HomeMy WebLinkAbout08-02-93
FOR THE RESPONDENT
Lisa Morgan
FOR ROBERT MUMMA
Barbara McClure
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THE COURT: Okay. The Respondents may
continue with their case.
MR. SONNENFELD: May I proceed, Your Honor?
THE COURT: You may.
MR. SONNENFELD: The Respondents call as our
next witness, Mrs. Morgan.
Whereupon,
LISA MUMMA MORGAN
having been duly sworn, testified as follows:
DIRECT EXAMINATION
BY MR. SONNENFELD:
Q If I may approach the witness, Your Honor.
Mrs. Morgan, will you please tell us your full name and
address?
A Lisa Mumma Morgan. My residence address is
5695 North West 24th Terrace, Boca Raton, Florida.
Q And do you also have a local address?
A Yes. 804 Michigan Avenue, Lemoyne,
Pennsylvania.
Q And are you one of the executrices and
trustees of the trust under the will of Robert M. Mumma?
A Yes.
Q And Mr. Mumma was your father?
A Yes.
Q Now, can you tell the Court what businesses
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1 or business interests were sold to the company known as eRR
2 last week?
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A
Basically it's what you would know as the
4 pennsy Supply businesses, but it really comprised four
5 items. One was the sale of the Nine Ninety-Nine stock.
6 Nine Ninety-Nine is the holding company for pennsy Supply,
7 the operating businesses.
8 In addition, the stock of Hummelstown Quarry
9 was sold, and Hummelstown Quarry is a corporation which
10 actually holds the real estate at our Hummelstown Quarry
11 operation. Pennsy Supply merely leases the Quarry from
12 them.
13 We also sold -- the marital trust was the
14 hundred percent owner of Benders Quarry, which is down here
15 in Mount Holly, and that was sold. In addition the Paxton
16 Street Yards, as we referred to them, which is the main
17 office building on Paxton Street in Harrisburg which is
18 owned by the marital -- or the Mumma Realty Associates
19 tenancy-in-common was sold.
20 And we also gave an option for these, fifty
21 percent interest in Lebanon Rock, which is the quarry in
22 Lebanon Rock. So if you take all of those things and put
23 them in a package it's what we would refer to as the Pennsy
24 supply businesses.
25
Q
So to recap, and just so the record is clear,
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1 there were five separate business interests sold under what
2 we have loosely called the pennsy Supply businesses; is that
3 correct?
4 A Yes.
5 Q And two of those were corporations, and those
6 corporations being Nine Ninety-Nine, Incorporated, and
7 Hummelstown Quarry, Incorporated?
8 A Yes.
9 Q And then among the other things that were
10 sold were the Benders Quarry?
11 A Yes.
12 Q Owned by the marital trust?
13 A Yes.
14 Q And the Paxton Street Yards, the property in
15 Harrisburg where the company's offices are located?
16 A Yes.
17 Q And in addition there was an option given on
18 the fifty percent interest in the company known as Lebanon
19 Rock, which interest is owned by the estate?
20 A Correct.
21 Q Is that correct? Now, what was the purchase
22 price or what was the consideration received for the sale of
23 these five business interests?
24 A The total package purchase price was
25 thirty-two million.
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Q Now, you mentioned that there was an option
on the fifty percent interest in the corporation known as
Lebanon Rock owned by the estate?
A Yes.
Q What is the period of time of that option?
A It was 120 days from the date of closing,
which was the 21st. Actually I think it was from the date
of the signing of the letter. Even though it wasn't
effective until closing, the time period started running
from the date it was signed, which was July 8th. So
whatever 120 days after that would be.
Q And is there a strike price or a price on
that option?
A
Q
Yes. Two million dollars.
So that is it correct then that if CRH should
exercise that option within the coming 120 days then there'd
be an additional two million dollars on top of the
thirty-two for a total of thirty-four million dollars?
A Correct.
MR. SONNENFELD: Now, I'm going to ask the
reporter to mark as the next exhibit, Exhibit R-5, a chart
showing the ownership of these various entities, if I may
approach the reporter, Your Honor.
(Whereupon, Respondent's Exhibit No.5
was marked for identification.)
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MR. SONNENFELD: If I may approach the
witness, Your Honor?
THE COURT: Go ahead.
BY MR. SONNENFELD:
Q Mrs. Morgan, I show you what the reporter has
marked for identification as Exhibit R-5. Can you tell us
what this reflects?
A It's a chart that basically breaks down those
five pieces that I told you about earlier and shows who owns
what.
Q Would it be correct to say this shows who
owned what as of the time immediately prior to the sale?
A Yes.
Q Now, looking, for example, at the first
column we have listed the marital trust, correct?
A Yes.
Q Yourself?
A Well, my mother.
Q Your mother then yourself?
A Yes.
Q And then your brother and then your two
sisters, Linda and Barbara, and then the estate?
A Yes.
Q Is that correct?
A Yes.
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Q
Ninety-Nine?
A
Q
Now, in the first column we show Nine
Yes.
And below that can you tell us what appears
there?
A The marital trust has 28.44 percent of the
stock ownership of Nine Ninety-Nine. My mother personally
has 22.84 percent. I personally had 14.39 percent. My
brother personally had 11.40 percent. Linda personally had
11.42 percent, and Babs personally had 11.42 percent, and
the estate had nothing.
Q Now, this 14.39 percent of Nine Ninety-Nine
owned by you
A Yes.
Q -- on this chart, is that something that you
owned before the death of your father?
A Yes.
Q And likewise for the shares owned by your
brother and your two sisters, were they also owned by them
before the death of your father?
A Yes. We owned these forever. I mean for a
long time.
Q Is it correct that in this sale that was
consummated last week to eRH you sold your own shares and
your sisters, Linda and Barbara, sold their shares as well
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as your mother selling her shares in a personal capacity in
addition to the marital trust shares?
A Yes. We all sold our individual shares.
Q Now, in the next column we have HQI. HQI, I
think, is the abbreviation for Hummelstown Quarries, Inc.
A Yes.
Q And again do we show the same format, the
shares owned by the marital trust, followed by the
percentage of shares that were owned by your mother, and
then by yourself and your three siblings; is that correct?
A Yes.
Q And as to Hummelstown Quarries, Inc., what
percent of the shares did you and each of your siblings own
prior to the sale of CRR?
A We each only owned less than half of one
percent. It was .48 percent, to be exact.
Q Okay. And again these were shares as to you
and your sisters and your mother that were sold along with
the trust shares to CRR?
A Yes.
Q Now, we next come to Paxton Street Yards, if
you see the third column?
A Yes.
Q Is it correct that Paxton Street Yards is
actually owned by the entity that we have referred to in
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previous proceedings as MRA-I?
A Yes.
Q And MRA-I was a -- I hate to characterize it.
There's been so much litigation over it, but there was
ownership in MRA-I owned by the trust and your mother and
your four siblings; is that correct?
A Correc t .
Q And does the column then show the percentage
of ownership?
A Yes.
Q And, again, your ownership here is
approximately a little over four percent?
A Yes.
Q And likewise your brother's a little over
four percent?
A Yes.
Q And the same for each of your two sisters?
A Yes.
Q And, again, this is the ownership you had
before the death of your father?
A Correct. In a different form, but, yes.
Q And in the last two columns you have Benders
Quarry, and that was a hundred percent owned by the marital
trust; is that correct?
A Yes.
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Q And then the estate owned the fifty percent
interest in Lebanon Rock?
A Correct.
Q Now, was the thirty-two million dollar
purchase price received, allocated among these five business
interests that were sold, that is allocated and spread over
Nine Ninety-Nine, Humme1stown Quarry, Paxton Street Yards,
Benders Quarry, and Lebanon Rock Option?
A Yes, it was.
MR. SONNENFELD: If I could ask the reporter
to mark this as Exhibit 6, I believe we're up to.
(Whereupon, Respondent's Exhibit No.6
was marked for identification.)
MR. SONNENFELD: If I may approach the
witness, Your Honor.
THE COURT: Go ahead.
BY MR. SONNENFELD:
Q Mrs. Morgan, could you identify for us the
document that we have marked for identification as Exhibit
6?
A It's basically a synopsis of how that
thirty-two million dollar gross purchase price was allocated
over those five pieces.
Q And how much of the thirty-two million
dollars is allocated to the shares of Nine Ninety-Nine?
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A 80.3 percent.
Q Okay.
A Which is roughly twenty-five million, six
hundred ninety-six thousand dollars.
Q And how much was allocated to Hummelstown
Quarries?
A Two million, eight hundred and sixteen
thousand dollars, which is roughly 8.8 percent.
Q And how much was allocated to Paxton Street
Yards?
A One point five hundred and sixty-eight -- one
million, five hundred and sixty-eight thousand dollars,
which is roughly 4.9 percent.
Q And Benders Quarry?
A One million, seven hundred and sixty thousand
dollars, which is 5.5 percent.
Q And finally the Lebanon Rock Option?
A A hundred and sixty thousand dollars, which
is a half a percent.
Q Thank you. Now, the principle asset of Nine
Ninety-Nine was the subsidiary known as pennsy Supply; is
that correct?
A Yes.
Q And that was the operating company --
A Yes.
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Q -- for the business. And that's why the bulk
of the purchase price is allocated there?
A Yes.
Q Now, yesterday you were here in court and
heard reference and testimony to a corporation known as Kodi
Corporation?
A Yes.
Q Can you tell us what Kodi Corporation is or
was?
A Kodi Corporation was a corporation that we
formed because the CRH, the buyers, requested us to form
Kodi Corporation because they did not want to buy five, as
you can see, five different types of things with five
different allocations of ownerships, and they didn't want to
get involved in, for tax reasons, this allocation of the
purchase price.
So they wanted us to form a corporation where
they would just enter one subscription agreement with one
seller, who the corporation was named Kodi, for some reason,
to facilitate their needs. So Kodi was created in order to
accomplish that for them.
Q Was it correct to say then that Kodi was
formed for the purpose of facilitating this transaction,
that is the sale of these five business interests to CRH?
A Exactly. CRH insisted on it.
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1 Q And by whom was Kodi formed?
2 A I guess the initial subscribers were my
3 mother and myself and Linda.
4 Q Now, this transaction was, I gather, a
5 complicated transaction?
6 A Very.
7 Q And I gather the closing of the transaction
8 occurred in two stages?
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15 that's when the whole transaction was done?
16 A Yes.
17 Q Who owned Kodi Corporation?
18 A CRR did.
19 Q Now, at the time that the payment of the
20 thirty-two million dollars was made, who owned Kodi
21 Corporation?
22 A CRH did.
23 Q And at what point did CRR come to have in it
24 the five business interests being sold?
25 A I'm sorry. Did you say at what point who?
A Yes.
Q And can you tell us when the first stage was?
A The first stage was on July 8th, 1993.
Q And when was the second stage?
A On July 21st, 1993.
Q Now, at the conclusion of the second stage,
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Kodi?
Q Yes. Did Kodi have -- at what point did Kodi
have in it the five business interests being sold?
A After the thirty-two million dollars was
released from escrow by the Irish, the assets were then put
into Kodi.
Q Did the thirty-two million dollars flow
through Kodi?
A I'm not quite sure what you mean by that.
Q Okay. Where did the thirty-two million
dollars wind up at the end of the transaction?
A To the individual shareholders or in DE
Corporation for the nonconsenting shareholders.
Q Did you or your mother in any way receive any
personal benefit from this transaction other than the
proportionate proceeds for the shares that you owned
individually in these business interests?
A Absolutely not.
Q And did you, for example, receive any kind of
employment contract or consulting contract?
A No.
Q Did you enter into a covenant not to compete
with CRR?
A Yes, but there was no extra consideration for
that. We just did that.
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1 Q Now, did you take on any liabilities to CRR?
2 A Yes. As part of the sale we were required to
3 give certain reps and warranties about the business, and for
4 that we had to escrow four million dollars. Two million
5 dollars of it is for breaches of reps and warranties or
6 covenants, and another two million dollars they required us
7 to escrow for what they call family litigation, which was
8 basically litigation that they feared that Bobby might
9 bring.
10 Also I should say that I personally, since
11 you asked me, incurred liability that nobody else did. And
12 CRR was concerned apparently that, to the extent that the
13 marital trust was an indemnitor, that at some future point
14 in time a beneficiary could come in and ask the Court to cap
15 or remove this indemnity agreement, and CRR was concerned
16 then that they would have nothing left.
17 And so they wanted the individual
18 shareholders to step up and agree that to the extent they
19 were going to get anything, an inheritance, out of the
20 marital trust, they wanted us to pledge that to them if the
21 marital trust was not bound in this indemnity.
22 Obviously mom couldn't do it because this
23 only happens if she passes away, and my sister, Linda,
24 refused to do it, and CRR took the position that they would
25 not go forward with the transaction unless somebody did it.
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1 So I agreed to pledge my share of the inheritance so that
2 the deal could close.
3 Q So it's correct to say that you received no
4 separate benefits, but you incurred some considerable
5 exposure to liabilities?
6 A That's right.
7 Q And you did so in order to facilitate this
8 transaction?
9 A That's right.
10 Q Now, if between the Stage-I closing and the
11 Stage-II closing for any reason the deal had collapsed, what
12 would have happened to these five business entities?
13 A Nothing because the stock was never
14 transferred at the Stage-I closing and the assets were never
15 removed. So the ownership would have stayed exactly the
16 same as it had prior to the closing.
17 Q Now, after the Stage-I closing on July the
18 8th and 9th, did you cause certain notices to be sent to
19 your brother, Robert?
20 A Yes.
21 Q And if I may show you the rather large
22 document which yesterday we marked as Respondent's Exhibit
23 Number 3, I'll ask you if you recognize that as the notice
24 that you sent?
25 A Yes.
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Q And could you turn to the -- actually look at
the first page. These are notices pertaining to Nine
Ninety-Nine and Hummelstown Quarries; is that correct?
A Yes.
Q And if you look at the fourth page --
A Okay.
Q that shows that you sent this notice as
secretary of each those corporations?
A Correct.
Q And you see the date of July 9th?
A Yes. They were mailed July 9th.
Q And did you, in fact, send this notice in
your capacity as secretary of Nine Ninety-Nine and
Hummelstown Quarries, Inc.?
A Yes.
Q And not in your capacity as executrix or
trustee?
A No.
MR. SONNENFELD: And if I could, Your Honor,
there shouldn't be any dispute over this, I'd like to mark
as the next two exhibits affidavits of mailing.
(Whereupon, Respondent's Exhibits 7 and 8
were marked for identification.)
BY MR. SONNENFELD:
Q And if I show you Exhibits 7 and 8 can we
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1 agree these are the affidavits of mailing of July 9th for
2 Hummelstown -- for Nine Ninety-Nine and Hummelstown Quarry
3 of the notice that we had marked as R-3?
4 A Yes, they are.
5 Q And what was your understanding of the
6 purpose of this notice that you sent to Robert and also to
7 your sister, Barbara McClure, on July 9th?
8 A Well, as I understood it, because we were
9 selling the stock of two corporations there were five things
10 that were involved. Of the five items that were sold, two
11 of them were the stock of the corporations, and, as I
12 understood it, the BCL, the business code.
13 Q The Business Corporation Law?
14 A Right, required that notices be sent to
15 shareholders that the majority of the shareholders intended
16 to sell the stock of the corporations. And so these notices
17 were prepared by the attorneys who were closing the deal and
18 were sent to the shareholders, who at that time were not
19 participating shareholders, which was Babs and Bobby, in
20 accordance with the BCL.
