6709 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 11-13-97 22 6710 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 6711 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 6712 1 P-R-O-C-E-E-D-I-N-G-S 2 (9:00 a.m.) 3 THE COURT: Be seated, please. The 4 hearing will come to order. I believe that on the 5 schedule, this is the cross-examination of 6 Mr. Graham. 7 MR. DUEFFERT: That's correct, Your 8 Honor. 9 THE COURT: You've been sworn and 10 remain under oath. 11 THE WITNESS: Yes, sir. I understand. 12 THE COURT: Mr. Dueffert. 13 14 CROSS-EXAMINATION 15 16 17 Q. (BY MR. DUEFFERT) Welcome back, 18 Mr. Graham. For the record, my name is Paul 19 Dueffert. I'd like to start by revisiting a few 20 of your professional qualifications. 21 Do I understand correctly that you have 22 an MBA from the University of Texas? 6713 1 A. That is correct. 2 Q. And was your concentration there in 3 finance? 4 A. It was. 5 Q. When did you get that degree? 6 A. Technically, I got it in 1971. I left 7 in '69 and worked for a year and wrote my thesis 8 during that period and turned it in and got the 9 technical degree in '71. 10 Q. Where did you work for that year? 11 A. With Gerald Hines in New Orleans. 12 Q. What did you do for them? 13 A. Leasing. 14 Q. Commercial leasing? 15 A. Yes, sir. Office building. 16 Q. What was the subject matter of your 17 thesis? 18 A. I wrote on businesses going in rural 19 communities, employing the underprivileged. I 20 basically used three examples: Bolley, Oklahoma, 21 Fayette, Mississippi, and Navahoe Reservation, 22 just for my own -- it's in the Library of 6714 1 Congress, my thesis. 2 Q. Since 1971, would it be fair to say 3 that you've made a career out of underwriting real 4 estate investments and real estate loans? 5 A. That's fair, yes. 6 Q. And in that time, you've underwritten a 7 very large number of development loans, have you 8 not? 9 A. That's correct. 10 Q. Most of your work in the last 20 or 25 11 years has been focused in the State of Texas; is 12 that right? 13 A. Majority, yes. 14 Q. You are currently an executive vice 15 president or the executive vice president and head 16 of all real estate lending at Coastal Bank, 17 correct? 18 A. No. I'm head of all -- yeah, real 19 estate lending, correct. I thought you said all 20 lending. Real estate lending, yes. 21 Q. And you have been at Coastal Bank for 22 nine years now, since 1988? 6715 1 A. That's correct. 2 Q. Is Coastal Bank a sizable institution? 3 A. It's 3 billion in size. 4 Q. Is that here in Houston? 5 A. Yes, sir. 6 Q. You joined Southwest Savings in 1977? 7 A. I believe that's correct. 8 Q. And Southwest Savings is the 9 predecessor -- one of the predecessors to United 10 Savings Association of Texas, correct? 11 A. Correct. 12 Q. At that point, Southwest Savings was 13 run by Mr. Bentley? 14 A. Well, jointly by Mr. Bentley and 15 Mr. Baker. 16 Q. And you joined Southwest Savings five 17 years before MCO and Federated had any ownership 18 in United Financial Group? 19 A. That sounds right. I can't recall the 20 exact date. 21 Q. You mentioned in your testimony a 22 colleague of yours by the name of Gem Childress, 6716 1 correct? 2 A. Correct. 3 Q. He also worked at United or its 4 predecessors from around 1973 until 1987. Right? 5 A. Yeah. He preceded me. I don't know 6 how long, yes. 7 Q. He also is a highly experienced loan 8 officer? 9 A. That is correct. 10 Q. After he left United in 1987, did 11 Mr. Childress become a state supervisory agent 12 here in Texas? 13 A. Not initially. As I had earlier 14 testified, we did some consulting. Some of the 15 work we did was directed to us by the State, but 16 it wasn't under the State's aspect. It was under 17 individual S&Ls. After I took my job with 18 Coastal, then he -- and we kind of lost that 19 relationship, then he went with the State and took 20 several jobs on their behalf. But he really 21 didn't take those jobs until sometime mid-'88. 22 Q. But he did at that point become a State 6717 1 supervisory agent? 2 A. That is correct. 3 Q. Did Mr. Childress also do work for the 4 FSLIC and the RTC? 5 A. I believe he did some. I'm not sure of 6 all of it. 7 Q. And what is Mr. Childress doing now? 8 A. Currently, almost nothing. He sold -- 9 the S&L that he was associated with sold and 10 closed last week, I believe. So, he's looking for 11 something new to do. 12 Q. Where was that thrift? 13 A. That was Homestead Savings in 14 Bryan/College Station. 15 Q. Okay. And what was his title at that 16 thrift? 17 A. To be honest, I'm not sure. Probably 18 EVP, but I'm not sure. I really don't know. 19 Q. Would it be fair to say he would be a 20 chief executive officer? 21 A. Yeah. Yeah. He was one of the key 22 officers, yes. I just don't know the title. 6718 1 Q. We've spent some time lately talking 2 about interest reserves. In your time under 3 Mr. Bentley at Southwest Savings and at United 4 before MCO and Federated had any interest in UFG, 5 did United ever make development loans without 6 requiring equity from the borrowers? 7 A. Now, I can't recall. We may have done 8 one or two small ones. I don't think -- 9 typically, we had some equity but not always. It 10 really depended on the risk and what we felt the 11 risk was on individual loans in a lot of cases. 12 Q. Mr. Bentley stayed with United until 13 1985, correct? 14 A. I'll have to agree on the dates. I 15 don't know specifically, but he stayed -- it 16 overlapped for a while, yes. 17 Q. All right. I'd like to talk about the 18 roles of the various personnel on the senior loan 19 committee at United in 1985 and 1986. 20 Do you recall that Lovett Baker was on 21 the loan committee? 22 A. Yes. 6719 1 Q. What was his background? 2 A. Lovett was a banker. At one point, it 3 was decided that we needed a pure banking 4 operation to do more commercial lending; and it 5 was a subsidiary that he was the head of. 6 Q. And so, did he bring any particular 7 expertise to the loan committee? 8 A. He certainly did on the credit side 9 probably and on commercial loans, business-type 10 loans. Real estate, I don't know how much 11 expertise he had in that area. 12 Q. Okay. Mr. Bentley we've already 13 discussed. Do you remember that Phil Breland was 14 on the senior loan committee? 15 A. For a while, yes. 16 Q. And what was Mr. Breland's background? 17 A. A commercial lender. I mean commercial 18 real estate lender. He had worked for both the 19 lender as well as for mortgage banking and had 20 quite a bit experience in income-producing 21 property and some land. 22 Q. Mike Crow was also on the senior loan 6720 1 committee, correct? 2 A. That's correct. 3 Q. What type of expertise did he bring to 4 the committee? 5 A. Pretty -- his expertise was more 6 financial. He could look at financial statements. 7 He could tell us kind of how the risk of that loan 8 fit into the overall perspective of the 9 association, but he really didn't have that much 10 lending expertise. 11 Q. Would it be fair to say that one of the 12 reasons he would be on the committee is that -- so 13 he could get information about loans in the 14 pipeline and understand what funding -- fundings 15 would have to be made? 16 MR. LEIMAN: Object to the question, 17 Your Honor. The witness testified earlier that he 18 was not familiar as to how different persons got 19 on to the senior loan committee. He had never 20 been to a board of directors meeting during his 21 tenure. 22 THE COURT: I'm not sure that was the 6721 1 question. 2 MR. DUEFFERT: It has nothing to do 3 with how they got on. It's the type of expertise 4 that various personnel brought to the committee. 5 THE COURT: All right. Denied. 6 A. Well, it's a two-way street. I think 7 for him to know what we're doing and for him to 8 impart what he thought liquidity needs were and 9 what we were -- where we were as far as that 10 aspect of our balance sheet. 11 Q. (BY MR. DUEFFERT) We've already 12 discussed Mr. Childress. We've already discussed 13 Mr. Gross. 14 Delores Jackson, was she on the loan 15 committee? 16 A. For a while, yes. 17 Q. And what was her background and 18 expertise? 19 A. Delores worked under us as head of the 20 single-family construction. She supervised and 21 ran that portfolio of ours. 22 Q. Charles Patterson, do you recall that 6722 1 he was on the committee? Charlie Patterson 2 perhaps? 3 A. Charlie. I never heard "Charles" 4 before. Charlie ran our mortgage operation, 5 single-family mortgage company. 6 Q. Okay. And finally, do you recall that 7 Jerry Williams was also on the committee? 8 A. Correct. 9 Q. And I think we've already discussed 10 him. 11 One more name I have is Jefferson Gray 12 or Jeff Gray. Was he on the committee at any 13 point? 14 A. At some point in time, he was. I'm not 15 sure at what dates. 16 Q. All right. And what was his expertise? 17 A. Jeff came from American General. He 18 had quite a bit of real estate expertise. He was 19 involved in American General's real estate 20 portfolio, was involved in quite a bit of 21 sophisticated developments. 22 Q. Even though different individuals 6723 1 brought different sets of skills to the loan 2 committee, what -- was decision making basically 3 operated as a matter of consensus? 4 A. No. I mean, it's like any other loan 5 committee. I mean, there were some people who 6 were for it and some people who were against 7 different areas that we looked at. So, I mean, 8 not everybody agreed with everything we did. 9 Q. Okay. Did the senior loan committee 10 generally meet every week? 11 A. Typically, I think we had a standard 12 meeting date; and we could call special meetings 13 if something was more urgent. 14 Q. And was it your practice to discuss 15 more than one loan at most committee meetings? 16 A. Typically, yes. 17 Q. Typically, maybe five to ten loans? 18 A. Different periods of time, we had 19 different demands. 20 Q. The members of the committee would 21 review documentation regarding these loans as 22 necessary? 6724 1 A. Well, whatever was presented, yeah. 2 Q. Would the members of the senior loan 3 committee generally be expected to scrutinize 4 carefully appraisal reports? 5 A. Not typically, no. 6 Q. Who would do that work? 7 A. Generally, the loan officer. 8 Q. And with regard to Park 410 and 9 Norwood, I believe you were the loan officer on 10 both of those credits, were you not? 11 A. Correct. 12 Q. Apart from appraisal review, what other 13 types of activities would the members of the 14 senior loan committee rely on you to do? 15 A. Well, I mean, more or less, what the 16 loan officer would do is would put in a 17 presentable form the information relative to the 18 decision on that particular project and either do 19 it in written form or then articulate it at the 20 presentation if they wanted further information. 21 Q. And do I understand that the more 22 significant credits at United like Park 410 and 6725 1 Norwood would typically be discussed at a series 2 of loan committee meetings? 3 A. Not necessarily loan committee 4 meetings, but they would be discussed. I mean, 5 you wouldn't take in a project, cold turkey, of 6 that nature. First, because the chances of 7 getting approval were slimmer. Second of all, 8 there is no way they could absorb all that 9 information in that period of time of that big a 10 project. 11 So, typically, we would keep everybody 12 informed about where we were going with it and the 13 steps -- what we discovered prior to getting 14 there. So, truthfully, going in in a larger deal 15 like that, they were pretty well primed on what 16 the information was going to be. 17 Q. Do you recall if that process happened 18 with regard to the Park 410 and Norwood loans? 19 A. Yeah. It did, yes. 20 Q. I think you testified that perhaps 21 eight or so people supported your work in the real 22 estate department. I'd like to also talk about 6726 1 their backgrounds. You did testify about Karen 2 Wynans two weeks ago? 3 A. Yes. 4 Q. And I think we just talked about Phil 5 Breland. They were both in the real estate 6 department? 7 A. At some point, yeah. 8 Q. You mentioned Mr. Ray Chilton in your 9 testimony. I don't think you really told us about 10 him. What was his background? 11 A. Raymond's background was pretty much in 12 land development, and he had worked for a company 13 called Terramar Properties out of Corpus and was 14 actually on the development side for quite a few 15 years. Gem knew him personally and he joined us 16 and he brought a lot of expertise in land, land 17 development. 18 Q. Andy Bergeron? 19 A. Andy Bergeron was a gentleman who had 20 worked for MCO on one of those subsidiaries in 21 Los Angeles and joined us -- when they shut down 22 that operation, he joined our group. He handled 6727 1 some of the Florida properties and a few other 2 things. 3 Q. Susan Mulvey? 4 A. Susan was basically a clerical 5 assistant. 6 Q. Roseanne Remmert? 7 A. Was my secretary. 8 Q. Mary Ellen Ambrose? 9 A. Mary Ellen was an employee of Houston 10 First Savings when we acquired Houston First 11 Savings in the early 1980s. Her expertise was 12 pretty much land development. She had handled 13 Houston First's large real estate projects, the 14 largest one being Mission Bend, a big residential 15 subdivision in Houston. 16 Q. When you say "handled," what do you 17 mean? 18 A. Well, she dealt with the MUD district. 19 She managed the development funds and was really 20 knowledgeable on how a subdivision was actually 21 developed all the way through the issuance of the 22 MUD bonds to the building of the streets and 6728 1 utilities. 2 Q. Finally, I have the name of George 3 West. Who was he? 4 A. He was an engineer, and we brought him 5 on staff to help us -- two reasons. One, to have 6 some internal knowledge about how a development 7 occurred, how to price utilities and so forth, and 8 second of all, to save money and not have the 9 outside source to have to pay extra to get the 10 same expertise. We did so many land 11 development -- or looked at so many land 12 development loans, it made sense to have that 13 expertise in-house. 14 Q. So, as an engineer, he would be 15 involved in making site visits and inspecting 16 properties before loans were approved? 17 A. In some cases, yes, depending on the 18 size and where we directed his activity. 19 Q. And when he would do that, what would 20 he look at? 21 A. Well, he would look at, first, the 22 feasibility of what they are projecting as far as 6729 1 the development and also look at the cost figures, 2 see if they are in line with what the market was 3 pricing such a development. 4 Q. As you sit here today, do you recall 5 any other members of the real estate department in 6 the mid-Eighties? 7 A. Yeah. There was a girl named Jenny 8 Jones that joined us sometime during that period. 9 She was, I think, if I recall correctly, pretty 10 much directly out of college but had a very good 11 background, MBA, very knowledgeable, very numbers 12 oriented. She joined us. And then a young kid 13 named David Wiley, I think, joined us near that 14 period of time, too. And he was pretty much -- he 15 had a marketing background, to some degree. He 16 had worked for a broker, and he knew how to -- so, 17 we got him more involved in selling some of our 18 properties. Those are the only other two I can 19 recall. 20 Q. At the time, did you feel that you had 21 a good team in place? 22 A. We thought we had a very diversified 6730 1 team, yeah. 2 Q. Before we get into the specifics of 3 these two loans, I'd like to talk a little bit 4 more generally about loan underwriting. 5 Was it your job in 1985, 1986 to help 6 bring in good loans that would make money for 7 United? 8 A. Oh, certainly one of the aspects of it, 9 yes. 10 Q. Do I understand correctly that, by 11 their very nature, all loans involve some element 12 of risk? 13 A. Oh, certainly. 14 Q. And so, as an underwriter, how did you 15 gauge whether the risk on a credit would be a 16 worthwhile one for United? 17 A. Well, there's really two levels. One 18 is my determination of risk and ultimately the 19 association's determination of risk. I mean, 20 there are a lot of things -- opportunities we saw 21 that I thought were easily determined that the 22 risk was too great. And it never got to the point 6731 1 where it was presented or it was discussed 2 internally. Generally, if I felt comfortable 3 enough with the risk, then maybe Gem and I talked 4 about it. Maybe we talked briefly with somebody 5 else and the senior officers and said, "This is 6 what we have here. Is there any interest to 7 pursue that?" If there was, then we would pursue 8 it and present it in a form that everybody then 9 could vote on that risk. 10 Q. With regard to the judgment you were 11 exercising, did you always do that in good faith? 12 A. Oh, certainly. 13 Q. The purpose of making loans -- and this 14 is very basic -- is to earn interest. Right? 15 A. Well, you have to get your money 16 working, yes. I mean, we're paying depositors for 17 their deposits; and we have to get an offset of 18 that, a spread, that will make a profit for the 19 association. 20 Q. And there was nothing wrong with 21 earning interest, was there? 22 A. Unless you're a hippie, no. 6732 1 Q. Would you say the same thing about loan 2 fees? 3 A. At that time, loan fees were very much 4 a part of the overall pricing process. 5 Q. All right. I think in your testimony 6 Mr. Leiman asked you several times about United, 7 open quote, "paying itself interest," close quote, 8 in the Park 410 and Norwood loans. 9 Do you recall that? 10 A. Yes. 11 Q. Both of those loans used interest 12 reserves, correct? 13 A. That's correct. 14 Q. Could you explain, what is an interest 15 reserve? 16 A. An interest reserve is money that's 17 built in to the loan proceeds to fund the carry -- 18 the interest carry of the project until it gets on 19 its feet, so to speak. It's pretty much typical 20 of the time that if a project was going to go 21 through some phase and development before it had 22 either an income stream or it was selling tracts 6733 1 for profit, the interest reserve was to carry that 2 project because the developers -- there was no 3 income off the project during that period. And 4 so, it was supposed to bridge that gap. 5 Q. And Mr. Leiman, I think, also asked you 6 some questions along the nature of "Was it typical 7 at United to do X or Y?" 8 When you're saying that it was typical 9 of the time to fund development loans with 10 interest reserves, are you saying that it was 11 typical only at United? 12 A. No. Typical of the market. 13 Q. And was it also typical in the market 14 that the proceeds of the loan would fund loan fees 15 until the point when the project is successful? 16 A. Typical. 17 Q. And was it also typical of the time 18 that -- at least in many development loans -- 19 borrowers did not put in cash equity? 20 A. Yeah. There were quite a few lenders 21 in the marketplace that required no equity 22 whatsoever. 6734 1 Q. That practice is frowned upon more 2 today? 3 A. Well, it's getting less frowned upon, 4 unfortunately. But it was, as a result of the 5 Eighties, pretty untypical. Every loan during the 6 early part of this decade required some equity, 7 yes. 8 Q. Now, the use of an interest reserve and 9 the recognition of loan fees out of loan proceeds 10 wasn't just some sort of accounting fiction, was 11 it? 12 A. Can you repeat that question? 13 Q. Let me try again. When you voted in 14 favor of the Park 410 and Norwood loans, did you 15 expect that the interest on the loan, as well as 16 the loan fees, would all eventually be funded from 17 the sale of tracts of land? 18 A. No. 19 Q. Could you explain? 20 A. Well, I mean, we had a portion of the 21 interest reserve built in and a portion of the 22 fees built in to be funded from the loan itself. 6735 1 Q. Right. But that interest and loan fees 2 wasn't just United paying itself interest, was it? 3 A. If you're asking did we anticipate the 4 sale of the property to pay off the full advance 5 of the loan which ultimately would have paid it, 6 yes. 7 Q. Okay. 8 A. If that's what you're getting at. 9 Q. I think that's what I was getting at. 10 Development loans were also no 11 different than other types of loans in that 12 borrowers applied for them. Right? 13 A. That's correct. 14 Q. United didn't force the borrowers of 15 Park 410 or Norwood to take these loans. Right? 16 A. Oh, certainly not. 17 Q. And the borrowers, in both cases, 18 wanted in good faith to finance their projects? 19 A. Oh, yes. 20 Q. Now, if United thought that the 21 projects were good ones, was it your job to find 22 or provide financing on the most advantageous 6736 1 possible terms for United? 2 A. Well, we certainly started off trying 3 to structure it in the most advantageous way for 4 us. It didn't always end up that way, obviously; 5 but that was our goal, our first effort. 6 Q. And as you negotiated with the 7 borrowers over such things as interest rates and 8 sizes of guaranties and amounts of equity and 9 sizes of loan fees and the size of United's equity 10 interest, if any, or equity kicker, I mean, all of 11 that was geared towards getting the most 12 advantageous possible terms for United? 13 A. It was all geared to getting the best 14 terms we could and maintaining the loan. 15 Q. Consistent, as well, with making sure 16 that the project itself was feasible. Right? 17 A. Well, that's probably the underlying 18 reason, yeah. 19 Q. Now, generally speaking, in loans, the 20 borrowers owned the property. Right? 21 A. I mean, is title in their name? Yes. 22 Q. Subject to United's lien? 6737 1 A. Correct. 2 Q. And with regard to Park 410, for 3 example, you couldn't just go in after the loan 4 was made in '86 and take over the project without 5 lengthy and expensive legal procedures? 6 A. That's correct. The rule of thumb in 7 lending is the lender has the clout to the day 8 they sign the papers. After they sign the papers, 9 the clout switches to the borrower's hands. 10 Q. The borrowers, in putting together a 11 loan, also were involved in paying commissions and 12 fees to other parties involved in the transaction. 13 Right? 14 A. That's correct. 15 Q. The brokers and lawyers and other 16 people involved in it were often paid through fees 17 and commissions? 18 A. Correct. 19 Q. Okay. And those fees were often funded 20 by the proceeds of the loan? 21 A. Typically, yes. 22 Q. And those commissions wouldn't be paid 6738 1 unless the borrowers, as well as United, signed 2 off on that? 3 A. Well, if we signed off on the closing 4 statement, yeah. Typically, we would; but 5 sometimes we weren't privy to all the trades. 6 Q. Was it really the borrowers' decisions 7 generally as to which fees -- who was being paid 8 which fees? 9 A. If it was a standard deal, yes, pretty 10 much up to the borrower. 11 Q. Okay. Guaranties. Guaranties support 12 a loan. Right? 13 A. Correct. 14 Q. And if the loan is paid off, guaranties 15 are automatically extinguished? 16 A. There is no loss. There is nothing -- 17 yeah. 18 Q. So, when, for example, United made the 19 30-million-dollar loan to the Norwood joint 20 venture in 1986 which paid off the earlier loans 21 on the property, the guaranties of Mr. Block and 22 Mr. Gordon had no further effect; is that right? 6739 1 A. That's correct. They weren't 2 guaranteeing anything that was on the books any 3 longer. 4 Q. They were guaranteeing a loan that was 5 gone? 6 A. Right. 7 Q. And so, there was no way for United to 8 force Mr. Block and Mr. Gordon to guaranty a new 9 loan that they weren't involved in. Right? 10 A. Well, you could try to demand it up 11 front. But they had no reason to, and they 12 didn't. 13 Q. And it doesn't typically happen? 14 A. No. 15 Q. Finally, just a point on the timing of 16 land sales. When you're talking about a 17 development project like Park 410 or Norwood, do 18 you usually expect to see, as Mr. Leiman would put 19 it, hard contracts for the purchases of the land 20 before you close the loan? 21 A. Well, even if you saw any contracts, 22 they certainly wouldn't be hard because they would 6740 1 be contingent upon everything delivered, 2 developed. But more than likely, you wouldn't get 3 that many land sale contracts ahead of time 4 because they would want to see proof, so to speak, 5 in the pudding that there actually were streets 6 and utilities going in and could have a more 7 definitive date of availability of that tract. 8 Q. And if there has been no infrastructure 9 at all put in, buyers tend to be not interested at 10 that point in doing much more than expressing 11 interest? 12 A. They tend to be skeptical, yes. 13 Q. Your job, as I understand it, was to 14 bring in good, long-term development projects 15 where possible; is that right? 16 A. Well -- and loans. I mean, I had two 17 functions: Look for good, long-term opportunities 18 and good, solid loans. 19 Q. Were you seeking just to generate 20 large, quick profits? 21 A. Both of the projects we're talking 22 about here were not designed to generate large, 6741 1 quick profits. I mean, we took a participation in 2 Park 410 because we believed there was a good, 3 long-term profit down the road; and that was 4 attractive to us. Like I said, Norwood, we also 5 felt that based on the history of Austin, that 6 that was a great location to be long term. 7 Q. Now, I think you indicated that you 8 turned down a good number of development 9 opportunities in the mid-1980s. Right? 10 A. Oh, yeah. A vast number. 11 Q. Did you turn down any development 12 opportunities in San Antonio and Austin? 13 A. More so in San Antonio. We didn't see 14 as many opportunities in Austin. It's a tighter 15 market, and we didn't see quite as many. But 16 San Antonio, we saw a vast number of opportunities 17 in the northern quadrant that we turned down. 18 Q. And what were the typical reasons that 19 you recall why you would turn down such 20 opportunities? 21 A. Well, generally, first, the price of 22 the land. On the northern side of San Antonio 6742 1 around San Benito and 1610 or whatever, 1604, 2 whatever you call the outside loop, the price 3 escalated pretty dramatically. There is a lot of 4 just feeding frenzy going on where people are just 5 churning the land. The prices were pretty pricey. 6 And then we didn't see anything new up there 7 happening that would dictate a demand for the 8 development. I mean, there is a lot of 9 competition and nothing unique happening up there 10 that would generate some reason to believe that 11 all that could get accomplished. 12 Q. When you say "up there," this is -- 13 A. San Benito. 14 Q. This is an airport. First off, this 15 blue area on this map is what? 16 A. 410. 17 Q. And is that the main loop around 18 San Antonio? 19 A. That's the main arterial loop, yes. 20 Q. And the green area is downtown? 21 A. Correct. 22 Q. When you're talking about the airport, 6743 1 it's just -- it's on the north side of the loop. 2 Right? 3 A. You take your finger. You go over to 4 the middle -- 5 MR. LEIMAN: Your Honor, could 6 Mr. Dueffert stand on the other side of this so we 7 could see it, what he's pointing to? 8 MR. DUEFFERT: I will try to do so. 9 All right. I'm sorry. 10 Q. (BY MR. DUEFFERT) Where are we 11 talking about as far as overbuilding here? 12 A. Take the airport and go into the "U." 13 No. All right. That, I think, is San Benito. 14 Q. This one right there? 15 A. Yes. And everything from there 16 straight up to 1604, that area above 1604 is 17 highly developed and was the hottest area, 18 theoretically, in San Antonio at the time. And 19 that's where we saw most of the opportunities. 20 Q. Okay. What was 1604? 21 A. It was a partially completed exterior 22 loop. 6744 1 Q. I think Mr. Leiman asked you what 2 factors generally you looked for in underwriting 3 development loans, and I think you identified 4 three factors. And correct me if I'm wrong. 5 Would it be fair to say that one 6 significant factor is the property and the market 7 for it? 8 A. Correct. 9 Q. Another significant factor is the 10 borrowers, their track record, their credit 11 worthiness? 12 A. Correct. 13 Q. And the third factor you look to is the 14 structure of the transaction? 15 A. Correct. 16 Q. How it's put together. What I would 17 propose doing is looking at those factors and then 18 these two loans that we're talking about. Let's 19 start with Park 410 and the property, Park 410. 20 First off, by the time you made the 21 development loan on Park 410 in 1986, you were 22 familiar with the property for a year and a half. 6745 1 Right? 2 A. That's correct. 3 Q. Back in 1984, do I understand that you 4 and Mr. Childress traveled around Texas looking 5 for good lending investment opportunities? 6 A. That may be an overstatement. We had 7 looked to the major cities. We hadn't gone over 8 the state of Texas, no. 9 Q. You were more interested in developed 10 regions than the middle of nowhere? 11 A. Yeah. We didn't want to path find. We 12 wanted to go someplace that had some historical 13 record of success. 14 Q. Okay. How did you, if you recall, 15 first come across Park 410? 16 A. It was brought to us by a broker. 17 Q. Do you remember the name of the broker? 18 A. Yeah. Roland Carey. 19 Q. And do you recall about when that 20 happened? 21 A. Not datewise. 22 Q. Did Mr. Gross or Mr. Hurwitz have 6746 1 anything to do with initiating your interest in 2 the property? 3 A. Not to my knowledge, no. 4 Q. You were familiar with San Antonio. 5 Right? 6 A. Yes. 7 Q. And San Antonio, as I understand it, 8 had been historically a very strong market for 9 real estate development, at least in the late 10 1970s? 11 A. It was strong. I wouldn't say very 12 strong. It was solid and consistent. 13 Q. What do you mean "consistent"? 14 A. Well, it seemed to not have the 15 dramatic swings that Houston had as far as 16 overbuilding. 17 San Antonio, as well as Austin, are 18 zoned. It makes a big difference in developing 19 there because it's a little more controlled. The 20 competition just can't come up overnight. 21 Q. There is no zoning here in Houston? 22 A. No. 6747 1 Q. Is that why the city looks the way it 2 does? 3 A. It's probably, in retrospect, the 4 biggest handicap Houston has. 5 Q. Could you explain a little bit more 6 about that? 7 A. Yeah. I mean, we're going through the 8 same dilemma today. You can -- in the city -- 9 I'll give you a really good example. We're 10 looking at an apartment project in Houston today, 11 finance, that makes a lot of sense today. But all 12 the neighboring land can be developed as 13 apartments, and the competition can come on stream 14 immediately. You really have no idea what the 15 competition is going to be. 16 We looked at a similar opportunity in 17 San Marcos, Texas. There are only four zone sites 18 for apartments. You can quantify what your 19 competition is going to be in the next two to 20 three years. In Houston, you can't because there 21 is no -- there is no way that -- to determine 22 what's going to go up and what tract will be used 6748 1 for what purpose. 