Law Enforcement Extortion of Financial Management Group, Ltd., From Stan Caterbone in 1987...

+. . , Conestoga Man I ' . . .

I i , Manheim Township police ar- ! i rested a Conestoga man Thursday i , n$ht on charges that he erased .'. 1 ormation from a township com-

pany's computers, stole files and . I damaged equipment.

Stanley J. Caterbone, 29, of 2323 New Danvilie Pilte. . was

I , charged with btsrglary, thetl, un- ,f l adu l restraint, robbery, unlaw- , ful use of a computer, criminal I. mischief and terroristic threats. .. . .

' ~etect ive Larry ~ a k i s said h - w e . victim, Financial Manage-

I Linked to Theft ,, ,, . . /

meht Group Ltd., 1755 Oregon . - .I Pike, lost an estimated $60 Wo as

The suspect also was served a i warrant, for terroristic threats in a case snvolving another female ; employee of the firm. Caterbone, a former employee of the coppa- . ' ny, was committed to prison, in lieu of f20,W bail.

I 1. EX-~orkei,Charg&d i' , ' In Bvrglgry . at , Firm 1

crimes. He also was servgl a warrant'

:. for terroristic threats tn a case In- : voivin another female employee , ofthe-firm. . . ' A :

CAterbone, a former 'employ. / . ee of the coppany, was commit- , ted to prLson 1n l ~ e u of $20,OW bar\.. :I

US District Court For The Eastern District of Pennsylvana Section 3189 Federal False Claim Act

Property of Advance Media Group Page 2456 of 2953 10/19/2006

-LANCASTER NEWSPAPERS SEPTEMBER 4, 1987ALL CHARGES WERE DISMISSED

What they failed to state:

1. I was a co-founder, and more founder than any partner.

2. I was on the Board of Directors.

3. I was Executive Vice President of FMG, Ltd., and PRESIDENT of FMG Advisory,Ltd., not an employee, only technically because I also received a salary in additionto my fees and commissions from my planning practice.

4. They never did a follow-up story when ALL charges were dismissed.

5. The real damage was only $1,300; I paid this to the Lancaster District Attorney'sOffice and Joe Madenspacher wrote a check out to Robert Kauffman.

6. I actually had designed some and managed and supervised all of the technologythat I dismantled on the night in question.

Ex-Worker Charged In Burglary At Firm

A 29-year-old Conestoga man was arrested Thursday night on charges that he erasedinformation from a Manheim Township company’s computers, stole files and damagedequipment.

Stanley J. Caterbone, 29, of 2323 New Danville Pike, was charged with burglary, theft,unlawful restraint, robbery, unlawful use of a computer, criminal mischief and terroristic threats.

Detective Larry Mathias said the victim, Financial Management Group, Ltd., 1755 OregonPike; lost an estimated $60,000 as a result of Caterbone’s actions.

Caterbone allegedly forced a cleaning person, Stacy L. Waters, 19, of Lititz, toaccompany him through the business during the crimes.

He also was served a warrant for terroristic threats in a case involving another femaleemployee of the firm.

Caterbone, a former employee of the company, was committed to prison in lieu of$20,000 bail.

Conestoga Man linked to Theft

Manheim Township police arrested a Conestoga man Thursday night on charges

that he erased information from a township company’s computers, stole files and damagedequipment.

Stanley J. Caterbone, 29, of 2323 New Danville Pike, was charged with burglary, theft, unlawfulrestraint, robbery, unlawful use of a computer, criminal mischief and terroristic threats.

Detective Larry Mathias said the victim, Financial Management Group, Ltd., 1755 OregonPike; lost an estimated $60,000 as a result of Caterbone’s actions. Caterbone allegedly forced acleaning person, Stacy L. Waters, 19, of Lititz, to accompany him through the business during thecrimes.

The suspect also was served a warrant for terroristic threats in a case involving anotherfemale employee of the firm. Caterbone, a former employee of the company, was committed toprison in lieu of $20,000 bail.

Printer Friendly Version

FMG head resigns; team takes reinsSunday News (Lancaster, PA)

Publication Date: June 10, 1990

Tag: 124F60DE18BE0F88

Section: BUSINESS

Page: D01

By Doug Thomas

Citing "irreconcilable philosophical differences," Robert Kauffman and the board of Financial Management Group (FMG) have decided to part company.

Kauffman suddenly resigned as FMG president last month after becoming increasingly frustrated with what he said was the board's failure to follow his

lead in policy matters affecting the company's future. The board, in turn, says Kauffman had grown secretive, steadfastly refused to share power and had

begun to stray too far from the company's original business plan.

Employees say the truth probably lies somewhere in the middle and liken the split to a marriage between good people who could no longer live together.

Kauffman is the last of the Lancaster investment advisory firm's three founders to quit. Stan Caterbone and Mike Hartlett, who along with Kauffman

formed FMG four years ago, are also no longer with the company. Kauffman and Hartlett still each own more than 20 percent of FMG.

Kauffman's departure raises some questions about FMG's future. Kauffman, 36, is expected to start another financial services firm and, reportedly, as

many as six FMG employees are likely to follow him. Kauffman was known for his entrepreneurship, and colleagues say one of his best qualities was his

ability to generate new ideas.

Kauffman says FMG's board members were after money, power and prestige, and that they sought control of the firm he had helped to make a success.

He calls the events leading up to his resignation "saddening."

"All of these people, eight, nine, 10 years ago, I brought into the business," Kauffman said, "They were nobodies. I taught them how to make money, I

resurrected their personal lives, I told them they could be something. I helped them become managers and eventually they stabbed me in the back. It's a

human tragedy of sorts."

Kauffman says that, besides holding all of the management titles, he was FMG's top producer. He has more than 200 clients. Kauffman says the board

seemed to resent the fact that he took a salary on top of his commissions.

The company's new management team includes Alan Loss, chairman of the board and chief executive officer, Pete Poneros, executive vice president,

Harry Radcliffe, president, and Dan Moyer, secretary-treasurer.

The four men deny they ousted Kauffman just so they could run the firm, and say they wished Kauffman's departure could have been more amicable.

"Nobody's gloating about this," Loss says, "and nobody wants to be vindictive."

They say they will, for the time being, run the firm by committee. "At some point, once everything is finalized and we know just what the cash flow is and

the profitability, we may hire a non-producing person to run the company," said Loss, "but right at this point we have determined that we don't want any

one person to have that kind of power."

Radcliffe said the board is concerned that the public will get the impression that FMG's internal corporate problems may spill over into its day-to-day

business.

"This does deeply concern me," he said, "from the standpoint that people could be overly disturbed by something that's not a problem."

The changes have cost the firm money, the board concedes, but so far have not had a negative effect on clients.

As for Kauffman, he says FMG will no doubt succeed.

"While I think that building a sales organization from scratch to the point at which FMG is, is a unique talent," he says, "it's not such a unique talent to take

it from where it is now and go on. And I suspect that while maybe only a few people could get it where it is, there are many who could take it from here."

Whatever he does from now on, Kauffman says his view of investing has not and will not change.

"Quality investments are bought for the long term," Kauffman says. "I talk with people 60 years old and they never tell me they made their money buying

and selling stocks or doing options or using margin accounts or buying penny stocks or buying junk bonds. Nobody ever tells me that. You buy quality and

you hold it."

Kauffman says he has also not waivered in his view of what the financial business should look like.

Lancaster Online http://nl.newsbank.com/nl-search/we/Archives?p_action=doc&p_docid...

1 of 2 10/10/2015 3:46 PM

© Copyright 2015, LancasterOnline, Lancaster, PA. [Terms of Use | Privacy Policy]

Kauffman, who worked for many years at what is now American Express' IDS subsidiary _ along with the two other FMG founders _ opened FMG as a

full-service, umbrella financial services company offering planning, stocks, bonds, CDs, accounting and legal services all under one roof. FMG also made

a name for itself marketing real estate syndications.

He still believes that's the future.

Content may not be republished without permission.

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2 of 2 10/10/2015 3:46 PM

Name * $0.50 .

Bavera. Jer ry Braverman, Richard Caterbone, Stanley 40000 Clark, Glenn Coho, Thebe 8 . Har t le t t , Michael 40000 Kauffman, Robert 60000 Kennedy. David Long. Robert Loss, Alan Loss. Nathan Ncnell, Linda Oischger, Donald E. Paneros, Pete Podlasek, Richard Radcliffe. Harry Ray, Kenneth Robertson, Scott D. Roesser, Steve Royer, Carolyn D Trump, Richard C. Trump, Richard L. Umiker , Nora A. Volpe. Gary Volpe, Richard J. '

Total $5.00 Shares

Total Shares 140000 65000 35000 5500 245500

Total Capital $70.000~ $162,500 $122.500 $27,500 $382,500 Raised

Offering Memorandum 45000 35000 40000

n Park II. 1 1 5 9 Orwon PI*. Lancaer , PA 1Ywr W*W,II YIUS,*I*I c 1694100 100-Sl$JSL7 U 1 D i n - i I 2 4 [PA onw

ROBERT E. KAUFFMAN PRESIDENT

Mr. stanley C a w 554 BerEley mad Stone New Jersey 08247

Dear Mr. Ca-

We, the Board of D i r e s t o m , are in ramipt of y~ note offer- to sell shares or rn back to the oorpcaation.

A l l u i me to first address the easy points of your pro-1:

1. William Um&x does mt, at this -, desire to cash out his

2 . We w i l l never cuqmw~te any ex-staff psaple for any reason.

3. W w i l l not give you one share of Trl: stmk for nostalgic reasons as we dd rat want any dissident stcckholders in our Alture. Flhen we buy s M c , it will be the entire ammt.

4. W y , you feel strongly abart yrur debt to Bill Johnson a d want it to be paid. So do we. You also have several other d t o r s who we wculd like to see paid. To be sure that they are paFd, we will dsdud their paynent f m m any pmcsds. A t t a w you will f i r d a l i s t t h a t w e n a ~ h o u abart.

As for the price of the &xk, we are willing to pay $2.50 per share for 40,000 shares and $5.00 per share for ycur 400 shares or $102,000 less debts* lhat is what we are w i l l * to pay this W!

rn the future, will mibe the price by:

1. 2he build up of any debt, costs, interests and penalties

2 . 'me continued defmtion of our corporate nan!e will reduce its value

3. Dur time ask in c lea l i q with either -pr your

penaingbjnlauptcy - -

* -

Please Sr aa~ised. +&t tm this p i n t we have tried to urderstand cirumstances, W i v e s an3 corditions to your actions. In Lne flhrce, we w i l l not be unjersming.

