PROMISE-A-2000-1 plc - KfW

PROMISE-A-2000-1 plc 

(a company incorporated under the laws of the Republic of Ireland) 

€40,000,000 Class A Floating Rate Credit Linked Notes 

€24,000,000 Class B Floating Rate Credit Linked Notes 

€16,000,000 Class C Floating Rate Credit Linked Notes 

€15,000,000 Class D Floating Rate Credit Linked Notes 

€11,000,000 Class E Floating Rate Credit Linked Notes 

€15,000,000 Class F Floating Rate Credit Linked Notes 

€26,000,000 Class G Floating Rate Credit Linked Notes 

PROMISE-A-2000-1 plc, a public limited company incorporated in the Republic of Ireland with registered number 333835 (the "Issuer"), 

will issue the Class A Floating Rate Credit Linked Notes (the "Class A Notes") in an initial principal amount of €40,000,000, the Class B 

Floating Rate Credit Linked Notes (the "Class B Notes") in an initial principal amount of €24,000,000, the Class C Floating Rate Credit 

Linked Notes (the "Class C Notes") in an initial principal amount of €16,000,000, the Class D Floating Rate Credit Linked Notes (the 

"Class D Notes") in an initial principal amount of €15,000,000, the Class E Floating Rate Credit Linked Notes (the "Class E Notes") in an 

initial principal amount of €11,000,000, the Class F Floating Rate Credit Linked Notes (the "Class F Notes") in an initial principal amount 

of €15,000,000 and the Class G Floating Rate Credit Linked Notes (the "Class G Notes") in an initial principal amount of €26,000,000 

(each a "Class of Notes" and together, the "Notes"). 

The Notes are linked to the performance of a replenishable pool (the "Reference Portfolio") of obligations of certain entities (as further 

described herein, the "Reference Entities") denominated in either euro or Deutsche Mark (as further described herein, the "Reference 

Obligations") arising from certain loans of Bayerische Hypo- und Vereinsbank AG ("HVB") and Vereins- und Westbank AG ("VuW") to 

German small and medium sized enterprises under certain Mittelstand loan programmes established by Kreditanstalt für Wiederaufbau 

("KfW"), Landesanstalt für Aufbaufinanzierung ("LfA"), Deutsche Ausgleichsbank ("DtA"), HVB and VuW (the "Programmes"). KfW, 

LfA and DtA are together referred to herein as the "Programme Banks" and HVB and VuW are together referred to herein as the 

"Banks". Certain characteristics of the initial Reference Obligations are described under "DESCRIPTION OF THE REFERENCE 

PORTFOLIO". The initial aggregate nominal amount of the Reference Portfolio as of 12 December 2000 (the "Cut-off Date") was 

€1,000,000,000 (the "Initial Reference Portfolio Notional Amount"). 

The payment of principal of, and interest on, the Notes is conditional upon the performance of a portfolio of Reference Obligations 

as described herein. There is no certainty that the holder of any Note will receive the full principal amount of the Note or interest 

thereon. The obligations of the Issuer to pay principal of, and interest on, the Notes could be reduced to zero as a result of payment 

obligations incurred by the Issuer in respect of the Reference Obligations. 

The issue by the Issuer of the Notes is a transaction under a securitisation programme established by KfW (the "KfW Securitisation 

Programme") in order to expand KfW’s promotion of small and medium-sized companies (the "Mittelstand") and to support the funding 

of the German Mittelstand through German commercial banks by enabling such banks to achieve additional economic and/or regulatory 

capital relief on their portfolios of loans to the Mittelstand. The KfW Securitisation Programme is to be a standardised platform that can be 

used by German commercial banks to facilitate the efficient transfer of credit risk exposure on their loans to the Mittelstand to the capital 

markets. 

A copy of this Offering Circular and copies of each of the Transaction Documents (as defined herein) have been delivered to the Registrar 

of Companies in Dublin pursuant to Section 47 of the Irish Companies Act 1963. Particulars of the dates of, parties to and general nature of 

each Transaction Document are set out in this Offering Circular. Particulars of the consent of KPMG, Dublin, chartered accountants, to the 

inclusion of their report as set out under the section entitled "THE ISSUER". 

Application has been made to list the Notes on the Luxembourg Stock Exchange. 

(Continued on Page (ii)) 

For a discussion of certain significant factors affecting investments in the Notes, see "RISK FACTORS". 

The date of this Offering Circular is 18 December 2000

The Notes are subject to the terms and conditions of a trust agreement (the "Trust Agreement") to be 

dated on or about 22 December 2000 (the "Closing Date") between, inter alios, the Issuer and KPMG 

Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft (the "Trustee"). 

Concurrently with the issue of the Notes, the Issuer, as protection seller, will enter into a credit swap 

agreement with a proposed initial notional amount of €147,000,000 (the "Credit Swap Agreement") 

with KfW as protection buyer (the "Credit Swap Counterparty"). Pursuant to the Credit Swap 

Agreement, in the event of the satisfaction of the Conditions to Payment (as defined in "MAIN 

PROVISIONS OF THE CREDIT SWAP AGREEMENT") with respect to Impaired Reference 

Obligations (as defined in "SUMMARY – Principal Reductions"), the Issuer will be obliged to make 

Issuer Payments (as defined in "SUMMARY – Principal Reductions") to the Credit Swap Counterparty. 

On each date on which an Issuer Payment is made, the Outstanding Principal Amount of the Notes shall 

be reduced by an amount equal to that Issuer Payment. Any such reduction will be applied to reduce the 

Outstanding Principal Amount of first, the Class G Notes, second, the Class F Notes, third, the Class E 

Notes, fourth, the Class D Notes, fifth, the Class C Notes, sixth, the Class B Notes and seventh, the Class 

A Notes (the "Reverse Order of Seniority"), in each case, pari passu on a pro rata basis within any 

Class of Notes, until the Outstanding Principal Amount of each such Class of Notes is reduced to zero. 

Also concurrently with the issue of the Notes, KfW as protection buyer will enter into a credit swap 

agreement (the "Senior Credit Swap Agreement") with an OECD bank as protection seller. KfW, as 

protection seller will also enter into two credit swap agreements (the "Primary Credit Swap 

Agreements") with HVB as protection buyer (the "Primary Credit Swap Counterparty") and the 

allocation of amounts equal to any Issuer Payments to the Notes shall not be affected by the Primary 

Credit Swap Agreements, the Senior Credit Swap Agreement or the Credit Swap Agreement provided 

that while any amounts are due from the Issuer to the Credit Swap Counterparty under the Credit Swap 

Agreement, the Trustee is required to have regard first, to the interests of the Credit Swap Counterparty, 

second, to the interests of the Noteholders and finally, to the interests of the Trustee and if there is, at any 

time, a conflict between the interests of a Class of Noteholders and any other Class or Classes of 

Noteholders, the Trustee shall have regard first, to the interests of the Class A Noteholders, second, to the 

interests of the Class B Noteholders, third, to the interests of the Class C Noteholders, fourth, to the 

interests of the Class D Noteholders, fifth, to the interests of the Class E Noteholders, sixth, to the 

interests of the Class F Noteholders and seventh, to the interests of the Class G Noteholders, in each case, 

as one Class. See "THE TRUST AGREEMENT". 

Interest on the Notes will be payable on 28 May 2001 and, thereafter, quarterly in arrear on the 28 th day of 

February, May, August and November in each year, subject to adjustment for non-Business Days as 

further described herein (each such date, an "Interest Payment Date"). Interest will accrue on the Note 

Outstanding Principal Amount (as defined in "SUMMARY – Outstanding Principal Amount"), in respect 

of the first Interest Payment Date, from, and including, 22 December 2000 (the "Issue Date") and to, but 

excluding, the first Interest Payment Date and, in respect of any subsequent Interest Payment Date, from, 

and including, the immediately preceding Interest Payment Date and to, but excluding, such Interest 

Payment Date at a rate equal to EURIBOR as determined on each Interest Determination Date (each as 

defined in "TERMS AND CONDITIONS OF THE NOTES – Condition 5 Interest") plus, in respect of 

the Class A Notes, 0.32 per cent. per annum, in respect of the Class B Notes, 0.50 per cent. per annum, in 

respect of the Class C Notes, 0.70 per cent. per annum, in respect of the Class D Notes 1.45 per cent. per 

annum, in respect of the Class E Notes, 3.70 per cent. per annum, in respect of the Class F Notes, 7.00 per 

cent. per annum and, in respect of the Class G Notes, 10.00 per cent. per annum. 

Unless redeemed earlier or reduced to zero as described herein, the Notes will be redeemed on the Interest 

Payment Date falling in February 2009 (the "Scheduled Maturity Date") provided that if any Impaired 

Reference Obligations are in their Determination Period (each as defined herein) as at such date, the 

Notes may remain outstanding until the Interest Payment Date falling in February 2011 and payments of 

principal will be made on such Notes on each Interest Payment Date after the Scheduled Maturity Date up 

(ii)

to, and including, the Final Maturity Date as described herein. See "TERMS AND CONDITIONS OF 

THE NOTES". 

The Notes are governed by the laws of the Federal Republic of Germany. 

Each Class of Notes will be initially represented by a temporary global note in bearer form (the 

"Temporary Global Note") without interest coupons attached. The Temporary Global Note for each 

Class of Notes will be exchangeable, as described herein for a permanent global note in bearer form 

representing such Class of Notes (the "Permanent Global Note") without interest coupons attached. 

Each of the Permanent Global Notes and the Temporary Global Notes is referred to herein as the "Global 

Note". 

The Temporary Global Notes will be deposited with Clearstream Banking AG, Frankfurt am Main 

("Clearstream Frankfurt") on or before the Issue Date. The Permanent Global Notes will be deposited 

with Clearstream Frankfurt on the Exchange Date (as defined herein) in exchange for the Temporary 

Global Notes. The Notes may be transferred in book-entry form only and in minimum denominations of € 

100,000 for each Class of Notes. The Global Notes will not be exchangeable for definitive securities. 

Clearstream Frankfurt will hold the Global Notes in custody for financial institutions that are 

accountholders in Clearstream Frankfurt (the "Clearstream Frankfurt Accountholders"), including 

such Notes which are held through the operator of the Euroclear System (" Euroclear") and Clearstream 

Banking, société anonyme ("Clearstream Luxembourg"), each of which has an account with 

Clearstream Frankfurt. 

Payments with respect to the Notes will be made by the Issuer in euro and without deduction of 

withholding taxes, unless otherwise required by law. 

The Notes will not provide for gross-up payments in the case that interest payable under the Notes 

is or becomes subject to income taxes (including withholding taxes) or taxes on capital. 

Nevertheless, the Issuer will be entitled to redeem all of the Notes if withholding or deduction for taxes is 

required with respect to payments on the Notes. See "TERMS AND CONDITIONS OF THE NOTES - 

Condition 8 Mandatory Early Redemption". 

THE NOTES REPRESENT OBLIGATIONS OF THE ISSUER ONLY, AND DO NOT 

REPRESENT AN INTEREST IN, OR OBLIGATION OF, ANY REFERENCE ENTITY, THE 

TRUSTEE, EITHER BANK, ANY PROGRAMME BANK, THE CREDIT SWAP 

COUNTERPARTY OR ANY OF THEIR RESPECTIVE AFFILIATES OR ANY OTHER THIRD 

PERSON OR ENTITY. THE NOTES WILL NOT BE INSURED OR GUARANTEED BY ANY 

GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY EITHER BANK, ANY 

PROGRAMME BANK, THE CREDIT SWAP COUNTERPARTY, THE TRUSTEE OR ANY OF 

THEIR RESPECTIVE AFFILIATES OR BY ANY OTHER PERSON OR ENTITY. 

The Class A Notes, the Class B Notes, the Class C Notes, the Class D Notes, the Class E Notes and the 

Class F Notes (together the "Rated Notes") are expected to be rated by Fitch Ratings, Ltd. (" Fitch") and 

the Class A Notes, the Class B Notes, the Class C Notes, the Class D Notes and the Class E Notes are 

expected to be rated by Moody's Investors Service Limited (" Moody's") (together the "Relevant Rating 

Agencies"). The Rated Notes are expected the following ratings from the Relevant Rating Agencies: 

Class Fitch Moody’s 

A AAA Aaa 

B AA Aa2 

C A A2 

D BBB Baa2 

(iii)

E BB Ba2 

F B- NR 

A security rating is not a recommendation to buy, sell or hold securities and may be subject to 

revision or withdrawal by the Relevant Rating Agencies at any time. See "RATING". 

The proceeds of the Class A Notes, Class B Notes, Class C Notes, Class D Notes, the Class E Notes and 

the Class F Notes will be used by the Issuer to purchase a portfolio of medium-term notes issued by KfW. 

On the Closing Date, the initial principal amount of such securities will equal the aggregate Initial 

Principal Amount of the Class A Notes, the Class B Notes, the Class C Notes, the Class D Notes, the 

Class E Notes and the Class F Notes, subject to reduction thereafter as described herein. The proceeds of 

the Class G Notes will be invested in an interest bearing account ("Issuer Cash Account") in the name of 

the Issuer with KfW (the " Issuer Cash Account Bank"). 

As security for the obligations of the Issuer to the Trustee for and on behalf of itself, the Credit Swap 

Counterparty and the holders of the Notes (together, the "Secured Parties"), the Issuer will transfer to the 

Trustee for the benefit of the Secured Parties (other than the Credit Swap Counterparty) pursuant to (a) 

the Trust Agreement, by way of security, the Issuer's rights, title and benefits (i) in and to the KfW 

Securities (as defined in "SUMMARY – Collateral") (Sicherungsübereignung) and the Issuer Cash 

Account (Sicherungsabtretung), (ii) against the Credit Swap Counterparty and the Custodian (as defined 

in "SUMMARY - Custodian") for the release of the KfW Securities and the Issuer Cash Account from the 

pledges initially created by the Issuer in favour of the Credit Swap Counterparty upon satisfaction of the 

Issuer's obligations under the Credit Swap Agreement and (iii) against the Administrator under the 

Administration Agreement (each as defined in "SUMMARY") and (b) an account pledge agreement 

dated on or about the Closing Date between the Issuer and the Trustee (the "Account Pledge 

Agreement"), by way of a pledge over the Issuer's rights in and to the Issuer Operating Account (as 

defined in "SUMMARY – Application of Proceeds") and all monies from time to time credited thereto 

and interest accrued thereon (together, the "Issuer Collateral"). The Credit Swap Counterparty will have 

the benefit of first priority pledges over the KfW Securities and over the Issuer Cash Account and all 

monies from time to time credited thereto and interest accrued thereon, in each case, as security for the 

Issuer's obligations under the Credit Swap Agreement (together, the "KfW Collateral") which will rank 

in priority to the rights of the Noteholders in the event of the enforcement of the Issuer Collateral and the 

KfW Collateral. 

THE NOTES ARE DIRECT, SECURED, UNSUBORDINATED AND LIMITED RECOURSE 

OBLIGATIONS OF THE ISSUER, PAYABLE SOLELY OUT OF THE FUNDS AVAILABLE TO 

THE ISSUER TO THE EXTENT DESCRIBED HEREIN. 

THE ISSUER'S PAYMENT OBLIGATIONS IN RESPECT OF THE NOTES ARE SUBJECT TO 

THE PRIOR CLAIMS OF THE CREDIT SWAP COUNTERPARTY UNDER THE CREDIT 

SWAP AGREEMENT. SUCH PRIOR CLAIMS HAVE THE BENEFIT OF COLLATERAL 

PROVIDED BY THE ISSUER WHICH RANKS IN PRIORITY TO THE COLLATERAL 

PROVIDED FOR THE NOTEHOLDERS. 

UPON ENFORCEMENT OF THE COLLATERAL HELD OR ADMINISTERED BY THE 

TRUSTEE, THE AMOUNTS AVAILABLE TO THE ISSUER WILL BE LIMITED TO THE 

PROCEEDS REALISED BY SUCH ENFORCEMENT AND AVAILABLE FOR PAYMENT 

UNDER THE NOTES AS DESCRIBED HEREIN. ACCORDINGLY, HOLDERS OF THE 

NOTES WILL BE EXPOSED TO THE CREDIT RISKS OF THE REFERENCE OBLIGATIONS 

AND THE REFERENCE ENTITIES TO THE FULL EXTENT OF THEIR INVESTMENT IN 

THE NOTES BUT WILL NOT ACQUIRE ANY RIGHTS OR RECOURSE AGAINST ANY OF 

THE REFERENCE ENTITIES, THE REFERENCE OBLIGATIONS, EITHER BANK, ANY 

(iv)

PROGRAMME BANK OR THE CREDIT SWAP COUNTERPARTY OR ANY OF THEIR 

RESPECTIVE AFFILIATES OR ANY OTHER THIRD PERSON OR ENTITY. 

The Issuer has not been and will not be registered under the United States Investment Company Act of 

1940, as amended (the "Investment Company Act"). The Notes have not been, and will not be, 

registered under the United States Securities Act of 1933, as amended (the "Securities Act"). 

Consequently, the Notes may not be offered, sold, resold, delivered or transferred within the United States 

to, or for the account or benefit of, U.S. persons (as defined in Regulation S under the Securities Act), 

except in accordance with the Securities Act or an exemption therefrom or in a transaction not subject to 

the registration requirements of the Securities Act and under circumstances designed to preclude the 

Issuer from having to register under the Investment Company Act. For a description of certain further 

restrictions on offers and sales of the Notes and distribution of this Offering Circular, see 

"SUBSCRIPTION AND SALE" below. 

THE NOTES HAVE NOT BEEN RECOMMENDED BY THE UNITED STATES SECURITIES 

AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY 

OTHER REGULATORY AUTHORITY, NOR HAS ANY OF THE FOREGOING 

AUTHORITIES PASSED UPON THE ACCURACY OR ADEQUACY OF THIS OFFERING 

CIRCULAR. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENCE. 

The Issuer accepts responsibility for the information contained in this Offering Circular other than the 

HVB Information and the KfW Information (each as defined below). To the best of the knowledge and 

belief of the Issuer (which has taken all reasonable care to ensure that such is the case), the information 

contained in this Offering Circular is in accordance with the facts and does not omit anything likely to 

affect the import of such information. HVB accepts responsibility for the information contained in the 

Offering Circular relating to the Banks, which is set out in "BAYERISCHE HYPO- UND 

VEREINSBANK AG AND THE HVB GROUP" (the "HVB Information"). To the best of the 

knowledge and belief of HVB (which has taken all reasonable care to ensure that such is the case), the 

HVB Information is in accordance with the facts and does not omit anything likely to affect the import of 

such information. KfW accepts responsibility for the information contained in the Offering Circular 

relating to KfW which is set out in "KREDITANSTALT FÜR WIEDERAUFBAU" (the "KfW 

Information"). To the best of the knowledge and belief of KfW (which has taken all reasonable care to 

ensure that such is the case), the KfW Information is in accordance with the facts and does not omit 

anything likely to affect the import of such information. 

The Issuer is not a collective investment scheme authorised, supervised or otherwise regulated by the 

Central Bank of Ireland or any other regulatory authority in Ireland and, accordingly, neither this Offering 

Circular nor any of the contracts or documents referred to herein are subject to review or approval by the 

Central Bank of Ireland or by any other regulatory authority in Ireland. The Notes may not lawfully be 

offered for sale to persons in Ireland except in circumstances where such offer constitutes an "offer" as 

described in Article 2 of Council Directive No. 89/298/EEC of 17 April 1989. 

No person has been authorised to give any information or to make any representations, other than those 

contained in this Offering Circular, in connection with the issue and sale of the Notes and, if given or 

made, such information or representations must not be relied upon as having been authorised by the 

Issuer, directors of the Issuer, the Trustee, either Bank, any Programme Bank, the Credit Swap 

Counterparty, the Servicer or Bayerische Hypo- und Vereinsbank AG as manager (the "Manager"). 

Neither the delivery of this Offering Circular nor the offering, sale or delivery of any Notes shall in any 

circumstances, create any implication that the information contained in this Offering Circular is true 

subsequent to the date upon which this Offering Circular has been most recently amended or 

supplemented or that there has been no material adverse change in the financial situation of the Issuer or 

(v)

with respect to the Reference Portfolio as at the Cut-off Date since the date thereof or, as the case may 

be, the date upon which this Offering Circular has been most recently amended or supplemented or the 

balance sheet date of the most recent financial statements which are deemed to be incorporated into this 

Offering Circular by reference or that any other information supplied in connection with the issue of the 

Notes is correct at any time subsequent to the date on which it is supplied or, if different, the date 

indicated in the document containing the same. 

The distribution of this Offering Circular (or of any part hereof) and the offering of the Notes in certain 

jurisdictions may be restricted by law. Persons into whose possession this Offering Circular (or any part 

hereof) comes are required by the Issuer and the Manager to inform themselves about and to observe any 

such restrictions. This Offering Circular does not constitute, and may not be used for, or in connection 

with, an offer or solicitation by anyone in any jurisdiction in which such offer or solicitation is not 

authorised or to any person to whom it is unlawful to make such offer or solicitation. For a further 

description of certain restrictions on offerings and sales of the Notes and distribution of this Offering 

Circular (or any part hereof), see "SUBSCRIPTION AND SALE" . 

In this Offering Circular, references to "EUR" or "€" are to the single currency which was introduced in 

the Republic of Ireland (" Ireland") and the Federal Republic of Germany (" Germany") as of January 1, 

1999. References to "Irish punt" or "IEP" are to the former national currency unit of Ireland, which 

continues to be legal tender therein but as a non-decimal sub-unit of the euro, references to "Deutsche 

Mark", "DM" or "DEM" are to the former national currency unit of Germany, which continues to be 

legal tender therein but as a non-decimal sub-unit of the euro. See "EXCHANGE RATE AND 

CURRENCY INFORMATION". 

Each person receiving this Offering Circular shall be deemed to acknowledge that (a) such person has 

been afforded an opportunity to request from the Issuer, and to review, and has received, all additional 

information which it considers to be necessary to verify the accuracy and completeness of the information 

herein, (b) such person has not relied on the Manager or any person affiliated with the Manager in 

connection with its investigation of the accuracy of such information or its investment decision, and (c) 

except as provided pursuant to paragraph (a) above, no person has been authorised to give any 

information or to make any representation concerning the Notes offered hereby except as contained in this 

Offering Circular, and, if given or made, such other information or representation should not be relied 

upon as having been authorised by the Issuer or the Manager. 

IN CONNECTION WITH THE ISSUE OF THE NOTES, BAYERISCHE HYPO- UND 

VEREINSBANK AG MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILISE 

OR MAINTAIN THE MARKET PRICE OF THE NOTES AT A LEVEL WHICH MIGHT NOT 

OTHERWISE PREVAIL. SUCH STABILISING, IF COMMENCED, MAY BE DISCONTINUED 

AT ANY TIME. 

This Offering Circular contains summaries believed to be accurate with respect to certain terms of certain 

documents, and such summaries are qualified in their entirety by reference to such documents. The 

contents of this Offering Circular are not to be construed as legal, business or tax advice. 

(vi)

Info-Memo_HVB.2000.doc 

TABLE OF CONTENTS 

1. TRANSACTION DIAGRAM .................................................................................................................... 1 

2. DOCUMENTS INCORPORATED BY REFERENCE......................................................................... 2 

3. EXCHANGE RATE AND CURRENCY INFORMATION................................................................. 3 

4. SUMMARY.................................................................................................................................................... 4 

5. RISK FACTORS......................................................................................................................................... 20 

6. USE OF PROCEEDS ................................................................................................................................. 27 

7. TERMS AND CONDITIONS OF THE NOTES .................................................................................. 28 

8. THE TRUST AGREEMENT.................................................................................................................... 55 

9. THE COLLATERAL................................................................................................................................. 90 

10. MAIN PROVISIONS OF THE CREDIT SWAP AGREEMENT..................................................... 93 

11. DESCRIPTION OF THE REFERENCE PORTFOLIO....................................................................... 99 

12. REFERENCE PORTFOLIO SERVICING...........................................................................................111 

13. THE ISSUER.............................................................................................................................................116 

14. BAYERISCHE HYPO- UND VEREINSBANK AG AND THE HVB GROUP..........................125 

15. KREDITANSTALT FÜR WIEDERAUFBAU...................................................................................165 

16. THE TRUSTEE.........................................................................................................................................166 

17. RATING......................................................................................................................................................167 

18. TAXATION...............................................................................................................................................168 

19. SUBSCRIPTION AND SALE................................................................................................................174 

20. GENERAL INFORMATION.................................................................................................................178

Notional 

Portfolio of 

Reference 

Obligations 

originated by 

the Banks 

1. TRANSACTION DIAGRAM 

--------- 

HVB 

1 Issue Proceeds 

2 Interest and Principal 

3 Credit Swap Counterparty Payments 

4 Issuer Payments 

5 

KfW 

5 Sale of KfW Securities 

6 Purchase of KfW Securities (from proceeds of Class A-F Notes) 

7 Pledge of KfW Securities and Issuer Cash Account (proceeds of Class G Notes) for the benefit of 

KfW 

8 Senior CDS Payments 

9 Party B Payments under Senior Credit Swap Agreement 

10 Party A Payments under Primary Credit Swap Agreements 

11 Party B Payments under Primary Credit Swap Agreements 

11 

10 

6 

1 

9 

8 

4 

3 

7 

Senior Credit Swap 

Counterparty 

Promise-A- 

2000-1 plc 

1 

2 

Investors 

Class A Notes 

Class B Notes 

Class C Notes 

Class D Notes 

Class E Notes 

Class F Notes 

Class G Notes

2. DOCUMENTS INCORPORATED BY REFERENCE 

The following documents shall be deemed to be incorporated in, and form part of, this Offering Circular: 

(1) the most recently published unaudited interim financial statements of HVB and its consolidated 

subsidiaries (the "HVB Group") and audited annual financial statements of HVB and the HVB 

Group, from time to time; 

(2) the most recently published annual report of HVB in the English language, from time to time; 

(3) the most recently published annual report of KfW in the English language, from time to time; 

and 

(4) the consent letter of KPMG, chartered accountants, relating to the inclusion of their report in the 

accountant's report in the section entitled "PROMISE -A- 2000-1 plc", 

except that any statements contained herein or in the documents referred to in paragraph (1) or (2) above 

shall be deemed to be modified or superseded for the purpose of this Offering Circular to the extent that a 

statement contained in any such subsequent document modifies or supersedes such statement. HVB 

currently publishes an unaudited quarterly consolidated balance sheet and consolidated income statement 

of the HVB Group. 

Copies of all documents incorporated by reference herein will be available free of charge at the registered 

office of the Issuer at 30 Herbert Street, Dublin 2, Ireland and at the offices of Deutsche Bank 

Aktiengesellschaft as Principal Paying Agent at Grosse Gallusstrasse 10-14, D-60272 Frankfurt am Main, 

Germany and Deutsche Bank Luxembourg S.A. as Luxembourg Paying Agent at 2 Boulevard Konrad 

Adenauer, L-1115 Luxembourg. The Issuer was incorporated on 12 October 2000. 

2

3. EXCHANGE RATE AND CURRENCY INFORMATION 

As contemplated by the Treaty on the European Union (the "Maastricht Treaty"), to which each of 

Germany and Ireland is a signatory, on 1 January 1999 the third stage of Economic and Monetary Union 

(" EMU") started and the single unified currency, the euro, became the legal currency for eleven member 

states of the European Union (" EU"), including Germany and Ireland, both of which fulfilled the 

necessary convergence criteria for adoption of the euro set out pursuant to the Maastricht Treaty. During a 

transitional period between 1 January 1999 and 31 December 2001, and for a maximum period of six 

months thereafter, the former national currencies of the member states participating in EMU will continue 

to be legal tender in their respective states of issue, but as non-decimal sub-units of the euro. The fixed 

rate of exchange between the euro and the Irish punt is 0.787564 to €1 and between the euro and the 

Deutsche Mark is 1.95583 to €1. 

Exchange Controls 

There are, except in limited embargo circumstances, no legal restrictions in Germany or Ireland on 

international capital movements and foreign exchange transactions. However, for statistical purposes 

only, every individual or corporation residing in Germany must report to Deutsche Bundesbank, subject 

to certain exceptions, any payment received from or made to an individual or a corporation resident 

outside of Germany if such payment exceeds DEM5,000 (approximately €2,556.46, or the equivalent in a 

foreign currency). 

3

4. SUMMARY 

The following summary is qualified in its entirety by reference to the detailed information appearing 

elsewhere in this Offering Circular. 

Issuer PROMISE-A-2000-1 plc, a public limited company incorporated under the laws 

of Ireland with registered number 333835 and with its registered office at 30 

Herbert Street, Dublin 2, Ireland. See "THE ISSUER". 

Banks Bayerische Hypo- und Vereinsbank AG (" HVB") and Vereins- und Westbank AG 

("VuW"). See "BAYERISCHE HYPO- UND VEREINSBANK AG AND THE 

HVB GROUP". 

Servicer HVB and VuW, acting through HVB's division "FCP-3: Corporate Banking 

Portfolio Management and Capital Allocation". See "REFERENCE PORTFOLIO 

SERVICING". 

Trustee KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft 

Wirtschaftsprüfungsgesellschaft acting through its principal office at Marie-Curie- 

Str. 30, D-60439 Frankfurt am Main, Germany. See "THE TRUSTEE". 

Principal Paying Agent Deutsche Bank Aktiengesellschaft, acting through its office at Grosse 

Luxembourg Paying 

Agent 

Interest Determination 

Agent 

Credit Swap 

Counterparty 

Gallusstrasse 10-14, D-60272 Frankfurt am Main, Germany ("DBAG"). 

Deutsche Bank Luxembourg S.A., acting through its principal office at 2 

Boulevard Konrad Adenauer, L-1115 Luxembourg ("DBLSA"). 

DBAG. 

KfW. See "KREDITANSTALT FÜR WIEDERAUFBAU" and "MAIN 

PROVISIONS OF THE CREDIT SWAP AGREEMENT". 

Custodian HVB. See " BAYERISCHE HYPO- UND VEREINSBANK AG AND THE HVB 

GROUP" and "MAIN PROVISIONS OF THE CUSTODY AGREEMENT". 

Trustee Custodian DBLSA. See "THE TRUST AGREEMENT". 

Administrator Deutsche International Corporate Services (Ireland) Limited, acting through its 

principal office at George's Dock House, International Financial Services Centre, 

Issuer Cash Account 

Bank 

Issuer Operating 

Account Bank 

Corporate Services 

Provider 

Dublin 1, Ireland. 

KfW. See "KREDITANSTALT FÜR WIEDERAUFBAU" and "THE 

COLLATERAL". 

DBLSA. See "THE COLLATERAL". 

Matsack Trust Limited. 

Closing Date 22 December 2000 

4

Issue Date 22 December 2000. 

The Notes The Class A Notes, the Class B Notes, the Class C Notes, the Class D Notes, the 

Class E Notes, the Class F Notes and the Class G Notes are credit linked to a 

replenishable Reference Portfolio (as defined herein) of certain Reference 

Obligations (as defined herein) of certain Reference Entities (as defined herein), 

denominated in either euro or Deutsche Mark, arising from certain loans by the 

Banks to small and medium sized enterprises under certain Mittelstand loan 

programmes (the "Programmes") established by Kreditanstalt für Wiederaufbau 

("KfW"), Landesanstalt für Aufbaufinanzierung ("LfA"), Deutsche 

Ausgleichsbank ("DtA", and together with KfW and LfA, the "Programme 

Banks") and HVB and VuW (the "Banks") which satisfy specified criteria. See 

"TERMS AND CONDITIONS OF THE NOTES". 

The Notes will have an aggregate initial principal amount of €147,000,000 and 

each Class of Notes will have the initial principal amount (the "Initial Principal 

Amount") indicated in the table below: 

5 

Initial Principal Amount 

(€) 

Class A Notes ..................................................... 40,000,000 

Class B Notes...................................................... 24,000,000 

Class C Notes...................................................... 16,000,000 

Class D Notes ..................................................... 15,000,000 

Class E Notes ...................................................... 11,000,000 

Class F Notes ...................................................... 15,000,000 

Class G Notes ..................................................... 26,000,000 

Aggregate Initial Principal Amount 147,000,000 

The Notes will be issued on the terms and conditions set forth in, and have the 

benefit of, the trust agreement to be entered into on or about the Closing Date (as 

amended, supplemented or otherwise modified from time to time, the "Trust 

Agreement") between, inter alios, the Issuer, the Trustee, the Servicer and the 

Credit Swap Counterparty. See "THE TRUST AGREEMENT". 

Each of the Class A Notes, the Class B Notes, the Class C Notes, the Class D 

Notes, the Class E Notes, the Class F Notes and the Class G Notes is referred to as 

a "Class" or a "Class of Notes." 

Accrual of Interest Interest will accrue on the Note Outstanding Principal Amount (as defined herein), 

in respect of the first Interest Payment Date, from, and including, the Issue Date 

to, but excluding, the first Interest Payment Date and, in respect of any subsequent 

Interest Payment Date, from, and including, the immediately preceding Interest 

Payment Date and to, but excluding, such Interest Payment Date (each an 

"Interest Period"). 

Payment of Interest Interest accrued during the applicable Interest Period on each Class of Notes at the 

per annum rate indicated on the cover page hereof will be payable on each Interest 

Payment Date as described herein, each such amount is referred to herein as an 

"Interest Amount". See "TERMS AND CONDITIONS OF THE NOTES –

Sources of Interest 

Payments 

Condition 5 Interest". 

Interest on the Notes will be paid from the collateral income, comprising interest 

income (if any) received by the Issuer on the KfW Securities and the credit 

balance (if any) on the Issuer Cash Account (each as defined in "Use of Proceeds" 

below) and amounts received by the Issuer from the Credit Swap Counterparty as 

Credit Swap Counterparty Payments (as defined in "Credit Swap Agreement" 

below) under the Credit Swap Agreement (the “Collateral Income”). 

Interest Payment Dates Payments of interest on the Notes will be made to the Noteholders on 28 May 

2001 and, thereafter, quarterly in arrear on the 28 th day of February, May, August 

and November in each calendar year or, if any such day is not a Business Day (as 

defined in "TERMS AND CONDITIONS OF THE NOTES – Condition 4.3 

Business Days"), the next succeeding day which is a Business Day, unless that day 

falls in the next month, in which case the date will be the preceding Business Day 

(each such date, an "Interest Payment Date" or a "Payment Date"). 

Form and Denomination Each of the Class A Notes, the Class B Notes, the Class C Notes, the Class D 

Notes, the Class E Notes, the Class F Notes and the Class G Notes will be initially 

Scheduled Maturity and 

Final Maturity 

represented by a Temporary Global Note which will be exchangeable for a 

Permanent Global Note representing the relevant Class of Notes, as described 

herein. The Notes represented by Global Notes may be transferred in book-entry 

form only. Each of the Class A Notes, the Class B Notes, the Class C Notes, the 

Class D Notes, the Class E Notes, the Class F Notes and the Class G Notes will be 

issued in denominations of €100,000. The Global Notes representing the Notes 

will not be exchangeable for definitive securities. Clearstream Frankfurt will hold 

the Global Notes for Clearstream Frankfurt Accountholders, including for the 

account of the operator of Euroclear and Clearstream Luxembourg, each of which 

is a Clearstream Frankfurt Accountholder. 

Unless redeemed earlier or reduced to zero as described herein, the Notes will be 

redeemed at their then prevailing Note Outstanding Principal Amount (as defined 

in "Outstanding Principal Amount" below) on the Interest Payment Date falling in 

February 2009 (the "Scheduled Maturity Date" provided that if any Impaired 

Reference Obligations are in their Determination Period or the Final Value (each 

as defined in "Principal Reductions" below) in respect thereof has not been 

verified in accordance with the Trust Agreement as at such date, the Notes may 

remain outstanding until the Interest Payment Date falling in February 2011 (the 

"Final Maturity Date") and payments of principal will be made on such Notes on 

each Interest Payment Date after the Scheduled Maturity Date up to, and 

including, the Final Maturity Date (each a "Principal Payment Date"). See 

"TERMS AND CONDITIONS OF THE NOTES". 

Use of Proceeds The net proceeds of the Class A Notes, the Class B Notes, the Class C Notes, the 

Class D Notes, the Class E Notes and the Class F Notes will be used by the Issuer 

to purchase a portfolio of KfW Securities (as defined below). On the Issue Date, 

the aggregate principal amount of the KfW Securities will equal the aggregate 

Initial Principal Amount of the Class A Notes, the Class B Notes, the Class C 

Notes, the Class D Notes, the Class E Notes and the Class F Notes, subject to 

reduction thereafter as described herein. The proceeds of the Class G Notes will be 

invested in the Issuer Cash Account (as defined in the cover page (ii) hereof). 

6

"KfW Securities" means the €121,000,000 floating rate medium term notes 

(Inhaberschuldverschreibungen), divided in six series governed by German law, 

(the aggregate nominal amount of each of the series reflecting the initial aggregate 

nominal amount of the Class A Notes, the Class B Notes, the Class C Notes, the 

Class D Notes, the Class E Notes and the Class F Notes) and issued by KfW under 

the €25,000,000,000 KfW Note Programme which are represented by global 

certificates deposited with Clearstream Frankfurt and each note thereunder is in 

the denomination of €100,000 and has its maturity on the Scheduled Maturity 

Date. See "THE TRUST AGREEMENT" and "THE COLLATERAL ". 

Credit Swap Agreement The Issuer will enter into a credit default swap with the Credit Swap Counterparty 

pursuant to a 1992 ISDA Master Agreement (Multicurrency – Cross Border) and 

Schedule, together with a credit default swap confirmation (the "Credit Swap 

Agreement"). The Issuer will be obliged to make an Issuer Payment (as defined in 

"Principal Reductions" below) to the Credit Swap Counterparty following 

satisfaction of certain Conditions to Payment (as defined in "MAIN 

PROVISIONS OF THE CREDIT SWAP AGREEMENT") in relation to a 

Reference Entity or Reference Obligation (each as defined in "Reference 

Portfolio" below), as the case may be. 

On each Payment Date, the Credit Swap Counterparty shall pay to the Issuer an 

amount equal to the sum of the aggregate Interest Amount due in respect of the 

Notes as at such Payment Date, the Issuer Fees and the Issuer Expenses (each as 

defined in "TERMS AND CONDITIONS OF THE NOTES – Condition 5.8 

Payments of Interest") due in respect of the relevant Interest Period less the 

Collateral Income in respect of the relevant Interest Period (each a "Credit Swap 

Counterparty Payment"). See "MAIN PROVISIONS OF THE CREDIT SWAP 

AGREEMENT". 

Trust Agreement Pursuant to the Trust Agreement between, inter alios, the Trustee and the Issuer, 

the Trustee shall inter alia (a) hold and administer the Issuer Collateral (as defined 

herein) for the benefit of the Secured Parties, (b) administer the KfW Collateral 

(as defined in "Collateral" below) for the benefit of the Credit Swap Counterparty, 

(c) verify the Final Values of Impaired Reference Obligations (each as defined in 

"Principal Reductions" below), Settlement Amounts, Issuer Payments and the 

allocation of amounts equal thereto towards the reduction of the Outstanding 

Principal Amount of the Notes and (d) supervise and verify determinations and 

calculations of the Servicer and the Administrator and other actions of the Issuer 

and the Administrator in connection with the Notes and the Swap Agreements (as 

defined below). See "THE TRUST AGREEMENT" and "THE COLLATERAL". 

"Accrued Settlement Amount" means, in respect of any Interest Payment Date, 

the aggregate Settlement Amounts (as defined in "Principal Reductions" below) in 

respect of which the calculation thereof has been verified by the Verification 

Agent (as defined herein) at least 2 Business Days prior to such Interest Payment 

Date and (save in respect of the first Interest Payment Date) after the date falling 2 

Business Days prior to to the immediately preceding Interest Payment Date. 

"Swap Agreements" means the Primary Credit Swap Agreements, the Senior 

Credit Swap Agreement (each as defined on the cover page (ii) hereof) and the 

Credit Swap Agreement. 

7

Collateral As security for the obligations of the Issuer to the Trustee for and on behalf of 

itself, the Credit Swap Counterparty and the holders of the Notes (together, the 

"Secured Parties"), the Issuer will transfer to the Trustee for the benefit of the 

Secured Parties (other than the Credit Swap Counterparty) pursuant to (a) the 

Trust Agreement, by way of security, the Issuer's rights, title and benefits (i) in 

and to the KfW Securities (Sicherungsübereignung) and the Issuer Cash Account 

(Sicherungsabtretung), (ii) against the Credit Swap Counterparty and the 

Custodian for the release of the KfW Securities and the Issuer Cash Account from 

the pledges initially created by the Issuer in favour of the Credit Swap 

Counterparty upon satisfaction of the Issuer's obligations under the Credit Swap 

Agreement and (iii) against the Administrator under the Administration 

Agreement (as defined herein) and (b) an account pledge agreement dated on or 

about the Closing Date between the Issuer and the Trustee (the "Account Pledge 

Agreement") by way of a pledge over the Issuer's rights in and to the Issuer 

Operating Account and all monies from time to time credited thereto and interest 

accrued thereon (together, the "Issuer Collateral"). The Credit Swap 

Counterparty will have the benefit of first priority pledges over the KfW Securities 

and over the Issuer Cash Account and all monies from time to time credited 

thereto and interest accrued thereon, in each case, as security for the Issuer's 

obligations under the Credit Swap Agreement (the "KfW Collateral") which will 

rank in priority to the rights of the Noteholders in the event of the enforcement of 

the Issuer Collateral and the KfW Collateral. 

Release of Collateral On each Collateral Release Date (as defined below), the Trustee (on behalf of 

KfW as pledgee under the KfW Collateral) will release (i) from the pledge over 

the KfW Securities under the Pledge Agreement, KfW Securities in a principal 

amount equal to the closest denomination of €100,000 greater than the reduction 

in, or redemption of, the aggregate Outstanding Principal Amount of each Class of 

Notes to be reduced by allocation of amounts equal to the Issuer Payments or 

redeemed on such Collateral Release Date less the credit balance on the Issuer 

Cash Account as at such Collateral Release Date provided that, for the avoidance 

of doubt, if and to the extent that the credit balance on the Issuer Cash Account as 

at such Collateral Release Date is sufficient to pay all amounts then due and 

payable by the Issuer under the Transaction Documents, no KfW Securities shall 

be so released and provided further that on the Collateral Release Date falling 

on the Scheduled Maturity Date, such release shall be of all of the KfW Securities 

which are then subject to the pledge over the KfW Securities under the Pledge 

Agreement as at such date and (ii) from the pledge over the Issuer Cash Account 

under the Pledge Agreement, the cash collateral equal to the credit balance on the 

Issuer Cash Account as at such Collateral Release Date except that, on or after the 

Collateral Release Date falling on the Scheduled Maturity Date, only such amount 

as is greater than the aggregate amount of Impaired Reference Obligations that are 

in their Determination Period or the Final Value in respect thereof has not been 

verified in accordance with the Trust Agreement on such date shall be so released. 

In releasing KfW Securities, the Trustee shall always release the KfW Securities 

reflecting the relevant Notes 

"Collateral Release Date" means (a) the Optional Redemption Date (as defined in 

“Optional Redemption” below), (b) each Interest Payment Date which is also a 

Principal Payment Date, (c) each Interest Payment Date after the occurrence of a 

Non-Replacement Event, (d) any Payment Date on which any amount equal to an 

8

Issuer Payment is to be allocated to the Class A Notes, the Class B Notes, the 

Class C Notes, the Class D Notes, the Class E Notes, the Class F Notes or the 

Class G Notes in the Reverse Order of Seniority, or (e) any Payment Date on 

which the Notes are to be redeemed as a result of a Tax Event or a Regulatory 

Event (each as defined herein). 

Securities Put Option On (a) any Collateral Release Date and (b) the Interest Payment Date immediately 

following the occurrence of an Enforcement Event, KfW will purchase from the 

Issuer (acting through the Trustee) KfW Securities in a principal amount equal to 

the closest denomination of €100,000 greater than the amount required by the 

Issuer for such redemption of the Notes and the Issuer Payment under the Credit 

Swap Agreement less the credit balance (if any) on the Issuer Cash Account (the 

"Securities Put Option") provided that on the Collateral Release Date falling on 

the Scheduled Maturity Date, KfW will redeem all of the KfW Securities then 

held by the Custodian at their outstanding principal amount. The amount to be 

paid by KfW under the Securities Put Option or upon redemption of the KfW 

Securities will equal the principal amount outstanding of the KfW Securities sold 

to, or redeemed by, KfW plus accrued interest as at the date of sale or redemption. 

The proceeds of such redemption less amounts required for application on such 

date under the Terms and Conditions of the Notes as described below shall, to the 

extent that the Issuer's obligations under the Credit Swap Agreement have not 

been satisfied in full at that time, be paid by KfW into the Issuer Cash Account on 

the Scheduled Maturity Date. Save as aforesaid, the proceeds of sale or 

redemption shall, prior to the service of an Enforcement Notice, be paid by KfW 

into the Issuer Operating Account and applied by the Administrator (on behalf of 

the Issuer) in the order of priority set out in Conditions 5.8 and 11 of the Terms 

and Conditions of the Notes (the "Order of Seniority") and, after the service of an 

Enforcement Notice, be paid by KfW into the collateral proceeds account of the 

Trustee and applied by the Trustee in the order of priority set out in Condition 12 

of the Terms and Conditions of the Notes (the "Enforcement Order of 

Seniority"). In releasing KfW Securities, the Trustee shall always release the 

KfW Securities reflecting the relevant Notes. 

Limited Recourse The Notes are direct, secured, unsubordinated and limited recourse obligations of 

the Issuer, payable solely out of the funds available to the extent described herein. 

The Issuer will have no assets or sources of revenue other than its rights under the 

Transaction Documents and to the assets comprised in the Issuer Collateral and 

the KfW Collateral, subject to the prior claims of the Credit Swap Counterparty in 

respect of obligations owed by the Issuer to the Credit Swap Counterparty under 

the Credit Swap Agreement. 

Accordingly, holders of the Notes must rely solely (a) on the proceeds from the 

sale of KfW Securities under the Securities Put Option and/or redemption of the 

KfW Securities on the Scheduled Maturity Date, (b) Collateral Income from the 

KfW Collateral and the Issuer Collateral and (c) payments by the Credit Swap 

Counterparty under the Credit Swap Agreement, for the payment of interest and 

principal on the Notes, subject to the prior claims of the Credit Swap Counterparty 

in respect of obligations owed by the Issuer to the Credit Swap Counterparty 

under the Credit Swap Agreement. 

To the extent that such assets, or the proceeds of the realisation thereof, are 

ultimately insufficient to satisfy the claims of all Noteholders in full, then the 

9

Issuer shall not be liable for any shortfall arising and neither any Noteholder nor 

the Trustee shall have any further claims against the Issuer. Such assets and 

proceeds shall be deemed to be "ultimately insufficient" at such time when no 

further assets are available and no further proceeds can be realised therefrom to 

satisfy any outstanding claims of the Noteholders, and neither assets nor proceeds 

will be so available thereafter. 

Principal Reductions Upon any Issuer Payment being made by the Issuer to the Credit Swap 

Counterparty under the Credit Swap Agreement on a Payment Date, an amount 

equal to that Issuer Payment as at such Payment Date shall be allocated to reduce 

the Outstanding Principal Amount of each Class of Notes to zero, in the Reverse 

Order of Seniority (as defined on the cover pages hereof). 

"Issuer Payment" means, in respect of a Payment Date, an amount equal to the 

lesser of: (i) the Accrued Settlement Amount(s) payable on that Payment Date and 

(ii) the Notional Amount (as such term is defined in the Credit Swap Agreement) 

on that Payment Date.. 

"Settlement Amount" means, in respect of an Impaired Reference Obligation, the 

euro amount (or equivalent of an amount in Deutsche Mark converted at the rate 

specified in "EXCHANGE RATE AND CURRENCY INFORMATION") equal 

to the related Reference Obligation Notional Amount less the product of the Final 

Value of such Impaired Reference Obligation and the related Reference 

Obligation Notional Amount. 

"Impaired Reference Obligation" means a Reference Obligation with respect to 

which a Credit Event has occurred and in respect of which the Conditions to 

Payment have been satisfied (which expression, where the concept so admits, shall 

include “Adjusted Impaired Reference Obligations”). 

"Reference Obligation Notional Amount" means in respect of a Reference 

Obligation, the amount specified as such in the most recent Reference Portfolio 

List (as defined in "TERMS AND CONDITIONS OF THE NOTES"), as of the 

Cut-off Date, as reduced from time to time to reflect any Principal Payments by a 

Reference Entity in respect of such Reference Obligation. 

"Principal Payment" means, in respect of any Reference Obligation, an amount 

equal to the principal amount of such Reference Obligation or part thereof repaid 

on or prior to its stated maturity date. 

"Final Value" means, (I) in respect of an Impaired Reference Obligation (which is 

not an Adjusted Impaired Reference Obligation) that is in its Determination Period 

(a) on the day on which a notice of Early Redemption or Optional Redemption is 

delivered or (b) on the Interest Payment Date immediately prior to the Final 

Maturity Date, the lesser of (X) 100% and (Y) the value thereof, determined and 

verified in accordance with the valuation procedures set out in the Trust 

Agreement, and (II) an Impaired Reference Obligation that is not an Adjusted 

Impaired Reference Obligation the lesser of (a) 100% and (b) an amount equal to 

the sum of: 

(a) the product of (A) Dedicated Collateral and (B) the Ratio of Dedicated 

10

Collateral Recoveries; and 

(b) the product of (A) the Reference Obligation Notional Amount expressed 

as a percentage of all the Obligations of that Reference Entity (B) the 

Aggregate Collateral and (C) the Ratio of Aggregate Collateral 

Recoveries; and 

(c) the product of (A) the Ratio of Uncollateralised Recoveries and (B) the 

amount by which the Other Obligations in respect of which Aggregate 

Collateral was held exceeded that Aggregate Collateral;and 

(III) an Adjusted Impaired Reference Obligation, an amount equal to 100% less 

the Diminution Amount of that Adjusted Impaired Reference Obligation. 

In respect of each Impaired Reference Obligation (including each Adjusted 

Impaired Reference Obligation), the Final Value shall be expressed as a 

percentage of the relevant Reference Obligation Notional Amount and verified in 

accordance with the Trust Agreement, provided, however, that such sum shall be 

calculated no sooner than at the end of the Determination Period, the day on which 

a notice of Early Redemption or Optional Redemption is delivered or the Interest 

Payment Date immediately prior to the Final Maturity Date, as the case may be, 

and further provided that the Final Value shall at no time be less than 0%. 

"Ratio of Aggregate Collateral Recoveries" means the proportion of recoveries 

effected on or prior to the last day of the Determination Period in respect of the 

Aggregate Collateral held in respect of the relevant Reference Entity, relative to 

the amount of such Aggregate Collateral as at the date on which the Credit Event 

occurred. 

"Ratio of Dedicated Collateral Recoveries" means the proportion of recoveries 

effected on or prior to the last day of the Determination Period in respect of the 

Dedicated Collateral held in respect of the relevant Reference Obligation, relative 

to the amount of such Dedicated Collateral as at the date on which the Credit 

Event occurred. 

If the Ratio of Dedicated Collateral Recoveries is less than one, then to the extent 

there is Aggregate Collateral available for application in respect of that Reference 

Obligation, such Aggreagate Collateral (to the extent permitted by the terms on 

which it is held and law) shall then be applied towards that Reference Obligation. 

If the Ratio of Dedicated Collateral Recoveries is greater than one, then (to the 

extent permitted by the terms on which it is held and law) any excess Dedicated 

Collateral shall be allocated to the Aggregate Collateral. 

"Adjusted Impaired Reference Obligation" means, an Impaired Reference 

Obligation in respect of which some or all of the principal payable at its maturity, 

repayment or due date (or dates) has been unconditionally reduced, cancelled, 

voided or discharged with the agreement or approval of the Servicer, other than in 

accordance with the applicable terms of such Reference Obligation in effect on the 

date on which it became an Impaired Reference Obligation (each such reduction, 

cancellation, voiding or discharge a “Diminution”). For the avoidance of doubt, 

unless the context otherwise so admits, the term “Impaired Reference Obligations” 

11

Outstanding Principal 

Amount 

will include Adjusted Impaired Reference Obligation. 

"Diminution Amount" means, in respect of an Adjusted Impaired Reference 

Obligation, the lower of (a) the amount by which the Reference Obligation 

Notional Amount is reduced as a result of the relevant Diminution, expressed as a 

percentage of that Reference Obligation Notional Amount of the Adjusted 

Impaired Reference Obligation as at the date on which it became an Impaired 

Reference Obligation and (b) an amount (expressed as a percentage) that is equal 

to the proportion that the Reference Obligation Notional Amount of that Adjusted 

Impaired Reference Obligation (determined before the deduction of the 

Diminution Amount) bears to the aggregate of (i) the outstanding principal 

balances of Other Obligations, the Reference Obligation Notional Amounts of 

Reference Obligations which are not Impaired Reference Obligations and the 

Reference Obligation Notional Amounts of Impaired Reference Obligations of the 

relevant Reference Entity 

"Ratio of Uncollateralised Recoveries" means, in respect of an Impaired 

Reference Obligation, the proportion of recoveries (excluding, for the avoidance 

of doubt, any recoveries effected in respect of Dedicated Collateral and Aggregate 

Collateral) effected on or prior to the last day of the Determination Period in 

respect of the amount by which the Other Obligations and Reference Obligations 

(including that Impaired Reference Obligation) for which Aggregate Collateral 

and Dedicated Collateral was held exceeded that Aggregate Collateral and 

Dedicated Collateral, relative to the amount of such excess as at the date on which 

the Credit Event occurred. 

"Aggregate Collateral" means, in respect of a Reference Entity, the total amount 

of collateral (excluding any Dedicated Collateral) held in respect of the aggregate 

of the Other Obligations and Reference Obligations of that Reference Entity. 

"Determination Period" means the period commencing on the date on which a 

Reference Obligation becomes an Impaired Reference Obligation and ends on (in 

the case of an Impaired Reference Obligation which is not an Adjusted Impaired 

Reference Obligation) the date on which the Servicer irrevocably determines that 

it is no longer commercially viable to pursue and further recoveries in respect of 

that Impaired Reference Obligation or (in the case of an Adjusted Impaired 

Reference Obligation), at the election of the Servicer, either the date on which the 

Servicer irrevocably determines that it is no longer commercially viable to pursue 

and further recoveries in respect of that Impaired Reference Obligation or the date 

on which the relevant Dimunition became unconditional. 

"Dedicated Collateral" means, in respect of a Reference Entity, such collateral as 

is held against that Reference Obligation in respect of which the Final Value is to 

be determined. Dedicated Collateral shall (to the extent permitted by the terms on 

which it is held and law) be applied in priority to that Reference Obligation. 

"Other Obligations" means, in respect of a Reference Entity, Obligations which, 

satisfy the Eligibility Criteria. 

As of any Payment Date falling between the Issue Date and the Final Maturity 

Date, (a) the "Note Outstanding Principal Amount" of any Note will be an 

amount equal to the Initial Principal Amount of such Note as reduced by (i) the 

12

aggregate amount of payments or repayments, if any, of principal made in respect 

of such Note on or before such date and (ii) the allocation of Issuer Payments to 

such Note on or before such date and (b) the "Outstanding Principal Amount" 

will be, with respect to any Class of Notes, the aggregate Note Outstanding 

Principal Amounts of such Class of Notes. 

Optional Redemption The Notes will be subject to redemption in whole (but not in part) at their 

Outstanding Principal Amount at the option of the Issuer on any Interest Payment 

Date falling after the fifth anniversary of the Issue Date upon no less than 60 days' 

prior notice to the Noteholders provided that the Credit Swap Agreement is also 

terminated by the Credit Swap Counterparty on such date (the "Optional 

Redemption Date"). 

Early Redemption The Notes will be subject to early redemption in whole (but not in part) prior to 

the Scheduled Maturity Date at their then Outstanding Principal Amount plus 

accrued interest on the Interest Payment Date immediately following the 

occurrence of a Tax Event, a Regulatory Event or an Enforcement Event provided 

that if the Final Value of any Impaired Reference Obligation has not been verified 

in accordance with the Trust Agreement before such Interest Payment Date, then 

the Notes will be redeemed on the next following Interest Payment Date after 

verification in accordance with the Trust Agreement of the Final Values in respect 

of all Impaired Reference Obligations (the "Early Redemption Date"). 

A "Tax Event" means: 

(a) HVB, KfW or the Issuer is required by the laws of Ireland, Germany or 

Luxembourg to withhold or deduct an amount in respect of any taxes 

from any payment of (i) in the case of the Issuer, principal of, interest on, 

or any other amount payable in respect of the Notes or any amount 

payable under the Credit Swap Agreement, or (ii) in the case of KfW, any 

payment of principal of, or interest on, or any other amount payable in 

respect of, the KfW Securities, the Issuer Cash Account or any of the 

Swap Agreements, or (iii) in the case of HVB, any amount payable under 

the Primary Credit Swap Agreements; or 

(b) the Issuer ceases to be a "qualifying company" for the purposes of 

Section 110 of the Irish Taxes Consolidation Act of 1997 (as amended 

from time to time); or 

(c) the Issuer determines that income earned on the Issuer Operating 

Account or any sum received pursuant to the Transaction Documents is 

subject to deduction or withholding for or on account of any tax, duty, 

assessment or other governmental charge or is otherwise subject to 

taxation in Germany, Ireland or Luxembourg; or 

(d) KfW exercises its right of pre-payment under the KfW Securities as a 

result of any payment hereunder becoming subject to deduction or 

withholding on account of tax, 

and HVB, KfW or the Issuer (as the case may be) has taken reasonable steps to 

mitigate the effects of such circumstances for a period of 30 days provided that 

none of HVB, KfW or the Issuer shall be under any obligation to take any such 

13

action if, in its reasonable opinion, it would thereby incur additional costs or 

expenses. 

"Regulatory Event" means, after the Issue Date, any change in the Basel Capital 

Accord promulgated by the Basel Committee on Banking Supervision (the "Basel 

Accord") or in the international, European or German regulations, rules and 

instructions ("Bank Regulations") applicable to or applied by either Bank and/or 

applicable to, or applied by, KfW or a change in the manner in which the Basel 

Accord or such Bank Regulations are interpreted or applied by the Basel 

Committee on Banking Supervision or by any relevant competent international, 

European or national body (including any relevant international, European or 

German central bank or other competent authority) or by either Bank or KfW 

which has the effect that (a) either of the Banks or KfW would be subject to less 

favourable capital adequacy treatment with respect to the Transaction or the 

Reference Portfolio than the capital adequacy treatment applicable with respect 

thereto on the Issue Date and/or (b) the risk weighting factor(s) applicable to the 

Reference Portfolio is less favourable than the risk weighting factor(s) applicable 

thereto on the Issue Date for either of the Banks or KfW. 

An "Enforcement Event" means: 

(a) the Issuer defaults in the payment of any interest or principal due in 

respect of the Notes and such default is not remedied within a period of 

five Business Days of the due date for payment thereof; or 

(b) the Issuer fails to perform or observe any of its other obligations under 

the Notes or any Transaction Document to which it is a party which 

failure is either (i) incapable of remedy or (ii) if such failure is capable of 

remedy, it continues unremedied for a period of thirty days following the 

delivery by the Trustee of written notice thereof to the Issuer; or 

(c) one or more judgment(s) or order(s) from which no further appeal or 

judicial review is permissible under applicable law for the payment of 

any amount (or its equivalent in any other currency or currencies) is 

rendered against the Issuer and continues unsatisfied and unstayed for a 

period of thirty days after the date(s) thereof or, if later, the date therein 

specified for payment; or 

(d) other than pursuant to the Trust Agreement or the Account Pledge 

Agreement, a secured party takes possession of, or a receiver, manager or 

other similar officer is appointed in relation to, the whole or a substantial 

part of the undertaking, assets and revenues of the Issuer; or 

(e) (i) the Issuer becomes insolvent or is unable to pay its debts as they fall 

due, or (ii) an administrator, examiner or liquidator of the Issuer over the 

whole or a substantial part of the undertaking, assets and revenues of the 

Issuer is appointed (or application for any such appointment is made), or 

(iii) the Issuer takes any action for a readjustment or deferment of any of 

its obligations or makes a general assignment or an arrangement or 

composition with or for the benefit of its creditors or declares a 

moratorium in respect of any of its indebtedness, or (iv) the Issuer ceases 

or threatens to cease to carry on all or any substantial part of its business, 

14

or (v) an order is made or an effective resolution is passed for the 

winding up, liquidation or dissolution of the Issuer, or (vi) any event 

occurs which under the laws of Ireland has an analogous effect to any of 

the events referred to in sub-paragraphs (i) to (v); or 

(f) either of the Primary Credit Swap Agreements is terminated as a result of 

a Serious Cause or Insolvency (each as defined in TERMS AND 

CONDITIONS OF THE NOTES); or 

(g) any of the security interests constituted over the assets comprised in the 

Issuer Collateral or the KfW Collateral under the relevant Transaction 

Documents is or becomes invalid, void, voidable or unenforceable; or 

(h) the Issuer, HVB or KfW is materially restricted from performing any of 

its obligations (i) in the case of the Issuer, under the Notes or any other 

Transaction Document or (ii) in the case of HVB or KfW, under any of 

the Transaction Documents to which it is expressed to be a party; or 

(i) the Credit Swap Agreement is terminated. 

