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Memo from the Chairman

Robert A. Spira
Chairman

 

CHAPMAN SPIRA & CARSON, L.L.C.

Investment Banking Consultants
(November , 1998)

 

  This recital and the accompanying "Overview" are provided by way of introduction to Chapman Spira & Carson, LLC, (an investment banking organization headquartered at 110 Wall Street in New York City. Chapman specializes in a broad range of financial services, which are enumerated in detail below. Along with the typical investment banking functions such as mergers, acquisitions, corporate finance, consulting, and marketing, we also act for our own account, and in conjunction with others, providing early stage capital to promising new companies, while, conversely, representing well established old line major businesses. Our transactions are not limited to the United States, and much of our business is consummated offshore.

Overseas, Chapman is convinced that regions brimming with resources are entombed in the genie’s bottle for all time unless someone with a magic "opener" arrives to release them. We inaugurate an offshore assignment by achieving a thorough understanding of the laws, customs, mores and ethos of the region, while analyzing potential future trends and their possible effect on our client’s projected transaction. We exhaustively identify marketable domestic resources and local industries that have the capacity to readily adapt to the rigorous competitive demands of the world market. The adaptation must inherently occur within the economic constraints of quality production at competitive prices with an indigenous, highly motivated labor force that is capable of absorbing new technologies as changes occur. This methodology allows us to recognize regional patterns and economic anomalies, thus giving us the ability to predict the shifting of industrial strength from one region to another. The latter, in turn, guides Chapman when matching local businesses with technology-donor corporations. Only those candidates that comply with our intensive search criteria are selected.

 

We regard ourselves as extremely proficient apropos the nuances of the Pacific Rim, the Eastern Block, South America and Africa. These operations are complimentary to our ongoing domestic investment banking business. Our associates are very familiar with ramifications of offshore transactions in these regions. Among our team of professionals are some of the country’s most talented accountants, attorneys and economists, each specializing in a distinct component of global economics. They have been hand picked based on their knowledge of local custom and law, their personal integrity, and, ultimately, their ability to get the job done for our clients.

 

The Chapman team is equipped to optimize the client’s transactional requirements in numerous financial disciplines. By positioning our firm exclusively as an independent financial advisor, we bring to bear substantial resources. This permits Chapman’s staff to clearly convey our client’s goals to firms that we have identified as logical strategic financial partners. Even in the area of financing we are careful to evaluate synergistical relationships well suited for the task of providing substantive results within contractually discernible time parameters.

 

One of the most sophisticated resources in the Chapman arsenal is the algorithm based regression analysis model created by MCC. This is a highly complex mechanism, which takes advantage of advanced mathematical and electronic principles, which allow the establishment of concentric simultaneous database structures. The database is created synthetically through the use of highly refined electronic "agents". As a result, we are able to reach conclusions quickly. Although the database has philosophical problems dealing with aesthetic anomalies, it is still able to encompass multiple platforms containing unlimited data and information. The system is also self qualifying and internally correcting, permitting the firm to assume a very high level of accuracy.

 

Once the candidate’s data has been thoroughly reviewed for accuracy, our economists are positioned to propose a variety of functional investment banking services. These run the gamut of: strategic planning and partnering, reverse mergers, acquisitions and financings. The firm’s financing capabilities include bridge loans, private placements and initial and secondary public offerings. If the determination has been reached that "go it alone" financing is the optimal approach, the profile driven system is able to identify which variation will generate the foremost long-term benefits for the client. The system is also capable of assessing which currency translations will best support "risk averse" financing.

 

Barter, which is generally disregarded as a financial tool in the United States, is routinely evaluated when we are addressing the optimum design of our proposed strategy. A joint venture with the largest barter firm in North America opens up a nearly insatiable market for competitively priced quality products produced in the target region. Through a complex system of cost analysis, profit margins are established for marginal excess production that usually cannot be disposed of locally. In most export transactions, even after taking into consideration, tariffs, shipping, insurance and other incidentals, we are usually able to substantially increase profitability.

