11291 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 12-18-97 22 11292 1 A-P-P-E-A-R-A-N-C-E-S 2 ON BEHALF OF THE AGENCY: 3 KENNETH J. GUIDO, Esquire Special Enforcement Counsel 4 PAUL LEIMAN, Esquire SCOTT SCHWARTZ, Esquire 5 BRUCE RINALDI, Esquire RICHARD STEARNS, Esquire (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 DAVID GRIFFITH, Esquire KATHLEEN KOPP, Esquire 20 of: Mayor, Day, Caldwell & Keeton 1900 NationsBank Center, 700 Louisiana 21 Houston, Texas 77002 (713) 225-7013 22 11293 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 11294 1 2 EXAMINATION INDEX 3 Page 4 JEFFREY SEIDMAN 5 Examination by Mr. Schwartz.............11295 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 11295 1 P-R-O-C-E-E-D-I-N-G-S 2 (9:00 a.m.) 3 THE COURT: Be seated, please. We'll 4 be on the record. 5 Mr. Schwartz. 6 MR. SCHWARTZ: Yes, Your Honor. The 7 Office of Thrift Supervision calls Mr. Jeffrey 8 Seidman. 9 10 JEFFREY SEIDMAN, 11 12 called as a witness and having been first duly 13 sworn, testified as follows: 14 15 THE COURT: Be seated, please. 16 17 EXAMINATION 18 19 20 Q. (BY MR. SCHWARTZ) Good morning, 21 Mr. Seidman. 22 Would you state your full name for the 11296 1 record, please? 2 A. Jeffrey Harold Seidman. 3 Q. And what is your current occupation? 4 A. Mortgage broker. 5 Q. With -- 6 A. Banker. 7 Q. With what company? 8 A. Situs. 9 Q. How long have you been in that 10 position? 11 A. About six months. 12 Q. And prior to that? 13 A. I was formerly employed by Bank United. 14 Q. When did you start your employment with 15 Bank United? Strike that. Let me ask this 16 question. 17 Did -- was Bank United always -- did 18 Bank United always use that name? 19 A. I was employed by Bank United on 20 January 1st, 1989. Prior to that, I was employed 21 by the predecessor, United Savings Association of 22 Texas. 11297 1 Q. And when did you start your employment 2 with United Savings Association of Texas? 3 A. August of '87. Excuse me. 4 Q. And prior to 1987 -- to August of 1987? 5 A. I was a development project manager for 6 Century Development Corporation here in Houston. 7 Q. What is that business? 8 A. Real estate -- commercial real estate 9 development. 10 Q. And how long did you work there? 11 A. Three years. 12 Q. Prior to that? 13 A. I lived in Mobile, Alabama, where I 14 worked in real estate development, single-family 15 subdivisions, commercial development for 16 approximately seven years. 17 Q. And prior to that? 18 A. I lived in New Orleans, Louisiana, and 19 was an officer of a bank holding company called 20 First Commerce Corporation and its subsidiaries: 21 First National Bank of Commerce, First Commerce 22 Real Estate Corporation. I was a secretary of a 11298 1 publicly-owned real estate investment trust that 2 the bank holding company sponsored and an officer 3 of the advisory company that advised the trust. 4 Q. And how long did you hold those 5 positions? 6 A. Approximately six years. 7 Q. And prior to that? 8 A. I was in school. 9 Q. And what degree -- in college? 10 A. I was in graduate school at Tulane 11 University. 12 Q. And what -- did you obtain a graduate 13 degree? 14 A. Yes. 15 Q. In what field? 16 A. Law. 17 Q. And what was your major in college -- 18 did you go immediately from college into law 19 school? 20 A. Yes. I attended the University of 21 Arizona, graduated in 1969 with a BS degree and a 22 major in real estate. 11299 1 Q. At First Commerce, was it? 2 A. Yes. 3 Q. What were your responsibilities in the 4 positions that you held? 5 A. Well, they changed over the course of 6 employment. Starting out as a real estate loan 7 officer generating new loans, managing the bank's 8 real estate that they owned, advising the bank on 9 the creation of an REIT, short-term mortgage 10 trust, and then ultimately it led to the -- in 11 approximately 1976, the trust itself failed. The 12 assets were acquired in foreclosure. I perfected 13 asset swaps with the creditor banks in order to 14 liquidate the debt of the trust and became a 15 workout specialist. 16 Q. What is a workout specialist? 17 A. It's a person who's responsible for 18 handling the delicate transition in a loan that is 19 in potential default or in foreseeable default 20 with the hopes of either restructuring the debt or 21 handling the transition as it goes through the 22 process of debt to ownership through the process 11300 1 of foreclosure or a deed in lieu of foreclosure. 2 Q. Moving to the time that you spent at 3 United Savings Association of Texas, you said that 4 you started there in August of 1987? 5 A. Right. 6 Q. What were you hired to do? 7 A. I was assigned a portfolio of assets. 8 Some were real estate acquired through foreclosure 9 by the bank. Some were joint venture 10 relationships that United Financial Corporation 11 entered into with co-developers. Some were active 12 loans. 13 Generally, I was responsible for the 14 institution's larger assets or more complicated 15 transactions as a result of my background. 16 Q. Who hired you? 17 A. I guess Jenard Gross hired me. 18 Q. And what was your title? 19 A. Initially, it was project manager. 20 Q. And did that change? 21 A. Yes. Well, as the number of foreclosed 22 assets increased and the number of personnel 11301 1 increased as well, I ultimately attained the title 2 of senior asset manager supervising six asset 3 managers underneath me to manage the foreclosed 4 portfolio. 5 Q. Do you know if you replaced someone at 6 United? 7 A. Yes. 8 Q. Who did you replace? 9 A. David Graham. 10 Q. Did Mr. Graham -- was Mister -- to your 11 knowledge, was Mr. Graham responsible for the same 12 duties -- to carry out the same duties that you 13 had? 14 A. Not exactly. When I was retained by 15 the institution, we were no longer generating, 16 originating commercial real estate loans. So, my 17 responsibilities related to managing the existing 18 assets. 19 Q. Do you know why United was no longer 20 originating commercial real estate loans? 21 A. I would assume because they could not 22 find borrowers who had projects that were 11302 1 feasible. 2 Q. Who did you report to for your -- in 3 carrying out your duties? 4 A. Initially, to Raymond Chilton. 5 Q. Who's Mr. Chilton? 6 A. He was an existing employee when I was 7 already there. 8 Q. What was his position? 9 A. I'm not sure what his title was. He 10 maintained kind of a supervisory role of some of 11 us that were recently hired to manage these 12 assets. 13 Q. And did that change -- 14 A. He ultimately left the organization. I 15 reported to -- indirectly to a consultant that the 16 organization had hired named Mel Blum, and 17 ultimately I reported to Jenard Gross through a 18 committee system. 19 Q. What do you mean? 20 A. We would meet periodically, probably no 21 less than once a week, to discuss the status of 22 activities relating to the foreclosed properties 11303 1 or the loans or the assets of the institution that 2 were the responsibility of our department. 3 Q. But the work was carried out through a 4 committee system? 5 A. Approvals were carried out through the 6 committee system. 7 Q. Are you familiar with a project in 8 Austin, Texas, called Norwood or United Park? 9 A. Yes. 10 Q. How are you familiar with it? 11 A. It was one of the assets that I assumed 12 responsibility for after being hired. 13 Q. Approximately how many assets were in 14 the portfolio that you were assigned when you were 15 hired? 16 A. Numbers of assets? 17 Q. (Nods head affirmatively.) 18 A. I would guess maybe 30. 19 Q. Okay. What were your responsibilities 20 in connection with the Norwood property? 21 A. When I was hired, I was an officer of 22 United Financial Corporation; and I was an officer 11304 1 of United Savings Association. In that capacity, 2 I monitored the UFC investment in the asset as 3 well as monitored the loan activities as an 4 officer of the bank or the thrift. Excuse me. 5 Q. What was your title with United 6 Financial Corporation? 7 A. Vice president, I believe. 8 Q. After you started working for United 9 Savings in August of 1987, how did you -- when did 10 you start dealing with Norwood Properties and the 11 principals there? Was it immediate or did you -- 12 A. Well, on all active loans, it was 13 immediate, particularly in the case where the 14 projects that were the subject of the loan had 15 their collateral being improved as the result of 16 the proceeds of the loan. 17 Q. And what did you do? 18 A. I visited the properties, visited with 19 the borrowers, attempted to determine what the 20 current status of the development was, the status 21 of the ongoing marketing efforts, the status of 22 the loan and its relationship to potential events 11305 1 of default. It's a very broad answer, but 2 anything that related to that asset. 3 Q. And did you review the loan files? 4 A. On an as-needed basis. 5 Q. Okay. Exhibit 7458, please. 6 MR. SCHWARTZ: Your Honor, this is at 7 Tab 748, and I believe it's also Exhibit B1894. I 8 don't know if that one was admitted. 9 THE COURT: Looks like it's admitted as 10 T7458. 11 MR. SCHWARTZ: Thank you, Your Honor. 12 Q. (BY MR. SCHWARTZ) Do you recognize 13 this letter? 14 A. (Witness reviews the document.) It 15 looks familiar, but I don't remember the exact 16 content of the document. 17 Q. Do you know if you would have seen this 18 letter in mid-December 1987? 19 A. Only if Jenard forwarded it to me after 20 he received it. 21 Q. If you look on the first page, there is 22 handwriting up at the top that says "Jeff S." 11306 1 Does that -- 2 A. That would indicate that he forwarded 3 it to me or had someone forward it to me. It does 4 not mean that I saw it. 5 Q. Okay. Well, in the second paragraph of 6 the letter, there is a reference to Norwood 7 needing a 12-month extension of the 8 10-million-dollar sales deadline. 9 Do you see that? 10 A. Uh-huh. (Witness nods head 11 affirmatively.) 12 Q. What was that referring to? 13 A. As I recall, it related to an existing 14 condition in the either loan agreement or joint 15 venture agreement with Norwood. When I say 16 "Norwood," I'm referring to Frank Krasovec and 17 Jeff Minch. 18 Q. Okay. Was there a deadline on that 19 sales period? 20 A. Yes, but I believe this letter is -- 21 was written after the result of other negotiations 22 or discussions relating to the continuation of the 11307 1 relationship with Minch and Krasovec. 2 Q. Do you know -- do you recall Mr. Minch 3 and Mr. Krasovec seeking an extension of their 4 time period to make the 10-million-dollar sales 5 target -- 6 A. Yes. 7 Q. -- around this period of time? 8 A. Yes. They believed that the management 9 of the property should be retained in their 10 organization. In addition to that, they felt that 11 they needed more time to produce acceptable sales 12 of the collateral. 13 Q. Up to that point in time, are you aware 14 if there had been any sales at all in the Norwood 15 site? 16 A. No. 17 Q. No, you're not aware or -- 18 A. No, there were no sales. 19 Q. Okay. On the second page of the letter 20 under "market financial," do you see that? 21 A. Yes. 22 Q. There is a reference to -- or a 11308 1 reference that "the capital for Austin and for 2 Texas is scarce. The recent article in Forbes did 3 not help." 4 Do you see that? 5 A. Yes. 6 Q. What is that referring to? 7 A. I didn't author the letter, so I don't 8 know what he was referring to. 9 Q. Do you know whether capital for Austin 10 and for Texas was scarce at this time? 11 A. I don't know that Austin was treated 12 any differently than any other part of the state 13 or southwest or southeast, for that matter. 14 Q. And was capital scarce at that time, to 15 the best of your recollection? 16 A. Yes. It's scarce today to a certain 17 extent. 18 Q. On the third page of the letter under 19 "discussion," he writes, "The change in personnel 20 at United has not helped our efforts." 21 Do you see that in the third paragraph? 22 A. Yeah. 11309 1 Q. "Time which could have been spent 2 effectively was diverted to preparing analyses 3 which were never used. We presented pro forma 4 sales prices, release price schedules, marketing 5 plans, and other documents for your review and 6 approval. We never received a signed response. 7 We formerly enjoyed a close relationship with our 8 account officer through monthly review meetings at 9 the site. Now we have difficulty making contact 10 by phone. The relationship appears hostile at 11 times. I am not certain that your people 12 understand the complexity of the project." 13 First, who was the account officer 14 that's being referred to there? 15 A. I must assume it was David Graham. 16 Q. Why is that? 17 A. Because he was the predecessor account 18 officer. 19 Q. Do you know why Mister -- or what 20 Mr. Minch was referring to in reference to a close 21 relationship with Mr. Graham? 22 A. I was not there; so, there would be no 11310 1 way I would know. 2 THE COURT: You say Mr. Minch. Isn't 3 the letter signed by Krasovec? 4 MR. SCHWARTZ: Excuse me. Thank you, 5 Your Honor. 6 Q. (BY MR. SCHWARTZ) Mr. Krasovec. 7 A. Well, any time there is a transition 8 and a change in account officers, it's somewhat 9 unsettling for a borrower. It's pretty normal. 10 The only other thing that was intervening at this 11 time was the tremendous number of other assets 12 that were being foreclosed on, managed. This was 13 only one of many assets in the portfolio. 14 Q. Under the next section down, under the 15 "buy-sell provisions," it says, starting at the 16 third sentence, "If we do not receive an 17 acceptable response to our request" -- and I think 18 he's referring to the request for additional time 19 to make the 10-million-dollar target -- "we will 20 proceed under Article 6 of the joint venture 21 agreement to unilaterally withdraw from the joint 22 venture. This action will offer to you the 11311 1 alternatives of proceeding under the provisions of 2 Section 6.06 to initiate the buy-sell or appraisal 3 procedures for dissolution." 4 Did you understand that Mr. Krasovec 5 had a means -- and his partner, Mr. Minch -- had a 6 means to unilaterally withdraw from the joint 7 venture? 8 A. No. I think that came as a surprise to 9 us at the time. 10 Q. Did you have an understanding as to 11 whether they would actually incur liability for 12 withdrawing? 13 A. The liability related to the loan on 14 the property that United Savings had, the 15 withdrawal from the joint venture did not affect 16 liability. The liability was on the debt. It had 17 nothing to do with the joint venture between 18 Norwood and United Financial Corporation. 19 Q. Exhibit 7260, which I believe is at Tab 20 749. Now, the first -- first of all, do you 21 recognize this letter? 22 A. Vaguely. 11312 1 Q. Would you have received it in 2 mid-December 1987? 3 A. Yes. 4 Q. The first few paragraphs, if you take a 5 moment to look at those, refer to some contracts 6 for purchase of some of the sites before the loan 7 was entered into. 8 Do you recall some earnest money 9 contracts with a Mr. Brown and a Mr. Tamminga? 10 A. No, sir, I don't. 11 Q. Let me ask you this: What is an 12 earnest money contract? 13 A. It's a purchase agreement by a borrower 14 with a good faith deposit in place. 15 Q. Does an earnest money contract include 16 an inspection period where a buyer can get out of 17 the deal if they want to? 18 A. Most normally. 19 Q. Are earnest money contracts with 20 inspection periods common in real estate ventures? 21 A. They are common for the acquisition of 22 real estate. 11313 1 Q. Are you finished with your answer? 2 A. It doesn't really relate to the 3 venture. 4 Q. Okay. I see. My question did say real 5 estate ventures. 6 A. Right. 7 Q. You're saying that it's common in 8 connection with the purchase of real estate? 9 A. With the acquisition of real estate. 10 Q. I see. Would United have been in a 11 better-protected position if any earnest money 12 contracts weren't, in fact, earnest money 13 contracts with a "get out" clause or a period or 14 inspection period as opposed to a hard contract 15 for actual sale of the property? 16 A. The reference to a hard contract needs 17 some clarification. An earnest money contract 18 would evolve into a hard contract at the point 19 that the feasibility period had expired and 20 additional funds were put up toward the purchase. 21 Very few purchasers would submit hard contracts on 22 day one that did not have some set of normal 11314 1 contingencies. 2 Q. Would United have been in a 3 better-protected position than if it had waited 4 until those earnest money contract inspection 5 periods had expired and the contracts went hard? 6 A. I'm really not quite sure what you're 7 saying. Maybe you could ask the question again. 8 Is it -- are you asking is it better for them to 9 have a hard contract in place than have an earnest 10 money contract with contingency periods? 11 Q. Yes. 12 A. Oh, absolutely. 13 Q. Why? 14 A. Because you have every belief that the 15 sale of that asset would move toward a closing. 16 Q. And does that -- is that a 17 better-protected position for the institution to 18 be in? 19 A. Yes, but I need to clarify something. 20 Q. Yes, sir. 21 A. The property was owned by the joint 22 venture. What happens to the collateral affects 11315 1 the loan, but it's the joint venture that has to 2 decide what's in the best interest of the ongoing 3 project. So, what's -- yes, it's -- as a lending 4 institution, it's to the best interest of the 5 collateral that's the subject of the loan that 6 activity move forward and that the asset sells at 7 market prices and it creates development; but 8 we're talking about a situation here where it was 9 not just a loan. UFC had an equity position and 10 also had a role to play as an owner of the 11 property and the borrower on a note. 12 Q. I realize this was before your time. 13 Are you aware that the loan and the equity 14 investment occurred at the same time? 15 A. I wasn't until I assumed responsibility 16 for it. 17 Q. You became aware of that? 18 A. Yes. 19 Q. Okay. In your experience, on a 20 40-million-dollar or so development project, is it 21 prudent for a lender, before making the loan, to 22 have hard contracts in hand for the borrower or 11316 1 for the borrower to have hard contracts in hand? 2 A. A lender would be interested in having 3 anything in hand that would support the conclusion 4 that the project's feasibility was strong and that 5 the marketing of the collateral would, in fact, 6 occur within the normal projected time frames. 7 Q. Let me ask this: Without hard 8 contracts in hand, is the development of the real 9 estate of raw land more speculative development? 10 A. Absolutely. 11 Q. Is there a difference in risk to the 12 lender for lending on a speculative development 13 versus lending to a borrower with hard contracts 14 for vertical construction in hand? 15 A. I'm not quite sure how you're defining 16 "speculative" and "development." 17 Q. Well, we're talking about -- I just 18 asked you a question about whether it's more 19 speculative if you're dealing with raw land as 20 opposed to developed property. 21 A. Okay. If you're trying to say that the 22 word "speculative" also means riskier, the lender 11317 1 would always take the course of action that was 2 the less riskier. 3 Q. Should? 4 A. Depending on the circumstances. 5 Depending on the property. The one thing that 6 makes real estate unique is that there are no two 7 pieces of property that are identical. Markets 8 have influences over the ultimate success of the 9 property. 10 It's in the lending institution's 11 purview to, in the course of its underwriting, 12 estimate risk and that risk is usually -- that 13 risk usually results in a higher or lower interest 14 rate on the moneys advanced. That's how it's 15 compensated for its risk, as well as through a 16 prudent loan to value concept of funds. 17 Q. Are higher loan fees also a manner by 18 which institutions -- 19 A. Well, when the institution is 20 determining what its yield is on the loan, it 21 estimates the total income that it will receive 22 from the borrowing entity. Loan fees, along with 11318 1 interest income, are just two of those components. 2 When a thrift or bank is involved, demand deposits 3 may also be maintained and the interest earned off 4 those demand deposits can affect the yield 5 relationship. 6 Q. I'm not sure I understood the banking 7 jargon. 8 Are you saying that a -- that a 9 combination of fees and interest is the -- is 10 representative of the institution's risk? 11 A. Yes, and it's quite customary within 12 the industry. 13 Q. Okay. On the third page of 14 Exhibit 7260 up at the top, Mr. Minch discusses 15 problems he's encountered in generating interest 16 in Norwood. 17 Do you see that? And two of the things 18 that he refers to are "concern with Texas" and 19 "inability to get a Texas job financed." 20 Do you know who he's referring to for 21 this time period? 22 A. I think my mind recalls a Wall Street 11319 1 Journal article that kind of put a story together 2 on what was happening in the Texas economy, and 3 everybody that lived here was quite concerned that 4 that was going to send out bad messages about the 5 economy that were maybe not necessarily true. 6 Q. When was that Wall Street Journal 7 article, if you recall? 8 A. I don't recall, but it was in the midst 9 of the recession that occurred. "Inability to 10 get" -- 11 Q. Was it difficult to get a Texas job 12 financed prior to that Wall Street Journal 13 article, or was that the cause? 14 A. His reference to getting a Texas 15 project financed I don't believe relates to 16 getting projects financed such as the one we were 17 doing. What he's referring to are the ultimate 18 purchasers of the sites getting their projects 19 financed as users of the site. 20 Q. He goes on in the next paragraph to 21 say, "Jeff, the market for stabilized retail 22 centers is strong even in Texas." 11320 1 First of all, what does it mean "even 2 in Texas"? 3 A. I don't know what he's referring to. 4 Q. He goes on and says, "The permanent 5 financing equity is available, but construction 6 debt is difficult to raise." 7 Is this what you were referring to? 8 A. Well, because the construction lender 9 is going to want to know how he's going to be 10 repaid at the end of the construction period. 11 Q. "The permanent players are not willing 12 to take construction risk." 13 Again, is this -- 14 A. That was true then, and it's true 15 today. 16 Q. And is that a reference to takeout 17 financing? 18 A. Correct. 19 Q. What is takeout financing? 20 A. That's the vehicle by which the 21 permanent loan -- let me think of a better way to 22 say this. 11321 1 Once a project's completed and it's 2 occupied by a tenant, it produces an income stream 3 which then can amortize a debt. Prior to that 4 period, with no tenant in place, there is no 5 revenue to service a mortgage. 6 So, there are groups of lenders who 7 will only lend when the income stream has been 8 produced; and those are the permanent lenders. 9 The interim lenders take the risk that the project 10 will be completed in accordance with its plans and 11 specifications. 12 Q. Well, what's the relationship between 13 one of those interim financing entities and 14 takeout financing on a development project? 15 A. Many times, they are mutually 16 exclusive. 17 Q. Explain what you mean. 18 A. The construction lender will not roll 19 his loan into a permanent loan at the end of the 20 construction period when the occupancy of the 21 improvements occurs. He's looking to another 22 lender to, in effect, take him out of the loan at 11322 1 the end of a defined period. 2 Q. And is that something that's set up at 3 the time the development loan is entered into? 4 A. Yes. 5 Q. Down at the bottom of the page, he 6 writes, "This project will continue to reflect the 7 realities of the marketplace, lack of capital, 8 Austin, et cetera." 9 Do you know what he was referring to 10 there? 11 A. Yes. I think he's referring to the 12 fact that the Austin office market was overbuilt. 13 Q. Do you know how long that had been a 14 problem, for how long a period of time prior to 15 December of '87? 16 A. No, but a building that's under 17 construction really doesn't go into the inventory 18 of available space until it's completed. A lot of 19 the buildings that were under construction were 20 just at this point coming to the point of being 21 completed and looking for tenants. 22 And the relationship to Norwood relates 11323 1 to the fact that many of the uses anticipated at 2 Norwood revolved around finding developers to 3 build office buildings for future tenants. 4 Q. He goes on in his letter to say, "I 5 personally do not think that any progress will 6 occur until we" -- and he underlines "we" -- 7 "spawn some activity through vertical 8 construction." 9 Do you know what he's talking about 10 there? 11 A. I believe it was his impression that 12 the lender, either through a release provision in 13 the mortgage, or the joint venture in its desire 14 to kick the project off, accept below-market rates 15 for the land in order to initiate activity on the 16 site. 17 Q. Well, talking about spawning activity 18 through vertical construction, is vertical 19 construction important for a site like Norwood, 20 for a development like Norwood? 21 A. Absolutely. The only other thing that 22 he could have been referencing is that United or 11324 1 the venture actually build the building 2 themselves. That was never anticipated. Our role 3 through this process was to sell land parcels to 4 users. It was never our desire to build any 5 vertical improvements on the site ourselves. 6 Q. Where does your understanding come from 7 that that was the case? 8 A. We had all we could take care of with 9 the land development. 10 Q. Right. I'm talking about -- 11 A. It would not be prudent to build 12 something on a speculative basis. 13 Q. I'm talking about in 1986 before you 14 arrived. I'm asking you how you reached the 15 conclusion that you stated just now, that it was 16 never United's intention to perform any kind of 17 vertical construction or financing for vertical 18 construction. 19 MR. DUEFFERT: Could I ask him to 20 restate that question? There was a time area 21 about 1986 in there, and I wasn't sure that I got 22 it. 11325 1 MR. SCHWARTZ: It was before 2 Mr. Seidman arrived at United Savings. 3 Q. (BY MR. SCHWARTZ) So, I'm asking you 4 for the time period before you arrived at United 5 Savings, when the loan was made in 1986, in the 6 summer of 1986 -- 7 A. Maybe I could clarify it this way. The 8 proceeds of the loan, as far as I knew, were 9 intended to provide funds to develop the site -- 10 when I say "develop," I'm talking about drainage, 11 infrastructure, retainage ponds -- all consistent 12 with a zoning commission approval that was 13 required in Austin. 14 In the course of reviewing the file, I 15 never saw reference to vertical construction or 16 United Savings or a venture advancing funds to 17 build anything. 18 Q. Are you aware of any representations 19 that Mr. Graham might have made to Mr. Krasovec or 20 Mr. Minch or vice versa? 21 A. Absolutely not. 22 Q. On that subject? 11326 1 A. Right. I have no knowledge. 2 Q. You said that vertical construction -- 3 I think you used the word "absolutely" -- is 4 absolutely important for a site like Norwood. 5 Why? 6 A. There are many reasons. It sends a 7 signal to the real estate community, to the real 8 estate brokers, to other potential users that the 9 site is viable and that the owners are interested 10 in seeing it become successful. 11 Q. And the owners in this case were the 12 joint venture? 13 A. Correct. 14 Q. Exhibit 7736, please. Mr. Seidman, 15 Exhibit 7736 is a January '88 letter from you to 16 Mr. Minch. 17 Did you send this on or around 18 January 7th, 1988? 19 A. Generally, yes, it would have been sent 20 and I'm generally familiar with it. I'd have to 21 read it in more detail, but generally -- 22 Q. It's your signature on the last page? 11327 1 A. Yes. 2 Q. And you were signing as vice president 3 of UFC? 4 A. Correct. 5 MR. SCHWARTZ: Your Honor, I move 6 admission of Exhibit T7736. 7 MR. DUEFFERT: No objections. 8 THE COURT: It looks like it's already 9 in as T7721. 10 MR. SCHWARTZ: 77 -- 11 THE COURT: -- 21. 12 MR. SCHWARTZ: If it is, I apologize, 13 Your Honor. 14 THE COURT: So, you're not offering 15 7736? 16 MR. SCHWARTZ: If it is, in fact, the 17 same letter, then no, Your Honor. If it's already 18 in, I'll refer to the 7721 number in my 19 examination. 20 Q. (BY MR. SCHWARTZ) What was the 21 purpose of this letter, to the best of your 22 recollection? 11328 1 A. Well, I think I was attempting to 2 quantify two issues. One, the prior two 3 letters -- one written to Jenard, one written to 4 myself -- were addressed to us in our capacity as 5 officers of United Savings, which is the lender. 6 This letter attempts to respond as the 7 joint venture partner because we felt the issues 8 that were raised there related more to the joint 9 venture than they did to the loan. 10 Second of all, it showed our 11 willingness to proceed forward if they were 12 willing to make some modifications with regard to 13 their compensation for managing the asset. 14 Q. Well, the third paragraph of the letter 15 on the first page refers to the 10-million-dollar 16 sales requirement extension. 17 A. Right. 18 Q. And then the fourth paragraph says, 19 "While UFC has no obligation to extend the time 20 for satisfying the sales obligation or sales 21 requirement, in an effort to compromise and settle 22 outstanding claims by you, UFC would consider 11329 1 granting a 12-month extension if certain 2 adjustments are made." 3 What were the outstanding claims by you 4 that you're referring to? 5 A. I think the only thing I was referring 6 to was not necessarily claims but their threat to 7 withdraw from the venture. 8 Q. Under the paragraph numbered 1 at the 9 bottom of the first page, you refer to the $22,000 10 per month in assignable overhead. 11 Do you see that? What is that 12 referring to? 13 A. It was a budget category in the loan 14 where they were compensated during the course of 15 our relationship at the rate of $22,000 per month. 16 It was capped at a certain dollar amount. I don't 17 remember what it was. 18 Q. So, were Mr. Krasovec and Mr. Minch 19 being paid a fee for their services? 20 A. Norwood Properties was. 21 Q. And who was Norwood Properties? 22 A. They owned Norwood Properties. 11330 1 Q. And was that a part of the original -- 2 A. Yes. 3 Q. -- arrangement they had with United? 4 A. Right. 5 Q. Now, on the second page just after 6 No. 4, you comment on Mr. Minch's suggestion that 7 he made in his December 14th letter to you, 8 Exhibit 7458, that he would unilaterally withdraw 9 from the venture. 10 And at the end of the paragraph, you 11 state, "However, as a part of any extension of the 12 sales requirement, you would also agree not to 13 attempt to voluntarily withdraw from the joint 14 venture and to release UFC and USAT from any 15 claims held by you." 16 What was UFC and USAT concerned about 17 there? 18 A. I wasn't concerned about anything but 19 protecting the institution from a potential 20 problem with two former joint venture partners. 21 Q. So, was this being written both on 22 behalf of -- wearing your USAT hat and your UFC 11331 1 hat? 2 A. The general theme at this particular 3 time, in 1987, was to try to work out 4 relationships amicably, particularly those that 5 were potentially adversarial. If that could be 6 done, that was always the preferable course. 7 Litigation was not in the best interest of either 8 the joint venture or the association. It would 9 tie the asset up. It would cause a lis pendens to 10 be filed and, at that point in time, you would, in 11 effect, have a non-earning asset and a 12 non-marketable asset. 13 Q. And what was the nature of the 14 adversarial relationship that you refer to in your 15 answer? 16 A. The fact that these two gentlemen had 17 guaranties that related to this debt. 18 Q. What do you mean? 19 A. Well, they did. 20 Q. Why is the -- why would the existence 21 of guaranties create an adversarial relationship? 22 A. Because they would absolutely assert 11332 1 any possible scenario they could to put themselves 2 in the best possible light. 3 Q. What do you mean? 4 A. They believed that this project would 5 never have been ultimately approved by the 6 planning commission or that it would be successful 7 without them. I think what they ultimately wanted 8 was to receive more funds in the form of a 9 management fee for a continued extended period of 10 time. 11 Q. What does that have to do with their 12 guaranties? 13 A. I think they were positioning -- this 14 is all speculation on my part, but I believe that 15 they were positioning themselves for later 16 discussions that would ensue. 17 Q. Exhibit 7732, which I believe is at Tab 18 751. 19 Mr. Seidman, did you receive this 20 January 12th, 1988 letter? 21 A. Yes, I did. 22 Q. Why did Mr. Krasovec and Mr. Minch 11333 1 withdraw at this point? 2 Just so that the record is clear, I'll 3 just read the letter -- the text into the record. 4 "In accordance with the provisions of Section 6.02 5 voluntary dissolution of the Norwood/United Park 6 Joint Venture agreement, Norwood Properties 7 withdraws from the joint venture effective 8 12:00 o'clock a.m., January 11th, 1988." 9 A. I don't know why they wanted to 10 dissolve the relationship at this particular point 11 in time. We were surprised when we received this 12 letter. 13 Q. Why? 14 A. Because it was evidence to the fact 15 that we probably no longer would benefit from 16 having these people as our joint venture partners, 17 as well. 18 Q. Why didn't you immediately foreclose 19 and move on their guaranties? 