AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 23, 1997
Commission File No. 333-17103
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Flex Acquisitions Corporation
(Exact name of registrant as specified in its charter)
Texas
(State of Incorporation)
___________
(Primary Standard Industrial Classification Code Number)
76-0498636
(I.R.S. Employer Identification Number)
770 S. Post Oak Lane, Suite 515
Houston, TX 77056
713/840-7500
Facsimile: 713/840-7554
(Address and telephone number of registrant's
principal executive offices)
Michael T. Fearnow, President, 770 S. Post Oak Lane, Suite 515, Houston, TX
77056
713/840-7500
Facsimile: 713/840-7554
(Name, address and telephone number of agent for service)
Copies to:
M. Stephen Roberts, Esq.
770 S. Post Oak Lane, Suite 515
Houston, TX 77056
713/961-2696
Facsimile: 713/961-1148
Approximate date of commencement of proposed sale of securities to the
public: As soon as practicable after the Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
PROPOSED
MAXIMUM PROPOSED
OFFERING MAXIMUM
TITLE OF EACH CLASS OF PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE AMOUNT BEING PER OFFERING REGISTRATION
REGISTERED REGISTERED SECURITY(1) PRICE(1) FEE
<S> <C> <C> <C> <C>
Common Stock (3) 80,000 $ .23 $ 18,400 $ 5.58
Class A Options (2) 80,000 $ .00 $ 0 $ .00
Common Stock Underlying Class A Options 80,000 $ .50 $ 40,000 $ 12.12
Unit Purchase Options - Bridge Loan (2) 16,333 $ .00 $ 0 $ .00
Units issuable upon exercise of the Unit 16,333 $ .50 $ 8,167 $ 2.47
Purchase Options; each Unit consisting of
one share of common stock, $.001 par
value, two Class B Warrants and two Class
C Warrants (2)
Common Stock issuable upon exercise of 16,333 $ .00 $ 0 $ .00
the Unit Purchase Options (2)
Class B Warrants issuable upon exercise 32,666 $ .00 $ 0 $ .00
of the Unit Purchase Options (2)
Common Stock issuable upon exercise of 32,666 $ 6.25 $ 154,163 $ 46.71
Class B Bridge Loan warrants which
underlie the Unit Purchase Options
Class C Warrants issuable upon exercise 32,666 $ .00
of the Unit Purchase Options (2) $ .00 $ 0
Common Stock issuable upon exercise of 32,666 $ 10.00 $ 246,660 $ 74.74
Class C Bridge Loan warrants which
underlie the Unit Purchase Options
Units, each consisting of one share of 14,000 $ 4.80 $ 67,200 $ 20.36
common stock, $.001 par value, two
Class B Warrants and two Class C
Warrants (2)
Common Stock ($.001 par value) (2)(3) 14,000 $ .00 $ 0 $ .00
Class B Warrants (2) 28,000 $ .00 $ 0 $ .00
Common Stock Underlying Class B Warrants (2) 28,000 $ 6.25 $ 175,000 $ 53.03
Class C Warrants (2) 28,000 $ .00 $ 0 $ .00
Common Stock Underlying Class C Warrants 28,000 $ 10.00 $ 28,000 $ 8.48
Common Stock (for the Shelf)(4) 2,000,000 $ .23 $ 460,000 $ 139.38
TOTAL $ 288.13
============================================ ============ ========== ========== =============
<FN>
(1)Estimated solely for purposes of calculating the registration fee.
(2)No registration fee is required for these common shares, Class B Warrants, Class C Warrants,
and Unit Purchase Options, because the securities to be offered pursuant to the Class A Options,
Units and Unit Purchase Options are being registered in this same registration statement.
Regulation 230.457(g).
(3)These 94,000 (80,000 and 14,000) shares are to be offered in exchange for all the issued and
outstanding shares of common stock of Flex Financial Group, Inc. in a proposed merger. The
registration fee is based upon the book value of Flex Financial, $21,185, on July 31, 1996.
(4)These 2,000,000 shares are being registered pursuant to the provisions of Regulation
230.415(a) (viii) and are to be available to be issued in connection with business combinations.
The registration fee is based upon the maximum offering price of the securities offered in
exchange for all the issued and outstanding shares of capital stock of Flex Financial.
(5)The registration statement also covers any additional securities which may become issuable
pursuant to anti-dilution provisions of the warrants.
</TABLE>
The registration hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
section 8(a) of the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Commission acting pursuant to said
section 8(a) may determine.
PROSPECTUS
FLEX ACQUISITIONS CORPORATION
(a Texas corporation)
94,000 Shares of Common Stock
(Par value, $0.001 per Share)
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" ON PAGE 10.
____________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
____________________________________
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND ISSUER OR
RECIPIENT(3) COMMISSIONS OTHER PERSON(1)
<S> <C> <C> <C>
Per Share:
94,000 Merger Shares (2) $ 0.23 $ 0.00 $ 21,620
2,000,000 Shelf Shares (4) $ 0.23 $ 0.00 $ 460,000
- -------------------------- -------------- -------------- ----------------
<FN>
(1)The estimated expenses of the Merger transaction described herein are
$35,000, all of which is being borne by Flex Financial Group, Inc.
(2)Should the proposed Merger between Flex Acquisitions Corporation (the
"Company") and Flex Financial Group, Inc. ("Flex Financial") described herein
be approved and effectuated, these 94,000 Shares will be distributed to the
shareholders of Flex Financial, and all shares of Flex Financial will be
canceled. See "TERMS OF THE MERGER," page ___.
(3)Based upon the book value of Flex Financial on July 31, 1996.
(4)These Shares (the "Shelf Shares") shall not be distributed at this time but
shall be available to the Company for merger and acquisition purposes during
the 2 years' period after the effective date of this Prospectus upon the
Company's filing post-effective amendments to the Registration Statement of
which this Prospectus is a part. There are no current plans, arrangements or
understandings for mergers, acquisitions or business combinations for which
the Shelf Shares would be used.
(5)The offering price of the Shelf Shares would be determined in the future,
if use is made of such Shelf Shares, and would be reflected in post-effective
amendments to the Registration Statement of which this Prospectus is a part.
</TABLE>
The Company is not a "reporting company," as such term is employed in the
Securities Exchange Act of 1934. It is not listed on any exchange, and its
Common Stock is not eligible for quotation on the NASDAQ Small-Cap Market
("NASDAQ"). There presently is no public market for the Common Stock of the
Company, and there can be no assurance that such a market will develop or can
be sustained should there be a completion of the proposed Merger. Should the
proposed Merger not be effected, there will be no public market for the
securities of the Company because of the above-described escrow arrangement.
See "Summary of Proposed Transaction - The Escrow Arrangement." Should the
proposed Merger be effected, the Company intends to register pursuant to
Section 12(g) of the Securities Exchange Act of 1934, as amended, (become a
"reporting company") and, in accordance therewith, will file reports, proxy
statements, and other information with the Securities and Exchange Commission
(the "Commission"). The Company intends to furnish its shareholders with
annual reports containing audited financial statements and such other periodic
reports as the Company deems appropriate or may be required by law.
ADDITIONAL INFORMATION
REGISTRATION STATEMENT. The Company has filed with the Securities and
Exchange Commission in Washington, D.C. a Registration Statement under the
Securities Act of 1933, as amended, with respect to the Common Stock offered
by this Prospectus. For further information with respect to the Company and
the Common Stock offered hereby, reference is made to the Registration
Statement and the exhibits listed in the Registration Statement. The
Registration Statement can be examined at the Public Reference Room of the
Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, and copies may be obtained upon payment of the prescribed fees.
REPORTS TO SHAREHOLDERS. Should the proposed Merger be effected, the
Company intends to register pursuant to Section 12(g) of the Securities
Exchange Act of 1934, as amended, (become a "reporting company") and, in
accordance therewith, will file reports, proxy statements, and other
information with the Securities and Exchange Commission (the "Commission").
The Company intends to furnish shareholders with annual reports containing
financial statements audited by independent certified public accountants and
such other periodic reports as it may deem appropriate or as required by law.
STOCK CERTIFICATES. It is expected that certificates for the securities
offered hereby will be ready for delivery within thirty days after the date of
the approval of the proposed merger and the filing of the necessary merger
documents with the Secretary of State of Texas, should the proposed merger be
approved by the requisite shareholder vote of each of the Company and Flex
Financial Group, Inc., with respect to the Shares to be distributed in the
merger to the existing shareholders of Flex Financial Group, Inc.
POST-EFFECTIVE AMENDMENT AND PROSPECTUS STICKERS CONCERNING PROPOSED
MERGER. Should the proposed Merger described herein be approved by the
requisite shareholder vote of Flex Financial and become effective, the Company
will file a post-effective amendment to the Registration Statement described
above and cause stickers to be placed on the front cover page of all copies of
the Prospectus, which amendment and stickers will describe the results of the
vote and the effective date of the merger.
UNTIL _____________________, 1996 (90 DAYS AFTER THE REGISTERED SECURITIES ARE
RELEASED FROM ESCROW PURSUANT TO RULE 419 UNDER THE SECURITIES ACT OF 1933)
ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES MAY BE
REQUIRED TO DELIVER A PROSPECTUS.
TABLE OF CONTENTS
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
ADDITIONAL INFORMATION
SUMMARY OF PROPOSED TRANSACTION
SECURITIES ISSUED IN OTHER TRANSACTIONS BEING
REGISTERED
SPINOFF
SECURITIES ISSUED IN INITIAL PUBLIC OFFERING
THE THREE COMPANIES
FLEX ACQUISITIONS CORPORATION
FLEX FINANCIAL GROUP, INC.
AMERICAN NORTEL COMMUNICATIONS, INC.
THE SPINOFF
THE PROPOSED MERGER AND SPINOFF
THE ESCROW ARRANGEMENT
SHOULD THE MERGER OCCUR
CONSEQUENCES SHOULD THE MERGER NOT OCCUR
REASONS FOR THE ESCROW ARRANGEMENT
DEGREE OF MANAGEMENT CONTROL OF VOTE ON MERGER
DISSENTERS' RIGHTS OF APPRAISAL
COMPLIANCE WITH GOVERNMENTAL REGULATIONS
TAX CONSEQUENCES OF THE TRANSACTION
RISK FACTORS
RISK FACTORS
TERMS OF THE TRANSACTION
TERMS OF THE MERGER
REASONS FOR THE MERGER AND SPINOFF
ACCOUNTING TREATMENT OF PROPOSED MERGER
PLAN OF MERGER
DESCRIPTION OF SECURITIES
COMMON STOCK
Voting Rights
Dividend Rights
Liquidation Rights
Preemptive Rights
Registrar And Transfer Agent
Dissenters' Rights
REDEEMABLE COMMON STOCK PURCHASE WARRANTS
Class B Warrants
Class C Warrants
PREFERRED STOCK
OTHER SECURITIES OF THE COMPANY
CLASS A COMMON STOCK PURCHASE OPTIONS
UNIT PURCHASE OPTIONS
CLASS B AND CLASS C WARRANTS
FEDERAL INCOME TAX CONSEQUENCES
THE MERGER
THE SPINOFF
SHAREHOLDERS OF AMERICAN NORTEL
PRO FORMA FINANCIAL INFORMATION AND DILUTION
MATERIAL CONTACTS AMONG THE COMPANIES
REOFFERING BY PARTY DEEMED TO BE AN UNDERWRITER
INTEREST OF COUNSEL
INDEMNIFICATION
INFORMATION ABOUT THE COMPANY
DESCRIPTION OF BUSINESS AND PROPERTIES
COURSE OF BUSINESS SHOULD THE MERGER NOT OCCUR
LEGAL PROCEEDINGS
MARKET FOR THE COMPANY'S COMMON SOCK AND RELATED
STOCKHOLDER MATTERS
RULE 144 AND RULE 145 RESTRICTIONS ON TRADING
FINANCIAL STATEMENTS
Independent Auditor' Reports
Balance Sheet
Statement of Operations
Statement of changes in Stockholder's Equity
Statement of Cash Flows
Notes to Financial Statement
INFORMATION ABOUT FLEX FINANCIAL
MANAGEMENT'S PLAN OF OPERATION
LIQUIDITY AND CAPITAL RESOURCES
PLAN OF OPERATION
BUSINESS OBJECTIVES
BUSINESS EXPERIENCE OF PRINCIPALS
BUSINESS PLAN
1. General
2. Subordination and Bridge Loans
3. Other Investment Transactions
4. Miscellaneous Matters
DESCRIPTION OF BUSINESS PROPERTIES
LEGAL PROCEEDINGS
MARKET FOR FLEX FINANCIAL'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
FINANCIAL STATEMENTS
Independent Auditor's Report
Balance Sheet
Statement of Operations
Statement of Changes in Stockholders' Equity
Statement of Cash Flows
Notes to Financial Statements
VOTING AND MANAGEMENT INFORMATION
DATE, TIME AND PLACE INFORMATION
THE COMPANY
FLEX FINANCIAL
VOTING PROCEDURE
DISSENTERS' RIGHTS OF APPRAISAL
NO SOLICITATION OF PROXIES
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT
EMPLOYEES
REMUNERATION OF DIRECTORS AND OFFICERS
THE COMPANY
FLEX FINANCIAL
STOCK OPTIONS
INTEREST OF MANAGEMENT AND OTHERS
IN CERTAIN TRANSACTIONS
PARENTS
PLAN OF MERGER
</TABLE>
<PAGE>
SUMMARY OF PROPOSED TRANSACTION
The transaction in which the securities being registered are to be
offered is a proposed merger (the "Merger") between Flex Financial Group,
Inc., a Texas corporation ("Flex Financial") and Flex Acquisitions Corporation
(the "Company"), also a Texas corporation. Should the Merger be approved and
effected, the Company will be the surviving entity and will be under the
management of Flex Financial's present management. The 20,000 shares of the
Company's Common Stock presently outstanding are owned of record by American
NorTel Communications, Inc., a Wyoming corporation ("American NorTel") with
approximately 780 shareholders residing in 31 states and Canada. Should the
proposed Merger be approved, American NorTel will distribute certificates
representing the 20,000 shares of Common Stock of the Company it now owns to
its approximately 780 shareholders (the "Spinoff") and thereby lay the basis
for the creation of a market for its Common Stock. There is presently no
public market for the Common Stock of the Company, and no assurance can be
given that such a market will be developed, or if developed, will be
sustained.
SECURITIES ISSUED IN OTHER TRANSACTIONS BEING REGISTERED.
The proposed Merger is being registered with the Securities and Exchange
Commission ("the SEC") simultaneously with the registration of the Units
Offering and the Spinoff described herein.
SPINOFF. Simultaneous with the securities being registered as described
in this Prospectus, the Company is registering, by means of a separate
prospectus and registration statement on Form SB-2, the 20,000 shares of
Common stock to be distributed by American NorTel, the corporate parent of the
Company, to its shareholders by dividend (the "Spinoff"). The Spinoff is
conditioned upon the consummation of certain transactions including the merger
of the Company and Flex Financial by filing Articles of Merger with the
Secretary of State of Texas.
SECURITIES ISSUED IN INITIAL PUBLIC OFFERING. Concurrently with the
registration of the Spinoff, the Company is registering by means of a separate
prospectus under the same registration statement filed on Form SB-2, a maximum
of 100,000 Units, each Unit consisting of one share of Common Stock, two Class
B Warrants and two Class C Warrants, at a price of $6.00 per Unit (the "Units
Offering"). The Units Offering is conditioned upon the consummation of
certain transactions including the merger of the Company and Flex Financial by
filing Articles of Merger with the Secretary of State of Texas.
THE THREE COMPANIES.
Three companies and their shareholders are affected by the Spinoff and
Merger transactions described in this Prospectus.
FLEX ACQUISITIONS CORPORATION (THE "COMPANY"). The Company was
incorporated under the laws of the State of Texas on March 21, 1996 for the
purpose of merging with Flex Financial Group, Inc. ("Flex Financial") should
the Merger transaction described herein be approved. The Company has no
business operations or significant capital and has no present intention of
engaging in any active business until and unless it merges with Flex
Financial.
The business office of the Company is located at 770 S. Post Oak Lane,
Suite 515, Houston, TX 77056. Its telephone number is 713/840-7500.
FLEX FINANCIAL GROUP, INC. ("FLEX FINANCIAL"). Flex Financial was
incorporated under the business corporation laws of the State of Texas on
August 16, 1995.
General. Flex Financial was formed in August, 1995 to participate in
certain short-term financing opportunities (terms of less than one year) in
the underwriting segment of the securities industry. The Company has no
business operations or significant capital and has no present intention of
engaging in any active business until and unless it completes the public
offering of its securities described herein ("Units Offering").
Business Plan. The Company intends to participate in short term
financing opportunities by (i) providing and/or participating in equity
subordination loans to selected underwriters requiring additional excess net
capital for underwriting specific issues on a firm commitment basis
("Subordination Loans") and (ii) providing and/or participating in bridge
loans to selected issuers meeting the Company's due diligence standards in
connection with initial public offerings and secondary financing ("Bridge
Loans"). The Company also intends to engage in "spinoff" activities such as
are described herein, such spinoffs to involve the distribution, by way of
stock dividends or otherwise, of registered shares of stock of other public
companies.
