1 1 IN THE COURT OF COMMON PLEAS LANCASTER COUNTY, PENNSYLVANIA 2 CIVIL 3 _____________________________________ : 4 PENN SQUARE GENERAL CORPORATION, : the General Partners of PENN SQUARE : 5 PARTNERS, a Pennsylvania Limited : Partnership, and THE REDEVELOPMENT : 6 AUTHORITY OF THE CITY OF LANCASTER, : : 7 Plaintiffs : vs. : 8 : COUNTY OF LANCASTER, : 9 BOARD OF COUNTY COMMISSIONERS OR : THE COUNTY OF LANCASTER, : 10 MOLLY HENDERSON, Commissioner, and, : RICHARD SHELLENBERGER, Commissioner, : 11 : Defendants : 12 _____________________________________ No. CI-06-05555 13 LANCASTER COUNTY CONVENTION CENTER : AUTHORITY, : 14 Plaintiff, : vs. : 15 : COUNTY OF LANCASTER : 16 and : BOARD OF COUNTY OF COMMISSIONERS OF : 17 THE COUNTY OF LANCASTER, : and : 18 MOLLY HENDERSON, Commissioner : and : 19 RICHARD SHELLENBERGER, Commissioner, : : 20 Defendants : _____________________________________ 21 PRELIMINARY INJUNCTION 22 Before: HON. JOSEPH C. MADENSPACHER, JUDGE 23 Date : July 12, 2006 24 Place : Courtroom No. 2 25 50 North Duke Street Lancaster, Pennsylvania 2 1 2 APPEARANCES: 3 JOHN C. FENNINGHAM, ESQUIRE and GREGORY S. BERKE, ESQUIRE 4 FENNINGHAM, STEVENS & DEMPSTER, LLP Five Neshaminy Interplex, Suite 315 5 Trevose, PA 19053 For - Lancaster County Convention Center Authority 6 ANDREW W. STEPHENSON, ESQUIRE 7 HOLLAND & KNIGHT, LLP 2099 Pennsylvania Avenue, NW 8 Suite 100 Washington, DC 20036 9 For - Lancaster County Convention Center Authority 10 DAVID H. PITTINSKY, ESQUIRE and JOHN C. GRUGAN, ESQUIRE 11 BALLARD SPAHR ANDREWS & INGERSOLL, LLP 1735 Market Street, 51st Fl. 12 Philadelphia, PA 19103 For - Penn Square General Corporation 13 HOWARD L. KELIN, ESQUIRE 14 KEGEL KELIN ALMY & GRIMM, LLP 24 North Lime Street 15 Lancaster, PA 17602 For - County of Lancaster 16 KATHRYN L. SIMPSON, ESQUIRE 17 METTE, EVANS & WOODSIDE 3401 North Front Street 18 Harrisburg, PA 17110 For - Intervenor Kopenhaver 19 20 21 22 23 24 25 3 1 WITNESS DIRECT CROSS REDIRECT RECROSS 2 3 4 5 6 7 8 9 10 11 INDEX TO EXHIBITS 12 Authority's Marked/ Admitted 13 Exhibit No. 14 15 16 17 18 19 20 21 22 23 24 25 4 1 P R O C E E D I N G S 2 9:00 a.m. THE COURT: Good morning, everybody please be 3 seated. 4 Before we start, I just want to briefly address 5 the gallery that is here at today's proceedings. 6 I have received, and the Court staff has 7 received, numerous phone calls from interested members 8 of the public as to whether or not they would be allowed 9 to comment at this hearing. 10 Unlike the public meetings of the parties in 11 this 12 case, the Convention Center Authority, the 13 commissioners,' public input is permitted and 14 encouraged; however, that is not the case in a courtroom 15 setting. 16 Now, you, of course, as members of the public, 17 are welcome as spectators. 18 Our system of justice allows, and in fact, 19 requires judicial openness. You'll be able to hear all 20 the witnesses who testified, learn of the evidence, 21 listen to the arguments of the attorneys in this case. 22 You'll be able to read my written decision 23 giving my reasons for whatever decision is made in this 24 case. 25 However, only the attorneys representing the 4 1 parties and the witnesses called by them will actually 2 be participating. 3 Now, the issues of this case are relatively 4 narrow and the attorneys know that and they will be 5 presenting their case in court and my decision will be 6 equally narrow, based on what is presented here. 7 Unlike the public bodies in this case, the 8 Convention Center, I cannot take any position as to 9 whether the project should or should not go forward. 10 The judiciary does not establish public policy. 11 My decision in this case is simply to decide 12 the legal issues based on the law and the facts 13 presented at this hearing. 14 Now, with that, are there any preliminary 15 matters before we proceed? 16 MR. FENNINGHAM: Your Honor, good morning. 17 John Fenningham representing the Convention Center 18 Authority. 19 Just like to introduce Gregory Berke, who is 20 with me from my firm. 21 MR. BERKE: Good morning, Your Honor. 22 MR. FENNINGHAM: And also, Andrew 23 W. Stephenson, of Washington D.C., who is my co-special 24 counsel on the matter. 25 MR. STEPHENSON: Good morning, Your Honor. 4 1 MR. FENNINGHAM: Your Honor, I'd also like to 2 report that we were able to provide Mr. Kelin the 3 opportunity to take Mr. Edelman's deposition yesterday 4 morning. 5 THE COURT: Good. 6 MR. FENNINGHAM: The parties cooperated and 7 that was completed. 8 THE COURT: Good. Thank you. 9 MR. PITTINSKY: Good morning, Your Honor. 10 David Pittinsky representing RACL and Penn Square 11 Partners. I, too, am joined by my colleague, John 12 Grugan. 13 MR. GRUGAN: Good morning, Your Honor. 14 MR. PITTINSKY: And, Your Honor, Mr. Kelin 15 submitted to you the notes of argument from the hearing 16 before the Commonwealth Court that took place last 17 Friday, attached it to his brief. 18 THE COURT: He did? 19 MR. PITTINSKY: Yes, he did. And I just would 20 like to present to Your Honor, if I may, the decision of 21 the Commonwealth Court denying his request for summary 22 relief and preliminary injunction, only because he 23 attached the transcript. 24 THE COURT: Fine. 25 MR. PITTINSKY: Thank you. 4 1 MR. KELIN: Good morning, Your Honor, Howard 2 Kelin for the County of Lancaster. For better or worse, 3 I'm all they've got. 4 The order that you've been handed was put in 5 the context as I pointed out in the brief. The 6 Commonwealth Court had said it was going to enter a 7 decision on the merits. This was an order that simply 8 says, I'm gonna be entering a decision on the merits; 9 therefore, I'm denying summary relief for preliminary 10 injunction, because I'm gonna be entering a decision on 11 the merits. 12 Mr. Pittinsky's suggestion was that it was 13 being denied on the merits. As you'll see from the 14 order, that's not the case. The Court is simply saying, 15 I'm not gonna order summary relief now, because I'm 16 gonna be making a decision on the merits. So I want to 17 put that in context. 18 THE COURT: All right. 19 MR. KELIN: The only other preliminary matter 20 is a taxpayer of the County had sought intervention, 21 April Kopenhaver. 22 THE COURT: Yes, I saw that. 23 MR. KELIN: And my understanding is that 24 plaintiff's counsel do not object to that intervention. 25 Her counsel, Cathy Simpson, is here to represent Miss 4 1 Kopenhaver. But she had represented that she was not 2 intending -- she's here this morning, was not going to 3 be putting on evidence, but relying on the County's 4 position and arguments in the case. 5 THE COURT: Do you have any objection to the 6 intervention? 7 MR. PITTINSKY: We have no objection, Your 8 Honor. 9 MR. FENNINGHAM: Your Honor, no objection to 10 the present proceeding, except to the extent that if we 11 get into scheduling issues, I would be concerned with 12 the intervener having any impact on expediting this 13 matter. 14 THE COURT: Well, do you have any objections? 15 MR. KELIN: No, Your Honor. 16 THE COURT: All right. Well, scheduling, I 17 hope you would finish this today. 18 MR. FENNINGHAM: We hope so as well. 19 THE COURT: All right. Well, there being no 20 objection, the -- and I did get the motion they do not 21 plan on participating in this particular hearing. 22 MS. SIMPSON: Right. 23 THE COURT: And since there is no opposition, I 24 will allow her relief. 25 MR. SIMPSON: Thank you, Your Honor. 4 1 THE COURT: With that, we're ready to proceed? 2 MR. FENNINGHAM: Your Honor, we are. 3 Do you wish us to present brief openings? 4 THE COURT: I would like that. Thank you. 5 MR. FENNINGHAM: Your Honor, on behalf of the 6 Authority, if I may, in the Authority's complaint and in 7 the petition we have averred the reasons for this 8 litigation, particularly on an expedited basis. 9 I would refer, Your Honor, to paragraph 9 of 10 the complaint at pages 4 and 5, which is incorporated by 11 reference into the petition for preliminary injunction. 12 Your Honor, in essence, the Authority seeks to 13 retain economic relief to advance the Authority's 14 project mandated by the Commonwealth under the Third 15 Class County Convention Center Act, and also under the 16 County Ordinance 44 and 45 of 1999, as well as the city 17 ordinance joining in the creation of my client, the 18 Lancaster County Convention Center Authority. 19 The County and the City and the City 20 Redevelopment Authority and the -- my client, the 21 Authority, all have participated over the years in 22 formulating the project as its known to be at the Penn 23 Square downtown Lancaster location. 24 My client, as we pled in our complaint, seeks 25 to exercise the powers invested in it by the 4 1 Commonwealth and these are Commonwealth powers under the 2 statutory provisions of the Third Class County 3 Convention Center Act. Therefore, the Authority is, in 4 essence, compelled to proceed to advance the project and 5 at this stage of the project, Your Honor, the stage of 6 design into construction, we are centered upon the 7 financing of the project and that is the scope as we've 8 discussed with Your Honor, the scope of the Authority's 9 case here which is, in essence, three items. 10 It is to seek a declaration from Your Honor 11 that the 2003 county guarantee agreement as part of the 12 financing of the project is valid and enforceable as an 13 instrument; that it applied in 2003 to the sale of 14 the -- what's referred to as the Series 2003 bonds 15 purchased by Citizens Bank of Pennsylvania and that 16 transaction was consummated, and we'll present evidence 17 to confirm that, Your Honor; and that the guarantee 18 agreement, as written, and in its express terms, is 19 expressly referred to as irrevocable, unconditional and 20 absolute; that within the express terms of that 21 document, Your Honor, it contemplates things that could 22 occur in the future, which despite those subsequent 23 events, would nevertheless not alter the express County 24 obligation; and that term is a term in the agreement 25 with a capital C and a capitol O. 4 1 It is to guarantee up to 50 percent of the $40 2 million bond issuance with some additional limitations 3 which we refer to, Your Honor, in the complaint at -- if 4 you allow me, at paragraph 18, Your Honor. 5 We also, within paragraph 16, we itemize or 6 seek to itemize those bond-related financing documents 7 which will be presented as exhibits this morning. 8 That guarantee agreement, Your Honor, does not 9 solely apply to Citizens Bank by its express terms, it 10 applies to subsequent bondholders and the documents 11 recognize that the Citizens Bank Series 2003 bonds would 12 be refunded or tendered back, and then the bond 13 financing would be converted to tax-exempt fixed or 14 variable bonds purchased by subsequent bondholders. 15 During that period, the project advanced, the 16 financing is moving into -- or the attempt by the 17 Authority is to move it into permanent financing, in 18 which the guarantee agreement is absolutely necessary. 19 So, again, we're seeking that declaration to 20 proceed. 21 Secondarily, because of the actions of the 22 defendants, particularly the commissioners, Henderson 23 and Shellenberger, as defendants, have forecasted an 24 intent to send a message through the chief clerk under 25 Resolution 37 that their view is the County guarantee is 4 1 not what I just described it to be, but that it is going 2 to be revoked or, at least, the County Commissioners 3 believe that the guarantee obligation does not apply to 4 a subsequent bondholder. 5 We think that position is contrary to the 6 documents that have been relied upon over the last three 7 years. 8 Secondly, the Authority is funded entirely by 9 the hotel room rental tax, which was initiated under the 10 Third Class County Convention Center Act by our state 11 legislature, and it was embodied in Ordinance 45 of 1999 12 by the County of Lancaster, and it is the stream of 13 income and revenues upon which the Authority functions 14 and upon which it will rely to pay the debt service for 15 the bond financing at issue in this case. 16 Third, Your Honor, and despite some public 17 dissemination of a term that has never appeared in any 18 of the Authority's pleadings, we do not seek a gag 19 order, as that term has been bandied about, Your Honor; 20 nor do we seek to suppress the commissioners' right to 21 speak out on any issue, including the convention center 22 project. 23 But what we do seek is an injunction to prevent 24 the commissioners and the defendant Board of 25 Commissioners and the County from interfering with the 4 1 advancement of the project and, particularly, the 2 permanent financing either through the Resolutions 36 or 3 37 or through any future action to diminish, reduce or 4 repeal the hotel room rental tax and distributions or 5 disbursements to the Authority, and also to prevent the 6 Commissioners from purposefully clouding the issue in a 7 way that Mr. Beckett in his affidavit and in his 8 testimony will describe this morning creates a chilling 9 negative effect upon two segments associated with this 10 project. 