20 A. At that particular time -- you have to 21 put this in the proper sequence. When they 22 withdrew as the joint venture partner, that left 11334 1 UFC as the 100 percent owner of the joint venture. 2 It also meant that UFC was the borrower on a 3 30-million-dollar loan. In effect, it would be 4 foreclosing on itself. I don't know, without some 5 study, whether there were events of default that 6 existed on the loan, although I believe that their 7 voluntary withdrawal would have created an event 8 of default in the United loan. I can't say why 9 those steps weren't taken immediately. 10 In the normal course of things, we 11 would have studied the market, our alternatives, 12 the financial condition of the borrower before 13 arriving at that kind of a conclusion. 14 Q. To your knowledge, there were no 15 efforts made to proceed in that direction; is that 16 right? 17 A. Well, not immediately. 18 Q. Exhibit 7733, please. Exhibit 7733 is 19 a January 15th, 1988 letter to you from Mr. Minch. 20 Do you recall receiving this? 21 A. Generally. 22 MR. SCHWARTZ: Your Honor, I move 11335 1 admission of Exhibit T7733. 2 MR. DUEFFERT: One moment, Your Honor. 3 No objections. 4 THE COURT: Received. 5 Q. (BY MR. SCHWARTZ) Mr. Seidman, in 6 your letter of January 7th, 1988, which was 7 Exhibit 7736, you mention the assignable overhead 8 expense that Mr. Krasovec and Mr. Minch received, 9 the $22,000 a month, or Norwood Properties 10 received. 11 Do you recall that? 12 A. Yes. 13 Q. Here, if you look at the fourth 14 paragraph of the letter, Mr. Minch tells you what 15 direct overhead and what assignable overhead are. 16 And he says, "The majority of assignable overhead 17 is personnel costs directly attributable to 18 marketing." 19 In the fifth paragraph, numbered 5, the 20 fifth paragraph down, it says that "It was 21 originally agreed to pay this amount out over the 22 initial 36-month term at the rate of $22,000 per 11336 1 month. 2 Do you see that? 3 A. Uh-huh. (Witness nods head 4 affirmatively.) 5 Q. Then in the seventh paragraph, 6 Mr. Minch essentially tells you that Norwood is 7 going to keep taking payment of $22,000 per month 8 despite United's request in the December 7th 9 letter to reduce that amount to $5,000 per month. 10 A. And your question is? 11 Q. Well, he then goes on on the next page 12 under the heading "withdrawal" and says, "Norwood 13 would rescind its withdrawal upon reaching an 14 agreement on the extension." 15 Do you see that? 16 A. Yes. 17 Q. "And other matters and will at that 18 time release United from any claims through that 19 time." 20 A. Yes. 21 Q. And then in the next paragraph, he goes 22 on and asks for an extension not just for 12 11337 1 months but through July 29th, 1989, which I 2 believe was the due date on the note. 3 A. Okay. 4 Q. Did Mr. Minch's and Mr. Krasovec's 5 actions seem to you to be based on any concern 6 that they had over liability on their guaranties? 7 A. Not at this point in time. If it had 8 been something that was concerning them, they 9 would have clearly addressed it in their 10 correspondence. 11 Q. Did you ever get the impression that 12 they were concerned about their guaranties? 13 A. No, not until a later point in time. 14 At this point in time, they were only concerned 15 with one thing: $22,000 a month. 16 Q. And that was their fee under the 17 arrangement they had at the time the loan was 18 made? 19 A. And they knew I was quite upset about 20 having to pay them that kind of money because I 21 didn't believe that they were giving us anything 22 in return. 11338 1 Q. Okay. On the next page, Attachment A, 2 does this appear to be a proposed budget for 1988 3 for the project? 4 A. Yes. 5 Q. And I notice it has an entry each month 6 from January to December of 1988 of $22,000 for 7 the line "assignable overhead" which, if you look 8 sort of at the middle of the page, for a total of 9 $264,000 for the year? 10 A. Right. 11 Q. Then it also has separate entries above 12 that for matters related to marketing. Studies, 13 job signs, affairs. What's "affairs"? 14 A. They relate to marketing affairs. 15 Thank you. 16 Q. Promotion materials, advertising, and 17 just general expenses. And what's covered by that 18 general category of expenses? 19 A. It's a very good question. As you'll 20 note, I didn't sign this. I don't know what 21 the -- I can't tell you with any kind of detail 22 what that 2,000 was. It might be, in their mind, 11339 1 a contingency for something that came up. 2 Q. So, the 22 -- 3 A. Marketing. 4 Q. I'm sorry? 5 A. Could be marketing, printing costs. It 6 could be trips to visit a potential purchaser of 7 the site. It could be anything. 8 Q. Well, printing costs would be covered 9 under promotion materials, I would think. 10 Would you agree with that? 11 A. At this point, I don't know what that 12 category of expenses meant. 13 Q. Did you have an understanding that the 14 $22,000 per month was a separate item from the 15 marketing components that we talked about? 16 A. Well, absolutely. It was treated 17 separately in this budget, and it had always been 18 prior to that, too. 19 Q. Did you ever come to any understanding 20 of what Krasovec and Minch did for the $22,000 a 21 month they received? 22 A. No. 11340 1 Q. There is also an entry for "continuing 2 interest." It starts at $205,000 -- $205,157 for 3 January and then increases each month. 4 Do you see that? 5 A. Yes. 6 Q. Down at the bottom. 7 A. Yes. 8 Q. And then in May and November, the 9 number goes up dramatically by more than $100,000 10 in those months and then drops down again in the 11 next -- in the next month. 12 Now, do you know why that is? 13 A. I have no clue. 14 Q. Do you recall Tract 4? 15 A. In vivid detail. 16 Q. Okay. Could that be -- 17 A. Oh, yes. That could be a principal 18 payment, an annual principal payment on the 19 purchase money note that existed on Lot 4. 20 Q. Okay. 21 THE WITNESS: Your Honor, you have to 22 understand. This is 10 years ago. It's not easy 11341 1 to recall with as much detail as maybe I'd like 2 everything that happened. 3 Q. (BY MR. SCHWARTZ) We're in somewhat 4 of a time warp here. We're all living in the 5 mid-1980s. I appreciate your difficulty with 6 this. 7 A. It's quite possible that that related 8 to the interest and principal due on the 9 underlying note for Lot 4. 10 Q. Okay. Now, let's talk about Lot 4. 11 What's Lot 4? 12 A. Lot 4 was a couple-acre parcel that was 13 acquired by the joint venture from National 14 Western Life Insurance Company that adjoined the 15 property. It was right at the front entrance to 16 the property on 183. 17 Q. And that was not part of the original 18 Norwood property? 19 A. No. It was planned as part of the 20 original development. It's just that it had 21 purchase money debt on it. 22 Q. So, the note to National Western Life 11342 1 Insurance was paid out of the proceeds of the 2 Norwood loan? 3 A. Correct. 4 Q. Attachment B, the next two pages, 5 appears to be what they call a revised release 6 price schedule. 7 A. Yes. 8 Q. What was that for? First of all, what 9 is it? 10 A. The release price schedule would 11 anticipate what the individual lots were going to 12 sell for on a retail basis and then ultimately 13 what the proceeds of those individual sales -- how 14 they would be used to release the collateral from 15 the mortgage that existed. 16 Q. So, what was the purpose of revising 17 the release price schedule? 18 A. At that time, I believe it was to 19 review the current market asking prices for the 20 individual parcels as compared to what they might 21 have been previously marketed for. 22 Q. Do these reflect higher prices or lower 11343 1 prices? 2 A. I would generally say lower. I would 3 not know without having gone back and studied the 4 other material. 5 Q. That's okay. Why would you say 6 generally lower? 7 A. The land was not selling. And if the 8 price of the land was an obstacle to the sale, 9 they might have believed that it was in the best 10 interest of the development to reduce the sale 11 price per square foot with the hopes that it would 12 generate some activity on the site. 13 Q. What was United's reaction to revising 14 the release price schedule? 15 A. Well, at this point, there was 16 probably -- there was no overall concern. The 17 proceeds were in excess of the loan. So, it 18 tended to indicate that there was not any exposure 19 for the lender. 20 Q. When you say "the proceeds," what are 21 you referring to? 22 A. Last page, total of 34 million 8. 11344 1 Q. So, did United approve this release 2 price schedule? 3 A. I don't recall so and, as you'll note, 4 my signature doesn't appear on this document. 5 Q. That's correct. So, do you know if 6 United ever approved reducing the release prices? 7 A. No. Our general philosophy at this 8 time was "Okay, guys. You go out and find out 9 whose got an interest in the property. Let them 10 make an offer." We didn't want the marketing 11 promoted price to necessarily influence what 12 someone would pay for it. We would address each 13 issue kind of on an individual case basis. 14 Q. And when you say "we," who are you 15 referring to? 16 A. We, the employees that I worked with 17 and the investment committee that monitored my 18 activities and the activities related to all the 19 loans. 20 Q. Who was that? 21 A. I can't tell you exactly right now, I 22 mean, who was on it at that particular time. It 11345 1 would generally be all the members of the real 2 estate department plus whoever the supervisor was 3 at the time. And at this time, it could have 4 been -- could have been even Jeff Gray at that 5 time. I'm not sure when Raymond Chilton left. I 6 believe he was still there at that time. But it 7 would just be the normal department staff. 8 Perhaps Art Berner would sit in just to be kind of 9 brought up-to-date on what was happening with the 10 properties, kind of ex officio member. And, of 11 course, Jenard could attend if he wanted to. 12 Q. Did Jenard attend? 13 A. Periodically, yes. 14 Q. Did he participate in meetings? 15 A. Oh, absolutely. 16 Q. And did Mr. Berner participate in 17 meetings? 18 A. More as an observer. 19 Q. Exhibit 7581. What is Exhibit 7581? 20 A. It is a presentation to the real estate 21 investment committee on the Norwood transaction. 22 Q. Did you draft this document or 11346 1 participate in its drafting? 2 A. I'm sure I did, although I don't see my 3 signature on it. 4 MR. SCHWARTZ: Your Honor, I move 5 admission of Exhibit T7581. 6 MR. DUEFFERT: No objections. 7 THE COURT: Received. 8 Q. (BY MR. SCHWARTZ) What's the purpose 9 of this document, this presentation document? 10 A. To seek approval or a response to the 11 request from the joint venture partners with 12 relation to the issue raised in some of the prior 13 correspondence you presented. 14 Q. Was this a document of UFC or USAT? 15 A. USAT. 16 Q. There is reference under the loan 17 information section on the first page to "current 18 outstanding." 19 What is that? 20 A. That would have been the balance, 21 according to our ledger entries, that had been 22 advanced against the note. 11347 1 Q. And how much is that? 2 A. 22 million 343. 3 Q. That does not include the $9.4 million 4 in equity that Norwood put in? 5 A. That's correct. 6 Q. Just on the loan? 7 A. Just on the loan. 8 Q. Further down on the page, there is a 9 reference to "remaining unfunded, $7,656,744.22." 10 Do you see that? 11 A. Uh-huh. (Witness nods head 12 affirmatively.) 13 Q. What does that refer to? 14 A. That refers also to the loan. If you 15 add those two together, it should come up to 16 30 million. 17 Q. Then further down under there, towards 18 the middle of the page, there is a note and it 19 says "At current rate interest reserve depleted in 20 13 months." 21 What does that mean? 22 A. To me, it means exactly what it says it 11348 1 means. It means that I tried to determine how 2 much longer that interest reserve would be 3 available to pay the interest on the debt. 4 Q. So, based on your calculation here, 5 does that put the interest reserve as having 6 sufficient funds to carry the loan through 7 February of 1989? 8 A. No. Apparently not. And that was an 9 undeterminable time frame because the interest 10 rate on the debt floated with prime and no one 11 knew what prime was going to do. It could go down 12 as well as go up. 13 Q. Why do you say -- I calculate 14 January 21st, 1988, through February 8, 1989, as 15 13 months. 16 A. Yeah, but the assumption as to whether 17 it would last 13 months, I assume that the current 18 interest rate would not change for a specified 19 period of time. 20 Q. So, based on your assumption, would it 21 carry the loan through February of 1989? 22 A. No. 11349 1 Q. I'm not sure I understand. Why did you 2 put 13 months in here? 3 A. Because of the current outstanding, 4 that's just how long it would take. I looked at 5 other advances that would be made over the life of 6 the loan, came up with an average outstanding 7 balance per month, multiplied it by prime plus 2, 8 and that was the result. 9 Q. And based on that calculation, you 10 reached a conclusion that there would be 11 approximately 13 months left in the loan proceeds? 12 A. At that point in time. 13 Q. Okay. Now, on the next page there are 14 issues and recommendations. 15 Do you see that? 16 A. Yes. 17 Q. Would you explain what that's for, what 18 those are for? 19 A. Well, the issues were numerical -- A, 20 B, C -- and they really related to the request 21 either made by the borrower or related to just 22 outstanding items that needed to be brought to the 11350 1 committee's attention. 2 Q. The REIC? 3 A. Yes. 4 Q. Okay. Well, the joint venture issue 5 refers to the voluntarily -- the voluntary 6 withdrawal from the venture. 7 Do you see that? The joint venture 8 issue up at the top. 9 A. Okay. That's just a recitation of what 10 the existing document said. 11 Q. Is this just a background for the REIC? 12 A. Absolutely, because they would not know 13 what the issue was. 14 Q. And then under "USAT loan issue, 15 overhead assignable," what is that referring to? 16 A. Again, it's telling the committee what 17 issues are on the table that relate to the loan. 18 The first paragraph related to those issues 19 relating to the joint venture arrangement with our 20 partners, Krasovec and Minch. 21 So, the second group just relates to 22 issues relating to the loan that were also brought 11351 1 up, in great part, in the correspondence between 2 our joint venture partners. 3 Q. And those issues are the assignable 4 overhead, which was that $22,000 a month? 5 A. Correct. 6 Q. And the release prices which we saw in 7 the earlier exhibit? 8 A. Right. 9 Q. That they were seeking to revise those. 10 And sales prices. 11 What is that referring to or what was 12 the issue there? 13 A. I think their issue was that if we, the 14 lender, were to consent to those sales prices, 15 that they would know when they are negotiating 16 with a third party for the sale of a piece of 17 property, that they would have some comfort that 18 that transaction would probably go forward without 19 actually having to come back to us and seek a 20 separate approval. I don't know if that answered 21 your question, but the reason it was promoted was 22 because they felt like it would be a more 11352 1 efficient way to handle the marketing of the 2 property. 3 Q. Okay. And then the recommendations, 4 there are three of them. And then it says at the 5 third one, "Either 1 or 2 at the option of 6 Norwood. In no case will they be paid a fee above 7 the remaining funds of loan over the extension 8 period they choose." 9 What does that mean? 10 A. Well, that means that the committee 11 approval was somewhat broad depending on how the 12 negotiations proceeded with the borrower. 13 Q. And do you know which of those 14 recommendations, 1 or 2, occurred? 15 A. A portion of both. A portion of both 1 16 and 2. 17 Q. What occurred? 18 A. Well, we agreed to pay the $22,000 19 until it was exhausted, and we did agree to the 20 extension period. 21 Q. Down at the bottom under "approval, 22 real estate investment committee," there are 11353 1 signatures. 2 Do you recognize the signatures? 3 A. Yes. 4 Q. Okay. The first one on the left side? 5 A. Michael Crow. 6 Q. And the middle one? 7 A. Art Berner. 8 Q. And the one on the bottom? 9 A. Jenard Gross. 10 Q. And then the one on the right? 11 A. Raymond Chilton. 12 Q. Was that all the members of the real 13 estate investment committee, to your recollection? 14 A. The proper way to answer that is those 15 would be the voting members of the investment 16 committee. There were other people that were 17 members but may not have cast a vote. 18 Q. Okay. Were those the members -- to 19 your recollection, were those the members of the 20 real estate investment committee that exercised 21 the most influence on the real estate investment 22 committee? 11354 1 A. I would not state it that way. They 2 were the senior officers of the institution. And 3 because of the size of these assets and the impact 4 on the corporation of the outcome of the 5 negotiations, et cetera, they were the most 6 logical members of management to need to know what 7 was happening with the collateral. 8 Q. What role did those individuals play in 9 the decision-making process on this -- to your 10 recollection on the Norwood loan? 11 A. They would evaluate recommendations 12 made by non-voting members of the committee from 13 time to time, to try to resolve any outstanding 14 issues or seek general approvals to -- seek 15 general approvals affecting any of the assets. 16 Q. Were any of those individuals more 17 influential than any of the others on the 18 committee in influencing decisions? 19 A. The president of the institution, when 20 he was at the meeting, he would probably assume 21 the responsibility of chairing that meeting. Did 22 one ask questions more than another? They were 11355 1 all equally inquisitive about arriving at solid 2 business decisions. 3 Q. Would you take a look at Exhibit 7476? 4 Do you recognize this document? 5 A. Generally, yes. 6 Q. Would you have drafted it? 7 A. Yes. 8 Q. I notice that it's not signed. Do you 9 know if this document went to the committee? 10 MR. BLANKENSTEIN: Excuse me. Your 11 Honor, we have a two-page document. I was 12 wondering whether -- and it seems that the witness 13 has a three-page document. 14 THE WITNESS: That's on the third page. 15 THE COURT: There is three -- there are 16 three pages to the document. 17 MR. BLANKENSTEIN: Do you have an extra 18 copy? 19 MR. SCHWARTZ: Photocopying problem? 20 21 (Discussion off the record.) 22 11356 1 MR. BLANKENSTEIN: Thank you, Your 2 Honor. 3 A. To answer your question directly, 4 because it's not signed, I do not know whether it 5 went to the -- I don't recall whether it went to 6 the committee or not. 7 Q. (BY MR. SCHWARTZ) Okay. One of the 8 recommendations, No. 6 on the third page, that's 9 not listed in the other exhibit that we looked at, 10 Exhibit 7581, the January 21st minutes or 11 presentation, "Full release of all claims made by 12 Norwood Properties in association with the project 13 as well as Minch and Krasovec individually." 14 What is that referring to? 15 A. My recollection would be that that 16 related to some of the issues raised in maybe the 17 prior correspondence where they had threatened to 18 withdraw from the venture. I don't know what 19 other claims they had. Those never -- if they had 20 other claims, which they might have thought they 21 did have, they were never listed or presented to 22 us. I think that was their threat with regard to 11357 1 potential litigation either against their joint 2 venture partner or against the lending 3 institution. 4 Q. Okay. Well, it's referring to "full 5 release of all claims made by" as opposed to 6 "which might be made by or brought by." 7 Do you know if -- 8 A. I think that's just all -- that's my 9 way of just making sure that we resolved all 10 outstanding issues with those guys. 11 Q. All right. Under "Project status," the 12 second sentence there refers to "Austin real 13 estate suffers from overbuilding in certain 14 product type with rental rates being depressed 15 accordingly." 16 Do you see that? 17 A. Where are you reading? 18 Q. Under "Project status" just below the 19 middle of the page. 20 A. On the front page? 21 Q. Yes, sir. 22 A. Oh, okay. 11358 1 Q. What's that referring to? 2 MR. DUEFFERT: Your Honor, optional 3 completeness. I'd ask Mr. Schwartz to read the 4 entire paragraph in its entirety. 5 MR. SCHWARTZ: Mr. Dueffert will have 6 an opportunity to inquire into the document. The 7 witness can read the whole paragraph if he chooses 8 and explain what it means. 9 THE COURT: Well, the paragraph is 10 before the witness. He can read the whole thing. 11 A. "Austin real estate suffers from 12 overbuilding in certain product type." That can 13 only really relate to the fact that there was a 14 tremendous abundance of vacant office and retail 15 space that was hanging on the market. 16 Q. (BY MR. SCHWARTZ) Exhibit 7730, which 17 I believe is admitted at Tab 753. 18 THE COURT: Are you going to offer 19 T7476? 20 MR. SCHWARTZ: I'm sorry, Your Honor. 21 Yes. 22 MR. DUEFFERT: No objection. 11359 1 THE COURT: Received. 2 Q. (BY MR. SCHWARTZ) Tab -- excuse me -- 3 Exhibit 7730 at Tab 753 is a February 12th, 1988 4 letter from Mr. Berner to Mr. Minch. 5 Would you have received a copy of this 6 or seen it before it went out or seen it 7 afterwards? 8 A. He probably would have consulted with 9 me, but I didn't see it before it went out. And I 10 probably would have gotten a copy for the file 11 after it did. 12 Q. What was Mr. Berner's role in 13 connection with Norwood at this time? 14 A. He was acting as in-house legal 15 counsel. 16 Q. And so, what was he doing on a 17 day-to-day basis in connection with Norwood? 18 A. Nothing, except that which related to 19 United Financial Corporation and its joint venture 20 and the debt. 21 Q. Okay. Well, he's signing this on USAT 22 letterhead. 11360 1 Was he -- was he wearing a UFC hat at 2 the time or a USAT hat? 3 A. He was bearing both hats. 4 Q. In the middle paragraph, Mr. Berner has 5 some very specific discussion concerning the 6 release price of Lot 4, which is that North 7 Western Life Insurance or National Western Life 8 Insurance tract. 9 What's that discussion in the third 10 paragraph about? 11 A. Just generally as it's stated, that the 12 proceeds from a potential sale of $15 a foot would 13 not cover the release price that was set for that 14 particular property, the release price to release 15 that collateral from the mortgage. 16 Q. So, was Mr. Berner involved in the 17 negotiations or discussions concerning release 18 prices? 19 A. No, but it would not be unusual for 20 counsel to raise issues that affect the 21 documentation that's being provided. And this 22 would be one of them, one of the elements of that 11361 1 documentation. 2 Q. Why wouldn't this letter come from you 3 as opposed to Mr. Berner if that's the case? 4 A. Because he's transmitting documents -- 5 Q. Okay. 6 A. -- that either he prepared or that he 7 had outside counsel prepare. 8 Q. And then in the last paragraph of the 9 letter, he refers -- he asks for more information 10 about the $22,000 per month. 11 A. Right. 12 Q. Was he involved in discussions 13 concerning that? 14 A. He was aware of them as a member of the 15 committee. I mean, aware of the request that had 16 come in with regard to the continued payment of 17 that money. 18 Q. Mr. Berner then asks that Mr. Minch 19 call you. Did Mr. Minch eventually contact you? 20 A. Oh, I'm sure he did. 21 Q. And what was the nature of those 22 discussions, if you recall? 11362 1 A. To provide me whatever backup was 2 requested with, in this case, regard to Lot 4. I 3 don't recall what he submitted to me. 4 Q. What about with regard to the $22,000 5 per month? 6 A. I don't believe I received anything 7 other than what we had already received, which was 8 the breakdown provided in the budget that you went 9 through a few minutes ago by line item. 10 Q. Well, that breakdown just listed 11 assignable overhead of $22,000 per month. 12 A. If you're asking me did he ever provide 13 anything that showed where the $22,000 went, not 14 that I recall at all. 15 Q. Okay. Exhibit 7718, please. 16 MR. SCHWARTZ: Mr. Langdon, what's the 17 last page number, Bates number? This feels a 18 little lighter. 331? 19 MR. LANGDON: 331. 20 MR. SCHWARTZ: Thank you. 21 Q. (BY MR. SCHWARTZ) This is -- Exhibit 22 7718 is a February 17th, 1988 letter from 11363 1 Mr. Minch to Mr. Berner. 2 Did you receive a copy of this? 3 A. It says I did. 4 Q. Do you recall receiving a copy of it? 5 Do you have any reason to question that you 6 received a copy? 7 A. No, I don't have any reason to think I 8 didn't. 9 Q. Okay. 10 MR. SCHWARTZ: Your Honor, I move the 11 admission of Exhibit T7718. 12 MR. DUEFFERT: No objections. 13 THE COURT: Received. 14 Q. (BY MR. SCHWARTZ) Now, this letter 15 was addressed to Mr. Berner. Was Mr. Berner 16 involved in the discussion of the settlement and 17 modification agreements concerning the Norwood 18 transaction? 19 A. At this point, only to the extent that 20 he had provided the joint venture partner with -- 21 and the borrower, I guess, with copies of the 22 documents. 11364 1 Q. Who was it that was developing the 2 language on behalf of United for those agreements 3 and the drafts that are attached. Well, let me 4 make that clear. 5 The first page of the letter is a cover 6 letter from Mr. Minch. Okay? The second page, 7 which is Attachment A -- 8 A. Looks like their comments. 9 Q. Looks like Norwood Properties' comments 10 on the February 11th, 1988 draft of settlement and 11 modification of joint venture agreement. 12 Do you see that? 13 A. Yes. 14 Q. And then Attachment B is the draft of 15 the settlement and modification of joint venture 16 agreement. 17 A. Right. 18 Q. And then if you continue on to 19 Page KM000315, Attachment C is Norwood Properties' 20 comments on February 11, 1988 draft of settlement 21 and loan agreement. 22 And then the next page, Attachment D, 11365 1 at KM316, is the settlement and loan modification 2 agreement. And I believe that's the last -- that 3 continues to the end of the document. 4 A. I believe you just asked me who would 5 have provided input? 6 Q. Yes. 7 A. Okay. That would have come from 8 myself, from Steve Lerner who was acting as 9 counsel for the bank, outside counsel for the 10 bank, from Art himself who had the responsibility 11 for approving the documents on behalf of the 12 association, and any other interested party. 13 Q. Okay. Now, this is written to 14 Mr. Berner in his capacity as an attorney for 15 United Financial Corporation? 16 A. Correct. 17 Q. Do you know why that was done? 18 A. No. 19 Q. When you were saying "Art himself," do 20 you mean Arthur Berner? 21 A. Yes. 22 Q. All right. In the third paragraph of 11366 1 the cover letter, Mr. Minch says, "If we are 2 unable to reach agreement on modifications or 3 arrange an extension, we will proceed with our 4 withdrawal." 5 Is that referring to the withdrawal 6 from the joint venture? 7 A. Correct. 8 Q. Okay. And then on the next page under 9 Paragraph 1 concerning the sales deadline, 10 Mr. Minch indicates that "The removal of Norwood 11 in the joint venture" -- that is Mr. Krasovec and 12 Mr. Minch. Right? 13 A. Yes. 14 Q. -- that their removal is absolute. 15 What does he mean by "their removal is absolute"? 16 A. I don't recall what he was intending by 17 that wording. I mean, I would take it to mean it 18 means without contingency, but -- 19 Q. By operation of the documents alone? 20 A. Without -- without some wording that 21 would modify that arrangement. 22 Q. Well, he's referring to -- Page 3 and 11367 1 under the joint venture agreement starting on 2 Page 2 and continuing on to Page 3, there is some 3 discussion regarding the sales deadline. And then 4 if you look at the underlying portion that was 5 added, it reads "If Norwood has not closed gross 6 sales of portions of the land in an amount equal 7 to at least $10 million by 12:00 o'clock p.m. 8 midnight January 29, 1989, Norwood will 9 immediately cease to be a venturer in accordance 10 with the provisions of 2.04(b) of the joint 11 venture agreement. UFC will simultaneously cause 12 Norwood, Krasovec, trustee, and Minch to be 13 relieved from any liability on any debt owed by 14 the joint venture." 15 Does that refresh your recollection of 16 what Mr. Minch meant by "absolute"? 17 A. I can only speculate. I didn't author 18 it. This may have been what he was intending with 19 regard to all pending matters between the parties. 20 Q. Okay. Do you have any recollection of 21 what it meant in connection with their liability 22 on the guaranties? And I'm referring to the 11368 1 language that I read that was added. 2 A. Could you ask the question again? 3 Q. I read you some language from Pages 2 4 and 3 of the document. 5 A. Right. 6 Q. Okay. And the last sentence of that 7 language reads, "UFC will simultaneously cause 8 Norwood, Krasovec, trustee, and Minch to be 9 relieved from any liability on any debt owed by 10 the joint venture." 11 Did you have an understanding as to 12 what that meant in connection with removal -- with 13 the reference on Attachment A that this removal is 14 absolute? 15 A. It would sever all relationships with 16 Minch and Krasovec. 17 Q. To both UFC and USAT? 18 A. Correct. 19 Q. If you turn to Page 2 of the draft 20 settlement and modification of the joint venture 21 agreement -- excuse me -- Page 3, under Paragraph 22 B, there is a reference in there to the $22,000 11369 1 per month of assignable overhead. 2 Do you see that? 3 A. Yes. 4 Q. It says that "Assignable overhead shall 5 be drawn at the rate of $22,000 per month until 6 December 1, 1988." 7 Do you know who inserted that language? 8 A. Whoever drafted the document. It was 9 consistent with what was approved by the real 10 estate investment committee. So, it was just in 11 the normal course of... 12 Q. Do you recall if that payment was ever 13 seriously in dispute between the parties? 14 A. No. It was just a continuation of the 15 existing relationship. The point was we were 16 going to live with the original budget referenced 17 here of 900,000. 18 Q. Okay. That was -- when you talk about 19 the original budget, you're talking about what was 20 agreed at the time the loan was entered into? 21 A. Yeah. 22 Q. Exhibit 7726, please. 11370 1 THE COURT: We'll take a short recess. 2 3 4 (A short break was taken 5 at 10:35 a.m.) 6 7 THE COURT: Be seated, please. We'll 8 be back on the record. 9 Mr. Schwartz, you may continue with 10 your examination. 11 MR. SCHWARTZ: Thank you, sir. 12 (10:58 a.m.) 13 Q. (BY MR. SCHWARTZ) Before the break, I 14 asked you some questions about the REIC and the 15 members of the committee. 16 Do you recall that? 17 A. Yes. 18 Q. You mentioned four individuals that 19 were the voting members: Mr. Crow, Mr. Berner, 20 Mr. Gross, and Mr. Chilton. 21 Were there any people that were more 22 influential than those four that you mentioned in 11371 1 the decisions of the committee? 2 A. Not within the active senior management 3 of the institution. 4 Q. What about outside the active senior 5 management of the institution? 6 A. Well, there might have been. Not that 7 I was aware of. I mean, if you're construing the 8 fact that board members might have influence, 9 shareholders, I don't know. I never dealt with 10 them. 11 Q. So, you don't know -- 12 A. On a day-to-day basis, I reported to a 13 committee who I felt represented senior management 14 of the institution and who had the authority to 15 make the decisions that needed to be made. 16 Q. Okay. Also, I believe in one of your 17 earlier answers, you indicated -- I showed you the 18 withdrawal letter that Mr. Krasovec and Mr. Minch 19 sent where they were withdrawing from the joint 20 venture, and I asked you if they -- why United 21 didn't foreclose and move on their guaranties at 22 that time. 11372 1 Do you recall that? 2 A. Yeah. And I thought I responded that 3 they were not in default on the loan. 4 Q. If United had foreclosed, they were not 5 in monetary default, but you said that a 6 withdrawal under the joint venture would amount to 7 a default on the loan; is that right? 8 A. I recall that might have been an event 9 of default. I do not know without looking at the 10 loan documents to know whether that was with 11 the -- whether or not the withdrawal of a venture 12 partner would constitute an event of default under 13 the loan agreement. 14 Q. Assuming it did, if United had 15 foreclosed and USAT became the owner of the 16 property, I believe you said that USAT would then 17 have a non-earning asset. 18 Do you recall that? 19 A. Correct. 20 Q. Okay. What does that mean? 21 A. It means it wasn't accruing interest 22 under a note. 11373 1 Q. And if USAT -- would it go into REO? 2 A. Through the foreclosure process, yes, 3 as title to the asset would vest in the 4 association. 5 Q. And what would happen to UFC's 6 9.4-million-dollar investment? 7 A. It would be lost. 8 Q. Okay. Moving now to Exhibit 7726, 9 which was the March 8th, 1988 letter from 10 Mr. Berner to Norwood Properties. I notice that 11 you're not CC'd on this letter or on the last one 12 that we looked at. I think it was Exhibit 7730. 13 Would you have received a copy of this? 14 A. Not unless it was provided to me. I 15 don't recall seeing this one before. 16 Q. Well, do you know if Mr. Berner was 17 basically communicating and negotiating directly 18 with Mr. Krasovec and Mr. Minch? 19 A. As it relates potentially to legal 20 issues only. 21 Q. Is that a "yes"? 22 A. It appears that he's having dialogue 11374 1 with them with regard to the documents. 