Management of the Company believes that financing opportunities will
become available to the Company due primarily to the liquidity of its assets,
its future status as a publicly-held company, and its flexibility in
structuring and participating in financing opportunities.
The business office of Flex Financial is 770 S. Post Oak Lane, Suite 515,
Houston, TX 77056. Its telephone number is 713/840-7500.
AMERICAN NORTEL COMMUNICATIONS INC. American NorTel Communications Inc.
("American NorTel") filed its Certificate of Registration and Articles of
Continuance with the Secretary of State of the State of Wyoming and became a
Wyoming corporation effective February 9, 1993. The company was originally
incorporated in British Columbia, Canada on May 17, 1979. American NorTel's
common stock has been listed for trading on the Vancouver Stock Exchange since
September 18, 1980. In conjunction with a one for five consolidation, the
company's name was changed to Coldsprings Resources Ltd. on June 4, 1987. In
conjunction with a one for ten consolidation, its name was changed to
Islehaven Capital Corporation on July 14, 1987. The company changed its name
to NorTel Communications Inc. on June 17, 1991. In conjunction with a one
for ten consolidation, the company's name was changed to American NorTel
Communications Inc. on May 11, 1992.
American NorTel currently operates only in the telecommunications
business, providing long distance telephone service in combination with
additional related services in the United States and a number of foreign
countries, including Argentina, Brazil, Mexico, Canada, and Costa Rica. Until
the end of 1993, the Company was also in the mining development and
exploration business in Costa Rica and Canada, and has divested of its
remaining mining assets.
In 1987, American NorTel was inactive and was classified as dormant under
the rules of the Vancouver Stock Exchange. The then current management
organized a reverse take-over by a number of limited partnerships and private
companies which were engaged in the mining development and exploration
business and who, on July 14, 1987, transferred all of their assets into the
company for Treasury shares. The company is no longer active in the mining
development and exploration business. In 1990, American NorTel became active
in the long distance telecommunications business, which is now its only
business.
American NorTel has approximately 780 shareholders. The company seeks to
diversify its business opportunities and investment potential to its
shareholders by engaging in "spinoff" activities such as are described herein,
such spinoffs to involve the distribution, by way of stock dividends or
otherwise, of registered shares of stock of other companies. American NorTel
organized the Company and, prior to the date of this Prospectus, has been the
controlling shareholder of the Company.
American NorTel's address is 7201 E. Camelback Road, Suite 320,
Scottsdale, Arizona 85251. Its telephone number is 602/945-1266.
THE SPINOFF.
American NorTel purchased 20,000 Shares of Common Stock of the Company
for a cash consideration of $1,000 and proposes to distribute to the
shareholders of American NorTel, as a stock dividend, these 20,000 Shares on
the basis of one share of the Company for every 588 shares of American NorTel
held of record on September 30, 1996. See "Terms of the Transaction."
The Spinoff transaction is being registered by the Company with the
Securities and Exchange Commission on a separate registration statement ("the
Spinoff registration statement"). See "Terms of the Transaction."
THE PROPOSED MERGER AND SPINOFF.
Upon the effectiveness both of the registration statements of which this
Prospectus is a part and the Spinoff registration statement, the shareholders
of the Company and of Flex Financial will each vote to approve or reject a
proposed merger of Flex Financial into the Company on the following terms:
1. Flex Financial shall merge into the Company, a Texas corporation.
2. Upon the effectiveness of the Merger, all the issued and
outstanding shares of capital stock of Flex Financial shall be converted into
94,000 shares of Common Stock of the Company, with each share of Flex
Financial's Common Stock being exchanged and converted into one share of the
Company's common. As of the date of this Prospectus, the following table sets
forth the number of outstanding shares of each class of Flex Financial capital
stock, the number of votes attributable to each class, the number of shares of
Common Stock of the Company that would be allocated to each class, and the
number of shares of each class to be exchanged for one share of the Company's
Common Stock in the Merger:
<TABLE>
<CAPTION>
No. of
Company
Shares for 1
Class of Stock Flex Total Shares Flex
Financial Voting of Financial
Shares Rights Company Share
<S> <C> <C> <C> <C>
Flex Financial Common 94,000 94,000 94,000 1
</TABLE>
3. Because the exchange and conversion will be one share for one
share, fractional shares shall not be issued. The exercise or purchase price
of Flex Financial options and warrants shall be adjusted to be, for the
replacement Company options and warrants, that price determined by multiplying
(a) the present exercise price or purchase price by (b) the total voting
rights of all classes of Flex Financial's capital stock (which total voting
rights equal 94,000 as of the date of this Prospectus) divided by 94,000. The
effect of this formula will be that the exercise price of Flex Financial
options and warrants shall be identical to the replacement Company options and
warrants.
4. The business of Flex Financial shall be conducted, after the
Merger, by the Company, into which Flex Financial shall have merged, but Flex
Financial's management and directors shall become the management and directors
of the Company.
5. American NorTel shall distribute to its shareholders ("the
Spinoff"), on a basis proportionate to their shareholdings in American NorTel,
20,000 Shares ("the Spinoff Shares") of Common Stock of the Company now held
by American NorTel. Each American NorTel shareholder shall receive one share
of the Company for each 588 shares of American NorTel held of record on
September 30, 1996.
THE ESCROW ARRANGEMENT.
A vote to approve the Merger by the sole shareholder of the Company is
assured. After such vote but before any vote by the shareholders of Flex
Financial, American NorTel shall declare a dividend to its shareholders of the
20,000 shares of Common Stock of the Company held by it ("the Spinoff
Shares"). Certificates representing the 20,000 Spinoff Shares shall be
distributed by American NorTel to Southwest Bank of Texas NA ("the Escrow
Agent") to be held in escrow pursuant to the provisions of Securities and
Exchange Commission Rule 419(e). Later distribution by the Escrow Agent would
be as follows:
SHOULD THE MERGER OCCUR. Upon the legal effectiveness of the Merger
(should Flex Financial's shareholders approve the Merger), the Company shall
supplement this Prospectus to indicate the fact and date of the Merger. At
such time as information concerning the Company in its post-merger form shall
have been made available to market makers of the Company's stock and also
published in Moody's OTC Industrial Manual, the Company shall provide to the
Escrow Agent the Company's representation that the requirements of Securities
and Exchange Commission Rule 419(e) have been met, and the Escrow Agent shall
distribute, subject to the small shareholders' provisions described in the
next paragraph, the escrowed certificates representing the 20,000 Spinoff
Shares to the owners of thereof.
With respect to certificates representing the ownership of fewer than 5
Spinoff Shares of the Company, the Escrow Agent shall not immediately
distribute these certificates to the American NorTel shareholders. Rather,
each American NorTel shareholder entitled to one of these small denomination
certificates shall be advised by American NorTel that the shareholder can
elect either (i) to receive his certificate or (ii) to have his shares
aggregated with those of other small-denomination shareholders who choose not
to receive their certificates, have his shares sold through a broker into the
open market after trading in the shares should commence in the open market,
and receive the net cash proceeds of the sale. Nor will fractional share
interests be distributed. The Company may choose to pay in cash the fair
value of fractions of a share as of the time when those entitled to receive
such fractions are determined or to aggregate fractional share interests with
those of other small-denomination shareholders who choose not to receive their
certificates, and have the shares sold through a broker into the open market
after trading in the shares should commence, and distribute to those entitled
the net cash proceeds of such sale.
CONSEQUENCES SHOULD THE MERGER NOT OCCUR. There can be no assurance that
the proposed Merger between the Company and Flex Financial will occur, since a
favorable shareholder vote of Flex Financial's shareholders must be obtained,
and Flex Financial's management does not hold voting power over a majority of
any of its Common Stock, which two thirds vote is required for Flex Financial
to approve the Merger. Further, Flex Financial shareholder voting on the
proposed merger will be taken by written consent pursuant to Texas corporate
law and Flex Financial's bylaws which require that written consent be
unanimous.
Should the Merger not become effective, (i) Flex Financial will continue
as a closely-held company with its existing assets and business, (ii) the
Company will have no significant assets or business, and there will be no
trading market for its Common Stock, because the stock certificates
representing all its issued and outstanding shares of capital stock will still
be held in escrow by the Escrow Agent, and (iii) the Units Offering will not
be effected. As long as this escrow continues, no transfer or other
disposition of the Shares held in escrow shall be permitted other than by will
or the laws of descent and distribution or pursuant to a qualified domestic
relations order as defined by the Internal Revenue Code of 1986, as amended,
or Title 1 of the Employee Retirement Income Security Act or the rules
thereunder. The Company's management has no specific plans for an alternative
to a rejection of the proposed Merger but would seek to acquire a business or
assets that would constitute a business, using funds contributed by management
to pay the costs of such search. Upon execution of any agreement for the
acquisition of a business or assets that would constitute a business, the
Company shall file a post effective amendment to the Registration Statement
and shall supplement this Prospectus to disclose information about the
alternative business or assets acquisition, including financial statements and
other information required by the Securities and Exchange Commissions's Rule
419. Upon the legal effectiveness of the acquisition described in the amended
registration statement and supplemented Prospectus, an additional
post-effective amendment to the registration statement would be filed, and
upon the effectiveness of such post-effective amendment filed with the
Commission, the Escrow Agent would distribute the stock certificates held in
escrow. Should no alternative to the Merger be effected within 18 months
after the effective date of the Registration Statement of which this
Prospectus is a part, Flex Financial has agreed to convert its $4,000 Note
according to its terms into common stock representing 80% of the outstanding
voting shares of the Company's Common Stock and will have the voting rights to
cause a dissolution of the Company. Flex Financial has indicated its
intentions to so exercise these voting rights to that effect at that time.
See "THE ESCROW ARRANGEMENT."
REASONS FOR THE ESCROW ARRANGEMENT. The purpose of the Escrow is (i) to
establish a definitive date for determining the fair market value of the
Spinoff Shares at $.05, the price paid for the shares by American NorTel and
for purposes of determining if the distribution is to be taxed as a dividend
and as ordinary income (See "FEDERAL INCOME TAX CONSEQUENCES - SHAREHOLDERS OF
AMERICAN NORTEL"); (ii) to ensure that the distribution of Spinoff Shares to
American NorTel shareholders is a distribution pursuant to an effective
registration statement under the Act; and (iii) to comply with the provisions
of Securities and Exchange Commission Rule 419(e).
DEGREE OF MANAGEMENT CONTROL OF VOTE ON MERGER.
Texas corporate law requires that the Merger be approved by a vote of
two-thirds (2/3's) of the outstanding shares of Common Stock of each of the
Company and Flex Financial. With respect to such companies, the percentage of
outstanding shares entitled to vote and held by officers, directors and their
affiliates are as follows: the Company - 0%; and Flex Financial - Common Stock
- - 43%.
DISSENTERS' RIGHTS OF APPRAISAL.
No dissenter's rights of appraisal come into effect with respect to the
proposed Merger. While Texas and Wyoming corporate law provide dissenter's
rights of appraisal in the case of mergers, (1) all the issued and outstanding
shares of capital stock of the Company will be voted by the American NorTel
sole director, and a unanimous vote approving the Merger is assured, and (2)
Flex Financial shareholder voting on the proposed merger will be taken by
written consent pursuant to Texas corporate law and Flex Financial's bylaws
which require that written consent be unanimous, and therefore, no dissenter's
rights of appraisal would be created by either vote because a vote to
disapprove or a failure of unanimous approval would defeat the Merger.
COMPLIANCE WITH GOVERNMENTAL REGULATIONS.
No federal or state regulatory requirements, other than securities laws
and regulations, must be complied with or federal or state approval obtained
in connection with the Spinoff and Merger, other than the filing of articles
of merger with the Secretary of State of Texas after a favorable vote might be
obtained on the proposed merger.
TAX CONSEQUENCES OF THE TRANSACTION.
The Merger should be a "tax-free" reorganization under Section 368(a)(1)
of the Internal Revenue Code. See "Terms of the Transaction - Federal Income
Tax Consequences."
RISK FACTORS.
Ownership of the Common Stock of the Company is speculative and involves
a high degree of risk, whether the Merger with Flex Financial be effected or
not. See "RISK FACTORS" below.
RISK FACTORS
The shareholders of Flex Financial, all of whom shall be asked to vote on
the proposed Merger, are making an investment decision that involves a high
degree of risk and should carefully consider the following factors in
evaluating the Merger, the surviving corporation, and its business in
determining whether to approve the Merger. In addition to the other
information contained in this Prospectus, the following risk factors should be
considered when evaluating an investment in the shares of Common Stock offered
hereby.
1. RISKS INHERENT IN DEVELOPMENTAL STAGE COMPANY. The Company was
organized in March, 1996 and has no operating history, revenues from
operations, or assets. The Company received $1,000 cash for the initial
issuance of 20,000 shares of its common stock and $4,000 for the issuance of a
convertible, subordinated, redeemable note. The proceeds from its issuance of
equity and debt has been expended on organizational expenses and the expenses
associated with the Units Offering. The Company faces all of the risks of a
new business and those risks specifically inherent in the investigation,
participation, or investment in financings of the type sought by the Company.
Purchase of the securities in this offering must be regarded as placing funds
at a high risk in a new or "start-up" venture with all of the unforeseen
costs, expenses, problems, and difficulties to which such ventures are
subject. There is no assurance that the Company will close the Units Offering
necessary for it to implement its business plan, or if it does, that the
Company will be able to locate and participate in financing and investment
opportunities. In addition, even if the Company becomes involved in a
financing opportunity, there is no assurance that it will generate revenues or
profits, nor that the value or market price of the Company's Common Stock
would be increased thereby.
2. NO ASSURANCE OF A PUBLIC MARKET AND LIKELIHOOD OF A VOLATILE
MARKET. While the shares of Common Stock of the Company to be issued or
distributed pursuant to this Prospectus will be free of restrictions on
transferability for all persons except "affiliates" of the Company and Flex
Financial (and with respect to such "affiliates" such shares may be
transferred subject to certain restrictions), there is presently no public
market for the Common Stock of the Company and there is no assurance that a
public market for such securities will develop after the occurrence of the
Merger described in this Prospectus, or, if one develops, that it will be
sustained. It is likely that any market that develops for the Common Stock,
should it develop, will be highly volatile and that the trading volume in such
market will be limited.
3. MARKET RESTRICTIONS ON BROKER-DEALERS. The Company's common stock
is covered by a Securities and Exchange Commission Rule 15-g that imposes
additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited
investors (generally institutions with assets in excess of $5 million or
individuals with net worth in excess of $1 million or annual income exceeding
$200,000 or $300,000 jointly with their spouse). For transactions covered by
the rule, the broker-dealer must make a special suitability determination for
the purchaser and receive the purchaser's written agreement to the transaction
prior to the sale. Consequently, the rule may affect the ability of
broker-dealers to sell the Company's securities and also may affect the
ability of persons receiving shares in this offering to sell their shares in
the secondary market. Further, the Company's Common Stock, after the Merger,
will initially be quoted on an NASD inter-dealer system called "the Bulletin
Board," will not have $4 million in assets or $2 million in stockholders'
equity which are both required for it to qualify for quotation on NASDAQ, and
may not be expected to command a market price of $5 per share, the price
required for a non-NASDAQ-quoted security to escape the trading severities
imposed by the Securities and Exchange Commission on so-called "penny stocks."
These trading severities tend to reduce broker-dealer and investor interest in
penny stocks and could operate (i) to inhibit the ability of the Company's
stock to reach a $3 per share trading price that would make it eligible for
quotation on NASDAQ even should it otherwise qualify for quotation on NASDAQ
and (ii) to inhibit the ability of the Company to use its stock for business
acquisition purposes. See "INFORMATION ABOUT THE COMPANY - MARKET FOR THE
COMPANY'S COMMON STOCK AND RELATED STOCKHOLDERS MATTERS."
4. MANAGEMENT CONTROL. Should the proposed Merger be approved and
effected, after the Merger the Company's officers and directors and their
affiliates will own approximately 35 percent of the common stock of the
Company and thereby may be able to determine the outcome of any vote affecting
the control of the Company. The Board of Directors has complete discretion in
making all business decisions. Accordingly, no person should purchase
Securities in the Company unless he is willing to entrust all business
decisions to the Board of Directors.
5. DEPENDENCE ON KEY PERSONNEL. The affairs of the surviving
company, should the Merger be approved, shall be conducted by the present
management of Flex Financial. The loss of the services of any of these
persons and other key employees, for any reason, may have a materially adverse
effect on the prospects of the emergent company. There are no employment
contracts with management or key personnel of the Company. The Company will
be heavily dependent on the skills, talents, and abilities of its management
and consultants to successfully implement its business plan. Although
management has experience in seeking, investigating and participating in
financing and investment opportunities, management will generally depend on
their general business expertise in making decisions regarding the Company's
operations. Because investors will not be able to evaluate the merits of
possible business opportunities by the Company, they should critically assess
the information concerning the Company's management. The success of the
emergent Company is dependent upon, among other things, the services of
Michael T. Fearnow, President of Flex Financial, and of M. Stephen Roberts,
who will provide certain financial and legal consulting services to the
Company. The Company has not entered into employment agreements with any of
its officers. Flex Financial does not have, nor does it or the Company
presently intend to obtain, key man life insurance (with proceeds payable to
the Company) on the life of Mr. Fearnow. The loss of the services of Messrs.
