============= Page 1 of 151 ============= CONFIDENTIAL1 ~ ~~33 Addendum Deal Approval Sheets Finance Committee Meeting May 1, 2000 Committee Members I X90. =XH003-01234 Endless possibilities. Mr. Herbert S. Winokur, Jr., Chairman Mr. Robert A Belfer Mr. Norman P. Blake, Jr. Mr. Ronnie C Chan E0004401920 Mr. Paulo V. Ferraz Pereira Mr. Jerome J. Meyer Mr. Frank Savage Mr. John A. Urquhart ============= Page 2 of 151 ============= Strategic Transactions m EXH003-01235 ============= Page 3 of 151 ============= Enron Transaction Appri I Summ Strategic Transactions Board of Directors Meeting: TODAY'S DATE: May 2, 2000 April 21, 2000 Tab No. Region/ Business Investment Class Date Approved Transaction Name Transaction Size Approval Authority* Net Amount S-1 EBS Conforming 31-Mar-00 AHI $ 56,850,000 ENE-CEO/COO $ 56,850,000 S-2 EBS Conforming 17-Mar-00 BellSouth PoP Deployment $ 6,025,000 ENE-OOC $ 6,025,000 S-3 Europe Conforming 14-A r-00 Condensing Turbine $ 11,000,000 ENE-OOC $ 11,000,000 S-4 Caribbean Conforming 14-Apr-00 EcoElectrica-Workin Capital $ 11,750,000 ENE-OOC $ 11,750,000 S-5 Enron Global LNG Conforming 12-A r-00 Elba Island LNG Terminal $ 66,100,000 ENE-CEO/COO $ 66,100,000 S-6 EES Conforming g 16-Feb-00 Georgia Arm $ 68,100,000 ENE-CEO/COO $ 68,100,000 S-7 ENA Conforming 31-Jan-00 Hurricane $ 21,000,000 ENE-CEO/COO $ 21,000,000 S-8 EE&CC Nonconformin 02-Feb-00 Jertovec Pre-NTP $ 10,000,000 ENE-OOC $ 10,000,000 S-9 ENA Conforming 16-Mar-00 Mariner - Pluto II $ 26,019,000 ENE-CEO/COO $ 26,019,000 S-10 EES Conforming 08-Feb-00 MDW $ 55,600,000 ENE-CEO/COO $ 55,600,000 S-11 EES Nonconformity 07-A r-00 Mercury (including addendum) $ 29,200,000 ENE-CEO/COO $ 29,200,000 S-12 EGF Conformity 31-Mar-00 Nowa Sarz na Equity Purchase $ 10,630,000 ENE-OOC $ 10,630,000 S-13 ENA Conforming 28-Mar-00 Powder River III $ 18,744,000 ENE-OOC $ 18,744,000 S-14 India Conforming 29-Mar-00 Property Acquisition $ 40,000,000 ENE-CEO/COO $ 40,000,000 S-15 ESA/EBS Nonconformity 10-Mar-00 South America Fiber Optic Network $ 10,054,000 ENE-CEO/COO $ 10,054,000 S-16 ESA Conforming 07-A r-00 Transredes II $ 5,000,000 ENE-OOC $ 5,000,000 Total Funded Capital Approved: $ 446,072,000 $ 446,072,000 w~.. .. ....i.. ....J 4- +l 4,drrnurinn fr,ncarfinn 1rnntraet nnvatinnl Tab Region/ Investment Date Transaction Name Transaction Approval Net Amount No. Business Class A roved Size Authority* S-17 EEL Conforming 1-Mar-00 NP TPL Deal $ - ENE-OOC $ - * Approved under authority granted at the August 1999 Board meeting. Included for information purposes only. E0004401922 EXH003-01236 ============= Page 4 of 151 ============= S-1 E0004401923 EXH003-01237 ============= Page 5 of 151 ============= ENRON RISK ASSESSMENT AND CONTROL DEAL APPROVAL SHEEr4 DEAL NAME: - AHI Date DASH Completed: 3/29/2000 Counterparty: WarpSpeed. RAC Analyst: Chulley Bogle Business Unit: Enron Broadband Services Investment Type: Acquisition Business Unit Originator: Mark Russ Capital Funding Source(s): Balance Sheet OPublic Private Expected Closing Date: 4/21/2000 DMerchant Strategic Expected Funding Date: 4/4/2000 Conforming DNonconforming Board Approval: OPending DReceived ODenied IEN/A RAC Recommendation: (]Proceed with Transaction DReturns below Capital Price DDo not Proceed APPROVAL AMOUNT REQUESTED Capital Commitment $56.85MM (Equity portion varies with ENE share price until Board approval is received)' EXPOSURE SUMMARY Equity $47.69 MM (635,718 shares@$75, current value) Cash 9.16 MM Total $56.85 MM DEAL DESCRIPTION EBS proposes to acquirel00% of WarpSpeed Communications, a company based in Northern California, for $56.85MM. (See exposure summary) WarpSpeed has developed software that, inter alia, allows real time switching of T-1 circuits. Having done extensive due diligence the EBS engineering team, consisting of Dorn Hetzel, VP Network Engineering and Operations, David Easterby, Larry Ciscon and David Berberian, is confident that this software can be adapted in a timely manner, and used as the platform for its bandwidth trading software. This would accelerate EBS' automation of bandwidth provisioning at the DS3 level and above. The alternative to acquiring WarpSpeed would be to use the platform being developed internally. The EBS engineering team acknowledges, however, that while that product would be adequate for the promised April 30 launch, it would need further development for additional functionality, extensibility and scalability features that are critical to the next versions of switching control software. Over the last 3 years, WarpSpeed has developed a robust code base which EBS' engineering team believes can provide these features more quickly and with greater capacity to evolve with market trends. Founded in 1997, WarpSpeed is able to provide broadband connectivity on demand. It achieves this by combining the cost- effectiveness and flexibility of Virtual Private Networks (VPNs), with the Quality of Service (QoS)'and security of leased lines, This service has spawned a new class.of broadband services called Dynamic Private Networks. The company currently has 54 employees, forty-five (45) of whom are engineers, experienced in developing connection management and switching software. TRANSACTION SOURCES AND USES OF FUNDS Sources Uses Cash $9.16MM General Corporate purposes $47.69MM Enron Equity $47.69MM Debt Repayment $9.16MM Total $56.85MM $56.85MM - RETURN SUMMARY WarpSpeed's business can be broken down into three separate areas of value: Acquisition Cost $ 56,850,000 1) Existing Code Base $ (12,000,000) 2) Incremental Benefit of "Buy vs. Hire" $ (24,300,000) Strategic Premium without T1 Business $ 20,550,000 3) Value of the T1 Business $ (7,000,000) Strategic Premium $ 13,550,000 E0004401924 =XH003-01238 ============= Page 6 of 151 ============= RAC Deal Approval Sheet 1) The Code Base - $12 MM Deal Name: AHI, Ownership of the code base, whether through acquisition or building in-house, is imperative to the success of EBS. The code base will serve as the platform from which EBS will launch its bandwidth-trading product. The engineering team has estimated the cost of developing the Code Base at $12MM: the time required is estimated at 20-man years. The estimate is based on the current pay scale for software engineers. This is expected to rise in the short term. The cost of any delay, while difficult to quantify, may be several times the actual cost of the code, due to the importance of time to market. Additionally, the following factors need to be considered under a build scenario:  Time to market would be significantly increased. That would have negative implicationsfor Enron's share price. • The existing WarpSpeed team is uniquely skilled; being knowledgeable in both telecom and software engineering  Recruiting the number of engineers needed would require 6-18 months 2) "Buy vs. Hire": An experienced team of engineers and managers - $ 24.3 MM As part of the package, EBS will also acquire the WarpSpeed management team and engineers. This engineering team possesses a rare combination of telecom and software skills that would bring a lot of value to EBS. EBS requires software- engineering talent and, without this acquisition, would need to rent or hire the talent to ensure the accelerated development of the EIN. The estimated recruiting time for 45 engineers of this caliber is about 12 months, on average per engineer. The estimated cost of renting during this period is $28.8MM. Incremental analysis of "rent vs, buy" and "hire vs. buy" shows that "buying" saves approximately $24.3MM on a present value basis. Savings for "buying vs. renting" are even greater. - 3) The existing TI business - $ 7 MM WarpSpeed is currently engaged in the business of providing switched nationwide T1 service on demand. This service connects customers, by local access T1 circuits, to WarpSpeed's network of DS3s, which is currently leased from AT&T. This enables the establishment of connections, between the customers designated points of origination and termination, for the specific time requested by the customer. The technology is based on a unique and highly scalable on-line transaction processing architecture. Customers are charged based on the minutes used, in addition to a monthly charge for'local TI access, which is a pass through to the local loop service provider. The T1 business could either be added to EBS' slate of product offerings or discontinued. EBS management believes that there is a potential market for this product and is reviewing the business plan. This business has been estimated by EBS, to be potentially worth $7MM. Strategic Premium The strategic premium can be justified based on the fact that EBS will be acquiring an experienced team of multi-skilled engineers, who are accustomed to working each other. In addition, EBS will, by acquiring WarpSpeed, reduce the time required for software development by some 20-man years. CASH FLOW SUMMARY EBS will be required to deliver, at closing, the 635,718 shares and $9.159MM for repayment of WarpSpeed debt. EXIT STRATEGY This is a strategic acquisition. No exit is anticipated. Ec004401925 J O:\ECM\RAAP\$OPNDEAL\EBS Deals\AHApriced_ 0300\DASH AHI_l0.doc Page 2 =XH003-01239 ============= Page 7 of 151 ============= RAC Deal Approval Sheet RISK MATRIX Deal Name: AHI DESCRIPTION MITIGATION/COMMENTS Retaining Talent Retention of management and engineering talent is crucial to the success of the acquisition. EBS enlisted outside consultants to evaluate the Northern CA market, with a view towards ensuring that compensation, including bonus and long-term incentives, is market competitive. Of the 45 engineers whose salaries were reviewed by the consultants, 27 were deemed to have market or better compensation. Additionally:  Two of the three members of the management team will be given 3-year contracts. The other member, due to family commitments, has requested, and will be given, a two year consulting contract.  The entire WarpSpeed team will be offered a Cash and Enron stock option retention package, in addition to standard competitive compensation packages.  The sales and marketing team may be retained depending on its ability to fit within the EBS organization. Team Integration An integration plan has been designed to keep the existing team in place to capitalize on the established product development structure. Reporting to Kevin Hannon, the WarpSpeed team will be kept in California, and will initially be focused on the delivery of the BW Manager switch. This will provide direction, and allow the team to add value in the near term. Value Based on Enron Share Price The purchase price has been set according to a fixed number of Enron shares. To the extent that Enron's share price increases before authorization of the new shares, EBS will be paying more for this acquisition. Limit on Indemnities An escrow account provides protection for any breaches of indemnities. This escrow account consists of 10% of the purchase price in Enron shares and will be released one year after the acquisition. No recourse for Enron exists beyond the one-year escrow account. T1 Business EBS will need to decide whether to deploy resources to expand/continue this business or to close it down. EBS Enterprise Services team is meeting with WarpSpeed management this week to examine this issue. If the decision is made to discontinue the business, the exposure is expected to be less than $2MM. E0004401926 Qt`,ECP.1`d? .^,P,$4PMDC".L`IrDE v Dcalo`,".flP,priood_0300`,D^.SH_^.HI_l0.do ps oP. 3 =XH003-01240 ============= Page 8 of 151 ============= RAC Deal Approval Sheet Deal Name: AHI KEY SUCCESS FACTORS NA Poor Excellent Core Business X -Strategic Fit x Upside Potential X Management x Risk Mitigation* X The risks of transaction are not fully mitigated. However, buying WarpSpeed significantly reduces the operational/developmental risks of EBS going forward. OTHER RAC COMMENTS: Over a 3-year period, equity investors, mainly venture capitalists, had invested $35mm into WarpSpeed. Enron Corp will be granting registration rights in connection with the issuance of.Enron common stock for this transaction. APPROVALS Commercial Commercial Technical Technical Legal Accounting RAC Management Commercial Management Enron Capital Management ENE Management Name Mark Russ Rich DiMichele John Griebling Dorn Hetzel Kristina Mordaunt Todd Lindholm Rick Buy/Dave Gorte "5Gi`7cIn-A,,~ . Joe Hirko/Ken Rice/Kevin Hannon Andy Fastow/ Jeff McMahon Jeffrey Skilling/Joe Sutton ? o-O Signature Date ECO04401927 0:\ECM\RAAP\$OPNDEAL\EBS Deals\AHI\priced 0300\DASH_AHI_l0.doc Page 4 EXH003-01241 ============= Page 9 of 151 ============= RAC Deal Approval Sheet Deal Name: AHI KEY SUCCESS FACTORS NA Poor Excellent Core Business x Strategic Fit x Upside Potential x Management x Risk Mitigation* x *Buying WarpSpeed reduces the operational/developmental risks of EBS going forward. OTHER RAC COMMENTS: Over a 3-year period, equity investors, mainly venture capitalists, had invested $35mm into WarpSpeed. Enron Corp will be granting registration rights in connection with the issuance of Enron common stock for this transaction. APPROVALS Commercial Commercial Technical Technical Legal Accounting RAC Management Commercial Management Enron Capital Management ENE Management Name natu Date Mark Russ C - ~- 0 O 'Rich DiMichele & John Griebling Dorn Hetzel Kristina Mordaunt Todd Lindholm 0,0 Rick Buy/Dave Gorte Joe Hirko/Ken Rice/Kevin Hannon Andy Fastow/ Jeff McMahon Jeffrey Skilling/Joe Sutton E0004401928 G:\Houston\Private\Corporate Development\from_Reagan\AHI\DASH AHI_I3.doc =XH003-01242 Page 4 3 ============= Page 10 of 151 ============= r NA Poor Exteilent (.