Firm Launches Premier Middle-Market Investment Bank: AmperIB
Resources and Experience: The Cornerstones of Service

Albert G. Pastino
PARTNER
MANAGING DIRECTOR, AMPER IB

Just after the turn of the millennium, Al Pastino had a vision. With 35 years of financial management and investment experience under his belt, he saw an opportunity to create an investment bank dedicated to the middle market - but not a typical Wall Street investment bank. The firm he envisioned would be run by professionals who understood closely-held and family-owned businesses. It would be a place where middle market clients would receive the same talent, expertise and respect that the large multinational corporations receive.

To make this idea a reality, Pastino knew he needed to ally himself with an organization that combined an entrepreneurial culture with a depth of middle-market expertise and top-notch resources in tax and financial management. Based on past experiences with Amper, Politziner & Mattia (Amper), Pastino knew the call he needed to make.

After two years of strategic planning, recruiting and execution, Amper Investment Banking (AmperIB) was launched in 2005. The new firm has completed over a dozen transactions in its first year, with primary services in mergers & acquisitions, capital formation and strategic advisory counsel. In addition, AmperIB recently received its NASD membership, reinforcing its commitment to adhering to the highest standards in the securities industry.

Getting Started
Al Pastino and Al Mattia met more than 20 years ago at the “Owner/President Management Program,” an executive education program offered by the Harvard Business School. Throughout the years, they have remained friends and professional colleagues. Pastino knew Al Mattia had helped grow the accounting and consulting firm organically, from a modest start, to become the CPA profession’s 30th largest firm - and one of its most respected.

More importantly, Pastino observed that Mattia had helped build an organization with the kind of values and environment that he was looking for. “I felt my plans for this investment bank would mesh with the firm’s mission and entrepreneurial mindset. The CPA firm’s excellent reputation, abundance of resources and unrivaled industry experience were also very important factors,” said Pastino.

Building on Expertise
Pastino put together a team of professionals with the support of the firm. His own background spanned 35 years at firms such as Alex Brown & Sons, Kohlberg & Company, Deloitte & Touche and Fortis Private Capital. The many experienced professionals at AmperIB have extensive backgrounds at major Wall Street firms, including significant operating, direct investment and strategic consulting experience. Among them, they have handled more than 75 M&A transactions, raised more than $5 billion in growth capital, and conducted nearly 50 capital formation transactions.

In one short year, AmperIB has become well known for its middle-market expertise in business sectors. AmperIB takes on assignments from a variety of industries, and focuses on:

• Business process outsourcing
• Value-added manufacturing
• Specialty retailing
• Distribution and logistics

“Middle market companies need the global reach of a large investment bank with the passion and senior-level involvement of a boutique firm,” Pastino noted. Yet with clients whose revenues generally range between $10 million and $250 million, AmperIB’s Directors understand that each transaction - and each set of owner/managers - have unique circumstances that need to be addressed with care.

Managing Director, Allen Wilen notes, “We understand that a transaction is one of the toughest things in a client’s business life. We deal with transactions every day, but for our clients, it’s often a once-in-a-lifetime situation.” That’s why at AmperIB, each transaction is overseen by two senior bankers, and our clients have full access to the deal team throughout the course of the transaction.

A recent assignment for Crompco Corporation, a leading provider of environmental compliance services to major oil companies, highlights AmperIB’s distinct style. When Crompco’s entrepreneurial owner found himself at a crossroads - he needed to take on a financial partner to launch a new growth strategy, but didn't want to disrupt the smooth functionality of the company - he turned to AmperIB for help. Amper brought to the table their depth of industry knowledge and a clear understanding of the owner’s priorities that it to accurately describe the business opportunity - and the potential growth trajectory - to prospective investors. In the end, AmperIB was able to negotiate a recapitalization of the company with Lineage Capital LLC, and the owner successfully launched the new product line.

NASD Membership Granted
Recently, AmperIB was granted NASD membership, a big advantage to a young organization. As the primary private sector regulator of the U.S. securities industry, the NASD oversees the activities of more than 5,000 brokerage firms and 650,000 registered securities representatives, and maintains stringent rules and regulations that member companies must adhere to in order to protect the integrity of the country's financial markets. As part of the NASD registration, all AmperIB professionals must pass examinations on topics that range from NASD rules and regulations, to economic theory, to portfolio theory and analysis, to demonstrate competence in the areas in which they will work.

