5902 1 UNITED STATES OF AMERICA Before the 2 OFFICE OF THRIFT SUPERVISION DEPARTMENT OF THE TREASURY 3 In the Matter of: ) 4 ) UNITED SAVING 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 10-30-97 22 5903 1 A-P-P-E-A-R-A-N-C-E-S 2 ON BEHALF OF THE AGENCY: 3 KENNETH J. GUIDO, Esquire (Not present) Special Enforcement Counsel 4 PAUL LEIMAN, Esquire SCOTT SCHWARTZ, Esquire 5 BRUCE RINALDI, Esquire RICHARD STEARNS, Esquire (Not present) 6 and BRYAN VEIS, Esquire (Not Present) 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 16 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 5904 1 ON BEHALF OF RESPONDENT FEDERATED DEVELOPMENT CO., CHARLES HURWITZ, AND MAXXAM, INC.: 2 JACKS C. NICKENS, Esquire (Afternoon only) 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 (Not present) 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 5905 1 2 EXAMINATION INDEX 3 Page 4 DAVID GRAHAM 5 Examination (Cont'd) by Mr. Leiman.......5906 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 5906 1 P-R-O-C-E-E-D-I-N-G-S 2 (9:30 a.m.) 3 THE COURT: Be seated, please. The 4 hearing will come to order. 5 Mr. Leiman, you may continue with your 6 examination. 7 MR. LEIMAN: Thank you, Your Honor. 8 9 EXAMINATION 10 11 12 Q. (BY MR. LEIMAN) Good morning, 13 Mr. Graham. 14 A. Good morning. 15 Q. The first document I'd like to turn to 16 this morning is T7611, which relates to the 17 Norwood transaction. 18 Mr. Graham, your testimony yesterday 19 related to property and some 94 acres in Austin, 20 Texas. We discussed it as the Norwood project. 21 Have you seen this promissory note previously? 22 A. I assume I have, yes. 5907 1 Q. And this is a promissory note that 2 would have been given in connection with that 3 property by Stephen Block on behalf of -- as a 4 trustee on behalf of himself and Mr. Tommy Gordon? 5 A. I believe so, yes. 6 Q. And does it then describe the debt in 7 connection with the property? 8 A. Yes. 9 Q. And the date is September 28th, 1984? 10 A. Correct. 11 MR. LEIMAN: Your Honor, I move that 12 T7611 be admitted. 13 MR. DUEFFERT: No objection. 14 THE COURT: Received. 15 Q. (BY MR. LEIMAN) Mr. Graham, is this 16 the loan that United Savings made to Mr. Gordon 17 and Mr. Block in connection with Norwood that was 18 brought in by -- loan which was brought in by 19 Mr. Gross? 20 MR. BLANKENSTEIN: Objection. It's 21 mischaracterizing the testimony. 22 THE COURT: He hasn't given any 5908 1 testimony on that subject yet. 2 MR. BLANKENSTEIN: I think he testified 3 yesterday that he thought Mr. Gross may have had 4 some involvement in this, that Mr. Gordon may have 5 called Mr. Gross but he wasn't sure. 6 THE COURT: All right. Well, let's 7 find out. 8 A. As I said yesterday, I think -- I 9 believe Mr. Gordon contacted Mr. Gross first. I 10 don't think Mr. Gross went to look for this loan. 11 I think it was a contact -- he called Jenard first 12 because he knew Jenard best. 13 Q. (BY MR. LEIMAN) You mean Mr. Gordon 14 did? 15 A. Yes. 16 Q. Okay. And who is Steve Block, Stephen 17 block? 18 A. At the time, Stephen Block was a 19 partner with Mr. Gordon. 20 Q. Okay. What business had they been in 21 together? 22 A. I don't know how long they had been 5909 1 partners. Steve Block, at one time, was an 2 attorney and he's an attorney again. This time 3 he's a partner. I don't know how long that 4 partnership was. 5 Q. What was their business, Mr. Block and 6 Mr. Gordon? 7 A. Well, once again, I didn't know Stephen 8 Block. I knew Tommy Gordon. I knew who he was. 9 I knew what he did. So, what Stephen did with 10 Tommy, I can't be definitive. But Tommy was -- 11 had been in the real estate business forever. He 12 had done land deals. He was very -- he had been 13 very successful building Deauville off-price mall 14 centers. 15 Q. And when you say "Deauville off-price 16 mall centers," where were those built? 17 A. Throughout Houston. 18 Q. What was the concept, if you know, 19 behind the Deauville mall center? 20 A. Well, it was off-brand pricing of -- 21 malls that specialized in off-brand -- off-price 22 facilities. 5910 1 Q. Mr. Graham, do you know why Mr. Gordon 2 and Mr. Block wanted to have this loan, what they 3 were going to use it for? 4 A. Apparently they wanted to buy the land. 5 Q. And the land that we talked about in 6 Austin? 7 A. Yes. 8 Q. Okay. Let's look at Exhibit T7620, 9 please. Mr. Graham, would you have seen this 10 document in the course of your work at United 11 Savings? 12 A. Yes, sir. 13 Q. And what is it? 14 A. It's a guarantee agreement. This one 15 seems to be only signed by Mr. Block. 16 Q. And -- 17 A. And a deed of trust and a security 18 agreement. 19 Q. And the amount for which -- that it's 20 guaranteeing is how much? 21 A. The full loan amount, 18 million 2. 22 Q. Okay. And that relates to the previous 5911 1 loan we saw in the -- 2 A. That's correct. 3 Q. Now, looking at the Bates Page 886 -- 4 A. Yes, sir. 5 Q. -- it refers in Paragraph G to 6 guarantor individually and/or collectively? 7 A. Yes. 8 Q. And the names that are there are whom? 9 A. Thomas J. Gordon and Stephen M. Block. 10 Q. Do you know -- do you believe that 11 Mr. Gordon and Mr. Block both guaranteed the 12 18.2-million-dollar loan? 13 A. Yes. 14 Q. Okay. 15 MR. LEIMAN: Your Honor, I'd move the 16 admission of T7620. 17 MR. DUEFFERT: No objection. 18 THE COURT: Received. 19 Q. (BY MR. LEIMAN) T7629, please. 20 Mr. Graham, before we get to 7629, I'd like to ask 21 you a question about the practice of United 22 Savings at the time that this guarantee was 5912 1 entered into and the 18.2-million-dollar loan was 2 made to acquire the property, which would have 3 been in December of 1984 before Mr. Gross arrived 4 as president and CEO of United Savings. 5 Was it the policy of United Savings to 6 obtain 100 percent guarantees in connection with 7 land loans at that time? 8 A. Not always. I mean, sometimes we took 9 the top portion. Maybe the top 25, top 10 30 percent. It depended on the situation. The 11 laws were such that you generally didn't collect 12 more than the top portion anyway. 13 Q. And in this case, do you remember why 14 you would have wanted a 100 percent guarantee on a 15 land loan? 16 A. No. I mean, we usually asked for it. 17 And if somebody gave it to us, we took it. 18 Q. And in this case, Mr. Gordon and Block 19 did guarantee 100 percent? 20 A. Correct. 21 Q. Okay. Let's look then at 7629. What 22 is this document, sir? 5913 1 A. This is a renewal extension of the note 2 that you had shown me previously. 3 Q. And the date on this? 4 A. June 28th of '85. 5 Q. Would this have been in your files at 6 United Savings? 7 A. Oh, I assume it would be, yes. 8 Q. And it's signed by whom on Page 2? 9 A. Excuse me. Stephen Block as trustee. 10 Stephen Block and Thomas Gordon as guarantors, and 11 then Jeffrey Minch and Frank Krasovec as new 12 guarantors. Also executed by me. 13 Q. And where is your signature? 14 A. Below the rest where it says "United 15 Savings of Texas." 16 Q. Okay. And that's on Page 2? 17 A. That's correct. 18 MR. LEIMAN: Your Honor, I move T7629 19 into evidence. 20 MR. DUEFFERT: No objection. 21 THE COURT: Received. 22 Q. (BY MR. LEIMAN) In connection with 5914 1 the 18.2-million-dollar land loan that Block and 2 Gordon had obtained from United Savings, was the 3 interest to be paid on that loan funded by the 4 loan itself? 5 A. Without showing me something, I can't 6 tell you. 7 Q. Well, we'll be doing that. 8 A. Okay. Then I'll be answering at that 9 point. I mean, I don't recall. 10 Q. This renewal and extension agreement, 11 do you know what the purpose of this was? 12 A. To renew and extend the loan. 13 Q. All right. Now, if you'll look with me 14 down to about two-thirds of the way down the page, 15 it refers to another loan in the amount of 16 $2.8 million; is that right? 17 A. Let me find it, please. Halfway down 18 the page? 19 Q. No. About two-thirds. 20 A. Oh, yes. I've got it. Yes, it does. 21 Q. What was the 2.8-million-dollar loan 22 intended to do in connection with the -- these 5915 1 borrowers? 2 A. If I recall correctly, it had to do 3 with acquiring some additional land; but once 4 again, once you show me some documentation, I can 5 recall more vividly. 6 Q. All right. T7627. Do you know what 7 this document -- do you know what T7627 is? 8 A. Yes. It's a guarantee of the 9 2.8 million loan you just asked about. 10 Q. And it's signed by Stephen M. Block 11 dated June 28th, 1985. Right? 12 A. That's correct. 13 Q. Is this a document that would have been 14 in your files at United Savings? 15 A. Yes, it would be. 16 MR. LEIMAN: Your Honor, I move 7627 17 into evidence. 18 MR. DUEFFERT: No objection. 19 THE COURT: Received. 20 Q. (BY MR. LEIMAN) T7624. 21 A. Thank you. 22 Q. You previously saw a different 5916 1 guarantee. This is a guarantee in connection with 2 a 2.8-million-dollar loan and this is signed by 3 Tom Gordon on June 28th, 1985. 4 Is this a document that had been in 5 your files at United Savings? 6 A. Yes. This is the exact same guarantee 7 as the one you previously showed me, just executed 8 by Tommy Gordon and Mr. Block. 9 Q. So, Mr. Gordon and Mr. Block were both 10 liable for the additional $2.8 million? 11 A. That's correct. 12 MR. LEIMAN: Your Honor, I move 7624 13 into evidence. 14 MR. DUEFFERT: No objection. 15 THE COURT: Received. 16 Q. (BY MR. LEIMAN) 7003. Mr. Graham, 17 yesterday you described some of the factors that 18 were important in underwriting loans and the 19 factors that you employed in connection with loan 20 underwriting at United Savings. One of those 21 related to markets and knowing the markets. 22 Right? 5917 1 A. That's correct. 2 Q. Were you familiar with the market in 3 Austin, Texas? 4 A. Yes. 5 Q. Looking at the very first sentence in 6 this newspaper article, 7003, from the Austin 7 Business -- did you get the Austin Business 8 Journal, sir, at United Savings? 9 A. I don't believe we did at the time, no. 10 Q. Was there a branch of United Savings in 11 Austin, Texas, in nineteen -- in July of 1985? 12 A. No. 13 Q. Did United Savings have loans other 14 than the Gordon loan -- 15 A. Yes. 16 Q. -- in Austin, Texas? 17 A. Yes, sir. 18 Q. Okay. Do you know what loans those 19 were? 20 A. Well, I think we had a lot of small 21 loans. We also had -- were completing a 22 development project called Cat Mountain, which was 5918 1 a residential development. So, we had been in 2 Austin actively off and on for the last eight or 3 nine years. 4 Q. And what did you base your market data 5 and information on in connection with Austin, 6 Texas? 7 A. Well, once again, I mean, we did take 8 and acquire periodical updates from -- I don't 9 know if it was Caldwell Bank or one of the major 10 firms would give us quarterly reports. We got 11 residential reports relative to our subdivision, 12 what the residential activity was. So, we were 13 getting, periodically, different information. 14 Q. You've heard of the Austin Business 15 Journal, haven't you? 16 A. Oh, yes, sir. I take it now, yes. 17 Q. You believe it's a reliable newspaper? 18 A. As a newspaper can be reliable. 19 Q. Is it a useful source of data and 20 information -- 21 A. In Austin, all information is useful 22 because the uniqueness of the market and the 5919 1 environmental issues and so forth, yes. 2 MR. LEIMAN: Your Honor, I move T7003 3 into evidence. 4 MR. DUEFFERT: Your Honor, in light of 5 what we discussed yesterday, I would ask that the 6 article itself not come into evidence, but I would 7 allow Mr. Leiman to question the witness about it. 8 I think that would be a fair resolution. 9 MR. LEIMAN: Your Honor, if I might 10 respond. I don't think that is a fair resolution. 11 Mr. Graham has testified that all information 12 regarding Austin is useful, and it's not merely 13 notice in this case. 14 THE COURT: Well, we did receive the 15 newspaper article yesterday. All right. 16 Received. 17 Q. (BY MR. LEIMAN) Mr. Graham, look with 18 me if you would at the very first sentence of this 19 article. 20 A. Yes. 21 Q. It states that "Vacancy rates in office 22 and retail space markets in Austin are climbing." 5920 1 A. Yes. 2 Q. Do you recall whether or not that was, 3 in fact, the condition in July 1985 in the City of 4 Austin, Texas? 5 A. Oh, I think it was. I think that's 6 correct. But I think also, the second sentence is 7 just as important. That what's happening, the 8 developers were prepared for what's happening and 9 nobody's panicking. I mean, I don't think you can 10 take one sentence out of the context here. 11 Q. And United wasn't panicking? 12 A. That's a fair assumption, yes. 13 Q. Okay. And United Savings, in fact, had 14 just renewed an 18.2-million-dollar loan to 15 Mr. Gordon and Mr. Block and, in fact, had 16 increased the loan amount by $2.8 million. Right? 17 A. That's correct. 18 Q. Okay. Next paragraph says "The office 19 market is experiencing a 19.5 percent vacancy rate 20 with the retail sector expected to register a 21 15 percent to 17 percent rate by the end of the 22 year." 5921 1 At this point in time, in July of 1985, 2 was the concept in connection with -- if you 3 remember, was the concept in connection with the 4 Austin property, the Norwood property, did it 5 involve office space? 6 A. I think initially when it came in, it 7 involved -- it -- I think the very top portion of 8 it was going to be a Deauville mall. Some office 9 space. Frontage was going to be fast food and 10 high-profile retail. It was a mixed use. So, 11 they had a little bit of a lot of things in there. 12 It wasn't predominantly one market, no. 13 Q. 7008, please. Mr. Graham, I've handed 14 you Exhibit T7008, which is the United Savings 15 Association loan committee approval for a 16 December 21, 1984, action in connection with the 17 Norwood property, some 95 acres. 18 My question to you is: Do you 19 recognize this? 20 A. Yes, I do. 21 Q. All right. Would you look at the third 22 page and tell me whose signatures those are? 5922 1 A. Yes, sir. It's my signature, C.E. 2 Bentley's, Michael Crow's, and Gerald Williams'. 3 Q. I don't see Mr. Gross' signature on 4 this. 5 A. Well, he isn't. 6 Q. And is that because he wasn't -- 7 A. He wasn't an officer. 8 Q. Now, look with me at the first page. 9 There is a description regarding the purpose of 10 the loan under "proposal." 11 A. Yes. 12 Q. The office space would include 13 50 acres: Retail 8.7, apartments 11.6, and 14 commercial 23.3 -- 23 acres. Sorry. 15 A. Which is the zoning, yes. 16 Q. Okay. Is that consistent with your 17 memory as to what the purpose of the loan was? 18 A. It was consistent, I think. We had 19 hoped to maybe try to rezone some areas for 20 different use, but that was the zoning existing at 21 the time. 22 Q. Mr. Graham, the lot is described as an 5923 1 L-shaped tract with frontage on Interstate 35. 2 Was the corner lot at the point of this 3 loan in 1984, the very corner of I-35 and US 183, 4 was that included in this tract? 5 A. No. No, it wasn't. 6 Q. You recommended this loan? 7 A. I don't know if I so much recommended 8 it as presented it. 9 Q. What do you mean? 10 A. Well, I mean, I worked on it. I mean, 11 it wasn't one I got, that I recommended. I signed 12 it. I approved it. But -- I mean, I printed it; 13 and I approved it. I was happy with it. 14 Q. Well, who recommended it then? 15 A. I don't know if anybody recommends it 16 in that respect. I mean, you present this as an 17 opportunity and we all either decline it or 18 approve it. 19 Q. Was there -- there was someone else 20 behind this loan? Is that -- 21 A. I didn't say that. I said it doesn't 22 necessarily mean somebody is a strong supporter of 5924 1 a loan. It means a loan came in. Somebody is 2 assigned to work on it. You present it, and then 3 we all decide whether we like it or not. 4 Q. You discussed this loan with Mr. Crow 5 and Mr. Williams? 6 A. I probably did, yes. 7 Q. And Mr. Bentley? 8 A. Yes. Well, I mean, they were all the 9 committee, yes. 10 Q. Did you discuss it with Mr. Gross? 11 A. I probably discussed it with Jenard, 12 yes. 13 Q. He was a consultant at that point in 14 time to United Savings, wasn't he? 15 A. Yes, he was. 16 Q. Turn to the second page, Mr. Graham. 17 It says here under the word -- under the heading 18 "appraisal," "We have received a verbal from 19 Bolin & Associates, appraisers, which indicates 20 the as-is value at $28.5 million," suggesting a 21 63.9 percent appraised value. Is that right? 22 A. That's correct. 5925 1 Q. Do you know if there was ever a written 2 appraisal provided in connection with this loan? 3 A. I assume there was. 4 Q. Do you believe it was appropriate -- 5 strike that. 6 Was it safe and sound practice to have 7 approved this loan without a written appraisal? 8 A. We do it every day. Still do it every 9 day. 10 Q. Had a feasibility study been provided 11 in connection with this loan? 12 A. I doubt it. 13 Q. Mr. Graham? 14 A. Yes. 15 Q. Looking at Exhibit 7607. 16 A. Yes. 17 Q. Have you seen this document before? 18 A. I may have. 19 Q. Is this the kind of document that would 20 have been -- is this the document that would have 21 been in your files at United Savings? 22 A. Yes. As a commitment typically, yes. 5926 1 Q. Look with me at the second full 2 paragraph. This was before the loan was actually 3 disbursed on September 27th, 1984. Right? 4 A. Excuse me? I'm sorry. I was reading. 5 Q. Sure. Before the 18.2-million-dollar 6 loan to Gordon and Block had been disbursed; isn't 7 that right? 8 A. Let me -- I don't recall. So, let me 9 have a chance to glance at this, please. I take 10 back what I said before. It's not a commitment. 11 This is basically an agreement with terms. Yes, 12 it would be. 13 Q. What is an agreement with terms? 14 A. This would be a commitment. This is 15 after we approved it. So, we're telling them what 16 the terms of our approval were, apparently. 17 Q. Okay. And looking at the second full 18 paragraph, it describes what the purpose of the 19 loan was. Right? 20 A. Yes. 21 Q. It's being made to pay the cost of 22 acquiring the land? 5927 1 A. Right. 2 Q. Paying interest as it comes due? 3 A. Correct. 4 Q. Certain financing fees to the lender. 5 Are those origination fees? 6 A. If that's what we approved. I have to 7 look. Yes. 8 Q. You're looking at 7008? 9 A. Yeah. I mean, what this is reiterates 10 this. So, I can't answer this without looking at 11 this. 12 Q. Okay. So, looking at 7008, what were 13 the financing costs that were paid to United 14 Savings in connection with the making of this loan 15 to Gordon and Block? 16 A. Well, the 180,000-dollar fee up front 17 which was, I guess, close to 1 point. And then as 18 interest was due, they could draw the interest out 19 of the loan. 20 Q. How much money had Mr. Gordon and 21 Mr. Block put down on this property? 22 A. I don't recall if they had or had not. 5928 1 I don't recall. 2 Q. Does it indicate there was any equity 3 on the part of the borrower in connection with 4 this property? 5 A. No, it doesn't indicate it here. 6 Q. Wouldn't it indicate it if, in fact, it 7 was -- there was equity on the part of the 8 borrower? 9 A. It may have. It may not have. I mean, 10 I can't answer that today. 11 Q. It refers here to a commission paid on 12 the land of $955,511. Do you see that? 13 A. Yes. 14 Q. It says it's paid to Pinchback 15 Associates. 16 A. Yes. 17 Q. Do you know who they are? 18 A. I don't recall who they were, other 19 than a broker. 20 Q. Was it typical to fund the cost of a 21 commission, a real estate commission, in 22 connection with financing? 5929 1 A. Yes. 2 Q. Did United Savings do that often? 3 A. Typically, yes. 4 Q. Okay. With regard to 7008 and the 5 approval of this loan to Block and Gordon on 6 December 21, 1984, did you talk to Mr. Hurwitz 7 about this? 8 A. I can't recall whether I did or not. 9 Q. Would you have talked to him about it? 10 A. I may have. I just don't recall. 11 MR. LEIMAN: Your Honor, I offer 7008 12 at this time, as well as 7607. 13 MR. DUEFFERT: No objections except we 14 would reserve the right to swap in a 15 fully-executed copy of 7607 if we can locate one. 16 I note for the record that this version has not 17 been executed by United. 18 THE COURT: Received. 19 Q. (BY MR. LEIMAN) T7716. Mr. Graham, 20 I've handed you this exhibit that's marked 77 -- 21 T7716, which is correspondence to you and from 22 you. 5930 1 The second page, is that your 2 signature? 3 A. Yes. 4 Q. On the May 10th, 1985 letter? 5 A. Yes, sir. 6 Q. Looking the first page, were you 7 responding to Mr. Block's May 14th, 1985 letter? 8 A. Not on May 10th, I wasn't. 9 Q. Sorry. Quite right. Of course not. 10 But that's your signature on Page 2? 11 A. Yes. I think Mr. Block was responding 12 to my letter. 13 Q. That's right. Of course he was. 14 That's your signature? 15 A. Yes. 16 Q. Okay. 17 MR. LEIMAN: Your Honor, I move 7716 to 18 evidence. 19 MR. DUEFFERT: No objection. 20 THE COURT: Received. 21 Q. (BY MR. LEIMAN) Look at the second 22 full paragraph in your letter. 5931 1 A. Yes. 2 Q. It states "Our initial comfort with 3 this loan was based on Tommy's and your full 4 support of the debt and reduction at this time and 5 this aspect of the loan may not be acceptable to 6 the committee, particularly in consideration of 7 your request to increase the loan for additional 8 carry." 9 Do you see that? 10 A. Yes. 11 Q. What did you mean when you wrote "Our 12 initial comfort with this loan was based on 13 Tommy's and your full support of the debt"? 14 A. Well, I mean, we were very comfortable 15 with Tommy's financial strength at the time we 16 made this loan. Not Block that much, but Tommy 17 did. 18 Q. Looking at the second -- third full 19 paragraph, it states "Our main objective in 20 providing the land loan is our right of first 21 refusal on any subsequent loans development 22 undertaking on this tract." 5932 1 Do you see that? 2 A. Yes. 3 Q. What did you mean when you wrote that? 4 A. Well, I mean, if they were going to -- 5 as I recall, this was going to be a short-term 6 land loan until they developed their development 7 scheme and determined how they wanted to develop 8 the land and get the approvals through the City of 9 Austin. And we wanted to be into the land -- the 10 loan all the way through the process. We didn't 11 want to make a land loan and have University of 12 Gibraltar or some other lender come in and 13 ultimately do what we thought was a better of the 14 two loans, a development loan. 15 Q. Were fees -- origination fees in your 16 mind at the time? 17 A. No. The loan was in my mind. Just 18 doing the loan. I mean, we needed loans on our 19 books. We needed to have some good opportunities. 20 Q. Okay. And why is that? 21 A. That really was the business we were 22 in. 5933 1 Q. And in that regard, were you looking 2 for interest payments? 3 A. Well, I mean, loans generally pay 4 interest. I'm confused about where you're going 5 with this. Our business was to make loans, 6 collect interest, and that's what we did 7 generally. 8 Q. Well, I guess what's confusing me here, 9 I guess a little bit, Mr. Graham, is I don't 10 understand what you mean when you say "Our initial 11 comfort with the loan was based on the full 12 support of Gordon and Block on the debt" and at 13 this time, they are asking for reduction of that. 14 And in spite of that, you're about to renew this 15 loan and collect additional fees in spite of the 16 fact -- 17 A. In spite of what fact? 18 Q. That these borrowers haven't paid any 19 money in interest to you, that the money has been 20 funded fully by United Savings. 21 A. Well, we still had their guarantees. 22 We were comfortable that their guarantees would 5934 1 suffice for us having that position. 2 Q. Okay. And you had their financials on 3 file? 4 A. Yes. 5 Q. Okay. 7011. Mr. Graham, what is 7011? 6 A. It's approvement -- let me look at it 7 real quick. It's the modification of the original 8 loan we have that we've been discussing already. 9 Q. You mean the 18.2-million-dollar loan? 10 A. Yes. 11 Q. Now, in connection with this loan, is 12 this the document that would have been approved by 13 the senior loan committee? 14 A. Yes. 15 Q. All right. And did the senior loan 16 committee, in fact, approve it? 17 A. Yes, they did. 18 Q. All right. Can you -- they are 19 difficult to read, but can you identify the names 20 on -- 21 A. Most. 22 Q. -- Page 4? 5935 1 A. Most. Jerry Williams, myself. I 2 believe -- I don't know the third one. Fourth one 3 is Mike Crow. Next line is C.E. Bentley. I think 4 that's Malcolm Baker and Delores Jackson. And the 5 bottom one, honestly, I can't do. So, I can't get 6 them all. 7 Q. This loan, looking down under the 8 guarantors' provision, deals with the fact that 9 the loan is now amended to include joint and 10 several liability of Gordon, Block, Krasovec, and 11 Minch for 100 percent of the loan. Right? 12 A. That is correct. 13 Q. You've added guarantors to this thing? 14 A. That's correct. 15 Q. Who are Krasovec and Minch? 16 A. They were two -- they were the Norwood 17 group. Krasovec was the head it and Minch was his 18 No. 1 man. They were a development group in 19 Austin that Tommy and Stephen teamed up with. If 20 you understand Austin, Austin is a very unique, 21 very complicated, very closed market. And it's 22 much like doing business in California. You 5936 1 really need local partners to work your way 2 through a lot of the city and governmental issues. 3 And so, I don't know if I or Jenard, but I think 4 we probably both encouraged them to have a local 5 partner. We found it to be very necessary. And 6 they found these people. 7 Q. Did they -- did the City of Austin and 8 the zoning commission in Austin frequently 9 flip-flop on issues? 10 A. It wasn't so much the zoning 11 commission. It's the city council. They went 12 from environmentally oriented to a pro 13 development. I mean, depending on -- the pendant 14 was never in the middle in Austin. It was always 15 on a stream of conservatism or a stream of growth, 16 and it almost changed every two to four years. It 17 still does. It's a very unique, very funny 18 market. But you really had to have somebody who 19 really knew how to work their way through all 20 that. 21 Q. Does that add a new difficulty, level 22 of difficulty for a lender? 5937 1 A. It's two part, quite frankly. It's 2 more difficult. So, you have to be more cautious. 3 But the other time, to answer your question 4 earlier, it also avoids really dramatic 5 overbuilding because when things get a little bit 6 overbuilt, an environmental group will come in and 7 stop everything and it catches up very quickly and 8 it gets full. Austin is unique. In a sense, it's 9 more difficult; but you generally don't have the 10 depth of problems other cities have like Houston 11 where there is free -- no zoning and you can do 12 anything you want. 13 Q. So, looking back at the newspaper 14 article that we saw a few minutes ago that I asked 15 you to read some portions of, you believe that 16 that would be a self-correcting -- 17 A. Oh, very much so, yes. 18 Q. You didn't think that that would be a 19 permanent situation -- 20 A. Austin historically -- historically, 21 Austin was self-correcting. 22 Q. And what did you -- was that -- how do 5938 1 you know that? How did you know that? 2 A. Just historically. We've been watching 3 it for years, ever since the early Seventies. And 4 I think it's not hard to find anybody who will 5 give you that scenario for Austin. 6 Q. Looking back at T -- pull it out there. 7 T7003. 8 A. Okay. 9 Q. If you would, look with me -- in light 10 of your last comment, I'd like to ask you a 11 question. Near the end of the first column, it 12 starts with "More than 1.2 million square feet 13 scheduled for completion by the end of the year. 14 However, these rates are expected to climb as high 15 as 15 percent to 17 percent by the end of the 16 year," referring here to vacancy rates in the 17 retail market. Okay? 18 A. Yes. 19 Q. My question to you is: Given the fact 20 that this article appeared in July, does this 21 article suggest that Austin was at the beginning 22 of one of its vacancy cycles, high vacancy cycles? 5939 1 A. You're saying "high." It was the 2 beginning of maybe a softness. Also, they are 3 talking -- once again, you take a piece of the 4 puzzle. They are talking about general retail. 5 If Tommy had come in and had put in a Deauville 6 center, it was a unique product. Austin, at the 7 time, had no product similar to that. 8 So, whether or not the general retail 9 would have affected his ability to bring in 10 off-price retailers, we don't know. But it's a 11 different product so you -- even with the 12 statistics, you've got to look at what's being 13 produced. 14 Q. So, at this point in time, you were 15 counting on the success of that being a unique 16 product? 17 A. Well, that's one of the issues that 18 were discussed initially: That may be a good 19 location for a Deauville center, yes. That was 20 one of Tommy's interest in the property. 21 Q. Now, with this renewal in June of 1985, 22 we've already -- we've previously noted that money 5940 1 was added to the loan amount? 2 A. Yes. 3 Q. You see that was $2.8 million. That's 4 on Page 2, you see? 5 A. Uh-huh. (Witness nods head 6 affirmatively.) 7 Q. Okay. Was a new appraisal ordered in 8 connection with the 2.8-million-dollar increase? 9 A. It wasn't necessary. We had enough 10 latitude under the original appraisal to do this 11 within the codes. 12 Q. You didn't believe that conditions had 13 changed such as to warrant another appraisal; is 14 that right? 15 A. That's right, yes. 16 Q. You didn't believe that R-41B required 17 that new appraisal? 18 A. We didn't believe. We knew it didn't 19 require that. 20 Q. Or the regulations? 21 A. Okay. 22 Q. Or the regulations. Right? 5941 1 A. I don't believe it did, no. It was 2 only a six-month old appraisal, basically. 3 Q. You make a comment -- were you the 4 author of this? 5 A. Yes. 6 Q. The bottom of Page 3, you say -- and 7 I'm reading now from the last full sentence -- 8 "The Austin partners feel confident that they can 9 obtain all the necessary zoning changes as well as 10 final platting on this tract. To date, they have 11 received tentative approval on all information 12 submitted to the city." Right? 