MEMQRAHDPM FOR CHAlfMAB MBS8EBSMHH. you vers In Washington and you Informed ae that you had given consideration to

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1 %0 % August 16, MEMQRAHDPM FOR CHAlfMAB MBS8EBSMHH. This meisoranctuai detail* occurrences since I last talked with you when you vers In Washington and you Informed ae that you had given consideration to the problem at to whether Lazard Freret & Co. should be Invited to give Its opinion in regard to the plan of reorganization of Mexican Light & Power Co* Ltd. (hereinafter referred to as MexLight) submitted by Mr, MeCloy of the World Bank, In view of your statement to me that upon your return to Mexico City you would prepare a letter to be delivered to Andre Meyer and send it to me for my consideration, 1 did nothing further about this matter after toe last talk with you in Washington until a few days liter when Ehrlich called upon ma and asked me whether X intended informing Meyer of the substance ef your telephone conversation from Washington* X told Ehrlich that X did not think it wise to call either Meyer or Murnane an it might have the effect of expediting some unpleasant consents from Meyer which might 1st avoided when your letter, which you said you were going to send me, was forthcoming with a softening diplomatic explanation of the situation* Ehrlich asked me if I did not think it advisable to telephone Meyer and tell him that a letter would be forthcoming from you. X told aim again that X thought it better to say nothing until your draft reached ae or unless Meyer or Murnane telephoned me, at X felt sure that if amy communication was had with them they would went to know Immediately what was said to Hi whan X reported to you Meyer* s statement to the effect that he would have to resign his directorship in Sofina and sever all other connections with Dannie's business unless this matter was straightened out* Accordingly, H&rlich agreed with me that we would do nothing until the draft of your letter arrived or until Meyer or Murnane called me. X again reiterated to Ehrlich at the end

2 of oar last talk that I fait this matter should not have arisen and could have been avoided before it became public information in the Street, and that I also felt that if the matter had bean explained to Ed Love he would have been tfce first to say either that L&zard be consulted or, if for valid reasons MexLlght wished to use any other firm,that before doing so Andre Meyer be informed of the reasons why you wished to use the First Boston Corporation and be given a chsaoe to be the first person to tell the First Boston that for reasons stated they were going to be consulted. Under usual "Street practice* and custom the First Boston would then think Meyer and of course say, * e want to work together if possible in this matter) you, Meyer, on the foreign end and wo both hero** So long as Meyer it a director of Soflna this would be the way it is done "in the Street". Ehrllch asked so If I did not feel X should do this st the present time, i.e., speak to Id Love about the matter, and X said no as I did not feel that without the Chairman's request X should inject myself into a matter that was being handled by him, even though you had asked me to attempt to smooth over the matter, «hlch of course I would endeavor to do in any event. However, we did not have to await the receipt of the draft of yomr letter to Meyer because early last week Murnane telephoned my office that they would like to see me. X called at the office of Lazard Freres and asked for Murnane but was referred to Meyer, who opened the conversation by asking me if X had reported to you the message which he asked me to convey. X told him X had and that X understood you were going to write him. He then summarised to me a draft of his letter of resignation to Dannie. Xt was couched in very friendly terms and was to the effect that id view of the great length of time he had been associated with Sofina and his friendship with Dannie and regard for him, It was with extreme regret that he felt he could no longer be of service to

3 Dannie or his organization considering the faet that he had received information to the effect that the Company felt that it should all upon the First Boston without even mentioning the matter or discussing it with him, as he interpreted this action as evidence of the fact that Dannie and Sofina did not consider his firm of any use to then. X told Andre that I thought Dannie would he very disappointed to receive such a letter and that as & matter of fact I had just heard from Ehrlieh that a cablegram had been received from Dannie stating that he had had a very friendly visit with Kindersley, one of the Lazard partners, although as X understood it* nothing had boss discussed by them about the MexLlght matter* Andre stated that he appreciated what I was trying to do to conform to Street practice and that ho would wait until he received your letter if it arrived within a reasonable time, but that he could not In any way retreat from the position which he had expressed previously, that asftsetter of principle unless this matter were properly regularized he must, in due respect to his partners, resign all connections with Sofina. He then went on to say that he had in the last day or so been onsulted by Mr. McCloy of the world Baafc on some foreign matters and that Humane had only recently seen McCloy on some otter matters, at which time MexLight was mentioned. At about this point in the conversation Humane came into Andre* office and said he had had a man with him and was detained, and Andre then reviewed his and my conversation up to that moment. Humane said that ho had been at the Racquet ft Tennis Club recently where McCloy, whom he has known for some time and who is a good friend of his, had talked with his About many of the matters facing the World Bank, among which he had mentioned the MexLlght affairs and had said that the MexLlght situation was a difficult one to work out* Murnane then said that ho had Mid to McCloy words to the effect that McCloy ftjpe

