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 4 5 6 7 8 9 10 11 12 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