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[Two Way, Cash and Letters of Credit Form
for use with EEI Masters]

ANNEX A
CREDIT SUPPORT ANNEX
This Credit Support Annex supplements, forms part of, and is incorporated into the Agreement (as defined in that certain Master Agreement to which this Annex is attached) dated ____________, between ________ ("Counterparty") and Enron Power Marketing, Inc. (“EPMI”).  Capitalized terms used in this Annex but not defined herein shall have the meanings given such terms in the Master Agreement.
I.  Definitions.  As used in this Annex:
"Additional Amount" shall mean, with respect to a party, the amount specified as such for that party in each Confirmation, or if no amount is specified, zero.
"Collateral Account" shall have the meaning attributed to it in Section VII(b).
"Collateral Requirement"Credit Rating Event" shall have the meaning attributed to it in Section II(b). VII(b).
"Credit Rating" shall mean, with respect to a party or entity, on any date of determination, the respective rating then assigned to its unsecured and senior long-term debt or deposit obligations (not supported by third party credit enhancement) by S&P, Moody's or the specified rating agency or agencies. [If such ratings are not available, then "Credit Rating" shall mean the S&P corporate bond rating.]
"Current Value" of an outstanding Transaction, on any date, shall mean the amount, as calculated by the Exposed Party in good faith and in a commercially reasonable manner, which a party to the Agreement would pay to or receive from a third party in an arm's-length transaction as consideration for the third party's entering into a new Transaction with such party to the Agreement in which:

(a) the party to the Agreement holds the same position as it currently holds in the outstanding Transaction;

(b) the third party holds the same position as the other party to the Agreement in the outstanding Transaction; and

(c) the new Transaction has economic and other terms and conditions identical in all respects to the terms and conditions of the outstanding Transaction, except that

(i) the date of calculation shall be deemed to be the date of commencement of the new Transaction (or, if later, the date specified as the effective or commencement date of the outstanding Transaction in the related Confirmation), and

(ii) the first Determination Period for the new Transaction shall end on the date that the then-current Determination Period, if any, for the outstanding Transaction would have ended.“Custodian” shall have the meaning attributed to it in Section VII(a).

"Downgraded Party" shall have the meaning attributed to it in Section VII(b).
"Eligible Collateral" -- the following items will qualify as "Eligible Collateral" for the party specified:

		ENA	Counterparty	Valuation Percentage	
(A)	Cash	[X]	[X]	100%	
(B)	Letters of Credit	[X]	[X]	100% [unless either (i) a Letter of Credit Default shall apply with respect to such Letter of Credit, or (ii) twenty (20) or fewer Business Days remain prior to the expiration of such Letter of Credit, in which case the Valuation Percentage shall be 0.] 	
"Exposed Party" shall have the meaning attributed to it in Section II(a).
"Exposure" for each Transaction shall mean (without duplication):

(a) in respect of a Transaction for which a payment pursuant to the Agreement has been determined and is due and owing but not yet paid, the amount of such payment, with the party due and owed such amount having Exposure to the other party in such amount; and

(b) the Current Value of a Transaction, with the party that would be due and owed such amount from the other party having Exposure to the other party in such amount.
"Exposure Amount" shall have the meaning attributed to it in Section II(a).
["Exposure Threshold" shall mean, with respect to ENA, $___________, and with respect to Counterparty, $__________; provided, however, that the Exposure Threshold for a party shall be zero upon the occurrence and during the continuance of an Event of Default or a Potential Event of Default or a Material Adverse Change with respect to such party.]

[If an Exposure Threshold Grid Schedule is used in Credit Support Annex, then use the following in lieu of the definition of "Exposure Threshold" above:

"Exposure Threshold" shall mean, with respect to a party, (a) the amount set forth opposite the lowest Credit Rating for the party (or [in the case of Counterparty, _________ and] in the case of ENA, Enron Corp.) on the relevant date of determination or (b) zero if on the relevant date of determination the entity referred to in clause (a) above does not have a Credit Rating from the rating agency(ies) specified below or an Event of Default or a Potential Event of Default with respect to such party has occurred and is continuing:

EXPOSURE THRESHOLD S&P CREDIT RATING
 MOODY'S CREDIT RATING
 $___________ AA (or above) Aa2 (or above) $___________ AA- to A- Aa3 to A3 $___________ BBB+ and BBB Baa1 and Baa2 $___________ BBB- Baa3 $___________ Below BBB- Below Baa3] 
"Federal Funds Effective Rate" shall have the meaning attributed to it in Section VII(c).

"Interest Amount" shall have the meaning attributed to it in Section VII(c).

