UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported):
February 17, 1999
(Cannon Closing and Bankruptcy Order)
ADVANCED FINANCIAL, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 0-19485 84-1069416
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(State of Incorporation) Commission File Number) (IRS Employer Identification
Number)
911 Main, Kansas City, MO 64105
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(Address of Principal Executive Offices) (Zip Code)
(816) 842-0700
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(Registrant's Telephone Number, Including Area Code)
5425 Martindale, Shawnee, KS 66218
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(Former name or former address, if changed since last report)
Item 2. Acquisitions and Dispositions
(a) On February 19, 1999 (the "Closing Date"), pursuant to the Agreement of
Reorganization dated February 5, 1999 ("Cannon Reorganization Agreement") among
Cannon Financial Company ("Cannon"), Advanced Financial, Inc. (the
"Registrant"), Terrence P. Dunn ("Dunn") and Mark P Offill ("Offill") and
Sequoia Company, Piper Jaffrey, Inc. (as custodian for the benefit of Terrence
P. Dunn), JMO Group LLC, Mark P. Offill (trustee of the Jean Offill
Grandchildren's Irrevocable Trust), David W. Offill, Larry Davis and Constance
Davis (collectively, the "Shareholders") and as amended by the Amendment to
Agreement of Reorganization dated February 18, 1999 ("Amendment") among Cannon,
the Registrant, Dunn, Offill and the Shareholders, the Registrant acquired
Cannon, as a wholly-owned subsidiary, by acquiring from the Shareholders all
issued and outstanding stock of Cannon in exchange for up to 1.5 million shares
of the Registrant's common stock, $.001 par value ("Common Stock"). Cannon is
engaged in the business of collecting non-performing receivables on behalf of
third parties and collecting non-performing credit card receivables that it
acquires for its own account.
In accordance with the Escrow Agreement dated February 18, 1999 (the
"Escrow Agreement") by and among Evans & Mullinix, P.A and the Shareholders, the
1.5 million shares of Common Stock have been placed in an escrow account and
will be released as set forth below upon the Registrant's receipt of Cannon's
audited balance sheet dated as of January 31, 1999 and income statement for the
period ended January 31, 1999, due within 60 days after the Closing Date. The
shares of Common Stock will be distributed from the escrow as follows:
(i) If Cannon's January 31, 1999 audited balance sheet reports a net book
value, which is greater than or equal to $500,000.00 but less than $600,000.00,
the escrow agent shall return to the Registrant two (2) shares of Common Stock
for each $1.00 by which such net book value is less than $600,000.00, and the
remaining shares of Common Stock shall be released to the Shareholders.
(ii) If Cannon's January 31, 1999 audited balance sheet reports a net book
value, which is less than $500,000.00, the Registrant shall receive that number
of shares determined under (i) above. In addition, the Shareholders must, within
ten (10) business days, contribute sufficient assets to increase the net book
value to $500,000.00. If the Shareholders fail to contribute such assets, the
escrow agent shall also return to the Registrant three shares (3) for each fifty
cents ($.50) by which such net book value is less than $500,000.00. The
remaining shares of Common Stock shall be released to the Shareholders.
(iii) If Cannon's January 31, 1999 audited balance sheet reports a net book
value, which is equal to or greater than $600,000.00, the Shareholders shall be
entitled to receive the entire 1.5 million shares of Common Stock released from
escrow.
The Cannon stock acquired by the Registrant was valued at $823,000.00,
based on the fairness opinion issued by David L. Cochran, of Cochran, Head and
Company, P.C., and described in the Order Approving Amended Motion for
Authorization to Enter into Agreement of Reorganization dated February 17, 1999
(the "Cannon Order") set forth as Exhibit 99.2 of this Form 8-K. The parties
intend that the transaction qualify as a non-taxable reorganization under ss.
368(a)(1)(B) of the Internal Revenue Code of 1986, as amended.
