Item 1.  Please refer to Section 7, particularly 7(b), of the ISDA form regarding transfer of receivables and the following setoff language from our schedule.

(g)	Setoff.  (A) Upon the designation or deemed designation of an Early Termination Date the Non-defaulting Party or the non-Affected Party (in either case, "X") may, at its option and in its discretion, setoff, against any amounts Owed to the Defaulting Party or Affected Party (in either case, "Y") in Dollars or any other currency by X or any Affiliate of X under this Agreement or under any other agreement(s), instrument(s) or undertaking(s), any amounts Owed in Dollars or any other currency by Y to X or any of X's Affiliates (irrespective of place of payment or booking office of the obligation) under this Agreement or under any other agreement(s), instrument(s) or undertaking(s).  The obligations of Y and X under this Agreement in respect 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 notice 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 of whether such amounts have been or could be invoiced) as of the Early Termination Date.
Amounts subject to the setoff permitted in this Section may be converted by X into any currency in which any obligation Owed is denominated at the rate of exchange at which X, acting in a reasonable manner and in good faith, would be able to purchase the relevant amount of the currency being converted.  If an obligation is unascertained, X may in good faith estimate that obligation and setoff in respect of the estimate, subject to the relevant party accounting to the other when the obligation is ascertained.  Nothing in this Section shall be effective to create a charge or other security interest except as may be provided under applicable law.  This setoff provision shall be without limitation and in addition to any right of setoff, netting, offset, combination of accounts, counterclaim, lien or other right to which X or any of X's Affiliates is at any time otherwise entitled (whether by operation of law, contract or otherwise).  Each of the parties represents and acknowledges that the rights set forth in this Section are an integral part of this Agreement between the parties and that without such rights the parties would not be willing to enter into Transactions.  Each of the parties further acknowledges that it is executing this Agreement on behalf of itself as principal and, with respect to this Section, as agent on behalf of its Affiliates, which Affiliates shall receive the benefits of this Section and otherwise be bound as if such Affiliates had directly signed this Agreement as it relates to this Section.
(B) Notwithstanding any provision to the contrary contained in this Agreement, the Non-defaulting Party or non-Affected Party, as the case may be, shall not be required to pay to the Defaulting Party or Affected Party any amount under Section 6(e) until the Non-defaulting Party or non-Affected Party receives confirmation satisfactory to it in its reasonable discretion (which may include an opinion of its counsel) that all other obligations of any kind whatsoever (whether pursuant to Specified Indebtedness as defined herein or otherwise) of the Defaulting Party or Affected Party to make any payments to the Non-defaulting Party or non-Affected Party or any of its Affiliates under this Agreement or under any other agreement(s), instrument(s) or undertaking(s), which are Owed as of the Early Termination Date hereof have been fully and finally satisfied.

The following are three areas of questions.

A.  Should a Counterparty effect an assignment of receivables under Section 7(b) for a financing to Bank, what is Enron's "priority" position (assuming Bank has filed a financing statement)?  Is the analysis below correct?

1.  Bank takes receivable assignment under contract subject to Enron setoff rights because Bank would be held to actual knowledge of the express setoff right in the contract under which it is taking the receivables. 

2.  Is there any method by which the Bank can prime Enron (assuming Enron has made no public filings) without Enron's written consent?
 
B.  Assume a master netting agreement is in place.  I believe our assignment provisions protect us and are more prohibitive than the ISDA; however, we may want to expressly cite assignment of receivables rather than the master agreement and transactions "as security".  Please review and advise of any particular language you think should be added.  

C.  Do you have any suggested language that we might add to the form 7(b) provision via our schedule, or is it necessary?   For example, adding at the end of 7(b), ";provided, any such assignment shall be made expressly subject [and subordinate] to this Agreement, including, without limitation, all rights of [ENA] under Section 6 and [reference setoff section]."

Item 2.  Can I get any other comments on the revised draft of master netting agreement?

Cordially,
Mary Cook
Enron North America Corp.
1400 Smith, 38th Floor, Legal
Houston, Texas 77002-7361
(713) 345-7732
(713) 646-3393 (fax)
mary.cook@enron.com