From: barton.clark@enron.com
To: brad.nebergall@enron.com, chris.holmes@enron.com, sean.black@enron.com, dao@catalytica-inc.com, lwb@mv.catalytica-inc.com, pevans@catalytica-inc.com, crainey@lockeliddell.com, btaylor@wsgr.com, dsummers@wsgr.com, roger.ondreko@enron.com, matthew.berry@enron.com, sheila.tweed@enron.com, sara.shackleton@enron.com, susan.flynn@enron.com, hwendell@mdbe.com, robtaylor@andrews-kurth.com, don.miller@enron.com, jordan.mintz@enron.com, matthew.gockerman@enron.com, randy.petersen@enron.com, esben.pedersen@enron.com, david.parquet@enron.com, samuel.wehn@enron.com, dean.russell@enron.com
Date: 1999-12-12 20:43:00+00:00
Subject: Xonon Technology Implementation Agreement and Option Repurchase
 Agreement

Attached please find the latest versions of the above-referenced documents, 
marked to show changes from the versions distributed 12/9, except in the case 
of Annexes C ( Guaranty and Indemnification Agreement) and D ( form of the 
drawing certificate to the CCSI letter of credit, the complete letter to be 
supplied by CCSI on Monday) to Exhibit A to the Option Repurchase Agreement. 
I incorporated the Guaranty and Indemnification Agreement and form of drawing 
certificate as received from CCSI counsel on Friday night into version 7f in 
order that our revisions to these documents would be reflected in these 
marked versions.The changes are summarized as follows:

Xonon Technology Implementation Agreement.  Section 4.1 was modified at 
Brad's request to clarify the payment provisions, and to clarify that the 
Milestone 4 Refund Amount is not intended to be an exclusive remedy( ie, 
liquidated damages provision) with respect to the failure to complete 
Milestone 4 or subsequent Milestones or other obligations. Section 4.2 was 
modified, at the request of West LB, to cause West LB not to be involved in 
any decision to revise the milestones. Section 9.2 (b) was revised to delete 
an incorrect reference to Texas law in arbitration ( more consistent with 
fact that New York law applies to the agreement) and the insert in (iii) was 
made to reflect that selection of arbitrators is dealt with in (a) and should 
not be overriden by any supplemental procedures of the AAA. Section 11.2 was 
modified to add a reference to Article 10 ( to make clear the survival of 
pending claims at 12/31/06 provision in that Article was not in conflict with 
Section 11.2). All other changes were pretty self evident clarifications or 
corrections of typographical errors. 

Option Repurchase Agreement. Remember that Annexes A and B to Exhibit A are 
in a separate document because of format and need to be inserted in behind 
Exhibit A and before Annex C. Section 1.1 of the Agreement was revised to 
clarify that the Paid Premium amount payable by ENA was such amount at the 
Option Repurchase Date, to correct a date reference to the date the Milestone 
4 Refund Amount becomes payable by GE, to clarify that the vested value of 
the Xonon Credits equal to the Paid Premium applies in the assignment of 
credits to ENA pursuant to Section 1.2, and to clarify that ENA may withhold 
from the Milestone 4 Refund Amount payable to CCSI any unpaid premium plus 
any other amounts owed by CCSI to ENA ( eg, legal expenses incurred by ENA in 
seeking to collect Unpaid Premium).

Section 2.2 was revised to add a new defined term "Operative Agreements" to 
refer to the Exhibits and Annexes to the Agreement and the notion of 
Operative Agreements was worked into Section 2.2 to make it clear that ENA 
was released from its obligations under the Confirmantion and Guaranty ( if 
any, since it is a party) when released from the Agreement. Section 2.2 also 
makes clear that ENA cannot assign rights under Section 7.2 of the Xonon 
Agreement to CCSI ( consistent with the limitations on ENA's rights in 
Section 4.5 of the Xonon Agreement).

Article 3 was amended to incorporate the Operative Agreements into the 
representations and warranties of the parties.

Article 4 was revised to clarify that the 30 day cure period did not apply to 
failures to pay the Premium Payment installments and to add nonpayment under 
the Guaranty or failure by the bank to advance funds under the Letter of 
Credit upon presentation of a proper drawing certificate as Events of Default 
outside the cure period.  The bankruptcy  Event of Default was modified to 
incorporate the bankruptcy of the guarantor, Catalytica , Inc.

Article 5 was modified to incorporate the Operative Agreements so we have 
consistent assignment terms.

Article 7 indemnification now applies for Catalytica's default under the 
guaranty.

Article 9 was modified to make clear all the Operative Agreements must be in 
place for the Option Repurchase Agreement to become effective, and Article 10 
incorporates the Operative Agreements so that we have consistent terms for 
the miscellaneous provisions.Since the confidentiality agreement was never 
signed, Section 10.8 has been supplemented to include some of the key 
concepts from the proposed confidentiality agreement, including CCSI's 
requested modification that disclosure not be made to any person without 
consent unless the person had agreed to confidentiality restrictions as least 
as stringent as those in Section 10.8.

The changes to the Guaranty and Indemnification Agreement are intended to 
clarify that ENA is not  required to make demand under the Guaranty before 
proceeding to collect under the letter of credit, and to clarify that the 
condition to payment is CCSI's failure to pay upon a Joint Concurrence. 
Similarly, the drawing certificate conditions are limited to those in the 
Confirmation and the requirement that there be no Event of Default or 
possible event of default is deleted as adding unnecessary ambiguity to the 
draw procedures. CCSI will have notice of any such event ( see Section 3.2 
(h) of the Option Repurchase Agreement) and ENA will have no incentive to 
cause West LB to advance funds if GE is not performing. However, to the 
extent West LB may advance and ENA subsequently learn of a default, it is my 
understanding CCSI would still have to advance if the Joint Concurrence were 
delivered to it. This is consistent with the understanding that the Paid 
Premium will mirror in amount and be paid at least concurrently with the West 
LB advances under the Xonon Agreement. 

The Confirmation is revised to incorporate the change you suggested, although 
we need to discuss the cap on the LC since under the Confirmation CCSI is 
obligated to pay interest and expenses above the cap. The Confirmation also 
eliminates references to a Master Agreement signed in the future to 
supplement the terms of the option ( could be disruptive to say the least) 
and CCSI's right to object to the terms of the confirm ( unnecessary in this 
closely negotiated  transaction).

The other changes are typos or self-evident. If you have any questions let me 
know. The legend following the signatures will be removed in the execution 
version.