O'DAY & SMITH
243 NORTH DUKE STREET
LANCASTER, PA 176O2
August 22, 1986
Mr. Stanley J. Caterbone
Financial Management Group, Ltd
1755 Oregon Pike
Lancaster, PA 17601Dear Stan:Enclosed herewith please find invoice pertaining to the formation of Financial Management Group and its subsidiaries together with an itemization of all costs and expenditures made.If you have any questions, please feel free to contact me.Very truly yours,O’DAY & SMITH
Timothy A. LanzaTAL:djgEnclosure
CHARTER BUSINESS PLAN
THE FINANCIAL MANAGEMENT GROUP, LTD.®
JULY 1, 1986
A LANCASTER COUNTY CORPORATION
Medford, New Jersey
TABLE OF CONTENTSMission Statement Page 2Corporate Objectives Page 3Business Strategies Page 4Distribution Strategies Page 6Services Strategies Page 8Market Penetration Strategies Page 10Planner Support Services Page 11Corporate Standards Page 13Initial capitalization Page 14Financial Highlights Page 15Contingency Plans Page 16The Management Group Page 17Organizational Charts: Exhibit A Page 20 Exhibit B Page 21 MISSION1. To serve the people of the county, state and nation in the handling of their finances through the support of our financial planners and other advisors, and their personal relationships with their clients.
2. To meet the expectations of our various constituencies: planners, employees, stockholders, and the people residing in the area we serve. OBJECTIVES1. To position the company-as the major provider and servicer of financial products and advice in the closely related fields of investments, financial consultation, mortgage banking, life insurance, property and casualty insurance, taxes, law, and real estate.
2. To transform the fragmented market of independent financial planners into a quality group of outstanding professionals marketing under one name, thus bringing order to the financial marketplace.
3. To place client interest first at all times by delivering a diversified product through multiple sponsors so as to always deliver high-quality and fairly priced products representing the top 25% percentile of the marketplace.
4. To develop and maintain quality service on previously delivered products by managing assets at a reasonable fee, thus freeing planners from the constant pressure of making new sales.
5. To insure the growth of the business by hiring professional planners in sufficient number so as to become the pre-eminent financial services company in the area served.
6. To use invested capital rather than loans and long-term leases to minimize monthly expenses and maximize profits, hereby assuring our business growth and development.
7. To encourage our planners to become stockholders in the firm, thus satisfying their desire fox ownership in a company of real value. Also to assure a more stable development of our business through stranger ties with our top planners.
8. To react to changes in the marketplace ahead of our competition in creative and thoroughly considered ways.
9. To maintain a strong professional/client relationship through frequent personal contact while using high-technology equipment to enhance the quality of our work.BUSINESS STRATEGIES
1. CURRENT SITUATION
Dozens of small independent planners servicing dissimilar markets through product Bales.
COMPANY STRATEGYRecruit the small, independent financial planner into our group using a variety of motivating factors;1. Economics (reduce their expenses, expand their resource material and backup)2. Marketplace recognition and dominance3. Company identity4. Equity ownership5. Product diversity6. Higher commissions on each sale
2. CURRENT SITUATIONLife insurance and brokerage businesses are suffering from poor performance of products, bad press, and low-quality recruiting cutting commissions; while productive veterans in these industries are uneasy with these changes.
COMPANY STRATEGYRecruit the most senior, productive brokers and agents who desire to do more personal planning by providing the advantages' cited in paragraph 1 above.3. CURRENT SITUATION The 1986 Tax Act threatens to reduce the need for tax planning, and tax qualified plans. Rather than seek shelters and other relief, investors will be likely to pay tax, and invest savings, thereby increasing the need for asset management and the creation of wealth through equity investment.
COMPANY STRATEGYMarket products that are structured with lower up-front costs and stable ongoing management renewals in order to build revenue from service over a period of time. This will gradually replace the heavy enjphasis on new sales and give rise to a truly responsive 4. CURRENT SITUATIONMass marketing through corporate benefit plans and the media continues to grow as a segment of the financial services business.
COMPANY STRATEGYDevelop corporate sales through the concept of cafeteria plans which will change the employee benefit market by allowing employees to target a percentage of benefit dollars to the areas of their choice. Also, continue to emphasize seminars targeting unique organizations which have a strong relationship with the public for specific financial products: EX. Charitable organization - charitable giving seminars. estate planning seminars Counseling center - life planning seminars, etc. Additionally, we will develop public awareness by constantly advertising the corporate name via newspaper and radio.5. CURRENT SITUATION We currently have 14 financial planners and 5 other professionals committed to an August occupancy in our new space on the Oregon Pike in Lancaster. Additionally, from among the 16 people involved, we have selected managers for our offices in Chambersburg, Lewisburg, Beading and Lansdale. Based on last year's business by those already involved, we expect to generate 2.7 million dollars in revenue, and invest 54 million dollars in 1987.
COMPANY STRATEGYWe plan to increase our Lancaster staff to 18 financial planners and 6 other profesionals. While we plan to locate and develop in new areas, we will concentrate during our first year on our Lancaster operations.6. CURRENT SITUATIONAt least 8 of our staff is comprised of professionals established in business for at least four years.
