Cca 1981, 1988-89

The story subject is hm'l Federal Express placed Hamilton Taft Inc.
, a CCi11]EIly of 15 years standing, and \Vith annual
revenues of $7 billion dollars, into involuntary banlauptcy. This action was executed under a "theory" of 1m'l, relied
upon by Federal Rxpress, that \V8S at that point unpruven and non-ex:i.stant.
The story \v:ill further shav how Federal Rxpress had used their polltical influence to encourage Senator Nancy Pelosi
and Congres.s-ivCJITE[l &rbara Boxer, to I113I1ipulate a headline story in the \oJall Street Journal of an unfounded and
crippling nature I so as to gi.ve a perceived cause for an investigation. This encouragerTE11t, by Pelosi and Boxer I \V8S
spread to the ears of the Justice DeIXJ.TtIIEI1t in h7ashington D. C., which inquired of an investigation via the Justice
DeIXJ.TtIIEI1t in California.
After post investigation and irrecoverable darrEges, the "theory" of law used to initiate the lEnlauptcy filing, \vaB
prr)U~n by the 9th Circuit Court, to be incorrect. It was further discovered through the banlcruptcy records that no
ill. was owed to Federal Express or any other client at the time of the banlcruptcy filing. Federal Express continued
a relentless pursuit seeking to exert political pressure, so as to protect their oVeloll interest.
The ultirrEte Vias achieved. Armstrong, the sole share holder of Hamilton Taft, was incarcerated. The necessity of prison
ti:E for Annstrong beCBllE a blatantly apIEI"ent tool so to protect the nO\'l IIESSive liability which had been created
by the unwarranted and illegal closing of a $7 billion dollar revenue a year cc:mpany, and the liquidation of $109
nriJ.lion dollars in assets.
All the inforrration evidencing these facts as contained herein has been obtained fran the Iep:rrt:nEnt of Justice in
~.Jashington D.C., is listed bela'l, and is in hand. I am trusting for this infonration to be used in the m:Jst prudent
and beneficial \<JaY, so as to prove my innocence.

1) Hamilton Taft by the records was doing $6.8 billion dollars per year in business.
2) The trustee report, of August 1999, shows the estate of Hamilton Taft \vas liquidated for $109 million dollars.
3) On September 23, 1900, after an investigation by the F.B.l. ''J8S ccmpleted, for the transfer of funds fran Hamilton
Taft to M:ix Phanra, (previous avners of Hamilton Taft, before Annstrong) assistant U.S. Attorney, Mike Yarraguchi,
decline to prosecute and closed the ITBtter, in that there \vas no violation of a federal lm<l.
4) Armstrong acquired Hamilton Taft in M:rrch of 1989.
5) In Decanber of 19XJ, Steve Solodol£f, a fired employee of Hamilton Taft for the used of cocaine during office hours,
WF'" to the F.B.I. and the I.R.S. filing canplaIDts tmder the \vhistle blavers act, that Annstrong and Hamilton Taft
W~_ diverting tax trust funds. This is the exact claim rrnde in 1900, and both goverrurent agencies told Solodolff they
were not going to prosecute.
6) February 8, 1991, a S.A. for the U.S. Attorney's office, files a I1HIIO to YarrEgUchi, asking for a prosecution's
opinion, pertaining to the transfer of foods fran Hamilton Taft, since the Justice DepartnEnt had closed the case on
this exact type of claim. This I1l2IID gives the history of the 198.'3 investigation and also Eaker and Mckensie, the
lobbyist and law firm representing Federal Express, and forner law finn of Hamilton Taft.
7) February 11, 1991, rraro discusses Nancy Pelosi and Perbara fuxer's involverrent with working with an investigative
reporter fran the Wall Street Journal, Ralph King. It also discusses Pelosi and Boxer informing the F.B.I. and I.R.S.,
that they needed to taJk to the Wall Street Journal. It also discusses their :involvffiffit with the Justice fupartnEnt
in Washington D.C., to see if an investigation had began on Hamilton Taft.
8J=":;;'Oruary 12, 1991, I1EITD discussing that the llipartrrent of Justice out of \.Jashington D.C. VJaS calling the F.B.I.
2.
1/\ warch 15, 1991, a front pgge \vall Street Journal story p::rtajning to Armstrong cares out announcing the "diversion"
v_ _ilent funds.
18) rlrrd1 17, 1991, criminal file open for fraud and I. R. S. tax fraud.
19) 1"I3rd1 10, 1991, Hamilton Taft was placed into Involuntary funkruptcy by Federal E"'{press. for fraud by the diversion
of trust funds, held for clients by HarrrLlton Taft.
20) f.'by 21, 1991, Hamilton Taft \vas shut davn by tl1JStee.
J' 'w dated f'vI3rch 1992, discusses U.S. Attorney YElI1l3c,oud1i rreeting with Federal Express's lawyers and the trustee
or lJi:mrilton Taft, to discuss the strategy to prosecute Annstrong. TIlls ITEeting was after the I.R.S. refused to prosecute
fran their investigation of the initial opening in the crirninal case, fvl3rch 17, 1991.
2) Fran 1991 through 1993, the trustee of Hamilton Taft seized all assets of Armstrong's under the legal proceecliTIgs
of fraud, by the diversion of "client funds" frem Hamilton Taft.
3) In 1993, the trustee of Hamilton Taft files a 1m" suit against S & S Credit to seek the recovery of preference
}BynEIlts rode by HarrrUton Taft on behalf of S & S Credit. To collect preference paym2Ilts, the 1mV' suit required the
trustee to establish that the funds l;7ere tre properLy of Harrrilton Taft, and not the proIELy of the clients. The
&nlGUptcy Court denied the rrotion, and the trustee appealed the decision to the Federal District Court.
4) 1994) the Federal District Court, Judge Charles Legg presiding, "mo presided over all lEnkruptcy cases pertaining
tr ""'iStrong, as well as presiding over the crim:i.n..al case, affirms the Eanlauptcy Cou....rt.' S ruling, and establishes as
4.
law, that the funds held by Hami..lton Taft, were not the pro}Erty of Hamilton Taft, but trust flll1ds of the clients,
'eference p::LynErlts could mt be collected.
5) 1994 trustee apJE3.ls the Federal Districts Courts ruling to the 9th Circuit Court of Appeals.
6) In June of J.994, after the legal holding by the District Court that the funds were trust, Armstrong was indicts:i
for fraud, for the diversion of trust flillds to Annstrong' s Texas Corporati.ons, and personal 1.:PJ1efit.
7) In JYI3y of 1995, the 9th Circuit Court reversed Judge legg' s ruling in the District Court, and found as of law, tha t
the funds held by Hamilton Taft, we.re the proper ty of H3mi..1ton Taft, and not held in trust, and the funds could be
used for long tenn investn'Ents and paying e.xpenses of Hamilton Taft. This ruling nullified Annstrong I s indictment.
8) After the ruling by the 9th Circuit, S & S Credit filed a Imtion with tJle 9th Circuit, requesting for an en banc
hearmg, and the U. S. Attorney, prosecuting Armstrong, l'o'Ei.ke Yarmguchi, ask to file an Amicus Brief, (friend of the
in that the 9th Circuit's ruling could hurt the I.R.S. in the collection of payroll taxes. TIle U.S. Attorney
Imehr this was untrue, due to the I.R.S. had aJresdy investigated and had refu....c:oed to prosecute, and there was no
h_indrance in the collection of taxes, as had been seen.
9) In August of 1995, Yarmguchi does file an Ami..cus Brief on behalf of the I.R.S. out of Washington D.C., (not fran
the I.R.S. office in California) rehashing the S3IIE argt.IIlB1t, that the funds in Hami.lton Taft were trust.
10) There r,oJaS never an En &mc hearing granted, yet after all legal preceding's had been exhausted, and the argt.nrerlt
had been concluded by the legal holding, S & S Credit and the trustee, "settled", and as p3rt of the settlement
8aOTeEilEl1t, S & S Credit ask the 9th Circuit to vacate their opinion in In Re. Hamilton Taft.
11) On Cctober 12, 1995, the 9th Circuit vacated it's opinion, sighting the reason of settlsrent. The 9th Circuit gave
no other reasoning, nor did they rEffi3l1d tadc down to the District Court any explanation of law, or recalling their
5.
;:md the I.R.S. :in California, lIEking an inquiry of their connection with an investigation of Hamilton Taft.
9) I'1rrd1 6, 1991, ITBnO states there are no victims, and the Governrn=nt couldn't proceed ,vithout a cause.
10) Mrrch 6, 1991, naro to the file states at three different t.im?s :in ITEfOC), that they are reluctant to initiate an
investigation because of the liability that would be attached to the GovernrIEIlt for creating the initiation of the
downfall of Hamilton Taft. The S.A. ' s IIEIDJ also discusses the potential civil liability by alleging any criminal
activities on part of Hamilton Taft.
11) i1rrch 6, 1991, fIEflK), S.A. receives a call fran I.R.S. C.LD., that an investigative reporter fran the Wall Street
Journal, was asking about an investigation going on t,vith Hamilton Taft, that the I.R.S. was canpletely una\vare of.
12) M:rrch 6, 1991, ITEflX) stating S.A . receives a call fran Ralph King, Wall Street reporter, asking him about an
ir '-igation of Hamilton Taft, that was not going on, and hO\v frustrated the reporter seem.
13) M3rch 6, 1991, IIEIlO states S. A. returns phone call frem Sun Micro System, left fran IvI3rch 5, 1991. S.A. was infonred
in this conversation that Solooolff wanted to call a meeting t,vith the clients of Hamilton Taft at their offices, imvhich
they didn't ,~t to do.
14) I'1rrch 8, 1991 l1HID stating the Y8IlEcouchi, suggest to S.A. to collect any infoIllBtion fran Sun flucro SystEm' s 11L~t.itJg
for probable cause.
15) M:rrch 13 I 1991 , after client Ill2eting, Federal Express, files a civil action in the Federal District Court, in San
Francisco California, against Armstrong and Hamilton Taft for fraud, for the diversion of funds, and requested for
an irrnEdiate Temporary Restraining Order, freezing all Assets of Armstrong I s and Hamilton Taft. This order \'fc3S denied
by the Federal Court, and an evidentiBry hearing was set for August of 1991.
16)'~':mch 1L~, 1991, after refUS3l of T.R.O., Federal R"Cpress files Hamilton Taft :into Involuntary funlauptcy.
3~
12) During Armstrong's trial in November of 1996, Judge l..egg, reflLe:ed to give the law of the case found in In Re .
.ton Taft, to the jury by the reasoning that the lmv \vas vacated.
I
13) February 1997, ArTI1strong was found guilty of fraud! by the diversion of fraud.
14) In August of 1997 and then again in the year 2COJ, Armstrong was sentenced to 100 I1Dnths in prison, based on tlle
loss, by tIle preference payilEI1ts collected by the trustee, under the 9th Circuits decision of lalv, that the funds Here
the property of Hamilton Taft, the S2I1E la,·/ that was refused to be given to the jUl)' I and that iVould have proven
Armstrong I S innocence.
It is of fact, that since the decision of law, in In Re. Hamilton

Taft, there has been legal cases that have followed the precedent of
law, even though vacated, in that the funds were the property of
Hamilton Taft. This precedent of law has also been used as authority
by accounting firms, in instructing clients with establishing contracts
with third parties, as lately as the year 2005. Bankruptcy forums
have also used this decision of law as authority for determining the
status of funds in the collecting of preference payments, and the
property of the estate. In other words, the precedent of law established
by In Re. Hamilton Taft, has been used and upheld in every application
intended by law, including in Armstrong's case to sentence him to a
longer period of time by preference payments collected by that law,
but NOT as the legal holding to prove his innocence.
6.
e'4ft",5Il;1C ... S
; a . . . ':; a.S
':'4. = ., .. . 11..:.
: - ~.";'O
J" ....... lIII r ul2f'
'- ·="-'C·.
~C"'("A·
.... ·~_· ... G~~ ... c. C;.
Octc=er 29, 1981
Mr a i va
~·1 arc P a
~ami1ton Taft & Com?any
1255 Post S:reet
San Francisco, eA 94109
Re: Charac:erization of Funds ~ichhe1d by Employer

?or Tax Payments
Dear Marc:
Per your request, this letter QlSCUSSes the characteri-

zation of funds withheld by employers from employee pay
checks in satisfaction of federal and state income taxes,
Social Security taxes, and state ~nemployment insurance <.
taxes. This letter is limited to a discussion of the In-
ternal Revenue Code (III.R.C. t::e California Revenue and
II
),
Taxation Code ("Cal. Rev. & Tax. Cadell), :.he California

Unemployment Insurance Code ("Cal. U. Com. Cadell), and the
general responsibilities and duties of a trustee as reflected
in the California Civil Code (HCal. Civ. Cade").
An employer is required to ~vithhold from the wages of

employees amounts in respect of federal income taxes [I.R.C.
§ 3402], Social Security taxes [I.R.C. § 3102], state income
taxes [Cal. U. Com. Code § 13020], and state unemployment
insurance "taxes [Cal. U. Com. Code § 986]. The employer is
liable for the deduction and withholding of taxes. I.R.C. §
3403: Cal. U. Com. Code § 13021.
Characterization of Withheld Funds
Funds that are withheld or c~llected as income tax or

Social Security Tax are to be held by the employer as Ita
special E:Jna in trust for the United States. 1I
I.R.C. § 7501.
u .s. v. HilI, 3 6 8 F. 2d 6 1 7, 6 6 - 2 ::. S • T • C. ~/ 9 7 3 6 a t 8 7 3 8 2 (5 t h
:-: :'. r c ? ..= ':
:.: 3 j. .J
, 'C ::.:)0-2r :::?, ~ ~ ; ~
?-".:ls:e :'·... 0
2i.~., 1966~. ="...!~ds Lhat are .....'l.-:::~eld cr :::: __ ~cr:ed as s~ate

inco~e c~x 3re ~o be held by ~~e employer aE "3 special fund
in tr'Jsc for the S't'ate ot Cali=ornia rCcl. -,:. Com .. Cocie §
ll
13070]; '..."hile :~nds withheld 2.5 unemcl~vmen~ :'nsurance tax

.:i r e t 0 be \.; i t h he 1 d "i n t r L1 st.
IICal . - U • - Ca ~ . :: 0 d e § 9 8 6 • The
duty to keep Withheld taxes as a trust arises as the taxes
are withheld from wages regardless of the or~scribed dace for
~ayment to the government and does not termi~ate until the
taxes are paid over. ';stleforc ' I . U.S., 75-1 U.S .T.C. I! 9464
( D. ~1 i nn. 1975).
During the ?eriod the funds are held i~ trust, the person
holding the f~ndsassumes, with a few except~ons discussed
~elow, the duties and resDonsibilities of a ~rustee as such
duties and responsibiliti~s are mandated under common law.
~arsh v. Home Federal Savinas & Loan Assn, 66 Cal. App. 3d
674, 136 Cal. Rptr. 180 (4th D.C.A. 1977). In general, a
trustee is a fiduciary and is bound to act in the highest
good faith toward his beneficiary, must make full disclosure
of material facts, must not acquire any adverse interest, and
must not use his position to gain any advantage over the
beneficiary or to make any special ~rofit. Cal. Civ. Code §§
2228-2233. A trustee normally should not ~ingle trust
property with his own, but if he do.es willfully mingle the
trust funds with property of his own, he is absolutely liable
for their safety and for the value of thei~ use. Cal. Civ.
Code §§ 2236.
A trustee has a general duty to invest funds for the

benefit of the beneficiaries, but he must account over to the
beneficiaries any interest earned. Cal. eiv. Code § 2262.
In investing, reinvesting, or otherwise managing trust property,
a trustee must exercise the judgment and care which people of
prudence, discretion, and intelligence exercise in the management
of their own affairs. Cal. eiv. Code § 2261. California law
provides a-fairly liberal description of the type of investment
a prudent person would make, including every kind of property,
real, personal, or mixed, and every kind of investment which
a prudent person might enter into. Id.
Notwithstandin~ the foregoing, the parties to the trust

may alter or waive any of the standard pro~isions and duties.
Rest. 2d, Trusts § 216. It is possible for the parties to a
trust arrangement to authorize commingling of funds, to authorize
the trustee to retain any income rrom the trust assets, and
.' : r. ~·1 arc r' 2 V i..J
>: tobe r .2 9, : 9S1
?age Three
:0 consent ~o various ki~ds of investmen~s. The ~ase G[

:·:acsh Va HOi7le Federal Savir.qs &. Loan Assn. I 66 C::. ';?p . .,)0
6 7 4 , 1 36 Cal.. R~ t: r--:. 1 8 0 (4 t h D. C .. rl.. 1 9' 7 7), i spa =- tic u 1 a t 1 Y
instructive. At issue in Marsh was the proprie~~ and
:egality or ':he lIimpoundll or llreserve" accounts :::.lstomar-ily
required by savings and loan 2ssocia~ions and ba~Ks in
connection with residential ~ortgages to insure ~ayment of
~axes and insurance.. The suit was a class action seeking
general and punitive damages and seeking an acco~nting of
interest on the impound accounts, which were customarily held
~ithout interest.
The Court first determined that the impound accounts

~onstituted trusts, not escrOws. It then considered in
detail the nature of a trust and the duties of a trustee,
observing that the beneficiary of ' the trust may ~aive the
right to any income and may authorize the commingling of
Eunds. Thus, the Court noted that the deed of trust authorizing
the impound account stated specifically that the payments by
the plaintiff would be held by Home Federal "in its general
fund without interest," and concluded that the parties had
agreed that the trustees could commingle and use the trust
funds, but did not have to account for any interest earned.
9.
The statute and cases indicate that the trust funds

created by I.R.C. § 7501, Cal. U. Com. Code § 986, and Cal.
U. Com. Code § 13070 are subject to some modification of the
general rule. Thus, although normally a trustee must segregate
the assets of a trust and not commingle the assecs with his
personal funds, see Cal. eiv. Code § 2236, it is not generally
required that the-Iunds withheld for taxes be held separately
from the general accounts of the corporation or chat they be
deposited in a separate bank account, Slodov v. ~.S., 436
U.S. 238, 78-1 U.S.T.C. ,[ 9447 at 84,206 (1978); Newsome v.
U.S., 431 F.2d 742, 70-2 U.S.T.e. ~ 9504 at 84,1~9 (5th Cir.
1970). The Treasury or the Franchise Tax Board, as the case
may be, may specially require that withheld taxes be put into
separate accounts, however, in the event the employer has
failed previously to make appropriate deposits, payments, or
returns for such taxes, I.R.C. § 7512; Cal. Rev .. & Tax. Code
5 18492.
Furthermore, there is nothing in the statute or any

regulation or case with which we are acquainted to imply that
the government is entitled to any additional interest on the
trust funds doring the period such funds are held in trust.
Thus, it would follow that if an employer decided to forego
interest on the trust funds, he, too, could do so.
:·1 r. :·1.3 r c ? a \. i 3-
Oc tobe r :2 9, 1981
?age four
~ole of Co11ec~ing Ager.~
The foregoing discussion has considered the situation of

an emclover. There does noe appear to be any case law, regula-
tion, or statute dealing wit~ an :~dependent agent who actually
pays over the taxes to the SQvernment. The funds presumably
are still trust funds, and che holder of those funds still
bears the responsibilities of a trustee. Presumably, however,
the collecting agent may use the f~nds in the same manner as
the employer ~ight have, ana is noe required, insofar as the
Internal Revenue Service or the Franchise Tax Board are
concerned, to segregate the =unds from the general fund of
the collecting agent.
Penalties
The normal penalty for a breach of fiduciary duty by a
trustee is the amount of the loss to the beneficiary. A simi-
lar penalty is imposed by I.R.C. § 6672 or Cal. Rev. & Tax.
Code § 18815: any person required to collect, account for,
and pay over withholding taxes who willfully fails to collect,
account for, or pay over such tax, is liable for a penalty
equal to the total amount of the tax evaded, not collected,
not accounted for, or paid over. ~
The test is " willfullness." Basicallv, "willfullness"

does not require anintent to deprive the government of its
taxes, Newsome v. U.S., 5uora, 70-2 U.S.T.C. at 84,151, but
can be evidenced merely by use of the withheld funds for any
other corporate purpose, regardless of any expectation that
adequate funds would be available at the due date for the
taxes. WavchofE v. U.S., 79-2 U.S.T.C • • 9602 at 88,195
(S.D. Tex. 1979). Any person who voluntarily and consciously
risks the withheld taxes in the operation of a corporation is
subject to liability under I.R.C. § 6672 (Cal. Rev. & Tax.
Code § 18815) if subsequently the corporation is unable to
remit the withheld taxes. ~ewsome v. U.S., supra.
In addition to the civil penalties, however, there are

also ciminal penalties. I.~.C. § 7202 provides that any
person required to collect, account for, and pay over any tax
who willfUlly fails to collect, account for, or pay over such
tax shall be guilty of a felony and, upon conviction thereof,
shall be fined not more than S10,000, or imprisoned not more
;.~ r. :-1 arc Pa ~~. .: a
October 29, :981
?age Five
than five yea~s, o~ both, together with che costs of prosec~

tiona Cal. Kev. & Tax. Code § 19408 imposes a fine of not
more than $2,000 or imprisonment [no stated maximumj, or both
for the similar offense. Although the penalties under these
sections have been imposed only rarely and only in particularly
egregious situations, there is considerable need to be con-
cerned about the potential criminal penalties as well.
If you have any questions or comments.concerning the

foregoing, please do not hesitate to contact us.
DLK/aw
t":::·:.::=:'.:::·:::..-::.::·:.:.;::;
-----_._---- -----_._---- ---- ----.----.-

U.S. Departmen • ..Jf Justice
Federal Bureau of In veStlgatlOn
In Reply, PleaBe Reier to 450 Golden Gate Avenue

Ftle No San Francisco, California 94102
September 23, 1988
~x. Joseph P. Russonie11o

united states Attorney
Northern District of california
450 Golden Gate Avenue
Box 36055
San Francisco, California 94102
Attention: Mr. Floy Dawson
Assistant u.s. Attorney
Re: Il...-. ~ _
PRESIDENT, dba
HAMILTON TAFT AND COMPANY,
SAN FRANCISCO 1 CALIFORNIA ;
UNKNOWN SUBJECTS, dba
MAX PHARMA, INCORPORATED,
200 CRESCENT COURT, SUITE 1375,
D~.E TEXAS;
POSSIBLE WIRE FRAUD
Dear Mr. Russoniello: I
Referenced conference between Assistant u.s. Attorney

(AUSA) Michael Yamaguch~ and Special Agent (SA) J I
on September 14, 1988.
This letter is to confirm the above referenced
conference in which SAl I delineated the details of the
allegation and the resuI~s OI his investigation to date regarding
captioned matter. AUSA Mike Yamaguchi indicated based on what
was presented to him as well as his examination of documentation
pertinent to the captioned matter, there was insufficient
1 - Addressee
~1 - San Franc~sco ((196A-2868)
'R'ES Ibfo
(2)
I \
{J.•
Mr. Joseph P. RU5soniello
evidence to support a violation of federal law at this time and

he would therefore decline prosecution. AUSA Yamaguchi added if
further information could be obtained regarding the allegations
presented, he would reconsider his opinion.
Based on AUSA Yamaguchi's declination, our office will
close its investigation into the captioned matter.
Very truly yours,
RICHARD W. HELD
Special Agent in Charge
b7C
By: I
Superv~sory Spec2al Agent
I
2*
(l2/311199S)
FEDERAL BUREAU OF INVESTIGATION
Precedence: PRIORITY Date: 02/10/1997
To: San, FranClSCO Attn: SA Will Hatcher
From: Sacramento
Contact: IAI ~
Approved By:
Drafted By: _________1epg
Case ID i: 196D-SF-93255 (Pend~ng)
Title: CONNIE CHIP ARMSTRONG, JR.;

I I Formerly dba
HAMILTON-TAFT COMPANY
FBW (D); MF; ITSP
00: SF
Synopsis: Cop~es of FD-302s and inserts enclosed from Sacramento

ille 196B-1364.
Reference: 196D-SF-93255 Serial 124
Enclosures: FD-302 of Ion 2/19/86

"FD-302 of Ion 3/12/86
FD-302 of Ion 5 /23/86
FD-302 of Ion 6/19/8 6
Insert a-c ~uoene. Oreoon from 5/1 4 - 6/18/86
FD-302 of Ion 6/2 5/86
FD-302 of Ion 8/7/86
FD-302 of Ion 9/17/86
FD-302 of Ion 3/3l!8 7
FD-302 of Ion 3 /25/87
FD-302 of Ion 4/7/8 7
Details: A review of closed Sacramento ille 196B-1364 revealed
the above enclosed FD-302s and inserts .
••
I ..
....
NO.
CGNNIE C. ~~STRONG, § IN THE DISTRICT COURT

