14884 1 UNITED STATES OF AMERICA BEFORE THE 2 OFFICE OF THRIFT SUPERVISION DEPARTMENT OF THE TREASURY 3 In the Matter of: ) 4 ) UNITED SAVINGS ASSOCIATION OF ) 5 TEXAS, Houston, Texas, and ) ) 6 UNITED FINANCIAL GROUP, INC., ) Houston, Texas, a Savings ) 7 and Loan Holding Company ) ) OTS Order 8 MAXXAM, INC., Houston, Texas, ) No. AP 95-40 a Diversified Savings and ) Date: 9 Loan Holding Company ) Dec. 26, 1995 ) 10 FEDERATED DEVELOPMENT CO., ) a New York Business Trust, ) 11 ) CHARLES E. HURWITZ, ) 12 Institution-Affiliated Party ) and Present and Former Director ) 13 of United Savings Association ) of Texas, United Financial Group,) 14 and/or MAXXAM, Inc.; and ) ) 15 BARRY A. MUNITZ, JENARD M. GROSS,) ARTHUR S. BERNER, RONALD HUEBSCH,) 16 and MICHAEL CROW, Present and ) Former Directors and/or Officers ) 17 of United Savings Association of ) Texas, United Financial Group, ) 18 and/or MAXXAM, Inc., ) ) 19 Respondents. ) 20 21 TRIAL PROCEEDINGS FOR JULY 16, 1998 22 14885 1 A-P-P-E-A-R-A-N-C-E-S 2 ON BEHALF OF THE AGENCY: 3 KENNETH J. GUIDO, Esquire Special Enforcement Counsel 4 PAUL LEIMAN, Esquire SCOTT SCHWARTZ, Esquire 5 BRUCE RINALDI, Esquire RICHARD STEARNS, Esquire 6 and BRYAN VEIS, Esquire of: Office of Thrift Supervision 7 Department of the Treasury 1700 G Street, N.W. 8 Washington, D.C. 20552 (202) 906-7395 9 ON BEHALF OF RESPONDENT MAXXAM, INC.: 10 FRANK J. EISENHART, Esquire 11 of: Dechert, Price & Rhoads 1500 K Street, N.W. 12 Washington, D.C. 20005-1208 (202) 626-3306 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 14886 1 ON BEHALF OF RESPONDENT FEDERATED DEVELOPMENT CO., CHARLES HURWITZ, AND MAXXAM, INC.: 2 JACKS C. NICKENS, Esquire 3 of: Clements, O'Neill, Pierce & Nickens 1000 Louisiana Street, Suite 1800 4 Houston, Texas 77002 (713) 654-7608 5 ON BEHALF OF JENARD M. GROSS: 6 PAUL BLANKENSTEIN, Esquire 7 MARK A. PERRY, Esquire of: Gibson, Dunn & Crutcher 8 1050 Connecticut Avenue, N.W. Washington, D.C. 20036-5303 9 (202) 955-8500 10 ON BEHALF OF BERNER, CROW, MUNITZ AND HUEBSCH: 11 JOHN K. VILLA, Esquire MARY CLARK, Esquire 12 PAUL DUEFFERT, Esquire of: Williams & Connolly 13 725 Twelfth Street, N.W. Washington, D.C. 20005 14 (202) 434-5000 15 OTS COURT: 16 HONORABLE ARTHUR L. SHIPE Administrative Law Judge 17 Office of Financial Institutions Adjudication 1700 G Street, N.W., 6th Floor 18 Washington, D.C. 20552 Jerry Langdon, Judge Shipe's Clerk 19 REPORTED BY: 20 Ms. Marcy Clark, CSR 21 Ms. Shauna Foreman, CSR 22 14887 1 2 INDEX OF PROCEEDINGS 3 Page 4 MICHAEL CROW 5 Continued Examination by Mr. Rinaldi....14888 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 14888 1 P-R-O-C-E-E-D-I-N-G-S 2 (9:00 a.m.) 3 THE COURT: Be seated, please. We'll 4 be back on the record. 5 Mr. Rinaldi, you may continue with your 6 examination. 7 MR. RINALDI: Thank you, Your Honor. 8 9 CONTINUED EXAMINATION 10 11 Q. (BY MR. RINALDI) Mr. Crow, when we 12 left off yesterday, I believe we had just looked 13 at a document which was T2011, and this was a memo 14 that you had written to Charles Hurwitz regarding 15 a discussion you had had with Jack Hughes. 16 Do you recall that? 17 A. Yes, sir, I do. 18 Q. And your discussion had been regarding 19 the question of whether PennCorp would be 20 interested in entering into an arrangement whereby 21 a portion of its debt would be discounted and 22 purchased by UFG. 14889 1 Do you remember that? 2 A. Yes. An extinguishment of the debt at 3 a discount. 4 Q. Okay. Now, would you take a look at 5 what's been previously marked as Exhibit T2012? 6 It appears in this book as T8065, but they are the 7 same document, and they were previously admitted 8 as Tab 74. And that's the -- if you look at the 9 first volume, it will be about three documents 10 from the end, and I think you have it in front of 11 you. It's a document dated May 5th, 19788. 12 A. Yes, sir, I do. 13 Q. And it's to George Barclay, president 14 of the Federal Home Loan Bank Board, and it's from 15 Arthur Berner. 16 Have you had a chance to look at this 17 document this morning? 18 A. Yes, sir. I've read about two-thirds 19 of it. 20 Q. Okay. And do you recognize the 21 document? 22 A. I -- yes, sir. It's a letter from 14890 1 Mr. Berner to Mr. Barclay. And I don't know that 2 I would have seen this specific letter, but I 3 certainly remember during this time frame there 4 was a dialogue going on about this subject. 5 Q. Now, there was financial information -- 6 well, let me ask you: Can you just generally 7 describe what the substance of the attachment to 8 the letter is to the memorandum? 9 A. The -- 10 Q. Yeah. The second page on is a 11 memorandum, and it's entitled "UFG, debt 12 restructure." 13 A. Oh, okay. Yes, sir. I believe it was 14 to present to the Federal Home Loan Bank in Dallas 15 or Mr. Barclay and his staff a proposal to 16 extinguish the PennCorp debt at a deep discount. 17 Q. Okay. And that's what you were talking 18 about to Mr. Hughes that's referenced in the 19 letter or the memo that was dated 12/11/87 that we 20 talked about yesterday? 21 A. Yes, sir. 22 Q. Okay. And do you know, did ultimately 14891 1 the proposal to discount the PennCorp debt, was 2 that ultimately undertaken by UFG and did they 3 ultimately buy out the debt at a deep discount? 4 A. Yes, they did. 5 Q. Okay. Now, directing your attention to 6 the second full page of the memo, the first 7 paragraph, it says, "It is likely -- "Thus, it is 8 likely that UFG will default on some of its debt 9 obligations by 1991 (see Exhibit D for details.) 10 Moreover, immediate default will result if UFG is 11 required to contribute significant assets to USAT 12 to augment the regulatory capital of USAT." 13 Do you see that? 14 A. I see that, yes, sir. 15 Q. Did you consider UFG to be in a 16 potential financial crisis as is referenced there 17 if the Bank Board required that UFG infuse capital 18 into USAT? 19 A. The best of my memory is that it 20 certainly would be in a difficult box because 21 there were -- there was a limited amount of money 22 and we had these debt obligations from PennCorp. 14892 1 And if we -- if UFG placed funds down into USAT, 2 then there was -- you know, there's just so much 3 money there. 4 So, if there were not enough funds to 5 service the PennCorp debt, then certainly, 6 presumably, we would have defaulted. 7 Q. Okay. And as you go on further, it 8 says -- on Page 3, it says "Avoidance of default." 9 It says, "To avoid the difficulties created by a 10 financial crisis at UFG, UFG has proposed a debt 11 restructuring with the creditors." And then in 12 the next paragraph, it goes on and says, "UFG's 13 major creditor has agreed to a preliminary" -- 14 to -- "agreed on a preliminary basis to take a 75 15 percent discount on its debt and agreed to 16 cancellation of their preferred stock." 17 Do you see that? 18 A. Yes, sir, I do. 19 Q. Why was it that PennCorp was willing to 20 take a 75 percent discount on the debt that UFGI 21 owed? 22 A. I really don't remember -- you know, I 14893 1 don't remember talking to Mr. Hughes or PennCorp 2 people about their motivations. I was coming at 3 it from an advocacy standpoint of, you know, we 4 wanted you to take this -- we wanted to get as 5 deep a discount as possible. 6 Q. And the reason you proposed it to them 7 is because you felt that, as referenced above in 8 that avoidance of default paragraph, that UFGI was 9 in a financial crisis and its potential creditors 10 would be willing to take a discount on these 11 obligations? 12 MR. VILLA: Objection. If he wants to 13 give the witness an opportunity to read Pages 2 14 and 3 that relate -- 15 MR. RINALDI: I believe he has, John. 16 MR. VILLA: -- that relate to the 17 series of events that result in a default and then 18 the financial crisis, he ought to let him do it 19 because he's trying to characterize his testimony 20 and force him into saying the word "financial 21 crisis" when, in point of fact, the face of the 22 memo indicates that there's just a series of 14894 1 events that's going to result in a default. 2 THE COURT: Let's have the answer. 3 THE WITNESS: Okay. Could I -- I got 4 through about Page 2. Should I -- can I read 5 further or -- I can answer without reading. 6 From my memory, I knew that if a 7 default occurred, there was something like -- 8 PennCorp had as collateral 50 some odd percent -- 9 52 percent of the USAT stock as collateral. And 10 if they took that stock, I believe that would 11 constitute a change of control. And that would 12 render the net operating loss carry-forwards 13 probably worthless. 14 And further, I think there was some 15 fear of UFG going into bankruptcy. And if that 16 happened, then it obviously would be published in 17 the newspaper, et cetera. And we were very 18 sensitive about our ability to raise deposit funds 19 and credit lines. 20 So, I recall it to be a pretty big deal 21 or a fear. 22 Q. (BY MR. GUIDO) And you made the 14895 1 proposal to buy down the debts so that you could 2 avoid that potentiality of UFG being forced into 3 bankruptcy, didn't you? 4 A. Well, my memory is that we made the 5 proposal to pay down that debt to avoid a problem 6 that appeared was going to come up in the future, 7 yes, sir. 8 Q. And that problem was that it could 9 ultimately result in UFG's bankruptcy, couldn't 10 it? 11 A. Ultimately, if we get out into -- 12 certainly, eventually -- to the best of my memory, 13 we ran numbers that showed that UFG was going to 14 run out of money, I believe -- 15 Q. Okay. 16 A. -- if something didn't happen with this 17 debt. 18 Q. Okay. Now, in the bottom of the third 19 page, it makes reference to a preferred stock 20 Series B. And it says the principal amount is 21 $5,873,000 and there is no collateral for that 22 preferred B series. 14896 1 Do you see that? 2 A. Yes, sir, I do. 3 Q. Then there is an asterisk and at the 4 footnote at the bottom, it says "The UFG board has 5 determined not to make the May 1st scheduled 6 dividend or sinking fund payments on this 7 preferred stock." 8 Do you see that? 9 A. I see that. 10 Q. Did, in fact -- or do you recall that, 11 in fact, the board declined to make the dividend 12 payment on the preferred stock? 13 A. What I recall is that dividends were 14 passed on preferred stock. And whether there was 15 one more -- another series or not, I'm not sure it 16 was a Series B. But it certainly could have been. 17 Q. Well, why was it that UFG at this point 18 in time -- I mean, you were a member of the board. 19 You were its chief financial officer. 20 Why was UFG in May of 1988 not making 21 required sinking fund payments on this B preferred 22 stock? 14897 1 A. Well, I don't remember. As I sit here 2 today, just intuitively, preferred stock stands 3 behind debt. And so, it could be that was the 4 reason. We felt we didn't have to. But 5 factually, I don't have a memory from our 6 reasoning at that time. 7 Q. Well, did UFG have the ability at this 8 point in time to pay the preferred stock or to 9 fund the sinking fund as required under the 10 preferred stock? 11 MR. VILLA: Your Honor, I object 12 because he's injecting a number of legal issues in 13 here. First of all, he's saying "as required by 14 the preferred stock." As all lawyers know, 15 accountants don't know what the obligations are 16 and whether or not they are mandatory that you pay 17 dividends on preferred stock. And we're getting 18 those subtleties pushed into the questions and 19 Mr. Crow is perhaps being led astray. That's a 20 legal issue. If he'd just ask him why they made 21 the decisions without trying to inject these legal 22 issues into the question subtly to a person who's 14898 1 not a lawyer, I think, Your Honor, perhaps I 2 wouldn't object. 3 Q. (BY MR. RINALDI) As the chief 4 financial officer, did you understand that UFG, 5 under the preferred offering of stock, had an 6 obligation to fund the sinking fund for the 7 preferred B share stock? 8 A. I really don't remember. And again, I 9 go back to -- preferred stock would seem to me to 10 stand behind debt. And if you don't make 11 preferred stock payments, generally, it's 12 certainly not as bad as not making debt payments. 13 Q. Okay. Would you -- 14 A. But that's -- 15 Q. Okay. I'm sorry. Are you finished 16 with your answer? 17 A. Yes, sir. 18 Q. Okay. Why don't you take a look at 19 what's been previously marked as the -- this is 20 the annual report for 1987. It's Tab 402, and 21 it's Exhibit T8033. It's in about the middle of 22 Volume I. 14899 1 A. T -- what was the "T" number, please? 2 Q. T8033. Have you found it? 3 A. Yes, I have. 4 Q. Can you turn to Page 57 of that 5 document? 6 A. (Witness complies.) 7 Q. And do you see down at the bottom in 8 the next-to-the-last paragraph, there is a 9 reference to B preferred stock? 10 A. Yes, sir, I do. 11 Q. Okay. And it says "Series B preferred 12 stock requires a 13 percent cumulative dividend 13 paid quarterly with quarterly sinking fund 14 payments of $146,813 commencing May 1st, 1988, and 15 annual mandatory redemptions commencing May 1st, 16 1989." 17 Do you see that? 18 A. Yes, sir, I see that. 19 Q. Does that refresh your recollection 20 that the B preferred stock required a 13 percent 21 cumulative dividend payment paid quarterly with 22 quarterly sinking fund payments commencing May 14900 1 1st, 1988? 2 A. Could I read, please, the whole 3 footnote? 4 Q. Sure. 5 A. (Witness reviews the document.) Well, 6 yes, sir, I certainly see the statement that you 7 read. 8 Q. But that doesn't refresh your 9 recollection? 10 A. No, sir, it really doesn't. And I 11 guess the point I was trying to get to is that if 12 you don't make these payments, what I was looking 13 for is kind of what happens. 14 Q. I understand that. But my question to 15 you is: Does that refresh your recollection that 16 the B preferred shares required UFGI to make those 17 payments? That is, the quarterly sinking fund 18 payment and the dividend payment on May 1st, 1988? 19 A. No, sir. In terms of an independent 20 recollection, no. I certainly see that it says 21 that on this page, yes. 22 Q. But you would have no reason to doubt 14901 1 the accuracy of the annual statement, would you? 2 A. Oh, no. I would believe the financial 3 statements to be accurate. 4 Q. Okay. And on May 5th, this memo, which 5 is T8065 or T2012 -- that's the May 5th, 1988 6 letter from Mr. Berner to Mr. Barclay and the 7 attached memorandum -- it says that UFGI declined 8 to make both the sinking fund payment and the 9 dividend payment on those preferred shares; is 10 that correct? 11 A. That's what the schedule says, yes, 12 sir. 13 Q. But as you sit here today, you don't 14 have any reason as to why they declined to do 15 that? 16 A. No, I really don't know. 17 MR. VILLA: Objection. He already 18 answered that question. 19 THE COURT: Continue. 20 MR. RINALDI: Your Honor, I'm at a 21 quandary here. I have the chief financial officer 22 of UFGI. I have a preferred share that is not -- 14902 1 the sinking fund payment is deferred or not made 2 at all, and I'm simply trying to ascertain why it 3 was UFGI decided that they weren't going to pay 4 that obligation that's discussed in the proxy 5 statement. 6 THE COURT: Well, you've asked that, 7 though. 8 MR. RINALDI: Then I will move on, Your 9 Honor. 10 Q. (BY MR. RINALDI) Now, we've talked a 11 little bit about the net worth obligation, and I 12 showed you, as you recall yesterday, the 13 stipulation that had been signed by Sonny Bentley 14 back in 1983. 15 A. Yes, sir. 16 Q. Did there come a time when the Bank 17 Board contacted the members of the board of UFGI 18 and advised them that they had an obligation to 19 take action with regard to the net worth 20 maintenance obligation? 21 A. Yes, sir. I recall, in 1988, one or 22 more letters directing -- or perhaps "directing" 14903 1 is the wrong word, but basically saying to the 2 board -- indicating what actions the board is 3 going to take to put capital into USAT. 4 Q. Okay. Would you take a look at two 5 documents and maybe this will help move things 6 along. The first document I'd like you to open to 7 is in the second volume, and it's Document T8070. 8 And it will be the third document in. This is a 9 letter dated May 13th, 1988. And it has not 10 previously been admitted. I'm sorry. I am 11 advised that it was previously admitted as T2013, 12 Tab 71. 13 Do you have the document, sir? 14 A. Yes, sir, I do. 15 Q. Okay. And then would you also turn to 16 Volume III -- just set that one aside. 17 A. Okay. 18 Q. -- to Document T1152. And this is a 19 letter to the Federal Home Loan -- I mean to the 20 board of directors from the Federal Home Loan Bank 21 Board dated December 8th, 1988. And T1152 appears 22 about ten documents from the end of Book No. 3, 14904 1 and it's dated December 8th, 1988. 2 Have you found that document, sir? 3 A. Yes, I have. 4 Q. Okay. Now, you indicated that there 5 came a time when you were requested as a member of 6 the board of directors of UFG to take some action 7 with respect to the net worth maintenance 8 stipulation that had been previously entered by 9 UFGI. 10 Do you recall that? 11 A. I remember that we were requested to -- 12 as this letter indicates -- put capital into 13 United Savings. 14 Q. Okay. And so, the letter dated May 15 13th, 1988, that -- 16 MR. VILLA: Object. Can the witness 17 tell us, when he was referring to putting capital 18 into UFGI, which letter he was referring to? 19 MR. RINALDI: Well, John, if you would 20 wait, I would ask him that question. Perhaps 21 you're a little too quick on the draw, John. 22 MR. VILLA: Your Honor, it's just not 14905 1 my custom to engage in banter with counsel in the 2 courtroom and, if I don't respond to him, I hope 3 you don't think that I'm acquiescing in his 4 statements. 5 The witness is looking at one letter. 6 He asked him a question, and then he doesn't ask 7 him which letter. Then he moves back to the May 8 13 letter and starts asking questions. I just 9 think when he's asking him to put two letters in 10 front of him, and he asks him a question, he ought 11 to is ask him which exhibit he's looking at. 12 THE COURT: All right. Let's have the 13 question, Mr. Rinaldi. 14 Q. (BY MR. RINALDI) Is the May 13th, 15 1988 letter the letter you were referring to a 16 moment ago? 17 THE COURT: Well, wait. I don't think 18 that question is clear. 19 MR. RINALDI: Okay. 20 Q. (BY MR. RINALDI) A moment ago, you 21 said -- you made reference to a letter that you 22 were looking at? 14906 1 A. Yes, sir. 2 Q. Okay. Which letter were you looking at 3 when you made reference to a letter? 4 A. The December 8th letter is pretty 5 clear. 6 Q. Okay. And what does the December 8th 7 letter say? Let me just read into the record. It 8 begins -- it's to the board of directors, and it's 9 from Neil Twomey. 10 MR. RINALDI: And I would offer this 11 into evidence, Your Honor. 12 THE COURT: That's T1152? 13 MR. RINALDI: T1152. And it reads as 14 follows. "References made" -- 15 THE COURT: All right. T1152 is 16 received. 17 MR. VILLA: Your Honor, it's already in 18 evidence as a Tab 73. 19 Q. (BY MR. RINALDI) "Reference is made 20 to the May 13th, 1988, correspondence from myself 21 to you regarding the infusion of capital in United 22 Savings Association of Texas (United) necessitated 14907 1 United's failure to meet its minimum regulatory 2 capital requirement as of December 31st, 1987. A 3 copy of that letter is attached. From a review of 4 our records, we find your acknowledgement of 5 receipt of the May 13th, 1988 letter. However, no 6 further correspondence seems to have been received 7 in this matter. At this time" -- 8 MR. VILLA: Mine says "appears to have 9 been." 10 MR. RINALDI: "Appears to have been 11 received." 12 Q. (BY MR. RINALDI) "At this time, you 13 as members of the board of United Financial Group 14 Inc. (UFGI) are directed to infuse additional 15 equity capital in United. This is in conformance 16 with the provision -- with Provision No. 6 of the 17 Federal Home Loan Bank Board responsibility -- 18 Resolution No. 83252 dated April 29th, 1983, and 19 with the fiduciary responsibility you are charged 20 with as directors of UFGI. The board is reminded 21 that the form of the recapitalization must be 22 satisfactory to the supervisory agent." 14908 1 Now, do you recall receiving that 2 letter from Mr. Twomey at or about December 8th, 3 1988? 4 A. Yes, sir. 5 Q. Okay. And it makes reference there to 6 a prior letter dated May 13th, 1988? 7 A. I see that, yes. 8 Q. Okay. And does that appear to be the 9 letter which is marked as Exhibit T8070 from Neil 10 Twomey to the board of directors? 11 A. Yes, sir, it does appear to be that. 12 Q. Okay. Do you recall as a member of the 13 board of directors having received the May 13th, 14 1988 letter? 15 A. Could I take just -- 16 Q. Certainly. 17 A. -- one minute to read that? (Witness 18 reviews the document.) 19 Q. Have you had a chance to look at it? 20 A. Yes, sir, I do remember this letter, as 21 well. 22 Q. Okay. And as a member of the board, 14909 1 you recall receiving the May 13th letter? 2 A. I certainly -- I believe I do, yes. 3 Q. Okay. And then the May 8th, 1988 4 letter -- that is, T1152 -- it indicates that no 5 action had been taken to infuse capital into UFG. 6 Do you see that? 7 A. The December 8th? 8 Q. Yes. 9 A. Yes, sir. 10 Q. Okay. Now, following the receipt of 11 the December 8th letter, was any action taken by 12 the board of UFG to infuse capital into USAT? 13 A. I don't think so. 14 Q. Okay. Would you turn now another three 15 documents in the third binder to T8149? This was 16 previously admitted at Tab 407. And this is a 17 document dated December 28th, 1988. It's again to 18 the board of directors of UFG. It's from Mr. Neil 19 Twomey, and it begins "Reference is made to two 20 previous pieces of correspondence dated May" -- 21 MR. KEETON: Your Honor, can't we just 22 look at a letter? Do we have to read them all? I 14910 1 think the witness can read. We can read. 2 Mr. Rinaldi can read. For months now, all we've 3 heard is reading things that are obvious and then 4 a question that usually doesn't relate. 5 Q. (BY MR. RINALDI) Do you recall 6 receiving this letter? 7 A. I don't recall receiving this one, no. 8 Q. As you sit here today, does the letter 9 again direct the board of directors of UFG to 10 infuse capital into USAT? 11 A. Yes. The second-to-last paragraph says 12 "The board of directors of UFGI is directed to 13 take the appropriate action to infuse additional 14 equity capital into United as previously advised." 15 Q. Okay. 16 A. "Including immediately." 17 Q. Okay. 18 A. Et cetera. 19 Q. Did UFGI infuse capital into USAT at 20 that point in time? 21 A. Not to my knowledge. 22 Q. Okay. Now, would you turn one more 14911 1 page -- strike that. 2 Before you turn the page, let me ask 3 you this: After the receipt of this letter, did 4 UFGI -- I mean USAT go into receivership shortly 5 thereafter? 6 A. December 30th. 7 Q. Okay. And as a consequence of its 8 going into receivership, what happened with 9 respect to your employment at USAT? 10 A. It didn't last long. 11 Q. Okay. Would you take a look at T8150, 12 which is the next document, and T8151, which are 13 the next two documents? 8150 has been previously 14 admitted as Tab 455. Okay? 15 Do you recognize that document, sir? 16 A. That is my termination notice. 17 Q. Okay. And you received this on or 18 about December 30th, 1988, from the Federal 19 Savings and Loan Insurance Corporation? 20 A. Yes, sir. I received it from some 21 attorneys. I wasn't quite sure who it was; but 22 yes, I remember the letter. 14912 1 Q. And as a consequence of the receipt of 2 this letter, your employment at USAT was 3 terminated; is that correct? 4 A. That is correct. 5 Q. Okay. Now, what happened with respect 6 to your involvement with UFG at that point in 7 time? You were still the CFO of UFG, and you were 8 still a member of the board, were you not? 9 A. No, sir. I think I resigned as a 10 member of the board in early December of 1988. 11 Q. Okay. 12 A. But -- 13 Q. But you were still a member -- the 14 chief financial officer? 15 A. I believe I was the chief financial 16 officer as of this date. 17 Q. And what happened with respect to that 18 employment? 19 A. I think I resigned just a few days 20 after this. 21 Q. Why is it that you resigned from UFGI? 22 A. Well, I had been fired; and there 14913 1 didn't seem to be a job there for me. 2 Q. UFGI fired you? 3 A. USAT fired -- or excuse me. I was 4 fired as a result of this letter. 5 Q. When you say "fired," fired from which 6 entity? 7 A. United Savings. 8 Q. Okay. 9 A. Yes, sir. 10 Q. And what happened with respect to your 11 employment at UFGI? 12 A. I resigned, and that resignation was 13 accepted. 14 Q. So, no one at UFGI required that you 15 withdraw or resign from that company? 16 A. No. I don't remember that happening. 17 What the real world was, I had been terminated 18 from -- via this exhibit, and I tendered my 19 resignation to UFGI, assuming there was no job 20 there. If Dr. Munitz or whoever had said, "Gee, 21 there's this great opportunity and this great job 22 at UFGI," I certainly might have reconsidered. 14914 1 But that wasn't the case. 2 Q. Now, you testified at the beginning of 3 this proceeding that in September of 1987, you had 4 entered into an employment contract with UFGI. 5 Do you recall that? 6 A. In late 1987, yes, sir. 7 Q. Right. And pursuant to that employment 8 contract, they had agreed to pay you $171,656 a 9 year plus a minimum bonus. 10 Do you remember that? 11 A. I remember that. 12 Q. So, if you had stayed on at UFGI, you 13 had a contract for employment, didn't you? 14 MR. VILLA: Your Honor, I'm sure that 15 Mr. Rinaldi isn't deliberately misleading the 16 witness, but he does know that there's a contract 17 between those two contracts. We are going back 12 18 years in time; so, tripping up the witness by not 19 telling him about the intervening contract 20 probably just mixes up the record probably more 21 than it ought to be. 22 MR. RINALDI: Your Honor, no one here 14915 1 is trying to trick or confuse the witness. I have 2 not got to that contract. And in due course, I 3 will get to the contract. There's nothing tricky 4 in this. I was just pointing out to him that he 5 did have an employment agreement with -- 6 THE COURT: Well, it seems your 7 question was directed as to what effect that 8 contract had when he resigned. If there was an 9 intervening contract, it seems to me that would 10 have a bearing on the issue. 11 MR. RINALDI: I'll ask him that 12 question. 13 Q. (BY MR. RINALDI) Do you recall that 14 at some time after you entered the first contract 15 with UFGI, you entered into a subsequent contract? 16 A. Yes, sir. I misspoke. There were 17 several contracts after that original 1987 18 contract which effectively, I suppose, superseded 19 the 1987 contract. 20 Q. And -- 21 A. So, when I spoke of having a contract, 22 I just -- you know, I knew I had an employment 14916 1 contract. I didn't focus in on the date. 2 Q. Why don't you take a look at the second 3 volume and look at Exhibit B2264. And I don't 4 believe this has a tab or it's not been previously 5 admitted, but I may stand corrected. It's in the 6 second volume. It's about halfway through, and 7 it's dated June 30th, 1988. 8 Have you found that document, sir? 9 A. I have. 10 Q. And is this -- if you turn to the last 11 page, Page 28, is that your signature that appears 12 on the 28th page? 13 A. Yes, sir, it is. 14 Q. And this contract states at the bottom 15 of Page 1, the "whereas" clause, "Whereas the 16 executive has previously entered into an 17 employment agreement dated September the 9th, 18 1987, by and between the company and the 19 executive." 20 And so, that's making reference to the 21 earlier contract that we just discussed, is it 22 not? 14917 1 A. It does. 2 Q. And this is the contract that then 3 superseded the earlier contract; is that correct? 4 A. Yes, sir. 5 Q. Okay. Now, this -- the earlier 6 contract, I believe we discussed it yesterday, had 7 a term through December 30th, 1988. 