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BROWN & JONES REPORTING, INC.

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IN THE CIRCUIT COURT OF MILWAUKEE COUNTY


STATE OF WISCONSIN
BRANCH XXVI

SARAH M. OBERHOFER, Plaintiff,


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MACCO FINANCIAL GROUP, INC., and JOHN MACCO, Defendants.

Case No. 09 CV 14613 Code No. 30106, 30303

Examination of JOHN MACCO, taken at the instance of the Plaint)ff, under and pursuant to Section 804.05 of the Wisconsin Statutes, before DANNIELLE K. COPELAND, Registered Professional Reporter and Notary Public in and for the State of Wisconsin, at Gerbers Law Offices, 480 Pilgrim Way, Suite 1200, Green Bay, Wisconsin, on April 14, 2010, commencing at 1:07 p.m. and concluding at 3:23 p.m.

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TRANSCRIPT OF PROCEEDINGS JOHN MACCO. called as a witness herein, having been first duly sworn on oath. was examined and testified as follows: EXAMINATION Will you state your name please? John Joseph Maceo, M-A-C-C.o. Mr. Maceo, I'm Bill Hughes, and I represent Sarah Oberhofer in this litigation. Yes. Have you ever been deposed before? No, sir. I would assume that your counsel has discussed with you the format. is that correct? Yes. If you need a break at any time, let us know. If you have any issues with any questions I ask, need clarification, please let me know? Certainly. What is your current residential address? My personal address is 1874 Old Valley Road, De

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corporate name, which was RT of Milwaukee. And what was the subject matter of that lawsuit? Were they suing you or were you suing them? They were suing us. Suing Maceo Financial Group? Yes. What were they suing you for? I don' know how to summarize that. We had a discrepancy over the terms of the transaction. The transaction involving the purchase of their business, is that right? Correct. Whafs the highest level of education you completed? 12th grade. Do you have any licenses? Such as? Professional licenses. other than driver's license? I am a certified scuba diver. I have a motorcycle license. I have a marriage license. I am an IFR rated pilot, and I have a Series 7, 9,10, and I think that's it Sir, can you give me an overview of your employment history follOWing the 12th grade?

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BY MR. HUGHES:

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And the business location? 1138 Main Street, Green Bay.

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I worked In the retail floor covering business for 18 years. We buiH a retail floor covering organization. After that, I left that company and I worked for Clifton Gunderson Company for a year and a half. After that I worked for a company out of Chicago called Pencor, Ltd., for about a year and a half, and after that I got into the brokerage business. I built an office with Raymond - with Edward Jones and I was with them for seven years, and then I left and went with Raymond James, and I've been with them for six years. When did you form Maceo Financial Group? We opened in as a matter of fact, today. That's fascinating. April 14th of 2004. And you say we," what did the - what did Maceo Financial Group consist of at that point? Really, me and my assistant, Terry has five percent of the company, so I have 95 percent, she has five. Was that the ownership situation at the time you opened? Yes. And it's still Still that's the way it is today.

2 A 3 Q 4 5 A 6 Q 7 A it was shut down in April 2009. 8 9 Q And what was the address of that location? 10 A I don' remember. H was on Milwaukee Avenue. 11 Q What's your date of birth? 12 A 9-23-58. 13 Q And your Social Security? 14 A Social Security number? 15 Q Have you ever been convicted of any crimes? 16 A No. 17 Q Ever been involved in any other lawsuits? 18 A Yes. 19 Q How many? 20 A One, I guess. THE WITNESS: Huh, Terry? 21 22 BY MR. HUGHES: 23 Q And What was the nature of that lawsuit? 24 A It was a dispute with the sellers of the Milwaukee

t A 2 3 4 , 5 6 7 We closed on that office on October 6th, 2008. and


Is that the one business location that you have? Yes. You were previously out of the Milwaukee office. is that right? We were for a few months. And what timeframe is that, what months?

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office, Sue Hedtke and Clyde Buhrow, under their

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a team. and it might have made some sense that they would be part of that.

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an organization than transaction revenue, but beyond that what we were not interested in was Individuals who were managing their own organization, their own asset management. We consistently talked about building an organization that transcends the individual, and I'm not at all Interested - no matter how proficient Sarah or anybody else would have been in managing their own assets, so we were very, very clear, and it Is In many, many different things that we have published. that we are looking for folks to manage relationships. not assets, and to utilize very specific accounts In what we call Raymond James's Freedom accounts, Raymond James Consulting Service accounts, a general Raymond James wrap account-type bUsiness.

