Dr. Barry Munitz Testimony at the OTS Trial, 10-06-98


2 was called as a witness and, having been first

3 duly sworn, testified as follows:


6 Q. (BY MR. RINALDI) Would you state your

7 full name for the record, sir.

8 A. Barry, B-A-R-R-Y, Allen, A-L-L-E-N,

9 Munitz, M-U-N-I-T-Z.

10 Q. Now, Mr. Munitz, can you describe for

11 the Court just very briefly your educational

12 background?

13 A. Born and raised in Brooklyn, New York.

14 Went to Brooklyn College for a Bachelor's Degree

15 in Classics and Comparative Literature. Went then

16 to Princeton University for a Master's and a Ph.D.

17 in Comparative Literature.

18 Basically, that's the outline of my

19 educational background.

20 Q. So, you obtained a master's?

21 A. A master's and a Ph.D. from Princeton.

22 Q. That would explain the doctorate.


1 A. Yes.

2 Q. After you obtained your doctorate at

3 Princeton, what line of business did you begin to

4 engage in?

5 A. Basically from there, most of my life

6 was academic. I went from Princeton to teach at

7 the University of California at Berkley to teach

8 literature, worked part-time for the president of

9 the university there.

10 Then I went to the University of

11 Illinois in Chicago basically looking for a campus

12 like Brooklyn College where I had gone to school,

13 stayed to be the vice president of the University

14 of Illinois.

15 Then came to Houston in 1976 to be the

16 chancellor of the University of Houston. 1982 to

17 1991, took a detour into the "for profit" side and

18 then came back in 1991 as the chancellor of the

19 California State University system.

20 And then since appointed in July of

21 1997, started serving, January 1998, as the

22 president and chief executive officer of the


1 J. Paul Getty Trust.

2 Q. Now, I'm more interested in the period

3 before you took your detour into private industry.

4 What had been the nature of your work

5 at the Illinois campus and the Houston campus in

6 educational administration?

7 A. Basically at the University of

8 Illinois, I was the academic vice president of the

9 system which meant the traditional rural campus at

10 Champagne Urbana. The big urban campus was a Navy

11 pier then called Chicago Circle and the big

12 medical center. Those three campuses were

13 coordinated by a system holding company. I was

14 the academic officer of that holding company. So,

15 basically my responsibilities were the shaping of

16 academic policy, the setting of priorities,

17 probably most critically the hiring of people,

18 faculty, administrators, working with the

19 governing board, working with the state

20 legislature on budgets and other bills that would

21 have affected the University of Illinois.

22 When I came to the University of


1 Houston, it was much like the Chicago campus,

2 growing urban older students, part-time students,

3 really second-opportunity students which was the

4 place I felt most strongly about. I came first as

5 the vice president and dean of faculties, and then

6 I was named chancellor of the main campus. They

7 had a big urban campus.

8 And then Victoria and Clear Lake.

9 Again there as the chief executive officer of the

10 main campus, my responsibilities would have been

11 people, administrative process, student criteria,

12 alumni, development, fund raising, resource

13 allocation, governing board interaction.

14 Q. Now, there came a time, then, after you

15 had served at Houston for some time that you left

16 academia and went into the private sector; is that

17 correct?

18 A. Yes, sir.

19 Q. Now, prior to your entry into the

20 private sector, had you had any educational or

21 professional experience in the area of finance?

22 A. I didn't have educational experience.


1 I was serving -- for example, when I was a

2 chancellor at the University of Houston, I was a

3 member of the Charter Bank board here in Houston.

4 I had consulted with several corporate boards on

5 questions, mostly of board evaluation, chief

6 executive evaluation, compensation, but not -- I

7 think what you would mean by traditional finance.

8 That wasn't my degree and wasn't my

9 responsibility.

10 Q. Now, when you say you had consulted

11 with respect to boards, what was the nature of the

12 consulting work that you had done for boards?

13 A. Basically, I would be brought in -- it

14 started more with colleagues and universities; and

15 then I met, from those colleagues and

16 universities, boards members who were corporate

17 executives and wanted the same kind of advice and

18 experience in their corporate setting. So, it

19 would be interviewing board members, interviewing

20 executives, talking about the administrative

21 process there, did they feel the right people were

22 in place, did they feel the decision-making


1 process was timely, were they getting information

2 that they wanted.

3 Often if a chief executive was leaving,

4 I would give some guidance on the search process

5 for finding a new person.

6 Q. In connection with this consulting, you

7 were basically a consultant to the process of how

8 information disseminated within an organization?

9 A. I think it wouldn't have been all types

10 of information. It would have been much more

11 questions of governance, leadership. On the

12 academic side, much more complicated because there

13 were search processes; and many of them would be

14 media covered.

15 On the private side, it was much less

16 likely to be complex. Again, it would be what

17 kind of person are we looking for, what sort of

18 person do the other management people feel are

19 important to bring in, how do you check

20 references.

21 I think it surprised me and still does

22 how relatively undeveloped some of those processes


1 are at many complex organizations. So, it would

2 have been basically that category.

3 Q. Now, you were doing this consulting

4 work at the same time as you were serving in your

5 position at Houston?

6 A. Well, most -- I was. In most instances

7 on the "not for profit" side with colleagues and

8 universities, it really would have been pro bono

9 work; or they would have paid my expenses back and

10 forth to help them. It was clear to the

11 University of Houston there was an advantage as

12 part of our networking and getting that done. If

13 I went and talked to a corporate board, it would

14 have been because either a member of my University

15 of Houston board members or alumni board had asked

16 if I could come and spend the day with them and

17 talk about their interests and their priorities,

18 originally while I was at the University of

19 Illinois and then at the University of Houston.

20 Q. And the corporate entities that you

21 would have consulted with were non-profit?

22 A. No, no. The corporate would have been


1 for profit; and other colleagues and universities,

2 symphony, museum, Salvation Army would have been

3 on the "not for profit" side.

4 Q. Were you paid for this consultancy

5 work, or was it all pro bono?

6 A. On the "not for profit" side, it would

7 have been expenses. On the profit side, probably

8 it would have been somewhere between pro bono and

9 a favor. I would say on a rare occasion where it

10 was really coming in from the outside and looking

11 at a corporate bond situation, I would have been

12 paid as a daily consultant.

13 Q. And was this a -- an enterprise that

14 you would engage in periodically, or did you have

15 sort of a thriving practice of consulting with

16 corporations and non-profit corporations?

17 A. I think it was clearly on the engaged

18 periodically, not thriving practice side.

19 Q. Do you recall some of the corporate

20 enterprises that you would have consulted with?

21 A. One of the places that I wound up

22 spending a fair amount of time on and off -- and I


1 couldn't give you the exact time because when I

2 left the University of Houston, I shifted

3 relationships with them as well -- was with

4 Charter Bank.

5 Q. What was the nature of your --

6 A. There I spent a fair amount of time

7 interviewing key executives, helping with

8 transition in leadership at a number -- they were

9 going through a transformation and expansion so

10 that I was involved in both the evaluation, I

11 think, in one or more cases, the letting go of,

12 and in one or more cases, the bringing in of the

13 key management team and working with the chief

14 executive officer on identification of new

15 directors and how the board was working.

16 Q. What was Charter Bank?

17 A. It was a basic commercial bank here in

18 Houston.

19 Q. And when would you have done this work

20 for Charter Bank?

21 A. It would have been on and off between

22 the second half of the Seventies into the first


1 half of the Eighties.