21 Q Now, at the time that you caused these
22 notices to be sent following the Stage-I closing on July
23 9th, when did you contemplate the Stage-II closing would
24 take place?
25 A I assumed as the ten day notice period was
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finished.
Q Okay.
A I think somewhere in here -- it's so big so I
can't find it it says that we intended to close it as
soon as allowed by applicable time period under the BeL or
something.
Q Now, you understand there's a ten day period
before you can close?
A Exactly.
Q And when did the ten days begin to run?
A As I understand it, you don't count the date
that you mail it, but you count the next day. And so ten
days from that would have been the 20th, and we intended to
close it on the 20th, but after working until two or three
in the morning we didn't have it closed yet because there
were so many papers that needed signed and things that
needed tied up that it actually -- the bank was closed, and
we had to wait for the bank to open up at 9:00 the next
morning because we did not want to do anything from our end
until we had word from the bank that the thirty-two million
had been released.
Q So the closing then took place when? The
morning of the 21st?
A Yes.
Q A day later then you actually contemplated?
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1 A Yes.
2 Q Now, was the State-II closing in any way
3 accelerated or hurried up because of any petition filed
4 either by Mr. Frey or by your brother, Robert?
5 A No. In fact, I happened to have been
6 vacationing with my family when the closing actually took
7 place. The evening of the 20th or actually around 4:00
8 eastern time we realized we weren't going to get closed
9 before the banks were closed.
10 And so we instructed the attorneys at 9 a.m.
11 the next morning to go forward to finish up all the loose
12 ends over the night, and I was totally unaware that their
13 petition had been filed. And, in fact, I didn't even find
14 out about it until way after the deal closed later the
15 afternoon of the 21st when I called in to just find out
16 where things were.
17 Q And, incidentally, have the proceeds from the
18 sale been distributed, for example, of the corporations to
19 the various people who were shareholders beforehand?
20 A Yes.
21 Q So, for example, your sister, Linda, has
22 gotten her share, and you sister, Sabs, got her share?
23 A As far as I know.
24 Q Now, did you give notice of the sale or cause
25 notice to be given to Mr. Frey, the Guardian Ad Litem of the
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two minor children of your brother, Robert?
A No, I did not.
Q And why was that?
A Basically, I guess we just didn't think about
it because the lawyers that prepared this were the lawyers
that we had hired to close the business deal and negotiate
the business deal, and they prepared these notices in
accordance with the BCL, the Business Corporation Law, and
that said that notices should go to shareholders.
And, obviously, the shareholders were just
the marital trust, and my mother and I were the trustees of
that, and the individuals, the four children, and so I guess
the business lawyers, not being involved in these
proceedings, didn't think about it, and frankly I didn't
think about it. I just said, fine. Send whatever notices
are required.
Q There was no intent to keep Mr. Frey in the
dark about this?
A Absolutely not. I mean in hindsight it
probably would have been a courteous thing to do, and I
apologize for that, but we did not at the time think of it.
Q Now, you mentioned the business lawyers. I'm
here. My firm here is counsel to you and your mother as the
executrices and the trustees?
A Right.
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1 Q Did you cause a separate counsel to be hired
2 to represent the corporations that were selling the assets?
3 A Right. Nine Ninety-Nine, we hired the firm
4 of Stradley, Ronon, Stevens & Young to assist in the
5 negotiations and the completion of the sale.
6 Q Okay. And, again, the notice that was given
7 was given only to those shareholders who were not
8 participating sellers; is that right?
9 A Exactly.
10 Q And that at the time was your brother and
11 your sister, Babs McClure.
12 A Yes.
13 Q And is it correct that Babs McClure suddenly
14 signed on as a selling shareholder?
15 A Yes. That's my understanding.
16 Q So, therefore, only your brother is not a
17 selling shareholder?
18 A Yes.
19 Q Now, you also didn't give any prior notice to
20 your brother?
21 A Correct.
22 Q And that is prior to the conclusion of the
23 Stage-I closing on the 9th of July?
24 A Yes.
25 Q And can you tell us why that was?
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A Basically because the last time that we had a
sale Bobby came into court, and, in our opinion, used the
court system to prevent that sale from being consummated and
threatened the buyer and essentially caused the family
twenty million dollars.
Your Honor, I object.
She's telling us her opinion so
MR. FARRELL:
THE COURT:
I'll let her answer.
MR. SONNENFELD: And I think there have been
prior findings on this too.
THE WITNESS: So we determined that in order
to close this sale that we did not want to have other
threats made that might scare the buyers away or proceedings
brought that may thwart our ability to close a sale that we
thought was in the best interest of the family.
BY MR. SONNENFELD:
Q And did you, in fact, consider this sale to
be in the best interest of the family?
A Absolutely.
Q And did you consider that you had gotten the
best price attainable?
A Yes.
Q Did you hire any investment advisors to
advise you on whether you gotten the best price attainable?
A Yes. We hired two. We hired a man named Joe
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Hockrider (phonetic), who is a man very experienced in
business dealings. He, I guess, owned and operated several
businesses on his own plus he was involved in a very large
corporation in Philadelphia and he initially counseled us.
And then we also hired Legg Mason Wood << Walker to give a
fairness opinion after we had received the price from CRH
and negotiated the price.
Q And Legg Mason Wood & Walker, can you tell us
what that is?
A It's an investment banking firm, and out
of -- the office we used was out of Philadelphia, but they
have offices allover the place, as I understand it.
Q And do they, in fact, give an opinion both as
to the fairness of the total consideration and as to the
allocation loan fidelities?
A In fact, they actually advised us on the
allocations. We didn't attempt to do them ourselves.
Q And in consummating this deal did you rely
upon their advice?
A Yes.
Q And did you receive assistance in negotiating
the transaction with CRH?
A Yes.
Q And from whom did you receive assistance?
A Joe Hockrider, the business individual that I
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mentioned earlier, plus also the lawyers at Stradley, Ronon,
Stevens << Young attended all the negotiation sessions with
us.
Q And by us you mean your mother and yourself?
A Yes, and Linda.
Q Pardon me?
A And my sister, Linda.
Q And your sister Linda as well?
A Yes.
Q I'm sorry. Now, yesterday you heard your
brother, Robert, testify as to a prior offer he had made to
buy the businesses for thirty-five million dollars?
A Yes, I heard that.
Q I'd like to show you what we have marked for
identification as Respondent's Exhibit Number 2, and I have
a copy for the Court to follow along. Now, Respondent's
Exhibit Number 2, I think your brother testified yesterday,
was a letter from Mr. Morrison to Mr. Landrey of Stradley,
Ronon, and Mr. Kline of Morgan, Lewis dated December 9th,
1991, setting forth the thirty-five million dollar offer; is
that correct?
A Yes.
Q Or I think purports to be the offer?
A Right.
Q And Mr. Landrey -- can you tell us who Mr.
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Landrey is?
A Mr. Landrey is the lawyer at Stradley, Ronon,
Stevens << Young, and he was the leading lawyer, I guess you
would call him, that we had hired to consummate the sale.
o Now, I'd like you to take a moment, and, if
you could, just go through the letter and point out to us
what are some of the major distinctions between this
purported offer from your brother and the deal that you
consummated with CRH?
A There are a lot of them so if I miss some
forgive me, but I'll point out the basic ones.
o Thank you.
A First of all, this was an offer to buy the
assets, to have an asset deal. The deal that we consummated
with CRH was a stock deal, and there's a significant
difference because if the corporation sells assets then the
corporation pays tax on that sale and then when that money
is distributed to the shareholders, the shareholders pay
tax.
So in essence there would have been a double
taxation under an assets sale, and our lawyers did a rough
calculation and said it would have really amounted to about
a nineteen million dollar deal as opposed to a thirty-two or
thirty-four, thirty-five million dollar deal, whatever
number you want to use.
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Q And that's because of the assets?
A Exactly. Also the deal purported to be that
he wanted all of the assets free and clear of all
liabilities, liens, and encumbrances.
Well, if you buy stock the buyer takes all
the liabilities of the companies except for those that are
excluded as part of the deal, and this way we would have
ended up having all the liabilities for the companies which,
as you might imagine, could be fairly substantial.
Q So by selling stock to CRR, CRR took the
liabilities of the companies along in contrast to this
proposal?
A Exactly.
Q Please continue.
A Also our deal with CRR, we pulled out what we
call the nonbusiness assets, which is, I'll use an example
of Hummelstown Quarries. The actual piece of property on
which the quarry sits is, let's say 400 acres. I'm making
up a number for the sake of discussion, but only 200 acres
of that is the actual Quarry.
We pulled out or are subdividing out that
acreage that is not part of the Quarry to keep it for the
family so that we could sell it down the road or develop it
down the road.
Q And by keeping it you're keeping it in the
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same ownership that it was in before?
A Exactly. It's being kept in the same
ownership for the benefit of the family. Bobby's deal
purported to take all the land, including the 200 acres of
non-quarry land around the quarry.
Q And you're referring, I guess, now to
Paragraph 2-a, the bottom of the first page?
A Right, and that's just -- that's an example.
Q Okay.
A Also Bobby's deal said that in his
thirty-five million he was going to have all the stock of
Lebanon Rock. The deal with CRH, they don't get the stock
unless they pay an additional two million dollars. They
only have an option to buy this stock.
Q Whereas Bobby'S deal included that?
A Exactly. Bob's deal included that. Bobby's
deal also included a right of first refusal on Union
Quarries, which is another company that the estate owns 50
percent of, and that's not even mentioned in the deal with
CRH.
Q Union Quarries is not sold to CRH nor did you
give CRH an option on Union Quarries; is that correct?
A Exactly. A couple other things. His
purported offer said that he didn't want to honor any long
term contracts, employment contracts, et cetera, and this
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was very important to us because it was important to us and
it was important to my father that his long term employees
be protected, and we felt that there would be a significant
number of employees who would no longer be employed with the
company. And I know that's not what my mother and I felt my
father would have wanted.
In addition to that, Bobby wanted us to pay
him at the time of the deal his entire distributed share
under the will, which means that -- and he was going to use
that to offset the purchase price. What that means is that
at whatever point we would have sold, we would have had to
have figured out what that was and pay him.
And we still don't even know, because I
gather, I heard from Mr. Frey yesterday he's going to appeal
the disclaimer, whether we would have been paying the right
person. And that would have subjected us to the extent the
disclaimer is upheld and the children are the beneficiary,
we would have now deducted from the purchase price, I don't
know, ten million dollars and allowed Bobby to use it to
offset the company.
And the lawyers advised us that that was just
an absolute -- something that we could not even consider as
fiduciaries. I don't know. I guess there's other things in
here, but
Q If I could direct your attention to the
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second page, the first full paragraph. Do you see that's
the paragraph that refers to the price of thirty-five
million dollars?
A Oh, yes. I'm sorry. Yes.
Q Do you see that?
A Yes.
Q AAd
A Oh, right.
Q Was there a condition to that price?
A Yes. He wanted to adjust the price for any
material adverse change of the assets since the death of my
father. So we also had absolutely no idea how much of a
subtraction he was going to say that would be.
Q Were there also any indemnifications
requested by Bob as part of his offer?
A Yes, there were. As a matter of fact, that's
an important piece that I forgot. He wanted us to indemnify
him for any subsequently developing federal or state tax
liens and for any environmental cleanup responsibilities
relating to activities prior to closing.
As I'm sure you're aware, the environmental
area is a big area these days where there's lots of risks
and exposures, and we felt it imperative in negotiating any
deal that we limit any environmental exposure.
AAd eRR was willing and did essentially let
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1 us absolutely cap our environmental exposures and we had an
2 environmental audit done of the company. And they agreed
3 that they would take anything not shown on that
4 environmental audit, and, in fact, ended up taking almost
5 everything on that environmental audit.
6 So that we essentially walked away with no
7 environmental liabilities except if we were fraudulent, that
8 is we knew something and deliberately hid it from them, and
9 we felt that that was a major, major coup, so to speak.
10 Q Now, you were here yesterday when we had the
11 testimony of the banker?
12 A Yes.
13 Q And there was some discussion of what we
14 referred to as the Gleaneagles problem?
15 A Yes.
16 Q Can you tell me what your understanding is of
17 that?
18 A As I understand it, it's a case doctrine that
19 essentially says that if you sell a business to somebody, be
20 it stock or assets sale, and that person pledges the assets
21 of the company as collateral for the financing and then
22 sometime down the road has financial trouble and defaults on
23 the financing, that they can essentially come back not just
24 to the corporation but to the former owners and require them
25 to pay back the money.
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Q And was this a concern that you had in
dealing with the offer set forth in Mr. Morrison's December
9th letter?
A Yes. Our attorneys had advised us that this
was a real serious problem because all the information that
we had been able to receive, and r think Bob's banker
confirmed that yesterday, was that as financing for the deal
Bob was going to pledge the assets of pennsy Supply and that
we subjected to this risk, which the lawyers said that for
the marital trust and the estate, we absolutely could not
subject them to that exposure.
With CRH they were a hundred percent cash, no
financing, and there was absolutely no risk of that. They
did not need to go out and secure any financing, and they
didn't pledge the assets of the company for anything.
Q Now, did you and your -- those advising you
attempt to secure and negotiate perspective purchases other
than CRH?
A Yes, we did.
Q And did that bring fruit?
A No, it did not.
Q And did you consider the offer from CRH the
best offer attainable for the assets that were sold at this
time?
A Absolutely.
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Q And is that in accordance with the advice
that you received from your various people advising you on
this transaction?
A I think to quote Joe Hockrider he said, take
the money and run.
Q Well, you didn't run. You distributed it?
A No, right.
Q One final point I'd like to mention going
back to the thick book that we marked as R-3, the rather
thick document in front of you?
A Yes.
Q In that you give notice, do you not, to Bob
and to your sister, Babs, of a shareholder's meeting for
the at least for the record date for the shareholders and
then a record for Nine Ninety-Nine and Hummelstown Quarry on
the 22nd
A Yes.
Q -- of July. What was your understanding of
the purpose of that meeting?
A That it was a ratification meeting, and I
have the notice in front of me, but I think it said to
ratify. I mean I do have it in front of me, but it's
somewhere embedded in that. To ratify the sale that was
contemplated to be closed sometime prior to that date, and
then we would have it ratified on the 22nd.
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1 MR. SONNENFELD: Okay. Thank you, Mrs.
2 Morgan. Your Honor, I have nothing further.
3 THE COURT: Okay. Cross examination by
4 counsel for Robert Mumma. Would you identify yourself for
5 the record.
6 MR. FARRELL: Your Honor, I'm Christopher
7 Farrell from the law firm of Buchanan Ingersoll.
8 CROSS EXAMINATION
9 BY MR. FARRELL:
10 Q Mrs. Morgan, when did the negotiations with
11 the Irish first begin with regard to this last offer that
12 you received?
13 A Oh, boy, I can't specifically remember.
14 Q To the best of your recollection.
15 A Last summer.
16 Q And you testified that you'd gone ahead and
17 tried to market this property to other people?
18 A Yes.
19 Q Who were they?
20 A We did a lot of things, but we specifically
21 met with or had our attorneys meet with Florida Rock and
22 also a company called CSR, which is Australian based.
23 Q And when did those occur?
24 A I would say the spring of '92, about there.
25 Q Now, you signed a confidentiality agreement
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with the Irish?
A Yes, we did.
o And that was January 5th of this year?
A I don't know. You'd have to show me the
agreement.
o Based upon the notice that you gave to the
shareholders, if I told you that that refers to a
confidentiality agreement dated January 5th, 1993, would you
accept that?