4 should know that in theory at least Laaard was Sonne* s hankers and that he therefore assumed that In due course Laaard»s opinion would also be asked about the proposed plan of reorganization of McxLight and that MeCloy*s reply had been, "Fine*. In concluding our meeting* I said to both Andre and Murnaae that X would await the receipt of your letter to Meyer before doing anything alee and 1&at X was still hopeful that this misunderstanding could be cleared up without any unfortunate results to anyone} that perhaps Dannie would want the advise of Laaard to Sofina in any event as * large security holder of MexLight. I pointed out to Andre that some question had been raised whether it would be advisable for say banker associated with Sofina in such a close way as through the directorate as Andre 1% to publicly endorse a proposed plan and that it might be more helpful to use well known banking houses not so Intimately connected with Sofina. Andre said that of course that was a possibility which he had very much in mind and which he could arrange abroad to be properly handled* Ve concluded our meeting on this state of facts. X reported the substance of our conference to Ehrlich. The next day, X believe it was, when I reached my office X found a note on my desk that M Love would like to talk to me from Hyanais, Massachusetts and to please call operator 29» I did so and the subject of our conversetaoa vac exclusively the facts and position of what had occurred in regard to Mexl&ght consulting First Boston without first having mentioned the matter or discussed it with Meyer. Ed Love began his talk by saying that ho was very much dlstrubed by what had occurred} that in talking with you he had sot had la mind that It was necessary to consult first Boston to the exclusion of any other house of an equally capable character} that in fact toe re were many houses eapable of advising on a proposed plan of reorganisation for MexLight} that Arthur McCain, Prosident of the Chase Bank had himself mentioned the subject to -*»

5 Charles McCain, the President of Dillon Heed, who could also have done the work jast as well, as could Lasard for whom Love had a high regard, but that he (Love) had suggested George Woods only because he felt that Woods was of tho same type mind as he waa; that, except for his position with the Bank, Lore could have advised personally a the plan just as easily as not and he therefore felt that Woods could do the same and mentioned him to yott} that If you had told hin or jogged his mind that Mey«* vas a director of So fine, ho' would certainly have suggested that the matterfeementioned to and discussed with Meyer first and reasons given Meyer why First Boston was mentionedj and that he fait that had you then wanted the First Boston also in the natter they could have worked together without any trouble. X told Ed Love that 1 was sure this natter would be harmonized la some way. lie said he felt wry badly about the situation and wanted Dannie t know that he was sorry this should have occurred. He said he would call Woods and asked if X knew him. I replied X did not. He then said that I would undoubtedly hear from Woods and ha 'wished I would see Woods as he thought X' could straighten out the matter. On Thursday afternoon Woods telephoned me and asked me if X could meet with him at luncheon on Friday and said he would like to have hi* partner, Addiaaell, join with u as he knew that Addinsell was a great personal friend of George Mamaa*. I, of course, said X would, but subsequently he called me back and said that addlnsell had an engagement for luncheon on Friday and asked If X could meet with them Friday afternoon. X told him X would arrange it if he would * phone when he was free after luncheon whoa X would go over and see them. After luncheon on Friday Woods called me and said he would like very much to put the matter off until lit30 today (Monday),