2 Q. Did you continue to do the work for

3 Charter Bank once you had become involved with

4 MCO?

5 A. Well, this is a while ago; and so, I'm

6 trying to -- what I remember, Mr. Rinaldi, vaguely

7 is when I went to MCO and Federated and took a

8 seat on the United Financial Group board, there

9 was a question about whether I could be both a

10 Charter Bank board member and a United Financial

11 Group board member. And I think ultimately there

12 was a legal opinion that I had to leave the

13 Charter Bank board. And so, I vaguely remember

14 that shift.

15 I can't tell you the exact time or the

16 nature of it. But it would have been -- I'm

17 fairly confident it was in that time period.

18 Q. Well, you indicated that there did come

19 a point in time when you joined the board of MCO.

20 Is that what you were referring to?

21 A. Well, I was mentioning specifically the

22 board of United Financial Group, but it would have


1 come at the same time that I joined MCO and I was

2 on the board of MCO.

3 Q. All right. How was it that you came to

4 be involved with MCO and United Financial Group?

5 A. I'll try to keep it short, and you tell

6 me if you need more. Basically, for a year or two

7 before 1982 -- 1982 in the summer would have been

8 when the shift occurred -- for a variety of

9 reasons, most of them tied to being the chancellor

10 of the University of Houston, I had regular

11 conversation with people on the corporate side of

12 life in Houston. With many of them, I would argue

13 rather strongly about whether it was harder to run

14 a university or run a corporation. And amongst

15 the people with whom I would have that debate was

16 Charles Hurwitz. And toward -- probably going

17 into the late part of '81 into '82, that

18 conversation was more serious. I had always

19 thought that I could be a more effective

20 administrator in the "not for profit" sector if I

21 had a feel in a more direct way with what was

22 happening on the other side of the table.


1 Frankly, I was also getting a little tired of

2 having my board members tell me if I ever made an

3 honest living and earned a payroll, I would

4 understand what they were up to.

5 I had the opportunity of talking to

6 Mr. Hurwitz and doing just that when his business

7 situation changed in '82, and that's when I

8 shifted over.

9 Q. How was it that you had known

10 Mr. Hurwitz prior to 1982?

11 A. Our spouses knew each other. So, we

12 would play tennis from time to time, the four of

13 us, and have a meal. I also -- in 1980, I had

14 been the victim of an armed robbery in my house

15 with some guests when my life was threatened and

16 they tried to set the house on fire. And as a

17 result of that, I was doing a lot of speech making

18 around the city about safety and public visibility

19 and wound up talking to him after a meeting at

20 some point about this issue.

21 So, a variety of different settings

22 brought us together. Plus, I also think at some


1 point I was hoping to get some money from him for

2 the University of Houston.

3 Q. And how long, prior to your going to

4 work with Mr. Hurwitz at UFG and MAXXAM, had you

5 known him?

6 A. I'm going to say two or three years. I

7 could be off by a year, but I don't think by much

8 more than that.

9 Q. You said you played tennis with him and

10 met with him socially?

11 A. Yes.

12 Q. Was that a fairly frequent occurrence?

13 A. No. I don't play tennis fairly

14 frequently, period. So, if it was once every

15 three or four months, in that period, probably --

16 that's probably a fair characterization.

17 Q. And how about the dinners?

18 A. Likewise. I included both of those

19 together.

20 Q. And did you also attend social

21 functions with Mr. Hurwitz and his wife?

22 A. I suspect only at this -- Houston, I'm


1 reminded again today, is in some ways still a

2 pretty small town maybe just compared to

3 Los Angeles. I was chair of the Houston Grand

4 Opera board at that time, doing an awful lot of

5 basic work, again trying to bring the community

6 together for the University of Houston. So, I'm

7 sure that I would see him at those events. His

8 wife particularly was active in fund raising for

9 them.

10 Q. Now, I take it from your comments,

11 then, that there came a time when Mr. Hurwitz

12 suggested to you that there might be a place for

13 you at MCO?

14 A. Yes, sir.

15 Q. Tell us how that came about.

16 A. Well, I think it was related to this

17 ongoing debate about the relative challenge of

18 running a corporation and running a university.

19 And his presentation to me over -- was probably in

20 the six months or so before the shift occurred;

21 so, it would have been late '81 into '82. The

22 challenge was basically if I thought it was so


1 much easier to do the corporate side, why didn't I

2 actually accept the challenge. We were very

3 different. Our backgrounds are very different.

4 Our areas of expertise are very different.

5 Essentially, what he said to me was "I know how to

6 do the financial side. I understand the deal

7 making and the fiscal transactions. It's not

8 something I would lean on you on."

9 I said that was a good thing. My

10 experience, in turn, was where he had much less

11 experience and much less desire to be, which was

12 the people, the searching process, the strategic

13 planning.

14 His suggestion to me was that -- I

15 believe it was just at the time he was getting not

16 just more involved with just United but also

17 Simplicity Patterns, that it was more than he

18 could handle himself. Would I consider coming on

19 board to take that non-physical side of the

20 responsibility.

21 Q. You said he was competent to handle the

22 financial side and he understood deals.


1 Do you recall that?

2 A. Yes. That was my feel. When you

3 looked at both of us, if you were going to divide

4 up those responsibilities, it seemed pretty clear

5 to me on the financial and deal making side, you

6 would look to him; and on the people and

7 processing side, you would look to me.

8 Q. So, then you went to work at MCO, did

9 you not?

10 A. I took the presidency at -- roughly, it

11 would have been the same time that I became

12 president of Federated Development Company,

13 vice chairman of then called MCO, now MAXXAM, and

14 soon after that I was also a board member at

15 United Financial Group and United Savings.

16 Q. And was it your understanding that you

17 were going to handle the people and personnel side

18 of UFG?

19 A. Gosh, no. At that point, I was just

20 going on the board of UFG. There was an

21 administration and management team in place. The

22 UFG relationship at that time was just as a board


1 member.

2 Q. Well, now, you said that Mr. Hurwitz

3 wanted you to come in and do some people side

4 or -- and he was competent to handle the deals and

5 the financial side.

6 What institutions were you making

7 reference to?

8 A. I was making reference to Federated

9 Development, to MCO, and to -- in that stage, to

10 Simplicity Patterns.

11 Q. Did you then -- what was the position

12 that you held at Federated?

13 A. I was the president of Federated

14 Development.

15 Q. And how many employees did Federated

16 Development Company have? This is 1982.

17 A. 1982? I think at that time, there was

18 a reinsurance company and some real estate. I'm

19 going to say 10 to 15. I could be off. It would

20 be on that order of magnitude. Federated was not

21 a large, complicated company at that time.

22 Q. Did your duties at Federated occupy


1 your full time?

2 A. No.

3 Q. What percentage of your time would have

4 been devoted to Federated?

5 A. It would have really depended upon

6 the -- literally the month, the time of year. I

7 was spending a fair amount of time on the MCO

8 side, which was larger and -- much larger and more

9 complicated at that time. They had real estate

10 and gas and oil, geothermal, some other pieces.

11 So, it would have -- and probably for some time,

12 to come -- would have been divided literally on

13 timing the challenge, he or Bill Leone who was the

14 president of MCO would ask me to look at a certain

15 situation and I would shift or pick that piece up.

16 Q. Now, were you an employee of both MCO

17 and Federated at this point in time?

18 A. Yes, sir.

19 Q. And you received a salary from

20 Federated and another one from MCO?

21 A. I believe that it was -- that they

22 would again, depending upon the percentage of my


1 time there, allocate it between them. But at one

2 time or another, I was probably paid by both of

3 them.

4 Q. And in addition to that, you worked as

5 a -- you were -- had a position with Simplicity

6 Patterns?

7 A. I was a board -- that was just as a

8 board member. But from time to time as a board

9 member, since they were just changing ownership as

10 the Hurwitz group became the majority

11 shareholders, I was spending some time there as a

12 board member talking to people about the

13 transition, listening to the process.