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Were you looking for someone speCifically to handle Sue and Clyde's accounts? Not specifically, no. So after that initial meeting, then what next transpired regarding - what next did you do or any action did you take regarding following up with Ms. Oberhofer regarding possible employment with Macco Financial Group?

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What action did I take? Yes. I really don't know the sequence of what the very next step was. At some point In time we had some subsequent conversations. You ended up hiring her, correct? We did.

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So a little more specifically, then, in tenns of when you say you're looking for people to manage relationships, not accounts, what does that mean?

Do you recall what the hiring date was?


I think it was December - the first part of December of OB. And so subsequent to that initial meeting you followed up with her in some way, shape or form? We followed up with each other. I'm not exactly sure who did what. There was follow-up and there was subsequent meetings.

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It means that there are some folks in our Industry


who were very astute analysts and they love to crunch numbers and research corporations and companies and types of investments. rm not interested In those people. I'm Interested in

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extend an offer of employment to her? Yes. What was the reason you came to the conclusion you shOUld extend an offer of employment to her?

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folks that are interested In the personal side of

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the relationship and not the asset management side


of it as far as that goes because Raymond James has a very, very deep group of folks that do that for us, and we don't need to be doing that, and four people sitting In an office are not going to beat 15 Ph.D .. sitting down In Sl Petersburg. If that answers your question.

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At the time she Impressed me with her professional


acumen, and I thought that she might make a good employee. She had represented that she had a book of business that seemed compatible with the type

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And you say she represented to you that she had a type of business that was consistent with what your interests were? At the time she did. What do you recall her representing to you regarding her business? That she had a group of mutual fund-based Investments that she herself was managing, and we discussed the fact that that's fine that these are mutual fund Investments as opposed to Individual stock or bond Investments, but could she transition from her building those portfolios to allowing the Raymond James folks, through their Freedom and their RJCS platforms, to build those portfolios, and she said at the time she thought that made a lot of sense. Now,

of business that we were running. We had her to


our offices and we totally researched the type of business, we were very clear about the type of business that we run, the type of accOunts that we have, the type of asset management that we utilize and the type of clients that we're looking at, and she rapresented that her book of business would be compatible with that. You said you were very clear about a number of things, type of accounts, type of business? Um-hum. What is it that you described to her regarding the type of business you were looking for? We were looking to establish ongoing consistent

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fee..based revenue. As I mentioned to you eariler,


recurring fee.based revenue was more valuable In

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you refer to it as Freedom and RJCS

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they need to live on or simply assets they're going to live on. Depending on all those different preponderance of data, we would decide which Freedom model would be the best

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correct? No. So you assign yourself a salary, right? Yes. And so then in terms of - if, for example, those amounts that are deposited by Raymond James in your account are not sufficient to cover all of the expenses, then what happens?

Did you have any discussion with Ms. Oberhofer regarding what period of time WOuld be required in order for her to transition her acoounts to a different platform?

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No. Now, go back to the employees that you have or the Individuals that work for you at fhis time. You mentioned your son, Mike MaceO. Is he compensated on a how is he compensated, salary?

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Yes, he's Just straight salary.

ATe there other aspects of his compensation, bonus opportunity, anything like that?
No, there's nothing set up and haven' had any yet. How about any of your other employees? No, Terry and Shirley are hourfy and I'm salaried. You say you're salaried, and when you say you're salaried, how is your compensation set? Isn't It based on the revenue you generate or your office generates?

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I borrow money or I put In money. Or you take less of a salary? I did that too, and so did Michael But if there is an excess, then what happens with that? Assuming there ever Is an excess, we would then probably elect, the three of us, to make a distribution. but we've not had that discussion. We've run negative balances since we started. But the negative balances would be based on whatever you decide to set your salary at, correct?

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N9, I'm salaried just like any other employee.


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So help me describe - help me understand the business a IiWe bit. You have your company, Macoo Financial Group, you have a number of clients, you have accounts under management, you have fees being generated from these accounts, the income of or the revenue of Macco Financial Group is detennlned how?

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Sure. What is your current salary? I made $89,000 last year, gross. And that was for a Raymond James fiscal year or That was for calendar year.