 

Chapman also uses barter as a supplemental form of credit enhancement which, under certain circumstances, can be used when other more established methods are either unavailable or prohibitively expensive. Our economists are convinced that on-line electronic commerce will eventually replace the use of money as we know it today. The eventual demonitization of cross-border transactions will remove the necessity of currency hedging. A nation’s financial strength will be measured in terms of the quality and quantity of their resources, goods and services. Electronic "Country Credits", payable in whatever surplus resources that nation has available, will become "the coin of the realm". We predict a world with few middlemen in which strategically located warehouses will replace showrooms. A transaction of the future may contain thousands of links if no "one-on-one" transaction is possible. There will be infinite range of goods and services changing hands among geographically diverse groups of companies scattered around the world. Barter credits not spent will be stored in massive electronic databases awaiting a needed commodity. Predictably, these electronic credits will replace currency and create an environment requiring an ever-evolving level of knowledge to succeed. Chapman believes that it is well positioned to assist its clients in their efforts to keep pace with this coming economic revolution.

 

EQUITY ADVISORY

We are equally attentive in other areas as well. As an example: there are numerous well-established foreign companies that want to become United States traded public companies. Their motivations are varied, and include liquidity, credibility, wealth creation, stock and or cash acquisitions, and raising capital. The major investment banking houses have abdicated this niche market. Chapman is convinced that it is filling an economic void, and has geared up its staff to handle all facets of these sophisticated transactions.

 

With regard to reverse mergers, Chapman provides an efficient and comprehensive "system" for client corporations that desire to go public to augment their options while enhancing their visibility in the financial community. Each client's goals are analyzed and an individualized program is created from Chapman’s "menu" of services to optimally effect the desired results.

 

Chapman's investment banking group has a diverse background that is well suited to accomplishing client objectives. It includes experience in the international sphere, management of public companies, and high level experience in the legal, accounting, financial, investment banking, money management, marketing and sales, and advertising and public relations areas. Chapman, thus, has the ability to call upon the people with the specific skills needed to make a company's transition from private to public ownership a successful one, and or achieve visibility for the company within the investment community.

 

The four senior managing directors of Chapman have substantially more than a century on the "Street", having served in almost every arena constituting the global financial marketplace. We provide clients access to the New York financial community, including, brokerage firms, banks, consultants, venture capitalists, as well as lawyers and accountants, all uniquely positioned to provide backup to the client’s particular needs. Chapman’s primary goal is to establish long-term relationships with those who seek guidance.

 

Chapman’s combination of experience, competence and personalized service, when viewed in tandem with the unusual niche in which it operates, may indeed, provide the difference between success and failure for client companies. From underwriting to reorganization, our years of experience have taught us how to get the job done efficiently, while diligently adhering to the parameters laid out by the client. Over the years, members of Chapman’s senior management have served on distinguished Wall Street Committees, and have held numerous memberships on the New York and other Exchanges. Further, our services in the areas of securities regulation, arbitration and new products development on the New York, American and Boston Stock Exchanges along with the National Association of Securities Dealers, has afforded us enviable personal relationships with managing partners at many of Wall Street’s most venerable firms. One of our associates is the Managing General Partner of a group of seven of the most prestigious financial organizations in the United States: , Bankers Trust, Solomon Brothers, Goldman Sachs, and other well known organizations. A senior partner was an early member of the elite group first certified as a C.I.R.A. by the prestigious "Association of Insolvency Accountants" (A.I.A) "Certified Insolvency Reorganization Accountants" (C.I.R.A), which counts as its members the leading bankruptcy and reorganization practitioners in the Country. These connections remove much of the guesswork when it comes to the bottom line: "getting the job done".

 

We are confident that we have addressed many, if not all, of the critical issues relative to financial structuring, credit enhancements, currency fluctuations, arbitrage, barter, and trade credits within our database. The firm has worked with the Export-Import Bank, the World Bank, the World Health Organization, the United Nations, the Department of State, the FDA, New York State, as well as congressional committees and individual members of Congress. We have been invited to work with many state and foreign development associations, and have consulted and/or testified on behalf of various government organizations, including congressional committees, the U. S. Treasury, the Federal Reserve Bank, the General Accounting Office, the U.S. Trustee, the Securities and Exchange Commission and the United Nations. We have been quoted in Forbes, The Institutional Investor, The Wall Street Journal, Chief Executive, and Business Week, among others.

