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Content-Type: text/plain; charset=ANSI_X3.4-1968 Content-Transfer-Encoding: quoted-printable X-From: Mark Evans X-To: Mark E Haedicke X-cc: X-bcc: X-Folder: \Mark_Haedicke_Jun2001\Notes Folders\All documents X-Origin: Haedicke-M X-FileName: mhaedic.nsf Mark - for your info. Mark ---------------------- Forwarded by Mark Evans/Legal/LON/ECT on 06/03/2001= =20 18:20 --------------------------- Mark Evans 06/03/2001 18:15 To: Ann Ballard/enron@enronxgate, Lance Schuler-Legal/HOU/ECT@ECT, Donna=20 Lowry/Enron@EnronXGate cc: Jonathan Marsh/EU/Enron@Enron, Mahesh Lakhani/LON/ECT@ECT=20 Subject: Re: Equity Stake in British Energy (STRICTLY PRIVATE AND=20 CONFIDENTIAL) Ann, Lance, the possibility of Enron Europe shorting the stock of British Energy (BE), = a=20 UK listed company has raised its head again and I would be grateful for you= r=20 assistance (or for the assistance of someone in your teams) in analysing th= e=20 US consequences. I attach for your information an exchange of emails which took place in=20 October last year when we last discussed this. The largest trade we would execute would be to short up to 5% of the capita= l=20 of BE, which is currently worth approx UKo50m. I believe that Enron=20 Investment Services Limited (as agent for ECT Investments Inc. - the=20 principal in the transaction) would execute the trade through third party= =20 brokers in the UK.=20 A number of issues cropped up last time and I presume the position is not= =20 changed as a result of our transaction being being a short sale rather than= a=20 purchase. The issues were: 1. Hart Scott Rodino: could you please let us know how HSR impacts the sal= e,=20 whether filings are required which mean the transaction has to be delayed,= =20 and what further information you need to be able firm up on your analysis.= =20 2. PUHCA: same as for HSR. 3. Restricted List: hopefully Donna will be able to confirm that BE is not = on=20 the restricted list, but I have not seen the list for some time.=20 4. Enron Corp Personal Trading Rules: Richard Lewis is the originator of th= e=20 idea for the trade in the UK and he expects to have a say in when it is=20 liquidated, so it might be said that he has a degree of "responsibility" fo= r=20 the trade although it would be executed through John Greene's team. Richard= =20 and his team are responsible for UK Power and Gas and Continental Gas at=20 Enron Europe. They do not on a day to day basis have responsibility for=20 equity trading within Enron Europe. My reading of the latest version of the= =20 Personal Trading Rules which I received:=20 "Employee Trading. No employee of any Enron Business Unit may engage in th= e=20 trading of any Position for the benefit of any party other than an Enron=20 Business Unit (whether for their own account or for the account of any thir= d=20 party) where such Position relates to (i) any financial instrument,=20 security, financial asset or liability which falls within such employee=01,= s=20 responsibility at an Enron Business Unit, or (ii) any other commodity not= =20 covered by (i) included in any Commodity Group". =20 ...is that this trade should not result in Richard or any of his team losin= g=20 the ability as a result of the above rule to trade generally in equities fo= r=20 their own account. Do you agree? Is there any mechanic for getting a=20 clearance on that front?=20 5. Insider Trading: two UK issues here which we are getting to the bottom o= f.=20 Firstly, Richard and/or members of his team with knowledge of this potentia= l=20 trade may have already shorted BE in their own names. If done in anticipati= on=20 of a future large short trade by Enron Europe, Enron Europe's trade could= =20 make them insiders and their trades criminal offences. Secondly we need to = be=20 clear that the information which is driving Enron Europe (through ECT=20 Investments Inc) to execute the trade is public information and not insider= =20 information: eg information obtained through a one on one trading=20 relationship with BE. Breach of these rules, or even the appearance of brea= ch=20 of these rules, could breach the rules of the SFA, our UK regulator. I presume there are similar issues in the US.=20 I will call you both this evening to discuss this if I may. It would be ver= y=20 useful if a Houston lawyer could be nominated to assist us on this and to= =20 coordinate input from the (inevitable) various sources .