2 So, it is -- it makes it more difficult 3 to operate in Houston. 4 Q. With regard to where Park 410 was in 5 San Antonio, if this area up here was overpriced 6 by the airport, what was happening by way of 7 development in the area -- the northwest quadrant 8 of Loop 410? 9 A. That quadrant had been basically 10 ignored until Sea World announced their 11 development and kind of put a reemphasis on that 12 portion of San Antonio. Primarily, the north and 13 a little bit to the northeast had been developed. 14 The south had been totally undeveloped, and the 15 west had been kind of ignored. It was -- it's a 16 little tougher terrain. 17 Q. Had the area on Loop 410 a little bit 18 farther to the north started to undergo some 19 development as far as -- 20 A. Oh, yes. On all the loop itself, yes, 21 but not too far outside the loop. Not anywhere 22 out near 1604, no. 6749 1 Q. What was happening on the loop itself? 2 A. Mostly commercial development, land 3 development. You had some -- you had -- Alamo 4 Savings had done a project where they had some 5 research centers in there. They were getting some 6 retail. They were getting some hotel/motels. 7 They were getting some -- a lot of it had to do 8 with biological research and high tech. They were 9 getting a little bit of that business. And they 10 were pushing real hard -- San Antonio as a city 11 was pushing real hard to compete with Austin for 12 more high tech. 13 Q. Was it having any success in that 14 regard? 15 A. It wasn't as much success as Austin. 16 Austin is a more pleasant place to live. Austin 17 pretty much won out on that battle. By that time, 18 they were pretty well competitive. 19 Q. How far -- let's talk about a few more 20 things on this map. The orange dot there is where 21 Park 410 was. Right? 22 A. Correct. 6750 1 Q. And this other orange dot is where the 2 proposed Sea World was, correct? 3 A. Basically, as I recall, yeah. 4 Q. Okay. How far apart are those two 5 properties? 6 A. I can't remember distancewise. 7 Q. Would you think that 1.8 miles would be 8 a reasonable guess? 9 A. I couldn't even guess. I mean, to us, 10 what was more important is the traffic patterns 11 that we had because of that, not so much the 12 immediate location. 13 Q. And what traffic patterns are you 14 referring to? 15 A. Well, basically, our one site, the 16 southwest side, is along the highway that would 17 feed out to that development. So, everybody going 18 out that direction would go out that highway by 19 our site. 20 Q. And when you say "highway," we're 21 talking about something proposed that was called 22 the Northwest Expressway? 6751 1 A. That's correct. 2 Q. All right. And that is this blue line 3 that goes from Loop 1604 in towards downtown. 4 Right? 5 A. That is correct. 6 Q. All right. And that proposed freeway 7 was going to go and hook up with Highway -- is it 8 90 West? 9 A. Best I recall. It had a couple of 10 highways. 11 Q. All right. And it would do so near two 12 large military bases. Right? 13 A. That was not a great factor; but yes, 14 that's true. 15 Q. And your thinking in 1985, 1986 was 16 that highway, at least between Loop 1604 and 17 Loop 410, was going to carry a lot of traffic. 18 Right? 19 A. Well, if you notice, it's the only 20 really major thoroughfare out to that development 21 on that side. 22 Q. And there was also some residential 6752 1 going up in -- 2 A. Yes. 3 Q. Do you recall that Sea World was to be 4 one of the largest theme parks in the United 5 States? 6 A. I recall something like that being 7 promoted that way, yes. 8 Q. At the time, what was the thinking in 9 San Antonio about the importance of Sea World? 10 A. Well, they put a lot of emphasis on it. 11 I attended a couple of meetings which the mayor at 12 the time -- 13 Q. Mr. Cisneros? 14 A. Cisneros, yes, was the mayor. I mean, 15 they put a lot of emphasis on it. They thought it 16 was going to be a terrific benefit to the city, 17 more than it ultimately turned out to be. 18 Q. And when did Sea World open? 19 A. I can't tell you the exact date. 20 Q. Was it after the time you left United? 21 A. May have been. I just don't recall. 22 Q. It was after the time you closed the 6753 1 loan -- 2 A. Oh, yes. 3 Q. -- in December of '86. Right? 4 A. That's correct. 5 Q. When you were underwriting the Park 410 6 loan, did you make visits to the site? 7 A. Oh, yes, sir. 8 Q. How many? 9 A. I can't recall specifically because I 10 typically went to San Antonio for other reasons 11 and may have drove by the site. 12 Q. What would you look for when you 13 visited the site? 14 A. Well, visiting the site at one point 15 didn't matter much. Visiting the neighboring area 16 to see what was happening and what was going up 17 was more important. I mean, the site was a site. 18 It was just land. 19 Q. At that point, it was raw land. Right? 20 A. That's correct. 21 Q. When you're underwriting -- when you 22 were underwriting the 1986 development loan for 6754 1 Park 410, apart from visiting the site and driving 2 around the area, how else did you learn about the 3 property and its marketing potential? 4 A. Well, a combination of things. I mean, 5 as I testified earlier, we received quite a bit of 6 information from the borrower who had done 7 research. They had a partner, Grieshaber Roberts, 8 which was generally considered the best brokerage 9 firm in town, as part of their team. You know, we 10 looked at -- we were familiar pretty much with 11 what was happening in the general market. And I 12 think we even took a residential study called 13 Metro Study at the time that periodically gave us 14 updates on the residential and housing activity, 15 what areas were developing. 16 And so, there was a myriad of different 17 things we got input from. I can't recall 18 specifically each one of them. 19 Q. Might that have been American Metro 20 Study that you were referring to? 21 A. Yeah. It may have been called that 22 then. I think it's not called that now, but it's 6755 1 still around. 2 Q. And did they give you quarterly 3 presentations at United regarding the economy of 4 various cities in Texas? 5 A. Yeah. And I'll be honest. I think 6 they gave us quarterly on Houston and maybe 7 semi-annually on the other cities. I can't 8 recall. But I mean, we didn't get it the same for 9 every city, depending on the activity base in 10 every city. 11 Q. And when you say "it," you mean the 12 information? 13 A. The information, yes. 14 Q. You entered your original joint venture 15 with Mr. Rosenberg in March of '85, correct? 16 A. If you say so, yes. 17 Q. There was a management company called 18 GMR that was involved with the property. Right? 19 A. Gulf Resources, yeah. 20 Q. Gulf Management Resources? 21 A. Yeah, right. 22 Q. Could we have A10287, please. Do you 6756 1 recognize this as a May 22, 1985 letter to you 2 from Mr. Kenneth Gindy? 3 A. I recognize this letter. I don't 4 recall whether or not I -- I mean, I probably 5 received it. I can't recall specifically. 6 Q. All right. 7 MR. DUEFFERT: Your Honor, this is a 8 signed version of an unsigned letter that we 9 actually talked about last time Mr. Graham was 10 here. I would move A10287 into evidence at this 11 point. 12 MR. LEIMAN: No objection, Your Honor. 13 My only question is: Do we know the "T" number 14 that it was received under previously? 15 MR. DUEFFERT: Yes. The unsigned 16 version that had an extra note on it, as well, was 17 admitted at -- as T7061, and it's located at 18 Tab 644. 19 THE COURT: All right. I'll receive 20 A10287. 21 Q. (BY MR. DUEFFERT) Do you recall that 22 you had requested that you receive, regularly, 6757 1 copies of internal meeting notes from GMR? 2 A. That's correct. 3 Q. And do you recall that you did 4 regularly receive copies of meeting notes from 5 GMR? 6 A. Best of my recollection, yeah. 7 Q. Okay. And attached to the cover letter 8 is a file note of a May 7, 1985 meeting, correct? 9 A. Correct. 10 Q. Could we have Exhibit B466? 11 Mr. Graham, Exhibit B466 is a compilation of 12 various meeting minutes that we found in United's 13 files. 14 Do they appear to be the type of 15 information you were regularly receiving from GMR? 16 A. They appear to be so, yes. 17 MR. DUEFFERT: I move to introduce 18 Exhibit B466. 19 MR. LEIMAN: Your Honor, at this 20 moment, I'm going to object to this stack of paper 21 that was just handed to me until I have an 22 opportunity to see what it is and certainly until 6758 1 the witness has had an opportunity to review it to 2 see if he's received it. There were several 3 documents that I showed him that he just couldn't 4 tell if he'd ever gotten. 5 So, I would ask, minimally, the same be 6 done in connection with this exhibit, that each of 7 these be -- the foundation be laid. 8 THE COURT: All right. I'll delay 9 receipt of the documents. And you said they were 10 the kind of documents he received. He doesn't 11 know whether he got these. I'm not sure what -- 12 MR. DUEFFERT: All I am attempting to 13 show is the character of the information that 14 United was receiving from GMR. I am not going to 15 ask him any questions about details in the 16 documents, and I don't suggest that they have 17 evidentiary value beyond establishing the type of 18 work that GMR was doing at the time. I'll also 19 point out that we did provide OTS with a copy of 20 this exhibit about two weeks before the hearing. 21 MR. LEIMAN: Your Honor, I'm not 22 certain what point would be made by determining if 6759 1 this is the kind of information he might have 2 gotten. I'm sure he received many, many documents 3 in his position. Until the relevance can be 4 established at least, I don't see any point to 5 admitting them into the record. 6 THE COURT: All right. I'll sustain 7 the objection. 8 Q. (BY MR. DUEFFERT) Mr. Graham, could 9 you please explain the type of work that GMR was 10 doing on the Park 410 property during 1985 and 11 early '86? 12 A. Well, they were at that point really 13 doing several things. One is they were planning 14 the development of the tract to include the 15 development of which tracts, what type of tracts 16 we developed, the usage of those tracts, working 17 with the City for the approvals and the zonings 18 and the utility capacity needs, the service, the 19 type of development proposed for those tracts. 20 Likewise, they were also costing out and getting 21 bids on what the cost to develop the tracts would 22 be, both the streets and utilities. And then 6760 1 thirdly, they were working with Grieshaber Roberts 2 on determining a profile of the users and who they 3 would market the tracts to. 4 Q. Was GMR a reputable firm? 5 A. We were not familiar with them prior to 6 this involvement with them in this -- at this 7 particular project, but we had checked on them. I 8 had contacted my -- people I knew at Trammel Crow, 9 and they had done business with them and 10 recommended them. 11 Q. Did they appear to you to do competent 12 work? 13 A. They appeared to be very knowledgeable, 14 yes. 15 Q. And would it be fair to say that among 16 GMR's tasks was to evaluate the Park 410 property 17 to ensure that full-scale development of it made 18 good economic and engineering sense? 19 A. Oh, that's really what I was trying to 20 point out earlier, yes. 21 Q. During your joint venture with 22 Mr. Rosenberg but before United made the 6761 1 development loan in 1986, did you also review 2 engineering studies from a firm by the name of 3 Pape-Dawson on the property? 4 A. They were involved. We probably did, 5 or maybe George West did or somebody did. But I 6 don't specifically -- I didn't spend so much time 7 on them because I'm not an engineer. 8 Q. B600. Exhibit B600 is entitled "Park 9 410 West - Preliminary Cost Estimate, 10 October 1985." It was prepared by Pape-Dawson 11 Engineers. And if you look on the upper 12 right-hand corner of the first page of the 13 exhibit, it says that it was an annex to the loan 14 application. 15 Does this appear to be a document that 16 you would have seen in underwriting the loan? 17 A. I may have, yes. 18 Q. And was it your practice at United to 19 make sure that you or someone looked at this 20 information? 21 A. Oh, yeah. We probably did. George 22 West may have looked at it. That's why we had him 6762 1 in-house. 2 MR. DUEFFERT: I move the introduction 3 of Exhibit B600. 4 MR. LEIMAN: Your Honor, in the absence 5 of this -- the rest of this application, Annexes A 6 and B, I'm not certain that we can -- that the 7 witness is able to verify what application was 8 part of his testimony, that other institutions had 9 been applied to for loans by GMR. 10 If there is an entire loan application 11 document that Mr. Dueffert would like to put in, 12 we would have no objection to that so long as it 13 went to United. 14 MR. DUEFFERT: Your Honor, we're 15 getting into an issue here. There is an 16 allegation that this was a poorly-documented loan. 17 We have the files of United which have been 18 scattered all over the place. The FDIC went in, 19 investigators went in, law firms went in. There 20 are many documents that don't have enclosure 21 letters. But I think we have a right to show that 22 this witness did the type of due diligence that he 6763 1 said he did. And the fact is this loan was 2 documented to death. And I think we have a right 3 to take documents from United's files and put them 4 into evidence to show the type of work they were 5 doing. 6 THE COURT: Well, this one says 7 "Park 410 West Loan Application." It has some 8 presumptive validity of being part of the loan 9 application. I'll receive the document. 10 Q. (BY MR. DUEFFERT) Mr. Graham, was 11 Pape-Dawson a reputable firm? 12 A. Very much so, in our opinion. 13 Q. Why was that? 14 A. Well, we had done some checking on 15 them. We had known their work previously in some 16 of the other projects. And the best we knew, they 17 were probably one, if not the best, in 18 San Antonio. 19 Q. And they were headquartered in 20 San Antonio? 21 A. If I remember correctly, they were, 22 yes. 6764 1 Q. Did you also, in underwriting the loan 2 and evaluating the marketability of the property, 3 review budgets for the borrowers' proposed 4 development? 5 A. Yes. 6 THE COURT: Mr. Dueffert, I'm looking 7 at the exhibit that I rejected, B466; and I see 8 some of them are directed to Mr. Graham. I mean, 9 I haven't seen these documents before; but I think 10 they also have some presumptive validity. 11 MR. DUEFFERT: I will say for the 12 record that they are a good faith attempt at just 13 compiling documents from United's files. 14 THE COURT: All right. Received. 15 MR. DUEFFERT: B538. 16 MR. LEIMAN: Your Honor, may I just 17 inquire? Are you admitting all of B466? 18 THE COURT: Yes, I am. 19 MR. LEIMAN: Your Honor, my question is 20 this: Are you admitting all of them with his name 21 on them or all of these that are here, whether his 22 name appears or not? 6765 1 THE COURT: Well, I think they are all 2 similar. I'm going to receive them all. 3 Q. (BY MR. SCHWARTZ) Mr. Graham, what is 4 Exhibit B538? 5 A. It appears to be a general facts sheet 6 on the project itself. 7 Q. And again, is this the type of budgets 8 you received and reviewed for the project? 9 A. There is more here than budget; but 10 yes, this is typically what we would see. 11 MR. DUEFFERT: I'd like to move 12 Exhibit B538 into evidence. 13 MR. LEIMAN: Your Honor, I have the 14 same objection to this. 15 THE COURT: All right. Received. 16 MR. SCHWARTZ: One moment, Your Honor. 17 A10289. 18 Q. (BY MR. SCHWARTZ) I will show you 19 Exhibit A10289 and ask you to identify it for the 20 record. 21 A. It appears to be an application to us 22 for -- whether the development side or the loan 6766 1 side, without reviewing, I can't -- it must be for 2 the development loan, it looks like. 3 Q. And that's the Park 410 development 4 loan? 5 A. Yes, sir. 6 Q. And that is an application that you 7 received in the fall of 1985? 8 A. Best -- I mean, if there is a date on 9 here. I'm not sure of the date. I guess October, 10 it would be -- seems to be, yes. 11 Q. Would it be fair to call that document 12 a combination of a sales projection and a 13 feasibility study? 14 A. Well, it's -- I don't know if I'd go as 15 far as to say it's a definitive feasibility study, 16 but it addresses those kind of issues in here. 17 MR. DUEFFERT: I'd like to move the 18 introduction of Exhibit A10289 into evidence. 19 MR. LEIMAN: No objection. 20 THE COURT: Received. 21 Q. (BY MR. DUEFFERT) When you received 22 information from the borrowers, especially 6767 1 financial information, cost projections and 2 budgets, was it your practice at United to accept 3 that information at face value? 4 A. No. 5 Q. What would your department do to the 6 information that came in? 7 A. Well, depending -- if it was budget, we 8 would either use in-house people who had some 9 experience in evaluating budgets or employ a 10 third-party engineer to review it on our behalf. 11 Relative to marketing, we would do a 12 little -- we would do some outside checking 13 ourselves. It would depend on the type of 14 project, what kind of sources we used to do that. 15 Q. With regard to Park 410, do you recall 16 if you occasionally corresponded with Mr. Noel 17 Simpson of GMR about his projections? 18 A. I probably did, but I can't recall 19 specifically. 20 Q. B834. What is Exhibit B834? 21 A. It's an update. I can't tell if it's 22 in response to a question I had or whether it's 6768 1 just a general update in the course of updating us 2 periodically. 3 Q. Would that letter be fairly typical of 4 the type of dialogue you had with GMR regarding 5 its sales and cost projections? 6 A. Yeah. I think it would be typical. 7 Q. And for the record, the date on 8 Mr. Simpson's letter to you is 12 February 1986? 9 A. Correct. 10 MR. DUEFFERT: I move Exhibit B834 into 11 evidence. 12 MR. LEIMAN: Your Honor, I have no 13 objection to receiving the exhibit except -- 14 unless you can establish that there was a letter 15 that was going from the other side, it's not a 16 dialogue, I would think. It's a monologue. 17 MR. DUEFFERT: Your Honor, that's 18 absurd. 19 THE COURT: I don't know. If he 20 doesn't have an objection, the document is 21 received. The first paragraph indicates it's a 22 response. 6769 1 Q. (BY MR. DUEFFERT) Could you tell the 2 Court a little bit about the business plan for the 3 Park 410 property as that plan stood in, say, 4 early 1986? 5 A. My recollection on this is going to be 6 somewhat vague because this is the first time I've 7 seen this plan in some time. But in general, it 8 was a combination of commercial properties. Along 9 the freeway was anticipated to have retail, motel, 10 fast food, that type of facility to feed off the 11 traffic. And then farther back would be some 12 office buildings; and then further back would be 13 some office warehouses, hopefully tied to high 14 tech. 15 Q. So, this is a map of the property, 16 correct? 17 A. Correct. 18 Q. All right. And the 410 Loop was on the 19 eastern edge of the property? 20 A. Yes. 21 Q. All right. And then this blue area 22 here is the proposed Northwest Freeway? 6770 1 A. That's correct. 2 Q. All right. And when you talk about 3 retail tracts and restaurants, you're talking 4 about the lots down on the south? 5 A. And along the -- up there on the east. 6 Q. Along the highways? 7 A. Yes. 8 Q. All right. And then there were 9 interior roads that would carry cars throughout 10 the development, correct? 11 A. Correct. 12 Q. And the tracts more inward in the 13 development would be used for office space and 14 perhaps warehousing? 15 A. Office, warehouse, that kind of 16 development. 17 Q. What about this B3 tract? 18 A. I can't remember what that was. I 19 don't recall. 20 Q. Do you recall about how long the 21 sell-out period for the development was planned to 22 take? 6771 1 A. Depending on different people's 2 opinion, eight to ten years. 3 Q. And again, what would be sold out of 4 the development would be tracts of developed land, 5 correct? 6 A. That's correct. 7 Q. And they would have utilities and 8 grading and zoning and curbs and streets. Right? 9 A. Correct. 10 Q. But then the buyers of these properties 11 would be the ones to actually physically build the 12 buildings that would go on them? 13 A. Correct. And let me add, I mean, some 14 of the buyers may be speculators. They weren't 15 all going to be users. 16 You're referring to a user scenario. We 17 anticipated some of the tracts would be sold to 18 speculators who would hold and sell to ultimate 19 users. 20 Q. Could we have Exhibit T7127, please? 21 This document has already been admitted. It is 22 located at Tab 710. 6772 1 Mr. Graham, what is this document? 2 A. Apparently, a marketing and feasibility 3 study. 4 Q. And was that a feasibility study that 5 you, as the proposed lender, requested from the 6 borrowers? 7 A. I can't -- well, whether I ordered it 8 or requested it, I can't tell you which one. 9 Q. Sometimes you would order that 10 feasibility studies be made? 11 A. Or sometimes I would request the 12 borrower to provide one. 13 Q. And what was the purpose of a document 14 like this? 15 A. Well, to basically -- to discover if 16 there are some things we don't know. We feel like 17 we knew the market, but there is always something 18 you could miss. And this was to kind of 19 supplement what we thought we already knew. 20 Q. And do you recall as you sit here today 21 anything about your reaction to that document when 22 it came in? 6773 1 A. Nothing dramatically. I mean, we knew 2 the market was somewhat softening. So, it wasn't 3 a surprise much, what was in here. 4 Q. What, if you remember, was the 5 bottom-line conclusion of the Tremar report? 6 A. I can't recall without reading the 7 whole thing again. 8 Q. Well, do you recall if the thrust of it 9 is that the Park 410 project would be viable or 10 feasible? 11 A. Oh, I'll be honest. I assume it must. 12 But I haven't looked at it, and I don't recall. 13 You're starting in on my 12-year memory, and it's 14 not there. 15 Q. But as a matter of procedure, if a 16 report comes in like that, you wouldn't just 17 accept its conclusions blindly, correct? 18 A. No. I mean, it's like anything else. 19 I mean, we'd approach it the same way we'd 20 approach the borrowers' projections. We'd kind of 21 make our own determination of how much of that we 22 believed and didn't believe. 6774 1 Q. Was one of the reasons you were willing 2 to proceed with financing of the Park 410 property 3 was that although the market had been softening, 4 you saw it as a long-term project? 5 A. That's correct. 6 Q. And that the actual lot sales, after 7 the development of the land, would take place 8 after one or more business cycles had happened? 9 A. As I testified earlier, yes. We 10 anticipated the business downturn not to be that 11 extensive in San Antonio, that we would be there 12 with finished product when the market turned 13 stronger. 14 Q. We talked about the property, Park 410. 15 I'd like to spend just a couple minutes talking 16 about the Norwood property. Again, that project 17 was in Austin. Right? 18 A. Yes, sir. 19 Q. And I think we've already talked a 20 little bit about the fact that Austin had a 21 history of pretty strong growth? 22 A. Austin was -- we thought was probably 6775 1 the most solid market in Texas at the time. 2 Q. It was a more diversified city than 3 Houston? 4 A. No. That wasn't really the reason so 5 much as it had a more stabilized base. But it 6 also had such severe ecological and political 7 controls over the growth that it never seemed to 8 get substantially overbuilt. It had charter 9 cycles. 10 Q. Do you recall that there was an oil 11 price dip in 1981 or 1982? 12 A. Oh, certainly. 13 Q. Why do you recall that? 14 A. Everybody in Houston recalls that. 15 Q. Did it have a pretty pronounced effect 16 here in Houston? 17 A. It did for a while, but it wasn't a 18 lengthy one at that point. 19 Q. It wasn't as severe as the effects of 20 the oil price collapse of early 1986? 21 A. No. 22 Q. Do you recall if Austin had been 6776 1 impacted very adversely by the oil price dip in 2 1981 and 1982? 3 A. Not really. It wasn't affected 4 dramatically. 5 Q. Norwood was located at a major 6 intersection. Right? 7 A. That is correct. 8 Q. Interstate 35 went north and south 9 along downtown. Right? 10 A. Correct. 11 Q. And US Highway 183 cut across roughly 12 east and west at that point? 13 A. Correct. 14 Q. Is it your understanding that that was 15 perhaps the busiest intersection in Austin? 16 A. No. I don't think that was -- that 17 wasn't as much a factor as the intersection south 18 of there, which is 290 and 35, was fully -- pretty 19 much fully developed. And this was the next 20 important intersection that had some tracts 21 available for development. 22 Q. So, you recall that this was perhaps 6777 1 the second busiest intersection in Austin at that 2 time? 3 A. I don't think busiest in the fact that 4 it was undeveloped; and it was an opportunity to 5 develop it similar as the success of 290 had been 6 developed, the tracts of 290 had developed. It 7 was the next logical intersection. That's 290 8 there where your hand is. 9 Q. Okay. And for the record, I am 10 referring to the site map of -- or neighborhood 11 map of the Austin area that is in Mr. Bolin's 12 appraisal dated June 1986. And the Bates number 13 on the blowup is OW015005. 14 As of 1984, the Norwood property was 15 vacant land. Right? 16 A. That is correct. 17 Q. And so, as of 1984, at one of the 18 busiest intersections in Austin, you have a big 19 plot, 100 acres of raw land. Right? 20 A. That's correct. 21 Q. It essentially cried out for someone to 22 do something with it? 6778 1 A. It was an opportunity. I'm not going 2 to say it was crying out, but it was an 3 opportunity. 4 Q. I got dramatic. I'm sorry. 5 I'd like to ask a couple questions 6 about something called the Austin Growth Watch 7 Report, which was an exhibit that Mr. Leiman 8 showed to you. It's Exhibit T7651, and it's 9 located at Tab 689. 10 Do you want to look through the 11 document, Mr. Graham? I think you'll find that 12 it's actually two different documents, this 13 exhibit. There is -- the first half of it is a 14 December 1984 copy of a Growth Watch Report by the 15 City of Austin. 16 A. Yes, sir. 17 Q. And then if you can find at Bates 18 No. OW195357, I think that's where a second report 19 begins. 20 A. What's the number? 21 Q. OW195357. 22 A. Okay. Hold on. Yes. 6779 1 Q. Okay. Do you recall -- you might want 2 to look through the document quickly and tell me 3 if you recall discussing it with Mr. Leiman two 4 weeks ago. 5 A. Yes, I do. 6 Q. All right. Do you recall a number of 7 questions he asked about the fact that the Norwood 8 property or the Deauville property, as I think it 9 was still being called in that report, was in a 10 24-square-mile area? 11 Do you recall questions about that? 12 A. Uh-huh. (Witness nods head 13 affirmatively.) 14 Q. If you turn to -- 15 A. I only have one question. 16 Q. Yes. 17 A. Looking at -- and I just noticed this. 18 Looking at the map you showed me on 63, if you go 19 back to -- 20 Q. You're talking about Bates No. 63 21 there? 22 A. Yeah. If you look at -- go back six 6780 1 from the very first. 2 Q. Yes. 3 A. There is another map. They have a 4 different definition of northeast in this watch. 5 Q. Than in the prior report? 6 A. Yeah. In this prior report, we're in 7 the north central definition. I mean, I don't 8 know if that means anything. I just noticed it. 9 Q. Well, I guess I was going to ask you to 10 look at the same map which you have identified as 11 being at Bates No. OW1956 -- I'm sorry -- 363. 12 A. Yeah. 13 Q. Does that appear to you to be a map of 14 the 24-square-mile area that Mr. Leiman was asking 15 you about? 16 A. The one he was referring to, yes. 17 Q. And for the benefit of the Court, I'll 18 just ask you to identify where in that 24 square 19 miles the Norwood property was located. 20 A. In the southwest corner. 21 Q. In the very southwest corner, correct? 22 A. Yes. Very southwest corner. 6781 1 Q. And that is the corner of that 2 24-square-mile area that is the closest to 3 downtown Austin, correct? 4 A. That is correct. 5 Q. And would you say that that would be 6 one of the best situated sites in those 24 square 7 miles? 8 A. It was our assumption that it would be 9 developing from the city outward. So, it would be 10 one of the earlier tracts to be developed and 11 utilized. 12 Q. And to the extent that the report -- 13 the Austin Growth Watch Report of March 1986 14 was -- I think Mr. Leiman talked about sounding a 15 note of caution or something like that. 16 Do you recall that he characterized -- 17 A. I don't recall the characterization, 18 no. 19 Q. Do you recall that this report talked a 20 lot about proposed but not yet approved 21 developments? 22 A. Typically, the City, when they do their 6782 1 reports, are based on what has been presented to 2 them, not necessarily -- what has tentatively been 3 platted but not necessarily finally platted. 4 Q. If you look at Bates No. OW195383. 5 383. 6 A. Yeah. These are the statistical 7 numbers, Table 5? 8 Q. Table 5. I think Mr. Leiman asked you 9 about some of what he characterizes as "competing 10 projects." 11 Do you recall that? 12 A. I don't think we had that discussion. 13 Q. Okay. I would ask you then only one 14 last question. At this point, the Deauville 15 project, which is listed as No. 9 on the chart -- 16 A. Right. 17 Q. -- has an asterisk next to it, 18 correct? 19 A. Right. 20 Q. And does that asterisk indicate that it 21 is an approved development -- 22 A. That is correct. 6783 1 Q. -- which distinguishes it from many of 2 the other developments discussed in the report? 3 A. Certainly. 4 Q. Do you recall with regard to the 5 Norwood property that Mr. Krasovec and Mr. Minch, 6 the borrowers, were interested or did work to 7 market the property? 8 A. It was my impression they did, yes. 9 They had tentative contracts and had some 10 potential customers, yes. 11 Q. And do you recall that they did receive 12 some indications of interest from potential 13 customers? 14 A. Yes. 15 Q. Could we have T7012, please. This has 16 already been admitted into evidence. It is at 17 Tab 674. T7012. 18 Do you recall hearing about interest 19 indicated by a Mr. Henry Miller on the Norwood 20 property? 21 A. Well, Henry Miller was not referring to 22 a gentleman but referring to a company. 