19910615a Trustee's Sources And Uses For Cca

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~ Hemming Morselnc

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Sen Moloo ll"la lIiD S.... , Rood

Szn

9440'

lvf[ll\oll! 141i' ~kI9C:. i 11,_ 141'-1 11S.~O~

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f.\i\2~, C~

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Frederick S. Wyle, Trustee for

Hamilton Taft & Company

ACCOUNTANTS'REPORT

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We have applied certain agreed-upon procedures, as discussed below, to the accounting records of Carmie C. Armstrong, lr. and of the Armstrong Affiliated Entities, including Hamilton Taft & Company, Remington Companies, Inc. and Knightsbridge Companies, Inc. OUf study was made solely to assist you in your duties a5 Trustee and our report should not be used for other purposes. The procedures we performed are summarized as follows:

a)

Evaluated Connie C. Armstrong, Jr. 's source and application of funds during the period January 1, 1988 through June 15, 1991 as described in the documents prepared by Larry D. Gillilan and further described in Note I to the Source and Application of Funds.

b)

Traced paymenls to and receipts from Mr. Armstrong, as recorded in the Affiliated Entities accounts employee receivables owed by Connie C. Armstrong, Jr. and notes payable to Connie C. Armstrong, 1L, to the corresponding deposits and disbursements in Mr. Armslrong's personal accounts.

c)

Segregated and idenlified the payments on behalf of Mr. Armstrong by the Affiliated Entities that were included in accounts of employee receivables owed by Connie C. Armstrong, Jr. and notes payable to Connie C. Armstrong, Jr.

d)

Reconciled compensation paid during the ]989 through 1991 perioos to

or

Mr. Armstrong by Hamillon Taft & Company and Remington Companies, Inc. (Remington) to the corresponding deposits in Mr. Annstrong's personal accounts.

• e)

Reconciled reimbursed expenses paid by Remington during 1989 to the corresponding

deposits in Mr. Armstrong's personal accounts.

•

f)

Reconciled the acquisition of identified assets to the respective acquisition funding identified in accounts of the Affiliated Entities and of Mr. Armstrong.

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8-01

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e-

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Frederick S. Wyle, Esq . Accountants' Report Page 2

OUT findings are presented in the attached SouTce and Application of Funds for the period January l, 1989 through June 15, 1991, which describes a total source of funds amounting to $16,670,032 and an application of funds amounting to $16,585,263. This schedule is further described by the foJlowing schedules and notes: Schedule 1:

Payments To or On Behalf of Connie C. Armstrong, Jr.: 1989

Schedule 2:

Payments To or On BehaJ f of Connie C. Annstrong, ]r.: 1989-1991

Schedule 3:

Application of Funds: January 1, 1989 through June 15, 1991

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Notes to Source and Application of Funds Because the above procedures do not constitute an examination made in accordance with generally accept~ auditing standards, we do not express an opinion in accordance with those standards. In conn&lion with the procedures referred to above, except for the discrepancies discussed in the notes to the Source and Application of Funds, no matters came to our attention that caused us to believe that the attached statement and schedules required further adjustment. Had we performed an examination in accordance with generally accepted auditing standards, other matlers might have come to our attention that would have been reported to you. This report relates only to the accounts and items specified above.

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s~:::lorn;.n-r~, ~ f\~' Febru ary 19, 1992

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• • •

Hemming Morse 8-0,

if'" ,,,,,. ~(i;. ~rc.r.-j,"~: ~ •• '-"u"':1

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CONNIE C. ARMSTRONG, JR. SOURCE AND APPUCATION OF FUNDS January 1, 1989 Through June 15, 1991 (See Accompanying Notes and Accountant's Report)

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Payments To Or By

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eCA. Jr. Funds Received By or Paid For CCJ\. Jr. a) Payments 'from HTC and Affiliated Entities 1989 payments 1990-91 payments Subtclsl

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Schedule' $489,953.93 Schedule 2 4,170,389.55

4 166° 1343.48

b) Pllymen~ from other sources 1989 payments 1990-91 payments Subtotal c) 1989 payments from unidentified ~oU{ces (See Note 2c)

•

Schedule I

16,531.10

Schedule 2

52 1387.25

Scnedule 1

Total funds received by Dr paid for eCA, Jr.

2

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AppliCAtion of Funds Double C Ranch Investment costs and expenses (Note 3) Acquisitions of personal property Charitable a.nd political contributions Pro1essional services LOilns and advances to lhird parties Credit card payments Aepaymeru Dr loans and advances Payments to friends, relathtes & employees Household expenses Taxes paid Other personal exp~nses

Schedule 3

Schedule 3 Schedule 3 Schedule 3 Schedule 3 SchedUle 3 Schedule 3 Schedule 3 Schedule ::I Schedule 3 ScheduleS ScheduleS