~ndividuallv, and §
: n t. heR i q h ~ 0 f .~.AX P F_~"'!A , S " ~
I~C. and P~~ILTON-TAF~ & S
CC~A.NY, .§
'!'1':=cugh a ~ Leas t Febr"..lary 9 I 'S u .·s. v ARMS.TRONG
CR94-02 76·"- . CAL ' FOWLES
1989, as ~ Shareholder in ,S
~UPH.~..R}'-~ / r~iC.,
§
§
GOVERNMENT EXHIBIT 161
Plaint.~:fs, §
§
v. §
§
~~~PPJUl~~, INC.; H)~!LTON-TAFT §
& CJMPANY; CHRISTIANA §
E~lE?.GY C8RPORATIONi ~;!SION, S
r~~c.; KEYSTONE FINAllC =..u. § _______ JUDICIAL DISTRICT
C~RPO~.TION; CR ACCU:SITIONS, §
r~c.; LAwRENCE B. C:ST£LLOi §
C. ~AYNE LI~CHFIELD; ?£GGY F. §
CA:T£LL; TI~OTHY W. :ELL; S
~C~\(.ED A.. F_:;'OID; CR. ? 5, §
?~~SAD; and JOHN H. ~C8ERTS, JR.; §
each respec~~vely cct.~ §
I~~ividua!ly and as §
S :-.2. =E ho lde rs of.. ~_;.:.( ?::_::'A,(_~, §
:~~C., ana.. ,c'e!:'ivaci.',·ely t:heretrom §
a~c as a result. of :~a cont.=ol §
~~er=of, con~~alli~~ ~hdrehalders '§
a: ~~~!L~ON-!AFT & C~., t.hr~ugh §
dt: laast. February 9, :989 §
S'
Defendant.s, § OA.L:-;S COUNTY, TEXAS -
PLAINTIFFS' ORIGINAL PETITION , APPLlCA'1I !ON iOR

TEMPORARY... RESTRAINING ORDER:, EX'lPARTE, APPLICATION
" . :..:~' ~ '. :.-F'OR ~~.MPOR.ARY' AND PER.M~..NE~: INJUNCTION, AND
APPLICATION FOR IMPOSITION OF CONSTRUCTIVE TRUST
TO T~E HONORABLE JUCG2· OF SAID COURT:

COMES NOW, CGNNIE C, ARMSTRONG (·'AR,.\!STRONG"), Individually
and in
, the ::- igh t. ;:; f :-!AXPHARMA., INC. and
and
HAMILTON-TAFT
as Shareholder
& CO.
of
t.~=::u.gh at. leas'C :ebruary 9, 1989,
Pl.AIN'I'IFFS-': ·OR I"GINAL:-,','PETIT ION , A.PPLlCATION FOR

T~~dp~y RESTRAIN~NG ORDER, EX PARTE, APPLICATION
.·''''f.O.~ T~,~Q~.Y' ANC· P..EfUof..ANEWl' IN.JtmCTION,
AND
APPLICATION FOR IMPOS ITION OF CONS'rRUCTIVE TRUST Page 1
~!AXPHARM.A, IN<;. 1 Plaint.iff ("ARMSTRONG"), and for Original
Pec~cian, Applicacion for Tempora~1 Res~raininq Order, Ex Par~e,
Applicat.ion for Temporary and Permanen~ Injunction, and
Application for Imposicion of Const.ructive Trust., respect.fully
shc~s t.he Cour~ in support. t.hereof as fallows:
I.
PARTIES
1. ? 1 ain t: i. ~ :, ....:l.R.\!.STRONG, is an ind i 'J" idual and 5 hareho lder
er ~.f_U?!i..~'1A/ INC., residing in Dallas Count.y, Texas.
2. De f e ncian t., LAWRENC E B. COSTELLO ("COSTELLO"), is an

individual residing in Da~las Count.y, Texas, and is current.ly t.he
Pres ident. of :-!...~XP::3·_~',(_~, INC. COSTE:"r..O may be served with pr:Jcess
herei~ by se~J"ing him at. his princi?al ?lace of business located

at. 200 C=escent. Ccu=~, Suite 1300, Dallas, Texas 75201.
:e:-=nc.:=.n:., c. ~.,·AY~lE L:TC~;~£~:J ("LITCHFIELD"), :s an
.
~~=:v~~ua:
.. ~es~Q:~g
. .' ,
~~
Okl'
.:=.ncma CLty, Ckl.ahcrna, and is
a .::.:. =ec -: 0 = 0 i :tAX? ~.Rl·LA. / r NC ., and a memOer of i 1:5 Board 0 t
Di~ec~:lrs. LITC~:~ELD may be served -",ith process herein by
ser:ing him at:. his principal place of business, locat:.ed at:. 200
Cre5cen~ CourT:, Suice 1300, ~allas, Texas 75201.
4. Defendan~, ':-OHN ROBER.':'S, JR. ( '. ROBERTS .. ) , is an
inci.vicual residing i.n Dallas Count.y, ':'exas, wit.h his principal

place 0 f bus ines s in Dallas t Dallas Coun~y, Texas. ROBERTS may
be ~erJed wieh process ae his princi?al place of business at 200
,
PLAINTIFFS' ORIGINAL PETITION, APPLICATION FOR
TEMPORARY RESTRAINING ORDER, EX PARTE, APPLICATION
FOR TEMPORARY AND PERMANENT INJUNCTION, AND
APPLICATION FOR IMPOSITION OF CONSTRUCTIVE TRUST Page 2
C=escent Court, Suit.e 1375, Dallas, Dallas County, Texas 75201,
<0= at his =esidence at: 3737 Potomac, Dallas, Dallas Couney,
Texas iS205>.
5. Defendanc., ~OH&\1ED A. HADID ("HADID'"), at all times
mat.e=ial herein, has engaged in business in the State of Texas,

as ~ore particularly described below. HADID does not maintain a
regular place of business or residence in the State af Texas, and
has ~o desig~ated agent on ~hom service of citation may be made
1:1 :.:-.15 cause. P_>\D I D is not. a =es ident 0 f the State 0 f Texas.
T~e causes of ac:.icn asserted herein ar~se from or are connected

;.; i :.:-:' ?u=?o s e f '..l1 aC':.s ccmmi r. :.ed by r:_~ I 0 in Texas bec a us e P..AD ID
en:.e:!:'ed int:J d ::r::missory :-lot.e while in Dallas, Dallas Ccunty,·
Texas I and r.:-.at. noee is now due and payable in Dallas, Dallas
C=:':':"'.:.y, ':'exas. ~;DrD'S breach of his duty t.o pay t.he promissory
:".=:'2 ·•·.. nan c:..:e ==:'-::''IS a ;:a=-:. of t.he :-asis ct r.~e causes cf action
:n addit.ion, rLa.OID is a
t= e~:; c n ·...,rho :--.a 5 (a) f ae il.i ta ted c.he acquis i cion by ROEERTS of
c:::-::':'-:ll O\ter JR. P.S. PRASAD, (b) through effectuation of
mc':'i..::'c2.tions co t.he lending agreements bec·....een DR. P,S. PRASAD
a:1~ :.he Na t. ia na 1 Sank 0 f Was hing't.:ln, as \olell as hav ing rece i ved
::'-~·!:::'CN-TAa..F::' .& CO. CONCENTRATION ACCOUNT FUNDS as a .result of
r-.:'" s ::s n c inu i:-.. g in ce .res t. in ~'!.AXPP..A.R.\(.A. Accordingly, HADID may be
c.:.:.ea by ser':ing che Secretary of Stace of Texas provided t.hat.
,
t.he cieat.ion and petition are for-...arded to tiADIO'S home office
address at 1300 N. 17th Street, Suite 1100, Rosslyn, Virginia
22209, by cer~ified mail, ret:urn receipt reques~ed.
6. Defendant, DR. P.S. PRASAD (~PRASAD~), was at. all t.imes
macerial hereto and is believed to cur=ent:ly be a member of t.he
Board of Directors of ~..AXPHAR1A-A and, at. all times maeerial
herein, has engaged in business in Dallas Count:y, Texas; as more
par:icularlv desc=:bed below. PRASAD does not:. maintain d place
of regular business in Texas and has no agent: on whom service of
cieation inay be made in t.his cause. The causes of ac't.ion
assert:ed herein arose from or are connecl:ed with t.he purposeful·
ac:s commit.~ed by PRASAD in Texas because (a) he has facilica't.ed
through his original conduct: in assist.ing ROBERTS 'Co acquire
~~xpp~~~~ as a cor~orace shell through which to acquire ~~~ItTON-
TA?'= .=.r.c :.":e~eat:=r dissi~at.e t.he as sacs of fiAl.\!ILTON-TAFT, and
itl t~e 5ubsecruen~ :ailure ~o exerc~se in good fait.h and ~i:h due
di~':'gence the fiduciary dut.ies of a direc~or and concrolling

shareholder of MA.X?HAR,l-(.A, as mare fully descr.:.bed below is the
basis of Plaint.iff's cause of ac't.ion. Accordingly, Defendant.
PR.;'SA..D" may be cieed by serving the Secrel:ary of State of Texas
t==='/ided that. the cicacion and peci:.ion are fonwarded t.o PR..';SAD'S
EJ=':";-.ci?al place of business, KEYSTONE FINANCIAL CORPORATION,
400 ~r'lest. Fift.h Street, Greenville, Nor't.h Carolina 27834, by
cer~ified mail, return receipt. request.ed.

,
APPLICATION FOR IMPOSITION OF CONSTRUCTIVE TROST page 4
7. Defenda..nr., PEGGY F. CATTELL ("CATTELL"), is an
individual residing in Dallas Count:y, Texas, and may be served
wir.h cit.acion at. her princitJal place of business, 200 Crescent
Cour~, Suice 1375, Dallas, Dallas County, Texas iS201.
8. Defendan~, MAXPHARMA, INC. ("MAX?HARMA"), is a
ccr;o=ar.icn duly formed and exisr.ing under ~he laws of ~he State
of Tennessee and duly aur.horized to transact. business in ehe
Star.e of ':'exas, and: may be served ...,it.h cit:at:ic:1 by serving its
reg:st.e:-;Q agent:, ~WR£NCE a. COSTELLO, ae. 200 Crescent. Court,

Suite ~300, Jallas, Dallas County, Texas 75201,
9. De ie ndan t , HA..."!IL:'ON-TAFT & CO~ANY ( .. H,A.'''iIL:'ON-TAFT") I
is a c~~~aracion duly fo~ed and exisr.ing under t.he ~aws of t.he

SCct.8 or Calif-:rnia. HA~I LTON -TAFT, at d 1';' time s ma t.er ial
he~ei.r:, has engaged in business in Texas a.nd has no designaced
~;=~~ :~ :~a Scate cf Texas on whcm service cL:acion may be made
.- :':-.':'s ::.:uss. The causes of act.ion asscr't.ed. herei:1 against.
:-:_:....:.:::.:':~~-:'.;,;'!' arose from or are ccnnected ·,.rich ~urposei'..ll acts
c:;:n:7i:' C ~ ad =y HAMILTON-TAFT in Texas because ~XPHARMA and
fJ~_'-!.!:':CN-:A.FT engaged in loan transaction, through nominees, the
t:e!:':::=::1ance wit.h respect. t:o which ',.ras due, in part, in Texas;
ar.c, :'J.r-:!1er, because P..A.'1IL':'ON-TA.FT permit~ed itself t.::l be, and
~as, ~::lized by ROEERTS and COSTELLO as a vehicle for fending of
i:1s.:.':er :.:ans may be cited by serving the Secret.ary of State of
,
TE¥.PORARY RESTRAINING ORDER, EX PARTE, APElLICATION
FOR TEM:PORARY AND PERHANENT INJUNCTION, AND
APPLICATION POR IMPOSITION OF CONSTRUCTIVE TRUST Page 5
_ _ . . . .f -.............,.....
Texas provided t.hal:. the citat.ion and petition a.re forwarded to
HAMILTON-TAFT' 5 reqis~ered agent. in the State of California,
Albert: L. ~'!ay, 557 Go lden Gate Avenue, Sa.n Franc isco, California
9~l02, by cert.ified mail, return receipt request.ed.
10. Defendanc, VISION, INC. ("VISION") is a corporation
duly fo~ed and existing under the laws of che Stace af Delaware.
VISION has obtained a Cer~ificat.e of AUl:.narity from the Secrecary
at State ot Texas, is duly authorized to t=ansact. business in the

S~at.e ar ~exas, and may be served with cil:.al:.ion in this action by
se~Jice of cieaeion upon ics regisl:.ered agent, PEGGY F. CATTEL~,
at its reg:scered office, 200 Crescent Cour~, Suite IJi5, Dallas,

Callas Councy, Texas 75201.
11. Defendant, CHRISTIANA ENERGY CORPOR.~TION
\ "C::RISTL;..NA·' ), is a corporation duly rocned and exiscing under
~.-.e ~aws :f t:he State of Delaware. CHRISTIANA, at: all t.irnes
:n Co :. e :- idol :: e ~e in, has en q age d i n bus i r. e 5 s i n Te xas, as rno r e
~a=~:.cula=:"y described below. CHRISTIANA does no.c maincain a
~:ace of =egular business in Texas and has no designa~ed agent: in

t.~".e State of Texas on whom service of cicacion may be made in
:.::':'5 cause. Despi te the fact tha~ it was not licensed co do
=~s':'r.ess in the 5tace of Texas, CHRISTIANA execueed and delivered

a ::romis50ry noes in Dallas, Dallas Couney, Texas, payable in
Cailas, Dallas Coun~y, Texas. Tha't. noee is the _crux 0 f t.he
,
causes of action ass~r~ed herein against CHRISTIANA. The causes
of action asserted arose from or are connected with purposeful
ac:.s ccmmi :.t.ed by CHRIST!ANA in Texas because CHRISTIANA is a
ncminee for ROBERTS, and is a corporace ent.ity cont:.rolled by
RCEERTS through which HAMILTON-TAFT CONCENTRATION ACCOUNT FUNDS
have been dis~ributed to individuals or encities affiliated with
RCEER..TS. Accordingly, CERrSTIANA :nay be cit.ed by ser"J'ing t.he
Se~=etarv of Stat.e of Texas prcvided ~~at the citation and
pec.':":.':'on ars forwarded to CHRISTIANA'S registered agent in the
S:i:!.~e of Delaware, The Incorpcracors, Ltd., Coffee Run

P=c:essional C=n~rel Lancas~er Pike & Loveville, R.D., Hockessin,
Delaware 19iQ7 1 by cer~ified mail, =ecurn receipt. request-ea.
~ 2. De fendant, KEYSTONE FINANC:..;r. CORPORATION ( .. KEYSTONE" ) ,
is ~ to~eis~ corpora~icn, the s~ate cf fc~a~ion and exis~ence of

.,J:-.~=:: i.s ;:resent.ly unknown co Plai:H:.i.ff, although a principal
~~::: cr tusiness is known and is alleged hereinbelow. KEYSTONE,
a:. ::'1 :L'Tles mat.erial herein/has angdged ::1. business in Texas,

as ~ore par~icularly descri~ed belew. KEYSTONE does not rnain~ain
a ;lace of requla~ business in Texas and has no designaced agent

i~ :.~e Stat.e of Texas on whom service of ci~acion may be made in
t:. .... :.£ cause. The causes of action asser'tsd arose f=om or are
c:::,::,.ected with purposeful act.s commit.toed by KEYSTONE in Texas
because KEYSTONE is 'the nominee shareholder of record for shares
c",Jiied by PRASAD and MAXPHARHA. Accordingly t KEYSTONE may be

I

TEXPORARY RESTRAINING ORDER, EX PARTE, AFPLlCATION
.. ,~--- ,.,._._-
"I~ f
---- ....
cited !:y serving the· Secretary of State of Texas provided that
the ci~~t.ion and petition are forwarded t.o KEYSTONE'S principa.l

place of business, 400 West. Fift.h St=eet., Greenville, Nort.h
Caroli~a 27834, by cert.ified mail, return =eceipt requested.

13. Defendant:, TIMOTHY'N. SELL ("BELL"), is an individual
resid~~g in Plano, Collin Coun~y, Texas. BELL does not main~ain
a place c f regular bus ines s in Texas a.nd has no agent on whom

ser/ice of citat.ian 'may be made in :his cause. The ca.uses 0 f
ac~:on asserted arose from or are connected with purposeful act.s
c::m:ni:ced by SELL in Texas because (a) he is a twency percent.
(20%) shareholder, wit.h dadicianal options, in CR ACQU~SITIONS,
INC., ehe current ccnt.roll;'ng sharehalce: of HAMILTON-TAFT, and
(b) is one 0 f the present. princi;:al sources of financing for
R02£RTS andl accordingly, may have access to the sha.res of

Accordingly, Oe£2ndan~, BELL, ~a.y be cieed by se~'ing
~::e St3c=e~a.ry of Stal:e of :exas provided ~hat the cieaeicn and
pec~t.~~n are forwarded to BELL'S principal place of business l 1))
Crescent Avenue, Spo~swood, New Jersey 08884, by cerl:ified mail,

reeurn receipt reques~ed.
14. Defendant., CR ACQUISITIONS, INC. ("eR ACQUISITIONS"),
is a ccmpany duly formed November 9, 1988, and exisl:ing under ehe

laws of the State of Texas wit.h its principal place of business
in Dallas, Dallas Councy, Texas, and may be served with cita~ion
,
T~~ORARY RESTRAINING ORDER, EX PARTE, APPLICATION
FOR TE..MPORARY AND PERKA.NENT INJUNCTION, AND
••• ~ - •• --..... • 1 z:eew

in this action by service of citacion upon its reqis~ered agen~,
PEGG'l F. CATTELL, at. it.s registered office, 200 Crescent Court,
Suica 1375, Dallas, Dallas County, Texas 75201.
CASE OVERVIEW
~S. This case concerns the cla.ims by a shareholder,
indi·... idually and derivatively, against. officers, direct.ors and
conc=alling persons who have engaged in conduct. consticut:.ing
t.otal abandonrnenc and" disregard of :iduciar/ duties, to init.ially
"loot ,. che asseT:.S of, che wholly-owned corporate subs idiary which
cons~i.tutes the primary asset of t.he publicly traded parent

company of which Plaint:iff is a shareholder and, most recent:ly,
divest: that corporat.e subsid~ary ~i:~out shareholder approval and

in 5UC~ a fashion as to cons~icute an abdicat.ion and violation of
fic~=~a~f dut.ies owed 'Co t.he minority shareholders of 'Che parent
puc:~=ly held and traded ccr~ora~ion.
:5. De rendan~ ROBERTS, th=cugh nominees and cC:11;.=alled
inc':' ': i d u a 1 S 0 r a f f i 1 i a r. e s, 0 b e a i ned con t: r 0 1 0 f ~.AX P H.A..R.." !A , a
publ.:'cly held corporation, t.hrough a series of t:ransac~i.ons in
whic~ ROBERTS arranged for HAOlD, an individual wi~h whom he had
bus i:1ess dealings I co assist: ~he majority shareholder of

M..~..x:p_~'"L~ ( .. PRASAD") wi eh :-egard 'Co re f inane ing the indeb'Cednes 5
of ?R.ASAD assoc ia~ed with ~he ini t.ial acquisi tion by PRASAD 0 f
his inceresc in MAXPHARl-f..A, in exchange for which financial
,
APPLICATION FOR IMPOSITION OF CONSTRUCTIVE TROST Page 9
assis~ance ROB"'ERTS acquired de fac'Co vo'ting and disposition
rigncs of the majority int:erest:s derivat:ive from his control of
the encit:ies and individuals involved.
17 . At or about the time of :he acquisition by ROBERTS of
cont:=ol of MAXPHA.RM.A, ROBERTS was also at:t:empt:ing to effect:uat:e
the acquisicion of HAMILTON-TAFT, a "cash rich" payroll services
company which had therecorore been owned by CIGNA Insurance
Ccrnpany but: as to which CIGNA was seeking a purchaser, as CIGNA
wa 5 di ves t. ing i tse1 f 0 f non- insurance related asset:s during a
pe=iod when CIGNA had sust:aineci subs'tantial losses in the
prcgert:y and casualty insu=ance businesses.
18. COSTELLO arranged for a :=ansact:ion wherein cash assecs
of HAMILTON-TAFT would be used in a "reverse repossession"
financing arrangement: whereby said cash assets t:hemselves served
as ~he means by which :-!.AXPHAR:1A, as a cont:rolled entity of
RCcE:::tTS, could tJurchase :tA..'1ILTON-TA.FT ucilizing the assecs of
HA.."!ILTON-TAFT. In this t=ansact:ion I the cash 0 f H&.'"!ILTON-TAFT
was trans ferred to an investmenc banking firm, which in turn
pu=chased treasury securities which were t.hen held by the
invescment. banking firm ~ith righcs of repossession thereon
5ucjecc to the fait:.hful tJerformance by ~..AXPHARMA and HAMILTON-
TAfT of debt. satisfaction with r:egard to monies paid by the
invescment banking firm to CIGNA in sa'tisfaction for the purchase
at P~~!LTON-TAFT MAXP~~.
, by

FOR TEMPORARY AND PER.M.A.NEHT INJUNCTION, AND
19 . One e R0 6 ERT S ~ h a. d a c qui r e ci MAX PHARMA , and in t urn
ar=a.nged for t.he a.cquisition by ~.AXPH.AR}f..A of HAMILTON-TAFT,
ROBERTS t.hen proceeded to remove the existing Board of Direc~ors
for each company and replace them wi~h COSTELLO and LITCHFIELD.
20. H.A.L\tILTON-TAFT is a payroll services company which
receives tax withholdings from custcmer client.s, ret.a.ins those
funds in accoun~s for subsequent. payment, is ent.itled to earn
interest en ~hose funds, and ultimately pre?ares returns and pays
t:axes, in exchange for which fW-iIL7CN-TAfT agrees to be liable
for any penalt.ies which ma.y resulc with respect. to improper
filing. In ~his respect., HA.."1ILTON-TAFT is one of t.he nat.ien s J
largest. companies. Prior to the acquisir.ion of cont.=ol of
HAMILTON-TAFT by ROBERTS, ~~ILTON-TAFT had not. ut.ilized custcmer

acc~unt funds for any purpOSE ot.her :han acquiring secure asset.s
(such as government. bones or t.::easurf. notes) which c:::ul':' be

readily =edeemed for purposes of rnee~:;.g client t.ax obligat:=ns.
21. Afcer the acquisit.ion 0: control of MAXPH.A.R."!A and
HAMILTCN-TAIT by ROBERTS, during 1988 a.pproximately Slot: :nillian

in funds were caused to be removed from client acccunt.s of
HA..'1ILTON-TAFT and dis~ributed in c.he for:n of. loans to ~.J·w·G'::_~'"LA.
or directly t.o affiliar.ed entities wit.h which ROBERTS did

busi~ess, all for the benefit of the int.erests of ROBERTS and dll
contra~1 t.o the interests of t.he shareholders of MAXP~~.
,
P~NTIPFS' ORIGINAL PETITION, APPLICATION FOR
TEMPORARY REST~NING ORDER, EX PARTE, APPLICATION
FOR TeMPORARY AND PERMANENT INJUNCTION, AND
. " ._ •. --~-·_·- __F"""I_alb

22. As a consequence of the "looting" of HAMILTON-TAFT at
the direction of ROBERTS, RAMILTON-TAET was placed in jeopardy of
being unable to meet: its obligacions. As a resul t of this
jeopardy, ~..A.XPHA..R1d..A. was required to attempt same means by which
to obtain funds e.o a.ssure accomplishment. of that short:-term
purpose. ROBERTS engaged the se~~ices of a good friend and San

Antonio attorney, Stanley o. Rosenberg (ROSENBERG), co obtain a
loan in a face value of 5625,000.00, as to which a.pproximately
5500,000.00 was actually extended (~FIRST ROSENBERG NOTE~). This
loa n was used t.o mee t. s ho rt - t.erm ob 1 igat ions 0 f MAXPHAR..v.A
derivat.ive from the inability of ic.s Wholly-owned subsidiary,
H.;~ILTON-TAFT, to ful f ill its obligat.ions. As part. 0 t t.his
t=ansact:ian, ROBERTS caused one hundred percent. (100\) of the
sha=es of E~~ILTON-T.~T t.o be ~ledqed as c~llateral on :~e FIRST
~OSENBERG NOTE. No shareholder approval was obtained for this
t.=3.nsac~i.Qn.
23. In Sepcemoer, 1988, for the purpose of crea~ing the
appea.rance of a good fait.h effort. co en£orce its rights wit.h
respect. to loans which had bee~ made, MAXPHARMA iniciated suit in
Dallas County, Texas, styled ~a.xt:harma, Inc. v. Vision, Inc.,
Cr.~1.stiana Enerav Cor~orat.ion, ~oha.'lled A. Hadid, an Ir.di·... idual,
and John H. Roberts, Jr., an Indiv idual (the "MAXI?HA.R1"_~/ROBERTS
SUIT"]" seeking collection on indebtedness awed by ROBERTS which
PLAlHTIFFS' ORIGINAL PETITION, APPLICATION FOR

... .._- ,----~ • C4

was then in default. Had ROBERTS repaid the amount which ~as due
and owing I ~PH.A..RMA would have been in the posi tion to sat.is fy
the FIRST ROSENBERG NOTE, effec~uate the reacquisit.ion of the
r:ransferred pledged collateral on the FIRST ROSENBERG NOTE, and
beg in to rep leni sh t.he funds which had been diverted from
HAMILTCN-TAfT in the form of loans. T~e pleadings in the lawsuit
fail to fully and completely relate the relat.ionship of the
par~~e5 :0 cne anothe~ and the fact.s associated with the c:eation
of ~he var~ous indebtednesses which had, as of that time, ?laced
!J.AXP~.A.~V_~ and fi.AJ.'1ILTON-TAFT I as its '..Iholly-owned subs idiary I in
substantial f~nancial danger.
24. In December, 1988, ROBERTS sought the imposi~i.on of
injunc:ive .:-elief cest.raining ~Pro..AR...loiA from t.ransferr~:1q any
assets to satisfy the FIRST ROSENBERG ~OTE. Although ROEERTS ~as
a f:=:.end of ROSENEERG, the position :aken in the pleac':"::gs ·....as
that ~C=ERTS had developed a business opportunity which ~ad :hen
been :rans tarred to ~.AXPHAR.v.A ~nd that I subsequent.ly I Y_~?H.AR.'.I'.A
had mismanaged the business oppor-cunity to the pccent.ial
det.ri:nent. of ROBERTS. Wha t:. ROBERTS f ailed to ace :.:ra t.e 1 y
represent. to t.he Cour't in tha t lawsui twas (a) the na ture and
ext. e n t. 0 f con t. r 0 1 '..I h i ch ROB E RTSex ere i sed 0 ve r the '/ a ri.o U s
enti-ties, (b) t.he nature and extent. to which t.he act.~ons and
cOl}duCt of ROBERTS had themselves ==eated the financial hazard
for ~~?a~&~, and (C) the fact that the management. of ~~PHARMA
I
PLAINTIFFS' ORIGINAL PETITION, AFPLICATION FOR

~~ORARY RES~NING ORDER, EX PARTE, APPLICATION
.- -. . ... . . ·--..·.------... .--iIIIIIIIIII

~.
and HAMILTON-TAFT under the direc~ion and con~rol of ROSERTS had
been such as ~o "loo~ It HAMILTON-TAFT in such a way as to create
the appearance chat the diminution of the value of HAMILTON-TAFT
had been t:he resul c of mismanagement: by MAXPHARMA and, thereby,
enable ROBERTS to (i) obtain large quantities of cash from
P..AMILTON-TAFT under t.he ruse and guise that the acquisition of

t.hese asset.s had, in fac't., occurred a.s a result of ~PH.AR.lw(AtS
ac~ion and (ii) as a result of that =use, to then orchestrate a
proces s whereby ROBERTS CQuld accr...ti=e the shares of HAMILTON-

TAFT, a viable entity with existing client base, and leave
~X?H.ARM.A as the shell it had been before the acquisit.ion of
HAMILTON-TAFT, without any asset.s and co the detriment of the
shareholders of the ~ublicly held MAX?HARMA.

25. Plaintiff AR.'I.1STRONG, through Dresner Corporat.ion, ha.d
present.ed a proposal to M..~PHA.R}(_i\ i.er the purchase of ~pr:..A.R.."!A
shares and c~~t.rol of the MAXPHAR¥_~ coard in consideration f~r S3

.• 1 '
mJ..1. ... :.an, which swn '....ould have reaciily {a,\ satisfied the fIRST
ROSENBERG NOTE and (b) provided approximately $2.5 million in
operat.ing capital for MAXPHARMA. COSTELLO, still as de facto
nominee and controlled person of ROBERTS, refused to accept. this
business opportunity t.o sust.ain t.he operat.ions of MAXPHAR.......A and
HAMILTON-TAFT, and inst.ead proceeded on a course to seek to cause

ROBERTS to repay t.he out.standi:lg debts due and owing to
.I-
PLAINTIFPS' ORIGINAL PETITION, APPLICATION FOR

T~ORARY RESTRAINING ORDER, EX PARTE, APPLICATION
APPLICATION FOR IMPOSITION OF CONSTROCTIVE TROST Page 14
"'" .. ~ .., .····'·~--_iiII~.....

26. In lat.e December, 1988, ROBERTS represenced to the
Court: in the ~PHARMA/ROEERTS SUIT Chat ROBERTS had developed
t.he co rpo race 0 ppo rt;uni cy for MAXPHARMA, trans ferred the
corporate oppor1:unity to H.AXPHARMA, and that. MAXPHARMA was
mismanaging t.he business opport.unity ·tllhich ROBERTS had
transferred, for all of which ROBERTS thensouqht: to have che
prior t.ransaccions rescinded a.nd concrol of HAMILTON-TAFT
retur:1ed to R08ERTS. !n con j unc1:ion with chis ef fort:, ROEERTS
succes~ tully obta.ined a Temporary Restraininq Order rescraining
MAXFH.A.RJwf-A from ut.ilizing from using any HAMILTON-TAFT asset.s to
sat.isiy the FIRST ROSENBERG NOTE. foreclosure on t.he FIRST

ROSENBERG NOTE was sec for January 27, 1989.
27. ~~STRONG acquired 500 shares of MAXPHARMA on or about
