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2 UNITED STATES BANKRUPTCY COURT


3 SOUTHERN DISTRICT OF NEW YORK
4

5 IN RE: )
)
6 LEHMAN BROTHERS HOLDINGS, ) Chapter 11 Case
INC., et al. ) Case No. 08-13555 (JMP)
7 ) (Jointly Administered)
Debtors. )
8 -----------------------------)
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12 341 MEETING OF CREDITORS


13 New York, New York
14 Wednesday, July 8, 2009
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22 Reported by:
23 KRISTIN KOCH, RPR, RMR, CRR, CLR
24 JOB NO. 23600
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3 July 8, 2009
4 10:11 a.m.
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7 341 Meeting of Creditors, held at


8 the Hilton Hotel, 1335 Avenue of the
9 Americas, New York, New York, before
10 Kristin Koch, a Registered Professional
11 Reporter, Registered Merit Reporter,
12 Certified Realtime Reporter, Certified
13 Livenote Reporter and Notary Public of the
14 State of New York.
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2 A P P E A R A N C E S:
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4 UNITED STATES DEPARTMENT OF JUSTICE


5 OFFICE OF THE UNITED STATES TRUSTEE
6 33 Whitehall Street
7 New York, New York 10004
8 BY: ANDREW D. VELEZ-RIVERA, ESQ.
9

10 WEIL, GOTSHAL & MANGES, LLP


11 Attorneys for Debtors
12 767 Fifth Avenue
13 New York, New York 10153
14 BY: AMANDA HENDY, ESQ.
15

16 PANEL MEMBERS:
17 DANIEL EHRMANN
18 BRYAN MARSAL
19 JOHN SUCKOW
20 LORI FIFE
21 SHAI WAISMAN
22 WILLIAM FOX
23 JACK D. McCARTHY, JR.
24 JEFF FITTS
25 DOUGLAS LAMBERT

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2 MR. VELEZ-RIVERA: Ladies and


3 gentlemen, good morning. I am Andy
4 Velez-Rivera. I am with the office of the
5 United States Trustee here in the Southern
6 District of New York. This is the joint
7 meeting of creditors in the bankruptcy
8 cases of Lehman Brothers Holdings, Inc. and
9 its related Chapter 11 debtors in
10 possession.
11 Under an order of the court these
12 cases are jointly administered and the lead
13 case is Lehman Brothers Holdings,
14 bankruptcy case number 08-13555 (JMP).
15 We appreciate that you all are here.
16 If you haven't signed in outside when you
17 came in, please do so as you exit the
18 facility.
19 I will be presiding over the Chapter
20 11 meeting of creditors this morning on
21 behalf of my client, Diana Adams, the
22 United States Trustee.
23 This is a continued meeting of
24 creditors. Several of you were here back
25 on January 29th when the initial meeting

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2 was held in these cases and the protocol
3 and the recordation of the meeting will
4 happen in much the same way.
5 There is a court reporter present
6 who will transcribe the meeting and her
7 transcription will be the official record
8 of the case. You can contact her directly
9 or my office if you would like a
10 transcript.
11 The press is welcome to attend
12 because this is an open meeting, however,
13 no press people will be allowed to ask any
14 questions. No video recording of any type
15 will be allowed. No audio recording of any
16 type. No photography, and that includes
17 photos by cell phones. Note taking is just
18 fine, but as I mentioned, you can get the
19 transcript from the reporter.
20 I'd like to introduce some of the
21 people on the podium.
22 The gentleman who is second from the
23 last is Mr. Shai Waisman. I will ask him
24 introduce everybody else.
25 MR. WAISMAN: (Inaudible.)

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2 MR. VELEZ-RIVERA: Okay, we will do
3 that.
4 We will begin with the presentation
5 by Mr. Marsal and then at the conclusion of
6 that he will entertain questions from the
7 audience. At that point only creditors
8 will be permitted to ask questions.
9 All right. Oh, one other word.
10 Mr. Marsal's presentation, as he makes his
11 way up here, what you see on screen has
12 already been filed this morning, I am told,
13 in an 8-K filing and it is also available
14 on their website.
15 MR. MARSAL: Good morning. In
16 January we had a full room and I must tell
17 you I did not expect to get a full room
18 today, but we will do our best to update
19 you on where we are in the matter of Lehman
20 Brothers Holdings.
21 In terms of the current situation at
22 Lehman, over the last -- since we last met
23 in late January there has been steady
24 progress on asset management, claims
25 management, financial reporting and the

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2 litigation aspects of this case. Our
3 liquidity continues to build. The
4 (inaudible) thing is that we are only
5 permitted to put that liquidity into
6 permitted investments and, as you know, the
7 permitted investments are investing in
8 government guaranteed obligations, short
9 term. There is a very poor return.
10 Despite that fact you will see we have
11 $12 billion in cash today.
12 Reporting, our 12-31-08 balance
13 sheet will be available in early to mid
14 August. That will provide a lot of answers
15 to questions on valuation, what we think
16 the illiquid assets are currently valued
17 at.
18 And last but not least, our
19 financial situation continues to improve
20 (inaudible) the 12-31-08 numbers. We will
21 get more -- we are on an accelerated basis
22 to get more current numbers. We are
23 running the first and second quarter
24 numbers as quickly as we possibly can.
25 In terms of claims management, as

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2 you know, there is a Bar date on September
3 22nd. We are sorting through all the
4 intercompany -- many of the intercompany
5 guaranty issues. This is very complex and
6 is going to take a significant amount of
7 time. Keep in mind that it's our objective
8 that this Bar date is to really put a stake
9 in the ground and try to get a handle on
10 what the claims are to force people to help
11 us analyze and to develop that history.
12 There has been a tremendous amount of
13 concern, particularly in Europe, and
14 confusion surrounding this Bar date. We
15 are going to work with all bondholders to
16 do what's right by them. And so having
17 said that, we are sympathetic that this is
18 a bit confusing, this process between the
19 guarantees that have been provided by
20 Holdings and the direct loans that have
21 been made to subsidiaries of Lehman.
22 On the litigation front, there is
23 significant litigation in progress. As you
24 know, we have a matter under way with Bank
25 of America and we have a discovery request

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2 that has been made and granted by the court
3 under the Barclay's matter. We also have a
4 number of other issues which are in the
5 process of being developed and pursued. I
6 am not at liberty to really talk about
7 them, but in the coming weeks it will start
8 to become clearer as to what those
9 litigations will be.
10 Last but not least, we have a
11 significant amount of preference and
12 fraudulent conveyance issues that need to
13 be addressed and business work stream has
14 been developed to address that and we will
15 be assigning legal responsibility to that
16 work stream shortly.
17 On the personnel front, I thought it
18 was valuable to show you where we are
19 today. The Lehman estate consists of 2,405
20 head count. Most of the head count, if you
21 look down the vertical axis, you will see
22 the various departments and functional
23 areas. Most of the head count, if you go
24 down to the fourth from the bottom, you
25 will see is at the bank platforms, the

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2 Aurora bank platform and the Utah bank,
3 where we have 1,759 head count. If we go
4 back up -- excuse me. The LBB is strictly
5 Aurora. Below that is the Utah Bank where
6 we have 20 head count. So you see that the
7 estate really consists of the 428 of asset
8 teams and 164 of administrative teams in
9 terms of Lehman personnel.
10 In terms of A&M personnel, of the
11 175 FTEs working from A&M, we have a
12 hundred which are involved in
13 administrative matters, we have 69 which
14 are directly involved in asset matters,
15 with six being involved with the bank
16 platforms. So to look at it a different
17 way, the administration of this case has
18 required about a hundred of Alvarez &
19 Marsal FTEs.
20 Let's look at of the 175, let's look
21 at what they are doing. On the finance,
22 treasury and tax front, it's clear they are
23 trying to get the books and records out,
24 trying to get them straightened and trying
25 to deal with many of the tax issues and to

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2 deal with the cash management of a
3 liquidating situation.
4 Next category, IT wind-down, we were
5 left with a challenge when Barclay's took
6 over the technology of Lehman. Barclay's
7 agreement permits us two years to depend on
8 Barclay's system, at which point they can
9 cut us off of that IT system, so we have
10 been in a rush to get our own stand-alone
11 IT system up so we can track these assets
12 into the future.
13 This is a very project-oriented
14 group and the job should be largely done by
15 the end of this calendar year into the
16 first quarter of 2010. It's our objective
17 to be independent of Barclay's by the end
18 of the first quarter certainly.
19 Next category, which is claims
20 management, CMS, data and forensic, the
21 head count here is really focusing on three
22 major activities. One is the forensic
23 activities to support the litigations that
24 are under way. The other is to support the
25 data requests both of the examiner and the

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2 other receivers and of our own organization
3 and trying to reconstruct some of the
4 activities that occurred prior to the
5 filing.
6 Looking at the asset teams, what you
7 see there is you see a relationship of it's
8 really one Alvarez & Marsal person to every
9 seven legacy Lehman people. We believe
10 that that is -- the mix varies, but as you
11 see the bulk of the people on this case in
12 terms of legacy Lehman are the asset teams,
13 the bulk of the A&M people are in the
14 administrative teams.
15 In terms of key responsibilities for
16 A&M, we went over this back in January, but
17 we will do it again. The first
18 responsibility is maximize the recovery
19 value of the assets. There are five asset
20 teams in place. Each of those teams, the
21 tasks are defined and the plans are being
22 executed as opposed to before when plans
23 were being developed. We pretty much know
24 what we have to do in each of those asset
25 categories and people are doing it. It's

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2 actually working quite well.
3 The second key objective, which is
4 to mitigate potential liability and
5 reconcile claims, the key open issues there
6 is resolving the derivative claim
7 termination values, the unfunded
8 commitments, getting out of those unfunded
9 commitments both in terms of the bank, the
10 bank book, as well as the private equity
11 unfunded limited partner responsibility,
12 the GP responsibility, and sort through all
13 the parent guarantees that we have for all
14 the various Lehman subsidiaries, as well as
15 to sort out from the clearing bank
16 standpoint what happened with our various
17 clearing banks. We have identified various
18 claims against us which we are now
19 investigating.
20 The third key objective was to meet
21 the needs of the court, the U.S. Trustee
22 and the Unsecured Creditors Committee to
23 attempt to timely reporting, transparency,
24 and cost effective administration of the
25 case. I am pretty proud of what we have

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2 done to date. I think we have moved that
3 up at a pretty good pace given the
4 complexity of this case. What I would say
5 to you is just in the case of Alvarez &
6 Marsal, we have over twenty teams, which a
7 team would be the equivalent of which would
8 work on one case normally, so this is
9 twenty times the normal A&M size case.
10 In terms of asset reports, the first
11 key asset to talk about is the bank
12 platforms. There is really no surprise
13 here. On the bank asset front things are
14 stabilized. Asset values are becoming --
15 we have written it down to levels that we
16 feel very comfortable with. The concern we
17 have on the bank platforms is with all the
18 reforms going on in Washington, things are
19 a bit confusing right now. The FDIC has
20 sort of changed the rules of the game in
21 terms of their willingness to permit us to
22 open up broker CDs again and the office of
23 the Thrift has really been merged into the
24 control of the currency, so there is lots
25 of confusion on that regulatory front.