W e prepsred to purstw aimiral for attempted enkezzlemnt (we have che~=& to prwc it), bLPglJTY. ,theft ' ~ z z l ~ ~ i t d'~&Yye -xi* a J q g ~ ~ x 1 s o n term, E!e aadviSea that Ure sli&test p r v v ~ ~ i l t i o n of m l r m q n r a t l n n will result in tho filinj of the &bVe mfs, '&e f i l iny o f Chargffi ha^ rmthirq tn dn with this

negotiation. It has to do with amtinued kritten ard v-1 assault lfeon cur ffm.

w a n t l y , any a l e of sta2k will also nquke an agreanent not to dcf- cur firm and a covenant kMch settles any al l claims aguinst the corporation.

stan, our skirrurte is that t d y you would raceive ahout $55,000 for ycur s M c m a11 cmlitors are paid. Y w , or course, have the option to hold your stock hlefinitely, offer it to us at a later time or R 131t~m repmsentative offer it ta us. It is up to ym. You have ax best offer.

Board of DinXtom FinaMial ~~t aL-cup, m.


Property of Advance Media Group Page 2116 of 2953 10/19/2006Page No. 1 of 46


Property of Advance Media Group 25 of 2953 10/19/2006Page No. 10 of 46



Page No. 31 of 46

Carol Andrews

Nancy Arment

Thomas P. Asselin

(Planner)

Robert Bakeman

(Planner)

M75 Jerry Bavero

(Manager)

66T Richard Braverman

(Planner)

XXZ Daniel Brown

(Planner)

Shelly Burkholder

M37 Stanley Caterbone

(Planner)

RRJ Rodger Cornelius

(Planner)

28C Timothy Cummerford

(Planner)

Peggy DeMarco

66M Todd Dellinger

(Planner)

Fred Fischer

(Fee-only

Bonnie Goodman

228 N. Reservoir St. . Lancaster, PA 17602

R#6, New Danville Pike Lancaster, PA 17603

1030 Oakwood Drive Dunedin, FL 33528

701 Market Street Lewisburg, PA 17837

J. B. Financial Services 21 South 4th Street Lewisburg, PA 17837

125 Colonia Crest Drive Lancaster, PA 17601

Assoc. Financial Planning 401 E. Lancaster Avenue Shillington, PA 19607

515 Crestview Avenue New Holland, PA 17557

2323 New Danville Pike Conestoga, PA 17543

221 Lincoln Way East Chambersburg, PA 17201

322 North 2nd Street McConnellsburg, PA 17233

7241 Ohms Lane, Suite 270 Edina, MN 55435

2733 Lititz Pike Lancaster, PA 17601

320 Royal Road Lebanon, PA 17042

Post Office Box 418 Planner Mechanicsburg, PA 17055

2034 Main Street, Apt. 4 Rothsville, PA 17543

(717) 394-2327 - H

(717) 872-9355 - H

(813) 736-6905 - 0

(717) 523-3228 - 0

(717) 523-3228 - 0

(717) 299-0175 - H

(215) 775-9900

(717) 354-5083 - H

(717) 872-9081 - H

(717) 267-1426 - 0 (717) 485-4814 - H

(612)" 835-7715

(717) 569-1875 - H

(717) 274-8569 - H

(717) 780-4965 - 0

(717) 766-0914 - H

(717) 627-3376 - H

P67

LLA

CCA Michael Hartlett 2866 0'Henry Circle

(Planner) Lancaster, PA 17601 (717) 898-8940 - H

Harold Hoover (Corp. Svcs)

YYR

Lisa 54 N. Cedar St., Apt. 3 Lititz, PA 17543

XX4 Robert Kauffman 1306 Beaconfield Drive (Management)

Lancaster, PA 17601

QQA David Kennedy 3900 Skippack Courtyard (Planner) P.O. Box 910, Suite 3

Skippack, PA 19474

164 Bechtel Road Colle geville, PA 19426

P. Alan Loss 1731 Glenbrook Avenue (Planner) Lancaster, PA 17603

26W Jeanne McCanna American Asset Management (Planner) 1730 Plymouth Road

Suite 204 Minnetonka, MM 55343

27A Peter McClellan American Asset Management. (Planner) 1730 Plymouth Road

Suite 204 Minnetonka, MM 55343

Hank

Kline

Lynn

Kreid

er

Peter

Labell

a

Bruce

Larki

n

Rober

t

Long

(Sports Promotion)

466 Scotland Road Quarryville, PA 17566

2311 North Front Street Suite 102 Harrisburg, PA 17110

2311 North Fr

ont Street Suite 102 Harrisburg, PA 17110

423 West Orange Street

(Accountant)

Lancaster, PA 17603

(717) 627-3238 - H

(717) 293-9370 - H

(215) 584-5600 - 0

(215) 489-6065 - H

(717) 786-4443 - H

(717) 232-8850 - 0

(717) 232-8850 - 0

(717) 392-0839 - H

(717) 397-3825 - H

(612) 546-2002 - 0

(612) 546-2002 - 0 (612) 922-3874 - H

44G

26M

CC6

27B

55E

88T

LLX

27L

22A

SSK

Dennis Morgan One Bacton Hill, North (Planner) Suite 201

Frazer, PA 19355

Thomas Mueller 1001 University Drive (Planner) State College, PA 16801

Post Office Box 234 Harrisburg, PA 17011

Greg Oleksa 424 North Duke Street

(Planner) Lancaster, PA 17602

R2139 Swarr Run Road Lancaster, PA 17601

Richard Podlasek Assoc. Financial Planning (Manager) 401 East Lancaster Avenue Shillington, PA 19607

Peter Poneros 3312 Cochran Drive (Broker) Lancaster, PA 17601

John Pouliot 610 Apple Road (Insurance)Lancaster, PA 17601

Harry Radcliffe 880 Louise Avenue

(Planner) Lancaster, PA 17601

Kenneth Ray 3615 Col umbia Avenue (Broker) Lancaster, PA 17603

Mona Rishel 1630 Oregon Pike (Fee-only Planner)

Lancaster, PA 17601

Stephen H. Roesler 28 Coates street (Planner) Medford, NJ 08055

Scott Robertson 2519 Chestnut Ridge Drive (Planner) Lancaster, PA 17603

Salamone Salvatore 615 Linda Lane (Planner) Norristown, PA 19401

Henry W. Schmalzer Box 586, Route #1 (Insurance)Newmanstown, PA 17073

(215) 640-1880

(814) 237-5557 (814) 364-9410

(717) 691-1232

(717) 291-9244

(717) 393-0457

(215) 775-9900

(717) 898-7297 - H

(717) 569-2854 - H

(717) 392-8881 - H (717) 397-8062- 0

(717) 285-7401 - H

(717) 295-1384 - 0

(717) 872-5202 - H

(609) 654-4073

(717) 299-6519 - H

(215) 275-2391

(717) 949-2116 - H

Michael O'Brien (Planner)

John Pennewell

0 H

28Q

313

UUZ

SSD

J96

27G

030

TTK

HHM

23M

Richard Schuman 1755 Oregon Pike (Sales Assistant)

Lancaster, PA 17601

Barry Schuttler 5501 Twin Knolls Road (Planner) Suite 101

Columbia, MD 21045

Roy R. Sherbahn 639 Wyncroft Lane #2 (Insurance) Lancaster, PA 17603

1915 Rockford Lancaster, PA 17601

Post Office Box 557 (Planner) Skippack, PA 19474

3841 Lywiski Road Collegeville, PA 19426

Thomas Tucker 221 Lincoln Way East

(Manager) Chambersburg, PA 17201

Gail Turner 7241 Ohms Lane, Suite 270 (Planner) Edina, MN 55435

Thomas Turner 4500 Moorland Avenue (Planner) Edina, MN 55424

Richard Volpe 3900 Skippack Courtyard (Manager) P.O. Box 910, Suite 3 Skippack PA 19474

2447 Schlosser Road, Box 88 Cedars, PA 19423

Keith Waters 204 Queens Gate

(Planner) Lititz, PA 17543

Stacey Waters Andy

Wesler

(Case Writer)

Kathy Ziegler 622 Wyncroft Lane #11 (Broker Assistant)

Lancaster, PA 17603

(717) 569-3393 - 0

(301) 992-3446

(717) 291-1290 - H

(717) 393-1752 - 0

(215) 489-2447 - 0

(215) 489-1989 - H

(717) 267-1426

(612) 835-7715 - 0

(612) 922-7300 - 0

(215) 584-5600 - 0

(215J 584-5628 - H

(717) 627-4015 - H

(717) 627-4015 - H

(717) 293-9298 - H

Larry Sherman

Richard Trump

204 Queens Gate Lititz , PA 17543

1ST STOCKHOLDERS MEETING

< /

Welcome folks, to our first meeting. Does anybody mind if we record this? It tltesn't

matter whether I do or not; sometimes we record them, most of the time we erase them.

It doesn't much matter but that way we don't have a problem with what is said, what is

not said - after talking with our attorney, we have to get some disclaimers out here. I

have told most of the people here that if you are here, we have to assume you have

already bought stock. You are all currently stockholders.

We don't have checks, but we have settlement dates coming up and firm commitments to

buy. So, if you are in this room, you are bought. The reason we need to clarify that is

because if we are talking to potential investors instead of stockholders, there are certain

things we can't talk about because they would be an addition to the offering

memorandum, which we can't be making representative additions to that and be held

accountable for them. So, the first thing we are saying is we are all stockholders; this is

all between us; it needs to stay in this room. We really can't be giving inside information

to investors; if some of you are going to talk to other investors, it can't be things that we

have talked about as stockholders without all of us having some accountability in that.

So, this is just between us and this is really prepared to talk about anything under the sun

that you have an interest in. I would imagine if I just let you ask questions, we would

get around to most everything, or I could just ramble, but it would probably be better to

start with the things that are of most interest to you. Like I say, there is nothing that is

not fair gain that we are willing to talk about. *

I would like to be a little more specific if I can because this is the first time I've met

most of the people here. Assuming we are all stockholders, in what percentages? Who's

what?

Well, in this room, Jerry, roughly all of these people have talked about 10,000 shares, the

same as you have. Nobody has talked about any more than that, except for Mike, Stan,

and myself.