"Insolvency" means an application is filed by HVB or any third party for the 

commencement of bankruptcy or other insolvency proceedings against the assets 

of HVB or HVB is generally unable to pay its debts as they fall due or is 

otherwise in a situation which justifies the commencement of such proceedings. 

"Serious Cause" means non receipt by KfW of a payment due from HVB under 

either of the Primary Credit Swap Agreements or non performance by HVB of any 

other material obligation under either of the Primary Credit Swap Agreements. 

Non-Replacement Date If a Non-Replacement Event occurs, then the Revolving Period will end and; 

a) on the date on which the amount (“Relevant Amount”) equal to the 

Cumulative Final Amount less the Cumulative Pool Amortisation is greater than 

€853,000,000, the Notes will be redeemed on such Payment Date in the Order of 

Seniority in the amount by which the Relevant Amount exceeds €853,000,000; 

b) on any Payment Date thereafter the Notes will be redeemed in the Order of 

Seniority by an amount equal to the sum of all Principal Payments in respect of 

the Interest Period ending on such Payment Date. 

A "Non-Replacement Event" means (a) the Cumulative Settlement Amounts are 

equal to or exceed 1.2% of the Initial Reference Portfolio Notional Amount, or (b) 

the failure by the Servicer to deliver the Reference Portfolio List or any other 

required report to the Trustee, and such failure, in the sole opinion of the Trustee 

materially affects the interests of the Credit Swap Counterparty and the 

Noteholders. 

"Cumulative Settlement Amounts" means, in respect of a Payment Date, the 

aggregate amount of Accrued Settlement Amounts with respect to Impaired 

Reference Obligations from the Issue Date to the immediately preceding Interest 

Payment Date (or in the case of the first Payment Date, the Closing Date). 

"Cumulative Pool Amortisation" means, as at any Payment Date, an amount 

equal to the aggregate of (a) the sum of all Additions and Replacements (each as 

defined herein) less (b) the sum of all Principal Payments, in each case, during the 

15

Application of Cash 

Proceeds 

period commencing on (and including) the Closing Date and ending on (and 

including) such Payment Date. 

All cash proceeds will be deposited, prior to the occurrence of an Enforcement 

Event, into a segregated account established and maintained in the name of the 

Issuer at the Issuer Operating Account Bank (the "Issuer Operating Account"). 

On each Payment Date prior to the occurrence of an Enforcement Event, monies 

standing to the credit of the Issuer Operating Account and available for 

distribution on such date will be applied in the Order of Seniority. On each 

Payment Date occurring on or after the occurrence of an Enforcement Event, any 

monies standing to the credit of the Issuer Operating Account and any collateral 

proceeds account of the Trustee and available for distribution on any such date 

will be applied by the Trustee in the Enforcement Order of Seniority. 

Reference Portfolio The Reference Portfolio will consist of Eligible Obligations (as defined herein) 

initially specified by the Servicer as of the Cut-off Date and recorded in the 

Reference Portfolio List, subject to any Replacement, Removal, Addition or the 

inclusion of any Adjusted Reference Obligation (each as defined below) thereafter 

provided that the aggregate Reference Obligation Notional Amounts of such 

Reference Obligations shall not at any time exceed the Reference Portfolio 

Notional Amount. 

"Adjusted Reference Obligation" means, in respect of a Reference Obligation 

which, before the occurrence of a Credit Event, has experienced a restructuring or 

rescheduling of its principal, interest payments or other terms (whether as to 

quantum or timing of payments) (an “Adjustment”) in accordance with the 

Procedures, the resulting Obligation in respect of that restructured or rescheduled 

Reference Obligation. Each Adjusted Reference Obligation shall: 

(i) replace the Reference Obligation from which it was restructured or 

rescheduled in the Reference Portfolio List (whereupon it shall be 

deemed to be a “Reference Obligation”); and 

(ii) save as modified by the Adjustment, bear the same terms as the 

Reference Obligation which it replaced. 

An Adjusted Reference Obligation need not comply with the Portfolio 

Concentration Tests or Eligibility Criteria, and an Adjustment shall not be treated 

as a Removal. 

"Eligible Obligation" means an Obligation or a portion thereof that meets the 

Eligibility Criteria. 

"Eligibility Criteria" means, in respect of an Obligation, the following criteria 

applied to such Obligation as at the Cut-off Date or any date of Replacement or 

Addition: (a) which has been incurred under the Programmes, (b) which is legally 

valid and enforceable, (c) which constitutes an unsubordinated, unconditional 

obligation on the part of the Reference Entity to pay the amount of principal and 

interest under the terms of such Obligation, (d) in respect of which no Failure to 

Pay (as defined in "TERMS AND CONDITIONS OF THE NOTES") has 

occurred and is continuing, (e) in respect of which no Bankruptcy (as defined in 

"TERMS AND CONDITIONS OF THE NOTES") of the Reference Entity has 

16

occurred, (f) in respect of which no litigation is pending, (g) which is denominated 

in euro or Deutsche Mark, (h) which has as its final maturity date on or before the 

Scheduled Maturity Date, (i) in respect of which the Reference Entity is not an 

"XS company" under the Procedures, (j) in respect of which the Reference Entity 

falls within the rating class of 6 or better in the HVB Internal Rating System (as 

defined in "REFERENCE PORTFOLIO SERVICING") and (k) in respect of 

which the Reference Entity is organised or incorporated under the laws of the 

Federal Republic of Germany. 

"Obligation" means any unsubordinated obligation of a Reference Entity (whether 

as principal, surety or otherwise and whether present or future, contingent or 

otherwise) for the repayment of borrowed money (other than any such obligation 

that is in the form of, or represented by, a bond, note, certificated debt security or 

other debt security). 

"Reference Entity" means each entity specified as such in the Reference Portfolio 

List (as defined in "MAIN PROVISIONS OF THE CREDIT SWAP 

AGREEMENT"). 

"Reference Obligations" means the Eligible Obligations specified in the 

Reference Portfolio List from time to time (which expression where the context so 

admits, includes the Adjusted Reference Obligations). 

"Reference Portfolio Notional Amount" means the Initial Reference Portfolio 

Notional Amount less the Reference Obligations Notional Amounts of all 

Impaired Reference Obligations. 

Replacement During the period commencing on the Closing Date and ending on the Scheduled 

Removal and Addition The Servicer: 

Maturity Date (the "Revolving Period"), provided that no Non-Replacement 

Event has occurred the Servicer may, on or about the 28 th day of each month (each 

a "Replacement Date"), add new Eligible Obligations (each a “Replacement”) to 

the Reference Portfolio if (a) the cumulative aggregate Reference Obligation 

Notional Amount (as defined in "TERMS AND CONDITIONS OF THE 

NOTES") of all the Impaired Reference Obligations which are still in their 

respective Determination Periods expressed as a percentage of the Initial 

Reference Portfolio Notional Amount does not exceed 1.5%, (b) the weighted 

average rating of the Reference Obligations which are the subject of such 

Replacement is 4 or better and (c) the weighted average life of the Reference 

Obligations which are the subject of such Replacement is 3.75 years or shorter 

provided that (i) each new Reference Obligation is an Eligible Obligation and 

(ii) each new Reference Obligation would not, if so added, cause the Reference 

Portfolio to contravene any of the Portfolio Concentration Tests (as defined in 

"DESCRIPTION OF THE REFERENCE PORTFOLIO") or, if any such test is 

contravened as at such date, the addition of such new Reference Obligation would 

reduce such contravention of the Portfolio Concentration Tests and provided 

further that the sum of the notional amounts of all new Eligible Obligations plus 

the notional amount of all Reference Obligations does not exceed the Reference 

Portfolio Notional Amount.. 

17

(a) shall remove any Obligation from the Reference Portfolio List at any 

time if the Servicer or the Trustee determines that any Obligation 

specified in the Reference Portfolio List was not an Eligible Obligation at 

the time of its inclusion in the Reference Portfolio List (a "Removal") 

(save in respect of Adjusted Reference Obligation); and/or 

(b) may, on any Replacement Date, increase the Reference Obligation 

Notional Amount of any Reference Obligation (an "Addition") or make a 

Replacement provided however that 

(i) in each case, the sum of all Reference Obligation Notional 

Amounts shall not, at any time, exceed the Reference Portfolio 

Notional Amount at such time; and 

(ii) in the case of Additions only, any such Addition does not, if so 

applied, cause the Reference Portfolio to contravene any of the 

Portfolio Concentration Tests, or, if any such test is contravened 

immediately before such Addition, such Addition would reduce 

such contravention of the Portfolio Concentration Tests . 

The Servicer will promptly update the Reference Portfolio List upon any such 

occurrence or upon an Adjustment and the Trustee shall verify such update. For 

the avoidance of doubt, no act set out in paragraphs (a) and (b) above or an 

Adjustment shall cause or require any adjustment to the Reference Portfolio 

Notional Amount. 

Servicing The Servicer will be responsible for the administration, collection and 

enforcement of the Reference Obligations, in accordance with the Loan 

Administration 

Agreement 

Corporate Services 

Agreement 

Origination, Administration and Collection Procedures of the Banks (the 

"Procedures"). See "REFERENCE PORTFOLIO SERVICING" herein. 

Under the Administration Agreement, the Administrator will be responsible for, 

among other things, the day-to-day operations, cash and bank account 

management and book-keeping of the Issuer. 

The Issuer shall enter into a corporate services agreement with Matsack Trust 

Limited which shall provide company secretarial and related services to the Issuer 

in consideration of a fixed management fee. 

Selling Restrictions The Notes are not being offered, sold or delivered within the United States or to 

U.S. persons. For a description of these and other restrictions on sale and transfer 

see "SUBSCRIPTION AND SALE". 

Listing Application will be made to list the Notes on the Luxembourg Stock Exchange. 

Luxembourg Listing 

Agent 

Deutsche Bank Luxembourg S.A. 

Settlement It is expected that delivery of the Notes will be made on or about 22 December 

2000 through the book-entry facilities of Clearstream Frankfurt in respect of the 

Notes represented by the Global Notes, in each case, against payment therefor in 

18

euro in immediately available funds. 

Governing Law The Notes, the Trust Agreement, the Agency Agreement, the KfW Securities 

Purchase Agreement, the Pledge Agreement, and the Custody Agreement are 

governed by, and are to be construed in accordance with, the laws of the Federal 

Republic of Germany. The Administration Agreement and the Corporate Services 

Agreement are governed by, and are to be construed in accordance with, the laws 

of Ireland. The Account Pledge Agreement is governed by, and is to be construed 

in accordance with, the laws of Luxembourg. The Swap Agreements are governed 

by, and are to be construed in accordance with, English law. 

Ratings The Class A Notes, the Class B Notes, Class C Notes, Class D Notes, Class E 

Notes and the Class F Notes are expected to be rated at closing by Fitch, the Class 

A Notes, the Class B Notes, the Class C Notes, the Class D Notes and the Class E 

notes are expected to be rated by Moody’s. The Class G Notes are not expected to 

be rated. See "RATING". 

Transaction Documents The "Transaction Documents" are the Notes, the Trust Agreement, the Agency 

Agreement, the Administration Agreement, the Pledge Agreement, the Account 

Pledge Agreement, the Swap Agreements, the KfW Securities Purchase 

Agreement, the Custody Agreement, the Corporate Services Agreement, the 

Subscription Agreement, this Offering Circular and any other agreement made 

pursuant thereto or otherwise in connection with the Notes or the rights and 

benefits comprised in the Issuer Collateral. 

Transaction The Transaction Documents together with all agreements and documents executed 

in connection with the issue of the Notes, the performance thereof and all other 

acts, undertakings and activities connected therewith are referred to herein as the 

"Transaction". 

19

5. RISK FACTORS 

The following is a summary of certain factors, which prospective investors should consider carefully 

prior to investing in the Notes. The following statements are not complete, and are in addition to all of the 

information set forth elsewhere in this Offering Circular. 

No Recourse to Parties other than the Issuer 

The Notes are obligations solely of the Issuer and do not constitute a liability or other obligation of any 

kind and are not insured or guaranteed by any governmental agency or instrumentality or either Bank, any 

Programme Bank, the Credit Swap Counterparty, the Trustee, the Manager or any of their respective 

affiliates. None of the Banks, the Programme Banks, the Trustee, the Manager or any of their respective 

affiliates will assume any liability or obligation to the holders of the Notes if the Issuer fails to make any 

payment due in respect of the Notes. 

Obligations of the Issuer Limited to its Assets 

The Notes are direct, secured, unsubordinated and limited recourse obligations of the Issuer payable 

solely out of the funds available to the Issuer to the extent described herein. The Issuer will have no 

assets or sources of revenue other than its rights under the Transaction Documents and to the assets 

comprised in the Issuer Collateral and the KfW Collateral. 

Accordingly, holders of the Notes must rely solely (a) on the proceeds from the sale of KfW Securities 

under the Securities Put Option and/or redemption of the KfW Securities on the Scheduled Maturity Date, 

(b) Collateral Income and (c) payments by the Credit Swap Counterparty under the Credit Swap 

Agreement, for the payment of interest and principal on the Notes, subject to the prior claims of the 

Credit Swap Counterparty in respect of the obligations owed by the Issuer to the Credit Swap 

Counterparty under the Credit Swap Agreement. 

To the extent that such assets, or the proceeds of the realisation thereof, are ultimately insufficient to 

satisfy the claims of all Noteholders in full, then the Issuer shall not be liable for any shortfall arising and 

neither any Noteholder nor the Trustee shall have any further claims against the Issuer. Such assets and 

proceeds shall be deemed to be "ultimately insufficient" at such time when no further assets are available 

and no further proceeds can be realised therefrom to satisfy any outstanding claims of the Noteholders, 

and neither assets nor proceeds will be so available thereafter. 

Priority Rights of the Credit Swap Counterparty 

The Credit Swap Counterparty under the Credit Swap Agreement has the benefit of first priority collateral 

and the KfW Collateral will rank in priority to the Issuer Collateral. Accordingly, upon an enforcement 

of the collateral held or administered by the Trustee, the amounts available to the Issuer will be limited to 

the proceeds realised by such enforcement and available for payment under the Notes as described herein 

and the rights of the Noteholders to be paid amounts due under the Notes will be subordinate to the prior 

rights of the Credit Swap Counterparty in respect of the obligations of the Issuer to the Credit Swap 

Counterparty under the Credit Swap Agreement. No assurance can be given that the proceeds available 

for and allocated to the repayment of any particular Class of Notes at any particular time will be sufficient 

to cover all amounts that would otherwise be due and payable in respect of such Class of Notes. 

None of the Administrator, the Trustee, any Agent, the Manager, either of the Banks, any Programme 

Bank, the Credit Swap Counterparty, or any of its affiliates or any other person or entity will be obliged to 

make payments on the Notes. 

20

Exposure to Credit Risks of the Reference Obligations 

In the event that a Reference Entity under a Reference Obligation (a "Reference Entity") or a Reference 

Obligation experiences a Credit Event and such Credit Event results in an Issuer Payment, then the 

amount equal to such Issuer Payment will be allocated on each Interest Payment Date to reduce the then 

Outstanding Principal Amount of the Class G Notes, the Class F Notes, the Class E Notes, the Class D 

Notes, the Class C Notes, the Class B Notes, the Class A Notes in the Reverse Order of Seniority. 

Noteholders may therefore suffer a loss of amounts invested in the Notes as a result of allocation of the 

Settlement Amount with respect to a Reference Obligation. The Reference Obligations are subject to 

credit, liquidity and interest rate risk. The likelihood and quantum of a Settlement Amount occurring with 

respect to a Reference Obligation will generally fluctuate with, among other things, the financial 

condition of the relevant Reference Entity, general economic conditions, the condition of certain financial 

markets, political events, developments or trends in any particular industry and changes in prevailing 

interest rates. 

Accordingly, holders of the Notes will be exposed to the credit risks of the Reference Obligations and the 

Reference Entities to the full extent of their investment in the Notes but will not acquire any rights or 

recourse against any of the Reference Entities or the Reference Obligations. 

No Interest in Reference Obligations 

The Issuer will not have a contractual relationship with any Reference Entity of any Reference 

Obligation. The Issuer, therefore, will have rights solely against the Credit Swap Counterparty in 

accordance with the Credit Swap Agreement and will have no recourse against any Reference Entities in 

respect of any Reference Obligations. None of the Issuer, the Trustee, the Noteholders or any other entity 

will have any rights to acquire from either Bank (or to require either Bank to transfer, assign or otherwise 

dispose of) any interest in any Reference Obligation, notwithstanding the reduction of the Outstanding 

Principal Amount of any Class of Notes or payment by the Issuer of an Issuer Payment in respect of a 

Settlement Amount to the Credit Swap Counterparty with respect thereto. Moreover, neither Bank will 

grant to the Issuer or the Trustee any security interest in any such Reference Obligation. 

Rights of Replacement and Addition 

The Servicer is permitted in the limited circumstances described herein to add Eligible Obligations and/or 

increase the amount of existing Reference Obligations in the Reference Portfolio. If such Reference 

Obligations are added there is no guarantee that future Reference Obligations, although required to meet 

respectively the conditions for Replacement and Addition, will perform better than or as well as the initial 

Reference Obligations. 

Industry Concentration of the Reference Obligations 

An attempt has been made to reduce the risk of cumulative Credit Events by imposing industry 

concentration limits on the Reference Portfolio (see "DESCRIPTION OF THE REFERENCE 

PORTFOLIO"). Notwithstanding this, if the economic conditions of any industry sector deteriorate then it 

is likely that Settlement Amounts in respect of any Reference Entity or any Reference Obligations in 

respect of such industry sector will increase. 

Limited Information on the Reference Obligations 

The Servicer is under no obligation to, and will not, provide to the Issuer, the Trustee or any holder of 

Notes any financial or other information or any notice furnished to it with respect to any Reference 

Obligation, except for certain information with respect to the designation of loans as Reference 

21

Obligations and to Settlement Amounts as well as certain other information under circumstances 

described in this Offering Circular. See "DESCRIPTION OF THE REFERENCE PORTFOLIO". 

Accordingly, the Issuer, the Trustee and the holders of the Notes will have no information in relation to a 

Reference Entity’s financial situation or in relation to other exposures of either Bank to any Reference 

Entity under Reference Obligation. 

No Interest in Related Collateral 

None of the Issuer, the Trustee or the holders of the Notes will have any security interest in any collateral 

supporting a Reference Obligation (or portion thereof), expressed as a percentage of the Reference 

Obligation Notional Amount of that Reference Obligation for the purpose of calculation of the Final 

Value (the "Related Collateral") or any right to require either of the Banks to realise any Related 

Collateral, or to transfer any Related Collateral to the Issuer, the Trustee or the holders of the Notes at any 

time. 

Although the Servicer has undertaken to allocate or procure the allocation of the net proceeds of any 

realisation of any Related Collateral to the Reference Obligation in question, there can be no assurance 

that either Bank will actually realise any Related Collateral or that the net proceeds obtained in the event 

of such realisation and allocation to the Reference Obligations will be sufficient to avoid or reduce the 

Settlement Amount in respect of such Reference Obligation. 

No Investigations 

No investigations, searches or other enquiries have been made by or on behalf of the Issuer or the Trustee 

in respect of any Reference Entity, Reference Obligation, Related Collateral, the Issuer Collateral or the 

KfW Collateral. No representations or warranties have been given by the Issuer in respect of any 

Reference Entity, Reference Obligation or Related Collateral. No representations or warranties have been 

given by the Trustee in respect of the Issuer Collateral or the KfW Collateral. Any prospective 

Noteholders should take their own legal, financial, accounting, tax and other relevant advice as to the 

structure and the viability of their investments. 

Reliance on Procedures 

The Servicer has undertaken to monitor and otherwise administer the Reference Obligations in 

accordance with the Procedures. It is possible that Reference Collateral will be released by the relevant 

Bank or other arrangements agreed with the Reference Entities that may adversely affect the ability of the 

Servicer to collect payments in respect of Reference Obligations, if and to the extent that such release or 

other arrangements are consistent with the Procedures. 

Under applicable legal and accounting principles, the Servicer has considerable discretion in deciding 

when and in what amount to make write-offs in respect of Reference Obligations. See "REFERENCE 

PORTFOLIO SERVICING". As a consequence, the holders of the Notes are relying on the Servicer’s 

business judgement and practices in administering the Reference Obligations, enforcing claims against 

the Reference Entities of the Reference Obligations and taking decisions as to when a particular 

Reference Obligation should be written-off. Neither the Issuer nor the Trustee nor the holders of the 

Notes have any right to compel the Servicer to take any action against the Reference Entities of the 

Reference Obligations. The Servicer may engage in transactions with the Reference Entities of Reference 

Obligations, including extensions of credit which may be secured by Reference Collateral and may have 

equity or other interests in such Reference Entities, which interests may influence their judgments and 

practices with respect to the Reference Obligations. If, however, the Reference Entity is an affiliate of the 

Servicer (which includes, but is not limited to, the Servicer’s subsidiaries and other entities which, 

together with the Servicer, would form a group of debtors for the purposes of reporting credit exposures 

22

pursuant to the German Banking Act (Kreditwesengesetz)), then loans to such Reference Entities are not 

eligible as Reference Obligations. See "DESCRIPTION OF THE REFERENCE PORTFOLIO". 

No Rights after Final Maturity Date 

The Noteholders will have no rights under the Notes after the Final Maturity Date, notwithstanding any 

valuation of any Impaired Reference Obligations or recoveries effected after such date. 

Decline in the Servicer’s Credit Rating 

The Servicer has no obligation to transfer any rights to the Issuer or to grant any collateral in favour of the 

Issuer, the Trustee or the holders of the Notes in the event of a downgrading, suspension or withdrawal of 

its current credit ratings or a deterioration of its creditworthiness. None of the Issuer, the Trustee or any 

holder of the Notes has any rights against the Servicer in the event that the Servicer’s creditworthiness 

declines. 

Early Redemption 

The Notes may be the subject of an early redemption following (a) the occurrence of certain events 

occurring as a result of a Tax Event, a Regulatory Event or an Enforcement Event or (b) prior notice by 

the Issuer to, inter alios, the Noteholders of optional redemption as described in the Terms and 

Conditions of the Notes. 

Non-Replacement 

If a Non-Replacement Event occurs, then the Revolving Period will end and; 

a) on the date on which the amount (“Relevant Amount”) equal to the Cumulative Final Amount less the 

Cumulative Pool Amortisation is greater than €853,000,000, the Notes will be redeemed on such Payment 

Date in the Order of Seniority in the amount by which the Relevant Amount exceeds €853,000,000; 

b) on any Payment Date thereafter the Notes will be redeemed in the Order of Seniority by an amount 

equal to the sum of all Principal Payments in respect of the Interest Period ending on such Payment Date. 

Conflicts of Interest – Noteholders and Credit Swap Counterparty 

While any amounts are due from the Issuer to the Credit Swap Counterparty under the Credit Swap 

Agreement, the Trustee is required to have regard first, to the interests of the Credit Swap Counterparty, 

second, to the interests of the Noteholders and finally, to the interests the Trustee and if there is, at any 

time, a conflict between the interests of a Class of Noteholders and any other Class or Classes of 

Noteholders, the Trustee shall have regard first, to the interests of the Class A Noteholders, second, to the 

interests of the Class B Noteholders, third, to the interests of the Class C Noteholders, fourth, to the 

interests of the Class D Noteholders, fifth, to the interests of the Class E Noteholders, sixth, to the 

interests of the Class F Noteholders and seventh, to the interests of the Class G Noteholders, in each case, 

as one Class. See "THE TRUST AGREEMENT". 

Conflicts of Interest – HVB 

HVB is acting in a number of capacities in connection with the Transaction. HVB acting in connection 

with the Transaction will have only the duties and responsibilities expressly agreed to by it in the relevant 

capacity and will not, by virtue of acting in any other capacity, be deemed to have any other duties or 

responsibilities or be deemed to be held to a standard of care other than as expressly provided with 

respect to each such capacity. HVB in its various capacities in connection with the Transaction may enter 

into business dealings from which it may derive revenues and profits without any duty to account therefor 

in connection with the Transaction. 

23

HVB may hold and/or service claims against the Reference Entities other than the Reference Obligations. 

The interests or obligations of HVB in its various capacities with respect to such other claims may in 

certain aspects conflict with the interests of the Noteholders. 

HVB may engage in commercial relationships, in particular, be a lender, provide investment banking and 

other financial services to the Reference Entities and other parties. In such relationships, HVB is not 

obliged to take into account the interests of the Noteholders. Accordingly, because of these relationships, 

potential conflicts of interest may arise in relation to the Transaction. 

Preferred Creditors under Irish law 

Under Irish law, the claims of a limited category of preferential creditors will take priority over the claims 

of unsecured creditors in the event of the appointment of a liquidator or a receiver to an Irish company, 

such as the Issuer. These preferred claims include claims of employees and taxes, such as income tax and 

corporation tax payable before the date of appointment of the liquidator or receiver and arrears of value 

added tax, together with accrued interest thereon. 

In addition, there is a further limited category of "super" preferential creditors which take priority, not 

only over unsecured creditors, but also over creditors in respect of fixed security. These super 

preferential claims include the remuneration, costs and expenses properly incurred by an examiner 

appointed to a company which has been approved by the Irish courts and any capital gains tax payable on 

the disposition of an asset of the company by a liquidator, receiver or mortgagee in possession. 

It is of the essence of a fixed charge that the person creating the charge does not have liberty to deal with 

the assets which are the subject matter of the security in the sense of disposing of such assets or 

expending or appropriating the moneys or claims constituting such assets and accordingly, if and to the 

extent that such liberty is given to the Issuer under any pledge or security interest constituted by the 

Pledge Agreement, the Account Pledge Agreement, the Trust Agreement, then such pledge or security 

interest may operate as a floating, rather than a fixed charge. 

In particular, the Irish courts have held that in order to create a fixed charge on receivables it is necessary 

to oblige the chargor to pay the proceeds of collection of the receivables into a designated bank account 

and to prohibit the chargor from withdrawing or otherwise dealing with the monies standing to the credit 

of such account without the consent of the chargee. 

Floating charges have certain weaknesses, including the following: 

(a) they have weak priority against purchasers (who are not on notice of any negative pledge 

contained in the floating charge and any charge of the assets concerned), lien holders, execution 

creditors and creditors with rights of set-off; 

(b) as discussed above, they rank after certain preferential claims, such as claims of employees and 

certain taxes on winding-up; 

(c) they rank after certain insolvency-related remuneration expenses and costs; 

(d) the examiner of an Irish company has certain rights to deal with the property covered by the 

floating charge; and 

(e) they rank after fixed charges. 

24

Absence of Secondary Market 

The Notes have not been registered under the Securities Act and will be subject to significant restrictions 

on resale in the United States. There is currently no market for the Notes. There can be no assurance that 

a secondary market for any of the Notes will develop, or, if a secondary market does develop, that it will 

continue or provide the holders of the Notes with liquidity or that any such liquidity will continue for the 

life of the Notes. Moreover, the limited scope of information available to the Issuer, the Trustee and the 

Noteholders regarding the Reference Entities, the Reference Obligations and the nature of any Settlement 

Amounts, including the delay in the timing of and uncertainty as to the quantum of any reduction to be 

applied to the Outstanding Principal Amount of the Notes if a Settlement Amount has occurred, may 

affect the liquidity of the market for and the value of the Notes, especially the more junior Classes of the 

Notes. Consequently, any purchaser of the Notes must be prepared to hold such Notes until final 

redemption or maturity of the Notes. 

Priority of Payments 

Payment of interest and principal in respect of a Class of Notes will not be made until payments of all 

interest and principal due in respect of all of the more senior Classes of Notes and other payments in 

priority to the Notes are made. 

Taxation – No gross-up 

Neither the Notes nor the KfW Securities will provide for gross-up payments in the case that payments 

under the Notes, the KfW Securities, the Issuer Cash Account or the Issuer Operating Account become 

subject to withholding or deduction of taxes. 

If any withholding or deduction on account of taxes is imposed with respect to payments by (a) KfW 

under the KfW Securities or the Credit Swap Agreement or in respect of the Issuer Cash Account or (b) 

the Custodian in respect of the KfW Securities or (c) the Issuer Operating Account Bank in respect of the 

Issuer Operating Account, the amounts payable by the Issuer under the Notes will be reduced by the 

amount of such withholding or deduction. 

Further, notwithstanding that the Notes are subject to early redemption in the event of such withholding 

or deduction on account of taxes on the Interest Payment Date immediately following the occurrence of 

such event, such early redemption may not occur until the Final Values of all Reference Obligations that 

are Impaired Reference Obligations as at such Interest Payment Date have been verified in accordance 

with the Trust Agreement. Accordingly, the Noteholders will be exposed to the risk of the reduction in 

the amounts payable by the Issuer under the Notes as a result of any withholding or deduction on account 

of taxes and will not have the right to require early redemption of the Notes in such circumstances. 

Taxation - Proposed European Directive on the Taxation of Savings 

In November 2000 the European Council confirmed proposals to proceed with a new EU Directive on the 

taxation of savings income, which is designed to secure that at least a minimum effective rate of tax is 

paid on all interest and similar savings income earned by residents of EU member states. The Directive is 

intended to come into effect in 2003. The key features of the proposed Directive are: 

• where a "paying agent" established in any EU member state makes payments of interest, discount or 

premium to an individual resident in another member state, the tax authorities of the paying agent's 

member state will be required to supply details of the payment to the tax authorities of the other 

member state. For these purposes, the term "paying agent" is widely defined to include both the 

principal obligor under a debt obligation; a paying agent in the normal sense of that term; and an 

25

agent who collects interest, discounts or premiums on behalf of an individual beneficially entitled 

thereto; 

• during a transitional period of not more than seven years from the coming into effect of the 

Directive, certain member states (expected to be confined to Austria, Belgium and Luxembourg, 

and possibly Greece and Portugal) may, instead of supplying information on savings income to the 

tax authorities of other member states, operate a withholding tax. In such cases "paying agents" 

established in the relevant member states must withhold tax from any interest, discount or premium 

paid to an individual resident in another member state. The withholding tax will be levied at a rate 

of 15% during the first three years of the transitional period, and at a rate of 20% during the 

remaining four years; and 

• Eurobonds and other negotiable debt securities which are issued before 1 March 2001, or under a 

prospectus issued before that date, will be exempt from the withholding tax provisions of the 

Directive even if interest, discounts or premiums on such securities are paid through a "paying 

agent" established in a member state which adopts the transitional withholding tax regime. 

Securities issued after 1 March 2001, or under a prospectus issued after that date, will be fully 

within the scope of the Directive when it comes into force. 

It is expected that the Directive, which can be adopted only by unanimous agreement amongst the 

member states, will also be conditional on the adoption of equivalent measures in third countries with 

significant financial centres (including the USA and Switzerland) and in dependent or associated 

territories of certain of the EU member states. 

Pending agreement on the precise text of the Directive, it is not possible to say what effect, if any, the 

adoption of the Directive would have on the Notes or payments in respect thereof. 

26

6. USE OF PROCEEDS 

The net proceeds of the Class A Notes, the Class B Notes, the Class C Notes, the Class D Notes, the Class 

E Notes and the Class F Notes will be used by the Issuer to purchase a portfolio of floating rate medium- 

term notes issued by KfW (the " KfW Securities"). The aggregate principal amount of the KfW Securities 

will initially equal the Initial Principal Amount of the Class A Notes, the Class B Notes, the Class C 

Notes, the Class D Notes, the Class E Notes and the Class F Notes, subject to reduction thereafter as 

described herein. The net proceeds of the Class G Notes will be invested in an interest bearing account 

("Issuer Cash Account") in the name of the Issuer with KfW (the " Issuer Cash Account Bank"). 

27

7. TERMS AND CONDITIONS OF THE NOTES 

The following is the text of the Terms and Conditions applicable to each Class of Notes which will be 

attached to each Global Note. In case of any inconsistency in the definition of a term or expression in the 

Terms and Conditions and elsewhere in this Offering Circular, the definition in the Terms and Conditions 

will prevail. 

THE PAYMENT OF THE PRINCIPAL OF AND, CONSEQUENTLY, INTEREST ON THE 

NOTES IS CONDITIONAL UPON THE PERFORMANCE OF A PORTFOLIO OF 

REFERENCE OBLIGATIONS AS SET OUT IN THESE TERMS AND CONDITIONS OF THE 

NOTES. 

THERE IS NO CERTAINTY THAT THE HOLDER OF ANY NOTE WILL RECEIVE THE 

FULL PRINCIPAL AMOUNT OF THE NOTE OR INTEREST THEREON. THE 

OBLIGATIONS OF THE ISSUER TO PAY PRINCIPAL OF, AND INTEREST ON, THE NOTES 

COULD BE REDUCED TO ZERO AS A RESULT OF PAYMENT OBLIGATIONS INCURRED 

BY THE ISSUER IN RESPECT OF SUCH REFERENCE OBLIGATIONS. 

NEITHER THE ISSUER NOR THE HOLDER OF ANY NOTE SHALL HAVE ANY RIGHT TO, 

OR INTEREST IN, ANY REFERENCE OBLIGATION, NOTWITHSTANDING THAT ANY 

ISSUER PAYMENT IN RESPECT OF SUCH REFERENCE OBLIGATION HAS BEEN 

ALLOCATED TO SUCH NOTE. 

THE NOTES REPRESENT OBLIGATIONS OF THE ISSUER ONLY, AND DO NOT 

REPRESENT AN INTEREST IN, OR OBLIGATION OF, THE TRUSTEE, BAYERISCHE 

HYPO- UND VEREINSBANK AG OR VEREINS- UND WESTBANK AG (EACH A "BANK"), 

KREDITANSTALT FÜR WIEDERAUFBAU, LANDESANSTALT FÜR 

AUFBAUFINANZIERUNG OR DEUTSCHE AUSGLEICHSBANK (EACH A "PROGRAMME 

BANK"), THE CREDIT SWAP COUNTERPARTY OR ANY OF THEIR RESPECTIVE 

AFFILIATES OR ANY AFFILIATE OF THE ISSUER OR ANY OTHER THIRD PERSON OR 

ENTITY. THE NOTES WILL NOT BE INSURED OR GUARANTEED BY ANY 

GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE TRUSTEE, EITHER 

BANK, ANY PROGRAMME BANK, THE CREDIT SWAP COUNTERPARTY OR ANY OF 

THEIR RESPECTIVE AFFILIATES OR BY ANY OTHER PERSON OR ENTITY. 

ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO 

LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE 

LIMITATIONS PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE INTERNAL REVENUE 

CODE. 

1. THE NOTES 

1.1 Classes and Initial Principal Amounts: 

PROMISE-A-2000-1 plc, a public limited company incorporated under the laws of the Republic 

of Ireland with registered number 333835 and having its registered office at 30 Herbert Street, 

Dublin 2, Ireland (the "Issuer") issues the following classes of credit-linked notes (each a 

"Class" and, together, the "Notes") pursuant to these terms and conditions (the "Terms and 

Conditions"): 

(a) Class A Floating Rate Credit-Linked Notes (the "Class A Notes"), which are issued in 

an initial aggregate principal amount of €40,000,000 and divided into 400 Class A 

Notes; 

28

(b) Class B Floating Rate Credit-Linked Notes (the "Class B Notes"), which are issued in 

an initial aggregate principal amount of €24,000,000 and divided into 240 Class B 

Notes; 

(c) Class C Floating Rate Credit-Linked Notes (the "Class C Notes"), which are issued in 

an initial aggregate principal amount of €16,000,000 and divided into 160 Class C 

Notes; 

(d) Class D Floating Rate Credit-Linked Notes (the "Class D Notes"), which are issued in 

an initial aggregate principal amount of €15,000,000 and divided into 150 Class D 

Notes; 

(e) Class E Floating Rate Credit-Linked Notes (the "Class E Notes"), which are issued in 

an initial aggregate principal amount of €11,000,000 and divided into 110 Class E 

Notes; 

(f) Class F Floating Rate Credit-Linked Notes (the "Class F Notes"), which are issued in 

an initial aggregate principal amount of €15,000,000 and divided into 150 Class F 

Notes; and 

(g) Class G Floating Rate Credit-Linked Notes (the "Class G Notes"), which are issued in 

an initial aggregate principal amount of € 26,000,000 and divided into 260 Class G 

Notes. 

1.2 Trust Agreement 

The Notes are subject to, and have the benefit of, a trust agreement (as amended or 

supplemented from time to time, the "Trust Agreement") dated on or about 22 December 2000 

(the "Closing Date") between the Issuer, KPMG Deutsche Treuhand-Gesellschaft 

Aktiengesellschaft Wirtschaftsprüfungsgesellschaft (the "Trustee", which expression includes 

any successor trustee appointed from time to time in accordance with the Trust Agreement), 

Deutsche International Corporate Services (Ireland) Limited as administrator of the Issuer (the 

"Administrator", which expression includes any successor administrator appointed from time to 

time in accordance with the administration agreement dated on or about 19 December 2000 

between, inter alios, the Issuer, the Administrator and the Trustee (the "Administration 

Agreement")), Deutsche Bank Luxembourg S.A. as account bank (the "Issuer Operating 

Account Bank", which expression includes any successor account bank appointed from time to 

time in accordance with the Administration Agreement), Bayerische Hypo- und Vereinsbank AG 

("HVB") as servicer (the "Servicer") and Kreditanstalt für Wiederaufbau (" KfW") as protection 

buyer (the "Credit Swap Counterparty") under the credit swap agreement dated on or about 

22 December 2000 (the "Credit Swap Agreement") between the Issuer and the Credit Swap 

Counterparty. The Trust Agreement and the Master Interpretation and Construction Schedule 

(the "Master Schedule") dated on or about 22 December 2000 signed for the purpose of 

identification by, inter alios, the Issuer and the other parties to the Trust Agreement are attached 

as Annex 1 and Annex 2 to, and form an integral part of, these Terms and Conditions. 

1.3 Obligation to Maintain a Trustee 

As long as any Notes are outstanding, the Issuer shall ensure that a trustee is appointed at all 

times who has undertaken substantially the same functions and obligations as the Trustee 

pursuant to the Notes, including these Terms and Conditions and the Trust Agreement. 

1.4 Duties of Trustee and Binding Determinations 

29

Pursuant to the Trust Agreement, the Trustee will, inter alia (a) hold and administer the Issuer 

Collateral for the benefit of the Secured Parties, (b) administer the KfW Collateral for the benefit 

of the Credit Swap Counterparty, (c) verify the Final Values of Impaired Reference Obligations 

and the Settlement Amounts, Issuer Payments and the allocation of amounts equal thereto 

towards the reduction of the Outstanding Principal Amount of the Notes and (d) supervise and 

verify determinations and calculations of the Servicer and the Administrator and other actions of 

the Issuer and the Administrator in connection with the Notes and the Swap Agreements (as 

defined in the Master Schedule). All determinations made by the Trustee, an Expert or a 

Valuation Expert (each as defined in the Trust Agreement) pursuant to the Trust Agreement and 

all other provisions of the Trust Agreement will be binding on the Noteholders. 

1.5 Transaction Documents 

The Notes (including these Terms and Conditions), the Trust Agreement, the Agency 

Agreement, the Administration Agreement, the Pledge Agreement, the Account Pledge 

Agreement, the Swap Agreements, the KfW Securities Purchase Agreement, the Custody 

Agreement, the Corporate Services Agreement, the Subscription Agreement and any other 

agreement made pursuant thereto or otherwise in connection with the Notes or the rights and 

benefits comprised in the Issuer Collateral (if not defined herein or in the Trust Agreement, as 

defined in the Master Schedule) are referred to herein as the "Transaction Documents". 

1.6 Form, Denomination and Title 

The Notes are issued in bearer form in denominations of € 100,000. The holder of any Note 

shall (except as otherwise required by law) be treated as its absolute owner for all purposes, 

including the making of payments and no person shall be liable for so treating such holder. 

1.7 Global Notes 

Each Class of Notes will initially be represented by a temporary global bearer note (a 

"Temporary Global Note") without interest coupons. Each Temporary Global Note will be 

exchangeable, as provided in Condition 1.8 below, for the relevant Class of Notes represented by 

a permanent global bearer note (the "Permanent Global Note") without interest coupons. 

Definitive Notes or interest coupons shall not be issued. Each Permanent Global Note and 

Temporary Global Note is referred to herein as a "Global Note". 

1.8 Exchange of Temporary Global Notes 

The Temporary Global Note of each Class of Notes shall be exchanged for the Permanent Global 

Note of such Class of Notes on a date (the "Exchange Date") not earlier than 40 days and not 

later than 180 days after the date of issue of the Temporary Global Note upon delivery by the 

relevant accountholders to Clearstream Banking AG, Frankfurt am Main ("Clearstream 

Frankfurt") and by Clearstream Frankfurt to the Principal Paying Agent, of certificates in the 

forms which form part of the Temporary Global Notes and are available from the Principal 

Paying Agent for such purpose, to the effect that the beneficial owner of any Note represented by 

the Temporary Global Note is not a U.S. person or are not U.S. persons other than certain 

financial institutions or certain persons holding through such financial institutions. The 

Permanent Global Note of any Class of Notes delivered in exchange for the Temporary Global 

Note of such Class of Notes shall be delivered only outside the United States. "United States" 

means, for the purposes of this Condition 1.8, the United States of America (including the States 

thereof and the District of Columbia) and its possessions (including Puerto Rico, the U.S. Virgin 

Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands). Any 

exchange of a Temporary Global Note pursuant to this Condition 1.8 shall be made free of 

charge to the holder of any Class of Notes (the "Class A Noteholders", the "Class B 

Noteholders", the "Class C Noteholders", the "Class D Noteholders", the "Class E 

30

Noteholders", the "Class F Noteholders" or the "Class G Noteholders" and, together, the 

"Noteholders"). 

1.9 Execution of Global Notes 

Each Global Note shall only be valid if it bears the handwritten manual or facsimile signatures of 

an authorised officer of the Issuer, authenticated by an authorised officer of Deutsche Bank 

Aktiengesellschaft, Frankfurt as initial Principal Paying Agent. 

1.10 Custody of Global Notes 

Each Global Note will be kept in custody by Clearstream Frankfurt until all obligations of the 

Issuer under the relevant Class of Notes have been satisfied. 

1.11 Payments under Temporary Global Notes 

Payments of interest on the Notes represented by a Temporary Global Note will be made only 

after delivery by the relevant accountholders to Clearstream Frankfurt and by Clearstream 

Frankfurt to the Principal Paying Agent of the certifications described in Condition 1.8. 

2. RIGHTS AND OBLIGATIONS UNDER THE NOTES 

2.1 Status of the Notes 

The Notes constitute direct, secured and unsubordinated obligations of the Issuer, subject to 

allocation of amounts equal to Issuer Payments (as defined in Condition 6.2), Early Redemption 

and Non-Replacement (each as defined in Conditions 8 and 9 respectively). The Notes of each 

Class rank pari passu and rateably without preference or priority amongst themselves and the 

allocation of any amounts equal to Issuer Payments to the Notes shall not be affected by the 

Primary Credit Swap Agreements, the Senior Credit Swap Agreement or the Credit Swap 

Agreement except that while any amounts are due from the Issuer to the Credit Swap 

Counterparty under the Credit Swap Agreement, the Trustee is required to have regard first, to 

the interests of the Credit Swap Counterparty, second, to the interests of the Noteholders and 

finally, to the interests of the Trustee and if there is, at any time, a conflict between the interests 

of a Class of Noteholders and any other Class or Classes of Noteholders, the Trustee shall have 

regard first, to the interests of the Class A Noteholders, second, to the interests of the Class B 

Noteholders, third, to the interests of the Class C Noteholders, fourth, to the interests of the 

Class D Noteholders, fifth, to the interests of the Class E Noteholders, sixth, to the interests of 

the Class F Noteholders and seventh, to the interests of the Class G Noteholders, in each case, as 

one Class. 

2.2 Obligations under the Notes 

The Notes represent obligations of the Issuer only and do not represent an interest in or 

obligation of any Reference Entity (as defined in Condition 6.2), the Trustee, either Bank, any 

Programme Bank, the Credit Swap Counterparty or any of their respective affiliates or any other 

third person or entity. The Notes will not be insured or guaranteed by any governmental agency 

or instrumentality or by the Trustee, either Bank, any Programme Bank, the Credit Swap 

Counterparty or any of their respective affiliates or by any other person or entity. 

2.3 No Rights to Reference Obligations 

Neither the Issuer nor Noteholders have any right to, or interest in, any Reference Obligation 

notwithstanding that an amount equal to any Issuer Payment in respect of such Reference 

Obligation has been allocated to such Notes. 

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2.4 Limited Recourse 

The Notes are direct, secured, unsubordinated and limited recourse obligations of the Issuer, 

payable solely out of the funds available to the extent described herein. The Issuer will have no 

assets or sources of revenue other than its rights under the Transaction Documents and to the 

assets comprised in the Issuer Collateral and the KfW Collateral, subject to the prior claims of 

the Credit Swap Counterparty in respect of obligations owed by the Issuer to the Credit Swap 

Counterparty under the Credit Swap Agreement. 

Accordingly, holders of the Notes must rely solely (a) on the proceeds from the sale of KfW 

Securities under the Securities Put Option and/or redemption of the KfW Securities on the 

Scheduled Maturity Date, (b) Collateral Income (as defined in the Master Schedule) and (c) 

payments by the Credit Swap Counterparty under the Credit Swap Agreement, for the payment 

of interest and principal on the Notes, subject to the prior claims of the Credit Swap 

Counterparty in respect of obligations owed by the Issuer to the Credit Swap Counterparty under 

the Credit Swap Agreement. 

To the extent that such assets, or the proceeds of the realisation thereof, are ultimately 

insufficient to satisfy the claims of all Noteholders in full, then the Issuer shall not be liable for 

any shortfall arising and neither any Noteholder nor the Trustee shall have any further claims 

against the Issuer. Such assets and proceeds shall be deemed to be "ultimately insufficient" as 

such time when no further assets are available and no further proceeds can be realised therefrom 

to satisfy any outstanding claims of the Noteholders, and neither assets nor proceeds will be so 

available thereafter. 

3. THE COLLATERAL 

3.1 The Issuer Collateral 

As security for the obligations of the Issuer to the Trustee for and on behalf of itself, the Credit 

Swap Counterparty and the holders of the Notes (together, the "Secured Parties"), the Issuer 

will: 

(a) transfer to the Trustee for the benefit of the Secured Parties (other than the Credit Swap 

Counterparty) pursuant to the Trust Agreement, by way of security, all the Issuer's 

rights, title and benefits: 

(i) in and to the KfW Securities (as defined herein) (Sicherungsübereignung) and 

the Issuer Cash Account (as defined herein) (Sicherungsabtretung), subject to 

the pledge created by the Issuer in favour of the Credit Swap Counterparty, 

upon satisfaction of the Issuer’s obligations under the Credit Swap Agreement; 

(ii) against the Credit Swap Counterparty and the Custodian and the Issuer Cash 

Account Bank (as defined herein) for the release of the KfW Securities and the 

Issuer Cash Account respectively, from the pledge created by the Issuer in 

favour of the Credit Swap Counterparty upon satisfaction of the Issuer's 

obligations under the Credit Swap Agreement and redelivery of possession of 

such KfW Securities; and 

(iii) against the Administrator under the Administration Agreement; and 

(b) pledge in favour of the Trustee for the benefit of the Secured Parties pursuant to the 

Account Pledge Agreement dated on or about the Closing Date between the Issuer and 

the Trustee, the Issuer Operating Account (as defined herein) and all monies from time 

to time credited thereto and interest accrued thereon, 

32

together, the "Issuer Collateral". 

"Custodian" means HVB or any successor custodian appointed from time to time in accordance 

with the Custody Agreement. 

"Eligible Bank" means a bank or financial institution whose short term unsecured debt is rated 

at least P-1 by Moody's and F-1 by Fitch or is otherwise acceptable to the Relevant Rating 

Agencies. 

"Issuer Cash Account" means the interest bearing account designated as such in the name of the 

Issuer at KfW. 

"Issuer Operating Account" means the interest bearing account designated as such in the name 

of the Issuer at Deutsche Bank Luxembourg S.A. (the "Issuer Operating Account Bank") 

including the interest payment sub-account and the principal payment sub-account thereof or 

such other account as may for the time being be substituted thereof with an Eligible Bank in 

accordance with the provisions of the Administration Agreement. 

"KfW Securities" means the €121,000,000 floating rate medium term notes 

(Inhaberschuldverschreibungen) governed by German law, divided into six seriess (the 

aggregate nominal amount of the series reflecting the initial aggregate nominal amount of the 

Class A Notes, Class B Notes, Class C Notes, Class D Notes, Class E Notes and Class F Notes) 

and issued by KfW under the € 25,000,000,000 KfW Note Programme which are represented by 

global certificates deposited with Clearstream Frankfurt and each note thereunder is in the 

denomination of €100,000 and has its maturity on the Scheduled Maturity Date. 

3.2 KfW Collateral 

KfW as the Credit Swap Counterparty will have the benefit of first priority pledges under a 

pledge agreement dated on or about 22 December 2000 between the Issuer, KfW as pledgee and 

the Trustee (the " Pledge Agreement") over the KfW Securities and the Issuer Cash Account and 

all monies from time to time credited thereto and interest accrued thereon (the "KfW 

Collateral") as security for the Issuer's obligations under the Credit Swap Agreement (the 

"Secured Credit Swap Obligations") which will rank in priority to the rights of the Noteholders 

in the event of the enforcement of the Issuer Collateral and the KfW Collateral. 

3.3 Immediately upon payment in full of the Secured Credit Swap Obligations, the Trustee shall 

procure that KfW delivers the KfW Securities to the Trustee's securities trust account 

(Treuhanddepot) with the Trustee Custodian (the "Securities Trust Account") and transfer the 

credit balance on the Issuer Cash Account to the Issuer Operating Account. 

3.4 Release of Collateral 

On each Collateral Release Date (as defined herein), the Trustee (on behalf of KfW as pledgee 

under the KfW Collateral) will release (i) from the pledge over the KfW Securities under the 

Pledge Agreement, KfW Securities in a principal amount equal to the closest denomination of € 

100,000 greater than the reduction in, or redemption of, the aggregate Outstanding Principal 

Amount of each Class of Notes to be reduced by allocation of amounts equal to Issuer Payments 

or redeemed on such Collateral Release Date less the credit balance on the Issuer Cash Account 

as at such Collateral Release Date provided that, for the avoidance of doubt, if and to the extent 

that the credit balance on the Issuer Cash Account as at such Collateral Release Date is sufficient 

to pay all amounts then due and payable by the Issuer under the Transaction Documents, no 

KfW Securities shall be released and provided further that on the Collateral Release Date 

falling on the Scheduled Maturity Date, such release shall be of all of the KfW Securities which 

33

are then subject to the pledge over the KfW Securities under the Pledge Agreement as at such 

date and (ii) from the pledge over the Issuer Cash Account under the Pledge Agreement, the cash 

collateral equal to the credit balance on the Issuer Cash Account as at such Collateral Release 

Date except that, on or after the Collateral Release Date falling on the Scheduled Maturity Date, 

only such amount as is greater than the amount required to secure the Issuer's obligations under 

the Credit Swap Agreement which are not due and payable on such date shall be so released. In 

releasing KfW Securities, the Trustee shall always release the KfW Securities reflecting the 

relevant Notes. 

"Collateral Release Date" means (a) the Optional Redemption Date (as defined herein), (b) 

each Interest Payment Date which is also a Principal Payment Date, (c) each Interest Payment 

Date after the occurrence of a Non-Replacement Event, (d) any Payment Date on which any 

amount equal to an Issuer Payment is to be allocated to the Class A Notes, the Class B Notes, the 

Class C Notes, the Class D Notes, the Class E Notes, the Class F Notes or the Class G Notes in 

the Reverse Order of Seniority, or (e) any Payment Date on which the Notes are to be redeemed 

as a result of a Tax Event or a Regulatory Event (each as defined in Condition 8 below). 

3.5 Securities Put Option 

On (a) any Collateral Release Date and (b) the Interest Payment Date immediately following the 

occurrence of an Enforcement Event, KfW will purchase from the Issuer (acting through the 

Trustee) KfW Securities in a principal amount equal to the closest denomination of € 100,000 

greater than the amount required by the Issuer for (i) such redemption of the Notes and the Issuer 

Payment under the Credit Swap Agreement (if any) less the credit balance (if any) on the Issuer 

Cash Account (the "Securities Put Option") provided that on the Collateral Release Date 

falling on the Scheduled Maturity Date, KfW will redeem all of the KfW Securities then held by 

the Custodian at their outstanding principal amount. The amount to be paid by KfW under the 

Securities Put Option or upon redemption of the KfW Securities will equal the principal amount 

outstanding of the KfW Securities sold to, or redeemed by, KfW plus accrued interest as at the 

date of sale or redemption. The proceeds of redemption less amounts required for application on 

such date as described below shall, to the extent that the Issuer's obligations under the Credit 

Swap Agreement have not been satisfied in full at that time, be paid by KfW into the Issuer Cash 

Account on the Scheduled Maturity Date. Save as aforesaid, the proceeds of sale or redemption 

shall, prior to the service of an Enforcement Notice, be paid by KfW into the Issuer Operating 

Account and applied by the Administrator (on behalf of the Issuer) in the order of priority set out 

in Conditions 5.8 and 11 (the "Order of Seniority") and, after the service of an Enforcement 

Notice, be paid by KfW into the collateral proceeds account of the Trustee and applied by the 

Trustee in the order of priority set out in Condition 12 (the " Enforcement Order of Seniority"). 

In releasing KfW Securities, the Trustee shall always release the KfW Securities reflecting the 

relevant Notes 

4. PAYMENTS 

4.1 General 

Payments in respect of Notes shall be made to Clearstream Frankfurt for credit to the relevant 

Clearstream Frankfurt Accountholders. Payments will be made according to the procedures of 

Clearstream Luxembourg/Germany. 

4.2 Discharge 

All payments in respect of any Note made by the Issuer to Clearstream Frankfurt shall discharge 

the liability of the Issuer under such Note to the extent of the sums so paid. 

34

4.3 Business Days 

If the date for any payment in respect of any Note is not a Business Day, such payment shall not 

be made until the next succeeding day which is a Business Day unless it would thereby fall into 

the next calendar month, in which case the payment shall be made on the immediately preceding 

Business Day. 

"Business Day" means any TARGET Day or, if such TARGET Day is not a day on which banks 

are open for general business and foreign exchange markets settle payments in Frankfurt am 

Main, Munich, Dublin, Luxembourg and London, the following TARGET Day on which banks 

are open for general business and foreign exchange markets settle payments in Frankfurt am 

Main, Munich, Dublin, Luxembourg and London unless that day falls in the next month, in 

which case the date will be the preceding TARGET Day on which banks are open for general 

business and foreign exchange markets settle payments in Frankfurt am Main, Munich, Dublin, 

Luxembourg and London. 

"TARGET Day" means a day on which the Trans-European Automated Real-time Gross 

settlement Express Transfer system is open for settlement of payments in euro. 

5. INTEREST 

5.1 Accrual of Interest 

Interest will accrue on the Note Outstanding Principal Amount (as defined herein), in respect of 

the first Interest Payment Date, the period from, and including, the Issue Date and ending on, but 

excluding, the first Interest Payment Date and, in respect of any subsequent Interest Payment 

Date, the period from, and including, the immediately preceding Interest Payment Date and 

ending on, but excluding, such Interest Payment Date (each an "Interest Period") at the 

Applicable Rate of Interest (as defined in Condition 5.4). 

5.2 Outstanding Principal Amount 

As of any Payment Date between the Issue Date and the Final Maturity Date (a) the "Note 

Outstanding Principal Amount" of any Note will be an amount equal to the Initial Principal 

Amount of such Note as reduced by (i) the aggregate amount of payments or repayments, if any, 

of principal made in respect of such Note on or before such date and (ii) the allocation of Issuer 

Payments to such Note on or before such date and (b) the "Outstanding Principal Amount" 

will be, with respect to each Class of Notes, the aggregate Note Outstanding Principal Amounts 

of such Class of Notes. 

5.3 Interest Payment Dates and Interest Periods 

Interest on the Notes will be payable on 28 May 2001 and, thereafter, quarterly in arrear on the 

28 th day of February, May, August and November in each year, subject to adjustment of non- 

Business Days as further described herein (each such date, an "Interest Payment Date" or 

"Payment Date"). 

5.4 Rate of Interest 

The rate of interest applicable to the Outstanding Principal Amount of a Note (the "Applicable 

Rate of Interest") for each Interest Period shall be the aggregate of the Applicable Margin plus 

the Euro Interbank Offered Rate (" EURIBOR") for three month euro deposits (with respect to 

the first Interest Period, interpolated between five and six months) which appears on the Bridge 

Telerate Page designated 248 on the Associated Press-Dow Jones Telerate Service (or such other 

page as may replace that page on that service, or such other service as may be nominated by the 

Interest Determination Agent as the information vendor, for the purpose of displaying 

comparable rates) as of 11.00 a.m. (Brussels time) determined by the Interest Determination 

35

Agent on the second TARGET Day before the first day of the relevant Interest Period (each an 

"Interest Determination Date") provided that: 

(a) if Bridge Telerate Page 248 is not available or no such quotation appears thereon, the 

Interest Determination Agent will: 

(i) request the principal Euro-zone (as defined herein) office of each of four major 

banks in the Euro-zone interbank market to provide a quotation of the rate at 

which deposits in euro are offered by it at approximately 11.00 am (Brussels 

time) on the Interest Determination Date to prime banks in the Euro-zone 

interbank market for a period equal to the relevant Interest Period and in an 

amount equal to the then aggregate Outstanding Principal Amount of all 

Classes of Notes and, if such an amount cannot be obtained, in an amount that 

is representative for a single transaction in that market at that time; and 

(ii) determine the arithmetic mean (rounded, if necessary, to the nearest one 

hundred thousandth of a percentage point, 0.000005 being rounded upwards) 

of such quotations; and 

(b) if fewer than two such quotations are provided as requested, the Interest Determination 

Agent will determine the arithmetic mean (rounded, if necessary, as aforesaid) of the 

rates quoted by two or more major banks in the Euro-zone, selected by the Interest 

Determination Agent, at approximately 11.00 a.m. (Brussels time) on the first day of 

the relevant Interest Period for loans in euro to leading European banks for a period 

equal to the relevant Interest Period and in an amount equal to the then aggregate 

Outstanding Principal Amount of each Class of Notes and, if such an amount cannot be 

obtained, in an amount that is representative for a single transaction in that market at 

that time; and 

(c) the Applicable Rate of Interest for such Interest Period shall be the sum of the 

Applicable Margin and the rate or (as the case may be) the arithmetic mean so 

determined provided that if the Interest Determination Agent is unable to determine a 

rate or (as the case may be) an arithmetic mean in accordance with the above provisions 

in relation to any Interest Period, the Applicable Rate of Interest applicable to each 

Class of Notes during such Interest Period will be the Applicable Rate of Interest 

applicable to each Class of Notes in respect of the immediately preceding Interest 

Period. 

"Applicable Margin" means, in the case of the Class A Notes 0.32 per cent. per annum, in the 

case of the Class B Notes 0.50 per cent. per annum, in the case of the Class C Notes 0.70 per 

cent. per annum, in the case of the Class D Notes, 1.45 per cent. per annum, in the case of the 

Class E Notes, 3.70 per cent. per annum, in the case of the Class F Notes, 7.00 per cent. per 

annum and, in the case of the Class G Notes, 10.00 per cent. per annum. 

"Euro-zone" means the region comprising member states of the European Union that have 

adopted the single currency, the euro, in accordance with the EC Treaty. 

