450 1 97-1333 sf/sh 2 OFFICE OF THRIFT SUPERVISION DEPARTMENT OF THE TREASURY 3 NO. AP 95-40 4 In the Matter of: ) 5 ) UNITED SAVINGS ASSOCIATION OF TEXAS, ) 6 Houston, Texas; and ) ) 7 UNITED FINANCIAL GROUP, INC., ) Houston, Texas, a Savings and ) 8 Loan Holding Company ) --------------------------------------------) 9 MAXXAM, INC., Houston, Texas, a ) Diversified Savings and Loan ) 10 Holding Company ) ) 11 FEDERATED DEVELOPMENT CO., a New York ) Business Trust, ) 12 ) CHARLES E. HURWITZ, Institution-Affiliated ) 13 Party and Present and Former Director ) of United Savings Association of Texas, ) 14 United Financial Group, and/or MAXXAM, ) Inc.; and ) 15 ) HARRY A. MUNITZ, JENARD M. GROSS, ARTHUR ) 16 S. BERNER, RONALD HUEBSCH, and MICHAEL ) CROW, Present and Former Directors and/ ) 17 or Officers of United Savings Association ) of Texas, United Financial Group, and/or ) 18 MAXXAM, Inc., Respondents ) 19 20 PROCEEDINGS 9-24-97 21 22 SEPTEMBER 24, 1997 HOUSTON, TEXAS 23 24 A P P E A R A N C E S 25 ON BEHALF OF THE AGENCY: 451 1 KENNETH J. GUIDO, Esquire, Special Enforcement Counsel; and 2 BRUCE RINALDI, Esquire of: Office of Thrift Supervision 3 Department of the Treasury 1700 Street, N.W. 4 Washington, D.C. (202) 906-7395) 5 6 ON BEHALF OF RESPONDENT MAXXAM, INC.: 7 FRANK J. EISENHART, Esquire CATHERINE BOTTICELLI 8 of: DECHERT, PRICE & RHOADS 1500 K Street, N.W. 9 Washington, D.C. 20005-1208 (202) 626-3306 10 11 DALE A. HEAD, Esquire Managing Counsel 12 of: Maxxam, Inc. 5847 San Felipe, Suite 2600 13 Houston, Texas 77257-2887 (713) 267-3668) 14 (Not present) 15 ON BEHALF OF RESPONDENT FEDERATED DEVELOPMENT CO. AND CHARLES E. HURWITZ: 16 RICHARD P. KEETON 17 of: MAYOR, DAY, CALDWELL & KEETON 700 Louisiana, Suite 900 18 Houston, Texas 77002 (713) 225-7000 19 20 JACKS C. NICKENS 21 of: CLEMENTS, O'NEILL, PIERCE & NICKENS 1000 Louisiana, Suite 1800 22 Houston, Texas 77002 (713) 654-7608 23 24 25 452 1 ON BEHALF OF THE AGENCY: 2 BRUCE F. RINALDI of: Office of Thrift Supervision 3 1700 G Street, N.W. Washington, D.C. 20552 4 (202) 906-7396 5 ON BEHALF OF JENARD M. GROSS: 6 PAUL BLANKENSTEIN 7 of: GIBSON, DUNN & CRUTCHER 1050 Connecticut Avenue, N.W. 8 Washington, D.C. 20036-5306 (202) 955-8693 9 10 ON BEHALF OF BARRY MUNITZ: 11 DAN HEDGES of: FOSTER & HEDGES 12 700 Louisiana, 35th Floor Houston, Texas 77002 13 14 15 REPORTED BY: 16 Ms. Shauna Foreman 17 . 18 . 19 . 20 . 21 . 22 . 23 . 24 . 25 . 453 1 I N D E X 2 Examination Index: 3 Witness 4 Richard Marlin (Cont'd) 5 by Mr. Rinaldi (Direct Examination) Page 459 by Mr. Nickens (Cross Examination) Page 500 6 by Mr. Rinaldi (Re-direct) Page 525 Ezra Levin 7 by Mr. Rinaldi (Direct Examination) Page 546 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 P R O C E E D I N G S 24 25 THE COURT: The hearing will come to 454 1 order. I wanted to raise a question about how 2 we're handling the exhibits that are admitted. 3 The usual practice is that the reporter takes 4 custody of all admitted exhibits and I don't know 5 if that procedure is going to be practical in this 6 matter or not with the large amount of paper 7 that's being generated. And each party is 8 responsible for making sure that its exhibits are 9 left with the reporter. 10 What are your thoughts on that or how 11 -- I know we received several exhibits yesterday, 12 and I think we have to get a procedure in place to 13 handle it. 14 MR. GUIDO: Your Honor, my 15 understanding is one copy will go to the Court, 16 one will go to the witness, the copy will go to 17 the reporter and that that would be retained, but 18 that there were -- that certain exhibits would be 19 used multiple times so that we would need to 20 retrieve them from the reporter. 21 THE COURT: The question is: Is the 22 reporter going to have them when they are 23 retrieved or where are they going to be? 24 MR. NICKENS: Your Honor, what I would 25 suggest is the reporter can keep the exhibits that 455 1 have been admitted and we would assist them in 2 keeping them in order because it's going to 3 interrupt their work to try to do that and we can 4 assist in that as we go along. 5 Now, you know, that's going to be a 6 problem when this thing gets from one box to two 7 boxes to three boxes. We will put them in folders 8 and maintain the ones that have been admitted in 9 such a way that they could be retrieved. We have 10 these folders here. I think that we can provide 11 that assistance. 12 MR. GUIDO: That was our intention, 13 that we each would do that for the Court. 14 THE COURT: Well, should we have a 15 system to mark the document of record to 16 distinguish it from the bench copies and counsel 17 copies? 18 MR. NICKENS: My understanding, Your 19 Honor, is that we have people that have these 20 lists that are keeping a record of the things that 21 have been offered and admitted as they come up on 22 a computerized exhibit list. So, we can provide 23 that on a periodic basis to people. I think 24 that's going to be the most accurate way of 25 keeping track of the -- of that sort of issue. 456 1 That is, things that were offered but maybe were 2 not admitted or things that were admitted. 3 MR. STERNS: I think what the judge is 4 proposing is how do we tell the official copy from 5 all the others. 6 THE COURT: We have to have a copy of 7 record and the reporter essentially has custody. 8 I don't know if they can exercise that custody 9 with this amount of documents and, especially 10 since we are going from session to session, what 11 happens to the documents between sessions? And 12 I'm afraid we're going to find ourselves down the 13 road and we don't know which ones are the copies 14 of the record and we can tell maybe by the 15 computer. I'm trying to keep a list of the ones 16 that have been received, but where are they and 17 who has them? 18 MR. NICKENS: For our side, there is 19 just one that has an exhibit label, am I correct, 20 that has the actual label, and that would be the 21 official record as opposed to the copies we have 22 made of the ones -- of the record. 23 MR. RINALDI: In our case, the labeled 24 set was kept as a master set and all copies have 25 been made from the master set so that the one I 457 1 have been handing up from the witness does not 2 have an original label sticker on it. Sometimes I 3 speak too low. I noticed -- 4 THE COURT: I can hear you. I don't 5 know if everybody else can. 6 MR. RINALDI: I think that probably the 7 clerk, with our assistance, is going to have to 8 maintain a master set that -- 9 THE COURT: You mean the reporter? 10 MR. RINALDI: The reporter. As I give 11 a document to the witness, I think that gets given 12 by the witness to the reporter and that gets put 13 in a pile and then we perhaps at the end of the 14 day order them to check our list, everybody agrees 15 that these have been admitted or offered in, and 16 the those become the official record. 17 MR. NICKENS: If they will designate a 18 representative and we will have a representative 19 whose responsibilities at the end of the day would 20 be to take the documents and mark them with a date 21 that would indicate -- and that marking would 22 designate those documents as the ones that have 23 become a part of the official record as of that 24 date. It will require coordination. Both sides 25 would have to be a part of that process. It seems 458 1 to me that would be a means on a regular basis of 2 trying to keep our record in shape. 3 MR. RINALDI: There is, I think, one 4 additional issue and that is there may at times be 5 documents that are shown to a witness but then are 6 not offered into evidence. 7 THE COURT: I'm not worried about that. 8 MR. GUIDO: I think Mr. Nickens' 9 suggestion that we take responsibility for the 10 exhibits and putting some identifying mark on the 11 document to indicate that that is the official 12 record -- 13 THE COURT: That would be acceptable. 14 Each side will be responsible for making sure 15 there are copies with the reporter, left with the 16 reporter. 17 MR. NICKENS: Yes, Your Honor. 18 MR. GUIDO: Yes, Your Honor. 19 THE COURT: All right. Let's proceed. 20 21 EXAMINATION 22 23 MR. RINALDI: 24 Q. Good morning, Mr. Marlin. 25 A. Good morning, Mr. Rinaldi. 459 1 Q. I believe when we broke we were 2 reviewing an Exhibit T1090. I would like to go 3 back to that exhibit, if I may. 4 THE COURT: Does the reporter have the 5 stack of exhibits that were here yesterday? 6 MR. RINALDI: 7 Q. Do you recall having received a copy of 8 this letter from Jon Mark, sir? 9 A. I think I said yesterday I do not 10 remember. 11 Q. Now, the first full sentence of that 12 letter indicates that "Enclosed herewith is a copy 13 of the form of stock option agreement as it now 14 stands with blanks for dollars and share amounts 15 to be filled in." 16 I don't recall. Did you indicate 17 yesterday as to who was responsible for filling in 18 those blank amounts? 19 A. Well, we, as counsel, would have had 20 instructions from somebody at MCO in the way this 21 was going. It could have been one of two or three 22 people perhaps, and presumably at the end of the 23 negotiation we confirm what the amount would be. 24 Q. Do you recall whether counsel was ever 25 advised of what the amounts and the share amounts 460 1 and the price per share would be? 2 A. I don't remember. 3 Q. It also indicates that there's enclosed 4 a form of amendment in the event the transaction 5 must be done in two blocks with an agreement to 6 rescind in 90 days. A portion of the transaction 7 requiring NASD approval. 8 Does that refresh your recollection 9 that the parties were contemplating doing the 10 transaction in two blocks? 11 A. Well, as I said, I saw references in 12 Drexel Burnham counsel's letter to their plan or 13 suggestion that the transaction might be done that 14 way, but I have no other recollection of that at 15 all. 16 Q. You don't recall having seen the 17 amendment that's referred to in this letter by 18 Mr. Jon Mark that was sent to you? 19 A. That's correct. 20 Q. Mr. Marlin, in Exhibit T1088, which is 21 the previous exhibit I showed you -- and it's the 22 fax cover sheet to you from Jon Mark. Mr. Mark 23 appears to have sent a letter to the NASD 24 requesting a waiver with respect to the 25 transaction. 