1 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION 2 3 TRANSCRIPT OF RECORDED TELEPHONE CONVERSATIONS 4 FILE NAME: OSNATO Decl Ex 26 Ledford9-15-08933am-0 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 2 1 ELECTRONIC VOICE: Welcome to the conference call 2 in -- your pass code has been confirmed. If you need 3 technical assistance during your call, press star zero. 4 After the tone, please state your name, followed 5 by the pound sign. 6 MR. LEDFORD: Patrick Ledford. 7 ELECTRONIC VOICE: There are ten parties in 8 conference, including you. 9 UNIDENTIFIED: Beautiful part of the country. 10 [inaudible] 11 KATE: Is that you, Patrick? 12 MR. LEDFORD: Yes, it is, Kate. 13 KATE: Thank you for joining us. I'm not sure 14 who else we're waiting for. I guess maybe Bruce II should 15 be on this call, yeah. 16 (silence) 17 KATE: Oh, okay. Okay, Bruce is calling in, 18 too, so I think we're just about there. 19 (silence) 20 MR. LEDFORD: This is Patrick. 21 BRUCE II: Hi, it's me and my father. 22 MR. LEDFORD: Yeah. 23 BRUCE II: Are you ready for another call with 24 the board? 25 MR. LEDFORD: Oh, yeah, I've got them on hold. 3 1 BRUCE II: Oh, I see [inaudible] 2 MR. LEDFORD: Yeah, I've called in. 3 BRUCE II: -- you're ready to make a 4 recommendation? 5 MR. LEDFORD: Yeah, yeah. 6 BRUCE II: Okay. What are you going to 7 recommend? 8 BRUCE SENIOR: Yeah, right, surprise, surprise. 9 MR. LEDFORD: Yeah. A couple of things. The -- 10 and, this is very, very preliminary. It looks like the -- 11 the debt, regardless of the maturity, the senior debt is 12 trading, like, at 30 to 40 cents on the dollar, but none 13 has actually traded. That's just for your marking. 14 BRUCE SENIOR: Thirty to forty cents on the 15 dollar? 16 MR. LEDFORD: Yeah, yeah, yeah. How -- however, 17 the preliminary valuations being done on the Street, it 18 looks like what they're suggesting for the senior unsecured 19 debt, 60 to 80 cents on the dollar will be recovered. 20 BRUCE II: And, where are you getting this from? 21 MR. LEDFORD: This is just information from -- 22 again, the -- the dealer community. But again, it's a 23 moving target. 24 BRUCE II: So, what are you -- what are you 25 going to say? What are you going to recommend we price it 4 1 at? 2 MR. LEDFORD: At somewhere between 60 and 80 3 cents on the dollar. 4 Also, I -- I just got off the phone with 5 Lentinello and Pat Farrell. We went through the 6 calculations, -- 7 BRUCE II: Um hmm. 8 MR. LEDFORD: -- and Primary, before we would 9 break the buck, we could take a hit of $300 million, which 10 I think is what we kind of expected, Mr. Bent. 11 BRUCE II: It doesn't make any sense for us to 12 price it between 60 and 80 cents. All you're doing is -- 13 is looking at the market, so we're not going to do that. 14 The market is too thinly traded. 15 MR. LEDFORD: Oh, I -- Bruce, I agree. 16 BRUCE II: Yeah. 17 MR. LEDFORD: I agree completely. 18 BRUCE II: So -- so, we're not going to say 19 that. 20 MR. LEDFORD: All right. 21 BRUCE II: Dad, what are we going to say? 22 BRUCE SENIOR: Fair value pricing is not a valid 23 marker [inaudible] 24 MR. LEDFORD: Yeah. 25 BRUCE II: Why don't we do it at par, -- 5 1 MR. LEDFORD: Yeah. 2 BRUCE II: -- until we get more information? 3 BRUCE SENIOR: Right. 4 MR. LEDFORD: I -- I agree with that -- 5 BRUCE II: Okay, all right, great. 6 MR. LEDFORD: -- completely. 7 BRUCE II: Dad, I have to go to the bathroom, so 8 you're going to call in, and I'll call in, in a couple of 9 minutes, okay? 10 BRUCE SENIOR: And, I'm calling in to that -- 11 BRUCE II: Correct, correct. 12 BRUCE SENIOR: Okay. 13 BRUCE II: Okay, thank you. 14 MR. LEDFORD: Hey, everyone. Mr. Bent is 15 calling in right now, as Bruce is, too. 16 KATE: Okay. 17 (silence) 18 [TELEPHONE RINGING] 19 MR. LEDFORD: Hey, I'm on a conference call with 20 the board of trustees. 21 JOHN: Oh, I'm sorry. 22 MR. LEDFORD: No, that's all right. 