordic
Money sits in
cust acct in Bank
but pledged to ClearCo
& immed accessible
</Table>
assumes all bi-laterals
or OTC's come thru exchange
totals 32**
[OM services 60% of costs
approximate is around $6m US direct costs
2m US indirect
? mutual capitalization (statutory)
? counter party risks (capital/insurance)
? systems (internal construct & operations)
? acquisition of CFTC license
? start-up legal; regulatory; arrangements; marketing
? start-up resourcing
? Set up for settlements & banking