January lJ, 1989, and concinued wich effor'Cs to negotiate for
satis fa.ct.':'cn of t.he first:. Rosencerq noce and infus:.cr. of
actcic':'onal c~eracing capital as out.lined above.
28. On or abouc January 23, 1989, A&~TRONG sold his shares
fer valuable considerat.ion to Fat.ti C. ~ont:aque, his sec=et.a.ry,
who then filed suit. in Collin Count:y, Texas, scyled Pat.t.y
Mont-aoue, Individually and Shareholder of MAXPH.A.Rl-'.A, INC. \/.
LA~RENCE S. COSTELLO, C. WAYNE LITC~:IELD, JOHN H. ROBERTS, ;~.,
anc ~OHA.M:ED A.. HADID, bot:h Indivicuallv and as Shareholders of
l'4.AXPP_a..R."!.A t I~lC., HA."1ILTON-TAFT, INC. and VISION, INC., as Part.y
,
P~NTIFFS' ORIGINAL PETITION, APPLICATION FOR
TRMPORARY RESTRAINING ORDER, EX PARTE, APPLICATION
FOR TE..MPORARY AND PERMANENT INJUNCTION, AND
APPLICATION POR IMPOSITION OF CONSTROCTlVE TRUST Page lS
De fendants, and obtained a Temporary Rescraining Order
restraining ROBERTS from fur't:her action. This Temporary
Restraining Order. was dissolved the next: day upon a Plea In

Abatement with respect to the Dallas County case.
29. At 9:55 a.m. on the morning of foreclosure, and with
the offer of ARMSTRONG Qu~standing, the FIRST ROSENBERG NOTE was
satisfied through payment. via the Dallas, Texas, law fir:n of
Gardere & Wynne usi~ a trust: fund check, the sources of ·..rhich
was t.hen unknown.

30. On January 30, 1989, and for valuable consideration,
~~STRONG reccquired the MAXPKARMA shares which he had previously
held.
31. As af February 14, 1989, ARMSTRONG learned for che
first time from Ms. Fran Bartlett, president of HAMILTON-TAFT for
many years t that:
a. Due to threat.s by COSTELLO that bankrupt;:y ....ould
be init.i.at.ed in order to preserve t.he st.ock interest af
MAXP~~ in HAMILTON-TAFT due to the fact: that ROEERTS had
obtained a Temporary Injunction against: MAXPHAJUof...A u~ilizing
the HAMILTON-TAFT asset.s to sat:.isfy the FIRST ROSENBERG
NOTE, the pres idenc of HAMILTON-TAFT caused same persona i
funds and approximately $560,000.00 in HAMILTON-TAFT funds

to be transferred to Gardere & Wynne in Dallas I Texas, for
,. the purpose of satisfying the fIRST ROSENBERG NOT!. This

,
PLAXNTIFFS' ORIGINAL PETITION, APPLICATION FOR
transact.ion W'as effect.ua~ed in order to (a) prot.ec~ the
client. int.erest.s of HAMILTON-TAFT and (b) avoid the
destruc'tion of HAMILTON-TAFT bus iness as a resul t of being

involved in a bankrup'tcy.
b. The funds obtained by Gardere & Wynne, as
at.t.orneys for ROBERTS, were then used t.o fund an esc:r,:·'"

cransac:.ion ·..rhereby ROSENBERG afforded ROBERTS a.n
o~l?or'tunity to "buy bacK" the H&~ILTON-T.A.FT s'tock:
c. On February 10, 1989, without. not.ice to or
aut.horit.y from any of t.he 1'4'.AXPHA.RMA shareholders, COSTELLO
and ROBERTS eneered int.a a less chan arm' s ~engt.h
c=ansac-=.ian whereby COSTELLO caused ~.AXPHARMA to t=ansfer
all of the shares of HAMILTON-TAFT t.o ROBERTS and then, in
t: '.J. r n, ROB ERT S for g a v e t h e indeb ted. n e S 5 0 f M.A.X P FJ_ljUof_~ 1: 0
r_~'1ILTCN-TAFT . Thus, as a resul:. of :his t.ransac:.i.=n I and
·.... i:haut: knowledge t.o any of 'Che shareholders of t.he
pUblicl.y held MAXPHA.Rl-f.A, MAXFP...A.Rl'.A ;"ad divested i:.self of
P~~ILTON-TAET to ROBERTS and, ef£ec't~7ely, had no asse~s as
of February 10, 1989.
32. On February 14, 1989, AR."!.STRONG fur~her learned that.
ROBERTS, as of February 14, 1989 I :-:ad di..=ecl:ed and ins~ruc~ed
represent.at.ives of HAMILTON-TAFT to .,ire transfer co HADID an
additional 52 million for purposes as yet. unknown but ?resumably
t.o eit.her fur~her assist RADIO in projec~s in which he is engaged

J
PLAINTIPFS' ORIGINAL PETITION, APPLICATION FOR

and in con~idera~ion for which RADIO will reciprocace to ROBERTS
by giving ROBERTS fina.ncial support: in other cransactions; or I
alcer:1.atively, for a "strawman" transfer, of funds to ROSENBERG in
order co effeccuace a release of HAMILTON-TAFT stock held as
securicYi and, ROBERTS has given inscruccions for another
$1,050 / 000.00 to be wire transferred in accordance wich
inscr~ct:ions co be given on February l5 or February 16, 1989.
33. As t.he out.lined fac'Cs reveal, the ongoing loo'Cing of
l-f..AXPHAR.H.A and its primary asse'C, P'.AMILTON-TAFT, had cont.inued
from Janua"ry, 1968, t.hrough at leas-c February .10 1 1989; ~nd,
fur~her, to t.he excent: t.hat. ROEERTS has wrongfully acquired the
~~ILTQN-TAFT en~itY, a cons-cruccive t=ust: needs to be imposed in
order co preserve and procect. che in'teres'ts of che ~.AXPHARM.A
. shareholders as to whom the HAMILTON-TAFT asset. had been the
p r i..::1.a ry as set. af ~\XPHA.R."iA pr ior co i t.5 wrong ful trans fer to
RCBER~S.
DETAILED FACTUAL BACKGROUND
ACQUISITION OF MAXPRARMA AND H.AMILTON-TAFT
34. HAMILTON-TAFT was incorporaced in California in 1979
and is in the business of providing tax computing services for
paymenc and filing of employrnenc 'tax re'turns. In chis capacitYI

client:.s of HAMILTON-TAFT pay t:.o HAMILTON-TAFT sums of money
egu-i va lent: to the tax wi thhaldings required a.s of respecT;ive

FOR TEMPORARY AND PERKA.N"EHT INJUNCTION, AND
payroll periods, which said sums HAMILTON-TAFT then holds in
accouncs ("HAMILTON-TAFT CONCENTRATION ACCOUNTS-). In accordance

with the agreement;s between HAMILTON-TAFT and its clients,
HA."1ILTON-TAFT is entitled to invest: t:he monies contained in t.he

HAJ,"!ILTON-TAFT CONCENTRATION ACCOUNTS from t:he time of receipt
unt:il the time of payment and have the use of the interest: earned
thereon (with various variations of such agreement. existing with
different clients). Prior to the acquisition of HAMILTON-TAfT by

MAXPHAR...\f..A, HAJ."1ILTON-TAFT had only invested monies from the
H..-\MILTON-TAFT CONCENTRATION A.CCOUNTS in secure investments such
as bonds or treasury notes.
35. Pri.or to the purc:"a.se of HJu.'1ILTON-TAFT by MAXPHAR."iA,

Hk"!ILTON-TAFT was owned by a wholly-owned affiliate of C!GNA
Corp 0 rae ion. During 1986, and as a resul~ of substant.ial losses
exper:"enced in the proper1:Y and casualt:y area, CIGNA deciceci co
ccncenc=ac.e ":'ts business porciolio in ir.surance-related mat.t.ers
and, accordingly, to sell a.ny non-insurance relaced enti::"es,
inc lUding wi t.hou~ limitation HAMILTON-TAfT. During early 1987,
pro spec t. iva purc has e r s 0 f HAMILTON -'r' AFT inc 1 uded, wi thou t
limicacion, ADP Corporation and Control Data Corporation.

36. As a matter of coincidence, ~n ~arch, 1987, ROBERTS msc
Ms. Fran Bartlett, then Pres ident and CEO of HA.'lILTON-TAFT
( "BARTLETT") I on an airplane traveling to Washington, D. C. As a

.-
result:
,
of discussions about the operations of HAMILTON-TAFT,

FOR TE.KPORARY AND PERMANENT INJlJNCTION I AND
ROBERTS (a) indica~ed to BARTLETT t.ha.~ ROBERTS had t.he where-
wich-all and interest to acquire HAMILTON-TAFT through a
corpora-cion known as VIS ION, which :\OBERTS claimed to conl:rol,
(b) t.hac ROBERTS would be interested in con~inuing the operations
of H.A...'iILTON-TAFT in the same ma.nner as had previously been
perfor:ned, and (c) ROBERTS would immedia ~ely begin to undert:ake
s~eps necessary to present. a. proposal to nA..'iILTON-TAFT far t.he

acqu~si~ion by VISION or some ather en~ity cant-rolled by ROBERTS.
Jj. Bet.'Ween March, 1987, and July, 1987, ROBERTS conduc~ed
disc'..:ssions wit.h CIGNA regarding the possil::::ilit.y of the purchase
of P~~ILTCN-TAFT.
38. In July of 1987, VISION and ROBERTS executed a
confidentiality agreement wich C~GNA in order co acquire
inf::::lat.ion concerning HAMILTON-TAFT. an or about. December 2,
L987, CIGNA, ~~ILTON-TAFT, and HT P.oldings, Inc., entered in~~ a
":-:'C ::ihopping agreement" so that CIGNA would noc solicic HA."1ILTON-
HT Holdings, Inc., was a wholly awned subsidiary of VISION
whic~ had been formed to purchase ~~ILTON-TAFT.
39. Becween approximately August., 1987, and December, 1987,

ROBERTS made repeaced representa.tions chat:, chrough VIS ION, he
""as prepared co close the acquisit':'cn of HA-'wHLTON-TAfT; and, on
at !.east four (4) oeedS iens c los ir:g da. tes were sec only co be
t.hereafter negated due to the inabili ty a f ROBERTS to c lose the
tr.ansact.ion.
,
PLAlNTIFPS' ORIGINAL PETITION, APPLICATION FOR
TEMPORARY RES~NING ORDER, EX PARTE, APPLICATION
FOR TE.MPORARY AND PERMANENT INJUNCTION, AND
APPLICATION FOR IMPOSITION OP CONSTRUCTIVE TRUST Page 20
40. Neither ROBERTS nor VISION were involved in any fashion
with MAXPHARMA from the time of firs~ contact: with BARTLETT
t.hrough lat.e 1987, at which time discussions with MAXPHAR..."iA

initiat.ed.
41. During the period af approximat.ely July, 1981, through
lat.e December, 1981, ROBERTS was at.t.empt.ing t.o locat.e sources af

financing which would be available to enable him to effectuat.e
t.he acqu is it ia n af HAMILTON -TAFT. ROBERTS did not have an
inde~endent. financial base upon which to close such a transact.ion.
42. ROBERTS locat.ed ~XPHAR~ as a potent.ial corporat.e
vehicle through which acquisition of HAMILTON-TAFT could be
effectuat.ed. MAXPHARMA is a pub 1 ic ly owned corporation
inccr?0rated in the State of Tennessee, the shares of which were

being traded on the American Stock Exchange.
43. Through a ~rocess precisely unknown, ROEERTS proceeded
to c~nduct negot.iations for t.he acquisit.ion for ~~p~~ as c~e
corpora~e en~ity through which HA.'1ILTON-TAFT would be a.cquired

in t.he following respects:
a. Bel:ween July, 1981, and December, 1988, and in a
manner presen~ly unknown, ROBERTS est.ablished a relacionship
wi~h HADID, a Saudi national of purpor~ed subs~an~ial wealt.h
who, additionally, supposedly had banking connec~ions with a
,
National Bank of Washington;
PLAINTIF?S' ORIGINAL PETITION, APPLICATION FOR

FOR 'nMPORARY AND PERMAKE.NT INJUNCT I ON, AND
b. A cont.rolling block of s~ock in MAXilHARMA was
owned by PRASAD and, on information and belief, PRASAD had a
substantial loan guaranteed by T. Bert Lance at the National
Sank of Washing1:on, where RADIO had significant influence,
said loan believed to be associdted '""it.h and cons1:itu~inq
funding for t.he acquisition by PRASAD of his int.erest in
c. EitheJ:: as a result. ot sheer coincidence, personal
in'C.errelat.ionship between PR..~SA.D and HADID, or through the
financial link at the National Bank of Washing'ton, ROBERTS
lea.rned t.hat. PRASAD ·""as in fina.ncial difficulty wit.h the
loan of PRASAD at. the Nat.ional Bank of Washing~on;
d. ROBERTS and/ or HADID approached PRASAD wi th t.he
pr~position thac ROBERTS and/or HADID, either individually
or by and c.hro~gh ccnt.rolled or aff~l':"at.ed ent.it.ies, would
acquire a controlling int.eres'C. in ~~P~~A and, thereaft.er,
u t.il ize ~.&XPHARMA as t.he co-rpora t.e ent.i t.y which would then
acquire HAMILTON-TAFT;
e. The consideration cont.emplat.ed for the acquisition
by ROBERTS and/or HADID of the interest. of PRASAD in
~XPHAR.M.A included the fael: t.hat. (i) favorable t.erms of
ext.ension would be negotiat.ed for PRASAD with the National
Bank of Washing~on, (ii) ROBERTS and HADID would provide
,
personal guaranties on the loan of PRASAD with ~he National
Bank of Washington, (iii) RADIO would be provided a loan of
approximacely SJ million from the assets of HAMILTON-TAFT,
once it had been acquired, which said funds HADID would then
utilize with respect to a convention project in which he was

involved in Aspen,Colorado, and (iv) ROEERTS and/or HADID
would receive 75Q,OOO shares of ~~P~~.
44. In accordanc'e with the foregoing, a.nd a.s evidenced by
the conr.ent:s of a Schedule 13-0 filed wit~ t:he Securir.ies and
Exchange Commiss ion en behal f of :--tAXPHA.R}(.A by ROBERTS on beha.lf
of VISION on December 20, 1987, in November and. December 1987,
ROBERTS and HADID executed thei:, persona.l guaran~ies tathe
National Bank of washington in favor of PRASAD and ROBERTS, by
and through VISION, :NC. ("VISION"), a Delaware corporation with
its ~rincipal place of business in Dallas, Jallas Coun~y, Taxas,

acq'...li=ed che con:.==lling interest. of ~.AXPHARY..A through an
assig~ent from PRASAD of 3].]\ of the common stock of MAXP~~.
At. the time of the assignment., PRASAD w-as the Chief Executive
Officer and President of MAXPHARMA. (As discussed more fully
below, ROBERTS, th:ough his control of VISION assert.ed control
over ~.A.XPHAR1'f.A a.nd '..;sed z.4..AX.PH.AR."1.A as an ':":1strument or tool co
acquire HAMILTON-TAFT.]
45. Once ROBERTS, r.hrough VISION, had a.cquired t.he
controlling interesc in MAXPH.A.R.MA, VISION a.ssigned co MAXPH.A.R.MA
its ri~h~ to purchase HAMILTON-TAFT.

FOR TEMPORARY AND l?ERMANElIT INJUNCTION I AND
46. According to' BARTLETT I ROBERTS and COSTELLO met on an
ai=plane during the early par~ of December, 1987. COSTELLO, who
was the pres idenr. for C&H Trucking Company, was at.t:emptinq to
locat.e a source of financing to assist: him in the purchase of
C&H , which was being sold by its parent:. ROBERTS reached an

agreement. with COSTELLO whereby ROBERTS· would arrange for
CCST::r.LO co be inves~ed as the Chai=man I pres ident and CEO 0 f
~_b"XFP.A.R.1.t.A, r~c. I and-'Chairman of HA...'1.ILTON-TAFT, plus the payment
of a Sl million bonus, the quid pro quo considerat.ion for which
was (a) the obedience of COSTELLO OJith the desires of ROBERTS
regarding the operat.ions of ~PfiARl'l.A and HAMILTON-TAFT and (b)
COS TELLO e f f ec t.ue. t. ing the acqu is it ion by !-f.AXPHAR}(..A 0 f C&H
Trucking Company.
47. ROBERTS advised =epresenca.t.ives of ~"1ILTON-TA.FT lat.e
in Cecembe~, 1987, fer the first: time of t.he int.ent. of ROBERTS,
by ~nd through VIS rON, :'0 ut.ilize ~.AXPHAR.l,C'.A as the corporate
".rehiele through which to effecl:uat:.e the a.cquisition of the
~~!L~ON-TAfT st.ock.
48. Furt:.hermare, lat.e in December, 1987, or early in
Januar/, 1988, ROBERTS for the first. time proposed to HAMILTON-
TAr'! a financial funding struct~re orchestrated by COSTELLO
whereby a "reverse repo" lending transaction would be structured,

said "reverse repo· being conscit.ut:ed essent:.ially as follows:
PLAJNTIFFS' ORIGINAL PETITION, APPLICATION FOR

TRKPORARY RESTRAINING ORDER, EX PARTE, APPLICATION
fOR TEMPORARY AND PEJUI.AH'ENT INJUNCTION, AND
__ • . . . _-0',_,,_- ._ •• _. __ • __... ..........

a. $5 million in cash was caken from the HAMILTON-
TAFT CONCENTRATION ACCOUNT FUNDS and depos i ted with Howard
Wei 1 Lab 0 U iss e F r i e d ric h e r nv e 5 tm en t: Sec uri t Y I • Inc. I
("HOWARD WEIL") I wi th which funds HOWARD WEIL then obtained
a treasury note to be held as security for repayment of a
promissory note to be executed by ~~PP~A in consideration
for $4.1 million in cash to be paid to CIGNA. Thus I the
MAXPHARMA note" was secured by treasury bills in t.he
aggregat.e amount of S 5 million owned by HAMILTON-TAFT and
purchased wit.h KAMILTON-TAFT CONCENTRATION ACCOUNT FUNDS;
b. Although the total purchase price was stat.ed to be
S4 . 1 mill ion, af whi c 11 5 5 aa , a0 a. a 0 ",..r as to be p aid 0 nor
about December 30, 1987 1 and SJ.6 million of which was to be
paid at t.he closing of che transac't:ion cn or about. January
29, lS88, an additional S900,000.00 was funded by the
t.=ansac't:ion and, ultimat.ely, drawn down by ~PHA.R.I,(.A agains't
opera'ting expenses.
49. On or about: January 29 I 1988, ~PHARl-'.A entered into a
st:ock purchase agreemen~ with t:he affiliate of CIGNA to purchase
HAMILTON-TAFT. The entire .. reverse repo '. loan transaction
required several hours to conswmmate wi~h respec't: to the exchange
of funds. Upon cone ius ion I however, ROEERTS 1 by and through
,
~ .,. '.' -, .. _-- ,..,

controlled entities and individuals, including without limitatio
COST~LLO, had effec'l:ively purchased and a.cquired control 0
HAMILTON-TAfT with the assets and funds of HAMILTON-TAIT.
50. While not directly involved in the transactions
relat.ive to the acquisition by MAXPHARMA of HAMILTON-TAFT, of
some significance is a transaction between MAXPHARMA and a
corporation known as INTERPHARM, to the extent t.hat. t.he
concl~sion of said transac~ion (a) coincided at or about the time
when ~.AXPHA.Rl-f.A, under the new control of ROEERTS was act:empting
t.o conclude t.he acquisition of HAMILTON-TAFT and (b) ttte fact
tha-c the INTERPH.AR..'i t.ransaction resulted in the forgiveness by
MAX?~~ of $1,231,500.00 in loans from ~~PHARMA to INTERPHARM,
wit.h respect to which significance is deemed to occur as said
for; i.. '~ e n e s s 0 f deb t: (i) e " ide nee s t. hat. MAX P HA RM.A had a
si;:-:.:'::';:ant. liability to INTER.Pf-f..A.RM derivative from the i:labilicy
of ~_~X?HA.R}f.A to consumma'te a preViously con'tracted transact.ion
w 1. t11 INTERPHARM and (i i) the ext.en T; t.o which the forgiveness of
t.he indebt.edness negat.ively impacted upon the financial
operations of MAXPHARMA, the ou'tline of transac~ions with respect
t.o which is as follows:
a• I n Mar c h 0 f 1 9 8 7, ~X PHARMA pur c has e d e i ght Y
percent. (80%) of t.he stock in INTERPHARM. At. the time 0 f
'the sale, PRASAD was rNTERPHARM' 5 ccn'trollinq shareholder,
... Pres ident. and CEO. Likewise, PRASAD was also the Presidenc
I
P~NTI1PS' ORIGINAL PETITION, APPLICATION FOR

APPLICATION FOR IMPOSITION Of CONSTRUCTIVE TROST Page 26
and CEO of MAXPHARMA. In accordance wi ch the acquis i tio
aq-reement, MAXPHAR}(.A exchanged 487,951 shares of ne..1:
issued common s~ock of the company on March 31, 1987, for.
eighty percent (80\) ownership of INTERPHARM. An additional

521,227 shares of MAXPP~'S common stock .as issued on or
about July 15, 1987, for no additional consideration.
b. INTERPHAR.."! incurred large losses and proved to be
a significant .drain on M.AXPHARM.AI S availa.ble ca.sh. In
Dc to be r 0 f 1987, ~.AXPH.A.RM.A executed an agreement for the
sale of INTERPHAR-'1 back to PRASAD. Pursuant: to the
resc is s ion agreement:, MAXPH.A..RJo'I.A agreed t:o recurn to PRASAD
all 144 shares of INTERPHARM stock owned by MAXPHAR.1Q., and
?R.ASAD agreed to surrender back to ~PH.AR.MA all of the
1,009,178 shares of its s~ack chat: PRASAD received in
connec~i.on wit.h t.he original t:.ransac:.ion. The agreement.
also :-e leased INTERPHARM from repayment: of Sl, 231,500 in
loans f=om MAXPHARMA plus accr~ed interest.
c. Closing under the rescission agreement: occurred on
or abou~ February 8, 1988. However, PRASAD failed to
deliver 100,000 shares of MAXPHARMA'S stock, which had been

pledged to American Nat.ional Bank of Jacksonville, Florida,
as- secur i ty for cer~a.in personal indebtedness of PRASAD.
Based upon informa~ion and belief, PRASAD has still not made
." delivery of the 100,000 shares of st.ock to MAXPHARMA.
J
PLAINT~FPS' ORIGINAL PETITION, APPLICATION FOR
FOR TEXPORARY AND PERMANENT INJUNCTION, AND
·
51. Our i nq 1988 1 ~"'!ILTaN-TA.FT provided net funds 0 f
approximacely $14,510 , 581.00 , conscitucing loans or transfers of
funds to or for the benefit of individuals or entities controlled
by or affilia.ted with ROBERTS, including without limitation the
following (dates and transactions being approximate):
a. 1/31/88: $5 million to ROWARD-WElL. Funds of
HA-"!!LTON-TAFT were actually used to enable MAXPHA1U4'.A to
purc~ase HAMILTON-TAFT. In this transaction, SS million of
cash was taken from the HAMILTON-TAFT client tax trust funds
and llsed to purchase securities which were issued in the
na..'ne 0 f HAMILTON-TAFT and, on information and belief, were
pledged by COSTELLO ac'Cinq in his capacity as Chairman of
HA~!LTON-TAFT, for the benefit of MAXPHAR.."iA and held or

pledged by HOWARD-WEIL as security for a loan to ~~PHARMA,
S4.1 million of which ~as paid to CIGNA for ~he purchase by

~_~X?:!A.RAA from CrGNA of HAMILTON-TAFT, and che remaining
S900, 000.00 of which was to be ut.ilized as working capital
:or HAMILTON-TAFT. The remaining 5900,000.00 was, in fact,
dissipated at the control and direction of ROBERTS for the
benefit of entities or affiliates con~rolled by ROBERTS, and
not for working capital.
b. 2/26/88: $1 million to MAXPHARMA.
PLAINTIFfS' ORIGINAL PETITION, APPLICATION FOR

FOR TEKPORARY AND PERMA.NENT INJUNCTION, AND
c. 3/8/88: $1 million to Hadid Development Co.
d. 3/11/88: $2 million to Hadid Development Co ..
e. 3/23/88: 5875,000.00 to CHRISTIANA, INC.
f. 4/27/88: 52 million to IO International

Corpora tion. These funds were provided as par~ of a down
payment. for t.he acquisition of C&H Nacionwide, Inc., a
t.ruc king company of whic h COSTELLO had been the former
president.. The transaccion cculd not close due to the fac~
that ROBERTS could not arrange for financing suffi.=ient to
pay for a tract of real es~ate associated with the sale of
the trucking company. Approximaceiy 51,500,000.00 in
::rincipal and interest. has been repaid, with the present:
=alance an t.his loan being $662,000.00.
g. 5/88-10/88: $1 million in management fees.
During the referenced period of time, approximately 51
:ni 11 ion was trans terred from the accounts 0 f HAMILTON-TAFT
':0 MAXPHARMA for the purported purpose of sat.isfying
management fees and reiat.ed pur~orted expenses.
,
~~ORARY RESTRAINING ORDER, EX PARTE, APPLICATION
FOR T1!MPORARY AND PERKANENT INJUNCTION, AND
h. -11/88-12/88: 5411,000.00 represeneing transfers
to M..AXPHARKA for opera ting expenses. The following
amounts were trans fer=ed from HAMILTON-TAFT CONCENTRATION
ACCOUNT FUNDS co ~.AXPHARMA for the purpose of ~PHAR,1o(.A
operacing expenses:
i. 11/9 - S35,000.00;
ii. 11/16 - $22,000.00;
iii. 11/21 $228,000.00;
iv. i2/2 - 542,000.00;
v. 12/22 - $74,000.00i
vi. 12/28 - S10,000.00.
S2. The fund trans ters referenced in numerical paragraph_
51, supra, were all unsecured fund trans fers made from the
HAHILTDN-TAFT CONCENTRATION ACCOUNT FUNDS.
LAWSOITS
53. On Sept:ember 13, 1988, MAXPHAR.."!A, INC. brought suic in
t.r.e !.J4th District Court., Dallas Counc.y, Dallas, Texas (the
··~_UPH.ARJ-f..A/ROBERTS SUIT") against VISION, INC., CHRISTIA.NA ENERGY
CORPORATION, MOHaMED A. HADID, a.nd JOHN H. ROBERTS, JR. In
per~~nent par~ the pleadings allege the following m~tters:
a. That: HADID and ROBERTS, t.hrough VISION, acquired
common stock: of ~PHAR.."!A sufficient: co give them a
concrolling interesc cherein;
PLAINTTFFS' ORIGINAL PETITION, APPLICATION POR

•
b. That \fISrON and ROSERTS exercised their cont.rol
positions and caused lo'.A.XPHARMA to loan to VISION
5625,000.00 as evidenced by two promissory no~es in the
amount of SlOO,OOO.OO and $525,000.00, each of which
noees has come due and is currently in default;
c. T~ac VISION, RADIO, and ROBERTS exercised their control
co cause HAMILTON-TAF'!', the then wholly-owned
subs id iary·" 0 f MAXPHARMA, :0 loan HAOlD S 3 1000, 000. 00
evidenced by a promissory nate given from HADID to
HA.."1ILTON-TAFT, which noee has come due and is in
default;
d. Tha e ROBERTS and VISION caused HAMILTON-TAFT to loan
$875,000.00 to CHRISTIANA ENERGY CORPORATION, a company
conerolled by ROBERTS, as evidenced by a promissory
nct.~ from CHRISTIANA E~:ERGY CORPOR.A.TION signed on
::ehal f of CHRI STIANA ENERGY CORFORATION by ROBERTS as
Chair:nan, which noee. has come due and is currencly in
default;
e. Tha t ROBERTS and VIS ION had breached their :: iduc: iary
duty not to disproportionately profit: from the
corporation or i~s subsidiaries, by syst;emat:ically
looting the as set.s of t"f.AXPHARMA and i 1:5 subs idiar ies ,

said loor.ing ha.ving consis't.ed ~f che borrowing of
carpora't.e assets which ~~PHARMA asser't.s the Defendants

~herein ~ever in~ended to repay;