14 So, it would have taken some time; but

15 I would not have been paid by Simplicity other

16 than as a director.

17 Q. Okay. And at the point that you --

18 that we're talking about here, did there come a

19 point in time when you became a member of the

20 board of United Financial Group?

21 A. Yes, sir.

22 Q. Okay. Can you tell the Court how that


1 came about?

2 A. It would have about roughly, I think,

3 still in the 1982 period, so close to when I came

4 to Federated and to MCO. And I was asked by

5 Mr. Hurwitz and I think also Mr. Kozmetsky -- I

6 had known Mr. Kozmetsky. He was just finishing

7 his term as the dean of business at the University

8 of Texas. He and I had worked together while at

9 the University of Houston.

10 I was asked by MCO to assume a board

11 seat or I was in invited by MCO and by United

12 Financial Group. It's been a while. It's right

13 in that time period when I took that board seat.

14 Q. Well, you said a moment ago that

15 Mr. Hurwitz had asked you to sit on the board at

16 UFG.

17 A. I'm not sure I said that. If I did,

18 what I meant to say was the companies, both

19 Federated and MCO, where he was the chief

20 executive officer, both of them, those companies,

21 asked me, invited me -- the board invited me

22 because, ultimately, since it was a publicly held


1 company, I had to be approved by the shareholders.

2 I was basically trying to answer your question of

3 when did I go on the board.

4 Q. My question to you is: Were it not for

5 the fact that Mr. Hurwitz was the controlling

6 shareholder of MCO and the controlling shareholder

7 of Federated, do you -- you would never have been

8 asked to sit on the board of UFG, would you?

9 A. Well, I would like to believe they

10 would have seen my quality individually; but I

11 think that's absolutely right.

12 Q. In fact, it's the fact that Mr. Hurwitz

13 was involved in the ownership of those companies

14 that you were put on the board, isn't it?

15 A. Yes, sir.

16 Q. And the very purpose of you being on

17 the board is so that you could represent the

18 interests of MCO and Federated, correct?

19 A. No, I'm not sure that that's right

20 because I took my board position very seriously

21 once I was there.

22 Q. When you sat on the board, was it your


1 practice then to report back to Mr. Hurwitz, who

2 was a substantial shareholder in UFG, the

3 goings-on on the UFG board?

4 MR. KEETON: I object to the form.

5 Mr. Hurwitz wasn't a substantial shareholder.

6 MR. RINALDI: Strike that.

7 Q. (BY MR. RINALDI) Was it your practice

8 to report back to Mr. Hurwitz, whose companies

9 held substantial amounts of stock in UFG? Was it

10 your practice to report back to Mr. Hurwitz about

11 what was going on on UFG's board?

12 A. I really didn't have to do that because

13 Mr. Hurwitz was on UFG's board.

14 Q. Was he always on the board throughout

15 the period of time that you were on the board?

16 A. Up until about February of 1988, yes,

17 sir.

18 Q. So that when you went to the UFG board,

19 he was already there?

20 A. He was either already there or he came

21 roughly at the same period of time. He was

22 certainly there virtually all the time that I was


1 there up until roughly February of '88.

2 Q. Now, when he appointed you to the

3 board --

4 MR. KEETON: I object to the form.

5 Mr. Hurwitz didn't appoint him to the board.

6 Q. (BY MR. RINALDI) When you became a

7 member of the board of United Financial Group, did

8 you have any discussion with Mr. Hurwitz as to how

9 Federated and MCO had come to acquire an interest

10 in United Financial Group?

11 A. I'm sure that I did. I can recall at

12 least one conversation; and I suspect that there

13 were others, yes, sir.

14 Q. Can you tell us what Mr. Hurwitz might

15 have told you about the reasons for Federated and

16 MCO acquiring an interest in United Financial

17 Group?

18 A. Well, the two pieces that I recall

19 were -- I believe that at one point, he thought

20 that someone else was about to buy the company.

21 And it's a long time back, but I -- Mr. Ludwig --

22 I think it was Mr. Ludwig -- was going to buy the


1 company or made an offer to buy the company.

2 At first, Mr. Hurwitz' interest was in

3 buying stock basically in an arbitration, assuming

4 that he was buying it and then would sell it

5 fairly quickly. Once we got into the

6 conversation, the other was that he believed that

7 there was value. For whatever reason, he wound up

8 as the chair of two companies with a reasonable

9 amount of stock in the holding company, that he

10 believed that there was a solid economic future

11 for that institution.

12 Q. And did you ever discuss with

13 Mr. Hurwitz what he meant by a solid economic

14 future for the institution?

15 A. Well, more than at that initial period,

16 I'm assuming you mean, yes.

17 Q. What was it about UFG that Mr. Hurwitz

18 found so -- to be an interesting investment

19 opportunity?

20 A. Well, I think in general, since his own

21 background was financial, he felt that he

22 understood financial institutions. I sensed that


1 there was more than passing commitment because it

2 was a Texas-based institution and he was a

3 Texas-raised person whereas MCO was basically

4 headquartered in California, that it was an

5 opportunity where economic conditions were

6 beginning to change. And he always struck me as a

7 person who was challenged by the opportunity to be

8 involved in a transformation and be able to be

9 just that much sharper and more creative and

10 thoughtful. And it seemed like for all of those

11 reasons -- I'm not saying this was just a 1982

12 conversation -- this was something of interest to

13 him.

14 Q. You say financial conditions were

15 changing. Were they changing for the better or

16 for the worse?

17 A. Well, I can't say specifically into

18 '82; but clearly in the '82, '3, '4 period in

19 Texas, they were beginning to change for the

20 worse.

21 Q. And Mr. Hurwitz saw this as an

22 opportunity to become involved in a savings and


1 loan during a period when there was adverse

2 financial conditions?

3 A. Yes, sir.

4 Q. And why was he interested, as you

5 understood it, in getting involved in an

6 institution during adverse economic conditions?

7 A. Well, my experience in general is --

8 and I'm thinking about several of my current board

9 members as well --

10 Q. Well, I don't want you to guess. What

11 I want to know is what was your understanding

12 based on your conversations with Mr. Hurwitz.

13 A. Well, literally to that question, I

14 would have to answer I really don't know.

15 Q. So, he never explained to you why it

16 was in a downturn in the economy he was interested

17 in becoming involved in a savings and loan?

18 A. I think the general comment regarded

19 opportunity.

20 Q. And did he ever describe for you what

21 "opportunity" meant from his perspective?

22 A. Situations that many people consider


1 overly complicated and headed for difficulty are

2 often perceived by other people as opportunities.

3 Q. Now, you mentioned a moment ago that

4 Mr. Hurwitz had acquired an interest in UFG as

5 part of an arbitrage.

6 Was that your word?

7 A. Yes, it was my word. I said I thought.

8 It's going back a long way. There is a

9 recollection somewhere in there of a purchase that

10 was supposed to close but didn't close.

11 Q. Was Mr. Hurwitz, through MCO and

12 Federated, involved in arbitrage in about 1982

13 when you became a member of the board of those

14 enterprises?

15 A. I don't remember what else he might

16 have been doing. I was just coming on board and

17 learning my way. I don't know.

18 Q. After you got on the board, did you

19 determine that, in fact, Mr. Hurwitz was involved

20 in arbitrage activity?

21 A. I just don't remember.

22 Q. Do you remember a fellow by the name of


1 Mr. Huebsch?

2 A. Yes, sir. Ron Huebsch.

3 Q. Ron, right.

4 Did Mr. Huebsch manage an arbitrage

5 portfolio for Federated or MCO that you recall?