"EC Treaty" means the Treaty establishing the European Community (signed in Rome on 25 

March 1957), as amended from time to time, including by the Treaty on European Union (signed 

in Maastricht on 7 February 1992). 

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5.5 Calculation of Interest Amount 

The Interest Determination Agent will, as soon as practicable after the Interest Determination 

Date in relation to each Interest Period, calculate the amount of interest (the "Interest Amount") 

payable in respect of each Note for such Interest Period. The Interest Amount will be calculated 

by applying the Applicable Rate of Interest for such Interest Period to the Note Outstanding 

Principal Amount on the Interest Payment Date immediately following such Interest 

Determination Date (after giving effect to any adjustment of such Outstanding Principal Amount 

on that Payment Date), multiplying the product by the actual number of days in such Interest 

Period divided by 360 and rounding the resulting figure to the nearest euro 0.01 (half a cent 

being rounded upwards). 

5.6 Notice of Rate of Interest and Interest Amounts 

As soon as practicable after receiving notification thereof, the Issuer will cause the Applicable 

Rate of Interest and the Interest Amount applicable to the Notes for each Interest Period and the 

Interest Payment Date falling at the end of such Interest Period to be notified to the Luxembourg 

Stock Exchange and will cause notice thereof to be given to the Noteholders (in accordance with 

Condition 14), the Principal Paying Agent, the Luxembourg Paying Agent, the Trustee and the 

Administrator on or as soon as possible after the date of commencement of the relevant Interest 

Period. 

5.7 Notification to be Final 

All notifications, opinions, determinations, certificates, calculations, quotations and decisions 

given, expressed, made or obtained for the purposes of this Condition by the Interest 

Determination Agent shall (in the absence of gross negligence, wilful default, bad faith or 

manifest error) be binding on the Issuer, the Trustee, the Credit Swap Counterparty and the 

Noteholders and (in the absence as aforesaid) no liability to the Noteholders shall attach to the 

Issuer or the Interest Determination Agent in connection with the exercise or non-exercise by 

them or either of them of their powers, duties and discretions hereunder. 

5.8 Payment of Interest 

On each Interest Payment Date prior to the service of an Enforcement Notice, the amounts in the 

interest payment sub-account of the Issuer Operating Account as at the relevant Interest Payment 

Date shall be applied by the Administrator (for and on behalf of the Issuer) in making the 

following payments or provisions in the following order of priority but, in each case, only to the 

extent that there are funds available for the purpose and all payments or provisions of a higher 

priority that fall due to be paid or provided for on such Interest Payment Date have been made in 

full: 

(a) first, in or towards payment of the Issuer's liability to tax (if any); 

(b) second, in or towards payment of the fees, costs and expenses due and payable to, or 

incurred by, the Trustee under the Trust Agreement; 

(c) third, in or towards payment of amounts due and payable pari passu with each other on 

a pro rata basis of the Issuer Fees (other than those under the second item); 

(d) fourth, in or towards payment of accrued interest on the Class A Notes pari passu with 

each other on a pro rata basis; 

(e) fifth, in or towards payment of accrued interest on the Class B Notes pari passu with 


37

(f) sixth, in or towards payment of accrued interest on the Class C Notes pari passu with 


(g) seventh, in or towards payment of accrued interest on the Class D Notes pari passu 

with each other on a pro rata basis; 

(h) eighth, in or towards payment of accrued interest on the Class E Notes pari passu with 


(i) ninth, in or towards payment of accrued interest on the Class F Notes pari passu with 


(j) tenth, in or towards payment of accrued interest on the Class G Notes pari passu with 


(k) eleventh, in or towards payment of the Issuer Expenses (other than those under the 

second item) and payable pari passu with each other on a pro rata basis; 

(l) twelfth, transfer of the credit balance (if any) of the Interest Payment Sub-Account less 

the pro rata amount of €1,000 per annum in respect of profit of the Issuer to the Issuer 

Cash Account. 

"Issuer Expenses" means any costs, expenses and other amounts (other than Issuer Fees) due 

and payable by the Issuer on any Interest Payment Date to any of the Trustee, the Agents, the 

Custodian, the Account Banks, the Administrator, the Trustee Custodian, the directors of the 

Issuer, the auditors of the Issuer, the Relevant Rating Agencies and all other costs and expenses 

incurred by the Issuer with the prior written consent of the Trustee (such consent not to be 

unreasonably withheld unless the giving of such consent might, in the reasonable opinion of the 

Trustee, have an adverse effect on the ability of the Issuer to perform its obligations under the 

Notes or the Transaction Documents or the ratings assigned to the Rated Notes). 

"Issuer Fees" means any fees payable by the Issuer on each Interest Payment Date to any of the 

Trustee, the Agents, the Custodian, the Account Banks, the Administrator, the Corporate 

Secretary, the Trustee Custodian, the directors of the Issuer (which shall not exceed €5,000 per 

annum in respect of any director), the auditors of the Issuer, the Luxembourg Stock Exchange, 

the Relevant Rating Agencies and all other fees incurred by the Issuer with the prior written 

consent of the Trustee (such consent not to be unreasonably withheld unless the giving of such 

consent might, in the reasonable opinion of the Trustee, have an adverse effect on the ability of 

the Issuer to perform its obligations under the Notes, or the other Transaction Documents or the 

ratings assigned to the Rated Notes). 

5.9 Interest Determination Agent 

The Issuer shall ensure that there is at all times an interest determination agent appointed to act 

on its behalf in accordance with the provisions of the Agency Agreement. 

6. REDUCTION OF OUTSTANDING PRINCIPAL AMOUNT OF THE NOTES 

6.1 Allocation of Issuer Payments 

Upon any Issuer Payment being made by the Issuer to the Credit Swap Counterparty under the 

Credit Swap Agreement on an Interest Payment Date, the Outstanding Principal Amount of the 

Notes will be reduced by an amount equal to that Issuer Payment provided that the allocation of 

such amount has been verified in accordance with the Trust Agreement. Any such reduction will 

be applied to reduce the Outstanding Principal Amount of first, the Class G Notes, second, the 

38

Class F Notes, third, the Class E Notes, fourth, the Class D Notes, fifth, the Class C Notes, sixth, 

the Class B Notes and seventh, the Class A Notes (the "Reverse Order of Seniority"), in each 

case, pari passu on a pro rata basis within any Class of Notes, until the Outstanding Principal 

Amount of each such Class of Notes is reduced to zero. 

6.2 The following definitions are in alphabetical order, they cross-refer to each other and together 

they form the further provisions for the reduction of the Outstanding Principal Amount of the 

Notes as described in Condition 6.1. 

"Addition" means the increase by the Servicer of the Reference Obligation Notional Amount of 

any Reference Obligation in accordance with the terms of the Credit Swap Agreement. 

"Adjusted Impaired Reference Obligation" means, an Impaired Reference Obligation in 

respect of which some or all of the principal payable at its maturity, repayment or due date (or 

dates) has been unconditionally reduced, cancelled, voided or discharged with the agreement or 

approval of the Servicer, other than in accordance with the applicable terms of such Reference 

Obligation in effect on the date on which it became an Impaired Reference Obligation (each such 

reduction, cancellation, voiding or discharge a “Diminution”). For the avoidance of doubt, 

unless the context otherwise so admits, the term “Impaired Reference Obligations” will include 

Adjusted Impaired Reference Obligation 

"Adjusted Reference Obligation" means, in respect of a Reference Obligation which, before 

the occurrence of a Credit Event, has experienced a restructuring or rescheduling of its principal, 

interest payments or other terms (whether as to quantum or timing of payments) (an 

“Adjustment”) in accordance with the Procedures, the resulting Obligation in respect of that 

restructured or rescheduled Reference Obligation. Each Adjusted Reference Obligation shall: 

(a) replace the Reference Obligation from which it was restructured or rescheduled in the 

Reference Portfolio List (whereupon it shall be deemed to be a “Reference 

Obligation”); and 

(b) save as modified by the Adjustment, bear the same terms as the Reference Obligation 

which it replaced. 

An Adjusted Reference Obligation need not comply with the Portfolio Concentration Tests or 

Eligibility Criteria, and an Adjustment shall not be treated as a Removal. 

"Aggregate Collateral" means, in respect of a Reference Entity, the total amount of collateral 

(excluding any Dedicated Collateral) held in respect of the aggregate of the Other Obligations 

and Reference Obligations of that Reference Entity. 

"Bankruptcy" means a Reference Entity: 

(a) is dissolved (other than pursuant to a consolidation, amalgamation or merger); 

(b) becomes insolvent or is unable to pay its debts or fails or admits in writing its inability 

generally to pay its debts as they become due; 

(c) makes a general assignment, arrangement or composition with or for the benefit of its 

creditors; 

(d) institutes or has instituted against it proceedings seeking a judgment of insolvency or 

bankruptcy or any other relief under any bankruptcy or insolvency law or other similar 

39

law affecting creditors’ rights, or a petition is presented for its winding-up or 

liquidation, and, in the case of any such proceeding or judgment (i) results in a 

judgment of insolvency or bankruptcy or the entry of an order for relief or the making 

of an order for its winding-up or liquidation or (ii) is not dismissed, discharged, stayed 

or restrained in each case within thirty days of the institution or presentation thereof; 

(e) has a resolution passed for its winding-up, official management or liquidation (other 

than pursuant to a consolidation, amalgamation or merger); 

(f) seeks or becomes subject to the appointment of an administrator, provisional liquidator, 

conservator, receiver, trustee, custodian or other similar official for it or for all or 

substantially all its assets; 

(g) has a secured party take possession of all or substantially all of its assets or has a 

distress, execution, attachment, sequestration or other legal process levied, enforced or 

sued on or against all or substantially all its assets and such secured party maintains 

possession, or any such process is not dismissed, discharged, stayed or restrained, in 

each case within 30 days thereafter; or 

(h) causes or is subject to any event with respect to it, under paragraphs (a) to (g) 

(inclusive). 

"Conditions to Payment" means, in respect of the Credit Swap Agreement: 

(a) a Credit Event Notice is delivered by the Calculation Agent on behalf of the Credit 

Swap Counterparty to the Issuer and the Trustee (with a copy to each of HVB in respect 

of the Primary Credit Swap Agreements and the Senior Credit Swap Counterparty in 

respect of the Senior Credit Swap Agreement) within 3 calendar months after the 

Servicer becoming or being made aware of the occurrence of the relevant Credit Event 

but, in any event, on or before the earlier of (i) the Scheduled Termination Date and (ii) 

the date of termination of the Credit Swap Agreement; and 

(b) verification and confirmation by the Verification Agent of the occurrence of the 

relevant Credit Event and notice of such confirmation and verification have been 

delivered to the Issuer and the Trustee. 

"Credit Event" means each of (a) Bankruptcy and (b) Failure to Pay. 

"Credit Event Notice" means an irrevocable notice from the Calculation Agent in accordance 

with the Credit Swap Agreement to the Issuer (with a copy to the Trustee) that describes a Credit 

Event that occurred in respect of a Reference Entity on or after the Issue Date (or, if later, the 

date of inclusion of the Reference Entity in the Reference Portfolio) and on or prior to the earlier 

of (i) the Scheduled Maturity Date and (ii) the date of any notice designating an Early 

Termination Date (as defined in the Credit Swap Agreement) or, in the case of deemed early 

termination, the Early Termination Date. Subject to the above, a Credit Event Notice must 

contain a description in reasonable detail of the facts relevant to the determination that a Credit 

Event has occurred and shall be subject to the requirements regarding notices set forth in Section 

6 of the Credit Swap Confirmation. 

"Cumulative Pool Amortisation" means, as at any Payment Date, an amount equal to the 

aggregate of (a) the sum of all Additions and Replacements (each as defined herein) less (b) the 

sum of all Principal Payments, in each case, during the period commencing on (and including) 

the Closing Date and ending on (and including) such Payment Date. 

40

"Cumulative Settlement Amounts" means, in respect of a Payment Date, the aggregate amount 

of Accrued Settlement Amounts with respect to Impaired Reference Obligations from the Issue 

Date to the immediately preceding Interest Payment Date (or in the case of the first Payment 

Date, the Closing Date). 

"Cut-off Date" means 12 December 2000. 

"Dedicated Collateral" means, in respect of a Reference Entity such collateral as is held against 

that Reference Obligation in respect of which the Final Value is to be determined. Dedicated 

Collateral shall (to the extent permitted by the terms on which it is held and law) shall be applied 

in priority to that Reference Obligation. 

"Determination Period" means the period commencing on the date on which a Reference 

Obligation becomes an Impaired Reference Obligation and ends on (in the case of an Impaired 

Reference Obligation which is not an Adjusted Impaired Reference Obligation) the date on 

which the Servicer irrevocably determines that it is no longer commercially viable to pursue and 

further recoveries in respect of that Impaired Reference Obligation or (in the case of an Adjusted 

Impaired Reference Obligation), at the election of the Servicer, either the date on which the 

Servicer irrevocably determines that it is no longer commercially viable to pursue and further 

recoveries in respect of that Impaired Reference Obligation or the date on which the relevant 

Dimunition became unconditional. 

"Diminution Amount" means, in respect of an Adjusted Impaired Reference Obligation, the 

lower of (a) the amount by which the Reference Obligation Notional Amount is reduced as a 

result of the relevant Diminution, expressed as a percentage of the Reference Obligation 

Notional Amount of that Adjusted Impaired Reference Obligation as at the date on which it 

became an Impaired Reference Obligation and (b) an amount (expressed as a percentage) that is 

equal to the proportion that the Reference Obligation Notional Amount of that Adjusted 

Impaired Reference Obligation (determined before the deduction of the Diminution Amount) 

bears to the of the aggregate of the outstanding principal balances of Other Obligations, the 

Reference Obligation Notional Amounts of Reference Obligations which are not Impaired 

Reference Obligations and the Reference Obligation Notional Amounts of Impaired Reference 

Obligations of the relevant Reference Entity 

"Eligible Obligation" means an Obligation or part thereof that meets the Eligibility Criteria. 

"Eligibility Criteria" means, in respect of an Obligation, the following criteria applied to such 

Obligation as at the Cut-off Date or any date of Replacement or Addition: (a) which has been 

incurred under the Programmes, (b) which is legally valid and enforceable, (c) which constitutes 

an unsubordinated, unconditional obligation on the part of the Reference Entity to pay the 

amount of principal and interest under the terms of such Obligation, (d) in respect of which no 

Failure to Pay (as defined in "TERMS AND CONDITIONS OF THE NOTES") has occurred 

and is continuing, (e) in respect of which no Bankruptcy (as defined in "TERMS AND 

CONDITIONS OF THE NOTES") of the Reference Entity has occurred, (f) in respect of which 

no litigation is pending, (g) which is denominated in euro or Deutsche Mark, (h) which has as its 

final maturity date on or before the Scheduled Maturity Date, (i) in respect of which the 

Reference Entity is not an "XS company" under the Procedures, (j) in respect of which the 

Reference Entity falls within the rating class of 6 or better in the HVB Internal Rating System 

(as defined in "REFERENCE PORTFOLIO SERVICING") and (k) in respect of which the 

Reference Entity is organised or incorporated under the laws of the Federal Republic of 

Germany. 

41

"Failure to Pay" means, with respect to any Reference Obligation, the failure by the relevant 

Reference Entity to make, when and where due, any payment in respect of such Reference 

Obligation in each case, in an amount equal to an aggregate amount equal to or more than the 

Payment Requirement (or its equivalent in Deutsche Mark converted at the Euro Conversion 

Rate) within 120 days of the due date for such payment. 

"Final Value" means, (I) in respect of an Impaired Reference Obligation (which is not an 

Adjusted Impaired Reference Obligation) which is in its Determination Period (a) on the day on 

which a notice of Early Redemption or Optional Redemption is delivered or (b) on the Interest 

Payment Date immediately prior to the Final Maturity Date, the lesser of (i) 100% and (ii) the 

value thereof, determined and verified in accordance with the valuation procedures set out in the 

Trust Agreement, (II) in respect of an Impaired Reference Obligation which is not an Adjusted 

Impaired Reference Obligation the lesser of (i) 100% and (ii) an amount equal to the sum of: 

(a) the product of (i) Dedicated Collateral and (ii) the Ratio of Dedicated Collateral 


(b) the product of (i) the Reference Obligation Notional Amount expressed as a percentage 

of all the Obligations of that Reference Entity (ii) the Aggregate Collateral and (iii) the 

Ratio of Aggregate Collateral Recoveries; and 

(c) the product of (i) the Ratio of Uncollateralised Recoveries and (ii) the amount by which 

the Other Obligations in respect of which Aggregate Collateral was held exceeded that 

Aggregate Collateral 

and (III) in respect of an Adjusted Impaired Reference Obligation, an amount equal to 100% less 


In respect of each Impaired Reference Obligation and each Adjusted Impaired Reference 

Obligation, the Final Value shall be expressed as a percentage of the relevant Reference 

Obligation Notional Amount and verified in accordance with the Trust Agreement, provided 

however, that such sum shall be calculated no sooner than at the end of the Determination 

Period, the day on which a notice of Early Redemption or Optional Redemption is delivered or 

the Interest Payment Date immediately prior to the Final Maturity Date, as the case may be, and 

further provided that the Final Value shall at no time be less than 0%. 

"Initial Reference Portfolio Notional Amount" means €1,000,000,000 

"Issuer Payment" means, in respect of an Impaired Reference Obligation, an amount equal to 

the related Settlement Amount. 

"Obligation" means any unsubordinated obligation of a Reference Entity (whether as principal, 

surety or otherwise and whether present or future, contingent or otherwise) for the repayment of 

borrowed money (other than any such obligation that is in the form or represented by, a bond, 

note, certificated debt security or other debt security). 

"Other Obligations" means, in respect of a Reference Entity, Obligations which, satisfy the 

Eligibility Criteria. 

"Payment Requirement" means, at any time, in respect of any Reference Obligation, any 

payment in respect of any Obligation of the Reference Entity in an aggregate amount of not less 

than 2 per cent. of the Reference Obligation Notional Amount of such Reference Obligation at 

such time. 

42

"Principal Payment" means, in respect of any Reference Obligation, an amount equal to the 

principal amount of such Reference Obligation or part thereof repaid on or prior to its stated 

maturity date. 

"Programmes" means the loan programmes established by KfW, Landesanstalt für 

Aufbaufinanzierung, Deutsche Ausgleichsbank, HVB and VuW for loans to German small and 

medium sized enterprises (Mittelstand). 

"Ratio of Aggregate Collateral Recoveries" means the proportion of recoveries effected on or 

prior to the last day of the Determination Period in respect of the Aggregate Collateral held in 

respect of the relevant Reference Entity, relative to the amount of such Aggregate Collateral as 

at the date on which the Credit Event occurred. 

“Ratio of Dedicated Collateral Recoveries” means the proportion of recoveries effected on or 

prior to the last day of the Determination Period in respect of the Dedicated Collateral held in 

respect of the relevant Reference Obligation, relative to the amount of such Dedicated Collateral 

as at the date on which the Credit Event occurred. If the Ratio of Dedicated Collateral 

Recoveries is less than one, then to the extent there is Aggregate Collateral available for 

application in respect of that Reference Obligation, such Aggreagate Collateral (to the extent 

permitted by the terms on which it is held and law) shall then be applied towards that Reference 

Loan. If the Ratio of Dedicated Collateral Recoveries is greater than one, then (to the extent 

permitted by the terms on which it is held and law) any excess Dedicated Collateral shall be 

allocated to the Aggregate Collateral. 

"Ratio of Uncollateralised Recoveries" means, in respect of an Impaired Reference Obligation, 

the proportion of recoveries (excluding, for the avoidance of doubt, any recoveries effected in 

respect of Dedicated Collateral and Aggregate Collateral) effected on or prior to the last day of 

the Determination Period in respect of the amount by which the Other Obligations and Reference 

Obligations (including that Impaired Reference Obligation) for which Aggregate Collateral and 

Dedicated Collateral was held exceeded that Aggregate Collateral and Dedicated Collateral, 

relative to the amount of such excess as at the date on which the Credit Event occurred. 

"Reference Entity" means each entity specified as such in the Reference Portfolio List. 

"Reference Obligation Notional Amount" means, in respect of a Reference Obligation, the 

amount specified as such in the most recent Reference Portfolio List, as of the Cut-off Date, as 

reduced from time to time to reflect any Principal Payments by a Reference Entity in respect of 

such Reference Obligation. 

"Reference Obligations" means the Eligible Obligations specified in the Reference Portfolio 

List from time to time (which expression where the context so admits, includes the Adjusted 

Reference Obligations). 

"Reference Portfolio" means the Eligible Obligations specified in the Reference Portfolio from 

time to time, provided that the Reference Obligation Notional Amounts of such Reference 

Obligations, as reduced from time to time to reflect any prepayment or repayment of principal of 

such Reference Obligations, shall not at any time exceed the amount equal to the Reference 

Portfolio Notional Amount at that time. 

"Reference Portfolio List" means a registry maintained by the Servicer that will contain, as to 

each separate entry in respect of a Reference Obligation: 

(a) the name of the Reference Entity; 

43

(b) the Bundesland in which the Reference Entity is domiciled; 

(c) the identification number of the Reference Entity; 

(d) the identification number of the Reference Obligation; 

(e) the Reference Obligation Notional Amount; 

(f) the senior unsecured debt rating (if any) of each Relevant Rating Agency for the 

Reference Entity (if any); 

(g) the HVB Internal Rating for the Reference Entity; 

(h) the Industry Group of each Relevant Rating Agency for the Reference Entity; and 

(i) the Related Collateral with respect to the Reference Obligation. 

"Reference Portfolio Notional Amount" means the Initial Reference Portfolio Notional 

Amount less the Reference Obligation Notional Amounts of all Impaired Reference Obligations. 

"Removal" means the removal by the Servicer, at any time, of any Reference Obligation from 

the Reference Portfolio List if the Servicer or the Trustee determines that any Obligation 

specified in the Reference Portfolio List was not an Eligible Obligation at the time of its 

inclusion in the Reference Portfolio List. 

"Replacement" means that during the period commencing on the Closing Date and ending on 

the Scheduled Maturity Date (the "Revolving Period"), provided that no Non-Replacement 

Event has occurred the Servicer may, on the 28 th day of each month, add new Eligible 

Obligations to the Reference Portfolio if (a) the cumulative aggregate Reference Obligation 

Notional Amount of all the Impaired Reference Obligations which are still in their respective 

Determination Periods expressed as a percentage of the Initial Reference Portfolio Notional 

Amount does not exceed 1.5%. (b) the weighted average rating of the Reference Obligations 

which are the subject of such Replacement is 4 or better and (c) the weighted average life of the 

Reference Obligations which are the subject of such Replacement is 3.75 years or better 

provided that (i) each new Reference Obligation shall be an Eligible Obligation and (ii) each 

new Reference Obligation shall not contravene any of the Portfolio Concentration Tests (as 

defined in the Master Schedule) or, if any such test is contravened as at such date, the addition of 

such new Reference Obligation, would reduce the extent of such contravention of the Portfolio 

Concentration Tests and provided further that the sum of the notional amounts of all new 

Eligible Obligations plus the notional amount of all Reference Obligations does not exceed the 

Reference Portfolio Notional Amount. 

"Settlement Amount" in respect of an Impaired Reference Obligation means the euro amount 

(or euro equivalent of an amount in Deutsche Mark converted at the Euro Conversion Rate (as 

defined in the Master Schedule)) equal to the related Reference Obligation Notional Amount less 

the product of the Final Value of such Impaired Reference Obligation and the related Reference 

Obligation Notional Amount. 

7. REDEMPTION 

Scheduled Maturity and Final Maturity 

Unless redeemed earlier under Conditions 8, 9 or 10 or reduced to zero under Condition 6, the 

Notes will be redeemed at their then prevailing Note Outstanding Principal Amount on the 

44

Interest Payment Date falling in February 2009 (the "Schedule Maturity Date") provided that 

if any Impaired Reference Obligations are in their Determination Period or the Final Value in 

respect hereof has not been verified in accordance with the Trust Agreement as at such date, the 

Notes may remain outstanding until the Interest Payment Date falling in February 2011 (the 

"Final Maturity Date") and payments of principal will be made on such Notes on each Interest 

Payment Date after the Scheduled Maturity Date up to, and including, the Final Maturity Date 

(each a "Principal Payment Date"). Should Notes be redeemed, the Trustee will inform the 

Luxembourg Stock Exchange, as long as the Notes are listed, of the remaining Outstanding 

Principal Amount of the remaining Notes. 

8. MANDATORY EARLY REDEMPTION 

Early Redemption 

The Notes will be subject to early redemption in whole (but not in part) prior to the Scheduled 

Maturity Date at their then Outstanding Principal Amount plus accrued interest on the Interest 

Payment Date immediately following the occurrence of a Tax Event, a Regulatory Event or an 

Enforcement Event provided that if the Final Value of any Impaired Reference Obligation has 

not been verified in accordance with the Trust Agreement before such Interest Payment Date, 

then the Notes will be redeemed on the next following Interest Payment Date after verification in 

accordance with the Trust Agreement of the Final Values in respect of all Impaired Reference 

Obligations (the "Early Redemption Date"). 

A "Tax Event" means: 

(a) HVB, KfW or the Issuer is required by the laws of Ireland, Germany or Luxembourg to 

withhold or deduct an amount in respect of any taxes from any payment of (i) in the 

case of the Issuer, principal of, interest on, or any other amount payable in respect of 

the Notes or any amount payable under the Credit Swap Agreement, or (ii) in the case 

of KfW, any payment of principal of, or interest on, or any other amount payable in 

respect of, the KfW Securities, the Issuer Cash Account or any of the Swap 

Agreements, or (iii) in the case of HVB, any amount payable under the Primary Credit 

Swap Agreements; or 

(b) the Issuer ceases to be a "qualifying company" for the purposes of Section 110 of the 

Irish Taxes Consolidation Act of 1997 (as amended from time to time); or 

(c) the Issuer determines that income earned on the Issuer Operating Account or any sum 

received pursuant to the Transaction Documents is subject to deduction or withholding 

for or on account of any tax, duty, assessment or other governmental charge or is 

otherwise subject to taxation in Germany, Ireland or Luxembourg; or 

(d) KfW exercises its right of pre-payment under the KfW Securities as a result of any 

payment hereunder becoming subject to deduction or withholding on account of tax, 

and HVB, KfW or the Issuer (as the case may be) has taken reasonable steps to mitigate the 

effects of such circumstances for a period of 30 days provided that none of HVB, KfW or the 

Issuer shall be under any obligation to take any such action if, in its reasonable opinion, it would 

thereby incur additional costs or expenses. 

"Regulatory Event" means, after the Issue Date, any change in the Basel Capital Accord 

promulgated by the Basel Committee on Banking Supervision (the "Basel Accord") or in the 

international, European or German regulations, rules and instructions ("Bank Regulations") 

applicable to or applied by either Bank and/or applicable to, or applied by, KfW or a change in 

45

the manner in which the Basel Accord or such Bank Regulations are interpreted or applied by 

the Basel Committee on Banking Supervision or by any relevant competent international, 

European or national body (including any relevant international, European or German central 

bank or other competent authority) or by either Bank or KfW which has the effect that (a) either 

of the Banks or KfW would be subject to less favourable capital adequacy treatment applicable 

with respect to the Transaction or the Reference Portfolio than the capital adequacy treatment 

with respect thereto on the Issue Date and/or (b) the risk weighting factor(s) applicable to the 

Reference Portfolio is less favourable than the risk weighting factor(s) applicable thereto on the 

Issue Date for either of the Banks or KfW. 

An "Enforcement Event" means: 

(a) the Issuer defaults in the payment of any interest or principal due in respect of the Notes 

and such default is not remedied within a period of five Business Days of the due date 

for payment thereof; or 

(b) the Issuer fails to perform or observe any of its other obligations under the Notes or any 

Transaction Document to which it is a party which failure is either (i) incapable of 

remedy or (ii) if such failure is capable of remedy, it continues unremedied for a period 

of thirty days following the delivery by the Trustee of written notice thereof to the 

Issuer; or 

(c) one or more judgment(s) or order(s) from which no further appeal or judicial review is 

permissible under applicable law for the payment of any amount (or its equivalent in 

any other currency or currencies) is rendered against the Issuer and continues 

unsatisfied and unstayed for a period of thirty days after the date(s) thereof or, if later, 

the date therein specified for payment; or 

(d) other than pursuant to the Trust Agreement or the Account Pledge Agreement, a 

secured party takes possession of, or a receiver, manager or other similar officer is 

appointed in relation to, the whole or a substantial part of the undertaking, assets and 

revenues of the Issuer; or 

(e) (i) the Issuer becomes insolvent or is unable to pay its debts as they fall due, or (ii) an 

administrator, examiner or liquidator of the Issuer over the whole or a substantial part 

of the undertaking, assets and revenues of the Issuer is appointed (or application for any 

such appointment is made), or (iii) the Issuer takes any action for a readjustment or 

deferment of any of its obligations or makes a general assignment or an arrangement or 

composition with or for the benefit of its creditors or declares a moratorium in respect 

of any of its indebtedness, or (iv) the Issuer ceases or threatens to cease to carry on all 

or any substantial part of its business, or (v) an order is made or an effective resolution 

is passed for the winding up, liquidation or dissolution of the Issuer, or (vi) any event 

occurs which under the laws of Ireland has an analogous effect to any of the events 

referred to in sub-paragraphs (i) to (v); or 

(f) either of the Primary Credit Swap Agreements is terminated as a result of a Serious 

Cause or Insolvency (each as defined below); or 

(g) any of the security interests constituted over the assets comprised in the Issuer 

Collateral or the KfW Collateral under the relevant Transaction Documents is or 

becomes invalid, void, voidable or unenforceable; or 

46

(h) the Issuer, HVB or KfW is materially restricted from performing any of its obligations 

(i) in the case of the Issuer, under the Notes or any other Transaction Document or (ii) 

in the case of HVB or KfW, under any of the Transaction Documents to which it is 

expressed to be a party; or 

(i) the Credit Swap Agreement is terminated. 

"Insolvency" means an application is filed by HVB or any third party for the commencement of 

bankruptcy or other insolvency proceedings against the assets of HVB or HVB is generally 

unable to pay its debts as they fall due or is otherwise in a situation which justifies the 

commencement of such proceedings. 

"Serious Cause" means non-receipt by KfW of a payment due from HVB under either of the 

Primary Credit Swap Agreements or non-performance by HVB of any other material obligation 

under either of the Primary Credit Swap Agreements. 

9. NON-REPLACEMENT 

If a Non-Replacement Event occurs, then the Revolving Period will end and; 

a) on the date on which the amount (“Relevant Amount”) equal to the Cumulative Final 

Amount less the Cumulative Pool Amortisation is greater than €853,000,000, the Notes will be 

redeemed on such Payment Date in the Order of Seniority in the amount by which the Relevant 

Amount exceeds €853,000,000; 

b) on any Payment Date thereafter the Notes will be redeemed in the Order of Seniority by an 

amount equal to the sum of all Principal Payments in respect of the Interest Period ending on 

such Payment Date. 

"Cumulative Final Amount" means the aggregate amount of Final Amounts with respect to 

Reference Obligations from the Issue Date to the latest Payment Date. 

"Non-Replacement Event" means (a) the Cumulative Settlement Amounts are equal to or 

exceed 1.2% of the Initial Reference Portfolio Notional Amount, or (b) the failure by the 

Servicer to deliver the Reference Portfolio List or any other required report to the Trustee, and 

such failure, in the sole opinion of the Trustee, materially affects the interests of the Credit Swap 

Counterparty and the Noteholders. 

10. OPTIONAL REDEMPTION 

The Notes will be subject to redemption in whole (but not in part) at their aggregate Outstanding 

Principal Amount at the option of the Issuer on any Interest Payment Date falling after the fifth 

anniversary of the Issue Date upon no less than 60 days' prior notice to the Noteholders 

provided that the Credit Swap Agreement is also terminated by the Credit Swap Counterparty 

on such date (the "Optional Redemption Date"). 

11. PAYMENTS OF PRINCIPAL 

On each Payment Date prior to the service of an Enforcement Notice, the amounts in the 

principal payment sub-account as at the relevant Payment Date shall be applied by the 

Administrator on behalf of the Issuer in making the following payments in the following order of 

priority but, in each case, only to the extent that all payments of a higher priority that fall due to 

be paid on such Payment Date have been made in full: 

47

(a) first, in or towards payment of the aggregate amount of Issuer Payments, if any, or 

amounts in respect thereof payable following the occurrence of an Early Termination 

Date (as defined in the Master Schedule) then due and payable to the Credit Swap 

Counterparty; 

(b) second, in or towards payment pari passu on a pro rata basis of the then Outstanding 

Principal Amount on the Class A Notes (after the allocation of Issuer Payments on such 

Payment Date) until all the Class A Notes have been redeemed in full; 

(c) third, in or towards payment pari passu on a pro rata basis of the then Outstanding 

Principal Amount on the Class B Notes (after the allocation of Issuer Payments on such 

Payment Date) until all the Class B Notes have been redeemed in full; 

(d) fourth, in or towards payment pari passu on a pro rata basis of the then Outstanding 

Principal Amount on the Class C Notes (after the allocation of Issuer Payments on such 

Payment Date) until all the Class C Notes have been redeemed in full; 

(e) fifth, in or towards payment pari passu on a pro rata basis of the then Outstanding 

Principal Amount on the Class D Notes (after the allocation of Issuer Payments on such 

Payment Date) until all the Class D Notes have been redeemed in full; 

(f) sixth, in or towards payment pari passu on a pro rata basis of the then Outstanding 

Principal Amount on the Class E Notes (after the allocation of Issuer Payments on such 

Payment Date) until all the Class E Notes have been redeemed in full; 

(g) seventh, in or towards payment pari passu on a pro rata basis of the then Outstanding 

Principal Amount on the Class F Notes (after the allocation of Issuer Payments on such 

Payment Date) until all the Class F Notes have been redeemed in full; 

(h) eighth, in or towards payment pari passu on a pro rata basis of the then Outstanding 

Principal Amount on the Class G Notes (after the allocation of Issuer Payments on such 

Payment Date) until all the Class G Notes have been redeemed in full; and 

(i) ninth, transfer of the credit balance (if any) of the Principal Payment Sub-Account to 

the Issuer Cash Account. 

12. APPLICATION OF MONIES UPON ENFORCEMENT 

Application of Monies 

On or after the service of an Enforcement Notice, any monies received or recovered by the 

Trustee shall be paid into the Collateral Proceeds Account (as defined in the Master Schedule) 

and available for distribution and shall (subject to payment or provision for any debts or 

liabilities having priority by law to the obligations of the Issuer to the Secured Parties) be 

allocated and applied by the Trustee on any Business Day firstly, in or towards payment of the 

Issuer's liability to tax (if any) and, thereafter, in the following order of priority but, in each case, 

only to the extent that payments of a higher priority have been made in full: 

(a) first, in or towards payment pari passu on a pro rata basis of (i) any remuneration then 

due and payable to any receiver of the Issuer and all costs, expenses and charges 

incurred by such receiver, (ii) all fees, costs and expenses, charges and liabilities then 

due and payable to, or incurred by, the Trustee under the Trust Agreement in relation to 

the exercise of the rights and powers and performance of the obligations of the Trustee 

under this Agreement and (iii) any outstanding registered office, corporate secretarial 

48

and annual return filing fees necessary for the corporate existence of the Issuer then due 

and payable; 

(b) second, in or towards payment of the aggregate amount of Issuer Payments, if any, or 



Counterparty; 

(c) third, in or towards payment of accrued interest on the Class A Notes pari passu on a 

pro rata basis; 


Principal Amount on the Class A Notes (after allocation of Issuer Payments on such 

day) until all the Class A Notes have been redeemed in full; 

(e) fifth, in or towards payment of accrued interest on the Class B Notes pari passu on a 



Principal Amount on the Class B Notes (after allocation of Issuer Payments on such 

day) until all the Class B Notes have been redeemed in full; 

(g) seventh, in or towards payment of accrued interest on the Class C Notes pari passu on 

a pro rata basis; 


Principal Amount on the Class C Notes (after allocation of Issuer Payments on such 

day) until all the Class C Notes have been redeemed in full; 

(i) ninth, in or towards payment of accrued interest on the Class D Notes pari passu on a 


(j) tenth, in or towards payment pari passu on a pro rata basis of the then Outstanding 

Principal Amount on the Class D Notes (after allocation of Issuer Payments on such 

day) until all the Class D Notes have been redeemed in full; 

(k) eleventh, in or towards payment of accrued interest on the Class E Notes pari passu on 


(l) twelfth, in or towards payment pari passu on a pro rata basis of the then Outstanding 

Principal Amount on the Class E Notes (after allocation of Issuer Payments on such 

day) until all the Class E Notes have been redeemed in full; 

(m) thirteenth, in or towards payment of accrued interest on the Class F Notes pari passu 

on a pro rata basis; 

(n) fourteenth, in or towards payment pari passu on a pro rata basis of the then 

Outstanding Principal Amount on the Class F Notes (after allocation of Issuer Payments 

on such day) until all the Class F Notes have been redeemed in full; 

(o) fifteenth, in or towards payment of accrued interest on the Class G Notes pari passu on 


49

(p) sixteenth, in or towards payment pari passu on a pro rata basis of the then Outstanding 

Principal Amount on the Class G Notes (after allocation of Issuer Payments on such 

day) until all the Class G Notes have been redeemed in full; and 

(q) seventeenth, in release of the balance (if any) to the Issuer or to its order for application 

by the Issuer in or towards payment pari passu on a pro rata basis of the Issuer Fees 

and Issuer Expenses incurred by the Issuer then due and payable to the extent that such 

13. TAXATION 

amounts have not been paid under paragraph (a) above provided that the Trustee shall 

not be responsible for any such application by the Issuer. 

13.1 Taxation 

Payments in respect of the Notes shall only be made after the deduction and withholding of 

current or future taxes, levies or governmental charges, regardless of their nature, which are 

imposed, levied or collected (collectively, "taxes") under any applicable system of law or in any 

country which claims fiscal jurisdiction by, or for the account of, any political subdivision 

thereof or government agency therein authorised to levy taxes, to the extent that such deduction 

or withholding is required by law. The Issuer shall account for the deducted or withheld taxes 

with the competent government agencies and shall, upon request of a Noteholder, provide 

evidence thereof. 

13.2 No Gross-Up 

Neither the Notes nor the KfW Securities provide for gross-up payments in the case that any 

amount payable under the Notes, or the KfW Securities or from the Issuer Cash Account or the 

Issuer Operating Account is or becomes subject to income taxes (including withholding taxes) or 

taxes on capital. If any withholding or deduction on account of taxes is imposed with respect to 

payments by KfW under the KfW Securities, or the Credit Swap Counterparty Payments under 

the Credit Swap Agreement or in respect of the Issuer Cash Account or by the Custodian in 

respect of the KfW Securities or by the Issuer Operating Account Bank in respect of the Issuer 

Operating Account, the amounts payable by the Issuer under the Notes will be reduced by the 

amount of such withholding or deduction. 

14. NOTIFICATION 

14.1 Investor Report 

With respect to each Payment Date, the Issuer shall notify, not later than the second Business 

Day after each Payment Date, the Noteholders (in accordance with Condition 15), the Relevant 

Rating Agencies, the Credit Swap Counterparty and, as long as any Notes remain listed on the 

Luxembourg Stock Exchange, the Luxembourg Stock Exchange, of the following information 

prepared by the Administrator or the Servicer and verified by the Trustee (each an "Investor 

Report"): 

(a) in respect of the relevant Interest Period: 

(i) applicable EURIBOR; 

(ii) the aggregate amount of payments of principal (other than prepayments) and 

prepayments of principal, in each case, by Reference Entities in respect of 

Reference Obligations; 

(iii) the aggregate principal amount of each Replacement, Addition, Removal and 

Substitution; 

50

(iv) the Reference Portfolio Notional Amount at the beginning of such Interest 

Period and at the end of such Interest Period; 

(v) information on each Reference Obligation in respect of which a Credit Event 

has occurred; and 

(vi) whether a Non-Replacement Event has occurred. 

(b) on the relevant Payment Date: 

(i) the Interest Amount paid on each Class of Notes; 

(ii) the aggregate Issuer Payments made by the Issuer to the Credit Swap 

Counterparty on such date; 

(iii) the aggregate Issuer Payments allocated to each Class of Notes (if any) on 

such date; 

(iv) the Outstanding Principal Amount paid on each Class of Notes on such date; 

(v) the aggregate Collateral Income received by the Issuer on such date; 

(vi) the Issuer Fees and the Issuer Expenses paid on such date; 

(vii) the Credit Swap Counterparty Payment received by the Issuer on such date; 

(viii) the nominal amount of the KfW Securities released from the KfW Collateral 

on such date; 

(ix) the credit balance on the Issuer Cash Account released from the KfW 

Collateral on such date; 

(x) the nominal amount of KfW Securities held after the release referred to in 

paragraph (viii) above; 

(xi) the credit balance of the Issuer Cash Account (if any) after the release referred 

to in paragraph (ix) above; 

(xii) the Outstanding Principal Amount of the Notes after application of the 

Accrued Settlement Amounts referred to in paragraph (iii) above and the 

payments referred to in paragraph (iv) above; and 

(xiii) in the case of a final payment on any Class of Notes, a statement to that effect; 

and 

(c) confirmation that no Enforcement Event, Regulatory Event or Tax Event has occurred 

as at such date. 

"Relevant Rating Agencies" means each of Moody's Investors Service Limited and Fitch 

Ratings Ltd. 

14.2 Early Redemption or Optional Redemption 

With respect to an early redemption or optional redemption of the Notes, the Issuer shall notify 

the Noteholders, (in the case of early redemption pursuant to Condition 8) not later than 60 days 

51

prior to the date of the redemption and (in the case of optional redemption pursuant to Condition 

10) not later than 60 days prior to the date of redemption and, in each case, as long as any Notes 

are then listed on the Luxembourg Stock Exchange, the Luxembourg Stock Exchange, of: 

(a) the Early Redemption Date or Optional Redemption Date, as applicable; and 

(b) amounts to be paid on each Note to be redeemed and other matters specified in 

Condition 14.1 to the extent applicable. 

15. FORMS OF NOTICES 

All notices to the Noteholders regarding the Notes shall (a) as long as any Notes are listed on the 

Luxembourg Stock Exchange, be published in the Luxemburger Wort (or such other publication 

conforming to the rules of the Luxembourg Stock Exchange) if and to the extent a publication in 

such form is required by the rules of the Luxembourg Stock Exchange and delivered to the 

Luxembourg Paying Agent and (b) be delivered to Clearstream Frankfurt for communication by 

it to the Noteholders. Any notice referred to under (i) above shall be deemed to have been given 

to all Noteholders on the date of such publication. Any notice delivered to Clearstream shall be 

deemed to have been given to all Noteholders on the seventh calendar day after the day on which 

the said notice was delivered to Clearstream Frankfurt. 

16. AGENTS 

16.1 Agents 

Deutsche Bank Aktiengesellschaft shall initially act as the principal paying agent in respect of 

the Notes (the "Principal Paying Agent") and as interest determination agent in respect of the 

Notes (the "Interest Determination Agent"). The Issuer has appointed Deutsche Bank 

Luxembourg S.A. as the initial Luxembourg Paying Agent (the "Luxembourg Paying Agent"). 

16.2 Paying Agents 

The Issuer shall procure that (a) for as long as any Notes are outstanding, there shall always be a 

Principal Paying Agent to perform the functions assigned to it in the Transaction Documents and 

(b) for as long as any Notes remain listed on the Luxembourg Stock Exchange, there shall 

always be a Paying Agent in Luxembourg. 

16.3 Binding Determinations 

All Rates of Interest, Interest Amounts determined and other calculations and determinations 

made by the Interest Determination Agent for the purposes of the Transaction Documents shall, 

in the absence of manifest error, be final and binding. 

17. SUBSTITUTION 

17.1 General 

The Issuer may, without further express consent of the Noteholders, at any time upon written 

request of HVB with the consent of the Credit Swap Counterparty substitute in its place another 

entity (the "New Issuer") as debtor in respect of all obligations arising under or in connection 

with the Notes and the Transaction Documents provided that: 

(a) the New Issuer assumes all rights and duties of the Issuer in respect of the Notes and 

under the Transaction Documents and, the Issuer Collateral is, upon the Issuer's 

substitution, held by the Trustee to secure the obligations of the New Issuer under the 

Notes; 

52

(b) the New Issuer has obtained all necessary authorisations, governmental approvals in the 

country in which it has its registered office and is in a position to fulfil all its 

obligations in respect of the Notes without discrimination against the Noteholders in 

their entirety; 

(c) the New Issuer may pay in the currency required hereunder and without being obliged 

to deduct or withhold any taxes or other duties of whatever nature levied by the country 

in which the New Issuer has its domicile or tax residence all amounts requirement for 

the fulfilment of the payment obligations arising under the Notes and the substitution 

shall not result in any withholding or deduction of taxes on the amounts payable under 

the Notes and/or the KfW Securities which would not arise if there was no such 

substitution; 

(d) there shall have been delivered to the Trustee, KfW, HVB and the Principal Paying 

Agent one legal opinion for each jurisdiction affected by the substitution of a law firm 

of recognised standing to the effect that paragraphs (a) to (c) above have been satisfied 

and no additional expenses or legal disadvantages of any kind arise for the Noteholders 

from the substitution; 

(e) the substitution, in the professional judgement of the Trustee, shall not adversely affect 

the interests of the Secured Parties and each Relevant Rating Agency has given a 

confirmation that the substitution shall not adversely affect its rating of the Rated 

Notes; and 

(f) the Issuer and the New Issuer enter into such agreements and execute such documents 

as the Trustee considers necessary for the effectiveness of the substitution. 

Upon fulfilment of the above conditions the New Issuer shall in every respect substitute the 

Issuer and the Issuer shall vis-à-vis the Noteholders, be released from all its obligations as issuer 

of the Notes. 

17.2 Notice of Substitution 

The New Issuer shall give notice of the substitution to the Noteholders pursuant to Condition 15. 

17.3 Effects of Substitution 

Upon the substitution, each reference to the Issuer in the Terms and Conditions shall from then 

on be deemed to be a reference to the New Issuer and any reference to the country in which the 

Issuer has its registered office, domicile or residency for tax purposes, as relevant, shall from 

then on be deemed to be a reference to the country in which the New Issuer has its registered 

office, domicile or residency for tax purposes, as relevant. 

18. MISCELLANEOUS 

18.1 Presentation 

The presentation period for a Global Note provided in Section 801 (1), sentence 1 of the German 

Civil Code shall end five years after the date on which the last payment in respect of the Notes 

represented by such Global Note was due. 

18.2 Global Notes 

If a Global Note is lost, stolen, damaged or destroyed, the Issuer, upon payment by the claimant 

of the costs arising in connection therewith, may replace it. As a condition of replacement, the 

Issuer may require the fulfilment of certain conditions, the provision of proof regarding the 

existence of indemnification and/or the provision of adequate collateral. In the event of a Global 

53

Note being damaged, such Global Note shall be surrendered before a replacement is issued. In 

the event of a Global Note being lost or destroyed, the foregoing shall not limit any right to file a 

petition for the annulment of such Global Note pursuant to the statutory provisions. 

18.3 Place of Performance 

Place of performance of the Notes shall be Frankfurt am Main. 

18.4 Invalidity 

Should any of the provisions hereof be or become invalid in whole or in part, the other 

provisions shall remain in force. The invalid provisions shall, in accordance with the intent and 

purpose of such provision and of these Terms and Conditions, be deemed replaced by a valid 

provision which, in its economic effect, comes as close as legally possible to that of the invalid 

provision. The foregoing shall apply mutatis mutantis to any omissions. 

18.5 Swap Agreements 

Any reference in these Terms and Conditions to the Credit Swap Counterparty (including by 

reference to the Secured Parties) and any other party to any Swap Agreement shall not entitle 

any Noteholder to invoke any of the rights of the Credit Swap Counterparty or any other party to 

any Swap Agreement under the Trust Agreement or any Swap Agreement or to rely on or 

enforce any breach thereof and shall not limit the right of any party to any Swap Agreement or to 

rely on or enforce any breach thereof and shall not limit the right of such party to waive any of 

these rights. 

19. APPLICABLE LAW AND PLACE OF JURISDICTION 

19.1 Governing Law 

The Notes and all of the rights and obligations of the Noteholders and the Issuer under the Notes 

shall be governed by the laws of the Federal Republic of Germany. 

19.2 Jurisdiction 

The place of jurisdiction for any action or other legal proceedings arising out of or in connection 

with the Notes shall be the District Court (Landgericht) in Frankfurt am Main (non-exclusive 

jurisdiction). The German courts shall have exclusive jurisdiction over the annulment of the 

Global Notes in the event of their loss or destruction. 

19.3 Service of Process 

For service of process relating to any judicial disputes in connection with the Notes, the Issuer 

has appointed PVW GmbH Wirtschaftsprüfungsgesellschaft at Mainzer Landstrasse 46, 60325 

Frankfurt am Main Germany, as its authorised agent for service of process in relation to any 

legal proceedings before a German Court. 

54

8. THE TRUST AGREEMENT 

The following is the text of the Trust Agreement. The text is attached as Annex 1 to the Terms and 

Conditions and constitutes an integral part of the Terms and Conditions. In case of any overlap or 

inconsistency in the definition of a term or expression in the Trust Agreement or the Master Interpretation 

and Construction Schedule referred to therein and elsewhere in this Offering Circular, the definition in 

the Terms and Conditions of the Notes (as the case may be) will prevail. 

THIS TRUST AGREEMENT is made on the 22nd day of December 2000. 

BETWEEN: 

(1) PROMISE-A-2000-1 plc, a public limited company incorporated under the laws of Ireland 

(registered number 333835) whose registered office is at 30 Herbert Street, Dublin 2, Ireland 

(the "Issuer"); 

(2) KPMG DEUTSCHE TREUHAND-GESELLSCHAFT AKTIENGESELLSCHAFT 

WIRTSCHAFTSPRÜFUNGSGESELLSCHAFT, acting through its office at Marie-Curie- 

Strasse 30, D-60439 Frankfurt am Main, Germany in its capacity as trustee (the "Trustee", 

which expression includes any successor trustee appointed from time to time pursuant to this 

Agreement); 

(3) BAYERISCHE HYPO- UND VEREINSBANK AG, acting through its division "FCP3: 

Corporate Banking Portfolio Management and Capital Allocation" at Sederanger 5, D-80538 

Munich, Germany in its capacity as servicer of the Reference Portfolio (the "Servicer") and 

acting through its principal office at Arabellastrasse 12, D-81925 Munich, Germany as custodian 

of the KfW Securities (the "Custodian", which expression includes any successor custodian 

appointed from time to time pursuant to this Agreement); 

(4) DEUTSCHE BANK LUXEMBOURG S.A., acting through its principal office at 2 Boulevard 

Konrad Adenauer, L-1115 Luxembourg as trustee custodian (the "Trustee Custodian", which 

expression includes any successor trustee custodian appointed from time to time pursuant to this 

Agreement); 

(5) KREDITANSTALT FÜR WIEDERAUFBAU acting through its principal office at 

Palmengartenstrasse 529, D-60325 Frankfurt am Main, Germany in its capacity as swap 

counterparty under the Credit Swap Agreement (the "Credit Swap Counterparty") and as 

pledgee under the Pledge Agreement (the "Pledgee"); and 

(6) DEUTSCHE INTERNATIONAL CORPORATE SERVICES (IRELAND) LIMITED, 

WHEREAS: 

acting through its principal office at George's Dock House, International Financial Services 

Centre, Dublin 1, Ireland as administrator for the Issuer (the "Administrator", which expression 

includes any successor administrator appointed from time to time pursuant to the Administration 

Agreement). 

(A) The Issuer has authorised the creation and issue of Class A Floating Rate Credit Linked Notes in 

an initial principal amount of €40,000,000 (the "Class A Notes"), Class B Floating Rate Credit 

Linked Notes in an initial principal amount of €24,000,000 (the "Class B Notes"), Class C 

Floating Rate Credit Linked Notes in an initial principal amount of €16,000,000 (the "Class C 

Notes"), Class D Floating Rate Credit Linked Notes in an initial principal amount of 

€15,000,000 (the "Class D Notes"), Class E Floating Rate Credit Linked Notes in an initial 

55

principal amount of €11,000,000 (the "Class E Notes"), Class F Floating Rate Credit Linked 

Notes in an initial principal amount of € 15,000,000 (the "Class F Notes") and Class G Floating 

Rate Credit Linked Notes in an initial principal amount of €26,000,000 (the "Class G Notes") 

each, individually, a " Class of Notes" and, together, the "Notes". 

(B) The Notes shall be offered pursuant to the terms and conditions set out in an offering circular 

dated 18 December 2000 (the "Offering Circular"). 

(C) The Issuer shall, in relation to the Notes, enter into an agency agreement on 19 December 2000 

(the "Agency Agreement") with Deutsche Bank Aktiengesellschaft as principal paying agent 

(the "Principal Paying Agent") and as interest determination agent (the "Interest 

Determination Agent"), Deutsche Bank Luxembourg S.A. as Luxembourg paying agent (the 

"Luxembourg Paying Agent" and, together with the Principal Paying Agent, the "Paying 

Agents") and the Trustee. 

(D) The Issuer, as protection seller, shall enter into a credit swap agreement with the Credit Swap 

Counterparty, as protection buyer, on or about 22 December 2000 (the "Credit Swap 

Agreement"). 

(E) The Issuer shall invest the proceeds of the Class A Notes, the Class B Notes, the Class C Notes, 

the Class D Notes, the Class E Notes and the Class F Notes in certain securities issued by 

Kreditanstalt für Wiederaufbau under its €25,000,000,000 Note Programme and shall purchase 

such securities from Bayerische Hypo- und Vereinsbank AG pursuant to an agreement dated on 

or about 22 December 2000 between the Issuer and Bayerische Hypo- und Vereinsbank AG (the 

"KfW Securities Purchase Agreement"). 

(F) KfW, as protection buyer, shall also enter into a credit default swap agreement with a protection 

seller to be notified by KfW (the "Senior Credit Swap Counterparty") to the Trustee on or 

about 22 December 2000 (the "Senior Credit Swap Agreement"). 

(G) KfW, as protection seller, shall enter into two credit swap agreements with HVB, as protection 

buyer (the "Primary Credit Swaps Counterparty") on or about 22 December 2000 (the 

"Primary Credit Swap Agreements" and, together with the Senior Credit Swap Agreement and 

the Credit Swap Agreement, the "Swap Agreements"). 

(H) The Issuer shall provide Collateral in relation to its obligations under the Credit Swap 

Agreement pursuant to the Pledge Agreement and the Notes upon the terms set out in this 

Agreement and the Account Pledge Agreement. 

(I) The Trustee has agreed to act as (a) trustee and verification agent and to perform certain other 

duties for the benefit of the Secured Parties and (b) verification agent for the benefit of the 

Senior Credit Swap Counterparty and the Primary Credit Swaps Counterparty on the terms and 

conditions of this Agreement. 

NOW IT IS HEREBY AGREED as follows: 

1. INTERPRETATION 

1.1 In this Agreement and in the recitals hereto, except so far as the context otherwise requires and 

subject to any contrary indication, words and expressions defined and expressed to be construed 

in the master interpretation and construction schedule of even date herewith (the "Master 

Interpretation and Construction Schedule") signed for the purpose of identification by (inter 

alios) the parties hereto shall have the same meaning and construction mutatis mutandis herein 

56

and Clauses 2 to 6 (inclusive) of the Master Interpretation and Construction Schedule shall apply 

mutatis mutandis to this Agreement. 

1.2 Terms and expressions used herein but not defined in the Master Interpretation and Construction 

Schedule or herein shall have the respective meanings given to them in the Terms and 

Conditions of the Notes (the "Conditions"). 

2. RIGHTS AND OBLIGATIONS OF THE TRUSTEE AND PRIORITIES 

2.1 This Agreement sets out the rights and obligations of the Trustee to the other parties hereto. 

2.2 The Trustee shall exercise its rights and perform its obligations under this Agreement, the other 

Transaction Documents and the Terms and Conditions of the Notes as trustee for the benefit of 

the Secured Parties subject to Clauses 2.6 and 2.7. 

2.3 The Trustee shall perform its obligations under this Agreement in connection with the Primary 

Credit Swap Agreements with due regard to the interests of the Primary Credit Swaps 

Counterparty as the protection buyer thereunder subject always to the interests of the Secured 

Parties which shall at all times have priority over the interests of the Primary Credit Swap 

Counterparty under Primary Credit Swap Agreements. 

2.4 Subject to Clause 2.3, the Trustee shall perform its obligations under this Agreement in 

connection with the Senior Credit Swap Agreement with due regard to the interests of KfW as 

the protection buyer thereunder subject always to the interests of the Secured Parties which shall 

at all times have priority over the interests of the Senior Credit Swap Counterparty under the 

Senior Credit Swap Agreement. 

2.5 While any amounts are due from the Issuer to the Credit Swap Counterparty under the Credit 

Swap Agreement, the Trustee shall have regard first, to the interests of the Credit Swap 

Counterparty second to the interests of the Noteholders and finally, to its interests as the other 

Secured Party. 

2.6 If there is, at any time, a conflict between the interests of a Class of Noteholders and any other 

Class or Classes of Noteholders, the Trustee shall have regard first to the interests of the Class A 

Noteholders, second to the interests of the Class B Noteholders, third to the interests of the Class 

C Noteholders, fourth to the interests of the Class D Noteholders, fifth to the interests of the 

Class E Noteholders, sixth to the interests of the Class F Noteholders, seventh to the interests of 

the Class G Noteholders in each case, as one Class. 

2.7 In relation to any Noteholder who is not initially a party to this Agreement, this Agreement shall 

be construed as a contract for the benefit of third parties pursuant to Section 328 of the German 

Civil Code and each such Noteholder shall have the right to demand performance by the Trustee 

of its obligations hereunder (echter Vertrag zugunsten Dritter). 

3. STANDARD OF CARE, DELEGATION AND EXTENT OF LIABILITY 

3.1 The Trustee shall exercise the standard of care of a prudent merchant (Sorgfaltspflichten eines 

ordentlichen Kaufmanns) in the performance of its obligations under this Agreement and the 

other Collateral Documents. 

3.2 The Trustee may not delegate all or any of its rights, authorities and/or discretions and/or 

performance of its obligations under this Agreement and/or any of the other Transaction 

Documents, except that it may delegate the performance of all or any of its obligations under this 

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Agreement and/or the other Transaction Documents to any person or persons 

(Erfüllungsgehilfen) upon such terms and conditions and subject to such regulations as the 

Trustee may think fit in the interests of the Secured Parties provided that the Trustee shall at all 

times be and remain liable to perform the obligations assumed by it hereunder and for any act or 

omission in respect thereof by any such person as if such act or omission were its own. 

3.3 The Trustee shall promptly notify the Issuer, the Administrator, the Servicer, the Credit Swap 

Counterparty and the Relevant Rating Agencies of any delegation pursuant to Clause 3.2. 

3.4 Without prejudice to the provisions of Clause 3.1, the Trustee shall not be liable for (a) any 

action of the Issuer or Issuer's failure to act, (b) the Notes, the Collateral or the Reference 

Obligations being legal, valid, binding or enforceable, or for the fairness of the provisions of the 

Terms and Conditions, (c) a loss of documents related to the Reference Portfolio and the 

Reference Obligations not attributable to negligence of the Trustee and (d) the Servicer's breach 

of its Obligations to submit any Report and any other documents, information or to provide 

access and facilities to the Trustee or an Expert or Value Expert. 

4. COVENANT TO PAY 

4.1 The Issuer covenants with the Trustee that, subject to the Conditions, this Agreement and the 

other Transaction Documents, it will: 

(a) as and when the Notes or any of them becomes due to be redeemed or any principal on 

the Notes or any of them becomes due to be repaid in accordance with the Conditions, 

unconditionally pay or procure to be paid to or to the order of the Trustee in euro in 

immediately available, freely transferable, cleared funds, the Outstanding Principal 

Amount of the Notes or any part thereof becoming due for redemption or repayment on 

that date and shall (subject to the provisions of the Conditions) until all such payments 

(after as well as before any judgment or other order of any court of competent 

jurisdiction) are duly made and unconditionally pay or procure to be paid to or to the 

order of the Trustee, as aforesaid, on the dates provided for in the Conditions, interest 

on the Outstanding Principal Amount of the Notes or any of them outstanding from 

time to time as set out in the Conditions; and 

(b) as and when any amount falls due and payable from the Issuer to any Secured Party 

under any of the Transaction Documents unconditionally pay or procure to be paid to or 

to the order of the Trustee such amount in such currency and manner as specified in 

such Transaction Document. 