With a wide variety of backgrounds in corporate finance, investment banking, private equity, commercial banking, accounting, LBOs, and venture capital, the team of bankers and analysts at AmperIB look at their clients’ situations from a variety of vantage points. As a result, they are often able to spot opportunities for clients in unexpected places.

AmperIB offers clients a breadth of knowledge in strategic advisory services, drawing upon Amper’s extensive heritage in taxation, bankruptcy, and restructuring work. In a recent example, the firm was able to leverage these skills to effect a turnaround situation. A client in the entertainment industry was facing a liquidity crisis that threatened its existence. AmperIB worked with the management to address inventory and distribution issues, and in the process of doing so, identified a potential purchaser. AmperIB was then able to help management structure and negotiate a transaction that provided the owners a significant portion of the purchase price in cash, as well as a minority interest in the new company.

Moving Forward
As AmperIB looks to 2007 and the future, capital formation and mergers and acquisitions work will play a central role. Pastino does not plan to change the firm's service or sector focus in the future.

“I believe Amper Investment Banking’s uniqueness is our goal to provide consistency over time. Like Amper, we plan to grow the business organically, by continuing to build on the strength, reputation, and resources that we have right out of the gate. Before long, we will be an established presence in the industry and a “go to” bank for the middle market,” said Pastino.

For more information on Amper Investment Bank, check us out at www.amperib.com.

Michael S. Maglio
SENIOR MANAGER

Greatly influenced by the aging of the current baby boomer generation, over the next 10 to 20 years our country will experience the largest number of individuals reaching retirement age in history. This number consists of those of us born between 1948 and 1964, including upper-income households, will face the enormous challenges of meeting the demands of ever increasing living expenses, while properly saving for retirement. Baby Boomers will also be strained trying to meet exorbitant education costs and successfully allocating a household income. This is when financial resources among various needs becomes even more complex.

As a society, we’ve become more accustomed to a certain lifestyle. A lifestyle that has become increasingly expensive to maintain, even for high-income households. It's no secret, in general, that our savings rate has not been as robust as it should be. Furthermore, increases in real estate prices, a more aggressive property and state income tax environment, and recent exponential increases in energy prices have made it more difficult to allocate resources to retirement funding. Given these on-going challenges, goal setting and fundamental planning have become even more important than ever.

Before we take a look at some of the core issues, here are a few statistics:

• Approximately 1/3 of those between the ages of 42 and 58 think they will have enough money to live comfortably in retirement;
• For Americans, ages 59 to 70, about 47% feel they will have enough money to live comfortably in retirement;
• A quarter of all baby boomers do not think they will have enough money to retire at all.

Compounding matters is the decreasing availability of defined benefit pension plans, the diminished role of social security, and the need to fund longer life expectancies. Consequently, most future retirees will have to completely self-fund retirement through their own savings. This period of time, which ranges from 20 to 30 or more years, can start with a “partial retirement.” In this instance individuals slowly transition from a career to full retirement at some later age. Participation in part-time employment, self-employment, or some other form of less than full time employment will become more prevalent. This result is based on the financial needs of the retiree, the desire to be more active in retirement years and a greater life expectancy.

The inevitable cocktail party question we get as financial advisors is, “How much money do I need to retire?” My stock answer is of course, different for everyone. The process to evaluate this query really starts with an evaluation of an individual’s or married couple’s current living expenses and how that will potentially change in retirement. For many folks, evaluating what you may need in retirement is hard to ascertain and is an on-going process over many years. Although this may change over time, the good and bad news is that the earlier you start the better off you will be. When teaching the rudiments of personal finance to college age students, I am always fascinated by their reaction to calculations illustrating the effects of small incremental changes in savings rates, investment returns, and length of the accumulation period. The concept of present value, or more to the point, the effects of inflation, further enlightens and almost scares most people. The Federal government's measure of inflation (Consumer Price Index or CPI) suggests a rate of around 2%. But anyone who has reviewed his or her utility bills, property taxes, and gasoline receipts over the last few years will realize that our cost of living, especially in New Jersey, has sky rocketed. The overall influence of inflation and the idea of how the buying power of a dollar will change over the next 20 years may motivate us most when it comes to organizing our long-term financial plans.

Here’s an example of this concept:

• If you were to save $20,000 per year over 20 years and get an annual investment return of 6%, you would have $735,700 after those 20 years.
• This $735,700, invested at the same 6%, would produce an annual income of $57,551 over the subsequent 25 years in retirement using both principal and growth.
• Perhaps more startling is that onceamounts to $23,863 in today’s dollars.