f. Tha t:. the funds loaned t:.a ~he Defendanl:s therein had
been used by the Defendanr.s therein for their own
personal gain, such as for payment. of a Jaguar car and
a personal home for ROBERTS.

S4. On January. 15, 1989, VIS ION, and ROBERTS filed a
ccunce==laim sustained in par't. through t.he Affidavits on file of

JOHN :i. ROBERTS I JR., in the MAXPHAR~.AJR06ERTS SUIT against
M.A..X?::_~:;"'-f_~ and t.he C·I'lO execueive members of ~.A.XPHARMA's Board of
Direct.ors, COSTELl.O and LITCHFIELD, seeking rescission of an
agre eme n t be twee n VIS ION, ROBERTS and lo4..AXPH.AR.l'4'.A regarding t.he
acql:isi.:.ion of H.A...1·iILTON-TAFT by ~.AX.PH.A.R.."!A and injunctive relief
aga:':is:, ~a..XPHARM..A.,. INC., COSTELLO, and LiTCHFIELD to resr.rain

~~em :=~m ce~~ain ac't.s relaeing t:.o HAMILTON-TAfT and ~~P~~'s
owne~ship thereof. The coun't.erclaim alleges, among ocher things:
a. Tha~ although MAXPHARHA had agreed to award VISION
and ROBERTS opt:.ions to acquire 475, 000 shares of ~PHARHA
at: cerr.ain specified prices in exchange for VISION and
ROEERTS' right to purchase ~~ILTON-TAFT, VISION and ROEERTS

we~e nee awarded their op't.':"ons as allegedly agreed to by
~..AX P P.AR.l·!A. ;
,
TEMPORARYRES~NIHG ORDER, EX PARTE, APPLICATION
POR TE..'iPORARY AND PERMANENT INJUNCTION, AND
b. Tha~ COSTELLO, and o~her officers and direc~ors of
MAXPHARMA, may have been "upst:reaming'" funds out: of
HAMILTON-TAFT to MAXPHARMA in order to pay certain debts,
001 iga tians , a.nd opera t ing expense s 0 f M.A.XPHA.R..1iA, as a
resul t of which HAMILTON-TAFT s I stock may have been in an
immediate danger of loss and/or diminution in value;

c. Tha~ MAXPHARMA and COSTELLO, and/or other officers
and directors of MAXP~~ were in the process of a~~emp~ing
to obtain and/or fund a loan from Caprock Savings
Association and in an at~empt t.o pledge the stock of
P...A."1ILTON-TAFT, which such actions were asser-ced t.o pose a
po't.enti.al risk of substantial harm, injury, and diminucion
va 1 ue to the HAMILTON-TAFT' s s-cock, as a consequence 0 f
which a Temporary Rest.:=aining Order restraining ~PHAR¥~,
I~:C. and it.s office!:'s and direci:.ors, from direco:ly and
indirec-:ly obcaining, acqui.=ing I or other-wise trans terring
any funds, by loan or other..'ise, fr::m HAMILTON-TAFT, and
from assigning transferring, pledging or grant.ing or

at ~ampt.inq to grant. to any t.hird-par-cy a security interest
in HAMILTON-TAFT stock pending a hearing on the Temporary
Injunc'tion.
54'. On January 19 I 1989, a hear ing was held on the request.
for a Temporary Inj'unct.ion by VISION and ROBERTS in connec't.ion
wit.h t.he Counterclaim filed, at the conclusion of which t.he Cour~
,
PLA1NTIFPS' ORIGINAL PETITION, APPLICATION FOR
POR TEMPORARY AND PERHANENT INJUNCTION, AND
encered an Ord-er cha t the request: of VISION and ROBERTS for
Temporary Injunction be qrant:ed and chat MAXFHARMA, its officers

and directors be restrained a.nd enjoined from directly or
indirectly ob'tairiing, acquiring I or other.ise transferring a.ny
funds by loa.n or otherwise, from HAMILTON-TAFT and from
ass igning, trans ferring I or any other enc~rance in or on the
Hk~ILTON-TAFT s'tock pending a final t=~al on 'the merits.
55. On Ja.nuary .24, 1989, Patti Montague, individually and

a.s a. s hareho lder 0 f MAXPHA.R1-4'..A, INC. ( .. MONTAGUE" ) I brought. suit in
the 199th Judicial District: Cour't, Collin County, Texas, against
COST::LLO, LITCHFIELD, ROBERTS, HADID, bach individually and as
shareholders of MAXPH.ARMA, INC., HA..'ULTON-TAFT, INC. and VISION,

INC. and joined ~PH.ARMA, INC., HAMILTON-TAFT, INC. and VISION,
INC. as par~y Defendants (the "~ONTAGUE SUIT"). !'!ONTAGUE,
Fu=:::::aser :iJ= consideration of the shares of ARMSTRONG, broughc
the ac~ion ~o enjoin and restrain che Defendancs from cer-cain
acts relaced co MAXPHARMA's ownership of HAMILTON-TAFT' COMPANY,
as a. wholly-owned subsidiary of !-'-A.XPHARlof.A, alleging in i.1a~erial
respect.:
a. That in July, 1988, MAXPHARMA execuced and
delivered co Sta.nley D. Rosenberg Les original promissory
note in the original principal amount of $615,,000.00,
( ., ROSENBERG NOTE") and in order to secure the ROSENBERG
." NOTE, ~XPHARHA execuced and delivered to ROSENBERG a
,
PLAiNTIFFS' ORIGINAL PETITION, APPLICATION FOR
TEMPORARY RESTRAINING ORDER, EX PARTE, APPLICATIOH
s ecur i ty in-ceresc and lien upon all the shares 0 f common
st:ock of HAMILTON-TAFT, as well as possession of the

HAMILTON-TAFT stock;
b. Thac the ROSENBERG NOT:: was currencly in default
and as a result, the HAMILTON-TAFT stock may'be in immediate

danger af loss and/or diminucion in valuej
c. Tha e ~AXPHARMA and COSTELLO were potentia.lly
"upstreaming" funds oue of HAMILTON-TAFT to MAXPHAR.MA. in
order t.o pay cercain debt. obligations and operating
expenses;
d. That. MAXPHAR."iA and COSTELLO and/ or' ocher off ieers
or directors of MAXP~~A were in the process of attempting
t.o obtain or fund a loan from Caprock Savings Association
and were pot.ent.ially at.t.empt.ing t:o pledge the stack of

r~~ILTON-TAFT in connec~ion wi~~ said loan;
e. That. such conduct warrant.ed imposition of an
injunct-ion enjoining the Defendant.s from act.empt.ing to
pledge the HAMILTON-TAFT scock.
57. On January 24, 1989, a Temporary Restraining Order was
gran r.ed in the MONTAGUE SUIT. However I on January 26, 1989,
ROBERTS filed a Plea in Abacement. st.acing that the count:erclaim
as sert.ed by VIS ION and ROBERTS in t.he ld_UPHARMA./ROBERTS SUIT was
the same as t.he cla.im assert:ed a.nd che relief request.ed in the

TE..KPORARY RESTRAINING ORDER, EX PARTE, APPLICATION
FOR TEMPORARY AND PEID'..ANENT INJUNCTION, AND
pending MONTAGUE SUIT and chat I by \7 ir~ue 0 f the forego inq I the
Dallas County Court:. had acquired dominant jurisdiction and the
Collin Count:y case should be abated. ROBERTS and VISION 5 Plea I
in Abatement: was grant.ed on or about January 27 I 1989, and the
Collin Count.y case was ordered to be consolidated wit.h the Dallas

County case.
DIVESTMENT OF HAMILTON-TAFT S'l'OClt
TO CR ACQOISITIONS, INC.
58. CR ACQUISITIONS was incorporaced November 9, IS88 t by
C-~TTELL (the secret.ary for ROBERTS), who is also the Registered
Agent for service of process, and which c=mpany has a registered

address of 200 Crescent:. Cour~, Suite 1375, Dallas, Texas 7"5201
(t.he address of ROBERTS). No officers or directors are presently

listed with respec~ to this corporation.
59. On or about February 10, 1989, in a transac't:.ion the
details of wh~ch ace not presen~ly f~lly ~nown, the cer~ificaces
0:= =iC;h t:s t.here to c f 'Che 2,059, 00 0 5 hares 0 f s t.ock in r.AMILTON-
TAFT prey ious 1 y owned by :--.AXPHARMA were trans ferred to CR
Ac~uisitions, with VISION being involved in ~he transac~ion in a
respect presently unknown.
60. BELL is understood co own approxima~ely tven'ty percent:
(20%) of CR ACQUISITIONS, plus various op1:ions therein. On
furt:.her informacion ana celief I BELL also cont:rols Comst:ock, a

subsidiary af Ewing Oil, and has been providing subs-cant:ial
PLAlNTIFFS' ORIGINAL PETITION, APPLICATION FOR

~ORARY RESTRAINING ORDER, EX PARTE, APPLICATION
FOR TEKPORARY AND PERMANENT INJUNCTION, AND
APPLICATION POR IMPOSITION OF CONSTRUCTIVE TROST Page 36
. . . . . __·•• ·4·'.__ -......---. t 41

financial s~pport: and sus-cenance 1:.0 ROBERTS (i.e., "keeping
ROEERTS alive") for a period of at least: t ..o (2) mont:hs prior to
February la, 1989.
61. 0 nor a b Q U 'C Feb r u a ry 10 , 1989 , ROB ERT Seause d a
transac~ion to be effec1:.ua1:.ed wherein the s~ock of HAMILTON-TAFT
theretofore owned by ~~p~~ was transfer=ed'to CR ACQUISITIONS.
[ .. 2 /10 l"..AXPHAR.J.!A/CR ACQUISITIONS HAMILTON STOCK TRANSFER"]
62. Although t.he' decails af :he MAXPH.AR...1w£A/CR ACQUISITIONS
K&~rLTON-TAET STOCK TRANSFER are unknown, some of t.he informa1:.ion
which is known is as follows:
d. On February 10, 1989 I ROSENBERG agreed to loan, CR

ACQUISITIONS che amount of 5600,000.00 cons1:.ituting the
purchase price, exercise price and rela.ted cases of t.he
loan, the proceeds of which CR ACQUISITIONS has a.greed to
?ay a. purchase 9r':'ce to VISICN and an "exercise price" to
tL;"1o!IL'I'ON-TAFT. Additionally, CR ACCUISITIONS has dg~eed to
tJ1edge t.he 2,059,000 shares of s'Cock purchased by CR
ACQU IS I T IONS ( pres umab 1 y f rom VI S:i: ON) 1:.0 Rosenberg I and
addicionally eo execuce a security agreement. in favor of
Rosenberg;
b. VISION, CR ACQUISITIONS, ?~~ILTON-TAFT, XAXP~JUl~,
ROSERTS and Fran Sar1:1e1:. 1: {" BARTLETT -, a Cali fornia res iden t
who has been t.he pr inc ipal person managing t.he af fairs 0 f
P~NTIFFS' ORIGINAL PETITION, APPLICATION POR

POR TEMPORARY AND PER.!'!A.!fENT INJUNCTION AND I

.....-_... _.~_ ...
KAMILTON-TAFT pursuant to the instructions and directions of
ROBERTS and COSTELLO) entered into an assignment of option

t
rights, the details of which are unknown;
c. A directors' meeting of CR ACQUISITIONS was
convened at which time ROBERTS, BELL, and a person
ident.ified and known only as "Claire", who is believed to be
a girlfriend or other social acquaintance of ROBERTS
~ ( "CLAIRE") ·. . ere .:nade the directors in charge of H.AM!LTON-
-'---" ~T
--.
affairs, or
of HAMII;TON-TAFT .
......
affai~s with respect t~ the previous assets
63. On Febr~~ _.14 I 1989, BARTLETT advised A.Rl-f..5TRONG of the

"
following activities ·..rhich had occurred with respec~ to the
operations of HAMILTON-TAFT:
i
a. BELL is the pe rson -,.,ho has been designated by
? C BERT S a 5 Ch e I? e r son ..... hoi s C 'J' e :- 5 e e in g t. h e pre 5 e n t
cperations of P~~!LTON-TAFT;
b. ...At./'the inst.ruction and dir'E!ction of ROBERTS, the
sum of S2 million was transferred f=om the HAMILTON-TAFT
CONCENTRATION ACCOUNT to Amerimac, a corporation controlled
by HAOID. RADID is believed to be presently outside of the
United States. It is unknown, but on information and
belief, the funds transferred 'to HADID at Amerimac are
intended for transfer 'to some other account;

TEMPORARY RESTRAJNING ORDER, EX PARTE, APPLICATION
FOR TEMPORARY AND PER:MANENT INJ'UNCTIOH, AND
c. Also on February 14, 1989, ROBERTS stat.ed to
HAMILTON-TAFT staff members that on February 15, '1989, or

f
February 16, 1989 , further directions would be given by
ROBERTS a r his des igna t.ed rep res en ta ti ve for a trans fer 0 f
an additional $1,050,000.00 to a destination and account
presently unknown;
d. Eased upon the expressed concern of BARTLETT
':::::lncerning the L'TIpropriety of t.he dist.ributions which were
being made, and confront.ed by ~he insistence of ROBERTS and
3ELL that:. the transfers be effect:J.ated·, BARTLETT resigned.
64. EARTLETT was one of the founding persons of HA.'iILTON-
TAFT, had been with the company for more than ten (10) years,
including the time period prior to t.he ownership of HAMILTON-TAFT
by C:GNA, is acutely knowledgeable of the client base of
HA~!.:'::'ON-TAE'T, has established and maint.ai:1ed the acc::unts of
HA.~!::ON-TA.FT clients prior to Febr-Jary 10, 1989, in a level of
~cn:~=ence and trusc, and maintained proper accounting prccedures
at all times during her presence at HAMILTON-TAFT, subject,
par~i.cularly, to any restrictions thereon incidental to the
aCq'~isition of control of HAMILTON-TAFT by ROBERTS and COSTELLO
as c: Januar/, 1988.
65. The nature of tr.e HAMILTON-TAFT business is such that
the key components or assets 0 f the bus iness operations are (1)
integrity with clients, (2) efficient management and (3) computer

TEMPORARY RESTRAINING ORDER, ~X PARTE, APPLICATION
FOR TE.KPORARY AND PERKANENT INJUNCTION, AND
APPLICATION FOR IMPOSITION OF CONSTROCTrvE TROST Page 39
da ta bases utilized to proper ly account: for tax payments which
wi 11 be due. Thus, the princ ipal assets from fa monetary

s1:andpoint are the funds of clients, as to which has previously
been expressed it has been the right 0 f HAMILTON-TAFT to invest
properly and utilize interest earned.
66. One of the agreements of HAMILTON-TAFT during
management 0 f the firm under BARTLETT "Jas that HAMILTON-TAFT
would pay any penalties which ar~se from the failure to properly
and timely pay any tax obligat.ions of clients. In 1988,
HAMILTON-TAFT paid a sum of $5,000.00 in this respect based on a
pool of customer funds in excess of S4 billion.· Accordingly,
this attests to t.he proper management. of HAMILTON-TAFT under the
auspices of management. overseen by BARTLET~.
67. On February 14, 1989, BARTLETT advised ARMSTRONG of the
fallc~ing developments wh~ch had occur=ed as of that date:

a. NOt.~ithstanding the fact that ~he true reasons for
the res ignation by BARTLETT due to her refusal to perform
improper distributions of funds as directed by BELL and
ROBERTS on February 14, 1989, BELL had announced to
management st.aff at HAMILTON-TAFT that (a) BARTLETT was
~akinq a long-needed vaca tion, (b) was no longer ~i th the
f int and (C) was suf fering from drug problems attendan t to
emotional stress, none of which was accurate;

FOR TE.KPORARY AND PERHA.NENT INJUNCTION, AND
b. Employees of HAMILTON-TAFT are concerned and
fearful of the improper management of the firm which appears
to be ongoing and increasing;
c. We'lls fargo Bank, one of the principal financial

institutions with which HAMILTON-TAFT has done business in
the pas t , (i ) reported an ave rdra f t 0 f HAMILTON-TAFT
acc~unts in the amount of 52.5 million, (ii) upon being told

that BARTLETT was no longer at HAMILTON-TAFT, contacted
BARTLETT independently to inquire af the status of accounts,
expressing concern in that regard over the con~inued banking
o~erations between Wells Fargo and HAMILTON-TAFT, and (iii)
expressed a desire to be prOVided with some level of
assurance that checks of HAMILTON-TAFT should continue to be
honored.
5a, BARTLETT has advised that several HAMILTON-TAFT clients
have contacted her very :-ecently expressing concern over her
absence from the company 1 and several clients have indicated an
intent':'on to terminate their business relations with HAMILTON-
TAFT due to the recent change in managemen~.
69. The developments of recent events with respect to
deple~ion of assets from the HAMILTON-TAFT CONCENTRATION ACCOUNT
FUNDS and the change 0 f management have (1) conf irmed the

TEMPORARY RESTRAINING ORDER, ~X PARTE, APPLICATION
FOR TEMPORARY AND PERMANENT INJUNCTION I AND
APPLICATION FOR IMPOSITION OF CONSTROCTIW TROST Page 41
allegations co~tained in che ~~PHARMA/ROBERTS SUIT and MONTAGUE
SUIT respecting the alleged past conduct and futu,re intent of
ROBERTS with respect to depletion of HAMILTON-TAFT assets,. and (2)
resulted in endangerment of the relations with, or termination of
the relations of, six (6) major clients.
70. On February 15, 1989, ROBERTS and BELL caused $1.5
mi 11 io n to be trans f~rred from the HA.HILTON-TAFT CONCENTRATION
ACCOUNT FUNDS to an'accoun~ in the name of the Dallas, Texas, law

f~~ of Petit & Martin.
TEXAS SECRETARY OF STATE RECORDS
71. In addition to the foregoing facts evidencing the
ccmplexity and interac1:ion of act.i·Jity among the Defendants and

their proclivity to utilize corporate entities, searches of the
data published by the Texas Secretary of State corporate records

ci'Jision shows the follo·.... ing affiliations (i.e., service as
officer, director or registered agent) of the following
Defendants with the following corporations which are either
incorporated or authorized to do business in the State of Texas:

R08ERTS
Standing of
Cor,,:,oration Name Affiliation Corooration
Nor~hlake Corporation President Active-not in good

st.anding
Robert.s Interests, Inc. President/ Inactive as of

Director 1/18/88 due t.o
non-payment of
franchise tax
PLAlNTIPFS' ORIGINAL PETITION, APPLICATION FOR

FOR TEKPORARY AND PERH.AN'EHT INJUNCTION, AND
~~O Plus ~JO, Inc. President Inactive as of
12/01/85 aup to
non-payment of
franchise tax
Mac=o, Inc. President/ Inactive as of
Registered 1/18/88 due to
Agent non-payment of
franchise tax
The Faust Company President Act.ive - not in
of San Antonio good standing
Mac=~ Construction, Inc. Secretary/ Inactive as of

Treasurer 1/20/87 due to
non-payment of
franchise tax
Sports Cup, Inc. Secretary/ Inactive as of
Treasurer 1/18/B8 due to
Registered non-payment of
Agent franchise tax
Macro Realty, Inc. President/ Inactive as of
franchise tax
M.ac=:l Investment. President/ Inac't:ive as of
?rcper't.ies, Inc. Regist.ered 1/18/88 due to
Agent non-payment. of
franchise tax
Rober-cs Aspen President/ Inactive as of
Proper~ies, Inc. Registered 1/20/87 due to
franchise tax
JHR £nterprises, Inc. President/ Inactive as of
Agent. non-payment of
franchise tax
Downhill Associates, Vice Inactive as of
Inc. President 1/09/89 due to
non-payment of
franchise tax

FOR TEKPORARY AND PERKAHENT INJUNCTION, AND
Ci ty Mini, Inc. Presidentl Inact:.ive as of
Registered 1/18/88 due"to
Agent:. non-paymerl't of
franchise tax
CATTELL
Standing of
Co~oration Name Affiliation Cor~oration
HT Holdings, Inc. Registered Active -

Agent G<)od Standing
HV Holdings, Inc. Registered Active -
Agent Good Standing
VISION, INC. Registered Inactive as of
Agent: 12/5/88 due to
non-payment of
franchise tax
CR Acquisitions, Inc. Registered A.ctive -
A.gent Good Standing
Northlake Corporacion secretary Active -

Not in good standing
Rater~s Interests, Inc. 'lice Presidencl :nac,,:ive as of
Sec=etary 1/18/88 due t.~
non-payment. of
franchise t.ax
~~O Plus ~~O, Inc. Secret.ary/ Inact.ive as of
Treasurer 12/2/85 due to
non-payment of
franchise tax
~ac=o, rnc:. Secretaryl Inactive as of
Tre3.surer 1/18/88 due to
non-payment of
franchise tax
The Faust Company Secretary Inactive as of
of San Antonio 1/18/88 due to
non-payment. of
franchise tax
P~NTIFPsr ORIGINAL PETITION, APPLICATION FOR

FOR TE.KPORARY AND PERMANENT INJUNCTION, AND
APPLICATION FOR IMPOSITION OP CONSTRUCTIVE TRUST Page 44
Hac=a Realty, Inc. Sec=ecary/ Inac't:ive as of
Treasurer 1/18/8S due· to
non-payme~t of
franchise tax
Investment.
~ac=.::J Secretary"! Inactive as of
Proper't:ies, Inc. Treasurer 1/18/Sa due to
non-payment of
franchise tax
Roberts Aspen Sec~etary/ Inactive as of
P==per't:ies, Inc. Treasurer 1/20/87 due to
non-payment of
franchise tax
Downhill Associates, Assistant Inactive as of
Inc. Sec:-ecary 1/09/89 due to
non-payment of
franchise tax
City ~ini, Inc. Vice President/ Inactive as of
Sec=etary 1/18/88 due t.o
non-payment of
franchise tax
COSTELLO
Standing of
c:: =--= era tic n Name Af:':'liation Coroorat.ion
~-~? H.A.R..."!A , INC. Regist.ered Act.i·..re -
Agent: In good standing
HRC Consultant.s, Inc. President Inactive as of
1/09/89 due to
non-payment of
franchise tax
PRASAD
Standing of
Cc==orat.ion Name Aff:'liatian Co rno ra t.icn
P.S.P. Investment
Co., Inc. President Active/
good standing
PLAlHTIPFS' ORIGINAL PETITION, APPLICATION FOR

TEMPORARY RESTRAINING ORDER, EX PARTE t APPLICATION
FOR nKPORARY AND PEJUI.A.NENT INJUNCTION, AND
·CONSENT OF BARTLETT TO SERVICE
AS INJUNCTION MONITOR
72. On Februa":Y 16, 19 B9, BARTLETT advised
,
ARHSTRONG that
SAR.'!'LETT '....ould be willing to serve as a Court-appointed monitor
concerning the operations of HAMILTON-TAFT in accordance with the
t2!7':!lS and pro\Tislons of any injunc-ci\Te relief which this Court
mi~h~ i~pQse until such t~e as fur~her protective measures could
be ar~iculat.ed and implemented concerning the opera~ions ~f
HA.."!I: 7~N-TA.FT.
III.
COUNT ONE
Derivative Suit 8ased Uoon Breach of Fiduciary Duties

Bv Officers, Directors and Controllina Shareholders
73. Pursuant to Tex.R.Civ.P. 58, ~~STRONG incorporat.es and
re=.i.!..eges by reference numerical paragraphs 1 thrcugh and
'7 ~. The actions and ccnduct of the Defendants as :':J which
~~S7RONG c~mplains constitute and manifest an ongoing c~urse and
~a~:.ern of conduct, conti~uing through the date of the filing of
Plai:-.tiffs l
Original Petiticn herein, whereby and through which
AR.\!S:'RONG is being damaged as a shareholder of MAXPH.AFJA'.A, and as

a =::uble derivative shareholder of HAMILTON-TAl'!', as a
consequence of the means and manner in which the conduc~ of the
Defe!1dants as to which complaint is made constitute a breach of
PLAINTIFFS' ORIGINAL PETITION, APPLICATION POR

TEMPORARY RESTRAINING ORDER, ex PARTE, APPLICATION
fiduciary dutfes owed by officers, directors and ~onerolling
shareholders of MAXPHARMA and HAMILTON-TAFT atf all times
per~i:lent hereto as evidenced by the facts set forth herein".
is. At the time of the ongoing transactions made the basis
of this suit and at the present time, ARMSTRONG was and continues
to be a record owner of 5 00 shares of the Defendant MA):PHA.R.M.A.
FlJr-:hermore, dur ing the ongoing t=ansactions made the bas is of
th~5 suit, MAXP~~~· was the paren~ corporation and sale owner of
one hundred percent (100%) of the ou~standing shares of P~ILTON-
TAFT ~hrough at least Februar/ 9, 1989.
i6. At all times material and per't.inent hereto, PRASAD and
CCS7ELLO were the directors and officers of the defendant-
cor~orat.ion MAXPHA.R.,"'!.A, and ROBERTS !,las a controlling shareholder
, I. As evidenced by the fac~ual recitat.ions set forth
he~ein, the Defendants have engaged and are engaging in a course
and ?at:tern of conduct const.itut':'nq a scheme and art::':ice to
unla·... fully deprive, deny or defraud the shareholders of
z.r...A.X?r:..A.R..."!A of t.he true and fair value 0 f their respect.i ve equi ty
int:e~ests in MAXPHARMA derivative from their shareholder status
t.herein, as well as derivative f=-cm the right.ful int.erests 0 f
P..AX?HARMA in and to HAMILTON-TAFT as of at least February 9,
1989, by effectuating and causing the dissipaeion, conversion,

TE.KPORARY RESTRAINING ORDER, EX PARTE, APPLICATION
FOR TEKPORARY AND PER.KANENT INJUNCTION, AND
misappropriacion, and was-ce of corporate business oppor't:unities
and corporate relationships existing as a result of inter-
co~;oraee stock ownership.
i 8. Wit h 0 u t I im ita t ion, the f act s ass e t for 'C h abo V' e
evicence that ROBERTS, CaSTELLO, RADID, BELL, CHRISTIANA, VISION,
CR ~CQUISIT!aNS, MAXPHARMA and HA.&."!ILTON-TA.FT have benefited to
the detriment of shareholders of ~PHA.R..'-!.A through the above-
outli:led scheme and -artifice to dissipate and wasee the capital
of ~!AXPr:..A.RJof.A and HAMILTON-TAFT as a consequence of the series of
loans to the various entities and affiliates of ROBERTS,
cosr::LLO, HADID and BELL, as ;Jell as the forgi·.. . eness of
indebtednesses to the ext;ent said forgit"eness of indebtedness-
creat:es incidents of income, tax liability and/or reduc-:ion in
asse~s in ~~e form of accounts receivable.
79. Further without limitation to the facts as se~ forth
he=Einabove, the evidence reflects that ROBERTS, via ';IS~CN as
his al ter ego, caused l-f..AXPHARMA to loan VIS ION the total amount
of Six Hundred and Twenty Five Thousand and No/lOO Dollars
(S62:,aoo.oo) in March 1988, via t·....o (2) Promissory N01:es each of
whic~ were due on June 1, 1988. Although MAXPHAR¥~ made ~ritten
derr.and on VISION for payment. of both r.ot.es, VISION failed and
re f:.lsed to tender payment in principal, while making int:eresl:
payments; and, on infonnat.ion and belief, has now forgiven said
indebtedness.

TEXPORARY RESTRAINING ORDER, EX PARTE, APPLICATION
FOR TRMPORARY AND PERXAHENT INJUNCTION, AND
•
so. Fur.t he rmo re , and wi thou t: limi ta t ion to the facts
referenced hereinabove, on or about March 8, 1989,

, RADIO,
ROBERTS, and COSTELLO caused HAMILTON-TAFT to loan RADID the sum