COMPANY STRATEGYWe will continue to seek predominately self-sufficient, professional "veterans" of the industry. Our desire is to appeal to their need for the freedom to plan and communicate more effectively with their clients. We'll also offer a higher payout, more varied products, and a more professional environment. We will duplicate only the most critical brokerage house services.
7. CURRENT SITUATION Planners have been stable in their relationship with past employers.
COMPANY STRATEGYWe expect a very stable core of top planners in Lancaster, Pa. , due to strong management, stable planners, strong local support systems, and equity ownership. We will concentrate on local development ahead of satellite development. We expect our satellite retention to be outstanding where equity ownership is strong and mediocre where equity ownership is weak.
8. CURRENT SITUATION Planners are independent and thus use various planning techniques, offer a limited product and differ in their areas of expertise.
COMPANY STRATEGYThe expertise and techniques of our planners and other professionals will be pooled to provide clients with higher quality service and a broader line of products.SERVICES1. CURRENT SITUATION Investment products are predominately delivered through captive sales organizations who manufacture their own products and manage all monies. This leads to limited product offerings, which frequently do not entirely satisfy specific consumer needs. It also leads to a mediocre product because there is no free market pressure to insure top quality products that are competitively priced.
COMPANY APPROACHPlanners will be free to deliver the highest quality products from among thousands of sponsors so as to work exclusively for the benefit of the client. The planner may choose top industry performers, solid and sizeable companies and a variety of "niche" products to fill every client need.2. CURRENT SITUATIONFee-paid financial plans vary widely in price and quality and depend most heavily on the individual developing the plan or interpreting it. With regard to consumer expectations, the marketplace is in disarray.
COMPANY APPROACHFee-based plans in advance of product sales should become simpler due to tax reform. The majority of such plans were originally purchased for tax planning which may no longer be needed. Our emphasis will be on a business being revived by tax reform — Asset Management or Investment Monitoring. With clients paying their taxes and investing for appreciation rather than seeking shelters, this business is expected to boon. We plan to have an in-house portfolio manager and market-timer. We plan to charge clients an average of .75% for the service. As planners gain assets under management, their annual income from this source should alleviate pressure for new clients.3. CURRENT SITUATIONAssociated professionals such as attorneys, accountants, bankers, and insurance and real estate agents seldom cooperate to help clients attain their goals. Ihe ultimate control of the client's future business tends to become divided, making people defensive and producing fear of e>q3osure in the event of error. This often leads to professionals discrediting one another or taking undue credit for advice leading clients to inaction.
COMPANY APPROACHIn-house legal and real estate professionals will enable a planner to get such services for his client without fear of losing the client to outside interests. It will also help conserve revenue normally spent for such services.4. CURRENT SITUATIONOngoing client service is a desire for most companies in cur marketplace. However, the constant pressure is applied to planners to produce new clients and new sales as 90% of earnings is still commission generated. The time required to prospect and dose new sales severely limits the necessary servicing time.
COMPANY APPROACHOngoing client service will be supplied through a semiannual newsletter and semiannual client investment update delivered alternately every three months. The costs of these services win be borne by client-paid asset management fees, insurance renewals and mutual fund trailing commissions. Although this is an ambitious, high-tech undertaking, our basic inclination remains toward personal client review sessions held en a regular basis.
We also expect better crossover relationships and broadened information base for both planners and specialists due to common location.MARKET PENETRATION STRATEGY1. Existing Clients - - Planners and other professional joining our group will have developed deep personal client relationships, which should allow new investment dollars to be handled by our people. As follow-up systems are implemented we expect 65% of all business to come from this source.
2. Seminar Presence - - We plan to present four seminars on a joint basis with institutions such as colleges, charities, business organizations and corporations. Our seminars include "Successful Money Management" a soup-to—nuts on investment products/ ''Half-time" — — a life planning seminar, "Charitable Giving" and Retirement Planning Seminars. Currently our planners regularly appear at Millersville State College, RCA, ALCOA, St. Joseph's Hospital and elsewhere. We also plan regular seminars for the general public.
3. Business and Retirement Markets - - These two markets will be singled out for specific emphasis because of the vast potential and strong need for planning among these groups. Business benefit plans and specifically "cafeteria plans" will be marketed. Retirement markets will be expanded primarily through increased seminar marketing.PLANNER SUPPORT SERVICESIt is our plan to provide necessary office and clerical support services to help each planner or affiliate conduct his or her business. We intend to limit our office to support services and not to provide specific marketing services for individuals. Our marketing efforts vill be for the group at large, that is to say that individual prospecting will be a personal expense borne by the planner or advisor. Inherent in our support services will be the following:
1) Phone Handling - including the facility to forward other business lines to our central system should a planner leave the office.
2) Repetitive Standard Correspondence - a sample of thank you, referral appointment setting, data requests, and commonly used review letters may be selected and generated. Personal correspondence will not be handled by our staff, free of charge.
3) Business Processing - completed applications will be checked, logged, copied and mailed by our cashiers. Follow-up with broker/dealer or product sponsors will be offered to premier producers only.
