7550 1 UNITED STATES OF AMERICA Before the 2 OFFICE OF THRIFT SUPERVISION DEPARTMENT OF THE TREASURY 3 In the Matter of: ) 4 ) UNITED SAVINGS ASSOCIATION OF ) 5 TEXAS, Houston, Texas, and ) ) 6 UNITED FINANCIAL GROUP, INC., ) Houston, Texas, a Savings ) 7 and Loan Holding Company ) ) OTS Order 8 MAXXAM, INC., Houston, Texas, ) No. AP 95-40 a Diversified Savings and ) Date: 9 Loan Holding Company ) Dec. 26, 1995 ) 10 FEDERATED DEVELOPMENT CO., ) a New York Business Trust, ) 11 ) CHARLES E. HURWITZ, ) 12 Institution-Affiliated Party ) and Present and Former Director ) 13 of United Savings Association ) of Texas, United Financial Group,) 14 and/or MAXXAM, Inc.; and ) ) 15 BARRY A. MUNITZ, JENARD M. GROSS,) ARTHUR S. BERNER, RONALD HUEBSCH,) 16 and MICHAEL CROW, Present and ) Former Directors and/or Officers ) 17 of United Savings Association of ) Texas, United Financial Group, ) 18 and/or MAXXAM, Inc., ) ) 19 Respondents. ) 20 21 TRIAL PROCEEDINGS FOR 11-18-97 22 7551 1 A-P-P-E-A-R-A-N-C-E-S 2 ON BEHALF OF THE AGENCY: 3 KENNETH J. GUIDO, Esquire (Not present) Special Enforcement Counsel 4 PAUL LEIMAN, Esquire SCOTT SCHWARTZ, Esquire 5 BRUCE RINALDI, Esquire RICHARD STEARNS, Esquire (Not present) 6 and BRYAN VEIS, Esquire (Not Present) of: Office of Thrift Supervision 7 Department of the Treasury 1700 G Street, N.W. 8 Washington, D.C. 20552 (202) 906-7395 9 ON BEHALF OF RESPONDENT MAXXAM, INC.: 10 FRANK J. EISENHART, Esquire 11 of: Dechert, Price & Rhoads 1500 K Street, N.W. 12 Washington, D.C. 20005-1208 (202) 626-3306 16 13 DALE A. HEAD (in-house) 14 Managing Counsel MAXXAM, Inc. 15 5847 San Felipe, Suite 2600 Houston, Texas 77057 16 (713) 267-3668 17 ON BEHALF OF RESPONDENT FEDERATED DEVELOPMENT CO. AND CHARLES HURWITZ: 18 RICHARD P. KEETON, Esquire 19 KATHLEEN KOPP, Esquire of: Mayor, Day, Caldwell & Keeton 20 1900 NationsBank Center, 700 Louisiana Houston, Texas 77002 21 (713) 225-7013 22 7552 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 (Not present) of: Gibson, Dunn & Crutcher 8 1050 Connecticut Avenue, N.W. Washington, D.C. 20036-5303 9 (202) 955-8500 10 ON BEHALF OF BERNER, CROW, MUNITZ AND HUEBSCH: 11 JOHN K. VILLA, Esquire MARY CLARK, Esquire 12 PAUL DUEFFERT, Esquire of: Williams & Connolly 13 725 Twelfth Street, N.W. Washington, D.C. 20005 14 (202) 434-5000 15 OTS COURT: 16 HONORABLE ARTHUR L. SHIPE Administrative Law Judge 17 Office of Financial Institutions Adjudication 1700 G Street, N.W., 6th Floor 18 Washington, D.C. 20552 Jerry Langdon, Judge Shipe's Clerk 19 REPORTED BY: 20 Ms. Marcy Clark, CSR 21 Ms. Shauna Foreman, CSR 22 7553 1 2 EXAMINATION INDEX 3 4 Page 5 CHARLES WHITE 6 Cont'd Examination by Mr. Schwartz.......7554 7 Cross-Examination by Mr. Dueffert........7719 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 7554 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. Mr. Schwartz, you may 5 continue. 6 MR. SCHWARTZ: Thank you, Your Honor. 7 Good morning. 8 9 CONT'D EXAMINATION 10 11 12 Q. (BY MR. SCHWARTZ) Good morning, 13 Mr. White. 14 A. Good morning. 15 Q. When we broke yesterday, we were 16 looking at Exhibit 7053. 17 Do you have that in front of you? 18 A. Yes, I have it. 19 Q. Would you turn to the last page of that 20 exhibit? And we saw on the spreadsheet there was 21 an entry for Westside Expressway? 22 A. Yes. 7555 1 Q. And here, there is an entry for 2 Westside Expressway Note 2. 3 Do you see that? 4 A. Yes. 5 Q. And then down below under the notes, it 6 says "contribution of $400,000 under Westside 7 Expressway monetary participation agreement is not 8 determinable as to the exact due date. The 9 manager will request these funds within 30 days of 10 due date once the date is established." 11 Do you see that? 12 A. Yes. 13 Q. What does that mean? 14 A. Well, at this point, the -- what's 15 known here as the Westside Expressway was still 16 under design, I guess, and negotiation with the 17 Highway Department. So, the precise time when the 18 adjacent property owners needed to make their 19 contribution had not yet been determined. 20 Q. So, at this point in time, it was an 21 unknown as to when that would be? 22 A. That's correct. 7556 1 Q. Okay. This is March -- the end of 2 March 1985. Over the next six months -- if you 3 recall, the joint venture agreement was dated 4 March 3rd, '85. Over the next six months, did you 5 engage in efforts to sell -- excuse me -- to 6 obtain financing for the property? 7 A. Yes. 8 Q. And were those efforts successful? 9 A. No, not in that time frame. 10 Q. Exhibit 7068. It's Tab 647. Can you 11 identify this document? 12 A. Yes. This is a study we -- the joint 13 venture commissioned with Laventhol & Horwath to 14 look at hotel prospects on the property. 15 Q. And when was that report produced? 16 A. Well, it's dated here August 19th, 17 1985. 18 Q. And did you receive it in or around 19 August of 1985? 20 A. Yes. 21 Q. Would you turn to the fifth page of the 22 report? 7557 1 A. Okay. 2 Q. In the middle of the page, there is a 3 paragraph just below some -- it says "total 100 4 percent." It says "It is anticipated that the 5 Central Business District will capture the largest 6 percentage of Sea World lodging demand due to the 7 uniqueness of the River Walk, the location of the 8 Alamo, and the traditional Spanish flavor found in 9 the area which appeals to the tourist." 10 Where is the Central Business District 11 in San Antonio? 12 A. Well, from Park 410 West, it's probably 13 about 15 miles probably. 14 Q. Is it -- is it considered downtown? 15 A. Which? 16 Q. San Antonio. 17 A. Downtown San Antonio? 18 Q. Is that considered the Central Business 19 District? 20 A. Yes, uh-huh. 21 Q. Is that anywhere near Park 410? 22 A. No. 7558 1 Q. How would this information affect 2 Park 410 selling hotel sites? 3 MR. DUEFFERT: Optional completeness, 4 Your Honor. May I read the rest of the paragraph? 5 THE COURT: Yes. 6 MR. SCHWARTZ: I'll go ahead and read 7 the rest of the paragraph into the record, if you 8 want. "As indicated above" -- the rest of the 9 paragraph continues, "As indicated above, due to 10 the proximity of the northwest, west sector to the 11 proposed park, this area is expected to capture a 12 greater percentage of tourist demand than it has 13 historically." 14 Q. (BY MR. SCHWARTZ) Do you see that? 15 A. Yes. 16 Q. Okay. How would that information 17 affect Park 410 selling hotel sites, the entire 18 report -- passage? 19 A. Well, this report was not as positive 20 as we had hoped. I mean, basically, what it is 21 indicating is that the bulk of your lodging demand 22 will remain in downtown San Antonio, although 7559 1 there is speculation here that at a minimum -- or 2 there will be some increased demand in the Park 3 410 West area of town. 4 Q. Park 410 West or in that entire area in 5 which -- in that 13,000-acre area? 6 A. Yes, that's correct. It would be in 7 that northwest sector of San Antonio known at that 8 time as the westplex area. 9 Q. Were you concerned at this point in 10 time that this type of information would affect 11 the ability to obtain financing for the project? 12 A. No. I think most of the concern at 13 this point would have been for, you know, 14 marketing opportunities. 15 Q. Why were you not concerned about 16 financing? 17 MR. DUEFFERT: Objection. That 18 mischaracterizes the witness' statement. 19 THE COURT: I think your question is: 20 Why would these factors not concern you regarding 21 financing? 22 MR. SCHWARTZ: That's exactly correct. 7560 1 THE COURT: All right. 2 A. Well, the -- I mean, it certainly would 3 have an impact on financing. However, the total 4 project, the anticipated sites on the property for 5 development of a hotel were, you know, one or two 6 at the most. So, in terms of its impact on the 7 whole development, this would be one or two sales 8 of the entire -- of the entire parcel. 9 Q. (BY MR. SCHWARTZ) Do you know if 10 Mr. Rosenberg saw this report? Would this have 11 been distributed to all the partners? 12 A. This would have been distributed to all 13 the partners, yes. 14 Q. Exhibit 7340. This appears to be a 15 November 15th, 1985 Park 410 project quarterly 16 report; is that correct? 17 A. That's correct. 18 Q. And would you have participated in the 19 preparation of this? Look on the -- 20 A. Yes. As you'll see on Page 1, 21 "originated by Noel Simpson and Charles White," 22 which means that I would have prepared it and then 7561 1 reviewed it with Mr. Simpson before it was 2 released. 3 MR. SCHWARTZ: Your Honor, we move the 4 admission of Exhibit T7340. 5 MR. DUEFFERT: No objections. 6 THE COURT: Received. 7 Q. (BY MR. SCHWARTZ) Now, on Page 1 of 8 this quarterly report under the heading 9 "development loan application," do you see that? 10 A. Yes. 11 Q. You wrote that, quote, "Acting in its 12 capacity as manager of the joint venture, GMR 13 prepared and submitted to targeted lenders a 14 series of detailed loan applications for the 15 required $80 million of development finance. The 16 application components included financial pro 17 forma analysis, market study, loan terms proposal, 18 infrastructure cost analysis, and utility report." 19 Do you see that? 20 A. Yes. 21 Q. With regard to the market study, is 22 that the Tremar study that we saw? 7562 1 A. Yes. That would have been the Tremar 2 study. 3 Q. Would you have -- did you not provide 4 the hotel study that we looked at, the 5 Laventhol -- 6 A. The Laventhol report? I'm not certain, 7 but probably not. 8 Q. Had applications for financing been 9 pursued with potential lenders, and was United one 10 of those lenders? 11 A. I don't recall whether United was in 12 the original list. 13 Q. Why not? Why would it not have been? 14 A. Well, it may or it may not have been. 15 I'm just not certain if it was in the initial hit 16 list of proposed lenders. 17 Q. The memo goes on to say, "An R-41B 18 appraisal has been contracted and its preparation 19 is being monitored by GMR." 20 Do you see that? 21 A. Yes. 22 Q. Who had been contacted in connection 7563 1 with obtaining that appraisal? 2 A. This would have been Love & Dugger. 3 Q. And if you go further down on that 4 page, does that refresh your recollection about 5 United Savings at Item 2.3? 6 A. Oh, here it is. 7 Q. So, United had been -- detailed 8 conversations had been going on with United at 9 this point in time? 10 A. Yes. 11 Q. It goes on to say -- there is a 12 discussion on the second page at the bottom about 13 FEMA. What was the issue concerning FEMA? Is 14 that the Federal Emergency Management 15 Administration or authority? 16 A. Yes. That's correct. Well, one of the 17 questions you have in any due diligence is how 18 much property is in the flood -- the 100-year 19 flood zone. In this case, we had considerable 20 land reclamation that had gone on and the -- but, 21 however, the application to FEMA to remove the 22 area previously in the flood plain and since 7564 1 reclaimed had not been changed on their flood 2 control maps. 3 So, consequently, the problem would be 4 that nobody could get flood insurance on that -- 5 on those parcels effected until FEMA changed their 6 maps. 7 Q. And was that a lengthy process? 8 A. Yes. 9 Q. Exhibit 7339, please. Did you receive 10 a copy of this memorandum of November 12th, 1985, 11 on or around that date? 12 A. Yes. 13 Q. And did you also assist in its 14 preparation? 15 A. I may have, but it's not -- it's not 16 indicated here. 17 Q. Okay. But you did receive a copy of 18 it? 19 A. Yes. 20 MR. SCHWARTZ: Your Honor, we move the 21 admission of Exhibit T7339. 22 MR. DUEFFERT: No objections. 7565 1 THE COURT: Received. 2 Q. (BY MR. SCHWARTZ) Now, this 3 memorandum appears to identify some general terms 4 that Mr. Simpson was seeking authorization to 5 negotiate with United Savings. 6 Was it your understanding that these 7 were the terms that the joint venture partners 8 were interested in negotiating? 9 A. Yes. 10 Q. And concerning -- who came up with 11 these terms? 12 A. Well, although this is addressed from 13 Mr. Simpson, these would have been items that 14 would have been under discussion by all the 15 partners. What Mr. Simpson is trying to do here 16 is to lay out in detail for the partners where we 17 stood and what we were trying to achieve with 18 United. 19 Q. Did any of the partners take the lead 20 on identifying terms to be negotiated with United? 21 A. Well, Stanley Rosenberg was the lead -- 22 the lead man in the venture that had the 7566 1 relationship with United. And all of these terms 2 and conditions would have been fairly, you know, 3 discussed with him and he would have been 4 intimately involved in talking with United about 5 them. 6 Q. And you just said that Mr. Rosenberg 7 was the one who had the relationship with United. 8 What do you mean by that? 9 A. Well, he is the one who introduced 10 United to the venture and knew the principals with 11 United and had done business with them previously. 12 Q. Who did he know at United? 13 A. Well, certainly Mr. Hurwitz and 14 Mr. Graham. Several other people in the higher 15 management of United. 16 Q. In addition to United Savings, did GMR 17 seek out other lenders? 18 A. Yes. 19 Q. Exhibit 7004, please. Mr. White, were 20 you aware of articles like this one from the 21 San Antonio Light newspaper around November 1985? 22 A. Yes, certainly. 7567 1 Q. How were you familiar with them? 2 A. Let's say at this time, yeah, there 3 were two newspapers in town. I'd read both 4 newspapers every morning. 5 Q. And were articles like this common at 6 that time? 7 MR. DUEFFERT: Your Honor, I don't 8 understand the question. "Articles like this"? 9 MR. SCHWARTZ: Articles concerning the 10 situation with regard to real estate and real 11 estate markets. 12 A. Well, I mean, I can't testify as to how 13 many there were; but certainly, articles started 14 to appear in this time frame regarding market 15 conditions in Texas and in San Antonio. 16 Q. (BY MR. SCHWARTZ) Did articles like 17 this concern you about being able to obtain 18 financing for your project? 19 A. Well, they were of concern. But by 20 that point, we were pretty far down the road with 21 United, I believe, and in terms -- I mean, they 22 were concerned more from the angle of it being a 7568 1 marketing problem than one of being able to secure 2 the loan. 3 Q. And was that information known to 4 United? 5 MR. DUEFFERT: Calls for speculation. 6 THE COURT: I suppose if he knows, he 7 can answer; but I'm not sure how he could answer. 8 Q. (BY MR. SCHWARTZ) Do you know whether 9 information like this was available to United? 10 A. It was certainly available. I can't 11 say that -- I mean, I didn't make it available to 12 them. 13 Q. But information like this was available 14 to them; is that correct? 15 A. Certainly. 16 Q. You said that it wasn't much of a 17 concern, I believe, in obtaining financing because 18 you were pretty far down the road with United. 19 What does that mean? 20 A. Well, by November of this year, as we 21 saw in the previous exhibit, we were down -- 22 Q. Is that -- 7569 1 A. That's the -- 2 Q. -- 7339? 3 A. 7339. We had already had preliminary 4 discussions with United, and we were getting down 5 to the particulars of the loan terms. 6 Q. In this article, 7004, it says in 7 the -- just below the phrase "Office vacancies in 8 the Alamo City top national average." 9 Do you see that? 10 A. Yes. 11 Q. It says "Office buildings in 12 metropolitan San Antonio had an average 22.3 13 percent vacancy rate at the end of September, up 14 from 20.5 percent at the end of June, according to 15 Caldwell Bankers' Office Vacancy index of the 16 United States. Nationally, the average was 17 19.6 percent. A year earlier, San Antonio office 18 buildings had averaged a vacancy of 23.5 percent." 19 Do you see that? 20 A. Yes. 21 Q. Was that your understanding at the time 22 that that information was correct? 7570 1 A. Oh, yeah. It was -- I mean, it was 2 certainly real close. 3 Q. Exhibit -- 4 MR. SCHWARTZ: Your Honor, I move into 5 evidence Exhibit T7004. 6 MR. DUEFFERT: Same objections as 7 previously. 8 THE COURT: Received. 9 Q. (BY MR. SCHWARTZ) Exhibit 7182. 10 Mr. White, did you receive this November 12, 1985 11 memorandum to Ken Gindy and John Grieshaber? 12 A. Yes. 13 MR. SCHWARTZ: Your Honor, we move 14 Exhibit T7182. 15 MR. DUEFFERT: No objections. 16 THE COURT: Received. 17 Q. (BY MR. SCHWARTZ) This memorandum 18 lists potential sources of financing. 19 Do you see that? 20 A. Yes. 21 Q. Were applications -- or excuse me. Was 22 Gibraltar Savings approached for financing? 7571 1 A. Yes. 2 Q. Was Western Savings approached? 3 A. Yes. 4 Q. First Texas? 5 A. Yes. 6 Q. Commonwealth? 7 A. Yes. 8 Q. SASA, is that San Antonio Savings 9 Association? 10 A. Yes. 11 Q. First Continental Mortgage? 12 A. Yes. 13 Q. Western Savings -- 14 A. Yes. 15 Q. -- of Phoenix? Independent American 16 Savings? 17 A. Yes. 18 Q. Is that next one a reference to life 19 insurance companies? 20 A. Yes, uh-huh. 21 Q. All the sources of potential funding 22 were contacted? 7572 1 A. Yes. 2 MR. DUEFFERT: Your Honor -- 3 Q. (BY MR. SCHWARTZ) And was Gibraltar? 4 MR. DUEFFERT: By way of actual 5 completeness, I'll note that Line 2 states other 6 potential sources noted at the meeting. 7 Q. (BY MR. SCHWARTZ) Were all of these 8 sources contacted -- approached for potential 9 funding? 10 A. Yes. I mean, the way these field notes 11 are -- were done at GMR was you can see the 12 initials of the person in brackets following the 13 line item. And those would be the people 14 responsible for making those contacts. And by 15 virtue that their initials appeared there, those 16 folks would have contacted these people. 17 Q. And was Gibraltar interested in making 18 the loan on the terms that the joint venturers 19 wanted? 20 A. Gibraltar was interested in making a 21 loan. But as I recall, the terms that Gibraltar 22 were proposing were not acceptable to the venture. 7573 1 Q. Do you recall if Gibraltar wanted the 2 investors to put in cash equity? 3 A. Yes. Certainly, they would have cash 4 equity and I'm not quite sure what kind of 5 liability they wanted on top of that. 6 Q. Do you recall that there was some 7 liability in addition to the cash equity that they 8 wanted and you just don't recall the amount? 9 A. I wouldn't -- I'd have to look at some 10 documents probably to tell you what the amounts 11 were. 12 Q. Was Western Savings interested in 13 making the loan on the terms that the joint 14 venture wanted? 15 A. No. 16 Q. First Texas? 17 A. No. 18 Q. Commonwealth? 19 A. No. 20 Q. San Antonio Savings? 21 A. No. 22 Q. First Continental Mortgage? 7574 1 A. No. 2 Q. Western Savings? 3 A. No. 4 Q. I already asked you about that one. 5 I'm sorry. Independent American? 6 A. No. 7 Q. Life insurance companies? 8 A. No. None of these -- I'm not quite 9 sure, but I think only Gibraltar was one who was 10 even interested enough to put forth a proposal. I 11 think all the rest of these didn't even make it 12 that far. 13 Q. Actually, there is a Western and then a 14 Western Savings of Phoenix. 15 Is that two different institutions? 16 A. I believe so. 17 Q. And both were contacted and neither was 18 interested? 19 A. Both were contacted and, to my 20 knowledge, none -- neither of them was interested. 21 Q. And it goes on to say, "Since our 22 meeting, Dick Stahl has come up to BR." 7575 1 Who's BR? Don't recall 2 A. I should know who that is, but I 3 don't -- I don't recall right off who BR is. 4 Q. Okay. "With an undisclosed source of a 5 100 percent non-recourse loan, and it's requested 6 that he be given two weeks to perform." 7 Do you see that? 8 A. Yes. 9 Q. Who was Dick Stahl? 10 A. Dick Stahl was the former loan officer 11 at Alamo Savings and was then a mortgage broker. 12 Q. And that was for a 100 percent 13 non-recourse loan. Right? 14 A. Yes. 15 Q. Okay. Was that pursued, also? 16 A. Yes. 17 Q. Exhibit 7183. Can you identify this 18 document as a November 15th, 1985 -- 19 A. Excuse me. "BR" is Bill Ross. 20 Q. Bill Ross. Who is Bill Ross? 21 A. He was also a former employee of Alamo 22 Savings. 7576 1 Q. Looking at Exhibit 7183, is this a 2 November 18th, 1985 memorandum concerning 3 Dick Stahl's prospecting for loans? 4 A. Yes. 5 Q. And did you receive a copy of this 6 memorandum and the letter attached? 7 A. Yes. 8 MR. SCHWARTZ: Your Honor, we move the 9 admission of Exhibit T7183. 10 MR. DUEFFERT: No objections. 11 THE COURT: Received. 12 Q. (BY MR. SCHWARTZ) Was Mr. Stahl 13 successful in obtaining financing on the terms 14 outlined in that letter? 15 A. No. 16 Q. Mr. White, were any lenders interested 17 in making the loan on the terms desired by the 18 joint venturers? 19 A. Say that again. 20 Q. Were any lenders interested in making 21 the loan on the terms desired by the joint 22 venturers? 7577 1 MR. DUEFFERT: Your Honor, we don't 2 have a clarification of what he is referring to by 3 "terms." It's an awfully ambiguous question. 4 THE COURT: Well, I don't think we can 5 go through all the terms they wanted. So, I'll 6 just take what they wanted. I don't know what 7 this means, but -- 8 A. Well, the terms that the joint venture 9 was seeking are outlined in this previous 10 memorandum, T339 or, no, T7339. And in terms 11 of -- I mean, the -- what the joint venture was 12 seeking from these various lenders that were 13 contacted were terms along these lines. 14 So, these terms in this memorandum were 15 ones that were discussed by the joint venture and 16 became the basic blueprint for any discussions 17 with the lenders so that everybody was talking -- 18 I mean, various people were talking with various 19 renders. And so, everybody needed to know what 20 terms would be acceptable to the joint venture. 21 And that's the purpose of this -- of this 22 memorandum, was to define the terms that would be 7578 1 acceptable to the venture 2 THE COURT: All right. Can you answer 3 his question now? 4 THE WITNESS: Well, what was the 5 question now? 6 Q. (BY MR. SCHWARTZ) Were any lenders 7 interested in -- other than United, were other 8 lenders interested in making the loan on terms 9 approaching those of what the joint venture 10 wanted? 11 A. No. Only United. 12 Q. Was the same information provided to 13 all of the -- all of the lenders that were 14 approached? 15 A. Yes. The same package would have gone 16 to all of them. 17 Q. Were you worried at this point, 18 considering the lack of interest from lenders, 19 about obtaining financing? 20 A. Well, we were encouraged by our 21 conversations with United. And on the strength of 22 Stanley's relationship with them, it was looking 7579 1 pretty good at that point. 2 Q. And what did Mr. Rosenberg say about 3 his relationship with United? 4 A. Well, it would be difficult to make any 5 direct quotes. I mean, these would have been 6 discussions that we would have from time to time 7 as we were discussing the terms. But it was 8 pretty clear that his relationship with 9 Mr. Hurwitz and with United was pretty strong. 10 They had done business previously, and Stanley was 11 confident that we could come to terms with them 12 and secure the loan. 13 Q. Back on -- in Exhibit 7340, which were 14 those reports, at the bottom it said "the detailed 15 loan discussions were in hand with United 16 Savings." 17 Do you recall that? 18 A. Yes. 19 Q. If detailed loan discussions were in 20 hand with United Savings, why were you pursuing 21 other lenders? 