6 A. I think he ultimately was involved with

7 an arbitrage portfolio. I don't know the timing

8 of it.

9 Q. Did Mr. Hurwitz ever indicate to you

10 that he thought by entering into or by acquiring

11 an interest in United Financial Group, that one of

12 the potential benefits is that it could be used in

13 connection with his arbitrage activities?

14 A. Not to my recollection, no, sir.

15 Q. Now, when -- after you became a member

16 of the board of UFG, do you recall that one of the

17 first things that arose was the question of

18 whether -- I'm sorry -- the board of MCO -- strike

19 that.

20 Did you go on the boards of both MCO

21 and UFG at about the same time?

22 A. Roughly the same time.


1 Q. Shortly after going onto the board of

2 MCO, do you recall that Mr. Hurwitz advised the

3 board that he thought it was useful for MCO to

4 acquire a larger interest in United Financial

5 Group?

6 A. Well, I don't know about the word

7 "useful"; but right in that time period, there was

8 discussion at the MCO board about achieving the

9 ability to buy a larger portion of the stock of

10 United Financial Group, yes, sir.

11 Q. Now, I know you were new to the board

12 at that point in time. But when those kinds of

13 proposals came before the board of MCO, was it the

14 practice of the board members to discuss the

15 potential acquisition of new stock?

16 A. That was -- as those would have been my

17 first couple of meetings, but it's certainly my

18 impression.

19 Q. And at those meetings, what were the

20 reasons that you recall that MCO was discussing

21 acquiring additional shares of United Financial

22 Group?


1 A. Well, that's a long time. I don't

2 remember a great degree of specifics. I recall

3 generally comments about the state of the Texas

4 economy and belief in the potential of this

5 particular institution.

6 Q. And what was the basis for your belief

7 in the potential of this institution? I take it

8 by that, you mean UFG?

9 A. Yes. I don't think I referred to my

10 own belief. I was just coming in. I think you

11 asked me to try to characterize what I remembered

12 of their conversation.

13 Q. Now, would you take a look at the first

14 document in the book before you? And to

15 facilitate things, we've arrayed the documents in

16 order. And I'd ask you to take a look at what's

17 been previously marked as Exhibit T1012. It's

18 Tab 38. This is the board of directors meeting

19 minutes for September 16th, 1982.

20 Now, do you recognize this document,

21 sir? It's a heavily-redacted copy of the board

22 minutes of September 16th, 1982, of MCO Holdings.


1 Do you see that?

2 A. Yes, I do, yes.

3 Q. And I think if you turn to about the

4 fourth or fifth page of the document, OW009360, it

5 makes reference to the fact that -- that Dr. Barry

6 Munitz has been invited to join the board of UFG.

7 Do you see that?

8 A. I do.

9 Q. Was this the first board meeting you

10 attended of MCO?

11 A. I might have attended an earlier

12 meeting, possibly as a guest. I think it's the

13 first meeting I would have attended as an official

14 member of the MCO board.

15 Q. Now, the first sentence there says,

16 "The chairman" -- was the chairman Mr. Hurwitz?

17 A. Yes, sir.

18 Q. It says, "The chairman next reported

19 that Federated Development Company (Federated) had

20 recently purchased shares of United Financial

21 Group, Inc., a Texas-based savings and loan."

22 Do you see that?


1 A. I do.

2 Q. And do you know why -- you were also on

3 the board of Federated. Do you know why Federated

4 had acquired shares of UFG?

5 A. I don't at this point know anything

6 more than or different from my answer to your

7 question about the MCO motivation. I don't recall

8 anything distinct.

9 Q. In the next sentence, it talks about

10 "Mr. Hurwitz indicated that based upon his review

11 of UFG, it presented an interesting investment

12 opportunity to the corporation." And I think it

13 refers to United Financial Group.

14 Do you see that?

15 A. I do.

16 Q. Do you recall why Mr. Hurwitz thought

17 that United Financial Group was an interesting

18 investment opportunity?

19 A. Beyond my earlier answer, I don't.

20 Q. Okay. And at this meeting, I believe

21 it indicates that a vote was taken for MCO to

22 acquire up to 10 percent of the outstanding stock


1 of United Financial Group.

2 Do you see that under the first

3 "resolve" paragraph down there?

4 A. Yes.

5 Q. So, at this point in time, do you

6 recall how much stock Federated owned in United

7 Financial Group?

8 A. No, I don't. Not at that point in

9 time, no.

10 Q. But MCO was going to acquire up to

11 10 percent themselves; is that correct?

12 A. That looks to be what this resolution

13 says, yes, sir.

14 Q. But you have no independent

15 recollection of that meeting other than that you

16 were there?

17 A. Oh, I remember the meeting. I just

18 would not have been able to recall the specific

19 number.

20 Q. Now, did there come a time when a

21 decision was made by MCO that it was going to

22 increase its ownership of United Financial Group


1 to up to 24.9 percent of the outstanding shares of

2 UFG?

3 A. I think that -- I don't remember the

4 mix between the companies; but there came a time

5 when the reporting group, which would have been

6 both MCO and Federated and I believe also

7 Dr. Kozmetsky, collectively were going up to 24.9

8 or not past 24.9. I don't remember the exact

9 number, but I do remember the barrier.

10 Q. And the majority of those shares --

11 although you said Dr. Kozmetsky, who sat on the

12 board of MCO -- is that accurate?

13 A. That is accurate.

14 Q. And was he trustee, also, of Federated?

15 A. He was at that time.

16 Q. What was his relationship to

17 Mr. Hurwitz?

18 A. He was -- as I mentioned earlier, he

19 had been the dean of the business school at the

20 University of Texas for about 16 years. He was a

21 trustee of Federated. Mr. Hurwitz was a trustee,

22 I believe, as early as that time of the Kozmetsky


1 Family Foundation.

2 Q. And so, between Mr. Kozmetsky,

3 Federated, and MCO, they had acquired close to

4 24.9 percent of the shares of UFG?

5 A. At some point.

6 Q. Okay. Now, we see that on September

7 the 16th, 1982, MCO is going to acquire up to

8 10 percent of the shares. And now we see that the

9 holdings between MCO and Federated are going to go

10 up to 24.9 percent.

11 Do you recall any discussions during

12 this period of time --

13 MR. VILLA: Excuse me, sir.

14 A. I'm sorry. I didn't see that second --

15 MR. VILLA: Are you referencing a

16 document?

17 Q. (BY MR. RINALDI) I'm sorry. I thought

18 I had asked you did there come a time when MCO and

19 Federated determined that they wanted to go up to

20 24.9 percent and you had said "yes."

21 A. I was simply saying -- I just didn't

22 see that.


1 Q. I'm sorry. My question to you is:

2 After -- at about the point in time that you

3 recall that MCO and Federated was going to

4 increase their holdings along with Mr. Kozmetsky

5 to 24.9 percent of UFG, do you recall any meetings

6 of the board at which the increased ownership of

7 MCO and Federated were discussed?

8 A. Which board?

9 Q. Either board, Federated or MCO.

10 A. Other than or in addition to this

11 meeting -- in addition to the September meeting?

12 Q. Yes.

13 A. I just want to be sure I'm following

14 you.

15 Q. At the September meeting, MCO had made

16 an initial decision to go up to 10 percent?

17 A. Correct.

18 Q. At that point in time, Federated owned

19 some shares, as well?

20 A. Correct.

21 Q. Collectively, do you recall how much

22 their ownership interest was?


1 A. No.

2 Q. There came a time when they decided to

3 go up to 24.9 percent along with Mr. Kozmetsky,

4 correct?

5 A. Yes.

6 Q. Do you recall attending any meeting of

7 the board where the subject of going up to

8 24.9 percent was discussed?