4) Computer Services - financial plans and investment monitoring services will be provided through data base entry. Mass distribution and hard-copy plan generation will be done on a piece-by-piece and percentage fee basis respectively.
5) Professional Networking - our in-house affiliates in law, accounting, tax, estate, real estate, mortgage brokerage, portfolio management, life insurance and property/casualty insurance stand ready to serve clients related financial needs.
6) Simply Stocking - prospectus, applications, trust agreements and other forms needed to conduct business with our major' product suppliers will be maintained.
7) Reference and Periodicals - professional journals and data services meeting the cannon need of our advisors will be purchased and will be maintained by our office staff. Material unique to specialized areas will be provided by those planners who work in those areas.
8) Corporate Marketing - we will pro mote the name of our firm along with all planner affiliates to gain public awareness in excess of what any individual alone could achieve. We will become the best known firm in Central Pennsylvania.
9) Training and Education - Pooling our production will give us additional lout with sponsors, industry trainers and those wishing to address our membership. Cost should be lower and quality higher. It is our plan to provide a constant flows of information, new product profiles, and specialized planning techniques.
10) Gross Payout Negotiation - Size and strength of our group should allow us to increase concessions made by sponsors over amounts normally negotiable by individuals.
"OUR STANDARDS FOR A GREAT COMPANY”Having well established business principles is critical to the success if any few business. Only persistence, hard work and sufficient capital can rival its importance. We feel the need to state the basic values of this firm so that the basis for the decision-making is well established and understood. .... A Great Company
1. Serves its customers well.2. Treats people properly.3. Operates on high principles.4. Makes money regularly.5. Guards the interests of stockholders and employees.6. Knows its mission.7. Knows its position in the marketplace.8. Desires solid community and corporate citizenship.9. Hires superior people and pays them well.10. Will change course amidst changing times.11. Has the vision to see opportunity.12. Retains entrepreneurial spirit.13. Has a bias for action (do it, try it,fix it). 14. Is value driven.15. Regards people as its greatest asset.16. Uses a lean staff, a simple form management17. Pushes decision-making to the lowest level.18. Promotes deserving people, regardlessof race, sex, or religion..... We hereby resolve to build such a company.
INITIAL CAPITALIZATION The above pages have been omitted due to the legality of preceding the Offering Memorandum in conjunction with Federal and State Securities Regulations. An offering Memorandum will be issued to all interested parties upon registration with the appropriate authorities. This should happen on or before August 1, 1986. CONTINGENCY PLANSThe beginning phase of most businesses is characterized by erratic sales trends, fluctuating market share, increasing dependence on improving technological systems, and possible cash flow losses. We do not expect to face any of these problems because of the established nature of the planners we are hiring. However, we would be foolish to believe that we somehow were immune from such potential problems and therefore need not to plan for these eventualities.Our very first need would be to raise capital through stock purchases beyond our initial capitalization requirements to the extent of at least $100,000 to cover any initial shortfall in revenue or budget projections. This would protect us from going the way of most undercapitalized businesses bankruptcy. Secondly, we expect to invest heavily in state-of-the-art technological systems so that we do not face new hardware/software changes early in our business development. Stan Caterbone will devote much of his management time to this area.
Priority will be given to reviewing performance against objectives on a monthly basis. All objectives will be quantifiable and measurable, and as necessary adjustments will be made and monitored accordingly. Such scrutiny of performance will allow us to constantly assess and respond to any possible shortcomings and to market needs.
Our management is committed to deriving a large portion of its personal income from serving clients as opposed to relying on management income. This should preserve our cash flow and insure its growth. BIOGRAPHY OF STANLEY J. CATERBONEStanley J. Caterbone is currently proprietor of S. J. Caterbone Associates, a Financial Planning Firm specializing in but not limited to upper income individuals. He is also president and founder of Fro Financial Group, Ltd., a firm providing financial services and contractual negotiations to Professional Athletes and Agents.
Stan began his career with a financial subsidiary of American Express, IDS Financial Services. He was hired by and worked with Bob Kauffman for six months before Bob was promoted to the Florida area. Stan developed a practice centered around fee-based planning that focused on the tax aspects and concerns of individuals while they pertained to the clients investments and overall financial situation. While at IDS, Stan was one of the leading planners in the nation to utilize fee based planning at its inception. He was one of the top producers in central Pennsylvania, and ranked number 5 in the nation in his class. He also had closed one of the biggest estate planning cases in the division.In January 1985, Stan left IDS and became independent to provide a better product line for his clients and to escape the proprietary environment. He is very creative and has developed a strong practice among physicians.
Stan has developed a variety of professional networks throughout the country with regard to the various Sports Professionals that he works with. He is currently working on a joint venture with former Chief Financial Officer and Vice President of Doubledav Publishing Company. Richard E. Madigan. He is looking to Stan to help him manage an annual income of $7 million from the 20 Professional Athletes that he currently nonages.