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2 The bank book, we have unfunded
3 commitment obligations continue to be
4 eliminated. As we will discuss later,
5 there has been a stampede to clean up the
6 unfunded revolvers and we have (inaudible)
7 of $3.8 billion in the pipeline, so we are
8 going to be making some major headway in
9 the next 60 days on cleaning up the
10 unfunded liabilities. It's going very
11 well.
12 The value of the portfolio, it's
13 stabilized. The portfolio actually has
14 increased in value over the last three
15 months.
16 In terms of the principal
17 investments and private equity, our focus
18 was on the stabilization and to spin out
19 those funds (inaudible) general partner
20 with a significant unfunded liability or
21 unfunded responsibility. To the extent
22 that we do not meet that responsibility, as
23 you know, it jeopardizes the value of our
24 LP interest, any residual LB interest we
25 had, so we have been undertaking to try and

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2 put the general partner interest in the
3 hands of others. We held an auction and we
4 had over a hundred potential interested
5 parties. At the same time as the general
6 partner we felt it our primary
7 responsibility given the fact we only owned
8 14 or 16 percent of the fund, the other
9 86 percent of the fund was owned by LPs, we
10 felt our responsibility was first to those
11 LPs to find out who they wanted to manage
12 the fund, and the LPs overwhelmingly voted
13 for the former management of Lehman to run
14 that fund, and that management team, the
15 private equity management team will proceed
16 on as the general partner replacing Lehman.
17 In terms of the real estate assets,
18 again, I put in there Canyon Ranch, Miami.
19 This is a situation where we actually went
20 on the offensive. We weren't purely a
21 lender, but, in fact, we were an equity
22 holder. We went on the offensive. We
23 cleaned up the mezz. We got rid of the --
24 cleaned up the equity, cleaned up the mezz,
25 permitting us to really operate legally and

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2 financially as owner, and then we took
3 actions to try and clean up and move the
4 280 unsold units. That move has been very
5 positive. The board has supported our
6 moves and I think that the results to date
7 support that action.
8 Fundamentally, real estate, we are
9 shifting from being a portfolio manager who
10 is waiting for a better market to an asset
11 manager that is working the assets and we
12 will get to a better market, but we
13 recognize that as an asset manager we are
14 very much in competition with others who
15 are trying to take our value and put it
16 into their building or their piece of
17 property. So we have gone on the
18 offensive. I would say in the last three
19 months we have been very much more an asset
20 manager than a portfolio manager.
21 On the derivative front, as you will
22 see, we have collected close to $6 billion,
23 implementing hedging strategies and various
24 other strategies of assignment which I
25 think are actually maybe making law or

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2 precedent right now, so it's an interesting
3 time for us in the derivatives world.
4 On the international front, we have
5 the Lavender portfolio, which is a
6 portfolio of loans, real estate loans in
7 Japan. We went in with that looking at a
8 mid teens kind of recovery. We took a
9 proactive role along with the help of the
10 receiver in Hong Kong and we have actually
11 presented a credit bid concept to the
12 Japanese, which was somewhat unique. The
13 result of that credit bid concept was we
14 got the recovery in excess of mid 40s up
15 from the 14, 15 percent recovery range that
16 had been forecasted. So by putting a
17 stalking horse in there ourselves, we were
18 able to get an honest bid out of the
19 marketplace.
20 We are in discussions on Bankhaus,
21 which is a major subsidiary and creditor of
22 ours, on trying to settle out of some of
23 the asset issues that we have with them.
24 On the intercompany side we still
25 have a limited understanding of LBI

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2 activities. The LBI and LBIE, they really
3 provide -- LBIE is the European, the U.K.
4 receiver. LBI is the SIPA receiver. And
5 we really have minimum transparency with
6 what is going on in those estates. Given
7 the fact that we are probably the largest
8 creditor, it's a little frustrating not
9 knowing what's happening in those estates,
10 not knowing officially what's going on in
11 those estates.
12 Our relationship with KPMG receiver
13 in Asia, we have been able to work together
14 on protocols and deal with problems, and as
15 a consequence liquidation results have been
16 really very strong.
17 International protocol, what this is
18 is trying to get receivers in various
19 countries to work together so we can get
20 out of this case before I die. And the
21 issues that we have are really you have got
22 rules in each country. Obviously the rules
23 in that country will govern. There is no
24 question about the sovereignty, but the
25 cooperation and information sharing, having

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2 a common objective of trying to do right by
3 the creditors, trying to get through these
4 matters in a fair way, trying to get
5 through these matters in a cooperative way
6 has been very important and that's what
7 Judge Peck has supported in this protocol,
8 and aside from the U.K. and Japan we have
9 received support from the administrators in
10 the other receiverships.
11 Challenges. Again, on the LBI front
12 it's not clear to us what's going on in
13 that estate, lack of transparency. As the
14 largest creditor we remain in the dark as
15 to the substantial amount of the ultimate
16 recovery or lack of recovery.
17 On the LBIE front, we could use
18 improved cooperation. It's a very
19 conservatively-administered estate and that
20 has handicapped us.
21 In terms of our financial
22 position -- again, there is a lot of
23 detail. I apologize. I don't think there
24 is any other way we could provide it,
25 though. You see on the vertical axis is

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2 all the various subsidiaries along with the
3 parent.
4 As we showed you in January, we are
5 treating this as the subsidiaries are
6 sacred, cash goes in there, cash stays in
7 there. There isn't a commingling of the
8 cash. There is a clear audit trail of all
9 the cash receipts and disbursements related
10 to the various subsidiaries into the
11 holding company.
12 The cash, if you look across the
13 horizontal access, it is sort of an
14 activity report of where we are. Where we
15 are today, our cash position today is
16 $12.2 billion as of 6-30. You see the
17 various components of it in terms of the
18 debtor, non-debtor components, and all the
19 accompanying footnotes. Again, this is on
20 our website and it was filed as an 8-K this
21 morning.
22 Bank platforms, the first one I'd
23 like to cover is the bank which is Utah.
24 This bank there has been significant
25 progress. As you can see to the far right,

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2 if you look down four lines down you see
3 RBC ratio, risk based capital. We ran into
4 trouble in December. Our risk based
5 capital was down to 5.4 percent. As of the
6 end of March the risk capital is 9.9. The
7 FDIC wants you at 10 percent or better.
8 And so we have made some significant
9 headway to get there. We actually think
10 today we were in excess of 10 percent. We
11 are in excess of 10 percent today. We also
12 believe that because of the way in which we
13 have had to mark these books, that this is
14 a very, very conservative marking that has
15 taken place in -- I shouldn't say very,
16 very. A very conservative. The next
17 (inaudible) would be very, very
18 conservative. The equity value you see
19 here of $572 million, we feel pretty
20 comfortable with and in fact, think it
21 could be as high as a billion dollars of
22 ultimate realization of value.
23 So this is an important asset for us
24 to preserve. Despite the efforts of some
25 in government to close this and wrap this

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2 bank, we are doing our best to try and keep
3 this bank open so that as we wind this bank
4 down or find a buyer for this bank we can
5 realize the value of this equity.
6 Moving on to the Thrift, the other
7 institution we have other than the Utah
8 bank is called the Aurora Bank which also
9 consists of our Aurora servicing business.
10 The mortgage servicing business today
11 services $114 billion worth of mortgages.
12 It should be a profitable -- it should be a
13 business that under normal circumstances
14 without the service advances it should be
15 making the estate something on the order of
16 a hundred million dollars a year of EBITDA.
17 It's a nice business. As you can see here,
18 when we started the process on 9-30, the
19 risk based capital was 10.4. It dropped
20 down to 5.9 by 12-31. We have brought that
21 back up to 10.3 percent. We were hopeful,
22 because we were told that if we brought
23 that back up to 10 percent, the FDIC would
24 open the window so that we could start
25 issuing brokered CDs only to the level that

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2 they existed at the time of the bankruptcy.
3 The reason we need to do that is we need to
4 match our liabilities with the asset. Our
5 liabilities are running off at a faster
6 pace than the assets as they are maturing.
7 If we can solve that matching problem,
8 again, this portfolio which is valued today
9 at $592 million worth of equity, we think
10 is very, very conservatively priced. We
11 think that the equity value here could be
12 in excess of a million dollars as well, so
13 we are, again, very interested in
14 preserving this value for the estate,
15 getting the CDs opened up and being able to
16 re-broker the CDs and being able to match
17 the asset run-off with the liability
18 run-off.
19 The bank book itself -- again, I
20 apologize for a busy schedule. Down the
21 one axis, the vertical axis, is the various
22 owners of the bank loans. Across the top
23 axis consists of funded and unfunded and
24 whether it was pledged or not to JPMorgan.
25 The key is the fourth numerical column. It

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2 says Funded, Total. If you go down, the
3 Lehman banks we have just talked about, the
4 first line is the Utah bank, second line is
5 the Thrift, for a total of 2,249. The bank
6 team is managing the next four columns plus
7 the CLOs down at the bottom; Pine, Spruce
8 and Verano, and involved in the LB Bankhaus
9 London oversight. So the responsibility of
10 the bank team is roughly about $7 billion
11 and I believe that's the value that they
12 believe this portfolio will collect out at.
13 As you see, the unfunded, we have a
14 significant unfunded problem in the far
15 right. You see a $17 billion unfunded
16 problem. This continues to drop like a
17 rock. I would expect by this time next
18 year this would go away, this would be
19 gone.
20 Moving on to principal investments
21 and private equity, down the vertical axis
22 you have got the various categories of
23 assets. Across the horizontal you have got
24 the post-petition activity. Starting off
25 we have 7,659 positions being managed by

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2 this team. Pre-petition that was valued at
3 16 billion. There had been various cash
4 sources and cash uses in the next two
5 columns, and looking at the portfolio,
6 Alvarez & Marsal along with management have
7 revalued the portfolio down and we have
8 taken the value of that portfolio down as
9 of 3-31 by 6 billion 347. So we believe
10 that the carrying value of that as of
11 3-31-09 is $9.2 billion.
12 The current unfunded commitments,
13 2.7, and again, much of this relates to the
14 private equity group and consists of the
15 areas where we are the GP. This will be
16 coming down as we -- again, as we dispose
17 of our GP interest in the real estate
18 portfolio, that number will also come down.
19 Moving on to the next asset
20 category, real estate assets, down the
21 vertical axis you just see the commercial
22 North America, Europe and Asia and
23 residential portfolios. We have a very
24 small residential portfolio. Across the
25 top axis, again, the activity. When we

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2 started this on the 12th of -- when we
3 started with the financials that were
4 available on the 12th of September, there
5 was $22.9 billion on the books. There have
6 been some additional asset investments and
7 some receipts and disbursements. With a
8 market change we took that, again, this is
9 Alvarez & Marsal and the management of the
10 company, we revalued that portfolio. We
11 thought that that portfolio was worth
12 $5.4 billion less than had been indicated
13 at 9-12. That would be a combination of a
14 deterioration of market conditions and
15 maybe just aggressive marks.
16 The carrying value on the real
17 estate portfolio as of the end of December,
18 we will have -- like I said, this number
19 will be updated for you in mid August, but
20 it's $16 billion. That is the value after
21 the scrubbing down that A&M and Lehman has
22 put this portfolio through, we have come up
23 with a value that we believe is a
24 $16 billion value. Of course, that value
25 is subject to changes in the market and

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2 obviously timing.
3 Moving on to the next asset, the
4 category derivatives. Derivatives at the
5 last meeting -- this was the only part of
6 the engagement which has scared me. The
7 derivative portfolio when we started the
8 process (inaudible) 1.2 million derivative
9 rate representing, as I understand,
10 (inaudible) telling people $6 trillion of
11 notional aggregate. I guess it's closer to
12 34, 32 -- 39. Excuse me. 39 trillion of
13 notional value. And today we have
14 approximately 300 FTEs, full-time
15 equivalents, working this problem, trying
16 to get through the various termination
17 claim calculations and trying to value the
18 portfolio, and I will tell you that I am
19 very pleased where we stand. I mean, this
20 process is picking up speed. The last 90
21 to 120 days we have been making terrific
22 headway and we appreciate the support of
23 the Unsecured Creditors Committee as well
24 as the court. They have been very
25 supportive in trying to sort this out.