This basic exercise should lead most of us of all income levels to better address our retirement planning needs. Here are a few additional thoughts that would apply to most:

• Starting with some high-level thinking and a “pencil and paper” approach, sketch out your goals and plans. Documenting your thoughts and putting things in writing tends to make them more real, more tangible, and thus, more attainable.
• Control and reduce debt, particularly where there is an adjustable interest rate involved.
• One goal would be to plan on being mortgage free by the start of retirement.
• The use of a professional service can lend a third-party, objective view to one’s situation. Acting in many cases as a mediator to a married couple’s differing views of what it means to prepare for retirement, and how and when to retire.

Clearly, maximizing pretax contributions to 401(k) and other such retirement plans is a good start. For those with access to other salary and bonus deferral plans, proper balance between current cash flow needs and savings is important. A level of sophistication in modeling one’s retirement planning is of the utmost importance. This analysis can tell us what our income potential is, given certain assumptions, influence us to alter our savings strategy and, most importantly, create a roadmap as to how we need to invest our savings in order to achieve our goals. This roadmap will allow one to revise risk tolerance and asset allocation appropriately.

The process of planning for retirement is complex. It is an on-going process in which we’ve just scratched the surface. Other critical issues to consider can involve the impact of the ever-increasing cost of health insurance, evaluation of long-term care insurance needs, the nuances of formulating a suitable investment strategy, and making proper use of various employee benefits plans.

Michael P. Kelly
MANAGER INTERNAL AUDIT SERVICES

The much-anticipated guidance on how small Public companies should implement an effective internal control framework over financial reporting as required by Sarbanes-Oxley was released by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission on July 11. The final guidance is considerably shorter and more “user friendly” than the original version of COSO.

The new guidance includes just 20 of the 26 original principals from the Internal Control - An Integrated Framework issued by the Commission in 1992. It is a scaled-down version that was designed to assist smaller public companies in implementing the Framework in order to comply with the Sarbanes-Oxley Act of 2002 (SOX). The Framework is widely accepted as the industry standard among large public companies that have had to comply with SOX regulations since the 2004 reporting year. Smaller companies, defined as those with a public float of $75 million or less, are not required to comply until fiscal years beginning after December 16, 2006. These small companies found the original Framework too cumbersome for their smaller staffs and limited resources.

The COSO guidance, however, does not define businesses as small, medium or large as do the SEC and PCAOB above. For COSO, the term “smaller” rather than “small” business suggests that there is a wide range of companies to which the guidance is directed. The focus is on businesses that have many of the following characteristics:

• Fewer lines of business and fewer products within lines.
• Concentration of marketing focus, by channel or geography.
• Leadership by management, with wider spans of control.
• Less complex transaction processing systems and protocols.
• Fewer personnel, many having a wider range of duties.
• Limited ability to maintain deep resources in line as well as support staff positions such as legal, human resources, accounting and internal auditing.

The new guidance is broken down into three volumes as follows:

1. Executive Summary - provides a high-level review for boards and senior management.

2. Guidance - fundamental principals drawn from the original Framework along with related attributes and approaches, and examples of how smaller businesses can apply the principals in a cost-effective way.

3. Evaluation Tools - A compendium of tools to help management evaluate internal control.

The final version provides guidance to management with respect to achieving a more efficient assessment of internal control effectiveness, while still stressing the achievement of effective internal controls based on all five COSO components. This guidance is meant to ease the burden placed on smaller companies by their external auditors who may insist on strict adherence to the expectations laid out by the PCAOB Auditing Standard No. 2. It does, however, provide advice to companies of all sizes as they work to optimize their ongoing SOX compliance investment.

The guidance maintains that this is a principals-based approach and it is up to management's discretion on how to accomplish these principals. It stresses that once a company establishes effective controls, a robust monitoring process should contribute a great deal of the evidence needed for SOX Section 404 compliance.
A new feature in the final guidance is a color-coding system that matches each of five fundamental elements of internal control (Risk Assessment, Control Environment, Control Activities, Information & Communication and Monitoring) to the principles and attributes that address each of these elements.

Below are 20 basic principles outlined in the guidance as the fundamental concepts necessary in achieving effective internal control over financial reporting:

Control Environment
1. Integrity and Ethical Values. Sound integrity and ethical values, particularly of top management, are developed and understood and set the standard of conduct for financial reporting.

2. Board of Directors. The board of directors understands and exercises oversight responsibility related to financial reporting and related internal control.

3. Management’s Philosophy and Operating Style. Management’s philosophy and operating style support achieving effective internal control over financial reporting.