of Three ~~llion and No/laO Dollars ($3,000,000.00) which was due
and payable on or before April 4, 1988. Although written demand
was been made by MAXP~~ on RADIO, the principal amount of the
Note was not been paid: and on information and belief, despite
the fac~ that RADID 'was in default under the terms of the Note,
said ~ot.e was forgi-..ren by M.AXPHARXA in a transact.i.on which
damaged the equity interest:. of the shareholders of ~.AXPHARHA
s~cck. Thus, HADID is in default under the terms of the Note.
81. Additionally, upon infor:nat:ion and belief, but without
limitat.ion t.o the facts alleged in det:ail herein, on or about:
Har=h 23, 1988, ROBERTS, while act.ing as a controlling
sha::eholde~ of ~...AXPHARM.A and, derivat:i':ely of t.he ~nt.erest
tner-eo f in and to fl..AMILTON-TAFT, caused HAAILTON-TAFT ':.0 loan
CHR:sr:A.NA t.he sum of Eight Hund=ed Sevent.y Five' Thousand and
No/100 Dollars ($875,000.00), the Not.e evidencing which was
executed and delivered by ROBERTS as chairman of CHRISTIANA;
however I upon information and belief, CHRISTIANA is merely the
alt.er ago of ROBERTS, act.ing solely as a conduit. for the
per:or:nanc:e of his business interests and as a device :'0 cause
harm or prejudice to those dealing with it. Despite multiple
PLAlNTIFFSP ORIGINAL PETITION, APPLICATION FOR

tt.KPORARY RESTRAINING ORDER, EX PART'!, APPLICATION
FOR TEKPORARY AND PERKANENT INJUNCTION, AND
#'
demands for payment, no par~ of the CHRISTIANA Note has ye~ been
pa id, and the pr incipal amount of Eight Hundred Seventy Five

f
Thousand and No/lOO Dollars (5875,000.00), together with inter~st
thereon from March 2.3, 1988, remains due and owing, although
demand has been made: al though, on informa tien and belief,
ROBERTS and COSTELLO may have recen~ly caused the indebtedness to
be forgiven, as further damage to the interests of the
shareholders in and to the steck of ~~p~~ and HAMILTON-TAFT,
as ar~:culated hereinabove.
82. Also, upon information and belief, but ;Jithout
limitation to the allegations set forch herein, on or about July

14, 1988, ~XPHAR.KA executed and delivered to ROSENBERG its
Prcmissory Note in the original pr:':lcipal amount of Six Hundred
and :':'::een Thousand and No/IOO Dollars ($615,000.00) ;.;hich ·....as
secu=ed by '!'".... O ~illion Fif:y Nine :'~cusand (2,059,000) shares af

cc~cn s~cck of HAMILTON-TAFT, whic~ had ceen theretofore ~eld by
ROBERTS execu ted and de 1 i'lered to ROSENBERG his
personal Guaranty, guarantying the obligations of MAXP~V~ under

the F!RST ROSENBERG NOTE. As of December 15, 1988, MAXP?~~ was
in default under the terms of -:he FIRST ROSENBERG NOTE.
ROSE~aERG notified R08ERTS of r:.he default., and R"OBER':'S, upon
info:-:nation and belief aided and abet.ted by ROSENBERG, has
caused the indebtedness due and owing on t.he FIRST ROSENBErtG NOTE
to be discharged in such a fashion as to result in the 2,059,000

TEl4PORARY RESTRAINING ORDER, EX PARTE, APPLICATION
FOR TE.MPORARY AND P ER.KAN"!NT INJtJ'NCTION, AHD
APPLICATION FOR IMPOSITION OF CONSTRUCTIVE TRUST Paqe 50
shares 'of common stock of HAMILTON-TAFT previously held by
MAXPHARF~ to have been transferred to ROB£RTS, who ndw holds one

hundred percent (100%) of the HAMILTON-TAFT shares through an
entity -hich ROBERTS controls.
83. ~~TRONG would show that such transactions were merely
an attempc by the Defendants, ac~ing in concert with one ano~her
or as cont=olled and influenced by ROBERTS, COSTELLO J PRASAD,
HADID J VISICN, CHRISTIANA, KEYSTonE, CR ACQUISITIONS, MAXPRARHA J
HAMILT8N-TAFT, and BELL, to deplete and dis s ipate t.he as se1:S of
MAXP~JULV~ and HAMILTON-TAFT in order to gain control of HAMILTON-
TAF~ as the major asset of ~p~~ for an amount of Six Hundred

and Fifteen Thousand and No/100 Dollars (5615,000.00), less the
fair market value for such stock.
84. ~~STRONG would further and alternatively show ~~at, at
t.:--.e :.:':ne af the loans and cransfe!'s of stock alleged herein,

ROEt:RTS, CCSTELLO and RADIO, in ':heir respect.ive or '.:aricus
capaciti.es as director, officer or c~nt=olling shareholder of
MAXPHAiL"!.A, as alleged herein, were conspiring to dissipat.e and
loce the corporate assets of MAXP~~ and its subsidiar:es, and
did so through a scheme of fraud, breaches of their fiduciary and
stat~~cry duties and obligat.ions to ~~e shareholders of ~~?~~
and a civil conspiracy, intentionally deceiving MAX?HARM.A,
~~ILTON-TAFT and their respective Boards of Directors.
PLAiNTIFFS' ORIGINAL PETITION, APPLICATION FOR

TEMPORARY RESTRAINING ORDER, EX PART!, APPLICATION
FOR TRKPORARY AND PERMA.HENT INJUNCTION, AND
85. Further and alternatively, and without limitation of
f
the facts as alleged hereinabove, the various Notes were made in
an attempt for RADIO to loot the amount of Three Million and
No/lOa Dollars (53,000,000.00) from RAMILTON-TAFT and for VISION
to loot Six Hundred Twenty Five Thousand and No/100 Dollars
(5625,000.00) from MAXPHAR..~ in the guise of loans to an officer
and direct.or of the corporation, and an alter ego of a
ccrporation controlled by the controlling shareholder, all in
fraud upon the corporations. U~on informa tion and belief,
VIS rON and RADID never intended to repay the amounts due
~PHAR.."!A. and HAMILTON-TAFT. The FIRST ROSENBERG NOTE ~as also
an attempt to loot the sole corporate asse~ of ~~p~~ (to wit:
~"!ILTON-TAFT) and to essentially purchase such corporation for
the amount of Six Hundred Fift.een Thousand and No/100 Dollars
(S61S,000.00), notwithstanding the fac~ that the fair and

reasonable market value of the 2,059,000 outstanding shares of
~~ILTON-TAFT so intended for conversion f=om MAXPHARMA was well
in excess of such amount, 50 that the ultimat.e divestment from
~PHARMA of the HAMILTON-TAFT shares cons~itut.es a substant.ial
damage and injury to ~~PHARMA.
86. ARMSTRONG would further and additionally show t.hat: the
Defendants breached their fiduciary duties co MAXPHARMA in
receiving, directly or through controlled ent.ities or affiliates,

TE.HPORARY RESTRAINING ORDER, EX PARTE, APPLICATION
FOR ttKPORARY AND PERMANENT INJUNCTION, AND
personal loans from MAXPHARHA and HAliILTON-TAFT, which t.he
Defendants never intended to repay, usurpin9 corporate
opportunities, and converting the major asset of MAXPHA:RHA for

less than fair market value.
87. AR~STRONG has made no ef£or~s to, and should be
relieved from any requiremen~, to have this suit brought for the
consideration of the respective Boards of Directors of ~~p~~
and HAMILTON-TAFT,' since the fac'ts as out:lined above clearly
demonstrate ~hat any such effor:. ;..rould be futile, in that
ROBERTS, as a controlling shareholder of ~PHARMA and F~ILTQN-
TAFT, either directly or derivatively arising from the control
ex ere i sed by ROB ERTSup 0 n per son s whose rv e as 0 f f ice r 0 r
directors 0 f such corporations, and now, upon infanna tion and

belief .. the sale shareholde::- of fJ.AMILTON-TAFT, and accordingly
c=n~=ols t~e Boards of Directors of any corporations or corporate
of:ice~s and directors as to ~hich or whom decisions with respect
to ~esponse to the allegations conr.ained in this Original
Pecition c=uld otherJise be resolv·ed than through suit. The
Defendants, would not have taken actions against themselves or
Qther~ise admitted to their conversion of corporate property for

less than fair marker. value, breaches of fiduciary duties, and
fraud in obtaining personal loans from the Corporation , wi thou t
ever intending to repay such loans.
PLAJNTIFFS' ORIGINAL PETITION, APPLICATION POR

POR TEKPORARY AND PERMA.NENT INJUNCTION, AND
88. The facts as set forth hereinabove further evidence the
breach of fiduciary duties owed to the :ninority sha~ehold@rs of
MAXPHA.JUl~ including without li.mita~ion AJUof.5TRONG, to the" extent
that ROBERTS, individually and in collusion and concert with the
other Defendants, has effectuated a transfer of the primary asset

of MAXPHARMA (viz., HAMILTON-TAFT) ·... ithout notice of the
int:ention to do so being provided to shareholders and without
affording shareholders not otherwise excl~ded from voting on said
matter as a result and- consequence of ~he existence of a vested
int:erest in the proposed transaction ~o vote on the ·sale or

transfer of the principal asse~ of ~P?JUL~.
89. Based on the forego inq, 5 ince t.he Defendants hold the
power to appropriate and distribute the assets of 1of..A.XPP..A.RMA and

HA~ILTO~l-TAFT, which ARMSTRONG r'easo~ably fears :hey will
c~:1t.inue to do, z-t'.AXPP.J\.RMA and HA.l.!!:'TON-TMT will concinue to be
deprived of their asse~s if and to the ex~ent ROBERTS, COSTELLO,

8ELL, RADIO, PRASAD, CHRISTIANA, vIS~aN, KEYSTONE, and CR
ACCUISITIONS are not stopped en~irely, thereby causing shares in
both 1of~PHARMA and HAMILTON-TAFT, includi~q those shares owned by
~~STRONG, to be greatly depreCiated in value or rendered totally
'..Tal ue les s .
90. The fULure suc::ess of ~.AXPHAR-"..A and HAMILTON-TAFT,
under management exercising sensible ~usiness judgment and
circumstances folloWing restorat.ion and disgorgement of assets
PLAJNTIPFS' ORIGINAL PETITION, APPLICATION FOR

TEKPORARY RESTRAINING ORDER, EX PARTE, APPLICATION
'''''rongfully divested, will be success ful and will -appreciate
accordinqly4 However, the conduct 0 f th~ De fendants,
, including
specifically without limitation ROBERTS, COSTELLO, RADIO, BELL,
VISION, CHRISTIANA, KEYSTONE, and CR ACQUISITIONS, unless now

prevented by injunctive decree, will dest~oy the gro~h prospects
of each of MAXPHARMA and HAMILTON-TAFT, thereby causing
ir=eparab 1e inj ury to ARMSTRONG, indiV'i2ually and in right of
~~??~ and HAMILTON-TArT, MAXPB~~ and KAMILTON-TAFT and all
of their shareholders I for ·.... hich there is no adequate remedy at.
1aw bee au s e i tis imp 0 s sib 1 e t. 0 cal cuI ate d am age s wi t.h
specificity.
91. Fur~hermore, and not by ·.,Jay of 1 imi tation to 'Jt.her or
addi~ional relief, ARMSTRONG would seek, by way of equitable
injunctive relief from this Cou!."~, ..... h:.ch would incl'Jde the
est.ablishment: of a construct:ive tr:.:st ~:J hold in trus~ the ~~O
Xillion Fi::y Nine Thousand (2,0:9,000) shares of r:...AMILTON-
TAFT now held by ROBERTS, directly or through CR ACQUISITIONS, or

to temporarily restrain the DefendantS trom transferri.:'1q such
stock, if such transfer has not as yet :ranspired, given that

such stock is or was the main asset of ~XPHAR.MA, and was
wrongfully converted for less t.han fai= market value by the
cont=olling shareholder of ~P~~. Also, by way of equitable
relief, ARMSTRONG seeks disgorgemenc of KAMILTON-TAFT steck held

TEMPORARY RES~NING ORDER, EX PART~, APPLICATION
FOR TE.KPORARY AND PERMANENT INJUNCTION, AND
APPLICATION FOR IMPOSITION OF CONSTRUCTIVE TRUST Page S5
by ROEERTS or any individual corporation or entity ~ith which
ROBERTS is affilia~ed or associated, that t.his Court set aside
any such conveyance of the HAMILTON-TAFT stock.

92. ARMSTRONG'S successful prosecution of this action will
result in a substantial benefit to bot.h MAXPHARHA and HAMILTON-
TAFT, and therefore, AR.'!STRONG is ent:itled to reimbursement of
expenses, includi.ng reasonable att.orneys· fees. In this
connection, ARMSTRONG would show that. a reasonable fee to
compensate t~e undersigned attorneys for preparation for trial of
this cause in the amount a f One Hundred T'",Jent.y-F iva Thousand and.
No/100 Dollars (5125,000.00) and that: t.he expenses incurred in
the prosecut.ion of this suit. are expect.ed t.o total in excess of
Ten Thousand Dollars (510,000.00), for which furt.her sums
~~S~RONG seeks recovery.
COUNT TWO
Breach of Piduciary Dut.v
93. Pursuant to Tex.R.Civ.P. 58, ARMSTRONG incorporates and

realleges by reference numerical paragraphs 1 through and
including 72.
94. Due to t~e incorporation of ~PHARMA in Tennessee, and
the incorporation of PJL~ILTON-TAFT in California, Defendant.s must

adhere to the fiduciary duties and responsi~ilities imposed upon
them as prescribed by Tennessee and California law. The duties

TEMPORARY RESTRAINING ORDER, EX PARTE, APPLI~\TION
FOR TEMPORARY AND PERMA.NENT INJ1INCTION, AND
and responsibilities imposed by Tennessee law would. apply not.
only to M1UCPHARMA, as a Tennessee corporation, but' also as to
HAMILTON-TAFT as a wholly-owned subsidiary of K.AlCPHARKA.
S i mil a r 1 y , the d uti e s a n d res po n sib i 1 it i e s im p 0 sed und e r
California law would apply not: only to HAMILTON-TAFT, as a
California corporat.ion, but. also to ~PHAR.MA, its con~rollinq
parent corporation.
95. Specifically, Defendants, COSTELLO, LITCHFIELD, and
PRASAD have violated those duties and =esponsibilities imposed
upon them as r?rescribed by Tennessee Cede Annotated S48-18-J01,
in t ha t W'h i 1 e ac t i ng as directors 0 f ~PHAR..'-U. they did not
discharge their duties in good faith, nor with the care an
ordinarily prudent person in a like position would exercise under
similar ci=cumstances; and did not act: in a manner :ceasonably
believed to be in the best interest cf the corporat.ion. In
add it ion, De f endan t5 / COSTELLO, LI'rCHF I !!.D and PRASAD OJ' io la ted
Tennessee Code Annotatl:!d §4B-18-302, in that these directors
participated in transact.ions in which :hey had a conflic~ of
in:erest but did not meet the following dueies:
a. The rna te rial f ac ts 0 f the transaction and the
direc~ors or officers interests were not disclosed or known
to the Board of Di=ect.ors or committee of the Board of
Oirec~ors and the Board 0 f Oirec'Cors or committee did not
authorize, approve or ratify such transactions;
P~NTIPPS' ORIGINAL PETITION, APPLICATION FOR

TEXPORARY RESTRAINING ORDER, EX PARTE, APPLICATION
POR TE.KPORARY AND PERKAlmNT !NJUNCTION, AND
APPLICATION FOR IMPOSITION or CONSTRUCTIVE TROST Page 57
b. The material fac~s of the transaction and
directors or officers interes~s were not disclosed or known
to the shareholders entitled to "ote, and they.· d"id not
authorize, approve or ratify the transaction; and
c. The transac~ions were unfair to the corporation.

96. Defendants COSTELLO, !..::'C~F!::LD and PRASAD violated
Tennessee Code Annotated §48-18-3032 (1988) by not following
those requirements set :arth in such Code as it relates to loans
to directors and 0 ffic:ers. Acc::=dingly, Defendants COSTELLO,
LITCHFIELD and PRASAD would be liable for the unlawful
distributions as set forth in Tennessee Code Annotated §48-18-304
( 1988 ) • Defendants COSTELLO, :":TC:rF!ELD and PRASAD violated
Tennessee Code §48-18-40J (1988) ':':1 that t.hey were officers of
~P?.AR}(..A but did not exercise their duties in good faith; nor
·.... i t.h the care an crdinarily prude~t person in a like pas i cion
would exerc~se under similar circ~~stances; and did not exercise
thei= duties in a manner reasonably believed to be in the best
interest of the co~oration.
97. Additionally, and in :.he alternative, Defendants
COSTELLO, LITCHFIELD and PRASAD have ·~·iolated California Corp.
Cede §309 with respect ~o the dut~es of ~ood faith for directors
and officers of California corpora-:ions. These Defendants did
P~NTIFPS' ORIGINAL PETITION, APPLICATION POR

TEMPORARY RESTRAlNING ORDER, EX PARn, APPLICATION
FOR TEMPORARY AND PER.M.A.NENT INJUNCTION I AND
not ac~ in good faith or in a manner which they believed to be in
the best interest of the corporation or its shtteholders,
including reasonable inquiry, as an ordinarily prudent person in

a like position would use under similar circumstances.
98. Likewise, Defendants violated California Corp. Code
S310. Defendants participated in or were present at a Soard of

Di=ec~crs meeting ';.Iherein contracts or transactions bet"",een the
corporation and one or more of i~s Directors, controlling
shareholder or of:icers had a material financial interest. The
direc~~rs additionally failed to fully disclose or make known the

directors' financ':"al interest to the shareholders and seek
approval of the transaction by the shareholders, while excluding
fro rn the v0 t e tho s e s h are sown e d by in t ere s ted d ire c t c r s ,
officers of ccnt::'olling shareholders. Additionally, upon
in£or:nacion and :eiief, the Defendant. directors failed to f"..llly
disc~~se their in~erest. in the transac~ion and participated in a
vot.e by the Board of Di=ectors approving such contract or
transaCtion while counting the vote of the interested direc,=or,
cont=olling shareholder or officer, and such transaction was not
just and reasonable or for the benefit of the corporation.
99-. Defendan~s, COSTELLO, LITCHFIELD and PRASAO also
violated California Corp_ Code §31S, in that they did not follow
those prescribed duties imposed with respect to loans to or

APPLICATION FOR IMPOSITION OF CONSTRUCTIVE TROST Paqe 59
guaranties of obligations of direct.ors or officers, or on
security of corporace shares. Specifically, the Def~ndants while
acting as directors and officers of the corporat.ion approved
loans of the corporat.ion to various directors, officers and
c~nt.rolling shareholders without disclosure of the transactions
and approval of the shareholders and/or the directors as required
under California law.
100. The 0e f eon dan t s, as do min ant and / 0 r c a n t r a 11 in g
s h are hoI de r san d / a r off ice r s a n d d ire c tor s af MAX P H.A R...'{A 0 r
entities or individuals controlled by or in concert '""ith said
entities or individuals, have a fiduciarj' responSibility co the
minority shareholders of AAXPHAR~ to use their ability to
cont.rol ~~p~~ and its wholly-owned subsidiary, HAMILTON-TAFT,
in a fair, just. and equi table manner. The dominant. and/or
ccnt=ollinq shareholders and/or offi..cers and directors of
~~r~~ may not use t~eir power to concrol corporace acti~i~ies
to benefit themselves alone or in a manner de l:r ime nt:. a 1 to the
minority shareholders of MAXP~~.
101. Defendan~s have breached thei=:- fiduciary duty by
syscematically looting the assets of ~PHARHA and it.s wholly-
ow~ed subsidiary, ~~ILTON-TAFT. ~hat lool:ing consisced of the
borrowing and/or misappropriation of corporate asset.s which
Plaintiffs believe Defendants never intended to repay, and which
were misappropriate through the knowing and intentional use of
PLAlNTIFFS· ORIGINAL PETITION, APPLICATION FOR

FOR TEMPORARY AND PERHAN'ENT INJUNCTION, AND
APPLICATION POR IMPOSITION OF CONSTROCTlVE TRUST Paqe 60
•
fraudulent misrepresentations. In addition, Defendants,

r
COSTELLO, LITCHFIELD and PRASAD failed properly to dis~harqe
their duties as directors and/or officers in MAXPHA.R1o'..A. Such
duties included, but are not limited to, the duty to act in good
faith and with the care an ordinarily prudent person in a like
position would exercise under similar circumstances and in a
manner he reasonably believes to be in the best interest of the
corporation. Defendants COSTELLO, L!TCHFIELD and PRASAD did not

meet these standards and breached their fiduciary duties to
Plaintiffs ~Pfl...AR..l,I.A and ARl-f..5TRONG, both individually and as a
shareholder of ~~PP~. Furthermore, these Defendants breached
their fiduciary duties, in ~hat they participated in transactions
concerning the corporation in which a director or officer of the
cor?oration had a direct or indirec':. interest. COSTELLO,
LITC~:IELD and PRASAD breached their fiduciary duties, in that
the material fact.s of o:he transactions concerning VISION,
CHRISTIANA, ROBERTS, and HADID. ·were not disclosed or known to th'e
5 hareho lders en ti tIed to vote. In addition, these shareholders
did not authorize, approve or ratify such transactions. In
addition, such transactions were unfair to the corporation.
Lascly, Defendant.s breached their fiduciary duties because they
had an indirect interest. in the transactions stated above, and
such indirect interests were not. made known to the shareholders
PLAINTIFPS· ORIGINAL PETITION, APPLICATION POR

n.HPORARY RESTRAINING ORDER, ex PARTE, APPLICATION
FOR TEKPORARY AND PERMANENT INJUNCTION, AND
APPLICATION FOR IMPOSITION OF CONSTRUCTIVE TRUST page 61
(
~ .•.... ,.,
entitled to vote in MAXPHARMA. As a direc~ and proximate result,
t
the Plaintiff!! have suffered ac't:ual damages in exces~ of $14
million for which Plaintiffs seek recovery.
102. Ey virtue of the willfull and malicious fraudulent acts
of the Defendants and their breach of thei: fiduciary duties owed
by them to the Plaint:iffs and its subsidiarie!l, Plaintiffs are
e!'1t:itled to recover exemplary damages. Plaintiffs show that an

award of substantiai exemplary damages is necessary to serve as a
det=iment: to such unconscionable conduct. Accordingly,
Plaintiffs hereby seek recovery of exemplarI damages in an amount
in excess of the minimum jurisdic~ional limits of the Court.
COUNT THREE
Conspiracy
103. Pursuant. ':0 Tex.R.Civ.P. 58, A.R.."!5T'RONG incorporates and
~ealleges by reference numerical paragraphs! through and 72.
104. De fendants ent.ered into a conspiracy to diminish the
·... al~e 0 f Plaint if f AR.~TRONG' 5 invest:nent: in MAXPHARHA and also
entered into a conspiracy to loot the assets of MAXP~~ and its
wholly-owned subs idiary, HAMILTON-TAFT, for the personal gain of
Plaintiffs, all to the damage and detr.:.ment of MAXPHAR1"~ and to
A..R."!STRONG I both indi v idua 11 y and as a shareholder a f ~-A.XPHARMA.
Defendants acted in a common design in concerted action to loot.
the assets of MAXP~~ and its subsidiaries. This common design
was carried out in overt acts by Defendants through

APPLICATION FOR IMPOSITION OF CONSTRUCTrvE TRUST Page 62
systematically making personal loans to Defendants. In addition,
Defendants' common designs were carried out. in ov,rt acts by
divestment and alienation from MAXPHARMA of HAMILTON-TAFT.. shares
and forgiveness of notes payable. Defendants' actions caused the
value of ARMSTRONG'S shares in MAXPHARHA to decline. In
addition, Defendants' act.ions caused damage and detriment to
?-I..AX?HAR-\tA and its subsidiary in an amount. in excess of the
minimal jurisdict.ion~.of this Court.

lOS. Spec i f ically I pursuant. to Tennessee common la'J, the
Defendant.s committed a civil conspiracy to diminish .the value of

Plaint.if f AR}of..5TRONG'S investment in MAXPHA.R.MA and to loot. the
assets of ~~PHARMA and its wholly-owned subsidiary ~~ILTON-TAFT
for personal gain, in that the Defendants conspired to commit an
unlawful purpose, that of loot.ing the asse~s of ~~p~~ and its
su~sid3..ary, or sought to accomplish a legitimat.e purpose by
unlawful means, i.n that t.he Defendants conspired to c=rmnit an
unlawful purpcse, that of looting the asset.s of ~~PHAR¥~ and its
subsidiary, HAMILTON-TAFT, for personal gain, in that the
Defendant.s conspired to commit an unlawful purpose, that of
lao~ing the assets of MAXPHARMA and its subsidiary, or sought to
acc~mplish a legitimate purpose by unlawful means, in ·.riolating
the Tennessee corporate law and acted in a concert of act.ion,
committing overt acts and for a common design.
PLAINTIFFS' ORIGINAL PETITION, APPLICATION POR

TEKPORARY RESTRAINING ORDER, EX PARTE, APPLICATION
~, -'·~·'·'·_·'·L'
FOR TEMPORARY AND PERHAHENT INJUNCTION, AHD
APPLICATION FOR IMPOSITION OF CONSTRUCTIVE TROST Paqe 63
106. In addition and in the alternative, the Defendants
ccrnmit.ted a civil conspiracy under California law, fn agreeing

and conspiring and combining to do a civil wrong, that of
conspiring to loot. the assets of MAXPHA.RJI.A and its wholly-owned