22 A. Well, you're always looking for a 7580 1 better deal if you can find one. So, you keep 2 your options open as long as you can to see if 3 there are any other -- any other fish out there. 4 Q. Were there? 5 A. No. 6 Q. On the third page of that report, 7340, 7 there is a discussion of marketing. 8 A. What page? 9 Q. The third page of the report. 10 A. Okay. 11 MR. DUEFFERT: For the record, I think 12 that's Exhibit T7340. 13 MR. SCHWARTZ: That's correct. Thank 14 you, Mr. Dueffert. 15 Q. (BY MR. SCHWARTZ) It says there, "A 16 thorough market study relating to the Park 410 17 property was contracted and completed under the 18 direction of GMR." 19 Do you see that? 20 A. Yes. 21 Q. And I asked you before, was that the 22 Tremar study? 7581 1 A. Yes. 2 Q. I don't recall if we looked at it 3 yesterday. It's Exhibit 7127, Tab 710. 4 Is that the Tremar study that you're 5 referring to 6 A. Yes. 7 Q. And did the Tremar study cover such 8 items as area and site analysis and did it provide 9 information concerning -- and I'm referring to the 10 reference in the -- in Exhibit 7340 concerning 11 Tremar. It says "Components of the study included 12 area and site analysis, summary of competitive 13 developments, analysis of area development 14 activities, market demand analysis, analysis of 15 Sea World impact." 16 Was that what the Tremar study was for? 17 A. Yes. As you can see, those items in 18 7340 mirror the table of contents in the Tremar 19 study. 20 Q. And was all of that information 21 provided in the package to all of the lenders that 22 were approached? 7582 1 A. Yes. 2 Q. With regard to United, was -- were any 3 policy or purchase decisions -- strike that. 4 With regard to your relationship with 5 United, were any policy or purchase decisions made 6 based on the Tremar study? In other words, did 7 anyone use it? 8 A. No. I mean, well, folks may have read 9 it; but it was more of a document to paper the 10 file with. 11 Q. Why do you say that? 12 A. Well, it was felt by the venturers that 13 we needed a market study to indicate that there 14 was a market there. 15 Q. Was it your impression at the time that 16 the decision to make a loan in the amount of 17 $80 million had already been made by United? 18 MR. DUEFFERT: Vague and ambiguous. 19 Calls for speculation. 20 THE COURT: Denied. Maybe you'd better 21 repeat the question. 22 MR. SCHWARTZ: Certainly, Your Honor. 7583 1 Q. (BY MR. SCHWARTZ) Was it your 2 impression at the time that the decision by United 3 to make a loan for $80 million had already been 4 made? 5 A. We're already in October of '85. I 6 mean, it's certainly my impression by that time 7 that we were well on our way to getting the loan 8 done with United. 9 Q. Was it your impression that the 10 decision to make an 80-million-dollar loan had 11 already been made? 12 MR. DUEFFERT: Asked and answered. 13 He's arguing with the witness. 14 THE COURT: Denied. 15 THE WITNESS: I'm sorry. Was that 16 denied, did you say? 17 THE COURT: Yes. 18 A. I would say that United at this time 19 had made the decision to make a loan to the joint 20 venture. In terms of the final global amount, I 21 think that was still being kicked about. 22 Q. (BY MR. SCHWARTZ) What was the basis 7584 1 for your impression? 2 A. Well, it would be the various 3 discussions, the meetings that we would be having 4 with United, and the kinds of information that 5 they were asking us. 6 Q. Did it have anything to do with 7 comments by Mr. Rosenberg? 8 A. Oh, certainly. Mr. Rosenberg was very 9 positive at this point that we were going to be 10 able to make this loan. 11 Q. With United? 12 A. Yes. 13 Q. Going back to the report, 7340 -- are 14 you there? 15 A. Okay. 16 Q. Okay. Let me just get myself there. 17 On the third page of the report under "marketing," 18 it goes on to say "Predevelopment loan marketing 19 was initiated by P410 West broker partners 20 Grieshaber & Roberts, Inc. resulting in several 21 immediate responses. Contracts submitted will be 22 countered and closing make" -- I assume you meant 7585 1 to say "made"? 2 A. Yes. 3 Q. "-- contingent upon P410 West JV 4 securing the development loan." 5 Were there contracts submitted? 6 A. Yes. 7 Q. Did any of those contracts close for 8 sale of any of the land? 9 A. No. 10 Q. Why not? 11 A. Well, the difference between -- I mean, 12 these were contracts that were submitted and 13 the -- the purchase prices and the terms certainly 14 had not been negotiated at this time. You'd have 15 to characterize these contracts as prospects 16 because the terms of the sale had not been -- I 17 mean, these documents had -- I mean, these 18 contracts had been received but hadn't been 19 countered. So, the terms being proposed by the 20 prospective buyer were not close to the purchase 21 price or we couldn't get them close enough to the 22 purchase price to finalize a contract. 7586 1 Q. Was information concerning those 2 contracts provided to United? 3 A. Certainly. 4 Q. You testified earlier that GMR was 5 working on obtaining an appraisal. 6 Do you recall that? 7 A. Yes. 8 Q. From Love & Dugger? 9 A. Yes. 10 Q. Did you play any role in obtaining that 11 appraisal? 12 A. Yes. Part of my job responsibility 13 would be to supply the appraiser the pro forma and 14 marketing information that we had and to discuss 15 with them and secure the appraisal. 16 Q. With regard to United Savings, with 17 whom were you dealing? 18 A. With regard to United Savings? 19 Q. Yes. 20 A. That would be Graham. 21 Q. David Graham? 22 A. Yes. 7587 1 Q. I think you testified yesterday he was 2 the loan officer? 3 A. Yes. 4 Q. Now, did you have a meeting with 5 Mr. Gerald Schulz at Love & Dugger? 6 A. Yes. Probably several. 7 Q. Do you recall if it was in or around 8 July of 1985? 9 A. Yes. Certainly in July and probably 10 even prior to that. 11 Q. Did you also meet with Mr. Richard 12 Dugger? 13 A. Yes. He would be the principal 14 appraiser at Love & Dugger. 15 Q. And when you met with Mr. Schulz and 16 Mr. Dugger, did you bring certain information with 17 you? 18 A. Yes. 19 Q. Would you have brought a survey and 20 legal description? 21 A. Certainly. 22 Q. Letters from the City discussing 7588 1 utilities and streets? 2 A. Yes. That would be sewer capacities 3 and other relevant data to the potential use of 4 the property. 5 Q. An engineering study? 6 A. Yes. 7 Q. Information concerning flooding? 8 A. Yes. 9 Q. That's the FEMA materials? 10 A. Yes. 11 Q. A closing statement from the sale of 12 the property to the joint venture? 13 A. Yes. That would be the closing 14 statement with the Alamo land closing. 15 Q. You said the pro forma information, you 16 would have provided? 17 A. Yes. 18 Q. Promotional material? 19 A. Yes. 20 Q. A development plan? 21 A. Yes. 22 Q. And was there discussion concerning 7589 1 employment of Love & Dugger? 2 A. Yes. 3 Q. And did a letter -- did Love & Dugger 4 provide you with a draft letter for their 5 engagement? 6 A. Certainly at some point along there, 7 yeah. 8 Q. And what do you recall discussing with 9 Mr. Schulz, Gerald Schulz, and Mr. Dugger at that 10 point in time? 11 A. Well, that's quite a stack of 12 information. We would review all of those issues. 13 And then I would, of course, provide a perspective 14 of how the joint venture felt about all those and 15 how they impacted the value of the property. 16 Q. And was it also discussed that you were 17 seeking a development loan? 18 A. Yes. 19 Q. Exhibit 7069, Tab 634. Do you 20 recognize that document as an appraisal of the 21 Park 410 site with a cover letter dated August 13, 22 1985? 7590 1 A. Excuse me. Yes. 2 Q. And did Love & Dugger reach an 3 appraised value for the land in there? 4 A. Yes. 5 Q. And that was on Page IV. Is it 6 44,022,000? 7 A. That's correct. 8 Q. Do you know whether United Savings was 9 informed of this valuation? 10 A. I believe they would have been, yes. 11 Q. Why do you believe that? 12 A. Because I believe at this point, all 13 joint venture related documents were going to 14 United. 15 Q. Exhibit 7335. Do you recognize this 16 document as a Park 410 West Joint Venture project 17 quarterly report as of June 30th, 1985? 18 A. Yes. 19 Q. Did you prepare this report? 20 A. Yes. 21 MR. SCHWARTZ: Your Honor, we move the 22 admission of Exhibit T7335. 7591 1 MR. DUEFFERT: No objections. 2 THE COURT: Received. 3 Q. (BY MR. SCHWARTZ) Would you turn to 4 Page 2 of the report? Do you see that listing for 5 "appraisal"? 6 A. Yes. 7 Q. Is that a reference to the exhibit we 8 just looked at, 7069, the August 13, 1985 9 appraisal we've just seen? The first sentence 10 under "appraisal" reads "The property has been 11 appraised in its unimproved state as of June 30, 12 1985, at $44,022,000." 13 Do you see that? 14 A. Yes. 15 Q. Okay. There is some additional text in 16 that sentence regarding a valuation surplus. 17 How was that -- how was that surplus 18 accomplished? 19 MR. DUEFFERT: Optional completeness, 20 I'd prefer that he reads the sentence. 21 THE COURT: Well, we'll get to that. 22 Let's have the answer. 7592 1 A. Well, that number -- you're referring 2 to the 6 million 641 number? 3 Q. (BY MR. SCHWARTZ) That's correct. 4 Mr. Dueffert's requested that I read the sentence. 5 I'll be happy to comply. "This results in a 6 valuation surplus of the P410 West JV level of 7 $6,641,000 over basis at that date - an 8 appreciation of 15 percent in the three months 9 since the property was acquired." 10 Do you see that? 11 A. Yes. 12 Q. How was that calculated? 13 A. Well, I would have taken the basis of 14 the venture in the property as of the 30th of 15 June, which would be a calculation of the dollars 16 spent on the land, interest on the note, other 17 miscellaneous predevelopment costs that the 18 venture occurred at that date. 19 Q. Now, going back to Exhibit 7069, which 20 was the appraisal, do you see that? 21 A. Yes. 22 Q. On the first page there, there is what 7593 1 appears to be handwritten the word "void" and 2 underlined. 3 Do you see that? 4 A. Yes. 5 Q. Is that your handwriting? 6 A. Yes. 7 Q. Why did you put "void" on this 8 appraisal? 9 A. I was instructed to collect these 10 appraisals, void them, and return them to 11 Love & Dugger. 12 Q. And why was that done? 13 A. Because we were looking for a higher 14 number. 15 Q. What do you mean by that? 16 A. Well, we would have preferred to have a 17 number in excess of the 44 million, and the 18 intention was to return this to Love & Dugger and 19 have them issue a new appraisal. 20 Q. Was United aware at this point in time 21 that you were going to seek a higher number from 22 Love & Dugger? 7594 1 MR. DUEFFERT: Objection. Foundation. 2 THE COURT: Denied. If you know. 3 A. I can't say with certainty, but I 4 believe they would have received this report. 5 MR. KEETON: Your Honor, I object to 6 this "I believe." If he can testify to something, 7 he ought to testify to it. Otherwise, he's purely 8 speculating. But the record is going to be very 9 confusing with these "I believes" in there. I 10 move to strike his last answer. You asked him if 11 he knows. He doesn't know. That's just what he 12 said. But he's going to say "I believe" every 13 time. 14 THE COURT: Do you have some basis for 15 your belief? 16 THE WITNESS: Well, Your Honor, the 17 reason why I indicated in that way is that it's -- 18 in terms of the standard -- there are a lot of 19 documents, as you can see, in this deal. And when 20 you send documents out, you can't be sure that 21 somebody's reading it. But I mean, I can say that 22 this document -- I mean, I can't say with absolute 7595 1 certainty that this document was sent to United. 2 But the standard procedure was that all of these 3 documents were going to United. Now, whether or 4 not they actually received them and read them, I 5 can't testify to that. But my instruction was to 6 send everything to United. 7 THE COURT: All right. 8 MR. KEETON: Your Honor, I continue to 9 object because we know there is no transmittal 10 letters on this. We know there is no documents in 11 USAT's files this way. This man, 12 years later, 12 is trying to speculate as to what he might have 13 done as opposed to what he remembers. 14 I object to these kind of answers, and 15 I move to strike. 16 THE COURT: Denied. 17 Q. (BY MR. SCHWARTZ) Did you -- so, the 18 word "void" is on there. Did you collect these? 19 A. Yes. 20 Q. And did United -- I mean, did 21 Love & Dugger perform an additional appraisal? 22 A. Yes. 7596 1 MR. SCHWARTZ: Just one moment, Your 2 Honor. 3 THE WITNESS: Could I get a glass of 4 water maybe? 5 THE COURT: Certainly. We'll be off 6 the record. 7 8 (Discussion off the record.) 9 10 Q. (BY MR. SCHWARTZ) Exhibit 7071, which 11 I think is also marked A10289, and it's admitted 12 at Tab 770. 13 Mr. White, do you recognize Exhibit 14 A10289? 15 A. Yes. 16 Q. Is it an application to United Savings 17 Association for a development loan? 18 A. Yes. 19 Q. And is it dated October 7th, 1985? 20 A. Yes. 21 Q. Did you participate in the creation of 22 this application? 7597 1 A. Yes. 2 Q. Would you turn to Page 6? Excuse me. 3 I'm sorry. 16. 4 A. Okay. 5 Q. The first reference on the page is that 6 Love & Dugger -- this is regarding appraisal. 7 "Love & Dugger of San Antonio has been instructed 8 to appraise the property upon two bases. As is, 9 i.e., upon the retail method of valuation, and on 10 the discounted market value basis, R-41B." 11 Do you see that? 12 A. Yes. 13 Q. Then he goes on to say "The appraisals 14 will be complete and dated end October 1985." 15 Was this application provided to 16 United? 17 A. Yes. 18 Q. Would you turn to Page -- back to Page 19 6? Are you there? 20 A. I believe this is Page 6. 21 Q. Is it -- does it say "loan summary" at 22 the top? 7598 1 A. Yes. 2 Q. Okay. What's the loan amount being 3 requested by the joint venturers? 4 A. Here in Item 1.2, 77,870,000. 5 Q. And how was that number arrived at? 6 A. Well, this is a number that would have 7 been built up in the pro forma, which I think -- 8 yeah, which is in here. It's a combination of all 9 of the costs, including the land purchase, the 10 infrastructure development, and landscaping. It 11 would include your financing cost and your 12 administrative costs. 13 Q. And did that number for the loan amount 14 subsequently go up? 15 A. Yes. 16 Q. Why? 17 A. Well, the -- well, as -- let's see 18 here. Well, I think there were several factors or 19 reasons why it went up. But I believe -- and I'd 20 have to look through this; but I believe at this 21 time, the proposal was either one or two points 22 and then that subsequently went up to three 7599 1 points. 2 Q. If you look on Page 6, Item 1.5, do you 3 see that? 4 A. Oh, okay. 5 Q. Does that refresh your recollection? 6 A. Yes. 7 Q. So, the number subsequently went up. 8 And what was the reason why? 9 A. As I recall, I think we ended up paying 10 three points on this loan. 11 Q. And the borrower in the Section 1.1 is 12 listed as Park 410 West JV and United Savings 13 Association of Texas with the venture to be 14 managed by Gulf Management Resources -- is that 15 right -- under Section 1.1? 16 A. Yes. 17 Q. I asked you earlier if you recalled 18 meeting with Love & Dugger. Do you recall 19 meeting -- in or around July of 1985. Do you also 20 recall meeting with them in the fall of 1985? 21 A. Yes. 22 Q. If we turn to the middle of this 7600 1 appraisal -- excuse me -- of this loan 2 application, it's Bates stamp OW013397. 3 A. OW01 -- the pro forma? 4 Q. 13397, that's correct, the pro forma. 5 Okay. Did you create that? 6 A. Yes. 7 Q. Was that also done using Lotus 1, 2, 3 8 which we discussed yesterday? 9 A. Yes. 10 Q. If -- can I have Exhibit 7070? 11 MR. SCHWARTZ: We're going to be 12 looking at the spreadsheet items, Your Honor, and 13 the copy that's contained in the application is 14 not quite as legible as the version that's at 15 Exhibit 7070. To save everyone's sight, I think 16 it would be helpful to utilize Exhibit 7070. I'm 17 going to ask Mr. White to tell us if it's the same 18 spreadsheet. 19 Q. (BY MR. SCHWARTZ) Mr. White, is that 20 the same spreadsheet that's contained in the 21 application? 22 A. Yes. 7601 1 Q. Just a more legible version? 2 A. Yes. 3 Q. This is the same spreadsheet that was 4 included in the attachment to the loan 5 application. Right? 6 A. Yes. 7 Q. Okay. Now, on Page 4 of the pro forma, 8 there is a chart for infrastructure costs. 9 Do you see that? 10 A. Yes. 11 Q. Okay. Would you pull out from the 12 stack you were looking at yesterday Exhibit 13 A10259? I think it was the -- T7049. I think it 14 was the first document we looked at yesterday. 15 A. This is the investment presentation? 16 Q. That's correct. 17 A. Okay. 18 Q. And in the -- I believe we were looking 19 at Page 13, and we went back and forth between the 20 spreadsheet and the summary on Page 13 and 21 identified the source of the numbers from the 22 spreadsheet that were then put into the summary. 7602 1 Right? 2 A. Okay. 3 Q. Now, on Page 4 of the -- first of all, 4 on the spreadsheet that we're looking at, Exhibit 5 7071, A10289, which is the one I just handed you, 6 what's the date of that spreadsheet? 7 A. This was as of the 6th of October, 8 1985. 9 Q. Okay. And the other one was from when? 10 Exhibit 7049. 11 A. January 11, '85. 12 Q. Okay. In the application of 13 February 1985, the costs for infrastructure were 14 $6 and a half million; is that right? I think 15 Page 13 is probably a better summary sheet for you 16 to look at to provide the information. 17 A. Excuse me. What was the question 18 again? 19 Q. The category of infrastructure was 20 listed as $6 and a half million back in February 21 of 1985. Right? 22 MR. DUEFFERT: Mr. Schwartz, what Bates 7603 1 number are you referring to? 2 MR. SCHWARTZ: Give me a moment. 3 MR. RINALDI: CN08623. It's under 4 Exhibit 7049. 5 A. It's under 1.4.3, "costs." 6 Infrastructure, $6.5 million. 7 Q. (BY MR. SCHWARTZ) Right. And in 8 October of 1985, the cost of infrastructure goes 9 up to $14,888,350; is that right? 10 A. That's correct. 11 Q. And why did those costs go up? 12 A. There were several factors. This 13 initial pro forma prepared in January did not have 14 the benefit of the Pape-Dawson engineering report 15 and cost estimate. 16 And I think also, the other significant 17 difference -- hold on. I have to look back at the 18 pro forma here. 19 Q. That's all right. Move on to 20 administrative costs? 21 MR. DUEFFERT: Mr. Schwartz, I think 22 you've asked a question. I think the witness is 7604 1 trying to answer, and I'll object. 2 THE COURT: Let's have your answer. 3 A. I'll just have to look back to the 4 details here, if you'll just hold on a second. 5 Q. (BY MR. SCHWARTZ) Certainly. 6 A. Yes. You'll also note here on the -- 7 your reference is CN086319. 8 Q. Which exhibit are you looking at? 9 A. I'm looking at the January 11 pro 10 forma, Appendix F, T7049. 11 Q. All right. 12 A. You'll see there where under 13 "infrastructure costs, Phase 3-" -- it says 14 "partial." 15 Q. So, what does that -- 16 A. Meaning that in this initial pro forma, 17 there were anticipated costs in Phase 3 that 18 weren't included in this original pro forma 19 whereas in the -- this later pro forma, the one on 20 6 October '85, had the complete estimated cost of 21 constructing Phase 3. 22 Q. So, that's just for Phase 3; is that 7605 1 right? 2 A. That's correct. 3 Q. The next item on the next page is 4 administrative costs, and I'm looking at 5 Exhibit 7070. And the amount of administrative 6 costs are now $2,971,000 and marketing costs, I 7 think, of $766,500? 8 A. 766,500. 9 Q. And those amounts are also larger than 10 the previous exhibit that we saw; is that right? 11 A. Yes. 12 Q. And what's the -- how -- why did those 13 numbers increase? 14 A. I'll put that page back down here. 15 Well, there is some inclusion of some other items. 16 It would be your landscape maintenance. Your 17 insurance costs went up, it looks like. And then 18 we have substantially more in marketing and 19 promotion. 20 Q. Why is that? Why do those marketing 21 and promotion costs go up? 22 A. Well, the venture thought it was 7606 1 prudent to have a very aggressive marketing 2 campaign. 3 Q. Why? 4 A. Well, in view of some of the other 5 items that we've reviewed and the market 6 circumstances in Texas at the time, it was 7 becoming more apparent that you have to do more 8 than just put a sign up on the property in order 9 to sell it. 10 Q. Would you turn to -- also, financing 11 costs also increased some $6 million, I believe, 12 between the two dates. 13 Why was that? 14 A. The -- 15 Q. I think it goes from 12 million and 16 change to 18 million. 17 A. Well, we have a substantial increase in 18 the interest line item and other miscellaneous 19 increases, it looks like. 20 Q. Would you turn to Page -- 21 A. And also, I think we're adding a -- did 22 I have a contingency in this first one? I think I 7607 1 also increased the contingency from 300,000 to 2 2 and a half million. 3 Q. What's the purpose of a contingency? 4 A. Exactly what it says. In any real 5 estate transaction, there are lots of unknowns. 6 And hopefully, you have enough money to cover 7 those. 8 Q. Why did you increase the contingency? 9 A. Well, after thorough discussion, it was 10 felt that $300,000 on a deal of this size didn't 11 represent very much of a contingency. 12 Q. Would you turn to Page 7 of the 13 spreadsheet, Exhibit 7070, that was part of that 14 application to United in October of 1985? 15 A. I'm sorry. What page again? 16 Q. Page 7. 17 A. Okay. 18 Q. Does that spreadsheet page list the 19 totals for each expense category? 20 A. Yeah. This is a summary page. 21 Q. That's correct. And so, does that page 22 identify the increases in costs for the project 7608 1 from what we saw in February 1985 at $64,832,000 2 to what's now $77,869,440? 3 A. That's correct. 4 Q. Would you turn to Pages 13 to 16 of 5 that pro forma spreadsheet? 6 A. Okay. 7 Q. Those -- the first three pages of 13 8 through 16 are similar to the spreadsheet we saw 9 earlier in Exhibit A10259, the investment 10 presentation from February 1985. However, there 11 are some changes in the numbers. 12 Do you see that? 13 MR. DUEFFERT: Your Honor, so the 14 record is clear, I ask Mr. Schwartz to identify 15 the numbers he's referring to. 16 THE COURT: Are you talking about the 17 handwriting up there or -- 18 MR. SCHWARTZ: No, Your Honor. I 19 didn't realize there was handwriting on that page. 20 THE COURT: Well, looking at the page, 21 you can't tell whether there are changes in the 22 numbers or not. So, what are we talking about? 7609 1 MR. SCHWARTZ: All right. Well, strike 2 the question, Your Honor. 3 Q. (BY MR. SCHWARTZ) Do you recognize 4 the handwriting on that page? 5 A. No. 6 Q. These first three pages of this section 7 of the spreadsheet, what do they describe? 8 MR. DUEFFERT: Your Honor, for the 9 record, I'd ask Mr. Schwartz to identify what 10 exhibit and what -- 11 MR. SCHWARTZ: Certainly, yes. Let's 12 keep this clear. I'm looking at Exhibit 7070, 13 which is the spreadsheet for the October '85 14 application. 15 Q. (BY MR. SCHWARTZ) Is that what you 16 have in front of you? 17 A. The 6 October '85. 18 Q. That's correct. 