Credit GTC

All,

I have looked over the U.S. credit GTC and the long descriptions. I see we
have decided to go with quarterly billing, rather than monthly. Will the
payment/collections cycle cause any heartburn for the back office?

I didn't spot any problems with the long descriptions.

A few relatively minor comments on the GTC's - which you may or may not want
to consider:

- Clause 2.(e) (i) (1) - Does this clause preclude us from doing business
with banks or other financial institutions? Could we append: "with regard to
the Transaction"?

- What happens if a Rep or Warranty is broken? Does that constitute
sufficient breach to terminate the contract? I'm thinking specifically about
sleeving, which is perhaps covered by Clause 2(e)(ii)(1)? I still think that
sleeving is one of the most significant commercial risks faced by online
trading of derivatives. If I were working for a third party, I'd immediately
look for ways to set up a sleeving service to sell credit protection to the
Reference Entities where the Reference Entity or its affiliate views its own
risk differently from Enron. If I were the Reference Entity in question, I'd
consider:
a) Buying a load of protection via sleeving and then declaring bankruptcy -
then do a Phoenix (in the UK at least)
b) Buy a load of protection via sleeving, then take the Credit Derivatives
to another third party financial institution and using the credit derivatives
as collateral to increase my line of credit - I'm no expert, but I suspect
there might be an interesting leverage effect here, which might actually
cause a significant increase in Enron's risk exposure.
c) Like (b), only the financial institution could buy the credit derivative
with or without the need for sleeving - we probably need a restriction on
this? (I know financial institutions are not our preferred counterparts up
front, but if I were a financial insitution, I'd quickly find a way around
this limitation - Affiliates or Sleevers.

- Do you think it would beneficial to strengthen our protection against
sleeving by adding something to Clause 2, like: "It is not entering into a
Transaction for the purpose of concluding a similar transaction with the
party (or any Affiliate of such party) which is the Reference Entity in the
Transaction".

- Should Def'n of "Contract Currency" be "Contractual Currency"?
("Contractual" is also used in the Long Descriptions)

- Def'n of "Credit Product" - after "Entity", should we insert "which is"?

- Are we being a bit too nasty by defining the Determination Agent as
"Enron"? As the reference to Determination Agent in the contract is in a
context similar to that of an arbitrator, it seems a bit cheeky to then
define ourselves as the arbitrator - would this be enforceable if we were in
court?

I'm assuming the other GTC's are very similar to the U.S. one and I have not
read them.

Dave