6784 1 Q. And was that a brokerage firm? 2 A. Yes. 3 Q. And was the Henry Miller Company 4 representing a potential buyer by the name of 5 Mr. Vernon Brown? 6 A. I can't recall that. 7 Q. Do you remember if -- you indicate in 8 that memorandum that the Henry Miller Company was 9 interested in a large lot, correct? 10 A. 52 acres. 11 Q. Would that be Lot 1 of the Norwood 12 property? Do you recall? 13 A. Well, I can only recall that they 14 matched the acreage. I can't read from here what 15 Lot 1 says. 16 Q. Okay. 17 A. It may be. I just can't recall. 18 Q. Lot 1 and Lot 2 put together. 19 A. I can't recall. 20 Q. If you can't recall, that's fine. 21 Do you recall that there had been plans 22 to put in a shopping center on the Norwood 6785 1 property? 2 A. Originally, there would be a Deauville 3 center, I think, on Lot 1, some portion of that 4 lot. 5 Q. And Lot 1 had been intended to site 6 some sort of shopping center; is that correct? 7 A. Originally, yes. 8 Q. I note also in this memorandum, on the 9 bottom of Page 1, you indicate that you're 10 favorably inclined to reducing the size of the 11 interest reserve on the proposed loan. Is that 12 fair? 13 A. If the sales occurred, then they would 14 have cash flow; and if they are quicker than 15 originally scheduled, that would generate cash for 16 servicing debt. 17 Q. Okay. And would that serve to reduce 18 the size of the principal on the interest reserve? 19 A. Yes. I mean, it obviously would reduce 20 the whole loan amount. 21 Q. Okay. Were you in favor of that? 22 A. Any time we could, I would. 6786 1 Q. Could you explain? 2 A. Well, I mean, if you could have less 3 loan exposure against a piece of collateral, then 4 you certainly are in favor of it. 5 Q. Even if that would result in booking 6 less by way of loan fees and interest income? 7 A. That wasn't the consideration. The 8 risk was the consideration. 9 Q. And you wanted to reduce United's risk? 10 A. Yes. 11 Q. On Page 2 of the memorandum, you 12 indicate that you felt the project held the 13 prospect for quick success. 14 A. At this point in time, yes. 15 Q. And could you explain what you were 16 thinking? 17 A. Well, if that sale occurred, part of 18 that is the tougher tract; that Lot 1 is larger 19 and it's on the back side. If we could get those 20 two tracts sold, then -- Lot 7 and Lot 3 -- we 21 felt -- and Lot 4 were the more sellable tracts. 22 So, that put us kind of ahead of our -- I think 6787 1 what our game plan was. 2 Q. And a successful sale of Lot 1 might 3 trigger the rest of the lots to sell more quickly? 4 A. Well, we typically -- on a tract like 5 this, we think you'd work from the more attractive 6 frontages back and sell off the frontage first and 7 the back secondary. If we could have a sale of 8 the back first, then we're ahead of schedule, so 9 to speak. 10 MR. DUEFFERT: Your Honor, I think 11 we're done with our discussions of the two 12 properties. I'd like to move on, but it might be 13 a good time for a break. 14 THE COURT: All right. Take a short 15 recess. 16 17 (A short break was taken 18 at 10:30 a.m.) 19 20 THE COURT: Be seated, please. We'll 21 be back on the record. Mr. Dueffert, you may 22 continue. 6788 1 MR. DUEFFERT: Thank you, Your Honor. 2 (10:53 a.m.) 3 Q. (BY MR. DUEFFERT) I just have one 4 follow-up question. We were discussing the Austin 5 Growth Watch Report earlier. It is Exhibit T7651. 6 It is in your pile. 7 A. Yes. 8 Q. The first page of the exhibit indicates 9 that it was in the marketing file of a man by the 10 name of Mel Bloom or Blum? 11 A. Blum. 12 Q. Who is Mr. Blum? 13 A. As I had testified earlier, I think 14 that the question came up. He replaced -- when 15 Gem and I were terminated, he was brought on board 16 to fill our role. 17 Q. So, he joined United some point around 18 summer 1987? 19 A. Correct. 20 Q. And do you recognize either of the two 21 Austin Growth Watch reports that are part of that 22 exhibit? 6789 1 A. No. 2 Q. Does it strike you as entirely possible 3 that Mr. Blum added them to the file when he 4 joined United? 5 A. I have no idea. 6 Q. Thank you. I would like to now move 7 beyond the qualities of the properties and talk 8 about the borrowers, which I think you've 9 mentioned was the second thing you looked to in 10 underwriting a loan, correct? 11 A. Correct. 12 Q. In evaluating a potential borrower for 13 a development loan like Park 410 or Norwood, what 14 do you look for? 15 A. Their knowledge of the market, their 16 experience in the type of product they are 17 proposing to develop, their financial strength, 18 and part of that is the financial resources they 19 can bring to the project. 20 Q. Do you also look to their -- in the 21 case of developments, their track record perhaps? 22 A. That's what I meant by their experience 6790 1 in developing similar projects, yes. 2 Q. And do you also try to evaluate their 3 commitment to the project? 4 A. Well, certainly, yeah. 5 Q. Do you recall two weeks ago you 6 testified about a man by the name of Stanley 7 Rosenberg? 8 A. Correct. 9 Q. I think you said that he was a 10 prominent attorney in San Antonio as well as a 11 very successful real estate developer there. 12 Right? 13 A. That would be correct. 14 Q. He was United's partner in its original 15 March 1985 joint venture with regard to the Park 16 410 property. Right? 17 A. Correct. 18 Q. And he, in 1986, became one of the 19 borrowers on the 80-million-dollar development 20 loan, correct? 21 A. Correct. 22 Q. Could we have Exhibit B563, please. 6791 1 Mr. Graham, what is Exhibit B563? 2 A. It's a financial statement of 3 Mr. Rosenberg as of August '85. 4 Q. All right. As part of your 5 underwriting of the Park 410 loan, you obtained 6 financial statements from Mr. Rosenberg and other 7 borrowers, correct? 8 A. That's correct. 9 MR. DUEFFERT: Your Honor, I move 10 Exhibit B563 into evidence. 11 MR. LEIMAN: Your Honor, if I could 12 simply inquire as to whether or not this was in 13 the files of United at the time and whether 14 Mr. Graham recognizes this as something that he 15 relied upon. 16 THE COURT: Is this familiar to you 17 or -- 18 THE WITNESS: Yes, it is. 19 THE COURT: All right. Received. 20 Q. (BY MR. DUEFFERT) What was 21 Mr. Rosenberg's net worth as of August 1985? 22 A. 44 million 500 plus. 6792 1 Q. And how much of that -- how much of his 2 assets were liquid? 3 A. Without going through a calculation -- 4 I mean, 12 million cash, a million in shares in 5 Southwest Airlines which were very liquid. There 6 is probably more stock that was liquid, but I 7 can't -- 8 Q. Did he appear to also have a 9 well-diversified portfolio of holdings? 10 A. Yes, I would say so. He had a heavy 11 predominance in real estate. But for a real 12 estate developer, this is a very diversified 13 portfolio. 14 Q. He was a very wealthy man? 15 A. In our opinion, yes. 16 Q. And that was important to you in 17 underwriting the loan? 18 A. Oh, certainly, yes. 19 Q. Could you explain? 20 A. Well, if for some reason there are cost 21 overruns or they cannot perform as scheduled and 22 the so-called interest reserve was basically 6793 1 utilized, we would look then for the borrower and 2 his financial capabilities to meet the needs of 3 the loan. And with somebody with this kind of 4 liquidity and financial statement, we felt some 5 comfort level that he had some resources he could 6 tap to keep the loan current. 7 Q. I'd like to talk a little bit about 8 Mr. Rosenberg's background and track record. 9 Could we have Exhibit A1038? This has already 10 been admitted at Tab 146. 11 Mr. Graham, does this appear to you to 12 be the minutes of a February 1981 meeting of the 13 USAT board of directors? 14 A. It appears to be. I have not seen 15 them, but yes. 16 Q. I'll correct the date. January 28, 17 1981. 18 A. Yes. I mean, they appear to be, yes. 19 Q. I'd like you to turn to the page Bates 20 stamped 006977. 21 A. Hang on. My copy's not real clear. 22 Okay. 6794 1 Q. Do you see a reference at the -- 2 MR. LEIMAN: Your Honor, we don't have 3 a copy of that with us. 4 Do you have an extra copy of it, 5 Mr. Dueffert? 6 MR. SCHWARTZ: Again, it is Tab 146. 7 Q. (BY MR. SCHWARTZ) Have you found 8 Page 6977? 9 A. Yes, sir. 10 Q. Mr. Rosenberg was a partner in a law 11 firm in San Antonio, was he not? 12 A. Yes, he was. 13 Q. And what was the name of his law firm? 14 A. Oppenheimer, Rosenberg, Keltner 15 & Wheatley. 16 Q. Do these minutes reflect that 17 Mr. Rosenberg's law firm had been United's real 18 estate counsel in San Antonio at least as early as 19 1981? 20 A. Correct. 21 Q. How did Mr. Rosenberg first become 22 involved in the Park 410 project? 6795 1 A. As I testified earlier, we had had a 2 series of letters of intent and correspondence 3 back and forth between Alamo Savings and 4 ourselves. At one point, we thought we were very 5 close to having a finalized deal where we were 6 going to acquire the tract on our own behalf. 7 Gem Childress and I planned to visit 8 them. They asked us to come over and try to 9 hammer out the last issues. We asked 10 Mr. Rosenberg -- since we thought this was going 11 to be leaning towards maybe a potential contract, 12 we asked Mr. Rosenberg to attend on our behalf as 13 legal counsel. 14 Q. And why did you choose Mr. Rosenberg? 15 A. Simply that was the local firm we were 16 utilizing. 17 Q. And that was back in the fall of 1984? 18 A. Best of my recollection, that's the 19 date, yes. 20 Q. And so, do I understand that you and 21 Mr. Childress introduced Mr. Rosenberg to this 22 property, not the other way around; is that 6796 1 correct? 2 A. Best of my recollection, yeah. 3 Q. Do you recall, in underwriting the Park 4 410 loan of 1986, if you received financial 5 statements from any of the other borrowers? 6 A. I know we received something from Noel 7 Simpson, whatever it was. 8 Q. Exhibit B539, please. Mr. Graham, a 9 couple weeks ago, Mr. Leiman asked you about a 10 firm by the name of IPIC, I-P-I-C. I think you 11 testified that you had virtually no recollection 12 at that point of anything about them. 13 Do you recall? 14 A. I don't recall the name at the time, 15 yes. 16 Q. Does this Exhibit B539 refresh your 17 recollection in any way? 18 A. Well, apparently, this is a company 19 they were operating through on this venture, yes. 20 Q. When you say "they," who are you 21 referring to? 22 A. "They" being the Noel Simpson group. 6797 1 Q. And when you say "the Noel Simpson 2 group," that's opposed to Stanley Rosenberg, 3 correct? 4 A. That's correct. 5 Q. Do these appear to be financial 6 statements that you received in underwriting the 7 loan? 8 A. I can't recall if these are 9 particularly the ones I received, but they are 10 financial statements that we would typically 11 receive. 12 MR. DUEFFERT: Your Honor, I'd move 13 Exhibit B539 into evidence. 14 MR. LEIMAN: No objection, Your Honor. 15 THE COURT: Received. 16 Q. (BY MR. DUEFFERT) Finally, you 17 earlier today mentioned Grieshaber & Roberts, 18 correct? 19 A. Correct. 20 Q. I think Mr. Leiman asked you some 21 questions a couple weeks ago that suggested that 22 they were nothing more than a sales agent for lots 6798 1 in Park 410. 2 Were they, in fact, one of the 3 borrowers on the Park 410 loan? 4 A. They had a minority interest in that 5 relationship, yes. 6 Q. And do you recall the circumstances 7 under which they took a minority interest? 8 A. I'm not sure exactly what you're 9 asking, the circumstances. 10 Q. Do you recall that they actually were 11 owed a substantial commission because of the 1985 12 sale of the property and chose to put that 13 commission into equity in the 1986 loan? 14 A. They may have. I don't recall 15 specifically that. 16 Q. Do you recall if they -- Grieshaber & 17 Roberts -- had committed two to three full-time 18 people to market the Park 410 property? 19 A. I know they made a major commitment, 20 yes. 21 Q. They made a serious effort? 22 A. Yes. 6799 1 Q. Let's move on to the borrowers involved 2 in the Norwood loan of 1986. The original 3 borrowers, at least as far as United was 4 concerned, were Mr. Block and Mr. Gordon, correct? 5 A. Correct. 6 Q. What do you recall about Mr. Thomas 7 Gordon? 8 A. Mr. Thomas Gordon was a pretty 9 well-known developer in Houston. He had -- he 10 comes from a very successful family. He had done 11 several developments. But at the time we entered 12 into this arrangement with Mr. Gordon, his primary 13 focus was on developing off-price malls called the 14 Deauville Centers. 15 Q. And that was -- in 1984 and 1985, the 16 Norwood Park project was actually often referred 17 to as the Deauville project, correct? 18 A. At that point, yes. 19 Q. And the corporate borrower was referred 20 to as a Deauville joint venture? 21 A. I can't recall specifically, but... 22 Q. Who was Mr. Stephen Block? 6800 1 A. He was an associate of Mr. Gordon's. 2 Stephen was an attorney who had left the legal 3 practice to work with Mr. Block and be his 4 assistant. He didn't have a lot of financial 5 capabilities, but he was a bright kid. 6 Q. And he was also an experienced 7 corporate lawyer? 8 A. I don't really -- I don't know what his 9 expertise was in the legal profession at that 10 time. 11 Q. Now, Mr. Block and Mr. Gordon's 12 original loan in 1984 was simply to buy the 13 property and nothing more. Right? 14 A. That is correct. 15 Q. Do you recall anything about the 16 circumstances under which they bought the 17 property? 18 A. I mean, nothing unusual, no. Why? 19 Q. It's just a question. Was anything 20 budgeted as part of that original loan for 21 building roads or engineering drainage or anything 22 like that? 6801 1 A. I don't believe -- nothing budgeted for 2 development in that original loan without -- 3 saying again, I don't know if they had any 4 preliminary platting in it or not. 5 Q. And then on into 1985, you suggested to 6 Mr. Block and Mr. Gordon that they find some local 7 developers in Austin to handle zoning approvals; 8 is that correct? 9 A. I have to be honest. I don't know if I 10 suggested it or if Jenard suggested or if we both 11 suggested it. But typically we recommended people 12 to look at that possibility. 13 Q. And you don't know how the name of 14 Mr. Krasovec or Mr. Minch first came up? 15 A. It came up one when Tommy introduced 16 them to us; but how he met them, I don't know. 17 Q. So, he found them. Right? 18 A. Yes, he did. 19 Q. That's Mr. Gordon we're talking about? 20 A. Correct. 21 Q. Do you recall if Mr. Krasovec and 22 Mr. Minch had resources of their own? 6802 1 A. Yes, they did. Well, Mr. Krasovec did. 2 Q. Can we see Exhibit T7013, please? This 3 has already been admitted at Tab 675. 4 Mr. Graham, do you recall that 5 Mr. Leiman asked you some questions about various 6 line items on Mr. Minch's financial statement? 7 A. That's correct. 8 Q. Something about backing out the price 9 of a house? 10 A. Oh, yeah. I remember that discussion. 11 Q. Could you move beyond Mr. Minch's 12 statement and take a look at Mr. Krasovec's 13 financial statement? 14 A. Yes, sir. 15 Q. As of January 1986, what was 16 Mr. Krasovec's net worth? 17 A. According to this statement, 13,451,000 18 plus. 19 Q. Were you aware of the fact that some of 20 Mr. Krasovec's assets were in close corporations 21 whose stock was difficult to value? 22 A. Yes. 6803 1 Q. You would take that into account? 2 A. Yes. 3 Q. Did that fact -- was it important to 4 you as you underwrote the Norwood loan that was 5 eventually made in 1986? 6 A. Well, it had a positive and a negative. 7 I mean, not being extremely liquid was somewhat of 8 a negative. A positive aspect was it was 9 non-real estate oriented type aspects that gave 10 the financial statement a little more substance 11 than a typical real estate statement that's tied 12 totally to the market. 13 Q. When you or your staff would get a 14 financial statement like that, again, you wouldn't 15 just take it at face value, would you? 16 A. No, not typically. 17 Q. You would -- what would you do with it? 18 A. Well, if somebody like Mr. Rosenberg 19 had a lot of cash, we would try to verify that 20 there were substantial cash balances someplace. 21 If it was a marketable security, we'd check on the 22 marketability and try to do a little research on 6804 1 the securities. And a lot of the real estate we 2 were already aware of. We could do that almost 3 internally. 4 Q. And would you call that something of a 5 process of verification? 6 A. Yeah. It's -- and frankly, it's not as 7 detailed as we do in today's market; but that's 8 typical of what we did in those days, yes. 9 Q. And was it typical of what you did only 10 at United, or was it typical of the industry? 11 A. I think it was typical of the industry. 12 Q. Mr. Minch's and Mr. Krasovec's 13 financial statements weren't audited, were they? 14 A. No, they were not. 15 Q. Did you find that unusual? 16 A. Very few real estate developers had 17 audited statements. 18 Q. Was it true that many accounting firms 19 refused to audit the financial statements of 20 individuals as opposed to companies, corporations? 21 A. Our understanding, primarily, was it 22 was cost prohibitive for an individual to have 6805 1 audited statements. I can't answer that question 2 you asked. 3 Q. Okay. The final underwriting factor 4 that you've identified is the structure of the 5 transaction, structure of the deal. Right? 6 A. Correct. 7 Q. And an important factor in underwriting 8 a transaction is looking at the borrower's 9 commitment to the project in terms of guaranties 10 or equity. Right? 11 A. Correct. 12 Q. Okay. Can we have Exhibit A10257, 13 please? 14 Is this a document that's familiar to 15 you? 16 A. At that time, yes. 17 Q. If you look on Page No. 37 of the 18 document which bears the Bates No. 0004893, I 19 think you'll find your signature. 20 A. Yes. That is my signature. 21 MR. DUEFFERT: I'd like to move Exhibit 22 A10257 into evidence if it's not yet been moved 6806 1 into evidence. I don't think it has, but perhaps 2 we moved it in yesterday. 3 MR. LEIMAN: No objection. 4 THE COURT: Received. 5 Q. (BY MR. DUEFFERT) Did this -- well, 6 what is the date of this development loan 7 agreement? 8 A. April the 8th, '86. 9 Q. And was that the month in which the 10 Park 410 loan closed? 11 A. The development loan, apparently so, 12 yes. 13 Q. Does this agreement set forth the basic 14 terms of the Park 410 loan? 15 A. It sets forth a portion of the terms. 16 I mean, there is other documents such as guaranty 17 agreements, deeds of trust, that have other terms. 18 This is a -- this is more in line with 19 disbursement of the funds and how they are 20 handled. 21 Q. All right. Well, let's look at a few 22 of the terms. On Page 1, if you look in the 6807 1 paragraph with the little "D" in parentheses, it 2 notes that the initial advance on the loan was 3 $45,617,766.52, correct? 4 A. Correct. 5 Q. What were those funds used for? 6 A. Well, once again, it's best of my 7 recollection since I only see one number here. 8 But primarily, it would be to pay off the total 9 cost of the acquisition of the land, closing cost, 10 probably some pre-spent engineering expenses, 11 costs typically associated with the closing of the 12 loan and probably our fees, yes. 13 Q. Two paragraphs down, it lists 14 guarantors. 15 Do you see that? 16 A. Yes. 17 Q. Did this agreement require guaranties 18 from Mr. Rosenberg as well as Mr. Grieshaber, 19 Henry Roberts, M.R. Roberts, Alex Sachs, Daniel 20 Crump, and International Property Investment 21 Company? 22 A. Yes. 6808 1 Q. We've already talked about 2 Mr. Rosenberg and International Property 3 Investment Company, otherwise known as IPIC, 4 correct? 5 A. Yes. 6 Q. Mr. Grieshaber, was he a partner in the 7 Grieshaber & Roberts brokerage firm? 8 A. Yes, he was. 9 Q. Okay. Who was Henry Roberts? 10 A. I don't recall who -- I only met 11 Mr. Grieshaber. I don't recall which Roberts was 12 the partner and which was the son. 13 Q. Were Henry Roberts and M.R. Roberts 14 related? 15 A. I think they were. 16 Q. Do you recall anything else? 17 A. I think all five of those were 18 associated with Grieshaber, Roberts firm. 19 Q. Okay. And when you're speaking of all 20 five of those, who are you talking about? 21 A. Grieshaber, Roberts, Roberts, Sachs, 22 and Crump. 6809 1 Q. Okay. Do you recall that in 2 negotiating the loan, Stanley Rosenberg had argued 3 for no guaranties? 4 A. I don't recall specifically, but I 5 don't have a borrower who didn't argue for no 6 guaranties. So, it wouldn't have been a unique 7 request on the behalf of any borrower. But I 8 don't specifically recall him arguing that. 9 Q. Okay. Do you recall telling him or any 10 of the other borrowers that a deal with terms or a 11 deal of this size couldn't get done without 12 guaranties? 13 A. Oh, I think I certainly gave him that 14 impression. 15 Q. You essentially would have insisted on 16 guaranties? 17 A. We wouldn't have done it without 18 guaranteesguaranties. 19 Q. And do you recall anything about 20 Mr. Rosenberg's reaction to that? 21 A. Like I said, I don't recall the 22 conversation. So, I don't recall the reaction. 6810 1 Q. Okay. Do you recall that, pursuant to 2 this loan agreement, you also required the 3 borrowers to secure $10 million of the value of 4 the guaranties by irrevocable letters of credit? 5 A. Correct. 6 Q. Could you explain the origin of that 7 requirement? 8 A. Well, I mean, the more equity you get, 9 the safer your loan tends to be, the more interest 10 they have in it. Because in all honesty, 11 guaranties are simply guaranties. They may be 12 valuable at the time you need to call upon them; 13 they may not be. It's really something for the 14 future, and you're projecting. Cash up front is a 15 reality. It's there. It's a commitment. They 16 have real money in the project or somebody has 17 real money in the project, something to lose. 18 Q. Did you consider the letters of credit 19 to be equivalent to equity? 20 A. They were equity. 21 Q. Do you know of any ways in which they 22 would be better than equity into the project? 6811 1 A. Not better than equity. But I mean, as 2 you call upon them on default, you equivalently 3 have cash equity. 4 Q. Were irrevocable letters of credit a 5 typical feature of development loans at the time? 6 A. Well, I think you're really asking the 7 question was equity, cash collateral, typical of 8 the times because irrevocable letter of credit was 9 not always used. There were some banks still 10 trying to become equity. But the majority of the 11 lending market, particularly those in the Dallas 12 area, had gone to 100 percent financing and was 13 driving the market that direction. 14 Q. And where in the spectrum were you at 15 United? 16 A. We were someplace in the middle. 17 Q. Do you recall how the borrowers in Park 18 410 reacted to your requiring these letters of 19 credit? 20 A. I really don't recall those kind of 21 issues. 22 Q. If you turn to Pages 2 through 8 of the 6812 1 loan agreement, there is a long list of lettered 2 paragraphs. Generally, what were the nature of 3 the documents required in those lettered 4 paragraphs? 5 A. Well, they were a combination of the 6 legal documents required to close this 7 transaction, other documents to evidence certain 8 approvals or requirements that had been satisfied. 9 Basically, it gave a breakdown of those things we 10 need to receive as part of the closing package. 11 Q. Do you recall whether all of those 12 documents, in fact, were received by USAT before 13 the loan closed? 14 A. I can't recall if all of them had been, 15 no. 16 Q. Exhibit B3844, please. Mr. Graham, 17 would you take a look through Exhibit B3844 and 18 just tell me if that -- 19 A. You're kidding me. What do you mean by 20 "look through"? 21 Q. I'm asking you to take a general look 22 through it very quickly and just tell me if it 6813 1 appears to be the closing binders for the Park -- 2 or copies of a closing binder for the Park 410 3 loan that reflects, generally, receipt of the 4 legal documents required under the development 5 loan agreement for Park 410. 6 A. Yeah, they do seem to be. 7 MR. DUEFFERT: Your Honor, I hate to 8 litter the record with needlessly large exhibits, 9 but we do have this issue about adequate 10 documentation. And in light of that, I will move 11 Exhibit B3844 into evidence. 12 MR. LEIMAN: Your Honor, subject -- we 13 just got this copy. We have another copy of a 14 very, very similar compilation. Subject to our 15 reviewing it over the course of the day, we would 16 have no objection if this is the complete -- I 17 assume it's -- Mr. Dueffert, is this a closing 18 binder? Is that -- 19 MR. DUEFFERT: That is the best copy of 20 a closing binder that bears a Bates number series 21 that we are able to find from the files of United. 22 And of course, if there are any problems, we'll be 6814 1 happy to substitute in things reasonably. It is 2 important to us that this be in the record. 3 THE COURT: Received. 4 MR. LEIMAN: Your Honor, is it received 5 subject to our determining that it's complete? 6 THE COURT: Yes. 7 MR. LEIMAN: Okay. Thank you. 8 Q. (BY MR. DUEFFERT) Thank you, 9 Mr. Graham. I will have no questions about that 10 document. 11 A. Thank you. 12 Q. In the spring of 1986, did the terms of 13 the Park 410 transaction appear unduly risky to 14 you? 15 A. Based on our interpretation of what was 16 being financed in the marketplace, we felt those 17 terms, as they were structured with the guaranties 18 and the cash or the cash equivalent, were -- 19 tended to be very good terms. 20 Q. And by way of protection, am I correct 21 in thinking that United really had at least three 22 different things. You had a first lien on the 6815 1 property, correct? 2 A. Correct. 3 Q. You had what you referred to as top 4 25 percent guaranties, correct? 5 A. Correct. 6 Q. And you also had $10 million in 7 irrevocable letters of credit, correct? 8 A. Correct. 9 Q. Now, those letters of credit would 10 offset on the guaranties if they were ever 11 collected on, correct? 12 A. I can't -- depending on how we 13 structured it. I can't recall how we structured 14 that. 15 Q. In your opinion, based on your 15 or 20 16 years of experience as a loan underwriter at that 17 point, were the Park 410 and Norwood loans well 18 documented? 19 A. Documented, yes. 20 Q. I'd like to talk a little bit about the 21 fees and commissions involved in the transaction. 22 Could we have Exhibit A10298, please? Is Exhibit 6816 1 A10298 familiar to you at all? 2 A. I probably saw this, yes. 3 Q. Does this appear to be a borrower's 4 settlement statement on the Park 410 loan? 5 A. Correct. 6 MR. DUEFFERT: Your Honor, I move 7 Exhibit A10298 into evidence. 8 MR. LEIMAN: Your Honor, I seem to 9 recall there being several versions of this 10 statement. However, it clearly is a statement, a 11 settlement statement. And if the witness can 12 identify it as being a settlement statement, we 13 would have no objection to it being part of the 14 record. 15 MR. DUEFFERT: Your Honor, he already 16 did. 17 MR. LEIMAN: I would only ask, Your 18 Honor, is this part -- shouldn't this be part of 19 the volumes of closing documents that we've seen, 20 Mr. Dueffert? 21 MR. DUEFFERT: Your Honor, I think it's 22 easier for all of us if we look at a few 6817 1 individual documents by themselves rather than 2 having to figure out that. 3 THE COURT: All right. I'll receive 4 it. 5 Q. (BY MR. DUEFFERT) Could you turn to 6 Page 3 of this exhibit? Do you see on the -- 7 roughly in the middle of the page on the top of 8 the chart of checks being cut -- 9 A. Yes, sir. 10 Q. -- that there was what is described as 11 a 400,000-dollar loan fee to Mr. Stanley D. 12 Rosenberg? 13 A. Yes. 14 Q. Was it your understanding that the 15 amounts paid to Mr. Rosenberg were to satisfy all 16 of the legal fees due to his law firm for the work 17 it did for the borrowers up until closing? 18 A. A combination of the legal fees and 19 putting the partnership and bringing the 20 partnership equity to the table. Part of that 21 was, as I understood it, best of my recollection 22 at this point in time, is that he also -- it also 6818 1 covered the limited partnerships that were 2 invested in this project and his fees associated 3 with generating those partnerships and those 4 investments. 5 Q. And Mr. Rosenberg's firm, the 6 Oppenheimer firm, was involved in representing the 7 borrowers in the transaction? 8 A. They were the borrowers specifically, 9 yes. 10 Q. Who represented United? 11 A. Schlanger, Cook. 12 Q. And they were your regular outside 13 counsel for these types of loans? 14 A. They did the majority of our work at 15 this time, yes. 16 Q. The work of the Oppenheimer firm that 17 you've described was extensive, wasn't it? 18 A. Well, yes, because -- as I said before, 19 there was a myriad of partnerships and other 20 aspects that we weren't involved in that they did 21 on their side, putting their venture together. 22 Q. Did GMR or the borrowers, other than 6819 1 Mr. Rosenberg, involved in the Park 410 loan 2 approve the amounts shown on the settlement 3 statement, all of these commissions shown on 4 Page 3 of the exhibit? 5 A. It's my understanding they did, yes. 6 THE COURT: Mr. Graham, can you read 7 those names on the first page there? 8 THE WITNESS: Oh, the very first page? 9 THE COURT: Yes. 10 THE WITNESS: Okay. Yeah, sure. Let 11 me see. Apparently, the first signature is 12 somebody signing on behalf of that investment 13 corporation. No, I can't read the names. I can't 14 identify them, sir. I think the bottom one is 15 Grieshaber, but that's the only one I can 16 identify. 17 Q. (BY MR. DUEFFERT) Do you recall the 18 name of the attorney at Schlanger, Cook who 19 represented United with regard to this 20 transaction? 21 A. My recollection, it's probably Ellen 22 Lane. 6820 1 Q. And who was Ellen Lane? 2 A. Attorney for Schlanger, Cook. I mean, 3 she was one of their attorneys. We used -- we 4 basically predominantly used Steve Lerner and 5 Ellen Lane as the two attorneys that handled most 6 of our transactions. 7 Q. Did you feel that they were competent? 8 A. Oh, we felt very comfortable with both 9 of them. 10 Q. They did good work? 11 A. Yes, sir. 12 Q. Did you find Mr. Lerner and Ms. Lane to 13 be diligent in making sure that loans were 14 properly documented? 15 A. Detailed. 16 Q. They were very detail-oriented? 17 A. Yes. 18 Q. Did they review the substance of the 19 loans to determine compliance with laws and 20 regulations? 