"Interest Period" shall have the meaning attributed to it in Section VII(c).
 "Letter of Credit" shall mean an irrevocable, transferable, standby letter of credit, issued by a major U.S. commercial bank or a foreign bank with a U.S. branch office with a Credit Rating of at least "A-" by S&P and "A3" by Moody's, utilizing the form set forth in Schedule 1 attached hereto, with such changes to the terms in that form as the issuing bank may require and as may be acceptable to the party in whose favor the letter of credit is issued.

["Letter of Credit Default" shall mean with respect to an outstanding Letter of Credit, the occurrence of any of the following events:  (i) the issuer of such Letter of Credit shall fail to maintain a Credit Rating of at least "A-" by S&P or "A3" by Moody’s; (ii) the issuer of the Letter of Credit shall fail to comply with or perform its obligations under such Letter of Credit if such failure shall be continuing after the lapse of any applicable grace period; (iii) the issuer of such Letter of Credit shall disaffirm, disclaim, repudiate or reject, in whole or in part, or challenge the validity of, such Letter of Credit; (iv) such Letter of Credit shall expire or terminate, or shall fail or cease to be in full force and effect at any time during the term of the Agreement; or (v) any event analogous to an event specified in Section 5(d) 5.1(d) of the Master Agreement shall occur with respect to the issuer of such Letter of Credit; provided, however, that no Letter of Credit Default shall occur in any event with respect to a Letter of Credit after the time such Letter of Credit is required to be canceled or returned to the Non-Exposed Party in accordance with the terms of this Annex. ] 

