as we discussed this is  the proposed solution...i may need you to speak to someone at umbrella..call lance if you have a question

 -----Original Message-----
From: 	Schuler, Lance (Legal)  
Sent:	Wednesday, December 19, 2001 1:23 PM
To:	Muller, Mark S.; Detmering, Tim
Cc:	Golden, Jeff; Daniels, Eddy; Koehler, Anne C.; Cook, Mary
Subject:	Reps/Warranties

As we have discussed, we are not in a position to commit to convey all properties, assets, rights, etc. that are used in Enron's current business of trading physical and financial natural gas and electricity and associated risk management products.  As the document is currently drafted, all items go, unless specifically excluded.  The danger to the estate is that, because the catch-all phrase is so broad, we know now that many items will not be identified, and then cannot be recovered.  The sellers will continue their business, subject to the negotiated noncompete; however, most everything could be deemed to be "used" in the business.  The requested reps/warranties apply not just to the assets they are to receive, but to the business stated above.  So they are, for example, demanding that we identify and list every employment and consulting agreement pursuant to which someone is performing services in the operation of the Business, and each contract with a term of one year or more that has been made in connection with the Business, unless relating solely to identified excluded assets.  These constructs would pick up literally thousands of other contracts - even confidentiality agreements for example.

We propose the following solution:
1.  We have prepared a schedule of specific assets that should be transferred to Netco.
2.  We would give a sufficiency rep to assure the Buyer that the listed assets are all the material assets necessary for Netco to operate a business similar to the Business referenced above. We have communicated to the potential buyer that Netco would need to attain certain assets, and these would be identified in writing in the rep.  For example, certain third-party licenses, and some hardware items.
3.  The rep would have to be tailored to exclude certain items such as office space.
4.  We would give negotiated reps on the specified Assets, and in limited, appropriate circumstances on the Business.  Other than the asset list, we would not list all of any specified requirement, but only necessary exceptions to the reps, as negotiated.
5.  We would give a broad "further assurance" covenant to provide, without further cost to Netco but subject to any required consents, anything that is later identified as being appropriate for their conducting the business.
6.  We view this as an MBO type transaction involving the sale of assets, whereby the people going to Netco know the underlying business best, and can identify specifically the assets that should go, both for the contract to begin with, but also in a very short period of time post-closing (by using the further assurance clause).



W. Lance Schuler
Enron North America Corp.
1400 Smith Street
Houston, Texas  77002
Phone: 713/853-5419
Fax:  281/664-4890
Email:  lance.schuler-legal@enron.com