21 A. Generally, they advised us if they saw 22 something that they thought was a relevant issue 6821 1 to either a regulatory issue or to an accounting 2 law or something, yes. 3 Q. Looking back at the settlement 4 statement that we were just reviewing, does it 5 appear that Noel Simpson signed this on behalf of 6 IPIC? That would be -- it says "Park 410 West 7 Joint Venture" -- 8 A. That would be only a guess. That's 9 what that is, yeah. 10 Q. Okay. Turn back to the development 11 loan agreement itself. That was Exhibit A10257. 12 A. I have it, sir. 13 Q. Take a look at Page 6. 14 A. Yes. 15 Q. Do you see a requirement in the 16 agreement that appraisals comply with Memorandum 17 R-41B? 18 A. Yes. 19 Q. Was that a requirement in all of your 20 loans as of that time? 21 A. As of that time, yes. 22 Q. And do you recall if you were fairly 6822 1 diligent in making sure that when you talked to 2 prospective borrowers or borrowers about loans and 3 appraisals, that you specified that the appraisal 4 had to comply with R-41B? 5 A. I think at this time, it was a 6 relatively new requirement. I think we 7 consistently informed people that that was -- the 8 requirement was necessary because a lot of them 9 were not familiar with it. 10 Q. You yourself did not have great 11 familiarity with Memorandum R-41B, did you? 12 A. I was never really good at -- I was not 13 an appraiser, per se. 14 Q. That memorandum sets forth technical 15 appraisal standards, correct? 16 A. That's correct. 17 Q. Did you see it as your role to 18 basically specify to the professional appraiser 19 that your document should comply with R-41B? 20 A. Well, yes. I mean, we definitely 21 required them to conform to it, yes, and we looked 22 upon their expertise. 6823 1 Q. Finally, if you could move to Page 11 2 of the loan agreement. The last full paragraph. 3 If you could explain the nature of that paragraph, 4 it would be appreciate I have. Let me read it 5 into the record. It provides that United, open 6 quote, "Shall have no obligation to advance any 7 funds under the note in excess of $70 million 8 unless and until the lender," which is USAT, "has 9 received the formal approval of the loan and the 10 80-million-dollar amount of the loan by the board 11 of directors of lender. In the event such 12 approval is not obtained for any reason 13 whatsoever, the loan and the sums advanced 14 thereunder by the lender shall not exceed 15 $70 million." 16 A. Correct. 17 Q. Why was that language in this loan 18 agreement? 19 A. Because at the time, the authority 20 within the senior loan committee was limited to 21 70 million. That was the -- that committee could 22 approve any disbursement. Anything in excess of 6824 1 that had to go to the board of directors for 2 ratification and approval. 3 Q. And the borrowers who signed this 4 agreement were aware of that, correct? 5 A. Oh, certainly, yes. 6 Q. It was no secret? 7 A. No. 8 Q. And would the attorneys at Schlanger, 9 Cook have been aware of that provision? 10 A. They wrote it. 11 Q. Let's move on to talk about the 12 structure of the Norwood transaction. I recall 13 that Mr. Leiman asked you some questions about the 14 interest in fees that were recognized as the loan 15 was originally granted and then extended and 16 modified and then extended again and then finally 17 the 30-million-dollar loan was granted in 1986. 18 Do you remember those discussions? 19 A. Yes. 20 Q. With regard to the interest rate, for 21 development loan of this type, was there anything 22 unusual about -- unusual about a prime plus 6825 1 2 percent rate? 2 A. Not for a land transaction, no. 3 Q. I think you told Mr. Leiman that loan 4 fees of 1 percent or 1 point per year were also 5 typical, correct? 6 A. That's correct. 7 Q. And then he asked you if that was 8 typical at United, and you said correct. 9 Was that typical in the industry at 10 that time? 11 A. I think some lenders were more 12 aggressive than that. 13 THE COURT: What does that mean? 14 THE WITNESS: I think some -- excuse 15 me. I think some lenders, particularly ones that 16 were funding 100 percent or -- and maybe to 17 borrowers with less guaranties would charge you 18 more fees as an offset to a greater risk. 19 Q. (BY MR. DUEFFERT) So, as you looked 20 at elements of the package such as interest rates 21 and loan fees, you would also look to guaranties 22 and the perceived risk of the transaction? 6826 1 A. Pricing as related to risk, yes. 2 Q. If you had thought that the Norwood 3 project was going to be a failure, would you have 4 extended the loan or made the 30-million-dollar 5 loan in 1986 only to book interest and loan fees? 6 A. Oh, certainly not. 7 Q. Why not? 8 A. That was a very short-sided view point 9 in life at the time. In that period, we could not 10 see what was on the horizon. We were still 11 looking at being in the market, waiting it out, 12 and being a lender for some time to come. And we 13 were looking to solve problems long-term, not 14 short-term. 15 Q. Do you recall, going back to the 16 Norwood loan specifically, that in early 1986 or 17 thereabouts Mr. Gordon was having some problems in 18 Houston? 19 A. Yes. 20 Q. With his Deauville malls? 21 A. Yes. 22 Q. He was pumping cash into those malls, 6827 1 as you understood it? 2 A. Yes. 3 Q. And he was unable to support the 4 Norwood Park project in Austin? 5 A. That's correct. 6 Q. So, by the spring of 1986, the property 7 wasn't troubled, was it? 8 A. The borrower was troubled, not the 9 property necessarily, yes. 10 Q. And when you say "the borrower was 11 troubled," you mean Mr. Tom Gordon, correct? 12 A. That's correct. 13 Q. Now, during the spring of 1986, you 14 were engaged in negotiations with Mr. Krasovec and 15 Mr. Minch about how to finance the development of 16 Norwood Park, correct? 17 A. Well, I think several of us were, yeah. 18 Several of us had conversations with him, not just 19 exclusively me. 20 Q. Mr. Gross was also involved? 21 A. Yes. 22 Q. And do you recall anyone else who was 6828 1 involved? 2 A. I think other people may have sat in on 3 the meetings. 4 Q. The final approvals in June 1986 of the 5 senior loan committee and the real estate 6 investment committee for the Norwood Park 7 transaction, those approvals were made only after 8 much deliberation, correct? 9 A. Once again, we had gone through a real 10 lengthy growing process to get to that final 11 result. 12 Q. Now, the borrower on the 1986 Norwood 13 loan was a joint venture called Norwood United, 14 correct? 15 A. Best of my recollection, yes. 16 Q. And in that joint venture, Norwood 17 Properties, which was the firm that Mr. Krasovec 18 and Mr. Minch ran, was a partner with United 19 Financial Corporation, correct? 20 A. Correct. 21 Q. Okay. And in that joint venture, which 22 would own and develop the property pursuant to the 6829 1 financing package, United was the majority equity 2 partner. Right? 3 A. Primarily the equity partner, yes. 4 Q. Do you recall that United had a 5 62.5 percent interest? 6 A. Yes. 7 Q. And as such, it had a right to direct 8 the affairs of the project? 9 A. Correct. 10 Q. And did UFC do so? 11 A. Best of my recollection, yes. 12 Q. Were you involved in that process? 13 A. For a while. 14 Q. What did you do? 15 A. Well, I mean, we only got involved when 16 we saw things that were not going the way we 17 anticipated. I mean, as long as they were 18 marketing and giving us timely reports, as long as 19 the development of the tract was going according 20 to budget, our participation was more of a review 21 process. We didn't become really active in any 22 development unless there became issues that we had 6830 1 to get involved in or it was not going according 2 to the way we had anticipated it was going to go. 3 Q. Do you recall the point at which issues 4 started arising with the Norwood Park development? 5 A. Not a specific date, no. 6 Q. So, in the 1986 Norwood financing 7 package, you also had guaranties from Mr. Krasovec 8 and Mr. Minch, correct? 9 A. That's correct. 10 Q. And those were 25 percent guaranties? 11 A. I think they related to their 12 percentage of the ownership. 28.5 or 27.5, 13 whatever it was. 14 Q. And they -- 15 A. Best of my recollection. 16 Q. I understand that. They weren't 17 100 percent guaranties, were they? 18 A. No, they were not. 19 Q. How did you -- why were you willing to 20 proceed with financing the project without 100 21 percent guaranties from Mr. Minch and 22 Mr. Krasovec? 6831 1 A. Well, I think it had a little bit to do 2 with the fact that they only had that kind of 3 interest in the project. They guaranteed to the 4 amount that they had an economic return in the 5 project. 6 Q. Was the size of the guaranty also tied 7 to their wherewithal? 8 A. Well, I don't think so much as that, 9 no. I think it was really tied more to their 10 ownership position. 11 Q. And they had a minority equity stake in 12 the project? 13 A. Yes. 14 Q. Now, do you recall that you also 15 insisted on obtaining a buy-out option or an 16 option to renew Mister -- remove Mr. Krasovec and 17 Mr. Minch from the joint venture? 18 A. Yes. I wouldn't call it a buy-out 19 option; but we had an option available to us, if 20 they didn't perform, to take some action. 21 Q. Do you recall that the right of UFC to 22 remove Mr. Krasovec and Mr. Minch would be 6832 1 triggered if $10 million worth of sales weren't 2 reached by early 1988? 3 A. There was a three-year period, yes. 4 Q. I think it's a one-and-a-half-year 5 period actually. 6 A. I thought it was a three-year period; 7 but there was a buy-out, removal position, yes. 8 Q. Could you explain -- and that was 9 something that United required. Right? 10 A. That's correct. 11 Q. Could you explain to the Court the 12 rationale behind that option? 13 A. Yeah. Really, there's two. One is, 14 first of all, Krasovec and Minch were brought to 15 the project by Tommy. They were Tommy's partners, 16 not ours, not our partners necessarily by 17 selection. We didn't know them as well. And so, 18 it gave us a way to trigger an out of the 19 relationship if the relationship was not going the 20 way we thought it should. 21 Two, it just gives them a motivation to 22 perform. And so, really, it serves two functions. 6833 1 Q. The intent of it, though, was to 2 protect United. Right? 3 A. Well, the intent was to give us one 4 more option to utilize if we needed protection, 5 yes. 6 Q. And if United, under that option, later 7 chose to remove Krasovec and Minch because sales 8 hadn't happened, UFC would wind up with a 9 100 percent interest in the project. Right? 10 A. Yes, unless we just chose to find new 11 partners and give them some percentage. 12 Q. But as far as your dealings with 13 Mr. Krasovec and Mr. Minch, they would lose their 14 equity stake? 15 A. They would be history. 16 Q. And as far as being history, they would 17 also no longer have guaranties, correct? 18 A. That would be correct. 19 Q. And that would be a quid pro quo? 20 A. Yes. 21 Q. Since we've talked a little about 22 documentation this morning, I'd like to talk a 6834 1 little about the appraisals on the property. 2 Do I understand correctly that your 3 policy at United was not to use appraisals 4 obtained by the borrower? 5 A. Typically, no. 6 Q. It wasn't a hard and fast rule, but you 7 would prefer appraisals that -- 8 A. It would depend on the risk and the 9 size and a lot of other issues. 10 Q. Well, what motivated that preference? 11 A. Well, simply, we felt more comfortable 12 if the appraiser was our employee rather than 13 their employee. 14 Q. Now, with regard to development 15 projects like this, how did you view the role of 16 the appraisal and the appraisal report in the 17 underwriting process? 18 A. It was just one more, I guess, 19 certification of our assumptions. We basically 20 did our own determination of what things would 21 sell for, what values were. But the appraisal was 22 a re-certification of those assumptions. 6835 1 Q. And that's how you would especially 2 look at them in development loans where you were 3 very familiar with the property and had already 4 done extensive due diligence? 5 A. Pretty much, yes. 6 Q. So, the appraisal would be something of 7 a second opinion? 8 A. That's the best way to say it, yes. 9 Q. If the appraiser determined the value 10 significantly lower than what you would have 11 anticipated, what would you do? 12 A. You really had two choices. One is to 13 go back and restructure the loan to have the 14 borrower put in more equity, get the loan down to 15 a loan to value ratio that you're satisfied with, 16 or not do the loan at all. 17 Q. Are you familiar with a distinction 18 between an as-is appraisal and an as-developed 19 appraisal? 20 A. Yes. 21 Q. Could you please explain the 22 difference? 6836 1 A. An as-is appraisal is basically the 2 value of any property in its current state. If 3 it's land, it's land. If it's an empty office 4 building, it's an empty office building. 5 As-developed then takes, in the case of 6 land, the sale of all the individual lots or 7 whatever it is and then discounts them back to 8 today's value. They take that income stream and 9 discount it back. Office buildings, same thing. 10 Lease is up. The income stream would lease it 11 back. 12 So, the difference is one is a snapshot 13 of where you are today and the other one is a 14 perspective of where you can be if everything goes 15 well. 16 Q. And with regard to both Park 410 and 17 Norwood, the as-is appraisal would value the 18 property just as raw land. Right? 19 A. That's correct. 20 Q. Whereas an as-developed appraisal would 21 value the property after the streets and curbs and 22 grading and landscaping and utilities are all put 6837 1 in, correct? 2 A. That's correct. 3 Q. Now, as an underwriter for that type of 4 loan, a development loan, what kind of valuation 5 would you want to see? 6 A. I guess you have to be more specific. 7 Q. Well, in underwriting a development 8 loan, would you prefer to see an as-is or an 9 as-developed appraisal report from the appraiser 10 on the property? 11 A. What kind of loan? 12 Q. A development loan like Park 410 or 13 Norwood. 14 A. As-developed. 15 Q. Why? 16 A. Because that is ultimately what your 17 collateral is going to represent. After your 18 disbursements of the funds, you have a developed 19 piece of property. You need to know the value of 20 that property in that state. And that's what a 21 development loan represents. 22 Q. Could we have T7143? This has already 6838 1 been admitted at Tab 711. 2 Mr. Graham, this is an appraisal report 3 by a firm by the name of Love & Dugger dated 4 February 12th, 1986, correct? 5 A. Correct. 6 Q. Have you seen this document before? 7 A. Like I said before, I don't recall. 8 Q. Do you recall -- well, looking at it, 9 was this report an as-is appraisal or an 10 as-developed appraisal or -- 11 A. Let me look again. This appears to be 12 as-is. 13 Q. And what are you focusing on when you 14 say that? 15 A. Let me look again real quick. 16 Q. I can help you out, if you'd like. 17 A. Well, maybe you could. I'm trying to 18 figure out -- 19 Q. Let me point you to the page on the 20 exhibit that bears -- 21 A. All right. On Page VIII, it says 22 "improvements - none." 6839 1 Q. And that indicates to you that it 2 values the land without any improvements, correct? 3 A. Yes. 4 Q. Do I understand correctly, then, that 5 you would not have found the Love & Dugger 6 appraisal apparently useful for making a 7 development loan on the Park 410 property? 8 A. It would have no value. 9 Q. I also note that it is addressed not to 10 United but to the Park 410 West Joint Venture. 11 Do you see that? 12 A. Yes. 13 Q. What was the Park 410 West Joint 14 Venture? 15 A. I think that was the name of the group 16 that we were earlier involved in through Stanley. 17 Q. Okay. So, Mr. Rosenberg's joint 18 venture with Noel Simpson's group involving IPIC 19 was all together called the Park 410 West Joint 20 Venture, correct? 21 A. I can't tell you if IPIC was part of 22 that group at that time; but you're right, yes. 6840 1 Q. And so, this appraisal was essentially 2 addressed to the borrower? 3 A. Yes. 4 Q. Do you recall that at any point -- 5 A. Let me clarify this. At this time, it 6 wasn't a borrower. There was no borrower involved 7 at this point. So, I want to clarify the record. 8 This was addressed to the venture who had 9 contracted the land on a venture agreement. There 10 was no borrower at this point. 11 Q. At this point, we're talking about 12 February 1986? 13 A. I know. But I mean, that's not who our 14 borrower was anyway. 15 Q. Who was your borrower in 1986? 16 A. I guess it was. You're right. I'm 17 sorry. 18 Q. Actually, after lunch, we're going to 19 spend a little time cleaning up the time line 20 because I understand that this can be very 21 confusing and these both went through a lot of 22 permutations. 6841 1 Do you recall that at some point you 2 recommended to the Park 410 borrowers that they 3 obtain another appraisal by a man by the name of 4 Edward Schulz? 5 A. Yes. 6 Q. Why did you suggest Mr. Schulz? 7 A. Because we considered Mr. Schulz one of 8 our two or three best appraisers. We were very 9 comfortable with his work and his integrity. And 10 we just felt this size of a loan, we wanted 11 somebody that we were extremely confident in. 12 Q. And you felt he had the requisite 13 expertise to appraise a property like Park 410? 14 A. We certainly did. 15 Q. Did Mr. Schulz carry an MAI 16 designation? 17 A. Yes, he did. 18 Q. And what is does that designation 19 indicate? 20 A. I mean, I know it's the highest 21 qualification. I'm not sure what the letters 22 stand for. Master appraisal institution, I guess. 6842 1 Q. Do you recall if Mr. Schulz was later 2 regularly used by the FDIC to value properties in 3 Texas? 4 A. I know he has been. 5 Q. As of 1986, was Mr. Schulz experienced 6 in valuing more complex commercial and development 7 properties? 8 A. We felt he was, yes. 9 Q. Even -- Mr. Schulz is based in Houston 10 where United was, correct? 11 A. That's correct. 12 Q. Did you feel that he would, 13 nonetheless, have access to sufficient resources 14 in San Antonio to value the Park 410 property 15 properly? 16 A. Yes, because typically, appraisers 17 would have a relationship with other appraisers in 18 the market who would help them generate some 19 information. They wouldn't be totally lost for 20 that kind of help, particularly in a large market 21 like San Antonio. 22 Q. And Mr. Schulz appeared to have those 6843 1 types of relationships? 2 A. Yes. 3 Q. Did United view Mr. Schulz as being 4 among its most cautious and conscientious 5 appraisers? 6 A. We did. 7 Q. Exhibit A10331, please. 8 MR. DUEFFERT: Your Honor, this is a 9 version of Mr. Ed Schulz' appraisal dated 10 March 19, 1986. This version -- another version 11 of this document, if you'll recall, was admitted 12 as T7084, which is Tab 709. There were some pages 13 of a loan application copied into it, and we 14 objected at the time on the grounds that it was 15 kind of an improper exhibit, improperly assembled. 16 This appears to me to be a clean version of the 17 same exhibit. And that's the origin of this 18 document. 19 Q. (BY MR. DUEFFERT) Mr. Graham, does 20 this appear to you to be a copy of Mr. Schulz' 21 appraisal report? 22 A. It does. 6844 1 MR. DUEFFERT: I would, at this point, 2 move A10331 into evidence. 3 MR. LEIMAN: Your Honor, once again, 4 subject to comparing this to the "T" exhibit, we 5 would have no objection, assuming that it's the 6 same document. I notice the typeface looks a 7 little bit different; but otherwise, we'll be able 8 to tell right after lunch. 9 THE COURT: All right. Received. 10 Q. (BY MR. DUEFFERT) Did Mr. Schulz 11 present, through this appraisal report, an 12 as-developed value for the Park 410 property? 13 A. Yes, he did. 14 Q. And what valuation did he assign to the 15 property? 16 A. 80 million. 17 Q. The enclosure letter on the appraisal 18 is dated March 19, 1986. Right? 19 A. Correct. 20 Q. The senior loan committee approval on 21 the Park 410 loan was dated March 17, 1986. 22 Do you recall that? 6845 1 A. Yes. 2 Q. And so, you did not receive this 3 appraisal report until several days after the 4 senior loan committee approval. Right? 5 A. That's correct. But we probably had a 6 verbal audit on it because it takes several days 7 to take an appraisal in its final form and the 8 numbers had been derived usually three or four 9 days, maybe five days ahead of time. So, we 10 probably would have known what the results of the 11 appraisal were, not the details that got to the 12 results. 13 Q. Okay. Could you explain a little bit 14 more about your -- how you would have worked with 15 Mr. Schulz on putting together this appraisal or 16 what your communications with him would have been? 17 A. Well, my communications with Mr. Schulz 18 would have been somewhat limited during this 19 process. But we generally required that once they 20 had a definitive number in mind that was 21 supportable by the information that was going into 22 the document, that they would let us know, 6846 1 verbalize to us where they were valuewise so we 2 knew what that number was. Like I said before, we 3 wouldn't have maybe the luxury of knowing how 4 maybe the income stream was determined and what 5 the characteristics of the appraisal were utilized 6 to get that number. But if we felt very 7 comfortable with the appraiser, then we generally 8 assumed that we would be satisfied with how he got 9 to those results. But we at least had the number. 10 So, I would venture to guess that I went in that 11 day. We probably had a rough idea of what that 12 number was going to be. 13 Q. Okay. And then on March 17th, the 14 senior loan committee conditioned its approval on 15 receipt of the final appraisal report from 16 Mr. Schulz? 17 A. Correct. 18 Q. Was it unusual at that time in the 19 thrift industry to make approvals conditional on 20 receiving a final appraisal report? 21 A. It wasn't then, and we still do it 22 today. 6847 1 Q. And it wasn't just a practice at 2 United? 3 A. No. 4 Q. Did you, indeed, at United, wait until 5 you received the final appraisal report and had a 6 chance to make sure it was acceptable to United 7 before disbursing funds on the Park 410 loan? 8 A. I think we did, yes. 9 Q. In soliciting an appraisal from 10 Mr. Schulz or recommending Mr. Schulz to the 11 borrowers in Park 410, was United engaging in 12 appraisal shopping? 13 A. No. We really didn't think about using 14 but one or two appraisers we had in our portfolio. 15 We felt it was important to have that type of 16 appraisal comfort level. So, we picked one of the 17 two best we had. 18 Q. Did you feel in the spring of 1986 that 19 you had a good sense of what the raw land of Park 20 410 was worth? 21 A. Pretty much, yes. 22 Q. The property had been sold a year 6848 1 earlier in a third-party sale by Alamo? 2 A. Yes. 3 Q. And Love & Dugger did present an as-is 4 value in their appraisal report? 5 A. Correct. 6 Q. Did you feel that you also needed an 7 as-is value from Mr. Schulz for purposes of 8 underwriting the loan? 9 A. Well, I think it comes with the 10 territory. I don't know if we specifically 11 required it or whether that's just one of the 12 elements when he does his cost approach. 13 Q. And when you're talking about cost 14 approach, are you referring to Page 30 of 15 Mr. Schulz' appraisal? 16 A. I'll answer that when I find 30. Yes. 17 Q. And that page notes a land acquisition 18 cost of $41,824,000? 19 A. Yeah. That's more of a pure cost 20 approach. That's what it really cost. Not 21 necessarily what the land was worth, but what it 22 cost. 6849 1 Q. Let's, before lunch, just talk for a 2 moment about the appraisal on the Norwood 3 property. Can we have Exhibit B3828, please? 4 Mr. Graham, this is a 1985 appraisal by Mr. Bolin 5 on the Norwood property that's, I think, effective 6 a date -- 7 A. December 17th. 8 Q. December 17th, 1984? 9 A. Yes. 10 Q. Is this an appraisal that you received 11 at United? 12 A. We may have. I don't recall 13 specifically. 14 Q. Would this have been obtained in 15 connection with the original loan to Mr. Block and 16 Mr. Gordon to acquire the property? 17 A. I would assume it was. 18 MR. DUEFFERT: Your Honor, I'd move 19 Exhibit B3828 into evidence. 20 MR. LEIMAN: No objection. 21 THE COURT: Received. 22 Q. (BY MR. DUEFFERT) Did this appraisal 6850 1 report contain an as-is value for the Norwood 2 property? 3 A. I'm working on that. Yes. 4 Q. And what was that value? 5 A. $28,880,000. 6 Q. Now, Mr. Bolin is also the appraiser 7 who was used in connection with the 1986, 8 30-million-dollar loan on the Norwood property, 9 correct? 10 A. Correct. 11 Q. Was one of the -- well, who chose 12 Mr. Bolin? 13 A. I can't recall who chose him initially. 14 Q. So, you don't remember if one of the 15 reasons he was chosen was because he was familiar 16 with the property? 17 A. Well, that's a different question. 18 Q. If you could answer it, then. 19 A. Okay. He was an Austin-based -- I 20 mean, he had Austin experience and had done quite 21 a bit up there and was more familiar with Austin 22 than other appraisers we were familiar with in 6851 1 Houston. And I think that he was chosen because 2 of that familiarity with the market in general in 3 Austin. 4 Q. And you -- well, was he also MAI 5 designated? 6 A. He was. 7 Q. And you felt he was competent? 8 A. Yeah. We weren't quite as familiar 9 with him as we were Mr. Schulz, yes. 10 Q. But you nonetheless felt he was 11 competent? 12 A. We felt comfortable with him, yes. 13 Q. Do you recall that when the senior loan 14 committee approved the Norwood loan in June of 15 1986, once again, that approval was conditioned on 16 receiving Mr. Bolin's final appraisal report? 17 A. If you say so, yes. I don't recall. 18 Q. You don't recall? Again, that would 19 not be an unusual practice in the industry? 20 A. No. 21 Q. Finally, at that point, did United have 22 in-house appraisers conducting formal written 6852 1 appraisal reviews on documents like this? 2 A. No. It wasn't required at that time. 3 Q. And it was not even an industry 4 practice at that time, was it? 5 A. Best of my recollection, it wasn't, no. 6 Q. Okay. When did that practice come 7 about? 8 A. It came about because of the events of 9 the Eighties, to the best of my recollection. 10 Q. And what events are you referring to? 11 A. Basically, the number of loans that -- 12 and the problems with the loans throughout the 13 Eighties. 14 Q. And eventually, there were regulatory 15 requirements requiring -- 16 A. Yes. There are specific regulatory 17 requirements today. 18 Q. Those were not in place in 1986? 19 A. No. 20 MR. DUEFFERT: Your Honor, I probably 21 have about 45 minutes to an hour left. I think it 22 might be a good time to break for lunch. 6853 1 THE COURT: All right. We'll adjourn 2 until 1:30. 3 4 (Luncheon recess taken at 12:07 p.m.) 5 6 THE COURT: Be seated, please. We'll 7 be back on the record. 8 Mr. Dueffert, you may continue with 9 your cross-examination. 10 MR. DUEFFERT: Thank you, Your Honor. 11 (1:37 p.m.) 12 Q. (BY MR. DUEFFERT) Mr. Graham, I'd 13 like to clarify some points on the rather 14 convoluted time lines for these two loans. 15 First, Park 410. Am I correct in 16 thinking that as a result of your meetings with 17 Alamo in late 1984, the meetings at which 18 Mr. Rosenberg was present as United's attorney, 19 United made a cash offer for the Park 410 20 property? 21 A. No. We didn't make a cash offer. 22 Q. What were the terms of your offer? 6854 1 A. As I recall, it was 20 percent down and 2 financing terms. 3 Q. What was the amount of the offer? 4 A. I don't recall without seeing 5 something. 6 Q. Okay. Would it sound right to say it 7 was in the neighborhood of $37 million? 8 A. May have been. We had several offers 9 back and forth. So, I can't remember what 10 specifically we ended up with. 11 Q. Well, you lost that auction. Right? 12 A. Wasn't an auction. It was a negotiated 13 sale. It wasn't an auction by the technical term 14 of "auction." 15 Q. Your offer wasn't accepted? 16 A. That's correct. 17 Q. An offer put in by another entity was 18 accepted? 19 A. Well, it must have. At that point, we 20 just walked away. We didn't follow what happened 21 thereafter. 22 Q. And that was in late 1984. Right? 6855 1 A. Without seeing something specifically, 2 I'll take your word for it, yes. 3 Q. Now, at some point thereafter, did you 4 hear from Mr. Rosenberg again about Park 410? 5 A. At some point, yes, he contacted us and 6 said that he represented a group that had the 7 winning offer. 8 Q. Okay. And why did he communicate that 9 information to you? 10 A. Well, he was simply wanting to know if 11 we still had an interest in the property and, if 12 we did, would we want to be his partner in the 13 deal. 14 Q. All right. And what was your response? 15 A. I think my response was that we were 16 interested once before. We probably still had 17 some interest, but I'd have to visit with 18 everybody. 19 Q. Can we have Exhibit B448 and B449, 20 please? 21 Mr. Graham, would you identify Exhibit 22 B448 for the record? 6856 1 A. It was a letter addressed to me from 2 Mr. Rosenberg giving some brief details on the 3 tract. 4 Q. And had you requested this information 5 from Mr. Rosenberg? 6 A. I can't recall if I requested it or if 7 it was just sent. 8 MR. DUEFFERT: I will move Exhibit B448 9 into evidence. 10 MR. LEIMAN: No objection. 11 THE COURT: Received. 12 Q. (BY MR. DUEFFERT) Will you take a 13 look at Exhibit B449? 14 A. Yes. 15 Q. For the record, what is that document? 16 A. It's a letter from me to Mr. Rosenberg 17 thanking him for having sent the information for 18 my review. 19 Q. Do you recall the nature of the 20 information that you had reviewed? 21 A. Not specifically, no. 22 Q. Could we have Exhibit A10253, please? 6857 1 Looking at Exhibit A10253, does that document 2 represent some of the information you received 3 from Mr. Rosenberg in early 1985? 4 A. It may have, yeah. 5 Q. It appears to be related to your letter 6 to Mr. Rosenberg of February 28, 1985? 7 A. It may be what I'm referring to. I 8 can't tell you specifically, but probably. 9 MR. DUEFFERT: Move the introduction of 10 Exhibit A10253. 11 MR. LEIMAN: No objection, Your Honor. 12 THE COURT: Received. 13 MR. DUEFFERT: Could we have 14 Exhibit B452, please? Your Honor, I'd also 15 introduce Exhibit B449 at this point. 16 MR. LEIMAN: Your Honor, I notice that 17 Exhibit B449 refers to enclosures. Has Mr. Graham 18 identified those enclosures? 19 MR. DUEFFERT: I believe that was my 20 question, Your Honor. I asked him if the package 21 he was looking at related to the Exhibit B449, and 22 he said -- 6858 1 THE COURT: I think he's talking 2 about -- are you saying the letter from Mr. Graham 3 included enclosures? 4 MR. LEIMAN: Yes, sir. It refers to it 5 at the bottom of the page on B449. 