Fearnow and Roberts for any reason, may have a material adverse effect on the
prospects of the Company.
6. DEPENDENCE ON OUTSIDE CONSULTANTS AND ADVISERS; CONFLICTS OF
INTEREST. Mr. Fearnow will as an officer of the Company provide without
compensation the ministerial duties necessary for the president of the Company
and will with respect thereto have a continuing fiduciary obligation to the
Company. Mr. Fearnow will provide as a consultant ongoing advice and
consultation with respect to business opportunities and the business
activities of the Company. During the investigation of a possible business
opportunity and in order to supplement the business experience of management,
the Company may employ accountants, technical experts, appraisers, attorneys,
or other consultants and advisers. The selection of any advisers will be made
by management and without any control from stockholders.
Certain conflicts of interest may exist between the Company and Mr.
Fearnow as a result of his position as an officer and director of the Company
and his service as a consultant. In particular, he will face a conflict of
interest with regard to his possible future participation in other business
relationships with companies to which the Company may provide financing. In
such cases, Mr. Fearnow may have interests that conflict with those of the
Company. Although Mr. Fearnow will attempt to resolve any conflicts in favor
of the Company, there is no assurance that this will be the case. The Company
has not established procedures for the resolution of such conflicts of
interest.
7. LACK OF INDEPENDENT DIRECTORS. Should the Merger be approved and
effected, for a foreseeable period of time thereafter the Company's board of
directors will have only one director. As such, upon effectiveness of the
Merger, the Company's sole director will be Michael T. Fearnow, the Company's
sole officer.
8. DILUTION. Should the Merger be approved and effected, the
shareholders of Flex Financial shall suffer a 17.4% dilution in their
percentage ownership of the surviving company in exchange solely for obtaining
shares of Common Stock registered under the Securities Act to be exchanged for
their shares of capital stock of Flex Financial. Measured on the basis of net
tangible book value a share as of July 31, 1996, the Flex Financial Common
Stockholders shall suffer a 17.4% dilution (from $0.23 a share down to $0.19 a
share).
9. TAX CONSEQUENCES. The anticipated favorable tax consequences of
the proposed Merger and Spinoff to the Company and its shareholders (see
"Terms of the Transaction - Federal Income Tax Consequences") are not
supported by an advance ruling by the Treasury Department but are based upon
an opinion of M. Stephen Roberts, Esq., in his capacity as tax counselor to
the Company (which tax opinion is one of the exhibits to the registration
statement of which this Prospectus is a part). Should the actual income tax
consequences be different than as represented herein by the Company,
significant gain or loss might be recognized and reportable by any of the
Company, American NorTel, or American NorTel's approximately 780 shareholders
to whom will be distributed the 20,000 Spinoff Shares should the Merger be
effected.
10. DIVIDENDS NOT LIKELY. Should the Merger be effected, for the
foreseeable future it is anticipated that any earnings which may be generated
from operations of the emergent company will be used to finance the growth of
such company, and cash dividends will not be paid to holders of the Common
Stock.
11. POSSIBLE FUTURE DILUTION. In addition to the Shares registered
for the proposed Merger and for the Spinoff, the Company has registered
2,000,000 shares to be available for issuance in possible business
combinations or asset acquisitions, the issuance of which would dilute the
percentage ownership and could dilute the net tangible book value per share of
shareholders of the surviving company.
TERMS OF THE TRANSACTION
The Company and Flex Financial, pursuant to approval by their respective
boards of directors, have entered into an agreed plan of merger, a copy of
which is included herein (see "PLAN OF MERGER"). In order for the merger
contemplated by the Plan of Merger to become effective, it is necessary that
each of the following occur:
(i) a registration statement covering the 20,000 Spinoff Shares
offered herein and a registration statement covering the 94,000 Merger shares
(for distribution to Flex Financial's shareholders) (a) must be filed with the
Securities and Exchange Commission and with appropriate state securities
regulatory agencies and (b) must become effective;
(ii) the shareholders of each of the Company and of Flex
Financial must, by a requisite vote of the shares outstanding, approve the
merger contemplated by the Plan of Merger; and
(iii) certain documents evidencing the approved merger must be
prepared and filed with the appropriate state authority in the State of Texas.
These conditions are not waivable.
TERMS OF THE MERGER.
The terms of the proposed merger ("the Merger") are as follows:
l. Flex Financial shall merge into the Company, a Texas corporation.
2. Upon the effectiveness of the Merger, all the issued and
outstanding shares of capital stock of Flex Financial shall be converted into
94,000 shares of Common Stock of the Company.
3. The Company shall reserve 185,332 additional shares of its Common
Stock for possible issuance upon the exercise of Company options and warrants
to be issued to replace presently outstanding and unexercised Flex Financial
options and warrants.
4. The business of Flex Financial shall be conducted, after the
Merger, by the Company, into which Flex Financial shall have merged, but Flex
Financial's management and directors shall become the management and directors
of the Company.
5. American NorTel shall distribute to its shareholders ("the
Spinoff"), on a basis proportionate to their shareholdings in American NorTel,
20,000 Shares ("the Spinoff Shares") of Common Stock of the Company now held
by American NorTel. Each American NorTel shareholder shall receive one share
of the Company for each 588 shares of American NorTel held of record on
September 30, 1996; provided that certificates representing the ownership of
fewer than 5 Spinoff Shares of the shall not immediately be distributed to the
American NorTel shareholders. Rather, each American NorTel shareholder
entitled to one of these small denomination certificates shall be advised by
American NorTel that the shareholder can elect either (i) to receive his
certificate or (ii) to have his shares aggregated with those of other
small-denomination shareholders who choose not to receive their certificates,
have his shares sold through a broker into the open market after trading in
the shares should commence in the open market, and receive the net cash
proceeds of the sale. Nor will fractional share interests be distributed.
The Company may choose to pay in cash the fair value of fractions of a share
as of the time when those entitled to receive such fractions are determined or
to aggregate fractional share interests with those of other small-denomination
shareholders who choose not to receive their certificates, and have the shares
sold through a broker into the open market after trading in the shares should
commence, and distribute to those entitled the net cash proceeds of such sale.
6. There shall also be registered as part of the Merger registration
statement filed with the Securities and Exchange Commission, 2 million
additional shares of Common Stock of the Company ("the Shelf Shares"), which
Shelf Shares shall be available after the Merger for issuance, upon the filing
of post-effective amendments to the Merger registration statement, in
subsequent, possible mergers or acquisitions with companies engaged in
business activities of types related or similar to those now conducted by Flex
Financial. Management of Flex Financial (who shall become the management of
the Company after the Merger) has no current plans, arrangements or
understandings with respect to possible mergers, acquisitions or business
combinations for which the Shelf Shares would be used.
7. Should the Merger not be approved by the unanimous written consent
of persons holding all of the issued and outstanding shares of Common Stock of
Flex Financial, none of Flex Financial, the Company, or American NorTel shall
be liable to any of the others, the sole obligation of each being to pay its
expenses relating to the registration of the Shares described herein.
8. The historical financial statements of the post-Merger Company
shall be those of Flex Financial.
REASONS FOR THE MERGER AND SPINOFF.
The managements of the Company and of Flex Financial believe that Flex
Financial's shareholders will benefit from receiving shares that have been
registered under the Securities Act in exchange for their shares of capital
stock of Flex Financial. Further, the managements of the Company and of Flex
Financial believe that the distribution of Shares to the stockholders of
American NorTel in the Spinoff will provide the basis for the creation of a
public market for the common stock of the post-merger Company and that the
existence of such a public market will benefit the Flex Financial
stockholders. No assurance can be given, however, that a market will develop
for the Common Stock or, if it develops, that it will be sustained. See "RISK
FACTORS - NO ASSURANCE OF A PUBLIC MARKET AND LIKELIHOOD OF A VOLATILE
MARKET."
In determining to undertake the Merger and Spinoff on the terms proposed,
the board of directors of Flex Financial considered the 17% dilution to
shareholders of Flex Financial and the fairness of the consideration received
by the shareholders pursuant to the Merger and Spinoff. The board considered
among other factors: prior disclosures to shareholders as to expected
dilution in any merger and spinoff transaction, the amount of capital
contributed by the shareholders, the estimated expenses and timing of an
independent initial public offering of securities, the percentage of ownership
to be held by investors in this Units Offering, the current market conditions
in the over-the-counter securities market, the Company's proposed capital
structure, possible future capital requirements of the Company, potential
dilution to shareholders from Warrant exercise, the estimated costs of
acquiring a fully reporting and current public shell corporation, the dilutive
effects of such alternative transactions, the company's ability to develop a
public market for its common stock, and the costs and dilutive effect of
similar transactions necessary to accomplish a public underwriting and to
become a widely owned public company. The board concluded that alternative
undertakings posed a number of obstacles which management determined were
unreasonable, including: substantial time requirements, legal and accounting
costs, the inability to obtain an underwriter willing to commit to a firm
underwriting, limited capital available to the company, and the potential
amount of dilution likely to be experienced by the Flex Financial shareholders
and other costs associated with an IPO or shell acquisition.
The management of Flex Financial determined that, after research into
other possible alternatives, the proposed Merger and Spinoff presented the
fastest and least expensive method of accessing the U.S. public securities
markets and providing the most desirable corporate vehicle for conducting its
business operations. The criteria applied by the board was to obtain trading
status for the shares held by Flex Financial's shareholders and to seek to
raise additional capital in order to expand its business operations while
utilizing its existing infrastructure, management and knowledge of its
industry at the least cost to shareholders measured in terms of capital
expended and dilution. Applying this criteria, the board determined that,
considering the 17% dilution was in line with prior disclosures to
shareholders regarding expected dilution in any merger and spinoff
transaction, the terms of the proposed Merger and Spinoff were fair to its
shareholders.
ACCOUNTING TREATMENT OF PROPOSED MERGER.
Because the Company is only a corporate shell and not an operating
entity, the proposed Merger will be accounted for as if Flex Financial
recapitalized.
PLAN OF MERGER.
The complete Plan of Merger among the Company, Flex Financial, and
American NorTel is included in this Prospectus. See "PLAN OF MERGER."
DESCRIPTION OF SECURITIES.
COMMON STOCK. The Company is authorized to issue 10 million shares of
Common Stock, $0.001 par value. As of the date of this Prospectus the Company
had 20,000 shares of Common Stock issued and outstanding.
Voting rights. Holders of the shares of Common Stock are entitled
to one vote per share on all matters submitted to a vote of the shareholders.
Shares of Common Stock do not have cumulative voting rights, which means that
the holders of a majority of the shares voting for the election of the board
of directors can elect all members of the board of directors.
Dividend rights. Holders of record of shares of Common Stock are
entitled to receive dividends when and if declared by the board of directors
out of funds of the Company legally available therefor.
Liquidation rights. Upon any liquidation, dissolution or winding up
of the Company, holders of shares of Common Stock are entitled to receive pro
rata all of the assets of the company available for distribution to
shareholders, subject to the prior satisfaction of the liquidation rights of
the holders of outstanding shares of Preferred Stock.
Preemptive rights. Holders of Common Stock do not have any
preemptive rights to subscribe for or to purchase any stock, obligations or
other securities of the Company.
Registrar and transfer agent. Registrar and Transfer Company, 10
Commerce Drive, Cranford, New Jersey 07016-3572 serves as the transfer agent
and registrar of the Company.
Dissenter's Rights. Under current Texas law, a shareholder is
afforded dissenters' rights which if properly exercised may require the
corporation to repurchase its shares. Dissenters' rights commonly arise in
extraordinary transactions such as mergers, consolidations, reorganizations,
substantial asset sales, liquidating distributions, and certain amendments to
the company's certificate of incorporation.
REDEEMABLE COMMON STOCK PURCHASE WARRANTS. Pursuant to this Prospectus,
the Company is offering 200,000 Class B Redeemable Common Stock Purchase
Warrants ("Class B Warrants") and 200,000 Class C Redeemable Common Stock
Purchase Warrants ("Class B Warrants")to purchase an aggregate of 400,000
shares of Common Stock.
Class B Warrants. The Class B Warrants are being issued under a
Warrant Agreement dated November 15, 1995 between the Company and Warrant
Holders. Each Class B Warrant will be exercisable immediately upon its
acquisition and until January 1, 2001, at an exercise price of $6.25 per
Warrant, and shall entitle the holder thereof to receive one (1) share of
Stock for each B Warrant exercised. Fractional shares of Stock will not be
required to be issued upon exercise of the B Warrants. A B Warrant may be
exercised by surrendering a B Warrant certificate with an executed form of
election to purchase shares attached to the certificate, and paying to the
Company the full exercise price for the B Warrants being exercised. Holders
of B Warrants will not be entitled (by virtue of being B Warrant holders) to
receive dividends, vote, receive notices of shareholders' meetings or
otherwise have any rights of shareholders of the Company.
The Class B Warrants are redeemable, at the option of the
Company, at a price of $0.05 per B Warrant at any time after January 1, 1997
upon not less than 30 days prior written notice, provided that there is a
public trading market for the Common Stock and that the reported high bid
price of the Common Stock equals or exceeds $7.50 per share for the 20
consecutive trading days immediately prior to the date of the notice of
redemption to warrant holders.
The exercise price, number and kind of shares of Common Stock
to be obtained by the exercise of the B Warrants is subject to adjustment in
the event of a split of the Common Stock or in the event of the reorganization
or recapitalization of the Company or of the merger or consolidation of the
Company.
The Company will reserve from the authorized and unissued
shares a sufficient number of shares of Common Stock for issuance upon the
exercise of the Class B Warrants.
Class C Warrants. The Class C Warrants are being issued under a
Warrant Agreement dated November 15, 1995 between the Company and Warrant
Holders. Each Class C Warrant will be exercisable immediately upon its
acquisition and until January 1, 2001, at an exercise price of $10.00 per
Warrant, and shall entitle the holder thereof to receive one (1) share of
Stock for each C Warrant exercised. Fractional shares of Stock will not be
required to be issued upon exercise of the C Warrants. A C Warrant may be
exercised by surrendering a C Warrant certificate with an executed form of
election to purchase shares attached to the certificate, and paying to the
Company the full exercise price for the C Warrants being exercised. Holders
of C Warrants will not be entitled (by virtue of being C Warrant holders) to
receive dividends, vote, receive notices of shareholders' meetings or
otherwise have any rights of shareholders of the Company.
The Class C Warrants are redeemable, at the option of the
Company, at a price of $0.05 per C Warrant at any time after January 1, 1997
upon not less than 30 days prior written notice, provided that there is a
public trading market for the Common Stock and that the reported high bid
price of the Common Stock equals or exceeds $12.00 per share for the 20
consecutive trading days immediately prior to the date of the notice of
redemption to warrant holders.
The exercise price, number and kind of shares of Common Stock
to be obtained by the exercise of the C Warrants is subject to adjustment in
the event of a split of the Common Stock or in the event of the reorganization
or recapitalization of the Company or of the merger or consolidation of the
Company.
The Company will reserve from the authorized and unissued
shares a sufficient number of shares of Common Stock for issuance upon the
exercise of the Class C Warrants.
PREFERRED STOCK. The Company is authorized to issue 10 million shares of
Preferred Stock, $0.001 par value. The preferences, rights and attributes of
the Preferred Stock, which may be set forth in series, shall be determined by
the board of directors at such times as series are authorized to be issued.
As of the date of this Prospectus, the Company has not issued any shares of
its authorized Preferred Stock.
OTHER SECURITIES OF THE COMPANY. Under the terms of the Merger, all
warrants and options of Flex Financial which are outstanding on the Effective
Date shall be canceled and converted into warrants and options of the Company
of equivalent tenor. Therefore upon the Effective Date of the Merger, the
Company will have pursuant to the Merger the following additional securities
outstanding.
Class A Common Stock Purchase Options. In September, 1995 Flex
Financial authorized the issuance of 80,000 Class A Common Stock Purchase
Options ("Class A Options") in connection with a private placement of 80,000
shares of common stock to its founding shareholders. As of the date of this
Prospectus, all of such Class A Options continue to be owned by the original
subscribers and are outstanding. The Class A Options are currently
exercisable and will terminate on December 31, 2000 and may be exercised at a
price of $.50 per share.
Unit Purchase Options. In connection with an IPO Bridge Loan, Flex
Financial issued $50,000 principal amount of 10% subordinated notes ("Notes")
and Unit Purchase Options ("Option Units"). The Option Units entitle the
holders to purchase such number of equivalent units of Flex Financial's
securities as may be offered in an initial public offering at an aggregate
offering price of at least $60,000 pursuant to an effective registration
statement filed under the Securities Act that closes prior to June 30, 1996.
The number of equivalent units purchasable at a price of $.50 per unit is
determined by dividing the IPO unit offering price into the principal amount
of Notes. Under the terms of this Units Offering, holders of the Option Units
are entitled to purchase 8,333 equivalent Units. By mutual consent, the
applicable IPO closing date and expiration date for exercise was extended to
March 31, 1998 and the holders were granted an additional 8,000 Option Units.
As of the date of this Prospectus, all of such Class A Options continue to be
owned by the original subscribers and are outstanding.
