"We're talking, but I don't know how much there is to report," Smith said. "We're still (saying) 'here's my position, here's your position." That doesn't mean you're closing the gap, but yes, we're talking."

Khabibulin rejected a three-year deal worth $9 million in June. He had been understood to be asking for $5 million a year.

On Wednesday, Smith rejected a counteroffer from Grossman and said then he was more pessimistic than ever about the possibility of agreement.

The 26-year-old Russian is a restricted free agent. Smith has said the Coyotes will not trade him.

Khabibulin (32-23-7) tied for fifth in wins last season and was fourth in save percentage, sixth in goals-against average and third with a career-high eight shutouts. During the season, he set franchise career records for victories (126) and shutouts (21).

His base salary was $910,000 in 1997-98 and $1.25 million last season, but Smith said contract incentives added an average of $600,000 per year in bonus money.