11 One is the bond industry participants, 12 including banks who may issue a letter of credit as part 13 of the permanent financing or credit enhancers, bond 14 insurers who may -- or not may, are necessary to the 15 permanent financing, who are now reluctant, because of 16 the atmosphere created by the defendants, to participate 17 in remarketing of these bonds, and also the contractors 18 who are bidding on this project in this time frame, in 19 the May and June time frame, Your Honor, who believe, 20 the testimony will show, are affected adversely by the 21 atmosphere created by the Commissioners' actions, all of 22 which we've detailed in the particular averments of our 23 complaint. 24 Therefore, Your Honor, we seek to keep the -- 25 the project going forward. We seek to hold all the 4 1 parties to the benefit of the bargain that was struck in 2 2003, and we seek to move forward to -- to obtain the 3 permanent financing of the project within the deadlines 4 and the time frame that was contemplated back in 2003, 5 which Your Honor will hear is as follows: 6 The Citizens Bank Series 2003 bonds will be 7 mandatorily tendered as of December 1st, 2006. 8 The notice requirements under the trust 9 indenture require my client, the Authority, and through 10 its financial advisor, Mr. Beckett, to provide notice of 11 the intentions of the Authority by October, within 12 October of this year, Your Honor. 13 To be able to mechanically or functionally 14 develop the remarketing of the bonds and the permanent 15 financing, you will hear that Mr. Beckett is needing to 16 work right now and secure the commitments within the 17 ordinary course of his industry and he's unable to do 18 so. 19 So time is of the essence in the truest sense. 20 The project must go forward in each of these steps, 21 almost, Your Honor, like a critical path of prior 22 events, subsequent events, future events. 23 We need to build upon the 2003 financing, going 24 forward to the permanent financing, and at the same 25 time, Your Honor, the State, the Commonwealth of 4 1 Pennsylvania, is watching what's happening, because they 2 have committed funds to support the construction of the 3 convention center project and they may need to commit 4 additional funds, but in this climate, that's not going 5 to happen and you will hear that if we cannot get the 6 relief we request, the project in all intents and 7 purposes will be ended, it will be dead in the water, as 8 that expression has been used. 9 Thank you, Your Honor. 10 MR. PITTINSKY: Yes, thank you, Your Honor. I 11 will try not to replicate -- 12 THE COURT: Thank you. 13 MR. PITTINSKY: -- Mr. Fenningham's eloquent 14 remarks and just focus on some issues that I think are 15 subsumed in his remarks. 16 And that is that I certainly disagree with Your 17 Honor that we're here for very narrow issues today. And 18 as I see it, there are three -- three legal issues. 19 One, is whether the passage of Resolutions 36 20 and 37 by Commissioners Henderson and Shellenberger on 21 behalf of the County is completely contrary to and 22 violates the County's guarantee agreement. And I 23 believe that the provisions in the agreements that 24 relate to that issue are all unambiguous and clear and 25 that Your Honor can obviously decide them as a matter of 4 1 law, but obviously there will be some testimony today 2 about them. 3 But I just wanted to make it clear that we 4 think there's no ambiguity in these agreements and that 5 Your Honor can decide this as a matter of law as a 6 result. And the provisions are very clear. You need go 7 no further than the first page of the County guarantee 8 agreement to find that the term bonds in that agreement 9 is defined to mean any bonds subsequently issued to 10 refund the 2003 bonds. And that's what the remarketing 11 of the bonds is. 12 So right away, you read the very first recital 13 on the very first page of the guarantee agreement, it's 14 very clear that the term bonds is defined to include the 15 remarketed bonds. So that's number one. 16 Number two, the guarantee agreement itself says 17 that it shall remain in complete force and effect so 18 long as the bonds are outstanding. Bonds, again, 19 defined to include the remarketed bonds. 20 So, again, there's no doubt -- no doubt at all, 21 that the guarantee applies to the remarketed bonds. 22 And, in addition, we have a trust indenture 23 which Your Honor will see, which has an entire article 24 many, many pages, which is addressed to the remarketing 25 of the bonds. 4 1 So there's no question that everybody knew back 2 in December of 2003 that this guarantee agreement 3 applied to the remarketing of the bonds. 4 The second issue is whether the County's -- 5 and, again, this is Commissioner Shellenberger and 6 Henderson, decision to embark on inquiries into the 7 market area covered by the hotel room rental tax with 8 the possible view of reducing the market area covered by 9 the hotel room rental tax, violates the County guarantee 10 agreement and state law. 11 And, again, I believe that the provisions in 12 the state law and in the guarantee agreement itself make 13 it very clear that to even embark on this is completely 14 contrary to the provisions in the agreement and Your 15 Honor will hear that the Commissioners, knowing about 16 these very same provisions, nevertheless went off on 17 this, what I will call, frolic and detour, because it is 18 completely violative of the provisions of the agreement 19 and, in fact, the original provision in the agreement -- 20 and that Section 318 of the guarantee agreement which 21 states: That so long as the bonds are outstanding, the 22 County cannot reduce or diminish the rental tax. The 23 rental tax. It doesn't say the rate of the rental tax, 24 it just says the rental tax. 25 And you will hear testimony, even from 4 1 Commissioner Shellenberger, that he agrees that reducing 2 the market area of the tax is a reduction in the rental 3 tax. So there's no doubt that that provision in the 4 agreement forbids and prohibits this -- this decision 5 they've made to embark on this inquiry into reducing the 6 market area. 7 In addition, there is state law which states 8 that you can't reduce the rate of the rental tax. 9 Now, the position of the County is that this is 10 not an attempt to reduce the rate, but obviously if you 11 reduce the market area, you're reducing the rate. And 12 the reason the statute exists about prohibiting a 13 reduction in the rate of the tax is because as the 14 statute itself recognizes, the guarantees that are 15 provided and then the coverage of the tax is pledged as 16 security for the bonds. 17 And the point of having the statute is to give 18 the bond community, the people who purchase these bonds, 19 the security that they will have, their tax revenues 20 supporting their bonds, and their debt service. 21 And so if you reduce the market area, and there 22 by reduce the tax, that security has been completely 23 diminished. So we say, in addition to violating the 24 County guarantee agreement, it also violates the 25 statute. 4 1 The final issue, Your Honor, is that the County 2 has raised this issue involving an alleged variance 3 between Ordinance 73 and the trust indenture itself. 4 Your Honor, will hear testimony that there is 5 no variance and we think that is the issue. 6 Thank you. 7 THE COURT: All right. Mr. Kelin. 8 MR. KELIN: Thank you, Your Honor. This 9 project is complex. The issues before the Court today, 10 though, are rather simple. And there are four issues I 11 want to highlight. 12 First, as Mr. Pittinsky just pointed out, there 13 is a discrepancy between Ordinance 73, which authorized 14 under certain conditions the County entering the 15 guarantee agreement, and the indenture, which was one of 16 the preconditions to the guarantee being signed. And 17 the result of that discrepancy, Your Honor, is that the 18 plaintiffs will not be able to establish by clear 19 evidence, which is their burden for a preliminary 20 injunction, that the County guarantee agreement was 21 signed in accordance with Ordinance 73. 22 In fact, the evidence will show that the 23 guarantee agreement was signed in violation of Ordinance 24 73. 25 And I just put the key language that we had 4 1 cited in our brief on this board. And it has two 2 provisions. One is Section 7 (b) from Ordinance 73. 3 Now, Section 7 of Ordinance 73 had identified 4 two conditions that had to be met before the County 5 could sign the guarantee, 7 (a) and 7 (b). 6 7 (a) was later changed and that resulted in 7 what you'll hear about as Ordinance 74. So recognizing 8 that they needed to comply with 7 (a), the original 9 language didn't suit the convention center's plan, so 10 that was amended to Ordinance 74, which amended 7 (a). 11 7 (b), though, was never amended and it 12 provides that the indenture will have to contain a 13 requirement called the indenture requirement and this 14 was a taxpayer protection provision. 15 And one of those provisions said that before 16 the funds could be used to pay for construction of the 17 convention center facility, the Authority would have to 18 certify to its trustee the following: 19 And one of the things it would have to certify 20 is that the Authority has sufficient funds to complete 21 construction of the facilities in full accord with final 22 plans and specifications. The logic being to protect 23 county taxpayers. Under the guarantee, the Authority 24 was not going to be able to spend any money until it 25 first certified that it had adequate funds available to 4 1 finish the project. So that was an important 2 precondition to signing the guarantee, that that 3 provision be in the indenture. 4 When you go to the indenture, though, it's just 5 not there. 6 Section 5 -- 2.05 (b) of the indenture includes 7 the language that you'll hear the Authority says was 8 intended to satisfy this requirement. And you can see 9 that as to the Convention Center Authority, there are 10 two things that had to happen. 11 The issuer, meaning the Authority, shall cause 12 to be delivered to the trustee. So they don't have to 13 certify anything, they just have to deliver documents to 14 the trustee. 15 One of the things they have to deliver are 16 complete plans and specifications. The second thing 17 that they need to deliver is a project budget showing 18 the cost of construction and the cost of nonconstruction 19 items. 20 Now, it doesn't say that this budget has to 21 reflect what was required in the ordinance. There's 22 nothing saying that -- in the indenture saying that this 23 budget must demonstrate or certify that the Authority 24 has sufficient funds to complete construction to 25 facilities. It just says you have to have a budget. 4 1 There are some budgets that are balanced and 2 some budgets that are not. Congress every year passes 3 an unbudgeted [sic] balance, so we have deficit 4 spending. 5 Well, this language would allow the Authority 6 to present a budget of the same type under the 7 indenture. But that's not what was required in the 8 ordinance. 9 Now, what you'll hear today from the plaintiffs 10 is that this is like horseshoes, this was close enough, 11 and that the Court should assume that the reference to a 12 project budget means a balanced budget. 13 Well, that's not what was required in the 14 ordinance. The ordinance -- it would have been very 15 simple. They could have simply taken the language from 16 the ordinance and just put it into the indenture. They 17 didn't do that, and there's a discrepancy there and a 18 very notable discrepancy that doesn't fulfill the 19 commitment to Lancaster County taxpayers that was 20 promised in the ordinance. 21 Now, notwithstanding that this taxpayer 22 protection provision from the ordinance was not 23 completed and in compliance to the indenture, the County 24 guarantee was signed and delivered in December of 2003 25 in violation of Ordinance 73. 4 1 Now, the second issue regards the hotel room 2 tax. 3 There's nothing for Your Honor to enjoin. The 4 County's taken no action. The County hasn't even 5 proposed taking any action. All they're doing is 6 talking and listening. 7 Further, even if they were to take action, we 8 believe that the statute and the guarantee to the extent 9 it would be valid, which we believe it's not, would 10 not -- would not lead to enjoining the Commissioners. 11 The state law, as Mr. Pittinsky indicated, 12 doesn't say anything about reducing the area tax. It 13 just says you can't reduce the tax rate. It's very 14 explicit on that. 15 They argue that the ordinance -- I'm sorry, 16 that the guarantee agreement goes further by prohibiting 17 any reduction -- you can't reduce, diminish or repeal 18 and they say that ought to apply not only to the rate, 19 but also to the area. And that's vague and we could 20 interpret it that way. In fact, as they pointed, out 21 Commissioner Shellenberger does. Commissioner Henderson 22 doesn't. Maybe that's why they're not taking any 23 action, Your Honor, it's vague. 24 But more importantly, it's ineffective, because 25 it's in a guarantee agreement that wasn't lawfully 4 1 signed to begin with. 2 And they're not doing anything at this point 3 other than talking and listening. And the irony here, 4 Your Honor, is that Lancaster Newspapers, which one 5 would think is going to be in favor of freedom of speech 6 and the First Amendment, owned 33 percent of Penn Square 7 Partners, they're trying to stop the Commissioners from 8 listening and talking. 