Class B and Class C Warrants. As of the date of this Prospectus
Flex Financial had 28,000 Class B Warrants and 28,000 Class C Warrants
outstanding to purchase an aggregate of 56,000 shares of common stock. These
warrants were issued in a private placement that closed in April, 1996 and are
identical to those purchasable in this offering.
FEDERAL INCOME TAX CONSEQUENCES.
THE MERGER. The Merger should qualify as a type "A" reorganization under
Section 368(a)(1) of the Internal Revenue Code. However, when consideration
is given to the fact that the Company is newly organized, the "step
transaction doctrine" might be applied and, accordingly, the Company might be
considered a continuation of Flex Financial with only a change of name or
place of incorporation, a type "F" reorganization under Section 368(a)(1).
Whether the Merger be characterized as a type "A" or "F" reorganization, the
Company believes that there should be no recognition of taxable gain or loss
to the shareholders of the Company by reason of the Merger.
THE SPINOFF. It is anticipated that the distribution by American NorTel
to its shareholders of the 20,000 Spinoff Shares will be a taxable event to
American NorTel and to each of its shareholders receiving any of the Spinoff
Shares. Gain (but not loss) would be recognized by American NorTel under
Section 311 of the Internal Revenue Code for any excess of the fair market
value of the Company's stock on the date of actual distribution over the tax
basis to American NorTel of such stock.
SHAREHOLDERS OF AMERICAN NORTEL. As for American NorTel's shareholders
who receive Spinoff Shares of the Company, the Spinoff shall occur prior to
the vote by Flex Financial's shareholders to accept or reject the Merger.
Since the result of the vote by Flex Financial's shareholders cannot be
forecast, and since the Merger cannot and shall not become effective until
after a favorable vote is obtained on the Merger, American NorTel takes the
view that the fair market value of the Spinoff Shares on the date of the
Spinoff should not have increased over the $0.05 price paid by American NorTel
for the 20,000 Spinoff Shares.
American NorTel has no current or accumulated earnings, and the
distribution is being made from excess capital. Each shareholder of American
NorTel should reduce the adjusted basis of his American NorTel stock by the
fair market value of the distribution to him, and any remaining portion will
be treated as capital gain in the same manner as a sale or exchange of the
stock. This fair market value is assumed to be $0.04 per share, the book
value per share of Flex Financial at July 31, 1996. American NorTel
undertakes to advise its shareholders in late 1997 or early 1998 should it
deem the fair market value of the distributed Spinoff Shares on the date of
distribution to have been different than $0.04 per share or should it have had
earnings in 1996, which would cause the distribution, to the extent of such
earnings, to be taxed as a dividend and as ordinary income.
The above discussion is not based upon an advance ruling by the Treasury
Department but upon an opinion of M. Stephen Roberts, Esq., in his capacity as
tax counselor to the Company (which tax opinion is one of the exhibits to the
registration statement of which this Prospectus is a part). See "RISK FACTORS
- - TAX CONSEQUENCES."
PRO FORMA FINANCIAL INFORMATION AND DILUTION.
Due to the fact that the Company has no substance or operating history -
it was organized as a shell to accommodate the desire of Flex Financial's
management to provide for the issuance of securities registered under the
Securities Act to Flex Financial's shareholders, pro forma financial
information giving effect to the Merger would not vary in any significant
respect from the financial information of Flex Financial.
Essentially, the effect of the Spinoff and Merger is to dilute by
approximately 17 percent the equity of the shareholders of Flex Financial by
transferring this equity to the shareholders of American NorTel. The effect
of the Merger and Spinoff on the net tangible book value a share of the
Company's Common Stock and Flex Financial's Common Stock is as follows:
<TABLE>
<CAPTION>
Before After
Merger-Spinoff Merger-Spinoff
<S> <C> <C>
Company's Common Stock $ 0.04 $ 0.19
Flex Financial's Common Stock 0.23 0.19
</TABLE>
MATERIAL CONTACTS AMONG THE COMPANIES.
Other than the proposed Spinoff and Merger described herein, there have
been no material contracts, arrangements, understandings, relationships,
negotiations or transactions among Flex Financial, the Company, and American
NorTel during the periods for which financial statements appear herein.
REOFFERING BY PARTY DEEMED TO BE AN UNDERWRITER.
The Shares described herein are to be redistributed by the owner of such
Shares, American NorTel, who might be deemed to be an underwriter by reason of
its intent to distribute such Shares. (see "TERMS OF THE MERGER" above).
After the distribution by American NorTel of the Spinoff Shares to its
shareholders, American NorTel will no longer own any shares of capital stock
of the Company, except to the extent that an uncertain number of Spinoff
Shares representing undistributed fractional an whole share interests, would
not be allocated in the rounding down process (see "TERMS OF THE MERGER").
A consequence to American NorTel, should it be deemed to be an
underwriter of the Shares to be distributed to its shareholders, is that any
person who purchases the registered Shares within 3 years after the
distribution could assert a claim against American NorTel under Section 11 of
the Securities Act of 1933. The purchase could be in the open market as long
as the shares purchased can be traced to the registered Shares American NorTel
distributes to its shareholders. Such a claim, to be successful, must be
based upon a showing that statements in the registration statement were false
or misleading with respect to a material fact or that the registration
statement omitted material information required to be included therein.
Open market purchasers may have to prove reliance upon the alleged
misstatement or omission, but reliance may not necessarily require a showing
that the purchaser actually read the registration statement but, instead, that
the misstatements or omissions in the registration statement were a
substantial factor in the purchase of the shares.
INTEREST OF COUNSEL.
M. Stephen Roberts, Esq., counsel to the Company, is named in this
Prospectus as having given an opinion on the validity of the securities being
registered, upon certain income tax consequences of the Merger and the
Spinoff, and upon other legal matters concerning the registration or offering
of the securities described herein. Mr. Roberts is the beneficial owner of
21% of the issued and outstanding shares of Common Stock of Flex Financial and
is the beneficial owner of less than .5% of the issued and outstanding shares
of Common Stock of American NorTel and, by reason of this ownership, shall
become the beneficial owner of approximately 20,102 Shares of the Company by
way of the merger and American NorTel's distribution of the 20,000 Spinoff
Shares to its shareholders.
INDEMNIFICATION.
Under Texas corporation law, a corporation is authorized to indemnify
officers, directors, employees and agents who are made or threatened to be
made parties to any civil, criminal, administrative or investigative suit or
proceeding by reason of the fact that they are or were a director, officer,
employee or agent of the corporation or are or were acting in the same
capacity for another entity at the request of the corporation. Such
indemnification includes expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
persons if they acted in good faith and in a manner reasonably believed to be
in or not opposed to the best interests of the corporation or, with respect to
any criminal action or proceeding, if they had no reasonable cause to believe
their conduct was unlawful. In the case of any action or suit by or in the
right of the corporation against such persons, the corporation is authorized
to provide similar indemnification, provided that, should any such persons be
adjudged to be liable for negligence or misconduct in the performance of
duties to the corporation, the court conducting the proceeding must determine
that such persons are nevertheless fairly and reasonably entitled to
indemnification. To the extent any such persons are successful on the merits
in defense of any such action, suit or proceeding, Texas law provides that
they shall be indemnified against reasonable expenses, including attorney
fees. A corporation is authorized to advance anticipated expenses for such
suits or proceedings upon an undertaking by the person to whom such advance is
made to repay such advances if it is ultimately determined that such person is
not entitled to be indemnified by the corporation. Indemnification and
payment of expenses provided by Texas law are not deemed exclusive of any
other rights by which an officer, director, employee or agent may seek
indemnification or payment of expenses or may be entitled to under any by-law,
agreement, or vote of shareholders or disinterested directors. In such
regard, a Texas corporation is empowered to, and may, purchase and maintain
liability insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation. As a result of such corporation law,
the Company may, at some future time, be legally obligated to pay judgments
(including amounts paid in settlement) and expenses in regard to civil or
criminal suits or proceedings brought against one or more of its officers,
directors, employees or agents, as such, with respect to matters involving the
proposed Merger or, should the Merger be effected, matters that occurred prior
to the Merger with respect to Flex Financial.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act of 1933 and is, therefore, unenforceable.
INFORMATION ABOUT THE COMPANY
The Company was incorporated under the laws of the State of Texas on
March 21, 1996. It has no business or significant assets and was organized
for the purpose of entering into the Merger proposed herein (see "TERMS OF THE
TRANSACTION - TERMS OF THE MERGER"). It has no employees; its management will
serve without pay until the Merger should become effective.
DESCRIPTION OF BUSINESS AND PROPERTIES.
Should the Merger be approved and effected, the Company shall be the
surviving company, but the Company's management (see "VOTING AND MANAGEMENT
INFORMATION - DIRECTORS, EXECUTIVE OFFICERS, AND SIGNIFICANT EMPLOYEES") shall
not remain as the management of the Company. Control of the Company, through
the voting power to elect the entire board of directors and thereby to replace
management, shall pass to the present shareholders of Flex Financial, and Flex
Financial's present directors and officers shall become the directors and
officers of the Company.
It is the intention of Flex Financial's present management to continue
the business of Flex Financial as the business of the Company (see
"INFORMATION ABOUT FLEX FINANCIAL - DESCRIPTION OF BUSINESS AND PROPERTIES").
The Company's present management consists of one person, Michael T.
Fearnow. Mr. Fearnow has been a principal of National Association of
Securities Dealers' ("NASD") member firms which acted as securities
broker-dealers and acted as underwriters of, or members of groups selling,
securities offered to the public.
COURSE OF BUSINESS SHOULD THE MERGER NOT OCCUR.
Should the Merger not be approved and effected, the Company will be
without any property or business. The Company's management has no present
plans for this contingency but would seek to acquire, in exchange for stock of
the Company, a business or assets that would constitute a business. Should no
acquisition that would cause the Company to become a going concern be made
within 18 months after the date of the Registration Statement of which this
Prospectus is a part, the holders of the majority of the issued and
outstanding shares of Common Stock will have the voting power to cause a
dissolution of the Company, and persons who would be the holders of a majority
of these shares have indicated their intention to do so.
LEGAL PROCEEDINGS.
Neither the Company nor its property is a party to or the subject of
pending legal proceedings.
MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
There is no public trading market for the Company's Common Stock. As of
the date of this Prospectus, there is one holder of record of the Company's
20,000 shares of issued and outstanding capital stock. After the Spinoff (see
"TERMS OF THE TRANSACTION - TERMS OF THE MERGER") these 20,000 shares of stock
shall be owned of record by American NorTel's approximately 780 shareholders.
Should the Merger be approved and effected, (i) the Escrow Agent will
release from escrow the certificates representing the ownership of the 20,000
Spinoff Shares, which certificates would be delivered to the approximately 780
persons owning the Spinoff Shares, and (ii) the 11 shareholders of Flex
Financial will receive 94,000 shares of Common Stock of the Company in
exchange for all the issued and outstanding shares of capital stock of Flex
Financial. An additional 185,332 shares of Common Stock of the Company will
be reserved for issuance against the exercise of Company options and warrants
that would replace existing options and warrants of Flex Financial.
There can be, and is, no assurance that market makers will make or
maintain a market in the stock or that, even if a market is made and
maintained in the stock, that the stock will trade at prices deemed attractive
or reasonable to the shareholders of the Company.
The Company's stock will not be eligible for quotation on the NASDAQ
Small Cap Market ("NASDAQ") (i) until it trades at a price of $3 per share or
higher and (ii) unless it meets other NASDAQ requirements regarding assets and
shareholders' equity, which it will not yet meet even if the Merger is
approved and effected. No assurance can be made that the Common Stock will
ever become eligible for quotation on NASDAQ.
The Company's stock is expected to be quoted on an NASD inter-dealer
system called "the Bulletin Board." While some Bulletin Board stocks are
actively traded, they do not draw the interest of the NASD brokerage community
held by NASDAQ stocks or exchange-listed stocks. The eligibility requirements
for listing the Company's stock on exchanges are generally as high or higher
than the requirements for eligibility for quotation on NASDAQ, and the Company
has no present plans to list its stock on an exchange. Hence, the plans of
the Company to use its stock for business acquisition purposes are likely to
be adversely affected unless and until its stock becomes eligible for
quotation on NASDAQ.
Further, holders of the Shares offered herein face the prospect, should
the Merger be approved and effected, of an indefinite period during which the
Shares will be subject to trading severities imposed on Bulletin Board,
so-called "penny stocks" (stocks that trade at less than $5 per share) by
regulations of the Securities and Exchange Commission. The effect of these
trading severities is to reduce broker-dealer and investor interest in trading
or owning "penny stocks" and, hence, could inhibit the ability of the
Company's stock to reach a trading level of $3 per share or higher and thereby
become eligible for quotation on NASDAQ even if the Company meets NASDAQ's
assets and shareholders' equity requirements in the future.
Flex Financial has obtained agreements from the beneficial owners of at
least 50 percent of their presently outstanding shares of capital stock to the
effect that these owners will not sell any of their shares of post-Merger
Company stock (without first obtaining the written authorization of Flex
Financial's president) for the following periods after the Merger becomes
effective and information about the Company is published in Moody's OTC
Industrial Manual: Flex Financial's shareholders - 180 days.
RULE 144 AND RULE 145 RESTRICTIONS ON TRADING.
Should the Merger and Spinoff transaction described herein be approved
and effected, all issued and outstanding shares of Common Stock of the Company
shall have been issued or distributed pursuant to registration with the
Commission. Nevertheless, some of the Shares, even though deemed not to be
"restricted securities," as such term is used by the Commission, will be
subject to certain restrictions on their transfer for value.
Holders of the Shares who are deemed to be affiliates of Flex Financial
at the time of the vote on the Merger, in order to sell their Shares, must
either register them for sale or comply with the resale provisions set forth
in paragraph (d) of the Commission's Rule 145, unless some other
exemption-from-registration provision is available. The resale provisions of
paragraph (d) of Rule 145 refer to certain provisions of the Commission's Rule
144 which require that:
- there must be available, to the public, current information about
the Company of a quality meeting certain Commission requirements,
- transfers for value by such affiliates can occur only either
through broker transactions not involving the solicitation of buyers or
directly to market-makers, and
-each such affiliate can transfer for value, during a 90-day period,
no more Shares than the greater of one percent of all issued and outstanding
shares of Common Stock of the Company (940 Shares immediately after the
Merger) or the average weekly volume of trading in such Common Stock reported
through the automated quotation system of NASDAQ during the four calendar
weeks prior to placing the sell order with a broker-dealer.
The above described resale provisions of Rule 145 shall continue, for
persons who are affiliates of Flex Financial at the time of the vote on the
Merger, for 2 years after the Merger, at which time only the current public
information requirement shall continue. At such time as any such affiliate
has ceased to be an affiliate of the post-merger company for at least 3
months, and provided at least 3 years have elapsed since the date of the
Merger, then even the current public information requirement will no longer be
required for such a former affiliate to sell any of the Shares acquired in the
Merger.
The Company believes that none of the 20,000 Spinoff Shares will be
subject to any restrictions on trading or transfers for value, by reason of
these Shares' being registered for the Spinoff. Further, none of the 94,000
Shares of the Company to be distributed in the Merger to Flex Financial
shareholders other than to Flex Financial officers and directors and to
affiliates of Flex Financial prior to the Merger will be subject to any
restrictions on transfer. Accordingly, after the effective date of the Merger
and the redistribution of the Spinoff Shares, there shall be 114,000 Shares in
the "public float," i.e., subject to no Rule 144 or other applicable
securities law restrictions on their being traded or transferred for value.
It is estimated that in excess of 300 persons will own these Shares of record,
the offering of which for sale could have a materially adverse effect on the
market price of the Company's stock. However, for a period of 180 days after
the Merger should become effective and information about the post-Merger
Company has been published in Moody's OTC Industrial Manual, at least half of
the Flex Financial outstanding Shares are subject to restrictions on trading
by reason of agreements among the shareholders owning these Shares. See
"Information about the Company - Market for the Company's Common Stock and
Related Stockholder Matters."
There is no equity of the Company subject to outstanding options or
warrants to purchase, or securities convertible into, equity of the Company.
However, under the terms of the Merger, all warrants and options of Flex
Financial which are outstanding on the Effective Date shall be canceled and
converted into warrants and options of the Company to buy an equivalent number
of shares. See "DESCRIPTION OF SECURITIES - OTHER SECURITIES OF THE COMPANY".
The Company has had no operations or earnings and has declared no
dividends on its capital stock. Should the Merger be approved and effected,
there are no restrictions that would, or are likely to, limit the ability of
the Company to pay dividends on its Common Stock, but the Company has no plans
to pay dividends in the foreseeable future and intends to use earnings for
business expansion purposes (see "INFORMATION ABOUT THE COMPANY - DESCRIPTION
OF BUSINESS AND PROPERTIES").
FINANCIAL STATEMENTS.
Set forth below are the independent auditor's report dated September 25,
1996 with respect to the Company's balance sheet as of July 31, 1996, such
balance sheet, and the notes to the balance sheet.