9 A. I couldn't point you to the specific

10 date, but I'm fairly comfortable that there were

11 subsequent board conversations about the

12 ownership.

13 Q. Okay. And as a result of those board

14 conversations, they would have been both at the

15 Federated and the MCO level?

16 A. The conversations would have been at

17 both places. I'm not sure ultimately the actions

18 were, yes.

19 Q. Okay. As a result of your

20 participating in those board meetings, did you

21 come to an understanding as to why MCO and

22 Federated were interested in acquiring up to


1 24.9 percent of the outstanding shares of UFG?

2 A. My sense was that it was consistent

3 with the sentence that you had read out, that it

4 wasn't a change of direction or feeling but that

5 it was this same perception of an interest

6 investment opportunity.

7 Q. And what does an interesting investment

8 opportunity mean to you?

9 A. Value. The chance to strengthen --

10 since they were -- this was a publicly held

11 company, both MCO -- actually Federated as well at

12 that time so you had three publicly held

13 companies.

14 An interesting investment opportunity

15 means to me a set of circumstances where value can

16 be enhanced for shareholders and owners.

17 Q. Okay. Did you understand that

18 Federated and MCO were going to participate in any

19 way in enhancing the value of UFG for the

20 shareholders?

21 A. I think my sense was that whenever you

22 have thoughtful and strong shareholders, you have


1 a chance to further enhance value.

2 Q. And did you view MCO and Federated as

3 thoughtful and strong shareholders?

4 A. I did.

5 Q. And did their thoughtful and strong

6 views represent the views of Mr. Hurwitz?

7 A. I don't know. I suppose again it would

8 depend on the issue and the time.

9 Q. Let me ask you this: If Mr. Hurwitz

10 had said to the board of Federated, "I think UFG

11 is a bad investment and I don't think that we

12 should be involved in further investments of UFG,"

13 in your experience, would MCO or Federated have

14 gone forward and acquired additional shares of

15 UFG?

16 A. Well, you just switched companies on

17 me. If you meant to say if Mr. Hurwitz had said

18 one thing to the board of Federated, would MCO and

19 Federated have done something, I've lost your

20 track.

21 Q. Well, let's take them one at a time.

22 Was Mr. Hurwitz the controlling


1 shareholder of MCO?

2 A. I don't know. I don't recall at

3 that -- what the division of share ownership was

4 at MCO at that time.

5 Q. Would he have been the largest single

6 shareholder?

7 A. I don't know.

8 Q. Did he wield a great deal of influence

9 in terms of board decisions?

10 A. He was the chief executive officer; and

11 in my experience, the chief executive officer of

12 any company wields meaningful influence.

13 Q. And if Mr. Hurwitz had gone to the

14 board of UFG -- of MCO and had indicated to the

15 board of MCO "I don't think we should acquire any

16 more shares of UFG," in your experience, would the

17 board have acceded to Mr. Hurwitz' views?

18 A. I don't know around that specific

19 instance. But if the question is were they always

20 of one mind, the answer is not at all.

21 Q. I understand that they weren't always

22 of one mind. But if Mr. Hurwitz was of one mind,


1 would Mr. Hurwitz generally get his way on the MCO

2 board if he wanted something done?

3 A. Mr. Hurwitz was usually of one mind.

4 We'll start there. I think the MCO board, during

5 the years I was on it, had some very strong, very

6 opinionated, thoughtful, and experienced people.

7 And we would argue about critical issues. Often

8 his view would prevail, but periodically it would

9 not.

10 Q. Okay. Was the same true with respect

11 to Federated?

12 A. I think a little less true at Federated

13 because there was a much smaller board and he was

14 a much, in my recollection, larger proportional

15 shareholder of Federated. And then, ultimately,

16 it was privately owned.

17 Q. So, with all these strong personalities

18 on the MCO board, if any proposal were made to the

19 board, it would have been well-discussed, would it

20 not?

21 A. My sense is it would have been

22 well-discussed.


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

2 that's dated December 15th, 1982. This is the

3 board of directors meeting for -- for MCO, and

4 it's approximately two months later.

5 MR. NICKENS: We need some numbers.

6 MR. RINALDI: It's T1032, and it's

7 Tab 40.

8 Q. (BY MR. RINALDI) And if you'll turn to

9 the second page in, take a moment to read that

10 paragraph; and then I have a couple of questions I

11 want to ask you about it.

12 A. This is Page 3 on the top -- called

13 Page 3 in the document?

14 Q. It says Page 3, and that is the -- I

15 believe to be -- again, this is one of those

16 heavily-redacted versions. But I'm interested in

17 the material that's contained on Page 3.

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

19 Okay.

20 Q. Now, this makes reference to a merger

21 of First American Financial of Texas and United

22 Financial Group.


1 Do you see that?

2 A. I do.

3 Q. Do you recall that there came a time

4 when a proposed merger was proposed? And I think

5 actually in the middle of the paragraph, it makes

6 note of the fact that Mr. Munitz had noted that

7 UFG and First American Financial had entered into

8 a definitive agreement for the merger.

9 Do you see that?

10 A. Yes, sir.

11 Q. What do you recall of that?

12 A. Basically as it's described here, that

13 these were two thrift institutions of some

14 strength in Texas, some represented in different

15 areas in the state, if I'm remembering correctly;

16 that a proposal was made to put the two

17 institutions together with UFGI as the surviving

18 entity and that that was ultimately approved, that

19 merger was ultimately approved.

20 Q. In about the middle of the page, it

21 indicates that on December 15th, 1982, UFG -- I

22 mean MCO and Federated jointly owned about


1 19 percent of the aggregate of UFG common stock.

2 Do you see that?

3 A. I do.

4 Q. Then it indicates that as a result of

5 the merger, that MCO had the opportunity to

6 acquire additional shares and the potential to

7 increase its ownership to 24.9 percent.

8 Do you see that?

9 A. Yeah. Less than 24.9.

10 Q. Right. How much less than are we

11 talking about? 24.7 or --

12 A. All I know is what it says here. I was

13 simply saying that it said "owned less than 24.9."

14 Q. Do you recall that there was a reason

15 for not exceeding the 24.9 percent level?

16 A. Yes, sir.

17 Q. Okay. Would you explain to the Court

18 what that reason was?

19 A. My recollection is that at past

20 24.9 percent, there was a different definition of

21 a savings and loan holding company with

22 implications, amongst other things, for net worth


1 maintenance.

2 Q. And ultimately, the resolution at the

3 bottom of the page of these minutes indicates that

4 the corporation was going to enter into a -- well,

5 Mr. Hurwitz had proposed at the top of the page

6 that the corporation purchase 603,448 shares of

7 common stock of First American Financial.

8 Do you see that?

9 A. I do.

10 Q. And as consistent with the

11 recommendation of the chairman, at the bottom

12 there's a resolution adopting the recommendation

13 of the chairman.

14 Do you see that?

15 A. I see Mr. Rosenberg making the motion,

16 and it's being adopted unanimously.

17 Q. So, ultimately, MCO decided -- after

18 considering the idea, they went ahead and voted to

19 acquire less than 24.9 percent of the outstanding

20 shares of UFG, correct?

21 A. Well, I think the resolution said what

22 they voted to do was purchase the 603,448 shares.


1 Q. If the merger were to go forward, those

2 shares would then be converted; and they would end

3 up with approximately 24.9 percent of the

4 outstanding shares?

5 A. No, I don't see that it said -- I don't

6 see any reference of the number. In the text that

7 you asked me to read, it said on the one hand that

8 they might continue to collectively own less than

9 24.9. But it's not clear to me immediately upon

10 conversion of the 603, 448 what percentage they

11 would own.

