25128

1 UNITED STATES OF AMERICA
BEFORE THE
2 OFFICE OF THRIFT SUPERVISION
DEPARTMENT OF THE TREASURY
3
In the Matter of: )
4 )
UNITED SAVINGS ASSOCIATION OF )
5 TEXAS, Houston, Texas, and )
)
6 UNITED FINANCIAL GROUP, INC., )
Houston, Texas, a Savings )
7 and Loan Holding Company )
) OTS Order
8 MAXXAM, INC., Houston, Texas, ) No. AP 95-40
a Diversified Savings and ) Date:
9 Loan Holding Company ) Dec. 26, 1995
)
10 FEDERATED DEVELOPMENT CO., )
a New York Business Trust, )
11 )
CHARLES E. HURWITZ, )
12 Institution-Affiliated Party )
and Present and Former Director )
13 of United Savings Association )
of Texas, United Financial Group,)
14 and/or MAXXAM, Inc.; and )
)
15 BARRY A. MUNITZ, JENARD M. GROSS,)
ARTHUR S. BERNER, RONALD HUEBSCH,)
16 and MICHAEL CROW, Present and )
Former Directors and/or Officers )
17 of United Savings Association of )
Texas, United Financial Group, )
18 and/or MAXXAM, Inc., )
)
19 Respondents. )

20

21 TRIAL PROCEEDINGS FOR OCTOBER 7, 1998

22










25129

1 A-P-P-E-A-R-A-N-C-E-S

2 ON BEHALF OF THE AGENCY:

3 KENNETH J. GUIDO, Esquire
Special Enforcement Counsel
4 PAUL LEIMAN, Esquire
SCOTT SCHWARTZ, Esquire
5 BRUCE RINALDI, Esquire
RICHARD STEARNS, Esquire
6 and BRYAN VEIS, Esquire
of: Office of Thrift Supervision
7 Department of the Treasury
1700 G Street, N.W.
8 Washington, D.C. 20552
(202) 906-7395
9
ON BEHALF OF RESPONDENT MAXXAM, INC.:
10
FRANK J. EISENHART, Esquire
11 of: Dechert, Price & Rhoads
1500 K Street, N.W.
12 Washington, D.C. 20005-1208
(202) 626-3306
13
DALE A. HEAD (in-house)
14 Managing Counsel
MAXXAM, Inc.
15 5847 San Felipe, Suite 2600
Houston, Texas 77057
16 (713) 267-3668

17 ON BEHALF OF RESPONDENT FEDERATED DEVELOPMENT CO. AND
CHARLES HURWITZ:
18
RICHARD P. KEETON, Esquire
19 KATHLEEN KOPP, Esquire
of: Mayor, Day, Caldwell & Keeton
20 1900 NationsBank Center, 700 Louisiana
Houston, Texas 77002
21 (713) 225-7013

22










25130

1 ON BEHALF OF RESPONDENT FEDERATED DEVELOPMENT CO.,
CHARLES HURWITZ, AND MAXXAM, INC.:
2
JACKS C. NICKENS, Esquire
3 of: Clements, O'Neill, Pierce & Nickens
1000 Louisiana Street, Suite 1800
4 Houston, Texas 77002
(713) 654-7608
5
ON BEHALF OF JENARD M. GROSS:
6
PAUL BLANKENSTEIN, Esquire
7 MARK A. PERRY, Esquire
of: Gibson, Dunn & Crutcher
8 1050 Connecticut Avenue, N.W.
Washington, D.C. 20036-5303
9 (202) 955-8500

10 ON BEHALF OF BERNER, CROW, MUNITZ AND HUEBSCH:

11 JOHN K. VILLA, Esquire
MARY CLARK, Esquire
12 PAUL DUEFFERT, Esquire
of: Williams & Connolly
13 725 Twelfth Street, N.W.
Washington, D.C. 20005
14 (202) 434-5000

15 OTS COURT:

16 HONORABLE ARTHUR L. SHIPE
Administrative Law Judge
17 Office of Financial Institutions Adjudication
1700 G Street, N.W., 6th Floor
18 Washington, D.C. 20552
Jerry Langdon, Judge Shipe's Clerk
19
REPORTED BY:
20
Ms. Marcy Clark, CSR
21 Ms. Shauna Foreman, CSR

22










25131

1 INDEX OF PROCEEDINGS

2
Page
3 BARRY MUNITZ

4 Continued Examination by Mr. Rinaldi....25132

5 Examination by Mr. Guido................25424

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22










25132

1 P-R-O-C-E-E-D-I-N-G-S

2 (9:00 a.m.)

3 THE COURT: Be seated, please. The

4 hearing will come to order.

5 Mr. Rinaldi, you may continue with your

6 examination of the witness.

7 MR. RINALDI: Thank you, Your Honor.

8

9 CONTINUED EXAMINATION

10

11 Q. (BY MR. RINALDI) Dr. Munitz,

12 yesterday we talked about briefly how you first

13 came to be retained at UFG, and there was a

14 discussion back and forth about what Mr. Hurwitz

15 may have told you at the time that he hired you.

16 Do you recall that?

17 A. I do.

18 Q. And there was some question as to

19 whether he had indicated to you that he thought he

20 could handle the investment side or whether you

21 had just sort of inferred that from the

22 conversation.










25133

1 Do you recall that?

2 A. I remember the topic, yeah.

3 Q. Okay. Would you take a look at your

4 deposition and see if we can't sharpen up your

5 recollection on this one? This is the deposition

6 that's the first one in the binder, and perhaps we

7 could hand one up to the Court. This would be the

8 deposition that was taken in Washington on

9 June 8th, 1995. And in particular, I'd like to

10 turn your attention to Page 29 of the deposition.

11 And if we begin at Line 15, I believe this is you

12 testifying.

13 You state on Line 15 of Page 29, "One

14 of the people with whom I would have had this

15 argument for probably a couple of years was

16 Charles Hurwitz. And in the early Eighties, he

17 basically came to me one weekend and said, 'If you

18 really believe this and you think you're so smart,

19 why don't you try to do it for a while? I have

20 just gotten involved in two different business

21 ventures that are making my life more complicated

22 than I thought they would. I can handle the










25134

1 business side and the deal-making side in the

2 financial transactions; but I'm going to need

3 somebody -- and it might be you -- to help me on

4 the people process political side of the house.'"

5 Do you see that?

6 A. Yes.

7 Q. Does that refresh your recollection

8 that Mr. Hurwitz was the one that told you that he

9 could handle the business side and the deal-making

10 side and the financial transactions?

11 A. Yes. I mean, I see what it says, yes.

12 Q. And is that consistent now with your

13 recollection that he told you that?

14 A. Well, it's basically consistent with

15 the assumption that I made. I can't say, again,

16 specifically precisely what was said by whom; but

17 it's consistent with conceptually what I was

18 trying to say yesterday, I believe so, yes.

19 Q. I see. But your testimony is accurate

20 in the deposition, is it not, when you stated that

21 Mr. Hurwitz had said that to you?

22 A. Yes.










25135

1 Q. Okay. And after Mr. Hurwitz told you

2 that, after he told you that he could handle the

3 business side and deal-making side in the

4 financial transactions, in fact, in your

5 experience at MCO, did Mr. Hurwitz handle the deal

6 side in the business transactions?

7 A. At MCO in his relationship to me, yes,

8 absolutely.

9 Q. And was the same true at Federated?

10 A. Yes.

11 Q. And was the same true at

12 United Financial Group, sir?

13 A. No, not necessarily.

14 Q. When you say "not necessarily," what do

15 you mean by that?

16 A. Well, several things. First of all,

17 unlike at Federated and relatively so at MCO,

18 there were a bunch of other people who were also

19 very skilled on the financial transaction side at

20 United. And second of all, Mr. Hurwitz was the

21 chief executive officer of both Federated and MCO

22 and he was not the chief executive officer of










25136

1 either United Savings or United Financial Group.

2 Q. Well, let me ask you this then. Was he

3 involved in the business side and deal-making side

4 in the financial transactions at UFG?

5 A. He was from time to time. He was the

6 chairman of the board there. And in this quote, I

7 believe I was referring more to the question, as I

8 mentioned yesterday, of MCO and Federated and, for

9 a while, Simplicity Patterns.

10 Q. Yes. But he does talk about a couple

11 of companies, does he not?

12 A. This is not him talking. This is me

13 talking.

14 Q. But you're paraphrasing what you

15 recalled of your conversation with him, aren't

16 you?

17 A. That's precisely what I'm doing. I'm

18 paraphrasing.

19 Q. Right. I understand that. But you

20 didn't mean to tell me at this deposition that he

21 didn't say those things, did you?

22 A. No, not at all.










25137

1 Q. And he comes to you and he says, "I've

2 just gotten involved in two different business

3 ventures." And one of those business ventures was

4 the one that you talked about, wasn't it, that was

5 UFG that he acquired through a leveraged buyout --

6 I'm sorry -- that he acquired through an

7 arbitrage?

8 A. Well, let me go backwards. If you sort

9 of stop halfway through, one of the two activities

10 about which he was talking was the savings and

11 loan. The other was Simplicity Patterns.

12 Q. Okay. So, we can agree that when he

13 talks about -- when you make reference to, on

14 Page 19, to two different business ventures, one

15 of them was UFG/USAT? We're talking about

16 Line 19 --

17 A. I'm sorry. Line 19.

18 Q. 19 and 20 on Page 29. Do you see that?

19 A. Yes.

20 Q. Okay. And then he goes on and he says,

21 "I can handle the business side and the

22 deal-making side in the financial transactions."










25138

1 So, in the very next line, first he

2 talks about UFG and USAT and then he talks about

3 handling the business side and the deal making.

4 Do you see that?

5 A. Well, yes. You're quoting me

6 paraphrasing him. So, I just want to be sure

7 we're clear as to who's speaking here.

8 Q. I understand that. But does it not

9 indicate that with respect to the two different

10 business ventures that he contemplated you being

11 involved in, that he thought that he could handle

12 the business side and deal-making side in the

13 financial transactions?

14 A. What I took him to be saying was "To

15 the extent to which we will be involved -- MCO,

16 Federated, whatever -- I can be comfortable on the

17 financial and the deal-making side. I need some

18 help on the people side."

19 Q. Was Mr. Hurwitz a hands-on guy when it

20 came to managing the affairs of MCO and Federated?

21 A. In my definition of hands-on guy, no.

22 Q. Was he involved in all major policy










25139

1 making and strategic decisions at MCO and

2 Federated?

3 A. At Federated, probably yes. Not all.

4 I can think of one major example where he was not.

5 At MCO, less so.

6 Q. Could you turn to Page 62 of your

7 deposition at Page 22?

8 A. I'm sorry. Line 22?

9 Q. Line 22, Page 62 of the same

10 deposition. And this is the one that was taken on

11 June 8th, 1995. The question starts on Line 20.

12 It says, "How would you describe his involvement

13 in the operation of Federated and MCO?"

14 And your answer is, "He was the chief

15 executive officer of both those entities and at

16 Federated with less than a handful of employees.

17 But in both instances as chief executive officer

18 ultimately responsible in the middle of the

19 shaping of all major policy and certainly in the

20 middle of deciding all major choices."

21 Question, "So, he was very hands-on in

22 terms of decisions made at Federated and MCO?"










25140

1 "I'm going to say again -- I may do

2 this more -- you missed the introduction of how I

3 spent most of my professional life; so, I'm going

4 to -- very hands-on in terms of major strategic

5 decisions."

6 Do you see that?

7 A. Yes, sir.

8 Q. Does that accurately describe

9 Mr. Hurwitz' involvement with respect to Federated

10 and MCO?

11 A. Well, can you go down two more lines?

12 I believe --

13 Q. Certainly. It goes on and says, "Now,

14 in the MCO case, for example, Bill Leone is

15 president and operating officer and LA, not very

16 hands-on in terms of the implementation of those

17 decisions or the day-to-day operation of the

18 company but not major strategic but" -- I take it

19 that's no major strategic decisions --

20 A. I think it should be "not many."

21 Q. Pardon?

22 A. I think it's not -- that it's not --










25141

1 instead of no but not -- they dropped the word

2 "many."

3 Q. I see. "Not many major strategic

4 decisions would have been made at either of those

5 entities without his being in the middle of them";

6 is that correct?

7 A. Yes.

8 Q. And that's an accurate representation

9 of his involvement MCO and Federated?

10 A. I believe so.

11 Q. And with respect to MCO and Federated's

12 involvement in the acquisition of UFG, he would

13 have been in the middle of that, correct?

14 A. Yes, sir.

15 Q. Now, yesterday when we broke off, we

16 were talking about the period of time prior to --

17 after the application to become a holding company

18 had been filed which I believe was on June 29th,

19 1983, and the actual approval of that application.

20 And I believe you said that after the

21 original application had been filed, almost

22 immediately there were some negotiations over a










25142

1 net worth maintenance condition.

2 Do you recall that?

3 A. Yes, sir.

4 Q. And we looked at a letter that you had

5 sent to Ms. Jearlene Miller yesterday where the

6 question of the net worth maintenance condition

7 that might be imposed on MCO was discussed.

8 Do you recall that?

9 A. Yeah. Do you want me back there?

10 Q. No. I just want to sort of get you on

11 the same place where I am.

12 A. Yeah.

13 Q. After you had these preliminary

14 discussions regarding a net worth maintenance

15 commitment but prior to the actual approval by the

16 board, did the board -- I'm sorry. Prior to the

17 actual approval by the Federal Home Loan Bank

18 Board, do you recall that there came a time when

19 the application to become a holding company was

20 approved by the Bank Board?

21 A. I'm not sure what you mean by "prior to

22 the approval." I do recall there was a time when










25143

1 the Bank Board approved the application.

2 Q. Okay. And there were some negotiations

3 regarding the commitment prior to that, and then

4 were there negotiations also after the commitment,

5 the holding company application was approved?

6 A. Yes, sir.

7 Q. Okay. Now, let's take a look at

8 Exhibit T1059.

9 A. Back in the other book?

10 Q. Yes, please. But keep that one close

11 by because we'll be going back to it periodically.

12 A. Okay.

13 Q. And if you'll look at T1059 at Tab 15.

14 Do you recognize this document?

15 A. Yes, sir.

16 Q. Okay. And a copy of this was sent to

17 you by Mr. Bressler?

18 A. Yes.

19 Q. Okay. And who was Mr. Bressler again?

20 A. Howard Bressler was the general counsel

21 of MCO Holdings.

22 Q. Okay. And attached to it is the










25144

1 Federal Home Loan Bank Board order, I guess,

2 Resolution 84-712 that pertains to the holding

3 company application?

4 A. Yes, sir.

5 Q. Is that correct?

6 A. Yeah.

7 Q. And if you look at Paragraph 4, do you

8 recall that ultimately the Bank Board granted the

9 application and that pursuant to the application,

10 it did impose a form of net worth obligation as a

11 condition of MCO becoming a holding company?

12 A. Yes.

13 Q. Okay. And Paragraph 4 is the condition

14 that they imposed; is that correct?

15 A. That's what it looks to be, yes.

16 Q. Okay. Let's move on, then, to the next

17 document in the book. Well, before we leave that,

18 was there a time constraint that was placed upon

19 MCO for purposes of completing the acquisition of

20 the additional shares? Because I notice if you

21 look on Page OMX22877 -- and this is the second

22 page of the document and the first page of the










25145

1 resolution -- Paragraph 1 says, "The proposed

2 acquisition shall be consummated within 120 days

3 after the date of the resolution."

4 Do you see that?

5 A. Yes, I do.

6 Q. Okay. So, there was a time limit, was

7 there not?

8 A. Seems so, yes.

9 Q. Okay. Do you recall that that time

10 limit was then extended on a number of occasions?

11 A. Yes.

12 Q. Okay. What was the process by which

13 that time limit was extended, if you recall?

14 A. I recall basically someone -- usually

15 either I or one of the inside or outside legal

16 counsels -- would request of the Bank Board or

17 their counsel an extension, and the extension was

18 granted.

19 Q. And so -- and those extensions were

20 granted every four months or so?

21 A. Somewhere between every -- either the

22 cycle was 90 or 120 days, in my recollection.










25146

1 Q. So, there would be three or four times

2 a year you would have to extend the period in

3 which you could acquire the additional shares; is

4 that correct?

5 A. I think so.

6 Q. And do you recall how long the

7 negotiations went on before the matter was

8 terminated?

9 A. Well, if this resolution, December of

10 '84, and I believe the final decision was made not

11 to continue that exchange two years or a little

12 bit more later.

13 Q. Okay. Well, we'll fix that probably a

14 little more definitively as we get to some later

15 documents.

16 But it's fair to say that three or four

17 times a year, you would have to contact the

18 Federal Home Loan Bank of Dallas and request an

19 extension?

20 A. Well, again, I don't know how

21 frequently; and I don't know whether it was Dallas

22 or Washington. But it is fair to say that there










25147

1 were periodic extensions.

2 Q. Okay. Well, take a look at T1079. And

3 this is, I believe, one of the communications that

4 you had with the Federal Home Loan Bank of Dallas.

5 Now, let me just ask you: After the

6 holding company application was approved on the

7 condition that MCO agreed to a net worth

8 maintenance obligation, did negotiations commence

9 with the Federal Home Loan Bank Board regarding a

10 modification of that condition?

11 A. Conversations, negotiations. I don't

12 know technically what you would call them. But

13 yes, conversations began; and that was the topic.

14 Q. Okay. And I don't want to testify

15 here; so, I would prefer for you to characterize

16 them and not for me. And if they weren't

17 negotiations, that's fine. But whatever

18 characterization you want to put on them, how

19 would you characterize them?

20 A. Ongoing conversation, exploration.

21 Q. And what was the nature of these

22 ongoing conversations and explorations?










25148

1 A. I think it was basically -- you had

2 pointed out the earlier paragraph regarding the

3 net worth maintenance requirement. It was

4 basically characterized by exchange as to whether

5 there were other ways to interpret the net worth

6 maintenance obligation. I believe there had been

7 one or two instances fairly in that time period

8 where different interpretations had been made by

9 the Bank Board for other companies. And our

10 lawyers were exploring whether similar kinds of

11 adjustments and reshaping were possible.

12 Q. And were the negotiations with

13 Washington or with the Federal Home Loan Bank of

14 Dallas?

15 A. I think both from time to time.

16 Q. Okay. Do you recall that the Federal

17 Home Loan Bank of Dallas did not have the

18 authority to grant a waiver or an exception with

19 respect to the net worth condition and that the

20 negotiations had to be done through Washington?

21 A. No, I don't recall that now.

22 Q. Okay. Now, who was the lead person at










25149

1 MCO and Federated regarding the negotiation or the

2 discussions with the Federal Home Loan Bank of

3 Dallas and the Federal Home Loan Bank Board

4 regarding the modification of the net worth

5 maintenance obligation?

6 A. If you allow me the -- I would have

7 been basically the lead person, if that definition

8 is conversation, conveying of perspective, asking

9 a question. I would have been playing that role

10 counseled by and pretty much directed by lawyers

11 to MCO and Federated internally and externally.

12 Q. And do you recall in your deposition

13 you basically testified you were the key person

14 with respect to that issue at MCO and Federated?

15 A. Well, I don't recall that. But if I

16 did, that would have been consistent with what I

17 just said.

18 Q. And in that regard, you reported

19 directly to Mr. Hurwitz on the progress of these

20 negotiations or discussions, did you not?

21 A. Yes, sir.

22 Q. And Mr. Hurwitz was actively interested










25150

1 in the outcome of those discussions, was he not?

2 A. I think that's a good phrase, yes, sir.

3 Q. And just so I understand, you and

4 Mr. Hurwitz officed in the same suite, did you

5 not?

6 A. On the same -- depending -- we were in

7 different buildings during that time period. But

8 in all of those buildings, we would have been on

9 the same floor in the same general area.

10 Q. Well, did there come a time when you

11 and Mr. Hurwitz were in adjacent offices?

12 A. Yeah. Adjacent offices, yes. I was

13 just -- I don't know what the same suite is, but

14 our offices were next to each other. I just want

15 to be sure --

16 Q. I wasn't suggesting that you were in

17 the same office together. You are not a

18 government employee. But in any event --

19 A. Thankfully.

20 Q. So, at what point in time did you and

21 Mr. Hurwitz begin to office in adjacent offices?

22 A. The whole -- from the -- in the










25151

1 different buildings that we were in during the

2 period 1982 to 1991 really, from the time I

3 started to the till I left, we would have always

4 been in offices that were either next to each

5 other or across from each other or fairly close

6 down the hall.

7 Q. And were you in daily communication

8 with Mr. Hurwitz?

9 A. When we were both in Houston or when we

10 were both in California, yes.

11 Q. And so, you would keep him currently

12 apprised of what was going on with the net worth

13 maintenance obligation discussions?

14 A. Yes.

15 Q. Now, turn to -- well, let me just ask

16 you: Exhibit T1079 is a letter to Mr. Louis Roy.

17 Do you see that?

18 A. I do.

19 Q. And in the first paragraph, it says,

20 "After our last visit, I had promised to bring you

21 up to date regarding the extended approval time

22 for the H(e)1 application. There are two events










25152

1 which directly affect our timetable at the moment,

2 both of them which you probably have considered

3 knowledge -- have considerable knowledge about."

4 Were you advising Mr. Roy of the

5 progress of your discussions in Washington? Is

6 that what this refers to?

7 A. It looks like it's an update both about

8 conversations in Washington and conversations at

9 MCO and Federated.

10 Q. Okay. And it says in the next

11 paragraph, "After further conversation with Norm

12 Raiden and Eric Himmel in Washington, it's clear

13 that some change in the policy will be forthcoming

14 regarding the guarantee of net worth for a savings

15 and loan holding company."

16 Do you see that?

17 A. I do.

18 Q. So, you were advising Mr. Roy of what

19 your discussions had been in Washington.

20 Do you see that?

21 A. Yes.

22 Q. Okay. Does that refresh your










25153

1 recollection that, in fact, it was Washington that

2 had to make an exception to the net worth

3 maintenance condition?

4 A. I wasn't questioning it. It's just

5 that in writing -- I mean, I was writing to

6 Dallas; so, I'm just not sure who was the

7 authority and who was the advisor. I just assumed

8 I was talking to both.

9 Q. And Mr. Raiden was whom? Do you

10 recall?

11 A. I believe at that time he was the

12 general counsel of the home loan Bank Board.

13 Q. So, you were discussing the net worth

14 maintenance issue with the highest legal officer

15 of the Federal Home Loan Bank Board at this time;

16 is that correct?

17 A. Well, if by "you," you mean either I or

18 other people who were representing us -- it says

19 "after further conversation." It's not clear to

20 me whether that was my conversation or somebody's.

21 But yes, somebody was in conversation with the

22 highest legal officer of the Bank Board.










25154

1 Q. Well, you made a number of trips to

2 Washington, did you not --

3 A. Yes.

4 Q. -- to discuss this?

5 A. Yes.

6 Q. And you also visited face-to-face with

7 Mr. Lou Roy?

8 A. Yes.

9 Q. And was there also a Mr. Green that was

10 involved in these negotiations for the Federal

11 Home Loan Bank of Dallas?

12 A. The name sounds familiar, but I don't

13 know which meetings he was in.

14 Q. And approximately how many times had

15 you gone to Washington, that you recall, to

16 discuss the net worth condition?

17 A. I really don't remember how many.

18 Q. Do you recall that in your deposition,

19 you indicated that you had had face-to-face

20 conversations in Washington and Dallas on that

21 subject probably half a dozen times?

22 A. Well, I don't recall that. But if I










25155

1 said that, then that would have been right.

2 Q. But that's not inconsistent with your

3 recollection here today?

4 A. Correct.

5 Q. Okay. Now, who is the principal person

6 other than Mr. Raiden that you would have been

7 discussing the net worth maintenance obligation

8 with in Washington?

9 A. The only other name -- well, actually,

10 the only other two names that come to mind are --

11 and I don't know whether it would have been the

12 same time period or if I have them right -- are

13 Julie Williams and Mary Grigsby.

14 Q. Okay. And if you take a look at the

15 next document, which is T1109, it appears at

16 Tab 67. This is a letter that was sent by

17 Mr. Eckland to Julie Williams, and it appears that

18 a copy of the letter was then sent to you, as well

19 as to Mr. Arendes and Mr. Roy.

20 Do you see that?

21 A. Yes.

22 Q. And Mr. Roy was the Federal Home Loan










25156

1 Bank person who you had -- who was referenced on

2 the previous document.

3 Do you see that?

4 A. I do.

5 Q. Was Mr. Eckland the individual, the

6 outside attorney, that was principally involved in

7 the discussions of the net worth maintenance

8 condition modification?

9 A. He was one of them.

10 Q. Okay. Who was the other or who were

11 the others?

12 A. Well, there were others at different

13 points in time. And again, I don't remember who

14 they were. There were lawyers at Kramer, Levin:

15 Richard Marlin is one name, Ezra Levin. There

16 were other -- there was someone named Dan Goldberg

17 who at some point was involved in some of this

18 conversation. Leonard Volin, who was one of his

19 associates. There were -- we were keeping a fair

20 number of lawyers employed.

21 Q. Okay. And on December 3rd, 1985, when

22 this letter was sent to Ms. Williams by










25157

1 Mr. Eckland, you were actively discussing the

2 subject of modifying the net worth maintenance

3 condition with the Federal Home Loan Bank of

4 Washington, were you not?

5 A. Yes. Yes, sir.

6 Q. Okay. And then turn to the next

7 document in the book, which is another letter of

8 January 31st, 1986. This is T1113, and it's

9 Tab 68. And this represents -- it says in the

10 first sentence -- again, it's a letter to

11 Ms. Williams, and it's from Mr. Eckland. And

12 again, I believe that there are copies to yourself

13 and a host of other people. And this references

14 back to the letter dated December 3rd that we just

15 looked at.

16 Do you see that?

17 A. Yes.

18 Q. Is it fair to say that throughout the

19 month of December 1985 and into January 1986, you

20 and Mr. Eckland on behalf of MCO and Federated

21 were actively involved in discussions with the

22 Federal Home Loan Bank of Dallas -- of Washington










25158

1 or Bank Board regarding the net worth maintenance

2 condition?

3 A. Somewhere in that group -- and I think

4 it's fair to say -- I don't know what "throughout

5 the month" means, but it's fair to say that there

6 was regular conversation.

7 Q. Let's go on to the next document.

8 Do you recall that there came a point

9 in time when the issue arose of whether MCO could

10 put equity into USAT by purchasing subordinated

11 debt?

12 A. Yes.

13 Q. Okay. And what do you recall of that,

14 sir?

15 A. I remember general conversation about

16 strengthening the capital position of UFGI. One

17 of the strategies being discussed during a certain

18 point of time was the issuance of subordinated

19 debt, and some conversation linked to that

20 possibility as to whether one of the purchasers of

21 that debt could be or should be MCO.

22 Q. And do you recall that the proposal










25159

1 included that MCO would purchase $10 million worth

2 of the subordinated debt in lieu of having a net

3 worth maintenance commitment?

4 A. That detail, I don't remember.

5 Q. Do you recall whose idea it was to

6 first propose the issuance of subordinated notes

7 by USAT? Was --

8 A. No. And I don't even know whether they

9 would have been USAT or UFG subordinated notes.

10 But in either case, I don't remember who would

11 have raised it. I thought it would have been

12 UFGI.

13 Q. In fact, wasn't that a proposal that

14 was made by MCO so that MCO could purchase the

15 notes and then use that equity purchase or that

16 equity infusion in lieu of the net worth

17 maintenance obligation?

18 A. Boy, I just -- I just don't remember.

19 I don't know who would have raised it first.

20 Q. Why don't you take a look at

21 Exhibit T1118, which is Tab 1643. This purports

22 to be a memo that Mr. Berner wrote to you and










25160

1 Mr. Hurwitz and Mr. Gross and Mr. Gerry Williams.

2 Do you see that?

3 A. Yes.

4 Q. And it indicates that Mr. Berner, on

5 March 19th, had had a conversation with Neil

6 Twomey, Ginger Baugh, and Jim Halverson.

7 Now, who were those three people? Do

8 you recall?

9 A. Bob Pozen at that time was one of our

10 lawyers. I don't know who Jim Halverson is. Neil

11 Twomey, I believe I saw yesterday and worked for

12 the Bank Board in Dallas. And I think

13 Ginger Baugh worked with or for Neil Twomey.

14 Q. Okay. And if you'll read the memo

15 just -- it's not a very long one. The next

16 paragraph, it says, "We told them that we believed

17 MCO/Federated was willing to contribute up to

18 10 million to the equity of USAT but only upon the

19 condition that they could acquire in excess of

20 25 percent of the stock without a net worth

21 guarantee."

22 Do you see that?










25161

1 A. Yes, I do.

2 Q. Now, do you recall that that, in fact,

3 was the position that MCO had taken, that they

4 would purchase up to $10 million of the equity of

5 USAT but only on the condition that they could

6 acquire in excess of 25 percent of the stock of

7 UFG without a net worth guarantee?

8 A. I recall it only by reading it here.

9 As you can see, I wasn't even clear if that was

10 USAT or UFGI equity. So, I recall it by reading

11 it; but I don't independently recall it.

12 Q. But you were the key person at MCO that

13 would have known the details of these discussions

14 regarding the net worth commitment, correct?

15 A. I would have been the key person on the

16 net worth commitment side. I wouldn't necessarily

17 have been the key person on the issuance of the

18 equity to USAT or UFGI. I certainly would have

19 been involved in both, and I was addressed in the

20 memo.

21 Q. Right. And the purpose of issuing the

22 subordinated debt is to -- is to find a formula or










25162

1 a mechanism for getting the Federal Home Loan Bank

2 of Dallas to waive the net worth condition,

3 correct?

4 A. I'm not sure that that was correct.

5 Not remembering the details, it's not clear to me

6 that the purpose of issuing the debt was to allow

7 them to meet the net worth condition. It might

8 have been very much the other way around, that if

9 they were going to issue the debt, was one

10 possible way of responding to the net worth

11 maintenance guarantee participating in that debt

12 issue?

13 Q. Okay. And if the ultimate sub debt

14 application that was provided to the Bank Board

15 states that the subordinated debt would not be

16 issued unless there was a waiver of the net worth

17 condition, would you defer then to what's

18 contained in the subordinated debt application?

19 MR. VILLA: Could we just see the

20 document? We're making a lot of representations

21 to a witness about events from 13 years ago.

22 MR. RINALDI: Well, I think the










25163

1 document will speak for itself. It's in evidence,

2 and I think because of the limited time frame we

3 have with the witness, it's probably beneficial

4 for us to move along.

5 MR. VILLA: Thank you.

6 Q. (BY MR. RINALDI) Now, directing your

7 attention to the third paragraph, it says --

8 Mr. Berner writes to you that "We were also told

9 that Drexel had informed us that in view of the

10 poor reception Texas S&Ls were receiving in the

11 marketplace, they did not believe they could do a

12 capital note public offering unless MCO had a more

13 direct control relationship."

14 Do you see that?

15 A. In the fourth paragraph, yeah.

16 Q. What did you -- do you recall that

17 there were discussions regarding the issuance of

18 subordinated debt with Drexel?

19 A. No.

20 Q. You weren't involved in that?

21 A. I didn't say that. I just said I

22 didn't recall -- as I said earlier, I recall










25164

1 conversations about the subordinated debt. I

2 don't recall the specific reference to Drexel.

3 Q. Do you recall any discussions that

4 related to the question of it being desirable that

5 MCO and Federated have a more direct control

6 relationship of UFG and USAT?

7 A. Well, you lost me.

8 Q. If you look at what it says there, it

9 says, "Drexel had informed us that to do a capital

10 note public offering, MCO -- it would be helpful

11 to have MCO and Federated to have a more direct

12 control relationship."

13 Do you see that thought expressed in

14 that paragraph?

15 A. I see the sentence in the memo. I just

16 don't know what it means.

17 Q. But you have no recollection of that;

18 is that correct, sir?

19 A. I have no recollection of that.

20 Q. And you were the key person involved in

21 the negotiations with respect to the net worth

22 maintenance condition, correct?










25165

1 A. 12 to 14 years and two complicated jobs

2 ago, yes.

3 Q. Okay. What I'm trying to ascertain,

4 sir, is: Will you be the person most

5 knowledgeable on this subject? And if, in fact,

6 you were the person that was involved in that

7 activity and you have no recollection, then that's

8 fine. I'm not trying to in any way be critical of

9 the fact that you can't recall each item of fact

10 that occurred then.

11 Now, did the negotiations continue on

12 after 1986 or this period in 1986?

13 A. I think -- I'm not sure. They ended at

14 a certain point. I'm not sure when they ended.

15 But up until that point, they continued.

16 Q. Okay. And do you recall that

17 periodically, the board of MCO received updates on

18 the status of the negotiations?

19 A. I don't recall it. I'm assuming that

20 there were some regular updates.

21 Q. Okay. Take a look at tab -- wait a

22 second. It should be Tab 1120 in your book. This










25166

1 has not been admitted as a document yet; so, I'll

2 hand two copies up to the Court.

3 MR. RINALDI: Do you have copies, John?

4 MR. VILLA: I do.

5 Q. (BY MR. RINALDI) These are the

6 minutes of MCO Holdings' board of directors of

7 March 27th, 1986. And this comes barely a week

8 after the subordinated debt discussion that

9 Mr. Hurwitz -- I'm sorry -- Mr. Berner has with

10 people from the Federal Home Loan Bank of Dallas.

11 Do you see that?

12 A. Yes.

13 Q. Okay. And turning your attention to

14 what's Bates marked as OMX23224, do you recognize

15 these as minutes of the MCO board?