<PAGE>
FLEX ACQUISITIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
JULY 31, 1996
<PAGE>
<TABLE>
<CAPTION>
--ooOoo--
C 0 N T E N T S
Page
<S> <C>
Independent Auditor's Report FI-2
Balance Sheet FI-3
Statement of Operations FI-4
Statement of Changes in Stockholder's Equity. FI-5
Statement of Cash Flows FI-6
Notes to Financial Statements FI-7-8
</TABLE>
--ooOoo--
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholder and Directors of
Flex Acquisitions Corporation
(A Development Stage Company)
Houston, Texas
We have audited the accompanying balance sheet of Flex Acquisitions
Corporation (A Development Stage Company) as of July 31, 1996, and the related
statements of operations, changes in stockholder's equity and cash flows for
the period March 22, 1996 (date of inception) through July 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Flex Acquisitions Corporation
(A Development Stage Company) at July 31, 1996, and the results of its
operations and its cash flows for the period then ended in conformity with
generally accepted accounting principles.
Harper & Pearson Company
Houston, Texas
September 25, 1996
FI-2
<PAGE>
<TABLE>
<CAPTION>
FLEX ACQUISITIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
JULY 31, 1996
ASSETS
<S> <C>
OTHER ASSETS
Start-up costs $ 4,992
=========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 134
Interest payable 134
TOTAL CURRENT LIABILITIES 268
LONG-TERM NOTE PAYABLE, RELATED PARTY 4,000
STOCKHOLDER'S EQUITY
Preferred stock, no par value, 10,000,000 shares
authorized, none issued and outstanding, rights,
preferences, qualifications, limitations and
restrictions and any other benefits to be
determined by the Board of Directors as provided
in the corporation's Articles of Incorporation -0-
Common stock, $.001 par value, 10,000,000 shares
authorized, 20,000 shares sold and to be issued 20
Additional paid-in capital 980
Deficit accumulated during the development stage (276)
724
$ 4,992
=========
</TABLE>
See accompanying notes.
FI-3
<TABLE>
<CAPTION>
FLEX ACQUISITIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
MARCH 22, 1996 (Date of Inception) THROUGH JULY 31, 1996
<S> <C>
EXPENSES
Interest expense $ 134
Outside services 80
Bank service charges 54
Postage and delivery 8
276
NET LOSS $ (276)
=========
LOSS PER COMMON SHARE $ (.01)
=========
SHARES USED IN COMPUTING LOSS PER SHARE $ 20,000
=========
</TABLE>
See accompanying notes.
FI-4
FLEX ACQUISITIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
MARCH 22, 1996 (Date of Inception) THROUGH JULY 31, 1996
<TABLE>
<CAPTION>
Additional
Preferred Common Paid-In Retained
Stock Stock Capital (Deficit) Total
<S> <C> <C> <C> <C> <C>
Sale of Common
Stock $ -0- $ 20 $ 980 $ -0- $ 1,000
Net Loss -0- -0- -0- (276) (276)
Balance -
July 31, 1996 $ -0- $ 20 $ 980 $ (276) $ 724
=========== ========= ========= ========== ==========
</TABLE>
See accompanying notes.
FI-5
<PAGE>
<TABLE>
<CAPTION>
FLEX ACQUISITIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
MARCH 22, 1996 (Date of Inception) THROUGH JULY 31, 1996
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (276)
Adjustments to reconcile net loss to net
cash used by operating activities:
Change in operating assets and liabilities:
Accounts payable 134
Interest payable 134
Total Adjustments 268
Net Cash Used by Operating Activities (8)
CASH FLOWS FROM INVESTING ACTIVITIES:
Start-up costs (4,992)
Net Cash Used by Investing Activities (4,992)
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term note payable, related party 4,000
Proceeds from issuance of common stock 1,000
Net Cash Provided by Financing Activities 5,000
NET INCREASE IN CASH -0-
CASH AT BEGINNING OF PERIOD -0-
CASH AT END OF PERIOD $ -0-
=========
</TABLE>
See accompanying notes.
FI-6
<PAGE>
FLEX ACQUISITIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1996
NOTE A BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Flex Acquisitions Corporation (A Development Stage Company) (Acquisitions) a
wholly owned Texas subsidiary of American Nortel Communications, Inc.
(American Nortel) was incorporated on March 21, 1996 for the purpose of; (a)
merging with Flex Financial Group, Inc. (Flex Financial), an entity related by
common control, and (b) a proposed filing of a registration statement with the
Securities and Exchange Commission. Simultaneously with these transactions,
it is anticipated that American Nortel will then distribute its shares of the
Company to American Nortel shareholders. The newly formed public Company will
then engage in the business of participating in certain short-term financing
opportunities (terms of less than one year) in the underwriting segment of the
securities industry and in certain long-term financing and investment
opportunities (terms of greater than one year) in transactions with operating
businesses with significant growth potential.
The Company has no business operations or significant capital and has no
intention of engaging in any active business until it merges with Flex
Financial. Should the merger not occur, the Company would seek other business
opportunities and if none were found, would be dissolved within eighteen
months by a vote of the majority of its common stockholders.
Merger Spin-Off - The Company agreed to merge with Flex Financial on July 1,
1996. Flex Financial is a developmental stage company formed to participate
in certain short-term financing opportunities (terms of less than one year) in
the underwriting segment of the securities industry and to participate in
certain long-term financing and investment opportunities (terms of greater
than one year) in transactions with operating businesses with significant
growth potential. The Company will be the surviving corporation (Survivor)
but Flex Financial will elect all directors and officers of the Survivor. All
currently outstanding stock of Flex Financial will be canceled and converted
into 94,000 shares of the Company's common stock. Flex Financial has options
and warrants currently outstanding which will be canceled and options and
warrants on the Company's common stock will be issued according to the plan of
merger.
The merger is contingent upon the effectiveness of the registration
statements, and upon the shareholders of the Company and of Flex Financial
approving the proposed merger.
Management's Estimates - Management uses estimates and assumptions in
preparing financial statements in accordance with generally accepted
accounting principles. These estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities, and the reported revenues and expenses. Actual results could
vary from the estimates that were used.
Fair Value of Financial Instruments - Management is of the opinion that the
carrying value of all financial instruments is substantially equal to fair
value at July 31, 1996.
Continued
FI-7
FLEX ACQUISITIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1996
NOTE A BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Loss Per Common Share - Loss per common share is computed using the weighted
average number of shares of common stock outstanding during the period.
Income Taxes - For the year ended July 31, 1996, the Company incurred a net
operating loss amounting to $276. This net operating loss carryforward will
expire in the year 2011, if not previously utilized.
No tax benefit for the loss carryforward has been reported in the financial
statements. Accordingly, the tax benefit of approximately $94 resulting from
the utilization of the loss carryforward has been offset by a valuation
allowance of the same amount.
Start-up Costs - Represents legal and other costs associated with the
organization of the Company and services in connection with the anticipated
merger/spinoff with American Nortel Communications, Inc. and Flex Financial
Group, Inc. These costs will be amortized over a five year period upon
commencement of operations.
NOTE B LONG-TERM NOTE PAYABLE, RELATED PARTY
Long-term note payable, related party consists of the following at July 31,
1996:
Flex Financial Group, Inc. - 10% note, convertible
into common stock as provided for by the
agreement, subordinated, redeemable note
payable due March 31, 1998, renewable for an
additional two year term, interest payable
at maturity; unsecured $ 4,000
Less current portion -0-
Long-term portion $ 4,000
==========
NOTE C RELATED PARTY TRANSACTIONS AND BALANCES
Transactions and balances with related individuals and entities related by
common control are as follows:
Flex Financial Group, Inc.
Interest expense/payable $ 134
==========
Roberts - Attorney at Law;
initial registered agent
Start-up costs $ 4,992
==========
FI-8
INFORMATION ABOUT FLEX FINANCIAL
Flex Financial Group, Inc. ("Flex Financial") was incorporated under the
Business Corporation Law of the State of Texas on August 17, 1995.
MANAGEMENT'S PLAN OF OPERATION.
The following should be read in conjunction with the Financial Statements
of Flex Financial and the Notes thereto, and the other financial and other
information included elsewhere in this Prospectus. This Prospectus contains
certain statements regarding future trends which are subject to various risks
and uncertainties. Such trends, and their anticipated impact on Flex
Financial, could differ materially from those discussed in this Prospectus.
Factors that could cause or contribute to such differences include, but are
not limited to, those discussed in "RISK FACTORS" and elsewhere in this
Prospectus.
Flex Financial was organized in August, 1995 and is in the development
stage. Flex Financial has not yet commenced operations, has not generated any
revenues from operations to date, and will not generate any revenues from
operations until after the completion of the Units Offering, which the company
anticipates will occur in September, 1997. There can be no assurance that the
company will be able to successfully generate meaningful revenue or achieve
profitable operations.
Since inception, Flex Financial has developed a business plan; developed
and disseminated promotional material to prospective clients of its business
services; identified potential clients with respect to its services; developed
a marketing strategy; and raised an aggregate of $137,200 in gross proceeds
through private equity and debt offerings.
LIQUIDITY AND CAPITAL RESOURCES. As of May 31, 1997, Flex Financial has
approximately $30,000 in cash and cash equivalents. It is anticipated that
the company will realize $500,000 in net proceeds from the sale of the Common
Stock and Warrants offered in the Units Offering. The net proceeds of the
Units Offering will be used to pay off the Bridge Loans, to commence
investment in Bridge Loans and Subordination Loans, and to pay for general
administrative and overhead expenses incurred in connection therewith.
Flex Financial is dependent upon the proceeds of the Units Offering, if
any, or other financing to implement its proposed business plan. Management
believes that the proceeds from the sale of the Common Stock and Warrants
offered in the Units Offering will enable Flex Financial to satisfy its
anticipated financing needs for a period of at least 12 months following the
Effective Date. However, there can be no assurance that Flex Financial will
have sufficient capital resources to permit it to fully implement its business
plan.
PLAN OF OPERATION.
BUSINESS OBJECTIVES. Flex Financial was formed primarily to serve as a
vehicle to invest in short-term financing opportunities in the underwriting
segment of the securities industry. The company intends to participate in
short-term financing opportunities by (i) providing equity subordination loans
to underwriters requiring additional excess net capital for underwriting
specific issues on a firm commitment basis ("Subordination Loans") and (ii)
providing bridge loans to selected issuers to connection with initial public
offerings and secondary financing ("Bridge Loans"). The business objectives
of the company are to (i) provide Subordination Loans to selected underwriters
for specific issues on terms suiting the company's investment requirements,
and (ii) to provide Bridge Loans on a highly selective basis within
established guidelines to issuers meeting the company's due diligence
standards. Flex Financial also intends to engage in "spinoff" activities such
as are described herein, such spinoffs to involve the distribution, by way of
stock dividends or otherwise, of registered shares of stock of other
companies. The company intends to use the proceeds of the Units Offering
primarily to provide the capital to commence the investigation, negotiation
and participation in Subordination and Bridge Loans.
The company believes that financing opportunities will become available
to it due primarily to the contacts of its officers, directors and consultants
with entities and individuals participating in various segments of the
securities industry, liquidity of its assets, its future status as a
publicly-held company, and its flexibility in structuring and participating in
financing opportunities. The company has no agreement or understanding to
participate in any financing opportunity, nor does it currently have any
opportunity under investigation. Decisions as to which financing
opportunities to participate in will be made by management of the company,
which will in all probability act without the consent, vote, or approval of
Flex Financial's stockholders except when required by applicable law.
BUSINESS EXPERIENCE OF PRINCIPALS. The present executive officer and
director and certain consultants who have been retained by Flex Financial have
business experience which has provided them with certain skills which the
company believes will be helpful in identifying and evaluating potential
Bridge Loan and Subordination Loan candidates and in negotiating the terms of
Bridge Loans and Subordination Loans. They have had significant experience in
a variety of business transactions, including providing investment banking,
underwritings, bridge loans and general business consulting to public and
private companies in the $5 million to $10 million asset range. The company
expects to actively recruit board members with extensive management, financial
and entrepreneurial backgrounds to assist in these endeavors. The company
expects that future directors will have similar experience and/or extensive
business management and financial management experience. In addition, the
Board of Directors may establish an advisory committee (the "Advisory
Committee") consisting of up to eight (8) persons to assist in finding and
evaluating potential candidates for Bridge Loans and Subordination Loans.
Members of the Advisory Committee will have significant experience in the
securities industry primarily in areas of business interest to the company.
The Advisory Committee will not have any role in the management of the
business of the company, but will be available, to the extent management may
require, to consult with management as to potential candidates for Bridge
Loans and Subordination Loans.
BUSINESS PLAN.
1. General.
Flex Financial was organized to provide Subordination Loans to
selected underwriters requiring short term additional net capital to
underwrite specific issues on a firm commitment basis; to provide Bridge Loans
on a highly selective basis within established guidelines to selected issuers
meeting the company's due diligence standards to facilitate initial public
offerings or secondary financing; and to engage in "spinoff" activities in
which the company serves as a vehicle or facility for private operating
companies to effect public status.
The company will generally use the proceeds of the Units
Offering, after paying off the Bridge Loans, to investigate and, if warranted,
participate in a financing opportunity with immediate short-term earnings
potential. Because of the company's limited financial, managerial, and other
resources, the number of suitable potential financing opportunities which will
be available to it under its criteria will be extremely limited. The company
currently has no commitment or arrangement to participate in any financing
opportunity and cannot now predict what type of opportunity may become
available to it.
Management of the company has virtually unlimited discretion in
searching out and participating in a financing opportunity. The company is
unable to predict when it may become engaged in a financing opportunity. It
expects, however, that review and analysis of specific proposals and the
selection of a financing opportunity will likely take several weeks or more
following the successful completion of this offering. There can be no
assurance as to when a financing opportunity will become available, however,
management is confident that such opportunities will become available.
Management anticipates that the company may be able to participate
in ongoing financing opportunities. This diversification should enable the
company to reduce its risks by offsetting potential losses from one financing
against gains from another.
2.Subordination and Bridge Loans
Subordination Loans. Flex Financial intends to provide
Subordination Loans to selected underwriters to facilitate the underwriting of
specific issues on a firm commitment basis. Small underwriters seek
short-term equity subordinated underwriting loans to meet excess net capital
requirements for firm commitment underwritings. The Company intends to
participate in Subordination Loans that can be structured with the following
general terms. Subordination Loans will typically be very short term loans
(maximum term of 30 to 45 days) made to an underwriter for the purpose of
meeting excess net capital requirements for a specific firm commitment
underwriting. Principals of the underwriter will in most cases be required to
personally guarantee repayment of the loan. The terms of the loan will
normally require that loan proceeds be maintained in a segregated account
invested in short term money market or similar securities. The underwriter
will normally be expected to pay a minimum of 2% of the amount of the
underwriting for the loan, yielding a return of 7% to 10% to the Company.
The Company expects to participate in up to six Subordination Loans a year in
amounts ranging from $50,000 to $150,000 each, yielding a return in excess of
50% per year.
Bridge Loans. Flex Financial intends to provide Bridge Loans to
selected issuers to facilitate an issuer's initial public offering or
secondary public financing. Bridge Loans are typically short term loans
(maximum term of one year with mandatory prepayment out of the proceeds of the
underwriting) made to an issuer for the purpose of providing funds to pay
underwriting costs and to a lesser extent general corporate expenses relating
to the underwriting. The Company intends to participate in Bridge Loans that
can be structured with the following general terms. In the typical
transaction the Company would expect the loan to be repaid from the proceeds
of the underwriting within 4 to 6 months of the loan. The loan would
typically range in amount from $50,000 to $200,000 and normally carry an
interest rate of 3 to 5 points above prime. The Company will require an equity
enhancement in the form of warrants or cheap stock designed to provide a
return of 200% to 300% of the loan amount within 12 to 18 months of the loan.
In connection with equity enhancements, the Company will require demand and
piggy back registration rights with expenses paid by the issuer. Principals
of the issuer will be expected to personally guarantee repayment of the loan
and in most cases the loan will collateralized by some assets of the issuer.
Typical Scenarios. Although the Company cannot predict the exact
terms and structure of any financing transaction in which it may participate,
the following represents the type of transaction structures that the Company
will attempt to negotiate.
With respect to a typical scenario for a Subordination Loan, the
Company intends to seek situations in which a small underwriter with net
capital of $500,000 or less wants to underwrite an entire issue of $4 million
to $10 million on a firm commitment basis. NASD and SEC rules and regulations
require the underwriter to have excess net capital of 30% of the retention
less underwriting fees. A $5 million firm commitment underwriting would
require $5,000,000 X .90 = $4,500,000 X .30 = $1,350,000 in excess net
capital. An underwriter requiring another $850,000 in excess net capital to
underwrite the issue would require additional underwriters or a subordinated
underwriting loan to provide the additional $850,000 in excess net capital.
The Company would expect to participate in such a subordinated loan in the
amount of $150,000 which would underwrite $500,000 of the issue. The
underwriter would expect to pay a minimum of 2% of the underwritten amount or
$10,000 for the loan, yielding a return to the Company of 7% to 10% over a 30
to 45 day period.
