Meeting with Ft. James

On Tues. 9/21 I met with Phil Zirngibl, the Alliance manager for Ft. James.
I informed him Enron wanted the original $10mm back. It was our belief that
FJ did not act in good faith in "expeditiously and fairly evaluating" all of
Enron's energy proposals. Phil argued that Enron saw substantial revenue
from the commodity (gas & coal) deals that were executed. I argued that
commodity deals were never the "intent" of the Alliance as outlined in the
"Objectives of the Parties." I told him we didn't need an Alliance agreement
to do commodity deals.

Phil was only prepared to argue the definition of "substantial assets" as it
related to the asset sale. I told him Kalamazoo was substantial to us
because that was where we had a significant energy project. It was also
substantial because the mill was ranked in the top 3 in terms of natural gas
consumption. FJ let us work on the Kzoo project for 9 months before
informing us the mill would be sold. I told Phil this is not how Alliance
partners treat each other.
I asked Phil if he was prepared to offer any proposal to resolve the
situation. His response was FJ was happy with the Alliance and wanted to
continue with it "as is." My response was that was not acceptable to Enron.

I told him the list of potential mediators for the dispute was being sent to
their counsel Greg Chaffee.

Next Steps:

I think we need to pick out a couple of strong project examples to use in our
case to present to the mediator. Rather than just show the list of potential
deals Enron pitched and the lost opportunity value, I think a stronger case
to get our original $10mm back is to say here are 3 examples, here is the
value to both parties, and FJ still did not do the project (or they chose to
do it themselves). This should go a long way to proving "bad faith".

I will get with David Barr and start assembling this information along with
the entire project list and the various "reasons" FJ chose not to do the
projects.

Based on this initial meeting, if the parties can't resolve the dispute
within 30 days, the dispute goes to non-binding mediation. The parties are
to meet with the mediator within 21 days of the dispute being referred to the
mediator. Per the Alliance agreement, the mediation meeting should take
place anytime between now and November 10.

Let me know if you have questions.