2 Q. Exhibit 7725, please? 3 MR. SCHWARTZ: Your Honor, I move 4 admission of Exhibit 7726. 5 THE COURT: It's already in. 6 MR. SCHWARTZ: Thank you. 7 Q. (BY MR. SCHWARTZ) Exhibit 7725 is a 8 March 18th, 1988 letter -- this is at Tab 756 -- 9 from Mr. Berner -- excuse me -- from you, sir, to 10 Norwood. I'm sorry. Did I say 7726? I meant 11 7725 at Tab 756. It's a March 18th letter, 1988, 12 from you to Mr. Krasovec and Mr. Minch, Norwood. 13 What was the purpose of this letter? 14 A. What was the purpose of this letter? 15 Q. Yes, sir. 16 A. I just -- I would call it a standstill 17 arrangement whereby both parties would agree to 18 move forward and not do anything to impact what 19 was previously already agreed upon. 20 Q. Okay. When you refer to "already 21 agreed upon," there is a reference in the first 22 paragraph to a meeting that was held in Houston on 11375 1 March 16th, 1988. 2 Do you recall that, that meeting, or 3 who would have attended it? 4 A. No, but I'm sure it occurred. 5 Q. With regard to meetings on Norwood 6 Park, who attended those meetings? And 7 specifically with regard to settlement 8 discussions. 9 A. I might. Raymond Chilton might. Art 10 might. And Jenard might if the matter was of 11 significance. 12 Q. With regard to the items that -- you've 13 had a chance to look at the whole letter. 14 Does that refresh your recollection 15 about who would have attended that meeting, the 16 March 16th meeting? 17 A. Not particularly because it is not a 18 set of minutes of that meeting. I didn't copy 19 anybody on the letter; so, I don't know who else 20 might have attended that meeting on March 16th. 21 Q. Do you know if anyone worked -- do you 22 recall if anyone would have worked with you on 11376 1 writing the letter or running it past counsel 2 or -- 3 A. This obviously was, in part, drafted by 4 counsel. 5 Q. And who are you referring to? 6 A. Schlanger, Cook. 7 Q. Would you have run the letter past or 8 drafted the letter past others in United before 9 sending it? 10 A. Yes. 11 Q. Was that your regular practice? 12 A. On significant assets like this where 13 we were also -- UFC was a joint venture partner, 14 yes, most definitely. 15 Q. Why? 16 A. Prudence. 17 Q. What do you mean? 18 A. To cover and protect the association 19 with regard to relationships with third parties, 20 joint venture partners. 21 Q. So everyone was aware of what was going 22 on? 11377 1 A. Absolutely. 2 Q. Exhibit 7462, which is admitted at Tab 3 758. If you'll notice, this is the signed version 4 of the settlement and loan modification agreement 5 dated April 5th, 1988. Starting on Page OW192925 6 is the settlement and modification of the joint 7 venture agreement of the same date. 8 Do you see that? 9 A. Yes. 10 Q. Okay. Are these the agreements that 11 United Financial Corp. and Norwood reached to 12 extend the 10-million-dollar sales deadline? 13 A. Yes. 14 Q. And did it also make Krasovec and 15 Minch's release absolute by operation of law? And 16 I'll refer you to Page OW192927 to 29. 17 A. Yes, it appears so. 18 Q. And if you look on 928, which is Page 4 19 of the settlement and modification of joint 20 venture agreement, the language that was finally 21 agreed to by Norwood and United Financial is, 22 starting at the top of the page, "If Norwood has 11378 1 not closed gross sales" -- and then leaving out 2 the parenthetical -- "of portions of the land in 3 an amount equal to at least $10 million by 4 12:00 p.m. midnight January 30, 1989, the term of 5 the joint venture shall expire as of the 6 expiration of the deadline. The joint venture 7 shall be dissolved and terminated and all of the 8 land and all of the other assets of the joint 9 venture and any and all rights, titles, and 10 interest in any way relating thereto shall be 11 immediately and automatically distributed to and 12 shall vest in UFC free and clear of any claims, 13 rights, titles, and interests of Norwood, 14 Krasovec, trustee, and/or Minch, notwithstanding 15 any other provision of the joint venture to the 16 contrary." 17 Do you see that? 18 A. Yes. 19 Q. And then the last sentence starting at 20 the bottom of the page, three up, it says, 21 "Simultaneously with the dissolution and 22 termination of the joint venture and the 11379 1 distribution to investing of title in UFC of all 2 of the land and all other assets of the joint 3 venture" -- and then skipping down to Item No. 1 4 or Roman Numeral little i -- "Norwood, Krasovec, 5 and Minch shall be immediately and automatically 6 relieved from any and all liability on the 7 hereinafter defined loan in the face amount of $30 8 million from USAT to the joint venture, the loan 9 documents, and the guaranty." 10 Do you see that? 11 A. Yes. 12 Q. Was that what you recall was finally 13 agreed to by the parties? 14 A. Yes. 15 Q. And if you would -- well, first of all, 16 concerning the provision of a 10-million-dollar 17 sales, if they don't -- strike that. 18 Is this the language by which the 19 deadline was extended? 20 A. Yes. 21 Q. Is the effect of this extension that if 22 the $10 million in sales is not reached, then as 11380 1 of January 30th, 1989, Krasovec and Minch and 2 Norwood are completely relieved of any liability 3 on the 30-million-dollar loan, the loan documents, 4 and their guaranties? 5 A. Yes. 6 Q. Is the effect of that that if the 7 project was a complete failure, Krasovec and Minch 8 would be released from any liability on the loan? 9 A. Their failing to sell $10 million in 10 property does not make the project in itself a 11 failure. The wording is quite specific that if 12 they don't meet the agreement, then their 13 relationship is severed. 14 Q. So, if they fail in reaching the 15 $10 million in sales -- 16 A. Right. 17 Q. -- then all of their liability on the 18 loan is extinguished; is that correct? 19 A. Correct. 20 Q. Is the converse also true, that if the 21 project were successful and they sold $10 million 22 in tracts before January 30th, then they would 11381 1 remain as partners and participate in the profits? 2 A. Correct. 3 Q. Would you turn to the last page of the 4 exhibit? And is that your signature? 5 A. Yes. 6 Q. Okay. Why did you sign there? 7 A. This is the -- this is the second 8 document again? 9 Q. It's the last page of the exhibit. 10 It's OW192956. 11 A. I guess the answer is our counsel 12 determined that it would be appropriate for USAT 13 to consent to the arrangement modifying the joint 14 venture relationship as that might impact the 15 loan. 16 Q. Did Mr. Berner participate in that 17 decision? 18 A. To the extent that he reviewed the 19 documents for the transaction, yes. 20 Q. What about Mr. Crow? 21 A. Not that I'm aware of. 22 Q. For the -- in his capacity as a member 11382 1 of the real estate investment committee? 2 A. No. The committee would approve the 3 business elements of the transaction. The legal 4 elements of the transaction would be the 5 responsibility -- would remain with Art as general 6 counsel for the association. 7 Q. So, would the real estate investment 8 committee and its members have considered the 9 ramifications of these agreements? 10 A. Yes. They were contemplated in the 11 business elements of the approval. 12 Q. And that was Mr. Gross, Mr. Chilton, 13 Mr. Crow, and Mr. Berner? 14 A. Yes. 15 Q. And by signing this consent, did that 16 bind USAT to the agreements that were reached with 17 Krasovec and Minch? 18 A. Yes, to the extent that the settlement 19 and loan modification agreement didn't already 20 clarify that. 21 Q. Okay. Well, the settlement -- 22 A. The settlement and loan modification 11383 1 agreement was between the borrower and United 2 Savings; so, they were already put on notice as to 3 the -- 4 Q. Exactly. And the settlement and 5 modification of joint venture agreement -- 6 A. -- was between UFC and -- 7 Q. Norwood? 8 A. -- Norwood, and that was consented to 9 by the bank. 10 Q. And that's what this exhibit -- that's 11 what this page is, the OW192956? 12 A. Correct. 13 Q. Exhibit 7276, please. Do you recognize 14 this document? 15 A. Yes. This is the form of budget that 16 the Norwood Properties group maintained for the 17 advances under the loan. 18 Q. And was this provided to you? 19 A. Every time there was a loan request. 20 MR. SCHWARTZ: Your Honor, I move 21 admission of Exhibit T7276. 22 MR. DUEFFERT: I don't have an 11384 1 objection. I'd like the record to note that it's 2 not a Bates numbered version and we have no record 3 of it that this was actually received by United. 4 But other than that, I have no objection to the 5 exhibit. 6 THE COURT: Received. 7 Q. (BY MR. SCHWARTZ) Mr. Seidman, the 8 document is dated June 9th, 1988. If you look up 9 at the top left-hand corner, do you see the date 10 there? 11 A. Yes. 12 Q. But it starts with budget amounts from 13 July 1986. You'll see that in the initial 14 advance -- 15 A. Right. 16 Q. -- column, which is the third or fourth 17 column over. 18 A. Correct. 19 Q. And continues all the way through to a 20 19th draw or 20th draw -- 21 A. 29th draw. 22 Q. -- 25th draw, 29th draw at 11385 1 November 2nd, 1988. 2 A. Yes. 3 Q. For the figures appearing -- for the 4 figures or expenses that are on this document 5 prior to June 9th, 1988, would those reflect 6 actual expenditures and then the amounts 7 prospective from June of 1988 would be budgeted or 8 anticipated or pro forma items? 9 A. I don't believe that that was what was 10 intended here. 11 Q. Okay. If you -- 12 A. These dates of Draw Nos. 1 through 29 13 appear to reflect actual advances made under the 14 loan. And the June 9th, '88 may have just been in 15 their spreadsheet and they just never updated it. 16 Q. So, is it your belief that this 17 document was a -- was a November 1988 document or 18 subsequent to that? 19 A. Very well -- these numbers are too 20 specific to be pro forma numbers. 21 Q. Okay. 22 A. I think if you went back to the 11386 1 records, you'd find that there would be an actual 2 advance request under the loan for those dollar 3 amounts. 4 Q. Okay. 5 A. I just don't believe that that 6 June 9th, '88 date is reflective of the advances. 7 Q. Okay. Well, I do have -- I mean, I 8 don't know that I have access to the documents 9 that you're referring to. But the one check that 10 I have is the reference on the 19th draw, the 11 January 6th, 1988 -- 12 A. You have reference to the ledger of the 13 association that shows the advances made under the 14 loan on what date. 15 Q. I don't have that here. 16 A. Okay. But I mean, you can tie to the 17 bottom -- the bottom line of the whole document 18 references "funded by United Savings," and that 19 should tie to the ledger for the association. 20 Q. All right. So, then, is it your 21 testimony then that this indicates to you that as 22 of at least November 2nd, 1988 -- and I'm looking 11387 1 at the last page of the exhibit -- funded by 2 United Savings, the amount was $25,135,273.47? 3 A. Correct. 4 Q. Is that consistent with your 5 recollection of the amount that United had funded 6 on this loan up to that date? 7 A. Yes, subject to being supported by 8 other documents that exist in the records of the 9 association. 10 Q. Exhibit 7286. Now, Exhibit 7286, did 11 you author this memorandum or at least the typed 12 portion? 13 A. Yes. 14 Q. It's a December 14th, 1988 memorandum 15 from you to Jeff Gray, Art Berner, Raymond 16 Chilton? 17 A. Yes. 18 MR. SCHWARTZ: Your Honor, I move 19 admission of Exhibit T7286. 20 MR. DUEFFERT: Mr. Schwartz, would you 21 have a copy of the attachment or -- it refers to 22 an attached request. That's all we have. 11388 1 MR. SCHWARTZ: I have the one page. 2 MR. DUEFFERT: No objections. 3 THE COURT: Received. 4 Q. (BY MR. SCHWARTZ) Do you recall there 5 being an attachment? 6 A. It may have been one of the prior 7 exhibits that you've already presented today. 8 Q. Well -- 9 A. December '88 -- let me see. Are you 10 following this in sequence? 11 Q. Yeah. I thought that, too, originally, 12 and then I went back and looked at the dates of 13 the other letters and I don't know that it does 14 that. But if you have recollection otherwise, 15 then that's fine. 16 A. My recollection was that they had a 17 continuing interest in being associated with the 18 property. If not as a joint venture partner, even 19 as a broker on potential sales of the assets. 20 Q. Who is Jeff Gray? 21 A. He was -- he came into the association 22 from American General to assist on the increased 11389 1 number of foreclosed properties with regard to the 2 portfolio. He would have been in the pecking 3 order, Raymond Chilton's superior. 4 Q. And why were you sending this 5 memorandum to Jeff Gray, Art Berner, and Raymond 6 Chilton? 7 A. My recollection would be that Jeff Gray 8 sat in on the real estate investment committee at 9 that time, and this was my way of advising them 10 that I sought an approval. 11 Q. Okay. Well, the other members of the 12 real estate investment committee were Mr. Crow and 13 Mr. Gross. 14 Had Mr. Gross left the institution by 15 this point in time? Do you recall? 16 A. He may have, and I would have to verify 17 that -- who else were members of the committee at 18 this particular point in time. When Jeff Gray 19 came on, there may have been a reshuffling of 20 responsibilities. 21 Q. I see. Do you recognize the -- first 22 of all, what was the -- why did you send this 11390 1 memo? 2 A. Because I was not about to make a 3 unilateral decision on whether or not we wanted to 4 maintain a relationship with these guys. 5 Q. Okay. And so -- 6 A. And I reached some concurrence that 7 their continued involvement with the property was 8 not necessarily appropriate. 9 Q. And can you read what -- can you read 10 the handwriting down at the bottom? 11 A. Yes. "I will not approve their 12 management." 13 Q. Okay. And whose handwriting is that? 14 A. That's Art's. Art Berner's 15 handwriting. 16 Q. Do you recognize that, Mr. Berner's 17 handwriting? 18 A. Yes. 19 Q. And did he sign it? 20 A. Yes. 21 Q. Is that "Art B."? 22 A. Yes. 11391 1 Q. Okay. Now, did you discuss the matter 2 with Mr. Berner? 3 A. I'm sure I did after he received -- no. 4 Let me take that back. 5 It doesn't look like I did at this 6 point because I would have written him the memo. 7 He read the memo. He sent it back to me with his 8 note. 9 So, it does not look like we had a 10 verbal discussion about it. 11 Q. Do you recall if you received any 12 written response from Mr. Chilton or Mr. Gray? 13 A. No. I do not believe I did. 14 Mr. Berner was a much more thorough manager of the 15 management team than were the other two. 16 Q. Do you mean to say he played a more 17 active role? 18 A. No. I say he's more competent. 19 Q. Do you know why Mr. Berner was saying 20 he would not approve Norwood's management? 21 A. I guess everything -- after everything 22 that had occurred with regard to our joint venture 11392 1 partners, that he believed strongly that it was in 2 our best interest to move forward without them. 3 Q. When you say -- when you said that 4 Mr. Berner was a more competent manager I think 5 you said? Manager? 6 A. Yes. 7 Q. Is that to say that Mr. Gray and 8 Mr. Chilton were not competent? 9 A. They were not as competent as 10 Art Berner. 11 Q. Who hired them? 12 A. I can't say who hired them. I don't 13 know. Raymond Chilton was already there and 14 Jeff -- Raymond Chilton was already there when I 15 was employed, and Jeff Gray came in later. And I 16 don't -- I would assume senior management hired 17 him. 18 Q. Did Mr. Chilton and Mr. Gray 19 participate in the decision that Mr. Berner 20 responded to you, "I will not approve their 21 management"? 22 A. No. And they may not have as they 11393 1 don't appear to have been copied on this same 2 memorandum. 3 Q. Well, I'm sorry. What do you mean 4 "copied"? You sent copies to Mr. Gray and 5 Mr. Chilton, as well as Mr. Berner. 6 A. Right. But when Mr. Berner responded 7 to me, it says to me in real estate. 8 Q. Yes. 9 A. He didn't amend or intend to say CC 10 Chilton or Gray. 11 Q. So, then, was Mr. Berner essentially 12 the decision maker on this? 13 MR. DUEFFERT: Your Honor, I'd ask that 14 Mr. Schwartz specify what the "this" is that he's 15 referring to. 16 MR. SCHWARTZ: "On this decision, I 17 will not approve their management." On the 18 decision not to approve their continued 19 management. 20 MR. EISENHART: Your Honor, I'm going 21 to object to the leading nature of these 22 questions. He's just standing here trying to put 11394 1 words in the witness' mouth. The witness is 2 perfectly capable of giving the testimony. 3 THE COURT: Well, I think he is, too, 4 and I don't believe that leading is permissible. 5 A. You cannot look at this paper without 6 at least recognizing that in December of 1988, the 7 association had gone through a tremendous review 8 by third parties, including federal regulators, 9 that might affect the viability of the ongoing 10 association. 11 As general counsel, it was more than 12 appropriate for me to solicit advice from 13 Mr. Berner, as it would be for me to solicit from 14 Mr. Chilton and Mr. Gray. Mr. Berner was the 15 general counsel for the association. To me, that 16 carried a more authoritative position than that 17 carried by either Mr. Gray or Mr. Chilton. 18 I personally believed that Mr. Berner 19 had an extremely -- a strong working knowledge of 20 this relationship and of the parties and of the 21 documents, and I sought his counsel and respected 22 his opinion. And short of going back to a 11395 1 committee to get a group approval, this was more 2 appropriate to facilitate short-term immediate 3 requests that might have come in from borrowers 4 and other people. 5 Q. (BY MR. SCHWARTZ) In your prior 6 answer, you mentioned review by the regulators. 7 What were you referring to at this 8 point in time? 9 A. We were employees, the whole group of 10 us, of an association that was being examined for 11 its viability. To a certain extent, many of us, 12 only through hearsay, were aware that something 13 was going on. We were not sure what. But to the 14 extent that I was a senior person in the real 15 estate area, many of our colleagues were 16 encouraged to stay on during this very difficult 17 period in the life of the association. And we 18 were encouraged to do whatever we could to keep 19 our nose to the grindstone during a period of time 20 where we did not know how long we would exist. 21 Q. Is that -- how is that -- by whom when 22 you say -- were you encouraged by the regulators? 11396 1 A. We were also encouraged by management. 2 The last thing the management needed at this time 3 would be its senior staff walking out the door and 4 going to work for somebody else. 5 Q. I'm not sure I understand what you're 6 talking about when you say "the regulators" -- 7 A. I know. Scott, unless you were there 8 and lived through it, I don't know that you could 9 understand it. 10 Q. Well, let me ask you this. 11 A. It was a very difficult time. It was 12 hard to go to work in the morning. 13 Q. Let me ask you a more specific 14 question. 15 Were the regulators making these 16 decisions at this point in time? 17 A. Not that I'm aware of. 18 Q. Okay. Exhibit 7485. Do you know what 19 this document is? 20 A. Not really. I can see what it 21 represents, but I do not know what it is. 22 Q. You don't know who drafted -- who 11397 1 created this? 2 A. No. 3 Q. All right. 4 A. I don't even know what this -- 5 Q. That's all right. Exhibit 7289. 6 MR. DUEFFERT: Mr. Schwartz, I've been 7 asked by our support staff that you just say "T" 8 before you announce the number of the exhibit so 9 it will help the record stay clean. 10 MR. SCHWARTZ: I apologize. 11 Q. (BY MR. SCHWARTZ) Exhibit T7289. Do 12 you recognize this memorandum? 13 A. Yes, generally. 14 Q. It's a memorandum from Michael C. Elrod 15 of Akin, Gump dated January 16th, 1989, regarding 16 the Norwood Park joint venture agreement; is that 17 right? 18 A. Correct. 19 Q. Okay. Who is Akin, Gump? 20 A. They were the new outside counsel for 21 the association. 22 Q. And -- now, this is January 1989. 11398 1 A. This is after receivership. 2 Q. Okay. That was in the end of December? 3 A. Right. 4 Q. What was the purpose of this 5 memorandum? 6 A. The deadline had passed, and we needed 7 to technically sever the relationship with the 8 Norwood group. And this was, in effect, a way to 9 advise them of what was going on and to provide us 10 advice on what we needed to do. 11 Q. Okay. The deadline, I believe, was the 12 end of January, January 30th. This is dated 13 January 16th. So, is this more of a precursor? 14 A. No. We had two pending issues. 15 Q. Okay. 16 A. Property taxes for this asset were due 17 by January 30th, 1989. We saw that as the 18 responsibility of the joint venture since they 19 owned the property. Funds were not adequate in 20 the loan to pay the property taxes out of the 21 loan. 22 At this point, I was living under new 11399 1 rules promulgated by the Federal Home Loan Bank 2 Board relating to adherence to the management 3 standard of an assistance agreement with the 4 association, and I needed to ultimately receive 5 approvals to advance those funds out of the -- out 6 of a separate budget for the payment of property 7 taxes. 8 Q. What do you recall was the amount of 9 the property taxes that were owed? 10 A. I don't recall exactly. Maybe 11 $200,000. 12 Q. So, is it your recollection that the 13 loan was drawn to not greater than $29,800,000? 14 A. Yes. It very well could have been. 15 Q. Okay. I think we'll look -- 16 A. To protect the collateral. 17 Q. To protect the collateral by payment of 18 the property taxes? 19 A. Property taxes. In the event the 20 borrower didn't have the financial ability to do 21 so. 22 Q. Did you work with -- did you -- were 11400 1 you in regular contact with the people at 2 Akin, Gump? 3 A. Oh, yes. 4 MR. SCHWARTZ: Your Honor, I move 5 admission of Exhibit T7289. 6 MR. DUEFFERT: No objections. 7 THE COURT: Received. 8 Q. (BY MR. SCHWARTZ) Exhibit T7291. 9 Mr. Seidman, Exhibit T7291 is a February 16th, 10 1989 memorandum from Akin, Gump to United Savings 11 Association of Texas, FSB. 12 Did you receive this on or around 13 February 16th, 1989? 14 A. I would assume so, yes. 15 MR. SCHWARTZ: Your Honor, I move 16 admission of Exhibit T7291. 17 MR. DUEFFERT: No objections. 18 THE COURT: Received. 19 Q. (BY MR. SCHWARTZ) And what was the 20 purpose of this memo? 21 A. Did you say what was the purpose? 22 Q. Yes. 11401 1 A. To provide a review of the relationship 2 and background of the loan that United had on its 3 books. 4 Q. Okay. And as of the date of this memo, 5 if you look at the top of the second page under 6 "current status," how much had been advanced? 7 A. 25,425,794.98. 8 Q. Where would Akin, Gump have gotten that 9 number? 10 A. From myself or from someone in our 11 accounting department. 12 Q. Okay. Does that refresh your 13 recollection about what we talked about earlier 14 regarding whether there was sufficient funds to 15 pay the outstanding taxes? 16 A. There were no available funds in the 17 loan to pay the taxes. 18 Q. Okay. I'm not sure if I understand the 19 math then. Could you explain? Because to me, 20 $200,000 -- 21 A. You're subtracting the 25 million from 22 30 million? 11402 1 Q. Yes, sir. 2 A. I'd have to go back to one of your 3 prior exhibits that had the budget in it. I don't 4 know what you're getting at. If there were funds 5 available in the loan, they would have been 6 advanced to protect the collateral. And, in fact, 7 they were advanced. So, we put out additional 8 money to preserve our collateral position by 9 paying the property taxes. 10 Q. That's exactly what I'm getting at. 11 Did that protect the collateral? 12 A. Under the receivership, we had a 13 responsibility to prove that the collateral was 14 worth more than the property taxes. Believe it or 15 not, in some cases that was not the case. In this 16 case, we knew the collateral was worth well more 17 than the amount of the taxes that were due. 18 Q. The amount of the taxes being the 19 200,000-dollar or so amount? 20 A. Whatever it was, yeah. 21 Q. So, what were the consequences of not 22 paying the taxes? 11403 1 A. The taxing authority would put a lien 2 on the property and the property would be sold at 3 a tax foreclosure sale. 4 Q. All right. Further in that paragraph, 5 where we were looking at current status, there is 6 a reference to a loan to value ratio of 7 110.55 percent. 8 Do you see that? 9 A. Yes. 10 Q. What does that mean? 11 A. That means when you calculate the -- 12 you divide two numbers to arrive at a loan to 13 value number. You divide the current outstanding 14 by the current appraised value of the property, 15 and the relationship between the two is expressed 16 in loan to value ratio. 17 Q. And so, what's the significance of a 18 loan to value ratio of 110.55 percent? 19 A. There would be a significant loss in 20 the asset. 21 Q. Does it mean that the outstanding 22 balance on the loan was greater than the value of 11404 1 the property? 2 A. Correct. 3 Q. Now, the loan to value ratio on this 4 loan, as I recall, was 80 percent. 5 Do you recall that? 6 A. You mean originally? 7 Q. Originally. 8 A. I don't recall originally what it was. 9 Q. Okay. Are you aware of any kind of 10 standard in the industry at the time about what a 11 prudent loan to value ratio is? 12 A. Between 75 and 80 percent, 80 percent 13 being on the high end for a land development type 14 loan. 15 Q. And does 80 percent represent more or 16 less risk to the institution than 75 percent? 17 A. More. 18 Q. That "current status" paragraph goes on 19 to say that, quote, "Since the appraised value of 20 the property does not exceed the amount 21 outstanding on the loan, UFC does not desire to 22 make such interest payment or any further payments 11405 1 or to request an advance therefor under the loan." 2 Do you see that? 3 A. Yes. 4 Q. What does that mean? 5 A. That means that UFC isn't going to put 6 any more money in this project as the owner of the 7 property. 8 Q. And by this point in time, Krasovec and 9 Minch had already been released of their 10 obligations; is that right? 11 A. So, UFC was the sole venture owner 12 then. 13 Q. The memo goes on to say that, quote, 14 "Failure" -- if I can find where my spot is. If 15 you'll give me just a moment. 16 I'm sorry. "UFC does not desire to 17 make such interest payment or any further payments 18 or to request an advance therefor under the loan. 19 A promissory note is non-recourse as to UFC." 20 What does that mean? 21 A. No corporate liability. "Non-recourse" 22 meaning the equivalent is in REM. You're looking 11406 1 strictly at the collateral for the repayment of 2 the obligation. 3 Q. Okay. It goes on to say "Failure to 4 affect the interest payment, assuming proper 5 notice to borrower, will cause a monetary default. 6 Additionally, since the loan to value ratio is 7 above 80 percent and assuming there is no 8 reduction of principal or delivery of additional 9 collateral, a default exists under the promissory 10 note and development loan agreement." 11 A. Correct. 12 Q. Do you know how long -- for how long 13 that condition had existed? 14 A. No, not without actually going back. I 15 mean -- no. You could imply that that -- we were 16 made aware of that when we received the appraisal, 17 whatever the date of that appraisal was. The most 18 recent appraisal prior to that might have shown a 19 value higher than the loan amount. 20 Q. Well, how did you reach the calculation 21 that it was 110.55 percent loan to value ratio? 22 A. Based on the appraised value of 11407 1 whatever that date is, the September '88 value. 2 Q. Okay. 3 A. So, I'm saying we might have been put 4 on notice when we received the September '88 5 appraisal that there was no equity left in the 6 property. 7 Q. The paragraph goes on to say "The loan 8 is secured by a first lien as to 94.713 acres of 9 the property and by a second lien as to 10 4.4617 acres of the property. The first lien on 11 the 4.4617 acres is held by National Western Life 12 Insurance Company." 13 That's Tract 4? 14 A. Correct. 15 Q. "At the time of acquisition, the joint 16 venture executed a non-recourse note to North 17 Western. North Western sent written notice of 18 default on such note to the joint venture. UFC 19 believes the property is overvalued and that 20 economic considerations do not warrant continued 21 payment on the note. The importance of such 22 portion of the property to the development plan of 11408 1 the property as a whole should be considered and, 2 if deemed important, continued efforts to 3 renegotiate the note should be employed." 4 What is that referring to? 5 A. The current value of Lot 4 did not 6 exceed our current investment in the property. 7 Unless the holder of the note were willing to 8 forgive a portion of that purchase price or to 9 accept -- in effect, reduce the debt on the 10 property, it was not prudent to make an additional 11 payment due under that note when we were under 12 water to begin with. 13 Q. So, up to that point in time, all the 14 payments had been made on that piece of 15 property -- 16 A. Correct. A down payment -- 17 Q. -- on that tract? 18 A. -- plus X number of annual payments. 19 Q. Section 3 of the memo regarding release 20 pertinent law says "United FSB has asked us if 21 they are bound to honor the release of the 22 guarantors which is currently in effect under the 11409 1 agreement and consent." 2 Do you see that? 3 A. Yes. 4 Q. Did Akin, Gump reach any conclusions 5 with regard to whether Krasovec and Minch or 6 Norwood would be held liable under the guaranties? 7 A. My recollection was that they felt that 8 the documents were in order and that they would be 9 released. 10 Q. Now, going back to that 4.4617-acre 11 tract, the Tract 4 of -- the Natural Western Life 12 Insurance tract, did you analyze whether the 13 property was essential to the development plan of 14 the property such that it warranted continued 15 payment? 16 A. Yes. And I determined that it was not 17 necessarily an integral part of the overall plan 18 and could be lost as part of the development. 19 Q. Exhibit 7294, which I believe is also 20 Exhibit -- "T" -- which I believe is also Exhibit 21 B2755. 22 MR. SCHWARTZ: Your Honor, if I 11410 1 didn't -- I'm not sure -- did I move admission of 2 Exhibit T7291? 3 THE COURT: Yes, you did. 4 MR. SCHWARTZ: Thank you. 5 Q. (BY MR. SCHWARTZ) Did you draft 6 Exhibit T7294, a memorandum dated March 30, 1989 7 to file? 8 A. Quite skillfully, yes. 9 MR. SCHWARTZ: I move admission of 10 Exhibit T7294. 11 MR. DUEFFERT: No objections. 12 THE COURT: Received. 13 Q. (BY MR. SCHWARTZ) What was the 14 purpose of this memorandum? 15 A. To place on record in the file the 16 quality of work that was done with regard to that 17 tract and why it was or was not prudent to dismiss 18 it from the development. 19 Q. Now, had you visited the Norwood site 20 before reaching this point in time? 21 A. Many times. 22 Q. So, are you familiar with the exact 11411 1 piece of property that Tract 4 encompassed? 2 A. Absolutely. 3 Q. How familiar were you with the 4 property? 5 A. Intimately. 6 Q. In supporting not making any further 7 payments on the National Western note, you say at 8 the end of the second paragraph in your file memo, 9 quote, "However, the City of Austin is only going 10 to approve a use that is compatible to the rest of 11 the property." 12 What does that mean? 13 A. When the overall site was master 14 planned, it was approved subject to the number of 15 cars that it would put onto the adjoining streets, 16 requiring street lights. It was approved subject 17 to the ratio of impervious ground cover to 18 building, which is a significant item in Austin. 19 That site was designed as a hotel use. So, we did 20 not really see a problem with that. But it would 21 have to -- you couldn't put -- you couldn't put a 22 service station there, for example. It was not 11412 1 compatible with the overall master plan for the 2 master-planned development. 3 Q. So, based on your knowledge of the land 4 use restrictions in Austin at the time, was the 5 statement that "The City of Austin is only going 6 to approve a use that is compatible to the rest of 7 the property" true even before you wrote this 8 memo? 9 A. The memo assumes that a different owner 10 is going to own that tract. Prior to my writing 11 the memo and obtaining approvals to walk that 12 debt, it was -- Lot 4 was a consistent part of the 13 overall plan. 14 Q. If it had not been, would the City of 15 Austin have approved any use that was inconsistent 16 with the surrounding master plan? 17 A. I don't think they would have. 18 Q. Was that true -- would that have been 19 true in 1986 as well as 1987? 20 A. Yes. But because it was part of a 21 master-planned development, you would not have 22 gone back to them to ask for subsequent approvals. 11413 1 We were grandfathered into the approval process. 2 Q. I guess what I'm asking is if Norwood 3 had not included Tract 4 in their original 4 application to the city and had been approved for 5 development of their project without Lot 4, would 6 the city have required anyone who decided to 7 develop Tract 4, based on your knowledge and 8 experience with the City of Austin, have required 9 that the use of that tract be consistent with the 10 surrounding development? 11 A. Yes, and the adjoining neighborhoods, 12 residential neighborhoods. 13 Q. You go on in the next paragraph that 14 "The project has two additional lots that are 15 facing Highway 183 representing 1600 feet of 16 frontage. Therefore, the site has a very 17 substantial amount of frontage on the 183 and the 18 loss of Lot 4 does not handicap the property in 19 this aspect of development." 