Richard: 

Kathy finished her questions at the end of the day yesterday.? Her approach 
was very helpful to Enron, and also PaineWebber, even to the point of 
skipping pages in documents that referred to either of them.? Enron's name 
was mentioned probably three or four times in three days (and then only in 
questions, not in answers).

Kathy's themes were: 

??????? 1.? At the time of the offering, portions of the hot mill were 
incomplete, and the hot mill was not really operating.

??????? 2.? The design of the cold mill was flawed. 

??????? 3.? The role of SDI in the managment of NSM was greatly exaggerated 
in the offering presentations.? [Kathy did not seem to be be saying (as other 
have) that the role of the Management Co. was exaggerated.]

??????? 4.? Nucor was really Stickler's first choice for SDI's role, but 
Nucor pulled out becasue of substantive concerns, e.g., flawed design of cold 
mill.? Stickler lied when he told others that Nucor just wanted too much 
money.? (Based on what I have seen so far, I don't think we know yet why 
Stickler and Nucor did not make a deal.)

??????? 5.? By late April 1998, if not before, NSM managment and directors 
knew that the projections in the offering materials were way off, as NSM's 
own internal budget was much different.? (Roland and I showed you these 
documents when we were last in Houston.)? A substantial portion of the 
offering funds were still in trust at this time (how much???), and the 
bondholders should have been told (when they could still pull back some of 
their money if they wanted to) that the projections on which they had 
invesfted were not correct.? [If this argument were developed and had legal 
merit, it could hurt Enron, as its affiliates or employees were (a) "initial 
purchasers" in the offering, (b) a member of the management co., and (c) a 
member of the NSM board.]

??????? Kathy was never clear in her questioning whether she regarded SDI as 
a defrauder or a defraudee.? At times she seemed to be saying that SDI knew 
bad things about NSM and the mill and concealed them or permitted others to 
lie about them.? At other times she seemed to be inviting Busse to say that 
he was lied to.

??????? There is no question that Kathy regards David Stickler as the number 
one bad guy and David Wheeler (NatWest) as number two.

??????? Busse's principal themes were:? (1) SDI agreed only to a very limited 
role; (2) all of the problems were soluble IF NSM had good management.? NSM 
turned out to have terrible managment.? Busse and everyone else were lied to 
about that, and that is why NSM failed.

??????? I had not realized before this week that, by the time of the closing, 
the Management Co. had only 3 members (SDI and affiliates of McDonald and 
Enron.)? [Stickler was appointed manager of the Management Co.]? If Enron has 
a problem in this case, it will likely arise out of the combination of 
enron's two roles--i.e., involved in the offering itself and then in the 
follow on management of NSM.

??????? I suggest that, if I can't make progress with Hirschmann next week,? 
we (Milbank) notice and take Legg-Mason's deposition (assuming that the other 
defendants agree--and maybe even if they don't.)? It's time to stop letting 
Legg Mason have a free ride.

Steve 

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