Japanese ISDA Documents

Dear John:

So sorry for the delay. I hope it hasn't caused too much inconvenience. I
would have called to apologize in person but believe it or not I don't have
your phone number! Here are my comments to the draft documents you sent:

Part 1 (b) In our other derivatives trading, the cross default test applies
to Enron Corp. with a Threshold of US$100,000,000. To accomplish this in the
schedule, Threshold Amount for the Enron party would apply to our Credit
Support Provider if there is going to be an Enron Corp. guaranty and the
dollar figure adjusted accordingly.

Part 1 (d) Has Baker & McKenzie recommended this? We rely on local counsel
advice for this provision but our preference is that the termination in a
bankruptcy context not be automatic unless it needs to be. The risk in the
automatic situation is that the market moves significantly before we are even
aware of the situation, i.e. the outstanding transactions terminate
automatically, leaving us with an open, unhedged position which we are not
able to protect since we are not aware of it. In the U.S. the bankruptcy
code allows us to terminate after the filing of a bankruptcy according to the
terms of the agreement so we know exactly the time to rehedge.

Part 1 (e) We usually choose Loss here as the method which gives the
non-defaulting party the most flexibility. Market Quotation is often
suggested because of its apparent objective nature. However, in many of the
markets where we operate, quotations will not be available, where they are
available they may well not be meaningful, and the Loss method gives
flexibility (while still requiring commercial reasonableness).

Part 1 (h)(ix) This Additional Event of Default only applies when there is
no collateral annex. When we have the ability to ask for (or be asked for)
collateral in the case of a downgrading, we build that event into the
Paragraph 13 to trigger a reduction of the threshold to zero which requires
the posting of collateral to cover any open position. If the party fails, it
then becomes a default allowing termination.

Part 1 (h)(x) Wouldn't the cross default be triggered before this could
happen?

Part 2 Have our internal Tax people approved this?

Part 3 I am not familiar with the Representative Director concept or some of
the corporate documents referred to. Since Enron Corp. will be a Credit
Support Provider, does it have a Representative Director, etc.?

The legal opinion requirement is one that we can waive if local counsel does
not think it necessary. In many non-US jurisdictions, local counsel have
advised that an opinion be obtained - in some cases derivatives transactions
are so uncommon that they might be outside the ordinary course of business
and therefore require special board approval; in others, derivatives would
not be permissible activities for a company unless express provision is made
in the corporate documents, etc.

Part 5 (b) (g)&(h) These representations originate with CFTC rules in mind
(although they may be helpful for other reasons as well). If neither party
is in the US, the CFTC reason may go away. On the other hand, since we are
choosing New York law to apply the argument might be made that US federal law
applies as well. If that is our theory, there are additional representations
(the Eligible Swap Participant reps) that we should think about putting back
in.

Part 5 (d) We are currently evaluating whether we should revise this section
to make reference to the ISDA 2000 definitions. While I think we will get
there, we haven't actually made the decision yet. So far I guess we leave it
the way it is.

Part 5 (j) My only concern here is with the value of the Enron Corp.
guaranty as a form for a guaranty from a Japanese entity. Any differences in
Japan from US practice we should be worried about?

Paragraph 13 I have to admit I'm not as familiar with the Paragraph 13
provisions as the Schedule. My only concern here is with the MAC clause and
it looks like there's a glitch in the form. It seems to me that if the
counterparty is only rated by one of the 2 major agencies we shouldn't be
pegged with a MAC if only one of our agencies stops rating us. The way it is
drafted now if either S&P or Moody's stops rating us, even if the remaining
rating is very high we will have a MAC occur. The counterparty doesn't have
to worry about Moody's at all. Just a thought.

On the guaranty, you will need to run the choice of law and jurisdiction
changes past Clement Abrams at Corp. Legal. My only comment is that we would
usually have a cap that is a bit higher (in this case maybe an extra
$5,000,000) than the threshold in the CSA - that gives the counterparty a
little wiggle room if we fail to post collateral after the threshold is
exceeded.

Tana is preparing a red-line for me that hopefully will show all of the
changes between the US form and the Japan form. I may have a few more
comments after I see how that comes out but don't expect many.

I hope this is helpful. Please feel free to call and we can walk through
these over the phone if that would be useful. We should also talk about the
most efficient way to prepare these going forward. It might make sense for
Credit to send their worksheets to the paralegals here for a first draft
which would then go to you for review before going to the counterparty. It
may slow things down by a day or two but it would free you up to work on
other things.

We're looking forward to having you back.