A I mean if that's what my lawyers put I guess
that's correct, but I do have to say that I'm not sure that
we hadn't signed more than one. I mean there may have if
that's the date there may have been one that was prior to
that also.
Q Well, let me ask you this then. Let's assume
from the beginning of this year, who have you talked to
about marketing the property?
A The beginning of 1993?
Q Yes.
A I think at that point we were strictly
talking to CRH because we were far along enough in our
conversations and inside the confidentiality agreement that
we weren't talking to anybody else.
Q So from January 1 of this year you made no
efforts to market with anybody other than CRR?
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A I'd say that's basically true. I think that
although we didn't approach people we did have discussions
about it.
Q Well, I'm sorry, Mrs. Morgan. You either did
market it after January 1 or you did not?
A Well, I think maybe I'm not understanding
your question. I view marketing as going out and actually
talking to somebody and saying, will you buy, and I'm saying
no, we didn't do that after January 1.
Q That's my definition.
A Yeah.
Q Now, what efforts did you make to negotiate
with your brother, Robert Mumma, to acquire the properties?
A When?
Q After January 1 of 1993.
A None.
Q Did you make any effort whatsoever to see if
he was interested in the properties?
A No.
Q Did you make any effort whatsoever to see if
he could acquire the properties?
A I'm sorry?
Q Did you make any effort whatsoever to see if
he could financially acquire the properties?
MR. SONNENFELD: Are we talking about the
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1 period after January 1st of 1993?
2 MR. FARRELL: Yes.
3 THE COURT: I think that's the time.
4 THE WITNESS: None.
5 MR. SONNENFELD: Thank you, Your Honor.
6 BY MR. FARRELL:
7 Q So that, as I understand it, from January 1
8 on you were dealing exclusively with the Irish investment,
9 correct?
10 A I think that's probably accurate.
11 Q Is it fair to say then that since January 1
12 really no efforts were made to see whether or not it was
13 expedient or possible to keep the businesses in the family?
14 A No, because, I mean, I think the businesses
15 prior to the sale were in the family. I mean my mother --
16 Q I didn't ask you that.
17 MR. SONNENFELD: Wait a minute.
18 THE COURT: I think she can answer the
19 question. Let's not get too excited here. Do you want to
20 just ask your question again?
21 BY MR. FARRELL:
22 Q After January 1 of 1993, did you make any
23 efforts to see if you could sell the properties and keep
24 them in the family?
25 A To sell them and keep them in the family?
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1 No, but we did constantly evaluate the option of retaining
2 them as for the family as we were now with my mother and I
3 essentially running them for the benefit of the family. We
4 did constantly explore that option.
5 Q But you never made any effort whatsoever once
6 you decided to sell the properties to see whether or not it
7 was expedient or possible to keep those in the family, did
8 you?
9 A Yes, we did, because what I -- if you're
10 talking about selling to Bobby in particular, that's
11 something different. We did consider keeping them in the
12 family the way they were presently being run prior to the
13 sale.
14 Q Well, there must have come at some point,
15 Mrs. Morgan, a time when you and your mother decided that
16 you were going to sell the businesses, that you were not
17 going to operate, correct?
18 A Yes. There came a point in time where we had
19 decided that it was in the best interest to do so.
20 Q And at that point did you make any efforts
21 thereafter to see if it was expedient or possible to keep
22 the businesses in the family?
23 A Yes. Even after we made that decision we
24 continually second guessed ourselves and reevaluated whether
25 it would be better for the family to retain the businesses
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as they were currently being operated and paying out
dividends to the shareholders or to sell the businesses.
Q I understand that, Mrs. Morgan. The question
was, once you decided that the sale was to occur, did you
make any efforts to see whether it was expedient or possible
to keep the businesses in the family?
THE COURT: Why don't you say to Robert or --
if that's what you're referring to, why don't you say that?
THE WITNESS: I'm not trying to be difficult,
but I'm serious when I say that right up until the night
before closing we still wanted to make darn sure we were
doing the right thing.
did not approach Bob.
BY MR. FARRELL:
Q And, in fact, Mr. Mumma had really no
knowledge whatsoever from you or no information whatsoever
from you that you were selling the businesses?
A Until he received these notices from me,
I'm not trying to be difficult.
The answer to that is no.
We
that's true. I think he did have knowledge of it or
suspicions of it.
Q Mrs. Morgan, let me ask you this. Did he not
only have no knowledge or no information from you that you
were selling it, wasn't it also fair to say that he had been
led to believe that you were not marketing the properties?
A No, I wouldn't say that is fair. I mean I
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hadn't had any discussions with him.
Q Mrs. Morgan, do you remember testifying at a
deposition on June 18th, 1993, before Janice Smith, a court
reporter, in the matter dealing in Martin County, Florida?
A I gave a deposition. I'll trust you on the
date and the time.
MR. FARRELL: Your Honor, may I approach the
witness?
THE COURT: Sure.
BY MR. FARRELL:
Q Does that refresh your recollection?
A If that's the date and time I'll agree to
that.
MR. SONNENFELD: Just for the record, that
was not a deposition taken in this case. That was in other
litigation.
MR. FARRELL: I'm sorry, Mr. Sonnenfeld, but
it was taken under oath, was it not?
MR. SONNENFELD: I don't dispute that. I
just wanted to clarify in the record it was not this case
but in other litigation involving the family. Do you agree
with that?
MR. FARRELL: I said I stipulated it was
under Florida action.
MR. SONNENFELD: Thank you.
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1 BY MR. FARRELL:
2
Q
I'm going to show you what is page 163.
3
A
Um-hum.
4
Q
And if you would, would you go ahead and read
5 for me --
6
THE COURT: Would you tell us what the
7 question was and then what her response was.
8
MR. FARRELL: I'm going to have her read it,
9 Your Honor, so you'll hear it.
10
MR. SONNENFELD: Your Honor, I don't know if
11 this is a proper use of a deposition. If he's using it to
12 impeach she hasn't made a statement yet.
13
THE COURT: She gave a response to the last
14 question. Now, if the testimony is different than what her
15 response was then it certainly would be a proper use of a
16 deposition.
17
MR. SONNENFELD: Thank you.
18 BY MR. FARRELL:
19
Q
Right there, please.
20
A
I'm sorry. I don't know where you want me to
21 start. That's all I have?
22
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Starting with the question.
23
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That's all I have. Does Nine Ninety-Nine
24 note any agreement to sell assets or give any options to
25 purchase assets to anybody, any entities that you know of?
"19r-
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Answer, ever? Question, since your father's death. Answer,
yes, I'm sure. I mean, if we sold assets and if they would
have been Nine Ninety-Nine there would have been agreements.
Question, you indicated that you didn't know
there were any assets sold from Nine Ninety-Nine. Answer,
right. Question, taking that answer as honest I don't know
whether any assets were sold. Are there any assets under
contract or sale or have any options been given to them to
purchase assets from Nine Ninety-Nine? Are sales pending?
I don't know. I'm not aware of any real estate. I didn't
say real estate. I said assets, but Nine Ninety-Nine
entered into, I don't know.
Q And again, Mrs. Morgan, what was the date of
that deposition?
A June 18th.
Q So your testimony, Mrs. Morgan, on June 18th
in this deposition was that Nine Ninety-Nine was not at that
time entering into any contracts for the sale of its assets;
is that correct?
A Yes.
Q Now, from a corporate standpoint, isn't the
Pennsy Supply Business an asset of Nine Ninety-Nine?
A I guess. I don't know.
Q You guess. Yes or no? Mrs. Morgan, you were
very sure about the transaction a half hour ago. Now, just
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tell me, is it or is it not?
A Yeah, I guess it's an asset of Nine
Ninety-Nine. I mean I don't know legally if it is or it is
not. I assume it is.
Q Mrs. Morgan, you were very sure what the
transaction involved --
MR. SONNENFELD: Your Honor, I don't object
to the question, but I think the witness should be allowed
to finish her answer before the next question.
THE COURT: You don't have to phrase it, you
were very sure. You can just ask her if that's what she
said.
THE WITNESS: Yes, perhaps I should make
myself clear because I don't want to have anybody mislead
her. The question I was asked was, did Nine Ninety-Nine
enter into a contract to sell its assets. It had not.
We as individuals had entered into a -- in
fact, we hadn't even signed the subscription agreement. We
hadn't signed any legally binding document as of that date.
We merely signed a letter of intent, and it was for a sale
of stock. Not of assets. I mean, Bob's lawyer didn't ask
me the right question, and I didn't volunteer any
information.
BY MR. FARRELL:
Q So when that question was asked to you, you
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knew exactly that the transaction was potentially pending?
A I knew that we had signed a letter of intent
and we were negotiating, but we had not come to any
conclusion as of that date. It wasn't until July 8th that
we did.
Q July 8th was the Stage-I closing, but you
entered into an agreement in May, did you not?
A No. The only thing in May we signed was a
letter of intent. We didn't sign the subscription agreement
until July 8th.
Q But as of May 8th you intended to enter into
a letter of intent, correct?
A Sure.
Q And you didn't think that that was relevant
to the question that was asked?
A No.
Q So when that question was asked you knew that
that letter of intent had been signed?
A Yes.
Q And you decided that that question was
related only to whether Nine Ninety-Nine, the corporation,
had agreed to sell and not Nine Ninety-Nine shareholders,
correct?
A That's what he asked me. He said. is Nine
Ninety-Nine entered into agreements to sell its assets, and
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I answered no.
Q But you knew at that point that at least Nine
Ninety-Nine shareholders had, correct?
A Yes.
Q So, Mrs. Morgan, again, I ask you really
wasn't it your plan at that point to make sure that Mr.
Mumma never became aware of the sale until you were ready to
tell him?
A I wouldn't term it that way.
Q I did.
A It was our intent -- I know you did, but my
answer to your question would be, no. The intent was to
serve notice on the parties when and if we had consummated a
transaction, and as of June 18th we had not.
And as I think I said before, based on the
past experiences where we had a deal that was an incredible
deal, and because of the legal actions that were brought and
Bob's threats, that deal collapsed and we had no intention
of allowing that to happen here.
Q Let's deal with that point first before we
get back to this. That deal didn't collapse. You pulled
the property off the market, did you not?
A Absolutely not. They sent us a letter and
said that they were not going forward.
Q Did you not send out a letter that the
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properties were being taken off the market?
A L don't recall if we did or not.
Q You don't recall?
A No, L don't recall.
Q Could you have?
A Could I have?
Q Yes.
A I don't know. I mean I don't recall it.
Q Mrs. Morgan, getting back to this deposition.
A Yes.
Q Wasn't it really your intention to limit your
brother to the shortest possible time in which to object to
this transaction?
A Yes.
Q Now, Mrs. Morgan, let's turn to the sales
transaction itself. You testified as to the involvement
that Kodi Corporation had in the transaction?
A Yes.
Q And correct me if I'm wrong, but really you
said in your testimony that Kodi was something that the
Lrish requested?
A Correct.
Q And that they requested it for tax reasons?
A That's right.
Q And that they requested it because they
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1 didn't want to have titles coming in from different sources?
2 A Yeah, those were two of the reasons that I
3 understood was why they were asking for this to be done.
4 Q Now, Mrs. Morgan, if you read the note that
5 was given to the shareholders, and again who prepared that
6 note?
7 A I honestly don't know who prepared each and
8 every individual piece, but the lawyers in general.
9 Q What lawyers?
10 A I guess Stradley, Ronon, Stevens & Young.
11 Q If you read that statement Stradley, Ronon
12 paints a different picture as to why Kodi was for.med?
13 A I don't know that.
14 Q You don't know -- you haven't read the
15 statement?
16 A A long time ago, and it's fairly thick. I
17 don't have it memorized.
18 Q Maybe this will refresh your recollection,
19 Mrs. Morgan. If you read that statement, Stradley Ronon
20 says that it was their idea to for.m Kodi, and that Kodi was
21 for.med for -- let me finish. And that Kodi was for.med for
22 the exclusive purpose of devising a method whereby the Irish
23 would be insulated from any dissenting shareholder rights
24 that your brother, Robert, might assert against them. Does
25 that refresh your recollection?
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A No. Could you show me the page?
MR. SONNENFELD: Could I ask for the page
that has been shown the witness?
MR. FARRELL: Mrs. Morgan.
THE WITNESS: I'm sorry. It's F-13. I'm
sorry. I don't see any reference to Kodi on this page.
Maybe you picked the wrong page.
BY MR. FARRELL:
I don't think so. Start here and read
Could you read it into the record, please,
Q
through here.
Mrs. Morgan?
A Sure. Starting from in order to?
Q Yes.
A In order to (1) avoid the unfavorable tax
consequences of an asset sale of the Nine Ninety-Nine and
HQI level, (2) protect CRH from the risk of dissenters'
rights litigation with Bob, and (3) ensure the fair and
equal treatment of all shareholders of Nine Ninety-Nine and
HQI, a fourth alternative approach to the sale was developed
to accomplish a transaction in the best interests of all
utilizing plans of division.
Under this approach, the Mumma family members
are engaging in intra-family corporate transactions, under
15 Pa.C.S. Section 1951 et seq., to be completed immediately
prior to the transfer of the pennsy Supply Businesses to
49
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1 CRH, which operate to fasten the Nine Ninety-Nine and HQI
2 dissenters' rights litigation liabilities on two new
3 corporations to be retained by the family. (the Corporate
4 Division Alternative ).
5 As part of those family transactions all of
6 the stock of Nine Ninety-Nine and HQI and other assets
7 constituting the Pennsy Supply Businesses will be
8 transferred to Kodi Acquisition Corp. (Kodi). Immediately
9 thereafter CRH will acquire 100 percent stock ownership of
10 Kodi.
11 Kodi was for.med and all of its stock at all
12 times has been owned by Mrs. Mumma and Lisa in their
13 individual capacities, and by Linda. And then there's a
14 footnote 10 which says, Kodi was incorporated in
15 pennsylvania on May 21, 1993.
16 Q Thank you
17 MR. SONNENFELD: Your Honor, we've been at
18 this for a little over an hour. Would this be a good time
19 to take a break? I would like to consult with the witness.
20 MR. FARRELL: Your Honor, with that
21 understanding, that's fine. I'm willing to recess now.
22 THE COURT: Fine. Recess for ten minutes.
23 MR. SONNENFELD: Thank you.
24 (Whereupon, a recess was taken.)
25
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AFTER RECESS
2
THE COURT: Mr. Farrell, you may proceed.
3
MR. FARRELL: Thank you, Your Honor.
4 CROSS EXAMINATION (cont'd.)
5 BY MR. FARRELL:
6
Q
Mrs. Morgan, right before the recess you read
7 into the record a portion of pages 14 or F-13 and F-14 from
8 the notice, correct?
9
A
Yes.
10
Q
Now, referring back to those pages, there
11 are, in fact
12
MR. SONNENFELD: Just so the record is clear,
13 and I don't object to anything that counsel has said, just
14 simply so the record is clear, what was read from is the
15 information statement which appears as annex F to this large
16 notice marked as Respondent's Exhibit Number 3. Just so the
17 record's clear as to what we're talking about.
18
THE COURT: Is there an extra copy of that
19 floating around?
20
MR. SONNENFELD: I'd be happy to hand up my
21 copy, Your Honor.
22
THE COURT: Okay.