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Pursuant to a Consulting Agreement dated February 18, 1999 ("Consulting
Agreement"), the Registrant also entered into a 5 year consulting agreement with
Sequoia Company to commence on March 1, 1999 and end on February 28, 2004. The
Consulting Agreement requires Sequoia Company to provide advice regarding the
broad aspects of profit-making opportunities related to the general credit
collection business, including identifying various companies involved in the
credit collection business and other opportunities involving or similar to the
credit collection business which Registrant may acquire, identifying and
evaluating the location of possible acquisition of books or groups of
non-performing credit card debt, and finding and negotiating agreements with
third parties to provide services to those third parties in connection with the
collection of non-performing debt accounts. The Consulting Agreement is attached
as Exhibit 10.1 to this Form 8-K.
Pursuant to a Designated Employee Agreement dated February 18, 1999 (the
"Designated Employee Agreement"), Sequoia Company entered into an employment
agreement with Lee Greif, husband of Amy Greif, designating Mr. Greif as the
only employee of Sequoia Company to provide consulting services to the
Registrant under the Consulting Agreement. As reported on Schedule 13G filed
with the Securities and Exchange Commission on March 1, 1999, Amy Greif is the
beneficial owner of more than 5% of the Common Stock of the Registrant.
Pursuant to the Stock Option Agreement dated February 19, 1999 ("Koger
Stock Option Agreement") by and between the Registrant and Kenneth H. Koger
("Koger"), the Registrant granted Koger the right to acquire 50,000 shares of
Common Stock at an option price of Fifty Cents ($0.50) per share as compensation
for Koger's assistance with completing the Registrant's acquisition of Cannon.
Koger's option expires February 19, 2009 and is exercisable at any time after
February 19, 1999. The Koger Stock Option Agreement is attached as Exhibit 10.4
to this Form 8-K.
The foregoing description of the Cannon Reorganization Agreement, the
Amendment, the Escrow Agreement, the Consulting Agreement, the Designated
Employee Agreement and the Koger Stock Option Agreement are summaries of certain
of the provisions of these agreements and reference is made to copies of these
agreements which are attached hereto as Exhibit 2.3, 2.4, 10.1, 10.2, 10.3 and
10.4 and are incorporated herein by reference for all of their terms and
conditions.
Item 3. Bankruptcy or Receivership
(b) Order Confirming Plan of Reorganization
(1) - (2) On February 17, 1999, the United States Bankruptcy Court for
the District of Kansas ("Bankruptcy Court") entered an Order Approving Amended
Motion for Authorization to Enter into Agreement of Reorganization ("Cannon
Order").
(3) In summary, the Cannon Order authorized the Registrant to enter into
the Cannon Reorganization Agreement, as amended by the Amendment. A summary of
the Cannon Reorganization Agreement is contained in paragraph 3 of the Cannon
Order filed as Exhibit 99.2 to this Form 8-K.
The Cannon Order also amended the Acquisition Agreement (the "Amended
Acquisition Agreement") entered into between the Registrant and First Mortgage
Investment Co. ("FMIC") pursuant to the First Amended Joint Plan of
Reorganization dated July 29, 1998 of the Registrant
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and its wholly-owned subsidiary, AFI Mortgage, Corp. (the "Plan").
Pursuant to the Amended Acquisition Agreement, FMIC granted a line of credit in
the amount of $875,000 to the Registrant and the Registrant agreed to draw upon
the line of credit in accordance with the schedule set forth in the Cannon
Order. A summary of the terms of the line of credit is contained in paragraph
4(a) of the Cannon Order filed as Exhibit 99.2 to this Form 8-K.
(4)-(5) See Item 3(b)(4) and (5) of the Current Report on Form 8-K filed
by the Registrant with the Securities and Exchange Commission on November 25,
1998.