16 A. It certainly looks like it.

17 Q. Okay. And if you turn to the last

18 page, do you recognize those signatures? Is that

19 yours?

20 A. Yes.

21 Q. And Mr. Hurwitz'?

22 A. Yes, it is.










25167

1 MR. RINALDI: Your Honor, I'd move the

2 admission of T1120.

3 MR. VILLA: No objection, Your Honor.

4 THE COURT: Received.

5 Q. (BY MR. RINALDI) Now, in the first

6 sentence there, it states, "The chairman reported

7 that a valuable management team had been formed at

8 UFG."

9 How was the management team at UFG

10 formed?

11 A. Well, let's see. March 27, '86. So,

12 by then, Mr. Williams was there. Mr. Gross was

13 there. Mr. Berner, I believe, was there.

14 So, basically, it would have been a

15 series of appointments combined with a series of

16 people who were already there forming a leadership

17 team.

18 Q. And you had been hired or retained by

19 Mr. Hurwitz for the express purpose of dealing

20 with people-type issues; isn't that correct?

21 A. In general, yes.

22 Q. And in general, that included hiring of










25168

1 the appropriate people that you needed in order to

2 make the businesses run, correct?

3 A. Yes.

4 Q. So, were you involved, then, in the

5 process by which all of these new people you just

6 identified were brought into UFG?

7 A. I don't know -- well, for the ones I

8 mentioned as all, yes.

9 Q. And that was Mr. Williams, Mr. Gross --

10 A. Mr. Berner.

11 Q. How about Mr. Crow?

12 A. Less so because by then, Mr. Williams

13 was there.

14 Q. And so, you were directly involved in

15 at least the first three and partially in

16 Mr. Crow's hiring by UFG and USAT?

17 A. Right.

18 Q. And what generally was Mr. Hurwitz'

19 involvement with respect to the hiring of those

20 individuals?

21 A. It would have depended on which one

22 because it would have greatly depended on what










25169

1 their area of expertise was and what we were

2 hiring them for. I think by this time,

3 Mr. Hurwitz was chair of the holding company

4 board. So, in general, he would have been

5 interested in the top leadership role. I'm not

6 sure he had much involvement in Mr. Berner's

7 hiring, for example. He would have been more

8 knowledgeable about Mr. Gross, relatively

9 knowledgeable about Mr. Williams, and probably

10 relatively uninvolved about Mr. Crow.

11 Q. If Mr. Hurwitz had not thought very

12 highly of a potential candidate -- say, perhaps,

13 Mr. Williams or Mr. Gross -- would they have been

14 hired?

15 A. Oh, in some areas, absolutely.

16 Depending on the functional area, if it was an

17 area where he didn't have much knowledge and for

18 some reason he didn't think much of them, if a lot

19 of other people knowledgeable in that area did,

20 there was no question that we would have hired

21 them, at least not to me.

22 Q. If Mr. Hurwitz had opposed the hiring










25170

1 of a particular individual because he felt that

2 they weren't qualified in a particular area that

3 he was knowledgeable about, is it likely that they

4 would have been hired?

5 A. Where he was knowledgeable, it's less

6 likely.

7 Q. Now, it goes on and says in this same

8 paragraph that "The chairman indicated that he

9 believed that the corporation's application to

10 become a holding -- application to the Federal

11 Home Loan Bank Board for permission to extend the

12 date within which to consummate the acquisition of

13 additional shares of UFG up to 50 percent would be

14 granted for an additional 90 days until June 30th,

15 1986."

16 Do you see that?

17 A. I do.

18 Q. Now, each time that the extensions were

19 granted, did you discuss that with Mr. Hurwitz,

20 whether it was desirable to go ahead with an

21 extension?

22 A. Each time, I'm not sure. But in










25171

1 general, yes.

2 Q. Okay. And then it says, "The chairman

3 indicated that he was continuing to explore the

4 possibilities of obtaining concessions from the

5 Federal Home Loan Bank Board with respect to the

6 required guarantees of the net worth of the

7 financial institution arising out of the

8 corporation's then status as a holding company

9 under the applicable regulations."

10 Do you see that?

11 A. Yes, I do.

12 Q. And when he says that he was continuing

13 to explore, that exploration was taking place

14 through you and the attorneys?

15 A. And the attorneys, yes.

16 Q. Did Mr. Hurwitz directly participate in

17 any of those discussions, that you recall, with

18 the Bank Board?

19 A. I don't recall any.

20 Q. Now, turn to the next document, which

21 is T1140. And it's Tab 102. And I believe that

22 this will probably fix the date when the










25172

1 negotiation or the discussions finally ended.

2 Do you see that -- do you recognize

3 this document? It's sent to Mr. Twomey. You

4 received a copy, and it's from William Eckland.

5 A. Yes.

6 Q. And it indicates there that Mr. Eckland

7 is advising Mr. Twomey that Federated Development

8 Company/MCO, Inc. have decided not to request any

9 further extensions to the effective date of the

10 approval received in the Federal Home Loan Bank

11 Board Resolution No. 84712.

12 Is this then the effective end of the

13 period in which the discussions were held with the

14 Bank Board for modifying the net worth condition?

15 A. Well, it's the end of that chapter

16 because, as you'll see later on, it says, "We

17 anticipate submitting a new application in the

18 near future." So, it wasn't the end of the end.

19 It was the end of that part of the beginning.

20 Q. Do you recall whether any further

21 application was ever submitted by MCO and

22 Federated to renew its application to become a










25173

1 holding company?

2 A. If I have the technical definition

3 right, yes.

4 Q. You believe there was one?

5 A. I do.

6 Q. Okay. Now, let me ask you, sir: The

7 negotiations began sometime before the -- or the

8 discussions -- I don't want to mischaracterize

9 anything. The discussions with the Bank Board

10 began even prior to the approval of the resolution

11 by the Bank Board, correct?

12 A. Well, you mean the Jearlene Miller

13 letter?

14 Q. Yes, that's correct. But the Bank

15 Board approves the resolution in December of 1984?

16 A. Right.

17 Q. Do you recall that?

18 A. Uh-huh. (Witness nods head

19 affirmatively.)

20 Q. And those discussions then, did they

21 continue on from December of 1984 through 1987

22 regarding the net worth commitment?










25174

1 A. It sure looks like it, yeah.

2 Q. Okay. And periodically, every two,

3 three -- I mean, every three or four months, you

4 would have been in contact with the Bank Board?

5 A. Periodically, yes.

6 Q. And you made a number of trips back to

7 Washington, did you not, to discuss the net worth

8 commitment with Julie Williams and people on her

9 staff?

10 A. Yes, sir.

11 Q. And in addition to that, you had

12 ongoing conversations with people in the Federal

13 Home Loan Bank of Dallas, correct?

14 A. At least keeping them -- on this topic?

15 Q. Yes.

16 A. At least keeping them informed or vice

17 versa.

18 Q. Okay. Now, at or about the time the

19 application to become a holding company was filed,

20 which I will tell you -- we don't have to go back

21 and look at it -- was June 29th, 1983, MCO and

22 Federated immediately began plans to acquire










25175

1 additional shares of UFG, did they not?

2 A. Well, I don't know again what

3 "immediately began plans" -- certainly having

4 filed the application, they were going through

5 conversations that said "if it's approved and if

6 the conditions of the approval are satisfactory,

7 then we should know what we do from there."

8 Q. Okay. And, in fact, they were looking

9 at ways of acquiring shares or obtaining interests

10 in shares that they could acquire in the future in

11 the event that the application were approved, were

12 they not?

13 MR. KEETON: I object to the form.

14 He's used "acquire" in two different senses there

15 and, therefore, I object to the form of the

16 question.

17 Q. (BY MR. RINALDI) If you understand

18 the question, you can answer.

19 THE COURT: Restate the question,

20 please.

21 Q. (BY MR. RINALDI) Almost immediately

22 after filing the H(e)-1 application, MCO and










25176

1 Federated began to look at structures by which

2 they might acquire additional shares of

3 United Financial Group stock at some future time,

4 did they not?

5 A. Well, I don't know what "structures"

6 might mean. I think what I said earlier was that

7 because they assumed that the application would be

8 approved and they hoped that the conditions around

9 the approval were satisfactory, they were in

10 ongoing conversation about what would happen when

11 it was approved.

12 Q. And, in fact, they were looking at

13 structures by which they could obtain an interest

14 in shares even prior to the actual approval?

15 A. I don't know about -- again, I'm

16 only -- not certain about the definition of

17 "structures" and the timing.

18 Q. All right. Well, let's take a look at

19 Exhibit T1041, which is Tab 58. Now, this is a

20 memo that was sent to you by Roni Fischer with a

21 copy to Mr. Schwartz.

22 Now, Ms. Fischer was an analyst that










25177

1 worked for Mr. Schwartz, was she not?

2 A. Actually, I thought it was a he. So,

3 that will give you some sense of -- I don't know.

4 Q. I took her deposition, and she

5 definitely was not a he.

6 A. There are many things I'll question.

7 That I accept from you.

8 Q. Now, who was Paul Schwartz?

9 A. At that time, he would have been, I

10 think, one of the senior officers of MCO,

11 basically in the analytical and strategic planning

12 area.

13 Q. And he assisted Mr. Hurwitz, did he

14 not, in analyzing potential investments?

15 A. Yes.

16 Q. And he worked directly with Mr. Hurwitz

17 on projects?

18 A. Yes.

19 Q. And Ms. Fischer worked for

20 Mr. Schwartz, did she not?

21 A. Again, I don't remember her. So, I'm

22 assuming that's correct.










25178

1 Q. And the subject of this memo which is

2 dated the same day which the net worth -- I mean

3 the holding company application was filed -- is

4 "structure for future acquisition of UFG shares."

5 Do you see that?

6 A. Yes.

7 Q. Do you recall receiving this memo?

8 A. No, I don't. I mean, seeing it here,

9 it rings a bell. I don't -- I would not have

10 independently remembered receiving it.

11 Q. Well, do you recall that at or about

12 the same time the H(e)-1 application was filed

13 that MCO's staff began to consider its structure

14 for future acquisition of UFG shares?

15 A. Well, I didn't remember the timing.

16 But having been refreshed by this memo, yes.

17 Q. And after the H(e)-1 application had

18 been approved, do you recall that Mr. Schwartz

19 began to develop structures by which MCO could

20 acquire additional shares of UFG through the

21 issuance of an option arrangement?

22 A. I remember Mr. Schwartz looking at










25179

1 different alternatives, and I believe that one of

2 them involved ultimately -- well, one of them

3 ultimately involved an option arrangement with

4 Drexel Burnham. I don't know if there were

5 others.

6 Q. Okay. Now, take a look at what's been

7 marked as T1061. It's Tab 62. It's the next

8 document in your book.

9 A. Okay.

10 Q. And this is a letter from Mr. Schwartz

11 to E.F. Hutton. And --

12 A. Looks to be the other way around.

13 Q. I'm sorry. From E.F. Hutton to

14 Mr. Schwartz. Thank you. And it indicates that

15 there was a copy -- telecopy to Mr. Hurwitz from

16 Mr. Schwartz. However, I don't see that there was

17 a copy sent to you.

18 Now, on the next page, it indicates

19 that -- a reference to 585,000 shares of

20 United Financial Group common stock. And then if

21 you go down, it indicates that -- under "purchase

22 transaction," it says, "E.F. Hutton will purchase










25180

1 the shares at $8.25 per share (purchase price from

2 Drexel Burnham Lambert)."

3 A. I don't see that.

4 Q. It's under "proposed transaction."

5 It's on the second page of the document.

6 A. Okay. I've got it.

7 Q. And it first talks about 585,000

8 shares, and then it talks about E.F. Hutton

9 purchasing the shares from Drexel.

10 Do you see that?

11 A. I do.

12 Q. And then further down, it says

13 "Agreement terms: E.F. Hutton will sell a call to

14 MCO and MCO will grant a put to E.F. Hutton

15 covering the shares exercisable on an all-or-none

16 basis."

17 Do you see that?

18 A. I do.

19 Q. Do you recall that at or about the

20 beginning of 1985 there were discussions with E.F.

21 Hutton and Drexel whereby MCO was going to obtain

22 a call option backed up with a put?










25181

1 A. I don't -- as you pointed out, I'm not

2 copied here. I don't recall any conversation with

3 E.F. Hutton.

4 Q. Okay. And at this point in time, was

5 Mr. Schwartz still in California?

6 A. Yeah. You mean living in California?

7 Yes.

8 Q. And he worked in California?

9 A. Yes.

10 Q. But you did communicate with him

11 frequently, did you not?

12 A. Yes.

13 Q. But Mr. Schwartz, to the best of your

14 recollection, didn't advise you that these efforts

15 were underway in order to acquire shares through

16 an option?

17 A. I simply don't remember either

18 receiving this or any conversation about

19 E.F. Hutton.

20 Q. Okay. Now, it indicates there that

21 Drexel Burnham Lambert owned 585,000 shares of UFG

22 which was 7.2 percent of the outstanding shares.










25182

1 As a director of --

2 A. Wait. Show me where you are.

3 Q. I'm at the top of the second page. It

4 says "585,000 shares of UFG common stock,

5 7.2 percent of outstanding."

6 A. Yes. But where does it say that Drexel

7 Burnham owned it?

8 Q. It says -- if you go down in the next

9 paragraph, it says "E.F. Hutton will purchase the

10 shares," okay, "per share from Drexel Burnham

11 Lambert, Inc."

12 If E.F. Hutton was going to purchase

13 the shares from Drexel, doesn't that indicate that

14 Drexel owned them?

15 A. Again, I'm just -- I've never seen this

16 before. I've seen Paul from time to time play

17 with all sorts of hypothetical alternatives. So,

18 I just don't know whether this is describing an

19 actual situation or a theoretical scenario.

20 Q. But it did come to your attention as a

21 director of USAT and UFG, that is, that Drexel

22 owned a substantial position in UFG stock, did it










25183

1 not?

2 A. At some point, yes.

3 Q. Okay. And do you recall at what point

4 that would have been?

5 A. No.

6 Q. Now, as a director of UFG, you reviewed

7 UFG's proxy statements before they went out, did

8 you not?

9 A. Well, I don't know if I always reviewed

10 them before they went out; but I -- I certainly

11 looked at them as a director, yes.

12 Q. Well, why don't you take a look at the

13 transcript of your testimony at Page 99, Lines 5

14 through 16, and see if we can sharpen up the

15 question of when you would have learned that the

16 Drexel --

17 A. Tell me again the page.

18 Q. Page 99, Lines 5 through 16.

19 A. Okay.

20 Q. And the question I read -- I asked you

21 was, "Based on that, can you try to identify

22 approximately the point in time when you would










25184

1 have reviewed the proxy of UFGI and determined

2 that Drexel had a position in UFGI?"

3 Answer, "The closest I could get to it,

4 if we could pick the date of the spring '85 annual

5 UFGI meeting and assume that the draft proxy would

6 have been six weeks or so prior to because you

7 would have had to review the draft and then get

8 the final report mailed and the proxy statements.

9 So, it would have been roughly six weeks before

10 whatever the spring '85 annual UFGI meeting was."

11 Do you see that?

12 A. Yes.

13 Q. And if you at the next document in your

14 book, it's A3012, Tab 194. This is the 1985 proxy

15 statement, and it indicates that --

16 A. Wait. Tell me again where you are.

17 Q. The next document in your book.

18 A. I'm sorry. Two documents.

19 Q. I skipped one just to move this thing

20 along.

21 A. Where do you want me?

22 Q. The proxy statement, which is two










25185

1 documents ahead. It should be A3012, Tab 194.

2 A. Okay.

3 Q. And is that the proxy statement you

4 were making reference to?

5 A. Looks like it.

6 Q. Okay. So, six weeks before that would

7 have put you sometime in the middle of March,

8 correct?

9 A. Right. Six weeks before April 30,

10 yeah.

11 Q. And if you look at the third page of

12 the document, it indicates that, in fact, on

13 Page 2 -- this is UFG08748 -- in fact, Drexel

14 Burnham Lambert did own 585,371 shares of UFG and

15 that they represented 7.2 percent of the

16 outstanding shares.

17 Do you see that?

18 A. I do.

19 Q. When you learned that Drexel owned

20 what -- well, let me ask you this: That was a

21 substantial number of shares, was it not, given

22 the pattern of ownership with respect to the other










25186

1 outstanding shares of UFG?

2 A. Well, it was substantial enough to be

3 reported in the proxy by the requirements for

4 guidelines. So, again, it depends on your

5 definition of "substantial." But it was enough to

6 be reported here.

7 Q. Well, let me ask you this: Who owned

8 more shares than Drexel Burnham Lambert?

9 MR. KEETON: I object to the question

10 just because are we wasting time here? We've just

11 taken 20 minutes to establish something that 30

12 seconds of one question with that deposition

13 reference could establish. He's going to ask who

14 had more shares. Now, we all know the answer to

15 that. Why is he asking that, Your Honor?

16 THE COURT: Well --

17 Q. (BY MR. RINALDI) In fact, didn't

18 MCO --

19 MR. RINALDI: I'll just make the

20 leading question, sir.

21 Q. (BY MR. RINALDI) Didn't MCO and

22 Federated have had more shares than Drexel?










25187

1 A. I'm looking at the page -- having been

2 given the document, if you look at Page 2 of the

3 document you asked me to look at, there are the

4 numbers for the people --

5 Q. Correct?

6 A. -- who had to report.

7 Q. And it indicates there that MCO had

8 13.5 percent and Federated had 9.8 percent of

9 common shares and that Drexel was the third

10 largest owner of the common shares of UFG, were

11 they not?

12 A. Other than this officers and directors

13 as a group, yes.

14 Q. Well, I understand; but those as a

15 group did not individually own any more than

16 Drexel, did they?

17 A. I don't know that.

18 Q. Well, it would have been reported if

19 they individually owned more, wouldn't it?

20 A. Well, if that were the requirement, I'm

21 sure it would have been, yeah.

22 Q. Now, what was your reaction when you










25188

1 learned that Drexel was -- had a position that

2 large in the ownership of UFG?

3 A. I don't know how to characterize it.

4 It was information.

5 Q. I understand that. But when you

6 learned that information, did you react in any way

7 or take any -- let me ask you this: When you

8 learned that information, in fact, didn't you go

9 to Mr. Hurwitz and ask Mr. Hurwitz what he knew

10 about Drexel's ownership of UFG?

11 A. I might have.

12 Q. Take a look at the transcript of your

13 testimony. It's at Page 99, Line 24. And it's

14 through -- and it states at the bottom, question,

15 "When you learned of the DBL ownership in February

16 or so of 1985, what did you do? Did you ask any

17 questions, have any conversations with anyone?"

18 Answer, "I don't know exactly. In some

19 ways, soon after I inquired of my colleagues as to

20 whether this was at MCO Holdings. I can't tell

21 you exactly to whom I talked or not because

22 obviously at that time Drexel was involved in a










25189

1 wide range of activities across the country and it

2 was the name that was on a lot of people's lists,

3 and it was a company with MCO Holdings and

4 Federated. But particularly, MCO Holdings did

5 other business. So, I would have asked, 'What

6 does this mean and is everybody clear as to

7 related transactions?' Again, my blinders would

8 have been in this in any way -- is this any anyway

9 relevant to the ongoing conversations? I'm trying

10 to stay close to with the regulators and the

11 lawyers on our own application."

12 Do you see that?

13 A. Yeah.

14 Q. So, who would you have raised the

15 subject of Drexel with?

16 A. My colleagues.

17 Q. Okay. And would your colleagues have

18 included Mr. Hurwitz?

19 A. Probably.

20 Q. And Mr. Schwartz?

21 A. Probably.

22 Q. And did you receive any assurance from










25190

1 them regarding the Drexel ownership?

2 A. As to what? Assurance about what?

3 Q. Well, you had asked them did they know

4 anything about Drexel's ownership.

5 A. Right.

6 Q. Why were you asking them questions

7 about that?

8 A. I think for the reason that you had

9 raised. You look at the proxy. It's a meaningful

10 shareholder. I would have said, "What do you know

11 about this?" And as I mentioned here, my focus

12 would have been, "We've got an application

13 pending. We've got to be very careful about

14 whether or not we're a savings and loan holding

15 company." Basically, that would have been my

16 question.

17 Q. Well -- but you also make reference to

18 the fact that it was -- that MCO Holdings and

19 Federated, but particularly MCO Holdings, did a

20 lot of business -- did other business with Drexel.

21 Do you see that?

22 A. Uh-huh. (Witness nods head










25191

1 affirmatively.)

2 Q. And then you again say, "Since they

3 were doing other work with us."

4 Were you concerned that there was some

5 tie-in between Drexel and MCO's ownership of the

6 shares of UFG?

7 A. Concerned? No.

8 Q. Did it occur to you at that time, sir,

9 that they might be acting in concert, as a group

10 acquiring shares of UFG together?

11 A. No.

12 Q. That never occurred to you?

13 A. Again, this is a long time afterwards.

14 My question would not have been whether it was in

15 concert or any other particular thing. My concern

16 would have been "Are you watching carefully the

17 guidelines, the regulatory expectations so that we

18 don't move into an area we don't want to be in?"

19 Whether -- whoever it was and wherever it was. I

20 would have asked the same thing if Dr. Kozmetsky

21 suddenly had 7.2 percent.

22 Q. Well, if Dr. Kozmetsky had 7.2 percent,










25192

1 you would have been over the 25 percent threshold,

2 wouldn't you?

3 A. That's my point.

4 Q. Yeah. So, you were concerned that

5 perhaps Drexel was acquiring these shares somehow

6 in conjunction with MCO and that might put them

7 over the threshold, weren't you?

8 A. No. I just wanted to be sure that in

9 no way with anyone at any time were we

10 inadvertently misstating my sense of what we were

11 doing in my conversations about being a savings

12 and loan holding company, whoever it was, wherever

13 it was.

14 Q. In fact, you thought that Drexel was

15 acting as a group along with MCO and Federated and

16 Mr. Kozmetsky, didn't you?

17 A. You really mean to ask me that?

18 Q. Yes, I do, sir.

19 A. No.

20 Q. And didn't you ask Mr. Hurwitz that

21 very question?

22 A. Did I ask him whether they were acting










25193

1 as a group?

2 Q. Yes.

3 A. I really -- I don't remember ever

4 asking him that specifically.

5 Q. Did Mr. Hurwitz tell you that they

6 weren't a group?

7 A. It's not an exchange that I recall

8 having.

9 Q. Okay. Let's look at the next page

10 then, sir.

11 A. Of?

12 Q. The deposition. Page 101. It says,

13 Line 7, "Did you discuss this" -- and this being

14 the Drexel ownership -- "with Charles Hurwitz"?

15 "Yes."

16 "What was his reaction?"

17 "Basically, that is it was not

18 something that was putting me at risk in terms of

19 my disclosures regarding the relationship and that

20 it was not to be reported as a group and didn't

21 have to be reported as a group."

22 Question, "And did he indicate to you










25194

1 that he was aware that Drexel had taken a position

2 in UFGI, or was he surprised at that revelation?"

3 Answer, "I didn't discern surprise.

4 But frankly -- and I don't think I would have

5 asked, 'Did you know this?' I would have assumed

6 that he knew this."

7 Why would you assume that Mr. Hurwitz

8 would have known about the Drexel ownership of UFG

9 stock?

10 A. I suspect basically because as one of

11 the other major shareholding companies of which he

12 was the chief executive and because we were doing

13 other business -- "we" being MCO -- I don't know

14 about Federated -- with Drexel, I would have made

15 that assumption had any investment banking firm

16 emerged as a more than 5 percent shareholder.

17 Q. And what was the nature of the other

18 business that MCO and Federated was doing with

19 Drexel at this point in time?

20 A. Remind me again what this point in time

21 is.

22 Q. It's 1985. It's March, April of '85.










25195

1 A. So, spring of '85, there would have

2 been some conversation, I think, about Pacific

3 Lumber. I'm not sure. I think Pacific Lumber is

4 roughly in that period of time.

5 Q. And what was Pacific Lumber, sir?

6 A. Pacific Lumber was and is a lumber

7 company located not far from the Humboldt campus

8 of California State University, as I unhappily

9 discovered, and was basically in the lumber

10 business. It had been -- it had changed ownership

11 ultimately in that period when MCO purchased

12 100 percent of its ownership.

13 Q. And was Drexel involved in MCO's

14 purchase of Pacific Lumber?

15 A. Yes.

16 Q. How were they involved, sir?

17 A. I believe that they played a

18 substantial role in the financing of the

19 transaction.

20 Q. In fact, they were responsible for

21 arranging for almost all of the financing for the

22 transaction, weren't they?










25196

1 A. I don't -- again, I don't know the

2 definition of "almost all." But as I said, I

3 believe that they were substantially involved.

4 Q. And you were a director of MCO,

5 correct?

6 A. Yes.

7 Q. So, you would have been intimately

8 familiar with what was going on with respect to

9 the Pacific Lumber acquisition?

10 A. Well, I'm not necessarily -- I would

11 have been familiar, not intimately familiar.

12 Q. As familiar as a director is about

13 matters that go on at a corporation of which he's

14 a director?

15 A. I think that's fair.

16 Q. And when you saw that Drexel was

17 acquiring shares or had acquired 7.2 percent of

18 UFG, you had this discussion then with Mr. Hurwitz

19 regarding the issue of whether they were part of a

20 group?

21 A. Well, basically, as reflected in the

22 deposition, is the exchange that I would have had.










25197

1 It seems -- again, this is three years earlier

2 than it is now. But that -- as you show me the

3 text, that seems like an accurate description of

4 our exchange.

5 Q. And do you recall that ultimately, MCO

6 did enter into an agreement by which MCO acquired

7 an option to acquire shares from Drexel Burnham

8 Lambert and the shares they had the option to

9 acquire were UFG shares?

10 A. Basically, yes.

11 Q. Okay. Now, turn to page -- to two

12 documents ahead. It's T1085. It's Tab 26.

13 A. Tell me again. 108 --

14 Q. 1085, Tab 26. And turn to the last

15 page of that document and tell me if that's

16 your -- not the last page, but the end of the

17 minutes.

18 Does that appear to be your signature

19 that appear in the minutes?

20 A. Yes.

21 Q. Okay. Now, turn now to the fourth page

22 of the minutes of the December 17th, 1985 meeting.










25198

1 And at the -- on the fourth page, it talks about

2 Mr. Schwartz reporting on an option agreement

3 regarding United Financial Group, Inc.'s stock.

4 Do you see that?

5 A. Yes.

6 Q. And just read that top paragraph there,

7 and then I have a couple of questions I wanted to

8 ask you about.

9 A. Okay. Read it aloud or just --

10 Q. No. Just read it to yourself.

11 A. (Witness reviews the document.) Okay.

12 Q. Now, it indicates here that

13 Mr. Schwartz had reported to the board on the

14 option arrangement.

15 Did you come to find out that

16 Mr. Schwartz was the individual at MCO who was

17 responsible for negotiating the option agreement

18 between Drexel and MCO?

19 A. It seemed to me he was primarily the

20 person responsible.

21 Q. And was this the first time that you

22 had learned of the option agreement at the board










25199

1 meeting?

2 A. Well, again, I can't talk specifically

3 to the timing. But at some point, I would have

4 been involved by Mr. Schwartz in the conversation

5 as relates, as I mentioned earlier, to the

6 implications for the net worth maintenance and

7 savings and loan holding company question. But I

8 just don't remember the intersection between that

9 and this date.

10 Q. Okay. But you would have been aware

11 that Mr. Schwartz was negotiating this thing?

12 A. At some point, Mr. Schwartz made me

13 aware when he specifically raised this question.

14 Q. And did Mr. Schwartz, in connection

15 with that conversation, ever ask you, "Can you

16 check with the regulators and find out whether if

17 we enter into this kind of option arrangement it

18 will affect the net worth condition?"

19 A. At some point, I had exchange with

20 regulators; but it's probably more likely at that

21 stage, at that early stage, he would have asked me

22 to check with the attorneys.










25200

1 Q. But you don't recall specifically going

2 to Ms. Williams or someone on her staff and

3 saying, "Look, we're thinking about entering into

4 this option agreement with Drexel with a put on

5 the end of it to give us the shares back. If we

6 do that, is that going to impact our position as a

7 holding company?"

8 You don't recall having that

9 discussion?

10 A. I don't recall that discussion, no.

11 Q. Do you recall a conversation, anything

12 similar to that, where you went to Ms. Williams or

13 her staff and described the potential transaction

14 that you were contemplating entering into?

15 A. No, I don't recall that conversation.

16 Q. Okay. And why -- did you understand as

17 a director of MCO why it was that MCO was entering

18 into this put/call option arrangement that's

19 described on Page 4 of the December 17th, 1985

20 minutes of the MCO Holdings?

21 A. Well, you had described some pieces of

22 it earlier. It was at least a combination of the










25201

1 soundness of the investment opportunity overall --

2 that is, the belief in the future of

3 United Financial Group, Inc. -- and trying to be

4 prepared for the time when -- by now, the Bank

5 Board resolution on the holding company would have

6 been approved. We would have been in conversation

7 about the modification of the net worth

8 maintenance requirement. So, we would have been

9 in conversation as to how we prepared within the

10 appropriate guidelines to take that step to at

11 least 35 percent when we got the approval to do

12 so.

13 Q. And as the person responsible for the

14 net worth obligation or the net worth condition,

15 you were acutely aware of the fact that MCO did

16 not want to take any steps that would cause it to

17 go over the 25 percent threshold until it had

18 negotiated a satisfactory net worth condition;

19 isn't that correct?

20 A. That would have been the statement I

21 made to Paul Schwartz.

22 Q. And you advised Mr. Schwartz that "You










25202

1 need to be very careful, that whatever you do,

2 that you don't cause us to go over that

3 threshold," didn't you?

4 A. Again, I most likely did. I have a

5 vague -- I can't tell you exactly when I did it,

6 but that exchange is fairly clear in my mind.

7 Q. So, Mr. Schwartz knew to a certainty

8 that there was a risk associated with acquiring

9 these shares --

10 A. Well, now you've --

11 Q. -- through an option? He knew that --

12 strike that.

13 A. I don't think that's what I said.

14 Q. Strike that. So, Mr. Schwartz knew

15 that if additional shares were acquired by UFG,

16 that there was a potential --

17 A. Did you mean by UFG?

18 Q. I'm sorry. By MCO, that he had to be

19 concerned about the question of whether those

20 shares would constitute shares that would count

21 towards the 25 percent ownership, correct?

22 MR. VILLA: Just to make sure, did you










25203

1 mean acquired or under the option? You've been

2 talking about the option and now you've just

3 changed to acquired. I don't know whether you're

4 misspeaking or whether that's what you intended to

5 ask.

6 MR. RINALDI: I intended to ask the

7 question that I asked.

8 MR. VILLA: I'm sorry, sir.

9 MR. EISENHART: Well, Your Honor, I had

10 the same objection to the question. It seems to

11 me he's now slipping from a concrete discussion of

12 the option agreement to a hypothetical about an

13 acquisition. I think he needs to make that clear

14 to the witness.

15 Q. (BY MR. RINALDI) Sir, when you spoke

16 to Mr. Schwartz, Mr. Schwartz understood that if

17 any actions were taken by MCO to acquire an

18 additional interest in shares, be it an option, be

19 it preferred shares, be it whatever kind of

20 interest, he had to be concerned as to whether

21 that additional interest would count towards the

22 25 percent threshold?










25204

1 A. I can't testify as to what Mr. Schwartz

2 knew. I can tell you that I would have said to

3 him in whatever structure is ultimately

4 transacted -- and I certainly as a director would

5 have said here, "Are we comfortable that in this

6 structure, we are sensitive to what the lawyers

7 are telling us about the savings and loan holding

8 company issue?" I can't tell you that I know

9 Mr. Schwartz knew that with a certainty. I can

10 tell you pretty comfortably what I would have

11 said.

12 Q. And you would have conveyed that

13 thought to him in your discussions with him,

14 correct?

15 A. Yes.

16 Q. And Mr. Schwartz is an extremely

17 intelligent man, is he not?

18 A. He certainly is in my perception, yes.

19 Q. Yes. And he would have understood, in

20 all likelihood, what you were telling him, would

21 he not?

22 A. Well, I've known Mr. Schwartz a long










25205

1 time; and I find him very intelligent. He does

2 surprise me from time to time as to what he

3 understands. I know what I say.

4 Q. Thank you, sir.

5 Did you have a similar kind of

6 discussion with Mr. Hurwitz? Would you have also

7 advised him that "we need to be very careful"?

8 A. Yes.

9 Q. Now, do you recall that after the

10 transaction had been entered into, you wrote a

11 letter to Mr. Bowman of the Texas Savings and Loan

12 Department?

13 A. "The transaction" meaning the Drexel

14 Burnham option?

15 Q. Well, yes. And I'm sorry. I'm talking

16 about -- did the board approve entering into the

17 put/call option with Drexel?

18 A. Yes, sir. It seems -- this description

19 here, yes.

20 Q. Okay. And the description of what they

21 did is contained in these minutes, as you

22 understood it?










25206

1 A. Yes, sir.

2 Q. And do you recall that they were paying

3 a substantial premium to Drexel in order to obtain

4 the option?

5 A. I don't remember at this point what --

6 if there was a premium or what it was. I just --

7 looking at these minutes, I recall that a

8 transaction was approved by the board.

9 Q. Okay. Did you -- were you aware that

10 they were paying $683,147 as a premium to acquire

11 the option? MCO was paying that to Drexel. Did

12 you know that?

13 A. Did I know that that number to the

14 dollar was the number now?

