KCS and other Bankrupt Counterparties

Rod:
Fred has requested that we send him a draft ISDA with a zero threshold for an
affiliate of KCS Energy. He also requested that we amend the setoff language
in the KCS ISDA Master to include this affiliate and KCS Resources. As you
know, Lisa has been working with KCS' counsel to come up with a pleading that
would be approved by the bankruptcy judge in the KCS Energy bankruptcy matter
that would give us the protection that we need to do short term trades with
KCS while they are in bankruptcy. KCS' counsel has been very slow to respond
and it wasn't until late last week that we received from feedback from them
which Lisa will be reviewing. We are perplexed by Fred's latest request and
want to know what we should be doing in response to his request. As you
know, amending the setoff language to include affiliates is not the same as
entering into a "master netting agreement" with KCS or their affiliates.

We have also received a request from Susan Wood in risk management who was
interested in finding out more about trading with "bankrupt" counterparties.
She said that she was working with Fred on this. Again, is this something
that credit intends to pursue and if so, under what circumstances?

Both of the above matters will involve a considerable amount of time and
effort on legals part and before we spent alot of time on it, we wanted some
indication from credit that these matters were worth pursuing.

Carol