Subject: Re: Catalytica Spark Spread Option Confirmation
From: [email-masked]
To: [email-masked]
Cc: [email-masked], [email-masked]
Date: Tue, 7 Dec 1999 00:56:00 -0800 (PST)

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.