Enron North America Corp.
Mary Cook
1400 Smith, 38th Floor, Legal
Houston, Texas   77002-7361
(713) 345-7732 (phone)
(713) 646-3490 (fax)
mary.cook@enron.com
----- Forwarded by Mary Cook/HOU/ECT on 09/12/2000 09:13 AM -----

	Barton Clark
	09/11/2000 07:06 PM
		 
		 To: Lisa King/HOU/ECT@ECT
		 cc: Stuart Zisman/HOU/ECT@ECT, Richard Lydecker/Corp/Enron@Enron, Mary 
Cook/HOU/ECT@ECT
		 Subject: Project Raptor - Private Hedge Candidates

PRIVILEGED AND CONFIDENTIAL.

I think I am one of the people who raised the issue about the Asset 
Description in my mark-up of the Raptor I Derivative Proposal Sheet that I 
received this am from Stuart and returned to him midday. As I read the memo 
below, I am instructed to advise you about the nature of the underlying 
asset. 

The asset is Series B Preferred Stock of Catalytica Combustion Systems, Inc., 
and an option to acquire same. Currently, pursuant to a Series B Stock 
Purchase Agreement among Catalytica Combustion Systems, Inc. ( CCSI), 
Catalytica, Inc. ( CCSI's parent and currently holder of Series A and common 
stock of CCSI representing approximately 83% of the ownership of CCSI ) and 
Enron Ventures Corp. ( predecessor in interest to Sundance Assets, L.P.), 
Sundance owns 1,339,286 shares of Series B Preferred Stock and an option to 
purchase 535,715 shares of Series B Preferred Stock. 

There are provisions calling for the adjustment of the number of option 
shares subject to the option but I am not aware that any transactions that 
would cause such adjustment provisions, other that the stock split referred 
to below, to apply. The Series B stock is convertible to CCSI common stock, 
is restricted stock, and the Stock Purchase Agreement provides for 
registration rights. Currently, Tom White and Jack Urquhart both serve on the 
CCSI Boards of Directors, and Jack serves on the Catalytica Inc. Board.

Under an Omnibus Agreement entered into in September 2000, in connection with 
the restructuring of Enron's transactions with CCSI and in connection with 
the proposed acquisition of Catalytica, Inc, by a third party ( DSM, a Dutch 
pharmaceutical company)  and the distribution of Catalytica's CCSI shares to 
Catalytica's stockholders immediately prior to that acquisition, we agreed to 
convert the Series B to CCSI common, agreed to vote for a 2 for 1 stock 
split, and negotiated a cashless exercise of the option after the effective 
date of the spin off. The effectiveness of these provisions is dependent upon 
the effectiveness of distribution and acquisition The option itself ( as 
amended by the Omnibus Agreement and otherwise ) expires January 14, 2001. 
The distribution is expected to occur in the fourth quarter of 2000, but is 
subject to a variety of conditions. After the distribution and concurrent 
closing of the Catalyica acquisition transaction, CCSI ( which formerly 
looked to its parent for financing and much of its administrative and other 
support) will be a stand- alone public company listed on NASDAQ, with the 
uncertainties attendant thereto. 

The Omnibus Agreement also contains provisions amending Sundance's 
registration rights, the board representation provisions in the original 
Stock Purchase Agreement, and certain transfer restrictions ( to liberalize 
them and allow the Raptor transaction to take place). There are also 
agreements related to Enron North America's Xonon Technology Implementation 
Agreement with GE and West LB, which do not directly affect the Series B 
Preferred. These provisions instead go to the development program for CCSI's 
technology, to which ENA contributes funding, and conform that agreement to a 
change in CCSI's and GE's strategy for commercializing the technology. The 
funding obligation itself is interconnected with the turbine purchases for 
ENA's Pastoria project in California, but I don't believe that transaction 
needs analysis for these purposes, 

To comply with SEC rules in connection with the distribution, CCSI has filed 
an S-1 registration statement registering the CCSI common stock to be 
distributed to Catalytica's shareholders with the SEC, and Catalytica, Inc. 
has filed a merger proxy statement with the SEC in connection with its 
solicitation of Catalytica stockholder approval to the acquisition 
transaction. Comments are expected from  the SEC in 4 to 6 weeks.

Please give me a call if you wish to discuss this matter further, and I am 
instructed to request that you return the revised copy of the Raptor I 
Proposal Sheet to me and copy Mary Cook and Lisa Mellancamp thereon. The 
foregoing description may be more than you need for the summary, but it 
really is a very abbreviated snapshot of the transaction. All the documents 
related to the Preferred Stock and Option, including the executed Omnibus 
Agreement and the Stock Purchase Agreement, have been previously delivered to 
Sara Shackleton and Hope Vargas. 
----- Forwarded by Barton Clark/HOU/ECT on 09/11/2000 06:18 PM -----

	Stuart Zisman
	09/11/2000 05:15 PM
		 
		 To: James Grace/Corp/Enron@ENRON, Barton Clark/HOU/ECT@ECT, Dan 
Lyons/HOU/ECT@ECT, Peter del Vecchio/HOU/ECT@ECT, Peter Keohane/CAL/ECT@ECT, 
Anne C Koehler/HOU/ECT@ECT, Travis McCullough/HOU/ECT@ECT, Teresa G 
Bushman/HOU/ECT@ECT, Lance Schuler-Legal/HOU/ECT@ECT
		 cc: Julia Murray/HOU/ECT@ECT, Lisa Mellencamp/HOU/ECT@ECT, Mary 
Cook/HOU/ECT@ECT, Sara Shackleton/HOU/ECT@ECT
		 Subject: Project Raptor - Private Hedge Candidates

It has come to my attention that questions have been raised in reviewing the 
Raptor I Derivative Proposal Sheets regarding the type of information that 
should be set forth in the category entitled "ASSET DESCRIPTION".  The Master 
Derivatives Agreement ("MDA") requires that the Proposal Sheets describe the 
"Assets" with respect to which the derivative transaction is to be executed.  
For purposes of the MDA, "Assets" is defined as "assets, including without 
limitation common stock, partnership interests, member interests. other 
ownership interests, and other financial and physical assets."  Therefore, 
the description should include both the nature of the "Asset" (i.e. whether 
it is an equity interest, a loan, working interest, etc.) and a little bit 
about the company (the entity in which ENA holds the interest or has the loan 
or working interest).

Any comments to the Proposal Sheets should be delivered ASAP to the "Enron 
person completing this form" (This is the 3rd line under the heading 
"GENERAL" on each of the Proposal Sheets) along with a request that a revised 
Proposal Sheet be returned to the lawyer providing comments with copies to 
both Mary Cook and Lisa Mellencamp.   

The pressure to complete these Raptor hedges remains high and therefore your 
immediate attention is greatly appreciated.  Many thanks.

Stuart