23 JOHN: I'll let you go then. 24 MR. LEDFORD: No, no. 25 JOHN: We were supposed to get together at 6 1 10:00. I just wanted to find out if you still wanted to do 2 it, to check in. 3 MR. LEDFORD: Yeah, yeah, I'll come down. 4 JOHN: All right. You want us to come up? It's 5 totally your call. 6 MR. LEDFORD: You know, I'm pretty -- it's 7 probably not a good idea, John, right now, -- 8 JOHN: Gotcha. 9 MR. LEDFORD: -- if that's okay. 10 JOHN: Gotcha. I'll follow your lead. 11 MR. LEDFORD: I'm going to call you as soon as I 12 get off the -- the conference call with the trustees. 13 JOHN: Patrick, great. 14 MR. LEDFORD: Thanks, John. 15 JOHN: We're at eight, by the way. 16 MR. LEDFORD: Okay. 17 JOHN: All right. Thanks. 18 MR. LEDFORD: Thanks, 'bye. 19 [inaudible] 20 UNIDENTIFIED (1): Okay, hello. 21 KATE: Hi. 22 UNIDENTIFIED (1): Okay. We've got 11 parties 23 in conference. All right? I will take it from Bruce Bent. 24 Okay, next. We'll do it alphabetically, with the board 25 members. How's that? 7 1 MS. ALBICOCCO: Santa Albicocco. 2 MR. ARTINIAN: Ron Artinian. 3 MR. MONTGORIS: Bill Montgoris. 4 MR. STALZER: Frank Stalzer. 5 MR. VIKLUND: Bill Viklund. 6 UNIDENTIFIED (1): Ed Ehlert's not there? 7 MR. VIKLUND: No, -- 8 UNIDENTIFIED (1): Either that or he doesn't -- 9 MR. VIKLUND: -- we haven't been able to find 10 him. 11 UNIDENTIFIED (1): Haven't been able to find 12 him, okay. Who else? 13 MS. CROWLEY: Kate Crowley and Christina 14 Massaro. 15 MR. LEDFORD: Patrick Ledford. 16 MR. McKEE: Sean McKee. 17 JOEL: Joel and Rose. 18 UNIDENTIFIED (1): And this -- okay. 19 STUART: And Stuart. 20 UNIDENTIFIED (1): That's Stuart? 21 STUART: Stuart. 22 MR. LEDFORD: Bruce is here. 23 UNIDENTIFIED (1): Bruce is there. 24 Okay. Go ahead, Bruce. You're running the 25 meeting. 8 1 BRUCE SENIOR: I'm running the meeting? 2 UNIDENTIFIED (1): Okay. I'll run the meeting. 3 I'll give -- Patrick Ledford, I guess, is -- 4 BRUCE II: You run the meeting. You've got more 5 -- you've got more -- no, you run the meeting. I got more 6 -- you got more sleep than I did last night. 7 BRUCE SENIOR: Yeah, okay, fine. Yeah. 8 Last night, I was sleeping on the plane from New 9 York to Rome. That's where I got -- 10 [Laughter] 11 BRUCE SENIOR: It's a very momentous way to 12 celebrate your 50th anniversary. Let me tell you. 13 UNIDENTIFIED: [inaudible] 14 BRUCE SENIOR: Yeah, thanks a lot. I said to my 15 wife, "This is supposed to be a memorable trip." And she 16 responded, "Well, it certainly will be, right?" 17 [Laughter] 18 BRUCE SENIOR: Okay. Discussions with Patrick, 19 and Patrick's discussion with the marketplace, there's no 20 valid market. The people -- the bids are being thrown out 21 there anywhere from 45 to 80. Is that correct, Patrick? 22 MR. LEDFORD: Yeah, that's correct, yeah. 23 BRUCE SENIOR: Okay. So, our recommendation at 24 the moment is we keep the thing on a fair value, and say 25 it's -- you know, it's going to be par. We will move it as 9 1 it -- as we get some sort of substance out of the 2 marketplace. 3 You know, at this point, if I -- if I take 4 myself, and put myself on the other side of the desk, I'd 5 be offering the same thing. 6 So, you know, and -- and I'm sure that those are 7 indications and there's no firm bids. Is that right, 8 Patrick? 9 MR. LEDFORD: That's correct. There is no 10 actual trades being done. 11 UNIDENTIFIED: Um hmm. Okay. 12 MR. LEDFORD: Again, it's very, very 13 preliminary. People are still trying to go through the 14 numbers. 15 And so, I suspect in the next 24 to 48 hours the 16 more -- there will be more -- the market will be more 17 fluid. 18 BRUCE SENIOR: Okay. Any of our counsel want to 19 make comments? 20 ROSE: Just a question from me. I didn't get the 21 [inaudible] -- 22 BRUCE SENIOR: Closer to the microphone, please? 23 ROSE: You -- you have both commercial paper and 24 medium-term notes, I think? So, are you -- the 25 recommendation is to value both of them at par? 10 1 MR. LEDFORD: Yeah, the -- 2 BRUCE SENIOR: [inaudible] unsecured. 3 MR. LEDFORD: Yeah, they're -- it's senior debt, 4 senior unsecured debt, both the medium-term note and the 5 CP. 6 [inaudible] 7 MR. MONTGORIS: I guess I'm a little confused. 