"Material Adverse Change" means [insert appropriate choice].
"Moody's" shall mean Moody's Investors Services, Inc. or its successor.
"Net Exposure" shall have the meaning attributed to it in Section II(a).
"Non-Exposed Party" shall have the meaning attributed to it in Section II(a).
"Non-Requesting Party" shall mean the party to which a request is made to reduce the amount of Performance Assurance previously provided by the Requesting Party for the benefit of the Non-Requesting Party.
"Performance Assurance" shall mean all Eligible Collateral, other property, and all proceeds thereof that have been Transferred to or received by the Exposed Party hereunder and not Transferred to the Non-Exposed Party pursuant to Section III or released by the Exposed Party. Any Interest Amount or portion thereof not Transferred pursuant to Section VII(c) and any Cash received and held by the Exposed Party after drawing on any Letter of Credit will constitute Performance Assurance in the form of Cash.
"Potential Event of Default" shall mean an event that would constitute an Event of Default with the lapse of time or giving of notice or both.
"Qualified Institution" shall have the meaning attributed to it in Section VII(b).
"Reference Market-Makers" shall mean four leading power marketers, consisting of two power marketers selected by each party in good faith from among power marketers of the highest credit standing which satisfy all the criteria that such party applies generally at the time in deciding whether to offer or to make an extension of credit or to enter into agreements similar in nature to the Agreement.
"Requesting Party" shall mean the party requesting a reduction in the amount of Performance Assurance previously provided by the Requesting Party for the benefit of the Non-Requesting Party.
"S&P" shall mean the Standard & Poor's Rating Group (a division of McGraw-Hill, Inc.) or its successor.
"Substitute Performance Assurance" shall have the meaning attributed to it in Section X(b) III(b).
"Transfer" shall mean, with respect to any Performance Assurance or Interest Amount, and in accordance with the instructions of the Exposed Party, the Non-Exposed Party or the Requesting Party, as applicable:
(i) in the case of Cash cash, payment or delivery by wire transfer into one or more bank accounts specified by the recipient; and
(ii) in the case of Letters of Credit, delivery of the Letter of Credit or an amendment thereto to the recipient.
"Value" shall mean (a) with respect to Cash cash, the face amount thereof; and (b) with respect to Letters of Credit, the Valuation Percentage times the stated amount then available under the Letter of Credit to be unconditionally drawn by the Exposed Party.
II.  Calculations.  (a)  The "Exposure Amount" for each party shall be calculated for the total of all outstanding Transactions, by calculating each party's Exposure to the other party in respect of each Transaction and totaling the Exposures for each such party(i) Party A is the amount by which the Termination Payment that would be owed to Party A plus Party B’s Independent Amount, if any, exceeds the Party B Collateral Threshold, less any Party B Performance Assurance already posted with Party A and (ii) Party B is the amount by which the Termination Payment that would be owed to Party B plus Party A’s Independent Amount, if any, exceeds the Party A Collateral Threshold, less any Party A Performance Assurance already posted with Party B.  The party having the greater Exposure Amount at any time (the “Exposed Party”) shall be deemed to have a "Net Exposure" to the other party (the “Non-Exposed Party”) equal to the difference between its Exposure Amount and the other party's Exposure Amount.
(b) The "Collateral Requirement" for a Non-Exposed Party shall mean the excess, if any, of (A) the sum of (i) the Exposed Party's Net Exposure plus (ii) the aggregate of all Additional Amounts applicable to the Non-Exposed Party minus the sum of (B):
(i) the Non-Exposed Party's Exposure Threshold; plus
(ii) the amount of Cash previously Transferred by the Non-Exposed Party, the amount of Cash held by the Exposed Party as a result of drawing under any Letter of Credit, and any Interest Amount that has not yet been Transferred to the Non-Exposed Party; plus
(iii) the Value of each Letter of Credit maintained by the Non-Exposed Party for the benefit of the Exposed Party.
III.  Performance Assurance.  
(a)  If, on any Business Day, a Non-Exposed Party's Collateral Requirement shall exceed One Dollar ($1.00) and provided that (i) no Event of Default or Potential Event of Default or Accelerated Termination Date as a result of an Event of Change with respect to the Exposed Party shall have occurred and be continuing and (ii) no Early Termination Date or Accelerated Termination Date has occurred or been designated as a result of an Event of Default or an Event of Change with respect to the Exposed Party for which any unsatisfied payment obligations of the Exposed Party exist, then the Exposed Party may demand that the Non-Exposed Party Transfer, so long as there is a Collateral Requirement in excess of One Dollar ($1.00) (subject to increase or reduction Reduction.  On any Business Day (but no more frequently than weekly with respect to Letters of Credit and daily with respect to cash), a Requesting Party may request a reduction in the amount of Performance Assurance as previously provided herein), Performance Assurance by the Requesting Party for the benefit of the Non-Exposed Party in an amount equal to or greater than the Non-Exposed Party's Collateral Requirement; provided, however, that the amount of Performance Assurance provided by the Non-Exposed Party shall be rounded up to the nearest integral multiple of [$___________].