9 We -- if you were to grant that type of 10 injunction, Your Honor, then people will be before this 11 court every time a politician has some provocative idea 12 asking to enjoin that elected official from speaking out 13 on what they are contemplating possibly doing or 14 evaluating. And we don't think that's a proper use of 15 this court system, and nor do we think that's the type 16 of country we live in. 17 The third issue is that the plaintiffs do not 18 have clean hands as they are required to have for 19 equity. 20 In 2003, the Authority sold a bond, one bond, 21 to Citizens Bank for $40 million and they took those 22 proceeds, less the closing costs, and put it in an 23 account in Citizens Bank, where that money is still 24 sitting today, two-and-a-half-years later. 25 They haven't spent it on construction. In 4 1 fact, the documents, you'll hear, prohibit them from 2 spending even a penny of that money on construction. 3 Further, I mention the closing costs. Those 4 were over 400,000. Well, the interest that they have 5 paid Citizens Bank on the bonds is greater than the 6 interest Citizens Bank is paying the Authority on its 7 account, creating negative arbitrage of over several 8 thousand dollars a month, which over 9 two-and-a-half-years is now over $600,000. 10 So you combine that with the closing costs, 11 there's a million dollars of taxpayer money that was 12 spent to issue this $40 million bond, the proceeds of 13 which are sitting at Citizens Bank and can't be used. 14 They can't be used until when? Until the 15 Authority is ready to spend the money. Once they're 16 ready to spend the money, then they will, as they call 17 it, remarket the bond into tax-exempt financing, which 18 is the kind of financing you get when you're ready to 19 construct and you need the funds for construction. 20 Well, why would they have done this back in 21 2003 when they weren't anywhere near ready for 22 construction, and now two-and-a-half-years later, it's 23 cost taxpayers a million dollars? Why would they do 24 that? 25 And the answer is simple. They knew back in 4 1 2003 that of the three members of the Board of 2 Commissioners two were supportive of the County 3 guarantee, one was not. 4 And Commissioner Shaub, who opposed the 5 guarantee in 2003, was the only commissioner at that 6 time running for reelection. In fact, every candidate 7 in the fall of 2003, who was running for -- in the 8 November election, had come out opposed to the County 9 guarantee. 10 So the Authority knew if it was gonna get this 11 guarantee, it had to get it done by the lame duck Board 12 of Commissioners in what the Supreme Court of 13 Pennsylvania called a midnight contract under the local 14 legal doctrine and they needed to tie the hands of the 15 incoming Board of Commissioners, who they knew would not 16 approve a guarantee, and they needed to tie the 17 Commissioners' hands in two respects. 18 Number one, they needed the County guarantee 19 and they wanted to create this $40 million of debt that 20 wasn't needed at the time, for the purpose of adhering 21 to that debt the County's guarantee, which would then be 22 transferred to the refinancing years later when they 23 would need the money. 24 So they wanted a lot -- to lock the new board 25 into the guarantee. They also wanted to lock the new 4 1 board into the tax rate. 2 As Mr. Pittinsky had indicated, once the bond 3 was sold, the Citizens Bank was sold in 2003, under 4 state law, the tax rate cannot be decreased. 5 So now they've got the County on the hook, 6 notwithstanding knowing what the new Board of 7 Commissioners would say, with regard to both the 8 guarantee and the tax rate. That's why they did this 9 back in 2003. 10 And that's the kind of conduct that the Supreme 11 Court has frowned upon as unenforceable midnight 12 contracts and the contracts before you today, Your 13 Honor, that's unclean hands. 14 And that's not the only unclean hands you're 15 going to hear about during the testimony today. 16 The fourth and final important issue today is 17 that there's no immediate or irreparable harm to 18 plaintiffs caused by Resolution 36 or Resolution 37 or 19 talking and listening about the possibility of reducing 20 the hotel tax collection area. 21 Just look at the cost estimates you'll be 22 hearing about for this project. When it started in 23 1999, the estimate was 75 million. In November of 2004, 24 the estimate was reported as $129 million. Now, at that 25 point, November of 2004, the current Board had been in 4 1 office for almost a year. They started in January. And 2 in November of 2004, they're there for about a year. 3 The costs have gone up to 129 million. 4 The Commissioners have done nothing during that 5 year. They weren't asked to do anything with respect to 6 the convention center project. So they can't blame that 7 increase from 75 million to 129 million on this Board of 8 Commissioners. 9 Then, in July of '05, there was a new estimate 10 that went up by 5 million, $134 million. Well, the 11 Commissioners didn't do anything in that interlude to 12 cause this increase in $5 million. So they blame that 13 increase to 134 million on the Commissioners. That was 14 the last reported cost estimate until they went to bid 15 this May. 16 So they went almost a year from the last 17 estimate to when they go to bid. And what happened? 18 Well, their bids were $25 million over their estimate 19 from a year earlier, that they're blaming on the 20 Commissioners on Regulation 36 and 37, and talking about 21 possibly changing the area of the hotel tax; however, 22 the bids were received May 17th. 23 Commissioner Henderson didn't start talking 24 about possibly changing the area of the hotel tax until 25 two weeks later, May 31st. You can't blame her for 4 1 that, for that overbudget bid. 2 Resolution 37 was May 24th, a week after the 3 bids were received. Once again, how can you blame the 4 Commissioners for the bids coming in $25 million too 5 high? Resolution 36, that was a week before. 6 So apparently what they're gonna try to 7 convince you, Your Honor, is that Resolution 36, passed 8 a week before, is what caused $25 million being bid 9 above and beyond their estimate from the week before. 10 And even if they can do that, Your Honor, they 11 still don't get preliminary injunctive relief. Because 12 guess what? They fixed the problem. They're going to 13 have High Construction, who has been involved in this 14 project all along, bid on -- now that they're rebidding 15 the key contracts, that constitutes 93 percent of this 16 $25 million over.bid, High Construction is gonna bid on 17 that, because they wanted to make sure they had someone 18 who knew the project inside and out and who wasn't going 19 to be unduly affected by the Commissioners' actions. 20 They've taken care of the problem. They don't 21 need an injunction. They've got someone who is not 22 going to be affected by the Commissioners' actions, so 23 there's no need for injunctive relief. 24 And so those are the four key issues, all of 25 which we think are simple, straightforward and should 4 1 lead the Court to deny these motions. 2 Now, we had prepared a notebook of all the 3 exhibits and I've shared those with counsel and provided 4 one to the court reporter and I have a book for you and 5 your clerk, if I may come forward. 6 THE COURT: Thank you. 7 MR. KELIN: Thank you, Your Honor. 8 THE COURT: Thank you, Mr. Kelin. 9 All right. Are you ready to call your first 10 witness? 11 MR. FENNINGHAM: I am, Your Honor. Preliminary 12 to that, while I do not object to Mr. Kelin's notebook, 13 because it does not contain all of the financing 14 documents, Your Honor, I intend to proceed with the 15 introduction of the petitioner's exhibits. 16 THE COURT: Okay. 17 MR. FENNINGHAM: And if I may approach the 18 court reporter, Your Honor, I'll provide what will be 19 Exhibits A-1 through A-12. 'A' being the Authority, if 20 that's appropriate. 21 THE COURT: A-1 through 12? 22 (Authority's Exh. Nos. 1 - 12 marked.) 23 MR. FENNINGHAM: And Your Honor, the Authority calls as its first witness, David Hixson. 24 DAVID HIXSON, 25 Called as a witness, being duly sworn or affirmed, was examined and testified as follows: 4 1 2 DIRECT EXAMINATION 3 BY MR. FENNINGHAM: 4 Q. State your name. 5 A. David Hixson, H-i-x-s-o-n. 6 Q. What is your current employment position, 7 Mr. Hixson? 8 A. I am the executive director of Lancaster County 9 Convention Center Authority. 10 Q. When were you first hired to be the Authority's 11 executive director? 12 A. I was hired July 9th, 2003. 13 Q. And in the context of your position, are you 14 the chief executive officer responsible to report to the 15 seven-member authority board? 16 A. That's correct. 17 Q. Do you report on the day-to-day activities of 18 the Convention Center Authority? 19 A. Correct. 20 Q. What is the statutory mission of the Authority? 21 A. The statutory mission of the Authority is to 22 finance, build and operate a successful convention 23 center in Lancaster. 24 Q. And the project as it is currently designed is 25 contemplated to place the convention center at the Penn 4 1 Square location, the Watt & Shand building in downtown 2 Lancaster? 3 A. That is correct. 4 Q. When you were hired in 2003, was the -- the 5 Authority involved in litigation over the 6 constitutionality of the hotel room rental tax? 7 A. It was. 8 Q. And do you know when that litigation was 9 concluded, if it was? 10 A. It was in August of 2003. 11 Q. Describe generally the efforts you were 12 personally involved in to advance the project following 13 the conclusion of what has been referred to as the bold 14 litigation in August of 2003. 15 A. As newly-hired executive director, the first 16 thing I did was sit down with the advisory team, which 17 includes Tom Beckett as our financial advisor, Tom was 18 with Fairmount Capital Associates at the time. 19 The determination was made that it was 20 critical, given that the litigation was now over, that 21 the Authority proceed with locking its financing in 22 place. 23 At that time, Mr. Beckett recommended to the 24 Authority and I that we seek a guarantee in order to 25 maximize the capacity at the bond market, which without 4 1 the guarantee, was 25 million; with a guarantee could 2 get us near 40 million. 3 I recall at that time he recommended we could 4 either go with the County or the City as a municipal 5 entity. 6 At that point in time, given the stronger bond 7 rating of the County, he recommended that we seek out 8 the County and we did so. 9 The Board of Commissioners at that time was 10 receptive to the Authority approaching it in regards to 11 a guarantee. We made a presentation to the County. 12 That Board of Commissioners agreed with us. They 13 approved a guarantee and we completed our financing in 14 December of 2003. 15 Q. Was the Authority at the same time, in the fall 16 of 2003, in the process of attaining funding for the 17 project from the Commonwealth of Pennsylvania? 18 A. It was. We had a letter of commitment for a 19 $15 million redevelopment assistance capital program 20 grant that went through Governors Ridge, Schweiker and 21 then Rendell. 22 The Commonwealth was supportive but they wanted to 23 see some type of ability from the Authority to provide 24 matching funds to satisfy requirements within the grant 25 application. 4 1 Q. Was -- was the Authority, in late 2003, seeking 2 local governmental assistance to advance the funding 3 with both the state and with local -- with the local 4 county? 5 A. Correct. Because if you look at that time, on 6 the Authority's side of the ledger, we really had two 7 main tronches of funding. One was the bond issue; the 8 other was the $15 million RCAP grant. 9 By moving forward at that time, the litigation 10 was over, obviously we couldn't move forward with the 11 litigation still ongoing. 12 Once it was lifted, at that point, we really 13 saw it as a $30 million business issue for the 14 Authority. 15 One, securing the $15 million commitment from 16 the Commonwealth of Pennsylvania through the grant; the 17 other, the $15 million additional capacity we generated 18 at the bond market by obtaining the County guarantee. 19 Q. So to understand those two tronches, as you use 20 that term, the assistance, the local governmental 21 assistance in the financing of the project at that time 22 was through the guarantee sought from the County of 23 Lancaster? 24 A. Correct. 25 Q. Did the Authority's board convene a special 4 1 meeting this year, June 13th, 2006? 2 A. Yes, it did. 3 Q. And what was the purpose of the special 4 meeting? 5 A. To initiate litigation. 6 Q. And did the full -- did the Board authorize the 7 filing of this current lawsuit to which we're here this 8 morning? 9 A. The Board did. The Board did, yes. 10 Q. Did you verify the complaint and the petition 11 after the Authority's Board approved the filing of this 12 action in court? 13 A. I did. 14 Q. Appended to the Authority's complaint as 15 Exhibit A is the -- is a county guarantee agreement 16 dated December 15, 2003. 17 Is that the form of the local county assistance 18 that you've referred to in your testimony? 19 A. It is. 20 Q. And also appended to the Authority's complaint 21 as Exhibit I is an affidavit of Thomas K. Beckett, Jr., 22 dated June 8th, 2006. 23 Is that Thomas Beckett the financial advisor that 24 you referred to in your testimony? 25 A. He is, yes. 4 1 Q. What is his role -- his current role or 2 position with regard to the Authority? 3 A. He remains our financial advisor. 