We did want to talk ________________________________ . Oh, gee. We tried to use ____

I don't have ___________ . I have one. Well, Steve's going to want t

talk to me. I know that because you said something to me. Well, let me go get______

We are not intending to raise so much money as we put in the offer. The reason that

I

we added a whole bunch of shares at $5 was simply because, if we decide to raise some

more money in the future, we would have to go through the expense and aggravation of

doing another memorandum. So, we tacked on another 100,000-150,000 dollars of stock

available just for the sake of having it to sell in case we needed it and thinking it might

save us some money. So, we just went ahead and did the offering for 467 or something;

we could go up to 500,000 on that type of an offering without a problem. It didn't cost us

any more to do it for 367 than 225, so we just said let's add some shares on here.

Is there any indication so far of what the interest is out there? Well, I would say this at

250, there is interest beyond - what is available share. I mean I am convinced that at 350,

there is known interest for maybe half of what we've got available at 350. At $5 we have

some people, 1,000-2,000 shares - fives and tens from people's clients mostly. Stan has a

couple; I have a couple; Mike has a couple. It's my personal intention to buy some stock at

$5 when this is all said and done for my own account. So, I am saying that I don't think

there is known interest for more than 15-20 percent of what we have at $5, but we do have

people that are going to buy at $5. It is my belief that as soon as we are over having the

insiders get whatever interest they want that the market is going to be at $5.

It was my understanding also that there was going to be options available to preserve a

percentage interest. Am I correct on that? Well, the options as such, probably not. But,

everybody would have the option of buying additional shares when we go out for more

capital.

Do you have the right of fresh refusal? Yes, definitely - to maintain ____________ . The

official, what you would use when you do that, I believe is what is called a warrant. We

would give everybody a warrant to buy enough shares to preserve their ownership. It is

not our intention to dilute anybody, although the memorandum will have stuff all over it

about dilution. The way you get your interest diluted, of course, is that we decide at

some point in time that we need an extra $300,000 for whatever, and we decide we are

going to raise it in the form of equity. We go out to raise that and if we don't come forth

and buy whatever percentage we own of that new equity, there is going to be some

dilution. The good part of that is that if we raise 300,000, we ought to have more assets

if we buy anything hard with it, which raises the book value of the firm, which raises

what your stock is worth. So, you don't dilute your investment, but you do dilute

your percentage when we go out with more. We may never do any more because,

frankly, nobody is more concerned about dilution than I am.

Just like you said, Jerry, 5% is what we had talked about originally - each one of us have

been diluted already. Well, we diluted ourself in the memorandum by adding the

additional shares just like everybody else. It's not as though one is getting and one is not.

The same percentage dilution.

I want this stated for record because, again, I want to know what is going on so I can

explain it to my investors. To give an example, I had talked to other people who have

already received your business plan. They said, Jerry, you are telling me about this figure

but your name is not mentioned anyplace. I said, well, it is in fine print on the

________________________. My point is this, is everybody in the room currently contributing

capital? Is there anybody that is receiving shares that is not contributing capital. No,

everybody in the room is committed to paying for stock. By virtue of the fact that they are

sitting here, and I told them they couldn't sit here unless they are committed to buy stock.

Then, according to the business plan there is going to be no debt. Is that still holding

true? That's true right now. Jerry, there is only - I want everybody to understand that

we've had some talk about this. I am personally opposed to debt. I have a problem with it.

Do you mean in general or just to start the firm? I am generally opposed to being in

bondage to a bank or financial institution and having somebody telling me how to run

this business. Now, that does not mean that I am so inflexible on that issue that when we

need more capital that I won't consider debt right along with equity, that I won't consider

lease right along with everything else. It may be the only alternative. If we get out here

and we need a half million dollars for a computer system to do our own payroll or

something like that - I used that as an example before - and we have a choice of all

coughing up more money to keep our interest, or selling stock and diluting our interest to

the point where there is no control of the firm, or having some debt - it may be that debt

is the best alternative. If it is, that's where we are going to go. But I want to go as long

as we can without debt.

Why don't I just summarize what we are saying. Is there any changes in the business

plan as we know it? None at all. One thing that is getting a lot of press and we ought

to talk about - a lot of discussion, is relationship with broker/dealer. I want to clarify

where we are on that for everybody's sake. At the current time, I am open to doing

whatever we need to do to be successful in this venture. If it means that we need to

look for a broker/dealer with a 95% payout to pay the bills tomorrow, I am open to doing

that. I am not going to be dragging my feet on being our own broker/dealer; I want to

get us registered; I want us to be able to do that at a moment's notice. What I want to do

is to activate the broker/dealer at the time when it is most advantageous for us, when

we are ready for it, when we are going to benefit by it. In the meantime, I think

relationship with FSC has some advantages - that I am going to be able to continue to

meet all the people in our area in the northeast; I am going to be able to get recruiting

leads in a 3-4 state area exclusively; I am going to be able to build out network within

FSC. And, I think there is some possibilities there that would be good for us, but if it is

not working it is not working. We are going to be, probably until the first of the year,

getting our broker/dealer ready and when it is ready and you are all ready, I am ready.

I have no ties with FSC that would delay anything that we need to do to get our business

where we want it.

Will you stay on there as a consultant? That is one thing that Steve wants to talk with

me about. So far, what has been said is that - John is saying to me that first of all he

does not want lose the Mutual of New York deal; he does not want executive turnover

while they are in the middle of a letter of agreement preceding the sale; he wants this to

look like a change of location as opposed to a resignation/termination, and because of

that he wants to have some kind of consulting agreement with me. He has told Steve to

find a common ground and work something out with me. We have talked about a couple

of different things but not in very much detail, and not to any conclusion - just trying

to bring it to some conclusion. He's asking me to stay mostly to help him open 3-4

offices like this one in a year. That is what he would like to do because that is what is

in the money proposal that says I'm going to do. I am saying to him that I probably

prefer either a regional or national recruiting type relationship where they will fly me

around; they will give me the leads; and they will pay for my solicitation calls; and let

me go meet financial planners around particularly the neighboring states. So I am

trying to focus this in a way that has some lasting long-term advantage for this group in

what I am doing. They are open to that; we have not decided - am I going to get 2,000

a head for every MFA, am I going to be on a salary - none of that has been decided. I

prefer that it be just like you all have a business of selling clients that

maybe I have a side business of recruiting reps - the fact that you have your clientele helps

this business and hope my business in recruiting and getting to know reps will help this

business.

Are we all going to be actively engaged in doing that for our own accounts so to speak

__________________the business here. In what way? Well, for example - I don't know if you

are talking about writing business with your clients of course. No, I am talking about

bringing reps into the_________________ . I certainly would hope so. I think that in some

point of time we would also recognize what things are good and healthy for the firm and

going to create revenue and equity, and all of that. I personally think that we have

different needs here in this building than we do overall, but we all have the same interest.

What I am saying there is, for me to hire 4 reps in Wilkes Barre - if they are good producers

and write clean business, that is not as much of a problem when we are with FSC as when

we have our own broker/dealer. You know broker/dealers get liable sometimes for what

people do in business. I am not as concerned about the character or reputation and product

mix of those people in Wilkes Barre as we will be about people right here in this building.

I think we can have 100 reps in the state in 12-18 months. I don't see a problem with that.

I think we can do that, particularly if we are all interested in doing that work, we can make

an awfully lot of money doing that. Perhaps more than we can make in this building. In

this building we do, you know, $5,000,000 worth of gross and until we are done paying our

expenses, we might make a couple of hundred thousand dollars. You go build a rep force of

100 people writing 10,000,000 and you have a 5% - just a 5% margin on them - you are

talking about a half of million dollars and you have 0 expenses, you made a half a million

dollars. What I am saying is, there is money in building the network out of here. Most of

us, all except Jerry right now, are conducting our business out of here. There is a lot of

advantages to us being able to conduct our business out of here, but as far as having an

awfully lot of equity potential to have your stock investment be worth a lot of money, a lot

of that is dependent on what we do outside of the city. We don't have to do it at a

breakneck pace; we don't have to get it all done tomorrow. It is nothing critical, but we

need to be working on that. If we know somebody in Philadelphia or Wilkes Barre, or

somebody with IDS or somebody with your old broker/dealer or - Jerry runs into people

everywhere - we need to be talking to them about our group. And, we need to have some

things that we have to sell, which probably brings me to the point as to what we have to sell.

How do you see us structurally - the relationships with other reps outside of the office? In

other words, what percentage do you think we are going to get, just some rough idea?

Well, so far, most of the reps outside of this area that we have contact with are with FSC

now; we are kind of limited in what we can negotiate them to - what we get by virtue of

our volume. We might get extra 5 or 10, or 7.5 percent - you know, that's what we are

going to make. But when we get into other broker/dealers it is a little bit different. I

guess to see where the opportunity is, I would probably stop and look at what the market

place is right as far as broker/dealers. Of course, they are all under some price pressure,

mostly because partnership sales are down. Their big margin tickets are gone, so they are

all interested in finding ways to make money. They can either do that by lowering

payouts or - that seems to be a common answer -

__________________ well, there is one more and that is reducing services. Most companies

have decided to do, I would imagine, a combination of both. Therein, I think, lies most of

our opportunity. Particularly, when we can do something to improve their situation

______________________. One thing that goes - the first thing that goes when a company

comes

under pressure, is marketing. You can't cut sales recruiting whatever, because that is

your only source of revenue; you can't cut operations or people will leave you if you

start fowling up too bad in business processing. So they cut what they can cut, which is

marketing, advice, planners support area. Is this happening with FSC? Sure, you just

slice it all up. You say, we are no longer going to do financial plans; we are no longer

going to give accounting advice; we are no longer going to give estate advice; we are no

longer going to respond to phone calls on partnership monitoring; - so you have this long

list of things we won't do. Well, therein lies a gap of things that we can do. I think that

being able to go out and get some volume, buy some things by our volume such as

seminars, such as financial planning software, such as getting the inhouse people, the

legal and accounting people, here on staff able to take a call from somebody inside

Pennsylvania and know the Pennsylvania laws, know what advice they can give in that

area, the mode of hookup or somebody with a - we can do financial plans here, for

instance. We can sell somebody IPS software, they can data input, or whatever - or, they

can send us all the data sheets. We have somebody here put the data in, do the

case, make the comment, and send it by_______________ over to their machine. We can do

some things in the servicing end to tie people in together. That's always been a missing

link with me. When Mike and I first started this thing with the Philadelphia people,

working on them, we immediately ran into a problem which was - what do they really

need us for? What can we really do for them? Because sooner or later they are going to

say - We may as well be the big man myself. I may as well have the freedom; I may

as well have the high payout - so, there needs to be a tie. The two things that I see

immediately is computer network and professional network.