 

We have concluded transactions in the fields of banking, pharmaceutical, electronics, software, computes, Internet, intellectual property, learning, leisure, mail-order, mining, real estate, financing, designer clothing, energy, publishing, fabrication, oil and even in sophisticated surveillance equipment, among many others. (our client list is available upon request). We have concluded these transactions as principals, as brokers and as combinations of the above and are also receptive to client’s requests to supervise negotiations in particular facets of transactions in which they had no familiarity.

 

We invite your company to make use of our resources. An important caveat is the fact that our fees tend to be success-oriented; as a result, we are extremely circumspect when reviewing a potential client’s business objective. Chapman must be satisfied that the goals set forth are logical, achievable and legal. Furthermore, it is important to us that our transactional input benefit all involved parties and that additional resources can be optimally utilized by present management. All of our associates are individually responsible for assuring the successful culmination of each project.

 

 

 

APPENDIX

 

A REPRESENTATIVE LIST OF INVESTMENT BANKING AND SHAREHOLDER RELATIONS SERVICES AVAILABLE THROUGH Chapman SOURCES.

 

1. Preparation of a comprehensive business plan, which details a client company’s history, current operations, financial condition, and future plans and prospects, supported by financial forecasts and other associated documents. The "Plan" is a company’s primary document for introducing itself to the financial community. Additionally, it provides the business and technical information that the professional advisors and attorneys will require to prepare the various legal documents.

2. Preparing pro-forma financial projections designed to be utilized by the investment community and potential individual investors as a means of evaluating the potential of the company’s securities and their suitability as an investment.

3. Making capital structure recommendations, which reflect the realities of the financial marketplace and the needs of shareholders, broker dealers, investment bankers and the financial media. Usually a company desiring financing will be offered what is called a "cap rate" for its shares (the offering price multiplied by the total number of shares to be issued and outstanding on the completion of the offering).

4. Arranging for the placement of a company’s securities, through an initial public offering, secondary, private placement, and bridge or mezzanine financing. This is much more sophisticated than commonly believed by lay people.

  5. Providing a publicly trading "shell" or; pool" under advantageous terms. The choice would be predicated on the client’s particular needs and the availability of a suitable vehicle.

6. Recommending legal and accounting services, which reflect a client’s specific requirements. For example, one client might require sophisticated representation in the intellectual property arena, while another could well have international accounting or legal concerns.  Preparing and coordinating regulatory filings, notices and applications, including those required by federal and state agencies, shareholder notifications, stock exchange listings and credit rating bureau applications. Procedures can be set up to ensure that ongoing filings are made in a timely fashion and that record keeping is properly maintained. While this is normally handled by  in-house professionals, economics may play a critical role in determining whether these function will be   handled by outside firms. The weight of these  additional reporting requirements are sometimes forgotten during the heat of assembling a public underwriting document. There are many service organizations that can perform various parts of the responsibility, both professionally and at a  reasonable cost but, if you don’t know how to contact them or worse, lack the knowledge that they even exist, you may wind up spending substantial dollars and not even gain first rate treatment.

8. Arranging representation for clients in the unpleasant event that they are required to appear before various federal and state agencies under adverse circumstances. As we have noted before, the fact that you are able to afford big dollars to bring high priced assistance before these forums can be a doubly costly mistake. Just in the practice of security law, there are specialists that we work with in most regulatory arenas. As part of our services, consultation with any of our associates will be provided, should it be necessary, so that our client can best evaluate his alternatives in a timely fashion.

9. Identification of logical acquisition candidates. Almost all fledgling companies have a burning desire to become bigger, whether by internal growth or by acquisition. The nuances of acquiring another company when you are public are too complicated to go into in detail in this short synopsis. Suffice to say, our access to substantive databases, which can be filtered to address the profile presented by our client, are readily available and can determine within a short time what companies, if any, are available to be acquired. Again, this is only the beginning. Many vital companies have been turned into ashes by not dotting the i’s and crossing the t’s when entering into a merger. We have available for our clientele, a checklist that provides, at least a valuable start in attempting to "cover all of the bases".