68,918.35

16,531 .10 52 1387.25 68,918.35

58,6B8.21

58,688.21

14,787.950 .04

11,882,OB 1.62

16,670,031.661

263,529.92 500,027.68 87,300.72 964,701.68 742,735,75

9,096,250.00 1,142,73B.31 878,399.12

9,359,n9.92 1,642,765.99 965,699.84 954,701.68

742,735 .75

630,000.00 465,398.67

324,122.20 295,571 .2.6 274,089.85 89,633.59 599.380.09

49,945.27 84,748.92

630.000.00 405,398.67 324,122.20 295,511.26 274,089.85 139.578.86 684,129.01

n,B33.34

Payments to unidentlfi&d payees (See Noto 2 d)

18 1856.41

18,856.41

Beginning cash balance, January 1, 1988 (See Note 1}

5 Ending cash balance, June 15,1991 (See Note 2 e)

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$1,418,836.66 15,123,588.4416 1542 1425.10

77,833.34

:3 Funds received in excess 01 funds expended 4

$928.882.73 10,953 1198.89 11,882 1081 .62

Total

Funds with uncertain applications (See Note 2 a)

Totalapptlcation of funds

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Affiliate Payments On Behalf 01 CCA1 Jr.

6-03

[4,703,181.16

11,882,081.62

~B4,768 . 88

~O .OO

16,585,262.76 1

64 ,768,88

528.69 $85.297.57

.,

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Schedule 1

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CONNIE C. ARMSTRONG, JR. SOURCE OF FUNDS Payments To or On Behalf af Connie G. Armstrong, Jr. - 1989 (See Accompanying Netas and Accountant's Report)

19B9 Pa ents On Behalf

To CCA Jr.

o'CCA Jr.

Total

A Payments from HTC and Affiliated Entitles: 1

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&) 1989 Hamilton Taft b) 198.9 Remington c) Director Fees Subtotal:

net of .......mhheld taxes

net ohwhheld taxes

2 Payments Booked As Reimbursement Of a) Remington payments

$55,046.89

$55,046.89 152,052.20 6 1000.00 212,099.09

65,811.99

1.93

b) HamIlton Taft payments Subtotal: Payments booked as reimbursement of expenses

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3 Other a) Ramlngton 1) Cash 2) tees reclasslfied as advance 3) Hamilton Taft costs rec:lusffied as advance 4) Payment to Bnd repayments 5) Other transactions, net 01 Subtotal: Remington payments booked as advances b) c) d) f)

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31199.15 169,005.00

latal Payments. from HTC Bnd Affiliates

489,953.93

92B,8B2.73

169,005.00 232,730.19 61 49,945.27 31 199.15 1,097.887.73

3,853.20 1,000.00

3,853.20 1,000.00

B,OOO.OO 5000.00

B,OOO.OO 5.000.00 , 115740.93

928882.73

1.418.836.66

B Payments from Other Identified Sources: -9,662.90 2,500.00 1,886.33

1 Rental earnings 2 Loan repayments 3

Intems.t eamed

1.87

C Payments

from other identified sources

hom

sources. (See note 2 c)

Tatal19S9 payments to or on behalf 01

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232,730.19 615,008.12 49,94.5.27

186858.20

Total

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169,005.00

Cash advanced by Chase PULEC Cas.h advanced by Chase Condo Cash advanced by Gulftex (PIA Cash advanced by River City Subtotal: Other from Affiliated Entitles

4 Other

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25184.7' 90,996.64

Jr.

1 $565 17:3.24

$928882.73 $1 494055.97

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Schedule 2

CONNIE C. JR. SOURCE Of FUNDS P~Ym,.,.ntc: 10 Or On Behalf 01 Connie C. Armstrong, Jr. 1990-1991 (SQ& Notes end Accountant's Report}

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1990-91 fa

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To

CCA Jr. Payments Irom Hie and Affiliated Entitles: 14.-1 Compensation e.} 1990-91 HTC selary. nel o1wi1hheld wes b) 1900-91 Remington sruary. net ofW/'rllB.):es d} 1991 Parker salary, net of withheld wes

S!7:'tS91A4 3S1.088.~e

$541.686.54

Subiol,aj: Compensation A - '2 Director Fees end OtM r Com Q:!ln.s.e.tiol'l a) Remington Director Fees b) CCAJ Director Fees c) RiveT City DireCIOI Fees

d)

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Tenal

Ranch.

A

Afimln~on

12,500.00 16,000.00 5,000.00

"bonus" r800illed 4/16/90 98.600.00

Sul:Jtotal: Director fees and other compeliSaticn

265.000.00

14.-3 Proceedl> from sale 012 Stadium BoltEOS

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14.-4 Pal,!menls Booked As Reimbursement Of Ex~nse5 8} Remington pIIyments

b} Hamlhon Tan payments e) Combined deposits of both Remington Bnd HTC

223,732,EiB 48,261.97

payment'!> which have 1"101 been distinguished Sublotal: Pavrrenls booked as reimbursements A - 5 Other Payments From AI1i1iated Entities a) Reminglon/Knightsbrid gil: payme nls

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2-A)

b) Winthrop Payments: 1) Payments to or for Double C Ranch 2) Payments to Armstrong

