6447 1 UNITED STATES OF AMERICA Before the 2 OFFICE OF THRIFT SUPERVISION DEPARTMENT OF THE TREASURY 3 In the Matter of: ) 4 ) UNITED SAVING ASSOCIATION OF ) 5 TEXAS, Houston, Texas, and ) ) 6 UNITED FINANCIAL GROUP, INC., ) Houston, Texas, a Savings ) 7 and Loan Holding Company ) ) OTS Order 8 MAXXAM, INC., Houston, Texas, ) No. AP 95-40 a Diversified Savings and ) Date: 9 Loan Holding Company ) Dec. 26, 1995 ) 10 FEDERATED DEVELOPMENT CO., ) a New York Business Trust, ) 11 ) CHARLES E. HURWITZ, ) 12 Institution-Affiliated Party ) and Present and Former Director ) 13 of United Savings Association ) of Texas, United Financial Group,) 14 and/or MAXXAM, Inc.; and ) ) 15 BARRY A. MUNITZ, JENARD M. GROSS,) ARTHUR S. BERNER, RONALD HUEBSCH,) 16 and MICHAEL CROW, Present and ) Former Directors and/or Officers ) 17 of United Savings Association of ) Texas, United Financial Group, ) 18 and/or MAXXAM, Inc., ) ) 19 Respondents. ) 20 21 TRIAL PROCEEDINGS FOR 11-12-97 22 6448 1 A-P-P-E-A-R-A-N-C-E-S 2 ON BEHALF OF THE AGENCY: 3 KENNETH J. GUIDO, Esquire (Not present) Special Enforcement Counsel 4 PAUL LEIMAN, Esquire SCOTT SCHWARTZ, Esquire 5 BRUCE RINALDI, Esquire RICHARD STEARNS, Esquire (Not present) 6 and BRYAN VEIS, Esquire (Not Present) of: Office of Thrift Supervision 7 Department of the Treasury 1700 G Street, N.W. 8 Washington, D.C. 20552 (202) 906-7395 9 ON BEHALF OF RESPONDENT MAXXAM, INC.: 10 FRANK J. EISENHART, Esquire 11 of: Dechert, Price & Rhoads 1500 K Street, N.W. 12 Washington, D.C. 20005-1208 (202) 626-3306 16 13 DALE A. HEAD (in-house) 14 Managing Counsel MAXXAM, Inc. 15 5847 San Felipe, Suite 2600 Houston, Texas 77057 16 (713) 267-3668 17 ON BEHALF OF RESPONDENT FEDERATED DEVELOPMENT CO. AND CHARLES HURWITZ: 18 RICHARD P. KEETON, Esquire 19 of: Mayor, Day, Caldwell & Keeton 1900 NationsBank Center, 700 Louisiana 20 Houston, Texas 77002 (713) 225-7013 21 22 6449 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 KATHLEEN KOPP, Esquire PAUL DUEFFERT, Esquire 13 of: Williams & Connolly 725 Twelfth Street, N.W. 14 Washington, D.C. 20005 (202) 434-5000 15 OTS COURT: 16 HONORABLE ARTHUR L. SHIPE 17 Administrative Law Judge Office of Financial Institutions Adjudication 18 1700 G Street, N.W., 6th Floor Washington, D.C. 20552 19 Jerry Langdon, Judge Shipe's Clerk 20 REPORTED BY: 21 Ms. Marcy Clark, CSR Ms. Shauna Foreman, CSR 22 6450 1 2 EXAMINATION INDEX 3 Page 4 JEFFREY MINCH 5 Examination by Mr. Schwartz..............6452 6 Cross-Examination by Mr. Dueffert........6664 7 Redirect-Examination by Mr. Schwartz.....6696 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 6451 1 P-R-O-C-E-E-D-I-N-G-S 2 (10:06 a.m.) 3 4 THE COURT: Be seated, please. The 5 hearing will come to order. Are there any 6 preliminary matters? If none, we'll proceed with 7 enforcement's next witness. Mr. Schwartz. 8 MR. SCHWARTZ: Yes, sir. If you 9 recall, Mr. Graham had testified the last full day 10 of real estate matters. He was unavailable to 11 return today. And so, we were going to proceed 12 with a new witness. Mr. Graham, I believe, was 13 going to return tomorrow. So, we'd like to call 14 the new witness, Mr. Jeffery Minch. 15 16 JEFFREY MINCH, 17 18 called as a witness and having been first duly 19 sworn, testified as follows: 20 21 THE COURT: Be seated, please. 22 6452 1 2 EXAMINATION 3 4 Q. (BY MR. SCHWARTZ) Good morning, sir. 5 A. Good morning. 6 Q. Would you state your full name for the 7 record? 8 A. Jeffrey Leonard Stephen Minch. 9 Q. And what's your present occupation? 10 A. I'm retired. 11 Q. Would you give us a brief background of 12 your employment history? 13 A. After college, I was in the military 14 for five years, worked for Mobil Corporation for 15 about four years, moved to Austin, Texas. Worked 16 for Rust Properties. 17 Q. When was that? 18 A. 1979. Started my own business in 1984. 19 I sold my business in 1996. 20 Q. And you've been retired since then? 21 A. Yes. 22 Q. And what was that business? 6453 1 A. Real estate investment and development. 2 Q. We're here to talk about a project that 3 you worked on in what became the Norwood/United 4 Park development. Generally speaking, would you 5 describe the Norwood project. 6 A. It was approximately 100 acres of land 7 located in the northeast corner of Interstate 8 Highway 35 and US Highway 183 in north central 9 Austin, Texas. The net acreage was approximately 10 85 acres. It had a retail development site, a 11 couple of hotel sites, some office sites, some 12 restaurant sites. 13 Q. When you first became involved with the 14 project, what time period was that? 15 A. I think it was about 1985. 16 Q. Okay. When you first became involved 17 in the project, were the sites there; or was it 18 raw land? 19 A. It was a piece of raw land that we were 20 going to develop streets and put in utilities. 21 Q. And how did you get started? How did 22 you get involved with the project? 6454 1 A. Well, there was a developer from 2 Houston. His name was Tommy Gordon. And he had a 3 company called Deauville Corporation, and he had a 4 relationship with a local broker in Austin. The 5 local broker made an introduction between my 6 company and Tommy Gordon's company, and we were 7 asked if we would obtain the approvals to develop 8 the property from the City of Austin. 9 Q. Who is Tom Gordon? 10 A. Tom was the president or owner of 11 Deauville Corporation. 12 Q. Okay. And does the name Steve Block 13 mean something to you? 14 A. Yes. Steve was one of the executives 15 of Deauville Corporation. 16 Q. Was that Mr. Gordon's partner? 17 A. I don't know if they were partners. He 18 was a senior executive, the senior executive. 19 Q. You said that you received a phone call 20 from a local real estate broker in Austin? 21 A. That's correct. 22 Q. Who was that? 6455 1 A. Charlie Teeple. 2 Q. And what did he tell you? 3 A. He said there were some friends of his 4 from Houston who were interested in developing a 5 property in Austin and that they needed help in 6 obtaining the requisite approvals from the City of 7 Austin. 8 Q. And why did they contact you? 9 A. We had expertise in obtaining approvals 10 from the City of Austin. 11 Q. Would you describe what it's like to 12 obtain approvals in Austin? 13 A. Well, it's difficult. 14 Q. What do you mean? 15 A. It's a difficult regulatory 16 environment. At that point in time, there was a 17 lot of activity. And so, there was both a backlog 18 of activity -- I think it would be fair to say the 19 City of Austin was ill-disposed toward out-of-town 20 developers. And it was a difficult regulatory 21 environment, and there was a fair amount of 22 regulation that you had to be able to understand. 6456 1 There was an element of political expertise in 2 having approvals approved by the planning 3 commission and city council. 4 Q. How long did a project take to get 5 these approvals? Say, a project the size of 6 Norwood. 7 A. Anywhere between a year and five years. 8 Q. Is it absolutely essential when you get 9 involved in a project in Austin to have a local 10 developer for a project this size? 11 A. Yes. 12 Q. You gave us a basic description of the 13 Norwood project. Could you describe its -- could 14 you describe it geographically for us? 15 A. Where it's located? 16 Q. Where it's located, what shape it is. 17 A. Well, it's located in the northeast 18 corner of Interstate Highway 35 and 19 US Highway 183. At that time, that was the 20 busiest intersection in Austin, probably in 21 central Texas. It was an "L" shape. It wrapped 22 around the corner. So, there was development at 6457 1 the actual corner that was not part of the 2 transaction. The road network was going to 3 cross-connect Interstate 35 with US Highway 183 in 4 an "L" shape. And so, this would become a major 5 relief between those two busy streets. So, if you 6 went through this property, you'd be able to get 7 from US 183 to 35. 8 Q. So, when Mr. Gordon -- excuse me. So, 9 when Mr. Teeple called you, did he tell you that 10 Mr. Gordon was going to call you or that you 11 should call him; or how did the contact get made? 12 A. I think we agreed that we would just 13 get together and have lunch. 14 Q. With Mr. Gordon? 15 A. Yes. 16 Q. And what did Mr. Gordon tell you when 17 you had lunch? 18 A. Well, he described his plans for the 19 property, told us a little bit about his company, 20 and asked us if we would be interested in 21 assisting him in obtaining the approvals. 22 Q. And what did he tell you about his 6458 1 company? 2 A. That they had developed Deauville 3 shopping centers that were -- 4 Q. What's that? 5 A. They were discount shopping centers 6 that had large retailers that would be different 7 than, perhaps, in an enclosed mall and that he'd 8 been successful in Houston and he wanted to 9 develop one in Austin. 10 Q. He had no other projects going in 11 Austin? 12 A. No, he did not. 13 Q. And did he describe any of the 14 financing arrangements that he had? 15 A. He said that he currently owned the 16 property subject to a loan with United and that -- 17 United Savings and that they were to be his 18 financial partner in the development of the 19 property and in the shopping center. 20 Q. Did he tell you the status of that 21 loan? 22 A. Just that he had a loan. 6459 1 Q. Did he tell you when the loan was due, 2 anything like that? 3 A. No. 4 Q. So, how did you go about reaching an 5 agreement to do the project with Mr. Gordon and 6 Mr. Block? 7 A. Well, first thing we did is went out 8 and looked at the property; and we liked the 9 property. I knew the property. It was a good 10 property in Austin. We went down and looked at 11 several of the Deauville malls in Houston, went 12 down and met the people from United Savings and 13 visited with them; and then we came back and 14 discussed it. My partner was a fellow named Frank 15 Krasovec, and he and I sat down and discussed it 16 and decided it was something that would be 17 advantageous for us to be involved with. 18 Q. So, when you're describing the "we," 19 who do you mean? 20 A. Myself and Frank Krasovec. 21 Q. And Mr. Block and Mr. Gordon -- 22 A. Yes. 6460 1 Q. -- also? And when you talked about 2 going to United, who at United would you have met 3 with? 4 A. Well, we initially met -- when we went 5 down to meet the people, we met with a gentleman 6 named David Graham. There was a gentleman named 7 Jerry Williams. There was a gentleman named 8 Jenard Gross. I think when we first went down, 9 those are the three people we met with. 10 Q. And what did you discuss with them at 11 that initial meeting? 12 A. Well, critical to our involvement was 13 that we wanted to ensure that there was adequate 14 financing to develop the property. And so, Tom 15 Gordon had described to us a financing scheme; and 16 I wanted to see the whites of the eyes of the 17 people that were going to provide the financing 18 and go through chapter and verse and ensure that 19 that was something that they routinely did. And 20 that's what we attempted to do, and that's what we 21 accomplished. 22 Q. What do you mean by that? 6461 1 A. Well, we were looking for a financial 2 partner to provide 100 percent of the funding. 3 Q. 100 percent of the funding for what? 4 A. For the development of the land. And 5 then the financing scheme anticipated that Tom 6 Gordon and Deauville Corporation were going to 7 purchase the retail tract, which was the largest 8 single tract in the development. And so, we 9 wanted to investigate his financing. 10 Q. And so, what did you do? 11 A. Well, we sat down and had lunch with, 12 as I recall, David Graham. And I went through 13 chapter and verse to ensure that that was 14 something in the ordinary course of business that 15 they routinely did. I wanted to make sure that 16 everything Tom had told me, in fact, was accurate. 17 And I verified that. 18 Q. And did Mr. Graham give you those 19 assurances? 20 A. Yes. 21 Q. And did Mr. Gordon ever explain to you 22 that he could not do the project in Austin without 6462 1 your help? 2 A. No. 3 Q. Was that something that you already 4 knew? 5 A. Well, I had anticipated that he had 6 attempted -- I was aware of the fact that he had 7 attempted to deal with the City and had been 8 unsuccessful. And so, when the original 9 introduction was made, I was aware of the fact 10 that there was some advantage to having a local 11 partner. 12 Q. Let me ask this: How long prior to 13 your being contacted and getting involved with the 14 property had Mr. Gordon and Mr. Block already been 15 involved in the property? 16 A. Seemed like it was four to six months. 17 Q. While they owned the property and 18 before you got involved, had any of the lots sold? 19 A. No. 20 Q. Why not? 21 A. The property had not yet been 22 subdivided. 6463 1 Q. And that's a requirement from the City? 2 A. Yes. 3 Q. Now, for you and Mr. Krasovec to become 4 involved in the project to get the City's 5 approvals, what were the things that you wanted 6 out of the deal? 7 A. Well, the way that we ran our business, 8 we were always reluctant to take financial risk. 9 And so, we viewed ourselves as people practicing 10 surgery; and we didn't want to buy a hospital in 11 order to practice surgery. So, we would never 12 take substantial financial risk. And so, the most 13 important thing to us was to ensure that the money 14 was in place. We were not interested in -- we 15 were not interested in something which we could 16 not control our own destiny. And so, to us, the 17 most important thing was to make sure that there 18 was a good fit, that what we were going to add to 19 the property which is the attainment of the 20 approvals was, in fact, a value to the venture. 21 Q. What other things did you want from -- 22 out of the deal? 6464 1 A. Well, we wanted a piece of the equity. 2 We were not fee-oriented, and we always were 3 interested in working on something that, as value 4 is created with the passage of time, that we would 5 have an opportunity to participate in that value 6 creation. 7 Q. And did you anticipate that you would 8 be 50/50 partners with Mr. Block and Mr. Gordon on 9 the deal? 10 A. Yes. 11 Q. And what about expenses that you 12 incurred in the project? 13 A. Well, we would not anticipate incurring 14 any expenses. We would anticipate 100 percent of 15 our cost would be reimbursed by the venture. 16 Q. Would you take a look at Exhibit 7548. 17 First of all, do you recognize this document? 18 A. Yes. 19 Q. Okay. What is it? 20 A. It's an agreement between Norwood 21 Properties and some individuals in relation -- and 22 Deauville Venture 42 in regard to the development 6465 1 of the property. 2 Q. Is that your signature that appears on 3 the third page? 4 A. Yes. 5 MR. SCHWARTZ: Your Honor, we move 6 admission of Exhibit T7548. 7 MR. DUEFFERT: No objections. 8 THE COURT: Received. 9 Q. (BY MR. SCHWARTZ) Now, it says down 10 towards the bottom of the first page, "Now, 11 therefore, the parties hereby agree as follows: 12 The duties and" -- I'm jumping -- skipping a 13 little bit -- "the duties and obligations of the 14 undersigned under the joint venture agreement 15 shall be contingent upon the following." 16 Do you see that? 17 A. Yes. 18 Q. Then jump to the next page under B. It 19 says "Krasovec and Minch's execution and delivery 20 to the bank of individual, joint, and several 21 guarantees with respect to the existing loan as 22 defined in the joint venture agreement of such 6466 1 form and content as the lender may require." 2 What was the purpose of that provision? 3 A. To evidence our commitment to the 4 venture. 5 Q. I notice that United is not a party to 6 this loan. 7 Did they approve your coming into the 8 project? 9 A. Yes. 10 Q. And the existing loan that's referred 11 to in that Paragraph B, what was that? 12 A. That was a loan from United Savings to 13 Deauville. 14 Q. Do you know the amount of that loan? 15 A. No, I do not. 16 Q. At the time, did you? 17 A. Yes. 18 Q. Okay. Exhibit 7618. The previous 19 exhibit referred to the joint venture agreement. 20 Is this the joint venture agreement 21 that's referred to? 22 A. Yes. 6467 1 Q. And that's your signature? 2 A. On Page 38, yes. 3 Q. Page 38 is a little off-center. I 4 don't know if the other copies are. 5 MR. SCHWARTZ: It's okay? Okay. 6 Your Honor, we move admission of 7 Exhibit T7618. 8 MR. DUEFFERT: No objections. 9 THE COURT: Received. 10 Q. (BY MR. SCHWARTZ) If you turn to 11 Page 2 of the document which, down at the bottom, 12 it's Bates stamped 508. There is a definition 13 section. It says "existing loan"; and then it 14 refers to an 18.2-million-dollar loan dated 15 December 28th, 1984. 16 Was that the existing loan that -- 17 that's referred to in the other agreement that we 18 saw, Exhibit 7548? 19 A. Yes. 20 Q. So, is this the loan that you agreed to 21 jointly and severally guarantee -- 22 A. Yes. 6468 1 Q. -- in the full amount? 2 A. Yes. 3 Q. If you turn to Page 11, which is Bates 4 stamped 517 at the bottom, up at the top, there is 5 a reference to two other properties -- a National 6 Western Life Insurance property and/or the State 7 Highway Department property. You described for us 8 earlier the shape of the tract as an "L." 9 Where do these two tracts of land fit 10 into that "L"? 11 A. If the "L" were running with the long 12 end from west to east and with the short end from 13 south to north, the National Western Life property 14 was at the interior edge of the "L;" so, in the 15 southwest corner of the property. Then directly 16 below the western edge of the "L" was the State 17 Highway Department property. The National Western 18 Life property was approximately 5 acres, and the 19 State Highway Department property was 20 approximately 25 acres. 21 Q. Okay. At the time that you entered 22 into this agreement, though, the -- those two 6469 1 tracts were not owned by Mr. Block and Mr. Gordon? 2 A. That's correct. 3 Q. If you turn the page to the next page, 4 there is a reference to an amount outstanding on 5 the existing loan. 6 Was it your understanding at the time 7 that as of April 4th, 1985, $17,633,000 and change 8 was owed on that 18.2-million-dollar note? 9 A. Yes. 10 Q. 7615. Do you recognize this document? 11 A. Yes. 12 Q. And what is that? 13 A. It's the 18.2-million-dollar promissory 14 note. 15 MR. SCHWARTZ: Your Honor, we move 16 admission of Exhibit T7615. 17 MR. DUEFFERT: No objection. 18 THE COURT: Received. 19 Q. (BY MR. SCHWARTZ) This is the note 20 that you and Mr. Krasovec jointly and severally 21 guaranteed in the full amount? 22 A. That's correct. 6470 1 Q. Okay. And when was this note due? 2 It's dated December 28th, 1984. If you look on 3 the bottom of the first page, it refers to "until 4 six months after date hereof." So, would that 5 have put it due around June of 1985? 6 A. Yes. 7 Q. Exhibit 7716 which was previously 8 admitted at Tab 665. 9 MR. SCHWARTZ: Mr. Langdon, do you need 10 an extra copy? 11 MR. LANGDON: Yes. 12 Q. (BY MR. SCHWARTZ) Now, do you 13 recognize this document? 14 A. Yes. 15 Q. In the middle paragraph, it talks about 16 increasing the loan amount to $21 million? 17 A. Yes. 18 Q. Did you have an understanding of what 19 that increase of the loan amount was for? 20 A. I don't recall. 21 Q. Do you know if it would include -- if 22 it was to include interest carried? 6471 1 A. I just don't remember anything about 2 it. 3 Q. If you -- the next page of that exhibit 4 has a letter that's referred to on the first page. 5 And in the second paragraph there, it refers to -- 6 in the middle of that paragraph, you see "Our 7 initial comfort with this loan was based upon 8 Tommy's and your full support of the debt. A 9 reduction at this time in this aspect of the loan 10 may not be acceptable to the committee." 11 What was that referring to? 12 A. I don't think I've ever seen this 13 letter before. 14 Q. Okay. Well, you're CC'd on -- well, 15 actually, sir, it was pulled out of your -- if you 16 look at the Bates stamp at the bottom, the KM 17 reference is your file. So, you just don't recall 18 this document? 19 A. I don't recall seeing it, no. 20 Q. Okay. Do you recall whether Mr. Gordon 21 and Mr. Block were seeking with United a reduction 22 in their liability under the guarantees that they 6472 1 had with United? 2 A. I don't recall that, but if we were 3 jointly and severally liable for it, we surely 4 wouldn't support that reduction. 5 Q. Also, I notice that this letter is 6 CC'd -- the May 10th letter is CC'd to Mr. Jenard 7 Gross. 8 What was Mr. Gross' role at this point 9 in the negotiations? 10 A. Well, I think at this point in time, 11 the negotiations really were between Tom Gordon 12 and United Savings. And so, I really am not aware 13 of what role Mr. Gross would have played at that 14 point in time. 15 Q. Okay. Exhibit 7629, which is Tab 659, 16 what was the purpose of this document? 17 A. I believe this was the note that 18 evidenced our joining the project. And so, this 19 took the place of the existing 18.2-million-dollar 20 loan that had been executed only by Tom Gordon and 21 Steve Block, that this added as new guarantors 22 Frank Krasovec and myself. 6473 1 Q. If you recall when we looked at the 2 original note, it was -- there was a six-month due 3 date if you recall -- 4 A. Right. 5 Q. -- from that prior exhibit, 7615. It 6 had a six-month due date which would have put it 7 to about June 28th, 1985. So, the note was due on 8 June 28th, 1985. And then what -- what -- did 9 this -- it's called a renewal and extension 10 agreement. 11 Did this renew that debt? 12 A. Yes, it would appear to extend the 13 debt. 14 Q. Okay. And when did it extend it until? 15 If you look at the first "Now, therefore" clause 16 in the middle of the first page, it refers to -- 17 A. 28 December 1985. 18 Q. Okay. Was that your understanding that 19 that's when this note was going to be due to 20 United to be paid? 21 A. Yes. 22 Q. Down at the bottom, there was a fee 6474 1 referenced, a fee of $28,000. 2 Do you recall paying a fee to United in 3 connection with this renewal of extension? 4 A. Yes. 5 Q. And what was the source of funds for 6 that fee? 7 A. It was the existing loan. 8 Q. 7631. Now, on the same date as the 9 renewal and extension we just looked at, there is 10 this document, a promissory note in the amount of 11 $2.8 million. 12 Do you recognize this? 13 A. Yes. 14 Q. And what was the purpose of this? 15 A. I think this was the additional funding 16 above the 18.2 million to carry the property for 17 another six months. 18 Q. Okay. With regard to this 2.8 -- first 19 of all, is that your signature on the last page? 20 Or, excuse me, do you recognize Mr. Block's 21 signature as trustee on this -- on the third page? 22 A. Yes. 6475 1 MR. SCHWARTZ: Your Honor, we move 2 admission of Exhibit T7631. 3 MR. DUEFFERT: No objections. 4 THE COURT: Received. 5 Q. (BY MR. SCHWARTZ) Now, with regard to 6 this 2.8 million-dollar loan, was it -- first of 7 all, was it secured by the same real estate? 8 A. Yes. 9 Q. Did you and Mr. Krasovec, Mr. Block, 10 and Mr. Gordon all guarantee repayment of this 11 note, as well? 12 A. Yes. 13 Q. At that time, sir, did you have the 14 financial ability to pay up to what was then 15 $20 million in joint and several liability -- 16 joint and several liability if these loans had 17 gone into default? 18 A. No. 19 Q. Was United aware of that? 20 A. I don't know. 21 Q. Had you submitted financial statements 22 to them? 6476 1 A. Yes. 2 Q. 7549. Take a moment to look at this 3 document. Do you recognize it? 4 A. Yes. 5 Q. Okay. And what is it? 6 A. It's a guarantee. 7 Q. And if you look on the last page, there 8 is a signature there of Frank Krasovec. 9 Do you recognize that signature? 10 A. Yes. 11 Q. Okay. 12 MR. SCHWARTZ: Your Honor, we move 13 admission of Exhibit T7549. 14 MR. DUEFFERT: No objections. 15 THE COURT: Received. 16 Q. (BY MR. SCHWARTZ) And what did this 17 guarantee payment of? 18 A. The 18.2-million-dollar loan. 19 Q. 7549. This guarantee, was it for the 20 full amount of the $18.2 million? 21 A. Yes. 22 Q. Okay. Would you take a look at 6477 1 Exhibit T7549? And what is that? 2 A. It's a guarantee executed by me. 3 Q. 7550. Is that the next one I gave you? 4 A. Yes. 5 Q. Okay. And this is the guarantee on 6 what amount? 7 A. $2.8 million. 8 Q. Okay. 9 MR. SCHWARTZ: Your Honor, we move 10 admission of Exhibit T7550. 11 MR. DUEFFERT: No objections. 12 THE COURT: Received. 13 Q. (BY MR. SCHWARTZ) This was all in 14 connection with the June 28th extension of the 15 18.2-million-dollar pre-existing debt and the 16 additional 2.8-million-dollar loan? 17 A. Correct. 18 Q. And this was for the full amount of 19 that $2.8 million extension. Right? 20 A. Correct. 21 Q. Now, did you also execute a guarantee 22 on the 18.2-million-dollar loan? 6478 1 A. Yes. 2 Q. 7714. It's at Tab 669. Can you 3 identify this document? 4 A. Yes. 5 Q. Okay. What is it? 6 A. It's a letter from David Graham to 7 Frank Krasovec in regard to a loan for the 8 property. 9 Q. Mr. Krasovec was your partner in 10 Norwood? 11 A. Correct. 12 Q. And what was the purpose of the letter? 13 A. To outline the terms of a proposed loan 14 from United to the venturer. 15 Q. During this time, you had been involved 16 with the property for about how long? 17 A. Seemed like about six months. 18 Q. And what had your efforts been during 19 that six months? 20 A. We were overseeing the development of 21 the subdivision and the site plan, zoning, 22 utilities. 6479 1 Q. Working with the City to get the 2 approvals? 3 A. Yes. 4 Q. Had the -- had you received the City's 5 approval yet? 6 A. No. 7 Q. And what was the purpose of the 8 34-million-dollar proposal here? 9 A. To repay the existing indebtedness and 10 to provide sufficient funds to develop the 11 infrastructure of the property. 12 Q. So, the existing indebtedness was about 13 $21 million, the -- excuse me -- $21 million, the 14 18.2 and the 2.8. And then how much would it have 15 cost to build out the development approximately? 16 A. Approximately $3 and a half million. 17 Q. Okay. And so, what was the rest of the 18 funds provided for? 19 A. Interest carried. 20 Q. Also, there is listed here an 21 origination fee of 2 percent. Did you have -- if 22 you look the first sentence of the letter, it says 6480 1 "This is to outline the general parameters under 2 which United is presently considering all new 3 acquisition and development loans." 4 Did you have an understanding that 5 2 percent was their -- was their parameters -- 6 parameter for acquisition/development loans? 7 A. Yes. 8 Q. Also, if you look under "collateral" 9 under No. 2, it refers to joint and several 10 liability of 100 percent. 11 Did you have an understanding that 12 100 percent joint and several liability guarantees 13 was part of their standard process? 