13 A. Yes. 14 Q. And you relied on that? 15 A. Well, that's -- that was the status as 16 we knew it at the time, yeah. 17 Q. And what about the fact about the 18 partners feeling confident? You were relying on 19 their confidence, what they were telling you? 20 A. Yeah. 21 Q. Did you independently check with any 22 city officials in that regard? 5942 1 A. I think we checked with the engineers 2 to verify it, yes. They were working through 3 engineering firms. 4 Q. And you would have gotten engineering 5 reports? 6 A. We have nothing to get a report on at 7 this point. I mean, engineering reports are an 8 actual work and design done. At this point, it 9 was still pretty much the approval process. So, 10 we wouldn't have specific reports. 11 Q. Look with me, please, at Page 2. Near 12 the top of the page -- at the top of the page, it 13 talks about the financial wherewithal of Gordon, 14 Block, Krasovec, and Minch. Right? 15 A. Right. 16 Q. And it lists their -- what appear to be 17 their net worth. Right? 18 A. Yes. 19 Q. With regard to Mr. Gordon, he hadn't 20 submitted an updated financial since May of 1984, 21 had he? 22 A. No. 5943 1 Q. And the financials that were on file 2 with United Savings for Block were from December 3 of '84 and Krasovec were from November of '84 and 4 Minch were from April of '85. Right? 5 A. Right. 6 Q. Did you know at the time whether or not 7 those -- the financial situation of Mr. Gordon had 8 changed? 9 A. I can't recall. 10 Q. If it had gone -- if it had worsened, 11 would that have been important to you? 12 A. Depends on the degree. Depends on the 13 degree. That's speculative. 14 Q. How much would it have needed to be 15 reduced for you to be concerned? 16 A. Once again, I can't really tell you. I 17 mean, it depends on the characteristics of the 18 concerns and what they entailed. I mean, I'd be 19 speculating. I can't tell you without knowing 20 specifically. 21 Q. Was it typically your practice in the 22 senior loan committee meeting to discuss the 5944 1 financial wherewithal of the borrower? 2 A. We typically discussed everything 3 involved in this presentation. 4 Q. And would you have brought with you 5 details in connection with the borrower's 6 financial statement? 7 A. I imagine we had it available if people 8 wanted to look, yes. I don't recall whether or 9 not we circulated them unless somebody 10 specifically asked to look. 11 Q. Would the income statement of 12 Mr. Gordon have been important, given the fact 13 that he was a mall developer? 14 A. I don't know if it was part of his 15 financial package or not. I mean, if he had it, 16 we'd look at it. I don't know if -- if we didn't 17 have it, I don't know if it would have mattered 18 that much. 19 Q. Do you believe that would be important 20 to you, to look at the income package of the mall 21 developer? 22 A. Well, I think income package on 5945 1 anybody. I don't think the mall developer had any 2 special issue to it. I think income of anybody is 3 important. 4 Q. What additional fees did United Savings 5 take in connection with this renewal of the 6 18.2-million-dollar loan and the additional 7 $2.8 million over and above what the -- what you 8 had described earlier as the 180,000-dollar 9 origination fee in December of '84? 10 A. It looks like we took 28,000. 11 Q. 28,000? 12 A. Uh-huh. (Witness nods head 13 affirmatively.) 14 Q. And that would have been as an 15 origination fee. Right? 16 A. On the new money, yeah. 17 Q. I see just above -- it says "loan fee." 18 It says "Interest on land development cost is 19 $397,000." 20 What would that have been for? 21 A. Now, where are you? 22 Q. Just about $28,000. 5946 1 A. I'm not sure. I'm not sure exactly 2 what I meant. 3 Q. Would that have been to fund the 4 interest on the additional 2.8-million-dollar 5 loan? 6 A. It may have been. I just -- 7 Q. And looking above that, does this 8 refresh your memory that the interest on the 9 18.2-million-dollar loan to pay to December 28th 10 1985 was $1.1 million and that that interest was 11 being paid by United Savings to itself? 12 A. That's correct. 13 Q. Okay. 7715, please. I don't like to 14 do this to you, Mr. Graham, but I just want to be 15 sure I finish on the previous document, which was 16 7011. As of this point in time, June 17th, '85, 17 that corner piece of property in the Norwood tract 18 was not being purchased by virtue of this loan, 19 was it? 20 A. No. 21 Q. Okay. 22 MR. LEIMAN: Your Honor, I move 7011 5947 1 into evidence. 2 MR. DUEFFERT: One minute, Your Honor. 3 Mr. Leiman, which number? 4 MR. LEIMAN: The previous document. 5 I'd like to -- I'm sorry. 6 MR. DUEFFERT: No objection. 7 THE COURT: All right. T7011 is 8 received. 9 Q. (BY MR. LEIMAN) Mr. Graham, I'd like 10 you to look, if you would, with me at T7715. And 11 specifically, I'd like to ask you questions about 12 a June 17th, 1985 letter from -- that purports to 13 be from you to Stephen Block. 14 Is that your signature on -- 15 A. Yes, it is, sir. 16 Q. That's on KM283. Right? 17 A. Yes, sir. 18 Q. All right. And this letter would have 19 been for what purpose? 20 A. Let me double check dates again. This 21 letter is to follow up this approval, I believe. 22 Q. It follows up the loan approval by the 5948 1 senior loan committee -- 2 A. Yes. 3 Q. -- that we saw on 7011? 4 A. Correct. 5 MR. LEIMAN: Your Honor, I move 6 Exhibit 7715 into evidence. 7 MR. DUEFFERT: No objections. 8 THE COURT: Received. 9 Q. (BY MR. LEIMAN) Looking at your 10 letter and looking the first paragraph of your 11 letter, it says -- and I'm looking now at the 12 fourth line down -- "Since we have changed the 13 manner in which we structure such loans" -- and 14 referring there to the land loan of $18.2 million 15 and the modification of an additional 2.8 million. 16 You refer to the increased portion of $2.8 million 17 coming under new terms, and that refers to a 18 proposed release fee. 19 What is a release fee? 20 A. That's a fee you pay at the -- when the 21 loan is repaid. If you look at the second 22 paragraph, I think it pretty well puts in light 5949 1 what our concern was. We were in this thing 2 because we believed in the property. As I point 3 out in here, we were concerned that they would 4 refinance this elsewhere or flip the property to 5 another developer and we had made a land loan when 6 we really were looking for a long-term real estate 7 loan that we could put on books and earn interest 8 over a period of time. And apparently, we were 9 looking at getting an equity position so we could 10 get some profits down the road. This was not a 11 short-term, quick deal for us. We were looking 12 for a long-term deal. And we were concerned that 13 if they moved it out of here quickly, we would 14 lose that advantage. So, we structured the loan 15 with a release fee as a deterrent, at least to 16 some degree, that they would give us first 17 opportunity. 18 Q. It says here that the $2.8 million was 19 secured by a second lien note. Why would that be? 20 A. I can't recall why we did it on a first 21 and second the way we did it, but that's the way 22 we did it. I mean, it didn't weaken our position 5950 1 any since we had the first lien before the second. 2 Q. Now, further down in the letter, it 3 talks about financial statements. 4 Do you see that? 5 A. Yes. 6 Q. And it asks for Frank Krasovec -- it 7 asks questions about Frank Krasovec's statement 8 and asks for details about certain items. 9 A. Yes. 10 Q. Were those ever forthcoming? 11 A. I can't recall whether we got all of 12 it, part of it, or any of it. 13 Q. Look with me, please, at the next page. 14 A. Yes. 15 Q. You ask for on Tommy's -- you're 16 talking about Tommy Gordon. Right? 17 A. Yes. 18 Q. On Tommy's statement, you say "We need 19 gross rental income figures and cash flows." 20 Why would you need rental income and 21 cash flow figures on the ventures that are listed 22 there? 5951 1 A. Well, to go back to your comment 2 earlier, we would like to see cash flows on the 3 borrower, see what his cash flow position was. 4 Q. Do you know if you ever got those from 5 Mr. Gordon? 6 A. I don't recall whether we did or not, 7 no. 8 Q. 7630, please. Mr. Graham, I've handed 9 you T7630 which is -- purports to be a loan 10 agreement dated June 28th, 1985. This particular 11 copy is addressed to Mr. Stephen Block, trustee. 12 Would this document have been in your 13 files at United Savings in connection with the 14 loan to Block, Gordon, Krasovec, and Minch? 15 A. I assume it would be, yes. 16 Q. And what does it deal with? 17 A. It deals with the terms -- it's a loan 18 agreement on the additional dollars we approved to 19 expend on the property. It simply outlines the 20 terms of those agreements, how they could draw it. 21 Q. And the 2.8-million-dollar loan that we 22 see on the very front page in the bottom section 5952 1 of this relates to the loan that had previously 2 been approved by the senior loan committee in 3 June; is that right? 4 A. That is correct, sir. 5 Q. What I'm talking about is the 6 modification, the increased amount? 7 A. The increased amount, yes, sir. 8 Q. Okay. I handed you T7714, Mr. Graham. 9 Is that your signature on the second page? 10 A. It is. 11 Q. Did you send this letter to Mr. Frank 12 Krasovec? 13 A. Yes. 14 MR. LEIMAN: Your Honor, I move 7714 15 into evidence. 16 MR. DUEFFERT: No objection. And we 17 have no objection if Mr. Leiman would like to move 18 the prior exhibit, 7630, into evidence. 19 MR. LEIMAN: Thank you, Mr. Dueffert. 20 THE COURT: All right. 21 MR. LEIMAN: I forgot. 22 THE COURT: T7714 is received, as well 5953 1 as T7630. 2 MR. DUEFFERT: Your Honor, with regard 3 to this new exhibit, 7714, there is some 4 handwriting on it that might not be known to the 5 witness. And without foundation, we'd ask for 6 that to be considered without the handwriting. 7 THE COURT: Seems to be almost 8 illegible. So, I don't know what significance it 9 would have. 10 MR. LEIMAN: Your Honor, I have no 11 objection to Mr. Dueffert's concern. I can't read 12 it myself, but -- and I won't ask him any 13 questions about it because of that. 14 Q. (BY MR. LEIMAN) This October 18th, 15 1985 letter, what was your purpose in sending this 16 to Frank Krasovec? 17 A. To outline, roughly, the kind of terms 18 and conditions that we would consider a full 19 development loan to develop the property with 20 streets and utilities. 21 Q. Was this a loan commitment? 22 A. No. 5954 1 Q. What was this? 2 A. This was basically an outline of the 3 general parameters of which we would consider it. 4 It's nothing more than an opening effort to try to 5 find some terms and conditions that we would all 6 be satisfied with. In fact, on the third page -- 7 on the second page, "Please do not construe this 8 proposed structure as a commitment." 9 Q. Since we're there, Mr. Graham, looking 10 at the second page, it says "Once again, these are 11 the typical terms and conditions under which our 12 latest acquisition and development loans have been 13 made." Okay? 14 A. Yes. 15 Q. What are you referring to there? 16 A. Could be just referring to a bunch of 17 bullshit. I mean, often, I put in there "This is 18 how we do things to try to sell the program." I 19 mean, sometimes we were more liberal than this. 20 Sometimes we were tougher than this. But often, I 21 use that language to try to emphasize this is how 22 we did it and this is how it has to be. 5955 1 Q. Mr. Graham, I notice that under the -- 2 on the first page, a reference here to "Collateral 3 is to take a first lien/deed of trust on the 4 entire property." Right? 5 A. Yes, sir. 6 Q. That was your typical term and 7 condition of the loan for acquisition and 8 development. Right? 9 A. Oh, yes, sir. 10 Q. And I think you've already said that 11 100 percent joint and several liability was 12 another typical term and condition you strived to 13 get. Right? 14 A. Strived to get, yes. 15 Q. It's preferable, isn't? 16 A. Yes. 17 Q. Why? 18 A. Well, if you've got 50 percent of it, 19 typically you've got all you're ever going to get. 20 100 percent just scares people more. But in 21 reality, I don't think you ever collect more than 22 30 to 50 percent range at best. 5956 1 Q. And on top of that, you also wanted to 2 collateralize this loan with additional 3 collateral, pledge of CDs, and irrevocable letters 4 of credit, right, in the amount of $4.4 million? 5 A. That's correct. 6 Q. What was -- what would the purpose of 7 doing that be? 8 A. If we could get additional collateral, 9 we would try and get it. 10 Q. Are CDs good collateral? 11 A. Yeah. 12 Q. Why? 13 A. Basically, they are cash. 14 Q. And how about letters of credit that 15 are irrevocable? 16 A. If they are from an acceptable bank, 17 they are cash. 18 Q. Now, look here on the second page, if 19 you would, with me to the CC list. 20 A. Uh-huh. 21 Q. First of all, my question is: Would it 22 have been your practice to have sent a copy of 5957 1 this to Mr. Gross and Mr. Williams? 2 A. Yeah. Not unusual. 3 Q. You would have talked to Mr. Williams 4 and Mr. Gross about this -- 5 A. They were familiar with it, but I just 6 CC'd them to see what I sent out, yes. 7 Q. Would you have talked about -- in 8 connection with this loan with Mr. Hurwitz? 9 A. I may have. I may not have. I can't 10 recall. 11 Q. T7010. T7010 is another loan committee 12 approval in connection with this loan. Is that 13 your signature on the third page? 14 A. Yes, it is. 15 Q. Is this document from the files of 16 United Savings Association? 17 A. Excuse me? 18 Q. Would this have been from United 19 Savings Association's files? 20 A. I assume so, yes. 21 Q. You have no reason to think you 22 wouldn't have kept this one in the files? 5958 1 A. No, no. Right. There is no reason to 2 think so. 3 MR. LEIMAN: Your Honor, I move T7010 4 into evidence. 5 MR. DUEFFERT: No objections. 6 THE COURT: Received. 7 Q. (BY MR. LEIMAN) Mr. Graham, what was 8 the intention of the senior loan committee in 9 connection with this approval to Block and Gordon, 10 Krasovec and Minch? 11 A. If you'll give me a moment. 12 Q. Of course. 13 A. Well, I think under the proposal, I 14 think it's clear. They were still getting a -- 15 the final approvals in place and needed time to 16 complete that effort before they went into the 17 development loan. They asked for an extension for 18 that purpose. 19 Q. Now, I notice that you recommended this 20 loan along with Karen Wymans. Who's Karen Wymans? 21 A. She was an employee that worked for me 22 at the time. 5959 1 Q. What was her involvement with this 2 loan? 3 A. More the servicing of the loan. 4 Q. Would she have made a presentation to 5 the senior loan committee in connection with the 6 loan? 7 A. I don't know if she did or I did. 8 Q. Please identify the signatures on the 9 third page, if you can. 10 A. Yes, sir, I can. Jenard Gross is the 11 first one. Charlie Patterson is the second one. 12 Jerry Williams, and myself. 13 Q. Looking at the approval section of the 14 loan, you've renewed and extended the loan for 15 another six months and increased it by 16 $2.8 million? 17 A. Now, we're extending both of them. 18 We're not -- we are renewing the large loan and 19 the 2.8 loan. We're not increasing at this point. 20 Q. Oh, I see. In connection with that 21 extension, it says here that you took additional 22 loan -- United Savings took additional fees. 5960 1 Am I reading that right on the second 2 page? 3 A. Apparently, we took an additional 4 1 percent renewal fee. 5 Q. Right. So, since this loan now is a 6 year and a half old roughly at this point in -- 7 no. I'm sorry. I've made -- it's a year old. 8 Right? 9 A. Yes. No. It's probably -- with this, 10 it will go to a year and a half. 11 Q. It will go to a year and a half? 12 A. Uh-huh, (Witness nods head 13 affirmatively.) 14 Q. But at this point, the total amount of 15 money that's been lent is some $21 million? 16 A. Correct. 17 Q. And there have been three separate sets 18 of origination fees paid in connection with it? 19 A. Well, you had the one point on the 20 original money first. Then only the origination 21 fee on the additional money of the first renewal 22 and the increase, and now you have one -- 5961 1 typically, we had a point renewal -- a point fee 2 per year. So, we're not -- basically, we're 3 really kind of there. 4 Q. What do you mean, "there"? 5 A. Typically, we've got one point per year 6 as a standard fee. We got one point up front for 7 the first year. Now we're renewing for another 8 six months. We're getting another fee. So, this 9 wasn't too untypical, no. 10 Q. This was standard practice for United 11 Savings? 12 A. Yes. 13 Q. Look with me at this second page. It 14 talks about the loan amount being 73.7 percent of 15 the appraised value on the appraisal by Bolin & 16 Associates. Right? 17 A. Correct. 18 Q. This appraisal is the same appraisal 19 that you had a year earlier; is that right? 20 A. Yes, uh-huh. 21 Q. Would it have been a safe and sound 22 practice to have renewed this loan for yet another 5962 1 six months without an additional appraisal? 2 A. Well, we were apparently comfortable 3 with doing so, yes. 4 Q. When you say "we," who do you mean? 5 A. The committee who voted on it. 6 Q. The people who signed this? 7 A. Correct. 8 Q. Look at the first page of 7010. Look 9 at the guarantors and look at the dates of the 10 updates or the dates that are listed for their 11 financial wherewithal. 12 A. Uh-huh. 13 Q. As of the date of this particular 14 renewal and extension, Mr. Block's financials were 15 how old? 16 A. A year. 17 Q. How about Mr. Krasovec? 18 A. A year. 19 Q. Was that pretty typical, that 20 guarantors would -- at United Savings for -- 21 A. It depends on the guarantor. Some 22 guarantors would prepare their statements 5963 1 annually. You're overlooking the fact that Tommy 2 had updated his statement and it was only five, 3 six months old. And that was the one you were 4 concerned about before. We have got his updated 5 statement now. And at this point, Tommy was still 6 our main benefactor, so to speak. 7 Q. When you say "benefactor," you were 8 looking to Tommy Gordon? 9 A. That is correct. 10 Q. To guarantee this loan, repayment? 11 A. He was the strongest of the individuals 12 guaranteeing it. 13 Q. No interest payments had been made by 14 any of these borrowers at this point -- 15 A. No. 16 Q. -- out of their own pockets. Right? 17 A. That is correct. 18 Q. And there was no equity in this loan as 19 of this point? 20 A. Best of my recollection, no. 21 Q. Okay. T7713. Mr. Graham, looking at 22 7713 and the second page, does that appear to be 5964 1 your signature, although it seems to be a little 2 light? 3 A. Yes, it is mine. 4 Q. Did you write this letter to Frank 5 Krasovec? 6 A. Yes. 7 Q. And this is -- you would have sent this 8 on or about December 17th, 1985, to him? 9 A. That would be correct. 10 MR. LEIMAN: Your Honor, I move T7713 11 into evidence. 12 MR. DUEFFERT: No objection. 13 THE COURT: Received. 14 Q. (BY MR. LEIMAN) What was your purpose 15 in writing this letter to Mr. Krasovec? 16 A. To explain to him what the senior loan 17 committee had approved and, also, the conditions 18 that were part of the approval process. 19 Q. You talk about the 1 percent renewal 20 fee. Is that what you were referring to earlier 21 as a typical United Savings practice? 22 A. Yes. 5965 1 Q. That's shown here on the front page? 2 A. That's correct. 3 Q. Looking under "loan amount," it states 4 that there is a 21-million-dollar -- the loan is 5 $21 million and that unadvanced reserves are still 6 available under the loan? 7 A. Yes. 8 Q. Is that -- am I reading it right -- a 9 total of 1,332,572? 10 A. They still had an amount under the 11 2 million 8 second lien. 12 Q. Okay. And in order to pay for the 13 interest on this loan, the interest fees of 14 $706,232 are available to fund interest. Right? 15 A. Yes. 16 Q. Is this a warning here, "Once each 17 category is fully disbursed, costs relative to 18 that category must be covered out of pocket"? 19 A. I don't classify it as a warning. I 20 classify it as a fact. 21 Q. When you say, "a fact," do you mean -- 22 A. Well, it was our intent. I mean, it 5966 1 wasn't a warning. This is what the intent was. 2 Q. Now, here on the second page, it says 3 "We will need updated financials on all 4 principals, updated cash flows on each principal 5 and the Deauville Company, which will include the 6 leasing status on the major centers owned by 7 Deauville." 8 Are the major centers owned by 9 Deauville in this case the centers that would have 10 been opened by Gordon principally? 11 A. Principally, yes. 12 Q. And those would have been the centers 13 that were owned in Houston here? 14 A. Principally. 15 Q. Why did you want -- why was that 16 significant? 17 A. Well, once again, it's always 18 significant to know the financial status of your 19 borrowers. 20 Q. All right. And you say here "It would 21 be helpful to have an update on the status 22 relative to refinancing the Deauville fashion 5967 1 malls." Right? 2 A. Yes. If I recall, he was in the 3 process of getting permanent financing. He was 4 at -- I think First City Bank financed those on 5 interims, and he was getting permanent financing. 6 Q. And you thought that would be helpful, 7 to have what he had? 8 A. Well, I just wanted to know what the 9 status was, yeah. 10 Q. T7582. Mr. Graham, this is a 11 February 13th, 1986 letter addressed to 12 Mr. Jenard Gross, chairman of United Savings 13 Association of Texas. 14 A. Yes. 15 Q. It was evidently -- looks like it was 16 signed by Frank Krasovec and Jeff Minch on the 17 second page? 18 A. Yes, sir. 19 Q. A copy is shown to J. Williams, 20 president of United Savings Association. On the 21 front of this document, we see some handwritten 22 notation dated 2-13-86. 5968 1 A. Yes. 2 Q. Can you identify that? 3 A. Well, I think it's from Jeff Minch 4 sending me a copy of it, just telling me -- 5 updating me of the meeting they had with them, 6 giving me a copy of what the results of the 7 meeting were. 8 Q. You would have gotten a copy of this 9 letter, wouldn't you? 10 A. I may have got it separate from this. 11 I mean, Jenard may have circulated it to me, also, 12 but this is their copy to me. 13 MR. LEIMAN: Your Honor, we move T7582 14 into evidence. 15 MR. DUEFFERT: No objection. 16 THE COURT: Received. 17 Q. (BY MR. LEIMAN) Would you read the 18 handwritten portion on the top of the document? 19 A. Where I can. "Last week we had a visit 20 with Mr. Hurwitz and -- as well as Mr. Gross, 21 Mr. Williams." I can't -- then -- I guess "This 22 is the results of that meeting." He writes as bad 5969 1 as I do. "You were out of town in San Antonio. 2 Regards." 3 Q. And it's initialed JM? 4 A. JM. I assume Jeff Minch. 5 Q. What is Mr. Minch talking about here in 6 connection with meetings with Mr. Hurwitz and 7 Gross and Mr. Williams? 8 A. Well, I mean, they talked about the 9 structure of the loan. I'd have to read it 10 sometime. 11 Q. Why don't you read this letter? 12 A. Okay. 13 Q. Do you remember whether or not there 14 was some reason why United Savings would have 15 wanted to replace Mr. Gordon in the land deal in 16 connection with the Norwood property? 17 A. Well, let's start off by saying that 18 this was their proposal. They are the ones that 19 references replacing Gordon in the land deal and 20 leaving him in for the mall. It wasn't a United 21 Savings letter. It's their letter. But I think 22 they intended -- they felt uncomfortable with him 5970 1 as a partner, and they wanted to go forward with 2 the mall and they wanted to go forward with the 3 land development. And this was their, once again, 4 opening salvo as to how they would like to see a 5 new loan restructured. This is their wish list of 6 how things should be. 7 Q. Do you know why they were interested in 8 restructuring the loan? 9 A. Well, they had -- I mean, they wanted 10 to restructure in a fully-developed loan so they 11 could put in the infrastructure and go forward and 12 start selling lots and tracts. 13 Q. Do you know why they couldn't have done 14 that with Gordon as part of the deal? 15 A. Well, I assume at this point -- this is 16 maybe at the point where Tommy is starting to face 17 some dilemmas. 18 Q. What do you mean, "dilemmas"? 19 A. Well, Tommy -- his Deauville center 20 started having financial problems in Houston. It 21 was not -- at some point, they started suffering, 22 and his financial ability started eroding. 5971 1 Q. Were you part of the discussions in 2 connection with restructuring of this -- the loan 3 to Mr. Krasovec, Minch, Gordon, and Block? 4 A. Off and on, yes, sir. 5 Q. Did you talk to Mr. Hurwitz about it? 6 A. We probably all talked about it. 7 Q. Do you remember the substance of those 8 discussions? 9 A. Well, they were probably numerous and 10 each one had different issues to it. So, I mean, 11 I can't tell you about any individual discussion 12 but I know we all discussed it. 13 Q. Do you remember what the general tenor 14 of those discussions was? 15 A. Well, the general tenor was that, yeah, 16 we had a problem. Our strongest guarantor was 17 weakening, but we also liked the tract of land. 18 We also liked being in Austin. We liked the 19 location. One of the motivations for this thing 20 from the very first is the intersection just south 21 of us, I guess 290 and Highway 35, which was very 22 successfully developed in a somewhat similar 5972 1 configuration by Joe Russo of Houston and it was 2 almost fully developed out. We thought this was 3 going to be the next area of development coming 4 north. So, we were very pleased with the 5 location. So, we looked at it as a good tract of 6 land with an eroding borrower base. 7 Q. Was there any concern on your part in 8 connection with possible competition from Joe 9 Russo's development? I think it was called Chevy 10 Chase, wasn't it? 11 A. Chevy Chase, you're correct. 12 Q. Was there any -- 13 A. There wasn't a whole lot left. What 14 was left was in the rear of the project was not 15 good frontage land. Most of the frontage had been 16 taken up by retail office and quite a bit of hotel 17 space. 18 Q. You mean Joe Russo's project? 19 A. Right. So, what was left in Chevy 20 Chase's competition was really the back, not 21 frontage tracts. 22 Q. Is it fair to say that you and the 5973 1 people you talked to about Chevy Chase and 2 refinancing and reconfiguring the project with 3 Gordon and Block weren't concerned about the 4 competition from Chevy Chase? 5 A. We didn't think it was direct 6 competition, once again, because the sites that 7 were remaining there were inferior. 8 Q. Did you obtain a feasibility study or 9 appraisal study or any other kind of study to 10 confirm your beliefs? 11 A. That -- we didn't really need anything. 12 You could drive it and see that what was left 13 there was different than what we had to offer. I 14 mean, you didn't need to have a whole lot of 15 sophistication to know that. 16 THE COURT: We'll take a short recess. 17 18 (A short break was taken 19 at 10:52 a.m.) 20 21 THE COURT: Be seated, please. We'll 22 be back on the record. 5974 1 Mr. Leiman, you may continue. 2 MR. LEIMAN: Thank you, Your Honor. 3 (11:12 a.m.) 4 Q. (BY MR. LEIMAN) Before we get to the 5 next exhibit, Mr. Graham, I'd like to ask you a 6 question again about an exhibit we've seen 7 already, which is T7582. 8 A. 7582? Okay. 9 Q. I don't remember if you actually 10 answered the question I posed to you about the 11 meetings that were held in Austin among 12 Mr. Hurwitz, Gross, and Williams and whether or 13 not you found out what those meetings were about. 14 A. I don't know that a meeting was held in 15 Austin. It was held in Houston. Does it say? I 16 think this probably was held -- probably held in 17 Houston if this is -- you're referring to this 18 letter? 19 Q. Yes, sir. 20 A. I don't know if it was held in Austin. 21 I get the impression it was held in Houston. They 22 came to our offices. 5975 1 Q. To United Savings' offices? 2 A. Yeah. That's probably the only reason 3 that many people were in the meeting together, 4 yes. 5 Q. Do you know what the meeting was about? 6 A. Well, I think the letter is pretty 7 self-explanatory. I mean, the Norwood group 8 presented some ideas which they would like to 9 pursue and the way they would like to structure 10 the deal going forth and the kind of loan they 11 would like to have going forth. It was their, as 12 I said earlier, kind of opening salvo of how they 13 like to see a deal restructured. 14 Q. Do you remember if you talked to a 15 gentleman mentioned in the front of the letter 16 about the meeting? 17 A. You mean Jenard? 18 Q. Yeah. Jenard and Charles. 19 A. I said I may have known they were 20 coming. I may not have known they were coming. 21 We probably discussed it after this letter, yes. 22 Q. Okay. I have another question for you 5976 1 on a related matter. If you would, look with me 2 back -- it's a little bit farther down in your 3 pile. It's 7011. That was the senior loan 4 committee approval of June 17th, 1985. 5 A. I have it. 6 Q. You have that? 7 A. Yes, sir. 8 Q. Okay. Now, this is not -- obviously, 9 this is the second of the three approvals we've 10 looked at so far. Look at the second page, and I 11 just want you to tell me, under "net worth," the 12 addition is obviously wrong. But was this -- is 13 there some reason that this was intentional, that 14 37 million relating to Thomas Gordon and that the 15 other guarantors were in some way being 16 disregarded? 17 A. No. 18 Q. It was just arithmetical? 19 A. It was a mistake. I didn't even notice 20 it until you pointed it out. It was a mistake. 21 Q. Okay. I was about to ask you about a 22 new exhibit, which is T7712. 5977 1 A. Okay. 2 Q. This is a February 28th, 1986 letter 3 that appears to be signed by you, Mr. Graham, 4 addressed to Frank Krasovec. 5 A. Correct. 6 Q. Is that your signature? 7 A. Yes, sir, it is. 8 Q. Did you send this letter to 9 Mr. Krasovec on or about February 28th, 1986? 10 A. I assume I did, yes. 11 Q. You don't think -- you have no reason 12 to think you didn't? 13 A. No. I probably sent it, yes. 14 Q. All right. 15 MR. LEIMAN: Your Honor, I move T7712 16 into evidence. 17 MR. DUEFFERT: No objection. 18 THE COURT: Received. 