8 If we -- if we agree to this, does that mean we're saying 9 that we're going to send a letter to the SEC saying we've 10 got, you know, 856 or $666 million worth of this stuff in 11 our portfolio, and that we're going to hold onto it, and 12 we're going to carry it from a fair value accounting point 13 of view at par? Is that going to be -- is that -- is that 14 what we're going to do? 15 Because that seems to me as though if -- I 16 understand that the market is in turmoil, but if the -- if 17 it -- depending on what position other people take, if they 18 get letters from other people, saying that -- that they're 19 carrying it at anywhere from 40 to 90, and we come in at 20 par, aren't we going to be -- start looking like an 21 outlier, look like -- you know, we're being a little bit -- 22 I mean, -- 23 MR. LEDFORD: Well, right now, there's -- 24 MR. MONTGORIS: do you guys think that this 25 stuff is worth par? 11 1 MR. LEDFORD: Well, right now, there is no -- 2 there is no -- there's no trades out there. There's no 3 transactions. So, you know -- so, that's why we're saying 4 we should value it at par. 5 But, we have to look at this on a daily basis, so 6 anything we provide to the SEC -- correct me if I'm wrong, 7 Rose or Joel -- but would be subject to us maintaining this 8 process -- this daily process of looking at the valuation, 9 to see if needs to be adjusted. 10 BRUCE SENIOR: Yeah, let me pursue Bill's 11 comment and the thought process thereof. If we price this 12 thing at 80, what are the ramifications? The 13 ramifications, as far as liquidation of shares, are really 14 nothing, because it's less than 20 percent of the -- excuse 15 me, less than a half of one percent. 16 [Voice in background: I'll call you back, all 17 right? Yeah, I got -- I'm on the phone.] 18 BRUCE SENIOR: Correct? Okay. 19 To the extent that the Yield Plus amounts to more 20 than a half of one percent -- well, that's really not party 21 to this conversation. But anyhow, since they're here, we 22 can put -- "we" being RMCI -- can put in a supplemental 23 letter on that. 24 Sean, you have any thoughts on that? 25 MR. McKEE: No. Obviously, to the extent that 12 1 you ever got to a point where you thought the value was 2 less, you're -- you're free to -- or even, you know, 3 before, you're free to put in capital support -- 4 [Voice in background: [inaudible] I'm up -- I'm 5 up here.] 6 MR. McKEE: -- agreements all along. 7 BRUCE SENIOR: Right. 8 [Voice in background: I'm on a conference 9 call.] 10 UNIDENTIFIED: But, we're only talking about the 11 Primary Fund. That's the only [inaudible] fund we have. 12 BRUCE SENIOR: Okay, fine. So, let's assume 13 what -- let's assume we put the thing in at 80. From -- 14 what are the ramifications? The positive ramifications are 15 that, you know, we get down in the herd, as opposed to 16 being par. Par, you know, maybe somebody will price it at 17 par. I'm sure there are a number of prices at 90. If we 18 price it at 80, we're probably well into the -- the safe 19 area, let's call it, the unobtrusive. I'm not sure that 20 anybody involved in this at the moment is unobtrusive, but 21 it probably would get down below our heads sitting above 22 the parapet. Sean, do you want to comment on that? 23 MR. McKEE: No. I think, you know, in terms of 24 what you're looking at, you just need to come up with what 25 you believe the value is. You know, if I were -- 13 1 BRUCE SENIOR: Well, I think the value is we're 2 going to get out at par. But, at the moment, you don't 3 have a liquid marketplace. I mean, you have no market. 4 STUART: This is Stuart. Can I just give you -- 5 my view is that, I mean, the board has an obligation to try 6 to come up with a price that, you know, represents the 7 value at which something could be sold at any particular 8 day. Now obviously, that's difficult, since they're -- you 9 can't sell anything today. 