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367.250.00

1,856,948.89

4.232,296.89 1

B.729,OOO.00

B6B,000.00

868,000.00

"8,295.21 35000.00

35000.00

46,295,21

c) Payments from Ranch accounts d) Paymentirom ChBSe Development Subtotal: Other payments from A1filiated Errtities

2. 959 SQ5,21

9,096.250.00

1 .aS6 948.89 '

15.912.594,10

Total pB)/mert'm from HTC and Affiliates

4.170,3F».55

til ,0913 ,250,00

1.856,g48.89

15,123.58S,4,4

13,S4S.13 5,600.00 4,1l!O·.22

8-3 Dividends received 8-4 Interest received 8-5 Reimbursements for travel ~xpe/'lSes 8-6 Othl!lllelmburseme.nts

3,012.78 B,641.96

17,603.56

Totsl payments tram ethe, identffied sources

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2,006,100.00

8,129,000,00

B Payments From Other IdBfltmed SoUtl::es: B-1 Receipt noted 'OEP FROM 1989 MLA GFS" B- 2. loan repayments received

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305,707.BO

Total 1990-91 payments to CCA. Jr.

B-OS

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Schedule 2. - A

CONNIE C. ARMSTRONG, JR. SOURCE OF FUNDS Payments To Or On Behan 01 Connie C. Armstrong. Jr. 1990-1991 Detan 01 Schedule 2 A-S (a): Other Remington/Knightsbridge Payments AccDmpanying Notes and Accountant's Report)

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199D-91 Pa

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10 Other RemlngtonJKnig htsbridge 1 1990 cash transfers to Armstrong :2 1990 C8$h transfers to Ranch accQUnts

$995,100.00

3

1991 cash transfers to Aunsl7ol'lg

',O13,()()).OO

-4

10/29/90 check 10 David McCall 1/25/91 checks to McCelis payments tOt Aspen Cofldo Remington purchase of 3 Stadium Boxes Remington payments for Improvements to Stadium Bol(es. Payment to AmericE!l'l Canc:af lor Red Payment to C>.iers~ Motors. for aiJIO expenses Payment for Ranch truck

5

6 7

e 9

10 11

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30,000.00 1300,000.00 335,000.00 390,000.00 2O.631.M

105,000.00 6.626.25 27.767.68 295,000.00 33.923.52 2,008 100.00

367,250.00

Total $995.100.00 357,200.00 1,013,000.00

367,250.00

12 Cash advaneed ionor Coffea Intemstkma\ 13 Other expenses on behalf 01 CCA. Jr. Subtotal: cash transactions

ants

On Behalf 01 COA, J!. other

30,000.00 600,000.00

335.000.00 390,000.00 20,531 ..01.4

105,000.00 6.626.25 27,767.68 295,000.00

33 " 219,298.ag

13,000,00 13 000.00

Tatal other Remington/Knightsbridge payments

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2 OOB 100.00

• Schedule

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APPUCATION OF FUNDS

For U'le period January 1, 1989 through June 1991 (Sel! Accompanying Notes and Accc:n.mtant's Report)

Payment From GGA, Jr.

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Double C RlU'lch: a) ACI;!uisition ot "'rtU'~1"N' 1) Puf'CNise of stlefer Parcel (See Note 4) 21 Purchase of Wllliams Parcel b) AdVl!lnces tor Ranoh operations !o'l>\,rn~,I'1l'<: for Ranch Improvements PUlcNisK 01 liveslDc\( & equipment

Tatal payments associated with

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a-A

CONNIE C. ARMSTRONG. JR.

12/04/8.9 02109{90 Various Various Various

Payment From Affiliate

$72,429.04

$72.429.04 6,500,000.00 , .081,409.09 1 102.949.2S

57,969.88

j

C Ranch.

2 Investment Costs and Expenses; a) ~~~~~~~~~~~~~~~~

Armstrong

$615,008.12 232,730.19

06/20/89

[lu«cn""...

Subtotal 4) other payments la Hamilton Taft &. Co. (No purpose designated) Total payments: 10 or tor HTC acquisition

350,000.00

b) Investment in Pro-Rodeo, Inc. Jan-91 350,000.00 In nddilion to 10 Ihis il'll/eslm~nl in PIa-Rodeo. Inc.., Winthrop paid $1.5 million, In September 1900, 'or 81'1 Inllestment il'l Rodeo Partners.

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-295.000.00 d)2m~~~~~~ Ar-rNtttnnrn" payments for Winthrop Realty Company. Knioh!tJ:birickll!

Guaranlee

Knightsbridge 1,030.00

CL'>rnN~nV

!lfId CCAH. In::,. 2) Bank One Cashiers Check dated 11/05/90

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(Cljusi:tied as an Il'1W$tment elperse) S) OIher payments classified as invesllm:nt expenses Subtotal: Other investment payments

e)

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-,-,--'=:.:::1...:==

Losses experienced with irt'llestments through Merrill Lynch &C:count

Various

1ol.allnllestrrlent eosts and expenses

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B-07

1,~O.OO

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Schedute 3-8

CONNIE C. ARMSTRONG, JR. APPUCAnON OF FUNDS For the January 1,1989 thraugh June 15,1991 (See r.,.."-nn"...,,, Notes and Aceol.mtanl's Report)

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Payment From e~A, Jr.

