Joshua Tree Financing Structure

Per my voicemails. Please provide comments sometime on Monday if possible.
Thanks very much for your assistance.

Teresa

Teresa G. Bushman
Enron North America Corp.
1400 Smith Street, EB 3835A
Houston, TX 77002
(713) 853-7895
fax (713) 646-3393
teresa.g.bushman@enron.com

----- Forwarded by Teresa G Bushman/HOU/ECT on 11/10/2000 04:56 PM -----

Nora Dobin@ENRON
11/10/2000 11:14 AM

To: Tim Proffitt/HOU/ECT@ECT, Chris Herron/Corp/Enron@Enron, Cris
Sherman/HOU/ECT@ECT, Kevin Liss/Corp/Enron@ENRON, Teresa G
Bushman/HOU/ECT@ECT, Scott Josey/Corp/Enron@ENRON, John Thompson/LON/ECT@ECT,
Jesus Melendrez/Corp/Enron@Enron
cc: Brenda L Funk/HOU/ECT@ECT, rainj@tklaw.com
Subject: Joshua Tree Financing Structure

In preparation for the 2:00 p.m. meeting today regarding the Bank of America
term sheet, please consider the following:

(1) Proposed Trust/LLC Structure. Trust would own 99% of LLC with ENA as
managing member owning other 1%. LLC would purchase/own VPPs.

Legal prefers the two-tier structure but

(i) would prefer the use of a Delaware business trust with Wilmington Trust
Company as the trustee instead of a Texas trust to own equity in underlying
LLC/LP, and

(ii) as to the proposed Delaware limited liability company which would own
the VPPs, asks the tax and commercial teams to consider (a) whether this
entity might or will derive significant income from Texas based
properties/operations or otherwise be subject to material Texas franchise
tax, and (b) if so, whether we should use a Texas limited partnership instead
of the LLC.

(2) Proposed Certificate and Trust Terms and Conditions.

Clarify that certificate holders commit to fund their pro rata portion of
aggregate A and B loans/investments (similar to contribution obligations of
equity owners of LLC, i.e., LLC terms expressly provide that Trust and ENA
must make pro rata (to their respective ownership interests) contributions to
LLC for purchase price of VPPs].
Identity of A and B holders, e.g., banks get A and [who?] get B?

(3) LLC Terms.

Is proposed 99% and 1% ownership of LLC by Trust and ENA (as managing
member), respectively, ok? Same ownership percentages if we use LP?

VPP commercial and legal teams need to determine acceptability of proposed
terms of:

(i) Master Balancing Agreement between LLC and ENA, Note re item 1 of
Mandatory Cost Advances: only require ENA to make specified expenditures
where it has control of, or not prohibited by, specific situation or
governing contract.
(ii) Master Natural Gas Purchase and Sale Agreement between LLC and [need to
determine correct Enron counterparty since Enron Gas Marketing, Inc. does
not exist] (provide for Texas governing law?),
(iii) Master Crude Oil Purchase and Sale Agreement between LLC and Enron
Reserve Acquisition Corp. (correct counterparty? provide for Texas governing
law?), and
(iv) Eligibility/engineering criteria for new VPPs. Query regarding item
10: why can't LLC buy a VPP from a seller in bankruptcy on a free-and-clear
basis?

Clarify whether specified New Company Asset Procedures are alternatives (i.e.
, either proposed new VPPs (1) meet specified eligibility criteria as
certified by ENA or independent third party, or (2) new VPP are approved by
Engineering Banks (with no objection by majority of Trust certificate
holders, rather thaneither proposed new VPPs (i) meet specified eligibility
criteria as certified by ENA and independent third party, or (ii) new VPP are
approved by Engineering Banks (with no objection by majority of Trust
certificate holders).

Enron Corp. Performance Guaranty. Presumably "performance" guaranty is one
of payment or can be reduced to a pre-agreed payment amount. Try for Texas
governing law. Start with Enron Corp. standard form of guarantee with
revolver reps and covenants.

(4) Swaps (interest rate and energy price)

Should these be assets of Trust or LLC/LP? Any related tax issues?
Who is swap counterparty (ENA?)
Is non-ISDA format acceptable? If so, is Texas law (as opposed to NY law
typically covering an ISDA) ok?

(5) Production Pricing Flexibility

Consider consistency between pricing parameters contained in VPP purchase
documents on the one hand (e.g., Crescendo), and financing documents on the
other hand (e.g., Master Purchase Agreements under (3) above and swaps under
(4) above).

Regards, NJD

Nora J. Dobin
Senior Counsel
Enron Global Finance
Enron Corp.
1400 Smith Street
Houston, Texas 77002

713/345-7723 (phone)
713/853-9252 (fax)
E-mail: nora.dobin@enron.com