20 Does "this aspect of development" refer 21 to the frontage on 183? 22 A. Correct. 11414 1 Q. And you go on further to say that "The 2 value of the residential tract will not be 3 impacted by the removal of Lot 4 from the 4 development plan." 5 Did you reach a conclusion after your 6 analysis about whether payment should be made on 7 the National Western Life Insurance note? 8 A. Yes. 9 Q. And what was that? 10 A. That it not be paid. 11 Q. You say under Item No. 1 on Page 2, 12 "The alternatives were as follows: One, not make 13 the payment and walk the asset." 14 What does "walk the asset" mean? 15 A. Let it follow the normal legal transfer 16 from the lender who would foreclose on the 17 property. 18 Q. So, it would go back to National 19 Western and United would lose -- 20 A. Investment in the property. 21 Q. And lose its lien? 22 A. It would lose the down payment that it 11415 1 made and the subsequent annual payments that it 2 made and the payments of property taxes related to 3 that piece. 4 Q. Do you recall how much that was? 5 A. How much we had in it? 6 Q. Uh-huh. 7 A. Not without looking at the budget. 8 There is a line item on the budget that says "NWLI 9 tract." 10 Q. Yes. You're referring to 11 Exhibit T7276. How much was that? 12 A. I don't know. I don't know -- 13 Q. Do you have that exhibit in front of 14 you? T7276? 15 A. Yeah. At the top, it references a down 16 payment of $471,460. 17 Q. Okay. Where are you looking? 18 A. Under "land." 19 Q. Okay. That's at the top of the first 20 page? 21 A. Right. 22 Q. It says "Scarborough tract" and then 11416 1 "NWLI." 2 Is that National Western Life? 3 A. Western Life. 4 Q. Uh-huh. And -- 5 A. That was the balance of the note on the 6 third line. 7 Q. Okay. So, it was $1,913,360.10? 8 A. Right. 9 Q. And the down payment was $471,460.04? 10 A. Correct. 11 Q. And that was money that was paid to 12 National Western Life? 13 A. Correct. 14 Q. Exhibit 7295, please. Do you recognize 15 exhibit 7295 as a March 31, 1989 memorandum to 16 Jim Weaver? 17 A. Yes, I do. 18 Q. Would you have drafted this with an 19 attachment of a request for approval from you? 20 A. Yes. I would have drafted this. 21 MR. SCHWARTZ: Your Honor, I move 22 admission of Exhibit T7295. 11417 1 MR. DUEFFERT: No objections. 2 THE COURT: Received. 3 Q. (BY MR. SCHWARTZ) Is this your 4 request seeking approval to, if you will, walk the 5 Tract 4? 6 A. Yes, exactly. 7 MR. SCHWARTZ: Your Honor, I am about 8 to get into a new area. I had every hope of 9 completing Mr. Seidman's examination -- direct 10 examination today. In all honesty, I don't know 11 that I will be able to do that today. I'm not 12 finished with the Norwood transaction, and we 13 still have to cover Park 410. 14 Given that we have two days left in the 15 schedule, I don't know how you want to proceed 16 with regard to breaks and lunch. I'm willing to 17 proceed any way that we can all agree and that you 18 direct. 19 MR. DUEFFERT: Your Honor, a few 20 points. First, our staff tells us that we 21 probably have to finish tomorrow afternoon by 22 about 3:00 in order to start moving all the 11418 1 materials and that's, I think, the end of the 2 process. I'm getting a lot of pressure to end at 3 1:00 or 2:00 if at all possible. 4 THE COURT: I think we should end at 5 noon tomorrow. 6 MR. DUEFFERT: I will say I understood 7 that Mr. Schwartz would be able to complete this 8 witness today. He was not at United when the 9 relevant decisions were made. This witness joined 10 United in August of 1987. Because of that, I 11 don't understand the enormous detail we're going 12 into with these documents that weren't, I believe, 13 relevant to the initial decisions. 14 I would urge Mr. Schwartz strongly to 15 complete the direct today so that we would have 16 ample time for cross tomorrow. 17 MR. EISENHART: Your Honor, I think -- 18 even more fundamentally, I think we had a rather 19 clear understanding with the OTS that we would not 20 start any witness this week that we were not going 21 to be able to finish. I thought we were operating 22 under that understanding. 11419 1 MR. SCHWARTZ: Your Honor, we had every 2 expectation that Mr. Stone would take less time 3 than he did. There was no anticipation that he 4 would take three days. With that in mind, we had 5 every reasonable expectation that we would be able 6 to complete Mr. Seidman's examination before the 7 end of the week. 8 MR. DUEFFERT: Your Honor, I might ask 9 if perhaps we could go until 6:00 p.m. today so 10 that we could complete the direct. 11 THE COURT: Certainly we can go till 12 6:00 if we can finish the direct today. I would 13 like to -- and then the respondents can do their 14 cross tomorrow by noon. I'd like to adjourn by 15 noon tomorrow. 16 MR. SCHWARTZ: We're even willing to, 17 if you'd like, take a one-hour lunch break instead 18 of an hour and a half to facilitate it. 19 THE COURT: I'm not sure that would 20 facilitate it. 21 We'll adjourn until 1:30. 22 11420 1 (Luncheon recess taken at 11:58 a.m.) 2 3 THE COURT: Be seated, please. We'll 4 be back on the record. 5 Mr. Schwartz, you may continue. 6 MR. SCHWARTZ: Thank you, Your Honor. 7 (1:33 p.m.) 8 Q. (BY MR. SCHWARTZ) Mr. Seidman, to 9 clarify a couple of points, we talked about the 10 National Western Life Insurance tract. 11 Was National Western Life Insurance a 12 part of USAT in any way? 13 A. No, not at all. 14 Q. No connection whatsoever? 15 A. Not that I'm aware of. 16 Q. Okay. I want to show you a couple of 17 documents. This is Exhibit -- Tab 734, T7701, and 18 ask if you ever saw that document. It's Appraisal 19 Associates of Austin appraisal of the Norwood 20 property. 21 Did you ever see that before? 22 A. Never. 11421 1 Q. And this is marked as Exhibit B3839. I 2 don't know if I was catching a smiling glance at 3 Mr. Dueffert there. 4 Was there something I missed? 5 A. I didn't glance at anybody. I'm 6 laughing at the document. It's a very 7 nice-looking document. 8 Q. Did you ever see this before? 9 A. I don't think so. 10 Q. Was that in the files of United Savings 11 Association of Texas that you were aware of? 12 A. Not that I was aware of. It doesn't 13 mean it wasn't there, but not that I was aware of. 14 Q. You never saw it -- 15 A. No. 16 Q. -- in this form? 17 A. A leather-bound appraisal? No. 18 Q. This is Exhibit T7029, which is at Tab 19 698. 20 Is that the form of the Norwood 21 appraisal that you saw from 1986 that was in 22 USAT's files? 11422 1 A. I don't recall. Is this the same -- 2 Q. It's the same document except this is a 3 photocopy of the same document. 4 Do you recall if that was the form that 5 it was in? 6 A. No, I'm not aware of it. 7 Q. Okay. 8 A. That's not to say that they didn't 9 exist in the files, but I was not aware of it. 10 Q. Okay. Also, we talked about 11 Mr. Krasovec and Minch's liability on the 12 guaranties. And at one point, you kind of 13 chuckled and I don't know what you were thinking 14 about with regard to Mr. Krasovec and Minch's 15 attitudes about their belief that they were or 16 were not subject to liability on the guaranties. 17 What were you -- what was it that you 18 were thinking of? 19 A. Well, when that issue was pressed 20 during the course of several conversations, I 21 don't think Mr. Minch worried about his guaranty 22 too much because I don't think he felt like he had 11423 1 much of a net worth to worry about. 2 Mr. Krasovec, on the other hand, was 3 quite concerned about his guaranty and was quite 4 active in reminding me about how important that 5 guaranty to him when I suggested to him at one 6 point during a meeting that we weren't about to 7 remove him from it. 8 Q. What did he do? 9 A. He jumped across the conference room 10 table and went for my throat, among witnesses. 11 Q. Did he say anything at the time when he 12 did that? 13 A. Well, I was in such -- yes, he did. I 14 was in shock when it happened. He pulled himself 15 back off the table or Mr. Minch pulled him back 16 over the table. Something to the effect that, you 17 know, "I was never supposed to have to worry about 18 this guaranty." 19 Q. Do you know what he meant by that? 20 A. I just took it at its face value. It 21 was one of the more -- my most interesting time as 22 a lender. 11424 1 Q. I'm sure. Exhibit 7297, please. Do 2 you recognize Exhibit 7297, which is labeled 3 Exhibit 6, "Asset summary: United Savings 4 Association of Texas. Asset name: Norwood 5 property" or, excuse me, "Norwood." It's dated 6 April 30th, 1989. 7 A. Yes. 8 Q. It's T7297. Did you write this? 9 A. Yes. 10 Q. And what is it? 11 A. The assistance agreement with the 12 Federal Home Loan Bank Board required that 13 presentations for approvals of any items that went 14 to them had attached an asset summary which was 15 something that they could refer to fairly quickly 16 to get themselves fluent in the asset without 17 having to go through a lot of research. 18 Q. And up to this point in time, had there 19 been any sales at all on any of the lots? 20 A. No. 21 Q. On Page 3 of the asset summary, it 22 starts a background section with a description of 11425 1 events leading to the current status of the loan 2 through the date of the memo, April 30th, 1989? 3 A. Yes. 4 Q. Did you write that? 5 A. Yes. 6 Q. What was the source of the information 7 that went into drafting that background summary? 8 A. It came from the review of 9 correspondence in the files of the association. 10 Q. And on Page 4 of the memorandum, in the 11 last paragraph above B, the memo lists the current 12 loan balance as of March 31st, 1989, as 13 25,425,794.98. 14 A. Okay. 15 Q. With interest due through that date of 16 1,097,093.09. 17 What would have been the source of that 18 information? 19 A. The books and records of the 20 association. 21 Q. Exhibit 7306, please. 22 MR. DUEFFERT: Mr. Schwartz, do you 11426 1 want to move in -- 2 MR. SCHWARTZ: Yes, please. Thank you, 3 Mr. Dueffert. 4 Your Honor, I move admission of T7297. 5 MR. DUEFFERT: No objections. 6 THE COURT: Received. 7 Q. (BY MR. SCHWARTZ) Mr. Seidman, I've 8 just handed you Exhibit T7306, which is an 9 August 14th, 1989 letter to you from 10 Ms. Cynthia Bauckman. 11 Do you recognize it? 12 A. Yes. 13 Q. Did you receive it? 14 A. Yes. 15 MR. SCHWARTZ: Your Honor, I move 16 admission of Exhibit T7306. 17 MR. DUEFFERT: No objection. 18 THE COURT: Received. 19 Q. (BY MR. SCHWARTZ) What's the purpose 20 of this letter? 21 A. I asked her as the owner of UFC what 22 was owed on the note. She was responding to me as 11427 1 United Savings. 2 Q. When you say "owner of UFC," were you 3 the owner of -- 4 A. The sole -- not me personally. It 5 says -- UFC was the sole owner of Norwood/United 6 Park Joint Venture. We were the borrower on the 7 note. 8 Q. Yes, sir. 9 A. And I wanted to know what the balance 10 was that was due on the note. 11 Q. Okay. Exhibit T7313, please. Exhibit 12 T7313 is an asset summary dated December 30th, 13 1989. 14 Do you see that? 15 A. Yes. 16 Q. Okay. What was the purpose of this? 17 A. This was attached to another document. 18 Q. What -- do you recall what document 19 that was -- that would have been? 20 A. Yes, because of the date. One year 21 within receivership, the association was required 22 to submit a collection plan for all assets over a 11428 1 million dollars and property plans for those 2 foreclosed properties that it owned over a million 3 dollars. This was attached to the collection plan 4 for the -- I mean the Norwood asset that I 5 prepared and submitted on that date. 6 Q. So, this is the Norwood part of that 7 plan? 8 A. No. Yes. But this was attached -- the 9 requirement with the assistance agreement was that 10 you had to have an asset summary attached to 11 whatever you submitted, and this was attached to 12 the collection plan for the asset. 13 Q. I see. I notice that if you turn back 14 to Exhibit T7297, up at the top, it says 15 "Estimated value, $23 million." 16 What is that referring to? 17 A. An appraisal. 18 Q. And then T7313, the estimated value is 19 $11,500,000. 20 Is that also from an appraisal? 21 A. Yes. I would have to assume so. 22 Q. Okay. 11429 1 A. There was probably an intervening 2 appraisal received between these two documents. 3 Q. Okay. Do you have any explanation for 4 why the value of the property dropped from 5 23 million on April 30th to a December 30th value 6 of 11,500,000? 7 A. Yes. I think the appraisal methodology 8 changed. Rather than valuing each lot separately, 9 it was valued as if the entire 85 acres were sold 10 to one entity rather than individual parcels 11 selling out over time to a variety of different 12 owners. 13 Q. And did that make a difference to you 14 as the manager of the property? 15 A. It just gave an indication that on a 16 bulk sale basis, which is the way I would 17 paraphrase that, that the value was less than it 18 would be on a retail basis. 19 Q. And why would you -- why would you as 20 the -- on behalf of the lender be interested in 21 that basis? 22 A. Because that would be the value that a 11430 1 purchaser would pay for the entire tract. 2 MR. SCHWARTZ: Your Honor, I move 3 admission of Exhibit T7313. 4 MR. DUEFFERT: No objection. 5 THE COURT: Received. 6 Q. (BY MR. SCHWARTZ) Also, that 7 valuation, was that the valuation excluding the 8 National Western Life Insurance tract? 9 A. Yes. I assume at that point in time, 10 Lot 4 did not exist as part of the collateral. 11 Q. Okay. If you'll turn to Page 2 of 12 Exhibit T7313, you'll see a reference there to 13 "Lot 4, which is 4.4617 acres, which was 14 encumbered with a first mortgage held and was lost 15 due to foreclosure, leaving 85.337 net saleable 16 acres." Is that right? 17 A. What page are you referring to? 18 Q. Page 2 of Exhibit 7313, about the -- 19 starting towards the end of the third line. 20 A. Oh, okay. Well, it's best proven 21 because Lot 4 is not described in the inventory 22 below. 11431 1 Q. Good point. Thank you. 2 A. It was the same thing. 3 Q. I didn't catch that. Thank you. 4 Also on Page 4 in the last paragraph 5 above "B," it says the current loan balance is 6 25,425,794.98. 7 Do you see that? 8 A. Yes. 9 Q. Okay. And then on "current status," it 10 says "Interest is due on the loan in the amount of 11 $3,317,965.63." 12 A. Right. 13 Q. Now, was UFC paying -- making interest 14 payments on the loan? 15 A. No. 16 Q. Why not? 17 A. It had determined that it was not going 18 to put good money after bad. What that means is 19 that it already invested 9 million 4. It did not 20 make any business sense to advance additional 21 dollars to protect its equity position. 22 Q. The paragraph goes on to say "The 11432 1 failure of UFC to keep the interest current has 2 caused monetary defaults and the need for USAT FSB 3 to demand and post the property for foreclosure." 4 It then goes on to talk about the loan 5 being non-recourse of the limited guaranty held by 6 Krasovec and Minch was 4 million released on 7 January 30th, 1989 pursuant to the settlement 8 modification and consented to by Krasovec and -- 9 excuse me -- consented and agreed to by United 10 Savings on that date. 11 So, at this point in time, the current 12 loan balance is 25,425,794.98. That's the same 13 amount that we saw in April. 14 Why did that amount not go up, the 15 amount drawn on the loan, from April to December 16 with interest payments or any other payments that 17 were made? 18 A. We did advance additional moneys. We 19 advanced additional moneys to pay the taxes and to 20 maintain the property. Those were recorded. I 21 don't believe they were recorded as advances by 22 UFC. It should be reflective in that amount 11433 1 unless they were put in suspense -- in a suspense 2 account and not added to the principal amount of 3 the loan until the foreclosure actually occurred. 4 Q. Okay. So, your recollection is that 5 the amount that was due was greater than 6 25,425,795? 7 A. Yes, by the cost of maintaining the 8 property taxes on the property. 9 Q. All right. And Page 6 of the asset 10 summary under "C" discusses the appraisal. 11 A. All right. 12 Q. Do you see that? 13 A. Yes. 14 Q. And the last sentence of that 15 paragraph -- excuse me -- of that section on the 16 next page, Page 7, is "We would concur with the 17 gross retail value estimates of $15.6 million." 18 Would you take a look at the review of 19 that appraisal and tell me what that last sentence 20 means? 21 A. The last sentence of what? 22 Q. Would you take a look at Section C 11434 1 which starts on Page 6 of the asset summary and 2 continues on to Page 7 -- 3 A. You want me to explain what "we would 4 concur with gross retail value"? 5 Q. Yes, sir. 6 A. Oh, that just means what the asset 7 would sell for at some point in the future. That 8 is the number that was discounted back to arrive 9 at a present value. 10 Q. So, the present value was 11,500,000? 11 A. Correct. That's the present value of 12 15 whatever. 15, 6. 13 Q. In the first paragraph -- the first, I 14 guess, full paragraph of Section C, it starts out 15 "The site's principal intended use was for 16 commercial office. The appraisal has determined 17 that the impact of a 5- to 10-year supply of 18 office space has dramatically reduced the value of 19 the Norwood asset." 20 Is that consistent with your 21 recollection -- 22 A. Yes. 11435 1 Q. -- at the time? "Of the total 20.279 2 million square feet of existing office space, 3 6.977 million square feet are vacant. A retail 4 market, which is another target use for this site, 5 in particular Lot 1, indicates an overall market 6 occupancy of 78.29 percent at year end 1988. 7 Retail rental rates have declined during the past 8 year to a fourth quarter average of $10.28 per 9 square foot. Due to the current overbuilt 10 conditions in the market, the appraiser believes 11 the highest and best use of the site would be to 12 hold for future development until market 13 conditions reach equilibrium." 14 Did you review the Murphy Curvy 15 & Associates -- 16 A. Yes. 17 Q. -- appraisal? Did you concur in its 18 conclusions? 19 A. Yes. 20 Q. Exhibit 73 -- excuse me -- 7722, which 21 is at Tab 759. Exhibit 7722 is a July 24th, 1990 22 letter from Akin, Gump to you. 11436 1 Do you recall receiving this? 2 A. Yes. 3 Q. What was the purpose of this letter? 4 A. To advise me that they planned on 5 proceeding with a posting of the asset for 6 foreclosure. 7 Q. And on the second page of the letter, 8 KM357, there are four individual items and then a 9 total listed in the paragraph below those. 10 Do you see that? 11 A. Yes. 12 Q. Could you -- would you explain to us 13 each line item of those four line items? 14 A. The December 1st, 1988, through 15 July 1st, 1989 installments of interest, I don't 16 remember what interest rate the note carried; but 17 let's say it was prime plus 2. It's just the 18 day-to-day outstanding on the interest rate. 19 Q. So, is this an amount was owed on the 20 loan at or about the time that this demand letter 21 was sent? 22 A. I don't want to get into a confusing 11437 1 discussion of "owed." That's the amount that was 2 accrued as being due on the loan at the stated 3 rate in the note. 4 Q. If the borrowers had kept the loan 5 current and made payments on the loan throughout 6 the existence of the loan and the term of the 7 loan, would this amount have been paid to United 8 Savings? 9 A. Yes. 10 Q. Item No. 2, could you explain that? 11 A. That's just the principal balance at 12 that date. 13 Q. Is that the same number that we looked 14 at earlier? 15 A. Yes. I think it's identical. 16 Q. Okay. 17 A. The -- 18 Q. Does that refresh your recollection as 19 to whether or not there were additional advances 20 that you could recall? 21 A. When we get to item 4, I think -- 22 Q. Oh, okay. 11438 1 A. No. 3 is -- there were penalties 2 provided in the note. This is just a little -- 3 literal calculation of those penalties that were 4 recited in the note, the original note, for 5 30 million. 6 Q. Okay. 7 A. And the fourth one, "Escrow advance 8 made on your behalf by lender in the amounts of 9 340 due under the deed of trust for insurance 10 premiums, taxes, and assessments," those were the 11 moneys that were advanced and I referred to a 12 minute ago as in a suspense account related to the 13 maintenance of the asset. 14 Q. Would those amounts have been paid by 15 the borrower by the proceeds if the loan had 16 remained current through the life of the notes? 17 A. Yes. 18 Q. And then the -- in connection with the 19 paragraph down below that lists a total -- and I 20 have calculator if you'd like to check the 21 numbers, if you feel the need. 22 A. They are too high. The numbers are too 11439 1 high. I can't count that high. 2 Do all four of those numbers add up to 3 31 million 8? 4 Q. I'm sorry? 5 A. Are you asking me do all four of those 6 numbers add up to 31 million 8? 7 Q. I'm asking you what that 31,812,732.44 8 is? 9 A. That's intended to be the total of the 10 four categories described above that. 11 Q. And are those -- other than, I guess, 12 the unpaid late charges, are all of those amounts 13 that would have been -- are all of those amounts 14 that would have been paid on the note if the loan 15 had remained current and paid through the life of 16 the note? 17 A. Yes. 18 Q. Exhibit 7316. "T." 19 A. I want to respond a little more, if I 20 can, to that last question -- 21 Q. Yes, sir. 22 A. -- without confusing everyone. 11440 1 Q. Please. 2 A. That is the amount that would have been 3 due had the borrower stayed in place on the note. 4 However, on the books and records of the 5 association, the items referencing interest of 6 5 million -- 7 Q. That's Item No. 1 on Page 2 of the 8 letter? 9 A. Right. 10 Q. Okay. 11 A. And Item No. 3, accrued and unpaid late 12 charges. 13 Q. Yes, sir. 14 A. Would not have been accrued on the 15 books of the association. So, they were not an 16 asset of the association for internal bookkeeping 17 purposes. 18 Q. I'm sorry. Are those -- the amount -- 19 the 5-million-dollar amount in Item 1, is that an 20 amount that would have been paid by the borrower 21 had the loan remained current through the life of 22 the loan? 11441 1 A. Yes. And I'm just adding further 2 clarification that as far as the association, 3 there are two sets of records maintained on a 4 borrowing relationship: Those defined by the note 5 and those defined by internal accounting policies. 6 At the point in time that we learned 7 that the asset was not worth the book value, we 8 would have ceased accruing on that asset. 9 Q. Interest still would have been due on 10 the asset? 11 A. And as far as the borrower knows, those 12 moneys would be due and that total would be used 13 for calculating any other responsibilities related 14 to the transaction. I just want you to at 15 least -- I wanted to clarify the fact that there 16 are two separate distinctions made with regard to 17 the interest. 18 Q. I've handed you Exhibit 7316. What is 19 this document? 20 A. Under the assistance agreement, we were 21 required to report any variances from the approved 22 budget on each asset. 11442 1 Q. Yes, sir. And does this reflect 2 additional payments that were made on the Norwood 3 property? 4 A. Yes. This was the government's 5 approval, although I don't see that on this form 6 the government approved it on SW136. This is a 7 request for the ratification of the expense to pay 8 off the loan. 9 Q. Do you recall that it was approved? 10 A. Yes. 11 Q. Did you draft this document? 12 A. Yes. 13 Q. Can you determine by looking at the 14 document what the additional expenses were that 15 are reflected? 16 A. I'm not quite sure what you mean by 17 "additional expenses." 18 Q. Well, I think you indicated in one of 19 your earlier answers that in order to advance 20 additional funds to maintain the property, you 21 needed to get the government's approval. 22 A. Right. 11443 1 Q. And then I asked you is this where you 2 requested such approval or something to that 3 effect. I don't remember my exact words. 4 A. Well, the association was in a somewhat 5 unusual circumstance as one of its affiliates was 6 the borrower on the note. The institution clearly 7 had a choice. It could either pay off the note 8 that it was obligated on through UFC or it could 9 allow USAT to foreclose on itself, in effect, and 10 become the owner of the property through a 11 foreclosure proceeding. 12 Q. Yes. 13 A. At the end of the day, the results are 14 the same. 15 Q. Yes. 16 A. Ownership vested in the association. 17 Q. Okay. And what was the purpose of this 18 document? 19 A. To pay the interest on the USAT loan. 20 Q. Okay. And was that an amount 21 additional to what we saw in the 5-million-dollar 22 number? 11444 1 A. No, no. 2 Q. Is that included in that? 3 A. I would assume so. 4 Q. Okay. 5 MR. SCHWARTZ: I move admission of 6 Exhibit T7316. 7 MR. DUEFFERT: No objections. 8 THE COURT: Received. 9 Q. (BY MR. SCHWARTZ) Exhibit 7315, T. 10 Do you recognize this document? 11 A. Yes. It was passed along to me during 12 the course of managing the asset. 13 Q. And what's the purpose of this 14 document? 15 A. The purpose of the document was to 16 reduce the book value of the individual assets 17 that are described on the sheet by the -- I don't 18 know which government entity was managing the 19 assistance agreement at that time, but it was 20 probably -- it was either the FDIC or the RTC. 21 Q. Okay. 22 A. Directed to write down to reduce the 11445 1 carrying book value of the asset for purposes of 2 the assistance agreement to bring it more in line 3 with current market values. 4 Q. Okay. Exhibit -- 5 MR. SCHWARTZ: I move admission -- 6 Q. (BY MR. SCHWARTZ) And what is the 7 significance of a -- what's the amount there? 8 19,185,718-dollar write-down? What does that 9 mean? 10 A. Well, if you subtracted the 19 million 11 directed write-down from whatever we had it on the 12 books for at that time, the resulting amount would 13 be, for lack of a better term, the adjusted book 14 value of the asset. 15 Q. And when you say "book value," what is 16 that? Is that the appraised value? What's the 17 book value? 18 A. In this case, the book value is going 19 to come close to matching the appraised value. 20 There was not always a lot of detail provided when 21 the government suggested that a directed 22 write-down occur, and this was under protest by 11446 1 the association when it did occur. 2 Q. Okay. Did the -- do you recall the 3 reasons -- 4 A. Why they would do it? 5 Q. -- why they protested? 6 A. It was their attempt to reduce the 7 management fee paid to the association during the 8 term of the assistance agreement on what we refer 9 to as covered assets. This was a fee that was 10 paid to the new owners of the association by the 11 government for managing the assets that were in -- 12 that were bought by the new association from the 13 receiver at 12-30-1988. 14 Q. As a part of the assistance agreement? 15 A. Correct. 16 Q. Okay. Did this include or any of these 17 amounts include the $9.4 million that UFC put into 18 the property? 19 A. It could very well have. 20 Q. Do you know? 21 A. No, not without doing some research. 22 Q. Okay. Exhibit 7317T. 11447 1 THE COURT: Did you did you offer 2 T7315, Mr. Schwartz? 3 MR. SCHWARTZ: If I didn't, Your Honor, 4 I intended to. 5 THE COURT: Is that offered? 6 MR. SCHWARTZ: Yes, sir. 7 MR. DUEFFERT: No objections. 8 THE COURT: Received. 9 Q. (BY MR. SCHWARTZ) Do you recognize 10 Exhibit T7317? 11 A. Yes. 12 Q. And it appears to be an August 30, 1991 13 semi-annual budget variance on the Norwood Park 14 project. 15 Did you draft this? 16 A. Yeah. 17 Q. What was the purpose of this? 18 A. Under the assistance agreement, we were 19 required to submit this piece of paper, even 20 though there was no variance. You see under the 21 heading "specific approvals requested"? 22 Q. Yes. 11448 1 A. "None." 2 Q. Okay. 3 A. So, it was just a formality, paperwork 4 formality. 5 Q. Okay. So, this did not -- 6 A. It does have attached to it the 7 reference to the property taxes on the property, 8 and you can see they were $330,000. 9 Q. Oh, I see. That's on the last page of 10 the document? 11 A. Yeah. That's just a ledger sheet. 12 Q. And that's reflecting the ad valorem 13 taxes? 14 A. For 1988. 15 Q. And were those paid by the -- were 16 those paid by the -- 17 A. Yes. Association. 18 Q. -- association? 19 A. Yeah. 20 Q. To protect the value of the property? 21 A. Yes, and approved by the federal 22 government. 11449 1 MR. SCHWARTZ: Your Honor, I move 2 admission of Exhibit T7317. 3 A. This would have been included in that 4 escrow number we just mentioned a few minutes ago, 5 that Item No. 4 on your sheet. 6 Q. (BY MR. SCHWARTZ) In the Exhibit 7 7722, which was the letter from Akin, Gump? 8 A. Yes. It would have -- it would have 9 been treated as -- in that escrow, taxes, 10 insurance, maintenance number. 11 Q. Okay. That's Item No. 4, and that's 12 $340,139.20. This would have been included in 13 that? 14 A. Yeah. Should have been. 15 Q. Okay. 16 MR. DUEFFERT: Your Honor, I don't know 17 that I have an objection. However, given the fact 18 that none of these documents we're seeing are 19 Bates stamped, I would ask the witness just to 20 look and see if the document appears to be 21 complete and that the attachments make sense. 22 We're here talking about T7317. 11450 1 MR. EISENHART: Your Honor, may I be 2 heard for a moment? On Exhibit T7315 which Your 3 Honor received a moment ago, there is a whole 4 series of numbers on here. The only one that the 5 witness has addressed or the only one that's 6 really been discussed is the number that pertains 7 to Norwood. 8 I would ask the Court to reconsider, 9 and I would have an objection to the admissibility 10 of this document to the extent it goes beyond 11 Norwood. I don't mind it being received, but I 12 would ask that its presence in the record be 13 limited to what was actually put in evidence, 14 which is -- discussed, which was the Norwood 15 number. 16 THE COURT: Why is that? 17 MR. EISENHART: Well, there are figures 18 on here and, as we've heard the witness say, the 19 derivation of these figures is somewhat 20 questionable. These all pertain to an assistance 21 agreement which was a matter really between the 22 FDIC as receiver and the Ranieri group as the new 11451 1 owner of the bank. I'm not sure those numbers 2 really have any significance in terms of this 3 case, but I don't want numbers -- for instance, 4 there is a figure on here that says "various junk 5 bonds." Well, as Your Honor knows, there is a 6 high-yield bond issue in this case. I don't want 7 those numbers coming floating back to me in some 8 post-trial brief as a measure of damages on the 9 high-yield bond claim when, you know, they haven't 10 been authenticated as such. They haven't been 11 discussed. We don't know the derivation of the 12 numbers, and there's reason to believe that those 13 numbers have -- may be questionable, quite 14 frankly. There may be other agendas at work in 15 the derivation of those numbers. 16 MR. SCHWARTZ: Your Honor has already 17 indicated that you've received the document. 18 The -- I will be more than happy to ask the 19 witness what the other numbers reflect from his 20 knowledge of them. There has been -- there have 21 been numerous documents admitted which contain 22 information that's in addition to information that 11452 1 we've seen -- that we've referred to in the 2 documents in the course of testimony. But 3 nevertheless, I'll be more than happy to let the 4 witness explain his understanding of what those 5 other numbers reflect. 6 MR. EISENHART: Well, I'm not trying to 7 turn this witness into a witness in the high-yield 8 bond case, which I don't think he was ever 9 intended to be. I don't know what he might know 10 about that area. I'm simply saying we're seeing a 11 document with a lot of numbers on it, only one of 12 which has been the subject of any discussion. And 13 I think that the receipt of the document ought to 14 be limited to that number. 15 THE COURT: Well, I don't want to 16 truncate the document. I think we should make a 17 record as to what it is. You're not attesting to 18 the validity of these numbers, are you? 19 THE WITNESS: I can tell you what the 20 intent of that number was, but I cannot tell you 21 how it was derived. 22 THE COURT: We're talking about the 11453 1 other numbers now. 2 THE WITNESS: I can on the real estate 3 issues. I can't speak to a bond issue. 4 THE COURT: Well, think we've made a 5 record on it. I certainly wouldn't think that 6 this established the value of all these properties 7 and lines. 8 MR. EISENHART: I wouldn't have thought 9 it was either, Your Honor, but I just thought the 10 record ought to be clear on that. 11 THE COURT: Thank you. 12 MR. EISENHART: Thank you. 13 THE WITNESS: I'd like to reflect that 14 there was not just one directed write-down during 15 the course of the assistance agreement. There may 16 have been several directed write-downs, some 17 relating to assets that are not on this list. In 18 just generality, on the date the association went 19 into receivership, those assets had a book value. 20 And that was the book value that was defined in 21 the assistance agreement and against which the new 22 owners of the association were paid a fee. 11454 1 Q. (BY MR. SCHWARTZ) With regard to the 2 real estate portion, what you said you could 3 attest to, does that reflect REO of the 4 institution? 5 A. Yes. 6 Q. And what is the intent -- you said you 7 could identify the intent of this document with 8 respect to the REO. 9 A. The intent was to try to bring the book 10 value closer to the appraised value of the 11 underlying property value. 12 Q. I'm sorry. I don't recall if I put in 13 front of you the next exhibit, 7314. 