23
MR. SONNENFELD: I'll also say that the
24 notice that counsel is reading from is -- information
25 statement rather, that's annex F, was also attached as an
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1 exhibit to our response to the petition. So that
2 information statement portion, annex F, is of record as
3 Exhibit A, our response to the petition.
4 THE COURT: Go ahead, Mr. Farrell.
5 MR. FARRELL: On that point, I think that's a
6 very good point that Mr. Sonnenfeld made, that is attached
7 to your petition, correct, in this matter?
8 MR. SONNENFELD: As our response to the
9 petition.
10 MR. FARRELL: Right.
11 MR. SONNENFELD: We filed a response to the
12 petition filed by Mr. Frey.
13 BY MR. FARRELL:
14 Q Correct. I understand that you submitted a
15 verification to that, Mrs. Morgan?
16 A Um-hum.
17 Q So by verifying that you are in essence
18 indicating that as far as you know it's a true and correct
19 document?
20 A I would hope so. My attorneys drafted it.
21 Q Thank you. Now, turning to that page, F-13,
22 you will now agree with me that one of the main reasons that
23 Kodi was formed was to cut off dissenting shareholders
24 rights as to the Irish, correct?
25 A I think it was a reason, yeah.
52
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1 Q Now, again looking at that insert, and if I'm
2 reading this improperly please correct me. It says under
3 this approach. This is the bottom of page F-13. It says
4 under this approach the Mumma family members are engaging in
5 intra-family Corporate transactions, under 15 Pa.C.S.
6 Section 1951 et seq. to be completed immediately prior to
7 the transfer of the Pennsy Supply Businesses to CRH, which
8 operate to fasten the Nine Ninety-Nine and HQI dissenters'
9 rights litigation liabilities on two new corporations to be
10 retained by the family. And we have parenthesis that says,
11 the Corporate Division Alternative, close paren?
12 A Yes.
13 Q Now, in that particular sentence there's two
14 things I think that are important to note. One is the
15 reference to intra-family corporate transfers.
16 THE COURT: That's a statement. Are you
17 asking her a question?
18 BY MR. FARRELL:
19 Q I'm asking, in that regard, what is the
20 nature of the intra-family corporate transactions that
21 occurred?
22 A I don't know. You'd have to ask my
23 attorneys. It was a very complicated transaction. I don't
24 know specifically what they were referring to. I mean,
25 there were several corporations owned by the family and I
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think that's what he's referring to, the fact that these
were family-owned corporations.
Q Mrs. Morgan, you testified very extensively
to the nature of this transaction in your direct
examination. Are you saying now you're not sure what that
intra-family corporate transaction is?
A No. I think I testified as to the essence of
the transaction, and I'm not sure what the lawyer was
referring to here. I understand the transaction and what
happened, but I'm not clear on what he's referring to here.
I don't know what PA 1951 et seq is, and I don't know
specifically what he was referring to.
MR. SONNENFELD: Your Honor, I think that in
fairness to the witness, if she's going to be asked that she
should be given a chance to read the entire section here
because I think to read a paragraph out of context and then
ask her what it relates to puts her, I think, in an
impossible situation.
THE COURT: Well, I think she's smart enough
to answer the question. Overrule your objection.
MR. SONNENFELD: Thank you.
BY MR. FARRELL:
Q Mrs. Morgan, let's turn to page F-14.
A Um-hum.
Q And at the top of that page on a paragraph
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that comes over from page F-13, the last sentence says, Kodi
was formed and all of its stock at all times has been owned
by Mrs. Mumma and Lisa in their individual capacities, and
by Linda. What is the date of this informational statement?
THE COURT: The question was, what was the
date of this informational statement?
BY MR. FARRELL:
Q Maybe, Mrs. Morgan, it might be helpful if I
told you to look to page 4 of the first page of the front
part of the statement.
A That's the date of the notice. I don't know
that that's the same date the information statement was
prepared.
Q But the notice adopts the information
statement, does it not?
A I don't know if it adopts it, but it's
included as part of the package.
Q But it adopts that statement. There's no
qualifying adoption with regard to that statement, is there?
THE COURT: I don't understand that question.
MR. FARRELL: The question, Your Honor, is
simply this. Does the notice say that that informational
statement was true and correct as of the date that it was
written, but it was not written as of the date of this
notice.
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MR. SONNENFELD: Your Honor, I will stipulate
that it was written as of the date of the notice of July 9th
and true and correct as of the date of the notice.
Thank you.
Fine.
MR. FARRELL:
THE COURT:
BY MR. FARRELL:
Q And, Mrs. Morgan, you testified, if I
remember correctly, that the Stage-I closing occurred on
July 8th; is that correct?
A Yes.
Q Mrs. Morgan, I'm going to show you what's
been marked as Joinder's Exhibit 1. Would you please review
that and identify it for me?
A It's a board of directors consent for Kodi
Acquisition Corporation dated July 8th, 1993.
Q Now, are there signatures to that document?
A Yes.
Q Are one of those signatures yours?
A Yes.
Q And does that document in essence detail what
was to have occurred during these transactions?
A Well, it's essentially less the items that
were to be acquired by CRH. Then it talks about the fact
that this subscription agreement was signed on July 8th.
Q And that's a detail of transactions that
2209
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occurred between Kodi Corporation and the shareholders of
Nine Ninety-Nine and the marital trust, the estate, and the
other entities that were selling assets?
A It appears so, yes.
MR. FARRELL: Your Honor, if it please the
Court, I'd like to move this into evidence.
MR. SONNENFELD: Is that being offered?
MR. FARRELL: Yes.
MR. SONNENFELD: I have no objection, Your
Honor.
THE COURT: It's admitted.
(Whereupon, Joinder's Exhibit 1
was admitted into evidence.)
BY MR. FARRELL:
Q Mrs. Morgan, just summarizing then, there was
this transaction that involved the creation of a corporation
called Kodi, and it was done because that transaction
carried with it very substantial and very significant legal
repercussions?
A No.
MR. SONNENFELD: Let him finish his question.
THE WITNESS: I'm sorry. I thought he was
finished. Sorry.
BY MR. FARRELL:
Q And those repercussions were that by engaging
57
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1 in this transaction there would be, in fact, tax advantages
2 as well as dissenting shareholder rights advantages to the
3 CRR group, and based on your testimony it would also
4 facilitate the fact that there would be assets coming
5 eventually to the Irish from one source as opposed to
6 multiple sources?
7 A I think if I understood what you said that
8 basically Kodi was formed because there were concerns that
9 the Irish had among them that they didn't want to be
10 involved in allocating the purchase price. So if they paid
11 a lump sum to Kodi for whatever their own peculiar tax
12 reasons were, they didn't want to be involved in the
13 allocations.
14 They wanted to have one package of assets,
15 one transaction instead of five different, and they did not
16 want to get involved in quote, unquote, family litigation,
17 if there was going to be any.
18 Q So the formation of Kodi was a very
19 significant and substantial step in this transaction?
20 A The Irish insisted on it.
21 Q And to the extent that there were agreements
22 executed, both prior to and at the Stage-I closing between
23 Kodi Corporation and the marital trust and the estate, at
24 that point who was Kodi Corporation owned by?
25 A I'm sorry. Try me once again with that one.
2211
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1
Q
At the time Kodi Corporation entered into
2 binding commitments with the marital trust and the estate
3 with regard to the asset transfers, who owned Kodi
4 Corporation?
5
A
I believe at the time the subscription
6 agreement was signed, which is I gather what you're talking
7 about?
8
Q
I'm talking at the time of those documents
9 incident to the Stage-I closing.
10
11 agreement.
12
13
That would have been the subscription
A
Q
Who owned Kodi Corporation?
A
I believe at the Stage-I closing my mother
14 and I owned Kodi Corporation.
15
Thank you. Now, Mrs. Morgan, let's move on,
16 and to the extent -- I understand you were in Colorado when
Q
17 the Stage-II closing occurred?
18
19
A
Yes.
Q
So to some extent you are dealing with things
20 that maybe you might not have been a party to. I understand
21 that. When, by the way, did you return from Colorado?
22
Sunday night, whatever, the 25th or the 24th.
A
23 Just this past Sunday.
24
Now, as I understand it, you mailed the
25 notices out, you said, on July 9th, correct?
Q
59
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1 A I had them mailed out. I physically didn't
2 put them in the mail myself, yes.
3 Q And is it your understanding that that began,
4 the ten day period required under the Pennsylvania Business
5 Corporation Law?
6 A Yes. My understanding is you don't count
7 that day. You start with the next day, which would have
8 been Saturday the 10th.
9 Q So the fact that in your opinion the 10 days
10 began to run from Saturday would mean that when the deal was
11 closed on the 21st the ten days had, in fact, occurred?
12 A Exactly. My understanding is that we could
13 have closed on the 20th.
14 Q But just to back up, it's your understanding
15 that you don't count the day that the notice was first
16 given, correct?
17 THE COURT: The day it was mailed?
18 THE WITNESS: The day it was mailed, right.
19 That's my understanding.
20 BY MR. FARRELL:
21 Q Mrs. Morgan, do you know what the BCL says
22 with respect to notice? Let me help you out there. Does it
23 say notice must be given? Does it say notice in the mail?
24 What's the exact language? Do you know?
25 A Gosh. You'd have to show me the BCL. No.
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Q Mrs. Morgan, before you start, just for the
Court's benefit because I know this transaction gets very
confusing, prior to the sending out of the notice there had
been a written consent of a majority on the shareholders of
Nine Ninety-Nine and Hummelstown Quarries approving this
transaction to the Irish, correct?
A Correct.
Q And under the BCL because other shareholders
did not consent to that transaction, that consent does not
become effective until after ten days' notice are given to
those consenting shareholders, correct? Or let me rephrase.
Not consenting shareholders but nonconsenting shareholders?
A I don't know if that's true or not about it
not becoming effective. I know that we had to mail notice,
and I don't know if the consent that was given was not
effective until ten days later. I don't know that.
Q But you know there was a ten day period that
had to run, correct?
A A ten day period from notice of the other
shareholders. I don't know that it related to the consent.
Q Mrs. Morgan, then if you would or before I
have you read that section, do you know of your own
knowledge why that ten day period's necessary?
A To rely on the other shareholders, I guess,
to object.
2211
61
1 Q If you would, would you read the annotation
2 to that section for me?
3 MR. SONNENFELD: Could I ask what section and
4 what annotation is being read so I can follow along?
5 MR. FARRELL: I'm sorry, Mr. Sonnenfeld.
6 We're dealing with Section 1766 of the BCL, and it's the
7 amended committee comment dated 1990.
8 MR. SONNENFELD: Your Honor, I object to him
9 trying to establish through this witness the annotators
10 comment in there.
11 MR. FARRELL: I'm trying to have her read it
12 simply for the purpose of establishing why this section
13 operates the way that it does.
14 THE COURT: I can read that myself later on
15 if necessary, but is it long, Mr. Farrell?
16 MR. FARRELL: No, Your Honor, as a matter of
17 fact it's a paragraph.
18 THE COURT: I don't want to have my court
19 reporter doing all this.
20 MR. FARRELL: That's fine, Your Honor. I
21 understand, and I understand the Court will read it. Why
22 don't we just deal then strictly with the effectiveness of a
23 partial written consent, which is section 1766C.
24 THE COURT: Is it your assertion, Mr.
25 Farrell, that timely notice was not given?
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2215
1 MR. FARREuu: That's correct, Your Honor.
2 THE COURT: Then I don't think we need to
3 read all this. If that's going to be your assertion I'll
4 have to make that decision.
5 MR. SONNENFEuD: These are really questions
6 of law, Your Honor, that can be briefed.
7 THE COURT: I understand that.
8 MR. FARREuu: Your Honor, I just want to
9 establish -- if Mr. Sonnenfeld will stipulate, that for
10 purposes of the validity of this transaction it is Mrs.
11 Morgan's position that notice period began on Saturday, that
12 you do not count the first day.
13 THE COURT: I think that's what she said.
14 That's what she believed.
15 MR. FARREuu: And that notice is effective
16 the day after you mailed the document, correct?
17 MR. SONNENFEuD: Well, Your Honor, Section
18 1702 of the Business Corporation uaw says notice is
19 effective on mailing, and then we begin counting the next
20 day.
21 THE COURT: Well, she can say what she
22 believed. Now, what the law actually is, if it's disputed
23 that had she did not give proper notice then regardless of
24 what she believed I'm going to have to make that decision.
25 So you can certainly ask her what she thought, and I already
63
2216
1 thought she answered that. If she didn't why you oan ask
2 her again.
3 I oertainly at this point, gentleman, I don't
4 know the answer to that question, I'll tell you. So if it's
5 asserted that the improper notioe was given I think we know
6 what the faots were, when it was given, why that's a
7 deoision then I'll have to make.
8 MR. FARRELL: Your Honor, that is perfectly
9 fine.
10 THE COURT: I think the affidavits of mailing
11 will establish what date notioe was given.
12 MR. SONNENFELD: The 9th, Your Honor, July
13 9th.
14 THE COURT: I think we also know the date of
15 the closing so I don't think it's in dispute.
16 BY MR. FARRELL:
17 Q All right. And, Your Honor, just to reaffirm
18 for the record, Mrs. Morgan, were you here yesterday and did
19 you hear your brother testify as to when he reoeived notioe?
20 A Yes.
21 Q And do you reoolleot that he said that was
22 Monday, July the 12th?
23 A Yes.
24 Q And, in fact, did Mr. Sonnenfeld deliver by
25 hand a oopy of the notioe to Mr. Morrison on that same day?
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1 A That's my understanding.
2 Q But it is also your position that the notice
3 period began though on the date of the mailing, the day
4 after the mailing, excuse me?
5 A Yes.
6 Q Now, Mrs. Morgan, do you recollect when Mr.
7 Frey filed his petition to seek the enjoinder of this
8 action?
9 A No, I don't specifically know when.
10 Q I believe Mr. Frey testified yesterday it was
11 July 20th?
12 A Okay.
13 Q And I believe that Attorney Frey testified
14 that that following morning he faxed a copy of it to Ivo
15 Otto. Do you recollect that?
16 A I don't recall that, but --
17 Q Who is Ivo Otto?
18 A Ivo Otto is a partner with Bill Martson's
19 firm here in Carlisle, and he represents the marital trust
20 and the estate locally.
21 Q Now, there was to be a shareholders meeting
22 on the 22nd, correct?
23 A Yes.
24 Q Is it your testimony that you never
25 contemplated that that shareholders meeting would take place
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2218
1 prior to the closing?
2 A Yes. It was a ratification meeting to be
3 held after the closing.
4 Q I'm sorry, Mrs. Morgan, I thought it was a
5 ratification meeting of the shareholders consent. You're
6 saying it was to be a ratification of the actual closing?
7 A Well, of all of the things that the
8 shareholders had done for the closing, and one of those
9 things was to sign the consent. So it would have ratified
10 that too.
11 Q To your knowledge at the time of the closing
12 did your attorneys have notice that this petition had been
13 filed -- that Mr. Frey's petition had been filed?
14 A I don't know because as I said I didn't find
15 out about it until late in the afternoon of the 21st.
16 Q Have they ever advised you since then as to
17 whether they knew before?
18 A I don't know.
19 Q You don't know whether they did or?
20 A No.
21 Q You don't know whether they advised you?
22 A Yeah. I mean David Landrey is the person who
23 actually consummated the closing, and as to his awareness, I
24 don't know. I mean Morgan, Lewis may have known it and
25 David Landrey not. I don't know.
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1
Q
David Landrey was one of the attorneys that
2 were doing the closing?
3
4 the deal, yes.
5
6
He was the person who was physically closing
A
Q
Why wasn't Morgan, Lewis contacted?