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Um-hum. Now, in setting compensation of any of your current employees, you say no one currently has a bonus arrangement. Is a bonus arrangement potentlaUy a type of compensation arrangement you can enter into with an employee? I have nothing In writing on any bonus compensation for me of my employees. But you have some handshake bonus arrangements with employees? We have no handshake bonus arrangements. We have no arrangements whatsoever, verbal or otherwise, for bonuses or any excess revenue because we simply haven't had any. If business picked up and you wanted to provide for a bonus, that could be part of a compensation package? I wouldn't disregard It Let's go back to Ms. Oberhofer's situation and your recruitment of her. We've identified. generally speaking, when you think you first met her, and we know the date that you hired her. and you mentioned there was some discussions duling that period of time. You obviously, at some

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7 8 A goes through Raymond James, and Raymond James pays 9 us twice a month. So we receive a net check from 10 Q Raymond James, net of all the brokerage fees and 11 12 A expenses associated with - that Raymond James charges us, and they deposit a net amount twice a 13 14 month into our Maceo Financial Group checking account From that checking account, then my 15
0 .... business, whatever source that may come from,
corporation pays all of Its bills, Including my salary. And at the end of the year, if there's - after you pald your salary and the salary of your son and the hourly amounts that are paid to the other employees, if there's - and you paid all your other bills and if there's something left over, then that's yours? "II let you know when that happens. But you don't get a salary from Raymond James,

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November 11th, 2008, but it's what we aspired to. Down to the next paragraph, second paragraph of Exhibit 1. the last half states, Mlf we are successful with our stated objectives, each five percent stake in the whole will be worth $1.5 million,.by 2013"? That would have been exciting. All right. let's look at that sentence. You say, "If we are successful with our stated objectives." What stated objectives are you referring to? That's a very good point, but agaln,lf I may, the very first sentence of that paragraph says our proposal there Is little at all guaranteed, but the upside potential Is unlimited, so I was very articulate that there are a lot of contingencies based on this, but how we came up with that number was we assumed many different things which in hindsight now turned out not to be true, but we assumed the size of Ms. Oberhofer's book to be Let me just interrupt you for a second, and you went up to the first sentence there. Yes. So let's talk about that for a little bit. All right. You said you were very articulate with respect to 44 varius contingendes. In that first sentence of the paragraph you state, "With our proposal: now, you use the term "proposal- in the first sentence of the first paragraph and you said that was maybe a poor choice of words. Is that your same position regarding the use of proposal- In the second paragraph? It should have probably been, you know. with our discussion, because we never actually submitted. created, executed a speciftc proposal whatsoever. I mean, we talked about a lot of different things, so yeah, I would agree that that's probably a When you say, "there's little to all that's guaranteed, but the upside potential is unlimited," what's the upside potential and how is it unlimited? The upside potential would have been In what we refer to then In the third sentence is that the valuation of the organization would be larger. That was predicated on a lot of research that we did that said larger organizations demand a larger multlpte. A larger organization would be desirable to, say, a Wells Fargo to simply acquire us, to a larger group to acquire us. It was also predicated on the vast majority of our revenue

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being in fee-based revenue as opposed to transaction revenue, as I mentioned, and beyond that. not just fee-based alone, but automated fee-based, such as the Freedom, RJCS and AMS platforms, so based on those numbers and those projected revenues, that's how we kind of carne up with that guesstimate. Change the subject just for a second. Go ahead. You mentioned Terry is a five percent owner, . right? Correct And you mentioned there's a formal shareholder agreement in place between you and her? There Is. Does she have any right to limit your ability to give, say, for example, me, five percent of your business? No. If you want to give away five percent, you can do that? As long as I control the organization. I suppose if I got to be less than 50 percent, I would not. So when we talk about upside potential being unlimited, what upside potential are you talking

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about there? MR. GERBERS: I'm going to object as being asked and answered. Subject to that, you can answer it. BY MR. HUGHES: Q Are we talking about monetary upside potential there? A In the value to the shareholder? Q Yes. A Yes. Q Okay. Now, the next we'll go to the next sentence. "We are seeking individuals that will contribute to the whole of the organization and thereby enrich themselves through their vested interest in that organization." A Right. Q What's the vested interest that you're referring to there? Their commitment level to the organization, to buy into the theme and the method of where we're going. We were not Interested In folks looking to simply park their license under my - under my OSJ, office of supervisory jurisdiction, and we're not Interested In FAs slmpty looking to park their - I could have gotten half a dozen folks

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