============= Page 1 of 13 ============= CLERK, U. S. DISTRICT COURT SOUTHERN D(ST-ICTOF TEXAS F1tFD G-T" 2V`3 UNITED STA'L'ES DISTRICT COURT SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION UNITED STATES OF AMERICA § § V. § Cr. No. H-03-'420 § DAVID W. DELAINEY, Defendant. § COOPERATION AGREEMENT Michael N.Mllby. Clerk Pursuant to Rule 11 of the Federal Rules of Criminal Procedure, the Department of Justice, by the F.'nron Task Force (the "Department") and David W. Delainey ("Defendant") agree to the following: 1. Defendant will plead guilty in the Southern District of Texas to an indictment charging him with one count of insider trading, in violation of 15 U.S.C. §§ 78j(b) and 78 ff. That charge carries the following statutory penalties: a. Maximum term of imprisonment: ten years (15 U.S.C. § 78ft) b. Minimum term of imprisonment: zero years (15 U.S.C. § 78ffl c. Maximum supervised release term: three years, to follow any term of imprisonment; if a condition of release is violated, the defendant may be sentenced to up to two years without credit for pre-release imprisonment or time previously served on post-release supervision (18 U.S.C. §§ 3583 (b), (c)) d. Maximum fine: $1,000,000 (15 U.S.C. § 78ff) 1 EXH025-01820 GOVERNMENT EXHIBIT 3219 Crim. No. H-04-25 (S-2) ============= Page 2 of 13 ============= e. Restitution: As provided by statute (18 U.S.C. § 3663 & A) f. Forfeiture of proceeds traceable to the offense, as provided by 18 U.S.C. § 991(a)(l)(C) and 29 U.S.C. § 2461(c) g $100 special assessment (18 U.S.C. § 3013). Sentencing Guid_gJines 2. Defendant's sentence is governed by the United States Sentencing Guidelines, The Department will advise the Court and the Probation Department of information relevant to sentencing, including all criminal activity engaged in by Defendant, and such information may be used by the Court in determining Defendant's sentence. Based an information known to it now, the Department will not oppose a downward adjustment of three levels for acceptance of responsibility under U.S.S.G. § 3E1.1. The parties agree that the Sentencing Guideline applicable to Defendant's sentence is U.S.S.G. § 2F1.2, effective November 1, 2000_ Defendant understands that the parties' positions regarding the Sentencing Guidelines do not bind the Court and that the sentence to be imposed is within the sole discretion of the sentencing judge. Defendant's Obligations 3. Defendant will provide truthful, complete and accurate information and will cooperate fully with the Department. This cooperation will include, but is not limited to, the following: a. Defendant agrees to be fully debriefed and to attend all meetings at which his presence is requested by the Department, concerning his participation in and knowledge of all criminal activities. 2 EXH025-01821 ============= Page 3 of 13 ============= b. Defendant waives all claims of attorney-client privilege and agrees to furnish to the Department all documents and other material that may be relevant to the investigation and that are in Defendant's possession or control. except as to communications relating to investigations by the Department and the United States Securities and Exchange Commission ("SEC"), and communications with counsel after December 2, 2001. c. Defendant agrees not to reveal his cooperation, or any information derived therefrom to any third party without prior consent of the Department, and to instruct his attorneys to do the same. d. Defendant agrees to testify at any proceeding in the Southern District of Texas or elsewhere as requested by the Department. e. Defendant consents to adjournments of his sentence as requested by the Department and agrees that his obligations under this agreement continue until the Department determines that his cooperation is concluded. f. Defendant agrees not to receive remuneration for any dissemination, directly or indirectly, by him of information concerning his work at Enron Corp. or any related or affiliated entity including but not limited to books, articles, speeches, and interviews, but not including professional services performed by him in the course of any full-time employment. The Depariment's Obligations 4. The Department agrees that: a. Except as provided in paragraphs 1, 10, and 11, no criminal charges will be brought against Defendant for his heretofore disclosed participation in criminal activity; and b. No statements made by Defendant during the course of this cooperation will be used against him except as provided in paragraphs 2, 10, and 11. Availability for Debriefings The Department and Defendant agree that Defendant's counsel will be present at any meetings or debriefings between the Department and Defendant. Defendant agrees, however, that the Department may meet with him without the presence of counsel where Defendant specifically declines counsel's presence. Defendant understands that any cancellation EXH025-01822 ============= Page 4 of 13 ============= or rescheduling of debriefings or meetings requested by Defendant that hinder the Department's ability to prepare adequately For trials, hearings or other proceedings may adversely affect Defendant's ability to provide substantial assistance. Matters occurring at any meeting or debriefing may be considered by the Department in determining whether Defendant has provided substantial assistance or otherwise complied with this agreement and may be considered by the Court in imposing sentence regardless of whether counsel was