461 1 Do you remember looking at this 2 document yesterday? 3 A. Yes. 4 Q. Do you recall whether the NASD 5 ultimately responded to Mr. Mark's inquiry as to 6 whether they could provide a waiver to permit the 7 transaction to go forward for a larger amount of 8 shares than otherwise would have been permitted 9 under NASD rules of fair practice? 10 A. It's my understanding that they did not 11 grant the waiver. 12 Q. Did you ever have occasion to receive a 13 letter from the NASD stating their position in 14 that regard? 15 A. I think I've seen a copy, but I don't 16 remember receiving it in the past. 17 Q. When you say you've seen a copy, you 18 mean someone has showed it to you subsequent to 19 that time? 20 A. Yes, either you or Mr. Nickens. 21 Q. Okay. 22 MR. RINALDI: Let the record reflect 23 I'm handing the witness exhibit number -- strike 24 that. 25 Could we move into evidence, Your 462 1 Honor, the previous exhibit, which is T1090? 2 MR. NICKENS: No objection. 3 MR. RINALDI: A letter from Mr. Mark to 4 Richard Marlin dated December 20th, 1985. 5 MR. NICKENS: No objection, Your Honor. 6 THE COURT: Received. 7 MR. RINALDI: 8 Q. I'm handing the witness and the Court 9 Exhibit T1105. This is a letter dated 10 December 24th, 1985. It's to Jon Mark from a 11 Peter T. Canada, assistant director of NASD 12 operations. 13 Would you pass that on to the judge? 14 A. (Witness complies.) 15 Q. Now, directing your attention to the 16 second full paragraph there, it indicates that the 17 information that had been provided by Mr. Mark to 18 the NASD as a justification for granting an 19 exemption had not raised, quote, "highly-unusual 20 circumstances" and, therefore, the NASD determined 21 not to grant the exemption which Mr. Mark 22 requested. 23 A. So it says. 24 Q. Okay. Do you recall being advised at 25 or about the time and date of this letter that, in 463 1 fact, the NASD had declined to grant the exemption 2 sought by Mr. Mark? 3 A. I don't have any independent 4 recollection of that. 5 Q. Do you recall whether it was necessary 6 to modify the agreement -- that is, the option 7 agreement -- in order to deal with the fact that 8 the NASD had denied the exemption application? 9 A. Well, I see that the option agreement 10 as ultimately entered into dealt with a smaller 11 number of shares and, as a result, I believe that 12 is the modification that you're talking about. 13 Q. Do you recall how many shares as you 14 sit here today the option agreement was ultimately 15 done for, sir? 16 A. 300,000. 17 Q. And in Mr. Mark's letter it states that 18 in the last paragraph for purposes of determining 19 position limits, long calls and short puts and 20 short calls and long puts covering the same 21 underlying security must be aggregated. "As 22 parties to the UFG option transaction set forth in 23 your letter, we'll be holding equal numbers of 24 long and short options on the same side of the 25 market. Options positions covering in excess of 464 1 150,000 shares of UFG common stock would not be 2 permitted under Section 3 of Appendix E." 3 Do you see that? 4 A. Yes. 5 Q. Do you recall learning at about the 6 time the option was being entered into that the 7 call option which was being given by Drexel to MCO 8 and the put option that was given by Maxxam to 9 Drexel Burnham & Lambert had to be aggregated and, 10 therefore, the maximum number of shares was 11 150,000 shares? 12 A. No. 13 Q. Do you recall modifying the agreement 14 in any way to try to circumvent that limitation? 15 A. No. 16 Q. Did it become -- did it come to your 17 attention subsequent to the entry of the option 18 agreement that, in fact, parties to the agreement 19 had modified it in order to circumvent the 20 150,000-dollar limit? 21 A. I think the answer to your question is 22 no. The -- I really have no recollection at all 23 of any 150,000 share number. I have no 24 recollection of seeing this letter. The problem 25 between Drexel Burnham and the NASD was really 465 1 between them and I don't remember being a party to 2 it at all. And the 300,000 shares was a number I 3 think plugged in at Drexel Burnham's suggestion or 4 because they stated that that was the maximum 5 number that they could do. I don't remember the 6 150,000 number. 7 Q. Now, just so I understand the sequence 8 of events, you were in New York City? 9 A. Yes. 10 Q. Along with Mr. -- 11 A. Yeres. 12 Q. And I suppose Mr. Mark -- I mean, 13 Mr. Canada and Mr. Mark were all in New York City? 14 A. Actually, this says he's in Washington. 15 Q. I beg your pardon. You're correct. 16 And Exhibit 1090 indicates that the option 17 agreement formed had been sent out with blanks to 18 the West Coast, had it not? 19 A. Well, Kevin Madigan was on the West 20 Coast when he got a copy of this letter. 21 Q. It says "The execution form was sent to 22 California with Kevin Madigan and I'm sending the 23 stock option agreement, as well." 24 Do you see that? 25 A. Yes. 466 1 Q. Mr. Madigan would have been on the West 2 Coast? 3 A. That's correct. 4 Q. And when the document was executed, it 5 was executed on the West Coast and you were not 6 present, were you? 7 A. That's correct. 8 Q. After the execution of the document, 9 was a copy of it returned to you for your files? 10 A. I must say I don't remember, but in the 11 normal course of things, it would have been. 12 Q. You don't recall having seen the final 13 form of the option that was actually executed by 14 the party? 15 A. That's correct. 16 MR. RINALDI: Now, let me move into 17 evidence, Your Honor, the last exhibit which is 18 the letter from Jon Mark -- I mean from Peter 19 Canada to Jon Mark with a cc to David Yeres. It's 20 Exhibit T1105. 21 MR. NICKENS: No objection. 22 MR. RINALDI: 23 Q. I'm handing the witness a copy of 24 Exhibit T1085. This is the board of directors' 25 meeting dated December 17th, 1985. Attached to 467 1 this document is a copy of the -- what purports to 2 be the finally-executed put call option between 3 MCO and Drexel Burnham Lambert. 4 Now, Mr. Marlin, directing your 5 attention to the stock option agreement, it's -- 6 MR. NICKENS: Your Honor, could I ask 7 for identification purposes because our copy of 8 this exhibit does not have the attachment that the 9 witness could identify the Bates numbers of the 10 document he's looking at. 11 A. The -- OMX 23197. And that goes -- 12 well, in sequence through 23217. 13 MR. NICKENS: Thank you, Your Honor. 14 MR. RINALDI: This is a document that 15 reflects confidential treatment requested by 16 Dechert Price & Rhoads and was produced by Maxxam 17 through their counsel. 18 A. Mr. Nickens was also asking for the 19 Bates number for the board of directors' meetings, 20 and throughout the body of the document there is a 21 number of lines that are stricken through. 22 Q. (BY MR. RINALDI) And then there are 23 signatures in the -- or initials in the right-hand 24 margin. 25 Do you know why the changes that are 468 1 reflected -- that are reflected in the document 2 were put into the document? I don't know why any 3 individual change was made. It's clear that 4 certain terms of the agreement had been left open 5 and those had to be filled in in order for the 6 document to be complete, and it appears that 7 certain other terms were changed at the last 8 minute. 9 Were you consulted regarding those 10 changes, as you recall? 11 A. I don't remember. 12 Q. And the first blank that was filled in, 13 of course, was the 300,000 shares that appears on 14 the first page; is that correct? 15 A. Yes. 16 Q. Do you know how that number was arrived 17 at? 18 A. No, other than what I testified a 19 little while ago. 20 Q. Uh-huh. Then as we go to the bottom of 21 the page it indicates under Paragraph 1, grant of 22 the MCO option, and it talks about that the -- 23 "That the DBL hereby irrevocably grants to MCO an 24 option "the MCO option" to purchase from DBL all, 25 but not less than all, of the shares at a purchase 469 1 price equal to the sum of $2,577,000." 2 Do you know how the parties arrived at 3 the price for the 300,000 shares? 4 A. Without doing any arithmetic, I noted 5 in looking through the minutes that you gave me as 6 part of this exhibit that there was an 7 authorization to purchase the shares at $8.59 per 8 share, and I am postulating that the purchase 9 price results from multiplying 300,000 by that 10 number. 11 Q. Okay. Here's my question to you: Do 12 you know how the parties arrived at that number of 13 $8.59 a share? 14 A. Other than through negotiation, no. 15 Q. You did not participate in those 16 negotiations? 17 A. To the best of my recollection, I did 18 not participate in the negotiations between MCO 19 and Drexel, although I was a party to the 20 transaction in various ways. I must have heard 21 the number at some point. 22 Q. Okay. On the second page of B-3 it 23 makes reference, does it not, to an irrevocable 24 letter of credit commercial bank for the benefit 25 of DVL? 470 1 A. Yes. 2 Q. And we also talked about an indemnity 3 provision. 4 Do you know whether the indemnity 5 provision ultimately was left in the document? 6 A. Yes. It appears on Page 12. 7 Q. And, finally, we talked about the fact 8 that Drexel had sought to have its legal fees in 9 connection with the transaction reimbursed by MCO. 10 Ultimately is there a provision in the 11 option that provides for reimbursement of Drexel? 12 A. Well, I must tell you I don't remember. 13 We would have to read through it and see. Is 14 there a place you would like to direct my 15 attention? 16 Q. Sure. Why don't you take a look at 17 Page 17, Paragraph C? 18 A. (Witness complies). Yes. The legal 19 fees, up to a limit, were reimbursed. 20 Q. Now, directing your attention to the 21 minutes. In the minutes which are dated December 22 the 17th it indicates that Mr. Schwartz reported 23 on an option agreement and he indicated that 24 Drexel Burnham Lambert, Incorporated, was the 25 owner of 300,000 shares of common stock and 471 1 ultimately the board authorizes them, Mr. 2 Schwartz, to go ahead with the purchase of or the 3 option agreement for 300,000 shares. 