Old West Investment Management, LLC

January 13, 2014

Dear Investor: As I sit down to start writing this annual letter to investors these first days of 2014, I think back to what my expectations were for the stock market one year ago. I would not have predicted that the S&P 500 would be up 32.39% in 2013. Especially since this market benchmark was up 128.71% from the market bottom in 2009 though the end of 2012. Im pleased to tell you that all of our portfolios continue to have outstanding performance, and we have fully participated in this robust market rally. Our Large Cap Portfolio was up 31.24% in 2013, and we accomplished this return without investing in any of the highfliers like Google, Amazon, or Facebook. Our Small/Mid Cap Portfolio was up 25.12% and that was in spite of getting defensive in the second half of the year and at times having as much as 10% cash in the portfolio. Our All Cap Portfolio was up 26.46%, as we continue to build a tremendous five year track record. Our Focused Portfolio of our top ten ideas (which currently contains 12 stocks) was up 32.02% this past year. The very good news for our clients is most of our investments have yet to work. I see significant upside in these outstanding companies. In addition to our long only separate account strategies, our alternative investment strategies for accredited investors continue to provide our clients with solid long term performance. Although this five year bull market is due for a correction as we enter 2014, we are true bottom up investors. We are focused on the individual companies we are invested in, or companies we are contemplating investing in, and we dont pretend to know what the market is going to do. I would like to give you an update on four of our largest holdings, including their prospect for 2014.

FAIRFAX FINANCIAL Fairfax CEO Prem Watsa is known as The Warren Buffet of Canada. This Toronto based insurance conglomerate has a wonderful long term track record. The book value of this stock has compounded at 23% year for 27 years (I see a trend developing!!) Like Buffet, Watsa has made his fortune investing the float of insurance premiums, and he is truly one of the worlds great investors. Watsa has been rather bearish the past few years, and continues to believe that deflation is the 601 S. Figueroa Street, Suite 1975 Los Angeles, California 90017 213.943.1740 www.oldwestim.com

greatest threat to the worlds economies. On days that the stock market is sharply down, Fairfax stock is often up, so it works as a nice hedge. We own Fairfax in all of our portfolios. LEUCADIA NATIONAL CORPORATION Joe Steinberg and Ian Cumming met in college 43 years ago. They started Leucadia in 1978 and since then they have compounded shareholders return at 18.2% per year. Leucadia can be described as a mini Berkshire Hathaway. Leucadia owns a variety of businesses, including investment bank Jefferies, National Beef, Berkadia, Garcadia and Idaho Timber. Leucadia is currently sitting on $2.2 billion in cash and liquid investments plus a $3.6 billion Federal income tax loss carry forward. Leucadia was formerly the largest shareholder of Jefferies, and this past year they bought the entire company. Steinberg and Cumming are in the 70s, and they didnt have a clear succession plan. Former Jefferies executives Rich Handler and Brian Friedman are now the top executives at Leucadia, with Joe Steinberg staying on as Chairman. I believe Handler and Friedman, who are in their 50s, will smartly and aggressively seek investment opportunities worldwide for Leucadia, and it could be the Berkshire Hathaway of the next ten to twenty years. We own Leucadia in all our portfolios. CHESAPEAKE ENERGY CORPORATION Chesapeake is an interesting story. The company was built by renowned oil man Aubrey McClendon, who aggressively grew the company for many years. Towards the end of his stint as CEO he was accused of self dealing and was forced out by a newly independent Board of Directors. Archie Dunham, the former CEO of oil giant Conoco Phillips, was brought in to be board chair once McClendons self dealings came to light. Dunham became chairman of the search committee charged with finding Chesapeakes new CEO. After a diligent search effort they chose Doug Lawler, a rising star at Anadarko Petroleum. The same day Dunham announced the hiring of Lawler, he made an open market purchase of $9,000,000 of Chesapeake stock. Open market purchases by insiders of this magnitude are not common, and my eyes light up when I see a transaction this impressive. Archie Dunham is a Marine Corp. veteran who spent his career working side by side with legendary oilman Jim Mulva at Conoco. With Archie now serving as Chairman of Chesapeake and Lawler getting his chance as CEO, I believe the result will be powerful. Former CEO McClendon amassed huge tracts of oil leases during his tenure, and the company had excess land reserves. Lawler immediately began selling these excess reserves and generated $5 billion in proceeds this past year, and reduced company debt by $3 billion. Traditionally Chesapeake was mostly a natural gas producer. With the natural gas market depressed due to abundant supplies, the company has been aggressively moving towards oil, and is currently 601 S. Figueroa Street, Suite 1975 Los Angeles, California 90017 213.943.1740 www.oldwestim.com