=t Business- X Strata 'c Fir x Upside PC "al x Mina etnent ~ Risk Miei erion• x KEY SUCCESS FACTORS 2 'Buying W arpSpeed redueas the operadoul/developmental risks of EBS going forward. OTE13M RAC COMMENTS: Over a 3-year period, equity investors, mainly venttut capitsllau, had invested 335=n into WarpSpeed. E=n Corp will be granting regietradon rights in connection with the issuance of Earott c=m= stock for this tranaactioa. APPROVALS Cotnmerciel Co¢mtarcial Technical Technical Legal Accouutag RAC Maztagemeat Canm z'rcial Management Enron Capital Maaagemeai ENE Manageatent Name Ma k RV 63 Rich DiMichele Signature Date . - C_1TFMPOA SH_AHl_12.dw John Griebliag Dora Haul Mauna Mordaunt Todd Lindholm Rick Buy/Dave Gvrte Joe Hitko/Ken Ric"evin Hannon Andy Fasrow/ Jet!McMahon Jetliey Skillina/Joe Sutton Page 4 E0004401929 ~r d O 42 / =XH003-01243 ============= Page 11 of 151 ============= i4'AK.) i. 2U00 i 1 ! I'M RAC Deal Approval Sheet tiVKUN (Uvi ilid i vA iuI Deal Name: AHI ilv. ivv) KEY SUCCESS FACTORS NA Poor Excellent _. Core Business x Strategic Fit x Upside Potential x Management x Risk Mitigation* x *Buying WarpSpecd reduces the operational/developmental risks of EBS going forward. OTHER RAC COMMENTS: Over a 3-year period, equity investors, mainly venture capitalists, had invested $35mm into WarpSpeed. Enron Corp will be granting registration rights in connection with the issuance of Enron common stock for this transaction. 1 APPROVALS Name Signature Date Commercial Mark Russ Commercial Rich DiMichele Technical John Griebling Technical Dorn Hetzel 'y o7J Legal Kristina Mordaunt Accounting Todd Lindholm RAC Management Rick Buy/Dave Gorte Commercial Management Joe Hirko/Ken Rice/Kevin Hannon Enron Capital Management Andy Fastow/ Jeff McMahon ENE Management Jeffrey Skilling/Joe Sutton E0004401930 C;\TEM P\OAS H_A H I_ 13,doc Page 4 EXH003-01244 ============= Page 12 of 151 ============= 1 IO IMIKKJ WAR. 31.2000 3;01PMM RI - HIRKOWflCATIONS i AACDwlAppN.Ug is IAX N0, •5035318668 NO 1014 2 1 ?NO. 10125 1?. 25 DesaL M AIU SUCCISS FACTORS NA ow core wimu R 14e tf~l ilk tloo• i `9vyla4 WMVSpesasd'oml the oper%doMMYdevelopmeetal Asks e(DS doing M..d. OTMM MC COMM>iDraj Over a 3-rev period,' *.4%lb InyottorR m ij .e m wpltilitt0, Md lavestad $33ssm feoe WypypOed boron "*Ill be drsntka ceaissss lei d4h , is oMscdco whh Jw ii uan s of Hams coma n asset f Oils arsooccoa, Al'PROVAJL Now Coma rlal Coasnr.nsl.J _ Rar ~ .r iets dldkioio ?etitaksl D ..~._ Jebe tilled r.ow~el Dom Hacse) A,ccountlni ?odd Li.dhota+ ~_ RAC Mr..gsmsa Rich I uy/Dsvg Code C,mmereiol Ma, i4crosttt lot ItxkdK d Rke V4o-..) e1 P A Capital Masagament Md` y F&No'w/ Jeff msHa am @ 4E Msrussimal l.y Skull )ae Sutton Ds '111~ .01 CMTWMASH_.N)_)A,daa Pi i1 E0004401931 EXH003-01245 ============= Page 13 of 151 ============= RAC Deal Approval Sheet Deal Name: AHI KEY SUCCESS FACTORS NA Poor Excellent Core Business X Strategic Fit x Upside Potential x Management x Risk Mitigation x OTHER RAC COMMENTS: Over a 3-year period, equity investors, mainly venture capitalists, had invested $35mm into WarpSpeed. Enron Corp will be granting registration rights in connection with the issuance of Enron common stock for this transaction. APPROVALS Name Signature Date Commercial Mark Russ Commercial Rich DiMichele Technical John Griebling Technical Dorn Hetzel ~. t d i M K i l'~ Legal aun or na r st Accounting Todd Lindholm RAC Management Rick Buy/Dave Gorte Commercial Management Joe Hirko/Ken Rice/Kevin Hannon Enron Capital Management Andy Fastow/ Jeff McMahon ENE Management Jeffrey Skilling/Joe Sutton E0004401932 C:\TEMP\DASH AHI l0.doc Page 4 EXH003-01246 ============= Page 14 of 151 ============= cO • 3~iHd 1)t101 *:* RAC Deal Approval Sheet Deal Name: AM Global finance Summary (addendum to DASD 1. Transaction Summary .1v. V J V, I . V Amount (8000) Total DetillProjoct Capital Commitment S56.SSOMM Ltsa: Ficancings -0- Less: Syndications -0- Net Enron Investment $56.850MM 2. Inveatraent terms and pricing: ® Markr_t O Above Market O Below Market Describe (if necessary): The investment is being rrade usia Enron shares and cash. To the extant that Enron share prices A, U vary, the cost of the investment will change. boo 0 3. Financing (emus end pricing: Describe (if necessary): 4. Legal or practical Uquidity restrictions: Restricted Describe (if necessary): a] Market O Above Market 0 Below Market 0 Unrestricted O Legally Restricted IR Practically 5. Any recourse to Enron (other than investment; ® Recourse 0 No Recourse Describe (if any): Fnron Corp wil] be granting registr i on rights in cormectian with the- tssuance of Enron common stock. 6a. Business unit intent to sy'ndicatt:: © Nonc 0 Partial 0 All Describe (if necessary): 6b. Intended Enron hold period: This is a strategic investment. 6c, Likely Syndication Market: 0 Industry/Strategic Partner O Direct Private Equity Q Capital Markets 0 JEM 1 0 JEDI 2 0 Ftuterco O LJM 1 or 2 O Candor 0 Other: O Margaux Global Flsa+tace epresen vta c. 6d, Is this a JEW 2 "Qualified Investment"? 0 Yes R tS .. - - C.\TEM PID AS H _AH („ 10.doe KHO03-01247 Signature ® No (} JREn1Ct- M . LAW ye7. - Name (Printed) E0004401933 Date Paec 5 I ============= Page 15 of 151 ============= S-2 E0004401934 EXH003-01248 ============= Page 16 of 151 ============= ENRON RISK ASSESSMENT AND CONTROL DEAL APPROVAL SHEET DEAL NAME: BellSouth PoP Deployment Date DASH Completed: March 17, 2000 Counterparty: BellSouth Telecommunications, Inc. RAC Analyst: David Crews Business Unit: ECI Investment Type: Capital Expenditure Business Unit Originator: Nate Alvord Capital Funding Source(s): Balance Sheet OPublic [F]Private Expected Closing Date: March 17, 2000 OMerchant Strategic Expected Funding Date: April 15, 2000 !]Conforming ONonconforming Board Approval: OPending DReceived ODenied IN/A RAC Recommendation: !]Proceed with Transaction DReturns below Capital Price ODo not Proceed APPROVAL AMOUNT REQUESTED Capital Commitment Year 1 up to $ 2.275 million Year 2 up to $ 3.750 million Total up to $ 6.025 million EXPOSURE SUMMARY 1) Enron Firm Commitment Per Location Total Signing Bonus $ 250,000 Tier 1 DSL Payment (3 locations) Year 1 $200,000 $ 600,000 Year 2 $250,000 $ 750,000 Total-Enron Firm Commitment $1,6009000 2) Enron Commitment based only on Bell South option Tier 1 Dedicated Lines - Year 1 $ 60,000 $ 180,000 Tier 1 Dial up - Year 1 $ 40,000 $ 120,000 Tier 1 Dedicated Lines and Dial up - Year 2 $250,000 $ 750,000 Total - Enron Commitment based on Bell South Option $1,050,000 Total Enron Obligation $2,650,000 3) Enron Options Tier 2 - DSL Payments (9 locations) Year 1 $ 90,000 $ 810,000 Year 2 $125,000 $1,125,000 Total Enron Options $1,935,000 4) Bell South Contingent Puts Tier 2 Dedicated Lines - Year 1 $ 20,000 $ 180,000 Tier 2 Dial up - Year 1 $ 15,000 $ 135,000 Tier 2 Dedicated Lines and Dial up - Year 2 $ 125,000 $ 1,125,000 Total - Bell South Contingent Puts $1,440,000 Maximum Potential Enron Exposure DEAL DESCRIPTION E0004401935 $6,025,000 Enron would pay up to $6.025 million to BellSouth for the right to locate Enron equipment in BellSouth facilities in 12 priority locations with access to 15 markets over a 2 year period. Enron is obligated to pay for the three Tier I locations (Atlanta, Miami, New Orleans) for 2 years if Bell South performs under the contract. If Bell South provides access to their dedicated and dial up customers, Enron is obligated to pay for these customers as described in the Exposure Summary. Approximately 50% of Bell South's DSL lines are in these three markets, which makes these locations the priority for this investment. Enron has the option to locate in the Tier 2 cities (Nashville, Birmingham, Baton Rouge, Charlotte, Orlando, Jacksonville,. Louisville, Memphis, and Raleigh), but is under no obligation to do so. Only. Orlando is on Enron's current network. The value of these sites will depend on how quickly Enron can incorporate them into the network. Once Enron commits to a Tier 2 location, Bell South has the option of providing access to their dedicated and dial up customers for the payments described above. Enron will pay an additional bonus of $250,000 if the agreement is signed on or prior to March 16, 2000. Half of this signing bonus is refundable if Bell South terminates the agreement after the 3 month Atlanta location beta test period. As of December 31,1999, Bell South had 30,000 DSL subscribers, demand for 4,000 DSL lines per week, and was prnvisinning 1,4UU USI, lines per week. Bell south is targeting a goal of 1,200 DSL lines pro day through morn effective XH003-01249 ============= Page 17 of 151 ============= provisioning techniques including self installation for a 12/31/00 target of at least 200,000. Bell South estimates that they currently have between 50,000 and 70,000 dedicated circuits and 750,000 narrowband customers. TRANSACTION SOURCES AND USES OF FUNDS Sources Uses Enron Equity $ 6,025,000 Tier 1 Sites 2,400,000 Tier 2 Sites 3,375,000 Bonus Payment 250,000 Total $ 6,025,000 6,025,000 RETURN SUMMARY These payments would provide quick access to the customer base of BellSouth, which has a fast-growing pool of DSL subscribers. It is not possible to justify this investment based on Enron's current level of content. This investment provides an option that is valuable in attracting content and provides increased revenue as new content is contracted. Two methods have been used to put this into context. 1) An alternative approach to fixed payments for collocation had been a 10% revenue share. Under that arrangement, Enron would need to generate $28 million from the Tier 1 sites and $34 million, if all Tier 2 sites are deployed, over the next two years to justify the payment made. The ability to recognize this revenue will be impacted by the speed of deployment into the POPS. 2) To justify the colocation in the Tier 1 locations, Enron would need the Bell South customers (DSL, dedicated line, dial-up) to spend an average of 21 minutes per month watching Enron content (assuming equipment is fully depreciated over 2 years, 26 minutes during the first term, and 16 minutes during the second term). This would compare to the US West deal which would require 26 minutes per month of Enron content for year 1. The assumptions for this analysis are broad but have been added to try and put the upfront payment amount into context. CASH FLOW SUMMARY Year One: $250,000 bonus payment March 16, 2000 (payable within 30 days of March 16 execution date) $300,000 (x3) priority sites $300,000 per each Tier 1 site deployed for DSL, dedicated lines, and dial up $125,000 (x9) other priority sites $125,000 per each Tier 2 site deployed for DSL, dedicated lines, and dial up Year Two: $500,000 (x3) priority sites $500,000 per each Tier 1 site renewed for DSL, dedicated lines, and dial up $250,000 (x3) other priority sites $250,000 per each Tier 2 site renewed for DSL, dedicated lines, and dial up If the Tier 1 sites are not deployed one year after execution of the agreement, through no fault of BellSouth, Enron is obligated to make full payment ($1.15 million less amounts already paid) but retains the right to deploy in the sites for the remaining term of the deal. EXIT STRATEGY The agreement lasts for two years, but there is no obligation to service or pay for Tier 2 locations in either year. E0004401936 C:\TEMP\-5182598.doc Page 2 XH003-01250 ============= Page 18 of 151 ============= RISK MATRIX (Maximum 5) DESCRIPTION MITIGATION/COMMENTS Content Delivery Enron needs to be able to deliver ePowered content for 23 minutes average to all the DSL customers to recover the costs of colocating. Currently, EBS does not have enough content to recover this cost. The added reach should help EBS' marketing for additional content. Applications Enron is obligated to give Bell South 30 days written notice of new applications streamed by Enron (specifically interactive applications). If Bell South determines that such application will materially adversely affect its network, service or customers, the parties will try to negotiate a solution. If a solution is not negotiated, Bell South has the right to block that application or all applications. Access to Network The Tier 1 sites (Atlanta, Miami/South Florida, New Orleans) are on Enron's current network. If Enron fails to make all three Tier 1 locations commercially operational within 9 months of the effective, through no fault of Bell `South, the agreement terminates 12 months after the Atlanta location becomes commercially operational, with full payment for Year One Tier One locations payable. Of the Tier 2 sites, only Orlando is on Enron's current network. To obtain value from these sites, they will need to be connected to the Enron network through either satelliteor fiber networks. EBS will have to pay the full fixed payment for a partial year of deployment Enron is not obligated to make payments relating to Tier 2 sites. Test Period During the first 3 months of the Agreement, Bell South will beta test at its Atlanta location, and may conclude that the agreement should be terminated. In the event this happens, Bell South will refund $125,000 of the signing bonus and Enron will remove its equipment. Renewal The parties agree to work toward mutually agreeable compensation for Bell South in year two, but the agreement automatically renews for a second year with Bell South's compensation per location renewed as specified in the agreement. Enron is not obligated to bring u an of the Tier 2 locations during the first year. OTHER RAC COMMENTS: The economics for deployment at a Tier 2 site will vary dramatically with the time remaining under the contract. The contract structure may cause a delay in deployment in these sites, or a separate negotiation outside of this contract. APPROVALS Commercial Mgmt. Commercial