4 Do you know how the board was able to 5 pass a resolution for 300,000 shares on December 6 17th, 1985 -- 7 A. No. 8 Q. -- when, in fact, the number of shares 9 was dependent upon an exemption being passed by 10 the NASD and the NASD didn't respond until 11 approximately a week later? 12 A. No, I don't know. 13 Q. And you had no discussions with anybody 14 regarding that? 15 A. No. 16 Q. And we talked earlier about the 17 exercise date of the option and it indicates here 18 that the date was set two and a half years into 19 the future? 20 A. That's correct. 21 Q. And, so, the exercise date would have 22 been sometime in July of 1987? 23 A. Actually, '88. 24 Q. I'm sorry. You're correct. I should 25 read the agreement more carefully. Yes, there it 472 1 is. It's on the second page. That MCO -- that 2 the option, MCO's call option, may be exercised 3 during the period of July 1, '88, to June 31st, 4 1988? 5 A. That's correct. To July 31st. 6 Q. I'm sorry. July 31st. 7 MR. RINALDI: Your Honor, I would move 8 into evidence Exhibit T1085, the minutes of the 9 board of directors, December 17th, 1985. 10 MR. NICKENS: Your Honor, we have no 11 objection to the admission of the minutes or of 12 the Drexel option agreement. I note, for the 13 record, that the Bates numbers that were read into 14 the record are not consecutive. So, we would like 15 an opportunity to check those and possibly 16 substitute a document that reflects consecutive 17 numbers. But, other than that, we have no 18 objection to these documents. 19 MR. RINALDI: Actually, I think they 20 are consecutive. I see. There appears to be a 21 couple pages. Let me say this, Your Honor. I 22 think that for all parties involved it would be a 23 good idea for us, since this becomes a seminal 24 document, to agree upon a document because there 25 is all kinds of handwriting and interlineation and 473 1 I know that we don't have the best copy and, in 2 truthfulness, there is a better copy that I got at 3 the assistance of Bettina. She couldn't be 4 assured it was an authentic document. It's a much 5 better-quality document. 6 THE COURT: Well, some of the 7 handwriting and initials are cut off. At least in 8 part -- some of the -- I don't know if somebody 9 knows who they are anyway, but it's not a very 10 good copy. 11 MR. RINALDI: Well, I would -- 12 THE COURT: All right. The document is 13 received, subject to seeing if we can get a better 14 copy. 15 MR. RINALDI: 16 Q. Mr. Marlin, prior to the execution of 17 the option agreement did MCO ever seek the 18 approval of the Federal Home Loan Bank Board for 19 the put call option? 20 A. Not to my knowledge. 21 Q. Did you on MCO's behalf ever advise the 22 Federal Home Loan Bank Board that MCO and DBL were 23 contemplating entering into the put call option 24 prior to engaging in that option? 25 A. Not to my knowledge. 474 1 Q. And, in fact, wasn't the option 2 transaction completed prior to December 26, 1985, 3 so that MCO would be exempt from having to seek 4 prior approval from the Federal Home Loan Bank 5 Board for the transaction? 6 A. That appears to be the case, yes. 7 Q. Now, we've talked about MCO's 8 acquisition of 24.9 percent of the shares of 9 Drexel Burnham prior to entering into the option. 10 A. You misspoke a little bit. 24.9 11 percent of -- 12 Q. The outstanding shares of United 13 Financial Group? 14 A. Correct. 15 Q. What I want to do is just sort of 16 recap. In addition to that, MCO entered into an 17 option agreement with Drexel Burnham to require an 18 additional 300,000 shares of common stock of UFG, 19 and we've just completed talking about that. 20 A. Yes. 21 Q. Okay. After the -- did Drexel -- did 22 MCO, to your knowledge, acquire any additional 23 shares of United Financial Group? 24 MR. NICKENS: Your Honor, I object to 25 the form of the question because there's an 475 1 ambiguity about whether he means additional to the 2 24.9 or whether he is implying that the options 3 were additional shares. I have no objection and 4 -- if I understand the question to be additional 5 to the 24.9. I do have an objection to the 6 suggestion that the central issue in the case that 7 those option shares should be counted as 8 additional shares. 9 THE COURT: Can you clarify your 10 question? 11 MR. RINALDI: 12 Q. MCO acquired 24.9 percent of the 13 outstanding shares of UFG prior to 1986; is that 14 correct? 15 A. Yes. 16 Q. And -- 17 MR. NICKENS: Your Honor, I'm sorry. 18 Federated and MCO, not MCO. The two aggregated 19 shares. The question is incorrect as to MCO. 20 A. I'm also not sure that they actually 21 acquired the full 24.9 because there were some 22 around 2, 2 and a half percent they had had the 23 right to go to 24.9. I'm not sure they ever went 24 there. The number is in the 20s. And, to my 25 knowledge, they never exceeded 24.9 percent. 476 1 MR. RINALDI: 2 Q. I'm just trying to establish predicate 3 for the next series of questions. 4 MCO and Federated and other parties 5 whose shares would have to be aggregated with 6 theirs, Mr. Kozmetsky. 7 MR. KEETON: Your Honor, I want to 8 object to the form of the question. Counsel has 9 made a legal assumption that those shares had to 10 be aggregated. If he's got a question, he should 11 ask it, not give a speech. 12 MR. NICKENS: Your Honor, there is an 13 issue about whether Mr. Kozmetsky's shares should 14 be aggregated. There is a substantive basis for 15 our concern with regard to these questions. 16 MR. RINALDI: 17 Q. Sir, did MCO and Federated acquire 18 shares of UFG in excess of 20 percent, to your 19 knowledge? 20 A. Yes. 21 Q. Okay. That would have been sometime 22 prior to 1986? 23 A. That's correct. 24 Q. And, in addition to that, Drexel and 25 MCO entered into an option whereby MCO acquired a 477 1 call option to acquire an additional 300,000 2 shares from Drexel backed up with a put by Drexel 3 back to MCO; is that correct? 4 A. That's correct. 5 Q. Now, after entering into the call put 6 option, to your knowledge did MCO and/or Federated 7 acquire any additional shares of UFG that you are 8 aware of? 9 A. No. 10 Q. To your knowledge, did they acquire any 11 preferred non-voting shares? 12 A. Well, I don't remember. 13 MR. RINALDI: I'm handing the witness a 14 copy of a document entitled -- labeled A2073, 15 and -- 16 MR. NICKENS: 73 or 74? 17 MR. RINALDI: 73. If you'll bear with 18 us a moment. 19 The document, Your Honor, is a 13D. 20 It's Amendment No. 12, and it would have been 21 dated April 17th. 22 Q. (BY MR. RINALDI) Have you had a chance 23 to look at this document, sir? 24 A. I'm looking at it now. 25 Q. Okay. Sir, do you recognize this form 478 1 of document? 2 A. Yes. 3 Q. And can you identify for the court what 4 it is? 5 A. Yes. It's an amendment to a Schedule 6 13D which is required to be filed when there's a 7 change in information previously contained in 8 earlier 13Ds filed by the same filer. 9 Q. And what is the purpose of the 13D? 10 A. It's to give notice to the Securities & 11 Exchange Commission and to the investing public of 12 the stock holdings of persons who hold significant 13 share holdings in public companies. 14 Q. And as a result of MCO and Federated 15 share holdings -- and UFG, were they required 16 under the securities law to file a Schedule 13D 17 with respect to UFG ownership? 18 A. They should have been. 19 Q. And what is the triggering number of 20 shares? 21 A. 5 percent. 22 Q. And I believe that you've previously 23 testified that UFG and -- I mean MCO and Federated 24 had acquired in excess of 5 percent of the 25 outstanding shares of UFG? 479 1 A. Yes. 2 Q. Now, directing your attention to 3 Page 11 of this document. 4 MR. NICKENS: May I ask that the 5 document be offered? 6 MR. RINALDI: Certainly. In fact, Your 7 Honor, I think because these documents appear to 8 all be prepared -- well -- can we offer this into 9 evidence? 10 THE COURT: Yes. 11 MR. NICKENS: No objection. 12 THE COURT: All right. Admitted. 13 MR. RINALDI: What I would like to do 14 with this document and the entire series of 13Ds, 15 because they reflect the entire history of the 16 transactions between MCO, Federated, and their 17 acquisition of shares of UFG, I would like to move 18 those in as a group exhibit, but I wanted to do it 19 through Mr. Levin, who is our next witness. 20 A. I was not the lawyer responsible for 21 the preparation of these series of documents. 22 MR. NICKENS: Your Honor, we have no 23 objection to the admission of the 13Ds and indeed 24 most of the documents have been discussed 25 yesterday and today we could stipulate to their 480 1 admissibility if they were submitted to us ahead 2 of time. If we can merely confirm the accuracy of 3 the documents and the identity, if you will, of 4 the documents that Mr. Rinaldi wants to have 5 introduced as to the 13Ds and perhaps many others, 6 we will agree to their admissibility. It would be 7 helpful and expeditious for everyone to be able to 8 do that and to avoid the time necessary to 9 identify each one and go over these things which 10 can become a matter of record simply by agreement. 11 MR. RINALDI: I couldn't agree more. 12 THE COURT: Well, we'll have to make a 13 record of what is being received. We can't say -- 14 MR. RINALDI: I agree with that. I'm 15 going to offer a whole series of documents through 16 Mr. Levin. I was going to say, Your Honor, 17 yesterday I gave respondents a list of what I 18 thought was all of the documents that I would be 19 showing these witnesses today. Maybe there was a 20 mistake in copying down the number. I think they 21 got 74 instead of 73 and that may be the confusion 22 here, but it had been our intention and we, in 23 fact, endeavored to identify all the documents we 24 would be using today so we could avoid this. 25 MR. NICKENS: With respect to these 481 1 13Ds, we would be happy as long as we can identify 2 them, to stipulate to their admissibility. 3 MR. RINALDI: I will have a complete 4 set that I will give you, and perhaps we can 5 review them at the break in anticipation of Mr. 6 Levin's testimony. 