With respect to a typical scenario for a Bridge Loan transaction,
the Company will expect to make a one year $100,000 Bridge Loan to an issuer
to facilitate the issuer's initial public offering to be priced at $5.00 per
share. The loan would bear interest at 13% per annum with mandatory
prepayment from the proceeds of the underwriting at closing. The loan will be
personally guaranteed by the issuer's principals and collateralized by
available assets of the issuer. The Company would expect to receive a stock
purchase warrant to buy 50,000 shares of the issuer's common stock at $2.00
per share as an equity enhancement. Six months after the loan the
underwriting closes and the Company would expect to be repaid $100,000
principal and $6,500 in interest. Twelve months after the underwriting (18
months after the loan) assuming the issuer's stock is trading at $6.00, the
value of the warrants would be $200,000 or 200% of the original loan. The
results and return on the equity enhancement would of course be completely
dependent upon the performance of the issuer's publicly traded securities and
in some cases may be of no value. Normally, the securities representing the
equity enhancement is registered in the issuer's initial public offering.
The level of the Company's participation in any particular Subordination
or Bridge Loan would depend upon available capital and prudent risk management
and portfolio diversification.
General Considerations. Management intends to participate in a
portfolio of subordinated loans and bridge loans that will provide prudent
risk and diversification. The amount of and timing of each transaction will
be determined by management taking into account the liquid assets and net
worth of the Company, and the ongoing general and administrative costs of the
Company. Whenever possible management will further diversify by participating
with other investors in its financing opportunities.
3.Other Investment Transactions
General. By reason of its participation in Subordination and Bridge
Loans, Flex Financial expects to be presented investment opportunities
resulting in the acquisition of a non-controlling equity interest in a company
that wishes to become publicly held ("Public Candidate") and which the Company
believes has growth potential. These opportunities are expected to be in the
form of "spinoff" transactions.
Investment Transactions. The Company will not use any portion of
the proceeds of this Units Offering to investigate and enter into any
definitive agreement relating to an Investment Transaction. The Company would
not expect to acquire more than a 10% equity interest in a Public Candidate in
an Investment Transaction.
Typical Scenarios. In a typical scenario, Flex Financial may be
approached by a Public Candidate. Flex Financial will enter into an agreement
with the Public Candidate for a proposed merger-spinoff transaction which
would result in the Public Candidate becoming a publicly held company. The
proposed merger-spinoff would be effected by Flex Financial forming a new
subsidiary which would be thinly capitalized with Flex Financial as its sole
shareholder. The Target would merge into the subsidiary with the Target
shareholders receiving approximately 90% of the issued and outstanding shares
of the subsidiary and Flex Financial retaining 10% of the shares. Subsequent
to the merger, Flex Financial will distribute some or all of the subsidiary's
shares to its shareholders (expected at that time to exceed 300 in number).
Contemporaneously with the merger-spinoff, the subsidiary would file a
registration statement on Form S-4 with the Securities and Exchange Commission
("SEC") to register the merger shares and file a registration statement on
Form SB-2 with the SEC to register the spinoff shares. The subsidiary may in
connection with the filing of the S-4 register shelf shares for future
issuance in association with possible acquisitions and may in connection with
the filing of the SB-2 register the sale of additional shares to provide
working capital or register the resale of shares for the account of its
shareholders. As a result of the transaction, the Public Candidate becomes a
publicly held company with Flex Financial or its shareholders owning 10% of
the public company. Flex Financial will not bear any expense in connection
with such a transaction.
Method of Participation. It is impossible to predict exactly how
Flex Financial may participate in an Investment Transaction, or if it will,
but generally speaking, the following represents the type of transaction
structures that the will attempt to negotiate. Subject to a letter of
intent, the company may agree to form a wholly-owned subsidiary. The
subsidiary may then enter into a definitive agreement under which the Public
Candidate merges into the subsidiary with the retaining a negotiated equity
interest in the surviving subsidiary (expected to be 10% of issued and
outstanding shares). The Company may then use the shares for, among other
things, distribution as a dividend to its shareholders, sale for cash,
exchange for other assets, or retention for investment purposes.
Flex Financial May Be Deemed to Be an Underwriter. In a typical
scenario as described above, Flex Financial may be deemed an underwriter by
reason of its intent to distribute any shares that may be owned by it as a
dividend distribution to its shareholders ("Spinoff Shares").
After a distribution by Flex Financial of Spinoff Shares to its
shareholders, the company may no longer own any shares of capital stock of
the Public Candidate, except to the extent it may elect to distribute less
than all of the Spinoff Shares.
A consequence to Flex Financial should it be deemed to be an
underwriter of the shares to be distributed to its shareholders, is that any
person who purchases the registered Shares within 3 years after the
distribution could assert a claim against Flex Financial under Section 11 of
the Securities Act of 1933. The purchase could be in the open market as long
as the shares purchased can be traced to the registered Spinoff Shares Flex
Financial distributes to its shareholders. Such a claim, to be successful,
must be based upon a showing that statements in the registration statement
were false or misleading with respect to a material fact or that the
registration statement omitted material information required to be included
therein.
Open market purchasers may have to prove reliance upon the
alleged misstatement or omission, but reliance may not necessarily require a
showing that the purchaser actually read the registration statement but,
instead, that the misstatements or omissions in the registration statement
were a substantial factor in the purchase of the shares.
Flex Financial May Have Exposure as a Control Person. In a typical
scenario as described above, the Company's organization of a subsidiary will
result in the company being a "control person" of the subsidiary, as that term
is defined in Section 15 of the Securities Act of 1933 ("the Act") from the
subsidiary's organization and until the any proposed merger should become
effective.
Section 15 of the Act imposes joint and several liability on
persons who control other persons substantively liable under other sections of
the Act - Section 11, for misrepresentations in a registration statement,
Section 12(1) - the unlawful sale of unregistered securities, and Section
12(2) misrepresentations in the sale of securities. A controlling person can
avoid liability by proving "he had no knowledge of or reasonable grounds to
believe in the existence of the facts by reason of which the liability of the
controlled person is alleged to exist."
4.Miscellaneous Matters
Sources of Opportunities. The principals of Flex Financial have
extensive experience in working with small underwriters and in providing
investment banking, underwritings, bridge loans, and general business and
financial consulting to smaller public and private companies. The company
anticipates that financing opportunities will be referred by various sources,
including its officers and directors, professional advisers, securities
broker-dealers, members of the financial community, and others who may present
unsolicited proposals. The company may agree to pay a finder's fee or other
compensation for services provided by unaffiliated persons who submit a
financing opportunity in which the company participates. No guideline or
policy has been adopted by the company concerning the circumstances under
which a finder's fee will be paid or the amount of such fee.
The company will seek potential financing opportunities from
all known sources, but will rely principally on personal contacts of its
officers, directors and consultants as well as indirect associations between
them and other business and professional people. In some instances, the
company may publish notices or advertisements seeking a potential financing
opportunity in financial or trade publications.
Criteria. Subordination Loans will only be made to underwriters
acceptable to Flex Financial and in connection with specific underwritings for
issuers acceptable to the company. Bridge Loans will only be made to
companies that can pass an extensive due diligence review of the company's
management, business, deal structure, underwriter, and public relations firm.
The company may require representation on the issuer's board and will require
substantial penalties for a loan default, although in a default situation Flex
Financial's remedies may be limited. Any participation by the company will be
subject to the issuer executing a firm commitment underwriting letter of
intent with an underwriter approved by the company.
The company will seek to enter into transactions with mature
businesses, but may seek a transaction with a business in any industry and in
any stage of development, including an established business which needs
additional funding or a firm which is in need of additional capital to
overcome financial problems or difficulties. However, the company does not
intend to enter into such transaction with a "start up" or new company.
The analysis of financing opportunities will be undertaken by
or under the supervision of the officers and directors. Certain of the
Company's officers, directors and consultants have extensive business
experience in the securities industry, particularly regarding small public
underwritings, and are primarily engaged in the business of analyzing
businesses for underwriting suitability and negotiating, participating in and
advising as to Bridge Loans and Subordination Loans. In analyzing prospective
financing opportunities, management will consider the following factors
regarding an issuer: available technical, financial, and managerial
resources, working capital and other financial requirements; history of
operations, if any; quality and experience of management services which may be
available and the depth of that management; capability of effecting an
underwriting, including quality of underwriter and professional advisers; and
other relevant factors.
The company will analyze all available factors and make a
determination based upon a composite of available facts, without reliance on
any single factor.
Procedures. A thorough evaluation of an issuer prior to a Bridge
Loan will be difficult. The company will have limited time and funds
available in its search for and analysis of financing opportunities and will
not be able to expend significant funds on a complete and exhaustive
investigation of any financing opportunity. However, the company will
investigate, to an extent believed reasonable by its management, such
potential opportunities by obtaining financial and other information
reasonably available concerning the issuer and/or underwriter; conducting
meetings and interviews with management and underwriter; reviewing experience
and other financial factors; and other reasonable methods.
As part of the Company's investigation, officers and directors
may meet personally with management and key personnel of the firm sponsoring
the investment opportunity, visit and inspect material facilities, obtain
independent analysis or verification of certain information provided, check
references of management and key personnel, and conduct other reasonable
measures, to the extent allowed by the Company's limited financial resources
and management and technical expertise.
The company will participate in a financing opportunity only
pursuant to negotiation and execution of a written agreement. Although the
terms cannot be predicted, agreements generally require specific
representations and warranties by all of the parties thereto and specify
certain events of default.
The investigation of specific financing opportunities and the
negotiation, drafting and execution of relevant agreements, disclosure
documents, and other instruments may require substantial management time and
attention and substantial costs for accountants, attorneys, and others. If a
decision is made not to participate in a specific financing opportunity, the
costs previously incurred in the related investigation would not be
recoverable. Furthermore, even if an agreement is reached for the
participation in a specific financing opportunity, the failure to consummate
that transaction may result in the loss to the company of the related costs
incurred.
Competition. The company expects to encounter competition in its
efforts to locate opportunities for the employment of its capital. The
primary competition for desirable investments is expected to come from other
small companies organized and funded for similar purposes, small venture
capital partnerships and corporations, small business investment companies,
and individuals with unlimited financial resources. Many of these entities
may have significantly greater experience, resources, and managerial
capabilities than the company and will, therefore, be in a better position
than the company to obtain access to business opportunities. However, the
company believes that it has sufficient expertise and contacts to compete
successfully in this market.
DESCRIPTION OF BUSINESS PROPERTIES.
Flex Financial currently shares a portion of approximately 3,000 square
feet of office space in premises occupied by Focus-Tech Investments, Inc. and
Financial Public Relations, Ltd. at 770 S. Post Oak Lane, Suite 515, Houston,
Texas 77056. Mr. Fearnow is a principal of Focus-Tech Investments, Inc.
("Focus-Tech"), a Nevada corporation, that provides investment banking
consulting services to FPR. Flex Financial believes that such space and
services will be adequate for the business of Flex Financial into the
foreseeable future. The cost for such space is included in a $4,000 per-month
fee charged by Focus-Tech for general and administrative services for calendar
year 1996.
Upon closing of the Units Offering Focus-Tech has agreed to provide to
Flex Financial for as long as required for Flex Financial's business use such
general and administrative services, which will include the cost of the use of
office space, personnel, facilities and equipment, for a monthly fee of
$4,000. Flex Financial believes that such space and services will be adequate
for the business of Flex Financial into the foreseeable future. Focus-Tech
has agreed to make this space available as long as required for the use of the
Flex Financial. Focus-Tech has agreed that its fee for providing such
services shall be paid only out of 15% of net Units Offering proceeds in
excess of $200,000, and thereafter agrees to accrue the monthly fee for
payment solely out of the fees, interest earned and earnings generated by the
Company's business.
Neither Flex Financial nor any of its property is a party to or the
subject of any pending legal proceedings.
LEGAL PROCEEDINGS.
Neither Flex Financial nor any of its property is a party to or the
subject of any pending legal proceedings.
MARKET FOR FLEX FINANCIAL'S CAPITAL STOCK AND RELATED STOCKHOLDER MATTERS.
There is no public trading market for Flex Financial's common stock. As
of the date of this Prospectus, there are 11 holders of record of Flex
Financial's outstanding common stock. Flex Financial has declared no
dividends on its common stock. Should the merger not be approved and
effected, there are no restrictions that would or are likely to limit the
ability of flex Financial to pay dividends on its common stock, but Flex
Financial has no plans to pay dividends in the foreseeable future and intends
to use earnings for the expansion of its present business.
FINANCIAL STATEMENTS.
Set forth below are the independent auditor's report dated September 9,
1996, except for Note D, which the date is November 4, 1996, with respect to
Flex Financial's financial statements as of July 31, 1996, and the notes to
the financial statements.
<PAGE>
FLEX FINANCIAL GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
JULY 31, 1996
<PAGE>
--ooOoo--
<TABLE>
<CAPTION>
C 0 N T E N T S
Page
<S> <C>
Independent Auditor's Report FII-2
Balance Sheet FII-3
Statement of Operations FII-4
Statement of Changes in Stockholders' Equity FII-5
Statement of Cash Flows FII-6
Notes to Financial Statements FII-7-11
</TABLE>
--ooOoo--
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Directors of
Flex Financial Group, Inc.
(A Development Stage Company)
Houston, Texas
We have audited the accompanying balance sheet of Flex Financial Group, Inc.
(A Development Stage Company) as of July 31, 1996, and the related statements
of operations, changes in stockholders' equity and cash flows for the period
August 17, 1995 (date of inception) through July 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Flex Financial Group, Inc. (A
Development Stage Company) at July 31, 1996, and the results of its operations
and its cash flows for the period then ended in conformity with generally
accepted accounting principles.
Harper & Pearson Company
Houston, Texas
September 9, 1996, except for Note D,
which the date is November 4, 1996
FII-2
FLEX FINANCIAL GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
JULY 31, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash $ 42,220
Interest receivable 1,486
Notes receivable, related parties 25,000
Note receivable 10,000
Loan origination costs, net 1,250
TOTAL CURRENT ASSETS 79,956
OTHER ASSETS
Long-term note receivable, related party 4,000
$ 83,956
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 58
Notes payable 50,000
Interest payable 3,822
Accrued overhead, related party 8,891
TOTAL CURRENT LIABILITIES 62,771
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, no par value, 10,000,000 shares
authorized, none issued and outstanding, rights,
preferences, qualifications, limitations and
restrictions and any other benefits to be
determined by the Board of Directors as provided
in the corporation's Articles of Incorporation -0-
Common stock, $.01 par value, 10,000,000 shares
authorized, 94,000 shares sold and to be issued 940
Additional paid-in capital 81,260
Deficit accumulated during the development stage (61,015)
21,185
$ 83,956
===========
</TABLE>
See accompanying notes.
FII-3
<PAGE>
<TABLE>
<CAPTION>
FLEX FINANCIAL GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
AUGUST 17, 1995 (Date of Inception) THROUGH JULY 31, 1996
<S> <C>
INTEREST INCOME $ 2,278
EXPENSES
Advertising 2,564
Consulting expenses 16,902
Filing fees 510
Interest expense 7,572
Legal and professional fees 6,100
Other expenses 350
Printing 1,295
Overhead allocation - related party 19,109
Accrued overhead - related party 8,891
63,293
NET LOSS $ (61,015)
===========
LOSS PER COMMON SHARE $ (.71)
===========
SHARES USED IN COMPUTING LOSS PER SHARE 85,833
===========
</TABLE>
See accompanying notes.
FII-4
<TABLE>
<CAPTION>
FLEX FINANCIAL GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
AUGUST 17, 1995 (Date of Inception) THROUGH JULY 31, 1996
Additional
Preferred Common Paid-In Retained
Stock Stock Capital (Deficit) Total
<S> <C> <C> <C> <C> <C>
Sale of Common
Stock $ -0- $ 940 $ 81,260 $ -0- $ 82,200
Net Loss -0- -0- -0- (61,015) (61,015)
Balance -
July 31, 1996 $ -0- $ 940 $ 81,260 $ (61,015) $ 21,185
=========== ========= ========= ========== ==========
</TABLE>
See accompanying notes.
FII-5
<PAGE>
<TABLE>
<CAPTION>
FLEX FINANCIAL GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
AUGUST 17, 1995 (Date of Inception) THROUGH JULY 31, 1996
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (61,015)
Adjustments to reconcile net loss to net
cash used by operating activities:
Amortization of loan origination costs, net 3,750
Change in operating assets and liabilities:
Interest receivable (1,486)
Accounts payable 58
Interest payable 3,822
Accrued overhead, related party 8,891
Total Adjustments 15,035
Net Cash Used by Operating Activities (45,980)
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan origination costs (5,000)
Notes receivable, related parties (35,000)
Note receivable (10,000)
Long-term note receivable, related party (4,000)
Collection of note receivable, related party 10,000
Net Cash Used by Investing Activities (44,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable 50,000
Proceeds from issuance of common stock 87,200
Stock issuance costs (5,000)
Net Cash Provided by Financing Activities 132,200
NET INCREASE IN CASH 42,220
CASH AT BEGINNING OF YEAR -0-
CASH AT END OF YEAR $ 42,220
===========
</TABLE>
See accompanying notes.
FII-6
FLEX FINANCIAL GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1996
NOTE A BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Flex Financial Group, Inc. (A Development Stage Company) (the Company) was
incorporated in August 1995 for the purpose of engaging in the business of
providing loans to companies going public; subordinated equity loans to
underwriters; and providing a platform for taking companies public through a
merger/spinoff transaction. It is anticipated by management that the Company
will become a publicly owned corporation within the near future.