Mgmt. Regional Mgmt. Legal Accounting RAC Management Enron Capital Management ENE Management C:\TEMP\ -5182598.doc Name Nate Alvord David Cox Joe Hirko/ Ken Rice Signature Date Kristina Mordaunt Tod Lindholm Rick Buy/ David Gorte Andy Fastow/Jeff McMahon Jeff Skilling/Joe Sutton ECO04401937 Page 3 XH003-01251 ============= Page 19 of 151 ============= RISK MATRIX (Maximum 5) DESCRIPTION MITIGATION/COMMENTS Content Delivery Enron needs to be able to deliver ePowered content for 23 minutes average to all the DSL customers to recover the costs of colocating. Currently, EBS does not have enough content to recover this cost. The added reach should help EBS' marketing for additional content. Applications Enron is obligated to give Bell South 30 days written.notice of new Oy\e p icatio If Bell South determines that such application will u~ materially dversely affect its network, service or customers, the parties will try to negotiate a solution. If a solution is not negotiated, Bell South has the right to block that application or all ~~ applications. Access to Netwo G The Tier 1 sites (Atlanta, Miami/South Florida, New Orleans) are on Enron's current network. If Enron fails to make all three Tier 1 locations commercially operational within 9 months of the effective, through no fault of Bell South, the agreement terminates 12 months after the Atlanta location becomes commercially operational, with full payment for Year One Tier One locations payable. Of the Tier 2 sites, only Orlando is on Enron's current network. To obtain value from these sites, they will need to be connected to the Enron network through either satellite or fiber networks. EBS will have to pay the full fixed payment for a partial year of deployment Enron is not obligated to make payments relating to Tier 2 sites. Test Period (,'1 r1 Bell South will beta test at its Atlanta location, and may conclude that the agreement should be terminated. In the event this happens, Bell South will refund $125,000 of the signing bonus and Enron will remove its equipment. Renewal The parties agree to work toward mutually agreeable compensation for Bell South in year two, but the agreement automatically renews for a second year with Bell South's compensation per location renewed as specified in the agreement. Enron is not obligated to bring u any of the Tier 2 locations during the first year. OTHER RAC COMMENTS: The economics for deployment at a Tier 2 site will vary dramatically with the time remaining under the contract. The contract structure may cause a delay in deployment in these sites, or a separate negotiation outside of this contract. APPROVALS Commercial Mgmt. Commercial Mgmt. Regional Mgmt. Legal Accounting RAC Management Enron Capital Management ENE Management C:ITEMP\DASH BellSouth.doc Name Signature Nate Alvord David Cox Joe Hirko/ Ken Rice Kristina Mordaunt Tod Lindholm Rick Buy/ David Gorte Andy Fastow/Jeff McMahon Jeff Skilling/Joe Sutton E0004401938 Page 3 Date XH003-01252 ============= Page 20 of 151 ============= wine. 1 /• LVUV i 1 v ynm '-n wiN RISK MATRLY (Maximum 5) -1003-01253 DESCRIPTION NIITIGATION/COMMENTS Content Delivery Enron needs to be able to deliver cPowered content for 23 minutes average to all the DSL customers to recover the costs of eoloeating. Currently, EBS does not have enough content to recover this cost. The added reach should help EBS' marketing for additional content. Applications Enron is obligated to give Bell South 30 days written notice of new applications streamed by Enron (specifically interactive applications). If Bell South determines that such application will materially adversely affect its network, service or customers, the parties will try to negotiate a solution. If a solution is not negotiated, Bell South has the right to block that application or all applications. Access to Network The Tier I sites (Atlanta, Miami/South Florida, New Orleans) are on Enron's current network. If Enron fails to make all three.Tier 1 locations commercially operational within 9 months of the effective, through no fault of Bell South, the agreement terminates 12 months after the Atlanta location becomes commercially operational, with full payment for Year One Tier One locations payable. Of the Tier 2 sites, only Orlando is on Enron's current network. To obtain value from these sites, they will need to be connected to the Enron network through either satellite or fiber networks. EBS will have to pay the full fixed payment for a partial year of deployment Enron is not obligated to make payments relating to Tier 2 sites. Test Period During the first 3 months. of the Agreement, Bell South will beta test at its Atlanta location, and may conclude that the agreement should be terminated. In the event this happens, Bell South will refund $125,000 of the signing bonus and Enron will remove its e ui ent. Renewal The parries agree to work toward mutually agreeable compensation for Bell South in year two, but the agreement automatically renews for a second year with Bell South's compensation per location renewed as specified in the agreement. Enron is not obligated to brie u an of the,Tier 2 locations during the first year. OTHER RAC CON UNTS: The economics for deployment at a Tier 2 site will vary dramatically with the time remaining under the contact. The contract structure may cause a delay in deployment in these sites, or a separate negotiation outside of this contract. I Date APPROVALS Name S '" Commercial Mgmt. ,{ h a Commercial Mg=t. David Cox Regional Mgmt. Joe Hirko/ Ken Rice 3 ~ 7 ~aG Legal Kristin Mordaunt Accounting Tod Lindholm RAC Management Rick Buy/ David Gorte Enron Capital Management Andy Fastow/JeffMcMahon ENE Management Jeff Skilling/Joe Sutton C:'TEMflDASH_Bel South.doe Page 3 E0004401939 MAR 1.'r ;'b00 1,1:21 iG0?833~~i~t? PAGE. 02 ============= Page 21 of 151 ============= FRU`'I R n . =utru 14-..54 r rw tN Q1µ =eKIJHllrHl•!L G 2t2~i TO 9130134@953z, P. 05-' SK MATRIX (Maximurrt 5) ~ _ DESCRIPTION ~ MITLGATlON/COMMENTS Content Delivery 1 Gnron needs to be able to deliver ePowered content fir 23 minutes average to all the DSL customers to recover the costs of celoeatirg. i CttrreotII, EBS does not have enough content to recover this cost. Tie added reach should help EBS' marketing for -additional __ content. Appll:ations Enron It obligated to give Bell. South 30 days written notice of new applications streamed by Enron (specifically interactive applications). 1f Bell South deterriines that ouch application will materially adversely a!lhet its netwmxk, service or custotners, the partial will ny to negotiate a solution. If a solution is not nt godated, Bell South has the right to block that application or all _ Access to Netwcd a lirstiotts: The Tier I sites (Atlaatr., MiaimiSouth Florida. New Crleans) are on luau's current: oetwork. If Enron Us to matte a!1 three Tier 1 locations commercially operalonol within 9 months of the etTective, through ro fault of Boll South. the agree] nt terminates 12 months pier the Atlanta location becomes commercially operational, with full 'meat for Year One Tier One locations ptp+able. Of the Tier 2 sites, only Orlando is on Enron's current nezwrork. To obtain value frog. these sits, they will need to be connected to the Enron network through either sateUlte or fibs networks. EBS will have to pay the full fixed payment for a partial yew of doployraent E=on is not obdigarsd to make payments relating to Tier 2 sites. Test Period During the first 3 atoms of the A emoa:, Boll South will beta teat at Its Atlanta location, and nay conclude tat the agree=nt should be terminated. Ia the event.this happens, Bell South will refund 9125,000 of the sigrsdtg bonus and Eamroa will remove its _ . equipment. - - Renewal _ he parties agree to work toward rat tuatly agreeable compensation , for Bell South in year two, but the agreement autoln; tioaiiy renews a second year with Bell South's compensation per location l ft n:newed as specified in the tgrtomettt. Boron is not obligated to ' b*r tip anY of the Ttar 2 lodctines durin the first year. OTHER RAC COMdWNTSt 711 economics for deployment at a Tier 2 site will vary dramatically with the tint icmainino raider the cotrtract. The Contract structure may cause a deLsy In deploy-alent in these sites, or a separate negotiation outside of this acnrract. APPROVALS Name Signature Data Commercial Mgmt. Nate Alvord , Commercial Mgmt. Dzvvid CC:tC > Regional Mgrat Joe H'srkowr Ken Rice Legal Kristisa Mordaunt Accounting Tod Lindholm PAC Managtvnant --Rick BW David Gorta Eaton Capital Management Andy Fastowfiefi'McMnhon ENE lfuangerneat Jeff Skihins)Joe Sutton C:~TE1+iP1~9162595! dac Pies 3 E0004401940 MAR 17 2000 15:09 fnGE..03 XH003-01254 ============= Page 22 of 151 ============= MAR 17 2000 15:46'FR ECI NETWORK SERVICES 713 646 B514 TO 918502652263 RISK MATRIX (Maximum 5) P. 05/06 DESCRIPTION MITIGATION/COMMENTS Content Delivery Enron needs to be able to deliver ePowered content for 23 minutes average to all the DSL customers to recover the costs of co locating. Currently, EBS does not have enough content to recover this cost. The added reach should help EBS' marketing for additional content Applications Enron is obligated to give Bell South 30 days written notice of new applications streamed by Enron (specifically interactive applications). if Bell South determines that such application will materially adversely affect its network, service or customers, the parties will try to negotiate a solution. If a solution is not negotiated, Bell South has the right to block that application or all applications. Access to Network The Tier I sites (Atlanta, Miami/South Florida, New Orleans) are on Enron's current network. If Enron fails to make all three Tier 1I locations commercially operational within 9 months of the effective, through no fault of Bell South, the agreement terminates 12 months after the Atlanta location becomes commercially operational, with full payment for Year One Tier One locations payable. Of the Tier 2 sites, only Orlando is on Enron's currant network To obtain value from these sites, they will need to be connected to the Enron network through either satellite or fiber networks. EBS will have to pay the full fixed payment for a partial year of deployment Enron is not obligated to make payments relating to Tier 2 silos. Test Period During the first 3 months of the Agreement, Bell South will beta test at its Atlanta location, and may conclude that the agreement should be terminated. In the event this happens, Bell South will refund $125,000 of the signing bonus and Enron will remove its ui ment. Renewal The parties agree to work toward mutually agreeable compensation for Bell South in year two, but the agreement automatically renews for a second year with Bell South's compensation per location renewed as specified in the agreement. Enron is not obligated to 1 an of te Tier 2 locations during the first year. brirtr u- OTHER RAC COMMENTS: . The. economics for deployment at a Tier 2 site will vary dramatically with the time remaining under the contract. The contract structure may cause a delay in deployment in these sites, or a separate negotiation outside of this contract. APPROVALS Name Signature Date Commercial Mgmt, Nate Alvord Commercial Mgmt. David Cox - J 1 ~_~'C) Regional Mgmt. Joe Hirk / Ken Rice w Legal Kristina Mordaunt Accounting Tod Lindholm RAC Management Rick Bud/ David GortE Enron Capital Management Andy Fastow/Jew ahon ~_ ENE Management Jeff Skilling/Joe Sutton EC004401941 3 C iTEMP\-sltl2s96.aoe p„B,r OOB.' TM %I t'TC4 9t-9 £Tl'0J. :wu e5.7T 000E-LT ZJUW H003-01255 ============= Page 23 of 151 ============= Global Finance Summary (addendum to DASH) 1. Transaction Summary Total Deal/Project Capital Commitment Less: Financings Less: Syndications Net Enron Investment 2. Investment terms and pricing: Describe (if necessary): 3. Financing terms and pricing: Describe (if necessary): 4. Legal or practical liquidity restrictions: Restricted Amount ($000) $ 6,025 -0- -0- $ 6,025 El Market 0 Above Market O Below Market 0 Market O Above Market O Below Market O Unrestricted O Legally Restricted t] Practically Describe (if necessary): Capital expenditure on a 2 year asset 5. Any recourse to Enron (other than investment): 0 Recourse 1 l No Recourse Describe (if any): 6a. Business unit intent to syndicate: i l None O Partial O All Describe (if necessary): 6b. Intended Enron hold period: 2-year term 6c. Likely Syndication Market: O In dustry/Strategic Partner O Direct Private Equity O Capital Markets O JEDI 1 O JEDI 2 O Enserco O LJM 1 or 2 O Condor O Other: O Margaux 6d. Is this a JEDI 2 "Qualified Investment"? O Yes 1F No Global Finance Representative: i~ ' Larry Lawyer f 0~ igna re Name rm e e C:\TEMP\-5182598.doc Page 4 E0004401942 =XH003-01256 ============= Page 24 of 151 ============= man. I /. LVVU" I I VUIIYI L. IC RU I' RISK MATRLX (Maximum 5 ) DESCRIPTION MITIGATION/COMritENTS Content Delivery Enron needs to be able to deliver cPttwered content for 23 minutes average to all the DSL customers to recover the costs of eolocating. Currently, EBS does not have enough' content to recover this cost. The added reach should help EBS' marketing for additional content. Applications Enron is obligated to give Bell South 30 days written notice ofnew applications streamed by Enron (specifically interactive applications). If Bell South determines that such application will materially adversely affect its network, service or customers, the parties will try to negotiate a solution. If a solution is not negotiated, Bell South has the right to block that application or all a lications. Access to Network The Tier 1 sites (Atlanta, Miami/Sourh Florida, New Orleans) are on Enron's current network. If Enron fails to make all three Tier 1 •ops commercially operational within 9 months of the effective, through no fault of Bell South. The agreement terminates .12 months after the Atlanta location becomes commercially operational, with full payment for Year One Tier One locations payable. Of the Tier 2 sites, only Orlando is on Enron's current network. To obtain value from these sites, they will need to be connected to the Eaton network through either satellite or fiber networks. EBS will have to pay the full fixed payment for a partial year of deployment Enron is not obligated to make payments relating to Tier 2 sites. Test Period During the first 3 months of the Aereement, Bell South will beta test at its Atlanta location, and may conclude that the agreement should be terminated. In the event this happens, Bell South will refund $125,000 of the signing bonus and Enron will remove its equipment ra- w,~ I be o-f"e- ~t $i2s`cck~ ,.