Elizabeth, please call me to let me know how you want to proceed on this.

I reviewed with Mary last week the set-of language for the trading forms in light of Robert Anderson's review and suggested revisions.  Mary had reviewed the language with your outside counsel and for reasons, most of which I did not necessarily follow to be honest, they were not agreeable to Robert's suggested revisions (other than the "without limitation" language (which I note has now been inserted only in part, and therefore may still problematic, in that it refers to being without limitation to either party's rights, which would include the defaulting party's right to object to the enforceability of the entire set-off provision or to assert some alternate form of set-off arrangement)).  I agreed with Mary that I would again review that matter with Robert.

I have again reviewed the matter with Robert, and he remains concerned with the language as is, since the triangular set-off as proposed without also dealing with the issue of mutuality, which is fundamental to the concept of set-off, results in a contractual agreement (assuming that we get past the privity and consideration issues), to call something "set-off" that fundamentally is not set-off.  Robert's concern is that if the issue of mutuality is not addressed the current language could be viewed by a court not as set-off but as an assignment of a third obligation as security, that may be unenforceable for various reasons, including non-perfection.

Robert also makes the following points:

1.  His suggested revisions already are a compromise from what he believes would be required in a more detailed provision addressing these complex issues;

2.  To the extent that we introduce triangular set-off that may not ultimately be enforceable, we are running the risk of the entire clause not be allowed by the courts, and therefore having no right to set-off;

3.  As drafting points, the "without limitation" language still provides the defaulting party with an argument to avoid the entire arrangement, and there is no specified date for the currency conversion;

4.  In terms of the issue of consideration, it is an issue of contract formation, which is fundamental to a contractual right of set-off;

5.  In terms of when the mutuality of the obligations arises, he is agrees that it would be best that it arise form inception, but he thought that would be difficult to sell commercially, and therefore setled on default but prior to elected termination.

In short, Robert's point is that even with his revisions he would have concerns, but without his revisions he has serious concerns around enforceability, and it is difficult for me to simply ignore his advice given both his reasoning and my experience with Robert's advice.

In terms of where to go, I think there are the following solutions:

1.  We can see this as a Canadian issue, and therefore incorporate Robert's changes in the Canadian forms only - physical and financial;

2.  We can have Robert speak to your outside counsel and see if they can't come to some common ground on more universal language;

3.  We can leave the matter as is for all forms.

(I am more comfortable with 1 than 3.)

Why don't you give me a call.  I am sure we all want to move past this and, ackowledginging the risks, simply need to agree on a definitive approach.

Peter.
____________________________________
Peter C.M. Keohane
Vice President, Assistant General Counsel
and Secretary
Enron Canada Corp.
Phone:	(403) 974-6923
Fax:	(403) 974-6707
E-mail:	peter.keohane@enron.com