4.2 The Trustee will hold the benefit of the covenant in Clause 4.1 on trust (Treuhand) for the 

Noteholders and the other Secured Parties. 

4.3 The parties hereto acknowledge that the Trustee shall have a claim against the Issuer for the 

covenant to pay as set out in Clause 4.1 and shall be entitled to claim performance thereof in its 

own name and not, or not only, as agent acting on behalf of the Noteholders and the other 

Secured Parties. 

5. KfW COLLATERAL 

5.1 The Issuer has acquired from Bayerische Hypo- und Vereinsbank AG under the KfW Securities 

Purchase Agreement, and is the owner of, €121,000,000 floating rate medium term notes (the 

"KfW Securities"), divided into six series (the aggregate nominal amount of the series reflecting 

the initial aggregate amount of the Class A Notes, the Class B Notes, the Class C Notes, the 

58

Class D Notes, the Class E Notes and the Class F Notes) and governed by German law, issued 

under the € 25,000,000,000 Note Programme of KfW. The KfW Securities are represented by 

global certificates deposited with Clearstream Frankfurt. Each of the KfW Securities thereunder 

(a) has a denomination of € 100,000 and (b) matures on the Scheduled Maturity Date. 

5.2 The Issuer as legal owner of the KfW Securities shall pledge on the date hereof all of its present 

and future rights, claims, title, interests and benefits in and to the KfW Securities to the Pledgee 

under the Pledge Agreement for the payment of the Secured Credit Swap Obligations owed to 

the Pledgee, subject to the provisions for release contained in Clause 12 of this Agreement. 

5.3 The Issuer shall, at its own cost, procure the delivery of the KfW Securities on the Issue Date to 

its securities account (Wertpapierdepot) with the Custodian. 

5.4 Immediately upon receipt by the Custodian of a notice of the pledge of the KfW Securities to the 

Pledgee under the Pledge Agreement, the Custodian shall hold the KfW Securities in accordance 

with Clause 3 of the Pledge Agreement. The Securities Account will then be designated as a 

securities pledge account (the "Securities Pledge Account" (Pfanddepot)). 

5.5 The Pledgee agrees that it will not itself enforce any Collateral which has been granted to it as 

security (Sicherheit) under the Pledge Agreement without the prior written consent of the Trustee 

such consent not to be unreasonably withheld. 

5.6 The Pledgee hereby irrevocably authorises, to the fullest extent permitted by law, and shall at all 

times during the term of this Agreement maintain in full force and effect the authorisation of the 

Trustee under this Agreement to enforce the Securities Collateral. Without prejudice to the 

generality of the foregoing, the Pledgee hereby appoints the Trustee to be its attorney on its 

behalf and in its name to execute and to do any assurances, acts and things which the Pledgee 

ought to execute or do under the Pledge Agreement and in its name to exercise all or any of the 

powers, authorities or discretions conferred by or pursuant to the Pledge Agreement on the 

Pledgee. The Pledgee hereby ratifies and confirms and agrees to ratify and confirm whatever the 

Trustee as its attorney shall do or purport to do in the exercise or purported exercise of all or any 

of the powers, authorities and discretions referred to in this Clause 5.6. 

5.7 Each of the Issuer and the Pledgee hereby authorises the Custodian to act in accordance with the 

instructions of the Trustee and the Custodian agrees that all determinations made by the Trustee 

hereunder shall be binding on the Custodian, save for manifest error. 

5.8 If the Pledgee directly receives any payment or other benefit in relation to or under any 

accessory security for the Secured Credit Swap Obligations or otherwise including, without 

limitation, upon enforcement of the Securities Collateral, it shall within two Business Days, 

transfer to, or to the order of, the Trustee such payment or other benefit for application in 

accordance with this Agreement. 

5.9 The Pledgee agrees that the Trustee shall instruct the Custodian to pay all amounts received by 

the Custodian in respect of the KfW Securities into the Issuer Cash Account prior to the service 

of an Enforcement Notice on any Payment Date and into the Collateral Proceeds Account after 

the service of an Enforcement Notice. 

5.10 In the event that the Custodian (or any successor thereof) ceases to be an Eligible Bank, the 

Issuer shall promptly notify the Administrator, the Credit Swap Counterparty and the Trustee 

and the Issuer (or the Administrator on its behalf) shall, by giving the Custodian not less than 

five Business Days prior notice to that effect, replace any such Custodian (or any successor 

thereof) with a custodian which shall act as Custodian hereunder, which is an Eligible Bank. 

59

Upon such replacement, the parties hereto and such successor custodian shall thereafter have the 

same rights and obligations among them as would have been the case had they then entered into 

an agreement in the form mutatis mutandis of this Agreement. The Issuer shall enter into, and 

shall procure that any replacement custodian shall enter into, any agreements as is reasonably 

required from time to time by the Trustee for such purpose. 

5.11 The Issuer shall pledge on the date hereof, under the Pledge Agreement, all of its present and 

future rights, claims, title, interests and benefits in and to the Issuer Cash Account for the 

payment of the Secured Credit Swap Obligations owed to the Pledgee, subject to (a) Clauses 5.5 

and 5.6 which apply mutatis mutandis to the pledge referred to in this Clause 5.11 and (b) the 

provisions for release contained in Clause 12. 

6. ISSUER COLLATERAL 

6.1 The Issuer shall pledge on the date hereof, under the Account Pledge Agreement governed by 

Luxembourg law, all of the Issuer’s present and future rights, claims, title, interests and benefits 

in and to the Issuer Operating Account and each credit balance (including interest) from time to 

time on the Issuer Operating Account and all rights, claims, benefits and proceeds in respect 

thereof to the Trustee for the payment and discharge of the Secured Obligations. 

6.2 The Issuer hereby transfers to the Trustee in its capacity as trustee (Treuhänder) for the benefit 

of the Secured Parties (other than the Credit Swap Counterparty) as security for the Secured 

Obligations all present, future, actual and contingent rights, title, claims, interests and benefits of 

the Issuer: 

(a) in and to the KfW Securities (Sicherungsübereignung) and the Issuer Cash Account 

(Sicherungsabtretung) subject to the pledge created in favour of the Pledgee under the 

Pledge Agreement; 

(b) against the Pledgee and the Custodian for the release of pledge over the KfW Securities 

and the Issuer Cash Account under the Pledge Agreement upon discharge of the 

Secured Credit Swap Obligations owed by the Issuer to the Pledgee and redelivery of 

possession of such KfW Securities; and 

(c) against the Administrator under the Administration Agreement. 

6.3 The Trustee accepts the pledges and transfers referred to in Clauses 6.1 and 6.2. 

7. RELEASE OF KfW COLLATERAL SATISFACTION OF SECURED CREDIT SWAP 

OBLIGATIONS 

7.1 Immediately upon payment in full of the Secured Credit Swap Obligations, the Pledgee shall 

procure (a) the delivery of the KfW Securities to the Trustee's securities trust account 

(Treuhanddepot) with the Trustee Custodian (the "Securities Trust Account") and (b) the 

transfer of the credit balance on the Issuer Cash Account to the Issuer Operating Account. 

7.2 The Issuer, the Trustee Custodian and the Trustee shall enter into a custody agreement 

substantially similar to the Custody Agreement prior to the delivery of the KfW Securities 

pursuant to Clause 7.1. 

7.3 The Trustee shall instruct the Trustee Custodian to pay all amounts received by the Trustee 

Custodian in respect of the KfW Securities, prior to the service of an Enforcement Notice, into 

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the Issuer Operating Account on any Payment Date and, after the service of an Enforcement 

Notice, into the Collateral Proceeds Account. 

7.4 In the event that the Trustee Custodian ceases to be an Eligible Bank, the Trustee shall promptly 

notify the Issuer, the Administrator and the Trustee shall, within 30 days of such downgrading, 

deliver the Securities Collateral to a securities trust account (Treuhanddepot) with a new Trustee 

Custodian which is an Eligible Bank but not a bank or financial institution acting through an 

office in Germany and shall provide to the Issuer and the Administrator and the new Trustee 

Custodian the agreements and other documents related thereto and obtain the relevant 

confirmations from the new Trustee Custodian. 

8. COLLATERAL PURPOSE 

The Collateral shall serve as security for the Secured Obligations and shall be enforced, collected 

and distributed pursuant to the provisions of this Agreement and the other Collateral Documents 

and the Conditions. 

9. ADMINISTRATION OF COLLATERAL 

9.1 In relation to any Collateral created by the Issuer under this Agreement and the other Collateral 

Documents, the Trustee shall: 

(a) acquire and hold all such Collateral which is: 

(i) transferred to it by way of security (Sicherungsübereignung und -abtretung) 

under this Agreement for the purpose of securing the Secured Obligations or 

any of them as trustee (Treuhänder); and 

(ii) pledged, charged, assigned or transferred to it under the laws of any other 

jurisdiction, for the purpose of securing the Secured Obligations or any of 

them as trustee under the laws of the jurisdiction governing such pledge, 

charge, assignment or transfer, 

in each case, for the benefit of the Secured Parties; 

(b) administer the Securities Collateral which is pledged (verpfändet) to the Pledgee for the 

purpose of securing the Secured Credit Swap Obligations under the Pledge Agreement 

for the benefit of the Credit Swap Counterparty; and 

(c) accept and hold, as trustee for the benefit of the Secured Parties, the Cash Collateral 

under the Account Pledge Agreement; 

in each case, in accordance with the terms and subject to the conditions of this Agreement and 

the relevant other Collateral Documents. 

9.2 With respect to the Collateral transferred to the Trustee for security purposes, the Trustee shall, 

in relation to the Issuer and the other Secured Parties, have the rights and obligations of a party 

taking Collateral (Sicherungsnehmer). Accordingly, with regard to the Trustee's obligation to 

release the Collateral after the Issuer has performed all of the Secured Obligations, the Trustee 

shall act as a fiduciary towards the Issuer. 

9.3 The Trustee shall not release or dispose of the Collateral except as expressly provided herein. 

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9.4 At any time before any Collateral constituted by or pursuant to this Agreement or the other 

Collateral Documents becomes enforceable, the Trustee may from time to time: 

(a) enter into, make, execute, sign, deliver and do all such contracts, agreements, deeds, 

receipts, payments, assignments, transfers, conveyances, assurances and things and 

bring, prosecute, enforce, defend and abandon all such actions, suits and proceedings in 

relation to the Collateral Assets as it may think expedient; 

(b) exercise all or any of the powers or rights of the Issuer under or in relation to the 

Collateral Assets or incidental to the ownership of all or any of the assets comprising 

the Collateral Assets; 

(c) demand, sue for and take any advice or institute any proceedings to obtain payment of 

any amounts which may then be due and payable to the Issuer but which remain unpaid 

under or in respect of the Collateral Assets or any part thereof either in its own name or 

in the name of the Issuer to take any action or institute any such proceedings; and 

(d) without limitation, act generally in relation to the Collateral Assets in such manner as it 

may think expedient. 

10. REPRESENTATIONS 

10.1 The Issuer hereby represents to the Trustee and the other parties hereto that: 

(a) it is, as at the date hereof, the sole legal owner of the Collateral Assets free and clear of 

all liens, claims, charges, security interests or encumbrances, save for those created 

pursuant to the Collateral Documents; 

(b) none of its rights, title, claims, benefits or interests in any of the Collateral Assets have 

previously been assigned or transferred to any third party; and 

(c) it has obtained the prior written consent of the Administrator to the security transfer 

under Clause 6.2(c). 

10.2 KfW hereby represents to the Issuer and the Trustee that: 

(a) its obligations under the KfW Securities rank at least pari passu with its other 

unsubordinated obligations; and 

(b) its obligations under the KfW Securities are valid, binding and enforceable against it in 

accordance with the terms of the KfW Act (Gesetz über die Kreditanstalt für 

Wiederaufbau). 

10.3 Each of the Trustee, the Credit Swap Counterparty, the Pledgee, the Servicer, the Custodian and 

the Trustee Custodian hereby represents to the Issuer and the other parties hereto that: 

(a) it is: 

(i) in the case of each of the Trustee, the Servicer and the Custodian, a company 

or corporation duly incorporated and validly existing under the laws of 

Germany for an indefinite period; 

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(ii) in the case of the Credit Swap Counterparty and the Pledgee, an institution 

duly established and validly existing under the public laws of Germany; and 

(iii) in the case of the Trustee Custodian, a company or corporation duly 

incorporated and validly existing under the laws of Luxembourg, 

with power to enter into this Agreement and the other Transaction Documents to which 

it is expressed to be a party and to exercise its rights and perform its obligations 

hereunder and thereunder, and all action required to authorise its execution of this 

Agreement and its performance of its obligations hereunder and thereunder, has been 

duly taken; 

(b) all acts, conditions and things required to be done, fulfilled and performed in order: 

(i) to enable it lawfully to enter into, exercise its rights under and perform and 

comply with the obligations expressed to be assumed by it in this Agreement 

and the other Transaction Documents to which it is expressed to be a party; 

and 

(ii) to ensure that the obligations expressed to be assumed by it in this Agreement 

and the other Transaction Documents to which it is expressed to be a party are 

legal, valid and binding on it; 

have been done, fulfilled and performed; 

(c) the obligations expressly to be assumed by it in this Agreement and the other 

Transaction Documents to which it is expressed to be a party are legal and valid 

obligations binding on it and enforceable against it in accordance with its terms, except: 

(i) as such enforceability may be limited by applicable bankruptcy, insolvency, 

moratorium or other similar laws affecting the enforcement of the rights of 

creditors generally; and 

(ii) as such enforceability may be limited by the effect of the general principles of 

good faith (Treu und Glauben); and 

(d) the execution and delivery of this Agreement and the other Transaction Documents to 

which it is expressed to be a party and the exercise by the Trustee of its rights and the 

performance of its obligations hereunder and thereunder, will not conflict with, result in 

any breach of the material terms and provisions of, or constitute (with or without notice 

or lapse of time or both) a default under, any agreement, indenture, contract, mortgage, 

trust deed or other instrument to which it is a party or by which it or any of its assets is 

otherwise bound. 

10.4 The Trustee further represents to the other parties hereto that on the date hereof any ground for 

termination of this Agreement pursuant to Clause 34.1 does not exist and is not foreseeable. 

10.5 The Servicer covenants with the Issuer and the Trustee to make the selection of Obligations to 

form part of the Reference Obligations on a basis which does neither positively nor negatively 

discriminate Obligations when determining Obligations as Reference Obligations or Other 

Obligations. 

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The Servicer covenants with the Issuer and the Trustee to ensure that those of its officers 

servicing the Reference Obligations and the Other Obligations are not made aware of the 

distinction of the relevant Obligations being part of the Reference Obligations or the Other 

Obligations. 

The Servicer also covenants with the Issuer and the Trustee that it will exercise no less diligence 

in the servicing of Reference Obligations than it would exercise in respect of Obligations and 

that it will effect recoveries and enforcement in respect of an Impaired Reference Obligation no 

less diligently than it would in respect of Obligations if they were to experience Credit Events, 

and that application of any such recoveries in respect of an Impaired Reference Obligation as are 

effected will follow the Procedures. 

11. FURTHER ASSURANCE 

11.1 The Issuer shall: 

(a) on the date hereof, give notice of the pledge over the KfW Securities created under the 

Pledge Agreement to the Custodian; 

(b) on the date hereof, give notice of the security transfer under Clause 6.2 to the Pledgee, 

the Custodian, the Trustee, the Administrator and the Trustee Custodian; 

(c) on the date hereof, give notice of the pledge created under the Account Pledge 

Agreement to the Issuer Operating Account Bank; 

(d) ensure that within 21 days of the date hereof, to the extent required by applicable law, a 

Form 47 in respect of the Collateral created over the Collateral Assets is presented to 

the Registrar of Companies in Ireland together with the required fee; and 

(e) procure the making of appropriate entries in the Issuer's Register of Mortgages and 

Charges in respect of the Collateral granted by the Issuer under this Agreement and the 

other Collateral Documents as soon as reasonably practicable after the date hereof. 

11.2 The Issuer shall from time to time execute and do all such assurances, acts and things as the 

Trustee may require for perfecting or protecting the Collateral created or intended to be created 

by or pursuant to this Agreement and the other Collateral Documents and from time to time, and 

at any time after the security constituted by or pursuant to this Agreement or the other Collateral 

Documents becomes enforceable, shall execute and do all such assurances, acts and things as the 

Trustee may require for facilitating the enforcement of rights in respect of, all or any of the 

Collateral Assets and the exercise of all powers, authorities and discretions vested in the Trustee. 

For the purposes of this Clause 11.2, a certificate in writing signed by the Trustee to the effect 

that any particular assurance or thing required is required by it shall be conclusive evidence of 

that fact. 

11.3 The Issuer hereby irrevocably appoints the Trustee to be its attorney on its behalf and in its name 

to execute and to do any assurances, acts and things which the Issuer ought to execute or do 

under this Agreement and generally on its behalf and in its name to exercise all or any of the 

powers, authorities or discretions conferred by or pursuant to this Agreement or the other 

Transaction Documents or otherwise on the Trustee. The Issuer hereby ratifies and confirms and 

agrees to ratify and confirm whatever the Trustee as its attorney shall do or purport to do in the 

exercise or purported exercise of all or any of the powers, authorities and discretions referred to 

in this Clause 11.3. 

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11.4 The Servicer shall provide all information that the Trustee will require in order to carry out its 

duties under Clause 17 herein. 

12. RELEASE OF COLLATERAL AND THE SECURITIES PUT OPTION 

12.1 On each Collateral Release Date, the Trustee (on behalf of KfW as pledgee under the KfW 

Collateral) will release (i) from the pledge over the KfW Securities under the Pledge Agreement, 

KfW Securities in a principal amount equal to the closest denomination of € 100,000 greater 

than the reduction in, or redemption of, the aggregate Outstanding Principal Amount of each 

Class of Notes to be reduced by allocation of amounts equal to Issuer Payments or redeemed on 

such Collateral Release Date less the credit balance on the Issuer Cash Account as at such 

Collateral Release Date provided that, for the avoidance of doubt, if and to the extent that the 

credit balance on the Issuer Cash Account as at such Collateral Release Date is sufficient to pay 

all amounts then due and payable by the Issuer under the Transaction Documents, no KfW 

Securities shall be so released and provided further that on the Collateral Release Date falling 

on the Scheduled Maturity Date, such release shall be of all of the KfW Securities which are 

then subject to the pledge over the KfW Securities under the Pledge Agreement as at such date 

and (ii) from the pledge over the Issuer Cash Account under the Pledge Agreement, the cash 

collateral equal to the credit balance on the Issuer Cash Account as at such Collateral Release 

Date except that on the Collateral Release Date falling on or after the Scheduled Maturity Date, 

only such amount as is greater than the aggregate amount of Impaired Reference Obligations that 

are in their Determination Period or the Final Value in respect thereof has not been verified in 

accordance with the Trust Agreement on such date shall be so released. In releasing KfW 

Securities, the Trustee shall always release the KfW Securities reflecting the relevant Notes. 

12.2 On (a) any Collateral Release Date and (b) the Interest Payment Date immediately following the 

occurrence of an Enforcement Event, KfW will purchase from the Issuer (acting through the 

Trustee) KfW Securities in a principal amount equal to the closest denomination of €100,000 

greater than the amount required by the Issuer for (i) such redemption of the Notes and the Issuer 

Payment under the Credit Swap Agreement (if any) less the credit balance (if any) on the Issuer 

Cash Account (the "Securities Put Option") provided that on the Collateral Release Date 

falling on the Scheduled Maturity Date, KfW will redeem all of the KfW Securities then held by 

the Custodian at their outstanding principal amount. The amount to be paid by KfW under the 

Securities Put Option or upon redemption of the KfW Securities will equal the principal amount 

outstanding of the KfW Securities sold to, or redeemed by, KfW plus accrued interest as at the 

date of sale or redemption. The proceeds of redemption less amounts required for application on 

such date as described below shall, to the extent that the Issuer's obligations under the Credit 

Swap Agreement have not been satisfied in full at that time, be paid by KfW into the Issuer Cash 

Account on the Scheduled Maturity Date. Save as aforesaid, the proceeds of sale or redemption 

shall, prior to the service of an Enforcement Notice, be paid by KfW into the Issuer Operating 

Account and applied by the Administrator (on behalf of the Issuer) in the order of priority set out 

in Conditions 5.8 and 11 (the "Order of Seniority") and, after the service of an Enforcement 

Notice, be paid by KfW into the collateral proceeds account of the Trustee and applied by the 

Trustee in the order of priority set out in Condition 12 (the " Enforcement Order of Seniority"). 

12.3 Upon the Trustee being satisfied (and, for this purpose, the Trustee may, in its absolute 

discretion, rely on any declaration of payment, discharge or satisfaction certified by any one or 

more directors or officers of the Issuer) upon verification by it that the Secured Obligations have 

been paid in full and provided that the Trustee has no outstanding claims against the Issuer 

under this Agreement or any other Transaction Document, the Trustee shall, at the request and 

expense of the Issuer, execute and do all such acts and things as may be necessary to release the 

Collateral Assets from the Collateral created in this Agreement and the Account Pledge 

65

Agreement and KfW shall, at the request and expense of the Issuer, execute and do all such acts 

and things as may be necessary to release the Collateral Assets from the pledge created under the 

Pledge Agreement and the Trustee or KfW, as the case may be, shall redeliver such Collateral 

Assets to the Issuer or to the order of the Issuer. 

12.4 The Collateral from time to time constituted by or pursuant to this Agreement and the other 

Collateral Documents shall remain in full force and effect as a continuing security for all of the 

Secured Obligations from time to time until release, in the case of the Collateral under this 

Agreement and the Account Pledge Agreement, by the Trustee and, in the case of the KfW 

Collateral, by the Pledgee in accordance with Clause 12.3 notwithstanding any intermediate 

payment or satisfaction of any part of the Secured Obligations or any settlement of account or 

any other act, event or matter whatsoever that shall secure the ultimate balance of the Secured 

Obligations. 

12.5 Notwithstanding the Collateral created by or pursuant to this Agreement and the other Collateral 

Documents, the Trustee (on behalf of itself and the other Secured Parties) acknowledges that, 

prior to the service of an Enforcement Notice, payments becoming due to the Issuer under any of 

the Transaction Documents may be made to the Issuer in accordance with the Conditions. 

13. ENFORCEMENT 

13.1 The Collateral created pursuant to this Agreement and the other Collateral Documents shall 

become enforceable on the date of the occurrence of an Enforcement Event. 

13.2 The Trustee shall deliver an Enforcement Notice to the Issuer (with copies to the other parties 

hereto and the Paying Agents) as soon as it becomes aware of the occurrence of an Enforcement 

Event and, following service by the Trustee of the Enforcement Notice, the Trustee may in its 

sole discretion and without further notice, but subject to the provisions hereof and the other 

Transaction Documents, institute such proceedings against the Issuer as it may think fit in order 

to enforce the Collateral including, without limitation, undertaking any of the following (either 

in its own name or in the name of the Issuer or otherwise and in such manner and upon such 

terms and conditions as it thinks fit): 

(a) take possession of the whole or any part of the Collateral Assets and sell, call in, collect 

and convert into money and enforce any rights it may have in respect of, the whole or 

any part of the relevant Collateral Assets in such manner and upon such terms as the 

Trustee shall think fit; 

(b) collect and receive any and all interest, distributions, dividends, proceeds of repayment 

or redemption (whether in whole or in part) and other payments and receipts of, on or in 

respect of the Collateral Assets or any of them; 

(c) do all such other acts and things as the Trustee may consider necessary or expedient for 

the realisation of the Collateral Assets or incidental to the exercise of any of the rights 

conferred by it under or by virtue of this Agreement and the other Collateral Documents 

and to concur in the doing of anything which it has the right to do and to do any such 

thing jointly with any other person; and 

(d) exercise any other rights and remedies that may be available at law, 

provided that, with regard to the Issuer Operating Account, the rights of the Trustee shall be 

determined in accordance with the Account Pledge Agreement and to Luxembourg law. 

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13.3 If the Trustee makes any claim of default in payment by the Issuer of any amount due in respect 

of any Note of any Class, proof by the Trustee that the Issuer has made default in paying any 

principal, and/or interest due in respect of such Note shall (unless the contrary be proved) be 

sufficient evidence that the Issuer has made the like default as regards all other Notes of such 

Class and all Notes of any other Class of Notes ranking senior to such Class of Notes. 

13.4 Upon any such sale, calling in, collection, enforcement or other realisation as is referred to in 

Clause 13.2 and upon any other dealing or transaction under this Agreement or any other 

Collateral Document, the receipt of the Trustee for the purchase money of the assets sold and for 

any other monies paid to it shall effectively discharge the purchaser or other person paying the 

same and such purchaser or other person shall not be responsible for the application of such 

monies. 

13.5 No person dealing with the Trustee shall be concerned to enquire whether any event has 

happened upon which any of the powers, authorities and discretions conferred by or pursuant to 

this Agreement and the other Collateral Documents in relation to such property are or may be 

exercisable by the Trustee or by any receiver of the Issuer, or otherwise as to the propriety or 

regularity of acts purporting or intended to be in exercise of any such powers. 

13.6 The Trustee shall have no responsibility whatsoever to the Issuer or any of the Secured Parties as 

regards any deficiency which might arise because the Trustee is subject to any tax in respect of 

the Collateral Assets, the income from such property or the proceeds of such property or is 

required to make any deduction or withholding from any payment to any Secured Party. 

13.7 The Trustee will not be liable for any decline in the value nor any loss realised upon any sale or 

other disposition of any of the Collateral Assets made pursuant to this Agreement. 

14. APPLICATION OF MONIES 

On or after the service of an Enforcement Notice, any monies received or recovered by the 

Trustee shall be paid into the Collateral Proceeds Account and available for distribution and 

shall (subject to payment or provision for any debts or liabilities having priority by law to the 

Secured Obligations) be allocated and applied by the Trustee on any Business Day firstly, in or 

towards payment of the Issuer's liability to tax (if any) and thereafter, in the following order of 

priority but, in each case, only to the extent that payments of a higher priority have been made in 

full: 

(a) first, in or towards payment pari passu on a pro rata basis of (i) any remuneration then 

due and payable to any receiver of the Issuer and all costs, expenses and charges 

incurred by such receiver, (ii) all fees, costs and expenses, charges and liabilities then 

due and payable to, or incurred by, the Trustee under this Agreement in relation to the 

exercise of the rights and powers and performance of the obligations of the Trustee 

under this Agreement and (iii) any outstanding registered office, corporate secretarial 

and annual return filing fees necessary for the corporate existence of the Issuer then due 

and payable; 

(b) second, in or towards payment of the aggregate amount of Issuer Payments, if any, or 



Counterparty; 

(c) third, in or towards payment of accrued interest on the Class A Notes pari passu on a 


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Principal Amount on the Class A Notes (after the allocation of Issuer Payments on such 

day) until all the Class A Notes have been redeemed in full; 

(e) fifth, in or towards payment of accrued interest on the Class B Notes pari passu on a 



Principal Amount on the Class B Notes (after the allocation of Issuer Payments on such 

day) until all the Class B Notes have been redeemed in full; 

(g) seventh, in or towards payment of accrued interest on the Class C Notes pari passu on 



Principal Amount on the Class C Notes (after the allocation of Issuer Payments on such 

day) until all the Class C Notes have been redeemed in full; 

(i) ninth, in or towards payment of accrued interest on the Class D Notes pari passu on a 


(j) tenth, in or towards payment pari passu on a pro rata basis of the then Outstanding 

Principal Amount on the Class D Notes (after the allocation of Issuer Payments on such 

day) until all the Class D Notes have been redeemed in full; 

(k) eleventh, in or towards payment of accrued interest on the Class E Notes pari passu on 


(l) twelfth, in or towards payment pari passu on a pro rata basis of the then Outstanding 

Principal Amount on the Class E Notes (after the allocation of Issuer Payments on such 

day) until all the Class E Notes have been redeemed in full; 

(m) thirteenth, in or towards payment of accrued interest on the Class F Notes pari passu 

on a pro rata basis; 

(n) fourteenth, in or towards payment pari passu on a pro rata basis of the then 

Outstanding Principal Amount on the Class F Notes (after the allocation of Issuer 

Payments on such day) until all the Class F Notes have been redeemed in full; 

(o) fifteenth, in or towards payment of accrued interest on the Class G Notes pari passu on 


(p) sixteenth, in or towards payment pari passu on a pro rata basis of the then Outstanding 

Principal Amount on the Class G Notes (after the allocation of Issuer Payments on such 

day) until all the Class G Notes have been redeemed in full; and 

(q) seventeenth, in release of the balance (if any) to the Issuer or to its order for application 

by the Issuer in or towards payment pari passu on a pro rata basis of the Issuer Fees 

and Issuer Expenses incurred by the Issuer then due and payable to the extent that such 

amounts have not been paid under paragraph (a) above provided that the Trustee shall 

not be responsible for any such application by the Issuer. 

15. COLLECTIONS AND DETERMINATIONS 

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15.1 The Servicer shall be responsible for the administration, collection and enforcement of the 

Reference Obligations, including by enforcement of any Related Collateral in accordance with 

the Procedures and shall make such other determinations, allocations and calculations as it is 

obliged to under the Transaction Documents, the Primary Credit Swap Agreements and the 

Senior Credit Swap Agreement. 

15.2 The Servicer may exercise reasonable discretion in application of the Procedures with respect to 

the administration, collection and enforcement of the Reference Obligations, including by 

enforcement any Related Collateral. Without limiting its obligations under Clause 10.5 hereof, 

the Servicer will exercise this discretion in the same manner as a reasonable creditor would in 

the protection of its own interests. 

16. REPORTS, DOCUMENTS AND INFORMATION 

16.1 The Servicer shall, subject to the Confidentiality Restrictions applicable to the Banks, deliver to 

the Trustee (with a copy to the Administrator) a report on the performance of the Reference 

Portfolio (each a "Portfolio Report") no later than 11 a.m. (Frankfurt time) 8 Business Days 

prior to each Payment Date (each a "Reporting Date") including, inter alia: 

(a) details as to payments of principal (other than prepayments) by Reference Entities in 

respect of Reference Obligations and the outstanding Reference Obligation Notional 

Amount of each Reference Obligation; 

(b) details of prepayments of principal by Reference Entities in respect of Reference 

Obligations and the outstanding Reference Obligation Notional Amount of each 

Reference Obligation; 

(c) details of each Replacement, Removal and Addition; 

(d) characteristics of the Reference Portfolio by reference to the Replacement Conditions; 

(e) details of each Impaired Reference Obligation, related Settlement Amount and its 

determination and its allocation or in respect of which determination or allocation has 

not been made; 

(f) stratification tables profiling the Reference Portfolio in the form agreed between the 

Issuer, the Trustee, KfW and the Servicer; 

(g) information on each Reference Obligation in respect of which a Credit Event has 

occurred, including [the client identification number], Reference Obligation Notional 

Amount and maturity date of any such Reference Obligation and the reason for delivery 

of such Credit Event Notice; 

(h) compliance with the conditions for Replacement; 

(i) details of the Credit Swap Counterparty Payment due from the Credit Swap 

Counterparty under the Credit Swap Agreement; and 

(j) details of payments under the KfW Securities. 

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16.2 The Servicer shall, subject to the Confidentiality Restrictions applicable to the Banks, provide: 

(a) a copy of each Portfolio Report to the Administrator and the Relevant Rating Agencies 

after it has been verified by the Trustee pursuant to Clause 16.1; 

(b) the Issuer, the Administrator and/or the Trustee upon request all information in its 

possession which the Issuer, the Administrator, the Trustee, any Expert or any 

Valuation Expert requires for the performance of the Trustee’s obligations hereunder; 

and 

(c) access to the independent auditors appointed by the Trustee to inspect, after having 

received reasonable notice and during normal business hours, all books, documents and 

data which affect the Reference Obligations or the Related Collateral. 

16.3 The Trustee shall in relation to all Portfolio Reports and all other documents delivered to it 

pursuant to this Agreement: 

(a) keep such documents for one year after the termination of this Agreement and, at the 

discretion the Servicer, thereafter either destroy such documents or deliver the same to 

the Servicer; or 

(b) forward the documents to the successor Trustee, if the Trustee is replaced in accordance 

with Clause 34. 

16.4 The Trustee shall comply with the Confidentiality Restrictions applicable to the Banks and shall 

not disclose any Portfolio Report, document or other information obtained from the Servicer 

pursuant to this Agreement to any third party without prior written consent of the Servicer, 

except to an Expert duly appointed in accordance with this Agreement, and in such case subject 

to such Expert's agreement to be bound by the Confidentiality Restrictions applicable to the 

Banks. 

16.5 Unless otherwise specified or agreed with the Administrator and the Trustee, the Servicer shall 

provide the Trustee with all Portfolio Reports, documents and information in accordance with 

the provisions of Clause 39. 

17. VERIFICATION 

17.1 The Trustee shall verify: 

(a) the occurrence of any Credit Event in respect of any Obligation; 

(b) the Final Value and Settlement Amount of each Impaired Reference Obligation at the 

end of the Determination Period relating thereto, other than any Impaired Reference 

Obligation still in the Determination Period on the Interest Payment Date immediately 

preceding the Final Maturity Date or on the date on which a notice of Early Redemption 

or Optional Redemption is given by the Issuer under Condition 8 or 10, which shall be 

determined in accordance with Clause 22; 

(c) for any Impaired Reference Obligation, the correct determination of its Determination 

Period; 

(d) for any Adjusted Impaired Reference Obligation, the correct determination of its 

Determination Period; 

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(e) the Accrued Settlement Amount as of any Interest Payment Date; 

(f) the Issuer Payment as of any Interest Repayment Date; 

(g) each Portfolio Report, Administration Report and Investor Report; 

(h) all other documents delivered and information otherwise provided to it upon its request 

pursuant to this Agreement; and 

(i) that all Eligibility Criteria were met in respect of each Reference Obligation on the date 

on which such Reference Obligation was included in the Reference Portfolio, 

by reference to all relevant circumstances (Plausibilitätsprüfung) including, in the case of 

verification of the Final Value of any Impaired Reference Obligation, the recoveries and the 

Servicer’s determination of the Ratio of Aggregate Collateral Recoveries and the Ratio of 

Uncollateralised Recoveries in respect of such Impaired Reference Obligation. If the Trustee has 

reason to believe in the course of such verification process that the Servicer is, or may be, in 

breach of any of its obligations in respect of the Reference Obligations or the Procedures or the 

other Transaction Documents or has reason to believe that there are, or may be, any adverse 

implications to the interests of the Secured Parties, the Trustee shall promptly notify the Servicer 

and shall conduct such further reviews and take such other actions, including the specific 

procedures under Clauses 18 to 20, as applicable, and subject to Clause 22 as it, in its 

professional judgement, considers desirable or expedient to protect the interests of the Secured 

Parties. 

17.2 The Trustee shall only be obliged to carry out the verification pursuant to this Clause 17 if the 

conditions of Clause 22.2 are met. 

17.3 The Trustee shall, no later than 11 a.m. (Frankfurt time) 2 Business Days after delivery of a 

Portfolio Report, an Administration Report or, relevant Investor Report (as the case may be), 

confirm in writing to the Servicer, the Issuer, the Administrator and the Credit Swap 

Counterparty, the Primary Credit Swaps Counterparty and the Senior Credit Swap Counterparty 

that: 

(a) it has conducted the verification procedure (Plausibilitätsprüfung) in respect of such 

Report pursuant to Clause 17.1; and 

(b) on the basis of its verification under paragraph (a) above: 

(i) the Trustee is satisfied that such Portfolio Report and/or the relevant Investor 

Report is accurate; or 

(ii) the Trustee has concluded that the Issuer or the Servicer is, or may be, in 

breach of its obligations under this Agreement and/or the other Transaction 

Documents and/or there are, or may be, adverse implications to the interests of 

the Secured Parties and/or any proposed allocation of Issuer Payments and/or 

any payment under any of the Transaction Documents or the Primary Credit 

Swap Agreements or the Senior Credit Swap Agreement may not be made by 

the Issuer or, the Senior Credit Swap Counterparty, KfW or HVB (as 

applicable) in whole or in part. 

17.4 If the Trustee has concluded as set out in Clause 17.3 (b), the Trustee shall forthwith deliver to 

the Servicer, the Issuer (with a copy to the Administrator), the Credit Swap Counterparty, the 

71

Primary Credit Swaps Counterparty and the Senior Credit Swap Counterparty a notice (each, a 

"Notice") initiating the relevant procedure, if any, (each, a "Course of Action") pursuant to 

Clauses 18, 19, 20, 21, and/or 24. Such Notice shall provide reasonable details with respect to (a) 

the relevant facts and circumstances, (b) the extent of its objection to the relevant determination 

or calculation or other action (or failure to act) of the Servicer or the Issuer (as the case may be), 

and (c) the reasons for such objection. The Trustee shall, promptly upon the service of a Notice 

as aforesaid, deliver a copy of such Notice to the Credit Swap Counterparty, the Primary Credit 

Swaps Counterparty and the Senior Credit Swap Counterparty and each Relevant Rating Agency 

subject always to the Confidentiality Restrictions applicable to the Banks. 

17.5 The Trustee may request and the Servicer or, as the case may be, the Issuer (or the 

Administrator, on its behalf) shall provide to the Trustee and the independent auditors appointed 

by the Trustee such further information, access to its facilities and documentation subject always 

to the Confidentiality Restrictions applicable to the Banks, as the Trustee and its advisers may 

reasonably require to facilitate the Course of Action. 

18. ALLOCATION OF ISSUER PAYMENTS 

In the event that the Trustee has reason to believe, upon concluding any verification procedure 

pursuant to Clause 17.1 that: 

(a) a Reference Obligation has been determined as an Impaired Reference Obligation 

without proper enforcement of such Reference Obligation in accordance with the 

Procedures; 

(b) a Reference Obligation has been determined as an Impaired Reference Obligation at a 

time when further proceeds could still be reasonably expected to be received on such 

Reference Obligation; 

(c) a Reference Obligation has been determined as an Impaired Reference Obligation in 

respect of which any of the Eligibility Criteria, the Replacement Conditions or the 

Procedures were not complied with at the time such Obligation became a Reference 

Obligation; or 

(d) Related Collateral securing a Reference Obligation which became an Impaired 

Reference Obligation has been previously released in breach of the Procedures; or 

(e) the Final Value of any Reference Obligation determined in relation to an Impaired 

Reference Obligation has not been determined in compliance with the Procedures or it 

is otherwise unable to verify such Final Value or Settlement Amount, 

the Trustee shall promptly deliver to the Servicer with a copy to the Issuer (or the Administrator 

on its behalf), the Credit Swap Counterparty, the Primary Credit Swaps Counterparty and the 

Senior Credit Swap Counterparty a Notice thereof and shall appoint an Expert pursuant to 

Clause 20 provided that no allocation of any Issuer Payment shall be made until the Payment 

Date immediately following the verification by the Trustee, an Expert or each of the Valuation 

Experts (as the case may be) of the Final Value of the relevant Reference Obligation determined 

as an Impaired Reference Obligation and the Settlement Amount in respect of such Reference 

Obligation in accordance with this Agreement. 

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19. NON-COMPLIANCE AND REFERENCE CLAIM REMOVAL 

19.1 The Servicer shall promptly give notice to the Trustee of any Reference Obligation in respect of 

which any of the Eligibility Criteria, the Replacement Conditions or the Procedures has or have 

not been complied with on the date on which such Obligation was included in the Reference 

Portfolio (a "Non-compliance Notice"). The Non-compliance Notice shall include reasonable 

details of such non-compliance. 

19.2 On or after the delivery date of any Non-compliance Notice, the Servicer may request from the 

Trustee a confirmation to the effect that in the professional judgement of the Trustee: 

(a) the Eligibility Criteria, the conditions for Replacement, Addition and/or the Procedures 

are complied with; 

(b) the relevant non-compliance affects only a part of the relevant Reference Obligation; or 

(c) the relevant non-compliance has not resulted in or contributed to the Settlement 

Amount in respect of such Reference Obligation. 

If and to the extent that any of the foregoing in paragraphs (a), (b) or (c) is true in the 

professional judgement of the Trustee, such confirmation shall be given by the Trustee and shall 

be binding for the purposes of the determination and allocation of any Issuer Payment in respect 

of such Reference Obligation, save for manifest error. In the event the Trustee does not deliver 

such confirmation for whatever reason, the Trustee shall, upon the request of the Servicer, 

appoint an Expert in accordance with Clause 20. 

19.3 The Servicer shall remove any Obligation in respect of which a Non-compliance Notice has been 

given immediately upon determination by an Expert in accordance with Clause 20 that such 

obligation be removed. 

20. EXPERT FOR DISPUTES 

20.1 Without prejudice to the provisions of Clause 20.4, upon the service of a Notice pursuant to, and 

in accordance with, Clause 17.4, the Trustee shall appoint a disinterested third party that is a 

bank, financial services institution or auditing firm of recognised standing which is located in 

Germany and which meets the criteria of each of the Relevant Rating Agencies with respect to a 

successor trustee pursuant to Clause 34.4 but is not an affiliate of the Issuer, the Trustee, the 

Trustee Custodian, the Administrator, HVB, KfW or the Senior Credit Swap Counterparty (the 

"Expert") to determine any matter referred to under Clause 18 and/or 19. 

20.2 Such Expert shall be selected by the Trustee in its reasonable discretion, having regard to the 

nature of the dispute and interests of the Secured Parties, the Primary Credit Swaps Counterparty 

or the Senior Credit Swap Counterparty in timely determination of the disputed issue. 

20.3 The Trustee shall promptly notify each of the Relevant Rating Agencies, the Credit Swap 

Counterparty, the Primary Credit Swaps Counterparty and the Senior Credit Swap Counterparty 

of such appointment and the nature of the dispute. 

20.4 Prior to the appointment of an Expert pursuant to Clause 20.1 the Trustee may, in its sole 

discretion but having due regard to the interests of the Secured Parties, seek an amicable solution 

of the matter of disagreement with the Servicer by negotiation in good faith. 

73

20.5 Each of the Issuer, the Administrator, the Servicer and the Trustee shall, subject always to the 

Confidentiality Restrictions applicable to it, upon request of the Expert, provide the Expert with 

such information, documents and access as the Expert may reasonably require for performance 

of its duties hereunder. 

20.6 Any determination by way of a written certificate of the Expert will be final and binding on the 

parties hereto, the Noteholders, the Primary Credit Swaps Counterparty and the Senior Credit 

Swap Counterparty. The Expert shall deliver such written certificate to the Trustee with copies 

thereof to the Servicer, the Credit Swap Counterparty, the Issuer, the Administrator, the Primary 

Credit Swaps Counterparty and the Senior Credit Swap Counterparty and each of the Relevant 

Rating Agencies. 

20.7 The appointment of any Expert under this Clause 20 is for the purpose of an expert opinion 

(Schiedsgutachten) and not for arbitration (Schiedsvertrag). 

21. EXPERT FOR FINAL VALUES 

21.1 The Servicer shall give notice to the Trustee of any Impaired Reference Obligations that are in 

the Determination Period: 

(a) on the Interest Payment Date immediately preceding the Final Maturity Date; or 

(b) on the date on which a notice of Early Redemption or Optional Redemption is given by 

the Issuer, 

for the determination of the Final Value and Settlement Amount in respect of each such Impaired 

Reference Obligation. Promptly upon receipt of such notice, the Trustee shall appoint, subject to 

KfW's prior written consent (such consent not to be unreasonably withheld) two disinterested 

third party experts who shall be internationally recognised auditors, each of which is located in 

Germany but is not an affiliate of the Issuer, the Trustee, the Trustee Custodian, the Senior 

Credit Swap Counterparty, the Administrator, HVB, VuW or KfW, and has not been involved as 

an Expert in connection with the same Reference Obligation (each a "Valuation Expert") to 

determine the Final Value and the related Settlement Amount of such Impaired Reference 

Obligation. 

21.2 The Valuation Experts shall be selected by the Trustee in its reasonable discretion after 

consultation with the Servicer, if practicable, having regard to the interests of the Secured Parties 

in the professional determination of the Final Values in timely manner. 

21.3 The Trustee shall promptly notify the identity of the Valuation Experts to the Issuer, the 

Administrator, the Servicer, the Credit Swap Counterparty, the Primary Credit Swaps 

Counterparty, the Senior Credit Swap Counterparty and each of the Relevant Rating Agencies. 

21.4 Upon request from the Trustee and/or either Valuation Expert, the Servicer shall, subject always 

to the Confidentiality Restrictions applicable to the Banks, provide such Valuation Experts with 

such information and documents regarding the relevant Impaired Reference Obligations and 

such access as such Valuation Experts may reasonably require for determination of the Final 

Values. 

21.5 Any determination by way of a written certificate of a Valuation Expert shall be final and 

binding on each of the parties hereto, the Noteholders, the Primary Credit Swaps Counterparty 

and the Senior Credit Swap Counterparty. The Valuation Experts shall deliver such written 

certificate to the Trustee with copies to the Issuer, the Servicer, the Administrator, the Credit 

74

Swap Counterparty, the Primary Credit Swaps Counterparty, the Senior Credit Swap 

Counterparty and the Trustee shall deliver a copy thereof to the Relevant Rating Agencies. 

21.6 In the event that two Valuation Experts determine different Final Values or Settlement Amounts 

in respect of any Impaired Reference Obligation, the Final Value or Settlement Amount (as the 

case may be) of such Impaired Reference Obligation shall be determined by the Trustee as the 

average of the two Final Values or Settlement Amount (as the case may be) determined by the 

Valuation Experts and such determination by way of a certificate of the Trustee shall be fixed 

and binding on each of the parties hereto, the Noteholders, the Primary Credit Swaps 

Counterparty, the Senior Credit Swap Counterparty and the Credit Swap Counterparty. 

21.7 The appointment of any Valuation Expert under this Clause 21 is for the purpose of an expert 

opinion (Schiedsgutachten) and not for arbitration (Schiedsvertrag). 

22. TRUSTEE'S FURTHER OBLIGATIONS 

22.1 If the Trustee becomes aware on the basis of its verification procedures pursuant to Clause 17.1 

that the interests of the Secured Parties are at risk due to any failure of the Servicer and/or the 

Issuer duly to discharge its obligations under the Transaction Documents, the Trustee shall 

promptly give notice to the Servicer and/or the Issuer and/or the Credit Swap Counterparty (as 

the case may be) and at its discretion and subject to Clause 22.2, take or initiate any of the 

procedures under this Agreement, to appoint an Expert or Valuation Expert(s) or take such other 

action which the Trustee, in its professional judgement, considers desirable or expedient to 

protect the interests of the Secured Parties. 

22.2 Subject to Clause 22.3 the Trustee shall only be obliged to intervene in accordance with Clause 

22.1 and/or in accordance with any other Clause of this Agreement which refers to this Clause 

22.2 if, and to the extent that it is indemnified by the Issuer, the Servicer or the Credit Swap 

Counterparty to its satisfaction for its fees under Clause 32.1 and against all costs and expenses 

resulting from its activities (including time fees for retaining an Expert or a Valuation Expert, 

advisers or third parties retained by the Trustee pursuant to this Agreement) and against all 

liability, obligations and attempts to bring any action in or out of court. 

22.3 The Trustee shall be obliged to hold, administer and enforce the Collateral pursuant to this 

Agreement and the other Collateral Documents (including, without limitation, to realise the 

relevant KfW Securities and to procure the custody of the KfW Securities) whether or not the 

requirements of Clause 22.2 are complied with. 

23. COVENANT TO COMPLY 

23.1 The Issuer hereby covenants with the Trustee that it will perform, observe and comply with the 

Conditions. The Trustee shall be entitled to enforce the obligations of the Issuer under the Notes 

in the manner therein provided as if the Notes were incorporated in this Agreement, which shall 

be read and construed as one document with the Notes. 

23.2 The Issuer hereby covenants with the Trustee to comply with those provisions of this 

Agreement, the other Transaction Documents and the Conditions which are expressed to be 

binding on it and to perform and observe the same and to notify the Trustee immediately if it 

becomes aware of any material breach of such obligations and not make any amendment or 

modification thereto or agree to waive or authorise any breach thereof without the prior written 

consent of the Trustee. The Notes are subject to the provisions contained in this Agreement, all 

of which shall be binding upon the Issuer and the Noteholders and all persons claiming through 

or under them respectively. 

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24. COVENANTS OF THE ISSUER AND THE SERVICER 

24.1 The Issuer hereby covenants with the Trustee that, so long as any of the Notes remains 

outstanding, it will: 

(a) at all times keep such books of account as may be necessary to comply with all 

applicable laws and so as to enable the financial statements of the Issuer to be prepared 

and allow the Trustee and any person appointed by it free access to the same at all 

reasonable times during normal business hours and to discuss the same with responsible 

officers of the Issuer; 

(b) give notice in writing to the Trustee (with a copy to the Applicable Relevant Rating 

Agencies) forthwith upon becoming aware of any Enforcement Event; 

(c) send to the Trustee and to the Paying Agents (if the same are produced) as soon as 

practicable after their date of publication and in the case of annual financial statements 

in any event not more than 180 days after the end of each financial year, four copies of 

the Issuer’s balance sheet, profit and loss account and report and of every balance sheet, 

profit and loss account, report or other notice, statement or circular issued (or which 

under any legal or contractual obligation should be issued) to the members or holders of 

debentures or creditors (or any class of them) of the Issuer in their capacity as such at 

the time of the actual (or legally or contractually required) issue or publication thereof 

and procure that the same are made available for inspection by Noteholders at the 

Specified Offices of the Paying Agents as soon as practicable thereafter; 

(d) on each anniversary of the date hereof and at any time within 14 days of a demand from 

any of the Trustee, the Credit Swap Counterparty or the Administrator deliver to such 

party or all such parties a certificate of the Issuer signed by two Authorised Signatories 

of the Issuer certifying that: 

(i) up to a specified date no earlier than five days before the date of such 

certificate (the "Certified Date"), there did not exist nor had there existed at 

any time prior thereto since the Certified Date in respect of any previous 

certificate (or, in the case of the first certificate, since the date of this 

Agreement), any Enforcement Event or other matter which could affect the 

Issuer's ability to perform its obligations under this Agreement, the Notes and 

the other Transaction Documents or, if it is aware that an Enforcement Event 

or such other matter did then exist, specifying the same; and 

(ii) it is in compliance with all its obligations under this Agreement and the other 

Transaction Document to which it is a party or, if such is not the case, 

specifying the same; 

(e) so far as permitted by applicable law, at all times give to the Trustee such opinions, 

certificates and information as it properly requires for the performance of its functions. 

The Trustee may rely on the contents of such opinions, certificates and information as 

conclusive evidence of the matters stated herein or the matters to which they relate; 

(f) procure that all KfW Securities and all proceeds or other amounts received in respect 

thereof and all monies otherwise held by the Custodian are held by the Custodian upon 

and subject to the terms of the Custody Agreement, the Pledge Agreement and this 

Agreement; 

76

(g) so far as permitted by applicable law and regulatory requirements, at all times execute 

all such further documents and do all such further acts and things as may be necessary 

at any time or times in the reasonable opinion of the Trustee to give effect to the 

provisions of this Agreement, the Transaction Documents and the Notes and to enable 

the Trustee to perform its functions under this Agreement and the other Transaction 

Documents to which it is a party; 

(h) send or procure to be sent to the Trustee not less than three days prior to the date of 

publication, for the Trustee’s approval, one copy of each notice to be given to the 

Noteholders in accordance with the Conditions and not publish such notice without 

such approval and upon publication, send to the Trustee two copies of such notice; 

(i) use its best endeavours to notify the Trustee forthwith in the event that it does not, on or 

before the due date for payment in respect of the Notes or any of them, receive in 

cleared funds in the Issuer Operating Account the full amount in the relevant currency 

of the monies payable on such due date on all such Notes; 

(j) notify the Trustee forthwith in the event that it does not, on or before the due date for 

any payment to be made in respect of the Credit Swap Agreement receive in cleared 

funds in the Issuer Operating Account the full amount in the relevant currency of the 

monies payable on such date thereunder; 

(k) in the event of the unconditional payment to the Principal Paying Agent or the Trustee 

of any sum due in respect of the Notes or any of them being made after the due date for 

payment thereof, forthwith give notice to the Noteholders that such payment has been 

made; 

(l) not less than the number of days specified in the relevant Condition prior to any 

redemption or repayment date in respect of any Note, give to the Trustee notice in 

writing of the amount of such redemption or repayment pursuant to the Conditions; 

(m) at all times use its best endeavours to maintain its residence for tax purposes in Ireland 

and, if necessary in relation to any claim for exemption or relief from any tax, 

assessment or governmental charge shall, upon the reasonable request of the Trustee, 

provide a written confirmation of its non-residence in Germany (and, in order to 

provide such confirmation, the Issuer may obtain such German legal or tax advice as it 

deems necessary); 

(n) at all times use all its best efforts to maintain the listing of the Notes on the 

Luxembourg Stock Exchange or, if it is unable to do so having used all best efforts or if 

the maintenance of such listing is agreed by the Trustee to be unduly burdensome or 

impractical, use its best endeavours to obtain and maintain a quotation or listing of the 

Notes on such other stock exchange or exchanges or securities market or markets as the 

Issuer may (with the approval of the Trustee) decide and will, in accordance with the 

Conditions, notify the Noteholders of the identity of such other stock exchange or 

exchanges, securities markets or markets; 

(o) upon the execution hereof and thereafter forthwith upon any change of the same, deliver 

to the Trustee (with a copy to the Paying Agents) a list of the Authorised Signatories of 

the Issuer, together with certified specimen signatures of the same; 

(p) pay monies payable by it to the Trustee hereunder without set-off, counterclaim, 

deduction or withholding, unless otherwise compelled by law and in the event of any 

77

deduction or withholding compelled by law pay such additional amount as will result in 

the payment to the Trustee of the amount which would otherwise have been payable by 

it to the Trustee hereunder; 

(q) at all times maintain a Paying Agent having a specified office outside the United States 

and for so long as any Note is listed in Luxembourg, in Luxembourg; 

(r) give notice to the Noteholders in accordance with the Conditions of any appointment, 

future appointment, resignation or removal of any Paying Agent and/or the Interest 

Determination Agent (other than the appointment of the initial Paying Agents and the 

initial Interest Determination Agent) and of any change in the Specified Office of any 

Paying Agent or the Interest Determination Agent (subject to the Issuer having received 

notice of such change pursuant to the Agency Agreement); 

(s) at all times comply with and perform all its obligations under the Transaction 

Documents including all of its obligations under, and in respect of, the Notes and use all 

reasonable endeavours to procure that the other parties hereto (other than the Trustee) 

comply with and perform all their respective obligations thereunder; 

(t) if it has the right to declare an Early Termination Date under the Credit Swap 

Agreement consult with and act in accordance with the written instructions of the 

Trustee; 

(u) ensure that all of the Directors, whether individuals or corporate entities, will be tax 

resident only in Ireland and, in any event, will not be tax resident in Germany or 

Luxembourg; 

(v) ensure that a meeting of its Directors is held at least once a year and each meeting of its 

Directors is held only in Ireland and is duly minuted and that the Directors will take all 

decisions for the Issuer in Ireland and, in any event, outside Germany and Luxembourg; 

(w) ensure that the Directors shall not delegate any of their powers and that no decisions are 

taken for or on behalf of the Issuer other than decisions of the Directors taken only in 

Ireland and in each case except as contemplated by the Transaction Documents and, in 

any event, outside Germany and Luxembourg and that the Directors will be (or be 

represented by) individuals of sufficient experience and expertise to take decisions for 

the Issuer and will have a substantive decision-making role in respect of the Issuer; 

(x) if the Issuer gives notice to the Trustee that it intends to redeem the Notes pursuant to 

Conditions 8, 9, 10 or 11, the Issuer shall, prior to giving such notice to the 

Noteholders, provide such information to the Trustee as the Trustee requires in order to 

satisfy itself of the matters referred to in such Conditions; 

(y) promptly give notice to the Trustee if it is required by law to withhold or account for 

tax in respect of any payment due in respect of the Notes or if it becomes liable to tax in 

respect of its income and take such action as may be required by the Trustee in respect 

thereof; and 

(z) at all times maintain an Administrator in accordance with the Administration 

Agreement and procure that the Administrator prepares and delivers each 

Administration Report and each Investor Report on the due date therefor under the 

Administration Agreement. 

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24.2 The Issuer agrees that, without the prior written consent of the Trustee, it will not: 

(a) engage in any activity which is not reasonably incidental to any of the activities which 

the Transaction Documents provide or envisage; 

(b) whilst any of the Secured Obligations remain outstanding declare or pay any dividend 

or make any other distribution to its shareholders except in accordance with the 

provisions of the Transaction Documents; 

(c) have any subsidiaries or any German or Luxembourg branch or agency or any place of 

business or permanent establishment in Germany or Luxembourg; 

(d) have any employees, subsidiaries or premises or purchase, own, lease or otherwise 

acquire any real property (other than premises at its registered office in Ireland); 

(e) incur or permit to subsist any indebtedness in respect of borrowed money whatsoever or 

give any indemnity or assume any liability whatsoever, except as permitted pursuant to 

the Transaction Documents of any obligation of any person; 

(f) save as provided in this Agreement or the other Transaction Documents, dispose of any 

of its assets including, without limitation, the KfW Securities; 

(g) create or permit to subsist any mortgage, pledge, lien (unless arising by operation of 

law) or charge upon, or sell, transfer, assign, exchange or otherwise dispose of, the 

whole or any part of, its assets, present or future (including any uncalled capital) or its 

undertaking other than pursuant to the Transaction Documents; 

(h) consolidate or merge with any other person or convey or transfer its properties or assets 

substantially as an entirety to any other person; 

(i) permit the validity or effectiveness of this Agreement or any Collateral created 

hereunder or under any other Collateral Document to be impaired or permit the lien of 

this Agreement to be amended, hypothecated, subordinated, terminated or discharged, 

or permit any person to be released from any covenants or obligations with respect to 

this Agreement or the other Transaction Documents except as may be expressly 

permitted hereby or by the other Transaction Documents; 

(j) issue any further shares or alter any rights to the shares in existence on the date hereof; 

(k) open or have an interest in any account whatsoever with any bank or other financial 

institution, save where obliged to do so under the Transaction Documents; 

(l) purchase, subscribe for or otherwise acquire any shares (or other securities or any 

interest therein) in, or incorporate, any other company or agree to do any of the 

foregoing other than in accordance with the Transaction Documents; 

(m) amend or alter its Memorandum or Articles of Association; 

(n) take any action that would permit the first priority Collateral created pursuant to the 

Collateral Documents not to constitute a valid first priority security interest in the 

Collateral Assets; or 

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(o) subject as provided herein or in the Conditions, not at any time during the course of the 

25. AMENDMENTS 

Transaction contemplated herein, consent to any variation of, or exercise any powers of 

consent or waiver, pursuant to the Transaction Documents. 

25.1 No amendment of any provision of this Agreement (including this Clause) shall be effective 

unless the same is in writing and signed by each of the parties hereto. 

25.2 The Trustee may, without the consent of any Class of Noteholders but with the prior written 

consent of the Credit Swap Counterparty (such consent not to be unreasonably withheld) but 

only if and in so far as, in the opinion of the Trustee, the interests of any of the Noteholders or 

the Credit Swap Counterparty shall not be materially prejudiced thereby and it has notified the 

Relevant Rating Agencies and in consequence of any intended amendment notified to the 

Relevant Rating Agencies that the ratings of any Class of Notes will not be adversely affected, 

concur with the Issuer and the other parties hereto in making any amendment to this Agreement 

which, in the opinion of the Trustee, it may be proper to make. Any such amendment shall be 

binding on the Noteholders and the other Secured Parties and, unless the Trustee otherwise 

agrees, the Issuer shall cause such modification to be notified to the Noteholders, the other 

Secured Parties and the Relevant Rating Agencies, as soon as practicable thereafter and, with 

respect to the Noteholders, in accordance with Condition 15. 

26. RELIANCE ON INFORMATION 

26.1 The Trustee shall be entitled to rely upon a certificate, reasonably believed by it to be genuine, of 

the Issuer, the Administrator, the Trustee Custodian, any Paying Agent, the Interest 

Determination Agent or any other relevant parties in respect of every matter and circumstance 

for which a certificate is expressly provided for under this Agreement or the Conditions or the 

other Transaction Documents and to call for and rely upon a certificate of the Administrator, 

reasonably believed by it to be genuine, as to any other fact or matter prima facie within the 

knowledge of the Administrator as sufficient evidence thereof. 