15 Q. Yes. Did you know it at the time?

16 A. I'm assuming that I did.

17 Q. Well, I notice that the option is

18 attached to the minutes.

19 Would you have had an opportunity to

20 review the option prior to approval of the

21 minutes?

22 A. Probably would have, yes.










25207

1 Q. Now, what was -- there was a letter of

2 credit, was there not, associated with the option?

3 Do you recall that?

4 A. I don't -- I don't recall.

5 Q. You don't recall that there was a

6 mechanism by which Drexel could be assured that if

7 the option were exercised, they would be paid?

8 A. I just don't remember the details of

9 the transaction at this point.

10 Q. Okay. Let's take a look at

11 Exhibit T10155. It's Tab 34. And this is the --

12 a letter that you signed but presumably was

13 drafted by counsel that goes to Mr. L.L. Bowman,

14 III, the commissioner of the Texas Savings and

15 Loan Department. This is dated January 25th,

16 1986. Take a look at that.

17 THE COURT: Could we have the exhibit

18 number again?

19 MR. RINALDI: I'm sorry. It's T10155,

20 Tab 34.

21 MR. EISENHART: Your Honor, I think

22 he's misstating it. I think it's A10155.










25208

1 A. Okay.

2 Q. (BY MR. RINALDI) Was there a reason

3 that you waited until after the transaction had

4 closed to write to Mr. Bowman and seek the

5 approval of the Texas Savings and Loan Commission?

6 A. Well, as you just pointed out, it's a

7 letter drafted by an attorney and I would have

8 been following the timing, the sequence, and the

9 language that was basically counseled to me by our

10 lawyers.

11 Q. Well, I understand that. But I guess

12 my question to you is: In this letter, you're

13 concerned that by acquiring the shares that under

14 the Texas Savings and Loan regulations, that might

15 constitute a change of control. And you're asking

16 that Mr. Bowman confirm that that wouldn't be a

17 change of control.

18 I guess my question to you is:

19 Wouldn't -- why wasn't that done before you

20 entered into the transaction rather than

21 afterwards?

22 A. Well, I don't -- first of all, I don't










25209

1 think I'm expressing my concern as to whether it

2 is. What I'm doing is, on the advice of counsel

3 at a time when counsel said was appropriate, to a

4 place that counsel said was the right place to

5 write, informing them of what had happened. I

6 didn't -- you need to show me if in here I'm

7 saying I'm concerned about this. It says "I'm

8 bringing this to your attention."

9 Q. Right. And in the last paragraph, it

10 says, "I appreciate you confirming to me that the

11 Texas regulations regarding control of the Texas

12 chartered savings and loan association do not

13 apply to the call of the put option at this time

14 in view of the fact that neither the call or the

15 put is presently exercisable and would, therefore,

16 not be a security under the provision of

17 Chapter 71 of those regulations."

18 Do you see that?

19 A. Yeah.

20 Q. So, you were asking him whether this

21 would constitute a change of control, weren't you?

22 A. I was asking him to confirm that it










25210

1 didn't.

2 Q. Okay. And was there a reason that you

3 didn't do that in advance of entering into the

4 transaction?

5 A. As I said earlier, this -- I was

6 following here very closely advice of counsel as

7 to what to write, when to write it, and to whom to

8 write it.

9 Q. All right. Then let's -- let me just

10 direct you to your deposition testimony, and I

11 have a question because, I'm afraid, given your

12 classical background, you may have lost the court

13 reporter. And I wanted to sharpen up something.

14 Take a look at the transcript at Page 105.

15 Before you do that, were you at this

16 same point in time that you were writing to the

17 Texas Savings and Loan Commission also writing to

18 the Federal Home Loan Bank Board and advising them

19 of this transaction?

20 A. I don't know.

21 Q. Do you have any recollection of going

22 to the Bank Board and telling them that, "Look, we










25211

1 just entered into this transaction. Is it okay,

2 or does it constitute a change of control?"

3 A. I have some recollection of the

4 attorney saying that there was a difference in the

5 guidelines between state and federal and that I

6 was writing in one way to the state. But it's

7 that vague. There was a distinction. I don't

8 remember what it was.

9 Q. Okay. Now, this document that you sent

10 to the state was not copied to the federal

11 regulators, was it?

12 A. I'm sorry. I was smiling at "pari

13 passu.

14 Q. That was what I was smiling at, but

15 we'll get to that in a moment, sir.

16 A. All right.

17 Q. And Exhibit A10155, Tab 34 that we're

18 looking at which is the letter, was not sent to

19 the federal regulators, was it? There is no copy

20 indicated?

21 A. I don't see a copy here.

22 Q. Okay. And the question I had, the last










25212

1 question I had on this document, is the last

2 sentence in the page talks about "In the event MCO

3 exercises the call but does not make full payment

4 to DBL for the shares or that DBL exercises the

5 put but does not receive full payment for the

6 shares, DBL may draw upon a letter of credit

7 obtained by MCO in the amount of the shares

8 purchase price of the share."

9 Do you see that?

10 A. I do.

11 Q. Does that refresh your recollection

12 that there was a letter of credit that had been

13 posted by MCO to secure performance under the

14 option?

15 A. It seems -- yes.

16 Q. Okay. And what was your understanding

17 of the purpose of that option -- I mean of the

18 letter of credit?

19 A. I really don't know that I can speak

20 now to technically what it did.

21 Q. Okay. Now, let's take a look at the

22 transcript. It says here at Page 105, Line 12,










25213

1 question, "It was your understanding that the

2 Commission had no problem with MCO going forward

3 with the deal?" And I believe we're talking there

4 about the Texas Savings and Loan Commission.

5 And then it goes on at Line 14, answer,

6 "My basic recollection was the position they took,

7 I think on this transaction, was essentially we

8 are writing Perry Pasioux with the exchange you

9 are having with the federal regulators on this

10 issue, and if they don't determine that this is a

11 change of control question, we're not going to

12 independently give it a different interpretation,

13 something like that."

14 What were you referring to when you

15 said you were writing to a pari passu?

16 A. Right. It's not a person. Basically,

17 it's a chess term, not spelled that way, but I

18 won't bother you with that. Essentially, what I

19 was trying to convey -- and as you can see, when I

20 said something like that, in basic recollection,

21 that even then it wasn't that all clear that the

22 attorneys had given me some indication that there










25214

1 was a difference between what we were obligated to

2 do at the state and at the federal level and that

3 since we were -- pari passu basically means along

4 in the same way, at least from my background.

5 And what I was trying to convey here

6 was this advice that I was getting from the

7 attorneys as to the places in which we could have

8 similar types of conversations and the places in

9 which the regulations might require different

10 treatment between state and federal.

11 Q. Well, you weren't testifying then that

12 at this same time you were writing to the federal

13 regulators to obtain their approval for the

14 transaction, were you?

15 A. No. And as a matter of fact, I

16 think -- and with all -- with the gobbling of

17 this, I think what I said was "riding," not

18 "writing." See on Line 15, it says "Essentially,

19 we are writing Perry Pasioux? I think what I said

20 was "riding pari passu," meaning moving along with

21 in the same way.

22 Q. Okay.










25215

1 A. You're tired of this lesson?

2 Q. No, no, no. I was amused by the "Perry

3 Pasioux."

4 A. This is our Berkeley backgrounds

5 together. Okay.

6 Q. Perhaps you could spell for the court

7 reporter "pari passu."

8 A. It would have been P-A-R-I, space,

9 P-A-S-S-O-U (sic).

10 Q. Thank you, sir.

11 And then do you recall that the Texas

12 Savings and Loan Commission ultimately did agree

13 that if -- by acquiring the shares in the fashion

14 that you had, that it did not constitute a change

15 of control under their regulations?

16 A. From the Texas side.

17 Q. That's correct. But you have no

18 recollection of ever having received a similar

19 opinion from the Federal Home Loan Bank of

20 Dallas -- Bank Board?

21 A. I don't recall -- again, if there's

22 something there, I don't recall that.










25216

1 Q. Okay. Now, after the option was

2 entered into, it was reported in the proxy

3 statement, is it not, of UFG?

4 A. Of UFG?

5 Q. Yes.

6 A. I think so. I think it was -- would

7 have been reported in several places, I think.

8 But in some -- wherever the proxy statement was

9 that required the disclosure is where it would

10 have been.

11 Q. Okay. And if you turn to the next

12 document, it is the 1986 proxy statement for UFG.

13 And I think if you turn -- it's T -- I mean A3013,

14 Tab 88.

15 A. Got it.

16 Q. And if it -- if you look at the third

17 page of that document, it has the Bates stamp

18 OW08841. There is a Paragraph 5 there.

19 Do you see it?

20 A. Yes.

21 Q. Okay. And just take a moment to read

22 that to yourself.










25217

1 A. Okay. (Witness reviews the document.)

2 THE COURT: What is the page of the --

3 MR. RINALDI: Oh, the proxy? It's

4 Page 3 of the proxy, and it's OW008841 is what I

5 have.

6 MR. VILLA: Your Honor, I don't believe

7 that ours are marked the same way. Ours show

8 UFG06340.

9 THE COURT: That's what I have. I

10 couldn't follow.

11 MR. RINALDI: UFG06340, that's what

12 this one has, as well, but it also has a Bates

13 stamp on it.

14 Q. (BY MR. RINALDI) We are on the third

15 page of the UFG document.

16 A. Paragraph 5?

17 Q. That's correct, sir.

18 Now, why was the information regarding

19 the proxy -- the option put in the proxy

20 statement, sir?

21 A. I'm assuming because the lawyers and

22 others responsible for drafting the proxy assumed










25218

1 that that was the appropriate thing to do.

2 Q. You mean it was a material fact that

3 the shareholders of UFG should know?

4 A. There were a group of people at United

5 who were responsible for drafting and then finally

6 issuing the proxy. They determined what was

7 appropriate and legally required to be in or not.

8 Q. Okay. And you're not familiar with

9 those requirements?

10 A. No.

11 Q. Okay. And do you see any mention of

12 the letter of credit in the description there in

13 the proxy statement?

14 A. No.

15 Q. Now, ultimately, do you recall that the

16 option agreement was extended for a period of two

17 years, sir?

18 A. I don't remember the period of time. I

19 do remember an extension.

20 Q. And do you recall why it was extended?

21 A. I don't recall -- the only thing I

22 recall is the continued conversation about not










25219

1 being able to directly own the shares until we

2 clarified the savings and loan holding company

3 application. There may have been other reasons.

4 That might not have been the reason it was

5 extended. That's the piece that I remember.

6 Q. Okay. So, it's your recollection,

7 then, that they extended the option or the date on

8 which the option would become effective so that

9 MCO would not acquire those shares?

10 A. Well, again, I think what I said, I

11 don't remember specifically. What I'm saying is

12 my constant comment would have been, again, "don't

13 cross this line."

14 Q. Okay. And ultimately, do you recall

15 that after USAT had gone into receivership, that

16 the option was exercised by Drexel?

17 A. I think -- I think at some point, the

18 transaction was completed after receivership.

19 Q. Yeah. And Drexel put the shares back

20 to MCO, did they not?

21 A. I don't remember how it happened, but I

22 think it was then -- the issue was closed.










25220

1 Q. But MCO ended up with the shares, did

2 they not?

3 A. I believe so.

4 Q. And at the time they acquired the

5 shares, the shares had very little value, didn't

6 they?

7 A. I think so.

8 Q. But they were still obligated under the

9 terms of the option to pay the strike price of

10 $8.25 a share, weren't they?

11 A. Whatever the -- again, I don't remember

12 the specific details. I'm just assuming what they

13 said they would do was what they did.

14 Q. Well, but you do recall that in the

15 original option agreement when it was described in

16 the minutes on December 17th, 1985, that the price

17 per share was $8.25 a share that MCO was going to

18 pay? Do you recall that?

19 A. Again, I just don't remember the dollar

20 amount. I'm agreeing. At some point, the

21 transaction was closed.

22 Q. So, as a result of this transaction,










25221

1 MCO ended up with a lot of stock that had very

2 little value for which they paid a substantial

3 price, correct?

4 A. Basically, yes.

5 Q. Now, I'd like to turn to -- we've

6 talked about the put/call option as a mechanism by

7 which MCO and Federated sought to structure the

8 acquisition of additional shares in the future of

9 UFG. Okay?

10 A. Yeah. I'm following you.

11 Q. I'd like to now go on. Were there

12 other mechanisms in addition to the put/call

13 option with Drexel that MCO used to acquire future

14 interests or the --

15 THE COURT: Mr. Rinaldi, we'll take a

16 short recess.

17 MR. RINALDI: Thank you, Your Honor.

18

19 (Whereupon, a short break was taken

20 from 10:34 a.m. to 10:56 a.m.)

21

22 THE COURT: Be seated, please. We'll










25222

1 be back on the record.

2 Mr. Rinaldi, you may continue.

3 MR. RINALDI: Thank you, Your Honor.

4 Q. (BY MR. RINALDI) When we stopped,

5 Mister -- I'm sorry -- Dr. Munitz, we were talking

6 about whether there had been any other structures

7 developed by MCO to acquire in the future shares

8 of common stock of UFG.

9 Do you recall that?

10 A. Yeah. We were stopping just as you

11 were asking me that question, yeah.

12 Q. Do you recall whether there were any

13 other structures that were developed whereby MCO

14 and Federated could acquire additional shares of

15 UFG stock in the future?

16 A. Well, I don't know the source of the

17 development; and it may not technically meet your

18 definition. But I think there was a series of

19 preferred instrument at UFG that Federated and/or

20 MCO owned, a portion of which might fit that same

21 category or description.

22 Q. Okay. Let's take that.










25223

1 Do you recall that there came a time

2 when UFG issued something called preferred C

3 shares of stock?

4 A. Yes.

5 Q. And do you recall that those shares

6 were preferred shares that could be convertible

7 into two shares of common stock at a future date?

8 A. Yes. Yeah. I had forgotten the two --

9 Q. And you were -- at approximately what

10 point in time would the offering of these

11 preferred shares have arisen?

12 A. I don't remember the timing.

13 Q. Okay. Take a look at the next document

14 in your book, which is T1049. And I will hand a

15 copy up to the Court. This is a new exhibit.

16 This is a letter --

17 MR. RINALDI: Do y'all have copies?

18 Q. (BY MR. RINALDI) Turn to the last

19 page of this document and tell me if that's your

20 signature.

21 A. Yes, sir.

22 Q. Okay. And you're writing to Mr. Bowman










25224

1 in this case who, again, is the Texas Savings and

2 Loan Department commissioner.

3 MR. RINALDI: Your Honor, I'd move the

4 admission of T1049.

5 MR. VILLA: No objection.

6 THE COURT: Received.

7 Q. (BY MR. RINALDI) And it talks in the

8 first full paragraph about a rights offering

9 that's being made by UFG that will -- with respect

10 to preferred shares of stock.

11 Do you see that?

12 A. Yes.

13 Q. How did the subject of the preferred

14 shares of stock first come up or the issuance of

15 preferred shares? Was that something that MCO and

16 Federated suggested to UFG?

17 A. I don't remember what the original

18 source of the discussion would have been.

19 Q. But this was going to be a mechanism

20 for MCO and Federated to infuse capital into UFG,

21 was it not?

22 A. Well, there was -- as I said earlier,










25225

1 there was ongoing discussion about ways of raising

2 additional capital. And I don't know whether it

3 was specifically a mechanism for any one party,

4 but it was an attempt to strengthen the capital

5 base.

6 Q. And by virtue -- and do you recall that

7 ultimately, MCO and Federated subscribed to almost

8 all of the shares of the preferred offering?

9 A. I don't know what the "almost all"

10 would have been, but I do recall the subscription.

11 Q. Okay. Well, if "almost all" was over

12 95 percent, would that be consistent with your

13 recollection, or over 95 percent?

14 A. Well, I don't recall the number. But

15 if it was over 90 or 95 percent, I would say that

16 was almost all, yes.

17 Q. Well, take a look at two documents

18 before that, which is the United Financial Group,

19 Inc. proxy statement dated March 31st, 1986. This

20 is Exhibit T -- A3013, and it's Tab 88. And if

21 you look at the second page of that document --

22 A. Of the --










25226

1 Q. Yeah. It indicates that Federated owns

2 6.3 percent of the Series C stock.

3 Do you see that?

4 A. Yes.

5 Q. And then if you trace down to MCO, they

6 own 91.2 percent.

7 Do you see that?

8 A. Yes.

9 Q. So that collectively, Federated and MCO

10 would have owned 97.5 percent of the outstanding C

11 preferred.

12 Do you see that?

13 A. Right.

14 Q. Okay. Is that consistent with your

15 recollection that Federated and MCO subscribed to

16 almost the full amount of the C preferred shares?

17 A. Yeah. Basically, yes.

18 Q. And the amounts of shares that they

19 subscribed to were over 700,000.

20 Do you see that?

21 A. You've got 47, 688, right.

22 Q. Close to 750,000, weren't they?










25227

1 A. In that range, yeah.

2 Q. And if they were convertible at a two

3 to one rate, then upon conversion, the C preferred

4 shares would be convertible to almost a million

5 and a half additional shares of UFG common stock,

6 correct?

7 A. Seems right.

8 Q. And if that had occurred, what would

9 that have done with respect to -- I mean MCO and

10 Federated's ownership of UFG? Would it have put

11 it over the 25 percent ownership level, sir?

12 A. Well, I don't -- I don't know where the

13 total outstanding shares are, but I assume that it

14 most likely would have at least put them over

15 25 percent. I don't know how many shares were

16 outstanding, but it's --

17 Q. There were about 8 million at that

18 time.

19 A. Okay.

20 Q. So, it clearly would have put them --

21 A. Clearly, yes.

22 Q. So, it would have been impossible for










25228

1 MCO or -- strike that.

2 It would have been undesirable to MCO

3 and Federated for the shares to have been

4 converted if they hadn't obtained a resolution of

5 the net worth question first?

6 A. That certainly would have been my

7 perspective.

8 Q. Okay. Now, in order for MCO and

9 Federated to participate in the rights offering,

10 is that something that Mr. Hurwitz would have been

11 involved in? That is, the approval of Federated

12 and MCO acquiring the C preferred shares of UFG.

13 A. Yes.

14 Q. That's the kind of major strategic

15 decision at MCO and Federated that he typically

16 was involved in?

17 A. Well, I don't -- again, I don't know if

18 you'd call that a major strategic decision, but

19 it's the decision of a sort that he would have

20 been involved in.

21 Q. Okay. And ultimately, you do recall

22 that MCO and Federated did subscribe to these










25229

1 shares?

2 A. As reflected here, yes.

3 Q. But you don't have any independent

4 recollection of their subscribing?

5 A. Well, I would -- had you not shown me

6 this document, I would have remembered that they

7 owned a substantial portion of those stairs.

8 Q. Okay. Now, turn to the next document,

9 which is T1051.

10 MR. RINALDI: And this also is a new

11 document, Your Honor. I will hand several copies

12 up to the Court.

13 Q. (BY MR. RINALDI) And would you take a

14 look at this document just for a moment?

15 A. (Witness reviews the document.) Okay.

16 Q. And the cover page, it's from

17 Mr. Bressler -- I mean to Mr. Bressler from a

18 Mr. Paulin.

19 Now, who was Mr. Paulin, sir?

20 A. Jim Paulin was the secretary and

21 treasurer of Federated Development.

22 Q. Okay. And he's writing to










25230

1 Mr. Bressler. And what was Mr. Bressler's

2 position?

3 A. He was vice president and general

4 counsel of MCO Holdings.

5 Q. Okay. And he's sending to him -- he

6 says, "Enclosed here is the manually countersigned

7 copy of MCO subscription agreement for the

8 above-captioned offering. I'm also in receipt of

9 a manually countersigned copy of the agreement on

10 behalf of Federated."

11 Do you see that?

12 A. Yes.

13 Q. And then the next two documents purport

14 to be the subscription agreements that were

15 entered into by MCO and Federated to acquire the

16 shares of UFG pursuant to the rights offering.

17 Do you see that?

18 A. Yes, I do.

19 Q. And at the bottom of each of those, the

20 subscription agreements have been approved and

21 there is a signature.

22 Do you recognize whose signature that










25231

1 was?

2 A. I think that's -- looks to be Gerry

3 Williams'.

4 Q. Okay. And so -- and then on the MCO

5 one, whose signature is that? Who's signing on

6 behalf of MCO?

7 A. On behalf of MCO, it looks like

8 Mr. Hurwitz' signature.

9 Q. Okay. And then Mr. Paulin signs on

10 behalf of Federated?

11 A. Yes.

12 MR. RINALDI: Your Honor, I'd move the

13 admission of T1051.

14 MR. VILLA: No objection.

15 THE COURT: Received.

16 Q. (BY MR. RINALDI) Now, Mr. Hurwitz has

17 approved the rights offering and subscribed to

18 453,000 shares of UFG C preferred stock. And it's

19 dated May 10th, 1984.

20 Do you see that?

21 A. Yes, I do.

22 Q. Okay. Now, is that the kind of










25232

1 decision that Mr. Hurwitz would have made on his

2 own, or would he have gone to the board to obtain

3 their approval?

4 A. Of MCO?

5 Q. Yes.

6 A. Well, again, I don't remember what the

7 basic guidelines would have been. I just don't --

8 I don't know.

9 Q. Okay. Was it typical for Mr. Hurwitz

10 to acquire assets on behalf of MCO and then go to

11 the board to obtain their ratification of his

12 actions?

13 A. Afterwards?

14 Q. Yes.

15 A. I don't think so. I don't know.

16 Q. Okay. Now, if the offering price on

17 these shares, which I think was something in the

18 magnitude of over $10 -- I'm not sure where the

19 price is. Let's see.

20 But if that were the case and he was

21 subscribing to 450,000 shares, we're talking about

22 an acquisition of over $4 and a half million,










25233

1 correct?

2 A. Well, whatever -- 453,000 times

3 whatever the price was.

4 Q. Okay. And if I tell you it was in

5 excess of $10, then the cost to MCO would have

6 been over $4 and a half million, correct?

7 A. Yes. If that was the price,

8 absolutely.

9 Q. Okay. And is that the kind of

10 expenditure on behalf of MCO that Mr. Hurwitz was

11 authorized to make without the board approval?

12 A. I think -- I think that's -- what I

13 said was that I don't know precisely what the

14 guidelines were and at what level and at what

15 timing. I just don't remember now.

16 Q. I thought perhaps it was substantially

17 significantly small enough or significantly large

18 enough that you would have had some sense of

19 whether that was over or below the number.

20 A. I don't.

21 Q. Okay. Let's take a look at the next

22 document. It's T1053. It's Tab 59. These are










25234

1 the board minutes of MCO, and this is a board

2 meeting that occurs almost a month after the

3 subscription has been signed by Mr. Hurwitz. And

4 it talks about Mr. Hurwitz reported the

5 corporation had an opportunity to acquire up to a

6 total of 755,000 subscription rights to the

7 corresponding number of shares of newly-issued --

8 MR. EISENHART: Your Honor, I'm sorry.

9 I didn't catch the exhibit number on it.

10 MR. RINALDI: I'm sorry. T1053,

11 Tab 59. It's the June 12th, 1984 minutes of the

12 board of MCO.

13 Q. (BY MR. RINALDI) And I'm looking now

14 at the fourth page of the document, which bears

15 the stamp at the bottom, OMX23170. And it makes

16 reference to a presentation that Mr. Hurwitz made

17 to the board regarding an opportunity to acquire

18 the C preferred shares.

19 Do you see that, sir?

20 A. I do.

21 Q. And if you look at that, you'll see

22 that if you add the shares that Federated was










25235

1 going to acquire, which was 302,000, to the

2 453,000 that MCO was going to acquire, you come up

3 with 755,000. And that's the same number that

4 appears in the minutes.

5 Do you see that?

6 A. Yes.

7 Q. Okay. And the total cost was going to

8 be $10,570,000 for the acquisition of the shares.

9 Do you see that?

10 A. Yeah. Up to.

11 Q. Okay. And it appears that Mr. Hurwitz,

12 some four weeks after he had subscribed to the

13 shares, then sought the board's approval for the

14 subscription.

15 Do you see that?

16 A. I see the date of the meeting.

17 Q. Okay. Now, he indicates that they had

18 an opportunity to acquire these shares through the

19 subscription.

20 Do you recall discussing with

21 Mr. Hurwitz why it was he was interested in

22 acquiring additional -- or the C preferred shares?










25236

1 A. No.

2 Q. And other than what's stated here in

3 the minutes, you have no independent recollection

4 of why he was now trying to acquire additional

5 shares of UFG in the form of this C preferred

6 offering?

7 A. Other than my earlier reference to the

8 pending application and the preparation to act on

9 the acceptance, that was my assumption the

10 linkage.

11 Q. Okay. And did you understand that

12 because these were preferred shares that did not

13 have voting rights, that they would not be counted

14 towards MCO's control or counted as common stock

15 of UFG that would go towards the 25 percent

16 threshold?

17 A. I believe that was the advice of the

18 lawyers.

19 Q. Okay. Did MCO or Federated, as they

20 had in the past, go to the Texas Savings and Loan

21 Commission to obtain their approval?

22 A. Well --










25237

1 Q. Wasn't that the letter that we saw?

2 A. Was that the Bowman letter?

3 Q. Yes. Do you recall that?

4 A. Well, I do now. I mean, the April 18,

5 1984, T1049?

6 Q. That's correct.

7 A. Yeah.

8 Q. And in this case, they actually went to

9 the Texas Savings and Loan Commission prior to

10 acquiring the shares and seeking their permission,

11 did they not?

12 A. I mean, the dates certainly seem to be

13 prior and I don't know. I'd have to read the

14 letter carefully to see whether it's technically

15 seeking their permission or they have just -- "We

16 respectfully request your favorable opinion."

17 Q. Right. So that in advance of acquiring

18 the shares, they had sought the opinion of the

19 Texas Savings and Loan Commission. Right?

20 A. Seems so.

21 Q. Now, do you know whether a similar

22 opinion was sought from the Federal Home Loan Bank










25238

1 Board at this point in time?

2 A. No, I don't know.

3 Q. Do you recall that subsequently, an

4 inquiry was made to the Federal Home Loan Bank

5 Board about the status of the C preferred shares

6 as to what impact they would have on MCO's

7 ownership of UFG?

8 A. No, I don't recall.

9 Q. Okay. Take a look at the next

10 document, which is T1130, Tab 1648. This is a

11 memo that's written to you by Mr. Berner. And it

12 goes to you and Mr. Hurwitz.

13 A. Okay.

14 Q. And he says, "I've been orally informed

15 by the staff at the Federal Home Loan Bank Board,

16 presumably it's gone all the way to Julie

17 Williams, that the staff position is that

18 preferred stock is not immediately convertible to

19 the underlying common" -- strike that -- "that

20 preferred stock which is not immediately

21 convertible to the underlying common is not

22 considered to be a holding of the underlying










25239

1 common and, therefore, would not be counted in

2 determining control."

3 Do you see that?

4 A. I do.

5 Q. Okay. Now, prior to acquiring the

6 preferred shares, had you received some opinion of

7 counsel as to whether the preferred shares would

8 be counted towards a holding of underlying common?

9 A. Opinion of -- I'm not sure if it was a

10 formal opinion. I'm assuming, from our lawyers

11 having raised this question, that the MCO board

12 approval would have been linked to our lawyers'

13 confidence to that case.

14 Q. Well --

15 A. I don't know if it was a formal

16 opinion, and I'm --

17 Q. When you say when your lawyers having

18 raised that issue, are you talking about --

19 A. My lawyers having raised that issue.

20 No. What I'm saying is since I mentioned earlier,

21 I would have been asking that question, I'm

22 assuming that the board would not have approved










25240

1 the subscription had our lawyers not, in answer to

2 that question, said, "In our judgment, that's not

3 a problem."

4 Q. So, what you're saying is that that's

5 the kind of question you would have asked?

6 A. Yes.

7 Q. You have no independent recollection of

8 asking the question, but you would have asked that

9 kind of question if you were on the board?

10 A. I was on the board, and I -- my sense

11 is that I would have asked that question.

12 Q. Okay. And so, you're assuming that

13 if -- since you would have asked that question,

14 they must have given you an opinion to the effect

15 that it was okay to do the deal under the Federal

16 Home Loan Bank Board regulations? Is that what

17 your testimony is?

18 A. Again, I don't -- I'm only -- I don't

19 know what giving me an opinion -- I've learned in

20 earlier conversations with you that sometimes that

21 has a very formal meaning. I'm just saying I'm

22 assuming I would have been told by our lawyers in










25241

1 answer to that question that it was within the

2 guidelines to proceed.

3 Q. Okay. But as you sit here today, you

4 have no independent recollection as to whether you

5 asked that question of your lawyers, do you?

6 A. I don't have an independent

7 recollection. I'm making the assumption in terms

8 of general behavior.

9 Q. Okay. And you have no independent

10 recollection of whether they, in fact, gave you an

11 opinion oral, written, or otherwise on that

12 subject?

13 A. Correct.

14 Q. Okay. But now we see that two years

15 later or three years later, as the conversion date

16 for the C preferred is approaching, that

17 Mr. Berner is now going to the Bank Board and

18 seeking an opinion as to whether the preferred

19 stock which is not immediately convertible to the

20 underlying stock is to be considered a holding of

21 the underlying common.

22 Do you see that?










25242

1 A. Yes.

2 THE COURT: Mr. Rinaldi, what exhibit

3 number is that?

4 MR. RINALDI: I'm sorry. It's T1130,

5 and it's Tab 1648. And this is a memo to

6 Mr. Hurwitz from Mr. Munitz dated February the

7 18th.

8 MR. NICKENS: Your Honor, our records

9 indicate that that document is in as B1493.

10 MR. RINALDI: I'm sorry. It's one of

11 these doubled-marked documents, and I have here

12 that it's alternatively B1493.

13 A. And it's from Mr. Berner to -- the one

14 I have is from Mr. Berner to Mr. Hurwitz and

15 Mr. Munitz. Am I looking at the right one?

16 Q. (BY MR. RINALDI) That's correct.

17 THE COURT: Thank you. I have the

18 right document.

19 MR. RINALDI: I'm sorry, Your Honor.

20 Q. (BY MR. RINALDI) Now, were you -- did

21 you and Mr. Hurwitz request Mr. Berner to contact

22 the Bank Board and ascertain what the -- whether










25243

1 the preferred stock, if it were not immediately

2 convertible, would be considered a holding of the

3 underlying common?

4 A. I don't know -- specifically, I don't

5 know whether that request occurred or whether

6 Mr. Hurwitz was involved with it. In all

7 likelihood, I would have had some exchange with

8 Mr. Berner.

9 Q. You say "in all likelihood." You mean

10 if this were conveyed to Mr. Berner, it would have

11 been by you rather than Mr. Hurwitz?

12 A. Yes.

13 Q. And it says here that "Mr. Berner had

14 inquired on a no-name basis."

15 Do you know what he's referring to

16 there?

17 A. No, no.

18 Q. And then the final point here is -- in

19 the last paragraph, he says that he thinks that

20 what they can do is exchange the C preferred for D

21 preferred.

22 Do you see that? Or for a new class of










25244

1 preferred.

2 A. Yeah. I see the exchange for a new

3 class, yes.

4 Q. And do you recall that ultimately, MCO

5 and Federated did enter into an exchange

6 arrangement whereby they exchanged the C preferred

7 for a new class of stock?

8 A. Into a D, I believe, yeah.

9 Q. Okay. And what was the reason for

10 doing that, sir? Do you recall?

11 A. I have a vague memory of a time frame

12 requirement for making a decision, but I don't

13 recall specifically.

14 Q. In fact, wasn't it because if the C

15 preferred share had converted to common stock, it

16 would have put MCO and Federated over the

17 25 percent ownership limit for common stock and

18 they would have become a holding company or would

19 have been considered a holding company?

20 A. I don't specifically remember; but that

21 clearly, again, would have been an issue for me.

22 Q. Okay. Why don't we turn to the next










25245

1 document. This is a letter that -- it's T1131.

2 It's Tab 75. And this is a letter that was

3 written to Julie Williams by Mr. Berner.

4 Do you recognize this letter, sir.

5 MR. EISENHART: Your Honor, may we have

6 an exhibit number for this?

7 MR. RINALDI: T1131, Tab 75.

8 A. I don't.

9 Q. (BY MR. RINALDI) Now, the person it's

10 written to is Julie Williams, correct?

11 A. Yes, uh-huh.

12 Q. And Ms. Williams is the person that you

13 had indicated earlier you had discussions with

14 regarding the net worth condition and potential

15 modification of it, correct?

16 A. Yes.

17 Q. And the time frame here is March 4th,

18 1987. So, MCO is still carrying on discussions

19 with the Federal Home Loan Bank Board regarding

20 the modification of the net worth condition at

21 this point in time?

22 A. I'm not sure I remember the timing.










25246

1 You showed me earlier the letter, I believe, from

2 Mr. Eckland saying "for now, we're not going

3 further." But I don't remember whether that's

4 before or after this date.

5 Q. Well, I believe the Eckland letter is

6 dated December 1987.

7 A. '87? Okay. So, then there would have

8 then before that been ongoing conversation.

9 Q. Okay. And we now write to

10 Ms. Williams, and it starts off and recites some

11 facts at the bottom of the page. And the first

12 fact is that UFG has the 755000C preferred shares.

13 So, it's telling her that there is this

14 outstanding issue.

15 And then it goes on and says that -- it

16 talks about the rights offering.

17 And then if you turn over to the next

18 page, the first full paragraph, it says that

19 "Pursuant to the terms of the Series C stock,

20 after June 15th, 1987, a holder may elect to

21 convert all or any part of such Series C stock

22 into voting common stock."