7 MR. RINALDI: 8 Q. Directing your attention to Page 11 -- 9 before we get to that, the -- the first page of 10 this document indicates that Ezra Levin and Kramer 11 Levin & Frankel are the persons authorized to 12 receive notice and communications. 13 Do you see that? 14 A. Actually, no. Ezra is authorized to 15 receive it, and that's part of his address. 16 That's how he would be addressed. 17 Q. And is this a document that would have 18 been prepared by Kramer Levin on behalf of MCO and 19 Federated? 20 A. Yes, yes. 21 Q. And who at Kramer Levin would have been 22 responsible for overseeing? 23 A. Ezra Levin. 24 Q. Now, directing your attention to 25 Page 11, it talks there about "The company has 482 1 announced that it plans to make a rights offering 2 to its stockholders pursuant to which the 3 company's stockholders will receive 4 non-transferrable rights to purchase an aggregate 5 of $750,000 shares of the company's Series C 6 convertible preferred stock." 7 Do you see that? 8 A. Yes. 9 Q. Do you recall that at some time in 10 about 1984 MCO and Federated determined that they 11 wished to acquire shares of the C preferred 12 convertible stock that was being made available by 13 UFG? 14 A. Well, I see it from reading this 15 document, but I have no independent recollection 16 of it. 17 Q. Do you recall having participated in 18 any discussions regarding the conversion of those 19 shares at a subsequent date? 20 A. No. 21 Q. As you sit here today, do you know 22 whether, in fact, MCO and Federated subscribe to 23 the C preferred shares? 24 A. No. 25 MR. RINALDI: Now I'm handing the 483 1 witness a copy of a document dated -- I mean, 2 entitled CT1004 and I believe yesterday -- this is 3 a memorandum to the file from Abbe B. Dienstag 4 dated April the 29th, 1987, and I believe that 5 when yesterday Mr. Eisenhart raised a question of 6 that certain documents that were returned to you 7 were subject to an attorney/client privilege. He 8 indicated that there were three or four additional 9 documents that we intended to utilize which he 10 wanted to assert a privilege to. 11 It's my understanding at that time that 12 he indicated that he did not have any objection to 13 the use of those documents, provided that they 14 carried with them the same agreement that we 15 reached yesterday with respect to the other 16 privileged document. 17 MR. EISENHART: That's correct, Your 18 Honor. This document is one of those that I 19 referred to. There are two additional ones that I 20 believe were on the list they gave us. If you 21 want, I can simply read into the record which 22 these are, as well, and then we won't have to 23 interrupt when they get to them. 24 THE COURT: Do you want to offer all of 25 them at this time? 484 1 MR. RINALDI: Yeah. 2 THE COURT: I'll receive 1104, subject 3 to the conditions discussed yesterday. 4 MR. RINALDI: I would also request that 5 you receive 1103 -- I'm sorry. It's CT1004, 6 CT1003, and I will describe that for the record so 7 that it will help people. CT1003 is a memorandum 8 to Howard J. Bressler from Abbe L. Dienstag dated 9 May 6, 1987, and CT1002 is a memorandum to Steven 10 C. Todrys from Abbe L. Dienstag dated May the 6th, 11 1987, and then in addition there's a fourth 12 document, CT1006, which appears to be a draft -- I 13 mean, a later version of CT1004. And it's also 14 from Abbe L. Dienstag to the files and it's dated 15 May, 1987. 16 MR. EISENHART: That's fine, Your 17 Honor. I would have no objection to their use, 18 subject to the agreement placed on the record 19 yesterday. 20 THE COURT: All right. So received. 21 MR. RINALDI: I believe the witness and 22 the Court have CT1004 before them. 23 MR. RINALDI: 24 Q. Mr. Marlin, who is Abbe Dienstag? 25 A. His name is Dienstag. He was at this 485 1 time an associate and today is associate counsel 2 at our firm. 3 Q. And do you recall receiving a copy of 4 this memoranda to the file that's CT1004 -- 5 A. No. 6 Q. -- from Mr. Dienstag? 7 A. No. 8 Q. And do you recall that an issue arose 9 in about April, 1987, level of ownership? 10 A. Well, I don't recall that. 11 Q. Okay. 12 A. I see that this memorandum addresses 13 that issue, but I don't have a recollection of it 14 and I don't recall it. 15 Q. Okay. Now, you indicated that Mr. 16 Dienstag was an associate, I think you said -- 17 A. Yes. 18 Q. -- at the time? Do you know whether he 19 reported to Mr. Ezra Levin at that point in time? 20 A. I think so, yes. 21 Q. And did Mr. Dienstag have a particular 22 area of expertise that he worked in that you're 23 aware of? 24 A. He was a corporate lawyer with 25 expertise in the securities area. 486 1 Q. Okay. Who is Steven C. Todrys, 2 T-o-d-r-y-s? 3 A. He was a tax partner in the firm. In 4 1987, he may have been an associate of the tax 5 department. Subsequently, I think he became in 6 the tax department. 7 Q. And I'll -- now, if you take a look at 8 what's been marked as CT1003 and pass that along 9 to the Court. 10 MR. RINALDI: Let me just identify it 11 for the record. This is a memorandum dated May 6, 12 1987, to Howard Bressler from Abbe L. Dienstag and 13 it references the same Series C preferred shares. 14 THE COURT: That's one we've received? 15 MR. RINALDI: Yes, that is one we have 16 just received. 17 MR. RINALDI: 18 Q. Directing your attention to the second 19 page of that memoranda, it indicates that a copy 20 of that memorandum was sent to you. 21 Do you see that? 22 A. Yes. 23 Q. Now, would you take a moment and just 24 look at the memorandum and, tell me, do you recall 25 having seen this memorandum before? 487 1 A. No. 2 Q. Is the subject matter of the memoranda 3 familiar to you? 4 A. Well, again, not having any independent 5 recollection of it and looking at this memorandum, 6 I see that it discusses a postponement of the 7 convertible of the Series C stock. Aside from 8 that, I don't have any familiarity with it. I 9 don't know whether that was done. 10 Q. In the first sentence, it indicates 11 that the onset of the convertible of the Series C 12 stock on June 16th, 1987, may render Federated, 13 MCO savings and loan holding companies? 14 A. Yes. 15 Q. Do you recall that subject coming up, 16 the potential for their becoming a potential 17 savings and loan holding company? 18 A. No. 19 Q. Now, as we go down in the letter, it 20 indicates that there is -- now, Mr. Bressler is an 21 employee of Federated, is he not? 22 A. Yes. As I previously testified, he was 23 house counsel at Federated. I thought he was at 24 MCO. You said Federated? 25 Q. I was asking the question. 488 1 A. I think he was house counsel at MCO. 2 Q. Okay. The body of the letter or the 3 memorandum indicates in the second full paragraph 4 "I've prepared the attached memoranda which 5 explores in summary and then extended fashion the 6 legal issues involved in the determination of 7 whether Federated and MCO would be deemed to 8 control UFG by virtue of the Series C stock and 9 the exchange of the Series C stock for a new 10 Series D stock." 11 Do you see that? 12 A. Yes. 13 Q. You have no recollection of the 14 exchange or the discussion of the exchange of C 15 stock for D stock? 16 A. No. 17 Q. Okay. 18 MR. NICKENS: Your Honor, I would note 19 an objection for the record as to the relevance of 20 this line of questioning and note that the notice 21 of charges makes no allegation as to that. If I 22 may correct the record, I think he's referring to 23 Paragraph 108, which is not a letter from MCO. 24 It's a letter referred to in the notice of 25 charges. I believe it's from Mr. Burnham. It was 489 1 on a representation from MCO. 2 MR. RINALDI: I stand corrected. 3 MR. VILLA: As counsel for UFG. 4 MR. RINALDI: That's correct. 5 MR. NICKENS: Further, our point is, 6 Your Honor, there's simply no allegation that the 7 acquisition of the Series C stock or the 8 convertible constituted a violation of any banking 9 regulations. 10 THE COURT: That seems to be the case, 11 but I think, nevertheless, this question is 12 relevant. 13 MR. RINALDI: Thank you, Your Honor. 14 Okay. Now, we have moved and the Court 15 has admitted, I believe, CT1004, 1002, 1003, and 16 1006. 17 MR. RINALDI: 18 Q. Now, can you recall Mr. Marlin, that a 19 similar issue arose in 1988 regarding the exercise 20 of the so-called Drexel option? 21 A. No, I do not. 22 Q. Now, earlier you indicated that in June 23 -- I mean, July of 1988, the option would have -- 24 the call option would have to be exercised by MCO 25 and in the event that it wasn't exercised that 490 1 Drexel could put the shares back to -- to MCO. 2 Do you recall whether in about August 3 of -- I know about May of 1988, the option 4 agreement was extended through an amendment? 5 A. Well, I have seen copies of those 6 amendments, so I understand that it was done. 7 Q. Can we take a look at Exhibit T1150? 8 T1150 is a letter dated August the 9th, 1990, and 9 it's to MCO Holdings from a Neal Thomas, the 10 assistant vice-president for Drexel Burnham, and 11 it's addressed to Kramer Levin to a Mr. Sobel. 12 A. Yes. 13 Q. Have you had a chance to look at that, 14 sir? 15 A. Yes. 16 Q. Now, if the first full paragraph 17 pursuant to the stock option agreement dated 18 December 23rd, 1985, and that's the option 19 agreement that we have been discussing earlier -- 20 amended as of May 18th, 1988, and August 2nd, 21 1988, between Drexel Burnham, Incorporated, and 22 MCO Holdings. 23 Were you aware that the put call option 24 agreement had been amended on May, 1988, and again 25 on August, 1988? 491 1 A. I don't remember one way or the other 2 about that, although I see that it was done. 3 Q. Okay. Now, this letter purports to 4 exercise the option in August of 1990? 5 A. Yes. 6 Q. Do you recall that in or about August 7 August 9th, 1990, the option was exercised by 8 Drexel Burnham? 9 A. Well, I don't recall. As you see, 10 Drexel was dealing with Howard Sobel at that time 11 and not with me, so that I may have been at that 12 time out of the loop. 13 Q. So, after the original option agreement 14 was drafted under your oversight, you did not 15 participate in any further -- 16 A. Well, I participated in -- to a 17 decreasing extent and ultimately was not 18 participating by this time in 1990 very much at 19 all in the affairs of this client. 