4 Q. Has Mr. Beckett been the financial advisor from 5 the time that you were first hired to the present? 6 A. Yes, he has. 7 Q. To whom does Mr. Beckett report with regard to 8 his efforts to advance the financial interests of the 9 Authority and the project? 10 A. On a day-to-day basis, he reports to me as the 11 executive director. 12 Q. Within paragraph 16 of the Authority's 13 complaint -- 14 MR. FENNINGHAM: Which if I may, Your Honor, 15 may I approach the witness? 16 THE COURT: Yes, you may. 17 BY MR. FENNINGHAM: 18 Q. Mr. Hixson, let me first just confirm by 19 reference to page 44 of the complaint, is that your 20 signature on the verification page? 21 A. It is. 22 Q. And would you state the date? 23 A. 6-13, 2006. 24 Q. If I refer you to pages 9 and 10 of the 25 Authority's complaint in this matter, and paragraph 16, 4 1 does that contain a listing of subparagraphs A through W 2 of documents? 3 A. Yes. 4 Q. And can you describe the nature or the scope of 5 those documents for Your Honor? 6 A. Yeah. Those are the documents that essentially 7 encapsulate the commitments of the respective parties 8 towards finalizing the guarantee and the commitment to 9 proceed with the financing of the bond issue for the 10 Convention Center Authority. 11 Q. Have you, as executive director, had occasion 12 to review those 2003 financing documents at various 13 times? 14 A. Yes. 15 MR. FENNINGHAM: Your Honor, I would proceed to 16 utilize Exhibits A-1 through A-12, if I may. 17 THE COURT: All right. 18 MR. FENNINGHAM: They've been previously 19 marked. 20 THE COURT: I'm assuming that the authenticity 21 of those documents would be the subject of a 22 stipulation? 23 MR. KELIN: Agreed. 24 THE COURT: Thank you. 25 BY MR. FENNINGHAM: 4 1 Q. Mr. Hixson, if you would refer to, I believe, 2 Exhibit A-6, which is the County guarantee agreement. 3 MR. FENNINGHAM: And for cross reference, Your 4 Honor, that's Exhibit A to the Authority's complaint. 5 Do you have -- may I stand over here, Your 6 Honor? 7 THE COURT: Yes, you may. 8 MR. FENNINGHAM: Thank you. 9 BY MR. FENNINGHAM: 10 Q. Do you have an understanding of the scope of 11 the County guarantee obligation under the executed 12 guaranteed? 13 A. I'm trying to locate A-6 here. 14 Q. Let me assist. 15 Let me repeat, do you have an understanding of 16 the scope of the County guarantee agreement marked as 17 Exhibit A-6? 18 A. I did. 19 Q. Could you describe your understanding? 20 A. My understanding is that the County guarantee 21 is irrevocable, absolute and unconditional. 22 Q. Does your understanding -- do you have an 23 understanding of whether the County guarantee agreement 24 applies to the Series 2003 bonds sold to Citizens Bank? 25 A. Yes, by definition of the bonds it does. 4 1 Q. And do you have an understanding whether the 2 County guarantee obligation and the County guarantee 3 agreement applies to subsequent bondholders to the 4 extent that the Citizens Bank Series 2003 bonds are 5 refunded? 6 A. Right. By the same definition, I do. 7 Q. Would you refer, please, to the first whereas 8 clause on the first page of Exhibit A-6? 9 A. Yes. 10 Q. And I'll point to you, do you see in 11 parenthetical note, the definition in quotes, of the 12 word bonds? 13 A. I do. 14 Q. And would you read for the Court what follows 15 that -- that quotation? 16 A. Which term shall include any bonds subsequently 17 issued under the indenture hereinafter identified to 18 refund said series of 2003. 19 Q. And is it your understanding that that 20 description encompasses the remarketing of the 2003 21 bonds to subsequent bondholders? 22 A. That is my understanding, yes. 23 Q. Is there any other understanding that you have 24 with regard to the scope of the County guarantee 25 agreement? 4 1 A. No. As I stated earlier, my understanding is 2 it's irrevocable, unconditional and absolute. 3 Q. If I may, Your Honor, I'll show the -- the 4 witness, Mr. Hixson, paragraph 18 of the Authority's 5 complaint. 6 And ask you if there's any economic indication of 7 the scope of the County obligation? 8 A. Would you like me to read it? 9 Q. Well, just state your understanding of the 10 economic scope of the County obligation. And, again, 11 I'm using that phrase as it's used in the guarantee 12 agreement, capital C, capital O, county obligation? 13 A. Well, as I look at that particular number, the 14 obligation is capped at -- it cannot exceed 1.5 million 15 approximately. 16 Q. On an annual basis? 17 A. On an annual basis, correct. 18 Q. As part of the structure -- as part of the 19 structure of the 2003 bond financing, in connection with 20 the County guarantee agreement, did the Authority enter 21 into what is titled as a reimbursement agreement, which 22 you'll find marked as exhibit A-7? 23 A. Yes, it does. 24 Q. And do you have an understanding of the scope 25 of the Authority's reciprocal obligations under the 4 1 provisions of the reimbursement agreement? 2 A. I do. 3 Q. Would you turn to section 4 or paragraph 4 of 4 that agreement? 5 A. Entitled obligations absolute? 6 Q. Yes. 7 A. Yes. 8 Q. Does the express provisions of that document 9 obligate the Authority in an irrevocable, absolute and 10 unconditional manner reciprocal to the County's 11 guarantee action? 12 A. Yes, it does. 13 Q. Similarly, as part of the 2003 bond 14 restructuring with the County guarantee, do you have an 15 understanding as to the hotel tax payment acknowledgment 16 agreement, which is marked for identification as Exhibit 17 A-5? 18 A. I do. 19 Q. Would you please turn to section 4? 20 Does that appropriately describe your 21 understanding of the scope of that obligation? 22 A. Section 5? 23 Q. Section 4. 24 A. I'm sorry. 4. It does, yes. 25 Q. Would you read that provision for the benefit 4 1 of the Court? 2 A. Sure. The foregoing directions are irrevocable 3 and shall not be subject to modification by the 4 Treasurer or the County, unless consented to by the 5 trustee, the bank, as long as any bonds are secured by a 6 letter of credit under the indenture and the Authority. 7 Q. So is it your understanding that the structure 8 of this 2003 financing was within those documents 9 referred to irrevocable, absolute and unconditional? 10 A. Yes. 11 Q. To your knowledge, was the 2003 bond financing 12 in connection with Citizens Bank consummated after the 13 documents were executed? 14 A. It was. 15 Q. And would you please refer to exhibits A-10, 11 16 and 12 that are marked for identification this morning. 17 Would you just identify A-10 for the Court? 18 A. A-10 is receipt of trustee. 19 Q. And does that memorialize the receipt by the 20 trustee under the trust indenture of the 40 million net 21 proceeds? 22 A. It does. 23 Q. And Exhibit A-11, would you describe that 24 document for the Court? 25 A. Receipt of purchase price. 4 1 Q. And does that describe or memorialize a receipt 2 by the Authority of the funds generated by the $40 3 million bond financing? 4 A. It does. 5 Q. And I guess finally, would you refer to Exhibit 6 A-12, which is identified by its title as the closing 7 statement? 8 A. Yes. 9 Q. Does that memorialize the disposition of the 10 2003 bond financing funds? 11 A. Yes, it does. 12 Q. Is there a document attached to Exhibit A-12 as 13 part of the document? 14 A. Let me see the exhibit. 15 Q. All right. It's not there. 16 MR. FENNINGHAM: Your Honor, I'll have to 17 supplement that. Excuse me. 18 BY MR. FENNINGHAM: 19 Q. As part of the bond financing documents, and 20 I'm showing you what's been marked for identification as 21 A-8, did you understand that the County had retained 22 special bond counsel in 2003? 23 A. Yes. 24 MR. FENNINGHAM: Your Honor, may I add to 25 Exhibit A-12 a -- what was part of the original closing 4 1 statement identified as Exhibit A? 2 THE COURT: Any objection, Mr. Kelin? 3 MR. KELIN: No. No objection. 4 THE COURT: All right. You may add that. 5 MR. FENNINGHAM: Thank you. 6 BY MR. FENNINGHAM: 7 Q. Now, let me go back, Mr. Hixson, in connection 8 with exhibit A-12. As part of the original closing 9 statement, was there an attachment, Exhibit A? 10 A. Yes. 11 Q. And does that record and memorialize 12 disbursements in connection with the closing costs for 13 the 2003 bond financing? 14 A. It does. 15 Q. Is there an indication of receipt of funds by 16 the County's special bond counsel? 17 A. Yes. 18 Q. And that firm was Leisawitz Heller Abramowitch 19 & Phillips, PC, law firm? 20 A. Yes. 21 Q. So I ask you to review Exhibit A-8 marked for 22 identification. It is on the letterhead of that law 23 firm. It's a letter dated December 16th, 2003. 24 Do you have an understanding of what that document 25 is? 4 1 A. It's the opinion letter of the special counsel 2 to the County. 3 Q. Is that opinion letter addressed to various 4 addresses? 5 A. It is. 6 Q. Is one of those addressees the County of 7 Lancaster? 8 A. Yes. 9 Q. And is another the Lancaster County Convention 10 Center Authority? 11 A. Yes. 12 Q. And the third is the Trustee Manufacturers and 13 Traders Trust Company? 14 A. Yes. 15 Q. Why was the bond financing involving Citizens 16 Bank of Pennsylvania as the bond purchaser and the 17 execution and exchange of all of these related bond 18 financing documents, A-1 through A-12, completed in 19 December of 2003? 20 A. Again, it was really twofold. 21 The first was to demonstrate to the 22 Commonwealth of Pennsylvania, who had indicated through 23 a letter of commitment, but to demonstrate to them that 24 they -- we had the dollars to the -- the matching funds, 25 if you will, to go ahead and execute a contract with the 4 1 Commonwealth of Pennsylvania; said contract we executed 2 in March of 2004. 3 The other was to maximize the capacity at the 4 bond market in order for us to get another $15 million. 5 So essentially, as I had indicated, if you take the 6 securing of the $15 million state grant and you add to 7 that the $15 million additional at the bond market, it 8 was a $30 million economic issue for the Convention 9 Center Authority and the project. 10 Q. Now, let me try to isolate on this second 15 11 million that you've referred to, just so we're all 12 clear. 13 Did you have an understanding that without the 14 County guarantee agreement and obligation, what was the 15 scope of the financing that the Authority could obtain 16 in 2003 in connection with the bond issuance? 17 A. What was the scope of the financing with the 18 guarantee? 19 Q. Without the guarantee. 20 A. Without the guarantee it was roughly $25 21 million. 22 Q. And is it -- is it the ratio that with the 23 County guarantee, agreement and obligation, that the 24 bond financing was raised to $40 million? 25 A. That's correct. Our capacity at the bond 4 1 market was expanded from 25 to 40 million. 2 Q. So it's that difference, it's that $15 million 3 that was added to the financing? 4 A. Correct. 5 Q. For the project? 6 A. Correct. 7 Q. And then the other 15 million was -- was an 8 inverse order the matching funds in a sense from the 9 Commonwealth? 10 A. Right. And 90 days later we received an 11 executed contract from the Rendell Administration. 12 Q. All right. Now, you heard Mr. Kelin give his 13 opening statement. 14 Was there an understanding that if the 15 Authority proceeded in 2003, in the fall, that the Board 16 of Commissioners would be receptive to assisting the 17 Authority? 18 A. Yes. 19 Q. And so was a decision made to proceed to 20 address the Board of Commissioners in regard to the 21 financing plan? 22 A. A decision was made to do that. 23 Q. And, again, the -- the reference you made to 24 March of 2004, the Authority actually received a state 25 grant, I believe you referred to it as an RCAP program 4 1 grant? 2 A. Right. It's an executed contract. 3 Q. From the period following December 15, 2003, 4 the date of the financing agreements, including the 5 guarantee agreement, to roughly May 10 of this year, 6 2006, did anyone tell you that the County guarantee 7 agreement was not valid regardless of the reason? 8 A. No. 9 Q. Conversely, was there ever a time, to your 10 personal knowledge, that either or both of the two 11 defendant commissioners, Mrs. Henderson and 12 Mr. Shellenberger, acknowledged the existence and 13 validity of the County guarantee agreement in connection 14 with the Authority's 2003 bond financing? 15 A. Yes. 16 Q. Could you explain? 17 A. I don't have the exact date, Your Honor. It 18 was in the spring of 2004, I want to say April of 2004, 19 that there was a meeting in the mayor's conference room 20 with many community leaders and political leaders, as 21 well as a representative from the governor's office, 22 Larry Segal. At that meeting, we explained to Mr. Segal 23 the issue we were having as it relates to a gap. At 24 that meeting, Mr. Segal indicated to the room, which 25 included the mayor, Senator Armstrong, Representative 4 1 Sturla, the three commissioners, representatives for 2 both the Authority and Penn Square Partners, Mr. Segal 3 indicated to the room that the governor was willing to 4 help, but he wanted to see more local commitment or more 5 local pain, as he described it. 6 At that meeting, Commissioner Henderson 7 acknowledged that the County, had, in fact, guaranteed 8 the bond issue for the Convention Center Authority. 9 Q. Did anyone in that meeting question whether the 10 County guarantee agreement was valid and enforceable at 11 that time? 12 A. No. 13 Q. And to your understanding, was Commissioner 14 Henderson responding to Mr. Segal in such a way that 15 affirmed the County obligation? 