A
Because Morgan, Lewis is the counsel for the
7 marital trust and the estate, and we didn't feel it would be
8 appropriate to have Nine Ninety-Nine hire them as corporate
9 counsel to close the deal.
10
Q
Mrs. Morgan, I show you what's been marked as
11 Respondent's Exhibit 5. Do you recollect that?
12
13
A
Yes.
14 asset owners or the various ownerships of the stock and the
Q
And that is in essence a breakdown of the
15 other assets that were being transferred, correct?
16
17
A
Yes.
Q
And when you were testifying with regard to
18 that, Mr. Sonnenfeld pointed out that your stock ownership
19 as well as that of your two sisters and your brothers
20 existed before your father's death, correct?
21
22
A
Correct.
23 stock ownership came into existence. Would you indicate to
Q
He did not indicate as to when your mother's
24 the Court when that did?
25
A
With respect to which entity?
20">0
.:.....
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Q Well, let's start with Nine Ninety-Nine.
A I believe most, if not all of it, she
obtained after my father's death.
Q And a point of fact, she really had less than
a one percent interest in Nine Ninety-Nine common stock at
the time that he died, correct?
A I am not certain what the number was.
Q Now, how was it that she came to acquire this
share?
A My father had provided for her in his will
that she was allowed to withdraw five percent of the
principle annually so that obviously she would have a source
of income, et cetera, and she obtained that stock as part of
her five percent withdraw power.
Q And you heard your mother testify yesterday
that in administering this estate it has always been her
principle and your principle that you would do that
administration in the best interest of the estate
beneficiaries, correct?
A Yes.
Q Now, if you would walk through with me, and
we'll do this very slowly for the Court, how those stock
withdraws comport with the concept of acting in the best
interest of the estate beneficiaries.
Now, you will agree that the bulk of the Nine
68
2221
1 Ninety-Nine stock, as shown on Respondent's Exhibit 5, as
2 between the estate/marital trust and your mother, but the
3 bulk of that at the time of the death was in the estate,
4 correct?
5
A
At the time in the estate, yes.
6
Q
And a point of fact, one of your functions as
7 a fiduciary of the estate was to allocate that stock as
8 between the marital trust that was created on your father's
9 will and the residuary trust, which was created on your
10 father's will?
11
A
No, I don't believe it was to allocate that
12 stock. I believe we were to allocate all the assets as
13 between those two.
14
Q
One of which was -- one of which assets was
15 the stock?
16
A
Right, but what you were saying implied that
17 we had to allocate the stock to each trust. I don't believe
18 that's the case.
19
Q
I'm sorry. Mrs. Morgan, I stand corrected.
20 I didn't mean to create that impression, but you did have to
21 make a decision as to which trust this stock would be placed
22 in, correct?
23
A
Yes.
24
Q
And a point of fact, just to correct the
25 record, you didn't have to put all the stock in anyone
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trust? You could have split it between the two trusts if
you wanted to, correct?
A Well, no, because practically -- I mean I
guess theoretically yes, but practically that wouldn't have
made sense. It would have made sense to keep it all
together, and as I recall the provisions in my father's
will, the marital trust has to hold something like 70
percent of the value of the assets. So clearly we needed to
put in that trust the big things, and obviously the stock of
Nine Ninety-Nine was the biggest thing.
Q Well, Mrs. Morgan, you bring up then the size
of the marital trust, and I admit I'm at a disadvantage here
because I've not seen the 706. It's never been produced in
this case, but I believe the will says that in essence
one-half of the adjusted gross estate goes into the marital
trust, correct?
A I don't know specifically. My recollection
is 70 percent. I could be off.
Q You could be off. All right. So there did,
in fact, come a time when you had to decide where to place
this family's stock, either the marital trust or into the
residuary trust, correct?
A Yes.
Q And these two trusts from a dispositive
standpoint, are they identical?
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A I don't understand what you mean.
o Well, who gets the income from the marital
trust?
A My mother.
Q And who gets the income from the residuary
trust?
A I believe my mother would get that too.
o And upon the death of your mother where does
it go?
A To the beneficiaries, which would be the
children that are alive at her death, and depending on
Bobby's disclaimer, him or his children.
Q I'm sorry to interrupt. And those were the
same beneficiaries or residuaries for the trust, correct?
A Sure.
Q So from a dispositive standpoint the trusts
are identical?
A Yeah, basically.
Q Really, Mrs. Morgan, there are only two
reasons that those trusts or excuse me. Strike that.
Really, Mrs. Morgan, there are only two differentiating
characteristics of those two trusts. The first is that as
to the marital trust your mother had the right to withdraw
five percent of the stock or excuse me five percent of any
assets in it, correct?
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MR. SONNENFELD: Your Honor, I just want to
2 note an objection to this line of questioning. It's
3 interesting--
4
THE COURT: My opinion is that I'm here on an
5 injunction hearing. I'm not here to surcharge the
6 executrices or the trustees for failing to properly allocate
7 the stock. I think we're way afield, Mr. Farrell, from what
8 I've got to decide for an injunction.
9 If they've improperly distributed things then
10 somebody has a right to surcharge them or do something at
11 such time as they file their account, I'm sure. I don't see
12 how this is helping me decide whether I should grant any
13 type of injunction.
14
MR. FARRELL: Your Honor, the reason this is
15 coming in, and you are correct. This is, in fact, the basis
16 for a potential surcharge action, and that is now pending in
17 front of this Court.
18
THE COURT: And you're getting your
19 information now at in injunction hearing so that you have it
20 for some other proceeding. I think I'm wasting a lot of
21 time.
22
MR. FARRELL: Well, Your Honor, the point
23 that we are trying to make here is not any sort of valuation
24 as to what a surcharge action would be. It's to really
25 show--
00?~
~NN~
72
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THE COURT: What difference does it matter
2 how she allocated these things? ~f she made a mistake and
3 did it wrong then she's going to be responsible later on.
4 What difference does it make as far as me deciding now as
5 far as granting some type of injunction that they improperly
6 took stock from the marital trust and put it in Mrs. Mumma's
7 name?
8
MR. FARRELL: Your Honor, the reason is
9 simply this. ~t is the dispute over the allocation and
10 withdraw of the stock that is the fundamental reason why
11 there's personal animosity between the executrices and Mrs.
12 Mumma.
13
THE COURT: That might very well be, but ~'m
14 not so sure at this point that ~ need to get into that, Mr.
15 Farrell. This is for an injunction. That may very well be
16 later on when the money is finally distributed. ~ just
17 don't see the relationship.
18
MR. FARRELL: Well, Your Honor, the
19 relationship is this, if ~ may. The stock withdraws were
20 made by Mrs. Mumma.
21
THE COURT: And if she did that improperly
22 then she's going to have to answer to somebody before the
23 estate is closed, but if she did it improperly ~ don't know
24 why ~ have to worry about it at this point as far as the
25 injunction.
73
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f-/f..,
1 MR. FARRELL: Your Honor, L understand that,
2 but the point is this. She made those stock withdraws. Her
3 son objected to them. He objected to them strenuously, and
4 ever since that objection, Your Honor, there has been a
5 decision to never market these assets to the son.
6 THE COURT: That might very well be. I don't
7 know.
8 BY MR. FARRELL:
9 Q Mrs. Morgan, you testified that there was a
10 potential Gleneagles problem with regard to --
11 THE COURT: What's that phrase again?
12 MR. FARRELL: Gleneagles.
13 THE COURT: G-l-e-n-n?
14 MR. FARRELL: No, Your Honor, it's
15 G-l-e-a-n-e-a-g-l-e-s (sic). It's all one word. And
16 really, Your Honor, maybe for your benefit
17 THE COURT: That's a principle of law that I
18 was never aware of. Of course, I'm sure there's a lot of
19 them that I'm not aware of. I understand it's a principle
20 of law, the way they referred to it before. Go ahead. Ask
21 your question.
22 MR. FARRELL: Your Honor, it may be helpful
23 for the Court. I will give you the cite which the case was
24 decided by the third circuit. It's U.S. v. Tabor Court
25 Realty, 803 F. 2nd 1288, 1986.
74
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1 BY MR. FARRELL:
2 Q You mentioned though, Mrs. Morgan, that there
3 was a Gleneagles problem with regard to dealing with your
4 brother, Robert?
5 A A potential one, yes.
6 Q And is it fair to say that in your mind that
7 was the principle reason why you could not deal with him?
8 A No. It was one of the reasons.
9 Q But it was a principle reason, correct?
10 A Well, I think the principle reason was that
11 we never were able to establish that he was what we call a
12 financially viable buyer.
13 Q Well, Mrs. Morgan, we've already established
14 today with the discussion between you and I that you made no
15 effort after January 1 to decide whether or not he was a
16 financially viable purchaser?
17 MR. SONNENFELD: Well, Your Honor, this is
18 becoming argumentative and repeats prior testimony.
19 MR. FARRELL: Well, Your Honor, she made a
20 statement as to what her basis were for objecting to the
21 sale.
22 THE COURT: I think it's a proper question.
23 She can answer it.
24 THE WITNESS: No, because as of January 1.
25 '93, we were already too far along with CRR. We had on
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1 prior occasions done exactly that.
2 BY MR. FARRELL:
3
Q
Mrs. Morgan, when we first started this cross
4 examination you didn't even remember whether or not you had
5 a subscription agreement with CRH.
6
THE COURT: That's not a question. That's a
7 statement. Now, let's keep with the questions.
8 BY MR. FARRELL:
9
Q
Mrs. Morgan, let's get back to the Gleneagles
10 problem?
11
A
Okay.
12
Q
As r understand the Gleneagles case, it was a
13 situation in which a buyer and a seller colluded together in
14 fraud and credit and the Court ultimately found that because
15 of that collusion there was, in fact, the situation where
16 the buyer had overpaid for the value of assets, and when
17 that buyer went bankrupt, the trustee in bankruptcy had the
18 right to go back to the seller and demand the return of the
19 purchase price.
20 Given that understanding, is that why you are
21 fearful of the sale to Mr. Mumma? Are you fearful that any
22 acquisition he would make if he would ultimately go into
23 bankruptcy might cause the marital trust and the estate to
24 remit back to his trustee and bankruptcy in consideration
25 paid.
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1 MR. SONNENFELD: Your Honor, I object to the
2 question.
3 THE COURT: I think that's basically one of
4 the reasons, Mr. Sonnenfeld.
5 MR. SONNENFELD: Yes, that's right.
6 THE COURT: So I'm going to overrule your
7 objection. She can answer the question.
8 THE WITNESS: Well, I just want to make it
9 clear, I don't know the facts of the G1eneag1es case. I
10 mean all I know is that my attorneys advised us that based
11 on this case there was a potential risk that we could be
12 subjecting the estate and the marital trust to -- that we
13 would have to pay back all or part of the proceeds and then
14 as fiduciaries we could not do that. Now, I don't know the
15 particulars.
16 BY MR. FARRELL:
17 Q All right. Mrs. Morgan, take this as a
18 hypothetical. In the G1eneag1es case one of the elements
19 there was bad faith and collusion. Do you think it's
20 possible that anybody in Central Pennsylvania could view you
21 and your brother as colluding with regard to this assets
22 sale?
23 MR. SONNENFELD: Your Honor --
24 THE COURT: Overrule the objection. I'll
25 leave her answer.
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1 THE WITNESS: Sure, I guess it's possible.
2 BY MR. FARRELL:
3 Q Is it likely?
4 A It could be. I don't know.
5 Q Mrs. Morgan, you've had a valuation as to
6 what the value of the assets were being sold, correct, from
7 Legg Mason?
8 A We have a fairness opinion.
9 Q And did that opinion say it was thirty-two
10 million dollars in fair price?
11 A Yes.
12 Q And the Irish have, in fact, offered that
13 same price, correct?
14 A Yes.
15 Q If Mr. Mumma offered the exact same price,
16 what would be the risk that somebody would come in and say
17 that he had overpaid for the assets?
18 A I don't know. Bobby wouldn't be one.
19 Q There really isn't a G1eneag1es problem, is
20 there?
21 MR. SONNENFELD: Objection, Your Honor.
22 THE COURT: There really is not a G1eneag1es
23 problem? Overrule the objection.
24 THE WITNESS: I don't know.
25 THE COURT: You're beating this to death, but
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2231
1 this will be the last Gleneagles question.
2 THE WITNESS: As I said, I don't know the
3 facts of Gleneagles. I just know what my attorneys told me,
4 and I have to trust their judgment. And they told me that
5 based on that there could, in fact, be a Gleneagles problem
6 if we were to sell to Bobby in a sense where Bobby would
7 pledge the assets of the company as collateral for
8 financing.
9 BY MR. FARRELL:
10 Q But when they told you that that was not
11 predicated upon a facts situation where you had a fairness
12 opinion and an offer by an independent party, correct?
13 A I don't think it has anything to do with a
14 fairness opinion because they weren't looking at it as
15 overpaying or underpaying. It's just, whatever you paid.
16 If you somehow defaulted or had financial trouble, that they
17 could come back against you.
18 As it was explained to me, it was irrelevant
19 whether you overpaid, underpaid, equally paid or whatever.
20 It just had to do with the fact of pledging assets as
21 collateral and then not being able to live up to your
22 financial commitment that imposed that risk.
23 Q Begging the Court's indulgence, one last
24 Gleneag1es question. Any sale between you and your brother
25 we would submit to the Court for approval.
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THE COURT: Is that a statement, that you
would submit it?
MR. FARRELL: We would. We would submi tit
to the Court for approval, and following the determination
by the Court that the sale is in the best interest of all
parties, this sale would be consummated.
THE COURT: You're saying this is what you
would do.
MR. FARRELL: This is what we would propose.
BY MR. FARRELL:
Q Given that fact situation do you think it's
possible that somebody would step in and raise the
Gleneagles problem?
A Yes.
Q You do?
A Yes.
Q Mrs. Morgan, turning now to the offer that
Mr. Mumma gave back on December 9th of 1991?
A Um-hum.
Q You went through a very extensive listing as
to why you felt that offer was unsatisfactory, correct?
A I wouldn't call it extensive. I kind of gave
a cursory overview, yeah.
Q Did you make that analysis at the time the
offer was given?
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A
Um-hum.
2
MR. SONNENFELD: Mrs. Morgan, answer yes or
3 no. I think it's hard for the court reporter --
4
THE WITNESS: I'm sorry. We made an analysis
5 at the time it was given. We didn't make the exact analysis
6 I gave today.
7 BY MR. FARRELL:
8
Q
All right. Let's follow-up on that. When
9 did you make that analysis? Was it for purposes of this
10 trial?
11
A
No, just to be clear on what I was saying.
12 Today I think I cited -- I was asked to cite specific
13 differences between this offer and the CRH offer, and at the
14 time we got this we didn't have the CRH offer.
15
Q
I'm sorry, Mrs. Morgan. That is my
16 misunderstanding. I thought your testimony was that you
17 made that analysis at the time that you got your offer and
18 rejected on that basis?
19
A
We did make an analysis at the time that we
20 got the offer, but the question I thought I was answering
21 today was I was making comparisons not only about the offer
22 itself that we would have made at the time we received it,
23 but I also was referring to differences between that and the
24 CRH offer. So I guess my testimony earlier was kind of two
25 fold, and I just wanted to make that clear.
,
,..
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Q All right. Well. I am looking at just one
particular aspect.
A Okay.
Q And that is what analysis did you make at the
time it was given, and in that regard, Mrs. Morgan --
MR. SONNENFELD: Well, wait. If that's the
question I think she should be entitled to answer it, if
that's the question.