14 Do you have that? 15 A. No. 16 MR. SCHWARTZ: And did I move admission 17 of T7317? 18 MR. DUEFFERT: I believe it all began 19 when I was asking the witness if he could just 20 review the document and make sure the attachments 21 make sense since there is no Bates stamp on it. 22 A. My only problem with the document is 11455 1 the fact that it's not executed by the government. 2 Q. (BY MR. SCHWARTZ) Do you recall it 3 having been approved? 4 A. They were quite tardy in their 5 approvals of many requests. I have to assume, 6 since there was no variance to report, that it 7 really didn't matter whether they approved it or 8 not. There was nothing to approve. 9 THE COURT: I believe the question, 10 though, was whether it looks like a complete 11 document. 12 THE WITNESS: Yes, yes. 13 THE COURT: All right. 14 MR. DUEFFERT: Is that a "yes"? 15 THE WITNESS: Yes. 16 MR. DUEFFERT: No objection. 17 THE COURT: Received. 18 Q. (BY MR. SCHWARTZ) Exhibit T7314 is a 19 specific request for approval regarding Norwood 20 Park. 21 Can you identify this -- what this 22 document is or was for? 11456 1 A. This was the first request made under 2 the terms of the assistance agreement to pay the 3 property taxes on the property that were due and 4 payable. 5 Q. Does this reflect additional expense to 6 the property? 7 A. Yes. 8 Q. In addition to what we saw in 9 Exhibit 7722? 10 A. It should be included in that total. 11 Q. Okay. And is this document complete to 12 the best of your recollection? 13 A. Yes. 14 MR. SCHWARTZ: Your Honor, I move 15 admission of Exhibit T7314. 16 MR. DUEFFERT: No objection. 17 THE COURT: Received. 18 Q. (BY MR. SCHWARTZ) 7321. 7321 is -- 19 T7321 is a document dated April 1st, 1992. 20 Can you identify what that is? 21 A. Yes. This is a request to the federal 22 government to approve a partial sale out of a 11457 1 piece of the Norwood property. 2 Q. And who is Dick Costello? 3 A. He was one of my asset managers 4 reporting to me and who had responsibility for 5 managing the asset. 6 Q. Was this -- did this sale go through? 7 A. No, I don't believe so. 8 Q. Do you know why? 9 A. I think they were competing against two 10 other sites and the Texas Employment Commission 11 just decided either to choose another site or 12 decided not to do it at all. 13 Q. And does this document appear to be 14 complete to the best of your recollection? 15 A. Yes. 16 MR. SCHWARTZ: Your Honor, I move 17 admission of Exhibit T7321. 18 MR. DUEFFERT: No objections. 19 THE COURT: Received. 20 Q. (BY MR. SCHWARTZ) 7322. 21 A. This is the same document, a subsequent 22 date, for the sale of the entire tract to a 11458 1 purchasing group. 2 Q. When you say "entire tract," what are 3 you referring to? 4 A. The 85 acres that were then owned by 5 the association. 6 Q. And was this sale carried out? 7 A. Yes. 8 Q. And what was the amount of money that 9 was eventually recovered on the 85 acres? 10 A. 4.4 million. 11 Q. And was this sale approved? 12 A. Yes. 13 Q. On the last page of the exhibit, there 14 is a site plan. 15 Do you see that? 16 A. Yes. 17 Q. Now, is the sale of this property 18 exclusive of Lot 4? That's on the right side of 19 the page. 20 A. Yes. 21 Q. Okay. 22 MR. SCHWARTZ: Your Honor, I move 11459 1 admission of Exhibit T7322. 2 MR. DUEFFERT: Subject to the witness 3 verifying, once again, that it's a complete 4 document -- 5 THE WITNESS: Yes, this looks complete. 6 MR. DUEFFERT: No objection. 7 THE COURT: Received. 8 Q. (BY MR. SCHWARTZ) Exhibit 7325. Can 9 you identify what this document is? 10 A. It's a request -- it reflects the fact 11 that a portion of the collateral was released. 12 When the asset was sold, it was not sold for cash. 13 It was sold on a note. 14 Q. I see. There's a purchaser's statement 15 and seller's statement attached to the memorandum. 16 Is that for the 4.4-million-dollar sale that the 17 85 acres eventually went to? 18 A. Yes. 19 Q. So, this is the closing statement? 20 A. Apparently, yes. 21 MR. SCHWARTZ: Your Honor, I move 22 admission of Exhibit T7325. 11460 1 MR. DUEFFERT: Subject, once again, to 2 the witness -- 3 THE WITNESS: It looks complete. My 4 responsibilities did not relate to the sale of the 5 asset. 6 MR. DUEFFERT: No objection. 7 THE COURT: Received. 8 Q. (BY MR. SCHWARTZ) Mr. Seidman, 9 looking back at Exhibit 7722, what would have been 10 the source that was the Akin, Gump demand letter? 11 A. The numbers that appeared in it? 12 Q. The numbers that appeared in it, what 13 would have been the source of those numbers? 14 A. The books and records of the 15 association at that time. 16 Q. And to the best of your knowledge as 17 you sit here today, is that the most complete 18 assessment of the amounts that were due on the 19 loan on Norwood? 20 A. Yes, as far as I know. 21 Q. And that's exclusive of the 22 9.4-million-dollar equity investment that was lost 11461 1 from UFC; is that correct? 2 A. Correct. 3 Q. So, this amount that's listed here 4 would be $9.4 million greater if you included that 5 amount; is that correct? 6 A. They recovered 4.4 million from the 7 sale of 85.3 acres represented by the 8 30-million-dollar note. 9 Q. So, if I'm adding correctly, 10 $31,812,732.44 plus 9.4 million minus 4.4 11 million -- 12 A. Correct. 13 Q. -- would be the total loss; is that 14 right? 15 A. Yes. Can I make a comment? 16 Q. Certainly. 17 A. I don't want to belabor this point 18 about the interest. You've referenced what the 19 amount of interest would be due if the borrower 20 had paid it. Because it was not accrued and not 21 an asset, it was not lost when we didn't receive 22 it. I know that may sound strange. That's the 11462 1 amount that the borrower owed; but on the books 2 and records of the association, your loss is equal 3 to your book value plus accrued interest. 4 Q. The loss you're referring to is a 5 smaller amount because of directed write-downs? 6 A. No. The directed write-down only 7 affects principal. The accrued interest is what 8 we had on the books. If you collect -- if you 9 accrued interest -- if you had a million-dollar 10 loan and you accrued interest at 10 percent -- and 11 that's $100,000 per year -- if you do not think 12 that you are going to collect that interest, you 13 put the loan on non-accrual and it's, therefore, 14 not -- it does not take the form of the asset 15 called interest receivable. If you later find out 16 after you've accrued interest that you're not 17 going to get it, that has to be reversed and taken 18 back out of income. 19 Q. What would your assessment of the loss 20 on the Norwood property be? 21 A. The difference between 4.4 million and 22 30 million. 11463 1 Q. Which -- plus the 9.4 million? 2 A. Yeah. The 9.4 was lost because it's an 3 equity -- it was just total -- an equity loss. 4 Q. So, you're talking about 26 -- 25.6 5 million plus 9.4 million? 6 A. Right, with one caveat. I want the 7 audience to know that I am not a CPA. I am not an 8 expert on the assistance agreement. This is to 9 the best of my recollection. 10 Q. Understood, sir. 11 Are you familiar with a project called 12 Park 410? 13 A. Yes. It was one of the assets that I 14 assumed responsibility for when I became an 15 employee of the association. 16 Q. When you first started with United, 17 what were your responsibilities in connection with 18 Park 410? 19 A. The same as Norwood. In fact, to 20 monitor the loan, to become knowledgeable as to 21 the condition of the collateral, the state of the 22 construction of the improvements, and basically to 11464 1 oversee the activities related to the loan. 2 Q. Did you look over the loan files when 3 you were assigned the asset? 4 A. Yes, to a limited extent initially. 5 Q. Was all of the historical information 6 that you would have liked to have seen available 7 to you? 8 A. Not in this particular case. 9 Q. What would you have liked to have 10 seen -- 11 A. Well -- 12 Q. -- that was missing? 13 MR. DUEFFERT: Your Honor, I think he 14 may have cut off the witness' last answer, but I'm 15 not sure. 16 Q. (BY MR. SCHWARTZ) If I did, I 17 apologize, sir. 18 A. That's all right. I'm not quite sure 19 what the question was before this last one. Was 20 that what were my responsibilities related to the 21 loan, or was there an intervening question? 22 THE COURT: Let's take the question 11465 1 about the availability of documents. I think you 2 understood -- stated you didn't have access to 3 them or something. 4 THE WITNESS: Well, when you -- do you 5 want to ask me the question again just to make 6 sure I answer correctly? 7 Q. (BY MR. SCHWARTZ) I had asked you 8 whether you looked over the loan files, and you 9 started to answer -- 10 A. To the extent that they were available, 11 yes, I looked over the loan files, tried to brief 12 myself. Now, we're talking about, let's say, a 13 six-month period. I had inherited the loan from 14 another loan officer. 15 Q. That was Mr. Graham? 16 A. Yes. Mr. Graham was the account 17 officer on the credit. And I did not find files 18 that belonged to him that were handed to me when I 19 took over the asset. The information that I 20 gathered, I had to glean from going through the 21 files myself, and that took place over time as I 22 became more and more knowledgeable about the loan. 11466 1 Q. Did you have access to Mr. Graham's 2 correspondence files? 3 A. I didn't find any correspondence files 4 that he had that related either to this loan or 5 any of the other loans. 6 Q. How about a chron file of memoranda 7 regarding the asset? 8 A. No, I didn't find one. 9 Q. From the history that you were able to 10 locate, had there been any sales of any of the 11 tracts up to the time that you took over the 12 asset? 13 A. No. The project was not complete. 14 Q. Backing up a little, at the time the 15 80-million-dollar loan was made -- I guess I 16 should start off a little bit. 17 What was Park 410? 18 A. Park 410 was located in San Antonio. 19 It was zoned for a variety of uses. It was a 20 multi-use business parcel. 21 Q. And do you recall what United's loan on 22 Park 410 was? 11467 1 A. Yes. It was an 80-million-dollar 2 financing. 3 Q. Okay. 4 A. With conditions related to advances. 5 Q. Okay. At the time United made the 6 80-million-dollar loan on Park 410 in 1986, from 7 that period of time, from your review of the loan 8 files, were you able to locate any contracts at 9 all for sales of any of the properties at the time 10 the loan was made? 11 A. No. 12 Q. Any earnest money contracts, anything 13 like that? 14 A. No. 15 Q. In your experience, have you ever been 16 involved in making a large construction loan or 17 development loan without actual sales contracts in 18 hand before the loan was approved by the 19 institution of the size of Park 410? 20 A. It's hard to quantify. First of all, I 21 never handled a large -- I want to say large -- a 22 land development loan of this size located in 11468 1 San Antonio. And I'm trying to point out the fact 2 that each loan has its own personality and there 3 are special circumstances that affect each one: 4 The strength of the market, the weakness of the 5 market, the location, the visibility, the access, 6 the ingress, the egress, all these factors. I 7 have been involved with loans where presales were 8 not a requirement. 9 In the case of Park 410, because of the 10 size of the development, in hindsight, I would say 11 it would have been nice had presales been in place 12 to pay down the loan amount over its life. But 13 the fact that there weren't any -- the loan would 14 have been less riskier, but it didn't in itself 15 make it an impossible loan. 16 Q. Is your answer -- the answer you just 17 gave -- assuming that the board of directors at 18 the time the loan was made analyzed all of those 19 factors that you listed: The marketplace in the 20 San Antonio area and the various other factors 21 that you identified? 22 A. As best I understand it, at the time 11469 1 the loan was approved the association followed the 2 policy of preparing a submission to a loan 3 committee. That submission would be presented to 4 the committee and would be accompanied by a verbal 5 discussion of the loan. And if the board had 6 questions or the committee had questions, they 7 would be described to the loan officer at that 8 time. If they wanted more information to 9 supplement information in the request, the loan 10 officer would go back and get it and maybe present 11 another request at a later date. 12 Q. So, then, the answer to my question is 13 "yes," you are assuming that the board of 14 directors would have considered all of those 15 factors that you identified? 16 A. Except for one thing. Normally, a loan 17 goes to a committee and not to the board of 18 directors for approval. It goes up through a 19 committee system. It may be ultimately ratified 20 by the board at a board meeting, but it's 21 underwritten at a lower committee level. 22 Scott, I've got to tell you, I was not 11470 1 there at the time. I do not know what system they 2 had in place for approvals. When I looked through 3 the records of the association, I found a loan 4 submission request that was approved. That's all 5 I knew. I don't know -- 6 Q. So, you don't know -- 7 A. -- what policies and procedures they 8 had for getting loans approved depending on their 9 size or location or characteristics or -- 10 Q. And you don't know what considerations 11 went into those factors? 12 A. I can speak to what many lenders do 13 when they are underwriting a loan. I can speak in 14 terms of hindsight, but I can't speak to how well 15 the information was presented or whether it was 16 lacking in content. 17 Q. At the time that you took over the 18 asset -- this is 1987 now -- what were the issues 19 with regard to Park 410 that you became directly 20 involved with? 21 A. Initially, my primary focus was seeing 22 to it that the project was developed, that the 11471 1 project was completed. And when I say 2 "completed," they were putting in drainage. They 3 were putting in ditches, drainage ditches, 4 bridges. There were curbs, gutters, landscaping, 5 a full development of the property for later sale. 6 Q. Exhibit T7257, please. I'm sorry. Did 7 I cut you off? 8 A. No. You asked me what my initial job 9 was. And initially, my focus was on seeing to it 10 that the project was completed. In addition, I 11 would meet with the borrowers to determine how 12 their marketing effort was proceeding and 13 generally to become well-versed on how the product 14 was positioned in the marketplace. 15 Q. Exhibit T7257 is a letter which appears 16 to be from you dated October 20th, 1987. 17 Did you send this letter? 18 A. Yes. 19 Q. What was the purpose of this letter? 20 A. To seek a cure of a problem related to 21 a letter of credit that had matured on the loan. 22 Q. Okay. Now, you're referring to the 11472 1 200,000-dollar letter of credit that's referenced 2 in the first paragraph? 3 A. This 200,000-dollar letter of credit 4 was a portion of $10 million in letters of credit 5 that were put up as additional collateral for the 6 loan. 7 Q. So, was this to replace an existing 8 letter of credit, not to -- not to add additional 9 collateral to the loan? 10 A. No. This would be to replace a portion 11 of the 10 million. 12 MR. SCHWARTZ: Your Honor, I move 13 admission of Exhibit T7257. 14 MR. DUEFFERT: No objection. 15 THE COURT: Received. 16 Q. (BY MR. SCHWARTZ) On the next page of 17 the second-to-the-last paragraph, you refer to the 18 borrowers requesting an advance of a 75,000-dollar 19 development fee. 20 Do you see that? 21 A. Yes. 22 Q. What does that refer to? 11473 1 A. I don't really recall right now. 2 Q. Do you recall if the borrowers -- if 3 the borrowers were receiving a 75,000-dollar 4 development fee? 5 A. They were receiving a development fee 6 out of the loan proceeds of the loan. The 7 development fee was far in excess of 75,000. That 8 may have been the amount that had been the subject 9 of a request that I had said would not be advanced 10 out of the loan until this 200,000-dollar issue 11 was resolved. 12 Q. Okay. Do you recall if the 13 75,000-dollar development fee perhaps was a 14 quarterly payment? 15 A. No. They would have been paid monthly. 16 The advances on the loan were monthly as 17 construction progressed because they had to pay 18 the contractors. 19 Q. What is a development fee? 20 A. It's a fee earned by the borrowing 21 entity or the development entity for the 22 supervision of the construction, for maintaining 11474 1 the marketing of the project, for establishing 2 their offices and overhead related to the 3 property. 4 Q. Was the development fee that's 5 referenced here -- or at least what you recall -- 6 is this portion of it the only funds that you 7 recall were not advanced at this time? 8 A. At this particular time, yes. 9 Q. In connection with this draw request? 10 A. Yeah. And I would assume they were 11 subsequently advanced. 12 Q. Now, at this point in time, October of 13 1987, was interest still being funded out of the 14 loan? 15 A. Yes. 16 Q. Exhibit 7256, please. Referring to the 17 other -- the other document we just looked at, 18 7257, the draw request that's referenced -- that's 19 referred to in that letter, would that have 20 included a request for the interest funding? 21 A. No. 22 Q. So, how would the -- was the $75,000 11475 1 that's referred to in Exhibit 7257 part of a 2 larger number that would have been requested by 3 the borrowers? 4 A. Yes. 5 Q. And interest would not have been a part 6 of that request? 7 A. No. Interest would have been a part of 8 it. 9 Q. Okay. That was my earlier question. 10 You said "no." 11 A. Then I misunderstood it. 12 Q. Okay. So, interest would have been 13 part of that request? 14 A. Yeah. So would have been the request 15 to pay contractors who had done work. 16 Q. All right. I see. 17 A. So, I had to advance those moneys to 18 make sure the contractors were paid. 19 Q. Right. 20 A. That we were paid. But in view of the 21 potential default, I was not about to advance 22 money to the borrower until all the defaults were 11476 1 cured. 2 Q. And -- but it did include the interest 3 payment -- 4 A. Yes. The interest was probably paid, 5 but it might have even been the month prior to 6 this or something. 7 Q. Okay. 8 A. I don't know what the -- you'd have to 9 match up the draw request with the date of the 10 letter. 11 Q. Exhibit 7256 which I've handed you is 12 an October 26th, 1997 letter to you from a Noel 13 Simpson. Do you know who Noel Simpson is or was? 14 A. Yes, I do. 15 Q. I'm sorry. I may have said '97. I 16 meant '87. 17 Do you recognize this letter, or do you 18 recall receiving it? 19 A. Not initially. I recognize it 20 immediately as something he wrote because of the 21 way he wrote. He used numerals to describe his 22 paragraphs. 11477 1 Q. Do you recall receiving this letter, or 2 would you have received it on or about 3 October 26th, 1987? 4 A. Yes. 5 MR. SCHWARTZ: Your Honor, I move 6 admission of T7256. 7 MR. DUEFFERT: No objection. 8 THE COURT: Received. 9 Q. (BY MR. SCHWARTZ) Concerning the 10 financial statements from the guarantors, one of 11 the things that you identified in Exhibit 7257 12 that you were seeking -- I'm sorry. I'm trying to 13 move a little bit more quickly than perhaps 14 issued. 15 In Exhibit 7257 which was the previous 16 letter, at the bottom of the first page, you asked 17 the borrowers to provide you with additional 18 documentation. 19 A. Right. 20 Q. And among those are financial 21 statements; is that correct? 22 A. Correct. 11478 1 Q. Okay. In Exhibit 7256, Mr. Simpson, in 2 Paragraph 1.2 on the first page, responds to the 3 request that you make for financial statements. 4 And he says that "We understand that the financial 5 statements have been mislaid by United." 6 To your recollection, had United not 7 received the financial statements or had United 8 mislaid them? 9 A. My view would be that we never received 10 them. I didn't mislay them. I don't believe we 11 got them, but it didn't matter. We subsequently 12 got them. 13 Q. In Paragraph No. 4, Mr. Simpson 14 expresses some disagreement over the withholding 15 of the 75,000-dollar development fee. 16 Do you recall if that amount was 17 eventually paid? 18 A. Yes. 19 Q. Exhibit 7150, T. During the course of 20 your administering the loan, the Park 410 loan, 21 did you periodically receive memoranda from GMR 22 concerning the status of the project? 11479 1 A. Are you asking me that outside of this 2 document? 3 Q. Well, I'm going to get to this 4 document. But yes, I'm going to ask you if you 5 recall receiving this -- 6 A. I mean, the correspondence I got from 7 GMR, which is basically the borrowing entity, 8 usually took the form of a letter, as was 9 presented in the exhibit before. 10 Q. Okay. Do you recall if you received 11 this Exhibit T7150? 12 A. Absolutely not. 13 Q. Absolutely not, you did not receive it? 14 Is that what you're saying? 15 A. I absolutely did not receive it. 16 Q. Why are you so certain? 17 A. First of all, it's not addressed to me. 18 Q. Okay. 19 A. Second of all, it's their minutes of a 20 meeting that was held and I would not have access 21 to those records. 22 Q. Do you recall attending a meeting in 11480 1 San Antonio on or about November 20th, 1987? 2 A. Yes. 3 Q. With Mr. Chilton and Melvin Blum? 4 A. Yes. 5 Q. Who is Melvin Blum? 6 A. He was the consultant I had referred to 7 earlier as having joined the staff to assist on 8 the foreclosed properties or the troubled assets. 9 Q. At Paragraph 6.1 on Page 2 of this 10 document, under "marketing" -- 11 A. Yes. 12 Q. It says that "USAT approved the 13 arrangements between JG" -- which, if you look at 14 the first page, in the "2" column, John 15 Grieshaber -- John Grieshaber's name is there. 16 Is it your understanding that he would 17 be the "JG"? 18 A. Yes, absolutely. 19 Q. Okay. "-- and agreed to fund the 20 advances." 21 Do you recall what advances they are 22 talking about? 11481 1 A. No, because at the time and even today, 2 I don't really know what the agreement was 3 between -- I never saw a document between those 4 two entities. 5 Q. Between what two entities? 6 A. Park 410 West Joint Venture and John 7 Grieshaber. 8 Q. Okay. What was your understanding of 9 what the difference was between those two 10 entities? 11 A. John -- Park 410 West Joint Venture was 12 the borrower on the loan. 13 Q. Okay. 14 A. John Grieshaber was the marketing 15 director for the sales effort related to the 16 disposition of the property. 17 Q. Okay. And did you have -- 18 A. All I know, he would be paid a 19 commission for sales. I don't know what other 20 arrangements they may have had. 21 Q. Did you have an understanding of 22 whether or not John Grieshaber was a partner? 11482 1 A. Oh, yes. 2 Q. Yes? 3 A. He was a broker in the sale -- in the 4 sale or purchase, depending on how you want to 5 wear your hat -- of the original property from 6 Alamo Savings. 7 Q. And subsequently, when USAT made the 8 loan, do you know if Mr. Grieshaber was a 9 partner -- 10 A. Yes. And he was one of the providers 11 of letters of credit under the loan. 12 Q. And that's in the Park 410 West JV 13 entity? 14 A. Correct. 15 Q. And who else were partners in that 16 entity, to your recollection? 17 A. The largest was IPIC, International 18 Property Investment Corporation, who was 19 represented by Noel Simpson, Lee Faris, and 20 Charles White. 21 Q. Okay. That's -- is IPIC in any way 22 related to GMR? 11483 1 A. They are either an affiliate -- they 2 are an affiliate of IPIC. Gulf Management 3 Resources was assigned the project management 4 responsibilities for this project. 5 Q. Okay. 6 A. IPIC was really the investor in the -- 7 they were the Netherlands-Antilles offshore 8 investment entity in the borrowing entity. 9 Q. And who else was a partner? 10 A. There were six small -- six or so small 11 people -- 12 Q. If you'll look the first page of the 13 memorandum -- 14 A. I can't remember all of them. 15 Q. Look at the first page of the 16 memorandum, Exhibit T7150. 17 Does that refresh your recollection as 18 to any of the partners in the "2" line? Stanley 19 Rosenberg. 20 Do you recall Mr. Rosenberg was a 21 partner? 22 A. Yes. 11484 1 Q. Okay. 2 A. And I don't know who this guy is. 3 Q. That's all right. 4 A. I don't know. 5 Q. In Paragraph 6.2 and 6.3, there is 6 reference -- it's on the second page of the 7 memorandum. There is reference to active 8 negotiations to sell property to Holiday Inn, 9 Sheraton, car dealership, retail, Crow, service 10 center, and a 200-unit multi-family development. 11 Did any of those negotiations, to your 12 knowledge, result in any sales? 13 A. None of them did. 14 Q. To your knowledge, did the Holiday Inn 15 locate elsewhere? 16 A. Yes. 17 Q. What about any of the other -- 18 A. I was not aware that these other items 19 were being negotiated. 20 Q. And regarding the 200-unit multi-family 21 housing, it says here that "USAT urged the joint 22 venture to develop this concept in light of 11485 1 improving market conditions." 2 Do you see that? 3 A. Yes. 4 Q. Do you have -- what had market 5 conditions been previously? 6 A. I don't know what the thought process 7 was in his preparation of this document. I don't 8 really know what his point of reference is. 9 Q. Okay. In Paragraph 8 -- I realize that 10 you didn't receive this -- 11 A. The one thing that I will advise you is 12 that many times Noel Simpson reported to -- one of 13 the people in this -- that got a copy of this is 14 an individual named Lindsay McNeile. 15 Q. Yes, sir. 16 A. Lindsay Neil was Noel Simpson's contact 17 in London, and he would many times write 18 memorandum like this after a meeting would occur 19 to keep him advised as to what he thought the 20 status was of different activities. I'm not 21 suggesting that he embellished those memorandum, 22 but he may have had other purposes for going into 11486 1 discussions that were not pertinent to the meeting 2 that took place. 3 Q. Okay. I'm only using the document to 4 refresh your recollection about events at the 5 time. 6 A. Okay. 7 Q. And we talked about the Holiday Inn 8 sale that you do recall occurred to some other 9 site. 10 In Paragraph 8 .1, there is discussion 11 about restructuring the loan. Do you recall 12 during this time period if there were discussions 13 concerning restructuring the loan? 14 A. We had discussions of restructuring the 15 loan for years, and it related to the recognition 16 that the interest reserve that was built into the 17 loan, based on the current static sales that was 18 occurring within the development, would not be 19 adequate to carry the asset long enough to recover 20 from the current real estate cycle. 21 Q. How long an interest reserve was built 22 into the loan? 11487 1 A. That's a very good question, but I'd 2 have to go -- I'd just have to calculate. Someone 3 made an assumption that an average outstanding 4 would be in place for a certain period of time, 5 and that would go up as the improvements proceeded 6 and would be paid down periodically from the sale 7 of property. I do not know how they arrived at 8 the original interest reserve that was built into 9 the loan. 10 Q. Let me ask you: When we talked about 11 Norwood, we talked briefly about takeout 12 commitments. 13 Do you recall that? 14 A. Right. 15 Q. Were there any takeout commitments in 16 connection with the Park 410 loan? 17 A. No. And you would normally not receive 18 a takeout commitment on a development loan. That 19 only relates to income-producing assets. 20 Q. On the next two pages of the document 21 at Bates No. CN0 80015 and 14 -- they are in 22 reverse order -- there is a pro forma financial 11488 1 analysis. 2 Would you have seen something along 3 these lines at or about this time? 4 A. Well, I don't recall seeing this. We 5 would have seen lots of different scenarios 6 depending on what sold and in what sequence and 7 for what price. 8 Q. Do you have an understanding as to what 9 is the difference between the loan pro forma 10 amount and the draft pro forma amount? 11 A. My recollection would be that if you 12 look at 1986 and 1987 numbers -- I'm looking the 13 first category called "loan pro forma." 14 Q. Yes. 15 A. They, I believe, in this scenario are 16 assuming that the sales in 1986 and '87 do not 17 occur. And that's why in the first -- in 1986, 18 '87, under "draft pro forma," there are no sales. 19 Q. Yes. 20 A. So, what they are doing is trying to 21 assume what the sales scenario would look like if 22 sales began in 1988 rather than began in 1986. 11489 1 Q. So, the loan pro forma amounts are 2 the -- 3 A. The current thought process with regard 4 to the marketability of the property. 5 Q. At the time the loan was made? 6 A. No, no, no. This would have been done 7 subsequently. 8 Q. The loan pro forma amount, the column 9 listed "loan pro forma." 10 A. Yes, exactly. That might tie to some 11 original estimates, perhaps the appraisal, 12 something else that was -- 13 Q. And then the "draft pro forma" 14 columns -- column of numbers is what they were 15 anticipating as a budget -- 16 A. It was their recognition that the 1986 17 and '87 sales probably weren't going to occur, and 18 they needed to estimate the project's operating 19 results beginning, in effect, in 1988 rather than 20 1986. 21 Q. Also, the -- if you notice, under the 22 "financing" category on the second page -- 11490 1 A. Yes. 2 Q. It indicates that there is total 3 financing costs and they increase from 23,495,348 4 to 31,959,111 -- 5 A. Yes. 6 Q. -- from the loan pro forma amount to 7 the draft pro forma amount. 8 A. Yes. 9 Q. What does that reflect? 10 A. That reflects the sales not occurring 11 in 1986 and 1987 as was originally projected, 12 meaning that the average outstanding balance on 13 the loan would remain at a higher level for a 14 longer period of time. 15 Q. Okay. And up above under "loan fees," 16 there is an amount of $400,000. 17 Do you know what that was referring to? 18 A. Well, I recall that that -- the first 19 four categories -- as you can see, they are the 20 same under each scenario -- I believe were funds 21 that were advanced at the closing of the loan. 22 The loan fees, as I understand it, were paid to 11491 1 Mr. Rosenberg. The loan points were paid to USAT. 2 The interest on the purchase money mortgage was 3 paid to Alamo Savings, and I don't know who got 4 that other 57,000. 5 Q. Under the category of "administration," 6 the first item is "Legal, fees and expenses." 7 Do you see that? 8 A. Yes. 9 Q. Is that different from loan fees? 10 A. Well, a loan fee is normally a fee paid 11 to someone who assists in the brokerage of finding 12 a lender for a project financing. 13 Q. And what's "legal, fees and expenses" 14 referring to? 15 A. Those are fees paid to a third party. 16 In this case, attorneys who might have drafted the 17 closing documents. Fees, expenses may have 18 included here some survey work. 19 Q. Okay. 20 A. Generally they are fees paid to a third 21 party for documentation preparation or other 22 closing matters. 11492 1 Q. Exhibit 7215, which is also at B1948. 2 T7215. 3 Exhibit T7215 is a January 6th, 1988 4 letter to you from Mister -- 5 A. Simpson. 6 Q. Thank you. Simpson. 7 Do you recall receiving this? 8 A. Yes. 9 MR. SCHWARTZ: Your Honor, I move 10 admission of Exhibit T7215. 11 MR. DUEFFERT: No objections. 12 THE COURT: Received. 13 Q. (BY MR. SCHWARTZ) Was Mr. Simpson 14 proposing to renegotiate the loan on behalf of -- 15 MR. DUEFFERT: Your Honor, I'm sorry. 16 I'm looking at my copies. Are the Bates numbers 17 consecutive towards the end of the document? 18 MR. SCHWARTZ: Are you referring to the 19 jump from 89 to 99? 20 21 (Discussion off the record.) 22 MR. SCHWARTZ: I think there's only ten 11493 1 pages missing. 2 THE COURT: Wait a minute. I think we 3 are sort of falling into chaos here. 4 MR. SCHWARTZ: I apologize, Your Honor. 5 THE COURT: Let's have one speaker at a 6 time. 7 MR. SCHWARTZ: Mr. Dueffert's copy of 8 the exhibit may be just a photocopying error. 9 There are -- there is a ten-page gap in the 10 spreadsheet attached, which I can address with the 11 next exhibit, which is 7377, which is a complete 12 copy of that pro forma. 13 THE COURT: It looks to us like T7215 14 is already in as 7261. 15 MR. DUEFFERT: Is that complete, Your 16 Honor, the version already admitted? If that's 17 the true case, we can just use that. 18 THE COURT: It looks complete. We'll 19 take a short recess and let the parties compare 20 these two exhibits. 21 MR. DUEFFERT: Thank you, Your Honor. 22 11494 1 (A short break was taken 2 at 2:56 p.m.) 3 4 THE COURT: Be seated, please. We'll 5 be back on the record. 6 Mr. Schwartz. 7 MR. SCHWARTZ: Thank you, Your Honor. 8 I think we've cleared up the problem with Your 9 Honor's help. We've identified that Exhibit 7215 10 is already in the record, the complete version of 11 it, at 7261 which is Tab 835. 12 (3:17 p.m.) 13 Q. (BY MR. SCHWARTZ) Do you have that 14 document in front of you, Mr. Seidman? 15 A. 7215? 16 Q. 7261. 17 A. No. I don't have 7261. 18 Q. It's right here, sir. 19 A. Oh, I didn't know it. Okay. 20 Q. Sorry. I think we were at the stage 21 that I had moved the document's admission and then 22 I was going to ask you whether Mr. Simpson in this 11495 1 letter was proposing to renegotiate the loan on 2 behalf of the borrowers. 3 A. Yes. 4 Q. The first paragraph of that letter 5 refers to recent meetings, recent conversations. 6 Do you see that? 7 A. Yes. 8 Q. Who would have attended those meetings 9 or who would have participated in those 10 conversations? 11 A. Mr. Gindy, Mr. Rosenberg, 12 Mr. Grieshaber, maybe Mr. Roberts, which is 13 Mr. Grieshaber's partner, Lee Faris, Noel Simpson, 14 Charles White, myself, perhaps someone else would 15 join me from the association, Mr. Rosenberg. That 16 would pretty much be the cast. 17 Q. Who else from the association would 18 be -- 19 A. Might be Mr. Chilton, might be Mr. Blum 20 periodically from time to time. 21 Q. Okay. What about Mr. Gross? 