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2 Moving on more specifically the cash
3 collections, you see we were tracking this
4 on a periodic basis as we met with the
5 various committees. We are up to
6 $5.8 billion in collections from the
7 derivative portfolio. I believe if you ask
8 the team today they believe there is
9 another 5 to 5 and a half billion dollars
10 in potential collections from this
11 portfolio and we are -- we would see this
12 trend continuing into the balance of this
13 year.
14 Now, the specifics, these are some
15 assumptions. I don't think we need to go
16 through them. They are assumptions which
17 you can read at your leisure.
18 In terms of detail, I mean, we
19 understand that there is a real need by
20 some of the creditors to understand the
21 value of their claims. Maybe, more
22 importantly, to create a liquid market for
23 their claims, and that liquid market comes
24 about when people have information. So we
25 are going to attempt to be as responsive as

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2 we can without sharing anything from an
3 insider perspective, inadvertently sharing
4 it, but we recognize your needs, those of
5 you who are derivative holders. We are
6 going to try and break out information for
7 you in the next 30 days which will lay out
8 the derivatives by subsidiary, where we
9 stand with those and what value we placed
10 on those derivatives after applying
11 appropriate reserves to them, which will
12 give you at least a feel for where we are
13 subsidiary by subsidiary on a derivatives
14 book.
15 From a global standpoint, which is
16 what you are going to see now, you are
17 going to have to be patient for another 30
18 days, but by mid August, the latest, we
19 will have that information for you.
20 On the receivables side we have
21 27.1 billion and that would consist of
22 open, terminated and final settled trades.
23 You see the number of trades we are talking
24 about here on the receivables side is
25 788,000 trades. On the payable side we

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2 have 16 billion in the aggregate, which is
3 owed others, and that represents 390,000
4 trades.
5 In terms of the composition of that,
6 again, the MOR we lay out. The
7 receivables, $27 billion, is broken down by
8 subsidiary. The payables of 16 billion is
9 broken down by subsidiary. And then we
10 attempt to break down the number of trades
11 and the activity in each one and both the
12 receivables and payables, and we will
13 expand upon that.
14 The far right-hand grouping, which
15 is the collections by subsidiary, which
16 will give you -- again, if you are trying
17 to do estimates in valuation, this
18 hopefully will -- as we fill in some of the
19 blanks, this will hopefully benefit that
20 activity, although it isn't our primary
21 responsibility. We understand that to the
22 extent that we can help make a liquid
23 market for this, it helps the overall
24 process.
25 Key priorities on the derivative

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2 book is, again, the active disposition of
3 open contracts. All but 1 percent of the
4 open contracts have been resolved. There
5 is an aggressive assignment process going.
6 It's been slow going and the hedging
7 process -- again, we are a bankrupt company
8 involved in trying to unwind derivatives
9 and now we are in the hedging game. This
10 is probably, again, one of the firsts in
11 bankruptcy. But the team to date has
12 hedged about a half a billion dollars. The
13 hedging is being done in order to lock up
14 value so that the estate does not have to
15 worry about what is the value of that
16 derivative.
17 Legal strategy, again, read at your
18 leisure. We are in the midst of a case
19 right now with a large bank which we
20 believe owes us in excess of somewhere
21 between half a billion to a billion dollars
22 and we are aggressively pursuing that
23 lawsuit and in the coming weeks you will
24 hear more about that.
25 On the forensic side, this warrants

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2 a little closer inspection on the forensic
3 side. We had been trying to reconstruct
4 the actions of Lehman's clearing banks,
5 JPMorgan, Bank of America and Citibank, in
6 the time period leading up to the filing.
7 We have been reconstructing the actions of
8 the DTC and the Federal Reserve during the
9 week of the filing after LBHI and before
10 the filing of LBI. We have been reviewing
11 the disposition of Lehman's collateral by
12 the clearing banks to assess whether or not
13 it was done in a reasonable fashion, a
14 commercially reasonable fashion. We have
15 been reviewing the collateral given to
16 Barclay's at the time of the LBI sale to
17 make sure that what was exchanged was to
18 the benefit of the borrower.
19 Last slide, in order to help you
20 understand the complexity of this case, I
21 know -- a question I get asked a lot is
22 what's the recovery going to be. Well, the
23 answer to that is there is no simple
24 answer. I mean, first of all, recognize
25 that that question has to be first asked of

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2 each subsidiary, that each subsidiary has
3 assets and has liabilities and the
4 recoveries and percentage recovery of one
5 subsidiary might be 60 percent and the
6 recovery of another subsidiary might be
7 30 percent. Our assumption is that we are
8 treating -- while we talk on a consolidated
9 basis in terms of your recovery, you should
10 be talking about an individual subsidiary
11 by subsidiary and then ultimately Holdings
12 basis. This was an attempt to show you
13 from a Holdings perspective what some of
14 the challenges are. In terms of -- again,
15 simplistically a recovery is a function of
16 proceeds and claims. The proceeds consists
17 of cash, illiquid assets, lawsuit net
18 recoveries, intercompany receivables, less
19 any priority claims we have. Priority
20 claims we just paid off is the (inaudible)
21 Guaranty Corporation where we paid them
22 approximately $120 million and that's a
23 priority that's behind us, but those type
24 of priority claims are out there and may be
25 a reduction of the proceeds.

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2 As we look at those proceeds, as we
3 look at the components of proceeds, we say,
4 well, cash is obviously known today. We
5 are in excess of 12 billion in cash. On
6 the illiquid assets side, if you go back
7 and you add up all the stuff from this, you
8 might get a range of 35 to $40 billion on
9 the illiquid assets as of today. That
10 won't be the hard part, because I think by
11 the time August rolls around, August of
12 this year rolls around, you will have a
13 pretty good handle on what the illiquid
14 asset portfolio looks like, subject to
15 changes in market condition what it looks
16 like. What you are not going to have a
17 handle on is what is the lawsuit and
18 recoveries going to be, if anything. What
19 you won't have is what the intercompany
20 receivable has. Understand what that means
21 is that LBHI, Holdings, was the bank to all
22 the various subsidiaries and as a banker we
23 lent in excess of $50 billion to those
24 subsidiaries and some of those subsidiaries
25 have given us a good indication of what the

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2 recoveries might be and some have not, as
3 we discussed earlier in the presentation,
4 so we don't know to what extent -- how much
5 of that $50 billion is going to be
6 recovered and, like I said, while we
7 have -- we haven't identified any priority
8 claims to date that we haven't paid off,
9 but I'm sure there will be some.
10 On the claims side we will have --
11 again, shortly after the Bar date we will
12 have a pretty good handle on what the
13 scheduled claims were, what the stated
14 claims were when we went into bankruptcy.
15 That's really not the problem. The problem
16 is the next category of claims, derivative
17 claims from the terminations. In the case
18 of these claims there is a significant
19 amount of settlement process that's going
20 to have to take place. This is not going
21 to be finished any time soon. This is
22 going to take a while.
23 The third component is subsidiary
24 guarantees. What has to happen at each of
25 the subsidiaries is they have to figure

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2 out, okay, if Holdings guaranteed the
3 subsidiary, the subsidiary had a hundred
4 dollars that was guaranteed and the
5 subsidiary assets collect out $60, then
6 there would be a $40 claim that was brought
7 to the estate and, thus, what's clear is
8 that it's dependent upon the speed of the
9 other receivers in terms of getting the
10 calculation. Somewhat out of our control.
11 And then last but not least, the
12 intercompany payables. We have $50 billion
13 of receivables, net receivables. We also
14 have a much larger receivable number
15 because we have a payable number which is
16 net against the receivable number, so we
17 don't have -- again, that is dependent not
18 on our books, but on what the receivers are
19 going to agree to, which is why the
20 international protocol is important if you
21 want to (inaudible) through this thing and
22 get it any time soon.
23 So when people ask me -- one of the
24 frustrations is I really believe in terms
25 of valuing a claim today there is a huge

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2 unknown, but the unknown is not in the
3 assets which we control here in the
4 Holdings estate. The unknown is more in
5 the determination of the derivatives,
6 litigation of the lawsuits, and figuring
7 out what the due to/due from is on the
8 intercompany accounts and what the
9 guarantees that are going to be called
10 upon. So it's going to be a long time
11 before this becomes anything other than a
12 bowl of (inaudible). So for those people
13 who are (inaudible) I can honestly say I
14 don't have a clue, I don't have a clue what
15 the right number will be. I do have a clue
16 what the numerator is going to look like,
17 the numerator being the proceeds in terms
18 of cash and liquid assets, I have a feel
19 for the lawsuits, you know, a very general
20 feel for the lawsuits, but beyond that we
21 are going to be slugging through it in the
22 same timetable you will be slugging through
23 it.
24 So with that, that's the completion
25 of the presentation. Like I said, this is

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2 on the website. It is also filed in an
3 8-K.
4 It's open for questions.
5 Andy, do you want to --
6 MR. VELEZ-RIVERA: Just a word of
7 admonition. This is not is a public
8 deposition. If you have questions relating
9 to a piece of litigation or a specific
10 claim or if you just go too long, I will
11 cut you off. So if folks would step up to
12 the microphone which are up and down the
13 center aisle, state your name, who you
14 represent, we will get the questions under
15 way.
16 Sir in the back.
17 SPEAKER: Thank you very much. My
18 name is (inaudible) Kamenski (phonetic)
19 from Paulson & Company and I have a couple
20 of questions. In terms of the loan book, I
21 guess it's slide 14 and slide 16 on the
22 real estate book, can you comment on the
23 loan book in terms of that last category?
24 I think you mentioned that those assets on
25 the loan book are pledged to JPMorgan in

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2 terms of the nature of that pledge and what
3 those assets are going to be, and similarly
4 for slide 16 on the 14.8 billion of real
5 estate assets controlled by other
6 receivers, if you could just comment about
7 the nature of those assets and the nature
8 of your claims against those assets, and
9 then it also refers to $4.8 billion
10 repurchase agreement that was terminated,
11 again, if you can just comment about what
12 the nature of that asset was.
13 MR. MARSAL: Mr. Kamenski, that's a
14 mouthful.
15 SPEAKER: And I have another
16 question too, but I think if you look at
17 slide 14 first.
18 MR. MARSAL: Okay. Slide 14, first
19 question you raised was on the pledged
20 assets?
21 SPEAKER: That's right.
22 MR. MARSAL: The pledged assets
23 which would be in the sixth column. You
24 are asking about the 4.352 million of
25 pledged assets?