present at the meeting or debriefing. Motion for Downward Departure 6. If the Department determines that Defendant has cooperated fully, provided substantial assistance to law enforcement authorities and otherwise complied with the terms afthis agreement. the Department will file a motion pursuant to TJ,S.S.G. § SKI. I and 18 U.S.C. § 3553(e) with the sentencing Court seeing forth the nature and extent of his cooperation. Such a motion will permit the Court, in its discretion, to impose a sentence below the applicable Sentencing Guidelines. In this connection, it is understood that a good faith determination by the Department as to whether Defendant has cooperated fully and provided substantial assistance and has otherwise complied with the terms of this agreement, and the Department's good faith assessment of the value, truthfulness, completeness and accuracy of the cooperation, shall be binding upon him. Defendant agrees that, in making this determination, the Department may consider facts known to it at this time. The Department may or may not, in its discretion, recommend to the Court a specific sentence to be imposed. The Department cannot and does not make a promise or representation as to what sentence will be imposed by the Court. 4 EXH025-01823 ============= Page 5 of 13 ============= Forfeiture 7. Defendant agrees to forfeit all interest in the $4,256,006.67 net proceeds of the offense to which he will plead guilty and agrees to substitute the following assets for forfeiture of those criminally derived proceeds: $4,256,006.67 in United States currency contained within TD Waterhouse Account Number $J-2430-F. Defendant warrants that he is the sole owner of all of the property listed above, and agrees to hold the United States, its agents and employees harmless from any claims whatsoever in connection with the seizure or forfeiture of property covered by this agreement. Defendant further agrees to waive all interest in any asset listed above for forfeiture in any administrative or judicial forfeiture proceeding, whether criminal or civil, state or federal. Defendant agrees to consent to the entry of orders of forfeiture for such property and waives the requirements of Federal Rules of Criminal Procedure 32.2 and 43(a) regarding notice of the forfeiture in the charging instrument. announcement of the forfeiture at sentencing, and incorporation of the forfeiture in the judgment. Defendant acknowledges that he understands that the forfeiture of assets is part of the sentence that may he imposed in this case and waives any failure by the court to advise him of this, pursuant to Rule l l(b)(1)(J), at the time his guilty plea is accepted, Defendant further agrees to waive all constitutional and statutory challenges in any manner (including direct appeal, habeas corpus, or any other means) to any forfeiture carried out in accordance with this agreement on any grounds, including that the forfeiture constitutes an excessive fine or punishment or that it violates the Ex Post Facto Clause of the Constitution. Defendant agrees to take all steps as requested by the United States to pass clear title to the forfeitable assets to the United States, and to testify truthfully in any judicial forfeiture proceeding. Defendant agrees not to seek a refund from the 5 EXH025-01824 ============= Page 6 of 13 ============= United States Treasury of the amount that he paid in taxes in connection with the receipt of the $4,256,006.67 in proceeds from the offense to which he will plead guilty, and waives his right, title, and interest to the taxes paid on that amount. Dew- artrnent'a Recommendati_gn Regarding,Forfeiturc_and Restftutio~s Defendant has entered into a separate agreement with the United States Securities and Exchange Commission (the "SEC Settlement").. As part of the SEC Settlement, Defendant has agreed to pay $3,743,993.33 within 30 days in a manner directed by the SEC. The Department agrees that, provided Defendant fulfills his obligation pursuant to paragraph 7 of this agreement and pays or causes to be paid $3,743,993.33 as required by the SEC Settlement, it will recommend that no additional forfeiture or restitution be ordered by the Court against the Defendant at the time Defendant is sentenced. Defendant understands, however, that the Department's recommendation is not binding on the Court. and the Court may order Defendant to pay restitution notwithstanding the Department's recommendation. Should the Court order Defendant to pay restitution. he will not be permitted on that basis alone to withdraw his guilty plea. 1-lyde Amendment aiver 9. Defendant agrees that with respect to all charges referred to in paragraphs I and 4(a) he is not a "prevailing party" within the meaning of the "Hyde Amendment," Section 617, P.L. 105-119 (Nov. 26, 1997), and will not file any claim under that law. Defendant waives any right to additional disclosure from the government in connection with the guilty plea. Breach Of Aereernent 10. Defendant must at all times give complete, truthful, and accurate EXH025-01825 ============= Page 7 of 13 ============= information and testimony, and must not commit, or attempt to commit, any further crimes. Should it be judged by the Department that Defendant has failed to cooperate fully, has intentionally given false, misleading or incomplete information or testimony, has committed or attempted to commit any further crimes, or has otherwise violated any provision of this agreement, Defendant will not be released from his plea of guilty but the Department will be released from its obligations under this agreement, including (a) not to oppose a downward adjustment of three levels for acceptance of responsibility described in paragraph 2 above, (b) to file the motion described in paragraph 6 above, or (c) to make the recommendation regarding restitution described in paragraph 8 above, Moreover, the Department may withdraw the motion described in paragraph 6 above, and the recommendation described in paragraph S, if such motion or recommendation has been filed prior to sentencing Defendant will also be subject tc prosecution for any federal criminal violation of which the Department has knowledge, including, but not limited to. the criminal activity described in paragraph 4. 