22 A. No. 11496 1 Q. No, you don't recall that? 2 A. No. 3 Q. Okay. By January of 1988, how much of 4 the loan -- of the 80-million-dollar loan had been 5 drawn? And I refer you to Paragraph 1.2. 6 A. As far as -- I would assume that that 7 61 million number is correct. 8 Q. Does that sound about right to you? 9 A. Yes. 10 Q. At that time period? 11 A. Yes. 12 Q. In Paragraph 1 .3, Mr. Simpson writes 13 that "Due to the unprecedented economic and market 14 conditions that have existed in Texas since the 15 loan was entered into, anticipated tract sales 16 have not yet been achieved." 17 What is he referring to in that 18 paragraph? 19 A. His benchmark relates to when the loan 20 was entered into. I don't know exactly what 21 scenario existed when the loan was entered into. 22 I can only speak to the fact that the market was 11497 1 generally overbuilt. There were problems related 2 to the peso, to the raising of capital for future 3 projects. Just numerous issues that are all 4 related to a real estate recession. 5 Q. In Paragraphs 1.4 and 1.5, Mr. Simpson 6 indicates that Sea World is opening and that 7 that's increasing interest in the property. 8 Do you see that? 9 A. Yes. 10 Q. In Paragraph 1.5, he says that "The 11 prices at which tracts of land can expect to be 12 sold in 1988 and thereafter will have to be less 13 than originally predicated." 14 A. Correct. 15 Q. What is that referring to? 16 A. That's referring to his internal 17 analysis as the borrower with his staff, that the 18 asking prices were higher than the market might 19 demand. 20 Q. Is that referring to the asking prices 21 that were in place from the time the loan was 22 made, their anticipated sales of the property at 11498 1 the time the loan was entered into? 2 A. To the best of my recollection, they 3 had -- the borrower had a brochure and there was a 4 one-page insert that went in the brochure that 5 listed each lot number and the sales price. 6 To the best of my knowledge, the sales 7 prices had not been adjusted from the original 8 sales prices when the loan was funded. 9 Q. So, when he says "will have to be less 10 than originally predicated" -- 11 A. I think he's talking about those that 12 were agreed upon and that are tied to the 13 appraisal, the original appraisal of the property. 14 Q. On which the loan was based; is that 15 right? 16 A. Correct. 17 Q. I'm sorry? 18 A. Yes, correct. 19 Q. He goes on, "With the prospect of good 20 sales momentum being initiated in 1988, it is 21 clearly of great importance that pricing be 22 realistic." 11499 1 The pro formas on which the loan was 2 based that we saw in the earlier Exhibit 7150, 3 which was the memoranda, the GMR memoranda, and 4 the attachments to that, the loan pro forma and 5 draft pro forma, listed gross sales in the loan 6 pro forma of $123,448,953. 7 Do you see that? Do you recall that 8 number? 9 A. Yeah. I know what you're talking 10 about. 11 Q. Okay. Is Mr. Simpson's reference in 12 this exhibit, 7261, to more realistic pricing a 13 suggestion that the gross sales in the loan pro 14 forma were unrealistic? 15 A. Yes. 16 Q. Down at the -- 17 A. Excuse me. Unrealistic or, perhaps a 18 better word, unachievable. 19 Q. Okay. Well, now, he says in the 20 paragraph -- he specifically uses the word 21 "realistic" in his letter. 22 A. I'm looking at a letter from a borrower 11500 1 who's going to try to put the most positive spin 2 on things he possibly can. I'm wearing the 3 lender's hat and looking at it a little more 4 realistically from my perspective. The fact is 5 that there were no sales being produced. There 6 were no offers that were being declined. There 7 was no activity. 8 Q. And so, those prices -- 9 A. If the property were being offered at 10 $2 less per square foot, it would not have 11 produced more sales. 12 Q. So, those prices were unachievable is 13 what you're saying? 14 A. Right. 15 Q. Down at the bottom of the page, 16 Paragraph 1.8, the third bullet item refers to 17 "One of the assets of the property being its 18 1.6 miles of freeway frontage on the right side of 19 the freeway." 20 What does that mean? 21 A. It's a reference in real estate 22 vernacular to the "driving home" side, which would 11501 1 reference the fact that if someone were driving 2 out 151 from downtown heading past the property, 3 that it's easily accessed from the service road to 4 accommodate good viable ingress and egress. 5 By the same token, if you were heading 6 south on 410 and wanted to go into the property, 7 you would be able to exit the interstate, get on 8 the service road, and then quickly enter the 9 property. The point being, you don't have to go 10 under the interstate. You don't have a difficult 11 time maneuvering to the site. 12 Q. Unless you miss your turn? 13 A. Unless you miss your turn. 14 Q. And then what do you have to do? 15 A. Well, in Texas, we have something 16 called the Texas turn around. It gives you an 17 opportunity to make a U-turn back under the 18 interstate. 19 Q. So, you have to go back all the way to 20 the end, turn around, come back to the other side, 21 and come back around again. Is that it? 22 A. Yes. 11502 1 Q. Does that mean that the property was 2 not as easily accessible coming from -- coming 3 towards downtown? 4 A. If it follows the logic, if you're 5 going towards downtown, you're going to work. 6 Q. Okay. 7 A. Most shopping occurs on the way home, 8 on the way from work. So, you would be heading in 9 the other direction, which makes it more 10 attractive for an ultimate user to stop. 11 Q. Okay. Now, you're talking solely about 12 retail for shopping, and I'm asking about just in 13 general, is the -- 14 A. Well, the corner of this property was 15 always designed as a retail pod of some kind. 16 Q. Right. 17 A. Okay. 18 Q. My question is dealing with whether -- 19 the accessibility of the project going towards 20 San Antonio. The only point of my question, sir, 21 is: Was it less accessible -- 22 THE COURT: Wait. Let's get the 11503 1 question first. 2 Q. (BY MR. SCHWARTZ) Was it less 3 accessible coming towards downtown than it was 4 going away from downtown? 5 A. No. 6 Q. Why? 7 A. Because there was an entrance to the 8 property before you reached the underpass of 410 9 if you're heading toward downtown from the 1604 10 area. 11 Q. Unless you miss that turn? 12 A. Well, you can make that same argument 13 about missing any turn. 14 Q. I'll strike it. I'll strike the 15 question. 16 A. You'd never survive in Los Angeles if 17 you missed a turn. 18 Q. Okay. Attached to the exhibit is an 19 executive summary at Page CN0 -- well, I don't 20 have the same exhibit number that you have in 21 front of you. If you could read the Bates number 22 of the executive summary down at the bottom of the 11504 1 page. 2 A. 085030. 3 THE COURT: I think that's correct. 4 Q. (BY MR. SCHWARTZ) And that's revised 5 as of December -- it's December 18th, 1987? 6 A. Correct. 7 Q. And then starting a few pages beyond 8 that are some spreadsheet analyses? 9 A. Right. 10 Q. And do those spreadsheet -- does that 11 spreadsheet appear to be the source of the data 12 that's contained in the executive summary? 13 A. Without taking a few minutes to tie the 14 numbers together, I would assume yes. 15 Q. On the third page of the executive 16 summary, the gross sales proceeds listed at the 17 top under Item 8 is $113,625,543. Now, earlier we 18 saw a number that was 123 million and some odd 19 thousand dollars. 20 Is this reflective of the general 21 direction of sales prices that Mr. Simpson was 22 referring to in his -- in the cover letter when he 11505 1 was talking about more realistic pricing? 2 A. Yes. 3 Q. Exhibit T7263. 4 THE COURT: Mr. Schwartz, I think we 5 had received T7215. Now it's the same as T7261. 6 Are you putting them both in? 7 MR. SCHWARTZ: No, Your Honor. We only 8 need one copy. T7261 will suffice. And so, I 9 will withdraw T7215. 10 THE COURT: All right. 11 Q. (BY MR. SCHWARTZ) Do you recognize 12 this document? 13 A. Yes, but I don't believe it's complete. 14 Q. What do you believe is missing? 15 A. I don't believe that it would go 16 without a signature page if it went to committee 17 for an approval. 18 Q. What is the indication at the bottom? 19 There is some code numbers there. 20 A. I don't know what -- the "JS" is me. 21 The "PLM" is my secretary, Patricia Morely. I 22 don't know what the 1.61 -- that may have been 11506 1 related to her filing system or something. 2 Q. Okay. Would that appear at the end of 3 the document? 4 A. No. That might appear on each page of 5 the document. 6 Q. All right. What was the purpose of the 7 document, to the best of your recollection? 8 A. To advise the committee that we had 9 received the content of 7261 and to obtain their 10 reaction to the proposal. 11 Q. And do you recall the real estate 12 workout committee considering it, considering 13 this? 14 A. Yeah. 15 Q. Who was on the workout committee? 16 A. I don't recall in January of 1988 who 17 was on it. It was, I would assume, the same 18 people that were on it during the course of the 19 discussion of the Norwood credit. 20 Q. Okay. Well, this is the workout -- 21 this is the workout committee -- 22 A. Okay. But it may have evolved into the 11507 1 real estate investment committee. It was the same 2 thing. 3 Q. So, that was Mr. Gross, Mr. Crow, 4 Mr. Berner -- 5 A. And maybe Jeff Gray, depending on the 6 time frame. 7 Q. Jeff Gray? 8 A. Maybe Mr. Blum, ex officio. 9 Q. What was the purpose of the real estate 10 workout committee? 11 A. To provide a form for the discussion of 12 difficult items relating to credits. Well, let me 13 be even more specific. When you use the word 14 "workout," you're contemplating a debt 15 arrangement. So, this relates to loans. The 16 investment committee would relate to something 17 that related to an owned asset. 18 Q. Okay. May I have Exhibit 7283, please? 19 A. Now we call these things disadvantaged 20 real estate. 21 Q. I pulled this document out a little bit 22 out of my order. If you notice -- did you draft 11508 1 this document? 2 A. I don't know who else would have. I 3 don't mean to be facetious; but yes, I drafted the 4 document. 5 Q. Okay. Would you look at the fourth 6 page? 7 A. Yes. 8 Q. And down at the very bottom, do you see 9 the coding for JS.5? 10 A. Yes. 11 Q. And it's not on the first page of this 12 document? 13 A. Right. 14 Q. Does that refresh your recollection as 15 to about -- as to whether Exhibit 7263 is 16 complete? 17 A. I don't know. We tried to be as 18 consistent as possible. It's quite possible it's 19 complete. 20 Q. Okay. 21 A. The only thing that I would reference 22 being possibly not there is a signature page. 11509 1 Q. All right. 2 MR. SCHWARTZ: Your Honor, I move the 3 admission of Exhibit T7263. 4 MR. DUEFFERT: No objections. 5 THE COURT: Received. 6 MR. DUEFFERT: No objections. 7 THE COURT: Did you offer T7150? 8 MR. SCHWARTZ: If I didn't, Your Honor, 9 it was a mistake on my part. I move the admission 10 of Exhibit T7150. 11 MR. DUEFFERT: We object to that one. 12 That's the one that he said he never saw. It was 13 a memorandum that was internal to GMR and it 14 contained some pro formas that the witness never 15 saw. 16 MR. SCHWARTZ: Well, Your Honor, this 17 is -- 18 THE WITNESS: Do I have it here in 19 front of me? 20 MR. SCHWARTZ: Yes. 21 THE COURT: This is an internal GMR 22 memo. 11510 1 MR. SCHWARTZ: It is an internal GMR 2 memo. It reflects information that Mr. Seidman 3 indicated that he was aware of regarding the 4 Holiday Inn sale and that it moved to a different 5 site, as well as additional properties. 6 MR. DUEFFERT: And it reflects a lot of 7 other information the witness said he was not 8 aware of. Mr. Schwartz said he was using it to 9 refresh his memory. 10 THE COURT: All right. I'll sustain 11 the objection. 12 Q. (BY MR. SCHWARTZ) Would you describe 13 the process of how the loan workout committee 14 worked? 15 A. The loan officer who was responsible 16 for the credit would entertain discussions with 17 the borrower related to how the loan would resolve 18 itself with regard to either a full payoff or 19 whether the loan needed to be modified or 20 restructured in order to be maintained as an 21 active loan on the books. 22 In this particular case, as an example, 11511 1 discussions might take place with the borrower and 2 the committee would be a forum for just very open 3 discussions about different scenarios that could 4 be approached with the borrower. 5 Q. Okay. How often did the workout 6 committee meet? 7 A. I would say as needed. It was -- you 8 know, if something came in, you -- you can't take 9 this out of context. There may have been 300 10 assets at one time that were actively being 11 studied and resolved. So, it would meet as 12 needed. 13 Q. Okay. Exhibit 7265. Exhibit 7265 is a 14 February 10th, 1988 memorandum from you to Messrs. 15 Berner, Blum, and Chilton. 16 A. Yes. 17 Q. Did you draft this memo? 18 A. Yes. 19 MR. SCHWARTZ: Your Honor, I move the 20 admission of Exhibit T2765. 21 MR. DUEFFERT: No objections. 22 THE COURT: Received. 11512 1 Q. (BY MR. SCHWARTZ) Did you have a 2 phone conversation with Mr. Rosenberg on 3 February 10th, 1988, regarding Park 410? 4 A. Apparently, I did, yes. 5 Q. Do you recall this conversation? 6 Regardless of the date, do you recall this 7 occurring? 8 A. Well, I'm referring -- it says in the 9 memo I spoke to him today, and that's the date of 10 the memo. 11 Q. Did you speak with him concerning the 12 examiners wanting information on the history of 13 the Park 410 loan? 14 A. Yes. 15 Q. And you say "Specifically the period 16 between January 1, 1984, and April 8, 1986." 17 A. Yes. 18 Q. Do you recall -- before you called 19 Mr. Rosenberg, did you search United's files to 20 see if you could find any information concerning 21 that time period? 22 A. I did perform what search I could. The 11513 1 only -- the documents that I had that related to 2 that period of time, I had the original closing 3 file from the loan. 4 Q. Which was '86? 5 A. The 80-million-dollar loan. That's the 6 '86. I did not find records that went back to 7 1984. I know that it references a point in 8 time -- I really can't speak to 1984. I know 9 there was a joint venture formed for a year period 10 in that span of months. I guess the answer is I 11 was not able to locate information that spoke to 12 that time frame from my search of the files. I 13 found accounting records, and that was about it. 14 Q. But no memoranda or any other 15 correspondence? 16 A. Right. 17 Q. And you say "he," Mr. Rosenberg, "said 18 he had all the facts laid out, that he would put 19 it together and get it to us within a week. He 20 said there were no problems and he could document 21 where all the funds went. The $400,000 that went 22 to Stanley at closing was a legal fee, according 11514 1 to him." 2 A. Right. 3 Q. What is that referring to? 4 A. Well, there are two elements to the -- 5 there are actually two elements to the memorandum; 6 and I guess if I had known it was going to appear 7 in a courtroom all these years later, I would have 8 written a more extensive document. But the 9 examiners wanted to know what the history of the 10 loan was, quite that simple. And I had never -- 11 because I was so busy -- attempted to recreate the 12 history of the relationship on the Park 410 13 property. 14 So, I spoke to him generally about 15 providing me information related to the historical 16 aspects of who owned it and when was it acquired 17 and who were the parties at play and the history. 18 A lot of that history I then took from him either 19 through verbal conversation -- mostly verbal 20 conversation and incorporated it into the history 21 that I used in the development of the collection 22 plan for the asset, which was written during 1988. 11515 1 I mean -- yeah. '89. And regarding the 400,000, 2 there was a question posed of me, "Do you know 3 what the 400,000 was for?" It was a line item on 4 the closing statement, and I asked him what it was 5 for. He told me just as it says here, that it was 6 a legal fee and -- 7 Q. Did he provide you with any 8 documentation to support his -- 9 A. Yes, he did. He sent me something that 10 showed an intercompany note on an internal 11 memorandum to Ken Gindy referring to the fact that 12 part of this $400,000 was legal fees due to the 13 Oppenheimer firm. 14 Q. Okay. So, was it your understanding 15 that only part of the $400,000 was legal fees? 16 A. Yes. 17 Q. And when you spoke to Mr. Rosenberg, 18 did you tell him that it was the federal examiners 19 or state examiners that were asking these 20 questions? 21 A. I would have just said "examiners." I 22 made no distinction. 11516 1 Q. But you would have told him that 2 examiners were interested in this issue? 3 A. It gives it a little more import. 4 Q. And why were you sending this memo to 5 Mr. Berner, Mr. Blum, and Mr. Chilton? 6 A. Well, I had to have received a request 7 from somebody. I'm sure in passing, maybe even 8 art said to me, "Look. We've had a meeting with 9 the examiners. They want a little more history on 10 the background of Park 410. Can you put it 11 together?" 12 Q. Okay. 13 A. And so, I was responding to the request 14 to me. And I was reporting to Raymond, who was my 15 boss at the time, and Mel was the consultant. And 16 Art was the one that requested it of me, so it was 17 appropriate for me to respond to Art. 18 Q. And do you know if he was relating to 19 the examiners in his capacity as general counsel? 20 A. Oh, absolutely -- I mean, Art 21 coordinated a lot of those activities during the 22 normal course of his day-to-day business. 11517 1 Q. Exhibit 7152. 2 MR. SCHWARTZ: One moment, Your Honor. 3 Q. (BY MR. SCHWARTZ) Exhibit T7152 is a 4 March 17th, 1988 letter from Mr. Berner to 5 Mr. Rosenberg with a copy to Barry Munitz. 6 Would you have been aware of this 7 letter at the time it was sent? 8 A. No. I think I'm seeing it for the very 9 first time today. 10 Q. Well, he's referring to a conversation 11 in the first -- if you read the first paragraph, 12 he's referring to a conversation that 13 Mr. Rosenberg had with you about Park 410. 14 A. And himself. 15 Q. And himself, that's right. 16 A. I'm not saying that didn't take place, 17 but that doesn't mean that I've ever seen a letter 18 that he wrote him after that meeting. 19 Q. If Mr. Berner had -- we looked at the 20 earlier exhibit, the memorandum that you wrote to 21 Mr. Berner regarding your conversation with 22 Stanley Rosenberg, the February 10th memo. 11518 1 Do you believe this letter to be a 2 subsequent communication regarding that subject 3 matter? 4 A. Yeah. It was -- yeah, absolutely a 5 positive follow-up from Mr. Rosenberg in his 6 effort to be responsive to the questions that we 7 had asked or that I had asked of him in the 8 February 10th phone conversation. 9 Q. If Mr. Berner knew that you had had a 10 prior communication with Mr. Rosenberg, was it 11 Mr. Berner's practice not to copy you or to advise 12 you that he was communicating with the borrower on 13 a loan that you were the manager for? 14 A. Mr. Berner would normally go out of his 15 way to make sure that -- particularly in regard to 16 this matter, that I would be kept fully abreast of 17 what was going on. The fact that I have not seen 18 this letter does not mean that Art has ever been 19 anything less than diligent in trying to keep the 20 subordinates involved. And I don't even know why 21 Barry Munitz would be copied on the letter. 22 Q. After looking at the -- reading the 11519 1 letter, are you -- do you have any -- are the 2 contents of the letter consistent with your 3 recollection? 4 A. No, not at the time. Apparently, the 5 reason he wrote him and sent it Federal Express is 6 because he's soliciting a signature on a set of 7 documents. "Your execution of the following 8 documents which we need in order to perfect 9 United's security interest in the collateral." 10 I mean, that's why Art would be 11 involved. It's because it related to a legal 12 document. 13 MR. SCHWARTZ: Your Honor, I move the 14 admission of Exhibit T7152. 15 MR. DUEFFERT: Your Honor, I think I 16 would object. It's clear he's not seen it. Maybe 17 Mr. Berner will be here to explain it some day. 18 THE COURT: I'll sustain the objection. 19 Q. (BY MR. SCHWARTZ) Exhibit 7273, 20 please. Exhibit T7273 is a March 22nd, 1988 21 application for -- to renegotiate -- excuse me -- 22 an application -- I am sorry. One moment, please. 11520 1 A March 22nd, 1988 application to 2 modify the terms of the 80-million-dollar loan? 3 A. Right. 4 Q. What was going on between the parties 5 at this point in time regarding negotiating and 6 modifying the terms of the loan? 7 A. Very simply put, the loan -- I mean the 8 interest reserve was not adequate to carry the 9 debt for a long enough period of time as the 10 borrower would need to facilitate sales of the 11 collateral. It was very popular at the time to 12 have a pay and accrue concept employed on debt, 13 not just this loan but many loans. 14 However, the concept of pay and accrue 15 means that the pay rate would be injected as 16 equity by the borrowers, new equity into the 17 project. And in consideration for them adding 18 additional out-of-pocket interest costs to the 19 project, we would agree to accrue and not collect 20 a portion of the interest that was due on the 21 debt. This would, in effect, give the interest 22 reserve a longer life. 11521 1 Q. And was that part -- one of the areas 2 of negotiation among the parties? 3 A. Absolutely. And it was ultimately the 4 reason why the loan was not amended as was 5 discussed over numerous periods of time. 6 Q. Okay. And did you receive a copy of 7 this letter at or about March 22nd, 1988? 8 A. Yes. 9 MR. SCHWARTZ: Your Honor, I move 10 admission of Exhibit T7273. 11 MR. DUEFFERT: No objections. 12 THE COURT: Received. 13 Q. (BY MR. SCHWARTZ) Exhibit T7275. 14 Exhibit T7275 is an April 21, 1988 letter from you 15 to Park 410; is that correct? 16 A. Yes. 17 Q. Did you draft this letter? 18 A. Yes. 19 Q. What was the purpose of this letter? 20 A. To suggest that we weren't going to do 21 anything until we had received requested 22 information from the borrowing group related to 11522 1 letters of credit, collateral, or related loan 2 matters. 3 Q. Okay. 4 MR. SCHWARTZ: Your Honor, I move 5 admission of Exhibit T7275. 6 MR. DUEFFERT: 75? No objections. 7 THE COURT: Received. 8 Q. (BY MR. SCHWARTZ) Exhibit T7570. 9 Exhibit T7570 is a June 7th, 1988 memorandum to 10 you from Jenard Gross. 11 Did you receive this memorandum on or 12 about June 7th? 13 A. Yes. 14 MR. SCHWARTZ: Your Honor, I move 15 admission of Exhibit T7570. 16 MR. DUEFFERT: No objections. 17 THE COURT: Received. 18 Q. (BY MR. SCHWARTZ) What was the 19 purpose of this memorandum? 20 A. To advise me, as one of his 21 subordinates, that he had met with the borrower 22 or, in this case, Mr. Rosenberg -- he may have met 11523 1 with others. I don't know -- during the course of 2 a visit to San Antonio. 3 Q. And the first paragraph, Mr. Gross says 4 "One of the things I want to find out, he gave me 5 some general information but I would like 6 something specific." Mr. Gross then asks you to 7 find out for him about construction of feeder 8 streets from Sea World to 410 and from 410 into 9 downtown? 10 A. Yeah. That's reference to the 151 11 service road and then the main roads. 12 Q. Okay. Is it your understanding that 13 those feeder streets had not yet been constructed? 14 A. No. I believe the feeder streets were 15 in. It was the main road that wasn't in and 16 wouldn't be put in until the traffic count reached 17 a certain level. 18 Q. And in the next paragraph, Mr. Gross 19 asks "if the subdivision immediately behind us is 20 sold out"? 21 A. Right. 22 Q. First, the "us" he is referring to, 11524 1 what is that? 2 A. Behind our collateral. 3 Q. The Park 410? 4 A. Very possessive. Behind our 5 collateral. 6 Q. And what is the subdivision he's 7 referring to? 8 A. I don't know the name of it. There was 9 a single-family subdivision behind the Park 410 10 development. 11 Q. Was it sold out? 12 A. I don't recall. 13 Q. He suggests that the developer or 14 builder "may want to acquire some of our land"? 15 A. Right. 16 Q. That is, again, possessive. And I 17 assume his reference to "our land" is -- that's 18 the Park 410. Right? 19 A. Right. He was trying to think of 20 alternative uses for the site given the lack of 21 sales activity for the site based on its current 22 uses. But it was zoned for the uses that we had 11525 1 in place. It was not designed as a residential 2 subdivision. 3 Q. Well, he says "That might eat up some 4 dirt." 5 What does that mean, "eat up some 6 dirt"? 7 A. That's reference to taking down some of 8 the land, to absorb it into the property to get 9 something kicked off on the site. 10 Q. Did you check with the developer or 11 builder to see if they were interested in eating 12 up some of your dirt? 13 A. Yeah, I'm sure I did. I don't think 14 I -- 15 Q. Were they interested? 16 A. No. 17 Q. Moving to the last paragraph, Mr. Gross 18 writes, "My general thinking is that if we could 19 use up some of that land from the rear going 20 forward, either for houses or apartments, that 21 eventually, one of these days, that is going to be 22 awfully good commercial land. In the meantime, we 11526 1 have a long hold as I see it. It just seems to me 2 that anything we can do to liquidate some of that 3 less desirable land and try to really hang our 4 hats on the 410/Northwest Freeway interchange, it 5 would probably be the most rewarding situation we 6 could come up with." 7 What did you understand Mr. Gross to 8 mean in that passage? 9 A. Well, if he had a magic wand, we would 10 have waved it over the rear of the property and 11 kicked off some activity. The fact is a portion 12 of that property at the rear was always designated 13 to be multi-family anyway. The thought was that 14 with Sea World being developed, that that might 15 create the need for housing for some of the 16 employees for the Sea World development. But, in 17 fact, that did not occur, at least within the time 18 frames that we were dealing with. He was just 19 looking for alternative uses. 20 Mr. Gross, who is a very professional 21 real estate man in his own right, recognized the 22 significance of the intersection, even if that 11527 1 might be on a longer-term basis than the borrowers 2 currently could contemplate. 3 Q. Exhibit 7142, please. What was 4 Mr. Gross' position as of June 1988? 5 A. As I recall, he was the president of 6 the association. 7 Q. Exhibit 7142, T7142, has been admitted 8 at Tab 807. It's a September 26th, 1988 appraisal 9 by Love & Dugger. 10 A. Yes. 11 Q. And it's addressed to you? 12 A. Yes. 13 Q. Why did you -- well, did you request 14 this appraisal? 15 A. Apparently. 16 Q. Do you recall why? 17 A. We required, internally, that we 18 receive updated values every year on all the 19 assets. 20 Q. Why did you hire Love & Dugger? 21 A. We thought they were qualified to 22 perform the appraisal process and were located in 11528 1 San Antonio, which we thought might benefit their 2 conclusions based on current market knowledge. 3 Q. And what was the value conclusion as of 4 the date of this, September 26th, 1988? 5 A. As-is value of 57 million 2. 6 Q. Okay. Now, further down on Page Roman 7 Numeral IV which -- there may be a page missing 8 from the exhibit. There are scenarios referenced, 9 Scenarios 1, 2, 3, and 4. 10 Do you see those? 11 A. Yes. 12 Q. Do you recall what those scenarios are 13 referring to? 14 A. No, and I don't recall specifically 15 requesting that we be provided with the scenario. 16 In fact, the only thing that mattered to us was 17 the as-is value. 18 Q. At this point in time, was the 19 outstanding balance on the loan greater or less 20 than the amount of this appraisal? 21 A. I'd have to look at other records. 22 This is September '88. I don't know what the 11529 1 balance on the loan was at that date. 2 Q. Okay. We'll look at other documents in 3 a moment. Exhibit 7283 which I handed you 4 earlier. 5 A. 83? 6 Q. 7283. 7 A. Right. 8 Q. Okay. Now, what is the -- what is that 9 loan summary? Is that similar to the one that we 10 saw for Norwood? Strike that. 11 What is this Exhibit T7283 for? 12 A. I was probably asked to put together a 13 document that summarized the loan and its various 14 parties and relationships, and this was done in an 15 attempt to do that. 16 Q. And if you look at the sixth line down, 17 it says "funded to date through 8-31-88." 18 Do you see that? 19 A. Yes. 20 Q. And it says $65,796,471? 21 A. Right. 22 Q. Is that right? 11530 1 A. Correct. 2 Q. Where would you have gotten that 3 information? 4 A. From the books and records of the 5 association. 6 Q. Okay. Does that refresh your 7 recollection as to whether or not, as of 8 September 26th, 1988, the date of the appraisal, 9 when there was a value put on the property of 10 $57 million, the amount outstanding on the loan 11 was greater than the value of the property? 12 A. This appraisal is dated September of 13 '88. It may not have been received by us until 14 maybe even October. Okay? At the date of this, 15 the preparation -- at the date I prepared this 16 material, the value in place would have been the 17 value just prior to this one. 18 Q. Okay. So, what you're -- are you 19 saying that you don't -- you still don't know -- 20 A. We might not have had a -- we may have 21 had a book value that exceeded -- we may have had 22 an appraised value that exceeded the book value at 11531 1 August of '88. It wasn't until this was received 2 that we were, in effect, put on notice to the fact 3 that the current appraised value was less than our 4 book value. 5 THE COURT: Mr. Seidman, would you look 6 down the front page of that 7283 to the entry 7 "appraised value"? 8 Q. (BY MR. SCHWARTZ) Does that refresh 9 your recollection? 10 A. Okay. Where it says 58 million? 11 Q. Yes, sir. 12 A. Yes, it does. I just -- I can't recall 13 the sequencing of all the appraisals and what the 14 value was at each particular time. 15 So, to answer your question, with an 16 appraised value of 58 million, we were definitely 17 put on notice to the fact that the proceeds of the 18 land would not be sufficient to repay 100 percent 19 of the collateral. 20 Q. Okay. And that valuation was based on 21 a verbal conversation you had with Mr. Dugger or 22 Love & Dugger, I should say? 11532 1 A. Yes, but what I would suspect 2 happened -- I prepared this summary on 9-22-88. 3 So, I must have called him the day I prepared this 4 and asked him if he had finished his value. The 5 58 million number that's referred to in that 6 discussion ultimately was fine tuned to 7 57 million 2. 8 Q. And that's what -- you're referring to 9 Exhibit 7 -- 10 A. That ultimately is dated September 26, 11 1988. 12 Q. And that's T7142? 13 A. Correct. 14 Q. Okay. Now, there are three footnotes 15 at the bottom of the first page. Okay. The third 16 one says that the revised total cost of the 17 project is $90.5 million. 18 Now, does that mean that the cost to 19 complete the project had risen by more than 20 $10 million since the loan was made? 21 A. I think it anticipates how much -- the 22 additional interest that would be required to 11533 1 carry the loan through its ultimate sellout. 2 Q. All right. So, those are additional 3 costs that have to be factored into the -- 4 A. As a result of not having land sales 5 and the balance of the principal remaining at a 6 higher amount for a longer period of time -- 7 Q. Okay. 8 A. -- the result would be a higher 9 interest calculation. 10 Q. And earlier, the judge referred you to 11 the appraisal section, the appraised value section 12 of the document. 13 A. Right. 14 Q. Okay. It says in there -- that refers 15 to the 58-million-dollar valuation. Right? 16 A. Right. 17 Q. And then the very next section is "loan 18 to value ratio." 19 Do you see that? 20 A. Yes. 21 Q. And there, it says "If the loan to 22 value ratio falls below 80 percent any time during 11534 1 the life of the loan, in accordance with Footnote 2 1, the borrower must immediately reduce principal 3 or provide additional collateral satisfactory to 4 USAT to return the loan to the original 80 percent 5 loan to value. Based on a 58-million-dollar 6 value, the loan must not exceed 80 percent or 7 $46.4 million. Based on current funding of $65.7 8 million, the deficiency is $19.3 million. Failure 9 to provide is an event of default with no advances 10 made until cured." 11 What does that section mean? 12 A. Ultimately, it meant that I wrote the 13 borrowers and said "send me cash of $19,300,000 we 14 were in the hole." 15 Q. And did they? 16 A. No. 17 Q. How was that $19.3 million calculated? 18 A. It's the dollar amount that would have 19 brought it to an 80 percent loan to value. 20 Q. Did United move to foreclose on the 21 property? 22 A. No, not at this particular time. 11535 1 Q. Now, I believe you said earlier when we 2 were talking about Norwood that a loan to value 3 ratio in the nature of 75 percent to 80 percent on 4 a speculative real estate loan or development loan 5 is consistent with what you were talking about, 6 that the 80 percent number was kind of high for 7 speculative real estate development. 8 Is that consistent -- 9 A. 75 percent would have been more 10 preferable. 11 Q. Was that true with regard to the 12 Park 410 loan, as well? 13 A. Yes. Both loans were acquisition and 14 development loans. 