• Renewal The parties agree to work toward mutually agreeable compensation for Bell South in year two, but the agreement automatically renews for a second year with Bell South's compensation per location renewed as specified in the agreement. Enron is not obligated to brie u an of the,Tier 2 locations during the first y year. OTBERRAC COMV LENTS: The economics for deployment at a Tier 2 site will vary dramatically with the time remaining under the contract. The contract structure may cause a delay in deployment in these sites, or a separate negotiation outside of this contract. APPROVALS Name Slg Date Commercial Mgtsrt. .r h e Commercial Mgmt. David Cox Regional Mgmt. Joe Hirko/ Ken Rice '3117 /o )070Z~ G Legal Kristin Mordaunt Accounting Tod Lindholm RAC Management Rick Buy/ David Gorte Enron Capital Management Andy Fastow/JeffMcMahon ENE Management Jeff Skilling/Joe Sutton C:\TEMP\DASH BellSouth doe Page 3 E0004401943 MAR 17 2000 13:12 13039374440 PAGE A7 KHO03-01257 ============= Page 25 of 151 ============= S-3 E0004401944 EXH003-01258 ============= Page 26 of 151 ============= ENRON RISK ASSESSMENT AND CONTROL DEAL APPROVAL SHEET DEAL NAIN E: Condensing Turbine Date DASH Completed: 07/04/00 Counterpany: ETOL- Wilton Power Station RAC Analyst: Moises Vdoi / Renata Frankova Business Unit: UK Origination Investment Type: Capital Expenditure Business Unit Originator: Matthew Scrimshaw Capital Funding Source(s): Balance Sheet Public (]Private Expected Closing Date: Q2 2000 OMerchant Strategic Expected Funding Date: Q2' 2000 (]Conforming ONonconforming Board Approval: Mending ![1 Received ODenied ON/A RAC Recommendation: 91 Proceed with Transaction OReturns below Capital Price ODo not Proceed APPROVAL AMOUNT REQUESTED Atnot t: Up to S I 1 M (£6.9M) ose. To increase the Wilton Power Station's steam condensing and electrical generation capacity. Requirements: 1) The transaction's NPV will be recalculated at the time of closing of the transaction with an updated power curve. 2) ABB to submit a foundation study and revised consolidated bidding document (including milestone program) before the contract is signed. EXPOSURE SUMMARY Commodity Exposure: NA Associated Guarantees: NA Existing Exposure: 579.5 M (ETOL investment value) This transactioru S 11.0 M Total: $ 90.5 M DEAL DESCRIPTION Enron Capital & Trade Resources (ECTRL), on behalf of Enron Teeside Operations Limited (ETOL), plans to invest $1 IM at the Wilton Power Station to increase its steam condensing and electrical generation capacity. The project involves the re-commissioning of a low-pressure turbo alternator (Secondary 4) as a fully condensing machine. The fully condensing machine will generate up to 34 MW of additional power, which will be sold to internal customers (ICI Chlorchems, 1C1 Olefines, and Dupont Melanar) at the Wilton site. This Lurge, integrated petrochemical and manufacturing site depends on ETOL for the supply of utilities, with Wilton Power Station providing power and steam at intermediate and low pressures. Currently, customers at the Wilton site need approximately 70 MW in excess of what the Wilton Power Station can produce. With the implementation of Secondary 4, the power plant will increase its capacity by 34 MW, therefore reducing the amount of energy being imported from the g id. In addition, this investment will enable the Wilton Power Station to operate with more flexibility. It will allow up to 34 MW of additional power to be generated even if steam demand from internal customers decreases. This is possible since any excess steam not used by the chemical plants will be used to n .m Secondary 4. On the other hand, during extreme surges of steam demand, the turbine will run using steam from alternative sources that are delivered to the ETOL site. Third party conractdrs will manage re-commissioning of the turbine. The condensing turbine will be owned and operated by Enron Teeside Operations Limited (ETOL). I3`CTRL will provide the capital required for the project and receive the revenues from the electricity sold to internal customers at the ETOL site under the Capacity Toiling Agreement (CIA) between ECTRL and ETOL. The Wilton boilers (spare boiler capacity) and TPL will supply the steam for the condensing turbine, with a maximum capacity of 175 tones of steam per hour. Under the Steam Site Services Agreement (SSSA), ETOL has the right to use 684 tones of steam per hour from TPL. Currently, ETOL receives a credit calculated at the start of the month for any steam they do not use. Therefore any TPL steam used in the condensing turbine will reduce the credit and this has been reflected as a cost in the project economics. E0004401945 H003-01259 ============= Page 27 of 151 ============= RAC Deni Approval Sheet Deal Name Condensing Turbine TRANSACTION SOURCES AND USES OF FUNDS ('000s) Sources Uses Enron Balance Sheet 511,000 Capex $11,000 Total S11,000 Total $11,000 RETURN SUMMARY (`000s) PV @ Cumulative Return Cornponenta: Capitol Price IRR Cash Outflows ($9,707) - Fees - - lntenned. Cash Flows $10,106 14.79% Terminal Value Total NTV 5414 14.73% TRR Distribution 12.0% Expected 10.0% 8.0% 6.()% 4.0% F 95 0.0 % C' Sq `~ N C T ~ 4G v. ~~'S x n n r ~ K ry m r c~ r, I= .. r-4 ,n °C Capital Price Components Risk free rate (%): 6.20 Equity/Credit premium (%): Country Premium (%): - Transaction-Specific (%): 7.40* RAC CAPITAL PRICE: 13.60% 6.7.b for gcncrul ETOL risk (aa per pricing at tin time of acquisition) + 0.7% for eonstractiou risk CASH FLOW SUMMARY 20, 000, 000 Cash Flow Summary 5,15,000,000 ' 510,000,000 . 55,000,000 $0 S(S.000.000) 9 10 11 S(1(),000,000) Years 505.000,000) -• kir^f Uut floes - Q Ougo in g -.. -Expected cumulanvc cash tlov.s -*r Cumulative P5 ~-71- Cumulative P95 TRANSACTION' UPSIDES/OPTIONALITY The project greatly increases the optionality of the plant, with potential upsides from the leverage of the increased security of supply, and upsides from new business opportunities. The project also fits in well with future growth strategies of the Wilton power station. • Enhanced plant operation: The optionality provided by the new turbine improves the operational flexibility and ciliciency of the plant. It also enhances the security of supply for steam customers, since the steam used in the S:,Underwriung\Prolcets tPre-Approvai)MActive\Condcnsing Turbin Priced0400\Does1D?SII100400.doc Page 2 E0004401946 :H003-01260 ============= Page 28 of 151 ============= RAC Deal Approval Sheet Deal Name: Condensing Turbine condensing turbine is immediately available for site usage when one of the chemical plants suddenly needs additional steam. The improved security of supply can be leveraged in future steam contract negotiations. • 1\4w Business opportunities: The security of supply improves the long-term competitive advantage of the Wilton Site. '!here is also an option value associated with the project from III' steam sale opportunities to existing customers. For example, DuPont requires HP steam to be available at all times. With Secondary 4 in place, this can be achieved quicker than if the boilers at the Wilton site had to suddenly be ramped up, thus increasing the output to meet the I-]P steam demands of DuPont. • Asset develmmment and growth yrwe•zv: The turbine is a key building block for future asset strategies, such as the re- comnissioning of a mothballed coal boiler (relevant should site steam demand increase), as well as plans to re-power the station with a set of gas turbines. Overall, signing up new customers is more beneficial to ETOL even though an increase in steam demand by itself has a negative impact on the project economics. EXIT STRATEGY Nia RISK MATRIX (Main 5 Risks Only) Steam Demand On-site steam demand may place restrictions on the operation of Secondary 4. if steam demand increases, less spare steam capacity is available to be used in Secondary 4 since the meeting of steam demand requirements from the Wilton site. is a priority. In that case, the remaining (supplemental) volume necessary for running Secondary 4 would be purchased from TPL, thus incurring an additional cost. On the other hand, on a deterministic case, if steam demand falls by 10% beyond current levels (389te%hr), the value of the project increases by approximately £2M. The future volume of on-site steam demand has a fair amount of uncertainty. However, in the absence of new chemical plant expansion there is a general expectation by . the FTOL team that it will slowly decrease, based on historical data from the chemical plants. Therefore, all things being equal it is likely that there will be excess steam to run. Secondary 4. Installation of the condensing turbine will also reduce the volume of excess steam being vented through the venting and heat exchange capabilities. Instead of venting excess steam, it will be used to operate Secondary 4. This is particularly valuable as current venting licenses may be withdrawn in the future by environmental agencies. Electricity Demand Risk that on-site demand is not sufficient to absorb additional 34 MW. The Wilton site is currently importing 70 MW front the grid to satisfy on-site demand. The new equipment will replace up to 34 MW of the imported electricity. ETOL does not currently have a license to export powerr to the grid if a significant decrease in demand occurs. However, the ETOL team believes it is unlikely that the electricity demand will decrease below the generation capacity of the Wilton Power Station (including the additional 34MW). For such an event to happen (which would imply an economic loss to the project), several industrial customers would have to shut down, at one time, for an extended period. Sit?adcr'x'riting\Projtots (Pre-Approval)l4ctive\C(ridensingTutbinc\Nricedtl%lO\floo\DASHlOO4Ot).duc Pig: 3 t E0004401947 :HO03-01261 ============= Page 29 of 151 ============= RAC Deal Approval Sheet Deal Name: Condensing Turbine Cost Overruns /Delays Risk that it is not possible to convert Secondary 4 to a condensing set meeting the required performance criteria, within a reasonable cost, currently estimated at $11 M. This risk is more significant than one would incur in a greenfield project for example because of the number of interfaces with other existing systems in the plant. in order to reduce this risk ETOL will sign a fixed price contract with ABB under which some risks will be transferred to them. Availability - Risk that the availability of 97% assumed in the economics of the model is rot achieved. Provisions for maintenance has been estimated to be 2 weeks per year when the turbine is not running. Other planned maintenance will tale place during off.-peal: hours. Maintenance time has been aligned to that of the boilers in order to maximize the overall efficiency of the site. Commodity Risk Risk that power pool prices decrease down to the cost of marginal. fuel (gas or FIFO) reducing the margin from condensing generation. The potter desk will hedge this risk on its book at the time of closine of this transaction. KEY SUCCESS FACTORS NA l Pour Escellcut j Core chless X gi SrrateQic Fit X Upside Potential X ManaLement X Risk Mitigation X OTHER RAC COMMENTS: The valuation model.used for the analysis of this deal (the Watershed model) involves the use of rainbow options to calculate the least expensive fuel, when Secondary 4 will be turned on or off etc. Given that tie use of rainbow option valuation incorporates the volatility of fuel and electricity prices it wouldn't be correct to further simulate these variables using Monte Carlo simulation. Thus, the only variables that were subject to Monte Carlo simulation were future steam demand and cstimated capital costs, two main risks in this transaction. S:\Undcnvriting '-njeCts (Pre-Approval)1Active'.Condcmia; Turbine\Priced)}100\Docstt)AsIil00400.doe Page 4 E0004401948 :HO03-01262 ============= Page 30 of 151 ============= :on Power Station Steam is generated by the three boilers and used to run the different NaL Gas I Oil Nat. Gas 1 Oil Coal 1 Oil turbines at different pressures. 1n addition, steam may be purchased No g No 7 No.S from TPL under the Steam Site Goiter Fbiler Service Agreement to nut Goiter Secondary 4. IP slreom from TPL Excess steam hom site at intennediotc pressure Three genorators)Groducing 120MW Inlermedlagpressure steam (IP) to Willon site 30 hMW (Proposed investment) LP stream from TPL Excess steam from site at low pressuro 42 Ltnv pressuje steam (LP) to Willon site E0004401949 ti XH003-01263 ============= Page 31 of 151 ============= RAC Deal Approval Sheet Global Finance Summary (addendum to DASH) 1. Transaction Summary Total DealIProject Capital Commitment Less: Financings Less: Syndication Net Baron Tnvestmettt 2. Investment terms and pricing: Describe (if necessary): 3. Financing terms and pricing: Describe (if necessary): 4. Legal or practical liquidity restrictions: Restricted Describe (if necessary): G market Deal Name: Condensing Turbine Amount ($000) 11.000 -0- -0- 511,000 O .Above Market 0 Below Market 0 Market 3 Above Market 0 Below Market rj4. 