Re: Spark Spread Confirmation

fyi
---------------------- Forwarded by Sara Shackleton/HOU/ECT on 10/11/99 05:02
PM ---------------------------

Barton Clark
10/11/99 03:36 PM
To: Sean Black/HOU/ECT@ECT
cc: Sara Shackleton/HOU/ECT@ECT
Subject: Re: Spark Spread Confirmation

RE your inquiry about the General Terms and Conditions of Confirmation (
Annex A to the Confirmation ) and Credit and Other Special Provisions (Annex
B to the Confirmation) that were attached to the 9/1/99 "Summary of Proposed
Agreement Between Enron and Catalytica Combustion Systems, Inc. ("CCSI")" (
which I understand was sent to Catalytica) , I went through all the E-Mails I
had sent or received that attached the Confirmation or the Summary of
Proposed Agreement as an exhibit, but I can't seem to find one that included
these Annexes A and B. I've asked a clerk in the department to deliver to
both you and Sara the copy of Annexes A and B that were attached to the paper
version of the 9/1 Summary of Proposed Agreement in my files. Perhaps one of
you will recollect from whom the Annexes were obtained, so we can retrieve
them in electronic format and append them to the most current draft
Confirmation.

Regarding your question about credit terms, they are embodied in Annex B.
Regarding our exposure to Catalytica credit between execution and payment,
remember that we will not execute the Option Repurchase Agreement until we
receive CCSI's cash via wire transfer ( this was the deal Brad agreed to when
he suggested we delete the receipt of CCSI's payment as an express condition
to effectiveness of the Xonon Implementation Agreement with GE, the
effectiveness of which agreement is in turn an express condition to
effectiveness of the Option Repurchase Agreement). In short, my understanding
is that we would not deliver the Option Repurchase or execute and deliver the
Xonon Implementation Agreement until we had a good wire transfer from CCSI of
the full payment amount. Perhaps we should add that stipulation expressly to
the Option Repurchase Agreement and consider whether it would then be
appropriate to delete Annex B. Note in this regard, however, that if CCSI
were to default under other provisions of the derivative, I believe we would
be seeking payment from CCSI for termination expenses and the like, but I
don't know if this justifies the credit provision.