============= Page 1 of 18 ============= BOARD OF DIRECTORS' MEETING August 8, 2000 E0004391519 =XH005-00819 ============= Page 2 of 18 ============= Project Summer E0004391520 XH005-00820 ============= Page 3 of 18 ============= Overview/Rationale E0004391521 =XH005-00821 ============= Page 4 of 18 ============= Overview • Opportunity to sell substantially all non-European international businesses ("Project Summer") - Disproportionate use of resources for inadequate returns - Offered reasonable price given the comprehensive nature of the transaction - Improves reported profitability, reduces risk • Given Project Summer, good time to reduce dividend - Dividend reduction has been under consideration for some time - Given growth-oriented investor base, no significant sales pressure likely - Reception could be enhanced by a simultaneous increase in shares authorized for repurchase • Want to target improved BBB+ rating but not recommending seeking an A- rating at this time - Could achieve an A- if proceeds from Summer & PGE used to improve rating - Not evident that the benefit of achieving an A- rating is worth the cost E0004391522 .O (H005-00822 ============= Page 5 of 18 ============= Deal Description $6.08 billion cash sale for 80% (100% valuation = $7.6 billion) of E n ro n's equity interests in: • South America • CALME • Enron Global Exploration and Production • India • APACHI • Enron Renewable Energy Corp. • Turkey Project Excludes • Trading operations in Japan and Australia • Hainan project • Enron Engineering & Construction • Purchaser has right to exclude Turkish project from transaction E0004391523 KHO05-00823 ============= Page 6 of 18 ============= Gross National Product J GNP of countries where Businesses to be Sold ($4.1 Trillion) ® GNP of countries where Businesses to be Retained ($22.5 Trillion) E0004391524 KHO05-00824 ============= Page 7 of 18 ============= Comparison of Businesses Sold & Businesses Retained Businesses Retained 0 Businesses to be Sold E0004391525 :XH005-00825 ============= Page 8 of 18 ============= Rationale =Capital Returns Invested Capital Actual 1999 Plan 2000 3131100 IBIT ROIC* IBIT ROIC* Returns from Businesses included in Deal Less: EGEP (Intl. E&P) TGS (Pipeline) Ventane (LPG Dist.) EREC Sub-Total Less : Expected Asset Sales Net Traditional El Businesses 7,533 513 403 165 465 1,546 349 4.6% 564 7.5% 15 24 58 57 25 34 60 63 158 10.2% $ 5,987 $ 191 * Calculated as IBIT/Invested Capital Note : Invested capital for Businesses represents Enron book basis 3/31100 Invested capital is fixed reference point due to compariability issues 178 11.5% 192 3.2% $ 194 3.2% E0004391526 KH005-00826 ============= Page 9 of 18 ============= Risks vs. Potential Upside Re ion Risks SOUTHERN Tariff revision CONE Currency devaluation risk Regulatory risk Slow market liberalization Trapped cash Credit risk INDIA Immature natural gas market Credit risk on Metgas off-take Timing of additional sales of Metgas volumes Operating concerns at Dabhol CALME Currency Risk Credit Risk Social & Political unrest in certain countries Size of market Trapped cash Immaturity of markets in Middle East APACHI Currency Risk Trapped Cash Creditworthiness of counterparties Delays in market liberalization Tariff Revisions TURKEY Credit risk Trapped cash EREC Warranties require balance sheet and/or credit capacity Technology Manufacturing skill base Potential Upside Good market position in deregulating environment Gas and electricity demand expected to grow rapidly Stable earnings and cash flows under Dabhol PPA Good market position in developing economy Tested legal system Rapid growth in demand for power Rapidly growing economy U.S. govt support for Palestine project Resource rich Market position in developing economy Certain assets provide a stable stream of earnings & cash flow Stable earning and cash flows Technology EOO04391527 XH005-00827 ============= Page 10 of 18 ============= Deal Description Purchaser is a Middle East investor group led by Dr. Amin Badr EI-Din Enron retains 20% of combined entities • Has option to exit after IPO or 4 years through a staggered put right at the then-current book value • Enron has Board representation Enron has no obligation to provide capital infusions but without participation Enron's ownership interest will be diluted E0004391528 KH005-00828 ============= Page 11 of 18 ============= Deal Description Deal Timing • Signing of definitive agreements the week of August 14th • Signing of ancillary agreements to occur at closing • Closing expected within 90 days of signing • Closing is contingent on Elektro regulatory approvals and certain