(b) On any Business Day (but no more frequently than weekly with respect to Letters of Credit and daily with respect to Cash), a Requesting Party may request a reduction in the amount of Performance Assurance previously provided by the Requesting Party for the benefit of the Non-Requesting Party, provided that, after the requested reduction in Performance Assurance, (i) the Requesting Party shall then have a Collateral Requirement of zero; (ii) if at such time there are outstanding Transactions between the parties or unsatisfied obligations from the Requesting Party to the Non-Requesting Party exist with respect to any Transactions, the Non-Requesting Party shall retain any Additional Amounts applicable to the Requesting Party; (iii) no Event of Default or Potential Event of Default or Accelerated Termination Date as a result of an Event of Change with respect to the Requesting Party shall have occurred and be continuing; and (iv) no Early Termination Date or Accelerated Termination Date for which any unsatisfied payment obligations of the Requesting Party exist has occurred or been designated as a result of an Event of Default or an Event of Change with respect to the Requesting Party.  A permitted reduction in Performance Assurance may be effected by the Transfer of Cash cash to the Requesting Party or the reduction of the amount of an outstanding Letter of Credit previously issued for the benefit of the Non-Requesting Party.  The Requesting Party shall have the right to specify the means of effecting the reduction in Performance Assurance.  In all cases, the cost and expense of reducing Performance Assurance (including but not limited to the reasonable costs, expenses, and attorneys' fees of the Non-Requesting Party) shall be borne by the Requesting Party.  The Non-Requesting Party shall have two (2) Business Days to effect a permitted reduction in Performance Assurance if such reduction is to be effected by the return of Cash cash to the Requesting Party.  If a permitted reduction in Performance Assurance is to be effected by a reduction in the amount of an outstanding Letter of Credit previously issued for the benefit of the Non-Requesting Party, the Non-Requesting Party shall not unreasonably withhold its consent to a commensurate reduction in the amount of such Letter of Credit and shall take such action as is reasonably necessary to effectuate such reduction.  By reducing any such Performance Assurance, the Non-Requesting Party shall be deemed to release its security interest in, and lien on (and right of setoff against) such Performance Assurance, granted to the Non-Requesting Party pursuant to Section 8.3 of the Master Agreement.
(b)  Substitutions.  (i) Upon notice to the Exposed Party specifying the items of Performance Assurance to be exchanged, the Non-Exposed Party may, on any Business Day, Transfer to the Exposed Party substitute Performance Assurance (the "Substitute Performance Assurance"); and
                 (ii)  Provided that no Event of Default has occurred and is continuing with respect to the Non-Exposed Party and that no Early Termination Date has occurred or been designated as the result of an Event of Default with respect to the Non-Exposed Party, the Exposed Party will Transfer to the Non-Exposed Party the items of Performance Assurance specified by the Non-Exposed Party in its notice not later than two (2) Business Days following the date on which the Exposed Party receives the Substitute Performance Assurance; provided that the Exposed Party will only be obligated to Transfer Performance Assurance with a Value as of the date of Transfer of that Performance Assurance equal to the Value as of that date of the Substitute Performance Assurance.
IV.  Delivery.  Unless otherwise agreed in writing by the parties, Performance Assurance demanded of a Non-Exposed Party by 10:00 a.m., New York time, on a Business Day shall be provided by the close of business on the next succeeding Business Day; provided, however, that Letters of Credit shall be Transferred by the close of business on the second third succeeding Business Day.  Any Letter of Credit shall be delivered to such address as the Exposed Party shall specify.  The demand sent, pursuant to the preceding sentence, by the Exposed Party shall specify account information for the account to which Performance Assurance in the form of Cash cash may be delivered.  Following the failure of the Non-Exposed Party to provide, increase, renew, substitute, or maintain (as the case may be) Performance Assurance as required herein, the Non-Exposed Party shall be entitled to one (1) two (2) Business Day Days, after notice from the Exposed Party of such failure, to cure such failure.
V.  Exposure Disputes.  (a)  If the Non-Exposed Party shall dispute the amount of Performance Assurance requested by the Exposed Party and such dispute relates to the amount of the Net Exposure claimed by the Exposed Party and not to the valuation of any Performance Assurance previously provided for the benefit of, or requested by, the Exposed Party, then the Non-Exposed Party shall (i) notify the Exposed Party of the existence and nature of the dispute not later than the close of business on the first Business Day following the date that the demand is made by the Exposed Party, and (ii) provide Performance Assurance to or for the benefit of the Exposed Party in an amount equal to the Non-Exposed Party's own estimate, made in good faith and in a commercially reasonable manner, of its Collateral Requirement in accordance with Section II the amount of Performance Assurance due under Article 8 of the Master Agreement.  In all such cases, the parties thereafter shall promptly consult with each other in order to reconcile the two conflicting amounts.  If the parties have not been able to resolve their dispute on or before the third Business Day following the date that the demand is made by the Exposed Party, then the Exposed Party shall recalculate its Net Exposure by requesting quotations from Reference Market-Makers (taking the arithmetic average of those obtained to obtain the average Current Value) for the purpose of recalculating the Current Value of each Transaction in respect of which the parties disagree as to the Current Value thereof, Exposed Party’s Net Exposure and the Exposed Party shall inform the Non-Exposed Party of the results of such recalculation (in reasonable detail).  Performance Assurance shall thereupon be provided, returned, or reduced, if necessary, in accordance with the results of such recalculation.