=20 Many thanks in advance. Mark ---------------------- Forwarded by Mark Evans/Legal/LON/ECT on 06/03/2001= =20 17:40 --------------------------- Paul Simons 06/10/2000 16:01 To: Ann Ballard/Corp/Enron@ENRON cc: Michael Mills/LON/ECT@ECT (bcc: Mark Evans/Legal/LON/ECT) Subject: Re: Equity Stake in British Energy (Confidential) =20 Ann We would like to kick off the filing under the HRS Act - if only to be able= =20 to move forward quickly if we decide to do so. Seeking guidance from outsid= e=20 counsel may be a waste of time in light of the clear advice you received=20 recently from V&E. But we'll be guided by you if you think otherwise. Michael Mills - who is the commercial person leading this in London - woul= d=20 first like to understand at what point the filing fee becomes irrecoverable= =20 (this may be day 1!). Please provide any info on this and Michael will then decide whether to kic= k=20 off the filing (which, if I've understood correctly, will not take more tha= nm=20 20 days - please confirm). Please liaise with Michael directly since I'm out Monday and we may well wa= nt=20 to begin this process then. Many thanks for your help Paul From: Lance Schuler-Legal on 06/10/2000 08:17 CDT To: Paul Simons/LON/ECT@ECT cc: Ann Ballard/Corp/Enron@ENRON=20 Subject: Re: Equity Stake in British Energy (Confidential) =20 I assume that we still do not have material, inside information for US=20 securities laws purposes. I think the Chinese Walls issue we have resolved= . =20 As for HSR, it is applicable to foreign investments if the target meets=20 certain revenue requirements from the US. You may want to followup on this= =20 point from Ann. Good luck. Lance. W. Lance Schuler Enron North America Corp. 1400 Smith Street, EB 3826 Houston, Texas 77002 Phone: 713/853-5419 Fax: 713/646-3393 Email: lance.schuler-legal@enron.com =09Paul Simons =0910/06/2000 05:40 AM =09=09 =09=09 To: Mahesh Lakhani/LON/ECT@ECT =09=09 cc: Donna Lowry/HOU/ECT@ECT, Ann Ballard/Corp/Enron@ENRON, Lance=20 Schuler-Legal/HOU/ECT@ECT, Mark E Haedicke/HOU/ECT@ECT, Mark=20 Evans/Legal/LON/ECT@ECT, Richard Lewis/LON/ECT@ECT, Sheila Tweed/HOU/ECT@EC= T,=20 Erica Gut/LON/ECT@ECT, Stephen Dwyer/LON/ECT@ECT, Janine Juggins/LON/ECT@EC= T =09=09 Subject: Re: Equity Stake in British Energy (Confidential) Ann/Donna/Lance If BE or other equity trades are executed by a UK trader are the US issues = we=20 have been discussing still relevant if the trades are booked in our US=20 entity?=20 Do you need to see the agency agreement Mahesh refers to below? Thanks Paul Mahesh Lakhani 06/10/2000 09:51 To: Paul Simons/LON/ECT@ECT cc: Donna Lowry/HOU/ECT@ECT, Ann Ballard/Corp/Enron@ENRON, Lance=20 Schuler-Legal/HOU/ECT@ECT, Mark E Haedicke/HOU/ECT@ECT, Mark=20 Evans/Legal/LON/ECT@ECT, Richard Lewis/LON/ECT@ECT, Sheila Tweed/HOU/ECT@EC= T,=20 Erica Gut/LON/ECT@ECT, Stephen Dwyer/LON/ECT@ECT, Janine Juggins/LON/ECT=20 Subject: Re: Equity Stake in British Energy (Confidential) =20 As I mentioned at the meeting on Wednesday, we should use the structure tha= t=20 we are setting up for John Greene's European equity trading activities. =20 Enron Investment Services Ltd (the UK agent) is now set up and the agency= =20 agreement with ECT Investment Inc has been drafted and is being circulated= =20 for comments. The securities would be held in ECT Investment Inc as agent= =20 with Enron Investment Services Ltd acting as its agnet.. Mahesh Paul Simons 05/10/2000 19:19 To: Donna Lowry/HOU/ECT@ECT cc: Ann Ballard/Corp/Enron@ENRON, Lance Schuler-Legal/HOU/ECT@ECT, Mark E= =20 Haedicke/HOU/ECT@ECT, Mark Evans/Legal/LON/ECT@ECT, Richard=20 Lewis/LON/ECT@ECT, Sheila Tweed/HOU/ECT@ECT, Erica Gut/LON/ECT@ECT, Mahesh= =20 Lakhani/LON/ECT@ECT=20 Subject: Re: Equity Stake in British Energy (Confidential) =20 Thanks, Donna - This is very helpful. My guess is that the securities will= =20 be held by the normal US entity - ECT Investments Inc - while we continue t= o=20 "set up shop" in London. UK Tax may wish to consider this. Thanks Paul To: Paul Simons/LON/ECT@ECT cc: Ann Ballard/Corp/Enron@ENRON, Lance Schuler-Legal/HOU/ECT@ECT, Mark E= =20 Haedicke/HOU/ECT@ECT, Mark Evans/Legal/LON/ECT@ECT, Richard=20 Lewis/LON/ECT@ECT, Sheila Tweed/HOU/ECT@ECT=20 Subject: Re: Equity Stake in British Energy (Confidential) =20 =09 Paul, As a follow up to the Chinese Wall issues, I have verified that Gary= =20 Hickerson does not currently have a position in British Energy (as of=20 10/3/00). After discussion with Lance, we have determined that it will be= =20 acceptable for the commercial team to have direct contact with Gary providi= ng=20 direction for Gary's group to purchase shares for the London group, assumin= g=20 London is not in possession of material non-public information. We will NO= T=20 be putting British Energy on the Private Restricted List for Gary, thus=20 allowing him to freely trade if he so chooses. Please let me know if this= =20 will be problematic. From an operational standpoint, EEL does not have an existing account with= =20 Morgan Stanley, the broker dealer that Gary's group executes trades through= ,=20 so it appears that one will have to be established if the securities are=20 going to be purchased in EEL's name. Is there currently any thought on whi= ch=20 entity will actually own the shares? Donna Ann Ballard@ENRON 10/05/2000 11:26 AM To:=20 cc: Donna Lowry/HOU/ECT@ECT,=20 Subject: Re: Equity Stake in British Energy (Confidential) =20 I am not at all sure that Enron could rely on the "Solely for Investment=20 Purposes" exemption of