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2 SPEAKER: That's correct.
3 MR. MARSAL: And the question is who
4 are they pledged to?
5 SPEAKER: That would be the first
6 question.
7 MR. MARSAL: They are pledged to
8 JPMorgan.
9 SPEAKER: And is that part of an
10 existing financing structure or were those
11 assets -- how did the loan book get pledged
12 to JPMorgan?
13 MR. MARSAL: How was it pledged?
14 John, would you like to answer that?
15 MR. SUCKOW: There were a number of
16 structures that were pledged to JPMorgan
17 prior to the filing of bankruptcy, so this
18 serves as collateral to a number of the
19 different agreements that existed with
20 JPMorgan.
21 SPEAKER: Do you know offhand if
22 that included the rates restructure?
23 MR. SUCKOW: That would include the
24 rates restructure.
25 SPEAKER: Thank you. And then I

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2 guess if we go to slide 16. The
3 14.8 million of real estate assets
4 controlled by the receivers --
5 MR. SUCKOW: I think the
6 14.8 billion and 4.8 billion were brought
7 up, when you were talking about that
8 forward of this, was an attempt to
9 reconcile that bank book as presented back
10 in January. You may recall I think the
11 number back then was approximately 42
12 billion. At that point 14.8 specifically
13 identified assets around the world that
14 were subject to other receivers. For
15 example, Bankhaus was one of those. No,
16 not Bankhaus?
17 (Inaudible.)
18 MR. SUCKOW: I don't know if you
19 heard that back there, but it's basically
20 Europe and Asia under control of LBIE, PWC
21 or Asia and KPMG, and then the 4.8 billion
22 is a repo that essentially terminated post
23 filing, so the purpose of that is to
24 reconcile the January presentation.
25 SPEAKER: And of that 14.8, those

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2 underlying assets themselves, are they in a
3 financing structure similar to the loan
4 book or are the bottom line assets
5 unencumbered and the nature of the claims
6 through claims creditors against its
7 assets?
8 MR. SUCKOW: We are just a creditor
9 in those assets.
10 SPEAKER: I have one further
11 question.
12 MR. VELEZ-RIVERA: No.
13 SPEAKER: Hi, Mark Heimowitz
14 (phonetic) from Citi.
15 Mr. Marsal, you mentioned that you
16 are looking at all of the recoveries on an
17 individual subsidiary basis and looking at
18 subsidiary guarantee claims. In your
19 experience now in the books and records of
20 the company, is there any entanglement
21 issue or are the books and records clean
22 and unencumbered between subsidiaries and
23 Oldco?
24 MR. EHRMANN: I think it's fair to
25 say we are still reconciling (inaudible).

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2 SPEAKER: And with respect to
3 transactions with the outside world, has
4 there been any work done on whether or not
5 if the creditors of the subsidiaries relied
6 on the individual credit quality of the
7 subsidiaries as opposed to the credit --
8 MR. EHRMANN: We are not going to
9 comment on what other people rely on.
10 SPEAKER: I guess the final
11 question, are you exploring the concept of
12 substantial consolidation of the --
13 MR. WAISMAN: We are exploring all
14 legal options with respect to the estates.
15 MR. MARSAL: Our approach is not to
16 assume there is going to be any substantive
17 consolidation. That will obviously be a
18 decision that will be made later by the
19 court. Our approach is to keep each
20 subsidiary, to respect the integrity of the
21 legal entity structure.
22 SPEAKER: I am Fayel Romano
23 (phonetic) of SGE from Italy and I
24 represent Antonio (phonetic) creditors.
25 The question is related to guarantees. In

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2 the case of those issued by Lehman
3 Treasury, the Netherlands company, since
4 there is not the Bar date and the recovery,
5 of course, yet as far as the entity is
6 concerned, it appears logic and appropriate
7 to file claims against the mother company,
8 LBHI. Okay. Would you confirm that it's a
9 reasonable logic (inaudible) to file for
10 guaranty for 100 percent value? This is
11 the first question.
12 MR. WAISMAN: We are not in a
13 position to provide advice to third
14 parties. If people believe that they have
15 claims against the debtors, they should
16 consult the bargaining order and file
17 claims consistent with the bargaining
18 order.
19 MR. MARSAL: It's not our intent.
20 Our intent -- we view that we are working
21 for the creditors. If you are a legitimate
22 creditor, it's not our intent to use the
23 Bar date as a shield to deny you any
24 legitimate claim. So we will work with you
25 if there is confusion and we will do

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2 whatever it takes to get all legitimate
3 claims captured in this process. I mean,
4 you as a beneficiary, if a guaranty was
5 made and you have filed a legitimate claim,
6 so one of the questions that have come up,
7 are we using the Bar date as a scheme to
8 avoid claims, absolutely not. We have no
9 intention of doing that. What we do want
10 to do, though, is we need to move the
11 process forward. We need to be able to
12 distribute that cash, and it keeps growing,
13 to the various creditors, and to do that we
14 have got to get a handle on these -- a
15 reasonable handle on the claims
16 (inaudible).
17 SPEAKER: You are right. The point
18 is that, of course, in the case you have
19 how much you get from the guaranty company,
20 let's say treasury, since you have the
21 number, you may file the difference. If
22 you don't have that number, possibly within
23 the Bar date you should file for 100
24 percent. This is I understand should be
25 logic.

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2 MR. EHRMANN: We are actually
3 working with the Dutch administrative in
4 order to coordinate the procedure.
5 SPEAKER: Good morning. Vladimir
6 (inaudible). I just have two questions.
7 One relates to the two sets of schedules of
8 assets and liabilities that were filed -- I
9 believe the first set of schedules was
10 filed March and the second set -- first
11 schedule is filed March 12th, the second
12 schedule was filed June 15th, and my
13 question relates to very significant
14 differences between those two schedules.
15 Could you just give us an idea of, first of
16 all, what was the need to file an amended
17 set of schedules, first of all, and
18 secondarily, you know, why were there
19 significant discrepancies, differences
20 between intercompany payables and
21 receivables between the March schedule and
22 June schedule?
23 MR. FOX: Vladimir, just tell me
24 which schedules are you looking at, for
25 which debtors?

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2 SPEAKER: I think some of the
3 biggest differences are down with the LBSF
4 and LCPI.
5 MR. FOX: The biggest difference is
6 the LBSF and LCPI schedules that were filed
7 in the first instance were based upon
8 September 14th closing information and in
9 the second instance were based upon the
10 beginning of October closing information,
11 which was on or about the petition date of
12 those two entities. So you have a timing
13 difference that took place. You also have
14 certain offsets that are described in the
15 notes to each of those. If you would like,
16 you can discuss this with us off line and
17 we can go through a detailed reconciliation
18 with you. I don't want to hold up the
19 whole group, but those are globally
20 essentially the differences there.
21 SPEAKER: And just essentially did
22 you net intercompany secured against --
23 secured receivables against secured
24 payables and unsecured receivables against
25 unsecured payables?

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2 MR. FOX: We did not net the
3 receivables against payables, per se. If
4 there was a position that was repoed out to
5 either LBI or LBIE, we did net those
6 positions, but we didn't net any unsecured
7 position.
8 SPEAKER: Right. Understood. And
9 just regarding intercompany receivables
10 collectively, I believe the most recent
11 schedules for LB does show approximately
12 150 billion of intercompanies and I believe
13 Mr. Marsal mentioned earlier in the
14 presentation there is about a $50 billion
15 number. Can you describe the difference
16 between the 150 and the 50 billion
17 intercompany with respect to LBHI?
18 MR. MARSAL: I think he is going to
19 look to me now.
20 MR. FOX: I think those are two
21 different definitions.
22 MR. MARSAL: The 50 billion that I
23 used was --- in the presentation that was
24 being made in July in London to the various
25 receivers, that's a net number. I think it

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2 may be a net number and you may be
3 referencing a gross number.
4 MR. EHRMANN: That's right.
5 SPEAKER: Understand. And then the
6 LBHI initial September 14th -- as of
7 September 14th, '08 MOR, there are some
8 very large significant securities assets,
9 about 5.9 million in government securities,
10 10.7 million in mortgage-related
11 securities, 5.3 billion in corporate
12 securities. Are those securities or
13 proceeds, cash proceeds, are they still
14 property of LBHI or do they get somehow
15 netted out or essentially foreclosed on as
16 counter-parties, you know, get called in in
17 repo lines? Are those still assets of
18 LBHI?
19 MR. FOX: Many of those positions
20 were repoed, so again, either LBI or LBIE,
21 they were netted against the intercompany
22 amounts. However, the estate did make a
23 claim against LBI for those positions and
24 will be making a claim to LBIE as well.
25 SPEAKER: Understood. Last

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2 question. Related to the derivative assets
3 of debtors collectively I believe you
4 mentioned earlier in the presentation that
5 you are valuing the asset at 27 billion and
6 you mentioned early this morning that about
7 6 billion has been collected and you are
8 anticipating further collections of about 5
9 billion, that's 11. So the question is
10 what's the difference between the 27
11 accounting value and the 11 that you have
12 and anticipate to collect this year
13 (inaudible)?
14 MR. MARSAL: The problem is I
15 probably misspoke. I am giving you -- I
16 gave you something that was an internal
17 estimate of what we thought was a
18 reasonable target, but I think from an
19 accounting standpoint what Bill Fox will be
20 establishing is reserves against that
21 receivable as we go through rivet by rivet
22 of what's the likelihood we are going to
23 collect on that derivative based on the
24 circumstances surrounding it, and when we
25 have done that as a team, the team has

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2 estimated roughly an overall collection
3 about $11 billion, which is where the
4 number comes from. We have collected 5.8
5 to date. 11 billion would mean another
6 5.2 billion. My team is conservative by
7 nature, so I said $6 billion.
8 SPEAKER: So, in other words, you
9 are thinking about a 15 billion reserve
10 against a 26 billion asset?
11 MR. MARSAL: Yes, that would be
12 the --
13 SPEAKER: What about the derivative
14 liability, is that also estimated to be
15 sort of in the 20 billions?
16 MR. MARSAL: Not prepared to
17 estimate that. It's too early. We need to
18 get to the Bar date. Then after the Bar
19 date when we get everything in, then I
20 think we can begin to intelligently answer
21 that question. We only have fragments of
22 that today.
23 SPEAKER: Thank you very much.
24 SPEAKER: Paul (inaudible) from
25 (inaudible). I have a follow-up on

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2 Mr. Kamenski's question. Can you just
3 explain on the 14.8 billion of real estate
4 held by other administrators how much --
5 have you been able to look into those
6 intercompanies and figure out how many
7 other third-party creditors there are?
8 Were those primarily financed by
9 (inaudible)?
10 MR. SUCKOW: I don't think we know
11 the answer to that at this point.
12 SPEAKER: And what entities do they
13 sit in?
14 MR. SUCKOW: I don't think we have
15 an answer to that.
16 SPEAKER: The 4.8 billion, can you
17 just explain that a little bit better, what
18 exactly that is?
19 MR. FITTS: These were for five
20 different repos that were secured by
21 mortgage collateral that were actually
22 folded (inaudible).
23 SPEAKER: And how did it make it
24 into the presentation? Obviously it's
25 there for a reason.