(b)  If the Non-Requesting Party shall dispute the amount of Performance Assurance to be reduced by the Non-Requesting Party and such dispute relates to the amount of the Net Exposure claimed by the Non-Requesting Party and not to the valuation of any Performance Assurance previously provided for the benefit of the Non-Requesting Party, then the Non-Requesting Party shall (i) notify the Requesting Party of the existence and nature of the dispute not later than the close of business on the first Business Day following the date that the demand is made by the Requesting Party, and (ii) effect the reduction of Performance Assurance to or for the benefit of not later than the close of business on the second Business Day following the date that the demand is made by the Requesting Party in, effect the reduction of such Performance Assurance to an amount equal to the Non-Requesting Party's own estimate, made in good faith and in a commercially reasonable manner, of the Requesting Party’s Collateral Requirement not later than the close of business on the second Business Day following the date that the demand is made amount of Performance Assurance then owing by the Requesting Party under Article 8 of the Master Agreement.  In all such cases, the parties thereafter shall promptly consult with each other in order to reconcile the two conflicting amounts.  If the parties have not been able to resolve their dispute on or before the third Business Day following the date that the demand is made by the Requesting Party, then the Non-Requesting Party shall recalculate its Net Exposure by requesting quotations from Reference Market-Makers (taking the arithmetic average of those obtained to obtain the average Current Value) for the purpose of recalculating the Current Value of each Transaction in respect of which the parties disagree as to the Current Value thereof, Exposed Party’s Net Exposure and the Non-Requesting Party shall inform the Requesting Party of the results of such recalculation (in reasonable detail).  Performance Assurance shall thereupon be provided, returned, or reduced, if necessary, in accordance with the results of such recalculation.
VI.  Letters of Credit.  Performance Assurance provided in the form of a Letter of Credit shall be subject to the following provisions.
(a) Unless otherwise agreed in writing by the parties, each Letter of Credit shall be provided in accordance with Section IV, and each Letter of Credit shall be maintained for the benefit of the Exposed Party. The Non-Exposed Party shall (i) renew or cause the renewal of each outstanding Letter of Credit on a timely basis as provided in the relevant Letter of Credit, (ii) if the bank that issued an outstanding Letter of Credit has indicated its intent not to renew such Letter of Credit, provide either a substitute Letter of Credit or other Eligible Collateral, in each case at least twenty (20) Business Days prior to the expiration of the outstanding Letter of Credit, and (iii) if a bank issuing a Letter of Credit shall fail to honor the Exposed Party's properly documented request to draw on an outstanding Letter of Credit, provide for the benefit of the Exposed Party either a substitute Letter of Credit that is issued by a bank acceptable to the Exposed Party or other Eligible Collateral, in each case within two (2) Business Days after such refusal, provided that, as a result of the Non-Exposed Party's failure to perform in accordance with (i), (ii), or (iii) above, the Non-Exposed Party's Collateral Requirement would be greater than zero.
(b)  As one method of providing Performance Assurance, the Non-Exposed Party may increase the amount of an outstanding Letter of Credit or establish one or more additional Letters of Credit.
(c) (i) A Letter of Credit shall provide that the Exposed Party may draw(b)  Cash proceeds received from drawing upon the Letter of Credit in an amount that is equal to all amounts that are due and owing from the Non-Exposed Party but have not been paid to the Exposed Party within the time allowed for such payments under the Master Agreement (including any related notice or grace period or both). A Letter of Credit shall provide that a drawing may be made on the Letter of Credit upon submission to the bank issuing the Letter of Credit of one or more certificates specifying the amounts due and owing to the Exposed Party in accordance with the specific requirements of the Letter of Credit.
(ii) Upon or at any time after the occurrence of an Event of Default with respect to the Non-Exposed Party, the Exposed Party may draw on the entire, undrawn portion of any outstanding Letter of Credit upon submission to the bank issuing such Letter of Credit of one or more certificates specifying that such Event of Default has occurred in accordance with the specific requirements of the Letter of Credit. Cash proceeds received from drawing upon the Letter of Credit shall be deemed Performance Assurance as security for the Non-Exposed Party’s obligations to the Exposed Party and the Exposed Party shall have the rights and remedies set forth in Section IX with respect to such cash proceeds.  Notwithstanding the Exposed Party’s receipt of Cash cash under the Letter of Credit, the Non-Exposed Party shall remain liable (y) for any failure to Transfer sufficient Performance Assurance or (z) for any amounts owing to the Exposed Party and remaining unpaid after the application of the amounts so drawn by the Exposed Party.
 