Stan has helped to develop the Central Pennsylvania Chapter of the International Association of Financial Planning, and had organized and Attracted more than 100 persons to attend a dinner meeting with Alexandria Armstrong, one of the more prominent Financial Planners in the nation, who is currently the National President of the IAFP. He is also a member of the Estate Planning Council of the Institute of Certified Financial Planners. Stan is currently a Certified Contract Advisor of the National Football league Flayers Association and the NBA. Stan will be an Executive Vice President responsible for professional networking and marketing and sane of the fiscal and negotiating functions.BIOGRAPHY OF ROBERT E. KAUFFMANBob Kauffman is currently the National Sales Manager, at large, for FSC Securities Corporation. FSC is a broker-dealer with a 1200 planner sales force. It raised over 600 million dollars of investment capital in 1986. Bob's responsibilities include developing a company-owned distribution system whereby FSC products and services are delivered to the public-at-large through FSC Financial Service Centers. Bob is also responsible for recruiting proven financial planners throughout the nation for Financial Service Corporation. He also contributes to the strategic planning of sales for FSC Securities Corporation.
Bob began his career with a financial subsidiary of the American Express Corporation in 1976 upon his graduation from Millersville State College in Millersville, Pennsylvania. In his four years of direct selling to the public, he became the youngest person in the company to achieve multi-million dollar production status at the age of 25. Bob then began to take on additional associates as he began to build his practice in Lancaster, Pennsylvania. In just two years, his practice had grown to 12 representatives handling over $12 million dollars a year in annual investments and managing in excess of $60 million dollars of client monies. While building this operation, Bob continued to be the leading producer in his office and the region.
Bob was then promoted to division manager of the West Coast. In that position, he tripled the size of the sales force and increased volume over 500% in a period of 2 years. His division of American Express handled over $100 million dollars of investor monies.
Bob was then asked to take over the largest operation in the southeast, located in Atlanta in 1984. With over 60 financial planners, handling an excess of $200 million dollars of investor's monies, Bob again evolved his territory into the top echelon of the company.
With FSC since 1985, Bob has opened the first three company-owned offices and now supervises an excess of 75 employees. His operations now rank 4th in all FSC related planning operations. Bob brings to Financial Management Group, Inc. 10 years of experience in the financial planning industry in both sales and sales management. He is a member of the International Association of Financial Planners and is in the process of completing the course work for Certified Financial Planners designation. Bob is a frequent speaker at both corporation and business financial planning functions and has been quoted frequently in local and national media publications. He continues to handle investments for select clients.
Bob will serve as president, chairman of the board and will be the largest stockholder. His experience in managing and developing large financial service organizations will provide the leadership and expertise necessary to insure the growth we envision. BIOGRAPHY OF MICHAEL M. HARTLETT, CFPMike Hartlett is currently an independent financial planner and heads his own local firmFinancial Planning Consultants. Mike is a licensed securities principal and folly a licensed securities broker. He has completed the Certified Financial Planning program with the College for Financial Planning and currently holds an Associate Financial Planner designation. He will receive the Certified Financial Planner designation in February 1987.
Hike began his Financial Planning carper five years ago with IDS a subsidiary of American Express. During his career with IDS he was among the firm's top planners. He was on the Presidents Advisory Council for IDS in 1985 and from a field of over 5,200 IDS planners, finished among the top 66 financial planners in the country. In 1983 and 1984 he was among the top three in IRA/Qualified Plan Production. In September, 1985 he left IDS to form his own financial planning firm.
Mike has an extensive knowledge of corporate retirement plans and pension programs and has excelled in retirement planning for individuals. He conducts financial planning seminars in several large Lancaster County corporations and is active in promoting financial planning in Lancaster County.
Mike currently manages in excess of $14 million in client assets. Mike is committed to delivering the highest quality planning services to his clients. He believes that personal attention and service are the key to a strong client/planner relationship. Mike will serve as Executive vice President of Financial Management Group, Ltd. He will be in charge of operations and serve as chief financial officer. FINANCIAL MANAGEMENT GROUP, LTD. Subsidiaries (Exhibit A)
Financial Securities, Inc; The Broker DealerFMG Advisory, Inc., The Registered Investment AdvisorFinancial Services Insurance Agency; The Insurance AgencyFMG Accounting Services, Inc.; The Accounting FirmFinancial Mortgages Services, Inc.; The Mortgage Brokerage FirmWealth Management Services, Inc.; The Portfolio Manager & Market TimerFinancial Planning Consultants, Inc.; The Financial Planning FirmAFFILIATE FIRMS (In House)Berger Real Estate; Real Estate Services
O'Day & Smith; Legal Counsel for Business & Real EstateShirk, Reist, Wagenseller & Shirk; Legal Counsel for Estate PlanningLovell Associates, Inc; Property & Casualty ServicesFro Financial Group, Ltd., (Stan Caterbone); Services for Professional Athletes
McNEES, WALLACE & NURICK
ATTORNEYS AT LAWJuly 31, 1986In re: Financial Management Group, Ltd. Draft Offering MemorandumMr. Stanley J. Caterbone 255 Butler Avenue Lancaster, PA 17601
100 Pine Street
P. O. BOX 1166
Harrisburg, PA. I71O8 - 1166
TELEPHONE (717) 332-8OOO
I have now reviewed the draft Offering Memorandum for Financial Management Group, Ltd., which I received several days ago, and my comments follow.