26.2 The Trustee is entitled to assume that any application of proceeds by the Administrator in 

accordance with Conditions 5.8 and 11 respectively to persons appearing in the order of 

payments set out in the Conditions has been correctly calculated and applied and the Trustee 

shall have no liability to any Secured Party or other person in relation thereto. 

27. PRIORITIES 

Whenever in this Agreement or the other Transaction Documents the Trustee is required in 

connection with any exercise of its powers, authorities, duties or discretions to have regard to 

the interests of the Noteholders or any Class of Noteholders, it shall have regard to the interests 

of each Class of Noteholders as a class and, without prejudice to the generality of the foregoing, 

shall not be obliged to have regard to the consequences of such exercise for any individual 

Noteholder resulting from his or its being for any purpose domiciled or resident in, or otherwise 

connected with, or subject to the jurisdiction of, any particular territory. 

28. NO INVESTIGATION 

28.1 The Trustee shall not be responsible for investigating any matter which is the subject of, any 

statement, representation, warranty or covenant of any person contained in this Agreement, the 

other Transaction Documents, the Conditions, or any other agreement or document relating to 

80

the transactions herein or therein contemplated or for the execution, legality, effectiveness, 

adequacy, genuineness, validity, enforceability or admissibility in evidence thereof. 

28.2 The Trustee may accept without investigation, requisition or objection such right and title as the 

Issuer may have to any of the Collateral Assets and the other Collateral created in favour of the 

Trustee by the Collateral Documents and shall not be bound or concerned to examine and 

enquire into or be liable for any defect or failure in the right or title of the Issuer to all or any of 

the Collateral Assets whether such defect or failure was known to the Trustee or might have 

been discovered upon examination or enquiry and whether capable of remedy or not. 

28.3 Each Noteholder and each other Secured Party shall be solely responsible for making its own 

independent appraisal of and investigation into the financial condition, creditworthiness, affairs, 

status and nature of the Issuer and the Trustee shall not at any time have any responsibility for 

the same to any Noteholder any the other Secured Party. 

29. TRUSTEE’S DISCRETIONS 

29.1 The Trustee may determine whether or not a default in the performance by the Issuer of any 

obligation under the provisions of this Agreement or contained in the Notes or any Transaction 

Document or other related document is capable of remedy and/or materially prejudicial to the 

interests of the Noteholders and if the Trustee shall certify that any such default is, in its opinion, 

not capable of remedy, such certificate shall be conclusive and binding upon the Issuer, the 

Noteholders and the other Secured Parties. 

29.2 Any consent given by the Trustee for the purposes of this Agreement, the Notes or the other 

Transaction Documents may be given by the Trustee if, in its opinion, the giving of such consent 

would not be prejudicial to the interests of the Secured Parties. 

29.3 The Trustee shall not (unless required by law or ordered so to do by a court of competent 

jurisdiction) be required to disclose to any Noteholder or other Secured Party information subject 

to Confidentiality Restrictions applicable to the relevant Bank or other information made 

available to the Trustee by the Issuer in connection with this Agreement and the other 

Transaction Documents and no Noteholder or other Secured Party shall be entitled to take any 

action to obtain from the Trustee any such information. 

30. EXPERTS 

30.1 For the purposes of the appointment of an Expert and/or a Valuation Expert, the Trustee shall 

only be liable for the exercise of due care in the selection of the Expert or Valuation Expert. The 

Trustee shall not be liable for performance of the Expert or the Valuation Expert. 

30.2 The Credit Swap Counterparty shall reimburse the Trustee for all reasonable fees, costs and 

disbursements (including costs of any Expert's or any Valuation Expert's advisers) payable by 

the Trustee to any Expert and/or any Valuation Expert. 

31. ADVISERS 

31.1 The Trustee is authorised, in connection with the performance of its duties under Transaction 

Documents, at its own discretion, to seek information and advice from legal counsel, financial 

consultants, banks and other experts (each, an "Adviser") at market prices, if appropriate, after 

obtaining several offers. 

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31.2 The Trustee may rely on such information and advice without having to make its own 

investigations. The Trustee shall not be liable for any damages or losses caused by its acting in 

reliance on information or advice of such advisers. The Trustee shall not be liable for any 

negligence of such advisers. The Trustee shall only be liable for the exercise of due care in the 

selection of any such advisers. 

32. COSTS AND EXPENSES 

32.1 The Issuer shall pay or procure the payment to the Trustee of remuneration for its services as 

trustee as from the date of this Agreement, such remuneration to be at such rate and in such 

manner as may from time to time be agreed between the Issuer and the Trustee. 

32.2 In the event of the occurrence of an Enforcement Event or the Trustee considering it expedient 

or necessary or being requested by the Issuer to undertake duties which the Trustee and the 

Issuer agree to be of an exceptional nature or otherwise outside the scope of the normal duties of 

the Trustee under this Agreement and the other Transaction Documents, the Issuer shall pay or 

procure the payment to the Trustee such additional remuneration as shall be agreed between 

them. 

32.3 The Issuer shall pay or procure the payment to the Trustee an amount equal to the amount of any 

irrecoverable value added tax or similar tax chargeable in respect of its remuneration under this 

Agreement. 

32.4 In the event of the Trustee and the Issuer failing to agree in the circumstances described in 

Clause 32.2 upon whether such duties shall be of an exceptional nature or otherwise outside the 

scope of the normal duties of the Trustee under this Agreement or upon such additional 

remuneration, such matters shall be determined by a bank, financial services institution or 

auditing firm of recognised standing which is located in Germany (acting as an expert and not as 

an arbitrator) selected by the Trustee and approved by the Issuer. The determination made by 

such expert shall be final and binding upon the Trustee and the Issuer. 

32.5 The Issuer shall pay or discharge or procure the payment or discharge of all costs, charges and 

expenses incurred by the Trustee in relation to the preparation and execution of, the exercise of 

its powers and the performance of its duties under, and in any other manner in relation to this 

Agreement and the other Transaction Documents, including but not limited to legal and 

travelling expenses and any stamp, issue, registration, documentary and other taxes or duties 

paid or payable by the Trustee in connection with any action taken or contemplated by or on 

behalf of the Trustee for enforcing, or resolving any doubt concerning, or for any other purpose 

in relation to, this Agreement. 

33. STAMP DUTIES 

33.1 The Issuer will pay or procure the payment of all stamp duties, registration taxes, capital duties 

and other similar duties or taxes (if any) payable in Ireland or Germany or Luxembourg on: 

(a) the constitution and issue of the Notes; 

(b) the initial delivery of the Notes; 

(c) any action taken by the Trustee (or any Noteholder where permitted or required under 

this Agreement so to do) to enforce the provisions of the Notes, this Agreement, the 

Collateral or the other Transaction Documents; 

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(d) the execution of this Agreement or any of the other Transaction Documents; and 

(e) the creation of the Collateral. 

33.2 If the Trustee shall take any proceedings against the Issuer or any steps in respect of the 

Collateral in any other jurisdiction and if for the purpose of any such proceedings this 

Agreement or any Notes or Transaction Documents are taken into any such jurisdiction and any 

stamp duties or other duties or taxes become payable thereon in any such jurisdiction, the Issuer 

will pay (or reimburse the person making payment of) such stamp duties or other duties or taxes 

(including penalties). 

34. TERMINATION AND REPLACEMENT 

34.1 Subject to Clauses 34.3 and 34.4, the Trustee may resign from its office as Trustee for good 

cause (aus wichtigem Grund) at any time by giving 30 Business Days' prior notice to the Issuer 

and the other parties hereto. 

34.2 Subject to Clause 34.3, the Issuer shall be authorised and obliged to terminate the appointment of 

the Trustee as trustee under this Agreement and with the prior written consent of the Credit 

Swap Counterparty (such consent not to be unreasonably withheld) after having been so 

instructed in writing by Noteholders representing at least 25% of the aggregate Outstanding 

Principal Amount of the Notes. 

34.3 In the case of insolvency, bankruptcy, winding-up or liquidation of the Issuer, the Trustee shall 

be obliged to resign if so instructed in writing directly by Noteholders representing at least 25% 

of the aggregate Outstanding Principal Amount of the Notes. 

34.4 Any resignation by the Trustee in accordance with Clause 34.1 or Clause 34.3 and any 

revocation of the appointment of the Trustee in accordance with Clause 34.2 shall become 

effective only upon: 

(a) the appointment by the Issuer (or in case of Clause 34.1, the Trustee on behalf of the 

Issuer and in case of Clause 34.3, the Trustee on behalf of the relevant Secured Parties) 

of a successor trustee: 

(i) which is a bank, financial services institution or auditing firm of recognised 

standing which is located in Germany: 

(ii) which meets the criteria of each of the Relevant Rating Agencies that had 

assigned a rating to the Rated Notes prior to such resignation or replacement 

for maintaining such rating upon the appointment of such successor trustee; 

and 

(iii) to which the Credit Swap Counterparty has given its prior written consent 

(such consent not to be unreasonably withheld); 

(b) the grant to such successor trustee of all authorities and powers granted to the Trustee 

hereunder; and 

(c) the acceptance by such successor trustee of such appointment and of the rights and 

obligations under the Transaction Documents, the Senior Credit Swap Agreement and 

the Primary Credit Swap Agreements. 

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34.5 The costs incurred in connection with replacing the Trustee pursuant to this Clause 34.4shall be 

borne by the Credit Swap Counterparty. If the replacement pursuant to Clause 34.2 or 34.3 is due 

to the Trustee's conduct, the Credit Swap Counterparty shall be entitled, without prejudice to any 

additional rights, to demand damages from the Trustee in the amount of such costs. 

34.6 The appointment of a successor Trustee in accordance with Clause 34.4 shall be published or 

notified to the holders of the Notes, as relevant, without delay in accordance with the relevant 

Conditions, or, if this is not possible, in any other appropriate way and promptly notified in 

writing to the Credit Swap Counterparty by the Issuer or the successor Trustee. 

34.7 The Trustee shall provide the successor Trustee with a reasonably detailed report regarding its 

activities within the framework of this Agreement. 

34.8 Upon the effectiveness of any replacement of the Trustee pursuant to Clause 34.4, the Trustee 

shall be released from its obligations hereunder but shall continue to be entitled to payments due 

to it under this Agreement and outstanding as of the date of the effective replacement of the 

Trustee. 

35. SEVERABILITY 

In case any provision in or obligation under this Agreement shall be in whole or in part, invalid, 

illegal or unenforceable in any jurisdiction (each such provision or obligation, an "Invalid 

Provision"), the validity, legality and enforceability of the remaining provisions or obligations in 

such jurisdiction or any other jurisdiction shall not in any way be affected or impaired thereby. 

The parties hereto shall replace in good faith any Invalid Provision by a provision which is valid, 

legal and enforceable under the laws of the relevant jurisdiction (to the extent possible under the 

laws of such jurisdiction) and which so far as is possible accomplishes the commercial objective 

or objectives which the invalid provision was intended to accomplish. 

36. OMISSIONS 

If, after the date hereof, the parties hereto become aware of the omission of any term which was 

intended to be included in this Agreement, the parties hereto will add in good faith such omitted 

provision with a provision which so far as is possible accomplishes the commercial objective or 

objectives which such omitted provision was intended to accomplish. 

37. REMEDIES AND WAIVERS 

37.1 No failure on the part of any party to this Agreement to exercise, and no delay in exercising, any 

right hereunder shall operate as a waiver thereof. 

37.2 No exercise or partial exercise of any right or remedy shall preclude any other or further exercise 

thereof or the exercise of any other right or remedy by any party to the Agreement. 

37.3 The remedies in this Agreement are cumulative and not exclusive of any remedies provided by 

law. 

37.4 To the extent that Section 284 (III) of the German Civil Code (Bürgerliches Gesetzbuch) limits 

the scope of Section 284 (I) and (II) German Civil Code, Section 284 (III) shall not apply to this 

Agreement or any of the transactions contemplated hereby. 

38. STANDARD BUSINESS TERMS 

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The respective standard business terms and conditions of the Servicer, the Trustee Custodian, the 

Credit Swap Counterparty and/or the Trustee shall not apply with respect to this Agreement or 

the other Transaction Documents or the transactions contemplated hereby or thereby. 

39. NOTICES 

39.1 Any notice or other communication or document to be made or delivered under this Agreement 

shall be in the English language and shall be made or delivered by fax or otherwise in writing. 

Each notice, communication or other document to be delivered to any party to this Agreement 

shall (unless that other person has by fifteen (15) days prior written notice to the parties hereto 

specified another address or fax number) be made or delivered to that other person at the address 

or fax number or telex number (if any) and for the attention of the person or department set out 

below: 

(a) to the Issuer at: 

30 Herbert Street 

Dublin 2 

Ireland 

Fax No.: + 353 1 619 9010 

Attention: Matsack Trust Limited 

With a copy to the Administrator at the address specified in (b) below 

(b) to the Administrator at: 

George's Dock House 

International Financial Services Centre 

Dublin 

Ireland 

Fax No.: +353 1 607 6579 

Attention: Michael Whelan/Carmel Naughton 

(c) to the Servicer at: 

FCP 3 

Corporate Banking Portfolio Management and Capital Allocation 

Sederanger 5 

D-81925 

Munich 

Germany 

Fax No.: + 49 89 378 25773 

Attention: Günter Torghele 

(d) to the Custodian at: 

Arabellastrasse 12 

Transaction & Legal Risk Management (MCC 4) 

D-81925 

85

Munich 

Germany 

Fax No.: + 49 89 378 15966 

Attention: Annika Schupp/Stefan Henrich 

(e) to the Credit Swap Counterparty and the Pledgee at: 

Palmengartenstrasse 5-9 

D-60325 Frankfurt am Main 

Fax No.: +49 69 7431 2944 

Attention: Förderkreditverbriefung 

(f) to the Trustee at: 

Marie-Curie-Str. 30 

60439 Frankfurt am Main 

Germany 

Fax No.: +49 69 95 87 2121 

Attention: Herr Herfurth/Herr Rohrbach 

(g) to the Trustee Custodian at: 

2 Boulevard Konrad Adenauer 

L-1115 Luxemburg 

Fax No.: +352 462 058 

Attention: Adriano Vinciotti 

or, in any case, to such other address or fax number or telex number (if any) or for the attention 

of such other person or department as the addressee has by prior notice to the sender specified 

for the purpose. 

39.2 Any notice, communication or document to be delivered to any person in accordance with 

Clause 39.1 shall be deemed to have been delivered: 

(a) in the case of personal delivery, at the time of such delivery; 

(b) in the case of delivery by registered mail, when confirmation of delivery has been 

received; 

(c) in the case of any communication made by unregistered mail when left at that address 

or (as the case may be) seven days after being deposited in the post postage prepaid in 

an envelope addressed to it at that address; or 

(d) in the case of any notice or other communication by fax, at the time of dispatch and in 

proving such delivery it shall be sufficient to prove that the whole of the fax message 

was received on the fax machine of the recipient and that there was no evidence that 

such transmission had been interrupted 

86

provided that, any such notice or communication which would otherwise take effect after 4.00 

p.m. on any particular day shall not take effect until 10.00 a.m. on the immediately succeeding 

business day in the place of the addressee. 

39.3 Any notice required to be given to Noteholders under this Agreement shall be given in 

accordance with the Conditions provided that so long as all or any of the Notes are represented 

by a Temporary Global Note and/or a Permanent Global Note, notices to Noteholders shall be 

given in accordance with the terms of the relevant Temporary Global Note and/or the relevant 

Permanent Global Note of such Class of Notes. 

40. ASSIGNABILITY 

40.1 The Trustee may assign any or all or any of its rights or benefits under this Agreement to any 

successor trustee appointed pursuant to this Agreement. 

40.2 Save as provided for in Clause 40.1, no party may assign or transfer its rights, benefits, 

obligations or interests under this Agreement. 

41. LIMITED RECOURSE AND NO PETITION 

41.1 The Trustee acting for and on behalf of itself and each Secured Party acknowledges that, 

notwithstanding any other provisions hereof or of any Transaction Document, all payments of 

principal, interest and, if applicable, premium to be made by the Issuer under the Notes and all 

payments to be made by the Issuer under the Transaction Documents (including this Agreement) 

will be payable only from, and to the extent of, the sums paid to, or net proceeds recovered by or 

on behalf of, the Issuer or the Trustee in respect of the relevant Collateral Assets and there will 

be no other assets of the Issuer available for any further payments and the Issuer shall have no 

further liability. The Trustee and the other Secured Parties will look solely to such sums and 

proceeds and the rights of the Issuer in respect of the relevant Collateral Assets for payments to 

be made by the Issuer save that the Issuer shall be entitled to retain a reasonable profit annually 

not exceeding euro 1,000. The obligations of the Issuer to make such payments will be limited 

to such sums and the proceeds of realisation of the relevant Collateral Assets and the Trustee and 

the other Secured Parties will have no further recourse in respect thereof. Having realised the 

Collateral and distributed the net proceeds in accordance with the terms of this Agreement, 

neither the Trustee nor any other Secured Party may take any further steps against the Issuer to 

recover any sum still unpaid. 

41.2 Only the Trustee may pursue the remedies available under applicable law, under this Agreement 

and under the other Transaction Documents to enforce the rights of the Secured Parties against 

the Issuer and no other Secured Party shall be entitled to proceed directly against the Issuer. 

41.3 None of the Trustee nor any other Secured Party shall be entitled to petition or take any other 

step for the winding-up, dissolution, court protection, examinership, reorganisation, liquidation, 

bankruptcy or insolvency of the Issuer or the appointment of a receiver, administrator, 

administrative receiver, liquidator, examiner, sequestrator or similar officer in respect of the 

Issuer of any of its revenues or assets for so long as the Notes are outstanding or for one year and 

a day after all sums outstanding and owing in respect of the Notes have been paid in full, 

provided that the Trustee may prove or lodge a claim in liquidation of the Issuer initiated by 

another party and provided further that the Trustee may take proceedings to obtain a 

declaration or similar judgment or order as to the obligations and liabilities of the Issuer under 

the Collateral Documents. 

87

41.4 No person shall have any recourse against any director, shareholder or officer of the Issuer in 

respect of any obligation, covenant or agreement entered into or made by the Issuer pursuant to 

this Agreement, any other Transaction Document to which it is a party or any notice or 

document which it is requested to deliver hereunder or thereunder. 

42. LAW AND JURISDICTION 

42.1 This Agreement is governed by, and shall be construed in accordance with, the laws of the 

Federal Republic of Germany. 

42.2 The competent courts in Frankfurt am Main shall have non-exclusive jurisdiction to hear and 

determine any suit, action or proceeding, and to settle any disputes, which may arise out of or in 

connection with this Agreement ("Proceedings" and "Disputes") and, for such purposes, 

irrevocably submits to the jurisdiction of such courts. 

42.3 Each of the parties hereto irrevocably waives any objection which it might now or hereafter have 

to the courts referred to in Clause 42.2 being nominated as the forum to hear and determine any 

Proceedings, and to settle any Disputes and agrees not to claim that any such court is not a 

convenient or appropriate forum. 

42.4 The submission to the jurisdiction of the courts of Frankfurt am Main shall not (and shall not be 

construed so as to) limit the right of any party hereto to take Proceedings against any other party 

hereto in any other court of competent jurisdiction (including, without limitation, Ireland) nor 

shall the taking of Proceedings in any one or more jurisdictions preclude the taking of 

Proceedings in any other jurisdiction (whether concurrently or not) if and to the extent permitted 

by applicable law. 

42.5 The Issuer agrees that the process by which any Proceedings in Germany are begun may be 

served on it by being delivered to PVW GmbH Wirtschaftsprüfungsgesellschaft, Mainzer 

Landstrasse 46, 60325 Frankfurt am Main, Germany. If such person is not or ceases to be 

effectively appointed to accept service of process on the Issuer’s behalf, the Issuer shall, on the 

written demand of the Trustee, appoint a further person in Germany to accept service of process 

on its behalf and, failing to appoint such further person in Germany to accept service of process 

on its behalf within 15 days, the Trustee shall be entitled to appoint such a person by written 

notice to the Issuer. Nothing in this Clause shall affect the right of any party hereto to serve 

process in any other manner permitted by law. 

42.6 To the extent that any party hereto may in any jurisdiction claim for itself or its assets or 

revenues immunity from suit, execution, attachment (whether in aid of execution, before 

judgment or otherwise) or other legal process and to the extent that such immunity (whether or 

not claimed) may be attributed in any such jurisdiction to such party or its assets or revenues 

such party agrees not to claim and irrevocably waives such immunity to the full extent permitted 

by the laws of such jurisdiction. 

42.7 The restrictions set forth in Section 181 of the German Civil Code and any similar provisions 

contained in the laws of any other jurisdiction shall not apply to any party hereto in respect of its 

rights and obligations hereunder. 

43. COUNTERPARTS 

This Agreement may be executed (including by facsimile) in any number of counterparts, each 

of which when so executed shall be deemed to be an original and all of which when taken 

together shall constitute one and the same Agreement. 

88

44. LANGUAGE 

This Agreement is made in the English language and this English language version of this 

Agreement shall be binding on the parties hereto and shall prevail over any translation of this 

Agreement provided that in the case of any German translation of a word or phrase in the text 

of this Agreement, such German translation of such word or phrase shall prevail. 

89

9. THE COLLATERAL 

The following description of the Collateral consists of a summary of the Collateral and is qualified in its 

entirety by reference to the Trust Agreement, the Pledge Agreement and the Account Pledge Agreement. 

The following summary does not purport to be complete, and prospective investors must refer to the Trust 

Agreement, the Pledge Agreement and the Account Pledge Agreement for detailed information regarding 

the Collateral. 

Issuer Collateral 

The Issuer shall transfer on the Closing Date to the Trustee in its capacity as trustee (Treuhänder) for the 

benefit of the Secured Parties (other than the Credit Swap Counterparty) under the Trust Agreement as 

security for the Secured Obligations all present, future, actual and contingent rights, title, claims, interests 

and benefits of the Issuer: 

(a) in and to the KfW Securities (Sicherungsübereignung) and the Issuer Cash Account 

(Sicherungsabtretung) subject to the pledge created in favour of KfW as pledgee ("Pledgee") 

under the Pledge Agreement; 

(b) against the Pledgee and the Custodian for the release of pledge over the KfW Securities and the 

Issuer Cash Account under the Pledge Agreement upon discharge of the Secured Credit Swap 

Obligations owed by the Issuer to the Pledgee and redelivery of possession of such KfW 

Securities; and 

(c) against the Administrator under the Administration Agreement. 

The Issuer shall pledge on the Closing Date, under the Account Pledge Agreement governed by 

Luxembourg law, all of the Issuer’s present and future rights, claims, title, interests and benefits in and to 

the Issuer Operating Account and each credit balance (including interest) from time to time on the Issuer 

Operating Account and all rights, claims, benefits and proceeds in respect thereof to the Trustee for the 

payment and discharge of the Secured Obligations. 

Immediately upon payment in full of the Secured Credit Swap Obligations, the Pledgee shall procure (a) 

the delivery of the KfW Securities to the Trustee's securities trust account (Treuhanddepot) with the 

Trustee Custodian (the "Securities Trust Account") and (b) the transfer of the credit balance on the 

Issuer Cash Account to the Issuer Operating Account. 

The Issuer, the Trustee Custodian and the Trustee shall enter into a custody agreement substantially 

similar to the Custody Agreement (as described under "KfW Collateral" below) prior to the delivery of 

the KfW Securities as aforesaid. 

The Trustee shall instruct the Trustee Custodian to pay all amounts received by the Trustee Custodian in 

respect of the KfW Securities, prior to the service of an Enforcement Notice, into the Issuer Operating 

Account on any Payment Date and, after the service of an Enforcement Notice, into the collateral 

proceeds account of the Trustee. 

In the event that the Trustee Custodian ceases to be an Eligible Bank, the Trustee shall promptly notify 

the Issuer and the Administrator. The Trustee shall, within 30 days of such downgrading, deliver the 

Securities Collateral to a securities trust account (Treuhanddepot) with a new Trustee Custodian which is 

an Eligible Bank which is not a bank or financial institution acting through an office in Germany and 

shall provide to the Issuer and the Administrator and the new Trustee Custodian the agreements and other 

documents related thereto and obtain the relevant confirmations from the new Trustee Custodian. 

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KfW Collateral 

The Issuer, a German state-owned and public law banking institution organised under the laws of the 

Federal Republic of Germany, having its registered offices at Palmengartenstraße 5-9, 60325 Frankfurt 

am Main, Germany (for further details see “KREDITANSTALT FÜR WIEDERAUFBAU”,below), as 

legal owner of the €121,000,000 floating rate KfW Securities issued under the €25,000,000,000 Note 

Programme of KfW shall pledge on the Closing Date all of its present and future rights, claims, title, 

interests and benefits in and to the KfW Securities (the "Securities Collateral") and in and to the Issuer 

Cash Account (the "Cash Collateral") to KfW as pledgee (the "Pledgee") under the Pledge Agreement 

for the payment of the Secured Credit Swap Obligations owed to the Pledgee, subject to the provisions for 

release contained in the Trust Agreement. 

The Issuer shall, at its own cost, procure the delivery of the KfW Securities on the Issue Date to its 

securities account (Wertpapierdepot) with the Custodian. Upon receipt by the Custodian of a notice of 

the pledge of the KfW Securities to the Pledge under the Pledge Agreement, the Custodian shall hold the 

KfW Securities in accordance with Clause 3 of the Pledge Agreement. The Securities Account will then 

be designated as a securities pledge account (the "Securities Pledge Account"). The Custodian will hold 

the KfW Securities until such time as the Custodian is notified by the Trustee that any particular KfW 

Securities are no longer subject to such Pledge Agreement. The Custodian may not deliver or release 

from the Securities Pledge Account any of the KfW Securities other than in accordance with the 

provisions of the Custody Agreement (as described below), the Pledge Agreement and the Trust 

Agreement. 

Under the Custody Agreement HVB (the "Custodian") has undertaken to collect any and all income from 

the KfW Securities held in a custody account opened in the name of the Issuer established and maintained 

by the Custodian (the "Securities Account") or Securities Pledge Account and may execute as agent for 

the Issuer ownership and other certificates, declarations and affidavits on behalf of the Issuer for all fiscal 

and tax purposes from time to time required in connection with the collection of such income and pay any 

taxes which it is required to pay in connection therewith. On receipt of any payment on the KfW 

Securities, the Custodian is required to immediately transfer such payment to the Issuer Cash Account. 

In the event that the Custodian (or any successor thereof) ceases to be an Eligible Bank, the Issuer shall, 

by giving the Custodian not less than five Business Days prior notice to that effect, replace any such 

Custodian (or any successor thereof) with a custodian which shall act as custodian under the Custody 

Agreement, which is an Eligible Bank. Upon such replacement, the parties to the Custody Agreement 

shall thereafter have the same rights and obligations among them as would have been the case had they 

then entered into an agreement in the form mutatis mutandis of the Custody Agreement. 

The Custodian may resign from its appointment under the Custody Agreement for good cause (aus 

wichtigem Grund) at any time by giving 30 Business Days’ prior written notice to the Issuer, the Trustee 

and the Pledgee. 

The Pledgee has agreed that it will not enforce itself any Collateral which has been granted to it as 

security (Sicherheit) under the Pledge Agreement without the prior written consent of the Trustee, such 

consent not to be unreasonably withheld. The Pledgee has irrevocably authorised, to the fullest extent 

permitted by law, and shall at all times during the term of the Pledge Agreement maintain in full force and 

effect, the authorisation of the Trustee under the Pledge Agreement to enforce the Collateral under the 

Pledge Agreement. 

Each of the Issuer and the Pledgee has authorised the Custodian to act in accordance with the instructions 

of the Trustee and the Custodian has agreed that all determinations made by the Trustee hereunder shall 

be binding on the Custodian, save for manifest error. 

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If the Pledgee directly receives any payment or other benefit in relation to or under any accessory security 

for the Secured Credit Swap Obligations other than the proceeds of the KfW Securities or otherwise 

including, without limitation, upon enforcement of the Securities Collateral, it shall within two Business 

Days, transfer to, or to the order of, the Trustee such payment or other benefit for application in 

accordance with the Trust Agreement. 

Each of the Issuer and the Custodian have acknowledged that the Custodian shall comply with the 

instructions of the Issuer only to the extent that such instructions have been given to it by the Trustee in 

accordance with the Trust Agreement. 

In the event that the Custodian ceases to be an Eligible Bank, the Issuer shall promptly notify the 

Administrator, the Credit Swap Counterparty and the Trustee and the Issuer (or the Administrator on its 

behalf) shall, within 30 days of such downgrading deliver the Securities Collateral to a securities pledge 

account (Pfanddepot) with a new Custodian which is an Eligible Bank and shall provide to the Issuer, the 

Administrator and Trustee the agreements and other documents related thereto and obtain the relevant 

confirmations from the new Custodian. 

The appointment of a replacement Custodian shall not be effective until such replacement Custodian has 

agreed to be bound by the terms and conditions of the Custody Agreement, the relevant securities account 

or the securities pledge account has been duly opened with such replacement Custodian and the KfW 

Securities have been transferred to such account. The costs incurred in connection with replacing the 

Custodian will be borne by the Issuer. 

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10. MAIN PROVISIONS OF THE CREDIT SWAP AGREEMENT 

The following description of the Credit Swap Agreement consists of a summary of certain provisions of 

the Credit Swap Agreement and is qualified in its entirety by reference to the Credit Swap Agreement. 

The following summary does not purport to be complete, and prospective investors must refer to the 

Credit Swap Agreement for detailed information regarding the Credit Swap Agreement. 

On the Closing Date, the Issuer will enter into a credit swap (the "Credit Swap Agreement") with KfW 

as swap counterparty (in such capacity, the "Credit Swap Counterparty"). The Credit Swap Agreement 

will be in the form of a 1992 ISDA Master Agreement (Multicurrency-Cross Border), together with the 

Schedule thereto (together, the "ISDA Agreement") and a Confirmation (the "Credit Swap 

Confirmation"), each to be dated as of the Closing Date, between the Issuer and the Swap Counterparty. 

Reference Portfolio 

The portfolio (the "Reference Portfolio") in respect of which the Credit Swap Agreement is entered into 

will consist of Eligible Obligations initially specified by the Servicer as of the Cut-off Date and recorded 

in the Reference Portfolio List (as defined herein) ("Reference Obligations"), subject to any 

Replacement, Removal or Addition (each as defined herein), provided that the aggregate notional 

amounts, as reduced from time to time to reflect any prepayment or repayment of principal ("Reference 

Obligation Notional Amounts") of such Reference Obligations shall not at any time exceed the amount 

equal to the Reference Portfolio Notional Amount (as defined herein). The Auditors of the Issuers (as 

defined herein) will confirm that, based on the information contained in the Reference Portfolio List, the 

Reference Portfolio was, as of the Cut-off Date, in compliance with the Portfolio Concentration Tests and 

the Reference Obligations were in compliance with the Eligibility Criteria (each as defined herein). 

"Eligible Obligation" means an Obligation or part thereof that meets the Eligibility Criteria. 

"Reference Portfolio List" means a registry maintained by the Servicer that will contain, as to each 

separate entry in respect of each Reference Obligation: 








(g) the HVB Internal Rating (as defined in the Master Schedule) for the Reference Entity; 

(h) the Industry Group (as defined in the Master Schedule) of each Relevant Rating Agency 

for the Reference Entity; and 


"Reference Portfolio Notional Amount" means the Initial Reference Portfolio Notional Amount less the 

Reference Obligation Notional Amounts of all Impaired Reference Obligations. 

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"Initial Reference Portfolio Notional Amount" means EUR 1,000,000,000. 

A Reference Entity may have more than one Reference Obligation designated in the Reference Portfolio 

List. In such cases, the Reference Entity will have a separate entry in the Reference Portfolio List in 

respect of each such Reference Obligation. The Reference Portfolio List shall be updated by the Servicer 

to reflect any changes that occur promptly following any such change, including, without limitation, 

removal of any Impaired Reference Obligation, and any Removal, Replacement or Addition. 

"Impaired Reference Obligation" means a Reference Obligation with respect to which a Credit Event 

has occurred and in respect of which the Conditions to Payment have been satisfied (which expression, 

where the concept so admits, shall include “Adjusted Impaired Reference Obligations”). 

"Payment Date" means any Interest Payment Date. 

"Reference Entity" means each entity specified as such in the Reference Portfolio List. 

The Reference Portfolio List and the information provided in relation to the Reference Portfolio List will 

be reviewed until the Final Maturity Date on at least a quarterly basis by the Auditor of the Banks and 

(subject to Confidentiality Restrictions) the Trustee and the Trustee will certify as to the extent of the 

compliance of the Reference Portfolio with the Portfolio Concentration Tests and the compliance of the 

Reference Obligations with the Eligibility Criteria, as at the date on which such Reference Obligations 

were included in the Reference Portfolio. The reports of the Trustee will be delivered to the Credit Swap 

Counterparty, the Issuer, the Administrator and the Relevant Rating Agencies. The names of Reference 

Entities will not be included in such reports. 

Replacement, Removal and Addition 

The Servicer: 

(a) shall remove any Obligation from the Reference Portfolio List at any time if the 

Servicer or the Trustee determines that any Obligation specified in the Reference 

Portfolio List was not an Eligible Obligation at the time of its inclusion in the Reference 

Portfolio List or a ("Removal"); and/or 

(b) may, on any Replacement Date, increase the Reference Obligation Notional Amount of 

any Reference Obligation (an "Addition") or make a Replacement; provided however 

that: 

(i) in each case, the sum of all Reference Obligation Notional Amounts shall not, 

at any time, exceed the Reference Portfolio Notional Amount at such time; and 

(ii) in the case of Additions only, any such Addition shall not cause the Reference 

Portfolio to contravene any of the Portfolio Concentration Tests, or, if any 

such test is contravened immediately before such Addition, such Addition 

would reduce such contravention of the Portfolio Concentration Tests. 

The Servicer will promptly update the Reference Portfolio List upon any such occurrence and the Trustee 

shall verify such update. For the avoidance of doubt, no act set out in paragraphs (a) and (b) above shall 

cause or require any adjustment to the Reference Portfolio Notional Amount. 

A Replacement may be made if (a) the cumulative aggregate Reference Obligation Notional Amount of 

all Impaired Reference Obligations which are still in their respective Determination Periods expressed as 

a percentage of the Initial Reference Portfolio Notional Amount does not exceed 1.5%; (b) the weighted 

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average rating of the Reference Obligations which are the subject of such Replacement is 4 or better; and 

(c) the weighted average life of the Reference Obligations which are the subject of such Replacement is 

3.75 years or shorter; provided that (i) each new Reference Obligation shall be an Eligible Obligation; and 

(ii) each new Reference Obligation shall not contravene any of the Portfolio Concentration Tests, or if 

any such test is contravened as at such date, such addition shall reduce the extent of such contravention of 

the Portfolio Concentration Tests and provided further that the sum of the notional amounts of all new 

Eligible Obligations plus the notional amount of all Reference Obligations does not exceed the Reference 

Portfolio Notional Amount. 

"Replacement Date" means the 28th day of each month during the Revolving Period. 

"Revolving Period" means the period from the Closing Date to the Scheduled Maturity Date, provided 

that no Non-Replacement Event has occurred. If a Non-Replacement Event (as defined in the Master 

Schedule) occurs, then the Revolving Period will end upon such occurrence. 

Notional Amount 

On any Payment Date, the notional amount (as adjusted from time to time, the "Notional Amount") 

under the Credit Swap will be €147,000,000 (the "Initial Notional Amount") less the sum of (i) the 

Cumulative Settlement Amount prevailing immediately prior to such Payment Date (but for the avoidance 

of doubt, excluding any Accrued Settlement Amount to be paid on such Payment Date) and (ii) the 

aggregate amounts of principal payments made by the Issuer in respect of the Notes prior to such 

Payment Date. 

"Cumulative Settlement Amount" means in respect of a Payment Date the aggregate amount of 

Accrued Settlement Amounts in respect of Impaired Reference Obligations from the Issue Date to the 

immediately preceding Payment Date. 

"Determination Period" means the period commencing on the date on which a Reference Obligation 

becomes an Impaired Reference Obligation and ends on (in the case of an Impaired Reference Obligation 

which is not an Adjusted Impaired Reference Obligation) the date on which the Servicer irrevocably 

determines that it is no longer commercially viable to pursue and further recoveries in respect of that 

Impaired Reference Obligation or (in the case of an Adjusted Impaired Reference Obligation), at the 

election of the Servicer, either the date on which the Servicer irrevocably determines that it is no longer 

commercially viable to pursue and further recoveries in respect of that Impaired Reference Obligation or 

the date on which the relevant Dimunition became unconditional. 

Issuer Payments 

Under the Credit Swap Agreement, the Issuer will, following the satisfaction of the Conditions to 

Payment, on the Payment Date falling not less than 2 Business Days following verification by the 

Verification Agent (as defined herein) of the related Settlement Amount(s), be obliged to make a payment 

(an "Issuer Payment") to the Credit Swap Counterparty in an amount equal to the lesser of (i) the 

aggregate Settlement Amount(s) payable on that Payment Date and (ii) the Notional Amount on that 

Payment Date. 

"Settlement Amount" means, in respect of an Impaired Reference Obligation, the euro amount (or euro 

equivalent of an amount in Deutsche Mark converted at the Euro Conversion Rate) equal to the related 

Reference Obligation Notional Amount, less the product of the Final Value of such Impaired Reference 

Obligation and the related Reference Obligation Notional Amount. 

"Verification Agent" means the Trustee. 

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creditors; 







or restrained in each case within 30 days of the institution or presentation thereof; 












(inclusive) 

"Failure to Pay" means, with respect to any Reference Obligation, the failure by the relevant Reference 

Entity to make, when and where due, any payment in respect of such Reference Obligation in an amount 

equal to an aggregate amount of euro equal to or more than the Payment Requirement (or its equivalent in 

Deutsche Mark converted at the Euro Conversion Rate) within 120 days of the due date for such payment. 

"Conditions to Payment" means, in respect of each Reference Obligation in respect of which a Credit 

Event has occurred: 

(a) a Credit Event Notice is delivered by the Calculation Agent (on behalf of the Credit 

Swap Counterparty) to the Issuer and the Trustee (with a copy to each of HVB in 

respect of the Primary Credit Swap Agreements and the Senior Credit Swap 

Counterparty in respect of the Senior Credit Swap Agreement) within 3 calendar 

months after the Servicer becoming or being made aware of the occurrence of the 

relevant Credit Event but, in any event, on or before the earlier of (i) the Scheduled 

Termination Date and (ii) the date of termination of the Credit Swap Agreement; and 

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(b) verification and confirmation by the Verification Agent (as defined herein) of the 

occurrence of the relevant Credit Event and notice of such confirmation and verification 

has been delivered to the Issuer and Trustee. 

"Calculation Agent" means, for the purpose of the Credit Swap Agreement, HVB. 

Credit Swap Counterparty Payments 

On each Payment Date, the Credit Swap Counterparty shall pay to the Issuer an amount (the "Credit 

Swap Counterparty Payment") equal to: 

(a) the sum of: 

(i) the aggregate Interest Amount in respect of the Outstanding Principal Amount 

of the Notes as at such Payment Date; and 

(ii) the Issuer Fees and Issuer Expenses due in respect of the relevant Calculation 

Period; less 

(b) the Collateral Income received in respect of the relevant Calculation Period., 

provided always that any Credit Swap Counterparty Payment shall not be less than zero. 

"Calculation Period" means, with respect to each Payment Date, the period from (and including) the 

immediately preceding Payment Date to (but excluding) such Payment Date, provided that the first 

Calculation Period shall commence on (and include) the Effective Date. 

On each Payment Date, the amount of the Collateral Income paid by the Custodian to the Issuer on such 

Payment Date together with the Credit Swap Counterparty Payment paid into the Interest sub-account of 

the Issuer Operating Account on such Payment Date will be used by the Issuer to pay the interest due on 

the Notes and Issuer Expenses due on such Payment Date. 

If the Credit Swap Counterparty or the Issuer, in respect of any amount payable under the Credit Swap 

Agreement, is required by the laws of Ireland, Germany or Luxembourg to withhold or deduct on account 

of any taxes from such amount, the Credit Swap Counterparty or the Issuer (as the case may be) shall take 

reasonable steps to mitigate the effects of such circumstances for a period of 30 days (provided that 

neither the Credit Swap Counterparty nor the Issuer shall be under any obligation to take any such action 

if, in its reasonable opinion, it would thereby incur additional costs or expenses); failing which, 

respectively, the Issuer or the Credit Swap Counterparty may exercise its right to terminate the Credit 

Swap Agreement as a result of the occurrence of the relevant Tax Event (as defined in the Credit Swap 

Agreement). 

The Credit Swap Agreement does not provide for gross-up payments in the case that any amount payable 

thereunder becomes subject to any deduction or withholding for or on account of any taxes. If any 

withholding or deduction on account of taxes is imposed with respect to payments by the Credit Swap 

Counterparty or the Issuer under the Credit Swap Agreement, the amounts payable by the Credit Swap 

Counterparty or the Issuer under the Credit Swap Agreement will be reduced by the amount of such 

withholding or deduction. 

Early Termination 

The Credit Swap Agreement may be terminable by the Credit Swap Counterparty following the 

occurrence of a Tax Event, a Regulatory Event or an Enforcement Event by written notice from the Credit 

97

Swap Counterparty to the Issuer, upon written notice of the Trustee to the Issuer (each such notice to be 

given on the same Business Day as receipt by the Trustee of a notice of, or the Trustee becoming aware 

of, the occurrence of a Tax Event, a Regulatory Event or an Enforcement Event). The date on which the 

Notes are redeemed (the "Early Redemption Date") shall be the date of early termination of the Credit 

Swap Agreement (the " Early Termination Date"). 

Further, the Credit Swap Counterparty has the right to terminate the Credit Swap Agreement on any 

Interest Payment Date falling after the fifth anniversary of the Effective Date under the Credit Swap 

Agreement. The "Optional Redemption Date" shall be the Early Termination Date. 

In addition to the above, the Credit Swap Agreement is subject to early termination only in limited 

circumstances, including payment defaults by the Issuer or the Swap Counterparty lasting at least five 

[local] business days, bankruptcy related events applicable to the Issuer or the Swap Counterparty, merger 

without assumption, illegality, tax related events applicable to the Issuer or the Swap Counterparty and 

early redemption of the Notes. The Early Termination Date shall be the date of redemption of the Notes. 

Unless terminated earlier, as described above, the Credit Swap Agreement will terminate on the Final 

Maturity Date of the Notes. 

Save as otherwise described herein, the Credit Swap Agreement will not be subject to early termination in 

circumstances relating to defaults under other transactions applicable to the Issuer or the Swap 

Counterparty or any mergers, consolidations or similar transactions applicable to the Issuer or the Swap 

Counterparty. 

In the event of an early termination of the Credit Swap Agreement, no termination payment will be 

payable under the Credit Swap Agreement, except for (i) accrued but unpaid Credit Swap Counterparty 

Payments payable by the Credit Swap Counterparty and; (ii) Issuer Payments in respect of Credit Event 

Notices duly delivered prior to the date of notice of the Early Termination Date or (in the case of deemed 

early termination) the Early Termination Date. No additional termination or breakage fees will be 

payable by either the Issuer or the Credit Swap Counterparty. 

Governing Law 

The Credit Swap Agreement will be governed by, and shall be construed in accordance with, the laws of 

England. Each of the Issuer and the Credit Swap Counterparty has submitted to the jurisdiction of the 

English courts in connection with the Credit Swap Agreement, and each has appointed Clifford Chance 

Secretaries Limited, 200 Aldersgate Street, London EC1A 4JJ, United Kingdom and Law Debenture 

Corporate Services Limited, Attn: Ms Anne Hills, Service of Process, Princes House, 95 Gresham Street, 

London EC2V 7LY respectively to accept service of process on their behalf. 

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11. DESCRIPTION OF THE REFERENCE PORTFOLIO 

1. The Reference Portfolio Provisions 

General 

The portfolio in respect of which the Credit Swap Agreement is entered into will consist of 

Obligations (as defined herein) which meet the Eligibility Criteria as defined below (each an 

"Eligible Obligation") initially specified by the Servicer as of the Cut-off Date including the 

Adjusted Reference Obligations as defined below and recorded in the Reference Portfolio List, 

("Reference Obligations"), subject to any Replacement, Removal, Addition or Substitution, 

provided that the aggregate notional amounts, as reduced from time to time to reflect any 

prepayment or repayment of principal ("Reference Obligation Notional Amounts") of such 

Reference Obligations shall not at any time exceed the amount equal to the Reference Portfolio 

Notional Amount (as defined herein). The Eligible Obligations specified in the Reference 

Portfolio List from time to time are known as the "Reference Portfolio". 

"Reference Portfolio List" means a registry maintained by the Servicer that will contain, as to 

each separate entry in respect of each Reference Obligation: 








(g) the HVB Internal Rating (as defined in the Master Schedule) for the Reference Entity; 

(h) the Industry Group (as defined in the Master Schedule) of each Relevant Rating Agency 

for the Reference Entity; and 


"Obligation" means any unsubordinated obligation of a Reference Entity (whether as principal, 

surety or otherwise and whether present or future, contingent or otherwise) for the repayment of 

borrowed money (other than any such obligation that is in the form of, or represented by, a bond, 

note, certificated debt security or other debt security). 

Eligibility Criteria 

The following criteria (the " Eligibility Criteria") applied to an Obligation as at the Cut-off Date 

or any date of Replacement or Addition: (a) which has been incurred under the Programmes, 

(b) which is legally valid and enforceable, (c) which constitutes an unsubordinated, 

unconditional obligation on the part of the Reference Entity to pay the amount of principal and 

interest under the terms of such Obligation, (d) in respect of which no Failure to Pay (as defined 

in "TERMS AND CONDITIONS OF THE NOTES") has occurred and is continuing, (e) in 

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espect of which no Bankruptcy (as defined in "TERMS AND CONDITIONS OF THE 

NOTES") of the Reference Entity has occurred, (f) in respect of which no litigation is pending, 

(g) which is denominated in euro or Deutsche Mark, (h) which has as its final maturity date on or 

before the Scheduled Maturity Date, (i) in respect of which the Reference Entity is not an "XS 

company" under the Procedures, (j) in respect of which the Reference Entity falls within the 

rating class of 6 or better in the HVB Internal Rating System (as defined in "REFERENCE 

PORTFOLIO SERVICING") and (k) in respect of which the Reference Entity is established 

under the laws of the Federal Republic of Germany. 

Related Collateral 

The Banks may have the benefit of collateral supporting a Reference Obligation (or a portion 

thereof), expressed as a percentage of the Reference Obligation Notional Amount of that 

Reference Obligation such percentage calculated according to the Procedures ("Related 

Collateral"). 

The Servicer has undertaken to monitor and otherwise administer the Reference Obligations in 

accordance with the Procedures. It is possible that Related Collateral will be released by the 

relevant Bank or other arrangements agreed with the Reference Entities that may adversely 

affect the ability of the Servicer to collect payments in respect of Reference Obligations, if and 

to the extent that such release or other arrangements are consistent with the Procedures. 

Under applicable legal and accounting principles, the Servicer has considerable discretion in 

deciding when and in what amount to make write-offs in respect of Reference Obligations. As a 

consequence, the holders of the Notes are relying on the Servicer’s business judgement and 

practices in administering the Reference Obligations, enforcing claims against the Reference 

Entities of the Reference Obligations and taking decisions as to when a particular Reference 

Obligation should be written-off. The Servicer may engage in transactions with the Reference 

Entities of Reference Obligations, including extensions of credit which may be secured by 

Related Collateral and may have equity or other interests in such Reference Entities, which 

interests may influence their judgements and practices with respect to the Reference Obligations. 

If, however, the Reference Entity is an affiliate of the Servicer (which includes, but is not limited 

to, the Servicer’s subsidiaries and other entities which, together with the Servicer, would form a 

group of debtors for the purposes of reporting credit exposures pursuant to the German Banking 

Act (Kreditwesengesetz)), then loans to such Reference Entities are not eligible as Reference 

Obligations. 

Replacement 

During the period commencing on the Closing Date and ending on the Scheduled Maturity Date 

(the "Revolving Period"), provided that no Non-Replacement Event has occurred the Servicer 

may, on or about the 28 th day of each month (each a "Replacement Date"), add new Eligible 

Obligations to the Reference Portfolio if (a) the cumulative aggregate Reference Obligation 

Notional Amount of all the Impaired Reference Obligations which are still in their respective 

Determination Periods expressed as a percentage of the Initial Reference Portfolio Notional 

Amount does not exceed 1.5%, (b) the weighted average rating of the Reference Obligations 

which are the subject of such Replacement is 4 or better and (c) the weighted average life of the 

Reference Obligations which are the subject of such Replacement is 3.75 years or shorter 

provided that (i) each new Reference Obligation is an Eligible Obligation, and (ii) each new 

Reference Obligation would not, if so added, cause the Reference Portfolio to contravene any of 

the Portfolio Concentration Tests (as defined herein) or, if any such test is contravened as at such 

date, the addition of such new Reference Obligation would reduce such contravention of the 

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Portfolio Concentration Tests and provided further that the sum of the notional amounts of all 

new Eligible Obligations plus the notional amount of all Reference Obligations does not exceed 

the Reference Portfolio Notional Amount. 

"Portfolio Concentration Tests" means: 

(a) the Moody’s Diversity Score on each Interest Payment Date shall not be less than 90; 

(b) the aggregate Reference Obligation Notional Amounts of all Reference Obligations of 

Reference Entities with an HVB Internal Rating which is equal to or below any of the 

HVB Internal Ratings set out in the table below shall not exceed the percentage of the 

aggregate of the Reference Obligation Notional Amounts set out opposite such HVB 

Internal Rating in the following table: 

HVB Internal Rating % of Aggregate Reference 

Portfolio Amount 

1 100 

2 91.85 

3 84.06 

4 65.37 

5 39.54 

6 6.12 

(c) the aggregate Reference Obligation Notional Amount of all Reference Obligations of 

any single Reference Entity with an HVB Internal Rating of 4 or better shall not exceed 

2% of the aggregate Reference Portfolio Notional Amount; 

(d) the aggregate Reference Obligation Notional Amount of all Reference Obligations of 

any single Reference Entity with an HVB Internal Rating of 5 or lower shall not exceed 

1% of the aggregate Reference Portfolio Notional Amount; 

(e) the number of Reference Entities (i) with an HVB Internal Rating of 5 or lower and (ii) 

with a Reference Obligation Notional Amount of all Reference Obligations of such 

single Reference Entity exceeding 0.50% of the aggregate Reference Portfolio Notional 

Amount shall not be greater than 20. 

(f) the aggregate Reference Obligation Notional Amount of all Reference Obligations 

owed by Reference Entities belonging to the largest Industry Classification shall not 

exceed 15% of the aggregate Reference Portfolio Notional Amount; 

(g) the sum of the aggregate Reference Obligation Notional Amount of all Reference 

Obligations owed by Reference Entities belonging to the three largest Industry 

Classifications shall not exceed 35% of the aggregate Reference Portfolio Notional 

Amount; 

(h) the aggregate Reference Obligation Notional Amount of all Reference Obligations of 

Reference Entities in the same Industry Classification (excluding the three largest 

Industry Classifications) shall not exceed 10% of the aggregate Reference Portfolio 

Notional Amount; 

(i) the weighted average rating shall not be lower than 4; 

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(j) the weighted average life shall be 3.75 years or less; 

(k) the average collateral percentage of all Reference Obligations shall equal 35% or more; 

(l) the aggregate Reference Obligation Notional Amounts of all Reference Obligations of 

Reference Entities domiciled within Mecklenburg-Vorpommern, Brandenburg, 

Thüringen, Sachsen and Sachsen-Anhalt shall not exceed 19% of the aggregate 

Reference Portfolio Notional Amount; and 

(m) the weighted average Reference Obligation Notional Amount of all Reference 

Obligations from the Cut-Off Date up to an including the relevant Interest Payment 

Date originated under Programmes sponsored by KfW, LfA and DtA shall not be less 

than 65%. 

"Moody's Diversity Score" means a number that indicates pool concentration in terms of the 

concentration by any single Reference Entity. All Reference Entities with the same Corporate 

Group Identification Number and the same HVB Internal Rating shall be considered one 

Reference Entity. All Reference Entities with the same Corporate Group Identification Number 

but a different HVB Internal Rating designated in the Reference Portfolio List shall be 

considered separate and distinct Reference Entities based on the designated Corporate Group 

Identification Number and the HVB Internal Rating and by industry determined in accordance 

with standard calculation method of Moody’s. 

Removal and Addition 

The Servicer: 

(a) shall remove any Obligation from the Reference Portfolio List at any time if the 

Servicer or the Trustee determines that any Obligation specified in the Reference 

Portfolio List was not an Eligible Obligation at the time of its inclusion in the Reference 

Portfolio List (a "Removal"); and/or 

(b) may, on any Replacement Date, increase the Reference Obligation Notional Amount of 

any Reference Obligation (an "Addition") or make a Replacement provided however 

that 

(i) in each case, the sum of all Reference Obligation Notional Amounts in the 

Reference Portfolio shall not at any time exceed the Reference Portfolio 

Notional Amount at such time and 

(ii) in the case of Additions only, any such Addition shall not cause the Reference 

Portfolio to contravene any of the Portfolio Concentration Tests or, if any such 

test is contravened immediately before such Addition, such Addition would 

reduce such contravention of the Portfolio Concentration Tests. 

The Servicer will promptly update the Reference Portfolio List upon any such occurrence or 

upon an Adjustment as defined herein and the Trustee shall verify such update. For the 

avoidance of doubt, no act set out in paragraphs (a) and (b) above or an Adjustment shall cause 

or require any adjustment to the Reference Portfolio Notional Amount. 

Procedures 

102

The Servicer will be responsible for the administration, collection and enforcement the 

Reference Obligations, in accordance with the Loan Origination, Administration and Collection 

Procedures of the Banks (the "Procedures") as described in "REFERENCE PORTFOLIO 

SERVICING" herein. 

"Adjusted Reference Obligation" means, in respect of a Reference Obligation which, before 

the occurrence of a Credit Event, has experienced a restructuring or rescheduling of its principal, 

interest payments or other terms (whether as to quantum or timing of payments) (an 

“Adjustment”) in accordance with the Procedures, the resulting Obligation in respect of that 

restructured or rescheduled Reference Obligation. Each Adjusted Reference Obligation shall: 

(a) replace the Reference Obligation from which it was restructured or rescheduled in the 

Reference Portfolio List (whereupon it shall be deemed to be a “Reference 

Obligation”); and 

(b) save as modified by the Adjustment, bear the same terms as the Reference Obligation 

which it replaced. 

An Adjusted Reference Obligation need not comply with the Portfolio Concentration Tests or 

Eligibility Criteria, and an Adjustment shall not be treated as a Removal. 

Impaired Reference Obligations 

Any Reference Obligation with respect to which a Credit Event has occurred and in respect of 

which the Conditions to Payment have been satisfied shall be an "Impaired Reference 

Obligation". 


"Failure to Pay" means, with respect to any Eligible Obligation that is a Reference Obligation, 

the failure by the relevant Reference Entity to make, when and where due, any payment in 

respect of such Reference Obligation; in an amount equal to an aggregate amount of euro equal 

to or more than the Payment Requirement (or its equivalent in Deutsche Mark converted at the 

Euro Conversion Rate) within 120 days of the due date for such payment. 






creditors; 







or restrained in each case within thirty days of the institution or presentation thereof; 

103












(inclusive). 

"Conditions to Payment" means, in respect of each Reference Obligation in respect of which a 

Credit Event has occurred: 

(a) a Credit Event Notice is delivered by the Calculation Agent (on behalf of the Credit 

Swap Counterparty) to the Issuer and the Trustee (with a copy to each of HVB in 

respect of the Primary Credit Swap Agreements and the Senior Credit Swap 

Counterparty in respect of the Senior Credit Swap Agreement) within 3 calendar 

months after the Servicer becoming or being made aware of the occurrence of the 

relevant Credit Event but, in any event, on or before the earlier of (i) the Scheduled 

Termination Date and (ii) the date of termination of the Credit Swap Agreement; and 

(b) verification and confirmation by the Verification Agent of the occurrence of the 

relevant Credit Event and notice of such confirmation and verification have been 

delivered to the Issuer and Trustee. 

"Final Value" means, (I) in respect of an Impaired Reference Obligation (which is not an 

Adjusted Impaired Reference Obligation) which is in its Determination Period (a) on the day on 

which a notice of Early Redemption or Optional Redemption is delivered or (b) on the Interest 

Payment Date immediately prior to the Final Maturity Date, the lesser of (i) 100% and (ii) the 

value thereof, determined and verified in accordance with the valuation procedures set out in the 

Trust Agreement, (II) in respect of an Impaired Reference Obligation which is not an Adjusted 

Impaired Reference Obligation the lesser of (i) 100% and (ii) an amount equal to the sum of: 

(c) the product of (i) Dedicated Collateral and (ii) the Ratio of Dedicated Collateral 


(d) the product of (i) the Reference Obligation Notional Amount expressed as a percentage 

of all the Obligations of that Reference Entity (ii) the Aggregate Collateral and (iii) the 

Ratio of Aggregate Collateral Recoveries; and 

(e) the product of (i) the Ratio of Uncollateralised Recoveries and (ii) the amount by which 

the Other Obligations in respect of which Aggregate Collateral was held exceeded that 

Aggregate Collateral 

and (III) in respect of an Adjusted Impaired Reference Obligation, an amount equal to 100% less 


104

In respect of each Impaired Reference Obligation including each Adjusted Impaired Reference 

Obligation, the Final Value shall be expressed as a percentage of the relevant Reference 

Obligation Notional Amount and verified in accordance with the Trust Agreement, provided 

however, that such sum shall be calculated no sooner than at the end of the Determination 

Period, the day on which a notice of Early Redemption or Optional Redemption is delivered or 

the Interest Payment Date immediately prior to the Final Maturity Date, as the case may be, and 

further provided that the Final Value shall at no time be less than 0%. 

"Ratio of Aggregate Collateral Recoveries" means the proportion of recoveries effected on or 

prior to the last day of the Determination Period in respect of the Aggregate Collateral held in 

respect of the relevant Reference Entity, relative to the amount of such Aggregate Collateral as 

at the date on which the Credit Event occurred. 

“Ratio of Dedicated Collateral Recoveries” means the proportion of recoveries effected on or 

prior to the last day of the Determination Period in respect of the Dedicated Collateral held in 

respect of the relevant Reference Obligation, relative to the amount of such Dedicated Collateral 

as at the date on which the Credit Event occurred. If the Ratio of Dedicated Collateral 

Recoveries is less than one, then to the extent there is Aggregate Collateral available for 

application in respect of that Reference Obligation, such Aggreagate Collateral (to the extent 

permitted by the terms on which it is held and law) shall then be applied towards that Reference 

Loan. If the Ratio of Dedicated Collateral Recoveries is greater than one, then (to the extent 

permitted by the terms on which it is held and law) any excess Dedicated Collateral shall be 

allocated to the Aggregate Collateral. 

"Adjusted Impaired Reference Obligation" means an Impaired Reference Obligation in 

respect of which some or all of the principal payable at its maturity, repayment or due date (or 

dates) has been unconditionally reduced, cancelled, voided or discharged with the agreement or 

approval of the Servicer, other than in accordance with the applicable terms of such Reference 

Obligation in effect on the date on which it became an Impaired Reference Obligation (each such 

reduction, cancellation, voiding or discharge a “Diminution”). For the avoidance of doubt, 

unless the context otherwise so admits, the term “Impaired Reference Obligations” will include 

Adjusted Impaired Reference Obligation 

“Diminution Amount” means, in respect of an Adjusted Impaired Reference Obligation, the 

lower of (a) the amount by which the Reference Obligation Notional Amount is reduced as a 

result of the relevant Diminution, expressed as a percentage of the Reference Obligation 

Notional Amount of that Adjusted Impaired Reference Obligation as at the date on which it 

became an Impaired Reference Obligation and (b) an amount expressed as a percentage that is 

equal to the proportion that the Reference Obligation Notional Amount of that Adjusted 

Impaired Reference Obligation (determined before the deduction of the Diminution Amount) 

bears to the of the aggregate of the outstanding principal balances of Other Obligations, the 

Reference Obligation Notional Amounts of Reference Obligations which are not Impaired 

Reference Obligations and the Reference Obligation Notional Amounts of Impaired Reference 

Obligations of the relevant Reference Entity. 