14 A. I understood that was their objective, 15 yes. 16 Q. Okay. So, approximately when did you 17 start actual negotiations with United on getting a 18 development loan going? When you first got 19 involved with the property? 20 A. Well, initially, when we were first 21 involved, Tom Gordon and Steve Block handled all 22 of the relationship with United. Once we had 6481 1 become comfortable that United was positioned to 2 provide the financing, it was their role to deal 3 with United; and it was our role to deal with the 4 City. So, we really had had no negotiations with 5 United about the funding. 6 After a time, it became clear that Tom 7 Gordon was not going to be able to perform the 8 original role that had been anticipated. And so, 9 we negotiated with Tom to acquire his interest and 10 move forward with the deal and then we became 11 directly involved with United. 12 Q. Okay. This letter is October of 1985. 13 Did you -- was Mr. Gordon still your partner at 14 that time? 15 A. Yes, I believe so. 16 Q. Okay. The letter -- this letter is 17 CC'd to him and Mr. Block, as well as to 18 Mr. Gross. But at this point in time, were you 19 aware of Mr. Gordon having any financial 20 difficulties? 21 A. I don't recall the exact date that we 22 became aware of that, but it could have been in 6482 1 this time frame because the correspondence is from 2 United to us. And that would be indicative of the 3 fact that we were now playing a more active role. 4 Q. Okay. If you turn to the last page of 5 the letter, the second page, it's referencing a 6 profit participation. 7 What was the purpose of that provision? 8 It says "United Savings shall have the option to 9 receive either 25 percent of the profits generated 10 from the sale and/or refinancing or a 3 percent 11 release fee." 12 A. Well, that was part of their 13 consideration for having made the loan. 14 Q. 7610. Okay. If you recall, we looked 15 at the renewal and extension agreement dated 16 June 28th, 1985. This is a renewal and extension 17 agreement dated December 28th, 1985. 18 Do you recognize it? 19 A. Yes. 20 Q. And what do you recognize it as? 21 A. It's a renewal and extension of the 22 previous loan arrangement of 18.2 million. 6483 1 Q. And for how long a period of time would 2 this extend the loan? 3 A. Looks like to June 28th, 1986, a period 4 of about six months. 5 Q. Now, you said that this was a renewal 6 and extension of the 18.2-million-dollar loan. 7 Did this also extend the 8 2.8-million-dollar debt? If you look at the 9 second-to-the-last paragraph on the first page -- 10 A. Yes. Yes, it did extend the 11 2.8-million-dollar debt, also. 12 Q. So, this extended the full $21 million? 13 A. That's correct. 14 Q. There is also reference to a fee on the 15 second page of $182,000 to lender as a renewal and 16 extension fee; and then it goes into dividing up 17 when those fees will be paid. 18 What was the -- first of all, do you 19 recall a fee being paid to United for this 20 extension? 21 A. Yes, I do. 22 Q. And what was the source of funds for 6484 1 that fee? 2 A. The loan. 3 MR. SCHWARTZ: Your Honor, we move 4 admission of Exhibit T7610. 5 MR. DUEFFERT: No objections. 6 THE COURT: Received. 7 Q. (BY MR. SCHWARTZ) With regard to the 8 interest on the loan for this -- at this point in 9 time, was the interest carried on the loan still 10 being funded by the loan itself? 11 A. Yes, I believe so. 12 Q. So, at this point, as of December 28th, 13 1985, had you, Mr. Block, Mr. Gordon, or 14 Mr. Krasovec ever had to make any interest 15 payments -- 16 A. No. 17 Q. -- out of pocket? 18 A. No. 19 Q. 7503. Do you recognize this? 20 A. Yes. 21 Q. Okay. What was the purpose of this 22 letter? 6485 1 A. I believe we were beginning to 2 negotiate an acquisition of Deauville 3 Corporation's interest in the property. 4 Q. That's Mr. Block and Mr. Gordon's 5 interest? 6 A. Yes. 7 Q. Why? 8 A. They were not able to perform on the 9 shopping center, I believe. 10 Q. Why not? 11 A. I understood that they had financial 12 problems. 13 Q. And how did you reach that 14 understanding? 15 A. I don't recall. I believe initially we 16 learned it from others, and then it was 17 subsequently verified by a conversation with Tom 18 and Steve. 19 Q. Did United ever communicate any 20 information to you about Mr. Gordon's and 21 Mr. Block's financial condition? 22 A. No. 6486 1 Q. Or whether they would be able to 2 participate on the loan? 3 A. They did not initiate any conversation; 4 but after it became apparent, I believe they 5 verified it. 6 Q. In the second paragraph of the letter 7 on the first page -- you signed this. 8 Did you write this letter? 9 A. Yes. 10 Q. Okay. You wrote "Our analysis 11 reflection results in the conclusion that the 12 project is in a state of crisis caused by a 13 falling market for offices, hotels." 14 First of all, you're referring there to 15 a falling market in Austin? 16 A. Yes. 17 Q. What was this referring to, this crisis 18 referring to? 19 A. That the market for office and hotel 20 sites was perhaps beginning to decline. 21 Q. You go on to say "Tightening project 22 financing requirements." 6487 1 What was that referring to? 2 A. That the financing markets were not as 3 attractive now as they had been when we first 4 initiated our relationship. 5 Q. And you go on to say "a short-term cash 6 crunch." 7 What's that referring to? 8 A. I think that in anticipation of the 9 loan maturing that we had some bills that were 10 required to be paid, and I wasn't sure that there 11 was sufficient funding in the loan to be able to 12 pay them. 13 Q. This is as of the extension of the 14 $21 million? 15 A. Yes. 16 Q. From December 28th, 1985, to June 28th, 17 1986? 18 A. Correct. 19 Q. You go on to say "the Houston disease" 20 in quotes. 21 What was that referring to? 22 A. Tom Gordon's difficulties in Houston. 6488 1 Q. Okay. And "a lack of real progress." 2 Real progress on what? 3 A. I think the issue of progress was that 4 Tom was not going to be able to develop the 5 shopping center and that -- I think the main thing 6 was that Tom was not going to be able to develop 7 the shopping center. 8 Q. Okay. At this point in time, February 9 of 1986, what still needed to be done with the 10 project, with the property? 11 A. Well, we were still working on the 12 approvals. And then once the approvals were 13 obtained, we had to build the approvals. 14 Q. And in the next paragraph, you say 15 "Time is not our ally. We cannot see a high 16 probability of successfully completing all of the 17 above in the time before we are in default with 18 United financing." 19 And was that referring -- a reference 20 to the June due date of the loan? 21 A. Yes. 22 Q. June 28th? 6489 1 A. Yes. 2 Q. I don't know if this is the right 3 phrase. Correct me if I'm wrong. 4 Did there come a time when you learned 5 that Mr. Block and Mr. Gordon were being eased out 6 of the deal? 7 A. Yes. 8 Q. And when was that? 9 A. Well, it was sometime after it was 10 occurring. We found out after the fact that they 11 had been in negotiations with United to be 12 released from the property, from the project. 13 Q. About how long after -- about how long 14 after did you learn that United and Block and 15 Gordon were negotiating on their release? 16 A. Well, it was sometime after this 17 February letter. 18 Q. Would you turn to the next page? In 19 the second paragraph on the first page, you say 20 "Timely attention to this matter can only aid your 21 performance on the mall." 22 A. I'm lost. Is that on the first page or 6490 1 the second page? 2 Q. No. On the second page. 3 A. Oh, yes. 4 Q. The second paragraph. It's not 5 indented. The first paragraph is not indented, 6 but I assume it's the first paragraph just because 7 of the way the line ends on the previous page. 8 A. Yes, I see that. 9 Q. What was that in reference to? 10 A. Well, as part of this proposal, we were 11 proposing to purchase their interest and we had to 12 attend to this matter so that they could be -- at 13 this instance in time, there was still discussion 14 of Deauville developing the mall as a contract 15 developer, in effect, as opposed to an owner. And 16 so, I was attempting to bring to their attention 17 that we had to attend to this in a timely manner. 18 Q. So, at this point in time, was it your 19 understanding that Mr. Block and Mr. Gordon could 20 still have some role in the project? 21 A. Yes. 22 Q. You go on in Paragraph B to talk 6491 1 about -- excuse me -- 1B, "Norwood may retain 2 Deauville to manage the development on a 3 contractual basis as follows." 4 Is that what that's referring to? 5 A. Yes, it is. 6 Q. If you turn to the last page, there is 7 a reference there to "We must also resolve the 8 short-term payables situation," underlined. 9 What was that a reference to? 10 A. We had incurred some bills in the 11 attainment of the approvals that were not funded 12 by the loan, and they had to be paid. 13 MR. SCHWARTZ: Your Honor, we move the 14 admission of Exhibit T7503. 15 MR. DUEFFERT: No objection. 16 THE COURT: Received. 17 Q. (BY MR. SCHWARTZ) I believe this was 18 admitted at Tab 672. 19 MR. LANGDON: Exhibit number? 20 MR. SCHWARTZ: 7582. 21 Q. (BY MR. SCHWARTZ) Do you recognize 22 this document? 6492 1 A. Yes. 2 Q. And I note this is a February 13th, 3 1986 letter to Mr. Jenard Gross. 4 Why were you sending this letter to 5 Mr. Gross? 6 A. We had had a meeting in Houston in 7 which David Graham, who was our normal point in 8 contact, had been out of town, and we had met with 9 Jenard. And so, I was responding to that meeting 10 by sending Jenard the letter that we had promised 11 to send. 12 Q. You sent a copy of this to Mr. Graham, 13 I assume, because you have a reference in 14 handwriting on the front page to David. 15 Was that a reference to Mr. Graham? 16 A. Yes. 17 Q. Okay. Because I note on the CC -- I 18 don't see a reference to Mr. Graham. 19 Did you send this to Mr. Graham? 20 A. Yes. 21 Q. And in your handwriting, it appears to 22 say "Last week, we had a visit with Mr. Hurwitz as 6493 1 well as Messrs. Gross and Williams. This is the 2 result of that meeting. You were out of town in 3 San Antonio"? 4 A. Yes. 5 Q. "Regards." And then is that your 6 initials? 7 A. Yes. 8 Q. Do you recall meeting with -- or 9 attending a meeting or seeing Mr. Hurwitz and 10 Mr. Gross in Houston? 11 A. Yes. 12 Q. What was the purpose of that meeting? 13 A. To discuss an approach by which we 14 would go forward with Tom Gordon not being the 15 prospective purchaser of the mall site but perhaps 16 being a development manager. 17 Q. And those negotiations were conducted 18 with whom? 19 A. Primarily Jenard Gross. 20 Q. 7454. This is a February 26th, 1986 21 letter to Mr. Jenard Gross. 22 Is that your signature on the second 6494 1 page? 2 A. Yes. 3 MR. SCHWARTZ: Your Honor, we move the 4 admission of Exhibit T7454. 5 MR. DUEFFERT: No objections. 6 THE COURT: Received. 7 Q. (BY MR. SCHWARTZ) You write in the 8 first paragraph, "This letter is in response to 9 your request for your outline of the short-term 10 cash requirements." 11 Did Mr. Gross request that from you? 12 A. Yes. 13 Q. Would you go through the four actions 14 that are described in your letter there and 15 explain them? The first one is off-site sanitary 16 sewer improvements. 17 A. The property was to be served by sewer 18 which had to be connected, as I recall, about 19 3,500 feet from the site. And it's a very 20 difficult regulatory issue in that you have to 21 deal with the Texas Highway Department in order to 22 obtain the appropriate right-of-way to be able to 6495 1 build a sewer. And so, this had to all be built 2 in accordance with certain guidelines. This 3 included competitive bidding. 4 The adjoining site, the 4.7 acres, 5 National Western Life site, that was a critical 6 piece of property to acquire because it's the -- 7 the main entrance to the property lined up with a 8 median cut in the Highway US 183. And so, this 9 property allowed us to move the road a little bit 10 to the west so it lined up directly with the 11 median cut. 12 The infrastructure refers to the 13 drainage, the water, the wastewater, the gas, 14 electric -- 15 Q. It refers to -- 16 A. -- telephone. 17 Q. I'm sorry. 18 A. The infrastructure refers to those 19 things I've mentioned. And then once you have 20 your subdivision approved by the City, you have 21 two years to build those improvements, which must 22 be secured by a letter of credit equal to the 6496 1 construction cost of the public improvements. 2 And then the engineering and inspection 3 fees, those were expenses that had to be paid in 4 order to design the off-site sewer and the 5 infrastructure on the property. 6 Q. Your next paragraph refers to a six- to 7 nine-month time period to complete getting the 8 approvals. 9 So, at this point in time, you 10 obviously had not received the approvals from the 11 City; is that correct? 12 A. That's correct. 13 Q. With regard to that 4.717-acre -- if I 14 may, I'll just call it 5 acres -- for the National 15 Western Life Insurance Company tract, you 16 described the median strip and the -- to be able 17 to turn in to the project. 18 The 183, was that going in both 19 directions? 20 A. Yes. 21 Q. Was it possible to move the median cut? 22 A. It's possible, but it would be a more 6497 1 difficult approval to obtain because there was a 2 second median cut just east of there. And the 3 Highway Department, which was a more difficult 4 regulatory body to deal with, would have to 5 approve moving those median cuts. 6 So, we would much prefer to have 100 7 percent of the alignment on our property where we 8 controlled our own destiny because we already were 9 in negotiations with the City of Austin to approve 10 that alignment. 11 Q. But this was a tract, though, that you 12 did not yet own? 13 A. That's correct. 14 Q. And the rest of that paragraph refers 15 to "Frank" -- I assume you mean Mr. Krasovec? 16 A. Yes. 17 Q. -- "has previously furnished a copy of 18 the earnest money contract to you." 19 And I assume you're referring to 20 Mr. Gross? 21 A. Yes. 22 Q. Did you work out the purchase of the 6498 1 National Western Life Insurance tract through 2 Mr. Gross, the negotiations with Mr. Gross? 3 A. Well, we were buying it from National 4 Western Life and we sent the contract to them for 5 their approval. It was an earnest money contract 6 with seller financing, and the down payment was to 7 be funded by United Savings. So, we sent it to 8 David Graham and a copy to Jenard Gross. 9 Q. So, United was going to be providing 10 the funding for the down payment. 11 Do you recall about how much that was? 12 A. I don't recall. 13 Q. Did United provide the funding for 14 that? 15 A. Yes. 16 Q. And what was the source of that money? 17 A. A loan. 18 Q. 7507. Do you recognize this letter? 19 A. Yes. 20 Q. What was the purpose of this letter? 21 A. It was an outline of a proposal from 22 United Savings to Frank and I on a loan for the 6499 1 property. 2 Q. Previously, we had seen a proposal at 3 $34 million. This one is for 37 million 5. 4 What was the additional sum for? 5 A. I don't recall. 6 Q. Were you willing to borrow $37 and a 7 half million at that point in time? 8 A. Not on the terms outlined in this 9 letter, no. 10 Q. Why not? 11 A. The implication of this letter was that 12 we would borrow 100 percent of the money, which we 13 felt would expose us to too much financial 14 liability. 15 Q. Was this the same property that was 16 security for the outstanding $21 million? 17 A. Yes. 18 Q. The -- if you look in the fees section, 19 the fee now is 3 percent at closing. 20 Was that one of the terms you objected 21 to? 22 A. Yes. 6500 1 Q. Do you know why the fee went up from 2 2 percent to 3 percent? 3 A. No, I do not. 4 Q. Also, under "guarantees" in this 5 letter, if you recall in the previous letter, it 6 was 100 percent joint and several. In this 7 letter, it says "The top 25 percent of the loan 8 shall be jointly and severally guaranteed by Frank 9 P. Krasovec and Jeffrey Minch." 10 Why was that put in there? 11 A. Well, I believe that they understood 12 that we were sensitive to our liability. And I 13 think this was an attempt on their part to obtain 14 something less than 100 percent liability. 15 Q. Was that important to you? 16 A. Yes. 17 Q. If you look further down on that page, 18 "profit participation," it says "United shall 19 receive 30 percent of the profits generated from 20 the sale or refinancing." 21 Was that a provision that was agreeable 22 to you? 6501 1 A. Yes. 2 Q. Do you know why it went up from 3 25 percent to 30 percent, from the 25 percent in 4 the last letter we looked at or the last proposal? 5 A. No. 6 Q. Exhibit 7504. 7 MR. SCHWARTZ: If I haven't already, I 8 move the admission of Exhibit T7507. 9 MR. DUEFFERT: No objections. 10 THE COURT: Received. 11 Q. (BY MR. SCHWARTZ) This is a 12 March 25th, 1986 letter to Mr. Gross. Is that 13 your signature? 14 A. Yes. 15 MR. SCHWARTZ: Your Honor, we move the 16 admission of Exhibit T7504. 17 MR. DUEFFERT: No objections. 18 THE COURT: Received. 19 Q. (BY MR. SCHWARTZ) What was the 20 purpose of this letter? 21 A. Apparently, there was a meeting that 22 had occurred the day before. And that meeting and 6502 1 David Graham's letter of the 20th of March had 2 initiated this response. 3 Q. The letter starts out "We appreciate 4 the time which you spent with us yesterday." 5 Did you meet with Mr. Gross on 6 March 24th? 7 A. Apparently, yes. 8 Q. Did you discuss the terms of the 9 transaction with him? 10 A. Yes. 11 Q. In Paragraph 2, the paragraph numbered 12 2, there is a reference to a split of 75 percent, 13 25 percent. 14 What was the reason for that language 15 in your letter? 16 A. Well, they had proposed a 30/70 split. 17 And in our discussions, we had revealed to them or 18 we had told them that we were going to acquire 19 Gordon's interest. And we felt as though as a 20 result of our acquiring Gordon's interest, that 21 the split should be 75/25. 22 Q. Okay. On the next page, the last 6503 1 paragraph, you say "Jenard, this is our list of 2 comments. We look forward to visiting with you 3 and David on Thursday morning." 4 Did you meet with Mr. Gross and 5 Mr. Graham later that week? 6 A. I assume so, yes. 7 Q. Okay. Did you continue negotiations 8 with Mr. Gross and Mr. Graham at that time? 9 A. Yes. 10 Q. Exhibit 7511. 7711. I'm sorry. 7711. 11 It's at Tab 676. 12 MR. LANGDON: I don't have that exhibit 13 number. 14 MR. SCHWARTZ: 7711. We have an extra 15 copy. 16 Q. (BY MR. SCHWARTZ) In this exhibit 17 dated April 14th, Mr. Graham conveys the loan 18 committee disapproved the loan request as 19 submitted primarily due to the fact that the 20 proposed borrower under the submitted request 21 would not have any hard cash equity in the tract. 22 What did you take his meaning to be? 6504 1 A. He was negotiating. 2 Q. He goes on to state that, "In essence, 3 this decision by our loan committee leaves you 4 with three basic alternatives: One, pay off the 5 loan. Two, United can become the financial 6 partner providing the credit enhancement for 7 another lender. Or, three, raise equity capital 8 significantly to additionally secure a loan 9 provided by United." 10 Were you willing to do either of those 11 three provisions? 12 A. No. 13 Q. Any of those three provisions? 14 A. No. 15 Q. He goes on to say, "Frankly, only 16 Scenarios 1 and 3 are viable alternatives since we 17 do not wish to provide the credit enhancement for 18 another lender and take an ownership role in the 19 entire project." 20 Were you willing to provide additional 21 equity, cash equity? 22 A. No. 6505 1 Q. Do you know why United was not 2 interested in an ownership role? 3 A. I do not. 4 Q. He goes on to state for category 5 "present loan," "The remaining funds allocated to 6 the renewal fee of $105,000 and interest reserve 7 of $108,336.36 shall be advanced as scheduled. 8 The original loan shall then be fully disbursed." 9 What is that referring to? 10 A. The 21-million-dollar loan. 11 Q. He then goes on to describe a new loan 12 amount of $21,385,000. 13 What was that for? 14 A. Well, it would be for the 15 21-million-dollar loan and then the off-site sewer 16 work and to continue the approvals with the City 17 of Austin. 18 Q. And what was the source of all of those 19 funds going to be? 20 A. A new loan. 21 Q. Okay. If you turn the page, there is a 22 reference to a renewal fee. Now, this is the loan 6506 1 that's becoming -- that's coming due on June 28th 2 it's referring to? 3 A. Yes. 4 Q. Okay. The renewal fee of $106,925. 5 Again, what would the source of those funds have 6 been? 7 A. The loan. 8 Q. And then it refers to "special 9 conditions." "Borrowers shall bring present loans 10 current through the payment of the renewal fee and 11 March 30, 1986 interest billing. The $90,698.78 12 of the March 30, 1986 interest which is not 13 covered by the interest reserve must be paid by 14 borrower." 15 That suggests that there was not enough 16 funds in the loan for -- to cover that interest 17 payment. 18 Were you willing to make those 19 payments -- 20 A. No. 21 Q. -- out of your pocket? 22 A. No. 6507 1 Q. Was Mr. Krasovec? 2 A. No. 3 Q. Also, this letter is dated April 14th; 4 and it's referring to a March 30th interest 5 payment. 6 Was the loan in default at this point? 7 A. I don't know the answer to that 8 question. 9 Q. Had the March 30th interest payment 10 been made? 11 A. Apparently not. 12 Q. He goes on to state in Paragraph 2 way 13 down at the bottom that he believes it would take 14 no less than 15 percent of the loan amount or 15 $5.625 million in equity. 16 Did you have access to that kind of 17 equity at that point in time? 18 A. No. 19 Q. And after you received this letter -- 20 well, first of all, jump to the third page. And 21 in the second-to-the-last paragraph on the page, 22 it refers to the March 30th interest payment 6508 1 again. And he says, "A savings and loan cannot 2 legally extend, renew, or restructure a delinquent 3 loan. So, unless the loan is brought current, our 4 alternatives are limited." 5 After you received this letter and 6 received that comment from Mr. Graham, did you at 7 any point pay the March 30th interest payment for 8 that loan? 9 A. No. 10 Q. Exhibit 7014, which is at Tab 677. Do 11 you recognize this? 12 A. Yes. 13 Q. Okay. With regard to the National 14 Western Life Insurance tract, it says "United 15 provided a 50,000-dollar letter of credit for this 16 contract." 17 What was the source of that fund, of 18 that 50,000-dollar letter of credit? 19 A. It came from United Savings. 20 Q. And you described the median cuts. In 21 this letter, you say that the tract with reference 22 to the National Western Life Insurance tract -- 6509 1 and I'm referring to the last paragraph on the 2 first page -- is a key part of the project. 3 Is that because of the median cut turn 4 into the development? 5 A. Yes. And also, the fact that the 6 subdivision, the file plat, had been submitted 7 with this tract as part of the submission and we 8 had had the permission of the then current owner 9 to make that submission. 10 Q. If that sale had fallen through and had 11 not been completed, what would have happened to 12 the project? 13 A. Well, it's difficult to say. The 14 existing owner could have cooperated with it 15 because it provided additional access to them; but 16 they also had the right to then disavow the 17 subdivision. 18 Q. And what would have happened to the 19 project then? 20 A. We would have had to modify that corner 21 of the subdivision. 22 Q. How long would that process have taken 6510 1 with the City to the -- based on your experience? 2 A. Six months. 3 Q. On the next page, you refer to -- in 4 the middle of the page -- under "final plat," 5 which I think is a reference to what I think you 6 said earlier, "Please note that if the National 7 Western Life Insurance site is allowed to slip 8 through our fingers, the entire platting process 9 will have to be endured again." 10 Was that a concern, that it could slip 11 through your fingers? 12 A. Yes. 13 Q. You go on to discuss two contracts, one 14 with Vernon Brown and one with Robert Tamminga. 15 A. Tamminga? 16 Q. Tamminga. Now, would you describe 17 these contracts? 18 A. The contract to Vernon Brown was an 19 earnest money contract to acquire the site that 20 previously had been purchased by Deauville. And 21 the contract with Tamminga was for a hotel site 22 which was on the Interstate Highway 35 frontage. 6511 1 Q. Okay. Regarding the Brown -- the site 2 that you referred to from Mr. Brown -- and you 3 said that that was the site previously to be 4 purchased by Deauville, what are you referring to? 5 A. The retail site that was part of the 6 subdivision. 7 Q. Okay. About how many acres is that? 8 A. I don't recall. 9 Q. It refers to "this could result in 10 revenue as high as $16,700,000." 11 With regard to the shopping center 12 site, how important was the development of the 13 shopping center site to the overall success of the 14 project? 15 A. It was very critical. 16 Q. Why? 17 A. Because it initiated the development on 18 the site which would generate traffic to the site 19 which would then make the adjoining sites more 20 attractive. 21 Q. And you described that there was an 22 earnest money contract. What is that? 6512 1 A. Contract entered into between a buyer 2 and a seller in which the purchaser puts up money 3 to secure the right to buy the property as 4 evidence of his earnest intent to close the 5 contract. 6 Q. Is it a firm, hard contract to do the 7 deal? 8 A. Typically has an inspection period or 9 an inspection or feasibility period in which the 10 prospective purchaser can analyze the property for 11 their needs. 12 Q. Let me ask it this way: If you have an 13 earnest money contract, is that an absolute 14 guarantee that the project -- that the deal is 15 going to go through and the property will be sold? 16 A. No. 17 Q. Why not? 18 A. Because the prospective purchaser 19 typically has an inspection period in which they 20 can terminate the contract for any reason. 21 Q. And that's at their option? 22 A. That's correct. 6513 1 Q. I notice that in your letters, you 2 either send them to or copy Mr. Gross. 3 Did you have an impression as to -- 4 this letter was directed to Mr. Graham. Did you 5 have a impression as to whether Mr. Graham had the 6 authority to agree to the terms that you were 7 proposing or that were coming from United? 8 A. I didn't think that David Graham had 9 unilateral right or authority to agree to the 10 terms, no. 11 Q. Who did you feel had that authority? 12 A. Probably Mr. Gross. 13 Q. I also note that you CC'd Mr. Hurwitz 14 on this letter. Why were you copying Mr. Hurwitz? 