The cover page indicates that stock will be sold at two different prices, but it should include reference to the fact that the lesser-priced shares will be offered to persons who will affiliate with one or more of the subsidiaries. This can be done by a brief notation on the cover, together with a cross-reference to the section in the Memorandum where is subject will be discussed more fully. There should be a rather-full discussion somewhere in the document indicating the qualifications and requirements pertaining to persons who desire to become affiliated, and as we discussed, this also should be incorporated into a form of agreement or agreements, which should be attached as an exhibit. In this connection, should people who affiliate and later terminate be required to sell their stock back to the corporation?
On the cover you refer to the sale of *units*rather than shares of common stock, and the document reflects the possibility of offering warrants. If you intend to offer units consisting of stock and warrants, the cover page should clearly indicate, and the document should also be clear on that point, and contain a description of the warrants The Memorandum should be much more descriptive in outlining the proposed activities of each of the subsidiaries. In that connection, I suggest with respect to each subsidiary the following information:
1. Reference to the fact that the subsidiary has not yet begun business, as well as the date by which it is reasonably anticipated that some business activities will begin.
2. More detailed information on Just what each subsidiary will do.
3. Likewise, where applicable, »ore specific information. as to licenses and regulatory requirements (if any) which must be met and continually observed by the subsidiary.
4. A discussion identifying the directors and officers and also who will manage its business operations. If formal arrangements have been made with specific persons, so indicate; if the business will be operated by an employee or independent contractor yet to be designated, give details, including the terms of employment that are expected for any such person.
In this connection, I would think you would indicate the possible difficulty of retaining such persons as one of the risk factors. Also, if such persons will continue to operate or be connected with the businesses from which they come, you will have to point out the possibility of a conflict of interest on their part. Further, it is my impression that these businesses are highly competitive. All in all, you should discuss among yourselves what type of information about the proposed businesses a sophisticated potential investor would want to know, and then state your response in writing. Obviously, I would err in favor of more, rather than less, discussion.
With reference to the parent corporation, you should give detail similar to that you will give for the subsidiaries. Further, you may want to discuss how the parent will "manage" the subsidiaries; that is, whether each subsidiary will be largely autonomous or whether parent 'company officers a personnel will be directly involved with the subsidiaries' activities.
With further reference to "risk factors". I would think you would add a section stating that all of the business activities are in fields that are highly competitive. Also, I would think you should state that, while the founders have had considerable experience in certain of the activities, they have not had such experience with respect to all of the other subsidiaries' proposed businesses; further, I presume none has had experience in managing a group of companies and business activities such as is contemplated in this case.
With respect to the use of proceeds, you should consider a further, breakdown of at least some of the components "working capital" category for which $187,000 is allocated, which is a relatively large amount. Among other thoughts, you might refer to the lease obligation (and any other present or contemplated contractual obligations), wages for secretaries and the like, and professional expenses (e.g., legal and accounting). As discussed, and in relation to the use of proceeds, you will have to deal with the matter of the salaries to be paid to key management personnel. I note your disclosure that each will receive a salary not exceeding $60,000, but that raises the possibility that virtually all of the working capital could be used for that purpose. If I were a prospective investor, I would want additional information, as I would be concerned about the potential use of a large part of the proceeds to pay salaries. I would also ask to what extent revenues generated by the businesses would be able to pay part or all of the salaries. Perhaps one approach, if agreeable, would be to disclose that not more than half (for example) of the salaries paid during the two years would be from proceeds of the offering.
Under the "Business” discussion, you make reference to legal services as one of the fields of activity for the corporation. You will want to check with legal counsel who would be involved, but I am doubtful that under professional standards your corporation can offer legal services.
As I review the "Business* section, and as a potential investor, I would want to know more about how solid the arrangements are with "planner and affiliates", and also have some idea of the timetable by which the corporation believes it can begin to engage in business. With reference to "Management", you need to identify the Board of Directors. Also, you should indicate whether management will provide full-time services, and If not, what approximate percentage of their time is expected to be devoted to the organization's business.The biographical summaries, in my view, should be toned down in order to be somewhat more "matter of fact" in tone. In this section, as In the rest: of the document, you must be able to support each fact that is stated, and some of the disclosures are a bit vague. An example is the reference to j Bob Kauffman "handling over $12,000,000 of investment monies per year" and having "an asset base of up to $60,000,000”. Also, while you do indicate the functions each of the three of you will have, I think it would be useful to be a bit more specific.
With respect to "Certain Transactions", you must be sure to disclose fully any arrangement or situation pursuant to which any director or officer will have dealings directly or indirectly with the corporation. For example, if any of you will continue to be retained by your present employer.Sincerely,McNEES, WALLACE & NURICKWJJ:jpEnclosures
MCNEES, WALLACE & NURICK
ATTORNEYS AT LAW
100 Pine Street
P. O. BOX 1166
Harrisburg, PA. I71O8 - 1166
Telephone (717) 332-8OOO
August 7, 1986 In Re: Financial Management Group, Ltd.
Our File No: 11489-001-5Stanley J. Caterbone, Executive Vice PresidentFinancial Management Group, Ltd.