19 Q. (BY MR. LEIMAN) What was your purpose 20 in writing this letter? 21 A. Well, apparently, after they had met 22 with Mr. Gross and Mr. Hurwitz and Mr. Williams, 5978 1 we discussed their proposal and wanted to submit a 2 counterproposal to them, and this letter reflects 3 our counterproposal to them. 4 Q. At this point in time, United Savings 5 was interested in actually participating in the 6 development of the Deauville mall in some capacity 7 other than as a lender? Is that right or not? 8 A. Well, we had a venture pro. So 9 apparently, we were willing to go in as a partner 10 in the deal, particularly if Mr. Gordon was 11 getting out, yes. 12 Q. If Mr. Gordon was -- 13 A. If Mr. Gordon was no longer going to be 14 part of the project, I think we sought an 15 opportunity for us to then come in and provide 16 some equity and be a partner, yes. 17 Q. You state in the first full paragraph 18 that "Since our regulations now prohibit including 19 interest in land loans, which the 18-month loan 20 you proposed on the mall site would be construed, 21 we need to retain the mall site and the 22 development loan until the construction loan on 5979 1 the mall is closed and the payoff of the mall site 2 can be funded." 3 What regulations are you talking about? 4 A. I don't recall. I don't recall that at 5 all. 6 Q. Would those have been internal -- 7 A. It may have been. I mean, I'm saying I 8 don't recall. So, I can't really speculate what 9 they were. 10 Q. What reason would there be for not 11 wanting to include interest in land loans? 12 A. Like I said, I don't -- that is not 13 jogging my memory at all. 14 Q. By and large, thinking back to the era 15 of 1985 and 1986, was there a problem with funding 16 the interest on land loans generally that you were 17 aware of? 18 A. Not that I was aware of because we -- I 19 think a lot of loans had that. 20 Q. As a matter of fact, Park 410 had that 21 feature, didn't it? 22 A. Yes. 5980 1 Q. Is this a -- an offer or is this a 2 commitment, this letter? 3 A. This is just a letter outlining general 4 conditions. There is no commitment here at all. 5 Q. The loan amount being $36 million. 6 Right? 7 A. In one of the approaches, yes. 8 Q. Now, this loan -- if this loan were 9 made, this would be a new loan. Right? 10 A. This would be -- yes. This would have 11 a total different purpose. 12 Q. So, this one would have a 3 percent 13 fee, not the 1 percent renewal fee we saw? 14 A. This would be a brand-new loan, yes. 15 Q. And that would get a 3 percent fee. 16 Right? 17 A. That's what it says here, yes. 18 Q. Now, here, the security you're looking 19 at, once again, is the typical terms that you 20 referred to earlier as the first deed of trust. 21 100 percent joint and several liability in this 22 case would be Krasovec and Minch. Right? 5981 1 A. Right. 2 Q. Gordon and Block are no longer going to 3 be in this loan. Right? 4 A. To the extent of a guarantee, yes. 5 They may have retained an -- they may have 6 retained some small interest; but they would not 7 be who we were looking at, no. 8 Q. Okay. I see what it says. It says "If 9 the Gordon group retains an interest, they shall 10 guarantee the debt to the percent of their 11 retained interest"? 12 A. Right. 13 Q. Okay. And you've listed some options 14 here on the second page? 15 A. Right. 16 Q. "Finance or participate as a limited 17 partner or to purchase the mall site" -- "to 18 purchase the mall site at the same price." 19 At this point in time, what was the 20 situation with the corner of this L-shaped lot? 21 A. Yeah. 22 Q. When I see it referred to here at the 5982 1 fourth sentence -- fourth line from the bottom on 2 Page 2. "Provided the letter of credit." The 3 first reference I've seen to it in this document 4 is -- 5 A. Oh, yeah. 6 Q. -- the Western Life tract purchase? 7 A. That's correct, yes. 8 Q. Okay. 9 A. That was not a corner. 10 Q. What was that? 11 A. That was not a corner. 12 Q. Okay. 13 A. Western Life was a neighboring tract on 14 the frontage on Highway 183. It was not the 15 corner. 16 Q. Okay. How many acres was it? 17 A. I can't recall. But I mean, that's 18 what -- it was a tract that was adjacent to us and 19 it made our frontage along 183 more attractive. 20 That's why we wanted to buy it. 21 Q. Would that have been -- would that have 22 been part of the -- a new loan -- part of this new 5983 1 loan to be funded with Mr. Krasovec and Mr. Minch? 2 A. I believe it was, yes. 3 Q. T7012, Mr. Graham, is a memorandum from 4 you to Jenard Gross dated March 4, 1986. 5 A. Yes. 6 Q. And it's concerning the Deauville 7 property in Austin, Texas. Is that your -- are 8 those your initials there next to the -- 9 A. Yes, it is, sir. 10 Q. Did you write this memo? 11 A. Yes, sir. 12 Q. Now, let me ask you a quick question 13 about the Deauville property. 14 Is that the same as the Norwood 15 property when it refers to Austin, Texas? 16 A. Yes, it is. 17 Q. Okay. That's distinct from the 18 Deauville malls in Houston? 19 A. Right. 20 MR. LEIMAN: Your Honor, I move T7012 21 into evidence. 22 MR. DUEFFERT: We have no objection. 5984 1 We also have no objection if Mr. Leiman would like 2 to move the prior exhibit, T7712, into evidence. 3 MR. LEIMAN: Thank you again, 4 Mr. Dueffert. 5 THE COURT: Received. 6 MR. LEIMAN: Your Honor, are they both 7 received? I do offer both. 8 THE COURT: Yes. I thought I had 9 received the prior one; but if I didn't, I'll 10 receive it again. 11 Q. (BY MR. LEIMAN) Looking at this memo, 12 what was your purpose in writing this? 13 A. Well, to bring Mr. Gross, apparently, 14 as well as Mr. Hurwitz and Mr. Williams and Jeff 15 Gray up to date on their response to my letter in 16 response to their first offer. It's just ongoing 17 discussion back and forth. 18 Q. You mean the discussion with Krasovec 19 and Minch? 20 A. Yeah. 21 Q. And the whole issue of dropping Gordon 22 out of the -- 5985 1 A. And restructuring a new loan, doing a 2 new venture. Just discussing all the alternatives 3 and the parameters of this deal, and I was 4 bringing them up to date. 5 Q. You refer on the second page to the 6 following. You state, "If the two retail tracts 7 and either of the hotel sites are contracted for 8 sale, this project could be a success quickly. I 9 do not think there will be any problem selling the 10 restaurant pads. The only slow sales should be 11 the office sites." 12 A. Yes. 13 Q. What did you base your statements on? 14 A. Well, part on what was happening and 15 part of what you referred to earlier, the 16 newspaper article. We knew the offices were a 17 little slower in Austin. We felt comfortable that 18 the frontage would sell quickly to restaurants 19 because restaurants were still doing well. The 20 college town really supported restaurants well. 21 And we had some activity and some interest in the 22 hotel sites. 5986 1 So, part of it was on what we saw was 2 happening and part of it is based on the earlier 3 newspaper article. We just knew that hotels -- I 4 mean, offices would be a little slower. We didn't 5 expect the whole thing to sell out overnight. 6 Q. Did Mr. Gross offer you any information 7 or data or advice in connection with -- in 8 response to this memorandum you sent him? 9 A. Oh, we discussed it. I mean, as I said 10 before, we continually had informal discussions 11 and talked about all the portfolios, the different 12 loans we were working on. So, I mean, I would 13 assume we probably talked about it, yes. 14 Q. Who's Jeff Gray? 15 A. Jeff Gray had joined us. He had been 16 with American General for years in their real 17 estate department. And he came over to run the 18 residential portfolio, the single-family mortgage 19 operation. And occasionally, on some of this 20 newer stuff, he had some good input. So, I would 21 carbon copy him, see if he had input that could 22 help us a little bit. 5987 1 Q. Turning to the front page, you say in 2 about the middle of the page in the first full 3 sentence in the paragraph, "If all these" -- 4 you're referring to above. "If all these costs 5 are accurate, I do not think we would want to 6 acquire this tract if a third-party sale could be 7 generated instead." 8 Now, the first question I have for you 9 is: What costs are you referring to here? 10 A. Well, I assume I was referring to the 11 mall site. 12 Q. Okay. You mean the mall site -- the 13 acreage that they -- that's already owned by -- 14 A. Not owned. Well, it's the mall site 15 that was to be in the overall development, which 16 was on the top of the hill, if I remember 17 correctly. 18 Q. Well, maybe we'd better read the first 19 paragraph -- part of the first paragraph so we can 20 get a flavor for this. "We discussed the option 21 to purchase the mall site and the real price that 22 Tom would have to pay. Tommy's base price is 5988 1 $4.75 a square foot but he also committed to pick 2 up his share of substantial costs which include: 3 Interest expenses since approvals were obtained; 4 sewers lines; landscape and drainage; cost of 5 private drive and shared costs on major drives. 6 Plus Minch/Krasovec were to get a 10 percent carry 7 in the mall. All costs considered, Tommy's basis 8 is now around $6 a square foot." 9 What does that mean? 10 A. That means that is what his cost in the 11 land would be if he acquired it. I mean, based on 12 his initial acquisition, the cost of carrying the 13 property and the cost of developing the utilities 14 to the property. 15 Q. And it was your position as per this 16 memo that if all the costs are accurate, you don't 17 think you would want to acquire the -- United 18 should acquire the site if a third-party sale 19 could be generated instead. Right? 20 A. Well, "position" may be a harsh word. 21 It's my feeling at the time. I think "position" 22 sounds too definitive. I mean, that's -- that was 5989 1 my feeling at the time I wrote this. 2 Q. Okay. Let me get a better feel for 3 your feeling. Were you saying that it was 4 economically unfeasible? 5 A. No, no. I'm not saying that at all. 6 I'm saying that at that cost basis, it may be 7 better as a mall. And without going back through 8 all these -- because they are talking here about 9 us acquiring this tract. I'm a little confused 10 about what I meant there even because it was -- if 11 they didn't buy it, it was part of the overall 12 loan, overall venture tract. I think someplace in 13 here I thought I saw they gave us an option to buy 14 that property if we wanted it. And I think I'm 15 saying we didn't want to execute that option. 16 Q. The reason being the cost of the land 17 is too high? 18 A. Well, at that cost, we really can't 19 sell it to another user. You'd have to be the 20 user itself. 21 Q. When you say "the user itself," you 22 mean the end user? 5990 1 A. Yes. 2 Q. What is -- describe for me what an end 3 user is. 4 A. Well, somebody who actually builds a 5 building on the property. 6 Q. And that was not something that United 7 wanted to do; is that right? 8 A. No. We weren't in the business of 9 building retail centers, no. 10 Q. 7013, please. Mr. Graham, this is a 11 letter from Jeff Minch and Norwood Properties 12 dated April 8th, 1986. 13 Did you get this letter? 14 A. Yes. I would assume I did, yes. 15 Q. You have no reason to think you didn't 16 get it? 17 A. No. 18 Q. This first page is a cover letter to 19 financial statements and cash flow projections, 20 isn't it? 21 A. That is correct. 22 Q. Okay. Look with me at Page 2 of this 5991 1 document. 2 A. Okay. 3 Q. I see here that Mr. Minch and Tempe C. 4 Minch list their assets of real estate. 5 Should I take from this that this is 6 their home? 7 A. Not necessarily. 8 Q. How would I know what the real estate 9 is? 10 A. Well, you can if you take the second 11 page, it is their homestead. 12 Q. Okay. Can a homestead in the State of 13 Texas be levied on in connection with a guarantee 14 of a loan? 15 A. No. 16 Q. No? 17 A. No. 18 Q. So, this particular asset, you would 19 have crossed that off. Right? 20 A. Yes. 21 Q. Okay. Now, personal property, what is 22 that? 5992 1 A. I don't know. Personal property. 2 Q. You mean TVs? 3 A. Cars, stuff like that. 4 Q. Okay. Would that have the same -- 5 would you attribute the same value to that of 6 $120,000? 7 A. Not necessarily, no. 8 Q. Should we -- would I write that one 9 down or would you cross that off, too? 10 A. Probably, yeah. 11 Q. Now, let's look at the next page here 12 under "partnership interest" under "securities." 13 Do you see that? 14 A. Yes. 15 Q. Okay. First of all, I notice here that 16 this is listed as Rust Properties being carried 17 here at $925,000. 18 A. Yes. 19 Q. What is Rust Properties? 20 A. Best of my recollection, that was the 21 office building they owned in downtown Austin. 22 Q. Would Mr. Minch have provided you with 5993 1 a -- any sort of backup for this? 2 A. I don't recall. 3 Q. Let's look and see if he included 4 anything besides this. 5 A. No. 6 Q. No? 7 A. Huh-uh. (Witness shakes head 8 negatively.) 9 Q. Okay. And then there is the Perez 10 building. What is that? 11 A. I have no idea at this time. 12 Q. Okay. And I see that Mr. Minch carries 13 the Norwood Properties on his net worth statement 14 at zero. 15 A. Yes. 16 Q. Is that appropriate? 17 A. I don't have any idea. I mean, that's 18 his decision of what he wants -- how he evaluates 19 that. 20 Q. Okay. Let's look at Frank Krasovec's 21 personal financial statement dated January 6th, 22 1986. 5994 1 A. Uh-huh. 2 Q. Look with me, please, at Page 5 of 3 Mr. Krasovec's financial statement. He carries -- 4 you see where it says Norwood Properties here? 5 A. Yes. 6 Q. Okay. And then it says "equity in 7 Deauville, 100-acre mixed use project located" -- 8 A. Hold it. Let me find -- okay. Now 9 I've got it. All right. Go ahead, please, yeah. 10 Q. Norwood Properties is carrying that at 11 350,000? 12 A. Yes. 13 Q. All right. And he's adding to that 14 whatever equity he has in a 151-acre project, 15 River Ridge? 16 A. Yes. 17 Q. What is River Ridge? 18 A. River Ridge was a development in 19 San Marcus. That's about all I know about it. 20 Q. Did Mister -- do you know what portion 21 of that development Mr. Krasovec would have owned? 22 A. No. 5995 1 Q. Do you know what portion of Norwood 2 Properties' equity Mr. Krasovec was attributing to 3 the $350,000 that he lists under "market value" 4 there? 5 A. At this time, I don't know. 6 Q. Would that have been something you 7 wanted to know? 8 A. Not necessarily. We were looking more 9 at his cable and his other assets. 10 Q. Okay. Well, let's look at cable and 11 his other assets. Oh, wait a minute. 12 Before we do that, the first page of 13 Mr. Krasovec's lists his residence under 14 Schedule E. Cross that off. Right? 15 A. Yes. 16 Q. Or maybe he's got more than one. I 17 think he had one in Colorado -- 18 A. Whatever. 19 Q. -- as well as Texas. 20 A. Yeah. A home in Vail. 21 Q. You don't have to cross the whole thing 22 off? 5996 1 A. No. 2 Q. He comes up with a net worth of 3 $13,451,000 and change. Looking at the -- I guess 4 you'd call -- 5 A. By the way, just while you play that 6 game, you are marking off any debt associated with 7 the homestead, too, aren't you? 8 Q. Should I do that? 9 A. Yes. 10 Q. Where would I find the debt? 11 A. Under the last page. It's not much. 12 It looks like he has maybe 350,000 or something. 13 $300,000 worth of debt on his homestead. But when 14 we do that, when we take out the homestead, we 15 also take out the associated debt. You can't -- 16 you can't do one without the other. 17 Q. It's a little bit of a wash there, or 18 it's not quite a wash? 19 A. Well, I mean, you probably lose some 20 equity, yes, but you can't burden him with the 21 debt of the house if you take the value of the 22 house out. 5997 1 Q. Okay. Well, I'll take your word for 2 it. 3 A. That's how we do it today, and that's 4 probably how we did it then. 5 Q. Okay. Now, there are these notes 6 receivable that I see on this Schedule A. 7 A. Yes. 8 Q. Are these the telecommunications 9 securities that you're referring to? 10 A. Well, they are not receivables. 11 Convertible debentures is, more or less, what I 12 was referring to. Whether they were secured by 13 Crosby, I don't know. I know Crosby was involved 14 in the communication business in Austin. Best of 15 my recollection, he was a player in that business. 16 Q. At the time, did you -- did you do 17 anything else -- 18 A. I think at the time we checked, yes. 19 But I can't recall exactly what that entailed. 20 Q. These aren't audited financial 21 statements, are they? 22 A. We very seldom got audited unless this 5998 1 was a major corporation. 2 Q. And did you separately seek to have 3 these statements audited? 4 A. No. We never asked that. Typically, 5 the cost was too extensive per an individual. 6 Q. So, what kind of investigation did you 7 do? 8 A. Specifically, I can't tell you. But we 9 generally checked if there was something on there 10 that we weren't familiar with. 11 Q. All right. Let's look at Schedule B. 12 Convertible debentures: Prime Cable Corp., Rocky 13 Mountain Communications Network. 14 Do you see those? 15 A. Yes. 16 Q. Do you know if these -- did you 17 determine if these were publicly-traded 18 securities? 19 A. I can't answer that specifically, but 20 we may have because we had an operation that could 21 have done that very easily. 22 Q. Was that typically your practice, to 5999 1 check whether or not these were publicly-traded 2 securities? 3 A. I think if it was a major ingredient in 4 their financial statement, we probably did, yes. 5 Q. Would that be something you might ask 6 Mr. Hurwitz? 7 A. No. We'd probably ask somebody in the 8 bond trading area that was -- that was -- that 9 could pull it up easily on a screen. I don't 10 think we had to go to Charles, necessarily, to do 11 that. 12 Q. Who would you go to? 13 A. I can't remember the names. Maybe 14 Sandy or somebody who was upstairs who basically 15 just had easy access to telescreen. 16 Q. Look with me at the last page of 17 Mr. Krasovec's financial statement. Now, here he 18 summarizes his tax returns from '82 through '84. 19 And looking at his 1984 returns, he shows 20 investment sales short-term gross proceeds of 21 $42,000 -- $42,097. 22 Now, being the fact that these are 6000 1 gross proceeds, is there any way of knowing how 2 much of that $42,000 would be profit? 3 A. I mean, I'm not sure. Ask the question 4 again. I'm confused. I mean, these were off the 5 tax returns. So, I'm not sure what you're asking. 6 Q. Okay. Mr. Krasovec lists as gross 7 proceeds -- not net proceeds -- these investment 8 sales, both short- and long-term. 42,000 and 9 a million 8. 10 You can't tell from this how much of 11 this would have been profit, can you? 12 A. I don't know if that's -- without 13 remembering -- specifically asking, I can't tell 14 you the answer. Everything else here is net. So, 15 I don't know. 16 Q. T771, please. 17 MR. LEIMAN: Your Honor, if I haven't 18 done so, I would offer T7013 into evidence. 19 MR. DUEFFERT: No objection. 20 THE COURT: Received. 21 Q. (BY MR. LEIMAN) This exhibit marked 22 7711 is an April 14th, 1986 letter to Frank 6001 1 Krasovec from you. Right? 2 A. Yes. 3 Q. It's your signature? 4 A. Yes, sir. 5 Q. You sent this letter. Right? 6 A. Yes. 7 Q. What was your purpose in sending this 8 letter? 9 A. Once again, to define our position at 10 this time in the sequence of events. 11 Q. What do you mean? 12 A. What do you mean, "what do I mean"? I 13 mean, I'm telling you where we thought we were in 14 the process of our negotiations with them. 15 Q. So, you were updating Mr. Krasovec on 16 where negotiations concerning the Norwood loan 17 were? Is that it? 18 A. Well, more than updating. I'm also 19 outlining what we thought at this time we would or 20 would not do. 21 Q. Okay. And evidently, I'd be right 22 reading this that it says the loan committee 6002 1 disapproved the loan request of Krasovec and 2 Minch; is that right? 3 A. That's what it says, yes. 4 Q. And one of the reasons was that the 5 borrower would have no hard cash equity in the 6 tract. Right? 7 A. That's correct. 8 Q. You go on to say "Since we have not 9 closed a loan recently without such equity, this 10 was a major stumbling block." 11 A. And once again, that may have -- we may 12 have done that before, but that was my way of 13 saying "We aren't doing it with you." I mean, I 14 was not above quoting misfacts to try to emphasize 15 our point. We may have closed other loans without 16 equity. 17 Q. That's the misfact that you might have 18 been stating? 19 A. Oh, yeah. I mean, I wasn't above 20 putting in something to try to emphasize our 21 position. 22 Q. I see. You go on to say -- you outline 6003 1 three -- let me ask you something. Before you 2 sent this letter out to Mr. Krasovec, given the 3 fact that there had been these discussions with 4 Gross and Hurwitz prior to that with Krasovec and 5 Minch -- and I guess you were involved, too -- 6 right? 7 A. At some point, yes. 8 Q. Would they have been consulted prior to 9 your sending this letter? 10 A. Well, I think they knew it was coming 11 out or I wouldn't have carbon copied them and 12 surprised them. So, I mean, there's a good chance 13 they were aware of what the content of the letter 14 was before it went out, yes. 15 Q. Okay. This goes to Jerry Williams. It 16 goes to Jenard Gross? 17 A. Right. 18 Q. And what about -- he's not copied here? 19 A. He may have been informed; but I didn't 20 copy him, no. I mean, I don't know. I can't tell 21 you if I did or not. 22 Q. Do you know if Mr. Gross would have 6004 1 sent him a copy? 2 A. Well, I have no idea. 3 Q. Okay. You outline these three 4 alternatives. You say your three basic 5 alternatives of the loan committee, one -- the 6 first one, you say, is you could pay off the loan. 7 "Two, United can become the financing partner 8 providing the credit enhancement for another 9 lender, or, three, raise equity capital 10 significantly to additionally secure a loan 11 provided by United." 12 And you go on to say "Frankly, only 13 Scenarios 1 and 3 are viable alternatives since we 14 do not wish to provide the credit enhancement for 15 another lender and take an ownership role in the 16 entire project." 17 When you wrote this, you meant it, 18 didn't you? 19 A. Well, I meant that we didn't want to be 20 their partner if they went to go and borrow money 21 from other -- another entity. We didn't want to 22 be a silent partner and put our risk totally in 6005 1 their hands and our dollars at risk with another 2 lender. That's simply what I said here. 3 Q. We were talking yesterday about Park 4 410. United Savings was a silent partner of 5 Stanley Rosenberg in that relationship, wasn't it, 6 in 1985? 7 A. Yes. 8 Q. Okay. And United Savings had put its 9 trust in Mr. Rosenberg as well as in GMR, the 10 managing partner of that venture. Right? 11 A. Yes. 12 Q. And the other lender involved in that 13 would have been Alamo Savings. Right? 14 A. Yeah. It was a short-term, nine-month 15 seller note. 16 Q. Right. Chili McClintick was the other 17 lender, I think -- 18 A. Well, I think he was one of the 19 original owners of the tract. 20 Q. So, what made this different? 21 A. The difference is we had tremendous 22 comfort in Stanley Rosenberg. We knew Stanley 6006 1 Rosenberg and we didn't mind being his partner. 2 We still were getting familiar with Frank Krasovec 3 and Jeff Minch, and I don't think we had the 4 comfort level with them that we had with Stanley 5 that we would put ourselves in that position. 6 Each one has his own merits. 7 Q. So, basically, I mean, if I read this 8 right, you said "pay off the loan or raise equity 9 capital" -- "enough equity capital to secure the 10 loan provided by United"? 11 A. Correct. 12 Q. Okay. You go on to say "United is 13 willing to extend the present loans for an 14 additional six months under the following terms." 15 You set out what the terms are here? 16 A. Right. 17 Q. I can't help but notice that this is 18 the same loan amount that's already outstanding, 19 the 18.2 million and the second of 2.8 million? 20 A. It would have to be if we were 21 extended. It has to be, by logic. 22 Q. I notice on the second page under 6007 1 "renewal fee," that drops down to half a percent? 2 A. Six months, yes. 3 Q. Looking farther down on this under 4 "special conditions," you say "The borrower shall 5 present loans current through the payment of the 6 renewal fee on March 30, 1986 interest billing." 7 You go on to say that "The $90,698.78 8 of the March 30, 1986 interest which is not 9 covered by the interest reserve must be paid by 10 the borrower"? 11 A. Yes. 12 Q. This loan was in default, wasn't it? 13 A. I can't recall. Well, it looks like it 14 may have had interest due, but I can't recall. 15 Q. Near the bottom of the page under "1," 16 you say "United's preference is to have the loan 17 repaid unless we can significantly restructure the 18 loan to include cash equity." 19 And by "cash equity," you meant cash 20 equity of the borrower. Right? 21 A. At this particular point, yes. 22 Q. Did there come a point when you 6008 1 changed -- by "you," that United Savings changed 2 its position and said "This borrower doesn't have 3 to put in cash equity. Someone else can. United 4 Savings can"? 5 A. I think at some point we decided we 6 would take that position and we would be the 7 partner and we would get some 60 percent ownership 8 role for it. 9 Q. Okay. Looking at No. 2 -- 10 A. No. 2? 11 Q. On this page, same page. You state 12 that it would -- you believe it would take no less 13 than 15 percent of the loan amount or 14 $5.625 million in equity to do the deal. 15 Additionally, guarantees of the top 25 percent of 16 the loan -- additionally, your guarantees of the 17 top 25 percent of the loan amount would remain and 18 would cover that 25 percent of the principal 19 balance remaining after credit for the cash 20 equity. 21 A. Yes. 22 Q. What did you mean by that? 6009 1 A. I mean, I meant what I said. I meant 2 they put some equity in and then they would 3 guarantee that portion below the equity. I 4 mean -- 5 Q. Okay. Now, here I notice that there 6 seems to be a change in the amount of the 7 guarantee from 100 percent to 25 percent. 8 Why would that change have occurred? 9 A. Well, if they put equity, we sometimes 10 were not as demanding on the guarantee amount. 11 Q. Okay. Now, let's look at No. 3 on the 12 third page. You state that if you do generate a 13 significant sale for the retail site that requires 14 the completion of streets and utilities to close 15 the sale, you would certainly consider advancing 16 those development costs to complete the sale. And 17 you go on to state that until such a situation 18 arose, you couldn't say for certain whether or not 19 more funds would be advanced. Right? 20 A. That's correct. 21 Q. Did you do that to limit the amount -- 22 was United attempting to limit the amount of risk 6010 1 because of what you said earlier about not wanting 2 to become a developer? 3 A. No. We didn't want to get into any 4 partial development until they had an overall 5 master plan and we had an overall development 6 loan. But if they had a sale that required 7 something brought to the tract, we weren't going 8 to shoot ourselves in the foot and the kill the 9 sale. But we didn't want to go forward until we 10 had a full scheme. 11 Q. As of April 14th, 1986, are you aware 12 of any sales of any tracts in connection with the 13 Norwood property? 14 A. Well, I was aware of several that were 15 prospective, yes. 16 Q. What do you mean by "prospective"? 17 A. I mean, I know they were talking to 18 several people, yes. 19 Q. Okay. From the time that the original 20 loan was made to Mr. Gordon and Mr. Block in 21 December of 1984, had any of the -- any of this 22 land been sold, these 94 acres or 100 acres? 6011 1 A. No. 2 Q. None of Norwood had been sold yet? 3 A. No. 4 Q. Okay. Did that -- was that taken into 5 account before you sent this letter? 6 A. What do you mean, "taken into account"? 7 Q. Was that discussed, Mr. Graham, the 8 fact that the project hadn't sold a single tract? 9 A. We may have discussed it. I don't know 10 what -- how -- what kind of bearing it would have 11 had on this letter, no. 12 Q. Let's look at the next-to-last 13 paragraph. You say that you hope the letter gives 14 you a point from which to start working toward one 15 of two alternatives discussed. "However, neither 16 alternative is available." Right here, you say 17 again about "unless interest due March 30, 1986, 18 is brought current." 19 So, this loan was in default. Right? 20 A. Only by 14 days. 21 Q. Right. It was a technical default. 22 Right? 6012 1 A. Yeah. 2 Q. "A savings and loan cannot legally 3 extend, renew, or restructure a delinquent loan. 4 So, unless the loan is brought current, our 5 alternatives are limited." 6 And by "limited," you meant limited to 7 those alternatives that you laid out in the front. 8 Right? 9 A. No. I think limited in what we could 10 do with them at all. 11 Q. Because of why? 12 A. Because of what I said here. Because 13 we couldn't renew a delinquent loan. 14 Q. Because the regulations prohibited it. 15 Right? 16 A. If I recall correctly, yes. 17 Q. And by "the regulations," I'm referring 18 to the Federal Home Loan Bank Board regulations or 19 FSLIC regulations. Right? 20 A. So am I. 21 Q. Good. Okay. Let's look at T7014. 22 MR. LEIMAN: Your Honor, subject to 6013 1 actually obtaining a 1986 calendar, I would 2 proffer that April 15th, 1986, was a Tuesday. 3 Obviously, the letter we saw a moment ago on 7711 4 was a Monday, April 14th, 1986. I'd proffer that 5 until I can get a calendar to demonstrate that to 6 the Court. Let's talk about 7014 for a minute. 7 And if I haven't done so already, I'd 8 offer 7711, Your Honor. 9 MR. DUEFFERT: No objections. 10 THE COURT: Received. Did you also 11 offer 7014? 12 MR. LEIMAN: Yes. I'd like to offer 13 that. Yes, I do want to offer that. 14 MR. DUEFFERT: No objection. 15 THE COURT: Received. 16 Q. (BY MR. LEIMAN) You received this 17 letter from Jeff Minch, managing partner of 18 Norwood Properties. Right? 19 A. Yes. 20 Q. Do you want to take a minute to read 21 this over so that -- because I'm going to ask you 22 some questions about this letter. 