8 Do you remember that? 9 A. I don't remember it, but I certainly 10 accept it. 11 Q. Okay. Well, if you'll turn back to 12 B1743, you can check it for yourself. I don't 13 want you to -- 14 A. I said I accept it. 15 MR. VILLA: B1743? 16 MR. RINALDI: Yeah. 17 Q. (BY MR. RINALDI) And so, this new 18 contract then extended the term of your agreement 19 with UFGI for a period of three years, did it not? 20 A. What section is that? 21 Q. It's Paragraph 2, Page 2. It talks 22 about the term. 14918 1 A. This contract would go through December 2 31st, 1991. 3 Q. Okay. And in the previous contract, I 4 believe the compensation level was 171,658. And 5 in this contract at Page 5, the salary has been 6 increased to $280,656 per anum. 7 Do you see that? 8 MR. VILLA: Excuse me. Page 5? 9 MR. RINALDI: No. It's Page 3. It's 10 Paragraph 5. 11 A. Page 3? 12 MR. VILLA: Your Honor, if Mr. Rinaldi 13 would like to put this into evidence, we would 14 have no objection. This is the one I was 15 referring to in my prior objection. 16 MR. RINALDI: I'll offer the admission 17 of the document, Your Honor. 18 THE COURT: Exhibit B2264 is received. 19 Q. (BY MR. RINALDI) Now, do you recall 20 that when you entered into this subsequent 21 contract that it contained additional provisions 22 which were not in the original contract relating 14919 1 to securing the severance benefits under that 2 contract? 3 A. I remember that this contract -- if 4 this is the last contract I had at United -- 5 Q. I will warrant to you that this is the 6 last contract you had at United -- 7 A. Okay. 8 Q. -- at least as far as I know. 9 A. This contract had been modified to take 10 into account -- there was a so-called Larry 11 Connell contract that was kind of the model. And 12 I believe we had a contract that was -- that was 13 modeled after that contract. And I'm aware that 14 there were escrow-type arrangements or that sort 15 of thing in this contract. Whether it was or 16 wasn't in the earlier ones, I don't know. But 17 yes, I do remember it was in this contract. 18 Q. Okay. And would you take a look at 19 Page 18 of the contract and specifically to 20 Section I. 21 Are you there? 22 A. Yes, sir. 14920 1 Q. And at the bottom, "I" reads, "as 2 security for the company's obligation to make 3 payments to the executive pursuant to Paragraph 9, 4 upon the execution of this agreement by the 5 company (the initial establishment date), the 6 company shall deliver or cause to be delivered to 7 the executive an unconditional irrevocable letter 8 of credit (the initial letter of credit issued by 9 a national banking association)." 10 Is that what you were referring to when 11 you said that there was a provision in the 12 contract that provided for security for severance? 13 MR. VILLA: I believe he misstated his 14 answer. I believe he said "escrow." 15 A. Well, I get confused between escrow and 16 a letter of credit. But I would think that this 17 is in, you know -- basically agrees with my memory 18 that there was some type of arrangement. 19 Q. (BY MR. RINALDI) A security 20 arrangement? 21 A. To cover the contract, yes. 22 Q. Okay. And what did you understand was 14921 1 covered by that security arrangement? 2 A. I think -- well, what I remember is 3 the -- let me read this, please. I'd better read 4 it. 5 Q. Let me just ask you a couple of 6 questions. 7 Do you recall that the contracts -- 8 A. This is consistent with my memory. 9 Q. Okay. Do you recall that the contracts 10 had severance benefits? 11 A. Yes, sir. 12 Q. And do you recall the amount of those 13 severance benefits? 14 A. Two times annual compensation. 15 Q. Okay. So, in your case, it would have 16 been two times $240,000 approximately? So, it 17 would have been -- or $280,000. So, it would have 18 been over half a million dollars? 19 A. I'm not sure of the exact numbers, but 20 it -- you know, I -- 21 Q. It would be two times -- 22 A. -- accept that, yeah. 14922 1 Q. It would be two times 280,000? 2 A. Two times whatever the contract says I 3 was making, yes, sir. 4 Q. Okay. And under Section I, I think 5 this is 9I that appears on 18, those benefits 6 could be secured by a letter of credit. That's 7 what we just looked at? 8 A. That's what the contract says, yes, 9 sir. 10 Q. Okay. Do you recall that the contract 11 also provided for the eventuality that if you 12 couldn't obtain a letter of credit, that moneys 13 could be placed into trust by UFG? 14 A. I remember that under some of the 15 arrangements. 16 Could you direct me to the section 17 here? 18 Q. Sure. If you look at Page 20, the 19 first full paragraph, it starts, "If during the 20 term of this agreement, the company is unable to 21 deliver a replacement letter of credit." 22 Do you see that? 14923 1 A. Yes, sir. 2 Q. Just read that first couple of 3 sentences. 4 A. Okay. (Witness reviews the document.) 5 yes, sir, I do remember that. 6 Q. That refreshes your recollection that 7 the severance benefits of two times your annual 8 salary could be secured either by a letter of 9 credit or, if not that, then the moneys could be 10 placed in an irrevocable trust? 11 A. Yes. 12 Q. All right. Now, you had a binding 13 contract you had entered into with UFGI. Is that 14 it? 15 A. Yes, sir. 16 Q. Okay. And you voluntarily determined 17 that you wished to resign from UFGI; is that 18 correct? 19 A. Well, I don't really know how voluntary 20 it was. I resigned from UFGI. 21 Q. No one fired you? 22 A. No. From UFGI, nobody came in and said 14924 1 "you're fired." 2 Q. Okay. Now, when UFGI entered into this 3 contract which is June 30th, 1988, how would you 4 describe the financial condition of the entity? 5 A. When we -- when UFGI entered into this 6 contract? 7 Q. Yeah. 8 A. Well, as of June of '88, the financial 9 condition of UFGI would be under intense pressure. 10 Q. And it would have had negative 11 shareholder equity? 12 A. I think so. I'm not sure if it was 13 negative, but I think that's correct. 14 Q. And if you take a look at -- or do you 15 recall yesterday we looked at the August 1988 16 financial statement for the second full quarter of 17 1988? 18 A. I remember we looked at financial 19 statements. I'm not sure of the date. 20 Q. Okay. Well, take a look at T8095 21 again, which is in Volume No. II. And it should 22 be about, oh, eight or so documents on from the 14925 1 employment agreement. 2 A. Okay. Okay. Yes. I do see that at 3 June 30th, 1988, United Financial Group had a 4 stockholders' deficit of 78,987,000. 5 Q. Okay. And then if you turn to the 6 third page, it also indicates that USAT, in the 7 regulatory compliance section, was failing its net 8 worth by $163 million, wasn't it? 9 A. Let's see. I'm not quite there yet. 10 Q. I think it's the third page of the 11 document. Sir, I think it's the third page in of 12 8095. It talks about regulatory compliance. 13 A. Yes. I see "Deficit regulatory 14 capital-USAT, negative 163 million." 15 Q. Okay. So, on the date you entered into 16 this new agreement that secured your severance 17 benefits -- 18 MR. VILLA: Excuse me, sir. I hate to 19 bother you. 20 Could you tell us what the exhibit 21 number is on this? T8095? 22 MR. RINALDI: It's the August 23rd, 14926 1 1988 second quarter 1988 performance. It's a memo 2 to the board of directors from Michael Crow. 3 Q. (BY MR. RINALDI) And you prepared 4 T8095 or it was prepared under your direction, 5 correct, sir? 6 A. The finance area would have prepared 7 this, and I was the head of the finance area. 8 Q. And on the date that you entered into 9 that contract with UFGI -- that is, June 30th, 10 1988 -- USAT had a net worth deficit of 11 $163 million; is that correct? 12 A. Well, it had regulatory capital. But 13 it was below its -- 14 Q. -- minimum capital requirement, 15 correct? 16 A. That's the way I read this schedule, 17 yes, sir. 18 Q. And a month and a half earlier, on May 19 13th, 1988, Mr. Twomey had sent you, as a member 20 of the board of UFGI, a letter asking what you 21 were going to do about complying with UFGI's 22 obligation to infuse capital into UFGI -- into 14927 1 USAT; isn't that correct? 2 A. I recall that letter. 3 Q. Okay. And as a member of the board of 4 directors -- strike that. 5 And the board of directors of UFGI, 6 after receiving the letter from Mr. Twomey, did 7 not cause capital from UFGI to be infused into 8 USAT; is that correct? 9 A. I don't remember capital being infused 10 into USAT. 11 Q. And then about six weeks later on June 12 30th, you entered into this new contract which 13 provided for two years' severance secured by a 14 letter of credit and -- or in the alternative, a 15 trust? 16 A. Yes, sir, I did enter into this June 17 30th contract. 18 Q. Now, just so I don't mislead anyone 19 here, the earlier contract on September the 9th, 20 do you recall that it had a provision for 21 severance benefits in it? 22 A. I believe all the contracts that I had 14928 1 had the severance benefits in them. 2 Q. But under the original contract, do you 3 recall that there was no provision to secure those 4 contracts? 5 A. I really don't remember. I'll accept 6 that if that's -- I just don't remember. 7 Q. Well, wasn't that one of the reasons 8 for entering into the new contract with UFGI, in 9 order to obtain a provision that would secure the 10 benefits with a letter of credit or a trust in the 11 event that UFGI went into bankruptcy or went out 12 of business, your benefits or your severance 13 benefits would be secured? 14 A. Well, as I recall, there was a series 15 of contracts. I think there was one between -- 16 well, I just looked at USAT and UFG for my 17 purposes kind of together. But there was one in 18 November that we discussed. I think there was a 19 contract -- 20 Q. Well, wait. I don't want to confuse 21 the record. You mean there was one in September 22 of 1987? 14929 1 A. Okay. Late 1987. Then there was a 2 contract that I received in early 1988. 3 Q. Okay. Now, we're going to get to that. 4 But that contract in early 1988 was with USAT, was 5 it not? 6 A. Yes. 7 Q. Okay. And then later, there is the 8 contract that we're looking at now, which is with 9 UFGI? 10 A. Then there was this June contract, 11 which I'm assuming is the last of the contracts. 12 Q. Okay. And that's the one I was just 13 referring to, the June contract with UFGI. 14 A. That's correct. 15 Q. Do you recall a fourth contract? 16 A. Well, I won't say there wasn't one. 17 Q. Do you recall that at or about the time 18 you entered into the contract with UFGI on June 19 30th, 1988, or shortly thereafter you also entered 20 into a similar contract with USAT? 21 A. I remember the last contracts that I 22 signed at United. 14930 1 Q. Okay. When you say "United," are you 2 referring to UFG or USAT? 3 A. Both. 4 Q. Okay. 5 A. The last contracts I entered into at 6 United, as I understood it, were modeled after the 7 Larry Connell contract and -- 8 Q. Now, Mr. Connell -- 9 A. -- that's the best of my recollection. 10 You know, as a -- as -- you know, I just got these 11 contracts. And it's not that I didn't pay 12 attention to them, but we would have little pages 13 that I believe the -- there was -- in some of the 14 wording, that it was objectionable or something; 15 and we would get new contracts. 16 But for my purposes, you know -- I 17 mean, I certainly paid attention to them, but I 18 looked at my salary and what it meant to me if I 19 got fired. I'd get some severance benefits. 20 Q. Well, weren't you the head of the human 21 resources or wasn't that one of the areas that was 22 under your purview? 14931 1 A. Yes, sir. 2 Q. Okay. And wouldn't human resources be 3 involved in this contractual process or providing 4 contracts to employees of the institution? 5 A. No. They really were not except as it 6 relates to the mechanics. And by "mechanics," I'm 7 talking about payroll and -- the contracts were at 8 a pretty high level. The people that had 9 contracts were at kind of the executive level. 10 And that was handled more by the compensation 11 committee and consultants and that sort of thing. 12 Q. Okay. Now, you indicated that you 13 recall the last series of contracts. We have been 14 sitting here looking at a UFGI contract, which is 15 T8086. 16 Do you recall that the day following 17 the date that you entered the UFGI contract, you 18 entered into a very, very similar contract with 19 USAT? 20 A. I don't remember it was the day after. 21 I remember the last contracts that I entered into, 22 they were -- there were dual contracts. And 14932 1 whether it was on the same day or -- it seems to 2 me it was just right on top of each other, maybe 3 the same day. 4 Q. All right. Well, why don't you just 5 flip two documents further in from -- I believe 6 we've been looking at B2264. Now, why don't you 7 just flip to T8086, which I -- has that been 8 previously admitted? 9 Have you got a chance to look at that, 10 sir? 11 A. I see that it's an employment contract 12 with United Savings. 13 Q. Okay. 14 A. Dated July 1st, 1988. 15 Q. Okay. Now, look at the term of the 16 contract that appears with United Savings. 17 Is that identical to the term of the 18 UFGI contract? 19 A. It is. 20 Q. And then if you flip further onto the 21 next page, Page 3, it indicates that the salary in 22 the UFGI contract is 280,656 and the salary in the 14933 1 USAT contract is 280,656. 2 Do you see that? 3 A. Yes, sir, I do. 4 Q. Does that mean that you were then 5 making over $560,000 a year between UFG and USAT? 6 A. Boy, I think I would have remembered 7 that. 8 Q. They weren't both paying you 280,000? 9 A. Oh, no, sir. No. 10 Q. Okay. In fact, UFGI never paid you 11 anything under the contract that's B2264 in terms 12 of salary, did it? 13 A. I think my actual -- the paychecks came 14 from United Savings. 15 Q. And, in fact, all of your salary was 16 paid for by United Savings, wasn't it? 17 A. Yes, sir, with the caveat we discussed 18 yesterday that there were some chargebacks for 19 allocations. 20 Q. Okay. We'll get to that. 21 A. Okay. 22 MR. RINALDI: I'd like to offer into 14934 1 evidence T8086, Your Honor. That's the July 1st 2 contract between Mr. Crow and United Savings 3 Association of Texas. It's T8086. 4 MR. VILLA: Your Honor, this contract 5 isn't executed by Mr. Crow, but we have no 6 objection. 7 THE COURT: Received. 8 Q. (BY MR. RINALDI) Now, I notice that 9 the last full paragraph of Exhibit 29 -- I'm 10 sorry -- last full paragraph of Exhibit T8086, 11 which is the employment contract with USAT -- 12 A. On the last page? 13 Q. Yes, sir. It would be Special 14 Provision 18E. Okay? It reads as follows: "The 15 terms and conditions of this agreement shall 16 become effective if, but only if, UFGI shall be 17 unable to comply with all of its obligations and 18 make all of its payments as set forth in and under 19 the UFGI agreement." 20 Do you see that? 21 A. I see that. 22 Q. Okay. Now, in fact, did UFGI make all 14935 1 of the salary payments that are reflected on 2 Page 3 after the entry into the contract which has 3 been identified as B2264? 4 A. Is the question did UFGI pay my salary? 5 Q. Yes. 6 A. No, sir, they did not. 7 Q. Okay. And we talked earlier about a 8 severance benefit secured by a letter of credit. 9 Now, pursuant to that last provision 10 under USAT, it indicates that USAT would have no 11 obligation or its obligation would become 12 effective only if USAT -- UFG was unable to comply 13 with its obligations. 14 Now, did UFGI ever obtain a letter of 15 credit as provided under Paragraph 9I on Page 18 16 of B2264 to secure your severance benefits? 17 A. No, sir, not -- certainly not that I 18 remember. 19 Q. Okay. Did UFGI ever set up a trust and 20 fund the trust as provided on Page 20 of B2264? 21 A. Not that I'm aware of. 22 Q. Now, we talked about funding the trust 14936 1 with a letter of credit. You were the chief 2 financial officer. 3 Was that something you discussed with 4 other people at USAT -- I mean UFG before the 5 contract was drafted? 6 A. That I discussed at UFG? 7 Q. Or USAT. 8 A. Oh, okay. 9 Q. Before these contracts were drafted. 10 A. I don't really remember specifically, 11 but I certainly remember talking about letters of 12 credit to secure contracts. As to whether it was 13 before or after they were drafted, I don't know. 14 Q. In fact, weren't you the one that first 15 came up with the idea of utilizing letters of 16 credit to secure the unfunded severance benefit? 17 A. No. I -- well, I think the idea first 18 came up in conjunction with the employment of 19 Sandy Laurenson and Gene Stodart and those people. 20 Q. Okay. And subsequently when the 21 question came up of "how do we secure the benefits 22 of the senior executives at USAT and UFGI," 14937 1 weren't you the one that suggested that a letter 2 of credit mechanism be used to secure the 3 severance benefits? 4 A. I don't remember that. I certainly may 5 have. I just don't remember. 6 Q. So, it wouldn't surprise you if, in 7 fact, that's what occurred? 8 A. No. 9 Q. Okay. Now, do you recall in the latter 10 part of 1987, after Mr. Crow had written -- I'm 11 sorry -- Mr. Berner had written his memo dated 12 October 29th, 1987, advising you and other members 13 of the senior executive staff of USAT that he was 14 projecting a potential net worth failure by USAT, 15 do you recall any discussions at about that point 16 in time of deferring executive salary increases? 17 A. I remember the subject of deferring not 18 only executive salaries but people making above 30 19 or 40,000 to -- for purposes of getting them all 20 on the same review date. 21 Q. Okay. And what do you recall about 22 that? 14938 1 A. I remember -- and here, it's difficult 2 for me to separate what I remember back then from 3 a review of the documents. But I remember what we 4 did is put everybody on a common review date that 5 made above a certain number, and that was 30, 6 35,000, somewhere in that area. 7 Q. Now, are you basing your testimony now 8 upon a review recently of documents, or do you 9 recall this from the events that occurred at the 10 time? 11 A. I can't -- I don't know. I'm not smart 12 enough to -- 13 Q. Fair enough. 14 A. -- to tell you. 15 Q. What was the reason for deferring the 16 salary increases at that point in time, in October 17 of 1987? 18 A. You know, I really don't remember. I 19 have a -- it wouldn't be uncommon to try to put 20 everybody on the same review date so that you 21 could -- you know, for the higher-paid people -- 22 look at everybody on, say, May 31st, for example. 14939 1 Q. Do you recall the date -- 2 A. Instead of piecemealing out -- "We're 3 going to give Joe Blow a raise in May and then 4 we're going to give Mary a raise in September." 5 And, you know, in terms of fairness, maybe we were 6 more optimistic in May and less optimistic in 7 September. And so, the person in September kind 8 of gets shafted. So, you know -- but I can't say 9 that was the -- the specific reason. 10 Q. Do you recall that the board of USAT 11 put off the consideration of any salary increases 12 for senior executives earning over $35,000 a year 13 until after June 30th, 1988? 14 A. I don't remember the specific date, but 15 I remember everybody was put on a -- everybody 16 that was making above a certain amount was put on 17 a common review schedule. 18 Q. And wasn't one of the reasons for doing 19 that because you were concerned about the 20 financial viability of USAT at the end of 1987? 21 A. I don't remember that. I don't 22 remember that. I just don't remember the specific 14940 1 reasons other than what I kind of hypothesized. 2 Q. You don't recall that you were 3 concerned at that point in time that USAT had -- 4 was in -- had failed its minimum net worth 5 requirement and that you were concerned about 6 limiting future expenses of USAT and that the 7 proposal was a mechanism to reduce the operating 8 expenses of USAT? 9 A. Well, I can take it part of the way 10 there. Certainly in the time frame you're talking 11 about I was concerned about United Savings and 12 UFG's financial condition, absolutely. 13 Q. And if you deferred the increase in 14 salaries, that would have had the effect of 15 reducing the operating expenses of USAT, wouldn't 16 it? 17 A. I would agree that if you give no 18 salary increases, it certainly would reduce 19 operating expenses. 20 Q. Okay. And wasn't that the reason why 21 you decided to defer on salary increases at the 22 latter part of 1987? 14941 1 A. I don't remember. It might have been. 2 I just don't remember. 3 Q. Well, let's see if we can't refresh 4 your recollection. Take a look at T8023. It's 5 going to be in Volume I, and it's about ten 6 documents in. It's dated October 30th, 1987. And 7 it's a memo from Mike -- from Arthur Berner to 8 Mike Crow regarding senior officer salary 9 increases. And I believe it's at Tab 408. 10 Now, have you had a chance to look at 11 that document, sir? 12 A. Yes, sir, I have. 13 Q. Okay. Now, this is a memo to you from 14 Arthur Berner. And it says, "I'm attaching a 15 draft memorandum which I propose to send to Jenard 16 Gross" -- I'm sorry -- "Jenard and Barry over our 17 names. Please review it and give me your thoughts 18 on the substance and form of the memo." 19 Do you recall receiving this memo from 20 Mr. Berner? 21 A. I really don't, but I see my note 22 attached and that's my handwriting. 14942 1 Q. Okay. And that's your signature at the 2 bottom of the note on the first page? 3 A. Yes, it is. 4 Q. And can you read the note into the 5 record, sir? 6 A. Yes, sir. The note says, "Art-My 7 opinion is that we should do nothing and wait till 8 6/30/88. If at that time things look bleak, we 9 pass on raises. But if they don't, we get 10 raises." 11 Q. Okay. And do you recall what you were 12 referring to when you penned that note to 13 Mr. Berner? 14 A. Let me, if I could, just read the 15 attachment, please. 16 Q. Certainly. 17 A. (Witness reviews the document.) Could 18 you repeat that last question, please? 19 Q. Do you recall what you were -- what you 20 meant by the note that you had on the front page 21 to Mr. Berner? 22 A. No, I really don't remember what I 14943 1 meant by it. It -- just looking at it, I would 2 guess that I was, in essence, agreeing with 3 Mr. Berner's suggestion. And I think I was -- I 4 was a bit concerned that -- 5 Q. Now, wait. I don't mean to interrupt 6 you, but you said you were agreeing with his 7 suggestion. 8 What suggestion were you agreeing with? 9 A. That we defer all of the raises until 10 July 1st, 1988, for people making above 35,000. 11 And my -- I believe I had some concern, not 12 necessarily at the top levels of the company, but 13 for people making 35, 40, 45,000 that, let's say, 14 you were up for a raise in, you know, August 1st 15 or September 1st, deferring the raise, you know, 16 would -- if I were that employee, it would be kind 17 of a negative message. 18 Q. Now, Mr. Berner in his memo to you or 19 the draft memo suggests that the reason -- or not 20 the reason -- suggests that they would wait to see 21 if the association was profitable. 22 Do you see that? 14944 1 A. Let's see. (Witness reviews the 2 document.) 3 MR. VILLA: I believe the full sentence 4 says "is profitable or the board of directors 5 determines to make such payments." 6 MR. RINALDI: Your Honor, I didn't read 7 from the document. He's certainly willing -- I 8 will -- 9 MR. VILLA: We all noticed that, sir. 10 MR. RINALDI: Well, I get objections -- 11 THE COURT: State your question, 12 Mr. Rinaldi. 13 Q. (BY MR. RINALDI) Sir, do you recall 14 that one of the reasons stated by Mr. Berner for 15 delaying the increase in salaries was to wait and 16 see whether the association was profitable in the 17 future? 18 A. No, sir. I can't remember to -- no, I 19 don't remember that. I can see what's on this 20 page. 21 Q. Okay. And based upon that page, does 22 it indicate to you that Mr. Berner was concerned 14945 1 about the profitability and was suggesting that 2 the salary increases be deferred to wait and see 3 if the institution was profitable in the future? 4 A. Well, the -- yeah, that such increases 5 not be paid until such time the association -- as 6 the association is profitable or the board 7 determines to make such payments. 8 Q. Okay. Now, does that refresh your 9 recollection that one of the considerations for 10 deferring the salary increases was related to the 11 financial condition of USAT and that it was 12 intended to wait and see whether the association 13 would be profitable in the future? 14 A. It doesn't really refresh my 15 recollection, but that's what -- I see what the 16 page says, yes, sir. 17 Q. And Mr. Berner in the second full 18 paragraph says, "We believe that a salary increase 19 for the senior people at this time is 20 inappropriate." 21 Do you see that? 22 A. I see that. 14946 1 Q. Okay. Did you share Mr. Berner's views 2 in that regard? 3 A. I don't remember whether I did or not. 4 I had a -- like I said, I had a concern more -- I 5 had a lot of people reporting to me, like maybe 6 200 people. So, I had a concern that people 7 making 35,000 to 60,000 were just going to flock 8 out the door. And so, I had a little different 9 perspective than Mr. Berner. 10 Q. Okay. Now -- 11 A. But I -- you know, I wasn't -- I was, 12 you know, concerned about those people. 13 Q. Okay. If you look at the first 14 sentence there, it talks about in connection with 15 the discussions had by a number of senior 16 management. 17 Had you discussed this subject with 18 Mr. Berner prior to his sending you this memo, or 19 did this just come out of the blue? 20 A. Well, normally, Mr. Berner wouldn't 21 have written that just out of the blue. But I 22 don't -- I don't remember discussing that. I 14947 1 mean, we certainly may have discussed it. 2 Q. But you were a member of senior 3 management, were you not? 4 A. I think I would be a member of senior 5 management as Mr. Berner seems to be defining it 6 here, yes, sir. 7 Q. And if you were the chief financial 8 officer and also head of the -- I'm sorry -- the 9 division that dealt with personnel matters, is it 10 likely that you would have been one of the members 11 of senior management that Mr. Berner discussed 12 this with before writing his memo? 13 A. I think that's likely, yes, sir. 14 Q. Okay. Now, in the last paragraph -- I 15 mean the second paragraph, he makes reference, I 16 believe -- I'm sorry -- the third paragraph, to a 17 phantom account. 18 Do you see that? 19 A. I see that. 20 Q. Do you recall what it was Mr. Berner 21 was talking about about creating a phantom 22 account? 14948 1 A. No, I certainly don't recall that. 2 Q. Do you recall that what he was 3 suggesting was that potential salary increases 4 could be put aside in an account and then later 5 granted if the circumstances warranted or the 6 board determined to do so? 7 A. I just don't remember that. I can see 8 what's on this page. 9 Q. Okay. Now, your note says on the first 10 page, "My opinion is that we should do nothing and 11 wait until 6/30/88." 12 So, does it appear from that note that 13 you agreed that they should wait until June to 14 consider salary increases? 15 A. I think there's some question as to 16 what it does mean; but sitting here today, I would 17 agree with that statement. Frankly, I don't know 18 what I meant back when I wrote this note. But my 19 interpretation today would be that, yeah, it says 20 we ought to pass on raises until June 30th of '88 21 and everybody would be reviewed on the same date 22 so that you could have equity. 14949 1 Q. But it doesn't say anything about that 2 in the note, does it? 3 A. No. It doesn't say that at all. 4 Q. Okay. Now, the note goes on and says, 5 "If at that time" -- that is on 6/30/88 -- "things 6 look bleak, we pass on raises. But if they don't, 7 we get raises." 8 Do you see that? 9 A. I see that. 10 Q. What did you mean by that? 11 A. Gosh. I can't -- I don't remember 12 writing this; so, I can't tell you what I meant. 13 Q. Well, as you sit here today, what do 14 you think it means? 