10 But I don't think, under these scenarios, you can 11 just completely disregard bids that you get from dealers on 12 the theory that it's, -- 13 BRUCE SENIOR: We didn't -- 14 STUART: -- you know, a disorganized market, and 15 that nobody really knows what the values are. 16 UNIDENTIFIED: Stuart, I don't even think 17 they've gotten bids, though. 18 BRUCE SENIOR: We haven't. 19 STUART: But, we -- but, you -- you've gotten 20 something. And -- and I think, you know, it -- I -- under 21 these circumstances, I don't think you can disregard 22 whatever the somethings are that you've gotten. And, I 23 think it's a little too aggressive to value at par, but I 24 don't -- I don't think you have to take the -- you know, 25 the bargain basement indications of interest that are 14 1 clearly, you know, just looking to exploit the situation as 2 -- as the value [inaudible] 3 MR. ARTINIAN: Stuart, can I ask a question? 4 It's Ron. You mentioned "the board has to." I mean, -- 5 STUART: Well, -- 6 MR. ARTINIAN: -- is it -- is it the board's 7 responsibility -- 8 STUART: Well, -- 9 MR. ARTINIAN: -- to set a price? I mean, -- 10 STUART: Go ahead. 11 MR. ARTINIAN: -- that -- that's -- I mean, I 12 thought that we're supposed to weigh the recommendation -- 13 and I'd like correction on this -- I thought -- thought our 14 job was to weigh the recommendation of management and -- 15 and assess whether we think that's reasonable. 16 STUART: Well, I mean, I don't think we're 17 saying anything different. I mean, at the end of the day, 18 it's the ultimate responsibility of the board to determine 19 fair value. And, the question is how do you arrive at that 20 judgment? I mean, you're not, obviously not credit 21 experts. You're not -- can't go out and independently 22 determine values without, you know, recommendations of 23 management. But, you are getting information from 24 management, and then you have to make your own best 25 business judgment as to what you think an appropriate value 15 1 is, under these circumstances. 2 MR. ARTINIAN: So, you're saying that if Bruce 3 makes the recommendation at -- at par, and we -- we are 4 supposed to overrule him? 5 STUART: Well, I think you're supposed to decide 6 whether you think that's a reasonable number under these 7 circumstances. Now, I'm not sure where Bruce is coming out 8 on this. I think, you know, I think you also have to 9 consider Bill's point, which is that, you know, you're 10 going to be closely scrutinized here by -- by the SEC. And 11 I think, you know, they're going to say to you "Given 12 everything that's transpiring, how could you possibly not 13 at least mark it down some -- somewhat?" 14 MR. MONTGORIS: I mean, it just seem -- it just 15 seems to me that you've got, in effect, if I can, you know, 16 maybe draw on a poor analogy, but, you know, in the old 17 days, you know, if you looked at something where there was 18 no, quote/unquote, "ready market," you -- you sat down and 19 you -- you figured out a way to discount it from an 20 accounting standpoint, to mark it to a fair value. If you 21 had -- if you had no ready market for it, if you had no 22 trading taking place in the security, you would never have 23 carried it at par. I mean, you just absolutely would not 24 have carried it at par. 25 With that said, you know, pinning a number on it 16 1 is like throwing, you know, it's like throwing a dart on 2 the wall and seeing where it comes. So, there's no right 3 answer or wrong answer, but I think, you know, carrying a 4 non-marketable security where there's no -- no -- no -- 5 nobody making a market and no bids at par is the wrong -- 6 is definitely the wrong answer. 7 If Bruce says 80, I -- I couldn't argue with 8 that. If he said 90, I probably couldn't argue with that, 9 either. I would -- I would, from my own standpoint, 10 considering what we're in the middle of, which is something 11 that is just totally uncharted territory, I would, you 12 know, want to be more conservative than not. 13 But I clearly think that for us, as a board, if 14 -- if management truly wanted to represent the position at 15 worth par, I mean, anybody in -- could really think that 16 this thing is worth par. 17 MR. VIKLUND: Well, this -- this is Bill 18 Viklund. If I understood when we first talked that we have 19 no obligation to go to the SEC unless we think it's less 20 than par. Am I incorrect on that? 21 ROSE: Yes. You're not correct. 