6014 1 A. Okay. 2 Q. You received a copy of this letter? 3 A. Yes. 4 Q. In addition to yourself, copies of this 5 letter were sent, evidently, to Mr. Gross, 6 Mr. William, Mr. Hurwitz, and Mr. Frank Krasovec. 7 Right? 8 A. Yes, sir. 9 Q. Why would -- do you know why Hurwitz, 10 Williams, and Gross would have received copies? 11 A. Oh, I assume since they had met with 12 them once before, they were just bringing them up 13 to date. 14 Q. To your knowledge, were Messrs. Gross, 15 Hurwitz, and Williams directly involved in the 16 negotiations regarding the Norwood property? 17 A. Best of my knowledge, no. 18 Q. And why would they have met with 19 Mr. Krasovec and Mr. Minch? 20 A. Well, you had shown me earlier a letter 21 in which they came down and discussed the project 22 with Mr. Gross, Mr. Williams, and Mr. Hurwitz when 6015 1 I was out of town. And so, I think ever since 2 that discussion, they were often carbon copied to 3 bring them up-to-date. 4 Q. In the second paragraph, the author 5 states that -- makes a statement, "The project 6 continues to be a good one" and talks about the 7 unwinding of the relationship of Norwood 8 Properties with Tom Gordon of Deauville. 9 What did you understand that to mean 10 when you read that? 11 A. It means they are wanting the 12 relationship with Tom Gordon. I mean, most of 13 this is self-explanatory. I have a hard time 14 repeating what it says. Simply, they were wanting 15 him out of the partnership. I don't know what 16 else to tell you. 17 Q. Do you know why? 18 A. Well, clearly, as they said before, 19 later on in the letter, that he had become more of 20 a liability than an asset because of his declining 21 financial capabilities. 22 Q. Look at the fourth paragraph on the 6016 1 front page talking about the National Western Life 2 Insurance tract. 3 What do you understand that paragraph 4 to mean? 5 A. It means they wanted to purchase that 6 corner next to our -- as I discussed before, our 7 frontage on 183. It would have increased our 8 exposure to 183, which adds overall value to our 9 project. 10 Q. In terms of the -- does this refresh 11 your memory -- in terms of the L-shaped piece of 12 land that you had talked about originally in the 13 senior loan committee minutes, does this refresh 14 your memory as to whether or not that was one of 15 the corners? 16 MR. BLANKENSTEIN: Your Honor, I'm 17 losing the ends of Mr. Leiman's questions. If 18 you'd ask him to keep his voice up, please. 19 THE COURT: Can you speak a little 20 louder? 21 MR. LEIMAN: Sure. 22 Q. (BY MR. LEIMAN) Does it refresh your 6017 1 memory as to whether or not the 4.7 acres was the 2 corner of 183? 3 A. No. As I told you before, it was not 4 the corner. I can tell you exactly where it was. 5 It was adjacent to our frontage on 183, and it 6 was -- there must have been two other villages 7 between our frontage and the corner of 183 and 35. 8 I know exactly how it lays out. 9 Q. As of this point, April 15th, 1986, 10 that particular tract hadn't been purchased yet. 11 Right? 12 A. No, it had not. It was under contract. 13 Q. All right. And at least Mr. Minch 14 thought it was a key part of the project? 15 A. Well, we thought it was pretty 16 important, too. 17 Q. All right. When did you reach that 18 realization? 19 A. When we're smart enough to look at it. 20 I mean, it was frontage. Any time you get more 21 frontage to a tract of that configuration, it is 22 beneficial. 6018 1 Q. Well, Mr. Minch, I think, is saying 2 that it's more than beneficial. He says it's key 3 because all the approvals, zoning, site plan, 4 subdivision were predicated on acquiring it. 5 A. Well, it's key in the sense that they 6 anticipated getting it. And so, they went forward 7 with their approval process with that tract in the 8 approval process. They could have done the 9 approval process without that tract in it. They 10 just felt it was important to have it, and they 11 went forward. You can't go with an alternative 12 approval processes. You have to submit the 13 approval process as you anticipate your tract is 14 going to be. So, once they committed to buying 15 that tract, it became very key, yes. But they 16 could have done it without the tract. 17 Q. Did you know that they had committed to 18 that -- 19 A. Probably, yes. 20 Q. I'm sorry. Let me finish. 21 Did you know that they had committed to 22 making it a part of the subdivision plot? 6019 1 A. Probably, yes. 2 Q. You did? 3 A. Probably, yeah. We concurred. We 4 thought it was a good piece of property, added to 5 the overall property. 6 Q. Do you remember when you started 7 encouraging them to purchase that key tract? 8 A. Oh, it was a Tuesday. I don't remember 9 what day it was. No, I really don't. I mean, 10 that's getting ridiculous. I'm telling you, we 11 had no problem with them doing this. 12 Q. Well, the reason I ask you this, 13 Mr. Graham, is because United had already done 14 three loans. 15 A. No, we did two loans and we renewed 16 them. 17 Q. And you were new to them? 18 A. No. We renewed them. 19 Q. Oh. So, the first loan was the 20 18-million-dollar loan? 21 A. Right. 22 Q. And then a 2.8-million-dollar loan six 6020 1 months later and then a renewal of that one six 2 months later. And there was no mention at all as 3 of December 1985 of this tract? 4 A. I can't recall. 5 Q. Did you check the documents? 6 A. No. I just -- if the documents say it, 7 I don't recall. You can say what the documents 8 say. I don't recall. 9 Q. Let's look at the next page. Mr. Minch 10 is talking here about off-site utility 11 improvements. Waste water service located in the 12 roadway right-of-way of Highway US 183. 13 A. Yes, sir. 14 Q. It talks about the risk of a 15 substantial delay. Was United Savings concerned 16 about the risk of substantial delay in connection 17 with off-site utility improvements? 18 A. No. As I recall, they were using the 19 approval process and the potential risk in getting 20 approvals as a leverage to get us to react more 21 quickly to their request for trying to structure a 22 loan or doing something. 6021 1 Q. Did you think the borrower was 2 strong-arming you into making this loan? 3 A. No, not strong-arming me; but they were 4 certainly trying to use a little leverage. 5 Q. So, they were holding that hostage? 6 A. No, I didn't say that. I said they 7 were just using leverage like we use leverage 8 saying "We don't do this" and "We can't do that." 9 It's negotiation. 10 Q. Looking at the heading "final plat," 11 apparently it had been submitted by that time and 12 the City's preliminary comments had been 13 incorporated. It states here that the last 14 significant -- "this is the last significant 15 approval. Thereafter, the project will be 16 bulletproof." 17 What is bulletproof -- what did you 18 take "bulletproof" to mean? 19 A. To mean successful. 20 Q. You didn't take it to mean that it 21 couldn't be undone. Right? 22 A. No. I didn't take it to mean that. I 6022 1 mean, I took it to mean that we got all the issues 2 behind us and we'd go forward, that the plotting 3 was successful. 4 Q. Okay. Earlier you testified that city 5 council in Austin seems to swing hot and cold with 6 environmental and -- versus business concerns in 7 connection with development. 8 A. Yes. 9 Q. Did you have any concern that the plat 10 or something related to the final plat would, in 11 some way, be undone? 12 A. Austin historically has never undone 13 plats once they have been approved. The process 14 is the difficulty getting approved. That's, once 15 again, going back to why you try to have Austin 16 partners to walk you through that process. I 17 don't know, historically, of any plat being undone 18 once it's been approved. 19 Q. They say, however, that the approval of 20 the final plat requires posting letters of credit 21 in an amount equal to the infrastructure 22 improvement costs including roads, drainage, 6023 1 utilities, et cetera. Two years are allowed in 2 which to construct the infrastructure. 3 A. Yes. 4 Q. Was that a time horizon that United 5 Savings felt it could live with? 6 A. Apparently so. I can't answer -- I 7 mean, I'm not sure how to answer that question. I 8 mean, that's a fact that still exists up there. 9 That's just something you have to do in Austin. 10 Q. What? 11 A. Provide cash or letters of credit to 12 secure the performance of the roads and utilities, 13 and that's still applicable. So, there is nothing 14 unique about this. 15 Q. Would that have been something that 16 United Savings was considering doing in order to 17 make a loan in connection with this? 18 A. Well, we are -- if we made the loan, it 19 would be an issue we would have to do, yes. 20 Q. Okay. Under "watershed ordinates," 21 there is another one of these unpredictable issues 22 that's addressed talking about a citywide 6024 1 watershed ordinance that could be passed that 2 would reduce the buildable area on the site unless 3 the plat is grandfathered. The borrowers here say 4 "The current thinking indicates no problem with 5 our site being grandfathered." 6 Did you read this to be -- did you take 7 that as true when you read it? 8 A. Well, I took it as something that we 9 were probably on the positive side of the issue 10 but something we would have to monitor, yes. I 11 mean, until anything is done definitively in 12 Austin, you monitor it. You don't take it for 13 gospel. 14 Q. So, at this point, April 15th, 1986, it 15 was still up in the air. Right? 16 A. It was still an open issue until a 17 final was done, yes. 18 Q. All right. Under "contracts," it says 19 "We have received two contracts which both are 20 contingent upon the construction of the 21 infrastructure improvements in a timely manner." 22 What did you take that to mean? 6025 1 A. It meant -- I took it to mean that they 2 are contingent upon us delivering, within some 3 specific, date streets and utilities or the 4 seller, in this case, delivering streets and 5 utilities. 6 Q. They weren't hard contracts, were they? 7 A. Well, what's your definition of "hard 8 contract"? 9 Q. One that's enforceable. 10 A. Well, I think there's two -- if you 11 deliver the streets, they may have been 12 enforceable. I don't remember the contracts, 13 but -- that's a vague term. I mean, hard 14 contracts, if somebody was buying a property and 15 they wanted to have utility capacity, they may 16 put -- they may go with everything except that one 17 issue and we consider that a hard contract because 18 the ball's in your court to deliver it. And if 19 you deliver it, they have to close. I can't tell 20 you about what all these contracts said. 21 Q. Here the contingency was infrastructure 22 improvement in a timely manner. Right? 6026 1 A. Once again, they probably had a 2 specific date, and I don't know what they were -- 3 his reference is generalized. 4 Q. Okay. Do you know who Robert Tamminga 5 is? 6 A. No. 7 Q. Page 3 refers to him as a local 8 developer. It states here that he's interested in 9 doing one of these -- buying the site here. 10 A. Yes, sir. 11 Q. Did you rely on that? 12 A. What do you mean by "rely on"? 13 Q. In your consideration of whether or not 14 to proceed with Mr. Krasovec and Minch in terms of 15 making a loan to them. 16 A. I think we relied upon it as showing 17 some potential activity, some interest in the 18 property. 19 Q. Okay. The last line of the letter 20 refers to "Frank and I will be in Houston to 21 discuss this further on Thursday or Friday 22 afternoon." 6027 1 Earlier, you had been saying that the 2 meetings probably with Mr. Hurwitz, Gross -- and 3 you didn't know this because you were in 4 San Antonio, evidently, but the meetings would 5 have been in Houston? 6 A. No. I said more than likely it was in 7 Houston. I didn't know for certain. 8 Q. That -- I'm talking about the other 9 meeting. 10 A. No. I'm talking about one that I 11 didn't attend. I said more than likely it was in 12 Houston. That was my assumption. 13 Q. Here, Minch is saying that Krasovec and 14 he will be in Houston to discuss this further. 15 Do you remember that meeting happening? 16 A. It probably happened. I don't recall 17 specifically, no. 18 THE COURT: Mr. Leiman, how much more 19 are you going to have with this witness? 20 MR. LEIMAN: Your Honor, I believe that 21 this witness may actually go all day, given the 22 complexity of this transaction as well as 6028 1 discussion regarding the appraisals. 2 THE COURT: And I understand we have 3 another witness tomorrow? 4 MR. LEIMAN: Yes, sir. 5 THE COURT: All right. We'll adjourn 6 until 1:30. 7 8 (Luncheon recess was taken at 12:12 p.m.) 9 10 THE COURT: Be seated, please. We'll 11 be back on the record. 12 Mr. Leiman, you may continue. 13 MR. LEIMAN: Thank you, Your Honor. 14 (1:33 p.m.) 15 Q. (BY MR. LEIMAN) I'll proceed with 16 Exhibit 7706. Mr. Graham, do you remember ever 17 having seen a copy of this letter in your loan 18 file from Frank Krasovec to Mr. Charles Hurwitz in 19 connection with assistance rendered closing the 20 deal? 21 A. No, I do not. 22 Q. Is this the kind of letter that, 6029 1 although Mr. Hurwitz might have received it 2 directly, a copy would have been sent to the real 3 estate department for keeping? 4 A. Not necessarily if it was a personal 5 letter to him, no. 6 MR. LEIMAN: Your Honor, I would offer 7 Exhibit 7706. The date April 22nd refers -- is a 8 Tuesday, which refers back to the -- immediately 9 preceding Friday, which would have been April 18th 10 which is the date that Mr. Krasovec and Mr. Minch 11 stated they would discuss the matter further in 12 the afternoon -- 13 MR. DUEFFERT: We do object. 14 MR. LEIMAN: -- with Mister -- let me 15 finish -- with Mr. Graham and the persons at 16 United Savings. 17 MR. DUEFFERT: Your Honor, it's an 18 unsigned letter. Perhaps Mr. Krasovec can explain 19 what it meant. The witness doesn't remember. 20 THE COURT: Well, it would seem to be a 21 pretty potentially important piece of evidence. I 22 am reluctant to receive it when we don't have the 6030 1 author and the witness we have doesn't know 2 anything about it. 3 MR. LEIMAN: Your Honor, we have 4 previously subpoenaed Mr. Krasovec. I do not 5 anticipate necessarily asking him a great number 6 of questions other than this particular letter, 7 and that's the reason I'm offering it in this way. 8 THE COURT: I think we'd better defer 9 receipt until we have the writer of the letter. 10 MR. LEIMAN: I'll proceed, Your Honor. 11 T7616. 12 Q. (BY MR. LEIMAN) Mr. Graham, this is a 13 settlement statement in connection with the 14 original loan that was made to Stephen Block, 15 trustee, from Mr. Gordon as well as Mr. Block in 16 the amount of some $18.2 million in December of 17 1985. 18 Would you have seen a copy of this? 19 A. I may have, yes. 20 Q. United Savings made the loan, didn't 21 it? 22 A. It did. 6031 1 Q. All right. Looking at the first page, 2 my question to you is: Are you aware of the 3 6 percent commission paid to Pinchback & Company 4 in the amount of $955,000? 5 A. Well, when you say "aware of," I mean, 6 a 6 percent commission was standard commission on 7 a land transaction in those days. I wasn't 8 familiar with Pinchback, no. 9 Q. Would it have been standard procedure 10 at United Savings to inquire as to whom was 11 getting a commission of $955,000? 12 A. If they were representing Ivanhoe, not 13 necessarily, no. 14 Q. Why not? 15 A. We just didn't. 16 Q. It was just paid as a matter of course? 17 A. Well, we knew we paid 6 percent 18 commission and they represented the seller. And 19 we probably didn't, no. 20 Q. You just didn't know who it was? 21 A. No. 22 Q. T7015. 6032 1 MR. LEIMAN: Your Honor, I would offer 2 Exhibit 7616. 3 MR. DUEFFERT: No objection. 4 THE COURT: Received. 5 Q. (BY MR. LEIMAN) Mr. Graham, T7015 is 6 an April 24th, 1986 letter to Tom Gordon and Steve 7 Block from you. 8 Do you recognize your signature on the 9 second page? 10 A. Yes, I do. 11 Q. You sent this letter to them, didn't 12 you? 13 A. Yes. 14 Q. All right. 15 MR. LEIMAN: Your Honor, I would offer 16 T7015. 17 MR. DUEFFERT: No objection. 18 THE COURT: Received. 19 Q. (BY MR. LEIMAN) Do you remember 20 having a discussion with Mr. Hurwitz and 21 Mr. Gordon and Mr. Gross in connection with the 22 Pinchback commission that was paid to Mister -- 6033 1 to -- the Pinchback commission that we saw a 2 moment ago in Exhibit 7616? 3 A. I remember something -- we had some 4 discussion -- I don't remember who specifically 5 sat in on it -- about who the commission was going 6 to, yes. This is reference to that. 7 Q. What did you feel was wrong with the 8 fact that the commission that had been paid to 9 Pinchback had been previously undisclosed? 10 A. Well, the commission to Pinchback was 11 never undisclosed. It was disclosed as all going 12 to Pinchback. 13 Q. I'm sorry? 14 A. There was no doubt that Pinchback was 15 getting the commission. The question was: Was 16 anybody else getting it along with them? 17 Q. And was anybody else getting it along 18 with Pinchback? 19 A. That's what we were trying to define 20 here, apparently. 21 Q. Well, if you look with me at the second 22 paragraph, you state in your letter, "As you're 6034 1 aware, prior to the closing, United not only 2 requested information concerning the commission to 3 be paid to Pinchback & Company but United was also 4 informed Pinchback would be receiving a total 5 commission." 6 You go on to state that Mr. Gordon 7 and/or Mr. Block had failed to disclose the fact 8 that they were going to be receiving a portion of 9 that commission. And you go on to state that 10 "United's requiring that you" -- meaning 11 Mr. Gordon, Mr. Block -- "immediately reimburse us 12 for the full payment of the commission received by 13 you and by anyone else of whom we have no 14 knowledge." 15 A. Correct. 16 Q. What was your purpose in writing that? 17 A. I think it's self-explanatory. We 18 didn't feel they had a right to get any 19 commission. 20 Q. Okay. Well, look at the next page 21 because on the third paragraph, you state, "If you 22 agree with the proposal set forth above, United 6035 1 will put this matter behind it and proceed to work 2 out an arrangement with Norwood Properties to 3 attempt to successfully complete development of 4 the tract." 5 What was the proposal you were 6 referring to above? 7 A. Well, I guess we were going to get -- 8 as best I recall from what I'm reading here is we 9 were going to maybe not get the economic dollars 10 back but get in benefits otherwise relative to the 11 commission. In other words, we'll get some plans, 12 get -- pick up other stuff that would have 13 economic benefit equivalent to the commission. 14 Q. In your discussion with Mr. Hurwitz, 15 was it your understanding, based on discussion 16 with Mr. Hurwitz and Mr. Gordon, that a portion of 17 the commission that had been -- the Pinchback 18 commission of $955,000 that had been paid to 19 Gordon and Block was going to be returned on its 20 own? 21 A. Well, first of all, I mean, I don't 22 know if I had discussions with Hurwitz and Gordon 6036 1 directly. The conversation I had with Mr. Block 2 and then the conversation between Mr. Hurwitz and 3 Mr. Gordon were two separate conversations. Now, 4 when the conversations occurred, I can't recall. 5 But I want to clarify what this says. 6 Well, what I think what I'm saying here 7 is he was getting money back or getting economic 8 benefit in other ways equal to the money. In 9 other words, some documentation, some approvals, 10 things that they had proceeded with that we can -- 11 they could give us to bring to the property to add 12 value. 13 Q. You were asking them to give up any 14 contingent or conditional interest they might have 15 had in Norwood? 16 A. I can't recall if that's exactly what I 17 meant, but maybe -- some of this is still vague. 18 I don't recall. Some of this is still vague. I 19 don't necessarily recall all of this incident. 20 Q. Mr. Hurwitz got a copy of your letter 21 and Mr. Gross got a copy of your letter. Right? 22 A. Yes, sir. 6037 1 Q. You would have talked to them before 2 you sent this kind of a letter to Mr. Gordon and 3 Mr. Block? 4 A. I probably would have, yes. 5 Q. Would I be right in thinking that what 6 you're asking here is -- or what you're stating is 7 United Savings is willing to trade potentially 8 900 -- whatever the claim would be in connection 9 with the commission for whatever rights Block and 10 Gordon had in Norwood, is that it? 11 A. I guess that's what it means here. 12 Keep in mind, their claim was not towards the 13 900,000. It was some portion thereof, I think. 14 Q. It wasn't the entire amount, but it was 15 some part of it? 16 A. Yeah. Best of my recollection. 17 Q. Let's move to T7526. Mr. Graham, T7526 18 is a -- are a series of journal entries. 19 Do you recognize the form of this 20 journal entry? 21 A. The form, yes. 22 Q. All right. Do you know whose initials 6038 1 that would be on the bottom? 2 A. No. I have no idea. 3 Q. Okay. Who would have kept the journal 4 entries in connection with block -- the block 5 trustee loan? 6 A. One of several clerical people, and I 7 can't recall all the names at this time. 8 Q. All right. This reflects the payments 9 starting on 12-28-1984 through May 7th, 1986; is 10 that right? 11 A. Correct. 12 Q. Okay. Do you have any reason to think 13 that this is an incorrect journal entry? 14 A. I have no reason to think that, no. 15 MR. LEIMAN: Your Honor, we offer 7526. 16 MR. DUEFFERT: No objection. 17 THE COURT: Received. 18 Q. (BY MR. LEIMAN) T7016. Those are 19 your initials next to your name in the "from" box? 20 A. Yes, it is. 21 Q. This is a memorandum that you wrote to 22 Jenard Gross regarding Frank Krasovec and the 6039 1 Norwood property, isn't it? 2 A. Yes. 3 Q. Would you tell me what the purpose in 4 writing this memo was? 5 A. Well, when I'm finished reading it, I 6 will. (Witness reviews the document.) Okay. 7 Apparently, they have a draw request that came in 8 that exceeded a current loan balance. And I think 9 because of the bulk that was in engineering and 10 things that were pertinent to keep the project 11 going and approve its value, we chose to advance 12 the funds since the majority went to third parties 13 to protect the security. 14 Q. Looking at the third and fourth pages 15 of this particular exhibit, can you tell me if you 16 recognize the initials below the word "okay" as 17 being Jenard Gross'? 18 A. I would assume it's Jenard's. 19 Q. Do you remember funding these -- do you 20 remember overfunding this -- I'm sorry -- 21 overadvancing on this particular loan? 22 A. I don't, but this sheet previously does 6040 1 indicate we did. 2 Q. Would the loan have been -- would the 3 loan for Norwood have been in default as of 4 May 1986? 5 A. I can't recall if it was in May of '86. 6 Q. Look back at the previous exhibit if 7 you would for a moment. 7526, looking at the last 8 entry, suggests to me -- and correct me if I'm 9 wrong -- that as of May 7th, 1986, looking at the 10 LIP balance, which would have been the loan in 11 process -- right? 12 A. Yes. 13 Q. -- is a negative 163,136? 14 A. Well, relative to this advance that we 15 talked about here, yes here, yes. 16 Q. So, absent that advance, it would have 17 been that? 18 A. Well, you said was it at default prior 19 to this advance. I don't know if it was in 20 default prior to this advance. This doesn't tell 21 me if it's in default. 22 Q. What does it tell you? 6041 1 A. It tells me it was -- all but 14,000 2 had been funded. 3 Q. And what -- 4 A. Doesn't tell me the interest or 5 anything. 6 Q. What does the last entry tell you? 7 A. It tells me we overadvanced. 8 Q. On the loan? 9 A. Yes. 10 Q. Okay. 11 A. A decision we made. 12 Q. I see. So, what you're saying is that 13 Exhibit 7016 was acted on. The advance was made 14 as shown in the previous exhibit, which would have 15 been 7526. Right? 16 A. Yes. 17 Q. Okay. T7707. 18 MR. LEIMAN: If I haven't done so, Your 19 Honor, I would offer the previous exhibit, 7016, 20 at this time. 21 MR. DUEFFERT: No objection. 22 THE COURT: Received. 6042 1 Q. (BY MR. LEIMAN) Mr. Graham, this is a 2 May 8th, 1986 letter to Albert Haegelin of 3 Haegelin Construction in Austin, Texas, signed by 4 you? 5 A. Yes. 6 Q. Copy to Jeff Minch. Is that your 7 signature? 8 A. Yes. 9 MR. LEIMAN: Your Honor, I offer 7707. 10 MR. DUEFFERT: No objections. 11 THE COURT: Received. 12 Q. (BY MR. LEIMAN) In this letter, 13 Mr. Graham, you state that "United Savings of 14 Texas has agreed to advance the funds through a 15 combination of debt and equity to Frank Krasovec 16 and Jeff Minch which are necessary to complete all 17 the proposed improvements as presently platting at 18 a 100-plus-acre site currently referred to as the 19 Deauville project." 20 Why did you do that? 21 A. Well, generally, a contractor, before 22 he bids or gets involved in a project, wants to be 6043 1 sure there is financing available to pay him. 2 This is what I was telling him, that we had -- we 3 were having -- we were providing the financing so 4 that he could be assured that -- to bid on the 5 thing, I assume. 6 Q. In this letter, Mr. Graham, you don't 7 make any conditional statement such as "we intend 8 to advance" or "we conditionally will be advancing 9 subject to real estate investment committee 10 approval." 11 Had the committee -- the real estate 12 investment committee or the senior loan committee 13 approved a combination of debt/equity funds to 14 Frank Krasovec and Jeff Minch? 15 A. I can't remember unless I see some 16 sequence of order. 17 Q. Well, consider T7017. This is a 18 May 8th, 1986 letter from you to Jeff Minch of 19 Norwood Properties. 20 Is that your signature at the bottom of 21 the page? 22 A. Yes. 6044 1 MR. LEIMAN: Your Honor, I offer T7017. 2 MR. DUEFFERT: No objection. 3 THE COURT: Received. 4 Q. (BY MR. LEIMAN) Looking at the first 5 paragraph, you state that "In preparing for the 6 upcoming examination, we have discovered that not 7 only do we need an R-41B appraisal on an 8 acquisition and development loan, but also a 9 separate market feasibility study." 10 Mr. Graham, was May 8th, 1986, the 11 first time you were aware that you needed an R-41B 12 appraisal? 13 A. That's what I'm saying. I'm saying -- 14 we already said we knew we needed that. What I 15 was saying is we also needed a feasibility study. 16 We knew we needed the R-41B. That's -- I'm not 17 saying that here. 18 Q. You're also saying you need a 19 feasibility study? 20 A. I'm also saying we need a feasibility 21 study. 22 Q. You go on to state the following: "I 6045 1 know you've already contacted Rex Bolin about a 2 new appraisal of the property you've developed. 3 He needs to try and arrive at an R-41B value of 4 $47 plus million if at all possible. I also need 5 for him to sign and return the attached engagement 6 letter as soon as possible so I have proof in my 7 files an appraisal has been ordered." 8 Why did you use an intermediary -- 9 specifically, Mr. Minch -- to order an appraisal 10 from Mr. Bolin? 11 A. Well, I think -- I think I talked to 12 Mr. Bolin. I think -- I can't recall exactly why 13 and how it was originally brought about because 14 Mr. Bolin had already done the Phase 1 appraisal. 15 He was -- this was the update on the development 16 loan. He had already done the original work on 17 the land loan, the property. So, whether or not 18 we just told him to do the next phase, go forward 19 or not, I can't recall. But I didn't -- I had not 20 specifically gave him an engagement letter, no. 21 Q. Okay. Let me try this in a different 22 way. 6046 1 Why did you have Mr. Minch contact him? 2 Why didn't you do it? 3 A. I don't recall why. I know he had 4 already done the Phase 1 appraisal, and I may have 5 just said, "Tell him to go ahead and do the full 6 appraisal." 7 Q. Were you suggesting to Mr. Minch that 8 he should get in touch with Mr. Bolin and give him 9 an R-41B value of $47 million to -- 10 A. No. 11 Q. -- to put -- 12 A. Go ahead. 13 Q. -- to put into his appraisal? 14 A. No. That's why I say "if at all 15 possible," too. We often ask -- told the 16 developer, the appraiser what we tried to 17 accomplish. In case he couldn't reach it, we 18 didn't want to spend 10, $12,000. There was 19 nothing wrong with giving him a guideline to tell 20 him the kind of value we're trying to obtain, and 21 we did it often. If he couldn't meet it, he 22 couldn't meet it. If he was close, then we'd deal 6047 1 with the issue about additional equity or how we'd 2 restructure the debt. But if he's going to be 3 pretty far away, then there is no point in doing 4 the appraisal. It's throwing away money. 5 Q. Mr. Graham, how would the appraiser 6 know if he could reach the number unless he does 7 the appraisal? 8 A. Oh, appraisers can tell if they are 9 going to be in the ballpark. I mean, often, we've 10 talked to appraisers who have said -- and we give 11 them a requirement and said, "This is what we 12 want." And he said, "Well, I can't get near that 13 number." And so, we just don't go forward. 14 I mean, within about a week they know 15 enough about the property -- he already was 16 familiar with the property -- to give a rough idea 17 of whether or not he could be close. And we 18 didn't ask him to set -- what we said, "If at all 19 possible" -- if he got 44, fine. That's close 20 enough. We could deal with it and decide what we 21 wanted to do. But I'm not going to spend $12,000 22 and have him come in with $32,000. There is no 6048 1 point in it. 2 Q. The next paragraph says that you 3 attached copies of language we need to see an 4 R-41B appraisal and a list of the areas that we 5 hear federal examiners have concentrated on in 6 their reviews. 7 Do you remember what you sent him? 8 A. No. But we were doing that with pretty 9 much a lot of the appraisers because they were 10 totally familiar with all the new regs that were 11 coming out. And we still send it out to all our 12 appraisers today, what we require in an appraisal, 13 to be sure that the appraisal meets our 14 guidelines. 15 Q. Now, looking at the last substantive 16 paragraph here on this exhibit, 7017, you say that 17 "As far as the feasibility study requirement, I 18 will leave it up to your discretion to select the 19 appropriate person for this job. However, we do 20 need to start this task as soon as possible." 