Section 802.9 of the Rules promulgated under the=20 Hart-Scott-Rodino Anti-trust Improvements Act. On its face the rule seems = to=20 be applicable if the voting securities are acquired for investment purposes= =20 only and the post-acquisition holdings will be 10% or less, regardless of= =20 dollar value. Section 801.1(i) defines "solely for purpose of investment"= =20 as having no intention of participating in the formulation, determination o= r=20 direction of the basic business decisions of the issuer. Background=20 Information published by the FTC relating to Rule 801.1(i) in the Statement= =20 of Basis and Purpose lists conduct which may be viewed as inconsistent with= =20 an investment purpose. Those include (i) nominating a candidate for the=20 Board of Directors, (ii) proposing corporate action requiring shareholder= =20 approval, (iii) soliciting proxies, (iv) having a controlling shareholder,= =20 director, officer or employee simultaneously serving as an officer or=20 director of the issuer, (v) being a competitor of the issuer, or (vi) doing= =20 any of the foregoing with respect to any entity directly or indirectly=20 controlling the issuer. Although the Statement of Basis and Purpose says= =20 that the presence of any of these factors will be taken into account in=20 determining whether or not an investment purposes exists, I have been advis= ed=20 recently by Neil Imus, a partner in the Anti-trust Section of Vinson &=20 Elkins' Washington Office, that the FTC Staff does not like the Section 802= .9=20 exemption, and will not allow a competitor to rely on the exemption. If an= =20 investment of more than $15 million of voting securities will be made, then= =20 we should consider whether to make further inquiry with the FTC staff or ma= ke=20 a filing under the HSR Act. The filing fee is US$45,000, and the waiting= =20 period would begin upon filing by Enron and expire 20 days later. It is=20 likely that early termination of the waiting period would be granted as I= =20 assume that there would be no substantive anti-trust issues. The penalty fo= r=20 violating the HSR Act is up to $10,000 per day. I would be very interested= =20 if anyone has gotten different advice on this exemption from other counsel.= =20 =09Paul Simons@ECT =0910/05/2000 10:38 AM =09=09=20 =09=09 To: Sheila Tweed/HOU/ECT@ECT, Donna Lowry/HOU/ECT@ECT, Lance=20 Schuler-Legal/HOU/ECT@ECT, Ann Ballard/Corp/Enron@ENRON =09=09 cc: Richard Lewis/LON/ECT@ECT, Mark Evans/Legal/LON/ECT@ECT, Mark E= =20 Haedicke/HOU/ECT@ECT =09=09 Subject: Equity Stake in British Energy (Confidential) We are currently analysing British Energy to ascertain whether or not we wa= nt=20 to take an equity stake in them. Our equity trading capability in London i= s=20 not quite up and running, which means that if a decision is taken to move= =20 forward with this investment, the equity trades would need to be executed b= y=20 traders based in Houston. =20 Lance has kindly provided some useful initial information on this and has= =20 indicated that you may be able to assist further. The issues would seem to= =20 be as follows: 1. Chinese Walls Procedures I understand that your Chinese Walls procedures require all proposed=20 investments of this kind to be routed through Donna Lowry. Donna, on the= =20 assumption that our decision to invest is not based on price-sensitive,=20 non-public information, please let us know what other procedures we need to= =20 follow to satisfy your requirements.=20 2. Hart Scott Redino I gather that these issues will not arise if the stake we are looking to ta= ke=20 is less than $15 million, or less than 15%. We will certainly be taking le= ss=20 than 15% of BE, but it is not clear to me what the size of our investment = is=20 likely to be. (Richard?). Lance, you mentioned that if the shares are being acquired for "investment= =20 purposes only" then we would be exempt from these requirements. Presumably= =20 this is in addition to the size requirements mentioned above. My=20 understanding is that our stake would be purely for investment purposes -= =20 essentially to hedge our trading position should the price of power go up,= =20 and that we are not looking to acquire BE (or a substantial stake in BE)=20 which is in the same sector as Enron. Assuming this is the case (and=20 Richard, please correct me if I'm mistaken), please let me know whether we= =20 need to take this issue further. 3. PUHCA Issues I am not sure what these are (!), but perhaps Sheila could comment on wheth= er=20 any arise on the facts given above. =20 It may also be helpful to note that British Energy is a UK company quoted o= n=20 the London Stock Exchange, but not on any North American Exchange. It does= ,=20 however, have substantial assets in Canada and a 50/50 joint venture with a= =20 US partner which owns Three Mile Island and another generating asset. Plea= se=20 let me know if you require further information. Many thanks. Paul
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