Ken:

Very shortly after we spoke, I was informed that we had lost the Enron
HomePC Program. This is a great emotional blow to us and I am beyond
disappointed.

We understood that given our recent  strong performance against Dell, they
would do anything to embarrass us in our own backyard.  We have very strong
insight into their intent and knew they would  use this aggressively in
their PR campaigns.

However, clearly it was our job to win the business on the merits of the
individual program and to compete hard for it. We believed that we had a
creative offer on the table that would create great value for your
employees. Obviously, we did not perform to your expectations.

Following is the summary of our activities together which was created before
we heard the news.

I pride myself in developing strong executive relationships with our
customers, and I would welcome the opportunity for us to put our heads
together in order to look for ways we can move the relationships between our
two companies to a higher level.

I also think we should discuss the PR positioning. As a member of our Board,
and as a leader in the Houston community this will be news and I am hopeful
we can find a creative way to balance it.

Again, I accept it was ours to win in the marketplace but regret it had to
come to this. I look forward to your call.

M




From our Enron team:



* EBS Product and Service Supply Agreement

Compaq will continue to honor the Product and Service Supply Agreement
executed on January 18 between EBS and Compaq, whereby Compaq agreed to
purchase broadband services from EBS (on a take or pay basis) in proportion
to EBS' purchase of NT servers and attached storage.  It is also important
to note that we have been actively partnering with EBS on non-contractual
areas, such as our ongoing technical joint development and marketing efforts
around the Windows Streaming Media product.  I understand that our teams
have been working very closely together -- and with Microsoft -- to resolve
technical issues with Windows Streaming Media and thereby speed EBS' market
deployment.

The major issue is that Enron does not support traffic to many of our
concentration point so we need to be creative.

Bottom line, we are down to solvable problems with solution activities
underway.

* Windows 2000


During the last week of May Compaq responded to a request from Enron to
support Windows 2000 deployments, and placed people on site with no defined
contract or process due to Enron's requirements.  At this writing, no
contract has been signed, and the current contract iteration is at number
fourteen.  Apparently the delivery scope has changed several times and there
have been a few mistrals. Compaq is continuing to provide resources despite
the fact that no contract is in place and will work with Enron to ensure a
successful completion of the project.

* Power Management

Jesse Greene, our CFO, will act as the contact point for Enron for power
management services. The issue is we have existing contracts at favorable
rates but we will break the log jam.

* HomePC Program

For several months, Compaq and Enron have been working the solution to bring
technology and Internet access into the homes of every Enron employee.
There have been many creative discussions around hardware and financing to
allow Enron to fully subsidize the package provided.  Compaq, Enron and
Compaq Financial Services had gotten to a point where the $35 per month cap
was going to require the specifications of the hardware to be reduced.  In
recognition of the value of our partnership and our mutual desire for this
program to be the premier program in the industry, we have increased the
specifications of the hardware while taking significant pricing actions and
financing rate reductions.  These actions will actually allow Enron to
support better than expected hardware with the extended warranty for $34.28
per month.   This will truly be an industry-leading program when launched
later this fall.