16 A. Yes. 17 Q. Did Commissioner Shellenberger make any comment 18 one way or the other at that meeting? 19 A. No. 20 Q. He did not object to reference to the County 21 guarantee agreement? 22 A. No. 23 Q. Have you taken any action currently with regard 24 to the remarketing of the Series 2003 bonds either in 25 connection with the Authority's advisers or any other 4 1 action? 2 A. Given the juncture of the project and where 3 we're at right now with the completion of design and 4 working through the bidding process and other issues, I 5 have instructed the financial advisor to work on 6 completing the financing in the very near future. 7 Q. Has Mr. Beckett -- are you referring to 8 Mr. Beckett -- 9 A. I am. 10 Q. -- as the financial advisor? 11 A. I am. Yes. 12 Q. Has he reported to you currently his efforts, 13 if any, and what result, if any? 14 A. Mr. Beckett, I think, had been very diligent in 15 his efforts by virtue of the reports that he has 16 provided to me and the Authority. 17 He has indicated to me that given the current 18 environment that we are now operating in, that it has 19 become extremely difficult to work with bond insurers or 20 banks who may provide a letter of credit for our banks 21 in order to complete the deal that would enable us to 22 refinance our bonds later this year. 23 Q. When you use the term deal, do you mean the 24 remarketing of the Series 2003 bonds? 25 A. The remarketing of the bonds, yes. 4 1 Q. And did Mr. Beckett -- or do you have an 2 independent understanding of the difficulties and the 3 reason for the difficulties that exist today? 4 A. Yeah. I mean, primarily, we have a situation 5 in which the County Commissioners have created an 6 environment, I think it's actually poisoned the 7 environment in order for us to complete our financing, 8 by virtue of Resolutions 36 and 37, and by virtue of 9 their threats in a public forum to re-examine and shrink 10 the market area, which would diminish the hotel room 11 tax, which is the life blood of the Convention Center 12 Authority. 13 MR. FENNINGHAM: Your Honor, if I may. 14 Your Honor, may I have these two documents 15 marked as Exhibits 13 and 14? They are Resolutions 36 16 and 37. 17 Your Honor, they're also in Mr. Kelin's 18 notebook. 19 THE COURT: I think they're all over the place 20 here. 21 (Applicant's Exh. Nos. 13 and 14 marked.) 22 BY MR. FENNINGHAM: 23 Q. Mr. Hixson, you've been handed what's been 24 marked for identification as Exhibit A-13. 25 Would you just describe that? 4 1 A. Yeah, A-13 is Resolution Number 36 of 2006, 2 adopted by the Board of Commissioners. 3 Q. And is it your understanding that that 4 resolution was adopted on May 10 of this year? 5 A. Yes, that's my understanding. 6 Q. Do you have an understanding or do you know 7 that Commissioner Henderson began discussing the subject 8 matter of Resolution 37 in early May of 2006? 9 A. Yes. 10 Q. And the document marked for identification as 11 Exhibit A-14, would you describe that, please? 12 A. A-14 is Resolution Number 37 of 2006, adopted 13 by the Lancaster County Board of Commissioners. 14 Q. And would you turn to the last page of that 15 document? 16 A. Yes. 17 Q. And would you refer to the last subject -- 18 subparagraph of Resolution 37? 19 A. Yes. 20 Q. Do you have an understanding of that paragraph 21 indicating current determinations by the Board of 22 Commissioners, at least commissioners Henderson and 23 Shellenberger, with regard to the County obligation 24 under the County guarantee agreement? 25 A. Yes. 4 1 Q. What is that understanding? 2 A. That they would move not to allow the 3 attachment of the guarantee once we move forward with 4 the remarketing of our bonds. 5 Q. And does that resolution -- that is, official 6 resolution of this Board of Commissioners by a 7 two-to-one vote, does that direct any action by any 8 employee of the County? 9 A. Does it direct -- it directs the chief clerk to 10 advise the LCCA bond indenture trustee, Citizens Bank, 11 and other relevant parties of this determination of the 12 Board of Commissioners. 13 Q. Of what? 14 A. Their -- their intent not to allow the 15 attachment of the County guarantee to any LCC 16 obligation, other than the Citizens Bank bond secured by 17 the escrow. 18 Q. And is it your understanding that if that is 19 allowed to be carried forward by this Board of 20 Commissioners, that it would lock the guarantee 21 agreement to only Citizens Bank of Pennsylvania? 22 A. That's my understanding. 23 Q. And do you have an understanding that the term 24 or tenure of the bond financing with Citizens Bank has 25 an expiration date? 4 1 A. Yes, I am aware of that. 2 Q. And what is that expiration date? 3 A. December 1st, 2006. 4 Q. Can the Series 2003 bonds be remarketed without 5 the County guarantee? 6 A. No, they cannot. 7 Q. Can the Authority obtain a guarantee sufficient 8 to remarket the County guarantee bond other than the 9 County of Lancaster? 10 A. No, it cannot. 11 Q. If the Authority cannot remarket the 2003 12 bonds, what is the impact as it is currently designed? 13 A. The project cannot move forward. 14 Q. If the Commissioners, particularly 15 Mrs. Henderson, proceeds with efforts to reduce or 16 diminish the market area of Ordinance 45 of 1999 and -- 17 are you familiar with that subject? 18 A. I am familiar with that subject. 19 Q. What is the market area under Ordinance 45 of 20 1999? 21 A. It is the County of Lancaster. 22 Q. It's not just the City of Lancaster? 23 A. Correct. It is the entire county. 24 Q. The entire county. 25 And if they proceed, those two commissioners, the 4 1 defendant commissioners, to reduce or diminish the 2 market area relating to the hotel room rental tax, what 3 is the impact on the project? 4 A. The impact is it would diminish the hotel room 5 tax and put us on the road to insolvency as an 6 Authority. 7 Q. Do you have an understanding as to if the bond 8 financing documents addressed the hotel room rental tax 9 as a stream of revenues for the Authority? 10 A. Yes. 11 Q. In 2003? 12 A. Right. 13 Q. What's your understanding? 14 A. My understanding is that our bonds are secured 15 by that hotel room tax. It's a pledge. The hotel room 16 tax is the life blood of the Convention Center 17 Authority. It pays our operations, and it also serves 18 as the security for us to do our bond issue, which we 19 did. 20 Q. And would the hotel room rental tax be the 21 source of revenues for the Authority to cover or pay the 22 debt service associated with the 2003 remarketing of the 23 bonds? 24 A. Correct. Right. 25 Q. Will this have any impact as far as the -- any 4 1 diminishment of the hotel room rental tax as an income 2 stream to the Authority, will that have any impact on 3 the Authority's funding commitments from the 4 Commonwealth of Pennsylvania? 5 A. I believe that it will. 6 Q. Was this a subject -- was this a subject 7 discussed in April of 2004 when the local governmental 8 officials met with Mr. Segal? 9 A. Mr. Segal and the administration were under the 10 impression, and rightfully so, that the 40 million bond 11 issue was in place by virtue of the guarantee that was 12 granted in October of 2003 and the bond issue that was 13 completed in December of 2003. 14 So they're working under the assumption that 15 that will be there. 16 Q. And is your understanding that the County 17 guarantee obligation under the guarantee agreement is 18 part and parcel of the hotel room rental tax income 19 stream? In a sense, are they tied together? 20 A. They are tied together, yes. 21 Q. Will the Authority lose the economic 22 opportunity necessary to fulfill its statutory mission 23 if the commissioners' actions in adopting Resolutions 36 24 and 37 and in threatening to reduce the market area of 25 the hotel room rental tax, if those actions are not 4 1 precluded? 2 A. We cannot move forward and essentially, we will 3 not be able to fulfill the statutory mission of the 4 Authority. 5 Q. To your knowledge, as executive director of the 6 Authority, could the Authority simply calculate money 7 damages that it could seek to recover? 8 A. No. 9 Q. And why not? 10 A. We wouldn't be -- because we would not be able 11 to fulfill the mission of this Authority. 12 Q. And that is to construct a convention center as 13 designed currently with regard to Penn Square? 14 A. To design, construct and operate a successful 15 convention center. Right. 16 MR. FENNINGHAM: Thank you. I have no further 17 questions at this time. 18 THE COURT: All right. Mr. Pittinsky. 19 MR. PITTINSKY: I have no questions. 20 THE COURT: Thank you. Mr. Kelin? 21 MR. KELIN: Your Honor, would that be a 22 convenient time to stay a short break? 23 THE COURT: I was planning on going a little 24 bit longer. 25 MR. KELIN: That's fine. 4 1 THE COURT: I'd like to, at least, finish up 2 the witnesses. 3 MR. KELIN: All right. Thank you, Your Honor. 4 CROSS EXAMINATION 5 BY MR. KELIN: 6 Q. Good morning, Mr. Hixson. 7 A. Good morning. 8 Q. What Mr. Fenningham marked as Exhibit A-8 is 9 the opinion letter from the County's special counsel 10 that you mentioned earlier. 11 Could you get that before you, please? 12 A. Okay. I have it. 13 Q. And would you please -- and you had indicated 14 that the Authority was one of the recipients of that 15 letter, correct? 16 A. Correct. 17 Q. And so the Authority relied upon this letter, 18 correct? 19 A. Yes. 20 Q. Would you turn to page 3 of the letter, please? 21 Paragraph 3 at the middle of the page, where 22 the opinion is rendered that the guarantee agreement -- 23 and it lists some other documents -- 24 A. Yes. 25 Q. Delivered by, on behalf of the County, has been 4 1 duly authorized and approved. 2 Do you see that? 3 A. Yes, I do see that. 4 Q. Okay. So the Authority relied upon that 5 opinion by the County's special counsel, correct? 6 A. Correct. 7 Q. Okay. And if that turned out to be incorrect, 8 don't you understand that the Authority would have 9 action against the County's special counsel? 10 MR. FENNINGHAM: Objection, Your Honor. That's 11 beyond the scope of this proceeding. 12 THE COURT: I disagree. Overruled. 13 THE WITNESS: Could you repeat the question, 14 Mr. Kelin? 15 MR. KELIN: Yes. 16 BY MR. KELIN: 17 Q. If that representation in the County's special 18 counsel's opinion letter that the Authority relied upon 19 is incorrect, wouldn't the Authority have action against 20 the County's special counsel for having relied upon a 21 mistaken representation? 22 A. Well, you're asking me to render a legal 23 opinion which I would want to obviously confer with my 24 team before any decision was made; and, number two, the 25 Authority Board is the one that would authorize any 4 1 action. 2 Q. So you don't have any understanding one way or 3 the other whether the Authority would have legal action, 4 is that your testimony? 5 A. I can't make that representation on my own 6 without the direction of my Board. 7 Q. You -- you mentioned before that the 2003 8 financing with Citizens Bank resulted in the sale of one 9 bond to Citizens Bank, correct? 10 A. Correct. A single bond purchaser, yes. 11 Q. And that was $40 million, right? 12 A. Correct. 13 Q. And the Authority took those proceeds, less 14 $423,000 of closing costs, and deposited the rest with 15 Citizens Bank, right? 16 A. Yes, Citizens Bank holds the bond. 17 Q. And it's still there? 18 A. Correct. 19 Q. And how much of the 40 million is still there? 20 A. We're probably in the neighborhood of 39 21 million, I'm guessing. 22 Q. So Citizens Bank at the time of the 2003 23 transaction knew it was gonna be holding virtually all 24 of the 40 million, correct? 25 A. Correct. 4 1 Q. Okay. Didn't you understand that Citizens Bank 2 didn't need a county guarantee to agree to its part in 3 this role? 4 MR. FENNINGHAM: Objection to the form. He's 5 asking this witness what Citizens Bank understood. 6 THE COURT: Overruled. 7 THE WITNESS: We could have proceeded. We -- 8 we were under the mind-set that the Authority could have 9 proceeded without the guarantee, but, again, it became 10 an economic and business issue for the Convention Center 11 Authority at that time, because, one, it maximized our 12 capacity, it being the guarantee, maximized our capacity 13 at the bond market by $15 million, and the other thing 14 was it demonstrated to the Commonwealth of Pennsylvania 15 that we have funding that -- we have matching funds, and 16 I think enabled within a 90-day period the executed 17 contract from the Rendell Administration to come 18 forward. 19 BY MR. KELIN: 20 Q. Well, if you would listen to my question, 21 please, I'm talking just about Citizens Bank. I'm not 22 talking about going out into the bond market and needing 23 a guarantee for that. Just Citizens Bank. 24 You were going to sell a bond to Citizens Bank 25 for 40 million and deposit the 40 million in Citizens 4 1 Bank? 2 A. Right. 3 Q. Citizens Bank didn't need a guarantee, did it? 4 A. I don't believe they did, no. 5 Q. I'd like to switch topics a bit. 6 The original cost estimate for the combined 7 hotel/convention center project in 1999 was 8 approximately 75 million, correct? 9 A. Correct. 10 Q. And then in in November of 2004, the Authority 11 announced that the cost estimate had increased to $129 12 million, correct? 13 A. That's correct. 