Zalman Melnik and Lea Melnik - Page 18

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               deployed as required and at the same time arrange for                  
               our Bank’s investment group to be appointed as the                     
               investment manager.                                                    
          Copies of the three proposals are not in the record, and the                
          record does not disclose what actions, if any, the Melniks and              
          Mr. Pennoni took to review and comment upon the proposals.                  
               In August 1999,25 Moshe Melnik left MMI’s board of directors           
          and began pursuing ventures in real estate.  Later that year,               
          Moshe Melnik approached the Bank of Bermuda regarding an                    
          investment property in Houston.  In response to the Bank of                 
          Bermuda’s request for additional information on the property and            
          its potential as an investment, Moshe Melnik sent maps of the               
          area, as well as information regarding the owner, and explained             
          that a rail system would be built next to the property.  At some            
          point,26 Clend formed and capitalized a separate company, Tapuz,            
          Ltd. (Tapuz), to acquire the property (the Tapuz property) for              
          approximately $1.38 million.27  The funds used by Clend to make             
          the capital contribution were apparently advanced by the Bank of            


               25On Nov. 20, 2000, MMI and its affiliates filed for ch. 11            
          bankruptcy protection.  However, over a period from Aug. 18 to              
          Oct. 1, 1999, Clend had sold 727,360 shares of its MMI stock for            
          approximately $930,000, so it is not clear from the record in               
          this case how the bankruptcy impacted petitioners and Clend.                
               26From the account statements in the record, it appears that           
          Clend capitalized Tapuz in approximately April 2000.                        
               27The record does not contain any documentation regarding              
          the acquisition of the Tapuz property, although petitioners                 
          testified that Tapuz purchased the property.                                





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