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2 MR. FITTS: As John said, we were
3 trying to reconcile back to the January
4 presentation.
5 SPEAKER: So would that be an asset
6 of the estate or --
7 MR. FITTS: I don't think it's an
8 asset of the estate.
9 MR. MARSAL: I think we probably
10 should reconcile it, because it sounds like
11 it is very confusing for people, but,
12 again, it was done at a point where we were
13 earlier on in the process with not as good
14 a fact base or understanding as we have
15 today.
16 MR. FITTS: In the January
17 presentation it was shown as that. The
18 number was 22 here and 42 there. We were
19 trying to make sure people understood.
20 SPEAKER: And then on the cash
21 flows, obviously it's been impressive.
22 Again, back of the envelope trying to
23 figure out how much is coming into the
24 estate, there seems to be monthly inflows
25 of commercial paper and holdings. I am

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2 sure you have modelled out over the next
3 year, two years, what the cash flows might
4 be. Can you discuss that a little bit.
5 MR. MARSAL: Well, we are not
6 prepared to share that model with you, but
7 you are absolutely right, we have each of
8 the asset teams now trying to forecast
9 their cash requirements and cash fall-off
10 from each of the asset teams and that is --
11 it's a planning process which we should be
12 in a lot better shape by the middle of the
13 fall to be able to share with people. But
14 as of today what we know we have, as we
15 look at this presentation, we have 12
16 billion in consolidated cash. If you add
17 up all the pieces that we talked about, the
18 illiquid assets, you come out with a number
19 of 35 to $40 billion of illiquid assets and
20 value that the teams think is there today,
21 subject to changing market conditions,
22 clearly, and subject to time, but so you
23 add those two numbers and you have got two
24 pieces of -- components that I talked about
25 in the last schedule, but the other

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2 components we don't have, and what I would
3 say to you is by the middle of the fall we
4 should have much greater clarity on the
5 question that you just asked as well as
6 what the values are of the illiquid asset
7 portfolios.
8 SPEAKER: Quick follow-up.
9 MR. VELEZ-RIVERA: No. Next.
10 SPEAKER: (Inaudible) from Elliot
11 (inaudible). So this notion of the
12 derivative receivable, the collections
13 running at 800 million to a billion a month
14 and sort of projecting out a $12 billion
15 cash balance by year end, and then what
16 happens then? Collections just stop or,
17 you know, what's behind the $16 billion
18 shortfall? The 27 less the 11 or 12 that
19 you expect to end up with at the end of the
20 year.
21 MR. MARSAL: What I would say is we
22 are trying to do a derivative by
23 derivative, receivable derivative by
24 derivative analysis, and the team has come
25 back and said we think a realistic target

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2 given all the facts and circumstances we
3 have with some of these things is
4 approximately 11 to $12 billion ultimate
5 collection on the derivative. We are going
6 to shoot to do better than that, Mr. Ryan
7 (phonetic), as you well know, but we are --
8 as to what would happen with the rest of
9 the book, it would mean there would be a
10 write-off because there would be a
11 legitimate termination taking place there
12 on the part of that counterparty. And to
13 the extent it's not legitimate, we will
14 fight it in court, we will pursue it, but
15 the conclusion is that when you establish
16 reserves, it's your team's best guess on
17 what the collectability is of that asset as
18 opposed to what's on the books today.
19 MR. EHRMANN: The value comes from
20 three primary sources and some of that is
21 in the litigation strategy chart, Ryan.
22 Essentially as the estate went into
23 bankruptcy, the SPVs, who were our
24 counterparties, basically submitted the
25 estate to subordination and we are actively

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2 fighting that in court and hence we are
3 pretty reluctant to putting a number on
4 that given that we are in the process of
5 trying to maximize recoveries there.
6 The second piece that has actually
7 impaired most of the value is a lot of
8 counterparties are arguing multiple sorts
9 of setup rights, and as you know we are
10 actively fighting that in court and
11 obviously hoping that we will maximize our
12 recovery by winning those cases.
13 And then the third piece is that
14 when we went into bankruptcy the street
15 basically got a big advantage over us
16 because it had an option to terminate us at
17 favorable validation terminations, and so
18 we are in the process of challenging those
19 and that's why, as I pointed, out at high
20 level we have estimated that the shortfall
21 is going to be pretty substantive.
22 Obviously as we win the cases in court, we
23 can hope that will enhance the recovery.
24 SPEAKER: So to be clear, based on
25 everything that's done publicly and this

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2 litigation strategy, you say that the swaps
3 facing the SPVs are worthless, what it
4 sounds like, if I am interpreting this
5 correctly, from an accounting perspective
6 you are fully reserved against those
7 positions.
8 MR. EHRMANN: That's correct.
9 SPEAKER: And then the follow-up
10 question --
11 MR. MARSAL: What I am saying is
12 that what we are going to do is they are
13 going to shoot me if I haven't given you an
14 estimate on the value of collection.
15 That's the best thinking of the team today.
16 As we get smarter -- and we are getting
17 smarter. We are learning about
18 derivatives. By the end of this process we
19 are going to have derivatives down cold.
20 Trust me. And we are getting smarter and
21 smarter and we believe that will help us on
22 the receivable collection, so we should
23 improve that number, and it should result
24 in a reduction of the claims on the payable
25 side, but I would say that there is

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2 probably a lot more upside to that estimate
3 than downside. And what you might see in
4 mid August is a different number, so don't
5 get too carried away. What you might see
6 is a number which is higher or lower than
7 that number based on more input, but in
8 August when we come up with a number we are
9 going to come up with a number that's going
10 to say we believe that this is a legitimate
11 derivative value that -- on the receivables
12 that we are going to ultimately collect
13 out, just as we have done in real estate,
14 proprietary assets and bank loans.
15 SPEAKER: Did I hear someone here
16 characterize that as a short-term target?
17 Maybe not.
18 So clearly the derivatives book even
19 between the 12th and early October
20 experienced quite a bit of volatility. We
21 see that in the balance sheets and a lot of
22 the receivables remain open in October into
23 the first quarter. I guess I won't ask
24 very precision here, because I don't think
25 I will get it, but directionally you talk

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2 about the movement in your derivative
3 receivable on a mark-to-market basis
4 setting aside recoverability considerations
5 just generally post filing, giving so much
6 for the value remaining in open contracts
7 for an extended period.
8 MR. EHRMANN: I think directionally
9 generally the portfolio moved in the
10 estate's favor (inaudible) September to
11 date as a result of a reduction in interest
12 rates and in the credit (inaudible). We
13 obviously already (inaudible) locked into
14 those values (inaudible). All the
15 terminated trades locked into the value.
16 On the open trades we are actively pursuing
17 hedging strategies and assignment
18 strategies, and as Bryan pointed out, that
19 trade population is now point 5 percent of
20 the entire population, so we realize that
21 we have ways to go, but I think we have
22 secured (inaudible) crystallized --
23 (inaudible) receivable (inaudible).
24 THE WITNESS: Point 5 percent of the
25 trades by number or value?

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2 MR. EHRMANN: By number.
3 SPEAKER: Thank you.
4 SPEAKER: (Inaudible) from
5 (inaudible) Capital Management. Just a
6 quick question I guess for clarifying on
7 the intercompany receivables and payables.
8 In some of your working assumptions with
9 respect to mutuality and set-off, can you
10 clarify whether it's just pure accounting
11 and general ledger sort of procedures with
12 respect to the varying line items, no
13 receivable, derivative receivable, repo,
14 reverse repo or an intercompany
15 receivable/payable, if you are treating all
16 those in an aggregate as you look to set
17 off between entity 1 and entity 1A
18 depending on which side of the balance
19 sheet, or are you treating those, you know,
20 in some sort of priority waterfall
21 depending upon what type of intercompany
22 sort of line item exists?
23 MR. FOX: The general ledger
24 information that goes into the financial
25 statements that you saw, whether it be

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2 intercompany or (inaudible) positions,
3 there was just a general accounting
4 consistent with the way the company
5 reported it in the past as far as which was
6 listed first, which was listed second,
7 et cetera. There is no particular priority
8 that was looked at vis-a-vis the bankruptcy
9 proceeding and realization of the assets
10 consistent with past practices of the
11 company.
12 SPEAKER: But just to clarify, so in
13 aggregate LBHI was a net creditor in
14 another debtor estate. It was irrespective
15 of whether $10 of the $20 receivable was
16 classified as a repo as opposed to just a
17 traditional intercompany receivable, or is
18 that repo at the estate which (inaudible)
19 creditor (inaudible) and considered a
20 secured claim?
21 MR. FOX: In the September 14th
22 financial statement all the amounts were
23 shown on a gross basis, whether it was repo
24 or it was just a cash advance with respect
25 to intercompany balances. When we updated

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2 the October 3rd or October 5th MOR
3 statements for companies like LBSF, LCPI,
4 et cetera, if they had repo positions on an
5 intercompany basis, as I mentioned before,
6 we did net those. However, we did claim
7 those positions against LBI if that's where
8 the repo was and we are also claiming them
9 against LBIE.
10 SPEAKER: Thank you.
11 SPEAKER: (Inaudible) from Davis &
12 Kemper. Quick question in regards to the
13 27 million of assets. How much of those
14 are related to SPEs would you say, roughly,
15 and subject to subordination?
16 MR. MARSAL: I'm sorry, ask the
17 question again? I didn't hear that.
18 SPEAKER: Of the 27 billion of
19 derivative assets or receivables, how many
20 are related to SPEs?
21 MR. EHRMANN: Close to 40 percent.
22 SPEAKER: Okay. Thank you.
23 MR. VELEZ-RIVERA: Next.
24 SPEAKER: Nat (inaudible) from
25 (inaudible). Bryan, you mentioned earlier

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2 taking more of an active role with respect
3 to the real estate portfolio. It's my
4 understanding the cash from the estate is
5 being used to support that real estate
6 portfolio going forward. I guess how much
7 cash has been used to date, how much cash
8 may be used going forward, who makes the
9 decisions as to how the real estate
10 business should be, will be, can be run
11 going forward?
12 MR. MARSAL: Okay. Let me see if we
13 can go back to the schedule which will help
14 us answer that. Okay. If you look at this
15 schedule across the top you have got Lehman
16 Brothers Holdings, start of the process
17 there was 1.148 in cash. Today we have 2.9
18 in cash. Then we have the next schedule
19 which shows what makes -- you see the
20 2938.7 at the very top there by Holdings,
21 first line? 2938.7. Let's go to that
22 2938.7 and keep it. Next page, 2938.7,
23 page 11. And if we go -- this is the
24 change in cash during that period, and if
25 we go down, we look down about midway, you

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2 have got real estate capital calls, you
3 have -- do you follow me? Real estate
4 capital calls, 328.2. The largest
5 components are Fortress, Prologis, other
6 commercial, and residential real estate,
7 17.3. In terms of any inflows, inflows
8 would be captured above and I am trying to
9 see where in the footnotes they have any
10 inflows. Jeff, help me if you can. The
11 real estate inflows, second line it says
12 "receipts from subsidiaries," 736.7. First
13 line, real estate was the source of cash at
14 $411 million. So you got receipts of 411
15 and you have disbursements of 328. How
16 about that for a tight answer?
17 SPEAKER: Pretty good.
18 MR. MARSAL: Who is making the
19 decision? Well, the protocols are as
20 follows. I really have three bosses. I
21 have the bankruptcy court -- four. U.S.
22 Trustee, bankruptcy court, at least in
23 accordance with certain areas, but
24 bankruptcy court, the Unsecured Creditors
25 Committee and the board of directors of

