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-----Original Message----- From: "Witalis, Lawrence (Law)" <LCW4@pge.com<@ENRON [mailto:IMCEANOTES-+22Witalis+2C+20Lawrence+20+28Law+29+22+20+3CLCW4+40pge+2Ec om+3E+40ENRON@ENRON.com] Sent: Monday, April 30, 2001 5:38 PM To: Tribolet, Michael Subject: RE: PG&E and Enron Stand-Still Agreement Thanks, Michael. By the way, can you confirm for me that Elizabeth's draft really captures Enron's version of what we "agreed to" at our meeting? It looks off to us, and I wonder if it does to you, also. I don't mean to go around Elizabeth in asking this; just curious. ---------- From: Michael.Tribolet@enron.com[SMTP:Michael.Tribolet@enron.com] Sent: Monday, April 30, 2001 3:27 PM To: LCW4@pge.com Subject: RE: PG&E and Enron Stand-Still Agreement I pasted the letter below: Enron Power Marketing, Inc. 1400 Smith Street Houston, Texas 77002 VIA FACSIMILE _______, 2001 Pacific Gas & Electric Company 77 Beale Street San Francisco, CA Attention: [ and Lawrence C. Witalis] Re: Contract Termination Payment Calculation Discussions Dear Sirs: As you know, pursuant to its rights under the Master Power Purchase Agreement between Enron Power Marketing, Inc. ("EPMI") and Pacific Gas & Electric Company ("PG&E) (collectively, the "Parties"), dated October 9, 2000 (the "MPA"), EPMI elected to terminate the 3 power transactions thereunder as a result of the bankruptcy filing made by PG&E on April 6, 2001. Such notice of termination was delivered to PG&E on April 9, 2001. Additional contract terminations either became effective automatically as a result of PG&E's bankruptcy filing under the terms of the particular contract or were elected by certain affiliates of EPMI, namely Enron Canada Corp. ("ECC") and Enron North America Corp. ("ENA"), as provided in the relevant termination notices furnished by ECC and ENA to PG&E. EPMI, ECC and ENA are referred to collectively herein, as appropriate, as "Enron," and the various contracts and/or transactions thereunder between PG&E and Enron that were terminated are referred to as the "Contracts." Pursuant to such contract terminations, Enron provided written notice to PG&E, as reflected in a letter dated April 24, 2001 (including all applicable supporting materials and calculations), of the applicable termination payment calculations due and owing to Enron or PG&E, as the case may be, under the Contracts. Under each of the Contracts, once the non-defaulting party, in this case Enron, furnishes the calculations of the termination payments, the defaulting party, in this case PG&E, is obligated to notify the non-defaulting party within a specified time frame whether it disagrees with the non-defaulting party's termination value calculations. For example, under Section 5.5 of the MPA, PG&E (as the defaulting party due to its bankruptcy) is obligated to furnish EPMI within 2 business days of receipt of EPMI's calculations a detailed explanation of any dispute it may have with Enron's termination payment calculations. The other Contracts provide for different time periods by which the defaulting party must respond to the non-defaulting party's calculations. At our meeting on April 25, 2001, we agreed to extend the time period by which PG&E must provide notice to Enron of its dispute, if any, with the termination calculations furnished by Enron under any of the Contracts (a "Dispute Notice") in order to permit further discussions between the Parties (the "Settlement Discussions") concerning (1) the methodology and/or procedures employed by Enron to make such calculations and the supporting material therefor and (2) a possible settlement between the Parties with respect to the amount and nature of the Parties' claims under the Contracts and the treatment thereof on an aggregate basis. In order to provide the Parties with sufficient time to negotiate a possible resolution, the date by which PG&E shall be required to furnish any Dispute Notice shall be extended to [May 25, 2001] (the "Initial Extension Period"), or such later date as may be agreed by the Parties, including any extension as may be effective during the period that any settlement agreement that may be executed by the Parties in connection herewith ("Settlement Agreement") may be under consideration by the Bankruptcy Court. During the Initial Extension Period, Enron agrees to maintain in full force and effect for the benefit of PG&E all five letters of credit with respect to its obligations under the MPA (including the letters of credit from Banca di Roma, in the amount of $7,000,000; from Banca Commerciale Italiana, in the amount of $5,750,000; from Bayerische Hypo-und Vereinsbank AG, in the amount of $30,000,000; and from Banca Nazionale del Lavorno, in the amounts of $44,000,000 and $13,500,000, respectively), subject to the rights of EPMI to replace or provide substitutes for such letters of credit, to assure payment by Enron of the termination payment, if any, due from it to PG&E under the MPA. In the event that the Settlement Discussions have not resulted in the execution of a Settlement Agreement by [May 15, 2001], but the Parties are continuing