RE: Mandatory Setoff Language for Inclusion in all EWS Trading ,
 Hi Limor

The reason why we have not at this time proposed to include Affiliates of t=
he DP in setoff rights (i.e. changing the setoff from a triangular version =
to square) is due to enforceability concerns absent securing the written ag=
reement of all parties involved.  We are, however, on a cp by cp basis, sta=
rting to pursue master netting agreements which would tie all masters toget=
her and permit setoff on a square basis.  This undertaking requires a fairl=
y extensive due diligence review. =20

Hope this explanation helps.  Call if you want to discuss further.


Elizabeth Sager
713-853-6349

 -----Original Message-----
From: =09Nissan, Limor =20
Sent:=09Tuesday, August 21, 2001 12:34 PM
To:=09Sager, Elizabeth
Subject:=09FW: Mandatory Setoff Language for Inclusion in all EWS Trading C=
ontracts

Hi Elizabeth,

One question on the policy.  Why aren't we doing setoffs against amounts du=
e to/from affiliates of the Defaulting Party?

Thanks,

Limor



Enron Global Markets
520 Madison Avenue
New York, NY 10022
Tel: 212.715.5283
Fax: 212.715.5608
E-Mail: Limor.Nissan@Enron.com

 -----Original Message-----
From: =09Elbertson, Janette   On Behalf Of Haedicke, Mark E.
Sent:=09Thursday, July 12, 2001 10:58 AM
To:=09Evans, Mark (London Legal); Boyd, Justin; Simons, Paul; Von Bock Und =
Polach, Marcus; Aronowitz, Alan; Bishop, Larry; Blaine, Michelle; Boyd, Jus=
tin; Brownfeld, Gail; Bruce, Robert; Bushman, Teresa G.; Calo, Andrea; Caro=
lan, Dominic; Cash, Michelle; Clark, Barton; Collins Jr., Harry M.; Cook, M=
ary; Corbet, Nancy; Crady, Ned E.; Daniels, Eddy; Davis, Angela; Del vecchi=
o, Peter; Dickson, Stacy E.; Dieball, Scott; Edison, Andrew; Engeldorf, Ros=
eann; Evans, Mark; Gaffney, Chris; George, Robert H.; Gray, Barbara N.; Gre=
enberg, Mark; Gresham, Wayne; Hall, Steve C.; Hansen, Leslie; Hendry, Brent=
; Hodge, Jeffrey T.; Johnston, Greg; Jones, Karen E.; Keohane, Peter; Koehl=
er, Anne C.; Lee, Matthias; Leite, Francisco Pinto; Lindeman, Cheryl; Lunds=
trom, Bruce; Lyons, Dan; Mann, Kay; McBride, Jane; McCarrel, Steven; McCull=
ough, Travis; Mellencamp, Lisa; Minns, David; Moore, Janet H.; Murphy, Harl=
an; Murray, Julia; Nelson, Cheryl; Nemec, Gerald; Nettelton, Marcus; Nissan=
, Limor; Novak, John; Pais, Randy; Portz, David; Powell, Mark; Rasmussen, D=
ale; Rivera, Coralina; Robison, Michael A.; Rogers, Daniel R.; Rosell, Mart=
in; Sager, Elizabeth; Sanders, Richard B.; Sayre, Frank; Schuler, Lance; Sc=
hwartzenburg, John; Shackleton, Sara; Sharp, Vicki; Simons, Paul; Sole III,=
 Carlos; St. Clair, Carol; Stoler, Lou; Taylor, Mark A; Tweed, Sheila; Van =
Hooser, Steve; Viverito, John; Von Bock Und Polach, Marcus; Yoder, Christia=
n
Subject:=09Mandatory Setoff Language for Inclusion in all EWS Trading Contr=
acts


One of the most important credit tools available to help Enron Wholesale Se=
rvices (EWS) manage counterparty credit risk is setoff rights.  This is par=
ticularly true as our trading business is expanding to include numerous com=
modity lines, including gas, power, coal, steel, pulp and paper, each of wh=
ich may be traded under different masters with a single counterparty.  This=
 complexity is further increased as a result of EWS using multiple affiliat=
ed entities to trade the various commodities.  Absent express contractual s=
etoff rights, EWS may be unable to setoff exposures under different master =
contracts.

=09A team of EWS lawyers has been working to assemble setoff language that =
will substantially enhance EWS's credit position with counterparties with w=
hom we trade multiple commodities.  This setoff language, which is set fort=
h below, must be in all EWS trading form contracts.  Similarly, when negoti=
ating on third party paper, we should request that this additional setoff l=
anguage be added.