20 Q. Okay. And did it come to your 21 attention at any time during 1990 that, in fact, 22 Drexel had exercised its option and put the shares 23 back to -- 24 A. You know, it may have. I just don't 25 remember. 492 1 MR. RINALDI: All right. If the 2 parties have no objection, I would like to offer 3 T1150 into evidence, as well. 4 MR. NICKENS: No objection, Your Honor. 5 THE COURT: Received. 6 MR. RINALDI: I think this may be all I 7 have for the witness, but if I may take a moment 8 to confer with counsel. 9 10 (Short break.) 11 12 MR. RINALDI: 13 Q. Now, you indicated that in 1990 you 14 were pretty much out of the affairs of MCO and 15 Federated? 16 A. I think that's correct. 17 Q. And in the early part of 1980 were you 18 involved in any debt financing? 19 A. Yes. 20 Q. And -- 21 A. I don't know if that was 1980. It was 22 the late Seventies or early Eighties. 23 Q. This would have been debt financing for 24 MCO? 25 A. That's correct. 493 1 Q. Do you recall having participated in a 2 debt financing of a zero coupon bond issued by MCO 3 on about June 15th, 1982? 4 A. I'm not sure that I worked on that 5 particular transaction. I worked on a -- 6 high-yield bond, 12 and a half percent to a 99. 7 The zero coupon financing may have been done by 8 Ezra Levin and Howard Sobel. I may have had some 9 connection with it. 10 Q. This would have been a bond for $260 11 million? 12 A. I understand. 13 Q. And it raised about three and a half 14 million dollars. 15 A. And what is the question? 16 Q. You did not work on that bond to the 17 best of your recollection? 18 A. I don't think I worked on it. 19 Q. Do you recall that Drexel Burnham was 20 the entity that purchased the bond? 21 A. I don't recall. 22 MR. RINALDI: I have no further 23 questions of this witness. 24 THE COURT: We'll take a short recess. 25 494 1 (Short break.) 2 3 THE COURT: We're back on the record. 4 I believe the direct examination of the witness is 5 complete and we are ready for cross. 6 MR. RINALDI: There's one housekeeping 7 matter I forgot to mention to Mr. Nickens. 8 We identified four documents at the 9 end, the CT1002 and CT1006 that the parties 10 stipulate could come into evidence. We only put 11 in two, and I would like to move the other two in. 12 MR. NICKENS: As long as it's subject 13 to the same agreements, no objection. 14 THE COURT: Yes. 15 MR. RINALDI: Here is copies for 16 everyone. 17 18 CROSS EXAMINATION 19 20 MR. NICKENS: 21 Q. Mr. Marlin, I would like to provide 22 some additional information for the Court. 23 Would you be willing to help us do 24 that? 25 A. Yes. 495 1 Q. Where did you grow up, Mr. Marlin? 2 A. I was born in Brooklyn, New York, and 3 grew up in New York City. 4 Q. How old are you? 5 A. 64. 6 Q. Where did you attend college after high 7 school? 8 A. Yale College. 9 Q. And graduated from Yale? 10 A. Yes. 11 Q. What year? 12 A. '55. 13 Q. What did you do after college? 14 A. I went to law school, also at Yale. 15 Q. And in what year did you graduate from 16 Yale Law School? 17 A. '58. 18 Q. Did you further your education 19 thereafter after graduating from Yale Law School 20 in 1958? 21 A. Yes. I got a masters in tax law at NYU 22 in 1964. It was several years later. 23 Q. After having graduated from Yale Law 24 School did you become employed as a lawyer? 25 A. Yes. 496 1 Q. Describe for the Court briefly, Mr. 2 Marlin, your occupational background as a lawyer 3 after graduating from law school. 4 A. I went to work as a clerk to the United 5 States District Judge Robert B. Anderson in 6 Connecticut. That lasted a year. I then joined a 7 law firm in Manhattan. I left that firm in around 8 -- that was '59 to about '63. I then worked in 9 two smaller firms until 1968. The second firm in 10 which I became a partner lost its two senior 11 partners and we merged with a firm called Marshall 12 Braddock Allen & Tucker, which I joined as a 13 partner in 1968. I was with that firm until 1979 14 when I left Marshall Braddock Allen & Tucker and 15 joined Kramer Levin, which at that time Ezra Levin 16 and I both left together and went to the firm 17 which became Kramer Levin. 18 Q. Since 1979 you have been a partner with 19 the firm of Kramer Levin? 20 A. That's correct. 21 Q. Please tell Judge Shipe, if he doesn't 22 already know, something about Kramer Levin, the 23 law firm. 24 A. Kramer Levin is a firm of around 160 or 25 165 lawyers. We have, I think, more than 50 497 1 partners. We have a general commercial practice. 2 Probably the largest department in the firm is the 3 corporate department, followed by the litigation 4 department, and then we also have an active real 5 estate and tax and employee benefits practice. 6 The first has a very well-established clientele, 7 including a number of Fortune 500 companies and, 8 of course, including the Maxxam group. 9 Q. When did you first meet Mr. Charles 10 Hurwitz? 11 A. While I was a partner at Marshall, 12 Braddock he was a client of that firm and, in 13 fact, Ezra Levin was his principal attorney and I 14 met him through Ezra at that time. 15 Q. Did you work on projects for Federated 16 or McCullough Oil or MCO while at Marshall 17 Braddock or later at Kramer Levin? 18 A. Yes. Particularly as we were moving 19 from Marshall Braddock to Kramer Levin, in that 20 period of time I worked on several projects in the 21 transition. 22 Q. Tell the judge some of those projects. 23 A. An early project involved the issuance 24 of subordinated debt, which was 12 and a half to 25 7. The pension was due in '89. 498 1 Q. Was Drexel involved in that 2 transaction? 3 A. No. Shortly thereafter there was an 4 acquisition of a cementing block and stock in 5 Simplicity Pattern. That must be around 1980, and 6 I worked on that transaction. 7 Q. Was Drexel involved in that 8 transaction? 9 A. No, they were not. 10 Q. There were, over the years, some 11 additional transactions that I worked on for them, 12 including a deal with Kaiser Aluminum, and Drexel 13 was not involved in that transaction. 14 Q. Were you involved in the acquisition by 15 Federated and McCullough Oil? 16 A. Yes. 17 Q. And what was the nature of that 18 transaction? 19 A. It was a corporate takeover, not 20 necessarily hostile, but -- 21 Q. Was Drexel involved in that 22 transaction? 23 A. Not to my recollection, no. 24 Q. Did you do any financing work for 25 McCullough, or is that the one you described? 499 1 A. That's the one. I think there may have 2 been two. There was a second subordinated issue 3 before the zero coupon issue. 4 Q. Now, Mr. Marlin, I'm going to ask you 5 to look at a document that has been marked as 6 A10106 and also bears the marking NW6. 7 Can you identify that document for us? 8 A. This is a letter dated June 24, 1985, 9 from David Yeres to Debbie Shulevitz enclosing 10 revised drafts of the optional agreements. 11 Q. This is another one of the drafts that 12 you were shown yesterday in your testimony of the 13 Drexel option? 14 A. Yes. 15 MR. NICKENS: Your Honor, we offer 16 A10106. 17 THE COURT: Received. 18 MR. NICKENS: 19 Q. How many drafts were there of the 20 Drexel option, Mr. Marlin? 21 A. Well, without counting them, we've seen 22 admitted into evidence here something like half a 23 dozen or eight different versions, I would 24 estimate. 25 Q. From the time of the first one to the 500 1 execution of the final agreement, how much time 2 passed? 3 A. I would say something like 11 months. 4 Q. And during that time were the terms of 5 that agreement -- how would you describe the 6 negotiations concerning the terms of that 7 agreement? 8 A. Well, the negotiations were very much 9 adversarial. We had difficulty with -- in dealing 10 with Cahill, Gordon, who were Drexel's counsel. 11 They were quite aggressive and not necessarily 12 receptive to our comments. This was not at all a 13 friendly "you scratch my back and I'll scratch 14 yours" kind of negotiation. 15 Q. You were aware of the H-(e)1 16 application that you had filed back in June of 17 1983 and the granting of that application subject 18 to certain conditions in December of 1994? 19 A. Yes. 20 THE COURT: You're saying '93 and '94. 21 A. Should be '80 something. 22 MR. NICKENS: Yes, sir, I am. I will 23 try to avoid that. 24 MR. NICKENS: 25 Q. We're talking about, 1983, 1984. So, 501 1 during these negotiations you were aware of the 2 actions that had been taken by the Federal Home 3 Loan Bank in December of '84? 4 A. That's correct. 5 Q. Would you say that this transaction was 6 lightly lawyered or heavily lawyered? 7 A. I think it was heavily lawyered. 8 Q. Now, did you charge for your time? 9 A. Yes. 10 Q. And Drexel was represented by 11 attorneys? 12 A. Yes. 13 Q. And would it be your expectation that 14 they charged for their time? 15 A. In fact, we saw that their fees were 16 reimbursed by MCO up to a maximum of $40,000. 17 Q. Were you ever aware of some kind of 18 secret deal, some side understanding concerning 19 this transaction? 20 A. No. 21 Q. Now, are you familiar with Mr. Leonard 22 Volin? 23 A. Yes. 24 Q. Who is Mr. Volin? 25 A. He was a lawyer with Lafferty, Goldberg 502 1 & Canter. They were a law firm in the 1980s 2 specializing in savings and loan work. They were 3 headquartered in Washington, D.C. and were 4 retained by Federated/MCO to provide banking law 5 advice. 6 Q. Mr. Rinaldi asked you about a letter of 7 credit that is a part of the Drexel option. 8 Do you recall that? 9 A. Yes. 10 Q. I know you've indicated that you don't 11 recall the negotiations concerning that, but in 12 looking at that transaction what does the 13 existence of the letter of credit suggest to you 14 as far as the parties' concerns? 15 A. In our first draft of the option 16 agreement we provided for a put and call option. 17 There was no backup for MCO's ability to honor the 18 call or put, payment requirement, and the letter 19 of credit provided assurance that the third party 20 would stand behind the obligation to pay Drexel 21 the money if the stock were put to MCO 22 particularly. 23 Q. Were there concerns that MCO might not 24 be able to take the shares? 