15 A. I wanted to make sure that everyone at 16 United understood what was going on. 17 Q. Why Mr. Hurwitz? Had you previously 18 met him? 19 A. Yes. 20 Q. You described that in your letter. 21 Also, it appears that this letter was written in 22 response to the previous exhibit we looked at, 6514 1 7711. That exhibit talked about the payment of 2 interest that was past due on the loan? 3 A. Yes. 4 Q. And you don't mention that in this 5 letter. 6 Why not? 7 A. Because I anticipated that a new loan 8 would bring them current on any interest that had 9 thus far been accrued but unpaid. 10 Q. You go on to say in this letter on the 11 third page in the third-to-the-last -- second 12 paragraph on that page, "David, we all know that 13 we've arrived at the current state of affairs in a 14 most unusual manner. We, as you, could not have 15 foreseen that our financial partner would become a 16 liability instead of an asset." 17 What did you mean by that? 18 A. Well, when we originally became 19 involved with the property, our only interest was 20 the sweat equity interest. We were only 21 interested in doing work in return for an 22 ownership in the property. We were never willing 6515 1 to take any meaningful or substantive financial 2 risk. And so, we always viewed Tom Gordon as our 3 financial partner. And so, when Tom had his 4 difficulties and we were brought into the role of 5 being the overall developer, we were not willing 6 to change that. We were not willing to take any 7 meaningful financial risk. And so, I was simply 8 stating that we would never have foreseen that our 9 financial partner would become a liability, the 10 financial partner being Tom Gordon. 11 Q. Okay. You say that "If either of us 12 had known this, you would not have made the loan 13 and we would not have gotten involved." 14 Why do you think United wouldn't have 15 made the loan? 16 A. Because they were looking to Tom Gordon 17 as the financial strength of the partnership. 18 Q. They were not looking to you or 19 Mr. Krasovec? 20 A. No. 21 Q. You go on to say that "Frank and I will 22 be in Houston to discuss this further on Thursday 6516 1 or Friday afternoon." 2 Did you go to Houston? 3 A. Yes, we did. 4 Q. And who did you meet with in Houston? 5 A. I don't recall. I'm assuming we met 6 with Jenard and David Graham. 7 Q. Do you recall whether you met with 8 Mr. Williams or Mr. Hurwitz at that meeting at 9 that time? 10 A. We would not have met with Mr. Hurwitz, 11 and we never had any substantive meetings with 12 Mr. Williams. 13 Q. Exhibit -- 14 THE COURT: Mr. Schwartz, did you move 15 in T7711? 16 MR. SCHWARTZ: I may not have, Your 17 Honor. 77 -- which one? 18 THE COURT: T7711. 19 MR. SCHWARTZ: I had thought that that 20 had been admitted at Tab 676. If I am in error -- 21 do you not have a record of it, Mr. Langdon? Your 22 Honor, we will move the admission of 6517 1 Exhibit T7711. 2 MR. DUEFFERT: No objections. 3 THE COURT: Received. 4 MR. SCHWARTZ: Thank you. Thank you, 5 Your Honor. 6 Q. (BY MR. SCHWARTZ) Exhibit 7739. 7 These were produced from your files by reference 8 to the KM Bates stamp at the bottom. 9 Do you recognize these notes? 10 MR. DUEFFERT: Your Honor, I'll object. 11 They were actually produced from the files of Mr. 12 Minch and Mr. Krasovec's lawyer. 13 Q. (BY MR. SCHWARTZ) With that in mind, 14 do you recognize these notes? 15 A. Yes. 16 Q. And what do you recognize them as? 17 A. I recognize them as notes that were in 18 our lawyer's records that were delivered to you. 19 Q. And the first line refers to -- it says 20 4-16-86, Frank Krasovec, Jeff Minch, and then J.M. 21 and I can't read the last initial. 22 Do you recognize that? 6518 1 A. Yes. 2 Q. As what? 3 A. JMH is John Harmon. 4 MR. SCHWARTZ: Your Honor, we move 5 admission of Exhibit T7739. 6 MR. DUEFFERT: We'll object, Your 7 Honor. They are not the notes of this witness. 8 He didn't create them, and he didn't adopt them at 9 the time they were made. 10 THE COURT: Who wrote these notes? 11 THE WITNESS: I'm assuming John Harmon, 12 did, Your Honor. 13 THE COURT: He's your lawyer? 14 THE WITNESS: Yes, sir. 15 MR. DUEFFERT: I don't think they are 16 reliable as evidence. I have no objection if 17 Mr. Schwartz asks questions about meetings; but as 18 evidence, they are the least reliable kind of 19 evidence. 20 MR. SCHWARTZ: Your Honor, if I may ask 21 the witness, Mr. Minch, a few additional questions 22 as to whether these notes accurately reflect his 6519 1 conversations with his attorneys, then that might 2 clear it up. 3 MR. DUEFFERT: For the same reasons, I 4 would object to him reading into the record 5 material from the notes. 6 THE COURT: Well, you can ask him some 7 more questions about these notes. 8 Q. (BY MR. SCHWARTZ) Did you meet with 9 your attorneys -- we just looked at Exhibit T7014, 10 which was your April 15th, 1986 letter to 11 Mr. Graham that you copied to Mr. Gross, 12 Mr. Williams, and Mr. Hurwitz. 13 Did you meet with your attorneys after 14 you sent that letter? 15 A. Yes. 16 Q. And what did you discuss with them? 17 A. We discussed the entire relationship 18 with United Savings. 19 Q. When you say "the entire relationship," 20 what are you referring to? 21 A. The negotiations to replace Gordon and 22 for us to take -- to, in effect, become the 6520 1 borrower. 2 Q. And when did those date back to? 3 A. I think in this entire time frame, from 4 February to May, I guess. 5 Q. Would you take a moment and look over 6 these -- this exhibit and see if this -- if these 7 notes accurately reflect your understanding of 8 your conversation with your attorney at that time? 9 MR. DUEFFERT: Your Honor, I'll object 10 to the question. The notes are basically 11 fragments of phrases, if you look through them. 12 And I think it's unfair to ask the witness if they 13 accurately reflect what he said. Again, I have no 14 objections if Mr. Schwartz asks questions about 15 meetings that took place. 16 Q. (BY MR. SCHWARTZ) Do you have any 17 reason to think that these notes are not accurate? 18 A. No. 19 MR. DUEFFERT: Same objection, Your 20 Honor. 21 MR. KEETON: Your Honor, I have an 22 objection that this is all hearsay. This was 6521 1 their counsel, their lawyer, as can be seen by the 2 internal records. They were thinking about a 3 lawsuit. Now they are going to get these notes in 4 this case? Wrong. I object to anything about the 5 meeting, much less the notes. 6 THE COURT: Have you looked at these 7 notes before? 8 THE WITNESS: I saw them for the first 9 time this morning, Your Honor. 10 Q. (BY MR. SCHWARTZ) Did you have a 11 right to review these notes from your attorney's 12 files at any time? 13 A. Yes. 14 MR. KEETON: Your Honor, what's said 15 when people -- 16 THE COURT: I'll sustain the objection. 17 MR. KEETON: Thank you, Your Honor. 18 MR. SCHWARTZ: I'm not sure I 19 understand what -- you said you have no objection 20 to my asking questions from the document? 21 MR. KEETON: I have an objection about 22 this document. I have objections to your asking 6522 1 questions about it. It does not relate to 2 negotiations back and forth between United. It's 3 what these people might have said to their lawyer 4 who's being brought in and he's writing skeletal 5 words here and there. And for this witness to 6 then reconstruct something out of there is not 7 only hearsay, but it's prejudicial. 8 THE COURT: All right. I'll sustain 9 the objection to the questions about the document. 10 Q. (BY MR. SCHWARTZ) I asked you before, 11 I believe, did you meet with your attorney shortly 12 before accepting the prior exhibit, 7014? 13 A. Yes. 14 Q. What did you discuss with them? You 15 said that you discussed the entire transaction up 16 to this point in time? 17 MR. KEETON: I object to anything he's 18 talking to his attorney about. 19 THE COURT: He can tell us about that. 20 Denied. 21 Q. (BY MR. SCHWARTZ) Is that correct? 22 A. What's the question again, please? 6523 1 Q. I'm paraphrasing what happened before 2 the objection occurred, and correct me if I'm 3 wrong. I believe you testified that you sent the 4 letter and then you met with your attorneys and 5 you discussed with your attorneys the entire 6 relationship of the parties up to that point in 7 time? 8 A. That's correct. 9 Q. Okay. Did you discuss with your 10 attorneys Mr. Gross' and Mr. Hurwitz' involvement 11 with United or their participation in any kind of 12 negotiations regarding the loan? 13 A. No. 14 MR. SCHWARTZ: I believe that I can 15 invite the witness to use anything to refresh his 16 recollection. 17 MR. KEETON: He's trying to impeach his 18 own witness now, Your Honor. 19 MR. SCHWARTZ: I'm trying to refresh 20 his recollection, Your Honor. 21 MR. KEETON: I object to this way of 22 proceeding, much less, he's going to use those 6524 1 notes. 2 THE COURT: Well, he can use them to 3 refresh his recollection. If that refreshes his 4 recollection, he may do so. 5 MR. KEETON: He's never seen these 6 notes before, Your Honor. 7 THE COURT: Well, then he can't tell us 8 whether it refreshes his recollection. 9 MR. DUEFFERT: I don't believe, 10 however, Your Honor -- I apologize. I don't 11 believe Mr. Schwartz is entitled to ask him 12 questions that entail eliciting reading portions 13 of the notes out loud. 14 THE COURT: Well, no. That's not what 15 he asked. He's going to show him this and ask him 16 if that refreshes his recollection. If it 17 doesn't, then we move along. 18 Q. (BY MR. SCHWARTZ) Could you take a 19 moment to look at those notes and, specifically, 20 to the middle of the first page. 21 Does that refresh your recollection 22 regarding whether or not you discussed Mr. Gross' 6525 1 or Mr. Hurwitz' involvement in negotiating any of 2 the terms of the loan? 3 A. Well, the way I understood your 4 question was whether or not we discussed 5 Mr. Hurwitz' or Mr. Gross' negotiations with us. 6 Mr. Gross was a participant in the negotiations. 7 And so, if there is a comment as to something 8 United said, it would be attributed to him. But 9 we did not discuss whether or not Jenard Gross and 10 Charles Hurwitz were involved with us in 11 negotiations. They were -- one of them was a 12 player as far as what was occurring, but we didn't 13 discuss them. We discussed the deal. 14 Q. Thank you. Exhibit 7706. First of 15 all, sir, this letter is unsigned. 16 Do you recognize this letter? 17 A. Yes. 18 Q. Is this letter something that 19 Mr. Krasovec would have written? 20 MR. DUEFFERT: Objection. Calls for 21 speculation. 22 MR. KEETON: And it's already been 6526 1 proven it comes out of the attorney's files. 2 MR. DUEFFERT: It's an unsigned letter 3 not by this witness. We're in the same territory. 4 THE COURT: Haven't we seen this letter 5 before? 6 MR. KEETON: That's right, and you kept 7 it out. 8 MR. SCHWARTZ: Your Honor, you kept it 9 out because Mr. Graham had never received it 10 because it was a letter -- 11 THE COURT: This witness didn't write 12 the letter. Right? 13 MR. SCHWARTZ: I don't know whether he 14 did or not. 15 THE COURT: All right. Well, ask him. 16 Q. (BY MR. SCHWARTZ) Did you write this? 17 A. No, I did not. 18 Q. Do you know whether Mr. Krasovec wrote 19 this letter? 20 A. No, I do not. 21 Q. Do you recall a meeting or discussion 22 with Mr. Hurwitz on the Friday before April 22nd, 6527 1 which I'll represent to you was the 18th of April? 2 MR. KEETON: I object, Your Honor. 3 That's asked and answered. He's already said he 4 met with Gross and Graham and never had any 5 substantive meetings at any time with Williams and 6 would not have met with Hurwitz. He's trying to 7 impeach his own witness again. 8 THE COURT: All right. Denied. You 9 may answer. 10 A. Well, yes. We had -- we exchanged 11 pleasantries. We did not have a negotiation with 12 them, and we did not have a meeting with them. We 13 shook hands and went on about our business. 14 MR. SCHWARTZ: Well, we're going to go 15 through this again. Exhibit 7740. 16 MR. DUEFFERT: Same objections, Your 17 Honor. 18 MR. SCHWARTZ: Based on your prior 19 ruling, Your Honor, I'll ask that I just be 20 permitted to use this document to refresh the 21 witness' recollection. 22 THE COURT: All right. 6528 1 Q. (BY MR. SCHWARTZ) Would you take a 2 moment to review these notes? And do you 3 recognize them as the notes of your attorney? 4 A. Well, I really don't because I don't 5 see his initials on it. On the other document, I 6 saw John Harmon's initials. It looks similar. 7 Q. On approximately May 26th of 1986, do 8 you recall having a discussion with your attorney 9 regarding the status of this matter? 10 A. Yes. 11 Q. The first third of the page refers to 12 an April 18th meeting with United which 13 corresponds on the previous exhibit, 7706, to the 14 last Friday. 15 MR. DUEFFERT: Your Honor, he's reading 16 out loud from these exhibits now and comparing one 17 with another. 18 MR. KEETON: More importantly, he's 19 interpreting them. There is an Item 1, one line, 20 that says something about April 18th. Now he's 21 going to say the whole third of the page is it. 22 The witness may think he needs to follow this 6529 1 lawyer's advice. He doesn't. 2 THE COURT: I thought you were going to 3 ask him whether this refreshes his recollection. 4 MR. SCHWARTZ: That's what -- that's 5 exactly what I was just getting to, as to whether 6 or not this refreshes his recollection concerning 7 a meeting or any kind of agreement that he reached 8 that involved Mr. Hurwitz based on Exhibit 7706. 9 MR. DUEFFERT: Your Honor, it's one 10 thing to ask him if he remembers something; but to 11 read from the document and ask him if he agrees is 12 what we're objecting to. 13 THE COURT: Well, let's have the 14 witness read it and then you may ask him the 15 question. 16 MR. KEETON: May I ask him two short 17 questions on voir dire? The witness. 18 THE COURT: No. Let's let Mr. Schwartz 19 ask his questions. 20 MR. KEETON: Just want to know if he's 21 seen it. 22 A. So, what's the question? 6530 1 Q. (BY MR. SCHWARTZ) The question is: 2 Does reviewing the first third of the first page 3 of Exhibit 7740 refresh your recollection about 4 what kinds of things were discussed with 5 Mr. Hurwitz that are referred to in Exhibit 7706 6 in the second sentence that Mr. Krasovec writes 7 "We look forward to closing the deal we agreed to 8 verbally"? 9 MR. DUEFFERT: Your Honor -- 10 MR. KEETON: Your Honor, I object to 11 all of that. He's already testified what his 12 contacts, limited as they were, with Mr. Hurwitz. 13 He's trying to put words in the witness' mouth out 14 of notes the witness didn't write or see. And 15 he's also mischaracterized the letter. 16 THE COURT: Does it refresh your 17 recollection about the question? 18 THE WITNESS: Well, we didn't have 19 substantive conversations with Mr. Hurwitz. 20 Q. (BY MR. SCHWARTZ) Okay. Do you 21 recall discussions with Mr. Gross, Mr. Williams, 22 Mr. Graham, or any other people at United 6531 1 regarding a percentage of ownership of the Norwood 2 project? 3 A. Yes. Mr. Williams was not involved in 4 any of those discussions. 5 Q. Who was involved in those discussions? 6 A. Mr. Gross and Mr. Graham. 7 Q. Okay. And what was agreed to? 8 A. I believe we agreed to a 62 and a half 9 percent split for them and a 37 and a half percent 10 for us. 11 MR. SCHWARTZ: Exhibit 7720. Your 12 Honor, we only have two copies of this document. 13 If I may, Counsel, do you have any objection to my 14 providing this to the witness? 15 MR. DUEFFERT: Mr. Schwartz, could we 16 replace it with a copy of -- 17 Q. (BY MR. SCHWARTZ) Do you recognize 18 that document, Exhibit 7720? 19 A. Yes. 20 Q. What is that? 21 A. It's a bill from Graves, Dougherty to 22 Deauville Austin Joint Venture I. 6532 1 Q. Did you receive that? 2 A. Yes. 3 MR. SCHWARTZ: Your Honor, I move 4 admission of Exhibit 7720. 5 MR. KEETON: I object, Your Honor. 6 It's hearsay. The law firm maybe can testify. 7 It's got a lot of narrative in here. Some of it 8 clearly telescope. That doesn't necessarily mean 9 anything unless you've got the person that 10 prepared it in here. The fact he got a bill is 11 fine. It has nothing to do with this case. 12 THE COURT: It's his own business 13 records. I'll receive it. 14 MR. KEETON: Your Honor, it's not his 15 own business record. It's the law firm's business 16 record and he -- 17 THE COURT: He received it. His firm 18 received it. It's a part of the firm's records 19 that received it. 20 MR. KEETON: This is not something, 21 though, that falls under the -- 22 THE COURT: All right. I've ruled. 6533 1 Let's move on. 2 Q. (BY MR. SCHWARTZ) Because I don't 3 have my copy, if I may approach the witness. 4 THE COURT: Yes. 5 MR. SCHWARTZ: Thank you. 6 Q. (BY MR. SCHWARTZ) Would you review 7 the reference to the entry on May 26th, 1986? I 8 believe it's the second-to-the-last page of the 9 document. There is a reference there to United 10 changing the deal. 11 What was that referring to? 12 A. The difference in the equity split that 13 they had originally proposed as a 70/30 split. In 14 the final analysis, it ended up being 62 and a 15 half, 37 and a half. 16 Q. What was your reaction to that change 17 in the equity split? 18 A. I had a negative reaction. 19 Q. Why? 20 A. Because our interest went down. 21 Q. Would you take a look at Exhibit 7707? 22 THE COURT: All right. I'm going to 6534 1 receive T7720, if I haven't already. 2 MR. SCHWARTZ: Exhibit 7707, I don't 3 have the tab number. 682. 4 Q. (BY MR. SCHWARTZ) Do you recognize 5 this letter? 6 A. Yes, I do. 7 Q. This is a May 8th, 1986 letter from 8 United Savings to a Mr. Haegelin. 9 Who is Mr. Haegelin? 10 A. He was the utility contractor who was 11 to put in the sewer main that was off the site. 12 Q. At the time this letter was sent, had 13 United's senior loan committee met and approved 14 funding actual development of this project? 15 A. I don't believe they had. 16 Q. 7017, Tab 683. 7017. Did you receive 17 this letter? 18 A. Yes, I did. 19 Q. What meaning did you place on 20 Mr. Graham's reference in the second paragraph in 21 the second sentence to "He needs to try and arrive 22 at an R-41B value of $47 million plus if at all 6535 1 possible"? 2 A. That's what David Graham wanted to have 3 happen. 4 Q. And at the bottom of the letter, the 5 second-to-the-last paragraph, it refers to a 6 feasibility study requirement. 7 Did you obtain a feasibility study? 8 A. Yes. 9 Q. Prior to getting this letter, did you 10 have a feasibility study done? 11 A. No. 12 Q. Just -- I'm just curious about 13 something. Mr. Bolin was located where? 14 A. Houston. 15 Q. And you were located where? 16 A. Austin. 17 Q. Mr. Graham was located where? 18 A. Houston. 19 Q. Do you know why Mr. Graham would have 20 you go from Austin to Houston to deliver material 21 to Mr. Bolin, who was local to him? 22 A. He wanted to make sure that it was the 6536 1 then current and accurate information on the 2 project. 3 Q. Would you turn to Exhibit 7138, 4 admitted at Tab 690? Going back to that prior 5 exhibit, the Exhibit 7017, you said that 6 Mr. Graham wanted Mr. Bolin to receive accurate 7 information. That information would have been 8 coming from you -- 9 A. Yes. 10 Q. -- as the borrower; is that correct? 11 A. Yes. 12 Q. The next exhibit, 7138, is this the 13 feasibility study that you conducted in response 14 to Mr. Graham's letter? 15 A. It's the one that I ordered, yes. 16 Q. The one that you ordered? Okay. That 17 is the only question that I have about that 18 document. 19 Going back again to that Exhibit 7017, 20 that letter to you from Mr. Graham, what was the 21 information that he asked you to deliver to 22 Mr. Graham -- I mean to Mr. Bolin? 6537 1 A. What would be the current subdivision 2 that would show accurately the amount of buildable 3 area that could be built on each lot. 4 Q. Were you asked to provide any 5 additional information regarding your assessment 6 of the value of the property? 7 A. Yes. Actually, I think that that 8 request came from Mr. Bolin, not from David 9 Graham. 10 Q. And if you had any of the properties -- 11 if you had any contracts on any of the properties 12 or options, would you have provided that 13 information, as well? 14 A. Yes. 15 Q. Okay. 7710. 16 MR. SCHWARTZ: Mr. Langdon, we have an 17 additional copy. I have a reference in my notes 18 that this was admitted at Tab 684 if that has 19 any -- okay. 20 Q. (BY MR. SCHWARTZ) Did you receive 21 this letter? 22 A. Yes. 6538 1 MR. SCHWARTZ: Your Honor, we move the 2 admission, if it hasn't already been admitted, of 3 Exhibit T7710. 4 MR. DUEFFERT: No objections. 5 THE COURT: Received. 6 Q. (BY MR. SCHWARTZ) What was the 7 purpose of this letter? 8 A. It was to provide a loan with 9 sufficient funding to obtain the final approvals. 10 Q. Okay. This letter is dated May 22nd, 11 1986. And we discussed earlier that there was an 12 interest payment due on March 30th, 1986. 13 Do you recall that discussion? 14 A. Yes. 15 Q. Had the April payment been made? 16 A. I don't believe so. 17 Q. There is a reference in the loan fee 18 amount towards the end of that paragraph, 19 "Additionally, United has already deferred 20 $105,000 in fees on the last renewal." 21 Do you know what that's referring to? 22 A. I believe there was a fee to be paid in 6539 1 April that -- April 1st, I believe, of 105,000 2 that had not been collected. 3 Q. Why? 4 A. I'm not sure. 5 Q. Was there enough money on the loan to 6 pay it? 7 A. I don't believe there was. 8 Q. Did you pay it? 9 A. No. 10 Q. If you turn to the second page, there 11 is a reference, "conditions necessary to fund the 12 loan." And there is a reference there to, in the 13 first paragraph, underlined, "Applicant shall have 14 made the May 1, 1986 interest payment of 15 $187,000 -- $187,946.09 and the June 1, 1986 16 interest payment in approximately the same amount 17 when it comes due." 18 First of all, who was the applicant? 19 A. We were. 20 Q. And did you make those payments? 21 A. No. 22 Q. That's the May payment or the June 6540 1 payment? 2 A. We ultimately made them from the 3 proceeds of the loan, but they were not made at 4 this time. 5 Q. Down in Paragraph 4, there is a 6 reference again to the contract with Vernon Brown. 7 Do you see that? 8 A. Yes. 9 Q. Okay. You described it as an earnest 10 money contract that Mr. Brown could get out of, if 11 you will, if he wanted to. 12 A. He could terminate the contract. 13 Q. Terminate the contract. Thank you. 14 Did that contract ever close? 15 A. No. 16 Q. And with regard to the other contract 17 for the hotel site you described, Mr. Robert 18 Tamminga, an earnest money contract, was there an 19 earnest money contract with Mr. Tamminga? 20 A. Yes. 21 Q. Did that close? 22 A. No. 6541 1 Q. If you turn to Page 6 of this letter, 2 there is reference in the first paragraph of 3 conditions to close. I guess probably I should 4 describe this letter in a little bit more detail. 5 This letter appears to be set up in sections. 6 Section 1 starts on the first page, Section 2 on 7 the third page, and Section 3 on the fifth page. 8 Why is that? 9 A. I'm not sure. 10 Q. Were you discussing three separate 11 options of working out the arrangements on 12 Norwood, working out financing? 13 A. Well, we were discussing a number of 14 different options. I'm not sure that it was three 15 or what number it was. 16 Q. Okay. If you take a moment to look at 17 this exhibit, does this describe what you recall 18 as three of the options that you were discussing 19 on financing for Norwood? 20 A. Well, this proposal was really for an 21 interim step. 22 Q. Okay. 6542 1 A. And this was only sufficient funds to 2 enable us to obtain the approvals, and that was 3 not something that we were interested in doing. 4 We wanted a loan to be able to obtain the 5 approvals, build the approvals, and hold the 6 property to market. 7 Q. If you turn to the sixth page, again, 8 there is a reference to the payment of those 9 interest payments. And we refer back to the 10 letter from Mr. Graham in which he says -- this is 11 Exhibit 7711 -- "a savings and loan cannot legally 12 extend, renew, or restructure a delinquent loan. 13 So, unless the loan is brought current, our 14 alternatives are limited." 15 Was it your understanding that that was 16 the case? 17 A. Well, I understood that's what David 18 Graham had said, yes. 19 Q. Okay. Shortly after this letter -- 20 this is May 22nd -- did you make a presentation to 21 USAT and the senior loan committee? 22 A. It was to a loan committee. I don't 6543 1 know that it was a senior loan committee. 2 Q. Who was present there? 3 A. As I recall, Jenard Gross. I can't 4 remember if David was there. I seem to think he 5 was not there. A fellow named Childress, I think 6 it was, Gem Childress, and four or five other 7 folks that -- whose names I just don't recall. 8 Q. Was Mr. Crow there? 9 A. I don't think I've ever met Mr. Crow. 10 Q. Okay. Mr. Berner? 11 A. I know Mr. Berner. I just can't recall 12 whether or not he was there. 13 Q. First of all, what was the purpose of 14 the presentation? 15 A. Well, shortly before that, United 16 Savings in the person of David Graham had called 17 us up and said that they didn't want to do the 18 deal and go forward. And so, I had said "We'll 19 come down and give you a presentation of the 20 property." And so, they said, "Come on down." 21 That was the purpose of it, to -- 22 Q. Why -- going back, this is before 6544 1 May 22nd, I assume. What did Mr. Graham tell you 2 was the reason they didn't want to do the deal? 3 MR. DUEFFERT: Your Honor, I'll object. 4 He just characterized the timing issue, and I 5 don't think he's given the witness a chance to 6 answer whether or not he's right, like he asked 7 the question about the timing of the Graham 8 communication. 9 Q. (BY MR. SCHWARTZ) I believe that you 10 had testified that before this letter, Mr. Graham 11 had called and you said that they didn't -- 12 THE COURT: Which letter are we 13 referring to now? 14 MR. SCHWARTZ: This 5-22-86 -- 15 May 22nd, 1986 letter, Exhibit 7710. 16 THE COURT: All right. 17 Q. (BY MR. SCHWARTZ) I believe that you 18 testified -- correct me if I'm wrong -- that prior 19 to receiving this letter, Mr. Graham had called 20 you and told you that United did not want to do 21 the deal? 22 A. Yes, that's correct. That's what I 6545 1 said. 2 Q. Okay. 3 A. You know, the only thing I can say to 4 you is that these events occurred over 10 years 5 ago and this is a pretty fine distinction as to 6 whether or not it was before or after the 22nd. I 7 have in my mind a clear recollection of what 8 occurred first and what occurred second. But 9 whether that revolves around the 22nd of May or 10 the 26th is a little bit too fine of a distinction 11 for me to draw, truthfully. 12 Q. Okay. What do you recall Mr. Graham 13 telling you was the reason United was not 14 interested in going forward? 15 A. Well, I'm not sure he gave a reason. 