(d) Upon or at any time after the occurrence of an Accelerated Termination Date as a result of an Event of Change and the failure of the Non-Exposed Party to make all payments due and owing to the Exposed Party in accordance with the terms of the Agreement (including any related grace or notice period or both), the Exposed Party may draw on any outstanding Letter of Credit in an amount equal to such amounts owing to it. The Non-Exposed Party shall remain liable for any amounts owing to the Exposed Party and remaining unpaid after the application of the amounts so drawn by the Exposed Party.
(e)(c)  A Non-Exposed Party may substitute either cash or a Letter of Credit for one or more other outstanding Letter(s) of Credit issued for the benefit of the Exposed Party, provided that the Value of such substitute cash or Letter of Credit shall be at least equal to the Value of the Letter(s) of Credit being replaced (determined in good faith and in a commercially reasonable manner by the Exposed Party), and provided further that in the case of a substitute Letter of Credit being provided, no Letter of Credit shall be canceled unless and until the Letter of Credit to be substituted therefor shall have been validly executed and issued for the benefit of the Exposed Party in accordance with applicable law.
 (f) Upon the occurrence of a Letter of Credit Default, the Non-Exposed Party agrees to deliver to the Exposed Party either a substitute Letter of Credit or other Eligible Collateral, in each case on or before the second Business Day after the occurrence thereof (or the fifth (5th) Business Day after the occurrence thereof if only clause (i) under the definition of Letter of Credit Default applies).
(g)(d)  In all cases, the costs and expenses (including but not limited to the reasonable costs, expenses, and attorneys' fees of the Exposed Party) of establishing, renewing, substituting, canceling, and increasing the amount of (as the case may be) a Letter of Credit shall be borne by the Non-Exposed Party.
VII.  Cash.  Performance Assurance provided in the form of Cash cash shall be subject to the following provisions.
(a)  Eligibility to Hold Cash.
(i) if ENA EPMI is the Exposed Party, ENA EPMI will be entitled to hold Cash cash or to appoint an agent (a "Custodian") to hold Cash cash for it provided that the following conditions are satisfied:  (1) it is not a Defaulting Party, (2), [ Enron Corp. ] [its Credit Support Provider] has a Credit Rating from S&P and the lowest Credit Rating for [Enron Corp. ] [its Credit Support Provider] is "BBB-" or higher by S&P; and (3) Cash cash shall be held only in any jurisdiction within the United States.
(ii) if Counterparty is the Exposed Party, Counterparty will be entitled to hold Cash cash or to appoint a Custodian to hold Cash cash for it provided the following conditions are satisfied:  (1) it is not a Defaulting Party, (2) [[it] [its Credit Support Provider Guarantor] has a Credit Rating from [S&P][Moody’s] and the lowest Credit Rating for [it] [its Credit Support Provider or Counterparty’s Guarantor] is "___" or higher by S&P [or "___" or higher by Moody's] ] [no Material Adverse Change[no Downgrade Event has occurred with respect to Counterparty] [or Counterparty’s Guarantor], and (3) Cash cash shall be held only in any jurisdiction within the United States.
[(ii) if Counterparty is the Exposed Party it will not be entitled to hold Cash and shall be treated as if it was a "Downgraded Party" (as defined below) for purposes of the provisions of Sections VII(a), (b) and (c)(ii) herein.] 
(iii)	Upon notice by the Exposed Party to the Non-Exposed Party of the appointment of a Custodian, the Non-Exposed Party's obligations to make any Transfer will be discharged by making the Transfer to that Custodian.  The holding of Cash cash by a Custodian will be deemed to be the holding of Cash cash by the Exposed Party for which the Custodian is acting.  If the Exposed Party fails to satisfy any conditions for holding Cash cash as set forth above, then the Exposed Party will Transfer or cause the Custodian to Transfer the Cash cash to a Qualified Institution (as defined herein) and the Cash cash shall be maintained in accordance with Sections VII(b) and (c), with the party not eligible to hold Cash cash being considered the "Downgraded Party" (as defined in Section VII(b)).  The Exposed Party will be liable for the acts or omissions of its Custodian to the same extent that the Exposed Party would be liable hereunder for its own acts or omissions.
(b)  Use of Cash.  Notwithstanding the provisions of applicable law, if the Exposed Party is not a Defaulting Party, no Event of Change has occurred with respect to the Exposed Party and no Early Termination Date or Accelerated Termination Date has occurred or been designated as a result of an Event of Default or an Event of Change with respect to the Exposed Party, then the Exposed Party shall have the right to sell, pledge, rehypothecate, assign, invest, use, commingle or otherwise dispose of, or otherwise use in its business any Cash cash it holds, free from any claim or right of any nature whatsoever of the Non-Exposed Party, including any equity or right of redemption by the Non-Exposed Party; provided, however, that if a party is not eligible to hold Cash cash pursuant to Section VII(a) (such party shall be the "Downgraded Party" and the event that caused it to be ineligible to hold Cash cash shall be a "Credit Rating Event") then:
(1)   the provisions of this Section VII(b) will not apply with respect to the Downgraded Party; and
(2)   the Downgraded Party shall be required to deliver (or cause to be delivered) not later than the close of business on the second Business Day following such Credit Rating Event all Cash cash in its possession or held on its behalf to a commercial bank or trust company organized under the law of the United States or a political subdivision thereof, with a Credit Rating of at least "A-" by S&P or "A3" in the case of Moody's ("Qualified Institution"), approved by the non-Downgraded Party (which approval shall not be unreasonably withheld), to a segregated, safekeeping or custody account ("Collateral Account") within such Qualified Institution with the title of the account indicating that the property contained therein is being held as Cash cash for the Downgraded Party.  The Qualified Institution shall serve as Custodian with respect to the Cash cash in the Collateral Account, and shall hold such Cash cash in accordance with the terms of this Annex and for the security interest of the Downgraded Party and, subject to such security interest, for the ownership of the non-Downgraded Party.