4. Organizational Structure. The company’s organizational structure supports effective internal control over financial reporting.

5. Financial Reporting Competencies. The company retains individuals competent in financial reporting and related oversight roles.

6. Authority and Responsibility. Management and employees are assigned appropriate levels of authority and responsibility to facilitate effective internal control over financial reporting.

7. Human Resources. Human resource policies and practices are designed and implemented to facilitate effective internal control over financial reporting.

Risk Assessment
8. Financial Reporting Objectives. Management specifies financial reporting objectives with sufficient clarity and criteria to enable the identification of risks to reliable financial reporting.

9. Financial Reporting Risks. The company identifies and analyzes risks to the achievement of financial reporting objectives as a basis for determining how the risks should be managed.

10. Fraud Risk. The potential for material misstatement due to fraud is explicitly considered in assessing risks to the achievement of financial reporting objectives.

Control Activities
11. Integration with Risk Assessment. Actions are taken to address risks to the achievement of financial reporting objectives.

12. Selection and Development of Control Activities. Control activities are selected and developed considering their cost and their potential effectiveness in mitigating risks to the achievement of financial reporting objectives.

13. Policies and Procedures. Policies related to reliable financial reporting are established and communicated throughout the company, with corresponding procedures resulting in management directives being carried out.

14. Information Technology. Information technology controls, where applicable, are designed and implemented to support the achievement of financial reporting objectives.

Information And Communication
15. Financial Reporting Information. Pertinent information is identified, captured, used at all levels of the company, and distributed in a form and timeframe that supports the achievement of financial reporting objectives.

16. Internal Control Information. Information used to execute other control components is identified, captured, and distributed in a form and timeframe that enables personnel to carry out their internal control responsibilities.

17. Internal Communication. Communications enable and support understanding and execution of internal control objectives, processes, and individual responsibilities at all levels of the organization.

18. External Communication. Matters affecting the achievement of financial reporting objectives are communicated with outside parties.

Monitoring
19. Ongoing and Separate Evaluations. Ongoing and/or separate evaluations enable management to determine whether internal control over financial reporting is present and functioning.

20. Reporting Deficiencies. Internal control deficiencies are identified and communicated in a timely manner to those parties responsible for taking corrective action, and to management and the board as appropriate.

The methodology that Amper has developed is adaptable to both large and small companies. It is a comprehensive integrated risk-based approach that is designed to effectively and efficiently support the internal control and financial statement assertions required by Sarbanes-Oxley. It reflects our interpretation of PCAOB Standards, our experience with numerous public companies to achieve compliance and our integration of best practices and prevailing standards.

We welcome the opportunity to answer any questions you may have regarding your companies unique situation. In addition, http://www.coso.org is a valuable reference resource.

AMPER ANNOUNCES NINE NEW PARTNERS

Thomas A. Jappe CPA
Tax Manager

The tax treatment of stock options depends primarily on whether the options are incentive stock options (ISO) or nonqualified options (NQO).

ISO's do not result in a regular tax liability when the options are granted or when exercised. However, the exercise of such options does result in an adjustment for Alternative Minimum Tax (AMT) purposes equal to the difference between the exercise price and the grant price. This means that an employee who exercises ISO's may incur a substantial AMT tax even though no cash is received. The individual does not incur a regular tax liability until the stock is sold, resulting in a capital gain. Long-term capital gain rates apply if the holding period requirements are satisfied. If the stock is sold in a disqualifying disposition, meaning that the stock is not held until over two years after the ISO was granted and over one year after the stock was acquired, the individual will incur compensation income instead of capital gain.

The AMT problem can be prevented by immediate sale of the stock. However, this results in the gain on sale (the difference between the grant and exercise price) being treated as ordinary income.

When an AMT tax is paid as a result of the exercise of ISO’s, up to the full amount of the tax may be recovered in future years as a credit against regular tax. This depends on the regular tax exceeding the tentative AMT tax in the year of credit. This will usually occur when the stock that was acquired in the exercise of options is sold, since this stock will have an AMT basis that is higher than the regular tax basis and there will be a negative AMT adjustment that is equal to this difference.

There is no guarantee that recovery of the AMT tax will occur, since there are a number of possible events that could prevent the credit from being usable in any given year, such as the exercise of additional ISO's in the year stock from earlier years is sold. There could also be other substantial amounts of AMT adjustments in the return such as deductible taxes paid or miscellaneous deductions that would have the effect of increasing the tentative AMT. Also, if the market value of the stock declined significantly, there might not be sufficient regular tax exceeding the tentative AMT to use the AMT credit against.