That's the key, as far as ___________ . From what I can gather,_ we all seem to have a

different area of expertise and that becomes very valuable to a rep out in the field who in

the one-shot instance runs across something - just like any business man, doesn't want to

give it up, will give up a piece to get the rest of it. And then, through that

____________________________. Right, and I see the same thing with affiliates. I mean Jerry and

the cafeteria plan is a natural. How many businesses, good sized businesses, do people in

this room deal with? You know, it is a possibility that we can do that. Dick Sherbach is

excited about that possibility; he deals with a lot of large corporations. The more people

we bring in - then the challenge in management is, to gen up the process and getting

everybody to use everybody else. How do you keep everybody aware of who is the expert

on what, what they are doing, getting the splits worked out - make sure that it runs?

We've been spending a good bit of time thinking about that, talking about that - I talked

with Bob Long about that at length the other day, the CPA that we are

going to ____________________ . They are a lot easier than some of the others because they

go out and charge the client a fee for service - and it's $1,000 or $1500, or whatever, and

you say, well, the corp is going to get 30 - and you are going to split the rest or whatever.

That's no problem; for one thing they could markup the service a little bit to make sure

they are covered - that everybody gets covered. The problem is like with the property

casualty person, you send a homeowners over there and it is 100 bucks a year and the

commission is $15.00, and you're looking to divide that up 3 ways. — I hope George

would be concerned about it; I am concerned about it. I know there is a way to do it; I

just haven't figured it out yet.

I assume his clients, probably a lot of them need financial planning. Of course, of

course, and that's the easy solution, but something that Bob Long said to me that struck

me as being true - Bob said, hey look, you know I am the only accountant in here. Am I

going to be passing more business out or taking more business in? Well, he expects to be

taking more business in. I expect the same thing is true with George Lovell. He cannot

pass out as nearly as much as he is going to get back. So, the reciprocal thing only works

to appoint with a low margin business. Bob thinks it will eventually involve this to the

point where everybody that is inhouse, is inhouse, and that we own all of the businesses

and we are all on a salary plus production-type arrangement or something like that, where

it is no longer an issue how we divide up the pie. We just go about

making the pie. And, I think that is where we are going; I think that is 3+ years out

because we got to start where we are starting by putting everybody in the world on a

salary - unless you don't want to be in business very long.

I think I am pretty much done with that one but I will let you know that we are having

our first professionals in here, probably September 1. We are going to need to have it

resolved by then. We're open to any ideas you have, but right now I think our basic

problem is when the lower margin, lower ticket businesses. I don't think the real estate

people are going to be a problem with an equal split. If you send somebody who is

selling a house, I don't think the attorney or the accountant - I think there would be no

problem with an equal split there. And, they are just in seventh heaven, thinking about

an equal split on them sending us a client that has a million bucks and letting us work

with them. That is no problem with them at all. They can't touch that business right

now and they would love to be able to. So, we are in good shape there I think.

Do you say that the split will work up through? I think that we will just have a

standard procedure and we are going to say that there is probably going to be an equal

split - that if you refer somebody to an inhouse professional, you would get half of

whatever that person generates. If they send somebody to you, the same would hold

true. I want to say one other thing here, and the same thing with out-of-house people.

One thing that I do want to make clear - right now I am of the mind that I need to be

saying to the professionals that come in, that because they come in, just because they

take an office next door, doesn't guarantee them of anything. You can take business to

another accountant, you can do whatever you want to do as independents. It is going to * __

be there job to promote their businesses within our structure. They have got to get to

know you; they've got to get your trust; they've got to handle that business before they

get it done. That is their responsibility; it is not my responsibility to do that. And, if

they don't promote themselves through the network to the point where they are a

success, then we need to disengage and let somebody else do that. That, by the way, is

my feeling with all of you. You got to promote your businesses to them. We cannot

legislate who handles their clients anymore than we can legislate who handles ours.

There is only one big difference. There is only one of them, there is a lot of us. You

can get a guy - but I think you said a very important thing - the idea if you are in this

business as a career and for the long-term, you can be a GP, or you can start to provide

a specialty. If you want to be a GP for life, that is what you are going to be - a GP.

But, if you want to be a specialist, now you have increased your value.

I would really prefer that everybody (I think most of us run our businesses this way), we

are GPs who have a specialty. I think we need to understand that is what we are; we

need to not lose sight of that; and we need to be better at our specialties. We are already

good at our GPs.

And, we have to know what our specialties are. That's true. I got an understanding of

what Jerry does and Rich, and these guys. We all have an understanding, but I really feel

the need that - you know we get out a sheet that says - or it could be an access to the

modem. We have certain people that says now I have a particular problem; I punch in

and this gives me a list of what we have. Now I know to call Alan, or whoever.

Carolyn was telling me one thing to prove that. In their computer network, they have

database, and its like that in-search. If you have a problem it will bring up that

department and give you a list of names who specialize in that department, it gives you

the names of inhouse people.

Plus I have always operated under the personal mode that if someone that I am in a

business relationship with comes to me, that's just a normal courtesy that I extend to

them. Call them on the phone, and say here it is, because I know that in some point in

time I may have a call and need the same service. I think that is one of the big

attributes of this whole network - concept.

For the ___________________________________ , particularly the PMC, and I have nothing aga

George Lovell, but would it have been simpler to have a PMC that works for the corp?

Well, that is what we are talking about, where we eventually think we will want to go

with all of the professionals. I don't think we are quite ready to do that. I think we are

helped a little bit by the fact that some of the professionals that are coming in with us

are old-line, Lancaster County established firms. We are a brand new firm, and that

credibility is going to help us - that some of these people have been willing to put their

name alongside of ours, but if the PC were in house I think he would still be asking the

same question eventually - which is, is it worth my while to send my clients over there,

for the money that I make and for the risk involved? We may very well figure out down

the road that P&C is not a business that we can be in. Let me give

you an example of why. Prudential has lost their shirts, not just on the PC business,

but when somebody has an unsatisfactory auto claim, they jerk all the other business

too. We have to realize what the risk is in that.

Conversely, P&C guys are very covetous of their________________. I made a specialty in

some respects of being the experts to the PC guys for things that they don't like, and

tensions,_____________________ and all the other good stuff. To get one of those guys to

open up, it is like trying to crack Fort Knox with a crowbar. It is really difficult

because they feel the same thing. If you fowl up on their end, there is a bad investment,

or the life insurance doesn't perform the way it is supposed to, or whatever, they are going

to suffer, depending on what kind of account it is, maybe thousands and thousands of

dollars of yearly renewal income. So that works both ways.

How does the Public Casualty companies look at that? ____________________ There is a lot

of service work involved there. Maybe we could ________________ they are not going to

get that much anyway, but it would be a lot of extra work that he has to

do, ___________________________________. Well, already, there is attempts - they are saying w

will give you 50% of the first share commission, but we have to have a bigger piece of the

renewal commission just for that reason. They are attempting to restructure the deal

before the ink is dry on them. Of course, we are not saying all the money is in the

renewals, that is part of my mentality. What we get on the first year basis is not going to

be that much ever and when they get to the point where they have $100,000 income on

the books here, they won't be all that interested in the next new client anyway. So, I

don't just accept that at face value. I don't know what the right deal is. I don't know if

I am right; I don't know if they are right; I don't know if they belong in here; I just don't

know.

One of the things that Jerry has done with PC people is he said, on a split commission

basis, I would like to call on all of your people that own a 1984-1985 Mercedes. It's not

like there can't be reciprocal business if we are able to work it so it is not an impossible

deal. I just want you to know that we are struggling a little bit with how to be fair to

those people. I don't want to go into relationships expecting to terminate it with George,

or anybody else. And, I don't know that we want to be in all these businesses inhouse.

I just flat out. It might be the greatest thing in the world for both of us and we might

never want to do anything else. But, in the meantime we need to think about - we need

to say, hey, he's coming in; we are going to try to support his

business; we are going to try to get some referrals out of his business; and we need to

find a way to fair to him and us. So, if anybody has any ideas as to what ought to be

equitable, let's start out with what we think is equitable and let's prove it either works or

doesn't work. I don't have to, and you don't have to, feel that this corporation needs to

get its arms around everything and haul everything inside.

I think the emphasis should be to provide to the client the area that is going to have the

biggest impact. Previously, anything that has been going on, it has been tax planning,

investments, pensions, and the personal products that person can have. In working with

Property Casualty agents as an outset, over time the client depended more on me than he

did on them because they could get those things from anybody; they couldn't get things

that I was giving from anybody. So, the relationship gravitated away from them, more

toward me. So, we try to provide the services that are most important

to a business or an individual, such as financing, mortgages, tax________ , real estate,

investments, shelters, planning, insurance and sophisticated products.

P&P is very down the line as far________________________________ . He is more like a client

the guy than he is a customer. In that business, it's more like a lost meter because it is

always a down and dirty cutthroat-type business as compared as to what we are going to

gravitate to, which I feel is going to be more to service.

I think there is at least a good chance that we picked the wrong business in our group of

affiliate. Not necessarily, but one thing is clear - we have to have a different

arrangement with them than the other professionals. The other ones fit like a glove -we

will be able to work those out.

Now that we are looking at that - if it becomes a problem down the road, the image, if

we would say we don't want that, isn't going to look good either. It doesn't matter. We

can always say, it is a business we offered, we do not have enough demand and get out of

it - just like in any other business, take the product off the shelf. I don't think it's

going to make us look bad - not really worth worrying about that much because it is nice

to be able to offer P&C to your clients as long as they are taken care of nicely, if they are

taken care of professionally. Anything that comes back to me, as far as P&C is extra.

Homeowners is not all that, but I would imagine somebody who does $700-5800 car

insurance premium, there is some money in that. Yea, well that is 15% - see they usually

get the same renewal. That's the difference that we don't have in Life Insurance. We

start out with a 50-60-70 percent and then drop their value. That is 15 all the way

through, as long as it is the original writer of the business. If they take over an existing

business from an agent that goes out, they usually work on a reduced rate of 7-8% to

service the business. They bitch about it but they didn't have to do anything to get that

business; it is already on the books.

What's 30,000 or 40,000 a year in premium for us to do. It's nothing - or even

commissions. You're going to have to teach Jerry how to do his business too a little bit.

__________________stuff that I am going to have to work with him on. We all can but ...

I don't want to spend a lot of time on this. This is a little thing, but I want you to know

that I am open to any recommendation, of somebody that is more experienced in this

business than I am, would have as to what to split, how to do, and I want to go about

helping George promote his business and there is money in it. There is money in it for

the corp, I know that. Because at the time he gets to making 100,000 out of his office

here, that's 30,000 a year revenue to us. It's as good as if you do 100,000 in gross

commission. We will get there in 2-3-4 years, but I am looking at how do I take care of

you, the referrers in this. That was my question.