25247

1 Do you see that?

2 A. Yes.

3 Q. Then if you drop down to the last full

4 paragraph on that page, the last sentence says --

5 last four sentences say, "If Federated and MCO

6 both converted their Series C stock into voting

7 common stock, they would hold in the aggregate

8 34.99 percent of the outstanding voting stock of

9 UFG."

10 Do you see that?

11 A. I don't see outstanding, but I'm sure

12 that --

13 Q. Oh, I'm sorry. Did I put that in?

14 A. Yeah.

15 Q. "In the aggregate... of the voting

16 common stock of UFG." Thank you.

17 Does that refresh your recollection

18 that MCO and Federated were concerned that this

19 stock was going to become convertible on

20 June 15th, 1987, and that when that occurred, they

21 might be -- the underlying common shares would be

22 attributed to their ownership?










25248

1 A. Yes.

2 Q. And so, what was the solution that MCO

3 and Federated and UFG were proposing to the Bank

4 Board?

5 A. Well, this is not a letter from MCO and

6 Federated. It seems like the letter from Berner,

7 which I don't -- as I say, it's not copied to me.

8 It doesn't look familiar. But it says UFGI

9 propose to exchange shares for an equal number of

10 shares of Series D. I'm just kind of

11 paraphrasing.

12 Q. Right.

13 A. So, it looks like what UFGI is saying

14 is "we'll exchange C for D."

15 Q. And the conversion date on the D would

16 be pushed back a year, It indicates on the next

17 page, until July 1, 1988.

18 Do you see that?

19 A. I do.

20 Q. Does that refresh your recollection as

21 to the reason why UFG was writing this letter to

22 Julie Williams?










25249

1 A. Well, I don't know if that was the

2 reason. What I see is that this is the letter. I

3 can't say whether that was the reason or that was

4 the only reason. But it certainly, as I said to

5 the earlier question, refreshes my memory as to

6 MCO and Federated's concern.

7 Q. Well, why was it in the interest of UFG

8 to convert the shares from C to D?

9 A. Well, I had mentioned earlier overall,

10 their desire to keep strengthening the capital

11 position. Now, whether -- I don't know enough to

12 know technically what would have happened if there

13 had been an expiration which hadn't been

14 exercised. I'm not the person to ask technically

15 what would have been the other set of conditions

16 around that decision.

17 Q. Well, I guess my question to you is:

18 Wasn't this the problem of Federated and MCO?

19 A. Well, it -- amongst the issues -- as

20 I've said, from an MCO and Federated perspective,

21 that was an issue. I was only -- I don't know

22 whether that was the only issue, what else might










25250

1 have been driving the transaction. From a

2 Federated/MCO perspective, that was an issue.

3 Q. But you were the -- at this point in

4 time on the board of directors of UFG?

5 A. Yes.

6 Q. And you were also on the board of

7 Federated and MCO. But you have no understanding

8 as to why it was UFG was undertaking to issue the

9 D preferred shares?

10 A. I'm just -- at this point in time, I

11 can't comment technically and from an investment

12 perspective as to the other reasons why one would

13 shift this piece of paper.

14 Q. Did MCO and Federated request that UFG

15 issue the D preferred shares in order to resolve

16 the problem that was created by the potential or

17 the future conversion of the C preferred?

18 A. I just don't remember the trigger of

19 the conversation because I don't know what the

20 other conditions were.

21 Q. Well -- but you were the person that

22 was involved in dealing with Mr. Berner on that










25251

1 subject, weren't you?

2 A. Yes.

3 Q. It's just that you don't -- and you

4 would have reported this to Mr. Hurwitz, as well?

5 A. Yes.

6 Q. It's just you don't recall the sequence

7 of events, whether MCO and Federated requested

8 that UFG do it or whether UFG came up with the

9 suggestion on their own?

10 A. Correct.

11 Q. As you sit here today, can you think of

12 any possible benefit to UFG to converting these

13 shares?

14 A. I just am not in a position after all

15 of this time to comment. I just wish I could be

16 sharper on that kind of issue. I can't.

17 Q. But once again, if the shares hadn't

18 been converted, then clearly MCO and Federated

19 would have exceeded the 25 percent threshold?

20 MR. VILLA: Objection. That assumes

21 that they wouldn't sell the rest of their stock

22 into the market. I think he's positing that they










25252

1 are holding the stock forever.

2 Q. (BY MR. RINALDI) If there was no

3 other change in MCO Holdings -- MCO and

4 Federated's holdings of UFG common and the

5 conversion occurred, they would clearly have

6 exceeded the 25 percent threshold, correct?

7 A. I take the Berner letter to say that if

8 there were no other disposition, which is always

9 an option, a choice, his number is 34 point -- it

10 looks like 99.

11 Q. Now, I'm interested -- Mr. Berner says

12 here that there were 755,000 shares of C

13 convertible preferred. He identifies that for

14 Julie Williams on the first page.

15 Do you see that? It's at the bottom of

16 the page.

17 A. Yeah, uh-huh.

18 Q. Okay. And he identifies the ownership

19 of UFG -- I mean MCO and Federated. Then on the

20 second page, he identifies for Ms. Williams the

21 fact that there is 9.8 percent of UFG and

22 13.5 percent respectively held by Federated and










25253

1 MCO.

2 Do you see that in the large paragraph

3 at the top?

4 A. Yes.

5 Q. So, he identifies the common

6 stockholding. And then if you look at the

7 footnote on the next page, he represents to

8 Ms. Williams, "As noted above, Federated and MCO

9 together own an aggregate of approximately

10 23.3 percent of the common stock of UFG and

11 approximately 97.5 percent of the Series C stock."

12 Do you see that?

13 A. In the footnote, yes.

14 Q. Yes. Do you see any mention of the

15 option agreement between MCO and Federated?

16 A. Are you asking me to read this whole

17 letter?

18 Q. Well, do you see any reference to it in

19 the letter or any stockholding?

20 A. You want me to read this letter?

21 Q. Well, let me say this. I've read the

22 letter, and I don't believe there is any mention










25254

1 of it in the letter. I'm sorry. Yes. When I

2 said "the option," I meant the option between MCO

3 and Drexel, not between MCO and Federated. But

4 I've looked at the letter, I will warn you, if it

5 saves time, that I see no reference in it.

6 My question to you is: Do you know why

7 Mr. Berner did not put into the letter the

8 information regarding MCO and Federated's -- I'm

9 sorry -- MCO's option arrangement with Drexel to

10 acquire future shares of UFG?

11 A. If it's not in there, I don't -- I

12 don't know why.

13 Q. You had no discussion with Mr. Berner

14 regarding that subject?

15 A. I don't recall any.

16 Q. You weren't concerned that if Julie

17 Williams learned that there was this option

18 arrangement, that those option shares might be

19 treated as common shares held by UFG -- held by

20 MCO and Federated that would put them over the

21 25 percent level?

22 MR. VILLA: Objection. We don't have










25255

1 any testimony in this case that Julie Williams

2 didn't know about the option. In fact, they moved

3 to prevent Julie Williams from being deposed on

4 this issue. So, I think that question is

5 inappropriate, assumes facts not in evidence.

6 A. Wasn't it in the proxy already?

7 THE COURT: Let's have another

8 question.

9 Q. (BY MR. RINALDI) Did you have any

10 discussion with Mr. Hurwitz or Mister -- I'm

11 sorry -- Mr. Berner as to whether the information

12 relating to the put/call option should be put into

13 this letter?

14 A. I think I answered that question. I

15 don't recall any exchange with Mr. Berner about

16 what would go in this letter. Indeed, as I said,

17 I don't remember seeing this letter.

18 Q. And -- now, do you recall that

19 Ms. Williams wrote back to you and approved the

20 conversion from the C to D preferred?

21 A. Wrote to me?

22 Q. To the -- to Mr. Berner or to MCO and










25256

1 Federated or I guess in this case, it would have

2 been UFG.

3 A. Are you showing me that letter?

4 Q. Yeah, I will. But do you recall that

5 they came back with a letter?

6 A. No.

7 Q. Take a look at T1134. It's Tab 1651.

8 MR. RINALDI: Just so the record's

9 clear, in reference to Mr. Villa's objection, I

10 believe that when Mr. Villa noticed the deposition

11 of Julie Williams, it was the OCC that objected to

12 the deposition. I believe your representation was

13 that we prevented her from being deposed. I

14 believe that, in fact, the record is that the OCC

15 had some objection to her deposition.

16 MR. VILLA: That may be correct, Your

17 Honor. Nevertheless, her testimony is not in this

18 case and I think representing her state of

19 knowledge is --

20 THE COURT: I know that subpoena was

21 quashed upon her representation that she didn't

22 remember anything about any of this.










25257

1 Q. (BY MR. RINALDI) Now, does this -- do

2 you recall -- well, do you recognize what's been

3 marked as T1134? This is a memo to you and Howard

4 Bressler and Mr. Eckland from Mr. Berner.

5 A. Yes. That one does show a copy to me.

6 Q. Okay. And do you recall receiving this

7 letter, which is the response that Mr. Berner

8 received from Julie Williams?

9 A. I don't recall it specifically; but

10 having been copied to me, I would have seen it

11 then.

12 MR. EISENHART: Your Honor, I'm not

13 sure I follow that last exchange. I don't believe

14 that the letter from Julie Williams is actually a

15 part of Exhibit T1134. I believe it's a separate

16 exhibit. It's B1561 at Tab 1649, unless my

17 exhibits are different than Mr. Rinaldi's.

18 MR. RINALDI: I think they must be

19 because what I have is a cover memo, and then it's

20 contiguously Bates stamped MX004213, which is the

21 cover memo. The next document is MX04214, and

22 that is a five-page document which is the response










25258

1 of Julie Williams to Mr. Berner. And the cover

2 memo, in fact, makes reference to "attached is a

3 copy of a letter."

4 MR. EISENHART: Our exhibits may not in

5 sync then because we have Exhibit T1134 at

6 Tab 1651 as a one-page document and, granted, it

7 refers to an attachment but there doesn't seem to

8 be any attachment here.

9 THE COURT: Well, our T1134 does have

10 the attachment. And I think we'd better find out

11 whether the copy for the record has the

12 attachment.

13 MR. RINALDI: It would appear that the

14 copy for the record also has an attachment. It

15 runs from the Bates ranges MX004213 through

16 MX004218.

17 Well, as long as Mr. Eisenhart has both

18 the letter and the cover memo, it shouldn't

19 prevent me from proceeding with the line of

20 questions.

21 MR. EISENHART: That's fine, Your

22 Honor. May we just know the date of the










25259

1 attachment?

2 MR. RINALDI: May 6, 1987.

3 MR. EISENHART: Now I'm not so sure I

4 do.

5 Q. (BY MR. RINALDI) Now, Mr. Munitz, at

6 the bottom of the first page of Ms. Williams'

7 letter, it -- and going over onto the next page,

8 there is a description of United -- of MCO and

9 Federated's ownership of United Financial Group.

10 Would you read that for a moment?

11 A. (Witness reviews the document.)

12 Footnote 1. Got it. Okay.

13 MR. VILLA: Sir, you're talking about

14 the carry-over paragraph. Right?

15 A. The paragraph or the footnote?

16 Q. (BY MR. RINALDI) I'm talking about

17 the footnote at the end of Page 1 that carries

18 over to Page 2. And it mentions there first that

19 MCO and Federated owned 23.3 percent of the

20 outstanding shares of common stock of UFG.

21 Do you see that on the first page?

22 A. Uh-huh. (Witness nods head










25260

1 affirmatively.)

2 Q. And then on the second page, at the

3 top, it indicates that the two companies owned

4 97.5 percent of the Series C stock.

5 Do you see that?

6 A. Yes.

7 Q. In her recitation of the ownership

8 interest of UFG by MCO and Federated, do you see

9 any reference to the put/call option arrangement

10 entered into between Drexel and MCO?

11 A. Well, again -- I mean, do you want me

12 to read the entire letter, or do you want to tell

13 me if it's in there or not?

14 Q. Well, it's not in there. But I'm

15 asking you: Do you see it specifically in the

16 section where she refers to the ownership

17 interest?

18 A. I don't see it in the paragraph that

19 you asked me to read.

20 Q. Does it appear, then, that Ms. Williams

21 at the time she wrote this letter was not aware of

22 the ownership interest in the option arrangement?










25261

1 MR. KEETON: I object to the question,

2 asking a witness to speculate on what's in some

3 witness' mind who made a representation when she

4 doesn't remember it.

5 THE COURT: I'll sustain the objection.

6 Q. (BY MR. RINALDI) Let's then turn to

7 the next document. Let's skip that document and

8 go on to the last document in the series, sir.

9 And this is a letter from you. It's

10 T1139. It's Tab 1638. This is a letter to

11 Mr. Darrell Dochow.

12 Would you take a moment to read that

13 letter, sir?

14 A. (Witness reviews the document.) Okay.

15 Q. And in the first paragraph, it makes

16 reference to the Bank Board resolution by which

17 the net worth condition was imposed.

18 Do you see that?

19 A. Yes.

20 Q. And then it goes on. And on the second

21 page, it asks the Bank Board again if they would

22 consider waiving the net worth maintenance










25262

1 agreement.

2 Do you see that?

3 A. Yes.

4 Q. And it was shortly after this in

5 December of 1987 that MCO then terminated its

6 attempts to extend the period for obtaining

7 additional -- I mean obtaining up to 35 percent of

8 the shares of UFG, was it not?

9 A. The Eckland letter that you showed me

10 earlier.

11 Q. Yes. And is it fair to say, then, sir,

12 that this request for waiver was never acted upon

13 by Mr. Dochow?

14 A. I don't know if it was acted upon.

15 Q. But not favorably?

16 A. I don't think it resulted in -- I don't

17 believe that the particular request was granted.

18 Q. Now, in the second full paragraph, it

19 reads as follows: "Holding company" -- in this

20 case, "holding company," I believe, refers to

21 Federated and MCO -- "has not taken action to

22 acquire control of UFG and United due to the fact










25263

1 that it was engaged in ongoing discussions with

2 the prior administration at the Federal Home Loan

3 Bank regarding some modification of the net worth

4 maintenance provision contained in the order."

5 In your memo, you state that -- or your

6 letter -- that no action has been taken to acquire

7 control of UFG.

8 Do you see that?

9 A. Yes.

10 Q. In fact, Mr. Schwartz had negotiated an

11 arrangement whereby MCO had acquired -- had

12 acquired an option to acquire 300,000 shares of

13 UFG stock from Drexel Burnham Lambert, had he not?

14 MR. KEETON: Your Honor, I object.

15 That's pure argument by counsel. We're going back

16 over other areas. Whether it is or isn't is

17 something that might be decided otherwise. But to

18 ask this witness, "Oh, that's wrong in there" is

19 purely counsel's position and argumentative.

20 MR. RINALDI: I don't think that's the

21 question I asked.

22 THE COURT: All right. Can you answer










25264

1 the question? I'll deny the objection. If you

2 remember Mr. Rinaldi's question.

3 A. Could I get the question once more?

4 Q. (BY MR. RINALDI) At the time you made

5 the statement, you knew that Mr. Schwartz had

6 negotiated an option agreement with Drexel whereby

7 MCO had the option to acquire 300,000 shares of

8 UFG, correct?

9 A. I was aware of the option.

10 Q. And in fact, you were on the board at

11 the time of -- of MCO at the time the option was

12 approved?

13 A. Correct.

14 Q. And yet, in -- and the purpose for

15 acquiring that option was so that in the future,

16 UFG could convert those shares to its -- I mean

17 MCO could convert those shares to its ownership,

18 correct?

19 A. It seems to me, as I think I said

20 earlier, that the purpose was to not be in control

21 at that point but that if the Bank Board

22 resolution could be accepted under the right










25265

1 interpretation of the net worth maintenance, then

2 and only then would they take that step.

3 Q. But the purpose of that action was to

4 take steps to acquire control of UFG, wasn't it?

5 A. To prepare to take steps to acquire

6 control if and only if the net worth maintenance

7 agreements were mutually satisfactory. That was

8 my interpretation.

9 Q. Okay. And when you wrote this letter,

10 you didn't disclose the fact that MCO had acquired

11 an option from Drexel under the put/call

12 arrangement, did you?

13 A. Well, basically, this is a Bill Eckland

14 drafted letter and I would have basically just

15 taken his guidance as to what had to be and what

16 did not have to be mentioned in the whole range of

17 activities that we were undertaking. So, here I

18 was basically just following counsel.

19 Q. Let me ask you this: You didn't

20 disclose it in this letter, did you?

21 A. It's not mentioned -- again, I read it

22 quickly. I don't see the Drexel option mentioned










25266

1 in this letter.

2 Q. And we looked earlier at the C to D

3 preferred conversion letter that Mr. Berner sent.

4 And I think I assured you that there was no

5 reference to it in that either.

6 A. Yes. I took your assurance.

7 Q. And for the three years preceding this

8 Dochow letter or almost three years, you had been

9 in continuous or you had been in contact with the

10 Federal Home Loan Bank of Dallas as well as

11 Washington negotiating or discussing the potential

12 modification of the net worth maintenance

13 obligation that had been imposed under the holding

14 company resolution.

15 Do you recall that?

16 A. Yes. I would have been in conversation

17 with them. I would have assumed an array of

18 materials going back and forth. And within those

19 materials would be included the documents you

20 showed me disclosing the option. It would always

21 have been my assumption that it was clear to

22 anyone that the option existed.










25267

1 Q. Did you ever tell Julie Williams that

2 the option existed?

3 A. In any conversation with her?

4 Q. Yes.

5 A. I don't know whether I did or didn't.

6 I assume we would have had in front of us those

7 very same materials and that in her role, she

8 would have clearly understood what was in all the

9 other disclosed material.

10 Q. We'll get to that in a minute.

11 Did you ever tell any members of her

12 staff, either orally or in writing, of the

13 put/call option?

14 A. It could very well have been in an oral

15 conversation. I don't know at this point.

16 Q. You have no recollection, though, of a

17 conversation having occurred, do you?

18 A. Having occurred or not occurred.

19 Q. Okay. And you said that it was in

20 materials you sent to Ms. Williams.

21 Which materials did you send to

22 Ms. Williams that you thought the option was










25268

1 disclosed in?

2 A. What I think I said was that during the

3 course of all those conversations, I would have

4 assumed that a vast array of materials were

5 available. And it seems to me now, thinking it

6 through and with the documents that you showed me,

7 that amongst them for a person at her level and

8 background would obviously have been the proxy or

9 other materials that had the disclosure in them.

10 Q. Okay. So, that's just your assumption;

11 is that correct, sir?

12 A. That's my assumption.

13 Q. You have no knowledge as to what

14 Ms. Williams did have or didn't have by virtue of

15 having personally sent those materials to her?

16 A. I don't -- again, I don't even know --

17 you could show me in the next exhibit a package of

18 materials that I sent to her that included it as

19 you've been doing. I don't know -- I can't

20 testify under oath at this point as to what

21 documents I did or did not at any time send to any

22 member of the Bank Board.










25269

1 Q. But we do know that the document or the

2 letter that you sent to Ms. Williams describing

3 the actions that you had taken to acquire control

4 of UFG or not acquire control of UFG that was sent

5 to Mr. Dochow on November 17th, 1987, excluded any

6 discussion of a put/call option; is that correct?

7 A. Well, there are two letters. You had

8 shown -- I thought the letter we were talking

9 about earlier was a Berner letter to Julie

10 Williams.

11 Q. That's correct. And I'm just asking

12 you about your letter here?

13 A. My letter to Dochow does not mention

14 that and doesn't mention a whole bunch of other

15 things.

16 Q. Okay. But Ms. Williams and Mr. Dochow

17 clearly knew about the C preferred shares because

18 they had passed on that, had they not?

19 A. Passed on -- well.

20 Q. They had sent you the letter saying

21 that it was okay to convert the C to D?

22 A. Sent Berner a letter.










25270

1 Q. That's correct. And that letter was

2 then passed on to you?

3 A. Yes.

4 Q. So, they clearly new from the C to D

5 preferred application about the existence of the

6 preferred shares?

7 A. Yes.

8 Q. But there was, again, nothing in that

9 application that referred to the option

10 arrangement, was there?

11 A. Which application? The letter from

12 Berner?

13 Q. The letter from Berner that went to

14 Ms. Williams.

15 A. Again, I don't know what else went --

16 there were other disclosed materials that had the

17 option. I'm saying I don't know what went and

18 what didn't. It wasn't my letter.

19 Q. Okay.

20 MR. RINALDI: Your Honor, I think that

21 concludes my examination with respect to this part

22 of the case. I'm perfectly willing to start into










25271

1 the next area if the Court wishes me to do so, or

2 we can take a break.

3 THE COURT: All right. We'll adjourn

4 until 1:30.

5

6 (Whereupon, a lunch break was taken

7 from 11:47 a.m. to 1:35 p.m.)

8

9 THE COURT: Be seated, please. We'll

10 be back on the record.

11 Mr. Rinaldi, you may continue.

12 MR. RINALDI: Thank you, Your Honor.

13 Q. (BY MR. RINALDI) Dr. Munitz, I'd like

14 to now shift the focus of the examination to a

15 slightly different area. I'd like to focus on

16 your involvement with USAT and UFG rather than the

17 relationship of stock ownership of MCO and

18 Federated which we talked about this morning.

19 I believe yesterday we talked about the

20 positions you held at the outset when you first

21 joined the boards of UFG and USAT. And I believe

22 you indicated you were on the boards of both of










25272

1 those institutions, correct?

2 A. Correct.

3 Q. Now, I'd like to just go forward and

4 have you give me your best recollection.

5 In addition to sitting on the boards,

6 at the outset did you have any other positions

7 with either UFG or USAT?

8 A. Positions, no.

9 Q. Okay. Well, were you on any committees

10 or --

11 A. Well, yeah. That's why I questioned

12 "positions." I suspect I was on board committees

13 from time to time, as would normally happen. I

14 couldn't tell you which ones when, but I --

15 probably yes.

16 Q. Okay. Did there come a point in time

17 when you assumed a greater involvement or role in

18 the operations of either USAT or UFG than simply

19 that of a director?

20 A. Several.

21 Q. Okay. And tell me the first juncture.

22 A. Okay. Again, I'm not sure in terms of










25273

1 direct operations. But I think we talked a little

2 bit yesterday -- right after the merger, maybe

3 even going into the merger that you were asking me

4 about yesterday, I was more involved, without

5 changing role and responsibility, helping think

6 through the consolidation of the branches, the key

7 personnel, trying to understand -- new board,

8 because we had added board members. It was a new

9 consolidated board. And that probably would have

10 been the first stage of anything that was more

11 complicated or more intense than just being a

12 director.

13 Q. Now, in that capacity, did you have any

14 official title?

15 A. At some point, I became the chair of

16 the executive committee of the board; but I don't

17 know what time that was. I think in that -- I

18 can't remember any other title -- you're right.

19 It might have been a board committee membership

20 but in terms of operation or administration, I

21 don't recall any other title at that period.

22 Q. And when you say at some point you










25274

1 became chair of the executive committee of the

2 board, which board are we talking about?

3 A. Well, UFGI is the one that first comes

4 to mind. But I also think, Mr. Rinaldi, there is

5 a point at which I was chairing the executive

6 committee of both boards.

7 Q. And that would be of USAT, as well?

8 A. Yes.

9 Q. And do you recall approximately at what

10 point in time you became involved as the chair of

11 the executive committee of UFG's board?

12 A. I don't. As I say, I don't know

13 whether it's pre or post the merger, greater

14 involvement.

15 Q. Okay. Then let's move forward, say, to

16 the point in time when the application to become a

17 holding company was granted and the Federal Home

18 Loan Bank Board approved the acquisition of up to

19 35 percent of the shares on the condition of the

20 net worth being met.

21 Do you recall that?

22 A. Yes.










25275

1 Q. That would have been the end of '84 and

2 the beginning of '85.

3 At that point in time, did you have --

4 what positions did you hold at either USAT or UFG?

5 A. Well, there would have been the ones

6 that we just described; so, I would have been on

7 both boards. May or may not have been the chair

8 of the executive committee of one or both boards.

9 There's a point in there -- and I think it's

10 roughly in that '84 to '85 time period -- where I

11 was doing more consulting work and was -- even

12 might have been referred to as a consultant in

13 that period. And then sometime in the first half

14 of '85, I believe -- again, I shouldn't hold to

15 the dates. But I'm fairly comfortable it was in

16 that period. I then shifted into -- although I

17 didn't change title. I was still the chair of the

18 executive committee at UFGI. I became an employee

19 in that role rather than just a member of the

20 board.

21 Q. And --

22 A. So, I went, in effect, from being a










25276

1 director to an officer and director.

2 Q. Okay. And your officesorial position

3 would have been chair of the executive committee

4 of UFGI?

5 A. Yes, sir.

6 Q. And that would have occurred sometime

7 in the first half of 1985?

8 A. That's vaguely my -- roughly my

9 recollection.

10 Q. All right. Let me just go back. You

11 said that there was a period of time prior to that

12 that you did some consulting work.

13 Who did you do consulting work for?

14 A. Well, again, it would have been for the

15 institutions that we were describing, basically

16 wearing a hat as a member of the board and

17 providing my expertise. And what I mean by that

18 is as I reported my time, I would have been

19 describing that I was spending more time on UFGI

20 matters.

21 Q. Now, at this point in time, were you

22 being compensated simply as a board member for










25277

1 attending board meetings; or had you started to

2 become employed by either UFG or USAT?

3 A. There may have been a bridge in that

4 shift from director where the only compensation

5 would have been board fee to officer and director

6 where I would have gone on the UFGI payroll where

7 there was a consulting role. It's just -- it's a

8 vague recollection, and I really am not sure.

9 Q. Now, what was the nature of the

10 consulting work that you did?

11 A. I think at that point, it was -- it

12 would have been primarily the compensation and

13 personnel issues that we were discussing yesterday

14 becoming a little bit more intense and more

15 complicated, combined with the immediate issues

16 presented by the aftermath of the merger.

17 Q. Okay. And what were specifically the

18 compensation issues that you were looking at?

19 A. Were we competitive nationally for key

20 people? What are the ways in which you provide

21 compensation and incentive to try to keep -- not

22 only find but keep the strongest people? What can










25278

1 we learn from other institutions as to their

2 strategies? Is there something we should know or

3 could do more effectively or should be thoughtful

4 about when you're trying to just put together and

5 hold onto the strongest possible leadership group?

6 Q. Okay. And what -- this was in about

7 1985 that you prepared or performed this

8 consultancy work?

9 A. Well, as I said, the consulting

10 specific reference I'm making is possibly in this

11 bridge period.

12 Q. So, it's --

13 A. The general responsibility --

14 Q. The end of '84, beginning of '85?

15 A. Roughly.

16 Q. Okay. And at that point in time, did

17 you hire some consulting group to review the level

18 of compensation that was being paid at UFG or

19 USAT?

20 A. Well, I know we brought in consulting

21 groups; and I know that I was in ongoing

22 conversation with -- for example, if you went --










25279

1 if you began a search, you would talk with -- and

2 you had a head hunting group doing the search,

3 part of that conversation is always about

4 compensation. What are we looking for? What's

5 our market? What are we likely to have to pay?

6 In part, because the fee to a consulting group in

7 a search is usually based on a percentage of the

8 first year's compensation.

9 So, there would have been those

10 exchanges. There would have been regular

11 exchanges with the national professional

12 associations where you'd share data of 20 savings

13 and loans or 30 financial institutions would have

14 been gathered usually under a code so they don't

15 say the specific name. They get exchanged. You

16 can take the temperature of whether you're in the

17 competitive ballpark.

18 I know that we then hired formally one

19 or two firms to do this. I couldn't tell you

20 right now the time frame when that began.

21 Q. When you say you hired one or two firms

22 to do that, do you recall that there came a time










25280

1 in 1988 that you hired Hewitt & Associates and

2 Wyatt?

3 A. Yes, sir. I think in that order.

4 Q. Okay. Yes. Now, are you referring to

5 Hewitt and Wyatt as the firms that you hired?

6 A. I was referring to those two as the

7 ones where I know a name and a time frame.

8 Q. Okay. Now, prior to that, had you

9 received any other studies regarding compensation

10 levels at UFG and UFGI (sic) by consulting firms

11 like Hewitt and Wyatt?

12 A. The ones that I can see fairly clearly

13 in my mind would have been from the professional

14 associations and from the search firms.

15 Q. And when you say "the search firms,"

16 you mean when you wanted to hire a Joe Phillips,

17 for example, you would have hired a search firm to

18 find a high-yield bond trader?

19 A. Yeah. I don't know specifically for

20 Phillips, but it's a good example. Or for Sandy

21 Laurenson, et cetera.

22 Q. You would have hired a search firm to










25281

1 look for a person skilled in dealing with

2 mortgage-backed securities?

3 A. Whatever the function, yes.

4 Q. Yes.

5 A. A Gene Stodart.

6 Q. So, these would have been specific

7 kinds of studies as to the particular kind of need

8 that the institution needed?

9 A. Usually. And for that example, yes.

10 Q. And in addition to that, did you

11 commission, prior to Hewitt or Wyatt, any kind of

12 study by a compensation consultant regarding

13 competitive levels in the industry?

14 A. Might have. And again, you may have

15 one in mind. I don't -- I can't think of one as

16 specifically as I can think of Hewitt and Wyatt.

17 Q. Well -- so, is the answer to your

18 question (sic) no, you did not?

19 A. Not to my recollection.

20 Q. Okay. Fine. And in addition to that,

21 you said you went to some professional societies

22 or agencies?










25282

1 A. Associations.

2 Q. Associations. What are you making

3 reference to there?

4 A. There were -- I won't remember their

5 formal titles, but the National Association of

6 Savings and Loans, the Banking Industry

7 Consortium. This happens in every industry and in

8 every business. There are national associations.

9 And one of their roles is to be a sort of

10 confidential third-party in the sharing and

11 exchanging of compensation data. People are

12 usually reluctant for if NationsBank doesn't

13 directly call up Bank of America now that they

14 have the same phone number and ask that question,

15 but they will likely go to the National

16 Association of Commercial Banks and say, "Can you

17 give me a feel of what the chief financial officer

18 and the general counsel make at the ten largest or

19 the 15 largest organizations?" That was what I

20 meant by the associations.

21 Q. Did the associations ever prepare for

22 you a compensation study regarding the levels of










25283

1 compensation at either USAT or UFG?

2 A. I don't know if it was specifically for

3 us, but I remember discussions -- I can't

4 particularly focus on a particular report. But

5 yes, they -- my memory is regular reports of

6 references, memoranda, newsletters, notes at

7 meetings dealing with this issue.

8 Q. But did they come in and look at the

9 job positions that your people were holding and

10 then try to compare those positions to others in

11 the industry to determine whether they were at,

12 above, or below what other people at comparable

13 positions were at?

14 A. It's not the way the associations would

15 have worked. The search firms would have done

16 that.

17 Q. And the associations would have simply

18 given you industry data?

19 A. Yes.

20 Q. And the search firms would have given

21 you fact specific data as to the individual you

22 were searching for?










25284

1 A. With the slight exception in that they

2 would always have been sensitive to the context of

3 where they were coming. So that if they were

4 searching for a general counsel, they would have

5 been sensitive to what other general counsels were

6 making. But they also had to be very sensitive to

7 whether, if we were to bring that person in, how

8 were they going to fit relative to the other key

9 people at the organization? So, they would have

10 had to do both. But the focus would have been on

11 the specific function.

12 Q. And during the time you were there, you

13 hired Mr. Berner, did you not, or you

14 participated --

15 A. I participated in the organization

16 hiring him, yes.

17 Q. Okay. And did you hire a consultant

18 firm for purposes of retaining Mr. Berner, or did

19 you locate him on your own?

20 A. I'm not sure.

21 Q. How about Mr. Gross? Did you hire a

22 consulting firm to assist you in locating










25285

1 Mr. Gross?

2 A. I don't think so. I don't -- that one

3 I see a little more clearly. I don't believe so.

4 Q. Did you hire a consulting firm to

5 assist you in the hiring of Gerald Williams, or

6 was he already there?

7 A. No. He came -- he came relatively

8 early. So, I would have just joined the board not

9 much before he came. So, there I'm not sure. I

10 remember having some conversations with his former

11 employers about him, but I don't remember whether

12 there was a firm.

13 Q. Okay. And then Mr. Crow arrived, did

14 he not?

15 A. That basically would have been a hire

16 under Mr. Williams' jurisdiction.

17 Q. So, you wouldn't have gone to --

18 A. That one I would have been less

19 involved with.

20 Q. Okay. Now, we talked about Joe

21 Phillips. He was a bond trader -- or strike that.

22 He was a high-yield bond person.










25286

1 Do you recall that?

2 A. I remember Joe Phillips. I'm not sure

3 I would characterize -- I think basically he was a

4 fixed income person, as I recall. But I may just

5 have that phrase in my head. So, that may not be

6 a good answer. But I remember -- I think he was

7 working at American General. I don't remember

8 the -- I was less -- again, that would have

9 been -- Mr. Huebsch and others had much more

10 expertise in that area than I had. So, I would

11 not have been as involved in that search as I was,

12 for example, with Sandy Laurenson now having

13 several years past or a Berner, to use your

14 example.

15 Q. But you indicated that you didn't think

16 that Mr. Berner was one you hired a consultant

17 for?

18 A. Berner I just don't remember. I don't

19 remember Berner. With Gross, I said I didn't

20 think.

21 Q. Wasn't he associated in some way with

22 Mr. Hurwitz? Do you recall that?










25287

1 A. In business? Let me be sure I know

2 what we're talking about. Arthur Berner and

3 Mr. Hurwitz?

4 Q. Hadn't he known Mr. Hurwitz before he

5 came there?

