Message-ID: <765359.1075844532817.JavaMail.evans@thyme> Date: Tue, 7 Dec 1999 00:56:00 -0800 (PST) From: sara.shackleton@enron.com To: brad.nebergall@enron.com Subject: Re: Catalytica Spark Spread Option Confirmation Cc: randy.petersen@enron.com, barton.clark@enron.com Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit Bcc: randy.petersen@enron.com, barton.clark@enron.com X-From: Sara Shackleton X-To: Brad Nebergall X-cc: Randy Petersen, Barton Clark X-bcc: X-Folder: \Sara_Shackleton_Dec2000_June2001_1\Notes Folders\Sent X-Origin: SHACKLETON-S X-FileName: sshackle.nsf The disappearance of a price index is a "Market Disruption Event" discussed in Section 7 of Annex A to the confirmation. Unless an "Alternative Floating Price Source" is described in the confirmation, the Floating Price on the first available Trading Day (without a disruption) is utilized if the disruption does not exceed three Business Days; otherwise, the price is "determined in good faith by Company, by taking the average of two or more dealer quotes." At the moment, your confirm does not identify alternative pricing. To: Barton Clark/HOU/ECT@ECT cc: Randy Petersen/HOU/ECT@ECT, Sara Shackleton/HOU/ECT@ECT Subject: Re: Catalytica Spark Spread Option Confirmation My comments and thoughts: 1) CCSI has proposed that they pay the premium in installments and we have rejected their proposal. They are making their case to Enron senior management and we not agree unless told to by the appropriate people. 2) This is a long dated transaction so it doesn't surprise me that they are asking for unilateral credit provisions. Since we expect this to be repurchased, I will talk to CCSI and see if they will waive this. 3) It is not unusual to insert language to address the event that the referenced index no longer exists (over the next 14 years). I assume we have standard language on this issue? Brad Barton Clark 12/06/99 08:37 PM To: Randy Petersen/HOU/ECT@ECT, Brad Nebergall/HOU/ECT@ECT cc: Sara Shackleton/HOU/ECT@ECT Subject: Catalytica Spark Spread Option Confirmation Catalytica hit us with extensive comments to the form of spark spread option confirmation appended to the Option Repurchase Agreement between ENA and CCSI last week in San Francisco. Sara Shackleton is negotiating directly with CCSI's counsel with respect to CCSI's requested comments, but there are two issues raised by the markup that are not strictly lawyer comments that need to be addressed in order to finalize the confirmation. One comment CCSI made was to request some type of collateral deposit if ENA's credit quality slipped in the future. You will recall that the spark spread should be repurchased by September 30,1999, pursuant to the option repurchase agreement, well in advance of the 2003 effective date of the spark spread. Nevertheless, to make the spark spread appear arms length ( which it most certainly is!), in view of the theoretical effectiveness of the spark spread and its 2016 expiration date, CCSI decided it needed credit protection. In the course of negotiating the changes to the spark spread, we tendered to CCSI for its consideration a bilateral collateral deposit agreement, wherein each party would be required to deposit collateral if credit quality fell in the future. Unless ENA allows CCSI to pay the spark spread premium in installments, the credit protection would only apply to ENA since it is the only party making payments after the effective date, and if the installment payment request by CCSI is rejected successfully, the form will need to be amended to apply unilaterally to ENA ( assuming we agree to give CCSI this comfort). The form of collateral deposit provision requires that we define an "Exposure Threshold" for ENA that triggers its obligation to provide credit support in the form of collateral for CCSI's benefit. Normally, the calculation of an appropriate amount would be done by credit. I understand from Sara, however, that credit is no longer involved in this deal and that perhaps Randy can suggest who might be the appropriate person to determine an appropriate "Exposure Threshold" amount for ENA in this context. Of course, if the CCSI premium is paid in installments, we would need to calculate an appropriate CCSI "Exposure Threshold" as well. The second issue in the CCSI revisions that the lawyers do not feel comfortable unilaterally addressing appears in the "Gas Daily Price" definition under Cash Settlement Amount. Here,CCSI's counsel has suggested, if the measures for determining Gas Daily Price should change, that vague alternative measures be used to define the Gas Daily Price. I'm not sure whether we are comfortable with what an alternative measure may yeild, and may want an alternative process if the current measures disappear, or may have in mind more definite alternatives. Brad, it would be useful if you could give us some guidance on this point. Thanks for your assistance.