15 A. Well, as I sit here today, I would 16 think -- and I'm doing a bit of speculating, but I 17 would think it would mean that the senior people, 18 we would pass on raises. But, believe me, I can't 19 imagine I was saying that for the mid-level people 20 because if -- 21 Q. Well -- 22 A. -- if we started passing on raises and 14950 1 everybody knew the condition of Texas thrifts, we 2 would have had a mass exodus. 3 Q. Okay. And you see that the suggestion 4 was that it be to persons at -- no person with the 5 title first vice president or above would receive 6 a salary increase. 7 Do you see that? 8 A. Yes, sir. I see that. 9 Q. So, it wasn't for the rank and file of 10 the tellers, was it? 11 A. Well, no. But we had a lot of key 12 people in that middle level range -- 13 Q. Were they first vice presidents or 14 above? 15 MR. VILLA: I think he was still 16 answering the question. 17 Q. (BY MR. RINALDI) Were they first vice 18 presidents or above? 19 A. Sir, I didn't go by titles. 20 Q. Well -- but isn't this suggesting 21 Mr. Berner saying that "It was decided that we 22 would recommend that no person with the title of 14951 1 first vice president or above." So, it was only a 2 person that was a first vice president or above 3 and who earned over $35,000 a year that you were 4 recommending should be deferred; isn't that right? 5 A. Well, let me reread this carefully 6 then. (Witness reviews the document.) 7 Well, I see that. I was honing in on 8 the dollar figure. 9 Q. What do you mean "honing in on the" -- 10 oh, on the 35,000? 11 A. 35,000, yes, sir. 12 Q. You didn't focus, then, on the fact 13 that it also required that you be a first 14 vice president? 15 A. No, sir, because we had -- we had some 16 assistant vice presidents that may have made more 17 than 35,000 that were critical to the operation. 18 And I wouldn't want to lose. And then we had -- 19 we had some first vice presidents that, frankly, I 20 could care less if they left. 21 Q. Is the first vice president a higher 22 position or a lower position than assistant 14952 1 vice president? 2 A. A first vice president is a higher 3 officer title. 4 Q. So, your -- 5 A. But that does not in any way -- it's 6 one indication of the person's status and 7 stabilities; but when we get down into the middle 8 ranks of an organization, it does not in any way, 9 shape, form, or fashion mean abilities and 10 responsibilities. 11 Q. Okay. And my question to you is, then: 12 Would those assistant vice presidents have been 13 affected by this policy if it only applied to 14 first vice presidents and above? 15 A. Well, maybe I'm misreading this; but 16 I -- the way I read it, if you make more than 17 35,000 -- 18 Q. Okay. 19 A. -- you don't get a raise until -- 20 Q. Okay. 21 A. -- July 1st. 22 Q. Now, directing your attention to the 14953 1 second sentence in your handwritten note, it says, 2 "if things look bleak." 3 What were you referring to by "bleak"? 4 Was that the financial condition of USAT? 5 A. Well, that's -- I can't really say what 6 it -- I don't remember this, but when I say 7 "bleak," it -- I would probably have included the 8 financial condition certainly. I would have 9 included -- you know, keep in mind this was 10 October 30th, 1987. That was right after the 11 stock market crash, and we had lost a ton of money 12 in October. So, I wasn't too happy right then. 13 And when I wrote this, I probably thought, "Well, 14 if we have many more Octobers, they are going to 15 look pretty bleak." I mean, I'm trying to give 16 you kind of an idea. 17 Q. So, the word bleak would refer to the 18 financial condition of USAT because of the adverse 19 impact that the stock market crash had had on 20 USAT; is that reasonable? 21 A. The -- certainly financial condition 22 would go into the bleakness of the situation. 14954 1 It's kind of an inexact term. 2 Q. Okay. What happened to the financial 3 condition of USAT after October 30th, 1987? It 4 continued to deteriorate, didn't it? 5 A. I think that it -- that's a fair 6 statement. There might have been periods where it 7 improved a bit; but just overall, I think that's a 8 fair statement. 9 Q. And a moment ago, we looked at the 10 second quarter results of 1986. 11 Do you recall looking at that document? 12 MR. SCHWARTZ: '86? 13 Q. (BY MR. RINALDI) 1988. 14 A. Of '88, yes, sir, I do. 15 Q. And I believe they reflected that by 16 the end of the second quarter of 1988, which would 17 have been June 30th, 1988, USAT was failing its 18 minimum capital requirement by over $160 million. 19 Do you remember that? 20 A. I remember it was a big number. I'll 21 accept that it was 160 million. 22 Q. Okay. And would you consider that to 14955 1 be a bleak circumstance? 2 A. That's pretty bleak. 3 Q. Okay. Now, sir, turn to two documents 4 ahead. This is, I believe, a new document. It's 5 T8167. This is a memo from you -- 6 THE COURT: Which volume are we on? 7 MR. RINALDI: It's the same volume. 8 This is Volume I. And I'm just moving two 9 documents ahead from the document we've just been 10 looking at: T8167. 11 Q. (BY MR. RINALDI) Do you recognize 12 this document, sir? 13 A. I don't remember it, but that's my 14 signature. So, I certainly prepared it. 15 Q. And it says in the first two 16 sentences -- it's to Jenard Gross -- "Please sign 17 the attached letter and we will have the letter 18 prepared for masters to be issued. The purpose of 19 this letter would be to announce the deferral of 20 merit reviews until July 1988." 21 Do you see that? 22 A. I see that. 14956 1 Q. Now, here you're using a different term 2 than salary increases. 3 What is a merit review? 4 A. Well, to me, it's pretty synonymous. 5 It's a figure of speech. Whenever you're an 6 employee, typically annually, you have a merit 7 review; and that means, to most people, it's 8 salary increase time unless, you know, your 9 performance has been horrible and you get no 10 raise. 11 Q. Okay. And how did merit reviews work 12 at USAT at this point in time? 13 A. As best I remember, most individuals 14 were evaluated for merit review and performance 15 evaluation and for salary increases once a year. 16 Q. Now, at the -- in the government, we 17 are consummate bureaucrats; and every year, I have 18 to prepare a written performance evaluation for 19 the people that work for me. 20 Did USAT or UFG have a similar such 21 system where performance evaluations would be done 22 by a person's supervisor and then reviewed with 14957 1 the employee to give the employee an idea of how 2 they were doing? 3 A. I remember that, yes, sir. 4 Q. Okay. And can you sort of just 5 describe for us how the system worked? 6 A. Well, you would -- as best I recall, 7 you -- the supervisor would sit down with the 8 employee, and there would be a written report. 9 And then the supervisor and the employee would 10 talk about it. And there would be criticisms from 11 the supervisor to the employee, if there were any 12 criticisms, suggestions for improvement. And then 13 there would be a block for the employee's response 14 and kind of an overall grade. I'm not sure it was 15 a grade, but it was outstanding, very good, 16 satisfactory, below average, and -- these weren't 17 the words, but "fixing to get fired," you know. 18 Q. Okay. 19 A. And we'd write that. 20 Q. I see. Now, did the senior executives 21 at USAT have a similar evaluation process or was 22 it limited exclusively to lower or mid-level 14958 1 employees? 2 A. Well, I remember getting those reviews 3 by Gerald Williams. 4 Q. Okay. Did Jenard Gross ever give you 5 them? 6 A. You know, I just don't remember. He 7 certainly might have. I got -- I mean, Mr. Gross 8 would give you a pretty good idea continually of 9 how he thought of you. 10 Q. Who were the key people that worked for 11 you? 12 A. The key people that worked for me were 13 Bruce Williams, who was senior vice president and 14 treasurer; Jim Wolfe, senior vice president and 15 controller; Fran Dean, who was the senior 16 vice president and head of general services and 17 human resources combined; Bonnie Basham, who was 18 the head of the operations area; Bengt Bengtston, 19 who was head of the data processing department. 20 Q. Now, the -- 21 THE COURT: We'll take a short recess. 22 14959 1 (Whereupon a short break was taken from 2 10:33 a.m. to 10:54 a.m.) 3 4 THE COURT: Be seated, please. We'll 5 be back on the record. 6 Mr. Rinaldi, you may continue. 7 Q. (BY MR. RINALDI) When we stopped, 8 Mr. Crow, we were talking about people you 9 supervised. Now, you identified a number of 10 people: A Ms. Dean and a Mr. Wolfe and Bruce 11 Williams, several other people. 12 Did you perform performance evaluations 13 for those individuals as their supervisor? 14 A. To the best of my memory, yes. 15 Q. And how would you have gone about 16 performing those evaluations? 17 A. We had a written form or a standard 18 form, and I would write out the performance 19 evaluation and then talk to the people face to 20 face and we would have a 30 -- well, we would 21 have -- typically, it would be an hour-type 22 meeting. And we would talk about how I thought 14960 1 they were doing. And I always solicited their 2 input. Maybe there was something that the 3 employee thought was very unfair that I was doing 4 or whatever. 5 So, it was an opportunity on a formal 6 basis, at least once a year, to sit down and kind 7 of have a talk about performance. 8 Q. Okay. And you had said -- when I asked 9 you earlier what's the difference between a merit 10 review and a salary increase, you had said you 11 didn't really think there was much. 12 Do you recall that? 13 A. Yes, sir, I do. 14 Q. Were these performance reviews the 15 basis then upon which people's salaries -- or 16 determinations would be made regarding salary 17 increases? 18 A. Certainly the salary increases and the 19 performance evaluations would have a high 20 correlation, but the merit review in my 21 terminology is more synonymous with salary 22 increase. 14961 1 Q. Okay. So, in other words, before you 2 would give somebody a salary increase, you would 3 have a performance review or a merit review? 4 A. They tended to -- I mean, it would be 5 at approximately the same time. 6 Q. And -- 7 A. I mean, it might be separated by a few 8 months. In other words, I might have a 9 performance evaluation of Jim Wolfe in February , 10 and he would not be up for a merit review/salary 11 increase until May. But, you know, they tended to 12 be linked. Certainly, they were related. 13 Q. Okay. And was a merit review different 14 from a performance evaluation? 15 A. In my mind, it was. 16 Q. Okay. Then describe for me what a 17 merit review was. 18 A. Well, a merit review would be a more 19 brief conversation. If I remember the process 20 correctly, it was Mr. Wolfe would come in and we 21 would have a ten-minute conversation and "We think 22 you're doing a great job." You know, you're -- 14962 1 "You get a 10 percent increase in salary. Great 2 job. Keep it up." And Mr. Wolfe would leave. 3 Whereas a performance evaluation would 4 be a long form, a series of questions, things to 5 write in, you know, strong points, weak points, a 6 more comprehensive type affair. 7 Q. Okay. And did you do performance 8 evaluations for all of the people who worked for 9 you? 10 A. I believe I did. 11 Q. And did you also do the merit reviews 12 for the people who worked for you? 13 A. Yes, sir. 14 Q. And did the merit reviews entail any 15 kind of written paperwork as the performance 16 reviews did? 17 A. Well, there would have had to have been 18 some type of communication to the payroll 19 department to tell them to adjust the salary. So, 20 there would have had to have been some type of 21 paperwork; but it would be brief. 22 Q. Okay. Now, take a look at what's been 14963 1 previously marked as T8167. There's no tab on 2 this. 3 Is that your signature that appears on 4 the memo? 5 A. Yes, sir, it is. 6 Q. Okay. 7 MR. RINALDI: I move T8167 into 8 evidence, Your Honor. 9 MR. VILLA: No objection. 10 MR. RINALDI: Okay. 11 THE COURT: Wait a minute. I haven't 12 found it yet. 13 MR. RINALDI: I'm sorry. It's, I 14 believe, two documents on from the one we were 15 previously looking at. And it's dated 16 November the 3rd, nineteen -- 17 THE COURT: Which volume is that? 18 MR. RINALDI: It's the first volume. 19 It's dated November the 3rd, 1987. 20 THE COURT: All right. Thank you. 21 Received. 22 Q. (BY MR. RINALDI) Mr. Crow, do you 14964 1 recall preparing this memo for Jenard Gross? 2 A. I don't remember. I very well -- very 3 likely did. 4 Q. Okay. Do you recall, as a consequence 5 of the discussion you had earlier with Mr. Berner, 6 whether, in fact, the board of USAT decided to 7 defer salary increases until after June 30th, 8 1988? 9 A. I reviewed recent documents that 10 indicate they did, yes. 11 Q. Okay. And this memo to Mr. Gross 12 appears to have attached to it a memorandum for 13 circulation to members of the staff advising them 14 of that -- the fact that there would be a deferral 15 of salary reviews until a subsequent date. 16 Is that a fair statement? 17 A. Yes, sir. 18 Q. Okay. Now, in the first sentence 19 there, it says, "As I'm sure you're aware, the 20 Texas economy has faced difficult times which have 21 adversely affected the association's financial 22 performance." 14965 1 Does that refresh your recollection 2 that the purpose of deferring the salary increases 3 was brought on by the financial performance of 4 USAT? 5 A. Well, no, it really doesn't. I 6 certainly see what is written here. 7 Q. And then it goes on and talks about 8 "Additionally, the recent unsettled financial 9 markets which saw precipitous decline in stock 10 prices and extreme volatility in bond markets have 11 reduced the profitability in our investment area." 12 And it says, "Despite our problems, let 13 me assure you that United is a strong financial 14 institution and the largest S&L in the state with 15 regulatory capital of 247 million at the end of 16 the third quarter." 17 Do you see that? 18 A. I do see that. 19 Q. Then it goes on. It says, "Given this 20 environment, it is imperative that we ensure that 21 United continues as a strong institution. One of 22 the sacrifices we need to make at this time is to 14966 1 defer merit reviews for higher-paid staff until 2 July '88." 3 A. I see that. 4 Q. Does it appear from the paragraph that 5 I just read that the purpose of deferring the 6 salaries was to reduce the operating expenses of 7 USAT because of the financial condition it found 8 itself in at the end of 1987? 9 A. From reading this, I would agree with 10 that. That certainly, if not the purpose, would 11 be a very major purpose. 12 Q. And finally directing your attention 13 then to the bottom of the page, the last -- the 14 next-to-the-last paragraph, it says, "Rest assured 15 that merit increases will be based on performance. 16 It's our objective to reward excellent performance 17 with excellent compensation and to penalize 18 mediocre performers through administration of the 19 salary budget." 20 Do you see that? 21 A. I see that. 22 Q. Was that the operating philosophy at 14967 1 USAT at the time that you served as the chief 2 financial officer regarding merit increases? 3 A. Well, our policy was to -- I would add 4 one caveat. Certainly, our policy was to reward 5 performance. And the exception to that would be 6 if there was a market reality -- and by that, I 7 mean perhaps somebody was an average performer but 8 they performed a critical function. And if we 9 felt like it was imperative to keep that person, 10 we might pay them more than their average 11 performance would indicate. 12 Q. So, the answer to my question is that 13 salary increases were based upon performance 14 generally? 15 A. Generally with -- 16 MR. VILLA: Objection. He got the 17 answer to his question. Now he's trying to 18 characterize it. 19 MR. RINALDI: No. I'm just -- 20 THE COURT: Denied. You may answer. 21 A. The answer is trying to construe that 22 salary administration was based on performance. 14968 1 But in the real world, there were market 2 realities. And if a certain individual had a 3 skill that was going to be very difficult to 4 replace, they might get more money than just their 5 merit performance, per se, would indicate they 6 should get. 7 Q. (BY MR. RINALDI) Now, we've talked 8 about the deferral of the salary increases at the 9 end of 1987. 10 Do you recall that at the end of 1987, 11 the board of USAT also considered the payment of 12 bonuses to the staff members of USAT and UFG? 13 A. I don't -- if you can help me with a 14 document, I'll -- I don't remember that exactly, 15 no. 16 Q. Would you turn to the next page in your 17 book? It's T8025. Now, what was -- did normally 18 USAT give bonuses for the prior year's performance 19 at the commencement of the ensuing year? 20 A. Typically, yes. The bonus earned in 21 the -- during the year would typically be paid in 22 January of the following year. 14969 1 Q. So that the bonus for 1987, if one were 2 awarded, would typically be awarded in January of 3 1988? 4 A. That would have been the typical 5 practice. 6 Q. Okay. And do you recall that in 7 November of 1987, USAT and UFG undertook a review 8 of bonus ranges for various employees of USAT and 9 UFG? 10 A. Well, I don't have an independent 11 memory of that. The schedule that I'm looking at 12 certainly seems to have to do with bonuses. 13 Q. Now, as the chief financial officer, 14 what would have been your role in preparing the 15 schedule that's -- strike that. 16 Have you ever seen this schedule 17 before? Do you recall? 18 A. I don't remember seeing this. 19 Q. Okay. Now, who is James Whatley? 20 A. Mr. Whatley was a director. 21 Q. And was he on the compensation 22 committee? Do you recall? 14970 1 A. Yes, sir. I believe he was the head of 2 the compensation committee. 3 Q. And it indicates at the bottom that 4 Mr. Whatley had approved this list of bonuses. 5 Do you see that? 6 A. I see that. 7 Q. At USAT, did the compensation 8 committee -- I'm sorry. Did the compensation 9 committee have the authority to approve bonuses, 10 or were the bonuses recommended by the committee 11 and then approved by the board? 12 A. I don't know. 13 Q. Would you take a look at Tab 8036? 14 This is the March 30th, 1988 United Financial 15 Group proxy statement; and it would be dated 16 March 30th, 1988. And it's about two-thirds of 17 the way through Volume I. 18 Have you found that? 19 A. I have. 20 Q. Would you turn to Page 7? And do you 21 see on the next-to-the-last paragraph, it talks 22 about the compensation committee? Do you see 14971 1 that? 2 A. Yes, sir, I do. 3 Q. Now, it says, "The compensation 4 committee reviews reports to and recommends action 5 to the board of directors regarding salaries and 6 other compensation of the officers of the company 7 and its subsidiaries. The compensation committee 8 also administers the company's performance plan." 9 Do you see that? 10 MR. VILLA: Performance unit plan. 11 MR. RINALDI: I'm sorry. Performance 12 unit plan. 13 Q. (BY MR. RINALDI) Now, does that 14 refresh your recollection that the compensation 15 committee recommended action to the board 16 regarding salary action? 17 MR. VILLA: Your Honor, there are two 18 companies, USAT and UFG. I'd ask that he be a 19 little more specific in his question. 20 Q. (BY MR. RINALDI) Do you recall that 21 that was the operating principle for the 22 compensation committee of UFG? 14972 1 A. For purposes of UFG, just reading from 2 here, it says "The compensation committee reviews 3 reports and recommends action to the board 4 regarding salaries," et cetera, for -- so, 5 certainly for UFG, it appears that the 6 compensation committee reviews and recommends to 7 the board. 8 Q. And that it would be -- ultimately be 9 the board's authority to either approve or 10 disapprove the recommendations of the compensation 11 committee regarding salaries and compensation? 12 A. Well, as it relates to UFG, yes. 13 Q. Okay. And do you recall whether USAT 14 had any different policies regarding the granting 15 of bonuses and salary increases? 16 A. No, sir. I just don't know. I didn't 17 know this until we reviewed it. 18 Q. Okay. Now, going back to T8025, that's 19 the list of proposed -- of bonuses. 20 How did USAT and UFG -- and I'm using 21 them collectively because the document talks about 22 USAT and UFG bonus -- proposed bonuses. 14973 1 How did they come up with the proposed 2 bonuses for any given year? 3 MR. RINALDI: And before you answer 4 that, can I move into admission T8036, Your Honor? 5 That's the list of bonuses that appear -- I'm 6 sorry -- 80 -- I'm sorry. 8036, which is the 7 proxy statement that he just looked at. 8 MR. VILLA: T8036? 9 MR. RINALDI: (Nods head 10 affirmatively.) 11 MR. VILLA: It's A3015, and it's in 12 evidence at Tab 94. 13 THE COURT: Would you state that number 14 again? 15 MR. VILLA: It's A3015, and it's in 16 evidence at Tab 94. 17 Q. (BY MR. RINALDI) Now, sir, going back 18 to the -- 19 THE COURT: Thank you. 20 Q. (BY MR. RINALDI) -- list of proposed 21 bonus ranges, what was the mechanism by which 22 bonus ranges like this were arrived at? 14974 1 A. I don't know, Mr. Rinaldi. I wasn't -- 2 I never attended the compensation committee. That 3 tended to be done at that -- I'm assuming it was 4 done at that top level of the totem pole we were 5 talking about yesterday, and then it would go to 6 the compensation committee. 7 Q. By the way, when you talked about the 8 totem pole yesterday, where would Mr. Huebsch have 9 fit into the totem pole? 10 A. Well, Mr. Huebsch had the title of 11 executive vice president, but he was more of a -- 12 of a technical expert in the area of equity 13 arbitrage. And he wasn't involved in the overall 14 management. Like, he wasn't -- typically wasn't 15 involved in the strategic planning committee and, 16 you know, this sort of thing. He was very focused 17 on equity arbitrage and then, earlier, on junk 18 bonds. 19 So, you know, in terms of this 20 theoretical totem pole, I guess -- no disrespect 21 to Mr. Huebsch. I think very highly of him. But 22 he would be, just in terms of kind of who did 14975 1 what, below, say, Berner and I. 2 Q. Okay. And going back to this document 3 at T8025, would you turn to the next copy of the 4 document, which is 8026? 5 MR. RINALDI: And I would move the 6 admission of 8025, Your Honor. 7 MR. VILLA: No objection. 8 MR. RINALDI: Okay. 9 THE COURT: Received. 10 Q. (BY MR. RINALDI) Now, take a look at 11 8026, would you, the next document? 12 Does that appear to be the same 13 document that we just looked at with the execution 14 of James Whatley but with some handwriting on it? 15 A. It does. 16 Q. And do you recognize the handwriting? 17 A. No, sir, I don't. 18 Q. Okay. Now, would you turn to the 19 second page of 8026? 8026. 20 MR. VILLA: What's the Bates stamp 21 number of the second page of that? 22 MR. RINALDI: It's UFG 2027294. 14976 1 Q. (BY MR. RINALDI) Does that appear to 2 be yet another copy of the same proposed UFC -- 3 UFG/USAT bonus ranges? 4 A. It does. 5 Q. And do you recognize the writing -- the 6 handwriting on the far right-hand side of the 7 document? 8 A. The far right-hand side is my 9 handwriting. 10 Q. Okay. And it says, "Official list from 11 Barry Munitz, 12/11/87." 12 Do you see that? 13 A. I see that. 14 Q. Do you know why you wrote those numbers 15 down on the side of that? 16 A. No, sir. I really don't know why I 17 wrote those numbers. This is -- this is kind of 18 the way it would work, that I would receive an 19 approved list from that top level of the totem 20 pole which obviously was approved by the 21 compensation committee. And then I would pass 22 this listing, as approved, to the people that 14977 1 actually prepare the payroll checks. 2 Q. Okay. Now, do you know whether these 3 bonuses were actually paid in 1987? I mean for 4 '87 in 1988? 5 A. I think they were. 6 Q. Okay. And I noticed that the total 7 bonus payments to everyone at USAT was about 8 1,900,000; is that correct? 9 A. In total, yes. The total amount of the 10 schedules is 1.906 million. 11 Q. And of that amount, Mr. Gross was going 12 to receive 235,000 in bonus? 13 A. Yes, sir. 14 Q. And Mr. Hurwitz was scheduled to 15 receive 200,000 in bonus? 16 A. Yes, sir. 17 Q. And Mr. Huebsch, 85,000? 18 A. Yes, sir. 19 Q. And Mr. Berner, 14,000? 20 A. 114,000. 21 Q. I'm sorry. 114,000. And you were 22 scheduled to receive 115,000 in bonus. 14978 1 Do you see that? 2 A. Yes. 3 Q. And Munitz was to receive 156,000 in 4 bonus. 5 Do you see that? 6 A. I see that. 7 Q. And to the best of your recollection, 8 was that list approved by the compensation 9 committee? 10 A. To the best of my recollection, yes, it 11 was approved by the compensation committee. 12 Q. Turn to the next page, which is T8027. 13 And these -- it's previously been admitted at Tab 14 409. These are the minutes of the compensation 15 committee dated November 10th, 1987. And if you 16 look at the last full paragraph, it indicates that 17 an action was taken with respect to the 18 compensation -- I mean the bonuses. 19 Do you see that? 20 A. Where it says "Mr. Whatley discussed 21 the possibility"? 22 Q. No. I think -- 14979 1 A. Oh, okay. 2 Q. I think you've gone too far. It's the 3 first page where it says -- beginning with the 4 word "the committee then reviewed." 5 A. Oh, yes. Excuse me. 6 Q. Do you see that? 7 A. I do. 8 Q. And does it indicate that the 9 committee, well, agreed to the salary schedule? I 10 mean the bonus schedule? 11 MR. VILLA: Your Honor, I point out 12 he's not on the compensation committee and wasn't 13 present. He can read, but -- 14 MR. RINALDI: I have a question here, 15 John. Just wait. 16 THE COURT: Well, why don't you pose 17 your question? 18 MR. RINALDI: Fine. 19 Q. (BY MR. RINALDI) At the bottom, it 20 says -- the last paragraph says, "The committee 21 then reviewed all the other recommended bonuses. 22 They considered the operations of United and the 14980 1 fact that the association is having an operating 2 loss." 3 Do you see that? 4 A. I see that. 5 Q. And they go on and say, "However, it 6 was decided that in view of the fact that many of 7 the key employees were now doing extra work since 8 other executives have been terminated during the 9 year and that the so-called bonuses were really an 10 attempt to achieve market-based compensation to 11 allow these persons to receive their market value 12 and further, in view of the fact that it would be 13 not only costly but time-consuming to deal with 14 replacing the compensation -- replacements the 15 compensation committee unanimously approved the 16 bonus schedule." 17 Do you see that? 18 A. I see that. 19 Q. And then in the last sentence, it says, 20 "It was noted that such bonuses would not be paid 21 until January 1988 and, therefore, no announcement 22 would be made of the bonuses so that in the event 14981 1 there were intervening circumstances, they could 2 be taken into consideration at a further meeting." 3 Do you see that? 4 A. I see that. 5 Q. Now, do you know whether there was any 6 further meeting of the compensation committee to 7 reconsider the awarding of bonuses in light of the 8 declining financial condition of USAT? 9 A. I don't know whether there were any 10 subsequent meetings of the compensation committee. 11 Q. Okay. And now, if you'll turn to the 12 next page, which is T8028, and you'll turn to the 13 second full page, it indicates in the third line 14 down -- and this is Tab 397 I'm reading from -- 15 "Mr. Whatley then" -- and these are the minutes 16 now of the board of directors of United Savings 17 Association of Texas. 18 Do you see that? 19 A. Yes, sir, I do. 20 Q. And this particular meeting was in 21 conjunction with the meeting of United Financial 22 Group. 14982 1 Do you see that in the first sentence? 2 A. I do see that. 3 Q. And you were present, were you not? 4 A. Yes, sir. I was -- I'm listed as being 5 present, yes, sir. 6 Q. And then it says, "Mr. Whatley then 7 reviewed the compensation committee's action on 8 proposed bonuses. He noted that the bonuses would 9 be going to approximately 70 people and the total 10 amount would be less than $2 million." And then 11 in the last sentence, it says, "The action of the 12 compensation committee was unanimously approved by 13 the board." 