11. Any prosecution resulting from Defendant's failure to comply with the terms of this agreement may be premised upon: (a) any statements made by Defendant to the Department or to other law enforcement agents on or after May 29, 2003; (b) any testimony given by him before any grand jury or other tribunal, whether before or after the date this agreement is signed by Defendant; and (c) any leads derived from such statements or testimony. Prosecutions that are not time-barred by the applicable statutes of limitation on the date this agreement is signed may be commenced against the defendant in accordance with this paragraph, notwithstanding the expiration of the statutes of limitation between the signing of this agreement and the commencement of any such prosecutions, Defendant waives all claims under the United 7 EXH025-01826 ============= Page 8 of 13 ============= States Constitution, Rule 11(e)(6) of the Federal Rules of Criminal Procedure, Rule 410 of the Federal Rules of Evidence, or any other federal statute or rule, that statements made by him on or after May 29, 2003, or any leads derived therefrom, should be suppressed. Defendant waives all rights to contest extradition or other lawful transfer from Canada to the United States for purposes of prosecution. Bankruptcy Waiver 12. Defendant agrees not to attempt to avoid paying any fine or restitution imposed by the Court through any proceeding pursuant to the United States Bankruptcy Code. Defendant waives all rights. if any, to obtain discharge or to delay payment of any fine or restitution obligation or alter the time for payment by filing a petition pursuant to the Bankruptcy Code. Defendant stipulates that enforcement of any fine or restitution obligation by the Department is not barred or affected by the automatic stay provisions of the United States Bankruptcy Code (Title 11. United States Code, Section 362). and that enforcement of any fine or restitution obligation by the Department is a valid exercise of its police or regulatory power within the meaning of Title 11, United States Code, Section 362(b). Defendant stipulates and agrees not to institute or participate in any proceeding to interfere with, alter, or bar enforcement of any fine or restitution obligation pursuant to the automatic stay or other provision of the Bankruptcy Code in any case filed by Defendant or his creditors. Upon request of the Department, Defendant will execute an order or stipulation granting the Department relief from the automatic stay or other Bankruptcy Code provisions in order to enforce any fine or restitution obligation. Defendant stipulates that any fine or restitution obligation imposed by the Court is not dischargeable pursuant to Title 11 United States Code, Section 523 in any case commenced EXH025-01827 ============= Page 9 of 13 ============= by Defendant or his creditors pursuant to the Bankruptcy Code. Defendant's waivers and stipulations or agreements set forth above are made in exchange for the Department's concessions set forth in this agreement. Fin Al Sentence 13. Defendant understands that the sentence to be imposed is within the sole discretion of the sentencing judge. If the Court should impose any sentence up to the maximum established by statute, Defendant cannot, for that reason alone, withdraw a guilty plea and will remain bound to fulfill all of the obligations under this agreement. Stipulated Factual _Basis for Guilty Plea 14. Defendant is pleading guilty because he is in fact guilty of the charge contained in the indictment. In pleading guilty, Defendant acknowledges that all of the facts stated below arc true. and were the case to go to trial, the Department would be able to prove all of those facts beyond a reasonable doubt. However, the parties agree that this factual basis does not include all relevant conduct that may be considered by the Court for sentencing purposes. The stipulated factual basis for the guilty plea is as follows: From at least 1998 through late 2001, Enron's executives and senior managers engaged in a wide-ranging scheme, through a variety of devices, to deceive the investing public about the true nature and profitability of Enron's businesses by manipulating Enron's publicly reported financial results and making false and misleading public representations. This scheme's objectives were, among other things, to produce reported earnings that steadily grew by approximately 15 to 20 percent every year; to meet or exceed, without fail, the published expectations of investment analysts about Enron's reported earnings-per-share results; and to persuade investors that Enron's future profitability would continue to grow. Ultimately, the primary purpose of the scheme was artificially to inflate the share price of Enron's stock. 