14 Q. You don't blame the Commissioners for that cost 15 increase, do you? 16 A. I blame the delays in the project as escalating 17 the costs in order to complete it. 18 Q. Would you please answer my question, sir. 19 You don't blame -- 20 MR. FENNINGHAM: He is answering the questions, 21 Your Honor. 22 THE COURT: Not exactly. 23 BY MR. KELIN: 24 Q. Mr. Hixson, my question is: You don't blame 25 the County Commissioners? You don't blame Commissioners 4 1 Shellenberger and Henderson specifically for that cost 2 increase, correct? 3 A. As we move through 2004, obviously, we had a 4 number of people at the table helping us to navigate 5 this project. 6 The Commissioners certainly were at the table 7 at that point in time and could have enhanced our 8 ability to get the project done. 9 Q. What did the Commissioners -- did you ask the 10 Commissioners to do anything before November, 2004, that 11 they failed to do? 12 A. No, we did not. 13 Q. So you don't blame them for the cost increase 14 that led to the $129 million new increased cost estimate 15 in November of 2004, correct? 16 A. Not directly. 17 Q. Then there was the next cost increase in July 18 of 2005 to 134 million, correct? 19 A. Yeah, that was -- we did a pricing exercise at 20 the end of design/development, which was in that 21 approximate time frame. 22 Q. You don't blame the Commissioners for that 23 additional $5 million cost increase, do you? 24 A. Not at that point in time no. 25 Q. Now, at the time of the announcement of the 4 1 July, 2005 cost increase to $134 million, do you recall 2 making a statement to a reporter that you felt that 3 there was no more time for smoke and mirrors, it's time 4 for leadership, honesty and open lines of 5 communication? 6 Do you remember making that statement? 7 A. I do remember making that statement. Yeah. 8 Q. Were you implying by that statement that 9 previously entities involved in the project had engaged 10 in smoke and mirrors and did not show honesty? 11 A. No, I was not. I don't believe so. 12 Q. Were you suggesting that all along, you and the 13 Authority had engaged honestly and you were simply 14 confirming your commitment to that? 15 A. Yes. 16 Q. Would you please -- the court reporter has a 17 premarked book of exhibits that's before you. 18 A. Okay. 19 Q. Would you please turn to Exhibit 18? 20 A. Okay. 21 Q. And can you confirm that Exhibit 18 consists of 22 some written answers to some questions that the County 23 Commissioners had presented to the Authority and Penn 24 Square Partners? 25 A. Yes. 4 1 Q. Okay. Now, can you -- in March of 2005, Penn 2 Square Partners had requested that the County, as well 3 as the School district, approve what's called a TIF 4 allocation, correct? 5 A. That's correct. 6 Q. And the way a TIF would work is that instead of 7 paying taxes to the County and the School District and 8 the city, Penn Square Partners would pay taxes but those 9 taxes would go to a trustee who would, in turn, use 10 those proceeds to pay for debt service on construction, 11 correct? 12 A. Correct. 13 Q. So this would be a way to convert what would 14 otherwise be real estate tax payments to pay debt 15 service for construction, correct? 16 A. Correct. 17 Q. All right. And do you recall that on March 18 11th of 2005, that the County Commissioners issued 19 written questions to Penn Square Partners and the 20 Authority and requested written answers and those 21 questions became known in the Lancaster community as the 22 57 questions? 23 A. Yes, I am aware of that. 24 Q. And this was the Authority's attempt to 25 respond, in writing, as had been requested, to some of 4 1 the questions that you thought the Authority could 2 provide helpful information on; is that correct? 3 A. That's correct. 4 Q. Would you please flip forward -- these pages 5 aren't numbered, but it's the sixth sheet. That says at 6 the back, LCCCA answers to question four convention 7 center. 8 Do you see that? It's the sixth sheet from the 9 front, the back of that sheet. 10 A. Is that at the top of the page? 11 MR. KELIN: your Honor, may I approach the 12 witness? 13 THE WITNESS: Here it is. I have that, 14 Mr. Kelin. 15 Answers to question four convention center. 16 BY MR. KELIN: 17 Q. Yes. 18 A. Yes, I got it. 19 Q. Okay. And is it not true that the questions 20 that you show in these answers aren't necessarily the 21 question that was asked, but is the Authority's attempt 22 in good faith to frame what you thought might have been 23 what the Commissioners were getting at and you're trying 24 to be responsive? 25 A. Correct. 4 1 Q. And 4-A says, how much reliance should the 2 taxing bodies place on the studies that have been 3 completed, correct? 4 A. That's correct. 5 Q. And the reason you framed that was because the 6 Commissioners had raised concerns in their 57 questions 7 that the studies that have been done were done sometime 8 ago, PricewaterhouseCoopers did studies in 2000 and 9 2002? 10 A. Uh-huh. 11 Q. C.H. Johnson did a study in 2003, correct? 12 A. Correct. 13 Q. And here we are in the spring of 2005 and the 14 Commissioners are raising questions both about 15 methodology of the studies as well as on timeliness, 16 correct? 17 A. That's correct. 18 Q. All right. And you were trying to address that 19 in this answer, right? 20 A. Correct. 21 Q. And you say in the first sentence, that the 22 Authority believes the studies prepared by PWC -- that's 23 PricewaterhouseCoopers, correct? 24 A. Correct. 25 Q. And CHJC, that's the Johnson firm, correct? 4 1 A. C.H. Johnson, that's correct. 2 Q. To be credible, thorough and reflective of 3 current and prospective market conditions, correct? 4 A. That's correct. 5 Q. All right. And that's what you were 6 representing to the Authority at that time, right? 7 A. That's correct. 8 Q. Okay. Now, isn't the case, Mr. Hixson, that on 9 March 11th, 2005, the same day you received the 10 Commissioners' written 57 questions, you received an 11 e-mail from PricewaterhouseCoopers questioning the 12 remaining credibility of its own studies, because it was 13 untimely and changes that had occurred? 14 A. I don't know if they used the term untimely 15 changes that occurred. I did receive an e-mail that 16 day. 17 Q. Would you please turn to Exhibit 23. 18 Exhibit 23 is an e-mail to you from a gentleman 19 named Robert Canton; is that correct? 20 A. That's correct. 21 Q. And Mr. Canton is from Price, Waterhouse, 22 Coppers? 23 A. That's correct. 24 Q. And he was the author of the 2000 and 2002 25 reports; is that correct? 4 1 A. That's correct. 2 Q. And he was also an expert for the Authority at 3 the state court litigation brought by the group that's 4 been called the hoteliers in the litigation known as the 5 Bold Case? 6 A. Correct. 7 Q. He was your expert? 8 A. That's my understanding. 9 Q. He was the Authority's expert, correct? 10 A. He performed a study for the -- for the 11 Convention Center Authority, yes. 12 Q. And testified in court, correct? 13 A. My understanding, I was not a part of those 14 proceedings. 15 Q. Okay. All right. And Mr. Canton -- and this 16 is March 11th, 2005, the same day of the commissioners' 17 questions, correct? 18 A. Yes. I believe so. Yes. 19 Q. Yeah. In fact, if you want to just flip back, 20 keep a place at tab 23, but if you flip back to tab 17, 21 do you see the letter from Commissioner Shellenberger 22 dated March 11 and these are the 57 questions, correct? 23 A. Right. 24 Q. All right. 25 A. And -- 4 1 Q. So the same day you get the questions, you get 2 an e-mail from Mr. Canton, and he says, Dave, I hope 3 it's not an inconvenience, but I need to ask that the 4 reference to our firm that is in your home page be 5 removed. There are a couple of reasons I make this 6 request. 7 Number one, it violates our agreement with the 8 Authority that you reference us without our consent. 9 And then, number two, we wouldn't be able to 10 give our consent given -- and then he puts in 11 parenthesis, the figures where our firm is referenced 12 relate to economic impact estimates. 13 So he's saying, we wouldn't be able to give our 14 consent to that, given that the building program upon 15 which they are based has changed significantly. 16 And then he identifies what they had 17 contemplated. 18 A. Right. 19 Q. And then he says, as you can see, this is very 20 different from what is being built. Do you see that? 21 A. That's the statement he made, yes. 22 Q. Okay. And isn't it also true that in that same 23 time frame, March, 2005, Mr. Canton suggested to you 24 that the Authority allow PricewaterhouseCoopers do an 25 updated study? 4 1 A. Right 2 Q. So he's telling you he doesn't want you to use 3 their name. He's telling you that the building program 4 has changed. And he's telling you that he thinks the 5 Authority should let PricewaterhouseCoopers do an 6 updated study, right? 7 A. Right. 8 Q. Now, would you flip back to your answer to the 9 commissioners' questions at tab -- 10 A. Which tab was that? 11 Q. That would be tab 18. And, again, this is the 12 answer to number 4. 13 A. Okay. I have it. 14 Q. How much reliance should the taxing bodies 15 place on the studies that have been completed. 16 And you say, the Authority believes the studies 17 prepared by PricewaterhouseCoopers and C.H. Johnson be 18 credible thorough and reflective of current prospective 19 market conditions. 20 A. Correct. 21 Q. Why didn't you tell the Commissioners that oh, 22 by the way, PricewaterhouseCoopers doesn't believe that 23 we should rely on its study anymore and thinks an 24 updated study should be performed? 25 If you were interested in giving honest 4 1 answers, as you say you were, why didn't you tell that 2 to the Commissioners and the public? 3 A. Quite simply, we -- not we, the Authority 4 Board, various board members, because there's obviously 5 change on that Board, had made decisions based on 6 current information provided to move forward with this 7 project. 8 The project had proceeded to a point where we 9 had completed schematic design; we had completed a 10 parking agreement; we obviously had completed our bond 11 issue by virtue of the guarantee that was provided by 12 the County. 13 Now we are halfway through design/development 14 and they want to us go back and relook at the studies 15 and the market conditions. 16 And at that point in time, it does not seem to 17 be an appropriate time to undertake another feasibility 18 study. 19 Q. Now, Mr. Hixson, isn't it true that when in 20 March 2005, Mr. Canton, your expert from 21 PricewaterhouseCoopers, recommended an updated study, 22 you didn't even tell your Board. 23 You talked with some of your consultants and 24 you and the consultants -- you wouldn't do the study, 25 you didn't even tell the Board, your own Board, that 4 1 Price, Waterhouse -- you did not tell your board that 2 PricewaterhouseCoopers was recommending a new study, 3 rather you talked with your consultants and decided not 4 to tell the Board isn't that correct? 5 A. The Board provides direction; it sets policy. 6 I manage the direction and I implement the policy. The 7 Board had already decided to make a decision to go 8 forward with this project. 9 At that point in time, I was moving forward through 10 the design/development, through finalizing the 11 financing, through finalizing governing documents with 12 the respective parties in order to get the project done. 13 Q. And, therefore, because of those factors, when 14 Mr. Canton recommended to you that the Authority 15 authorize an updated study, you decided not to tell that 16 to your board, correct? 17 A. As the executive director, I made a decision 18 not to do that, yes. 19 Q. And as executive director, you made a decision 20 not to tell the Commissioners that information either, 21 correct? 22 A. Correct. 23 Q. And is that emblematic of the kind of honest, 24 forthright answers that the Authority and you have given 25 to the public during this project? 4 1 MR. FENNINGHAM: It's argument. 2 THE COURT: Objection is sustained. 3 Argumentative. 4 BY MR. KELIN: 5 Q. Now, Mr. Canton continued to express concerns 6 to your board members about the fact that his studies 7 were out-of-date and should be updated, didn't he? 8 A. Yes, several months later after we had 9 completed design/development and we were now in the 10 construction document phase, he reaches back out to the 11 Board. 12 Keep in mind, as well, he is one consultant. 13 There are several studies that have been done. We have 14 an advisory team. We have a joint manager and 15 interstate hotels that provided an update regarding our 16 operations and our operating budget in, I believe, March 17 of 2005, in this same time frame. 18 So Mr. Canton is but one person and one 19 consultant who makes a living by doing studies. So it 20 doesn't surprise me he was pedaling another study. 21 Q. Okay. And so is that why you didn't tell your 22 board or the Commissioners, you just thought this was 23 marketing by PricewaterhouseCoopers and not a sincere 24 view by Mr. Canton that the community deserved the 25 right -- you questioned the sincerity of Mr. Canton's 4 1 belief that the community and the Authority deserved an 2 updated study, correct? 3 MR. FENNINGHAM: To the form, Your Honor. He's 4 mischaracterizing the testimony. 5 THE COURT: Rephrase the question, Mr. Kelin. 6 BY MR. KELIN: 7 Q. You questioned Mr. Canton's sincerity in 8 recommending a new study should be conducted, correct? 