producing much more oil than gas. Also, McClendon built a bloated organization with excess layers of employees at every level. Lawler has laid off hundreds of employees not critical to the organization, not to mention many other unnecessary expenses. We think Chesapeake has a very bright future. SEARS HOLDINGS CORPORATION The team at Old West continues to monitor the situation at Sears very closely. Our thesis has always been that Sears will not survive as a big box retailer. We believe the sum of the parts asset value far exceeds todays stock price. CEO Eddie Lampert, who owns nearly 50% of the shares, continues to close the worst performing stores, but overall same store sales are falling faster than he expected, resulting in significant negative cash flow. Besides Lampert owing 50% of the shares, Bruce Berkowitz of the Fairholme Fund, one of the great investors in the world owns 20% of the shares. Noted investor Murray Stahl of Horizon owns 3 million shares, and Thomas Tisch of the Tisch family (Loews Corporation) owns 4 million shares and has a board seat. I am very concerned about this investment and I am following the situation very closely. I believe the sum of the parts valuation is easily in excess of $100 per share (todays price is $36), but unless Lampert can stop the excessive bleeding, the asset value may not be fully realized. * * *

There are several indicators currently signaling the stock market is due for a pullback. Bullish sentiment of investors recently outnumbered bearish sentiment four to one. Retail investors have been pouring money into mutual funds, with $450 billion going in the past year, which is more than the previous four years combined. Why does this optimism among investors worry me? I am a contrarian investor by nature, and I have learned that the greatest opportunities arise when things are bleakest. The more the investing public likes the market the more worried I become. However, the market is basically flat for the past fourteen years, so it very well could keep going. But nervous I am! In the year 2000, the market multiple was 35 times earnings, almost double todays market multiple. The S&P 500 is not that much higher today than the peak in 2000, yet corporate earnings are three times higher today. But this five year bull market run is showing signs of slowing, and most likely due for a fairly sharp correction. I take great comfort in knowing that the companies we are invested in are reasonably priced, with owner/operators who are invested right alongside us. The year 2000 market fall was preceded by massive insider selling at nearly all the technology companies. Our promise to you is we will vigilantly watch insider activity to be sure there is no significant selling at our companies.

601 S. Figueroa Street, Suite 1975 Los Angeles, California 90017 213.943.1740 www.oldwestim.com

We have recently moved offices within the same building, and we hope youll stop by to see us and our new space the next time youre in Downtown Los Angeles. Thank you for your continued support, and we at Old West wish you and your family a happy and healthy 2014. Sincerely,

Joseph M. Boskovich Sr. Chairman and Chief Investment Officer

601 S. Figueroa Street, Suite 1975 Los Angeles, California 90017 213.943.1740 www.oldwestim.com

Disclosures This commentary expresses the views of the author as of the date indicated and such views are subject to change without notice. The information contained is not a complete analysis of every aspect of any market, country, industry, security or portfolio. All market condition references are as of the date indicated unless otherwise indicated. Old West has no duty or obligation to update the information contained herein. Further, Old West makes no representation, and it should not be assumed, that past investment performance is an indication of future results. Moreover, wherever there is the potential for profit there is also the possibility of significant loss. This commentary is being made available for educational purposes only and should not be used for any other purpose. In addition, the information contained herein does not constitute and should not be construed as an offering of advisory services or an offer to sell or solicitation to buy any securities or related financial instruments in any jurisdiction. References to particular securities are only for the limited purpose of illustrating general market or economic conditions and/or to express the firms investment philosophy and process, and are not recommendations to buy or sell a security, or an indication of the authors holdings. Such securities may or may not be in one or more managed accounts from time to time. Certain information contained herein concerning economic trends and performance is based on or derived from Old West and/or information provided by independent third-party sources where referenced. Old West Investment Management, LLC (Old West) believes that the sources from which such information has been obtained are reliable; however, it cannot guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based. This commentary, including the information contained herein, may not be copied, reproduced, republished, or posted in whole or in part, in any form without the prior written consent of Old West. Old West Investment Management, LLC is an independent investment management firm established in 2008. Old West Investment Management, LLC manages a variety of equity, fixed income, and alternative assets for individual and institutional clients. Additional information is available upon request and on our website at www.oldwestim.com. Additional Performance Disclosures: Old West Investment Management, LLC. claims compliance with the Global Investment Performance Standards (GIPS). The firm maintains a complete list and description of composites, which is available upon request. Net of Fees Performance as of December 31, 2013. Old West Large Cap Russell 1000 Total Return Old West Small/Mid Cap Russell 2500 Total Return Old West Focused S&P 500 Total Return Old West All Cap Opportunity 60/40 Blended Index 1-Year 30.07% 33.11% 23.94% 36.80% 29.95% 32.39% 25.31% 17.55% 3-Year Annualized 13.61% 16.30% 11.79% 16.28% 13.79% 16.18% 16.46% 11.06% Annualized Inception 16.39% 16.51% 18.25% 19.55% 18.55% 17.36% 19.02% 12.95%

