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Jack T. Friedman, Esq., No.

68134
CARROLL, ~URDICK & McDONOUGH
2 Attorneys and Counselors at Law
1676 N. California Blvd., Suite 620
3 Walnut Creek, California 94596
Telephone: (510) 945-8579
4 OL.~ TJ...~ 0 ':')2
i..J..l

5 Attorneys for Debtor


HAMILTON TAFT & COMPANY
6

8 UNITED STATES DISTRICT COURT


9 NORTHERN DISTRICT OF CALIFORNIA
10

11

12 In Re No. C91 2138 CAL


13 HAMILTON TAFT & COMPANY, Bankruptcy No. 91-31077LK
14 Debtor.

15 -------------_/ Adversary Pleading


16 FREDERICK S. WYLE, Trustee in No. 91-3-081 LK
Bankruptcy of Hamilton Taft &
17 Company,
DECLARATION OF KEITH
18 Plaintiff, L. VOIGTS IN OPPOSITION
TO MOTION FOR SUMMARY
19 v. JUDGMENT

20 CONNIE C. ARMSTRONG, JR., et al.,

21 Defendants.

22 -------------_/
23
24 I, KEITH L. VOIGTS, declare as follows:

25 1. I am a professional accountant and financial

26 consultant, and know the following facts of my own personal

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DECLARATION OF KEITH L. VOIGTS 1


HT 159663
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knowledge. If called upon to testify, I could and would testify

2 competently as follows:
3 2. I am a professional accountant and financial

4 consultant, and have been involved in providing financial

5 consulting and accounting services to Connie C. Armstrong, Jr."


6, and the business entities with which he has been associated,
7 since March, 1989. I have a B.A. degree in Accounting from the
8 University of Iowa, and am a licensed certified pUblic accountant
9 in the States of Iowa, Texas, and Florida. I am presently a 50%
10 shareholder in Adelson, Voigts & Associates, a financial
11 consulting and executive search company, which provides financial
12 services and business advice to corporate executives. Before
13 forming Adelson, Voigts & Associates, I was employed with the
].4 accounting firm of KPMG Peat Marwick ("Peat Marwick") for 26
15 years, the last sixteen years of which I was a partner in this
16 accounting firm. In my employment with Peat Marwick, I was
-17 responsible for performing audits on middle and largl" market
18 companies, and specialized in providing financial consulting, and
19 accounting advisory services, including business strategies, with
20 numerous chief executive officers of corporations and management
21 executives of other business entities.
22 3. I did not know Connie C. Armstrong, Jr., until
23 Hamilton-Taft retained the services of Peat Marwick to perform an
24 acquisition aUdit, which was initiated towards the end of March,

25 1989. I had no prior knowledge of Mr. Armstrong until my firm


26 w,as retained for this purpose. A true and correct copy of the

DECLARATION OF KEITH L. VOIGTS HT 159664 2


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initial acquisition audit performed under my supervision is

2 attached hereto as Exhibit A to this declaration.

3 4. Subsequent to being retained by Hamilton-Taft to

4 perform the acquisition audit, the services of Peat Harwick for

5 Hamilton-Taft and other corporate entities in which Mr. Armstrong

6 was also the sole shareholder, including Dresdner Enterprises,

7 Inc., Dresdner Petroleum, Inc., and Knightsbridge companies, Inc.

8 included the following:

9 a. Providing financial advice and consultation,

10 including strategic planning for the corporate entities;

11 b. Assisting in providing due diligence analysis

12 on asset acquisitions;

13 c. Providing of special services relating to

14 accounting and business planning for these entities;

15 d. Preparing a financial review subsequent to

16 the initial acquisition audit report; and

17 e. Providing accounting advice in the

18 structuring of financial aspects of asset acquisitions,

19 management, and other business transactions.

20 5. I was the primary partner at Peat Harwick involved

21 in providing the financial, business and accounting advice to Mr.

22 Armstrong and these corporate entities. I worked with him

23 closely on the overall business plan and strategy and provided

24 advice with respect to specific acquisitions and investment

25 opportunities, some of Which were pursued and some of which were

26 not, after and analysis of the opportunities was performed. In

DEC~TION OF KEITH L. VOIGTS 3


HT 159665
this capacity, I met with Mr. Armstrong frequently, and spent
2 considerable time from March, 1989 to approximately March, 1991,
3 both in California and in Texas, performing the services above
4 described.
5 6. In addition to my own time, Hamilton Taft, Mr.
6 Armstrong, and the affiliate companies also received financial
7 and accounting services from other Peat Marwick personnel and my
8 firm was planning a further audit report up to the time that
9 Hamilton Taft was placed into involuntary bankruptcy.
10 7. The acquisition audit which we performed on behalf
11 of Hamilton Taft in March, 1989, revealed that the corporate
12 entity was in serious financial difficulty. There were
13 investments and transactions which had been made by prior
14 management which had resulted in a significant receivables
15 problem in that it appeared unlikely that certain receivables in
16 the approximate amount of 18 million dollars would be recovered,
17 and we recommended that those receivables be fully reserved. It
18 was apparent that new management of Hamilton Taft, after
19 acquisition, would need to develop a strategy to deal with and
20 recover from the financial difficulty created by the probable
21 uncollectability of these receivables.
22 8. In discussions with Mr. Armstrong, and his
23 management group to assist in the development and effectuation of
24 a strategy to ensure the continued viability of Hamilton Taft, a
25 business strategy was formulated which sought to take advantage
26 of the cash flow available into Hamilton Taft in order to regain

