Huckabee stands to gain from deal
Posted on Wednesday, June 28, 2006
URL: http://www.nwanews.com/adg/News/158968/
The New York-based company that counts Gov. Mike Huckabee among its directors began merging Tuesday with a separate shell company, a cheap and fast way to go public.
With a complex series of stock transactions, Park Avenue’s Flagship Patient Advocates Inc. will become part of Finity Holdings Inc., an Ohiobased shell company whose shares were recently traded for a penny and whose major shareholders include two men who were convicted last year of bank fraud and other charges in Colorado.
The resulting company will be renamed Patients & Physicians Inc., said Fred Nazem, chairman and chief executive officer of both Flagship and Finity. The new company will specialize in providing members-only medical services, including referrals to a network of top medical and surgical specialists around the world.
Nazem said Finity and Flagship will officially merge today, with the filing of a restated certificate of incorporation. Finity shareholders authorized the transaction at a meeting at Flagship’s offices Tuesday.
Huckabee was traveling in Japan on Tuesday. He said he did not participate in the merger decision. He said his involvement with the company is limited and that he wasn’t sure if he would benefit from his involvement with Flag- ship.
“Obviously, he doesn’t have me on there because I’m one of the world’s richest men,” Huckabee said.
Nazem asked Huckabee to join the company after reading the governor’s book, Quit Digging Your Grave with a Knife and Fork, and hearing some of his lectures on health.
Shell company transactions can be hugely profitable. Republican candidate for governor Asa Hutchinson saw a $ 2, 800 initial investment in Fortress America Acquisition Corp. grow to more than $ 1 million on paper after the shell company acquired another business earlier this month.
Finity isn’t much of a company, with no assets reported on the company’s balance sheet, according to filings with the Securities and Exchange Commission.
However, the company does have regulatory approval to be traded publicly, which makes it an attractive partner for privately held companies that are looking to go public, said Bob Williams, managing director of Little Rock-based Delta Trust.
Finity’s shares are traded under the ticker symbol FNTY on the Over the Counter Bulletin Board, a market used primarily by small companies with lowvalue, “penny” stocks, including Fortress America.
Finity’s shares ended Tuesday trading at eight cents a share, up from one cent on June 13.
Going public is expensive, Williams said, and is an option usually reserved for large and growing companies. For smaller outfits, it’s easier and cheaper to take over a shell company and its publicly traded stock, what Williams call “a backwards acquisition of a public shell company.”
Nazem agreed, saying the major banks that underwrite initial public offerings “wouldn’t want to touch” a company that reported less than $ 300 million in annual revenue.
Flagship reported revenue of $ 5, 194 for the year ending Dec. 31. Its net loss for that year was $ 7. 6 million, according to SEC filings.
Nazem said that despite the losses, the company will prove a success. That would be good news for Huckabee, who as director has the option to buy up to 25, 000 shares at 90 cents a share.
With the current share price far below 90 cents, Huckabee hasn’t exercised any of those options, Nazem said. But if the company’s stock is a hit with investors, and the share prices rises, it could be a windfall for the governor.
Nazem said only Finity shares will be affected by the combination. Flagship shareholders, including Huckabee, will retain the same number of shares, Nazem said.
Flagship and Finity have the same officers and directors, according to Finity’s proxy, and Huckabee will remain a director of Patients & Physicians Inc.
Huckabee is one of 10 officers and directors listed in Finity’s proxy statement filed with the SEC on June 15. The 25, 000 shares that Huckabee has the option to exercise represent less than one-tenth of one percent of the Flagship’s outstanding shares.
Tuesday’s decision by the Finity shareholders will see the company execute a series of transactions designed to bring the value of shares in Finity in line with Flagship. That included a 125-to-1 reverse stock split, and the authorization of tens of millions of additional shares.
“The reverse stock split is really just getting the numbers of the stock right,” Nazem said, adding that the transactions didn’t change the actual value of either company.
It was part of what Nazem called a “housecleaning” of Finity. The shell company was originally founded as Columbia Capital Corp. in 1993, and partnered with Boulder, Colo.-based BestBank, in processing credit cards.
BestBank was later declared insolvent, and two men involved with both companies, Glenn Gallant and Douglas Baetz of Fort Lauderdale, Fla., were later found guilty by a federal jury on 63 counts, including bank fraud, and continuing a financial crimes enterprise.
Although a federal judge later dismissed 27 of those counts, the pair still face a minimum sentence of 10 years on some counts, said Jeff Dorschner, a spokesman for the U. S. attorney’s office in Denver, which prosecuted the case.
Lee David Foreman, an attorney for Baetz, and Patrick Murphy, an attorney for Gallant, did not return telephone calls to their offices Tuesday.
Baetz and Gallant both held 5. 3 million shares in Finity, each equal to 9. 5 percent of outstanding shares, according to the company’s proxy statement.
Those holdings will shrink with the reverse stock split, and Nazem said they will own less than 1 percent of the combined company. He said he didn’t care about “what they did, all these dumb things.”
“What we did is we took a shell that is registered with the SEC and we cleaned it up,” Nazem said.