1 O Unrestricted 0 Legally Restricted Practically 5. Any recourse to Enron (Other than investment): 0 Recourse a No Recourse Describe (if an)): &i-hosc,% Srtr NNaEA. H003-01264 Ga. Business unit intent to syndicate: one 0 Partial 0 All Describe (if necessary): 6b. Intended Enron hold period: 6c. Likely Syndication Market: 0 IndustryiStrategic Partner 12 Direct Private Equity 0 Capital Markets 0 JEDI I ^/A 0 JEDI 2 a Enserco 0 LJM 1 or 2 0 Condor 0 Other: 3 Margaux 6d. Is this a TEDI 2 "Qualified investment"? 0 Yes t'No Global Finance Representative: Signature Name (Printed) ate S:\tlnderw'ri;ing'Proj=ets (Prc•Approval)\Activt:<4indcn.cing Turbine\Pricedo40OU7ocs`DASH10040Q.doc Wage 6 -_ E0004401950 ============= Page 32 of 151 ============= RAC Deal Approval Sbcet APPROVALS Business Originator Regional Mgrnt. Legal RAC Management Enron Global Finance ENE Management C:17LP+ff 4061553.doc Deal Name: Condensing Turbine Name Signature Date Matthew Scrimshaw i0~¢ OO Mark rrevert ~-an Michael Brown Dave Gorte Steve Young tZ oa Jeff Mc\Mahon Paul Chivers l 2 f o Joe Sutton i Page 5 EC0044O1951 (H003-01265 ============= Page 33 of 151 ============= AAC Deal Approval Sheet APPROVALS Name Business Origginator Matthew Scrimshaw Regianal Mgnt, Mark Frcvert Legal ~^ Michael Brown RAG ManageiTicnc Dave Gate Enron Global Finance ENE Management Steve Young Jeff McMa] an Paul Chivers lot Sutton C:bYindawnkTEMp\DASH 100400.6« Deal Name: C mdcneing Turbiuc lgnature Date i 2 j4-/ 00 ra.c 5 ECO04401952 1003-01266 ============= Page 34 of 151 ============= S-4 E0004401953 EXH003-01267 ============= Page 35 of 151 ============= ENRON RISK ASSESSMENT AND CONTROL DEAL APPROVAL SHEET DEAL NAME: EcoElectrica-Working Capital Date DASH Completed: 13-April 2000 Counterparty: EcoElectrica, L.P. RAC Analyst: Daniella Caxneiro Business Unit: Enron Caribbean Basin Investment Type: Working Capital Facility Business Unit Originator: Daniel Castagnola Capital Funding Source(s): Balance Sheet Public MPrivate Expected Closing Date: 13 April 2000 Merchant [K7 Strategic Expected Funding Date: 13 April 2000 !]Conforming 0Nonconforming Board Approval: OPending DReceived DDenied ]N/A RAG Recommendation: Proceed with Transaction DReturns below Capital Price DDo not Proceed APPROVAL AMOUNT REQUESTED Working Capital Facility The Caribbean Basin Region is requesting approval to provide a short-term, $9.00 MM Working Capital Facility to Enron's 47.5% owned investment, EcoElectrica, L.P (the "Project"). The proceeds will be used to provide liquidity to cover expenses of the Project for a period of not more than 12 months. Enron Guarantee Enron as sponsor of the Project is also requesting a $2.75 MM guarantee in order to release cash deposits held by Bank of America securing an irrevocable stand by letter of credit entered into by the Project, as security for the payment for LPG to its supplier. Mission Edison will provide a similar guarantee. The Guarantee is expected to expire in August 2000 when the Project's facility begins running on LNG. EXPOSURE SUMMARY Working Capital Facility $9.00. MM Enron Guarantee $2.75 MM Total $11.75 MM *This is incremental to the existing 533.5MMinitial equity investment in EcoElectrica, and the subsequent 595.0MMequity investment to unwind the "Churchill" FASB 125 transaction. DEAL DESCRIPTION Working Capital Facility Enron Caribbean Basin wishes to provide the Project with a short-term working capital facility to pay for ongoing expenses during the initial operating period, not expected to exceed 12 months. The facility will be an unsecured subordinated loan to the Project, however, senior to all existing subordinated debt at the Project. This is senior to Enron's other positions in EcoElectrica. The maturity will not exceed 12 months from the closing date, and the pricing is expected to be PRIME + 200bps with a default interest rate to include an additional 2%. Summary of Key Terms: • Tenor: up to 12 months. • Security: Unsecured loan. • Interest rate: Unsecured rate is a floating rate equal to PRIME plus a margin of 2.00% p.a. • Default interest rate: 2.00% p.a. over and above the unsecured rate. • Payment Schedule: Based on EcoElectrica's cash availability. • Seniority: Proposed Working Capital Facility will be senior to Sub-notes Payable to Enron and Mission Edison, and GE Preferred investment. Will be subordinated to senior debt. ENE Guarantee On July 1,1999 the Project established a $5.5 MM Irrevocable Standby Letter of Credit (the "LC") in favor of its current fuel supplier, Dynegy Global Liquids, as security for the payment of liquefied propane gas pursuant to a contract entered into on March 21, 1999. The LC, established with Bank of America N.T. & S.A. ("BOA"), is 100% cash collateralized, and the owners, Enron and Mission Edison, desire to place corporate guarantees in lieu of the cash deposit held as collateral (50% each). The $5.5 MM cash deposit will be released by BoA to the Project and used as additional working capital. The LC expires on June 28, 2000, but will be extended until August 30, 2000, at which time Enron's guarantee will have also expired. 4. E0004401954 :XH003-01268 ============= Page 36 of 151 ============= RAC Deal Approval Sheet Deal Name: EcoElectrica -Working Capital Working Capital Facility & Guarantee Sources Uses Enron Balance Sheet $9.OOMM EcoElectrica, L.P. (operating $11.75MM expenses) Enron Balance Sheet $2.75MM Total $11.75MM Total $11.75MM RETURN SUMMARY Working Capital RAC's capital price for the working capital facility is PRIME + 50bps, or 9.50% p.a. as of today. Based upon RAC's analysis of the proposed working capital facility, RAC rates it the equivalent of a "BB"P'Ba2" or "E-7" risk. The comparative analysis below indicates that Enron will be charging above market rates (prime + 200bps) for the working capital facility requested. Net available cash flows for 2000 are based on the deterministic model provided by the deal team for the analysis of the Churchill Unwind' transaction (DASH 30 March 2000). Senior Debt Existing W/C Facility Proposed W/C Facility Notes Payable GE Preferred Investment Net Available Cash Flows before proposed W/C Facility repayment Interest payment on W/C Facility Principal payment of W/C Facility Net Available Cash Flows after proposed W/C Facility repayment 2000 26,186 (855) (9,000) 16,331 ENE Guarantee: The RAC capital price for the ENE guarantee is 2.00%. This guarantee is also considered to be a "BB" /"Ba2" or "E-7" risk. Enron, however, will not charge a guarantee fee to the project, since Mission Edison, the other 50% equity holder in EcoElectrica, is putting up a guarantee in its ratable share of $2.75MM in the project at no cost. Therefore, there is no economic detriment to Enron in not assessing a fee on the $2.75 MM ENE Guarantee. ENE Guarantee APPROVALS Regional Originator Region Management Region Legal RAC Management Enron Capital Management Office of the Chairman Name Daniel Castagnola Avg. Int. Rates %DebtiTotal Cap 7.94% 70.87% 8.95% 3.53% 11.0% 1.06% 12.55% 4.01% 9.00% 12.34% Avg. Int. Rates %Debt/Total Cap 2.00% 0.32%- David Haug Coralina Rivera or Ned Crady Rick Buy or Dave Gorte Andy Fastow or Jeff McMahon Joe Sutton Si ature 1 1401 Date Y/ Do C:\My Documents\Ecoe1ectrica\DASH EcoElectrica WorkingCapita1Facility__041300-715pm.doc t E0004401955 Page 2 XH003-01269 ============= Page 37 of 151 ============= RAC Deal Approval Sheet Deal Name: EcoElectrica -Working Capital Working Capital Facility & Guarantee Sources Uses Enron Balance Sheet $9.00MM EcoElectrica, L.P. (operating $11.75MM expenses) Enron Balance Sheet $2.75MM Total $11.75MM Total $11.75MM RETURN SUMMARY Working Capital RAC's capital price for the working capital facility is PRIME + 50bps, or 9.50% p.a. as of today. Based upon RAC's analysis of the proposed working capital facility, RAC rates it the equivalent of a "BB"P'Ba2" or "E-7" risk. The comparative analysis below indicates that Enron will be charging above market rates (prime + 200bps) for the working capital facility requested. Net available cash flows for 2000 are based on the deterministic model provided by the deal team for the analysis of the Churchill Unwind transaction (DASH 30 March 2000). Avg. Int. Rates %Debt/Total Cap Senior Debt 7.94% 70.87% Existing W/C Facility 8.95% 3.53% Proposed WIG Facility 11.0% 1.06% Notes Payable 12.55% 4.01% GE Preferred Investment 9.00% 12.34% 2000 Net Available Cash Flows before proposed WIC Facility repayment 26,186 Interest payment on W/C Facility (855) Principal payment of W/C Facility (9,000) Net Available Cash Flows after proposed W/C Facility repayment 16,331 ENE Guarantee: The RAC capital price for the ENE guarantee is 2.00%. This guarantee is also considered to be a "BB"P'Ba2" or "E-7" risk. Enron, however, will not charge a guarantee fee to the project, since Mission Edison, the other 50% equity holder in EcoElectrica, is putting up a guarantee in its ratable share of $2.75MM in the project at no cost. Therefore, there is no economic detriment to Enron in not assessing a fee on the $2.75 MM ENE Guarantee. Avg. Int. Rates %DebuTotal Cap ENE Guarantee 2.00% 0.32% APPROVALS Name gn ture Da Regional Originator Daniel Castagnola,Q .,~ Q0 Region Management David Haug Region Legal Coralina Rivera or Ned Crady RAC Management Rick Buy or Dave Gorte Enron Capital Management Andy Fastow or Jeff McMahon Office of the Chairman Joe Sutton C:\My Documents\Ecoelectrica DA1 f Ecotlecuica WorkingCapita1Facility_o41300-'715pm.doc ECO04401956 Page 2 XH003-01270 ============= Page 38 of 151 ============= RAC Deal Approval Sheet Deal Name: EcoElectrica _Working Capital Working Capital Facility & Guarantee Sources Uses Enron Balance Sheet $9.00MM EcoElectrica, L.P. (operating $11.75MM expenses) Enron Balance Sheet $2.75MM Total $11.75MM Total $11.75MM RETURN SUMMARY Working Capital RAC's capital price for the working capital facility is PRIME + 50bps, or 9.50% p.a. as of today. Based upon RAC's analysis of the proposed working capital facility, RAC rates it the equivalent of a "BB"/"Ba2" or "E-7" risk. The comparative analysis below indicates that Enron will be charging above market rates (prime + 200bps) for the working capital facility requested. Net available cash flows for 2000 are based on the deterministic model provided by the deal team for the analysis of the Churchill Unwind transaction (DASH 30 March 2000). Senior Debt Existing W/C Facility Proposed W/C Facility Notes Payable GE Preferred Investment Net Available Cash Flows before proposed WIC Facility repayment Interest payment on W/C Facility Principal payment of WIC Facility Net Available Cash Flows after proposed WIC Facility repayment 2000 26,186 (855) (9,000) 16,331 ENE Guarantee: The RAC capital price for the ENE guarantee is 2.00%. This guarantee is also considered to be a..'BB"P'Ba2" or "E-7" risk. Enron, however, will not charge a guarantee fee to the project, since Mission Edison, the other 50% equity holder in EcoElectrica, is putting up a guarantee in its ratable share of $2.75MM in the project at no cost. Therefore, there is no economic detriment to Enron in not assessing a fee on the $2.75 MM ENE Guarantee. APPROVALS Regional Originator Region Management Region Legal RAC Management Enron Capital Management Office of the Chairman Avg. Int. Rates %Debt/Total Cap ENE Guarantee 2.00% 0.32% Name Signature Date Daniel Castagnola David Haug Coralina Rivera or Ned Crady Rick Buy or Dave Gorte Andy Fastow or Jeff McMahon Joe Sutton C:\MyDocuments\Ecoelectrica\DASH EcoElectrica_WorkingCapitalFaciliry 041300-715pm.doc Page 2 E0004401957 Avg. Int. Rates %Debt/Total Cap 7.94% 70.87% 8.95% 3.53% 11.0% 1.06% 12.55% 4.01% 9.00% 12.34% =XH003-01271 ============= Page 39 of 151 ============= RAC Deal Approval Sheet Deal Name: EcoElectrica -Working Capital Global Finance Summary (addendum to DASH) 1. Transaction Summary Total Deal/Project Capital Commitment Less: Financings Less: Syndications Net Enron Investment Amount ($000) $11.75 -0- -0- $11.75 2. Investment terms and pricing: U Market 1] Above Market 0 Below Market Describe (if necessary): 3. Financing terms and pricing: Describe (if necessary): 4. Legal or practical liquidity restrictions: Restricted Describe (if necessary): 5. Any recourse to Enron (other than investment): Describe (if any): O Market 0 Above Market 0 Below. Market 1] Unrestricted U Legally Restricted 0 Practically [] Recourse O No Recourse 6a. Business unit intent to syndicate: 1] None 0 Partial O All Describe (if necessary): Due to the short-term nature of the commitments, syndication is not expected. 6b. Intended Enron hold period: Guarantee: 6 months Working capital facility: 12 months 6c. Likely Syndication Market: 0 Industry/Strategic Partner 0 Capital Markets 0 JEDI 2 0LJM1or2 l] Other: 0 Direct Private Equity O JEDI 1 0 Enserco 0 Condor O Margaux 6d. Is this a JEDI 2 "Qualified Investment"? 