1755 Oregon Pike Lancaster. PA 17601
As we discussed, it will be necessary to file five copies of Form D not later than 15 days after the first sale of securities in the proposed limited offering. This requirement is summarized in the first paragraph of Form D, a partially completed copy, which is enclosed. We will discuss the actual mechanics of filing, as veil as completion of the form, after you have reviewed the enclosed.
Please also note from that paragraph that it is necessary to make one or more additional filings as the offering progresses. and is completed. This will be your responsibility, as only you will know how long the offering will continue and when it is completed. It is most important to make these filings in a complete and timely manner, as failure to do so will make the exemption under SEC Regulation D unavailable, and therefore may result in a violation of the registration provisions of the Securities Act of 1933 and, consequentially, potential liability for the directors and officers.
You will note that in several places I did not have sufficient information to complete the form, and I will rely on you to supply this information. I have marked where these items appear. In particular, you will have to complete Page 5, which requires you to itemize the offering expenses/and then allocate the use of proceeds. You will note that it is permitted to estimate these amounts* although in the supplemental filings the estimates should be revised to reflect actual figures.
Please review this document closely, as it is my strong suggestion that the document should be complete and ready for filing before 1 leave for vacation. You will then be in a position to file the five copies directly with the SEC as soon as the first sale has occurred. Tour signature should go at the end of the form where indicated, but please do not date the form.
Sincerely,McNEES, WALLACE & NURICKWJJ:jp Enclosures
MCNEES, WALLACE & NURICK
ATTORNEYS AT LAW
100 Pine Street
P. O. BOX 1166
Harrisburg, PA. I71O8 - 1166
Telephone (717) 332-8OOO
August 7, 1986In Re: Financial Management Group. Ltd.
Our File No: 11489-001-5Mr. Stanley J. Caterbone
Financial Management Group, Ltd.
1755 Oregon Pike L
ancaster, PA 17601
The purpose of this letter is to address generally the requirements you must meet in connection with the actual offer and sale of securities by the corporation pursuant to the exemption under Section 203(d) of the Pennsylvania Securities Act of 1972 with respect to which a filing has been, or is about to be, made with the Pennsylvania Securities Commission.
As an initial matter, as you are aware no sales may occur until the materials have been "cleared" by the Pennsylvania Securities Commission. That will occur Initially via a telephone call from the Commission staff to our office, at which point we will advise you. Thereafter, the staff will send a letter of confirmation. Alternatively, as we have discussed, it may be necessary to deal with one or more staff comments before clearance can be obtained.
At the point clearance has been obtained, you may distribute copies of the Offering Memorandum subject to the numerical limitations of Section 203(d) and regulations there under. As we discussed, the Memoranda should be numbered consecutively, and the number and name of the recipient of each copy should be recorded in your records and written on the upper-right hand corner of the Memorandum in the spaces provided.
Under Pennsylvania Securities Commission regulations, you are required to keep this type of record; specifically, you must maintain a list shoving (i) the name and address of each offeree, (ii) the name of the person making the offer, and (ill) the date the offer is made. As he previously discussed, the numerical restrictions are that a maximum of 90 offers and 35 sales may he made to Pennsylvania residents in any twelve month period.
The foregoing relates only to offers and sales made in Pennsylvania, and in the event you intend to make any offers or sales elsewhere, it will be necessary for a review to be made of the applicable state "blue sky" securities law. Certain of such state statutes permit a small number of offers and/or sales to be made without requiring any filings, while other states require filings to be made either before or after offers or sales are made. In all events, you should be very alert to this matter, and determine state securities law requirements before approaching prospective investors in other jurisdictions.
As far as federal securities laws are concerned, as we have discussed it will be necessary to file Form D with the Securities and Exchange Commission not later than 15 days after the initial sale is made in the offering. We must rely on you to alert us when such initial sale has occurred; as of course we have no independent means of knowing when that has occurred. Accordingly, please call Mike Jarman or me as soon as the first sale actually occurs.
Section 203(d) of the Pennsylvania Securities Act prohibits "public media advertisement" and "mass mailing" in connection with the solicitation of investors. Similarly, SEC Regulation D, which in effect provides the exemption from federal registration upon which reliance is being made, prohibits "any form of general solicitation or general advertising", including published or broadcast ads or notices and seminars whose attendees have been invited by any general solicitation or advertising.
As the offering continues, the offering materials must be updated by supplement or amendment to advise investors of material changes affecting any of the disclosures.I hope this general outline will be of use, and of course if you have any questions or need any further information, please let us know.McNEES, WALLACE & NURICKWJJ:jp Enclosures
LAW OFFICESMr. Stanley J. Caterbone FMG Advisory, Inc. Eden Park II 1755 Oregon Pike Lancaster, PA 17601RE:Service Mark Search for "FINANCIAL MANAGEMENT GROUP" Our File: 7351-GDear Stan:
SEIDEL, GONDA, GOLDHAMMER & ABBOTT, P.C.
PATENT AND TRADEMARK ATTORNEYS
SUITE 1800 TWO PENN CENTER PLAZA
PHILADELPHIA, PA. 19102
June 22, 1987
As requested, I have completed a search in respect to the above-referenced service mark. The results of that search are annexed hereto.