"Ratio of Uncollateralised Recoveries" means, in respect of an Impaired Reference Obligation, 

the proportion of recoveries (excluding, for the avoidance of doubt, any recoveries effected in 

respect of Dedicated Collateral and Aggregate Collateral) effected on or prior to the last day of 

the Determination Period in respect of the amount by which the aggregate of Other Obligations 

and Reference Obligations (including that Impaired Reference Obligation) for which Aggregate 

Collateral and Dedicated Collateral was held exceeded that Aggregate Collateral and Dedicated 

105

Collateral, relative to the amount of such excess as at the date on which the Credit Event 

occurred. 

"Aggregate Collateral" means, in respect of a Reference Entity, the total amount of collateral 

(excluding any Dedicated Collateral) held in respect of the aggregate of the Other Obligations 

and Reference Obligations of that Reference Entity. 

"Determination Period" means the period commencing on the date on which a Reference 

Obligation becomes an Impaired Reference Obligation and ends on (in the case of an Impaired 

Reference Obligation which is not an Adjusted Impaired Reference Obligation) the date on 

which the Servicer irrevocably determines that it is no longer commercially viable to pursue and 

further recoveries in respect of that Impaired Reference Obligation or (in the case of an Adjusted 

Impaired Reference Obligation), at the election of the Servicer, either the date on which the 

Servicer irrevocably determines that it is no longer commercially viable to pursue and further 

recoveries in respect of that Impaired Reference Obligation or the date on which the relevant 

Dimunition became unconditional. 

"Dedicated Collateral" means, in respect of a Reference Entity such collateral as is held against 

that Reference Obligation in respect of which the Final Value is to be determined. Dedicated 

Collateral shall (to the extent permitted by the terms on which it is held and law)shall be applied 

in priority to that Reference Obligation. 

"Other Obligations" means, in respect of a Reference Entity, Obligations which satisfy the 

criteria specified for Eligible Obligations. 

2. Description of the Initial Reference Portfolio 

106 

Summary of Initial Reference Portfolio 

Outstanding 

Principal Balance 

€ 1,000,000,000.00 

Number of Loans 1,103 

Percentage of Programme Loans 91.56% 

Average Loan 

€ 906,618.00 

Principal Balance 

Moody's Diversity Score 98 

Average Collateral Percentage 35.5% 

Weighted Average Rating according to HVB 

Internal Ratings 

€ 3.68 

Weighted Average Life 3.59 years

Maturity 

Percent Reference Percent Reference 

Maturity Balance Balance Obligations Obligations 

0 to 2 years 54,507,706.11 5.45% 33.00 2.99% 

2 to 4 years 71,901,565.51 7.19% 154.00 13.96% 

4 to 6 years 105,846,036.48 10.58% 139.00 12.60% 

6 to 8 years 262,040,562.53 26.20% 257.00 23.30% 

8 to 10 years 310,702,240.36 31.07% 253.00 22.94% 

10 to 12 years 46,147,270.66 4.61% 53.00 4.81% 

12 to 14 years 34,757,405.76 3.48% 51.00 4.62% 

14 to 16 years 36,045,939.05 3.60% 47.00 4.26% 

16 to 18 years 47,647,695.70 4.76% 60.00 5.44% 

18 to 20 years 30,207,369.59 3.02% 55.00 4.99% 

20 to 22 years 0.00 0.00% 0.00 0.00% 

20 to 24 years 196,208.25 0.02% 1.00 0.09% 

1,000,000,000.00 100.00% 1,103.00 100.00% 

Outstanding Balance 

Outstanding Balance (less 


than or equal to) Balance Balance Obligations Obligations 

1,000,000 309180496.78 30.92% 845 76.61% 

2,000,000 191445270.76 19.14% 136 12.33% 

3,000,000 140103118.18 14.01% 59 5.35% 

4,000,000 59113923.49 5.91% 17 1.54% 

5,000,000 110843904.01 11.08% 24 2.18% 

6,000,000 41844369.89 4.18% 8 0.73% 

7,000,000 13553146.22 1.36% 2 0.18% 

8,000,000 7301248.06 0.73% 1 0.09% 

9,000,000 17521529.99 1.75% 2 0.18% 

10,000,000 18778462.33 1.88% 2 0.18% 

11,000,000 20962987.59 2.10% 2 0.18% 

12,000,000 22956945.52 2.30% 2 0.18% 

13,000,000 0.00 0.00% 0 0.00% 

14,000,000 0.00 0.00% 0 0.00% 

15,000,000 14316172.67 1.43% 1 0.09% 

16,000,000 15578424.51 1.56% 1 0.09% 

17,000,000 16,500,000.00 1.65% 1.00 0.09% 

1,000,000,000.00 100.00% 1,103.00 100.00% 

HVB Internal Rating 


HVB Internal Rating Balance Balance Obligations Obligations 

1 134238717.81 13.42% 127 11.51% 

2 68719714.07 6.87% 27 2.45% 

3 187881249.92 18.79% 129 11.70% 

4 246255077.89 24.63% 272 24.66% 

5 315257250.55 31.53% 471 42.70% 

6 47,647,989.76 4.76% 77.00 6.98% 

1,000,000,000.00 100.00% 1,103.00 100.00% 

107

Geographic Distribution 


Geographic Distribution Balance Balance Obligations Obligations 

Brandenburg 40792341.94 4.08% 29 2.63% 

Mecklenburg-Vorpommern 6771984.85 0.68% 20 1.81% 

Saxonia 41217257.37 4.12% 49 4.44% 

Saxonia-Anhalt 62276229.50 6.23% 24 2.18% 

Thuringa 33595762.89 3.36% 66 5.98% 

Baden-Wurttemberg 43241206.02 4.32% 46 4.17% 

Bavaria 439619588.24 43.96% 545 49.41% 

Berlin 29771293.46 2.98% 23 2.09% 

Bremen 0.00 0.00% 0 0.00% 

Hamburg 26211382.01 2.62% 45 4.08% 

Hessen 23959639.65 2.40% 20 1.81% 

Lower Saxonia 39476642.08 3.95% 27 2.45% 

North Rhine-Westphalia 108293267.82 10.83% 62 5.62% 

Rhineland-Palatinate 37384702.96 3.74% 32 2.90% 

Saarland 1447858.65 0.14% 3 0.27% 

Schleswig-Holstein 65,940,842.56 6.59% 112.00 10.15% 

1,000,000,000.00 100.00% 1,103.00 100.00% 

108

Moody's Industry Description 


Moody's Industry Balance Balance Obligations Obligations 

Aerospace and Defense 0.00 0.00% 0 0.00% 

Automobile 54096911.66 5.41% 74 6.71% 

Banking 0.00 0.00% 0 0.00% 

Beverage, Food and Tobacco 73210269.28 7.32% 89 8.07% 

Buildings and Real Estate 111448927.14 11.14% 125 11.33% 

Chemicals, Plastics and 

Rubber 81105399.39 8.11% 59 5.35% 

Containers, Packaging and 

Glass 31132087.11 3.11% 35 3.17% 

Personal and Non-durable 

Consumer Products 8867621.93 0.89% 10 0.91% 

Diversified/Conglomerate 

Manufacturing 19549525.18 1.95% 35 3.17% 

Diversified/Conglomerate 

Service 58000606.64 5.80% 47 4.26% 

Diversified Natural 

Resources, Precious Metals, 

and Minerals 4728627.03 0.47% 15 1.36% 

Ecological 41543036.63 4.15% 49 4.44% 

Electronics 27883377.34 2.79% 41 3.72% 

Finance 58642181.66 5.86% 85 7.71% 

Farming and Agriculture 10272871.31 1.03% 23 2.09% 

Grocery 2711125.18 0.27% 6 0.54% 

Healthcare, Education and 

Childcare 23335311.22 2.33% 29 2.63% 

Home and Office Furnishings, 


Hotels, Motels, Inns and 

Gaming 3487614.94 0.35% 19 1.72% 

Insurance 0.00 0.00% 0 0.00% 

Leisure, Motion Pictures and 

Entertainment 17814270.43 1.78% 8 0.73% 

Machinery (non-agriculture, 

construction, electronic) 34334442.00 3.43% 48 4.35% 

Mining, Steel, Iron and 

NonPrecious Metals 19874035.93 1.99% 26 2.36% 

Oil and Gas 40341570.06 4.03% 38 3.45% 

Personal, Food and 

Miscellaneous Services 5565093.64 0.56% 9 0.82% 

Printing, Publishing and 

Broadcasting 69148770.51 6.91% 61 5.53% 

Cargo Transport 21368936.32 2.14% 27 2.45% 

Retail Stores 10004891.52 1.00% 23 2.09% 

Telecommunications 0.00 0.00% 0 0.00% 

Textiles and Leather 30332560.41 3.03% 22 1.99% 

Personal Transportation 4612365.06 0.46% 8 0.73% 

Utilities 120756107.19 12.08% 75 6.80% 

Broadcasting and 

Entertainment 9,100,215.69 0.91% 9.00 0.82% 

1,000,000,000.00 100.00% 1,103.00 100.00% 

109

Fitch Industry Description 


Fitch Industry Balance Balance Obligations Obligations 

Aerospace and Defense 0.00 0.00% 0 0.00% 

Automobile 

Banking, Finance and 

75415226.63 7.54% 83 7.52% 

Insurance 37360085.58 3.74% 76 6.89% 

Buildings and Materials 

Broadcasting, Cable and 

90266907.03 9.03% 117 10.61% 

Telecommunications 8946828.13 0.89% 8 0.73% 

Chemicals 89837910.86 8.98% 69 6.26% 

Computers and Electronics 34861249.88 3.49% 53 4.81% 


Energy 33040322.00 3.30% 37 3.35% 

Environmental Services 41687905.56 4.17% 50 4.53% 

Farming and Agriculture 10105065.32 1.01% 22 1.99% 

Food, Beverage, and Tobacco 73210269.28 7.32% 89 8.07% 

Gaming, Lodging and 

Restaurants 3487614.94 0.35% 19 1.72% 

Healthcare and 

Pharmaceuticals 29961691.32 3.00% 33 2.99% 

Industrial/Manufacturing 45825608.08 4.58% 68 6.17% 

Media, Leisure and 

Entertainment 67108654.02 6.71% 49 4.44% 

Metals and Mining 37923669.31 3.79% 59 5.35% 

Miscellaneous 64716278.79 6.47% 50 4.53% 

Paper and Forest Products 42774902.17 4.28% 36 3.26% 

Retail 10004891.52 1.00% 23 2.09% 

Sovereign 6086730.58 0.61% 6 0.54% 

Supermarkets and Drug 

Stores 2711125.18 0.27% 6 0.54% 

Textiles and Furniture 38296532.74 3.83% 31 2.81% 

Transportation 26186457.24 2.62% 37 3.35% 

Utilities 128,057,355.25 12.81% 76.00 6.89% 

1,000,000,000.00 100.00% 1,103.00 100.00% 

110

12. REFERENCE PORTFOLIO SERVICING 

Introduction 

The administration, collection and enforcement of the Reference Obligations will be carried out by the 

Servicer (in such capacity, the "Servicer") in accordance with the Procedures. 

The Procedures 

The Procedures (as set out in a Schedule to the Trust Agreement) include the following: 

The credit policies and procedures described below were jointly developed by Vereinsbank and HYPO- 

BANK in the merger process. The Loan Origination, Administration and Collection Procedures (the 

"Procedures") are applied to all Loans extended by HVB prior to and after the merger (including the 

Reference Obligations which form part of the Reference Loan Portfolio). VuW, as a subsidiary of HVB 

applies the Procedures in the same way as HVB. There are slightly different sets of Procedures applicable 

to loans for different customer segments (e.g., Corporate Customers, Private Customers, and Real Estate 

Customers), however, all the Reference Obligations have been and will be originated under the 

Procedures established for the Corporate Customers. 

For approving, and setting the margin on, a loan for any Reference Entity, HVB considers the return on 

risk adjusted capital, including the standard risk costs and the Value at Risk. Under this approach, the 

credit risk of HVB’s overall loan portfolio is assessed. Based on the assessment, the margin for the loan is 

calculated. The price of each individual loan not only reflects the credit risk of such loan, but also the 

relevance of each individual risk for the credit risk of HVB’s overall portfolio. In addition, this approach 

enables the bank to determine how the bank’s capital should be allocated. 

When deciding whether to extend a loan, HVB’s officers seek to avoid "remote lending", i.e., loans to 

customers residing far away from the respective branch, since in HVB’s experience, such loans tend to 

have a higher default rate than loans to Reference Entities who reside in close proximity to the branch. 

Loan Approval 

General Information 

Loan approvals are subject to a system of competence levels. Credit approval authority generally depends 

on the amount of the loan, irrespective of the type of Reference Entity and the value of any collateral 

provided for the loan. A basic principle of the approval process is the need for joint action by at least two 

employees. Credit approval authority is assigned to individual employees, depending on the assignee’s 

professional qualification and experience, skills in evaluating risks, and entrepreneurial judgement. 

Corporate Customers 

In the case of corporate customers, HVB has assigned most loan approval and administration tasks to socalled 

"Business Units" consisting of relationship managers and credit specialists. Among other 

responsibilities, Business Units advise new and existing customers, make credit decisions and monitor the 

loans in order to recognize potential risks at an early stage. Business Units are supervised and supported 

by the heads of the respective branches. In addition, Business Units have access to expert advice from 

special product managers (Senior Risk Managers), industry sector specialists, and other support units 

within HVB. 

Business Units in the various HVB branches have authority to approve loans up to their respective 

approval limit. If HVB’s aggregate credit exposure to a customer or group of customers, as the case may 

111

e, exceeds such approval limits, approval is required from a Senior Risk Manager, who, being part of the 

central credit department, provides industry expertise. Credit exposures exceeding the Senior Risk 

Manager's approval limit are referred to the Head of Central Risk Management. Credit exposures in 

excess of his limit are submitted to HVB’s credit committee which consists of members of the 

Management Board and heads of Central Credit Risk Management. 

For certain categories of customers and/or risks, the Approval Authority establishes “plafonds” for short- 

term, medium-term and long-term credits. A plafond is an internal credit risk limit that can be approved 

for one or more Reference Entities within a customer group in anticipation of need; provided the 

requirements defined in the respective internal instructions are met, the Business Units can thus quickly 

respond to the customer's future lending requirements within the approved plafond-limit, without having 

to go through time-consuming internal processes at the very moment of the customer's request. The 

plafonds-system applies only to large corporate customers and financial institutions that are assigned the 

ratings 1, 2 or 3 under HVB’s Internal Rating System. See "-HVB’s Internal Rating System". 

HVB’s Internal Rating System 


A Reference Entity’s creditworthiness is assessed using a structured rating process to assign such 

Reference Entity to a specific rating category. The Reference Entity’s rating category determines the 

standard risk costs and is an important parameter for portfolio management HVB’s Internal Rating 

System categorizes Reference Entities and transactions (such as project finance) into ten categories and is 

used by HVB and its banking subsidiaries on a group-wide basis. 

The rating process generally used for the Mittelstand customer segment is a two-pronged analysis which 

contains forward-looking factors as well as data taken from financial reports. Information on a Reference 

Entity’s financial situation, such as balance sheet information and financial ratios ("hard facts") which are 

assessed on the basis of statistical model (the "MAJA Rating"), accounts for 70% of the rating. The 

remaining 30% is determined by information on the general situation of the Reference Entity’s business. 

This includes factors such as business growth, management quality, procurement, production and 

technical sophistication, industry situation, environment and special risks (the "soft facts"). 

The result of the rating process is the assignment of a rating ranging from "1" to "10". This rating reflects 

the Reference Entity’s creditworthiness and is correlated to an expected default frequency. The ten rating 

categories are set forth in the following table: 

HVB 

Rating Category Definition 

1 Excellent 

2 Very good 

3 Good 

4 Rather good 

5 Satisfactory 

6 Rather weak 

7 Weak 

8 Endangered / warning signs for impaired loans 

9 Acute danger / loan loss provisions 

10 Subject to write-off 

112

In a second step, loss severity is measured taking into account the expected liquidation values of credit 

support and Collateral. The combination of both factors determines the standard risk costs. 

Whilst the Relationship Manager and Credit Risk Manager are jointly responsible for the assessing the 

risk correctly and assigning an accurate rating; it is the Credit Risk Manager or the Senior Risk Manager - 

depending on the size of the exposure to the Reference Entity - who is responsible for assigning the final 

rating category. 

Monitoring Individual Credit Exposures 

Ratings are reviewed annually or more frequently if warranted (e.g., if warning signs such as high 

utilization of overdraft facilities suggest increasing financial strains or if an application for additional 

credit is made). 

Every existing credit exposure is reviewed annually by the Approval Authority based on a complete credit 

request. For accounts with customers in rating categories 1, 2 and 3, the Approval Authority may extend 

the review period for up to two years. Nevertheless, all Reference Entities must be rated annually. 

The Business Unit is responsible for detecting changes in the creditworthiness of a Reference Entity early 

on by monitoring the credit exposures between reviews, adjusting the rating, and initiating appropriate 

action to reflect the change in risk. Ongoing monitoring focuses on the analysis of the Reference Entity’s 

annual and interim financial statements. Projections must be regularly cross-checked with the actual data. 

The Business Unit also monitors the account activity. 

Customer financial statements or interim figures should be reviewed within eight weeks of receipt of 

these statements. In any other case, new information must be analyzed at once as part of ongoing 

monitoring. The analysis may not be postponed until the next regular credit review. 

The Senior Risk Managers are responsible for evaluating the economic situation of specific industries, 

specific regions or specific products. If industry or regional or product trends necessitate an adjustment to 

a Reference Entity's rating category, the Senior Risk Manager changes the rating or initiates a review of 

the rating category by the Business Unit. 

Valuation of Collateral 

Any collateral pledged to one or more credit exposures is valued on the basis of the amounts that might 

reasonably be expected to be realised in the event of a forced sale. All such collateral must be recorded 

and kept up-to-date and are monitored electronically. 

Portfolio Monitoring 

Credit exposures of HVB are monitored electronically on a daily basis to identify early risk warning 

signals as well as compliance with regulatory limitations on credit exposures. See "-Risk Management". 

In addition, information provided by the Deutsche Bundesbank is used to help identify potential credit 

risks. Under the Banking Act, German banks must report the current amount of aggregate loans of over 

DM 3 million to individual Reference Entities or groups of Reference Entities to the Deutsche 

Bundesbank on a quarterly basis. 

Aggregate figures are in turn provided by the Deutsche Bundesbank to the individual banks so that the 

banking community is informed of other banks’ total exposures to individual Reference Entities or groups 

of Reference Entities. 

113

HVB continuously updates and refines the quality of its credit analysis in light of technological advances 

in an effort to improve the speed of decision making and the quality of the available information for 

identifying and assessing potential risks. HVB’s credit business (including origination and risk 

management procedures) is regularly reviewed by the internal audit unit of HVB. 

Credit Approval Authority 

The Bank explicitly authorizes individuals to approve credit exposures, obliging them to weigh risk to be 

retained against the potential return from a credit exposure. Designed to limit the risk for the Bank, they 

exactly define responsibilities and authority of the individuals involved in the credit decision. The credit 

approval authority rules are guided by the principles of personal approval limits, the "Four-Eyes 

Principle"- i.e., two people must review each decision - and personal accountability. 

Relationship Manager's and Credit Risk Managers in the Business Units have Level 1 approval authority, 

Senior Risk Manager's have Level 2, the Heads of Central Risk Management have Level 3, and the 

Corporate Banking Credit Committee have Level 4. The Corporate Banking Credit Committee is 

composed of the Corporate Banking "Vorstand" (Board) member responsible for Credit, the "Vorstand" 

member responsible for the Regional Division, and the Head of ZB Risk Management. The "Vorstand" 

(Level 5) positively acknowledges certain credit decisions of the Corporate Banking Credit Committee. 

Credit requests to be approved by the "Vorstand" are submitted through the Corporate Banking Credit 

Committee. 

Problem Loan Procedures 

Intensive Management 

Credit exposures suspected to bear increased risk are placed on a watchlist and undergo intensive 

management by the Business Unit. The purpose of intensive management is to clarify the risk situation 

and determine whether the credit exposure can be restored to normal status or must be transferred to a 

specialized unit for restructuring or liquidation. 

After a credit exposure is put under intensive management, the Business Unit reviews the customer 

relationship strategy. It decides on the steps to be taken to restore the customer relationship to normal 

status and implements them promptly and rigorously. 

The credit exposures are to be reviewed on a semi-annual basis; the responsible Approval Authority may 

advise shorter intervals. At each review, the Approval Authority decides on the basis of a credit request 

whether the customer relationship is ready to be returned to normal status, should remain under intensive 

management, or should be transferred to specialized workout units. 

Restructuring 

The objective of restructuring is to restore the credit exposure to normal management status and continue 

the customer relationship. A customer relationship is to be transferred to restructuring status when the 

first signs of a possible default are detected. Typical indicators are insufficient equity or deteriorating 

equity combined with financial losses, offsetting of operating losses with extraordinary earnings, and 

persistent management problems (e.g. lack of a management succession plan). 

The restructuring unit gathers missing information and documentation, analyzes the credit exposure 

without delay, and determines whether the account should be restructured or liquidated. It develops the 

restructuring strategy. The unit works closely with the Business Units in order to benefit from the teams’ 

knowledge of the particular Reference Entities in each case. It regularly informs the relevant Business 

114

Unit about the progress of the restructuring and can delegate specific tasks such as discussions with the 

Reference Entity or information gathering to the Business Unit. 

The credit exposures under restructuring are reviewed at least semi-annually, unless the Approval 

Authority stipulates shorter intervals. For complex credit exposures, the restructuring unit involves 

internal (e.g. Credit Analysis, Legal Department) and external specialists (e.g. consultants). 

The Approval Authority responsible for the credit exposure in restructuring decides on the transfer back 

to the Business Unit or the workout unit handling liquidation. 

Liquidation 

Liquidation of a credit exposure entails calling the outstanding receivables and liquidating collateral. The 

goal and measure of success for the liquidation process is to minimize the actual loss. 

An account is to be liquidated, if the restructuring is unsuccessful or impossible. This will be particularly 

the case, when: 

• seizure and sale of assets or administrative receivership measures have been initiated against the 

Reference Entity, or 

• the relevant Bank prematurely terminates the credit agreement with the intent of a forced 

collection of outstanding receivables. 

The relevant Approval Authority decides on the transfer which has to occur in a timely manner to enable 

the relevant Bank to protect efficiently its interests. 

The transfer occurs analogously to the transfer process for restructuring via a Risk Report. The 

designated liquidation unit analyzes the situation under a liquidation scenario without delay and develops 

a liquidation strategy, including estimates of the likely proceeds. Credit exposures in liquidation are 

presented to the Approval Authority once a year for a status report. 

115

13. THE ISSUER 

Introduction 

PROMISE-A-2000-1 plc (the "Issuer") was incorporated and registered in Ireland with limited liability 

on 12 October 2000 under registered number 333835 under the Irish Companies Acts 1963 to 1999. The 

registered office of the Issuer is at 30 Herbert Street, Dublin 2, Ireland. The authorised share capital of 

the Issuer is €38,100 divided into 38,100 ordinary shares, par value €1 per share (the "Shares"). All of 

the Shares are issued and fully paid and will be held by the following persons: 

Shareholders N° of Shares Owned 

Eurydice Charitable Trust Limited 12,698 


Dublin 2 

Ireland 

Badb Charitable Trust Limited 12,699 


Dublin 2 

Ireland 

Medb Charitable Trust Limited 12,699 


Dublin 2 

Ireland 

Tara Doyle 1 

Solicitor 


Dublin 2 

Ireland 

William Prentice 1 

Solicitor 


Dublin 2 

Ireland 

Chris Quinn 1 

Solicitor 


Dublin 2 

Ireland 

Anthony Walsh 1 

Solicitor 


Dublin 2 

Ireland 

Business 

116

The principal objects of the Issuer are set out in its Memorandum of Association and amongst other things 

are to carry on the business of purchasing, acquiring, holding, financing, managing, disposing of or 

otherwise dealing, directly or indirectly, in real or personal property of whatsoever nature and to raise or 

borrow money and to grant security over its assets for such purposes. So long as any Notes remain 

outstanding, the Issuer has undertaken not to conduct any business other than that contemplated by this 

Offering Circular, incur any other indebtedness for borrowed money, issue further shares, declare any 

dividends, have any subsidiaries, merge with or be acquired by any other entity or give any guarantee. 

The Issuer has not engaged, since its incorporation, in any material activities other than those incidental to 

its incorporation under the Irish Companies Acts, 1963 to 1999, the authorisation and issue of the Notes 

and the authorisation, execution, delivery and performance of the other documents referred to in this 

Offering Circular to which it is a party and matters which are incidental or ancillary to the foregoing. 

Accordingly, the Issuer has not prepared any financial statements and has not declared or paid any 

dividends. 

Capitalisation 

As of the date hereof, the Issuer has an authorised share capital of 38,100 ordinary shares of € 1 each, all 

of which have been issued and fully paid up. 

The following table sets forth the expected capitalisation of the Issuer as of the Closing Date, including 

the proceeds of the issuance of the Notes: 

€ 

Class A Notes ......................................................................................................................................... 40,000,000 

Class B Notes.......................................................................................................................................... 24,000,000 

Class C Notes.......................................................................................................................................... 16,000,000 

Class D Notes ......................................................................................................................................... 15,000,000 

Class E Notes .......................................................................................................................................... 11,000,000 

Class F Notes .......................................................................................................................................... 15,000,000 

Class G Notes ......................................................................................................................................... 26,000,000 

Share capital (Authorised and issued: 38,100 ordinary shares of €1 each).................................. 38,100 

Total Capitalisation.............................................................................................................................. 147,038,100 

117

Board of Directors 

The Directors of the Issuer, all of whom are non-executive, and their respective business addresses and 

principal activities are: 

Name Business Address Business Activities 

David McGeough 30 Herbert Street, Dublin 2, 

Ireland 

Chris Quinn 30 Herbert Street, Dublin 2, 

Ireland 

Kevin O’Shaughnessy 140-142 Pembroke Road, Dublin 

4 

Ireland 

118 

Solicitor 

Solicitor 

Company Director 

The Secretary to the Issuer is Matsack Trust Limited whose business address is 30 Herbert Street, Dublin 

2, Ireland. The remuneration of the Directors shall from time to time be determined by the shareholders 

of the Issuer in general meetings. No Director has an interest in the share capital of the Issuer. The 

Administrator will be responsible for the day-to-day operations of the Issuer. 

Employees 

The Issuer has no employees. 

Ownership 

None of the Programme Banks nor any associated body of any of them owns directly or indirectly either 

of the share capital of the Issuer. No person has been granted the right to subscribe for any share capital 

of the Issuer. 

Financial Information 

Since the date of incorporation of the Issuer, the Issuer has not traded, no profits or losses have been made 

or incurred and no dividends have been paid. Set out below is a summary of the balance sheet of the 

Issuer as at 6 December 2000. No statutory financial statements of the Issuer have been drawn up and 

audited for any period since its incorporation. The Directors have prepared financial statements of the 

Issuer for the purpose of supporting the financial information in respect of the Issuer disclosed in this 

Offering Circular. 

The balance sheet of the Issuer as at 6 December 2000 was as follows: 

Balance Sheet 

Current assets 

Cash 38,100 

Capital and reserves 

€

38,000 ordinary shares of € 1 each 38,100 

The Issuer has entered into a number of contracts in connection with the issue of the Notes and for no 

other purpose other than in relation to the provision of administrative, secretarial legal, audit and tax 

services to it. 

Financial Year 

The financial year of the Issuer is the calendar year. 

Material Contracts 

Apart from the Transaction Documents to which it is a party, the Issuer has not entered into any material 

contracts other than in the ordinary course of its business. 

No Material Adverse Change 

Since the date of the Issuer's incorporation, there has been no material adverse change, or any 

development reasonably likely to involve any material adverse change, in the condition (financial or 

otherwise) of the Issuer. 

Commission and Expenses 

It is estimated that the expenses (including legal expenses, listing expenses and initial expenses of service 

providers) associated with the issue of the Notes (all of which are payable by KfW) will not exceed 3.3 % 

of the Initial Principal Amount of the Notes. 

Accountant's Report 

The following is the text of a report received by the Directors of the Issuer from KPMG, the auditors to 

the Issuer: 

Dear Sirs 

The Directors 



Dublin 2 

Ireland 


119 

18 December 2000 

We report on the financial information set out in paragraphs 1 to 2.2 below. This financial information 

has been prepared for inclusion in the Offering Circular to be dated 18 December 2000 of PROMISE-A- 

2000-1 plc (the "Company") 

The financial information set out in paragraph 1, is based on the unaudited, non-statutory financial 

statements of the Company from incorporation to 6 December to which no adjustments were considered 

necessary. 

Responsibility

Such financial statements are the responsibility of the directors of the Company. 

The Directors of the Company are responsible for the contents of the Offering Circular dated 18 

December 2000 in which this report is included. 

It is our responsibility to compile the financial information set out in our report from the unaudited nonstatutory 

financial statements, to form an opinion on the financial information and to report our opinion to 

you. 

Basis of opinion 

We conducted our work in accordance with the Statements of Investments Circular Reporting Standards 

issued by the Auditing Practices Board. Our work included an assessment of evidence relevant to the 

amounts and disclosures in the financial information. It also included an assessment of significant 

estimates and judgements made by those responsible for the preparation of the financial statements 

underlying the financial information and whether the accounting policies are appropriate to the entity's 

circumstances, consistently applied and adequately disclosed. 

We planned and performed our work so as to be obtain all the information and explanations which we 

considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the 

financial information is free from material misstatement whether caused by fraud or other irregularity or 

error. 

Opinion 

In our opinion the financial information gives, for the purposes of the Offering Circular to be dated 18 

December 2000 , a true and fair view of the state of affairs of the Company as at 6 December 2000. 

120

1. Financial Information 

Balance sheet 

Current assets 

Cash 38,100 

Capital and reserves 

Called up share capital 38,100 

Profit and loss account - 

Shareholders' funds – equity 38,100 

2. Notes 

2.1 The Company was incorporated on 12 October 2000. The Company has not yet commenced 

€ 

business, no audited statutory financial statements have been made up and no dividends have 

been declared or paid since the date of incorporation. 

2.2 The unaudited non-statutory financial statements are prepared in accordance with generally 

Yours faithfully 

accepted accounting principles in Ireland, by the directors for inclusion in the Offering Circular 

to be dated 13 December 2000. 

KPMG, Chartered Accountants 

121

Administrator 

Deutsche International Corporate Services (Ireland) Limited will act as administrator (in such capacity, 

the "Administrator") of the Issuer. Pursuant to an administration agreement, to be dated 19 December 

2000 (the "Administration Agreement"), between the Issuer, the Administrator, the Issuer Operating 

Account Bank, the Servicer, the Credit Swap Counterparty and the Trustee, the Administrator will be 

responsible for the day-to-day operations of the Issuer and will provide accounting, clerical and 

administrative services to the Issuer. The Administrator will serve until its resignation, dissolution or its 

removal. Certain of the Administrator's duties may be delegated to other parties, as contemplated in the 

Administration Agreement. Notwithstanding any delegation of the Administrator's duties under the 

Administration Agreement, the Administrator shall remain liable for the performance of all of its 

obligations under the Administration Agreement. 

The Issuer (with the consent of the Trustee) or the Trustee may by notice in writing terminate the 

arrangements with the Administrator, without the payment of any penalty, following the occurrence of 

certain termination events, including, (i) default by the Administrator of its covenants and obligations 

under the Administration Agreement which the Trustee considers to be materially prejudicial to the 

interests of the Secured Parties and which, if remediable, remains unremedied for 30 days following 

written notice from the Trustee to such effect, (ii) bankruptcy-related events in respect of the 

Administrator and (iii) service of an Enforcement Notice by the Trustee pursuant to the occurrence of an 

Enforcement Event under the Trust Agreement which the Trustee considers to be materially prejudicial to 

the interests of the Secured Parties. The Administrator may in certain circumstances, with the consent of 

the Issuer and the Trustee, resign as Administrator provided that a replacement Administrator has been 

appointed in its place. The Issuer and/or the Trustee shall, at any time following the resignation or 

removal of the Administrator, appoint a successor Administrator. 

The Issuer shall, from time to time, following a demand of the Administrator, indemnify and hold 

harmless the Administrator and its directors, officers, employees and agents will be indemnified and held 

harmless by the Issuer against any liabilities, costs or expenses incurred without negligence, wilful 

default, dishonesty or fraud or breach of contractual obligations arising out of or in connection with the 

exercise or performance of any of its or their powers or duties under the Administration Agreement. 

The Administrator shall indemnify the Issuer and the Trustee and their respective directors, officers and 

employees against any losses, damages, costs, expenses and liabilities incurred by the Issuer and/or the 

Trustee and/or such directors, officers and employees by reason of any breach or non-performance by the 

Administrator of its obligations under the Administration Agreement. 

Upon its becoming aware that the Account Bank has ceased to be a bank whose short-term, unsecured 

debt is rated at least F1 by Fitch and P-1 by Moody's (an "Eligible Bank"), the Administrator shall 

promptly notify the Trustee of such fact and use all reasonable endeavours to make arrangements 

acceptable to the Issuer and the Trustee to appoint a replacement Account Bank. Any such replacement 

Account Bank must be an Eligible Bank and be otherwise acceptable to the Trustee and the Relevant 

Rating Agencies. In making such arrangements, the Administrator will use all reasonable endeavours to 

ensure that there is no period when there is no Eligible Bank so acting and the Administrator will assist in 

the making of the arrangements for such change so as to ensure the minimum disruption to any payment 

flows which are the subject of the Administration Agreement or any of the other Transaction Documents. 

The Administrator shall, prior to the service of an Enforcement Notice, apply the monies standing to the 

credit of the Issuer Operating Account in accordance with Conditions 5.8 and 11 in the Order of 

Seniority. 

122

The Administrator shall: 

(a) prepare and deliver to the Trustee no later than 8 Business Days before each Interest Payment 

Date a draft Administration Report (substantially in the form set out in the Administration 

Agreement) which shall be signed by a duly authorised officer of the Administrator; and 

(b) upon verification by the Trustee pursuant to the Trust Agreement of: 

(i) the draft Administration Report delivered to the Trustee pursuant to paragraph (a) above 

and delivery of the Trustee's confirmation that it is satisfied with such Administration 

Report or it is satisfied subject to any matters to be dealt with by the Administrator no 

later than 6 Business Days before the relevant Interest Payment Date; 

(ii) the related Portfolio Report delivered by the Servicer to the Trustee pursuant to the 

Trust Agreement and delivery of the Trustee's confirmation that it is satisfied with such 

Portfolio Report or it is satisfied subject to any matters to be dealt with by the Servicer 

no later than 6 Business Days before the relevant Interest Payment Date; 

(c) consult with the Trustee and/or the Servicer as necessary and deliver the related final Investor 

Report to the Trustee and the Paying Agents no later than 4 Business Days prior to each Interest 

Payment Date, the Investor Report to be made available for inspection by Noteholders at the 

Specified Offices of the Paying Agents within 2 Business Days after such Interest Payment Date. 

For its services rendered under the Administration Agreement, the Administrator will receive such fees as 

are agreed in a separate letter between the Issuer and the Administrator. Such fee will be payable on 

execution of the Administration Agreement and thereafter on each Payment Date by the Issuer pursuant to 

the provisions of the Trust Agreement. All reasonable expenses properly incurred by the Administrator in 

connection with its services will be paid by the Issuer pursuant to the relevant order of priority set out in 

Condition 5.8. 

Corporate Services Provider 

Matsack Trust Limited will provide corporate secretarial services to the Issuer on the terms of a Corporate 

Services Agreement to be entered into on or about the Closing Date. 

Limited Recourse and No Petition against the Issuer 

The Trustee, acting on its own behalf and on behalf of the other Secured Parties, shall only have recourse 

against the Issuer in respect of an amount payable by the Issuer under the Trust Agreement, if and to the 

extent that the Issuer has funds available for the relevant purpose in accordance with the terms of the 

Trust Agreement after any and all other obligations of the Issuer which have a higher ranking in the 

relevant order of priority have been paid for or provided for in full in accordance with the terms of the 

Trust Agreement. 

The parties to certain of the Transaction Documents shall not, until the expiry of one year and one day 

after the payment of all sums outstanding and owing in respect of the Notes take any corporate action or 

other steps or legal proceedings for the winding-up, dissolution, court protection or re-organisation of the 

Issuer or for the appointment of a receiver, administrator, administrative receiver, trustee, liquidator, 

examiner, sequestrator or similar officer in respect of the Issuer or any of its revenues or assets. 

None of the parties to the Transaction Documents shall have any recourse against any director, 

shareholder or officer of the Issuer in respect of any obligation, covenant or agreement entered into or 

123

made by the Issuer pursuant to the Trust Agreement, any other Transaction Document to which it is a 

party or any notice or document which it is requested to deliver thereunder. 

124

14. BAYERISCHE HYPO- UND VEREINSBANK AG AND THE HVB GROUP 

Introduction 

Bayerische Vereinsbank Aktiengesellschaft ("Vereinsbank") and Bayerische Hypotheken- und Wechsel- 

Bank Aktiengesellschaft ("HYPO-BANK") merged on September 1, 1998 (with retroactive effect to 

January 1, 1998) to form Bayerische Hypo-und Vereinsbank AG (together with its consolidated 

subsidiaries the "HVB Group"). Based on consolidated assets of € 548 billion at September 30, 2000, 

HVB is the second largest bank in Germany and one of the largest providers of real estate finance in 

Europe. The merger positioned HVB as the first "bank of the regions" in Europe, combining the strengths 

and economies of scale of a major European bank with the attention to customers of a regional bank. 

While focusing on core competencies in real estate finance, asset management, structured trade and 

project finance, and selected treasury products, HVB and the HVB Group offer a comprehensive range of 

banking and financial products and services to a broad range of customer groups in the private, corporate, 

and public sectors. As of June 30, 2000, the HVB Group had a client base of approximately 5 million 

retail customers and according to the new client group classification approximately 88,000 corporate and 

public sector customers. The full range of services and products offered by the HVB Group includes 

residential and commercial mortgage loans, public sector loans, consumer banking services, business 

loans, foreign trade financing, corporate finance, investment products and advisory services for 

consumers and financial institutions, securities underwriting, brokerage and trading, and asset 

management. As one of only two private sector "mixed-mortgage" banks in Germany, HVB is also 

permitted to issue Pfandbriefe at the parent bank level for the purpose of refinancing its mortgage and 

public sector loans, in addition to offering the full range of banking services offered by private universal 

banks. 

As at September 30, 2000, the HVB Group had a network of 1,402 branches. As at June 30, 2000, the 

HVB Group had a total of 45,868 employees worldwide: 35,122 in Germany and 10,742 in the rest of 

Europe and around the world. 

While its business is conducted primarily in Germany, the HVB Group has a strong international presence 

with a clear focus on Europe. At December 31, 1999, HVB had 86 fully consolidated foreign subsidiaries. 

In the Netherlands, the HVB Group offers residential and commercial real estate finance through FGH 

Bank N.V., Utrecht, a leading mortgage bank in the Netherlands. In Luxembourg, the HVB Group offers 

private and corporate banking and investment management services through its subsidiary HVB 

Luxembourg, Luxembourg. Throughout Central Europe, the HVB Group provides the services of a 

universal bank through subsidiaries in Austria (SKWB Schoellerbank Aktiengesellschaft, Vienna), 

Hungary (HVB Hungaria Rt., Budapest), the Czech Republic (HVB CZ a.s., Prague) and Poland (Bank 

Przemyslowo-Handlowy S.A., Cracow). In Hungary and Poland, the HVB Group also owns a mortgage 

banking subsidiary. Outside Central Europe, the HVB Group offers selected corporate banking services, 

primarily in North America and Asia. In the United States, the HVB Group maintains a branch office in 

New York. The HVB Group also has a presence in Asia, with branches in Singapore, Tokyo and Hong 

Kong as well as representative offices in Beijing, Shanghai, Mumbai, Hanoi and Seoul. 

Strategy 

The HVB Group is one of the leading European universal banks with a geographical focus on selected, 

economically strong regions and clearly defined core competencies. To fully leverage this position, HVB 

has identified the following four strategic initiatives: 

125

• Focused universal bank. HVB is a focused universal bank by targeting specific groups of 

customers and providing those customers with a comprehensive range of products and services in 

the following four specific areas of core competencies: 

− Real estate and mortgage lending (including real estate brokerage, leasing and consulting, 

real estate appraisal, various financing models and investment funds), 

− Asset management for private and institutional customers, 

− Structured finance (including foreign trade finance, project finance and asset-backed 

securities products), and 

− Selected financial market products (building on its strengths in the domestic money 

market and bond market, interest rate derivatives, foreign exchange trading and in selected 

emerging markets). 

The customers specifically targeted by HVB include retail customers and small 

to mid-sized businesses. HVB aims to offer its customers comprehensive 

solutions for their financial needs through a "multi-optional" sales concept, 

whereby all their banking service needs are fulfilled by one institution with an 

attractive service level, a choice of service channel and a clear, understandable 

price structure. 

• Market leader in selected regions of Germany. HVB aims to maintain and expand its leadership 

presence in selected regions of Germany. HVB already has a leading market position in Bavaria 

and northern Germany for retail customers as well as mid-sized corporate customers, and intends 

to increase its position in North Rhine-Westphalia, the Rhine-Main region, Baden-Württemberg 

and eastern Germany through enhanced marketing efforts, expansion of the branch network and 

targeted acquisitions. 

• Expansion in Europe. HVB also intends to selectively expand in Europe as well as Germany. As 

a first step, existing entities of the HVB Group have been consolidated to achieve a greater market 

share in all business segments, primarily in Austria, Switzerland and Luxembourg as well as in 

certain Central European countries (see "The Merger" below). HVB will also continue its 

approach of making targeted acquisitions in order to bolster its presence in selected European 

regions. The combination with Bank Austria is a major step in implementing this strategy. 

• Presence in international financial centres. HVB intends to offer its customers capital market 

and corporate finance services in the international financial centres of Europe, North America and 

Asia. 

In pursuing these strategic initiatives, HVB combines decentralised marketing and distribution through 

local customer proximity with the advantages of centralised support in strategy, product development, 

general business guidelines, risk management (including a uniform risk management system), and 

administrative resources (such as information technology platforms and back office processing). 

As a result of these strategic initiatives, HVB believes it will be well-positioned to achieve its overall 

goals of strong revenue growth, comprehensive cost synergies, tight risk management and efficient capital 

allocation. 

The Merger 

126

On July 21, 1997, Vereinsbank and HYPO-BANK announced that their respective Management Boards 

had approved a plan for a merger of equals. Vereinsbank, founded in 1869, was a private sector universal 

bank engaged in commercial, mortgage and investment banking. As of December 31, 1997, it was the 

fourth largest German private sector banking group on the basis of consolidated assets. Founded by royal 

charter in 1835, HYPO-BANK was a private sector universal bank engaged in real estate and public 

sector financing, as well as commercial banking and investment management. As of December 31, 1997, 

HYPO-BANK was the fifth largest German private sector banking group on the basis of consolidated 

assets. 

As the first step in implementing the merger, Vereinsbank exchanged shares of Allianz AG for shares of 

HYPO-BANK at a ratio of one to six in September 1997, and as a result acquired 44.4% of HYPO- 

BANK's outstanding shares. Vereinsbank also implemented a capital increase of DM 195 million nominal 

amount in the fall of 1997 with a view to providing the new bank with a solid equity base. 

On May 19 and May 26, 1998, respectively, the shareholders of HYPO-BANK and Vereinsbank 

approved the merger of HYPO-BANK into Vereinsbank to create HVB. In order to effect the merger, 

Vereinsbank increased its capital stock by DM 552.9 million nominal amount as of August 25, 1998. For 

every four common shares of HYPO-BANK, the third-party shareholders of HYPO-BANK (i.e., all 

shareholders except Vereinsbank) received three new common shares of Vereinsbank, plus an additional 

cash payment of DM 0.182, plus a corporate income tax credit for German investors of DM 0.078, per 

HYPO-BANK share. As a result of the merger and in accordance with the principles of German law, all 

outstanding obligations of HYPO-BANK became full obligations of Vereinsbank. As of September 1, 

1998, Vereinsbank changed its legal name to "Bayerische Hypo- und Vereinsbank Aktiengesellschaft". 

As a part of HVB's overall merger strategy, many of the HVB subsidiaries have been merged in order to 

consolidate the HVB Group's market share in specific regions. In Austria, Salzburger Kredit- und 

Wechsel-Bank Aktiengesellschaft merged with Schoellerbank Aktiengesellschaft on October 1, 1998 with 

retroactive effect to December 31, 1997 to create SKWB Schoellerbank Aktiengesellschaft ("SKWB 

Schoellerbank"). The new Austrian subsidiary focuses on retail customers, affluent private customers 

and selected real estate and corporate clients. The Swiss subsidiary Anlage- und Kreditbank AKB was 

integrated into Bank von Ernst & Cie AG on November 30, 1998, with retroactive effect to July 1, 1998, 

with a continuing emphasis on asset management expertise. In Luxembourg, Hypobank International S.A. 

and Vereinsbank International S.A. merged on November 1, 1998 to create HVB Luxembourg. In the 

Czech Republic, HYPO-BANK CZ a.s. and Vereinsbank (CZ) a.s. merged on January 1, 1999 to form 

HVB CZ a.s. In Poland, Vereinsbank Polska Spólka Akcyjna and Hypo-Bank Polska S.A. merged on 

November 1, 1998 to form HVB Polska S.A. In Hungary, Hypo-Bank Hungaria Rt. and activities of the 

former Vereinsbank have been consolidated in HVB Hungaria Rt. HSB. Hypo-Service-Bank AG was 

integrated into norisbank AG (which itself resulted from the merger of Noris Verbraucherbank GmbH 

and Franken WKV Bank GmbH in April 1998 with retroactive effect from January 1, 1998) with 

retroactive effect from July 1, 1998 in order to further consolidate the HVB Group's consumer finance 

activities. In New York, London and Hong Kong, the branches of each of Vereinsbank and HYPO- 

BANK were consolidated into one branch operation in each city, effective September 1998. 

The overall integration of the two bank groups was targeted for completion by mid-year 2000. A Central 

Project Office has been created to oversee the entire process, coordinating 15 integration fields and 350 

individual integration projects. Substantial progress has already been achieved. In addition to the 

consolidation of subsidiaries noted above, controlling systems (including risk management systems) have 

been combined to run off a single platform, and the back office functions serving the branch network 

have been fully integrated. Management reorganisation was substantially completed by September 1998. 

In addition, corporate customers are now serviced by integrated market teams. The focus in the second 

half of 1999 was the complete overhaul and integration of the retail branch network (including 

mainstreaming the information technology systems used throughout the network). 

127

HVB believes the merger offers significant revenue opportunities and cost savings potential and will 

result in significant long-term benefits. By the end of 2001, HVB expects that it will have achieved 

average per annum cost savings of DM 1 billion over pre-merger levels. The integration of systems and 

rationalisation of overlapping branches and foreign subsidiaries noted above are among the areas where 

significant savings could be achieved. It is also envisioned that lower costs and achieved critical mass will 

better enable HVB to increase market share in its core businesses and expand those businesses into new 

markets. 

Nevertheless, the consolidation of the two groups' operations has required substantial changes in property 

holding, personnel, computer systems and other assets, operations and procedures. This process was 

largely completed by mid-year 2000. In its consolidated statements of income, HVB has included as 

"extraordinary expenses" merger costs in the amount of €234 million and €294 million for the years 1998 

and 1999, respectively and €89 million for the nine months ended 30 September 2000. Further merger 

costs in an amount of €275 million were included in the 1999 statement of income, also as extraordinary 

expenses. 

Recent Developments 

BDO Report 

On December 17, 1999, HVB held an extraordinary shareholders’ meeting to present to its shareholders 

the report of BDO Deutsche Warentreuhand Aktiengesellschaft, Wirtschaftsprüfungsgesellschaft 

("BDO") of BDO’s investigation of matters related to the risk provisions of DM 3.5 billion taken by 

HVB in 1998 with respect to HVB’s credit exposure to real estate joint venture projects and real estate 

developers incurred by the HYPO-BANK Group prior to the merger. 

In its report BDO concluded that: 

(1) The real estate portfolio of the HYPO-BANK Group contained substantial credit risks that 

resulted to a major extent from the joint venture and developer financings for which insufficient 

provisions were made in the 1997 financial statements of the HYPO-BANK Group. The shortfall 

in these provisions amounted to DM 3.629 billion. 

(2) The exceptional provisions of DM 3.5 billion taken by HVB in 1998 correlates substantially with 

the shortfall in provisions in the 1997 HYPO-BANK Group financial statements determined by 

BDO. 

(3) The possibility of unforeseen risks of the magnitude of the exceptional provisions was 

reasonably considered in determining the conversion ratio for the merger. 

(4) The Management Board and the Supervisory Board of each bank did not violate their duty of 

care in examining the risks of the other bank. 

At the extraordinary shareholders’ meeting the shareholders approved the statutory discharge of the 

members of the Management Board and the Supervisory Board for fiscal year 1998 which had been 

postponed pending the submission of the report of BDO. 

New Real Estate Workout Division 

In order to increase transparency and flexibility with regard to its problematic real estate loans, HVB 

separated its troubled real estate loan portfolio (including problematic joint venture and developer and 

other third party financings) from the Real Estate Finance and Real Estate Customers division and, 

128

effective September 1, 1999, assigned it to the newly created Real Estate Workout division. See 

"Organisation Real Estate Workout". 

Implementation of New Internet Strategy 

In February 2000, HVB launched its internet project group "Webpower" which has been established for 

the fast and efficient implementation of its new internet strategy. HVB plans to invest approximately 

€250 million in the activities of "Webpower" and other internet-related activities in fiscal year 2000. 

"Webpower" deals, among other things, with the expansion of HVB’s integrated internet services, 

including mobile telephone WAP access to certain banking services and innovative payment methods, the 

provision of internet venture capital, the improvement of HVB’s technical infrastructure for internet 

projects as well as markets and co-operations in the internet area. 

Board Changes 

Rainer Knoth resigned from the Management Board, effective March 31, 2000. 

Combination with Bank Austria 

On July 24, 2000, HVB and Bank Austria AG announced an agreement to combine their operations. 

Under the agreement, Bank Austria’s operations will be transferred to a new Austrian banking institution 

to be wholly-owned by HVB. HVB will distribute 114 million new shares (representing an increase of 

approximately 27% in HVB’s outstanding shares) to the shareholders of the existing Bank Austria, which 

will be dissolved. After the transaction was approved by the great majority of Bank Austria’s 

shareholders on September 27, 2000, it is subject to clearance by relevant regulatory authorities. Closing 

of the transaction is expected to occur at the end of 2000. 

Bank Austria is the largest banking group in Austria. At June 30, 2000 it had consolidated total assets of 

€ 149.5 billion and shareholders equity of € 4.5 billion and its consolidated net income for the first half 

year of 2000 was € 285 million. With Bank Austria the HVB Group will strengthen its position among 

Europe’s largest banks with more than €650 billion in total assets, eight million customers and equity 

capital of €17 billion. 

HVB believes the combination with Bank Austria will significantly enhance its strategy to be the "Bank 

of the Regions in Europe". The combined institution will have the leading market position in the closely 

linked economic areas of Southern Germany and Austria. In addition, by building on the already strong 

position of both banks in Central and Eastern Europe, the HVB Group expects to become the market 

leader in this important growth region. 

Bank Austria will assume responsibility for and coordinate all activities of the HVB Group in Austria and 

Central and Eastern Europe. The Chief Executive Officer of Bank Austria, Gerhard Randa, will be 

appointed to the Management Board of HVB with responsibility for these regions. Bank Austria’s 

business in various international financial centres will be integrated into the HVB Group’s operations. 

HVB expects to achieve substantial annual cost savings by reducing the two banks’ overlap in Central 

and Eastern Europe, the euro zone and international financial centres, consolidating information 

technology, and continuing Bank Austria’s ongoing integration activities in the Austrian domestic market 

following its acquisition of Creditanstalt in 1997. To prepare for these savings, the HVB Group 

anticipates incurring a restructuring change of €350 million on its consolidated income statement for 

2000. 

Organisation 

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Until September 1999, HVB was organised in five distinct business divisions: Private Customers and 

Professionals, Corporate Customers, Real Estate Finance and Real Estate Customers, International 

Markets, and Asset Management. In the context of the merger, these five divisions were created from the 

existing divisions of Vereinsbank and HYPO-BANK in order to merge core competencies and exploit 

synergies between the overlapping functions in the previously existing business divisions. Effective 

September 1, 1999, HVB established a separate Real Estate Workout division with separate management 

responsibility for the active management of its problematic real estate loans. See "Real Estate Workout". 

The Management Board determines the overall strategy of the HVB Group, and coordinates the business 

policy of the individual divisions. Each division is led by one or more members of the Management 

Board, and is accountable for its own profits and losses. Individual division operating results are reflected 

in the HVB Group's segment reporting. 

Private Customers and Professionals 

HVB's Private Customers and Professionals division integrates the businesses of Vereinsbank's Private 

Customers division and both the Retail Banking and the Commercial Banking divisions of HYPO- 

BANK. In fiscal year 1999, the Private Customers and Professionals division, with 19,462 employees 

world-wide as of December 31, 1999, contributed €519 million to the HVB Group's net income (after risk 

provisions on a pre-tax basis), representing an 18.4% consolidated return on equity before taxes. 

The predominant goal of the Private Customers and Professionals division is to continue to broaden its 

existing customer base in Europe, particularly in central and eastern Europe, through sound organic 

growth as well as strategic acquisitions and investments. In Poland, the Czech Republic, Hungary and 

Slovakia, the sales network currently encompasses approximately 260 branches and offices and the 

division has acquired approximately 80,000 new retail banking customers. Simultaneously, the division 

seeks to increase its existing market share in targeted regions in Germany, specifically Bavaria, northern 

Germany, North Rhine-Westphalia and Baden-Württemberg. The division seeks to achieve these goals in 

part by fostering a strong brand name identity, through emphasising personal attention to the customer 

and by offering innovative products and services through state-of-the-art distribution channels. Finally, 

the division will continue the consolidation and overhaul of its branch network. Since the merger process 

began, HVB has scaled back its domestic network by about 230 offices, thereby drawing close to the 

target of reducing the number of branches by 25% by the end of 2000. 

Another focus of the Private Customers and Professionals division is on private investors. HVB has 

reorganised its four private banking subsidiaries (Bankhaus Maffei KgaA, Bankhaus Gebrüder Bethmann, 

Bethmann Vermögensbetreuung GmbH and Bank von Ernst & Cie.) under the umbrella of a single 

holding company with the brand name "HVB Private Clients GmbH". The goal is to exploit synergies and 

cost savings, and to develop a focused approach to private investors. HVB Private Clients GmbH markets 

to private investors a group of products and services comprised of real estate management, private asset 

management, financial planning, and estates and foundation consulting and management. In January 

2000, HVB Private Clients GmbH acquired a 100% interest in Banco Inversión in Spain, a private bank 

whose core offering is wealth management. 

The Private Customers and Professionals division is divided into three business units based on the target 

customer groups that it serves: private customers, professionals (i.e., self-employed individuals and small 

corporations with annual sales of up to €15 million) and private investors (i.e., high net-worth 

individuals). The division implements the "one face to the customer" principle throughout the division, 

meaning that every customer deals with only one relationship manager at HVB with specialists advising 

with respect to particular products and services. 

Retail Distribution Channels. The division offers its approximately five million customers the "multioptional 

bank" concept, whereby the customer has the choice of multiple access channels to banking 

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services with differing degrees of service: the branch network, telephone banking and electronic (or PC) 

banking. In connection with the merger, HVB's branch network is being restructured and streamlined. 

The planned branch network is to be more differentiated, with numerous small branches offering standard 

services, and mid-sized branches and "Finance Shops" offering more in-depth advice. 

In addition to the branch network, customers can access retail banking services via telephone or via PC 

banking, through T-Online, the Internet and the newly introduced standardised software Home Banking 

Computer Interface (HBCI). With the sale by Vereinsbank of its direct bank, ADVANCE BANK AG, to 

Dresdner Bank as of January 1, 1998, HVB provides direct banking services (i.e., services provided 

exclusively by telephone or computer) solely through Direkt Anlage Bank AG ("DAB"), HVB's discount 

brokerage subsidiary, which served approximately 130,000 clients in 1999. 

DAB was listed on the Neuer Markt segment of the Frankfurt Stock Exchange on November 15, 1999. 

DAB is steadily increasing its customer base and increasing the volume of transactions it performs. In 

September 2000, DAB announced a merger with Self Trade, France's third largest direct broker. 

Following completion of the transaction, HVB's holding in DAB will decline from 70% to 55%. 

Products and Services. The Private Customers and Professionals division offers its customers a wide 

range of products and services, including standardised investment products, real estate financing, asset 

management, checking and savings accounts, debit and credit cards, payment transfers, consumer loans, 

securities brokerage, direct brokerage, insurance products and home loan and savings products. Many of 

these services are offered through the support of HVB's various specialised subsidiaries and business 

partners. Core competencies of the Private Customers and Professionals division include real estate 

finance (supported by the Real Estate Finance and Real Estate Customers division) and asset management 

and investment services (supported by the Asset Management division). 

The division increasingly provides investment fund products and asset management services for its 

customers, supported by the Asset Management division. See "Asset Management". Assets under 

management in the Private Customers and Professionals division amounted to approximately €11.3 

billion at December 31, 1999, reflecting an increase of 62% over the prior year. In 1998, a change in 

German law made it possible to create new types of investment funds for long-term and retirement 

planning purposes and, in October 1998, HVB became the first German bank to market this special 

retirement savings account under the name "SWITCH". 

Real estate lending continues to be an important source of revenue for the division. Aggregate lending 

volume to customers of the Private Customers and Professionals division amounted to approximately €80 

billion in fiscal year 1999, 75% of which represented real estate lending and 25% of which represented 

traditional bank lending. 

The division also provides specialised services to certain groups of its customers. For example, 

customised electronic banking services are provided to medical professionals such as doctors, dentists and 

pharmacists. 

Cross-selling of products within the HVB Group is also an important feature of the division's revenue. 

The cooperative arrangement for the distribution of selected insurance products (including life insurance, 

pension products and property insurance) between Vereinsbank and Victoria, and HYPO-BANK and the 

Allianz group, respectively, are both continuing for HVB, with a geographic split between the two 

partners. Through its branch offices in Munich, southern Bavaria and Berlin, HVB distributes the 

products of the Allianz group, and through its branch offices in the rest of Germany it distributes products 

of the Victoria group. The branch offices also act as brokers for the full range of Victoria and Allianz 

products, respectively, and in return the Allianz group and the Victoria group refer lending business to 

HVB. In 1999, HVB referred more than 41,000 insurance contracts to Victoria and Allianz. In addition, in 

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cooperation with Vorsorge Lebensversicherung AG, a subsidiary of Victoria, the HVB Group markets 

"Rente direkt", a standardised annuity insurance plan distributed on-line. 

The HVB Group also has internal cross-selling arrangements in the area of home loan and savings 

products, which products combine an initial period of saving by the customer with a subsequent loan for 

the purchase, construction or improvement of residential housing at a lower than market interest rate. 

Approximately 47,000 contracts for home loan and savings products, with a total value of more than € 1.1 

billion, were issued by entities within the HVB Group in 1999. HVB Group home loan and savings 

products are marketed primarily by Vereinsbank Victoria Bauspar AG (which, as of December 31, 1999, 

was 70% owned by the HVB Group and 30% owned by the Victoria group). 


In the fiscal year 1999, the Corporate Customers division, with 6,195 employees world-wide as of 

December 31, 1999, contributed € 549 million to the HypoVereinbsbank Group’s net income (after risk 

provisions on a pre-tax basis), representing an 18.1% consolidated return on equity before taxes. 

HVB's Corporate Customers division provides a wide range of banking services to its corporate 

customers world-wide, including credit facilities, foreign exchange services, international trade finance, 

corporate, real estate and project finance, securities and derivatives trading and portfolio management. 

Customers of the division include mid size to large corporations, European multinationals, non-European 

multinationals with major interests in Europe, and correspondent banks. Areas of core competency for the 

HVB Group in serving corporate customers are structured and asset-based finance, project finance, 

acquisition and leverage finance, foreign trade finance, real estate finance and IPO’s. 