0 Yes 1] No 4,2e Global Finance Representative: ~~ Signature Name (Printed) Date C:\My Documents\Ecoelectrica\DASH 'EcoElectrica WorkingCapitalFac~lity__041300-715pm.doc XH003-01272 E0004401958 Page 3 ============= Page 40 of 151 ============= S-5 m 0 0 .p P 0 C0 01 EXH003-01273 ============= Page 41 of 151 ============= lVl-~,^Iat //W"\ ENRON RISK ASSESSMENT AND CONTROL g g, DEAL APPROVAL SHEET DEAL NAME: Elba Island LNG Terminal Date DASH Completed: April I1, 2000 Counterparty: El Paso Corp./El Paso Merchant Energy RAC Analyst: Farhad Ahad Business Unit: Enron Global LNG/CALMS Investment Type: Equity/Demand Charge Business Unit Originator: Doug Rotenberg Capital Funding Source(s): Balance Sheet DPublic Private Expected Closing Date: April 12, 2000 OMe+-chant ]Strategic - Expected Funding Date: Elba Island - October 2003 !Conforming ONonconforming Board Approval: OPending DReceived ODenied EN/A RAC Recommendation: OProceed with Transaction ]Returns below Capital Price ODo not Proceed APPROVAL AMOUNT REQUESTED The Enron Global LNG Group is requesting approval to enter into a 17-year LNG terminal capacity arrangement at a cost of $11.7MM-S 13.1NWyear with El Paso Merchant Energy (EMS) which holds 100% of the capacity of the Elba Island (Georgia) LNG terminal ("EIT"). Enron Global LNG'ss payment and obligations under the capacity agreement are to be guaranteed by Enron Corp. Present Value of Expected Capacity Payments, Capital Price @ 17% 566.1 million ($2002) FINANCIAL EXPOSURE SUMMARY This Transaction: Nominal: $210.0 million; Discounted @ 17%: $66.1 million (52002) DEAL DESCRIPTION The Enron Global LNG group (ELNG) has an option for LNG terrninalling capacity and an option to sell 62 TBtu per year of natural gas produced from LNG to El Paso Energy or its affiliates at the EIT for a seventeen year period commencing in the first quarter of 2002. The strike price for gas sold under this option is Henry Hub plus $0.02M fbtu. This contract/option has an exit provision, which gives ELNG the right to walk away at no cost, provided this option is exercised no later than April 12, 2000. In exchange for the right to sell this quantity of regassified natural gas, Enron pays El Paso a base fee for cost of service for 62 TBtu at the EIT of approximately $12 million per year and variable fees based upon throughput expected to approximate $6 million per year. Base fees escalate each year, reaching approximately $13 million in 2018, the last full year of this contract. Enron is committing to pay demand charges at EIT but is under no obligation to deliver LNG. EME is committing to take LNG (and pay for if not taken) properly nominated by ELNG. EIME's obligations are secured by El Paso Corp. The rationale for ELNG exercising this option and entering into this LNG terminalling agreement is to use the EIT for its own projects on a long-term basis (Jose, Venezuela LNG project), to sell Enron's rights to a third party for that entity's project (e.g., LNG projects from Trinidad, Algeria, or Nigeria), or to operate the EIT as a merchant facility and purchase LNG from a third party and sell it to EMI and/or arrange short-, medium-, or long-term trades with third parties using the EIT and EME as the offtaker. The EIT LNG facility was constructed by Sonat and was operational between 1977-1980, but it has been closed since 1980 as deregulation in the industry and lower than projected U.S. natural gas prices made this terminal uneconomic. The writedowns of the EIT (original cost basis $400MM) and the level of U.S. natural gas prices prevailing currently and projected on a forward basis have improved the economics of the terminal and thus re-commissioning of EIT is scheduled by 412002. The proposed ELNG agreement represents 36% of the EIT capacity and 60% of the output of the lose LNG facility. British Gas has control of the remaining 64% and will pay approximately $20 million annually for this capacity to support its Trinidad LNG project. ELNG has the right to sell regassified LNG to El Paso at Henry Hub + $0.02 in a market that following the reactivation of the EII' will trade at approximately Henry Hub less $0.05. ELNG can either deliver LNG when the option is in the money, firm up delivery if a higher price is offered or divert LNG volumes to higher value markets. TRANSACTION SOURCES AND USES OF FUNDS ($000) Uses for 17-year life of contract: nominal $210.0 million; PV @ 17%, $66.1 million ($2002) Source of Funding: Enron Balance Sheet G~Ca,vne.,Gav~l.I~mwWambrr6~0h5 N~ ~ 2C11,enU~y. Jet EC004401960 XH003-01274 ============= Page 42 of 151 ============= RAC Deal Approval Sheet Deal Name: Elba Island LNG Terminal RETURN SUMMARY - (Merchant Analysis) Discount Rate Components Capital Price Risk-free rate 6.S4% Equity Premium 5.02% Transaction premiu_m_ 5.14% RAC Capital Price (All-in) 17.00%* Probabilistic DCF Cumulative PV @ Capital by Component (3' Party Shin)' fl R Price Cash Outflows + Outstanding NA ($63,960) Ongoing Cash Flows _ NA $61,259 Total NA ($2.701) The capital price for this project was determined assuming it is equivalent to the market equity return for a merchant power plant in the U.S. Cash Flow Summary $100,000 Curl Ongoing $50,000 D Fees s0 Outflows 5(50.000) Cumulative P95 $(100,000) ---.•--Terminal Value 5(150,000) Cumulative PS S(200,000) -s-- Expected cumulative cash flows $(250,000) --f- Elapsed 1 3 5 7 9 11 13 15 17 19 Years The origination team and RAC agreed upon and constructed a model to define the expected merchant risk/returns of ELNG's proposed terminal capacity commitment to ElT. This merchant analysis assumes no dedicated ELNG source of LNG supply (i.e., the Jose Project or third party long-term contract) to utilize the EIT. The origination team developed a merchant LNG analysis (global supply/demand balance, economics to producer/buyer, attached) that suggests in the five year time horizon from the reactivation of the EIT that there is adequate excess LNG supply to acquire LNG volumes and economically utilize ELNG's terminal capacity. Following the initial five year time horizon, three outcomes were modeled on a probabilistic basis, (1) ELNG's rights are sold. assigned or otherwise conveyed to a third party with ELNG's obligation effectively being: terminated (probability 20%), (2) ELNG pays full terminal charges for years 6 to 17 of the contract and does not deliver a single cargo of LNG to EIT (probability 20%), (3) ELNG acquires merchant cargoes year to year with the volume available driven by a probabilistic analysis of the forward U.S..gas price curve, i.e., the higher the gas prices the more attractive the EIT capacity to the LNG producer (probability 60%). See Attachment I for the returns projected under each scenario on a deterministic basis. Zero cargoes were assumed to be available below S1.90/MMBtu with the volume scaling up to 12 cargoes (two thirds ELNG's entitlement of the EIT) at S3.40JMMBtu. TRANSACTION UPSIDES/OPTIONALITY - INTEGRATION WITH GLOBAL LNG STRATEGY An upside of the ETT to ELNG is that it creates a market for up to 60 percent of the proposed lose (Venezuela) LNG project's output. If Ertron elects to exit the EIT, the offtake represented by EIT could be replaced, however, it will likely cause a delay of 6 to 12 months. ELNG is developing several high value markets in Puerto Rico and the Dominican Republic, working with E=n Europe to supply the ARCOS power plant (1200MW) in Southern Spain. working with Union Fenosa on an LNG regas/LNG sale into Spain and the Dominican Republic and further liquid markets may open from time to time. The contract structure of Jose LNG provides for a 19 month window commencing September 2000 (with a total financial exposure of 54MM) to complete the execution and financing of the project and back-to-back the deals. ELNG has the right to elect a Redelivery Option and convert the sale into a sell/buy with a redelivery to ELNG of regassified LNG at the tailgate of EIT. With such election, ELNG can effectively make regassified LNG available to ENA (or directly to a third party) for medium or long-term sales. The benefit of this option is expected to be $0.05/MMBtu to $0.15/IvIMBtu, provided a pipeline is built from the EIT to either the Carolinas or Florida. The current gas sales agreement with El Paso for the BIT provides a price of plus $0.GZ%1NMtu basis to Henry Hub, a premium to ENA's estimate of the market price of gas at the EIT today of negarive $0.0SIMMB to basis to Henry Hub. GYSm.aHCa,udJ~+Waa.anQ~D~..7t~t:aomeaf~~.dee 2 E0004401961 (H003-01275 ============= Page 43 of 151 ============= RAC Deal Approval Sheet Deal Name: Elba Island LNG Terminal This investment is a strategic fit and a catalyst for growth for the Caribbean and the Atlantic LNG businesses. The EIT market is unique and complementary to ELNG's other potential markets. The flexibility provided by EL.NG's arrangement with EME is unmatched in the global LNG marketplace. With ELNG's put/demand charge structure with EIRE, ELNG can offer demand charge structures to third parties that no other suppler can provide in a market that is extremely wary of long-term take or pay commitments. The project may be able to utilizc shipments from the Hoegh Galleon (formerly; Mystic Lady), which Enron has on a 17-year charter commencing late this year. Other possible uses of the Hoegh Galleon are supplying LNG to the Metgas Project in India. Availability of the Hoegh Galleon for shipments to the EIT serves to mitigate a material risk of this investment, and assuming it is used in connection with the EIT for the full term of its charter, this increases the NPV by approximately $11 million. Further, GPG is working with Southern Natural Gas on a new pipeline to Florida which may be included as part of our joint Florida operations (Citrus). This pipeline could add, to the extent capacity is taken by ENA or it's customers, to ENA is marketing ability in this key gas demand area. EXIT STRATEGY This contractual obligation is self-liquidating at the conclusion of its seventeen-year term. The planned business strategy is to (1) utilize the EIT capacity and gas sales option with. El Paso as the anchor buyer for the Jose LNG project (in which case the payment obligation will be to the account of a project company, with the Enron Corp. guaranty remaining in place), (2) to sell, assign, or subcontract the EIT capacity to a third party with long-term LNG supply and/or transportation, or (3) utilize the EIT capacity and gas sales option in a merchant operation (economics described herein). There is no assurance that either alternatives (1) or (2) will be available to Enron at present. RISK MATRIX Description Of Risk Miti tion/Comments • Natural gas price variability and • The contract sales prices to El Paso are based upon pricing volatility in the U.S market indices commonly used in the natural gas industry in the U.S. • Low natural gas prices in the local As a consequence, both the pricing variability and volatility U.S. market in particular and/or in can be limited through the use of a variety of price hedging the U.S. market in general may instruments. make merchant LNG importation • Enron could utilize a swap for the first five years of this into the U.S. uneconomic (Henry transaction: No swap or other hedging agreements are Hub prices below approximately currently in place. In the absence of a long-term LNG supply $1.90fMmbtu, assuming current contract, it is not advisable to hedge fully the EIT natural gas LNG prices and shipping costs, price exposure for the term of the EIT contractual obligation. may make this investment uneconomic). Constraints on LNG Merchant • The Enron-controlled Hoegh Galleon is presently the only Shipping Capacity available merchant LNG tanker. It should be noted that Enron has other projects that may be better uses of the Hoegh Galleon, such as Metgas. Value created in the other projects will offset the loss of the Hoegh Galleon's value to Enron value at Elba. Other LNG tankers are available seasonally for merchant service today (see attached Merchant LNG Analysis) as are tankers under the control of LNGsuppliers. The high cost of LNG tankers and the inability to finance these ships for merchant service makes a large fleet of such tankers unlikely. C:mnnen'QwW mouWaenrr~,~0n$N. I:OOma i,, oc :XH003-01276 E0004401962 ;f ============= Page 44 of 151 ============= RUC Deal Approval Sheet Deal Name: Elba Island LNG Terminal RISK MATRIX (Continued) Descri tion O Rial: I MitigationJComments • Other existing or future LNG • A risk exists that other LNG terminals may offer more terminals may be more attractive attractive economics than the EIT. The Cove Point, MD locations for merchant LNG terminal may be re-commissioned by Columbia shipments than the BIT, reducing Energy/Nisource in the same timeframe as the BIT. Once a throughput at the EIT even if U.S. baseload supply of 500,000 MMBtulday is secured, this gas prices support LNG facility may begin to attract merchant volumes away from importation. EIT. The model for this invesrrnent assumes a 20% probability that there is no throughput at the EIT because of either low U.S. natural gas prices or more competitive LNG terminals. • Customer's Failure to Take • El Paso has a firm obligation to purchase and receive all volumes confirmed and delivered by Enron. backed by a 100% take-or-pay commitment and a parent guaranty from the El Paso Energy Corporation BBBJBaa2 . • Scheduling Risk- Annual Program • Enron has full take-or-pay rights for volumes Enron has • Scheduling Risk - Operational available for delivery that cannot be scheduled (due to a Problems failure or El Paso) once the LNG Terminal is reactivated. The terminal is fairly tight with Enron and BG product. There is a risk that all of Enron's entitlement cannot be scheduled or delivered. Enron must plan adequate shipping and access to a liquid market in Puerto Rico or Lake Charles (an open access facility) to mitigate this schedule risk at Elba Island. • Enron's right to its scheduled Arrival Windows at the LNG Terminal is absolute. In the event o f any operational problem experienced by Enron (e.g. shipping delays), the opportunity loss is limited to the affected Arrival Windows. Business interruption insurance will be secured for such situations. Operational problems at the LNG Terminal itself will, under Southern