16 Q. What did he tell you? 17 A. We had a very difficult conversation. 18 I think my relationship with David had 19 deteriorated a bit and that I felt as though he 20 had, on several occasions, misled me. He 21 initiated the conversation by saying that he'd 22 rather eat worms than have this conversation, and 6546 1 he told me that they didn't want to go forward. 2 And I don't know that we had a heated 3 conversation. We had a very candid exchange, and 4 it was left unresolved. 5 And subsequent to that, the resolution 6 of it was that we were to come down to Houston and 7 make a presentation on the project to their loan 8 committee. 9 Q. Okay. At this point in time, you were 10 still 100 percent guaranteeing the outstanding 11 debt of $21 million? 12 A. That's correct. 13 Q. Plus whatever the additional funds were 14 that were described in that previous letter? 15 A. That's correct. 16 Q. Okay. What happened when you went to 17 USAT and made that presentation? 18 A. Well, we sat down with them. We went 19 through probably a 45-minute presentation of the 20 property. We had a lot of props. They had 21 visited and then Jenard Gross came out and told us 22 that the loan committee had not approved the deal. 6547 1 Q. What was your reaction or your and 2 Mr. Krasovec's reaction? 3 A. Well, Frank took issue with them on -- 4 Q. What did he say? 5 A. It was kind of a colorful phrase. He 6 said, "Shit, Jenard. You are the fucking loan 7 committee." 8 Q. And what did you understand that to 9 mean? 10 A. That Jenard Gross was the loan 11 committee, had the authority to approve it. 12 Q. During your negotiations when 13 Mr. Graham -- with Mr. Graham and Mr. Gross and 14 those that were with Mr. Williams, did you have an 15 understanding or an impression of who the real 16 decision makers were? 17 A. We never had any negotiations with 18 Mr. Williams. 19 Q. Okay. 20 A. Yes. My impression was that 21 Jenard Gross was calling the shots. 22 Q. What happened after that exchange? 6548 1 A. Well, we -- everybody agreed to sleep 2 on it and then they were going to get back to us. 3 And then they made a proposal that was acceptable 4 to us and we went forward and did the deal. 5 Q. Was it substantially the same terms 6 that you had previously agreed to? 7 MR. DUEFFERT: Objection. Vague and 8 ambiguous. I don't know what terms he's talking 9 about. We've talked about numerous terms in the 10 course of the morning. 11 THE COURT: All right. Sustained. 12 Q. (BY MR. SCHWARTZ) Okay. Were they 13 substantially the same as the terms that you had 14 presented to the senior loan committee at that 15 presentation? 16 A. Well, we really didn't present any 17 terms. 18 Q. Okay. 19 A. The purpose of the presentation was to 20 make sure that they understood the real estate 21 aspects of the project. There was really no 22 presentation as related to financial terms. We 6549 1 had previously told them on what basis we would 2 desire to do it, and the final resolution was very 3 close to that proposal. 4 Q. And what were those -- what were those 5 terms that were -- that you would desire to do it? 6 A. Well, I think the most important thing 7 underlying was that we were not to contribute any 8 capital to the venture, that we were attempting to 9 manage our risk to zero. Now, we didn't say to 10 them, "By the way, we want to manage our risk to 11 zero." But we wanted to have the financial terms 12 be such that, in our analysis, there was no 13 probability that we would be financially exposed. 14 And we wanted 100 percent of the dollars and we 15 wanted a clear point of contact. We wanted 16 someone in authority with whom to deal. 17 Q. At this point in time, what was the 18 value -- the approximate value, to your knowledge, 19 of the vacant land? 20 A. Well, at this point in time because we 21 had begun to obtain the approvals, our focus would 22 not have been on vacant land value. It would have 6550 1 been on the subdivided value less the cost to 2 build the improvements. So, in our opinion, it 3 was worth somewhere between 40 and $60 million. 4 Q. And at this point in time, if the deal 5 had not gone through and United had foreclosed, 6 what was -- would there have been any deficiency 7 left over for you to pay? 8 A. No. 9 MR. SCHWARTZ: Would this be a good 10 time to take a lunch break? 11 THE COURT: Well, are you through with 12 the witness, or how much more do you have? 13 MR. SCHWARTZ: No. I do have a bit 14 more. We can proceed, if you'd like. 15 THE COURT: All right. Why don't you 16 continue? 17 MR. SCHWARTZ: Okay. Exhibit 7018. 18 Tab 685, I think. And if -- I believe that there 19 was some confusion about Exhibit 7710. 20 MR. LANGDON: It's in. 21 MR. SCHWARTZ: Okay. Thank you. 22 Q. (BY MR. SCHWARTZ) Do you recognize 6551 1 this document? 2 A. Yes, I do. 3 Q. What was the purpose of this letter? 4 A. United wanted to insert a provision 5 that if we had not sold $10 million of land within 6 18 months, that they could replace us, that they 7 could remove us. 8 Q. Okay. And what would the effect of 9 that be? 10 A. To release us from all liability. 11 Q. And their reasoning? 12 A. We had failed to perform, they wanted 13 to go in a different direction. 14 Q. He refers to 18 months in the second 15 sentence of the letter, but three years in the 16 fourth sentence. "We also felt that being locked 17 into a situation where there could be no sales or 18 no performance for three years was something that 19 was unacceptable." 20 What was that referring to? 21 A. I really don't recall. 22 Q. Was the term of the loan going to be 6552 1 three years? 2 A. No. It was longer than that, I 3 believe. 4 Q. Okay. With regard to the loan that up 5 to this point you had negotiated, had you -- were 6 you able to accomplish your interests that you 7 described earlier, the no liability on your part? 8 A. Well -- 9 Q. I think you phrased it as reducing your 10 risk to zero. 11 A. In our opinion, we had managed our risk 12 to where we thought that it was zero. The 13 documents clearly indicated that we had risk. But 14 we felt as though the value of the property, with 15 $9.4 million in equity in front of the debt, had 16 managed our risk to zero. 17 Q. Explain that. What do you mean, the 18 $9.4 million -- 19 A. Well, the final transaction entailed, 20 as I recall, total funding of approximately 21 $39 million of which $9.4 million was equity and 22 $30 million was debt. 6553 1 Q. And who supplied the equity? 2 A. United Financial Corporation. 3 Q. Okay. 4 A. So, in creating a deficiency, if there 5 were foreclosure on the property -- this was a 6 property we thought was worth 40 to $60 million -- 7 that you would sell the property, take those 8 proceeds, and apply it against the debt. And we 9 would only be exposed on any deficiency on the 10 debt. And so, we felt with $9.4 million of equity 11 in front of us that we had, in effect, managed our 12 risk to zero. 13 When the loan closed, we had about 14 $13 million of funds drawn against the 30 million. 15 So, we thought we had an asset that was worth 40 16 to $60 million that was going to cost $3 million, 17 $3 and a half million to get it to that value, of 18 which we had $13 million of exposure. So, we felt 19 like we had four or three to one coverage on our 20 risk. 21 Q. You say $13 million of exposure. What 22 do you mean? 6554 1 A. First funding on the first 2 30-million-dollar loan was approximately 3 $13 million, as I recall. 4 Q. Okay. So, the land was worth more than 5 $13 million plus the 9.4. Is that what you're 6 saying? 7 A. Well, the land was worth more than 8 13 million, but the 9.4 was equity. And so, we 9 were not exposed on the 9.4. We had no liability 10 at all on the $9.4 million. 11 Q. Okay. Exhibit 7019, Tab 686. Okay. 12 Now, what was the purpose of this letter? 13 A. Well, I believe this was the final 14 resolution of the negotiations between us and 15 United. 16 Q. In the prior loan proposals that United 17 had sent you that we looked at earlier -- the one 18 for 34 million, I believe, and the one for 37 and 19 a half million which are at exhibits -- give me 20 just a moment. 21 Do you recall whether United had a 22 requirement during the negotiations -- during your 6555 1 back and forth negotiations that you had with them 2 that in order for the full development loan 3 funding to go through, contracts for Mr. Brown to 4 build the shopping center and Mr. Tamminga to 5 build the hotel had to be firm and final 6 contracts? 7 A. They did not. 8 Q. Okay. If you turn to the third page of 9 this letter, at the top there is a reference to 10 initial funding of about -- of $15 million after 11 the applicant advancing its $9.4 million in equity 12 simultaneously. It says "the applicant." 13 Who was the applicant? 14 A. The applicant would have been our joint 15 venture between our company and United Financial 16 Corporation. 17 Q. And who was supplying the $9.4 million? 18 A. United Financial Corporation. 19 Q. What was United Financial Corporation? 20 A. Well, I'm assuming that they were part 21 of United. 22 Q. The letter goes on to say "The majority 6556 1 of these funds will be used to repay United's 2 existing debt balances." 3 Do you know whether that was to include 4 the past due interest? 5 A. Yes, it was. 6 Q. "Origination fees, accrued developers' 7 cost fees, and engineering work." 8 What were all of those costs associated 9 with? 10 A. Those were expenses that we had 11 incurred, the venture had incurred, in order to 12 continue obtaining the approvals during the period 13 of time that we were negotiating the loan. 14 Q. Okay. Exhibit 7701. Do you recognize 15 this document? 16 A. Yes. 17 Q. What is it? 18 A. It was an appraisal performed on the 19 property by Appraisal Associates of Austin. 20 Q. What's Appraisal Associates of Austin? 21 A. It's a local appraisal firm in Austin. 22 Q. Have you worked with them in the past 6557 1 prior to this? 2 A. Yes. 3 Q. It's signed by Jim Fredrick and William 4 S. Gordon. 5 Is that who you retained to perform the 6 appraisal? 7 A. Yes. 8 Q. And up on the top, it says in 9 handwriting "GDH&M copied." 10 Do you see that? 11 A. Yes. 12 Q. Do you recognize the handwriting? 13 A. No. 14 Q. Do you recognize the handwriting "to 15 GDH&M"? 16 A. Yes. It's the law firm Graves, 17 Dougherty. 18 Q. Okay. 19 MR. SCHWARTZ: Your Honor, we move the 20 admission of Exhibit T7701. 21 MR. DUEFFERT: No objections. 22 THE COURT: Received. 6558 1 Q. (BY MR. SCHWARTZ) If you turn, 2 please, to Page 15 of the appraisal or Bates stamp 3 KM000086, the third paragraph down, it says "It is 4 worth noting that the residential neighborhoods in 5 the area are of medium to poor quality and that 6 the crime rate in one located to the east of 7 IH-35, between US 183 and US 290, is substantial." 8 Was that a concern to you in developing 9 the project? 10 A. No. 11 Q. Why? 12 A. Because residential areas that are in 13 close proximity to commercial areas would 14 typically not be attractive residential areas. 15 And the property was of sufficient size that it 16 would -- because it was located in an area of high 17 traffic -- it was of sufficient size that we could 18 secure the property independent of the local area. 19 Q. And further down on that page, towards 20 the bottom of the page is a reference just above 21 "conclusion." The last sentence, "The prospects 22 for absorption appear to be good over the medium 6559 1 to long term." 2 What did you understand the medium to 3 long term to mean? 4 A. 5 to 15 years. 5 Q. If you turn two more pages in, there is 6 a plat map. Perhaps I should have used this 7 exhibit earlier when we were describing the layout 8 of the property. But could you show us where 9 that -- that 5-acre tract is? 10 A. Yes. If you look at the map in the 11 lower left-hand corner, Lot 4, 4.4617 acres, if 12 you look at the right side, you can see that there 13 is a property line that goes right down the middle 14 of Teeple Drive. That was the "before size" of 15 the National Western Life Insurance tract. And 16 then the road goes through the corner of it, which 17 becomes public right-of-ways. And the balance, 18 Lot 4 of 4.4617 acres, is what remains. 19 Q. And we talked also about there was 20 another tract, State of Texas, I believe, the 21 Highway Department tract. 22 Where is that tract? 6560 1 A. If you look at the north side of Lot 4, 2 if you continue that line to the left through the 3 table that sits just to the left of it, all the 4 way out to Interstate Highway 35 right-of-way, 5 that rectangle is the State Highway Department 6 tract. 7 Q. And was that tract ever acquired? 8 A. No. 9 Q. Exhibit 75 -- 10 THE COURT: We'll take a recess until 11 1:30. 12 (Luncheon recess taken at 12:04 p.m.) 13 14 THE COURT: Be seated, please. We'll 15 be back on the record. Mr. Schwartz, you may 16 continue. 17 MR. SCHWARTZ: Thank you. 18 (1:34 p.m.) 19 Q. (BY MR. SCHWARTZ) Looking as we were 20 at Exhibit 7701 which is the Appraisal Associates 21 of Austin appraisal, first of all, what is 22 Appraisal Associates of Austin? 6561 1 A. It's an appraisal company in Austin. 2 Q. And why did you go to them? 3 A. They were a local firm, and I knew 4 them. Jim Fredrick had done a lot of work for me 5 in the past. 6 Q. Why did you contact them in the first 7 place? 8 A. Because they had -- because there was a 9 necessity to have an appraisal on the property. 10 Q. I'm sorry. There was a -- 11 A. There was a requirement to have an 12 appraisal on the property. 13 Q. A requirement from whom? 14 A. United Savings. 15 Q. Okay. And so, you contacted Appraisal 16 Associates of Austin and what did you ask them to 17 do? 18 A. I asked them to appraise the property. 19 Q. And what information did you provide 20 them? 21 A. Provided them with all the subdivision 22 information and all the approvals. 6562 1 Q. Approximately when would you have 2 contacted them? 3 A. I don't recall, but obviously sometime 4 shortly before they completed the appraisal. 5 Q. Okay. Well, let me point your 6 attention to the first paragraph of the second 7 page, the cover letter to the document. And it 8 says "At your request, we have investigated the 9 above-referenced properties for the purpose of 10 estimating the market values of the fee simple 11 titles to the 99.43 and 24.858 acres -- acre 12 tracts of raw land, the assemblage of those tracts 13 at each lot of the proposed subdivision as if it 14 were completed according to the plans and 15 specifications all as of April 1st, 1986." 16 Does the April 1st, 1986 date have any 17 significance as to when you would have contacted 18 them? Would it have been around April of '86? 19 A. Probably would have been before 20 April 1st. 21 Q. Okay. With regard -- the immediately 22 preceding phrase is "as if it were completed 6563 1 according to the plans and specifications." 2 What does that mean? 3 A. As if the subdivision had been built in 4 accordance with the plans and specifications which 5 were approved by the City of Austin. 6 Q. So, the roads were in and the sewage, 7 water and sewer was, in the electricity was in? 8 A. That's correct. 9 Q. And did Mr. Fredrick reach an amount 10 that he felt this land was worth? 11 A. Yes. The appraisal was actually done 12 by Bill Gordon. 13 Q. Okay. Now, if you turn to the next 14 page, which is the third page into the document, 15 it's divided into two sort of sections. One 16 identifying the 99.43-acre tract, one for the 17 24.858, and then one for 124.288 acres, and then 18 the bottom half is individual lots. 19 What's the top part, the 99.43, 24.858, 20 and 124.288, what is that describing? 21 A. Well, the 99.43 is all the property, 22 Lots 1 through 7, including the National Western 6564 1 Life Insurance site. The 24.858 acres is the 2 Highway Department site. And the two of them 3 together is the 124.288-acre tract. 4 Q. Okay. And he came up with a dollar 5 figure of $24,900,000 for that 99.43-acre tract. 6 Is that the as-is value of the property 7 undeveloped? 8 A. Yes. That's the raw land value. 9 Q. All right. Now, the section below is 10 the Lots 1 through 7 and then he comes up with a 11 dollar figure of $37,500,000 as the total 12 valuation for that -- for those seven lots; is 13 that correct? 14 A. Yes. 15 Q. You said that you had contacted 16 Appraisal Associates of Austin probably before 17 April of 1986. 18 During the time subsequent to that 19 contact, communications with them providing them 20 information, whatnot? 21 A. Yes. 22 Q. Did they give information back to you 6565 1 about what their findings were during the course 2 of that time? 3 A. Not until the final report was 4 finished. 5 Q. None whatsoever? They didn't give you 6 any kind of a telephone call saying "This is 7 approximately what we're finding"? 8 A. No. 9 Q. During the course of preparing for the 10 underwriting with United, did United ever ask you 11 for copies of any appraisals that you had done on 12 the property? 13 A. No. 14 Q. You said that Mister -- that -- well, 15 I'm assuming it was Mr. Graham. Correct me if I'm 16 wrong. That somebody from United had contacted 17 you and told you that they needed an appraisal on 18 the property? 19 A. Yes. 20 Q. Was that Mr. Graham? 21 A. Yes, it was. 22 Q. And you subsequently went out to 6566 1 Appraisal Associates of Austin and requested that 2 they perform an appraisal. 3 Who paid for the appraisal? 4 A. The venture did. 5 Q. This was from the funds that were 6 provided by United? 7 A. Yes. 8 Q. If United had requested a copy of this 9 appraisal, would you have provided it to them? 10 A. Yes. 11 Q. 7513. Do you recognize this document? 12 A. Yes. 13 Q. And what is it? 14 A. Well, the first page is a letter -- is 15 the front page of a letter that I sent to Rex 16 Bolin on the 20th of May. And this entire package 17 is part of what was attached to his appraisal of 18 the property. 19 Q. And in this document or this letter, 20 you refer to, on the bottom of the first page, 21 "The above numbers represent our notions in regard 22 to current value per square foot of buildable area 6567 1 fully-approved subdivisions in Austin." 2 Do you see that? 3 A. Yes. 4 Q. Okay. In the chart that's in the 5 middle of this page, you have a column labeled 6 "remarks." And then under the first one, you've 7 got a Lot No. 1, retail 425,000 square feet, a 8 total value of $12,019,000. And then it says 9 "Remarks: Under contract." And then the second 10 item for Lot No. 1 is "Restaurants, two each, 11 includes above in Line 1." 12 Do you see that? 13 A. Yes. 14 Q. First of all, what does "under 15 contract" mean? 16 A. There was an existing contract to 17 purchase that property with Vernon Brown. 18 Q. I'm sorry? 19 A. The Vernon Brown contract. 20 Q. Okay. And was that for that amount, 21 the $12,019,000? 22 A. I believe it was. 6568 1 Q. Okay. And further down on that chart, 2 you've got for Tract 13, Lot 6, retail. And there 3 is a total value listed of $4,928,000 "under 4 option." 5 What does "under option" mean? 6 A. As part of the Vernon Brown contract, 7 he had an option to acquire the balance of the 8 retail sites on the property. 9 Q. And so, was this the actual amount of 10 the option? 11 A. I believe it was, yes. 12 Q. And the next item, No. 14, is Lot 7, 13 the suite hotel. And the price -- total value is 14 3,360,000 in that column. And then under 15 "remarks," it says "under contract." 16 Does that have the same meaning that 17 "under contract" had with regard to Lot 1? 18 A. Well, this would have been in a 19 contract to Robert Tamminga -- 20 Q. Okay. 21 A. -- as opposed to Vernon Brown. 22 Q. And this was the actual amount of that 6569 1 contract? 2 A. I believe this was only the cash 3 portion of the contract. There was to be cash and 4 a note, and I think this was just the cash 5 portion. 6 Q. Okay. You listed here as the total 7 value $3,360,000. Why did you list that as the 8 value of the property as your notion if it was 9 representative of cash and a note? 10 A. Because it was really a cash analysis. 11 Q. What does that mean? 12 A. In other words, I was looking at the 13 cash that we could generate from it as opposed to 14 cash and a note. 15 Q. I'm not sure I understand. 16 A. Well, I think that the 21,000 per room 17 was the cash portion of the consideration to be 18 paid by Tamminga, and I was focusing purely upon 19 the cash to be generated from the property. 20 Q. Okay. So, the cash value of what the 21 property was worth under the contract that existed 22 was $3,360,000? 6570 1 A. I believe that's correct. 2 Q. Okay. The next page appears to be some 3 kind of a construction estimate. 4 Do you see those? 5 A. Yes. 6 Q. What was the source of those numbers? 7 A. Well, I think this was an estimate that 8 was prepared by a contractor for the improvements 9 as planned on the site. 10 Q. And so, when you say "the improvements 11 as planned," there are categories here -- civil 12 construction, underground utilities, water and 13 fire, stormwater drainage. 14 Is this the cost estimate of putting in 15 all these services? 16 A. Yes. 17 Q. And in the three pages beyond that, 18 there is a total project construction cost of 19 about $4 and a half million. 20 Do you see that? 21 A. Yes. 22 Q. Okay. Now, what would this pay for in 6571 1 the whole project? 2 A. This would pay for all the on-site and 3 off-site improvements that were required to be 4 built in two years under the subdivision from the 5 City of Austin. 6 Q. So, this was, from top to bottom, 7 everything completed as far as the project 8 development costs go; is that correct? 9 A. Yes. This was an estimate. 10 Q. 7029. Would you turn in that exhibit 11 to Page 49, which I believe is Bates No. CMO59472? 12 A. The stamps are illegible at the bottom. 13 Q. Page 49. 14 A. Okay. 15 Q. All right. There is a chart on that 16 page. Do you see that? 17 A. Yes. 18 Q. Okay. Do you know what this chart 19 represents? 20 A. This was Rex Bolin's estimate of what 21 the individual lots were worth. 22 Q. Okay. Now, in your letter to him of 6572 1 May 20th, Exhibit 7513, you provided him with the 2 actual contract valuations on Lots 1, 6, and 7, 3 option and contract on 6. 4 Mr. Bolin, however, lists the value of 5 Lot 1 as 16 million 625 when the contract value is 6 12,019,000. 7 Do you know why he increased the value 8 $4 million for a lot that was under contract? 9 MR. DUEFFERT: Your Honor, I'll object 10 on the ground of foundation. He's asking the 11 witness to speculate as to Mr. Bolin's 12 methodologies, and I think there is a pejorative 13 spin to the word "increase" that suggests that 14 there is something wrong. 15 MR. SCHWARTZ: "Increase" only means, 16 Your Honor, that it's higher than the other one. 17 THE COURT: I believe he asked him if 18 he knew. If he knows, he may answer. 19 A. We did discuss it, and he felt that 20 that was the market value of the property and that 21 we were attempting to initiate the project by 22 selling it for less than what we might otherwise 6573 1 have gotten at arm's length. 2 Q. (BY MR. SCHWARTZ) 7703. 3 THE COURT: Mr. Schwartz, is T7513 in 4 evidence? 5 MR. SCHWARTZ: No, it's not, Your 6 Honor. I move admission of T7513. 7 MR. DUEFFERT: Your Honor, that exhibit 8 is actually a portion of T7029, which is the 9 appraisal we just looked at. Basically, it is the 10 last ten pages of the appraisal document 11 excerpted. And I have no objection to it coming 12 in as a separate exhibit. However, I think it 13 would make for a cleaner record if we just have 14 the appraisal with all the attachments to it, 15 which is T7029. 16 MR. SCHWARTZ: Well, in actuality, I 17 think that it may be more appropriate to remove 18 the last ten pages of 7029 because in looking at 19 the final version that you have that Mr. Bolin 20 provided you, the hard cover version of his 21 appraisal, those pages are not a part of his 22 appraisal. So, it may be more appropriate to 6574 1 admit it as a separate document. 2 MR. DUEFFERT: I'll withdraw my 3 objection. We'll work it out if there is a need 4 to work it out later. 5 THE COURT: I'm going to receive this 6 as a separate exhibit. 7 Q. (BY MR. SCHWARTZ) Do you recognize 8 this document? 9 A. I don't think I've ever seen this 10 before. 11 Q. Okay. I'll represent that the Bates 12 number -- Bates stamp down at the bottom, KM, is 13 for Krasovec and Minch. It was from the 14 production based on the subpoena that was served 15 on and you Mr. Krasovec and came from those files. 16 You don't recall seeing this before? 17 A. No. 18 MR. DUEFFERT: Mr. Schwartz, what 19 number are you referring to? 20 MR. SCHWARTZ: 7703. 21 MR. DUEFFERT: I don't believe we have 22 that on the pull list. 6575 1 MR. SCHWARTZ: You're welcome to take a 2 look at my copy. 3 MR. DUEFFERT: Do you have an extra 4 copy we can look at? Thank you. 5 Q. (BY MR. SCHWARTZ) Barely legible at 6 the top is handwriting that appears to read 7 received -- r-e-c-d -- 7/23. 8 Do you have any respect to doubt that 9 this -- that this document was sent to you on or 10 around that date? 11 A. That's not how we would receive 12 documents, no. 13 Q. Okay. Do you know why Mr. Bolin would 14 have sent -- do you have any reason to know why 15 Mr. Bolin would have sent a draft -- it's not on 16 his letterhead -- a draft of a valuation to you on 17 July 16th, 1988 -- '86? 18 A. I've never seen the document before. I 19 don't believe it was sent to me. 20 Q. So, I take it then from your answer 21 that you don't know how it got into your files? 22 A. I have no idea. 6576 1 MR. SCHWARTZ: Do you have any 2 objection to the admittance of T7703 based on the 3 testimony? 4 MR. DUEFFERT: Based on the testimony, 5 yes, we object. 6 MR. SCHWARTZ: I will not submit it. 7 Q. (BY MR. SCHWARTZ) 7700. Do you 8 recognize this document? 9 A. Yes. 10 Q. Okay. What is it? 11 A. It's a document that was found in our 12 law firm's records. 13 Q. Do you recognize the GDH&M at the top? 14 A. Yes. 15 Q. Is that a received stamp for Graves, 16 Dougherty, Hearon & Moody? 17 A. I believe it is. 18 MR. SCHWARTZ: Your Honor, we move the 19 admittance of Exhibit 7700. 20 MR. DUEFFERT: Your Honor, I'd ask for 21 some more foundation about the nature of the 22 document. We don't know if this -- if he's ever 6577 1 seen the document before or what it means. 2 THE COURT: Well, do we have the final 3 appraisal of Mr. Bolin in the record? 4 MR. SCHWARTZ: We do. That's Exhibit 5 7029, the one we just looked at previously. 6 THE COURT: I'll receive this document. 7 Q. (BY MR. SCHWARTZ) There is a good 8 deal of handwriting in this document. 9 Do you recognize any of the 10 handwriting? 11 A. No. 12 Q. I will assume that the date stamp 13 July 23rd, 1986, is the date on which this 14 document came into the files of Graves, Dougherty. 