4Q Earnings from ENA Principal Investments

fyi
---------------------- Forwarded by David W Delainey/HOU/ECT on 12/17/2000
06:32 PM ---------------------------

Michael L Miller@ENRON
12/15/2000 03:53 PM
To: David W Delainey/HOU/ECT@ECT, Jeff Donahue/HOU/ECT@ECT
cc: Wes Colwell/HOU/ECT@ECT, Roger Ondreko/HOU/ECT@ECT, Hope
Vargas/HOU/ECT@ECT, Charles Vetters/HOU/ECT@ECT, Kevin Kuykendall/HOU/ECT@ECT
Subject: 4Q Earnings from ENA Principal Investments

We have now refined our initial estimates for potential 4Q fair value
earnings on each of our portfolio investments:

Dais-Analytic ($8.27 MM) - DAC has signed an agreement with Lucky Goldstar of
Korea which includes a $5 MM minority equity investment at a pre-money
valuation equal to $147.9 MM. The agreement has been signed, is legally
binding, can not be unilaterally terminated by LG and transfer of money will
happen as soon as LG receives Korean central bank approval. (Note: We could
take an additional $3.55 MM gain, or $11.8 MM aggregate, if we chose to
exercise our option to invest $4.5 MM in DAC prior to year end)

Encorp ($14.1 MM) - Encorp has received a term sheet from Ballentine Capital
which values the company at $100 MM pre-money. Beacon Capital and Goldman
Sachs have both passed on making an investment at $100 MM. Given current
market conditions, we believe a pre-money valuation of $90 MM is more
realistic and closer to what Ballentine will ultimately do the deal at. The
$14.1 MM figure corresponds to a valuation of $90 MM.

Solo Energy ($1.5 MM) - the downturn in the equity markets has had its effect
on Solo's fund raising. Chase H&Q has solicited a number of investors in the
market, including Beacon, Perseus, Stephens (Little Rock) and Ballentine and
all are interested and reviewing. Charlie's sense is that the term sheets
that we should receive by year end will be at a valuation lower than the $80
MM that H&Q has been advertising to the company (and us). The $1.5 MM figure
corresponds to a pre-money valuation of $60 MM, which we view as more
realistic.

Metering Technology Corp. ($1.0 MM) - Aqua International Partners has agreed
to invest $15 MM at a pre-money valuation of $45 MM.

Power Systems Mfg LLC ($0.72 MM) - the principals of PSM have agreed to sell
the company to Calpine for $43 MM, making our warrant worth $1.72 MM. Enron
will receive cash for the warrant upon closing of the deal. PSM's proceeds
will be paid out over a 2-3 year period.

Utiliquest - we learned in November that Utiliquest had lost its bid to
retain the Atlanta area locating business of BellSouth, Atlanta Gas & Light,
Metromedia (Cable TV) and Georgia Power. This was obviously disappointing to
us - and symptomatic of the performance which led me to replace Utiliquest's
CEO just prior to the award of Atlanta bid (which went to STS, a subsidiary
of Dycom). The initial indication from the company was that - while Atlanta
represented $20 MM in revenues (roughly 20% of total revenues) - there would
be a proportionately smaller change in EBITDA and the bottom line. After
further analysis - conducted in connection with our planned divestiture - we
have determined that there will likely be a $2-3 MM reduction in EBITDA for
2000. Our anticipated EBITDA exit multiple is 6-7x 2000 figures. I need to
discuss a revaluation of Utiliquest in more detail with Kevin, Wes Colwell
and Andrea Reed.

Total comes to $25.6 MM plus whatever we determine is achievable on
Utiliquest.

Please call if you have any questions.

MLM