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2 Lehman Brothers. What we have are we have
3 protocols which we respect for various
4 decision-making authority and anything up
5 to -- I think in real estate it's zero to
6 $10 million requires the head of the team
7 to sign off on it. Anything in excess of
8 $10 million requires either John Suckow or
9 Bill Fox to sign off on it as well as the
10 head of the team. Anything in excess of
11 $25 million requires my sign-off, John,
12 Bill, team head and the manager proposing
13 it, and we, in turn, would take it -- we
14 would take it to the Unsecured Creditors
15 Committee and probably the court. Anything
16 in excess of $50 million we would take to
17 the court, the unsecured-creditors
18 committee and that whole line-up I just
19 went through. So we have checks and
20 balances -- and the board. The Unsecured
21 Creditors Committee and the court would all
22 be involved in a material decision of that
23 nature. So we have protocols that have
24 been developed and it's been working pretty
25 well, pretty well for the last -- maybe a

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2 blip here or there on derivatives, we are
3 maybe not communicating as well as we
4 could, but aside from an occasional blip it
5 has been working pretty well.
6 MR. VELEZ-RIVERA: Next question.
7 SPEAKER: Alex (inaudible), Bank of
8 America. You mentioned that 40 percent of
9 the 27 billion is fixed in special purpose
10 entities. Have you reserved fully against
11 that 40 percent?
12 MR. MARSAL: No. We are not going
13 to answer that. We are not going to answer
14 anything about a specific -- what we
15 actually reserved against. We kind of told
16 you that there is 27 billion. If you wait
17 until the middle of August, you are going
18 to have a revaluing of that 27 billion
19 which will have a calculation of gross
20 reserves against gross receivables. Under
21 no circumstances are we ever going to tell
22 you what we reserved against an individual
23 settlement. That would be foolish. You
24 wouldn't want us to do that.
25 SPEAKER: Well, so just the 27

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2 billion --
3 MR. EHRMANN: Has no reserves in
4 there.
5 SPEAKER: Right, but then we spoke
6 about 16 billion of reserves and
7 effectively taking against that 27
8 billion --
9 MR. EHRMANN: Bryan said that there
10 is an internal estimate, is what I think
11 you said, of $11 billion. So no formal
12 reserves have been taken.
13 SPEAKER: Okay. So of the 16
14 billion theoretical uncollectability, you
15 had mentioned that it was broken up into
16 three groups, right? One was SPVs, one was
17 counterparties and one was terminations.
18 Can you give us a rough estimate of the
19 split between that 16 billion of
20 uncollectability?
21 MR. EHRMANN: I think the split is
22 exactly in that order, i.e., the biggest
23 portion would be SPVs, the next would be
24 (inaudible), and the last would be
25 terminations.

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2 SPEAKER: And the calculation of
3 terminations, that's just closing costs
4 or --
5 MR. EHRMANN: It's a number of
6 different situations. It's disagreement on
7 termination dates, disagreement on
8 valuation methodologies, disagreements on
9 the sources of information, disagreements
10 on the actual population that's being
11 trying to be collected. It's a various
12 number of valuation related issues.
13 MR. MARSAL: But we don't want to
14 get into -- the last thing I want to do is
15 step on a land mine. I should never have
16 told you the $11 million number because now
17 you are pursuing it. In August you are
18 going to get a number that's going to be a
19 gross number on derivatives with a gross
20 reserve against it and we are never going
21 to share with you how much we have reserved
22 against an individual derivative, because
23 obviously we are in pretty serious
24 negotiations with people, but for
25 accounting purposes we have to. So you are

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2 not going to get any more detail from us.
3 The only detail you might get is something
4 that would not jeopardize our negotiating
5 position.
6 SPEAKER: Well, I am not trying to
7 do that. Just roughly, you know, you
8 mentioned the 27 billion and then you said
9 that 40 percent of that 27 is basically
10 (inaudible) the vast majority of those
11 three buckets are (inaudible) and if I do
12 that 40 percent, it's about 11 billion, so
13 now in this theoretical uncollectability I
14 am trying to sort of --
15 MR. EHRMANN: The reason why I think
16 we are reluctant to break it out, because
17 obviously one of our key strategies is to
18 litigate these issues right to the end, so
19 putting a number on that right now would --
20 MR. MARSAL: We are just not going
21 to give you the kind of response that you
22 keep gunning for. We are not going to tell
23 you how much those SPVs were reserved.
24 Sorry. You can forget it. Go on to the
25 next question.

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2 SPEAKER: All right. Next question.
3 I guess in the last meeting you spoke about
4 a certain amount of collateral that you
5 believed JPMorgan held. Where are we in
6 sort of those discussions and how much do
7 you think -- how much collateral do you
8 think JPMorgan still has?
9 MR. MARSAL: Because of the
10 sensitive nature of it, I think we have got
11 to be very careful about what we say here.
12 MR. SUCKOW: I was just going to
13 say, it's a substantial amount of
14 collateral and I think for the benefit of
15 the creditors the less detail we share with
16 you, the better.
17 SPEAKER: Thank you.
18 MR. VELEZ-RIVERA: Next question.
19 SPEAKER: I am (inaudible). I just
20 have a quick question on slide 16 when you
21 talked about the 22 billion, 23 billion of
22 pre-petition real estate. I think in your
23 last 341 you talked about 11 billion of
24 this being pledged to somebody. So how
25 much of this is pledged or unpledged now?

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2 MR. FITTS: Equating it back to the
3 January 341 hearing?
4 SPEAKER: Yes.
5 MR. FITTS: The answer is
6 approximately $6 billion is unpledged and
7 the other 11 is included in what was shown
8 before under Chase and Bankhaus. That's
9 going to get you back to the $17 billion
10 number.
11 SPEAKER: Right. And I think
12 somebody asked a related question earlier,
13 but can you talk about like you talked
14 about for the derivatives which buckets
15 this real estate is at? Is it all at LBHI,
16 (inaudible), or where is this actually
17 located?
18 MR. FITTS: The vast majority is
19 LBHI and LCPI and I think the third big
20 bucket would be PAMI. I think those are
21 the three big legal entity buckets.
22 SPEAKER: I'm sorry, what was the
23 third bucket?
24 MR. FITTS: PAMI. It's a non-debtor
25 sub.

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2 SPEAKER: And my final question in
3 regards to the cash balances, you talk
4 about segregated funds there. Who are they
5 segregated for?
6 MR. MARSAL: Page 10. It varies. I
7 mean, you have got -- look at the
8 footnotes. Footnote D, "amounts segregated
9 per court order, stipulation or debtors'
10 preliminary estimate of third party funds."
11 MR. SUCKOW: The vast majority of
12 this, the billion 5, relates to collateral
13 pledged in the structures, from some of the
14 previous (inaudible), would be cash either
15 (inaudible) position, principal or interest
16 related to structures where (inaudible).
17 SPEAKER: So it's pledged
18 (inaudible) the SPVs and not to clearing
19 banks?
20 MR. SUCKOW: It could be -- a
21 significant chunk of this, I can't be
22 exact, but a significant chunk is related
23 to clearing banks.
24 SPEAKER: Okay. Thank you.
25 MR. MARSAL: It would be captured in

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2 structures and those structures are
3 securitized (inaudible) and collateral
4 (inaudible) clearing bank.
5 SPEAKER: John (inaudible) from
6 (inaudible). First a question on repo and
7 then I'd like to go back to the
8 derivatives. Can you tell us on the repo
9 claims for accounting purposes were the
10 repo claims that were intercompany
11 accounted any differently than the
12 third-party repo claims?
13 MR. FOX: We accounted for them the
14 same way in the latest MOR statements where
15 we have offset the repo claim against the
16 loan for purposes of the balance sheet
17 presentation.
18 SPEAKER: And as a follow-up, when
19 repo was done intercompany, let's say a
20 repo asset, would any collateral move or
21 was it just kept somewhere within the
22 estate?
23 MR. FOX: Collateral would be held
24 by the counterparty, so we don't know if
25 any of that collateral moved, per se, so if

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2 it was pledged -- if it was repoed through
3 LBI, that's information that we need to get
4 from LBI.
5 SPEAKER: Understood. Back to the
6 derivatives then, of the 27 billion,
7 (inaudible) 40 percent are facing SPVs. Of
8 the remainder of them, can you give us a
9 feel for what dollar amount are open
10 transactions? I think it was something
11 like 9 billion of prior exposure.
12 MR. EHRMANN: Based on the basis of
13 the 27 billion, it's about 30 percent.
14 SPEAKER: 30 percent would be open?
15 And if you think about that same --
16 MR. EHRMANN: More like 20 percent.
17 SPEAKER: And of the same amount of
18 derivatives that are not facing SPVs, can
19 you give us a feel for what percent of that
20 are (inaudible) derivatives as opposed to
21 commodities and so forth?
22 MR. EHRMANN: No, I can't.
23 SPEAKER: And of the 20 percent that
24 are still open, can you give us a feel
25 whether that is interest rates, commodities

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2 or something different?
3 MR. EHRMANN: I think the important
4 piece in the open population is to know
5 what portion of the population the value
6 has been locked in and I think that we feel
7 that probably 30 percent of the value has
8 been locked in through hedges or other
9 mechanisms and we are working on locking in
10 the remainder in the next coming weeks.
11 SPEAKER: So just to clarify, the
12 20 percent that's open, 30 percent of that
13 or 6 percent of the total?
14 MR. EHRMANN: Yes.
15 SPEAKER: Thank you very much.
16 SPEAKER: (Inaudible) with Elliot.
17 40 percent of the value of the derivative
18 facing SPVs, can you tell me how much of
19 that is rates and how much of that is CDS?
20 MR. EHRMANN: I think that question
21 was just asked. I don't have the
22 information with me.
23 SPEAKER: I mean, I believe that
24 back in May there was a disclosure that
25 3.6 billion of the CDS value was facing

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2 SPEs. Is it fair to still think about that
3 in terms of this 40 percent split?
4 MR. EHRMANN: I am not sure what
5 disclosure you are referring to when you
6 say "back in May."
7 SPEAKER: I'm not sure where it is.
8 MR. MARSAL: I just really believe
9 that you need to be patient until mid
10 August, get the breakdown of what we have
11 in mid August, and then to the extent that
12 that's not satisfactory, give a call to
13 Daniel and we, to the best of our ability,
14 without sharing insider information, will
15 try and clarify that schedule for you.
16 MR. EHRMANN: The vast majority is
17 CDS. I just don't want to give you a
18 percentage.
19 MR. MARSAL: I know where all of
20 this is going. You know where it's going.
21 I just hate giving you parts of information
22 like this. You gotta wait another 30 days.
23 You are going to have hopefully a much
24 clearer picture than you have today.
25 SPEAKER: Thank you.

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2 SPEAKER: Tim (inaudible) from
3 (inaudible). I have got a couple of
4 questions. First of all, where do the
5 assets on the sub participation of LCPI
6 show up in the schedules (inaudible)?
7 MR. MARSAL: LCPI?
8 SPEAKER: Yes, the sub participation
9 (inaudible).
10 MR. MARSAL: I am not sure -- I
11 still -- a little slower for the reporter.
12 SPEAKER: Where do assets on sub
13 participation at LCPI show up in these
14 operating reporting schedules?
15 MR. FOX: I don't think -- can you
16 rephrase your question a little
17 differently. I'm not sure we understand
18 the --
19 SPEAKER: Any assets that are
20 subparted out to the third parties by LCPI.
21 MR. FOX: If LCPI is the legal
22 holder of the asset, then it's shown on
23 LCPI's books and records, so you are asking
24 if there are any participations, economic
25 participations for third parties?