6 MR. DUEFFERT: He's returning a package 7 of information he looked at. I think the letter, 8 one way or another, is certainly admissible. 9 THE COURT: Well, maybe we should get 10 that from the witness. 11 THE WITNESS: What question do you have 12 specifically, sir? 13 THE COURT: Well, at the bottom of the 14 letter it says "enclosures." So, you're sending 15 something to Mr. Rosenberg. Right? 16 THE WITNESS: That's correct. 17 THE COURT: And are you assuming it was 18 what he sent you and you are returning it? 19 THE WITNESS: I'm assuming it, yes. 20 Q. (BY MR. DUEFFERT) Is that because of 21 the language in the text of the letter that says 22 "Thank you for letting me borrow it"? 6859 1 A. Yes. I assumed it was a larger piece 2 of documentation that I was sending back. 3 THE COURT: All right. I'll receive 4 it. 5 Q. (BY MR. DUEFFERT) Mr. Graham, do you 6 have in front of you Exhibit B452? 7 A. Yes. 8 Q. Would you identify it for the record? 9 A. It's a letter addressed to me from 10 somebody in the Oppenheimer Rosenberg law firm, 11 and it apparently is a copy of a proposed venture 12 agreement. No. Business plan, looks like. 13 Q. As well as a draft of the parties' 14 joint venture agreement? 15 A. I haven't got that far. Apparently 16 it's in here someplace, yes. 17 Q. It appears that you received those 18 documents on or about March 1, 1985? 19 A. That's what it -- that's what it 20 indicates. 21 MR. DUEFFERT: Your Honor, I would move 22 Exhibit B452 into evidence. 6860 1 MR. LEIMAN: No objection, Your Honor. 2 THE COURT: Received. 3 Q. (BY MR. DUEFFERT) Mr. Graham, you 4 didn't -- United didn't enter into its agreement, 5 its joint venture agreement with Mr. Rosenberg 6 until March 28, 1985. 7 Do you recall that? 8 A. I recall generally the date, yes. 9 Q. Before you entered into that agreement, 10 you did some research and investigation into the 11 Park 410 project, did you not? 12 A. Yes. 13 Q. And some of that research and 14 investigation is reflected in the exhibits we've 15 just looked at, correct? 16 A. Some of it, yes. 17 Q. Can we have Exhibit B472, please? 18 Would you please identify Exhibit B472 for the 19 record? 20 A. It's a letter from Mr. Rosenberg 21 outlining, apparently, our relationship or United 22 Savings' relationship with him in that venture, 6861 1 Park 410. 2 Q. Okay. Was this essentially a draft of 3 your agreement with Mr. Rosenberg that was 4 prepared by Mr. Rosenberg? 5 A. Yes. 6 Q. And do you recall that you declined to 7 execute that agreement? 8 A. I haven't executed it. I don't recall 9 the facts behind it, but I know this one was not 10 executed. 11 Q. Perhaps we can take a look at 12 Exhibit B3822. This is already in evidence at Tab 13 637. 14 MR. DUEFFERT: And if I haven't done 15 so, I would like to move Exhibit B472 into 16 evidence at this time. 17 MR. LEIMAN: No objection. 18 THE COURT: Received. 19 MR. LEIMAN: Your Honor, let me check 20 that. I just -- I noticed the handwriting on this 21 document. 22 THE COURT: I think we'd better ask the 6862 1 witness and see what he knows about that. I'll 2 receive the document. 3 Q. (BY MR. DUEFFERT) Mr. Graham, do you 4 recognize the handwriting at the bottom of the 5 March 27, 1985 letter from Mr. Rosenberg to you? 6 A. No. It's not one I'm familiar with. 7 Q. Do you attribute any significance to 8 that handwriting? 9 A. Other than -- no, other than to call me 10 about something. 11 Q. Looking at the March 27 letter that 12 Mr. Rosenberg sent to you and then the March 28 13 agreement that was executed, do you note that in 14 Paragraph 3 of Mr. Rosenberg's draft, he proposed 15 a 1 percent above prime rate of interest rate on 16 advances from United to him and that you revised 17 that to be 2 percent above prime? 18 A. Yes. 19 Q. Do you recall why you made that change? 20 A. Well, probably after discussion with 21 other members of our senior staff, we decided that 22 we wanted to counter this proposal, that we wanted 6863 1 a higher return for our investment. 2 Q. Can we have Exhibit -- 3 A. We also made other changes in here, 4 too, but -- 5 Q. And do you recall that you clarified 6 Mr. Rosenberg's liability by inserting the last 7 line on numbered Paragraph 4 on Page 2 of the 8 executed joint venture agreement? 9 A. Yes. 10 Q. And why did you insert that line? 11 A. So that he'd have an equal risk with 12 us. 13 Q. Could we have Exhibit A1643? 14 MR. DUEFFERT: Your Honor, this has 15 been introduced previously and is located at Tab 16 159. 17 Q. (BY MR. DUEFFERT) For the record, 18 Mr. Graham, what is Exhibit A1643? 19 A. It's an approval for our partnership 20 investment in Park 410. 21 Q. What is the date on that approval? 22 A. March 18th. Well, that's the day it 6864 1 was prepared. I'm not sure, without having the 2 one that had all the signatures on it, whether 3 it's the same day it was approved. But that was 4 the day this document was prepared for submission. 5 Q. Does it set forth the interest rate 6 toward the bottom of the first page of the 7 exhibit? 8 A. Yes. 9 Q. And what is that interest rate? 10 A. Prime plus 2. 11 Q. Looking at these three documents 12 together, does it appear to you that you only 13 executed the agreement with Mr. Rosenberg after 14 the real estate investment committee of USAT had a 15 chance to look at the transaction and evaluate it 16 and approve the terms that were eventually part of 17 the agreement with Rosenberg? 18 A. Oh, yes. 19 Q. That was standard practice for you? 20 A. Yes. 21 Q. Putting those exhibits aside, am I 22 correct in understanding that the purpose of the 6865 1 1985 Park 410 Joint Venture was essentially to tie 2 down the property so that the venturers could 3 evaluate it to determine if it was suitable for 4 full-scale development? 5 A. Essentially. 6 Q. Did the parties contemplate that the 7 joint venture would seek financing elsewhere, 8 either from United or from another lender? 9 A. It was one of the options discussed. 10 Q. Do you recall that Alamo, which was the 11 seller at that point -- correct? 12 A. Correct. 13 Q. -- in its agreement with the joint 14 venture had provided monetary incentives to 15 refinance the project within a year? 16 A. I don't recall. 17 Q. You don't recall if there were 18 discounts in the purchase price? 19 A. I don't recall it. 20 Q. Did the relative conciseness of your 21 March 1985 agreement with Mr. Rosenberg ever lead 22 to any problems? 6866 1 A. Not that I recall, no. 2 Q. After the agreement was signed, did you 3 feel that Mr. Rosenberg gave appropriate weight to 4 your input? 5 A. He seemed to, yes. 6 Q. Was that in part because you were 7 providing funding for the project? 8 A. No. We had other relationships with 9 Mr. Rosenberg off and on. He seems always to be 10 very attentive to our interests and listens to us. 11 Q. And you were comfortable with him? 12 A. At the time we were, yes. 13 Q. At some point in 1985 when the joint 14 venture was in place, did you come to the 15 conclusion that it would be better for United to 16 be a lender rather than a joint venturer on the 17 property? 18 A. I felt it would be better positioned 19 that way, yes. 20 Q. And what was your basis for that 21 conclusion? 22 A. Well, one is we had their money in 6867 1 along with ours. We had their guaranties and we 2 had, at that time, what we thought was a limit on 3 our exposure as opposed to a partner, which 4 exposure is somewhat unlimited. 5 Q. Did you communicate to others at USAT 6 regarding your views on transforming USAT's 7 participation in the property? 8 A. Well, yes. And I think it was well 9 received. I think everybody was on the same page 10 in that respect. 11 Q. Could we have Exhibit B3821, please? 12 Do you recognize Exhibit B3821? 13 A. Yes. 14 Q. And what is it? 15 A. It's a memo to the senior loan 16 committee outlining, basically, my first shot at 17 trying to structure a deal, a loan proposal to the 18 borrowers and apparently, their initial response 19 to my proposal. And then a suggestion of how we 20 could follow up and strike a deal that was 21 mutually agreeable. 22 Q. At that point, were you negotiating 6868 1 with Noel Simpson of Gulf Resources? 2 A. Primarily with him, but Stanley was in 3 the conversations, also. 4 Q. Okay. They were both involved in 5 negotiating the new loan? 6 A. Yes. 7 Q. Sorry, but I missed a bit of your 8 answer when I asked you about the reasons for 9 transforming United's role in the property. 10 Did you feel that United would be 11 better off to have collateral in connection with 12 the loan rather than a joint venture interest? 13 A. Well, we had had that, also. The way 14 it was structured, we were having basically the 15 same economic interest in the project through a 16 participation which was almost the equivalent of 17 what we would have had as a partner which was a 18 with a lot less risk than we had as a partner. 19 So, we were getting the best of both worlds, to 20 some degree. 21 Q. In transforming it into a loan -- 22 A. Yes. 6869 1 Q. -- you would get a 25 percent profit 2 participation. Right? 3 A. Somewhere around there. At that point, 4 we weren't sure what we'd end up with, but we were 5 going to get a profit participation and we were 6 currently a 25 percent partner. 7 Q. Right. 8 A. So, those were equivalent to some 9 degree. 10 Q. And in addition to that, you would also 11 obtain a first lien on the property? 12 A. Correct. 13 Q. And in addition to that, you would get 14 guaranties? 15 A. Correct. 16 Q. And in addition to that, you would have 17 irrevocable letters of credit in the amount of 18 $10 million? 19 A. Or some amount at that point, yes. 20 Q. And United didn't have any of those 21 things as an investor, correct? 22 A. No. We were simply a partner. 6870 1 Q. And as of the time you wrote this 2 letter in December of '85, you still believed that 3 the project was a viable one? 4 A. Yes. 5 Q. Did Mr. Rosenberg receive preferential 6 treatment by virtue of his relationship with 7 Charles Hurwitz or for any other reason? 8 A. No. He certainly didn't think so. 9 Q. Could you explain? 10 A. Well, I mean, he really fought hard off 11 and on for other loans from us that we declined. 12 As you said earlier, he wanted no liability on 13 this. We declined. I think we bent over 14 backwards not to show him preferential treatment. 15 Q. Do you recall a project by the name of 16 Turtle Creek? 17 A. Yes. 18 Q. What was Turtle Creek? 19 A. It was formerly a country club that 20 went under, and Mr. Rosenberg's partners had 21 bought some land which included the old outline of 22 the golf course. And I think part of it fronted 6871 1 I-10. 2 Q. And did that project get in trouble? 3 A. It was in trouble in the sense that 4 they had a seller's note and that seller's note 5 matured. And Mr. Rosenberg was desperate to find 6 a lender to take that seller out of his note and 7 had approached us for us to do that. 8 Q. And do you recall about when he did 9 that? 10 A. It was after this -- sometime after 11 Park 410. 12 Q. After the spring of 1986? 13 A. Someplace in that range. I just don't 14 know exactly when. 15 Q. What was your response to 16 Mr. Rosenberg's request? 17 A. I recommended that we not consider it. 18 Q. Why? 19 A. It was a very difficult tract to figure 20 out how you'd develop it. It was in a market that 21 was overpriced, and we just -- we didn't really 22 see the exit strategy for them. We didn't see any 6872 1 way he could get out of the trap he was already 2 in, and we didn't want to be in the same trap. 3 Q. Was your recommendation to turn down 4 the opportunity accepted? 5 A. Well, yeah. I mean, everybody agreed. 6 And Stanley, you know, talked to Mr. Hurwitz and 7 he asked me to take one more look at. I took one 8 more look at it and had the same conclusion. We 9 passed. 10 Q. United passed? 11 A. Yes. 12 Q. And do you recall, in negotiating over 13 terms for the Park 410 loan in 1986, was 14 Mr. Rosenberg a pretty tough negotiator on behalf 15 of his own interests? 16 A. Oh, yes. No question. 17 Q. You were, as well? 18 A. I hope. That's up to somebody else's 19 opinion. 20 Q. You both, as well as Mr. Simpson and 21 everyone else in the loan, bargained in good 22 faith? 6873 1 A. Oh, yes. 2 Q. After a development transaction like 3 Park 410 or Norwood was approved, how would United 4 decide whether to book it as a loan or as an 5 investment for accounting purposes? 6 A. Well, that decision was made in the 7 approval process. That wasn't -- that wasn't made 8 subsequent to the approval process. We approved 9 it either as a loan or as a loan and a venture or 10 as a venture up front. And then we proceeded to 11 close it in that kind of legal configuration. It 12 was booked accordingly. 13 Q. Okay. And what criteria did you use to 14 make that determination? 15 A. It was kind of loose. I mean, some 16 venturers ended up being, where we put equity in, 17 became partners. Some we became a lender with a 18 profit participation. There really wasn't a hard 19 and fast rule, as I recall, why one revolved one 20 way and one revolved the other way. 21 Q. And your determination, was that made 22 for purposes of United's books and records as far 6874 1 as reporting? 2 A. I don't think that was the primary 3 reason. I think a lot of it, it just went the way 4 the relationships and the negotiations went. 5 Q. For purposes of reporting, would 6 Peat Marwick look at your decision and have any 7 input on it? 8 A. We often consulted Peat Marwick. We 9 had some sophisticated issues to deal with. On a 10 more simple matter, we didn't. But they certainly 11 reviewed it shortly thereafter on our annual 12 reviews. 13 Q. And did they reach an independent 14 determination as to how the transaction should be 15 booked? 16 A. Well, I mean, if it was a venture, we 17 typically booked it as a venture and booked it 18 correctly. They didn't really have much issues on 19 how we handled that, as far as I can recall. 20 Q. Do you recall, as a matter of fact, how 21 the Norwood transaction was booked? 22 A. It was booked as a loan and a venture. 6875 1 We had a loan on United Savings' portfolio, and 2 then we had an equity investment on United 3 Financial Group's portfolio. 4 Q. Could we have Exhibit B1214, please? 5 THE COURT: Is B3821 in the record? 6 MR. DUEFFERT: It is not, and I 7 apologize. I move to introduce Exhibit B3821. 8 MR. LEIMAN: I'm looking for it, Your 9 Honor. No objection. 10 THE COURT: Received. 11 Q. (BY MR. DUEFFERT) Mr. Graham, what is 12 Exhibit B1214? 13 A. It's a memo to the file by Karen 14 Wynans. 15 Q. And does it concern the booking of 16 income from the loan origination fee for the 17 Norwood transaction? 18 A. I can't guarantee it's a Norwood 19 transaction, other than the fact that that number 20 seems similar. It doesn't refer to Norwood 21 anywhere in here. 22 Q. Okay. It does refer to a 6876 1 900,000-dollar loan origination fee, correct? 2 A. That's what this refers to, yes. 3 Q. Do you recall if the 900,000-dollar 4 Norwood loan fee was taken into United's income in 5 1986? 6 A. I can't recall. 7 Q. Was there a difference between -- as a 8 senior loan officer -- your view of how a 9 transaction was booked and how the accountants 10 might treat it for accounting purposes or purposes 11 of reporting? 12 A. Well, I mean, we generally knew how 13 something would be booked and how it would be 14 treated by the accountants. I mean, that was -- I 15 mean, that wasn't something that we would do that 16 dramatically different. I mean, if a fee was 17 going to be amortized, we knew it ahead of time. 18 If it was going to be booked ahead of time, we 19 knew it ahead of time. So, it was pretty 20 standard. There is nothing magic about and 21 competitive with the accounting treatment. We 22 pretty well knew that. 6877 1 Q. But as you sit here today, you can't 2 recall how the interest income on the Norwood 3 transaction was accounted for in 1986, how it was 4 treated for accounting purposes? 5 A. You say interest income or the fee 6 income? 7 Q. Well, I was talking about the fee 8 income before and I'm asking about interest income 9 now. 10 A. Interest income we take as received. 11 As we receive the payment, we booked it as income 12 on the loan. 13 Q. And do you know if Peat Marwick looked 14 independently at that decision? 15 A. I don't know of them doing anything 16 differently, no. 17 Q. Do you recall if there were federal and 18 state examinations of United that were ongoing in 19 the summer of 1986? 20 A. They were ongoing. I can't tell you 21 specifically when they were in there. 22 Q. Do you remember that the examiners 6878 1 reviewed loan files? 2 A. Oh, certainly, yes. 3 Q. And do you remember if it was their 4 practice to review files of all loans in excess of 5 $1 million? 6 A. Oh, they generally started from the 7 largest and worked down. 8 Q. And in 1986, were Norwood and Park 410 9 both among your largest loans? 10 A. Yes. 11 Q. Do you recall any interaction with the 12 federal or state examiners about those two 13 credits? 14 A. We probably discussed them. I don't 15 recall the conversations, no. 16 Q. Would you have been alerted or would 17 you have known about it if the examiners had 18 serious issues with a credit? 19 A. Oh, yeah. 20 Q. Could we have Exhibit B1187, please? 21 MR. DUEFFERT: Once again, I would 22 introduce B1214 into evidence. 6879 1 MR. LEIMAN: Your Honor, I'm not 2 certain that the document should be received based 3 on the fact that he has no recollection as to how 4 the accounting treatment was dealt with in 5 connection with -- and he doesn't even know what 6 loan this relates to. 7 MR. DUEFFERT: The document speaks for 8 itself. He's testified that Karen Wynans was in 9 his department. It appears to be a regular 10 routine business record. 11 MR. LEIMAN: Your Honor, it doesn't 12 have the name of the loan on it. 13 MR. DUEFFERT: That's part of the 14 document. I mean, the document says what it does. 15 THE COURT: Well, the witness said he 16 wasn't sure it referred to that loan. You have 17 the amount of the origination fee. Would there 18 have been any other loan that had that amount of 19 origination fee at that time? 20 THE WITNESS: There would have been 21 very few. I can't answer that specifically at 22 this particular time, whether it would be one that 6880 1 would have that big a fee at this time in the 2 sequence. Very unlikely, but I can't say for 3 certain. 4 THE COURT: I'll receive the document. 5 Q. (BY MR. DUEFFERT) Would you identify 6 Exhibit B1187 for the record? 7 A. Yeah. Apparently, it's a memo to an 8 examiner in response to some questions he had in 9 regard to the Park 410 loan. 10 Q. Do you remember Jeff Nunn? 11 A. I remember the name. 12 Q. And do you remember the nature of his 13 issues with the Park 410 loan? 14 A. Reading this, I'm getting somewhat 15 familiar; but I don't recall before this letter, 16 no. 17 Q. Was it your practice when examiners 18 raised issues about loans for you as a senior loan 19 officer on the credit -- if you were, indeed, the 20 senior loan officer on the credit -- to respond in 21 some fashion? 22 A. Oh, certainly. 6881 1 Q. And did you make sure that the 2 examiners had available to them all relevant 3 information on the credit? 4 A. Oh, typically, yes. They had access to 5 everything we had in our files. 6 Q. You didn't hide anything from them? 7 A. No. 8 Q. Do you remember a woman by the name of 9 Vivian Carlton? 10 A. I remember -- I knew who she was. 11 Q. Do you recall if she or any of the 12 other federal examiners reviewed the Park 410 13 loan? 14 A. They probably did. I can't remember 15 who did specifically. 16 Q. Do you recall if the Park 410 loan was 17 classified in any way as a result of the 1986 18 examination? 19 A. I certainly don't think when I was 20 there it was, no. I don't think it was when I -- 21 not when I was still there, I don't believe so. 22 Q. And why do you recall that, to the 6882 1 extent you recall it? 2 A. Well, I think if it had been, I would 3 have recalled. That's all. 4 Q. Do you remember if the Norwood loan was 5 classified in any way? 6 A. I can't recall, but I doubt it. 7 Q. Why do you doubt it? 8 A. Well, we had closed it in '86 and I 9 left in mid-'87. And I doubt there would be that 10 kind of issues that quickly. 11 Q. Can we have Exhibit T7711, please? I 12 think this was admitted into evidence already. 13 MR. DUEFFERT: And I would move into 14 evidence Exhibit B1187. 15 MR. LEIMAN: No objection. 16 THE COURT: Received. 17 Q. (BY MR. DUEFFERT) And Exhibit T7711 18 is at Tab 676. I just want to clear up two points 19 of confusion about this letter. First, for the 20 record, this is an April 14th, 1986 letter from 21 you to Mr. Frank Krasovec, correct? 22 A. Correct. 6883 1 Q. In the first paragraph, you outline 2 three options for restructuring United's 3 involvement in the Norwood property. Right? 4 A. Correct. 5 Q. I think Mr. Leiman asked you a question 6 indicating or suggesting that in those three 7 options, United was ruling out any possibility 8 that it would be the equity partner in the loan. 9 A. No. What we ruled out here is that 10 we'd be a financial partner providing credit 11 enhancement to another lender. In other words, 12 where we would verify the guaranty of their 13 actions with another lender. I think at one 14 point, they suggested they find other financing. 15 We would be their partner and we'd guaranty the 16 loan and they would be the managing partner. I 17 think we ruled that one out specifically. 18 Q. All right. But you did not rule out 19 the possibility that United would be the -- an 20 equity investor so long as it also provided the 21 loan. Right? 22 A. Well, we didn't address that issue 6884 1 whatsoever in this letter. 2 Q. It just isn't referenced there? 3 A. No. 4 Q. Okay. If you'd turn to the last page 5 of the letter, you were asked about a statement 6 towards the bottom of the second-to-last paragraph 7 in which you say, open quote, "A savings and loan 8 cannot legally extend, renew, or restructure a 9 delinquent loan. So, unless the loan is brought 10 current, our alternatives are limited." 11 Do you recall discussing that with 12 Mr. Leiman? 13 A. Yes, somewhat. 14 Q. Would it be more accurate to say that 15 modifying the loan while delinquent was legal, but 16 it exposed the institution to the possibility of 17 having the credit classified substandard? 18 MR. LEIMAN: Your Honor, I object to 19 the question. The letter speaks for itself. 20 Mr. Graham stated what he stated in the letter. 21 And for Mr. Dueffert to recharacterize what 22 Mr. Dueffert would like the letter to say is 6885 1 inappropriate, and I object to it. 2 MR. DUEFFERT: Your Honor, I'm only 3 asking because Mr. Leiman asked him about exactly 4 that sentence and what it meant. 5 THE COURT: All right. Denied. 6 I think you'd better rephrase your 7 question. 8 Q. (BY MR. DUEFFERT) Well, looking at 9 this sentence, are you confident that it was true 10 that a savings and loan could not legally extend, 11 renew, or restructure a delinquent loan? 12 A. Well, as I had stated often in my 13 testimony when I was talking to Mr. Leiman, there 14 are often things I said in this letter that was 15 more for effect than reality. When I would often 16 say "we can't do this," we sometimes did do that. 17 That was my way of getting the borrower's 18 attention. You're right. Technically, we could; 19 but it wasn't our practice to do that so that we 20 would have a classified loan. 21 Q. So, again, you might chalk that up to 22 the art of negotiation? 6886 1 A. Art of lying for the benefit of our 2 behalf, yes. 3 Q. Your testimony here today is different? 4 A. Yes. 5 MR. LEIMAN: Your Honor, I'm not sure I 6 understand what Mr. Dueffert's asking. Is it 7 different than what? If I might inquire as to 8 what -- if it's different than what, Your Honor. 9 THE COURT: I assume the question he's 10 asking is whether he's lying today. 11 THE WITNESS: That's the way I 12 interpreted it, sir. 13 MR. DUEFFERT: Without quite saying it 14 in that way, I think that was the thrust of that 15 question. 16 MR. LEIMAN: What was the answer? 17 A. No, not the same here, no. 18 Q. (BY MR. DUEFFERT) I would like, as we 19 close, to just talk about two more things. 20 First, I'd like to discuss with you 21 just a few of the allegations that have been made 22 in this case. It has been said in this courtroom 6887 1 by the OTS that United's involvement in Park 410 2 was initiated by Charles Hurwitz and Jenard Gross. 3 Is it true that you and Mr. Childress 4 were the ones who located the opportunity in 5 Park 410? 6 A. As far as we know, yes. 7 Q. It has also been said in this courtroom 8 by the OTS that Park 410 was never presented to 9 the board of directors. 10 A. I mean, I can only tell you what the 11 minutes of the directors show. I wasn't at the 12 meeting; but it was my assumption it was, yes. 13 Q. And the minutes reflect that the 14 Park 410 loan was approved in May 1986, correct? 15 A. That's what the minutes I've been shown 16 show, yes. 17 Q. Finally, it has been said by the OTS 18 that there was no due diligence done on that 19 property. 20 A. That's incorrect. 21 Q. You did do due diligence on the 22 Park 410 property, correct? 6888 1 A. Correct. 2 Q. Would it be fair to say that you did 3 extensive due diligence on the Park 410 property? 4 A. I would say that based on the way 5 things were done in the market we were in at the 6 time, yes. Currently, we probably would do 7 greater due diligence today; but things are 8 different. 9 Q. I'd like to close just by asking you 10 some questions about what happened to the two 11 projects. Before we do that, just so the record 12 is abundantly clear, were the approvals on these 13 two loans made by United in good faith? 14 A. Yes. 15 Q. You honestly expected that these would 16 be successful ventures? 17 A. That's why we structured partnership 18 interest in them and returns on the long-term 19 basis, along with the regular interest structure. 20 Q. Were those approvals made in order to 21 boost the bottom line in the short run without 22 regard for the long-term health of United? 6889 1 A. That certainly wasn't the way I viewed 2 them. I'm not answering for everybody on that, 3 but that was not my view of why we did them. 4 Q. Why did you do them? 5 A. As you said earlier, we saw them as 6 long-term opportunities to give significant 7 profits in the back side. 8 Q. Were those loans intended to hurt 9 United in any way, in your view? 10 A. No. 11 Q. Mr. Graham, you had a good portion of 12 your retirement money invested in UFG, did you 13 not? 14 A. You're going to ask personal now, huh? 15 Yes, I did. 16 Q. Did you lose some money personally 17 because of United's failure? 18 A. Quite a bit. 19 Q. And when you recommended these two 20 loans, you didn't think they would hurt United, 21 did you? 22 A. I certainly didn't, no. When did it 6890 1 first become apparent to you that the Park 410 and 2 Norwood projects were in trouble? I'm not sure. 3 I think by early '87, we started seeing that the 4 well was going to be a lot deeper than we 5 anticipated, that the problems were much greater 6 than we anticipated. I'm not sure at that -- and 7 I know we had greater concerns for San Antonio 8 than we did for Austin. I'm not sure that we were 9 panicked yet on Austin when I left in June of '87 10 because I think we still thought Austin would be a 11 little bit impervious to all the issues that were 12 affecting other parts of the state. It had 13 historically been that way. But we did start 14 getting concerned about San Antonio by the time I 15 left. 16 Q. When you talk about the well, what are 17 you talking about? 18 A. I'm talking about the turn in the real 19 estate economy. We had been through several bumps 20 or recession-type periods and they typically last 21 a year, year and a half. There was the '81 period 22 and there was -- the mid-Seventies, we had one. 6891 1 And historically, they were something that you 2 could pretty much anticipate lasting maybe up to 3 18 months at the most. And they had a little 4 effect on the economics, but they generally had a 5 slow down on activity, not so much a real 6 depreciation in values. 7 What we saw happening starting in '87 8 was something that we had never seen before. And 9 that's where they changed the tax laws and the oil 10 industry taking a hit, all that together, I mean, 11 there was a tremendous depreciation in values in 12 properties. And it just wasn't in property such 13 as this nature. We knew we were in trouble when 14 we had apartment projects in our portfolio that 15 were building in '87 and '88 that had sold three 16 or four times and now the value in '88 or '87 was 17 less than the value when they first came out of 18 the ground in '78. When that happens, you have 19 serious problems because things that were 20 outstanding became terrible. 21 Q. And when you say "things that are 22 outstanding," you're talking about development 6892 1 projects? 2 A. Development projects, income-producing 3 projects, projects that you really had no worry 4 about. Things you didn't fathom could ever go 5 bad. 6 Q. And would you include Park 410 and 7 Norwood among those outstanding development 8 projects? 9 A. They were good developments. I don't 10 think I would classify them necessarily 11 outstanding until they had some success, but we 12 thought they were good developments. 13 Q. In San Antonio, were you disappointed 14 by the impact of Sea World on the Park 410 15 neighborhood? 16 A. Well, I guess part of my problem is 17 you're asking some questions that probably take an 18 expansive time beyond when I remained with 19 Coastal -- I mean with United Savings. I was 20 seeing, at this point, the tip of the iceberg. I 21 wasn't there for the entire iceberg, so to speak. 22 Sea World was still pretty embryonic during the 6893 1 period I was there and hadn't really had a chance 2 to probably have its full effect of the economy. 3 Obviously, I can tell you in retrospect 4 this is what I know. It didn't have the impact we 5 anticipated. But as far as my employment with 6 United, I wasn't there for that period really. 7 Q. You left United in the summer of '87. 8 Right? 9 A. No. June. 10 Q. June of '87? 11 A. Yes. 12 Q. Do you recall that there was a tax bill 13 that was passed in the fall of 1986? 14 A. Yes, sir. 15 Q. Did that have any effect on the markets 16 for real estate, such as the real estate in 17 Park 410 and Norwood? 