Spinoffs
By William Cate
Published August 1999
[http://home.earthlink.net/~beowulfinvestments/] [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]
Doing a spinoff is ten times better than buying a shell. Your spinoff will
be clean. You'll retain a higher percentage of your stock. It costs you
less. If you doubt me, send me a self-addressed stamped envelope and I'll
send you my spinoff articles from "Time" and "American Venture."
I work with two public companies willing to spinoff private companies.
1. Company A will spinoff almost any sound company with competent and
honest management. They'll consider a well-designed startup. They are my
default solution for private companies seeking to buy a shell.
The cost is $25,000 less the payment by the public company for your stock.
You should add legal and accounting costs. I would recommend this company's auditors who usually charge less than $20,000 for their audit. I would recommend my California Securities Attorney who will want a $25,000
retainer against a $75,000 flat fee. This will bring your total costs to
under $115,000. You'll be responsible for stock support and finding your
Private Placement financing.
2. Company B is selective. They require that the company have at least two
million dollar gross revenues with at least five hundred thousand
reinvested pretax profit. The company must have an international market for
their product or service. They arrange up to a $10.4 million Offshore
Private Placement financing for their clients. They'll pay your legal costs
and your brokerage costs for the Private Placement. They'll supply
supplemental funds for your Stock Support Program. They want to be involved with your company for at least five years. They'll want a seat on your Board of Directors. You must be willing to pool and vault the insider stock for five years.
They charge $225,000 with a $60,000 retainer and 100,000 shares of your
stock. It's a cost effective turnkey service for companies that meet their
requirements.
Doing a spinoff allows your insiders to retain 90% of the issued shares of
your company. If you accept the Company B Offshore Private Placement
financing, you'll still have over 56% control of your company. Compare that
to the usual 60% control you get with a shell, WITHOUT A FINANCING.
Compare costs with buying a shell. The shell will cost you $150,000. You
must add the costs of an audit, cleanup costs and legal costs. If you
arrange a financing, you must add the underwriter's cost to the cost of
buying your shell. Which makes more sense? Pay $25,000 or pay $150,000.
To contact the author: Visit the Beowulf Investments website: [http://home.earthlink.net/~beowulfinvestments/] Or, visit the Global Village Investment Club Website:
[http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]
About the Author
He has been the Managing Director of Beowulf Investments [http://home.earthlink.net/~beowulfinvestments/] since 1981 and is the Executive Director of the Global Village Investment Club [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]