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3 Acquisitions of Personal Property a) PaymsliUl for Aspen Condo b) for:3 Stadium Boxes c) for to Stadium Boxes d) with the 01 vehicles e) rU1IIL:J~"'''''

66,019.41 14.656.84

nl"'\I"IIlI'!TU

4. Charitable and Political Contributions: al ~~~!Q[I!~~

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$335,000.00 390,000.00 .44

f) Talal acquisition of personal

$33,050.00 10,000.00

Cancer Research Cattle Baron's Ball Christian Service Contributions to chumhi!$ Dallas Opera Ball Family Gateway

4,200.00 10,000.00 68,500.00 100,000.00 5,000.00 75,000.00 275,800.00 S,OOO.OO 10,000.00

Institute for Policy Inno\li!.tlon (IPI) Multiple Sclerosis Society St Judes Research Yellow Rose Gala Other charitable contributions Subtotal: Charltable contributions

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41.ooo.00~

Senator Buster Brown Doman for ..... n"[J' .. "-~

80.ooo.00~

Kent Hance Wanen Harding Rob Melli-bacher Senator David Sibley Williams

S4.000.00~

2.000.00 10.000.00 60,000.0010,000.00 100.000.00

contnbtrtions Subtotal: PoI!tJea! eontJibutions

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Tolial charitabJe and political contributions

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B-08

Payment From AffinBt~ $335,000.00 390,000.00 20,631.44198,847.09 14.658.84

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Schedule 3-C

CONNIE C. ARMSTRONG, JR.

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APPUCA110N OF FUNDS For tI'Ie period January 1, 1989 through June 15. 1991 (See Accompa.nylng· Notes lind Accountant's Report)

Date S Paymems

fOl

Payment From Affiliate Accoun.t

Total

Professional Services:

Meadows Owens (Criminal Defense) Meadows Owens (Criminal Defense) Meadows Owens (Criminal Defense) Subtotal

03/22/91 03}26}91

04/04/91

25,000.00 700,000.00 10,000.00 135,000.00 3,306.00

Eppright &. Golembeck Goodwin Cariton Other professionals

1,117.25 3,312.50

lotal payments for professional services

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Paymenl From eCA. Jr. Account

$74'2735.75

6 Loans 1l1'\C:f Advances to Third Parties: al Payment to David McCall b) Lo.a.ns 10 McCalis

$:30,000.00 600,000,00

10/29/00 01/25/91 $0.00

Total loans and a.dvances to third parties

$742735.75

$6~0

000.00

$30,000.00 600,ODO.00 $630,QOO.00

7 Credit Crud Payments: Payments on American EloCpress card

$384,439.39

Payments an VISA card

aO,959.28 $465,398.67

Total credit e;ard payments

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6 Repayments of Loa.ns and Advances: a) Repaymems to Remington: 1l Payment to Remington 2) Payment to RemIngton

04/30/00 05/31/90 03/2.5/91

3) Payment to Remington [stadium 80x Sales) 4) Payment 10 Kntgh13bridge (stadium Bx SllJee) 04119/91 5) Payment to Remington (Stadium 80l( Sales) 04/19/91

$8,225.00 S,nS.DO

140,000.00 100,000.00

25,000.00 2n,OOO.OO

SUbtotal: Repayments to Remington

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$465398.67

b) Repayments to Julius D. Stiafer Monthly principal and irrtsrast payments durIng the 47,122.20

period January 1. 1990 through June 15, 1991

$324122.20

Total repayment of loans and advances

$324.122.20 (

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9 Payments to Friends, Relatives &. Employee.s:

Payments ChElracteri2ed As loans -Connie C. Armstrong, Sr. (Father) Honey Gregory Wiance) J.J. IGssee (Remington Employee) Terri Robbins (Remington Employee) Subtotal: payments characterized as loans

B-09

$5,,121.00 42,500.00

2,000,00 32,4()7.57 82,02.8.57

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Schedule 3-D CONNIE C. ARMSTFIONG, JR. APPUCATlON OF FUNDS For the period January 1, 1989 tluough June 15, 1991 (Se~ Accompanying No1es and Accountant's Report)

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Paym~nt

From eCA, Jr.

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Date Account (Payments to Friands, Relatives & Employees - Continued) Pe.~enls Chatacti!rized As Gifts - 37,186.67 Harriette Armstrong (Mother) (Medical Expenses) (Noted as ·Miss Te)(.as,) 11,000.00 VVhitney FlSche

(E)(-Wrh:!) Punk Carter Susan Stei1er (friend) SUbtotal: payments characterized as gifts

Nancya Meyer

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Other Pa~ments - Boone Armstrong Ed Ballard Christine Grambling Nancye Myer Patti Montague TIm McCslI EmieMcCoy T err! Robbins Subtotal: other payments

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1

(Remington Employee) (Remington Emptoyee)

employee~

10 H olJsehotd Expenses: Cleaning Domestic salaries & payroll taxes Flowers Groc9rh;!s and beverages Interior decorating Landscaping Reimbursements paid to other indivichJa!s Repairs Bnd maintenance Telephone expenses

6~O(l

34,533.32.