14 Do you see that? 15 A. I see that. 16 Q. Do you have -- do you recall attending 17 a meeting of the board where this was approved? 18 A. No, sir. I don't have a specific 19 memory of attending this meeting. 20 Q. Now, was Mr. Gross present at that 21 meeting? 22 A. Yes, sir, he was. 14983 1 Q. And does it appear -- 2 A. He's indicated as being present. 3 Q. And does it appear that Mr. Gross 4 participated in the decision to approve the 5 bonuses? 6 A. Well, I don't -- it says Mr. Gross 7 acted as chairman of the meeting. 8 Q. And it goes on and says, "The action of 9 the compensation committee was unanimously 10 approved by the board." 11 Do you understand "unanimous" to mean 12 that all members of the board who were present 13 approved? 14 A. Yes, sir. I understand that's what 15 "unanimous" means. 16 Q. Okay. So, would you conclude from that 17 that Mr. Gross then voted to approve the bonuses? 18 MR. BLANKENSTEIN: Objection, Your 19 Honor. He testified he wasn't at the meeting. He 20 doesn't remember. Now Mr. Rinaldi is asking him 21 just simply to testify to what's already in the 22 document. This is a waste of everybody's time. 14984 1 MR. RINALDI: Your Honor, he just 2 testified he was at the meeting, and I'm trying to 3 ask him if this refreshes his recollection that 4 Mr. Gross voted for the bonuses. 5 MR. BLANKENSTEIN: If he's going to ask 6 him to -- to refresh his recollection, that's a 7 different question than the one he posed. 8 THE COURT: All right. Let's take the 9 last one. 10 A. I don't remember being at the meeting; 11 so, I don't remember the vote. But I certainly 12 see what the minutes reflect. 13 Q. (BY MR. RINALDI) And as the CFO of 14 USAT, would you conclude from the minutes that 15 Mr. Gross voted to approve the bonuses? 16 A. Well, I can read the minutes. It says 17 it's the board of directors of United Savings 18 Association of Texas. It says that -- I wasn't on 19 the board of USAT. But I'm listed as being there; 20 so, I'm assuming I was there but I don't remember. 21 But it says Mr. Gross acted as chairman, and it 22 says, quote, "The action of the compensation 14985 1 committee was unanimously approved." So, I would 2 conclude that Mr. Gross approved it. 3 Q. Okay. 4 A. But I don't -- you know, if you want an 5 independent memory, I don't have that. 6 Q. And if you turn back to T8025, who was 7 the largest single beneficiary of the bonuses that 8 were awarded at the end of 1987 Mr. Blum. 9 Okay. How much did Mr. Blum receive? 10 A. 326,000. 11 Q. And who is the next largest? 12 A. Mr. Gross. 13 Q. Okay. And what percentage of 14 Mr. Gross' base salary did the 235,000-dollar 15 bonus represent? 16 A. Well, going back to, I guess, the 17 exhibit with my handwriting on it, the answer -- 18 if you want me to answer do I know independently, 19 no, sir, I don't know independently. 20 Q. Well, do you see the second column over 21 from the left? Does that indicate the percentage 22 of the bonus? 14986 1 A. Oh, yes. I apologize. (Witness 2 reviews the document.) Well, the second column 3 from the left says "proposed percentage bonus 4 range," and -- 5 Q. And it lists for Mr. Gross an 80 6 percent -- the term 80 percent. 7 Is that 80 percent of his base salary? 8 A. That's the way I'd interpret that, yes, 9 sir. 10 Q. Okay. So, you would interpret this as 11 meaning that he received a bonus of 80 percent of 12 his base salary, which was then $291,700; is that 13 correct? 14 A. Yes, sir. 15 Q. Now, it indicates there that it 16 includes loan interest of 68K. 17 Do you see that? 18 A. I see that. 19 Q. Do you know what that was referring to? 20 A. I think that was referring to a loan 21 related to the purchase of UFG common stock. 22 Q. Were you extended a similar such loan? 14987 1 A. I'm not sure it was exactly like 2 Mr. Gross', but I was extended a loan to purchase 3 UFG stock. 4 Q. Okay. And can you describe for the 5 Court how that came about? 6 A. Yes. In approximately -- I believe it 7 was the 1984-type time frame, Gerry Williams came 8 to me and said, "We've got an opportunity to 9 invest in UFG common stock, and the company will 10 loan money for purposes of purchasing that stock." 11 And so, subsequent to that 12 conversation, I purchased 10,000 shares of United 13 Financial Group stock; and it was funded by a loan 14 at United Financial Group. 15 And then during the latter years -- and 16 I'm talking about 1987, '88 -- there was some type 17 of arrangement that a bonus would be paid to 18 myself -- and I can't say for Mr. Gross, but this 19 indicates that it was the same -- to pay the 20 interest on that loan. 21 Q. And did Mr. Gross, as you recall, also 22 purchase a block of stock of UFG at the point in 14988 1 time that you were offered stock? 2 A. I think it was -- I think it was the 3 same time. I'm not sure. 4 Q. Now, do you recall where that block of 5 stock originated from? 6 A. No, sir, I don't. As I said -- the 7 communication I received was from Gerry Williams, 8 and I don't know that I asked where it came from. 9 It wasn't important to me. 10 Q. And do you recall that Mr. Gross 11 acquired a substantially larger block of stock 12 than you did? 13 A. Oh, I know his number was bigger than 14 mine, yes. 15 Q. Does the number 105,000 shares sound 16 right? 17 A. I won't dispute that. I know it was a 18 lot of shares. 19 Q. Do you recall that the note that he 20 gave to UFG for the -- let me just get this right. 21 In other words, you didn't put up any 22 money for this stock. The money was loaned to you 14989 1 by UFG? 2 A. On the purchase of the stock, it was 3 loaned to me by UFG. And for several of the years 4 afterwards, I paid the interest. But as I 5 indicated, in the latter years, I guess '87 and 6 '88, the interest was covered by some type of 7 bonus arrangement. 8 Q. And if you look down at your bonus on 9 this exhibit, which is T8026, in the margin in the 10 fourth column over, it says that the 11 115,000-dollar bonus you were going to receive 12 includes loan interest of $6,000. 13 Is that what it refers to: 6K? 14 A. Yes. 15 Q. And that would be the interest on the 16 obligation which you owed or the note that you 17 owed to UFG arising out of the purchase of stock, 18 the 10,000 shares of UFG stock? 19 A. Correct. 20 Q. Now, I noticed that your bonus was 67 21 percent of your base salary. 22 Do you see that? 14990 1 A. Yes, sir, I see that. 2 Q. Okay. And does that appear to be 3 the -- I'm sorry. Strike that. 4 And Mr. Berner received a 67 percent 5 bonus? 6 A. Yes, sir. I see that. 7 Q. And Mr. Munitz received a 65 percent 8 bonus? 9 A. I see that. 10 Q. And these would have all been paid at 11 the end of nineteen -- I mean the beginning of 12 1988? 13 A. January of 1988, to the best of my 14 memory. 15 Q. Okay. Now, do you know whether, in 16 fact, these bonuses were paid by UFG or USAT? 17 A. I think they were paid by USAT. 18 Q. But you're not sure? 19 A. Well, I remember at my deposition you 20 showed me my pay statements, and my compensation 21 was all from USAT for the most part. 22 Q. Would you turn to the last document in 14991 1 the third binder which is T8034? And I'd ask you 2 to turn to Page 17 of that. 3 MR. VILLA: Are yours paginated? 4 MR. RINALDI: This is Tab 479. Yeah. 5 Ours have Bates stamps on them. I believe that 6 was a substituted document at the time Mr. Dermody 7 testified, and it's certainly the one -- maybe you 8 ought to get this one out of here from the 9 official court copy and you can follow along. 10 Q. (BY MR. RINALDI) Now, what are these 11 posted things that we see on Page 17, sir? 12 A. I really don't remember what they were. 13 It certainly looks like some type of a pay stub 14 because it takes out FICA and federal income 15 taxes, et cetera. 16 Q. Well, let's look at Jenard Gross'. It 17 says on 1/4/88, Mr. Gross appears to have a pay 18 stub of 5502. 19 Do you see that? It's the number of 20 the pay stub. 21 A. Number of the stub. 22 Q. Okay. And then if you turn to Page 14992 1 9 -- I'm sorry -- to Page 11, there is a check 2 with the number 5502 on it. 3 Do you see that? 4 A. I do see that number, 5502, yes, sir. 5 Q. And that's a United Savings Association 6 payroll check to Mr. Jenard Gross in the amount of 7 $173,420.50. 8 Do you see that? 9 A. I do see that, yes, sir. 10 Q. And then if you turn back to the stub 11 on Page 17, you see that the $235,000 which 12 appears in the right-hand column across from the 13 word "bonus," after you take out a number of 14 deductions, results in a final amount of 15 $173,420.50. 16 Do you see that? 17 A. I do see that. 18 Q. Does it appear that this is the posted 19 payroll stub for the check that appears on 20 Page 11? 21 A. Yes. I would assume that this is the 22 stub that was attached to this check, or perhaps 14993 1 this is a duplicate copy of that stub. 2 Q. And then I won't go through the drill 3 with respect to everyone. But I see below 4 Mr. Gross' there is a check, 5489, for Mr. Munitz. 5 And then on Page 17, there is a check -- stub for 6 Mr. Munitz, 5489. And the same is true with 7 respect to Mr. Berner. That's Check No. 5501. 8 And then on Page 17, there is a check stub, 5501. 9 Do you see that? 10 A. I do see that. 11 Q. And, finally, Mr. Crow has a check stub 12 of 5500 -- the number 5500, and I believe on 13 the -- on Page 13, C0000013, there appears a 14 check, 5500, for Mr. Crow. 15 Do you see that? 16 A. I do see that. 17 Q. Does it appear from these records -- 18 and do these appear to be payroll records of 19 United Savings Association of Texas? 20 A. They look like to me payroll checks. 21 They would have been prepared by the payroll 22 department. 14994 1 Q. Okay. Is it fair, then, to conclude 2 that the bonuses that are referenced on 8026 that 3 were paid to Mr. Gross, Mr. Crow, Mr. Berner, and 4 Mr. Munitz were all paid for out of United Savings 5 Association's payroll account? 6 A. That would be my conclusion. 7 Q. Okay. Now, after -- we talked earlier 8 that you recall that at a point in time after you 9 had entered into your original contract in 10 September of 1987 with UFG, that there came a 11 point in time when the issue came up of a second 12 contract with United Savings Association of Texas. 13 Do you recall that? 14 A. I remember there were second contract 15 or contracts, yes, sir. 16 Q. Okay. And do you recall that in about 17 February of 1988 that a contract was entered into 18 between yourself and USAT? 19 A. I remember it was in the first part of 20 '88. It certainly might have been February . 21 Q. Okay. Now, would you take a look at 22 what has previously been admitted as Tab 411, 14995 1 which is T8038? 2 A. Which book? 3 Q. It would be in the first book, and it's 4 about -- well, from the bonuses, it's about six 5 documents on. It's just after the two documents 6 past the financial -- the annual report. 7 And would you read the second paragraph 8 of -- these are the compensation committee meeting 9 minutes of February 11th, 1988, for United Savings 10 Association of Texas. 11 MR. EISENHART: Your Honor, I think 12 it's for UFG and USAT. 13 Q. (BY MR. RINALDI) And would you read 14 to yourself the second full paragraph there? 15 A. Read to myself? 16 Q. Yeah. 17 A. Okay. (Witness reviews the document.) 18 Yes, sir, I've read that. 19 Q. Okay. Now, does that refresh your 20 recollection that the compensation committees of 21 UFG and USAT directed that Mr. Berner prepare 22 contracts and present them to the USAT board for 14996 1 approval for yourself and six other individuals? 2 A. Well, no, sir. It really doesn't 3 reflect or refresh my memory. The way it happened 4 is I knew that I got a new contract. I guess it 5 was in February of 1988. And as to the process 6 before then, I didn't -- I didn't know what 7 happened. 8 Q. Okay. And all of this -- it says in 9 the paragraph below the names that "Mr. Berner was 10 requested by the compensation committee or was 11 requested to prepare such contracts and to present 12 them to the USAT board for approval." 13 Do you see that? 14 A. I see that. 15 Q. Okay. And do you recall that contracts 16 were offered to Mr. Berner and Mr. Gray and 17 Mr. Jackson and Mr. Williams and Mr. Wolfe along 18 with yourself at that point in time? 19 A. That's what this schedule indicates, 20 and that's consistent with my memory. 21 Q. Okay. And then after the compensation 22 committee had taken action on this matter, the 14997 1 same day, the board of USAT passed on this issue. 2 Take a look at T8034. 3 A. Okay. 4 Q. This is the minutes of the board of 5 USAT for February 11th, 1988. And it indicates 6 that you, Mr. Crow, were present. 7 Do you see that? 8 A. I see that. 9 MR. VILLA: Could you give us the 10 exhibit number on that again? 11 MR. RINALDI: It's Tab 412. It's 12 T8034. 13 MR. BLANKENSTEIN: 8039. 14 MR. RINALDI: I'm sorry. It may be a 15 9. It's handwritten. It's 39. 16 MR. BLANKENSTEIN: Minutes of the USAT 17 board of directors of February 11th? 18 MR. RINALDI: That's correct. 19 MR. BLANKENSTEIN: I believe that's 20 T8039. 21 MR. RINALDI: You're correct. I 22 apologize. It's handwritten, and I misread it. 14998 1 Thank you for catching that. 2 Q. (BY MR. RINALDI) Now, do you recall 3 attending this meeting of the board on 4 February 11th, 1988? 5 A. I don't remember the specific meeting, 6 no. 7 Q. Okay. Now, at the board meeting, it 8 indicates in the fourth paragraph down that 9 "Mr. Crow reviewed the financial statements of the 10 association. He reviewed in detail the regulatory 11 compliance schedule and discussed the new 12 regulations, including the classification of 13 assets. He was questioned at length on the 14 reserve versus scheduled items distinction. He 15 also reviewed the company's minimum regulatory 16 capital requirements which were discussed in 17 detail by the board of directors. Mr. Crow 18 discussed the company's direct investment, 19 liability growth, and state regulatory 20 compliance." 21 Do you see that? 22 A. I see that. 14999 1 Q. Now, at this point in time, which is 2 February 11th, 1988, the regulatory capital -- or 3 USAT would have been -- have failed its minimum 4 regulatory capital requirement; isn't that 5 correct? 6 A. I think that's correct. 7 Q. In fact, yesterday, we looked at the 8 accountant's report which was dated February the 9 5th, 1988. And in there, they noted that as of 10 September and December 31st, 1987, USAT was 11 failing its minimum capital requirement. 12 Do you recall that? 13 A. We looked at a lot of statements. I'll 14 accept that. 15 Q. Well, would you like to look at the 16 accountant's report? 17 A. Not really, but I'll accept that if -- 18 Q. Okay. And -- so that at the meeting, 19 that's something you would have advised the board 20 of; is that correct? 21 A. Oh, I would have gone over the 22 financial statements and the balance sheet, income 15000 1 statement, and regulatory compliance schedule. 2 Typically, that would have been my practice, yes, 3 sir. 4 Q. So, on February 11th, 1988, the board 5 knew that USAT had failed its minimum capital 6 requirement as of December 31st, 1987, didn't it? 7 A. I would think the board would have 8 known that. 9 Q. Well, that's information that it says 10 in the minutes you related it to them, is it not? 11 A. Why certainly. 12 Q. And then if you turn to Page 26, it 13 indicates there that -- about the fourth paragraph 14 down that Mr. Berner presented a draft of a 15 forbearance application. 16 Do you see that? 17 A. I do see that. 18 Q. And that forbearance application was 19 then considered by the board? 20 A. Yes, sir. I see it says "Mr. Berner 21 presented a draft of a forbearance application 22 which the company proposed to finalize and present 15001 1 to the Federal Home Loan Bank of Dallas." 2 Q. And it indicates that that was 3 unanimously adopted. And then below that, it says 4 "Resolved, that the board of directors does hereby 5 approve the filing"? 6 A. Yes, sir. Okay. I see that. 7 Q. And it says "A filing of the 8 forbearance application." Okay? And now, as soon 9 as the board finished considering the filing of 10 the forbearance application, they dealt with an 11 issue relating to a branch sale. And then the 12 next thing they took up is the question of 13 employment contracts. 14 Do you see that? And it says there, 15 "Mr. Berner discussed in detail the views of the 16 compensation committee concerning the employment 17 contracts." 18 Do you see that? 19 A. I do see that. 20 Q. Okay. And then following that 21 discussion, the board approved contracts between 22 USAT and a number of its senior executives. And 15002 1 the individuals who -- for whom they approved 2 contracts are set forth in the next-to-the-last 3 paragraph. Mr. Arthur Berner, Mr. Michael Crow, 4 Mr. John J. Gray, Jr., James N. Jackson, Bruce F. 5 Williams, and James L. Wolfe. 6 Do you see that? 7 A. I see that, yes. We're listed there, 8 yes, right. 9 Q. Now, does that then refresh your 10 recollection that the board approved contracts 11 between USAT and a number of members of senior 12 management of USAT at or about February 11th, 13 1988? 14 A. I don't really remember. I 15 certainly -- that's what these minutes reflect, 16 and I have no reason to dispute them. 17 Q. Okay. And as a consequence of that, 18 did you at some subsequent time execute a contract 19 between you and USAT? 20 A. I think so. 21 Q. Okay. And if you'd turn to the 22 document that's -- I think it's about three 15003 1 documents on. It's T8042. This has previously 2 been admitted as Tab 416. It indicates that there 3 is a contract between Michael Crow and USAT. 4 Do you see that? 5 A. I do see that. 6 Q. And it indicates on the last page that 7 it's executed by you as the executive. 8 Is that your signature? 9 A. Yes, sir, it is. 10 Q. And whose signature appears above that? 11 A. Jenard Gross'. 12 Q. And now, date of this contract is 13 February the 11th, 1988, isn't it? 14 A. Yes, it is. 15 Q. Did you actually execute the contract 16 on February the 11th, 1988? 17 A. I don't know. 18 Q. Would you turn to Exhibit B2060? It's 19 a document -- two more documents on. This is a -- 20 has -- I don't believe it has been previously 21 admitted. 22 A. Okay. 15004 1 Q. And this is a memo from Michael Crow -- 2 I mean from Arthur Berner to Michael R. Crow 3 regarding employment agreement. 4 Do you see that? 5 A. I do see that. 6 Q. Do you recognize that document? 7 A. Well, that looks like it's the United 8 Savings Association contract that's dated 9 February 11th of 1988. 10 Q. And attached to it, do you see a cover 11 memorandum? 12 A. From Mr. Berner to myself? 13 Q. Yeah. 14 A. Yes, sir. 15 Q. And what's the date of the cover 16 memoranda? 17 A. March 2nd, 1988. 18 Q. Does that refresh your recollection 19 that you didn't receive a copy of the contract for 20 your execution until almost three weeks after the 21 contract was approved by the board? 22 A. No, sir. I just don't remember. 15005 1 MR. RINALDI: Your Honor, I move the 2 admission of B2060. 3 MR. VILLA: No objection. 4 THE COURT: Received. 5 Q. (BY MR. RINALDI) Now, take a look at 6 the contract that's attached to B2060. It's still 7 not been executed. And the cover memo states, 8 "attached is an employment agreement for United 9 Savings Association of Texas. Please sign the 10 agreement and return it to me by Friday, March the 11 4th, 1988." 12 Do you know whether you signed the 13 contract at or about March the 2nd, 1988, or 14 shortly thereafter? 15 A. Well, based on logic, I would assume 16 that I did. 17 Q. Okay. 18 A. But I don't know. I mean, it would be 19 probably normal practice for the board to approve 20 something -- or the compensation committee to 21 approve something, and then it filters down the 22 totem pole and I would get it some time later. 15006 1 Q. Okay. Now, under your new contract, if 2 you'd turn to the term, it indicates on Page 2 3 that it has a term similar to the one that you 4 entered into with UFGI. 5 Do you recall that? 6 A. December 31st, '88. 7 Q. And if you'd turn to the salary, it has 8 the identical salary as the one entered into with 9 UFG? 10 A. Yes, sir. 11 Q. And it also has a similar bonus 12 provision? 13 A. Yes, sir. 14 Q. Do you see that? 15 And if you'd turn to the end of it, on 16 Page 17, it talks about, at E, "The terms and 17 conditions of this agreement shall become 18 effective if and only if UFG shall be unable to 19 comply with all of its obligations and make all of 20 its payments as set forth under the agreement -- 21 UFGI agreement." 22 Do you see that? 15007 1 A. I see that. 2 Q. And if you go back to the minutes 3 approving this, when the document was approved on 4 Page 27, it makes reference to the fact -- 5 A. Where were the minutes, please? 6 Q. I'm referring now to the minutes of the 7 board of February 11th, 1988, of USAT. And it's 8 T8039, and it's Page 27. This is the paragraph in 9 which the employment agreement was approved. 10 Do you see that? It's the second full 11 paragraph on the page. 12 A. "Mr. Berner discussed in detail"? 13 Q. Yes. And the second sentence there 14 says, "It was noted that these contracts were 15 identical to contracts entered into by UFGI and 16 would only be effective if UFGI could not perform 17 under such contracts." 18 Do you see that? 19 A. I see that. 20 Q. Was UFGI at this point in time 21 performing under the September 9th, 1987 contract? 22 A. Well -- 15008 1 Q. Was it paying your salary? 2 A. In terms of paying salary, United 3 Savings was paying my salary. 4 Q. And we see that United Savings was 5 paying your bonus, as well, wasn't it? 6 A. United Savings was paying the bonus, as 7 well. 8 Q. Now, why was it necessary to enter into 9 a second contract with USAT if you already had a 10 contract with UFGI? 11 A. I don't know. 12 Q. You never discussed that with anybody? 13 A. I'm not saying that I didn't. I just 14 don't remember discussing it. I remember going 15 back to -- a lot of things were going on during 16 this time. The attendees of this meeting, one of 17 them was Jack Hughes, and I was probably 18 preoccupied with my financial presentation. And I 19 believe Mr. Hughes was a representative of this 20 PennCorp debt payoff type deal we were talking 21 about earlier. So, I probably had my mind on 22 that. 15009 1 Q. Do you recall in the early part of 1988 2 executives of USAT and UFG expressing concern that 3 if UFGI were to become insolvent or go into a 4 bankruptcy, that they would not be able to collect 5 under the severance provisions of the UFGI 6 employment agreement? 7 A. I don't remember that specific type 8 discussion. I do recall it was -- it was 9 discussed in terms of concern about the viability 10 of Texas thrifts and concern about people's jobs, 11 et cetera, those sort of things. But as to a 12 specific discussion as you've characterized it, 13 no, I can't say that I remember that. 14 Q. But pursuant to the provisions of this 15 contract, if UFGI had gone bankrupt and were 16 unable to comply with its severance provision, 17 then USAT would have to pick up UFGI's obligation; 18 isn't that correct? 19 A. That if -- the way I have read it 20 briefly -- I haven't reviewed all of the pages. 21 But the way I read it is if UFGI cannot execute 22 under the severance provisions, then USAT would 15010 1 pick it up. And when I thought of contracts, 2 quite frankly, I was focusing in on severance 3 provisions. If I got fired, you know, do I have 4 any severance-type pay? 5 Q. And under this agreement, if UFGI were 6 insolvent and went into a bankruptcy, USAT would 7 be obligated to pay two years' severance payment 8 to you. 9 Is that your recollection? 10 A. My recollection -- 11 MR. VILLA: Your Honor, we're really 12 getting into more of what triggers the severance. 13 Is that what you meant to do, because that really 14 is a different portion of the contract? 15 MR. RINALDI: No. I'm just asking him 16 what his understanding is in terms of what would 17 happen if UFGI couldn't pay. I mean, it says in 18 the minutes if UFGI -- 19 MR. VILLA: All I'm saying is there's 20 two issues. One of which is what triggers the 21 severance, and the other is the priority of them. 22 And I think his question is now getting into what 15011 1 triggers the severance, which is a different 2 provision than he's shown the witness. 3 MR. RINALDI: Your Honor, it strikes me 4 that if Mr. Villa has a question about this, he 5 can certainly clarify it on redirect. 6 MR. SCHWARTZ: On cross. 7 MR. RINALDI: I mean on cross, or 8 whatever the additional examination is 9 denominated. 10 All I'm asking him is that in the 11 minutes, it states that the contract entered into 12 with USAT would only be effective if UFGI could 13 not perform, and I'm asking him: If UFGI for any 14 reason couldn't perform, was it your understanding 15 that USAT would be obligated to pay your severance 16 payment? Is that your understanding? 17 THE COURT: You may answer. 18 A. Well, my interpretation is that if UFGI 19 could not perform for any reason, the USAT 20 contract would kick in. And if I were entitled to 21 severance, then I could look to the USAT contract. 22 Q. (BY MR. RINALDI) And we discussed 15012 1 earlier that the severance was two times your 2 annual compensation, wasn't it? 3 A. That's my memory, yes. 4 Q. And under this contract, it would have 5 been two times 171,000 plus 62 bonus, correct? 6 A. Whatever that number is. 7 Q. Probably be around a half a million 8 dollars, wouldn't it? 9 A. That would be roughly 500,000. 10 Q. Okay. And so, USAT was now undertaking 11 an obligation to pay your severance -- on 12 February 11th of '88, it was undertaking that 13 obligation in the event UFG could not perform on 14 the severance provision; isn't that correct? 15 A. My -- from what I've read of these 16 documents here in the courtroom, that again, if 17 UFG could not perform for whatever reason -- for 18 any reason, USAT would be obligated to perform 19 under the contract. And one of those provisions 20 would be severance. 21 So, if Mr. Gross decided he hated me, 22 then I guess I would get paid the severance. 15013 1 Q. Okay. And this decision by the board 2 was undertaken at the same meeting where you 3 advised the board that USAT had failed its minimum 4 capital requirement as of September and 5 December 1987; isn't that correct? 6 A. Well, I don't -- certainly, it was no 7 secret. Yes, I made a financial presentation. 8 Mr. Hughes from PennCorp was there and Ms. Carlton 9 and Mr. Cottingham from the Federal Home Loan Bank 10 of Dallas was there, as well. So, certainly, what 11 you're saying is true. It was just -- that was no 12 secret. 13 Q. Okay. And did the board provide a copy 14 of the contract and the provisions with respect to 15 severance to these individuals from the Federal 16 Home Loan Bank Board? 17 A. At that time? 18 Q. Yes. 19 A. I don't know. I simply don't know. 20 Q. In February -- 21 A. I recall Ms. Carlton going around and 22 gathering up all the contracts and reviewing them. 15014 1 As to the specific time frame, I don't know. 2 THE COURT: Mr. Rinaldi, we'll take a 3 recess until 1:30. 4 5 (A luncheon recess was taken from 6 11:58 a.m. to 1:39 p.m.) 7 8 THE COURT: We'll be back on the 9 record. The hearing will come to order. 10 Mr. Rinaldi, you may continue with your 11 examination. 12 MR. RINALDI: Thank you, Your Honor. 13 Q. (BY MR. RINALDI) Mr. Crow, when we 14 broke, I believe we were discussing the question 15 of whether the February 11th, 1988 contract 16 between yourself and the other executives at USAT 17 and USAT (sic) had been given to the regulators at 18 or about the time they were entered into. 19 Do you recall that? 20 A. Yes, sir. 21 Q. Now, do you have a recollection that, 22 in fact, the February 11th, 1988 contracts were 15015 1 given to the examiner, Vivian Carlton, or any 2 person at the Federal Home Loan Bank Board at or 3 about the time those contracts were entered into? 4 A. At the time of the February 11th 5 meeting? 6 Q. Yes. 7 A. No, sir, I don't. 8 Q. Now, you indicated something about you 9 thought that some contracts were given to Vivian 10 Carlton, did you not? 11 A. Oh, yes, sir. 12 Q. Okay. And were you making reference to 13 the fact that the September 29th, 1987 contracts 14 had been given to her during the 1987 examination? 