19 A. And this doesn't have your numbers on 20 it because we're looking at a copy of the -- 21 Q. That's right. But the -- there is a 22 page number at the top in the left-hand corner, 7610 1 Page 13. Right? 2 A. Yes. 3 Q. Okay. For Pages 13, 14, and 15, does 4 the first page describe anticipated sales for the 5 Phase 1 of the Park 410 project? 6 A. That's correct. 7 Q. And Page 14 is Phase 2? 8 A. That's correct. 9 Q. And the chart on Page 15, is that for 10 the third phase? 11 A. Yes. 12 Q. Okay. And across -- and each chart has 13 columns, like the chart we saw earlier, with tract 14 number and phase, zone. 15 Is that for zoning? 16 A. Yes. 17 Q. Acreage, square footage, sales rate per 18 square foot. A sales value, 1985 sales value. 19 And then "sale." 20 What is that? 21 A. That's the period in which we are 22 projecting or I'm projecting the sale of that 7611 1 property. 2 Q. And then we've got listings across for 3 first six-month, second six-month of 1986, 4 proceeding through six-month periods through the 5 ninth six-month period in 1990. 6 Do you see that? 7 A. Yes. 8 Q. And there is a column labeled "total"? 9 A. Uh-huh. (Witness nods head 10 affirmatively.) Yes. 11 Q. And then "appreciated value" and "sale 12 price." 13 What's the sale price? 14 A. That is the price at which the parcel 15 was projected to sell. 16 THE COURT: What's that stated in? Is 17 that -- 18 THE WITNESS: That's in per square 19 foot. So, for example, that Tract No. 1, we're 20 anticipating the sale of $12 per square foot. 21 Q. (BY MR. SCHWARTZ) And then in the 22 center part of the chart, there is a number of 7612 1 zeros but there are also some dollar figures. And 2 what do those represent? 3 A. Those represent the dollar amounts of 4 those sales. In other words, when -- what I'm 5 projecting here is a cash flow analysis to 6 indicate when the venture could anticipate sales 7 of these and revenues that could be applied to the 8 loan, et cetera. 9 Q. Would you look at the sale for Tract 9? 10 A. Okay. 11 Q. Now, there is an entry in the second 12 six-month period of $542,409 but there is also an 13 entry in the sixth six-month period of $1,627,227. 14 Why are there two entries for the same 15 tract? 16 A. On some of these tracts, we were 17 anticipating a sale on terms. So, the number 18 appearing in that second six-month period of 19 542,000 would be the down payment. And then the 20 one over in the sixth period would be the final 21 closing of that transaction. 22 Q. Okay. And up at the top of Pages 13, 7613 1 14, and 15 for each of those phases of the 2 project, next to the -- on the left side, it says 3 "Schedule No. 4." 4 Do you see that? 5 A. Yes. 6 Q. "Sales pro forma." And then it has the 7 phase number on each page? 8 A. Yes. 9 Q. And then next to "sales pro forma," 10 there is a number in parentheses. 11 Do you see that? 12 A. Yes. 13 Q. And what does that number represent? 14 A. That is referencing the notes that are 15 attached -- 16 Q. Well, the notes are not in 17 Exhibit 7070. They are back at the application 18 that we looked at. This was just a copy of the 19 sheet. If you'd turn back to the application, 20 which is Exhibit A10289, on Page Bates stamped 21 OW013431, there are notes? 22 A. Yes. 7614 1 Q. Okay. Are those the notes that go 2 along with the pro forma spreadsheets? 3 A. Yes. 4 Q. And what's the reference to Note 25? 5 A. You want me to read these? 6 Q. Well, you could either read it or you 7 can read it to yourself and just tell us what it 8 means. 9 A. Well, we went over the sales rate per 10 square foot yesterday. 11 Q. All right. 12 A. Then we're saying that the tract 13 pricing is held constant through 1986. 14 Q. What is the significance of that? 15 A. Well, that is there would be no 16 escalation in the purchase price off of the base 17 sales price until that third period beginning in 18 1987. 19 Q. Okay. And then it says "Thereafter, 20 tract pricing for unsold tracts is increased at 21 the rate of 5 percent simple every six months"? 22 A. Yes. 7615 1 Q. Why was that done? 2 A. Well, we are anticipating an escalation 3 in land values as we move through time. So, in 4 this case, beginning in 1987, the sales price 5 would be bumped by 5 percent in each of those 6 periods. 7 Q. And did you feel that that was 8 reasonable at the time? 9 A. Yes. 10 Q. On Page 16 of the spreadsheet -- that's 11 Exhibit 7070, the October '85 spreadsheet -- is a 12 summary for all three phases of the project. 13 Is that what that is? 14 A. Yes. 15 Q. And the fourth line down in the first 16 column is an entry for total sales. Right? 17 A. Yes. 18 Q. And is that for all 312.78 salable 19 acres? 20 A. That's correct. 21 Q. First of all, what does it mean by 22 "salable acres"? 7616 1 A. Well, when you have a development, you 2 have -- you have your gross acres, which will 3 include land that you'll need for roads and for 4 drainage situations. We also had to donate some 5 land to the freeway. 6 So, by the time you -- well, net acres, 7 then, or salable acres would be that number of 8 acres or square feet that you can actually sell to 9 somebody. 10 Q. And that was the 312.78 acres; is that 11 right? 12 A. That's correct. 13 Q. And then if you continue across the 14 page, after the ninth six-month period, what are 15 the total gross sales for the overall project as 16 of October 1985? 17 A. 120,289,938. 18 Q. Now, that number is also higher than 19 the $114,731,000 that we saw from the February '85 20 Exhibit A10259 -- is that right -- or 7049? 21 A. Well, yes. I think your number was 114 22 million 731? 7617 1 Q. That's correct. 2 A. Yes. 3 Q. Okay. What caused that increase? 4 A. Well, there is various -- various ways 5 in which you can increase these numbers. 6 Q. By using the magic of Lotus 1, 2, 3? 7 A. Well, yes. 8 MR. DUEFFERT: Your Honor, I object. 9 A. Using the magic and using the 10 assumptions that you make on parcel sales, the 11 values, the time periods in which you sell them, 12 the amount of -- 13 Q. (BY MR. SCHWARTZ) What do you mean by 14 that? 15 A. Well, as we noted earlier, we are -- 16 starting in '87, we're beginning to increase the 17 prices by 5 percent in each of those periods. So, 18 the longer you wait to sell a parcel, the more 19 revenue you produce. The other difference in this 20 one is that we're also making some term sales. 21 So, we also have interest that is being added to 22 the revenue stream. 7618 1 Q. What else could be done to change -- to 2 increase the numbers? 3 A. Well, the simplest thing is you 4 increase your -- the -- your base price, your 5 beginning number. 6 Q. Does that impact your ability to sell 7 property? 8 A. Certainly. 9 Q. How? 10 A. Well, the more money you have to have 11 for a piece of property, the harder it is to sell. 12 Q. What about the corner tract, the 13 large -- I think it was 45 or some acres in Phase 14 3? Was that also looked at? 15 A. Yes. 16 Q. What happened there? 17 A. Well, the corner tract was always one 18 that was a focus of attention because it was the 19 prime piece of real estate and was also one to 20 which we could ascribe a greater value. 21 Q. What do you mean? 22 A. Well, we could push those numbers on 7619 1 that -- on those lots on the corner tract in order 2 to achieve more revenue. 3 Q. How does that work? 4 A. Well, if you start off with selling the 5 tract at $8 per square foot and you increase it by 6 50 cents a foot or a dollar a foot, you're 7 multiplying by a bigger number. You achieve more 8 revenue. 9 Q. When you say "multiplying by a bigger 10 number," is that because it was the largest tract? 11 A. Well, it was the largest tract and it 12 was also the one that, in terms of infrastructure 13 development, was the furthest out and was also the 14 one on which you could speculate more freely on 15 its value as the entire westplex matured, the main 16 lanes got built, and value ascribed to that 17 corner. It could be argued that there was more 18 value. 19 Q. What do you mean, "could be argued"? 20 A. Well, just as I said. When you're 21 talking with an appraiser or anybody else, you 22 would -- you could point out the obvious advantage 7620 1 of that parcel being at an intersection of the two 2 freeways in San Antonio. 3 Q. Exhibit 7338. 4 THE COURT: Mr. Schwartz, we'll take a 5 short recess. 6 MR. SCHWARTZ: Yes, Your Honor. 7 8 (A short break was taken 9 at 10:31 a.m.) 10 11 THE COURT: Be seated, please. Back on 12 the record. 13 Mr. Schwartz, you may continue. 14 MR. SCHWARTZ: Thank you, Your Honor. 15 (10:58 a.m.) 16 Q. (BY MR. SCHWARTZ) I believe that 17 you've been handed Exhibit T7338; is that correct? 18 A. Yes, I have it. 19 Q. Did you receive a copy of that document 20 or memorandum dated November 11, 1985? 21 A. Yes. 22 Q. Did you also assist in its preparation? 7621 1 A. It's not noted here, but likely. 2 Q. There is an attachment to the 3 memorandum. 4 A. Oh, yeah. 5 Q. Okay. Does that refresh your 6 recollection as to whether you assisted in its 7 preparation? 8 A. Yeah. I prepared the pro forma 9 certainly. 10 MR. SCHWARTZ: Your Honor, we move the 11 admission of Exhibit T7738. 12 MR. DUEFFERT: No objections. 13 THE COURT: Received. 14 Q. (BY MR. SCHWARTZ) This memorandum 15 describes changes made since the October 7 16 financials were run for the loan application to 17 United Savings. 18 Do you see that? 19 A. Yes. 20 Q. Is that the numbers that we looked at 21 previously in Exhibit 7070 and A10289 or 7049? 22 A. You're referring now to the 7622 1 October 7 -- 2 Q. Right. 3 A. -- pro forma and financials? I'm not 4 quite sure what the question is. 5 Q. These reflect changes in the financials 6 that were run for the application to United 7 Savings. 8 A. That's correct. 9 Q. Okay. And that's the application -- 10 just so the record is clear, that's the document 11 that we had just looked at. Right? 12 A. Yes. 13 Q. The first item listed on changes is an 14 increase in loan points fees. 15 Do you see that? 16 A. Yes. 17 Q. Okay. There is also a reduced cost of 18 sale by .5 percent to a total of 7 percent? 19 A. Correct. 20 Q. What is that for? 21 A. Well, previously, we had been 22 anticipating that the cost of sale was 7.5 7623 1 percent. So, I'm reducing the cost of sale 2 estimate by .5 percent. 3 Q. What is cost of sale? 4 A. Cost of sale is what you pay for 5 commissions, attorneys, and other incidentals that 6 you may have in closing a real estate transaction. 7 Q. So, why were you able to reduce the 8 cost of sales? 9 A. Well, it's a refinement of a previous 10 estimate. And, of course, at this time, we're 11 looking for any place we can to reduce costs. 12 Q. The third item is "increase 13 infrastructure to allow for landscape design and 14 omission." 15 What is that referring to? 16 A. In the pro forma that was in the loan 17 application, there was no line item for landscape 18 design. 19 Q. And so, what was the net effect of 20 these changes on the costs for the project? 21 A. Well, the total cost of the project 22 increased by some 2. -- what is that -- 2.3 7624 1 million. That's in that -- under Paragraph 3, in 2 "summary," you can see where it's summarized. 3 Q. Okay. 4 A. Previously, the costs were 77,869,000. 5 And now they have increased to 79,530,000. 6 Q. And then on the next page, there is an 7 additional cost increase. 8 What is that for? 9 A. We were, at that time, under the land 10 loan from United and the provisions in that loan 11 called for bumps in the purchase price as we moved 12 through time. 13 MR. DUEFFERT: Your Honor, so the 14 record is clear, the witness may be speaking about 15 a loan from Alamo. 16 THE WITNESS: That's correct. 17 THE COURT: Could you explain that? I 18 had a question in my mind about where you were 19 acquiring this land and who was financing it 20 before you -- 21 THE WITNESS: Yes. The land loan 22 was -- the land was purchased from Alamo Savings, 7625 1 and they also provided the loan for the purchase 2 of that property. It was not a development loan. 3 It was just for the purchase of the property. And 4 the provisions of that loan, as we moved through 5 time, I think the provision on that loan had a 6 two-year time frame on it. And there was a 7 provision in the loan at certain points -- it may 8 have been, like, every six months -- if we were 9 unable to close it into a development loan, then 10 the purchase price would be bumped up as we passed 11 that threshold time. 12 So, in this case, this -- at the 13 beginning, starting at the beginning of that, this 14 reflects a possible slippage of loan closing into 15 January, which means then we would have an 16 increased cost as a result of that. 17 THE COURT: Thank you. Mr. Schwartz, 18 you may continue. 19 Q. (BY MR. SCHWARTZ) So, this was still 20 prior to the development loan from United? 21 A. Yes. 22 Q. Did -- were these numbers provided to 7626 1 United? 2 A. Yes. 3 Q. Do you know if Mr. Graham reviewed the 4 pro formas that you provided to him in the 5 application and the subsequent revision? 6 A. I mean, I can't say that he actually -- 7 I mean, I can say he received them. Whether or 8 not he read them, I have no idea. 9 Q. Let me ask this: Do the pro formas 10 indicate that the costs for the project are 11 rising? 12 A. Yes. 13 Q. Did you have any discussions subsequent 14 to November 1985 with Mr. Graham concerning the 15 appraised value of the property and specifically 16 regarding the pro forma amounts, the gross sales 17 under the pro formas? 18 A. I'm not sure I understand your 19 question. 20 Q. Did you have any discussions with 21 Mister -- what was the nature of your discussions 22 with Mr. Graham during this time period, very late 7627 1 in 1985, early 1986, concerning the appraisal? 2 A. Well, at this time, the appraised value 3 that Love & Dugger was indicating they would be 4 able to achieve did not come near the figure that 5 we needed on an R-41B appraisal in order to make 6 the loan. 7 Q. And do you know whether Mr. Graham 8 communicated with Love & Dugger? 9 A. I don't know. 10 Q. Do you know whether Mr. Graham 11 communicated any particular numbers to 12 Love & Dugger as to a value needed for the 13 property? 14 A. I don't know. 15 Q. Did Mr. Graham communicate to you a 16 value needed for the property? 17 A. Yes. There came a time when Mr. Graham 18 gave me a call and indicated that the revenue that 19 I was showing in this pro forma probably needed to 20 be more in the 124 to $125 million in terms of 21 gross -- gross proceeds. 22 Q. When did he tell you that? 7628 1 A. Well, there came a time when he called 2 me and indicated that I should go see a different 3 appraiser up here in Houston. And I was 4 instructed to go present him the various -- 5 similar to Love & Dugger, all the various 6 documents that he would need in order to make an 7 appraisal, including a pro forma which, by his 8 estimates, needed to show more revenue. 9 Q. Do you know why Mr. Graham told you 10 that? 11 A. Well, without an R-41B appraisal that 12 would -- that would -- for his files that would 13 get him a number that he felt he needed, there 14 would be no way we could make the loan. 15 Q. And was Mr. Dugger able to reach the 16 number that Mr. Graham needed? 17 A. No. 18 Q. So, what did you do after he told you 19 that, after that information came to you from 20 United? 21 A. Well, the decision was made to switch 22 appraisers. 7629 1 Q. We talked earlier about the large 2 corner tract. 3 A. Yes. 4 Q. Strike that. 5 With regard to switching appraisers, 6 about when did that happen? 7 A. Well, that would be in the fall of this 8 year. October, November maybe. 9 Q. And did you communicate in that time to 10 Mr. Graham that Love & Dugger was not going to be 11 able to reach the number that you needed to 12 support the loan? 13 A. Yes. 14 Q. Was that why Mr. Graham told you to go 15 see Mr. Ed Schulz in Houston? 16 A. Yes. Yes. I mean, I was -- I received 17 a call from Mr. Graham. He said, "Here is this 18 appraiser in Houston, this Ed Schulz. He knows 19 the number that we need to see." I mean, "we" in 20 this case being United. And I was to prepare my 21 materials and go see him. 22 Q. Exhibit 7185, please. Did you receive 7630 1 these two letters dated January 24th, 1986, to you 2 from Mr. Ken Gindy attaching the January 15, 1986 3 letter to Mr. Gindy from David Graham? 4 A. Yes. 5 MR. SCHWARTZ: Your Honor, we move the 6 admission of Exhibit T7185. 7 MR. DUEFFERT: No objection. 8 THE COURT: Received. 9 Q. (BY MR. SCHWARTZ) What was the 10 purpose of these letters, Mr. White? 11 A. Well, as stated in the letter from 12 Mr. Gindy -- 13 Q. That's the second letter? 14 A. No. This is the letter of Mr. Gindy to 15 me attaching the second letter. 16 Q. Okay. Why don't we look at the second 17 letter first, the one from Mr. Graham? 18 A. Okay. 19 MR. SCHWARTZ: Your Honor, if I haven't 20 already done so, we move the admission of 21 Exhibit T7070. That's the legible October 6th, 22 1985 spreadsheet. 7631 1 MR. DUEFFERT: No objections. 2 THE COURT: Received. 3 Q. (BY MR. SCHWARTZ) In the letter from 4 Mr. Graham, he states, quote, "Mr. Schulz would be 5 happy to undertake your appraisal needs and can 6 accomplish the appraisal requirements within the 7 time constraints we discussed." 8 Do you know what Mr. Graham was 9 referring to with regard to the comment in his 10 letter that Mr. Ed Schulz can, quote, "accomplish 11 the appraisal requirements," close quote? 12 A. Well, that would be an R-41B appraisal 13 that would achieve a number that a lender would be 14 happy with in order to make the loan. 15 Q. How do you know that he was referring 16 to the appraised value? 17 A. Well, it was real clear at this time 18 that if we weren't able to get an R-41B appraisal 19 with the right number, that there would be no 20 loan. 21 Q. Mr. Graham goes on to say that "if" -- 22 quote, "If you wish to use Mr. Schulz, please have 7632 1 the appropriate person give him a call as he is 2 ready to start," close quote. 3 Did you eventually get in touch with 4 Mr. Schulz? 5 A. Yes. 6 Q. Do you know whether Mr. Graham had been 7 in contact with Mr. Schulz before you first met 8 him? 9 A. Yes. 10 Q. How do you know that? 11 A. Mr. Graham told me. He said that he 12 had talked with Mr. Schulz, that Mr. Schulz knew 13 the number that they needed, and that he would 14 provide it. 15 Q. When you met with Mr. Schulz, did he -- 16 this is Mr. Ed Schulz -- did he already know what 17 his assignment was going to be? 18 A. Yes. 19 Q. And did he already know the number that 20 he was supposed to look for? 21 A. Yes. 22 Q. That was before you met with him? 7633 1 A. Well, when I went to see him, he 2 already knew that we needed an appraisal, an R-41B 3 appraisal in the 87- to 90-million-dollar range. 4 Q. I asked you some questions earlier 5 about whether the decision to make the loan at 6 United had already been made back in the October 7 time frame. And I believe your response was that 8 a decision to make a loan had been made but not 9 the amount; is that correct? 10 A. That's right. 11 Q. At this point in time, early 12 January 1986, had the decision to make -- was it 13 your impression that a decision to make an 14 80-million-dollar loan on the Park 410 project had 15 already been made at United? 16 MR. DUEFFERT: Objection as to 17 foundation. 18 THE COURT: If he knows. 19 MR. SCHWARTZ: I was asking for the 20 witness' impression. Was it his impression at the 21 time? 22 A. Well, we were receiving a lot of help 7634 1 in terms of what the numbers needed to be like. 2 And it was really clear that everybody, including 3 Mr. Graham, were working very hard to get 4 everything in order in order to close the loan. 5 So, I mean, my impression certainly was 6 that they were prepared or were preparing to make 7 a loan in the 80-million-dollar range. 8 Q. (BY MR. SCHWARTZ) Would you look at 9 the letter from Mr. Gindy, which is the first page 10 of Exhibit 7185? It's dated January 24th, 1986. 11 Mr. Gindy's letter says, regarding the San Antonio 12 appraiser, Love & Dugger, quote, "David felt quite 13 comfortable that we not have the same difficulties 14 with Mr. Schulz." 15 Is that a reference to David Graham? 16 A. Yes. 17 Q. And what difficulties with the 18 San Antonio appraiser were you having at that 19 time? 20 A. Well, it was clear by this time that 21 Love & Dugger would not be able to give us an 22 R-41B appraisal in that 90-million-dollar range. 7635 1 They were more like in the 67-million-dollar 2 range, I believe. 3 Q. Exhibit 7187. Do you recognize Exhibit 4 7187? 5 A. Yes. 6 Q. Did you receive a copy of it? 7 A. Yes. 8 MR. SCHWARTZ: Your Honor, we move the 9 admission of Exhibit T7187. 10 MR. DUEFFERT: No objections. 11 THE COURT: Received. 12 Q. (BY MR. SCHWARTZ) The second 13 paragraph there, No. 2, R-41B appraisal, do you 14 see that? 15 A. Yes. 16 Q. It says, "United wants us to use Ed 17 Schulz of Houston, dropping Love & Dugger. This 18 will involve additional unbudgeted expenses; but 19 if it achieves the desired result, we had better 20 do it. I will now seek to meet Schulz as quickly 21 as possible." 22 Why did Mr. Graham want you to drop 7636 1 Love & Dugger? 2 A. Well, it was real clear by this point 3 that there would be -- United would be unable to 4 make the loan with an R-41B appraisal from 5 Love & Dugger. 6 Q. Did the reason have anything to do with 7 whether Love & Dugger was on any approved 8 appraiser list at United that you were aware of? 9 A. No. 10 Q. Did it have anything to do with United 11 not being able to meet any time constraints in 12 preparing the appraisal? 13 A. No, no. Love & Dugger was essentially 14 done already. So, by shifting appraisals -- 15 appraisers involved more time, not less. 16 Q. And what was the desired result that's 17 referred to here? 18 A. That would be the magic number of the 19 R-41B appraisal in that 90-million-dollar range. 20 Q. Exhibit 7345, please. Mr. White, 21 Exhibit T7345 is a Park 410 West development loan 22 revised financial statement dated February 18th, 7637 1 1986. 2 Did you create this spreadsheet? 3 A. Yes. 4 MR. SCHWARTZ: Your Honor, we move 5 admission of T7345. 6 MR. DUEFFERT: No objections, Your 7 Honor. 8 THE COURT: Received. 9 Q. (BY MR. SCHWARTZ) Mr. White, first of 10 all, what was the number that Mr. Graham told you 11 that you would have to hit for Mr. Schulz to reach 12 an appraised value for the property as developed 13 in the 87- to 90-million-dollar range? 14 A. Well, I'd need to push the gross 15 revenues to the 124-, 125-million-dollar range. 16 Q. Now, like the other pro formas that 17 we've looked at, I think the third page describes 18 land acquisition costs, administrative and 19 marketing costs; is that right? 20 A. We're on Page 3? 21 Q. Page 3 of the pro forma. Up at the top 22 left corner, there is a page number. 7638 1 A. Yes. 2 Q. Okay. The Bates number is CN083632; is 3 that right? 4 A. Correct. 5 Q. And that lists acquisition costs and 6 predevelopment costs, correct? 7 A. Correct. 8 Q. And Page 5 -- Page 4, excuse me, shows 9 the infrastructure cost; is that right? 10 A. Yes. 11 Q. Page 5 shows the administrative and 12 marketing costs? 13 A. Yes. 14 Q. Page 6 shows the financing costs? 15 A. Yes. 16 Q. And then all of those costs are 17 summarized on Page 7; is that right? 18 A. Yes. 19 Q. Now, would you turn to the page that's 20 Bates stamped CN082643 through 46? On the page 21 which is page -- it's labeled Page 1. So, I'll 22 use the Bates number. It's CN082643. 