6 A. Boy. The only memory I have -- I think

7 Mr. Berner was working for an oil company or an

8 energy company before he came here.

9 Q. Okay.

10 A. But MCO had an energy company. It may

11 be that they interacted there. Otherwise, I don't

12 have any memory of their working together.

13 Q. I wasn't suggesting they were working

14 together.

15 Do you recall that a mutual friend of

16 Mr. Berner and Mr. Hurwitz put them in contact

17 with each other?

18 A. The -- maybe that's the description of

19 a mutual friend. The one person I remember having

20 some contact would have been Mr. Friedman.

21 Q. Okay. Now -- but is it fair to say you

22 don't -- you have no recollection of contacting a










25288

1 consulting firm to assist in hiring Mr. Berner?

2 A. Yes. Posed that way, that is fair. I

3 do not remember that.

4 Q. Do you have any recollection of

5 retaining a consulting firm with respect to the

6 retention of Mr. Stodart?

7 A. I thought there was a consulting firm

8 with Mr. Stodart.

9 Q. And would the same be true with respect

10 to Mr. Bruno?

11 A. I again thought that there was a firm

12 with Mr. Bruno. I could be wrong, but I thought

13 so.

14 Q. And both Mr. Stodart and Mr. Bruno were

15 people who were involved in very specialized work

16 at the institution, weren't they?

17 A. Relatively.

18 Q. Yeah. One was in mortgage-backs. That

19 was Mr. Bruno. Mr. Stodart was a high-yield bond

20 person; is that correct?

21 A. I believe that that's correct.

22 Q. And Sandy Laurenson, once again, was










25289

1 another mortgage-back person, correct?

2 A. Roughly, that's what -- yeah.

3 Q. Now, apart from those individuals,

4 those specialized people, do you recall contacting

5 a consultant with respect to any other persons

6 that you hired at --

7 A. Oh, yeah. I mean, the most complicated

8 of all those searches was for, really, a chief

9 executive officer.

10 Q. Oh. So, we're talking about

11 Mr. Connell?

12 A. Yes.

13 Q. And that was the Hewitt --

14 A. No. That was a total separate

15 consulting assignment to Heidrick & Struggles,

16 totally separate from Hewitt.

17 Q. And it was undertaken in about April,

18 May, June of 1988?

19 A. Yeah.

20 Q. Fine.

21 And in connection with that, did they

22 provide you with a study of compensation levels










25290

1 for persons at the -- at USAT and UFG; or did they

2 simply provide you with information regarding

3 potential candidates for the CEO job?

4 A. Heidrick & Struggles, that one, as I

5 say, I was right in the middle of.

6 Heidrick & Struggles would have walked me through

7 an analysis of our compensation patterns because

8 we were bringing in a very critical person that

9 had to be consistent in that pattern, an analysis

10 of what they thought the likely candidates would

11 be and what they were earning then, and an

12 analysis of what people at that CEO level of other

13 complex financial institutions were making at that

14 period of time. So, they would have walked me

15 through all three of those.

16 Q. And if Mr. Connell was ultimately hired

17 in July of 1988, when would you have been involved

18 with Heidrick & Struggles?

19 A. Well, I don't know -- if I can sort of

20 recreate it a bit, there had been conversation for

21 some time regularly with the regulators in Dallas

22 about bringing in a very senior savings and loan










25291

1 experienced executive as sort of the last building

2 block to our management team.

3 So, that conversation as I recall

4 was -- could have been a year or two years prior

5 to that -- the hiring of Mr. Connell. So, as it

6 got more serious, I would have first been asking

7 around as to what executive recruiting firm was

8 likely to be helpful because there are a number of

9 them as. As I think you know, they are highly

10 competitive.

11 So, I would have been spending some

12 months talking to Russell Reynolds, Spencer

13 Stewart, Korn Ferry, et cetera about who was the

14 group we want to hire because at that level,

15 that's an expensive investment. As I say, it's

16 about a third of the first year's compensation.

17 So, for months, I would have been

18 feeling through "How do we find this person?"

19 Because the pressure was growing in my perception

20 to put that last managerial building block in

21 place.

22 Q. Okay. And I'm just trying to get a fix










25292

1 on the time.

2 A. Don't know when --

3 Q. If he was hired in July, would

4 Heidrick & Struggles have then been assisting you

5 in the CEO search in April and May of 1988?

6 A. Probably in that time period.

7 Q. Okay.

8 A. The at least.

9 Q. And in connection with the

10 Heidrick & Struggles' assistance, did they ever

11 provide you with a written report as to the

12 competitiveness of the pay levels of the senior

13 executive staff of either USAT or UFG?

14 A. I don't know if it was -- I can

15 envision notes and conversation. I don't know if

16 there was a formal written report. I just don't

17 remember.

18 Q. And if they had provided you with a

19 formal written report, would it have been provided

20 to you in approximately the time frame we're

21 talking about, May/April 1988?

22 A. Well, it would have been earlier in the










25293

1 sense that as I interviewed -- I probably

2 interviewed two to four firms before we retained

3 Heidrick & Struggles. So, I would have in those

4 interviews -- and I do this a lot -- asked each of

5 them to give me a reason -- a set of reasons why

6 they are the people we want to retain and would

7 have to have concluded -- included some pretty

8 good insight as to their knowledge about the world

9 in which we are now going to send them out to find

10 our last key person.

11 Q. Right. And my question is: Did any of

12 those firms that you interviewed in connection

13 with the interview process provide written reports

14 to you regarding the competitiveness of the pay

15 levels of senior executives at either USAT or UFG?

16 A. Well, they all would have walked me

17 through it. I don't know again about the written

18 report. But as you're questioning me, the piece

19 that comes to mind is a number of them said,

20 "Unless you're prepared by our research as to what

21 your current people are doing, what the field

22 looks like, and the candidates that you want,










25294

1 unless you're prepared to do A, B, C, D" -- I can

2 walk them through, but it's your time -- "don't

3 even set us out on this task. You cannot get that

4 level of person unless you can meet these

5 conditions." That I can see very clearly.

6 Q. Okay. And maybe we're at cross

7 purposes.

8 So, they were talking about the level

9 of competitiveness for a CEO of the caliber that

10 you were seeking such as a Larry Connell; is that

11 correct?

12 A. In the context -- I was trying to

13 answer it in what's happening at USAT and UFG. It

14 was in the context of our current people, their

15 compensation pattern, the field, the candidates.

16 Q. And did they ever give you a written

17 study regarding the competitiveness of the

18 compensation levels of your current senior

19 executive management?

20 A. In some kind of prospectus, they would

21 have had to have come in and walked me through

22 that situation. I'm only answering specifically a










25295

1 written study. We might have different

2 definitions of what that is.

3 Q. Well, did there come a time when you

4 engaged Hewitt & Associates to prepare that kind

5 of study?

6 A. Yes.

7 Q. Now, why would you have retained

8 Hewitt & Associates to prepare that kind of study

9 if you already had that kind of study prepared by

10 one of the other entities that you had spoken

11 with?

12 A. Well, those -- I mean, two very

13 different things. I mean, first of all, as I

14 recall, the Hewitt study wasn't engaged by me.

15 The Hewitt study came from the chair of the

16 compensation committee that said, "Find a

17 consultant to do this." I would have interviewed

18 several possibilities, in all likelihood. But the

19 impetus for the Hewitt study came very directly

20 from the chair of the compensation committee, from

21 the outside director. And they would have

22 looked -- when you're talking now -- if you think










25296

1 about this as a T, in the one instance, Hewitt is

2 looking at the whole operation at the senior

3 level. That's the context.

4 Q. Yes.

5 A. And they focused maybe on six to ten.

6 In the Heidrick & Struggles, you're looking at one

7 very specific position in the setting, in the

8 context of the whole organization. So, you're

9 crossing; but you're starting at a different place

10 and you're ending at a different place.

11 Q. So, the Heidrick and -- Heidrick and

12 who?

13 A. Heidrick & Struggles.

14 Q. I'm struggling with Heidrick, I guess.

15 Heidrick & Struggles' information would

16 not have been the same kind of report that you

17 ultimately obtained from Hewitt?

18 A. Correct.

19 Q. And the other parties whom you

20 interviewed before hiring Heidrick & Struggles

21 would not have given you the same kind of report

22 that ultimately you received from Hewitt?










25297

1 A. In this -- with the same implication,

2 correct.

3 Q. Okay. Thank you.

4 Now, at the point in time that you

5 became the chair of the executive committee of

6 UFG, you indicated that you might also become the

7 chair of the executive committee of USAT; is that

8 correct?

9 A. Yes. That is, I think it was -- that

10 it happened and I think it could have been roughly

11 in that same time period.

12 Q. Now, did you consider yourself to be at

13 that point -- and this would have been in the

14 early '85 period?

15 A. I hesitate to fix it because I just

16 don't recall, but I think roughly in that period

17 of time.

18 Q. Okay. And at this point in time, were

19 you an employee or employed by UFG as

20 distinguished from simply being paid as a

21 director?

22 A. There comes a point in time that I










25298

1 become an officer as well as a director of UFGI.

2 Q. Okay. And at that point in time when

3 you became an officer, did you begin to receive a

4 salary from UFGI?

5 A. Yes.

6 Q. And at that same point in time, did you

7 also become an officer of USAT?

8 A. That's what I -- I just -- in the sense

9 that I -- at some point, I believe I became chair

10 of the executive committee of USAT, yes. I never

11 became a paid employee -- an officer, in that

12 sense, a paid employee of USAT.

13 Q. Okay. Would you take a look at

14 Exhibit T8003, and it's Tab 399. And this

15 gentleman will hand it to you.

16 This is a two-page document that's

17 previously been identified as, I believe, a list

18 of officers, directors, and so forth of USAT and

19 UFG.

20 Do you see that?

21 A. Yeah.

22 Q. And if you look at USAT, it identifies










25299

1 at Line 19 on the first page Barry Munitz and it

2 says "date first elected to the board of

3 directors, 1982." And that's consistent with what

4 we talked about today, correct?

5 A. Yes, sir.

6 Q. And then as you go further over, it

7 says "date resigned, 12/88."

8 Did you, in fact, resign at the end of

9 1988?

10 A. I think technically -- that would have

11 been the receivership.

12 Q. Okay. And then the next thing over

13 says "officer" and it says "NA." Not applicable,

14 I suppose.

15 A. That's my assumption. That's

16 consistent with what I was saying. I don't think

17 I ever was an officer of USAT.

18 Q. But then we turn to the second page and

19 it starts out at Line 23, Barry Munitz again,

20 "first elected 1982." And then it says you

21 resigned from UFG on 8/91 and then it's got you

22 down as an officer: Chairman of the executive










25300

1 committee from 2/85; is that correct?

2 A. Yes.

3 Q. Does that refresh your recollection

4 when you began to serve as the chairman of the

5 executive committee?

6 A. Yes. And that's roughly the period we

7 were talking about, yes.

8 Q. Would that period of time coincide with

9 the point in time when you commenced to be

10 employed or paid by UFGI?

11 A. I believe so.

12 Q. And in that regard, did your duties at

13 UFGI then become more substantial than they had

14 prior to February 1985?

15 A. Yes.

16 Q. And with respect to your duties at MCO

17 and Federated, did those correspondingly diminish?

18 A. Basically, yes. It depended upon exact

19 point in time; but basically, that would have been

20 the curve.

21 Q. Did you then at this point in time, at

22 about February of 1985, become a full-time










25301

1 employee of UFGI?

2 A. I don't think it was full time

3 necessarily, but more and more of my time was now

4 starting to come in that period to UFGI.

5 Q. Okay. Well, did -- over time, did you

6 end up devoting all of your time to UFGI; or did

7 you continue to be employed as -- with respect to

8 Federated and MCO?

9 A. I think I was always an employee of MCO

10 but the mix changed dramatically in this period

11 that you were describing.

12 Q. Okay. Now, at the beginning, how would

13 you characterize the mix between UFG and MCO?

14 A. You mean aside from just -- you mean

15 those --

16 Q. On February 1985 when you became the

17 chairman of the executive committee, what would

18 the mix have been between MCO and UFGI at that

19 point in time?

20 A. Well, again, it would depend on what

21 was happening, when. Of course, which year, the

22 point of the year. As you indicate, the 2/85










25302

1 period by this table indicates the change of

2 status. So, it becomes as we described, more time

3 into '84 post-merger but not as an employee. By

4 2/85, more time yet. And the mix then would have

5 been changing generally along that line,

6 differentiating by time, assignment.

7 Q. Was more than half of your time spent

8 at UFGI --

9 A. When?

10 Q. -- after 1985?

11 A. Gradually, it moved in that direction.

12 Q. And let's say in the 1986 time frame,

13 would more --

14 A. It would have been more yet.

15 Q. And by 1987?

16 A. By and large, the pattern would have

17 continued on that line.

18 Q. And by 1987, would most of your time

19 have been at UFGI?

20 A. Relatively large percentage.

21 Q. And what do we mean by "relatively

22 large"?










25303

1 A. I really -- again --

2 Q. Over 80 percent?

3 A. Again, you're talking 10, 11, 12 years

4 ago and different changing times. I can only give

5 you the general direction.

6 Q. And throughout this period of time, you

7 continued to provide consulting services.

8 Is that the nature of your employment

9 to USAT?

10 A. Well, I -- wait. Hold on. Now you

11 jumped twice.

12 Did you mean USAT or UFGI?

13 Q. Well, you said that you started out in

14 September -- I mean in February of 1985 and you

15 had first been providing consulting services. And

16 then in February 1985, you became the chairman of

17 the executive committee.

18 As the chairman of the executive

19 committee, what were your duties?

20 A. Okay. I did not have a line operating

21 portfolio. My responsibilities would have

22 basically been in some of the areas we were










25304

1 describing already: Compensation, executive

2 recruitment, board relationships and board

3 appointments, strategic planning, and overall what

4 I would refer to as administrative governance

5 process, some regulatory conversation as you've

6 identified this morning.

7 Q. And you performed all of these services

8 for UFG as an employee of UFG; is that correct?

9 A. I'm not sure I -- I'm not sure I

10 understand the question. What do you mean as

11 an -- as I became a director and officer of UFGI,

12 those were the categories of activities that I was

13 undertaking.

14 Q. Okay. And you were performing those

15 services that you have just described for UFG,

16 correct?

17 A. Yes. Yeah.

18 Q. And you were employed by UFG, correct?

19 A. Yes.

20 Q. And at this point in time, you were not

21 employed by USAT, were you?

22 A. I don't think I was ever an employee of










25305

1 USAT. At least, that was my -- what I was told,

2 yes.

3 Q. And you were never an officer of USAT,

4 were you?

5 A. I was never a paid employee of the

6 thrift. I was obviously doing work with them

7 because it was very hard to distinguish between

8 the two. I mean, the major asset of UFGI was

9 USAT.

10 I was an employee of UFGI. They didn't

11 have a separate complex administrative structure.

12 Q. And in that regard, when you say an

13 "employee," are we including within the term

14 "employee" an officer?

15 A. Of UFGI, yes.

16 Q. Okay. So, the term "employee" means

17 employed as an officer of UFGI?

18 A. Right.

19 Q. Okay. But you were never employed as

20 an officer of USAT?

21 A. My understanding was that I was

22 basically an employee of UFGI.










25306

1 Q. Now, you said you had no line

2 authority. You would just talk to people at USAT

3 or UFGI?

4 A. Yeah. I'm basically distinguishing

5 between having a focused line operating portfolio,

6 which I did not have --

7 Q. Okay.

8 A. -- and a portfolio that dealt with

9 leadership, management, governance issues which I

10 did have. Somehow, I think about it more

11 seriously as just talking to people.

12 Q. Okay. And at this point in time while

13 you were talking to people at the UFGI -- well,

14 UFGI's principal operating subsidiary was USAT,

15 correct?

16 A. Absolutely.

17 Q. So, is it fair to assume that most of

18 your work for UFGI was done in connection with

19 employees and operations at USAT?

20 A. Yes.

21 Q. Okay. And during this period of time,

22 you're upstairs on the 22nd floor in the office










25307

1 next to Mr. Hurwitz; is that correct?

2 A. For part of that time. One of the

3 buildings we were in -- I think I get your point.

4 We're not always on the 22nd floor of a building.

5 But I think what you mean is during that time, my

6 principal office is as we were describing it

7 yesterday or this morning.

8 Q. And in your capacity as the chair of

9 the executive committee of UFG, the person that

10 you would have reported to would have been

11 Mr. Hurwitz, correct?

12 A. Well, I think it'll show on here --

13 excuse me for a second. Particularly when he was

14 the chair of the board. It shows here from

15 November of '85 to February of '88, he was the

16 chair of the board. I was the chair of the

17 executive committee. So, obviously, we would have

18 had that link.

19 Q. Okay. So, you would have reported to

20 him; and while you had no line authority over

21 anybody at UFGI or USAT, you would be in contact

22 with them dealing with such things as










25308

1 compensation, executive recruitment, strategic

2 planning, governance, and regulatory issues among

3 other things?

4 A. Those were the issues I would have been

5 focused on.

6 Q. And in terms of dealing with the staff

7 and officers of USAT and -- how frequently did you

8 interact with the senior executives of USAT? Was

9 it on a daily basis?

10 A. As you go through the same time period

11 we were describing, it would have had that same

12 movement.

13 Q. Okay. And it would have moved from

14 what frequency to what frequency?

15 A. From less and less to more and more.

16 Q. Okay. Let's define "less and less."

17 "Less and less" means once a day or --

18 A. Every day -- I mean, in this setting,

19 in any complex setting like this, if I go back to

20 my life now, it changes dramatically depending

21 upon the day. It would have shifted from less to

22 regular to very regular.










25309

1 Q. Do you recall that I asked you during

2 your deposition how frequently you would have been

3 interacting with senior management at USAT? And I

4 asked you, "Was it on a daily basis?" And then

5 you talked about -- well, I'll direct your

6 attention to Page 40 of your deposition and see if

7 we can just get through this.

8 A. 40?

9 Q. Yes. And I asked you there, question,

10 "What was the frequency with which" -- and this is

11 Line 7 down to Line 14, I think.

12 It says, question -- and this is the

13 deposition that's dated Thursday, June 8th, 1995.

14 Are you at Page 40, sir?

15 A. I am.

16 Q. Okay. It says, "What was the frequency

17 with which you interacted or consulted with the

18 senior management at USAT? Was it on a daily

19 basis?"

20 Answer, "Depends on the -- it -- over

21 the several year period, for one or more of them,

22 it would have been on a daily basis."










25310

1 Do you see that?

2 A. Yeah. Sounds like the answer I just

3 gave you, right.

4 Q. So, in other words, for at least the

5 last two years, you were interacting on a daily

6 basis?

7 A. Again, with that same hesitation, it

8 depends. Over that several year period, for one

9 or more of them, people, time, it would have been

10 on a daily basis.

11 Q. Okay. What does that mean?

12 A. It depends on the time, the person, the

13 issue. Some of them I would have seen once a

14 month. Some of them I would have seen five times

15 a day on an issue, time of year. I don't know how

16 to -- I'm missing something.

17 Q. Yeah. I'm missing something, too.

18 A. Okay.

19 Q. You were operating as the chair of the

20 executive committee of UFGI, and you had a whole

21 portfolio of duties that you had that we've just

22 gone through.










25311

1 And my question is: In connection with

2 carrying out those duties, did you interact with

3 generally the senior executive staff of USAT on a

4 daily basis?

5 A. I'm trying to do this in --

6 Q. I'm not asking you about Jenard Gross

7 on a daily basis or Mr. Crow on a daily basis or

8 Mr. Berner on a daily basis.

9 I'm saying: Did you generally interact

10 on a daily basis with the senior executive staff

11 at USAT?

12 A. The people you just named were the

13 senior executive staff. I'm the chief executive

14 officer of the Getty trust. I'm responsible

15 ultimately for everybody, and I have a senior

16 leadership team.

17 By and large, depending upon the issue,

18 I interact with them on a daily basis, on a weekly

19 basis. I would have interacted with that group

20 less intensely because I wasn't the chief

21 executive officer in precisely the same way and

22 any other place I ever worked.










25312

1 Q. As a team -- that is, if you take the

2 executive staff as a team --

3 A. All together collectively?

4 Q. All together. All of those people

5 collectively.

6 Did you interact with those people on a

7 daily basis?

8 A. All brought together?

9 Q. No. Mr. Berner on Monday, Mr. Gross on

10 Tuesday, Mr. Crow on Wednesday?

11 Do you understand what I'm asking you?

12 A. No. Clearly not.

13 Q. I'm trying to get a fix on how

14 frequently you were involved in operating in the

15 affairs of USAT. Would it have been on a daily

16 basis?

17 A. Let me -- the affairs of USAT were the

18 affairs of UFGI. I think earlier, you pointed

19 that out. I agree.

20 Therefore, interacting with one was

21 interacting with the other. I would have --

22 because I didn't have a line portfolio, I didn't










25313

1 have to be right next to them every day.

2 Depending upon what they were facing, were we

3 searching, were we not, were we having a strategic

4 planning committee meeting? Were we getting ready

5 for a board meeting? Were we headed for a

6 discussion in Dallas? Were they headed for a

7 discussion in Dallas? Were we changing direction?

8 Had economic news changed? Had we just gotten a

9 report about the Texas economy? Did someone just

10 announce they were leaving? Did a board member

11 resign? Was there a fire in the basement?

12 Depending upon what the issue was and

13 who was responsible for it and what my relative

14 role was, I would have seen them more or less

15 frequently at a point in time.

16 Q. Okay.

17 A. That's my sense of how organizations

18 work.

19 Q. Sir, how frequently did you interact

20 with the senior executives at USAT between the

21 period of 1986 and 1988?

22 A. I'd say that over several years, for










25314

1 one or more of them, it would have been on a daily

2 basis.

3 Q. Thank you.

4 Now, as a member of the board of UFGI

5 and USAT, were you regularly -- and as a member of

6 the senior executive committee -- kept regularly

7 apprised of the financial condition of those

8 institutions, or was that out of your area of

9 concern?

10 A. Well, as a member of the board, I would

11 have been informed as boards are.

12 Q. Okay. And did there come a time when

13 you recall that Mr. Berner advised you that

14 because of certain financial problems or reverses

15 with respect to the operation of USAT, that there

16 was the potential that it appeared USAT was going

17 to fail to meet its net worth requirement?

18 A. Did there come a point in time? Yes.

19 Q. Okay. T8022.

20 Do you recall when that time would have

21 occurred roughly, sir?

22 A. Do you want me to look at this?










25315

1 Q. Well, just first, do you recall

2 approximately what point in time you became aware

3 that there was the possible net worth failure of

4 USAT?

5 A. I think the possibility of falling

6 below minimum requirements came up, from our

7 perspective, around the fall -- in the fall of

8 '87.

9 Q. Okay. And do you recognize this

10 memorandum that's privileged and confidential that

11 was prepared by Mr. Berner and apparently sent to

12 you?

13 A. I see that I'm on it, and I generally

14 have a feel for the topic, yes.

15 Q. Okay. And do you recall receiving the

16 memo at all?

17 A. I don't recall receiving it.

18 Q. Okay.

19 A. But I have no reason to believe I

20 didn't.

21 Q. Now, directing your attention to the

22 last page of the memo, after it talks about there










25316

1 being a regulatory -- a possibility of a net worth

2 failure, it first goes through a number of things

3 that could happen to the institution if they were

4 to, in fact, fail their net worth. And then on

5 the last page, it lists a number of options

6 available to USAT.

7 Do you see that? It starts with one,

8 two, three.

9 A. The one about the Bank Board meeting?

10 Is that the one you're referring to?

11 Q. The top of the page on Page 3.

12 A. I'm sorry. There are two one, two,

13 threes there.

14 Q. Go over to Page 2. It says, "In order

15 for United to meet its minimum regulatory

16 requirements as of October 31st, 1987, we might

17 want to consider some of the following." Okay?

18 A. Uh-huh. (Witness nods head

19 affirmatively.)

20 Q. And it says, "One, infusing capital

21 from UFGI to USAT."

22 Do you see that?










25317

1 A. Yes.

2 Q. Do you know what that's making

3 reference to, sir?

4 A. I'm assuming what -- that what he's

5 saying is if, in fact, at some point we fall below

6 the minimum regulatory requirement, that here are

7 some choices that we ought to be thinking about,

8 one of them being infusing capital from UFGI to

9 USAT.

10 Q. Okay. And as the chairman of the

11 executive committee of UFGI, were you aware at

12 this point in time that UFGI had entered into a

13 net worth maintenance stipulation in connection

14 with the merger that occurred back in 1982?

15 A. At that point in time, I'm not sure

16 that I was aware of a particular stipulation.

17 Q. At this point in time, do you recall

18 any discussions about whether UFGI had an

19 obligation to infuse capital from UFGI into USAT?

20 A. My recollection is more along the lines

21 of not a legal obligation but that it was in

22 everyone's interest to keep the capital base of










25318

1 USAT strong and that at UFGI, we ought to -- we

2 talked regularly about strategies for

3 strengthening the capital base of both UFGI and

4 USAT.

5 Q. But as a director of UFGI, you did not

6 at that point in time understand that you had an

7 obligation in the event of a net worth failure to

8 infuse capital into USAT?

9 A. I just don't -- in the light of what

10 happened in the next 10 to 12 years in discussing

11 this issue, I simply can't pinpoint when what

12 portion of the legal requirement became clear.

13 Q. Okay. Now, the next item that he lists

14 there as one possible means of remedying the

15 situation is selling an asset, "(There may be some

16 profitable assets in the mortgage-backed

17 securities portfolio or some other portfolio)."

18 Did USAT sell mortgage-backed

19 securities for the purpose of generating gains in

20 order to meet their capital requirement that you

21 recall?

22 A. Well, I know that there was a lot of










25319

1 complicated envisioning of that economic

2 structure. Again, as we said earlier this

3 morning, it wasn't an area where I would have been

4 involved in daily responsibility. So, to my

5 recollection, in the way you've posed that

6 question, I just don't know.

7 Q. Well, you were on the investment

8 committee, were you not?

9 A. Well, I got the investment committee

10 started. Once they were really going, I believe I

11 formally left that committee. I didn't attend the

12 meetings all that often; so, I was for a while

13 technically a member of the committee. I was

14 there basically to be sure they were working

15 properly and to learn.

16 Q. I don't want to go into that subject

17 too deeply at this point because I think probably

18 another examiner will probably have some questions

19 on that.

20 But -- so, to your knowledge, it was

21 never brought to your attention that prior to this

22 date, MCO -- I mean UFG had sold mortgage-backed










25320

1 securities from their portfolio so that they could

2 meet the capital requirements?

3 MR. VILLA: Your Honor, if he doesn't

4 want to go into the subject, then he ought not to

5 go into the subject. I don't want Mr. Guido

6 getting up here now and reading Mister --

7 Dr. Munitz' answers and starting to try to impeach

8 him with things. If he doesn't want to go into

9 the subject, he shouldn't go into it. If he wants

10 to go into the subject, one examiner should go

11 into it and I'd invite him to finish his line of

12 examination that he's already started. But I

13 don't want one witness to be examined by multiple

14 OTS examiners on the same topic. So, I object to

15 this line of questions.

16 THE COURT: I don't either.

17 MR. RINALDI: I have no intention of

18 examining him on the same topics that Mr. Guido

19 does. I would point out to the Court, though,

20 that this is an area which I have repeatedly in

21 the past gone into with other witnesses. It

22 relates to the net worth failure. And this was a










25321

1 recommendation in connection with the net worth

2 failure, and I was simply asking him the question

3 whether he had any recollection as reported by

4 Mr. Berner that there had been mortgage-backed

5 securities sales in order to meet the capital

6 requirements. That was the only question I had.

7 MR. VILLA: Your Honor, I'm sure he's

8 an able questioner on MBS matters. And if he'd

9 like to do it, I have no objections. I just don't

10 want Mr. Guido standing up again.

11 Q. (BY MR. RINALDI) Do you have any

12 recollection of those discussions --

13 MR. VILLA: Objection.

14 Q. (BY MR. RINALDI) -- in connection

15 with the net worth failure?

16 THE COURT: Denied. One question?

17 Q. (BY MR. RINALDI) In connection with

18 this net worth failure, do you have any

19 recollection of discussions of selling

20 mortgage-backed securities to increase the capital

21 of USAT?

22 A. No, I don't.










25322

1 Q. Okay. Thank you.

2 Now, after you were advised by

3 Mr. Berner of the possible net worth failure, did

4 it subsequently come to your attention as a

5 director that, in fact, USAT had failed its net

6 worth -- minimum net worth requirement at the end

7 of 1987?

8 A. Again, I don't -- I don't remember the

9 specific dates. It subsequently came to my

10 attention that we were below the minimum net worth

11 requirement.

12 Q. Let me hand you a copy of

13 United Financial Group's 1987 annual report and

14 ask you to take a look at that. And I believe if

15 you -- well, do you recognize that document, sir?

16 THE COURT: Do you have an exhibit

17 number?

18 MR. RINALDI: I'm sorry, Your Honor.

19 It's 8033, and this has previously been admitted

20 at Tab 402.

21 THE COURT: That's T8033?

22 MR. RINALDI: T8033.










25323

1 Q. (BY MR. RINALDI) And if you'll look

2 at the third -- the second page of the document,

3 Page No. 2 which is H0664, in the first paragraph

4 under "current condition," it talks about,

5 "However, as a result of preliminary discussions

6 between the association and the Federal Home Loan

7 Bank of Dallas field examiners, the association

8 believes it's failed to meet its minimum capital

9 requirements as of September 30th and

10 December 31st, 1987."

11 Do you see that?

12 A. I do.

13 Q. So, is it fair to say that at about

14 this point in time when the 1987 annual report

15 came out that you were aware of the net worth

16 failure?

17 A. By the time the report came, I would

18 have read that paragraph, yes.

19 Q. And if you go down further, do you

20 recall that a forbearance application was filed by

21 M -- I mean by UFG as a result of its recognition

22 of the fact that it was failing its net worth










25324

1 capital?

2 A. Well, again, I don't know -- in the

3 second half of your question, I don't know the

4 specific linkage. But I recall that at some

5 point, a capital forbearance application was

6 prepared.

7 Q. Okay. And the reason the capital

8 forbearance application was prepared is because

9 they were failing their capital, correct?

10 A. Well, again, we were -- as I had

11 mentioned earlier, we were in different stages of

12 trying to inject and strengthen the capital. One

13 was to add capital. The other was to get

14 forbearance if, in fact, we had fallen below the

15 minimum requirement. I'm assuming this is the

16 latter.

17 Q. Well, if we go on and you look at the

18 bottom there, it talks about UFG -- the last full

19 paragraph, it talks about a net worth obligation

20 of UFG.

21 Do you see that? It starts out "UFG,

22 in connection with its becoming a holding company,










25325

1 agreed to maintain USAT's capital above the minute

2 required -- requirement level"?

3 Do you see that?

4 A. Yes.

5 Q. Is it fair to say that by the time the

6 1987 annual report came out, that you were aware

7 that USAT -- I mean UFG had an obligation to

8 maintain the net worth of USAT?

9 A. Well, I would have read -- again, I

10 would have read that sentence as a director and

11 would have taken it to be accurate.

12 Q. So that you were, then, aware by the

13 time this report came out of that fact?

14 A. Yes.

15 Q. Now, let's take a look at T8049, which

16 is Tab 405. And do you recall there came a time

17 after you had been alerted to the potential for a

18 net worth failure that the examiners for the

19 Federal Home Loan Bank Board met with the board

20 and presented to them the findings of their

21 examination regarding the net worth failure?

22 A. Well, I don't know about regarding the










25326

1 net worth -- we were -- we regularly met with the

2 examiners from the Bank Board. So, that would --

3 would have been a regular conversation. Sometimes

4 it was to present the results of their

5 examination. Other times it was to get a status

6 report.

7 So, those would have all folded

8 together for me by now. But yes, I recall meeting

9 with regulators on a regular basis.

10 Q. Well, this is a meeting -- this is

11 Exhibit T8049 and it is a meeting dated March the

12 30th, 1988. And it makes reference to "A special

13 meeting of the board of directors of USAT was held

14 on March the 30th, 1988. All members of the board

15 were present."

16 And do you recall attending this

17 special board meeting where Ms. Vivian Carlton

18 advised the board that USAT was failing its net

19 worth requirements?

20 A. Well, again, I don't recall each

21 specific meeting ten years later. The exhibit

22 you've given me says that the purpose of the










25327

1 meeting was to hear the field examiner's results.

2 Q. Right. And --

3 A. I would have probably been at a

4 meeting. And since it says that all board

5 directors were present, I was one of them. I

6 would have obviously have wanted to hear the

7 results.

8 Q. Okay. And if you'd turn to the

9 fourth -- fifth page into that document to

10 Attachment 2, one of the results that's

11 reported --

12 A. Which --

13 Q. This is OW05 -- OW054327.

14 A. My copy of that is illegible.

15 Q. You have to be careful with the term

16 "illegible." It's far more legible than most of

17 us get. You're going to have to live with that.

18 A. That was before I spilled water on it.

19 Q. The portion that at least I'm

20 interested in, if you go down to about two-thirds

21 of the way down the page where there is a break,

22 it talks about deficit minimum regulatory capital










25328

1 requirement.

2 Do you see that?

3 A. Are you that much younger than I am?

4 I'll believe you. I can't see that. Show me the

5 line.

6 Q. I'm talking about these two items right

7 here. Do you see where it says "deficit minimum

8 regulatory capital requirement" and under the word

9 "association," it says a negative $53,659,000?