LNG's tariff, be generally characterized as "force majeure". Other operational problems will not relieve El Paso of its obligations. • A substantial lack of scheduling capacity over three years gives Enron the right to cancel the contract. • Failure of LNG Supply • Enron plans to secure protection through alternate supply • Failure to Deliver LNG locations. • Failure to Obtain LNG Shipping • Enron has "force majeure" protection for ship failure. after Scheduling Delivery at the • Enron has no firm delivery obligation and its cover exposure BIT. is limited to cargoes of LNG that have been confirmed at the time any problem occurs. This will be a maximum of two cargoes. • Enron has the right to supply domestic replacement gas to cover. Cover is capped at 500% of Henry Hub. Typical replacement gas should be less than $0.1OIMMBtu • Enron will make its own ship charter arrangements and is negotiating the utilization of British Gas's spare ship capacity dedicated to the Trinidad-Elba trade. • Enron can purchase and deliver LNG on an "ex-ship" basis. • Regulatory Risks and Related • Enron's access -to the Elba Island terminal regulator (FERC) Concerns (Cost Overruns) is indirect, since El Paso is Southern LNG's customer. Although Enron has agreed to limited protest rights around the reactivation of the LNG Terminal, it can breach this obligation by actively protesting with the FERC, but at the loss of its Rate Moratorium. • En on has the right to protest costs overruns (above a certain minimum at the FERC. The British Gas consortium will !:.! E0004401963 KHO03-01277 a ============= Page 45 of 151 ============= PL-kC Deal Approval Sheet Deal Name: Elba Island LNG Terminal also be a potentially strong protesror as well. • Enron's exposure to vaporizer improvement costs is capped. Also, Enron will control the construction and installation of the nitrogen treating facilities. In addition, Enron can rely on the FERC to take a more active roll in judging the prudency of cost overruns in light of recent initiatives in this specific area. KEY SUCCESS FACTORS NA Poor Excellent Core Business I I X Strategic Fit I I X Upside Potential X Management X I Risk Mitigation I X OTHER RAC COMMENTS: In the absence of a dedicated LNG supply contract and related LNG tanker shipping contract from Jose LNG project or a third party, this is considered a relatively speculative contractual investment with an assumed 20% probability of no revenue generation to offset the base terminalling fee after five years of operation. Other investments in other LNG terminals, particularly the Cove Point, Maryland LNG terminal, may provide (when nearly fully utilized) more attractive economics for merchant LNG importation. However. with a successful conclusion of the lose LNG project or robust growth of the Atlantic LNG trade, the EIT contractual investment on a project or merchant basis may produce returns exceeding its capital price. APPROVALS Regional Mgmt. Tax Legal RAC Management Enron Capital Management ENE Management Originator Other Name David Haug Keith Gerken Nancy Corbet Rick Buy/David Gorte Andy Fastow/Jeff McMahon Jeffrey Skilling Doug Rotenberg jZtGK ~-E2GSi~Ks~ 7OS,e 5v-s7Ot) a~La~awa~ee~aat.Mos~avlamM ~t0~tw ~ s~anwine.ae 5 ate ~- o0 ao Y t w 4 i of E0004401964 XH003-01278 ============= Page 46 of 151 ============= RAC Deal Approval Sheet ATTACHMENT I. Three Scenarios for ELT for 17-year term of the contract. Deal Name: Elba Island LNG Terminal Deterministic Scenario PV @ 1717c Explanation . 1. 5 years of full merchant $23 million The lack of liquid markets and the relative excess of global LNG supply utilization, then provides for economic utilization of this terminal capacity for the initial five- conveyance of the years. With excess capacity in Algeria and expansions in Nigeria, Algeria and terminal capacity Trinidad, it is assumed that this capacity would be attractive as a baseload payment obligation to a market or as a "balancing" market due to the demand charge/put structure. third party (probability 20%) 2. 5 years of full merchant $2 million The five year global LNG supply excess holds but thereafter no LNG and utilization, then payment transportation capacity is available (on economic terms to both parties) to be of terminal capacity utilized at the EIT terminal. Only likely with sustained (years 6 to 17) low gas charges for years 6 to 17 prices (below 51.90(MMBtu). wide and sustained price differential between (probability 20%) U.S. and European gas prices, or lack of availability of LNG tankers. 3. 5 years of full merchant $24 million The five-year global LNG supply excess holds but thereafter LNG is only utilization, then available under certain U.S. gas price environments. LNG tanker availability is utilization driven by the assumed if U.S. natural gas prices arc sufficient. U.S. gas price environment with no volumes available below $1.90IMMBtu and 12 cargoes available at $3.40IMMBtu and higher (probability 60%) Hence, from the deterministic Base Case the first five years' value is $23 million, and the values for the remainder of the term for Options 1, 2 and 3 are $0, ($21 million), and $1 million, respectively. The expected probabilitistic PV is lower than any of these factors due to the probabilistic modeling of the possibility of uneconomic operations in the first five years and thereafter. a~~~~~+outaa~a,rs~a.~sw+noa~a:~y.~ 6 EO004401965 KH003-01279 ============= Page 47 of 151 ============= r Global Finance Summary (addendum to DASH) 1. Transaction Summary Total Deal/Project Capital Commitment Less: Financings Less: Syndications Net Enron Investment Amount ($000) $210,000 -0- -0- $210,000 2. Investment terms and pricing: Describe (if necessary): 21 Market 0 Above Market 0 Below Market 3. Financing terms and pricing: 0 Market 0 Above Market 0 Below Market Describe (if necessary): 4. Legal or practical liquidity restrictions: 0 Unrestricted 0 Legally Restricted ® Practically Restricted Describe (if necessary): Permission is required by El Paso. 5. Any recourse to Enron (other than investment): El Recourse 0 No Recourse Describe (if any): This performance guarantee will be offset by LNG sales. 6a. Business unit intent to syndicate: i] None 0 Partial 0 All Describe (if necessary): 6b. Intended Enron hold period: This guarantee is NOT a capital lease. Enron is required to have this guarantee for a period of 17 years. 6c. Likely Syndication Market: 0 Industry/Strategic Partner 0 Direct Private Equity 0 Capital Markets 0 JEDI 1 0 JEDI 2 0 Enserco 0 LJM I or 2 0 Condor © Other: 0 Margaux 6d. Is this a JEDI 2 "Qualified Investment"? O Yes ® No ~A~.i:! Gas c...n i4 ' 0 0 Global Finance Representative: Signature` Name (Printed) Date E0004401966 fi~ TOTAL PACC.00 >i"V CH003-01280 ============= Page 48 of 151 ============= XH003-01281 S-6 E0004401967 I ============= Page 49 of 151 ============= ENRON RISK ASSESSMENT AND CONTROL IDEAL APPROVAL SHEET DEAL NAME: Georgia Army Date DASH Completed: February 11, 2000 Counterparty: U.S. Military RAC Analyst: Kate Lucas Business Unit: EES Investment Type: Structured Credit Business Unit Originator: John Carr Capital Funding Source(s): Balance Sheet Public Private Expected Closing Date: June 30, 2000 Merchant OStrategic Expected Funding Date: 3`d Quarter 2000 Conforming GNonconforming Board Approval: OPending Received ODenied ON/A RAC Recommendation: Proceed with Transaction Returns below Capital Price ODo not Proceed APPROVAL AMOUNT REQUESTED Capital Commitment $ 68.1 million Bid Bond Amount N/A EXPOSURE SUMMARY This transaction: $ 68.1 million Total $ 68.1 million DEAL DESCRIPTION Enron Federal Solutions, Inc. ("EFSI") proposes to enter into a 50-year contract with the U.S. Military Defense Energy Support Center ("DESC") wherein EFSI will take ownership of the electric, gas, water, and wastewater systems at four military installations in the State of Georgia. These installations are Fort McPherson, Fort Gillem, Fort Stewart, and Hunter Army Airfield. EFSI will take ownership of these assets at no charge, and will instead commit $68.1 million in capital to be drawn over the next two years for improvement projects. These projects include the following services: (1) project identification, (2) design, (3) financing, (4) construction of energy infrastructure, and (5) O&M services on energy assets. EFSI has entered into teaming agreements with Black & Veatch, an engineering firm, to subcontract the operations and maintenance tasks under the contract. The deal is structured such that this capital and any interest payments are recovered over the next 20 years. Each month for the 50-year duration of the contract, the government will pay EFSI a fixed monthly sum for operations and maintenance, indexed to the government's indexes for labor and materials. The subcontractor has also agreed to fix its fees, adjusted at these same indexes. At the end of the 50-year contract, the military bases will take ownership of the utility systems. The capital costs for this project will be recovered. at an interest rate of 275 by above treasury bonds over the course of 20 years. The remaining 30 years of the contract, the government will pay a fee reflective of the O&M costs, plus a margin of 12.8% TRANSACTION SOURCES AND USES OF FUNDS ($ thousands) Sources Uses Enron Equity $68,100 Improvement Projects $68,100 Total $68,100 $68,100 RETURN SUMMARY PV @ Cumulative Return Components: Capital Price IRR Cash Outflows (capital draws)' ($ 52,675) - Acct mgmt/billing services ($ 1,260) - Cash Flows (Capital) $ 69,853 15.62% Cash Flows (O&M) $ 3,373 - Total NPV $ 19,292 15.62 96 1 Capital Price Components Risk free rate (%): 6.51% Equity/Credit premium* (%): 0.75% Transaction-Specific" (%): 2.00% RAC CAPITAL PRICE: 9.26 E-Rating t Not equal to the nominal $68.1 million because it is drawn over the course of two years. * Spread of U.S. Government Agencies over U.S. Treasuries ** Includes Subcontractor Performance Risk XH003-01282 E0004401968 ============= Page 50 of 151 ============= RAC Deal Approval Sheet Deal Name: Georgia Army TRANSACTION UPSIDES/OPTIONALITY The government has indicated that at the end of the project time frame, the contractor could be awarded an extension to continue operations indefinitely. EXIT STRATEGY Not applicable to a strategic investment. RISK MATRIX DESCRIPTION MITIGATION/COMMENTS Previous issues with prospective subcontractor • Enron has had some dissatisfaction with Black • This situation will need to be worked out before EFSI can enter & Veatch in the past with respect to power into this relationship with Black & Veatch. If our relationship projects. The Enron Office of the Chairman with Black & Veatch does not improve, EFSI will need to find has suspended any new projects with Black & a different subcontractor. This would require price re- Veatch until this situation is resolved to negotiation, which is likely to shrink EFSI's margins on this Enron's satisfaction. deal. Performance Risk • As part of the bid process, EFSI has submitted • EFSI has locked in prices with the subcontractor before cost and timing estimates to the government. entering into the contract with the government. As such, cost EFSI has based its fees to the government overruns will be passed through directly to the subcontractor, according to these estimates. Therefore cost with a 10% risk premium built into the price. overruns would hurt EFSI's margins on the • Enron has conducted joint due diligence with Black & Veatch project. with respect to the condition 'of the systems. Cost estimates • Given that Enron has been dissatisfied with from Black & Veatch are based on this assessment of the Black & Veatch in the past, it is possible that condition of the utility equipment at the installations. they will not perform to standards suitable to • EFSI's commitment to using -Black & Veatch as the O&M EFSI. subcontractor is only for one year. In the event that EFSI is • In the event that there are significant utility dissatisfied with the performance of Black & Veatch, the outages, the government may elect to reduce contract can be renegotiated or terminated at this time. its payment to EFSI for the month in which • EFSI will need to negotiate with Black & Veatch that any these outages occur. reductions in the tariff paid by the government to EFSI as a result of poor performance on the part of Black & Veatch will be deducted from payments made to Black & Veatch by EFSI. Termination Risk • As with other government contracts, this • EFSI intends to include a "make whole" provision in the agreement includes a "termination for contract, ensuring that the government would reimburse for convenience" clause. costs incurred in the event the termination option is exercised. • The government's liability will be only EFSI's unrecovered capital investment at the point of termination plus any reasonable documented costs the contractor incurs as a result of contract termination. No termination schedule has as of yet been provided to RAC. This schedule will be provided to the government at signing. C:\TEMP\DASH-georgia_army 02012000.doc :XH003-01283 E0004401969 Page 2 ============= Page 51 of 151 ============= MAI C Deal Approval Sheet Deal Name: Georgia Arm Syndication Risk • Though the counterparty is an agency of the U.S. government, the financing is imbedded in the transaction and, as such, may be difficult to syndicate on terms favorable to EESO. As noted above, this transaction is considered to be strategic, mitigating, to some degree, the importance of this consideration. The deal fee paid by the government includes a 12.18% margin over the mid desk price and financing at 275 by above the relevant maturity treasury bond. KEY SUCCESS FACTORS NA Poor Excellent Core Business X Strategic Fit X Upside Potential X Management X Risk Mitigation x C:\TEMP\DASH-georgia army_02012000.doc E0004401970 Page 3 EXH003-01284 ============= Page 52 of 151 ============= RAC Deal Approval Sheet Deal Name: Georgia Army OTHER RAC COMMENTS: The current teaming agreement with Black & Veatch has prohibited Enron from entering into talks or negotiations with backup subcontractors. Therefore, if Enron is dissatisfied with Black & Veatch's performance, a new subcontractor contract would need to be negotiated. It is uncertain whether terms as favorable as those negotiated with Black & Veatch would be reached with another subcontractor, however the deal team believes it may be possible to contract with other areas of Enron. As the costs and revenues are fixed over the life of the contract and therefore known to a reasonable degree of certainty, RAC did not perform a probabilistic simulation of the transaction financial model. APPROVALS Legal EES CEO RAC Management Enron Global Finance ENE Management ENE Management Name Vicki Sharp Lou Pai David Gorte/Rick Buy Andy Fastow/Jeff McMahon Joseph Sutton Jeffrey Skilling C:\TEMP\DASH.jeorgia_army_02012000.doc ECO04401971 Page 4 Date Z l ut.. XH003-01285 ============= Page 53 of 151 ============= RAC Deal Approval Sheet Deal Name: Georgia Bases -- Hunter, Stewart, McPherson, Gillem (Federal Government) Global Finance Summary (addendum to DASH) 1. Transaction Summary Total Deal/Project Capital Commitment Less: Financings Less: Syndications Net Enron Investment 2. Investment terms and pricing: Describe (if necessary): Amount ($000) $68,100 -0- -0- $68,100 O Market ZAbove Market O Below Market U.S. Agency credit priced at above current market spreads. The financing rate will be fixed at the 20-year Treasury rate existing on the date of closing plus 2.75%. We expect to sell the receivable at a rate approximately equal to average life Treasurys plus 1.90%. 