As indicated above, holding stock acquired by exercising ISO's for long-term capital gain treatment can be risky since one may pay a large amount of AMT tax and then be unable to recover this tax via the AMT credit when the stock is sold. This is in addition to the investment risk of holding a large amount of a single stock (lack of diversification). Also, the employee is dependent on the same company for his or her livelihood.

Exercise of Nonqualified Stock Options generally results in an immediate tax. The difference between the exercise price and the grant price is treated as wages, subject to withholding taxes and is included in the individual's Form W-2. If the stock is not sold and regular wages are not sufficient to cover the amount of the withholding taxes, the individual will have to pay the taxes from his or her own funds. Accordingly, it is generally desirable for the individual to sell enough stock to cover at least the amount of taxes due in a “cashless exercise” which is typically done for publicly traded securities.

There is no AMT adjustment resulting from the exercise of nonqualified stock options, since the gain is taxed as ordinary income regardless of whether the stock is immediately sold.

Peter Segro
Manager

The Energy Tax Incentive Act of 2005 was signed by President George W. Bush on August 8, 2005. It contains numerous deductions and credits that affect both business and individual taxpayers. With the proper knowledge and understanding of these incentives, taxpayers can maximize their tax savings.

Some of the energy incentives available to businesses, residential owners, and individuals are as follows:

Commercial Building Energy Conservation
Congress developed this incentive for businesses with the idea that companies would consider upgrading their lighting, cooling and heating systems and building insulations (such as windows and doors) if they provided some benefit. Their goal was for business owners and lessees to conserve energy. Owners of business buildings can deduct up to $1.80 per square foot for energy efficient improvements as long as they fall within the following criteria.

The property must be:

• Depreciable and located in the United States.
• Placed in service after December 31, 2005 and before January 1, 2008.
• Part of the interior lighting system, heating and cooling system or building insulation, and
• Annual energy costs are reduced by 50% or more and directly related to the energy improvements.

A partial deduction is available if energy costs are reduced by 16 2/3 percent. The IRS requires that the taxpayers obtain a certification from the contractor regarding
the energy cost savings and use the Performing Rating Method (PRM) to compute the reduction in energy costs.

Construction of New Energy Efficient Homes
The credit is either $2,000 or $1,000 per home depending upon the type of home and energy reduction standard it meets. These homes must be substantially completed after August 8, 2005 and must be purchased after December 31, 2005 and before January 1, 2008.

Business Solar Energy Credit There is a 30% tax credit up to $2,000 available for the purchase of qualifying residential solar water heating, photovolfaic equipment and $500 for each half kilowatt of capacity for fuel cells.

Residential Energy Efficiency Incentives
Provides owners of residential properties a personal tax credit of 10% of the amount paid or incurred for qualified energy efficient improvements. The property must be placed in service after December 31, 2005 and before January 1, 2008. The maximum credit allowed is $500 for each year. Some examples of property qualifying for the credit include qualifying energy efficient oil and gas furnaces, hot water boiler, air circulating fans and energy efficient appliances such as clothes washers, refrigerators and dishwashers.

Alternative Fuel Motor Vehicle Credit
This new credit is eligible for four types of vehicles including qualified fuel cell, advanced lean burn, hybrid and alternative fuel vehicles. Alternative fuel is compressed or liquefied natural gas, petroleum gas, or hydrogen containing at least 85% methanol. The manufacturers must submit a certification to the IRS outlining the following:

• Vehicle’s make, model and year
• Alternative fuel used by vehicle
• Retail price and computation of credit

The vehicle must be acquired for use or lease by the taxpayer and not for resale after December 31, 2005 and before January 1, 2011. If the vehicle is leased, tax credits must be recaptured to the extent that the lease period is less than the economic life of the vehicle. The taxpayer is not responsible for additional taxes if a taxpayer relies upon a manufacturer's certification that is later withdrawn by the IRS.

As stated above, the current crop of energy tax incentives generally expire at the end of 2007. Currently, there are bills in Congress to extend these credits beyond their sunset dates. However, one can argue that by extending these credits, the work will get postponed to a later date whereas the original objective was to conserve energy “now” especially in our current environment of soaring oil and gas prices. One needs to recognize the time it takes to design plans that will conform to the guidelines set forth by the IRS in order to qualify for these energy incentives and the time needed for the work to be completed by the sunset dates. We should keep in mind that the President signed the Energy Policy Act to give all Americans energy efficient choices.