15 A. I can't be sure as to the timing, but I 16 believe that at each examination -- I remember 17 specifically one examination -- and I can't be 18 precise which one it was -- but Ms. Carlton asked 19 for all the employment contracts and I 20 participated in gathering all of those employment 21 contracts up and giving them to her. 22 Q. Now -- 15016 1 A. And I believe Mr. Berner did, as well. 2 Q. Okay. Would that have been in July -- 3 I mean August and September of 1988 during the 4 1988 Southwest Plan examination? 5 A. I don't -- I just simply don't remember 6 the time frame. 7 Q. Okay. But you do recall that the 8 examiners made a request for the contracts and 9 that you gathered them up and gave them to them? 10 A. Oh, certainly. 11 MR. VILLA: I think he said Ms. Carlton 12 made a request. 13 MR. RINALDI: And Ms. Carlton, let the 14 record reflect, is an examiner at the Federal Home 15 Loan Bank of Dallas. 16 MR. VILLA: But as Mr. Rinaldi knows, 17 she wasn't the examiner on the Southwest Plan 18 examination. 19 MR. RINALDI: Oh, that's an interesting 20 point. 21 Q. (BY MR. RINALDI) Was it Ms. Carlton 22 that made the request, or was it someone else? 15017 1 A. That -- my recollection is the one that 2 I participated in personally was Ms. Carlton's 3 request. 4 Q. Okay. And do you know that Ms. Carlton 5 reviewed the UFGI contracts in September -- from 6 September 1987? 7 A. No. I can't verify exactly what 8 Ms. Carlton would have reviewed. 9 Q. Okay. And if -- and during the course 10 of that examination, if she had requested the 11 contracts of UFGI, is it possible that you are 12 thinking of that request? 13 A. Mr. Rinaldi, if she had asked for the 14 contracts, I would have gathered up every 15 contract, whether it was USAT, UFGI, Sandra 16 Laurenson, Gene Stodart, you know, just 17 everything, you know, all-encompassing. 18 Q. I understand that. And what I'm asking 19 you is: All you recall today is that at a point 20 in time, Vivian Carlton asked for whatever 21 contracts existed? 22 A. Well, yes. She probably didn't state 15018 1 it that way. That's my characterization. I'm 2 sure Ms. Carlton asked for the contracts. And 3 what I was trying to convey is it would have been 4 our practice or my practice just to gather up all 5 the contracts and all the so-called letter 6 agreements from, you know, Sandy Laurenson, Gene 7 Stodart, and whoever and just give them to her. 8 Q. Do you recall that when she did request 9 the contracts that you gathered up the Sandy 10 Laurenson contract and the Stodart contract and 11 the other ones at the same time? 12 A. I don't recall specifically, but what I 13 was trying to construe is that I just viewed -- 14 you know, I knew we had a lot of employment 15 contracts. Some were with UFG. Some were with 16 USAT. Some were two-page letter agreements. And 17 when Ms. Carlton asked for contracts, I took a 18 macro basis. 19 Q. Now, I have understood your testimony. 20 A. Okay. 21 Q. Okay? My question is this: Do you 22 know whether that was in 1986, 1987, or the 1988 15019 1 exam? 2 A. No. I can't be sure. 3 Q. Okay. 4 A. No. 5 Q. Now, you said that you gathered up the 6 contracts whenever she asked for them. 7 Was Mr. Berner the same way? I mean, 8 if he had been asked for contracts by UFG -- I 9 mean by the examiners, he would have done the same 10 thing, wouldn't he, or you would have expected him 11 to, wouldn't you? 12 A. Well, let me be clear. When I say "I 13 gathered up the contracts," I'm not -- you know, I 14 just simply don't recall. It could have been 15 myself and Mr. Berner that gathered up the 16 contracts. 17 Q. Okay. But what I'm asking you is: If 18 a request had been made for contracts to 19 Mr. Berner, he would have done the same thing, 20 wouldn't he? He would have gathered up every 21 contract he could find, wouldn't he? 22 A. I can't say for a fact, but I can't 15020 1 imagine why he wouldn't. 2 Q. Well, you remember we talked about 3 Mr. Berner the other day and you said he was a 4 very thorough attorney. 5 Do you remember that, or words to that 6 effect? 7 A. Yes, sir. 8 Q. And if there came a time when an 9 examiner or someone from the Federal Home Loan 10 Bank Board came to him and said, "Mr. Berner, can 11 we see the contracts that exist, you would expect 12 that he would have turned anything that existed 13 over to the Bank Board, wouldn't you? 14 A. I would have expected -- I mean, I 15 can't specifically say in this instance because I 16 don't know. But my experience with Mr. Berner is 17 that he was conscientious and thorough, and that's 18 about all I can say. I mean, when -- our practice 19 was when a regulator or auditor asked for 20 something, we gave it to them and attempted to 21 be -- we probably gave them more than they wanted. 22 Q. Now, did there come a time in the 15021 1 spring of 1988 when you received a salary 2 increase? And I'm talking about sometime after 3 the period of time in which you entered into the 4 February 11th, 1988 contract, which I believe we 5 have determined was executed sometime in March or 6 early March of 1988. 7 A. Well, I remember getting salary 8 increases. If you can help me with -- by the 9 nature of your question, I probably couldn't; but 10 I can't be specific. I just don't remember. I 11 certainly received salary increases, yes. 12 Q. And do you recall that in the -- in 13 about the latter part of March or the beginning of 14 April of 1988 that the -- your salary was 15 increased by the amount of your 1987 bonus? 16 A. I remember the bonus being included in 17 salary. I do remember that. 18 Q. And -- 19 A. And from thereafter, I was paid on a 20 monthly basis based on the total of the salary and 21 the bonus rolled together. 22 Q. So, in other words, if -- just so I 15022 1 understand, you were being paid -- let's see if I 2 can find it. Let's take a look at -- well, let's 3 just go on. 4 So, it was your understanding that your 5 base salary was increased by the amount of the 6 bonus which you had received in 1988 for 1987 7 performance? 8 A. Well, I would -- I'm not -- my memory 9 is whenever I think of a salary increase, it means 10 you get a raise. But I recall what happened is 11 that the bonus amount from the prior year was 12 included in the salary number. 13 Q. So, your salary, your base salary -- 14 A. Base salary. 15 Q. -- was increased by the amount of the 16 bonus which you had received in 1988 for 1987 17 performance; is that accurate? 18 A. That I had received in January of '88 19 for January performance. And then thereafter, 20 one-twelfth of that total was paid to me monthly. 21 Q. Okay. And the bonus you received, if I 22 recall, was on the magnitude of $115,000. 15023 1 A. I think that's the number that we saw 2 this morning. 3 Q. Okay. And so, your base salary, which 4 in the February 11th agreement is indicated to be 5 $171,000, would have been increased by the amount 6 of the bonus or $115,000; is that correct? 7 A. My memory is that those two figures 8 were added together. 9 Q. So, that would have meant that your 10 salary would have gone from 171 to $286,000 about. 11 That is, your base salary? 12 A. That would have been my -- the number 13 they used to derive my paycheck. 14 Q. Okay. That was your base salary, 15 wasn't it? 16 A. Well, I don't know that it was my base 17 salary. That's how I was getting paid. I didn't 18 focus on whether that was my base salary or not. 19 Q. Now, whose idea was it to take the 20 bonus and add it to the original salary to come up 21 with a new salary structure? 22 A. As best I remember, that probably had 15024 1 to do with the change of control situation that 2 occurred in the contracts. 3 Q. Okay. But who came up with the idea 4 that you should increase the salary and that the 5 amount by which the salary would increase would be 6 the amount of the 1987 bonus that had been paid in 7 1988? 8 A. I don't know specifically. I know that 9 myself, Mr. Berner, I believe Mr. Gross, probably 10 Dr. Munitz, and others probably talked about it. 11 Q. That wasn't your idea or your proposal? 12 A. Well, I'm not denying it wasn't. I was 13 trying to give you my memory that -- 14 Q. So, that could very well have been your 15 proposal; isn't that correct? 16 A. It's possible. 17 Q. Now, would you take a look at 18 Exhibit 8050? Before you -- well, go to 8050. 19 And then I have another question for you before we 20 get into that. 21 This is the minutes of the compensation 22 committee of United Financial Group and United 15025 1 Savings Association of Texas of March 30th, 1988. 2 And before we get into that, I'd like to ask you 3 another question. 4 At or about April of 1988, did you also 5 receive another bonus, something called a special 6 bonus? Do you recall that? 7 A. I remember the term "special bonus," 8 and I probably did. But in terms of -- you're 9 going to have to help me with documents to refresh 10 my memory. 11 Q. Well, do you recall that in about April 12 of 1988, the compensation committee of USAT agreed 13 to pay a special bonus in the amount of the 1987 14 bonuses that were paid in '88? 15 A. If we're talking about -- I -- here's 16 what I remember. In terms of what the 17 compensation committee contemplated or did, I 18 wasn't involved. But I do remember a time where 19 there was a bonus program set up that 25 percent 20 of an amount was paid currently and 75 percent was 21 deferred to be paid to the participant January 1st 22 of 1989 if they stayed with the company. 15026 1 Q. Okay. 2 A. That's what I remember, if that's the 3 bonus program you're talking about. 4 Q. Yeah. That's the one. I believe it's 5 denominated either the -- it's -- at various times 6 in the documents, I've seen it called either a 7 special bonus or an executive bonus. 8 Do you recall that? 9 A. Okay. I do remember that. 10 Q. Do you recall that the total amount of 11 the bonus was going to be the bonus amount that 12 you had received in 1988 -- the '87 bonus that you 13 received in 1988? That is, $115,000? 14 A. I don't recall specifically, but that 15 has a ring -- it sounds right. 16 Q. And I believe you testified a moment 17 ago that you received 25 percent of that, which 18 would be about something in the order of, oh, 27, 19 $28,000 immediately and then the rest would be 20 deferred? 21 A. That's my memory. 22 Q. Okay. 15027 1 A. 25 percent of whatever the number was. 2 And I don't dispute it was the 115,000. 3 Q. So, that would have been about a 4 28,000-dollar payment for you? 5 A. The 25 percent of that would be roughly 6 that, yes, sir. 7 Q. And then there would have been set 8 aside approximately 75 percent, which would have 9 been something in the order of 81 or $82,000 which 10 would be the remainder of the bonus. 11 Do you recall that? 12 A. I do, yes. 13 Q. And what was to be done with the 14 remainder of that bonus? 15 A. Well, the purpose, as I recall, was 16 somewhat of a golden handcuffs type of deal that 17 if the employee stayed -- we were undergoing, 18 obviously, Southwest Plan or some type of 19 restructuring. And if the employee stayed through 20 early January of 1989 and performed their duties 21 satisfactorily, they would receive the other 22 75 percent and -- 15028 1 Q. And -- 2 A. And as I recall, that 75 percent was 3 put in an escrow-type arrangement. 4 Q. Okay. Now, you say an escrow-type 5 arrangement. 6 Do you remember that it was placed in 7 an irrevocable trust? 8 A. No, I don't remember that. But if 9 that's the case, I don't dispute that. I just 10 don't -- 11 Q. Do you recall why it was management 12 wanted to place that money in a trust rather than 13 just promise the payments on January 1, 1989, if 14 the employee was still employed? 15 A. No, I really don't. Like I've said, I 16 wasn't on the investment -- or on the compensation 17 committee, never attended one. So -- 18 Q. Well, but you -- 19 A. I didn't talk to Mr. Whatley, and you 20 know, that was -- as to their reasoning and so 21 forth, I -- I can't say. I know that there was a 22 great deal of concern among the employees of, you 15029 1 know, their job security, so to speak. 2 Q. And you participated in a lot of 3 discussion with management, didn't you, regarding 4 this question of the executive bonus? 5 A. I'm sure I did. 6 Q. And, in fact, wasn't that a suggestion 7 that you made to the remaining members of 8 management? 9 A. I don't know whether I made that 10 suggestion or not. 11 Q. Okay. Now -- 12 A. I've tried to characterize -- you know, 13 I certainly discussed it. As to whether -- whose 14 bright idea it was, I can't say. 15 Q. Okay. Let me show you -- let's take a 16 look at the compensation committee minutes of 17 March the 30th, 1988. They are fairly short. I 18 know you weren't present, but let me just read 19 something to you. It says, "Mr. Berner reviewed 20 in detail the current status of employment 21 contracts and proposed resolution of the problem. 22 He presented a proposal which was discussed with 15030 1 and approved by the committee, and the committee 2 requested that Dr. Munitz retain a compensation 3 specialist to pass on the fairness of the 4 proposal. Mr. Whatley noted, however, that the 5 company should proceed as quickly as possible on 6 the proposal without waiting for the report of the 7 compensation specialist. There being no further 8 business to come before the committee, the meeting 9 was adjourned." 10 Do you see that? 11 A. I see that. 12 Q. Do you know what the compensation 13 committee was talking about there? 14 A. I think that this was the dispute over 15 the change of control problem as it related to the 16 contracts. And with the resignation of a number 17 of the board of directors there had been, under a 18 technical reading of the contracts, a change of 19 control which meant that the executive was 20 entitled to basically two years of compensation in 21 the form of severance. And it became a problem in 22 that some of the people started talking about -- 15031 1 that would be something that would be desirable to 2 do. And, in fact, our executive vice president of 3 either real estate or lending, Mr. Jeff Gray, did, 4 in fact, tender his demand for such severance 5 payments. And Mr. Gray was talking to several of 6 the people that reported to me that, you know, 7 basically, they ought to do the same. 8 So, to me personally, it was a pretty 9 big deal because I didn't want to -- I didn't want 10 to lose Mr. Williams, Mr. Wolfe, and Mr. Gray, and 11 others right as we were contemplating -- at this 12 time, what was in our mind was "We're going to be 13 restructured. We're going to be part of the 14 Southwest Plan. And if you lose your management, 15 well, that's not too good." 16 Q. And you can tell all of that from that 17 one paragraph I told you. Right? 18 A. As I said, sir. I never attended a 19 compensation committee, that I remember, in my 20 life. You asked me what I thought. 21 Q. Okay. Well, let me ask you this, then: 22 As a consequence of the change of control, is it 15032 1 your recollection that the board of USAT agreed to 2 give new contracts -- strike that. 3 As a consequence of the change of 4 control, is it your recollection that the 5 compensation committee agreed to give new 6 contracts by USAT to members of senior management? 7 A. I remember that the contracts were 8 rewritten. Whether it was UFG or USAT or both, I 9 can't be precise; but it was to change that change 10 of control language and basically to take care of 11 the dispute. 12 Q. Okay. And do you recall that as a 13 consequence of that dispute, that on March 30th, 14 1988, the compensation committee agreed to 15 increase the salaries of the affected individuals 16 by the amount of their 1987 bonus which had been 17 paid in 1988? 18 A. No, sir, I can't -- I can't say that 19 from looking here. But as I've tried to explain, 20 I think that was occurring at about the same time. 21 So, you know, I'm a little unsure as to the 22 timing. 15033 1 Q. So, you don't know if this proposal 2 that was talked about here was the proposal that 3 resulted in the increase in your salary by rolling 4 the '87 bonus into your 1988 salary? 5 A. No. As a matter of fact, I don't -- I 6 wouldn't have any idea. 7 Q. Now -- 8 A. I -- you know, as I said, I didn't -- I 9 really wasn't plugged into the compensation 10 committee process. 11 Q. Okay. And do you know whether the 12 proposal here included granting the special or 13 executive bonus of -- in the amount of the '87 14 bonuses which had been paid in '88 to various 15 members of the senior executive staff? 16 A. Just from looking at this page, no, 17 sir, I can't say that. 18 Q. So, in fact, looking at the minutes of 19 the compensation committee, you can't tell what 20 they did, can you? 21 A. Well, it -- all I can do is read what's 22 on this page, and it -- 15034 1 Q. And I believe we've talked about it, 2 and your conclusion was you really couldn't tell, 3 could you? 4 A. Just from looking at this page, it 5 looks like to me they talked -- they reviewed in 6 detail the current status of the employment 7 contracts and a proposed resolution of the, quote, 8 "problem." 9 Q. But you don't know what the proposed 10 resolution was? 11 A. No. I really can't be -- 12 MR. VILLA: Objection, Your Honor. You 13 know, he's giving him a page that's very brief of 14 a meeting he didn't attend, asked him what the 15 problem was, interrupted him halfway through it, 16 and said "but you don't know that's the problem" 17 and now he's cross-examining him about what he 18 doesn't know about it. This is the most ambiguous 19 examination that I can imagine. If the man wasn't 20 at the meeting and it's not on the page, how can 21 he tell what they were thinking? 22 THE COURT: Next question. 15035 1 Q. (BY MR. RINALDI) Sir, at the bottom 2 of the page, it says, "Mr. Whatley noted, however, 3 that the company should proceed as quickly as 4 possible on the proposal without waiting for the 5 report of the compensation specialist." 6 Do you see that? 7 A. I do. 8 Q. Did you learn at some point in time 9 subsequent to March 30th, 1988, that UFG had hired 10 a compensation specialist? 11 A. I remember that we had -- I believe it 12 was Hewitt & Company and then Wyatt & Company, if 13 I'm not mistaken, that came in and looked at 14 our -- it was either -- they looked at the 15 contracts or they looked at our compensation 16 levels or both. 17 Q. So, your answer is yes, it did come to 18 your attention later that a compensation 19 specialist was hired? 20 A. Oh, I believe that -- well, to be 21 precise, I know that -- well, I remember that 22 those two firms were hired. As to the exact 15036 1 timing, I can't -- I think one or more of them 2 were hired in late 1988, but I can't be sure. 3 Q. If this reference in the minutes is to 4 one of those two firms you referred to, they 5 clearly would have been hired after March 30th, 6 1988, correct? 7 A. Oh, sure. 8 Q. And they would have been hired after 9 the company had proceeded as quickly as possible 10 on the proposal, correct? 11 A. The way I would read this sentence is 12 that they -- that, quote, "the company should" -- 13 excuse me -- "should proceed as quickly as 14 possible on the proposal," whatever that proposal 15 is, "without waiting for the report of the 16 compensation specialist." 17 Q. Okay. And is it your understanding in 18 these minutes -- because I get very confused with 19 the word United, United Savings Association of 20 Texas, and UFGI -- that when they refer to the 21 company, they are talking about the holding 22 company, UFGI, and when they refer to the 15037 1 association, they are talking about the savings 2 and loan institution? 3 A. I think that different people wrote it 4 differently, and I can't -- Mr. Berner wrote these 5 minutes. I really can't say. Oftentimes when I 6 would refute -- refer to the company, I was just 7 referring to the whole entity. 8 Q. Well, in your employment contracts when 9 they referred to UFGI in your employment 10 contracts, UFGI was always denominated "the 11 company"; isn't that correct? 12 A. I don't remember, but I -- if -- 13 Q. Well -- 14 MR. VILLA: Your Honor, really, what 15 does employment contracts -- summarized the word 16 "company" and what that means in a document 17 prepared by some other person that he never saw, 18 wasn't a part of really is totally irrelevant to 19 this case. 20 MR. RINALDI: Well, Your Honor, I don't 21 think it is irrelevant. Mr. Berner prepared all 22 the minutes for this enterprise. There is a 15038 1 holding company and there -- 2 THE COURT: That might be a disputed 3 question, also. 4 MR. RINALDI: And there is a savings 5 and loan. I'm simply trying to get out of him 6 what he as the chief financial officer understood 7 the word "company" to mean in the minutes of -- 8 THE COURT: All right. We have the 9 answer to that. Let's go to next question. 10 Q. (BY MR. RINALDI) Okay, sir. Let's go 11 back, then, a couple of -- sorry. Let's skip 12 forward about two documents to Document 8053, and 13 I think maybe we can figure out what the proposal 14 was. 15 Now, 8053 is a document from Arthur 16 Berner to Barry Munitz, Jenard Gross, and James 17 Whatley. It's got a date of March the 31st, 1988. 18 Do you see that? 19 A. I do. 20 Q. And this purports to be a privileged 21 and confidential attorney work product prepared by 22 Mr. Berner. And in the beginning line, it says, 15039 1 "The following are notes and suggestions to be 2 discussed with Jim Whatley at the compensation 3 committee meetings on March the 30th, 1988." 4 Do you see that? 5 A. I see that. 6 Q. And, in fact, the document we just 7 looked at was the compensation committee meetings 8 that took place on March the 30th, 1988. 9 Do you see? 10 A. Yes, sir. 11 Q. Now, directing your attention down to 12 the second full paragraph, it says, we will change 13 current salaries effective January 1st, 1988, to 14 reflect the true market value of certain employees 15 equal to the 1987 salary plus bonus received in 16 '88 for 1987 work." 17 Do you see that? 18 A. I see that. 19 Q. Okay. And is that the salary increase 20 that you mentioned a moment ago that you recalled 21 you received in about the spring of 1988? 22 A. I believe that would refer to the 15040 1 rolling in of the -- of the bonus to salary. 2 Q. And that's the one we discussed where 3 your base salary of $171,000 was increased by the 4 115,000-dollar bonus and your new base salary 5 became $286,000; is that correct? 6 A. And the new total number became the 7 total of those two, yes. 8 Q. That's correct. Okay. 9 And then we go on down a little further 10 to Paragraph 5. It says, "The special 1988 bonus 11 would be equal to the bonus received in '87 -- for 12 '87 in 1988. This special bonus would be paid 13 25 percent currently and 75 percent on 14 January 1st, 1989, and will be placed in trust 15 with an independent trustee. Such unpaid bonus 16 will be forfeited if the employee leaves USAT 17 prior to January 1st, 1989." 18 Do you see that? 19 A. I see that. 20 Q. Does that appear to be the bonus we 21 talked about a moment ago where they were going to 22 take the bonus amount for 1987 and pay 25 percent 15041 1 of it to you immediately and then put 75 percent 2 into a trust? 3 A. This appears to be the -- what I 4 described a while ago, and I think I used the word 5 "escrow." Here, it says it's a trust, but -- 6 Q. So, that would refresh your 7 recollection that, in fact, the money was going to 8 be put in a trust? 9 A. I have no reason to dispute it. This 10 is -- like I've tried to say, I really wasn't 11 plugged into the compensation committee process. 12 But if that's what it says here, I guess it was a 13 trust. 14 Q. And then it goes on in Paragraph 6 and 15 says, "We will provide for amended employment 16 contracts along the lines of the draft attached 17 for those with contracts now plus new contracts 18 for Jenard Gross and Barry Munitz. The contracts 19 will clarify the board's previous intent and only 20 a change in control in a corporate sense, e.g., 21 control -- controlling stockholders selling their 22 stock, a creditor taking control of the company, 15042 1 or an actual termination will trigger benefits." 2 Do you see that? 3 A. I see that. 4 Q. And is that making reference to the 5 change of control issue that you referred to 6 earlier? 7 A. I think this makes reference to fixing 8 the contracts or to amending the contracts to 9 modify the change of control language. 10 Q. So, as a result of Mr. Gray raising an 11 issue about whether there had been a change of 12 control, the proposed fix that was undertaken by 13 the compensation committee was to increase 14 everybody's salary by the amount of their 1987 15 bonus paid in 1988; is that correct? 16 MR. VILLA: Objection. 17 Mischaracterizes his testimony. He didn't talk -- 18 he did talk about Bruce Williams and Jim Wolfe and 19 everything else. Now he's trying to characterize 20 20 minutes of testimony in one question quite 21 unfairly. 22 MR. RINALDI: I'll rephrase the 15043 1 question. 2 Q. (BY MR. RINALDI) Sir, as a result of 3 the issue regarding change of control that had 4 been raised that you discussed earlier -- 5 A. Yes, sir. 6 Q. -- does it appear that the 7 compensation committee then undertook to correct 8 that circumstance by implementing the proposal 9 that's discussed on Exhibit T8053? 10 MR. VILLA: Your Honor, I will make an 11 objection. He's asking him to characterize what 12 the exception committee did. He's not on the 13 compensation committee. He wasn't at the 14 meetings. He wasn't plugged into the compensation 15 committee. Now he says, "Does it appear that this 16 is what they were thinking or this is what they 17 were doing or the reasons for it?" It's pure 18 speculation. We have a very willing witness who's 19 trying to tell him about the ongoing problems, but 20 why doesn't he get a member of the compensation 21 committee to tell him about it. 22 MR. RINALDI: He was the chief 15044 1 financial officer. He said he had continuous 2 conversations with these people regarding these 3 kind of issues. He recalls very specifically that 4 he himself received 115 million -- 5 thousand-dollar -- did a Mr. Guido there -- 6 115,000-dollar salary increase at about this point 7 in time, and he also received an executive bonus. 8 THE COURT: All right. Pose your 9 question. If he knows the answer, he may answer. 10 Q. (BY MR. RINALDI) Does it say that the 11 proposal that was implemented to correct the 12 problem that's discussed by the compensation 13 committee -- in the compensation committee on 14 March 30th, 1988, is set forth in T8053? 15 A. Well, if you're wanting my memory as to 16 exactly what happened, I don't know. But I can 17 see from this document that it is signed by 18 Mr. Whatley, who was the chairman of the 19 compensation committee. So, I would conclude that 20 these were the steps that were taken to handle 21 that problem. And, as I tried to explain, it's 22 certainly out of the area of the compensation 15045 1 committee, but it was -- it was a pretty big deal 2 to me because, you know, it looked like we were 3 going to lose some people. And they weren't -- 4 they weren't insignificant people. 5 Q. Okay. Let me ask you just a question 6 about the compensation committee minutes. 7 In your opinion, could an examiner 8 reviewing those compensation committee minutes 9 have ascertained what went on that's described in 10 the memo that's T8053 without actually seeing the 11 memo? 12 A. Now, could you repeat that question? 13 Q. Could an examiner, if they read the 14 compensation committee minutes, which is 15 Exhibit T8050, have ascertained what the proposal 16 adopted by the compensation committee was without 17 having had the benefit of T8053? 18 A. Let me -- where were those minutes 19 again, please? 