THE COURT: I don't think he's quite through
yet.
MR. SONNENFELD: Okay.
BY MR. FARRELL:
Q In that regard, Mrs. Morgan, I placed with
you a letter dated December 30th. 1991. Would you please
review that?
A Yes.
Q Have you seen that before?
A Yes.
Q Will you till the Court exactly what it is?
A It's a letter that counsel for the estate and
Nine Ninety-Nine sent to Jerry Morrison in response to his
letter of December 9th that was introduced earlier.
MR. FARRELL: Your Honor, I'm going to have
that marked as Joinder's Exhibit 2.
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(Whereupon, Joinder's Exhibit 2
was marked for identification.)
BY MR. FARRELL:
Q Now, Mrs. Morgan, being alert to the fact
that writings speak for themselves, I won't ask you to
characterize it, but that is, in fact, a response that you
said that went back to your brother with regard to his
offer, correct?
A Correct.
Q Was there after that letter any negotiations
whatsoever with your brother concerning his offer?
A No.
Q Did you make any attempt to correct what you
thought might have been defects in that offer to negotiate
with him to correct those defects?
A No.
Q You simply cut off negotiations, correct?
A I wouldn't say cut off. We didn't go forward
with the offer.
Q Did you conduct negotiations with him
afterwards?
A No.
Q And between that date and the date that you
contracted with the Irish, did you ever conduct negotiations
with your brother concerning the assets?
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A I do not know.
Q Mrs. Morgan, I want to again go back to the
offer that the Irish gave. You testified quite extensively
that there are indemnification provisions in there?
A Yes.
Q Is there a cap on what the indemnification
liability would be?
A On some items.
Q Is there a five million dollar
indemnification cap?
A Yes.
Q And Mr. Sonnenfeld called to the Court's
attention that indemnification runs to you and your mother
and to your sister, correct?
A Yes.
Q But really it runs further than that, does it
not?
A Sure. It runs to everybody who signs up for
the deal, so to speak.
Q And that would include the marital trust,
correct?
A Sure, and also Babs.
Q And it also includes the estate, correct?
A I think the estate may have a real small
piece because remember they only have $160,000 option, and I
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know under the actual sale of the Lebanon Rock stock we're
not giving any indemnifications nor any reps and warranties
on the stock but for the fact that we actually own the
stock.
Q But the answer is it does run into the
estate?
A I think maybe a small piece.
Q And isn't it, in fact, the case, Mrs. Morgan,
that you've agreed that you won't even distribute the
marital assets unless the buyers are sure that that
indemnification will carry through?
A No.
Q That's not a provision of this agreement?
A I think the essence of the agreement is that
we will keep two million dollars worth of assets in the
marital trust for two years, and that to the extent somebody
would come in to court, the beneficiary, what I was talking
about earlier, and try to cap or terminate the
indemnification obligations of the marital trust, that we
would give the buyers notice of that and the ability to come
into court and say, don't do that.
Q Well, Mrs. Morgan, maybe I'm incorrect in my
understanding of the transaction. My understanding was that
there is a two million dollar family escrow to cover
litigation matters?
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A Family litigation, yes.
Q But, in fact, that's simply an escrow?
A Right.
Q To the extent the escrow's insufficient then
the marital trust, the estate, you, your mother, your
sister, are required to ante up up to five million dollars,
correct?
A Yes.
Q And isn't it, in fact, the case that you've
agreed in these contracts that you will not distribute the
marital trust assets unless the Irish can be assured that
that indemnification runs to those assets?
A I don't think that's the case.
Q Well, Mrs. Morgan, you made a very
significant point that you're unique in this case because
you have an indemnification in the event somebody would
successfully exempt the marital trust from the
indemnification liability, correct?
A I believe it's not necessarily in the marital
trust, but that they would exempt their interest.
Q In the marital trust?
A Yes.
Q So that provision was put in because the
Irish did, in fact, understand that there was a possibility
that some port of equity would think it was inequitable for
2239
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1 the indemnification to run through the marital assets
2 MR. SONNENFELD: Your Honor, I object. Her
3 testimony of what the CRH side understood, I think it's --
4 THE COURT: Well, there again, if she doesn't
5 understand the question she can always say.
6 MR. SONNENFELD: Thank you.
7 THE WITNESS: I don't think it had to do with
8 the marital trust. My understanding was it had to deal with
9 the remainder beneficiaries, that once the marital trust was
10 distributed to -- I don't think they had any fear that the
11 marital trust itself couldn't make this indemnity, but that
12 upon my mother's death when the marital trust assets were
13 distributed that those assets would carry their, I don't
14 know what you call it, pro rata share of the indemnity, that
15 a beneficiary could come in, the remainder beneficiaries
16 could come in and say, this isn't fair.
17 Hold me to what the marital trust was bound
18 to, so limit or terminate my liabilities with respect to
19 these indemnifications, and that's why they wanted those
20 individuals, namely me and the sisters and brother, to step
21 up to the plate, and that's why I did step up to the plate.
22 It wasn't for the marital trust.
23 MR. SONNENFELD: I withdraw my previous
24 objection, Your Honor.
25 THE COURT: It was overruled anyhow.
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BY MR. FARRELL:
Q And, Mrs. Morgan, again, all of these
indemnifications were required because they were fearful
that there was existing family litigation between the estate
and the marital trust and Mr. Mumma that might, in fact,
cause loss to the Irish; is that correct?
A No. Maybe I'm confused. You just jumped
subjects on me, I think.
Q I didn't mean to confuse you. Let me ask you
this. The title family litigation escrow, why was that
created?
A That didn't refer to what we were just
talking about, which was this indemnity on the marital
trust. That referred to litigation that might be brought by
Bob or any other family member against CRR's part, and they
just didn't want to get involved in litigation.
Q Maybe I misunderatand you, Mrs. Morgan. Let
me ask you this. Your brother has a suit now to the
Superior Court in which he claims he has a right of first
refusal over Pennsy Supply?
A Right.
Q If he would be successful, what impact would
that have on your transaction with the Irish?
A None.
Q None?
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A Correct.
Q Would you still be obligated at that point to
transfer the assets over to the Irish?
A I believe once it's done, yes.
Q And to the extent that you could not, would
not the indemnification provision come in?
A Actually I think the deal would be rescinded
and we would have to give back all the money, plus I think
we have to pay them a million dollar fee.
Q No. Mrs. Morgan, that's not my
understanding. The million dollar fee, as I understand it,
was in effect up to the date of the Stage-II closing.
Thereafter you're under the agreement that says that the max
amount of liability's five million?
A No. That's not my understanding. I believe
that those provisions, those quote, unquote, termination
events survived the letter of intent or however you want to
term it, and it's my understanding that we would have to pay
a million dollar fee to them if they bought the company and
somebody said sorry, you can't have it now.
Q That's your understanding?
A Yes.
Q And, Mrs. Morgan, your brother also has a
suit known as Equity 84 that deals with who were the proper
owners of Nine Ninety-Nine stock and Humme1stown Quarries,
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2242
1 correct?
2 THE COURT: Where is that suit?
3 MR. FARRELL: In front of Your Honor.
4 THE COURT: In front of me?
5 MR. FARRELL: Yes, Your Honor. It's pending.
6 It's in Cumberland County. I believe it's Equity 84 of
7 1990.
8 THE COURT: I don't remember that. What's
9 the status of that?
10 MR. SHIELDS: I can clarify that, Your Honor.
11 There were these suits that were filed almost
12 simultaneously. Some have to do with production of
13 information about the corporations. Some are having to with
14 the rights --
15 THE COURT: I've seen letters you've written
16 on that issue about information.
17 MR. SHIELDS: Well, that was in connection
18 with the estate itself. We've never gotten to form 706 and
19 other things which would help us today obviously.
20 THE COURT: All right. Go ahead.
21 MR. FARRELL: Your Honor, I don't mean -- the
22 significance of the merits of that case are not what I'm
23 getting after. It's the existence of the case that I was
24 simply noting.
25
2243
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1 BY MR. FARRELL:
2 Q But if you would be successful on that case
3 then we'd have a rescission of the transaction?
4 A No.
5 Q And if we had a rescission of the transaction
6 what is your understanding as to what your obligation would
7 be to the Irish?
8 A I guess I'm not clear because I don't think
9 that anything that would come out of that suit could lead to
10 a rescission of the transaction because as I understand that
11 suit it involves what you were talking about earlier, his
12 challenging how much stock mom took out of the estate and
13 so--
14 Q No. Mrs. Morgan, that's not accurate. Just
15 very quickly for everybody's benefit
16 MR. SONNENFELD: Your Honor, this is supposed
17 to be interrogation of a witness, not an argument.
18 MR. FARRELL: I was trying to get the record
19 straight. I wanted to simply set the record straight that
20 that case deals with whether or not the Nine Ninety-Nine
21 stock and the Hummelstown Quarries stock should have been
22 put into a trust over which there would be rights of first
23 refusal. I'm not getting into the merits. I just simply
24 want to state that that's the case.
25
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1 BY MR. FARRELL:
2 Q The point I am driving at, Mrs. Morgan, is
3 this. You would admit there is litigation pending between
4 you and your brother that could have a significant impact on
5 this transaction, correct?
6 A No, I don't believe that is the case.
7 Q You don't believe that's the case?
8 A No. I believe that no matter how his
9 litigation plays out that my mother and the other trustees
10 under my dad's will or executrices in the estate and
11 individually in any given combination have the power to
12 consummate this sale particularly with my sister, Linda,
13 because I believe that mom and Linda and I individually
14 right now are a majority and could consummate this sale in
15 our individual capacity.
16 And even if you somehow say mom took too much
17 stock, which I obviously don't believe she did, then mom as
18 the marital trustee, along with me and my individual
19 capacity and Linda have the power to consummate this sale.
20 So I don't think it matters how Bobby's litigation plays
21 out.
22 Q So if he's successful in asserting a right of
23 first refusal on Penny Supply you're saying this has no
24 impact on the sale of the Irish?
25 A I don't believe once the sale's consummated
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that it does, no.
Q That's your understanding, right, Mrs.
Morgan?
A Well, it's what my lawyers have told me too.
Q Mrs. Morgan, the point I want to make is
this. If you had gone to your brother and offered these
assets to him, would you have had to have worried at all
about any of those litigation matters?
A Yes.
Q You would have?
A Yes.
Q Why is that?
A Based on past experience -- well, I don't
want to -- I don't know how to say this politely, but based
on past experience -- I mean even if I had a signed document
I'm not sure I could trust him. We had a court hearing in
Florida where he signed a mediation agreement in front of
the Court and then turned around and breached it. We had to
go to Court to enjoin him from breaching the mediation
agreement.
Q Mrs. Morgan, the question is simply this.
Would you have to worry about his right of the first refusal
over Pennsy Supply if you sold him the business?
A No, but --
Q Just yes or no.
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1 THE COURT: She can explain it.
2 THE WITNESS: But as I'm sure you know,
3 that's one in a myriad of lawsuits that he's brought that
4 doesn't even have anything to do necessarily with the sale,
5 like having mom and I removed as trustees and executrices
6 for the estate and the marital trust or having mom and I
7 removed as trustees for Lebanon Rock or any myriad of other
8 litigation that doesn't even have anything to do with this.
9 BY MR. FARRELL:
10 Q Well, if you sold him he Elko would there be
11 any litigation between Elko and Lebanon Rock?
12 A I don't know.
13 Q Do you think he'd sue himself?
14 A Possibly. I don't know.
15 Q Mrs. Morgan, isn't it, in fact, the case had
16 you sold the assets to your brother there's a significant
17 less risk of any family litigation impacting upon that sale
18 than if you sell to an outsider?
19 A I don't believe that to be the case.
20 Q Mrs. Morgan, why didn't you simply do this,
21 why didn't you simply once you had Legg Mason say the assets
22 were worth thirty-two million, why didn't you come into the
23 court, tell the court you had had that appraisal, have the
24 Court give Mr. Mumma 30 days to either buy it or at that
25 point the Court would enjoin him from interfering with your
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1 ability to market it to any another party. You wouldn't
2 have needed indemnification provisions. You wouldn't have
3 needed penalty provisions. Why didn't you do that?
4 A Well, for a lot of reasons. One is we had no
5 knowledge that Bob could finance the deal. If he
6 MR. SONNENFELD: Let her finish.
7 THE WITNESS: Sorry. If we did I think we'd
8 have been advised that we had a Gleneagles problem, and we
9 had an all cash buyer ready to close this deal. There
10 wasn't going to be litigation after we closed with them, and
11 they would have walked.
12 They quote, unquote, have said many times
13 they did not want to be a stalking horse for Bob or anyone
14 else, that they weren't going to put the time and the effort
15 into legal fees and due diligence only to have somebody else
16 come in and say, thank you for doing all our work for us,
17 and we'll match the offer and go, and they made that very
18 clear to us from the outset.
19 Q Mrs. Morgan, that wasn't the question.
20 A I'm sorry.
21 Q The question was, you had gotten the
22 valuation from Legg Mason?
23 A Yes.
24 Q As to what the value of the assets were?
25 A After.
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1 Q I know you did that after, but you could have
2 gotten it before the Irish came in, correct?
3 A Well, what we got from them was a fairness
4 opinion. You can only give a fairness opinion after you
5 have a price.
6 Q But they could have valuated the assets and
7 told you what they were worth, correct?
8 A Yeah.
9 Q I'm saying after you had gotten that if you
10 had come into this court and asked the judge to direct Mr.
11 Mumma to either buy it at that value or thereafter be
12 enjoined from interfering with your ability to market, you
13 could have gone on to the Irish thereafter and not have to
14 worry about whether they were doing due diligence and
15 wasting time or effort because at that point you had a clean
16 bill from the Court to sell?
17 A No, I don't believe that would be the case.
18 Q Why would you not believe that would be the
19 case?
20 A Because I don't necessarily know that the
21 Irish would have agreed to that. I mean I have no
22 guarantees that after that process had happened that the
23 Irish would then want to come forward.
24 Q But you have no guarantees that you couldn't
25 have found some other buyer out there to buy either, right?
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A Well, we did, as I said earlier, we looked
and we felt that eRR was the viable buyer at that time.
Q Mrs. Morgan, isn't it the case that the
reason you didn't adopt that plan was because Mr. Mumma
would come in and buy it at that price?
A Absolutely not.
Q Now, have you ever called his bluff? Have
you ever said to him, put up or shut up?
A Yes.
Q When was that?
A Oh, I bet the first time was right after my
father died, I testified about this before, when we met with
him about possibly acquiring the business; and then
subsequently I remember specifically when we hired,
initially hired Joe Hockrider and he hired a man named
George McFadden.
And we had Joe Hockrider meet with McFadden
and talk to McFadden to find out whether Bobby had the cash,
and after several months Joe Hockrider came back to us and
said that he had absolutely gotten nowhere, that there was
no evidence at all that Bobby had the cash to do this, other
than by leveraging the company, even if he could do that,
and it never got anywhere.
Q Well, Mrs. Morgan
A The only bona fide offer in court was the
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original Irish offer for fifty-one million, and Mr. Mumma
said he would match that. I heard what he said.
Q And at that point you took the property off
the market, correct?
A No. To be clear, the Irish sent us a letter
and said they were done based on the fact that Bobby had
threatened them with litigation and also based on the fact
that he had brought this right of refusal litigation, and we
hadn't gotten a decision yet and they had said that they
would not close without that decision, and based on that
they said they had it and they walked.
Q And they walked but you still had Mr. Mumma's
offer for fifty-one million, didn't you?