The other thing is the corporate fire and casualty and all that. There has got to be a lot

of money in that end of it. We were just talking about the homeowners and car but

there's got to be bigger money in commercial accounts. Does this guy do this? He

worked on this with Willow Valley that's a couple hundred thousand a year _______ .

So, that's the guy where we could really - that's what we want.

It won't work. It's an educational process. We got to go through with it. George has

been a client of mine for quite a few years now and got good referrals - it's a two-way

street. He keeps thinking the same way you do - my property and casualty, my home

owner - the other ones, what can you do for them? It's going to be an educational

process and that's going to be part of our work with businesses, show what we can do.

We have to promote and he has to ________________ .

Just as a point of information, who are the attorneys that are coming in

here? _________________ _______________ are board approved and________________ ABA

American Bar Association in York, he wanted to go over the relationship with them.

There are some legal things that have to be worked out. _____________________- The reason

we are not moving real quickly on ___________is because we don't have some of these

things worked out. Until these are worked out, I can't go back and say —. We have

commitments from just about everybody to be in either September 1 or October 1 and we

have talked with them about what the corporation expects from them in terms of

commission, compensation, whatever. They do not have a problem with that and Bob Long,

of course, he has no problem with a very simple split policy, which is great.

I think the other thing, too, from a marketing standpoint we want them to get us in front of

the different bar associations, different accounting associations - that's where the real action

comes from - having those people free to call on us. I have always had the feeling that in

order to be successful with any of the other professional advisors, you really have to have

them as clients. If you merely knew them or took them to lunch, it really isn't going to pay

off. You have to get them as clients, so we might want to put a group together that

specializes in nothing but handling CPAs and attorneys in doing their business.

I am open for suggestions on that part of the marketing but the next step is to go back to the

CPAs that I've already met with that were part of the firm in discussing the relationship

between the firm and their client. But, I would agree with you that they should be a client

of ours and if we can put something together and say

_____________________________________________________________________________. There is a firm out

College, known as Pennsylvania Financial - used to be ___________Associates - they are

the largest provident mutual agency in the country. They have branches in different

parts of the country including ______ and New Orleans. I remember 5 years ago when

they were just in State College but they had a massive business on the books at State College.

You couldn't go anywhere that somebody didn't pull out a Provident Mutual. What they did is,

they took their internal people - they have an attorney on the staff

______________, used to be with American College, has also written several books for trusts

and things like that; they just marketed the hell out of him. That was one of their

marketing thrusts - hey, we have a team, you are not working with an individual, we are a

team. In that team you have a qualified life agent, an, investment person, an attorney, an

account. If you accountant or attorney is not familiar with doing these things, we will

come in and do that in conjunction. A lot of times they did the documents, turned it over to

a local attorney, he bumped up the fee, and it was all done on split business. They are very,

very big in Texas now. They have their own inhouse pension

administration. They are doing all the administration of 5500 and things like that. But,

it is not a bad way to go when you think about it. So it is a process of us marketing

and we have these professionals on staff, or inside, and what it can mean to the client.

Because now it sort of narrows that credibility gap. It is you talking to the CPA or

attorney, he's got one of his own talking to them. They talk the same language, etc. It's

a hell of a lot more powerful than just Joe marketer. That's what they view us as -

going in there doing that stuff.

While we are on this subject, I would like to say that is the thing that the BDs are

getting out of - that is the first thing to go - the attorneys, the accountants - all the

advice goes, and that's where the void is. If they were able to do it before we ought to

be able to do it now, in an even bigger way. The thing is to get the utilization of these

people in here. These people, I think, are going to be very open - conversation and the

kind of thing that 5 minutes, here's the advice and out. Well, we are pretty much done

with the affiliates, none of us (I have some but very little) practical knowledge of how

to integrate them and all of that but I have a little bit. But I think common sense and

some good judgement will get us through this.

The research people, would they be addressing us with our problems? Sure, they will do

all that you want to do because that is how they are going to promote their business.

That is not going to be a problem.

What else is critical that we need to discuss while we are together? Where do we

actually stand on the BB process? Well, right now we have forms that have been

completed, they have been sent to a securities consultant along with the U4s and

fingerprints of Stan, Mike and I. Everybody else would need to do that at the time we

are ready to activate but they had to have ours just to proceed from here. They are

proceeding with the filing. What they have told us is that PA District is backlogged; it

is a 4-5 month process right now, that they do the best that they can. The process

involves an approval of our paperwork, documents, all of that. It also includes the

principles of the firm having an interview with the NASD District Committee, which is

where the backup is. When they get a look at you guys, we're in trouble. I think we

have about 3 passing out right about there but that is where the backlog is - in the fact

that they have to do these personal interviews and you have to get on the docket. As

far as I know, there is not a whole lot going on other than waiting around for that.

When that happens, then they proceed with the rest of the filing. I think they have

done everything they can do up to the point of getting us on the docket.

The last I talked we were going to structure our back office to what was going on with

them down in Orlando. Is that still the case? Our back office? The way he had to

establish his procedures internally and so on, his clear procedures and all that good stuff.

For those of us who do not know who Glen Refel, Glen was a top rep at FSC -did about a

million dollars in commissions and who knows what else he did in addition to that

himself. He left FSC to start his own broker/dealer about 6 months ago; Glenn is a fairly

close personal friend of mine. Glenn spent considerable time with me talking about this

concept that we have here. A lot of this is Glenn's concept that he is doing in Orlando.

He is going about things in a slightly manner but wanting to end of the same place.

Glenn wants to do things through marketing rather than sales. When I say sales, what

Stan and I have primarily done, and Mike has done too, is gone out and sold people on

the concept, get them in here, get them ready to write the business. What he wants to do

is go out and see the banks, see the insurance companies, develop the seminars, get the

leads, get the contracts to put people in the banks, and then go out and find the planners.

He is building his from the marketing side; we are building ours from the people side -

that's the difference. But we are going the same place. He wants the inhouse people and

the different businesses. He wants to go so far as - the reason he left FSC was that part

of his plan was that he wants to own a bank. There is no way you can do that without

your own BD. He gives more business to banks than anybody else. By the way, you

need $3,000,000 to buy a bank, so if any of you are worried about dilution, if we ever get

to that step we are going to borrow a truckload of money or we are going to get diluted.

Hopefully, a bank will buy us instead.

I want to finish what Jerry brought up real quick. Glenn, and most of the people who

write a lot of business, have set things up in such a way that one person processes the

business, one person follows it up to see that it is credited, paid, commissions paid; He

has a person making phone calls and getting people in for him, etc. We are talking about

an integrated-type of staff eventually but I really think that is something that we to

evolve to also.

My question had to deal with, in the memorandum there was a lot of discussion that

seemed to come back to - in any memorandum, there is always a lot of discussion about

the risks involved. We couldn't think of anymore. There was one mention of the fact

that there was no time commitment from the principals staying with the company; in

otrfbr^vords, someone could get the feeling that well, if it doesn't work out in 8 months

somebody could walk out the door. That was a last minute addition by our attorney. He

asked us if we had an employment contract with each other; we said "no". He said then you

have got to put it in. Of course, what he said before that was that we want employment

contracts for everyone. We showed him the FSC thing and he said what good is this?

Anybody could get out of this with a day. We tried to explain that this is the way it is in our

industry. You can't say sign me for 5 years, Scott - that's nothing. So we worked through

with him trying to get him to understand that that is one of the risks of our business - that

tomorrow Rich Braverman might go with Penn Mutual Life to sell old people health

insurance or something. As far as we are concerned, I think my commitment has been

strong enough as far as moving, etc., but I am willing to sign an employment contract. I

have no problem with that.

That is one of the reason I asked if everyone in the room was making a capital

contribution. The reason is this - the people that I have approached as far as buying

stock as an investor has asked that same question of me. In other words, do the

principals have something to lose besides the time and effort? _______________

contribution, which any entrepreneur would lose in any business if they left it. We are on

the line for a half million dollars for this space here, so you know we have some ...

As I was looking at the memorandum, just so I am clarified, the price that the principals are

paying for the stock, is that about $.50 per share? Is that the way that works out? I saw the

par value was $.50. The average is closer to a dollar but some stock went at $.50. There

has also been a considerable amount of work over time; there was a time when we were

signing leases not knowing if it was filled, etc. But that is true.

Under the assets of the corporation - money market fund $60,000 - what is that other

asset? I can recall _________________said we are going to consider you to be one of the

other investors. We are allowed up to 5 people; before the memorandum we did not have

5 because___________________________. We have essentially said some people have bought

10,000 shares and we don't have a check yet, just because we don't have a check yet. But we

know that it is a sale. The other reason that we have not said, by George, let us have a

check is because our attorney here again at the last minute, said, Well, gee, guys, don't issue

a stock certificate yet. You are legally not bound to and then we get to feeling like we ought

not take money unless we can deliver a stock certificate, etc. He wanted to make sure there

was absolute final clearance. So that is why we listed it

I am going to turn this over to the group. Last week I was in Pittsburgh; I got lucky; I

was working with another broker/dealer and they mentioned the fact that they were

looking at the Philadelphia Stock Exchange because of potential savings to their

operation in terms of trades and trading. I went to Philadelphia and spent some time

with those people. It turns out, at least from what I was able to gather (again I am not

a back office man, so I don't understand it all), we were considering using security

selling without clearing and some other

May 2, 1987

I I WpupOSe of this dmmmt is to recollect al l activit ies that I've been involved w i t h i n Financial Planning and the formation of Financial Ma~gement Grmp, to verify and doarment seine of the activit ies that I've been involved in to date.

I 'm afraid that as we go further and further there w i l l be a need for such information especially w i t h what has h a m this past week w i t h our corporate officers and board. Firs t I would l i ke to begin back in ti-& very beginning so that the f u l l scope of our activit ies seem to f i t into ane place and also so that of the issues that have mme up are t ied into what has happmd up to this point.

First of a l l , I started in the Financial Pl- back in 1982. After getting out of the amtracting kusiness I took six weeks and traveled across the country and came back and decided to get into the financial services industry. Being that several relatives have had dealings w i t h IDS, Investors Diversified -ices, I called the local branch in upon finding the manager Mmed R&er t Kauffinan. Bab spent -time withme, decided he w i s h e d to hire me, and that began the process.