20,420,05 4.800.00 2,500.00

14,168.24

~295,57 1.26

~29S

S11 26

$2,702.26 56.121.89 10,329.70 22,683.75 15,354,74 10,541.42 13,321.27 79.352.41 7,369.0B

utilities

~,734.21

Other m[scellaneous house expenses

15 1379.12 ~27 4,089.85

i274 ,089.85

1 t Taxes Paid; Income Taxes Penslties paid to IRS Payroll laJ(es paid Property taxes paid Total payment 01 taxes

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8.000.00 5.316.12

961187.73

Tolal payments fOf house expenses

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Total

35,768.29 10.000.00 23 400.00 117 1354.96

(Brother) (Remington Employee) (Hamilton Taft Officer) (Ex-Wrfe) {Remington Employee)

Total payments to friends, relatives &

Payment From Affiliate Account

8-10

$75,D42.84 3,543.00 3,639.67 7,408.0B

$49,945.27

i89633.59

~9,945.27

$124.988.11 3,543.00 3,639.67

7,408.08 ~ 139 ,518,86

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Schedule S-E CONNIE C. JR. APPUCA11 ON OF FUNDS For the period January 1,1989 through June 15, 1991 AccDmpanying Notes and Accountant'$

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Payment From eCA. Jr.

12 Otnsr Personal Expenses: $19,114.36 '5,979.20

Neiman Marcus II)

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Victor Costa (Woman's Boutique} Tem James Clothier) Stanh~y Korshak furs as Christmas gifts) Subtotal: Payments to identified retaners

29,000.49 95,391.64 183,442.09

expenses

12,198.44 175,138.00 3D,975.00 5,562.00

Cash witndra\l\f'als Chfld care and support payments Dallas tickets Dues Payment to 'Fanuous' Medical E!lq:lIanses Rental property ':>'11'1"..... ",,,,,,

.28 5,250.00 27,874.3B

18,278.00 12.500.00 13,958.07 27,760.81

Settlement paid to ""DflnOTH Triad Artists payment Travel expenses Other payments chlnactenzed as Other miscellaneous personal expenses

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Totar other

DP-fSOf18

Grand total of

~ems

1 - 12

Payments to unidel'litfied pa)l~s

.41 note 2 a) Note 2d)

Total application of funds

II)

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113.278.00 12,500.00 13,95B.07 27,760,81

exPenses.

Funds with uncertain aPIPllc:atllOns

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Payment From Affiliate

8-11

$11,882,081,62

$16,488,573,03

n,833.34

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e·

CONNIE C. ARMSTRONG, JR. NOTES TO SOURCE AND APPLICATION OF FUNDS January I, 1989 Through June 15.1991

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• Note 1: Sources of InfonD.ll.tion

•

The information in the Source and Application of Funds is based on documents provided to Frederick S. Wyle, Trustee in Bankruptcy for HamilIDI1 Taft & Company by La:rry D. Gill.ilan, accountant for Mr. Armstrong. These documents include the followiog: 11)

Report of 1989 Cash Received and Casb Disbursed

This report was compiled by Mr. Gillilan, Mr. Gillilan reconstructed this report during 1991 and it includes cash I:raD.sactions in the following accounts:

•

1)

Guaranty Federal Savings Bank checking accoulJt #6-0427617 for the period May 31, 1989 (date of initial deposit) througb December 31, 1989 (date of

report). 2)

United .Bank and Trust checldng account #105953 for the period January 1,

1989 (tms account reflected a ba1.a.nce forward from 1988) through December 31, 1989 when thi s aCCOlJ nt refleci:OO a ba.la.nce of $332.96.

3)

• b)

•

Texas American .Bank checkirlg account #0164590 for the period February 13, 1989 (dale of initial deposit) througb August 3, 1989 (date of closing witb.dra wal).

Transaction Reports for the period January 1, 1990 through Juoe 15, 1991. These Transaction Reports summarize cash receipts and disbursements througb five personal accounts kept" by Mr. Armstrong as follows:

1)

Bank One checking account #102056389 for the period Marcb 1, 1990 (date of initial deposit) through June 15, 1991 (date of Trans.a.ction Report). This

account is

• • •

DOted

as the "Personal" checkiDg account.

2)

Bank One checking account 11102070992 for the period Man::h 20, 1990 (date of initial deposit) through June 15, 1991 (date of Transaction Report). This account is noted as the "Expense" cbecld.ng account.

3)

Guaranty Federal Savings Bank cbeck:ing account #6--0427617 for the period. January 1, 1989 (inception of Transaction Report) througb May 3, 1990 (date of closing withdrawaJ).