subs idiary, HAMILTON-TAFT, for personal gain of the Defendants,
all to the damage and detriment of M.AXPHARMA and Plaintiff
~~TRONG in violat.ing California corporat.e laws regarding loans
to officers, directors ana conr.rolling shareholders without. the
specific approval of the shareholders or non-int.erested
di.:-ect.ors, and by other.Jise looting the corporation and paying
exorbitant. salaries and bonuses of officers, directors arid
cont.rolling shareholders, all to the damage and detriment. of
XAX?HA.R..J.tA, HAMILTON-TAFT and A.RMSTRONG.·
COUNT POUR
Fraud
lOi. ?ursuant. to Tex.R.Civ.P. 58, ~~STRONG incorporat.es and
r~alleges :Jy reference numerical paragraphs 1 through and
including 106.
108. As sec for~h above, Defendants committed fraud pursuant

to Tennessee common law, in committing fraudulent act.s, omissions
and concealments which involved a breach of their legal and
eqUitable duties, that as directors, officers and controlling

shareholders of MAXPHAR.M.A" and/or breached the trust and/or

TRMPORARY RESTRAINING ORDER, EX PARTE, APPLICATION
FOR nKPORARY AND PERHA.N'ENT INJUNCTION, AND
confidence placed upon such Defendan~s as directors, officers and
cont.rollinq shareholders of MAXPHARMA, which result.d in injury
to ~AXPHARMA and ARMSTRONG, both individually and as a
shareholder of l-'..A.XPHAR.MA. Specifically, Defendant.s, through
'J'arious acts, systematically loot.ed the corporate assets of
~XPHARMA and its subsidiary, H.A.."!ILTON-TAFT resulting in an
undue and unconscientious advantage being taken of !o!AXPF-f.,AR1(..A,
HAMILTON-TAFT and AR~STRaNG, both individually and as a
s h are hoI d e r s a f XAXP HAR1'4..A . All such acts, omissions and
c~ncealmen~s resulted in injury to the Plaintiffs in excess o~
the minimal jurisdictional limits of this COUr't:."
r09. Additionally under Tennessee law, the Defendants
ccmmitted actual fraud, ;.thereby by their acts, omissions and
c::~cealment.s, they systematically looted the corporate assets of
~A_~X?HArt!'{A and its subs idiary, HAMILTON-TAFT, and intentionally
c:::1cealed their actions, thereby inducing and causing the
remaining officers, directors and shareholders of MAXP?..AR..'iA not
t:.~ ac:, all to the injury of MAXPHARMA, HAMILTON-TAFT and
Plaintiff ARMSTRONG, both indi\ridtially and on behalf of
110. In the alternative and in addition, the Defendants
committed a fraud under California law, in that. the material
misrepresencations regarding their acts and omissions regarding
'J'a=ious loans to directors, officers and controlling shareholders
PLAINTIFFsr ORIGINAL PETITION, APPLICATION POR

T£MPORARY RESTRAINING ORDER, EX PAR~, APPLICATION
POR TE.KPORARY AND PERMANENT INJUNCTION, AHD
APPLICATION FOR IMPOSITION OF' CONSTRUCTIVE TRUST Page 65
~.AX?HAR.MA,
cf making false representat.ions
,
and concealing such
loans ';./hich resul ted in the loo'Cing of the assets of ~.AXPHAR.MA
and i '=.s subs idiary, f!AMILTON-TAFT, and in violation of their

fiduciary duties, failing to disclose such fraudulent acts, with
knowledge of such fraud, with the intent to cause the inducement
and reliance of the shareholders of MAXPHARMA, to rely upon the
good :aith actions of the Defendant.s, and upon which the
shareholders of ~..AXPHAR.M.A did rely, =esulting in damage to

~..AXPH.AR."!A, HAMILTON-TAFT and ARMSTRONG, ~ot.h individually and as
a shareholder of MAXPHARMA, in an amount in excess of the minLmal
jurisd:c:ional limits of this Cour~.
1:1. By vir~ue of the willful and malicious fraudulent acts

of the Defendant.s and their breach of the fiduciary duties owed
cy the~ to the Plaint.iffs and thei~ subsidiaries, Plaintif:s are
er.:.i~2.ed to recover exemplary damages. PlainLif:s would show

t::at an award of substantial exemplary damages is necessary to
serve as a det.errent to such unconscionabl"e conduct.
Ac=~rc~~gly, Plaintiffs hereby seek recovery of exemplary damages
i:1. an amount in excess of the minimal jurisdictional limits of
the C~';l=t.
1~2. In addition, t~e Defendants 'J'iolated Tennesse~ Code
A.nnotat.ed S48-22-102, in selling, leasing, exchanging or

ot~e~~ise disposing of all or substantially all of the assets of
~~PHA~~ other than in the usual and regular course of business,

TE...'!PORARY RESTRAINING ORDER, EX PARTE, APPLICATION
POR TEKPORARY AND PERKANENT INJUNCTION, AND
/I
in failing to propose and present. to all of the shareholders of
l"..AXPHARJoI.A for a vote the proposed disposition 01 MAXPHA.R.HA'S

..
shares in HAMILTON-TAfT. Specifically, the Board of Directors
failed to recommend the proposed transaction to the shareholders
or ot.her*ise communicate such transaction to the shareholders to
allow the shareholders to ~ote on approval of such transac~ion.
Additionally, the corporation failed to notify each shareholder
of a proposed shareholder's meeting wit.h requisite notice, in
or=er to consider the sale, lease, exchange or other disposition
of the HAMILTON-TAFT stock. Accordingly, the sale is void and
t~e Defendants breached their fiduciary duty to all of the
shareholders of MAXP~~ pursuant ~o S48-22-102 of the Tennessee

C::ce Annotat.ed.
COUNT FIVE
Plaintiffs' Entitlement to Injunctive Relief
ilJ. Pursuant to Tex.R.Civ.P. 58, ~~TRONG incorporat.es and
r-ealleges by reference numerical paragraphs 1 through and
incl.uding 112.
ll~. Plaintiffs would show tha~ Defendants have entered into
a c~urse of conduct which has systematically looted the co~orate
assecs of MAXPHARMA and its subsidiary, HAMILTON-TAFT. In
adci ~ion, the looting a f the corporate asset.s has been done by
way of loans made to the Defendants for the Defendants' personal
uses and by way of divestment from MAXPHARHA of its principal
asset (viz., HAMILTON-TAFT).

FOR ~\{PORARY AND PERMAHB'NT INJUNCTION, AND
115. The con d u c t 0 f the De fen dan t s, ei t he r. in the i r
capac i ties as 0 f f icers, directors, s hareho Iders,' controlling
persons, and encities or individuals in aid and concert thereof,

as manifest and evidenc thrcugh the concerted course of conduct
since January, 1988, through and inc luding the present, to loot
and rape the assets of MAXPHARHA through a process whereby the

pr:.. .: nary asset of MAXPP..A.RHA (viz., HA.MI!/:"CN-TAFT) has been first
caused t.o reckless-1y disburse funds :rom the HA.!iILTON-TAFT
CCNCENTRATION ACCOUNT FUNDS and, thereaf~er, to permit its shares
to be di '.rested and al iena ted from MAXPP..AR..'iA, combined wi th th~
failure of the Defendants in their capac:ties as set for~h above
to properly account and procect for the interest of MAXP?JUL~ and

HAMILTON-TAFT, patently establishes the need for imposition by
t~e Ccurt of injunctive relief, par~icularly in view of previous
al:egacions which have been asserted in c~her litigation, none of
·.... hi=h has successfully impaired the :lngoing deliberate and
willfull plan and scheme as demonscrated herein.
116. Plaintiffs accordingly show t.hat the MAXPH.AR-"'tA stock:
is in immediate danger of loss and/or diminution in \Talue by

reason of the conduct on the part of the Defendants. The conduct
on behalf of Defendants as set for':h herein poses a clear and
immediate threat of substantial harm, injury and diminution and
value to the HAMILTON-TAFT stock, as "ell. as to the ~PH.AR.MA

FOR TEHPORARY AND PERHANENT INJUNCTION, AND
APPLICATION FOR IMPOSITION OF CONSTRUCTrvE TRUST Paqe 68
stock. Tne potential loss, harm and injury cannot b~ accurately
measured; therefore, Plaintiffs are withou~ an adequAte remedy at
law. rf the Defendants are not restrained and enjoined from
obtaining funds, by loan or other-,.,ise fram MAXPHA.R.."'!A and/or
HAMILTON-TAFT, and are not enjoined from attempting to pledge

XAXP?jUL~ or HAMILTON-TAFT stock, they will continue to take such
act-ions which are detrimental and damaging t.o MAXPH.AR1'f.A and
AR.."!.STRONG, both individually and as a shareholder of ~...AXPHARHA,
including ·,.,ithout limit.ation rendering disqorgement and
rep lacernent. to be irnposs ible to implement. or remedial measure to

rest.ore and preser.re !-f..A.XPHARl-f.A and HAMIL~ON-TAFT and the equity
interests of shareholders therein. Such damages and injuries are
continuing and to a large degree are incalculable_ Plaint.iffs

have no adequate remedy at law.
-";HEREFORE, PREMISES CONS IDERED, ~PHARMA and AF-"!STRONG,
boc~ individually and as a shareholder cf ~~PHARHA, respec~:ully
pray ~hac ~he Cour~:
1. Enter an order directing that the Clerk of this Court
shall forthwith issue a Temporary Res~raininq Order, to continue
in ~f feet until the conclus ion 0 f the hearing on the Temporary
Inj~nc~ion hereinafter set, or unt.il fur~her Order of this Court,
rescraining and enjoining Defendant.s, their officers, agents,
ser:ancs, employees, and attorneys I and those person! in active
P~NTIFFS' ORIGINAL PETITION, APPLICATION POR

n..KPORARY RESTRAINING ORDER, EX PARTE, APPLICATION
FOR TRMPORARY AND PE:R.KAHENT INJUNCTION r AND
concert:. or participation with such persons or entities who
receive actual notice of the Temporary Restraininq f Order, from

the following:
a. Directly or indirec't.ly obtaining, acquiring or
other~ise transferring, wheeh.er by loan or otherwise,
sinqularly or in combination, any funds· or assets of VISION,

CR ACQUISITIONS, HAMILTON-TAFT and/or MAXPHARMA including
-.. i thou t limi tation the HAMILTCN-TAFT CONCENTRATION ACCOU'NT
FUNDS or any funds or asse't.s cis~ributed from HAMILTON-TAFT
to any 0 f the Defendants s i.nce December IS, 1988 (the'
., FUNDS") other than in the nor:nal and ordinary course of

business and for adequate consideration; and
b. Directly or indirec'Cly assigning, transferring,
pledging or granting or attempt.ing to grant to any third
~a=ty any security interest., ~ien, mortgage or any ot.her
fo~ of encumbrance on the 5~cck of either MAXP~~ and/or

PJu~ILTON-TAFT and/or on the FUNDS.
c. Mandatorily requiring thac any of the Defendants
involved with the distribution a1:. any time since December

15, 1998, of monies from the HAMILTON-TAFT CONCENTRATION
ACCOUNT for any purpose ocher ~han the payment of client tax
matters, including without limication in respect thereto the
distributions made on February 14 and February 15, 1989, in

the amounts of $2 million and 51.5 million, re~pectively, be
PLAJNTIPFS' ORIGINAL PETITION, APPLICATION FOR

FOR TEMPORARY AND PERMANENT INJUNCTION r AND
.'
required to reverse said transactions and restore the funds
,
to the HAMILTON-TAFT CONCENTRATION ACCOUNT until further
order of the Court;
d. Mandatorily requiring that any of the Defendants
involved with the sale or transfer on or about February la,
1989, of any shares of HAMILTON-TAFT stock from ~~PHAR¥A to

any other of the Defendants :~cluding without limitation CR
ACQUISITIONS, . or third-par,:y individuals or entities be
required to reverse said transac-r.ions and restore any such
HAMILTON-TAFT stock to MAXP~~ until further order of the
Court;
e. Altering, modifying, destroying, concealing,
relocating from their normal location, or in any otherJise
impa i~ Lng the di scoverab i 1 i:. y 0 f any of the records or
documents of the Defendants relative to the receipt or
transfer of any assets or property since January 1, 1988,
from MAXPHARMA 0 r HAM! LTON-TAFT , inc 1 ud ing wi tho u t
limitation in respect thereto any funds distributed from the
HAMILTON-TAFT CONCENTRATION ACCOUNT or the stock registers
of HAXP~~ or HAMILTON-TAFT, but not by way of limitation

in respect. t:.hereto, part:.icularly wi th respect to accounting
records evidencing t~e distribution of any funds to any of
the Defendants and any entity or individual associated or
affiliated ~ith or controlled by any of the Defendants.
PLAJHTIFPS' ORIGINAL PETITION, APPLICATION FOR

TEMPORARY RESTRAINING ORDER, EX PARTE, APPLlCATIOH
FOR T'eXPORARY AND PERMANENT INJUNCTION, AND
~PLlCATION FOR IMPOSITION OF CONSTRUCTIVE TRUST paqe 71
2. Defendants be cited to appear and show cause and that
I
upon hearing, a Temporary Injunction be issued enjoininq and
restraining Defendants their agent:s, a:c-:orneys, representatives

from directly or indirectly obtaining, acquiring or otherwise
trans fer=inq any funds" by loan or ot.herwise, from MAXPHARMA
and/or HAMILTON-TAFT and from ass igning I trans ferring, pledging
or qran~ing, or at~empting to gran~ to any third party a security
in teres t. ,lien, mortgage, or other encu..-:tbrance on the M.A.XPKA..R}4'.A
stock and/or HAMILTON-TAFT st.ock pending a hearing on tne
Permanent Injunction;
3. That. Oefendant:s be cited. to a;pear and ans;,;er herein
and that upon final trial hereof en:er a Judgment against:

Defendants, jointly and severally, for actual and ccnsequential
damages for the violation of thei= fiduciary duties to
Plaintif:s;
4. ;udqment against Defendan~s, jcintly and severally, for

ac~ual and consequential damages arising out of DefendantS' civil
conspiracy against Plaintiffs:
5. Judgment against Defendants for actual and
consequential damages resulting from the willfull and :nalicious
fraudulent conduct. af Defendants;

APPLICATION FOR IMPOSITION OF CONSTROCTI~ TRUST Page 72
6. Judgment against Defendan~s, jointly and sev~rallYI for
exemplary damages re9ul ting from Defendants' fra~dulent acts,
civil conspiracy, and breach of t::teir fiduciary duties' against:

Plaintiffs:
7. Attorneys' fees in a reasonable amount as determined by
the COUr't:.
8. Costs of suit;
9. !nt:e~est: after Judgment: as provided by law from t.he
date of Judgment until paid;
10. Such ot.her and fur1:her =:!lief to which Plaint:iffs may

be jus~ly entitled.
Re5pec~fully submitted,
GODWIN, CARLTON , HAr~LL
r[l~P-
ey: ~ ~ ~ ~
DAVID N. EVERETT
Bar Card No. 06745500
JOHN C. BUSH
Bar Card No. 03496250
. 3300 NCNB Plaza
901 Main Street.
Dallas, Texas 75202-3714
{214} 939-4400
ATTORNEYS FOR PLAINTIFF

CONNIE C. ARMSTRONG
P~NTIFPS' ORIGINAL PETITION, APPLICATION FOR

TEMPORARY RES~NING ORD2R, 2% PARTE, APPLICATION
FOR TEXPORARY AND PERHAHEHT INJiJNCTION, AND
APPLICATION POR IMPOSITION OP CONSTRUCTIVE TROST Page 73
VERIFICATION
STATE OF TEXAS S
S
COUNTY OF DALLAS §
BEFORE ME, the undersigned Notary Public, on this day
personally appeared CONNIE C. ARMSTRONG, known to me, who being
duly sworn on his oath deposed and said that he is over the age
of twenty one (21) years, of sound mind and competent to make
this Affidavit; that he has read the above and foregoing
Plaintiffs Original Petition, Application f"or Temporary
Restraining Order, Ex Parte, Application for Temporary and
Permanent Injunction, and Application for Imposition of
Constructive Trust, and that based on his review of pertinent
filings by MAXPHARMA in the form of 10-Q' s, 13-D' s, lO-K' s I and
similar securities filings, as well as conversations with
COSTELLO and BARTLETT, as further augmented by pleadings filed in
the MAXPHARMA/ROBERTS SUIT, and including without limitation in
respect thereto the proceedings with regard to injunctive relief
conducted therein and testimony provided pursuant thereto I in
conj unction with his personal knowledge, the facts contained in
this Petition are within his personal knowledge and are true and
correct. -I

FOR TEMPORARY AND PERHAHEHT INJUNCTION, AND
SUBSCRIBED AND SWORN TO BEFORE ~, by CONNIE C. ~~TRONG on
this /{; z:::<- day of February, 1989, to certify which witness my
hand and official seal of office.
NOTARY ~UBLIC IN AND fOR

TH~ STATE OF TEXAS
~lPed/P~inted Name of Notary:
My C~mmission Expires:
P~NTIPPS' ORIGINAL PETITION, APPLICATION FOR

GOD\VIN, CARUON & M1\XWELL -~,-; .;
. ,'/ (..L I
-
.-\TTORNEYS AND COUNSELORS
,,-(
" . y T---
(
A PraieS~lon41 Corporallon
/1
3300 NCNB Plaza TeLiphon~' 121~) 939-4-l00
TO'.I r PRLlTT
901 Main Street D/FW M~tro' 263·1186
[) ~!.: U ;1 Telex 709618
Dallas. Texas 75202-3714 Telecop'u:rs 1214\ 760-7)31
/ j 214\ 9394455
June 15, 1989

Jt}lJiP
~lYl '-
.' ~l> uv.~1
c,
connie C. Armstrong, Jr.,
Chairman
t' .f liP )
Hamilton Taft & Company [0'/ /
3811 Turtle Creek
Suite 1100
Dallas, Texas 75219
Re: Dresdner-Harnilton Taft Loan Transaction
PRIVILEGED AND CONFIDENTIAL

Dear Chip:
This letter is written as a memorandum of certain matters

discussed at our meeting on Saturday, June 10, 1989. Present at
that meeting were Tom Rosen, Dave Everett, you and I.
At the meeting, you pointed out that when you took control
of Hamilton Taft on March 30, 1989, the notes payable to Hamilton
Taft and the undocumented receivables, to which Hamilton Taft was
enti tIed, were in a deteriorating and uncertain state. It
appeared, to you at that time, that collection of any monies
payable to Hamil ton Taft were unlikely. You stated that, as a
matter of business practicality, for Hamilton Taft to remain in
business, you would have to take actions which would prevent the
continued deterioration of Hamilton Taft and would aid in the
collection of notes payable to it.
After you took possession of the Hamilton Taft books and
records and after further investigation by you, it appears that
the situation at Hamilton Taft was indeed quite bad. Because the
Gulftex loan transaction did not provide for an immediate
payment by Gulftex of the amounts due on the $1,500, 000. 00 loan
made to Gulftex. The entire amount of the $2,500,000 Amerimac
loan was unsecured, completely without collateral. Amerimac' s
records indicated that they had lost approximately $8,000,000.00
and continue to be without profits. Conversations with Amerimac
·management indicated that without closing their private placement
or obtaining some other financing, which was indeed remote,
Amerimac would not be able to repay its $2,500, 000.00 note to
u.s. v ARMSTRONG, FOWLES

CR94-0276 - CAL
GOVERNMENT EXHIBIT 137

Connie C. Armstrong, Jr.,
Chairman
Hamilton Taft & Company
June 15, 1989
Page 2
Hamil ton Taft. You were able to obtain additional information

which indicated that the $1,650,000.00 in receivables from
Maxpharma including the $5,000,000.00 in the Howard Weil
transaction, were likely unrecoverable. The $1,650,000.00 was
found to represent undocumented transfers, by the prior
management of Maxpharrna from Hamilton Taft to Maxpharma, for
general Maxpharma operations. You were further able to obtain
information that' loans, to Christiana Energy, Litchfield, the
General Agency, and others were and are doubtful collectibles.
Shortly after your taking control of Hamilton Taft, you took

corrective action separating operating accounts from client
accounts. Also, as soon as possible, you engaged Peat Marwick to
commence an audit of Hamilton Taft's books, records and fi~ances
in order to ascertain the exact status of Hamilton Taft at
March 31, 1989 which is the date you took control of Hamilton
Taft.
After you obtained additional information from the marketing

personnel and management at Hamilton Taft that Hamilton Taft
needed to obtain corrected and improved balance sheets for
presentation to customers, you commenced preparation of a
business plan to improve the balance sheet of Hamilton Taft. As
part of your positive business plan, you commenced activities
which involved varying degrees of business risks. You have
decided to treat as effective the assignment of the notes payable
to Hamil ton Ta ft and the junk receivables also payable to
Hamilton Taft for a Dresdner commitment to pay Hamilton Taft the
aggregate of $21,000,000.00.
At our meeting, we reiterated, to you, that at the time you

took over Hamilton Taft that you had certain "good arguments" in
defense to the Internal Revenue Service that you should not be
obligated to the service for monies taken out of Hamilton Taft by
the prior management. As we discussed earlier, the "good
arguments IIwere only good arguments and the Internal Revenue
Service is likely to seek to hold you responsible for the tax
payments. In view of such future liability and responsibility
and potential IRS action, you made the business decision to
effectuate the transfer of the notes from Hamilton Taft to
Dresdner.
It is our understanding that, to reduce your potential

exposure, you seek to provide collateral for the assignment of
the notes, which collateral may be derived from renegotiations
of the Gulftex loan transaction or other sources of collateral.
Also, you are seeking to obtain a line of credit in the range of
Connie C. Armstrong, Jr.,
Chairman
June 15, 1989
Page 3
about $20,000,000.00 to $40,000,000.00 from Dean Witter, Merrill

Lynch, or other suitable lender to cover shortfalls in agency
payables and to provide working and other operating capital for
the benefit of Hamilton Taft and for Dresdner.
We explained to you that by effectuating the note transfer

you have taken down possible "walls" between Hamil ton Taft and
the Internal Revenue Service and you. You stated that you
understood that the wall had been removed and that you had
knowingly accepted that business risk because without accepting
the business risk, it was unlikely that agency payables to the
Internal Revenue Service could be paid. You stated adamantly,
and perhaps correctly so, that the Internal Revenue Service
should appreciate your activity in seeking to rearrange the loan
transactions in such manner that there may be a potential for
payment of the agency payables and your arranging the lines of
credi t to be sure that shortfalls of agency payables. are
covered and that the Hamilton Taft business is continued and
advanced. You specifically stated that collection of the
Amerimac note came after the effective date of implementation of
the plan related to the note assignments and that the Amerimac
loan payment was to be applied to future payments to Hamil ton
Taft on the Dresdner note I Dresdner operations and for working
capital. When we discussed the possibility that Maxpharma
shareholders, the Internal Revenue Service and others could
challenge and file suit based on your application of the Amerimac
funds in the above-described manner to Dresdner operations rather
than repayment of the $2,500,000 .. 00 to the agency payables
accoun t of Hamil ton Taft. You acknowledged that you clearly
understood the risks associated with such and were prepared to
accept the relatcJ consequence.
In a positive fashion, you requested our assistance in

assisting you with respect to preparation of the documentation
necessary to notify and complete the collateralization of the
Dresdner note transfer, including work with respect to
restructuring the Gulftex transaction and work finalizing the
line of credit with the lender, including the possible meeting
with Dean Witter concerning the terms and conditions the line of
credit.
You have stated that it has been your experience and special
skill to take problem situations and apply risk management to
convert the problem situations into business assets and value ..
You view the Hamil ton Taft problem situations as having

significant potential for profit. Although you clearly recognize
Connie C. Armstrong/ Jr./
Chairman
June 15, 1989
Page 4
the potential liabilities associated with the transactions, you

are willing to accept the risk in order to make profits.
If we may be of assistance to yo~ in any manner, please do

not hesitate to call.
Very truly yours,
Tom F. Pruitt
TFP: jel
k:/Ol.l3/1ffi7-2
GODWIN , CARLTON & MAXWELL
21~/939-MOO ATIORNEYS AND COUNSELORS TAX J.D. 1175-1941620
A Profe~5lonaJ CorporalJon
L.B. 17\ SUITE 3300

90 I Main Street
Dallas. Texas 75202-3714
-=~-:r.i.::: .r:-s::r;)r1i], Jr. J u 1j 1 2, 1 C) r.J 'i