I was actually licensed in 1982 for securities and l i f e and was p t under the mnagement of Bob Kauffman. Shortly thereafter, I would say probably in Jwe or July, Bab was pmmDted and took a division in Tampa, Florida. Myself and

)three or four other individuals who were under mgement decided that we wanted to fom a g r w p together so w e talked to anather district manager, Staren H. and decided that, i f he would allm, we kcdd like to plt an office together w i t h him. A t this time we did not have an office and he was mrkjng out of a sndll office in Millersville. 'Ihe people who were with me was myself, Mike Hartlett and Alan Loss. The three of us were very, very large producers, especially Mike and Alan. The three of us were probably larger than Steve's district a t that time, so a t that point we located an office a t 255 Wer Avenue, we walked under Staren H. district which increased his inmme by a t least 30% to 40% p that -&ion.

After being involved in the business I decided that firrancial planning should be wre abjective and fee based, so I became one of the larger fee producers using fees as w e l l as mmnisSion incane. A t about the same time, I became involved in the Intermti- Association of Financial Planners. A t that time the local chapter was just being fonwd and I volun- my services to help on the board. Menbrs of the board, a t that time, was just being formed and headed by John Herr. I became m t i v e vice president and virtually helped run the chapter and helm build it to its largest m p . lhat gave m e the apportunity to meet other people, broaden my horizons and *tian as far as the financial planning h3ustry and just haw the hleperdent planners f i t into the stream of the industry. I had quite a b i t of activity and did alot for the local chapter and became very involved.

Property of Advanced Media Group Page 1 of 13 02/17/2007

mer the next several years I made a very gwd living. I was never a very big pmducer, althmgh one of the bigger ones in the Harri.skurg division. But I was not the biggest, but the premier fee producer for the division and was om of the leading in the camtry a t that time. I shortly became kmmledgable of the other pmfucts available in the financial services industry and learned very quickly that it w a s virtually inpossible to have one canpany manufacture and produce ccpnpetitive products across the line. A t this the I was setting up a dhmr meeting for the IFP that was going to sbax2ase A l e Amstrong who was one of the premier planners i n the cumtry. She was very visible and very widely m. I set up a dinner meeting for her khich attracted close of om hundred profess ionalsandotherpeopletoa~. l h i swas fouror five times larger that any ather meetirg the chapter had ever had. A f t e r the meeting I was involved in a -ion w i t h Alex regarding the financial planning hldzy and my aspirations of what was cutside of a pmpriety envimmnmt. I told her that I was thinking of lMking a m e and asked her i f she had any suggestions of wha to qeak to. A t this point in time, we were all i n Butler Avenue and Bob Kaufhan was in Georgia, running a division of ID6 back there. He, a t this time, had become one of the laqest divisional n g e r s and had shwn very high pm&active recruith-q skills. He was running one the largest shop= intheScuthEastandwasbexdtqveryprofitable for

- II1S. Alex suggested that I call a gentlwen by the name of John &&le who was then president of Financial Services COT. a bmkerjdealer based in A t l a n t a , Georgia. A t this the Bob Kauffman was probably, as unfamiliar i f not mre unfamiliar, of the irdependent envkment available to the Fimrcial Services

L

Industry. Specifically Financial Planners.

I phaned Bob a n d t o l d h i m t h a t I w a s ~ i n g t o l o a l c a n d ~ ~ t e l s e w a s l ~ o u t there." Before this time, a ccuple months prior, I atb&& a career conference in Florida with IRS. A t one pint I was in a roam w i t h Bob Ihufhan and 'Rmt TUmr, who was the biggest divisicmal l ~ ~ g e r a t this time with ID6. I began to disc;uss my dissatisfaction with the ccmparry and the way that they op=rate and I suggested to them that it pmbably would not be too difficult to duplicate an organization instead of bebg built araYd a proprietary that was built solely amund a non-proprietary product. A t the time they both leaked a t w and I don% m m a k e r i f they l a w , k u t the idea really didn't redlly interest them, and it just rolled off their shailders. Right after this meeting is whenIhadthedinnermeetingvithAlexandIsetupthemeetingin A t l a n t a . A s I usually did, I always leaked a t Bob Kaufhan as my mentor. He virtually w w o f f t h e s t r e e t s a n d m m e a w a y t o w m y i n a w a y that I never I a u l d w. I always respected Bob as a very good sal.esnan, seeming to have a very high financial intellect and I looked up to him as he taught me alot. So I got on the phone and told him I was going to visi t an imkpn%& planner i n Atlanta. A t this time, Bob was bemning dissatisfied with the management of ID6 and was not very happy with the way they were using him to build areas. Vihen the areas would become profitable to him they waild mehimtoanotherdistressedamatobebuiltup. Sohewas doing a l l the work and ID6 was making a l l the mmey because they waild plt i n a m a ~ g e r for less money and so on and so forth.


On Nw& 27 or 28 of 1985, I had a meeting w i t h Bob I c a u f m and Mike Hartlett a t 1 4 x b n r s m u n t on the Rahrerstawn M, Ianaster, PA. 'me pupose of the meeting was to find art i f we a u l d collectively p r t together xmething in Iancaster w i t h regards to f h i a l planning. I wwld say that e t i n g was mre of an effort on my part than anyone especially Mike Hartlett. Mike was, a t this time, also inrlependent, le f t ID6 anl follckied me to FSC along w i t h Bob. ?he meetingwas on themorning a t 9:00 a.m. and we dkmxxxdwhat options we had as far as w i n g sanething tcgether in Iancaster. I guess the bsic reason for the meeting was to see i f Mike Hartlett wished to do sanething together w i t h us. A t this time I was qmating my practice, Mike was aperating his practice, anl the only w we had in amumn w a s a reception man adjoining ax offices. A t th is t imeBobsawthat i fwecculdputsawthbg together in Lancaster he omld pmbably fu l f i l l same of his recruiting -ts, giving h i m a place to actually xecmit people to rather than using FSC in Atlanta. So that began the process of w i n g together a shop in lancster and Cerrtral PA.

I besan to recruit fran that point forward into our so called plarvling firm. A t this time the plarvling firm was going to be caprised of financial planners. Sane of the f i r s t pecplethatItal l#dtowasMonaRishel,Dick -, and Bab Lnrg. I spoke to other plannezs-about joining our firm and then I got the idea of adding other professionals mainly legal, a m - , & estate and ma@ insurance. It was then that I got the idea for the one stop financial firm. Tbmeitseemedapprmt-thatitwasimportanttohave a l l the individuals working tagether collectively manage one financial

- 'affairs. It didn't seem that d i f f i d t to accaylish that i f yau had the riqht irdividuals willing to take the risk of attmpthq such a project sod who had

' the clientele where they didn't have to rely on attracting new clientele. W e l l , ~ t h i n g l e d t o a M t h e r a n d w e s o o n b e g a n t o r e n U i t ~ a t ~ ~ a n d sizable grcup of individuals. I prcbably was responsible for d t i n g 90% of the local people and artside pecple, Mike was mrking with Rick Volp in Fhiladelm who he w o w w i t h a t ID6, and a hcst of others. The in i t ial core was myself, Mike, Mma, Dick Sherisahn.

A t thistimeIranintoSattRobertsonattheZhreeMilelhsewhowasworking with Asset Mamgement. I expressed the idea to him and he became interested and became one of wr pecple. I also talked to Gmmlyn Royer who was w i t h Pru Bache and she was interested in joinhg. By February we had a fairly large group of people who were willing to ammit. F i r s t thing we had to do was find facil it ies and Mike f d the place available a t the OregcPl Pike location which was just urder -on. A t f i r s t we were looking for 2,000 square feet to hcuse f w or five i n a i v i d ~ ~ L ~ . A t this time I talked to Tim Lanza, people a t

the legdl firm, and Danny Beqer as far as doing me thing with real estate. It was sqpxe3 to beanaperationfinancedandsqportedbyFSC. horn December until May FSC was pranking furd to fhmce the aperation. We nedd start up funks for fur nit^^?=, caymter systems, salaries for myself and Mike for ranaging the -tion. Mat happerred &ing this t h was that FSC was constantly premising us financing and we had yet to receive any actual m ~ n e y and the invoices d t t e d were never paid by FSC.


Bob then told rn that he may be willing to go intD the meeting w i t h me under the asslrmption that I did not tell them who he was or who he was w i t h . I called J&n m l e and told him I wanted to cane dawn and v is i t him, being referred by Alex and he was very nice mer the @mne, giving me a cordial invitation to cane down and actually had me set up the meeting w i t h Ray S m i t h who was one of the sales ~ g e r s . I set up a two day meeting w i t h myself and this anonymxls person, Bab KaufBnm. W e spent two daysatFSCandwhat essentially happened is that they became infatuated w i t h Bob's recruiting skills. On the spat they offered Bcb a position within the a m p n y as far as recruiting and head of sales manqement of FSC.

I resigned fm m6 January 1985. Bob m i n d a t ID6 and fnm Octaber to March w a s negatiating his position and pay and his -tion w i t h FSC. By March he actually decided to resign fmn ID6 and he was a k a r h d into the corporate structure of FSC. January Ist I resigned fmm IS. I was Upstairs w i t h Mike Harllett, sharing an office space and the rest of district w i t h Alan Lms was still dwEbks. A t this time, I began to build my independent practice of Financial Planning. Basically I took 95% of my clients fmm IC6 and began working w i t h them. Bob began working in the national recruiting for FSC and started attracting IDS people to FSC. - By the Fall of 1985 I had became w i n t e d w i t h my business l i fe , not learning m, lonely being hkprk3ent and I became frustmted. I knew that no one in Lancaster was doing a very high quality m i c e rqardbg Financial

- laming and Financial Services. Tb me, lancaster seemedtobeahighly attractive market w i t h alot of wealth being spread cut amDng alot of different players. No one was being creative r " lg their efforts it was just three or four brokerage houses, insurance agents, banks and irdependent planners but iw one had a very strcarg p i t i o n or d a b a x e in the financiae services -. I visited w i t h Bcb Kauffman in the Fall of 1985 as I usually did every ccuple mths ard told him I wished to do scwthing else. A t that time he asked me i f I wanted t o cane dam to Atlanta and help him work on the concept of o n p n y awned shops. W h a I was dawn there, he mmtioned severdl positions in the corpration that I may be in- i n and he set up a meeting w i t h me and Steve Franklin. Stwe m t l y needed smmw to m a ~ g e his national sales office so khj dawn there I spoke to him, just t o verify wha t was available.

* A t this meeting, Steve Fmnklin more of less indicated that I was a ~~kuned cut

who was just leaking for a place to go. Ncrthing ever happen& and I left the meeting w i t h very l i t t le respect for Steve Franklin.