20 Q. The minutes are T8050, and they are two 21 documents back. 22 A. Well, that's a pretty tough 15046 1 hypothetical question for me to answer. I've 2 never been an examiner. I was an auditor with 3 Arthur Andersen and if -- as an auditor, you would 4 take these minutes as a starting point and then 5 you would start digging back. But just taking 6 these minutes on the face, it would be difficult 7 to determine all the details certainly. Nobody 8 could do that. 9 Q. All right. And the memorandum, which 10 is T8053, is the privileged and confidential 11 attorney work product of Mr. Berner, isn't it? 12 A. That's what it says at the top. 13 Q. Okay. Now, do you remember I asked you 14 if you had played any role in formulating this 15 proposal? 16 A. Yes, sir, I do. 17 Q. Okay. Would you take a look at T8046? 18 This is a memo from Mike Crow to Jenard Gross -- 19 Jenard Gross dated March the 22nd, 1988. And it's 20 referenced "proposed contract solution." 21 Now, how long after you entered into 22 your -- strike that. 15047 1 Now, this memo would have been 2 generated by you approximately -- well, less than 3 three weeks after you signed your 4 nineteen-eighty -- the February 11th, 1988 5 agreement with USAT, correct? 6 A. I believe that's correct. 7 Q. Okay. And it says, "With the 8 resignation of three directors subsequent to the 9 February 11th board meeting, a change of control 10 has occurred under the definition of the 11 employment contracts entered into by six 12 executives. Under the contract, the executives 13 are eligible to receive 25 percent of the 14 four-year performance unit plan plus twice the 15 amount of base salary and minimum bonus." 16 Do you see that? 17 A. I see that. 18 Q. And then you go on to talk about, 19 "There is a need to restructure the employment 20 contract. The following points are my suggestions 21 for an outline of restructuring." Okay? 22 A. Yes, sir. 15048 1 Q. And the first thing you talk about 2 there is terminating the performance -- the 3 four-year performance unit plan immediately and 4 distribute a 25 percent payout. 5 A. I see that. 6 Q. What was that making reference to? 7 A. There was a four-year performance plan 8 that was going back to 1984 or '85 that was a 9 long-term incentive golden handcuffs type plan. 10 Q. And what was the value of that plan at 11 this point in time? 12 A. Well, let me -- as best I can recall, 13 the plan was set up to where objectives were to be 14 obtained each year -- to be attained each year, 15 rather -- I believe based on return on equity. 16 And that return on equity, I think, was 15 percent 17 or so. And if the company attained those targets, 18 then the executive would receive a lump sum cash 19 payment at the end of the term, which is, like, 20 1988 or 1989 maybe. 21 Q. You say a "return on equity." Was it 22 the equity of the corporation that was being used 15049 1 to determine the rate of return? 2 A. I don't remember. 3 Q. Did the performance unit plan at this 4 point in time have any value to the employees? 5 A. It didn't have much value to me. 6 Q. Okay. Now, the second bullet point 7 says, "Effective January 1" -- now, mind you, this 8 is your proposal. "Effective January 1, 1988, add 9 the 1987 actual bonus amounts to the base salary 10 figures immediately. This would fully compensate 11 individuals even if some other entity" -- 12 MR. SCHWARTZ: "Some outside." 13 Q. (BY MR. RINALDI) "Even if some 14 outside entity/authority removed bonuses 15 entirely." 16 Do you see that? 17 A. I see that. 18 Q. Does that refresh your recollection 19 that you were the one that first came up with the 20 idea of increasing salaries by adding the 1987 21 bonus payable in 1988 to the base salary? 22 A. No, sir, it really doesn't. 15050 1 Q. Does that appear to be the same 2 suggestion or proposal that was ultimately adopted 3 by the compensation committee in its minutes that 4 we looked at a moment ago? 5 A. It certainly appears very similar. 6 Q. Okay. And in your memo, you say, "By 7 rolling the bonus into the salary," you say, "this 8 would fully compensate individuals, even if some 9 outside entity/authority removed bonuses 10 entirely." 11 What were you referring to by an 12 outside entity or authority removing bonuses 13 entirely? 14 A. I can't remember what I was 15 specifically referring to. The thing that would 16 come to mind is we were contemplating to 17 restructure from the Southwest Plan, and who knows 18 what the new owner is going to do or think or say. 19 Q. And were you concerned, then, that 20 whoever acquired USAT, if it wasn't existing 21 ownership, may very well terminate or not pay the 22 bonus in nineteen -- bonuses for 1988? 15051 1 A. Oh, I think -- I think a lot of 2 employees were concerned about that. 3 Q. And so, in -- 4 A. And let me amplify that. You had 5 Jeff Gray running around with his little, you 6 know, demand of contract letter. And so, yeah, I 7 was pretty steamed up at this time and pretty 8 concerned. 9 Q. And -- 10 A. I didn't want to be keeping the general 11 ledger myself. And, you know -- I mean... 12 Q. Are you finished? 13 A. Yes, sir. 14 Q. Okay. So that the purpose of your 15 proposing that the bonus be rolled into the base 16 salary was to be sure that people would receive 17 their bonus even if some entity -- other entity 18 came in and tried to remove the bonus entirely? 19 A. It was -- you know, as best I read 20 this, it was to provide people some security so 21 that they would be persuaded to stay with an 22 entity that was going to be restructured. It 15052 1 wasn't -- well, it wasn't like we had a bunch of 2 deadheads at United. I mean, people were 3 getting -- you know, they were being approached 4 for other jobs, including myself. 5 Q. Okay. And who approached you for 6 another job? 7 A. At what time frame? 8 Q. I presumed that we were talking about 9 this time frame, in about March of 1988. 10 A. I received numerous calls, Mr. Rinaldi. 11 I had been the chief financial officer of the 12 largest bank in Houston. Mr. Williams, Bruce 13 Williams, had been manager of planning for the 14 largest bank in Houston. 15 Q. And did Mr. Williams -- 16 A. Mr. Wolfe had been a senior audit 17 manager with Peat Marwick and is now the CFO of 18 one of the biggest thrifts in Texas. So, you 19 know, we had people that were vulnerable. So -- 20 Q. Did -- 21 A. -- I guess -- you know, I don't mean 22 to be making a speech, but we were trying to make 15053 1 people feel secure to stay with an organization 2 that was going to be restructured. 3 Q. Did Bruce Williams ever come to you and 4 tell you that he had received another job offer 5 and that he was intending to leave? 6 A. No. I believe Mister -- it was more 7 along this conversation. I believe -- I recall 8 Mr. Williams and Mr. Wolfe coming to me and 9 saying -- I forget the exact words, but it was 10 basically "should we, you know, seek other 11 opportunities?" Should they, those two. And, you 12 know, I can't quote chapter and verse, but I am 13 quite confident they had received other inquiries. 14 So, you know, I was -- that was 15 certainly on my mind. 16 Q. In about March of 1988, did Bruce 17 Williams ever come to you and tell you, to your 18 recollection, that he had received inquiries for 19 other job offers? Yes or no? 20 A. Did he ever come to me and tell me he 21 had another job offer? 22 Q. Yes. 15054 1 A. No. 2 Q. In this time frame. 3 A. No. 4 Q. Did Mr. Wolfe ever come to you in this 5 time frame and tell you that he had another job 6 offer? 7 A. The way you're posing the question, the 8 answer is no. 9 Q. Did any of the other people who had -- 10 who received executive bonus contracts from USAT 11 that were listed -- Mr. Berner and Mr. Jackson, I 12 can't remember all of them -- did any of them come 13 to you and tell you in about this time frame that 14 they had received jobs -- I mean offers of other 15 employment? 16 A. That they had a job ready to go, locked 17 and loaded and were ready to leave? 18 Q. Did they tell you that someone had come 19 to them and offered them a job? 20 A. I don't remember those words, no. 21 Q. Do you remember anyone coming to you 22 and telling you in words to that effect, 15055 1 "someone's offered me a job"? 2 A. Yeah. 3 Q. Who? 4 A. Bruce Williams and Jim Wolfe. 5 Q. And did they tell you that these jobs 6 would be at a higher-paying salary than they were 7 receiving at USAT or UFG? 8 A. I didn't get into that. I was more in 9 the mode of, you know, "Let's make this thing 10 work. Let's make United work" because -- you 11 know, it obviously didn't turn out that way. But 12 it appeared that -- my mindset at the time was 13 that the regulatory authorities thought we were a 14 good management team and we were good guys. And 15 we were a large financial institution, and I 16 thought we were going to be restructured and that 17 there would be a good career path for people like 18 myself and Mr. Wolfe and Mr. Williams. 19 Q. Now -- 20 A. Otherwise, I would have left. 21 Q. Now, after the compensation committee 22 on March 30th approved of the executive -- oh, let 15056 1 me just go back to one last thing. 2 Would you look at the second page of 3 8046? And I would move that into evidence, Your 4 Honor. T80846. 5 MR. VILLA: No objection. 6 THE COURT: Received. 7 Q. (BY MR. RINALDI) It reads on the last 8 page, "Contracts would be secured by a letter of 9 credit paid directly to the executive in case of 10 nonperformance by the company. A letter of credit 11 would be from Texas Commerce Bank. The attorneys 12 may determine that an escrow arrangement is 13 preferable." 14 Do you see that? 15 A. I see that. 16 Q. And it makes reference once again to 17 the company. 18 Is it referring there to USAT or to 19 UFG? This is your memo. 20 A. Yes, sir, I see that. (Witness reviews 21 the document.) 22 You know, I really can't be sure. So, 15057 1 I really don't know. You would have to look at a 2 series of my memos during this time period. If 3 you found, you know, where I was talking about 4 United Savings, and then I will try to reach a 5 conclusion. 6 Q. Well, was the performance unit plan 7 with USAT or UFG? 8 A. I think that was with UFG. 9 Q. So, that would have been the company's 10 plan? 11 A. Yes, sir, that's right. 12 Q. So, at least that portion of the memo 13 would be referring to the company? 14 A. I think the performance unit plan was 15 United Financial Group, yes, sir. 16 Q. And was it your understanding that the 17 contracts that had been triggered by the change of 18 control were the contracts that were entered into 19 with UFGI in September of 1987 or the contract 20 which you had entered into and executed on March 21 the 2nd, or thereabouts, 1988, with USAT? 22 A. Well, I probably didn't make a 15058 1 distinction. I left that type of distinction to 2 our legal staff. I knew we had two contracts. I 3 wasn't claiming under the contracts; so, I didn't 4 agonize under which contract it would be claimed 5 under. 6 Q. Now, when Mr. Wolfe came to you and 7 said "There's been a change of control because a 8 director resigned from UFGI and USAT," did you 9 agree that there had been a change of control? 10 A. I don't remember exactly the 11 conversation I had with Mr. Wolfe and 12 Mr. Williams. I believe -- as best I recall, they 13 had had a conversation with Mr. Gray. And 14 Mr. Gray was all somewhat gung-ho about this 15 issue. And as best I recall, to them, because 16 they were employees, I was, like, "Well, I'm not 17 sure a change of control has occurred or not. 18 Let's -- you know, let's just stay here, do our 19 jobs, and settle down." 20 Q. Well, do you recall discussing the 21 problem with your legal counsel: Mr. Berner? 22 A. Oh, absolutely. I certainly discussed 15059 1 it with Mr. Berner. 2 Q. And did Mr. Berner express an opinion 3 as to whether there had been a change of control? 4 A. Not to me because, you know, I think 5 the -- some of the memos we reviewed a while ago, 6 that privileged and confidential memo, I certainly 7 didn't see that. That -- those conversations as 8 to whether there had or had not been a change of 9 control and the opinion of the lawyers and the 10 compensation committee, I wasn't involved in. I 11 mean, it basically came down to me, from this 12 totem pole we're talking about, Barry Munitz, I 13 believe, telling me "Here is the company's 14 position, and that's the way it is." 15 Q. All right. Well, let me just go back, 16 then, to T8053. That's the memo that we looked at 17 that was privileged and confidential because I 18 believe that there is a portion of that that 19 addresses the question of the position of the 20 board of directors of UFGI and USAT. 21 Do you see Paragraph 1? 22 A. I do. 15060 1 Q. It says, "The board of directors of 2 UFGI and USAT will take the position that there 3 has been no change of control which triggered 4 certain executives' employment contracts. We will 5 make clear that an attempt to enforce the 6 employment contracts at this time will be 7 resisted." 8 Do you see that? 9 A. I see that. 10 Q. Do you recall being told by either 11 Mr. Berner or Mr. Gross or Mr. Whatley or 12 Mr. Munitz that that was the position of the board 13 of directors of UFGI? 14 A. I don't remember those words, but I 15 remember -- like I said, I believe Dr. Munitz told 16 me that the position of the higher-ups was that 17 there had not been a change of control. 18 Q. Okay. And -- 19 A. And then, you know, you've got Jeff 20 Gray out here saying that there is a change of 21 control so -- 22 Q. Was Jeff Gray a lawyer? 15061 1 A. Not to my knowledge. 2 Q. Is he a bean counter or accountant? 3 A. No, sir. Mr. Gray was the -- he was a 4 real estate lending officer, an executive VP. I 5 think he had been head of real estate lending for 6 American General Insurance. And so, he was an 7 executive that was over a big part of our real 8 estate lending. 9 Q. Okay. Now, you indicated that -- well, 10 strike that. 11 You were a member of the board of UFGI 12 at this point in time, weren't you? 13 A. At this point in time, I was. 14 Q. Okay. And in that first paragraph, it 15 talks about the board of directors of UFGI will 16 take the position. 17 Did you have, then, discussions with 18 the other members of the board that that was going 19 to be the position of the UFGI board? 20 A. Did I personally have discussions with 21 them? 22 Q. Yes. 15062 1 A. Other than Mr. Berner and Mister -- or 2 Dr. Munitz, I don't remember having such 3 discussions. 4 Q. Well, who all was on the board of UFGI 5 at this point in time? Mr. Berner, Mr. Munitz, 6 Mr. Whatley -- 7 A. Mr. Gross. 8 Q. -- Mr. Gross, Mr. Crow, and 9 Mr. Schwartz? 10 A. That's my memory. 11 Q. Six people. 12 A. Okay. 13 Q. And four of them are identified in this 14 memo and would have been in the same building with 15 you. Right? Well, Mr. Whatley wouldn't have 16 been. Three of them would have been in the same 17 building: Mr. Munitz, Mr. Berner, and Mr. Gross, 18 correct? 19 A. We certainly were in the same building, 20 yes, sir. 21 Q. And you don't recall whether you had 22 any discussions about what the legal position 15063 1 UFGI's board was going to take with respect to 2 this change of control issue? 3 A. What the legal position -- 4 Q. Well, whether they were going to take 5 the position that this -- that there had been a 6 change of control or there had been no change of 7 control? 8 A. Well, I remember talking with 9 Mr. Berner, and I remember talking with 10 Dr. Munitz. Those are the only two individuals I 11 remember talking to. And I -- that's pretty much 12 what I remember. 13 Q. Okay. Now, as a result of the actions 14 of the compensation committee on March the 30th 15 that we discussed, was there, in fact, then, 16 shortly thereafter a salary increase? 17 A. Well -- 18 Q. Do you recall? 19 A. I'm confused. 20 Q. Well, the compensation committee on 21 March the 30th decided to -- or adopted a proposal 22 made by Mr. Berner. 15064 1 A. What exhibit was that, please? 2 Q. That was 8050. 3 A. Okay. 4 Q. And that proposal is then reflected in 5 a memo which we've been looking at, which is 80 -- 6 T8053. 7 Do you see that? 8 A. Yes, I see that. 9 Q. And I guess my question to you was: 10 Shortly thereafter, were there salary adjustments 11 made by USAT? 12 A. Well, I remember -- independently, I 13 remember the 25 percent bonus and the 75 percent 14 deferral. And I remember the bonus amount from 15 the prior year's work being rolled into salary. 16 And as to anything else, I don't remember 17 specifically, no. 18 Q. Now, do you recall yesterday, I asked 19 you about a special meeting of the board of United 20 Savings Association of Texas at which Vivian 21 Carlton and the regulatory people came to a 22 meeting of the board of directors of USAT to 15065 1 advise them that in their opinion, the 1987 2 examination reflected that USAT was failing its 3 minimum net worth requirement and that in their 4 opinion, they calculated that failure to be 5 $112,551,000 and that USAT's own calculation 6 showed the deficit minimum regulatory capital as 7 being $53,659,000? 8 Do you recall we discussed that 9 meeting? 10 MR. VILLA: Objection to the form of 11 the question. 12 A. I remember -- 13 THE COURT: Well, if he knows the 14 answer. 15 A. Well, I remember we talked about a lot 16 of numbers and we talked about that, as I recall, 17 Vivian Carlton took the view that we were below 18 our regulatory net worth as of June 30th, '86. 19 And during that intervening period subsequent to 20 that, management of USAT was of the opinion we 21 were above our minimum regulatory net worth. And 22 there were certain reconciling items, and we went 15066 1 through the schedules. And then there came a 2 point in time -- I forget exactly when that time 3 was -- that all parties agreed that USAT was below 4 its minimum net worth requirement. 5 Q. (BY MR. RINALDI) And do you recall 6 that the meeting with the regulators at which they 7 advised the board that the board was below its 8 minimum net worth requirement as of December 31st, 9 1987, occurred on March the 30th, 1988? 10 Do you recall that? 11 A. No, sir, I don't. 12 Q. Take a look at Exhibit 8049. 13 A. Okay. 14 Q. It's about two exhibits -- three 15 exhibits back or two exhibits back from the 16 compensation committee meeting. I think it's one 17 exhibit back. 18 Do you see that? 19 A. I've got the special meeting of the 20 board of directors of United Savings, March 30th, 21 1988. 22 Q. And the document we talked about, which 15067 1 is the fourth page in, shows that the 2 association's own calculation of its deficit 3 minimum regulatory net worth capital requirement 4 as of December 31st, 1987, was a negative 5 $53,659,000. 6 Do you see that? 7 A. I do see that, yes, sir. 8 Q. Okay. My question to you is: Do you 9 know whether the compensation committee which met 10 on the same date that the special meeting of the 11 board of directors occurred took place before or 12 after the board of directors of USAT had been 13 advised that they were failing their minimum net 14 worth requirement? 15 A. I have no idea, sir. 16 Q. But it's clear that on the same day 17 that the compensation committee granted salary 18 increases and a new special bonus, they were told 19 by the regulators that USAT was failing its net 20 worth requirement by $59 million; is that correct? 21 A. Well, I -- 22 Q. I'm sorry. 53 million. 15068 1 A. Would you please repeat that last 2 question? 3 Q. It's clear, isn't it, that on the same 4 day that the compensation committee agreed to 5 increase the salaries that we discussed and agreed 6 to give the special executive bonus, the board of 7 directors of USAT met that same day with the Bank 8 Board regulators and were advised by the Bank 9 Board that USAT was failing its net worth 10 requirement by $53 million? 11 A. Point me to the paragraph where they 12 point that out. I'm -- my answer really is that I 13 think everybody knew that as of this date, we were 14 below our minimum required net worth. 15 Q. And -- 16 A. Management, directors, and examiners. 17 Q. And on this date -- 18 A. But as to whether they repointed that 19 out to us, I -- it certainly may be in here. 20 Q. Well, on March 30th, 1988, T8049 21 indicates there was a special meeting of the board 22 of USAT, correct? 15069 1 A. That is correct. 2 Q. And at that meeting, Vivian Carlton 3 advised the board that the board was failing its 4 minimum net worth requirement in the calculation 5 of the examiners by $112 million, and that appears 6 on the fourth page of Document T8049. 7 Do you see that? 8 A. Please let me read what these minutes 9 say. (Witness reviews the document.) 10 Okay. Would you please re-ask that 11 last question? 12 Q. On March the 30th, 1988, at the special 13 meeting of the board of USAT, the board of 14 directors of USAT was advised by the regulators 15 that they were failing their net worth requirement 16 by $112 million by the calculation of the examiner 17 and $53 million by USAT's examination; is that 18 correct? I mean, USAT's calculation. 19 A. Yes. I see the schedule and it 20 certainly -- all of, you know, Mr. Danny Thomas, 21 Neil Twomey, Ginger Baugh, Vivian Carlton, et 22 cetera, were at the meeting and I'm sure that they 15070 1 went over these schedules with the numbers you 2 reflect, that using whatever set of numbers, that 3 United Savings was below its regulatory net worth 4 by the examiners 112,551,000 and by the 5 association, 53,659,000. 6 Q. And my question then to you, sir, is: 7 Does the record then indicate that on the same day 8 that the board of directors learned of that net 9 worth deficiency from the examiners, the 10 compensation committee approved salary increases 11 and an executive bonus for senior executives of 12 United Savings Association of Texas? 13 A. Well, I'm not trying to be -- the word 14 "learned" bothers me because it -- I believe that 15 it was well-known before this date. 16 Q. Can we -- 17 A. And so, I suppose that it was 18 reverified that the association was below its 19 regulatory net worth. 20 Q. If I substitute the word "advised" 21 rather than "learned" -- that is, the bank board 22 was advised -- 15071 1 A. That the Bank Board advised 2 management -- 3 Q. On the same day that the bank board 4 advised management that they were failing their 5 net worth requirement on March 30th, 1988, the 6 compensation committee met and approved salary 7 increases and an executive bonus plan; is that 8 correct, sir? 9 A. Well, I'm not trying -- the way I would 10 state it is that the examiners, the regulators, 11 management, and the board knew we were below our 12 net worth requirement. And the examiners attended 13 this meeting and the senior regulators, and I'm 14 sure they advised the board that they were below 15 their minimum net worth requirement. And on that 16 same day, the compensation committee met and took 17 the actions they took. 18 Q. And those actions were a salary 19 increase by the amount of the 1987 bonuses paid in 20 1988 and a new executive bonus plan; is that 21 correct? 22 A. The way I'm understanding it is the 15072 1 actions they took would be reflected on 2 Exhibit T853 (sic). 3 Q. Okay. And that included a salary 4 increase and an executive bonus? 5 A. Well, it included an executive bonus 6 and it included rolling the 1987 bonus into the 7 base salary. 8 Q. Now, let's move along to the next -- to 9 T8055, sir. Just a moment, sir. In your response 10 to your last question, you made reference to 8052. 11 Were you referring to 8050? That is, the minutes 12 of the compensation committee meeting. 13 A. Yes, sir, and then the attachments -- 14 well, yes, sir, I was. 15 Q. Okay. 16 MR. VILLA: He said 853. He meant 17 8053. 18 THE WITNESS: 8053, correct. 19 Q. (BY MR. RINALDI) Okay. So, the two 20 documents we were talking about were the 21 compensation committee meeting of March the 30th, 22 1988, and then the privileged and confidential 15073 1 memo dated March the 31st, 1988? 2 A. And that -- yes, that is signed by 3 Mr. Whatley. 4 Q. Thank you. Now, if you'll turn to 5 Document T8055, this has previously been admitted 6 at Tab 422. 7 Do you recognize this document? 8 A. Yes. This -- well, I don't recognize 9 the exact document; but I'm sure I saw it. This 10 is the type of document that I would receive from 11 that highest level on the totem pole. They would 12 be sent to me and it would be approved by some 13 authoritative party -- in this case, Jenard Gross. 14 Q. Is that Mr. Gross' signature that 15 appears on the second and fourth pages of the 16 document? 17 A. I believe it is, yes, sir. 18 Q. Now, does this appear to be the salary 19 adjustments that were undertaken by USAT as a 20 consequence of the actions that occurred at the 21 compensation committee meeting on March the 30th, 22 '88? 15074 1 A. This appears to me to take the original 2 base salary, roll in the 1987 bonus, and arrive at 3 a new base. And I, in turn, would turn this piece 4 of paper -- I probably approved it, as well. But 5 I would, in turn, turn this piece of paper over to 6 the payroll department and it would represent 7 their authorization to change the compensation. 8 Q. So, as a consequence of the actions of 9 the compensation committee on March the 30th, 10 1988, Mr. Gross' original base salary, which was 11 $291,656, was increased by the amount in the next 12 column over to the right? 13 A. To -- it was increased by 167,000. 14 Q. And so, the third column, which says 15 "new base," was the resulting salary which he 16 received for the year 1988? 17 A. Would be the resulting, you know, 18 salary rate he would be paid. In other words, you 19 would take 458,656, divided by 12. He would be 20 paid that on a monthly basis. 21 Q. And then with respect to your salary, 22 you went from 171 to 280,000, correct? 15075 1 A. That is correct. 2 Q. And it indicates that Mr. Berner went 3 from 170,000 to 284,000; is that correct? 4 A. That is correct. 5 Q. And then it indicates Mr. Munitz went 6 from 240,000 to 396,000. 7 Do you see that? 8 A. I see that. 9 Q. Okay. Now, did all of the people on 10 this list have employment contracts that had 11 change of control provisions in them? 12 A. No, sir. 13 Q. Which were the individuals that had 14 employment contracts? 15 A. I believe Gross, Crow, Berner. Maybe 16 Jackson. I could be mistaken there. Munitz, 17 Bruce Williams, Jim Wolfe. 18 Q. Okay. 19 A. And Jeff Gray. 20 Q. Now, the next page refers to pro rata 21 bonuses. 22 Do you know what that's in reference 15076 1 to? 2 A. I believe this is the -- what I was 3 calling this special bonus program where 4 25 percent was paid in early 1988 or probably 5 March or April of 1988 and then the other 6 75 percent was deferred and put into an escrow. 7 And I believe you corrected me and said it was put 8 in a trust. 9 Q. Okay. So, in other words, Mr. Gross 10 who received an '87 -- 1987 bonus of 167,000, 11 which is the middle column there, would have 12 received an initial bonus under this executive 13 bonus plan of $41,750, correct? 14 A. That is correct. 15 Q. And your initial bonus would have been 16 27,250. Mr. Berner's, 28,500. Mr. Munitz', 17 39,000 and so on, correct? 18 A. I see that. 19 Q. Okay. Now, would you turn to the next 20 page to Exhibit T8056? On this same day, does it 21 appear that you wrote to the Texas Commerce Bank 22 regarding the creation of a trust with respect to 15077 1 the bonus plan? 2 A. Let me read this, please, right quick. 3 Q. Sure. 4 A. (Witness reviews the document.) Yes, 5 sir. This appears to be my letter to a 6 representative of Texas Commerce Bank to place the 7 attached moneys into a trust-type agreement. 8 Q. Okay. And this was written on United 9 Savings Association of Texas letterhead, correct? 10 A. That is correct. 11 Q. So, you were transmitting this in your 12 capacity as the chief financial officer of USAT; 13 is that fair? 14 A. Yes, sir. 15 Q. Okay. And how much money was USAT 16 going to have to put into trust for the benefit -- 17 in order to fund the executive bonus? 18 A. The total on the next page, Exhibit A1, 19 is $879,345. 20 Q. And of that amount, how much was being 21 placed in the trust for the benefit of Mr. Gross? 22 A. 125,250. 15078 1 Q. And for Mr. Crow, yourself? 2 A. 81,750. 3 Q. Mr. Berner? 4 A. 85,500. 5 Q. And Mr. Munitz? 