21 It hadn't been started yet, as far as 22 you knew, had it? 6049 1 A. No. 2 Q. All right. So, as of May 8th, 1986, 3 you didn't have a feasibility study on this 4 property? 5 A. No. 6 Q. T7710. 7 MR. LEIMAN: Your Honor, I offer 7017. 8 MR. DUEFFERT: No objection. 9 THE COURT: I believe that's already 10 been received. You're talking about 7710? 11 MR. LEIMAN: Yes. It's the next 12 exhibit, Your Honor. 13 Q. (BY MR. LEIMAN) I'm going to inquire 14 of you, Mr. Graham, is that your signature on the 15 last page of the exhibit? 16 A. Yes. 17 Q. This is the May 22nd, 1986 letter that 18 you sent to Jeff Minch? 19 A. Right. 20 Q. And it relates to the Norwood Park 21 property. Right? 22 A. Right. 6050 1 Q. What are you doing? What's the purpose 2 of this letter? 3 A. Outlining the terms that we've agreed 4 to do. 5 Q. Stating in this -- in your letter to 6 Mr. Minch, you refer to collateral being first 7 deed of trust as well as 100 percent of the 8 loan -- joint and several guarantees by Block, 9 Gordon, Krasovec, and Minch of the loan amount. 10 Right? 11 A. Yes. That's what it says. 12 Q. And you state as a condition necessary 13 to fund the loan, number one, that prior to 14 closing, the applicant shall have made the 15 May 1st, '86 interest payment of $187,000 -- 16 $187,946 and the June 1st, 1986 interest payment 17 in about the same amount when it comes due? 18 A. Correct. 19 Q. Given the fact that you stated earlier 20 that the interest payment hadn't been made for the 21 month of April, would it be your understanding 22 that the loan was in default as of May 22, 1986? 6051 1 A. When did I say it was not due, that I 2 had not been paid for April? When did I say that? 3 Q. It was several exhibits ago, 4 Mr. Graham. 5 MR. BLANKENSTEIN: I'm sorry, Your 6 Honor. I can't hear. 7 MR. LEIMAN: It was several exhibits 8 ago. That's what I said. 9 Q. (BY MR. LEIMAN) However, let's put 10 that aside for a moment. 11 A. Okay. 12 Q. No. 4, you state "United shall issue a 13 commitment to Krasovec/Minch to finance the 14 complete development of the tract. It shall not 15 be closed until the following contracts are closed 16 and funded." And here, you lay out very 17 specifically what contracts you want to see 18 closed. You talk about Vernon Brown and Robert 19 Tamminga. 20 Did those ever happen? 21 A. I don't believe they did, no. 22 Q. Okay. And you talk about a commitment 6052 1 for a development loan and you lay out there the 2 similar kinds of conditions as well as what the 3 terms would be on the development loan. And here 4 you're talking about an 18-million-dollar loan 5 whereas, initially, you were talking about a loan 6 in the amount of $24.3 million, which would have 7 been a six-month loan. 8 Why was the term six months initially? 9 A. Which term? The 24? 10 Q. Looking at Page 1, yeah. 11 A. I can't tell you. 12 Q. The development loan has a term of 13 three years? 14 A. Correct. 15 Q. And here, the requirement for 16 collateral is a first deed of trust and the 17 guarantees of Krasovec and Minch for the top 18 25 percent of the loan with the joint venture 19 contributing about 6.4 million in cash. 20 A. Correct. 21 Q. And then you talk about funding of this 22 on Page KM256. "Initial funding occurring on 6053 1 December 28th, 1986, in the magnitude of 2 $5 million after the applicant advances 6 $4 3 million in equity simultaneously with the closing. 4 The majority of the funds will be used to repay 5 United's existing debt balances." Right? 6 A. Yes. 7 Q. What was the purpose of this funding? 8 A. To pay United's debt balances. 9 Q. The money that United Savings -- 10 A. -- had already advanced on the land 11 loan. 12 Q. Okay. This is a mechanism for 13 paying -- for United to pay itself back? 14 A. Well, yeah. We were going into a new 15 loan and getting a new lien position and we were 16 tired of the existing lien position. 17 Q. Finally on Page 5 of this letter, you 18 talk about a commitment for partnership venture. 19 And you go through a similar set of conditions, as 20 well as a partnership proposal. 21 A. Correct. 22 Q. Here you talk about United Financial 6054 1 Corporation having a 62 and a half percent 2 ownership interest and Krasovec and Minch having a 3 37.5 percent ownership interest. 4 A. Correct. 5 Q. You talk about the partnership lasting 6 for five years? 7 A. Correct. 8 Q. On Page 6, you state under "special 9 conditions" that "No partner or employee of a 10 partner shall share in any real estate commission 11 generated through the sale of any of the tracts in 12 Norwood Park." 13 Was that a special condition related to 14 the Pinchback commission that had been paid? 15 A. No. This -- when we're partners with 16 somebody, we don't want our partners to get 17 commissions. Their job is to sell it for profits 18 for both of us. This is unrelated. 19 Q. Do you happen to know if the terms and 20 conditions that are laid out in this May 22, 1986 21 letter, Exhibit 7710, were actually put into 22 place? 6055 1 A. Probably not all of them, but I can't 2 recall what was and what wasn't. 3 Q. Okay. T7018. 4 THE COURT: I'm not sure we've received 5 T7710. 6 MR. LEIMAN: If I failed to do that, 7 Your Honor, I would offer T7710 at this time. 8 MR. DUEFFERT: No objections. 9 THE COURT: Received. 10 Q. (BY MR. LEIMAN) T7018 is a letter 11 from yourself to Mr. Minch dated June 2, 1986. Is 12 this a copy of a letter you wrote? 13 A. Yes, it is. 14 MR. LEIMAN: Your Honor, I offer 7018. 15 MR. DUEFFERT: No objections. 16 THE COURT: Received. 17 Q. (BY MR. LEIMAN) What was the purpose 18 in writing this letter? 19 A. Well, to give them a benchmark to 20 perform. That if they were going to participate 21 in the loan and they did -- their job was to bring 22 sales. Ours was to bring the financing. That if 6056 1 they did not perform with some guidelines within a 2 specific period of time, we'd be better off 3 ousting them as partners and perhaps looking for a 4 better partnership or somebody else to represent 5 us. This is our way of structuring an option for 6 us. 7 Q. In connection with the way in which 8 this option is structured, the provision states -- 9 you state here that "The change that's included is 10 a provision that, if at the end of 18 months, 11 10 million in sales hadn't closed, your group" -- 12 I guess Norwood -- "could be removed from the 13 project at United's option. Obviously, all your 14 liability would be waived at that time, also." 15 You go on to say "The committee had a 16 strong feeling it's all our money in it. If you 17 cannot successfully perform, they have the right 18 to consider other alternatives to protect their 19 investment." 20 Was it your understanding that rather 21 than to force any kind of guarantees, United would 22 have simply fired Krasovec and Minch? 6057 1 A. No. That says we have the option. I 2 think it's very clear. It just gives us one more 3 alternative at the time we make that decision. 4 Q. Do you know if that particular 5 provision was put in place? 6 A. It exceeded beyond my retirement at 7 United. I mean, it -- when I left, this was in 8 place. 9 Q. T7019. This June 3rd, 1986 letter to 10 Frank Krasovec and Jeff Minch from you deals with 11 Norwood Park. 12 Is that your signature on Page 6 of the 13 letter? 14 A. Yes. 15 MR. LEIMAN: Your Honor, I offer 7019. 16 MR. DUEFFERT: No objections. 17 THE COURT: Received. 18 Q. (BY MR. LEIMAN) Mr. Graham, you state 19 in the second full paragraph under the heading 20 "appraisal" that Mr. Krasovec and Mr. Minch shall 21 jointly and severally guarantee the top 25 percent 22 of the principal balance and 100 percent of 6058 1 interest -- of all interest and costs associated 2 with the loan. Right? 3 A. Yes, uh-huh. I think it's mistitled 4 when it says "appraisal." 5 Q. Okay. 6 A. Because it has no reference to 7 appraisal at all. 8 Q. In earlier letters, you were referring 9 to the fact that a typical loan terms and 10 conditions regarding collateral and guarantees 11 would have been 100 percent on a loan like this? 12 A. No. I didn't say -- I said it often is 13 100 percent if we can get it. And in this case, 14 we were comfortable with 25 percent because the 15 loan was not -- with the equity that's going in 16 there, even if it was our equity, the loan itself 17 was not as great a risk as if it had been a 100 18 percent lending. 19 Q. You referred to proposed improvements, 20 drainage work, et cetera. 21 A. Yes. 22 Q. And preliminary approval for platting. 6059 1 You talk about the loan amount being $30 million. 2 Actual costs shall be about $39.4 million. 3 Was it your expectation that the total 4 cost to refinance and develop this property would 5 have totaled $39.4 million? 6 A. Correct. 7 Q. You set forth 3 percent origination 8 fee. Right? 9 A. Yes. 10 Q. What about in Condition No. 3 under 11 "collateral"? You state that "The joint venture 12 shall contribute about approximately $9.4 million 13 in cash to the projects. Such cash shall be 14 contributed simultaneously, advancing the initial 15 funds from the loan." 16 What was your intention in connection 17 with the $9.4 million? 18 A. That 9.4 cash would go into the loan at 19 closing. 20 Q. And who would it be coming from? 21 A. United Financial Corp., UFC. 22 Q. Which was the subsidiary of United 6060 1 Savings? 2 A. Yeah. 3 Q. Finally, under "appraisal," you state 4 "A new R-41B appraisal is being prepared by 5 Bolin." And you indicate the land had the -- the 6 raw land having a value of $30 million and the 7 value of the tract fully developed at $52 to 8 $55 million. 9 A. Right. 10 Q. You state that, given those figures, 11 the loan would have a 58 percent value. Is that a 12 loan to value ratio -- 13 A. Yes. 14 Q. -- as you computed that? 15 A. Yes. 16 Q. How did -- did you inquire as to 17 whether or not the fact that the land had been 18 purchased for some $18.2 million in December of 19 1985 and the fact that the raw land value was now 20 going to be $30 million, did you make inquiry of 21 Mr. Bolin in that regard? 22 A. Well, I think that some things 6061 1 happened. As we talked earlier, I think there was 2 some change in the regulatory restrictions in some 3 of the land tracts in Austin in this area that 4 added appreciable value and usable density to the 5 land that wasn't there necessarily when we first 6 purchased the land. 7 So, some of that value was probably 8 attributable to greater use of the land than we 9 originally conceived. 10 Q. That the value would have increased by 11 some -- by more than $11 million attributable to 12 the zoning? 13 A. Well, it's not zoning. It had to do 14 with the watershed that we talked about earlier. 15 Depending on the restriction of nature, if your 16 density went from X amount of square footage per 17 acre to maybe double that, yeah, it could have an 18 appreciable effect on the land because that allows 19 you then to build a larger, more valuable piece of 20 real estate. You can build better on it. You can 21 build a bigger building. You may have more 22 density in apartments, et cetera. 6062 1 Q. You don't know, however? 2 A. I don't know for sure, but I think that 3 was an issue that was happening during this 4 period. 5 Q. Okay. And you don't know if Mr. Bolin 6 was relying upon that because you hadn't seen his 7 report as of yet? 8 A. Probably not, no. 9 Q. Page 3 of 7019 talks about the initial 10 funding. "On or about June 20, 1986, in the 11 magnitude of $15 million, $9.4 million of equity 12 simultaneously would be paid." 13 And then you state that the majority of 14 funds, as you just testified to, would repay 15 United's existing debt balances, origination fees, 16 and accrued developers' cost, fees, and 17 engineering work. 18 A. Correct. 19 Q. You also stated that United is putting 20 up a 275,000-dollar letter of credit. Right? 21 A. Yes. 22 Q. And a 2.258-million-dollar letter of 6063 1 credit to the City of Austin for development 2 obligations. Right? 3 A. That's correct. 4 Q. And those development obligations would 5 have been required -- the letter of credit would 6 have been required because that was part of the 7 requirements in the City of Austin made to 8 developers. Right? 9 A. That's correct. 10 Q. You -- under general comments, you 11 again refer to contracts with, here, Brown and 12 Tamminga again. 13 Have those been signed and were those 14 enforceable contracts as of this date, June 3? 15 A. (Witness reviews the document.) I 16 guess -- I refer to them as negotiated. There 17 were so many contracts, I can't tell if they were 18 fully executed or what stage they are in. But I 19 refer to them as negotiated. So, I can't tell you 20 what I meant by "negotiated" at this time. They 21 looked -- it looked like the Robert, whatever his 22 last name is, looks like it's not -- it looks like 6064 1 this contract was executed, but he has some period 2 of due diligence before he goes hard on his 3 earnest money. 4 Q. So, it was contingent? 5 A. Yeah. So was the other one. The other 6 one had a contingency of pre-leasing. So, they 7 both had some contingencies, yeah, which is 8 typical of every contract. 9 Q. Okay. Look at Page 5, please. Here 10 you lay out the term, under No. 3, "At the end of 11 17 months, if Krasovec and Minch has not closed 12 $10 million in gross sales at the agreed-upon pro 13 forma prices, United has the option to remove them 14 from the venture at no cost to United Financial." 15 Was it your belief that United 16 Financial -- was it -- United Financial 17 Corporation is the co-venturer. Right? 18 A. Yes. 19 Q. -- would have wanted to retain 20 Mr. Krasovec and Mr. Minch if they failed to live 21 up to the commitment they had originally made in 22 connection with $10 million in gross sales? 6065 1 A. Well, I mean, that would be a 2 determination at the time that arose. Once again, 3 as I like to point out, this was -- this gave us 4 an option that we wanted to have available to us. 5 We didn't want to be in a partnership where we 6 didn't have the option to throw them out if we 7 were unhappy with them. Come the three years from 8 now, if they got 8 million in sales, we may have 9 been happy and stuck with them. You're 10 speculating what we would have done at the end of 11 three years. This gave us another option. 12 Q. But if they failed, they would have 13 been released of liability and fired? 14 A. I didn't say that. 15 Q. And fired? 16 A. Well, if we removed them from the 17 venture, I don't think we'd have a snowball's 18 chance in court of getting that liability if they 19 no longer had economic interest in the project. 20 Q. Under "general comments," you stated 21 "Detailed feasibility study has been ordered and 22 will be reviewed when received." And this is 6066 1 June 3, 1986. Right? 2 A. Correct, uh-huh. 3 Q. Okay. Exhibit T7020. 4 MR. LEIMAN: Your Honor, if I haven't 5 done so, I'd offer T7019. 6 THE COURT: It has been received. 7 MR. LEIMAN: Thank you, Your Honor. 8 Q. (BY MR. LEIMAN) Mr. Graham, T7020 is 9 a document that's becoming familiar to us. This 10 is a loan committee approval document dated 11 June 2, 1986. 12 Would you please turn to Page 4 of the 13 document and identify your signature? 14 A. It is. 15 MR. LEIMAN: Your Honor, I move 7020 16 into evidence. 17 MR. DUEFFERT: One moment, Your Honor. 18 No objections. 19 THE COURT: Received. 20 Q. (BY MR. LEIMAN) Turning to Page 2 of 21 the exhibit, I notice that under the "recommended 22 by," this particular transaction is recommended by 6067 1 David R. Graham and Jenard Gross; is that right? 2 A. That's correct. 3 Q. Is there any significance to the fact 4 that Mr. Gross recommended -- was a 5 co-recommending senior loan committee member along 6 with you in this transaction? 7 A. Other than he was pretty much as 8 familiar with it as I was. 9 Q. This loan approval lays out the terms 10 that you agreed to loan Mr. Krasovec and Mr. Minch 11 some $30 million. Right? 12 A. Yes. 13 Q. Looking on the front of the document, 14 the joint and several guarantee is now 25 percent, 15 top 25 percent of the loan of the principal 16 balance, and 100 percent of all interest and costs 17 associated with the loan. Right? 18 A. Yes. 19 Q. Now, previously, in connection with 20 Mr. Krasovec and Mr. Minch's obligations on the 21 18.2-million-dollar and 2.8-million-dollar loan 22 that we saw that had been renewed twice, their 6068 1 liability had been joint and several in 2 100 percent. Right? 3 A. Yes. 4 Q. In fact, Mr. Gordon's and Mr. Block's 5 had been 100 percent liability in connection with 6 the 18.2 and 2.8-million-dollar loans. Right? 7 A. On those two loans, yes. 8 Q. Okay. Setting out the guarantor here, 9 Mr. Krasovec's net worth is listed as $3.4 million 10 and -- 11 A. 13.4 million. 12 Q. I'm sorry. $13.45 million and 13 Mr. Minch's as $1.2 million roughly. Right? 14 A. Yes. 15 Q. Turning to the next page, proposed loan 16 amount which is approved is $30 million? 17 A. Yes. 18 Q. Did you and other members of the loan 19 committee, including Mr. Gross, believe that 20 Mr. Krasovec and Mr. Minch had the financial 21 wherewithal to pay the top 25 percent of this 22 30-million-dollar loan as well as all -- as well 6069 1 as 100 percent of all interest costs associated 2 with the loan? 3 A. Probably not, but I doubt very few of 4 our borrowers could ever live up to the total 5 amount of their liabilities. 6 Q. You took -- United Savings took a 7 3 percent origination fee in connection with 8 this -- 9 A. Yeah. One point per year for three 10 years. 11 Q. As of the date of this particular 12 approval letter on Page 3 of the exhibit, you find 13 out that a new R-41B appraisal is still being 14 prepared by Rex Bolin to indicate a roll in value 15 of 38 million. Right? 16 A. Yes. 17 Q. As of the date of the loan approval, 18 you didn't have this R-41B appraisal in hand? 19 A. No. 20 Q. You refer again on Pages 3 and 4 to the 21 Brown and Tamminga development contracts which, as 22 of this point, have not yet -- as you put at the 6070 1 end of Page 4 -- with regard to Tamminga, having 2 gone hard. Right? 3 A. Correct. 4 Q. So -- and that would also be true for 5 the Brown contract? 6 A. Since it was contingent upon 7 preliminary leasings, I would assume, yes. 8 Q. In addition to the 30-million-dollar 9 loan and the 9.4-million-dollar equity that this 10 loan approval anticipates, there are two letters 11 of credit. And as we talked about earlier, in a 12 negotiation, isn't that the 275,000-dollar letter 13 of credit and a 2.158 million-dollar letter of 14 credit that would have been made available by 15 virtue of United Savings. Right? 16 A. Correct. But those letters of credit 17 just reflected money that was already in the LIP 18 balance. The -- Austin will not take -- most of 19 these will accept a letter from the lender saying 20 "Money is available in the loan proceeds for this 21 work." Austin won't do so. We still deal with 22 this problem. We will issue a letter of credit 6071 1 and, as we disburse funds from our LIP balance for 2 those groups, the letter of credit is released by 3 a like amount so it's not -- it's not additional 4 money. It is a representation of what we have at 5 our LIP balances. 6 Q. As of the date of this loan approval, 7 which is about a year and a half after the 8 original loan was made -- 9 A. Correct. 10 Q. -- there hadn't been any improvements 11 on the track yet, had there? 12 A. No. We hadn't done that kind of loan 13 yet, no, other than the -- other than the platting 14 and the engineering process which, in Austin, is 15 about a year process. 16 Q. Mr. Graham, in light of the fact that 17 the loan was in default, why was this -- why did 18 United Savings not simply foreclose on the 19 property on the previous loans and go after 20 Mr. Gordon and Block and Krasovec and Minch under 21 their guarantees of 100 percent rather than make 22 this 30-million-dollar loan and investing another 6072 1 $9 million in equity? 2 A. Twofold. One is we liked the property. 3 The problem with the original loan was not 4 necessarily the property, but the borrower -- 5 Mr. Gordon. And the default was not associated 6 with the inability of the property to have value. 7 The default was associated with his ability, as 8 the financial clout, to perform. We liked the 9 property. As far as core Krasovec's guarantee, we 10 retained it. The only thing we lost in the 11 process was Mr. Gordon's guarantee, which was 12 eroding very quickly and becoming very meaningless 13 as time went along. You know, we -- you're trying 14 to make it like this -- like the whole thing was 15 bad. The whole thing wasn't bad. We liked the 16 property. We liked the location. We were very 17 impressed with the frontage on both highways. And 18 we were comfortable with the tract of land. 19 Consequently, we chose to go forward rather than 20 foreclose. 21 Q. If you had foreclosed, wouldn't United 22 Savings have gotten the property back? 6073 1 A. We could have. But I mean, you also 2 could have been in bankruptcy for two years. It 3 could have all kind of issues involved with it. I 4 mean, foreclosure is not the simplest issue in the 5 world as the City of Houston. I mean, we've had 6 foreclosures that three years later we get the 7 property back and the borrower -- and we get 8 nothing out of the borrower. He was bankrupt. 9 So, in essence, we missed the opportunity to own a 10 tract of land that has some value to us and got 11 nothing from the borrower in the meantime. 12 So, you have to keep a lot of factors 13 involved when you make these decisions whether or 14 not that is the right route. We chose not to go 15 that way. 16 Q. And decided not to take the property 17 back in foreclosure? 18 A. Well, you make it sound like we could 19 walk in there and say, "Give me the property." I 20 don't think -- I think it would have been 21 difficult with Tommy Gordon. I think it would 22 have been difficult with the Krasovecs because we 6074 1 had foreclosed on them. I'm pretty sure they 2 would have put this thing in bankruptcy for some 3 period of time. 4 Q. Mr. Graham, by the time of the senior 5 loan committee meeting in June of 1986, had 6 Mr. Gordon and Mr. Block given up any claim to the 7 Norwood property that they previously had in light 8 of your letter of -- 9 A. What do you mean by "claim properties"? 10 I'm confused there. 11 Q. Let me ask you this: Do you think they 12 had any claim to -- any rights to the Norwood 13 property? 14 A. As long as that loan was in place and 15 they were a borrower, they had a legal right to 16 that property. 17 Q. In spite of the fact that you had 18 previously negotiated with them in connection with 19 the Pinchback commission? Are you saying they 20 never -- they didn't give up their right to that 21 property? 22 A. Well, I don't recall. But I'm not 6075 1 sure -- I think that's something that would 2 eventually be adjudicated rather than settled any 3 other way. 4 Q. Okay. Do you know if they had any 5 right to the property? 6 A. No, I don't recall. 7 Q. Were they a signatory to any subsequent 8 loans? 9 A. Not that I recall. I don't think so. 10 Q. They hadn't applied for this loan, had 11 they? 12 A. No. But this loan wasn't in place 13 either. So, we still were dealing with what was 14 in place. 15 Q. Would you tell me whose signatures are 16 on Page 4? 17 A. Yes. My signature is first. That's 18 Jenard below me. The one below Jenard I don't 19 know, unless that's Jeff Gray. And that's a 20 guess. And the other two are Jerry Williams and 21 Mike Crow. 22 MR. LEIMAN: Your Honor, I would -- the 6076 1 next exhibit I would ask about is virtually the 2 same as the exhibit we've previously had 3 admitted -- specifically, 7020. 7590. This has a 4 couple of attachments, and I would simply ask that 5 this be moved into -- be admitted into evidence. 6 THE COURT: You offered T7590? 7 MR. LEIMAN: Yes, sir. 8 MR. DUEFFERT: Your Honor, there is 9 what appears to be an attachment to this, but we 10 have reasons to think it is not an attachment. I 11 don't know if it's referenced in the minutes. The 12 date is two months earlier and it references a 13 Deauville budget, which was the prior project in 14 1985. 15 MR. LEIMAN: Let me ask the witness, if 16 I might, Your Honor, as to whether he can identify 17 it. 18 A. I probably saw it. Whether it's -- I 19 have to agree. I don't know if this is an 20 attachment to this or not because the numbers 21 being -- total budget being 37.5 and I refer to a 22 39-million-dollar -- 39.4 budget here, I don't 6077 1 know if this is relative or not. I mean, the 2 numbers are different and I'm not sure what the 3 difference is because the total budget here is 4 37.5 and I clearly referred to it as a total cost 5 of 39.4. So, there may have been a more recent 6 update than this. I can't tell you. 7 THE COURT: The numbers that refer to 8 the OW pagination, do they mean anything? 9 THE WITNESS: No. That's not ours, 10 sir. 11 THE COURT: I know it's not yours, but 12 it -- 13 MR. DUEFFERT: Your Honor, it appears 14 at least they were adjacent in a file at some 15 point. But these files were moved around for 16 years by various parties and just because they are 17 adjacent documents in a file doesn't necessarily 18 mean that one is an attachment to the other. 19 MR. LEIMAN: Your Honor, the light I 20 can shed on this is not a great amount; but the 21 numbers being sequential, these OW numbers were 22 imaging done by the respondents and, evidently, 6078 1 these are -- these documents were found in 2 sequential order by the respondents in the files 3 from which they were copied. 4 MR. EISENHART: Mr. Dueffert's right, 5 though. The fact that they have sequential 6 numbers on them does not necessarily mean they are 7 attached. It only meant they were adjacent to 8 each other. 9 MR. LEIMAN: Well, if that's true with 10 regard to -- with regard to this exhibit or with 11 regard to any other numbers, the numbering system 12 that the respondents have engaged in, I think it 13 may -- calls into question that entire system 14 that's been employed. 15 MR. DUEFFERT: Your Honor, all we're 16 saying is that there is no evidence in the record 17 that one document is an attachment to the other, 18 and I don't believe there is a foundation to 19 accept it as an exhibit at this time. 20 MR. GRIFFITH: Your Honor, David 21 Griffith. The sequential numbering was the 22 sequence at which we had documents imaged. When 6079 1 the respondents went to the OTS -- and these are 2 documents that we copied from the OTS files -- we 3 would copy this document and then we'd copy this 4 document. When those two documents got copied, 5 they were sequentially numbered like that. So, 6 there could have been the Yellow Pages between the 7 minutes and the attachment. But as we imaged it, 8 it would have the same number so that we would be 9 able to refer back to that Bates number. We did 10 not Bates stamp every document of the OTS' files; 11 just the ones that we had copied. 12 MR. LEIMAN: Well, Your Honor, I don't 13 know if you -- in connection with the reliability 14 of the exhibit, having heard these explanations, 15 if you don't believe that it's sufficiently 16 reliable given the fact that it's sequentially 17 numbered, I'll withdraw it. 18 THE COURT: All right. I think we'd 19 better have a better foundation if we're going to 20 rely on it. 21 MR. LEIMAN: Rather than do that, Your 22 Honor, I'll simply withdraw the exhibit, the 6080 1 offer. 2 MR. RINALDI: Could I just make one 3 inquiry? You've given us a list of these OW0 4 ranges and your list doesn't even -- 5 MR. KEETON: Stand up. 6 MR. RINALDI: Thank you, Richard. I'm 7 sorry. You've given us a list of OW0 ranges which 8 is attached to a letter dated September 13th, 1997 9 and this OW0 range doesn't appear on your list. 10 The range stops at OW01813 -- I'm sorry -- 183618 11 and then picks up again at OW205000. So, I guess 12 my question would be: Is there any reliability to 13 this list you've given us since we now have a 14 document that doesn't appear to be within the 15 range? Do you follow what I'm saying? 16 MR. DUEFFERT: Your Honor, is it 17 appropriate to address this issue at this time? I 18 don't know if it's necessary. I think we're 19 getting off topic. I'll be happy to address it. 20 MR. RINALDI: You and I can certainly 21 take it up -- 22 THE COURT: Let's cover it while it's 6081 1 in everybody's mind. 2 MR. DUEFFERT: All right. The document 3 Mr. Rinaldi is referring to is a proposed 4 stipulation that we forwarded to OTS about a month 5 ago. Actually, about a month and a half ago, I 6 would think, before the hearing began. The hope 7 was to create a joint legend of documents of Bates 8 ranges so that we could tell where these different 9 documents were coming from. I think we've seen 10 documents today that bear the Bates number KM 11 before the number. Those come from the documents 12 produced by Mr. Krasovec and Mr. Minch. There are 13 OW numbers that come from various document 14 productions. 15 We proposed as a first draft a list 16 that we could determine as far as where these 17 various Bates ranges came from. We never heard 18 back from OTS with any suggestions or revisions, 19 and they don't seem to be willing to pursue the 20 notion of a joint stipulation as to that. So, 21 that list that Mr. Rinaldi is referring to never 22 purported to be anything but a first draft. 6082 1 MR. RINALDI: Let the record reflect 2 that we never understood fully what all of the 3 things you gave us were. But my question is: 4 Since you imaged all these documents and now we 5 have a document with your image on it, you ought 6 to know where that document came from by the image 7 range that's on it. So, here we have a document 8 that OW19330 image on it. Those are your imaging 9 numbers. So, the question I have for you is: 10 Where did you get it? 11 MR. DUEFFERT: Your Honor, once again, 12 our list did not purport to be exclusive of all 13 numbers, and we are not proffering this exhibit. 14 MR. GRIFFITH: We can tell you where we 15 got it. That doesn't mean that's where it came 16 from. We got it from you-all. That's what -- 17 MR. RINALDI: That's not what it lists 18 on here. 19 MR. GRIFFITH: That's right. We're 20 trying to find out the ultimate source of the 21 document. 