DECLARATION OF KEITH L. VOIGTS HT 159666 4


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value for the corporation. It was clear among those involved in
2 the decision making process that the strategy would need to be
3 formulated quickly and effectuated as rapidly as good business
4 jUdgment would permit, in order to guard against the financial
5 difficulties that would be caused by any significant loss of
6 client base resulting in a diminution of cash flow. The business
7 plan, in general and oversimplified terms, envisioned the
8 identification and acquisition of undervalued assets which could
9 be leveraged so that excess cash could be placed back into
10 Hamilton Taft. The state of the economy at the time this
11 business strategy was initiated was such that a corporate entity,
12 such as Hamilton Taft, which had access to the use of significant I
13 cash flow would have tremendous leverage which could be utilized
14 to acquire undervalued assets, the refinancing of which would
15 assist in offsetting the expected losses emanating from the
16 probable loss of value of assets procured by prior management.
17 9. I participated in meetings with Mr. Armstrong,
18 among others, approximately once or twice a month, wherein we
19 discussed the planned acquisition of assets in accordance with
20 the business strategy. It was my perception at all relevant
21 times that Mr. Armstrong's focus and motivation was to, through
22 the acquisitions and investments which were being made, replace
23 value into the corporate entity of Hamilton Taft in order to
24 ensure that that company became a self-sustaining, viable, and
25 profitable corporation. At no time did Mr. Armstrong, by either
26 his actions or his words, ever cause me to believe that there was

DECLARATION OF KEITH L. VOIGTS 5


HT 159667
an attempt by Mr. Armstrong to divert monies which were being
2 provided to Hamilton Taf~ for payroll tax purposes to his
3 personal gain, other than through the increased value of the
4 companies in the corporate group.
5 To the contrary, the separate corporate entities
6 which were created were to be utilized for the purpose of
7 acquiring, holding, operating, and managing assets and
8 investments, all of which were pledged back to Hamilton Taft, and
9 were intended to generate an infusion of income and value which
10 could be used for the benefit of Hamilton Taft.
II 10. In my business dealings with Mr. Armstrong during
12 the period of time that I was with Peat Marwick and thereafter, I
13 have found him to be an honest and credible individual, whose
14 integrity I respect and whose business jUdgment, to this day, I
15 believe to be impressive. With knowledge of the accusations made
16 by the trustee in this adversary proceeding, I have associated
.17 myself with Mr. Armstrong in two business ventures which I never
18 would have done had I believed that Mr. Armstrong, in any way,
19 pursued unethical or dishonest business transactions.
20 11. Based on my personal involvement in the business
21 planning and strategy meetings which I attended with Mr.
22 Armstrong, I became aware that the business transactions and
23 investments that he was pursuing on behalf of Hamilton Taft were
24 transactions which were being entered into with due diligence,
25 and with professional advice of experts in the areas of the
26 acquisitions. These acquisitions and investments were entered

DECLARATION OF KEITH L. VOIGTS 6


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into with the advice of financial consultants, with the review of

business and securities' attorneys, and with the assistance of

both in-house employees and independent contractors who

participated in the investigation and inquiry into the

advisability of the transactions which are at issue in this

litigation.
12. Both Hamilton Taft, through Mr. Armstrong and his

staff, and Peat Marwick, researched and analyzed the ability of

Hamilton Taft to utilize the funds received from clients for the

investment purposes that were pursued. The possibility that

there might be legal restrictions on the use of these client-

generated funds was analyzed not only by attorneys retained by

Hamilton Taft, but also by Peat Marwick tax accountants.

Subsequent to Armstrong's acquisition of Hamilton Taft I was

satisfied that Hamilton Taft had not violated any legal or

contractual restrictions on the use of the funds for the asset

acquisition and investments Which were pursued and at no time did

I advise Mr. Armstrong that it was inappropriate from a business

or accounting standpoint to operate within the business strategy

which has been described.

