Steve Smith called this afternoon.  He was anxious to know where we stood on
the issue of the third arbitrator.

He advised me that they have withdrawn Bill Paul as a proposed arbitrator.

I disclosed Judge Webster's relationship with me and my wife, and his firm's
relationship with Enron, whereupon Smith advised that they would not be
willing to have him as the neutral.

He asked me where we stood re Morris, Roberts and Sessions.  "Sessions?"
said I.  Apparently they considered putting former judge Bill Sessions on
their list but must have decided not to do so.  (the third proposal was
Layne Phillips)

I told him that we were considering them, that Beatty was going to call
Renfrew to get more info about his relationships with them, and that we
probably were going to propose some names of our own next week.

Smith advised me that the deadline for selecting the neutral was January 15
(Monday), and that they did not intend to let the schedule slip.  I told him
that we were aware of the deadline, but as a practical matter did not see
what significance it really had since going to AAA (the remedy in the letter
agreement) would only slow the process down, not speed it up.  It reiterated
about five times that they expected us to stick to the deadline and did not
want the schedule for the arbitration to slip (has this man been speaking to
Brian Redmond secretly?).

I told Smith five times that we were not going to send them names this week,
and were unlikely to agree to one of theirs this week.  I told him that if
he insisted on an answer re his remaining three prior to Monday, that would
be easy:  the answer would be no.  I told him I preferred to take the time
to actually consider whether one of them was acceptable, and assumed that's
what he would want once he thought about it.

We should try to get back to him sometime next week with a response re his
remaining three and, unless we are agreeing to one of those, some proposals
of our own.

Richard, have you gotten any feedback from JVD?

Neal S. Manne
(713) 653-7827
nmanne@susmangodfrey.com