15 Do you know why a copy of a draft 16 appraisal would be sent to the borrower's attorney 17 or to the borrower? That's the question, 18 actually. 19 A. Well, I believe that this document was 20 a document that Rex Bolin brought to Austin when 21 he was obtaining exhibits. And on Page KM4, there 22 is a list of exhibits. And I think he had come to 6578 1 a fellow named David Taylor, who worked for us, to 2 obtain those exhibits. 3 Q. Do you know if Mr. Taylor reviewed this 4 document? 5 A. I'm sure he did not. 6 Q. Why then would it be in your files? 7 A. I have no idea. Well, it was not in 8 our files. 9 Q. It was produced from the files that 10 were subpoenaed from -- 11 A. It was from the law firm's files. 12 Q. That's correct. You don't know how -- 13 you have no idea how it got into your counsel's or 14 your files, whether it was in Mr. Taylor's files 15 or your files or Mr. Krasovec's files or Graves, 16 Dougherty? You don't know how it got there? 17 A. Well, as part of the termination of the 18 deal, we turned over all of our files to United. 19 So, there are no Taylor, Minch, Krasovec files. 20 And this was in the law firm's file. So, I have 21 no idea how it got there. 22 Q. Okay. The thing I was curious about is 6579 1 the date of July 23rd, 1986, when it was 2 received -- stamped received by GDHM. But the 3 date on Exhibit 7029, the final appraisal, is 4 July 22nd, 1986. 5 MR. DUEFFERT: Your Honor, he's just 6 arguing with a fact witness at this point. 7 THE COURT: Well, if he can give us an 8 explanation, that's fine. 9 Q. (BY MR. SCHWARTZ) Is there -- 10 A. I have no idea. 11 Q. No idea? Okay. 7036. Do you 12 recognize this document? 13 A. Yes. 14 Q. And this Exhibit 7036 is dated, I 15 believe, on the last page of the letter, Page 30 16 of the document, July 29, 1986. Development loan 17 agreement letter. 18 Do you recognize it? 19 A. Yes. 20 Q. Okay. 21 MR. SCHWARTZ: Your Honor, we move the 22 admission of T7036. 6580 1 MR. DUEFFERT: No objections. 2 THE COURT: Received. 3 Q. (BY MR. SCHWARTZ) The document refers 4 to an initial advance of $13 million. Do you see 5 on the first page, Item D? 6 A. Yes. 7 Q. It's handwritten $13,816,263.70. What 8 was that amount to fund? 9 A. That was the first draw under the loan, 10 under the 30-million-dollar loan. 11 Q. And what was that -- what was that to 12 pay for? What was that used for? 13 A. Well, that plus the equity was used to 14 refund all of the outstanding balances under the 15 previous loans. 16 Q. And you're talking about the 17 $21 million plus change that was existing in -- as 18 of the December 28th, 1985 renewal and extension? 19 A. Yes. And there were some additional 20 charges and some outstanding bills that added up 21 to this amount plus the 9.4 million of equity. 22 Q. Okay. Now, we talked before about the 6581 1 March interest payment and you testified that you 2 did not make that payment. 3 What about the April interest payment? 4 A. Well, all of the outstanding interest 5 payments from when they were then not paid by the 6 loan were paid with this loan. 7 Q. So, the interest payments were in 8 arrears from March until this loan was funded; is 9 that correct? 10 A. Yes. 11 Q. And did this -- did the $9.4 million 12 that UFC kicked in in equity go to pay down the 13 existing debt on the outstanding $21 million of 14 loans? 15 A. Yes. 16 Q. The $13,816,263 plus the $9.4 million 17 covered that $21 million and change plus any other 18 expenses that were to be incurred as a function of 19 this new loan; is that correct? 20 A. That's correct. 21 Q. Okay. On the second page of this 22 document, it references an origination fee in the 6582 1 second paragraph there. "Borrower shall pay to 2 lender the sum of $900,000." 3 Was that your understanding, that that 4 was to be the origination fee? 5 A. Yes. 6 Q. Exhibit 7538. It's already admitted at 7 Tab 700. Okay. If you look at Exhibit 7538 -- 8 first of all, do you recognize this document? 9 A. Yes. 10 Q. And what is it? 11 A. It's the borrower's statement from the 12 title company on the first disbursement of the 13 proceeds on the 30-million-dollar loan. 14 Q. Okay. First of all, it says "Credit 15 funds received" up at the top, "$30 million. 16 Amount of loan, equity funding, United Financial 17 Corporation, 9,400,000." 18 Do you see that in that first draw? 19 A. Yes. 20 Q. United Savings Association is 21 13,816,263.70? 22 A. Yes. 6583 1 Q. For a total funding of 23,216,263.70. 2 If you continue down the page, it says 3 "origination fee, $1,005,000." And then there is 4 a line that's scratched out, $1,005,000, and above 5 that is written $105,000. And I'm curious, when 6 we looked at the previous exhibit, it said 7 origination fee of $900,000. And if you add 8 900,000 and 105,000, you get the $1,005,000. 9 Do you know whether the origination fee 10 was $900,000, $1,005,000, or $105,000? 11 A. I believe the 105 was the 4-1-86 12 payment that was due under the previous loan and 13 that the 900,000 was in the 13,816,263.70. 14 Q. For -- okay. So, the 1 million -- so, 15 the $105,000 was the -- for the last renewal and 16 extension -- 17 A. The second payment. 18 Q. -- fee? 19 A. The second payment of the last renewal 20 and extension, which was to have been paid on the 21 1st of April, was 105,000. And then the 900,000 22 was in the 13.8 million. 6584 1 Q. Okay. If you move further down that 2 page to the -- there is a typewritten entry that 3 says "Pay off United Savings, 470,831.24." 4 What was that for? 5 A. I believe that was for additional funds 6 that were advanced that were not included in the 7 previous 21 million but had been advanced by 8 United Savings for, among other things, the 9 National Western Life contract down payment. 10 Q. So, this was to repay United for the 11 funds that it had expended in that down payment? 12 A. Yes. 13 Q. The next item is "existing mortgage 14 United Savings, 21,225,029.86." 15 What does that amount represent? 16 A. That represents what had been drawn 17 under the 18.2 plus 2.8-million-dollar facilities. 18 Q. Okay. So, then, in effect, did UFC -- 19 the $9.4 million that UFC kicked in, did that go 20 to reduce the $21 million that was outstanding on 21 the prior debt? 22 A. Yes. 6585 1 Q. The next item listed here is interest 2 from -- and I notice that that line is blank -- to 3 7-29-86 and then there is an entry there that 4 appears to have your initials by it. Correct me 5 if I'm wrong. $751,110.13. 6 What did that amount represent? 7 A. That was all the interest through 8 7-29-86 that had not been paid. 9 Q. Do you know why the "interest from" 10 line was left blank? 11 A. Well, I believe it was purposefully 12 left blank so that there was no misunderstanding 13 that it included all of the interest. 14 Q. 7032. You mentioned Mr. David Taylor 15 earlier. This letter is over his name. 16 What was his function for Norwood 17 Properties? 18 A. He was the project manager responsible 19 for overseeing the project. 20 Q. Would this document have come from your 21 business records? 22 A. Yes. 6586 1 MR. SCHWARTZ: Your Honor, we move the 2 admission of Exhibit 7032. It's already been 3 previously admitted. 4 Q. (BY MR. SCHWARTZ) In Paragraph 2 of 5 his letter -- well, actually, there is two sets. 6 Down at the bottom, Paragraph 2, there is a 7 reference to payment to United of current interest 8 on these loans in the amount of 750,287.63, 9 including per diem through July 30th. And loan 10 fees of $1,005,000. That $1,005,000 is inclusive 11 then of both the December 28th extension fee and 12 the 900,000-dollar origination fee for the 13 30-million-dollar loan; is that correct? 14 A. Yes, that is correct. 15 Q. Okay. If you continue two pages in, 16 there appears to be something called a bucket and 17 initial advanced schedule. 18 Do you know who prepared that document? 19 A. It would have been prepared by David 20 Taylor. 21 Q. And it's kind of hard to read. I 22 apologize for the poor copy quality. Down towards 6587 1 the bottom, sort of the fourth box up, there is a 2 reference to financing previous interest and it 3 references 924,319.64. 4 Do you know where that amount came 5 from? 6 A. Well, I think the date on the document 7 is through July 11th, 1986. So, the difference is 8 in the numbers and has to do with the differences 9 in the dates. 10 Q. Well, the loan, I believe, closed 11 July 29th, 1986. 12 A. Well, this was prepared at a different 13 time. 14 Q. You don't know why -- 15 A. No, I don't know why. 16 Q. The continuing interest amount is 17 $8,809,348. What was that to fund? 18 A. Interest carried while the property was 19 being marketed. 20 Q. And how long an interest carry period 21 was that? 22 A. Well, if the sales had gone through as 6588 1 anticipated, there was probably enough interest 2 carry for ten years. 3 Q. Was that important to you in getting 4 involved in the project? 5 A. Yes. 6 Q. Why? 7 A. Because we were trying to manage our 8 risk to zero. 9 Q. You said that before, and I'm trying -- 10 what exactly does that mean? 11 A. It means that, in our assessment, in 12 the event that there was some foreclosure, that we 13 wanted to ensure that there was no deficiency 14 between the price at which the property was sold 15 and our liability under the loan. 16 Q. So, what would happen if this loan had 17 gone into default the next -- first of all, let me 18 ask you this: Was the issue of foreclosure ever 19 raised with you? Let me put a time reference on 20 that. 21 Prior to the loan -- to the 22 30-million-dollar loan closing on July 29th, 1986, 6589 1 had the issue of foreclosure ever been raised to 2 you? 3 A. Well, I think in the course of 4 posturing as far as what we were going to do, 5 certainly. We weren't threatened. We said that 6 they weren't going to post it for foreclosure next 7 week. But the fact that the interest was not 8 current certainly put it in a situation that they 9 could have sent a default letter and demanded 10 payment and foreclosed on the property. 11 Q. And were you concerned about that 12 threat? 13 A. No. 14 Q. Why? 15 A. We felt as though there were 16 substantial value in the property and that if the 17 lender had gone to get an appraisal in support of 18 a foreclosure action, that there would be no 19 deficiency. 20 Q. If the -- how would that work? The 21 lender goes and gets an appraisal for a -- is that 22 a separate appraisal? 6590 1 A. Well, I believe the element of art at 2 the time was that if a lender was going to 3 foreclose on a property, they would post it for 4 foreclosure. They would go and obtain an 5 appraisal to support the foreclosure, and they 6 would typically bid no less than 85 percent to the 7 then current appraised value. 8 Q. So, how does that work out if the 9 property is appraised at, say, $30 million? 10 A. Well, at this point in time, I think we 11 had 21 million or so in the deal. And we thought 12 that the property, with the expenditure of $3 and 13 a half million, was worth somewhere between 40 and 14 $60 million. 15 Q. With the expenditure of $3 and a half 16 million, what was that for? 17 A. To build the infrastructure. 18 Q. Okay. 19 A. So if you said that it was worth 20 $50 million and you subtracted 3 from it, it was 21 then worth 47. 85 percent of 48 was substantially 22 in excess of what the then current loan balance 6591 1 was. We felt that there would not be a 2 deficiency. And thus, we had effectively managed 3 our risk to zero. 4 Q. I see. 7518. Can you identify that 5 document, Exhibit 7518, as a deed of trust and 6 security agreement dated July 29th, 1986? 7 A. Yes. 8 MR. SCHWARTZ: I move the admission of 9 Exhibit T7518. 10 MR. DUEFFERT: No objections. 11 THE COURT: Received. 12 Q. (BY MR. SCHWARTZ) You were explaining 13 the -- previously, you were explaining the concept 14 of managing your risk to zero. If the loan had 15 been foreclosed and the property sold, am I 16 correct in understanding, then, that anything of a 17 sale greater than $13 million means that you had 18 no risk? 19 And let me see if I'm explaining that 20 correctly. The -- on July 29th when the 21 $30 million was provided by United Savings and the 22 $9.4 million was provided by UFC, a total of $39.4 6592 1 million, $21,200,000 some odd thousand went to pay 2 off the existing debt; is that correct -- 3 A. That's correct. 4 Q. Okay. Were you responsible for 5 repaying the $9.4 million? 6 A. No. 7 Q. So, the $13 million that was -- that 8 came out of that 30-million-dollar loan went to 9 pay down that debt; is that correct? 10 A. Yes. 11 Q. If the loan was foreclosed the next day 12 for some element of default and the property sold 13 for $13 million or more, did that mean that you 14 had zero risk? 15 A. Yes. 16 MR. SCHWARTZ: Okay. The next couple 17 of exhibits are probably on your stipulation list, 18 Counsel. But I haven't had a chance to compare 19 them if they are. I have Exhibit 7460. 20 MR. DUEFFERT: We have no objection. 21 MR. SCHWARTZ: 7540. 22 MR. DUEFFERT: No objection. 6593 1 MR. SCHWARTZ: I'm not going to ask you 2 any questions from those documents. 3 THE COURT: All right. For the record, 4 T7540 is received. T7460 is received. 5 MR. SCHWARTZ: Thank you. T7561. 6 Q. (BY MR. SCHWARTZ) Do you recognize 7 this document? 8 A. Yes. 9 Q. Okay. What is it? 10 A. It's the earnest money contract between 11 Frank P. Krasovec, trustee, and National Western 12 Life Insurance for the 5-acre tract at the 13 southwest corner of the property. 14 Q. And what was the date of this 15 transaction? 16 A. Looks like it was the 28th of 17 February 1986. 18 Q. Okay. Now, did this sale eventually go 19 through? 20 A. Yes. 21 Q. And this is that 5-acre tract or 22 4.717-acre tract on -- where the median cut comes 6594 1 in? 2 A. Yes. 3 MR. SCHWARTZ: Your Honor, we move 4 admission of T7561. 5 MR. DUEFFERT: No objections. 6 THE COURT: Received. 7 Q. (BY MR. SCHWARTZ) 7509. And can you 8 identify this document? 9 A. Yes. 10 Q. What is it? 11 A. It's a deed of trust on the property 12 for the seller financing. 13 Q. Okay. And the date on this is, I 14 believe, April 30th, 1986. 15 Is this the date that that land 16 actually transferred? 17 A. I believe it is, yes. 18 Q. Who provided -- where did the funds 19 come from to pay for this? 20 A. United Savings. 21 Q. At this point in time, was there any 22 money left in that 21-million-dollar note to 6595 1 provide funds for this? 2 A. I don't believe so. 3 Q. Did you sign a security -- any kind of 4 security arrangement or anything with United to 5 pay for this? 6 A. I believe that they took an assignment 7 of the contract. I don't believe that we actually 8 ended up owning the property. I believe it was 9 assigned to United, that they purchased it, and 10 subsequently reassigned it back to us. 11 Q. Who's "they"? 12 A. United Savings. 13 Q. Why didn't you acquire the property 14 outright? 15 A. Well, I think that there was a caution 16 on their part that they didn't want us to own this 17 property until we had our larger deal worked out. 18 Q. After the larger deal worked out, did 19 you own this property outright? 20 A. Yes. 21 Q. Who held the note on this property? 22 A. National Western Life. 6596 1 Q. So, what security position did United 2 take on this property? 3 A. I don't believe that initially they had 4 a security interest. They were the beneficiary of 5 the purchase. I believe that United owned the 6 property, that Frank P. Krasovec, trustee, held it 7 in trust for United and then subsequently 8 reassigned it to the venture. It was Norwood and 9 UFC. 10 Q. But United put up $400 and some odd 11 thousand as a down payment for this property; is 12 that right? 13 A. That's correct. 14 Q. So, what was their security for that 15 $400 and some odd thousand? 16 A. They owned the property. 17 Q. I'm sorry. I took you to say that 18 National Western held the note on the property. 19 A. That's right. But they owned it 20 subject to National Western's first lien position. 21 Q. Okay. So, National Western had a first 22 lien position. United was behind National Western 6597 1 in ownership, right, in foreclosure? 2 A. Well, they were the owner as opposed to 3 the lender. 4 Q. Okay. 5 MR. SCHWARTZ: Your Honor, we move 6 admission of Exhibit 7509. 7 MR. DUEFFERT: No objections. 8 THE COURT: Received. 9 Q. (BY MR. SCHWARTZ) Would you turn to 10 the page that's Bates marked -- if you can see it 11 on your copy there. Looks like OW191974. 12 Paragraph No. 7 says "It is expressly and 13 distinctly provided and understood that grantor 14 shall have no individual or personal liability for 15 the payment of any indebtedness under the note 16 hereby secured for the payment of any" -- excuse 17 me -- "or the performance of any obligations under 18 such note under the terms of this deed of trust 19 under any circumstances." 20 Who negotiated this language? 21 A. I did. 22 Q. Why? 6598 1 A. It was a non-recourse note from 2 National Western Life. 3 Q. And what did this do to any risk that 4 you had? 5 A. It managed it to zero. 6 Q. Did United have to approve this 7 transaction as part of your arrangement with them? 8 A. Yes. 9 Q. Exhibit 7030. It's admitted at Tab 10 699. Do you recognize this document? 11 A. Yes. This was a representation made by 12 National Western Life to United Savings that there 13 was then currently no default under the promissory 14 note from Frank P. Krasovec, trustee, to National 15 Western Life associated with the purchase of 16 National Western Life's 4-acre tract. 17 Q. And -- 18 MR. SCHWARTZ: Your Honor, we move 19 admission of Exhibit 7030. 20 MR. DUEFFERT: No objections. 21 MR. SCHWARTZ: It's already admitted. 22 I'm sorry. 6599 1 Q. (BY MR. SCHWARTZ) In Paragraph No. 2 2 down at the bottom of the first page, there is a 3 reference to "Deed of trust in all respects will 4 be subordinate and inferior to holder's deed of 5 trust." 6 Do you see that reference? 7 A. Yes. 8 Q. Is that what we talked about earlier 9 about United having a second behind National 10 Western Life on this property? 11 A. I really don't know. I did not say 12 that United had a second. Frank P. Krasovec, 13 trustee, held the property in trust for United at 14 that time. It was now being returned to us as 15 part of this transaction that was closing at this 16 point in time. It was being returned to the joint 17 venture. But I had never said that United had a 18 second lien. 19 Q. I'm sorry. Well, then, what is the 20 meaning of the phrase here that says "In all" -- 21 the full sentence reads "The execution -- 22 "National Western Life Insurance hereby certifies 6600 1 the following," Paragraph 2. "The execution and 2 delivery by Norwood/United Park, a Texas joint 3 venture comprised of Norwood Properties and United 4 Financial Corporation, to United Savings 5 Association of Texas of a promissory note in the 6 amount of $30 million secured in part by property 7 covered by the deed of trust, which tract is more 8 particularly described in Exhibit A, in the manner 9 provided for in the deed of trust and security 10 agreement dated July 29th, 1986, from 11 Norwood/United Park for the benefit of United 12 Savings Association of Texas, which deed of trust 13 in all respects would be subordinate and inferior 14 to holder's deed of trust." And "holder," if you 15 look at the first paragraph of the letter, is 16 National Western Life Insurance. 17 So, is this a statement that the -- 18 that United's interest in this property or the 19 joint venture's interest in this property is 20 inferior to that of National Western Life 21 Insurance? 22 A. Two things. First is that by granting 6601 1 a deed of trust to United, that is not a default 2 under the existing arrangement with National 3 Western Life. That's the first thing. And the 4 second thing is an acknowledgement that United's 5 position is inferior to National Western Life's 6 position. 7 MR. SCHWARTZ: Okay. 7511. This is 8 another one, I believe, that's on the list. 9 No objection? 10 MR. DUEFFERT: No objection. 11 MR. SCHWARTZ: Your Honor, we move the 12 admission of T7511. 13 THE COURT: All right. It's received. 14 MR. SCHWARTZ: 7516, same. 15 MR. DUEFFERT: No objection. 16 THE COURT: All right. 7516 is 17 received. 18 MR. SCHWARTZ: 7536. 19 MR. DUEFFERT: No objection. 20 THE COURT: Received. 21 MR. SCHWARTZ: I move the admission of 22 7536. 6602 1 MR. DUEFFERT: No objection. 2 MR. SCHWARTZ: I take it you like this 3 document. 4 MR. DUEFFERT: Yes, I do. 5 Q. (BY MR. SCHWARTZ) What is this 6 document? 7 A. Which document? 8 Q. Oh, I'm sorry. I apologize. There you 9 go. I'm not going to use those other two. 10 A. It's a guarantee signed by Frank 11 Krasovec and Jeff Minch. 12 Q. And would you turn to -- first of all, 13 on what note was this a guarantee? 14 A. The 30-million-dollar note. 15 Q. And is a copy of that note attached? 16 A. Yes. 17 Q. On the sixth page of the guarantee in 18 Paragraph 14 is a paragraph labeled "Limitation of 19 Liability" which provides "Notwithstanding 20 anything contained herein in the note or security 21 documents to the contrary, the liability of 22 guarantors hereunder shall be limited to and 6603 1 guarantors shall be fully liable for, A, an amount 2 equal to 25 percent of the principal balance of 3 the note from time to time outstanding and, B, an 4 amount equal to all accrued interest on the note." 5 What does that phrase mean, that 6 sentence? 7 A. It would limit our liability to the top 8 25 percent of the principal and interest. 9 Q. And what does that mean? Does that -- 10 A. Well, it's less than 100 percent of the 11 liability. 12 Q. So, if you go down further in that 13 paragraph to the last sentence, it says "It is the 14 intention of the parties that in the event of a 15 default and subsequent sale of the property 16 covered by the deed of trust securing the note, by 17 foreclosure or otherwise, the proceeds of such 18 sale shall be applied first to discharge the 19 indebtedness for which the guarantors are not 20 personally liable pursuant to the terms and 21 conditions of this paragraph." 22 So, how did those two sentences work 6604 1 together? 2 A. Well, we were liable for the top 3 25 percent in the event of a foreclosure and a 4 sale. The proceeds from that sale would be 5 applied first to the bottom 75 percent of the 6 principal. 7 Q. If you turn back to Page 2 of the 8 guarantee, under Paragraph 3, there is a reference 9 to financial statements and legal proceedings. 10 Regarding financial statements, did you 11 provide financial statements to United -- 12 A. Yes. 13 Q. -- in connection with this? 14 A. Yes. 15 Q. 7013, which is admitted at Tab 675. Do 16 you recognize this document? 17 A. Yes. 18 Q. It appears to be an April 8th, 1986 19 letter from you to Mr. Graham attaching financial 20 statements -- 21 A. Yes. 22 Q. -- of yourself and Mr. Krasovec? 6605 1 A. Yes. 2 Q. Were your financial statements audited 3 or unaudited? 4 A. Unaudited. 5 Q. Unaudited? 6 A. Unaudited. 7 Q. Do you know if they were prepared on a 8 GAAP basis? 9 A. They were not. 10 Q. If you turn to the third page in under 11 "assets," it has a listing of cash on hand 12 unrestricted of 37 million -- excuse me. I'm 13 sorry. $37,902. I'm sure you wished it was 14 37 million. And notes receivable of 29,727, a 15 total of about $67,000. 16 Did you have enough cash on hand to pay 17 on the guarantees had they been called? 18 A. No. 19 Q. Do you know whether Mr. Krasovec did? 20 A. I don't know. 21 Q. 7023. Do you recognize that document? 22 A. Yes. 6606 1 Q. And it appears to be a -- the joint 2 venture agreement between Norwood and United 3 Financial? 4 A. Correct. 5 Q. What was the purpose of this document? 6 A. To outline the terms and conditions of 7 the joint venture. 8 Q. Would you turn to the sixth page in? 9 Under Paragraph B, it says "The venturers 10 acknowledge that Norwood has induced UFC to enter 11 into this joint venture agreement and pay its 12 initial capital contribution." 13 That's the $9.4 million capital 14 contribution? 15 A. Correct. 16 Q. "Based on the representation of Norwood 17 that Norwood could accomplish, on or before 18 18 months after the date hereof, the closing of gross 19 sales of $10 million at the agreed-upon sales 20 price as approved by the venturers." 21 First of all, did Norwood induce UFC to 22 enter into this arrangement? 6607 1 A. No. 2 Q. How would you describe the relationship 3 between UFC and Norwood? 4 A. Well, we had always been in the 5 position that we were to obtain the local 6 approvals and we were not willing to take 7 meaningful financial risk. And when the deal went 8 sideways with Tom Gordon, we continued to adhere 9 to that policy, that we would play the role that 10 we had been asked to play, which was to obtain the 11 approvals. But we were not going to -- we were 12 not going to take meaningful financial risk. And 13 I objected to this sentence at the time because it 14 left the impression that we had made a 15 representation to them we were perfectly willing 16 to play that role or we were perfectly willing to 17 take a walk, but we had not induced them to enter 18 into this transaction. 19 Q. Had drafts of this joint venture 20 agreement been provided to you prior to the final 21 draft? 22 A. Yes. 6608 1 Q. Was that language included in the 2 earlier drafts? 3 A. No. 4 Q. When was this language added? 5 A. I think it was put into the execution 6 copies. 7 Q. At closing? 8 A. Just prior to closing. 9 Q. It goes on to say "Notwithstanding any 10 other provision of this agreement to the contrary, 11 in the event that sales aggregating $120 million 12 at prices approved by the venturers are not 13 accomplished by the date stated herein, then UFC 14 shall have the option to remove Norwood as a 15 venturer." 16 What was the purpose of that language? 17 A. In the event that the project was 18 unsuccessful, that United would be able to remove 19 us and go on about their business. 20 Q. Who inserted that language? Who wanted 21 that language in there? 22 A. I believe initially they did, and we 6609 1 had agreed to that. 2 Q. The language was proposed by United? 3 A. Yes. 4 Q. Over the course of the next 18 months, 5 what happened? 6 A. Well, after we signed this, we were 7 almost finished with the approvals. We obtained 8 the balance of the approvals. We had two years in 9 which to actually construct the infrastructure. 10 We began building. We completed the 11 infrastructure. We had a number of opportunities 12 to sell restaurant pads or whatever, and I would 13 say that the relationship between us and United 14 soured. And we received an extension for -- I 15 can't remember -- a year, whatever it was. 16 Q. We'll get into that. I'm interested 17 in -- it was a poor question. I'm interested in 18 during the 18 months as far as marketing the 19 properties went, what happened? 20 A. Well, we continued to market the 21 property. Vernon Brown, the fellow that had it 22 under contract, had a heart attack. 