8-12

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CONNIE C. ARMSTRONG, JR. NOTES TO SOURCE AND APPLICA nON OF FUNDS January 1, 1989 Through June 1.5,l991

•

• •

•

•

4}

Lindale State Bank checking account #12-0724-5 for the period MAn::h 7, 1990 (date of initial deposit) through June 15, 1991 (date of Transaction Report). This acrount is noted as the "Housebold~ checking account.

5)

Merrill Lynch Cash Management Account, #425-19374, for the period January 1, 1990 (inception of Transaction Report) through June 15. 1991 (date of TransactioCi R.epon).

In additioo to these reports, copies were provided of supporting documentation kept by Mr. G.illi1.a.D for each account during the 1990 through June 15, 1991 time period. This supporting documentation typically included bank statements, bank reconciliatioos and selected copies of isSlIoo checks, checks TeCel\100 and deposited, and various documents &upporting those reccipts and disbursement<;. In some instances, this supporting documentation included information about 1989 traIlsactions although these early documents were not complete.

Note 2: Discrepancies Observed In Reported Tnmsactioru: a)

•

Funds Witb Uncertain Applications· Si7,833. Deposits for identified Affiliate payments to Mr. Armstrong amounting to $77 ,833, have Dot been identified :in Mr. Armstrong's persoo.al f'mancial :rerords. Compensation paid by Remington and Hamilton Taft amounting to $37,697 and reimbursed expenses paid by RemingtoD of $40,136, for total payments of $77,833 were not identified as deposits in Mr. Armstrong's records. During 1989, Remington

• •

and Hamilton Taft's accounting reco:rds reflect compensation of $212,099 as having been paid to MI. Armstrong. However, Mr. Armstrong's 1989 records reflect corresponding deposits of only $174,402, which represents a difference of $37,697. In addition, Remington's l:lCC{lunting records reflect payments of reimbursed expenses during 1989 of $65,812, whereas Mr. Arm strong 'Ii records reflect corresponding deposits of omy $25,676, which represents a. difference of $40,136. The combined difference of $77 ,&33 is presented in the Source and Application of Funds as funds with uncertain applications .

• •

B-13

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CONNIE C. ARMSTRONG, JR. NOTES TO SOURCE AND APPUCATION OF FUNDS January 11 1989 Through June 1.5,1991

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Other payments made by the Affiliated .Entities to Mr. Armstrong have been traced to deposits in hls personal accounts. These traced payments include: a) the 1990 and 1991 campensatioD reported by Remington and Hamilton Taftj b) payments to Mr. Armstrong classified as advances: to Mr. Armstrong; and c) payments to Mr. Armstrong classified as repayments under DOtes payable. At this time, Remington's reimbursements for 1990 and 1991 and HAmilton Taft's reimbursements for 1989

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through 1991 have [lot yet been a.naJyw:L b)

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Missing 1989 transactions for the MerrllJ Lynch Casb Management Account. The scope of Mr. GillilaD's report does not include 19&9 transactions in Mr. Armstrong's Merrill Lynch Cash M.ana.gemeDl ACCOlIDt, although this account is inc.luded in the 1990~91 Transaction Reports. Mr. Gillilan does identify 1989 tra.nsfers of $100,000 to the Merrill Lyncb account and a I.:r'af:ISfer of $50,000 received

from the Merrill Lynch. account for net tnlruifers to Merrill Lynch of $50,000. The supporting documentation iocludes sufficient information on the 1989 transactions in tbe Merrill Lynch accooot to recoosu:UC[ the 1989 activiry in this account. nus analysis idenlifies 1989 interest e.a.rn.ings of $1,181 and expenditures for VISA card payments of $29,136, withdrawals for service fees of $90 and withdrawals for losses experienced on trading activity of $4,205. The remaining balance of $17,750 represents the outstanding balance of casb and investments carried forward to the January 1, 1990 ba1.a.nce for the MerrilJ Lynch account in we 1'r.ulsaction Report. This reconstructed activity bas been incltided in the Source and Applic.a.tiOD of Funds under the relevant beadings.

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c)

Unidentified 1989 Deposits of SS8,688, Several 1989 deposits amountirJg to $5&,688 are listed by Mr. G.illilan with DO payor or other source of funds indicated. The largest unidentified deposit is a December 15, 1989 deposit to the Guarantee Federal Savings account .in the amount of $33 J 2 88.68. These deposits often represeot the receipt of several chech. which ma.kes it d.ifficult to identify them through comparison to payments by the Affiliated Fntities. Consequentl y, these receipts are labelled as payment.s from unidentified sources without distinction between third party or Affi1.iated Entity sources.

d)

Payments to Unidentified Payees Payments by Mr. Armstrong amounting to S 18,856 Al have Dot beeD identified in the Armstrong accounti.ng records as to payee or classification of expenditure. These payments include a $.5,000 wire cransfer on April 18, 1991 and a May 20, 1991 casb withdrawal for a casruer's check in the amount of $4,000.

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8-14

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CONNIE C. ARMSTRONG, JR. NOTES TO SOURCE AND APPLICATION OF FUNDS January I, 198~ Through JUDe 15,1991

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In addition to these unidentified applications, there was a November 5, 1990 withdrawal for a cashier's check in the amount of $105,102.50. This cashier's cbeck was classified in the Transaction Report as an Plnvestment RqleDse Other" and consequently. it bas been included in the Source l!1ld Application of Funds under the he.ading ftInvestment Costs and Expenses" at Scbedule 3-A in Item 2 (d) (2).