12 Q. Maybe I'm getting ahead of myself.

13 At this particular board meeting, do

14 you recall any discussion by Mr. Hurwitz as to the

15 reasons why he was interested in obtaining a

16 larger interest in UFG or at least any discussions

17 other than what you've previously related?

18 A. More intense versions of what I had

19 previously related.

20 Q. It was an interest investment

21 opportunity?

22 A. Well, I think you see a reference here


1 to the financial condition of First American

2 Financial, analysis of their business activities.

3 It would continue in that same direction, yes,

4 sir.

5 Q. Now, you indicated to me that

6 Mr. Hurwitz viewed himself as being very competent

7 in the area of financial deals and the operations

8 of corporations.

9 MR. KEETON: Your Honor, I'm going to

10 object. It may be that Mr. Hurwitz does. What

11 Dr. Munitz testified was that he thought

12 Mr. Hurwitz was competent in deals and finance,

13 not that Mr. Hurwitz walks around saying "I'm

14 competent in it."

15 Q. (BY MR. RINALDI) Perhaps I misspoke.

16 Did Mr. Hurwitz tell you when he hired you that he

17 felt he was competent to do the deals and the

18 financial side of the transactions?

19 A. I think what I was saying or trying to

20 convey was basically that distinction from my

21 perspective but not disagreed to by him. But it

22 was basically my reflection that there was a nice


1 synergy in terms of the different areas of

2 expertise we had.

3 Q. Okay. And do you recall whether the

4 merger went through with First American and UFG?

5 A. I believe it did.

6 Q. As a consequence of that, do you recall

7 that the ownership of shares of MCO and Federated

8 in UFG increased?

9 A. I don't know -- I suspect that it

10 increased. Again, I don't know the exact numbers.

11 But I recall that it went through and that, over

12 time, there was that movement toward 24.9 percent.

13 Q. And take a look at the next document in

14 your book, which is T1036. And I believe that

15 this is a new document.

16 MR. RINALDI: Has T1036 not been

17 entered before? If we don't have a copy, then I

18 will simply skip on and --

19 Q. (BY MR. RINALDI) Do you recall,

20 however, that there came a point in time when MCO

21 and Federated ultimately reached a level where

22 they could no longer acquire additional shares of


1 UFG without becoming a holding company?

2 A. I think it was MCO, Federated, and

3 Dr. Kozmetsky altogether were close enough for us

4 to then submit an application to move past that

5 period.

6 Q. Okay. And did Dr. Kozmetsky own a

7 substantial block of stock in UFG, or was it a

8 fairly small one relative to Federated and MCO?

9 A. It was substantial to me. It probably

10 wasn't that substantial to Dr. Kozmetsky.

11 Relatively speaking, it might have been a couple

12 of percentage points.

13 Q. It probably would have been substantial

14 to most of the people in this room, I take it; but

15 it may not have been much to Dr. Kozmetsky. Okay.

16 And you indicated that there came a

17 point in time when the decision was made to file a

18 holding company application?

19 A. Yes, sir.

20 Q. And that would have been filed with the

21 Federal Home Loan Bank Board?

22 A. Yes, sir.


1 Q. Now, prior to that time, what had been

2 your involvement with UFG? You had simply been a

3 board member and sat in on board meetings or --

4 A. Tell me again that time.

5 Q. The filing is actually on June 29th,

6 1983. If you want, you can turn to the next page

7 in your book; and everybody else can grab the

8 document. It's T4040. It's Tab 13.

9 Does this appear to be the application

10 to become a holding company that you just made

11 reference to? It's a cover letter --

12 A. Other than the fact that I don't know

13 why it's not signed, but it's -- it seems to be

14 the cover letter to the application.

15 Q. Okay. And then attached to the cover

16 letter is an application or what is referenced as

17 an application H-(e)-1.

18 Do you see that?

19 A. I do.

20 Q. And it purports to be an application

21 for approval of acquisition of one insured

22 institution directly or indirectly by a company


1 other than a savings and loan holding company.

2 Does this appear to be the holding

3 company application that you were referring to?

4 A. I have no reason to believe that it is

5 not.

6 Q. Well, it's filed by MCO and Federated;

7 and it's with respect to UFG and United Savings

8 Association of Texas.

9 Do you see that?

10 A. I do.

11 Q. Okay. Now, prior to the filing of this

12 document on June 29th, 1983, had your involvement

13 with UFG simply been that of a director?

14 A. I was still -- I was by then a director

15 of both UFGI and USAT. So, I was a director of

16 both of those institutions. I want to be sure

17 that's clear.

18 And I also --

19 Q. Continue.

20 A. I was just going to -- I think the

21 specific question was was my relationship any

22 different. And it was somewhat to the extent that


1 with the merger, I was again given some of the

2 experience I had described to you earlier when you

3 were asking me about my background. I was helping

4 out in conversations regarding the aftermath of

5 the merger, the personnel issues, consolidation,

6 the branches, the evaluation of personnel, the

7 evolution of this newly-merged board where people

8 hadn't been board members together. So, by then,

9 the merger into the post-H-(e)-1 application, my

10 relationship to the institution was getting more

11 complex.

12 Q. Do you recall about when the merger

13 would have occurred, you arrived there -- it had

14 not occurred in December of 1982. And by June of

15 1983, the holding company application has been

16 approved. I take it the merger is somewhere in

17 there?

18 A. I mean, you know, I don't. I don't

19 know -- I can't tell you now the date.

20 Q. I'm not trying to hide the ball. I

21 just don't have enough copies of the exhibit to

22 pass out to people.


1 A. I don't know whether it's before or

2 after, post-merger.

3 MR. KEETON: Just for clarity,

4 Mr. Rinaldi, you said the holding company

5 application had been approved by June of '83.

6 MR. RINALDI: I'm sorry. If I said

7 that, thank you for your correction.

8 Q. (BY MR. RINALDI) The filing of the

9 holding company application was June 29, 1983?

10 A. I don't recall the date of the merger.

11 Q. You said you took on new duties to

12 assist, and whenever that merger date is isn't

13 particularly important for my purposes.

14 What I would like to know is: How did

15 your duties change? Strike that.

16 Before we get to that, when you went on

17 the UFG board, did you also go on the USAT board?

18 A. I believe so.

19 Q. That would have been back in September

20 of 1982?

21 A. Roughly in that period.

22 Q. Now, had you had any prior experience


1 with savings and loans?

2 A. I believe that as part of the Charter

3 Bank board responsibility, there had been

4 interaction with savings and loans in Texas. I

5 had not been a director or an officer of a savings

6 and loan before that.

7 Q. So, now you are a director of UFG, a

8 director of USAT. You are also a trustee of

9 Federated, a director of MCO, and then you are

10 also president of MCO?

11 A. No. I'm vice chairman of MCO and

12 president of Federated.

13 Q. And president of Federated. Okay.

14 And is the vice chairman an officerial

15 position at MCO?

16 A. I believe that it was.

17 Q. But at this point in time, you did not

18 have a position as an officer or an employee of

19 UFG or USAT?

20 A. That is correct.

21 Q. Now, moving forward to the June 29th,

22 1983 date that the holding company application was


1 filed, did you still occupy those positions that

2 we've just identified; or had your positions

3 changed at all?

4 A. No. The positions you identified were

5 accurate for that date.

6 Q. Now, take a look at the application or

7 the cover letter of the application. And if you

8 look at the second paragraph, it makes reference

9 to the fact that MCO and Federated currently own

10 approximately 22.3 percent and 10 percent

11 respectively of the outstanding shares --

12 A. I think 12 and 10.

13 Q. Right. So, they would have had a total

14 of 22.3. Right?