~·:l.:- ':U:.i:"'Ipr: 11u7.00C'2 2 i 11 ~; u~be r : 4 J.~ 4q
Itemized Services - Continued
Date Descrintion
OG/22/3g Conference with Chi? Armstrong regarcin9 TFP 1 • 2j

review of Phantom Stock Plan and
a?~licahility to Dres~ner subsidiaries
in different forms: r~view of initial
draft of bonus plan and received request
from ~r. Armstrong to redraft.
06/22/89 Research regarding tracing of JKP

withho11ing taxes.
0~/23/89 Commenced redraft of special incentive TFP ·L 7 ')

plan for all employees of Hamilton Taft.
06/23!P9 Update law regarding tracing of JKP

withholding taxes as constructive trust.
06/24/89 Work on Itincentive bonus plan". ss 1 - n

• :::l '"
06/~4!S9 Proofed and amend first portion of TE'P • 7S

Incentive Bonus Plan.
06/26/89 Prepare working files regarding LL 3.00
OS/26/89 1
documents added to Master System on June
.'
989
~re initial
a '-.!Bent for
;draft of consulting
Fran Bartlett and Doss
Trammell, discuss same with Dave Everett
Tf'P 4.75
regarding noncompetition issues.
06/26/89 Proof and amend Incentive Compensation TFP 3.25

Plan for HT Corp. employees, fax same to
HT to Chip Armstrong; telephone
conference with Chip Armstrong to
confi rm need for "numbers to complete II
planT received comment from him that

[)lan "numbers" needed from Dresdner to
Page 11
BILLING FILE COPY
DUE AND PAYABLE UPON RECEIPT
,. GODWIN , CARLTON & MAXWELL
21~/939-4400 ATIORNEYS AND COUNSELORS TAX LD. 1/ 75-1941620
A Professional Corpor.l\lon
L.B. 171 SUITE 3300

90 t Main Street
Dallas, Texas 75202-3714
.: 2!l:"1 i ~ ... ,:-_ CIS t L(Jrv,:", .1 r. .J u 1'{ l ~, 1 '1-] q

£-'i' e ·:\.li--::-:cr: 1?67.\)€J02 2ill "iUllhcrl ';J3+'\
Itemizeri Services - ':ontinue~l
Descrintion
06!2C/Q9 Review of corre5~ondence agre~~ent, Tr:R 1.25

~rafts concerninq note assignmer.t an~
collateralization with Wilshire nlvj.
propertYf conferences regarding same.
06/20/89 Preparation of bonus plan.
06/20/89 ~evise draft of Phantom stock plan, :'FP 4.75

plac~ in final form for transmittal to
Chip A.rmstrong at Hamilton Taft.
00/20/89 Conference wth Harvey Shapan regarding • :; ',j
employment related issues at Hamilton

Taft and his initial review of
employment handbook.
O~/20/Bq Conference with Jona~ spivak regarding •2S

employment handbook issues review and
requested rewritten in form of
transmittal letter to client.
0~/20/89 Research regarding tracing of JKP f..JU

withholding taxes.
~'~
06/21/89 ~10n8 to master document innex LL 2 • :) C'
~~r&~ing ne~ documents receiv8o.
06/21/89 Conference regardinq Hadid note ,tatu9 TF.:R .SO
-
and regarding financial needs.
06!21/Rg Meeting with DOS9 Trammell regarding TFP 1.25

issues 9urroundinQ August, lQS9
financial flow shortfall.
Page 9
BILLING FILE COPY
f
'GODWIN, CARLTON & MAXWELL

:!14/939-4400 ATTORNEYS AND COUNSELORS TAX 1. D. ;I 75 - 19-1 \0: l)
A PrnieHlonal Corporallan
L.B.171 SUITE3300
90 I Main Streel
Dallas. Texas 75202-3714
::)r.:-1it: .·'.:-·-.st:'Jr._~, Jr. J u 1y 1 J I 1 q ,) q

-il~ ·:c..:r''"'~r: 1;;,!-~.I:'024 i~ i 11 :' ; u r:', \: e r : .:; l ~ -~ :-.
!te~ize~ Services - Continued
;)escription
06/14/~~ ~el~phone conference ~it~ Jo~n Mc~air, RLS .2 S

counsel for Carrcllton-Far~ers Branch
In~erencent Schaal District.
06/14/~~ 7ele?hone conferenc~ ~ith Herb Becker RLS .25

re]arding acquistion and pote~tial lien
8.;Iriinst assets.
06/14/99 Conierences regar~ing transfer of notes RLS 2.25

from Hamilton Taft to Dr~gdner
Enterprises, Inc.: review file for
relevant notes.
06/14/e~ Draft Promissory ~ote from Drssdner to RLS 1.25

Ha~ilton Taft.
06/15/89 Conferences with Messrs. Goodner and~ 2.25

Pruitt strat8g!zing concerning the
~axpharma aitu8tion: telephone
conference with Mr. Armstrong regarding
a rescheduled meeting with Dean Witter.
06/15/39 Conference regarding notes payable to RLS .25

Haailton . Taft.
~~-
J6/15/~9 Dr8f~ agreement by and between Cresdner RLS 2.80

ana Hamilton Taft in connection with the
tranafer of the notes and accounts.
OG/15/ag uener~l visit conference with Deputy D~E 1.00

Chief of Fraud Section in Washington,
D.~. L tJ-(;~
ti)t? t) //tfl.'
Pa3e 8
BILLING FILE COpy
- - - _.. ----_ .. __ _-_.__ _--_._---_.
.. __ __ - -
HAMILTON TAFT & COMPANY
74 New f1ont. t,Jomery ~,tl-eet
San Francisco, C{.) Q410,5
TO: DATE: July 19, 1989
FROM:
SUBJECT: ENCLOSED NOTES
b7C
Chip would like the attached notes dated July 19, 1989
locked away in your Master File for future reference. They
are highly confidential in nature.
r __ ~ Thank you much.
1 __ ~ .I~1b /".,;I.Pm",.4~
/0<
WIA!-"P.~· ~s c.- ,fJ{) 1M fJem.

-/yjJI4,/ f t,A,/ PIP liz,&JtW~/tj/a;t'
dd1f·
Y-1 j,u ,,A. /dP!/ ~~£,,1

III~
o
CONFIDENTIAL
HAMILTON TAFT & COMPANY
Chi P {-n m:.. t l~ CJ n ~I

Nates .- -July J<1, l'~tlg
Overview/Outline - Events
J L.! 1 y I'::. ( ..:<~ ':i - T h u r "':. d 3. 'I ~
J Q a 0 P ire 5 1~ ~ s i 9 ned, e f fee t i \i e i mme d i ate 1Y 8: iJ 0 a. m. This 1
wa:-, a total surprise to me due to the fact that I had

discussed ltJitr. Joao, an a number of occasians, taking over-
as Controller. He also knew that Doss and Fran were
leaving. I was puzzled by this. Not only was he resigning
effective immediately, but he refused to sign anymore
checks. Also, as of that day, T found out that the cash
flDW pl-ojectionst.h.3t had l··'?:-~n given to me were nowhet-e near
o n tar get; rOo e all D f 'f" by $ 4 - 7 mi 11 ion.
the Y ItJ e A1so I the y
had nat been on target since we'd taken over the company and
they'd been off as much as $10-15 million. The only
difference was that they wel'c small enough amounts that on
the next day there was enough cash to go in and cover them.
On this particular day y Doss and Joao had discussed with me

the options of what could be done. One of the options that
they suggested to me was that we pull a DTC on either Mel or '- !
\~
[OS early making a two day item 3nd putting it into Bank of
America and then 8 of A giving us credit; then, we'd
transfer that money from 8 of A into the banks which needed
deposits to cover the checks_ None of the ch~cks would have
bounced and what would have happened is that when the DTC
was retu rned to 8 of A they WOLlld have been sho rt the t
amount that we pulled.
I asked DOS5. at that t.ime, was that not kiting? He said,

yes, that's exactly what we~,.e talking about; it's kiting
banks. I told him then that I was not going to worry about
a company and worry about going to prison at the same time;
if there were no other alternatives, that what I would do is:
go to the banks themselves (who had the checks) and ask them
to cover the overdrafts.
We then contacted First Bank of Chicago and advised them of

the situat.ion. They r·efu~.ed to cover the overdrafts. They
said t.hey didn't I<:now who l>.!e lfJere, they thought we were
owned by CIGNA;
I told them CIGNA had not owned the
corporation for three years; that. t.heir bank had not been
doing dUB diligence in watching out after the account if
that. IfJas t;'18 problem bec3u'Se HTC had never changed; the
owners had changed but they were doing business with HTC.
not the Qwners. No matter what, they went ahead and
l di~>allOL'Jed the covering of the checks; I told them we would

cover all checks and then close out the account. I informed
Fi rst Bank of Chicago as of Friday, July t4th. tha't'!'we ·were
going to close that account.
L·n: ,,' l l< r;::' did vJ d -=- ~J j t.!' (:1 r :~ [.J ':1-: q In i 1 ) j C ! 'I
L'.I Ci r' t h Q f pay r 0 1 1 c he t: k ::",
'" r"i'.j rJ~?': ,1 l j ,,:·'.:1 F i ,-,~ t: (II i C.:lJO J nd tc· 1 d them "Iii, i ch
:3,i.nl,' L} f
r:-lv~~:~I',~' to pu] I', vJheri thF.'c chor l .:::' .'lrrived there at lhe ban~ on
t· h:d ' ~ ".','" !'. h r : / r,ll! ] 1" ; the '.: ilr:--;;,l.:·, \< ';', t 'ld to. ItJ'3' h.~ d P::qu e 5 t e r:l '::Ind
t,h'::~~/ " ! ..lfflp~'-::l "r~'fet- t. r.• rn:d(f";," TI'W5,p Chf::ck~. ItJ8r-e then sent.
b ,~.('~. I,ll t.h-? P" 1,1, ,:-,f n'~"", ~..-! 1': '.-J hi:' n t h~ n.~, nk of p os to n reel? i \:ed
tl'lcr;!, wl'~jch [lJ):" I'ln !'JL~lrd··\~',
be held. Thi?, thp.~,., ("Jete ';J;.")in~: t':!
~.J.)::: t'hc; ini!'}'!.J pl':\I~ -t.3 million
'-)r- Frid,;<y, rh~re. I,Lt':::
+J"al-"',f":"'I"I'ec! into the M':;~'I i11 Lynch Hamilton TE'ft 2.cc~unt in
Da 11.515 from 0 of ~\; this ~oJa~, '.!~ry f:onfusirlC] to us I:.'·?r:::a l..lse we-
wet'e no:. :::',u0Poz-,ed to have ha.d 3nv rnClney whatsoever and all
of a 5 U d den VJ e com e up wit. h $ .::. In ill ion out 0 f now her e . We -
corne up ~-'Ji th $3 mi 11 ion on the same C.1.:;.l,)1 tha t Doss. F ran and
]oao resign dnd the tr-ansfer looked v8ry, very suspicious~
The other thing that Jooked ver:/ susp:icioLJ~, 1'?, because j f
there's. ever any money th3t is left over' in these accounts,
the mOlJey i=:. transferr'ed to Smith Barney or one of the
~'JO rki ng accoun ts whe re we 110 rmally pu t au r excess fu nds into
ovel~night, In this particular case. it was wired into
D :3, 11 as - l.'J h i c h we nev e I~ do. I t wa s 1 ike .. wed 0 n ' t know w hat
t.o do with it. here it is, boom. it's in Dallas."
I talked to Joao on Saturday. the morning of July 15th. and

asked him where the money came from. All he said was that
C.
' ,
it. came from 8 of A; he did not know what per-son or what
account it had come from .
On Friday, July 14th. we had all checks covered; we

prevented any checks from going back NSF. On that day, Doss
was officially resigned, Joao was gone, Fran Bartlett was
asked to leave the office at approximately 12:30p (it was
3sked by Dick Fowles but instructed by Chip Armstrong). I
asked her to leave early because she was continuing to do
business~ she had called U. S. Air and was talking to George
Aschenback and was also continuing to discuss things with
the employees of a business nature in which she had no idea
about and was doing nothing but causing confusion and bad
feelings. So, in the best interest of the company, I asked
that she be removed.
On Saturday, July 15th, I flew into Las Angeles and that

night I met with Doss, who had resigned but was in the
mee ti ng because, at tha t time, I had asked him to leave for
three weeks and get a feel for where he wanted to be and, on
this particular date, wanted him to come bacl, to Hamilton
Taft (I believed he could help us); there was also Jim
Paille, who I asked on Thursday, July 13th, to step in as
Con t. r- 011 e r , t a kin 9 J 0 a 0 ' s p 1. ace (t he rea son I c ho 5 e Jim
Paille to take this position was because he had been
Controller for ADP and wa5 aware of the accounting process
that needed to be done: when he was hired for Hamilton Taft,
he was hired in a position that he could take care of either
cDntrol of the money. or Data ProcessiAg or Sales; Dick
FDwles was also in the meeting.
Die I·:.
Fowles IIJas made P r'es iden t a f the campa ny on Thu rsday,
July 13th; the reason for thi'? bE:ing because Dick had been
~Ji th the comn·=tny through :.:·d 1 th~ Other times. both good and
b~,(j. and [Jic\~ had nlway~. made SClund judgement=-. but he had
t.c-:'3ii prel.'ioIJ·=-.i'/ b~8n put tntc) .~ ;:JOsiLic\n that. he could not
:::. c t :1(:.", t de.1 l-J t":.:-J t L·j.~ c- p r ~1P':? r Q n be ha 1 f Q f the f".:fJnlpa ny . Whe n
'] i ve n t h e (~, p P IJ r t II iI i t Y , Ii e W d S 'J e r y s C' u n I.J : t 11 i s i s why I.
-3 =.. ked hI'll to s t e P IJ r::.' _ F-i) 'f:~ D , h'? W ,-=J. '?". l'>!.i 1 1 j n 9 t (] put r i s k 0 f
hi.s en'in r';'~':'::on .:-inc) f:.. r;:.:]J· Cin t.-,e line for H3/lli1.t'.Jn T',.:tft; r
fe.l.t. ii he W~5 l.AJiJlin9 t.e dc, that, t'hen he deserved to be
l
the P r r-'::: i ':! e t"r t 1. n d r ':- .:"') u 1 ri n't a .?". ~. f 0 1- .J. f::·~; r t e r p.;:' r S (j n i n t h a t
] .1 iI <::: .
'r- he fall r 0 f U 5 met i n t. 0 sAn 9 e i e s : l,oJ eat. e (j i ,-l ,)e 1- _ Duri.ng

dinner, we ~iscu55ed wh~t w~ needed to do to protect.
H.~mil ton Taf t.
Background to be noted at this time: Hamilton Taft had a

$19 million hole. A financial audit by Peat Harwick showed
a :"B I..~ mill ion de fie it; ~ his de fie i t Lo-J as C I" =..3. ted by F ran
Bartlett and previous owners. (I say Fran Bartlett because
she was President and CEO at the time; she was in charge of
Operations and she had knowledge of all transfers of money.)
We had to put a financial statement bacl< to,;V~t.her which
would allow us to continue to get clients for Hamilton Taft
and~ to be able to do that, we had to put assets in or
create something that would take care of the $19 million
deficit that had been created.
What we were doing was an inj tial plan to get a line of

'-- ' credit through Dean Witter using the cash flow of Hamilton
Taft to create this line of credit in which Dean Witter had
agreed and, IIJith that line of credit, we were going to
purchase Gulftex. (Gulftex is a corporation which owns 110
shopping centers and has about $400 million worth of assets,
notes and collateral.) Dresdner was then going to sign the
proportionate deed of these assets over to Hamilton Taft to
bring their financial statement up to a positive condition.
In working with Dean Witter from the time we got in here,

Dean Witter saw three different cash flows. Each cash flow
getting worse and worse and therefore they lost credibility
as to what the actual cash flow of HTe was. So, Dean Witter
came bac\r. in and said "we have acknowledged that you control
$4 billion but the problem is that we've got to acknowledge
the status of cash flow or how it comes in and goes out.
So, what we'll do is give a line of credit in the month of
November after wEl've monitored and been able to stabilize
the cash flow. The problem with that is that it does not
It
take care of our current needs. So, what we did was get a
bridge loan that was backed by 1) a commitment for the line
of ,::redit. and 2) a bridge lC3n that would loan us $20
million based on our assets. We went in and put together
c the Gulftex deal to purchase Gulftex and put Gulftex up as

the collateral for the note and then taking the money from
the note putting it into Hamilton Taft solving liquidity.
Al so a f te r pu rchas i ng Gu I f tex. we cou 1 d s t i ll~<con tli-nuEJai-·t0
f
assign those assets to Hamilton Taft making the balance

sheet whole.
T,", tlte mt.::f~tin.) on S.J.t,U('dJ.~i. JIJ1'/ L':'th. \.Alha!'. t.-J8 "'Jer",:'
dis::u:,,;-;ing as 3. commit.tee, vJhich Jjm p/711]!? ,:.J.nd r'lck FQwle~
,:tr-p. m~m!::~I·~. ,::,f the Bo;,,\r"'J, ',!.?5 hQI") ,~~rp I,\J('~ IJ'J1n';;] r,) '""oj',le ,111
~~,~c,P r.rc)f~'lOfJJ·':- once becau,=f"' ()1.11
;;{t:, Jiclujdity pn)blern 1,",I,~'::
f,;::, ~~ of 11 f'(~ r,I:.d,-l.y; ~',Ie dj '-:in' f h,:','./,:"~ fl)',: r' addl. t j Gna 1. IfJl:::el':;; 1n
h1hjr-!-, 1.• lI'~'· h,,,-!,·-j ~1~'evjcIIJ~,Jy he~n :o',hO~t!i": '!1"I'1 hOI'J 1~1;::rp. l-J8 90'ln·~ 1..':
-J'::~ ';";r:=rytlrin";'l cl0.se:j I,Ji I.h the I:'ul f h?,;-, ,'.'irrj .~\~c~rr,:."!in r:'~,Jt
oS "J ~~ r y t h j n 1;;3 L>J ass 0 U n d the r €'~ (~ n ,j. .c: 1.1 1 1 1. n ;: t. h ~ 1', Q mi 1 1 :i n n for'
t, h '= c h I~ C l.- s r. hat. we -:lit:! (J n J u 1y l.c! t: h . l~j C C t' P .~'\ ~, '3 c:l 'f 0 r
tJ 1.1 r ,":, f;."' '!, ',,I ~.~ ,?, ", $ c.:.. mil 1 i (l n flo.;. t t h ':{ twa u 1 d a 1 way s t\ 8 i n tile
dc-count. The problem lS t.hat. on Monday. July l7t.h when j
these r:-:hecks hit back into the Bank of Poston. and ~\le told
the B3nk of Boston we were not going to ,honor those due to
wha teve r reason. the 83 nk of 80S ton L-Jou] d then have to go
b.~ck into the IRS and draw t:10:=:e funds Q3C!" out. (...shen th;~,L
mu chi n fund s are d r .3,ltJ n b a c k 0 u t f t- CHT! L h e I R:::, i two LJ] d h ,3, ve
thrown up a red flag, therefore rlCltifying them and the
client and ourselves of payments not being made plus penalty
and interest. So, to prevent that flam happening, we chose
to go ahead and have those checks sent back through the Bank,
of Chicago and we would make th~m good. We had $6.7 million
in the Bank of Chicago on that day; Dresdner Enterprises
wire transferred an additional $3 millior.
We tllen made the decisictl that we had to find out, what our
cash flow position was going to be and we had to get a
handle on the books and records and how much cash was in and
how much cash was going out. We also made the decision that
we would look and, if needed, we would hold (i.e .• pull them
out) checks on another group so as not to be interfering
with our fiduciary duty and responsibility of Hamilton Taft.
Also, in not notifying clients or the IRS that the checks
might not be getting paid on the exact due date. Everybody
was in agreement; we adjourned - I flew back to Dallas that
night, they flew back to San Francisco. On Monday, July
17th, we transferred the $3 million in and Jim Paille did a
very good job, Dick Fowles did a very good job - but it was
Frank, trying to find out what money was where, checks were
coming into the banks; at the end of the day. we had every
check covered. everything paid but we had just about
liquidated ~verything we had.
Jim, Dick & I found out that Joao had no idea what he was
doing; Joao had not been able to give projected cash flows;
that Doss Trammell had not been involved with the accounting
as a CFO should have been. They had no p rag ram as to
man i tor cash they didn't know hOlA) much cash was comi ng i rl'
I
they didn't know what checks had been sent out, they didn'~
'· . know what checks had cleared the bank, they didn't know how
much money was in the b~nk. They had about one account that
C "
they actually would pull up on the screen to find out what
\Q~ balance was. Yet. we were dealing with five
institutions; because of that, there was more money sitting
in different places than what Joao or Doss realized~
I t, !.'J a s '/ e f' '/ :t p par e n t t h.3. L F r- 3 n R.;:::. r r l. ,:.. t t, ItJ h C', '::' ... ' r' ';' ~J' ~; i, n ~ 1"'1 ,
(':, ,
did r ' L k.noloJ any t h i ng ~bCIi.1 t f 1 n,;l n~,~e . r r 3. 'I l-J,.=, .=;, -=l. ':',3 1 es~>r:, r'-;:-,c' n
L=<, nd :J. ?,.i j f;:''';~P~ rson nn 1 :/ ':.::- rlf? d i'~ nQ t h ;':,\!'2~ .;tn .:.h j, 1 i 1.)1 t.:.) t'u p
a r:·l.Jt·j:"C\r,-~tjDn, ;::he did noL !v~ . . ,·:: an ",d:,j 'j 1 L2/ tn j',ur-n dr'ound
~nd t",lat,c.h fin,:I,nce':: ;J.n') 1,'nDW hl.)lt-J I,"-J put.. '::r"j(:tl,il't?c::; r,o(J~t.ht:~r
to Ilel~:. te., ·,:,nance this comi::-').n:/ If sll'=.' cli,i. ,:-',n'''~ -.hf' di-:!n't
:-I5e it. l:r;'~n th~r·et.:: _;,r~ e\,I'::'n bi(J'J'~r prc~bl~~m. But.. t:hi',",:
':'f:)(;:"or.:J.ti()rl, HJlTiiltDtI T"fL, h,\'~ :;lot clf knowled~leatt}e P'?r:L;:\~':'
t~'_-lt: :;l(:_~ i.n her~ -:lnd nor:;",- '~f j'hecc,e thr"3'? pe'::'1ple ut.ilize,j
the. rn .] n d the. 0 n 1 ~... r e .;."\ 5 0 n t rl.:\ t ItJ e f €~ e 1 t h3 t- the y did n ' t
uti 1 i z. e them was due t. 0 the 'f .J C t t h..l t. F r ':1. n d i ':! r)0 t. II-J.,'. n t. t:. 0
tel!. other 811lr'Joyees that this $19 rnill'~Qn had been
the
taken while ShD l>J3S t.he 0l-esident/CEO of t.he company_
out
~~nd. therefore, Doss, Joao, Frail and Dick are the ones who
knew about it and if she was to pull in these people to try
to help solve the problem, they would have n'?a1ized that she
was the One lA/ho had caused t.he- p robl em. So, i. n he reyes,
the best thing was not to do anything.
Doss was in ~ situation in which he came in and, when he did

arrive and he did realize the problems, he never stepped in
and grabbed hold and tried to solve them. Either-because he
was scared to get involved or he really didn't know what he
was doing as a CFO. I f he really didn't know what he was
doing, he stayed here too long; if it was because he didn't
want to get involved, he stayed too long because being here
as long as he was, he did become involved and he was here
when a 10 t of the money was taken ou t. And. he W,3S the CFO
and an officer of the corporation. But, Doss was in a
position, or had postured himself, 50 that he had one foot
in the door and one foot out the door so that if anything
were to happen, he could leave. He, basically, was watching
Fran; if Fran left, he was going to leave. Joao was
basically watching Dos,S so if D055 left, Joao would 1e,3\18.
Because, everything that happened, he would go talk to Doss;
Doss wou Id 1 is ten, 5 hake his head and, usually, not make a
comment but ask Fran and then it was just a toss-up
nothing was done - it would just solve itself due to the
fact that money would continue to come in and the checks
would cover themselves.
As I said, at the end of the day on July 14th, we had

brought in other people; we were now putting together a data
program that would help us monit.or haw much c3sh we were
bringing in and taking out.
On Tuesday. Ju 1 y 18th, T al- rived in town and Dick and Jim

worked all day to find out exactly what our cash position
waSM Once again, after coming up and pulling all the
c numbers together, we find out that where Doss and Joao and
everyone felt that we were minus $4-5-6 million, in fact we
are at break even at this point in time. Our float has been
taken out, we will be able to regain some additional float
by cash management wi th the exact amou nt of money tha t we
have yet, on the other hand, at this point in time at the ~.,
end (:,f t!;(""' d:",'/ W8 b~:l.~::.lc~·\ll·/ h)\',-, no In'-·n"'·,.. V.!;:~ ~·nc'l,.I t,h:,!
th,:lt j,::; r-n,"?\ '=:,i.r.U;l,titJ!'\ }'.,!ht' flO ';.); 'I,'.lt. 1':, ,I\,-:ot t.":-:t.l~",
sit' 1.1 .: t. ion t 1-; hi, (A' ,;:-' b, J 1 i l i '=-, f'\I~' 1. ,~
.~ '''T' ':' ,- ! . <I ';1 1) U c1 ~ i L U.::\
f. ion ~ .-: -,
fat· T::: try'j !l/.d t .:\ i' ,; i lc- hi '::- ,~'. "'/:1;", "lI1'y' .J n ~': f 'J I ' I? '.:~ r "'I ; r".n ~: C, .::::. ,J u '.:'1:'
thi':, ::.:uL~, u":' ~+(J t-'!.:\(-nin',]-, thl'ouqh :Lnt,'__ ::'r>~r,. V·JhL-lt' wF"t-e. nC''l/.)
do i n-:l J '? ';. "_' It I: i r-Il.!.i n'J tCJ L\lO t· j., ':-, r,) n! " ! 'II..! 'i n -;J t f) put to'Je t. i-,~ r'"
progralll ~./~~I •.. h,,:!, we may b·;' ,c.;,'·]·? tr:, ~11\i-: " 'y'(',::I' ~\r"~ljectlDn c)'r
V"h":LL ()III- C?,,?,t'l fJol.fJ .1.-::; JC)irl"d l~~:,:' I:;
It.!,?' t·,~ br'inginCl in CJI'Y Polla<::on frC.'111 LI,:::~an Wi tter to he.ad up

ou r Fu nd /"lana'Jr;:,men t; it. I/J i ] 1 bas j t:.:~ 11 ';' be him and one 0 the,-
per son . Hi:. j 0 h L-J i 1 1 b e t 0 W Q r k wit. h Jim Pa i 11 e 3. s' Jim
structures OUI- cdsh flow, bringing it in, distributing it,
11 e w i 11 La f- y ,:'\ n d Gar y will
tel 1 the n :i n s t r" LJ c t pea pIe 0 n
where La invest th.:\t nll.Jney whethel- for overnight Ot- .3
:nonth - the 1--\ i ghes t ea nyi ;-'9 we can ge t O\.l t, of it is the key
factor.
On Tuesday, July 18th, at ~1:()Op, Jim Paille, Dick Fowles and

myself met; we discussed the situation. At tha.t time, we
made .) deci sion (basicall y. I made the deci sian they
agreed with it) that we would pull 3 checks in the amount of
$5 million out from this deposit. The reason was that we
were going to make sure that we had the. balances in the bank
until we could become aware of what our cash flow projection
wou Id be 'fa r the next 120-150 days. The 3 checks tha t we
pUlled were 2 checks from Inte.rtel, 1 clleck that was from
Blue CrOSS/Blue Shield; the total amount of checks
$4,960,000. These checks were pulled, they're in a safety
deposit box. they'll be held for about two weeks so we know
exactly what our cash flow position is. At that time. we
will redeposit the checks with the penalty and interest.
Our thinking and feeling an this is that we have not. 1)
done anything illegal. 2) we are holding up to our fiduciary
duty and our responsibility to Hamilton Taft being that we