A We did have an offer from Bob. In fact, as
I've testified, we had our person find out if he could come
up with the financing, and that never happened. We never
had any kind of, here's my cash. I have a hundred percent
cash to offer you.
Q You never had and it's because you never
asked for it?
A Yes, we did.
Q You pulled the property off the market,
correct?
A No, that is not true.
Q Mrs. Morgan, Article 13 of the will says that
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the family business, if possible, was to be kept in the
family?
A Yes.
Q Did you make any effort to abide by that in
terms of selling this to Mr. Mumma?
MR. SONNENFELD: Your Honor, I think we've
already covered before in the previous --
MR. FARRELL: I'll withdraw that, yes, Your
Honor.
MR. SONNENFELD: Thank you.
MR. FARRELL: Your Honor, I have no further
questions.
THE COURT: Mr. Frey, any questions?
MR. FREY: No, Your Honor.
THE COURT: Any redirect?
MR. SONNENFELD: Very briefly, Your Honor.
REDIRECT EXAMINATION
BY MR. SONNENFELD:
Q Mrs. Morgan, you have before you the letter
marked as Joinder Exhibit 2, J-2?
A No. It's back down there. Sorry. This is
the December 30th, 1991, letter responding to Mr. Morrison's
thirty-five million dollar proposal?
A Yes.
Q Do you see there is a signature there of a
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7 A Yes.
8 Q Linda Roth, and then Mr. Landrey is
9 representing Nine Ninety-Nine?
10 A Yes.
11 Q Now, with respect to the Gleneagles decision,
12 were you ever advised by your counsel that the holding of
13 the Gleneagles as interpreted by subsequent decisions of the
14 Court was limited to situations of collusion?
15 A Absolutely not.
16 Q And with respect to your mother's withdrawn
17 shares under the marital trust, has she entered into an
18 agreement with the trust to refund those -- any portion that
19 ultimately may be set aside by the Court?
20 A Yes.
21 Q Now, if you have the notice before you, the
22 large thick book, Exhibit 3, that's the notice of the
23 Hummelstown and Nine Ninety-Nine meetings that took place on
24 the 22nd of July. Do you see that?
25 A Yes.
John Hardin Young?
A Yes.
Q Who was that?
A He was counsel involved in the transaction.
Q Okay. And did he represent your brother --
your sister, Linda?
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Q How many items of business are listed for
each of those two meetings? Do you see on the very first
page?
A Oh, I'm sorry. Yes.
Q Okay.
A Two items.
Q And is one of those items the ratification of
the division of those corporations?
A Yes.
Q And is the other item a general thing to do
whatever else is necessary to consummate the sale or to
ratify the sale?
A Yes.
Q Now, at the Stage-II closing or action
leading up to that, although you were in Colorado were you
communicating by telephone the events?
A Yes.
Q And were you in contact with the lawyers and
the companies lawyers?
A Yes.
Q And at the Stage-I closing you were present
for that, were you not?
A Yes.
Q And at the time of the Stage-I closing did
Kodi Acquisition Corporation have any assets?
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1 A No. Kodi Acquisition Company was, to my
2 knowledge, called a shell corporation. It just existed but
3 didn't own anything until the Stage-II closing.
4 Q Now, let me show you what we have marked as,
5 I guess it was Joinder's Exhibit Number 1, and this was the
6 board of directors consent for Kodi Acquisition Corporation.
7 Do you see that before you?
8 A Yes.
9 Q And do you see the text of the first whereas
10 clause?
11 A Yes.
12 Q Do you see that the whereas clause refers to
13 Kodi Acquisition Corporation as having been incorporated to
14 facilitate a series of transactions that will result in the
15 acquisition by CRR and then go onto list the various pennsy
16 Supply Businesses?
17 A Right.
18 Q Isn't that consistent with your understanding
19 of the purpose for which Kodi was formed?
20 A Absolutely.
21 Q Now, Mr. Otto's name was mentioned, Mr. Ivo
22 Otto, who has represented the estate and the trust in these
23 proceedings?
24 A am-hum.
25 Q Was Mr. Otto involved, directly involved in
Z255
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1 the transaction with eRH?
2 A No. In fact, I'm not even sure if he knew it
3 was -- to what extent he knew or didn't know it was
4 happening.
5 Q And specifically was he involved in the
6 Stage-II closing that occurred on the 21st of July?
7 A Not at all.
8 Q Now, you were asked a number of questions
9 about whether you made efforts to negotiate with Bob after
10 July 1st, 1993?
11 A January.
12 Q January 1st. I'm sorry.
13 A That's okay.
14 Q Had you been involved in negotiations with
15 him sometime before July 1st, 1993?
16 A Yes.
17 Q If I could have one second, Your Honor. If I
18 could ask, if you could find it, if that will help you
19 looking at R-3, the rather thick document, and if you could
20 turn to section F there, the information statement?
21 A Yes.
22 Q And let's turn to pages F-13 and 14 that
23 Mr. -- counsel for Mr. Mumma had you read portions of?
24 A Um-hum.
25 Q That portion I guess begins on page 11, F-11
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under potentia1 forms of the transaction. Do you see that?
A Right.
Q And as part of this transaction is it correct
that with respect to the two corporations, Nine Ninety-Nine
and Humme1stown Quarry, there was what is known as a
division of each corporation under the corporation law?
A Yes.
Q And is it correct that under that division
there were two resulting corporations for each with the
assets going to CRR going into one corporation and the
assets not being sold remaining in the other; is that
correct?
A Right. What I referred to before as the
nonbusiness assets.
Q And is it that division that is being talked
about on pages 13 and 14 of this information statement?
A That's what I think he's talking about, yes.
MR. SONNENFELD: Thank you. Your Honor, I
have nothing further.
THE COURT: Mr. Farrell, anything else that's
been raised now on redirect?
MR. FARRELL: Your Honor, just one thing.
RECROSS EXAMINATION
BY MR. FARRELL:
Q I'm sorry, Mrs. Morgan, I did not catch your
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answer to his question about negotiations with your brother.
A ~ think ~ answered yes.
Q That there had, in fact, been negotiations?
A Prior to January 1, 1993.
Q Would you delineate those for me?
A ~ think ~ did on your cross, that we had our
representative, Joe Hockrider and the lawyers to a certain
extent participate in conversations with George McFadden who
Bobby designated as his person to determine the financial
viability of Bobby to do a deal.
Q Were there any negotiations after the date
that you got the offer for Mr. Mumma for thirty-five million
dollars?
A To tell you the truth, ~ can't remember at
what point in time it took place, but ~ think it was prior
to the letter. ~n fact, ~ know it was prior to the letter.
Q This again is Respondent's Exhibit Number 2.
~t's the offer from Mr. Mumma. What's the date on it?
A December 9, 1991.
Q And the response letter that ~ gave you dated
December 30th was a response to that?
A ~'m sorry. Did you say dated December 30th?
Q Yes.
A Okay. Yes, whatever the date of the letter
was. ~t was in response.
2258
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Q And the question is, after that date did you
enter into any negotiations with your brother to sell the
businesses to him?
A No. I think I said before, no.
Q As a matter of fact you refused to enter into
any negotiations, correct?
A That's probably accurate.
Q And your mother joined in that refusal?
A Yeah.
Q Isn't it fair to say that irrespective of
what the Irish offer might have been you wouldn't have asked
your brother to buy on the same terms?
A No.
Q That's not fair?
A No.
Q You would have?
A I guess depending on what the offer was.
Q But this one for thirty-two million was one
that you didn't think you would ask him to match?
A Yes.
Q How long have these businesses been in your
family, Mrs. Mumma?
MR. SONNENFELD: Your Honor, I think this is
exceeding the limited scope of my direct examination.
THE COURT: I agree. Sustain the objection.
2259
106
1 MR. SONNENFELD: Thank you.
2 MR. FARRELL: Your Honor, I have no further
3 questions.
4 THE COURT: I have no questions. You may
5 step down.
6 MR. SONNENFELD: Thank you, Your Honor.
7 THE COURT: Any further witnesses by the
8 Respondent?
9 MR. SONNENFELD: Your Honor, I think I would
10 like to move into evidence, if I could at this time, all of
11 the exhibits that were marked in the Respondent's case.
12 THE COURT: If they weren't already admitted
13 before, they are now.
14 (Whereupon, Respondent's Exhibits 1 through 8
15 were admitted into evidence.)
16 THE COURT: Mr. Farrell, are all of yours
17 admitted?
18 MR. FARRELL: Your Honor, yes, I'll introduce
19 both of them. The one I already have introduced, the letter
20 that you have, the December 30 letter.
21 MR. SONNENFELD: No objection, Your Honor.
22 THE COURT: It's admitted
23 (Whereupon, Joinder's Exhibits 1 and 2 were
24 admitted into evidence.)
25 MR. SONNENFELD: Your Honor, the Respondent's
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rest.
THE COURT: Does that conclude the testimony?
MR. SONNENFELD: I believe it does as far as
we're aware, Your Honor.
MR. FARRELL: Your Honor, if I may, yesterday
Mrs. McClure was not here. Mrs. McClure is the one daughter
of Mr. Mumma, Sr. who was not a party here yesterday. She
is in the courtroom today. Your Honor, if I may call her
just for one question.
THE COURT: Well, if she wasn't here, go
ahead. We'll permit you one question. Is that her? Come
on up.
Whereupon,
BARBARA MUMMA MCCLURE
having been duly sworn, testified as follows:
DIRECT EXAMINATION
BY MR. FARRELL:
Q Mrs. McClure, please state your name for the
record?
A Barbara Mumma McClure.
Q And your address?
A 129 South Lewisberry Road, Mechanicsburg,
pennsylvania.
Q Mrs. McClure, if this Court would see fit to
permit your brother to buy these family businesses, would
108
2261
1 you support that effort?
2 MR. SONNENFELD: I object to the question,
3 Your Honor. I think that's a convoluted question.
4 THE COURT: I'm going to sustain the
5 objection to that question.
6 MR. FARRELL: Your Honor, the problem is --
7 THE COURT: What this Court's going to do,
8 that's mere speculation, and I'm not going to permit her to
9 be asked that question. You can ask her some other
10 question, but not based on what this Court does.
11 MR. FARRELL: Your honor, one of the problems
12 that Mrs. McClure faces, she's subject to liability if she
13 would now
14 THE COURT: You can ask her something about
15 that, but I'm not going to permit you to speculate on what
16 this Court will do and what she might do.
17 BY MR. FARRELL:
18 Q Mrs. McClure, let me rephrase that question.
19 If you were not subject to any sort of personal liability,
20 would you support your brother's efforts to acquire these
21 businesses?
22 MR. SONNENFELD: I object.
23 THE COURT: I'll permit that to be asked if
24 she knows.
25 THE WITNESS: I have since the day these
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1 issues have come up repeatedly said that the only thing that
2 I -- I am not taking sides. I'm not supporting people's
3 efforts. What I have always said is that if the businesses
4 were to be sold, my priorities and my fantasy, I would like
5 to see it played out, my priorities would be first to see a
6 family member run the business in good faith and the way it
7 has been run for 72 years after my father's death. That
8 would be the ideal situation, if it were possible.
9 If that weren't possible my second choice
10 would be to have the people who are employees of Pennsy
11 Supply be able to have that option, and my third and last
12 choice would be to sell it to an outsider.
13 These are based on what I perceive to be my
14 understanding about how my family has always seen this as a
15 family business, but it's clear that I have never been able
16 to be in a position of choice on any of this. I have always
17 been in a default position.
18 MR. FARRELL: Mrs. McClure, thank you.
19 THE COURT: Cross-examine.
20 CROSS EXAMINATION
21 BY MR. SONNENFELD:
22 Q Very briefly. Mrs. McClure, good afternoon
23 or I guess I should say good evening. I'm Marc Sonnenfeld.
24 We met for the first time today, and I represent your mother
25 and your sister, Lisa Morgan?
2263
110
1 A I know.
2 Q Is it correct that through the Power Of
3 Attorney given to your lawyer, Mr. Stevenson, that you have
4 signed onto this sale as a participating seller?
5 A It is correct that while I was unavailable
6 and unaware of any of these proceedings my attorney did act
7 on my behalf the best that he could under a Power of
8 Attorney.
9 Q And is it correct that you have received your
10 share of the proceeds of the sale?
11 A I have been told that the proceeds were
12 placed in an account, a bank account of mine during my
13 absence and unawareness that this was happening.
14 Q And is it correct that throughout this
15 unfortunate family dispute you have tried to stay in the
16 middle between your brother, Robert, on the one hand and
17 your mother and your sister, Lisa, on the other hand?
18 A I think the fact that I'm a defendant in all
19 the law cases shows that I have not taken a side.
20 Q And is it correct that in the proceedings
21 that brings us here this evening as well you have not taken
22 a side?
23 A Unfortunately, or however you want to say it,
24 I have, and the Power of Attorney, through my Power of
25 Attorney have been placed in a position where there is money
111
2264
1 in an account in Fulton Bank which puts me on a side.
2 Q And which side it that?
3 A What can I say? I mean personally, no, but
4 through this -- whatever you call these proceedings, that
5 has been the corner that I've been put into.
6 Q Well, is it correct that you are not asking
7 the Court in this proceeding that brings us here this
8 evening to enjoin the sale of the business to CRR?
9 A I am not asking anybody anything based on
10 trying to be neutral.
11 Q And are you here today at the request of your
12 brother, Robert?
13 A I am here today to reiterate -- my brother
14 asked me to reiterate what my stand was personally in this
15 matter. I'm not asking anybody anything.
16 MR. SONNENFELD: Thank you very much, Mrs.
17 McClure.
18 THE COURT: I have no questions. You may
19 step down. Do counsel want to submit anything additionally
20 to the Court that you haven't submitted as of now?
21 MR. SONNENFELD: Your Honor, I have a
22 memorandum which I could hand up. I'd be happy to submit
23 it.
24 THE COURT: Mr. Farrell, do you want to
25 submit anything in addition to what you've already given me?
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2265
1 MR. FARRELL: Your Honor, no.
2 THE COURT: Okay. We'll then go ahead and
3 hand down an opinion and we'll try and work on this and get
4 it done within the next week.
5 MR. FARRELL: Your Honor, I'd like to make a
6 closing statement quite the same.
7 THE COURT: I'm not going to bother with
8 closing statements. I'll read your briefs and I'll decide
9 it based on that what I want to do with it. So we'll stand
10 adjourned, gentlemen and ladies.
11 (Whereupon, the proceedings concluded at
12 6:40 p.m.)
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CERTIFICATION
I hereby certify that the proceedings are contained
fully and accurately in the notes taken by me on the above cause
and that this is a correct transcript of same.
l/11uJuyp /I ~
Michele A. Lippy
Official Court Reporter
The foregoing record of the proceedings on the hearing
of the within matter is hereby approved and directed to be
filed.
S" - 't -(11)
Date
/'---
Har
114
2267
'-
IN THE ESTATE OF ROBERT
M. MUMMA, DECEASED
IN THE COURT OF COMMON PLEAS OF
CUMBERLAND COUNTY, PENNSYLVANIA
ORPHANS' COURT DIVISION
NO. 21-86-398
IN RE: TESTIMONY OF BARBARA McK. MUMMA
proceedings held before the
Honorable HAROLD E. SHEELY, P.J.