25 A. Yes. In fact, the first draft of the 503 1 agreement specifically conditioned MCO's 2 obligations to buy the stock on its getting 3 necessary bank board approvals. That condition 4 was removed when the letter of credit was 5 inserted. 6 Q. Let me ask you to look at a document 7 that's been made part of the record, Mr. Marlin, 8 as Exhibit T1085, which is the Maxxam minutes of 9 the December 17th, 1985, meeting to which the 10 executed document is attached. 11 Do you have that in front of you? 12 A. I can get it. 13 Q. Let me ask you to look over at -- 14 A. I do have it. 15 Q. Let me ask you to look at Page 10 of 16 the agreement itself, and it's Paragraph D. 17 Paragraph 6D. 18 A. Yes. 19 Q. Could you read that for the court's 20 benefit? 21 A. It says "Subject to the submission and 22 obtaining the approval of, one, the Federal Home 23 Loan Bank Board of the application on Form H-(e)1 24 filed by MCO pursuant to certain regulations and 25 registration by MCO as a savings and loan holding 504 1 company and, two, the Texas Savings and Loan 2 Commission of an application to be filed by MCO 3 pursuant to the rules of Texas Savings and Loan 4 Department, no authorization, consent, approval, 5 license, qualification, or formal exemption from, 6 nor any filing, declaration, or registration with 7 any court or governmental agency or regulatory 8 authority or any securities exchange or any other 9 person or entity is in connection with the 10 execution or delivery by MCO of this agreement or 11 consummation of the transactions contemplated 12 hereby." 13 Q. Paragraph 6 was a part of the 14 representations and warranties of which of the 15 parties -- 16 A. Made by MCO. 17 Q. Now, let me ask you to look at a 18 document that has been marked as A10155. 19 Is this a letter of January 25th, 1986, 20 from Mr. Barry Munitz as president of Federated 21 Development Company addressed to Mr. L.L. Bowman, 22 III, commissioner of the Texas Savings and Loan 23 Department. 24 A. Yes. 25 Q. Do you see in this document a reference 505 1 to the Drexel option? 2 A. Yes, I do, in the third paragraph. 3 Q. Now, this is about a month after the 4 execution of the Drexel option? 5 A. That's correct. 6 MR. NICKENS: Okay. And we offer, Your 7 Honor, A10155, which has also been identified as 8 NW55. 9 THE COURT: Received. 10 MR. NICKENS: 11 Q. Would you read for Your Honor the 12 paragraph -- the last paragraph on the first page 13 of this document? 14 A. "I am writing at this time in order to 15 bring to your attention a transaction that has 16 recently closed by MCO. On December 24, 1985, MCO 17 entered into a stock option agreement with Drexel 18 Burnham Lamert, Incorporated, pursuant to which 19 DBL has granted a call option on 300,000 shares of 20 UFG common stock. Exercise will be during a -- 21 one-month period commencing July 1, 1988. In the 22 event that MCO does not exercise the call, it is 23 required to grant to DBL a put option on the 24 shares exercisable during a one-month period 25 commencing August 1, 1988. The shares have been 506 1 escrowed until such time as the call or the put, 2 if any, has been exercised. In the event that MCO 3 exercises the call but not does make full payment 4 to DBL for the shares or that DBL exercises the 5 put but does not receive full payment for the 6 shares, DBL may draw upon a letter of credit 7 obtained by MCO in the amount of the shares' 8 purchase price of the shares." 9 Q. Does that accurately describe obviously 10 in summarized terms the Drexel option as you 11 understood it? 12 A. In summarized terms, yes. 13 Q. There's no question that that reference 14 is to the Drexel option? 15 A. No. That is a reference to the option 16 we've been discussing. 17 Q. Let me show you a document at this time 18 that has been marked as A10156 and also bears the 19 identifying mark NW56. 20 Mr. Marlin, does that appear to be Mr. 21 Bowman's response to Mr. Munitz' letter? 22 A. Yes. 23 MR. NICKENS: And we offer, Your Honor, 24 A10156. 25 THE COURT: Received. 507 1 MR. RINALDI: No objection, Your Honor. 2 MR. NICKENS: 3 Q. What was the action taken by the Texas 4 Savings and Loan commissioner with regard to the 5 notification of the Drexel option? 6 A. The letter acknowledges receipt of the 7 notice and states in summary that assuming the 8 300,000 shares do not represent control of the UFG 9 or its subsidiary, USAT, the Department will not 10 require a change of control application by either 11 party. However, by exercising Federated will own 12 25 percent or more of the common stock, then a 13 change of control application must be filed by the 14 companies and approved by the Texas Savings and 15 Loan Commission prior to the exercise of the 16 option. 17 Q. Now, would you say, Mr. Marlin, that 18 such notification and action was consistent or 19 inconsistent with hiding the terms of the Drexel 20 option? 21 A. It was inconsistent with hiding the 22 terms. 23 Q. Let me ask you to look at a document 24 that has been marked as Exhibit 2074 in this 25 matter. 508 1 Can you identify that document for the 2 court? 3 A. This is Amendment No. 13 to the 4 Schedule 13D of United Financial Group immediately 5 following Amendment No. 12, which was admitted 6 into evidence previously. 7 MR. NICKENS: Now, we offer, Your 8 Honor, Exhibit A2074. 9 MR. RINALDI: No objection, Your Honor. 10 THE COURT: Received. 11 MR. NICKENS: 12 Q. If you would turn over, Mr. Marlin, to 13 Page 16 of 67 of Exhibit 2074. 14 A. (Witness complies). Yes, I have. 15 Q. And do you see at the top of the 16 page there -- what agreement is being described 17 there? 18 A. This is a description of the stock 19 option agreement with Drexel Burnham for the 20 300,000 shares exercisable during a one-month 21 period commencing July 1, 1988. 22 Q. And it indicates that a copy of the 23 agreement was filed with the Securities & Exchange 24 Commission, correct? 25 A. That's correct. 509 1 Q. And if you look over toward the end of 2 the document, can you find, in fact, that it was 3 the stock option agreement was, in fact, filed as 4 a matter of record with the Securities & Exchange 5 Commission as a part of this 13D? 6 A. Actually, it starts at page -- 7 immediately following Page 26 of 67 as Exhibit 4, 8 a copy of the executed option agreement is 9 attached. 10 Q. Now, when was this notice filed? 11 A. Well, I was looking for the date. This 12 is dated April 30th -- sorry. I believe this was 13 dated April 30, 1986, and must have been filed on 14 that date. I don't see a date stamp on the front 15 of the document. 16 Q. So, how long after the Drexel option 17 was this document filed with the Securities & 18 Exchange Commission? 19 A. Approximately four months. 20 Q. Now, would you say the filing of -- 21 well, do you have any experience as to whether 22 filings of this nature are sent to the Federal 23 Home Loan Bank? 24 A. No, I don't. 25 Q. Would you say that the filing of this 510 1 document was consistent or inconsistent with the 2 allegation that the Drexel option was hidden from 3 governmental authorities? 4 A. Inconsistent with that. 5 Q. Now, you referenced an earlier 13D 6 which Mr. Rinaldi questioned you about, which I 7 believe is identified in the record as A2073. 8 Could I ask you to briefly look at that 9 document? 10 A. (Witness complies). Yes, I have it. 11 Q. Now, do you see that the occasion for 12 filing this 12th amendment was to inform the 13 S.E.C. that Mr. Hurwitz had acquired 500 shares -- 14 I'm referring to Page 9 -- as a result of a 15 distribution by his father's estate? 16 A. That's correct. 17 Q. And that those 500 shares had a value 18 at that time of $2,912? 19 A. Yes. 20 Q. And was that the reason that this 21 document was filed, as far as you can tell, with 22 the Securities & Exchange Commission? 23 A. Well, there are other transactions or 24 amendments made to the previous filing, but they 25 all seem to relate to that particular transaction. 511 1 Q. And, Mr. Marlin, I would like to draw 2 your specific attention to Page 16 of the 3 document. 4 A. Yes. 5 Q. Do you see there that they are 6 discussing the ownership of shares of UFG by the 7 Kozmetskys? 8 A. Yes. 9 Q. If you would, would you read for the 10 Court the -- it's actually mid sentence, like six 11 lines up which starts with Dr. and Mrs. Kozmetsky? 12 A. Well, the sentence that I'm looking at 13 begins "Although Federated, MCO, Mr. Hurwitz, and 14 Dr. and Mrs. Kozmetsky anticipate that they may 15 consult with each other from time to time 16 concerning matters relating to their respective 17 investments in the company, Mr. Hurwitz and Dr. 18 and Mrs. Kozmetsky expressly disclaim that they 19 are members of a group as defined by Rule 20 13d-5(b)(1), as they are not parties to any 21 agreement for the purpose of acquiring, holding, 22 voting or disposing of their respective shares." 23 I should also call your attention to 24 the last sentence on Page 15 which reads "Pursuant 25 to Rule 13d-4 promulgated under the Securities 512 1 Exchange Act of 1934, as amended, Dr. Munitz and 2 Dr. and Mrs. Kozmetsky declare that the filing of 3 this statement is for informational purposes only, 4 and shall not construed as an admission that any 5 of them beneficially owns, for purposes of Section 6 13(d) or 13(g)of the Exchange Act any of the 7 shares owned by Federated or MCO." 8 Q. And, to your knowledge, was that 9 disclaimer included as a matter of routine, as a 10 part of the filings after the Kozmetskys had 11 acquired their UFG shares? 12 A. Well, to my knowledge that disclaimer 13 would appear in the Securities Act filing. 14 Q. And did you ever make any determination 15 that the shares of the Kozmetskys should be 16 included or aggregated with those of MCO and 17 Federated for banking regulation purposes? 18 A. No. 19 Q. Now, to your knowledge did MCO ever 20 acquire more than 24.9 percent of the common stock 21 of UFG? 22 A. No. 23 Q. Were there extensions granted 24 concerning the granting of the -- in December of 25 1984 -- the granting of the H-(e)1 application? 513 1 A. Yes. 2 Q. What eventually happened with regard to 3 those extensions, if you recall? 4 A. I don't recall. 