The HVB Group's strategy in the Corporate Customers division is focused on larger mid-sized 

companies, particularly in Germany, in the European Union and in Central Europe. Responsibility for 

smaller mid-sized corporations with a need for standard products was transferred to the Private Customers 

and Professionals division. Within Germany, HVB seeks to build on its historic regional strengths in 

providing corporate services in southern Germany (through HVB) and in northern Germany (through 

VuW) by selectively expanding its operations, primarily in Baden-Württemberg and North Rhine- 

Westphalia. In response to the increasingly sophisticated needs of corporate customers for more than the 

traditional instruments of real estate finance and foreign trade finance, and as net interest margins 

continue to decline, the HVB Group continues to seek fee-generating corporate finance business in such 

areas as acquisition and leverage finance and initial public offerings, rather than focusing only on 

traditional lending services. Through the Project and Asset-Backed Finance unit, the HVB Group will 

continue to build on its international experience in asset-backed products and securitsation and offer such 

products to its customers in Germany. Finally, the HVB Group will continue to offer its corporate 

customers advisory and related products, such as consulting services in connection with the European 

Monetary Union. 

Distribution Channels. Corporate customer services are centered on the concept of "relationship 

banking": each corporate customer (given a sufficiently attractive earnings potential) has a devoted 

relationship manager, assisted by specialists in the various business areas, special head office units and 

foreign branches. Corporate customers are serviced by over 30 branches (see "Credit Policies Loan 

Approval Corporate Customers") and can also access on-line payment systems, including an international 

cash management system. Utilisation of these services has increased, and the HVB Group continues to 

develop its electronic banking systems to facilitate national and international payment transactions for its 

corporate customers (including a European cash management system and enhanced access through the 

Internet), as well as financial planning, sales order transactions and liquidity management. 

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Products and Services. The Corporate Customers division provides its clients with corporate finance 

services (through the Corporate Finance unit) including acquisition and leverage finance, loan 

syndications and securities offerings. The division also provides consulting and advisory services to its 

German corporate customers through HVB Consult GmbH, a wholly-owned subsidiary based in Munich, 

on matters such as management buy-outs, spin-offs and mergers and acquisitions transactions. Through 

the Project and Asset-Backed Finance unit, the division offers asset- and mortgage-backed securitsations, 

aircraft finance, lease finance and project finance. The HVB Group is active in creating innovative 

structures to arrange asset-backed commercial paper programs and other securitsation products, both in 

Germany and abroad. In the area of project finance, the HVB Group was involved in 83 new project 

finance transactions in 1999 and is servicing 310 projects with a committed loan volume of more than €6 

billion. The HVB Group also offers advisory, arranging and lending services in this area through project 

finance units in Munich, London, New York, Rio de Janeiro and Singapore. The HVB Group provides 

both real estate and equipment leasing through Bayerische Immobilien Leasing GmbH and Hanseatische 

Leasing GmbH. Through the fund business of Bayerische Immobilien Leasing GmbH, the HVB Group is 

also able to offer leasing refinancing through leasing funds. 

In response to corporate customer demand, the HVB Group continues to expand its range of derivatives 

products (in coordination with the International Markets division) for use in its customers' hedging 

strategies. The HVB Group has been particularly active in offering interest rate, index and foreign 

exchange products, and in the securities lending and repurchasing markets. See "International Markets". 

International Operations. The Corporate Customers division is expanding its international operations, as 

its customers follow the trend of increasing globalisation. 

In Central Europe, the HVB Group plays a prominent role in serving major local companies as well as 

foreign investors in Austria (through 15 branches and two representative offices of SKWB 

Schoellerbank), in the Czech Republic (through 18 branches of HVB CZ a.s., a member of the Prague 

Stock Exchange since 1993), in Hungary (through 18 branches of HVB Hungaria Rt.) and in Poland 

(through Bank Przemyslowo-Handlowy S.A. ("BPH"). Finally, in Slovakia, the HVB Group services 

corporate customers through HVB Slovakia a.s., based in Bratislava. 

In Western Europe (other than Germany), the HVB Group services its corporate customers through HVB 

branches in London, Paris and Milan. These branches continue to focus on the core products of trade 

finance, project and asset-based finance and structured finance. HVB Luxembourg, based in 

Luxembourg, focuses on providing Euro-loans. The HVB Group's Irish subsidiary, HVB (Ireland), 

services corporate customers from its offices in the International Financial Services Center in Dublin. 

Beyond Europe, the HVB Group focuses on the main financial centres of East Asia (headquartered in 

Singapore) and North and South America (headquartered in New York). The HVB Group's corporate 

customer activities in East Asia concentrate on foreign trade finance with an emphasis on export credit 

agency-backed, asset-based and project financings. In North America and South America, HVB Group 

operations focus on financial products, trading, including swaps and derivatives, foreign exchange 

services and securitised products, as well as on structured and project finance, trade finance, public sector 

finance and asset-backed finance. In October 1999, HVB acquired a 20% interest in Babcock & Brown, 

San Francisco, a financial advisor for structured financings for a purchase price of $120 million. At the 

same time, HVB and Babcock & Brown agreed to form a joint venture in Germany. The completion of 

both transactions is subject to the approval by the Federal Reserve Board and the German antitrust 

authorities. 

Competition for corporate customers is fierce and in Germany consists primarily of the other large private 

universal banks, public sector savings banks (Sparkassen) and their central institutions (Landesbanken- 

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Girozentralen), and co-operative banks (Genossenschaftsbanken0). Outside Germany, competition stems 

mainly from major foreign and international banks. 

Real Estate Finance and Real Estate Customers 

The Real Estate Finance and Real Estate Customers division incorporates the businesses of Vereinsbank's 

Real Estate and Public Sector Lending division and HYPO-BANK's Real Estate Finance division. In 

fiscal year 1999, the Real Estate Finance and Real Estate Customers division, with 4,580 employees 

worldwide as of December 31, 1999, contributed € 675 million to the HVB Group's net income (after risk 

provisions on a pre-tax basis), representing a 19.2% consolidated return on equity before taxes. 

In connection with the merger, the Real Estate Finance and Real Estate Customers division was 

completely re-organised. The division now serves a dual function within the HVB Group, acting as both a 

"profit center" and a "competence center". As a "profit center", the division functions as an independent 

business unit with its own distribution network for real estate customers (such as real estate investors, 

residential developers, commercial developers, housing associations and professional intermediaries). As 

a "competence center", the division provides centralised expertise and support to the HVB Group's 

branches and local offices, and is also responsible for establishing and overseeing the risk and credit 

guidelines and the risk management systems for HVB's entire real estate lending portfolio (see "Credit 

Policies"). Finally, although public sector financing activities are carried out by the Corporate Customers 

division, a department of the Real Estate Finance and Real Estate Customers division is responsible for 

public sector product development, general business guidelines and risk management. 

In October 1998, HVB announced that it would allocate an additional DM 3.5 billion to risk provisions in 

1998. Of this amount, DM 2.5 billion relates to real estate joint venture projects in which the HYPO- 

BANK Group participated and DM 1.0 billion relates primarily to loans to developers. Included in such 

DM 3.5 billion risk provision were risk provisions to cover a portion of the exposures of the HVB Group 

relating to loans from third-party generated business (Strukturvertrieb). See "Litigation and Other 

Proceedings" and "Recent Developments". The total credit exposure of these real estate joint venture 

projects amounted to approximately DM 8 billion as of December 31, 1998. The need for this charge 

arose primarily from a change in the valuation methods from those used by the HYPO-BANK Group 

implemented by HVB on the basis of the current assessment of potential sales prices and assuming 

optimal realisation of such prices. These risk provisions were taken as an extraordinary expense and were 

offset by extraordinary income generated through the release of undisclosed reserves in HVB's securities 

holdings, so that the allocation did not affect the reported income of the HVB Group for 1998. In 

response to these developments, HVB has initiated a new strategy in the division in conjunction with a 

change in the respective responsibilities of members of the Management Board to concentrate on 

profitable, low-risk mortgage loans, to no longer enter into joint ventures of the type connected with this 

charge, and to reduce its exposure to professional real estate developers. 

Management believes the German real estate market offers a number of attractive growth opportunities as 

the demand for mortgage lending increases with the stabilisation of the German economy. The HVB 

Group is well-positioned to take further advantage of these market opportunities and is concentrating its 

mortgage lending efforts on residential property. First, the HVB Group has developed a fast loan approval 

process. By using local loan application specialists, the HVB Group can process standardised residential 

loans in a single day and can approve within two days loans for owner-occupied apartments and one-and 

two-family owner-occupied houses. Second, HVB has over a thousand specially trained qualified real 

estate specialists in the distribution network alone. Third, it enjoys excellent internal property appraisal 

facilities, with the largest organisation of valuers of any real estate financer in Europe, specialised both 

regionally and by sector of industry. Fourth, it has an efficient loan processing system, through the several 

regional Real Estate Service Centres. Finally, HVB, as a "mixed-mortgage bank", is able to issue 

Pfandbriefe, which provide an attractive long-term source of funding. 

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The HVB Group offers a wide range of products and services in the real estate sector, and also cross-sells 

investment and insurance products within the HVB Group. In addition to traditional commercial and 

residential mortgage lending activities, HVB has several specialised subsidiaries (as well as departments 

within the division) engaged in providing a wide range of other real estate services such as real estate 

development, portfolio management, structured finance, consulting and advisory services, leasing and real 

estate brokerage. HVB also offers a real estate financing program through the Internet. 

Most of the HVB Group's real estate business originates through HVB's branches. HVB Group 

management believes that the integration of HVB's real estate financing and public sector lending 

activities into the distribution of HVB's other products through the branch network enables HVB to 

realise greater business potential for standardised residential mortgages and other retail real estate 

products. At the same time, however, specialised real estate marketing units allow HVB to focus on the 

particular needs of professional real estate clients. 

The HVB Group's real estate activities are also conducted through intermediaries such as mortgage 

brokers, and by HVB's five German mortgage banking subsidiaries which determine their respective 

strategies independently but within the framework of HVB Group's risk management policies, required 

reporting procedures, and, in part, computer systems. 

Through regional Real Estate Service Centres, HVB's real estate division provides centralised support to 

the branches and local offices, which distribute real estate and public sector products and services to 

customers on behalf of the Private Customers and Professionals division and the Corporate Customers 

divisions. Nearly 100 Real Estate Service Centres were established by Vereinsbank in 1997 and have 

been consolidated into 21 Real Estate Service Centres located in strategic regions on Germany. Further 

Service Center consolidations are planned. 

Internationally, the HVB Group is involved in real estate financing in selected markets, primarily the 

United States, the United Kingdom, France, Austria, Spain, the Netherlands (FGH Bank N.V.), the Czech 

Republic, Hungary, Poland and Slovakia. At the end of September 1999, HVB Jelzálogbank, HVB's 

newly established Hungarian mortgage banking subsidiary, started its operations. HVB is the first foreign 

bank which owns a mortgage bank in Hungary. The HVB Group plans to expand its international real 

estate financing activities selectively further in its core European markets and the United States, and to 

work to develop the Pfandbrief concept in other countries. See "International Markets". 

In the German real estate market, competition is differentiated based on market segment. Competition in 

the market for loans to individuals to finance the purchase or construction of homes and small rental 

apartments includes all commercial banks, co-operative banks, savings banks, Landesbanken and other 

public and private mortgage banks, and to a certain extent insurance companies and home loan and 

savings associations. In the commercial and large scale residential sector, smaller savings banks, cooperative 

banks, insurance companies and home loan and savings associations are less of a factor. In 

European markets outside of Germany, HVB competes with local banks, home loan and savings 

associations and other mortgage lenders and with other foreign and international banks, including German 

commercial and mortgage banks. 

International Markets 

The International Markets division provides treasury products and services both to insurance companies, 

financial institutions, corporate customers, central banks, ministries of finance and large institutional 

investors as well as within the HVB Group. In fiscal year 1999, the International Markets division, with 

1,223 employees worldwide as of December 31, 1999. It contributed € 328 million as per June 30, 2000 

to the HVB Group's net income (after risk provisions on a pre-tax basis), representing a 42.0% 

consolidated return on equity before taxes. 

135

The International Markets division seeks to combine sophisticated capital markets expertise with 

individually tailored advice in providing its customers with a broad range of products including equity, 

currency and interest rate instruments and derivatives. With the introduction of the Euro in January 1999, 

the International Markets division has focused efforts on taking its expertise in DM -denominated 

products and applying it to the nascent ε market. Special resources are dedicated to developing 

securitsation products, driven by the New York-based treasury unit. Finally, the International Markets 

division is increasingly focusing on the fixed-income markets of Central Europe. 

HVB underwrites issues of bonds and shares (including initial public offerings) in the German and 

international capital markets, and also acts as a broker and dealer in securities and furnishes custodial 

services. The HVB Group continues to expand its focus on the German Pfandbrief market, particularly 

the jumbo Pfandbrief market (issues of DM 1 billion and above), exploiting its developed expertise in this 

area. HVB also continues to participate in initiatives to develop the Pfandbrief market, including the 

development of a jumbo index concept and futures contract and playing an active role in expanding the 

market for jumbo Pfandbrief transactions and extending the mortgage bond concept to other countries in 

Europe. HypoVereinsbank is using securitisation for its own and customer purposes. It will continue to 

transfer credit risks to investors to optimize its loan portfolio. 

The HVB Group also utilises treasury operations for its own account to increase earnings while 

maintaining its conservative risk policies. Treasury operations contribute significantly to the HVB 

Group's asset and liability management techniques. See "Risk Management" and, in particular, "Risk 

Management Asset and Liability Management". 

Pfandbriefe represented HVB's main funding source in 1999, with jumbo Pfandbriefe issues totalling 

€10.8 billion for the HVB Group. With a portfolio currently at € 41.8 billion, the HVB Group is the 

largest issuer of jumbo Pfandbriefe, accounting for a market share of 13.5%. 

On the equity side in 1999, the HVB Group participated in 59 initial public offerings in Germany, of 

which it was lead manager of 15 initial public offerings on the Neuer Markt segment of the Frankfurt 

Stock Exchange. The HVB Group focuses its equity underwriting efforts in areas in which it has 

developed an expertise, such as small and mid-sized equity issuers in Western Europe. 

The HVB Group is active in trading bonds, other debt securities, foreign exchange, shares, and other 

equity securities, thereby serving the needs of its institutional customers (e.g., insurance companies, 

investment funds, corporate customers and mortgage and savings banks) and individual customers, but 

also acting for its own account. The HVB Group's market-making activities focus on products traded on 

Eurex (the European futures and options exchange), short-term €-denominated derivatives and jumbo 

Pfandbriefe of third-party issuers, as well as the HVB Group's own debt securities (primarily mortgage 

and public sector Pfandbriefe). 

In the derivatives market, the HVB Group's primary activities are in the field of equity derivatives. 

During 1999, a total of 10 index certificates were issued with an aggregate volume of approximately €1.5 

billion relating to the Dow Jones Stoxx indices, DAX® (Deutscher Aktienindex), NEMAX® and other 

indices or baskets created by HVB. 

The HVB Group uses derivatives instruments, such as swaps, futures, forward transactions and options, in 

connection with its customer business, as part of its asset and liability management and in conjunction 

with its trading activities. Most of these transactions are executed for hedging purposes. Trading assets, 

including derivatives, are marked to market in accordance with IAS. Derivatives not related to trading 

activities and entered into for hedging purposes are accounted for in the portfolio valuation units within 

which unrealised profits and losses of hedged and hedging transactions are netted against one another. 

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Unrealised losses but not unrealised gains on derivatives entered into for trading purposes are reflected in 

the income statement. 

In connection with the conversion to the euro in January 1999, HVB has sought to minimise the loss of 

income resulting from a decline in the volume of its foreign exchange and international payments 

operations through focusing on interest-related products and transactions involving non-European 

currencies. HVB also expects that three main markets for foreign exchange trading will emerge, in which 

it seeks to be a well-positioned market participant: (1) trading in the three main international currencies, 

the U.S. dollar, the Euro and the yen; (2) trading in other currencies with efficient markets, such as Swiss 

francs, British pounds sterling and Canadian dollars; and (3) trading in the currencies of the most 

important emerging markets in East Asia, South America, Eastern Europe, the Middle East and Africa. 

Asset Management 

The Asset Management division of HVB integrates most of the former asset management divisions of 

both Vereinsbank and HYPO-BANK. In fiscal year 1999, the Asset Management division, with 791 

employees world-wide as of December 31, 1999, contributed €299 million to the HVB Group's net 

income (after risk provisions on a pre-tax basis). HVB has identified asset management as one of the four 

key areas of core competence for the HVB Group. HVB seeks to become one of the leading fund 

managers in Germany. Accordingly, the division seeks to expand its existing market share as well as to 

increase sales volume through a focus on quality as well as through targeted acquisitions and cooperative 

ventures. 

The division manages and distributes on a discretionary basis a wide range of mutual funds, investment 

trusts and Spezialfonds, a specifically German asset management product tailored to meet institutional 

investors' specific requirements. In addition, the division develops innovative asset management products 

designed to fill the growing needs of the HVB Group's diverse and growing customer base. 

The asset management business of the HVB Group is organised primarily through two holding 

companies: Hypo (UK) Holdings Limited (" Hypo UK"), based in London, and HVB Asset Management 

GmbH (" HVB Asset Management"), based in Munich. Total assets under management of the HVB 

Group amounted to approximately € 122 billion as at December 31, 1999. 

Hypo UK is responsible for all HVB subsidiaries and customers in the United Kingdom, including the 

activities of and entities comprising Hypo Foreign & Colonial Management (Holdings) Ltd. (" Foreign & 

Colonial"), a family of leading London fund managers. HVB owns 90 % of Foreign & Colonial share 

capital. Foreign & Colonial is one of the HVB Group's major fund management entities with €32 billion 

in assets under management as of December 31, 1999. Foreign & Colonial provides retail and 

institutional asset management products to customers both in the United Kingdom and in Asia. It is also 

the center of competence within the Asset Management division for the United States as well as for 

emerging markets. 

The HVB Group's asset management activities in Germany are coordinated through HVB Asset 

Management, a holding company based in Munich. As of December 31, 1999, the companies now under 

the umbrella of HVB Asset Management had € 50 billion in assets under management. HVB Asset 

Management comprises the institutional asset management entities of the former Vereinsbank and 

HYPO-BANK, the companies comprising the Allfonds-BKG group ("Allfonds-BKG"), the mutual fund 

companies of Activest Investmentgesellschaft mbH, Unterföhring ("Activest Munich") and Activest 

Investmentgesellschaft Luxembourg S.A. ("Activest Luxembourg") as well as specialised asset 

management subsidiaries such as Risklab GmbH Private Research Institute for Financial Studies 

("Risklab") and Pension Consult Beratungsgesellschaft für Altersvorsorge mbH ("Pension Consult"). 

Allfonds-BKG resulted from the merger of Allfonds Gesellschaft für Investmentanlagen mbH with 

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Bayerische Kapitalanlagegesellschaft mbH in August 1999. Through Risklab, HVB combines academic 

research in the area of risk and portfolio management (through relationships with various universities) 

with the development of sophisticated risk management products. Through Pension Consult, HVB 

advises corporate customers with respect to the growing pension market in Germany. 

In addition, the HVB Group offers comprehensive asset management and investment services in Germany 

though certain HVB branches that are staffed by securities specialists. Asset management activities are 

also conducted through Norddeutsche Investment-Gesellschaft mbH, the fund management entity of 

Vereins-und Westbank AG. 

In February 1999, HVB decided to terminate its alliance with Commerzbank Aktiengesellschaft through 

which it was joint owner of the two investment companies comprising the ADIG group, ADIG 

Allgemeine Deutsche Investment Gesellschaft mbH and ADIG-Investment Luxembourg S.A. The 

alliance, founded in 1949, no longer served the strategic purposes of both partners and, accordingly, HVB 

sold its interest in the ADIG group to Commerzbank with effect as of December 31, 1999. As of January 

1, 2000, HVB transferred its portion of the assets under management to its core retail investment fund 

subsidiaries, Activest Munich and Activest Luxembourg, which now serve as the platform for the HVB 

Group’s mutual fund business. 

In September 2000, HypoVereinsbank announced a policy of "open architecture" in its fund business 

under which it will offer to its clients carefully selected externally managed funds as well as its own in- 

house funds. Foreign & Colonial will be a primary supplier of products for distribution through HVB's 

distribution channels. As a strategic matter, however, HVB believes it no longer requires a controlling 

shareholding in Foreign & Colonial and has retained an investment banking firm to advise on strategic 

alternatives in relation to its shareholding. 

HVB's management continues to view asset management as one of the areas in which the HVB Group not 

only plans to expand its range of products and services but also to broaden the geographical coverage of 

its products. Despite the already intense and constantly increasing competition in this area from major 

investment banks, commercial and private banks and independent investment advisory firms, HVB's 

management believes the HVB Group will be able to benefit from the projected future increase in demand 

for asset management services worldwide. Asset management offers attractive profit margins, greater 

consistency in revenue generation and the opportunity for expansion without the use of the HVB Group's 

capital. 

Real Estate Workout 

Effective September 1, 1999, HVB separated its troubled real estate loan portfolio (including problematic 

joint venture and developer and other third party financings) from the Real Estate Finance and Real Estate 

Customers division and assigned it to the newly established Real Estate Workout division, an independent 

business unit with 354 employees worldwide as of December 31, 1999. The strategic business mission of 

the Real Estate Workout division is to assure the rapid saleability and optimal marketing of its entire 

portfolio with a view to eliminating the entire portfolio over time. HVB estimates that this will take 

approximately five years. By the end of 1999, the real estate problem loan portfolio, which had an initial 

value of €12.4 billion, had been reduced to €9.6 billion through active portfolio management, write-offs 

and compensation payments received from buyers. In connection with the real estate problem loans, HVB 

took an additional risk provision of €1 billion which is reflected in full in its annual financial statement 

for 1999. 

138

Credit Policies 

There are different sets of credit policies and procedures applicable to loans to corporate customers, real 

estate customers and private customers, which overlap in certain respects. Similar policies and procedures 

generally apply to the lending activities of all subsidiaries of HVB. Loans may only be extended to sound 

corporate customers and real estate customers with reliable and skilled management, and to private 

customers of good financial standing. The decision of whether a loan will be extended to a corporate 

customer or real estate customer depends primarily on the customer's rating assigned under HVB's 

Internal Rating System (see "HVB's Internal Rating System"), which considers factors such as the 

customer's financial information, market outlook, product and management ability. With respect to 

private customers, the level of income, the amount of assets and liabilities and other information on the 

personal financial situation of the customer are important factors. In all cases, the credit decision takes 

into account the value of any Collateral posted for the loan. 

The documentation on the basis of which the decision whether to extend a loan is based includes for 

private customers the last three years' tax returns, an evidence of current income, and asset/liability 

information, and for corporate customers and real estate customers balance sheets, profit and loss 

accounts, interim financial information, medium term plan figures, industry outlook, assessment of the 

customer's standing and, when the loan is extended for a particular project, a description of such project. 

For approving, and setting the margin on, a loan for any borrower, the Group considers the return on risk 

adjusted capital, including the value at risk. Under this approach, the credit risk of the Group’s overall 

loan portfolio is assessed. Based on the assessment, the margin for the loan is calculated. The price of 

each individual loan not only reflects the credit risk of such loan, but also the importance of each 

individual risk for the credit risk of the Group’s overall portfolio. In addition, this approach enables the 

Bank to determine how the Bank's capital should be allocated and compensated. 

When deciding whether to extend a loan, HVB's officers seek to avoid "remote lending", i.e., loans to 

customers residing far away from the respective branch, since in HVB's experience, such loans tend to 

have a higher default rate than loans to borrowers who live in close proximity to the branch. 

Loan Approval 


Loan approvals are subject to a system of loan approval competence thresholds. Responsibility for 

approving credit decisions generally depends on the amount of the loan, irrespective of the type of 

borrower and the value of any Collateral for the loan (with certain exceptions particularly in the case of 

certain real estate loans). A basic principle of the approval process is the need for joint action by at least 

two employees. Loan approval competence is assigned to individual employees and committees, 

depending on the assignee's professional qualification and experience, skills in evaluating risks, and 

entrepreneurial judgment. HVB also attempts to match approval authority and responsibility for financial 

results by tying parts of the loan approval officers' remuneration to the performance of the loans, thus 

making them more sensitive to the adverse financial impact of bad credit decisions. 


In the case of corporate customers, HVB has assigned most loan approval and administration tasks to its 

branches and their customer relations officers and credit specialists. Among others things, branches 

advise new and existing customers, make loan approval decisions and monitor the loans in order to 

recognise potential risks at an early stage. Branches are responsible for medium-sized and large corporate 

borrowers, and multinational-corporation market teams are responsible for loans extended to certain large 

139

corporations doing business in several countries. In addition, branches may get expert advice from certain 

analysts, industry sector specialists, and other support units within HVB. 

Branches have authority to approve loans up to € 5 million. If HVB's aggregate credit exposure to a 

customer or group of customers, as the case may be, exceeds such approval limits, approval is required 

from a senior risk manager, who is part of the central credit department and who has loan approval 

authority of up to € 25 million or, in the case of loans originated by HVB's New York and Asian branches 

to borrowers with a rating of at least A- by S&P or A3 by Moody’s respectively U.S.$ 50 million. Larger 

credit exposures are referred to one of the two heads of the risk management department (which is part of 

the central credit department), who has approval authority of up to U.S.$50 million. Engagements in 

excess of this limit are submitted to HVB's credit committee which consists of members of the 

Management Board and the heads of the risk management department of HVB, and, under certain 

circumstances, to the Management Board. 

HVB has several senior risk managers for different sectors of industry, one senior risk manager for 

special products and three senior risk managers with regional responsibility for Eastern Europe, America 

and Asia, respectively. 

For certain categories of customers and counterparties, the Management Board establishes separate credit 

limits (plafonds) for short-term, medium-term and long-term credit, and counterparty risk. Within such 

limits, the branches may extend loans without further approval, even if the principal amount of such loans 

exceeds the credit approval authority of the branches. The plafonds-system applies only to large corporate 

customers and financial institutions that are assigned the ratings 1, 2 or 3 under HVB's Internal Rating 

System. See "HVB's Internal Rating System". 

Real Estate Customers 

The branch manager has the loan approval authority for aggregate credit exposure to a customer or group 

of customers, as the case may be, of up to € 6 million and the business unit manager for aggregate credit 

exposure of up to € 8 million. The approval of a senior risk manager in the central credit department is 

required for aggregate exposures over € 8 million and up to € 15 million, and the head of the central credit 

department for aggregate exposures over € 15 million and up to € 30 million. Aggregate exposures in 

excess of this limit are submitted to HVB's credit committee. Decisions on engagements of € 50 million 

or more initially (and thereafter, upon increases of more than € 50 million) are made by the entire 

Management Board. 

The risk and credit guidelines for real estate customers are based on the requirements of the Mortgage 

Banking Act. The compliance of HVB's lending process with these requirements and with its risk and 

credit guidelines is audited regularly by HVB's independent auditors and supervised by the German 

Banking Supervisory Authority. 

The two key elements of HVB's mortgage lending principles are the financial analysis of the borrower, 

and the risk assessment of the real estate to be mortgaged, particularly with respect to sustainable cash 

flows. In assessing the risk related to the real estate, the HVB Group uses an analysis of the applicable 

loan-to-value ratio, applying various internal threshold criteria. The security for mortgage loans granted 

by HVB or another mortgage bank in the HVB Group almost always consists of a first mortgage on the 

property. Under the Mortgage Banking Act, only mortgage loans with a loan-to-value ratio of no more 

than 60% qualify for inclusion in the asset pool covering mortgage Pfandbriefe. The HVB Group's 

valuation policies with respect to mortgage loans incorporate certain principles of the Mortgage Banking 

Act, including the requirement for appraisals of loans exceeding specified limits used as Pfandbriefe 

cover. Appraisals for mortgage loans by the HVB Group entities are made by HVB's own specialists. 

140

Appraisers or real estate specialists visit properties to confirm and finalise the contents of the valuation 

report. 

The Mortgage Banking Act requires that the value of the real estate be determined on a long-term basis, 

which helps ensure that potential cyclical changes in market values are reflected in the assessed value. In 

evaluating loan applications for commercial mortgage loans, HVB takes into account the location of the 

property, the rental situation and other factors. In the case of contractors and developers, HVB reviews 

preliminary sales and will not approve a loan if profits are to be distributed before completion of the real 

estate project. For mortgage loans up to a principal amount of DM 1 million on owner-occupied 

apartments and one- and two-family houses, HVB uses a standardised approval process that relies on 

certain key factors, such as the individual creditworthiness of the borrower and the valuation of the 

property. 

HVB issues annually certain risk principles that are intended to focus loan origination activity on certain 

sectors. The principles may, for example, recommend an increase in residential mortgage lending at the 

expense of certain types of commercial mortgage lending or point out certain industries that present 

special risks. 

Public Sector Loans 

HVB evaluates each public sector loan application individually, taking into account a variety of factors, 

such as the level of debt and the tax revenues of the borrower. In addition, HVB undertakes a review of 

the legal aspects of the loan application to ensure that the borrower has obtained all necessary approvals 

and authorisations for the loan. For most categories of public sector borrowers, HVB uses a plafonds 

system (see "Corporate Customers"). 

Private Customers 

HVB's lending business with regard to private customers is divided into two categories: standardised 

lending (Standardgeschäft) and individualised lending (Individualgeschäft). Standardised lending 

includes loans extended for certain types of residential real estate financing with a principal amount not 

exceeding € 0.5 million and other types of loans with individual principal amounts not exceeding € 

125,000 and aggregate principal amounts per customer or group of customers not exceeding € 0.5 million. 

Individualised lending includes loans to private customers in excess of the thresholds set forth in the 

preceding sentence and loans for certain special purposes, such as establishing a business. 

Most tasks in connection with the administration of loans to private customers are performed by customer 

relations officers (in the case of the standardised lending) and by certain credit specialists and credit 

advisors in charge of the different branches (in the case of individualised lending). 

With regard to standardised lending, a customer relations officer is in charge of making credit decisions. 

For the extension of individualised loans, approval is required by the head of a branch (if the total 

exposure does not exceed € 1 million), by the head of a credit center (if the total exposure does not exceed 

€ 5 million) or the senior credit officer (if the total exposure exceeds € 5 to € 10 million), as the case may 

be. Loans whose aggregate principal amounts exceed € 5 million and that fall within rating categories 8 to 

10 under HVB’s Internal Rating System (see "HVB's Internal Rating System") and loans whose 

aggregate principal amounts exceed € 10 million are referred to the private customer credit committee 

which consists of a member of the Management Board, the senior credit officer and the head of the 

central credit department. In certain circumstances, loans must be submitted for approval to the 


HVB's Internal Rating System 

141


HVB's Internal Rating System serves several purposes: to make a definitive judgment about a customer's 

creditworthiness and, thus, to support a credit decision; to identify risks at an early stage; to shift 

management focus away from the low risk segment of the portfolio to the higher risk segment which 

requires more attention; and to calculate standard risk costs. It additionally serves as one input parameter 

to calculate the value at risk. HVB's Internal Rating System categorises borrowers and transactions (such 

as project financings) into ten categories and is used by HVB and its banking subsidiaries on a groupwide 

basis. The newly acquired Polish bank, BPH, is expected to introduce HVB's Internal Rating System 

during the course of the year. HVB's Internal Rating System is applicable to all corporate customers, real 

estate customers and private customers. 

The result of the rating process reflects the borrower's repayment ability and is translated into an expected 

default frequency. In a second step, loss severity is measured. The combination of both factors determines 

the standard risk costs. The value of Collateral does not affect the rating assessment. Upon completion of 

the assessment process, a rating ranging from "1" to "10/Z" is assigned to the customer. The ten rating 

categories are set forth in the following table: 

HVB Rating Category Definition 

Corporate and Real Estate Customers 

1 Excellent 

2 Very good 

3 Good 

4 Rather good 

5 Satisfactory 

6 Rather weak 

7 Weak 

8 Endangered / warning signs for impaired loan 

9 Acute danger / loan loss provision 

10/Z Subject to write-off 

In the case of corporate customers and real estate customers, the rating process is a two-prong analysis 

which contains forward-looking factors as well as data taken from financial reporting. Information on a 

borrower's financial situation, such as balance sheet information and financial ratios ("hard facts") which 

are assessed on the basis of a statistical model, accounts for approximately 50% to 70% of the rating. The 

remaining approximately 30% to 50% is determined by information on the general situation of the 

borrower's business. This includes factors such as business growth, management quality, procurement, 

production and technical sophistication, industry situation and environment ("soft facts"). 

HVB also makes available to its credit officers special industry-related information that enables a credit 

officer to supplement the general credit analysis by criteria that are of relevance to customers in particular 

industries. 

Private Customers 

Reference Entities who receive loans that fall into HVB's individualised lending category are assigned 

ratings on a basis that is similar to the one applied to corporate customers. In the case of small businesses, 

factors such as market share, evaluation of entrepreneurial skills and present economic situation are taken 

into consideration. The rating of private individuals is based on the value of their net assets as well as on 

their income, indebtedness and creditworthiness in the past and in the foreseeable future. 

142

In the standardised lending category, borrowers are evaluated under a so-called "score-card system", 

pursuant to which a certain "score" for each customer is calculated, based on certain economic and 

demographic factors. The score is then translated into a rating under HVB's Internal Rating System. The 

highest internal rating that standardised lending customers can obtain upon such translation is "4", which 

reflects the fact that the score-card system provides a less thorough assessment of the customer's 

creditworthiness than the rating process applied to individualised lending customers and corporate 

customers as described above. 

Surveillance and Reviews 

The analysis and surveillance of HVB's Internal Rating System is automated, using various systems 

which are commonly used in the banking business, such as computerised account monitoring. 

Ratings are reviewed annually or more frequently if warranted (e.g., if new financial information becomes 

available, if warning signs such as high utilisation of overdraft facilities suggest increasing financial 

strains or if an application for additional credit is made). In the case of loans that fall into HVB's 

standardised lending category, the ratings are reviewed only if there are warning signs. HVB attempts to 

avoid rating changes that are too abrupt (i.e., rating changes of more than one category at a time) by 

creating incentives for the loan officers to adopt a conservative rating policy (i.e., to change ratings early). 

Since the compensation of loan officers is in part linked to the quality of their credit assessment, they 

have an incentive to downgrade a customer whenever circumstances indicate a deterioration of the 

customer's creditworthiness. 

In addition to HVB's Internal Rating System, HVB has "traffic light" systems and "industry rating" 

systems for corporate customers upon which additional rules for the credit business are established. The 

"traffic light" systems assess the risk management quality of each of HVB's market teams, while the 

"industry rating" systems reflect industry risks. Such systems apply as well to loans extended to certain 

private customers. 

Credit Monitoring 

Total credit exposures of HVB are monitored electronically on a daily basis to determine the applicable 

threshold for approval as well as compliance with regulatory limitations on credit exposures. See "Risk 

Management". In addition, information provided by the Deutsche Bundesbank is used to help identify 

potential credit risks. Under the Banking Act, each German bank must report the current amount of 

aggregate loans of over DM 3 million to individual borrowers or groups of borrowers to the Deutsche 

Bundesbank on a quarterly basis. Aggregate figures are in turn provided by the Deutsche Bundesbank to 

the individual banks so that the banking community is informed of other banks' total exposures to 

individual borrowers or groups of borrowers. 

HVB continuously updates and refines the quality of its credit analysis in light of technological advances 

in an effort to improve the speed of decision making and the quality of the available information for 

identifying and assessing potential risks. HVB's credit business (including origination and risk 

management procedures) is regularly reviewed by the internal audit unit of HVB. In the corporate and 

real estate financing area, HVB's internal quality management unit regularly monitors compliance with 

credit procedures and suggests measures for further improving the quality of HVB's credit analysis and 

monitoring. 

Credit exposures that fall into the standardised lending category are subject to standardised review. Local 

branch officers monitor unusual account activity and other factors indicating potential changes in 

creditworthiness. HVB's credit exposures to corporate customers, real estate customers and larger private 

143

customers are reviewed once a year or, if earlier, at the time of a new credit application as part of the 

HVB's regular updating of the rating analysis. 

Loans included in the Collateral pools for the HVB Group's public sector and mortgage Pfandbriefe are 

audited by the German Banking Supervisory Authority every two to three years, as part of the German 

Banking Supervisory Authority's supervision of the HVB Group's mortgage banking activities. Such 

audits include examination of the current status of loans added to the Collateral pool, valuation methods 

used and whether the assets included in the pool meet legal requirements. The last such reviews by the 

German Banking Supervisory Authority covered the years 1993 through 1995, in the case of 

Vereinsbank's Pfandbrief asset pools, and the period July 1993 to June 1996, in the case of HYPO- 

BANK's Pfandbrief asset pools, and found Vereinsbank and HYPO-BANK, respectively, to be in 

compliance with the legal requirements. 

Problem Loan Procedures 

If, as a result of the reviews described above, a customer's rating falls to 7, such customer is placed on 

HVB's internal credit watch list. In addition, customers are also placed on the watch list for other reasons, 

for instance when, in the case of corporate customers, a problem affects a whole industry, or, in the case 

of private customers, when payments are made too late or when credit lines are drawn to their maximum 

levels over extended periods of time. 

A customer that is placed on the watch list becomes subject to detailed review and intense monitoring to 

enable HVB to develop a strategy for dealing with its exposure to the customer. Initially, the officers in 

charge of monitoring the loans try to resolve the problem. If, however, such officers are unable to resolve 

the problem or if there are warning signs that ultimately a loan loss provision for the loan will have to be 

made, the responsibility for the loan is transferred to a Restructuring unit (Sanierungseinheit) or work-out 

unit (Abwicklungseinheit). Such warning signs include, for instance, the extensive use of overdraft 

facilities, late payments on a loan or, in the case of corporate customers, the fact that the borrower covers 

operating losses with extraordinary income. Responsibility will mandatorily be transferred if the 

borrower's rating under HVB's Internal Rating System falls to 8. Such transfer generally takes place 

before a loan loss provision is made. When the transfer takes place, the officer initially in charge provides 

the Restructuring unit with all necessary information with respect to the loan, including a proposal for a 

Restructuring strategy based on which attempts to cure defaults under the loan will be made (a so-called 

initial risk report). In their attempt to cure defaults under the loan, the Restructuring units may be 

supported by the market teams (in the case of corporate customers) and other departments as well as by 

outside experts, such as accountants. At this stage, HVB may also require the posting of additional 

collateral or the reduction of the borrower's credit line. Generally, it is HVB's policy to work with the 

customer in order to overcome the customer's financial difficulties. Termination and liquidation of a loan 

remain measures of last resort if other solutions fail. 

When insolvency proceedings with respect to the customer are initiated, the Restructuring unit transfers 

the responsibility for the loan to the work-out unit, after providing a report that contains all necessary 

information (a so-called follow-up risk report). The work-out unit will make attempts to recover the 

amounts outstanding on the loan, particularly by realising on any collateral. 

In addition to the foregoing, HVB relies on an automated monitoring system for private customer term 

loan products of up to DM 50,000. If the customer misses one payment, HVB will electronically generate 

a reminder. If the payment is not received after the second reminder, an automatic loan loss provision will 

be made. Other steps to prevent losses on the loan or to enforce any collateral are made by the originating 

branch on a case-by-case basis in light of all circumstances. 

Loan Loss Provisions 

144

A loan loss provision will be made if, in the reasonable discretion of the person authorised to make such 

determination, a partial or full loss on the loan is expected. This is the case, for instance, when the 

financial situation of the customer deteriorates substantially, when the customer continuously defaults on 

payments due, particularly under an agreed upon Restructuring plan, or when insolvency proceedings 

have been initiated with respect to the customer. The amounts of HVB's loan loss provisions for problem 

loans are determined on a case by case basis based on an analysis of the overall risk of loss, taking into 

account all circumstances, particularly the value of any collateral, the financial condition of the borrower 

and the nature of the loan. Provisions may vary from a small part to the entire principal amount of the 

loan. For problem loans with a principal amount not exceeding DM 300,000 or, in the case of mortgage 

loans, DM 1.000,000, standardised loan loss provisions (pauschalisierte Einzelwertberichtigungen) are 

made. 

Provisioning decisions are made jointly by the work-out manager and the officer who would have 

approval competence for such loan, except that decisions involving provisions in excess of € 2.500,000 

have to be submitted for final approval to HVB's credit committee. 

Risks in the loan portfolio are continually under review. Provisions are generally reversed when the 

economic or credit conditions leading to the making of the provisions no longer exist. In addition to 

provisions relating to specific problem loans, HVB maintains provisions for general risks inherent in the 

loan portfolio as a whole, as well as for specific risk elements such as country risks. 

Interest Accrual and Write-Offs 

After completion of any recovery proceedings, the loan will be written off and a memo account for any 

anticipated recoveries will be set up. In rare cases (e.g., the death of the borrower), a loan can be written 

off without prior loan loss provisions. A memo account will only be set up if, notwithstanding the fact 

that recovery proceedings have partly or completely failed, there is nonetheless a reasonable expectation 

that further recoveries can be obtained from the customer within the following four to six years. This 

applies especially to natural persons whose financial conditions might improve in the future. 

If, however, there is no such expectation or if such expectation later proves to be incorrect, no memo 

account will be set up or the memo account will be eliminated. This is the case, for instance, if, in the 

course of insolvency proceedings with respect to a corporation, all of the corporation's assets have been 

distributed to the creditors and the corporation is dissolved. 

Interest no longer accrues on any problem loan for which negotiations for a Restructuring plan for or 

insolvency proceedings with respect to the borrower have commenced. In the case of all other problem 

loans, management decides at what point interest should no longer be accrued as income. The HVB 

Group ceases to accrue interest if there is a high probability that such interest will not be paid, and records 

such interest as income only as it is actually paid. In the event that it is determined that previously 

accrued interest will not be paid, a provision is taken, and the accrual is eventually written off when it 

becomes due and is not paid. 

Risk Management 

General 

The objective of the HVB Group's risk management system is to identify, measure, control and monitor 

the risks arising from the HVB Group's business operations, and to correlate this data with revenue and 

income information. The system operates independently of the individual divisions, and responsibility for 

different risk areas are assigned to one or more members of the Management Board. Besides credit risk 

(which includes counterparty risk), the system tracks market, liquidity, settlement, operational and 

investment risk. Risk management and risk monitoring functions are kept organisationally separate for 

145

oth market risk and credit risk. The HVB Group calculates standard risk costs with respect to different 

types of risks in order to take such costs into account in pricing credit-related products and services. In 

addition, the HVB Group has developed a value-at-risk approach for all risks arising in its lending, 

trading and other activities that serves as a basis for the allocation of capital to the different business units 

and as a means for a risk-adjusted performance measurement of all activities. HVB intends to enhance its 

risk management in certain respects, for example with regard to the measurement of global counterparty 

risk and the method for depicting possible fluctuations in the value of property furnished as Collateral for 

real estate loans. HVB is also developing an internal model using a value-at-risk approach for capital 

adequacy and large exposure purposes, and intends to submit such model to the regulatory authorities for 

approval during 2000/2001. 

Credit Risks 

The HVB Group's business divisions are responsible for managing credit risks of their respective 

customers. In connection with the merger, new credit policies were developed for the HVB Group, 

effective as of September 1, 1998 (see "Credit Policies"). A new risk information and control system was 

introduced at Vereinsbank in 1995 for business with domestic corporate customers, to complement the 

established system for monitoring individual credit exposures. The new system provided Vereinsbank 

with a more complete and precise assessment of the risks inherent in various loan portfolios at all times. 

HVB uses similar systems for real estate financing and for credit risks from lending to private and small 

business customers. Counterparty risks also arise in the HVB Group's derivatives business activities, 

where additional regulations apply. The HVB Group's business divisions operate within specific limits 

that are approved by HVB's Management Board. Limits reflect net exposures within a certain product 

category (e.g., interest rate derivatives) based on netting agreements with counterparties. 

For a discussion of loan loss provisioning and other credit risk monitoring, see "Credit Policies". 

Market Risks 

Market risks arise as a result of price changes for interest rate products, stocks, foreign exchange, and 

related derivatives. These risks are identified and monitored daily throughout most of the HVB Group on 

the basis of predefined criteria by a central risk controlling department which is independent of the 

business divisions. 

The process begins by assessing the risk of each individual transaction. Based on historical price trends, 

the degree to which the value of a transaction can vary over time is determined by application of the 

value-at-risk method which quantifies a transaction's loss potential. The value-at-risk indicator is the 

maximum potential change in the value of the portfolio under normal market and liquidity conditions 

within a given confidence interval and a given holding period. The HVB Group uses a model in 

accordance with the directions of the Bank for International Settlements that contemplates a value-at-risk 

determination for a ten-day holding period based on the last 250 trading days, with a probability of 99%, 

meaning that, based on the trading patterns of the past 250 days, the mathematical odds of a greater loss 

would have been 1%. Value-at-risk indicators of individual transactions are then progressively aggregated 

through several stages in order to arrive at aggregate value-at-risk for the entire HVB Group. This model 

incorporates stress tests and is based on HVB's internal assumptions and calculations. The model is 

unique to HVB and is not identical to models used by other banks for this purpose. 

The risk control system is based on a hierarchical system of limits for a particular trading portfolio and 

the trading portfolios as a whole. The value-at-risk limit is the limit that the value-at-risk indicator may 

not exceed. Any net losses during the year further reduce the overall limit. Management triggers are 

applied, in addition to the risk limits, to provide a basis for diversifying portfolios in terms of currencies 

or interest periods as well as to allow business units to focus on selected trading strategies. 

146

Risk indicators are established for the entire HVB Group, including operations outside of Germany, on a 

daily basis. Under the system developed for this purpose, data is transferred directly from the trading 

systems into the central reporting system in order to calculate the risk positions at the close of each 

trading day. By the following morning HVB's risk controlling department establishes and communicates 

the daily risk indicators and limit utilisations to division heads and the responsible members of HVB's 


The following table shows the potential market risk arising from the trading portfolio of the HVB Group, 

including hedging positions, on a quarterly basis from September 30, 1998 through September 30, 2000: 

Potential 

Market Risk of 

HypoVereinsb 

ank Group 

Trading 

Activities 

(Value-at- 

Risk) 

Interest rate 

transactions ....... 

Foreign 

exchange 


Stock/index 


Value-at-Risk.... 

Septemb 

er 30, 

2000 

June 

30, 


March 

31, 


Decemb 

er 31, 

1999 

147 

Septemb 

er 30, 

1999 

June 

30, 

199 

9 

Marc 

h 31, 

1999 

Decembe 

r 31, 

1998 

Septemb 

er 30, 

1998 

(e) (e) (e) (e) (e) (e) (e) (DM) (DM) 

(in millions) 

36 175 159 96 102 115 107 98 308 

32 40 44 32 45 37 44 35 90 

74 90 92 56 68 79 83 68 178 

142 305 295 184 215 231 234 201 576 

In the second half of 2000 the HVB Group switched its value-at-risk calculation to a state-of-the-art risk 

methodology based on "Monte-Carlo-Simulation" for interest rate risk in the main trading portfolios of 

HypoVereinsbank. This change has reduced the value-at-risk figures for interest rate transactions to 

approximately one fifth in HypoVereinsbank Group. 

The HVB Group's risk management system for market price risks arising from trading activities is 

coordinated with the HVB Group's asset and liability management to identify, measure, control and 

monitor the HVB Group's aggregate exposure to market price risks. In addition to internal controls, the 

German regulatory system sets limits on market price risks for trading activities. 

Operational Risks 

Operational risks are inherent in all aspects of HVB Group's banking activities. Among other things, 

operational risks arise in connection with communications, information and settlement systems, and 

human error. HVB has limited the risk of a breakdown of technical assistance by the immediate 

deployment of back-up systems and emergency plans. To reduce the risk of operational failures or errors, 

HVB has provided for a clear allocation of responsibilities, established clearly defined processes and 

issued clear operating instructions. HVB Group also places emphasis on training of employees and 

regular inspections. To manage legal risk, HVB Group tries to use standard form contracts whenever 

possible and requires prior consultation of the legal department in the event of any significant departure 

therefrom.

Euro 

On January 1, 1999, the Euro was introduced with fixed exchange rates to the Deutsche Mark and the 

other national currencies of EMU participant countries. Such currencies will exist as sub-units of the Euro 

until December 31, 2001 (at the latest) when such national currencies will be replaced for all purposes by 

the Euro. Under German legislation, all Euro conversions must be completed by January 1, 2002, with an 

"unofficial" two months grace period in certain areas. Issues in national currencies of EMU participant 

countries with a maturity beyond 2001 will be converted into Euro at the official fixed exchange rate. The 

HVB Group has converted most of its systems to the Euro, and since January 4, 1999 has offered all 

customers accounts as well as most other products in both Euro and local currency. In order to coordinate 

all necessary steps for the introduction of the Euro, the HVB Group established a project ("Project 

EURO") consisting of employees with special expertise from various departments. The HVB Euro 

conversion activities implemented to date have proceeded according to plan, and HVB's management 

does not anticipate any specific problems with further Euro conversion activities. 

Derivatives 

Derivative instruments are contracts whose value is derived from, among others, interest rates, foreign 

exchange rates, prices of securities or financial or commodity indices. Derivatives include swaps, futures, 

forwards and option contracts. Derivatives are generally either negotiated over-the-counter contracts or 

standardised contracts executed on an exchange. Standardised exchange-traded derivatives include futures 

and option contracts. Negotiated over-the-counter derivatives include forwards, swaps and option 

contracts. Over-the-counter derivatives are generally not traded like securities; however, in the normal 

course of business, with the agreement of the original counterparty, they may be unwound or assigned to 

another counterparty. The timing of cash receipts and payments related to derivatives is generally 

determined by contractual agreement. 

The HVB Group's primary derivatives activities consist of activities in connection with its control of 

interest rate and currency exposure. The HVB Group's principal counterparties are large financial 

institutions headquartered in countries that are members of the Organisation for Economic Cooperation 

and Development ("OECD"). With respect to counterparty risk (the risk of default by individual trading 

partners in derivatives operations), the division in charge of the business in question manages its own risk 

limits on total commitments established by the Management Board. HVB has also concluded master 

netting agreements with its trading partners to reduce counterparty risk. These agreements provide for a 

reciprocal set-off of receivables and payables arising from individual derivatives transactions prior to or 

upon the occurrence of an event of insolvency. 

Asset and Liability Management 

General 

The HVB Group's policies and principal procedures for asset and liability management are established by 

HVB's Management Board. The goals of the HVB Group's asset and liability management, as for other 

major international banking groups, are to monitor and control the size and concentration of risks arising 

from interest rate and exchange rate fluctuations and from liquidity sensitivity in respect of the loan and 

investment portfolios' assets, liabilities and off-balance sheet transactions. The HVB Group's trading 

positions are monitored and controlled through position limits. See "Market Price Risks". The 

Management Board has created a special Market Risk and Asset/Liability Committee (" MARALCO") (a 

subcommittee of the Management Board) that regularly reviews and assesses the HVB Group’s market 

risk position and funding situation and participates in making decisions on the utilisation and allocation of 

the limits set by the Management Board to individual business areas. Within the parameters set by the 

148

overall limits, certain subsidiaries make their own risk decisions. The activities of MARALCO and the 

International Markets division are closely coordinated by the Management Board. 

Liquidity 

The objective of HVB's liquidity management is to ensure that sufficient funds are available to meet the 

HVB Group's commitments to its customers and counterparties, both in terms of demand for loans and 

repayment of liabilities and in terms of satisfying the operational liquidity needs of the HVB Group. The 

HVB Group is assisted in this task by the fact that a substantial portion of both its assets and liabilities are 

long-term and are often matched through use of Pfandbriefe for funding. In addition, the HVB Group 

maintains a continuing presence in the Euro money market through interbank borrowings. 

The general control of liquidity exposure of German banks is regulated by the Banking Act and 

regulations issued by the German Banking Supervisory Authority. HVB and the HVB Group are currently 

in compliance with all applicable liquidity requirements. 

Internal HVB guidelines ensure compliance with both the regulatory requirements and HVB's liquidity 

management approach. Funding is obtained within the range set forth by such guidelines, with a view to 

minimising funding costs. 

Interest Rate Exposure 

Interest rate risks arise when there is a mismatch between assets and liabilities with respect to the 

repricing of interest rates or maturities. The HVB Group manages interest rate exposure by closely 

monitoring levels and interest rate sensitivity of assets, liabilities and off-balance sheet items. Interest rate 

exposure is decreased by the fact that a substantial portion of the HVB Group's assets and liabilities are 

fixed rate, and are coordinated on a portfolio-wide basis to secure a fixed spread. 

The HVB Group takes very limited open market positions in order to take advantage of market 

opportunities with a view toward enhancing its income. Open positions are reviewed weekly by the 

Management Board of HVB. The HVB Group makes regular use of interest rate swaps, options and other 

hedging instruments to limit interest rate risks arising in the refinancing of specific assets. 

Exchange Rate Exposure 

The HVB Group strictly limits its exchange rate exposure in respect of virtually all loans denominated in 

foreign currencies either by hedging its liabilities with respect to the funding of such loans through the 

use of cross-currency swaps or by funding such loans with liabilities of the same currency. In addition, 

certain derivative products are used to a limited extent to hedge temporary positions in foreign currencies. 

Pursuant to the Mortgage Banking Act, mortgage banks, including "mixed-mortgage" banks, may have no 

foreign currency exposure in respect of Pfandbriefe and the corresponding assets constituting cover 

therefor. 

Litigation and Other Proceedings 

HVB is involved in legal proceedings with approximately 150 customers relating to housing financing 

originated through external agents (Strukturvertrieb). HVB believes it has taken sufficient risk provisions 

to cover the risks arising from real estate problem loans, including those relating to Strukturvertrieb. 

Several shareholders of the former Vereinsbank and/or the former HYPO-BANK have initiated legal 

proceedings against HVB in connection with the merger. The legal proceedings involve, among other 

things, resolutions passed at the shareholders' meetings regarding damage claims and a challenge of the 

149

conversion ratio applied in the merger. All of these proceedings have been decided in favour of HVB by 

the court of first instance. 

In 1999, a class action was filed against HVB in the United States District Court in the Southern District 

of New York alleging the active participation of the former Hypo-Bank with and during the Nazi regime 

in Germany between 1933 and 1945 in seizing, consolidating, converting and profiting from stolen assets 

of plaintiff’s families and, among other things, seeking unspecified compensatory, punitive and 

exemplary damages. On April 12, 1999, the United States District Court in the Southern District of New 

York combined the action against HVB with similar class actions brought against other German and 

Austrian banks and industrial companies. 

HVB expects that all pending actions, due to the establishment of a German foundation which shall 

satisfy legitimate claims as to seized Jewish assets, will be regarded as inadmissibile by the competent 

courts. 

HVB believes that none of the above proceedings, taken alone or together, if adversely determined, would 

have a significant effect on HVB’s business or financial position taken as a whole. 

No other legal, arbitration, administrative or other proceedings which could have a significant effect on 

the business or financial condition of HVB, or had such an effect in the last two years, have been pending, 

nor is HVB aware, to the best of its knowledge, of any such proceedings now pending or threatened. 

Properties 

The HVB Group owns most of the corporate headquarters located in Munich and leases most of its branch 

offices. 

Supervisory Board and Management Board 

Like all German stock corporations, HVB has a two-tier board system. The Management Board 

(Vorstand) is responsible for the management of HVB and the representation of HVB with respect to 

third parties, while the Supervisory Board (Aufsichtsrat) appoints and removes the members of the 

Management Board and supervises the activities of the Management Board. The Supervisory Board may 

not make management decisions, but under the German Stock Corporation Act (Aktiengesetz) and the 

Articles of Association (Satzung) of HVB, the Management Board must obtain the consent of the 

Supervisory Board for certain actions, such as the purchase of real estate for the purposes of HVB's 

business operations if the purchase price exceeds € 1,000,000, the appointment of senior officers with 

general power of attorney to represent HVB (Prokuristen), and the establishment of branch offices. 

The Management Board must submit regular reports on the operations of HVB to the Supervisory Board, 

and the Supervisory Board is also entitled to request special reports at any time. The members of the 

Management Board are executive officers of HVB. The German Stock Corporation Act prohibits 

simultaneous membership on both the Management Board and the Supervisory Board. 

In accordance with the German Co-Determination Law of 1976 (Mitbestimmungsgesetz), HVB's 

Supervisory Board must consist of an equal number of representatives elected by the shareholders and the 

employees. Members are elected for five-year terms, and re-election is possible. The members of the 

Supervisory Board elect the chairman and the deputy chairman of the Supervisory Board. At least half of 

the members of the Supervisory Board, including the Chairman or a Deputy Chairman, must be present or 

represented to constitute a quorum. Resolutions are passed by a simple majority of the Supervisory Board. 

The chairman, who is invariably a representative of the shareholders, has the deciding vote in the event of 

a deadlock. 

150

The Supervisory Board has the authority to form committees and delegate to such committees certain of 

its authorities. Accordingly, it has formed, among others, a business development and credit committee as 

well as an audit and compliance committee. The Management Board must report to the business 

development and credit committee on certain matters which may have a significant impact on HVB, 

including, on an annual basis, the strategic positioning of HVB as well as, on an ongoing basis, 

transactions which may have a material effect on the profitability and liquidity of HVB and financings of 

€250 million or more (and each additional financing thereafter). The audit and compliance committee is, 

among other things, responsible for the review of internal audits and compliance with regulatory capital 

requirements. 

The composition of the Supervisory Board and the Management Board of HVB and the primary 

occupations and residences of its members are as follows: 

Supervisory Board 

Dr. Maximilian Hackl, Honorary Chairman of the Supervisory Board, Krailling 

Kurt Viermetz, Chairman, Vice Chairman of J.P. Morgan & Co. Inc., retired, Rey/USA and Munich 

Herbert Betz, Deputy Chairman, HVB Employee, Baldham 

Dr. Richard Trautner, Deputy Chairman, Former member of the Management Board of Bayerische 

Vereinsbank Aktiengesellschaft, Krailling 

Dr. Diethart Breipohl, Member of the Supervisory Board of Allianz Aktiengesellschaft, Icking (since 

January 13, 2000) 

Heidi Dennl, HVB Employee, Munich 

Volker Doppelfeld, Chairman of the Supervisory Board of BMW Aktiengesellschaft, Münsing 

Ernst Eigner, HVB Employee, Karlsfeld 

Helmut Gropper, Senior Government Officer (Ministerialdirektor) of the Bavarian State Ministry of 

Finance, Königsbrunn 

Klaus Grünewald, Secretary of the Union of Employees in Commerce, Banking and Insurance (HBV), 

Gröbenzell 

Heinz-Georg Harbauer, Head of the Bavarian Division of the German Union of Salaried Employees 

(DAG), Munich 

Anton Hofer, HVB Employee, Nuremberg 

Dr. Jochen Holzer, Former Chairman of the Management Board and former Chairman of the Supervisory 

Board of VIAG Aktiengesellschaft, Munich (until August 31, 2000) 

Dr. Edgar Jannott, Former Chairman of the Management Board and member of the Supervisory Board of 

ERGO Versicherungsgruppe AG, Kaarst 

Max Dietrich Kley, Deputy Chairman of the Management Board of BASF AG, Ludwigshafen 

Peter König, HVB Employee, Munich 

151

Hanns-Peter Kreuser, HVB Employee, Munich 

Christoph Schmidt, Vereins- und Westbank AG Employee, Schleswig 

Jürgen E. Schrempp, Chairman of the Management Board of DaimlerChrysler AG, Stuttgart 

Prof. Dr. Hans-Werner Sinn, President of the ifo-Institute for Economic Research, Gauting 

(since January 13, 2000) 

Helmut Wunder, HVB Employee, Waischenfeld 

Management Board 

Dr. Egbert Eisele 

Dr. Norbert Juchem 

Rainer Knoth 1 

Dieter Rampl 

Dr. Eberhard Rauch 

Dr. Albrecht Schmidt 2 

Dr. Stephan Schüller 

Dr. Paul Siebertz 

Dr. Wolfgang Sprißler 

Effective 1 January 2001, Dr Claus Nolting, spokesman of the Board of Managing Directors of HVB's 

subsidiary Bayerische Handelsbank, and Gerhard Randa, Chief Executive Officer of Bank Austria, will 

join the Management Board of HVB. 

Remuneration of the Boards' Members 

For 1999, aggregate emoluments by entities within the HVB Group to members of HVB's Management 

Board have been set at € 10 million. For 1999, aggregate emoluments by entities within the HVB Group 

to members of HVB's Supervisory Board were set at € 1 million. 