7639 1 Is that the sales pro forma for Phase 2 1? 3 A. Yes. 4 Q. And then the next page, is that the 5 sales pro forma for Page 2 -- for Phase 2? 6 A. Yes. 7 Q. And then, lastly, Phase 3? 8 A. Yes. 9 Q. And there is a note indication next to 10 the word "sales pro forma" in the top left corner. 11 Do you see that? 12 A. Yes. 13 Q. What does that refer to? 14 A. That refers to Note No. 28. 15 Q. Okay. And then if you turn to Page 16 Bates stamped CN082666, do you see that? 17 A. 2666? 18 Q. That's correct. CN082666. 19 A. Yes, I have it. 20 Q. Okay. Are those the notes that 21 accompany the sales pro formas? 22 A. Yes. 7640 1 Q. And would you refer to Note 28? 2 A. Yes, I have it. 3 Q. Okay. And would you read that and 4 identify what it means? 5 A. Well, this represents a change in how 6 we're calculating the escalation in price. You'll 7 see there on Page 3, CN082668, with the paragraph 8 that begins on that page, "Thereafter, tract 9 pricing for unsold tracts is increased at the rate 10 of 10 percent as of April 1, 1987, and 5 percent 11 simple every six months thereafter." 12 Q. And why was that done? Well, first -- 13 strike that. 14 In the previous exhibit that we looked 15 at, which was the application to United in 16 October, what was the number from the note 17 referenced in the sales pro formas there? I 18 believe it was Note 25 in that exhibit. 19 A. It was at 5 percent rather than at 20 10 percent. 21 Q. And why was this increase made? 22 A. To achieve more revenue. 7641 1 Q. Were there other things that were done 2 to achieve more revenue, other than increasing the 3 percentage appreciation? 4 A. Well, we always look to the corner 5 tract -- 6 Q. Why is that? 7 A. -- for more revenue. I'd have to make 8 a comparison to tell you. 9 Q. Why don't you pull out Exhibit 7070, 10 which I believe you have right in front of you -- 11 A. Okay. 12 Q. -- and turn to -- which is the 13 October '85 spreadsheet, and turn to Pages 13 14 through 15 of that exhibit. And then if you 15 compare those to what we're looking at with 16 Exhibit 7345, which is the February '86 pro forma. 17 On Page Bates stamped CN086 -- I'm sorry -- 82645 18 of Exhibit 7345, there is a reference to the Phase 19 3 pricing. 20 A. I'm sorry. What's that CN0 number 21 again? 22 Q. CN082645 of Exhibit 7345. 7642 1 A. Okay. 2 Q. Is that the pricing for the sales pro 3 forma for Phase 3? 4 A. That's correct. 5 Q. As of February 18th, 1986? 6 A. That's correct. 7 Q. And is the 38th tract listed on that 8 chart, the very last tract listed, is that 9 representative of the corner tract? 10 A. Well, that is -- yes. That's the very 11 corner of the property there at the intersection 12 of the two freeways. 13 Q. And how were you able to increase the 14 price for that corner tract for sales? 15 A. Well, you'll see here I have moved that 16 sale from the seventh period to the ninth period. 17 Q. And so, what is the effect of that? 18 A. It increases the revenue by 19 approximately $2 million. 20 Q. Would you look at the Phase 1 21 spreadsheet, which is Bates stamped CN082643 in 22 Exhibit 7345, and Page 13 of Exhibit 7070 and 7643 1 look, for example, at the entry for Tract 3. And 2 the sale there is accounted for in the third 3 period for the October '85 spreadsheet -- that's 4 Exhibit 7070 -- at $749,156. And then in the 5 February '86 spreadsheet, it's moved over to the 6 fourth period. 7 Do you see that? 8 A. Yes. 9 Q. And the price is now $781,728; is that 10 right? 11 A. That's correct. 12 Q. Why was that done? 13 A. To increase the revenue. 14 Q. Also, for the same tract, there is 15 another entry in the seventh period. 16 Do you see that -- 17 A. Uh-huh. 18 Q. -- in February of '86? 19 A. Yes. 20 Q. Is that for the same reason that we 21 talked about earlier, that it would be sold on 22 terms? 7644 1 A. That's correct. 2 Q. It appears that for each of the first 3 nine tracts -- actually, for most of the tracts, 4 they just moved over one column and grew in value. 5 Is that true? 6 A. Yeah, that's a function of the -- it's 7 a function of -- well, there's two things 8 happening here in this pro forma in terms of the 9 differences. One, which is that we have the 10 increased bump from 5 percent to 10 percent in 11 that third period. And then also, as we jiggle 12 these periods around, if they move further out in 13 time, then the escalation in prices is generating 14 more revenue. 15 MR. DUEFFERT: For the record, Your 16 Honor, could we have the Bates number page of the 17 pro forma the witness was just referencing? 18 THE WITNESS: Well, I'm looking at 19 CN082643 and comparing it to the -- well, this one 20 doesn't have it on it because we switched it. But 21 comparing it to Page 13 of the October 6th pro 22 forma, both of them being Phase 1 financial 7645 1 analysis. 2 THE COURT: Which is contained in 3 T7070; is that correct? 4 THE WITNESS: T7070, correct. 5 Q. (BY MR. SCHWARTZ) Now, going back to 6 Exhibit 7345, which is the February '86 revised 7 financials -- are you there? 8 A. Is that the one we're on or is that 9 another one? 10 Q. That's the one that we were just -- 11 that's the -- 12 A. February 18th? 13 Q. That's correct. 14 A. Okay. 15 Q. And on Page 4 of the -- of that 16 particular spreadsheet report Bates stamped 17 CN082646, do you see that? 18 A. Yes. 19 Q. Now, is that a summary for the total 20 gross sales for Phases 1, 2, and 3 of Park 410? 21 A. Yes. 22 Q. And if you move across for the column, 7646 1 it says "total sales," which is the fourth item 2 down on the "tract phase" column on the left. 3 A. Uh-huh, yes. 4 Q. And then move across all the way past 5 1990 on the total sales. 6 Do you see that? 7 A. Yes. 123,448,953. 8 Q. And what was the number that Mr. Graham 9 told you that you had to hit in order to justify 10 an appraisal in the 87- to 90-million-dollar 11 range? 12 A. Something in the neighborhood of 124 to 13 125 million. 14 Q. Now, the changes that were made in 15 these numbers, were they made based on a 16 reasonable expectation of the value of those 17 properties? 18 A. Can you ask that question again? 19 Q. Let me ask you this question: Were 20 these numbers optimistic numbers, these sales 21 values? 22 A. Certainly. 7647 1 Q. Were they extraordinarily optimistic 2 numbers? 3 A. I don't know if I could say 4 "extraordinary," but they were certainly 5 optimistic numbers. Certainly not extraordinary 6 in terms of the requirements that we had here. 7 Q. What do you mean by that? 8 A. Well, you have to understand here that 9 we have -- well, what you have in this case is -- 10 it's sort of like mission creep. 11 Q. What is that? 12 A. I mean, we started off a year earlier 13 with some numbers and these numbers kept getting 14 pushed in these pro formas as we went through 15 time. So, the difference between one pro forma 16 and the next is incremental. And so, the 17 comparison of this one to the previous one 18 increases the revenue by, oh, 3 or 4 million. But 19 then there was another one in front of that that 20 also increased it. 21 And so, what you have in -- you're in 22 this sort of intense circumstance. You're not 7648 1 really asking the question any longer of 2 whether -- whether or not these numbers have any 3 basis in reality but, rather, your question is: 4 "Can we make an argument that we could achieve 5 these kind of numbers?" 6 Q. Let me ask you this: Without 7 Mr. Graham having asked you to reach a sales value 8 of 123 -- gross sales of 123 to $125 million, 9 would you have made these changes? 10 A. Probably not unless in subsequent 11 discussions with the appraiser it looked as if we 12 were needing more revenue. But probably would not 13 have made those changes if it hadn't been required 14 in order to meet the appraisal. 15 Q. And are those the numbers that you took 16 to Mr. Schulz? 17 A. I believe so. 18 Q. Exhibit 7084. Do you recognize Exhibit 19 7084? 20 A. Yes. 21 Q. And what is it? 22 A. This is the appraisal from Mr. Ed 7649 1 Schulz. 2 Q. And what value -- did Mr. Schulz reach 3 an as-developed value for the Park 410 property? 4 A. Yes. This is the 88-million-dollar 5 figure you see there on the first page. 6 MR. SCHWARTZ: May I have a moment, 7 Your Honor? 8 Q. (BY MR. SCHWARTZ) Exhibit 7198. 9 A. We're done with this one? 10 Q. Yes, sir. Do you recognize this 11 document as a June 23rd, 1986 memorandum? 12 A. Yes. 13 Q. And did you receive a copy of it? 14 A. Yes. 15 MR. SCHWARTZ: Your Honor, we move the 16 admission of Exhibit T7198. 17 MR. DUEFFERT: No objections. 18 THE COURT: Received. 19 Q. (BY MR. SCHWARTZ) In the first and 20 second numbered paragraphs there, "Park 410 West 21 is described as a large tract of flat, featureless 22 land in an excellent location. It is divided by 7650 1 large drainage channels that are likely to remain 2 unsightly and ill-maintained. They have, 3 therefore, to be screened as development 4 proceeds." 5 It goes on to say, "It is priced and 6 has to be priced" -- and "has" is underlined -- 7 "to appeal to those buyers constructing a quality 8 product. Here we have no choice." 9 What is meant by "here we have no 10 choice"? Why did you have no choice? 11 A. Well, with the -- this is now in June 12 of '86. With the sales prices we needed to 13 achieve in order to gain release, the market was 14 pretty much limited to those people who could pay 15 top dollar for the parcel they were buying and, as 16 a consequence, those buyers would expect a quality 17 development. 18 Q. Paragraph 4 goes on to say, "Physical 19 improvements have to be made to the property to 20 improve its appearance. Westlakes has better 21 terrain and has thrown money at image." 22 Did Westlakes have better terrain than 7651 1 Park 410? 2 A. Well, I think as I indicated earlier, a 3 significant portion of Park 410 West was reclaimed 4 from the 100-year flood. As a consequence, most 5 of the site -- all of the site was scrubbed clean 6 of any vegetation and material -- some 7 13 million cubic yards of material was moved 8 around to fill in the flood zone. As a 9 consequence, it was a flat piece of property with 10 no vegetation whatsoever. Whereas across the 11 street or across the freeway in Westlakes, they 12 had some -- a bit more topography, a few more 13 trees, and had invested a significant amount of 14 money in creating lakes and water courses and 15 those kinds of amenities. 16 Q. Paragraph 4 goes on to say "Westover 17 Hills has the advantage of terrain image-wise and 18 well-established ground cover." 19 Was that true? 20 A. Yes. As you move -- this would be the 21 property further up 151, basically to the north 22 and west of Park 410 West. And by -- even though 7652 1 it's just traveling that short distance, you move 2 into the hill country which has some nice, rolling 3 hills and a lot of vegetation. 4 Q. Does that affect the ability to sell 5 property, the appearance of it? 6 A. Certainly. 7 Q. On the second page of the memorandum, 8 Paragraph 8 says, "Opinions differ as to what 9 proportion of sales will originate" -- strike 10 that. 11 Do you recall when this loan closed 12 with United? 13 A. It would have been -- well, the 14 beginning of April. 15 Q. Of 1986? 16 A. Correct. 17 Q. So, this is shortly after -- this 18 memorandum, June 23rd, is shortly after the loan 19 closing? 20 A. Yes. 21 Q. Paragraph 8, "Opinions differ as to 22 what proportion of sales will originate in 7653 1 San Antonio, Texas, and from outside it. 2 Whichever is right, we have" -- and again, the 3 word "have" is underlined -- "attempted to attract 4 a significant portion of non-Texas buyers." 5 With regard to attracting non-Texas 6 buyers, does that increase the cost of marketing? 7 A. Certainly. You have to -- you have to 8 do a lot more to present the property to the 9 national or even international market. 10 Q. And there is emphasis placed on the 11 word "have." Why is that there? 12 A. Well, because at this time -- and I 13 think it's in the next paragraph -- I mean, in the 14 next sentence he says, "Until the development 15 community returns to the market in strength, 16 thrust of sales has to be users." 17 You have to remember now that we're in 18 mid-1985. 19 Q. 1986? 20 A. I mean 1986. What's beginning to 21 happen in San Antonio is the local development 22 community is -- has run out of steam and they are 7654 1 just not making any purchases. 2 Q. And for how long had that trend been in 3 existence? 4 A. Oh, I don't know if I can say in 5 particular when that started to happen. But I 6 mean, as you move through time through 1985 and 7 1986, it becomes more and more apparent. 8 Q. Okay. If you recall earlier, we looked 9 at Exhibit 7004, which was a newspaper article 10 from November of 1985. 11 Do you recall that? 12 A. Yes. 13 Q. Does that refresh your recollection as 14 to when the development community started to leave 15 the market? 16 A. Well, I mean, again, I don't think I 17 can say a specific time when -- I mean, various 18 developers, of course, viewed the circumstances 19 differently. And when they decided to cut back, 20 you know, was based on their own conditions and 21 perceptions in terms of opportunities to make 22 money. So, I mean, this is a gradual process that 7655 1 began to take place in 1985, 1986. 2 Q. Paragraph 13 on Page 2 of Exhibit 7198 3 says, "Occupants of high-tech flex and R&D 4 buildings tend to put value on the quality of the 5 working environment. This is perceived to include 6 a true park environment." 7 Is attracting an R&D and a high-tech 8 flex market to Park 410 something that you were 9 seeking? 10 A. Yes, certainly. I mean, the -- yeah. 11 We had lots of acres in the heart of the property 12 that were perceived as parcels your research and 13 development and your high-tech businesses could 14 utilize. 15 Q. And with regard to the reference to a 16 true park environment, does that increase the 17 value -- the cost of landscaping? 18 A. Well, I think as I indicated earlier, 19 there were no trees on the site whatsoever and it 20 was flat. So, in terms of landscape, the -- and 21 to make a park-like environment that a lot of 22 these high-tech outfits, campus-style businesses 7656 1 would like to be, I mean, where they would like to 2 be is in a place that has good physical 3 environment, which means that you had to plant 4 trees, try and create some variation in topography 5 and do extensive landscaping in order to dress the 6 site up. 7 Q. So, that increases the cost of going 8 forward with the project -- is that right -- to 9 make the -- 10 A. Well, I don't know if it really 11 increases. We had a substantial line item budget, 12 I think, in the loan for landscaping. I mean, it 13 probably wasn't enough; but we had put quite a bit 14 of dollars, a million and a half dollars or 15 something into landscaping. 16 Q. The next item down says "recreational 17 amenities." "Let's look at the cost of a facility 18 comprising tennis courts, racquetball, a pool, and 19 a small clubhouse and think through the operating 20 cost recovery that's being done elsewhere." 21 Were you able to make a go of including 22 those kind of facilities to attract R&D and tech 7657 1 companies? 2 A. No. 3 Q. Why not? 4 A. Cost. 5 Q. It would cost too much? Exhibit B538. 6 A. (Witness nods head affirmatively.) 7 Q. Exhibit B538 appears to be a detailed 8 project fact sheet for Park 410 West dated 9 June 30th, 1985. 10 Did you participate in the preparation 11 of this document? 12 A. Yes. 13 Q. Would you turn to Page 13? Down at the 14 bottom of the page, there is a discussion of the 15 Federal Emergency Management Agency, FEMA. And I 16 asked you some questions earlier about FEMA and 17 that issue concerning the flood plain. 18 A. Yes. 19 Q. Was there an expectation that it would 20 take six to nine months to reclaim the land in 21 order to comply with FEMA requirements back in 22 June of '85? Was that one of the things you 7658 1 were -- 2 A. Well, the land reclamation or the 3 substantial portion of the land reclamation was 4 done by the previous owners on the property. 5 Subsequently with Pape-Dawson, we also determined 6 that there was some additional earth moving that 7 would be required in order to completely remove a 8 portion of the property from the 100-year flood. 9 But a substantial portion of the earth moving had 10 already been done by the previous owners. 11 Q. And -- 12 A. But in terms of the time frame, most of 13 the time frame concern was not due to the moving 14 of the dirt but, rather, with the requirements 15 within FEMA and the process by which you have to 16 go -- the process you have to go through in order 17 to amend the flood maps. 18 Q. Okay. Now, realizing that this is a 19 document from back in June of 1985, the end of 20 June 1985, did the issue with FEMA and getting 21 approvals from FEMA affect the loan closing date? 22 A. You're talking about the loan closing 7659 1 date with United? 2 Q. That's correct. The loan closing date 3 with United. So, that occurred in early 4 April 1986. 5 A. I don't think so. I mean, it was my 6 responsibility to get the letters and the stuff 7 that we needed from FEMA. And I'm pretty sure I 8 got that done in good time. 9 Q. Okay. Exhibit 7342. Do you recognize 10 this project quarterly report for Park 410? 11 A. Yes. 12 Q. As at 31 December 1985? 13 A. Yes. 14 Q. And it's dated February 15, 1986? 15 A. Yes. 16 Q. Did you participate in its preparation? 17 A. Yes. I would have prepared it, and it 18 would have been reviewed by Mr. Simpson. 19 Q. Let me ask a question. We've looked at 20 a lot of these quarterly reports and some notes of 21 meetings. 22 What was the purpose of creating these 7660 1 reports and meeting notes? 2 A. Well, these were reports that went to 3 the investors. 4 Q. And is the purpose to advise them of 5 the status of the project? 6 A. Yes. 7 Q. On the first page of this report in 8 Item 2 .3, it says down at the bottom, "Detailed 9 loan discussions are in hand with United Savings 10 of Texas. All parties are working toward a loan 11 closing date before 31 March '86." 12 Do you see that? 13 A. Yes. 14 Q. Why were all parties pushing for a loan 15 closing before March 31, 1986? 16 MR. DUEFFERT: For the record, I'll 17 object to the word "pushing" instead of "working." 18 MR. SCHWARTZ: Why don't we strike the 19 question? 20 Q. (BY MR. SCHWARTZ) Who were all 21 parties? 22 A. Well, the parties would include all the 7661 1 joint ventures and United. 2 Q. And why was United working toward a 3 loan closing date before March 31st, 1986? 4 A. Because it was important then to book a 5 profit in that quarter. 6 Q. And why do you have that impression? 7 A. I have -- well, I have that impression 8 from the conversations in meetings that we had 9 with United. 10 Q. And what were those conversations? 11 A. Well, it was made very clear to us in 12 the beginning part of this year, of 1986, that if 13 we were unable to close this loan in that quarter, 14 that there -- they would be unable to make the 15 loan. 16 Q. Why? 17 A. Well, because their interest was in -- 18 they had a compelling need to book a profit in 19 that quarter. 20 Q. So that -- 21 THE COURT: Who told you that, 22 Mr. White? Who at United? 7662 1 THE WITNESS: Well, I mean, I don't 2 know if I can recall a specific conversation. You 3 have to understand, there were a series of 4 meetings on a regular basis with United as we were 5 talking about all of these concerns. At those 6 meetings would be several people led by 7 Mr. Graham, and I'd have to say that it was in 8 those meetings that I gained that understanding. 9 I don't know if I could tell you specifically and 10 on what date who told me that. I mean, it was 11 certainly my -- it was my understanding, and the 12 only place I could gather that would be from those 13 meetings or perhaps through Mr. Rosenberg. 14 THE COURT: Who were the other 15 individuals at these meetings, besides Mr. Graham, 16 from United? 17 THE WITNESS: I don't know if I'll be 18 able to recall their names. 19 MR. SCHWARTZ: May I identify some 20 names and see if they refresh his recollection, 21 Your Honor? 22 THE COURT: All right. 7663 1 Q. (BY MR. SCHWARTZ) Do you know who 2 Jenard Gross is? 3 A. Oh, yes, sure. Yeah. He would have 4 been there. 5 Q. Do you know the name Michael Crow? 6 A. Don't -- I don't -- that name doesn't 7 ring a bell. 8 Q. Do you know the name Berner? 9 A. Not -- I mean, it sounds familiar. I 10 would probably recognize the man if he was in the 11 room, but I can't put a face to that name. 12 Q. Do you recall if he was at those 13 meetings? 14 A. I can't recall. 15 Q. Do you recall if a gentleman by the 16 name of Gem Childress was there? 17 A. On occasion, I think he'd be there, 18 yes. 19 Q. Jerry Williams? 20 A. That's not familiar. 21 Q. Did Charles Hurwitz attend any of these 22 meetings? 7664 1 A. I think the only time I met Charles 2 Hurwitz was at the presentation at the Argyle Club 3 in San Antonio. 4 Q. Was there a Barry Munitz? 5 A. I don't know. 6 MR. SCHWARTZ: Your Honor, if I haven't 7 already done so, I would move to admit Exhibit 8 7342, which were the project quarterly reports of 9 GMR dated December 31, '85. 10 MR. DUEFFERT: No objection. 11 THE COURT: Received. 12 MR. SCHWARTZ: Your Honor, would this 13 be a good time to break for lunch? 14 THE COURT: All right. We'll adjourn 15 until 1:30. 16 17 (Luncheon recess taken at 12:02 p.m.) 18 19 THE COURT: Be seated, please. We'll 20 be back on the record. 21 Mr. Schwartz, you may continue. 22 MR. SCHWARTZ: Thank you, Your Honor. 7665 1 (1:36 p.m.) 2 Q. (BY MR. SCHWARTZ) Mr. White, there 3 was some testimony earlier concerning -- I think 4 you called them bumps in the purchase price of the 5 property from Alamo? 6 A. Yes. 7 Q. What was that all about? 8 A. Well, the way that loan was structured 9 was that the -- if we were able to close into a 10 development loan sooner, the price -- well, as we 11 moved through -- it was a two-year land loan. 12 Q. That was the Alamo loan? 13 A. That was the Alamo loan. And within 14 the terms of that loan, the sooner we closed the 15 loan, the cheaper the purchase price of the land. 16 So, when I say "a bump," I mean that as 17 we crossed certain time thresholds, the price -- 18 the base price of the property from Alamo would 19 rise. 20 Q. You testified that United needed the 21 loan to close before the end of their books for 22 the first quarter of '86. 7666 1 Do you recall that? 2 A. Yes. 3 Q. Did that bump in the purchase price 4 have any influence in the March 31 target date? 5 A. Well, of course, it behooved the 6 venture to close it as soon as we could. The 7 other side of that is we had a two-year loan, no 8 personal liability. The only thing that was at 9 risk was the equity that was up in the formal 10 letters of credit. 11 Q. So, in the sense of the March 31st 12 target, with regard to the bump in the price, how 13 significant a role did that bump play in coming up 14 with -- in trying to target the closing before the 15 end of March of '86? 16 A. Well, on the venture side, it obviously 17 behooved us to close it as soon as we could, take 18 advantage of those cost savings. In terms of 19 motivation on the joint venture side, that was 20 certainly -- you know, played a factor. I mean, 21 it would be difficult for me to characterize -- I 22 mean, from the joint venture's perspective, it was 7667 1 certainly a motivating factor, to close it early. 