XOM

----- Forwarded by Elizabeth Sager/HOU/ECT on 05/15/2001 05:01 PM -----

=09Janice R Moore 05/04/2001 05:25 PM =09 To: Elizabeth Sager/HOU/ECT@ECT=
cc: John Malowney/Enron@EnronXGate Subject: XOM=09

Alas, no agreement to execute at this point. We have come a long way, howe=
ver, and only 2 serious issues remain open. (All the others are at least m=
ostly 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 requi=
rements imposed on all government contractors. There are 2 categories of r=
equirements: environmental laws compliance and small business participatio=
n in federal govt purchases of goods and services. Since XOM has adoped a =
"General Commercial Plan" to comply with such requirements, XOM has promise=
d 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 ascer=
tain in a review of XOM's compliance. As for Enron, we do engage in busine=
ss w/ the U.S. govt, but we have not adopted a "General Commercial Plan," s=
o we have to address these issues on an ad hoc basis. Taking the last para=
graph of this Supplement as an example (addressing the use of women and min=
ority owned businesses by Enron in supplying services to XOM under this con=
tract), 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 abilit=
y 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 t=
o have her director, Calvin Eakins, phone me to discuss this further, but h=
e 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 5/1/0=
1 draft) to add a final sentence "The Federal Contract Supplement is attach=
ed as Exhibit F and each Party shall comply with such requirements to the e=
xtent appplicable." This certainly takes care of all of XOM's concerns, bu=
t I'm not sure this gets Enron all the way where we need to be. See, for e=
xample, Dave Nutt's markup of the environmental provisions (in the file), a=
nd Cathy Riley says there are no exceptions or exemptions to the small busi=
ness 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 bot=
h parties. XOM insists that this provision must carve out damages resultin=
g 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 (sam=
e draft), the extensive indemnity language which they added in the last rou=
nd 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 exceptio=
ns to the liability of each party (yes, it's mutual) for the gross negligen=
ce of its managers, etc. There's a true story behind all this that dates b=
ack to the EPA emissions requirements on Reformulated Gasoline (RFG). Mobi=
l 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 dolla=
rs 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 c=
ompany. So, it's a deal breaker for XOM b/c they say that if Enron's mana=
gers 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 wit=
h 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 i=
n Art. 7, w/ the following rather narrow change, might work for both partie=
s, but it's up to you, now.
=09UNLESS EXPRESSLY HEREIN PROVIDED, NEITHER PARTY SHALL BE LIABLE FOR CONS=
EQUENTIAL, INCIDENTAL, PUNITIVE, EXEMPLARY OR INDIRECT DAMAGES, LOST PROFIT=
S 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 un=
der Article 10.4(b). =20

Let me know if you have any questions about this. =20
Regards,
Janice

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