MANDATORY SETOFF LANGUAGE FOR=20
EWS TRADING CONTRACTS

=09(A) Upon the designation or deemed designation of an Early Termination D=
ate, the Non-Defaulting Party ("X") may, at its option and in its discretio=
n, setoff, against any amounts Owed to the Defaulting Party ("Y") by X or a=
ny Affiliate of X under this Agreement or under any other agreement(s), ins=
trument(s) or undertaking(s), any amounts Owed by Y to X or any of X's Affi=
liates under this Agreement or under any other agreement(s), instrument(s) =
or undertaking(s).  The obligations of Y and X under this Agreement in resp=
ect of such amounts shall be deemed satisfied and discharged to the extent =
of any such setoff exercised by X and/or X's Affiliates.  X will give Y not=
ice of any setoff effected under this section as soon as practicable after =
the setoff is effected provided that failure to give such notice shall not =
affect the validity of the setoff.  For purposes of this Section __, "Owed"=
 shall mean any amounts owed or otherwise accrued and payable (regardless o=
f whether such amounts have been or could be invoiced) as of the Early Term=
ination Date.  =09

=09Amounts subject to the setoff permitted in this Section __ may be conver=
ted by X into any currency in which any obligation Owed is denominated at t=
he rate of exchange at which X, acting in a reasonable manner and in good f=
aith, would be able to purchase the relevant amount of the currency being c=
onverted. If an obligation is unascertained, X may in good faith estimate t=
hat obligation and setoff in respect of the estimate, subject to the releva=
nt party accounting to the other when the obligation is ascertained.  Nothi=
ng in this Section __shall be effective to create a charge or other securit=
y interest except as may be provided under applicable law.   This setoff pr=
ovision shall be without prejudice and in addition to any right of setoff, =
netting, off-set, combination of accounts, counterclaim, lien or other righ=
t to which any party is at any time otherwise entitled (whether by operatio=
n of law, contract or otherwise).  Each of the parties represent and acknow=
ledge that the rights set forth in this Section __ are an integral part of =
the agreement between the parties and that without such rights the parties =
would not be willing to enter into Transactions.  The parties further ackno=
wledge that each is executing this Agreement on behalf of itself as princip=
al and, with respect to this Section ___, as agent on behalf of its Affilia=
tes, which Affiliates shall receive the benefits of this Section __ and oth=
erwise be bound as if such Affiliates had directly signed this Agreement as=
 it relates to Section ___.

=09(B) Notwithstanding any provision to the contrary contained in this Agre=
ement, the Non-Defaulting Party shall not be required to pay to the Default=
ing Party any amount under Section __ until the Non-Defaulting Party receiv=
es confirmation satisfactory to it in its reasonable discretion (which may =
include an opinion of its counsel) that all other obligations of any kind w=
hatsoever of the Defaulting Party to make any payments to the Non-Defaultin=
g Party or any of its Affiliates under this Agreement or under any other ag=
reement(s), instrument(s) or undertaking(s), which are Owed as of the Early=
 Termination Date have been fully and finally satisfied.

=09This new setoff language will provide EWS the right to setoff amounts du=
e and owing as of the Early Termination Date (but does not include future p=
ayments) between the counterparty and EWS and its affiliates (triangular se=
toff) after the designation of an Early Termination Date.  This language ha=
s been reviewed by U.S. bankruptcy counsel, and is appropriate under U.S. l=
aws for commodity transactions with U.S.-based counterparties.  Each group =
will need to review this language with their local counsel in each jurisdic=
tion in which EWS trades in order to ensure enforceability.   In addition, =
prior to introducing this language into your forms, changes will be require=
d to terminology and/or to include terminations resulting from events other=
 than Events of Default (e.g. "Affected Party" under ISDA).  Finally, when =
incorporating this setoff language into the EWS trading forms, please be aw=
are that this language is not intended to override the payment netting term=
s (monthly netting of receivables) or the close-out netting procedures (app=
licable upon the designation of an Event of Default), both of which should =
remain in the trading forms.  Rather, this language is only intended to add=
 setoff rights to all EWS trading forms.  When incorporating this setoff la=
nguage into your trading forms, you will need to review the forms to determ=
ine if there are any references to setoff or other similar concepts that wi=
ll need to be overridden and/or coordinated.  Finally, in order to assist a=
ll lawyers in negotiating these setoff provisions, we are in the process of=
 preparing a brief explanation of how this setoff works and why it is mutua=
lly beneficial to EWS and our counterparties, which explanation you will be=
 able to share with your counterparties. This explanation will be distribut=
ed shortly.

=09If you have any questions, please contact me at 713-853-6544 or Elizabet=
h Sager at 713-853-6349.
limor.nissan@enron.com