2 In terms of an overriding concern, we still had 3 plenty of time left on the land development 4 loan -- I mean the land loan, not the development 5 loan -- the land loan. And the liability was 6 limited. 7 Q. The Alamo loan was a two-year 8 non-recourse loan? 9 A. That's correct. Well, it was recourse 10 only to the equity that was up. There was no 11 personal liability on the part of the ventures. 12 Q. You testified earlier that United 13 was -- if the loan could not close before 14 March 31st, United was not interested in making 15 the loan. 16 Do you recall that? 17 A. Yes. 18 Q. So, in connection with the bump, how 19 significant was the bump as opposed to the 20 representation from United that they were not 21 interested in making the loan after March 31st? 22 MR. DUEFFERT: Objection. 7668 1 Mischaracterizes his testimony. I don't think 2 he's talked about any representations yet. 3 THE COURT: I think that was a pretty 4 fair summary of his testimony. Denied. You may 5 answer. 6 A. Okay. The -- I mean, I would 7 characterize it as this. United was the only 8 lender that was out there that was willing and 9 capable of making a loan to the venture to go into 10 a developmental mode. If we didn't close the loan 11 with United, we would be left with the prospect of 12 simply trying to flip the land and abandon any 13 hope of securing a development loan and moving 14 forward with the development. 15 So, I would have to say by the first 16 quarter of '86, the overriding concern was to get 17 everything in order in order to close the loan in 18 March because without it, there would be no -- 19 there would be no development. I mean, it was 20 quite clear that United was the only lender out 21 there that would be making such a loan. 22 THE COURT: Mr. Schwartz, could I try 7669 1 this for a moment? 2 These bumps that you're talking about, 3 was one of them coming up March 31st, or do you 4 know when these increased price bumps were 5 scheduled? 6 THE WITNESS: I'd have to go back and 7 look at the Alamo loan documents to make sure I 8 could tell you when those bumps actually occurred, 9 but they must be in the documents somewhere. 10 THE COURT: I thought that's what 11 Mr. Schwartz was getting at. 12 MR. DUEFFERT: Your Honor, if you'd 13 like a schedule, we have one at T7075 of the 14 so-called bumps. Mr. Schwartz, if you look at 15 Point 8. 16 MR. SCHWARTZ: Mr. Dueffert, do you 17 know if that's been admitted? 18 MR. DUEFFERT: I don't know. 19 MR. SCHWARTZ: All right. 20 MR. DUEFFERT: The answer is no. 21 Q. (BY MR. SCHWARTZ) Mr. White, do you 22 recognize Exhibit T7075? 7670 1 A. Yes. 2 Q. Did you receive a copy of it on or 3 about -- 4 A. On the date prepared, yes. 5 MR. SCHWARTZ: Your Honor, we move the 6 admission of Exhibit T7075. 7 MR. DUEFFERT: No objection. 8 THE COURT: Received. 9 Q. (BY MR. SCHWARTZ) And in response to 10 the questions earlier, in talking about the 11 interest -- the bump, excuse me -- the bump 12 date -- 13 A. Yes. We had one on December 31, '85, 14 and then another one on March 31st of '86. I 15 mean, it's represented here as discounts. I mean, 16 I was representing it as the price would go up; 17 but actually, the way it was structured was there 18 were discounts for closing it earlier. So, 19 it's -- 20 Q. And how significant in the -- how 21 significant a factor was it to GMR to have this 22 loan close in order to take advantage of the bump 7671 1 versus accomplishing the first quarter closing 2 date that United wanted? 3 A. Well, it was significant to the extent 4 of a million dollars which, you know, is a 5 significant amount of money. But as you can see 6 here, we had -- we had already incurred the bump 7 in December 31. 8 So, the -- I mean, at this point in the 9 deal, everybody had their self-interest in moving 10 forward to close the loan. You know, the -- 11 certainly, a part of the partnership's 12 self-interest here was to close it by March 31 to 13 take advantage of that million dollars. 14 The other aspect of this was without -- 15 without closing it on March 31st, basically, we 16 were -- the partnership would be left with the 17 position of owning a piece of property without a 18 development loan, no realistic prospect of 19 securing a development loan from any other lender. 20 So, of less concern is that million 21 dollars than going ahead and getting the deal done 22 because, without it, there would be no development 7672 1 that we could do on this project. It would be 2 simply a land flip is the only option that would 3 be left open to the partnership. 4 Q. And was that because United had set the 5 date at March 31st? 6 A. Yes. That was United's -- that was 7 United's target date. 8 Q. Exhibit T7352. Did you prepare Exhibit 9 T7352? 10 A. Yes. That's -- on Page 7, that's me, 11 CW, 29 April '86. 12 MR. SCHWARTZ: Your Honor, we move the 13 admission of Exhibit T7352. 14 MR. DUEFFERT: No objections. 15 THE COURT: Received. 16 Q. (BY MR. SCHWARTZ) 7350. Do you 17 recognize Exhibit T7350? 18 A. Yes. 19 Q. What is this document? 20 A. Well, this is the summary of the 21 development loan budget as of the 1st of April 22 1986. 7673 1 Q. And would you have participated in the 2 preparation of this document? 3 A. Yes. 4 Q. At the third page -- excuse me. On the 5 second page at the bottom, it says "As at April 1, 6 1986." And then on the third page in regard to 7 the reconciliation of budget and pro forma, it 8 says "1 April 1986." 9 Is that at or about the time that this 10 would have been created? 11 A. Yes. 12 MR. SCHWARTZ: Your Honor, we move the 13 admission of Exhibit T7350. 14 A. I mean, this is "as at." So, I mean, 15 it was estimating costs as of the 1st of April '86 16 and I don't see a specific date as to when it was 17 prepared, but it was prepared shortly after the 18 closing of the loan. 19 Q. (BY MR. SCHWARTZ) Shortly after 20 April 1st? 21 A. Shortly after April 1st certainly. 22 Q. Do you know when the loan closed? 7674 1 THE COURT: Wait a minute. 2 MR. DUEFFERT: We have no objection. 3 THE COURT: Received. 4 A. I think the loan closing was actually 5 in the first week of April. 6 Q. (BY MR. SCHWARTZ) So, this was just 7 around the time of the loan closing? 8 A. Yes. 9 Q. Okay. With all of the pro formas that 10 were provided to United, this loan -- development 11 loan summary budget and the other budget items 12 that were provided to United, did Mr. Graham or 13 anyone at United ever question any of the costs 14 that the developers proposed for the project? 15 A. There may be some questions of 16 clarification; but in terms of challenging any of 17 the numbers, there was none. 18 Q. Exhibit 7380. Exhibit 7380 is an 19 executive summary revised pro forma financial 20 analysis dated April 8th, 1988. 21 Do you recognize that document? 22 A. Yes. 7675 1 Q. And would you have assisted in its 2 preparation? 3 A. Yes. 4 MR. SCHWARTZ: Your Honor, we move the 5 admission of Exhibit T7380. 6 MR. DUEFFERT: No objection. 7 THE COURT: Received. 8 Q. (BY MR. SCHWARTZ) What was the 9 purpose of this revised pro forma financial 10 analysis dated February 8th, 1988? 11 A. I believe by this time, it was 12 recognized that we didn't have any sales on the 13 property, that the interest built into the loan 14 was going to run out, and we were seeking to 15 restructure the loan. 16 Q. Exhibit 7200. Exhibit 7200 is an 17 August 5th, 1986 memorandum to Park 410 West from 18 Kenneth M. Gindy with several attachments. 19 Do you see that? 20 A. Yes. 21 Q. Now, would you have seen or prepared 22 the memorandum and the attachments? 7676 1 A. Well, the front letter is from 2 Mr. Gindy. 3 Q. There is a CC down at the bottom that 4 indicates your name. Does that indicate you would 5 have received a copy? 6 A. Yeah. I would have gotten a copy. 7 Q. Okay. And the attachments, would you 8 have seen or prepared those? Obviously, the 9 second page -- excuse me -- the third page is a 10 fax cover sheet. 11 A. Yeah. This is a -- yeah. It's from 12 Charles White. This is a memorandum that I 13 prepared at CN079122. 14 Q. And my question is with regard to the 15 document: Are these attachments things that you 16 would have seen or prepared at or around August of 17 1986? 18 MR. DUEFFERT: Your Honor, Mr. Schwartz 19 keeps referring to these as attachments. If you 20 look at the fourth page of the exhibit or fifth 21 page, the date is after the preceding page. It 22 doesn't appear to me at least that these documents 7677 1 are necessarily related. In fact, it appears that 2 this is somewhat of a jumble. 3 MR. SCHWARTZ: Are you referring to the 4 August 11th, 1986 memorandum to Mr. David Sachs 5 from Stanley Rosenberg? 6 THE COURT: Who are you speaking to? 7 MR. SCHWARTZ: I'm sorry, Your Honor. 8 I was asking Mr. Dueffert if that's the page that 9 he was referring to. 10 MR. DUEFFERT: That was the page I was 11 just referring to. 12 MR. SCHWARTZ: Perhaps I could rephrase 13 the question, Your Honor. 14 THE COURT: All right. 15 Q. (BY MR. SCHWARTZ) Can you identify 16 what this document is a compilation of? 17 A. These are various schedules that I 18 prepared to compare our asking price versus the 19 price listed in the pro forma. Then there's also 20 a minimum release schedule that accompanied the 21 loan. 22 Q. Okay. Which specific page are you 7678 1 looking at? 2 A. Well, they are similar; but this would 3 be at CN079122. 4 Q. All right. 5 A. You'll see there that the first 6 column -- I mean, this is "Re: Sales price 7 analysis for potential hospital sale," which he 8 refers to the letter at the front of this exhibit 9 from Mr. Gindy. 10 Q. Okay. That's the August 5th, 1986 11 memorandum from Mr. Gindy? 12 A. Right. 13 Q. All right. Do all of these documents 14 appear to relate to that hospital sale -- hospital 15 site sale? 16 A. Yes. These are all schedules that were 17 prepared or copied from other documents in 18 response to that memorandum from Mr. Gindy on the 19 front of this document. 20 MR. SCHWARTZ: Your Honor, we move the 21 admission of Exhibit T7200. 22 MR. DUEFFERT: No objection. 7679 1 THE COURT: Received. 2 Q. (BY MR. SCHWARTZ) Okay. You started 3 to describe this hospital site sale. Why don't 4 you tell us what was going on at the hospital site 5 sale? 6 A. Well, here, we have identified several 7 tracts that could accommodate the hospital. And 8 they -- 9 Q. "Here" is where? 10 A. I'm at CN079122. The first column 11 there you'll be seeing is the asking price. 12 That's our promulgated asking price, which is -- 13 has -- the full schedule is over here at CN079130. 14 Then we have the pro forma price, which would be 15 from the last pro forma that we closed the loan 16 on. And then we have the minimum release price. 17 Q. What's that? 18 A. Which is a -- I don't see that schedule 19 here, but there is another schedule that took each 20 of these lots then and identified what the minimum 21 release price would be from United. 22 Q. What does that mean? 7680 1 A. Well, in order to generate a sale, 2 United established minimum release prices, which 3 were the -- basically, the minimum number -- the 4 minimum sale price per square foot that we could 5 sell that tract in order to retire the loan. 6 Q. Okay. Then what's the next column? 7 A. It is the minimum release price plus 8 the cost of sale. That's to cover the commissions 9 and attorney fees and miscellaneous closing costs. 10 Q. Then the third column -- the last 11 column? Excuse me. 12 A. And then United -- there was a 13 provision in the loan for another 3 percent that 14 United would add on to that which would go to 15 them. 16 Q. To who? 17 A. To United. 18 Q. So, the price on the far right-hand 19 column, is that the break-even price for sales? 20 A. I don't know if it would be proper to 21 characterize it as "break even." 22 Q. Why not? 7681 1 A. Because it's the minimum price that we 2 could sell that tract and still be in performance 3 under the loan. 4 Q. I'm sorry. Would you repeat your 5 answer? I'm not sure that I -- 6 A. It's the minimum price that the venture 7 could sell the tract for and still perform under 8 the loan. 9 Q. And why do you say that you're not sure 10 if it's the break-even point? What other costs 11 would be added to that to make it the -- to reach 12 the break-even point? 13 A. Well, the break-even point -- I mean, 14 you're talking about, you know, an 15 80-million-dollar deal. If -- I'd have to go back 16 and recalculate everything. But I would think 17 that under these -- within this schedule, if we 18 were to sell every tract at that minimum price, 19 there probably would still be some profit left at 20 the bottom. But -- so, I mean, I don't know if I 21 could characterize it as the -- as a break-even 22 point. It may or may not be. 7682 1 Q. In the memorandum, the first -- the 2 second page of the exhibit from Mr. Gindy, he 3 mentions that Mr. David Sachs is also looking 4 at -- at the Wender property. 5 What's the Wender property? 6 A. That would be the development 7 immediately north and west of the property around 8 Sea World. 9 Q. And was Park 410 directly competing 10 with the Wender property? 11 A. Yes. 12 Q. Was Park 410 ever able to meet the 13 price that the Wender -- that Wender had offered? 14 A. No. Mr. Wender was able to be much 15 more competitive. 16 Q. You mentioned Exhibit 7 -- on the page 17 CN079130. 18 A. Okay. 19 Q. What is that chart? 20 A. These are our asking prices, our 21 published asking prices. 22 Q. And this is for Phases 1 and 2? I 7683 1 notice it only goes up to Tract 28. 2 A. Yes. This would be just for the first 3 two phases. 4 Q. On Tract 12, it says "under option." 5 Do you see that? 6 A. Yes. 7 Q. Did a sale ever go through on that 8 option? 9 A. I'd have to go look at No. 12. 10 Q. Do you mean to see where it's located? 11 A. Do you have a map of the -- I've 12 probably got one here somewhere. 13 Q. It would be in one of the appraisals. 14 It would be in the Schulz appraisal. 15 MR. DUEFFERT: Would you like mine, 16 Mr. Schwartz? 17 MR. SCHWARTZ: Actually, do you have 18 the chart? 19 MR. DUEFFERT: With your permission, 20 Your Honor. 21 THE COURT: We'll be off the record. 22 7684 1 (Discussion off the record.) 2 3 THE COURT: All right. We'll be back 4 on the record. Mr. Schwartz. 5 A. Okay. 6 Q. (BY MR. SCHWARTZ) We've brought up a 7 map of the zoning of the Park 410 project and the 8 layout of the individual tracts. And over on the 9 far right side, there is a Tract No. 12. 10 Do you see that? 11 A. Yes. 12 Q. Okay. Was that tract sold? 13 A. That tract, I believe, was eventually 14 sold. That was part of the deal with United -- 15 excuse me -- not with United. With Alamo. And I 16 think the man's name was Mr. McClintick. 17 Q. Is that Chili McClintick? 18 A. Chili McClintick, through a complicated 19 agreement, ended up with an option on that 20 property. 21 Q. And did he acquire it, to your 22 knowledge? 7685 1 A. I don't think he ended up exercising 2 that option. 3 THE COURT: Mr. Schwartz, could you 4 identify the number and the source of the -- 5 MR. SCHWARTZ: Certainly, Your Honor. 6 Are you referring to the B -- 7 THE COURT: No. The Bates number down 8 at the bottom. 9 MR. SCHWARTZ: Oh. The chart is a 10 blowup of one of the appraisals of the property. 11 It's Bates OW165346, Your Honor. 12 THE COURT: And you don't know which 13 appraisal that came out of. 14 MR. DUEFFERT: It's from Mr. Ed Schulz' 15 appraisal of the property dated March 1986. 16 THE COURT: All right. Thank you. 17 MR. SCHWARTZ: And that's Exhibit 7084. 18 THE COURT: Thank you. 19 Q. (BY MR. SCHWARTZ) I'm just going to 20 ask you: Do you recognize this document? 21 A. Yes. 22 Q. And did you assist in its preparation? 7686 1 A. Yes, I prepared it. 2 Q. Okay. 3 MR. SCHWARTZ: Your Honor, we move the 4 admission of Exhibit T7090. 5 MR. DUEFFERT: No objections. 6 THE COURT: Received. 7 Q. (BY MR. SCHWARTZ) And is 8 Exhibit T7090 a spreadsheet analysis dated 9 October 14th, 1986? 10 A. Yes, that's correct. 11 Q. We've seen a number of spreadsheets 12 in -- during your testimony. Have we seen all of 13 the spreadsheets that were prepared during the 14 time period that you were involved in obtaining 15 this loan? 16 A. No. This is just a small fraction. 17 Q. What were the other spreadsheets that 18 we -- that you haven't seen here today? 19 A. Well, they were endless variations of 20 looking at different "what ifs" and different 21 sales prices, different selling properties and 22 different periods, what cost savings in certain 7687 1 categories might achieve to the bottom line. I 2 mean, I threw them all away a couple of years ago. 3 There was a stack as -- probably taller than this 4 desk. 5 Q. Exhibit 7367. 6 A. But this one here is not a pro forma. 7 Q. What is that exhibit? 8 A. This is a budget control document. 9 Q. Okay. You're talking now about 10 Exhibit 7090; is that right? 11 A. Right. 12 Q. Okay. What is a control budget? 13 A. Well, this is after the loan was 14 closed. The budget has been established, and 15 it's -- part of my responsibility was to maintain 16 control over the budget. So, that's what this 17 document seeks to do, which is to identify what we 18 anticipated spending in a certain period and what 19 we actually spent during that period. 20 Q. I see. 21 A. And then this was subsequently updated 22 quarter by quarter. 7688 1 Q. To reflect -- 2 A. To reflect where we actually stood at 3 any given quarter vis-a-vis the budget that came 4 out of the loan. 5 Q. I see. Exhibit 7367 is a March 11th, 6 1987 letter from you to Mr. David Graham. 7 Did you draft this letter? 8 A. Yes. 9 Q. And there are some schedules attached, 10 what appear to be spreadsheets to the letter. 11 Did you prepare those? 12 A. Yes. These all relate to the release 13 prices that were established under the loan. 14 Q. And -- 15 A. And we're seeking here to revise those. 16 MR. SCHWARTZ: Your Honor, we move to 17 admit Exhibit T7367. 18 MR. DUEFFERT: No objection. 19 THE COURT: Received. 20 Q. (BY MR. SCHWARTZ) What was the 21 purpose of this letter? 22 A. Well, as stated in the letter, by this 7689 1 time, we had realized that our -- both our asking 2 prices and the minimal release prices were too 3 aggressive and that we could not be competitive in 4 the marketplace. 5 Q. When you say "aggressive," what do you 6 mean? 7 A. We were asking too much money for the 8 market to bear. 9 Q. You say "by this time, we were aware." 10 Earlier, you testified about information that was 11 available before -- in the period of late '85, 12 early '86. 13 Was this a gradual understanding that 14 you came to -- came to, that the prices were going 15 to be too high? 16 MR. DUEFFERT: Your Honor, I don't 17 understand the question. There is a relation 18 between some time periods and talking about prior 19 testimony, and I just object. 20 THE COURT: Can you restate it, 21 Mr. Schwartz? 22 MR. SCHWARTZ: Certainly. 7690 1 Q. (BY MR. SCHWARTZ) Earlier, do you 2 recall testifying -- I think we look at 3 Exhibit 7004, which was a newspaper article from 4 November of 1985. And I believe you testified 5 that there was information that was available at 6 that point in time concerning real estate markets. 7 Do you recall that? 8 A. Yes. 9 Q. When looking at this exhibit, Exhibit 10 7367, dated March 11th, 1987, you testified that 11 you were realizing at this point -- I think you 12 said "by this point in time, we realized that our 13 prices were too high"; is that right? 14 A. Yes. But it's not driven by newspaper 15 articles. By this time, we had already gone 16 through, including the hospital sales and several 17 other potential sales, which made it real clear we 18 would not be able to compete in the marketplace 19 with the way the loan was currently structured and 20 the minimum release prices. We simply were not 21 able to be competitive in the marketplace. 22 So, this document seeks, on that basis, 7691 1 to revise those release prices so we could at 2 least begin to generate some sales. 3 Q. Earlier, we looked at Exhibit 7198, 4 which was a June '86 memorandum from Noel Simpson. 5 That was the one where he said "It is priced and 6 has to be priced to appeal to those buyers 7 constructing a quality product. Here we have no 8 choice." 9 Is that part of the realization 10 process, that your prices were going to be too 11 high to meet the loan requirements? 12 MR. DUEFFERT: Your Honor, the 13 record -- 14 A. I'd have to go back and see when was 15 the date on that letter. 16 Q. (BY MR. SCHWARTZ) That was the 17 first -- that was June 23rd, 1986, T7198, that we 18 looked at earlier. 19 MR. SCHWARTZ: Your Honor, may I 20 approach the witness? 21 THE COURT: Yes, you may. 22 A. T7198? 7692 1 Q. (BY MR. SCHWARTZ) Yes. And in 2 paragraph numbered 3, Mr. Simpson wrote, "Here we 3 have no choice" regarding -- 4 A. Yes. That's a reference, that we have 5 no choice in this matter because we have release 6 prices in the loan and we don't have an option of 7 selling it -- of discounting the property to 8 generate sales. We have to sell it at that price. 9 Our hands are tied. If we can't sell it at that 10 price, we can't generate a sale. Leaves us no 11 negotiating room. 12 Q. There is reference -- this letter talks 13 about pricing the land to allow for bulk warehouse 14 development. It's on the third line of the 15 letter. 16 A. Yes. 17 Q. Was bulk warehouse development part of 18 the original intention of the venturers, to 19 include that type of development on the property? 20 A. Straightforward bulk warehouse, we were 21 looking when we were putting the loan together 22 more at your office/showroom/research and 7693 1 development campus style facilities. Your large 2 barn warehouses was perhaps not excluded in terms 3 of consideration, but it wasn't a part of the 4 major marketing effort or the perceived marketing 5 effort when we were putting the package -- the 6 business plan together. 7 Q. Is providing for bulk warehouse units 8 conducive to an office park environment that you 9 were trying to create? 10 A. It can be. It depends upon the design 11 of the facility, whether it integrates in with the 12 park-like atmosphere, what the facade is made out 13 of, the color, all those kind of considerations. 14 Wouldn't necessarily be detrimental to the 15 project. 16 Q. But that would be restrictions on the 17 design of the building? 18 A. Yes. There were serious restrictions 19 that would apply to the development of any 20 building on the project. 21 Q. And you request Mr. Graham's permission 22 to change the release prices for Lots 16 through 7694 1 19 -- I'm reading in the first paragraph -- 2 from -- I believe it's 18.12 acres. Let me just 3 go ahead and read the sentence. "Consequently, 4 Park 410 West Joint Venture proposes that Lots 16 5 through 19 on Richmond Hills, totaling 6 18.12 acres, be made available for such use" -- 7 and it's referring to bulk warehouse use -- "at a 8 sale price of $2.50 per square foot. ($5 per 9 square foot was the rate applying to this land 10 hitherto.) Release prices would, as a result, be 11 established at $1.94 per square foot for the bulk 12 warehouse tracts, replacing the release price of 13 $3.89 per square foot currently in effect." 14 What does that mean? 15 A. Well, it's pretty straightforward. 