6610 1 Q. Okay. Now, Vernon Brown was the party 2 that had the contract on the shopping center site? 3 A. That's correct. 4 Q. Okay. That was an earnest money 5 contract? 6 A. Correct. 7 Q. So, during that period of time, that 8 contract was still in the inspection period? He 9 could walk away from it? 10 A. He could terminate the contract. 11 Q. Terminate the contract. And so, did he 12 do that? 13 A. Yes, he did. 14 Q. Now, how essential to the overall 15 success of the project was the development of the 16 shopping center? 17 A. I think it was very critical to the 18 success of the project. 19 Q. So, you said that Mr. Brown had a heart 20 attack. Did he terminate the contract? 21 A. Yes. 22 Q. And so, what happened next with the 6611 1 development of the shopping center? 2 A. Well, we continued to market the 3 property. We had some interest from some other 4 prospective buyers, but we never really found 5 another buyer. The market began to deteriorate 6 and, some period of time later, we parted ways 7 with United. 8 Q. You said that the relationship between 9 Norwood and USAT soured, I think, was your phrase. 10 What was the nature of the dispute that 11 you had with United? 12 A. Well, I didn't say dispute. 13 Q. Soured. 14 A. The relationship soured. Up to this 15 point in time, we were a critical element of the 16 development because we were obtaining the 17 approvals. It became clear to us after some 18 period of time that our attainment of the 19 approvals made us expendable. And I think that 20 United was looking to that day in order to, in 21 effect, get rid of us. 22 Q. What do you mean, "expendable"? 6612 1 A. Well, our major contribution to the 2 endeavor had been to obtain the difficult 3 approvals from the City of Austin. And so, once 4 we obtained the approvals, we became expendable. 5 Q. Okay. 6 A. And I think that -- I don't think. I 7 know that United had made representations to us 8 that if we found a viable deal, that they would 9 fund it. And so, we had a major movie theater who 10 was interested in going in. We had a couple of 11 restaurants that were national credits. And so, 12 there was some tension that developed between us 13 and United in that we would propose a deal. By 14 this time, there had been a bit of a change in 15 United's management and we couldn't get a timely 16 answer. And the answer wasn't yes. The answers 17 were no. And so, there was a certain frustration 18 that -- coupled with the reduction -- coupled with 19 the market deteriorating, created some tension. 20 Q. When you say "a change in United's 21 management," was Mr. Gross still there? 22 A. Yes, he was. 6613 1 Q. And so, who was the change in 2 management? 3 A. I think Mr. Graham, during this period 4 of time, left and a fellow named Jeff Seidman took 5 his place. 6 Q. What other marketing efforts had you 7 engaged in over this time period? 8 A. Well, we were actively marketing the 9 property and we had had some interest. We had the 10 Mel Simon people out. We had the -- 11 Q. Mel Simon people, what's that? 12 A. They were, at that time, the largest 13 retail mall developer in the United States. We 14 had been out to the International Council Shopping 15 Centers convention several times to market the 16 property. 17 We had had a number of tenants who had 18 committed to the site in anticipation of having a 19 developer develop the property. We had had -- I 20 think I mentioned the Weingarten Realty people on 21 the site. They were also retail developers. 22 Q. Weingarten Realty is -- do you know 6614 1 anything about the background of Weingarten 2 Realty? 3 A. Well, they are a New York Stock 4 Exchange company headquartered in Houston. They 5 are a real estate investment trust. And this was 6 the type of retail property with which they were 7 routinely involved. 8 Q. Do you know if Weingarten Realty had 9 any connection to United? 10 A. I think there was some common 11 connection. I think someone from United sat on 12 their board or vice versa. 13 Q. 7259. Do you recognize this document? 14 A. Yes. 15 Q. And it's a December 9th, 1987 letter 16 from Jeffrey Seidman to Jeffrey Minch. Did you 17 receive this? 18 A. Yes. 19 MR. SCHWARTZ: Your Honor, we move the 20 admission of 7259. 21 MR. DUEFFERT: No objections. 22 THE COURT: Received. 6615 1 Q. (BY MR. SCHWARTZ) Mr. Seidman repeats 2 language from the joint venture agreement that we 3 looked at down in the bottom of the first page. 4 It says "Specifically, Norwood induced UFC to 5 enter into the joint venture and contribute cash 6 of $9,400,000 and two letters of credit 7 aggregating $2,433,546 based upon Norwood's 8 representation that it would close gross sales of 9 portions of the land in the amount of at least 10 $10 million on or before 18 months after 11 July 29th, 1986." 12 You testified earlier that with regard 13 to the joint venture agreement, that language was 14 added just prior to closing. Why did you agree to 15 that language in the joint venture agreement? Why 16 did you sign the joint venture agreement if it had 17 that language in it? 18 A. Well, I had consulted with counsel and 19 felt that while to me it was factually offensive, 20 it had no particular significance. 21 Q. Was it, to you, factually inaccurate? 22 A. Yes. 6616 1 Q. What was offensive about it? 2 A. Well, we had always been the sweat 3 equity guys. We hadn't been inducing anybody to 4 do anything. This wasn't our deal. This was a 5 deal where they had had a borrower. We jumped in 6 to help what was their financial partner, and 7 suddenly we were the ones who created everything. 8 And that wasn't the case. We always were in a 9 position that we were willing to create sweat 10 equity. We were willing to work hard on it and do 11 what we could uniquely do in Austin, but we were 12 not the king makers and we were not inducing 13 United to do this. We were helping them fix 14 something that we all kind of collectively found 15 ourselves in a position we hadn't bargained for. 16 And it felt to me, when I read this, as if we were 17 the ideal people behind this. We were trying to 18 salvage something as opposed to the original 19 developer. 20 Q. Now, you mentioned earlier that the 21 original loan was not with you. It was with 22 Mr. Block and Mr. Gordon. At this point in 6617 1 time -- and I believe we admitted the promissory 2 note -- was Mr. Block and Mr. Gordon on this 3 30-million-dollar loan? 4 A. No. 5 Q. Were they on the guarantee? 6 A. No. 7 Q. What happened to them? 8 A. It's my understanding that they were 9 released. 10 Q. Do you know -- did they provide any 11 inducement to you to be released from any 12 liability that they would have under these notes? 13 A. No. 14 Q. Do you know whether they provided any 15 compensation or consideration to United for their 16 release of any liability on the notes? 17 A. I do not know. 18 Q. The letter goes on to say, the bottom 19 of the first page, "Prior to entering into the 20 joint venture, Norwood had obtained contracts to 21 sell substantial portions of the land to Vernon 22 Brown, trustee, and Robert Tamminga Development, 6618 1 Inc. Norwood indicated to UFC that these were 2 contracts which had a reasonable likelihood of 3 closing." 4 Did you make that representation to 5 United? 6 A. No. The critical thing in my mind is 7 that a representation is something more than 8 providing information. If we were to make a 9 representation, it would be our saying to them 10 that we believe something is going to happen with 11 certainty. The tenor at the time was such and our 12 relationship with United was such that we would 13 never have allowed our statements to rise to the 14 level of a representation. 15 Q. What do you mean by that? 16 A. We would never have conveyed to them a 17 certainty that would induce them to do something. 18 Q. Why? 19 A. They were big boys. They could read it 20 the same. We all had the same mutual interest. 21 And if they wanted to arrive at that conclusion, 22 that was their business. We provided them with 6619 1 all of the information, but we were not vouching 2 for Vernon Brown and we were not vouching for 3 Robert Tamminga and we were not telling them that 4 we knew some information that was going to create 5 a higher probability that this was going to go 6 forward. 7 We were extremely concerned about our 8 liability. We would never have given rise to 9 anything that they would be able to subsequently 10 point out and say, "You guys said X, Y, and Z." 11 And, in fact, we did exactly the opposite. We 12 made them approve those contracts on the face of 13 them independently. 14 Q. Exhibit 7458. Now, do you recognize 15 this document? 16 A. Yes. 17 Q. It appears to be a December 14th, 1987 18 letter from Mr. Krasovec to Mr. Gross at United 19 Savings. 20 Do you recognize Mr. Krasovec's 21 signature? 22 A. Yes. 6620 1 Q. Is this from your business records? 2 A. Yes. 3 MR. SCHWARTZ: Your Honor, we move the 4 admission of Exhibit T7458. 5 MR. DUEFFERT: No objection. 6 THE COURT: Received. 7 Q. (BY MR. SCHWARTZ) What was the 8 purpose of this letter? 9 A. To request an extension, a 12-month 10 extension of the 10-million-dollar sales hurdle. 11 Q. Down at the bottom, you have a 12 reference to commitments for 200,000 square feet 13 of space not including Feldman Furniture. "These 14 commitments include" and then you list them. 15 Were all of these commitments 16 contingent on construction of a mall? 17 A. Yes. 18 Q. And did you have that funding to 19 construct the mall? 20 A. No. 21 Q. You go on in the second page to talk 22 about market financial and you reference the 6621 1 recent article in Forbes did not help. 2 Do you see that? 3 A. Yes. 4 Q. What article in Forbes? 5 A. I don't recall. 6 Q. You go on in the next page to state in 7 the discussion section, the third paragraph of 8 that section, "The change in personnel at United 9 has not helped our efforts." 10 I assume that's a reference to the 11 change from Mr. Graham to Mr. Seidman; is that 12 correct? 13 A. Yes. 14 Q. "Time which could have been spent 15 effectively was diverted to preparing analyses 16 which were never used." 17 What is that a reference to? 18 A. When Jeff Seidman came on, there was a 19 lot of trigger work associated with redoing all 20 the analyses that up to that point in time had 21 been done. And after we spent a lot of time and 22 effort preparing it, there was no response. 6622 1 Q. It goes on to say "We presented" -- let 2 me ask you: Who was Jeff Seidman? 3 A. He was United Savings' main point of 4 contact. 5 Q. Did Mr. Seidman have a role with United 6 Financial Corporation? 7 A. I don't know. 8 Q. Okay. If you turn back to the prior 9 exhibit, Exhibit 7259, you notice that's on United 10 Financial Corporation letterhead and it's signed 11 by Mr. Seidman as vice president. 12 Did you have any understanding that 13 Mr. Seidman was vice president of UFC? 14 A. Well, Jeff Seidman and David Graham 15 were our main points of contact. I mean, to be 16 honest with you, I never particularly looked at 17 the letterhead. 18 Q. Okay. I don't know if that answers the 19 question. Did you have any kind of understanding 20 as to whether Mr. Seidman had any role in UFC? 21 A. Yes. I mean, he was signing letters 22 for UFC. So, I expected that he spoke with 6623 1 authority for UFC. 2 Q. Did you have any understanding of the 3 relationship between UFC and United as far as 4 Norwood/United Park? 5 A. No. We were just dealing with United 6 in toto, and sometimes they were UFC and sometimes 7 they were United Savings. 8 Q. Okay. Going back to Exhibit 7458, you 9 go on in that paragraph on the third page to state 10 "We presented pro forma sales prices, release 11 price schedules, marketing plans, and other 12 documents for your review and approval. We never 13 received a signed response." 14 What is that a reference to? 15 A. Well, we had sent the documents that 16 were indicated there in anticipation of them 17 reviewing them and approving them on behalf of the 18 joint venture. And we never received a response 19 from them. 20 Q. Did you consider that action of not 21 responding to be a default under the joint venture 22 agreement? 6624 1 A. Well, at the time, we felt like they 2 weren't playing the appropriate role. They were 3 supposed to have responded to those bits of 4 information in a timely manner. Now, whether we 5 ever allowed it to rise to the level that we said 6 to them, "You're in default," I don't think that 7 was the case. 8 Q. Well, the reason I ask is because 9 two -- first of all, in the next paragraph, you 10 also go on to say, "Now we have difficulty making 11 contact by phone." 12 What was that a reference to? 13 A. They weren't returning phone calls. 14 Q. You go down into the buy-sell paragraph 15 and it makes a reference to "We will proceed under 16 Article 6 of the joint venture agreement to 17 unilaterally withdraw from the joint venture." 18 What did you mean by "unilaterally 19 withdraw from the joint venture"? 20 A. Well, we would withdraw from the 21 venture. There was a provision in Article 6 22 apparently that we had the right to withdraw from 6625 1 the venture. 2 Q. Were you concerned about the potential 3 liability that you could suffer because -- from 4 withdrawing? 5 A. No. 6 Q. Why not? 7 A. Because we had $9.4 million worth of 8 equity in front of us and we thought that the 9 property was worth substantially more than the 10 total -- the then current total debt. 11 Q. 7260. Do you recognize this document? 12 A. Yes. 13 Q. It appears to be a December 15, 1987 14 letter from you to Jeff Seidman, Jeffrey Seidman. 15 Is that your signature on the last 16 page? 17 A. Yes. 18 MR. SCHWARTZ: Your Honor, we move the 19 admission of Exhibit T7260. 20 MR. DUEFFERT: No objections. 21 THE COURT: Received. 22 Q. (BY MR. SCHWARTZ) In the first 6626 1 paragraph, you reference that you received his 2 letter of December 9th. And then you go on to say 3 "Some of the topics which you discuss occurred 4 before you started with United and are difficult 5 to understand by simply reading the documents." 6 What did you mean by that phrase that 7 they were difficult to understand by simply 8 reading the documents? 9 A. Well, I felt as though the section of 10 the document that related to our having induced 11 United Financial Corporation to enter into this 12 was inaccurate and that if you simply read the 13 document without the background understanding of 14 how that got in there, that you would arrive at 15 the wrong conclusion. 16 Q. In the fifth paragraph down, you inform 17 Mr. Seidman that, quote, "Frank and I actually 18 made a presentation to your loan committee and 19 were told in person that the deal was approved. 20 Jenard was at this meeting." 21 Why were you informing him of this? 22 A. To give him the background of what had 6627 1 occurred with the deal. 2 Q. And what deal are you referring to? 3 A. The joint venture agreement. 4 Q. Okay. Well, if you look at the 5 paragraph above -- perhaps I'm proceeding a little 6 bit too quickly. There is a reference to the two 7 contracts, and I think it's a reference to the 8 Brown and Tamminga contracts? 9 A. Correct. 10 Q. Okay. So, with regard to the 11 inducement that they -- that Mr. Seidman 12 referenced in his December 9th letter, what is it 13 that you're telling Mr. Seidman by that paragraph? 14 A. Well, in the first paragraph there 15 where it says "purpose of the venture," I was 16 attempting to make him understand that we, in 17 fact, had not induced United Financial Corporation 18 to do anything, that the contracts that were 19 referred to in his letter had been delivered to 20 them for their review and approval and inspection, 21 that we had made no representations to them as it 22 relates to the probability of their closing. And 6628 1 that was very key because, in his letter, it was 2 left with the impression that we had represented 3 to them that these contracts were going to close. 4 And all we had done was said, "Fellows, here's 5 some contracts. We're going to vote to approve 6 them. What do you guys want to do?" We hadn't 7 told them anything about them. 8 There was never any linkage between the 9 contracts and this provision that we had induced 10 them. The contracts were delivered to them far 11 before the execution copies of the joint venture 12 agreement were delivered. In the execution copies 13 of the joint venture agreement was the first time 14 the inducement language was ever there. And so, 15 the inducement language hadn't been added because 16 of anything to do with the contracts. And I had 17 read his letter to say that, "Hey, you fellows had 18 induced these people to do this because these 19 contracts were here and this was all going to be 20 hunky-dory," and that wasn't the case at all. 21 Further, the joint venture agreement 22 made no mention of this provision that we -- and I 6629 1 was saying, really, the original joint venture 2 agreement -- the original drafts had made no 3 mention of this provision that we had induced 4 them. And so, I was trying to get him to 5 understand that they had occurred only in the 6 execution copies of the joint venture agreement. 7 Q. Okay. Thanks. You go on on the next 8 page in a paragraph that starts with the 9 underlying sentence "The issue of the ground lease 10 had nothing to do with financing. It was intended 11 to prevent the City of Austin from declaring that 12 the restaurant site was an illegal subdivision. 13 This would allow the City to refuse to supply 14 utilities. The contract indicated that this would 15 only take effect if a resubdivision could not be 16 approved. This will continue to be a problem in 17 Austin." 18 What does that mean? 19 A. Well, many times when you have a 20 restaurant pad on a shopping center site, the 21 person who is going to actually operate the 22 restaurant wants to own the property fee simple or 6630 1 wants it subdivided from the rest of the property. 2 In the City of Austin, if it's subdivided, if it's 3 a legal lot, if it's made in a legal lot, you 4 spend a lot of time and money and there are 5 certain rules that relate to setbacks and 6 everything else. So, what we proposed to do was 7 to carve out a metes and bounds description and 8 enter into a long-term land lease with any 9 prospective restaurateur. This would then be on a 10 legal lot, and the City is only obligated to 11 provide utilities to legal lots. 12 Q. And what did you mean by "this is going 13 to continue to be a problem in Austin"? 14 A. Because we had a number of restaurant 15 pads, all of which, in order to maintain their 16 utility service, we were probably going to have to 17 enter into long-term land leases on the restaurant 18 sites. 19 Q. Okay. You go on on the next page in 20 the second paragraph to say "Jeff, the market for 21 stabilized retail centers is strong, even in 22 Texas. The permanent financing equity is 6631 1 available. The construction debt is difficult to 2 raise." 3 What did you mean by that? 4 A. I'm lost here now. I don't know where 5 that is. 6 Q. I'm on the first page, Page 3, the 7 second paragraph. 8 A. Okay. 9 Q. It starts "Jeff." Then you go on to 10 say, "The permanent financing equity is available. 11 The construction debt is difficult to raise." 12 Why was construction debt difficult to 13 raise? 14 A. Well, because the debt markets were 15 difficult. The first sentence there says that the 16 market for stabilized retail centers is strong. 17 In other words, the shopping center was up. You 18 had an identifiable cash flow. You could go out 19 and get a mortgage on -- 20 Q. If you had a shopping center up; is 21 that right? 22 A. Yeah. In other words, a stabilized 6632 1 retail center, one that was built. The tenants 2 were there and they were paying rent, that the 3 market for that financing was good. 4 Q. And you did not have that? 5 A. Even in Texas. We did not have that. 6 And therefore, the question was how to get where 7 we were to get to that. Well, we had to go out 8 and raise equity. The equity money was available. 9 The debt markets, the construction debt -- in 10 other words, the money to build the shopping 11 center itself, that was difficult. And the reason 12 was that the permanent lenders, the people who 13 were going to provide the loans on the stabilized 14 retail centers, were unwilling to take 15 construction risk. 16 Q. Why? 17 A. They didn't want to. They felt as 18 though construction was too risky. 19 Q. In the last paragraph, you -- 20 second-to-the-last paragraph, I guess, it starts 21 "This project will continue to reflect the reality 22 of the marketplace." You say "continue" as if 6633 1 it's been in existence for some time. 2 How long back had the realities of the 3 marketplace been a problem? 4 A. Well, sometime prior to this. I'm not 5 sure that I could make a definitive statement. A 6 year maybe. 7 Q. You go on to say, "Lack of capital, 8 Austin," et cetera. 9 What did you mean by "lack of capital," 10 the reference to the construction debt? 11 A. Yes. There was no source for 12 construction funding. 13 Q. And "Austin"? 14 A. I think Austin was viewed as a very 15 suspect market at that time. 16 Q. 7721. Do you recognize this document? 17 A. Yes. 18 Q. Okay. It appears to be a January 7th, 19 1988 letter from Mr. Seidman to you. 20 Did you receive it? 21 A. Yes. 22 MR. SCHWARTZ: Your Honor, we move the 6634 1 admission of Exhibit T7721. 2 MR. DUEFFERT: No objection. 3 THE COURT: Received. 4 Q. (BY MR. SCHWARTZ) What was going on 5 at this time in your relationship between -- with 6 you and United? 7 A. Well, we had requested the extension 8 for one year. And I think we had spent a little 9 time fussing at each other in some correspondence, 10 and now I think that they were giving serious 11 consideration to the extension. 12 Q. In the fourth paragraph on the first 13 page, it reads "While UFC has no obligation to 14 extend the time for satisfying the sales 15 requirement, in an effort to compromise and settle 16 outstanding claims by you, UFC will consider 17 granting a 12-month extension if certain 18 adjustments are made as follows." 19 What claims had you been making? 20 A. Well, I'm not sure that we ever made a 21 specific claim; but when we went down to see them, 22 we had gone down with a lawyer. And, you know, 6635 1 I'm not sure that either of us had ever actually 2 drawn our sabers, but we certainly had our hands 3 on them. 4 Q. Who did you see when you went down to 5 that meeting? 6 A. Jeff Seidman and Jenard Gross. 7 Q. And was Mr. Berner there? 8 A. I don't recall. 9 Q. On the next page, the paragraph just 10 below the paragraph numbered 4, he makes a 11 reference to your statement in your December 15th 12 letter or December 14th -- excuse me -- that you 13 would purport to withdraw. And he goes on to say 14 "Even if you purport to withdraw, the liability of 15 the guarantors under the USAT loan would not be 16 released." 17 Why weren't you concerned by this? 18 A. Because we felt as though we had 19 managed our risk to zero. 20 Q. Okay. The next correspondence, T7732. 21 Do you recognize this document? 22 A. Yes. 6636 1 MR. DUEFFERT: What number again, 2 Mr. Schwartz? 3 MR. SCHWARTZ: 7732. 4 MR. DUEFFERT: Are you sure? 5 MR. SCHWARTZ: Am I sure? 6 MR. DUEFFERT: We found it. I 7 apologize. 8 MR. SCHWARTZ: I am positive. 9 We move the admission of T7732. 10 MR. DUEFFERT: No objection. 11 THE COURT: Received. 12 Q. (BY MR. SCHWARTZ) What was the 13 purpose of this? 14 A. To withdraw from the joint venture. 15 Q. 7731. Do you recognize that document? 16 A. Yes. 17 Q. It appears to be a January 21, 1988 18 letter from you to Mr. John Harmon, Esq. Is that 19 your signature at the bottom? 20 A. Yes. 21 MR. SCHWARTZ: Your Honor, we move the 22 admission of Exhibit T7731. 6637 1 MR. DUEFFERT: No objection. 2 Q. (BY MR. SCHWARTZ) What was the 3 purpose of this letter? 4 THE COURT: Received. 5 A. John Harmon was our lawyer. He was a 6 litigator, and he had asked me for an assessment 7 of what I thought United had done or failed to do 8 and this was a confidential memo to him outlining 9 my thoughts. 10 Q. (BY MR. SCHWARTZ) And Attachment A 11 starts with the Loews Theaters assigned to land 12 lease. 13 Did UFC approve that offer? 14 A. No. 15 Q. The second paragraph refers to a 16 restaurant site. Which restaurant site was that? 17 A. It was one of the sites that was close 18 to US Highway 183 on the south side of the 19 property. 20 Q. Did UFC grant -- approve that 21 transaction? 22 A. No. 6638 1 Q. You go on in Paragraph 3 to refer to 2 "Loan documents contained area release prices 3 based upon a percentage of the total committed 4 debt. This approach is not consistent with the 5 mixed use nature of the project. This problem was 6 pointed out to the account officer prior to the 7 loan closing. He acknowledged the problem and 8 stated that 'We will get this straightened out 9 when we get the first sales contract.' Norwood 10 submitted a complete revised release price 11 schedule during the restaurant contract 12 discussions." 13 Was that release price schedule 14 approved? 15 A. No. 16 Q. What did you mean when you go on to say 17 "All parties continue to agree this is a problem 18 but United continues to avoid addressing the 19 problem"? 20 A. Well, if you have a restaurant pad and 21 the restaurant pad is worth a different price than 22 the average investment per square foot, it has to 6639 1 be dealt with differently. And so, we were 2 getting some interest from restaurateurs and we 3 agreed that we wanted to try to do something. We 4 just never could get them to give us a definitive 5 answer. 6 Q. And the next paragraph, 4, goes on "UFC 7 experienced wholesale personnel changes. The 8 account officer was fired and a new account 9 officer was hired." 10 Who was that? 11 A. Jeff Seidman. 12 Q. That was Mr. Graham being fired and 13 Mr. Seidman going in? 14 A. Yes. 15 Q. "The new account officer reports to a 16 consultant who was hired by United to assist in 17 dealing with some of their problems. The 18 president of United was also fired." 19 Who was that? 20 A. Jerry Williams. 21 Q. These wholesale staffing changes 22 resulted in a complete loss of institutional 6640 1 memory and a complete paralysis in decision 2 making. 3 What is that referring to? 4 A. Well, no one ever remembered how we got 5 involved in the deal and I could never get a 6 decision from anybody about any of the things that 7 we had submitted to them. 8 Q. And you go on to say that the 9 restaurant sale contract was ultimately 10 disapproved. 11 Was that by UFC? 12 A. I think it was disapproved by inaction. 