10 A. I hope they will let me drive after

11 this. Tell me what it says, and I'll agree that's

12 what it says if it's --

13 Q. It indicates that USAT, by the

14 association's calculation, was $53 million below

15 its minimum regulatory capital requirement. And

16 by the examiner's calculation, 112 million below

17 its minimum capital requirement.

18 Do you remember being advised of that

19 at this meeting on or about March 30th, 1988?

20 A. I don't remember this specific

21 discussion, but I have no reason to believe this

22 conversation wouldn't have taken place.










25329

1 Q. And if it's reflected in the minutes

2 that a presentation was made by Ms. Carlton and

3 you were there, will you agree that it's likely

4 you would have been aware by March the 30th, 1988,

5 of the net worth failure of USAT?

6 A. Yes, sir.

7 Q. Thank you.

8 Now, I'd like to hand you a copy of

9 what's been marked T8167. It's Tab 1369. And

10 take a moment to read the cover memo. This is a

11 memo dated March the 3rd, 1987, to

12 Mr. Jenard Gross from Michael Crow. And then

13 there is attached a letter for distribution to the

14 various employees of USAT. And I'd like you to

15 take a look at it, and then I have a few questions

16 for you.

17 A. (Witness reviews the document.)

18 Q. Now, sir, have you had a chance to

19 review that?

20 A. Yes.

21 Q. It makes reference on the first page

22 cover memo to a letter that would announce the










25330

1 deferral of the merit reviews until July 1988.

2 What were merit reviews at USAT?

3 A. Basically, a regular cycle of

4 performance evaluation, usually but not always

5 linked to compensation decisions.

6 Q. Okay. And when you say "a regular

7 cycle," how would the merit review process --

8 well, let me ask you this: You were a consultant

9 and you did deal, I believe you testified, on the

10 subject of issues such as compensation. So, this

11 would have been a subject that was within your

12 purview, would it not?

13 A. Yes.

14 Q. Okay. And how did the merit review

15 system work at USAT?

16 A. Well, it would have depended upon the

17 department because different functions had their

18 reviews very differently. They would have stated

19 objectives differently.

20 The basic principle --

21 Q. Well, what I'm principally interested

22 in -- and you may elaborate all you want -- is










25331

1 with respect to the senior executive staff, how

2 that --

3 A. Okay. That's a very different

4 question.

5 Q. Okay. How would the merit review

6 process have worked with regard to the senior

7 executive staff?

8 A. Well, again, those people above them --

9 it would have started with the senior executive

10 staff talking with their superior people in the

11 hierarchy at the beginning of a cycle about their

12 objectives for the year, conditions of their part

13 of the organization as they saw it. Sometimes

14 really more of a line person like a chief

15 financial officer, sometimes more of a staff

16 person like general counsel, would have talked to

17 Mr. Gross. "Here's what we're facing. These are

18 my objectives. Here's how I'll tell what's been

19 met over this period of time. I'd like a regular

20 conversation with you to see how I'm doing, how

21 the organization is doing."

22 It would have reached a point where










25332

1 they were close enough to the end of that cycle to

2 make a relative judgment of whether they had been

3 achieved and what -- if it hadn't been stipulated

4 beforehand, what the reward would be for achieving

5 it. If it had been stipulated beforehand because,

6 for example, in the money desk operation that Jim

7 Jackson ran, there were fairly detailed incentives

8 geared to compensation. In others, it was much

9 less tangible, like the general counsel. But in

10 either case, had they been met and what would it

11 lead to in the way of recognition? Usually but

12 not always compensation oriented.

13 Q. Okay. Now, with respect to these merit

14 reviews, were these written or were they totally

15 oral?

16 A. They were both.

17 Q. Okay. So, there would be a written

18 record of having sat down and said, "Here's what

19 I'm thinking of doing or I believe my goals ought

20 to be. Here's what we expect of you."

21 And then at the end of the merit review

22 process, would there be some sort of evaluation?










25333

1 A. Again, are we talking still

2 specifically or at least most focused on the

3 senior people?

4 Q. Senior people, yes.

5 A. In that case, it wouldn't have been

6 most likely written down because they would have

7 been -- it would have been an ongoing exchange.

8 Sometimes it would have been written down. More

9 often, it would have been memos between -- you've

10 probably seen some of them where Mr. Crow would

11 write to Mr. Williams or Mr. Berner would write to

12 Mr. Gross or Mr. Gross to Mr. Berner saying,

13 "We've had this discussion. We've got these

14 objectives" or "Let's keep an eye on this

15 particular area" or "I should alert you that these

16 conditions have changed." But it would be, in my

17 judgment, a fairly regular conversation at the

18 senior level.

19 Q. And at the senior level, were there

20 written evaluations that were done on a periodic

21 basis of a person's performance?

22 A. I think, as I said, sometimes there










25334

1 were and sometimes there weren't.

2 Q. As a result of those evaluations or as

3 a result of a person's performance, was their

4 ultimate compensation based upon how well they had

5 performed?

6 A. I said earlier usually those two would

7 be linked. Sometimes they weren't, but more often

8 than not they were.

9 Q. Okay. And I notice, if we look at the

10 second page, that -- do you recall a point in time

11 when they decided that -- at USAT that they were

12 going to defer the merit reviews until July of

13 1988?

14 A. Defer the merit reviews? I don't

15 recall that.

16 Q. Well, it talks about it in the first

17 page. It says, "The purpose of the letter would

18 be to announce the deferral of merit reviews until

19 July" --

20 A. But I haven't ever seen this note

21 before. I thought you were asking me if I recall

22 this, and I did not recall that. I have not seen










25335

1 this note before.

2 Q. Okay. And then in the next paragraph,

3 it says -- next page, second paragraph, it talks

4 about in the first paragraph how "there is

5 unsettled market conditions which saw precipitous

6 decline in stock prices and extreme volatility in

7 the bond markets that have reduced the

8 profitability of our investment area."

9 Do you see that in the first paragraph?

10 A. I'm sorry. In the first paragraph? I

11 see that sentence, yes.

12 Q. Okay. And then it goes on and it says,

13 "given this environment" -- I'm reading from the

14 second paragraph -- "it's imperative that we

15 ensure that United continues as a strong

16 institution."

17 Do you see that?

18 A. I do.

19 Q. It says, "One of the sacrifices we need

20 to make at this time is to defer merit reviews for

21 the higher-paid staff until July 1988."

22 Do you see that?










25336

1 A. I do.

2 Q. And when they said they were deferring

3 the merit reviews, that meant that they were

4 deferring salary increases, as well?

5 A. First of all, that's the question I was

6 raising. Those can sometimes be very different

7 things, deferring salary increases and

8 deferring -- the other -- I'm not sure and perhaps

9 you said this. Was this memo ever sent?

10 Q. All the testimony has been that this is

11 a memo that was presented to Mr. Jenard Gross for

12 his signature. Now --

13 A. I understand that, but was it ever sent

14 out?

15 Q. I wasn't at USAT. I couldn't tell you.

16 A. So, you don't know that this was sent

17 or not?

18 Q. I don't know that it was ever sent. I

19 don't know. No one's ever said it wasn't.

20 A. I'm sorry. I'm beginning to sound like

21 you.

22 Q. The next sentence says, "This will










25337

1 result in reduced operating expenses for the first

2 half of 1988."

3 Do you see that?

4 A. Which paragraph are you in?

5 Q. It says we are going to defer merit

6 reviews for the higher paid staff, and this will

7 result in reduced operating expenses for the first

8 half of 1988.

9 Do you see that?

10 A. Yes.

11 Q. A moment ago, I asked you would this

12 result in their deferring salary increases and you

13 said "not necessarily."

14 Does it appear if it's going to result

15 in a reduction of operating expenses that the

16 merit review deferral would be accompanied with

17 salary increase deferral?

18 A. I just don't know how Mr. Crow,

19 drafting this for Mr. Gross, whether or not it

20 ever then became a reality. I just can't comment

21 on what they would have been thinking about.

22 Q. Okay. Can we -- why don't you take a










25338

1 look at Exhibit T8027. It's Tab 409. Now -- hang

2 on for a second before you look at that.

3 Was it your practice to attend the

4 meetings of the compensation committee of UFG and

5 USAT?

6 A. Normally, yes.

7 Q. Did they hold separate meetings, or

8 were they always joint meetings?

9 A. Neither. That is, they sometimes held

10 separate meetings and they sometimes held joint

11 meetings.

12 Q. Okay. And do you recall there came a

13 time in the latter part of 1987 when the

14 compensation committee of USAT and UFG met and

15 adopted the very proposal that's discussed in this

16 letter or this exhibit I've just shown you, 8167?

17 That is, that they should defer merit increases

18 and salary increases?

19 A. I don't recall that right this moment,

20 no.

21 Q. Okay. Would you take a look, then, at

22 Exhibit T8027 and see if that refreshes your










25339

1 recollection? This is Tab 409. And I'm directing

2 your attention to -- first of all, you were

3 present at the meeting it indicates in the first

4 paragraph.

5 Do you see that?

6 A. Uh-huh. (Witness nods head

7 affirmatively.)

8 Q. And then if you go down to the fourth

9 paragraph, it says, "Mr. Berner then reviewed the

10 proposal to defer salary increases for all persons

11 earning 35,000 and above until July 1st, 1988."

12 Do you see that?

13 A. I do.

14 Q. "It was noted that this would allow for

15 the same date to be used for reviewing

16 highly-compensated persons. The committee

17 unanimously adopted the proposal."

18 Does that refresh your recollection

19 that the committee determined that it should defer

20 salary increases until July 1st, 1988?

21 A. I think it reinforces the point I was

22 trying to make. In the one case you showed me a










25340

1 note talking about deferring merit reviews. I

2 haven't had a chance to read this whole memo, but

3 the paragraph you showed me doesn't say anything

4 about deferring merit reviews. What you showed me

5 here talks about trying to bring everybody at the

6 same day cycle for salary increases, which is

7 pretty much standard practice.

8 Q. Well -- but if you look at the next

9 sentence that I read you, it says, "It was noted

10 that this would allow for the same day to be used

11 for reviewing."

12 Do you see?

13 A. No, no.

14 Q. Do you see the word "reviewing"?

15 Aren't we talking about merit reviews there?

16 A. In that use of reviewing linked to the

17 same day, for me -- my interpretation of this

18 would be that's a sense of reviewing that means an

19 overall same-day, coordinated, simultaneous

20 adjustment if required of all people earning more

21 than $35,000. For me, in my work in serving on

22 committees like this, that means something










25341

1 different than senior executive merit reviews.

2 Q. Okay. Well, then let's put that aside.

3 What do you think that paragraph means?

4 That they are going to review salary increases on

5 July 1st, 1988? Is that a reasonable reading of

6 it?

7 A. What I read it to say is if, in fact,

8 the proposal to defer salary increases for all

9 people over $35,000 is approved until July 1, that

10 would allow the same-day oversight for all

11 highly-compensated people in terms of salary

12 increases or overall compensation management.

13 Q. Okay.

14 A. That's what it says to me.

15 Q. Okay. And that means that under this

16 proposal, there would be no salary increases until

17 July 1st, 1988; is that correct?

18 A. No salary increases for anybody?

19 Q. For senior executives earning over

20 $35,000.

21 A. I mean, basically -- again, it's -- I

22 won't go any further at this moment at any rate in










25342

1 terms of what "salary increase" means. All I can

2 understand of it is what it says.

3 Q. And would you agree that it says they

4 are deferring the increase of salary or the

5 consideration of increasing the salaries until

6 July 1st, 1988, for highly-compensated persons

7 over $35,000?

8 A. Again, I agree it says what it says.

9 Q. So, you agree that that's a reasonable

10 interpretation, correct?

11 A. Basically, I think I've explained what

12 it says to me.

13 Q. Okay. And you have no independent

14 recollection as to whether that was done or not?

15 A. At this point, I don't.

16 Q. Now, if -- do you recall that that was

17 adopted by the board of USAT with you present and

18 that you voted for that particular provision?

19 A. The committee unanimously adopted the

20 proposal.

21 Q. Yes. And do you recall that the

22 committee's adoption --










25343

1 A. Well, I wasn't on the committee. The

2 committee --

3 Q. No, no. I said did the board -- do you

4 recall that the board adopted it?

5 A. This is the compensation committee that

6 you've shown me.

7 Q. Yes. But after a matter is adopted by

8 the compensation committee, do you recall that it

9 then went to the board for their consideration?

10 Would that be --

11 A. I don't recall that. As I -- the

12 compensation committee of USAT --

13 Q. My question to you is a simple one,

14 sir. Once the compensation committee made a

15 recommendation to the board, did it then go on to

16 the board for the board's ratification or

17 approval, that you recall?

18 A. Well, I don't recall that specific

19 meeting. The point I was going to make is if this

20 was the compensation committee meeting of USAT, I

21 believe that they were delegated the authority to

22 make these decisions, which was the reason for my










25344

1 hesitation.

2 Q. Let me just ask you this: Do you

3 recall that notwithstanding whatever the

4 delegation may have been, that this matter was

5 then presented to the full board for its approval

6 and that you as a member of the board voted

7 unanimously along with the other members of the

8 board to approve it?

9 A. I don't recall that.

10 Q. All right. Well, why don't we take a

11 look at T8028; and that should be Tab No. 397.

12 And I'll direct your attention --

13 A. Hold on. Uh-huh. I have a T8028.

14 Q. Yes, that's correct. Is that not the

15 minutes of the meeting of the board of directors

16 of USAT --

17 A. I'm sorry. I thought you had said 397.

18 Q. That's the tab, and it would be a

19 different number. And I would direct your

20 attention to the second page. And if you look

21 down two paragraphs after the "resolve" clauses,

22 it starts out, "Mr. Whatley, chairman of the










25345

1 compensation committee, discussed a proposal to

2 review all salaries as of July 1st, 1988, for all

3 employees earning over 35,000. Such action was

4 unanimously approved by the board of directors."

5 Do you see that?

6 A. Yes.

7 Q. Do you recall, as a member of the board

8 of directors, voting upon that resolution or that

9 proposal discussed by Mr. Whatley?

10 A. Again, if you ask me do I remember

11 doing it, no. But it's -- I've got no reason to

12 believe I didn't.

13 Q. Okay. Now, sir -- so, as things stood

14 at the end of 1987, USAT was going to wait until

15 July 1st, 1988, to take a look at salaries, based

16 upon the resolution we looked at.

17 Is that fair?

18 A. Well, I think first of all there is a

19 distinction as to this above and below 35,000.

20 Q. I understand. But I mean at least for

21 highly-compensated people at USAT.

22 A. Basically, what you've shown me in the










25346

1 board minutes is what I assume was approved.

2 Q. Okay. And did there come a time in

3 about March of 1988 when it was determined that

4 instead of waiting until July 1st, 1988, to

5 reconsider salaries, that USAT should increase the

6 salary levels of its senior executives and other

7 people at USAT?

8 A. I'm not sure I know specifically what

9 you're referring to.

10 Q. Do you recall in about March of 1988

11 that the salaries of the senior executives at USAT

12 were increased by a substantial amount?

13 A. At this point -- and again, if you --

14 maybe -- is there a document that you want me to

15 look at?

16 Q. Yeah. Why don't you take a look at the

17 board minutes -- I mean the compensation committee

18 minutes, and maybe that will help you. This is

19 T8050, Tab 421; and T8053, Tab -- I'm sorry --

20 T8050, which is Tab 418; and 8053, which is

21 Tab 421.

22 MR. VILLA: Dr. Munitz, the tab number










25347

1 shouldn't confuse you. If you'll just look at the

2 T numbers or A or B numbers.

3 THE WITNESS: Okay.

4 Q. (BY MR. RINALDI) Now, the first thing

5 I'd like you to look at is that.

6 A. Okay.

7 Q. This is the minutes of the compensation

8 committee dated March the 30th, 1988. And if

9 you'll take a moment to read them -- you were

10 present at the meeting. And I just have a couple

11 of questions about the meeting.

12 A. (Witness reviews the document.) Okay.

13 I've looked at it.

14 Q. Okay. And do you recall attending this

15 meeting, sir?

16 A. Again, I don't specifically remember

17 that meeting. I do remember the topic of

18 conversation.

19 Q. Okay. And the topic of conversation

20 was a proposed resolution of a problem.

21 Do you see that?

22 A. Yes.










25348

1 Q. What was the problem that they were --

2 that Mr. Berner was proposing the resolution to?

3 A. Well, I don't -- I can't speak to the

4 particular problem. I know at least one problem

5 that was occurring at that time period, and I

6 think it would have at least been part of what

7 Mr. Berner was referring to.

8 Q. Well, I'd just like your best

9 recollection, sir.

10 A. Okay. Shortly in the month or so

11 before this period, a question had arisen

12 regarding a number of contracts that were

13 currently outstanding and as to whether or not,

14 given one of the provisions of the contract, the

15 institution was going to be forced to make some

16 substantial payments to one or more of its

17 employees.

18 Q. Okay. Let's just stop right there.

19 Now, you said "contracts." Contracts

20 entered into between whom and with what

21 institution?

22 A. At this point, these would have been










25349

1 contracts with at least -- well, there were a

2 group of, I believe, six people who had contracts

3 on the one hand. There were earlier people from

4 Jim Coles to Gerry Williams to Sandy Laurenson, et

5 cetera, who had contracts. So, there were a

6 number of people with contracts.

7 Q. But Jim Coles had left, had he not?

8 A. Well, you said to me contracts with

9 whom and with what; and I'm trying to give you a

10 sense of where the contracts were.

11 Q. Sir, you said that a problem had arisen

12 with respect to some contracts. And my question

13 to you is: What contracts had the problem arisen

14 with respect to?

15 A. I was headed there.

16 Q. Okay. Sorry. I didn't mean to

17 interrupt you.

18 A. In the range of those contracts, six of

19 them, both with USAT and UFG, were the ones with

20 which in this issue I believe we were most

21 seriously concerned. I think there were six.

22 Q. Okay. Now, are you -- okay. And what










25350

1 was the problem with respect to the contracts?

2 A. The problem was that a number of board

3 members had been leaving the institution for a

4 variety of reasons we've talked about before.

5 One, at least, of those people holding contracts

6 was suggesting and had written or was about to

7 write claiming that money -- a substantial amount

8 of money due to a change of control had now been

9 triggered.

10 Q. Now, sir, I'm curious. You seem to be

11 now testifying about a substantial level of detail

12 that's greater than what you have testified to in

13 earlier questions I've asked you.

14 Have you, prior to your testimony here

15 today, had an opportunity to review this --

16 documents associated with this particular

17 resolution presented by Mr. Berner; or is this

18 simply your recollection of events that occurred

19 back in 1988?

20 A. First and most critically, this is an

21 issue and a period of time in which I would have

22 been very much involved in the discussion.










25351

1 Q. Okay.

2 A. Second of all, during the course of

3 getting ready for this conversation, I had looked

4 back and forth at a number of issues with my

5 lawyer.

6 Q. And were some of the documents that you

7 looked at related to this subject matter?

8 A. I believe so, yes.

9 Q. And did that help refresh your

10 recollection?

11 A. I hope so.

12 Q. And is that the reason why you have a

13 more clear recollection today than with respect to

14 other matters that I might have asked you about,

15 because you have had an opportunity to review

16 these documents?

17 A. Some of the other matters about which

18 you asked me were also documents that had been

19 included in my earlier conversations with

20 attorneys. The key difference is some of those

21 areas were not areas where I had meaningful

22 responsibility. So, a quick review or










25352

1 conversation would have meant one thing. Other

2 areas like this one where I had very important

3 responsibilities would have meant something very

4 different.

5 Q. Well, you do recall that a moment ago I

6 had asked you about the November 10th, 1988 --

7 1987 compensation committee meeting at which they

8 voted to defer salary increases. You had attended

9 the meeting. You had then voted on the matter at

10 the board of directors meeting of USAT. It was a

11 matter about which you would have been intimately

12 involved because it was precisely a compensation

13 issue, and I believe you said you had no

14 recollection of it. And it was in that context I

15 asked -- I was curious as to whether you had seen

16 something recently which had assisted your

17 recollection. And that was the only reason I

18 asked the question, sir.

19 A. I think the specific piece that I knew

20 least about was a document that I had never seen

21 before between Crow to Gross and about which I

22 think both of us were saying neither of us knew










25353

1 when it had even become a reality. That was the

2 piece that I did not recall.

3 Q. But I did show you the compensation

4 committee meeting minutes where you attended, and

5 I did show you the minutes of the board meeting.

6 And after seeing both of those, you had no

7 recollection of the deferral of the salary

8 increases.

9 Is that a fair statement?

10 A. All I can do with you is the best that

11 I can do on these questions.

12 Q. I understand that, sir. I was just

13 asking you: In light of your -- the differential

14 in your recollection, whether you had had an

15 opportunity to review documents associated with

16 this subject so that it had sharpened your

17 recollection.

18 MR. KEETON: Your Honor, I object to

19 this whole colloquy. Could we get on with the

20 questions, please?

21 THE COURT: Next question, please.

22 MR. RINALDI: I'm sorry, sir?










25354

1 THE COURT: Let's have another

2 question.

3 Q. (BY MR. RINALDI) Now, you said you

4 were intimately involved in this question of the

5 change of control and that this was a matter that

6 was right in your area of concern, correct?

7 A. Yes, sir.

8 Q. Okay. Now, when this issue of the

9 change of control came up, was there a proposed

10 resolution -- well, first of all, the change of

11 control, did it occur with respect to

12 United Financial Group contracts or with respect

13 to the USAT contracts? You mentioned there were

14 two sets.

15 A. Both boards were changing. I don't

16 remember which one was changing more dramatically

17 at which point. Both contracts existed. And at

18 this point, frankly, I don't recall which one was

19 triggered when or what the one person of that six

20 was claiming was triggered.

21 Q. Now, as a result of this change of

22 control issue that arose, did you meet with










25355

1 Mr. Berner or Mr. Gross and formulate a strategy

2 for dealing with the change of control issue?

3 A. Yes.

4 Q. Okay. And do you recall what the

5 strategy was that you came up with?

6 A. Well, it had -- there were a number of

7 pieces and a number of conversations. But I

8 suppose it needs to start with not acknowledging

9 that there had been a change of control that would

10 have triggered the contract. That in and of

11 itself was a complicated debate.

12 Q. Okay. Let's take a look at

13 Exhibit T8051. Strike that.

14 Let's go back even to an earlier

15 document and see if this helps refresh your

16 recollection. This is T8045. It's Tab 1620.

17 Now, this is a memo -- another personal

18 and confidential Arthur Berner memo. And this one

19 is specifically to you. It's dated March the

20 10th, 1988. It indicates in the first sentence

21 that you had had some discussions with Mr. Berner

22 on the way to Washington. And then he indicates










25356

1 that he wants to talk to you further on Monday

2 before I leave for Washington.

3 Do you see that?

4 A. I do.

5 Q. And then it starts out and it says, "As

6 we discussed, I don't believe that we should agree

7 to the fact that a change of board membership as

8 it currently stands is a change of control."

9 Is that what you were referring to a

10 moment ago?

11 A. Yes.

12 Q. It says, "If any person insists, we can

13 deal with it by removing one of the new directors

14 or adding back one of the old, e.g., Charles."

15 What does that mean?

16 A. Well, several pieces. One, in the

17 first sentence, what he's saying is what I had

18 just said to you. We decided that we would not

19 accept that this was a change of control. In the

20 second sentence, what he's saying is there are

21 different ways that we can respond to this if, in

22 the end, we fight this battle and we lose it










25357

1 because we had been advised that, in all

2 likelihood, we might insist there wasn't a change

3 of control. But if this person retained a lawyer,

4 that it may come about that we would be found to

5 be responsible for the contract. And I think what

6 this next sentence says is if any person insists

7 or if we don't think that we can win that battle,

8 we ought to think about some other way of being

9 sure that we don't put at risk this money.

10 Q. And so, one of the proposals was to put

11 Charles Hurwitz back on the UFG board of directors

12 so that there wouldn't have been a change of

13 control?

14 A. I'm assuming -- well, it says Charles.

15 I'm assuming that's -- it's March 10 of '88, and

16 the table you showed me was just after Mr. Hurwitz

17 left the board. I guess that's what Art meant.

18 Q. Okay. Now, let me just ask you a

19 question about that.

20 Did Mr. Hurwitz sit on the board of

21 USAT?

22 A. No.










25358

1 Q. So that if you were going to put

2 Mr. Hurwitz back on a board, it would have been

3 the UFG board, correct?

4 A. Well, frankly, I don't ever remember

5 seeing this sentence; and I would have been

6 intrigued to hear the exchange between Mr. Berner

7 and Mr. Hurwitz about Mr. Berner putting him back

8 on the board.

9 Q. Well, I understand that. But my

10 question to you is: If he was proposing putting

11 him back on the board, he would have been

12 referring to the UFG board, wouldn't he?

13 A. I suppose back -- if your point is he

14 could only go back to the board on which he was,

15 that would have had to have been the UFGI board.

16 Q. No, my point is this: You remember I

17 asked you was the change of control a problem for

18 the UFG contract or the USAT contract, and you

19 said you weren't sure. It may have been both?

20 A. Right.

21 Q. And here Mr. Berner is proposing to

22 resolve the problem by putting Mr. Hurwitz back on










25359

1 the UFG board. And my question to you is: Does

2 that refresh your recollection that, in fact, the

3 problem was a UFG problem?

4 A. No.

5 Q. It doesn't refresh your recollection?

6 A. No, because it may be that it turned

7 out that that wasn't a good solution. It just

8 doesn't.

9 Q. Okay. Now, the next paragraph talks

10 about increasing salaries.

11 Do you see that?

12 A. No.

13 Q. "However, we might consider doing the

14 following: Taking current salaries and adding

15 65 percent of the 1988 bonus to salary."

16 Do you see that?

17 A. Show me where it says "increasing

18 salaries." I just don't see that phrase.

19 Q. I'm sorry. It talks about taking

20 current salary and adding 65 percent of the '88

21 bonus to salary.

22 Do you see that?










25360

1 A. That's not -- I mean, that would not

2 have been a salary increase. I mean, that would

3 have been just a redistribution of money that they

4 were getting.

5 Q. You mean people got their bonus before

6 the end of the year, sir?

7 A. Essentially, what I recall about the

8 final resolution was that we told people "The

9 bonus that you earned last year is the bonus

10 basically you're entitled to this next year on

11 successful performance. And because we have

12 retention issues that are critical, we're going to

13 chop them up into 12 pieces and pay them on a

14 monthly basis rather than pay them at the end of

15 the year.

16 Q. So, you were going to prepay the

17 bonuses irrespective of the level of performance

18 that an individual performed at; is that correct?

19 A. Well, you always have other ways of

20 responding to somebody who isn't performing. So,

21 that would have been less of a risk than the risks

22 that we were facing in terms of the retention of










25361

1 this management team.

2 Q. I understand that. But my question to

3 you was: In the past, UFG and USAT had waited

4 till the end of the year and they had looked at

5 the performance of the individual and they had

6 rewarded them a bonus based on their performance.

7 Is that a fair characterization?

8 A. Yes.

9 Q. Okay. But now what you were proposing

10 to do is before the person had performed or

11 completed their performance, to pay them their

12 bonus ahead of time as part of their monthly

13 salary, correct?

14 A. What I'm saying, it would have been the

15 equivalent number of a bonus. So, it would have

16 been a restructuring of a total compensation

17 package.

18 Q. And so, they were going to pay the

19 bonus up front as part of their salary instead of

20 waiting till the end of the year to see if they

21 actually had performed at a level to be -- to

22 warrant a bonus. Is that fair?










25362

1 A. They were going to pay -- well, they

2 were going to pay a number equivalent to the last

3 year's bonus as a salary with the understanding

4 that they were not going to get a bonus in all

5 likelihood.

6 Q. Okay. And that was done because you

7 thought that there had been a change of control

8 and you wanted to resolve the issue related to

9 that change of control?

10 A. Oh, gosh, no. Oh, gosh, no.

11 Q. Okay. Gosh, no. What does "gosh, no"

12 mean?

13 A. As I said earlier, the change of

14 control issue was one small piece of a very much

15 more complicated issue. This sequence refers to

16 the retention of the leadership team, the entrance

17 to the Southwest Plan, an overall conversation we

18 had been having for years with the regulators

19 about keeping a strong team so that we could be an

20 acquirer and a survivor, the fact that other

21 institutions were trying to take our key people

22 away.










25363

1 The change of control issue was just

2 one little trigger and not in any way one of the

3 more significant ones.

4 Q. Well, let's look at the memo and see

5 what it says. The first paragraph under one ends

6 by saying, "In any event, I don't think it will

7 come to that." And then the second paragraph

8 starts, "However, we might consider doing the

9 following." Okay?

10 A. Okay.

11 Q. So, he first talks about the problem in

12 the first paragraph and in the second paragraph,

13 he suggests that "we might do the following in

14 light of the change of control."

15 Isn't it, in fact, true, sir, that the

16 proposal that's made here, sir, by Mr. Berner

17 about rolling the bonus into the salary was made

18 as a mechanism to resolve the change of control

19 issue that's identified in the first paragraph

20 there?

21 A. It wasn't to me.

22 Q. Fine. And now --










25364

1 THE COURT: We'll take a short recess.

2

3 (Whereupon, a short break was taken

4 from 3:06 p.m. to 3:25 p.m.)

5

6 THE COURT: Be seated, please.

7 Q. (BY MR. RINALDI) Dr. Munitz, when we

8 broke, we were looking at --

9 THE COURT: We'll be back on the

10 record.

11 MR. RINALDI: I'm sorry.

12 Q. (BY MR. RINALDI) Mr. Munitz, when we

13 broke, we were looking at Exhibit T8167, which

14 is -- this is a memo that Mr. Berner sent you to

15 dated March the 10th, 1988. And we were looking

16 at the second paragraph under Section 1.

17 Now, I direct your attention to the

18 third line. It talks about employment

19 contracts -- they are revising employment

20 contracts, though it is for a five- or seven-year

21 period.

22 Do you see that?










25365

1 A. Oh, yes.

2 Q. So, Mr. Berner was suggesting to you

3 that in addition to adding the 1988 bonus or a

4 portion of it into the salaries of the senior

5 executives, that new employment contracts should

6 be entered into; is that correct?

7 A. Yes. Revising them, yes.

8 Q. And his suggestion was that there

9 should be for a five- to seven-year period?

10 A. Yeah.

11 Q. And do you recall what the duration of

12 the existing contracts was?

13 A. I don't. I don't.

14 Q. Okay. And then at the second

15 paragraph, it says, "We could perhaps have the

16 employment contract amounts secured by the letters

17 of credit."

18 Do you recall what that referred to?

19 A. I think -- if it's -- as it says, as we

20 did with Sandy's contract, I think that is meaning

21 Sandy Laurenson, who in her contract had -- her

22 insistence was that she wouldn't come unless there










25366

1 was some sort of security to the contract. And I

2 believe it was ultimately secured by a letter of

3 credit.

4 Q. And what Mr. Berner was proposing then

5 is that all the senior executives at USAT should

6 have contracts which were secured by letters of

7 credit?

8 A. The ones --

9 Q. Is that your understanding?

10 A. That the ones who had contracts.

11 Q. Okay. And then it also talks here

12 about in the middle of the second paragraph about

13 "we can do the same for Jenard."

14 Do you see that?

15 A. Yeah.

16 Q. Who is Jenard?

17 A. It must be Jenard Gross.

18 Q. Oh, okay. Did Mr. Gross have a

19 contract with USAT at this time?

20 A. I don't think he had a contract at that

21 time.

22 Q. Did he have a contract with UFG?










25367

1 A. I don't think so.

2 Q. Well, now, what was your thinking with

3 regard to Mr. Gross? You were contemplating

4 giving him a contract; is that correct?

5 A. Well, again, this is Berner writing to

6 me. But yes, there was conversation at that point

7 about whether, if Mr. Gross didn't have a

8 contract, if he should have one, yes.

9 Q. Okay. And was there also a discussion

10 about that time of giving yourself a contract?

11 A. Yes.

12 Q. And you didn't have a contract at that

13 point in time with UFG, did you?

14 A. Correct.

15 Q. You didn't have one with USAT, did you?

16 A. Correct. I did not.

17 Q. And you weren't employed by USAT, were

18 you?

19 A. I was not.

20 Q. You never were employed by USAT, were

21 you?

22 A. I don't believe so.










25368

1 Q. Okay. Now, after you received this

2 letter, do you recall having a meeting with

3 Mr. Berner on the same subject on or about

4 March -- I'm sorry -- March 28th, 1988?

5 A. Well, I don't know what -- we would

6 have been having a fair number of meetings on the

7 subject in that time period. So, it probably --

8 probably, there would have been.

9 Q. Okay. Take a look at Exhibit T8051.

10 It should be Tab 419. And this is a memo again --

11 it's dated 19 days later. It's to Barry Munitz

12 from Arthur Berner, "Privileged and confidential,

13 regarding compensation committee meeting."

14 Do you see that?

15 A. Yes.

16 Q. And the first sentence says, "The

17 following notes and suggestions to be discussed

18 with James Whatley or Jim Whatley at the

19 compensation committee meeting and reflect our

20 meeting of March 28th, 1988."

21 Do you see that?

22 A. Yes.










25369

1 Q. Does that refresh your recollection

2 that you had a meeting with Mr. Berner on March

3 the 28th, 1988?

4 A. Again, not specifically the meeting;

5 but yes, it sure looks like it, yeah.

6 Q. Okay. And then he goes through a

7 series of points that relate to compensation.