9 MR. FENNINGHAM: Same objection, Your Honor. 10 THE COURT: No, that's better this time. 11 Did you question the sincerity? 12 THE WITNESS: I would -- there were a couple of 13 reasons why I made the decision I did at the time. 14 First and foremost, the Board that sets 15 direction, that sets policy, had already decided to 16 begin down this path with this project. 17 We were well past the point of having any 18 updated studies being done. 19 The second was, it didn't surprise me that all 20 of a sudden, after we go through two-and-a-half years 21 since his last study, that he comes forward and says, 22 well, we need another study. It was a factor that I 23 weighed into my decision making, yes. 24 BY MR. KELIN: 25 Q. Well, Mr. Hixson, didn't your board make the 4 1 decision to go forward with the project largely based on 2 the study that Mr. Canton had done? 3 A. Mr. Canton was not the only one that studied 4 the project. C.H. Johnson studied the project. I have 5 advisers that update the Board on a regular basis, that 6 is part of our public meetings that we've had over a 7 hundred of them over the years, so -- and plus, we've 8 had interstate hotels at that point in time and in large 9 part looked -- take a look at formulating a budget for 10 us as it reflects to our operations budget and what 11 perspective deficits may be. 12 Q. Mr. Hixson, the Price Waterhouse Cooper studies 13 were important studies to the Board? 14 A. At the time they made the decision to move 15 forward, they did weigh PWC, but the decision had been 16 made to move forward on this project. 17 Q. Right. The decision had been made to move 18 forward on the project largely because of PWC? 19 A. And C.H. Johnson and the input from the 20 advisory team. 21 Q. The advisory team didn't do any studies, 22 correct? 23 A. They did not, but they studied particular 24 issues which impacted the project moving forward. 25 Q. All right. Let's look at the C.H. Johnson 4 1 study, if we can. If you would turn back to tab 17, 2 which were the 57 questions. 3 And if you would turn first to page 5 of the 4 questions that follow Commissioner Shellenberger's 5 letter. 6 Are you on page 5, sir? 7 A. I am on page 5, yes. 8 Q. And if you look at the second bullet, the 9 question is, notes that the C.H. Johnson report from 10 2003 provides absolutely no backup data or analysis to 11 support its projected uses of the convention center and 12 related financial assumptions concerning operation of 13 the convention center. 14 Did you receive any backup data or analysis to 15 accompany this report? If so, please provide it. Do 16 you see that? 17 A. I do see it, yes. 18 Q. And if you just flip back through -- still 19 within tab 17, behind the questions are the attachments 20 that had appeared with the 57 questions, and if you go 21 back, oh, about two-thirds of the way through the 22 remaining documents, you'll come to a piece of paper 23 that says tab 9. 24 Again, this is still within tab 17 of the book, but 25 if you flip through -- 4 1 MR. KELIN: Your Honor, may I approach the 2 witness? 3 THE COURT: Maybe you can approach me. 4 MR. KELIN: Well, I was hoping if I approach 5 the witness, that would buy some time for you, Your 6 Honor. 7 THE COURT: I have it. 8 BY MR. KELIN: 9 Q. This is the C.H. Johnson study, correct? 10 A. That is the C.H. Johnson study, yes. 11 Q. Okay. And it's dated August 3, 2003, correct? 12 A. I have August 7, 2003. 13 Q. I'm sorry, August 7th. And it's stamped draft, 14 correct? 15 A. Correct. 16 Q. All right. And it consists of seven pages, 17 correct? 18 A. That's correct. 19 Q. And would you agree with the observation and 20 the commissioners' 57 questions that there's no backup 21 or analysis to support its projected use, at least as 22 reflected in the report? 23 A. It's a summary of their work. 24 Q. And now, let's turn to your answer to that 25 question. Now, we're back at tab 18, which were your 4 1 answers to the question. Back again to answers to 2 questions 4 concerning the convention center. 3 And at the end of that answer to question 4 on 4 the convention center, it says, question 4 -- Q-4-D. 5 Are you with me? 6 A. Yes, I am. 7 Q. Okay. Where it says, does the Authority have 8 any backup data or analysis to accompany the C.H. 9 Johnson letter report. And the answer was, no, the 10 scope of the engagement with C.H. Johnson was to produce 11 a letter report. 12 A. Which is what they did, yes. 13 Q. Okay. So this is the sum and substance of what 14 you got from C.H. Johnson, right? 15 A. Correct. 16 Q. The Authority got much more detailed 17 information from PricewaterhouseCoopers, didn't it, 18 Mr. Hixson? 19 A. Yes. There was backup concerning that. 20 Q. They got much more voluminous reports, correct? 21 A. Correct. 22 Q. All right. So when you say, we didn't really 23 need an updated PricewaterhouseCoopers report because we 24 had a C.H. Johnson report, which is in 2003, number one, 25 2003 is two years before 2005, correct? 4 1 A. Correct. 2 Q. And number two, C.H. Johnson didn't give you 3 the kind of report with backup and explanation that 4 PricewaterhouseCoopers had upon which your board had 5 relied, correct? 6 A. It was satisfactory to the financial advisor, 7 the advisory team in moving forward with the financing 8 of the project. 9 Q. And you don't know whether it was satisfactory 10 with the Board, because you never told them 11 PricewaterhouseCoopers wanted a new study, right? 12 A. The Board obviously was comfortable with the 13 information that was supplied by the executive director 14 and the advisory team in making a decision to move 15 forward with the guaranteed request and the financing of 16 the project. 17 Q. But we don't know how comfortable they would 18 have been had the executive director advised the Board 19 PricewaterhouseCoopers was questioning its own report. 20 MR. FENNINGHAM: Objection, calling for 21 speculation, Your Honor. And I'm not sure what the 22 relevance of all this is anyway. 23 THE COURT: Where are we going here, 24 Mr. Kelin? 25 MR. KELIN: Well, part of -- as -- Your Honor, 4 1 as I understand plaintiff's argument, they're trying to 2 attack motives of Commissioners Henderson and 3 Shellenberger in their activities, including having gone 4 out and gotten a PKF feasibility study because in their 5 view the prior feasibility studies were flawed and 6 PricewaterhouseCoopers is acknowledging problems. 7 THE COURT: I'm not sure their motives are 8 actually relevant. It's their actions that are relevant 9 here. 10 MR. KELIN: Your Honor, that would be fine, 11 except I raised this issue during depositions with 12 plaintiff's counsel and they kept saying, oh, no, the 13 motives are very important. That's going to be a big 14 issue at the hearing. That's why I'm trying to address 15 it. 16 THE COURT: Let me say this. I think you've 17 made your point on this issue here. 18 MR. KELIN: I think I'll move on then with 19 that. 20 THE COURT: All right. 21 MR. PITTINSKY: Your Honor, I just want to 22 state there are a lot of issues that came up in the 23 depositions that both sides felt were really irrelevant 24 to this hearing; but nevertheless, because they were 25 depositions, we committed to going forward. 4 1 THE COURT: And I understand that depositions 2 that occurred -- that you people know far more about 3 this than I do. I'm learning it today. 4 So -- well, anyway, we've resolved this issue. 5 We'll move object. 6 MR. KELIN: Thank you, Your Honor. 7 BY MR. KELIN: 8 Q. Let's switch topics, Mr. Hixson. 9 Would you please turn in the booklet to tab 5. 10 And this reflects the meetings of the Authority 11 on October 24, 2003, correct? 12 A. That's correct. 13 Q. And this was the meeting at which Mr. Beckett, 14 your financial advisor, made a presentation to your 15 board concerning the proposed Ordinance 73 that was 16 gonna be presented later to the County of Lancaster, 17 correct? 18 A. That's correct. 19 Q. And, in fact, Mr. Beckett's presentation starts 20 on page 6 of these minutes, correct? 21 A. Yes. 22 Q. And if you would, please flip over to page 8. 23 And about a third of the way down, there's a 24 question from a gentleman, Blaise Holzbauer. 25 Do you see that? 4 1 A. Yes, I do. 2 Q. Okay. And he was an ex-officio member of your 3 board, correct? 4 A. Correct. 5 Q. And he's asking a question between the debt 6 service applying to the tax and the other part to the 7 operating loss. And Mr. Beckett answers, the 2.5 8 million is debt service. We factored in the operating 9 and anticipated revenues and expenses from operating the 10 Authority before we get to the 2.5 million. In the plan 11 of finance, debt service is paid first. 12 Do you see that? 13 A. I do see that. 14 Q. Okay. And in the context where he says in the 15 plan of finance, debt service is paid first, you 16 understood that that meant the plan of finance was that 17 the Convention Center Authority would use the hotel tax 18 revenues to first pay debt service on the $40 million 19 bonds, before it would use those hotel tax revenues to 20 pay the Authority's other operating expenses, correct? 21 A. That's correct. 22 Q. Then would you please turn to tab 6. 23 Tab 6 are the minutes from the County 24 Commissioners' meeting on October 29, 2003; is that 25 correct? 4 1 A. Yes, that's correct. 2 Q. And you were at that meeting, right? 3 A. I was at that meeting, yes. 4 Q. And if you would turn to page 2. 5 Now, this is the meeting where Ordinance 73 was 6 presented to the Commissioners and approved by a 7 two-to-one vote with Commissioner Shaub objecting, 8 correct? 9 A. Yes. 10 Q. Okay. On page 2 at the middle of the page, 11 there's a reference to Chris Gibbons from Concord Public 12 Finance. 13 Do you see that? 14 A. I do. 15 Q. Mr. Gibbons was the County's financial advisor, 16 right? 17 A. Correct. 18 Q. So he served the role of the County that 19 Mr. Beckett did for the Authority? 20 A. That's correct. 21 Q. All right. And Mr. Gibbons was giving a 22 presentation on the Ordinance 73 and then at the end of 23 that paragraph reflecting Mr. Gibbons' comments, it says 24 he believes that this is the best financial option for 25 the project, due to the layers of protection that are in 4 1 place to protect the County's guarantee from ever being 2 used. 3 Do you see that? 4 A. I do see that. 5 Q. Such as, and then he lists the layers of 6 protection and the first one he mentions is, the 7 Authority's financing structure is a gross revenue 8 pledge, which means the first 2.5 collected in hotel tax 9 will go toward the debt service repayment. 10 Do you see that? 11 A. I do see that, yes. 12 Q. That was the same concept that Mr. Beckett made 13 public at the Authority's meeting, correct, that the 14 plan of finance was for the hotel tax revenues to first 15 be used to pay debt service, before other operating 16 expenses, providing a layer of protection to county 17 taxpayers, correct? 18 A. At that point in time, that's what was 19 presented, yes. 20 Q. Publicly at two meetings, right? 21 A. Correct. 22 Q. Okay. Now, after the County vote to approve 23 ordinance 29? 24 MR. PITTINSKY: 73. 25 MR. KELIN: I'm sorry. Thank you, 4 1 Mr. Pittinsky. 73. 2 BY MR. KELIN: 3 Q. The financial advisers for the County and the 4 Authority and special counsel for the Authority and the 5 County negotiated the other documents that were 6 ultimately signed on or about December 15th, 2003? 7 A. Right. Over a several week period. That's 8 correct. 9 Q. And isn't it correct that over that time frame 10 that Mr. Beckett, your financial advisor, recommended to 11 you that the Authority not include in those transaction 12 documents any commitment that it first prioritize use of 13 hotel tax revenues to pay debt service so as to maintain 14 flexibility for the Authority with regard to the use of 15 the tax grounds? 16 MR. FENNINGHAM: Objection, Your Honor, and ask 17 for an offer of proof. 18 What may be relevant is what Ordinance 73 19 required in that regard, and I would submit that 20 Ordinance 73 requires no such prioritization. It's 21 irrelevant. 22 THE COURT: Mr. Kelin? 23 MR. KELIN: Well, the ordinance doesn't require 24 it, but public statements were made at two meetings that 25 it would be in the plan of finance, Your Honor. 4 1 THE COURT: I think it's relevant. Overruled. 2 THE WITNESS: Could you repeat the question, 3 Mr. Kelin? 4 MR. KELIN: Sure. Yes. 5 BY MR. KELIN: 6 Q. After the presentations were made -- 7 A. Correct. 8 Q. -- and the County agreed to Ordinance 73 -- 9 A. Uh-huh. 10 Q. -- the financial advisors and counsel began 11 negotiating and drafting the transaction documents? 12 A. That's correct. 13 Q. And during that time period, Mr. Beckett 14 approached you and said that he recommended that rather 15 than including in the transaction documents anything 16 that would bind the Authority to prioritize its use of 17 tax revenues as had been discussed at two public 18 meetings, to not include such a restriction so as to 19 maintain flexibility of the Authority with regard to its 20 use of the hotel tax revenues? 21 A. I did not recall having that conversation with 22 him is what I testified at my deposition, and I don't 23 recall exactly if that conversation was had during that 24 period. 25 I do recall, if you look at 04-05, and now in 4 1 '06, I have had multiple conversations with Mr. Beckett 2 in regards to maintaining flexibility in regards to our 3 financing. 