Bob offered me a position w i t h i n his mnpany owned store, writing cases doing p l m , doingsaneotherthings. CIhatwasearlyOctober. For thenext threeor four weeks I prepared myself, relwtmtly, for the transition and moved to Atlanta and tried to maintain clients up he^^ as well, and plrsue whatever Bob was doing down in Atlanta. A s th went on I f e l t I really didn't wish to move away fmn the area and that maybe the opportunity down there wasn't what I thought it was, or wasn'twhat Bab said it was.


Bob ~~auf funn was the liaison and -tly was being directed by Stare Franklin ard Jdyl m l e . F'ran what I have learned over the past several years was that they never really interded to finance the aperation brt they were strirqirq us along ard using us to recruit other people to the operation. After we rexuited ten or more people it became apparent that Mike or myself did not have the managing skills required to l ~ ~ g e such an operation. We also learned we lost our financial backing, so we had to figure out what to do with financing. A t this time we decided to raise the capital a.u-selves, finance the operation auselves with quity we raised thmqb the planners. And essentially we learned that no one i n the industry, or very few actually awn their awn business but are only a distrikrtion for a f i n a d a l product. W e a l l have seen bmkr/dealers bebg baqht and sold for very sizable m t s of m y , usually in the vacinity of $1 of quity for $1 of gross ccrmnission inmne. We began to see that we were seeing anyi&em hran $1 million of gross amnksion imxms per year w i t h the grcrup that we had. In the grarp was Ken Ray and some very m t i v e and talented people.

T b x @ m t cur m e e t h p and discussiuns d c h were very long, durable and tiresame. mpn L&omber t o May I probably spent every other evening with Bob i n Atlanta trying to pt this deal together.

Let me go over a couple of other things that had happened up to that time that I f d ljke mentianed in this document, before I fozget. Back in the sunmer of 1985, I was contacted by Jdyl Fhilips fmn Blue Pall National Bank. muse of )ny visibi l i ty w i t h the local chapter of the IFP Jdm wanted to call me and look a t the opt icus of Blue Bas11 National Bank becane involved in Financial Planning. Jchn called a meeting w i t h me ah3 I believe he was looking for scanmne to head a Financial deparbnent with inside Blue Pall National Bank or contract w i t h s~neone outside. I had 1-1/2 bar with Jdm and his suborbant, whcan I can't remember his name, I believe it was Joe. H e was the vice president of the trust m t , I believe. m y after the meeting they did not have the fiath or the confidence that I was the right person or they didn't believe that this was really what they wanted to do. But I have never M firm them s in .

Fall of 1985, before our initial meeting, after I &idea that I was not goin g t o relocate in Atlanta, I began to look for other options in -. One of those were that a couple people pt me in tmd w i t h several banks. One was Joe S. with -th National Bank and another was Meridian Bank. Both of those irdividuals received calls fmn peoplekl I did business w i t h stating that I was looking for san&hg ard asking that they give me an btemiew. None of them !could wen goive me an interview. I received a letter fmn C c m k m e d t h stam that they had no pasitions cpa a t this time, but they would keep my ram on f i le. Fmm Meridian, I don't believe I wen received a letter. aLis is oneof t h e r e a s o n s t h a t I d o n f t h a v e v e r y ~ respect for banks, or people whowork inbanks. I donftwishtodwell into this subjed, but because of several of these eposides I just don't have mch respect for bankers, or banks what so ever.


was going to receive 60,000 shares, I was to receive 40,000 shares andMike was to receive 40,000. Also, Mike ard I w e r e to receive $3,000 per month and Bob $5,000 per mnth. Bab and I had a deal as I did not believe he shaild have more of the canparry than I because I pit it together. We had an agreement &ereby I could buy 10,000 shares of his 20,000 a t anytime a t cost so we would both have 50,000 shares. I had papers drawn u p t o that, however, whenwe began t o have problens, I l e f t things drop by the wayside.

Back in Februaq 1986, I became g o d friends w i t h Mary Lynn D i F o l c a , Kevin's sister ard Mike's wife. We were always g c d friends, but back then when Kevin left, we very close because I spent alot of tim with them. Mary Iynn was a t the time, 30 years old with three children, and she was always very tied dam with the kids, basically a housewife. She never really had a job, never worked. I twashard forherbecauserrmtof her other frienlswerecutworking and had 01-eers. I a s k e d h e r i f s h e W d l i k e t o M p m e o u t f o r a f e w h o u r s a we& doing general clerical an3 typing. She was very excited. I tho~@t it was a chance for me to get S(II*~ thirqs done ard I liked Mary Lynn alot d we got along and I thx&t it was a chance for me to get a few extra things done. I took her on in February and before too long she was working 30 hours a week. She had a babysitter lined up for the kids, ard it was very encanraging for me to see her do this because it gave her the confidence for the f i r s t time that she could do spnethhq other than just have children. She was having a great time and I was having a great time and.= enjoyed working with Baeh other. A t that time, Bob invited .Mike and I down to the annual confererms in !Iwsm, Arizorn ard w i t h the conferenoe amangments we were allawed to take saneone, - such as your spouse. I asked Mary Iynn i f she wanteA to go and I don't believe she was ever on a plane before and she asked Mike and he said it waild be good for her t o meet scme of these peqle and get: involved w i t h a career. We ended up d a m a t Tucson ard that was inApri l2andwespent fmorf ivedays there. Upon meeting Bob ItoldhimIwasbringingMaryLynnoutandIhew from the start that this was a sore spot. First of a l l she was married d he couldn't urdershtd what she was doing cut there w i t h me. Semnl of al l he didn't appreciate the whole s i b t i a n when he met her he said scauethbq to the effect that she looked very young. After the secand day w e were al l g c d friends ard she was getthq alaq very w e l l w i t h W and Pam. In fact, Pam confided things in her that I kmm Pam never told anyone. It looked as thcaigh they liked, or a t least pretmxkd to l ike Mary Lynn and so anyway we all had a good time. Bcb, myself, andMikespent&of wr t im inindividualprivate meetings trying t o pt this deal together and work cut the details -idly with FSC.

- I think it was back a t this time-we real ized that Bob was probably going to resign fran management and cannit and cane up to Lancaster. I think one of the reasons whyMaryLynn andIbecameveryclosewasthatsheremindedmesonuch

' of my mother in t& way that she handled her kids, family and I became infatuated w i t h that. I liked her alot. Wt haFpened was that Mike and Bob resented the fact that we had so rmch fun while we worked. We got mrk done, but we went out to lunch for an hour or so and we really enjayed things. To them that had no place in business. For me, as 1- as I got my work done, I fe l t better about my work ard it worked art for the best. mis w a s a problem an3 w i l l ccmne up later.


We w e d into the building, they wmld not a l l m Mary Iynn to be back in my section, haever, Nancy A. 's desk was right ma& up against Mike's door. lhis start& all the problem w i t h Mary Lynn. She saw that and she wished to work for me, and they were not goiiig to let her. It just started problem fmn day one and it had a tmmxdms impact on the relationship between me, Mike and Bob. 'Ibis was the straw that broke the camels back as far as cur relationship was wncen-ed. Ever sincethathKpenedwestoFpedcamunicating. matwas the f i r s t m e in trying to rescind myinprtandmyomtmlsofarasthe campany was c0ncxm-d. As far as the staff was ooncerned they had a feeling that the staff should be treated as dirt and made this urderstxm3 many times to me - this is against al l my philasophy of life. For months, because of this attitude, Mere were problems with the staff. It was because of this that the staff didn't respect them, and it was just a- f o r m t h s .

Wing June, July and August, Bab w a s still d m in Atlanta and I was doing most of the work i n lancaster. Fmn J a n u a ~ ~ until Januray I took one day off

I I for Memrial Day, one day for July 4th, one day for labor Day and cme day for 'Ihanksgiving. Mike H a r t k t t took off two of three becks, leaving me to tend the shop. I was always the care doing all the work, recruiting, stock offering,labor mat ters , drew up all the amtmcts, drew up the offering ~~ w i t h the help of the attorney. It was fiwry that I was the only one raising the mney - probably 808 of the furls. I was the only care of the principals who had outsiders investing i n the canpany. Ihe most they did: Bob Kauffman raised $5,000 frun his father in law, so not d y did I pit my cwn mney in I risked that of my clients. But they were willing to a a q t that up front. A carple times it came down to either me getting the m m q fmn my clients or us not having the financial abi l i ty to pay off sane of the capital resources that we had.

Wing %pteubr we began to have pmblems w i t h Mazy Lynn and the staff and me. 'Ihis was the beginning of them hying to reduoe and dilute my control of the canpany as far as input was cancerned. It was a very emotional and dram expsriexe after alltheworkIdidtopltthisalltogethertofind those twowere trying to plsh me cut. Itrsachedthepointinoctoberor Noventer where they actually asked me i f I wanted to "get out." 'Ihqr indicated that I was not right for ma~g&, ma~gement was nat right for me, that I wasn't having fun and all this and that. Mnst of that was due to their action as far as their trying to dilute me and weaken my umfidenz. lhey c0Ntantly made fun of me i n fmnt of all the other planners a t meetings and it was just ugly. 'Ihey also tr ied to internqj my relationship w i t h Mary LyM w h i c h was ruthirq mxe than a very persad, deep fri-p.

No care lamws this, kR the trauma was so heavy that I went mxier the care of a psychologist a t St. J@ Hospital, beginning N m m h e r and I was suffering a severe case of depression. Eecause of d z @ r e n i a being favd in my family, I was not afraid to go seek psydmlogical camseling. I was on medication for three months.


In September they had it in their minds that they were going to get r id of Mary Lynn. And they tried every opporbmity, finally in N o v e n h r a week before Thanksgiving, they fired Mary LyM. W i t h o u t cause, for no reason, other than they just wanted her art ard felt she was incapable of whatever. It actually reached the point wfiere Bob andMikewhenarnurr].politickingthebrokersto s q p r t them thatMaryLyMwasnutdoingher jobwhic31wasmttrue. Shehad the canplete wrt of al l the brokers. Maybe a t times there was a case wfwe sawom was unhappy w i t h her perfommce, but in general it was a ploy, a plot, fabricated by Mike and Bcb.

After their attarpt to lmy me out and get rid of me so far as my Oontrol and my interest, I held cut reluctantly often times mxlering i f I were going to give in an3 by 0lristma.s I decided I wnuld stick it cut. 'Ihere not other alternatives, kR the nwney they offered me to get out was $2,50 a share which canes out to $100,0000. Iwantednopartsof it, sobyJanuaryIdecidedto stay.

