19921030a Voigts' Declartion

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Jack T. Friedman, Esq., No. 68134 CARROLL, ~URDICK & McDONOUGH Attorneys and Counselors at Law 1676 N. California Blvd., Suite 620 Walnut Creek, California 94596 Telephone: (510) 945-8579

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Attorneys for Debtor HAMILTON TAFT & COMPANY

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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In Re

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HAMILTON TAFT

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No. &

COMPANY,

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FREDERICK S. WYLE, Trustee in Bankruptcy of Hamilton Taft & Company,

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Plaintiff,

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Bankruptcy No. 91-31077LK

Debtor.

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C91 2138 CAL

v.

Adversary Pleading No. 91-3-081 LK DECLARATION OF KEITH L. VOIGTS IN OPPOSITION TO MOTION FOR SUMMARY JUDGMENT

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

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I, KEITH L. VOIGTS, declare as follows:

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1.

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I am a professional accountant and financial

consultant, and know the following facts of my own personal

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DECLARATION OF KEITH L. VOIGTS

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HT 159663

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knowledge.

If called upon to testify, I could and would testify

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competently as follows:

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2.

I am a professional accountant and financial

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consultant, and have been involved in providing financial

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

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and the business entities with which he has been associated,

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since March, 1989.

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University of Iowa, and am a licensed certified pUblic accountant

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in the States of Iowa, Texas, and Florida.

I have a B.A. degree in Accounting from the

I am presently a 50%

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shareholder in Adelson, Voigts & Associates, a financial

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consulting and executive search company, which provides financial

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services and business advice to corporate executives.

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forming Adelson, Voigts & Associates, I was employed with the

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accounting firm of KPMG Peat Marwick ("Peat Marwick") for 26

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years, the last sixteen years of which I was a partner in this

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accounting firm.

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responsible for performing audits on middle and largl" market

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companies, and specialized in providing financial consulting, and

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accounting advisory services, including business strategies, with

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numerous chief executive officers of corporations and management

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executives of other business entities.

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3.

Before

In my employment with Peat Marwick, I was

I did not know Connie C. Armstrong, Jr., until

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Hamilton-Taft retained the services of Peat Marwick to perform an

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acquisition aUdit, which was initiated towards the end of March,

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1989.

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w,as retained for this purpose.

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

DECLARATION OF KEITH L. VOIGTS

A true and correct copy of the

HT 159664

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,---.. , initial acquisition audit performed under my supervision is 2 3

attached hereto as Exhibit A to this declaration.

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Subsequent to being retained by Hamilton-Taft to

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perform the acquisition audit, the services of Peat Harwick for

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

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was also the sole shareholder, including Dresdner Enterprises,

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

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included the following: a.

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including strategic planning for the corporate entities; b.

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c.

Providing of special services relating to

accounting and business planning for these entities; d.

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Assisting in providing due diligence analysis

on asset acquisitions;

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Providing financial advice and consultation,

Preparing a financial review subsequent to

the initial acquisition audit report; and e.

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Providing accounting advice in the

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structuring of financial aspects of asset acquisitions,

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management, and other business transactions.

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5.

I was the primary partner at Peat Harwick involved

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

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Armstrong and these corporate entities.

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closely on the overall business plan and strategy and provided

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advice with respect to specific acquisitions and investment

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

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not, after and analysis of the opportunities was performed. DEC~TION

OF KEITH L. VOIGTS

I worked with him

HT 159665

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this capacity, I met with Mr. Armstrong frequently, and spent 2

considerable time from March, 1989 to approximately March, 1991,

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both in California and in Texas, performing the services above

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described.

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6.

In addition to my own time, Hamilton Taft, Mr.

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Armstrong, and the affiliate companies also received financial

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and accounting services from other Peat Marwick personnel and my

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firm was planning a further audit report up to the time that

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Hamilton Taft was placed into involuntary bankruptcy.

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7.

The acquisition audit which we performed on behalf

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of Hamilton Taft in March, 1989, revealed that the corporate

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entity was in serious financial difficulty.

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investments and transactions which had been made by prior

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management which had resulted in a significant receivables

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problem in that it appeared unlikely that certain receivables in

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the approximate amount of 18 million dollars would be recovered,

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and we recommended that those receivables be fully reserved.

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was apparent that new management of Hamilton Taft, after

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acquisition, would need to develop a strategy to deal with and

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recover from the financial difficulty created by the probable

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uncollectability of these receivables.

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8.

There were

It

In discussions with Mr. Armstrong, and his

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management group to assist in the development and effectuation of

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a strategy to ensure the continued viability of Hamilton Taft, a

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business strategy was formulated which sought to take advantage

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of the cash flow available into Hamilton Taft in order to regain DECLARATION OF KEITH L. VOIGTS

HT 159666

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value for the corporation.

It was clear among those involved in

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the decision making process that the strategy would need to be

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formulated quickly and effectuated as rapidly as good business

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jUdgment would permit, in order to guard against the financial

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difficulties that would be caused by any significant loss of

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client base resulting in a diminution of cash flow.

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plan, in general and oversimplified terms, envisioned the

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identification and acquisition of undervalued assets which could

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be leveraged so that excess cash could be placed back into

The business

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Hamilton Taft.

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business strategy was initiated was such that a corporate entity,

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such as Hamilton Taft, which had access to the use of significant

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cash flow would have tremendous leverage which could be utilized

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to acquire undervalued assets, the refinancing of which would

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assist in offsetting the expected losses emanating from the

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probable loss of value of assets procured by prior management.

