XOM

Alas, no agreement to execute at this point. We have come a long way,
however, and only 2 serious issues remain open. (All the others are at least
mostly resolved -- see my 5/1/01 revision w/ marginal notes made during my
5/2/01 meeting w/ them.) This file is in my office with all the others.

XOM requires that all of its contracts contain 2 provisions, both of which
are problematic for Enron.

(1) The Federal Contractor Supplement -- exhibit F to the EEI Master -- is
designed to assure XOM's compliance w/ the U.S. federal government's
requirements imposed on all government contractors. There are 2 categories
of requirements: environmental laws compliance and small business
participation in federal govt purchases of goods and services. Since XOM has
adoped a "General Commercial Plan" to comply with such requirements, XOM has
promised the U.S. govt that ALL its contracts will contain these provisions.
And that's what the auditors from the U.S. government would be looking to
ascertain in a review of XOM's compliance. As for Enron, we do engage in
business w/ the U.S. govt, but we have not adopted a "General Commercial
Plan," so we have to address these issues on an ad hoc basis. Taking the
last paragraph of this Supplement as an example (addressing the use of women
and minority owned businesses by Enron in supplying services to XOM under
this contract), at this point, Enron isn't really prepared to undertake such
things and all those I dealt with on this seem a bit nervous about Enron's
ability to comply. I've communicated w/ Michelle Cash, George Wasaff, and
Cathy Riley (at Calvin Eakins direction) on this topic, and I asked Cathy
Riley to have her director, Calvin Eakins, phone me to discuss this further,
but he did not call. And there does not seem to be a very good solution to
this. XOM has suggested revising the language in Sec. 10.13 (based on my
5/1/01 draft) to add a final sentence "The Federal Contract Supplement is
attached as Exhibit F and each Party shall comply with such requirements to
the extent appplicable." This certainly takes care of all of XOM's concerns,
but I'm not sure this gets Enron all the way where we need to be. See, for
example, Dave Nutt's markup of the environmental provisions (in the file),
and Cathy Riley says there are no exceptions or exemptions to the small
business requirements. We might be able to get some outside expertise on
this or get Sharon Butcher to help resolve it.

(2) Limitation of Damages -- Article 7 waives consequentials, etc. for both
parties. XOM insists that this provision must carve out damages resulting
from the "gross negligence and/or willful misconduct attributable to its
managerial and senior supervisory personnel". You can see the full details
of the provisions they're looking for in the XOM language in sec 10.4 (same
draft), the extensive indemnity language which they added in the last round
and which we generally don't mind giving them. But this impacts Article 7
because the Enron version of the waiver expressly states that the waiver
applies to indemnities, and, of course, XOM will not tolerate any exceptions
to the liability of each party (yes, it's mutual) for the gross negligence of
its managers, etc. There's a true story behind all this that dates back to
the EPA emissions requirements on Reformulated Gasoline (RFG). Mobil hired a
lab to do the testing, the managers of the lab company encouraged the testing
staff to "fudge" the results, tons of RFG hit the market that was not in
compliance, and a huge black mark on Mobil and zillions of dollars lost were
the result. And the contract provided that the lab's damages were limited to
the testing fees, and apparently, that worked for the lab company. So, it's
a deal breaker for XOM b/c they say that if Enron's managers decide to turn
off the lights at all the refineries for some specious reason, they need to
have proper recourse against Enron. I''ve argued with them about this,
based on the nature of this contract, the power trading business, etc. but to
no avail ..... It would seem that Enron's language in Art. 7, w/ the
following rather narrow change, might work for both parties, but it's up to
you, now.
UNLESS EXPRESSLY HEREIN PROVIDED, NEITHER PARTY SHALL BE LIABLE FOR
CONSEQUENTIAL, INCIDENTAL, PUNITIVE, EXEMPLARY OR INDIRECT DAMAGES, LOST
PROFITS OR OTHER BUSINESS INTERRUPTION DAMAGES, BY STATUTE, IN TORT OR
CONTRACT, UNDER ANY INDEMNITY PROVISION OR OTHERWISE provided, however, that
nothing in this Article 7 shall be interpreted to limit either Party's
liability under Article 10.4(b).
Let me know if you have any questions about this.
Regards,
Janice

EB3811
Assistant General Counsel, Enron North America Corp.
713-853-1794 (Fax: 713-646-3490)