(c)  Interest Payments on Cash.  (i) Subject to the provisions of Section VII(c)(ii) below and so long as no Event of Default, Potential Event of Default or Event of Change with respect to the Non-Exposed Party has occurred and is continuing, and no Early Termination Date or Accelerated Termination Date for which any unsatisfied payment obligations of the Non-Exposed Party exist has occurred or been designated as the result of an Event of Default or an Event of Change with respect to the Non-Exposed Party and to the extent that an obligation to deliver Performance Assurance would not be created or increased by the Transfer, the Exposed Party will Transfer to the Non-Exposed Party, in lieu of any interest or other amounts paid or deemed to have been paid with respect to the Cash cash (all of which may be retained by the Exposed Party), the Interest Amount (as defined below) on the last Business Day of each calendar month.  On or after the occurrence of an Event of Default or an Event of Change with respect to the Non-Exposed Party or an Early Termination Date or Accelerated Termination Date as a result of an Event of Default  or an Event of Change with respect to the Non-Exposed Party, the Exposed Party shall retain any such Interest Amount as additional Eligible Collateral hereunder until the obligations of the Non-Exposed Party under the Agreement have been satisfied.
The term "Interest Amount" shall mean with respect to an "Interest Period" (as defined herein), the aggregate sum of the amounts of interest calculated for each day in that Interest Period on the principal amount of Cash cash held by the Exposed Party on that day, determined by the Exposed Party for each such day as follows: (x) the amount of Cash cash on that day; multiplied by (y) the Interest Rate (as defined herein) for that day: divided by (z) 360.  "Interest Period" means the period from (and including) the last Business Day on which an Interest Amount was Transferred (or if no Interest Amount has yet been Transferred, the Business Day on which Cash cash was Transferred to the Exposed Party) to (but excluding) the Business Day on which the current Interest Amount is to be Transferred.  "Interest Rate" shall be the Federal Funds Overnight Rate as from time to time in effect.  "Federal Funds Overnight Rate" means the rate for that day opposite the caption "Federal Funds (Effective)" as set forth in the weekly statistical release designated as H.15(519), or any successor publication, published by the Board of Governors of the Federal Reserve System.
(ii) If in accordance with the provisions of Section VII(b), a party is not permitted to use Cash either as a result of a Credit Rating Event or otherwise cash, the provisions of Section VII(c)(i) will not apply with respect to Cash cash and the investment of Cash cash shall be governed as follows:
The Qualified Institution holding the Cash cash will invest and reinvest or procure the investment and reinvestment of the Cash cash in accordance with the written instructions of the Non-Exposed Party, subject to the approval of such instructions by the Exposed Party (which approval shall not be unreasonably withheld), provided that the Exposed Party shall not be required to so invest or reinvest or procure such investment or reinvestment if an Event of Default, Potential Event of Default or Accelerated Termination Date as a result of an Event of Change with respect to the Non-Exposed Party shall have occurred and be continuing.  The Exposed Party shall have no responsibility for any losses resulting from any investment or reinvestment effected in accordance with the Non-Exposed Party's instructions.
(d)  Care of Cash.  Without limiting the Exposed Party's rights under Paragraph VII(b), the Exposed Party will exercise reasonable care to assure the safe custody of all Cash cash held by it as Performance Assurance to the extent required by applicable law, and in any event the Exposed Party will be deemed to have exercised reasonable care if it exercises at least the same degree of care as it would exercise with respect to its own property.  Except as specified in the preceding sentence, the Exposed Party will have no duty with respect to Cash cash, including, without limitation, any duty to enforce or preserve any rights pertaining thereto.
VIII.  Representations.  Each party continuously represents and warrants to the other party that: (a) it has the power and authority under the law of the jurisdiction of its organization or incorporation and under its organizational and constituent documents to grant to the Exposed Party a valid, enforceable, first-priority security interest in, and lien on, all Performance Assurance (other than Letters of Credit) that it provides as the Non-Exposed Party and has taken all necessary actions to authorize the granting of that security interest and lien; (b) as of each date on which it, as the Non-Exposed Party, delivers Performance Assurance to the Exposed Party or to any agent of the Exposed Party for the benefit of the Exposed Party (or, in the case of after-acquired Performance Assurance, at the time the Exposed Party or its agent acquires rights therein), it will have title to and will be the sole owner of such Performance Assurance, free and clear of any security interest, lien, pledge, charge, encumbrance, or other interests or restrictions other than the security interest granted to the Exposed Party hereby; (c) the Exposed Party will have a valid and perfected first-priority security interest in, and lien on, all Performance Assurance (other than Letters of Credit) upon receipt thereof; (d) the performance by it of its obligations under this Annex will not result in the creation of any security interest, lien or other encumbrance on any Performance Assurance other than the security interest and lien granted pursuant to this Annex; and (e) on each occasion that it, as the Non-Exposed Party, causes the issuance, renewal, substitution, or increase (as the case may be) of a Letter of Credit, such Letter of Credit will be the legal, valid, and binding obligation of the issuer thereof, enforceable in accordance with its terms.