15 A. That's what it says.

16 Q. And whatever shares that were owned to

17 take you up to the 24-plus level would have been

18 those of Mr. Kozmetsky?

19 A. Yes, sir.

20 Q. Okay. Now, if you go down further in

21 the paragraph, it indicates that MCO was

22 interested in owning approximately 25 percent of


1 the outstanding shares and Federated would retain

2 approximately 10 percent of the outstanding


4 Do you see that?

5 A. I do.

6 Q. So, as a result of this application, do

7 you recall that Federated and MCO were requesting

8 permission from the Bank Board to acquire up to

9 35 percent of the outstanding shares of UFG?

10 A. I'm not sure about result, but what I

11 recall is what you've just pointed me to, that

12 they were requesting permission under the

13 appropriate circumstances to go to 25 plus 10.

14 Q. Okay. Now, prior to the application

15 being filed by Richard Marlin on behalf of

16 Federated and MCO, did the board approve the

17 filing of the holding company application, the

18 board of MCO?

19 A. The board of MCO? I don't remember.

20 Q. Well, is that the kind of action that

21 Mr. Marlin or the officers of MCO and Federated

22 could have taken without board approval?


1 A. Well, Mr. Bressler, who's referred to

2 on the -- in the application as one of the contact

3 points, was the general counsel of MCO. I just

4 don't remember the specific timing, discussion,

5 and approval.

6 Q. Okay. Now, if you turn to the third

7 page of this document, it indicates that you were

8 one of the individuals who received a copy of the

9 letter, although it says "without exhibit."

10 Do you see that?

11 A. Yes.

12 Q. Okay. Now, do you recall, prior to

13 filing the application, any discussions with

14 Mr. Hurwitz regarding the reasons why MCO and

15 Federated were now seeking to acquire up to 25 --

16 35 percent collectively of UFG?

17 A. Those to which I had referred earlier

18 basically.

19 Q. Just still was an interesting

20 investment opportunity given the financial

21 circumstances in Texas?

22 A. Well -- and as I said, the conditions


1 around it. It would have been, I suspect, a

2 longer conversation. It was characterized that

3 way because that was the characterization in the

4 minutes. But it would have been basically of the

5 sort that I had mentioned earlier.

6 Q. And based on those conversations, did

7 you formulate any clearer understanding of why it

8 is Mr. Hurwitz felt that this was a -- an

9 interesting investment opportunity?

10 A. Well, again, the circumstances that I

11 had referred to.

12 Q. Those being?

13 A. Economic conditions, financial

14 complexity, quality of leadership, potential

15 quality of leadership, Texas location, the role of

16 savings and loans, all of those.

17 Q. And did he have any discussions with

18 you regarding his plans with respect to the

19 operations of UFG were the holding company

20 application to be approved?

21 A. Well, I think the application was

22 basically to increase his shares as a shareholder.


1 And, of course, he and I were both directors of

2 UFGI; so, I'm not sure what even conversation

3 about his plans for the operation of UFGI would

4 have meant.

5 Q. So, it was your understanding that

6 Mr. Hurwitz had no interest in being involved in

7 the operation of UFG. He just wanted to benefit

8 from the increase in the value of the shares?

9 A. Well, I don't think I said that he had

10 no interest. I think what I said was that I

11 didn't recall conversations about his plans for

12 operation.

13 Q. Did you understand that as a result of

14 Mr. Hurwitz and -- or MCO and Federated acquiring

15 up to 35 percent of the shares of UFG, that

16 Mr. Hurwitz contemplated taking a more active role

17 in the operation of UFG and USAT?

18 A. No, not necessarily.

19 Q. So, you had no understanding one way or

20 the other?

21 A. I basically -- my understanding in

22 looking at the application when it was originally


1 put together was there was a desire to have a

2 larger portion of the outstanding shares.

3 Q. And you don't recall ever having any

4 conversation with Mr. Hurwitz as to why he wanted

5 to acquire, through Federated and MCO, a larger

6 percentage of the ownership of UFG?

7 A. I think that was the earlier question

8 that I answered. I thought the last question was

9 about his direct operational responsibility at

10 UFGI. Maybe I misunderstood you.

11 Q. Well, maybe I misunderstood you, sir.

12 When you discussed with him -- did you

13 have any discussions with him regarding the

14 holding company application?

15 A. Not that I recall specifically

16 regarding the application, other than the question

17 that I had mentioned earlier to the Court

18 regarding the question of its implications if it

19 were approved.

20 Q. So, you did discuss that with

21 Mr. Hurwitz, the implications if the holding

22 company application were approved?


1 A. Yes.

2 Q. What were the nature of those

3 conversations?

4 A. Basically, they dealt with the net

5 worth maintenance requirements of a savings and

6 loan holding company.

7 Q. And prior to filing the holding company

8 application, were you aware that in order to

9 acquire more than 25 percent of the outstanding

10 shares of a savings and loan, a net worth

11 maintenance obligation might be imposed by the

12 Bank Board?

13 A. Might be imposed. I was aware that it

14 might be imposed, yes, sir.

15 Q. And you had discussions with

16 Mr. Hurwitz about that; is that correct?

17 A. Yes, sir.

18 Q. And what were the nature of those

19 discussions that you recall?

20 A. I think basically they were "I hope

21 you're also aware that if this application is

22 approved, the Bank Board might insist upon a net


1 worth maintenance guarantee."

2 Q. Did he seem to be fully knowledgeable

3 with the fact that such a condition could be

4 imposed upon MCO and Federated as a condition of

5 their acquiring over 25 percent of the outstanding

6 shares of UFG?

7 A. It seemed to me that he was.

8 Q. Now, take a look at -- in the holding

9 company application, would you turn, please, to

10 Page 37? I think it's OW010501.

11 A. Okay.

12 Q. And if you look at the -- toward the

13 bottom of the page, it talks about MCO and

14 Federated believe that the financial services

15 industry is entering into a period of rapid

16 growth.

17 Do you see that?

18 A. Yes.

19 Q. And further down in that sentence, the

20 statement appears -- and this is the sixth line

21 from the bottom of the page. It says, "UFG and

22 USAT will benefit from MCO and Federated's


1 experience in real estate development and sales as

2 well as MCO and Federated's investment expertise

3 in the financial markets."

4 Do you see that?

5 A. Yes.

6 Q. What was your understanding of what was

7 meant by that, that UFG and USAT would benefit

8 from MCO and Federated's expertise -- investment

9 expertise in the financial markets?

10 A. I'm not sure I can comment specifically

11 on that sentence. I haven't seen that for a long,

12 long time.

13 Q. Let me ask you this: As a director of

14 MCO and Federated, did you understand that MCO and

15 Federated had investment expertise in the

16 financial markets?

17 A. In 1983 when this was filed, in looking

18 at the materials, I'm assuming that I would have

19 understood that.

20 Q. And what was the nature of that

21 expertise, sir?

22 A. Well, Federated Development had a


1 reinsurance company. You had earlier mentioned

2 Mr. Huebsch, who was one participant in the

3 investments related to that company. MCO had both

4 complex real estate and energy activities and

5 financial people there. And they also had access

6 to other types of expertise that weren't

7 necessarily employed by those two companies at the

8 moment but were knowledgeable consultants and

9 advisors depending upon the issue and the timing.

10 Q. I'm focusing principally, though, not

11 on the real estate side but the expertise in

12 investment --

13 A. That was the question I was answering.

14 Q. MCO and Federated at this point in

15 time, were they involved in a lot of activity and

16 investments in the financial markets?

17 A. Again, I don't know what "a lot of"

18 would mean.

19 Q. Were they involved in activities in

20 investments in financial markets?

21 A. Yes.

22 Q. What were the nature of those


1 activities?