16 What I'm seeking to do here is to get a release 17 price that was low enough so that we could get 18 down to a sales price so that -- in the $2.50 per 19 square foot. $5 was clearly way out of the 20 marketplace in terms of what anybody in this 21 category could afford to pay for property. 22 Q. And in the second paragraph, you talk 7695 1 about making up the difference on Tract 38 by 2 raising the price per square foot there from -- 3 well, to $11 per square foot. 4 Do you see that? 5 A. Yes. 6 Q. What was the price for Tract 38 prior 7 to this letter? 8 A. Well, we just looked at that a minute 9 ago. 10 Q. Well, if you look, there are some 11 schedules attached to the exhibit. 12 A. Yeah. But you're asking about the 13 asking price and not the release price. 14 Q. That's correct. 15 A. And we looked at that just a minute 16 ago. 17 Q. Would that be at the time of the loan? 18 Is that what you're -- 19 A. Yes, or that exhibit that showed our 20 asking prices that we just looked at that we 21 pulled out, that exhibit. 22 Q. Oh. 7696 1 A. That's that printed price schedule. 2 Q. Yes. That's exhibit -- 3 A. Now I've got things all confused here. 4 Q. Me, too. 5 THE COURT: Try Exhibit 7200, the last 6 sheet. Would that have it on it? 7 MR. SCHWARTZ: Yes, that's it. Thank 8 you. 9 THE WITNESS: What number again? 10 Q. (BY MR. SCHWARTZ) Exhibit 7200. No. 11 That's through Tract 28, not Tract 38. 12 A. Oh, that's right. It wouldn't be on 13 there. Oh, well, then we can look at the closing 14 pro forma. 15 Q. All right. 16 MR. SCHWARTZ: I apologize, Your Honor, 17 about not having these numbers in front of me. 18 Well, I'll come back to that. 19 Q. (BY MR. SCHWARTZ) The price was being 20 raised -- 21 A. Yes. 22 Q. -- to $11 per square foot? 7697 1 A. Yeah. My recollection is that it was 2 at $10 a square foot, but -- 3 Q. Did GMR at that point in time have any 4 reason to think that Tract 38 would be able to 5 sell for $11 per square foot? 6 A. Well, that was way out there in the 7 future; and the only way that we could -- well, 8 the thought was the only way we could work our way 9 out of this loan was to begin to sell some 10 property, any property. And in order to do that, 11 we had to have prices that were competitive in the 12 marketplace. However, in order to satisfy the 13 lender requirements that we could at least 14 consider or at least be able at some point to 15 reclaim that lost revenue, really, our only option 16 was to ascribe an increased price in that tract, 17 which would be the furthest one out. 18 Q. Okay. Take a look at Exhibit 7345, 19 which was the February 18th, 1986 revised 20 financials. 21 A. How long ago did we look at that? 22 Q. It would have been just shortly before 7698 1 the lunch break. Right here. 2 A. Okay. What do we need now? 3 Q. Okay. And if you turn to Bates 4 Page CN082645? 5 A. Okay. 6 Q. There is a price on that page for Tract 7 38? 8 A. Yes. There it is. $1O per square 9 foot. 10 Q. And I'm sorry. I asked -- I think I 11 asked you: Did GMR have any expectation that they 12 would be able to sell the property for $11 per 13 square foot? 14 A. Well, we were hoping. 15 Q. Was it reasonable to hold that hope? 16 A. Well, at this point, we were just 17 trying to do everything we could do in order to 18 generate some sales and worry about tomorrow 19 tomorrow. 20 Q. The pro formas that are attached to 21 this exhibit, 7367, one chart -- there is actually 22 two separate series of charts. One's called 7699 1 Revised Release Price Schedules, and the next one 2 is called Revised Schedule of Tract Sales Prices. 3 What's the difference between those two 4 charts? 5 A. I'm sorry. I lost you again. What 6 number are we on again? 7 Q. I'm on Exhibit 7367. 8 A. Okay. And the question again? 9 Q. The question is -- there appear to be 10 two series of spreadsheets attached to that 11 exhibit. One's labeled up at the top in the 12 center, Development Loan Agreement, Exhibit C, 13 Revised Release Price Schedule. And the other one 14 is Revised Schedule Attract Sales Prices. And 15 they are dated March 4th, 1987. 16 A. Yes. 17 Q. And the question is: What's the 18 difference between those charts? What do they 19 reflect? 20 A. Well, one is the release price 21 schedule, which is the amount of money that needed 22 to go to United in order to release the property, 7700 1 and the other schedule is the revised schedule of 2 tract sales prices which represents the sales 3 price that we would need to achieve in order to 4 meet the release price. 5 Q. I don't understand. Do that one more 6 time, please. 7 A. Well, you have -- you have a release 8 price, which is the money that had to go to United 9 in order for them to release the tract. 10 Q. Okay. 11 A. However, when you have a sale, you have 12 your commissions. You have your cost of sale. 13 You have your other incidental costs in there. 14 So, in order to achieve a release 15 price, you have to have a sales price that is 16 above that in order to be able to close the deal 17 and release the property. 18 Q. Okay. And so, that second chart, the 19 revised schedule of tract sales prices is the one 20 that you're referring to as being the price at 21 which you can release -- you can sell the property 22 to achieve the release price? 7701 1 A. Correct. 2 Q. Exhibit 7368. 7368 is a file note of 3 meeting on 22 April 1987 at Grieshaber & Roberts 4 in San Antonio. 5 Did you receive a copy of this? 6 A. This is -- oh, this would have been 7 generated by me. 8 MR. SCHWARTZ: Your Honor, we move the 9 admission of Exhibit T7368. 10 MR. DUEFFERT: No objections. 11 THE COURT: Received. 12 Q. (BY MR. SCHWARTZ) Would you turn to 13 Page 6, please? It's the last page of the 14 exhibit. 15 A. Okay. 16 Q. Under Paragraph 2.4, there is a 17 discussion of Pilko & Associates. What is Pilko 18 & Associates? 19 A. Pilko was a consulting firm that we 20 employed to evaluate how we might go about 21 marketing to your high-tech and research and 22 development firms nationwide. 7702 1 Q. Were you interested in attracting 2 electronics -- electronics and electronics firms 3 to the area? 4 A. Yes. 5 Q. And computer high-tech firms? 6 A. Yes. 7 Q. Exhibit 7092 is at Tab 786. 8 MR. SCHWARTZ: Mr. Langdon, do you have 9 it located? 10 MR. LANGDON: I found it. 11 MR. DUEFFERT: It's not in evidence, 12 although it's in the tabs. 13 Q. (BY MR. SCHWARTZ) Mr. White, did you 14 receive this in or around -- this report by Pilko 15 & Associates, Inc. in or around August of 1997? 16 A. Yes. 17 MR. SCHWARTZ: Your Honor, we move the 18 admission of Exhibit T7092. 19 MR. DUEFFERT: No objections. 20 THE COURT: Received. 21 Q. (BY MR. SCHWARTZ) Would you turn to 22 Page 2 of the report? 7703 1 A. Okay. 2 Q. On Page 2, the bottom paragraph on the 3 page says, "Initial conclusions indicated light 4 manufacturing industries were the best fit with 5 Park 410's planned development if land prices were 6 lowered to match competition in the area. 7 San Antonio's median land price in 1986 for 8 industrial park property ranges from $1.05 to 9 $3.25 per square foot or $45,738 to 141,570 per 10 acre as shown in Exhibit B2. Although industrial 11 park land prices are generally higher in the 12 northwest quadrant of San Antonio, Park 410's land 13 price is considerably higher than the high of 14 $3.25 per square foot or $141,570 per acre. 15 Unless lowered, this factor could limit success in 16 attracting light manufacturing facilities to Park 17 410 West. Pilko & Associates recommends that 18 adjusting land prices downward will make Park 410 19 West more competitive with surrounding multi-use 20 parks." 21 When you reviewed this report, what was 22 your conclusion with regard to -- was this 7704 1 information that you already knew? 2 A. Not in this detail. 3 Q. Was it information that you had an idea 4 you were going to see when you got the Pilko 5 report? 6 A. Well, we're now into -- 7 Q. This is 1987. 8 A. 1987. It was becoming increasingly 9 clear that under the current loan agreement with 10 the release and sales price schedules that that 11 demanded, that we weren't going to be able to be 12 competitive in the marketplace. And this is, you 13 know, outside professional confirmation of that. 14 Q. You testified earlier that when you 15 bought the land from Alamo, you had a two-year 16 non-recourse loan for that -- for the property; is 17 that right? 18 A. Yes. 19 Q. Okay. Do you believe now it would have 20 been prudent to have waited for additional 21 information to come to light in light of the 22 information that you had at that time before going 7705 1 forward with development? 2 A. You mean from where I sit today? 3 Q. No. From where you sat -- from -- 4 let's start with today. 5 A. Well, in retrospect, the partners 6 certainly would have lost a lot less money if they 7 just gave the property back to Alamo. 8 Q. And what about from the information 9 that you had back in 1986 through the end of 10 March? 11 MR. DUEFFERT: Your Honor, I'm not sure 12 about what time period he's talking about, and I 13 think it makes a difference. If we're going to 14 engage in hindsight, I want to know the point from 15 which we're looking backwards. 16 MR. SCHWARTZ: I just said until the 17 end of March 1986. 18 MR. DUEFFERT: From the beginning of 19 March of '86 to the end of March of '86? 20 MR. SCHWARTZ: Prior to the end of 21 March 1986. 22 THE COURT: What's your question? 7706 1 MR. SCHWARTZ: My question is: Had 2 he -- the question is -- they had a loan from 3 Alamo -- 4 Q. (BY MR. SCHWARTZ) You had a loan from 5 Alamo that was a two-year non-recourse loan, and 6 that was -- that loan was taken in 1985; is that 7 right? 8 A. Correct. 9 Q. Okay. So, that loan was not due until 10 1987, correct? 11 A. Correct. 12 Q. This loan closed in the first week of 13 April 1986? 14 A. Correct. 15 Q. So, therefore, you had an additional 16 year under the Alamo loan before you had to take 17 some action with regard to the land; is that 18 correct? 19 A. That's correct. 20 Q. Would it have been prudent, based on 21 the information that you had available to you in 22 and through March 31st, 1986, to have waited out 7707 1 to find out -- to gather some additional 2 information? 3 A. Well -- 4 MR. DUEFFERT: Your Honor, I'm sorry. 5 Would it have been prudent? I don't understand if 6 the judgment is making today given the information 7 that was available to him in 1986 or if the 8 question is: Did you think it was prudent at that 9 time. 10 THE COURT: Can you clarify it? 11 THE WITNESS: Well, I can answer it 12 both ways, I suppose. 13 MR. SCHWARTZ: Actually, Your Honor, 14 I'll try to go about it a different way. 15 Q. (BY MR. SCHWARTZ) Why hadn't this 16 report been prepared or requested in the 1985 to 17 1986 time period? 18 A. Well, 1985 to 1986, our major focus was 19 securing the development loan. Subsequent to that 20 loan, the shift focused to "Now we've got the 21 loan. We need to go do the development and start 22 selling property." 7708 1 So, this firm was hired to assist us in 2 preparing a targeted marketing program to these 3 high-tech electronic businesses. 4 Q. Prior to the loan, however, were you 5 expecting to market the property to high-tech 6 firms? 7 A. Yes. Those would be in your research 8 and development category. 9 Q. Then why didn't you get a study as far 10 as the marketability of the project to those 11 industries prior to April or the end of 12 March 1986? 13 A. Well, the focus was on closing the 14 loan, not on the marketing of the property. 15 Q. And you say the focus was on -- 16 A. At the time we were closing the loan, 17 it was, you know, "Damn the torpedoes. Full speed 18 ahead." 19 Q. What do you mean by that? 20 A. After you close the loan -- excuse me? 21 Q. What do you mean by that? 22 A. Well, ignore what's going on. We've 7709 1 got to close this loan. It's a matter of survival 2 for United Savings. It's a matter of survival for 3 the partners. It's a matter of saving face with 4 all of our investors, and that was the focus. 5 MR. DUEFFERT: Your Honor, if we're 6 going to have this type of testimony, I would like 7 specificity as to the basis for it and who said 8 what. 9 THE COURT: Well, you can ask him on 10 cross. 11 Q. (BY MR. SCHWARTZ) Would you turn to 12 Page 5? And -- just a moment, please. 13 At the bottom of Page 5, the -- there 14 is a discussion -- the earlier discussion that we 15 looked at at Page 2 was an executive summary. On 16 Page 5, we're looking at a discussion concerning 17 industry analysis. Down at the bottom of that 18 page in the last paragraph there, it starts, "Land 19 cost is also a major factor affecting high-tech 20 location decisions. Comparatively, Park 410's 21 land price is higher than prices for land in 22 similar multi-use developments in San Antonio." 7710 1 Was this something that you knew prior 2 to the Pilko report? 3 A. Yeah. Prior to receiving this report? 4 Q. Yes. 5 A. Yes. By this time, it was becoming 6 increasingly clear that our land prices were way 7 out of line with what the market could bear. 8 Q. And was that known -- was that known as 9 early as 1986? 10 MR. DUEFFERT: Your Honor, before or 11 after the closing of the loan, just for the 12 clarity of record? 13 MR. SCHWARTZ: Your Honor, I will -- I 14 appreciate Mr. Dueffert's assistance in 15 formulating my questions. If I can ask the 16 questions and -- we'll start with 1986, and then 17 we can go forward with that. But the 18 interruption -- the interruptions are not 19 contributing to the clarity of the record at all, 20 in my opinion, and I think we ought to just let 21 the witness answer the questions and then proceed. 22 MR. DUEFFERT: Actually, Your Honor, I 7711 1 think what we're create is a very unclear record. 2 We have pre-closing ideas about what was going on 3 in the market and post-closing ideas of what was 4 going on in the market. We are showing this 5 witness numerous documents after the closing. 6 Obviously, what happened afterwards has a 7 different -- makes a difference to the case versus 8 what was going on beforehand. And to ask the 9 witness what you thought in 1986 is not helpful in 10 figuring that out. 11 THE COURT: Well, you're telling us 12 that there was a different perception. But the 13 purpose of the question is to determine whether 14 that was the witness' perception. 15 MR. DUEFFERT: Well, he asked, "What 16 did you think in '86?" And I think whatever 17 answer he gets, it's not going to be clear in the 18 record whether this is what you thought before the 19 loan closed or what happened afterwards in the 20 nine months of 1986. 21 THE COURT: Well, let's take that 22 question, and then we can get more specific and 7712 1 move on. 2 MR. SCHWARTZ: Thank you, Your Honor. 3 A. Okay. Ask the question again. I don't 4 know where we're at now. 5 Q. (BY MR. SCHWARTZ) Okay. You 6 testified that this was -- that the paragraph that 7 I just read, the portion of the paragraph that I 8 just read, "Land cost is also a major factor 9 affecting high-tech location decisions. 10 Comparatively, Park 410's land price is higher 11 than land prices for land in similar multi-use 12 developments in San Antonio." 13 And my next question to you was: Was 14 this something that you were aware of prior to the 15 Pilko report? And I believe you said yes. And 16 then I asked you whether that type of information 17 you were aware of in 1986. 18 A. Okay. In trying to answer this, I 19 think to get everybody on the same page here is 20 that -- I would say that pre-loan closing in 1986, 21 this wasn't as much of a concern as it became 22 subsequently in the year when we closed the loan, 7713 1 started the development and tried to market the 2 property in the marketplace. It wasn't until we 3 initiated on an active basis the marketing of the 4 property that we began to encounter the fact that 5 we were simply overpriced for the market. 6 So, at the time of closing, there may 7 have been some concerns about how the numbers had 8 been pushed to achieve the values necessary to 9 close the loan; but the focus was not on marketing 10 the property at that point. It was on doing what 11 was necessary to close the loan. 12 Q. So -- 13 A. I mean, I hope that answers the 14 question. 15 Q. Yes, it does. So, then, is it fair to 16 say that neither you nor GMR nor United Savings 17 had focused on actually selling and marketing the 18 tracts of land prior to the loan closing? 19 A. Well, there were some preliminaries. I 20 mean, you know, Grieshaber and crew was sent out 21 to beat the bushes and generate any contracts that 22 might be out there. There were a few folks who 7714 1 did express interest. There were a couple of 2 contracts that were at least proposed. 3 So, there appeared to be some interest 4 out there in the property. But you can't really 5 have an aggressive marketing campaign where you're 6 going to divide the property up into tracts and 7 sell it off until you have a development loan. I 8 mean, you don't have -- there is no serious buyer 9 out there in the marketplace who's going to look 10 at a developer and say, "Okay. Well, we've got 11 312 acres here. We're going to divide this up 12 into small tracts and this is one. And when we 13 get the development loan, it will be available." 14 They are simply going to wait and see if you 15 actually do get it developed, if the parcels do 16 come on, and what the price is at that point 17 because there is no need for them to put a piece 18 of property under contract and go through all that 19 work if it's not going to become available. 20 Q. Right. At the time that the -- at the 21 time of the loan closing in early April '86, were 22 the sales prices of competing properties 7715 1 available? 2 A. Yeah. They were in the -- I believe 3 some of them were in that Tremar report. 4 Q. Let me ask you: Overall -- looking at 5 the Pilko report, overall, what did this report 6 tell you? 7 A. That we were in deep, that we had some 8 problems. 9 Q. What do you mean? 10 A. That we had a property that on one hand 11 was a fine piece of property, but it was 12 overpriced and we had very little ability to 13 negotiate a price that was reasonable in the 14 marketplace. 15 Q. Exhibit 7261. With regard to the 16 report we just looked at, the Pilko report, you 17 said that overall, it told you that the prices you 18 were charging were too high. Right? 19 A. Yes. 20 Q. Was one of the reasons that the prices 21 of the properties were too high because the 22 venturers had paid too high a price for the 7716 1 property in the first place? 2 A. Well, the sales -- certainly it was -- 3 a part of the overall cost of the property is the 4 cost of your land, which establishes the 5 preliminary basis that you have to go from. 6 Q. Exhibit -- what is Exhibit 7261? 7 A. This is -- well, it's addressed to 8 Mr. Jeff Seidman, who replaced Mr. Graham at 9 United. And this is our request to restructure 10 the loan so that we might be able to survive the 11 downturn in the market. 12 Q. Did you receive a copy of this, if you 13 look on Page 5? 14 A. Yes. 15 MR. SCHWARTZ: Your Honor, we move the 16 admission of Exhibit T7261. 17 MR. DUEFFERT: No objections. 18 THE COURT: Received. 19 Q. (BY MR. SCHWARTZ) The pro formas that 20 are attached, are those -- were those prepared by 21 you? 22 A. Yes. 7717 1 Q. Exhibit 7379. Did you receive a copy 2 of Exhibit 7379 at or about February 1, 1988? 3 A. Yes. 4 MR. SCHWARTZ: Your Honor, we move the 5 admission of Exhibit T7379. 6 MR. DUEFFERT: One moment, Your Honor. 7 We have no objection to the version of 8 Exhibit T7379 that is a February 1, 1988 letter or 9 memorandum from Noel Simpson to Stanley Rosenberg 10 and others. 11 THE COURT: Received. 12 Q. (BY MR. SCHWARTZ) What was the 13 purpose of this memorandum? 14 A. Well, by this time, it was -- as is 15 stated here, the message was becoming very clear 16 that unless we restructured this loan seriously, 17 that we are going to run out of money in the 18 interest category real quick. 19 Q. And in the second indented paragraph 20 there, there are several options, A through G, 21 discussed. 22 What are those referring to? 7718 1 A. Well, those are all items -- all items 2 that we had surmised would be the only way we 3 could wiggle to keep the loan in place and to, you 4 know, move forward. I mean, basically, what we're 5 doing here is trying to take the infrastructure in 6 Phase 3 and throw it toward interest, take all the 7 contingencies off of everything else and throw 8 that towards interest, reduce the overhead, et 9 cetera. 10 MR. SCHWARTZ: Thank you, Mr. White. 11 That's all I have for this moment. 12 THE COURT: We'll take a short recess. 13 14 (A short break was taken 15 at 2:55 p.m.) 16 : 17 THE COURT: Be seated, please. I 18 believe before the recess, the direct examination 19 of Mr. White was complete and you were preparing 20 for cross? 21 MR. SCHWARTZ: That's correct, Your 22 Honor. 7719 1 THE COURT: Mr. Dueffert, you may 2 cross-examine. 3 MR. DUEFFERT: Thank you, Your Honor. 4 For the record, given the length of Mr. White's 5 direct, I can say that I cannot anticipate 6 finishing this afternoon. 7 8 CROSS-EXAMINATION 9 10 11 Q. (BY MR. DUEFFERT) Mr. White, for the 12 record, my name is Paul Dueffert. Good afternoon. 13 MR. RINALDI: Excuse me, Your Honor. 14 THE COURT: Yes. 15 MR. RINALDI: May I inquire on a 16 separate matter, a preliminary matter, that we had 17 a witness flying in. Should I now cancel the 18 witness for tomorrow that's flying in from 19 Atlanta? It's Mr. Lovell. 20 MR. DUEFFERT: Your Honor, I would 21 anticipate that we will get to Mr. Lovell at some 22 point tomorrow. I don't know when. 7720 1 THE COURT: Well, maybe he can come 2 tomorrow morning and be here for the afternoon. 3 MR. DUEFFERT: That would be safe. 4 MR. RINALDI: Is that what I should do? 5 THE COURT: Yes. Why don't you do 6 that? 7 Q. (BY MR. DUEFFERT) Mr. White, have we 8 ever met before today? 9 A. Well, it started yesterday. 10 Q. We saw each other in the courtroom. 11 Right? 12 A. Yes. 13 Q. And we exchange some pleasantries over 14 the last day and a half? 15 A. Yes. 16 Q. But before then, we never spoke. 17 Right? 18 A. That's correct. 19 Q. Before we get into background, I would 20 like to clarify one point on the record. We've 21 talked today about the importance of the date 22 March 31, 1986. 7721 1 Do you recall that? 2 A. Yes. 3 Q. And I think you've indicated in your 4 testimony that, at least in your view, there were 5 two important things happening on that date. One 6 was a discount or bump associated with the price 7 that the land would have to be bought from Alamo. 8 Right? 9 A. That's correct. 10 Q. And the other thing that was happening 11 on that date was the end of a quarter for United? 12 A. That's correct. 13 Q. On the first point, from the position 14 of GMR -- your employer. Right? 15 A. Yes. 16 Q. -- was there any other significance to 17 the date March 31, 1986? 18 A. Not that comes to mind immediately. 19 Q. Do you recall if there was an interest 20 payment due on the Alamo note on that day? 21 A. May have been. 22 Q. Could we have Exhibit B466, please? 7722 1 This has been previously admitted at Tab 767 as a 2 compilation exhibit. 3 I'd ask you to look through the exhibit 4 until you find a file note slightly after the 5 center. It's dated June 27, 1985, and carries the 6 Bates No. OW166649. I'm sorry. OW166469. And if 7 you'd like my assistance, I'll be glad to provide 8 it. 9 A. 66469? 