22 MR. RINALDI: I understand that, but 6083 1 you don't even indicate that this came from the 2 Federal Home Loan Bank as documents of the 3 examination. 4 MR. DUEFFERT: Well, Your Honor, I 5 think we digress. 6 THE COURT: I don't believe this is 7 going anywhere. Let's return to -- the exhibit's 8 been withdrawn, and let's go to the next one. 9 Q. (BY MR. LEIMAN) T7021. Mr. Graham, 10 this is a June 2nd, 1986 real estate investment 11 committee discussion. Page 6 is signed by various 12 individuals. 13 Can you identify your signature on 14 Page 6? 15 A. I can. 16 Q. Okay. Where is it? 17 A. The first one on the top left. 18 Q. Okay. And below you? 19 A. Jenard Gross. 20 Q. And below Mr. Gross' signature? 21 A. I'm venturing a guess at Jeff Gray, but 22 I don't know. 6084 1 Q. And what about on the upper right? 2 A. Jerry Williams and Mike Crow. 3 Q. Okay. What was the purpose, if you 4 recollect, of this particular -- of the action 5 taken by the real estate investment committee? 6 A. Well, this is the other half of that 7 previous senior loan committee approval. This is 8 approval for our contribution as equity partner in 9 the development of Norwood and approval to infuse 10 9 million 4. 11 Q. Please look at Page 2. This was 12 recommended by yourself as well as Jenard Gross. 13 Right? 14 A. Yes. It's the equivalent of what we 15 did earlier. 16 Q. You stated that one of the reasons that 17 you wanted to -- that United wanted to stay 18 involved with this project was because it liked 19 the property. Right? 20 A. Correct. 21 Q. Now, at this point in time, as of 22 June 2nd, 1986, had you received an appraisal 6085 1 report? 2 A. Well, no. We hadn't received it from 3 the senior loan committee on the same day, no. 4 Q. Right. You hadn't gotten the 5 feasibility study either? 6 A. No. 7 Q. But you liked the property anyway. 8 Right? 9 A. That's correct. 10 Q. And you knew the market? 11 A. That is correct. 12 Q. Okay. 13 MR. LEIMAN: Your Honor, I would move 14 the previous exhibit, T7021, and I offer it into 15 evidence. 16 MR. DUEFFERT: No objections. 17 THE COURT: Received. 18 Q. (BY MR. LEIMAN) Mr. Graham, do you 19 recognize the legend on the -- what is really on 20 the bottom of this now at about three-fourths of 21 the way down the page, NORW5? 22 A. No. 6086 1 Q. It says "Norwood No. 5" there, 2 marketing file? 3 A. I see it. I just don't recognize it. 4 Q. And who's Mel Blum? Do you know? 5 A. Yeah. Mel Blum was who replaced me 6 when I left. 7 Q. Okay. Now, Mr. Graham, if you would, 8 please, turn with me in this exhibit about 9 two-thirds of the way down. It's OW195358. I'm 10 going to ask you some questions. 11 A. Slow down. What number? 5195 what? 12 Q. 195358 is the page I'd like you to turn 13 to. 14 A. Okay. Okay. 15 Q. Can you identify this as a City of 16 Austin publication? 17 A. Well, I assume -- I mean, I can't 18 identify it. I mean, I assume that's what it is. 19 Q. Well, it says it's a northeast 20 inventory, March 1986. Right? 21 A. I understand what it says. That's what 22 I assume that it is. I just can't identify it as 6087 1 that. 2 Q. Prior to approving the 3 9.4-million-dollar equity investment made in a 4 30-million-dollar loan on the property in Austin 5 to Krasovec and Minch, did you inquire of the City 6 of Austin as to whether it had any publications 7 that related to the northeast part of the city 8 where the Norwood project was? 9 A. I can't recall. 10 Q. Well, turn with me, please, to 11 Page 195362. 12 A. Okay. Starts at Figure 2? 13 Q. Yes, sir. Figure 2. This summary in 14 Figure 2, No. 9 refers to the Deauville project. 15 Right? 16 A. Yes. 17 Q. And this talks about a summary of 18 planned development projects. And right after 19 Deauville, right after the A, there is an 20 asterisk. Right? 21 A. Yes. 22 Q. Okay. And that says "approved/UC." Do 6088 1 you see that? 2 A. Yes. 3 Q. You say -- and the other ones that 4 don't bear an asterisk would not be approved. 5 Right? 6 A. That's correct. 7 Q. That's the way I read it. 8 A. Yeah. They are proposed. 9 Q. Okay. Now, of those that have an 10 asterisk, we see Walnut Creek. Right? 11 A. Yes. 12 Q. And that has floor area square feet of 13 7.3 million, an executive airpark in northeast of 14 6.1 million square feet. Of course, there is 15 Deauville at 2.4 million. Copperfield, which is 16 above that, has 342,000. But all totaled among 17 the approved square footage in the northeast 18 inventory area is 17,485,893 approved square feet, 19 which is a part of the proposed square footage for 20 development projects of 3 -- I'm sorry. I 21 misspoke. Separately, there are 37 and a half 22 million square feet for a total of 6089 1 54.988 million square feet of projects on the 2 board either approved or unapproved in the 3 northeast part of Austin. 4 A. Yes. 5 Q. Okay. Please turn to Page 195364. 6 A. 195 -- 7 Q. 364. And this City of Austin document 8 on 195364 tells us that, number one, that there 9 are 17 million square feet of non-residential 10 development planned for these approved projects. 11 What is non-residential development? 12 A. Anything but a single family, one to 13 four single family. I think that's what they are 14 referring to. 15 Q. And Deauville would have been that. 16 Right? 17 A. Yes. 18 Q. And looking down to the fourth star, 19 there are -- "55 million square feet" -- I'm 20 reading now -- "of non-residential floor area are 21 presently being planned for the area. By 22 comparison, the Travis County Appraisal District 6090 1 reported 59 million square feet of 2 non-governmental office and retail/commercial 3 space existed in the county as of February 1986." 4 Right? 5 A. Right. 6 Q. And below that, it talks about the fact 7 that this amount of planned development, when 8 added to existing development, would support a 9 residential deposition population of 77,327 and 10 provide workplaces for 170,000 jobs. 11 And it goes on to say that this far 12 exceeds the Austin transportation study Year 2020 13 projections of 63,732 people and 29,196 jobs. 14 Right? 15 A. Right. 16 Q. Would I be wrong in interpreting this 17 that it would have taken some 34 years for all of 18 the developments that were on the board to have 19 been absorbed in Austin in the northeast 20 inventory? 21 A. If everything that was planned or 22 proposed came on stream, it would have taken a 6091 1 length of time. Ironically, Austin has far 2 exceeded any of these projections. They are 3 averaging 30 to 35,000 new jobs a year for the 4 last four or five years. Walnut -- if you go back 5 and look at the list, what you had here before, 6 Walnut Creek, which is just a bit -- I guess it 7 would be east of us towards 290 -- has been the 8 most successful development in the City of Austin 9 in that quadrant, and it was our next-door 10 neighbor. 11 So, yeah, you could -- look at the 12 overall prospective and say it looked bad. We 13 liked where we were. Walnut Creek proved that 14 that market was very, very strong where we were. 15 If you look at Walnut Creek now, it has been a 16 tremendous success. Not all of them have been. 17 Jourdan Crossing, for example, didn't kick off 18 till three or four years later and has been 19 successful since then. This is a snapshot. And 20 we are watching Austin as a motion picture. And 21 we were not -- we were prepared to snap into that 22 reel at that particular time. Bad analogy. But 6092 1 anyway, step in that arena and go forward. We 2 were comfortable with that location. And some of 3 what happened in our neighboring area proved that 4 we were not totally incorrect in that assumption. 5 Q. And you didn't really care, nor did 6 other members of the senior loan committee or the 7 real estate investment committee that, as shown on 8 Page 4 of the document, which is 195368, that even 9 if the area should capture 25 percent of new 10 office development in the metropolitan area, at 11 the long-term absorption rate estimated by the 12 Lindley Group of 2.2 million square feet per year, 13 it would take up to 45 years for the planned 14 25 million square feet of office space to be 15 absorbed. That didn't matter? 16 A. No. You look at everything and you put 17 it in perspective. You weigh the different 18 alternatives. You evaluate every piece of 19 information you get. And in some marketing, some 20 of the information was pertinent. Some we thought 21 was incorrect or we felt was not necessarily that 22 applicable to our tract. I mean, you put these 6093 1 things in perspective. Austin has put this thing 2 tremendously in perspective. Not one of their 3 projections turned out to be true. You look at 4 those. That is not what happened in Austin. It 5 is a boom town. It is far superior to anything 6 they projected. What they said would not be 7 absorbed in 30 years got absorbed in 12 years. 8 So, you know, you put some merit in it; 9 but you evaluate it and it's one of the many 10 ingredients that go in your consideration. 11 Q. And just above "conclusions," if you'll 12 read along with me -- 13 A. What page are we on again? 14 Q. Same page. 15 A. What page? 16 Q. 4, which is 195368, "given the amount." 17 A. Go again. What page? 18 Q. It's Page 4. 19 A. Oh, from the very start? 20 Q. No. Page 4 of this study, and it's 21 195368. 22 A. 68. Okay. That's why I was asking. 6094 1 Q. It states "Given the amount of 2 development already in the planning process, land 3 use in the area will be largely committed for the 4 next 35 to 50 years prior to completion of the 5 comprehensive plan." 6 See that? 7 A. Yes. 8 Q. Mr. Graham, what is the condition of 9 Norwood Park today? 10 A. It is partially developed. 11 Q. How many acres are developed? 12 A. I have no idea. 13 Q. What's on it? 14 A. I think a retail center -- a retail 15 facility is on one portion of it and some fast 16 food franchises on the others. 17 Q. It's a Wal-Mart, isn't there? 18 A. I don't recall. 19 Q. There's a clock tower there, isn't 20 there? 21 A. That wasn't part of the sale. That was 22 part of the development. 6095 1 Q. Okay. 2 A. It has some fast food franchises along 3 183. 4 Q. Turn if you would, please, to 5 Page OW195374, which is Page 8. I'm sorry. Did I 6 say -- I may have misspoken. 195374, definition 7 of the northeast area -- 8 A. Yes. 9 Q. -- which encompasses, as they put it, 10 15,478 acres, which is about 24 square miles. 11 Would that have been the area in which Norwood 12 Park was being built into, northeast area? 13 A. Yes. 14 Q. Would I be right in thinking that it 15 wouldn't have mattered if you or other members of 16 the senior loan committee and the real estate 17 investment committee had previously seen this 18 March 1986 City of Austin document because this 19 loan was going to be made whether or not the real 20 estate could ever be absorbed into the market. 21 Right? 22 MR. BLANKENSTEIN: Objection. Calls 6096 1 for speculation by the witness. 2 THE COURT: Denied. 3 THE WITNESS: Answer? 4 THE COURT: Yes. 5 THE WITNESS: Okay. Once again, we see 6 our perspective as different than this document. 7 One other thing I want to point out that we don't 8 lose track of, the northwest quadrant in Austin or 9 northeast quadrant -- I guess the northwest, 10 too -- were really the only developed quadrants in 11 the City of Austin. The lakes prohibit you from 12 going west, and the south is prohibited by Barton 13 Creek and the development down there. 14 So, at the time, all Austin was 15 being -- everything being developed in Austin was 16 in this quadrant and the neighboring northwest 17 quadrant. So, you really saw the predominance of 18 all the growth and all the proposed growth in 19 these quadrants. So, it's not like -- you know, 20 this was happening all over the city. This was 21 the area I was in because it's the only place you 22 could go. And we were -- as you look at the 6097 1 quadrant, this quadrant was large. We were right 2 down here, the closest corner, the most attractive 3 corner in this whole quadrant. And everything 4 else was out here, way out. And all this Jordan 5 crossing, everything was very, very far out here. 6 So, you know, we liked the property. 7 We liked the location. We understood there was 8 competition. Most of the competition was way out 9 here in the boondocks. And I mean, I'm not going 10 to change that position. We were comfortable with 11 where we were located. 12 MR. LEIMAN: Please reread my question. 13 14 (The reporter read back the 15 question as requested.) 16 17 THE WITNESS: I'll answer that -- I can 18 only answer for myself. I probably still would 19 have voted for it. 20 MR. LEIMAN: Fine. 21 THE COURT: We'll take a short recess. 22 6098 1 (A short break was taken 2 at 2:57 p.m.) 3 4 THE COURT: Be seated, please. 5 MR. EISENHART: Your Honor, just a 6 brief housekeeping note. I've conferred at the 7 break with OTS counsel on the order of witnesses. 8 And I just wanted to advise the Court where it 9 appears we are. Mr. Graham -- OTS believes that 10 they will be the rest of the afternoon with 11 Mr. Graham. He has a problem with the first day 12 back -- and, of course, we have Mr. Gerald 13 Williams coming back tomorrow. Mr. Graham has a 14 commitment on the first day we are back, which I 15 think is Wednesday, the 12th. And OTS is 16 agreeable and we are agreeable to taking another 17 witness who, I believe, will be Mr. Minch on that 18 Wednesday. We will complete Mr. Minch, which 19 everybody thinks could be done in the course of a 20 day, most likely, and then Mr. Graham would be 21 back the following day, which would be Thursday, 22 the 13th. 6099 1 THE COURT: All right. Thank you. 2 Mr. Leiman. 3 MR. LEIMAN: Thank you, Your Honor. 4 (3:24 p.m.) 5 MR. LEIMAN: At this time, I'd like to 6 offer Exhibit T7651. 7 MR. DUEFFERT: No objections. 8 THE COURT: Received. 9 MR. LEIMAN: T7138. Your Honor, I 10 believe that's in the notebook I provided 11 yesterday. 12 THE COURT: Thank you. 13 Q. (BY MR. LEIMAN) Mr. Graham, this 14 June -- this Exhibit T7138 which bears a date of 15 June 4, 1986, on the front cover, purports to be a 16 Burke O'Hara Fort Associates land planning and 17 development consulting report directed to Messrs. 18 Minch and Taylor regarding the Norwood Park 19 property in Austin, Texas. 20 Have you seen this before? 21 A. I may have. 22 Q. Are you not certain? 6100 1 A. No, I'm not certain. But I'm -- it's 2 been so long. 3 Q. Would you take a minute to review it? 4 This is the feasibility study that would have been 5 provided in connection with the Norwood Park 6 property. 7 A. You want me to read the whole thing or 8 what? 9 Q. Just scan it to familiarize yourself, 10 please, Mr. Graham. 11 A. Okay. (Witness reviews the document). 12 Without going through the whole thing, yeah, I 13 have glanced at it. 14 MR. LEIMAN: Your Honor, we offer 15 T7138. 16 MR. DUEFFERT: No objections. 17 THE COURT: Received. 18 Q. (BY MR. LEIMAN) When you ordered a 19 feasibility study in connection with the Norwood 20 property, did you have an expectation, sir, as to 21 what it would contain? 22 A. No. I mean, as far as results, no. As 6101 1 far as what it was to address, yes. 2 Q. Okay. And what did you believe a 3 feasibility study is supposed to address? 4 A. Basically, the market that we will be 5 producing products in and the viability of those 6 markets. 7 Q. Does it also include whether or not a 8 profit can be made in connection with the project? 9 A. No, because it generally doesn't know 10 the economics. It's not relevant to the 11 feasibility. At least not this type of 12 feasibility. 13 Q. You don't believe that this feasibility 14 study -- you had no expectation the feasibility 15 study that you ordered would address the economic 16 feasibility of the Norwood property. Right? 17 A. No. We were more concerned about the 18 marketability feasibility. 19 Q. Okay. How does marketability 20 feasibility and economic feasibility, how do those 21 differ in your mind? 22 A. Most of the feasibility studies I've 6102 1 seen do not address profitability. I mean, they 2 don't get into the economic numbers, the basis of 3 the borrower, what his investment price is, what 4 his debt cost is. Typically, the ones we receive 5 do not address those issues. That's a different 6 issue. 7 Q. Turn with me, please, to Page 4 of the 8 Burke O'Hara absorption studies. This bears an OW 9 number of 193349. Paragraph 3.1 talks about 10 office product. You notice here it makes an 11 assumption of the 15 percent average annual 12 capture rate of anticipated demand for office 13 space in Austin's north and northeast suburban 14 markets? 15 A. Yes. 16 Q. And it talks about that the office 17 floor space in Lots 3 and 5 should be absorbed 18 fully in seven and a half to eight and a half 19 years. You see that? 20 A. Yes. 21 Q. Was it your expectation that the office 22 space in connection with Lots 3 and 5 in regard to 6103 1 this project would have taken seven and a half to 2 eight and a half years to be absorbed? 3 A. On the outside. On the outside, yes. 4 It could have been shorter. 5 Q. Okay. What did you and members of the 6 senior loan committee base your own personal 7 projections on when you were discussing this loan? 8 A. I don't recall. I just -- as I said 9 before, we felt this tract was -- in this 10 corridor, in this area -- was one of the more 11 well-located, more advantageous tracts and it 12 would lead the corridor in its criteria. And the 13 corridor was basically predicated on an average 14 activity. 15 Q. Would it be fair to say, sir, that you, 16 in fact -- you had a feeling it would be less than 17 seven and a half or eight and a half years? 18 A. I'd have to agree with that, yes. 19 Q. Looking now at 3 -- would that also be 20 true for the other members of the investment 21 committee? 22 A. Once again, I can't answer for the 6104 1 other members. 2 MR. DUEFFERT: I believe Mr. Leiman is 3 confusing the witness. There is two different 4 absorption periods at issue. One is the 5 absorption for the raw land that Norwood 6 Properties would be selling. The other would be 7 absorption for office space which the users would 8 put up. And I have a sense that Mr. Leiman might 9 be asking questions in such a way so as to confuse 10 the witness, and I'd like the record to be clear 11 on that. 12 THE COURT: We're looking at this 13 office product section here. Were you confused by 14 the question? 15 THE WITNESS: Well, I hadn't thought 16 about that, but the point is well made. A tract 17 of land may sell in advance of the building 18 actually being built. So, our goal was not to 19 build the building. Our goal was to sell the 20 tract of land. I see his point, and I may have 21 been a little bit confused. I still hold by what 22 I said. 6105 1 When you see an office absorption, they 2 are saying when that building actually would be 3 absorbed in the market. It takes a year to get 4 built and they may buy the land a year before. 5 So, they are talking about 7.5 years. The sale 6 may occur in 4.5 years. I don't know if you 7 follow me, but -- so, yeah, this talks about the 8 product itself. We weren't building a product. 9 We were selling the land for somebody else to 10 build a product. And that's the point I think he 11 was making. 12 THE COURT: All right. 13 Q. (BY MR. LEIMAN) Looking at 3.2, which 14 is conventional hotel product, do you agree with 15 the assumption that 40 percent of the demand from 16 neighboring office developments would be captured 17 and 65 percent of the hotel is supported by 18 business user market segment? 19 A. I can't recall if I agreed or disagreed 20 or how I felt about the assumptions. I mean, that 21 was then and this is now. So, it's hard to look 22 back. 6106 1 Q. Look at Page 10 of the exhibit, which 2 is 193357. What would -- 3 A. Is this the social economic profile? 4 Q. Yes, sir. 5 A. Okay. 6 Q. Do you attribute any significance to 7 the fact that the -- under "vacant housing units," 8 the percent vacant in the Austin metropolitan 9 standard area is 10 percent? 10 A. Well, first off, I'd like to know 11 whether they mean -- "housing" includes 12 single-family or multi-family. That would be 13 significant because this study, if I was correct, 14 is in June. And at that time, college was not 15 basically year-round. Multi-family had a 16 tremendous drop in rentals during the June, July, 17 and August months. So, I can't tell you the 18 answer. If it includes multi-family, that's not 19 surprising. 20 Q. Turn to Page 17, 193664. Talking about 21 public administration. The feasibility study says 22 that both sectors are strong but neither is 6107 1 expanding. 2 Would that have played into your 3 decision making in the real estate investment 4 committee and the senior loan committee? 5 A. It may affect a little bit of the 6 office buildings, but very little of what we were 7 developing was going to be tied to public 8 administration. 9 Q. Looking at Page 19, 4.1, Austin 10 suburban office market. Here in this Chapter 4 in 11 reference to the north, northeast suburban 12 segments, the writer says under 4.1 that "For the 13 past five years and, particularly, the past three 14 years, office development in the three-county 15 Austin MSA has grown more rapidly than its 16 population and employment base." 17 Does that appear to be consistent with 18 what we read in the City of Austin report a few 19 minutes ago? 20 A. I think it's somewhat consistent. I 21 mean, Austin was a market everybody had great 22 hopes for and thought was going -- was on the 6108 1 verge of a boom. It happened about three or four 2 years later than everybody anticipated, but it 3 happened. 4 Q. Okay. Now, Mr. Graham, you said one of 5 the sectors that you relied upon for data 6 regarding the markets to which USAT would lend or 7 get involved in in terms of real estate were real 8 estate persons; is that right? 9 A. You mean Realtors, brokers? Yes. 10 Q. All right. Looking down here at the 11 second paragraph under 4.1, it says "Interviews 12 with real estate professionals reveal a 13 commonly-held view that the office space market is 14 overbuilt and is likely to remain overbuilt." 15 What significance would you have 16 attributed to that statement? 17 A. As I told you, we were not unaware that 18 there was a softness in the market; but we also 19 looked at this thing as a five-year opportunity, 20 longer if necessary, and we believed Austin would 21 recover dramatically. And as I said before, it 22 did. It just did it a couple years later than we 6109 1 anticipated. 2 Q. Do you have a present belief at this 3 time as to what economic feasibility -- what the 4 minute economic feasibility percentage would be 5 for a hotel? 6 A. I have no idea. 7 Q. You don't do any hotel lending? 8 A. No, I don't. 9 Q. A hotel was part of the Norwood Park 10 project. Right? 11 A. A hotel site. It wasn't predominantly, 12 but there was a site. 13 Q. And it's addressed here on Page 32 of 14 this exhibit, which is 193380 in which there is a 15 reference under 5.2, "projected hotel demand." 16 The reference here, you see Peat Marwick Mitchell 17 downtown hotel occupancy rates averaging about 18 50 percent for the next five years. You see that? 19 A. Yes. 20 Q. But if I were to inquire of you, is 21 that significant to you? 22 A. If I was building downtown, it would 6110 1 be. 2 Q. Find a good room or -- I mean, why? 3 A. Well, downtown is obviously more 4 competitive, more competition downtown. We 5 weren't downtown. You need to tell me what it 6 was -- what my competition was. There is a 7 different -- there is a difference in markets. 8 Q. Did you review this study to determine 9 whether or not hotel competition in the north 10 market area would have been impacted by a 11 50 percent occupancy rate? 12 A. I imagine we looked at it. I don't 13 know what the results were of the discussion. 14 Q. All right. Look at Page 38. You see 15 here, it reaches the -- the report reaches a 16 conclusion. It says "The operation is financially 17 feasible with occupancy rates in the first four to 18 five years of 55 to 65 percent." 19 Is that significant to you? 20 A. It is not significant to me. I mean, 21 I'm not a hotel man. So, I'm not sure what you 22 mean. I don't understand what makes a hotel work. 6111 1 Q. Would you know how to analyze that 2 figure is my question? 3 A. Analyze what figure? 4 Q. The occupancy rate in connection with 5 hotel -- the building of hotels. 6 A. Yes. 7 Q. The feasibility -- 8 MR. DUEFFERT: Your Honor, if he's 9 going to read that part of the sentence out loud, 10 I'd ask Mr. Leiman to read the entire passage. 11 THE COURT: What is the part that you 12 want him to read? 13 MR. DUEFFERT: Well, the sentence 14 begins at the bottom of the prior page. 15 Q. (BY MR. LEIMAN) Well, rather than 16 read -- 17 THE COURT: Mr. Leiman, do you want to 18 read that part? Maybe Mr. Dueffert will put it in 19 the record. 20 MR. LEIMAN: Well, I'm going to offer 21 the exhibit. I mean, I don't want to take up the 22 time and do it, but -- 6112 1 MR. DUEFFERT: My objection is to 2 quoting a part of a sentence and then asking the 3 witness about it. The full sentence reads "It is 4 the opinion of Ford Associates that Norwood Park 5 Lot 4 is an exceptionally good location and would 6 provide an excellent market advantage for a 7 conventional 350-room mid-range hotel if the hotel 8 itself is carefully designed to convey its 9 comparative value to both guests and area 10 executives who choose accommodations for their 11 clients and associates and the operation is 12 financially feasible with occupancy rates in the 13 first four to five years of 55 percent to 14 65 percent." 15 MR. LEIMAN: My question, I believe, 16 Your Honor, was as follows or close to it. 17 Q. (BY MR. LEIMAN) Do you know how to 18 analyze an occupancy rate of 55 to 65 percent? Is 19 that a significant figure to you, Mr. Graham? 20 A. Well, obviously, if they say that's 21 what it takes to be feasible and you're sitting at 22 50 percent, then you're not far off. I mean, I 6113 1 don't know what other analysis you want. I can't 2 finance a hotel for you. 3 Q. I understand that, Mr. Graham. My 4 question is: Do you understand the analysis that 5 goes into the economics of determining whether 6 occupancy rates at that level make the project 7 economically feasible? 8 A. No. That's why we had them do this. 9 Q. Right. And that's why you had them 10 reach the conclusion that they reached; is that 11 right? 12 A. I assume so, yes. 13 Q. Okay. 14 MR. LEIMAN: I offer T7138, Your Honor. 15 MR. DUEFFERT: No objections. 16 THE COURT: I think it's already 17 received. 18 Q. (BY MR. LEIMAN) All right. Let me 19 ask you one final question. I'm sorry. I forgot 20 to ask you this, Mr. Graham. 21 A. What page? 22 Q. Just look right at the front cover 6114 1 here. 2 A. Okay. 3 Q. I notice that this is dated June 4th, 4 1986, and that I couldn't help but notice the 5 senior loan committee and the real estate 6 investment committee had met two days prior to 7 that and approved the project without having the 8 availability of this feasibility study. 9 Would I be right in thinking that? 10 A. I think it was clearly stated in the 11 approval that we hadn't had it yet. So, I don't 12 think that's a surprise. 13 Q. Okay. T7022, please. This letter is 14 addressed you to, Mr. Graham, from Jeff Minch and 15 it's dated June 5, 1986. 16 Would you have received this letter? 17 A. I probably did, yes. 18 MR. LEIMAN: I offer T7022. 19 MR. DUEFFERT: No objections. 20 THE COURT: Received. 21 Q. (BY MR. LEIMAN) Do you remember a 22 meeting with Jenard Gross, Charles Hurwitz, Jeff 6115 1 Minch, and Frank Krasovec at which there was a 2 discussion in connection with the ownership split 3 on the Norwood Park project? 4 A. We apparently had one. I don't recall 5 the meeting specifically, no. 6 Q. Do you remember whether there was a 7 dispute in connection with the ownership split? 8 A. As I said, I really don't recall the 9 meeting whatsoever. We apparently had one. I 10 just don't recall. One of many things I did in my 11 life at that time. 12 Q. T7023, please. Mr. Graham, T7023 is a 13 letter containing a statement of interest due as 14 of 6-30-1986. It's addressed to Stephen Block, 15 trustee. 16 A. Yes. 17 Q. Is this in connection with the 18.2 and 18 2.8-million-dollar loans that had previously been 19 funded that we've looked at? 20 A. Right. And renewed. 21 Q. And renewed. Would you have seen this 22 statement of interest due? 6116 1 A. I may not have. It may have come out 2 automatically. 3 Q. When you say it would have come out 4 automatically, how does that happen or how would 5 that have happened? 6 A. Well, we billed them monthly for 7 interest and it just automatically came out of the 8 servicing group, who was servicing the loan. 9 Q. Okay. Am I reading this right that it 10 states that interest is past due for April of 11 187,946? 12 A. Correct. 13 Q. That's also true for May? 14 A. That's correct. 15 Q. Not the same number. It's a little bit 16 less? 17 A. Right. 18 Q. And it says that the loan amount, 19 principal due is 21,163,136.59. Right? 20 A. That's correct. 21 Q. As of what date was this loan to Block, 22 Gordon, Krasovec, and Minch in default according 6117 1 to this letter? 2 A. The way it was set up, probably 30 days 3 after the first delinquency. So, May sometime. 4 Q. Turn to the second page, please. This 5 borrower's statement which is attached to the 6 United Savings statement, would you have seen 7 this? 8 A. I may have. I don't recall. 9 Q. Would you have gotten a copy of the 10 borrower's statement, Mr. Graham? 11 A. Probably in the closing package, yes. 12 Q. All right. Looking at this, can you 13 tell me what the origination fee is in connection 14 with the loan? 15 A. I don't know. It looks like it was a 16 million 5,000. Then it looks like it was marked 17 through and made 105,000. 18 Q. All right. Do you know what the 19 470,000-dollar figure is near the bottom of the 20 page? 21 A. Not off the top of my head, no, I 22 don't. 6118 1 Q. Would that have been the portion of the 2 4.7 acres of the Northwest Life Insurance tract? 3 A. It may have been. I just don't recall. 4 Q. The down payment that was made? 5 A. That's probably good speculation, but I 6 can't verify it. 7 Q. And looking at the third page of the 8 exhibit, it states here that it's paid in full. 9 Am I reading that right? 