Cumberland County courthouse, Carlisle, Pennsylvania
on Monday, July 26, 1993, commencing at 9:00 a.m.
in Courtroom Number One
APPEARANCES:
Robert G. Frey, Esquire
For Robert M. Frey, Esquire, Guardian Ad Litem
Christopher F. Farrell, Esquire
For Robert M. Mumma, II
Marc J. sonnenfeld, Esquire
For Barbara McK. Mumma and Lisa M. Morgan
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MR. SONNENFELD: Your Honor, the Respondent
would call as their first witness Mrs. Mumma.
Whereupon,
BARBARA McKIMMIE MUMMA
having been duly sworn, testified as follows:
DIRECT EXAMINATION
BY MR. SONNENFELD:
Q Good morning, Mrs. Mumma.
A Good morning.
Q This is a large room, so you may have to
speak up. For the record would you please state your full
name and address.
A Barbara McKimmie Mumma, 845 Kiehl, K-i-e-h-l,
Drive, Lemoyne, Pennsylvania.
Q And you're one of the executrices and
trustees of the trust under the Will of your late husband
A Yes.
Q -- Robert M. Mumma. Now, Mrs. Mumma, have
you in this capacity consummated a sale of the assets that
we have referred to as the Pennsy supply businesses to CRH?
A Yes, I have.
Q And was that sale consummated last week on
the 21st of July?
A Yes, it was.
Q And what was your objective in that
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transaction?
A To get the best price for the business and to
basically protect my children's inheritance.
Q Okay. And did you take into consideration
whether or not your late husband would have wanted the
business kept in the family?
A Yes, I did.
THE COURT: Now, we wouldn't leave Robert
testify as to that, so I'm got going to let her either.
BY MR. SONNENFELD:
Q Do you have a writing from your late husband?
A Yes, sir, I have.
Q Do you have that with you today?
A Yes. This was attached to his Will.
Q Could you read that to us, please?
MR. FARRELL: Your Honor, I'd like to see
that first.
THE COURT: Come up and take a look at it. I
don't recall that ever being involved before myself.
THE WITNESS: It was personal. That was one
of the reasons.
MR. FARRELL: Your Honor, this is just a copy
that was not probated as part of the Will.
THE WITNESS: I have the original, but I
wanted to keep that.
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2270
1 MR. FARRELL: Your Honor, I think it is the
2 law of the land that the Last will and Testament of an
3 individual speaks for them and no other documents that have
4 not been probated.
5 THE COURT: Well, I don't think this is being
6 offered as being -- to be considered as a Will. It's--
7 apparently it's being offered to show that Mr. Mumma has
8 some desires about the business.
9 MR. SONNENFELD: Yes, Your Honor.
10 THE COURT: You do have the original here?
11 THE WITNESS: But I had wanted to keep it.
12 THE COURT: Do you want to just bring the
13 original up so they can verify that that copy is correct?
14 THE WITNESS: Lisa, I think it is in the
15 black case in an envelope.
16 MR. SONNENFELD: Let the record reflect that
17 I'm handing the original to counsel.
18 THE COURT: Do you want to go into a little
19 more detail as to how this was attached?
20 MR. SONNENFELD: Sure. I will do that. I'll
21 lay foundation if I may proceed.
22 THE COURT: But you do agree that the
23 original -- what she has is a true and correct copy of the
24 original?
25 MR. FARRELL: Yes, Your Honor, I do. Your
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Honor, that being in writing we would request that it speak
for itself.
THE COURT: Yes. I want him to lay a little
bit of the groundwork as to where this was found and how it
was found.
MR. SONNENFELD: I will do that, Your Honor.
BY MR. SONNENFELD:
Q Mrs. Mumma, where was that document found?
A It was attached to the Will in the safety
deposit box, and it was a -- it was personal, and I had kept
it.
Q Do you recognize the handwriting?
A It's my husband's.
Q And there's no doubt in your mind that --
A No.
Q The entire document in your mind is in his
handwriting?
A In his handwriting, yes.
Q And do you see there is also at the bottom of
the page that separate language below what would appear to
be his name?
A Yes.
Q Is that his handwriting?
A Yes, it is.
Q And do you see the signature Bob?
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1 A Yes.
2 Q And do you recognize that as the signature of
3 your late husband?
4 A Yes, I do.
5 Q And when did you find this?
6 A Right after he died.
7 Q Attached to the Will?
8 A It was attached to the Will.
9 Q In the safety deposit box?
10 A Yes.
11 Q At the bank?
12 A Yes.
13 Q In Harrisburg?
14 A Yes.
15 Q And have you had this in your possession
16 continuously since then?
17 A Yes, I have.
18 Q And are there any other markings that have
19 been added to or any markings deleted from it?
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A No.
Q And could you please read the note to us?
A (No audible response. l
THE COURT: Maybe everyone can stipulate what
it says, and
THE WITNESS: I can read it. I'll read it.
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MR. FARRELL: Your Honor, we're prepared to
do that.
THE WITNESS: Kim, I loved you with all my
heart. Move slowly and get good counsel -- then do as you
honestly think best. All my love, Bob. Reiterated 11/25.
11/85, excuse me.
BY MR. SONNENFELD:
Q And in consummating this sale to CRR, is it
your view you've acted consistent with these words from your
late husband?
A Yes, it is.
MR. SONNENFELD: I have nothing further, Your
Honor.
THE COURT: Cross-examine.
MR. SONNENFELD: Your Honor, I would ask this
be marked as Respondent's Exhibit 4.
(Whereupon, Respondent's Exhibit No. 4 was
marked for identification.)
MR. SONNENFELD: Let the record show that we
have marked the note as Respondent's Exhibit 4, and I will
hand the copy of the note back to Mrs. Mumma.
THE COURT: Go ahead. Cross-examine.
CROSS-EXAMINATION
BY MR. FARRELL:
Q Mrs. Mumma, at the time that you were
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1 negotiating with the Irish investors, did you ever at that
2 time make a similar offer to your son, Robert Mumma?
3 A I'm sorry?
4 Q At the time that you were negotiating with
5 the Irish investors as far as this sale or transaction, did
6 you ever at that same time make an effort to market the
7 property to Mr. Mumma?
8 A I did not.
9 Q Did you ever make any inquiries as to whether
10 or not he would be interested in the properties?
11 A I did not.
12 Q Did you ever make any inquiries as to whether
13 or not he would be financially able to buy these properties?
14 A I had been told previously that he was not.
15 Q I asked you, did you make any --
16 A Not at that time. I had already been told
17 that he was not.
18 Q And who told you that?
19 A It came from someone that he had employed out
20 of New York originally.
21 Q And who was that?
22 A I can't tell you the gentleman's name. I
23 believe it may have been McFarland, but I'm not sure.
24 Q And do you have any basis for knowing what
25 Mr. McFarland's understanding might have been of what Mr.
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Mumma's financing was?
A No, he dealt through my attorneys.
Q But predicated upon that you made the
decision that he didn't have the financial ability to buy
the properties?
A Well, predicated on that and on his offer.
Q What offer was that?
A The one he made for thirty-five million.
Q At the time he made that offer, did you ever
negotiate with him as to whether or not he could change the
terms of the offer, increase the price or do anything
similar to that?
A No, I did not.
Q You rejected that offer?
A Yes.
Q Mrs. Mumma, why did this closing occur on the
21st?
A It occurred on the 21st. Say that again.
Q Why did this closing occur on July 21st?
A Because we were having negotiations and
meetings, and everything was finished on July the 21st.
Q But wasn't there a shareholders meeting set
on July 22nd to approve it?
A Only to ratify that the sale had taken place.
Q But, Mrs. Mumma, when did notice go to your
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son as to whether the sale would occur?
A He got the notice on the 12th, I believe.
I'm not sure when he got the notice. He got the notice that
there was a sale.
Q Mrs. Mumma, at the time of the closing on
July 21st
A Yes.
Q -- were you aware that there was a petition
pending in front of this Court to enjoin the sale?
A No.
Q You were not aware of that?
A No.
Q To your knowledge was your daughter aware of
that?
A No. She was in Colorado.
Q To your knowledge, was your legal counsel
aware of that?
A Not to my knowledge.
Q Your legal counsel never told you at the time
of the Closing on July 21st that there was a petition
pending before this Court to enjoin the sale?
A (No audible response.)
Q That's a yes or no answer.
A On whose petition may I ask?
Q Petition of Attorney Frey.
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1 A I think that -- pardon me. I did know that
2 he -- I believe that he had filed a petition.
3 Q So we're going to --
4 A But I don't remember if it was before the
5 sale or after the sale to be honest.
6 Q Well, the question is, at the time of the
7 closing, did your counsel advise you that there was a
8 petition pending before this Court to enjoin the sale?
9 A I believe they did.
10 Q So you did know at the time of the closing?
11 A I'm not sure whether it was before the
12 closing or after the closing.
13 Q I think those two statements are
14 inconsistent, Mrs. Mumma.
15 A I realize they are, but I'm telling you what
16 I remember.
17 MR. SONNENFELD: Your Honor, if I may
18 interject, I think this is becoming misleading in that Mr.
19 Frey didn't serve this petition until after the closing. We
20 didn't receive this document from Mr. Frey until the 21st.
21 Notwithstanding the fact that there was, but we didn't even
22 have it at the time.
23 MR. FARRELL: The question was very simple.
24 What did she do with regard to the petition at the time of
25 the closing?
2278
11
1 THE WITNESS: I'm going to say no, I don't
2 think I did.
3 BY MR. FARRELL:
4 Q But you will testify to the fact that you
5 believed that your counsel advised you that there was a
6 petition pending in front of this Court?
7 A After the closing.
8 Q But not at the time of the closing?
9 A No, I don't think they told me at the time of
10 the closing. I was obviously closing this deal early, in
11 the early morning hours.
12 Q So if they knew there was a petition pending
13 before this Court prior to the closing they didn't advise
14 you of that fact?
15 A I don't think they could have known it if
16 they didn't receive it until the 21st. We closed the 21st.
17 I was there working on the closing until 2:00 in the
18 morning.
19 Q 2:00 in the morning on what day? I'm sorry.
20 A I guess it went until 2:00 in the morning,
21 1:30 in the morning, which would be the morning of the 21st.
22 Q So you --
23 A I was working on it on the 20th.
24 Q You were working on it on the 20th?
25 A Yes.
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1 Q And what time did you close then you're
2 saying on the 21st?
3 A I can't give you a definite answer.
4 Q Mrs. Mumma, are you familiar with the terms
5 of that transaction?
6 A Yes.
7 Q Who owned Kodie Acquisition Corporation at
8 the time of that stage I closing?
9 A Kodie Acquisition --
10 MR. SONNENFELD: Your Honor, this goes beyond
11 the scope of direct. I plan to cover this tomorrow with
12 Mrs. Morgan, who I think would be better able to go into
13 this. I would object to succeeding the scope of direct.
14 THE COURT: I'll permit her to answer the
15 question if she knows. Do you know?
16 THE WITNESS: It was a mechanism --
17 BY MR. FARRELL:
18 Q No. The question was, do you know who owned
19 Kodie Acquisition at the time of the Stage I closing?
20 A At the stage I closing?
21 Q Yes.
22 A I don't remember whether that was at the
23 stage I closing or after the stage I closing.
24 Q The question was, who owned the corporation
25 then?
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MR. SONNENFELD: Your Honor, I think it's
been answered. She said she doesn't remember.
THE COURT: I think that's what she said. Is
that correct?
THE WITNESS:
MR. FARRELL:
That's correct.
Your Honor, we have no further
questions.
THE COURT: I have no questions.
MR. SONNENFELD: I have no redirect, Your
Honor.
THE COURT: Thank you. You may step down.
You take the original with you. Leave us have the copy. Do
you have another witness that you wanted to call?
MR. SONNENFELD: I would be calling Mrs.
Morgan.
THE COURT: Okay. Well then, we'll do that
tomorrow afternoon at 4:00.
MR. FREY: Your Honor, if it please the
Court, I would like to clarify one issue that's come up in
some of the testimony regarding service of the petitions
which we filed. If I could just explain --
THE COURT: Did you do that?
MR. FREY: Yes, Your Honor. The original and
all the copies I had of the complaint were left with your
chambers and were to be served once certified copies could
14
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"
1 be obtained.
2 When I went down to the Register of wills' office,
3 that came down, if I recall, Thursday around noontime, and
4 all the certified copies were then delivered that Thursday.
5 A copy uncertified was sent to Mr. otto on wednesday
6 morning, which would be the morning following the date the
7 petition was filed with the Court Administrator and with
8 you, and also a copy was given to Mr. Morrison at that time,
9 but certified copies and actual service was not done until
10 there was an order attached to it.
11 THE COURT: July 21st, for the record, was a
12 Wednesday. Anything else?
13 MR. FREY: That's it, Your Honor.
14 THE COURT: Okay. We will stand adjourned
15 until--
16 MR. FARRELL: Your Honor, if I may, just one
17 quick point. As you know, this is a request for an
18 injunction, and in this situation we have a corporation that
19 is now being owned by people who we seek to have enjoined
20 from operating the business.
21 We have a real fear that this hearing may drag on,
22 that they may continue to operate the businesses, and at
23 some point use the fact that they've been operating as being
24 a basis for really making it impractical to undo the
25 transaction. I would like an indication
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1 THE COURT: That might very well be. Now,
2 I'm only interested in a number, the number of witnesses yet
3 I have to hear, and as I understand it you've got one to go?
4 MR. SONNENFELD: Yes, it is not our intent to
5 have this drag on.
6 THE COURT: How long do you think it would be
7 for Mrs. Morgan to testify?
8 MR. SONNENFELD: I think we could conclude
9 our examination in under an hour.
10 MR. FARRELL: Your Honor, we will at this
11 point not take any action, but to the extent this drags on,
12 we will request the Court to appoint a custodian during the
13 pendency of the decision.
14 THE COURT: Well, it looks like we're going
15 to be completing the testimony tomorrow. How long it's
16 going to take me then to resolve this, I don't know.
17 certainly a couple days, probably.
18 MR. FARRELL: If Your Honor would make a fast
19 decision, that would be good for us. We would -- and we
20 will not burden the Court then with a request for a
21 custodian.
22 THE COURT: If you wish to protect the record
23 as to this, I suggest maybe tomorrow you present a petition
24 to do that. At least you'll have it on the record.
25 MR. FARRELL: Thank you, Your Honor.
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1 THE COURT: And like I say, I'm not that
2 familiar with, off the cuff anymore, when a custodian is
3 required. I would have to look that up because quite
4 frankly I don't know the answer to that, but you certainly
5 can present it tomorrow if you'd like.
6 But it looks like then we're going to finish the
7 testimony tomorrow. I'm willing to run this, you know, into
8 tomorrow evening as long as we need to. That way we can get
9 it all done tomorrow.
10 So we'll stand adjourned then until 4:00 tomorrow.
11 We'll run it tomorrow until we're finished. I apologize for
12 inconveniencing counsel on short notice about tomorrow
13 evening, but I think for everyone's sake at least you can
14 work in your offices tomorrow, and we won't be interfering
15 with too much of your time.
16 MR. SONNENFELD: Thank you, Your Honor.
17 THE COURT: So we'll stand adjourned until
18 that time.
19 (Whereupon, Court adjourned at 12:00 noon.)
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CERTIFICATION
I hereby certify that the proceedings are
contained fully and accurately in the notes taken by me on the
above cause and that this is a correct transcript of the same.
':i' "... '\ \ ,\
D.U(Q I'. l onuliLi-
Laura F. Handley
Official Court Reporter
--------------------------------
The foregoing record of the proceedings on the
hearing of the within matter is hereby approved and directed to
be filed.
~ - L. -I (rei)
J~('-<~~~ .sh- /
H r ld E. Seely, P.J.V
2285