6 A. 117,000. 7 Q. Now, after these had been approved -- 8 that is, the salary adjustments and the executive 9 bonus -- were the salaries of the respective 10 individuals actually increased? 11 A. For the amount of the bonus? 12 Q. Yes. 13 A. That's my recollection. 14 Q. Okay. And I remember we talked -- 15 well, let me -- do you remember we talked about 16 the question of retroactivity of the salary 17 adjustments? And do you remember that the 18 compensation committee said that the salaries 19 would be effective as of January 1? 20 A. I don't remember that discussion. We 21 certainly may have had that discussion. 22 Q. Well, do you remember you originally 15079 1 suggested in your March 22nd, 1988 memo that the 2 salaries should be increased effective as of 3 January 1, 1988? 4 A. I'd better go back to the memo. I -- 5 THE COURT: We'll take a short recess. 6 7 (Whereupon a short break was taken 8 from 2:52 p.m. to 3:25 p.m.) 9 10 THE COURT: Be seated, please. We'll 11 be back on the record. 12 Mr. Rinaldi, how much more time do you 13 have with Mr. Crow? 14 MR. RINALDI: I had hoped that I would 15 finish by the end of the day; but looking over the 16 subjects that I have to go into, I think it would 17 probably be about an hour into tomorrow. I will 18 certainly let you know if it looks as if we could 19 finish. I'm certainly trying to do that, but -- 20 THE COURT: Do you know how long 21 Mr. Guido is going to take with this witness? 22 MR. RINALDI: I'm not sure Mr. Guido 15080 1 knows. He sort of keeps his own counsel on those 2 things. But I can certainly inquire of him at the 3 end of the day. 4 THE COURT: All right. You may 5 continue. 6 Q. (BY MR. RINALDI) Mr. Crow, before the 7 break we were talking about persons that had 8 received other job offers. 9 Did you yourself, during the time frame 10 of about March or April or May of 1988 receive any 11 job offers for other employment? 12 A. I didn't receive any actual job offers, 13 no, sir. I would receive calls from various 14 headhunters, other inquiries through consultants, 15 et cetera, about other employment opportunities. 16 But no, sir, I didn't receive any job offers. 17 Q. Okay. Now, in your experience in the 18 latter part of nineteen -- I mean during 1988, had 19 there been a number of thrift failures in the 20 Houston area? 21 A. Certainly, I remember a number of 22 thrift failures in '87 and '88, yes, sir. 15081 1 Q. And as a consequence of those thrift 2 failures, were there a lot of unemployed thrift 3 executives in the city of Houston? 4 A. Yes, sir. I had anticipated -- I had 5 been 12 years at a commercial bank and had been 6 CFO of the largest commercial bank in Houston. 7 So, you know, if I had -- prior to my termination 8 by the regulators, I would have anticipated going 9 back into commercial banking. 10 Q. And after you were terminated at USAT, 11 did you attempt to go back into commercial 12 banking? 13 A. I interviewed with one or more 14 commercial banks, yes, sir. 15 Q. And were you hired by a commercial 16 bank? 17 A. No. I got -- basically came very close 18 and made, you know -- worried about my status as 19 it relates to whether, in effect, I had been 20 blackballed by the regulatory authorities. 21 Q. Did someone tell you that you had been 22 blackballed? 15082 1 A. No, they did not use those words. But 2 whenever you're terminated by -- terminated from 3 your position by whatever agency it was -- I guess 4 it was the FSLIC, that certainly is pretty 5 serious. 6 Q. Did you -- 7 A. And I took it upon myself to call 8 Mr. Twomey and ask, in effect, had I been 9 blackballed. 10 Q. What did he tell you? 11 A. He didn't -- he said -- to the best of 12 my recollection -- and I can't tell you 13 specifically, but he said, "We don't do that." 14 And I said, "Well, what will happen if 15 somebody calls the Dallas Home Loan Bank?" 16 And he said, "Well, I really can't 17 say." 18 So, I left that conversation feeling 19 very uncomfortable. 20 Q. Now, how long -- 21 A. And let me add and then, subsequently, 22 I learned that I was a target of an FDIC 15083 1 investigation of United Savings. So, by then, 2 going back into commercial banking seemed 3 inappropriate. You know, I didn't want to accept 4 a job at a commercial bank and then, you know, get 5 sued or that sort of thing. 6 Q. How long were you unemployed for, sir? 7 A. I was unemployed for, I believe, three 8 months. 9 Q. And did you have other friends in 10 Houston at around about that time that were also 11 unemployed? I mean people other than from USAT. 12 A. Well, I can't think of any. Bruce 13 Williams was unemployed. 14 Q. Well, but he was from USAT and he was 15 also terminated, wasn't he? Well, and when you -- 16 A. I don't know the specific answer to 17 your question. I had a lot of friends. I'm sure 18 I knew some people that were unemployed. 19 Q. But it is your recollection that there 20 were a number of unemployed thrift executives in 21 Houston during that time frame? 22 A. Oh, certainly, yes. 15084 1 Q. And during that -- when you were 2 subsequently reemployed, were you -- were you 3 reemployed at the same salary level or at a 4 comparable salary level to that which you were 5 receiving at USAT when you were terminated? 6 A. No, sir. 7 Q. Did you take a reduction in salary? 8 A. I started at Property Company of 9 America. I believe my base salary was 175,000. I 10 had, in effect, a guaranteed bonus of 50,000. And 11 then there were promises of partnership -- it was 12 a real estate company -- partnership interest in 13 various real estate projects. 14 Q. And I believe you stayed there 15 approximately nine months, you said? 16 A. That is correct. 17 Q. And then at your next job, did you then 18 take an increase in salary over your previous job 19 or did your salary go down? 20 A. Well, my next job and every job I've 21 had since then -- I started in the securities 22 business in 1989, and that's all been 100 percent 15085 1 commission. So, I've had years that were -- I've 2 had certainly a year that was well above what I 3 ever made at United, and I've had years that were 4 well below what I made at United. 5 So, my compensation is like a roller 6 coaster. It's real high one year and, you know, 7 it will go up and down. 8 Q. Now, do you recall just before we broke 9 I asked you about whether the contracts were -- 10 I'm sorry -- whether the salary increases that 11 were entered into or approved by Jenard Gross on 12 April 4th, 1988, were retroactive to January 1, 13 1988? Now, would you take a look at what's 14 previously been marked as T8053? This is the 15 memoranda that's privileged and confidential that 16 was prepared by Arthur Berner. 17 Do you see that? 18 A. Yes, sir. I'm at that memorandum. 19 Q. Okay. And in Paragraph 2, it says, "We 20 will change the current salaries effective 21 January 1st, 1988." 22 Do you see that? 15086 1 A. I see that. 2 Q. Does that suggest to you that, in fact, 3 the salaries that were granted by the compensation 4 committee were effective as of January 1st, 1988? 5 A. That would suggest that to me. 6 Q. Now, on the next page of that document, 7 I believe you testified that Mr. Whatley was the 8 chairman of the compensation committee. 9 Do you recall at this time if 10 Mr. Whatley was the only remaining member of the 11 compensation committee of both USAT and UFG? 12 A. I remember at some point in time he 13 became the only member. As to whether it was this 14 point in time, I don't know. I'll certainly 15 accept that if -- 16 Q. Okay. And we can ascertain that from 17 the various filings and so forth. 18 A. Whatever the records are, yes, sir. 19 Q. Okay. Now, after the special bonuses 20 and the -- I mean the special bonus was approved 21 and the salary increases were approved, were those 22 increases paid by USAT or UFG? 15087 1 A. I believe they were paid by USAT. 2 Q. Okay. Would you take a look at T8034? 3 This is the last document in Volume III, and it's 4 a series of checks that we looked at previously. 5 I think it's right in front of you. And the three 6 pages I direct your attention to are Pages 26 and 7 27, and 25. 8 Now, starting on Page 27, again, we 9 have a salary stub. And let's take -- well, let's 10 take Jenard Gross. It indicates on salary stub 11 5598, which is dated 4/5/88 -- and that's the date 12 that Mr. Gross approved the salary increases -- 13 that he received a bonus of $41,750 and a -- do 14 you know what that word is? Is it "retro"? 15 A. I can read the next one over under my 16 name, and I believe that does say "retro" -- 17 Q. And so, it would appear -- 18 A. -- under my name. So, I can't read it 19 under Mr. Gross'. 20 Q. Okay. Now, it appeared then that he 21 received a 41,750-dollar retro pay. And then 22 there were some deductions taken out, and it 15088 1 appears that his net payment was $66,800. 2 Do you see that? 3 A. I see that. 4 Q. And then if you turn back to the 5 immediate preceding page, No. 26, there is a Check 6 5598 that's to Mr. Jenard Gross. And it is in the 7 amount of $66,800. 8 Do you see that? 9 A. I see that. 10 Q. And it appears, does it not, that the 11 check is drawn on the United Savings Association 12 of Texas payroll account, correct? 13 A. That -- that is correct. 14 Q. And there are similar checks on 15 Pages 25 and 26 for Michael Crow and Arthur 16 Berner, and I believe there is one for Barry 17 Munitz in here. Yeah. There is a stub here for 18 Mr. Munitz on Page 28 which indicates he received 19 a bonus of 39,000 and a retro of 39,000. 20 Do you see that? 21 A. I see that. 22 Q. And it indicates that it was posted. 15089 1 Do you know what "posted" means? 2 A. That probably is an accounting-type 3 entry in the payroll department, I would assume. 4 Q. Okay. And if you turn to Page 32, I 5 believe that's the actual check. It's Check 6 No. 5603, and it indicates he received a bonus and 7 a retro of 39,000 each for a total payment of 8 78,000. And after taxes or deductions, anyway, he 9 received a payment of $62,400. 10 Do you see that? 11 A. I see that. 12 Q. Okay. Now, does it appear from this 13 that all of the payments that were made pursuant 14 to the salary increase in the special bonus 15 approved by the compensation committee on March 16 the 30th, 1988, were paid for out of the USAT 17 payroll account? 18 A. All the ones we've looked at, yes, sir, 19 have been out of the USAT payroll account. 20 Q. Okay. Now, did USAT have sufficient 21 money budgeted at this point in time to pay all of 22 the additional expenses that it was incurring in 15090 1 connection with the increased salaries and the 2 executive bonus payments? 3 A. I don't know for sure, but I would 4 doubt that would be in our original budget. 5 Q. Would you turn to Exhibit 816 -- T8168? 6 This is a memo from -- 7 A. Is this in Volume I? 8 Q. Yes. It's -- we're still in Volume I, 9 I believe. Yes. There it is. It's 8168. And 10 it's about three documents in from the end. It's 11 a memo dated April 28th, 1988, to Mike Crow from 12 Jenard Gross. 13 Do you see that? 14 A. I see that. 15 MR. RINALDI: Your Honor, we would move 16 the admission of T8168. 17 MR. VILLA: May I inquire, how many 18 pages is the exhibit that you're offering? 19 MR. RINALDI: Mine appears to be three. 20 MR. VILLA: Okay. The memo and the 21 response then, correct? 22 MR. RINALDI: Yes. 15091 1 MR. VILLA: No objection. 2 THE COURT: Received. 3 Q. (BY MR. RINALDI) Do you recall 4 receiving a copy of the memo that appears on the 5 first page of this exhibit, which is dated 6 April 28th, 1988? 7 A. No, sir, I don't recall receiving it. 8 But it's my handwriting all over it; so, I'm sure 9 I did receive it. 10 Q. And in that paragraph, Mr. Gross 11 states, "In view of the fact that we are going to 12 have some increase in compensation because of this 13 change in the contract arrangement or the bonus 14 arrangement, it seems to me we need to try to look 15 at some ways of saving some money in our budget 16 this year. Otherwise, we are going to be 17 significantly over budget. I surely would hate to 18 have that occur. I guess we're talking about 19 something of the magnitude of $2.5 million so we 20 really need to start looking at that. This is 21 something that would be on the agenda for the 22 strategic planning committee." 15092 1 Do you see that? 2 A. I see that, yes, sir. 3 Q. And do you recall that Mr. Gross raised 4 a question of how USAT was going to budget $2.5 5 million to pay the cost or to offset the cost of 6 the increased salaries and the increased bonus? 7 A. No, sir, I don't really remember. But 8 I obviously received this and made a reply to his 9 memorandum. 10 Q. Does that refresh your recollection 11 that as a result of granting the increases in 12 salaries and the executive bonus, USAT was 13 obligated an additional $2.5 million -- to pay an 14 additional $2.5 million in operating expenses? 15 A. Well, let's see. (Witness reviews the 16 document.) I'm now looking at my memo, and I used 17 the same 2.5 million. The correct answer is I 18 don't remember, but I have no reason to dispute 19 these figures. 20 Q. Okay. Now, following the increase 21 in -- or the adjustments to the salaries and the 22 creation of the executive bonus plan, did UFG and 15093 1 USAT have occasion then to enter into new 2 contracts with certain of its executives? 3 A. I think the last contracts that I 4 remember were later during the year 1988, and they 5 were patterned after the Larry Connell contracts 6 or contract. Excuse me. And so, as I recall, all 7 of the contract people had their contracts 8 substituted for the -- what I'm calling the Larry 9 Connell form of contract. That's my memory. 10 Q. Now, who was Larry Connell? 11 A. Mr. Connell was a savings and loan 12 executive. And the best of my memory is that the 13 regulators had basically said that our management 14 team was okay but that we -- that United needed to 15 get a savings and loan-type chief operating or 16 chief executive some type officer. And 17 Mr. Connell was recruited, and he had had pretty 18 vast experience in savings and loan type matters. 19 Q. And, in fact, Mr. Connell had been 20 involved with the management of several large 21 savings and loans as they went into receivership; 22 isn't that correct? 15094 1 A. Well, I'm not -- I don't really 2 remember. I remember that Mr. Connell had been at 3 quite a few thrifts, and I don't remember his 4 exact background. 5 Q. But he had had a lot of experience in 6 dealing with troubled thrifts that were on the 7 verge of receivership, didn't he? 8 A. Well, I don't really -- I don't 9 remember. I remember two things: Mr. Connell was 10 from -- well, I remember three things: 11 Mr. Connell, I believe, was from New Hampshire. 12 Mr. Connell was a very experienced savings and 13 loan executive, and the regulatory authorities 14 really seemed to like him. 15 Q. Now, did he have an extensive 16 background in the operations of savings and loans? 17 Is that why he was hired by USAT? 18 A. Well, I probably should be careful 19 because I wasn't -- you know, that -- this totem 20 pole that we were talking about, that activity was 21 occurring above me. So, the details of his 22 recruitment and his experience and, you know, all 15095 1 of those circumstances, I wasn't really involved 2 in. 3 Q. But you did know that the regulators 4 had specifically requested that USAT hire an 5 individual with a strong background in savings and 6 loan operations; isn't that correct? 7 A. I remember that -- some memo or some 8 communication to the effect that we -- or 9 management was attempting to be part of the 10 Southwest Plan. And as best I remember, that 11 management was viewed to be pretty good. But that 12 the one final requirement that the regulatory 13 authorities wanted to see, was the hiring of 14 somebody like Mr. Connell. 15 And so, it's my understanding, although 16 I wasn't directly involved with it, that's why he 17 was hired. 18 Q. Okay. When you say "someone like 19 Mr. Connell," you mean someone with a strong 20 background in the management of savings and loans? 21 A. Someone with a -- you know, experience 22 with savings and loans that the regulators would 15096 1 agree would meet that requirement. 2 Q. Okay. Now, let me ask you: Did Art 3 Berner have an extensive background in savings and 4 loan operations before he came to USAT? 5 A. I don't think so, no. No. 6 Q. Okay. And how about Mr. Munitz? Did 7 he have an extensive savings and loan background? 8 A. Not to my knowledge, no, sir. 9 Q. How about Jenard Gross? Did he have an 10 extensive savings and loan background before he 11 came? 12 A. I was aware that Mr. Gross had -- had 13 been on the board of some savings and loan, but 14 that's pretty much the extent of my memory there. 15 I viewed Mr. Gross as more of a real estate-type 16 expert or a real estate -- that was his 17 background. And certainly, he was a general 18 hands-on, sharp CEO. 19 Q. How about Mr. Huebsch? Did he have any 20 experience in the operations of savings and loans? 21 A. Not to my knowledge. 22 Q. So, among all of the people that we've 15097 1 talked about at the upper level of the totem pole, 2 you were probably the only one that had any 3 experience in dealing with an insured depository 4 institution. 5 Is that a fair statement? 6 A. Well, I believe that -- I guess we 7 didn't place Jim Jackson on that totem pole; but 8 Jim Jackson, who was our executive vice president 9 of funding -- I think Mr. Jackson had a banking 10 background, I think. 11 Q. But you don't know that? 12 A. No, sir. I can't sit here today and 13 say I know that for sure. 14 Q. So, you were the only one that you're 15 aware of that was at the upper level of the totem 16 pole that had any experience in banking prior to 17 coming to USAT. Is that -- 18 A. And setting aside Gerald Williams 19 because Gerald Williams had been -- obviously had 20 had banking background. 21 Q. Okay. Now, Gerald Williams left USAT 22 sometime in 1986, didn't he? 15098 1 A. I believe -- 2 Q. Or was it the end of '85? 3 A. Well -- 4 Q. I don't recall. But I mean, he had 5 left -- 6 A. Yeah, I don't remember. He left 7 certainly at some point at the end of eighty -- 8 '85 or '86, one of those dates. 9 Q. The record will show it. But in 1988 10 when the Bank Board came in and said they wanted 11 to see USAT hire a person like Larry Connell, of 12 the people at the upper level of the totem pole, 13 the only one that had any banking experience would 14 have been yourself, correct? 15 A. That would be the only one I could 16 think of off the top of my head. 17 Q. Okay. And when Mr. Connell came in, 18 this institution -- I mean, he -- when did he 19 first start work for USAT? Do you remember? 20 A. I don't remember. It seemed -- it was 21 certainly -- seems like it was late '87 or '88 22 type time frame. 15099 1 Q. Well, do you recall that you said that 2 these employment contracts which we discussed 3 earlier between USAT and UFG and the upper level 4 management, they were entered into at the end of 5 June 1988. 6 Do you remember that? 7 A. I remember we had June '88 contracts. 8 Q. And you recall that Mr. Connell was 9 hired by USAT at that same point in time? 10 A. No, sir, I don't really remember that. 11 But that certainly may be the case. 12 Q. All right. Well, maybe we should take 13 a look at the minutes of the board of 14 United Financial Group -- I'm sorry -- of United 15 Savings Association of Texas which appear at 16 T8078. They are Tab 343. These are about, oh, I 17 think about 10 or 12 documents into the second 18 binder. 19 Do you have that document? 20 A. I do. 21 Q. Okay. Now, take a look at the first 22 page of 8078. In the fourth full paragraph, it 15100 1 says, "Mr. Whatley reviewed the proposed new 2 employment contracts to be entered into between 3 the company and the following employees: Jenard 4 M. Gross, Barry A. Munitz, Arthur S. Berner, 5 Michael R. Crow, James N. Jackson, Jeff J. Gray, 6 Jr., Bruce F. Williams, James L. Wolfe, and Eugene 7 R. Stodart. Each contract was reviewed in 8 detail." 9 Do you see that? 10 A. I see that. 11 Q. And then I believe you testified 12 earlier that you recall that subsequent to this 13 meeting, you did, in fact, enter into a contract 14 with United Savings Association of Texas. 15 Do you recall that? 16 A. I remember having a new contract at 17 about this time frame, yes, sir. 18 MR. RINALDI: Your Honor, I just 19 realized I'm not certain if I've offered into 20 evidence T8168. And I would offer to do that now. 21 That is the memo from Mr. Gross to Mr. Crow 22 regarding the need to obtain or to try to -- 15101 1 MR. VILLA: I believe it's in evidence. 2 MR. RINALDI: It is? 3 THE COURT: It's already in evidence. 4 MR. RINALDI: Okay. 5 Q. (BY MR. RINALDI) Now, if you'd turn 6 to the second page of those minutes, on the same 7 date that the board voted -- of USAT voted to 8 approve contracts for the individuals whom I've 9 just identified, they also discussed the 10 possibility of hiring Mr. Connell. 11 Do you see that? 12 A. I see that. 13 Q. And it indicates that they discussed at 14 that meeting the possible employment of 15 Mr. Lawrence Connell. 16 Do you see that? 17 A. I see that. 18 Q. Does that refresh your recollection 19 that Mr. Connell was not hired by USAT until after 20 USAT had approved entering into the contracts with 21 yourself and other chief executives of USAT? 22 A. Well, it certainly appears that 15102 1 Mr. Connell wasn't hired until after that date. 2 But I believe there were -- you know, my memory is 3 when we got these new contracts -- and I was -- 4 you know, I just got the contracts. I was pleased 5 to get them, signed them, sent them back to 6 Mr. Berner. I obviously read them. 7 But my recollection is why we had these 8 new contracts is that they were modeled after the 9 Connell contract. And I'm presuming that there 10 was negotiations between the compensation 11 committee and Mr. Connell or whoever was trying to 12 hire Mr. Connell. 13 Q. Now -- 14 A. I can't -- 15 Q. At this point in time -- 16 A. Let me -- I can't state that for a 17 fact. I just -- I don't know. 18 Q. Okay. Now, Mr. Connell was being hired 19 on or after June 30th, 1988, by USAT. 20 Would you agree with that? 21 A. (Witness reviews the document.) 22 Q. I mean, whenever he came on, it had to 15103 1 have been after the date of these minutes, 2 correct? 3 A. Yeah. It looks like -- if I can, let 4 me just read -- 5 Q. Uh-huh. 6 A. (Witness reviews the document.) Well, 7 it looks like to me that Mr. Connell was hired as 8 of this June 28th meeting. 9 Q. In fact, the minutes say that "It was 10 resolved that the board of directors" -- 11 A. Right. 12 Q. -- "does hereby recommend the 13 employment of Mr. Lawrence Connell as president 14 and chief executive officer," doesn't it? 15 A. It does say that. 16 Q. Okay. So that he wouldn't have 17 actually been hired the same day. It might have 18 been a day or so later that he comes on, correct? 19 A. Sure. I just simply don't know. 20 Q. Okay. Now, my -- my question is -- 21 A. Okay. 22 Q. -- on June 30th, 1988, what was the 15104 1 condition of USAT? You remember I showed you the 2 second quarter financial statements that indicated 3 USAT was failing its minimum net worth requirement 4 by over $160 million on that date? 5 A. I remember that it was failing its 6 minimum net worth requirement. I don't remember 7 the exact numbers, but it was a big number. 8 Q. And I believe you said earlier that the 9 condition of the institution was bleak. 10 Do you remember that, or words to that 11 effect, sir? 12 A. I remember the word "bleak." As to 13 what context, I don't -- I think that was a word I 14 used on a memo from myself to Mr. Berner. 15 Q. And I believe I subsequently asked you 16 if they were failing their net worth requirement 17 on June 30th of 1988 by $160 million, would you 18 consider that to be bleak? And you indicated yes, 19 you thought that was bleak. 20 A. And I believe we looked at -- I think 21 gap net worth at that time was -- was -- was it 22 negative then? 15105 1 Q. I don't think it went negative until 2 the next month. The end of July, it was negative. 3 A. Well -- 4 Q. But my point in this is -- was that 5 Mr. Connell was coming into a situation where 6 there was a high probability that USAT, within a 7 short period of time, might go into receivership 8 or fail and he might be back out on street; isn't 9 that correct? 10 A. I'd say it's a fair statement that 11 Mr. Connell, along with everyone else, would fall 12 into that category because any time you're going 13 to be recapitalized and go into the Southwest Plan 14 in some type of recapitalization, you can't be 15 certain what's going to happen. 16 Q. And in order to entice Mr. Connell to 17 come to USAT, USAT had to offer him an attractive 18 employment package; isn't that correct? 19 MR. VILLA: Objection, Your Honor. He 20 said he doesn't know anything about the 21 negotiations between Mr. Connell and USAT. I 22 mean, it's just argument and speculation. 15106 1 Q. (BY MR. RINALDI) Did you discuss with 2 anyone at USAT -- I mean, you were on the board of 3 UFG. They were the 100 percent owner of USAT. 4 You were the chief financial officer of USAT and 5 UFG. 6 THE COURT: What's your question, 7 Mr. Rinaldi? 8 Q. (BY MR. RINALDI) And my question is: 9 Did you discuss with anyone how Mr. Connell 10 required that he be offered an attractive 11 employment package in order to leave his existing 12 position and to come to USAT? 13 A. Not that I remember. 14 Q. Okay. 15 A. I'm not -- sir, I want to be clear. 16 I'm sure that I was aware that Mr. Connell was 17 being interviewed. I'm sure that I was aware that 18 Mr. Connell had certain financial demands. I'd be 19 shocked if I knew what they were or what his -- 20 what he was asking for to come to United Savings. 21 I didn't -- I wasn't on the compensation 22 committee. I wasn't involved in setting 15107 1 compensation or hiring people at that level. 2 Mr. Connell was clearly going to be at the top of 3 that totem pole we were talking about. 4 Q. Now -- 5 A. Let me add, I was rather excited that 6 Mr. Connell was coming on board because I, I guess 7 naively, thought, "Well, Mr. Connell comes on 8 board. We've satisfied the management requirement 9 to be in the Southwest Plan. So, now we're going 10 to be taking over other smaller thrifts or be 11 recapitalized." And that was my mindset. 12 Q. Okay. Now, when USAT approved and you 13 entered into the new contract with that 14 institution on July 1st, 1988, would you take a 15 look at that contract? It's T8086. And I believe 16 this was previously shown to you, but I just 17 wanted to clarify one thing so that it was clear 18 what had occurred. 19 Do you see T8086? It's dated July 1st, 20 1988, and it's about in the middle of Volume II. 21 Do you have that there, sir? 22 A. I do, yes. 15108 1 Q. Okay. Now, I believe that in Paragraph 2 5 it indicates that your salary level was 3 $280,656. 4 Do you see that? 5 A. I see that. 6 Q. And, in effect, the new contract then 7 locked in the salary increases which you had 8 received as of April the 5th, 1988, that we looked 9 at earlier that were approved by Jenard Gross; is 10 that fair? 11 A. Yes, sir. Let me -- let me please just 12 read one -- (Witness reviews the document.) Well, 13 we may be saying the same things. It seems to me 14 that if -- 15 Q. Maybe you don't understand my question. 16 A. Okay. Please repeat it. 17 Q. It's a real simple question. When 18 Jenard Gross gave you a salary adjustment or 19 approved a salary adjustment on April 4th, 1988 -- 20 that's T8055. 21 Do you remember that list of salary 22 adjustments? 15109 1 A. I remember the list, yes, sir. 2 Q. Okay. And that list reflects that your 3 original base salary went from 171,000 to 4 $280,656? 5 A. Yes, sir. 6 Q. Okay. And so, when you entered into 7 the new employment contract with USAT, you didn't 8 receive an additional increase in salary, did you? 9 A. No. It just memorialized the salary 10 plus bonus figure into this 280,656. 11 Q. So, it locked that salary into a 12 contract with USAT, and then it provided for a 13 severance payment in the event that you were 14 terminated; isn't that correct? 