10 A. Yes. 11 Q. Okay. What is this page we're looking 12 at? 13 A. I really don't have any idea. It was a 14 worksheet in a file which I don't think I had 15 seen. 16 MR. LEIMAN: Your Honor, we offer 17 T7023. 18 MR. DUEFFERT: Your Honor, we don't 19 object to the exhibit. However, the record should 20 note that the second page is dated over a month 21 after the first page and that the third page 22 appears to be dated after the second page so that 6119 1 the documents are not attached to each other. It 2 appears to be a compilation exhibit, but we would 3 not object to it being introduced as a compilation 4 exhibit. 5 THE COURT: Received. 6 Q. (BY MR. LEIMAN) T7704. Mr. Graham, 7 T7704 is a title insurance commitment by Stewart 8 Title? 9 A. Correct. 10 Q. And in this case, it is issued in 11 connection with Norwood/United Park Joint Venture. 12 You see under 1 -- 13 A. Yes. 14 Q. That would be on KM200; is that right? 15 A. No. I see it, yes, sir. 16 Q. Okay. Would you have seen a copy of 17 this? 18 A. It would be part of the closing 19 package, or it would have come subsequent to the 20 closing package. 21 MR. LEIMAN: Your Honor, we offer 22 T7704. 6120 1 MR. DUEFFERT: No objections, Your 2 Honor. 3 THE COURT: Received. 4 Q. (BY MR. LEIMAN) Look with me, please, 5 at Page 4 of this document, which is KM205, Item 6 No. 10. 7 A. 205? 8 Q. Yes, sir. 9 A. Okay. 10 Q. Listed here on Item No. 10, it talks 11 about deed of trust dated April 30, 1986, from 12 Frank Krasovec to Alan Warring, trustee? 13 A. Yes. 14 Q. Securing a promissory note in the 15 principal amount of $1.913 million and change. 16 Do you see that? 17 A. Yes. 18 Q. Would this have been a promissory note 19 intended -- in connection with the purchase of the 20 North Western Life Insurance -- 21 A. Apparently so. 22 Q. -- tract? 6121 1 A. Apparently so, sir. 2 THE COURT: Mr. Leiman, my copy does 3 not seem to have 205. 4 MR. LEIMAN: I apologize, Your Honor. 5 THE COURT: Thank you. 6 Q. (BY MR. LEIMAN) If you would, please, 7 look with me, Mr. Graham, at Page 206, which is 8 Item 11. 9 A. Yes. 10 Q. And it talks about a deed of trust of 11 May 2, 1986, from Krasovec to Pledger. 12 Who's James Pledger? 13 A. He was our in-house counsel. 14 Q. Okay. And this is in the principal 15 amount of $470,000 -- I'm sorry -- $470,831.24. 16 Looking over Item No. 11, can you tell 17 me what that figure would have been in connection 18 with? 19 A. I think that may have been the down 20 payment on the -- that we had advanced to them on 21 the payment they made to Alan Warring, trustee. 22 Q. Okay. 6122 1 A. Let me correct something I said 2 earlier. I said I may have seen this in a closing 3 statement. This is a commitment. I would have 4 received this prior to closing. 5 Q. T7024. Mr. Graham, is that your 6 signature in the lower right-hand corner of the 7 document? 8 A. Yes, it is. 9 Q. What action are you taking by virtue of 10 this document? 11 A. I'm asking the appropriate party, 12 whoever it may be -- I forgot -- with an 13 association, to issue a letter of credit to the 14 City of Austin to secure the -- our performance of 15 providing the utility -- streets, utilities, 16 gutters, drains, et cetera that we discussed 17 earlier. 18 Q. And I notice here that this was 19 approved by you. Right? 20 A. Yes. 21 Q. Okay. Would you have taken this action 22 without discussing it first with the members of 6123 1 the committee? 2 A. This was already pre-approved in the 3 loan committee approval that we agreed to issue 4 these letters in the loan approval. So, I need no 5 further action. The dollars to support this 6 letter of credit were built into the loan that was 7 already put in place. So, there was no further 8 action necessary. It had been pre-approved. 9 Q. Look at the second page, Mr. Graham. 10 It talks about LOC No. 86-4. 11 Would that have been one of the 12 markings that would have been used by -- in your 13 filing system in the real estate department of 14 United Savings? 15 A. That's -- your guess is as good as mine 16 on that. Yeah, probably. I don't know. I mean, 17 I can't tell you. But it looks like a file label. 18 That's all I can tell you. 19 MR. LEIMAN: Your Honor, we offer 7024. 20 MR. DUEFFERT: No objections. 21 THE COURT: Received. 22 Q. (BY MR. LEIMAN) T7025. Mr. Graham, 6124 1 this memorandum dated July 18th, 1986, concerns 2 Norwood loan venture to United -- a Norwood/United 3 Park to Susan Mulvey and Shirley Surgeon. 4 Did you send this? 5 A. Yes, I did. 6 Q. Looking through the rest of the 7 exhibit -- on Page 3 of the exhibit, would these 8 pages have also been attached to your memo? 9 A. I don't know if I had or not. No, I 10 can't -- I can't verify whether I had attached 11 them or not. 12 Q. Look at the second page of the memo. 13 A. Yes. 14 Q. It refers to attachments. You see 15 that? 16 A. Okay. Then I guess I may have. 17 MR. LEIMAN: Your Honor, we offer 7025. 18 MR. DUEFFERT: One moment, Your Honor. 19 No objections, Your Honor. 20 THE COURT: Received. 21 Q. (BY MR. LEIMAN) What was your purpose 22 in sending this memorandum to Susan Mulvey and 6125 1 Shirley Surgeon? 2 A. Well, I mean, after it was closed, they 3 would have to set the files up in the respective 4 areas. I think Susan was in the real estate area 5 and I think Shirley was in the accounting area and 6 they had to make the appropriate -- set the files 7 up and make the appropriate accounting entries. 8 Q. And you were instructing them what to 9 do? 10 A. Basically, yes. 11 Q. Look at the fourth paragraph starting 12 on the first page. 13 A. Uh-huh. 14 Q. Addressed to -- "Susan, obviously the 15 numbers given above as an example will change 16 slightly at closing, but you'll need to advance 17 the title company approximately $1.8 million less 18 the interest due United on the old loan estimated 19 to be $370,044.34 and the fee paid on the loan of 20 $1,045,940.09, both of which can be handled by 21 journal entries." 22 What does that mean? 6126 1 A. That means you don't have to send the 2 money to the title company. You can do it 3 internally and notify the title company. They 4 will put "POD," paid outside of closing, or "POC," 5 paid outside of closing. 6 Q. And here you go on to say that "We'll 7 need to put the fee in a suspense category since 8 we cannot book this fee at this time." 9 And then you go on to say "Actually, 10 why don't you check with Jenard to see if we 11 should even fund this fee at this time since it 12 cannot be booked?" 13 Do you know whether or not this fee was 14 funded? 15 A. No. I can't recall. 16 Q. You go on to say you advised Mister -- 17 well, the recipients, "We may be better off 18 leaving it as a reserve to be disbursed when and 19 if we sell the loan or can book the fee 20 ourselves." 21 And you go on. Near the end of the 22 memo, you say "If anything unusual occurs, please 6127 1 check with Jenard." 2 You sent a copy to him. Right? 3 A. Yes. 4 Q. Do you know what action he took in 5 connection with this? 6 A. No. 7 Q. T7027, please. 8 MR. DUEFFERT: Your Honor, once again, 9 I would ask that Exhibit T7025 be considered a 10 compilation exhibit. The document that Mr. Leiman 11 suggested is an attachment is dated about a week 12 and a half after the cover memo. 13 THE COURT: All right. 14 MR. LEIMAN: Your Honor, I don't know 15 what the significance of Mr. Dueffert's objection 16 is in calling this a compilation exhibit. The 17 exhibit was located in this form. The witness has 18 identified it and seems to remember it. 19 MR. DUEFFERT: Your Honor, it isn't 20 Bates stamped, and the witness said he didn't 21 remember if those attachments were appropriate. 22 THE COURT: All right. I'll receive 6128 1 the document. 2 Q. (BY MR. LEIMAN) Mr. Graham, this 3 July 21st, 1986 letter was sent to your attention 4 at United Savings and was signed by Rex E. Bolin. 5 Did you ever receive this letter? 6 A. I probably would have, yes. 7 MR. LEIMAN: Your Honor, I offer T7027. 8 MR. DUEFFERT: No objections. 9 THE COURT: Received. 10 Q. (BY MR. LEIMAN) Now, Mr. Graham, it's 11 about five and a half weeks after the senior loan 12 committee has -- and the real estate investment 13 committee have approved this loan. Mr. Bolin 14 indicates that he's completing a full narrative 15 R-41B appraisal and gives you preliminary draft 16 values. 17 Was that common at United Savings, to 18 obtain preliminary draft values from appraisers in 19 connection with real estate projects? 20 A. Still common. 21 Q. Mr. Graham, what would you have used 22 this letter for? 6129 1 A. Well, I mean, if this -- if an 2 appraisal of this size takes some time to type and 3 compile and put together. If he had the values 4 completed, we'd like to know what they were as 5 soon as we -- as soon as he arrives at them. I 6 mean, what we used to do, recovered assets for the 7 government, we also asked them to give us 8 verbalized values or written values prior to 9 giving us a full-bound appraisal so we'd know what 10 the values are as soon as we could to see if there 11 was an issue involved with just the overall 12 values. 13 Q. Was there any chance that the senior 14 loan committee was going to undo its approval of 15 this transaction or the real estate investment 16 committee would have undone its approval? 17 A. If the values came in significantly 18 lower than we anticipated, yeah, probably we would 19 have put a screeching halt on it and reevaluated, 20 yes. 21 Q. And that's why it was important for you 22 to have this letter. Right? 6130 1 A. It was important to know where we were, 2 yeah, that this met the criteria. 3 Q. T7028, please. This July 22, 1986 4 letter addressed to you from Rex Bolin concerns 5 the Norwood Park property. Have you -- would you 6 have received this letter? 7 A. I probably would have, yes. 8 Q. You have no reason to think you didn't 9 get it? 10 A. No. No reason to think I didn't. 11 MR. LEIMAN: Your Honor, I offer 7028. 12 MR. DUEFFERT: No objection. 13 THE COURT: Received. 14 Q. (BY MR. LEIMAN) Now, my question on 15 this letter is: What was the purpose of Mr. Bolin 16 appraising the 62.5 percent joint venture interest 17 of United Financial Corporation? 18 A. I can't really answer why we did this, 19 other than we were trying to figure out maybe an 20 internal rate of return. I don't recall why we 21 did this. This was not typical. 22 Q. Would this have been done in connection 6131 1 with getting a usury opinion from counsel? 2 A. No. It has nothing to do with the 3 usury whatsoever. 4 Q. Look with me, please, at the second 5 paragraph. It states that "We have applied a 6 25 percent discount to the value to reflect the 7 market conditions and lack of liquidity." Right? 8 A. Yes. 9 Q. Did you rely upon Mr. Bolin's expertise 10 in preparing these figures? 11 A. Pretty much. 12 Q. Mr. Graham, this is a -- this purports 13 to be an appraisal of Norwood Park, 99.4311 acres 14 in Austin, Texas, prepared for you by a Rex Bolin 15 as of June 5, '86, and it would have been 16 transmitted on July 22, 1986. 17 A. Yes. 18 Q. Did you get this report? 19 A. I assume we did, yes. 20 Q. Mr. Graham, looking at the front cover 21 of this, it appears that Mr. Bolin was a Houston, 22 Texas appraiser. Right? 6132 1 A. Well, I recall him being in Austin; but 2 he may have been a Houston appraiser. 3 Q. Given all of the quirkiness of real 4 estate development in the Austin market that you 5 previously testified to, why didn't you use an 6 Austin appraiser? 7 A. Well, as I said before, he had done the 8 original appraisal on the property and I think we 9 were satisfied with his knowledge of the property 10 and the area and the history of the tract. That's 11 the best I can give the reason at this time. 12 Q. Okay. Look at the second page, the 13 letter to you. 14 A. Okay. 15 Q. The second full paragraph states "The 16 value conclusions represented in this report are 17 subject to the completion of the development for 18 the purpose of sale and use." 19 What does that mean? 20 A. That means -- that's what any appraiser 21 would put in when the appraisal is on something to 22 be done. I mean, he's appraising a finished 6133 1 product. So, he's going to put that stipulation 2 in there or this appraisal has no merit. 3 Q. Do you mean to say he's appraising the 4 property as if it were fully zoned, platted, and 5 subdivided? 6 A. Certainly, yes. 7 Q. That's the condition in which he's 8 appraising it? 9 A. Right. That's what we asked him for. 10 Q. Uh-huh. Look at Page 12 of the 11 document. 12 A. Are you talking about the picture? 13 Q. No, sir. 14 A. What -- 15 Q. It's Bates OW015002 on the left side 16 and Page 12 on the right side. 17 A. Oh, I'm sorry. I just went to 11, the 18 next page. Sorry. 19 Q. Under "neighborhood data," was it your 20 understanding that Mr. Bolin was defining the 21 neighborhood as northeast Austin? 22 A. I assume so, yes. 6134 1 Q. If you'll recollect, a little bit 2 earlier we looked at the City of Austin which 3 itself defined northeast Austin as being a 4 24-square-mile area. 5 A. Yes. 6 Q. Is it significant that the neighborhood 7 that Mr. Bolin is describing is 24 square miles? 8 A. Well, I mean, those are two different 9 animals. Austin can call whatever they want 10 northeast, and the appraiser and the appraisal 11 industry probably has different definitions. They 12 don't have to concur. 13 Q. All right, sir. Would you look with 14 me, then, at the second full sentence in that 15 third paragraph. Talking about the Austin central 16 business district is located near the 17 southern-most boundary of northeast Austin -- I 18 take it to mean that -- which is about 5 miles 19 from the subject property. 20 Would I be right in thinking then that 21 he's defining the neighborhood to be at least 22 5 miles long? 6135 1 A. Well, 5 miles more towards the city 2 core, yes. 3 Q. So, it's -- 4 A. You read it well, yes. 5 Q. It's a 5-mile-long neighborhood? 6 A. No. That doesn't mean -- it just means 7 that he starts his definition of that closer to 8 downtown than the City does. That's the only 9 thing I see different here. 10 Q. All right. Near the bottom of the 11 page, Mr. Graham, he talks about "According to the 12 fourth quarter 1985 growth watch report," and he 13 quotes from that. You see that? 14 A. Yes. 15 Q. Looking once again at Exhibit T7651, 16 did you inquire as to why Mr. Bolin did not have 17 available to him or didn't use, at any rate, the 18 information contained and put out by the City of 19 Austin northeast inventory March 86? 20 A. No. 21 Q. Okay. Would you look with me, please, 22 at Page 31, which is OW015056. 6136 1 A. This is land sale No. 9? 2 Q. No, it's not. It says "profit" as the 3 header, and that's Page OW015056. 4 A. Well, my numbers on the left-hand side 5 are out. That's why I'm having trouble. 6 Q. Okay. It shows Page 51 on the right 7 side. 8 A. Okay. That's what I needed. Okay. 9 Q. See in the first line there under -- 10 right after "profit," it says "entrepreneurial 11 profit has been set at 12 percent"? 12 A. Yes. 13 Q. Do you know what the purpose of using 14 an entrepreneurial profit in connection with an 15 appraisal is? 16 A. Other than -- I don't recall, other 17 than the appraiser does give value to the 18 profitability. 19 Q. To determine whether to add a profit 20 factor in? 21 A. Yes. 22 Q. Basically because people don't work for 6137 1 nothing? Is that it? 2 A. I assume that's the case. 3 Q. Would you have inquired as to why 4 Mr. Bolin used a 12 percent profitability factor 5 in connection with the calculations he made 6 regarding this appraisal? 7 A. I can't recall what was typical at that 8 time. If it was typical, I wouldn't require it. 9 If it was unique, I may have required it. I just 10 don't recall what we had seen in other appraisals. 11 Q. Do you remember what the interest rate 12 on the loan was that United made for $30 million 13 to Norwood Park? 14 A. It was prime plus something. 15 Q. Let's look again, then, at 16 Exhibit T7023. 17 A. Well, I mean, I'll believe whatever it 18 is. Just tell me. 19 Q. I don't want to pull a fast one on you, 20 Mr. Graham. 21 A. Which one are we looking for? 22 Q. It's T7023. And what that is is a 6138 1 statement of interest due. And it sets out right 2 there the interest rate that's being charged for 3 June 1, '86, through June 30, '86, by United 4 Savings. 5 A. 10.5? 6 Q. Yes, sir. 7 A. Okay. 8 Q. I guess my question to you is: Would 9 it be sufficient profitability in terms of 10 percentage to allow for an additional 1 and a half 11 percent over what you're charging on the loan in 12 connection with developing a profit? 13 A. They are totally unrelated issues. The 14 entrepreneur is basically what kind of return a 15 developer -- an investor would want on his money. 16 Interest rate is what a lender gets on his return 17 for his money. Those are unrelated issues. 18 Q. They are? 19 A. Yes. In my opinion, they are. 20 Q. Okay. Let's look at Page 52. And 21 let's look at the discount rate that Mr. Bolin 22 uses. You see the last paragraph? What is the 6139 1 discount rate that Mr. Bolin is using? 2 A. 10 percent. 3 Q. Do you have an opinion as to whether 4 10 percent is a sufficient or adequate discount 5 rate? 6 A. Well, we've reached a point where 7 you're getting beyond my expertise in appraisals. 8 I'm not an appraisal expert. And since we now use 9 third-party appraisers to review appraisals, I 10 don't even spend a lot of time reviewing them. We 11 have in-house appraisal reviewers now, which we 12 didn't in those days. 13 So, I can't tell you all the 14 ramifications of these numbers and what they mean 15 and whether they were relative to the market, 16 whether typical or what. You need to get an 17 expert to do that. 18 Q. Well, I actually have a relatively 19 simple question for you on this, and I don't need 20 you to explain -- 21 A. Okay. 22 Q. If you look at Exhibit T7028. 6140 1 A. Give me the number on the other side. 2 Q. It's on the same side. It's -- as -- 3 it's 7028. It's another exhibit. 4 A. I don't have those numbers down here, 5 see? 6 Q. I understand. Mr. Graham, it's in the 7 pile. 8 A. Oh, what -- 9 Q. 7028. I think it was the prior 10 exhibit. Look at the discount rate that's applied 11 by Mr. Bolin himself. 12 A. But that's -- once again, that's to the 13 profitability level, not to the entire tract. And 14 I can't explain why, necessarily, he would have 15 different profit -- different discounts, but there 16 must be a reason. I can't explain why, but it's 17 not apples and oranges. You've got one for 18 entrepreneur profit and one for the actual land 19 and land development. 20 Q. All right. One last question in this 21 regard, if you would. Look at Page 33 of the 22 Bolin appraisal. 6141 1 A. 33? 2 Q. Yeah. 3 A. That's my right-hand side? 4 Q. Yes. 5 A. Okay. 6 Q. You see Mr. Bolin applies a rate 7 applicable to investment of 10 percent? 8 A. Yeah. Well, we're on the wrong page 9 again. I was using the right-hand side. I don't 10 have a left-hand side for numbers. So, what do 11 you have? 12 Q. Page 53. 13 A. 53. Okay. Yes, sir. 14 Q. My question is whether you feel it's 15 significant that Mr. Bolin applied a 10 percent 16 rate of investment in connection with the 17 appraisal when, in fact, United was charging 10 18 and a half percent on the loan it made. 19 A. Well, once again, we're a lender. Our 20 rate floats. This is a rate of -- applicable to 21 an investment and the return of investment would 22 achieve. Those are two different animals. I want 6142 1 to continue to say that. Ours was a prime plus 2 rate. Ours would float to market. It happened to 3 be 10 and a half at the time we did this 4 appraisal. It could be 8 and a half, you know, a 5 year later. You're asking me to talk about issues 6 I'm not that sophisticated about. And so, I'm not 7 going to venture any kind of speculative guess. 8 Q. Do you happen to know whether Mr. Gross 9 was knowledgeable about this area? 10 A. Well, that's a good question. You'd 11 have to ask Mr. Gross. 12 Q. You wouldn't know? 13 A. No. 14 Q. Were appraisals discussed in the senior 15 loan committee? 16 A. I think, like I said, it's one of the 17 many ingredients. We probably talked about them. 18 Q. Okay. Let's look, please, at the 19 attachment to this exhibit. 20 A. To the appraisal? 21 Q. Yes, sir. 22 A. Okay. 6143 1 Q. And this bears -- the page I'd like you 2 to turn to, actually, is 15090. 3 A. I can see that. 4 Q. Do you have that page? 5 A. Is this a cost breakdown? 6 Q. Yes. It's a cost breakdown. 7 A. Okay. 8 Q. Okay. Do you see there are various 9 subtotals for civil, parts, softscape, 10 construction estimate, and then there is a total 11 project construction cost? Do you see that? That 12 would be on Page 91. 13 A. 91? 14 Q. Yeah. 15 A. Yes. 16 Q. What is the significance of the fact 17 that what's projected here as total project 18 construction cost of $4.5 million when compared 19 with the fact that there has been a 20 30-million-dollar loan made? 21 A. You'd have to run that question by me 22 again. What are you asking? 6144 1 Q. What's the significance of a 2 4-and-a-half-million-dollar construction budget -- 3 A. Well, the construction budget -- 4 Q. -- in connection with the 5 30-million-dollar loan? 6 A. Well, the construction budget was the 7 dollars that were in the budget to build the 8 streets, utilities, and other improvements on the 9 tract. I don't know how else to answer that 10 question. I mean, those are the dollars that were 11 to improve the property. 12 Q. Well, Mr. Graham, the total amount of 13 money that was committed to the Norwood Park was 14 $39.4 million. Right? 15 A. That's correct. 16 Q. 9.4 million in equity. $30 million 17 would have been by way of a loan. Right? 18 A. Correct. 19 Q. Total construction costs here were 20 projected at $4 and a half million. 21 What was the rest of the money going to 22 be used for? 6145 1 A. I thought the loan approval pretty well 2 spelled it out. There was land, engineering, 3 fees, and other costs. I mean, this is only one 4 agreement. I think the loan approval spelled out 5 how the budget was -- how the dollars were going 6 to be allocated. 7 Q. And it was not significant that the 8 amount of construction would have only been 4 and 9 a half million? 10 A. It's only significant in that it was 11 adequate to get the job done. 12 Q. Okay. 7030. This is a July 25, 1986 13 North Western Life Insurance Company letter 14 directed to United Savings. 15 Would you have seen this document 16 before? 17 A. I may have. 18 Q. Looking at the "re" section in this, it 19 talks about an April 30, 1986 original principal 20 loan of $1.9 million executed by Frank Krasovec. 21 Right? 22 A. Yes. 6146 1 Q. And that's payable to National Western 2 Life? 3 A. Correct. 4 Q. Was that a loan that United Savings 5 made? 6 A. No. It was seller financing. 7 Q. So, it would have been made by National 8 Western Life? 9 A. Yes. 10 Q. And would United Savings have provided, 11 by way of a loan, part of the down payment? 12 A. We may have. 13 Q. We looked earlier at a closing 14 statement, approximately $470,000 that would have 15 been paid. 16 Does that appear to be the down payment 17 that would have been made in connection with this 18 tract? 19 A. As I said then, it could be. 20 MR. LEIMAN: Your Honor, I offer T7030. 21 MR. DUEFFERT: No objection. 22 THE COURT: Received. 6147 1 MR. LEIMAN: Additionally, I evidently 2 have once again failed to offer the previous 3 exhibits, another exhibit. T7029. 4 MR. DUEFFERT: No objection. 5 THE COURT: Received. 6 Q. (BY MR. LEIMAN) T7538. 7538, 7 Mr. Graham, is a borrower's settlement statement. 8 A. Yes, sir. We've seen this before. 9 Q. This statement also attaches a copy of 10 the title policy in connection with Norwood Park. 11 Have you seen that? 12 A. Well, it attaches a portion of the 13 title policy. 14 Q. Yes, sir. That is correct. Thank you. 15 Would you have seen this before? 16 A. I may have, yes. 17 Q. Would that be part of the loan files of 18 United Savings? 19 A. It's part of the closing package 20 typically, yes. 21 MR. LEIMAN: Your Honor, I offer 7538. 22 MR. DUEFFERT: No objection. 6148 1 THE COURT: T7538 is received. 2 Q. (BY MR. LEIMAN) 7032. Mr. Graham, 3 this is a letter of July 29th, 1986, addressed to 4 you, unsigned from David Kim Taylor. 5 Would you have received this letter? 6 A. I may have -- 7 MR. DUEFFERT: Mr. Leiman, we didn't 8 receive this. If you can just give us one copy. 9 A. I may have, yes. 10 Q. (BY MR. LEIMAN) Looking at the very 11 first sentence, it talks about "Enclosed please 12 find a copy of the closing statement" and it talks 13 about corresponding revision to the budget and 14 advanced schedule dated July 29th? 15 A. Yes. 16 Q. Paragraph No. 2 talks about funding on 17 July 30th, 1986. The Norwood Park 18 30-million-dollar loan would have closed on or 19 about July 30th, 1986, wouldn't it? 20 A. It would have closed on July 29th. 21 Q. And the -- looking at Page 2 of this 22 exhibit, total for initial advance in 6149 1 distributions was $24,084,911.20 on July 30, 1986? 2 A. Yes. 3 MR. LEIMAN: Your Honor, I offer T7032. 4 MR. DUEFFERT: Your Honor, it's again 5 an unsigned letter. It doesn't bear a Bates 6 stamp. And the closing number cited in the first 7 sentence on Page 2 doesn't agree with the closing 8 number on the settlement statement. 9 So, I would object to having this 10 introduced as evidence absent creating a 11 foundation. 12 MR. LEIMAN: Your Honor, once again, I 13 believe Mr. Graham's identified the exhibit. 14 THE WITNESS: No. I said I may have 15 seen it. 16 Q. (BY MR. LEIMAN) Mr. Graham, do you 17 have any reason to think that you didn't receive 18 this letter? 19 A. No. There is no reason I would not 20 have thought that, yes. No reason I would not 21 have received it. 22 Q. Who's David Taylor? 6150 1 A. I think he was the Norwood gentleman 2 assigned as project manager for this project. But 3 it is interesting the number they asked -- they 4 talk about -- the 24 million 084 on this page does 5 not correspond to the number on the attachment 6 which is 24 million 788. So, there is not even a 7 consistency there. 8 THE COURT: I'll receive the document. 9 Q. (BY MR. LEIMAN) Finally, in 10 connection with this Norwood Park transaction, 11 I'll ask you about T7033. 12 Mr. Graham, 7033 is a July 29th, 1986 13 joint venture agreement involving Norwood/United 14 Park. If you look at Page 38, it appears to bear 15 your signature. I'd like you to identify that. 16 A. That is my signature. 17 MR. LEIMAN: Your Honor, we move T7033. 18 MR. DUEFFERT: No objection. 19 THE COURT: Received. 20 MR. LEIMAN: Your Honor, that concludes 21 my questioning in connection with the Norwood Park 22 transaction. I have some additional questions for 6151 1 the witness regarding Park 410 which should not 2 take too long. But I'm told by my co-counsel that 3 I'm the worse estimator of time in the world. But 4 I will attempt to finish in half an hour. 5 THE COURT: All right. Proceed. 6 MR. LEIMAN: Can we take a brief 7 five-minute recess and I will get those materials? 8 THE COURT: All right. We'll take a 9 short recess. 10 11 (A short break was taken 12 at 4:31 p.m.) 13 14 THE COURT: Be seated, please. We'll 15 be back on the record. 16 Mr. Leiman, you may continue. 17 MR. LEIMAN: Thank you, Your Honor. 18 (4:41 p.m.) 19 Q. (BY MR. LEIMAN) Mr. Graham, I'd like 20 to ask you a couple of questions regarding Park 21 410 and, specifically, the first exhibit I'd like 22 to show you is T7174. 6152 1 Mr. Graham, do you recognize this 2 letter of credit? 3 A. I don't recall it; but I mean, it's 4 from United Savings, yes. 5 Q. It's dated March 29th, 1985, an 6 irrevocable letter of credit, 8504, for the 7 account of Stanley D. Rosenberg, joint venturer of 8 Park 410 West Joint Venture, for drawing up to 9 $2 million in funds. 10 Am I right? 11 A. Yes. 12 Q. Do you have any reason to think United 13 Savings didn't issue this? 14 A. No. 15 Q. This would have been issued in 16 connection with the joint venture in which United 17 Savings Association would have taken a 50 percent 18 interest of Mr. Rosenberg's 50 percent interest in 19 the joint venture in 1985 in Park 410. Right? 20 A. I think that's a safe assumption, yes. 21 MR. LEIMAN: Now, we will seek to 22 replace this with a copy without the handwriting, 6153 1 Your Honor. But I would offer Exhibit 7074 and 2 would ask that the handwriting be disregarded. 3 MR. DUEFFERT: No objections. 4 THE COURT: Received. 5 Q. (BY MR. LEIMAN) 7054. Mr. Graham, 6 this is a March 29th, 1985 document which is a 7 wrap-around promissory note in the amount of 8 $17 plus million in connection with Park 410 West 9 Joint Venture. 10 MR. EISENHART: Your Honor, may we know 11 the exhibit number? I'm not sure anybody here 12 heard it. 13 THE COURT: T7054. 14 MR. EISENHART: Thank you, Your Honor. 15 Q. (BY MR. LEIMAN) Mr. Graham, if you 16 would, please, look at the fifth page of the 17 exhibit. 18 A. Yes, sir. 19 Q. It says Stanley -- this would have been 20 the -- one of the promissory notes that was given 21 by, among others, Stanley Rosenberg and John 22 Grieshaber, Noel Simpson in connection with 6154 1 purchasing the Alamo property. 2 A. Apparently so, yes, sir. 3 Q. The Park 410 property. Would this have 4 been in your -- in United Savings' records? 5 A. At some point it may have been, yes. 6 Q. As a co-venturer? 7 A. Yes. 8 Q. All right. If you go down into the 9 documents here, you see a wrap-around deed of 10 trust as the next document. 11 A. Okay. 12 Q. And there are additional documents 13 contained in this packet, all of which relate to 14 this 17-million-dollar wrap-around loan? 15 A. Right. 16 Q. Engineering report? 17 A. Yes. 18 MR. LEIMAN: Your Honor, we offer 19 T7054. 20 MR. DUEFFERT: No objection. 21 THE COURT: Received. 22 Q. (BY MR. LEIMAN) T7108. Mr. Graham, 6155 1 7108 is a settlement statement in connection with 2 the Park 410 West Joint Venture. And this would 3 have been for a settlement date March 29th, 1985. 4 Am I right? 5 A. It appears to be, yes. 6 Q. And would this have been a document 7 that would be kept in the files of United Savings? 8 A. It should be, yes. 9 MR. LEIMAN: Your Honor, we offer 10 T7108. 