3. Financing terms and pricing: Describe (if necessary): 4. Legal or practical licuidity restrictions: Describe (if necessary): 5. Any recourse to Enron (other than investment): Describe (if any): 6a. Business unit intent to syndicate: Describe (if necessary): 6b. Intended Enron hold period: 6c. Likely Syndication Market: O Industry/Strategic Partner O Capital Markets O JED12 OLJM1or2 O Other: O Below Market 0 Practically Restricted I /No Recourse Cd3 All O Direct Private Equity O JEDI 1 O Enserco Q Condor 0 Margaux 6d. Is this a JEDI 2 "Qualified Investment"? 0 Yes eN o LAAA f /3rzA 7-T Global Finance Representative: Signature Name (Printed) ate XHO03-01286 O Market 0 Above Market Unrestricted O Legally Restricted O Recourse O None O Partial Intend to sell on or about the date of contract award. E0004.401972 ============= Page 54 of 151 ============= S-7 m C) 0 0 .r, 0 C0 w EXH003-01287 ============= Page 55 of 151 ============= ENRON RISK ASSESSMENT AND CONTROL DEAL APPROVAL SHEET DEAL NAME: Hurricane Date DASH Completed: 1/28/00 Counterparty: Texaco RAC Analyst: Tyrell Harrison / Jeff Soo Business Unit: ENA Gas Assets Investment Type: Equity Business Unit Originator: Greg Sharp/Harold Bertram Capital Funding Source(s): Balance Sheet OPublic OPrivate Expected Closing Date: 1/00 DMerchant Strategic Expected Funding Date: N/A MConforming ONonconforming Board Approval: ©Pending DReceived DDenied ON/A RAC Recommendation: ]Proceed with Transaction DRetums below Capital Price DDo not Proceed APPROVAL AMOUNT REQUESTED Capital Commitment $225,500M Bid Bond Amount NA EXPOSURE SUMMARY This transaction: $21,000M Total $21,000M DEAL DESCRIPTION ENA is proposing to form a NewCo with initial assets consisting of ENA's LRC (Louisiana Resources Pipeline Co. and Louisiana Gas Pipeline), Napoleonville storage facility and related contracts and Texaco's Bridgeline pipeline, Sorrento storage facility and related contracts. In order to maintain trading capabilities, ENA will keep 150 MMcfd of firm transportation capacity on LRC and 2.5 Bcf of storage capacity at Napoleonville. Entering into NewCo with Texaco is preferable to an outright sale since extensive discussions/negotiations with potential acquirers has led Enron to believe that a sale of LRC/Napoleonville would result in less value to Enron. Since LRC is captive to one supply area at Stingray/Sea Robin on the West side of the Mississippi corridor, Enron has been unable to benefit from long-term sale opportunities that are typically found on the East side. However, by forming a joint venture with Texaco's Bridgeline pipeline, Enron would be able to participate in these long-term marketing opportunities. and realize trading profits from basis blowouts in the area. Increased electric load is expected to result in greater price and volume volatility, which should yield attractive trading profits. NewCo would be one of the largest gas suppliers in Southeastern Louisiana and would have an opportunity to optimize the combined gas supply and sales portfolio. Further, ENA expects to avoid significant capital expenditures that would have been necessary during the next several years to maintain the competitiveness of LRC. The transaction is envisioned as a combination of Texaco's marketing franchise and ENA's trading/risk management and financial engineering strengths. Staffing for NewCo will be sourced from each company's respective strengths (i.e., marketers from Texaco and traders from Enron), with employees assigned to work for NewCo but continuing to be employed by their respective employers. Economics of NewCo will be 60/40 TI/ENE, but control will be shared 50/50. As shown below, the GP of NewCo will be a 50/50-controlled LLC. Bridgeline will be kept as a subsidiary of NewCo in order to, amoung other things, isolate historical liabilities of the business. LRC will be merged into NewCo. Separately, ENA will enter into contractual arrangements for 150 MMcfd of firm pipeline capacity and 2.5 Bcf of storage in order to maintain existing trading opportunities. XH003-01288 E0004401974 ============= Page 56 of 151 ============= RAC Deal Approval Sheet Deal Name: Hurricane TRANSACTION SOURCES AND USES OF FUNDS Sources Uses Existing Pipeline $204,500 Formation of NewCo Assets $225,500 Assets Equity Injection $21,000 Total $225,500 $225,500 RETURN SUMMARY' PV @ Cumulative Return Components: Capital Price IRR Capital Price Components Cash Outflows (20,596) - Risk free rate (%): 6.72% Fees $0 - Equity/Credit premium (%): 5.02% Intermed. Cash Flows $55,597 - Country Premium (%): - Terminal Value $7,147 - Transaction-Specific (%): -0.74% Total NPV $42,148 NA RAC CAPITAL PRICE: 11.00% E-Rating N/A Relative upside ratio 0.994 1: The returns and capital price are presented on an unlevered basis. 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% I 1.0% 0.0% i NPV @ Risk-Free Rate Adjusted for Sovereign Premium P5 10 2 r n n n n L-: 1000 00 00 02 00 00 00 2M 00 N - `L O v1 O\ 7 00 M n N .p M oo \0 M 00 vi M O 00 ~n en O 00 44 N N M IT r \0 r- 00. 00 4A 44 6v 69 64 44 614 64 64 49 64 69 64 64 64 * The graph above reflects the incremental NPV from entering into the NewCo structure versus maintaining the current LRC structure. O:\Stfin\'rromjmb\CorpDev\liurricane\Dash Hurricane 013100.doc E0004401975 KHO03-01289 a Page 2 ============= Page 57 of 151 ============= RAC Deal Approval Sheet Deal Name: Hurricane Cash Flow Summary $100,000 $80,000 - $60,000 $40,000 ("'a $20,000 $- , $(20,000)0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 $(40,000) Years o Terminal Value Ongoing Fmm Fees ® Outflows -.- Cumulative P95 --?IE- Cumwlative P5 -,- Expected cumulative cash flows Average Life = 6.3 years CASH FLOW SUMMARY Weighted average life: 6.3 years TRANSACTION UPSIDES/OPTIONALITY - N/A EXIT STRATEGY - N/A RISK MATRIX DESCRIPTION MITIGATION/COMMENTS Discovery Pipeline Volumes There is a risk that the low-cost supply volumes from the. Discovery pipeline may not be realized over the life of the project. Engineering estimates anticipate a large portion of the total gas supply will be available from Discovery. If such volumes did not materialize, the NewCo would be forced to obtain gas from a more expensive source. Synergy Realization Cost savings are expected to be achieved under the NewCo structure primarily through outsourcing and associated personnel reductions. The expected percentage cost savings are approximately 16% of the combined stand-alone levels. Trading Margins ENA Gas Trading expects to make a margin trading around the information and capacity on the existing pipeline assets 'in addition to the new assets from Texaco. Any decrease would negatively impact the existing LRC structure as well as the proposed NewCo structure. The magnitude of the impact would be greater on the NewCo due to larger volumes. O&M / G&A Overruns The potential for O&M and/or G&A cost overruns is present in the current LRC structure and the NewCo structure. Identical percentage overruns would have a more detrimental effect for the NewCo due to its larger size. OaStfin\Fromjmb\CorpDev\Hurricane\Dash Hurricane 013100.doc E0004401976 Page 3 XH003-01290 ============= Page 58 of 151 ============= RAC Deal Approval Sheet Deal Name: Hurricane KEY SUCCESS FACTORS NA Poor Excellent Core Business X Strategic Fit x Upside Potential X Management X Risk Mitigation x OTHER RAC COMMENTS: • The most significant value driver in the deal is the synergies expected to be achieved by the combined entity. The analysis of the expected synergies was performed by Robert Morgan of HPL Engineering. The simulation reflected the potential that these cost saving might not materialize. • The margins assumed to be made from financial and physical trading were taken at face value from the Gas Trading Desks. • Based on operational assumptions provided by the deal team, ENA's portion of the NewCo EBITDA is expected to be approximately $11 MM greater than the estimated stand-alone LRC EBITDA on an annual basis. It should be noted that the expected stand-alone LRC operations without trading are cash flow negative in each year. • The RAC analysis compared the stand-alone case versus the proposed NewCo structure and did not examine the alternative of an asset sale. • Using the information provided by the deal team, the RAC analysis did not detect a scenario where the stand-alone case would be more NPV beneficial than the proposed NewCo structure. • The capital price does not reflect a premium associated with risk associated with achieving synergies from combining the two companies. RAC has assumed that between ENA and Texaco, that these synergies are realizable. O:\Stfinx.From;mb\CorpDev\Hurricarc\Dasy Hurricane_0131oo.doe E0004401977 Page 4 EXH003-01291 ============= Page 59 of 151 ============= RAC Deal Approval Sheet Deal Name: Hurricane Global Finance Summary 1. Transaction Summary Total Deal/Project Capital Commitment Less: Financings Less: Syndications Net Enron Investment 2. Investment terms and pricing: Describe (if necessary): Amount ($000) $21,000 -0- -0- $21,000 X Market Above Market Below Market 3. Financing terms and pricing: X Market Above Market Below Market Describe (if necessary): 4. Legal or practical liquidity restrictions: Restricted Describe (if necessary): There are control limits on selling an interest. 5. Any recourse to Enron (other than investment): Describe (if any): 6a. Business unit intent to syndicate: Describe (if necessary): 6b. Intended Enron hold period: 6c. Likely Syndication Market: 6d. Is this a JEDI 2 "Qualified Investment"? Unrestricted X Legally Restricted Practically Recourse X None Partial All X No Recourse 0 Industry/Strategic Partner 0 Direct Private Equity 0 Capital Markets 0 JEDI 1 O JEDI 2 0 Enserco O LJM I or 2 O Condor 0 Other: O Margaux D:\StfiaLFroma;mb\CorpDc•UIu~ikane\Da;y Hurricane 013100.doc =XH003-01292 Yes X No Page 5 E0004401978 ============= Page 60 of 151 ============= RAC Deal Approval Sheet Deal Name: Hurricane Global Finance Representative: TOE- b F- F Kf- R--- !2/f 160 Si a Name (Printed) Date APPROVALS Originator Originator Originator Originator Legal Tax RAC Management Enron Capital Management ENA Management ENE Management Name Harold Bertram / Tim Detmering Brian Redmond Greg Sharp Mark Haedicke r)" Jordan Mintz Rick Buy /David Gorte Andy Fastow/Jeff McMahon Cliff Baxter Date 131 m / 3/ o0 >r t o0 ~,3 ou Jeffrey Skilling \\enehou\houston\common\Stfin\From, jmb\CorpDev\Hurricane\dash_1 31 99.doc EC004401979 XH003-01293 3'o Page 6 ============= Page 61 of 151 ============= S-8 E0004401980 FXHnn3-n1 294 ============= Page 62 of 151 ============= ENRON RISK ASSESSMENT AND CONTROL DEAL APPROVAL SHEET DEAL NAME: Jcrtovec Pre-NTP Date DASH Completed: 2 February 2000 Counterpane: F.E&:CC RAC.Analyst: Otto von Schwerin Business Unit: Central Europe Origination Investment Type: Equity. Business Unit Originator: Rob Soeldner Capital Funding Source(s): Balance Sheet OPublic SPrivate Expected Closing Date: 3 February 2000 Merchant Strategic Expected Funding Date: QIIQ2 2000 OConforming ONonconforming Board Approval: OPending. OReceived ODenied EN/A RAC Reconunendation: Proceed with Transaction ORetums below Capital Price ODo not Proceed APPROVAL AMOUNT REQUESTED Capital Commitment: Management approval is sought for up to S10 million toward the cost of anticipated Pre-Notice-To- Proceed (NTP) work and cancellation charges over a 5-month period from Engineering Release (kick-off) until Financial Close (signing of the loan agreements - dry close). Another separate DASH will be prepared and submitted before Financial Close to seek approval for the overall Jertovec Proj cot. Bid Bond Amount: N/A EXPOSURE SUMMARY N/A DEAL DESCRIPTION This is an interim DASH to seek approval in order to proceed wit Engineering Release. Pre-NTP wore is e:cpect