15 A. I haven't looked at it; but to my 16 memory, all of our contracts had a severance 17 benefit. 18 Q. And under this contract, I think as we 19 discussed earlier, that severance benefit was to 20 be secured by one of two mechanisms: Either a 21 letter of credit or a trust, the creation of a 22 trust. 15110 1 Do you recall that? 2 A. I do recall that. 3 Q. Now, do you recall whether USAT 4 ultimately created a trust or posted a letter of 5 credit? 6 A. I think it was a trust. 7 Q. Okay. Now, let me just ask you: We 8 talked earlier about that on June 28th there had 9 also been approved by the UFG board a parallel or 10 a similar contract between you and UFG. 11 Do you recall that? 12 A. I remember I had two contracts. 13 Q. Right. And under the terms of the 14 contract, UFG had the obligation to obtain the 15 letter of credit or create the trust; isn't that 16 correct? 17 A. I don't remember that. 18 Q. Well, do you remember that the USAT 19 contract said that USAT only had the obligation to 20 fulfill the contract provisions -- I believe it's 21 on Page 29 -- in the event that UFGI was unable to 22 comply with all the obligation of its contract 15111 1 with you? 2 A. Oh, yes, sir. I remember this clause. 3 Q. So, in the first instance, it was the 4 obligation of UFG to acquire the letter of credit 5 or set up the trust, wasn't it? 6 A. The way I would read this, it would be 7 the obligation of UFG to pay severance benefits. 8 Q. Okay. And in connection with those 9 severance benefits, they had the obligation to 10 create the trust or -- I'm sorry -- put up the 11 letter of credit, didn't they? 12 A. Well -- (Witness reviews the document.) 13 Q. Well, let me just ask you this. Under 14 the UF -- it says here that UFGI shall be -- "if 15 UFGI shall be unable to comply with all of its 16 obligations." 17 Wasn't one of the obligations of UFGI 18 under the UFGI contract to post a letter of 19 credit? 20 A. It may have been. I don't remember the 21 exact wording. 22 Q. Well, maybe we ought to take a look at 15112 1 it. 2 A. Okay. 3 Q. Let's take a look at the immediately 4 preceding contract, which is -- 5 A. Okay. 6 Q. I'm sorry. That's Mr. Berner's. Don't 7 want to use his. It's B2264. It's two documents 8 before that. And it states on Page 18 -- do you 9 see 18, Paragraph 9I, it reads, "As security for 10 the company's obligation to make payments to the 11 executive pursuant to Paragraph 9, upon the 12 execution of this agreement by the company (the 13 initial establishment date), the company shall 14 deliver or cause to be delivered to the executive 15 an unconditional irrevocable letter of credit (the 16 initial letter of credit) issued by a national 17 banking association." 18 Do you see that? 19 A. I see that, yes, sir. 20 Q. Does that indicate that UFGI had an 21 obligation to deliver to you a letter of credit 22 upon the entry into this agreement? 15113 1 A. That's the way I would read it. 2 Q. Okay. Did UFGI deliver a letter of 3 credit to you in compliance with the terms of the 4 UFGI contractual arrangement that you entered into 5 with them on the 30th day of June 1988? 6 A. I certainly don't remember one, no, 7 sir. 8 Q. If they had delivered one, would you 9 have remembered it? 10 A. I think I would remember that. 11 Q. Now, were you subsequently requested by 12 Mr. Berner to obtain letters of credit to secure 13 the benefits under the UFG and USAT contracts? 14 A. I don't remember. I certainly may have 15 been. Most of this type of -- this contract 16 stuff, I would have taken my lead from the legal 17 staff. 18 Q. Okay. And would you turn to T8091? 19 MR. RINALDI: I think this is a new 20 document, Your Honor. It's from Mike Crow -- I 21 mean from Arthur Berner to Mike Crow dated July 22 the 20th, 1988. And it's about, oh, three 15114 1 documents after -- three or four documents after 2 the contract between Mr. Crow and United Savings 3 Association of Texas. It's T8091. 4 Your Honor, we would move the admission 5 of T8091. 6 MR. VILLA: No objection. 7 THE COURT: Received. 8 Q. (BY MR. RINALDI) Have you had a 9 chance to look at that document, sir? 10 A. Yes, sir, I have. 11 Q. Does that refresh your recollection 12 that Mr. Berner requested that you set up 13 irrevocable letters of credit equal to two times 14 the executive annual salary as of the date of the 15 contracts in compliance with UFGI's obligation? 16 A. No, sir. I really don't remember it. 17 But I certainly don't dispute that he asked me to 18 do that. 19 Q. Okay. And it says there that, "I 20 believe that you" -- meaning you -- "should be 21 responsible for taking care of setting up the 22 LCs." 15115 1 He goes on and says -- LCs, do you 2 understand that to mean the letters of credit? 3 A. That's correct. 4 Q. And then he goes on and says, "Please 5 let me know if there is any problem setting them 6 up and also when they are set up. We will need to 7 give information to various executives." 8 Do you see that? 9 A. Yes, sir, I see that. 10 Q. As a result of your -- do you have any 11 reason to doubt that Mr. Berner so instructed you? 12 A. No. I don't have any reason to doubt 13 that. 14 Q. Okay. And as someone that was high on 15 that totem pole, did you carry out his request? 16 A. Well, in certain matters, I didn't 17 report to Mr. Berner; but in -- certainly in 18 certain matters, I would take Mr. Berner's lead if 19 it were a legal-type issue and, conversely, 20 Mr. Berner might take my lead if it was a 21 financial-type issue. 22 Q. Okay. And I didn't make myself clear. 15116 1 Did you undertake to acquire letters of 2 credit as Mr. Berner had requested you do in this 3 memo? 4 A. I remember trying to get letters of 5 credit for Sandy Laurenson and/or Gene Stodart, 6 but I don't specifically remember doing this. I 7 think we ended up using some type of trust 8 arrangement instead of the letters of credit. 9 Q. Well, let me ask you this: You 10 remembered getting a letter of credit for Sandy 11 Laurenson. That would have been when 12 Ms. Laurenson joined USAT sometime in 1986? 13 A. Well, I remember trying to get a letter 14 of credit. I -- we may or may not have. I don't 15 remember whether we did or didn't. 16 Q. Okay. Do you recall trying to get 17 letters of credit to provide security for the UFG 18 contracts? 19 A. Vaguely, I think -- I have a vague 20 memory of that. 21 Q. Okay. And can you just relate to the 22 Court what your vague memory of that was? 15117 1 A. Vague memory is pretty vague. I 2 remember either myself or Fran Dean, who was our 3 head of human resources, and Bruce Williams -- one 4 or more of us -- talking with either Texas 5 Commerce Bank or First City Bank. And quite 6 frankly, it -- it's -- my vague memory is that we 7 were talking about either a letter of credit or a 8 trust-type arrangement to meet this subject area. 9 Q. And do you recall, did those 10 institutions require that UFG post collateral to 11 secure the letters of credit? 12 A. I don't remember that. I remember at 13 some point in time it became pretty impractical to 14 have letters of credit. 15 Q. Why was that? 16 A. As best I remember, the banks, either 17 First City or Texas Commerce, were hesitant to 18 issue them on any terms that were economically 19 feasible. 20 Q. Does that mean they were expensive? 21 A. It could be that -- you know, my -- it 22 could be they required a whole lot of collateral. 15118 1 It could be they just wanted to take our head off 2 with fees. 3 Q. So, you don't remember; is that 4 correct? 5 A. No, sir. I really don't remember. I 6 tried to convey -- I have a vague memory, but I 7 don't remember really any -- 8 Q. Okay. 9 A. -- details. 10 Q. Well, then would you take a look at two 11 more exhibits? One is T8106, which I believe is 12 the first document in the third volume. And the 13 other one is T8104, which is the last document in 14 the second volume. 15 I'm directing your attention to, first, 16 T8106, which is Tab 441. It's a letter dated 17 October the 3rd, 1988. And it's from 18 Jenard Gross, and I believe it's to -- it's to 19 Barry Munitz and I believe Mr. Munitz' signature 20 also appears on that document. 21 Now, do you recognize that document, 22 sir? 15119 1 A. No, sir. 2 Q. Did you ever execute a document similar 3 to this one? 4 A. I can't be sure, but I most likely did. 5 Q. Okay. Now, the document says, 6 "Pursuant to your employment contract (the 7 employment contract) with United Savings 8 Association of Texas (USAT), USAT's obligation 9 with respect to severance benefits payable under 10 the employment contracts are to be secured by 11 unconditional irrevocable letter of credit (a 12 letter of credit) or with cash deposited with the 13 trustee by USAT in a trust account maintained for 14 the benefit -- maintained for your benefit (the 15 trust account)." 16 And then it goes on and says, "USAT has 17 determined that it will not be feasible to obtain 18 a letter of credit or to establish a trust 19 account. In lieu thereof, USAT has deposited an 20 aggregate amount of $6,612,980 with First City 21 National Bank (First City), with respect to USAT's 22 obligation to pay severance benefits under all 15120 1 executive employment agreements to which it is a 2 party." 3 Do you see that? 4 A. I see that. 5 Q. Does that refresh your recollection 6 that USAT was unable to obtain a letter of credit 7 or it wasn't feasible to obtain a letter of credit 8 or to enter into a trust agreement? 9 A. Well, I kind of remembered that it 10 was -- I thought it was some type of escrow 11 agreement. So -- 12 Q. Okay. And the total amount -- and 13 subsequently, was $6,612,980 transferred from 14 United Savings Association of Texas into an escrow 15 account? 16 A. I don't -- I don't remember. I 17 remember there was certainly some transfer to 18 either First City or Texas Commerce to secure the 19 severance benefits. 20 Q. Okay. But you have no reason to doubt 21 the accuracy of that number, do you? 22 A. I don't have any doubt. I don't have 15121 1 any basis to say it's incorrect, no. 2 Q. Okay. Now, was there a reason why the 3 escrow wasn't created -- was created by USAT and 4 not UFGI? 5 A. I really don't know. 6 Q. Well, wasn't UFGI the entity that was 7 obligated in the first instance to provide 8 security under its contract for the severance 9 benefits? 10 A. That's what the -- that's what I 11 believe we read just now. 12 Q. Okay. And you were a member of the 13 board of UFGI, weren't you? 14 A. Yes, sir, I would have been as of this 15 date. 16 Q. Okay. And you were its chief financial 17 officer at this point in time, correct? 18 A. That is correct. 19 Q. Do you recall why it was UFGI didn't 20 set up either a letter of credit, a trust 21 agreement, or its own escrow to secure the 22 benefits under its contract? 15122 1 A. I really do not remember. I really 2 don't remember. 3 Q. Did UFGI at this point in time have 4 sufficient assets to set up a 6.6-million-dollar 5 escrow to honor its obligation under the 6 employment contracts? 7 A. Was this -- I don't know. I can't be 8 sure of that. I think so. 9 Q. Well, let me just ask you this -- 10 A. But it's clear -- you know, I'll 11 qualify it with this. Clearly, the cash position 12 at UFGI was not big so -- 13 Q. Well, here's what's troubling me, sir. 14 A. Yes, sir. 15 Q. Paragraph 18E of your employment 16 agreement with USAT reads as follows. 17 A. Let's see. Which exhibit are we on 18 again, please? 19 Q. It would be T8086, and we're talking 20 about Page 29. 21 A. Okay. 22 Q. And Paragraph 18E, which we've seen 15123 1 before, reads as follows: 2 MR. KEETON: Your Honor, we've been 3 reading into the record again. We read a whole 4 page of stuff that he could have looked at and 5 then just asked a question. Can't we please move 6 this trial along? 7 THE COURT: Well, that's a pretty short 8 paragraph; so, I'll -- can you read it? 9 Q. (BY MR. RINALDI) "The terms and 10 conditions of this agreement shall become 11 effective if and only if UFGI shall be unable to 12 comply with all of its obligations and make all of 13 its payments as set forth in and under the UFGI 14 agreement." 15 Was UFGI unable to provide an escrow, a 16 letter of credit, or a trust to secure the 17 benefits under its obligation under the UFGI 18 agreements? 19 A. I don't know. I could look at a 20 financial statement and probably tell you. I just 21 simply don't know as I sit here today. 22 Q. Well, if it were able to comply, wasn't 15124 1 it obligated to set up the escrow agreement itself 2 rather than have having USAT do it? 3 A. Well, Mr. Rinaldi, as I've tried to 4 explain, these are things that I took the lead 5 from the attorneys on. 6 Q. Now, what I'd like to do is go back 7 just for a moment to the minutes of the board 8 where these two agreements with USAT were -- and 9 UFG were approved. And I believe those minutes 10 appear at -- the minutes of the special board of 11 directors meeting of USAT, June 28th, 1988, appear 12 at T8078. It's T8078. 13 A. Oh, I'm sorry. Yes, sir. 14 Q. Okay. Now, I'm curious, sir. What was 15 your understanding of why both USAT and UFG had to 16 enter into contracts with the senior executives? 17 A. I don't know. 18 Q. You never got an explanation from 19 Mr. Berner as to why both UFG and USAT were 20 entering into virtually identical contractual 21 agreements? 22 A. Not that I remember. As I said, the 15125 1 employment agreements, I did rely on the legal 2 staff quite a lot. 3 Q. Okay. Now -- 4 A. And whenever we got the so-called dual 5 contracts, I got it. I reviewed it. I was 6 pleased to get it, but I didn't -- quite frankly, 7 I didn't -- I don't recall agonizing over why 8 there were dual contracts. 9 Q. Now, you were at the board meetings of 10 both UFG and USAT at the point in time when the 11 contracts were approved on June the 28th, 1988, 12 correct? 13 A. Yes, sir. 14 Q. Okay. And I'd like to draw your 15 attention to that small four-line paragraph at the 16 bottom of the first page of T8078. This is the 17 paragraph which deals with the approval of the 18 USAT contracts by members of the USAT board. 19 Now, before we talk about that, do you 20 recall who was on the USAT board at this point in 21 time? Do you recall that it was the same people 22 that were on the UFGI board except for one person, 15126 1 that being yourself? 2 A. Oh, okay. I certainly don't dispute 3 that. 4 Q. So, if that's, in fact, true -- and 5 I'll ask you to just assume that for purposes of 6 our discussion -- that would have meant 7 Jenard Gross was on the board of USAT, Mr. Berner 8 was on the board of USAT, Mr. Munitz was on the 9 board, Mr. Whatley, and Mr. Schwartz. There would 10 have been five members. Okay? And I believe if 11 you look at the top of this document, it indicates 12 that Mr. Schwartz wasn't present. 13 So, that meant that the four people at 14 this board meeting would have been Mr. Berner, 15 Mr. Gross, Mr. Munitz, and Mr. Whatley. Okay? 16 A. Okay. 17 Q. And it indicates that you were there as 18 the chief financial officer but not as a board 19 member. 20 Do you see that? 21 A. Right. I would generally attend for 22 financial statement presentations, et cetera. 15127 1 Q. Okay. So, then it reads in the last 2 full paragraph, "Thereupon, upon motion duly made 3 and seconded, each contract was discussed in 4 detail and unanimously approved by the board of 5 directors (it being noted that as a contract 6 related to any member of the board of directors, 7 such member of the board of directors abstained 8 from the discussion and the vote)." 9 Do you see that? 10 A. Yes, sir, I see that. 11 Q. Do you recall that when the contracts 12 were approved, that members as to whom a contract 13 would apply would abstain themselves when the 14 discussion and approval of the contracts were 15 considered? 16 A. No, sir, I do not recall that. I don't 17 recall this specific meeting; so, I don't remember 18 whether they abstained or didn't abstain. 19 Q. Well -- 20 A. I have no reason to doubt that what's 21 here is accurate. 22 Q. And -- so, you don't recall that, for 15128 1 example, when considering Mr. Gross' contract, 2 that he abstained and removed himself and that the 3 contract would have been approved by -- 4 unanimously by the three remaining members? 5 A. No, sir. I don't recall -- like I 6 said, I don't recall the specific conversations 7 and procedures of this particular meeting. 8 Q. Okay. And so, if it were Mr. Gross' 9 contract and he absented himself, that would have 10 left Mr. Whatley, Mr. Berner, and Mr. Munitz, 11 correct? 12 A. I believe that would be correct. 13 Q. And of those three people who were 14 approving Mister -- would have approved Mr. Gross' 15 contract, two of them were themselves going to 16 receive contracts from USAT at the same meeting; 17 is that correct? 18 A. With the exception of Mr. Whatley, I 19 believe that's correct. 20 Q. Okay. But you have no recollection of 21 that sort of seriatim vote that appears to have 22 taken place? 15129 1 A. No, sir. I don't have any remembrance 2 of the vote, no, sir. 3 Q. Okay. Now, turning your attention to 4 the next document, which is T8079 -- and this is 5 also the minutes at which the UFGI contract was 6 approved. And I would just note so I don't have 7 to read this again that it contains the same 8 penultimate paragraph on the last page of the 9 document that I've just read into the record. 10 Do you see that? 11 A. I see that, yes, sir. 12 Q. Okay. And I think it's almost word for 13 word identical, is it not? 14 A. It looks very similar to me. 15 Q. Okay. And did UFGI use the same 16 procedure for approving the UFGI contracts? 17 A. It appears that that's what the minutes 18 reflect. 19 Q. Well, do you have any recollection of 20 having participated in that procedure as a member 21 of the board who was receiving a contract from 22 UFGI? 15130 1 A. No, sir. I don't remember this 2 specific meeting or the procedures and 3 discussions. 4 Q. But you wouldn't dispute the accuracy 5 of the minutes and the description that's 6 contained therein as to the manner in which those 7 contracts were approved, would you, sir? 8 A. No, sir. I don't have any basis to 9 dispute them. 10 Q. Okay. Now, at the point in time when 11 USAT entered into the escrow arrangements that we 12 talked about a moment ago, do you recall what the 13 financial condition of USAT was? 14 A. What was the date of that escrow 15 arrangement? 16 Q. That would be the last document, I 17 believe, in Volume II, and I believe it's dated 18 September 28th, 1988. 19 A. At that time, I believe we certainly 20 would have been clearly below our regulatory net 21 worth and I -- that's -- so, you know, the 22 financial condition certainly hadn't improved. 15131 1 Q. And, in fact, I think we saw from the 2 second quarter financials that, in fact, at the 3 end of July, they had a slight negative net worth. 4 Do you recall that? 5 A. I remember the GAAP net -- the 6 generally-accepted accounting principles net worth 7 was negative, certainly, by this date. 8 Q. Now, would you take a look at 9 Exhibit T8108? This is the minutes of the special 10 joint meeting of the board of directors of UFG and 11 USAT dated October the 4th, 1998 (sic). And this 12 is -- and it indicates that all members of the 13 board of directors or boards of directors were 14 present. 15 Do you recall attending this meeting, 16 sir? 17 A. I remember -- well, I'll answer it this 18 way. I remember a board meeting where I believe 19 this Tom Leahey attorney was there. And that's 20 about what I remember. Whether it was this 21 particular board meeting, I can't say. 22 Q. Now, if you go down to the next -- I 15132 1 mean the last full paragraph on the first page, it 2 makes reference to a report that's being made by 3 Mr. Connell to the remaining members of the board. 4 Do you recall that Mr. Connell had been 5 part of a negotiating team to negotiate USAT's 6 participation in the Southwest Plan? 7 A. Yes, sir, I do remember that. 8 Q. And at the bottom of this page, in this 9 paragraph at the bottom of the page, he states -- 10 or it's recorded by Mr. Berner that Mr. Connell, 11 "He noted that the team of negotiators including 12 Mr. Michael Patriarca and Mr. Raul Herrera had 13 stated that any restructuring and recapitalization 14 of United Savings Association of Texas which 15 included FSLIC assistance would require placing 16 the association into receivership and forming a 17 new association with the current shareholders' 18 interest being eliminated. Mr. Berner noted, 19 however, that the association's negotiating team 20 was trying to resist this conclusion and, in 21 addition, was trying to require any new equity 22 participant to provide some value for the 15133 1 company's shareholders." 2 Do you see that? 3 A. I see that. 4 Q. So, at this point in time, it looked as 5 if USAT was going to be placed into receivership 6 and that all equity interest that UFGI might have 7 in USAT would be terminated; is that correct, sir? 8 A. That's what this paragraph certainly 9 indicates, that that was what was Mr. Connell's 10 report. 11 Q. I'm sorry. I didn't mean to -- 12 A. That was Mr. Connell's report. 13 Q. Okay. And, you know, you have no 14 reason to doubt the accuracy of Mr. Berner's 15 minutes that appear here? 16 A. No, sir, I do not. I remember we were, 17 oh -- I may be confusing two issues. But I 18 remember we were fussing around trying to ensure 19 or try to, as best we could, maintain the net 20 operating loss carry-forward to the new owner if 21 that were possible because, certainly, that would 22 have some value. 15134 1 Q. Okay. Now, the next paragraph begins 2 with the word "Michael Crow." And it says that 3 "Crow then discussed the current financial 4 condition of the association and the company. And 5 it indicates at this time -- would you read it to 6 yourself, sir, and then describe for the Court 7 what the financial condition was of USAT at this 8 point in time in terms of its net worth 9 compliance? 10 A. (Witness reviews the document.) Here 11 I'm using the word -- or Mr. Berner is using the 12 word "company." So, it's a bit mixed. But here, 13 I'm reporting that the company had a negative 14 120-million-dollar net worth and that the 15 association's negative net worth approximated 16 115 million and that these numbers were through 17 the end of August 1988 and that our -- apparently, 18 we must have known or must have projected that our 19 September losses would be -- would be significant 20 insomuch as the association would be providing a 21 significant amount for real estate losses and that 22 the bottom line would be that the company, at 15135 1 September 30th, would have a negative net worth 2 that exceeded 200 million. 3 Q. Now, would you turn to the next page? 4 And on the next-to-the-last -- I mean two 5 paragraphs from the bottom, Mr. Gross then 6 observes something about the net worth position of 7 the institution. 8 Do you know what Mr. Gross is referring 9 to there, sir? 10 A. I believe that -- I can't be sure, but 11 I believe Mr. Gross would be referring to the 12 tangible net equity, in which case you would 13 deduct goodwill. And if I'm not mistaken, 14 goodwill approximated $150 million. 15 Q. Well, now, what it says is "Mr. Gross 16 noted that the association's negative net worth 17 would exceed 400 million without dealing with the 18 current goodwill on the association's books which 19 was in excess of 150 million." 20 If you added in the goodwill, would 21 that then make the net worth of the institution 22 negative 550 million? 15136 1 A. Well, that isn't the way I read it. 2 Q. Well -- but either way you read it, 3 I -- 4 A. The way I read it -- clearly, I don't 5 remember. I believe what Mr. Gross would be 6 talking about there is that I reported in my 7 report that the net worth was negative by 8 200 million or so. And I believe Mr. Gross was 9 pointing out that, well, if you take goodwill out, 10 which is clearly a intangible asset, then the 11 negative net worth was, you know, upwards of 12 400 million. 13 Q. So, at this point in time, USAT was 14 clearly under water? 15 A. It -- absolutely. 16 Q. And the board of directors were plainly 17 aware of it since it was explained to them by you 18 and elaborated upon by Mr. Gross, correct? 19 A. It appeared pretty plain. 20 Q. And would you then turn to the last 21 page of that document? After learning that the 22 institution was in that kind of financial 15137 1 condition, does it appear that the board then 2 agreed to place -- to create -- strike that. 3 Does it appear that the board agreed to 4 create the escrow agreement which is 8104 and to 5 fund that escrow agreement with the $6.6 million? 6 A. I see the paragraph. I don't see the 7 6.6 million, but I don't dispute that number. 8 Q. Well -- but that was the number we saw 9 earlier that you had indicated or in the Gross 10 letter to Mr. Munitz where he said that was the 11 amount that they were going to put into the 12 escrow. 13 Do you recall that? 14 A. I remember that number, yes, sir. 15 Q. So, is it fair to say that at the point 16 in time that the escrow was created, USAT had a 17 substantial negative net worth? 18 A. Yes, sir. 19 Q. Now, prior to entering into the 20 employment contracts and creating the severance 21 provisions or that set up the severance provisions 22 and creating the escrow arrangement, did UFGI or 15138 1 USAT seek the advice of counsel regarding whether 2 entering into either the contract or setting up 3 the escrow would be in violation of the banking 4 laws in any way? 5 A. Well, as to the contracts, again, that 6 was -- the legal staff took the lead in that area. 7 I believe that the contracts we had were -- I took 8 some comfort in that the contracts we had were 9 drafted by our legal staff. I'm fairly confident 10 they were reviewed by outside counsel. The 11 contracts had been attached to our 10Ks, I 12 believe, or proxy statements; so, they had been 13 available for all parties to see. And -- 14 Q. Well -- 15 A. And Ms. Carlton had reviewed the 16 contracts. So, in terms of review, I guess my 17 answer is I wasn't directly on the front line and 18 I can't tell you who reviewed what and when. But 19 I was under the impression that the contracts had 20 been pretty well beaten to death by review. 21 Q. I'm troubled, sir. You said that 22 Ms. Carlton had reviewed the contracts. Now, 15139 1 we're talking here about the June 30th, 1988 2 contract between UFG and USAT. 3 Is it your testimony that Vivian 4 Carlton reviewed those contracts, sir? 5 A. No, sir. I -- I misspoke. 6 Q. Is it your testimony that Vivian 7 Carlton reviewed the earlier USAT contract that 8 was entered into in March of 1988? 9 A. I'll try to explain. It's my testimony 10 that I remember gathering up all the contracts and 11 giving them to Ms. Carlton for her review. And as 12 to the exact date and which contracts they were, I 13 can't tell you. But I thought that the contracts 14 were fairly consistent over time. 15 Q. Well -- 16 A. And I do remember the so-called 17 Connell-modeled contract. I had thought that the 18 whole purpose of rewriting the June contracts was 19 to follow the Connell contract which had 20 supposedly been reviewed by the regulators. I 21 mean, that's where I sat. In terms of getting 22 specifics, you'll have to ask the legal people, 15140 1 the legal staff. 2 THE COURT: Mr. Rinaldi, we'll adjourn 3 until 9:00 o'clock. 4 MR. RINALDI: Thank you. 5 6 (Whereupon at 4:50 p.m. 7 the proceedings were recessed.) 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 15141 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 16th day of July, 17 1998. 18 ____________________________ MARCY CLARK, CSR 19 Certified Shorthand Reporter In and for the State of Texas 20 Certification No. 4935 Expiration Date: 12-31-99 21 22 15142 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 16th day of July, 18 1998. 19 _____________________________ SHAUNA FOREMAN, CSR 20 Certified Shorthand Reporter In and for the State of Texas 21 Certification No. 3786 Expiration Date: 12-31-98 22