have the responsibility to pay the payroll taxes on the due
date; if we do not pay those payroll taxes on the due date,
we have to pay the penal ty and interest. As far as a
business decision. I feel that it was a good one to make
sure of the cash flol'\ls within Hamilton Taft; as far as a
leg~l position. it was legal; as far as a moral and ethical,
it will be moral and ethically right when we pay the
interest and penalty. If something happened. that is when
it would become immoral and unethical. We do not have a
problem with it at this time; we have our lines of credit in
place; we have our collateral in place; our closing bid
happened on Gulftex as of Jul~/ 18th. Dresdner Ent.erprises
has the financial stability and Hamilton Taft also has a
positive balance sheet. SQ, we have accomplished things we
had set out in day 1. The cDmpany will now have the ability
to con t.i nue to g row and con t i nu,:: t,'J ';Jet the accou II ts tha t
are needed; it also has the abili ty to go in and stand up
face to face with anybody that STS or- citifile has been
trying to go against us on and create the ability to show
that we can keep their accounts and that Dresdner has turned
Hamilton Taft around.
Chip Armstrong
Notes - August 22, 1989
(rf
f/1 fAJ 6- ~
Flew in on Saturday, August 19th; on Sunday, I had a meeting~el:: I~(lu'i'"
with Dick Fowles and Jim Paille at Dick '5 house. The "
purpose of that was because on Thursday, August 17th, there l
was a shortage on the checks. Instead of si tting down and ~~K""" ):-)-iC
rationally deciding what we were going to do, Ol~ how we
could handle it, there seemed to be a panic within the ranks
- mainly with Jim Paille, at the time.
There were two things that bothered me very much:
1) Jim getting excited;
2) Accounting had told Jim Paille that Dresdner

Enterprises had $8 million that had been wire transferred
out to Dallas and that he could call them and get the money.
The first thing was that we did not have $8 million; the
second was that, if we did, Dresdner should've never been
contacted and told of a problem. If there was $8 million,
i t was Dresdner's $8 million and not Hamilton Taft's. What
( we've got is, one more time, when Dresdner took over,
Dresdner wanted to handle all of the accounting; as I
explained to Jim and Dick, I want Hamilton Taft to stay at
an arm's length of Dresdner Enterprises. Dresdner
Ertterprises is a company that acquires ass-eots; we have a
tremendous amount of assets - we want Hamilton Taft to be a
corporation that has a large amount of cash in consideration
of cash flow. Therefore, the two of them together are
whole. bu t we keep them sepa ra ted so we can do more wi th
them. In the event that Dresdner has to come in, we've
structured this so that Dresdner doesn't have to solve the
problems; the management of Hamilton Taft solves the
problems and we have a Board of Directors that is running
Hamilton Taft the same as we have a Board of Directors
running Dresdner and its other subsidiary corporations.
The main difference is that when Dresdner takes over other

companies, they take over the complete organization, the
cash flow, the money. the ledgers - all of it. In Hamilton
Taft's situati.on, we didn't take over anything with the
exception of the general ledger so that we could do a checks
and balances of what was going on here.
Jim Flinchum: He helps out, he knows what's going on - but,

he is not supposed to be in a situation where he is hands on
with Hamilton Taft. That is the responsibility of Dick
Fowles, Jim Paille and the Board of Directors. What I told
Jim and Dick was that, when everything is running fine,
Hamilton Taft doesn't call Dresdnerj but, when there is a
conflict. the first thing that happens is that Hamilton Taft
picks up the telephone and calls Dresdner and says "we need
this. this and this ... and we have to have it or we'll be in
trouble.I, The comment that comes back aut of the Executives
of Dresdner is "hey, if this is the situation, we need to be
out there controlling all of it due to the· fact that at
least if we can see things t.hat are about to happen, we
might be able to take care of them before they do happen.
But, there's no way in the world that we can take care of
something when it is actually going on Dr after the fact."
And. I told them that I could not disagree with that.
The refors. we needed to asce r tai n tha t we had a bet te r

handle on what was going on, number one; and, number two, to
also realize that we C.al), handle those problems we've
already gone over them, we have discussed them. we have sat
down and put different plans and theories together; so, they
need to be able to make those decisions. I am going to be
involved, I want to know about it, but I don't want Dresdner
and their executives or their staff out there called saying
"help us now, because if you don't, we've gat a problem."
They seemed to understand, they seemed to agree; I went over
one more time what the entire plan of Dresdner and Hamilton
Taft was. They said "fine"; we were going to turn around
and evaluate what the cash flow was going to be for the next
few weeks and the next few months and put in another plan so
that we would not have these shortfalls.
The bottom line: The lines of credit are still being

established; we got a verification from Stotler that
everything we said as far as a line of credit for our cash
flow - it will go into place. But, Stotler has to turn
around and watch the cash flows and the float so that they
can get a comfort zone of how much money we're going to have
in the banks at all times with a specific amount of money.
And, that's going to take 90 days or so. As far as the
bridge loan that's going to go into effect, that's based on
Gulftex and it's being taken care of just as fast as it
possibly can. We thought that things were in a little
better shape than what they actually were and, therefore, I
have not pushed my people as fast on the bridge loan
that's my fault. But, there is still an ability for us to
take care of these things until that bridge loan is into
place.
As I said, everyone agreed; Jim Paille agreed to keep better

control over himself. Hamilton Taft is in good shape, we
have a handle an it; the worst thing we can have is people
turning around and panicking in a time when we don't need
them to panic.
As of this date, we have been short 2 days but we haven't

had any checks bounce, we haven't had anything happen. I've
told them, if they do start to bounce checks, let's bounce
them from state and local - don't bounce them from the IRS
due to the fact that we won't get notified and there will be
nothing coming up.
Bank of Chicago: We are talking and trying to hold the hand
of First National Bank of Chicago. I've told them to quit
trying to hold their hand and do what we have to do and tell
them we're getting out of the bank; that it is them that has
caused the problems for us not vice versa and we're getting
out, we've not written any checks since the 18th of August
and the checks will be coming in and th~re's nothing we can
do about that. We will pay them as they are presented but
we are not going to put additional funds into the bank,
other than what is needed, just to make them feel safe and
secure .
.rQ_-_b.e..._..~ What we're going to do right now is get a

collection bank; we also need to acqu ire abou t 7
disbursement banks; then, we need to get one bank that can
do the deposits into the Federal Reserve for us.
Bank for Federal Reserve: What I'm looking at. as far as

getting a bank on the Federal Reserve. is more of a smaller
bank, someone who wants large amounts of cash and also try
to get in some remote area. We were looking at the Virgin
Islands and Guam. United states owned territories. But.
we're going to have to stay somewhere within the continental
United States. As far as the collection bank, that should
not be difficult; the main thing is to find a bank that can
( take that amount of money (due to its capital, there is not
risk to that bank). We are dealing with Stotler a~d they're
trying to get us in with their bank which is, I believe,
Union Bank out of Chicago in Which they would collect all of
our funds and disburse them into Stotler.
The 7 disbursement banks: .. The reason wei re saying "7" is

we·ve got about an average of $50 million per day - those
are really the high risk banks. They're the banks that have
to pay the checks before the money hits in and so we want to
keep those at a minimum of about $7 million a piece.
Since I've had this conversation, I have had some talks with
some people out of Dallas who I'm going to meet with at
12:30p on Friday, August 18th, (they have 5 banks) to
discuss buying those 5 banks and then all we'd have to do is
pick up two more. In doing so, the monies that we run
through them, we would be able to create our own float for
the bank, i. S., if we owned the banks and we were running
our own money through them and getting the float of~ of it,
it would create earnings for us in owning those
institutions. The only problem left would be to find a bank
where we could put the deposits in for the Federal Reserve.
LLOYD DENNISON
{
\... Lloyd phoned on Monday; he is going to meet me in my office
in Dallas on Thursday. He will be out here in SF, full
time, as of Monday, August 28th. Christina to put him up in
a corporate apartment for 6-8 weeks until he is able to sea
where he would like to live.
/
VICE PRESID£NT/DP CANDIDATES
Steve Lau: Met with Steve on Monday, August 21st - the guy
is, I feel, very quali fied for Data Processing; the only
negative thing I would have to say about him is tha.t I am
uncertain as to whether he could sit in the capacity on the
Executive Board in helping us to make decisions overall. He
seemed very excited and had alot of energy_ It is a fact
that he knows alot about DP, financing, investments; so,
overall, with all of his other knOWledge combined with OP,
he'd be an asset to us.
Jonathan Hayes: Also met with Jonathan on Tuesday, August

22nd, I • m impl-essed wi th him bu t I don't thi nk he I d be
good for the company; he is young, seems aggressive, very
knowledgeable; he was with McCusker Corporation for about 4
years then all of a sudden he went off and started his own
consulting firm. I'm not sure why but it seems to me that
if he worked for one company for a long period of time. then
quit, then started his own firm, then WB face the same
possibility. He also is putting himself onto a level of
Vice President wi th the President and COO - I'm looking at
alot of ego and I feel like I'm looking into what could lead
into another Fran Bartlett situation~
So, I think for

right now, between the two I've seen so far
(steve and Steve would get the job.
Jonathan), I have
another appointment this afternoon.
Jim Burgardt:
EMPLDYEE MEETING
I would like to have the formal Employee Meeting next

Wednesday at 4:00p (have a 5:50 flight to catch).
Want to cover:
o New Vice Presidents - introduce Lloyd;

o Discuss the space upstairs - hopefully, we·ll have
something done with that:
o Congratulate Barbara Sanchez; she needs to do
something between now and then 50 I can say
"here's what she's dane .....
o Announce the Employee of the Month;
o Discuss Sales - training over with - was good;
- going to start opening regional offices allover

the United States in helping us to acquire the
revenues to go into the incentive plan.
l.
(
- Want to have a farm account of revenues 50 I can
tell them ., he re' s whe I~e you are r igh t now,
here's what we're going to have to increase by,
here are the potential clients that we're
looking at that I think we're going to be able
to bring on board and here's what we've got to
do in the next X amount of months" - so at lsast
they have a starting place and they know where
they have to go and what·s going to have to be
done.
a Want to make a point af how good Operations did -

i. e.) qua rte rend - cu t overtime and they got
everything done alot quicker and much more
efficiently.
Between now and then, I want some overall views of what's

been happening as far as the company as a whole.
STATUS REPORTS - WEEK OF AUGUST 4TH
Jim Paille: Re re-structuring of Accounting Department:

Frank Hyde as Accounting Manager - I think that's a good
move. "Frank has shown a desire to lead the department and
his first major objective will be to correct the billing
( system". Need to Know: What do you mean weJlre going to
correct the billing system? What billing system are we
discussing here?
Joseph Maitless: Query: Was a memo done to Joseph telling

him he was doing a great job and I can see the progress
you're making - keep it up? If not, do so; cc in Personnel
file. (Put it in letter form - call Terri for format.)
"ApproximatelY $276,000 is going to have to be refunded to

clients as a result of overcollection." I need to know when
that has to go out (goes out of client funds, not operation
funds) .
"We increased the quality of our product by typing rather

than wri ting quarterly unemployment returns 76% of the
unemployment returns were typed and computer generated4"
What he's told me is we're doing things more efficiently in
less time. Why is it taking us so long to do this? We
haven't got our computers and equipment in place yet we are
cutting time; I would like an opinion as to why he thinks
it's being done better, i. e., what's making the difference
right now?
"New procedures in Data Entry increase our proactive call-in
for the late payr'olls; as a result we cut by 49% the late
incoming payroll data." I think this is great work - back
again, we're working as a team; Data Entry is doing
something to help Operations and being able to cut our costs
- overall, we're working more efficiently as a corporation.
Joseph is showing. once again, that he is an asset to this

company. I think he fits in very well; I think there's alot
he can bring to us. He is improving his division and his
knowledge about IRS and different people to see is in
evidence.
Kathy Zeitz: One more time, her report is inadequate. All

she's doing is listing things; she doesn't explain things.
Liz Magee: Send memo re trade shows - I want to make su re

that when we go to trade shows from here on out, that we are
going out and doing things top notch. If we have something
we~re going to, as in Hawaii (Which we can't do right now) -
f rom now on. if we're going to a major trade show. let's
look at us having a Hospitality Room or setting something up
50 we can have clients and/or potential clients be able to
come in giving us more recognition. Also, when we go to a
trade show, which we can do immediately, I want to know what
we're going for, i. e .• why does she feel this trade show is
important? And, what are we going after when we get there?
What, exactly. are we going to-be trying to accomplish?
These need to be presented to everyone that is going so that

we know our purpose, our plan and what we're going to do.
Then, when we get back, we need to put out reports, i. e. ,
did we in fact accomplish what we set out to do?
Re: My memo of August 7th of Dick, Liz & Jenifer: File

Dick & Liz' responses. My only comment is to Liz' statement
that "they should have some incentive to perform ~ quota"
- the .. ~ quota" is going to be the cash in their pocket.
Once agai n ~ we are in business to make money not just to

hand out things to people; they're going to have to be self
motivated to push themselves that extra yard or whatever
they need to do.
Monthly Summary Reports/Lillian: They need to start going

to Lloyd.
Market Analysis Res tructure/Jeni fer: File so we have a

basis for what that division is supposed to be doing. Also.
make certain that we keep updated on all the divisions as
they change - if we change something around.
(
(
STATUS REPORTS - WEEK OF AUGUST 18TH
Query re Chr~istina's comment as your pr~esence lessens,

- please explain.
Joseph Haitless: "We continued to encounter returned checks

for 2nd quarter from agencies because First National Bank of
Chi c ago f ail e d to h 0 no r~ du e to s i 9 na tu rea u tho r i. z a t ion" - i t
is my understanding that the clients were not really upset
about it because of the manner in which the checks were sent
back, stamped "due to signatures". I want to talk with
Joseph about this - if this. in fact, is the case, what we
might need to do is get a list of all the clients that had
checks returned in the state &"local, but also, let's look
at a letter coming from our Public Relations firm going out
to these clients explaining what our position is. In fact,
I think it a good idea that we do send out a letter to all
our clients saying "everything is fine, we have changed the
banking around, ate." and point out some of the positive
aspects and how it will be able to help and protect them.
This was supposed to have been started with Kathy Zeitz, i.

e., she was supposed to get in touch with the clients. This
seems like an important issue.
Elizabeth Magee: Again, send Ollt something to Liz re Trade

Shows.
Dora Dunn: Liz is not to go out wi th the sales people

anymore; they're all in t rai ni ng and tha t' s - the pu rpose of
the training - we need to get them out there. I needed to
know if they were going to have the capabilities to have a
staff under them and be able to run our regional offices
and, if they weren't, I need to know it now. I don't need
to have someone au t the re tha t can't make a sale when
they're supposed to be over 4-5 other salesmen.
CASH FLOW SITUATION

After going through and getting a verification that we do
have lines of credit set up after we do specific things, and
that there is a very high level situation in which we'll be
able to get the bridge loan. So that we're not trying to
jump checks and we do create the float that we believe will
be there when the revenues increase, on behalf of Stotler, I
instructed Jim Paille along with Dick to hold out the final
EDS check which is in the amount of $20 million. What we're
going to do is hold this check for approximately 90 days; it
will cost us a penalty of 11%, or $2.2 million; but, what it
will do is release the pressure in the back about where the
money is going to be and checks all of a sudden appearing
( and needing to be paid and also it'll help us to create
income taking the burden off of Dresdner Enterprises taking
care of the cash flow situation. This money will then turn
around and be paid at the end of the quarter; with that we
will pay the $2.2 million penalty and whatever interest the
IRS will want to charge.
- - - -.. _-----
Points on this: 1) it's not illegal; 2) it helps us out of
a bind from the standpoint of the pressure Jim Paille is
feeling right now in trying to juggle the banks; and, 3) it
will put in alot of income to us and help us to create some
of the situations we are trying to put into place right now.
MEETING WITH SALES STAFF
I told them about what was taking place with Kathy Zeitz.
The meeting was very, very good; however, it was short. I
thinl< I got ac ross wha t we need to get ac ross. ,The mai n
thing is that I told them they~d be in here the rest of this
week. they needed to understand everything and if they had
any questions, get it out. Because, if they didn't do theil'
job, they were going to get fired.
Secondly, they would go out for two weeks. then return in

he,-e for a week. The weel-< they came back in here. they
needed to be really ready to work around the clock because
Lloyd was going to be teaching them HOW to sell and what to
do in sales, the promotions, not necessarily on what
Hamilton Taft is but how to sell, how to get their job done.
After that, they're going to be 4 weeks out in the field

again. This 4 weeks is strictly to wrap things up - I don't
want them to go after new business; I want them to secure
the business that they've been working on. Also, that
second 4 weeks, they will know where they'll be living. r
will have told them where their regions are going to be at
that point in time.
The last 60 days of the year, is strictly going to be

working in their regions, setting up offices and getting
prepared to start for after the first of the year.

Cca 1981, 1988-89

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The story subject is hm'l Federal Express placed Hamilton Taft Inc.

, a CCi11]EIly of 15 years standing, and \Vith annual

nriJ.lion dollars in assets.

and beneficial \<JaY, so as to prove my innocence.

4) Armstrong acquired Hamilton Taft in M:rrch of 1989.

were not going to prosecute.

in Washington D.C., to see if an investigation had began on Hamilton Taft.

of trust funds, held for clients by HarrrLlton Taft.

of fraud, by the diversion of "client funds" frem Hamilton Taft.

'eference p::LynErlts could mt be collected.

h_indrance in the collection of taxes, as had been seen.

activities on part of Hamilton Taft.

they didn't ,~t to do.

for probable cause.

It is of fact, that since the decision of law, in In Re. Hamilton

.... ·~_· ... G~~ ... c. C;.

Octc=er 29, 1981

Re: Charac:erization of Funds ~ichhe1d by Employer

Per your request, this letter QlSCUSSes the characteri-

Taxation Code ("Cal. Rev. & Tax. Cadell), :.he California

An employer is required to ~vithhold from the wages of

Characterization of Withheld Funds

Funds that are withheld or c~llected as income tax or

2i.~., 1966~. ="...!~ds Lhat are .....'l.-:::~eld cr :::: __ ~cr:ed as s~ate

13070]; '..."hile :~nds withheld 2.5 unemcl~vmen~ :'nsurance tax

A trustee has a general duty to invest funds for the

Notwithstandin~ the foregoing, the parties to the trust

:0 consent ~o various ki~ds of investmen~s. The ~ase G[

The Court first determined that the impound accounts

The statute and cases indicate that the trust funds

Furthermore, there is nothing in the statute or any

~ole of Co11ec~ing Ager.~

The foregoing discussion has considered the situation of

The test is " willfullness." Basicallv, "willfullness"

In addition to the civil penalties, however, there are

than five yea~s, o~ both, together with che costs of prosec~­

If you have any questions or comments.concerning the

-----_._---- -----_._---- ---- ----.----.-

Federal Bureau of In veStlgatlOn

In Reply, PleaBe Reier to 450 Golden Gate Avenue

September 23, 1988

~x. Joseph P. Russonie11o

Referenced conference between Assistant u.s. Attorney

evidence to support a violation of federal law at this time and

FEDERAL BUREAU OF INVESTIGATION

Precedence: PRIORITY Date: 02/10/1997

To: San, FranClSCO Attn: SA Will Hatcher

Drafted By: _________1epg

Case ID i: 196D-SF-93255 (Pend~ng)

Title: CONNIE CHIP ARMSTRONG, JR.;

Synopsis: Cop~es of FD-302s and inserts enclosed from Sacramento

Reference: 196D-SF-93255 Serial 124

Enclosures: FD-302 of Ion 2/19/86

CGNNIE C. ~~STRONG, § IN THE DISTRICT COURT

PLAINTIFFS' ORIGINAL PETITION , APPLlCA'1I !ON iOR

TO T~E HONORABLE JUCG2· OF SAID COURT:

Pl.AIN'I'IFFS-': ·OR I"GINAL:-,','PETIT ION , A.PPLlCATION FOR

Pec~cian, Applicacion for Tempora~1 Res~raininq Order, Ex Par~e,

Applicat.ion for Temporary and Permanen~ Injunction, and

Application for Imposicion of Const.ructive Trust., respect.fully

shc~s t.he Cour~ in support. t.hereof as fallows:

1. ? 1 ain t: i. ~ :, ....:l.R.\!.STRONG, is an ind i 'J" idual and 5 hareho lder

than five yea~s, o~ both, together with che costs of prosec~

xpp~~ as a cor~orace shell through which to acquire ~~~ItTON-