9 EXH025-01828 ============= Page 10 of 13 ============= The devices employed in furtherance of this fraudulent scheme included but were not limited to: a. manipulating reserve accounts to maintain the appearance of continual earnings growth and to mask volatility in earnings by concealing earnings during highly profitable periods and releasing them for use during less profitable periods; b. concealing losses in the earnings of Enron's individual "business segments" through fraudulent manipulation of "segment reporting." that is, the manner in which Enron recorded and reported the earnings of its various businesses, and improper use of, reserve accounts to cover losses in one segment with improperly reserved earnings in another; c. manufacturing earnings through fraudulent over-valuation of assets and avoiding losscs through the use of fraudulent devices designed to "hedge," or lock-in, asset values: and d. structuring of financial transactions using improper accounting techniques in order to achieve earnings objectives and to avoid booking of large losses from write-downs in asset values. Defendant DAVID W. DELAINEY knew of this fraudulent scheme and participated in aspects of it. While in possession of material non-public information, namely, that Enron management was scheming to manipulate Enron's reported financial results. DELAINEY sold large amounts of Enron stock that he had received in the form of stock options and restricted stock as part of his compensation for his perforrnance at Enron. On January 10, 2000, defendant DAVID W. DELAINEY sold Enron stock, at $47.40 per share, generating proceeds of $364,694.11; and on January 24, 2000, DELAINEY sold Enron stock, at $69.81 per share, generating proceeds of $581,990.39. At the time of these sales, DELAINEY was in possession of material non-public information, including but not limited to Enron's actions, objectives, and purposes in relation to fraudulent accounting devices involving an energy contract with the Tennessee Valley Authority, certain Enron investments in power turbines and "peaker"'power plants. and an electricity swap transaction between Enron and Merrill Lynch. On October 30, 2000, defendant DAVID W. DELAINEY sold Enron stock, at $80.44 per share, generating proceeds of $545,900.60; and on October 31, 2000. DELAINEY sold Enron stock. at $79.69 per share, generating proceeds of 10 EXH025-01829 ============= Page 11 of 13 ============= $488.112.70. At the time of these sales, DELAINEY was in possession of material non-public information. including but not limited to the information described above, as well as Enron's manipulation of earnings results using reserve accounts; and Enron's manipulation of asset values in its Enron North America business, including through an elaborate hedging device known as Raptor. On January 11, 2001, defendant DAVID W. DELAINEY sold'Enron stock, at $69.47 per share, generating proceeds of $806,205,88; and on January 23, DELAINEY sold Enron stock, at $76.84 and $76.91 per share, generating proceeds of $ t ,469.102.99. At the time of these sales, DELAIN ,,Y was in possession olmaterial non-public information, including but riot limited to the information described above, as well as Enron's concealment of massive receivables owed to its Enron Energy Services business by the California utilities. As a result of these sales of Enron stock, DELANNEY received proceeds netting $4.256,006.67. Soon 15. This agreement does not bind any federal, state, or local prosecuting authority other than the Department. Complete Agreement 16. No promises. agreements or conditions have been entered into other than those sct forth in this agreement. and none will be entered into unless memorialized in writing and signed by all parties. This agreement supersedes any prior promises, agreements or 11 EXH025-01830 ============= Page 12 of 13 ============= conditions between the parties. To become effective, this agreement must be signed by all signatories listed below. Dated: Houston, Texas October 28, 2003 Respectfully submitted, LESLIE R, CALDWELL Director. Enroti Task Force By: _ t SAMUEL W, BUELL KATHRYN H. RUEMMLER Special Attorneys, Enron Task force and consented to: Delainey by; lr John M. Dowd', Esq. Counsel to Defendant 12 :XH025-01831 ============= Page 13 of 13 ============= ADDENDUM FOR DEFENDANT DELAINEY I have consulted with my attorney and fully understand all my rights with respect to the Indictment to be filed against me. I have consulted with my attorney and fully understand all my rights with respect to the provisions of the United States Sentencing Commission's Guidelines Manual which may apply in my case. I have read this cooperation agreement and carefully reviewed every part of it with my attorney. I understand this agreement and I voluntarily agree to it. David W. Delainey Date Defendant I have fully explained to Defendant DELAINEY his rights with respect to the Indictment to be filed. I have reviewed the provisions of the United States Sentencing Commission's Guidelines Manual and I have fully explained to Defendant DELAINEY the provisions of those Guidelines which may apply in this case. I have carefully reviewed every part of this cooperation reement with Defendant DELAINEY. To my knowledge, Defendant DELAINEY`s decision to n in this ag nink ' an informed and voluntary one. John M. Dowd, Esq. ate Attorney for Defendant a ainey EXH025-01832