6 X was not la the office Saturday* Ehrlleb telephoned me that Mr, Lorle had just read to him & copy of jour letter to Andre Meyer and that he was dlstrubed about It as he felt that 1% would upset Meyer. Lorie had also read to him ft copy of your letter to me, but when X asked whether your letter had enclosed the original letter to Andre (because I had understood when you talked with a from Washington last that you were going to send the original letter to ae to look over before sending It to Andre) Ehrlica could not remember whether your letter enclosed the original or merely a copy. X told him not to worry as we would take up the matter Monday, When I reached the office this morning X found your copy of the letter to Andre end also found that he had telephoned me three times. When X 'phoned him he was very excited. As I told you on the telephone, X had explained to Andre when I had seen him previously that first Boston had not been chosen ft* the "bankers" of MexLigit but had only been asked by you to give you their opinion on the reorganization plan proposed by the World Bank and that your consultation with the First Boston had been restricted to that one request with no Indication whatever that the First Boston was one of the "banker** or was to be the "bankers* of MexLigttt» as that terra is used in thft Street", if that subject should ever come up in the future. Frankly, George, I had thought whan I talked with you on the phone and you said you would redraft your letter to Andre that I had suggested that you state that fact BO as to do away with the inference as it is know here on the Street that the Company was appointing the Fir at Boston it* bankers*. In his excited condition on the 'phone this morning, Andre said that your letter did not conform to what I had said you were doing* Also that it did not reflect the facts, as you stated in the second paragraph that Aft had offered the services of Lazart Freres in carrying through the reorganize Man»Qa

7 plan. He pointed out, quite rightly, that he had not offered the services of Lasard Freres for any such purpose nor for any purpose at allj and, frankly, George, if you got the impression from anything I said that Lazard was offering its services, you have misunderstood me. What Andre has been saying la only what X warned might occur and attempted to obviate when I mentioned at the Directors Meeting in Toronto and again at the last Directors Meeting in Saw York that Wall Street banking firms which have a partner on the directorate of a corporation expect, as a Vail Street custom, that whan any matters involving financial questions come up for discussion in such a corporation or its subsidiaries, the member of the board of directors who is a partner of the banking firm will be informed of the facts and his opinion asked before the management takes any definite steps to do anything about the financial matters and foat is all that Andre is objecting to, namely that ha was ignored. Obviously, wa know that upon being Informed, Andre or any other banker 1B a similar position Wtuld do his best to argue that his firm be used or be allowed to place the financing* You must appreciate the fact, George, that these bankers in Vail Street are extremely touchy about their ao-ealled "public relations" or personal position on boards of directors of companies or parent companies controlling subsidiaries and they cannot afford to have whispers or rumors going about the Street to the effect that they have been ignored, or not consulted, or overlooked about something that It going on with other bankers without their knowledge in the system. It affects the "good will" of their firms. X can thoroughly understand their position as a matter of principle and X am therefore not at all surprised at what has occurred} and X think everybody here, including Ed love, would give you the same advice which I have tried to* -7-

8 However, I don't consider the matter to serious if everything is harmoniously worked out unless, of course, Dannie should fee that he is perfectly satisfied to have Andre's resignation and the severance of relations with unpleasant feelings. Andre ended his telephone conversation this morning to the effect taut in addition to not liking what had occurred about his being ignored and not informed of what was going on, he vat worried about being connected In the future as a director of Softna if letters such as yours weal going to bs written. He felt that you wer% too good * diplfiaat frost everything he had been told about you t to understand the receipt of a letter which stated that he had offered services which he had never offered. I told him to stop his worrying becauss I was quite sure that you had not understood either Ehrlichia or ay reports to you and that a misunderstanding might readily occur in long distance calls and Inability to sit down in the same room and discuss matters thoroughly ts make sure that each one in the conversation understood every fact and report, especially in view of the pressure undo* Which you were having to work in flying around between Mexico, Mew York, Washington, Toronto, et al. I told Andre that I had an appointment *t with Mr, George Woods and that I had contemplated reporting to you as soon as X had had that conversation and X advised him to be calm and quiet. I called at the First Boston Corporation this morning and had a wry pleasant conversation with Messrs* "Woods, Addinsell and Ford. They told me they had heard of the apparent mix-up lath Lazard Freres and Addinsell took it upon himself to explain that he understood Meyer's position and that he would be Just *s upset had the situation occurred to him* Tor instance 11, said Addinsell, as near as X can remember his exact words, "I am a director of the Virginian Railway and I had quite a row with P.. Coe when that company's