Merger-Spinoff - On June 30, 1996, the Company entered into an agreement with
American Nortel Communications, Inc. (American Nortel), a public corporation
engaged in providing long distance telephone services and owned by
approximately 780 individuals, for a proposed merger-spinoff transaction which
would create a public market for the Company's stock. The proposed
merger-spinoff would be effected by American Nortel capitalizing a recently
formed subsidiary (Flex Acquisitions Corporation) which would sell 20,000
shares of $.001 par value common stock to American Nortel for $1,000. Flex
Acquisitions, a company related by common control, has authorized 10 million
shares of Common Stock with a par value of $.001 per share and 10 million
shares of Preferred Stock with no par value. The preferences, rights, and
qualities of each series of the Preferred Stock will be set by future
resolutions of Flex Acquisitions Board of Directors. All currently
outstanding stock of the Company will be canceled and converted into 94,000
shares of common authorized but unissued of Flex Acquisitions. The Company
has options and warrants currently outstanding which will be canceled and
options and warrants on Flex Acquisitions' common stock will be issued
according to the plan of merger. Subsequent to the merger, American Nortel
will distribute to its shareholders the 20,000 shares of common stock of Flex
Acquisitions previously held by American Nortel. Contemporaneously with the
merger-spinoff, Flex Acquisitions will file a registration statement on Form
S-4 with the Securities and Exchange Commission (SEC) to register 2,094,000
shares of Common Stock and file a registration statement on Form SB-2 with the
SEC to register the spin-off of the 20,000 shares by American Nortel and the
sale of 100,000 shares of common stock by Flex Acquisitions. Of the 2,094,000
shares of Common Stock, 2,000,000 will be considered shelf shares for future
issuance in association with possible acquisitions.
Management's Estimates - Management uses estimates and assumptions in
preparing financial statements in accordance with generally accepted
accounting principles. These estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities, and the reported revenues and expenses. Actual results could
vary from the estimates that were used.
Concentrations of Credit - Substantially all of the Company's loans have been
granted to related entities and a third party customer of the Company. The
concentrations of credit by type of loan are set forth in Notes B and C.
Continued
FII-7
<PAGE>
FLEX FINANCIAL GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1996
NOTE A BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Interest Rate Risk - The Company is principally engaged in providing
short-term commercial loans with fixed interest rates. These loans have been
primarily funded through short-term notes payable and the sale of the
Company's stock.
Notes Receivable - Notes receivable are reported at the principal amount
outstanding. Management is of the opinion that all notes are fully
collectible, therefore, no allowance for possible credit losses is deemed
necessary.
Allowance for Possible Credit Losses - When deemed necessary, an allowance for
possible credit losses is established to provide a valuation allowance for
losses expected to be incurred on loans and other commitments to extend
credit. All losses are charged to the allowance for possible credit losses
when the loss actually occurs or when a determination is made that a loss is
likely to occur. Recoveries are credited to the allowance at the time of
recovery.
Throughout the year, management estimates the likely level of losses to
determine whether the allowance for possible credit losses, when deemed
necessary, is adequate to absorb anticipated losses in the existing portfolio.
Based on these estimates, an amount is charged to the provision for possible
credit losses and credited to the allowance for possible credit losses in
order to adjust the allowance to a level determined to be adequate to absorb
losses.
Management's judgment as to the level of losses on existing loans involves the
consideration of current and anticipated economic conditions and their
potential effects on specific borrowers; an evaluation of the existing
rela-tionships among loans, potential loan losses, and the present level of
the allowance; and management's internal review of the loan portfolio. In
determining the collectibility of certain loans, management also considers the
fair value of any underlying collateral. The amounts ultimately realized may
differ from the carrying value of these assets because of economic, operating
or other conditions beyond the Company's control.
Statement of Cash Flows - For purposes of reporting cash flows, cash and cash
equivalents includes only cash on hand and in demand deposit accounts with a
bank.
Fair Value of Financial Instruments - Management is of the opinion that the
carrying value of all financial instruments is substantially equal to fair
value at July 31, 1996.
Loss Per Common Share - Loss per common share is computed using the weighted
average number of shares of common stock outstanding during the period.
Continued
FII-8
FLEX FINANCIAL GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1996
NOTE A BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Income Taxes - For the year ended July 31, 1996, the Company incurred a net
operating loss amounting to $61,015. This net operating loss carryforward
will expire in the year 2011, if not previously utilized.
No tax benefit for the loss carryforward has been reported in the financial
statements. Accordingly, the tax benefit of approximately $21,000 resulting
from the utilization of the loss carryforward has been offset by a valuation
allowance of the same amount.
Common Stock - Common stock sold is subject to a subscription agreement which
provides for, among other things; (1) each purchaser is sold "units" at a
price of $4,800 which includes 1,000 shares of common stock, 2000 Class B
warrants and 2,000 Class C warrants collectively referred to as offered
securities; and (2) purchaser of offered securities will not be able to resell
them until and unless the securities are registered pursuant to a registration
statement and properly qualified for sale in each jurisdiction. The Class B
and Class C redeemable warrants entitle the holders to purchase one share of
common stock for each warrant held at $6.25 and $10.00, respectively.
80,000 shares of the 94,000 common shares sold and to be issued were sold to
"Founders", subject to a separate subscription agreement at a price of $.25
per share. This subscription agreement provides the subscribers with the
option to purchase up to an additional 80,000 common shares at a per share
price of $.50. The option for the purchase of additional shares expires
August 31, 1998, if not previously exercised.
NOTE B NOTES RECEIVABLE, RELATED PARTIES
Notes receivable, related parties are due from entities related by common
shareholders consist of the following at July 31, 1996.
Flex Acquisition Corporation - 10% note,
convertible into common stock as provided for
by the agreement, subordinated, redeemable
note receivable, due March 31, 1998, renewable
for an additional two year term, interest
due at maturity; unsecured $ 4,000
Financial Public Relations, Ltd. - 10% demand
note receivable, interest due at maturity;
secured by warrant to purchase 24,000 shares
of common stock of Industrial Holdings, Inc. 10,000
Continued
FII-9
<PAGE>
FLEX FINANCIAL GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1996
NOTE B NOTES RECEIVABLE, RELATED PARTIES (CONTINUED)
Financial Public Relations, Ltd. - 10% demand
note receivable, interest due at maturity;
secured by warrant to purchase 24,000 shares
of common stock of Industrial Holdings, Inc. 10,000
Focus-Tech Investments, Inc. - two 10% demand
notes receivable, interest due at maturity;
secured by warrant to purchase 24,000 shares
of common stock of Industrial Holdings, Inc. 5,000
29,000
Less current portion 25,000
Long-term note receivable, related party $ 4,000
=========
NOTE C NOTE RECEIVABLE
Note receivable consists of the following at July 31, 1996.
CARETECH, Inc. - 10% unsecured demand note
receivable, interest due at maturity $ 10,000
========
NOTE D NOTES PAYABLE
Notes payable consist of the following at July 31, 1996:
Two 10% unsecured, subordinated notes payable
on the earlier of (1) October 15, 1996, or
(2) the closing of a public offering of the
Company's securities pursuant to the Securities
Act of 1933, as amended, representing gross
proceeds of not less than $60,000; the notes
are subject to subscription and option agreements $ 50,000
========
Effective October 15, 1996, these notes and other agreements were amended to
increase the number of options available and to extend maturity dates to March
31, 1997.
FII-10
FLEX FINANCIAL GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1996
NOTE E RELATED PARTY TRANSACTIONS AND BALANCES
Transactions and balances with related individuals and entities related by
common shareholders are as follows:
Flex Acquisition Corporation
Interest income/receivable $ 134
Financial Public Relationship, LTD.
Interest income $ 1,709
Interest receivable 917
Consulting expense 5,000
Focus-Tech Investments, Inc.
Interest income/receivable $ 48
Overhead allocation -
allocation covers rent, telephone,
fax, office supplies and expenses,
postage, repairs, use of furniture,
and equipment and administration
management as needed $ 19,109
Accrual of overhead 8,891
Consulting expense 2,500
M. Stephen Roberts - Attorney at Law;
initial registered agent
Legal fees, various corporate matters $ 13,550
FII-11
<PAGE>
VOTING AND MANAGEMENT INFORMATION
Proxies will not be solicited by Flex Financial's management with respect
to the proposed Merger described herein. Shareholder voting on the proposed
Merger by the shareholders of Flex Financial shall be taken by written
consent.
DATE, TIME AND PLACE INFORMATION.
The Company. Shareholder voting on the proposed Merger by American
NorTel, the sole shareholder of the Company, shall be taken by its written
consent. It is expected that written consent to the Merger, without a meeting
being taken, shall be obtained from the sole shareholder of the Company within
five days after the date of this Prospectus. American NorTel's approval of
the Merger is required if the Merger is to be effected.
FLEX FINANCIAL. Shareholder voting on the proposed Merger by Flex
Financial shareholders shall be taken by written consent. Under Texas
corporate law and Flex Financial's bylaws, written consent must be unanimous.
It is expected that unanimous written consent to the Merger, without a meeting
being held, shall be submitted to the shareholders by certified mail, return
receipt requested, on or about December 11, 1996. Written consents may be
executed by the shareholders and returned by mail or executed at the offices
of the corporation. Management of Flex Financial does not have unanimous
control or even majority control of the sole class of voting stock and is
unable to provide assurance that the Merger will be approved.
VOTING PROCEDURE. Voting by Flex Financial shareholders shall be by
unanimous written consent without a meeting. Shareholders of record as of
July 31, 1996 shall be entitled to vote. Because Texas corporate law and Flex
Financial's bylaws require that written consent be unanimous. The consent of
all 94,000 the outstanding shares of common stock is required to approve the
Merger. None of the shares are held of record by brokers.
DISSENTERS' RIGHTS OF APPRAISAL.
No dissenter's rights of appraisal come into effect with respect to
the proposed Merger. While Texas corporate law provides dissenter's rights of
appraisal in the case of mergers, (1) all the issued and outstanding shares of
capital stock of the Company will be voted by the American NorTel sole
director, and a unanimous vote approving the Merger is assured, and (2) Flex
Financial shareholder voting on the proposed merger will be taken by written
consent pursuant to Texas corporate law and Flex Financial's bylaws which
require that written consent be unanimous, and therefore, no dissenter's
rights of appraisal would be created by either vote because a vote to
disapprove or a failure of unanimous approval would defeat the Merger.
NO SOLICITATION OF PROXIES.
Solicitations of proxies will not be made by members of management of
Flex Financial for that entity (see "VOTING AND MANAGEMENT INFORMATION - DATE,
TIME AND PLACE INFORMATION - FLEX FINANCIAL").
Notice of written consent shall be made by the mails, by first class
mail, certified, return receipt requested, or by personal delivery. The cost
of the notices will be borne by Flex Financial.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF.
The proposed Merger must be approved by a two-thirds vote of the
outstanding shares of Common Stock of the Company and by a unanimous vote of
the outstanding shares of Common Stock of Flex Financial.
There are presently outstanding 20,000 shares of Common Stock of the
Company, all of which are held of record by American NorTel Communications,
Inc.
There are presently outstanding 94,000 shares of Common Stock of Flex
Financial held of record by 11 shareholders. Each share is entitled to one
vote on the proposed Merger.
The record date for determining the right to vote on the proposed Merger
is July 31, 1996 for the Company and for Flex Financial.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
THE COMPANY. The following table shows information as of July 31, 1996
with respect to each beneficial owner of more than 5% of Common Stock of the
Company and to each of the officers and directors of the Company individually
and as a group:
<TABLE>
<CAPTION>
COMMON STOCK BENEFICIALLY OWNED
BEFORE MERGER(1) AFTER MERGER(2)
NAME & ADDRESS OF NO. OF PERCENT NO. OF PERCENT
BENEFICIAL OWNER SHARES OF CLASS SHARES OF CLASS
<S> <C> <C> <C> <C>
American NorTel 20,000 100 0 0 (3)
Communications, Inc.
7201 East Camelback Road
Suite 320
Scottsdale, AZ 85251
Officers and Directors 0 0 20,000 17.5(3)
as a Group (1 person
before Merger, 0 persons
after Merger)(4)
</TABLE>
__________________________
(1)Before the proposed Merger, all 20,000 shares of the issued and outstanding
shares of Common Stock of the Company are held of record and beneficially by
American NorTel Communications Inc.
(2)After giving effect to the Merger and Spinoff.
(3) After allocating 1 share of Common Stock of the Company for each 588
shares of common stock of American NorTel.
(4) After the Merger, Mr. Fearnow, president of the Company, would be
deemed to be the beneficial owner of 20,000 shares of Common Stock of the
Company that would be owned of record by Focus-Tech Investments, Inc. and
would be deemed the beneficial owner of and holder of Class A Options to
purchase an additional 20,000 shares of Common Stock of the Company.
FLEX FINANCIAL. The following table describes what would be the effect
of the Merger between the Company and Flex Financial on the security ownership
of any person who is known to the Company to be a person who would be the
beneficial owner of more than 5 percent of the Common Stock of the Company,
the chief executive officer, the directors, and the directors and executive
officers as a group:
<TABLE>
<CAPTION>
COMMON STOCK BENEFICIALLY OWNED
AFTER
BEFORE MERGER(1) MERGER(1)
NAME AND ADDRESS NO. OF PERCENT NO. OF PERCENT
OF BENEFICIAL OWNER SHARES OF CLASS SHARES OF CLASS
<S> <C> <C> <C> <C>
Michael T. Fearnow 20,000 21 20,000 17.5(2)
Focus-Tech Investments, Inc.
770 S. Post Oak Lane, Suite 515
Houston, TX 77056
M. Stephen Roberts, Esq. 20,000 21 20,000 17.5(3)
770 S. Post Oak Lane, Suite 515
Houston, TX 77056
Ruth Shepley 20,000 21 20,000 17.5(4)
7617 Del Monte
Houston, TX 77063
Lighthouse Resources Inc. 20,000 21 20,000 17.5(5)
43 Bluewater Dr.
Eureka Springs, AK 72632
Officers and Directors 20,000 21 20,000 17.5
As group (0 persons)
</TABLE>
(1) The ownership is of record unless otherwise noted.
(2)After the Merger, Mr. Fearnow would be deemed to be the beneficial owner of
20,000 shares of Common Stock of the Company that would be owned of record by
Focus-Tech Investments, Inc. and would be deemed the beneficial owner of and
holder of Class A Options to purchase an additional 20,000 shares of Common
Stock of the Company.
(3) After the Merger, Mr. Roberts would own 20,000 shares of the Company's
Common Stock of record and would hold Class A Options to purchase an
additional 20,000 shares.
(4) After the Merger, Ms. Shepley would own 20,000 shares of the Company's
Common Stock of record and would hold Class A Options to purchase an
additional 20,000 shares.
(5) After the Merger, Lighthouse Resources Inc., an unrelated entity, would
own 20,000 shares of the Company's Common Stock of record and would hold Class
A Options to purchase an additional 20,000 shares.
_____________________________________________
DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES.
Set forth below are the names, ages, and terms of office of each of the
directors, executive officers and significant employees of both the Company
and Flex Financial and a description of the business experience of each.
<TABLE>
<CAPTION>
OFFICE HELD TERM OF
PERSON OFFICE SINCE OFFICE
<S> <C> <C> <C>
Flex Financial:
Michael T. Fearnow, 52 Director, 1995 10-97
President and 1995 10-97
Secretary 1995 10-97
The Company:
Michael T. Fearnow, 52 Director, 1996 3-97
President and 1996 3-97
Secretary 1996 3-97
</TABLE>
________________________
Michael T. Fearnow. Mr. Fearnow has been an independent securities
consultant to small to medium-sized growth companies in the field of
investment banking transactions, financial and broker relations, and publicly
underwritten securities since 1987. Mr. Fearnow obtained a degree in Business
Administration from the University of Kansas in 1967. He began his investment
banking career as an account executive with Merrill Lynch in 1972 and by 1978
had become a Senior Account Executive and Product Manager for new issues
underwriting. In 1978 Mr. Fearnow was a co-founder of Porcari, Fearnow &
Associates, Inc., a full service NASD broker-dealer. He served as chairman
from 1978 to 1987 and structured and participated in financing numerous
private placements, public underwritings, venture capital transactions and
tax-sheltered investments and specialized in areas of financial planning and
due diligence.
REMUNERATION OF DIRECTORS AND OFFICERS.
THE COMPANY.
Mr. Fearnow, the sole officer and director of the Company is receiving no
compensation for his services for the Company. No compensation is proposed to
be paid to any officer or director of the Company prior to the proposed Merger
with Flex Financial.
FLEX FINANCIAL.
Mr. Fearnow, the sole officer and director of Flex Financial, is
receiving no compensation for his services for Flex Financial. He is
receiving no compensation for his services for the Company. No compensation
is proposed to be paid to any officer or director of the Company prior to the
proposed Merger with Flex Financial. Should the Merger be effected, Mr.