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9.

The state of the economy at the time this

I participated in meetings with Mr. Armstrong,

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among others, approximately once or twice a month, wherein we

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discussed the planned acquisition of assets in accordance with

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the business strategy.

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times that Mr. Armstrong's focus and motivation was to, through

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the acquisitions and investments which were being made, replace

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value into the corporate entity of Hamilton Taft in order to

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ensure that that company became a self-sustaining, viable, and

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profitable corporation.

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his actions or his words, ever cause me to believe that there was

It was my perception at all relevant

At no time did Mr. Armstrong, by either

DECLARATION OF KEITH L. VOIGTS

HT 159667

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an attempt by Mr. Armstrong to divert monies which were being Taf~

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provided to Hamilton

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personal gain, other than through the increased value of the

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companies in the corporate group.

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for payroll tax purposes to his

To the contrary, the separate corporate entities

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which were created were to be utilized for the purpose of

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acquiring, holding, operating, and managing assets and

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investments, all of which were pledged back to Hamilton Taft, and

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were intended to generate an infusion of income and value which

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could be used for the benefit of Hamilton Taft. 10.

In my business dealings with Mr. Armstrong during

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the period of time that I was with Peat Marwick and thereafter, I

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have found him to be an honest and credible individual, whose

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integrity I respect and whose business jUdgment, to this day, I

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believe to be impressive.

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by the trustee in this adversary proceeding, I have associated

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myself with Mr. Armstrong in two business ventures which I never

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would have done had I believed that Mr. Armstrong, in any way,

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pursued unethical or dishonest business transactions.

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11.

With knowledge of the accusations made

Based on my personal involvement in the business

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planning and strategy meetings which I attended with Mr.

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Armstrong, I became aware that the business transactions and

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investments that he was pursuing on behalf of Hamilton Taft were

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transactions which were being entered into with due diligence,

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and with professional advice of experts in the areas of the

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acquisitions.

These acquisitions and investments were entered 6

DECLARATION OF KEITH L. VOIGTS HT 159668

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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 clientgenerated 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

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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

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transaction fit the profile of the business strategy and I did

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not recognize any factors which indicated the transactions were

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ill advised.

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acquisition of oil and gas leasehold interests in Howard and

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Fisher Counties was discussed, the oil reserves were analyzed,

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the opinions of individuals with expertise in oil and gas was

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obtained, and I concurred that the acquisition strategy would be

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For example, I was involved in meetings wherein the

benefitted by this transaction. 14.

With respect to the Parker Automotive loan, I

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participated in meetings with Mr. Armstrong and others, and "was

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convinced that Bob Christie, as chief financial officer,

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conducted considerable due diligence on this project.

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representations, it appeared that prior mismanagement of the

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company had. created financial difficulties, but that there was

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tremendous potential because the company produced a good product

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for which there was a considerable market.

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15.

Based on

My firm, Peat Marwick, was involved in the

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

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the asset acquisitions which I understand is being questioned.

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The PIF ownership interest was placed in the Remington corporate

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entity in order to, among other reasons, facilitate the

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accounting procedures that would be necessary for the operation

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of the real estate properties involved in this investment.

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placing of this asset in a corporate entity outside of Hamilton DEC~TION

The

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OF KEITH L. VOIGTS 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

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liT 159671

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. 1 possibly totally cover the expected losses which had been created 2

by prior management of Hamilton Taft.

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investment in PIF, I discussed with Mr. Armstrong the significant

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benefit which I believed that the transaction would provide to

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Hamilton Taft in terms of demonstrating increased net value,

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which was essential to the company's continued viability.

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with respect to the

A further example of my involvement with the

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questioned business transactions is the restaurant/entertainment

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complex referred to as River city Fair in San Antonio, Texas.

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was familiar with the property, discussed the proposed

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transaction with Mr. Armstrong and concurred that the venture 'had

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the potential to be successful.

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A further transaction which has "apparently been

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questioned by the Trustee involves the investment with Weir

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Brothers, an excavation company in Dallas.

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acquisition with Mr. Armstrong, believed that the potential was

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good particularly because many competitors had gone bankrupt and

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that there was significant business opportunities for Weir

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Brothers, and concurred with Mr. Armstrong that this was an

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appropriate business venture under the overall strategy for

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Hamilton Taft.

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I discussed the

Even with respect to the specific business

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transactions and acquisitions in which I did not directly play a

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role in the investigation and due diligence inquiry, during my

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periodic meetings with Mr. Armstrong, I was aware of the other

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in-house management team and outside consultants who were DECLARATION OF KEITH L. VOIGTS

HT 159672

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assisting Hamilton Taft in the effectuation of the business plan, 2

and formed the opinion that appropriate investigation and due

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diligence was being performed as a matter of course by the

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company.

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20.

Up until the time that creditors of Hamilton Taft

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reacted to the adverse publicity generated by Steven Solodof's

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accusations, which I believe to have been inaccurate, in March

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1991, I am not aware of any failure by Hamilton Taft to meet its

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contractual obligations to its clients to make the required tax

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payments and pay penalties and interest when payments were deemed

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late by the governmental entities.

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I declare under penalty of perjury the foregoing is true and correct. EXECUTED this

ci3-'7 1t:'" day

of

0<:.. TIJ8c!.,

1992, in Boston,

Massachusetts.

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HT 159673

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DECLARATION OF KEITH L. VOIGTS

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