4 At that point in time, though, that several 5 week period you reference, I don't recall having that 6 specific conversation with Mr. Beckett or any other 7 member of our financial or legal team. 8 Q. So you don't remember such a conversation but 9 you are aware that the documents signed in December, 10 mid, 2005, did not impose that kind of priority decision 11 on the Authority? 12 MR. FENNINGHAM: '03. 13 BY MR. KELIN: 14 Q. '03. Yes. 15 A. Correct 16 Q. All right. Isn't it true that there was no 17 public announcement made at any Authority meeting to the 18 effect that this layer of protection that had been 19 publicly announced was not going to be part of the 20 transaction documents? 21 A. Correct. 22 Q. Would you please turn to Exhibit 8. 23 Exhibit 8 are minutes from the Authority's 24 meeting of November 24 of 2003, correct? 25 A. That's correct, sir. 4 1 Q. And if you turn to the third page, Mr. Beckett 2 was there and gave a report, right? 3 A. Yes. 4 Q. So he could have said something there, but did 5 not, correct, with regard to removing that layer of 6 protection? 7 A. He provided an update, so -- he could have 8 included any portion of it, yes. 9 Q. And that update did not include revealing that 10 the priorly-discussed layer of protection was not going 11 to be part of the documents, correct? 12 MR. FENNINGHAM: Objection to the form of the 13 question, Your Honor. It implies some intent using the 14 word revealing. 15 THE COURT: Well, was it in there or not? 16 THE WITNESS: I -- 17 THE COURT: That's what we're -- 18 THE WITNESS: I don't believe that it is in 19 there. 20 THE COURT: All right. That's the answer. 21 BY MR. KELIN: 22 Q. Tab 9, meeting of December 10, 2003, of the 23 Authority, correct? 24 A. That's correct. 25 Q. And if you look at the page 7 under new 4 1 business, you state that Mr. Beckett is there, and Peter 2 Edelman. Peter Edelman was an attorney with Stevens & 3 Lee, correct? 4 A. That's correct. 5 Q. And he was serving as counsel for the 6 Authority; is that correct? 7 A. That's correct. 8 Q. And Mr. Beckett and Mr. Edelman are there and 9 Mr. Edelman discusses the resolutions that are before 10 the Authority, correct? 11 A. That is correct. 12 Q. And isn't it correct that at that meeting on 13 December 10th, 2003, nobody told the public that that 14 layer of protection that had been discussed in October 15 was not in the December documents? 16 A. I don't know that it was highlighted, no. 17 Q. And in your view, does not mentioning that 18 reflect honest and open public communication? 19 A. In my view, there was a negotiation that took 20 place over a several-week period between counsel and 21 financial advisers for the Authority and counsel and 22 financial advisers for the County and there was a 23 decision made by both sides not to include that language 24 in there. 25 Q. And to not publicly disclose it either, right? 4 1 A. It was not publicly disclosed. 2 Q. Let's switch topics. 3 Would you please turn to Ordinance 73, which 4 you can find at Exhibit 10. And Exhibit 10, the front 5 reflects that DCD has given us certificates of approval, 6 do you see that? 7 A. Yes, I see that. 8 Q. And if you turn behind that a few pages, you 9 get to ordinance 73. Do you see that? 10 A. Yes, that's correct. 11 Q. Would you please turn to page 4 of Ordinance 12 73? 13 A. Page 4? 14 Q. Yes, sir. 15 A. I have it. 16 Q. Okay. And if you go down to Section 7 at the 17 bottom of page 4. 18 A. Okay. 19 Q. And the introduction provides that 20 notwithstanding any other provision contained in the 21 ordinance to the contrary, the Board, and that's 22 referring to the Board of Commissioners, upon written 23 request of the Authority, that's the Convention Center 24 Authority, shall execute and deliver the guaranteed 25 agreement, the reimbursement agreement and the 4 1 continuing disclosure agreement in the forms herein 2 approved, together with the related documents and then 3 it goes on to say, upon satisfaction of the following 4 and only the following conditions. 5 Do you see that? 6 A. I do see that, yes. 7 Q. And then the next page has 7 (a) and 7 (b), 8 right? 9 A. Correct. 10 Q. So those are two conditions that had to be met 11 for the County to sign and deliver the guarantee 12 agreement, right? 13 A. Right. 14 Q. 7 (a) requires that the Authority shall receive 15 bond insurance enabling the bonds to receive a AAA 16 rating or have received other suitable credit 17 enhancement with respect to the bonds as to which the 18 guarantee agreement shall be required. 19 Do you see that? 20 A. I do see that. 21 Q. Okay. Now, during this negotiation process 22 that you've discussed, that followed the approval by the 23 County Commissioners of Ordinance 73 -- 24 A. Uh-huh. 25 Q. -- isn't it the case that the Authority 4 1 determined that it had another option and that it wanted 2 to pursue and to have included under 7 (a) that 3 ultimately became Ordinance 74? 4 A. That's correct. Yes. 5 Q. Would you please turn to tab 11? 6 Tab 11 is Ordinance 74, correct? 7 A. That's correct. 8 Q. And this was enacted by the County 9 Commissioners on December 10, 2003, correct? 10 A. That's correct. 11 Q. And if you turn to the last -- the third page, 12 you'll see under signature, you have signature of 13 Commissioners Thibault and Ford, but no signature by 14 Commissioner Shaub, correct? 15 A. I do see that. 16 Q. Okay. And you understand Commissioner Shaub 17 voted against Ordinance 74, just as had he voted against 18 Ordinance 73, correct? 19 A. That's my recollection, yeah. 20 Q. Now, if you look at page 2 and first look at 21 section 2 on page 2, which says, Section 7 (a) of the 22 prior ordinance is hereby amended and restated in its 23 entirety as follows: 24 And then it restates what had been in 7 (a), 25 except that it adds a provision which says, or shall 4 1 have received the commitment from a credit-worthy 2 commercial bank for private placement of the bonds. 3 Do you see that? 4 A. I do see that. 5 Q. And that's what was added to 74 that was not in 6 73, correct? 7 A. That's correct. 8 Q. And that was done to accommodate the request of 9 the Authority to permit private placement of the $40 10 million bond, to make it one bond to be placed with 11 Citizens Bank, right? 12 A. That's correct. 13 Q. So you recognized that if you couldn't comply 14 with 7 (a), you'd need to have 7 (a) changed and the 15 only way you could change what was in Ordinance 73 was 16 to amend it through a new ordinance, 74, right? 17 A. At the recommendation of our financial advisor, 18 we pursued that avenue with the County Commissioners, 19 yes. 20 Q. Now, Section 1 of Ordinance 74 says, the County 21 hereby ratifies and confirms its approval of the 22 project, and except as otherwise provided herein, the 23 County here by ratifies and confirms all provisions of 24 the prior ordinance, right? 25 A. Yep. 4 1 MR. FENNINGHAM: Your Honor, we can stipulate 2 to all of this. There's no dispute as to Ordinance 74 3 amending Ordinance 73 in regard to the private 4 placement. 5 THE COURT: Well, I think he's wrapping up on 6 this area, so we'll continue. Go ahead. 7 MR. KELIN: Thank you, Your Honor. And I'll 8 take the hint, I am. 9 BY MR. KELIN: 10 Q. So other than this change to 7 (a), everything 11 else was ratified, right? 12 A. Yes. 13 Q. So now let's go back to Ordinance 73, 7 (b), 14 tab 10. 15 A. Sorry. A lot of paper. 16 Q. Tab 10, Ordinance 73, page 5. 17 A. Okay. I'm back there. 18 Q. 7 (b). That provides as the second requirement 19 preconditioned to the County signing the guarantee 20 agreement, that the indenture shall include a 21 requirement called the indenture requirement; that as a 22 condition to the release of the proceeds on the bonds on 23 deposit in the construction fund or project fund, as 24 applicable, the Authority shall have certified to the 25 trustee the following: 4 1 And there were two things that had to be 2 certified there. 3 One was that the Authority had sufficient funds 4 to complete the construction of the facilities in full 5 accord with the final plans and specifications prepared 6 by the architect for the facilities and approved by the 7 Authority. 8 And then the second is, a new hotel designed to 9 support the program of the facilities and provide 10 sufficient rooms and amenities to serve as a 11 headquarters; hotel shall be constructed in conjunction 12 with the facilities. 13 Do you see that? 14 A. I do see that. 15 Q. So 7 (b) identified a requirement that had to 16 be in the indenture in order for the County to sign the 17 guarantee, right? 18 MR. FENNINGHAM: Objection. Your Honor, I'd 19 ask for an offer of proof, at least with regard to this 20 witness. 21 We understand the issue Mr. Kelin wants to 22 proffer. But I'm just looking at the timing of this 23 questioning and it may be inappropriate for this 24 witness, especially when he asks him to interpret the 25 requirements of Ordinance 73. 4 1 THE COURT: Well, if he understands it, he can 2 answer it. If he doesn't, he just has to say he doesn't 3 understand it. That's all. 4 THE WITNESS: Based on the advice -- or 5 guidance that I was given by my financial team and legal 6 team, that is my understanding, yes. 7 BY MR. KELIN: 8 Q. If you would, please, turn to tab 12. And if 9 you could just keep one hand there at Ordinance 73, 7 10 (b), and then go to tab 12, which is the indenture, and 11 would you start by turning to page 49 at tab 12? 12 Are you there, sir? Tab 12, page 49. 13 A. Yeah, I am. I lost 7 (b) though. 14 Q. I'll get you back there when you need to. 15 Let's just focus on page 49 first. 16 A. Okay. 17 Q. If you look at the top of the page at what is 18 section 5.02 (c), where the bold type is, do you see 19 that? 20 A. I do. 21 Q. Okay. And that's -- that describes the 22 construction account of the project fund and it says in 23 bold type, no disbursement shall be made from the 24 construction account of the project fund until the 25 interest rates on the bonds has been converted to a 4 1 tax-exempt variable rate or term rate pursuant to the 2 provisions of this indenture. Do you see that? 3 A. I do see that. 4 Q. And you understood that this meant that while 5 the money was going to be at Citizens Bank, no funds 6 could be used to pay for construction, but that the 7 Authority would have to wait until it remarketed the 8 bonds, the tax-exempt bonds, and only then could funds 9 be released to pay for construction, right? 10 A. Right. That's correct. That's my 11 understanding. 12 Q. Now, would you please look to page 24 of the 13 indenture at tab 12. And if you go back to the bottom 14 of page 23, where it says section 2.05 (b) mandatory 15 conversion on the tax-exempt conversion date and then 16 that goes over to page 24, and it lists different 17 requirements. 18 And do you see at the first full sentence on 24 19 where it says, on or before the tax-exempt conversion 20 date, the issuer shall cause to be delivered to the 21 trustee, and then it lists one and two? 22 A. Yes, I do see that. 23 Q. Okay. And number one says: Complete plans and 24 specifications with regard to layout, design, land area 25 and all other matters with respect to the convention 4 1 center, correct? 2 A. Correct. 3 Q. And number two says, the project budget, which 4 shall include a detailed itemization of all construction 5 costs, and all nonconstruction costs. Do you see that? 6 A. I do see that, yes. 7 Q. Okay. Now, if you can just look at the poster 8 board that I have here, the language we just looked at 9 from the indenture section 2.05 nowhere includes a 10 requirement, first of all, that the Authority certify 11 anything to the trustee, correct? 12 This just says you have to deliver documents to 13 them, right? 14 A. That's what it says, yes. 15 Q. In addition, it doesn't say that this project 16 budget has to reflect that there are sufficient funds to 17 complete construction of the facilities, it just says 18 you have to have a budget, right? 19 A. That's what it states there. 20 Q. Okay. And there are budgets that are balanced 21 and budgets that are not balanced, right? 22 A. You could have, yes. 23 Q. Now, in terms of the provision from the 24 indenture that we had looked at at page 49, which had 25 provided that construction funds could not be released 4 1 until the bonds are sold as tax-exempt bonds, why was 2 the Authority selling the bonds in 2003 for money it 3 couldn't use for anything? 4 A. We were moving forward at the advice of our 5 financial advisor at that point in time. 6 The second thing I would state is that we had 7 to obviously lean forward in anticipating that we would 8 be moving forward with the project in the near future. 9 So if we could get that tronches of the project 10 in place, vis-a-vis the guarantee, and complete the 11 financing by placing the bonds with citizens, it made 12 sense to do that. We're moving on multiple fronts at 13 all times. 14 Q. But the near future hasn't gotten here yet, has 15 it? 16 A. I didn't have a crystal ball in December of 17 2003. 18 Q. Well, how long did you think it was going to be 19 in December of 2003 before you would need the money for 20 financing? 21 A. At that point in time, I was looking to the 22 financial and development team to come up with the 23 schedule for doing that. I didn't know if it would be 24 2