to negotiate in good faith with respect thereto, Enron agrees to extend for a period of no less than __ days any letter of credit that shall be due to expire within __ days after the end of the Initial Extension Period and Enron shall promptly provide PG&E with confirmation of such extension. In the event that the Parties successfully conclude a Settlement Agreement and such agreement is submitted to the Bankruptcy Court for approval, the Parties anticipate that (1) such Settlement Agreement will include a provision requiring the maintenance of letters of credit by Enron during the period the Parties are awaiting Bankruptcy Court approval and (2) the aggregate amount of the letters of credit will be reduced, as mutually agreed by the Parties, to more closely match the agreed-upon amount of the settlement amount due from Enron. In the event, for any reason, the Parties cannot reach closure on a Settlement Agreement, or any such Settlement Agreement is agreed to by the Parties but ultimately is not approved without modification by the Bankruptcy Court, and thereafter PG&E issues to Enron a Dispute Notice under the MPA, PG&E shall not make, or cause to be made, a draw under the letters of credit securing Enron's payment obligation under the MPA until (1) the amount of the applicable termination payment due to PG&E has been finally determined pursuant to the terms of the MPA and (2) Enron shall have failed to make payment required by it pursuant to Section 5.4, subject to Section 10.12. The Parties further acknowledge that, in connection with the Parties' desire to attempt to negotiate the terms of a Settlement Agreement, the Parties anticipate that they will simultaneously commence negotiations concerning new master gas purchase and sale agreements pursuant to which ENA and EEC, respectively, would sell and PG&E would purchase natural gas, including under term (as opposed to only daily) transactions to the extent mutually agreed by the Parties. Notwithstanding the foregoing, neither PG&E nor Enron shall be obligated to enter into any such agreements or transactions, it being acknowledged and agreed by the Parties that any decisions or commitments with respect thereto shall be subject to the sole discretion of each of the Parties and no contract or commitment shall occur or be deemed to have occurred until the applicable terms and conditions have been agreed to and definitive agreements have been executed by the Parties. If the foregoing accurately reflects our mutual understandings, could you please execute a copy of this letter and return it to me via facsimile at your earliest convenience, with a hard copy by overnight mail. Thank you. Yours truly, William Bradford AGREED AND ACCEPTED: Pacific Gas & Electric Company By: _______________________ Title: _______________________ Date: _______________________ cc: [PGE People] Michael Tribolet (Enron) Elizabeth Sager (Enron) Lisa Mellencamp (Enron) James Lopes (Howard et al) John Klauberg (LeBoeuf, Lamb) Bennett Young (LeBoeuf, Lamb) -----Original Message----- From: "Witalis, Lawrence (Law)" <LCW4@pge.com<@ENRON [mailto:IMCEANOTES-+22Witalis+2C+20Lawrence+20+28Law+29+22+20+3CLCW4+40pge+2 Ecom+3E+40ENRON@ENRON.com] Sent: Monday, April 30, 2001 4:35 PM To: Witalis, Lawrence (Law); Sager, Elizabeth Cc: 'byoung@llgm.com'; Sena, David; Wan, Fong (Corp); 'jklauber@llgm.com'; 'jlopes@hrice.com'; Foley, Jack; Bar-Lev, Joshua (Law); Pearce, Karola (Law); Harvey, Kent; Kuga, Roy; Bradford, William S.; Tribolet, Michael; Mellencamp, Lisa Subject: RE: PG&E and Enron Stand-Still Agreement Elizabeth: Four points. First, I can't call up an attachment to your e-mail; can you please resend it? Second, I believe that the PG&E and Enron representatives at the meeting agreed that Enron would keep the LCs in place month-to-month for the entire period until a settlement is reached and approved by the Bankruptcy Court; of course, if negotiations break down, that month-to-month requirement could end, but the LCs were a principal comfort point for PG&E going forward, and your changes in this portion of the draft may be unacceptable to us (again, I'll have to review them to be certain). Third, I recall that we agreed generally, if not specifically, that we would give ourselves breathing space to reach an agreement, without an artificially-imposed "window" as you call it, and I do not think such a window is advisable at this time; PG&E is perhaps even more eager than Enron to resolve the Termination Payment issue, and our discussions can always be truncated if talks stall, but I do not think such windows do much to promote cooperative efforts generally. Fourth, I think PG&E was very clear in its expectation that, as part of these discussions, Enron would both enter into new Master Agreements with PG&E and into sales of gas on commercially reasonable terms. I recall no disagreement from anyone on Enron's side of the table to this proposition, and think the draft I sent to you captures the gist of what PG&E would like to see. Admitterdly, without reviewing the mark-up I'm shooting blind a bit here. I mention these points mainly as background for my