15 Q. So, based on your experience and the 16 type of project that Park 410 was, you believe 17 that a 75 percent loan to value ratio would have 18 been more prudent? 19 A. More prudent than an 80 percent loan to 20 value ratio? 21 Q. Yes. 22 A. Yes. 11536 1 Q. And also, in calculating the loan to 2 value ratio, United added the letters of credit to 3 the appraised value of $88 million. So, they 4 added the $10 million of letters of credit to the 5 88-million-dollar of the Schulz appraised value to 6 come up with a total of $98 million that they then 7 used to calculate an 80 percent loan to value 8 ratio. 9 Do you understand what I'm saying? 10 A. Yes. 11 Q. Is that method of calculating loan to 12 value consistent with your understanding of 13 industry practice at the time? 14 A. No, not generally. 15 Q. What do you mean? 16 A. The $10 million in letters of credit 17 were treated as additional collateral, and the 18 loan to value ratio was normally calculated off 19 the primary collateral. 20 Q. The land? 21 A. Yes. The primary collateral, the 22 317 acres. 11537 1 Q. Had you ever heard of this kind of a 2 calculation being done in your experience? 3 A. No. 4 Q. This was the only time you had ever 5 heard of the loan to value ratio being calculated 6 in this manner? 7 A. That is true. However, this was also 8 the first case I had where the borrowers were 9 willing to set aside $10 million to cover 10 potential exposure on the -- on the collateral. 11 So, while on one hand you could argue 12 that the calculation of the loan to value ratio 13 was not in accordance with industry standard, on 14 the other hand, you could argue that the receipt 15 of the $10 million in letters of credit was an 16 unusual circumstance that would mitigate value. 17 And although not equity at the time, was a 18 potential equity that the borrowers had at risk, 19 which is an extremely significant part of this 20 transaction. 21 Q. Well, have you seen loans where 22 borrowers put up actual equity in the project? 11538 1 A. There were, during the mid-Eighties, 2 more loans financed based on pro forma values that 3 did not require cash equities. 4 Q. Did they require letters of credit? 5 Some of them? 6 A. Some -- some may have, but they were 7 never put up. 8 Q. When you say "some may have but were 9 never put up," what are you referring to? 10 A. In order for a borrower to obtain a 11 letter of credit, they have actually got to have 12 cash on deposit with an institution that's going 13 to issue the letter of credit. Most real estate 14 borrowers do not have that kind of cash liquidity. 15 Q. Okay. 16 A. Therefore, they don't have the ability 17 to put up the letter of credit, even though it 18 might be appropriate to have it in place. 19 Q. So, are you saying then that adding the 20 value of the letters of credit to the value of 21 the -- the appraised value of the property was 22 proper to come up with a loan to value ratio of 11539 1 80 percent? 2 A. I can give you my opinion in hindsight 3 as to how it might have been structured 4 differently. The difference would have been that 5 the borrowers had injected their $10 million in 6 equity up front rather than over a period of time. 7 But the net result would have been the same. 8 Q. I don't know if that was my question. 9 I'm asking you if, in your experience, the adding 10 of the letters of credit value to the appraised 11 value was proper, in your experience, was a proper 12 method of calculating loan to value ratio? 13 A. I believe I stated that it's not 14 traditional method of calculating loan to value. 15 Q. Would you turn to Page 3 of 16 Exhibit T7283? And there are some other events of 17 default that are listed there that have existed 18 since February 1988. 19 Do you see that in the middle of the 20 page? 21 A. Yes. 22 Q. The third one, what is that referring 11540 1 to? 2 A. That refers to the discussion we just 3 had with regard to the 19.3 million. 4 Q. Okay. So, that didn't exist since 5 February of 1988. Is that what you're saying? 6 A. I want to say that the appraised value 7 that was in place before 9-22-88, at the date I 8 wrote this memo, was higher than 58 million. It 9 was only upon the receipt of this appraisal that 10 that deficiency was created for the very first 11 time. 12 Q. Okay. All I'm clearing up is that 13 under the words "events of default" in this 14 document, it says "Events of default have existed 15 since February 1988. For example" -- and then you 16 list four items. 17 A. Yes. 18 Q. And the third one, to me, doesn't 19 appear to be one that had existed since February 20 of 1988. I'm just trying to make -- to clarify. 21 A. That's probably true. 22 Q. Okay. 11541 1 A. I didn't know this was going to be put 2 under a microscope later. 3 Q. Okay. Would you -- on the fourth page, 4 there is a chart listing some budget items. And 5 the gross sales are now 111,770,000 with a 15-year 6 sellout. 7 Now, was that based on data from the 8 borrowers? 9 A. No. That would probably have been 10 data -- well, from the borrowers but then 11 supported by appraised value. 12 Q. Okay. I'd asked you some questions 13 earlier about the letters of credit and your 14 experience in seeing letters of credit. 15 To your recollection, did -- were there 16 no other loans that you saw at United Savings 17 Association -- in the United Savings Association 18 of Texas portfolio that had letters of credit or 19 equity by the borrowers? 20 A. There were no other loans that I recall 21 that had letters of credit in place, with one 22 possible exception -- and this is only by 11542 1 coincidence. The Park 10 loan here in Houston. 2 Generally, the letters of credit that were put up 3 with regard to real estate transactions were put 4 up by United Savings in order to facilitate the 5 development of properties. For example, in 6 Norwood, we had letters of credit up to the City 7 of Austin. 8 Q. Right. So, if I understand your 9 answer, are you saying that with that one 10 exception, you saw no other loans in the USAT 11 portfolio that had either letters of credit or 12 equity put up by the borrowers in the portfolio 13 that you were aware of? 14 A. Letters of credit I've just answered. 15 Whether borrowers have equity up at the time they 16 borrow their funds, that's a function of the 17 appraised value, the actual cost to develop the 18 project, and what the loan proceeds are for the 19 financing. If the loan proceeds aren't adequate 20 to build the project, the borrower has got to come 21 out of pocket with those funds. I cannot speak 22 with any certainty with regard to the financial 11543 1 conditions of the borrowers and how they accounted 2 for equity contributions to their developments. 3 Q. Okay. That's -- you're talking about 4 sometime after the loan is made. I'm talking 5 about cash equity up front. 6 Were you aware of any other loans in 7 the USAT portfolio that you are aware of where the 8 borrowers put up cash equity or letters of credit 9 up front? 10 A. I can't generalize an answer to that 11 question. Every loan was different. 12 Q. Do you recall any? 13 A. Equity takes different forms. 14 Q. Okay. 15 A. Many times, instead of there being an 16 interest reserve in the loan, the borrower would 17 pay the interest out of pocket, which is a 18 contribution of equity over time. In some cases, 19 there might be other costs associated with the 20 development that needed to be paid for up front. 21 For example, many times a borrower would come in 22 and he would own the land free and clear and 11544 1 finance the development. So, his equity would 2 have previously been contributed in the form of 3 the land. 4 Each one of these situations is 5 different. You cannot generalize. The hope is, 6 when you finance real estate, that you've got a 7 borrower who does have equity in the project 8 because that is what creates the incentive for him 9 to stay actively motivated to repay the debt. 10 Q. Exhibit 7395. 11 THE COURT: How much longer do you 12 have, Mr. Schwartz? 13 MR. SCHWARTZ: With Your Honor's 14 permission to go till 6:00, I will finish by 6:00. 15 THE COURT: All right. We'll take a 16 short recess. 17 18 (A short break was taken 19 at 4:16 p.m.) 20 21 THE COURT: Be seated, please. We'll 22 be back on the record. 11545 1 Mr. Schwartz. 2 MR. SCHWARTZ: Thank you, Your Honor. 3 Q. (BY MR. SCHWARTZ) I've put in front 4 of you Exhibit T7395. 5 Do you have that? 6 A. Yes. 7 Q. It's a December 8th, 1988 request for 8 modification to loan by United Savings Association 9 of Texas on the Park 410 loan; is that right? 10 A. Right. 11 Q. Did you receive this on or about 12 December 8th? 13 A. Yes. 14 MR. SCHWARTZ: Your Honor, I move the 15 admission of T7395. 16 MR. DUEFFERT: No objections. 17 THE COURT: Received. 18 Q. (BY MR. SCHWARTZ) Okay. Would you 19 turn to Schedule 1 at Page CN077193? 20 A. Yes. 21 Q. And on that page, the gross sales are 22 listed at $117,865,000; is that right? 11546 1 A. Right. 2 Q. Did the gross sales figures provided by 3 GMR continually change throughout the time that 4 you worked on the Park 410 project? 5 A. Yes. 6 Q. How would that happen? 7 A. Well, the sales price would be reduced 8 to potentially reflect the need to produce sales 9 in the early years. But ultimately, what 10 originally started out as a seven-year term 11 evolved into a 15-year sellout of the land. 12 So, the cost of carrying that land 13 increased dramatically over that period of time. 14 Property taxes on this property alone were very, 15 very high. 16 Q. All right. And would you turn to 17 Schedule 7, which is at Page CN077270? 18 A. Yes. 19 Q. Under the column "total project 20 budget," do you see that? 21 A. Yes. 22 Q. Okay. The total project budget is now 11547 1 listed -- or cost is now listed at the bottom of 2 that page as $103,722,8342 which is 23 -- almost 3 $24 million more than the loan amount and some 4 $45 million more than the Love & Dugger appraisal; 5 is that right? 6 A. Correct. But I think this total 7 project budget assumed the implementation of the 8 borrower's proposal. 9 Q. Where would that additional 10 $23.7 million come from? 11 A. You mean -- I don't know what you mean. 12 Q. Well, if the total project -- 13 A. The interest -- obviously, the interest 14 increased by 17 million over that different -- 15 over the prior budget. 16 Q. So, would the borrowers be expected to 17 come up with that money? 18 A. Their proposal -- most recent proposal 19 that accompanies this anticipates their paying out 20 of pocket half of a percent. 2 and a half percent 21 accrued, half percent would be paid by the 22 borrower in cash and not from the loans of the 11548 1 proceeds, and 2 percent of the interest rate would 2 be paid from the interest reserve until it was 3 depleted. 4 Q. If the original loan amount was 5 $80 million and the total -- and that was to cover 6 all of the projected costs of the project at the 7 time the loan was made and we now see a projected 8 loan budget of $103,722,000, I see a 9 23-million-dollar -- 23.7-million-dollar 10 difference increase in the cost of the project. 11 A. Right. 12 Q. Obviously, that $23.7 million wasn't 13 coming from the loan proceeds because that only 14 went up to $80 million; is that right? 15 A. Right. 16 Q. So, where was the additional 17 $23.7 million supposed to come from to fund these 18 additional project costs? 19 A. I don't know that there was a 20 designated source. 21 MR. SCHWARTZ: Your Honor, if I didn't 22 do so earlier, I move the admission of 11549 1 Exhibit T7283. 2 THE WITNESS: I've got it. 3 MR. DUEFFERT: No objections. 4 THE COURT: Received. 5 Q. (BY MR. SCHWARTZ) Exhibit 7292. 6 Exhibit 729 -- T7292 is a March 1, 1989 letter to 7 you from Mr. Gindy; is that right? 8 A. Yes. 9 Q. Did you receive this on or about 10 March 10th, 1989? 11 A. Yes. 12 Q. And there are attachments to it? 13 A. Yes. 14 Q. Did you also receive those documents 15 with the exception of perhaps the return receipt 16 signatures on the back, certified mail? 17 A. Yes, I would think so. 18 MR. SCHWARTZ: Your Honor, I move 19 admission of Exhibit T7292. 20 MR. DUEFFERT: One moment, Your Honor. 21 22 (Discussion off the record.) 11550 1 2 MR. DUEFFERT: It appears it's out of 3 Bates number order. However, it might just be 4 that some mailing slips are put at the end. If 5 the witness can verify that this appears to be 6 complete, I don't think we'll have an objection. 7 THE WITNESS: Yes, it looks complete. 8 MR. DUEFFERT: No objection. 9 THE COURT: Received. 10 Q. (BY MR. SCHWARTZ) What was the 11 purpose of this letter and the attachments? 12 A. The attachments particularly were 13 designed to try to stop the hemorrhaging that 14 related to their individual guaranties on the loan 15 from the various guarantors on the debt. 16 Q. When you say "hemorrhaging on the 17 guaranties," are you referring to the liability, 18 to their liability? 19 A. Yeah, and to the amount of that 20 liability. 21 Q. And what was this supposed to attempt 22 to accomplish? 11551 1 A. It was an attempt on their part to 2 limit that liability. 3 Q. Was there a question about whether the 4 guarantors could limit their liability with this 5 kind of notice? And I'm referring now to the 6 notices that are attached to the -- well, 7 there's -- let's go through the document. 8 The first two pages are the letter from 9 Mr. Gindy. And then following that is an attached 10 March 7th, 1989 letter to United Savings 11 Association that's signed by Park 410 West Joint 12 Venture; is that correct? 13 A. Yes. 14 Q. And then attached to that are a series 15 of letters from -- the first one's from IPIC. The 16 second is from Stanley Rosenberg, Alex Sachs, 17 Daniel Crump, M.R. Roberts. Henry Roberts is the 18 last one, and then there is the return receipt 19 requested receipts. 20 A. Right. 21 Q. Okay. What was the purpose of the 22 series of letters towards the back of the document 11552 1 starting with Bates CN080361 and ending at Bates 2 CN080366? 3 A. These were documents from each of the 4 individual guarantors attempting to limit their 5 liability under those guaranties. 6 Q. All right. And that's what I was 7 referring to when I was asking you my next 8 question, which was: Was there a question about 9 whether or not this could limit their liability 10 under the guaranties? 11 A. I don't recall it ever being 12 researched. I know when we got the letters, I was 13 quite surprised that you could even limit your 14 guaranty in such a way. 15 Q. Exhibit 7803, please. 16 MR. SCHWARTZ: I have a -- Ms. Allen 17 has asked if Exhibit 7395, T7395, was that 18 received? 19 THE COURT: Yes. 20 MR. SCHWARTZ: Thank you, Your Honor. 21 Q. (BY MR. SCHWARTZ) Exhibit T7803 is a 22 memorandum from you to Kenneth Leventhal & Company 11553 1 dated May 25, 1990. 2 Do you recall this memorandum? 3 A. Barely. 4 Q. Did you write this? 5 A. Yes, and it's my initials. 6 MR. SCHWARTZ: Your Honor, I move 7 Exhibit T7803. 8 MR. DUEFFERT: Your Honor, this is the 9 first two pages of a document that I looked at 10 last night, and I know it goes on for seven or 11 eight pages. I think this is only a partial of 12 the document, and I'll object to it on that 13 ground. 14 THE COURT: Do you have the remainder? 15 MR. DUEFFERT: I thought we did, but 16 apparently I can't find it immediately. So, if 17 you'd like to discuss it with -- 18 THE COURT: What did you say, 19 Mr. Schwartz? 20 MR. SCHWARTZ: I suggested that we 21 could swap in the complete document when 22 Mr. Dueffert returns with it. In the meantime, 11554 1 will you receive -- we move the receipt of the 2 document. 3 MR. DUEFFERT: Since we know it's 4 incomplete, why don't we discuss it with the 5 witness today and I'll bring it tomorrow morning 6 and we can admit it at that time if it's 7 appropriate? 8 THE COURT: All right. We'll defer. 9 It previously was offered in regard to this 10 witness and -- 11 MR. SCHWARTZ: It was offered with 12 Mr. Stone -- 13 THE COURT: Right. 14 MR. SCHWARTZ: -- and was objected to 15 at that point because I don't believe he had 16 either seen it or perhaps for the same reasons 17 that Mr. Dueffert raised today. 18 THE COURT: All right. You can proceed 19 with your examination on the document. We'll take 20 it up tomorrow if somebody can find the document. 21 MR. SCHWARTZ: Mr. Dueffert, did you 22 indicate that you have those extra pages? 11555 1 MR. DUEFFERT: Not with me, no. 2 MR. SCHWARTZ: But you've seen them. 3 MR. DUEFFERT: I looked at it last 4 night, and it struck me that -- 5 Q. (BY MR. SCHWARTZ) What was the 6 purpose of this memorandum? 7 A. I must have submitted a request to the 8 case manager referencing -- that's what SR -- 9 SR259032 -- 10 Q. Yes. 11 A. "SR" stands for special request. "25" 12 was our association. "90" was 1990. "32" was 13 Request No. 32 of that year. I -- it's hard for 14 me to speak intelligently about this response 15 sheet because it relates to the special request 16 that was the subject of this memorandum. 17 Q. Was this -- the subject of this 18 memorandum related to the guaranty question, 19 reliability of the guarantors on the guaranty? 20 A. Yes, but it had nothing to do with the 21 letters you just referenced in this. This was 22 totally a separate issue. 11556 1 Q. Okay. What was the issue that's 2 raised -- that's raised by these calculations in 3 Exhibit -- 4 A. How you calculate the guaranty in 5 accordance with the documents. 6 Q. Okay. 7803. And were there two 7 different methods of calculating the guaranty 8 amounts? 9 A. Yes. And I attempted to give an 10 example of the different ways of interpreting 11 that. 12 Q. Was that because the wording of the 13 guaranties allowed for two different methods of 14 calculation or were confusing as to that point? 15 A. Yes. And it had to do with the single 16 issue of whether the amount of the guaranties 17 reduced by the foreclosure proceeds. 18 Q. In other words, whether the guaranties 19 are off -- are before or after -- 20 A. The top or the bottom, right. 21 Q. Are before or after the letters of 22 credit are taken out? 11557 1 A. No. The letters of credit were always 2 assumed to have been taken out. In both these 3 scenarios, the letters of credit are deducted from 4 the debt. 5 Q. Does it have to do with when you make 6 the calculation? 7 A. Yes. 8 Q. All right. Exhibit 7409? 9 MR. DUEFFERT: Your Honor, I found the 10 document that Mr. Schwartz was just referring to, 11 the full version with all seven pages. I'll give 12 it to him for marking as he'd like. 13 MR. SCHWARTZ: Thank you, Mr. Dueffert. 14 THE COURT: Well, I think you'll have 15 to make copies for everybody. 16 MR. SCHWARTZ: I will, Your Honor. I 17 just want to show it to the witness and see if 18 it's the complete document to his recollection. 19 THE WITNESS: Yes. But it cannot be 20 read without actually having my written request to 21 the government in front of you to be able to 22 determine the appropriateness of my responses. 11558 1 Do you understand Kenneth Leventhal's 2 role in this? 3 Q. (BY MR. SCHWARTZ) No, I don't. Why 4 don't you tell us? 5 A. They were retained by the Federal Home 6 Loan Bank Board to review requests that were made 7 of the association in accordance with the 8 assistance agreement. That contract was 9 ultimately done away with. But at this particular 10 time -- and if you understand, this is -- you 11 know, this is after the receivership and Kenneth 12 Leventhal was a buffer for all the approvals and 13 requests that came in. 14 Q. But this -- this document was in 15 connection with an analysis that you performed of 16 two possible scenarios under which -- of which the 17 timing of the calculation of the guaranties would 18 be made; is that right? 19 A. I'll say it again, maybe more clearly. 20 Q. I'm sorry, sir, if I'm not 21 understanding. 22 A. I can't tell -- I may have responded in 11559 1 the course of four years to 500 responses from the 2 federal government with regard to all these 3 assets. The only point of reference I can have is 4 the written request that I made of the government 5 so I can understand what I was responding to. 6 What I would assume is that I wrote my 7 request, Kenneth Leventhal had questions, and I -- 8 I was responding to their questions. There's just 9 paper missing in the chain. 10 Q. Okay. 11 A. I would not just voluntarily have 12 written Kenneth Leventhal a request or memorandum. 13 Q. Exhibit 7409 is an October 16th, 1990 14 memorandum from Bill Morris to you and others? 15 A. Yes. 16 Q. What was the purpose of this document? 17 A. I really don't recall. It appears to 18 be the result of continuing negotiations with the 19 borrower. 20 Q. Okay. It refers to a meeting, "Obligor 21 group proposal discussed at 10-9-1990 meeting." 22 Would you have attended that meeting? 11560 1 A. Yes. I don't know specifically what 2 the topics were of discussion at that meeting, but 3 I -- 4 Q. Okay. In the first paragraph, about 5 the middle of the paragraph, there is a sentence 6 that begins "This memorandum is for discussion 7 purposes only." 8 Do you see that? 9 A. Yes. 10 Q. "And, as with other matters discussed 11 at the October 9, 1990 meeting and my earlier 12 memorandum is prepared, and was discussed, in an 13 attempt to compromise and settle threatened 14 litigation." 15 Do you know what that's referring to? 16 A. Just barely, that the -- I recall that 17 Faris' brother-in-law, Mr. Dusty Rhodes, had 18 counseled them on the possibility that they may 19 have some recourse against the association for 20 activities that we participated in as lenders on 21 the debt. 22 Q. And Faris is from the borrower? 11561 1 A. Yes. He's one of the officers of Gulf 2 Management Resources. 3 Q. Okay. Would you turn to Paragraph 5 on 4 the next page? And there it says "Regarding 5 listing and marketing of the property, rather than 6 granting an exclusive listing to a broker or a 7 national exclusive listing, there would be an open 8 listing for everyone for a fixed period, e.g., one 9 year." 10 What's the advantage of moving from an 11 exclusive listing to an open listing? 12 A. To try to more actively involve the 13 brokerage community in the sale of the asset. 14 Q. How does that happen? 15 A. Sometimes when you give an exclusive 16 listing to someone who happens to be local, he 17 does not necessarily cooperate as effectively as 18 you would like because he's got the listing. 19 Q. Okay. Was there an exclusive listing 20 in existence prior, perhaps with Mr. Grieshaber? 21 A. He was working for the borrowing 22 entity. I don't know if he actually had a listing 11562 1 agreement or not. I don't think he did. There 2 was a brokerage arrangement for his firm. I 3 don't -- that was between the borrower and 4 Grieshaber and Roberts, which was the brokerage 5 arm of this firm. 6 Q. Is an open listing better in the sense 7 of making it -- making access to the property 8 easier for Realtors -- 9 A. No. The benefit is that it's more 10 lucrative for the brokers because they can share 11 in a larger commission without having to share it 12 with other brokers. 13 Q. So -- 14 A. The listing broker would have gotten a 15 share of the sales proceeds whether they did 16 anything to perfect that sale or not. 17 Q. Okay. So, what's the advantage of an 18 open listing? I'm not sure I understand. 19 A. It's to entice anybody that had a 20 proposal to bring it to the table, any broker. 21 Q. Okay. Exhibit 7473, please. 22 THE WITNESS: Scott, do you want this 11563 1 complete document back, the one you just -- 2 MR. SCHWARTZ: Yes. I'll make copies 3 of this, and we'll submit it as Exhibit T7803. 4 And Your Honor, I move admission of 5 Exhibit T7409. 6 MR. BLANKENSTEIN: Your Honor, I'm 7 going to object to that. This appears to be -- 8 it's entitled a Rule 408 communication, which 9 means that it is not admissible under the Federal 10 Rules of Evidence. 11 MR. DUEFFERT: And in addition, it 12 appears to be an internal GMR document as before 13 where the witness -- 14 MR. SCHWARTZ: No, it's not. It's to 15 Mr. Seidman. 16 THE COURT: Somebody's going to have to 17 enlighten me as to what Rule 408 is. 18 MR. BLANKENSTEIN: Rule 408 provides 19 that offers and communications in connection with 20 settlement are not admissible. 21 MR. EISENHART: Really as a matter of 22 policy, Your Honor -- 11564 1 THE COURT: I understand the policy. I 2 just didn't connect it to the rule. 3 MR. BLANKENSTEIN: I'm sorry, Your 4 Honor. I should have explained. It's 5 settlement -- offers in settlement, any 6 discussions in connection with a settlement 7 proposal are not admissible. 8 MR. DUEFFERT: Your Honor, this is a 9 draft of a document. It's got marks. I don't 10 know if Mr. Seidman has attested that he ever 11 received it, apart from the settlement issue which 12 I think is valid, as well. 13 MR. SCHWARTZ: He did receive it. And 14 further to that, it's from the government's files. 15 It's post-receivership, but it's a document that 16 was relative to United Savings FSB. 17 MR. BLANKENSTEIN: I'm sorry. Offers 18 of settlement are presented to the government on a 19 daily basis. It doesn't make them admissible 20 simply because they exist in the government's 21 files. 22 MR. SCHWARTZ: Nevertheless, Your 11565 1 Honor, all parties, including Mr. Seidman, were 2 parties to this -- to this meeting that occurred. 3 MR. BLANKENSTEIN: That's what 4 usually -- I'm sorry. 5 MR. SCHWARTZ: And this memorandum 6 reflects what occurred during those meetings. 7 MR. BLANKENSTEIN: That's exactly what 8 the rule is designed to protect. Parties meet. 9 They discuss settlement. Those conversations and 10 any record memorializing those conversations are 11 not admissible into evidence. That's the purpose 12 of the rule, to allow freedom of communications 13 during settlement meetings. 14 MR. SCHWARTZ: Your Honor, the 15 respondents in this case have no standing to make 16 this objection. They are not parties to any of 17 these conversations or any of these discussions. 18 It's -- the parties with standing are the 19 government and the receivership estate of United 20 Savings. Those are the only parties that have 21 standing to raise an objection. 22 MR. BLANKENSTEIN: They are being -- 11566 1 this document is being offered into evidence in 2 this case. It reflects communications regarding 3 settlement. 4 MR. SCHWARTZ: Rule -- the rule, 5 however, Your Honor, would not apply to these 6 respondents because it can't be asserted by them. 7 That objection cannot be asserted by them. They 8 were not subject to these conversations or 9 discussions. They were not parties to any 10 settlement discussions that were going on at the 11 time. 12 THE COURT: Well, at the moment, I 13 don't feel quite informed enough to make a ruling. 14 I'm going to defer it and do a little research. 15 Q. (BY MR. SCHWARTZ) Exhibit 7473, what 16 is that, sir? 17 A. It's a memorandum to Gene Sullivan with 18 the RTC. 19 Q. And what was the purpose? 20 A. Apparently to respond to a memorandum 21 that we received dated July 17th, 1991. 22 Q. Is this memorandum from you? 11567 1 A. Yes. 2 MR. SCHWARTZ: Your Honor, I move 3 admission of Exhibit T7473. 4 MR. BLANKENSTEIN: Same objection, Your 5 Honor. 6 MR. SCHWARTZ: This does not indicate 7 anywhere on it that it is a Rule 408 8 communication, Your Honor. 9 MR. BLANKENSTEIN: "Park 410 West Joint 10 Venture Settlement Proposal." 11 MR. SCHWARTZ: Your Honor, this does 12 not indicate -- make any representation in it that 13 it is to be held confidential as a Rule 408 14 communication as did the other document that Your 15 Honor deferred. 16 MR. BLANKENSTEIN: The -- 17 THE COURT: Well, I'm going to defer 18 this one, also. 19 Q. (BY MR. SCHWARTZ) What was the 20 purpose of this memorandum? 21 A. To respond to a -- 22 Q. Okay. You said that. That's right? 11568 1 A. -- memorandum that we received from the 2 RTC. 3 Q. Starting on Page 2 at the bottom of the 4 page, a discussion of potential claims raised by 5 the borrowers -- 6 MR. BLANKENSTEIN: Objection. He can't 7 read from a document that's not in evidence. 8 THE COURT: All right. I think we'll 9 have to -- 10 MR. SCHWARTZ: I'm sorry. 11 THE COURT: Since I have not received 12 the document and it may not be receivable, I don't 13 think we can quote from it and question the 14 witness about it. 15 MR. SCHWARTZ: Well, then, Your Honor, 16 would we -- then I would request an opportunity to 17 call the witness back after Your Honor makes a 18 decision on the document or to allow me to ask the 19 questions and once Your Honor makes a decision on 20 the -- on whether to receive the document, we 21 can -- 22 THE COURT: Is he coming back tomorrow? 11569 1 MR. SCHWARTZ: I'm sorry. 2 THE COURT: Is the witness coming back 3 tomorrow? 4 MR. SCHWARTZ: Yes. 5 THE COURT: I'll have a ruling 6 tomorrow. 7 MR. SCHWARTZ: Will I be able to 8 continue my examination on these two documents at 9 that time? 10 THE COURT: Yes. 11 MR. SCHWARTZ: Thank you, sir. 12 Q. (BY MR. SCHWARTZ) Exhibit 7252. What 13 is Exhibit 7252, sir? "T." 14 A. It appears to be a photocopy of the 15 ledger sheet evidencing the advances made under 16 the Park 410 loan. 17 Q. And does it cover a period beginning in 18 4-16-86 and continuing through January 31, '89, or 19 some date thereafter? 20 A. Yes, it does. 21 Q. Who maintains this ledger? 22 A. The association would in its accounting 11570 1 department. 2 Q. And what do the various columns 3 represent? The first one is "date" and then 4 "reference." 5 Do you see where I'm looking? 6 A. Yes. 7 Q. Okay. What is the "reference" entry? 8 A. I don't recall. I could just 9 speculate. 10 Q. Okay. And then "advance" -- 11 A. It may relate to some general ledger 12 account code or something. 13 Q. Okay. "Advanced payment" is the next 14 column. 15 Do you see that? 16 A. Yes. 17 Q. What does that reflect? 18 A. It shows the amount advanced under the 19 loan. 20 Q. And then the next column is "principal 21 balance." 22 A. This would be the cumulative amount of 11571 1 that prior advance with the existing advance. 2 Q. And then the next column is "total 3 disbursed"? 4 A. Right. 5 Q. And what is that? 6 A. In this case, it's the same as the 7 category in front of it. It's the total amount 8 disbursed under the loan. 9 Q. And then "LIP balance," what is that? 10 Is that loan in process? 11 A. Yes. 12 Q. Which is -- is that -- 13 A. That's exactly what it is. 14 Q. -- indicated above "advanced payment"? 15 A. It's the amount remaining to advance 16 under the loan. 17 Q. Okay. And from your recollections or 18 from your knowledge of the Park 410 loan, does 19 this start from the day the loan closed and 20 continue through about one month after the 21 appointment of the receiver for United? 22 A. Yes. 11572 1 Q. Okay. Now, the document is in reverse 2 order with the second page first chronologically; 3 is that right? 4 A. Right. 5 Q. Okay. So, the first -- the second page 6 is the earlier entries. And it indicates that at 7 the closing, there was -- there were two advances 8 made: One of $43,217,766.52 on 4-16-86. Am I 9 reading that right? 10 A. Yes. 11 Q. And then on the same day, there was 12 another $2.4 million? 13 A. Yes. 14 Q. Okay. Is that the initial advance 15 under the loan? Is that what that's reflective 16 of, those two items? 17 A. It should tie to a closing statement. 18 Q. Okay. And up above the "loan in 19 process" line where you can see the Bates number 20 there on the second page and then up above, it 21 says "Date, 4-16-86," do you see that? 22 A. Yes. 11573 1 Q. $2.4 million originating -- origination 2 fee? 3 A. Correct. 4 Q. Okay. Would that reflect that there 5 was a 3 percent origination fee on this loan? 6 A. Yes. 7 Q. Okay. And then just about every month 8 thereafter, month by month, there is another draw 9 or advance payment on the loan; is that right? 10 A. That's right. 11 MR. SCHWARTZ: Your Honor, I move 12 admission of Exhibit T7252. 13 MR. DUEFFERT: No objection. 14 THE COURT: Received. 15 Q. (BY MR. SCHWARTZ) Exhibit T7274. 16 A. Did you intend to give me two of these? 17 Q. Oh, I did not. Thank you. 18 Okay. If you would hold Exhibit T7252 19 aside because we're going to be referring back to 20 that -- that's the ledger sheet -- Exhibit T7274, 21 what is that letter? 22 A. It was a standard letter that I 11574 1 developed with our counsel to advise the borrowing 2 entity that just because we were making advances 3 on the loan did not mean we were waiving any 4 rights that we had under the loan. 5 Q. And in the -- this is dated April 21st, 6 1988. And you wrote this? 7 A. With the advice of counsel. 8 Q. Okay. 9 MR. SCHWARTZ: Your Honor, I move the 10 admission of Exhibit T7274. 11 MR. DUEFFERT: No objections. 12 THE COURT: Received. 13 Q. (BY MR. SCHWARTZ) In the second 14 paragraph of the letter, there is an amount listed 15 there of $556,048.34. 16 Do you see that? 17 A. Yes. 18 Q. And now, if you'd look back at 19 Exhibit 7252 and look at the entry for 4-22-88 -- 20 A. Yes. 21 Q. -- you'll see an amount that says 22 556,048.34? 11575 1 A. Correct. 2 Q. So, does that reflect that that is the 3 amount that was advanced under the loan according 4 to United's books? 5 A. Yes. 6 Q. Okay. Exhibit T7386, please. What is 7 Exhibit T7386? 8 A. It appears to be Advance Request 9 No. 27. 10 Q. And it's dated May 5th, 1988 and is 11 addressed to you? 12 A. Correct. 13 Q. Would the borrower send something like 14 this to you every month with their advance 15 request? 16 A. Yes. 17 Q. And going through it, what are all 18 these attached documents? 19 A. They are the support for the request 20 that indicate what the moneys were intended to be 21 used for. 22 MR. SCHWARTZ: Your Honor, I move 11576 1 admission of Exhibit T7386. 2 MR. DUEFFERT: No objections. 3 THE COURT: Received. 4 Q. (BY MR. SCHWARTZ) So, there is a 5 request letter on top and then there is a budget 6 spreadsheet and then there is a bunch of bills. 