5 Q. Now, there's a provision in the option 6 agreement with regard to indemnification that Mr. 7 Rinaldi brought to your attention. 8 Do you recall that? 9 A. Yes. 10 Q. Was it common or uncommon to have such 11 indemnification agreements in this agreement? 12 A. It doesn't always appear. It's not in 13 every agreement. 14 Q. Was there anything surprising or 15 sinister, some conclusion that we should draw from 16 the fact that there is an indemnification 17 agreement in the Drexel option? 18 A. No. 19 Q. Now, do you know who under that 20 agreement had the voting rights for the shares 21 that were subject to the option? 22 A. Drexel. 23 Q. That's in Paragraph 5D of the option? 24 A. On page -- 25 Q. Page 8, I believe, if my notes are 514 1 correct. 2 A. Yes. Section 5D says "DBL currently 3 possesses and shall retain sole rights to vote the 4 shares unless" -- 5 Q. Do you have any information to disclose 6 to the court or to the people here about a 7 different agreement? 8 A. No. 9 Q. Do you have any information to indicate 10 that Drexel did not, in fact, have a right to vote 11 those shares? 12 A. No. 13 Q. At the time of the negotiations of the 14 option agreement, Mr. Marlin, did you know that 15 United Savings was purchasing high-yield bonds 16 from Drexel? 17 A. No. 18 Q. Did that matter ever come up, to your 19 knowledge, in these discussions of the option? 20 A. No. 21 Q. Did it ever come up in your other 22 dealings with Drexel, to your knowledge? 23 A. That United Savings was purchasing -- 24 Q. High-yield bonds? 25 A. No. 515 1 Q. Now, to turn to a different subject, 2 Mr. Marlin, would you characterize Mr. Charles 3 Hurwitz as a corporate raider? 4 A. No. 5 Q. Why not? 6 A. I think of Charles Hurwitz as an 7 entrepreneur and I think of a raider as a person 8 who uses companies, takes them over and uses their 9 assets for his own purposes. That has not been 10 Charles' history. 11 Q. Earlier you mentioned the Kaiser 12 acquisition and I would like to refresh your 13 recollection that Drexel was involved in that 14 transaction as a co-underwriter. 15 A. Yes, okay. 16 Q. You were talking about the later 17 transaction? 18 A. I was actually talking about the part 19 of that transaction that I was responsible for, 20 which was the acquisition of the control block of 21 stock from the Allen Clore group and Drexel was 22 not involved in that. 23 Q. Now, were you involved with the Pacific 24 Lumber acquisition? 25 A. Only tangentially at most. I had very 516 1 little contact with that. 2 Q. Mr. Marlin, were you ever asked to do 3 anything by Maxxam, Federated, or anyone 4 associated with them that you considered to be 5 illegal? 6 A. No. 7 Q. Do you know of any side deals, secret 8 agreements, anything of that nature between Drexel 9 and Maxxam, Federated, or any of their officers, 10 employees, with respect to the option agreement or 11 any other transaction? 12 A. I do not. 13 MR. NICKENS: No further questions, 14 Your Honor. 15 THE COURT: Do any of the other 16 respondents have questions? 17 MR. BLANKENSTEIN: No questions, Your 18 Honor. 19 MR. EISENHART: No questions, Your 20 Honor. 21 MR. VILLA: No questions. 22 MR. RINALDI: If I might take just a 23 moment. 24 THE COURT: All right. 25 517 1 (Short break.) 2 FURTHER DIRECT EXAMINATION 3 4 MR. RINALDI: 5 Q. Mr. Marlin, in response to the 6 questions of Mr. Nickens you indicated that you 7 had worked on a number of financings on behalf of 8 entities that Charles Hurwitz was involved in. 9 Do you recall that? 10 A. Yes. 11 Q. And you mentioned the issuance of 12 subordinated debt 12 and a half percent due in 13 1989? 14 A. 1999. 15 Q. What entity was that debt for? 16 A. It was for MCO. 17 Q. And how much was it, the amount? 18 A. $23 million. 19 Q. And was that debt secured by assets? 20 A. No. 21 Q. Was it guaranteed by Mr. Hurwitz? 22 A. No. 23 Q. And it didn't involve Drexel Burnham? 24 A. No. 25 Q. You testified there was a financing 518 1 with Simplicity Pattern. 2 What was that? 3 A. Actually, it was the acquisition of 4 stock in Simplicity Pattern. I don't believe it 5 was a financial. 6 Q. Okay. And you say it didn't involve 7 Drexel Burnham? 8 A. No. 9 Q. What do you mean by that? 10 A. I mean that there was no investment 11 banker who acted as advisor to Federated in 12 connection with the acquisition or who supplied or 13 underwrote securities or help find financing for 14 them. 15 Q. Did some investment banker other than 16 Drexel serve that function? 17 A. I'm not sure they had any. 18 Q. You made reference to Kaiser Aluminum, 19 a financing with Kaiser Aluminum. 20 A. Yes. 21 Q. What was that all about? 22 A. Well, part of the transaction that I 23 was involved with involved the acquisition of a 24 block of stock which was held by an English 25 investor, David Allen Clore. That transaction, 519 1 when consummated, gave Maxxam a key block of stock 2 in the Kaiser companies. 3 Q. And was there something remarkable 4 about the fact that Drexel wasn't involved in 5 that? 6 A. No, but it indicated that in fact -- 7 Q. Was someone else involved in it? 8 A. They had other people involved in the 9 transaction I was involved in, yes. Solomon 10 Brothers, Inc., was providing advice. 11 Q. And did they provide financing? 12 A. No, I don't believe so. 13 Q. Or assistance in acquiring financing? 14 A. No. 15 Q. So, Solomon Brothers -- 16 A. They had relationships with other 17 investors. 18 Q. Okay. Then you said there was an 19 acquisition by Federated of a position in 20 McCullough Oil. 21 What was that in reference to? 22 A. It was an early 1980s expansion of 23 Federated's business activities and it was the 24 transaction in which they established their stake 25 in what became MCO. McCullough Oil is the 520 1 predecessor name of MCO Holdings. 2 Q. Did that involve some financing? 3 A. I don't recall. It was not a Drexel 4 Burnham transaction. 5 Q. Was some other entity involved in that 6 transaction? 7 A. I don't recall. 8 Q. Are those the only five or six 9 transactions that you were involved in with 10 Mr. Hurwitz? 11 A. Yes. 12 Q. Were you involved in any transactions 13 that did involve Drexel Burnham? 14 A. Well, as I was reminded, the Kaiser 15 Aluminum transaction in a subsequent aspect of the 16 transaction involved -- Drexel was co-underwriter 17 with another underwriter, but I was not actively 18 involved in that. This -- 19 Q. Wasn't there a -- 20 MR. NICKENS: Your Honor, I don't 21 believe the witness had finished his answer. 22 A. I'm sorry. Thinking back over those 23 other ones, I don't believe there was anything 24 else with DBL. 25 Q. (BY MR. RINALDI) What was the timing 521 1 on that first subordinated 12 and a half percent? 2 A. That was in '79. 3 Q. That was six years before the put call 4 option? 5 A. Yes. 6 Q. And the Simplicity Pattern? 7 A. That would be, say, 1981. 8 Q. That would be four years before? 9 A. Yes. 10 Q. How about the McCullough -- 11 A. I would guess it was '81, '82. 12 Q. Okay. Again, that was before the put 13 call option? 14 A. Correct. 15 Q. Are you familiar with an entity called 16 Kaiser Tech? 17 A. I only know of it. I haven't done any 18 work for it. 19 Q. Now, you mentioned that the -- the 20 amount, I believe, of the first 12 and a half 21 percent debt. Did you say it was 24 million? 22 A. That's my recollection, that it was a 23 relatively small transaction by today's standards. 24 Q. And the Simplicity Pattern matter, that 25 was just the acquisition of stock, wasn't it? 522 1 A. Yes. 2 Q. Do you recall the amount of stock that 3 was involved in it? 4 A. No. 5 Q. And the McCullough Oil issue that 6 you've raised? 7 A. Are you asking about the principal 8 amount? 9 Q. Yeah. 10 A. I don't remember. 11 Q. Now, in working with Mr. Hurwitz over 12 the years, was the put call option the only 13 transaction you were involved in that also 14 involved DBL? 15 A. I think to the best of my recollection 16 today it was. 17 Q. Okay. Now, you indicated that you were 18 aware of the Federal Home Loan Bank Board actions 19 in December of 1984 and I think that when you said 20 that you were referring to the bank board's 21 approval of the H-(e)1 application; is that 22 correct? 23 A. Yes. 24 Q. And when the bank board approved the 25 H-(e)1 application, they authorized MCO to acquire 523 1 in excess of 25 percent of the shares of UFG, did 2 they not? 3 A. Yes. 4 Q. So, there was no regulatory restriction 5 at that point upon MCO and Federated acquiring 6 additional shares of UFG? 7 A. Correct. 8 Q. So that if the put call option were 9 exercised, MCO and Federated would have been in a 10 position to acquire the shares without 11 violating -- 12 A. I think that's correct. 13 Q. Now, you've mentioned a Mr. Leonard 14 Volin. 15 What precise role did Mr. Volin play in 16 the put call option? 17 A. I can't tell you what precise role he 18 played. On any particular day I wouldn't expect 19 any particular decision, except that he was 20 retained to provide advice with respect to the 21 investment by Federated MCO into UFG and the 22 banking law ramifications of that. 23 Q. Did MCO and Federated seek a written 24 opinion from Mr. Volin that if they acquired the 25 300,000 shares of UFG from DBL that such shares 524 1 would not be deemed to be shares of MCO until the 2 option was exercised? 3 A. Not that I recall. 4 Q. Did MCO Federated ever seek a written 5 opinion from Mr. Volin on whether acquiring shares 6 of the UFG under the put call option would give 7 MCO beneficial ownership and trigger an obligation 8 of MCO and Federated to maintain the network of 9 USAT? 10 A. I don't know. 11 Q. Have you ever seen such a written 12 opinion by any entity? 13 A. Not that I recall. 14 Q. Now, you were concerned about the 15 application of the Texas savings and loan laws as 16 they would apply to the put call transaction, were 17 you not? 18 A. Yes. 19 Q. And there was a concern that those 20 shares that were acquired -- that were subject to 21 the option might require -- strike that. 22 Were you concerned that MCO might be 23 required under Texas savings and loan law to file 24 a change of control notice before they could 25 acquire the shares under the option? 