13. I was involved in discussions with Mr. Armstrong

and his staff relating to many of the business ventures and asset

acquisitions which are referenced in Section D of the Trustee's

Memorandum of Points & Authorities in Support of Motion for

Partial summary JUdgment. While there were other business

opportunities which were investigated and rejected, those

DECLARATION OF KEITH L. VOIGTS 7


HT 159669
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transactions which are set forth in the memorandum in which I had


2 input were all transactions wherein I concurred that the

3 transaction fit the profile of the business strategy and I did


4 not recognize any factors which indicated the transactions were
5 ill advised. For example, I was involved in meetings wherein the
6 acquisition of oil and gas leasehold interests in Howard and

7 Fisher Counties was discussed, the oil reserves were analyzed,


8 the opinions of individuals with expertise in oil and gas was
9 obtained, and I concurred that the acquisition strategy would be
10 benefitted by this transaction.
11 14. With respect to the Parker Automotive loan, I
12 participated in meetings with Mr. Armstrong and others, and "was
13 convinced that Bob Christie, as chief financial officer,
14 conducted considerable due diligence on this project. Based on
15 representations, it appeared that prior mismanagement of the
16 company had. created financial difficulties, but that there was
17 tremendous potential because the company produced a good product
18 for which there was a considerable market.

19 15. My firm, Peat Marwick, was involved in the

20 Professional Investment Fund (PIF) venture, which is another of


21 the asset acquisitions which I understand is being questioned.
22 The PIF ownership interest was placed in the Remington corporate
23 entity in order to, among other reasons, facilitate the
24 accounting procedures that would be necessary for the operation

25 of the real estate properties involved in this investment. The


26 placing of this asset in a corporate entity outside of Hamilton

DEC~TION OF KEITH L. VOIGTS 8


HT 159670
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Taft was accomplished, as with the other transactions, to enable


Hamilton Taft's business to remain focused on the payroll tax

services Which it provided, while moving non-related activities


to another corporate entity, Which could be structured and

designed to manage the asset; a function which was outside the

expertise of Hamilton Taft. I concurred with Mr. Armstrong, as

his accountant, that as he was the sole shareholder of both

Hamilton Taft and the other corporate entities, such as

Remington, that there was no increased risk or detriment to


Hamilton Taft in the transferring of this asset, and that both

the acquisition and the manner in Which the asset would be held

were prudent business transactions. It is my understanding that

accountants for all the related entities recorded and reconciled


the inter-company accounts and Hamilton Taft's advances to
related entities were pollateralized by the assets acquired.

From a consolidated accounting standpoint, there was no


significance to this treatment, as Armstrong owned each company
as sole shareholder.

16. With respect to PIF, it is my belief that Mr.


Armstrong took specific actions to increase the value of the

asset. The Remington Co. analyzed cash flow and operations of

each property involved and placed a factor which resulted in a

capitalized value for each such property. When Peat Harwick

reviewed the schedules and values provided, it concluded that

even if the stated values were reduced by 50%, the property

holdings demonstrated enough value to significantly decrease and

DECLARATION OF KEITH L. VOIGTS 9


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possibly totally cover the expected losses which had been created
2 by prior management of Hamilton Taft. with respect to the
3 investment in PIF, I discussed with Mr. Armstrong the significant
4 benefit which I believed that the transaction would provide to
5 Hamilton Taft in terms of demonstrating increased net value,
6 which was essential to the company's continued viability.
7 17. A further example of my involvement with the

8 questioned business transactions is the restaurant/entertainment


9 complex referred to as River city Fair in San Antonio, Texas. I
10 was familiar with the property, discussed the proposed
11 transaction with Mr. Armstrong and concurred that the venture 'had

12 the potential to be successful.


13 18. A further transaction which has "apparently been
14 questioned by the Trustee involves the investment with Weir
15 Brothers, an excavation company in Dallas. I discussed the
16 acquisition with Mr. Armstrong, believed that the potential was
17 good particularly because many competitors had gone bankrupt and
18 that there was significant business opportunities for Weir
19 Brothers, and concurred with Mr. Armstrong that this was an
20 appropriate business venture under the overall strategy for
21 Hamilton Taft.
22 19. Even with respect to the specific business
23 transactions and acquisitions in which I did not directly play a
24 role in the investigation and due diligence inquiry, during my
25 periodic meetings with Mr. Armstrong, I was aware of the other

26 in-house management team and outside consultants who were

DECLARATION OF KEITH L. VOIGTS HT 159672 10


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assisting Hamilton Taft in the effectuation of the business plan,
2 and formed the opinion that appropriate investigation and due
3 diligence was being performed as a matter of course by the
4 company.
5 20. Up until the time that creditors of Hamilton Taft
6 reacted to the adverse publicity generated by Steven Solodof's
7 accusations, which I believe to have been inaccurate, in March
8 1991, I am not aware of any failure by Hamilton Taft to meet its
9 contractual obligations to its clients to make the required tax
10 payments and pay penalties and interest when payments were deemed
11 late by the governmental entities.
12 I declare under penalty of perjury the foregoing is
13 true and correct.
14 EXECUTED this ci3-'7 1t:'" day of 0<:.. TIJ8c!., 1992, in Boston,

15 Massachusetts.

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'- DECLARATION OF KEITH L. VOIGTS 11

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