What I said to Ian Cumming at the Leucadia meeting, May 11th, 2009

Hi…here are the three things I asked. I’ll list the questions first, and then
down below I’ll explain the nature, and hopefully the relevance of, the questions,
and why I asked them.

1) Q: When Leucadia uses Baldwin Enterprises Inc. and PHLCorp to buy the
stock of Jefferies, Americredit, and Level Three, what’s the purpose (reason)
for doing it that way?

A: Cumming says nothing, but motions with his hand toward Joe Orlando,
who answers: “…there are tax benefits…”

Q: Mr. Orlando, do you mean that Baldwin still has NOL’s from 15 years ago
that haven’t yet expired?

A: Yes

2) Q: On January 14, 2003, Allcity Insurance (ALCI.OB) was trading at 19 cents.

The next morning, you (Cumming, Steinberg and Leucadia) tendered for the
remainder of the outstanding common stock of Allcity, offering $2.00 per
share. The minority shareholder committee challenged you, and you raised
your offer to $2.75. At the time, you (Leucadia, Cumming and Steinberg)
already owned 91% of the stock of Allcity.

What was so compelling to you about that last 9% of Allcity common

stock, in that you were willing to pay so handsomely for it?

A: (Steinberg and Cumming, almost in unison) “We don’t remember !”

 3) Q: Lex Brodie’s is gone, the airplanes are gone, there’s a $1.7B NOL, you’re
going to skip the interest payment on the Senior Notes on this coming Friday,
and our board may abandon the plan of liquidation.

Cumming: “What are you talking about !?!?!?”

Me: My first question is, what is the purpose of skipping the interest payment
on the senior notes, and second, under what circumstances would our board
abandon the plan of liquidation?

Mara stands, as Cumming again says “What are you talking about !?!?!?’

Me: “Finova”

Steinberg, almost yelling: “We don’t have any investment in that!!”

Cumming turns to Steinberg and says, “We own 25% of that….”

Steinberg, still almost yelling: “You’re talking about Finova!”

Cumming makes a sweeping-across-the-room motion with his arm, points to

Mara, and yells at me: “No one in this whole room has any idea what you are
talking about!”

Mara yells across to me that we can discuss this outside, after the meeting…

Tom Mara did meet with me briefly in the hall, but he basically repeated,
almost verbatim, everything from the 10-K...regarding TLP, the Clarification Motion,
the interest payment on the Senior Notes… It was kind of creepy the way he said
almost exactly the same words that are found in the filings. He thinks the TLP
people will lose, and I agree on that point, but he thinks the Equity Committee will
lose too. This I’m not so sure of, but who knows?

The-little-committee-that-could has come a long way from the beginning of

the Clarification Motion…we’ll see what happens.

Now, the three points I’m trying to make are these:

 1) Baldwin and PHL are fifteen-year-old ‘empty mailboxes’ that have no
employees or operations to speak of, and serve basically no purpose other
than the possession of NOL’s that they accumulated way-back-when, and
that don’t expire for 20 years. Ian Cumming actually stated out loud, to
some 250 people at the meeting, that “we’ve never paid federal income
taxes”…

Baldwin/PHLCorp is a perfect example of how Leucadia does this,

and Allcity/Empire might have been another.

2) I’m trying not to simplify this too much, but here goes;

In order to be a “wholly owned subsidiary”, you cannot be a

‘partially owned subsidiary’…right?

This means that, especially demonstrated in the case of Allcity,

minority shareholders in Leucadia subsidiaries will eventually be bought
out by Leucadia. That’s the only way it can become a “wholly owned”
subsidiary, correct?

I swear, I’m not trying to simplify it too much.

Allcity demonstrates that way back in 2003, when Ian Cumming

offered ten times the previous night’s closing price for a tiny block of
stock, he must have foreseen far greater long term value than just $2.75.

3) First, Ian Cumming and Tom Mara put these words into the filings, starting
about two years ago: “Our board may abandon the plan of liquidation.”

If these words had always appeared in all the filings, I wouldn’t be so

concerned. But they haven’t; this phrase started appearing in the 10-k “For the
fiscal year ended December 31, 2006”, (which was released on March 22, 2007).

By putting those words in there, that hadn’t been there before, the
possibility is raised that the company might very well “abandon the plan
of liquidation”. This statement is buried in the “Forward Looking
Statements”. It may just be more evasive, declamatory boilerplate, and
I’m trying not to read too much into it.
But why would they insert this new language if they weren’t at least
considering this option?

And my question to Ian Cumming at the may 11 LUK annual meeting,

was, “Under what circumstances would our board abandon the plan of
liquidation?”

If they hadn’t raised the possibility, I wouldn’t be asking.

OK, bye for now…and good luck!

-Gregory

grdmilton@gmail.com