It is my understanding that the mark "FINANCIAL MANAGEMENT GROUP" is used for services of providing a complete package of legal, accounting, real estate, insurance, stock brokerage, portfolio management, market timing, financial planning, mortgage banking and investment banking to business firms.
Based upon the results of the enclosed search, it is my opinion that you can adopt and use the mark in this region of the United States.' It is a close question as to whether the mark is federally registrable. Moreover, you may anticipate difficulty in using the mark in California, Arizona, Georgia and Illinois. The possibility of opposition to your use of the mark also exists for the states of Louisiana and Oregon. The reasons for my opinion are explained below.If the only consideration were federal registration, then I would say that the mark is probably registrable. The closest registered mark is "FINANCIAL MANAGERS SOCIETY". The marks differ only by the last word, and "SOCIETY" and "GROUP" arguably have a similar connotation. But your services are fairly distinguishable from those of the registered mark. Thus, on a federal level, the major objection to an application to register may be an argument that your mark is descriptive of the services being offered. Descriptive marks are not registrable unless by virtue of their long use and heavy promotion they have become distinctive. However, there is at least a fair argument that "FINANCIAL MANAGEMENT GROUP" is merely suggestive, not descriptive.
The more difficult problem arises in respect to the fact that there are others using "FINANCIAL MANAGEMENT GROUP" or slight variants thereof. See for example California state registration No. 14070 for "THE FINANCIAL MANAGEMENT GROUP". See also the listing 'of four companies under the name "FINANCIAL MANAGEMENT GROUP" in California, Louisiana and Oregon. Moreover, there are "FINANCIAL MANAGEMENT GROUP’s" listed in the telephone book for Atlanta, Georgia and Chicago, Illinois. Whether or not these other users remain in business, and whether or not they offer services competitive with yours, is nearly impossible to evaluate on the limited facts available from the report. Thus, the risks exist that should you enter into one or more of these companies geographical market areas, they may assert a claim of prior rights.
If, on the other hand, you will not as a practical matter be trading in these market areas for the foreseeable future, then I recommend proceeding with an application to register the mark. If we are successful in obtaining such registration, then your right to use the mark can ultimately become incontestable if not for the prior users market areas, then for the rest of the United States.
Please feel free to call me if you have any questions concerning the foregoing.
With kindest personal regards, I am sincerely yours, SEIDEL, GONDA, GOLDHAMMER & ABBOTT, P.C.JOEL S. GOLDHAMMERJSG:md Enclosure
FINANCIAL MANAGEMENT GROUP, Ltd. SALES 1987 1989 Present Capitol Raised $54 Million $100 Million $80 MillionTotal Commissions $2.7 Million $5.0 Million $3.5 MillionAffiliate Earnings $ .3 Million $1.0 Million $ .5 MillionTotal Gross Earnings $3.0 Million $6.0 Million $4.0 MillionRevenues Less Comm. $ .76 Million $1.5 Million N/ASALES FORCE Manpower 37 Persons 50 Persons 48 PersonsHires 10 Persons 14 Persons 14 HiresRetention 90% 85% 95%Average Sales/Person $81,085 $120,000 $85,000FINANCIALS (All Numbers in Millions of Dollars)Gross Revenue 3.0 6.0 4.0Net Revenue .76 1.8 N/ARetained Earnings .21 .501 N/AReturn on Equity 70% 66.6% N/ACapital Base .300 .725 .300Book Value Begin .300 .725 .300Book Value/Share 1.60 3.05 4.00Book Value/End .480 1.526 N/AShares Outstanding 300,000 450,000 245,000Value Per Share $5.60 $10.67 $14.00(at 3.5 X Book)Value Per Share $10.00 $13.33 $17.00(at Industry 1 X Gross Commission)
As of June 1987 1 Month Prior To 1st Year Anniversary
100 South Street, Post Office Box 186 Harrisburg, PA 17108 Telephone (717) 238-6715COMMITTEE ON LEGAL
ETHICS AND PROFESSIONAL
Michael A. Bloom
James M. Houston
September 19, 1986PERSONAL AND CONFIDENTIALKenelm L. Shirk, Jr., Esquire Shirk, Reist, Wagenseller and Shirk P.O. Box 1552 Lancaster, Pennsylvania 17603-1552
Re: Financial Management Group, Ltd.,
This letter is in reply to your inquiry of August 6, 1986 which inquiry enclosed a copy of the "Charter Business Plan for The Financial Management Group, Ltd. dated July 1, 1986. You have requested advice concerning the ethical implications for a lawyer associating with The Financial Management Group, Ltd.Briefly, in review of the materials which you provided, The Financial Management Group, Ltd. ("FMG') seeks to position itself as a "major provider and servicer of financial products and advice in the closely-related fields of investments, financial consultation, mortgage banking, life insurance, property and casualty insurance, taxes, law, and real estate". It is the intention of FMG to retain in-house legal and real estate professionals to assist financial planners -in rendering advice to clients, in the words of the Plan, "without fear of losing the client to outside interests." Identified as part of the "Support Services* which FMG intends to provide to clients, is so-called "professional networking" described by FMG as the use of "in-house affiliates in law, accounting, tax", etc., to serve clients and their related financial needs. The FMG proposals specifically identify so-called "affiliate firms" which include a real estate entity and two law firms, one of whom is identified as "Legal Counsel for Business & Real Estate" and the other firm is identified as 'Legal Counsel for Estate Planning". A true and correct copy of the Charter Business Plan of PMG is attached hereto and incorporated herein as Exhibit "A".At the outset of our evaluation, certain points should be made clear. First, a lawyer is entitled to engage in