18 A. Indirectly it did because -- it didn't 19 affect the land directly; but indirectly yes, very 20 dramatically. It made the building of apartments, 21 office buildings, office warehouses less 22 attractive. It took away the tax incentive that 6894 1 had really spurred in -- kind of been the catalyst 2 for the market growing so greatly and took that 3 away from the equation. And also, there was one 4 less incentive there and the economics changed 5 dramatically. It made those type of buildings 6 less attractive. So, it stopped growth overall, 7 which indirectly stopped the need for additional 8 land. 9 Q. In light of the strong location of the 10 Norwood property, would it be fair to say that the 11 lack of success of that project is somewhat 12 baffling? 13 A. Well, I mean, projects of that nature, 14 a lot of them came in different governmental 15 situations control and other governmental 16 programs. Either the Southwest Plan, the SAMDA 17 contracts, or so forth. A lot of those properties 18 were not marketed as aggressively as neighboring 19 properties owned by independent and 20 non-governmental entities. 21 The project down the street opened by 22 Walnut Bend, I think it's called, was owned by 6895 1 Trammel Crow and it was a aggressively marketed 2 and much more professionally marketed than I think 3 the Norwood was while it was in the government's 4 hands. 5 Q. Viewing these two transactions with the 6 benefit of 20/20 hindsight, do you agree that 7 entering into the transactions was an unfortunate 8 decision? 9 A. If you're telling me from my 10 perspective today -- 11 Q. Yes. 12 A. Yeah, they were. 13 Q. If you look at the loans from the 14 perspective of the information that was available 15 when made -- 1985, 1986 -- and putting aside 16 everything you later learned about what happened, 17 do you feel that these were reasonable decisions? 18 A. Reasonable, yes. 19 MR. DUEFFERT: I have no further 20 questions. I don't know if -- 21 MR. EISENHART: I have a few, Your 22 Honor. 6896 1 THE COURT: All right. Mr. Eisenhart. 2 (2:27 p.m.) 3 4 5 6 7 CROSS-EXAMINATION 8 9 10 Q. (BY MR. EISENHART) Mr. Graham, I 11 think we met in the hallway. My name is Frank 12 Eisenhart, and I represent MAXXAM in this case. 13 It may surprise you to learn that in 14 its notice of charges in this case, OTS has 15 brought charges against MAXXAM in connection with 16 these Norwood and Park 410 loans. And I just 17 wanted to ask you a few questions about that. 18 MAXXAM, you'll recall -- and I think at 19 the time, during the time you were at USAT, it may 20 have been known as MCO on some occasions. 21 Do you remember that? 22 A. Well, both names were kicked around. 6897 1 I'm not sure of the interrelationship. 2 Q. I'll use the term "MAXXAM" in asking 3 you these questions and, by that, I'll include 4 MCO, as well. 5 A. Okay. 6 Q. I'll just ask you: Did MAXXAM have 7 anything to do with the Norwood or Park 410 loans, 8 that you know of? 9 A. No. 10 Q. Let me read you a statement and then 11 ask you if you think this is accurate or not. 12 Do you think it would be accurate to 13 say that MAXXAM caused USAT to accept a proposal 14 from Stanley Rosenberg to acquire one half of 15 Rosenberg's 50 percent interest in the Park 410 16 joint venture in exchange for USAT's agreement to 17 pay all of Rosenberg's financial obligations to 18 the Park 410 Joint Venture without limitation? 19 A. No. I think that's inaccurate. 20 Q. Let me read you another statement. I 21 think -- do you think this is accurate: "MAXXAM 22 caused USAT, on or about April 16th, 1986, to make 6898 1 the largest loan in its history, an 2 80-million-dollar acquisition and development loan 3 for the Park 410 project secured by the property"? 4 Is that accurate? 5 A. That's inaccurate. They were not 6 involved at all. 7 Q. Let me read you another statement. Is 8 this accurate: "MAXXAM caused USAT to engage in 9 the Norwood transaction, including the Norwood 10 loan and the Norwood investment"? 11 MR. LEIMAN: Your Honor, I object to 12 the entire line of questioning. What 13 Mr. Eisenhart is doing is asking for legal 14 conclusions. These are all based upon the notice 15 of charges. If he's asking for a factual answer 16 from this particular witness, he can do so in a 17 way -- and frame his question in a way that's 18 appropriate. This is utterly inappropriate. 19 Mr. Graham is not a lawyer, and it's calling for a 20 legal conclusion. 21 MR. EISENHART: I'm simply asking him 22 if he knows of any facts that would suggest that 6899 1 these statements are accurate. These are their 2 own words. 3 THE COURT: Well, it sounded factual to 4 me. I'll deny the objection. 5 Q. (BY MR. EISENHART) Let me read the 6 statement again. "MAXXAM caused USAT to engage in 7 the Norwood transaction, including the Norwood 8 loan and the Norwood investment." 9 Is that accurate? 10 A. That's inaccurate. 11 Q. Did MAXXAM or MCO -- you were the head 12 of real estate lending at USAT, were you not? 13 A. I was one of the two. We shared 14 responsibilities. 15 Q. To your knowledge, did MAXXAM have 16 anything to do with loan underwriting at USAT? 17 A. No. We never were involved with MAXXAM 18 at all. 19 Q. So, they wouldn't have had anything to 20 do with evaluating appraisals or approving loan 21 disbursements? 22 A. No, sir. 6900 1 Q. They wouldn't have had anything to do 2 with establishing or maintaining underwriting 3 standards? 4 A. Not that I was aware of, no. 5 Q. Wouldn't have had anything to do with 6 monitoring or ensuring compliance with those 7 standards? 8 A. Not that I was aware of, no. 9 Q. They weren't involved in the loan 10 process at all? 11 A. No. 12 Q. Thanks, Mr. Graham. 13 MR. EISENHART: That's all I have. 14 MR. BLANKENSTEIN: Your Honor, I have a 15 few questions. 16 THE COURT: Mr. Blankenstein. 17 18 CROSS-EXAMINATION 19 20 (2:30 p.m.) 21 Q. (BY MR. BLANKENSTEIN) Good afternoon, 22 Mr. Graham. I'm Paul Blankenstein, and I 6901 1 represent Jenard Gross. 2 If I remember your testimony correctly, 3 you were working for USAT at the time Mr. Gross 4 joined as an officer in February of '85; is that 5 correct? 6 A. That's correct. 7 Q. And I think you testified just now that 8 you left in June of 1987; is that correct? 9 A. That's correct. 10 Q. So, you worked with Mr. Gross for about 11 two and a half years? 12 A. That's correct. 13 Q. Is that about right? 14 A. That's about right. 15 Q. Did you report directly to Mr. Gross 16 during that period of time? 17 A. I guess I did. Well, we had kind of a 18 loose organization. I may have reported 19 technically to Mr. Williams, but I probably 20 reported more frequently to Mr. Gross. 21 Q. Would it be fair to say that you worked 22 closely with Mr. Gross during that period of time? 6902 1 A. That's very fair, yes. 2 Q. You were in regular contact with 3 Mr. Gross about real estate matters that you 4 worked on; isn't that right? 5 A. Yes, sir. 6 Q. You served with Mr. Gross on the senior 7 loan committee and the real estate investment 8 committee; is that right? 9 A. That is correct. 10 Q. And the senior loan committee dealt 11 with the larger loans that USAT was considering; 12 is that right? 13 A. That's correct. 14 Q. And the real estate investment 15 committee served that same function on the 16 investment side; is that right? 17 A. Pretty much all investments, yes. 18 Q. So, you had an opportunity to observe 19 Mr. Gross firsthand on how he handled significant 20 real estate matters that came before USAT; is that 21 right? 22 A. That's correct. 6903 1 Q. Did Mr. Gross rely upon you and your 2 staff to provide basic information to him and 3 members of the senior loan committee with regard 4 to loans that the committee was considering? 5 A. Yeah, I believe so. Yes. 6 Q. And did you rely on Mr. Gross, as well, 7 to provide you with the benefits of his experience 8 in real estate? 9 A. That was certainly his purpose for 10 being there, yes. 11 Q. Did you find Mr. Gross to be 12 knowledgeable about real estate matters? 13 A. Oh, yes, I did. 14 Q. How would you describe Mr. Gross' 15 approach to analyzing various loans and 16 investments that came before the senior loan 17 committee and the real estate investment 18 committee? 19 A. He seemed to be pretty analytical about 20 it. Besides just having an intuitive nature, he 21 tended to look pretty hard at the numbers and saw 22 some things that frequently we overlooked. 6904 1 Q. Would it be fair to say that Mr. Gross 2 insisted that the loans and investments be 3 thoroughly researched and analyzed? 4 A. Generally. I can't say specifically 5 all of it, but generally. 6 Q. The ones that you were involved in? 7 A. Well, I mean, it depends some on the 8 size and some of the circumstances. 9 Q. But the larger ones? 10 A. I would say generally, yes. 11 Q. And that was something you agreed with 12 and tried to implement? 13 A. We tried to have our homework done, 14 yes. 15 Q. Would it also be fair to say that 16 Mr. Gross and the other members of the senior loan 17 committee and the investment committee analyzed 18 the loans to determine whether they presented 19 prudent investment risks, prudent loan risks? 20 A. Well, I can only assume that that's 21 what their intent was. 22 Q. Now, if -- based on your experience, if 6905 1 Mr. Gross supported a loan, could he prevail over 2 the combined opposition of the other members of 3 the senior loan committee? 4 A. If he supported and everybody else was 5 against it? 6 Q. Yes. 7 A. I doubt we would do it. 8 Q. In connection with the Park 410 and 9 Norwood loans and joint ventures, did you think 10 that Mr. Gross and the other members of the 11 committee acted other than in a prudent manner in 12 how they approached and dealt with those loan 13 issues and investment issues as they came up? 14 A. It seemed to be prudent. Everything 15 appeared to be, yes. 16 Q. Based on your observations of 17 Mr. Gross, how would you assess his performance as 18 CEO, at least as it pertains to the real estate 19 matters that fell within your general 20 responsibility? 21 A. Since you narrowly defined it, I think 22 I can answer it. We were very pleased with his 6906 1 involvement. He brought a lot of experience and a 2 lot of direction. And I speak, I think, for 3 myself and for Gem Childress. We enjoyed the 4 relationship, and I think we benefited from it. 5 Q. Just a few final questions, Mr. Graham. 6 I think you testified that in 7 connection with the Norwood matter, that Tom 8 Gordon may have contacted Mr. Gross in 1984 about 9 obtaining an introduction to USAT on that loan. 10 Did I remember that right? 11 A. It may have been. I can't recall 12 specifically how, but that may have been one of 13 the ways. 14 Q. If I'm right, Mr. Gross hadn't been -- 15 at that time was only a consultant and not an 16 officer of USAT; is that right? 17 A. That's correct. 18 Q. And was there any publication about 19 Mr. Gross' role as a consultant, any public 20 announcement, any press releases in that regard 21 that you remember? 22 A. Not that I recall, but I think it got 6907 1 pretty knowledgeable throughout the community 2 pretty quickly. 3 Q. Did Mr. Gordon ever tell that you he 4 spoke to Mr. Gross in 1984 about obtaining an 5 introduction for that loan? 6 A. I can't recall specifically. 7 Q. Did Mr. Gross ever tell you that? 8 A. I can't recall that either. 9 Q. Did anybody else ever tell you that? 10 A. No. I just can't recall. It's just my 11 speculation. 12 Q. Thank you, Mr. Graham. 13 MR. BLANKENSTEIN: No further 14 questions, Your Honor. 15 MR. KEETON: Your Honor, I have a few. 16 THE COURT: Mr. Keeton. 17 18 CROSS-EXAMINATION 19 20 (2:36 p.m.) 21 Q. (BY MR. KEETON) Mr. Graham, on direct 22 with Mr. Leiman, you said you thought that 6908 1 Mr. Hurwitz attended a meeting at the Argyle, some 2 small meeting where there was a presentation made 3 by the GMR people. 4 A. Well, I mean, I thought it was firmer 5 than that. Unfortunately, he -- I mean, he did 6 attend. 7 Q. Now, do you also recall there was a 8 meeting at the Argyle that USAT had where he took 9 a number of USAT people over there and invited a 10 number of people from San Antonio? 11 A. Well -- 12 Q. Sometime after you had entered the 13 joint venture on 410 but before the one -- 14 A. I'm getting confused about what meeting 15 you're referring to. I remember one specifically 16 we had at the Argyle one evening that all the 17 senior officers went over there, along with 18 Mr. Hurwitz, and then the Park 410 did an 19 elaborate presentation, graphs and layouts, such 20 as we have here. 21 Q. Right. But do you also recall that 22 there might have been one prior to that time at 6909 1 the Argyle before you-all even got in there? 2 A. I don't recall that -- to be honest, I 3 don't recall that one. 4 Q. You just recall the big meeting with 5 Mr. Hurwitz? 6 A. That's correct. 7 Q. No problem. Thank you. Now, on 8 this -- was it the Turtle Creek project that 9 Mr. Rosenberg brought to you and wanted USAT to do 10 something about? 11 A. Yes. 12 Q. And you looked at it and -- I don't 13 know. Did Mr. Childress look at it with you? 14 A. I may have discussed it with him. I 15 specifically had the project to look at, but I 16 probably talked with Gem about it. 17 Q. I get the idea that probably most 18 projects of any size you and Gem probably talked 19 to each other? 20 A. There is very little that we didn't 21 brainstorm with one another. 22 Q. And you determined that it was not a 6910 1 project that USAT should be interested in, 2 correct? 3 A. That is correct. 4 Q. And you conveyed that to -- conveyed 5 that information to Mr. Rosenberg? 6 A. Well, I conveyed to Mr. Rosenberg and 7 probably to Mr. Hurwitz and Mr. Gross just to let 8 them know what -- because Stanley was a customer 9 of ours. We typically let them know when we turn 10 somebody down who's already a customer. 11 Q. And then sometime later, Mr. Hurwitz 12 came to you and said would you look at it again? 13 A. I think Stanley called and said, 14 "Please give it one more try." 15 And Charles said, "Could you just give 16 it a second look?" And I did. 17 Q. Did he tell you to do anything other 18 than to give it a second look? 19 A. He just said, you know, "Just look at 20 it and, you know, let me know what you think again 21 one more time." 22 Q. And what conclusion did you reach? 6911 1 A. Not one bit different. 2 Q. Did Mr. Hurwitz fuss at you for that or 3 argue with you about that? 4 A. No. Mr. Rosenberg did, but not 5 Mr. Hurwitz. 6 Q. I'm not interested in Mr. Rosenberg. 7 A. Well, Charles said, "If you're that 8 adamant about it, we won't do it." 9 Q. Okay. Did Mr. Hurwitz, in point of 10 fact, ever originate any of the loan projects, 11 come to you and say, "Here's a project," whether 12 it's 410 or whether it's Norwood or some other 13 project like that? 14 A. I can't recall specifically with me; 15 but I think he introduced us to people that we 16 ultimately ended up making loans to, yes. 17 Q. In other words, developers that -- 18 A. -- might have properties, yes. 19 Q. And that was something that you thought 20 was beneficial for USAT, I take it? 21 A. Well, I think that's the obligation of 22 everyone involved in the association. 6912 1 Q. But my question relates specifically to 2 a project. Did he ever bring you a project and 3 say, "I want you to do this project or take this 4 project"? 5 A. I can't recall any that I worked on. 6 Q. Did he ever order you or, to your 7 knowledge, did he ever order Mr. Childress to do a 8 deal against your best advice? 9 A. No. Never did. 10 Q. Did he ever attempt to dictate the 11 terms on which you were going to do a deal or to 12 actually get in there and negotiate the terms with 13 the borrower? 14 A. Yes. One time, he got semi-involved, 15 and that was on the Carlton -- Ritz Hotel. 16 Q. Ritz Carlton? 17 A. Remington. 18 Q. All right. That's the hotel here in 19 Houston? 20 A. Yeah. Right. 21 Q. Not one that's part of the lawsuit, but 22 tell me about that. What did he do? 6913 1 A. We had an opportunity to finance a 2 group out of Dallas buying that hotel, and they -- 3 the gentleman involved -- one of the gentlemen 4 involved knew Charles from his days in Wall Street 5 and contacted Charles directly. I took -- I got 6 involved in the project from a lending side, and 7 we both kind of jointly got involved and 8 negotiated with them. 9 Q. Did you do the deal? 10 A. We did the deal. 11 Q. All right, sir. Did it prove to be 12 okay? 13 A. It did. 14 Q. Profitable? 15 A. Best of my recollection, it got paid 16 off, yes. 17 Q. Okay. That's the only time you 18 recall -- 19 A. That's the only time I was involved in 20 that kind of situation. 21 Q. And that's because the borrower had 22 known Mr. Hurwitz and called him and -- 6914 1 A. Well, I think one of the brokers -- one 2 of the employees of the borrower was introduced to 3 him. And once he was in, they kind of liked 4 talking to Charles. 5 Q. Okay. Basically, did Mr. Hurwitz 6 interfere with your and Mr. Childress' operation 7 in the real estate area? 8 A. No. Actually, he gave us quite a bit 9 of latitude. 10 MR. KEETON: Thank you very much. I 11 have no other questions. 12 THE COURT: How much redirect do you 13 have? 14 MR. LEIMAN: Your Honor, I expect it 15 will probably be several hours. 16 THE COURT: All right. We'll take a 17 short recess. 18 19 (A short break was taken 20 at 2:41 p.m.) 21 22 THE COURT: Be seated, please. We'll 6915 1 be back on the record. 2 MR. SCHWARTZ: Your Honor, I believe 3 that Mr. Leiman will be here in just a moment. He 4 needed to make one last stop before coming into 5 the courtroom. If you give me a moment, I will 6 hurry his arrival. 7 MR. LEIMAN: I apologize, Your Honor, 8 for my tardiness. 9 THE COURT: You may redirect, 10 Mr. Leiman. 11 12 REDIRECT-EXAMINATION 13 14 (2:58 p.m.) 15 Q. (BY MR. LEIMAN) Mr. Graham, you were 16 testifying earlier today in response to 17 Mr. Dueffert's questions about a number of 18 individuals that were in your real estate 19 department. 20 Is there some record of what each of 21 those individuals did, other than your 22 recollection? 6916 1 A. Unless there was a job description in 2 the personnel files, there would not have been 3 one, no. 4 Q. Well, what about the various 5 assignments? Who would parse out, for example, 6 appraisals for review? 7 A. Probably if we parceled it out or Gem 8 parceled it out, it depends on probably 9 availability, who had the time to help. 10 Q. So, there was no individual that 11 specialized in appraisal review? 12 A. Oh, none. 13 Q. Now, in connection with appraisal 14 review, was there ever a written record made, for 15 example, a summary analysis or some other 16 documentation that would go through what the 17 appraisal highlighted? 18 A. No. It wasn't standard procedure for 19 us to do that at that time. 20 Q. We're talking about 1984 -- 21 A. Yes. 22 Q. -- '85, '86? 6917 1 A. That's correct. 2 Q. So, there never was a written record? 3 A. No. 4 Q. That would be true, I assume, in 5 connection, as well, with loan committees, senior 6 loan committee meetings? There was no written 7 record presented, other than an appraisal which 8 you might bring; is that right? 9 A. Well, other than the actual loan 10 presentation, which spoke for itself. 11 Q. Right. 12 A. But that was the written record, so to 13 speak. 14 Q. Okay. When you stated that you weren't 15 an appraiser, per se, what did you mean? 16 A. That I really -- I mean, I really did 17 not have a lot of knowledge on the true appraisal 18 process. I mean, I understood the general terms 19 of how an appraiser does it, but I wasn't really 20 knowledgeable in the determining cap rates and 21 discount rates and his methodology. 22 Q. Well, let me ask you this: In 6918 1 connection with the assumptions that are made by 2 appraisers in preparing appraisals, was there 3 anyone in the real estate department who 4 understood how to analyze assumptions made by 5 appraisers? 6 A. Not -- no one specifically, no. 7 Q. Would that also be true in connection 8 with, to use an appraisal term, subdivision 9 analysis? Was that ever something that anyone 10 specialized in? 11 A. We had people who had experience in 12 subdivision -- in development and the management 13 of it. And so, they would have some knowledge on 14 the practicality side of it, but they weren't 15 specifically allocated as appraisal reviews of 16 subdivision analysis. 17 Q. All right. I guess I wanted to 18 distinguish between subdivision analysis, which is 19 a kind of -- a technique used in making 20 appraisals, versus funding subdivisions. 21 A. Well, I mean, I guess we didn't have 22 anybody who was designated an analysis, no. They 6919 1 knew enough to review one, but that's about it. 2 Q. What do you mean, "they knew enough to 3 review one"? 4 A. They could review for -- I guess you 5 would say for the logical assumptions an appraiser 6 made, whether they seemed reasonable and 7 justified. We would look at it and say, "Did his 8 projections seem reasonable to us?" That's kind 9 of the review process, really, from my viewpoint 10 involved. 11 Q. In terms of the risk of -- you 12 talked -- testified earlier about risk and really 13 divided it up into two parts. Risk that was 14 associated with a project and risk to the 15 institution. 16 A. I'm not sure I did that, but go ahead. 17 Q. Well, let me ask you the question, 18 then. Are there two different kinds of risk that 19 you, as an underwriter, would have viewed? 20 A. No. I mean, from my view point, 21 whatever risk the project generated would be the 22 risk the association was taking on. You may be 6920 1 referring to when I mentioned that on the 2 committee -- there may be people on the committee 3 that looked at the risk differently from a more 4 global viewpoint than I would, technically. But I 5 mean, I assumed if I took a risk on it, it was a 6 risk the company was taking on. 7 Q. All right. Now, tell me about the risk 8 that would be related to a more global point of 9 view. 10 A. Well, I'm just saying that sometimes, 11 we wanted to put -- I mean, from a global 12 viewpoint, my interpretation is "Do we want more 13 money in loans? Do we want more money in 14 securities? Do we want more money in 15 income-producing property loans? More money in 16 joint ventures?" That's kind of a global picture 17 which at times we didn't really know what maybe 18 the global picture was. We were dealing with the 19 trees and we didn't really -- we needed somebody 20 to explain to us what the forest looked like. 21 Q. And was that done for you? Did someone 22 explain the forest? 6921 1 A. I think that's somewhat the position 2 that somebody like Mr. Williams and Mr. Crow had 3 on the lending committee that were not necessarily 4 real estate-oriented but saw, maybe, a broader 5 picture. 6 Q. Now, we've looked at a number of 7 minutes that relate to senior loan committees and 8 other meetings. You mentioned, as well, that 9 Mr. Hurwitz had attended -- in response to 10 Mr. Keeton -- was in attendance at the Argyle Club 11 presentation for Park 410. 12 Was Mr. Hurwitz -- 13 MR. KEETON: I object. That's not what 14 the statement was. They had a party over there, 15 and 410 made a presentation. It wasn't the 410 16 negotiation. That was the whole point of my 17 question. 18 MR. LEIMAN: Well, he's already 19 testified, Your Honor, that -- 20 MR. KEETON: I object to the way you 21 rephrased my question. 22 MR. LEIMAN: Your Honor, could we have 6922 1 we have the question read back? 2 THE COURT: Read back. 3 4 (The reporter read back the 5 question as requested.) 6 7 MR. LEIMAN: May I complete my 8 question? 9 THE COURT: Yes, you may. 10 Q. (BY MR. LEIMAN) Was Mr. Hurwitz one 11 of the persons that would assist in giving a 12 bigger picture to you and other members of the 13 real estate department? 14 A. I'm presuming at times he did, yes. 15 Q. And why did he do that? 16 A. Well, he saw -- he saw more aspects of 17 the company than we did. 18 Q. Such as what? 19 A. Well, I mean, once again, we were very 20 definitive. We were only involved in the lending 21 portion of the company. We had a security 22 division. We had a depository issues. We had 6923 1 borrowing issues. Those were all issues that we 2 weren't directly involved in nor had a great 3 knowledge of. 4 Q. When you say you didn't have a great 5 knowledge of those things, is it also true that 6 you didn't have a great knowledge of the ownership 7 relationship between MCO and Charles Hurwitz? 8 A. Well, that's -- 9 MR. KEETON: Your Honor, I object. 10 This was gone into ad nauseam for two days when he 11 had him on direct. He's just going right back 12 into it. Totally repetitious. 13 MR. LEIMAN: And Your Honor, it was 14 just raised yet again by -- I believe it was by 15 Mr. Eisenhart in his cross-examination in 16 connection with MAXXAM and the relationship. And 17 in response to my objection, which you 18 overruled -- 19 MR. KEETON: Your Honor, Mr. Eisenhart 20 asked if MAXXAM had anything to do with the 21 particular loan. He's going right back into 22 something that -- if I have a little time, I'll 6924 1 find it -- is covered page after page in his 2 direct examination. No wonder he's going to take 3 several hours. 4 THE COURT: All right. I'll deny the 5 objection. I don't want to repeat what you had on 6 direct. 7 MR. LEIMAN: Your Honor -- 8 THE COURT: You made a record on that. 9 MR. LEIMAN: I understand. I just 10 wanted to be clear that -- 11 A. Can you repeat the question to me? 12 Q. (BY MR. LEIMAN) I may have to recast 13 it for you, Mr. Graham. 14 A. Whatever. 15 Q. Did you understand the relationship 16 between MCO and Charles Hurwitz? 17 A. Not totally, no. 18 Q. Okay. What about the relationship 19 between Federated and Charles Hurwitz and MCO? 20 A. Not totally, no. 21 Q. All right. Did you know what 22 Mr. Hurwitz' ownership interests were in MCO and 6925 1 Federated? 2 A. No. 3 Q. Okay. Your interaction with him was 4 confined to real estate matters and matters that 5 you dealt with on the real estate committee? 6 A. My relationship was all United Savings' 7 based. 8 Q. You stated in response to one of the 9 questions Mr. Dueffert asked you regarding the 10 extinguishing of guaranties. You stated that 11 guaranties would be extinguished if a new loan 12 were made. 13 Do you remember that? 14 A. No. I think the question was they 15 would be extinguished if a loan was paid off. 16 Now, it may be funded by a new loan; but if it was 17 paid off, it was extinguished. 18 Q. In connection with the Norwood 19 30-million-dollar loan and 9.4-million-dollar 20 infusion of capital, who made the decision to make 21 that loan and make the infusion of capital? 22 A. The committee. 6926 1 Q. And the committee would have been the 2 senior loan committee? 3 A. Well, it would have been the senior 4 loan committee and the investment committee 5 because it was a two-prong opportunity. 6 Q. And did the senior loan committee 7 understand that it was extinguishing the 8 guaranties of Mr. Gordon and Mr. Block? 9 A. Oh, certainly. 10 Q. Okay. Did it also understand it was 11 extinguishing, at the same time, the guaranties of 12 Mr. Krasovec and Mr. Minch in connection with the 13 original loan? 14 A. In connection with the original loan, 15 yes; but replaced by guaranties in the new loan, 16 yes. 17 Q. Right, sir. And those new -- the new 18 guaranties were 25 percent, not 100 percent. 19 Right? 20 A. Correct. 21 Q. Okay. Exhibit T7701. Well, let me ask 22 a different question, Your Honor, for the time 6927 1 being until they are able to locate that tab. It 2 was an exhibit that was put in yesterday by 3 Mr. Minch. 4 Mr. Graham, do you understand what the 5 developmental approach is in connection with real 6 estate appraisals? 7 A. Not off the top of my head. I can't 8 explain it. 9 Q. You were shown an appraisal by 10 Mr. Dueffert earlier today that was a 11 February 1985 appraisal that -- I'm sorry -- 12 February 1986 appraisal on the Park 410 property. 13 And Mr. Dueffert asked you whether or not that 14 particular document, whether it provided an as-is 15 value or whether it provided an as-developed 16 value. 17 Do you remember that? 18 A. Who prepared that appraisal? 19 Q. It was prepared by Love & Dugger. Do 20 you remember now? 21 A. Yes, I do. 22 Q. Okay. In connection with that, do you 6928 1 remember whether or not Mr. Dugger had used the 2 developmental approach in reaching a value in 3 connection with the appraisal? 4 A. No. All I remember is it was an 5 approach based on no improvements; but I can't 6 recall other than that, no. 7 Q. I think we've now located the previous 8 exhibit. Mr. Graham, would you look at the 9 exhibit and tell me if you have ever seen it 10 before? 11 A. I don't recall, no. As I said, I don't 12 recall. 13 Q. Did you ever discuss with Mr. Jeffrey 14 Minch an appraisal that was made on the Norwood 15 property prior to Mr. Bolin's appraisal in 1986? 16 A. If I had, I don't recall. 17 Q. All right. Would you look with me, 18 please, at the third page of this exhibit? 19 A. Is that this? 20 Q. Yes, sir. It's KM67. Do you see that? 21 The bottom right-hand corner. 22 A. Uh-huh. (Witness nods head 6929 1 affirmatively.) 2 Q. Did Mr. Minch ever advise you or did 3 anyone ever advise you that there was an -- that 4 an appraiser had reached an as-is value of 5 $24.9 million with regard to the Norwood property 6 in Austin? 7 A. Not that I recall, no. 8 Q. Were you ever advised that an appraiser 9 had reached a 37.5-million-dollar market 10 valuation -- as-developed market valuation 11 regarding the Norwood property in Austin? 12 A. I don't recall, no. 13 Q. Would you have wanted to have obtained 14 information done by an appraiser in the City of 15 Austin prior to making a 30-million-dollar loan to 16 Krasovec and Minch and a 9.4-million-dollar 17 investment on Norwood? 18 A. If there was an appraisal out there, I 19 would probably want to review it, yes. 20 Q. Do you remember if Mr. Minch or 21 Mr. Krasovec ever contacted you in connection with 22 finding out who the approved appraisers of United 6930 1 Savings were? 2 A. They may have. I just don't recall. 3 Q. If they didn't call you, would they 4 have called someone else in your department for 5 that information? 6 A. They could have called pretty much 7 anybody for that information. 8 Q. Would there have been a written record 9 of the call? 10 A. No, there would not have been. 11 Q. Were written -- were written records 12 kept of incoming telephone calls, or were only 13 certain calls documented? 14 A. There was no record of any phone calls 15 unless subsequently you wrote a memo reflecting 16 it. But no, there was no records kept. 17 Q. How frequently was that done? 18 A. What? 19 Q. Phone calls being referenced in memos. 20 A. Infrequently. 21 Q. Was there any particular reason why it 22 was done infrequently? 6931 1 A. Only if it was really a relevant issue 2 you wanted to circulate to maybe other people. I 3 mean, you wouldn't do it necessarily just for the 4 file. 5 Q. T7092. 