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2 SPEAKER: Yes.
3 MR. FOX: That's what you are
4 asking?
5 SPEAKER: Where does it show up?
6 MR. LAMBERT: If it's a funded
7 participation, it shows up on the legal
8 entity that actually funded that
9 participation and that would be the same
10 case for any unfunded liabilities.
11 SPEAKER: All right. And then just
12 a quick follow-up. I think you mentioned
13 that the joint real estate assets, LCPI,
14 LBHI, is that the same for the private
15 equity assets?
16 MR. FOX: No. Private equity assets
17 are held by LBHI and also held by a
18 non-debtor sub known as LB1 group, as well
19 as a few other non-debtor subs.
20 THE WITNESS: Thank you.
21 SPEAKER: Scott (inaudible) from
22 (inaudible) Partners. Regarding the
23 40 percent of the derivatives involved in
24 SPEs, is it fair to say that that's mostly
25 at LBHI?

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2 MR. EHRMANN: Yes.
3 MR. MARSAL: Yes. If you look at
4 the schedule, page 21, LBSF, the receivable
5 is 21.7 and 27.6.
6 SPEAKER: Jeff (inaudible) from
7 Deutsche Bank. When you guys net out the
8 assets that were pledged to repos in the
9 most recent schedules, were those done on
10 book basis or some estimate of market
11 value?
12 MR. FOX: The netting of the repo
13 assets were done on a book basis. We don't
14 have a current market valuation for those
15 situations.
16 SPEAKER: Okay. Would there be
17 potentially any deficiency claims
18 associated with those?
19 MR. FOX: There could be, yes, there
20 could be some deficiency claims if it went
21 that way. It's possible.
22 SPEAKER: And on the 60 percent away
23 from the SPEs, can you give us any big
24 buckets as far as counterparty type? Is
25 there a lot of monoline exposure there as

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2 opposed to corporates, broker/dealers?
3 MR. EHRMANN: Most of the trades
4 were with major financial institutions.
5 35 percent of the trade population was with
6 what we call big banks.
7 SPEAKER: The only reason why I ask
8 is I thought those guys would have posted
9 collateral on almost a nightly basis, so
10 any receivable would have more likely been
11 due from someone not posting collateral
12 regularly.
13 MR. EHRMANN: A lot of the -- as a
14 result of the bankruptcy and the
15 termination right that the counterparty
16 has, a lot of those receivables turned into
17 payables.
18 SPEAKER: Thanks a lot.
19 SPEAKER: Michael Stern from
20 (inaudible). Not to belabor this issue too
21 much farther, but I just want to make sure
22 I understand clearly, whatever estimate you
23 guys have internally now for recovery,
24 whatever number will end up being the
25 estimated recovery in the schedules that

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2 come out in August, will that take into
3 account all three of the factors that you
4 talked about, the SPE issue, the set-off
5 issue and the termination issue where your
6 best estimates in the aggregate of those
7 things will come out, or will they assume
8 that what people have asserted is where you
9 start and then you get some recovery after
10 that?
11 MR. EHRMANN: What we will try and
12 provide is realizable value (inaudible).
13 SPEAKER: (Inaudible) termination
14 disputes and all of the other factors,
15 where do you think those things will come
16 out on a conservative basis at the end of
17 the day?
18 MR. EHRMANN: That's correct, with
19 the caveat that we are going to try to
20 protect our leading positions as much as we
21 can in order to enhance that recovery.
22 SPEAKER: Okay.
23 SPEAKER: Joe Jackson from
24 (inaudible). My question is related to the
25 $50 billion intercompany receivable at LBHI

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2 that you mentioned on a net basis. Could
3 you let us know when that disclosure is
4 going to be available, how you net to get
5 to 50 billion? Because as I look at it,
6 there is $150 billion receivable listed on
7 the schedules as amended as opposed to the
8 same date as the original schedules, and
9 then there is a $90 billion payable, some
10 of which is to the entity BV. If you even
11 just took 150 minus that 90, it still
12 remains $60 billion, which is in excess of
13 the 50. Not only that, but the payables
14 don't always relate to the same entities
15 the receivables are due from, so it seems
16 like the aggregate balance should actually
17 be significantly in excess of 50.
18 MR. MARSAL: It's an incomplete
19 story we are given. Our focus has been
20 generation of cash and focusing on the
21 illiquid assets that we have within our
22 control. Obviously we are coming to grips
23 with that and getting smarter and smarter
24 and we know what we have to do with those
25 assets. Now our focus of attention has to

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2 go to the intercompany. What we are trying
3 to say to you in a nice way to the other
4 receivers, though, to you about the other
5 receivers is that the success of our
6 understanding the situation on the
7 intercompany largely depends on the
8 cooperation and the transparency that we
9 have from the other receivers, in
10 particular, LBI and LBIE. To the extent
11 that we have that transparency and we have
12 that assistance, then, in fact, we can
13 address your intercompany questions,
14 because those are the two largest players
15 out there, two of the larger players out
16 there that we today do not have a handle
17 on. Now, it hasn't been an issue to date,
18 because that hasn't been the focus. The
19 focus has been on the assets, the illiquid
20 assets and the collection of cash. Now
21 that focus is changing, so now we have to
22 focus not on the derivative receivables,
23 but now we have to focus on the derivative
24 payables. We have to focus on the
25 intercompany receivables due to and due

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2 from. It's just a different stage of the
3 case. So we are going to get a lot smarter
4 on the intercompany, but we are nowhere
5 near there (inaudible).
6 SPEAKER: Do you anticipate using a
7 similar methodology where you have a
8 reserve against the intercompany
9 receivables or is that not --
10 MR. MARSAL: We haven't even talked
11 about that.
12 SPEAKER: Okay. And then last
13 question. In terms of the derivatives on
14 the updated schedules and the updated MORs,
15 I think October 2nd and October 4th, it
16 listed the derivative assets and
17 liabilities as being updated to the extent
18 that you had updated valuations or updated
19 to the extent that you had received
20 termination notices. Could you give us an
21 idea of percentage of that book that was
22 either updated for updated values or that
23 was terminated, i.e., percentage of the
24 assets that, for instance, LBSF, I believe
25 it went from 20 billion to around

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2 $21 billion, what percentage of those
3 derivatives was updated subsequent to 9-14
4 or 10-2 or 9-30?
5 MR. EHRMANN: So the vast majority
6 is (inaudible) the disclaimer points out,
7 all of the trade population (inaudible)
8 thousands which represents approximately
9 85 percent of the trade population, we
10 actually did not update the valuations.
11 Those are September 12th valuations. For
12 the remainder, I will say two-thirds of
13 those we had updated historical information
14 that we got through our transition services
15 agreement with Barclay's. Those qualify as
16 imperfect valuations, but they were
17 valuations.
18 SPEAKER: And some of them related
19 to terminated values?
20 MR. EHRMANN: Exactly. Some of them
21 related to terminated valuations, but we
22 would have then used the valuation that we
23 got through our transition services
24 agreement with Barclay's.
25 SPEAKER: Thank you.

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2 SPEAKER: (Inaudible). Just a
3 follow-up question on private equity real
4 estate assets. On the private equity
5 assets you said that a majority of the
6 assets are actually controlled by LBHI and
7 LB1. Could you provide a rough estimate of
8 roughly how much is controlled by LBHI
9 vis-a-vis LB1 and is LB1 a hundred percent
10 owned by LBHI?
11 MR. McCARTHY: With regard to
12 private equity assets and going down
13 through the entities here for the assets
14 classes, in the private equity group, which
15 is basically the Lehman Brothers, this is
16 on page 15, on the private equity group
17 those are the former Lehman Brothers
18 private equity funds, independently
19 operated funds, (inaudible) management
20 companies there. Those (inaudible)
21 controlled by LBHI, but through non-debtor
22 vehicles that are sole purpose vehicles.
23 So I would say that those are primarily
24 controlled by LBHI at that point. The
25 direct investments, the majority of those

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2 direct investments are through LB1 Group
3 and the majority GP and LP investments are
4 through LB1 group. The Asian investments
5 are through a variety of other subsidiaries
6 and, again, most of those are non-debtor
7 subsidiaries (inaudible). The Asian
8 investment is not controlled by us or by
9 the receivers, they are primarily KPMG
10 controlled assets, which is at the bottom.
11 SPEAKER: Okay. Thanks. And could
12 you provide a break-out of real estate
13 assets?
14 MR. McCARTHY: I don't have on the
15 real estate side a break-out. I can tell
16 you that LCPI as a general matter was used
17 for the straight bank debt. (Inaudible)
18 where the equity investments were, I don't
19 have with me the break-out of (inaudible).
20 SPEAKER: Thank you.
21 SPEAKER: I am (inaudible). My
22 understanding is a number of the U.S.
23 debtors that were produced as subsidiaries
24 of LBI were transferred into ALI, Inc. at
25 the end of September. I would be

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2 interested in how you think about any claim
3 on value of ALI or the U.S. debtors within
4 ALI moving to LBI? There were some U.S.
5 debtors who were previously subsidiaries of
6 LBI that were then transferred back in
7 September to ALI, Inc. My understanding is
8 there is a note held by LBI against ALI. I
9 would be interested in your thoughts on
10 potential value that might go to LBI from
11 ALI or the U.S. debtors as (inaudible) that
12 note.
13 MR. WAISMAN: The note you refer to
14 (inaudible) to LBI for the transfer of
15 those subsidiaries contemplates a valuation
16 of those assets and entities that were
17 transferred. That valuation has not been
18 completed, so we can't speculate as to what
19 value may or may not be transferred as a
20 result.
21 SPEAKER: And that valuation is
22 against ALI, is it potentially against some
23 of the value from the new ALI subs that
24 were previously LBI?
25 MR. WAISMAN: The valuation

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2 contemplated is a total valuation of all of
3 the entities slash assets that were
4 transferred to (inaudible).
5 SPEAKER: Is there an estimate of
6 when the valuation of that note might be
7 completed and is there going to be
8 disclosure on it?
9 MR. WAISMAN: There will be
10 disclosure when it is completed, there
11 definitely will be disclosure, but we don't
12 have an estimate at this point.
13 SPEAKER: So it's unclear whether
14 value from ALI or the U.S. subs that are
15 part of that will (inaudible) LBI?
16 MR. WAISMAN: That's right. It is
17 unclear whether there will be any value
18 transferred or what -- if there is value,
19 what the rate will be. There is no
20 estimation.
21 SPEAKER: Thank you.
22 SPEAKER: Rubin (inaudible) from
23 Capital Management. In one of its filings
24 LBI mentions that if there are potential
25 claims from its former subsidiaries,

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2 presently (inaudible) subsidiaries were
3 subordinated, some of those subsidiaries
4 will be (inaudible) creditors. Is it your
5 understanding that those claims are
6 actually subordinated at LBI?
7 MR. WAISMAN: You are referring to a
8 filing. Is there a specific filing you are
9 referring to?
10 SPEAKER: In -- yes. (Inaudible).
11 MR. WAISMAN: I think you are
12 referring to a report filed by the SIPA
13 trustee for Lehman Brothers, Inc.
14 SPEAKER: That's correct.
15 MR. WAISMAN: So not (inaudible) a
16 filing that these estates made. The SIPA
17 trustee refers to certain subordination
18 agreements. Obviously those are agreements
19 that (inaudible) are reviewing. We will
20 have to come to a determination as to their
21 enforceability.
22 SPEAKER: Understood. So you have
23 no opinion as of yet as to whether that
24 subordination or -- let me rephrase it. In
25 many of those schedules you have filed