IX.  Certain Rights and Remedies.
(a)  Exposed Party's Rights and Remedies.  If at any time (i) an Event of Default or Event of Change with respect to the Non-Exposed Party has occurred and is continuing or (ii) an Early Termination Date or Accelerated Termination Date has occurred or been designated as a result of an Event of Default or an Event of Change with respect to the Non-Exposed Party, then the Exposed Party may do any one or more of the following: (x) exercise any of the rights and remedies of a secured party with respect to the Performance Assurance, including any such rights and remedies under law then in effect; (y) exercise its rights of setoff against any and all property of the Non-Exposed Party in the possession of the Exposed Party or its agent; and (z) draw on any outstanding Letter of Credit issued for its benefit.  The Exposed Party shall either (y) apply the proceeds of the Performance Assurance realized upon the exercise of any such rights or remedies to reduce the Non-Exposed Party's obligations under the Agreement or this Annex (the Non-Exposed Party remaining liable for any amounts owing to the Exposed Party after such application), subject to the Exposed Party's obligation to return any surplus proceeds remaining after such obligations are satisfied in full or (z) hold such proceeds as collateral security for the Non-Exposed Party’s obligations under the Agreement or this Annex.
(b)  Non-Exposed Party's Rights and Remedies.  If at any time an Early Termination Date or Accelerated Termination Date has occurred or been designated as the result of an Event of Default or Event of Change with respect to the Exposed Party, then, unless the Accelerated Termination Date relates to less than all Transactions where the Exposed Party has made all payments due and owing to the Non-Exposed Party: 
(1)  the Exposed Party will be obligated immediately to Transfer all Performance Assurance (other than Letters of Credit) and the Interest Amount, if any, to the Non-Exposed Party; and
(2)  the Non-Exposed Party may do any one or more of the following: (x) exercise any of the rights and remedies of a pledgor with respect to the Performance Assurance (other than Letters of Credit), including any such rights and remedies under law then in effect; (y) to the extent that the Performance Assurance (other than Letters of Credit) or the Interest Amount is not Transferred to the Non-Exposed Party as required in (1) above, setoff amounts payable to the Exposed Party against the Performance Assurance (other than Letters of Credit) held by the Exposed Party or to the extent its rights to setoff are not exercised, withhold payment of any remaining amounts payable by the Non-Exposed Party, up to the value of any remaining Performance Assurance (other than Letters of Credit) held by the Exposed Party, until the Performance Assurance (other than Letters of Credit) is Transferred to the Non-Exposed Party; and (z) exercise rights and remedies available to the Non-Exposed Party under the terms of any Letter of Credit.
X.  General.
(a) Security Interest. To secure its obligations under the Master Agreement and all outstanding Transactions, each party hereby grants to the other party a present and continuing first-priority security interest in, and lien on (and right of setoff against), all Performance Assurance (other than Letters of Credit) whether now or hereafter held by, on behalf of, or for the benefit of, such other party, and each party agrees to take such action as the other party reasonably requires in order to perfect the other party's first-priority continuing security interest in, and lien on (and right of setoff against), such Performance Assurance.(i)  Substitutions.  
(b) Substitutions. (i) Upon notice to the Exposed Party specifying the items of Performance Assurance to be exchanged, the Non-Exposed Party may, on any Business Day, Transfer to the Exposed Party substitute Performance Assurance (the "Substitute Performance Assurance"); and
(ii) Provided that no Event of Default or Potential Event of Default or Event of Change has occurred and is continuing with respect to the Non-Exposed Party and that no Early Termination Date or Accelerated Termination Date has occurred or been designated as the result of an Event of Default or Event of Change with respect to the Non-Exposed Party, the Exposed Party will Transfer to the Non-Exposed Party the items of Performance Assurance specified by the Non-Exposed Party in its notice not later than two (2) Business Days following the date on which the Exposed Party receives the Substitute Performance Assurance; provided that the Exposed Party will only be obligated to Transfer Performance Assurance with a Value as of the date of Transfer of that Performance Assurance equal to the Value as of that date of the Substitute Performance Assurance.
(c)(a)  Expenses.  (i) Except as expressly set forth in this Annex or the Master Agreement, each party will pay its own costs and expenses in connection with performing its obligations under this Annex and neither party will be liable for any costs or expenses incurred by the other party in connection herewith.
(ii)  The Non-Exposed Party will promptly pay when due all taxes, assessments or charges of any nature that are imposed with respect to Performance Assurance held by the Exposed Party upon becoming aware of the same, regardless of whether any portion of that Performance Assurance is subsequently disposed of under Section VII(b), except for those taxes, assessments and charges that result from the exercise of the Exposed Party's rights under Section VII(b).
(iii)  All reasonable costs and expenses incurred by or on behalf of the Exposed Party or the Non-Exposed Party in connection with the liquidation and/or application of any Performance Assurance under Section IX will be payable, on demand and pursuant to the Master Agreement, by the Defaulting Party or, if there is no Defaulting Party, equally by the parties.