7 Is that basically the form that it 8 normally took? 9 A. Yes, including the information from the 10 contractors that were doing work on site. 11 Q. And what would you do once you got 12 this? 13 A. I would go through every line item in 14 the batch of materials and verify that it was 15 proper and prudent. And if I had questions, I 16 would call the borrower and ask for further 17 clarification. If not, I would approve it for an 18 advance. 19 Q. On the second page of the document is a 20 letter from Thomas Lutz. Who was Mr. Lutz? 21 A. I have no idea. 22 Q. Do you have any recollection of 11577 1 Mr. Lutz being an official with GMR? 2 A. No. 3 Q. Okay. The letter, nevertheless, 4 indicates "Balance of Draw No. 25 and No. 26 yet 5 to be funded." 6 Do you see that? 7 A. Yes. 8 Q. What is that referring to? 9 A. Just as it said. They have made a 10 request, and we had not advanced those sums. 11 Q. Do you know why? 12 A. I can speculate as to why. I don't 13 know without looking at Draw No. 25 what the 14 composition of each one of those numbers is. 15 Q. Okay. Well, the application requests a 16 current advance of $1,101,024.40. 17 Do you see that? 18 A. Yes. 19 Q. Okay. And if you go back to 20 Exhibit 7252, the entry for May 25th is only 21 $461,000. 22 Okay. So, does that mean that there 11578 1 was $640,000 that was not funded? 2 A. Apparently. 3 Q. Do you know if that was primarily 4 interest? 5 A. I would speculate that it was. 6 Q. Why? Why would you reach that 7 conclusion? 8 A. Because the ongoing negotiations with 9 the borrower suggested some prudence on our part 10 with regard to whether or not we advanced those 11 sums. 12 Q. And the last page of this Exhibit 7386 13 is a letter to Faris from Shirley Surgeon. 14 Who is Shirley Surgeon at United 15 Savings of Texas? 16 A. She worked in our real estate 17 accounting area. 18 Q. What was the purpose of that letter? 19 A. To verify the amount of the interest 20 that was accruing on the debt. 21 Q. So, what was the interest accruing on 22 the debt? 11579 1 A. Well, it shows April of a certain 2 dollar amount and March of a certain dollar 3 amount. 4 Q. April 1 through April 30 would be those 5 two numbers, $74,735.67 and $485,936.54 combined? 6 A. Right. The only reason they are 7 different is because the second number would 8 contemplate additional moneys that were advanced 9 under the loan. So, the principal balance was 10 higher at the subsequent date. 11 Q. I see how that works. Okay. Exhibit 12 7279. 13 You mentioned Ms. Surgeon? 14 A. Yes. 15 Q. Did she have anything that you're aware 16 of to do with review of appraisals? 17 A. Absolutely nothing. 18 Q. How about recordkeeping regarding 19 appraisals? 20 A. Not that I recall. 21 Q. Okay. And is this -- this is a similar 22 letter to the one we looked at earlier. It's a 11580 1 July 25th, '88 letter from you and it indicates 2 that you're funding an advance of $164,927.45? 3 A. Yes. It follows the form of the prior 4 letter. 5 Q. Okay. And then again, if you go back 6 to Exhibit 7252, there is a ledger entry for -- 7 it's partially obliterated by the hole punching -- 8 but for Reference No. 355, there is an entry of 9 that amount of money? 10 A. Yes. 11 Q. And that brings the loan balance up 12 to -- the loan outstanding balance up to 13 $65,540,685.61? 14 A. Yes. 15 MR. SCHWARTZ: Your Honor, I move 16 admission of Exhibit T7279. 17 MR. DUEFFERT: No objections. 18 THE COURT: Received. 19 Q. (BY MR. SCHWARTZ) Exhibit T7281, 20 please. This is a similar document? 21 A. Identical. 22 Q. Okay. Except for the amount of money 11581 1 in the second paragraph? 2 A. Correct. 3 Q. Which here is $74,556.30 advanced? 4 A. Right. 5 Q. And that corresponds to the 6 August 15th, 1988 entry on the ledger, Exhibit 7 T7252 for that amount; is that correct? 8 A. Right. 9 Q. And that brings the loan balance 10 outstanding up to $65,615,241.91? 11 A. Correct. 12 Q. Exhibit T7229. 13 MR. SCHWARTZ: I'm sorry, Your Honor. 14 Did you receive -- was Exhibit T7386 received by 15 the Court? It was the thick advance request. 16 THE COURT: Yes. 17 MR. SCHWARTZ: It was? Okay. Thank 18 you. 19 THE COURT: 7281 was not. 20 MR. SCHWARTZ: 7281? Your Honor, I 21 move Exhibit T7281. 22 MR. DUEFFERT: No objections, Your 11582 1 Honor. 2 THE COURT: Received. 3 Q. (BY MR. SCHWARTZ) And Exhibit T7229 4 is the same document? 5 A. Follows the form of the prior. 6 Q. And that's for $82,127.05 on 7 November 28th, 1988; is that right? 8 A. That's correct. 9 Q. And then going back to Exhibit T7252, 10 we see that amount on the 11-28-88 date? 11 A. Right. 12 MR. SCHWARTZ: Your Honor, I move 13 admission of Exhibit T7229. 14 MR. DUEFFERT: No objection. 15 THE COURT: Received. 16 Q. (BY MR. SCHWARTZ) Exhibit T7393, 17 please. Now, what is Exhibit T7393? It's a 18 November 29th, 1988 letter from Shirley Surgeon to 19 Lee Faris? 20 A. Yes, providing the calculation of the 21 interest due on the debt. 22 Q. Okay. What do you mean by that? 11583 1 A. It's a calculation of the interest due 2 on the debt. 3 Q. Well, what was the interest due on the 4 debt? 5 A. Prime plus 2 times the amount of the 6 outstanding debt. 7 Q. All right. If you would, would you 8 look with me at the paragraph just above the 9 concluding sentence? "The total of interest 10 payment received and held due to loan default is 11 $5,514,589.03." 12 A. Right. 13 Q. What does that mean? 14 A. That's the accumulation of funds that 15 the borrower had asked us to advance under the 16 loan that we had not advanced under the loan. 17 Q. Why did you not advance that under the 18 loan? 19 A. Because of defaults that existed under 20 the debt. 21 Q. Exhibit 7285, please. 22 MR. SCHWARTZ: Your Honor, I move 11584 1 admission of Exhibit T7393. 2 MR. DUEFFERT: No objections. 3 THE COURT: Received. 4 Q. (BY MR. SCHWARTZ) Okay. With 5 Exhibit 7393 which we just looked at, we're now up 6 to the beginning of December -- the end of 7 November, the beginning of December 1988; is that 8 right? 9 A. That's correct. 10 Q. And according to Ms. Surgeon, the 11 outstanding balance on the loan at the time was 12 $65,925,586.16; is that right? 13 A. Right. 14 Q. And on Exhibit 7252, does that 15 correspond to the entry for 11-28-88? 16 A. Yes. 17 Q. Okay. All right. Exhibit 7285 we were 18 looking at. What is that? 19 A. A request from the borrower out of a 20 Connecticut location from Tom Lutz, who I have not 21 met. There was a recap of the funds that have yet 22 to be advanced that had been requested prior to 11585 1 that point in time. 2 Q. And is it your understanding that the 3 balance of Draws No. 25 through 33 and the amounts 4 that are listed next to each one of those are 5 primarily interest payments? 6 A. I would assume that's correct. 7 Q. And just so that I understand and so 8 it's clear, why were these amounts not being 9 funded to the borrower at this point in time? 10 A. Ostensibly because I did not feel it 11 prudent to take income in on the debt considering 12 the fact that the principal amount of the loan far 13 exceeded the current appraised value of the 14 property. 15 Q. Okay. Now, at this point in time, 16 we're into December of 1988. And I believe you 17 testified earlier when we looked at a 18 December 1988 document that there were rumors 19 going around about impending, perhaps, 20 receivership or some action being taken by the 21 government. 22 Do you recall that? 11586 1 A. That's correct. 2 Q. What was the general attitude among the 3 employees at the time? I think you described it 4 briefly before. 5 A. They were scared, concerned about their 6 futures. 7 Q. So, was there rumors that there might 8 be receivership? 9 A. Yes. Those rumors had been entertained 10 for quite some time. The receivership was not 11 quite as disconcerting as not knowing whether 12 someone would acquire the association out of 13 receivership. There were other Southwest Plan 14 arrangements that had occurred prior to that 15 point. 16 Q. Are you aware of any speculation at the 17 time among employees that Mr. Hurwitz was 18 attempting -- do you know who Charles Hurwitz is? 19 A. Yes. 20 Q. -- that Mr. Hurwitz was attempting to 21 acquire the association through receivership or 22 after the receivership? 11587 1 A. I don't know if he was attempting -- I 2 think the rumor wasn't necessarily that he was 3 going to try to acquire it after receivership but 4 that he was going to try to continue the 5 association without having to go into 6 receivership. 7 Q. Okay. Exhibit 7288. 8 MR. SCHWARTZ: I move admission of 9 Exhibit T7285. 10 MR. DUEFFERT: No objections. 11 THE COURT: Received. 12 Q. (BY MR. SCHWARTZ) This is a 13 December 29th, 1988 letter similar to the others 14 that we saw; is that right? 15 A. Correct. 16 Q. And this one is for the -- an advance 17 of $154,791.61; is that right? 18 A. Correct. 19 Q. And then if you look again at 20 Exhibit 7252 on the ledger for 12-29-88, there is 21 an entry of $154,791.61? 22 A. That's true. We did a pretty good job 11588 1 before we had the Lotus spreadsheets. 2 Q. I think Lotus spreadsheets existed at 3 this time. 4 Let's take a look at -- excuse me. 5 MR. SCHWARTZ: Did I move admission of 6 Exhibit 7288? 7 MR. DUEFFERT: No objections. 8 THE COURT: Received. 9 Q. (BY MR. SCHWARTZ) Now, what was the 10 loan balance, according to Exhibit 7252, as of 11 12-29-88, the outstanding balance on the loan? 12 A. 66,080,377.77. $66,080,377.77. 13 Q. Now, was this loan in default at this 14 point in time, in interest default? 15 A. No. 16 Q. Did the loan to value ratio exceed 17 80 percent? 18 A. Yes. 19 Q. Was this loan in technical default? 20 A. It was in non-monetary default, and it 21 had -- I believe was on a non-accrual basis. 22 Q. And was there interest owed that had 11589 1 not been taken by the institution? 2 A. Yes. 3 Q. Had the borrowers put up extra 4 collateral to correct the loan to value 5 deficiency? 6 A. No. 7 Q. Looking at Exhibit 7252 again, there is 8 an entry of $6,175,852.65 on December 30th, 1988. 9 Do you see that? 10 A. Yes. 11 Q. Is that the day of or the day before 12 the receivership? 13 A. It's the day of. 14 Q. Day of the receivership? Do you know 15 what that figure represents? 16 A. I believe that figure represents the 17 total of the construction advances on Draws 25 18 through 33 and perhaps even the amount accrued 19 after that date on the debt. 20 Q. The December advance had already been 21 paid on the 29th -- is that right -- according to 22 Exhibit 7252? 11590 1 A. You can't tell by looking at this 2 exhibit if that money was advanced for interest. 3 Q. Exhibit 7252, the December 29th entry. 4 A. How do you know that that's for 5 interest? 6 Q. I'm not asking. I'm just -- I'm just 7 asking if the borrower's requested advance had 8 occurred on -- had been -- 9 A. Yes, advanced on December 29th. 10 Q. -- advanced on December 29th. 11 The December advance request funds were 12 advanced on December 29th? 13 A. Correct. 14 Q. Okay. So, on the 30th, there was an 15 additional advance of this 6-million-dollar plus 16 number; is that right? 17 A. That's right. 18 Q. Okay. Did you approve that payment? 19 A. Yes. Only after the concurrence in 20 that regard from Art Berner as general counsel of 21 the association. 22 Q. What do you mean? 11591 1 A. I was not about to take the 2 responsibility upon myself to advance that fund -- 3 those funds. 4 Q. Why? 5 A. Because I didn't think it was prudent. 6 Q. Why? 7 A. Because from a strict real estate 8 perspective -- and that was my only view -- we 9 were going to have a hard enough time recovering 10 the existing principal balance that was out on the 11 loan. We were going to have that much more of a 12 difficult time if we had to add $6 million more to 13 that balance. 14 Q. Did this bring the loan completely 15 current in all respects as of that date? 16 A. Yes. 17 Q. Had there been any land sales up to 18 that point in time? 19 A. Not that I recall. 20 Q. Had United and the borrowers -- GMR, 21 Mr. Grieshaber, Mr. Rosenberg -- reached an 22 agreement on renegotiating the terms of the loan? 11592 1 A. No, they had not. 2 Q. Was there any reason that you're aware 3 of to bring all of the interest current? 4 A. First of all, the borrowers had 5 requested that it be advanced against the loan, 6 which was their -- within their purview. There 7 was no other reason that I knew of that would 8 prohibit it from being advanced. 9 Q. What is the effect on the borrower by 10 bringing the loan current at that point in time? 11 A. It has two effects. It brings them 12 current on the debt; but it also exhausts the 13 remaining interest reserve, in effect, that 14 existed in the loan which would subsequently 15 create a monetary default in 1989. 16 Q. Does it give the borrower more time to 17 negotiate before there would be collection on the 18 letters of credit if there were to be a 19 receivership, say? 20 A. It could. 21 Q. Are you aware of any other loans in the 22 portfolio that you managed where loans were 11593 1 brought current? 2 A. If they were brought current, they were 3 brought current by the borrower. There were no 4 funds left in any interest reserves on existing 5 debts to bring them current. 6 Q. Exhibit 7378, please. After -- going 7 back to Exhibit 7252, the balance of the loan 8 after that payment or that entry went from 9 $66,080,377.77 to -- and that brought the 10 outstanding balance on the loan up to 11 $72,256,230.42; is that right? 12 A. That's correct. 13 Q. Regarding that 6-million-dollar payment 14 that we looked at in Exhibit 7252, is there any 15 advantage to USAT to bring -- to make that entry, 16 that you're aware of? 17 A. It would increase net income -- net 18 interest income on the operating statement of the 19 association. 20 Q. Exhibit -- what is Exhibit 7378? 21 A. That's another interest calculation. 22 Q. And that's as of January 2. It says 11594 1 1988. If you look at the document, that may be a 2 typo; but why don't you tell me? 3 A. Probably 1989. 4 Q. Okay. 5 MR. DUEFFERT: I'm sorry, Your Honor. 6 We may have a different exhibit. I'd like to just 7 compare with Mr. Schwartz. 8 MR. SCHWARTZ: 7378. 9 THE WITNESS: I don't know. This might 10 be for a prior period. It's kind of hard to tell. 11 MR. DUEFFERT: You may proceed, 12 Mr. Schwartz. 13 A. I'm not sure what I'm being asked. 14 Q. (BY MR. SCHWARTZ) Okay. Well, I'm 15 just asking you: Can you glean from the letter 16 whether or not the date at the top is a typo? 17 A. Yes. I suspect this is January 2nd, 18 1989. 19 Q. All right. Now, this letter, you said, 20 was another interest calculation? 21 A. Right. 22 Q. And at the bottom of the letter, it 11595 1 says "The total of interest payment received and 2 held due to loan default is $709,615.68; is that 3 right? 4 A. Yes. 5 Q. So, that's starting anew again after 6 the $6 million had been brought up current. 7 Is that how that works? 8 A. Right, yes. 9 Q. Did -- strike that. 10 Exhibit 7290, please. 11 MR. SCHWARTZ: Your Honor, I move the 12 admission of Exhibit T7378. 13 MR. DUEFFERT: No objections. 14 THE COURT: Received. 15 MR. DUEFFERT: Since I have a different 16 version marked that number, I'd just like the 17 record to reflect that the version that's admitted 18 is Bates stamped CN076577. 19 THE COURT: Thank you. 20 Q. (BY MR. SCHWARTZ) Okay. Exhibit 7290 21 is a February 2, 1989 letter to Mr. Gindy and Park 22 410 West Joint Venture. And it's signed by you; 11596 1 is that correct? 2 A. Correct. 3 Q. What was the purpose of this letter? 4 A. To advise the borrower that we had gone 5 through receivership and to restate certain 6 factual circumstances relating to the loan. 7 Q. And are you referring there to the 8 bottom of the first page and continuing on to the 9 second, the certain events of default that exist? 10 A. Yes. And this is the culmination of a 11 review of the file by Akin, Gump who was then 12 retained, in effect, as in-house counsel for the 13 association. 14 Q. Okay. 15 A. FSB. 16 Q. And then on Page 4 of the letter, there 17 is a reference there to -- of additional funding 18 of $396,416.15? 19 A. Yes. 20 Q. Okay. What is that? 21 A. To pay the prior year's property taxes 22 that were due by January. 11597 1 Q. Exhibit -- 2 MR. SCHWARTZ: I move the admission of 3 Exhibit T7290. 4 MR. DUEFFERT: No objections. 5 THE COURT: Received. 6 Q. (BY MR. SCHWARTZ) Exhibit T7398, 7 please. 8 Did you receive Exhibit T7398, a 9 February 9th, 1989 letter to you from Lee Faris 10 and -- with attachments? 11 A. Yes. 12 MR. SCHWARTZ: Your Honor, I move 13 admission of Exhibit T7398. 14 MR. DUEFFERT: No objections. 15 THE COURT: Received. 16 Q. (BY MR. SCHWARTZ) What was the 17 purpose of these advance requests? 18 A. Well, in this particular case, it was 19 to evidence the fact that we had not fully funded 20 all their requests. And I would particularly 21 point out the $75,000 which was probably, to the 22 best of my recollection, their developer's fee 11598 1 that I refused to advance. 2 Q. Okay. That's under Draw No. 31 and 3 Draw No. 34 and perhaps inclusive -- and 4 Draw No. 25 and perhaps inclusive of at least 5 Draw No. 28? 6 A. Correct. 7 Q. And up at the top, it says "Actual 8 funds advanced to date: $72,652,646.57." That's 9 on the second page of the document. 10 A. Yes. 11 Q. And going back to Exhibit 7252 on 12 1-31-89, we see an entry there of an amount -- a 13 principal balance on the loan of $72,652,646.57? 14 A. Yes, I believe that was to pay property 15 taxes. 16 Q. That's the additional expenditure; is 17 that right? 18 A. Right, right. 19 Q. Okay. Exhibit T7400. Okay. I've 20 handed you two documents: Exhibit T7400, which is 21 a March 8th, 1989 letter to you from GMR and it 22 has certain attachments, and then Exhibit T7401, 11599 1 which is also a March 8th, 1989 letter to you from 2 Faris. 3 What is the purpose of these documents? 4 A. To request an additional advance of 5 money. 6 Q. Did you receive them, these requests? 7 A. Yes. 8 Q. Did you advance additional funds? 9 A. I don't believe so. 10 MR. SCHWARTZ: Your Honor, I move 11 admission of Exhibit T7400 and T7401. 12 MR. DUEFFERT: Your Honor, T7400 seems 13 to have a document on Page 4 of the exhibit titled 14 "unfunded draw requests, Park 410 loan, March 22, 15 '89," which is subsequent to the date of the cover 16 letter. I guess maybe the witness can tell us -- 17 Q. (BY MR. SCHWARTZ) Can you cast any 18 light on that, Mr. Seidman, on the objection made 19 by Mr. Dueffert? 20 A. Tell me again where you're looking. 21 Q. On Exhibit T7400 on the last two pages 22 of that exhibit, there is a document labeled 11600 1 "Unfunded draw requests, Park 410." 2 A. Yes. 3 Q. March 1989. March 22nd, 1989. 4 A. Yes. 5 Q. Can you cast any light on the source of 6 that document? 7 A. It would have been prepared by the 8 borrowers themselves. 9 Q. And for what purpose? 10 A. Just as a recap of maybe what funds 11 were still owing to third parties. 12 Q. Would the borrowers have sent that 13 request on to United or that document on to 14 United? 15 A. Yes, as justification for advancing the 16 funds to these third parties. This prompted a 17 larger question about what obligations of the 18 association survived the receivership with regard 19 to third parties and whether they were wiped out 20 or whether they were, in fact, obligations that 21 the new association would honor. 22 Q. The letter that it's attached to is 11601 1 dated March 8th, 1989. And it does, as 2 Mr. Dueffert indicated, reflect a March 22, 1989 3 schedule. 4 Would this have been attached to the 5 March 8th letter by you when you received it, or 6 put in the same file? 7 A. I don't know. It's very confusing 8 because the Draw Application No. 37 is dated 9 February 28th. I don't know why that would be 10 dated March 22nd. 11 MR. SCHWARTZ: All right. Your Honor, 12 I move the admission of Exhibit T7400, the first 13 three pages, and Exhibit T7401. 14 MR. DUEFFERT: No objection. 15 THE COURT: Received. 16 MR. SCHWARTZ: Your Honor, I also move 17 admission of the two pages listed "Unfunded draw 18 requests Park 410 loan March 22, 1989," under the 19 next exhibit number in order. 20 MR. DUEFFERT: So the record is clear, 21 could we have that number? 22 MR. SCHWARTZ: T7808. 11602 1 MR. DUEFFERT: No objection. 2 THE COURT: Would you repeat that 3 number, please? 4 MR. SCHWARTZ: T7808. 5 THE COURT: Thank you. Received. 6 Q. (BY MR. SCHWARTZ) Exhibit T7305. 7 Mr. Seidman, do you recognize Exhibit T7305 as a 8 July 7th, 1989 memorandum from Akin, Gump to 9 United Savings Association FSB? 10 A. Yes. 11 Q. And did you receive this at the time? 12 A. Yes. 13 MR. SCHWARTZ: Your Honor, I move 14 admission of Exhibit T7305. 15 MR. BLANKENSTEIN: Just one second, 16 Your Honor. 17 MR. DUEFFERT: Your Honor, I think this 18 would be another one where we would object and we 19 might want to deal with it tomorrow morning. It's 20 marked "confidential legal memorandum." I don't 21 know if -- 22 MR. SCHWARTZ: Your Honor, it's 11603 1 confidential legal memorandum of the receivership, 2 which is us, or at least the interest that we 3 represent. 4 MR. RINALDI: Your Honor, the 5 respondents' counsel raised the question of 6 whether these materials were inadmissible pursuant 7 to Rule 408 of the Federal Rules of Evidence. 8 I've taken the liberty of copying the rule for 9 you, and I think when one takes a look at the 10 rule -- I'll pass up several copies to the 11 Court -- it's patently obvious that it doesn't 12 apply in this situation. 13 The purpose of the rule, as I think 14 counsel is probably aware, and as stated in the 15 first sentence of the rule is, quote, "Evidence of 16 furnishing or offering or promising to furnish or 17 accepting or offering or promising to accept a 18 valuable consideration in compromise or attempting 19 to compromise a claim this was in dispute as to 20 either validity of amount" -- and here's the 21 important language -- "is not admissible to prove 22 liability for or invalidity of the claim or its 11604 1 amount." 2 THE COURT: All right. I'm going to 3 look at this. I am not prepared to rule at the 4 moment. 5 MR. DUEFFERT: Your Honor, with regard 6 to the current exhibit offered by Mr. Schwartz, we 7 have withdrawn our objection. 8 THE COURT: All right. Received. 9 MR. RINALDI: If it would be of 10 assistance to Your Honor, I also have the advisory 11 committee notes that I Xeroxed so that you're not 12 just left with a copy of the rule itself. 13 THE COURT: Thank you. 14 Q. (BY MR. SCHWARTZ) What was the 15 purpose of this memorandum, Exhibit T7305? 16 A. This is requested by the then general 17 counsel of the association of its outside attorney 18 to tell them what the status of the legal 19 activities were that related to the loan. 20 Q. And turn to Page 4. The 21 second-to-the-last paragraph there lists 22 outstanding principal and accrued interest through 11605 1 June 14, 1989, of $77,753,023.17? 2 A. Correct. 3 Q. Where would those figures have come 4 from? 5 A. From the books and records of the 6 association. 7 Q. And what does that figure represent? 8 A. It represents the accrued interest on 9 the debt through that date. 10 Q. As well as -- not just -- 11 A. As well as all the prior -- excuse me? 12 Q. Not just the accrued interest but also 13 the -- 14 A. Principal. 15 Q. -- principal? 16 A. Right. 17 Q. And on the next page under Section 3 18 "current status," do you see that? 19 A. Yes. 20 Q. It says in the second or third 21 sentence, "Interest is accruing in excess of 22 $700,000 a month"? 11606 1 A. Right. 2 Q. What does that mean? 3 A. That means as far as the borrowers are 4 concerned, the interest meter is still running. 5 Q. And what would have been the source of 6 that number? 7 A. A calculation by the real estate 8 accounting group. 9 Q. And is that number consistent with your 10 recollection of this loan? 11 A. It seems reasonable. I'd have to go 12 back and look at it. 13 Q. Would you turn to Page 7? 14 A. Yes. 15 Q. Under the paragraph "litigation 16 prospects," it says "The borrower has agreed that 17 foreclosure under the loan agreement is now 18 permitted. The guarantors have made it clear that 19 they will resist any efforts on the part of USAT 20 FSB to collect the proceeds of the letters of 21 credit or recover a deficiency under the 22 guaranties. The borrower will allege that the 11607 1 loan is usurious, A, by virtue of the points 2 charged at closing; B, by virtue of USAT's 3 25 percent net profits interest in the property; 4 and C, because the conversion of USAT's interest 5 in the USAT/Rosenberg venture was for an allegedly 6 overstated value based upon an appraisal of the 7 property allegedly solicited by USAT and provided 8 to the borrower as support for the exchange value 9 of the property." 10 Do you see that? 11 A. Yes. 12 Q. What was that referring to? 13 A. It's referring to discussions and legal 14 research done by counsel that relate to the worst 15 possible scenario for the asset. 16 Q. And the -- you mentioned earlier Dusty 17 Rhodes. Is that in connection with what you were 18 talking about earlier, that that "C" portion of 19 the -- 20 A. Yes. I believe some of those 21 suggestions that appear in this paragraph were 22 suggested in correspondence from Dusty Rhodes. 11608 1 Q. Did the borrowers resist efforts to 2 collect on the collateral -- on the letters of 3 credit? 4 A. No. 5 Q. Exhibit T7324. What is Exhibit T7324? 6 A. This is a request to the case manager 7 to approve the sale of the note to a group for a 8 dollar amount equal to 5 million 950 -- 5,950,000 9 as contrasted with a current appraised value of 10 7,200,000 for the same collateral which was 11 ultimately approved and consummated by the 12 association. 13 Q. At what amount? 14 A. $5,950,000. 15 Q. And when did that sale occur? 16 A. I don't recall the exact date. 17 Q. Had there been sales of any of the land 18 up to that point in time? 19 A. One parcel had been sold for a cash 20 value to the U.S. Post Office. 21 Q. Okay. And is that reflected in this 22 document, in this exhibit? Is that sale reflected 11609 1 in here? 2 A. No. That happened sometime previously. 3 Q. Okay. Do you recall the amount of that 4 sale? 5 A. No, not without additional research. 6 Q. Exhibit 7324 reflects a sale of 7 $5,950,000? 8 A. Correct. 9 Q. Is that for the entire -- or what was 10 remaining of the entire Park 410 site? 11 A. Yes. That was -- let me remind you, 12 this was the sale of the note, not the sale of the 13 real estate. The note was secured by 100 percent 14 of a collateral net of the sale to the post office 15 that had previously occurred. 16 Q. Exhibit 7327. 17 MR. SCHWARTZ: Your Honor, I move the 18 admission of Exhibit T7324. 19 MR. DUEFFERT: Your Honor, part of this 20 exhibit is Bates stamped. Part of it is not. It 21 may be an attempt by the OTS to reconstruct an 22 original. If the witness could look through it 11610 1 and verify that it all belongs together, I don't 2 think I have an objection. 3 THE WITNESS: It looks complete. 4 MR. DUEFFERT: No objections, Your 5 Honor. 6 THE COURT: Received. 7 MR. SCHWARTZ: One moment, Your Honor. 8 9 (Discussion off the record.) 10 11 MR. SCHWARTZ: I'm sorry, Your Honor. 12 Exhibit 7327. 13 Q. (BY MR. SCHWARTZ) What is 14 Exhibit 7327? 15 A. It's a letter from our real estate 16 accounting group to an attorney with Akin, Gump. 17 Q. And what was the purpose of the letter? 18 A. To show the cumulative principal 19 balance and interest accrued on the debt. 20 Q. And this is as of November 10th, 1993? 21 A. Yes, but I want to make a correction to 22 what I just said. 11611 1 Q. Yes, sir. 2 A. It may not be accrued. This would be 3 the interest owing on the debt. 4 Q. Okay. And it's through November 15th, 5 1993, if you look in the second line of the text. 6 A. Right. 7 Q. And would you walk us through each of 8 these items that are listed here and what they 9 mean? 10 A. The principal amount happens to be the 11 same principal amount that appears on your Exhibit 12 7252. 13 Q. Yes, sir. 14 A. "Additional indebtedness" would 15 represent the funds advanced for property taxes 16 and the maintenance of the property from the date 17 of receivership. 18 Q. Okay. 19 A. "Unpaid interest to maturity" -- 20 Q. Backing up so that it's clear on the 21 record. The principal at maturity was the same 22 amount in Exhibit 7252. The additional 11612 1 indebtedness is $2,261,508.94? 2 A. Right. 3 Q. Okay. What's "unpaid interest to 4 maturity"? 5 A. I'd have to assume it's what it says it 6 is. I don't remember the maturity date of the 7 note. 8 Q. Okay. What -- based on your 9 experience, what does that entry mean? 10 A. That's the amount of money that had 11 been due and payable on the note by the borrowing 12 group. 13 Q. And that's $12,375,023.19? 14 A. Right. 15 Q. And then "Post-maturity interest to 16 November 15, '93," what does that mean? 17 A. I don't have a lot of clarity on the -- 18 those two items. This may have been in response 19 to a request from the attorneys. But the total 20 amount represented the total principal amount plus 21 advances plus accrued plus interest that was due 22 and payable on the note at the stated rate plus 11613 1 penalties. 2 Q. And that amount is $104,268,171.42? 3 A. Correct. 4 Q. And then -- so, that's the amount of 5 money that if the loan had been kept current by 6 the borrowers through this point in time, backing 7 out the -- any fees or penalties and then backing 8 out of that the letters of credit that were 9 collected, is that the amount of loss to the 10 institution? 11 A. This is the gross number. It is not 12 net of the letters of credit. 13 Q. Okay. And that was $10 million? 14 A. Correct. 15 Q. And then is this -- November 10th, 16 1993, is this before the sale that we saw in 17 Exhibit 7324 of $5,950,000? 18 A. This is after the sale. 19 Q. This is the amount due and owing after 20 that sale? 21 A. Well, this is schedule for closing in 22 September of 1993, this sale. 11614 1 Q. Yes. And -- 2 A. This is dated December -- 3 November 10th, '93. 4 Q. Right. 5 A. So, it occurred -- this was prepared 6 after the sale. 7 Q. Okay. Now, when you say "this," you're 8 referring to Exhibit T7327? 9 A. Yes. It was prepared after the sale of 10 the asset. 11 Q. So, this is inclusive of that sale. Is 12 that what you're saying? 13 A. Yes, but this -- this was prepared only 14 with regard, I believe, to an interest 15 calculation. It was not attempting to show what 16 the net collection was on the debt. This was only 17 to show an interest calculation based on the 18 principal amount at the stated rate and then a 19 default rate if that existed in the note. 20 Q. And then the net collection would be 21 reducing it by the amount of the letters of 22 credit? 11615 1 A. As would any proceeds, yes. 2 Q. And any other amounts? 3 A. Just the sale. 4 Q. Okay. And that's -- 5 A. So, the total of the sale of 5 million 6 950 plus the $10 million in letters of credit 7 yielded at least 10,950,000 -- I mean -- excuse 8 me. 9 Q. 15 million? 10 A. 15,950,000 in receipts. 11 Q. Right. And then reducing that -- and 12 that would be subtracted from the 13 104-million-dollar number? Is that how you 14 calculated it? 15 A. This is -- we have to get this 16 straight. The 104 million didn't go out the door. 17 A portion of that was interest that was due and 18 payable but was never paid. 19 Q. Okay. 20 A. I went through this same situation on 21 the Norwood loan as it related to accrual 22 policies. I don't mean to belabor it, but it's -- 11616 1 the question is: "How many dollars did we put out 2 and how many did we get back?" 3 MR. SCHWARTZ: Okay. This is the last 4 exhibit that I have, Your Honor, in my collection 5 if I could just have a moment. 6 THE COURT: All right. Well, do you 7 have those figures? 8 THE WITNESS: Well, the principal -- 9 the loan was on non-accrual. So, the only money 10 that went out was the principal advances on the 11 debt. 12 Q. (BY MR. SCHWARTZ) And if -- 13 A. Plus the 2 million 261 that was 14 advanced after to protect the asset's collateral 15 value by paying property taxes and maintenance. 16 Q. Okay. 17 A. Those two numbers represent the total 18 dollars that went out the door. 19 Q. Yes, sir. 20 A. The total moneys that were advanced to 21 preserve the collateral was a total of the 22 72,652,646.57 plus the subsequent advances to 11617 1 protect the collateral value for property taxes 2 and maintenance, totaling 2,261,508.94. 3 Q. If the loan had remained current 4 throughout its time, would the institution also 5 have collected the additional $12,375,023.19 6 that's listed in the next line item? 7 A. Potentially. 8 Q. Okay. 9 MR. SCHWARTZ: Your Honor, I would 10 suggest that we terminate for the day. I'm going 11 to have a few questions in the morning regarding 12 the 408 issue that Your Honor is going to leave, 13 but we do need to get to the bottom of this issue 14 pending with the witness right now. 15 MR. DUEFFERT: Your Honor, I really 16 need some time with this witness tomorrow morning 17 and I insist that Mr. Schwartz finish his direct 18 except for the issues he reserved for the Court. 19 MR. SCHWARTZ: Your Honor, I would 20 request that perhaps we could start a half an hour 21 earlier in the morning, at 8:30, rather than -- 22 THE COURT: Are you going to take a 11618 1 half an hour? 2 MR. SCHWARTZ: Yes, Your Honor. 3 THE COURT: All right. We'll adjourn 4 until 8:30 tomorrow. 5 MR. SCHWARTZ: Thank you, Judge. 6 7 (Whereupon at 6:02 p.m. 8 the proceedings were recessed.) 9 10 11 12 13 14 15 16 17 18 19 20 21 22 11619 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 December, 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 11620 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 December, 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