10 Q. 166469. The exhibit is not in 11 sequential order by Bates number. It's a 12 compilation exhibit. It might be helpful to look 13 for a file note dated 27 June 1985. 14 A. Are those in order? 15 Q. I believe they are in chronological 16 order, yes. 17 A. What date am I looking for? 18 Q. 27 June '85. Would you like my help, 19 sir? 20 A. Yeah, because these aren't in 21 chronological order either, doesn't seem to be. 22 Here's 28 June. Okay. 7723 1 Q. Would you please -- first off, do you 2 recognize this document? 3 A. Yes. 4 Q. What is it? 5 A. It's a file note of a meeting between 6 myself and Noel Simpson. 7 Q. And who prepared this document? 8 A. Mr. Simpson. 9 Q. Would you please, for the record, read 10 out loud Note 1.1 on the very first page of the 11 file note? 12 A. "The foremost priority of the joint 13 ventures is to have arranged development finance 14 and land note repayment before the first interest 15 payment under the note becomes due on 31 16 March '86. It is highly desirable that this be 17 achieved before the first price hike hits on 18 January 1, '86." 19 Q. Was that statement written on or about 20 June 27, 1985? 21 A. Yes. 22 Q. What is the first interest payment 7724 1 referred to in the first sentence of that 2 paragraph? Refresh your memory? 3 A. Well, that has to be the interest 4 payment due under the land note with Alamo. 5 Q. And do you recall the frequency with 6 which interest payments were due under that note? 7 A. Not without a refresher. 8 Q. Do you recall the size of the first 9 interest payment? 10 A. No. 11 Q. Could you take a look at T7049, which 12 is GMR's February 19, 1985 investment presentation 13 of Park 410 West? 14 A. 7049? 15 Q. 7049. It was used yesterday with you, 16 and it is at Tab 635. 17 A. 86305? 18 Q. I'm sorry, sir. It's Exhibit T7049, 19 which is also known as Bates No. CN086193. 20 A. Okay. I have that document. 21 Q. Would you turn to Page 18 of the 22 investment presentation, Bates No. CN086223? 7725 1 A. Okay. On Page 18? 2 Q. Page 18. Do you see a paragraph 3 captioned "2.3 equity-predevelopment phase"? 4 A. Yes. 5 Q. What is the significance of that 6 section of this presentation? 7 A. Well, this is a quantification of the 8 equity that would be required in the 9 predevelopment phase. 10 Q. And the predevelopment phase is the 11 same thing as the joint venture phase that began 12 in late March 1985 and continued until the loan 13 closed in April 1986? 14 MR. SCHWARTZ: Excuse me, Your Honor. 15 I believe the joint venture agreement was dated 16 March 3rd, 1985. 17 Q. (BY MR. DUEFFERT) I'll just clarify 18 to say the predevelopment phase is the same thing 19 as the joint venture phase from March 1985 through 20 into 1986? 21 A. Yes. 22 Q. All right. You see the first line item 7726 1 under that caption reads, "The equity required to 2 purchase the property and hold it during the 3 predevelopment phase is as follows: Point 1, upon 4 purchase, letters of credit aggregating $4 5 million." 6 Do you see that? 7 A. Yes. 8 Q. "Point 2, contingently, in March 1986, 9 should the land note interest become payable 10 before the notes are repaid in full, an estimated 11 $4,083,000." 12 A. Yes, I see that. 13 Q. Does that refresh your recollection 14 that if refinancing the joint venture was not 15 accomplished by March 31st, 1986, the venturers 16 would become liable for an interest payment in 17 excess of $4 million? 18 A. Yes, I believe that's correct. 19 Q. And it was a non-recourse note, 20 correct? 21 A. Yes, that's correct. 22 Q. Was that point significant in wanting 7727 1 to close the refinancing of the joint venture on 2 or before March 31st, 1986? 3 A. Well, yes. Certainly it was 4 significant. However, you'll see in the note that 5 follows that, the interest due on December 31, 6 '85, would be 3 million 18. So, you really 7 shouldn't be looking at the -- if you want to 8 quantify this, you really shouldn't be looking at 9 the 4-million-dollar number. I mean, if you 10 wanted to look at the difference between closing 11 on March 31st or the difference of '86 versus the 12 closing on December 31st, '85, the difference is 13 not $4 million. 14 Q. But that only happens if the interest 15 is prepaid on December 31st, 1985, correct? 16 A. Prepaid or repaid? 17 Q. Prepaid. 18 A. Repaid. 19 Q. The interest did not become due until 20 March 31st, 1986, correct? 21 A. Well, I can't tell that from here. 22 The -- you are asking me if we didn't close the 7728 1 loan on March 31st, did we have to come up with 2 the $4 million? Is that what you're asking me? 3 MR. SCHWARTZ: Your Honor, perhaps it 4 would be useful to show the witness the original 5 note rather than going through the investment 6 presentation, but show the witness the Alamo note. 7 MR. DUEFFERT: Your Honor, perhaps I 8 don't need to take this witness and twist his arm. 9 I would like to instead return to the prior 10 exhibit. 11 MR. SCHWARTZ: I move to strike 12 counsel's comments regarding twisting the witness' 13 arm. 14 THE COURT: Sustained. 15 Q. (BY MR. DUEFFERT) We are back at the 16 June 27th, 1985 file note. 17 A. Okay. 18 Q. Why was the making of the first 19 interest payment under the note on or before -- 20 I'm sorry. Strike that. 21 Why was it the foremost priority of the 22 joint venturers, as of June 1985, to refinance 7729 1 both -- the land note before it became due on 2 March 31st, 1986? 3 A. Primarily, it would save money. 4 Q. And given what I've shown you, do you 5 have a sense of how much money? 6 A. Somewhere in the neighborhood of 7 $1 million. 8 Q. And would that affect the feasibility 9 and profitability of the Park 410 project? 10 MR. SCHWARTZ: Objection, Your Honor. 11 At what point in time are you referring to? 12 Q. (BY MR. DUEFFERT) Looking at it from 13 June 1985. 14 A. Both the feasibility and the 15 profitability is the question? In terms of 16 feasibility -- well, it certainly affects the 17 profitability. In terms of the feasibility, it 18 was not material. 19 Q. Why was it not material? 20 A. Well, it's a fraction of the overall 21 deal. You're talking about the feasibility of 22 moving forward with the project. It was still 7730 1 feasible. 2 Q. Did you determine by your own internal 3 analyses whether or not the project would be 4 feasible? 5 A. Yeah. That was the continuous purpose 6 of the pro formas and all that other work. 7 Q. And that was -- a lot of that was your 8 work. Right? 9 A. Yes. 10 Q. What -- I'd like to get a better sense 11 of your background that you brought to that work. 12 A. Okay. 13 Q. You said you graduated from college. 14 A. Uh-huh. (Witness nods head 15 affirmatively.) 16 Q. When did you graduate from college? 17 A. In 1969 maybe. '69, something like 18 that. 19 Q. What college? 20 A. University of Arizona. 21 Q. What did you -- did you get any -- did 22 you attend any education beyond that? 7731 1 A. Yes. I had some graduate courses in 2 urban planning. 3 Q. Before -- when did you join GMR? 4 A. 1984. Probably '84. 5 Q. What had you done prior to that? 6 A. Well, in Arizona, I was a project 7 manager for a construction company. In Pakistan, 8 I was the project coordinator for a model village. 9 Subsequently, I went to work for Insha Company, 10 which is property management company. And then 11 subsequent to that, went to work for GMR. 12 Q. And why did you come to work for GMR in 13 San Antonio? 14 A. Well, at first, it was in Dallas. But 15 the business of Insha Company had been folded up, 16 and some of those assets shifted to GMR or the 17 management of those assets shifted to GMR. 18 Q. With regard to the various properties 19 in Arizona and Pakistan in which you've been a 20 project manager, had you ever made any equity 21 investments in those projects? 22 A. Personally? 7732 1 Q. Yes. 2 A. No. 3 Q. Where was the Insha Company? 4 A. In San Antonio. 5 Q. And when did you first move to San 6 Antonio? 7 A. It would have been '82. '82 or '83. 8 Q. And what property did you manage for 9 the Insha Company? 10 A. Managed an assembly of property on the 11 River Walk downtown for future hotel, retail 12 development. Managed other land acquisitions and 13 dispositions in San Antonio. 14 Q. And where had you lived before you came 15 to San Antonio? 16 A. Tucson, Arizona. 17 Q. When you first joined GMR, what was 18 your title and job responsibilities? 19 A. I don't know if I recall the specific 20 title, but I was project manager responsible for 21 the acquisition and disposition of assets in 22 San Antonio. 7733 1 Q. And when you joined GMR, did it have 2 any equity interest in Park 410? 3 A. No. Park 410 West wasn't -- at the 4 time I joined, I don't think we even knew about it 5 at that point. 6 Q. What properties in San Antonio were you 7 affiliated with? 8 A. One of them was that assemblage I 9 talked about in downtown San Antonio called Market 10 Street Investment Company, which was a large 11 assemblage of land on the River Walk and adjacent 12 property. There was property on I-10 which was 13 raw land. There was the -- what was known as the 14 Winn Ranch property out 281. Those would be the 15 major ones. 16 Q. And what work did you do as a project 17 manager for those properties? 18 A. Well, I was in charge of budgets and 19 cost control, in charge of all predevelopment and 20 related technical aspects, in charge of 21 coordinating the marketing. Virtually anything 22 having to do with the management of the 7734 1 properties, I would have the front-line 2 responsibility for. 3 Q. Do you know how GMR first became 4 involved in the Park 410 property? 5 A. Yes. 6 Q. Could you explain? 7 A. It was presented to us by our broker, 8 John Grieshaber. 9 Q. What do you mean, "presented to you"? 10 A. The property was for sale. John had 11 the presentation and presented it to GMR and said, 12 "Have a look." 13 Q. And GMR at that point was you and other 14 people. Right? 15 A. Well, I was low man on the totem pole. 16 I mean, it was -- we had a substantial office in 17 Dallas. 18 Q. How many people worked in Dallas? 19 A. Well, with the managers and the 20 secretaries, maybe ten people. 21 Q. Why do you identify yourself as low man 22 on the totem pole? 7735 1 A. I was the last one on board. 2 Q. Explain. 3 A. Well, everybody else there at GMR had 4 been there for, you know, several years, had been 5 involved in those businesses. And I was the last 6 one there. I was the one that, in terms of 7 San Antonio assets -- I did all of the leg work, 8 all of the due diligence, the nitty-gritty basic 9 stuff that needs to be done when you're managing 10 and developing properties. 11 Q. Was Mr. Grieshaber a prominent and 12 successful broker of commercial real estate in 13 San Antonio at that time? 14 A. Yes. 15 Q. Who did he make a presentation to 16 regarding Park 410, or who did he deal with at 17 your office? 18 A. Well, the primary person would be Noel 19 Simpson. 20 Q. And who was Noel Simpson? 21 A. Noel Simpson was the president and 22 chief operating officer of Gulf Management 7736 1 Resources. 2 Q. And he was based in Dallas? 3 A. Yes. 4 Q. Who else worked with you at that point 5 in San Antonio? 6 A. Well, at that point, I was commuting to 7 Dallas. There was no San Antonio office. 8 Q. Who was Lee Ferris? 9 A. I think Lee Ferris came along after 10 that, actually. He was a fellow who worked for 11 Lincoln Property Companies. His background is 12 accounting. And he was also located in Dallas. 13 Q. Who was your supervisor at the time? 14 A. Mr. Simpson. 15 Q. Do you have any understanding as to 16 what happened with relation to GMR's interest in 17 the Park 410 property after Mr. Grieshaber first 18 presented it as an idea to Mr. Simpson? 19 A. I'm sorry. 20 Q. What happened after Mr. Grieshaber 21 presented Park 410 as an opportunity to Noel 22 Simpson? 7737 1 A. Well, it looked like something we 2 should have a better look at. We had just done 3 the Crown Meadows development in the neighborhood; 4 and it was basically a Crown Meadows development, 5 as we looked at it, times four. It was about four 6 times larger. 7 Q. Did you feel that the development was 8 well situated in San Antonio? 9 A. The location was excellent. 10 Q. Why? 11 A. It was on Loop 410, primary business 12 loop in San Antonio. It was in the northwest 13 portion of San Antonio, which is viewed as the 14 real up and coming growth area at the time. And 15 we also had the proposed 151 freeway that would 16 have made it at the intersection of two major 17 freeways in town. 18 So, it was location, location, 19 location. 20 Q. Did GMR eventually buy the property or 21 obtain an equity stake in it? 22 A. Yes. 7738 1 Q. How did that happen? 2 A. Well, that became the Park 410 West 3 Joint Venture. And that included the GMR 4 investors: Stanley Rosenberg and John Grieshaber. 5 Q. If you could turn back for a minute to 6 Exhibit B466. I'm sorry. T7049, which is the 7 February 19th, 1985 investment presentation by 8 GMR. 9 A. 7049? 10 Q. Right. 11 A. Okay. 12 Q. Mr. White, at the point that investment 13 presentation was created by GMR, Mr. Rosenberg 14 wasn't yet involved as an equity participant in 15 the venture, was he? 16 A. February 1985. No, there was no joint 17 venture at that point. 18 Q. So, what was -- before the joint 19 venture was formed, what was GMR's affiliation 20 with the property? 21 A. Prospective purchaser. 22 Q. And what was the purpose of this 7739 1 document that's been labeled T7049? 2 A. To syndicate the equity necessary to 3 purchase the property. 4 Q. And how much equity was needed? 5 A. I believe it's that 4-million-dollar 6 number, but I'd have to read this to be absolutely 7 sure. Yeah. "The purchase contract provides for 8 one or more letters of credit aggregating $4 9 million at CN086225. 10 Q. Looking at the budget on Page 13 of the 11 presentation? 12 A. Yes. 13 Q. Total costs are listed as $64,832,000. 14 Do you see that? 15 A. Yes. 16 Q. Why weren't you seeking at that point 17 to raise all $64,832,000? 18 A. Well, we were. We were seeking to 19 purchase the property, part of which would be 20 equity, part of which would be a loan. 21 Q. Would the loan that you were seeking at 22 this point in time, February 1985, fund the full 7740 1 development of the property? 2 A. No. This was just a land purchase. 3 Q. And so, this budget set forth on 4 Page 13 is the budget you contemplate having after 5 a development loan in place. Right? 6 A. Yes. That would be correct, because it 7 includes the infrastructure and financing charges 8 here. 9 Q. If you would turn to Page 19. 10 A. Okay. 11 Q. See in Paragraph 2.4.1, it states, 12 "IPIC and its partners shall collaborate to raise 13 from other investors the difference between their 14 total initial equity, $4 million, and the total 15 required in order to raise development loan 16 finance." 17 Do you see that? 18 A. Yes. 19 Q. Who was IPIC at that time? 20 A. IPIC is the International Property 21 Investment Company, which was the parent of GMR. 22 Q. And so, in these documents, is IPIC and 7741 1 GMR, for financing purposes, roughly 2 interchangeable? 3 A. Well, roughly, yes. 4 Q. But GMR was a management company for 5 the property. Right? 6 A. GMR was the management company. 7 Q. And IPIC owned GMR? 8 A. Yes. 9 Q. Now, on Page 6 of the document -- 10 A. Yes. 11 Q. -- the bullet point I think five down 12 from the top talks about a company called Newco. 13 Is that what eventually became the Park 14 410 West Joint Venture? 15 A. That's correct. 16 Q. Okay. And it refers to IPIC and its 17 partner. 18 Do you see that? 19 A. Yes. 20 Q. Would IPIC's partner eventually become 21 Stanley Rosenberg? 22 A. Yes. 7742 1 Q. Towards the bottom, it talks about 2 "achieving the objective set forth on that page 3 within the shortest feasible time scale 4 commensurate with energetic management and 5 marketing, market conditions, and early return of 6 invested equity and realizing acceptable levels of 7 profit." 8 Do you see that? 9 A. Yes. 10 Q. Is it your testimony that you and your 11 colleagues at GMR made a practice of paying close 12 attention to market conditions? 13 A. Yes. 14 Q. And you also had an ongoing process of 15 making sure that you were going to realize 16 acceptable levels of profit? 17 A. Yes. 18 Q. Page 14. Look at point -- Paragraph 19 1.4.5. You foresee or project a severe downside 20 scenario. Right? 21 A. Yes. 22 Q. Why would you talk about a severe 7743 1 downside scenario in a presentation such as 2 Exhibit T7049? 3 A. Well, you have to understand, this is 4 an investment presentation going to people who 5 would be considering putting their cash into the 6 deal. One of the questions that they would always 7 ask is: "What's the downside?" 8 Q. And as of February 1985, did that 9 paragraph reference your best judgment as to what 10 a downside would look like? 11 A. Yes. 12 Q. As of the presentation documents in 13 this package, what size of loan was contemplated 14 in order to begin the full development of the 15 project? 16 A. This would be on the previous page, 17 Page 13? 64 million 832. 18 Q. I think Mr. Schwartz already took you 19 through the pro formas that are attached at 20 Appendix F. Just again for the record, does it 21 sound right that your conclusion of the total 22 resale proceeds of selling off the developed 7744 1 tracts would be $114,731,000? That's at Bates 2 No. CN086321. 3 A. Yes, that's correct. 114,731,000. 4 MR. DUEFFERT: One moment, Your Honor. 5 Q. (BY MR. DUEFFERT) Could we have 6 Exhibit 7084, please? 7 A. Okay. The Schulz appraisal? 8 Q. Yes. 9 MR. DUEFFERT: Just for the record, 10 this is located at Tab 709. 11 Q. (BY MR. DUEFFERT) This is, I believe, 12 the appraisal dated March 19, 1986, on the 13 property that was addressed to Mr. David Graham? 14 A. That's correct. 15 Q. I'd ask you to turn to Page -- right 16 after Page 49 of the document, Bates 17 Nos. OW015468. 18 A. 15468? Okay. 19 Q. First off, as of February 1985 -- 20 Mr. White? 21 A. I'm sorry. 22 Q. As of February 1985, the projections 7745 1 that are appended to your investment presentation, 2 did they reflect your best judgment as to the 3 potential cost expenses and profit associated with 4 the Park 410 West project? 5 A. Yeah. The best estimates at that time, 6 yes. 7 Q. And no one twisted your arm to change 8 any numbers in here, did they? 9 A. No. 10 Q. And your bottom line was that the total 11 retail value of the property would be 12 $114,731,000, correct? 13 A. That's correct. 14 Q. If you look at Mr. Schulz' 1986 15 appraisal, the page that identified previously 16 right after Page 49, the table, the first line 17 lists his present retail value for the property. 18 A. Okay. 19 Q. What retail value did Mr. Schulz 20 conclude in 1986 for the Park 410 West property? 21 A. 110 million. 22 Q. That's a lower number than your number 7746 1 from February 1985. Right? 2 MR. SCHWARTZ: Objection. Your Honor, 3 Mr. Dueffert, I believe, is comparing apples and 4 originals. One is a present value, not a gross 5 sales price. 6 THE WITNESS: This is a discounted cash 7 flow analysis. 8 Q. (BY MR. DUEFFERT) Is that the 9 discounted number? 10 A. Well, I'd have to add those up. Have 11 you added the gross sales across there on that 12 line? 13 Q. I'm looking at the top line of the 14 chart: Present retail value. 15 A. Uh-huh. (Witness nods head 16 affirmatively.) 17 MR. SCHWARTZ: Your Honor, I believe 18 the question was regarding the gross -- the total 19 gross sales which, if you look across the line 20 that's labeled "gross sales" and add up those 21 numbers for each period, it comes to a little over 22 $124 million. 7747 1 THE WITNESS: That's my question. Are 2 you on the same page here? 3 THE COURT: Yes. 4 THE WITNESS: If you look, you see 5 gross sales number. It's not added up here. But 6 in order to compare the apples to apples, you 7 should add that line. 8 Q. (BY MR. DUEFFERT) Do you see that 9 Mr. Schulz employs a discount rate of 13 percent? 10 A. Yes. That's what's indicated here. 11 Q. Do you recall that you testified that 12 you moved certain sales projections from one 13 period to the next in order to create a higher 14 appreciation for those properties? 15 A. That's correct. 16 Q. If you're using a discount rate of 17 13 percent for purposes of arriving at an 18 appraisal value and your appreciation rate that 19 you used for your projections is 5 or 20 10 percent -- 21 A. Per period. 22 Q. Right. 7748 1 A. Per six-month period. 2 Q. -- would advancing the number into a 3 subsequent period result in a lower or a higher 4 value conclusion, assuming a 13 percent discount 5 rate? 6 A. Well, my pro forma analysis didn't 7 employ a discount rate. This one does. 8 Q. Correct. But if you aren't using a 9 discount rate, pushing the numbers forward can 10 result in a lower value conclusion. Correct? 11 A. Well, this is compounded now. You've 12 got 5 percent and then you add another 5 percent. 13 It's going to end up being about the same. If you 14 escalate it and then discount it, you're going to 15 be about the same. 16 Q. Could we have T7180, please? 17 A. Do I have that? 18 Q. No. I think that's a new exhibit. Do 19 you recognize this document? 20 A. Yes. It's a file note of a meeting 21 generated by me. 22 MR. SCHWARTZ: Just so the record is 7749 1 clear, I think this is part of the composite 2 exhibit that you admitted with Mister -- during 3 Mr. Graham's testimony. It was B577, I believe. 4 THE WITNESS: 466? 5 MR. SCHWARTZ: Yeah. 466. 6 MR. DUEFFERT: Do you have any 7 objection to us putting this in separately? It's 8 one of your exhibits, T7180. 9 MR. SCHWARTZ: It was one of our 10 exhibits and then we didn't admit it. You 11 admitted that one. It's now part of that one. I 12 don't know that we need a duplicate of it unless 13 there is some reason for having a duplicate of the 14 same document in the file. And actually, the one 15 that was admitted in B466, I believe, is on 16 Mr. Gindy's letterhead. 17 Q. (BY MR. DUEFFERT) Who was Mr. Kenneth 18 Gindy? 19 A. He was the attorney for Gulf 20 Management. 21 Q. Was he an investor in the project? 22 A. No. 7750 1 Q. How did he come to become an attorney 2 for Gulf Management? 3 A. He had been the attorney for Gulf 4 Management for quite some time when I came on 5 board there. 6 Q. How long would "quite some time" be? 7 A. I couldn't say specifically. He was 8 the attorney at least since, like, 1982 or 9 previous, I would say. 10 Q. Would you turn to Page -- I'm sorry. 11 Since we have to find it, it is located in 12 Exhibit B466. 13 A. Okay. 14 Q. It's in the compilation -- 15 A. How far down? 16 Q. I'd say about a third of the way down. 17 It has the cover letter from Mr. Gindy. It's 18 dated May 6, 1985, on the cover letter and the 19 file note is dated April 25th, 1985. 20 A. OW166533? 21 Q. A little bit -- 22 Q. No. That's the letter from Mister -- 7751 1 I'm sorry. What were the dates again? 2 Q. The date on the file note is 3 April 25th, 1985. 4 A. These things aren't in chronological 5 order. Here we are. April 25th, '85? 6 Q. Correct. 7 A. Okay. 8 Q. If you look at Page 3 of the file note, 9 it speaks of Northwest Expressway ROW dedication. 