8 And these would have been the points

9 that you covered with Mr. Berner in the

10 March 28th, 1988 meeting. Right?

11 A. Yeah. I mean, that's what it looks

12 like, yeah.

13 Q. And he starts off again by talking

14 about "The board of directors of UFG and USAT will

15 take the position that there's been no change of

16 control."

17 So, he's talking about the change of

18 control issue we talked about a moment ago; is

19 that correct?

20 A. Yes.

21 Q. And then the second point he makes here

22 is -- well, strike that.










25370

1 The last sentence there says, "In my

2 view, this is a current interpretation -- a

3 correct interpretation and payment at this time

4 could subject the board to charges of corporate

5 waste."

6 Do you see that?

7 A. Yes.

8 Q. Did you share that view, sir?

9 A. Yes.

10 Q. And that was because you didn't believe

11 there had been a change in control, correct?

12 A. In the sense that it would have to mean

13 in order to pay out the money, I did not believe

14 there had been a change of control.

15 Q. And then he goes on in Paragraph 2, and

16 it talks about the salary increase that we talked

17 about a moment ago that would be effectuated by

18 taking the '87 salary and adding the bonus

19 received in '88 to that salary.

20 Do you see that?

21 A. I do.

22 Q. And that's the same suggestion that you










25371

1 talked about with Mr. Berner or Mr. Berner had

2 discussed in his memo dated March the 10th that we

3 looked at previously?

4 A. Yeah. It seems to be the connection,

5 yes.

6 Q. Okay. Only in this one, they are going

7 to put the entire bonus for 1988 in, not just

8 65 percent?

9 A. That was what I said. It seems to be

10 the same topic.

11 Q. Okay. And then as you go down to

12 Paragraph 5, it talks about "In addition to

13 putting the bonus into the salary, they are going

14 to give another bonus called a special 1988

15 bonus."

16 Do you see that?

17 A. Yeah.

18 Q. So, in effect, they were going to put

19 the bonus into the salary and give you one bonus

20 and then they were going to give you a second

21 special bonus in 1988. Right?

22 A. Yeah. That's what it says.










25372

1 Q. So, it would have been two bonuses.

2 Right? One part of the salary, and the other one

3 a special bonus?

4 A. It would have been geared to two

5 different purposes, I think, as they came out; but

6 yes.

7 Q. Okay. And then finally, it talks about

8 "We will provide for amended employment contracts

9 for those with contracts now, plus Jenard Gross

10 and Barry Munitz." Okay?

11 A. Uh-huh. (Witness nods head

12 affirmatively.)

13 Q. How did it come about that now it was

14 being discussed that you should get a contract,

15 sir? How did that subject come up?

16 A. I'm not sure what triggered it, but I

17 would have been part of it. Jenard himself

18 probably was part of the exchange because we would

19 have been going over all of these issues with him.

20 Probably some conversation with Mr. Whatley before

21 the meeting because we wouldn't have just

22 presented all of this. And obviously, with










25373

1 Mr. Berner.

2 So, it would have been a conversation

3 particularly between Berner, Munitz, Gross, and

4 then ultimately to Mr. Whatley.

5 Q. So, at this point in time, you and

6 Mr. Berner -- at least so far as this memo

7 reflects -- were talking about increasing the

8 salaries of executive staff who had employment

9 contracts, as well as the salary of Mr. Gross and

10 yourself, by the amount of the 1987 bonus that had

11 been paid in 1988. Is that fair?

12 A. Yeah, basically.

13 Q. And then you were talking about giving

14 yourself contracts that would last from five to

15 seven years. Right?

16 A. I don't know about the five to seven

17 years. That's a question -- I didn't see the five

18 to seven years in here, and I don't think that

19 that's what it wound up being.

20 Q. Okay. Well, were you talking about

21 some term?

22 A. Some contract.










25374

1 Q. Okay. And if we take a look at the

2 attachment, I think probably it indicates that the

3 term that's now being considered -- and I'm

4 talking about Page 2 of the attachment. And if

5 you look down under Section 2 where it says

6 "term," you're talking about a term through

7 December 31st, 1994.

8 Do you see that?

9 A. Yeah.

10 Q. Okay. So, this would have been

11 approximately a six-and-a-half-year contract,

12 correct?

13 A. Yes, if that was what finally emerged.

14 Q. Well, I mean what you're talking about

15 at this point is six and a half years.

16 A. Got it.

17 Q. And then if you turn to Page 9 of the

18 document -- strike that.

19 Turn to Page 13 and specifically the

20 last paragraph. It makes reference under

21 Paragraph 9I on Page 13 of the attachment -- I'll

22 just read it to you. It says, "During the term of










25375

1 this agreement, the company shall obtain and

2 maintain a letter of credit."

3 Do you see that?

4 A. Yes.

5 Q. And this was a letter of credit to

6 secure the payments under the contract, correct?

7 A. I believe that's right.

8 Q. And did you understand that under the

9 new contract that you were going to receive, that

10 there would be severance benefits?

11 A. Yes, I think so.

12 Q. And do you recall the length of those

13 severance benefits?

14 A. No. No, I'm not sure that -- no,

15 because I'm not sure that they would have

16 coincided with the length of the contract. I

17 don't remember the details.

18 Q. Well, do you recall that the severance

19 benefits were going to be two times annual salary?

20 A. I don't specifically. But when you say

21 that, that sounds right.

22 Q. Sounds right. Okay.










25376

1 Now, you have the meeting on March the

2 29th. It gets memorialized in this memo by

3 Mr. Berner.

4 Do you recall then that you had another

5 meeting on March -- I'm sorry -- you had the

6 meeting on March the 28th, correct?

7 A. Yes.

8 Q. Do you recall that you then had another

9 meeting on March the 29th with you and Mr. Berner

10 and Mr. Gross?

11 A. Well, I don't -- I don't recall it.

12 Q. Well, let's take a look at T8052, which

13 is Tab 420. And this is yet another memo by

14 Mr. Berner. Only this one is addressed to

15 Mr. Whatley, Mr. Gross, and Mr. Munitz.

16 Do you see that?

17 A. Yeah. I do now.

18 Q. Okay. Now, read the first paragraph

19 there at the top of the page.

20 A. (Witness reviews the document.) Okay.

21 Q. And it talks about "Notes and

22 suggestions to be discussed with Jim Whatley at










25377

1 the compensation committee meeting and reflect

2 meetings on March 28th and 29th among Messrs.

3 Gross, Munitz, and Berner."

4 Do you see that?

5 A. Yes.

6 Q. So, it was you and Mr. Berner and

7 Mr. Gross that were discussing the subject of the

8 change in employment contracts; is that correct?

9 A. Yes.

10 Q. And at -- is it reasonable to say that

11 at this point, Mr. Whatley hadn't been looped in

12 yet, had he?

13 A. I'm not sure, as I just said a minute

14 ago. Normally in this sort of thing, there more

15 likely than not would have been some conversations

16 so this all didn't come as a surprise. But I

17 don't know.

18 Q. But this would indicate that these were

19 notes and suggestions to discuss with Mr. Whatley

20 and that on March the 28th and 29th, that it only

21 involved discussions between you and Mr. Gross and

22 Mr. Munitz and Mr. Berner.










25378

1 Is that reasonable?

2 A. Right.

3 Q. And then we go on and again the first

4 paragraph talks about the change of control issue.

5 And then the next paragraph talks about the 1987

6 salary plus bonus received in 1988 for 1987 work.

7 So, that's the salary increase that we

8 had seen in the previous two memos, correct?

9 A. Yeah. It's the assumption, right.

10 Q. And then we see below at Paragraph 5,

11 again we're talking about the '88 bonus would be

12 equal to the bonus received in '88.

13 Do you see that?

14 A. Right. Yeah. I understand that.

15 Q. So, this was -- they are going to have

16 this special bonus in '88 that would be equal to

17 the bonus received in '88. And then Paragraph 6

18 goes on and --

19 A. 4 and 5 are the same bonus, I think.

20 Q. Yes. That's why I didn't go over 4. I

21 didn't want to suggest to the Court that maybe

22 there were two bonuses there.










25379

1 A. Okay.

2 Q. But we do agree, though, that 2 is an

3 effort to add the 1987 bonus paid in '88 into the

4 salary and 5 is an effort to give another 1987

5 bonus paid in 1988 in 1988?

6 A. Right. 2 is distinct from 4 and 5.

7 Q. So, then we go on to 6. And again, it

8 talks about entering into new employment contracts

9 with you and Jenard Gross, correct?

10 A. Yeah.

11 Q. Okay. And again, there is the draft

12 attached. And then the next in the series of

13 documents is a meeting apparently after you have,

14 amongst yourselves, come up with a proposal that's

15 submitted to Mr. Whatley. And that, I believe, is

16 Exhibit T8051 and it's Tab 419. And would you

17 take a look at that? Oh, wait. I'm sorry. That

18 is not the one.

19 THE COURT: I think you're talking

20 about T8053. Is that it?

21 MR. RINALDI: That's correct, sir.

22 Thank you.










25380

1 A. I think I have it here.

2 Q. (BY MR. RINALDI) Tab 421?

3 A. Yeah. Trial 421, T8053.

4 Q. 8053. And it has some handwriting at

5 the bottom of the page?

6 A. Right.

7 Q. Okay. Then that is it. I'm sorry for

8 the confusion.

9 Now, this memo goes to Mr. Whatley,

10 Mr. Gross, and Mr. Munitz. And it states that --

11 at the top of the memo, "The following are the

12 notes and suggestion to be discussed with

13 Mr. Whatley at the compensation committee meeting

14 on the 30th of March."

15 Do you see that?

16 A. Yeah, I do. But it looks like the one

17 you just showed me. I guess it has a different

18 date.

19 Q. However, the date up above is

20 March 31st, 1988.

21 Do you see that?

22 A. Yeah, uh-huh.










25381

1 Q. And do you recall that after you and

2 Mr. Gross and Mr. Berner had agreed upon a course

3 of action, that you then presented your

4 suggestions and notes to Mr. Whatley for his

5 consideration?

6 A. Yes. At some point, yes.

7 Q. And does this reflect what was

8 presented to Mr. Whatley?

9 A. Well, I think it basically does; but

10 I'm just not sure about the dates. I'm only

11 confused about the two dates, the 8051 and the

12 8053 dates, because they are -- I guess they look

13 basically the same.

14 Q. Okay.

15 A. I'll follow you through.

16 Q. It strikes me that probably there is

17 some word processing going on here, is there not,

18 and that Mr. Berner, after presenting the memo

19 that's dated the 30th, which is 8052 --

20 A. 3.

21 Q. -- then revises the first sentence.

22 A. Wait. I don't have 8052. Okay. That










25382

1 I haven't seen.

2 Q. Yes. We've looked at 8052. Take a

3 look at it. That's the meeting that you had with

4 Gross and Munitz and Berner. It refers to

5 meetings on the 28th and 29th.

6 Do you see that?

7 A. Okay. I'm -- just help me for a

8 minute. I've got 8051 dated March 29.

9 Q. Yes.

10 A. 8052 dated March 30.

11 Q. And we've talked about both of those.

12 A. 8053 dated March 31 --

13 Q. That's correct.

14 A. And they look --

15 Q. We're looking at 8053, which is

16 March 31.

17 A. Okay. Which one do you want me to look

18 at? 8053?

19 Q. T8053, yes. And you as a group --

20 Mr. Gross and Mr. Munitz and Mr. Berner -- make a

21 recommendation to Mr. Whatley, correct?

22 A. Yeah. There's a compensation committee










25383

1 meeting at some point, I thought. But yeah. I

2 mean, this is what it looks like.

3 Q. I showed you the minutes of the

4 compensation committee meeting the first thing.

5 A. Right.

6 Q. And there is nothing in the minutes

7 that actually discuss the details of what occurred

8 at the minutes (sic). If you want to look at that

9 and confirm it, it's at T8050.

10 A. Okay. Got it.

11 Q. And then if you look at T8053, which is

12 the March 31st, 1988 memo, it states that "The

13 following are notes and suggestions to be

14 discussed with Jim Whatley at the compensation

15 committee on March 30th, nineteen-eighty" --

16 A. I guess that's my confusion. It

17 says -- well, I'm sorry. It's dated March 31

18 saying this is what we're going to discuss on

19 March 30?

20 Q. Well, Mr. Berner wrote the memo; and

21 so, I can only presume that he probably revised an

22 earlier draft and perhaps didn't change the tense.










25384

1 A. Okay. Got it.

2 Q. But does T8053 reflect substantially

3 what you discussed with Mr. Whatley at the

4 compensation committee meeting?

5 A. Substantially, I believe so.

6 Q. And if you turn the page, the next page

7 indicates that Mr. Whatley has agreed to the

8 proposal that was offered by you and Mr. Gross and

9 Mr. Berner, correct?

10 A. Yeah.

11 Q. Okay. And does he change the proposal

12 at all that you can see?

13 A. I don't know whose handwriting that is

14 at the bottom of the first page of 8053. That

15 could be the only change he makes.

16 Q. Okay. And that makes reference to

17 hiring a compensation consultant, does it not? It

18 says --

19 A. "By outside consultant, independent

20 consultant." (Witness reviews the document.)

21 Yeah, okay.

22 Q. Okay. And that was a suggestion that,










25385

1 according to the minutes which are dated T8050

2 (sic), that the committee had requested that

3 Dr. Munitz retain a compensation specialist to

4 pass on the fairness of the proposal.

5 Do you see that?

6 A. Yes.

7 Q. Okay. And then just following up on

8 T8050, that's the minutes, it says "Mr. Whatley

9 noted, however, that the company should proceed as

10 quickly as possible on the proposal without

11 waiting for the report of the compensation

12 specialist."

13 Why was time of the essence here, sir?

14 Why was it so important to proceed ahead with the

15 proposal so quickly?

16 A. I think the basic concern was the fear

17 of losing key people who were being recruited by

18 others at a time that we were trying so hard to

19 keep the management team in place.

20 Q. And so, you decided that even if you

21 didn't have a compensation report, you were going

22 to go ahead anyway and make the changes that you










25386

1 proposed in your memo?

2 A. I think it was Mr. Whatley's judgment,

3 but I sense that we all agreed with that.

4 Q. Okay. And take a look at T8055,

5 Exhibit 422. Now, the following -- April the 4th,

6 1988, Mr. Gross then approved the salary

7 adjustments that you had discussed with

8 Mr. Whatley on March the 31st, correct?

9 A. Yeah. That's what it looks to be. The

10 whole group, not just the senior group, yeah.

11 Q. That's correct. And just so I've got

12 my time frame right, the day that Mr. Whatley

13 approved the increase in salaries and the

14 modifications to the bonus plan and -- as well as

15 the subject of new employment contracts, that was

16 March the 30th, 1988, was it not?

17 A. Right. The minutes of the meeting,

18 right.

19 Q. And if you turn to T8049, which is

20 Tab 405, which I think we've seen earlier, this is

21 the minutes of the board -- special board meeting

22 where the members of the board met with Vivian










25387

1 Carlton and Neil Twomey and Ginger Baugh and Danny

2 Thomas of the Federal Home Loan Bank Board and

3 were advised that USAT had failed its minimum net

4 worth requirement.

5 Do you see that?

6 A. That's what -- you had shown me this

7 earlier.

8 Q. Right.

9 A. That's the March 30th.

10 Q. And that's dated the same day that the

11 compensation committee voted to increase or to pay

12 the -- roll the bonuses for 1987 paid in '88 into

13 the base salaries, isn't it?

14 A. Yeah. Seems to be.

15 Q. And it's the same day they took all the

16 other compensation actions that we've just talked

17 about, correct?

18 A. Yes.

19 Q. Okay. Now, my question to you is, sir:

20 Do you recall, had you met with Ms. Vivian Carlton

21 and the Federal Home Loan Bank Board officials on

22 March the 30th prior to the compensation committee










25388

1 meeting? In other words, when you voted or when

2 you presented your proposal to Mr. Whatley, had

3 Mr. Whatley been aware that USAT was failing its

4 net worth requirement?

5 A. Well, I guess Mr. Whatley would have

6 seen the annual report that you showed me earlier.

7 I don't again remember the exact dates. But it

8 was -- Mr. Whatley, as a board member, would have

9 heard conversations about our falling below that

10 level, I think before March 30th. I'm not sure.

11 Q. But do you know whether the meeting of

12 the compensation committee occurred prior to the

13 special meeting or after?

14 A. Do you mean the special -- I'm sorry.

15 I thought you were asking me about the -- falling

16 below the net worth --

17 Q. There is a special meeting on March the

18 30th, 1988, at which Ms. Carlton explains to the

19 board that they are failing their minimum net

20 worth requirement by at least 50 million and, by

21 the Federal Home Loan Bank Board's determination,

22 by 112 million. And then there is also that same










25389

1 day a compensation committee meeting where

2 Mr. Whatley approves these compensation changes

3 we've just talked about.

4 And my question is: Did the meeting of

5 the compensation committee occur before

6 Mr. Whatley had learned or attended the special

7 meeting of the board with the Federal Home Loan

8 Bank Board, or did it occur afterwards or do you

9 know?

10 A. I don't know.

11 Q. But I believe in response to my

12 question, you indicated you thought that in any

13 event, Mr. Whatley would have been aware of the

14 net worth failure by this point in time?

15 A. It was my assumption.

16 Q. Okay. As directors of USAT, you were

17 kept apprised, were you not, of the net worth

18 condition of the institution on a regular basis?

19 A. On a regular basis, yes.

20 Q. Thank you.

21 Now, as a result of your recommendation

22 regarding the salary increases or the salary --










25390

1 the bonus being rolled into the salary, you

2 received a 156,000-dollar increase in your base

3 pay, did you not?

4 A. Yes.

5 Q. And Mr. Gross received a 167,000-dollar

6 increase in his base pay, correct?

7 A. Yes. From this table, yes.

8 Q. And Mr. Berner received a

9 114,000-dollar increase in his base pay, correct?

10 A. Right.

11 Q. And this was all done at a point in

12 time when USAT was failing its minimum capital

13 requirements, correct?

14 A. Yes.

15 Q. Now, do you recall that this was also

16 made retroactive to January the 1st?

17 A. I don't remember.

18 Q. Well, let's take a look back at the

19 March 31st memorandum, which is T8053. And if

20 you'll look at Paragraph 2, it talks about

21 changing the current salaries effective

22 January 1st, 1988.










25391

1 Do you see that?

2 A. Yes.

3 Q. Does that refresh your recollection

4 that the increases were retroactive to

5 January 1st?

6 A. Well, it doesn't change my

7 recollection; but this is what it says.

8 Q. All right. And then shortly

9 thereafter, did you receive, then, a salary

10 increase from -- as reflected in the gross salary

11 list that we've just looked at?

12 A. Well, I'm assuming so. Again, I don't

13 know when; but I'm assuming that this April 4 list

14 is accurate and was implemented.

15 Q. Okay. Well, let's take a look at 8034,

16 which is Tab 479. This is a letter from Mr. Villa

17 to me transmitting a number of documents relating

18 to compensation issues. And if you look at the

19 document, you'll see they have some stamped

20 numbers in the lower right-hand corner. And in

21 particular, I would direct your attention to

22 Page 11. And in the middle of the page, there is










25392

1 a check -- strike that.

2 Can we go to Page 9 first? Do you see

3 that?

4 A. Yes.

5 Q. Okay. And it indicates there the

6 proposed UFG/USAT bonus ranges. And it indicates

7 under you that there is a bonus range of $156,000.

8 Do you see that?

9 A. It's sort of blacked out, but I see it.

10 Q. Okay. And then as we go over to

11 Page 11, do you see that you received a check for

12 $121,420.50 from United Savings Association of

13 Texas?

14 A. Yes.

15 Q. Okay. Now, I may have skipped

16 something here.

17 Can we go back to Exhibit 422 (sic)?

18 It's T8055. That's Mr. Gross' salary adjustments.

19 Now, the first page references salary

20 adjustments. Do you see that?

21 A. Yes.

22 Q. But if you look at the third and fourth










25393

1 pages, they talk about pro rata bonuses. And they

2 talk about 25 percent of the 1987 bonus.

3 Do you see that?

4 A. Yes.

5 Q. Do you recall that the executive bonus

6 that Mr. Whatley approved or that Mr. Whatley

7 signed off on on March the 31st, 1988, provided

8 for a bonus that would be paid 25 percent

9 initially and 75 percent at a later date in

10 January of 1989?

11 A. Well, I don't know about the date; but

12 I recall -- that was the retention plan, to put

13 three quarters of it aside, yes. I don't remember

14 the date.

15 Q. And in your case, one quarter would

16 have been paid immediately and another -- and one

17 quarter of that would have been $39,000, correct?

18 A. Yes.

19 Q. And -- now, let's take a look at

20 Page 32 of this document. And I believe there is

21 a check there.

22 A. 32?










25394

1 Q. Yes.

2 A. Okay.

3 Q. And if you look at the check on the top

4 of the page, that's a check that's made out to

5 you, is it not?

6 A. Yes.

7 Q. And it indicates that you got a

8 39,000-dollar bonus on April the 5th, 1988.

9 Do you see that on the stub?

10 A. Yes.

11 Q. And that would have been the

12 39,000-dollar bonus under the first 25 percent of

13 the executive bonus plan, correct?

14 A. I'm assuming so, yeah.

15 Q. And then there's $39,000, and it says

16 "etro" but I believe that means "retro."

17 Do you see that?

18 A. I see the "etro," yes.

19 Q. And that would -- does that appear to

20 represent the retroactive portion of your pay

21 increase back to January 1st, 1988?

22 A. I assume so. My point is that only in










25395

1 the number being the same. I'd have to calculate

2 it. But it sounds --

3 Q. Well, if you had a 156,000-dollar

4 salary increase and it was retroactive for three

5 months, it would be another 39,000. Got it?

6 A. Yeah.

7 Q. And this was paid to you by United

8 Savings Association out of its payroll account; is

9 that correct?

10 A. Yes. It's on their account.

11 Q. And then let's take a look at C8009 --

12 I mean C0009. We were -- 11. I'm sorry. We were

13 at that a moment ago, and I flipped over.

14 And does this appear to be the payment

15 that you received at the beginning of the year for

16 your 1987 bonus that was paid in 1988?

17 A. For some reason, I can't see the date

18 on mine.

19 Q. Well, do you see the number of the

20 check? It says 5489.

21 A. Yes.

22 Q. Let's take a look at Page 17 of this










25396

1 document, and maybe that will help us out. And it

2 says Check No. 5489 was written to -- do you see

3 the little stub there?

4 A. Yes, I do.

5 Q. It says it was written to Barry Munitz

6 on 1/4. Okay?

7 A. Yes.

8 Q. That would have been January 4th. And

9 it was the bonus. And it says "for $156,000."

10 Do you see that?

11 A. Yes.

12 Q. And that's the bonus amount that we saw

13 on Page 9 for Barry Munitz, correct?

14 A. Yes.

15 Q. And that, too, was paid out of the

16 payroll account of United Savings Association of

17 Texas, correct?

18 A. Yeah, it seems so.

19 Q. Now, you weren't an employee of USAT,

20 were you?

21 A. I didn't think so.

22 Q. Why was it USAT was paying you a bonus










25397

1 out of its payroll account and paying you a

2 retroactive salary increase out of its payroll

3 account and paying you an executive bonus out of

4 its payroll account if you weren't an employee,

5 sir?

6 A. I don't know whether they used one

7 payroll account and reconciled or how the

8 mechanics of that were handled. As I think I told

9 you earlier, I was always told that I was a UFGI

10 employee.

11 Q. All right, sir. Now, as a result of

12 your recommendation to Mr. Whatley that new

13 contracts be entered into, did there come a time

14 when USAT entered into a whole new set of

15 employment contracts?

16 A. My only hesitation is on the "whole new

17 set." But basically, there was a new round of

18 contracts, yes.

19 Q. Okay. And that new round of contracts

20 incorporated the new higher levels of compensation

21 or annual compensation, correct?

22 A. I think so.










25398

1 Q. Okay. Now, let's take a look at those.

2 First of all, do we have the minutes of -- let me

3 get the date here.

4 Let me show you a copy of T8078 and

5 also a copy of T8079, which is Tab 435.

6 A. Which one first?

7 Q. Let's start with T8079.

8 A. 79?

9 Q. And if you'll just take one moment,

10 everybody will be on the same page.

11 A. (Witness reviews the document.)

12 Q. Now, the first of these is -- that is

13 T8079 -- is the board minutes of United Financial

14 Group.

15 Do you see that?

16 A. Yes, sir.

17 Q. Okay. And if you turn to the last page

18 of that document and you look at the second full

19 paragraph, it talks about "Mr. Whatley reviewed

20 the proposed new employment contracts to be

21 entered into between the company and the following

22 employees," and it lists a number of employees










25399

1 including yourself and Mr. Gross.

2 Do you see that?

3 A. I do.

4 Q. And that then was acted upon by the

5 board and the new contracts were approved.

6 Do you see that? It's in the last or

7 next-to-the-last paragraph.

8 A. Okay. Got it.

9 Q. Now, it indicates here that as the

10 contract of an individual who was on the board was

11 being voted upon, that individual abstained.

12 Do you see that?

13 A. Yes.

14 Q. So, when your contract came to be voted

15 on by the UFG board, you abstained, correct?

16 A. Yes, I'm assuming that.

17 Q. Okay. And then when Mr. Gross'

18 contract came up, you voted with respect to

19 Mr. Gross' contract and with respect to

20 Mr. Berner's and Mr. Crow's and the others; is

21 that correct?

22 A. Right. Again, that seems right.










25400

1 Q. But you have no recollection of that

2 having occurred?

3 A. I do vaguely. And it seems exactly as

4 it's here.

5 Q. Okay. And after your contract was

6 approved or it was approved that you should enter

7 into a contract with UFGI, did there come a time

8 when you entered into such a contract?

9 A. Yes, I believe so.

10 Q. Okay. I believe this is a new

11 document. It's B2268. And I would like to hand a

12 copy up to the witness for him to take a look at.

13 Would you take a look at that document

14 and, in particular, turn to the last page and let

15 me know if that's your signature that appears

16 there.

17 A. Sure looks to be.

18 Q. Okay. So -- and if you'd turn to the

19 second page in the document, it appears now that

20 the term of the agreement is somewhat shorter than

21 was originally proposed. It's now down to three

22 and a half years, correct?










25401

1 A. Yeah. I guess that's why I had

2 hesitated earlier. This is more what I

3 remembered.

4 Q. And the salary that's incorporated

5 there is 396,000, which is the salary that was

6 arrived at by paying the bonus -- or by including

7 the bonus in the base salary, correct?

8 A. Yeah. Are you on the bottom of Page 3?

9 Yeah.

10 Q. Yes. Do you see that?

11 A. Yeah.

12 Q. Okay. Now, take a look now at the next

13 document that I showed you, which is the minutes

14 of the board of directors meeting of United

15 Savings Association of Texas, which is T8078.

16 MR. VILLA: Sir, do you want to offer

17 B2268?

18 MR. RINALDI: Oh, thank you. Yes.

19 MR. VILLA: No objection.

20 THE COURT: Received.

21 Q. (BY MR. RINALDI) And now, let me just

22 ask you one or two more questions about B2268










25402

1 before we move along.

2 Just to make sure, under the agreement,

3 does it appear that the -- that the letter of

4 credit provision that had been previously proposed

5 made its way into the agreement?

6 A. You got a page number?

7 Q. Yes. Page 18. If you look under

8 Subsection I, it talks about the delivery of an

9 unconditional irrevocable letter of credit.

10 Do you see that?

11 A. I do.

12 Q. And the face amount of that letter of

13 credit was to be two times the executive annual

14 salary.

15 Do you see that?

16 A. Yes.

17 Q. Okay. What was your understanding of

18 the purpose of the letter of credit, sir?

19 A. My assumption as it was with the

20 others. And it goes back to some of the contracts

21 I had been involved with earlier, like Sandy

22 Laurenson, was that basically it was security or










25403

1 an underlying assurance that in the inability of

2 the company itself to make the payment if it were

3 triggered, that there would be some assurance that

4 it could be paid.

5 Q. And did you understand that what they

6 were putting in there was a severance provision so

7 that if, for some reason, the institution went

8 into receivership or failed and persons lost their

9 jobs, that persons holding these contracts would

10 receive two years' annual severance benefit?

11 A. Well, I don't know that it was

12 specifically geared to any example as the two that

13 you gave; but I understood that it was that

14 underlying assurance, that if the contract was

15 triggered.

16 Q. So, you don't recall whether it was

17 just severance or if it was some other benefit

18 that was being secured by the letter of credit?

19 A. No. I think it was basically securing

20 the severance. I was only questioning whether or

21 not it stated precisely what it would trigger.

22 Q. Okay. And you signed a contract with










25404

1 UFG, and that's consistent with your recollection

2 that you were an employee of UFG, correct?

3 A. Yes.

4 Q. Okay. And then, if you look at the

5 minutes of the special board meeting of United

6 Savings Association of Texas, which is T8078 and

7 is at Tab 434, if you'll look down at the third

8 paragraph, Mr. Whatley states, "It's appropriate

9 at this point to discuss employment contracts to

10 be entered into by the association." And then in

11 the next paragraph, he said he reviewed the

12 proposed new employment contracts to be entered

13 into between the following employees. And then

14 it's the same list of people who are entering into

15 contracts with UFG.

16 Do you see that?

17 A. Yeah. I'm assuming it's the same

18 group, yes.

19 Q. Okay. And included in that group at

20 least are a Mr. Munitz and a Mr. Gross, correct?

21 A. Yes.

22 Q. And those are the two people that you










25405

1 had suggested to Mr. Whatley ought to get

2 employment contracts back in -- and you suggested

3 that to him back on March 30th?

4 A. As I said, that was what we discussed

5 as to how it came up, yes.

6 Q. And as a consequence of that board

7 meeting, do you recall that the board voted to

8 approve such contracts being entered into by USAT?

9 A. Yes, okay. Unanimously approved, yes.

10 Q. Okay. So, you would have participated

11 in that vote, correct, sir?

12 A. Well, with that -- again, that

13 parenthesis about abstention.

14 Q. All right. And I've just -- okay.

15 This is the --

16 MR. RINALDI: Have these been admitted

17 into evidence? It's Exhibit B2285. It's United

18 Savings Association of Texas employment contract.

19 MR. NICKENS: B2285.

20 MR. RINALDI: July 1st, 1988.

21 Actually, I think that this is an executed

22 version, and it may be that one that was










25406

1 unexecuted was previously put in.

2 I'm handing up to the Court two copies

3 of B2285. My principal concern is I believe that

4 an unexecuted version of this may have been put

5 into the record. And let me hand a copy to the

6 witness.

7 It appears that in the copying, Your

8 Honor, the last page must have been left off or

9 some pages were left off.

10 Q. (BY MR. RINALDI) Sir, would you take

11 a look at what's been marked as Exhibit B2285?

12 This is my copy. And will you look at the last

13 page and simply tell me: Is that your signature

14 that appears at the last page of --

15 A. That's mine.

16 Q. That is yours?

17 A. I think so. It appears so.

18 Q. Oh, okay. The pages just got out of

19 order. Okay.

20 Does this appear, then, to be the

21 contract that you executed with USAT on or about

22 July 1st, 1988?










25407

1 A. Yes, sir.

2 Q. Now, take a look at the contract. The

3 first line says, "Whereas the executive is

4 presently employed by the company as a senior

5 officer..."

6 Do you see that? It's the second

7 "whereas" clause.

8 A. Oh, the second? Okay.

9 Q. Okay. And if you look up in the first

10 paragraph, it says the company that's being

11 referred to is United Savings Association of

12 Texas.

13 Do you see that?

14 A. I do.

15 Q. If you weren't an employee of USAT, why

16 is it that you were entering into a contract with

17 USAT on July 1st, 1988, in which it recites that

18 you are presently employed by the company as a

19 senior officer?

20 A. I'm not sure. It just -- in going

21 through this with Mr. Berner, I suspect these were

22 the drafts on the contracts. Again, as I go back










25408

1 earlier, I had always been told that I was a UFGI

2 person; and I know these -- I see up here that the

3 contract matches to the contract with UFGI. But I

4 don't know the answer to that question.

5 Q. Now, as you -- well -- now, on June the

6 28th, a contract is entered -- well, strike that.

7 I don't want to misstate the record. Let me look

8 at the contract.

9 If we look at Exhibit B2268, on June

10 the 30th, 1988, you entered into a contract with

11 UFGI.

12 Do you see that?

13 A. I do.

14 Q. And the terms of that contract were

15 through December 31st, 1991. And you were to

16 receive a salary of $396,000. And then if you

17 look a day later or on July 1st, 1988, you

18 apparently entered into a second contract with

19 USAT.

20 Do you see that?

21 A. Yeah. I'm not sure it's a second

22 contract.










25409

1 Q. Well, was the first --

2 A. That is, it wasn't -- is there a

3 compensation --

4 Q. If you take a look at the salary, it's

5 the identical --

6 A. That's why I say I'm not sure. I know

7 that I wasn't getting paid by these two different

8 people. So, I assume that one was the security

9 match to the other. I know something like that

10 happened in the first round. As I say, I saw

11 myself as a UFGI employee. I know these weren't

12 two separate contracts for me with two separate

13 compensation things.

14 Q. Okay. But the whole time that you

15 worked with UFGI, it was your understanding that

16 you were performing services on behalf of UFGI,

17 were you not?

18 A. Yes.

19 Q. And that you were an officer of UFGI?

20 A. Yes.

21 Q. And throughout 1988, you continued to

22 perform services for UFGI, did you not?










25410

1 A. Yes.

2 Q. And you continued to believe that you

3 were an officer of UFGI?