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Armstrong's personal accounting records also show cash withdrawals amoum.i.ng to $175,138 (See Schedule 3-E). Althougb the subsequ.ent application of these funds is !lot accounted for in the Mr. Annstrt:mg accounting :records, they are typiC
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$7,000 each. The largest single casb withdrawal was for $15,000. e)

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Unrecorded Expenditures (April 1991 Through June 1991) of $9,419.82. The Transaction Repon indicates a June 15, 1991 balance in the Lindale checking account (the Household account) of $9,467.15, whereas the last bank: statement provided for tbis account reflects a balance of $47.33 as of May 31, 1991. FllMer evaluation of tb e Transaction Report indicates that checks written after rnid-April 1991 bad not been entered in !be Transaction Repon. Consequently. the ending balance fOf this account, as shown on the Transaction Report, overstates the ending cash balances by approximately $9,420. Since this account was used primari.ly for housebold expenses, thls difference has been included in tile Source and Application of Funds as expenditures for groceries and beverages under item #10 "Household Expense" on Schedule 3-D.

Note 3: Mfiliaus' CbaracterimticlD. of Payments to Connie C. Amlstrong, Jr.

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The t:ra.nsfers by R.em.iDgton and Knigbtsbridge to Mr. Annstrong are recorded in the books

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of these entities as either advances to Mr. Armrnong or as repayments of a note from Remington to Mr. Armstrong for $1.5 million daie:d Februa.ry 9, 1990. The R.emicgtDr.l and Knightsbridge payments for the 1990-1991 period totals $4,232,299, as shown for item A-5 (a) in Schedule 2. This amount includes cash payments to Mr. Armstrong's personal acc.ollnts of $2,008,100 and payments to the Double C Ranch accoullts of $367,250.

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The note payable arose from a $9.8 million loan from Hamilton Taft to Winthrop ReaJty. which Winthrop Realty .in turn loaned 1:0 Mr. Armstrong, for the purchase of Double C Ranch. Out of the totalloaJl proceeds, $1.8 million was not required for the February 1990 purcbase of Double C Rancb and was instead transferred from Winthrop to Remington. Remington accounted fOT these funds by crediting $300,000 against Mr. Annstrong's

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6-15

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CONNIE c . .AR.1\IfSTRONG, JR. NOTES TO SOURCE AND APPlJCA TION OF FUNDS January 1, 1989 Through June 15,l991

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employre receivable account and by executing the $1.5 million Dote to Mr. Armstrong. TOtal cash payments of $1,937,100, consisting of $1/717,100 paid to Mr. Armstrong's persooa:1 accounts and of 5220,000 paid to Double C Ranch accounts, were classified as loan repayments. When the payments classified as loan repayments exceeded the amount of the lOaD during Marth 1991, this excess was :reclassified and combined with other advances included. in Mr. Armstrong's employee receivable account.

Note 4: H.ami.lton Taft & Company Acquisition Costs:

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a)

Purchase of AdditioDal Hamilton Taft & Company Stock On March 29, 1989, in settlement of the MaxPbarma Litigation l Mr. Armstrong acquired 100% of the capital stock of CR Acquisitions, Inc., which in tum beneficially owned 100 % of the capital stocl: of Hamilton Taft. Mr. Armstrong's personal accounts reflect no payments assoc.i'ited with this acquisition.

On May 25, 1989 Hamilton Taft authorized a 1 for 1,000 reverse stock split of the Company's common stock and set the par value al $1 per share. Hamilton Taft also authorized 10,000 shares of Class A preferred stock. Mr. Armstrong purcbased addirional shares of common and preferred stock with two checks dated June 20, 1989 in the total amount of $33,000. These checks cleared tbe bank on July 24, 1989, the same day that the bank records a deposit of $33,000. The July 24, 19&9 deposit of $33,000 represents the proceeds of a loan from Dresdner Investments,wc. l an Annstrollg company which appea.rs to have been used for about six montbs in 1989. This loan was cha.racterizod in Dresdner Investment's accounting records as a "loan to Chip for HTC stock". This loan receivable was subsequently transferred to Remington where it was included with other transactions catego:rized as all employee receivable from Mr. Armstrong,

Dresdner Investments received casb transfers from Hamilton Taft of $3,248,000 during the period April 6, 1989 througb July 31, 1989. These transfers represented the only materia.! source of funds to Dresdner Investments .

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B-16

• CONNIE C. ARMSTRONG, JR.

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NOTES TO SOURCE AND APPLICATION OF FUNDS January 1, 1989 Through June 1.5,1.991

b)

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Payment to Stanley Rosenberg - $615,008.12 On May I, 1989, .II. cashier's check in the amount of $615,008.12 was purchased willi a Dresdner Investment cbeclc number 1002. As part of the MaxPbarma settlement agreement, under which Mr. Armstrong acquired Hamilton Taft, he agreed to pay a promissory note, with a principal amount due of S600,{)()(), owed by MaxPbarma to Mr. Rosenberg. The payor s.hown on I.hls check is titled "Dres.dner Investment & Capital Corp.; Hamilton Taft Operations".