Certain statements contained in this Current Report on Form 8-K which are
not statements of historical fact constitute forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
including, without limitation, any statements specifically identified as
forward-looking statements in this Form 8-K. Examples of forward-looking
statements include, but are not limited to: (i) projections of revenues, income
or loss, earnings or loss per share, capital expenditures, the payment or
non-payment of dividends, capital structure and other financial items, (ii)
statements of plans and objectives of the Registrant and its subsidiary
(collectively the "Company") or its management or Board of Directors, including
plans or objectives relating to the products or services of the Company, (iii)
statements of future economic performance, and (iv) statements of assumptions
underlying the statements described in (i), (ii) and (iii).
Forward-looking statements made by or on behalf of the Registrant involve
risks and uncertainties which may cause actual results to differ materially from
those in such statements. Some important factors that could cause the actual
results to differ materially from those discussed in the forward-looking
statements include, but are not limited to: the ability of the Company to
satisfy all of the conditions necessary to successfully implement the Plan;
whether FMIC exercises its option to acquire shares of new Common Stock of the
Reorganized Registrant; the ability of the Company to acquire other ongoing
businesses on reasonable terms; the ability of the Company to successfully
integrate and operate Cannon and any acquired business; and general
international and domestic economic conditions. Other factors not identified
herein could also have such an effect.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Businesses Acquired
The financial statements required to be filed pursuant to this Item
7(a) for the acquisition of all of the outstanding stock of Cannon are not
included with this Current Report on Form 8-K and will be filed by
amendment to this Form 8-K not later than 60 days after March 4, 1999.
(b) Pro Forma Financial Statements
The pro forma financial statements required to be filed pursuant to
this Item 7(b) for the acquisition of all of the outstanding stock of
Cannon are not included with this Current Report on Form 8-K and will be
filed by amendment to this Form 8-K not later than 60 days after March 4,
1999.
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(c) Exhibits
*2.1 First Amended Joint Plan of Reorganization of AFI
Mortgage, Corp. and Advanced Financial, Inc. dated July 29,
1998 (Exhibit 2.1 to the Current Report on Form 8-K filed
with the Securities and Exchange Commission on November 25,
1998).
*2.2 First Amended Joint Disclosure Statement of AFI Mortgage, Corp and
Advanced Financial, Inc. dated July 29, 1998 (Exhibit 2.2 to the Current
Report on Form 8-K filed with the Securities and Exchange Commission on
November 25, 1998).
2.3 Agreement of Reorganization dated February 5, 1999 among Cannon
Financial Company, Advanced Financial, Inc., Terrence P. Dunn and Mark P
Offill and Sequoia Company, Piper Jaffrey, Inc. (as custodian for the
benefit of Terrence P. Dunn), JMO Group LLC, Mark P. Offill (trustee of
the Jean Offill Grandchildren's Irrevocable Trust), David W.
Offill, Larry Davis and Constance Davis.
2.4 Amendment to Agreement of Reorganization dated February 18, 1999
among Cannon Financial Company, Advanced Financial, Inc., Terrence P. Dunn
and Mark P Offill and Sequoia Company, Piper Jaffrey, Inc. (as custodian
for the benefit of Terrence P. Dunn, JMO Group LLC, Mark P. Offill
(trustee of the Jean Offill Grandchildren's Irrevocable Trust), David W.
Offill, Larry Davis and Constance Davis.
10.1 Consulting Agreement dated February 18, 1999, by and between
Cannon Financial Company, a Kansas corporation, and Sequoia Company, a
Kansas corporation.
10.2 Escrow Agreement dated February 18, 1999 by and among Evans &
Mullinix, P.A., Sequoia Company, Piper Jaffray, Inc., custodian for the
benefit of Terrence P. Dunn, JMO Group LLC, Mark P. Offill, Trustee of the
Jean Offill Grandchildren's Irrevocable Trust, David W. Offill, Larry
Davis, Constance Davis and Advanced Financial, Inc.
10.3 Designated Employee Agreement dated February 18, 1999 by and
between Sequoia Company and Lee Greif.
10.4 Stock Option Agreement dated February 19, 1999 by and
between Advanced Financial, Inc. and Kenneth Koger.