10 Do you see that? 11 A. Yes. 12 Q. Explain the work that you were doing 13 with regard to the Northwest Expressway at that 14 time. 15 A. Well, the "ROW" stands for 16 right-of-way. Dedication, what we are doing here 17 is to determine exactly how much -- how many acres 18 of the Park 410 West property would need to be 19 donated for the freeway. 20 Q. Was that a substantial portion of your 21 work in 1985? 22 A. Well, I don't know if I could say 7752 1 "substantial." It was certainly part of my work. 2 Q. Did you keep Mr. Gindy and United 3 advised of the progress made with regard to the 4 Northwest Expressway? 5 A. Certainly. 6 Q. Was Mr. Gindy at that time engaged in a 7 lot of work on easements? 8 A. You're referring to the easement 9 clarification agreement? 10 Q. Yes. 11 A. Yes. 12 Q. And what was the reason for that work? 13 What was the nature of the agreement and the 14 reason for that work? 15 A. Well, the situation was the neighboring 16 property, Westlakes, had a blanket easement on the 17 property which would -- which meant that they 18 could determine rights-of-way for various 19 easements for utilities and other infrastructure 20 that would be required to service their property. 21 And such a blanket easement would be onerous to 22 any prospective purchasers of the parcels. 7753 1 Q. Did the nature of the development plans 2 for the Park 410 property change at all between 3 February 1985 and August 1985? 4 A. Excuse me. The nature of what now? 5 Q. The nature of the development plans for 6 the property, did they change during 1985? 7 A. Not -- I would say not substantially. 8 I mean, the nature -- the intent on the purchase 9 of the property was to develop it and sell it off 10 in tracts, and that remained the same. 11 Q. As far as the physical layout of the 12 tracts and the engineering that would have to go 13 in and the drainage, the easement issues, was all 14 of that evolving during 1985? 15 A. Yes, because we had the right-of-way 16 dedication. We had the swap tract with Gil. We 17 had the easement clarification. 18 Q. What was the dedication of the 19 right-of-way? 20 A. Well, that was the land the State 21 needed in order to build this freeway. 22 Q. And did you anticipate that the 7754 1 freeway, in fact, would be completed by 1987? 2 A. The freeway itself or the main lanes? 3 Q. The access roads. Let's try that. 4 A. I mean, the main lanes for the freeway 5 were off in the distance. What we were 6 contributing was the right-of-way, as well as the 7 cost of constructing the access roads. 8 Q. And did you anticipate that the access 9 roads would be opened by 1987 or 1988? 10 A. Yes. Yeah. Around that date. 11 Q. And what was the basis for your belief 12 in that regard? 13 A. Well, there was a whole package being 14 put together here. Part of it was the 151 15 freeway. The other part was securing Sea World in 16 that location. The freeway became important to 17 the location of Sea World in that location. And 18 so, the purpose of dedicating that right-of-way 19 was to ensure that the freeway actually happened. 20 Q. As of the summer of '85, how much 21 equity did GMR have in the Park 410 West Joint 22 Venture? 7755 1 A. Let's see. We're now in the -- 2 Q. During the joint venture but before the 3 loan. Summer of '85. 4 A. I believe -- I mean, just off the top 5 of my head, I think the number is 2 million 6 because I think that -- or maybe a little less 7 than 2 million. Stanley had 50 percent, and then 8 we had, like, 46 percent. And Grieshaber's 9 investment entity had the rest of that. 10 Q. How did Mr. Grieshaber come to have an 11 equity interest in the property? 12 A. In lieu of commissions. 13 Q. So, when he -- when did 14 Mr. Grieshaber's firm earn those commissions? 15 A. Well, he earned part of them on the 16 closing of the land purchase with Alamo. That was 17 a transaction, selling it from Alamo and 18 McClintick to the joint venture. 19 So, I believe that the way it worked is 20 that instead of him receiving the full commission 21 on that, he put some of that money into the deal. 22 Q. And do you recall how much money that 7756 1 was? 2 A. Not without looking at some documents. 3 Q. Could we turn next to A10289, which is 4 the October 7, 1985 GMR application to Park 410 5 West? 6 A. And do I have it? 7 Q. I think that should be in front of you. 8 A. Oh, this is the investment 9 presentation? 10 Q. This is the loan application. 11 A. And it begins with "A," not "T"? 12 Q. You may have it at T7071. It's a large 13 document. 14 A. 70 -- okay. 15 MR. DUEFFERT: I understand that this 16 document is in the record at Tab 770. 17 Q. (BY MR. DUEFFERT) What was the 18 purpose of this document? 19 A. To provide the information that -- I 20 mean, it's a loan application. It has the -- 21 hopefully all the information or at least the 22 beginning part of the information that the lender 7757 1 would need in order to evaluate the project. 2 Q. And what work -- strike that. 3 How long did it take to prepare this 4 document? 5 A. Well, we started shortly after closing 6 the land deal. So, it would be basically from 7 April through October. 8 Q. Was the actual loan application to 9 United something more substantial than this? 10 A. Well, there are -- there should have 11 been exhibits, annexes. You'll see in the 12 contents, there are Annexes A through H. 13 Q. Could you identify those annexes for 14 the record? 15 A. The financial schedules, the survey, 16 area computations, Pape-Dawson's engineering 17 report, the description of the IPIC group of 18 companies, the marketing report, utilities and 19 drainage report, zoning map, and the letter from 20 H.B. Zachry. Some of those may actually be in 21 this document. 22 Q. Annex E of the loan application was the 7758 1 Tremar report that Mr. Schwartz asked you about. 2 Right? 3 A. Yes. 4 Q. Was that a report that Mr. Graham 5 either requested or ordered you to prepare? 6 A. I don't know if -- to my knowledge, I 7 really can't tell you if Mr. Graham specifically 8 requested that marketing report. I can't tell you 9 whether he did or he didn't. 10 Q. I thought you said this morning that it 11 was something that was created to paper a file. 12 Are you now saying that you don't recall if 13 Mr. Graham asked you to create it or order it or 14 commission it? 15 A. I can't say specifically that he 16 ordered it. I mean, certainly when you're doing 17 a -- when you're doing a loan of this size, the 18 first question a lender -- or one of the first 19 questions a lender should be asking is how you're 20 going to get rid of it, how you're going to sell 21 it. 22 So, in that respect, a marketing report 7759 1 is -- needs to be in it and it needs to become a 2 part of the file. 3 Q. And that happened. Right? 4 A. Yes. 5 Q. Did your firm review the information in 6 the Tremar report? 7 A. Yes. 8 Q. Why? 9 A. You're asking me why we read it? 10 Q. Yeah. 11 A. To see what's in there. 12 Q. Do you recall if you learned anything 13 from it? 14 A. I'm sure I did. I mean, I'd have to 15 read it again if you want me to tell you what I 16 learned. 17 Q. Do you know if the underwriters at 18 United looked at it? 19 A. I mean, I can't say that they actually 20 read it. I know they got it. It was available to 21 them. It was part of the loan application. They 22 should have, if they didn't. 7760 1 Q. But you don't know. Right? 2 A. Do I know for certain? No. 3 Q. Do you know at all? 4 A. Do I know if they read it? No, I can't 5 say that they actually -- somebody at United must 6 have read it. 7 Q. Well, if your firm studied it -- and 8 regardless of what United did with it -- why do 9 you call it papering a file? 10 A. Well, I mean, the -- part of the -- 11 MR. SCHWARTZ: Your Honor, if I may, I 12 think it's appropriate at this point to have the 13 witness have the document in front of him that's 14 being referred to rather than just talking about 15 something that he -- that he's already said he 16 doesn't recall. I believe it was Exhibit 7127, 17 and it should be in front of him. 18 THE COURT: I thought it was in front 19 of him. 20 THE WITNESS: I have it here now. 21 MR. SCHWARTZ: Okay. 22 THE WITNESS: Okay. Where are we going 7761 1 with this now? 2 Q. (BY MR. DUEFFERT) I actually will 3 withdraw the question. 4 If you could turn to Page 16 of the 5 loan application. Before I ask you a question 6 about that, do you recall that there was a 7 preparation at the Argyle Restaurant regarding 8 this property at some point? 9 A. Yes. 10 Q. Was that at or around the time of this 11 application? 12 A. I presume so. I mean, I can't give you 13 the specific date it occurred. 14 Q. Looking at Page 16 at the top, it 15 states at 5.1, "Love & Dugger of San Antonio have 16 been instructed to appraise the property upon two 17 bases: As is, i.e., upon the retail method of 18 valuation and, two, on the discounted market value 19 basis R-41B." 20 Do you see that? 21 A. Yes. 22 Q. Does that accurately reflect the 7762 1 assignment you gave to Love & Dugger? 2 A. Yes. 3 Q. What was your understanding at that 4 point as to what an R-41B appraisal was? 5 A. Well, the R-41B appraisal was the -- 6 contained the requirements that the government had 7 for an appraisal of the property on which to -- on 8 which they could base their loan. It contains 9 requirements for your detailed lot-by-lot 10 analysis, provisions for discounting, provisions 11 for developer's profit, other requirements that 12 the government had set forth for a standard 13 appraisal that the lender would need to have in 14 order to make the loan. 15 Q. Who told you that the appraisal should 16 comport with Memorandum R-41B? 17 A. Who told me that? 18 Q. Well, unless you just asked for it 19 automatically. 20 A. Well, I mean, this was -- the lender 21 had to have it. I mean, I don't know whether it 22 would be Mr. Rosenberg or Mr. Simpson or 7763 1 Mr. Gindy. I mean, it was standard procedure. If 2 you had been involved in any real estate loans, 3 this was a requirement of the government. It 4 wasn't secret. Everybody knew that if you were 5 going to get a loan, you would have to have one of 6 these documents. 7 Q. Would you turn to Page 17? It's the 8 next page. 9 A. Okay. 10 Q. There is a description of you towards 11 the end of Subsection 6.2. What does it mean here 12 in indicating that you had executive authority 13 over the San Antonio area? 14 A. Well, it means that I could make some 15 decisions regarding property. I mean, "executive" 16 here is somebody who, you know, takes action and 17 does things. I had authority to go out and do the 18 due diligence, prepare the financial schedules, 19 those sorts of things. 20 Q. Turn to the next page. There is a 21 section at the top devoted to Tremar Real Estate 22 Research, Inc. 7764 1 Do you see that? 2 A. Yes. 3 Q. Last line says "The firm enjoys a high 4 reputation for the quality and professionalism of 5 its services." 6 Was that a fair statement at the time? 7 A. Yes. 8 Q. What was your basis for making that 9 statement? 10 A. Well, their reputation in the community 11 was that they did good work and that they had done 12 similar work for other lending institutions. 13 Q. The Tremar report was a study of the 14 entire proposed development, correct? 15 A. Of the development and of the 16 surrounding area, yes. 17 Q. And it addressed the various uses to 18 which the Park 410 development would be put at 19 that time. Right? 20 A. Yes, I believe so. 21 Q. Mr. Schwartz asked you about a 1987 22 study. 7765 1 A. The Pilko study? 2 Q. The Pilko study. And that was targeted 3 at a single industry. Right? 4 A. That's correct. 5 Q. When you were looking at this project 6 in late 1985, were you planning on targeting any 7 particular lots at the electronics industry? 8 A. Well, we had -- you know, basically 9 those interior tracts on the property in that B-2 10 zone and some of that in the I-1 zone would be 11 areas that your electronics and related research 12 and development industries could logically go to. 13 That's part of the reason why the zoning was 14 created in that way. 15 Q. Were you planning to put any 16 manufacturing in the property? 17 A. Well, that's why we had some I-1 18 designation. Light industrial was certainly a 19 possibility. I mean, light non-polluting industry 20 would be compatible with the development. 21 Q. Lower on Page 17, it indicates that you 22 had outside auditors, Ernst & Whinney. 7766 1 Is that accurate? 2 A. Yes. 3 Q. Did you work with the auditors? 4 A. No. 5 Q. If you could, turn in this document 6 past the tables to the beginning of Annex A, Part 7 2. I think it bears the Bates No. OW013431. 8 A. 13431. I have it. 9 Q. You see there is provisions -- Notes 8 10 through 11 make references to various legal fees 11 and expenses. Do you see that? 12 A. Yes. 13 Q. Did your company incur legal fees in 14 connection with conveyance of land to development 15 venture, formation of development venture, general 16 contractor contract, easements, zoning matters, 17 dedesignation and annexation procedures, 18 development venture administration, tax counsel, 19 owner's association, miscellaneous, and 20 preparation of a loan agreement? 21 MR. SCHWARTZ: Objection. Did you ask 22 him: "Did your company incur?" Did you mean to 7767 1 say "did the joint venture"? 2 Q. (BY MR. DUEFFERT) I asked "Did your 3 company," but I will amend it to say: Did the 4 joint venture incur all of those expenses? Did 5 they incur legal fees and expenses in connection 6 with all of those items? 7 A. You mean subsequent to this? I mean, 8 this is a projection here. Right? This is not a 9 list of actual expenses. This is a list of 10 projected expenses. 11 Q. I apologize. You're correct. Did 12 the -- to your knowledge, was there anything false 13 in this loan application? 14 A. No. I mean, it was the best 15 representation of what we could identify as cost 16 and revenues. 17 Q. And that includes the pro formas that 18 are part of the application? 19 A. Yes. 20 Q. Did you have discussions with 21 Mr. Graham prior to October 7, 1985, as to exactly 22 what number should be contained in the pro formas 7768 1 and projections? 2 A. Prior to October 7, 1985? 3 Q. Correct. 4 A. I'm sure by that point we had had 5 discussions with United in terms of what they 6 needed to have in order to make the loan. 7 Q. You mean what documentation they needed 8 to have? 9 A. Yes. 10 Q. Could we have Exhibit T7338? 11 A. Is that something I don't have yet? 12 Q. Yes, it is. 13 MR. SCHWARTZ: Your Honor, I do believe 14 Exhibit T7338 was admitted earlier today. I 15 believe it was admitted after the lunch break. 16 MR. DUEFFERT: It was. 17 Q. (BY MR. DUEFFERT) There is a 18 reference at the bottom of the page to "finalizing 19 loan applications for presentation to backup 20 lenders as discussed." 21 Do you see that? 22 A. We are on Page 2? 7769 1 Q. No. At the bottom of the first page of 2 the exhibit. 3 A. And we're at CN088976? 4 Q. Correct. See the last line of the 5 first page, the last -- 6 A. "These incorporate the changes listed 7 above, plus an increase in the land purchase 8 budget of $1 million"? 9 Q. Try the last full line. 10 A. "We are now finalizing further loan 11 applications for presentation to backup lenders as 12 discussed"? 13 Q. Correct. 14 A. Oh, okay. 15 Q. Who were the backup lenders that are 16 referenced in that passage? Do you recall? 17 A. Well, that would be the -- this list of 18 lenders that we reviewed in Exhibit T7182. 19 Gibraltar, Western, First Texas, Commonwealth, 20 SASA. That list. It's perhaps a stretch to say 21 they were backup. 22 Q. Why do you say that? 7770 1 A. Well, because realistically, the -- by 2 this time -- I mean, we were working hard to find 3 a backup lender. 4 Q. And -- 5 A. That we actually had a backup lender 6 is -- I mean, we didn't have one at that point. 7 Q. And if you go back to 7182, which is 8 the November 12th, 1985 memorandum from Noel 9 Simpson to Mr. Gindy and Mr. Grieshaber -- 10 A. Yes. 11 Q. -- do you recall if -- looking at the 12 top five names of banks: Gibraltar, Western, 13 First Texas, Commonwealth, and SASA. First off, 14 were all of those institutions of a size similar 15 to United? 16 A. Oh, I don't know what the net worth of 17 all these were. I mean, I simply don't know. 18 Q. Do you know if any of them were too 19 small to realistically contemplate a development 20 loan large enough to help build Park 410? 21 A. I really don't know. 22 Q. What does it indicate at 1.3, "First 7771 1 Texas - KG already done. Receptive." 2 A. That means that Ken Gindy had already 3 talked to them and there was an initial indication 4 that -- I mean, at least they didn't say no 5 outright. 6 Q. Gibraltar -- do you recall if Gibraltar 7 expressed any interest at all in funding the 8 venture? 9 A. I think Gibraltar actually -- I think 10 we did actually get some kind of memorandum or 11 something from Gibraltar indicating the terms 12 under which they might make the loan. 13 Q. Looking at the names in Section 2, 14 would all of those entities have been as familiar 15 with San Antonio as United was? 16 MR. SCHWARTZ: Objection. Lacks 17 foundation. I don't know that there has been 18 anything established about United's familiarity 19 with San Antonio. 20 MR. DUEFFERT: Your Honor? 21 THE COURT: It seems like there is an 22 objection, unless you know something about 7772 1 United's familiarity of San Antonio. Do you? 2 Q. (BY MR. DUEFFERT) Do you have any 3 opinion in that regard? 4 A. I think United had a ranch in 5 San Antonio at that time. I believe they did. 6 Q. Could you take a look at Exhibit T7183, 7 which was also discussed with you this morning 8 with Mr. Schwartz. 9 A. T7183 now? Is that a big one or a 10 little one? 11 Q. It's a little one. It is a November 12 15th, 1985 letter from Noel Simpson to Stanley 13 Rosenberg and John Grieshaber. 14 A. Okay. That will help. Oh, okay. Yes. 15 Q. I think you testified that Mr. Dick 16 Stahl was also attempting to assist the joint 17 venture in obtaining financing for the project, 18 correct? 19 A. Yes. 20 Q. If you look at the terms on Page 2, it 21 appears that he was going to propose a structure 22 in which the borrowers would pledge nothing by way 7773 1 of collateral. 2 Do you see that? 3 A. In No. 2? 100 percent of development 4 costs? 5 Q. Yes. And then going down below it, I 6 think it says "No guaranties, no collateral. 7 A. "No personal endorsements or recourses 8 joint venture, no requirement for additional 9 collateral." 10 Q. So, was Mr. Stahl proposing a structure 11 under which there would be no recourse to the 12 borrowers whether by means of guaranties or equity 13 or anything else? 14 A. Well, this document was created as a -- 15 I guess you would call it a letter of instruction 16 to Mr. Stahl to -- that he could represent the 17 Park 410 West Joint Venture to the extent of 18 trying to seek a loan based on these terms. 19 Q. And he did not succeed, correct? 20 A. That's correct. 21 Q. Did the structure that was eventually 22 used by the borrowers and United in 1986, did that 7774 1 contain any recourse to any assets of the 2 borrowers? 3 A. To the letters of credit. There was -- 4 what was it? $10 million plus an additional 5 requirement of some sort to bring it up to 18 6 or -- I'd have to go back and look at that 7 document if you want exact numbers. 8 Q. I don't need exact numbers right now, 9 but you do recall $10 million in letters of 10 credit, correct? 11 A. Yes. And I think there was something 12 beyond that, too, up to 18. 13 Q. Why did the -- well, first off, who put 14 up those letters of credit in 1986? 15 A. This is the loan with United now? 16 Q. Correct. 17 A. Well, it was a combination of -- 18 Mr. Grieshaber had letters of credit. Stanley had 19 letters of credit. And the GMR Group had letters 20 of credit. 21 Q. Did United require those borrowers to 22 post the letters of credit? 7775 1 A. Yes. 2 Q. Do you have any understanding as to 3 why? 4 A. Well, it's typical lender position. 5 They always like to see some equity somewhere, and 6 they weren't in the position or didn't take the 7 position of a totally non-recourse loan. They 8 wanted some cash there that they could get to. 9 Q. And did those letters of credit 10 evidence some commitment by the borrowers to this 11 project and to the property? 12 A. Yeah. No small amount of money. It's 13 $10 million in cash at various lending 14 institutions that had to be there and be on 15 deposit and you couldn't touch it. 16 Q. Did -- was there a negotiation between 17 the joint venture and United over the amount of 18 letters of credit or other collateral that would 19 be required for the loan? 20 A. Was there a negotiation? 21 Q. Yeah. 22 A. I'm sure there was. 7776 1 Q. Did you participate in those 2 negotiations? 3 A. I would have been there. I mean, I 4 would have been there at any meetings. Now, there 5 were probably conversations that took place 6 between Mr. Graham and other people at United with 7 Stanley and other people. But in terms -- if 8 there was any meetings involved, I would have been 9 there. 10 Q. Do you know if Mr. Rosenberg or any of 11 the other joint venturers ever contended that they 12 shouldn't have to put in anything by way of 13 letters of credit or other collateral? 14 A. Well, it would have been nice, yeah. 15 If you can get away without putting up any money, 16 that would be great. 17 Q. Did they argue that position? 18 A. To get to a total non-recourse loan? I 19 mean, they may have; but I would have thought -- I 20 mean, it might have been an opening negotiating 21 position. But I would have thought that anybody 22 would have understood that there would be some 7777 1 equity needed at some point in this deal. 2 Q. Is that -- was the equity something 3 that you recall Mr. Graham or anyone else at 4 United in particular insisting on? 5 A. Well, yeah. I mean, if they didn't 6 insist on it, we weren't volunteering it. 7 Q. Do you recall the date that the Park 8 410 West loan closed in 1986? 9 A. This loan with United? 10 Q. Yeah. 11 A. First week of April. 12 Q. Could we have T7564, please? 13 A. Do I have that? 14 Q. It's already been admitted as A10298, 15 and it's located at Tab 775. 16 Does this appear to you to be a 17 borrower's statement, closing statement for the 18 Park 410 loan? 19 A. You don't have a better copy? This is 20 April 17. 21 Q. For the record, Mr. White -- 22 A. Uh-huh. 7778 1 Q. -- what was the date of closing for the 2 transaction? 3 A. Well, I thought it was the first week 4 of April. 5 Q. It was a little later? 6 A. According to the date on this document. 7 Q. It wasn't on or before March 31st, 8 1986, was it? 9 A. No. It was subsequent to the 31st. 10 MR. DUEFFERT: Your Honor, I think we 11 have further questions for this witness, but it 12 will take a while. So, I would like to break at 13 this point. 14 THE COURT: All right. 15 MR. RINALDI: Your Honor, we have 16 another witness. I was unable to get ahold of 17 Mr. Lovell. He's flying here. And so, keep that 18 in mind in connection with this cross-examination. 19 THE COURT: All right. We'll adjourn 20 until 9:00 o'clock tomorrow. 21 (Whereupon at 4:52 p.m. 22 the proceedings were recessed.) 7779 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 18th 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 7780 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 18th 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