Fearnow shall be the sole director of the post-Merger Company. There are no
present plans, arrangements, or understandings concerning any change in
compensation for him after the Merger, should the Merger be effected.
The following sets forth the 1995 remuneration of the president of Flex
Financial and the 1996 remuneration payments proposed to be made to the three
highest paid persons who are officers of Flex Financial, among whom the
president is one:
<TABLE>
<CAPTION>
SECURITIES
NAME OF INDIVIDUAL UNDERLYING
OR GROUP CAPACITY YEAR SALARY STOCK OPTIONS
<S> <C> <C> <C> <C>
Michael T. Fearnow President 1995 $0.00 0
Michael T. Fearnow President 1996 $0.00 0
</TABLE>
___________________________
STOCK OPTIONS.
The Company has granted no stock options.
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS.
Flex Financial entered into a financial consulting agreement with
Financial Public Relations, Ltd. pursuant to which FPR rendered investment
banking consulting services to the Company. The services rendered by FPR
included assistance in the development of Flex Financial's business plan,
initial development of a contact list of potential clients with respect to
Subordination and Bridge Loans, and development of a marketing strategy with
respect to its business operations. Mr. Roberts is the general partner and
owner of FPR. Mr. Fearnow is a principal of Focus-Tech Investments, Inc., a
Nevada corporation, that provides investment banking consulting services to
FPR. Under the terms of the agreement, the Company paid FPR $5,000. The
services rendered to the Company by FPR were primarily for the services of and
provided through Messrs. Roberts and Fearnow.
Pursuant to an understanding between Focus-Tech and Flex Financial,
Focus-Tech provided to Flex Financial such general and administrative
services, including the cost of the use of office space, personnel, facilities
and equipment, as required for Flex Financial's business in exchange for a
general and administrative services fee of $4,000 per month for the seven
month period ending December 31, 1996. Flex Financial shares a portion of
approximately 3,000 square feet of office space in premises occupied by
Focus-Tech and Financial Public Relations, Ltd. at 770 S. Post Oak Lane, Suite
515, Houston, Texas 77056. In lieu of actual payments by Flex Financial to
Focus-Tech, Flex Financial directly paid expenses of Focus-Tech in the amount
of $19,109 and received credit for those payments against the $28,000 in
general and administrative services fees owed to Focus-Tech. Management
estimates that Flex Financial's expenses would have been approximately $6,000
a month on a stand alone basis.
Until the closing of the Units Offering Focus-Tech will continue to
provide such space and services without charge to Flex Financial. Upon
closing of the Units Offering Focus-Tech has agreed to provide to the Company
such general and administrative services, which will include the cost of the
use of office space, personnel, facilities and equipment, as may be required
for the Company's business use on a monthly basis for a fee of $4,000 per
month and to make this space available as long as required for the use of the
Company. The Company believes that such space and services will be adequate
for the business of the Company into the foreseeable future. Focus-Tech has
agreed that its fee for providing such services shall be paid only out of 15%
of net Units Offering proceeds in excess of $200,000, and thereafter agrees to
accrue the monthly fee for payment solely out of the fees, interest earned and
earnings generated by the Company's business.
Mr. Roberts negotiated the Spinoff transaction with American NorTel and
throughout 1996 and 1997 has performed legal services in organizing the
Company and Flex Financial, with respect to private placements by Flex
Financial, with respect to the Merger and Spinoff transactions, and with
respect to registering the Merger and Spinoff transaction with the Securities
and Exchange Commission ("Commission"). For these services and for additional
legal services Mr. Roberts is to perform with respect to the Commission should
the Merger be approved by Flex Financial, Mr. Roberts has been paid $4,992 by
the Company and $6,100 by Flex Financial through July 31, 1996. It is
estimated that Mr. Roberts will be paid a total of $35,000 by Flex Financial
and the Company with respect to these services.
In connection with organizing the Company, FPR, a Texas limited
partnership wholly controlled by Mr. Roberts, paid an aggregate of $10,000 to
purchase a total of 40,000 shares of Common Stock at an average sales price of
$.25 per share. These Shares were purchased 20,000 shares for the account of
Mr. Roberts and 20,000 for the account of Focus-Tech Investments, Inc., a
Nevada corporation wholly owned by Mr. Fearnow. FPR delivered its promissory
note in the principal sum of $10,000, payable on demand and bearing interest
at 10%, to the Company in payment for the shares. On July 31, 1996 FPR paid
all principle and interest due on said note.
In February and March 1996 FPR borrowed $20,000 from Flex Financial
evidenced by two promissory notes bearing interest at 10% and secured by
marketable securities valued in excess of $100,000. Both notes were repaid
with interest on November 15, 1996.
From February through August 1996 Focus-Tech borrowed $13,000 from Flex
Financial evidenced by four promissory notes bearing interest at 10% and
secured by marketable securities valued in excess of $100,000. All four notes
were repaid with interest on November 15, 1996.
The Company and Flex Financial has retained Mr. Roberts for various
securities matters relating to its contemplated IPO for which it paid an
initial retainer of $5,000 plus hourly fees ranging form $50 to $150 per hour.
The Company believes that these services will be rendered on terms at least as
favorable as it could obtain from unaffiliated persons. In addition, Mr.
Roberts has and will act as corporate general counsel and has and will render
legal services regarding various corporate matters related thereto.
PARENTS.
The direct parent of the Company is American NorTel Communications Inc.,
which owns all the issued and outstanding stock of the Company. No
shareholder of American NorTel owns sufficient stock to exercise control over
Flex Financial through stock ownership.
The parents of Flex Financial are its board of directors. No shareholder
of Flex Financial owns sufficient stock to exercise control over Flex
Financial through stock ownership.
PLAN OF MERGER
Set forth below is a copy of the Plan of Merger between the Company and
Flex Financial Group, Inc.:
PLAN AND AGREEMENT OF MERGER
PLAN AND AGREEMENT OF MERGER, dated as of July 1, 1996, between FLEX
ACQUISITIONS CORPORATION, a Texas corporation ("FAC") and FLEX FINANCIAL
GROUP, INC., a Texas corpora-tion ("FLEX FINANCIAL"); (all collectively called
the "Constituent Corporations").
The Boards of Directors of the Constituent Corporations deem it advisable
for the general welfare of the Constituent Corpora-tions and their respective
stockholders that the Constituent Cor-porations merge into a single
corporation pursuant to this Agree-ment and the Texas Business Corporation
Act.
The parties hereby agree as follows:
1. MERGER AND MODE OF CARRYING IT INTO EFFECT
1.1 Merger. The Constituent Corporations will be at the Effective
Date in the manner authorized and prescribed by the Texas Business Corporation
Act, merged into a single corporation, which corporation is FAC (hereinafter
sometimes called the "Surviving Corporation"), and the parties hereby adopt
the agreements, terms and conditions relating to the Merger and the mode of
carrying the same into ef-fect, which the parties covenant to observe, keep
and perform, set forth in this Agreement.
1.2 Effecting the Merger. This Agreement will be consummated and the
Merger effected by the filing of Articles of Merger as required by Texas law,
with the Secretary of State of the State of Texas, whereupon as of the
Effective Date the separate corporate existence of Flex Financial will cease
and Flex Financial will be merged with and into the Surviving Corporation.
1.3 Effective Date. As used in this Agreement, the term "Effective
Date" means the date Articles of Merger will have been filed with the
Secretary of State of the State of Texas, after satisfaction of the
requirements of the applicable law of such state prerequi-site to such filing.
1.4 Articles of Merger. Upon the approval of the merger by the
shareholders of FAC and by the shareholders of Flex Financial, the officers of
FAC shall file with the Secretary of State of the State of Texas Articles of
Merger pursuant to the provisions of Article 5.04 of the Texas Business
Corporation Act; provided, however, that at any time prior to the filing of
such Articles of Merger with the Secretary of State of Texas, the Plan may be
terminated by the board of directors of Flex Financial notwithstanding
approval of this Agreement by the stockholders of Flex Financial or of FAC.
2. ARTICLES OF INCORPORATION; BYLAWS; DIRECTORS AND OFFICERS
2.1 Articles of Incorporation. The Articles of Incorpora-tion of FAC
in effect on the date of this Agreement and the Effective Date will be the
Articles of Incorporation of the Surviving Corporation until altered or
amended as provided therein and by the laws of the State of Texas.
2.2 Bylaws. The bylaws of FAC on the Effective Date of the merger
shall be the bylaws of the Surviving Corporation.
2.3 Directors. The entire Board of Directors of the Surviving
Corporation will consist of those persons who comprise the Board of Directors
of FAC on the Effective Date; who, subject to the provisions of the bylaws of
the Surviving Corporation and the laws of the State of Texas will hold office
until the first an-nual meeting of stockholders of the Surviving Corporation
held subsequent to the Effective Date or until their respective suc-cessors
are elected and qualified.
2.4 Officers. The principal officers of the Surviving Corpora-tion,
from and after the Effective Date of the merger shall be the persons acting as
the principal officers of FAC on the Effective Date; who, subject to the
provisions of the bylaws of the Surviving Corporation and the laws of the
State of Texas, will hold office until the first meeting of the Board of
Direc-tors following the first annual meeting of stockholders of the Surviving
Corporation held subsequent to the Effective Date or until their respective
successors are elected and qualified.
3. APPROVAL OF MERGER
3.1 Stockholder Approvals. This Agreement shall be submitted
separately to the shareholders of the Constituent Corporations in the manner
provided by the laws of the State of Texas for approval and pursuant to any
applicable federal securities laws.
4. CONVERSION AND ISSUE OF SECURITIES.
The manner of converting the shares of each of the Constituent
Corporations into securities of the Surviving Corporation and re-lated
provisions are as follows:
A. All shares of capital stock of Flex Financial which shall be
issued and outstanding on the Effective Date shall, on the Effective Date, be
canceled and shall be converted into that number of shares of Common Stock,
par value $0.001 per share, of FAC.
B. All 20,000 shares of Common Stock, par value $0.001 per share, of
FAC which shall be outstanding immediately prior to the Effective Date shall,
on the Effective Date, continue to be outstanding.
C. All warrants and options of Flex Financial which shall be
outstanding on the Effective Date shall, on the Effective Date, be canceled
and shall be converted into warrants and options of FAC of equivalent tenor.
5. CERTAIN EFFECTS OF THE MERGER
At the Effective Date, the separate existence and corporate organization
of Flex Financial, except insofar as it may be continued by statute, shall
cease and FAC shall continue as the Surviving Corporation, which shall
succeed, without other transfer or further act or deed whatsoever, to all the
rights, property and assets of the Constituent Corporations and shall be
subject to and liable for all the debts and liabilities of each; otherwise,
its identity, existence, purposes, rights, immunities, properties, liabilities
and obligations shall be unaffected and unimpaired by the Merger except as
expressly provided herein.
6. TAX TREATMENT
The merger of FAC and Flex Financial shall be accomplished as a tax-free
reorganization as defined in Section 368(a)(1)(A) of the Internal Revenue Code
of 1986, as amended.
Executed on the 1st day of July, 1996, at Houston, Texas.
FLEX FINANCIAL GROUP, INC.
By: /S/ Michael T. Fearnow
-------------------------
MICHAEL T. FEARNOW, President
FLEX ACQUISITIONS CORPORATION
By: /S/ M. Stephen Roberts
-------------------------
M. Stephen Roberts, President
<PAGE>
PART II
INDEMNIFICATION OF DIRECTORS AND OFFICERS.
There is set forth in the Prospectus under "Terms of the Transaction -
Indemnification for Securities Act Liabilities" a description of the laws of
Texas with respect to the indemnification of officers, directors, and agents
of corporations incorporated in Texas.
Both the Company and Flex Financial Group, Inc. have charter provisions
and bylaw provisions that insure or indemnify, to the full extent allowed by
the laws of Texas, directors, officers, employees, agents or persons serving
in similar capacities in other enterprises at the request either of the
Company or Flex Financial Group, Inc., as the case may be.
To the extent of the indemnification rights provided by the Texas
statutes and provided by the Company's and Flex Financial's charter and
bylaws, and to the extent of Flex Financial's and the Company's abilities to
meet such indemnification obligations, the officers, directors and agents of
the Company would be beneficially affected.
EXHIBITS.
Separately bound but filed as part of this Form S-4 Registration
Statement are the following exhibits:
<TABLE>
<CAPTION>
Exhibit Item
<C> <S>
2.1 - Agreement of Merger of July 1, 1996 between Flex
- Acquisitions Corporation And Flex Financial Group, Inc.(1)
2.2 - Business Combination-Spinoff Agreement of June 30, 1996
- among Flex Acquisitions Corporation; Flex Financial Group,
- Inc.; and American NorTel Communications, Inc.(1)
3.1 - Certificate of Incorporation of Flex Acquisitions
- Corporation(1)
3.2 - Certificate of Incorporation of Flex Financial Group, Inc.
- and amendments thereto.(1)
3.3 - Bylaws of Flex Acquisitions Corporation(1)
3.4 - Bylaws of Flex Financial Group, Inc.(1)
4.1 - Form of Class B Redeemable Common Stock Purchase
- Warrant(1)
4.2 - Form of Class C Redeemable Common Stock Purchase
- Warrant(1)
4.3 - Form of Class A Unit Purchase Options(1)
4.4 - Form of Common Stock Purchase Options(1)
5.1 - Opinion of M. Stephen Roberts, Esq., as to the legality
- of the securities covered by the Form S-4 and Form SB-2
- Registration Statements(1)
8.1 - Opinion of M. Stephen Roberts, Esq., as to tax matters and
- tax consequences to the shareholders(1)
10.1 - Escrow Agreement among Flex Acquisitions Corporation;
- American NorTel Communications, Inc., and Southwest Bank
- of Texas N.A.(1)
10.2 - Agreement of Flex Financial relating to compliance with
- S.E.C. Rule 419(1)
23.1 - Consent of M. Stephen Roberts, Esq., to the reference to
- him as an attorney who has passed upon certain information
- contained in the Prospectus Statement(1)
23.2 - Consent of Harper & Pearson Company, independent auditors
- of Flex Acquisitions Corporation (superceded by Exhibit 23.4)
23.3 - Consent of Harper & Pearson Company, independent auditors
- of Flex Financial Group, Inc. (superceded by Exhibit 23.5)
23.4 - Consent of Harper & Pearson Company, independent auditors
- of Flex Acquisitions Corporation (2)
23.5 - Consent of Harper & Pearson Company, independent auditors
- of Flex Financial Group, Inc. (2)
27.1 - Financial Data Schedule (1)
</TABLE>
(1)Previously filed as an Exhibit to the Registrant's Registration
Statement on Form SB-2 as contemporaneously filed with the Securities and
Exchange Commission on November 29, 1996; and incorporated by reference herein
and to be a part hereof from the date of filing such documents.
(2)Previously filed as an Exhibit to the Registrant's Registration
Statement as Amendment No. 1 to Form SB-2 as contemporaneously filed with the
Securities and Exchange Commission on June 23, 1997; and incorporated by
reference herein and to be a part hereof from the date of filing such
documents.
UNDERTAKINGS
Flex Acquisitions Corporation will:
1. File, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:
i) include any prospectus required by Section 10(a)(3) of
the Securities Act;
ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement; and
iii) include any additional or changed material information
on the plan of distribution.
2. For determining liability under this Securities Act, treat
each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to be the
initial bona fide offering.
3. File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 ("the Act") may be permitted to directors, officers and
controlling persons of Flex Acquisitions Corporation pursuant to the foregoing
provisions, or otherwise, Flex Acquisitions Corporation has been advised that
in the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by Flex Acquisitions Corporation of expenses incurred
or paid by a director, officer or controlling person of Flex Acquisitions
Corporation in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, Flex Acquisitions Corporation will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
Flex Acquisitions Corporation hereby undertakes to respond to requests
for information that is incorporated by reference into the Prospectus pursuant
to Item 4 of this Form, within one business day of receipt of such request,
and to send the incorporated documents by first class mail or other equally
prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the
date of responding to the request.
Flex Acquisitions Corporation hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Houston, Texas on
June 23, 1997.
FLEX ACQUISITIONS CORPORATION
By: /S/ Michael T. Fearnow
Michael T. Fearnow
Chief Executive Officer, President and
Chairman of the Board of Directors
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
FLEX ACQUISITIONS CORPORATION
By: /S/ Michael T. Fearnow
Michael T. Fearnow
Chief Executive Officer, President,
Chief Financial Officer, Chairman
of the Board of Directors, and Director
(Principal Executive Officer)
(Principal Financial and
Accounting Officer)
Date: June 23, 1997
<PAGE>
<TABLE>
<CAPTION>
FLEX ACQUISITIONS CORPORATION
EXHIBIT INDEX
TO
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
Exhibit No. Description Page
<C> <S> <C>
23.4 Consent of Harper & Pearson Company, independent auditors
of Flex Acquisitions Corporation (1)
23.5 Consent of Harper & Pearson Company, independent auditors
of Flex Financial Group, Inc. (1)
</TABLE>
(1)Previously filed as an Exhibit to the Registrant's Registration
Statement, as Amendment No. 1 to Form SB-2 as contemporaneously filed with the
Securities and Exchange Commission on June 23, 1997; and incorporated by
reference herein and to be a part hereof from the date of filing such
documents.
