FW:  From Enron's Proxy:
 
    During 2000, certain Enron subsidiaries and affiliates (defined for
purposes of the following paragraphs, "Enron") entered into a number of
transactions with LJM2 Co-Investment, L.P. ("LJM2"), a private investment
company that primarily engages in acquiring or investing in energy and
communications-related investments, primarily involving either assets Enron had
decided to sell or risk management activities intended to limit Enron's exposure
to price and value fluctuations with respect to various assets. Andrew S.
Fastow, Executive Vice President and Chief Financial Officer of Enron, is the
managing member of LJM2's general partner. The general partner of LJM2 is
entitled to receive a percentage of the profits of LJM2 in excess of the general
partner's portion of the total capital contributed to LJM2, depending upon the
performance of the investments made by LJM2. In ten of these transactions LJM2
acquired various debt and equity securities, or other ownership interests, from
Enron that were directly or indirectly engaged in the domestic and/or
international energy or communications business, while in one transaction LJM2
acquired dark fiber from an Enron subsidiary. The aggregate consideration agreed
to be paid to Enron pursuant to these eleven transactions was approximately $213
million. Also during 2000, LJM2 sold to Enron certain merchant investment
interests for a total consideration of approximately $76 million.

     Also, during 2000, Enron engaged in other transactions with LJM2 intended
to manage price and value risk with regard to certain merchant and similar
assets by entering into derivatives, including swaps, puts, and collars. As part
of such risk management transactions, LJM2 purchased equity interests in four
structured finance vehicles for a total of approximately $127 million. Enron, in
turn, contributed a combination of assets, Enron notes payable, restricted
shares of outstanding Enron stock (and the restricted right to receive
additional Enron shares) in exchange for interests in the vehicles. Enron and
LJM2 subsequently entered into derivative transactions through these four
vehicles with a combined notional amount of approximately $2.1 billion. These
transactions occurred in the ordinary course of Enron's business and were
negotiated on an arm's length basis with senior officers of Enron other than Mr.
Fastow. Management believes that the terms of the transactions were reasonable
and no less favorable than the terms of similar arrangements with unrelated
third parties.


 