22 MR. VIKLUND: I'm not correct, okay. 23 ROSE: You have to go to the SEC at [inaudible] 24 -- 25 BRUCE II: I'm sorry. Rose, can you pick up the 17 1 phone? It's hard to hear you. Thanks. 2 (silence) 3 MR. VIKLUND: Rose? 4 BRUCE II: She's looking for the receiver, I 5 think. 6 MR. VIKLUND: Oh. 7 MR. MONTGORIS: I think what Rose said earlier, 8 Bill, was that we had to make a filing with the SEC today, 9 telling them that we had -- 10 BRUCE SENIOR: Yeah, because of the announcement 11 -- 12 ROSE: Sorry [inaudible] -- 13 MR. VIKLUND: Oh, we had -- okay. We have to -- 14 we have to -- 15 ROSE: No, because -- 16 MR. VIKLUND: -- report that -- 17 ROSE: -- yeah, because it's an event of 18 insolvency, -- 19 MR. VIKLUND: All right. 20 ROSE: -- and because it represents -- the 21 security represents more than one-half of one percent of 22 the entire portfolio, we have to go to the SEC, -- 23 MR. VIKLUND: Okay. 24 ROSE: -- regardless -- and -- and then, we need 25 to tell them what action the board has decided to take. 18 1 MR. VIKLUND: Okay. 2 MR. MONTGORIS: So Bruce, with -- with all of 3 that said, are you -- are you prepared to make a 4 recommendation? 5 BRUCE SENIOR: Yeah. I think, all things 6 considered, if we go 80, we're okay. I think it's 7 ultra-conservative, but all things considered, that's 8 probably a good course of action at this point. 9 MR. McKEE: Well, one thing I will say -- this 10 is Sean. Just so you know, because Stuart was talking 11 about [unintelligible] the information, not knowing the 12 information that -- that's absolutely right. You consider 13 things, and you kind of weigh what you've heard, and the 14 recommendation is one thing. To also just remember that 15 you can consider within the GAAP framework, as obviously 16 you're a participant in the institutional money market 17 place. So, you can also look at, you know, what you would 18 buy or sell for, as well. It's just another piece of 19 information to help support any positions you take. 20 BRUCE II: I don't understand what the -- I kind 21 of missed that, Sean. 22 MR. McKEE: So, if you were saying, "Well, boy, 23 you know, look at this bid in this marketplace, and we'd 24 buy at 80," that supports, you know, you don't have any 25 firm bids. It's not trading. But, you know, you would buy 19 1 at 80. Then, that supports 80. It's just another piece of 2 data that you can factor into the analysis. 3 BRUCE SENIOR: Okay. I'd buy at 80 but I 4 wouldn't sell at 80. Right? 5 MR. MONTGORIS: Okay. That -- that's -- I think 6 that that's pretty much in line sort of with where Sean is. 7 You -- you wouldn't -- you -- just to -- just so that we 8 have a record in it, and we take this to the logical 9 conclusion, you wouldn't buy it at par, right? 10 BRUCE SENIOR: No. 11 MR. MONTGORIS: Okay. So -- so that sounds to 12 me like that's one more piece of documenting, you know, 13 Bruce basically came to us, and Patrick has scoured the 14 market and tells us there's no market for the paper right 15 now. We've got indications, but no -- no bids, no offers. 16 But, we've got indications that run anywhere from 40 to 90. 17 We would buy it at 80. We wouldn't sell it at 80, but we 18 would buy it at 80, and we wouldn't buy it at par, and the 19 recommendation of management -- 20 [END OF RECORDING] 21 22 23 24 25 20 1 C E R T I F I C A T E 2 3 I, June Accornero, hereby certify that the 4 foregoing transcript consisting of 20 pages is a complete, 5 true and accurate transcript of the recorded conversations 6 contained in the recording labeled "OSNATO Decl Ex 26 7 Ledford9-15-08933am-0." 8 The foregoing transcript has been typed and 9 proofread by me. 10 11 ______________________________ _________________ 12 Typist/Proofreader Date 13 14 15 16 17 18 19 20 21 22 23 24