request that you check in with the Enron reps who attended the meeting to see if perhaps your comments are off the mark. After I've read your mark-up and you have done this minor bit of due diligence, we can talk, tomorrow hopefully, in an attempt to resolve whatever differences we actually may have on the terms of the stand-still agreement. I very much hope any such differences are more minor than your comments suggest, as otherwise this might not be a very good start for our clients' efforts to reach an amicable resolution. I look forward to talking tomorrow. Please suggest a time. Thanks. Larry ---------- From: Elizabeth.Sager@enron.com[SMTP:Elizabeth.Sager@enron.com] Sent: Monday, April 30, 2001 10:14 AM To: LCW4@pge.com Cc: 'byoung@llgm.com'; Sena, David; 'elizabeth.sager@enron.com'; Wan, Fong (Corp); 'jklauber@llgm.com'; 'jlopes@hrice.com'; Foley, Jack; Bar-Lev, Joshua (Law); Pearce, Karola (Law); Harvey, Kent; Kuga, Roy; William.S.Bradford@enron.com; Michael.Tribolet@enron.com; Lisa.Mellencamp@enron.com Subject: Re: PG&E and Enron Stand-Still Agreement Larry: In accordance with our conversation late last week, I am enclosing a revised draft of the proposed standstill agreement that was discussed on Wednesday. My comments primarily involve the following: (1) As you and I discussed last week, I thought it made sense to specify a reasonable date by which Enron and PG&E shall have reached closure on a settlement agreement on the contract termination and related claims. I proposed a one month period to do that. If the parties can't come to an agreement in that time period, then the "mechanics" in the MPA for resolving a dispute dealing with the calculation of the termination payment would be "reactivated." Obviously, if we are making progress, the parties can always extend the date. I felt it was appropriate to specify the window period to make sure that everyone is focused on attempting to get a prompt resolution. Assuming a final settlement agreement is agreed upon, the conditions of the extension of the "stay" would be embodied in the settlement agreement itself (as opposed to this letter). (2) Enron agreed at the meeting that it would keep the LCs in place while the parties were working to see if a settlement agreement could be reached, and that requirement is reflected in our revisions to the letter. Thus, the revised letter provides that Enron will do this for the "Initial Extension Period" (i.e., to May 25, 2001). Your draft had provided that Enron would be required to keep the LCs in place even if no settlement agreement were to be reached. My view is that any requirement to maintain the LCs beyond the Initial Extension Period and any conditions with respect thereto, if agreed to by Enron, should be part of the final settlement agreement executed by the parties, rather than as part of this letter. Also, we note that, as a contractual matter, the MPA does not require the non-defaulting party to keep in place any security in favor of the defaulting party when, as a result of a termination, the non-defaulting party owes a payment to the defaulting party. See Sec. 5.5. (3) Your draft of the letter provided that Enron "agrees" to enter into new master gas agreements and consummate term transactions on "commercially reasonable terms." The revised letter specifies that Enron agrees to negotiate with PG&E in these respects simultaneously with the negotiations towards a settlement agreement, but any commitment on Enron's part to effect a contract or transaction with PG&E will only arise as a result of the parties' execution of the definitive transaction documents (as opposed to this letter), the execution of which shall be in the sole discretion of each of the parties. Please call me at your convenience to discuss any questions on the foregoing or on the revised letter. Thanks in advance for your help in moving this forward. Elizabeth Sager 713 853 6349 (See attached file: Standstill.doc) "Witalis, Lawrence To: "'elizabeth.sager@enron.com'" <elizabeth.sager@enron.com< (Law)" cc: "'jklauber@llgm.com'" <jklauber@llgm.com<, "'byoung@llgm.com'" <LCW4@pge.com <byoung@llgm.com<, "'jlopes@hrice.com'" <jlopes@hrice.com<, "Kuga, Roy" < <RMK4@pge.com<, "Wan, Fong (Corp)" <Fong.Wan@pge-corp.com<, "Sena, David" <DJSt@pge.com<, "Foley, Jack" <JRFc@pge.com<, "Pearce, Karola (Law)" 04/25/2001 <KKP2@pge.com<, "Harvey, Kent" <KMH5@pge.com<, "Bar-Lev, Joshua (Law)" 07:23 PM <JXB7@pge.com< Subject: Stand-Still Agreement Ms. Sager: Attached is my draft of an agreement memorializing the parties' respective commitments as we negotiate the amount of the Termination Payment and of other claims Enron may have against PG&E in Bankruptcy Court. I do not have your mailing address; yet, PG&E would like to receive assurance soon that Enron agrees with the terms of this proposed letter agreement. After reviewing the draft, please indicate Enron's agreement by return e-mail to me. Or, please call me (415-973-3817) to discuss. Thanks. Larry Witalis <<enron.doc.rtf<< (See attached file: enron.doc.rtf) <<File: Standstill.doc<<<<File: enron.doc.rtf<<
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