11 MR. DUEFFERT: No objections. 12 THE COURT: Received. 13 Q. (BY MR. LEIMAN) T7077. Mr. Graham, 14 this is a February 6th, 1986 letter bearing what 15 appears to be your signature on the third page of 16 the document directed to Mr. Noel Simpson, Gulf 17 Management Resources, Inc. 18 A. Correct. 19 Q. And this would be a February 6, '86 20 letter in which you address a number of items. 21 What was the purpose of this letter? 22 A. I have no idea until I read it. 6156 1 Q. All right. Take your time and read it, 2 sir. 3 A. (Witness reviews the document.) Okay. 4 Q. Have you finished reading it, 5 Mr. Graham? 6 A. Yes, I have. 7 Q. Okay. What was the purpose of your 8 letter? 9 A. This was during the negotiations to 10 discuss several issues that were apparently still 11 in discussion. One was the -- how much equity, 12 the release prices, different issues of that 13 nature. I mean, that type of conversation was 14 ongoing as you negotiate a loan. 15 Q. Turning to Page 1 of the exhibit, 16 looking the first paragraph, you state that you 17 first addressed the appraisal question? 18 A. Yes. 19 Q. And here you proposed to make -- United 20 proposes to make a 79-million-dollar loan? Is 21 that what was proposed? 22 A. At this point, yes. 6157 1 Q. Okay. You state that "We will need 2 and, quite frankly, we should not have a major 3 problem obtaining, based on your sales projections 4 of $120,289,938 an appraisal indicating a 41B 5 regulatory value of $98 million, which would 6 indicate the loan be 80 percent of the appraised 7 value which is typical." 8 You go on to say "I really do not 9 believe Ed Schulz should have a problem achieving 10 this figure or at least something close to it." 11 What did you base that statement on? 12 A. My own personal estimate. 13 Q. Your own personal estimate, Mr. Graham, 14 of what? 15 A. Of typically what -- when I saw sales 16 of that magnitude, what the ultimate discount 17 appraised value would come close to. I was wrong. 18 It was much lower than that. 19 Q. The appraised value was lower than 20 80 percent? 21 A. Lower than 98 million. That was just 22 my estimate at the time. 6158 1 Q. Is there any significance to the fact 2 that this was being directed to Ed Schulz? 3 A. What do you mean, "being directed to Ed 4 Schulz"? 5 Q. You state "I really do not believe Ed 6 Schulz should have a problem achieving this 7 figure." 8 A. It wasn't directed to Ed Schulz. This 9 is my comment. 10 Q. Perhaps I misspoke. Why did you say 11 that you don't believe that Ed Schulz would -- 12 A. Ed Schulz is meaningless. I don't 13 think -- I, at that time, didn't think any 14 appraiser would have a problem. I mean, Ed Schulz 15 just happened to be the one doing the appraisal. 16 But I didn't think any appraiser would have a 17 problem reaching that number. That was my 18 estimate. 19 Q. Was Ed Schulz an appraiser that United 20 Savings had used in the past? 21 A. Yes, he has. We were very comfortable 22 with him, yes. 6159 1 Q. What do you mean by "comfortable"? 2 A. I mean, we thought he did a very, very 3 good, very conservative job. We were very pleased 4 with his work. He's still, by our association, 5 now one of our two top appraisers. 6 Q. And he's here in Houston? 7 A. Yes. 8 Q. Did you consider the fact that he 9 was -- that the property in question was in 10 San Antonio? 11 A. We did. And my concern was we had no 12 familiarity with any San Antonio appraiser. We 13 were concerned that we would get what we 14 considered sound, conservative numbers and we were 15 comfortable with Ed's work and knew he provided 16 that. And that was a great enough comfort level 17 that we were willing to use a Houston appraiser. 18 Q. Okay. I see you sent a copy to Stanley 19 Rosenberg and Ken Gindy. 20 A. Yes. 21 Q. And Charles White and John Grieshaber? 22 A. Uh-huh. (Witness nods head 6160 1 affirmatively.) 2 Q. Next exhibit is T7496. 3 MR. LEIMAN: Your Honor, I offer T7077, 4 which was the February 6, '86 letter from Graham 5 to Simpson. 6 MR. DUEFFERT: No objections. 7 THE COURT: Received. 8 Q. (BY MR. LEIMAN) Mr. Graham, I'd like 9 to ask you about the second page of this exhibit. 10 A. Yes. 11 Q. Specifically, I'd like to inquire as to 12 whether or not this refreshes your recollection as 13 to whether you attended a meeting on November 8th, 14 1985, at the offices of Love & Dugger? 15 A. As I told you before, I do not recall 16 that meeting whatsoever. For some reason, that 17 just -- I do not have any recollection of that 18 meeting. 19 Q. Do you remember ever discussing with 20 Mr. Gerald Schulz and Mr. Richard Dugger an 21 appraisal in the amount of $75 million? 22 A. No. 6161 1 Q. Did you ever have a belief that you 2 needed a 75-million-dollar appraisal in connection 3 with the loan to be made on Park 410? 4 A. I don't recall what we needed. I mean, 5 I don't recall that number, no. 6 Q. And you don't remember this meeting; is 7 that right? 8 A. I really don't remember this meeting. 9 Q. Okay. T7082. T7082, Mr. Graham, is an 10 application for construction acquisition and 11 development loan. It's being made by the Park 410 12 West Joint Venture in connection with some 13 388 acres in San Antonio. 14 Have you seen this document before? 15 A. Yes. 16 Q. When would you have seen it? 17 A. Whenever the date indicates. In March 18 of '86. 19 Q. Mr. Graham, Item No. 4 is listed as a 20 loan amount of $80 million. 21 Do I read it correctly that that's the 22 amount that the borrower is requesting to borrow 6162 1 from United Savings? 2 A. In an application manner, yes. 3 Q. All right. 4 A. He's applying for it, yes. 5 Q. And that the loan fees in connection 6 with this would be 3 percent; is that right? 7 A. That is correct. 8 Q. Would these numbers have been 9 negotiated with the borrower prior to the 10 submission of this application on March 4, 1986? 11 A. Maybe to some degree. Whether or not 12 we had finalized negotiations, I can't tell you. 13 But we probably have talked in general terms by 14 this time, yes. 15 Q. Look at Item No. 14 on Page 2, 16 Mr. Graham. It states at the bottom of the page 17 in Item No. 2 that "Until board of directors 18 approval is obtained, only $70 million can be 19 advanced." 20 A. That's correct. 21 Q. Do I take it then that, in light of 22 your earlier testimony, it was consistent with the 6163 1 policy set out by the board of directors that 2 although a loan could be approved for $80 million 3 by the senior loan committee, the maximum funding 4 would be limited to $70 million? Is that how 5 you -- is that what your testimony was? 6 A. Something of that nature. I mean, once 7 again, we couldn't fund a loan greater than 8 70 million on authority of the senior loan 9 committee. 10 Q. But you could approve a loan of 80? 11 A. Well, it wasn't approved. It was 12 approved subject to the board. That's clearly 13 what this also says. It's subject to the board. 14 I mean, I think that's clear. 15 MR. LEIMAN: Your Honor, I offer T7082 16 into evidence. 17 MR. DUEFFERT: No objections. 18 THE COURT: Received. And you withdrew 19 and did not offer 7496? Is that it? 20 MR. LEIMAN: I may have forgotten to do 21 that, Your Honor. I'm sorry. I do offer 7496. 22 MR. DUEFFERT: We object to that 6164 1 exhibit. There are handwritten notes. They are 2 not the witness'. He does not know -- 3 THE COURT: Sustained. 4 Q. (BY MR. LEIMAN) T7081. Mr. Graham, 5 are you familiar with the form and style of this 6 exhibit, which is a construction loan checklist 7 acquisition/development construction loan for 8 United Savings? 9 A. I am familiar with the form, yes. 10 Q. Looking at the contents of the borrower 11 of Park 410 West Joint Venture, the loan amount of 12 $80 million, do you believe that this came from 13 the files of United Savings? 14 A. I assume it did. 15 MR. LEIMAN: We offer T7081, Your 16 Honor. 17 MR. DUEFFERT: No objection. 18 THE COURT: Received. 19 Q. (BY MR. LEIMAN) Look with me, please, 20 Mr. Graham, about three-quarters of the way down 21 the page. It talks about appraised value of 22 $88 million right under "appraisal." 6165 1 A. Yes. 2 Q. It states a loan ratio of 90.9 percent; 3 is that right? 4 A. Well, that's what she has written in 5 there, yes. 6 Q. Who would have written this? 7 A. Karen Wymans apparently filled this 8 out. 9 Q. Who would have told her what to put in 10 there? 11 A. No one told her. She would have done 12 her own calculation. What she missed was the 13 additional collateral and the value it added to 14 the collateral. So, the total collateral value 15 was the appraisal plus the cash that was placed. 16 So, we work off that. She just overlooked that. 17 Q. She overlooked the fact that -- 18 A. We had additional hard cash collateral 19 that also was in the equation of value. 20 Q. Are you referring here to the letters 21 of credit which -- 22 A. Correct. 6166 1 Q. -- which would have been in the amount 2 of $10 million? 3 A. Correct. 4 Q. And it's your position -- your 5 testimony, I guess, that you would have added 6 those letters of credit to the loan ratio? 7 A. That's our collateral. Certainly, yes, 8 you would. 9 Q. That's not equity? That's collateral? 10 A. That's collateral. 11 Q. Okay. Good. And that would be -- she 12 was wrong in calculating the loan ratio in her 13 appraisal? 14 A. Yes, I would say she did miscalculate 15 it, yes. 16 Q. Ms. Wymans is the same person who 17 recommended the Norwood loan along with you, one 18 of the Norwood loans? 19 A. Yes. She had worked on it, yes. And 20 if she had looked at the loan approval we would 21 have had, she would have seen the difference. 22 Q. Look at the second page of the exhibit, 6167 1 please, about three-quarters of the way down. 2 A. Yes. 3 Q. It talks about the disbursement ledger. 4 See that? And then below that, it says "dates." 5 A. Okay. Let me find out where you are. 6 Which page are you on? 7 Q. The second page of the exhibit. It's 8 200 -- 9 A. Okay. I see it. 10 Q. See the reference to dates? 11 A. Yes. 12 Q. It states that this loan was closed on 13 April 17th, 1986. Right? 14 A. I assume so. 15 Q. It was funded on April 17th, 1986, in 16 the amount of $45,617,000 and -- strike that. 17 $45,617,766 and some cents. Right? 18 A. That's correct. 19 Q. This loan was approved in March, right, 20 1986? 21 A. Best of my recollection. 22 Q. Funds were advanced in April, middle of 6168 1 April 1986? 2 A. That's what apparently happened, yes. 3 Q. And the board of directors approved the 4 loan in May of 1986? 5 A. They approved the ability to go to 6 80 million in May of '86. 7 Q. Let me ask you something, Mr. Graham. 8 Could the board of directors have taken action to 9 negate this loan? 10 A. They could have negated the increase, 11 yes. 12 Q. But they, in your opinion, could not 13 have negated the 45-million-dollar funding? 14 A. No. We had approved a 15 70-million-dollar funding. That was within the 16 authority of the senior loan committee. What was 17 not in our authority was the ability to increase 18 the loan to 80 million. That was subject to the 19 board approval. 20 Q. I'd like to ask you just a couple of 21 questions on these appraisals. I know I do it at 22 my peril, Mr. Graham. 6169 1 THE COURT: Would you speak up? I 2 can't hear you. 3 MR. LEIMAN: Yes. I know I do this at 4 my peril at this late hour, but I just have one or 5 two questions on each appraisal document. This is 6 T7084. You have that in your binder, Your Honor. 7 THE COURT: Yes. 8 MR. LEIMAN: This is the Ed Schulz 9 appraisal. 10 Q. (BY MR. LEIMAN) Mr. Graham, would 11 you -- first of all, can you identify this 12 appraisal? 13 A. Yes. 14 Q. You would have received a copy of this 15 document from Mr. Schulz in connection with the 16 appraisal of the Park 410 West property? 17 A. Yes, I would have. 18 Q. Now, the appraisal appears to have been 19 transmitted on March 19th, 1986. Would that be 20 right? 21 A. That's the date of the cover letter. I 22 don't know if that's the date we received it. 6170 1 Q. Do you know what the "as of" date of 2 the appraisal is? 3 A. February 17th, '86. 4 Q. Okay. 5 MR. LEIMAN: Your Honor, we offer 6 T7084. 7 MR. DUEFFERT: Your Honor, we have no 8 objection to the document. This version of the 9 document has, after Page 40, several pages from a 10 loan application. I know that there are numerous 11 other copies of the document that don't have that. 12 So, I can only think that that was a mistake in 13 Bates numbering this particular version. I would 14 suggest that we swap in a cleaner version of the 15 document for the record. 16 MR. LEIMAN: I have no problem with 17 doing that, Your Honor. 18 THE COURT: All right. Received 19 subject to substitution if somebody has a better 20 copy. 21 Q. (BY MR. LEIMAN) Mr. Graham, look with 22 me at the third page of the document. 6171 1 A. Salient facts? 2 Q. Yes. Summary of salient data. 3 Question is, sir: Do you know where -- look at 4 "net sales proceeds." 5 A. Yes. 6 Q. Where would Mr. Schulz -- do you have 7 any knowledge as to where Mr. Schulz would have 8 obtained the information on net sales proceeds of 9 $114 million plus? 10 A. Typically, an appraiser talks with a 11 developer to get his projections and then he 12 analyzes those projections and works his own 13 numbers off those. But he has to have some point 14 to start with to know what is being proposed. 15 Q. Do you think he talked to the 16 developer? 17 A. Oh, an appraiser talks to a developer 18 on every appraisal we do. How else is he going to 19 get the developer's game plan of what he plans to 20 do with the property? You just can't go out there 21 and make your own mind up about what's going to 22 happen. 6172 1 Q. Okay. Mr. Graham, would you look at 2 Page 1, which is US5891? 3 A. Okay. 4 Q. It says "The purpose of the appraisal 5 is to estimate the fair market value of the 6 proposed development as if sold to one purchaser." 7 A. Yes. 8 Q. Mr. Graham, was it the expectation of 9 the senior loan committee and yourself that Park 10 410 would be sold to one purchaser? 11 A. No. But it's a more conservative way 12 to appraise it. 13 Q. It is? 14 A. Yes. 15 Q. Are you sure of that? 16 A. That's always been my understanding. 17 Q. Okay. Page 28. Look at the middle 18 paragraph. Mr. Graham, what did you believe the 19 significance of the impact of the Sea World 20 development would be on Park 410? 21 A. I thought we had covered that in detail 22 yesterday. Personally, I thought it would have a 6173 1 greater impact than it did. I think my testimony 2 yesterday stands. 3 Q. All right. Finally, Mr. Graham, in 4 connection with the Schulz appraisal, if you would 5 look at US5952, which is OW15468. 6 A. 52? Okay. 7 Q. When you stated earlier that the 8 appraiser would have consulted with the developer 9 in obtaining projections, are these the kind of 10 projections that you were referring to? 11 A. No. These are probably his 12 projections. 13 Q. And where would he have gotten the data 14 to calculate -- 15 A. You'd have to ask him. I didn't do the 16 appraisal. 17 Q. Would that -- 18 A. I don't know. 19 Q. Turn to T7127. Mr. Graham -- 20 A. Yes, sir. 21 THE COURT: Continue, Mr. Leiman. I 22 wasn't aiming at you. 6174 1 MR. LEIMAN: Okay. 2 Q. (BY MR. LEIMAN) This is an 3 October 1985 study -- feasibility study by Tremar 4 Real Estate Research, an Analysis of Market 5 Potential of Park 410 West Development. 6 Have you -- do you remember receiving a 7 copy of this? 8 A. I probably did. 9 Q. Do you have any reason to think you 10 didn't receive this? 11 A. No. I don't have any reason. 12 MR. LEIMAN: Your Honor, we offer 7127. 13 MR. DUEFFERT: No objection, Your 14 Honor. 15 THE COURT: Received. 16 Q. (BY MR. LEIMAN) If you would, 17 Mr. Graham, turn to Page 35 of the appraisal. 18 It's in the upper right-hand corner. It's -- 19 A. Of the study? 20 Q. Of the study, yes. I'm sorry. 21 A. Okay. This is a plat map? Okay. 22 Q. Figure Roman IV-1 is a location map 6175 1 with competitive mixed-use developments on it. 2 Right? 3 A. Correct. 4 Q. And it lists here some ten 5 developments; is that right? 6 A. Yes. 7 Q. The feasibility study states that these 8 are the competitive mixed-use developments that 9 would be competing with Park 410; is that correct? 10 A. Correct. 11 Q. All right. Look back at Page 27, 12 please. You see Alamo Downs' acreage? 13 A. Yes. 14 Q. Just to the right, just underneath the 15 acreage analysis. Do you see that? 16 A. Uh-huh. 17 Q. Total acreage of 300. The next page, 18 Page 28, Big Country has 4,000 acres. Borderbrook 19 has 300 acres on Page 29. Crown Meadows, 20 98 acres. No. 5 on Page 30, Crown Meadows West 21 has 110 acres. No. 6 is Northwest Crossroads with 22 341 acres. Westlakes on Page 31 has 1,028 acres. 6176 1 Westlakes Technology Park has 146 acres. Westover 2 Hills has 7,000 acres. Westpark Business Park has 3 174 acres. And the Van de Walle Industrial Park 4 has 450 acres. 5 I calculated these numbers and came to 6 somewhere in the neighborhood of -- well, more 7 than 13,500 acres directly competing with Park 410 8 West. 9 A. Well, that's your definition of 10 "directly competing." Big Country, which was a 11 major number in there, we never considered 12 anywhere near competition. It was basically in 13 the boonies. And it was a huge distance from 14 where the activity was. Westover Hills, although 15 it was well located, much of it was residential. 16 Much of it was long, long-term. Much of it's 17 still being developed today. It wasn't to be all 18 brought on track immediately. 19 So, once again, you have to know the 20 market then and analyze what this report said. 21 And we felt three or four of those, yes, were 22 competition. We don't disagree. But we didn't 6177 1 feel all this was competition, no. 2 Q. Mr. Graham, Westover Hills, which has 3 some 7,000 acres, if you look at Page 33 under the 4 comment section, states that's the location of the 5 Sea World site. 6 A. True. 7 Q. Would that be competing directly with 8 Park 410? 9 A. In some aspects, yes. But it also 10 was -- much of that 7,000 acres was allocated to 11 residential, single-family development. We 12 weren't. So, some of it was competitive. Not all 13 of it. 14 Q. What significance did you attach to the 15 fact that there were so many competitive 16 developments -- 17 A. Well, once again, you're putting the 18 significance on there. We thought there were 19 three or four of these that did have some -- that 20 were competitive, and we did take that into 21 consideration. Ironically, Westover Hills we 22 actually thought was a plus. If they were going 6178 1 to develop four or 5,000 acres of that in 2 residential activity, that would just put even 3 more traffic on the highway that went right past 4 us. 5 MR. LEIMAN: What was my question, Ms. 6 reporter? 7 8 (The reporter read back the 9 question as requested.) 10 11 A. I'll answer again. I don't think there 12 were so many competitive developments. This 13 report says yes. I don't think there were. I 14 think several more were not competitive. 15 Q. (BY MR. LEIMAN) Mr. Graham -- 16 A. And that's the answer. 17 Q. Do I then take it that you disagreed 18 with the feasibility study, at least in part? 19 A. Parts of it, yes. Not all of it. 20 Q. 7143. Mr. Graham? 21 A. Yes. 22 Q. This is an appraisal document 6179 1 concerning 388.698 acres of Park 410? 2 A. Correct. 3 Q. And it was prepared for the Park 410 4 West Joint Venture? 5 A. Correct. 6 Q. And by Love & Dugger in San Antonio, 7 Texas. Do you see that? 8 A. Yes, sir. 9 Q. And the date shown on Page 2 of this 10 transmittal letter is February 12th, 1986. 11 A. Uh-huh. (Witness nods head 12 affirmatively.) 13 Q. United Savings was a co-venturer with 14 Stanley Rosenberg, who was a co-venturer with the 15 Park 410 Joint Venture as of February 12th, 1986; 16 isn't that right? 17 A. Yes. 18 Q. Do you have any reason to think that 19 this February 12th, 1986 appraisal was withheld 20 from United Savings? 21 A. Well, this appraisal is not out of line 22 for raw land, and that's what this represents. 6180 1 Q. Okay. Would you have gotten a copy of 2 this appraisal, Mr. Graham? 3 A. I don't recall whether I did or not, 4 no. 5 Q. Do you have any reason to think that 6 you wouldn't get an appraisal as a co-venturer? 7 A. I can't answer whether we got it or 8 not. I mean, I just don't know. 9 Q. Do you have any reason to think that 10 you wouldn't, as a co-venturer, have received an 11 appraisal on the property that, first of all, you 12 were a partner in with Mr. Rosenberg and, second, 13 you were about to make an 80 million-dollar loan 14 on? 15 A. Well, this appraisal would have 16 meaningless value to the 80 million-dollar loan. 17 To answer your first question, more than likely we 18 received a copy of the appraisal for our file. 19 To answer the second question, as I 20 already have, the second part of that question, 21 this was irrelevant to the 80-million-dollar loan. 22 MR. LEIMAN: Your Honor, we offer 6181 1 T7143. 2 MR. DUEFFERT: No objection. 3 THE COURT: Received. 4 MR. LEIMAN: The last appraisal 5 document I would offer -- I want to ask Mr. Graham 6 about is T7523. 7 MR. DUEFFERT: Your Honor, on the last 8 exhibit, it's been pointed out to me that the copy 9 that was just introduced is missing a page from 10 the Numeral II. So, once again, we'd like to 11 reserve the right to swap in a full copy of the 12 document. 13 THE COURT: All right. 14 MR. LEIMAN: Your Honor, if they could 15 simply swap in Roman Numeral II, perhaps we could 16 save a tree. Just add one page to that previous 17 exhibit if that's it. And if you have it, I'll 18 add it right now. 19 MR. DUEFFERT: The problem is the Bates 20 numbers are consecutive, which indicates that the 21 version you supplied was incomplete when copied. 22 MR. LEIMAN: The Bates stamping -- 6182 1 MR. DUEFFERT: Yes. 2 MR. LEIMAN: Your Honor, I believe you 3 have a copy of this last exhibit, 7523, in your 4 notebook. 5 THE COURT: Yes. 6 Q. (BY MR. LEIMAN) This is an addendum 7 to the Burke O'Hara Fort feasibility study. It 8 was transmitted on or about June 17th, 1986. 9 Would you have received this addendum, 10 having received the main body of the study? 11 A. I don't recall if I received this 12 addendum or not. 13 Q. Do you have a reason to think they 14 wouldn't have sent you a copy? 15 A. No. But that doesn't mean I received 16 it. I mean, I don't recall receiving this at all. 17 Q. Do you remember receiving the main body 18 of the -- 19 A. Yes, I do. 20 Q. All right. 21 MR. LEIMAN: Your Honor, we offer 22 T7523. 6183 1 MR. DUEFFERT: No objections. 2 THE COURT: Received. 3 Q. (BY MR. LEIMAN) T7067. T7067, 4 Mr. Graham, is a termination agreement that 5 appears to bear your signature. It's dated 6 April 8th, 1986. 7 Is that your signature at the bottom of 8 the page? 9 A. Yes, it is. 10 Q. What was the purpose of this 11 termination agreement? 12 A. Without Exhibit A, I can't tell you. 13 Q. I'm sorry, Mr. Graham. Where do you 14 see a reference to -- oh, I see. 15 A. I mean, I don't know what I'm 16 terminating. 17 Q. Do you remember yesterday, Mr. Graham, 18 we discussed the joint venture agreement 19 partnership that you wrote with Mr. Rosenberg? 20 A. I understand that, but I'm not sure 21 that's what it refers to. I mean, I'm not going 22 to make the assumption that's what this refers to. 6184 1 Q. Mr. Graham, let me ask you this 2 question. 3 A. Yes. 4 Q. Is that your signature? 5 A. That part I can give you a "yes" on. 6 Q. Okay. 7 MR. LEIMAN: With the Court's 8 indulgence -- Your Honor, T7105 is the partnership 9 agreement that's referred to as Exhibit A. I'm 10 not certain I have a copy of that, but perhaps 11 Mr. Dueffert could be kind enough to lend me one. 12 We marked it yesterday. 13 THE COURT: Well, how are we going to 14 establish that is the Exhibit A that is referred 15 to in this document? 16 MR. LEIMAN: What I was going to do, 17 Your Honor, is ask the witness if, in fact, he 18 recollects that that was the attachment. 19 THE COURT: All right. 20 21 (Discussion off the record.) 22 A. I'll simplify matters. If you can show 6185 1 that this is the attachment, that's what the 2 termination agrees. You-all can satisfy yourself. 3 Yes, that's what this termination agreement is 4 for. I want to go home. I'll say yes. 5 THE COURT: Well, I think we'd better 6 make a little better record than that. 7 MR. LEIMAN: Your Honor, I'd like to 8 show the witness T7078. 9 Q. (BY MR. LEIMAN) 7078, Mr. Graham, is 10 a February 7th, 1986 letter to Stanley Rosenberg. 11 A. Yes. 12 Q. Did you have someone sign your name to 13 this letter? 14 A. Yeah. Apparently, my secretary signed 15 it for me. 16 Q. Did you authorize her to send it? 17 A. Yes. 18 Q. Would you have written the contents of 19 this letter? 20 A. Must have, yes. 21 Q. What was the purpose in writing this 22 letter? 6186 1 A. Once again, let me read it. (Witness 2 reviews the document.) I was probably talking 3 about another project called Northlake. This 4 really had nothing to do with Park 410 West. 5 Q. Was Stanley Rosenberg involved in 6 Northlake? 7 A. Yeah. He had been involved in that for 8 some time. 9 Q. Was United Savings Association of Texas 10 a lender in connection with the Northlake project? 11 A. I can't remember if we were a lender or 12 a partner. It had been on the books for some 13 time. 14 Q. Look at the last substantive paragraph 15 on Page 2. You state, I quote, "Lastly, in 16 anticipation of a federal audit, I will need to 17 order a 41B regulatory appraisal on the Northlake 18 project. However, the appraisal could have two 19 other benefits. One, it will give us an idea of 20 what a third party thinks about our values and 21 absorption period and, second, if we decide to 22 refinance the project, we already have the 6187 1 required appraisal. Do you have any idea who I 2 should contact to do the appraisal? Who do you 3 recommend?" 4 My question to you, Mr. Graham, is: 5 Did Mr. Rosenberg recommend anybody? 6 A. I can't recall. 7 Q. Did you ever get an appraisal on the 8 property? 9 A. I assume we did. 10 Q. The next exhibit I'd like to inquire 11 about is T2057, which is Tab 211. 12 MR. LEIMAN: Your Honor, I would offer 13 T7078 at this time. 14 MR. DUEFFERT: No objections. 15 THE COURT: Received. 16 Q. (BY MR. LEIMAN) Mr. Graham, would you 17 take a look at what's previously been admitted as 18 T2057 which is -- 19 A. What is it. 20 Q. Tab 211. You've got it right there, 21 sir. It's on your right. It's what I handed you. 22 A. Oh, this. I'm sorry. I'm sorry. 6188 1 Q. That's the 1985 annual report for MCO, 2 a company that you alluded to earlier. 3 A. Yes, sir. 4 Q. Turn to the last page of the document, 5 please. It states here that Stanley Rosenberg was 6 a director or was a member of the board of 7 directors of MCO in 1985. Do you agree? 8 A. I certainly agree, yeah. 9 Q. Okay. Mr. Hurwitz was also a director 10 of MCO, wasn't he? 11 A. Yes, he was. 12 Q. Were you aware at the time that 13 Rosenberg entered into the joint venture with 14 USAT, specifically the Park 410 West Joint 15 Venture, that Mr. Rosenberg was a board member of 16 MCO? 17 A. I believe I was, yes. 18 Q. Did you ever discuss that fact with 19 Mr. Hurwitz? 20 A. I may have. I can't recall. 21 Q. Anybody else at USAT? 22 A. Once again, I can't recall whether I 6189 1 had other discussions or whether it came up in the 2 committee or anything. 3 Q. Mr. Graham, we've located -- 4 MR. LEIMAN: Your Honor, I'm finished 5 with that exhibit that has been previously 6 admitted. I would like to hand the witness a copy 7 of what previously was admitted as T7052. 8 Q. (BY MR. LEIMAN) I'll ask you, 9 Mr. Graham, in light of your previous statement, 10 whether you are now satisfied that, in fact, what 11 was being referred to in the termination agreement 12 was the partnership document that you've been 13 handed as T7052. 14 A. If I recall, we saw this and subsequent 15 to this, we saw an actual partnership document. I 16 mean, I thought this was a letter of agreement and 17 then later you showed me a true partnership 18 document. Though I've got to admit I'm getting 19 rather foggy. 20 Q. Well, you have a very good memory about 21 some things, Mr. Graham. And I'd like to show you 22 a copy of T70 -- 6190 1 MR. EISENHART: Your Honor, I object to 2 that comment. That kind of gratuitous comment is 3 uncalled for. 4 THE COURT: All right. Let's -- 5 A. I think this was the attachment. 6 Q. (BY MR. LEIMAN) Yes. Exactly what I 7 was referring to. 8 MR. LEIMAN: I'm sorry you took 9 offense, Mr. Eisenhart. 10 Q. (BY MR. LEIMAN) Do you now recognize 11 the exhibit? 12 A. Oh, yes. 13 Q. And was this, in fact, what was being 14 referred to previously -- 15 A. Best of my recollection, yes. 16 Q. Are you now satisfied that the 17 termination agreement, Exhibit T7067, in fact, did 18 terminate the relationship with Stanley Rosenberg? 19 A. On that portion of the agreement, yes. 20 Q. Was there some other portion? 21 A. Well, we went into another relationship 22 where we were a lender and he was a borrower. 6191 1 Q. Yes. I understand that. 2 A. All right. 3 Q. That's not referred to in this 4 document? 5 A. No. That's I want to be sure we 6 understood. 7 MR. LEIMAN: Your Honor, we move into 8 evidence. 9 MR. DUEFFERT: No objection. 10 THE COURT: Received. 11 MR. LEIMAN: Your Honor, that concludes 12 my direct examination of this witness. I pass the 13 witness to Mr. Dueffert. 14 THE COURT: I gather that this witness 15 will have to come back for the cross-examination. 16 MR. DUEFFERT: Yes. I think counsel -- 17 we've discussed the matter. We've discussed it 18 with the witness, and I think the plan is that 19 Mr. Graham will be coming back a week from 20 Thursday. 21 THE COURT: All right. We'll adjourn 22 until 9:00 o'clock tomorrow morning. 6192 1 2 (Whereupon at 5:34 p.m. 3 the proceedings were recessed.) 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 6193 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 30th day of 17 October, 1997. 18 ____________________________ MARCY CLARK, CSR 19 Certified Shorthand Reporter In and for the State of Texas 20 Certification No. 4935 Expiration Date: 12-31-97 21 22 6194 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 30th day of 18 October, 1997. 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