This payment by Dresdner Investment was charaderiw:i as an advance to Mr.

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Armstrong. This receivable balance was subsequently transferred to Remiogton where it was included witb other transactions categorized as an employee receivable from Mr. Arm stroD g. c)

Legal Fees Paid By Remington - $232,730.19 On October 31, 1989. a joumaJ entry 011 Remington's books reclassifies legal fees of $232,730.19 as a receivable from Mr. Armstrollg. These legal fees are characterized as having been incurred prior 10 April 1989 and they are subsequently included as a compcment of the RamiltOD Taft acquisition costs.

d)

Subsequent DisposlUOIl of B.amiJton Taft Acquisition Costs The Hamilton Taft acquisition costs, wrucb amounted to $880,738, were subsequently transferred tD CCAH Corporation, which later bec.une Knigbtsbridge Company. Inc. Knigbtsbridge (as CCAH) purchased the stack of Hamilton Taft from Armstrong in March of 1990 for a prolIlissory note of $880,738.

Note 5: Acquisition

or Stiefer Property

The Double C Ranch includes two pa.rre1s: a) a smaller Slider parcel; and b) a larger Williams parcel. The W.illiams parcel was purchased by Annstrong through a $9.8 million loan from Hamilton Taft to Winthrop Realty Company. Tbis purcb.ase is accounted for in the Transaction Report, but the 1989 purchase of the Suefer parcel has not been accounted for in the 1989 accounting .rec.ords provided to the Trustee. The casb down payment for the Stiefer parceJ appears to have ~llrred through a withdrawal from Mr. Armstrong's Guarantee Federal Savings account iD the amount of $72,426.04 for a cashier's check payable to Smith County Abstract Co., OIl December 4, 1989. Mr. Armstn:mg's supporting documents characteme this payment as for the "purcbase of property".

8-17

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• CONNIE C. ARMSTRONG, NOTES TO SOURCE AND January 1, 1.989 Through

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supporting documents also include a Promissory Note in amouDt of note is signed by Connie C. Annstn:mg, lr., as "' ............""""'.. on November 17, and is to Julius Doyle Stiefer as Thi.s note is by a Deed of Trust on 121. B62 acres in Smith COlmty. Texas. Mr. payments of principal and interest to Mr. Stiefer during 1991 from hi!; petronat cbeddng account. In 1991, Mr. Armstrong s consent, which was given. to execute a deed in lien returning the property to Mr, Stiefer.

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to Marcll 29, 1989:

to Mr. Armstrong's acquisition of Hamilton Taft. loan proceeds repreSl:nU:a funds in Remington, and Remington used ........................1.1 after Mr. Armstrong acquired control of I:Ul..LI..I..U\,,\nl

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primary

During the period October 1. 1988 through , 1989, Remingtoo's geoern11edger reflects receipts [let of of $649.636. receipts include loan Tl1Y\l'_fI amounting to $646,009 of: a) $300,330 from United Bank & Trust loans:; b) ,000 from an 1988 Hamilton Taft and c) $160,679 from Jim Lindsey loans. During this period, Jim Lindsey Insurance the outstanding loan balances but there were no paid other lenden reflected in Remington I s genera11edger. described Note 3 above, Dresdner Ha.m.ilton Taft on April 6, 1989. The casb ...._"".. ..,.• <>

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tnulSters from

in Dresdner Remington. During April 1989, of $303,353 against these prior loan balances including an April 14, 1989. payment of $253,335 to United Bank & and an April 17, 1989 $50,000 to Jim Lindsey lnsur.mce Agency.

with Hamilton Taft funds include fees paid to and ......,................. the law firm that represented Mr. Armstrong in his MaxPharma. to Ma.rcb 31, 1989, no paymenLs to Godwin. Ca.rltnll Maxwell were made from Mr. Armstrong'li personal accounts or from the accounts The first payment observed occurs on April 1989 a $130,000 to Godwin, Carlton and Maxwell with a cbeck drawD on Investment's casb account. Neither .....................15....,' the acqlUI$lltlOn

bad significant cash resources immediately to Romington began this period with a of

B-18

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& CONNIE C. ARMSTRONG, JR. NOTES TO SOURCE AND APPLICA nON OF FUNDS Janullry I, 1989 Through June 15,1991

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$19,046 on October I, 1988 and ended this period with a cash balance of $16,264 on March 31, 1989. The personal cash aCCl>unts identified by Mr. Amlstrong reflect a beginning casb ba..l.ance of $529 on December 31, 1988 and a casb bala.nce of $413 on March 31, 1989, During the first qu.arter of 1989, his receipts and disbursements were only $22,475 and $22,491, respectively. His receipts and disbursements increased substantially after his a(A]uisition of Hamilton Taft.

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8-19