2 A. Well, I think again -- I'm sorry.

3 Federated Development had a reinsurance company,

4 which basically is in the business of insurance on

5 the one side and the financial investment

6 management of its portfolio.

7 Q. Okay.

8 A. So, basically, that is an investment

9 activity.

10 Q. And how about MCO?

11 A. MCO, I would have to go back and

12 rethink all the pieces of current activities

13 there. So, I ought not to comment right now as to

14 specifically what they were doing then.

15 Q. Then in the next sentence, it says,

16 "MCO and Federated also anticipate that they will

17 be able to facilitate access to the capital

18 markets."

19 Do you see that?

20 A. Yes, I do see that.

21 Q. Did MCO and Federated have any special

22 access to the capital markets as you understood


1 it?

2 A. I'm not sure what "special access"

3 would mean. I didn't see --

4 Q. Would they -- I'm referring here to the

5 statement that says that they would anticipate

6 that they will be able to facilitate access to

7 capital markets.

8 What did you understand that to mean,

9 sir?

10 A. I'm not really certain right now what

11 specifically that referred to.

12 Q. All right. As a result of filing the

13 application, do you recall that the Federal Home

14 Loan Bank Board indicated that if they were to

15 grant the holding company application, that it

16 would be subject to certain conditions?

17 A. Yes, sir.

18 Q. And do you recall receiving a letter

19 from Jearlene Miller at the Federal Home Loan Bank

20 Board to that effect?

21 A. I don't know who it -- I recall the

22 company receiving a letter from someone at the


1 Bank Board.

2 Q. Okay. As a result of that, do you

3 recall writing a letter back to them discussing

4 the subject of the conditions that the Bank Board

5 had proposed might be imposed if the holding

6 company application were approved?

7 A. Well, either I or a lawyer for the

8 company.

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

10 in your book, which is T1044 at Tab 4. And this

11 is -- I'm sorry. Tab 14. Take a moment to just

12 look at this letter, and then I have a couple of

13 questions for you.

14 A. (Witness reviews the document.)

15 Q. Now, is that your signature that

16 appears on the last page, sir?

17 A. Yes, I believe it is.

18 Q. Okay. And do you recall sending this

19 letter to Ms. Jearlene Miller?

20 A. No, but I have no reason to question

21 whether it was sent. I just don't recall at this

22 moment that particular letter.


1 Q. Sure. Now, after the holding company

2 application was filed, did you become the

3 principal person involved with dealing with the

4 Federal Home Loan Bank Board regarding the holding

5 company application?

6 A. Well, I was one of the key people.

7 Several others, lawyers included -- and this

8 letter I think clearly drafted by a lawyer --

9 would have been in that group, as well. But I was

10 one of the people more involved in the

11 conversation than most others.

12 Q. Well, at Federated Development Company,

13 were you the person that would have had the most

14 knowledge about the holding company application

15 process?

16 A. Other than the lawyers, yes.

17 Q. Fine.

18 And were the lawyers in-house, or were

19 they outside lawyers?

20 A. At Federated, they were outside

21 lawyers. At MCO, they were outside and inside.

22 Q. Okay. And at MCO, would you have been


1 the principal contact person with respect to -- to

2 the holding company application?

3 A. Probably in that same sense, joined by

4 the lawyers, and that MCO -- since there were more

5 people and a more complex range of people, others

6 would have been involved, as well.

7 Q. And it indicates here in this letter

8 that you were advised by the Bank Board that they

9 were -- that that -- you state in the letter, "You

10 have informally indicated to us that the

11 acquisition portion of the H-(e)-1 application

12 would meet the conditions of Section 584.4(g)."

13 Do you see that?

14 A. Where are you?

15 Q. This is in the second full paragraph.

16 A. On the first page?

17 Q. First page, yeah.

18 A. Okay.

19 Q. Then it goes on and says, "Subsection 4

20 would require MCO and Federated to ensure that

21 USAT meet the minimum statutory reserve and net

22 worth requirements applicable to institutions


1 insured for 20 years or more as set out in 563.13

2 of the regulations and were necessary to infuse

3 their pro rata portion of additional equity

4 capital in a form satisfactory to the supervisory

5 agent and sufficient to effect the compliance with

6 the requirements."

7 Do you see that?

8 A. I do.

9 Q. And what did you understand was the

10 condition that you had been advised would be

11 imposed if the holding company application were

12 granted, at least as regards Roman Numeral IV

13 there?

14 A. Well, the timing is again a little

15 uncertain in my mind. I know there was some

16 communication before a formal Bank Board

17 resolution and -- some considerable communication

18 subsequent to a formal Bank Board resolution. I

19 have a feeling that this exchange occurred before

20 the formal Bank Board resolution. I could be

21 wrong.

22 But I understood in general the


1 reference, again, to be back to the net worth

2 maintenance requirements by some calculation.

3 Q. And it talks about a pro rata portion

4 of additional equity. Did you understand that if

5 you owned 35 percent of the shares of the thrift

6 or its holding company, that you would be

7 obligated to maintain its capital or 35 percent of

8 its capital?

9 A. I understood that that was one possible

10 interpretation and that it was fraught with

11 difficulty as to how one calculated that pro rata

12 portion at any one time.

13 Q. I notice on the next page, you make a

14 proposal of sorts under A and B there.

15 Do you see that?

16 A. Yeah.

17 Q. And can you explain to me what -- well,

18 do you recall making this proposal back to the

19 Bank Board?

20 A. Well, I'm not sure -- I haven't seen

21 what this is a response to. I don't know if it's

22 back to the Bank Board. As I said earlier, I


1 don't know the sequence of letters. I recall the

2 general conversation about a possible pro rata or

3 other type of less than 100 percent net worth

4 requirement.

5 Q. And it's saying here under B that "MCO

6 and Federated will, where necessary, undertake to

7 infuse their pro rata portion of additional equity

8 capital sufficient to effect compliance with

9 requirements but only in the event that MCO or

10 Federated shall directly or indirectly acquire or

11 obtain control of more than 50 percent of the

12 stock"?

13 Do you see that?

14 A. I do see that.

15 Q. Were you suggesting to the Bank Board

16 that there would be no net worth obligation unless

17 MCO and Federated acquired more than 50 percent?

18 A. Again, this is a lawyer letter that I

19 haven't seen for almost exactly 15 years. So,

20 I -- I really can't say much more than what the

21 paragraph says.

22 Q. And even though these things were


1 written by lawyers, you consulted with the

2 lawyers, didn't you?

3 A. Oh, I signed the letter and take

4 responsibility for it.

5 Q. Right. You understood at the time that

6 you signed the letter what it meant, correct?

7 A. Yes. I believe that in those past

8 15 years, there would have been a lot of

9 conversation that went into the writing of this

10 letter. I just can't recall now the specific

11 implications beyond this paragraph.

12 Q. Now, you indicated that there did come

13 a time when the Bank Board approved the

14 application.

15 Do you recall that?

16 A. Yes, I do recall an approval by the

17 Bank Board.

18 Q. And turn to the next document.

19 THE COURT: Mr. Rinaldi, we'll adjourn

20 until 9:00 tomorrow.

21 MR. RINALDI: Thank you.



1 (Whereupon at 4:50 p.m.

2 the proceedings were recessed.)

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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 6th day of October,

17 1998.

18 ____________________________
19 Certified Shorthand Reporter
In and for the State of Texas
20 Certification No. 4935
Expiration Date: 12-31-99
21 .

22 .



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 6th day of October,

18 1998.

19 _____________________________
20 Certified Shorthand Reporter
In and for the State of Texas
21 Certification No. 3786
Expiration Date: 12-31-98

Continue with Munitz Testimony , Oct. 07, 1998
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