13 Q. Paragraph 7, about the middle of the 14 paragraph, goes on to talk about "The relationship 15 with United became hostile as Norwood began to 16 press United for decisions. United did not 17 communicate in a timely manner. Joint venture 18 recommendations from Norwood as the managing joint 19 venturer went unanswered." 20 Does that refer to what we've already 21 been talking about, the relationship between the 22 parties? 6641 1 A. Yes. 2 Q. Did Mr. Harmon talk to you about your 3 comments? 4 A. Yes. 5 Q. And what did he tell you? 6 A. To get out of the deal. 7 Q. Is that all that he said? 8 A. Well, his advice -- 9 MR. KEETON: Your Honor, I object. 10 This is hearsay clearly. We've got the lawyer's 11 advice, but now we're going to have private 12 conversation between this man and his lawyer. 13 Besides, I don't think we're trying a lawsuit 14 against Mr. Minch here today or he against us. 15 MR. SCHWARTZ: Hardly, Your Honor. The 16 questions that I'm asking go to the rationale for 17 decisions made by Mr. Minch. So, that's what I'm 18 really inquiring into, as to what information he 19 had at his disposal in making his decisions. 20 MR. KEETON: Mr. Minch wrote a letter 21 withdrawing from the venture. We've seen that in 22 evidence. 6642 1 MR. SCHWARTZ: Excuse me. We can let 2 the witness testify. 3 MR. KEETON: I'm talking to the judge, 4 if you may. But what I'm saying is all this 5 rationale, particularly based on hearsay from a 6 third party that's not here, subject to 7 cross-examination, I object to. 8 THE COURT: It does seem to me like 9 we're getting off here on a subsidiary dispute 10 between Mr. Minch and the people at USAT. I -- 11 MR. SCHWARTZ: The reason, Your Honor, 12 that I'm asking these questions is because what 13 follows subsequently when Norwood and United 14 ultimately split up and the terms under which -- 15 and the terms under which Norwood and United split 16 up. And so, I'm asking these questions as to 17 Mr. Minch's justification for the actions that he 18 took. 19 MR. DUEFFERT: But, Your Honor, that 20 has nothing to do with why United decided what it 21 had to do. It's one thing if Mr. Minch is talking 22 with Jeff Seidman or Mr. Gross about this matter, 6643 1 but what he told to his lawyer simply isn't 2 relevant. 3 MR. SCHWARTZ: It's what his lawyer 4 told him. 5 THE COURT: You can develop the area 6 that you're talking about, but I think you're 7 getting down pretty specific when you start asking 8 him what he discussed with his lawyer. You can 9 ask him why he withdrew. 10 MR. SCHWARTZ: Very well, Your Honor. 11 I'll move on. 12 Q. (BY MR. SCHWARTZ) Exhibit 7730. Do 13 you recognize this exhibit? 14 A. Yes. 15 Q. It appears to be a February 12th, 1988 16 letter from Arthur S. Berner to you. 17 Did you receive this? 18 A. Yes. 19 MR. SCHWARTZ: Your Honor, I move the 20 admission of Exhibit T7730. 21 MR. DUEFFERT: No objections. 22 THE COURT: Received. 6644 1 Q. (BY MR. SCHWARTZ) What was the 2 purpose of this letter? 3 A. To transmit the draft documents of the 4 proposed modification of the loan agreement and 5 joint venture agreement and to ask a couple of 6 questions. 7 Q. Why was Mr. Berner communicating to 8 you? Do you know? 9 A. Well, I'm not certain. 10 Q. Had you had communications with 11 Mr. Berner regarding your relationship with 12 United? 13 A. Yes. 14 Q. And what was the nature of those 15 communications? 16 A. Well, it seemed to me as if Jeff 17 Seidman was reporting to Mr. Berner as opposed to 18 our previous relationship when David Graham 19 reported to Jenard Gross. 20 Q. Why did you -- what was the basis for 21 that impression that you had? 22 A. Well, letters like this that were being 6645 1 communicated from Mr. Berner. 2 Q. And did you communicate directly with 3 Mr. Berner at times? 4 A. Yes. 5 Q. And did those communications include 6 discussions regarding the disagreements that you 7 had with United? 8 A. I think most of that communication was 9 with Jeff Seidman. And I think when we resolved 10 them was when we had the communication with 11 Mr. Berner. 12 Q. Do you know who Mr. Berner is? 13 A. I understand he's corporate counsel. 14 Q. Exhibit 7729. Do you recognize 15 Exhibit 7729? 16 A. Yes. 17 Q. It appears to be a February 16th, 1988 18 draft of a letter to Mr. Art Berner from you. 19 Does this come from your business 20 records? 21 A. Yes. 22 MR. SCHWARTZ: Your Honor, we move the 6646 1 admission of Exhibit 7729. 2 MR. DUEFFERT: No objection. 3 THE COURT: Received. 4 Q. (BY MR. SCHWARTZ) First of all, did 5 you send this version of this letter? 6 A. No. 7 Q. Did you send a different version of 8 this letter? 9 A. Yes. 10 Q. What was the difference in the two 11 versions? 12 A. I think the second paragraph was toned 13 down a bit. 14 Q. And what specifically about the second 15 paragraph -- 16 A. I don't recall. 17 Q. -- was toned down? 18 A. I think perhaps the second sentence was 19 changed. 20 Q. In reference to "the tone of the 21 changes is heavy-handed and offensive," what 22 changes are you referring to there? 6647 1 A. I don't recall exactly. 2 Q. Changes to what? 3 A. To the joint venture agreement. To the 4 joint venture agreement. 5 Q. And what changes to the joint venture 6 agreement were you discussing with United? 7 A. Well, a myriad of changes. 8 Q. To accomplish what? 9 A. Well, I don't recall from memory. I 10 mean, there is an attachment here that discusses 11 them all. 12 Q. Okay. Turn to the Attachment A. And 13 in Paragraph 1, there is a reference to "This 14 removal is absolute." It says "If Norwood has not 15 generated $10 million of sales as agreed, Norwood 16 agrees to be removed as a venturer in accordance 17 with Section 2.04B of the joint venture agreement. 18 This removal is absolute." 19 Why did you want this? 20 A. We felt as though United was not 21 routinely responsive to requests that we had made. 22 And so, we did not want to be held hostage to a 6648 1 decision that they had to make in the future. So, 2 we wanted it to be an absolute removal. 3 Q. And would the absolute removal also 4 have eliminated any potential liability that you 5 could have had on the loan? 6 A. Yes. 7 Q. Did United agree to that provision? 8 A. Yes. 9 Q. 7726. Do you recognize Exhibit 7726? 10 A. Yes. 11 Q. It appears to be a March 8th, 1988 12 letter from Mr. Arthur S. Berner to Norwood 13 Properties. 14 Did you receive this? 15 A. Yes. 16 MR. SCHWARTZ: Your Honor, we move the 17 admission of Exhibit 7726. 18 MR. DUEFFERT: No objections. 19 THE COURT: Received. 20 Q. (BY MR. SCHWARTZ) The first line of 21 that letter begins "In our telephone conversation 22 today." 6649 1 Did you have a conversation on that day 2 with Mr. Berner? 3 A. Yes. 4 Q. What did you discuss with him? 5 A. I think we discussed my letter of the 6 16th of February. 7 Q. Okay. And that letter involved the 8 changes to the joint venture agreement? 9 A. Yes. 10 Q. Did you discuss with Mr. Berner the 11 substance of those changes? 12 A. I'm sure we would have, yes. 13 Q. Did Mr. Berner discuss with you the 14 substance of the matters that he wanted in any 15 kind of arrangement that you reached -- any kind 16 of subsequent arrangement that you reached? That 17 was a poorly-asked question. Let me strike that 18 and try again. 19 Did Mr. Berner discuss with you the 20 substantive matters that he wanted included in any 21 arrangement that was reached between Norwood and 22 United? 6650 1 A. Well, I think he was taking under 2 advisement what I was saying to him. And in the 3 previous letter, the tone of it was -- the 14th -- 4 the 16th of February -- was, "Look, these are the 5 changes we want to have made. And if we can't get 6 it done, fine. Let's go about our business." 7 So, I don't think Mr. Berner responded. 8 I think it was "We hear you and, you know, we'll 9 make whatever changes we think are appropriate." 10 I mean, I think his style was to negotiate with 11 the documents as opposed to negotiate verbally. 12 Q. Is it your understanding that it was 13 Mr. Berner who was, if you will, negotiating with 14 the documents? 15 A. Mr. Berner and Jeff Seidman, yes. 16 Q. Okay. Was one of the terms of the 17 discussions with Mr. Berner that you and 18 Mr. Krasovec would be absolutely released from any 19 liability on the loans? 20 A. Well, not in the way you've expressed 21 it. The termination of the joint venture would be 22 not at their option but would be absolute, and 6651 1 that would give rise to the release of our 2 liability. 3 Q. I see. Did Mr. Berner agree to those 4 terms? 5 A. Ultimately in the documents, yes. 6 Q. 7725. Do you recognize Exhibit 7725 as 7 a March 18th, 1988 letter from Mr. Seidman to 8 Norwood Properties? 9 A. Yes. 10 Q. Did you receive this? 11 A. Yes. 12 MR. SCHWARTZ: Your Honor, we move the 13 admission of Exhibit T7725. 14 MR. DUEFFERT: No objection. 15 THE COURT: Received. 16 Q. (BY MR. SCHWARTZ) The letter 17 starts -- this is a letter from Mr. Seidman -- 18 "This letter is written in connection with the 19 meeting held in Houston on March 16th, 1988." 20 What meeting was that? 21 A. It was a meeting to discuss the final 22 version of the documents. 6652 1 Q. This is the settlement and modification 2 of your joint venture and the loan? 3 A. Yes. 4 Q. And who attended that meeting? 5 A. I think me, Jeff Seidman. I can't 6 remember if Frank attended it, and I can't 7 remember if Mr. Berner attended it. 8 Q. What was the purpose of this document? 9 A. Well, I'm not absolutely certain it 10 came from them. I mean, the purpose was to extend 11 the deadline so we could finalize negotiation of 12 the documents. 13 Q. And how long were they agreeing to 14 extend the -- extend the deadline? 15 A. Through the 25th of March. 16 Q. 7724. Do you recognize Exhibit 7724 as 17 a March 23rd, 1988 letter from you to John Harmon? 18 A. Yes. 19 MR. SCHWARTZ: Your Honor, we move the 20 admission of Exhibit 7724. 21 MR. DUEFFERT: No objections. 22 THE COURT: Received. 6653 1 Q. (BY MR. SCHWARTZ) In the second 2 numbered paragraph, for recitals, you state "The 3 concept that Norwood, quote, 'would be entitled to 4 require UFC to cause,' close quote, must be 5 converted to an absolute instantaneous action. No 6 ifs, no ands, or buts. This is true throughout 7 the document." 8 Why did you say that to Mr. Harmon? 9 A. Well, these were my comments about the 10 document, and I did not want to have anything left 11 to the action of United. 12 Q. Why? 13 A. Well, because in the past, they had 14 been unresponsive and I didn't want to be held 15 hostage to their response. I wanted -- as I 16 discussed it with John, if the sun came up on that 17 date, I wanted to be released. 18 Q. Down in Paragraph 4, you say "Release 19 and no further obligation. This provision is a 20 problem since the site plan will always require 21 tinkering with in order to sell Lot 1. They 22 obviously do not understand and have never 6654 1 understood the Austin ordinances. The site plan 2 will have to be revised." 3 What did you mean by that? 4 A. I don't remember exactly what this 5 refers to; but if a restaurant comes in or an 6 office building wants to be built, in Austin, you 7 have a site plan. And that site plan requires you 8 to build it exactly where the building is. Well, 9 no building ever ends up getting built exactly 10 where the site plan is. 11 So, as the original proposer of the 12 site plan, we would always have to be involved in 13 order to go back to the City and modify the site 14 plan. 15 Q. Would this continue to be a problem 16 regardless of whether you were on the project or 17 not? 18 A. Yes. 19 Q. Or a local developer? 20 A. Yes. 21 Q. 7462. 22 THE COURT: How much more do you have, 6655 1 Mr. Schwartz? 2 MR. SCHWARTZ: I have a few questions 3 on this document. If we could finish this 4 document and take a short recess, I can go through 5 my materials and make sure that I've covered all 6 my items, but this -- I'm very close to the end. 7 THE COURT: All right. 8 Q. (BY MR. SCHWARTZ) Do you recognize 9 Exhibit 7462 as a settlement and loan modification 10 agreement and a settlement and modification of 11 joint venture agreement? 12 A. Yes. 13 Q. And were you a party to these 14 agreements? 15 A. Yes. 16 MR. SCHWARTZ: Your Honor, we move the 17 admission of Exhibit T7462. 18 MR. DUEFFERT: No objections. 19 THE COURT: Received. 20 Q. (BY MR. SCHWARTZ) What was the 21 purpose of these documents? Why don't we start 22 with the settlement and loan modification 6656 1 agreement. 2 A. Well, the settlement was to release 3 each other's claims against each other. So, it 4 was a mutual release. And then to modify the 5 deadline and the manner in which the deadline was 6 applied. 7 Q. Why were you releasing United? What 8 were you releasing United from? 9 A. Well, they required from us a release 10 of any claims that we might have had until this 11 point in time. 12 Q. Did you believe that you had claims 13 against United? 14 A. Yes. 15 Q. Did you voice those claims to United? 16 MR. DUEFFERT: Asked and answered. 17 THE COURT: Denied. 18 A. Yes. 19 Q. (BY MR. SCHWARTZ) In the -- on the 20 second page of the document, Paragraph 2, it 21 references certain claims made against lender. 22 Is that a reference to those claims? 6657 1 A. Yes. 2 Q. And under the settlement and 3 modification of joint venture agreement, which 4 starts on Bates stamp Page OW192925, if you turn 5 to the next page -- well, first of all, what was 6 the purpose of the settlement and modification of 7 joint venture agreement? 8 A. Well, for identical -- for an identical 9 purpose. It was to settle claims and to modify 10 the joint venture agreement. 11 Q. Okay. And on the second page of that 12 document, Paragraph 3 says "UFC does not believe 13 it is obligated to extend the deadline, as 14 extended to April 1, 1988. Further, Norwood has 15 made certain claims against UFC and has purported 16 to withdraw as a venturer in the joint venture. 17 Norwood has also requested that, in the event such 18 $10 million of sales are not accomplished by the 19 deadline, instead of UFC having the option to 20 remove Norwood as a venturer in the joint venture, 21 (and UFC being obligated, upon such removal, to 22 cause Norwood and Krasovec and Minch, the 6658 1 principals of Norwood, to be relieved from any 2 liability on the hereinafter described loan from 3 the United Savings Association of Texas to the 4 joint venture in the face amount of $30 million), 5 the joint venture would terminate and Norwood 6 would automatically have no further interest in 7 the joint venture or the assets of the joint 8 venture and Norwood, Krasovec and Minch would also 9 be relieved from all liability on the loan." 10 Was that the language that you insisted 11 upon? 12 A. Yes. 13 Q. What was -- what did United receive in 14 exchange for agreeing to your absolute release as 15 provided in that language? 16 A. They received a settlement of all of 17 our claims. 18 Q. You had not filed any kind of action 19 against United? 20 A. No, we had not. 21 MR. SCHWARTZ: Your Honor, if we could 22 take a break now. 6659 1 THE COURT: We'll take a short recess. 2 3 (A short break was taken 4 at 3:15 p.m.) 5 6 (3:42 p.m.) 7 THE COURT: Be seated, please. We'll 8 be back on the record. 9 MR. SCHWARTZ: Thank you, Your Honor. 10 Q. (BY MR. SCHWARTZ) Earlier in your 11 testimony, Mr. Minch, you mentioned when we were 12 talking about the median cut to turn off of 183 13 into the Norwood Park project, you mentioned that 14 it was difficult to work with the State Highway 15 Department to get -- to move the median cut. 16 Do you recall that testimony? 17 A. Yes. 18 Q. Was the -- was that a difficulty 19 state-wide, working with the State Highway 20 Department, or was that just in Austin? 21 A. Well, I don't have any experience 22 state-wide. My only experience would be in 6660 1 Austin. 2 Q. During the course of your involvement 3 with United from 1985, early 1985, through the 4 time that you entered the settlement and 5 modification of the loan agreement and the joint 6 venture agreement, did United ever send you a 7 default notice? 8 A. I believe we did receive one. 9 Q. And when was that? 10 A. Seems like it was before the 11 30-million-dollar loan was approved or was closed. 12 Q. And during the entire course of your 13 relationship with United from early 1985 through 14 the settlement and loan modification, did United 15 ever ask you to honor or to pay any money on your 16 guarantees? 17 A. No. 18 Q. Do you know what the property where 19 United sits was ultimately sold for? 20 A. Where United sits? 21 Q. Excuse me. Norwood. I'm sorry. Where 22 Norwood sits. 6661 1 A. No, I do not. 2 Q. What is on that property now? 3 A. Well, there is a big Wal-Mart. There 4 is a NationsBank. There is an athletic retail 5 store. Seems like there is a restaurant. 6 Q. And how much of the land is still 7 vacant? 8 A. About half. 9 Q. During the course of your relationship 10 with negotiating on the terms of the 11 30-million-dollar loan as well as subsequently, 12 when you had conversations with Mr. Gross, 13 negotiations with Mr. Gross, do you know whether 14 Mr. Gross had any communications regarding those 15 conversations with Mr. Hurwitz? 16 A. No, I do not know. 17 Q. Do you know whether Mr. Hurwitz 18 attended senior loan committee meetings? 19 A. I do not know. 20 Q. Or whether he participated in those 21 meetings? 22 A. I do not know. 6662 1 Q. Take a look at Exhibit 7722. Exhibit 2 7722 appears to be a July 24th, 1990 letter from 3 Akin Gump to United Financial Corporation. And if 4 you look on the very last page, you are CC'd -- 5 you are the first CC. 6 Did you receive this letter? 7 A. I don't recall. 8 Q. Okay. Well, you are CC'd as -- 9 A. Yes, yes. I must have received it. 10 This is my writing on the front. 11 Q. Okay. 12 MR. SCHWARTZ: Your Honor, we move the 13 admission of T7722. 14 MR. DUEFFERT: No objections. 15 THE COURT: Received. 16 Q. (BY MR. SCHWARTZ) Do you recognize 17 this document? 18 A. Yes. 19 Q. And what is it? 20 A. It's a demand for payment to United 21 Financial Corporation. 22 Q. Was United -- this was on behalf of -- 6663 1 this is subsequent to the receivership. I don't 2 know whether you know that. 3 Was this sent to -- copied to you as a 4 demand upon you to make payment? 5 A. No. 6 Q. Who was this demand upon? 7 A. Appears to be United Financial 8 Corporation. 9 Q. Okay. And what was the amount 10 outstanding at this time, as of the date of this 11 letter, July 24th, 1990? 12 A. Well, it would appear to say on Page 2 13 that it was 25 million and change and accrued and 14 unpaid late charges, a million and change. And it 15 looks like the total is 31 million 812. 16 Q. $31,812,732.44. 17 A. Right. 18 MR. SCHWARTZ: Your Honor, I have no 19 further questions of Mr. Minch at this time. 20 MR. DUEFFERT: Your Honor, we probably 21 have about 15 minutes worth of questions and no 22 more. It might be best if we have about five 6664 1 minutes to set up. However, if you'd prefer, we 2 can do it in two minutes right here right now. 3 THE COURT: All right. I'll give you 4 what you need, but let's just be off the record. 5 MR. DUEFFERT: Thank you, Your Honor. 6 7 (A short break was taken 8 at 3:50 p.m.) 9 10 CROSS-EXAMINATION 11 12 13 Q. (BY MR. DUEFFERT) Mr. Minch, good 14 afternoon. My name is Paul Dueffert, for the 15 record. 16 Do I understand it right that by 1986, 17 you and your partner, Mr. Krasovec, had a great 18 deal of experience in developing and marketing 19 properties in Austin? 20 A. Yes. 21 Q. Could you please tell the Court a 22 little bit more about your experience and 6665 1 background in that regard? 2 A. Well, Frank had been one of the 3 founders of a company called Rust Properties and I 4 had been the manager of project development. And 5 we had developed almost $200 million of properties 6 in Austin. 7 Q. And what were some of those properties 8 that you were involved with? 9 A. One America Center, which was the 10 largest building built downtown. The restoration 11 of the North Tower, which was the largest 12 restorations in Austin. The Colorado Building, 13 the Samson Building. And in addition, before my 14 arrival, Rust Properties had developed some 15 apartments and some industrial properties in 16 Austin. 17 Q. When did you arrive at Rust Properties? 18 A. 1979. 19 Q. And what did you do prior to 1979? 20 A. I worked for Mobil Corporation in the 21 Mobil land and real estate development and I was 22 in the Army. 6666 1 Q. Could you explain a little further 2 about what you did at Mobil? 3 A. Well, at Mobil, I developed primarily 4 office properties, headquarters properties, 5 industrial properties in the United States and 6 overseas. 7 Q. I think you said in your testimony this 8 morning that you're a graduate of the Virginia 9 Military Institute? 10 A. I don't think I said that, but that's 11 true. 12 Q. Okay. Do you have any other degrees? 13 A. I have a degree in finance. 14 Q. And is that a master's of business 15 administration degree? 16 A. Yes. 17 Q. When did you earn that? 18 A. Let's see. 1977. 19 Q. What school? 20 A. Monmouth College. 21 Q. And briefly, what was your experience 22 in the military? 6667 1 A. Well, I spent a year in the infantry 2 overseas and then I was in the combat engineers 3 for four years and I was an aide-de-camp to a 4 four-star general. 5 Q. Can you tell us a little bit more about 6 Frank Krasovec and his background? 7 A. Well, Frank has an undergraduate and 8 graduate degree from -- I think it's Ohio 9 University. He had a background as a banker at 10 Pittsburgh National Bank for a number of years. 11 He ran a venture capital operation in Austin, and 12 he was one of the founders of Rust Properties in 13 Austin that I went to work for. 14 Q. Do I understand correctly that 15 Mr. Krasovec had been involved in developing 16 commercial properties in Austin for many years 17 prior to your involvement in that business? 18 A. Approximately eight or ten years before 19 my involvement, yes. 20 Q. He's somewhat older than you? 21 A. I think he's five years older than I 22 am. 6668 1 Q. Okay. And as of 1985, he was somewhat 2 wealthier? 3 A. Yes. 4 Q. Was he worth something in the 5 neighborhood of $12 million? 6 A. I'm not sure what his net worth was. 7 Q. Was it a substantial net worth? 8 A. Yes. 9 Q. Could you tell us a little bit more 10 about the background of Mr. Thomas Gordon? 11 A. Well, I only know what I've said 12 before. Tom was the president of a company called 13 Deauville Corporation. He seemed to be an 14 experienced retail developer. Was a nice enough 15 fellow. He had developed a number of Deauville 16 malls here in Houston. 17 Q. You indicated in your testimony that 18 you thought United had originally looked to him as 19 the financial source of strength for loans in this 20 property; is that right? 21 A. Yes, it is. 22 Q. Why would United look to Mr. Gordon as 6669 1 a financial source of strength? 2 A. I believe he had a substantial net 3 worth. 4 Q. And what do you mean by "substantial"? 5 A. I think he had in excess of 6 $15 million. 7 Q. He was a man of substance? 8 A. Yes. 9 Q. And finally, Mr. Block, am I correct in 10 thinking, was a corporate lawyer in Houston as 11 well as being a real estate developer partnered 12 with Mr. Gordon? 13 A. Yes. 14 Q. He was an experienced lawyer? 15 A. Yes. 16 Q. I don't think we had a chance this 17 morning to develop the record on why you thought 18 this was a good piece of property. So, I'd like 19 to talk about that for just a few minutes. 20 Does this appear to be a map of Austin? 21 A. Yes. 22 Q. All right. And would you be surprised 6670 1 if I said it came from the 1986 appraisal prepared 2 by Mr. Bolin? 3 A. No. 4 Q. In blue here, is that I-35? 5 A. Yes. 6 Q. Okay. And the other blue line, what 7 road is that? 8 A. US 183. 9 Q. Okay. I think you testified that that 10 was a major intersection in Austin? 11 A. Yes. 12 Q. In fact, did you indicate that it was, 13 perhaps, the busiest intersection in the entire 14 city? 15 A. Yes. 16 Q. How far was the intersection from 17 downtown? 18 A. It was 4 or 5 miles. 19 Q. And is downtown Austin located in this 20 yellow area? 21 A. Yes. I think you've got -- if you were 22 talking about the central business district, I 6671 1 think you've added the University of Texas and the 2 state government complex to it. 3 Q. All right. But does this yellow area 4 represent the population core of Austin? 5 A. Well, it represents the commercial 6 core. 7 Q. Okay. As of 1985, what direction was 8 Austin developing in? 9 A. North and west, south and west, and 10 north. 11 Q. North and west along I-35? 12 A. Well, really along 183 north and west. 13 North along 35, and southwest. 14 Q. Okay. Did the municipal government of 15 Austin try to direct development in any particular 16 way? 17 A. By that time, they had a concept of 18 preferred growth corridors. 19 Q. And was the Norwood property located in 20 a preferred growth corridor? 21 A. Yes. 22 Q. As of 1985, 1986, did you feel that 6672 1 Austin had been a strong growth city by way of 2 real estate development? 3 A. Yes. 4 Q. Would you explain a little bit more to 5 the Court about that. 6 A. Well, I think that there had been 7 positive population growth and there had been 8 employment growth and I think the economy was 9 growing in the time period you're talking about, 10 '84. 11 Q. There had been a dip in the price of 12 oil in 1981 or 1982, had there not? 13 A. Yes. 14 Q. Did that have a detrimental impact on 15 Austin's growth? 16 A. Didn't have a significant impact. 17 There is no real energy business in Austin. 18 Q. What kind of businesses are in Austin? 19 A. Well, the main business is state 20 government. And then there is a fair amount of 21 technology. There is a certain amount of 22 technology manufacturing, and then there is the 6673 1 normal business that would be associated with 2 government: Lobbying, law, accounting. And then 3 there is the normal infrastructure of banking and 4 insurance. 5 Q. Was Austin also a college town? 6 A. Yes. 7 Q. And was that important to you as you 8 looked at developing Norwood Park? 9 A. Not really, no. I mean, it was 10 important to the economy of Austin; but there was 11 nothing on that development that would appeal to 12 college students. 13 Q. On the whole, would you say that the 14 economy of Austin was more stable and more 15 diversified than the economy, say, of Houston? 16 A. Yes. 17 Q. And why was that? 18 A. Because it was not dependent upon oil. 19 Q. This was also taken from the appraisal 20 prepared by Mr. Bolin. This shows the L-shaped 21 property of Norwood Park, correct? 22 A. Yes. 6674 1 Q. And again, this is I-35 here? 2 A. Yes. 3 Q. And this is US 183? 4 A. Correct. 5 Q. Finally, this is the property itself, 6 correct? 7 A. Yes. 8 Q. Okay. Let's just talk about a few of 9 these lots and how they were put together. 10 Was Lot No. 1 the shopping mall lot 11 that we discussed? 