businesses other than the practice of law provided that the lawyer keeps such enterprises entirely separate from the lawyer's independent practice of law. One of the problems which an "affiliated" lawyer may face in associating with any such financial services provider is the importance under the Code of Professional Responsibility of maintaining the lawyer's independent professional judgment on behalf of a client where, for example, it may be argued that the lawyer can be said to benefit because the tendering of advice may give rise to the purchase of financial service products from FMG. Dnder those circumstances, the lawyer may be subject to charges of conflicts of interest arising under DR 5-101 which provides, in pertinent part, that: "a lawyer shall not accept employment if the exercise of his professional judgment on behalf of his client will be or reasonably may be affected by his own financial, business, property, or personal interests."Of equal concern is the ethical requirement prohibiting in-person solicitation of a prospective client with whom the attorney does not enjoy a present or former attorney-client relationship. There appears to be a likelihood that FMG will directly solicit, on an in-person basis, clients with whom your law firm has no present or past attorney-client relationship which may subject you to the charge that FMG has done for you indirectly what you are prohibited from doing directly. Certainly, we cannot opine that there is no risk of violation based on the foregoing assumed facts.Additionally, one must take care to avoid any ownership interest in FMG mindful of the prohibition contained in DR 5-107 that a lawyer shall not engage in the practice of law for profit if a non-lawyer owns any interest therein. Accordingly, compensation for legal services rendered should be made on a fee for service basis or other objective format, avoiding any possible charge of joint ownership of the venture.It is also important that the confidentiality of information developed during the course of the client representation fay your law firm be held secret and confidential in accordance with DR 4-101. Accordingly, disclosure of the estate planning needs of clients should be done with the express written consent of the client, particularly where a charge may later be made by a disgruntled client that such information was misutilized in order to induce the client to purchase financial services products sold by FMG (on which FMG may be entitled to commissions or fees). Moreover, to the extent FMG earns such fees or commissions, full disclosure of FMG's interest in the sale of such financial services products should be made by the attorney pursuant to the attorney's independent obligation to provide the client with competent advice and a duty of loyal representation.As you may sense, this brief reply to your inquiry identifies only some of the ethical problems which may exist in connection with the proposed structure.
It is not intended, by this letter, however, to discourage such enterprises. To the contrary, it is believed that, carefully structured, lawyers are free to participate in such ventures. Should you require a more detailed opinion, we request that you provide us with specific questions about proposed courses of conduct so that we may be responsive to them.
Should you have any questions concerning this preliminary reply, please contact me.
I remain Sincerely,
Michael A. Bloompdh Enclosure
BUSINESS PROPERTY LEASEThe submission by Lesser to Tenant of a proposed lease shall have no binding force or effect, shall not constitute an option for the leasing of the premises, nor confer any rights or Impose arty obligations upon either party until the execution of a lease agreement by Lessor and die delivery of an executed original copy thereof to Tenant or Its representative. Furthermore, the parties shall not be bound by any written or oral representations between them, directly or through any representation, except as specifically incorporated in the lease agreement referred to above.
BY AND BETWEEN
EDEN PARK ASSOCIATES II
(A Pennsylvania Genera! Partnership)
FINANCIAL MANAGEMENT GROUP, LTD.
(A Pennsylvania Business Corporation)
MICHAEL M. HARTLETT, Individual
STANLEY J. CATERBONE, Individual
ROBERT E. KAUFFMAN, Individual
With Five (5) Year Personal Guaranty
FOR EDEN PARK II
Personal GuarantyThe undersigned hereby unconditionally guaranty for a period of five (5) years from the date of commencement of the prompt performance of the obligations of the Tenant when the prompt performance of the obligations of the Tenant when any alterations or modifications thereof, which alterations may be made without notice to or the consent of the Lease and said alterations and modifications are hereafter named “Lease”. The liability for the Undersigned hereunder is conditional and shall not be affected in any way by prior reason to retain or preserve, or the lack of prior enforcement of, to retain or preserve, or the lack of prior enforcement of, any person or persons, (including the Tenant and any of the any property, (b) the invalidity of any such rights which may be obtained, (c) any delay in enforcing or failure to enforce only if such rights are thereby lost, or (d) any delay in the Undersigned for payment for the Undersigned obligations.COMMONWEALTH OF PENNSYLVANIACOUNTY OF LANCASTER I HEREBY CERTIFY, that on this before me, the undersigned, a Notary Public for the aforesaid State and County, personally appeared Raymond E. Ix, who acknowledged himself to be the Managing General Partner of Eden Park Associates II, a Pennsylvania general partnership, and that he as such Managing General Partner, being authorized to do so, executed the foregoing Guaranty for the purposes therein contained on behalf of the partnership.IN WITNESS WHEREOF, I have hereunto affixed my hand and seal the day and year first above written.