6 MR. DUEFFERT: Mr. Leiman, would you 7 identify the -- 8 MR. LEIMAN: Yes. It's a Park 410 West 9 Target Marketing Program Electronics Industry. It 10 would have been on the pull list that I gave you. 11 Q. (BY MR. LEIMAN) Now, Mr. Graham, when 12 did you leave United Savings? 13 A. June of '87. 14 Q. All right. This particular document 15 would have been a target marketing program for the 16 electronics industry done by Pilko & Associates, 17 and it was essentially a feasibility study to 18 determine whether or not the Park 410 property 19 would be capable of sustaining the kind of 20 development that Grieshaber & Roberts, as well as 21 GMR, had -- 22 MR. DUEFFERT: Your Honor, I object to 6932 1 the leading questions at this point. 2 MR. LEIMAN: -- had planned. 3 THE COURT: I don't know what the 4 question was. 5 MR. LEIMAN: I haven't gotten there 6 yet. Just a long question, Your Honor. I'm 7 sorry. 8 THE COURT: All right. Let's hear the 9 question. 10 Q. (BY MR. LEIMAN) Mr. Graham, did -- 11 during your tenure at United Savings, was there 12 ever a feasibility study done specifically in 13 connection with the electronics industry? 14 A. No. 15 Q. Why not? 16 A. Well, it was just one of the many at 17 the time when we first undertook this project. It 18 wasn't the majority of what we were going to sell 19 to. It was one of the many industries we thought 20 was a potential client. They had moved somewhat 21 to that area. And it was still pretty -- it was 22 still somewhat a growth area for them. We wanted 6933 1 a general feel, not a specific feel necessarily. 2 So, we didn't -- we didn't do specific target type 3 studies. 4 Q. Was one of the reasons that United 5 Savings was involved with Park 410 because of the 6 planned opening of Sea World? 7 A. It had a significant -- it was one of 8 the significant reasons we first got interested, 9 yes. 10 Q. And wasn't another reason that United 11 Savings felt that the land in north Austin, the 12 northern quadrant of Austin had become -- 13 A. San Antonio. 14 Q. I'm sorry -- San Antonio had become 15 overpriced? 16 A. Yes. 17 Q. And wasn't another reason that United 18 Savings became involved in Park 410 because 19 Advanced Micro Devices had recently purchased some 20 property on a nearby tract? 21 MR. DUEFFERT: Objection, Your Honor. 22 This is his witness. Every question he's asking 6934 1 is incredibly leading. 2 THE COURT: Is what? 3 MR. DUEFFERT: Is incredibly leading. 4 THE COURT: Well, it may be. I'll deny 5 the objection. 6 A. As I said before, the -- that 7 acquisition of the high tech in that tract, in 8 that area, was one more market we thought this 9 project could ultimately benefit from, yes. 10 Q. (BY MR. LEIMAN) Okay. Would you 11 look, please, at Page 2 of the document, which is 12 GR06004, Bates stamp number? 13 MR. DUEFFERT: Your Honor, there is no 14 foundation. The document is dated after his 15 departure from United. 16 THE COURT: I noticed that, but I'm not 17 sure what the question is. 18 MR. LEIMAN: Well, my question is going 19 to relate to the substance of whether or not 20 United Savings had considered the pricing of these 21 tracts prior to getting involved with an 22 80-million-dollar loan and specifically in 6935 1 connection with the cost per square foot, Your 2 Honor. 3 MR. DUEFFERT: And Your Honor -- 4 MR. LEIMAN: Because what this 5 abundantly makes clear is that the cost per square 6 foot was well in excess of what the electronics 7 industry was willing to pay. 8 THE COURT: Well, you can ask him that. 9 MR. DUEFFERT: But Your Honor, I do 10 object to him reading material out of the exhibit 11 if it's not yet been introduced. 12 THE COURT: All right. Sustained. 13 Q. (BY MR. LEIMAN) Look at Page 2, 14 please. 15 A. Yes. 16 Q. Read to yourself the portion that deals 17 with industrial park land prices. 18 A. (The witness reviews the document). 19 Okay. 20 Q. Mr. Graham, was consideration given by 21 United Savings, prior to your departure, to 22 lowering the tract prices and the per square foot 6936 1 prices in the Park 410 development? 2 A. I can't recall. But I mean, as you 3 said, this was in August and dramatic things 4 happened between the first of the year and the 5 date of this report. I think the full blunt of 6 what was happening in the marketplace had started 7 affecting pricing. I don't recall whether that 8 discussion occurred. Most of the period of 1987 9 prior to my departure was spent more on trying to 10 sell properties that were already in our 11 portfolio. And I don't remember specifically 12 whether we had conversations of that nature on 13 this tract. 14 Q. I think you had stated in your earlier 15 testimony that it was around the time of your 16 departure that San Antonio, the market -- real 17 estate market in San Antonio started going down; 18 is that right? 19 A. Well, I think what I stated is that 20 that's when we realized the magnitude and the 21 depth of the downturn as opposed to what we 22 initially foresaw as maybe a short-term downturn. 6937 1 It turned out -- I thought we were getting the 2 feeling it was going to be a much greater -- much 3 more severe downturn than we anticipated. 4 Q. Would it have been of any advantage to 5 United Savings to have obtained a research study, 6 such as this one that I'm showing you, prior to 7 making an 80-million-dollar loan? 8 A. Once again, I mean, first of all, I'm 9 not sure what it would say prior to us making the 10 loan. It was a different market. It may have 11 totally different results. So, you can't 12 speculate what this means relative to that. But 13 one -- but the point being, once again, we weren't 14 marketing to one particular segment of the 15 industry. We were marketing to the general public 16 and the general use of commercial tracts. 17 Everything from hotels, motels to high tech. It 18 was just one. So, we probably would not -- by 19 that same assumption, we would have done one each 20 on hotels, retail, fast food. That's not what we 21 did. We did a general marketing review. 22 Q. And what was that marketing review? 6938 1 A. I think we've already seen it once 2 before. 3 Q. The Tremar study that was done? 4 A. That may be one of them, yeah. 5 Q. Were there others? 6 A. I don't recall. 7 Q. Would they have been in your files? 8 A. If we did others, they would be in the 9 file probably, yes. 10 Q. I'd like to turn to an exhibit that was 11 recently provided to you by respondents' counsel. 12 It was the Park 410 investment presentation. 13 A. You want to give me another one, or do 14 I dig through here? 15 Q. I'll find it for you. 16 MR. DUEFFERT: Paul, are you addressing 17 Exhibit T7049? 18 MR. LEIMAN: Mr. Dueffert, it was 19 A10253, I believe. 20 THE WITNESS: That's correct. At least 21 it's the one you pointed out to me. 22 MR. LEIMAN: Yes, sir. 6939 1 Q. (BY MR. LEIMAN) We talked about this, 2 I believe, yesterday. It was in a slightly 3 different -- I think it was labeled differently 4 actually, Mr. Graham. 5 A. Yesterday or my previous day? 6 Q. I'm sorry. Your prior testimony. 7 However, do you remember the exhibit? 8 A. Yes. 9 Q. And am I correct that this was the 10 presentation that was made by GMR and passed out 11 at the Argyle Club? 12 A. I don't know if that's the case. I 13 know it was a presentation made by them. When we 14 received it, I can't tell you. 15 Q. Okay. If you look at the date on the 16 front page, it's February 19th. 17 A. Yes. 18 Q. Does that help put it in context for 19 you? 20 A. Once again, I can't tell you whether we 21 received it prior to going there or received it 22 there. I'm just saying, yeah, we received it. I 6940 1 can't tell you when. 2 Q. Would you look with me, please, at 3 Bates CN086321? 4 A. 621? 5 Q. 6321. 6 A. What? That won't work for me. 7 Mr. Leiman, that sequence doesn't work for me. 8 Q. Wait just one moment, Mr. Graham. 9 Hopefully we'll get all of these different 10 numbering systems synchronized. 11 If you would, Mr. Graham, turn to Page 12 OW012878. 13 A. Yes. 14 Q. Okay. 15 A. Is this the one? 16 Q. Yes, sir. 17 A. Okay. 18 Q. If you look in the lower right-hand 19 corner, Mr. Graham, there is a number there that 20 states what the -- why don't I ask you? What does 21 that number purport to be? 22 A. I can't really -- it's a total, but I'm 6941 1 not sure of what until I've looked at the whole 2 thing. 3 Q. Okay. 4 A. I mean -- 5 Q. If you look at the previous few pages, 6 you'll find that it's the total sales figure. 7 A. In acreage? 8 Q. No, sir. Gross proceeds as projected 9 in the pro forma in investment presentation of 10 February of 1985. 11 A. Okay. 12 Q. That's 114,731. Million, rather. 13 A. Yeah. 14 Q. Okay. Now, do you know if that number 15 was ever changed? 16 A. I imagine it probably went through 17 several configurations over time. 18 Q. Did it go up or down? 19 A. I can't recall specifically. It may 20 have gone both. I mean, things change. 21 Q. All right. T7071. 22 A. 71? 6942 1 Q. Which the corresponding number is 2 A10289. It's Page 19, Mr. Graham. If you look in 3 the upper left-hand corner of the real estate 4 development financial planning model pages. 5 MR. DUEFFERT: Mr. Leiman, would you 6 identify the exhibit for the record? 7 MR. LEIMAN: Yes. It's Exhibit A10289, 8 which is the application to United Savings 9 Association, the development loan, dated 10 October 7th, 1985. 11 THE WITNESS: You're going to have to 12 tell me because I go to 17 and then I quit. 13 What's the number you gave me again, the 00 -- OW0 14 number? 15 Q. (BY MR. LEIMAN) 13415, Mr. Graham. 16 A. 13? 17 Q. OW013415. 18 A. Nothing I have -- are we on the same 19 document? Because nothing I have here goes 20 greater than 12899. 21 MR. LEIMAN: May I approach the 22 witness, Your Honor? 6943 1 THE COURT: Yes, you may. 2 THE WITNESS: This is as large as I 3 get. 4 THE COURT: We'll be off the record for 5 a minute. 6 7 (Discussion off the record.) 8 9 THE COURT: We'll be back on the 10 record. 11 A. What's the page again now? 12 Q. (BY MR. LEIMAN) This is OW013415. 13 A. Okay. 14 Q. Now, look in the third column from the 15 right. Look at the bottom figure, the gross 16 proceeds listed there. 17 A. Yes. 18 Q. What does it state? 19 A. I can't read the number on my copy. 20 Q. Would it be 120,289,930? 21 A. Oh, yeah. Yes. It looks like that's 22 what it reads, yes. 6944 1 Q. All right. United Savings received a 2 copy of this application for development loan, 3 didn't it? 4 A. Yes. 5 Q. Did you or anyone else at United 6 Savings make inquiry as to why the gross proceeds 7 increased from the number that was presented in 8 1985 to this 120-million-dollar number as shown in 9 October of 1985? 10 A. That's not surprising. I mean, that's 11 six months. They could -- without looking at the 12 details, they may have restructured the tracts to 13 have some of the more prestigious tracts have a 14 little larger acreage. They could have 15 restructured some of the layout to get some more 16 optimum return. I mean, changing a number like 17 that, you know, that's, what, 6 million relative 18 to 114 million. That's not a big change relative 19 to a large tract like this with a lot of different 20 pieces. They evolve. 21 So, I mean, today, we still have deals 22 come in that in six months evolves, the economics 6945 1 evolve. 2 Q. Mr. Graham, I appreciate the fact that 3 they evolve. But did you make inquiry or did 4 anyone on your staff -- 5 A. We probably -- yes, we probably 6 asked -- probably looked at it and tried to figure 7 out where the changes were. I can't recall 8 specifically, but we would typically to see where 9 the differences were. 10 Q. And why did you do that? Why would you 11 have made inquiry? 12 A. Well, why wouldn't we? I mean, the 13 point being is if there is a change, we'd kind of 14 like to know why. That's all. 15 Q. Would it have affected your 16 underwriting of this loan? 17 A. If it was dramatic, maybe, yes. 18 Q. Did you consider a 5- or 19 6-million-dollar change dramatic? 20 A. Apparently not, no. 21 Q. How would that kind of an appreciation 22 have occurred? 6946 1 A. Once again, I'm going to tell you 2 clearly as I can. It doesn't necessarily have to 3 be appreciation. And I can't answer the question 4 without spending quite a bit of time looking. But 5 if they reconfigured something or changed the size 6 of some tracts, it could have a dramatic effect on 7 the economics. If you found a way to get more 8 optimum use of the property and gave people more, 9 I guess, appealing tracts, that could have a use 10 on the overall value. There is a myriad of 11 reasons that a value could change as something 12 evolved. It doesn't have to all just be arbitrary 13 appreciation. 14 Q. T7475. This is a memorandum from David 15 R. Graham to Jim Wolfe dated February 26, 1985. 16 Mr. Graham, is that your -- are those 17 your initials on -- right after your name? 18 A. I don't know. This is my memo, but 19 apparently the secretary initialed it for me. 20 Q. But you wrote this memo? 21 A. Yeah. Apparently so. 22 Q. Who is Jim Wolfe? 6947 1 A. Jim was in the accounting division. 2 Q. And it's dated February 26, 1985? 3 A. Yes. 4 MR. LEIMAN: Your Honor, I offer 5 Exhibit T7475. 6 MR. DUEFFERT: No objections. 7 THE COURT: Received. 8 Q. (BY MR. LEIMAN) Look with me near the 9 last full paragraph on this page. You state in 10 Case 2, "Charles Hurwitz has proposed that we make 11 a loan to a purchaser of a hotel utilizing a zero 12 coupon bond approach." 13 A. Yes. 14 Q. What loan are you referring to? 15 A. I can't even recall, because I don't 16 think we did that. I can't recall. 17 Q. Do you have any recollection about 18 using a zero coupon bond approach in financing? 19 A. We never did do it. I know that we 20 didn't do that. 21 Q. How often did Mr. Hurwitz make 22 proposals to you in connection with making loans? 6948 1 A. Well, not often. I mean, he was like 2 Jenard. If he had a good idea, we'd listen. If 3 he thought he had a unique way to make it 4 attractive for us, we certainly were amenable to 5 listening, yes. 6 Q. And how often did you listen to him? 7 A. We listened to him all the time, but 8 how often did he propose stuff is another 9 question. I mean, he wasn't that active; but he 10 was -- when something was involved that he knew -- 11 he certainly knew more about zero coupon bonds and 12 Wall Street than we did. So, we often would ask 13 him also a question. So, the fact that Charles 14 proposed may not mean Charles originated. It may 15 mean we took the thing and said, "How would 16 you" -- some way to finance this. "Does this make 17 sense to you? This is what they are suggesting." 18 So, we often went to ask Charles, 19 particularly on unique financing issues. He 20 certainly had more knowledge than we did. 21 Q. And Mr. Wolfe was who again? 22 A. Mr. Wolfe reported to Mr. Crow. He was 6949 1 in the accounting and finance division. He was an 2 ex-Peat Marwick accountant. 3 Q. You stated that there were a variety of 4 lenders in Dallas, Texas, that had become somewhat 5 aggressive in their practices in the 1985, '86 6 time period; is that right? 7 A. Well, "somewhat" is a real limitation. 8 They were truly aggressive. 9 Q. Okay. And in connection with being 10 aggressive, you mentioned that they charged 11 origination -- I believe you stated origination 12 fees of -- what percentage did you state? 13 A. I didn't state. But I said they 14 charged significantly more origination fees. I 15 didn't give you a specific number. But I know of 16 cases where the borrowers charged 4 or 5 points at 17 times. 18 Q. What -- is the number -- are the number 19 of points in connection with an origination fee 20 related to what you considered to be 21 aggressiveness? 22 A. No. 6950 1 Q. Do you know what the number of points 2 were that were charged in connection with the 3 making of the Norwood loan, 30-million-dollar 4 Norwood loan? 5 A. Which loan? The last one? 6 Q. Yes. The 30-million-dollar one. 7 A. Well, if we believe that memo earlier 8 we saw for 900,000, 3 points. 9 Q. Would 3 points in some way relate to 10 aggressive lending, in your opinion? 11 A. Not for the length -- term of that 12 loan, no. 13 Q. What do you mean? 14 A. Well, I mean, typically, as I said 15 before, the points reflected somewhat the terms of 16 the loan. If we had a three- to five-year term, 17 then 3 points was not that aggressive. 18 Q. What did you expect the term of the -- 19 length of that loan to be? 20 A. I think it was three to five years. I 21 can't recall, but -- 22 Q. Do you remember what the interest 6951 1 reserve was that was funded in connection with 2 that loan? 3 A. No. 4 Q. What about the Park 410 loan? Do you 5 remember what the points -- origination points 6 that were made there? 7 A. Either 2 or 3. I can't recall without 8 seeing it again. 9 Q. Did that in any way translate to 10 aggressiveness in lending? 11 A. No. 12 Q. Why not? 13 A. Well, aggressive lending, to me, was 14 lending loans to people who are financially 15 unstable, who had no equity in the deal. Pricing 16 and aggressiveness were two different issues. I 17 think the points we structured were typical of the 18 marketplace at the time we structured them. When 19 I'm talking about the aggressiveness of the Dallas 20 deals, they would charge 4 or 5 points for a 21 one-year deal because they would make loans to 22 people who had no equity and really no viability. 6952 1 I mean, they were really 100 percent financing 2 without any guaranty. 3 Q. Did the number of points reflect risk? 4 A. To some degree, the overall yield 5 reflected risk. Points was a combination of 6 interest and fees. And that then translated to a 7 yield. And yield reflected risk somewhat, yes. 8 Q. Do you remember what the yield was in 9 connection with the Norwood transaction? 10 A. Not off the top of my head, no. But it 11 was a combination of interest and fees. 12 Q. I may have written this down wrong, but 13 I thought you stated in connection with the 14 Park 410 transaction that the northwest quadrant 15 had been ignored partially because of tougher 16 terrain? 17 A. It was not northwest. It was west. 18 And yes, the western side was originally conceived 19 to be more of a middle class residential-type 20 development property. But because of the terrain, 21 for a while, the pricing had not caught up to 22 where they could develop. It cost a little bit 6953 1 more to develop land that was on more underlaying 2 terrain. So, it had kind of fallen behind. And 3 the high-price housing that could pay for the 4 terrain went north first. And then as that got 5 overpriced, it started coming down there and the 6 market could accept that terrain and the cost 7 associated with it as the other one built out. 8 Q. Talking about single-family housing, or 9 are you talking about multi-use developments? 10 A. We're talking about single-family, but 11 single-family has its impact about where people go 12 and where traffic patterns are generated. So, you 13 can't -- they are related. You can't separate the 14 two. 15 Q. And speaking of traffic patterns, the 16 Northwest Freeway, did you assume and other 17 members of the senior loan committee assume that 18 the Northwest Freeway was going to actually be 19 built on the Park 410 property? 20 A. On it? No. 21 Q. Near it. 22 A. Next to it, yes. 6954 1 Q. Okay. And was that ever done? 2 A. Best of my recollection, it was, yes. 3 But I mean -- I thought it was, yeah. 4 Q. When was it completed? 5 A. I have no idea. 6 Q. Was it completed while you were at 7 USAT? 8 A. I can't even recall that. It was 9 completed in stages. So, I can't tell you when 10 all of it was completed. 11 Q. Is a factor that relates to risk an 12 equity kicker? 13 A. I think if we felt that there was -- 14 that our money was at more risk than one that had 15 no risk, that it was fair to ask for participation 16 because we were taking a little more risk, yes. 17 Q. Maybe you should explain what we're 18 talking about in terms of participation and equity 19 kicker. Are they the same thing? 20 A. Yeah. My concept, they are. 21 Q. Okay. And USAT obtained participations 22 in both the Park 410 and the Norwood transactions. 6955 1 Right? 2 A. In different ways, yes. 3 Q. Tell me about Norwood first. 4 A. Norwood really, we didn't have -- I 5 mean, that was a true joint venture. I mean, 6 we -- the property was in a venture's name, of 7 which we had a portion of the ownership. And then 8 that venture borrowed money from United Savings. 9 That's a true joint venture. And we had, like I 10 said, an ownership role. 11 The Park 410 was a loan in which we 12 shared in the end results of the success of the 13 project to, I think, 25 percent or 20 percent 14 participation. 15 Q. And was that 25 percent participation 16 reflective of risk in the project? 17 A. Well, I think, once again, typically on 18 land deals, most lenders were getting some carry 19 participation in the loans. 20 Q. You were shown some documents earlier, 21 Mr. Graham, that -- one of which was a financial 22 statement of Stanley Rosenberg. 6956 1 A. Yes. 2 Q. Do you remember that? 3 A. Yes. 4 Q. And I believe you stated that 5 Mr. Rosenberg's net worth was $44 plus million; is 6 that right? 7 A. That's to the best of my recollection, 8 yes. 9 Q. Given his financial wherewithal or as 10 you perceived his financial wherewithal, was there 11 some reason that United Savings did not require 12 that Mr. Rosenberg put equity into the Park 410 13 loan? 14 A. Which one? I mean, the big loan? 15 Q. In 1986. The 80-million-dollar loan. 16 A. Well, in some ways, we had the best of 17 both worlds. There was equity put into it and 18 then we still had his cash available on his 19 guarantee. I mean, if he put 5 million cash in 20 the deal, that guarantee became 5 million less 21 palatable to us. So, if the equity came in 22 through limited partners, we still had the cash of 6957 1 his guaranty to also look at. 2 Q. Talking about equity that was put into 3 the Park 410 loan, what are you referring to 4 specifically? 5 A. The letters of credit. 6 Q. Are you equating letters of credit with 7 equity in the project? 8 A. It was -- yeah, we were. Yes. 9 Q. What is the difference, Mr. Graham, 10 between equity and collateral? 11 A. Collateral is what you have a first 12 lien on, the property that actually secures your 13 loan, my understanding. And then equity is 14 something additional, usually cash, CDs pledged, 15 or letters of credit pledged that they present 16 that could be readily cashable and usable and pay 17 down the loan. 18 Q. How would United Savings have executed 19 on the letters of credit that were made in favor 20 of United Savings by Mr. Rosenberg and by IPIC and 21 GMR? 22 A. Well, without reviewing the documents, 6958 1 I would assume that we had the right under default 2 to cash the letters of credit or call upon them. 3 Q. Would that have triggered any other 4 legal process that you're aware of in trying to 5 make good on the letters of credit? 6 A. Oh, it probably would have triggered a 7 legal response from -- on their behalf, yes. 8 Q. Have you ever seen -- have you ever had 9 the experience where that's occurred? 10 A. Which experience? Collecting or having 11 the legal response? 12 Q. Having a legal response in connection 13 with a letter of credit. 14 A. I've seen them both. I've seen letters 15 of credit collected. I've seen people legally 16 fight the ability to collect on a letter of 17 credit, yes. 18 Q. And how long was it before that was 19 resolved in connection with the letter of credit? 20 A. The only case I've been involved, it 21 wasn't that lengthy. 22 Q. How long was it? Do you remember? 6959 1 A. Four or five months. 2 Q. Okay. And what about in connection 3 with foreclosure on a property? 4 A. It depends on the circumstances. I 5 mean, if there is equity in the property, it could 6 be quite lengthy. If the property really has no 7 equity, it could be rather short. 8 Q. With respect to the Norwood project, 9 was there some reason that United didn't require 10 an equity contribution by Frank Krasovec? 11 A. No. We chose to be the partner, the 12 financial partner. We had done that kind of 13 relationship before; so, it wasn't something new 14 to us, where we put the money in and take a 15 majority interest. 16 Q. That's not entirely responsive. My 17 question is: Why didn't you have Frank Krasovec, 18 given his financial wherewithal, make an equity 19 contribution, sir? 20 A. Well, like I said, we had other 21 partners who were equally as strong as 22 Mr. Krasovec who we entered into a partnership 6960 1 where we put the money up and all he provided was 2 guaranties. And so, we chose to do the same with 3 him. Why we specifically chose it, I can't 4 recall. But it was not a form or substance we 5 were unfamiliar with. 6 Q. You testified earlier that -- I think 7 you said "guaranties are just guaranties." 8 What did you mean when you said -- 9 stated that? 10 A. I think in response to a question we 11 were talking about equity and about guaranties. I 12 think my response was that a guaranty is betting 13 on the future. Cash equity is dollars in hand or 14 if you have, you know, something pledged that you 15 can go after. That's in hand. A guarantee is 16 something that may or may not be there three or 17 four years from now. 18 Q. And why is that? 19 A. A borrower may have problems and he may 20 get in financial trouble. Tommy Gordon's a good 21 example. I mean, these guys were in business, and 22 the business can go sour in that period of time. 6961 1 Q. One of the reasons you stated that you 2 felt that Mr. Krasovec's financial statement was 3 significant was because it didn't have only real 4 estate assets on it; is that right? 5 A. That was a positive, yes. 6 Q. Okay. Now, having looked at 7 Mr. Krasovec's financial statement as well as 8 Mr. Rosenberg's financial statement today, did you 9 view Mr. Rosenberg's financial statement as 10 containing a significant number of real estate 11 assets? 12 A. Yes. 13 Q. And how did that affect whether or not 14 to require equity contribution from him? 15 A. Once again, we required equity 16 contribution. We don't necessarily dictate where 17 it comes from. If we say we want 12 million in 18 cash, it's more relative to us that we get the 19 12 million cash. Whether he raises it through a 20 limited partnership, he contributes his own cash 21 or whatever, that's not as important to us as the 22 fact that we have it. 6962 1 Q. At the time during your tenure at 2 United Savings, what other loans did Mr. Rosenberg 3 have placed with United Savings? 4 A. I don't think he had a loan. We had a 5 venture with him. 6 Q. What other -- what were those ventures? 7 A. It was called Northlake. 8 Q. Northlake? 9 A. Yes. 10 Q. And what was -- can you describe what 11 that venture was? 12 A. It was also a land development. It was 13 a smaller project. It was near, I think, Randolph 14 Air Force Base, whatever is in the northeast 15 quadrant, and it was a commercial development 16 really primarily for industrial use, warehouse, 17 office warehouse, distribution centers, that kind 18 of stuff. 19 Q. What was the outcome of that venture? 20 A. I don't recall, but I know the sales 21 were slow in that particular quadrant. We were 22 waiting for 1604 to be developed. It was way 6963 1 behind schedule. 2 Q. 1604 being -- 3 A. The outer loop. 4 Q. Was that another -- is that a state 5 highway? 6 A. I don't know if it's state or whatever 7 it is. But it's the outside loop that we had 8 talked about earlier. It fronted that -- that 9 property fronted that loop when it was fully 10 developed. 11 Q. What year was that? 12 A. I can't recall. It preceded all this. 13 It had been on the books for some time before we 14 looked at this one. 15 Q. During -- do you remember whether or 16 not that was ever put in, that particular road? 17 A. Oh, it's in now, yes. 18 Q. Okay. And was it put in at any time 19 that you were involved with United? 20 A. It was being built in my last tenure at 21 United. 22 Q. How much -- did the fact that it was 6964 1 being built affect the project? 2 A. Well, while it was being built, it 3 probably negatively affected it. When it was 4 completed, it hopefully positively affected it. 5 Q. Why is that? 6 A. Why is what? 7 Q. Why would it negatively affect it? 8 A. Well, it made access to it more 9 difficult. Somebody who would buy it would have 10 to see that they really wouldn't be using that 11 road -- using the facility until the road was 12 completed so they could time it at the same time. 13 Otherwise, it was just -- it was more difficult. 14 Q. You were asked earlier about Turtle 15 Creek. 16 A. Yes. 17 Q. Now, Turtle Creek was a project that 18 Mr. Rosenberg had been involved in. Right? 19 A. Yes. 20 Q. When were you asked by Mr. Rosenberg 21 to -- well, I'm not certain I remember your 22 testimony exactly. What happened again? 6965 1 A. Well, first of all, I didn't tell -- I 2 couldn't recall exactly when I was asked. And I 3 still can't recall when I was asked. But it was a 4 tract of land that he had purchased and made a 5 down payment and the seller financed the balance. 6 And the seller was not going to extend his note, 7 and he had to find an alternative financing 8 source. And he approached us to finance the 9 seller's position. It was basically raw land. 10 Q. Would that have been in 1987? 11 A. Like I said, I don't really recall. 12 But it was -- it was subsequent to -- most of the 13 Park 410 was completed. 14 Q. When were you discharged from United 15 Savings? 16 A. Euphemistically, I left in June of '87. 17 Q. Euphemistically when you left, were you 18 fired? 19 A. Yeah. 20 Q. Okay. Did you have -- were you given a 21 severance package? 22 A. Yes, I was. 6966 1 Q. And what was the nature of that 2 severance package? 3 A. Basically, I was given one year salary. 4 Q. Was that unusual for officials of an 5 institution that had been fired? 6 A. I really have no way to judge. I felt 7 it was fair considering my 11 years -- my senior 8 position, and my 11 years of dedication at United 9 Savings. That seemed fair to us. 10 Q. Did it pretty much compensate for 11 whatever you might have lost in connection with 12 your UFG stock? 13 A. Not close. 14 Q. So, it didn't quite match that? 15 A. No. Let me clarify. It wasn't just 16 the stock. I had my entire 401K in company stock, 17 and that's where I took the biggest beating. 18 Q. Were you able to close those out at the 19 time you left? 20 A. No. 21 Q. Would you have done so if you could? 22 A. I probably would have moved it into an 6967 1 IRA, yes, just so I could control my own destiny. 