*99.1 Bankruptcy Court Order dated November 13, 1998 Confirming First
Amended Joint Plan of Reorganization Under Chapter 11 of the United States
Bankruptcy Code (Exhibit 99.1 to the Current Report on Form 8-K filed with
the Securities and Exchange Commission on November 25, 1998).
99.2 Bankruptcy Court Order dated February 17, 1999
Approving Amended Motion for Authorization to Enter into
Agreement of Reorganization.
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99.3 Press Release of Advanced Financial, Inc. dated February 22,
1999 Regarding Acquisition of Cannon Financial Company.
99.4 Press Release of Advanced Financial, Inc. dated
February 22, 1999 Regarding $875,000 Line of Credit.
* Incorporated by reference as indicated.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report as amended to be signed on its behalf by
the undersigned hereunto duly authorized.
ADVANCED FINANCIAL, INC.
(registrant)
/s/ William B. Morris
William B. Morris
Chairman of the Board, Senior
Vice-President and Secretary
Date: March 4, 1999
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EXHIBIT INDEX
Assigned Exhibit Number and Description of Exhibit
*2.1 First Amended Joint Plan of Reorganization of AFI Mortgage,
Corp. and Advanced Financial, Inc. dated July 29, 1998 (Exhibit
2.1 to the Current Report on Form 8-K filed with the Securities
and Exchange Commission (the "SEC") on November 25, 1998).
*2.2 First Amended Joint Disclosure Statement of AFI Mortgage, Corp and Advanced
Financial, Inc. dated July 29, 1998 (Exhibit 2.2 to the Current Report on Form
8-K filed with the SEC on November 25, 1998).
2.3 Agreement of Reorganization dated February 5, 1999 among Cannon Financial
Company, Advanced Financial, Inc., Terrence P. Dunn and Mark P Offill and
Sequoia Company, Piper Jaffrey, Inc. (as custodian for the benefit of Terrence
P. Dunn), JMO Group LLC, Mark P. Offill (trustee of the Jean Offill
Grandchildren's Irrevocable Trust), David W. Offill, Larry Davis and Constance
Davis.
2.4 Amendment to Agreement of Reorganization dated February 18, 1999 among
Cannon Financial Company, Advanced Financial, Inc., Terrence P. Dunn and Mark P
Offill and Sequoia Company, Piper Jaffrey, Inc. (as custodian for the benefit of
Terrence P. Dunn, JMO Group LLC, Mark P. Offill (trustee of the Jean Offill
Grandchildren's Irrevocable Trust), David W. Offill, Larry Davis and Constance
Davis.
10.1 Consulting Agreement dated February 18, 1999, by and between Cannon
Financial Company and Sequoia Company
10.2 Escrow Agreement dated February 18, 1999 by and among Evans & Mullinix,
P.A., Sequoia Company, Piper Jaffray, Inc., custodian for the benefit of
Terrence P. Dunn, JMO Group LLC, Mark P. Offill, Trustee of the Jean Offill
Grandchildren's Irrevocable Trust, David W. Offill, Larry Davis, Constance Davis
and Advanced
Financial, Inc.
10.5 Designated Employee Agreement dated February 18, 1999 by and between
Sequoia Company and Lee Greif.
10.6 Stock Option Agreement dated February 19, 1999 by and
between Advanced Financial, Inc. and Kenneth Koger.
*99.1 Bankruptcy Court Order dated November 13, 1998 Confirming First Amended
Joint Plan of Reorganization Under Chapter 11 of the United States Bankruptcy
Code (Exhibit 99.1 to the Current Report on Form 8-K filed with the SEC on
November 25, 1998).
99.2 Bankruptcy Court Order dated February 17, 1999 Approving Amended Motion for
Authorization to Enter into Agreement of Reorganization.
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99.3 Press Release of Advanced Financial, Inc. dated February 22, 1999 Regarding
Acquisition of Cannon Financial Company.
99.4 Press Release of Advanced Financial, Inc. dated February 22, 1999 Regarding
$875,000 Line of Credit.
* Incorporated by reference as indicated.
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