525 1 A. I think we saw yesterday that the 2 regulations required that a notification be given. 3 Q. And it was uncertain in your mind 4 whether you could do the option without first 5 giving a notification; is that correct? 6 A. Correct. 7 Q. Is there a reason that Mr. Munitz 8 waited until a full month after the transaction 9 was entered into to apply to the Texas Savings and 10 Loan Department to seek their views on the option 11 arrangement? 12 A. It's my belief that Mr. Munitz was in 13 contact with them regularly in advance of that 14 anyway, and I can't tell you why the letter was 15 dated that. 16 Q. Is it normally your practice when 17 there's a concern about the regulatory impact of a 18 transaction that your clients are undertaking to 19 wait until after the transaction to ascertain 20 whether the transaction may violate applicable 21 regulations? 22 A. I don't think we waited until after the 23 transaction to find out whether it would violate 24 it. I called it to his attention. I believe he 25 called it to the regulator's attention on a timely 526 1 basis. I do see the formal notification was sent 2 late. 3 Q. And in the formal notification he then 4 describes in express detail the nature of the 5 transaction, correct? 6 A. Yes. 7 Q. Now, was a copy of the letter to Mr. 8 Bowman forwarded to the federal regulators? 9 A. It's not so indicated. 10 MR. NICKENS: I'm sure he means the 11 letters by Mr. Munitz. 12 A. Yes. 13 Q. (BY MR. RINALDI) Did you have any 14 discussions with anyone at all during this period 15 of time as to whether the letter to Mr. Bowman 16 should also be copied to the Federal Home Loan 17 Bank Board? 18 A. I don't recall any such discussion. 19 Q. Is there a reason why if USAT was 20 subject to the joint regulation of the Texas 21 Savings and Loan Department as well as the Federal 22 Home Loan Bank Board that such a letter would be 23 sent to the Federal Home Loan Bank Board? 24 A. We didn't send the Federal Home Loan 25 Bank Board copies of everything. In fact, if it 527 1 was required to be filed in Washington I'm sure we 2 would have filed it. The Texas regulations 3 required that it be filed in Texas, not that 4 copies be sent to Washington. I don't understand 5 your question to be predicated on any requirement 6 that it be filed in Washington. 7 Q. Was it generally your practice that 8 when you complied with one regulation of one 9 regulator that you copied the other regulator? 10 A. No. 11 Q. Now, what kinds of information are 12 required to be reported in a 13D? 13 A. Well, there is a list -- section of 14 instructions that have to be complied with that 15 deal with source and use of funds, intention of 16 the party who acquired the shares as to what he 17 will do, who the people are who make up the 18 entity, and so on and so forth. 19 Q. And there's a materiality requirement 20 if there is a material change that you need to 21 report that? 22 A. Yes. 23 Q. What are the consequences of failing to 24 report something required on a 13D? 25 A. You know, I'm not sure I could tell you 528 1 off the top of my head. Certainly you would be in 2 violation of that section of the '34 act. 3 Q. And you would be subject to civil as 4 well as criminal penalties? 5 A. I don't know. 6 Q. Now, when the 13Ds were filed to your 7 knowledge were copies of those sent by MCO to the 8 Federal Home Loan Bank Board? 9 A. Not to my knowledge, no. 10 Q. 13Ds are filed with the Securities & 11 Exchange Commission, aren't they? 12 A. Yes. 13 Q. Now, you indicated that Mr. Kozmetsky 14 shares -- you made a reference to they shouldn't 15 be aggregated. 16 What were you making reference to 17 there? 18 A. In yesterday's testimony I think you 19 had directed my attention to the fact that in one 20 of the applications -- probably the H(e)-1 21 application that it was a footnote indicating that 22 the shares -- that the number of shares being 23 shown included certain shares owned by George and 24 Ronnie Kozmetsky. That's what I was referring to. 25 Q. And aren't there certain presumptions 529 1 regarding aggregation of shares? 2 A. I don't know. 3 Q. In fact, if Mr. Kozmetsky served on the 4 board of directors of MCO with Mr. Hurwitz, who 5 controlled MCO and Federated, under the banking 6 laws doesn't that raise a presumption that they 7 may be acting together? 8 A. As I've said, I really don't consider 9 myself a banking lawyer and I can't dispute what 10 you're saying, but I can't agree with it either. 11 Q. Now, you also talked about the 12 indemnification agreement and said that it was not 13 unusual. Do you recall that? Now, this 14 indemnification agreement I think we've shown you 15 on the February 15th draft provided by Mr. Yeres, 16 he originally requested that there be collateral 17 deposited with Drexel Burnham. 18 Do you remember that? 19 A. Yes. 20 Q. And that was obviously so that Drexel 21 would have the money in hand if the option were 22 exercised, correct? 23 A. Yes. 24 Q. And later Drexel agreed that they would 25 forego that collateral requirement in return for 530 1 which they have received a letter of credit? 2 A. Your summary is perhaps hypothetical. 3 The later document provides for the letter of 4 credit and doesn't provide for the the collateral. 5 Q. And, in addition, the document also 6 provides for an indemnification against all loss 7 on the transactions? 8 A. Yes. 9 Q. So that if, for example, Drexel could 10 not put the shares back for any reason and had to 11 sell them for less than the price agreed in the 12 option, MCO would have been obligated to indemnify 13 them for any loss they would have sustained? 14 A. If for some reason the letter of credit 15 was not collectible, I believe they could only 16 collect the damages they suffered. If, in fact, 17 they collected the full amount under the letter of 18 credit, what the indemnification would have 19 protected them against was any expenses they 20 incurred in doing that. 21 Q. It also says they are indemnified 22 against any loss? 23 A. For example, if the letter of credit 24 for some reason was not sufficient, the difference 25 would have to be paid up by MCO. 531 1 Q. Now, you indicated that Drexel Burnham 2 retained the voting rights as to the stock. 3 Do you know how Drexel voted the stock? 4 A. No. 5 Q. Under securities law didn't Drexel have 6 a fiduciary obligation to vote the shares 7 consistent with the interest of its client, 8 Charles Hurwitz and MCO? 9 A. No. 10 MR. NICKENS: There's no evidence to 11 support the -- no basis for that in the evidence 12 for that allegation. I object to that. 13 THE COURT: I deny the objection. You 14 may answer. 15 A. The answer to the question, based on my 16 knowledge, is no. I'm not aware of any fiduciary 17 obligation that binds an investment banker that 18 has an investment position in his own stock to 19 vote in favor of somebody that happens to be a 20 client. 21 Q. Even if they are providing finance to 22 the client? 23 A. Absolutely. 24 Q. Now, did Drexel Burnham provide any 25 financing assistance to Charles Hurwitz in 532 1 connection with the Patco Lumber acquisition? 2 A. I believe he did, but I'm not familiar 3 with any of the details of that. 4 Q. Are you aware that Mr. Hurwitz has been 5 sued in the past as -- under allegations that he 6 was a corporate raider? 7 MR. KEETON: Your Honor, what's that 8 have to do with this case? 9 MR. RINALDI: Well, your co-counsel 10 asked him about was Mr. Hurwitz a corporate 11 raider. All I'm asking is was he aware of any 12 litigation in which he's been sued. 13 MR. NICKENS: I would ask that the -- 14 THE COURT: I'll sustain the objection. 15 Move on. 16 MR. RINALDI: I don't have anything 17 further, Your Honor. 18 MR. NICKENS: We have no further 19 questions of Mr. Marlin, and we would ask that he 20 be released from his subpoena so that he can 21 return to his work and regular activities. 22 THE COURT: Mr. Marlin, you may step 23 down. 24 Mr. Rinaldi, do you wish to begin with 25 another witness, or do you want to take an early 533 1 lunch or what's your pleasure? 2 MR. GUIDO: I think it would be 3 appropriate to break for lunch. 4 THE COURT: All right. We'll adjourn 5 to lunch. 1:00 o'clock. 6 7 (Lunch break.) 8 9 MR. RINALDI: Your Honor, Mr. Eisenhart 10 has been discussing the witness schedule. Because 11 of the schedules of the various witnesses we have 12 brought in and the concerns we have about some of 13 the witnesses being able to get in and out in one 14 day, we've determined that we may have a short day 15 on Friday. 16 I'll explain what the problem is. As 17 we currently scheduled several witnesses, we had 18 thought we might attempt to bring Mr. Lazard back 19 Friday to testify. However, based on estimates of 20 time, it -- we're not certain we can finish Mr. 21 Lazard on Friday. Mr. Lazard lives in Arizona, 22 and he's already flown in here once. We intended 23 to put him on yesterday. We believe it might be 24 agreeable to allow for the possibility that Friday 25 might be a short day. We're not certain that that 534 1 will be the case. It may well be the testimony 2 Friday could run an entire day. Obviously, it's a 3 question we wanted to put in front of Your Honor. 4 Mr. Lazard is a former controller. 5 MR. EISENHART: I think the problem is, 6 Your Honor, the schedule we worked out with OTS 7 will have Mr. Levin on the stand this afternoon. 8 They believe they will be able to finish him then. 9 We will, as well. The witnesses for tomorrow are 10 Mr. Madigan, Mr. Kramer, and then we're going to 11 start Mr. Schwartz probably sometime, I would 12 estimate, after lunch tomorrow. The estimate is 13 that Mr. Schwartz will still be on the stand 14 Friday morning. The question is how far along -- 15 they have Mr. Dignam coming in on Friday. I have 16 a real concern that if we brought in Mr. Lazard, I 17 know we might not get him on. With him having 18 flown in from Arizona once already, I would hate 19 to have him fly in again. 20 THE COURT: That sounds like a pretty 21 full schedule anyway. I think that's fine. 22 MR. NICKENS: This is Ezra Levin, who I 23 understand to be the next witness. 24 THE COURT: Mr. Rinal