4 A. Well, consistently, I was always told

5 that I was a UFGI employee ultimately paid by

6 UFGI.

7 Q. Okay. And did you ever receive an

8 explanation as to why you were given an employment

9 contract with USAT?

10 A. I'm not sure I ever asked in that

11 sense. I just assumed that these contracts went

12 together. I think by this time, we had been

13 making some allocations for some of the other

14 senior people between the two companies. The

15 earlier round of contracts that you referred to

16 earlier had security one to the other, and I

17 probably assumed the same sort of match. The only

18 thing I feel relatively confident about is that I

19 was linked to UFGI and virtually absolutely

20 confident that I wasn't getting duplicately paid.

21 Q. Okay. But every paycheck that I've

22 shown you has indicated that you were being paid a










25411

1 bonus, a retroactive salary increase, and a bonus

2 in 1987 payable in '88, that those were all paid

3 out of a payroll account maintained by USAT,

4 correct?

5 A. Yeah. Well, not every -- and you

6 showed me the one -- the bonus and the paycheck.

7 Which again, as I said earlier, I assume -- I'm

8 not even sure that I remember it happened -- that

9 there was a payroll account and that they would

10 reconcile. I don't know that UFGI even had a

11 separate payroll account.

12 Q. Okay. Now, on the day that you voted

13 along with the other members of the board of USAT

14 to approve these contracts, what was the condition

15 of USAT? Do you recall?

16 A. The condition?

17 Q. Yeah, financially.

18 A. June 28 of '88, we were talking about,

19 again, the status of the Southwest Plan. We were

20 in the process of recapitalizing. We had brought

21 in -- I think were about to bring in -- I notice

22 Mr. Connell is at this meeting.










25412

1 So, the management team was in place.

2 We had been told by virtually everyone we asked

3 that we were going to be a survivor acquirer

4 institution. We were below -- I don't see the

5 numbers. I'm relatively confident at that point

6 that we were below our minimum regulatory net

7 worth as probably virtually every financial

8 institution in the state was since -- our

9 condition was, from my perspective, that we were

10 poised to enter the next era.

11 Q. Okay. And when I referred to

12 "condition," I say referring to the financial

13 condition of the institution. Take a look at

14 Tab 43, T8095 that has been placed before you.

15 This is the second quarter results of 1988 for

16 United Financial Group.

17 Let's take a look at Paragraph 4 -- I

18 mean Page 4 of that document.

19 MR. BLANKENSTEIN: Mr. Rinaldi, can you

20 give us the exhibit number again, please?

21 MR. RINALDI: Certainly. It's Tab 439,

22 Exhibit T8095.










25413

1 Q. (BY MR. RINALDI) Do you see the page

2 I'm referring to?

3 A. Yes.

4 Q. Okay. It's the fourth page. And if

5 you look at the second paragraph, about the last

6 sentence, it -- the last two sentences, it says,

7 "As a result of the examination report and a

8 transfer of certain general reserves to specific

9 reserves, USAT's regulatory capital as of

10 July 31st, 1988, was negative 8.6 million."

11 Do you see that?

12 A. 8.6? Yes, got it.

13 Q. So, by July 31st, it had gone negative,

14 correct? Shortly after the contracts were entered

15 into. And then if you look at the immediately

16 preceding sentence, it says "USAT reported

17 regulatory capital of 86 million as of June 30th,

18 1988, which was $163 million below the minimum

19 regulatory capital requirement."

20 Do you see that?

21 A. I do.

22 Q. And that's consistent with your










25414

1 recollection of the financial condition of USAT at

2 or about the time you entered into the employment

3 contract with USAT?

4 A. By order of magnitude, yes.

5 Q. Now, sir, subsequent to entering into

6 the employment contract, do you recall that USAT

7 was unable to acquire letters of credit to secure

8 the employment agreements?

9 A. I do vaguely remember several attempts

10 and not ultimately being able to secure the

11 contract through a letter of credit. I think

12 that's right.

13 Q. And do you recall that in lieu of a

14 letter of credit, a proposal was made that moneys

15 be set aside in an escrow account?

16 A. Yeah. I remember two different escrow

17 accounts, I think. But yes, basically, I do

18 remember that.

19 Q. Let me show you a copy of what has

20 previously been marked as T8018. This is Tab 443.

21 These are the minutes of the board of directors

22 meeting of October 4th, 1988.










25415

1 A. Wait. Say the number.

2 Q. T8108.

3 A. Okay. That's not -- you didn't give me

4 the --

5 Q. Tab 443.

6 A. Okay. Got it.

7 Q. Now, sir, directing your attention

8 specifically to the third page of those minutes --

9 I'm sorry -- to the last page of those minutes and

10 the next-to-the-last paragraph, there is a

11 discussion there of "The board then discussed its

12 desire of placing money pursuant to the previously

13 executed employment contracts into escrow."

14 Do you see that?

15 A. Point me once more to where you are.

16 Q. Page 6. This is the October 4th,

17 1988 --

18 A. I've got the document. I've got

19 Page 6. The paragraph?

20 Q. And the paragraph is the

21 next-to-the-last one.

22 A. "Resolved"?










25416

1 Q. "No. It's -- the paragraph beginning

2 with "the board then discussed."

3 A. Got it.

4 Q. Why don't you just read that to

5 yourself.

6 A. Okay. (Witness reviews the document.)

7 Okay.

8 Q. And did you -- do you recall that at

9 this board meeting, as a member of the USAT board,

10 you voted to create the escrow and place moneys

11 into the escrow account in order to secure the

12 employment agreements?

13 A. Again, I don't remember the specific

14 meeting. But I -- basically, this sounds like

15 what happened, yeah.

16 Q. So, you voted as a member of the board

17 to use the assets of USAT to secure your severance

18 benefits under the USAT employment contract,

19 correct?

20 A. Well, again, I'm seeing this

21 document -- the document -- the meeting is a joint

22 meeting of UFGI and USAT. (Witness reviews the










25417

1 document.) I was just looking to see, since it

2 was a joint meeting, which of the -- what they

3 were referring to.

4 Q. Uh-huh.

5 A. Which wasn't clear to me.

6 Q. Okay. Is it clear now from reading the

7 minutes?

8 A. No, other than -- "The board then

9 discussed the desire of placing money" -- I guess

10 I'm just -- where it says "in light of the company

11 and the association's financial condition, best to

12 place the moneys into escrow" -- I was only not

13 sure of answering your question as to whether

14 those were UFGI or USAT funds. I just didn't

15 remember which, and it wasn't clear to me in that

16 paragraph which --

17 Q. And can you tell by looking at the

18 document which it was?

19 A. Well, I couldn't by that paragraph.

20 It's a joint meeting --

21 Q. Well, then maybe this will help refresh

22 your recollection. Take a look at Exhibit T8106.










25418

1 And I will give you the tab number on this, which

2 ought to be Tab No. 441.

3 Now, this is a letter that you received

4 from Mr. Gross; is that correct?

5 A. Yeah.

6 Q. And you sign off on the letter, do you

7 not?

8 A. It looks like it.

9 Q. And Mr. Gross says to you in the first

10 paragraph, "Pursuant to your employment contract,

11 the employment contract with United Savings

12 Association of Texas (USAT), USAT's obligation

13 with respect to severance benefits payable under

14 the employment contract are to be secured by

15 unconditional irrevocable letters of credit."

16 Do you see that?

17 A. Yes.

18 Q. And so, this is a document that

19 pertains to the contract that you had with USAT.

20 And in the second paragraph, it talks about

21 placing $6.6 million into an escrow.

22 Do you see that?










25419

1 A. Yes.

2 Q. And USAT is the entity that's going to

3 create the escrow, correct?

4 A. USAT has deposited it, correct.

5 Q. And the amount of money is

6 $6.6 million.

7 Do you see that?

8 A. I do.

9 Q. And after receiving this letter on

10 October the 3rd, it appears that you as a member

11 of the board on October the 4th met with the

12 remaining members of the board and approved the

13 creation of the escrow, did you not?

14 MR. VILLA: Objection, Your Honor. The

15 document that he showed him, he didn't direct his

16 attention to the parenthetical where it says that

17 he abstained from the vote.

18 So, on the October 4 meeting, the

19 parenthetical says "persons with contracts

20 abstaining from the vote."

21 So, I think it's unfair to present this

22 man with a document ten years old and suggest to










25420

1 him that he voted to approve putting money into

2 escrow when the record would reflect that he

3 abstained from it.

4 MR. RINALDI: I'm sorry. I did not

5 mean to mislead the witness.

6 Q. (BY MR. RINALDI) Now, sir, at the

7 point in time when the board put this money into

8 escrow, what was the financial condition of UFG or

9 USAT as reported in the minutes? Take a look at

10 the third page of the October 4th, 1988 minutes.

11 A. (Witness reviews the document.) Okay.

12 Q. And if you look at the last -- the

13 third paragraph from the end, Mr. Gross indicates

14 that the association's negative net worth position

15 would exceed $400 million without dealing with the

16 current goodwill.

17 Do you see that?

18 A. I do.

19 Q. As a director of USAT, did you think

20 that it was appropriate for USAT at a point in

21 time when it had a negative net worth position

22 exceeding $400 million to be placing $6.6 million










25421

1 of its limited assets in an escrow account for the

2 purposes of paying severance benefits to yourself

3 and other senior executives of USAT?

4 A. Well, two pieces. I knew underlying

5 what the incentive was. I noticed in these

6 minutes there is a report from Mr. Connell about,

7 again, Southwest Plan and recapitalization. And I

8 noticed that at this meeting, the board -- I think

9 for many reasons of this question that you asked,

10 that we had now asked our former regulatory

11 attorney -- that is a person who had been there

12 for a while, Mr. Leahey -- and Robert Ott, who is

13 now the special independent counsel for the board

14 of the company, not just -- for the board, to

15 attend those meetings and to advise us. And as I

16 had said earlier on other activities, I would have

17 been basically been following what our own

18 regulatory attorneys either told us was acceptable

19 or, at the very least, would have flagged if it

20 did not make sense.

21 Q. Do you have any independent

22 recollection of either Mr. Ott or Mr. Leahey










25422

1 telling you that it was reasonable for a failing

2 institution with negative net capital of

3 $400 million to be using its assets to fund

4 severance benefits for senior executives?

5 A. Well, what I'm saying is I have

6 recollection as you've given me these minutes of

7 Mr. Ott being at the meeting with Mr. Leahey, that

8 in all cases where the regulatory lawyers were

9 there, particularly Mr. Ott representing the

10 board, I assume that since this was approved

11 without any indication that either of the lawyers

12 signaled that there was any problem, that there

13 was not a problem and that they understood the

14 reason for doing this. And with Mr. Connell

15 there, again, who as we said earlier was the new

16 key Bank Board suggested person, that we would not

17 have proceeded without Mr. Connell and Mr. Ott and

18 Mr. Leahey understanding what we were doing.

19 Q. Okay. And you've now just given me

20 your assumption. Right? That's what you assumed?

21 A. Well, what I'm saying is the minutes

22 don't reflect any question raised by any of those










25423

1 three people, and they reflect Mr. Connell

2 describing the situation I was describing earlier

3 about where we were headed in this direction.

4 Q. And my question to you, sir, was: Do

5 you recall whether either Mr. Ott or Mr. Leahey or

6 Mr. Connell expressed the opinion that they

7 thought it was consistent with prudent practice

8 for USAT, at a point in time when it had negative

9 net capital of $400 million, to take $6.6 million

10 of its limited assets and place them in an escrow

11 for purposes of paying severance benefits to

12 senior executives?

13 A. Well, again, two pieces. This reflects

14 that neither Mr. Ott nor Mr. Leahey expressed any

15 concern. More important for me, we said earlier

16 that for several years we had been asked by the

17 Bank Board to find a superb S&L experienced, new

18 executive officer.

19 Mr. Connell, after the search I was in

20 the middle of, emerged as that person. I looked

21 to Mr. Connell. We would have talked in fair

22 detail, I assume, before going into this board










25424

1 meeting because it was critical. We had just

2 invited the lawyer. Mr. Connell begins the whole

3 meeting by talking about the Southwest Plan. He

4 was the person that I would have looked to for

5 that guidance.

6 Q. Sir, do you have an answer to my

7 question? Did you believe it was consistent with

8 prudent practice?

9 A. Yes.

10 Q. Thank you.

11 MR. RINALDI: I don't think I have any

12 further questions for the witness with respect to

13 this subject matter, Your Honor. I believe that

14 Mr. Guido has some questions that he wants to

15 pursue.

16

17 EXAMINATION

18

19 Q. (BY MR. GUIDO) Dr. Munitz, we met

20 before. I'm Ken Guido, counsel for the OTS. I'm

21 a little confused by some of the responses to your

22 questions, having deposed you twice before and










25425

1 discussed with you your role at USAT and UFG. And

2 I'd like to ask you some questions leading into

3 the subject matter that I'm going to cover that

4 deal with that.

5 You said that you were not an employee

6 of USAT. Is that your testimony?

7 A. My testimony was that I had basically

8 been told that I was essentially a UFGI person,

9 that I was the chair of the executive committee at

10 some point of both boards.

11 Q. Now, did you -- what were your

12 responsibilities as the chair of the executive

13 committee of USAT?

14 A. Well, I had said earlier that they

15 wouldn't have been distinct at all from the UFGI

16 responsibilities because UFGI was the 100 percent

17 owner of USAT. The strongest part by far of the

18 total operation of UFGI was USAT. Most of the

19 management team with whom I would have been

20 talking regarding strategic planning or

21 compensation or recruitment were spending most of

22 their time at USAT. So, I would not have










25426

1 distinguished between the two.

2 Q. Would you take a look at Page 39 of

3 your June 8th, 1995 transcript, please?

4 Particularly, Lines 7 through 18. I just want you

5 to read that to yourself to refresh your

6 recollection so that I can ask you some questions

7 about your role.

8 Now, were your functions as the chair

9 of the executive committee the recruitment,

10 retention, and compensation of the key personnel

11 of USAT?

12 A. Well, both. And as I say, if I can --

13 on Page 39, if you'd allow me to move up just a

14 few lines, I'd introduce the exchange.

15 Q. Sure.

16 A. What I was saying and I think what I

17 was just saying to you was I was chairing both

18 boards. I worked the executives of both boards.

19 They worked together. I assumed that I was paid

20 by UFGI. Nobody had reported to me, as I related

21 earlier to Mr. Rinaldi.

22 So, if we went on -- if you were the










25427

1 questioner here to talk about what was happening

2 at USAT, it would have been in the context of USAT

3 was the key major subsidiary of UFGI, not an

4 atypical situation. And although I was paid by

5 and was an officer of UFGI in my role as chair of

6 the executive committee of USAT, I was playing the

7 role as described in the answer on 39.

8 Q. Well, as your chair -- you were the

9 chair of USAT. What was your --

10 A. Of the executive committee.

11 Q. Of the executive committee. What was

12 your role of the executive committee of UFGI?

13 A. Well, as I said, they wouldn't have

14 been fundamentally different. This was a holding

15 company with one major, very large, wholly-owned

16 subsidiary.

17 Q. And that being USAT?

18 A. USAT.

19 Q. Now, I'd like you to take a look at

20 Exhibits A1109 and A1110, which are the UFG board

21 of directors minutes and the USAT board of

22 directors minutes of 12/13/1986. They are Tabs










25428

1 132 and 133.

2 A. Which one first?

3 Q. 132 and 133.

4 A. Which one first?

5 Q. Start with 132 and look at Page 6 on

6 that document.

7 A. Okay. I'm on Page 6.

8 Q. Does that show the executive committee

9 as of February 13th, 1986, as you recall of UFG?

10 A. Yes, sir.

11 Q. Now take a look at the next document,

12 which is Tab 133, which is A1110.

13 A. Okay.

14 Q. Look at the top of the page. Does that

15 set out your understanding of the executive

16 committee of United Savings Association of Texas

17 as of February 15th, 1986?

18 A. The top of Page 2?

19 Q. The top of Page 2. I think that's

20 right.

21 MR. VILLA: Sir, what page are you on?

22 MR. GUIDO: It's in A1110, the top of










25429

1 Page 2.

2 Q. (BY MR. GUIDO) I gather this section

3 stops at the bottom of -- starts at the bottom of

4 Page 1 and carries over to Page 2.

5 A. Right. I've got it.

6 Q. I'm sorry.

7 A. I see where you are.

8 Q. Now, are you saying that the executive

9 committees of USAT and UFG effectively operated as

10 one committee?

11 A. No.

12 Q. No? What were you saying --

13 A. What I was saying was that USAT, since

14 it was such a large part of UFGI's operation, that

15 those people with UFGI responsibilities would have

16 normally spent a substantial amount of time and

17 preparation and concern on USAT issues.

18 Q. Did that include all members of the

19 executive committee of UFGI?

20 A. Well, if you'll allow me to go back and

21 see who they were. (Witness reviews the

22 document.) Well, Mr. Gross -- I'm looking now at










25430

1 the UFGI executive committee. Mr. Gross was also

2 on the executive committee of USAT, and he was the

3 chief executive officer, I believe. Mr. Hurwitz

4 was the chief executive officer -- was the

5 chairman of the board of UFGI. He wasn't on the

6 USAT board. Mr. Whatley is on both, and

7 Mr. Williams is on both.

8 Q. Okay. Now, there is an overlap between

9 the two committees, is there not?

10 A. I'd say pretty extensive.

11 Q. Except for one person. Right?

12 A. Well, Mr. Hurwitz wasn't on the USAT

13 board.

14 Q. Right. But other than that one person,

15 the boards are -- the executive committees of the

16 boards of directors are identical?

17 A. Gross, Williams, Whatley, Munitz. Yes,

18 sir.

19 Q. Okay. Now, on Page 39 of your

20 transcript, you testified that your

21 responsibilities as the chair of the executive

22 committee was the recruitment, retention, and










25431

1 compensation of key personnel of USAT?

2 A. Yes, uh-huh.

3 Q. Okay. Who were the key personnel of

4 USAT?

5 A. Well, time period roughly?

6 Q. Subsequent to December 31, 1985.

7 A. Mr. Berner, Mr. Gross, Mr. Williams,

8 Mister -- both Williams, Gerry and Bruce -- Crow,

9 Pledger, Jackson, Laurenson, Stodart, Wolfe.

10 Q. Now, who established your functions

11 that you refer to on Page 39 of your transcript of

12 the deposition?

13 A. Who established my functions? I would

14 assume, basically, that it was the board since it

15 was their executive committee.

16 Q. Who told you that those were your

17 functions?

18 A. Well, at that time period, Mr. Hurwitz

19 was the chairman of the UFGI board.

20 Q. And who did you report to?

21 A. Well, again, I had this -- told

22 Mr. Rinaldi as the chair of the executive










25432

1 committee at UFGI, I would have been responsible

2 to the chair of the UFGI board.

3 Q. Now, who did you report to with regard

4 to the recruitment, the retention, and the

5 compensation of key personnel of USAT which you

6 defined as starting with Mr. Gross working on

7 down, I think, to -- through Mr. Bruce Williams?

8 A. Well, again, I'd rather say who did I

9 work most closely with -- I mean, "report to" when

10 I'm performing that staff role, I'm not making the

11 decision about who they are. I'm facilitating the

12 process. Ultimately, the people in the line

13 operating position at USAT -- so, that's

14 principally Mr. Gross and Mr. Williams -- are the

15 ones that have to make the hiring decision. My

16 job is assisting, counseling, consulting,

17 facilitating. I'm not hiring them myself.

18 So, I would have been basically at that

19 time period working most closely with Mr. Gross.

20 Q. Now, with regard to Mr. Gross, did you

21 participate in his hiring?

22 A. Yes.










25433

1 Q. Tell us and the Court what your role

2 was in Mr. Gross' hiring.

3 A. Again, I would have been involved in

4 looking at alternative candidates. I would have

5 been told by the board since in this case with

6 Mr. Williams, Mr. Gross was the senior person,

7 what are our requirements? What are we looking

8 for? What are our choices? Who might we talk to?

9 I then would have been certain that

10 Mr. Gross -- and if there were other candidates --

11 were interviewed by the other key people. I would

12 have talked a bit about compensation patterns,

13 definition of responsibility, conditions of

14 employment. And then if it was the chief

15 executive officer, it would have been the decision

16 of the board as to who to hire.

17 Q. Did Charles Hurwitz ask you to approach

18 Jenard Gross and ask him whether or not he'd be

19 interested in a position at USAT?

20 A. Yes. He mentioned Jenard as one of

21 what he thought was a prime candidate to take that

22 job.










25434

1 Q. Take a look at your deposition

2 transcript of April 3rd, 1997, at Pages 45 through

3 46. That's the Minuscript, not -- you're looking

4 at the June 8th now. Take a look at the other

5 deposition transcript that's in there. It's

6 April 4th, 1997. I'm sorry. April 3rd, 1997.

7 A. Okay. Page?

8 Q. Pages 45 through 46.

9 A. Particular place?

10 Q. Have you read Pages 45 through 46?

11 A. You want me to read the whole thing?

12 Okay. (Witness reviews the document.) Okay.

13 Q. Okay. Now, in your testimony there,

14 you don't see anything about Mr. Hurwitz asking

15 you to recruit a number of candidates. You

16 testified there that Mr. Hurwitz asked you to

17 approach Mr. Gross to see if he was interested in

18 coming to USAT.

19 A. Right. I mean, I don't see a question

20 here that says, "Did you talk to someone else?"

21 The question, "Did Mr. Hurwitz ask you to talk to

22 Mr. Gross?"










25435

1 "That's correct," which it is correct.

2 Q. Did Mr. Hurwitz ask you to talk to

3 anyone else for the position that he was

4 interested in besides Mr. Gross?

5 A. He might have. And I think several

6 other board members also suggested other people

7 who might be candidates in part because no one

8 quite believed that Mr. Gross would be willing to

9 take this job. He was doing something very

10 different.

11 So, I can't say now that Mr. Hurwitz

12 specifically suggested other people, but I have a

13 fair recollection -- I think it was around this

14 time -- of other people suggesting other

15 candidates.

16 Q. But Mr. Hurwitz suggested Mr. Gross?

17 A. Yes, I believe so.

18 Q. And your surmising that he might have

19 suggested someone else is just speculation, is it

20 not?

21 A. And even there, I was talking more to

22 other people suggesting other people.










25436

1 Q. And so, you're even speculating about

2 that?

3 A. Well --

4 MR. VILLA: Objection, Your Honor.

5 Asking a person to remember an event 14 years back

6 when he can't say with absolute assurance is a

7 little less than speculating. I think he's just

8 trying to give us his recollection.

9 MR. GUIDO: I think he used the term

10 "surmise."

11 Q. (BY MR. GUIDO) What do you mean by

12 the term "surmise," Mr. Munitz?

13 A. Going back to this period and thinking

14 through the search process, it was at a time when

15 we were not certain about precisely the role that

16 Mr. Williams would wind up playing. The board --

17 several members of the board were talking to me

18 about the leadership of the organization,

19 including Mr. Hurwitz at the UFGI level.

20 I am relatively certain now 12 years

21 later and under oath that other board members

22 mentioned other people to me of the type that they










25437

1 would like to see playing that role and that

2 Mr. Hurwitz said, "Mr. Gross seems to be a person

3 who would be a good match for that job."

4 Q. Who were some of those people,

5 Mr. Munitz?

6 A. Well, I vaguely remember one or more of

7 the PennCorp members of that board who at that

8 time I think would have been Mr. Sterling,

9 Mr. Silverman, Mr. Borman -- I'm not sure at that

10 period. But this is now 12 years --

11 Q. Did they recommend that you speak with

12 anyone?

13 A. I just can't say now specifically what

14 would have been done.

15 Q. Did you approach anyone?

16 A. Again, I just have this vague feeling

17 that I did talk to other people; but I just can't

18 say now who and when.

19 Q. You don't know who, and you don't know

20 when?

21 A. I'm just not in the --

22 Q. Okay. Let's talk about Gerry Williams.










25438

1 Who -- did you participate in Gerry Williams'

2 hiring?

3 A. I had mentioned earlier that I was --

4 sorry.

5 THE WITNESS: Are you waiting for me?

6 MR. VILLA: I'm sure that Mr. Guido --

7 perhaps he wasn't in the courtroom. We have gone

8 through his role in all the hiring of these

9 executives one time, and I think this is the

10 problem we have with multiple examiners. And I

11 object to it. We've been through it once, and --

12 THE COURT: Well, I'm going to sustain

13 your objection. I think you probably should have

14 objected earlier. This is all stuff that

15 Mr. Rinaldi covered.

16 MR. GUIDO: Your Honor, I was just

17 trying to clarify --

18 THE COURT: Mr. Rinaldi is here. I

19 think he should confirm that.

20 MR. GUIDO: Mr. Rinaldi?

21 MR. RINALDI: I believe that I did ask

22 him a question about --










25439

1 THE COURT: All right.

2 MR. RINALDI: -- Mr. Williams, and he

3 said that Mr. Williams was at the institution or

4 came to the institution --

5 THE COURT: Yeah. But the whole

6 subject matter of his role in hiring people and so

7 on was gone through at some length, and I think

8 this is repetitious.

9 MR. GUIDO: Okay, Your Honor. I'll

10 move on. I just have one question.

11 Q. (BY MR. GUIDO) And that is: Was your

12 role in the hiring of key people at USAT the same

13 role that Charles Hurwitz hired you for at --

14 MR. KEETON: I'm going to object to

15 that question, Your Honor, because he is trying to

16 go ahead and go into Rinaldi's area. Just one

17 question is one question too much.

18 MR. GUIDO: Your Honor, I'm just --

19 THE COURT: All right. I'm going to

20 sustain the objection.

21 Q. (BY MR. GUIDO) Now, what was

22 Mr. Williams' primary responsibilities at USAT?










25440

1 A. I believe that he was the president of

2 the association. He had been the chief financial

3 officer at First City Bank, I think. And so, he

4 would have been, at the point in time that he was

5 the president, basically the person to whom most,

6 if not all, of the functional lines ultimately

7 wound up with.

8 Q. Would you take a look at your

9 April 3rd, 1997 deposition transcript at Page 98?

10 A. (Witness complies.)

11 Q. I guess it starts on Page 97.

12 A. (Witness reviews the document.)

13 Q. Do you see where you're asked -- with

14 regard to the question that starts on the bottom

15 of Page 97 and then picking up on the top of

16 Page 98, there is the question of whether or not

17 Williams handled operations?

18 A. Yes. I see -- yeah, I do.

19 Q. Now, did Gerald Williams have the

20 primary responsibility for what you referred to as

21 operations at USAT?

22 A. At the -- again, we had had some










25441

1 conversation earlier about points of time and

2 transition. He was basically -- particularly

3 before Mr. Gross came full time on board and

4 shifted responsibility, Mr. Williams was the key

5 operating person at USAT.

6 Q. All right. And what was the

7 responsibility of the key operating person?

8 A. I don't think any fundamentally

9 different than the chief operating officer of any

10 complex organization.

11 Q. What was his role after Mr. Gross came

12 to the association?

13 A. Again, this was a period of time, as we

14 said earlier, that was changing. It wouldn't have

15 been, I don't think, fundamentally different. The

16 balance would have begun to shift as Mr. Gross

17 spent more time there because they could divide

18 responsibilities. They had different areas of

19 expertise. Gradually, it was clear that Mr. Gross

20 could play roles that Mr. Williams either was less

21 wanting to play -- Mr. Williams was just terrific

22 at what he was doing, and there was some question










25442

1 about the appropriate balance between them.

2 So, the question you asked involves a

3 transition.

4 Q. And what were the things that

5 Mr. Williams was particularly terrific at?

6 A. Overseeing financial organization. I

7 think he was a sound, steady-state administrator,

8 human resources, technology infrastructure,

9 personnel, internal infrastructure line

10 responsibilities.

11 Q. Investments? Are those included?

12 A. Well, there were a complex range of

13 investments. I'm not sure that he was as

14 interested in and as strong in some of those areas

15 as Mr. Gross was or as several other people there

16 were.

17 Q. Now, let's talk about Mr. Gross. What

18 were -- what was his contribution? What was his

19 primary responsibility in terms of subject matter?

20 A. I think gradually as he assumed the

21 chief executive officer role at the association,

22 he was the leader, the coordinator, the -- he had










25443

1 a lot of experience in real estate. He had some

2 considerable experience in different types of

3 investments. He was skilled at pulling people

4 together, providing motivation, objective -- in

5 the role that you would expect from a chief

6 executive officer.

7 Q. Who was responsible for the equity

8 arbitrage portfolio at USAT?

9 A. At what period of time?

10 Q. 1985.

11 A. I'm not sure I -- I'm not sure I

12 remember the year. There was some participation

13 of Mr. Huebsch, but I don't remember at that year

14 who had the direct responsibility.

15 Q. Take a look at the same transcript that

16 we're in at Page 77.

17 A. (Witness reviews the document.)

18 Q. See where I ask you, "Was anyone

19 handling the equity arbitrage for all the

20 companies?"

21 And your answer, "To the extent to

22 which anyone was, it would have been Ron Huebsch."










25444

1 A. That's the person to whom I just

2 referred.

3 Q. Does that refresh your recollection

4 that it was Ron Huebsch?

5 A. Well, again, I'm not sure I need to be

6 refreshed by my own deposition. The -- and I

7 think I said that it was -- to the extent to which

8 I could remember, Ron Huebsch was either the key

9 person or one of the key people.

10 Q. Did anyone at USAT have the

11 responsibility for the oversight of the staff that

12 was making equity arbitrage decisions on behalf of

13 USAT other than Ron Huebsch during the period of

14 time you were there?

15 A. For the oversight of the staff, it

16 would have gone from whoever was doing it to some

17 combination of Mr. Crow, Mr. Williams, Mr. Gross.

18 I mean, the oversight moved right up the

19 organization.

20 Q. The people who were making the

21 transaction decisions and making the decisions to

22 invest in equity arbitrage, who did they report










25445

1 to?

2 A. The oversight of those people,

3 depending upon the time -- again, I can't remember

4 the exact chart; so, I ought to just stay with the

5 best of my recollection. They were ultimately

6 responsible to the financial officers of the

7 institution.

8 Q. Who made the decision to invest in a

9 particular equity arbitrage transaction during the

10 period of time you were at USAT?

11 A. Again, I was at USAT on the board

12 for -- '82 to '88 so --

13 Q. Let's start with the beginning of '85.

14 A. Well, at some point, there was an

15 investment committee. They became very critical

16 in this discussion. I can't tell you right now

17 when that would have started, but I know there was

18 serious discussion about an investment committee.

19 Q. Was Ron Huebsch obligated at any time

20 to notify the investment committee of an

21 investment he was going to make in equity

22 arbitrage on behalf of USAT prior to making the










25446

1 decision?

2 A. I'm just not sure.

3 Q. Okay. So, you don't know one way or

4 the other?

5 A. I don't.

6 Q. Now, who --

7 THE COURT: Mr. Guido, how much are you

8 going to have?

9 MR. GUIDO: Probably a few hours, Your

10 Honor.

11 THE COURT: All right. It's time to

12 adjourn. I have an exhibit here, Exhibit B2285.

13 Mr. Rinaldi, are you going to offer

14 that?

15 MR. RINALDI: Yes, Your Honor. I would

16 move the admission of 2285. That would have been

17 the employment contract that was the last

18 unadmitted document that we showed the witness.

19 MR. VILLA: No objection.

20 THE COURT: Received.

21 All right. We'll adjourn until

22 9:00 o'clock.










25447

1 (Whereupon at 4:55 p.m.

2 the proceedings were recessed.)

3

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11

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13

14

15

16

17

18

19

20

21

22










25448

1 STATE OF TEXAS
COUNTY OF HARRIS
2
REPORTER'S CERTIFICATION
3 TO THE TRIAL PROCEEDINGS

4 I, Marcy Clark, the undersigned Certified

5 Shorthand Reporter in and for the State of Texas,

6 certify that the facts stated in the foregoing

7 pages are true and correct to the best of my ability.

8 I further certify that I am neither

9 attorney nor counsel for, related to nor employed

10 by, any of the parties to the action in which this

11 testimony was taken and, further, I am not a

12 relative or employee of any counsel employed by

13 the parties hereto, or financially interested in

14 the action.

15 SUBSCRIBED AND SWORN TO under my hand

16 and seal of office on this the 7th day of October,

17 1998.

18 ____________________________
MARCY CLARK, CSR
19 Certified Shorthand Reporter
In and for the State of Texas
20 Certification No. 4935
Expiration Date: 12-31-99
21

22










25449

1 STATE OF TEXAS
COUNTY OF HARRIS
2
REPORTER'S CERTIFICATION
3 TO THE TRIAL PROCEEDINGS

4 I, Shauna Foreman, the undersigned

5 Certified Shorthand Reporter in and for the

6 State of Texas, certify that the facts stated

7 in the foregoing pages are true and correct

8 to the best of my ability.

9 I further certify that I am neither

10 attorney nor counsel for, related to nor employed

11 by, any of the parties to the action in which this

12 testimony was taken and, further, I am not a

13 relative or employee of any counsel employed by

14 the parties hereto, or financially interested in

15 the action.

16 SUBSCRIBED AND SWORN TO under my hand

17 and seal of office on this the 7th day of October,

18 1998.

19 _____________________________
SHAUNA FOREMAN, CSR
20 Certified Shorthand Reporter
In and for the State of Texas
21 Certification No. 3786
Expiration Date: 12-31-98
22

Continue with Munitz Testimony , Oct. 08, 1998

OTS vs MAXXAM Trial Testimonies
Barry Munitz Testimony | Charles Hurwitz Testimony | Kenneth Guido's Opening Remarks
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