2 But I had a six-month window I couldn't do it in. 3 Q. Regarding Norwood, do you remember what 4 role Krasovec and Minch played and what role 5 United Savings and UFC played in marketing the 6 Norwood property? 7 A. I don't think we played much of a role 8 in marketing at all. That's what we anticipated 9 out of Krasovec and Minch. I mean, it goes back 10 to why the deal was struck the way it was and 11 structured the way it was. We looked at them to 12 be that function. We were the financial partner, 13 and they were the managing partner and marketing 14 partner. 15 Q. You use the term "we." Who are you 16 referring to? 17 A. "We" being United Savings, United 18 Financial Corp. 19 Q. What individuals were involved in 20 decision making on the marketing of the property? 21 MR. DUEFFERT: I'm sorry. I can't hear 22 the question. 6968 1 Q. (BY MR. LEIMAN) What individuals were 2 involved in marketing of the property? 3 A. Well, I imagine I was. I imagine Gem 4 had some input, also. I imagine we probably had 5 one of our staff members occasionally visit with 6 them, but what we basically reviewed is their 7 efforts. We weren't -- we weren't our own 8 marketers. That's why we had a partner. That was 9 not our expertise. 10 Q. Mr. Graham, do you recall a company 11 called Weingarten Realty? 12 A. Oh, sure. 13 Q. Did Weingarten Realty ever express any 14 interest in the park -- in the Norwood property? 15 A. I vaguely remember that name coming up, 16 but I can't recall the specifics. 17 Q. Do you know if Mr. Gross was on the 18 board of directors of Weingarten Realty? 19 A. He may have been. I can't recall. 20 Q. What about Mr. Hurwitz? Do you know if 21 he was on the board of directors of Weingarten? 22 A. I can't recall. 6969 1 Q. Would it be accurate to characterize 2 the developer profit that Krasovec and Minch would 3 have taken out of the Norwood property as the 32 4 and a half percent cut they were getting? 5 A. I guess I'm confused about what you 6 mean by "the cut they were getting." 7 Q. All right. There was a division of 8 profits. Do you remember that? 9 A. Yes. 10 Q. In connection with Norwood. UFC was a 11 co-venturer with Krasovec and Minch. 12 A. Right. 13 Q. Krasovec and Minch were to get 32 and a 14 half percent profit. 15 A. Okay. 16 Q. Would that be right to call that 17 developer profit? 18 A. Yes, in that respect. 19 Q. Mr. Graham, another loan that -- or 20 another project, I think, that Mr. Rosenberg might 21 have been involved in. Was he involved in the 22 Gateway project? 6970 1 A. No. 2 Q. Did he guaranty the Gateway project? 3 A. I can't recall whether he did or not. 4 His son-in-law was a borrower. 5 Q. Was that Lee Sandosky? 6 A. Best of my recollection, that was the 7 name. 8 Q. Do you remember if Mr. Rosenberg had 9 any role in that other than through his 10 son-in-law? 11 A. Other than my remembering that he 12 introduced me to Lee, I don't know whether he was 13 involved or not. 14 Q. Let me ask you a few questions about 15 Park 410 and specifically along the time line that 16 Mr. Dueffert developed. 17 The senior loan committee approved the 18 loan in March of 1986. Right? 19 A. If you say so, yeah. Once again, 20 you-all have a better feel for these numbers, 21 dates than I do. 22 Q. Do you remember that the loan was 6971 1 funded in April of 1986? 2 A. Okay. 3 Q. And the board of directors met in May 4 of 1986? 5 A. Correct. 6 Q. What authority or what power did the 7 board of directors have to amend or change the 8 loan, especially that amount of the loan which had 9 been funded already? 10 A. None. 11 MR. KEETON: Your Honor, I can come 12 back in the morning and show you ten pages of this 13 very same examination that we had last time. The 14 powers of the board, the powers of the committee. 15 We went through all of this. 16 THE COURT: Do you have a new question, 17 Mr. Leiman? 18 MR. LEIMAN: Yes. I just have a few 19 questions more questions, Your Honor. I think 20 we'll be able to finish up. 21 THE WITNESS: Am I answering that 22 question? 6972 1 THE COURT: I'm not sure what the 2 question was. 3 MR. LEIMAN: The question was: What 4 authority or power did the board of directors have 5 to alter or amend the loan once the $47 million 6 had been funded in April of 1986, Your Honor. And 7 he stated "none." 8 A. No. Let me -- since everybody is 9 jumping around, let me answer it. They had -- 10 they cannot amend that portion of the loan that 11 was approved by the senior loan committee. That 12 authority was already granted and was utilized. 13 They had a right to approve or deny the addition 14 of 10 million that was part of that approval 15 process. They could have said, no, we weren't 16 going to fund the 10 million. The loan would have 17 been 70 million, which was in the parameter of the 18 approval process of the senior loan committee. 19 But once the senior loan committee approved it, 20 the board of directors generally had no reason to 21 go back. It was in that bailiwick, the approval 22 process. 6973 1 Q. (BY MR. LEIMAN) You talked earlier 2 about the Tax Act. When did you become aware of 3 the legislation for the Tax Act of 1986? 4 A. Oh, I can't -- I don't know 5 specifically. We had inklings of what some of the 6 changes were; but I don't know specifics, no, I 7 don't. 8 Q. What did you understand the rationale 9 was behind the Tax Act of 1986? 10 A. I'm not sure we really cared about the 11 rationale behind it. We were more concerned about 12 the ramifications that we knew it would have on 13 the real estate industry. 14 Q. And was one of the ramifications to 15 limit or reduce overdevelopment? 16 A. No. The ramification was to take away 17 a major incentive for investment in real estate, 18 which would ultimately have that impact, yes. 19 Q. Do you know if Congress was concerned 20 at that time about escalation of real estate 21 prices, speculation in overdevelopment? 22 MR. KEETON: Your Honor, are we going 6974 1 to have him read the minds of Congress? I can 2 give him ten different reasons Congress stated 3 they did that, but it seems to me it's irrelevant 4 to this. 5 MR. LEIMAN: I can make a good case for 6 its relevance; but since he's already answered the 7 question, I think I'll move on, Your Honor. 8 THE COURT: All right. Move on. 9 MR. LEIMAN: As a matter of 10 housekeeping, I would like to substitute an 11 exhibit. We looked previously at a newspaper 12 article that came from the San Antonio Light in -- 13 on December 15th, 1985. We have copies of that 14 made larger so they don't -- they are not quite so 15 difficult to read. In addition, Your Honor, we 16 have two other articles from the same newspaper 17 that I'd like to inquire of this witness that are 18 referenced in that same article. 19 THE COURT: Was the article you're 20 talking about received previously? 21 MR. LEIMAN: Yes, it was, Your Honor. 22 MR. DUEFFERT: Your Honor, we will 6975 1 continue to object to just taking more newspaper 2 articles and running them by fact witnesses. 3 THE COURT: Objection is noted. 4 MR. LEIMAN: We would be 5 substituting -- I believe the number is 700 -- 6 this number is 7705 that we are substituting for 7 7004, I believe. 8 Your Honor, for the record, I'll 9 straighten out that the original article was 7005. 10 I was off by one digit. And we are substituting 11 77 -- 12 MR. SCHWARTZ: Just so the record is 13 clear, we found a more legible copy of the 14 newspaper article. And so, we are just, as -- to 15 use Mr. Dueffert's word, we're swapping it in 16 to -- so that there is a clearer copy in the 17 Court's records so the copy that is 7005 is just 18 being substituted with a more legible copy. 19 THE COURT: Well, I think they either 20 both should be in or we should number the 21 substituted one 7005. 22 MR. SCHWARTZ: I think that that's 6976 1 exactly right, Your Honor. They should both be in 2 as the same exhibit number and they can go into 3 the same file folder, the same tab number. 4 THE COURT: Why do you need them both? 5 MR. SCHWARTZ: One's more legible. 6 THE COURT: Well, why do you need an 7 illegible one in the file? 8 MR. SCHWARTZ: The reason being that it 9 just so happens that the copy of the newspaper 10 article that is more legible fails to include the 11 banner of the newspaper that it came from, whereas 12 the copy that's illegible does contain the banner 13 and that banner is legible. So that it's clear 14 where it came from, I would suggest that we 15 include both copies. 16 THE COURT: All right. So, we're going 17 to have one exhibit. We'll just combine them. 18 How's that? 19 MR. LEIMAN: That would be fine, Your 20 Honor. Thank you. 21 MR. DUEFFERT: And what is the number 22 on this new exhibit? 6977 1 MR. LEIMAN: They are being combined. 2 7005. 3 THE COURT: Consisting of two articles. 4 One of them has got a picture, and the other one 5 is -- identifies it as the something Light. What 6 is that? San Antonio Light? 7 MR. SCHWARTZ: Yes, Your Honor. It's 8 the San Antonio Light newspaper. The 7005 exhibit 9 which was previously admitted is just in a 10 different format. It's the identical article. 11 The other articles that Mr. Leiman mentioned have 12 different Bates numbers -- excuse me -- different 13 exhibit numbers because they are not being added 14 as part of that same exhibit. They will be 15 inquired into separately. 16 THE COURT: Okay. 17 Q. (BY MR. LEIMAN) Mr. Graham, the 18 article that I've placed in front of you which is 19 the larger print version, 7005, states in the 20 first column, quote, "Two years ago, we were 21 perceived as a boom city, a lot of hype, 22 everything was great." It goes on to state that 6978 1 real estate experts say the boom's recent 2 derailment was driven by overbuilding in the 3 office, retail, and apartment markets and by the 4 drying up about six months ago of financing to buy 5 land and construct new buildings." 6 MR. DUEFFERT: Your Honor, I'm 7 virtually certain that Mr. Leiman quoted exactly 8 the same language to this witness two weeks ago. 9 THE COURT: This wasn't raised on 10 cross, was it? I mean -- 11 MR. LEIMAN: On direct? Oh, on cross, 12 Your Honor? 13 THE COURT: Yes. 14 MR. LEIMAN: Well, what Mr. Dueffert 15 went into are the -- were areas of financing and 16 whether or not financing was done in good faith 17 and matters of underwriting and due diligence. 18 And what I believe that this article gets to is 19 that funding was virtually dried up, Your Honor, 20 with the exception of certain lenders that were 21 willing to take extreme risks. 22 MR. DUEFFERT: Your Honor -- 6979 1 MR. KEETON: Wait a minute, Your Honor. 2 Does it say something about extreme risk in this 3 article, Mr. Leiman? 4 THE COURT: Well, the question is -- 5 you're assuming that this article states the 6 facts. I think we have to be tentative on that. 7 With that assumption, you may ask the witness 8 whether he agrees with it. White. 9 MR. KEETON: In fairness, Your Honor, 10 it may be bigger print, but it's pretty small to 11 me, but he might as well read it all or he's not 12 going to be able to comment on a sentence out of 13 context. 14 MR. LEIMAN: Your Honor, may I ask a 15 question? 16 THE COURT: Yes. 17 MR. LEIMAN: Thank you. 18 Q. (BY MR. LEIMAN) Assuming that what is 19 written here is true, assuming that for the sake 20 of argument -- 21 MR. DUEFFERT: Your Honor, he's not an 22 expert witness. 6980 1 MR. KEETON: It's hypothetical. 2 THE COURT: Well, we'll let him answer. 3 Q. (BY MR. LEIMAN) If that were true, 4 did you anticipate that United Savings -- 5 A. If what was true? This comment? 6 Q. Yes. 7 A. Okay. 8 Q. Did you anticipate that United Savings 9 would fund the construction costs of any 10 development of the Norwood -- of the Park 410 11 properties that were sold? 12 A. No. 13 Q. Another comment in this article says 14 "Builders aren't buying land because they can't 15 get financing and landowners are heavily laden 16 with interest payments." 17 That's in the first column, also. 18 A. Yes. 19 Q. Who did you -- did United Savings have 20 someone in mind as to who would build out the 21 Park 410 property if financing was not available? 22 A. Well, I mean, once again, if we sold to 6981 1 national hotel firms, they would have their own 2 financing. If we sold to high tech, they would 3 have their own financing. They weren't tied to 4 the market. And this is somewhat of an 5 overstatement. We still saw quite a few projects 6 financed during this period. There was a 7 slow-down, yes, but not a screeching halt. 8 Q. Mr. Graham, when did, in your 9 estimation, lending begin to become more difficult 10 for borrowers to obtain in the mid-1980s? When 11 did that happen? 12 A. If I had to pick a time when I thought 13 that it was pretty much of a dead issue, it was 14 very, very difficult to get a loan unless it was 15 just an absolutely assured deal, it was probably 16 in the late 1987 range. 17 Q. As to when there was no funding 18 available? 19 A. When funding became really difficult. 20 Q. All right. And prior to that time, was 21 there a downward slope? 22 A. There was some slope; but once again, 6982 1 we were in this thing for the long term, as I said 2 before. We anticipated that downturn to be a 3 year, year and a half. It wasn't until '87, I 4 think, that -- as I said before, I've said often, 5 that the realization hit us that it was much 6 deeper and much lengthier than we anticipated. 7 Q. You also said that you felt that the 8 project, the Park 410 project was going to be long 9 term. 10 What do you mean by "long term"? 11 A. Well, I mean, you have quite a few 12 tracts in there. You'd sell some each year. And 13 it may be an eight- to ten-year sellout of all the 14 property in there. 15 Q. What would have been reasonable in 16 terms of a 388-acre tract such as that in terms of 17 the sellout period? 18 A. I think I just told you. I mean, it 19 depends on how you break them up. Depends on who 20 the users are. But we anticipated eight to ten 21 years on this. 22 Q. Was that the absorption period that was 6983 1 used by the borrowers in connection with their pro 2 formas? 3 A. I think it was close. I think the 4 appraiser used eight years, if I recall. 5 Q. What about the borrower? 6 A. I can't recall off the top of my head. 7 Q. Do you know if the borrower and the 8 appraiser, Mr. Schulz, used the same absorption 9 period? 10 A. I doubt they probably used the exact 11 same one, no, but that's a guess. 12 Q. I'll show you another article, if I 13 could. 14 MR. LEIMAN: I just have two more of 15 these, Your Honor, and then we'll be done. 16 MR. DUEFFERT: Your Honor, looking at 17 the face of these exhibits, the dates are either 18 scribbled on or stamped on with some kind of stamp 19 and there is no indication of where these articles 20 were published. I'll object on grounds of 21 authenticity. It's one thing to have a newspaper 22 article that looks like a newspaper article from 6984 1 something that would circulate in Texas, but I 2 think we're getting far away from that. 3 MR. EISENHART: Your Honor, I would 4 also object simply on the hearsay and reliability 5 grounds. It's clear that Mr. Leiman, despite the 6 representations he made when we first got into 7 this, is offering these for the truth of what's 8 asserted in the articles. 9 THE COURT: Well, I think I have 10 previously indicated that I don't accept them for 11 that reason. I think it's relevant to the extent 12 that it shows what was in the public domain, what 13 people were saying at the time and whether 14 underwriters were aware of what was being said. 15 Beyond that, I don't accept it as factual, 16 establishing anything. And I agree with 17 Mr. Dueffert that we have to have the source or 18 otherwise -- 19 MR. SCHWARTZ: Your Honor, so that the 20 record is clear, I was the one who obtained these 21 documents. The additional newspaper articles that 22 we've -- that we've provided Mr. Dueffert and 6985 1 respondents today are the what you call "jump" 2 articles. The articles that are referenced in 3 Exhibit 7005 which we substituted has a box 4 reference, if you'll notice, to two other 5 newspaper articles from that same issue of the 6 San Antonio Light newspaper. If you'll note, both 7 articles are by the same -- have the same by-line 8 of authorship. It's the jump article from that 9 same edition of the San Antonio Light manage. 10 The difficulty we had in obtaining this 11 copy was that for some reason, that particular 12 issue of the newspaper was not imaged on 13 microfilm. And so, the only copies we were able 14 to obtain were by contacting another newspaper in 15 San Antonio and having them go through and find a 16 hard copy of that exact issue of the newspaper. 17 They were unable to do that. However, they were 18 able to find the clippings of those articles. And 19 that's what we're presenting today. 20 THE COURT: So, you're saying that the 21 articles referenced in 7005, that's what we're 22 looking at now? 6986 1 MR. SCHWARTZ: That's correct, Your 2 Honor. 3 THE COURT: So, the 7005 is contained 4 in the same publication as the other articles? 5 MR. SCHWARTZ: That's correct. It's 6 from Sunday, December 15th, 1985. And if you look 7 just to the left of the picture, just underneath 8 the headline or the sub headline, you'll see that 9 there are two additional articles that are 10 referenced from that same issue further into this 11 section of the newspaper. And the additional 12 exhibits that Mr. Leiman is going to inquire into, 13 Exhibits 7743 and 44, are those additional 14 articles. 15 MR. DUEFFERT: Your Honor, apart from 16 the providence of these two documents, we do have 17 the issue of scope of redirect. And I just would 18 like the record to state that on Page 5844 of the 19 transcript, Mr. Graham's first day of testimony, 20 Mr. Leiman showed him the bad copy of this article 21 and asked, open quote, "Second sentence of the 22 first column talking about, open quote, 'that the 6987 1 boom is turning to bust for some, just as it has 2 in Dallas and Houston, and foreclosures mount and 3 new construction slows to a halt,'" close quote. 4 That was on the first day of this man's 5 testimony and we're just going back. There is no 6 reason this should be in on redirect. It's just 7 wasting our time. There are expert witnesses who 8 can talk about circumstances. 9 MR. LEIMAN: Your Honor, if I might 10 address that, first of all, these other two 11 articles were unavailable at that time. We just 12 obtained them. These two articles were not 13 inquired into, and the question that I asked 14 Mr. Graham in connection with 7005 was a different 15 question two weeks ago. 16 THE COURT: All right. I've received 17 7005. We might as well look at these. 7704, is 18 that the one you're looking at? 19 MR. LEIMAN: 7744, Your Honor. 20 THE COURT: You've got a question about 21 that? 22 Q. (BY MR. LEIMAN) Mr. Graham, with 6988 1 regard to the San Antonio market, was it part of 2 the plan in Park 410 to include a shopping center 3 or retail store? 4 A. Yes. 5 Q. And in that regard, if you would, 6 looking at this article, it specifically states 7 that "Retail is by biggest concern right now." 8 And that's a quote of the partner of Grieshaber & 9 Roberts, John Grieshaber. 10 A. Correct. 11 Q. Would you have disagreed with 12 Mr. Grieshaber at that point in time? 13 A. For what he's -- his generalization, he 14 is probably right. Where we anticipated the 15 difference being is that we were developing a 16 tract that was not much retail in our particular 17 market. With the development of the highway and 18 the subdivisions that were being developed behind 19 us in Westover Hills, we felt there would be a 20 market that would be generated for the retail that 21 wasn't there at that time. You know, if you keep 22 in mind, this is the same guy who signed his 6989 1 liability on that note. So, I mean, he had to 2 have some belief that that market was there, too, 3 even though he made this statement. 4 Q. Mr. Graham, how much was 5 Mr. Grieshaber's firm paid in connection with the 6 commission in obtaining Park 410 property? Do you 7 remember? 8 A. I don't recall. 9 Q. Do you know if it was more than 10 $300,000? 11 A. Since I don't recall, I don't know. 12 MR. LEIMAN: 7743, Your Honor. This is 13 the last one. I think we've passed this one out. 14 A. I don't think I have it. 15 MR. DUEFFERT: Your Honor, for the 16 record, this is an Associated Press article. 17 There is no by-line on this. We have no idea 18 where it comes from. 19 THE COURT: Well, Mr. Schwartz has told 20 us it's referenced in 7005. I know he's not a 21 witness, but that's what he said. 22 MR. SCHWARTZ: That's correct, Your 6990 1 Honor. It's from that same edition of the 2 newspaper. I mean, if Your Honor would like, we 3 can obtain an affidavit from the researcher who 4 photocopied this and provided it to us. However, 5 it's our representation that this is the jump 6 article that was referenced in the first page of 7 7005, being "Lenders Tighten Purse Strings." And 8 if you look the first paragraph of 7743, you'll 9 see that reference. 10 THE COURT: All right. 11 MR. SCHWARTZ: Excuse me. "Texas 12 Cities Overbuilding." I'm sorry. 13 THE COURT: All right. I'll accept 14 that representation. 15 Do you have a question, Mr. Leiman? 16 MR. LEIMAN: Yes, Your Honor. 17 Q. (BY MR. LEIMAN) Looking at the second 18 column, Mr. Graham, of this article, do you 19 believe that, as this article implies, Austin 20 became an overnight haven, in effect, for 21 developers of other Texas cities in or about the 22 fall and winter of 1985? 6991 1 A. I think there were several developers, 2 such as Tommy, that moved to Austin looking for 3 opportunities when they saw the Houston market -- 4 I can only speak for Houston developers -- saw the 5 Houston market soften. 6 Q. Looking down farther, would you 7 disagree with the quote from the newspaper which 8 states that -- called Austin totally 9 overdeveloped? 10 A. Well, I find it interesting it's being 11 given by Mr. Livingston Kosberg. Gibraltar, which 12 was his savings and loan, continued to develop in 13 Austin, Houston, and Dallas in spite of his 14 comments. A lot of times, comments were made to 15 try to, I guess, slow the market down so 16 competition wouldn't be so great. But 17 Mr. Kosberg, for example, his association was one 18 of the more aggressive developers through all 19 these markets in spite of what he says here. So, 20 you've got to take it with a little bit of a grain 21 of salt. 22 Q. Why? 6992 1 A. Well, I mean, if somebody's saying it's 2 totally overbuilt, then he's out there financing 3 and joint venturing developments in all these 4 markets, some of this is self-serving in trying to 5 get other people not to develop and be competition 6 with him. 7 Q. And is that what you think Mr. Kosberg 8 might have been doing? 9 A. I don't know about the rest of this, 10 but I know Mr. Kosberg didn't live by what he 11 said. 12 Q. What do you mean? 13 A. I mean, he -- I mean, Gibraltar was 14 very aggressive in all these markets developing 15 properties. 16 Q. Was Gibraltar a direct competitor of 17 United Savings? 18 A. Yes. 19 MR. LEIMAN: With the Court's 20 indulgence. 21 22 (Discussion off the record.) 6993 1 MR. LEIMAN: Just a couple of quick 2 questions if I might, Your Honor. 3 Q. (BY MR. LEIMAN) What happened to 4 Gibraltar Savings, if you know? 5 A. It went under on December 31st, 1988. 6 Q. And finally, I'd like to just clarify 7 for the record what -- I'm not sure what the order 8 was of different individual's involvement in the 9 Park 410 matter. The meeting at the Argyle Club 10 with yourself, Mr. Childress, Mr. Williams, 11 Mr. Gross, and Mr. Hurwitz -- 12 MR. KEETON: I'm objecting. Note for 13 the record I want to hear his testimony. 14 THE COURT: We can have the question 15 again. State your question. 16 Q. (BY MR. LEIMAN) The individuals I 17 just mentioned, was the meeting at the Argyle Club 18 in February of 1985 prior to the signing of USAT's 19 partnership with Stanley Rosenberg? 20 A. You mean prior to doing the 21 2-million-dollar investment on the original deal? 22 Q. Prior to the 1985 deal with Stanley 6994 1 Rosenberg. 2 A. I've got to be square with the dates 3 here because you're -- I mean, you're comfortable 4 with them and I'm trying to keep them in 5 perspective. 6 Are you saying did we enter into the 7 joint venture, where we just invested $2 million 8 as a partner with Mr. Rosenberg, was that 9 investment prior to the meeting at the Argyle? 10 Q. Well, that's essentially what I'm 11 asking. Was the investment and partnership with 12 Stanley Rosenberg before or after Argyle? 13 A. The investment with Rosenberg, to the 14 best of my recollection, was prior to Argyle 15 because Argyle was -- really dealt with the full 16 development of the property and the marketing of 17 that developed property. 18 MR. LEIMAN: No further questions, Your 19 Honor. 20 THE COURT: Any recross? 21 MR. KEETON: Your Honor, I was trying 22 to read these articles. Did we have an offer that 6995 1 somebody's going to give us more proof to show 2 these dates are all accurate on here? I think 3 the -- 4 THE COURT: Well, we had an offer of 5 proof, and I said I would accept Mr. Schwartz' 6 representation. Is there a dispute? 7 MR. KEETON: Well, let me say this, 8 Your Honor. There is nothing internally that will 9 date these, except there is one reference to a 10 1985 absorption rate in one of them. And I 11 realize it's written at the end of the year in 12 '85, but that kind of date is not always in there 13 that quick. And I would just be curious to see 14 that we got the right dates since nobody seems to 15 have the real page or the by-line on here. 16 I think all of this is irrelevant, but 17 if they are putting it in and it's in the record, 18 I at least want to be sure of the date. 19 THE COURT: Well, Mr. Schwartz, you 20 said you could get an affidavit or something? 21 MR. SCHWARTZ: I'll be happy to contact 22 the San Antonio newspaper that I contacted and ask 6996 1 for one from the researcher. Again, the 2 difficulty was that this particular issue of the 3 San Antonio Light, which was a Hearst newspaper, 4 for some reason was not imaged. That particular 5 issue just was not shipped to Bell & Howell for 6 imaging, for whatever reason. And so, every 7 copy -- we went to the library of Congress. We 8 went to libraries in Houston and San Antonio 9 looking for an imaged copy. We were unable to 10 find it. The only source that we have for the 11 article were actual clippings of the hard copy of 12 that particular issue. They are individual 13 clippings of newspaper articles. 14 So, in that sense, the comments that I 15 made to respondents are correct. But they are -- 16 but they are clearly referenced in the jump from 17 7005 regarding Texas Cities Overbuilding. And 18 the -- and the articles are date stamped with the 19 date that they appeared in the newspaper. 20 MR. KEETON: My problem is they say 21 it's a jump, but I don't even have anything but a 22 Xerox of this one. And I didn't say anybody on 6997 1 the other side is putting in wrong stuff, but I'm 2 just saying that I don't have anything but that. 3 I might also add I can't even read that date very 4 well. Maybe it's a 5, and maybe it's a 6. 5 THE COURT: Well -- 6 MR. SCHWARTZ: Which date are you 7 referring to, sir? 8 MR. KEETON: The one on the exhibit 9 that's already in. 10 MR. SCHWARTZ: That's the Sunday 11 newspaper. That's December 15th, according to the 12 calendar. 13 MR. KEETON: It says December 15th, I 14 understand that. 15 MR. SCHWARTZ: It says "Sunday" 16 directly above it. 17 MR. KEETON: I'm trying to find out 18 about the 6 versus the 5. I don't see the 19 article. I mean, look. Somebody can Xerox 20 anything. I can make anything look like -- give 21 me a Xerox. And I'm not saying you did it. I 22 just want to be -- if we're going to let this kind 6998 1 of garbage into the record, I at least want to -- 2 MR. LEIMAN: Excuse me. Mr. Keeton, 3 the your reference to this as garbage I find very 4 offensive, and I'm sure the Court doesn't 5 appreciate it either. 6 MR. KEETON: I'm sure the Court can 7 tell me, Mr. Leiman. 8 MR. SCHWARTZ: Your Honor, the 9 newspaper articles are self-authenticating, as far 10 as that goes. This is -- 11 THE COURT: I'll receive the documents. 12 Let's move on. 13 MR. KEETON: I have a couple of 14 questions, Your Honor. 15 THE COURT: All right. Mr. Keeton. 16 17 RECROSS-EXAMINATION 18 19 20 Q. (BY MR. KEETON) Mr. Graham, would you 21 look at what has been marked T7577? 22 A. Yes, sir. 6999 1 Q. Take a moment and review that letter. 2 A. Yes. 3 Q. Does that refresh your recollection of 4 the reception/party in San Antonio of a fairly 5 large number of folk, both from Houston and 6 San Antonio? 7 A. Yes, it does. When you asked the 8 question first, I thought you were asking 9 specifically a party related to Park 410. This 10 was in a generalized deal for us to get to know 11 his firm and his firm to get to know us and other 12 people. 13 Q. And there was some charts and things 14 about 410 at that time. Right? 15 A. May have been. I'll be honest. I 16 don't recall much of this party, but I do recall 17 the party. 18 Q. Now, having seen this, do you think 19 there was yet another meeting that Mr. Hurwitz 20 attended at the Argyle sometime before that, or is 21 this the one that Mr. Hurwitz attended? 22 A. No. There was a separate meeting he 7000 1 attended. 2 Q. You're sure? 3 A. Yes. 4 MR. KEETON: I'll offer this exhibit, 5 Your Honor. 6 MR. LEIMAN: No objection. 7 THE COURT: Received. 8 MR. KEETON: That's all I have. 9 MR. EISENHART: Your Honor, I have, I 10 think, one question. 11 THE COURT: All right. 12 MR. EISENHART: I'll ask it from here. 13 14 RECROSS-EXAMINATION 15 16 17 Q. (BY MR. EISENHART) Mr. Graham, on the 18 occasions that you dealt with Mr. Hurwitz on real 19 estate matters, on any of those occasions, did he 20 ever ask you to take any action for the benefit of 21 MAXXAM as distinguished from USAT? 22 A. No. 7001 1 MR. EISENHART: Thank you. 2 MR. BLANKENSTEIN: No questions, Your 3 Honor. 4 MR. DUEFFERT: We have no more 5 questions. 6 MR. LEIMAN: Your Honor, our first 7 witness tomorrow will be Mr. Winters, who's a 8 former director of United Savings. 9 THE COURT: All right. Thank you, 10 Mr. Graham. You may step down. 11 THE WITNESS: I appreciate it. It's 12 been a thrill. 13 MR. DUEFFERT: Is the witness released? 14 THE COURT: Yes. We'll adjourn until 15 9:00 o'clock tomorrow morning. 16 17 (Whereupon at 4:37 p.m. 18 the proceedings were recessed.) 19 20 21 22 7002 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 13th 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 7003 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 13th 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