Fran, any word from Nancy?  Thanks.  Michelle

---------------------- Forwarded by Michelle Cash/HOU/ECT on 11/14/2000 11:12 
PM ---------------------------


Michelle Cash
11/02/2000 05:17 PM
To: Timothy J Detmering/HOU/ECT@ECT, Anne C Koehler/HOU/ECT@ECT, Patrick 
Wade/HOU/ECT@ECT
cc: Fran L Mayes/HOU/ECT@ECT, fmackin@aol.com, David Oxley/HOU/ECT@ECT 
Subject: Project Triple Lutz -- HR Issues with Bidder D

This email summarizes my conversation on employee matters with Nancy Quigg 
Young, which took place  yesterday.

Logistics.  The most significant area for the employee matters involves the 
logistics of the buyer hiring the employees.  In the original agreement that 
we proposed, we would allow the buyer to interview employees, select the ones 
they wanted to hire, and require that the buyer keep them employed for at 
least 2 years.  Their counter proposal was that they got to hire who they 
wanted, have us pay severance on all others, and they would have no 
obligation to keep them for any length of time.

Since then, there have been discussions internally that we want all employees 
to go with the sale, with the buyer taking the action of severing employees 
(although we would fund severance costs under the Enron formula).  I raised 
that proposal with Nancy, who is going to discuss it with her business 
clients.  

In the alternative, if the buyer selects the people it hires, and we have to 
eliminate the jobs for those not selected, I informed her that we would 
require an indemnity for claims made against us based on the selection 
process.  

Base Salary.  The counteroffer made by Bidder D does not provide that the 
employees hired from HPL would receive at least the same base salary as they 
earn at Enron.  This is important because a severance payment could be due if 
an employee does not accept a job at a lower salary.  Karen appeared 
unwilling to agree to pay divested employees outside of the buyer's salary 
bands (note:  paying outside of a salary band in the context of an 
acquisition is standard procedure, but she was acting as if it were an 
incredibly difficult accomplishment).  She claimed that one problem lies in 
not knowing the exact salary for each employee at issue.  We pushed back on 
this and offered to provide average salaries for each job level, to allow her 
to get comfortable with the ranges.  Fran Mayes will provide this 
information, which may eliminate this issue.

Bonus.  In our proposal, we asked that the hired employees receive a total 
bonus payment that is at least equal to what they earned their last year at 
Enron.  Bidder D did not provide any such guarantee.  Karen said that she 
needed our "bonus formula" before she could commit to this.  I explained that 
we have no bonus formula and that our bonuses are based on performance of the 
company and the individual.  We previously had provided total bonus amounts 
for the entire group, and she could make a determination of bonus costs on a 
consolidated basis for her deal folks to calculate.  j

She said she was "not sure if they could get there" on the bonus issue, 
particularly since she thinks our bonuses will be extra high this year.  I 
offered to discuss whether we could modify the amounts by averaging the last 
two years, which she thought might make it better.  

Unvested Equity.  When I explained to her that we could not supervest 
unvested options, she indicated that there was a "possibility" that the 
amount could be made up in stock options of Bidder D.  I think this is the 
"win-win" position, but I think it will have to be pushed.

Vacation.  Their vacation plan maxes out at 4 weeks; ours maxes out at 5 
weeks.  She thinks she may be able to propose that, for the first year the 
employees work for the buyer, they can use the vacation accrual from Enron, 
but after that, they are subject to the buyer's vacation plan.  This approach 
is reasonable.

WARN Act.  There is the slight possibility of WARN Act implications, in the 
unlikely event that closing occurs within 60 days of signing.  The WARN  Act 
requires a company to give employees 60 days notice of a plant closing or 
mass layoff.  This situation probably would qualify.  Thus, we would have to 
give 60 days notice to all employees who potentially may be affected.  We can 
pay in lieu of notice, in the event that the closing (and thus the 
terminations) occur sooner than 60 days after closing, but we may want to 
spell out who bears that cost, if it is incurred.

Benefits.  Other than the vacation benefit described above, it appears that 
Bidder D has benefits that generally are of the same nature as Enron's 
benefits.  Thus, allowing the hired employees to participate in the buyer's 
benefits plans, with credit for years of service at Enron, likely would be 
comparable to their situations here.

I expect that we will hear from Bidder D with their proposals on these issues 
once Fran provides Nancy with the salary data.  Please let me know if you 
have any questions.

Michelle