10. Advise on how to maximize return on corporate cash balances, while adhering strictly to SEC guidelines. One of our associates has spent, literally, his entire life in this field. He has been a consultant to many of the largest banks in this Country. One of his specialties is cash management and at the level of his expertise we have generally found that he is able to create a higher return on cash balances. This again is what we believe to be a unique service of Chapman.

Function as a client’s "Investor Relations Department’. This includes keeping in close contact with key investment banking institutions and others in the financial community and supervising the preparation and distribution of materials, such as annual reports, 10-K’s and proxy statements to shareholders, the media, the brokerage community, and all other interested parties.

 

Establish strong financial public relations with market makers, retail brokers, the media, etc. This is accomplished by working closely with the appropriate members of the financial community who can assist the company to gain broad based exposure, recognition and stock distribution, both domestically and internationally. Only the highest visibility companies are able attract investors attention in a vacuum (We are not sure that this is true either). The fact that a company is public is not enough to garner investors’ interest. The company may be sanguine about the price of their stock, "because we are not going to sell it anyway", but as we have described in the footnote of Item 11, things in life are not that simple. The price of the stock becomes of great consequence when a merger involving the company’s shares is contemplated and the shares drop under the original offering price, or at the time that management wants to sell a portion of their stock to raise money for taxes and there is no liquidity. Planning for these exigencies, at times, is as important as the strategic planning that goes into determining the company’s overall business direction.

13. Coordination of corporate and/or product promotion campaigns to enhance company visibility to the financial community and commercial marketplace. Any company is a by-product of all of its facets and a successful face creates an image of success, thus indirectly causing demand for its products and, potentially, enabling management to increase profits.. When higher stock prices are thrown into the brew, the resultant mixture can act as a marvelous sleeping aid for management.

14. Develop programs to introduce a non-domestic company and its products to the United States domestic market; these programs could include introduction to potential strategic domestic partners and/or distribution networks, product placements and the coordination of trade show activities. This may be more of a problem for the offshore company that is not fully familiar with the American distribution and media system. Because they have evolved into such a mature combination, very often a successful product launch can become more of an issue of public relations than advertising. Our society is more interested in who else is driving a certain car or using a type of exercise equipment. If Michael Jordan told the world that he owed his basketball success to eating a nourishing bowl of "preserved turnips", each morning, every grocery store in the country will have arranged extra shelf space for the inevitable run-on turnips within hours. There is a critical balance between the use of these type of media, which we believe is somewhat unique to this country. There are professionals available to our clientele that specialize in developing sophisticated marketing techniques for "off-the-shelf" as well as unique offshore products seeking penetration of geographically specific locales. We would certainly recommend that, before a client embarks on an expensive promotional campaign, it would make strategic sense to permit our experts to evaluate the situation and determine the best course of action. This, as with the services addressed previously, carries no obligation on the part of our client and, if nothing else, serves as a sounding board for the company to use, when needed.

15. Planning and administering of annual and due diligence meetings. This is usually the function of the brokerage firm designated to raise money for the company, but often, they become cavalier when addressing the issue of conducting a high-level meeting which would top producers from the "right" broker-dealers. We have had substantial experience coordinating these meetings and / or helping others plan the event so as to best show off the Company’s wares. Naturally, we would be pleased to augment the Broker-Dealer’s invitations with our proprietary list, which contains many of the critical Wall Street names.

16. Serve on the company’s board of directors. Occasionally we serve on various corporate boards, if so-requested by our clients. It is our feeling that if we can arrange for strategically placed, highly visible people, with tangible name recognition, to serve in our stead, it creates a type of public relations that money can’t buy. Many of our clients have requested that we arrange advisory boards of illustrious individuals in the company’s field and have done so in the past with great success. As to directors, it is possible to create "blue ribbon boards" but there are elements that make this more difficult. If the company is in a high risk business such as pharmaceuticals or medical instruments, where there may be substantial personal litigation risk to the officer’s and director’s for any number of reasons, Directors and Officers liability insurance is practically mandatory. Many of the insurance companies we are acquainted with write this type of policy and, under certain circumstances, the cost does not have to be prohibitive. If management desires this service, usually all of its aspects can be handled in-house.

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