other regulatory consents E0004391529 KHO05-00829 ============= Page 12 of 18 ============= Deal Description Obligations of Enron • Purchaser has rights to use the Enron name in specified international markets, excluding Europe, Japan, and Australia • Enron to pay up to $75MM for friction costs (i.e. waiver of lender, partner, and/or regulatory restrictions) and similar expenses relating to transferring subject businesses • Provide transition services for up to 2 years • Keep existing Enron guaranties in place for up to 4 years Obligations of the Purchaser • Secure purchase with L/C E0004391530 XH005-00830 ============= Page 13 of 18 ============= Deal Description Employees • All current employees remain with businesses that are part of the transaction • Purchaser is responsible for severance activities and liabilities • Enron is to provide an estimated $150MM to Purchaser to serve as a "fund" for employee retainage, severance, or other employee benefit items • Enron to pay pro-rata bonuses for employees for 2000 • Mutual no hire provision E0004391531 XH005-00831 ============= Page 14 of 18 ============= Transaction Overview 5kroh Oil' E) Businesses Ownership Interests 3usinesses Ownership Interests 17 "u, Ownership Interests Businesses A .F • Enron contributes its businesses to be transferred into three holding companies: A,B,and El • Businesses with lender, partner or regulatory transfer restrictions to be placed in either A or B • Enron must retain a level of direct ownership in A and B businesses due to transfer restrictions • Businesses with no transfer restrictions are to be 100% owned by El • Enron allocates voting and economic interests of A and B between itself and El • Enron, through ownership in A, B, and El, has an aggregate 20% economic interest • Purchaser has an 80% interest in the aggregate group through El ownership • As transfer restrictions are eliminated, interests in A/B will be transferred 100% to El • Enron's ownership interest in El fluctuates as necessary and will be adjusted to reflect transfers, performance of business, and equity infusions EOO04391532 KH005-00832 ============= Page 15 of 18 ============= Transaction Overview 9;q,-* r-, Businesses Ownership Interests Businesses Ownership In erests Ownership Interests Businesses • Enron contributes its businesses to be transferred into three holding companies: A,B,and El • Businesses with lender, partner or regulatory transfer restrictions to be placed in either A or B • Enron must retain a level of direct ownership in A and B businesses due to transfer restrictions • Businesses with no transfer restrictions are to be 100% owned by El • Enron allocates voting and economic interests of A and B between itself and El • Enron, through ownership in A, B, and El, has an aggregate 20% economic interest • Purchaser has an 80% interest in the aggregate group through El ownership • As transfer restrictions are eliminated, interests in A/B will be transferred 100% to El • Enron's ownership interest in El fluctuates as necessary and will be adjusted to reflect transfers, performance of business, and equity infusions E0004391533 KHO05-00833 ============= Page 16 of 18 ============= Advantages/Requirements for "A-" • Advantages - Increased counterparty credit capacity - Reduced liquidity volatility - Increased balance sheet flexibility - $2-3 Bin increase in capital markets capacity • Requirements* - Maintenance of four key ratios: • Funds Flowlinterest Coverage Ratio 5.5x • Pre-tax Income/Interest Coverage Ratio 4.5x • Funds Flow/Total Obligations Ratio 35% • Total Obligations/Total Capital 42% Standard & Poor's and Fitch. Moody's upgrade will lag 12-18 months due to recent upgrade to Baal. E0004391534 XH005-00834 ============= Page 17 of 18 ============= Rationale Not clear that the benefits of an upgrade are necessary at this time A Cost is clear: - Must maintain lower debt level and improve coverage ratios - There is a trade-off between paying down debt to achieve a higher credit rating and reinvesting the funds to achieve higher earnings per share ($0.20/share per year impact) Note: Assumed $3.3 Bin reinvested at 15% per annum (pre-tax). Marginal cost of debt assumed to be 7.5% per annum (pre-tax). E0004391535 KHO05-00835 ============= Page 18 of 18 ============= Recommendation • Maintain BBB+ rating • Reducing debt to $6.5 Bin gives the Company the option to receive an upgrade if management commits to higher credit standards • If management concludes in the future that an A- rating is not necessary then debt levels could be increased without adversely impacting the rating E0004391536 XH005-00836