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2 those include former subsidiaries of LBI
3 and you present some intercompany claims
4 against LBI. Is it your understanding at
5 this point that any of those are
6 subordinated or is it your understanding
7 that they are not subordinated as
8 represented in any of the schedules?
9 MR. WAISMAN: I think it's fair to
10 say that it is not our understanding either
11 way. We are reviewing the subordination
12 agreements and the situation and we will
13 come to a conclusion.
14 SPEAKER: Thanks. Last follow-up
15 question of that. Inasmuch as the claim is
16 that there was a subordination agreement,
17 can you (inaudible) if there was
18 subordination or was there any
19 consideration given to the subsidiaries,
20 because it sounds like potentially
21 subordination was to satisfy regulatory
22 requirements at LBI, (inaudible) which
23 accrues to the owner of LBI, which is LBHI.
24 Since these were subsidiaries of LBI, was
25 there any (inaudible) consideration

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2 provided for subordinated claims as far as
3 you know?
4 MR. WAISMAN: That is an excellent
5 question. It's certainly one of the issues
6 that we would be looking at in reviewing
7 the subordination agreements and their
8 enforceability.
9 SPEAKER: Thank you very much.
10 MR. VELEZ-RIVERA: Anyone else?
11 Next question.
12 SPEAKER: Paul Goldschmidt
13 (phonetic) from Kings Street. In the filed
14 schedules there was a table Other
15 Transfers, it was 10A, and it included cash
16 of about 7 billion in JPMorgan, 1.7 billion
17 of money funds and 8 billion of securities
18 that had been transferred to JPMorgan in
19 the last six months. Can you explain why
20 that was included in the schedules and do
21 you mind just elaborating on what these
22 transfers are? There is one from Citigroup
23 of 2 billion and Bank of America
24 (inaudible) the litigation, 500 million.
25 MR. WAISMAN: I believe the schedule

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2 you are referring to requires the debtor to
3 list all transfers of property within a
4 certain period of time. It was the
5 debtor's belief that that information that
6 was put on the schedule was responsive to
7 the question asked by the schedules and
8 that's why it was listed on the schedules.
9 SPEAKER: The weird one to me was
10 the JPMorgan, the 8 billion, just because
11 there were so many other transfers of other
12 counterparties. Why was the 8 billion
13 highlighted?
14 MR. WAISMAN: That was a significant
15 transfer of property of the estate or of
16 Lehman Brothers occurring within the
17 specified period that we felt we had an
18 obligation to list in response to the
19 question that the schedule was asking.
20 SPEAKER: And is that outside of the
21 JPMorgan pledges that are in the
22 presentation?
23 MR. WAISMAN: I believe that the
24 presentation encompasses some of the
25 collateral posted to JPM, but whether all

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2 of it was -- the schedule is simply in a
3 certain time span, I believe it was the 90
4 day schedule you are referring to, and
5 this -- what was presented today reflects
6 ultimately all that was posted without
7 regard to time, so there may be a slight
8 disconnect there, but they do overlap.
9 SPEAKER: And Bryan, obviously I
10 don't want to put words in your mouth, but
11 when you talk to the Wall Street Journal or
12 talk about the assets in the estate, you
13 often talk about the real estate assets and
14 you sort of ignore the pledges when you
15 talk about them. Is that because you are
16 expecting them to be unpledged or --
17 MR. MARSAL: No. What has happened
18 is the moneys you are talking about in the
19 schedule, assets are cash that was pledged
20 within a 90-day period to JPMorgan,
21 Citibank and others for clearing bank or
22 other issues that would come out. That was
23 done within the last -- the 90 days prior
24 to the proceeding. JPMorgan believes that
25 we owe them $1.3 billion against what they

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2 call a clearing overdraft, 1.3 billion.
3 Against that clearing overdraft of
4 1.3 billion is all these pledged assets
5 which remain, so I think they are -- in our
6 view they seem to be very well
7 collateralized, so when we look at the
8 pledged assets, the reason we refer to
9 them -- I think there is what, John, 6 or 7
10 billion of pledged assets against it,
11 approximately?
12 MR. SUCKOW: Yes.
13 MR. MARSAL: 6 or 7 billion of
14 pledged assets against the 1.3 billion that
15 they claim we owe them, and we are not
16 agreeing that we owe that 1.3, by the way,
17 but in any event we believe there is
18 substantial value going to flow to us and
19 that's why we were managing those assets
20 (inaudible).
21 SPEAKER: And is the cash on top of
22 the pledged assets?
23 MR. MARSAL: Yes.
24 MR. SUCKOW: Just to be clear, the
25 1.3 is netted cash so it was 8 billion less

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2 6.7 billion.
3 SPEAKER: And have you done work on
4 what you think --
5 MR. SUCKOW: As I said earlier, we
6 could spend a lot of time talking about
7 legal theory. I really don't think it
8 would benefit this group too much.
9 MR. VELEZ-RIVERA: That's it. Next
10 question.
11 SPEAKER: Bob Ryan with Elliot
12 (inaudible). I think there is -- given the
13 $16 billion figure that was tossed out
14 there, I think there is some risk that the
15 counterparties that we are facing, maybe in
16 this room, when they read that number they
17 may dig in their heels from a litigation
18 perspective, concluding that, hey, we are
19 home free, Lehman doesn't think they can
20 collect on the claim. I think it would be
21 worthwhile for the estate, if it chose to
22 set the record straight on the record,
23 about the lengths to which Lehman is
24 prepared to go to protect its rights and to
25 enforce its claims (inaudible) its facing

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2 SPVS or other counterparties.
3 MR. VELEZ-RIVERA: Your question is?
4 SPEAKER: To what lengths will
5 Lehman go to protect its rights on the
6 claims?
7 MR. MARSAL: Just assume whatever it
8 takes. Whatever it takes. I mean, we are
9 going to defend the rights of the estate
10 and I would assume -- unfortunately, I
11 shouldn't have thrown the number out, but
12 it's out there. My bad. We now will beat
13 that number.
14 SPEAKER: You can change it if you
15 want.
16 MR. MARSAL: We will beat that
17 number. The people who have provided the
18 number haven't missed a number yet.
19 MR. WAISMAN: I think it is also
20 fair to say that there are a significant
21 number of people devoted to the task from
22 A&M, from Lehman, and a very large team at
23 Weil Gotshal as well spending a significant
24 amount of time focused on the issues and as
25 Bryan points out they will (inaudible).

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2 MR. EHRMANN: One last point on
3 that. I think it's also important to note
4 that currently we have settled 8 percent of
5 the population, (inaudible) of the 106,400
6 counterparties. One of the reasons for
7 that is we are fighting for every single
8 dollar tooth and nail and I think it's a
9 message that the street has -- has been
10 (inaudible) by the street.
11 SPEAKER: Do some of those claims
12 include claims that otherwise absent
13 settlement would have been reserved
14 against?
15 MR. EHRMANN: Had they been
16 reserved, they would have been reserving in
17 the values that we received, i.e., fair
18 value or (inaudible).
19 MR. VELEZ-RIVERA: Next question.
20 SPEAKER: John (inaudible), Goldman
21 Sachs. Could you just talk about your best
22 guess the timing for resolution of all the
23 derivative claims? Can you just talk about
24 milestones that can occur before initial
25 distribution can actually be made?

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2 MR. MARSAL: Well, what you see in
3 that last schedule, in terms of timetables,
4 I don't think realistically that until the
5 third anniversary of this case, as
6 disappointing as that might be. I think
7 your asset picture will be clear by the
8 second anniversary of the case. I don't
9 think your derivative picture will be clear
10 until the third anniversary of the case,
11 and as far as intercompany is concerned, we
12 just don't know. We don't know how quickly
13 the other receivers are going to approach
14 things and whether or not transparency --
15 we also don't appreciate the complexity of
16 their problems, so because we have no
17 transparency -- I'm not casting any
18 aspersions at anyone. I am just saying we
19 don't know. We are in the dark on LBI and
20 we are really behind the 8 ball on LBIE.
21 Until we have those answers, this thing
22 will go on and on and on, but in terms of
23 the derivatives, I would say the third
24 anniversary of the case would be our best
25 guess today.

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2 SPEAKER: Can a distribution occur
3 before complete resolution of that or
4 (inaudible) --
5 MR. MARSAL: That has been discussed
6 with the Unsecured Creditors Committee,
7 it's just a topic, so you should -- I am
8 going to ask you to direct your comments to
9 the Unsecured Creditors Committee and their
10 counsel if you have got something to put
11 on, but I certainly would not be opposed if
12 we can legitimately -- if we could put a
13 reasonable box around the claims,
14 particularly at subsidiary levels. I'm not
15 sure it's going to be possible at Holdings,
16 but it's possible at a subsidiary level
17 they can do that.
18 SPEAKER: And then last question,
19 going back to non-debtor subsidiaries that
20 hold private equity and other principal
21 investing assets, just entities such as LB1
22 Group, how many of those entities actually
23 have third-party liabilities where those
24 asset values actually (inaudible) back up
25 to the holding company?

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2 MR. McCARTHY: There is actually
3 very few third-party liabilities with
4 regard to debt at any of those entities.
5 The largest liability listed in the
6 right-hand column, which is the (inaudible)
7 commitments, so those have to be considered
8 liabilities. So related to that, that
9 number has been reduced from 4.4 billion as
10 of the bankruptcy date down to what we
11 listed here at 2.7, so as Bryan mentioned
12 earlier, we are working very diligently on
13 that number and managing that down.
14 MR. MARSAL: The big threat to the
15 valuations on the private equity portfolio
16 is aside from market risk, which is the
17 market deteriorating, the big threat to us
18 is not being able to fund our obligation
19 and thus suffering a severe dilution
20 (inaudible). We have been -- that's the
21 task at hand, is how to manage that in a
22 way that's sensible for the estate given
23 what we have in investment exposure, and
24 yet in a liquidating situation putting more
25 money into a private equity fund is very

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2 difficult for us to do. I mean, it's very
3 difficult to swallow on one hand, but the
4 losses are difficult to swallow on the
5 other, so that balancing act is really --
6 is a major challenge.
7 MR. VELEZ-RIVERA: Anyone else?
8 Ladies and gentlemen, thank you.
9 The meeting of the creditors is concluded.
10 Thank you again.
11 (Time noted: 12:07 p.m.)
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1

2 C E R T I F I C A T E
3

4 STATE OF NEW YORK )


5 ) ss.:
6 COUNTY OF NASSAU )
7

8 I, KRISTIN KOCH, a Notary Public


9 within and for the State of New York, do
10 hereby certify that the within is a true
11 and accurate transcript to the best of my
12 ability of the proceedings held on July 8,
13 2009.
14 That I am not related to any of the
15 parties to this action by blood or
16 marriage; and that I am in no way
17 interested in the outcome of this matter.
18 IN WITNESS WHEREOF, I have hereunto
19 set my hand this 9th day of July, 2009.
20 -------------------------
21 KRISTIN KOCH, RPR, RMR, CRR
22

23

24

25

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