Bob hadseveralcanver~at i~~l~withBobIcngsayingthathewas~iedaboutmy v i a l efforts and that I was heocming slack. Ihe whole reason was that they were hamering me daJnandbeatingmeupineverywaytheycculd, cktmying my confidence. AftarIspenttimeandeffortardIbelieved inso nu& of Wmt I'd done, and they were trying to take this away franme and get me art of the picture.

Thraqh N o v ~ and Decc&er there were meetings between myself, Scott - R c h r k x m , Alan Loss, Bob Long and (luo1ynFlayer rqanibq the activities and

the ~ S t y l e s o f M i k e a n d B o b . ~ w e r e v e r y ~ , w e r e n o t v e r y trusting and I was always in the middle between the managerwt and financial planners. I had relatiMships with everyone and I believe that this -tend Bob and Mike ard they tried togetmecutof thepicture, kttheplanners wxlld not allcu this because the planners did not trust Bob and Mike w i t b a r t havingme to keep them on balance.

I raised most of the nomy, d t e d lnost of the people, p t the offering memo- together, pit the ampter system tcgether, workedwithall the ampter softwa??=, and a c t u d l l y . came up with the name Firnncial Management (;mup and the idea of having al l the subsidiaries doing different things. My involvement was very deep, pmbably deeper than anyone in the organization.

W - m I w a s p l t t i n g a l l t h i s t o g ~ , I w a s i n ~ w i t h A l n Y u l a t . Italked abaR having nnr@age, banking a part of a t I was doing. Nathing ever happened bebeen the two of us, but in ~anuary I received a call fran Al askhq me to see i f I a d d place any mrtgages in the east coast. H e was willing to pay me xmghly one half a point and this was a t a time, because of the activities of Bob and Mike, that I tku$~t I would give this a t ry to give me sane secwity. Should saoething fa i l in the canpany, I would have sanething to fa l l back an. A t this time I involved Scott IInbertscn and Bob ~cng and I told them we would form a three way w p and we wnuld work an a real estate project on cur awn. ' IhereasonI to ldnooneabcut th iswasthat th iswasmy ace card in case Bob and Mike ever really threw n~ out. I was mt going to give &em any relatimship, and I just TIE&& sane d t y .


What we were really doing was lwkirg for 1- of 2 mil l icm dollars and up to refinance or finance new and existing realestateprojects. Wemadeafew calls, finding that ax rates are very anpetitive. A l was mre of less letting me get plqged into the major Savings and Loans and Inswaxe mnpanies. Wefam3cuttherewereveryfewpeopleinthearea, i f a n y a t a l l who could a q u b s the terms. We began having a great deal of success and what we found was that almcst everyone was allawing us to bid on their project. We created a campany called C!rekive Finance Caopany so that we would not a p x e Fm; to any l iabi l i t ies as far as cur activities. W e agreed fmn the beginning that FIG wxild receive a m t a g e of cur activities ~IXI we figured 15% was fair since we actually mnufacturd the pIoduct wfiere FIG *en cut and used othex manufactured products. We didn't feel they were entitled to a 20 - 30% split.

(Xle of cur amtmzts was w i t h Tony Bongoivi in New York. He a t one time dated Scott's sister apprmhmtely ten years ago. Scott maintained a loose relationship w i t h Tony, calling him one= in a while regarding business mat te rs and business activities. Scott called Tony one day atcut a real estate project that he i3mught . Tony said no, but he my have another project that we would be interested in. Scott asked me to go up to New York with him to talk abcxlttheprojectand1 askedwhat itwas. He indicatedit was a mwie. I was very reluctant and hesitant to do this because nnvies t o me, tax shelters, scans, not very econcmic type investment. Me being very comxvative was not attracted, but I decided to go anyway just to get cut of town, mre or less just to get away.

biten I got up then I was totally amazed a t the caliber and the people who we were associating w i t h . What I found cut was that we were working w i t h the leading recolding shdio in the world. The re d t i a l s , their acccnplidxm~ts were @enmaml- they were just it. I'm not going to spend alat of time of this because just the battcm l ine is what is inporbnt here. After seeing the project wfien I lcoked a t what Tony was doing, and fran a business perspective there were just so nary elewnts in this project that were just truly amazing to me so far as distribution and markeI5.g and riskand eveqtAi.q else. Bottan line was a pruluct that was worth 15 to 20 million dollars being made for 4 million w i t h the ability to be one of the 1- movie, video projects of the years.

Fi rs t of a l l ycu have the leading recoxding studio in the world working on the scan3 for the project that was going to include a follaw up of Tony's previous band who- was BM Javi who was alreacty one of the hottest thing in nusic as far as alkum sales. Then you have the fact that he was going to digitize the recording which was never done before in the nnvie industzy a t a time when the vidm market is just going bananas. N o t only that, hut the label that signed the banl m MN. You put al l this together and ycu've got a penmend business w i t h alot of apportunity .


seeing this, I ammitt& myself to the project not kmwing h o , where or haw we were going t o raise 4 million dollars but I beliwed in the project so mplch. I guess because I saw alot of the same elements used in F% in this project, and even more. I got instincts when I raised money for Em; I was still very concerned with the risk elements to my investo~s but when I looked a t this project the risk was even less. Iess risk, mre protection with this project so I believed in this project. We spent seven or eight weeks developing the packaging the product for the investors, things have hapxwd during that time that fe l l into place perfectly - the article in lblling Stone, the marketing.

It is May 4th a t 4:30 a.m. and there is no d a b t inmyminlwith the articles in Rolling Stone that we have the money for the mie. lhat project in i tself w i l l pmbably p t us in the forefront of the en- industry within eight W. It is mird bogglingasfarashtoncaaeofthis,butthe project is done, we did sanethjrq, we did not use Fm;, they w i l l receive no split. I guess what I 'm saying ik that because of the way Bob and Mike treated me or plshed me to go cut and do things, that did not involve Em; and I did not feel that they did not deserve to becarre a part of these things. Fran the beginning I knew Em; was going to get their piece.

Le t me go back to an earlier developlwt amcemhg the E!mker+er. We of course thought in the beg- that we would becarre ax own broker/dealer. However, after long, bard discussion, we were to the pint of getting a license for brokerldealer, we decided we did not have the admhktmtive capacity to

_ N f i l l what we waild need to a-lish the broker/dealer. Back in Nwember, -, Bcb started soliciting other -/dealer, l c o k h ~ ~ for three things; service, high pay cut, and equity. We knew that we had t o own our brolerldealer kusiness. 'Ihere were two players that we came a m one was Iiikkml-m cut of wshhqhl DC and the other was Financial Plame?s Group which really involves sane of the premier financial planners of the cumtry, B i l l I b q l e r , Wayne Webster, so on and so forth.

The Iceogler grarp was strcng, large, y a q and they were doing nxghly 20 million dollars of gross canmission incane per year but there were saoe people in the organizaticm we did not feel ccmfortable with. Hikbaxd Brrx~n was a new start up, starting up when we did, was a sp l i t f m a previous bmker/Mer in D.C., that involved f m a syrdiotor to a -/dealer that no one knew anything a?xut. However, they really enticed us w i t h a very attractive equity deal. Bob maintained most of the cmmmications and mmt of the research involved in this project. It was brcqht to us in January w h i c h was IpuFplly 20% of their stock .w i th 90% payout , territorial with override for aqthirg that we did.


One 0 f t h e t h i n g s I m t s h a i l d b e d o n e i s t h a t s c m e a n e M d b e d o w n t h e r e 1- a t their tmdiq department, along with the capability of FSC. I tried to get people down there several tims and I suggestd Qmlyn Royer because of what had haFpened to her. Finally Peter Pnneros and Ken Ray bent down, and this was probably during U a x h . Anyway, this whole thing was dcne w i t h very l i t t l e mmmicaticn as far as me, Bob and Mike. lbre of less, Bob wculd go cut and do scanethirq and wculd fee3 back to us, but we redlly had very l i t t l e involvement with what we in- to do w i t h M Bnmn. One thing Bob irdmted w a s t h a t i f w e b e n t d o w n t o K i b b a r d m w e w c u l d n o t f i n d i r m c h , they were just starting up, they were new, they had rmghly 10,000 sq. foot of office space, a few staff people and the system of operation. He did feel they w e r e capable of fulf i l l ing cur needs.

We began the transformation of licensing fmpn FSC to Hilhxd-Bnmn and we prcbably had 60% to 70% of the in house w l e to FSC, Alan Inss, Scott Robertsan, Rich Bravenuan, Keith Waters, R x M Dellinger, Kazly Radcliffe, along with Barry Schuttler and sapne of the other satelites. A t this point Tan 'I\uner was free ard clear and he was looking for scsne direction. By the week of Apr i l 19th Tcm was up v i s i t kg with Bob all week seeking that direction and he was also visiting w i t h Hibbard Bnmn so it looked l ike Tan wculd also b e a m involved.

I also negotiated the courtship of Tony Pascoti and got him involved. Fran the perid of A p r i l 1st on, wfien we began transferring license, one of the main


NOTES TO FINANCIAL STATEHENTS, Cont inued

2. I nves tmen ts : i

/. : ..: / , A summary of i nves tmen ts is a s fo l l ows : - . . .- . . . . : _ _ _ -

December 31, 1986 Cost - Value -

Decanber 31, 1985 Cost - - Value

fioney market funds $ 4,427,800 $ 4,427,800 $ 6,399,600 $ 6,399,t Bonds, debentures

and notes: U.S. and foreign

governnent obl igations 35,103,995 39,445,939 34,665,221 37,598,:

Corporate bonds, notes and conver- t ible debentures $ 5,049,732 $ 5,774,937 $ 9,738,720 $ 10,341,'

Carmen and preferred stocks 55,056,018 65,421,820 49,214,679 61,623,t

Insurance group annuity contracts 26,536,945 26,536,945 25,454,347 25,454,

P u r c h a s e s and sales of s e c u r i t i e s o t h e r t h a n Un i ted S t a t e s Government o b l i g a t i o n s a g g r e g a t e d 536,971,281 and $34,885,320 i n 1986, and $23,754,759 and $22,638,093 i n 1985, r e s p e c t i v e l y . P u r c h a s e s and sales o f Un i ted S t a t e s Government o b l i g a t i o n s , o t h e r t h a n s h o r t - t e r m T r e a s u r y b i l l s , a g g r e g a t e d $887,762 and $300,000 i n 1986 a n d $887,761 and 51,000,349 i n 1985, r e s p e c t i v e l y .

Cont inued

6

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Law Enforcement Extortion of Financial Management Group, Ltd., From Stan Caterbone in 1987...

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