The Old West Large Cap Portfolio/Composite (the "LC Composite") comprises all portfolios with an asset allocation of large capitalization equities. The LC Composite was previously known as the Old West Large Cap Growth Composite prior to 09/30/2010. The LC Composite was created 11/1/2008 and is benchmarked to the Russell 1000 and S&P 500 benchmarks. The Large Cap portfolio primarily invests in large-capitalization US equity securities and is subject to market risk.

601 S. Figueroa Street, Suite 1975 Los Angeles, California 90017 213.943.1740 www.oldwestim.com

The Old West Small/Mid Cap Portfolio/Composite (the "SC Composite") comprises all portfolios with an asset allocation of small and mid capitalization equities. The SC Composite was previously known as the Old West Small/Mid Cap Growth Composite prior to 09/30/2010. The SC Composite was created 11/1/2008 and is benchmarked to the Russell 2500 and S&P 500 benchmarks. The Small/Mid Cap Portfolio primarily invests in small and mid-capitalization US equity securities and is subject to market risk. The Old West Focused Portfolio/Composite (the "FOC Composite") comprises all portfolios with an asset allocation of all capitalization concentrated equities. The FOC Composite was created 2/1/2010 and is benchmarked to the S&P 500 benchmark. The Focused portfolio primarily invests in all-capitalization US equity securities and is subject to market risk. The Old West All Cap Opportunity Portfolio/Composite (the "ALL Composite") comprises all portfolios with an asset allocation of equities and income producing securities. The ALL Composite was created 12/1/2008 and is benchmarked to the 60% S&P 500 and 40% Barclays US Aggregate Bond Index Blended Index and S&P 500 benchmarks. Prior to May 31, 2013 the Composite was called the Old West Balanced Composite. The All Cap Opportunity portfolio primarily invests in all-capitalization US equity securities and is subject to market risk. The Russell 1000 Index is an unmanaged market capitalization weighted index of the 1000 largest US companies. The Russell 2500 Index is an unmanaged market capitalization weighted index of the 2500 largest US companies. Russell Investments is the owner of the trademarks, service marks and copyrights related to its respective indexes. Copyright Russell Investments. The S&P 500 Index is managed by the S&P Index Committee and represents the large cap segment of the US equities market, covering approximately 75% of the US equities market. Standard and Poors is the owner of the trademarks, service marks and copyrights related to its respective indexes. Copyright Standard and Poors Financial Services. The Portfolios may invest in foreign securities and will be subject to the risks of currency fluctuations and sudden economic or political developments. All market valuations and performance information are computed and reported in US dollars and include reinvestment of dividends and other earnings. Gross-of-fees performance returns are presented before management and custodial fees but after all trading expenses. Net-of-fees performance returns are presented after management and custodial fees and after all trading expenses. Unless specifically indicated, all performance is stated Net-of-fees. The standard fixed management fee for accounts with assets under management of up to USD 10 million is 1.00% per annum for Old West Large Cap, Old West Small/Mid Cap, Old West All Cap Opportunity and 2.00% for Old West Focused. Further Fee information can be obtained from Old Wests Form ADV, Part II, Schedule F and by request. A complete listing and description of all composites is available upon request. Investing in equities is speculative and involves substantial risk. None of the stock information, data and company information presented constitutes a recommendation by Old West Investment Management, LLC or a solicitation of any offer to sell any securities and should not be considered investment advice of any kind. Portfolio characteristics represent data from the respective Composite indicated as of the report date and are compiled by Old West. Individual accounts may vary due to restrictions, substitutions and other factors. Sector weightings are classified using the Global Industry Classification Standards (GICS) if applicable. The securities identified and described do not represent all of the securities purchased, sold, or recommended for client accounts. These holdings may change at any time without notice. The reader should not assume that investments in the securities listed were or will be profitable. All information contained is stated as of the report date unless otherwise indicated. Past performance is no guarantee of future results. Individual client accounts will vary.

601 S. Figueroa Street, Suite 1975 Los Angeles, California 90017 213.943.1740 www.oldwestim.com