9 management *cooked up* a financial matter after consulting with other bankers without Jay knowledge of what was go lag on, I thoroughly understand Hyer's position and sympathise with, him** He further stated that Humane vas one of hit test and moat intimate friends? that first Boston and Lasard worked together in many Matters and wished to continue to do so without misunderstandings or up-sets. I stated that X wondered whether Sofina, as distinct from MexLlght, might not want to Itself consult Lassard on the plan of the World Bank. Mr* Ford immediately said he thought this was an excellent idea and that of course lizard might be of great help in Europe in the exchange of securities, etc. Woods then aaid thatfa had been very interested to hear what we had said and that he wanted to remind his partners of the following facts, namely t that it was just two weeks ago today that h had been consulted by you on the subject of the World Bank plan} that at that meeting he had told you he did not know whether or not First Boston would accept the job of giving an opinion or adtising on the plam but would look over the matter and study it} that therefore he did not consider that First Boston at this time had agreed with you to give any advice and he wondered whether, In view of the present situation, they ought to do so. Both of his partners and I immediately urged upon Woods that ne should continue to meet with your request to give the benefit of advice on the matter, I emphasised the fact that I understood the matter to be a very serious one vis ft viz the World Bank and that X undercstood you to say that you felt it would be an extremely delicate.natter to Inform McCloy that Lasard vas also advising on the matter. Both Ford and Addinseil laughed and said, "Obviously Humane has already talked with McCloy and in any event, it is none of McCloy*s business what you do about consulting banker** The Company is entitled to consult any bankers it wishes to and MeCloys knows that and would not have the slightest objection to Laaard also advising on the plan", Addinseil also said that he had been up at Humane'

10 fishing place la the Adirondack cad hat seen McCloy there with Mamaae and knew that they were good friends. Mr* Hoods tiien said that it eeeaed to hia It would be quite alright for L&sard to advise Sofina and go Along on a joint opinion and that all that he eould see in the situation was the obvious one that should there be a public financing at any time in the future, in addition to the First Boston, Lassard would be in the financing and, as Woods put it, "why not?*, and stated they would be perfectly willing and glad to work together with Lazard as they did in Other natters. Mr. Addinsell then volunteered to write you to suggest that you go along with the idea that Lazard should also he entitled to examine into the plan and state its opinion. Ford raised the point that it might net be proper for the First Boston to suggest to you what to do by thus writing and he suggested that Z write you suggesting that you aeatton to the First Boston that Lazard was being asked by 3ofiaa, at a holder of a large quantity of the securities of MexLlght, to advise on the plan and that they be given every facility to do so. Ford pointed out that undoubtedly aaay holders of securities of MexLight would consult their bankers when, as and if any plan of reorganisation is promulgated, as to what they should do about their holdings $&& it is quite in order that Lazard 1 * opinion and advice and advantageous help abroad be now secured. he said there light vail be something in what I mentioned to the effect that perhaps Lazard*s endorsement abroad might not be a good thing If the connection of Andre Meyer with Sofina were disadvantageous from a publicity standpoint, but he agreed that Lazard would know how to get around that poistin aiding abroad. Mr, oods concluded by saying that their investigation was about completed and they would be ready very shortly to tell you whether they would be willing to seept employment regarding advising on the plan.

11 In the circumstances, I would propose, if you a loafer havo say objection, that JDamie communicate with Andre Meyer end ask his firm to examine the World Bank plan as now proposed and give its opinion to Sofia*) that la order to expedite the matter, Inasmuch as urgency is required, he request you as Chairaaa of MexI4.#t to afford Lazard every opportunity to examine whatever data is necessary to give its opinion on the plan for JfexLight if that is agreeable to the First Boston - sad 1 am sure it will bo. J.D.D. * til,- I -1L-