12 A. Yes. 13 Q. Is that the one where Mr. Block and 14 Mr. Gordon had originally contemplated siting a 15 Deauville discount mall? 16 A. Yes. 17 Q. Okay. Lot 4, I think you've already 18 said, was the National Western Life Insurance 19 tract, correct? 20 A. Correct. 21 Q. Under your original business plan with 22 Mr. Block and Mr. Gordon in 1985, was it 6675 1 contemplated that you and Mr. Krasovec would take 2 a primary role in marketing Lots 2, 3, 4, 5, 6, 3 and 7? 4 A. Yes. 5 Q. And what efforts did you make in 1985 6 and early 1986 to market those lots? 7 A. Well, we had several marketing events. 8 We invited the entire brokerage committee to the 9 site. We went to the International Council 10 Shopping Centers convention presented the property 11 to prospective retailers. We were in negotiation 12 with a number of restaurateurs with the express 13 interest in coming to Austin. We had a contract 14 with Robert Tamminga to buy Lot No. 7. When Tom 15 Gordon stubbed his toe, we were to sell Lots 6 and 16 1 to Vernon Brown. And I think we had a hotel 17 interest in Lot 4. 18 Q. As of late 1985 and early 1986, was 19 there a softening of the overall commercial real 20 estate market in Austin? 21 A. Yes. 22 Q. In marketing the property, how did you 6676 1 react to that? Did you find it difficult to 2 market this property? 3 A. Well, it's a difficult business. I 4 mean, you just try harder. 5 Q. Were there any characteristics about 6 the property that you felt would set it apart from 7 its competition in the market? 8 A. Well, it was a great location. It had 9 tremendous traffic. And when markets contract, 10 they don't contract to zero. There continues to 11 be activity. It was an excellent retail location, 12 as evidenced by the fact that we were able to 13 attract retailers. We had the largest prospective 14 new theater to be built in Austin that had 15 committed to the site. So, we worked harder on 16 it; but it didn't dry up to zero. 17 Q. Were there any other successful 18 developments of that type in the neighborhood? 19 A. Well, there is Highland Mall that was 20 developed some years earlier that's about a mile 21 away. 22 Q. And did you worry about Highland Mall 6677 1 as far as posing competition to you? 2 A. No. Highland Mall was full, and 3 Highland Mall had been successful for well over 10 4 years. And our close proximity to Highland Mall 5 would be an asset, not a competitive force. 6 Q. Why would it be an asset? 7 A. Because there was tremendous traffic 8 and its trade area was probably 25 miles north and 9 south of Interstate Highway 35. 10 Q. Speaking of traffic, this is Interstate 11 35 right here in blue on the side. And was it 12 contemplated that there would be direct access 13 from the interstate into Norwood Park? 14 A. From the frontage road, not from the 15 interstate. From the frontage road along side the 16 interstate. 17 Q. But this is the frontage road here? 18 A. That's correct. 19 Q. And there would be access off of US 20 Highway 183? 21 A. Correct. 22 Q. Did you feel, in light of the traffic 6678 1 in that neighborhood, that the internal roads 2 would be sufficient to relieve any problems with 3 congestion? 4 A. Yes. We were required by the City to 5 build roads of a certain size that was beyond what 6 you would normally have as an internal street. 7 And they had contemplated, in fact, there would be 8 traffic diverted from 183 that would not want to 9 go all the way to the intersection that would come 10 through the property. And so, that road would be 11 described as an arterial as opposed to being a 12 collector. 13 Q. Was there a development firm by the 14 name of Henry S. Miller interested in the land at 15 any point? 16 A. I believe there was. I can't recall 17 exactly what the connection was. I think they 18 might have represented Vernon Brown. They are a 19 brokerage firm. 20 Q. Could we have T7454? Was that 21 introduced today? It may be in the pile before 22 you. 6679 1 MR. LEIMAN: What was the number again, 2 Mr. Dueffert? 3 MR. DUEFFERT: T7454. It was 4 introduced today. 5 Q. (BY MR. DUEFFERT) Do you have it in 6 front of you? 7 A. No. Do you want me to look for it? 8 Q. Yeah. If you could. It is a 9 February 26, 1986 letter from you to 10 Mr. Jenard Gross. 11 MR. BLANKENSTEIN: Why don't I just 12 hand this up to the witness? 13 MR. DUEFFERT: Thank you. 14 Q. (BY MR. DUEFFERT) On the top of 15 Page 2 of the letter, you indicate that the Henry 16 S. Miller Development Company visited the site and 17 indicated an interest in acquiring both retail 18 sites. 19 Was that something they were doing on 20 account of Mr. Brown, or were they doing that on 21 their own behalf? 22 A. I believe they were doing it on account 6680 1 of Mr. Brown. 2 Q. Which site was Weingarten Realty 3 interested in? 4 A. Lot 1. 5 Q. Do you recall a firm by the name of 6 Heady Investments, H-E-A-D-Y? 7 A. Is that Randy Heady? 8 Q. Could we have Exhibit B3837? Is this a 9 letter dated February 17, 1986, to you from a 10 Mr. Stephen Scott? 11 A. Yes. 12 MR. DUEFFERT: I would move Exhibit 13 B3837 into evidence. 14 MR. SCHWARTZ: No objection, Your 15 Honor. 16 THE COURT: Received. 17 Q. (BY MR. DUEFFERT) Does this refresh 18 your memory as to interest expressed by Heady 19 Investments in the property? 20 A. Yes. This is Randy Heady Investments 21 from Dallas. 22 Q. And what portion of the property were 6681 1 they interested in in February 1986? 2 A. They were interested in an office site. 3 Q. Which lots would have been office 4 sites? 5 A. Lots 2, 3, and 5. 6 Q. And did they indicate to you that a 7 quoted price of $25 per buildable foot is a range 8 they thought was acceptable for office product 9 delivered in mid-1987? 10 A. Yes. 11 Q. And they indicated that even given a 12 softening real estate market. I'm not saying that 13 that's in the letter. Just at the time, there was 14 interest in purchasing lots at $25 per buildable 15 foot despite the circumstances of the market? 16 A. Well, I think that their interest was 17 an unqualified interest. I mean, they did not say 18 "It's subject to X, Y, or Z." They just expressed 19 their interest. 20 Q. Do you remember a firm by the name of 21 Presidio Enterprises being interested in the 22 property? 6682 1 A. Is that Charles Chick? 2 Q. Exhibit B3827, please. Is 3 Exhibit B3827 an April 7th, 1986 letter from 4 Mr. Dick L. Chick to you? 5 A. Yes. Dick and Charles are brothers. 6 MR. DUEFFERT: I would move Exhibit 7 B3827 into evidence. 8 MR. SCHWARTZ: No objection, Your 9 Honor. 10 THE COURT: Received. 11 Q. (BY MR. DUEFFERT) Does this refresh 12 your recollection as to the nature of Mr. Chick's 13 interests? 14 A. Yes. 15 Q. And what was Presidio Enterprises 16 interested in doing with the property? 17 A. Developing a motion picture theater 18 complex. 19 Q. And would that be on any particular 20 lot? 21 A. Well, they had indicated interest in 22 Lot Nos. 3 and 7. We would prefer to have had 6683 1 that on Lot 1. 2 Q. Why? 3 A. Well, 7 was really master-planned, the 4 site plan for a hotel. And a theater is a 5 destination and it does not need the visibility of 6 the drive-by location and it would not be the 7 highest and best use of the site. In addition, a 8 theater generates a certain amount of 9 cross-shopping. And so, we wanted to have all of 10 the retail in one location in. And Lot 1 had the 11 highest impervious cover limitation so you could 12 build the maximum of buildings and parking lots on 13 Lot 1. And that's the challenge that you would 14 have with a theater. 15 Q. In attempting to get approvals from the 16 City of Austin object on property, had you 17 succeeded or would you succeed in getting it zoned 18 for a relatively high density -- for a development 19 of this type? 20 A. Well, we received the approval for the 21 largest commercial subdivision in Austin. And 22 with the passage of time, it was probably one of 6684 1 the densest ever approved. 2 Q. And did that add to the value of the 3 property? 4 A. Yes. 5 Q. How so? 6 A. Well, everything in Austin trades on 7 buildable square footage. So that if you have 10 8 acres and you build 1,000 feet, it's worth the 9 exact same as if you have 1 acre and you build 10 1,000 feet. It trades based upon what is approved 11 to be built, not the surface area. 12 Q. Were any other theater companies 13 interested in placing a movie theater on the 14 Norwood Park site? 15 A. Yes. We had contact with Cinemark out 16 of Dallas and Loews out of New York. 17 Q. Do you remember interest from a firm by 18 the name of GCC Theaters, as well? 19 A. Yes. 20 Q. Exhibit B38388, please. Is 21 Exhibit B3838 an October 15th, 1985 letter to you 22 from Robert A. Smith of GCC Theaters? 6685 1 A. Yes. 2 MR. DUEFFERT: I would move to 3 introduce exhibit B3838? 4 MR. SCHWARTZ: No objection, Your 5 Honor. 6 THE COURT: Received. 7 Q. (BY MR. DUEFFERT) Would you please 8 explain the nature of GCC's interests in the 9 property -- interest in the property? 10 A. Well, Robert Smith is somebody I had 11 known for a while in Austin. He is from Boston. 12 His father is the chairman of General Cinema. And 13 they were interested in two properties that we 14 were involved with. One here in Austin and 15 another one in San Marcus. And at that time, they 16 were very active developing theaters in Austin. 17 Q. Do you recall corresponding with a 18 woman by the name of Ms. Beck Spelce Strickland? 19 A. Yes. 20 Q. Exhibit B848, please. Is Exhibit B848 21 a February 25, 1986 letter from you to Ms. Beck 22 Spelce Strickland? 6686 1 A. Well, actually, it's above my 2 signature; but it was written by David Taylor and 3 signed by David Taylor. 4 Q. But it was signed by him on your 5 behalf, correct? 6 A. Right. 7 Q. And this was a letter that was sent by 8 Deauville? 9 A. Yes. 10 MR. DUEFFERT: Move the admission of 11 Exhibit B848. 12 MR. SCHWARTZ: No objection, Your 13 Honor. 14 THE COURT: Received. 15 Q. (BY MR. DUEFFERT) Could you explain 16 the nature of the interest expressed by Ms. Beck 17 Spelce Strickland on the property? 18 A. Beck Spelce was a real estate broker, 19 and she had a client who was interested in 20 purchasing all of Lot 1 and Lot 2. Lot 1, as I 21 recall at the time, was not large enough for her 22 client by itself. And so, she wanted to convert 6687 1 Lot 2 to retail in addition. And so, this was an 2 expression of her -- this was responding to her 3 expression of interest to acquire Lots 1 and 2. 4 Q. And what type of client did she have? 5 A. I don't think she ever identified it, 6 but I believe it was a major retail client. 7 Q. You emphasize in your letter at the 8 bottom that, open quote, "This is the only 9 fully-approved retail site of this size in 10 Austin," close quote, correct? 11 A. Correct. 12 Q. Was that fact of assistance to you in 13 marketing the property to firms that might be 14 interested in large lots? 15 A. Yes. 16 Q. Exhibit B937, please. I think we've 17 talked a great deal about an earnest money 18 contract involving Mr. Vernon Brown. I don't 19 think we've seen it. 20 Is Exhibit B937 an executed version of 21 that earnest money contract? 22 A. Yes. 6688 1 MR. DUEFFERT: I would move the 2 introduction of Exhibit B937. 3 MR. SCHWARTZ: No objection, Your 4 Honor. 5 THE COURT: Received. 6 Q. (BY MR. DUEFFERT) Did this contract 7 set forth the terms and conditions of your 8 arrangement with Mr. Vernon Brown? 9 A. Yes. 10 Q. And again, I think you testified that 11 United actually received and approved this 12 contract at some point? 13 A. Yes. 14 Q. Could we have Exhibit B941, please? Do 15 you recognize Exhibit B941? 16 A. Yes. 17 Q. What is that document? 18 A. It's a contract between Norwood 19 Properties and Robert Tamminga Development. 20 Q. And is this the earnest money contract 21 we've been discussing throughout most of the day? 22 A. Yes. 6689 1 MR. DUEFFERT: I would move for the 2 introduction of Exhibit B941. 3 MR. SCHWARTZ: Counsel, the handwriting 4 at the top on the front page, "original and 5 safekeeping"? 6 MR. DUEFFERT: I assume that that is 7 United's -- someone at United wrote that on the 8 copy that was taken from their files. 9 MR. SCHWARTZ: Subject to striking 10 that, we have no objection. 11 THE COURT: Received. 12 Q. (BY MR. DUEFFERT) Do you recall that 13 Mr. Tamminga was interested in the southeast 14 corner of the property? 15 A. No. The northwest corner. 16 Q. The northwest corner? 17 A. Lot 7. 18 Q. And why was he interested in Lot 7? 19 A. Because it had good highway frontage. 20 Q. And what did he want to do with that 21 highway frontage? 22 A. He wanted to develop a suite hotel. 6690 1 Q. I think you mentioned that Mr. Brown 2 eventually had a heart attack and pulled out of 3 the development for that reason, correct? 4 A. Yes. 5 Q. Do you recall why Mr. Tamminga never 6 closed on Lot No. 7? 7 A. I don't think he was able to put his 8 deal together. He couldn't get the franchise that 9 he desired for the hotel. 10 Q. And you learned that after the 11 30-million-dollar loan with United closed? 12 A. Yes. 13 Q. Are there any other reasons, other than 14 what we've already talked about, that made this an 15 attractive development for you to invest some 16 years of your life in? In other words, why did 17 you like the property? 18 A. Well, I think I've expressed all the 19 reasons. 20 Q. Okay. Just a few final questions. We 21 talked earlier today about an appraisal that was 22 prepared by the Appraisal Associates of Austin. 6691 1 Do you remember that? 2 A. Yes. 3 Q. Do you recall ever providing a copy of 4 that appraisal to United? 5 A. I did not. 6 Q. Why did you not provide it? 7 A. Because Appraisal Associates was not on 8 the approved list of appraisers provided to me by 9 United. 10 Q. Mr. Graham indicated that you should 11 have the appraisal prepared by Mr. Bolin, correct? 12 A. Yes. 13 Q. And that the appraisal should be 14 addressed to United and not to you as a borrower, 15 correct? 16 A. Well, I believe that was in the 17 engagement letter that I delivered at David 18 Graham's direction to Rex Bolin. 19 Q. Did you bring with you an original copy 20 of Mr. Bolin's 1986 appraisal? 21 A. Yes. 22 Q. Would you have any objection if we were 6692 1 to make that original document a permanent part of 2 the record of this proceeding? 3 A. No. 4 MR. DUEFFERT: Your Honor, I would move 5 the original appraisal into evidence at this 6 point. 7 THE COURT: Does it have a number? 8 MR. DUEFFERT: It does not yet have a 9 number. We will call it -- it is B3839, and it 10 will be so labeled. 11 MR. LEIMAN: Your Honor, that 12 particular document which I was able to leaf 13 through a few minutes ago contains a number of 14 color photographs that I'm not certain were 15 available, necessarily, or distributed to all 16 individuals that would have at the time 17 necessarily have had access or an interest in this 18 particular project. 19 So, I'm not certain that this is the 20 kind of document which would have had a wide 21 circulation, as opposed to the black and white 22 documents which we've already offered into 6693 1 evidence. 2 MR. DUEFFERT: Mr. Minch, would you 3 hand up the appraisal to the Court? Your Honor, 4 we are in a proceeding where we are seeing copies 5 of handwritten notes and pieces and scraps of 6 different things from different places. I think 7 it's helpful, especially with important documents, 8 to be able to look at the original and get a sense 9 of the substance of the document rather than 10 looking at bad copies. And I think under the pest 11 evidence rule, we have a right to put it in. 12 MR. LEIMAN: And Your Honor, if I might 13 respond, this is exactly the point. The point is 14 this is not the document that we have any reason 15 to believe that United Savings had in its files. 16 We know that Mr. Minch had it in his files, but 17 not necessarily the institution having it 18 available to itself. So, we have no reason to 19 believe that it was there. 20 THE COURT: Well, who did Bolin & 21 Associates perform this appraisal for? 22 MR. LEIMAN: Your Honor, I think that's 6694 1 one of the points in contention. We're not 2 certain who they performed the appraisal for. 3 Apparently, they had Mr. Minch, in essence, 4 carrying the water for Mr. Graham. I'm not sure. 5 There is no clear record as to who ordered the 6 appraisal. The only thing we do know is that 7 United paid for the appraisal, but we don't know 8 who ordered the appraisal. 9 MR. DUEFFERT: Your Honor, the original 10 document is addressed to Mr. Graham. I think it's 11 appropriate evidence. 12 THE COURT: Received. 13 Q. (BY MR. DUEFFERT) In light of 14 Mr. Leiman's statement, I have one further 15 question on Mr. Bolin. This morning or earlier 16 this afternoon, you were shown a letter to you 17 from Mr. Graham. I think it was dated May 8, 18 1986, in which Mr. Graham indicated that Mr. Bolin 19 should try to arrive at a value of $47 million 20 plus, if at all possible. 21 Do you recollect that? 22 A. Yes. 6695 1 Q. Did you ever communicate that 2 information to Mr. Bolin? 3 A. No. 4 Q. Mr. Schwartz asked you a good number of 5 questions about various interest charges and fees 6 that were to be funded by United, correct? 7 A. Yes. 8 Q. Was it your expectation when you 9 applied for this loan in 1986 that, ultimately, 10 the money that you would receive by way of profit 11 and United's reimbursement for loan principal and 12 interest would come from the success of the 13 venture? 14 A. Yes. 15 Q. When you applied for this loan and when 16 you closed it in July of 1986, did you have a good 17 faith belief that this would be a successful 18 venture? 19 A. Yes. 20 MR. DUEFFERT: Thank you. I have no 21 further questions. 22 THE COURT: Mr. Dueffert, this Exhibit 6696 1 3839, is that in the A series or is that -- 2 MR. DUEFFERT: It is in the B series. 3 THE COURT: B series. All right. 4 Do the other respondents have 5 questions? 6 MR. BLANKENSTEIN: No questions, Your 7 Honor. 8 MR. EISENHART: No questions, Your 9 Honor. 10 MR. KEETON: No questions, Your Honor. 11 THE COURT: Thank you. Redirect? 12 MR. SCHWARTZ: Yes, Your Honor. If I 13 could have a few minutes to rearrange. 14 THE COURT: We'll be off the record. 15 16 (A short break was taken 17 at 4:26 p.m.) 18 19 REDIRECT-EXAMINATION 20 21 22 Q. (BY MR. SCHWARTZ) Mr. Minch, 6697 1 Mr. Dueffert asked you questions about a preferred 2 growth corridor. 3 What is that? 4 A. It's an area that the City would like 5 to direct growth in so that they can use utilities 6 that have already been constructed as opposed to 7 constructing new utility infrastructure. 8 Q. During the time prior to the 9 30-million-dollar loan being entered into, were 10 you able to market any of the property that 11 comprised Norwood Park? 12 A. Were we able to market it? Yes, we 13 marketed all of it. 14 Q. And were you able to obtain any sales 15 during that time? 16 A. Well, we obtained the Tamminga contract 17 and the Vernon Brown contract. 18 Q. Did you obtain any sales? 19 A. No. 20 Q. Mr. Dueffert had you go into a little 21 bit of your background. I apologize for not 22 covering that earlier this morning. You 6698 1 mentioned, I believe, four projects that you had 2 worked on prior to Norwood. It included, I think, 3 the Colorado Building. One was the One America 4 Center Building. There were two others, I 5 believe. 6 A. Yes. 7 Q. What -- were each of those four 8 projects individual buildings? 9 A. Yes. 10 Q. They were not multi-use hundred-acre 11 developments; is that correct? 12 A. No, they were not. 13 Q. Chevy Chase Mall, is that another mall 14 that's in the area? 15 A. I don't recognize the name. 16 Q. Don't recognize the name? Okay. 17 Regarding Mr. Krasovec's background, 18 are you aware of whether Mr. Krasovec had an 19 interest in a savings and loan called Austin 20 Savings and Loan? 21 A. Yes, he did. 22 Q. Was he a major stockholder in Austin 6699 1 Savings and Loan? 2 A. Yes. 3 Q. Mr. Dueffert asked you some questions 4 about Henry Miller, and you testified that 5 Mr. Miller was representing Vernon Brown? 6 A. Yes. That's a company. 7 Q. Okay. And during that testimony, you 8 testified, I believe, that you had a number of 9 parties express an interest in Norwood Park; is 10 that correct? 11 A. Yes. 12 Q. What does "express an interest" mean? 13 A. Well, we had marketing packages. And 14 so, perhaps they might send or call for a 15 marketing package. We wanted to give them a tour 16 of the property. We would have events at the 17 property in which we would invite the entire 18 brokerage community. When we began the 19 construction of the improvements, we had a 20 groundbreaking. We invited the brokerage 21 community in Austin. 22 Q. And did any of those result in any 6700 1 sales of any of the land? 2 A. Well, they resulted in expressions of 3 interest; but there were no sales. 4 Q. Okay. So, what is an expression of 5 interest, then? 6 A. Well, where someone would be interested 7 in buying a property. As an example, we had the 8 entreaty from Marie Calendars. 9 Q. That's a restaurant? 10 A. Yes. They were interested in opening a 11 restaurant there, and we were not able to put the 12 deal together. 13 Q. Why? 14 A. Well, we had approached United about 15 funding it, and they had declined to do it. 16 Q. And Mr. Dueffert admitted a number of 17 exhibits. B3837, which is the one from Stephen 18 Scott of Heady Investments. This letter, did this 19 arrangement go any further than this letter, this 20 expression of interest? 21 A. Well, Steve Scott, the fellow that 22 worked for him, they had developed a couple other 6701 1 office buildings in Austin that were built. And 2 so, they were experienced in Austin. They had 3 come to the site and had gotten plans. And then 4 the -- they were looking for tenants for their 5 building and nothing else ever came from that. 6 Q. They were -- do you know whether they 7 were able to get any substantial tenants or at 8 least enough to warrant building an office 9 building there? 10 A. No. I don't believe they did. 11 Q. And so, this -- this Heady Investments 12 project went nowhere; is that right? 13 A. That's correct. 14 Q. Presidio Enterprises was another 15 company that Mr. Dueffert talked to you about, 16 Exhibit B3827. This was -- is this a movie 17 company? 18 A. Yes. Movie theater company. 19 Q. Movie theater company. Did this result 20 in a sale? 21 A. No, but that was mutually exclusive 22 with Loews Theaters, with whom we did make an 6702 1 arrangement. That if a shopping center had been 2 built, Loews had committed to the site. So, you 3 could not have more than one movie theater there. 4 Q. Okay. So, this did not close either? 5 A. No. 6 Q. Would the same be true for General 7 Cinema Corporation? 8 A. Yes, that's correct. 9 Q. I notice -- that's Exhibit B3838. In 10 the General Cinema Corporation, it appears to be a 11 request for information packet. 12 Is that what this was? 13 A. Yes. 14 Q. Okay. Did this go any further? 15 A. No. We sent the information. And then 16 we had made the decision to go forward with Loews, 17 not with the other movie theaters. 18 Q. And Exhibit B848, this letter to Ms. 19 Beck Spelce Strickland, did this project go any 20 further? 21 A. Well, her clients came and visited the 22 site and we had some negotiations with them. I 6703 1 can't remember. But obviously, no sale occurred 2 as a result of that. 3 Q. And what were they interested in 4 developing? 5 A. A retail center on Lot 1 and Lot 2. 6 Q. That's the same lot that Mr. Gordon was 7 not able to construct his shopping center on or 8 Mr. Brown wasn't able to construct his on; is that 9 correct? 10 A. Well, they were both interested only in 11 Lot 1. These folks were interested in Lot 1 and 12 Lot 2, which was an adjoining lot. 13 Q. And I notice in the fifth paragraph 14 down, it refers to Lot 1 could be acquired for $5 15 per square foot cash. 16 Was that greater than or less than the 17 pro forma price that you had anticipated selling 18 the tracts for? 19 A. Well, it says $5 per square foot cash 20 plus a $2 per square foot subordinated convertible 21 note plus a 5 percent limited partnership interest 22 in the development. And so, that was a proposal, 6704 1 from our vantage point, to enable them to kick off 2 the development and we would, in effect, have an 3 interest in the future profits from the 4 development. 5 Q. Okay. Was the sale price above or 6 below the pro forma price? 7 A. I think it was roughly equivalent to 8 the pro forma price. 9 Q. Okay. And did this go through? 10 A. No, it did not. 11 Q. And we already talked about the Brown 12 project, that that did not go through. And the 13 Tamminga contract, did that close? 14 A. No, it did not. 15 Q. During the time when Mr. Bolin was 16 preparing his appraisal, you testified that you 17 provided information to him at his request and I 18 think you also testified that he or one of his 19 associates came and asked for information from Mr. 20 Taylor? 21 A. That's correct. 22 Q. Okay. Did you or Norwood employees 6705 1 provide to Mr. Bolin all of the pro forma 2 information that he used? 3 A. We provided him with any pro forma 4 information that we had prepared. 5 Q. Okay. Was Norwood Partners (sic) being 6 paid a fee during the time that they were partners 7 on this project? 8 A. Norwood Properties. 9 Q. Norwood Properties? 10 A. Yes. 11 Q. And what was that fee? 12 A. I recall it as $22,000 per month. 13 Q. Mr. Dueffert asked you some questions 14 about the exhibit, I believe it was 7582, which 15 was the -- I believe that's the number -- which 16 was the letter, I believe, May 8th, 1986, from 17 Mr. Graham to you regarding seeking a 18 47-million-dollar appraisal from Mr. Bolin. 19 Do you recall that? 20 A. Yes. 21 Q. And you testified that you did not 22 communicate that information to Mr. Bolin. Do you 6706 1 know whether Mr. Graham did? 2 A. No, I do not. 3 Q. Do you know what the ultimate appraisal 4 value that Mr. Bolin reached was? 5 A. I believe it was $46 million. 6 MR. SCHWARTZ: No further questions, 7 Your Honor. 8 MR. DUEFFERT: We have nothing, Your 9 Honor. 10 THE COURT: All right. Thank you, 11 Mr. Minch. You may step down. 12 We will adjourn until 9:00 o'clock 13 tomorrow morning. 14 15 (Whereupon at 4:36 p.m. 16 the proceedings were recessed.) 17 18 19 20 21 22 6707 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 12th day of 17 November, 1997. 18 ____________________________ MARCY CLARK, CSR 19 Certified Shorthand Reporter In and for the State of Texas 20 Certification No. 4935 Expiration Date: 12-31-97 21 22 6708 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 12th day of 18 November, 1997. 19 _____________________________ SHAUNA FOREMAN, CSR 20 Certified Shorthand Reporter In and for the State of Texas 21 Certification No. 3786 Expiration Date: 12-31-98 22