In addition, an aggregate amount of € 14 million was paid to former members of HVB's Management 

Board and their surviving dependents (including former members of Vereinsbank's Management Board 

and former members of HYPO-BANK's Management Board and their respective surviving dependents). 

1 Resigned effective March 31, 2000. See "Recent Developments". 

2 Speaker of the Management Board 

152

At December 31, 1999, the aggregate pension reserve for retired Management Board members amounted 

to € 72 million. 

At December 31, 1999, the aggregate amount of outstanding loans by entities within the HVB Group to 

members of HVB's Management Board amounted to € 11 million. The corresponding amount for the 

members of the Supervisory Boards was € 9 million. 

Employees and Labour Relations 

As of September 30, 2000, the HVB Group had 46,321 employees of which 10,734 were working in 

foreign representative offices, branches and subsidiaries. 

In Germany, employment agreements for workers and employees below management level are generally 

collectively negotiated between employers' associations representing a particular industry and the relevant 

unions. Most of the companies in Germany, including HVB and its material German subsidiaries, are 

members of an employers' association and are bound by certain collective bargaining agreements. Such 

collective bargaining agreements apply to approximately 75% of the HVB Group's employees and are 

renegotiated annually. 

To reward teamwork and enhance incentives to meet individual goals, HVB maintains a performancebased 

compensation system for all employees within Germany. In addition, a "total compensation" 

system is maintained for senior executives as well as for employees in International Markets and 

corporate finance, in which employees distribute their respective compensation packages among available 

benefits at their own discretion and which includes substantial performance-based and success-based 

components. 

Management considers relations with its employees to be good. There has been no material disruption of 

work as a result of labour unrest in recent years. 

Shareholdings 

HVB's stock is quoted on the stock exchanges of Paris and Zurich in addition to all eight German stock 

exchanges. 

The German Securities Trading Act (Wertpapierhandelsgesetz) requires each investor whose investment 

in a German stock corporation listed on the official market of a German or European Economic Area 

stock exchange (including HVB) reaches, exceeds or falls below any of the thresholds of 5%, 10%, 25%, 

50% or 75% of the voting rights of such stock corporation to notify such stock corporation and the 

German Securities Trading Supervisory Authority (Bundesaufsichtsamt für den Wertpapierhandel) 

promptly, but in any event within seven calendar days. HVB has been informed of the following 

shareholdings exceeding the relevant thresholds pursuant to the Securities Trading Act: 

Shareholder (2) 

Allianz Group (including through AB Industriebesitz und 

153 

(as a percentage of 

HVB's share capital) 

Shareholding (1) 

(as a percentage of 

HVB's voting 

capital) 

17.4 18.0 

Beteiligungen AG & Co. oHG)................................................... 

Münchener Rückversicherungsgesellschaft AG (3) .................. 6.5 6.7 

E.ON AG (through E.ON Energie AG)..................................... 8.39 8.70 

______________________

(1) 

(2) 

(3) 

Difference between holding of share capital and voting capital reflects the existence of non-voting 

preferred stock in HVB's capital structure. 

As of September 30, 2000. 

Estimated according to notification under the German Securities Act prior to the merger of 

Bayerische Hypotheken- und Wechsel-Bank and Bayerische Vereinsbank; the exact quote is 

uncertain. 

In addition, HVB is aware of the following individual shareholdings by Bavarian public law foundations: 

Bayerische Landesstiftung owns 5.4% of HVB's share capital and 2.0% of its voting capital, and 

Bayerische Forschungsstiftung owns 1.2% of HVB's share capital and 1.3% of its voting capital. 

Ratings 

HVB is rated by three major international credit rating agencies. 

154 

Financial Pfandbrief 

Long Term Short Term Strength Public Mortgage 

Moody's ................................ Aa3 P-1 B Aaa Aaa 

S&P........................................ A+* A-1 — AAA — 

Fitch....................................... AA-* FI+ B/C AAA AAA 

_______________ 

* negative Outlook 

Selected Consolidated Financial Information 

The selected consolidated financial data presented below are derived from and should be read in 

conjunction with, the HVB Group Financial Statements. The HVB Group Financial Statements as of and 

for years ended December 31, 1999 and 1998 have been audited by KPMG Deutsche Treuhand- 

Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft. 

The HVB Group Financial Statements and the Interim Financial Statements were prepared in accordance 

with IAS. The selected information set forth below for the year ended or as of December 31, 1998 has 

been converted into Euro at the official exchange rate of 1 = DM 1.95583 solely for the convenience of 

the reader.

Nine 

Months 

Ended 

September 

30, 

155 

Six months 

ended June 

30 

Year Ended December 31, 

2000 1999 1999 1998 (1) 

(e) (e) (e) (e) (DM) 

(in millions) (in millions) 

Income Statement Data 

Net interest income .......................................... 3,671 2,507 5,045 5,035 9,848 

Provisions for losses on loans and 

advances ............................................................ (787) (1,236) (2,472) (1,659) (3,245) (2) 

Net interest income after provisions for 

losses on loans and advances ......................... 2,884 1,271 2,573 3,376 6,603 

Net commission income.................................. 1,796 890 1,876 1,631 3,190 

Trading profit .................................................... 505 212 401 487 952 

General administrative expenses ................... (3,529) (2,247) (4,570) (4,324) (8,457) 

E-commerce expenses .................................... 188 -- -- -- -- 

Balance of other operating income and 

expenses ............................................................ 29 (25) 91 91 179 

Operating profit ................................................ 1,470 151 371 1,261 2,467 

Net income from investments........................ (200) 209 985 330 646 

Balance of other income and expenses ........ (153) (75) (308) (76) (149) 

Profit from ordinary activities ....................... 1,517 285 1,048 1,515 2,964 

Balance of extraordinary income and 

expenses (3) ......................................................... (89) (138) (294) (109) (213) (1) 

Net income before tax..................................... 1,428 147 754 1,406 2,751 

Income taxes ..................................................... (646) (61) (315) (629) (1,231) 

Net income (4) ..................................................... 782 86 439 777 1,520 

Per Share Data 

Earnings per share (5) ........................................ 1.71 0.07 0.86 1.69 3.31 

______________________ 

(1) 

For reasons of comp arability, the figures for 1998 are shown net of merger gains (e1,209 million). 

(2) Amount for the three months ended June 30, 1999 is prorated at ½ of the full year 1999 amount. In 

(3) 

(4) 

addition to the provisions for losses on loans and advances, the HVB Group recorded expenses for 

risk provisions for joint venture and property development expenses as extraordinary expenses in the 

amount of e 1,789 million for 1998. These charges did not affect net income as they were offset 

through the release of undisclosed reserves. 

In 1998, included realisation of undisclosed reserves to cover risk provisions for joint venture and 

property development exposures, dividend received from HYPO-BANK for 1997, merger expenses 

and risk provisions for joint venture and property development exposures. In 1999 and in the six 

months ended June 30, 2000, included merger expenses. 

Prior to subtraction of minority interests, which amounted to e 53 million and e 60 million for the 

six months ended June 30, 2000 and 1999; respectively, and e 80 million and e 73 million for the 

years ended December 31, 1999 and 1998, respectively. 

(5) Calculated for the six months ended June 30, 2000 and 1999 using an average of the total ordinary 

and preferred shares outstanding as of the beginning and end of the period, which were l and 

421,065,560, respectively, and for the years ended December 31, 1999 and 1998 using the total

ordinary and preferred shares outstanding as of the end of the period, which were 418,422,203 and 

415,645,975, respectively. 

156

157 

As of 

September 30, As of December 31, 

2000 1999 1998 1998 

Balance Sheet Data (€) (€) (€) (DM) 

Assets 

Cash reserve (1) ................................................................ 4,076 5,031 4,824 9,435 

Assets held for trading purposes ................................. 58,276 45,088 35,622 69,670 

Placements with, and loans and advances to, other 

banks (2) ............................................................................. 64,883 56,209 57,489 112,438 

Loans and advances to customers (2) ............................ 337,010 325,771 310,112 606,526 

Total provisions for losses on loans and advances ... (10,018) (9,661) (7,983) (15,614) 

Investments ..................................................................... 79,901 68,677 51,501 100,728 

Property, plant and equipment ..................................... 4,632 4,489 4,299 8,409 

Other assets ..................................................................... 9,478 7,651 4,871 9,527 

Total assets...................................................................... 548,238 503,255 460,735 901,119 

Liabilities 

Deposits from other banks ............................................ 91,427 85,078 68,146 133,283 

Amounts owed to other depositors ............................. 152,682 143,052 147,530 288,543 

Promissory notes and other liabilities evidenced by 

paper................................................................................. 230,164 214,299 189,207 370,056 

Provisions and accruals ................................................. 4,507 4,471 4,243 8,299 

Other liabilities ............................................................... 40,686 28,821 28,926 56,574 

Subordinated capital...................................................... 14,636 13,849 9,401 18,386 

Minority interest............................................................. 1,285 1,245 1,046 2,047 

Shareholders' equity....................................................... 12,851 12,440 12,236 23,931 

Total liabilities ................................................................ 548,238 503,255 460,735 901,119 

______________________ 

(1) Includes cash and cash equivalents. 

(2) Includes money market operations (including reverse repos), as well as loans. 

(3) Includes consolidated profit.

158 

Nine Months Ended Year Ended 

September 30, December 31, (1) 

2000 1999 1998 

Selected Ratios 

Return on equity after tax (2) ............................................. 7.9% 3.0% 6.1% 

Net interest margin (3) ........................................................ 0.99% 1.10% 1.17% 

Cost-income ratio (4) ........................................................... 59.1% 61.6% 59.7% 

As of 

September 30, 

As of December 31, (1) 

2000 1999 1998 

Core capital ratio (Tier I) (5) ............................................... 6.1% 6.4% 6.0% 

Equity ratio (Tier I + II) (5) ................................................. 9.6% 10.8% 9.9% 

Equity capital ratio (Tier I + II + III) (5) ........................... 9.6% 10.1% 9.3% 

Core capital (Tier I) (in billions) (6) .................................. 15.0 14.6 (13.0) 

DM 25.4 

Liable equity (Tier I + II) (in billions) (6) ........................ 25.0 24.8 (21.4) 

DM 41.8 

Equity capital (Tier I + II + III) (in billions) (6) .............. 27.4 26.7 (22.7) 

DM 44.4 

______________________ 

(1) After adoption of annual financial statements. 

(2) Net income (after tax) expressed as a percentage of average quarter-end shareholders' equity, in each 

case, excluding minority interests. Adjusted for merger effects, return on equity after tax would have 

been 9.9% for the six months ended June 30, 2000; 4.4% for the year ended December 31, 1999 and 

6.6% for the year ended December 31, 1998. 

(3) Net interest income expressed as a percentage of average total assets for the period, plus off-balance 

sheet contingent liabilities on rediscounted bills of exchange credited to borrowers, without risk 

weighting. 

(4) General admin istrative expenses expressed as a percentage of operating income, which is net interest 

income, net commission income, trading profit and the balance of other operating income and 

expenses. 

(5) Calculated pursuant to the German risk-based capital adequacy rules (Principle I) (Grundsatz I) on 

the basis of financial statements prepared in accordance with German GAAP. 

(6) Calculated pursuant to the provisions of the German Banking Act (Kreditwesengesetz) on regulatory 

capital. 

VEREINS- UND WESTBANK AG 

VEREINS- UND WESTBANK AG (the "Bank" or "VuW") registered in Hamburg was created from the 

merger between the former Vereinsbank in Hamburg and Westbank AG in October of 1974. The Bank 

has been entered in the Companies Register of the Hamburg district court under number HRB 1965. 

Vereinsbank in Hamburg was originally incorporated with limited liability under German Law in 

Hamburg on 29 July 1856. The bank was entered in the Companies Register in August of 1856. 

Westbank AG was formed as a result of the merger of Westholsteinische Bank registered in Heide with 

Schleswig-Hosteinische Bank registered in Husum and Schleibank registered in Kappeln in 1943. The 

head offices of the merged bank were established in Husum and the name was changed to Schleswig-

Holsteinische und Westbank. At a general meeting of the shareholders held on 2 October 1953, this name 

was changed to Schleswig-Holsteinische Westbank. On 14 May 1968 the shareholders agreed to change 

the bank’s name to Westbank Aktiengesellschaft. 

The Bank’s domestic sales structure comprises various regional head offices and their branches. The 

regional offices are Hamburg-Central, West Hamburg, Hamburg-Harburg, Hamburg-Bergedorf, 

Hamburg-Poppenbüttel, Hamburg-Wandsbeck, Cuxhaven, Hanover, Kiel, Lübeck, Magdeburg, 

Osnabrück, Rondeburg, Rostock North Schleswig-Holstein, West Schleswig-Holstein and Schwerin. At 

the end of 1998 the Bank had a total of 175 regional and branch offices. 

The Bank carries out operations abroad through a branch in Luxembourg and through Vereinsbank Riga. 

It also has representative offices in Buenos Aires, Johannesburg, Madrid, Mexico City, Moscow, Rio de 

Janeiro, Santafé de Bogotá and Sao Paulo. 

As of 31 December 1998, the Bank had 4,621 employees. 

The statutory activity of the Bank is to conduct banking and financial business of all kinds, except for 

investment banking. The Bank may also carry out any other business necessary for its statutory activity, 

and specifically, it may establish branch offices, participate in the equity of other undertakings and join 

associations and syndicates. 

Capital structure 

Following the DEM 30,000,000 share capital increase carried out in April 1996 the share capital of the 

Bank totaled DEM 270,000,000. The capital structure was as follows: 

4,612,000 shares of DEM 50 each, numbers 3000001 – 7612000 

12,500 shares of DEM 100 each, numbers 2000001 – 2012500 

2,500 shares of DEM 500 each, numbers 1000001 – 1002500 

36,900 shares of DEM 1,000 each, numbers 0000001 - 0086900 

At their general meeting held on 25 April 1996 the shareholders agreed to authorize the Management 

Board was authorized to increase share capital in one or more operations by a total of DEM 100,000,000 

(EUR 51,129,188.12), subject to the approval of the Supervisory Board, by issuing new bearer shares, 

payable in cash, in accordance with Sections 202 ff of the German Companies Act. 

In accordance with a shareholders’ resolution passed at the general meeting held on 17 April 1998, the 

total share capital was re-structured to create 10 new individual shares (shares without an established par 

value) for every DEM 50 of nominal share capital (i.e. the par value of the shares with the lowest value). 

Following this operation, the share capital was represented by 54,000,000 individual shares. 

The requisite changes to the Bank’s Articles were entered in the Companies Register of the Hamburg 

district court on 17 June 1998. The transformation of the share capital into individual shares and the 

related 1:10 split, based on the lowest previous denomination of the Bank’s shares, were carried out on 1 

October 1998. 

At the general meeting held on 17 April 1998, the shareholders of VuW also agreed to redenominate the 

Bank’s authorized and issued share capital, approved share capital and authorized but unissued share 

capital from German marks into euros at the official rate of exchange. 

Applying the official rate of exchange of DEM 1.95583 = EUR 1, the issued share capital of DEM 

270,000,000 was converted to EUR 138,048,807.92 

159

The redenomination of the share capital was entered in the Companies Register of the Hamburg district 

court on 29 March 1999. 

In February 1999, the Management Board decided, with the approval of the Supervisory Board, to make 

partial use of this authorization by increasing the share capital from DEM 270,000,000 (expressed in 

Euros as EUR 138,048,807.92) by EUR 10,619,141.23 through the issue of 4,153,847 new bearer shares 

(individual shares). The new shares rank for dividends as of 1 January 1999. 

This share capital increase was entered in the Companies Register of the Hamburg district court on 29 

March 1999. 

Following this operation, the issued share capital totaled EUR 148,667,949.15, represented by 58,153,847 

individual shares. 

In accordance with a shareholders’ resolution passed at the general meeting held on 22 April 1999, share 

capital was smoothed out to EUR 174,461,541 divided into 58,153,847 individual shares, with each share 

representing EUR 3 of the share capital for calculation purposes. 

All shares are fully paid in and are made out to the bearer. The shares are officially listed on the 

Hamburg, Berlin, Bremen, Düsseldorf, Frankfurt am Main, Hanover and Munich stock exchanges. The 

individual shares have been quoted since 1 October 1998. 

As required by Section 20 para. 4 of the German Companies Act, Bayerische Hypo- und Vereinsbank AG 

of Munich has notified the Bank that it owns a majority interest in the share capital as defined in Section 

16 para. 1 of the Act. This shareholding represents 75% of the total equity capital. 

In accordance with a shareholders’ resolution adopted at the general meeting held on 22 April 1999, 

subject to the approval of the Supervisory Board, the Bank’s Management Board is authorized to increase 

the share capital on one or more occasions up to a combined maximum of EUR 60,000,000 (i.e., 

approved share capital in 1999) until 22 April 2004 by issuing new bearer shares in return for cash 

contributions. The shareholders will be accorded subscription rights on condition that the shares are 

initially acquired by one or more financial institutions, which shall be obliged to offer them for 

subscription to the shareholders. The Management Board is authorized to exclude from the subscription 

rights of shareholders any fractional amounts arising as a result of the apportionment of the new shares on 

the basis of the applicable subscription ratio. The Management Board may also set aside the requisite 

number of shares to cover rights in respect of the shares of VuW pertaining to the holders of convertible 

bonds, bonds with warrants, convertible participation certificates and participation certificates with 

warrants, insofar as the holders of such instruments may exercise the rights they confer. 

Moreover, in accordance with the shareholders' resolution at the general meeting held on 22 April 1999, 

the Management Board is authorized, with the approval of the Supervisory Board, to issue the following 

instruments on one or more occasions until 22 April 2004: 

• Participation certificates up to a combined maximum of EUR 300,000,000. The terms of the 

participation certificates must be such that the sums contributed to the Bank after issuance may 

be classed as liable equity capital in accordance with banking supervisory regulations. 

Shareholders shall be granted subscription rights. The Management Board may however exclude 

any fractional amounts from subscription rights and is authorized to determine the other details 

of the issue, and in particular the rate of interest, participation in profits, issue price and maturity 

of the instruments. 

160

• Convertible bonds, warrants and convertible participation certificates or certificates with 

warrants up to a maximum nominal value of EUR 100,000,000 conferring conversion rights or 

options in respect of the shares of VuW. The terms of the participation certificates must be such 

that after issuance and in the future they may be classed as liable equity capital in accordance 

with banking supervisory regulations. Shareholders shall be granted subscription rights. The 

Management Board is authorized to exclude any fractional amounts from the shareholders’ 

subscription rights. 

The holders of bonds and participation certificates may be granted conversion rights or options 

over the shares of Vereins- und Westbank AG up to a maximum nominal value of EUR 

15,000,000. 

As approved at the same general meeting, authorized but unissued share capital stands at EUR 

15,000,000. The resulting share capital increase is earmarked to cover subscription rights on the shares of 

VuW standing to the holders of the convertible bonds or convertible participation certificates which may 

be issued until 22 April 2004, and the granting of option rights to the holders of warrants based on bonds 

or participation certificates which may be issued until 22 April 2004. 

The Bank issued participation certificates to the sum of DEM 100m in 1993 and DEM 200m in 1995 

respectively. The Bank therefore has participatory capital of DEM 300,000,000. 

Executive bodies 

The Bank's Management Board consists the following members: 

Harald Boberg, Hamburg 

Frank Diegel, Hamburg 

Rolf Kirchfeld, Hamburg 

Dr. Ulrich Meincke, Hamburg 

The Supervisory Board appoints the members of the Management Board and determines their number. 

Management Board remuneration for financial year 1998 totaled DEM 3.338 million. The Management 

Board also received DEM 260,000 for undertaking duties in its capacity as an executive body. Pension 

provisions for previous Management Board members and their survivors came to DEM 1.769 million. 

The Bank is legally represented by two members of the Management Board acting together or by an 

authorized officer. 

In line with the Articles the Supervisory Board consists of 16 members. Its current members are: 

Dr. Albrecht Schmidt, Munich, chairman 

Member of the Management Board of Bayerische Hypo- und Vereinsbank AG 

Hans-Werner Hakenholt, Hamburg 

Deputy chairman )* 

Legal officer 

Dr. Norbert Juchem, Munich, deputy chairman 

Member of the Management Board of Bayerische Hypo- und Vereinsbank AG 

Udo Bandow, Hamburg 

Member of the Management Board of Vereins- und Westbank AG (retired) 

161

Horst Becker, Rosengarten 

Chairman of the Supervisory Board of IDUNA/NOVA Group 

Jürgen Betz, Seevetal )* 

Authorised officer 

Volker Bremkamp, Großhansdorf 

CEO of ALBINGIA Versicherungs-AG 

Peter Bremme, Hamburg )* 

Financial services secretary of the Commercial, Banking and Insurance Union (Finanzdienstsekretär der 

Gewerkschaft Handel, Banken und Versicherung) 

Hans Dethleffsen, Flensburg 

Managing partner of Flensburger Brauerei Emil Petersen GmbH & Co. KG 

Dr. Joachim Lemppenau, Hamburg 

CEO of Volksfürsorge-Gruppe 

Regine Ohrt, Hamburg )* 

Bank employee 

Eberhard Reuther, Hamburg 

CEO of Körber AG 

Hartwig Scheper, Celle )* 

Head of department 

Christoph Schmidt, Schleswig )* 

Authorized representative 

Erich Schmidt, Kiel )* 

Bank employee 

Jens-Uwe Wächter, Himmelpforten )* 

Authorized representative 

* elected by the staff 

The composition of the Supervisory Board is derived from Section 96 para.1 German Companies Act in 

conjunction with Section 7 sentence 1 Co-determination Act. 

The members of the Supervisory Board receive annual remuneration of EUR 1,000, rising by EUR 1,200 

for each full percent by which the amount of the dividend exceeds 4% of the nominal capital. The 

chairman receives double and the deputy chairman one-and-a-half times these amounts. 

The members of the Supervisory Board are also entitled to claim in respect of all expenses incurred in the 

course of their duties, including sales tax payable on their remuneration. Supervisory Board members are 

also entitled to commensurate remuneration for any special activities performed in the interest of the 

Bank. 

For 1998 remuneration for the Supervisory Board totaled DEM 1.098 million. 

162

At the end of 1998 loans by the Bank (including guarantees) to Management Board members as approved 

by the Supervisory Board totaled DEM 958,000. 

General meetings take place at the Bank's head office in Hamburg or at one of its area offices. 

Each individual share carries one vote. 

The financial year is the same as the calendar year. 

In line with its Articles, Bank announcements are published in the German Federal Gazette. Obligatory 

announcements are also published in the official gazette of at least one supranational stock exchange on 

which the shares are officially listed. 

In addition to the Bank, 20 other domestic banks also act as paying agents and depositing agents where all 

business relating to the shares may be carried out free of charge. 

The Articles contain the following provisions on the allocation of the annual net profit. 

The Management Board and the Supervisory Board approve the annual financial statements. After 

deduction of the amounts required to be transferred to the statutory reserve and any losses carried forward 

they are then entitled to transfer to revenue reserves up to 75% of the annual net profit up to an amount 

equal to one half of the nominal capital. 

If the annual financial statements are approved by the company in general meeting, 50% of the annual net 

profit less the amounts to be transferred to the statutory reserve and any losses carried forward must be 

transferred to revenue reserves. 

Where, with the approval of a general meeting, the company has issued participation certificates and the 

terms of the participation certificates give rise to a claim by the holders to a distribution from net income, 

the claim by the shareholders to this part of the net income is excluded under the Articles (Section 58 

para. 4 Companies Act). 

The application of net income is determined by the company in general meeting. 

In the last five years the following dividends have been paid: 

Year On a computed portion of DEM 

5 per share 

1994 

1995 

1996 

1997 

1998 

DEM 0.90 

DEM 1.20 

DEM 1.20 

DEM 1.30 

DEM 1.30 

163 

On nominal capital of 

DEM 240,000,000 

DEM 240,000,000 

DEM 270,000,000 

DEM 270,000,000 

DEM 270,000,000 

Auditors for 1999 were KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft, auditing company, 

Hamburg. 

The annual financial statements and group financial statements for 1994 were audited by BDO Deutsche 

Warentreuhand Aktiengesellschaft in accordance with the statutory requirements and have been given an 

unqualified auditor's certificate. The annual financial statements for 1995, 1996, 1997 and 1998 were

audited by KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft, auditing company, Hamburg as 

auditors and group auditors in accordance with the statutory requirements and have been given an 

unqualified auditor's certificate. 

There have been no legal or arbitration proceedings in the last two financial years which could have had 

any substantial impact on the economic situation of the Bank and the Bank is not aware of any such 

proceedings either pending or threatened. 

164

15. KREDITANSTALT FÜR WIEDERAUFBAU 

Incorporation, Seat and Duration 

KfW was established on November 5, 1948, under the Law Concerning the Kreditanstalt für 

Wiederaufbau (the "KfW Law") as an institution incorporated under public law of the Federal Republic 

of Germany. It has its seat at Palmengartenstrasse 529, 60325 Frankfurt am Main, Federal Republic of 

Germany. KfW also maintains a branch office in Berlin. The duration of KfW is unlimited. 

Relationship with the Federal Republic of Germany 

Ownership/Capital 

KfW’s statutory capital amounts to DM 1,000 million. The Federal Republic of Germany (the "Federal 

Republic") holds 80 % of KfW’s capital and the German federal states ("Länder") hold the remaining 

20%. Shares in KfW’s capital may not be pledged or transferred to entities other than the Federal 

Republic or the Länder. 

Guarantee of the Federal Republic 

Effective April 1, 1998, the KfW Law was amended to provide expressly that the Federal Republic 

guarantees all existing and future obligations of KfW in respect of money borrowed, bonds issued and 

derivative transactions entered into by KfW, as well as obligations of third parties which are expressly 

guaranteed by KfW (Article 1a KfW Law). 

Institutional Liability ("Anstaltslast") 

Under the German administrative law principle of Anstaltslast, the Federal Republic has an institutional 

liability with respect to KfW. This liability requires the Federal Republic to safeguard KfW’s economic 

basis, keep it in a position to pursue its operations and enable it, in the event of financial difficulties, to 

perform its obligations when due through the allocation of funds or in some other appropriate manner. 

Rating 

KfW has outstanding long term debt which is rated AAA by S&P and Aaa by Moody’s. 

165

16. THE TRUSTEE 

The Trustee, KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft 

Wirtschaftsprüfungsgesellschaft, is an independent auditing company pursuant to the Law Regulating the 

Profession of Certified Public Accountants in Germany (Wirtschaftsprüferordnung) and applicable 

regulations published thereunder. 

The Trustee is the oldest "Treuhand-Gesellschaft" – trust company – in Germany, incorporated in 1890. 

The Trustee is a stock corporation (Aktiengesellschaft) with registered offices in Berlin and Frankfurt am 

Main (registered under 92 HRB 1077 at the Local Court (Amtsgericht) of Frankfurt am Main). The 

Trustee and its subsidiaries make up the KPMG Deutsche Treuhand-Gesellschaft Group or "KPMG 

Germany" for short. KPMG Germany has offices in 30 German towns and cities and 7,300 employees 

(including 5,958 professional staff). Its turnover for the year 1999 was DM 1,85 billion. 

Internationally, the Trustee is a member of KPMG worldwide, a worldwide association of accounting and 

consulting firms with over 821 offices in 159 countries. KPMG is the abbreviation for the names of the 

representatives of the principal founding member firms. 

The range of services provided by KPMG worldwide includes statutory audits and voluntary audits of all 

kinds, expert opinions on business management and financial matters, comprehensive tax consultancy and 

tax planning, management consultancy and computer systems, corporate finance business and corporate 

recovery business. 

KPMG worldwide employs more than 103,500 persons (including 79,900 professional staff). More than 

821 KPMG offices in 159 countries throughout the world with a turnover of US$12.2 billion offer a full 

service range as in Germany. 

The foregoing information regarding the Trustee has been provided by the Trustee, and the Issuer 

assumes no responsibility for its contents. 

166

17. RATING 

The rating of "AAA" is the highest rating that Fitch assigns to long term debts and "Aaa" is the highest 

rating that Moody's assigns to long term debts. 

The ratings of each Class of the Rated Notes address the likelihood that holders of such Class will receive 

all payments to which they are entitled, as described herein. The ratings of each Class of the Rated Notes 

address the risk that an amount equal to the Issuer Payments will be allocated to such Class of Notes 

pursuant to the Conditions of the relevant Class of Notes, as described herein. The rating takes into 

consideration the characteristics of the Reference Portfolio and the structural, legal, tax and Issuer-related 

aspects associated with the Notes. 

The Class A to F Notes are secured by the KfW Securities. Accordingly, withdrawal of rating or 

downgrading of the KfW Securities (see "THE COLLATERAL" and "KREDITANSTALT FÜR 

WIEDERAUFBAU") below the rating of any Class of Rated Notes is expected to result in corresponding 

withdrawal of rating or downgrading of the relevant Class of Rated Notes. 

A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or 

withdrawal at any time by the rating organisation. The ratings assigned to the Rated Notes should be 

evaluated independently from similar ratings on other types of securities. In the event that the ratings 

initially assigned to any Class of the Rated Notes by the Relevant Rating Agencies are subsequently 

withdrawn or lowered for any reason, no person or entity is obliged to provide any additional support or 

credit enhancement with respect to such Notes. 

The Issuer has not requested a rating of the Rated Notes by any rating agency other than the Relevant 

Rating Agencies; there can be no assurance, however, as to whether any other rating agency will rate the 

Rated Notes or, if it does, what rating would be assigned by such other rating agency. The rating assigned 

to the Rated Notes by such other rating agency could be lower than the respective ratings assigned by the 

Relevant Rating Agencies. 

167

18. TAXATION 

The information contained in this section "Taxation" is not intended as tax advice and does not purport to 

describe all of the tax considerations that may be relevant to a prospective purchaser of the Notes. It 

should be read in conjunction with the section entitled "RISK FACTORS". Potential purchasers of the 

Notes are urged to satisfy themselves as to the overall tax consequences of purchasing, holding and/or 

selling the Notes 

Taxation in Ireland 

Taxation of the Issuer 

Corporation Tax 

In general, Irish companies must pay Corporation Tax on their income at the rate of 24% in relation to 

trading income and 25% in relation to non-trading income. Section 110 of the Irish Taxes Consolidation 

Act of 1997 (" TCA 1997") provides for special tax treatment in relation to qualifying companies. A 

qualifying company means a company: 

(a) which is resident in Ireland; 

(b) which carries on in Ireland a business of management of qualifying assets; 

(c) which, apart from activities ancillary to that business, carries on no other activities in Ireland; 

and 

(d) in relation to which the market value throughout the initial period of all qualifying assets 

acquired from any one originator or original lender, as the case may be, is not less than 

IEP10,000,000, 

but a company shall not be a qualifying company if any transaction is carried out by it otherwise than by 

way of a bargain made at arm’s length. 

A qualifying asset in relation to a qualifying company means an asset of an original lender which the 

company acquired directly or indirectly from the original lender where the asset consists of, or of an 

interest in, any financial asset (within the meaning of Section 496 TCA 1997). 

If a company is a qualifying company for the purpose of Section 110, then profits arising from its 

activities shall be treated as annual profits and gains within Schedule D TCA 1997 and shall be 

chargeable to Corporation Tax under case III of that Schedule and for that purpose shall be computed in 

accordance with the provisions applicable to case I of the Schedule. On this basis and on the basis that 

the interest is at a commercial rate, the interest on the Notes issued will be deductible in determining the 

taxable profits of the Issuer. 

Stamp duty 

As the Issuer is a qualifying company within the meaning of section 110 of the Taxes Consolidation Act 

1997, as amended, no Irish stamp duty will be payable on either the issue or transfer of the Notes, 

provided that the money raised by the issue of the Notes is used in the course of the Issuer’s business. 

168

Taxation of Noteholders 

Income Tax 

In general, persons who are resident in Ireland are liable to Irish taxation on their world-wide income 

whereas persons who are not resident in Ireland are only liable to Irish taxation on their Irish source 

income. Since the Irish Finance Act, 1988 there is a statutory obligation to account for Irish tax on a selfassessment 

basis and there is no requirement for the Irish Revenue Commission to issue or raise an 

assessment. 

It is possible that a Note issued by the Issuer would be regarded as property situate in Ireland on the 

grounds that a debt is situate where the debtor resides. If this is proved to be the case, interest earned on 

such Notes would be regarded as Irish source interest income. Accordingly, pursuant to general Irish tax 

rules, a non-resident in receipt of such income would be technically liable to Irish income tax. Therefore, 

whether or not paid gross, the interest will be chargeable to Irish income tax by direct assessment, subject 

to the provisions of any applicable double taxation treaty. Ireland currently is a party to 37 double tax 

treaties and the majority of them exempt the interest from Irish Tax when received by a resident of the 

other jurisdiction. Thus a Noteholder may be entitled to exemption from Irish Tax under the terms of the 

double tax treaty between Ireland and the Noteholder’s jurisdiction. 

If, however, the double tax treaty does not exempt the interest or there is no double tax treaty between 

Ireland and the Noteholder’s jurisdiction there is a long standing practice whereby no action will be taken 

to pursue any liability to such Irish tax in respect of persons who are regarded as not being resident in 

Ireland except where such persons: 

(a) are chargeable in the name of a person (including a trustee) or in the name of an agent or branch 

in Ireland having the management or control of the interest; or 

(b) seek to claim relief and/or repayment of tax deducted at source in respect of taxed income from 

Irish sources; or 

(c) are chargeable to Irish corporation tax on the income of an Irish branch or agency or to income 

tax on the profits of a trade carried on in Ireland to which the interest is attributable. 

Further, Finance Act 2000 which was recently enacted into law provides for an exemption from Irish 

income tax where the interest is paid by an Irish resident company to a company resident in any EU 

Member State (other than Ireland) or in a jurisdiction with which Ireland has a double tax treaty. 

Withholding Taxes 

In general, withholding tax at the rate of 22% must be deducted from interest payments made by an Irish 

company. However, Section 246 of the TCA 1997 (Section 246) provides that this general obligation to 

withhold tax does not apply in respect of interest payments made by a company in the ordinary course of 

business carried on by it to a company resident in a relevant territory. A relevant territory for this purpose 

is a Member State of the European Communities, other than Ireland, or not being such a Member State, a 

territory with which Ireland has entered into a double taxation treaty. 

Apart from Section 246, Section 64 of the TCA 1997 ("Section 64") provides for the payment of interest 

on a "quoted Eurobond" without deduction of tax in certain circumstances. A "quoted Eurobond" is 

defined in Section 64 as a security which: 

(a) is issued by a company; 

169

(b) is quoted on a recognised stock exchange (this term is not defined but is understood to mean an 

exchange which is recognised in the country in which it is established); 

(c) is in bearer form; and 

(d) carries a right to interest. 

There is no obligation to withhold tax on quoted Eurobonds where: 

(a) the person by or through whom the payment is made is not in Ireland, or 

(b) the payment is made by or through a person in Ireland, and 

(i) the quoted Eurobond is held in a recognised clearing system (the Irish authorities have 

designated Clearstream Banking AG as a recognised clearing system); or 

(ii) the person who is the beneficial owner of the quoted Eurobond and who is beneficially 

entitled to the interest is not resident in Ireland and has made an appropriate declaration 

to this effect. 

As the Notes to be issued by the Issuer will qualify as quoted Eurobonds, and as they will be held in 

Clearstream Banking AG, Frankfurt, the payment of interest on such Notes should be capable of being 

made without withholding tax, regardless of where the Noteholder is resident. 

Withholding tax will not arise in relation to any other expenses, including, without limitation, payments 

under the Credit Swap Agreement. 

Capital Gains Tax 

A holder of a Note will not be subject to Irish taxes on capital gains provided that such holder is neither 

resident nor ordinarily resident in Ireland and such holder does not have an enterprise, or an interest in an 

enterprise, which carries on business in Ireland through a branch or agency or a permanent representative 

to which or to whom the Notes are attributable. 

Capital Acquisitions Tax 

If the Notes are comprised in a gift or inheritance taken from an Irish domiciled or resident disponer or if 

the disponer’s successor is resident or ordinarily resident in Ireland, or if any of the Notes are regarded as 

property situate in Ireland, the disponer’s successor may be liable to Irish gift or inheritance tax. As 

stated above, it is possible that Notes issued by the Issuer may be regarded as property situate in Ireland. 

Accordingly, if such Notes are comprised in a gift or inheritance, the disponer’s successor may be liable 

to Irish gift or inheritance tax, even though the disponer may not be domiciled in Ireland. 

Value Added Tax 

The entering into the Credit Swap Agreement by the Issuer is an exempt transaction for Value Added Tax 

purposes (VAT) under paragraph 1 of the first Schedule to the VAT Act of 1972. Accordingly, it should 

not be liable to account for Irish VAT on income received and will not be entitled to recover any Irish 

VAT charged on services purchased by it. 

The Issuer will be required to account for Irish VAT on a "self supply" basis on certain services received 

from abroad which are deemed to have an Irish place of supply. However, most of the services which are 

potentially subject to this self supply VAT charge would be exempt services for Irish VAT purposes. 

170

The payments under the Administration Agreement to the Administrator will be subject to Irish VAT at a 

rate of 21%. 

Taxation in Germany 

Taxation of Noteholders 

Income Tax / Trade Tax 

Interest paid to a Noteholder resident in Germany is subject to personal or corporate income tax (plus 

solidarity tax thereon currently at a rate of 5.5%). Such interest is also subject to trade tax if the Notes 

form part of the property of a German business. Where the Notes are kept in a custodial account 

maintained with a German financial institution or financial services institution (including a German 

branch of a non-German financial institution or financial services institution, but excluding a non-German 

branch of a German financial institution or financial services institution, the "Institution") such 

Institution is generally required to withhold a tax at a rate of 30% (plus solidarity tax thereon at a rate of 

5.5%) of the gross amount of interest paid to a Noteholder resident in Germany. Such withholding tax is 

credited against the Noteholder’s final liability for personal or corporate income tax. 

Interest derived by a nonresident Noteholder is subject to German personal or corporate income tax (plus 

solidarity tax thereon at a rate of 5.5%) if the Notes form part of the business property of a permanent 

establishment in Germany (in which case such interest is also subject to trade tax) or a fixed base 

maintained in Germany by the Noteholder. Tax treaties concluded by Germany generally permit Germany 

to tax the interest income in this situation. 

Where the nonresident Noteholder keeps the Notes in a custodial account maintained with a German 

Institution such Institution is generally required to withhold a tax at a rate of 30% (plus solidarity tax 

thereon at a rate of 5.5%) of the gross amount of interest paid, provided the interest constitutes income 

from German sources (for instance, because the Notes form part of the business property of a permanent 

establishment which the Noteholder maintains in Germany). Such withholding tax is credited against the 

Noteholder’s final liability for personal or corporate income tax. 

Gains from the alienation of Notes, including gains derived by a secondary or any subsequent acquirer of 

the Notes upon redemption of the Notes at maturity ("capital gains") derived by an individual Noteholder 

resident in Germany not holding the Notes as business assets are subject to personal income tax, 

regardless of the period between acquisition and alienation of the Notes as the payment of interest on the 

Notes is contingent on an uncertain event. Capital gains derived by an individual Noteholder resident in 

Germany holding Notes as a business asset are subject to personal income tax (plus solidarity tax thereon 

at a rate of 5.5%) and trade tax. Capital gains derived by a corporate Noteholder resident in Germany are 

subject to corporate income tax (plus solidarity tax thereon at a rate of 5.5%) and trade tax. Capital gains 

derived by a nonresident Noteholder are subject to personal or corporate income tax (plus solidarity tax 

thereon at a rate of 5.5%) if the Notes form part of the business property of a permanent establishment (in 

which case such gains are also subject to trade tax) or fixed base maintained in Germany by the 

Noteholder. Where the Notes are kept in a custodial account maintained with a German Institution such 

Institution is generally required to withhold tax at a rate of 30% (plus solidarity tax thereon at a rate of 

5.5%) of an amount equal to 30% of the proceeds from the alienation or redemption of the Notes, or, 

where such Institution has since acquiring or selling the Notes held such Notes in custody, of the excess 

of the sales or redemption proceeds over the purchase price for the Notes. 

Tax treaties concluded by Germany generally do not permit Germany to tax the capital gains derived by a 

Noteholder resident in the other treaty country, unless the Notes form part of the business property of a 

permanent establishment or a fixed base maintained in Germany by the Noteholder. Where Germany is 

171

allowed to tax the capital gains, any tax withheld by the Institution will give rise to a refundable credit 

against the Noteholder’s assessed liability for personal or corporate tax. 

Proposed EU Withholding Tax Directive 

In November 2000, the European Council confirmed proposals to proceed with a new EU Directive on 

the taxation of savings income, which is designed to secure that at least a minimum effective rate of tax is 

paid on all interest and similar savings income earned by residents of EU member states. The Directive is 

intended to come into effect in 2003. The key features of the proposed Directive are: 

• where a "paying agent" established in any EU member state makes payments of interest, discount 

or premium to an individual resident in another member state, the tax authorities of the paying 

agent's member state will be required to supply details of the payment to the tax authorities of the 

other member state. For these purposes, the term "paying agent" is widely defined to include both 

the principal obligor under a debt obligation; a paying agent in the normal sense of that term; and 

an agent who collects interest, discounts or premiums on behalf of an individual beneficially 

entitled thereto; 

• during a transitional period of not more than seven years from the coming into effect of the 

Directive, certain member states (expected to be confined to Austria, Belgium and Luxembourg, 

and possibly Greece and Portugal) may, instead of supplying information on savings income to 

the tax authorities of other member states, operate a withholding tax. In such cases "paying 

agents" established in the relevant member states must withhold tax from any interest, discount or 

premium paid to an individual resident in another member state. The withholding tax will be 

levied at a rate of 15% during the first three years of the transitional period, and at a rate of 20% 

during the remaining four years; and 

• Eurobonds and other negotiable debt securities which are issued before 1 March 2001, or under a 

prospectus issued before that date, will be exempt from the withholding tax provisions of the 

Directive even if interest, discounts or premiums on such securities are paid through a "paying 

agent" established in a member state which adopts the transitional withholding tax regime. 

Securities issued after 1 March 2001, or under a prospectus issued after that date, will be fully 

within the scope of the Directive when it comes into force. 

It is expected that the Directive, which can be adopted only by unanimous agreement amongst the 

member states, will also be conditional on the adoption of equivalent measures in third countries with 

significant financial centres (including the USA and Switzerland) and in dependent or associated 

territories of certain of the EU member states. 

Pending agreement on the precise text of the Directive, it is not possible to say what effect, if any, the 

adoption of the Directive would have on the Notes or payments in respect thereof. 

Gift or Inheritance Tax 

The gratuitous transfer of a Note by a Noteholder as a gift or by reason of the death of the Noteholder is 

subject to German gift or inheritance tax if the Noteholder or the recipient is resident or deemed to be 

resident in Germany under German law at the time of the transfer. If neither the Noteholder nor the 

recipient is resident, or deemed to be resident, in Germany at the time of the transfer no German gift or 

inheritance tax is levied unless the Notes form part of the business property of a permanent establishment 

or fixed base maintained in Germany by the Noteholder. Tax treaties concluded by Germany generally 

permit Germany to tax the transfer in this situation. 

172

Taxation of the Issuer 

The Issuer will derive interest and, potentially, capital gains from the KfW Securities. The income and 

gains derived by the Issuer will only be subject to German tax if the Issuer has its place of effective 

management and control or maintains a permanent establishment, or appoints a permanent representative, 

for its business in Germany. 

It is expected that the Issuer will not be treated as having its place of effective management and control, 

as maintaining a permanent establishment or as appointing a permanent representative in Germany. 

173

19. SUBSCRIPTION AND SALE 

Bayerische Hypo- und Vereinsbank AG (the "Manager") has, in subscription agreement dated 19 

December 2000 (the "Subscription Agreement") and made between the Issuer and the Manager, upon 

the terms and subject to the conditions contained therein, agreed to subscribe and pay for: 

(a) the Class A Notes at their issue price of 100 per cent. of their principal amount less a combined 

management and underwriting commission fee as well as a a selling commission fee; 

(b) the Class B Notes at their issue price of 100 per cent. of their principal amount less a combined 

management and underwriting commission fee as well as a selling commission fee; 

(c) the Class C Notes at their issue price of 100 per cent. of their principal amount less a combined 


(d) the Class D Notes at their issue price of 100 per cent. of their principal amount less a combined 


(e) the Class E Notes at their issue price of 100 per cent. of their principal amount less a combined 


(f) the Class F Notes at their issue price of 100 per cent. of their principal amount less a combined 

management and underwriting commission fee as well as a selling commission fee; and 

(g) the Class G Notes at their issue price of 100 per cent. of their principal amount less a combined 

management and underwriting commission fee as well as a selling commission fee. 

The Issuer has also agreed to reimburse the Manager for certain of its expenses incurred in connection 

with the management of the issue of the Notes. The Manager is entitled in certain circumstances to be 

released and discharged from its obligations under the Subscription Agreement prior to the closing of the 

issue of the Notes. 

Selling Restrictions 

General 

(1) No action to permit public offering 

The Manager has acknowledged that, save for having obtained the approval of the Offering 

Circular by the Luxembourg Stock Exchange, no action has been or will be taken in any 

jurisdiction by the Issuer that would permit a public offering of the Notes, or possession or 

distribution of any offering material in relation thereto, in any country or jurisdiction where 

action for that purpose is required. 

(2) Manager’s compliance with applicable laws 

United States 

The Manager has undertaken to the Issuer that it will comply with all applicable laws and 

regulations in each country or jurisdiction in which it purchases, offers, sells or delivers Notes or 

has in its possession or distributes such offering material, in all cases at its own expense. 

(1) No registration under the Securities Act 

174

The Notes have not been and will not be registered under the Securities Act of 1933 (the 

"Securities Act") and may not be offered or sold within the United States except pursuant to an 

exemption from, or in a transaction not subject to, the registration requirements of the Securities 

Act. 

(2) Compliance by the Issuer with United States securities laws 

The Issuer has represented, warranted and undertaken to the Manager that neither it nor any of 

its affiliates (including any person acting on behalf of the Issuer or any of its affiliates) has 

offered or sold, or will offer or sell, any Notes in any circumstances which would require the 

registration of any of the Notes under the Securities Act and, in particular, that: 

(a) neither the Issuer nor any person acting on its behalf has engaged or will engage in any 

directed selling efforts with respect to the Notes; and 

(b) the Issuer has complied and will comply with the offering restrictions requirement of 

Regulation S under the Securities Act. 

(3) Compliance by the Manager with United States securities laws 

The Manager: 

(a) has represented, warranted and undertaken to the Issuer that it has offered and sold the 

Notes, and will offer and sell the Notes: 

(i) as part of their distribution, at any time; and 

(ii) otherwise, until 40 days after the Closing Date, 

only in accordance with Rule 903 of Regulation S under the Securities Act and, 

accordingly, that: 

(A) neither it nor any of its affiliates (including any person acting on behalf of the 

Manager or any of its affiliates) has engaged or will engage in any directed 

selling efforts with respect to the Notes; and 

(B) the Manager and its affiliates have complied and will comply with the offering 

restrictions requirement of Regulation S under the Securities Act; 

(b) has represented, warranted and undertaken to the Issuer that it has not entered and will 

not enter into any contractual arrangement with respect to the distribution or delivery of 

the Notes, except with its affiliates or with the prior written consent of the Issuer; and 

(c) has undertaken to the Issuer that, at or prior to confirmation of sale, it will have sent to 

each distributor, dealer or person receiving a selling concession, fee or other 

remuneration which purchases Notes from it during the restricted period a confirmation 

or notice in substantially the following form: 

"The Securities covered hereby have not been registered under the United States Securities Act 

of 1933 (the "Securities Act") and may not be offered or sold within the United States or to, or 

for the account or benefit of, U.S. persons, (i) as part of their distribution at any time or (ii) 

otherwise until 40 days after the later of the commencement of the offering and the closing date, 

175

except in either case in accordance with Regulation S under the Securities Act. Terms used 

above have the meanings given to them by Regulation S." 

(4) The Manager has represented, warranted and undertaken to the Issuer that: 

(a) except to the extent permitted under United States Treasury Regulation § 1.163- 

5(c)(2)(i)(D) (the "D Rules"): 

(i) it has not offered or sold, and during the restricted period will not offer or sell, 

any Notes to a person who is within the United States or its possessions or to a 

United States person; and 

(ii) it has not delivered and will not deliver in definitive form within the United 

States or its possessions any Notes sold during the restricted period; 

(b) it has, and throughout the restricted period will have, in effect procedures reasonably 

designed to ensure that its employees or agents who are directly engaged in selling 

Notes are aware that the Notes may not be offered or sold during the restricted period to 

a person who is within the United States or its possessions or to a United States person, 

except as permitted by the D Rules; and 

(c) if it is a United States person, it is acquiring the Notes for the purposes of resale in 

connection with their original issuance and, if it retains Notes for its own account, it 

will only do so in accordance with the requirements of United States Treasury 

Regulation § 1.163-5(c)(2)(i)(D)(6), 

and, with respect to each affiliate of the Manager that acquires Notes from the Manager for the 

purpose of offering or selling such Notes during the restricted period, the Manager has 

undertaken to the Issuer that it will obtain from such affiliate for the benefit of the Issuer the 

representations, warranties and undertakings contained in sub-paragraphs 4(a), 4(b) and 4(c) 

above. 

(5) Terms used in paragraphs 2 and 3 above have the meanings given to them by Regulation S under 

the Securities Act. Terms used in paragraph 4 above have the meanings given to them by the 

United Kingdom 

United States Internal Revenue Code and regulations thereunder, including the D Rules. 

The Manager has represented to and agreed with the Issuer that: 

(1) it has not offered or sold and will not offer or sell any Notes to persons in the United Kingdom 

except to persons whose ordinary activities involve them in acquiring, holding, managing or 

disposing of investments (as principal or agent) for the purposes of their businesses or otherwise 

in circumstances which have not resulted and will not result in an offer to the public in the 

United Kingdom within the meaning of the Public Offers of Securities Regulations 1995 (as 

amended); 

(2) it has complied and will comply with all applicable provisions of the Financial Services Act 

1986 with respect to anything done by it in relation to the Notes in, from or otherwise involving 

the United Kingdom; and 

(3) it has only issued or passed on and will only issue or pass on in the United Kingdom any 

document received by it in connection with the issue of the Bearer Notes to a person who is of a 

176

Ireland 

kind described in article 11(3) of the Financial Services Act 1986 (Investment Advertisements) 

(Exemptions) Order 1996 or is a person to whom such document may otherwise lawfully be 

issued or passed on. 

The Manager has represented, warranted and undertaken to the Issuer that: 

(1) it has not offered or sold, and for so long as the Irish European Communities (Transferable 

Securities and Stock Exchange) Regulations 1992 remain in force, it will not offer or sell any 

Notes to persons in Ireland except (i) to persons in the context of their trades, professions or 

occupations or (ii) where such offer is to a restricted circle of persons or (iii) otherwise where 

such offer constitutes an "offer" as described in Article 2 of Council Directive No. 89/298/EEC 

of 17 April 1989; and 

(2) it has only issued or passed on and will only issue or pass on any documents received by it in 

connection with the issue of the Notes to persons who are persons to whom such documents may 

lawfully be issued or passed on. 

The Federal Republic of Germany 

The Manager has represented and agreed that it has not offered or sold and will not offer or sell any Notes 

in the Federal Republic of Germany other than in accordance with the provisions of the German 

Securities Sales Prospectus Act (Wertpapier - Verkaufsprospektgesetz) and any other legal and regulatory 

requirements applicable in Germany governing the issue, offering and the sale of securities. 

France 

The Manager has represented and agreed that it has not (a) offered and will not offer, directly or 

indirectly, any Notes to the public in the Republic of France or (b) distributed or caused to be distributed 

and will not distribute or cause to be distributed in the Republic of France this Offering Circular or any 

other offering material relating to the Notes. Such offers, sales and distributions have been and shall only 

be made in the Republic of France to (i) qualified investors (investisseurs qualifies) and/or (ii) a restricted 

group of investors (cercle restreint d’investisseurs), all as defined in and in accordance with Article 6 of 

ordonnance no. 67-833 dated 28 th September 1967 (as amended) and décret no. 98-880 dated 1 st October 

1998. 

Where an issue of Notes is affected as an exception to the rules relating to an appel public à l’épargne in 

France (public offerals) by way of an offer to a restricted circle of investors, such investors must, to the 

extent that the Notes are offered to 100 or more of such investors, provide certification as to their personal 

relationship of a professional or family nature with a member of the management of the Issuer. Investors 

in the Republic of France may only participate in the issue of the Notes for their own account in 

accordance with the conditions set out in décret no. 98-880 dated 1 October 1998. Notes may only be 

issued, directly or indirectly, to the public in France in accordance with articles 6 and 7 or ordonnance no. 

67-833 dated 23 September 1967 (as amended). Persons in whose possession offering material comes 

must inform themselves about and observe any such restrictions. 

Austria 

The Manager has represented and agreed that it will only offer Notes in the Republic of Austria in 

compliance with the provisions of the Kapitalmarktgesetz (Austrian Capital Market Act) and any other 

laws applicable in the Republic of Austria governing the offer and sale of the Notes in the Republic of 

Austria. 

177

20. GENERAL INFORMATION 

Authorisation 

The creation and issue of the Notes has been authorised by a resolution of the Board of Directors of the 

Issuer dated 15 December 2000. 

All other authorisations, consents and approvals required to be obtained by the Issuer for, or in connection 

with, the creation and issue of the Notes, the performance by the Issuer of the obligations expressed to be 

undertaken by it and the distribution of this Offering Circular have been obtained and are in full force and 

effect. 

Responsibility for the Contents of this Offering Circular 

The Issuer accepts responsibility for the information contained in this Offering Circular and has taken all 

reasonable care to ensure that the facts stated in this Offering Circular are true and accurate in all material 

respects and that there are no other material facts the omission of which would make misleading any 

statement in this Offering Circular, whether of facts or opinion. 

Litigation 

Save as disclosed in this Offering Circular, there are no litigation or arbitration proceedings against or 

affecting the Issuer or any of its assets, nor is the Issuer aware of any pending or threatened proceedings, 

which are or might be material in the context of the issuer of the Notes. 

No Material Adverse Change 

Since the date of the Issuer’s incorporation, there has been no material adverse change, or any 

development reasonably likely to involve any material adverse change, in the condition (financial or 

otherwise) or general affairs of the Issuer that is material in the context of the issue of the Notes. 

Payment Information 

For as long as any of the Notes are listed on the Luxembourg Stock Exchange, the Issuer will notify the 

Luxembourg Stock Exchange of the Interest Amounts, Interest Periods and the Interest Rates and, if 

relevant, the payments of principal on each Class of Notes, in each case, without delay after their 

determination pursuant to the Terms and Conditions of the Notes. 

All notices regarding the Notes will be published in the Luxembourg Wort or in such other publication or 

manner conforming to the rules of the Luxembourg Stock Exchange. 

Luxembourg Listing 

Application has been made to list the Notes on the Luxembourg Stock Exchange. The Issuer has 

appointed Deutsche Bank Luxembourg S.A., Luxembourg as Luxembourg Listing and Paying Agent. For 

so long as any of the Notes are listed on the Luxembourg Stock Exchange, the Issuer will maintain a 

Paying Agent in Luxembourg. 

Prior to such listing of the Notes, the constitutional documents of the Issuer and legal notices relating to 

the issue will be registered with the Registrar of the District Court in Luxembourg (Greffier en Chef du 

Tribunal d'Arrondissement de et à Luxembourg), where copies of these documents may be obtained upon 

request. 

178

ISIN and Common Code 

The Notes have been accepted for clearance through Clearstream Banking AG, Frankfurt and the relevant 

German Security Code Numbers, Common Codes and ISIN numbers are as follow: 

Class A Notes: WKN (German Security Code No.) 600 

651. 

Class B Notes: WKN (German Security Code No.) 600 

652. 

Class C Notes: WKN (German Security Code No.) 600 

653. 

Class D Notes: WKN (German Security Code No.) 600 

654. 

Class E Notes: WKN (German Security Code No.) 600 

655. 

Class F Notes: WKN (German Security Code No.) 600 

656. 

Class G Notes: WKN (German Security Code No.) 600 

657. 

Availability of Documents 

179 

Common Code 

12227787 

Common Code 

12227833 

Common Code 

12228112 

Common Code 

12228180 

Common Code 

12228473 

Common Code 

12228597 

Common Code 

12228805 

ISIN No. XSDE 

000 600 651 3 

ISIN No. XSDE 

000 600 652 1 

ISIN No. XSDE 

000 600 653 9 

ISIN No. XSDE 

000 600 654 7 

ISIN No. XSDE 

000 600 655 4 

ISIN No. XSDE 

000 600 656 2 

ISIN No. XSDE 

000 600 657 0 

Copies of the following documents may be obtained during customary business hours on any working day 

from the date hereof (or the date of publication of such document, as relevant) as long as any of the Notes 

remain outstanding, at the registered office of the Issuer and as long as any of the Notes are listed on the 

Luxembourg Stock Exchange they will also be available and may be obtained (free of charge) at the 

specified offices of the Paying Agents: 

(i) the Articles of Association of the Issuer; 

(ii) the authorisation of the issue of the Notes and the Transaction by the Issuer; 

(iii) this Offering Circular, the Administration Agreement dated 19 December 2000, the Trust 

Agreement dated 22 December 2000, the Pledge Agreement dated 22 December 2000, the 

Account Pledge Agreement dated 22 December 2000, the Agency Agreement dated 

19 December 2000 and the Custody Agreement dated 22 December 2000; 

(iv) the latest Investor Report; 

(v) the documents incorporated by reference herein (see "DOCUMENTS INCORPORATED BY 

REFERENCE"); 

(vi) all future annual financial statements of the Issuer; and 

(vii) all notices given to the Noteholders pursuant to Condition 14 of the Terms and Conditions of the 

Notes. 

Legend on the Notes

The Notes will bear a legend to the following effect: "Any United States person who holds this 

obligation will be subject to limitations under the United States income tax laws, including the 

limitations provided in Sections 165(j) and 1287(a) of the Internal Revenue Code." The sections 

referred to in such legend provide that a United States person who holds a Note will generally not be 

allowed to deduct any loss realised on the sale, exchange or redemption of such Note and any gain (which 

might otherwise be characterised as capital gain) recognised on such sale, exchange or redemption will be 

treated as ordinary income. 

KPMG, chartered accountants, have given and not withdrawn their consent to the inclusion of their report 

relating to the Issuer in the form and context in which it is included in the Accountant’s Report in the 

section entitled "THE ISSUER". 

180

REGISTERED AND PRINCIPAL OFFICE OF THE ISSUER 


Dublin 2 

Ireland 

TRUSTEE 

KPMG Deutsche Treuhand-Gesellschaft 

Aktiengesellschaft Wirtschaftsprüfungsgesellschaft 

Marie-Curie Str, 30 

60439 Frankfurt am Main 

Germany 

PRINCIPAL PAYING AGENT 

Deutsche Bank Aktiengesellschaft 

Grosse Gallusstrasse 10-14 

D-60272 Frankfurt am Main 

Germany 

LUXEMBOURG LISTING AGENT, PAYING AGENT AND TRUSTEE CUSTODIAN 

Deutsche Bank Luxembourg S.A. 

2 Boulevard Konrad Adenauer 

L-1115 Luxembourg 

SERVICER AND CUSTODIAN ADMINISTRATOR 

Bayerische Hypo-und Vereinsbank AG 

Arabellastrasse 12 

D-81925 Munich 

George’s Dock House 

Germany International Financial Services Centre 

CORPORATE SERVICES PROVIDER 

Matsack Trust Limited 


Dublin 2 

Ireland 

181 

Deutsche International Corporate Services (Ireland) 

Limited 

Dublin 1 

Ireland

LEGAL ADVISORS TO THE MANAGER 

as to German law as to English law 

Clifford Chance Pünder Clifford Chance Limited Liability Partnership 

Partnerschaftsgesellschaft 200 Aldersgate Street 

Oberlindau 54-56 London EC1A 4JJ 

60323 Frankfurt am Main England 

Germany 

Promise 2000-1$$01m0-38.doc 

LEGAL ADVISERS TO THE ISSUER 

as to Irish law 

Matheson Ormsby Prentice 


Dublin 2 

Ireland 

182

PROMISE-A-2000-1 plc - KfW

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