V..


				   Interoffice
				   Memorandum
				  Confidential Communications
				     Attorney-Client Privilege


     To:  Andy Fastow

 Fuom:  Jordan Mj~t~AV~"~

5U*C2   Related-Party Proxy Disclosures

Oiiii~   Enron Global Finance-Legal

   O,te: April 6, 2001

     You will recall that in preparing the LJM related-party disclosure for this years (2000) Proxy, we did not
     disclose financial information regarding your interest as the ultimate general partner/managing member in
     either LJM1 or LJM 2. The purpose or this memorandum Is to explain our reasons for conduding such a
     disclosure was not required in either 1999 or 2000 and to explain why such rationale(s) nrn~Ji~I be
     applicable in future filings.

     Discussion

     The Proxy Rules require - among other things - a description of the related party's (I.e. UM';) Interest
     in transactions entered into with the registrant (LQ. Enron). the nature of such interest, and - 'where
     praclicabte - the ~g~fl of such person's Interest in the transaction(s). It Is this last piece of
     Information relating to your financial stake that we have not expicitly disclosed because the Legal
     Department, Ni consultation with our outside counsel, has concluded disclosure was riot mandated. In
     both the 1999 and 2000 ProxIes we have generally provided as follows: The general partner is
     entitled to receive a percentage of the prorits of the partnership in excess of the general partners
     proportion of the total capital contributed to LJM1/LJM2, depending upon the performance of the
     investments made by UM1/LJM2. Thus, it is clear that, at a minimum, there is public disclosure that
     y~UUs1he general partner-in these   nvee~vehides.J!~ji~51 to receive some level of
     carried interest.                                          --   - - -   -~ - -- -- *---. -~ -- -

     Our rational for not disclosing any additional financial information related to your general partner
     interests varies as between 1999 and 2000 and, in particular, with respect to the RhythmsNet
     transaction, as follows:

(1) flQ~: The ~where practicable language in the Proxy Disclosure Rules gave i~ the
	basis for not providing additional financial Information in 1999. More
	specifically, the majority of the transactions entered into in 1999 between
	Enron and LJM1ILJM2 - and specifically the RhythmsNet hedge - were
	open transactions during the 1999 fiscal year and had not yet seWed or
	liquidated in a fashion that it would be practicable to determine what you
	earned in your general partner capacity. The open transactlon basis
	appied to both the RhythmsNet transaction and the newly-executed LJM2-
	related acquisitions and hedges for 1999.

(2) 2000: We determined it was not practicable to quantify your interest in LJM2 in the
	most recent Proxy, again, based on the existence of multIple open and

	       Integrity

Reaped
PmmOOO411l (7&WJ

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	   uninatured transactions maldng It Impracticable to compute. The rationale
	   for not making any additional disclosures relating to the settlement of the
	   RhythrnsNet transaction, however, is somewhat different. In particular, the
	   RhythmsNet transaction settled in 2000 pursuant to terms allowed for under
	   the original agreement. At settlement of RhythmsNet. It may have been
	   practicable to deteriTune your financial interest.  However, no further
	   disclosure was otherwise required of the RhythinsNet transaction In 2000
	   because settlement occurred under conditions permitted in the orIginal
	   agreement Thus, there was no new transaction involving UMI and Enron
	   In the year 2000 required to be disclosed In this year's proxy; accordingly.
	   we have concluded that there was no requirement to disclose any financial
	   information related to whet you may have earned in that transaction -
	   notwithstanding that It was now more practicable to do so.

The decision not to disclose in this instance was a dose call; arguably, the more conservative
approach would have been to disclose the amount of your interest Given other pertinent (and
competing) issues that you and I have discussed at great length, we decided against doing so. It was,
perhaps, fortuitous that the RhythmsNet transaction extended over two proxy filing years and the
specific facts of the particular case allowed us to conclude that a disciosable transaction occurred only
in the year in which financial disclosure was Impracticable. Thus, we have relied on two different
arguments for avoiding financial disclosure for you as the LJMI general partner In both 1999 and then
2000. If, however, the RhythrnsNet transaction began and concluded hi the same year. it would have
been more difficult to avoid making some additional level of financial disclosure.

Going Forward

This disclosure issue will continue to be a challenge as transactions entered into between Enron and
UM2 settle and, as such, it becomes practicable to quantify and, therefore, be required to disclose
the amount of your financial interest. To that end, we need to continue to be cognizant of this Issue as
the year progresses and continue to consider some of the safe-harbors provided under the SEC rules
from having to disclose related party transactions - including the (1) competitive bid and (2) reduction
of general partner control alternatives we have previously discussed. I, of course, will continue to
examine other alternatives, as wel.

After you tiny. had a-chance- to-review this summaryj am. avjilabl to discuss_any questions or
comments you may have.

Cc:   Jim Derrick
      Rex Rogers
      Ron Astin (Vinsori & Elkins)


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