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Enron Mail |
Mike-
As we discussed, the timing of the Gaza Transfer Agreement has once again become critical. This e-mail will give you some background as to the situation. We financially closed the $90MM loan for the Gaza project last June. There was a CP from the banks that the remaining $20MM of equity would not need to be in the Project company until a date in the future. This was done because the project was placing a $20MM IPO locally and it was not possible to complete the IPO before the debt financing. The IPO has been successfully subscribed; however, Enron has been blocking the transfer of the IPO funds into the project company as we must have certain minor share transfers completed prior to the transfer of the IPO funds in order to solidify our U.S. tax deferral structure. One of the covenants of the debt financing is that we must maintain a certain debt to equity ratio in order to be able to draw more debt. The project has now reached the point in which it can no longer draw debt proceeds until the remaining $20MM of equity (the IPO funds) are transferred into the project account as these equity funds are required in order to allow for our debt/equity ratio to be preserved. The timing of this issue is being driven by the fact that the project has to pay interest and commitment fees to the bank on the 3rd of January. The only source of these payments are the IPO funds that must be transferred. As mentioned above, Enron requires several minor share transfers in order to preserve the U.S. tax deferral structure (5 or 10 shares need to be exchanged in several companies in the chain). These transfers must take place before the IPO funds are put into the Project Company. The language of these minor transfers have been agreed among the partnership. However, the partners are refusing to execute these minor transfers until Enron executes the Transfer Agreement. When the Gaza project was being conceived, the former CALME management agreed to the Transfer Agreement and this agreement was memorialized in detail in the Joint Venture Agreement among the parties. The Transfer Agreement provides no party may have a change in control of their ownership in the project without the consent of the other parties. The JVA expressly states that this transfer restriction is to be entered into by Enron Corp. and that the restrictions on change of control apply all the way up the ownership chain to Enron Corp. as well as to the other partners ultimate parent entities. A draft of this Transfer Agreement has been previously reviewed by Mark Metts. Mark indicated that he was not comfortable with the nature of the agreement; however, this was last summer when Enron was re-evaluating its position with respect to its international assets and it was thought that the Gaza project may have soon not been part of Enron. The Gaza team has spent a great deal of time over the past six months trying to either soften the nature of the Transfer Agreement or to make the restriction apply to some entity lower in the ownership chain than Enron Corp. These efforts have been unsuccessful as the partners claim that the Transfer Agreement was a "pillar" of the deal that we had and furthermore that this deal had been agreed directly with very senior Enron personnel. Therefore, it appears that we must deal with the Transfer Agreement now in order to allow Enron to preserve its tax deferral position, transfer the IPO funds and ultimately allow the project to meet its debt service obligations to the bank on January 3rd. We have tried to bring this issue to a close sooner, but the parnters have delayed resolution until now. The timing of this is unfortunate, but probably not accidental from our partners position. You may reach me at any time at 502.458.4985 (through Thursday afternoon) or at 713.522.4802 (home) or 713.818.9019 (mobile) beginning Thursday evening. I appreciate your giving this attention during the holidays. Andrew
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