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 19, 1999
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) 842-0055
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(Registrant's Telephone Number, Including Area Code)
Not Applicable
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(Former name or former address, if changed since last report)
Item 1. Changes in Control of Registrant
(a) As previously reported in the Current Report on Form 8-K filed with the
Securities and Exchange Commission on November 25, 1998 (the "November 25, 1998
Form 8-K"), the United States Bankruptcy Court for the District of Kansas (the
"Bankruptcy Court") entered an order (the "Confirmation Order") on November 13,
1998, confirming the First Amended Joint Plan of Reorganization dated July 29,
1998 (the "Plan") of Advanced Financial, Inc. (the "Registrant") and its
wholly-owned subsidiary, AFI Mortgage, Corp. ("AFIM").
The recapitalization of the Registrant and the other transactions
contemplated by the Plan were effected on February 19, 1999. As a result of
these transactions, a change in control of the Registrant occurred on February
19, 1999.
Pursuant to the Plan and pursuant to an Acquisition Agreement ("Acquisition
Agreement") dated November 13, 1998 between the Registrant and First Mortgage
Investment Co. ("FMIC"), entered into pursuant to the Plan, the Registrant and
FMIC engaged in certain transactions on February 19, 1999. The Registrant sold
to FMIC for $1,030,000 (less certain settlement charges) an office building and
the land on which the building sat located at 5425 Martindale, Shawnee, Kansas
(the "Property"), as more fully described in Item 2 hereof. FMIC released its
second mortgage on the Property having a principal balance of $200,000. FMIC
also entered into a Credit Agreement with the Registrant pursuant to which FMIC
agreed to loan the Registrant up to $875,000, as described in the Current Report
on Form 8-K filed by the Registrant with the Securities and Exchange Commission
on March 4, 1999 (the "March 4, 1999 Form 8-K").
Under the terms of the Plan, FMIC received 1,800,000 shares of Common
Stock, $0.001 par value per share, of the Registrant ("Common Stock") in
exchange for release of FMIC's second mortgage on the Property. In order to
encourage FMIC's participation in the Plan and further investment in the
Registrant, the Registrant entered into a Stock Option Agreement with FMIC
pursuant to the Plan, granting FMIC an option to purchase an additional
3,000,000 shares of new Common Stock of the Registrant. The Stock Option
Agreement is attached hereto as Exhibit 10.1 and incorporated herein by
reference.
As a result of these transactions, FMIC acquired beneficial ownership of
64% of the outstanding shares of Common Stock of the Registrant. The Philip J.
Holtgraves Revocable Trust dated June 6, 1989 (the "Trust"), as the sole
stockholder of FMIC, and Philip J. Holtgraves, as trustee of the Trust and
Chairman of the Board and Chief Executive Officer of FMIC, share with FMIC
beneficial ownership of the shares of Common Stock of the Registrant
beneficially owned by FMIC. In addition, as previously reported on the November
25, 1998 Form 8-K and pursuant to the confirmed Plan, Mr. Philip J. Holtgraves
and Mr. Charles A. Holtgraves, the Senior Vice President of FMIC and son of Mr.
Philip J. Holtgraves, became two of the three interim directors of the
reorganized Registrant on November 13, 1998. The third interim director is
William B. Morris, a director of the Registrant prior to confirmation of the
Plan.
(b) Not Applicable
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Item 2. Acquisition or Disposition of Assets
(a) The recapitalization of the Registrant and the consummation of the
other transactions contemplated by the Plan were completed on February 19, 1999.
The consummation of the transactions described herein resulted in the
disposition of a significant amount of the assets of the Registrant. The
transactions described herein occurred immediately prior to the acquisition by
the Registrant of all of the outstanding stock of Cannon Financial Corporation
("Cannon Transaction"), which was previously disclosed in the March 4, 1999 Form
8-K.
At the effective time of the recapitalization on February 19, 1999 (the
"Effective Time"), all 5,836,476 shares of Common Stock of the Registrant and
all 363,000 shares of Preferred Stock of the Registrant outstanding immediately
prior to the Effective Time were cancelled. 3,000,000 shares of new Common Stock
of the Registrant were issued at the Effective Time to shareholders of record
immediately prior to the Effective Time and to creditors. Of the 3,000,000
shares issued at the Effective Time, 1,800,000 shares of new Common Stock were
issued to FMIC, as described below. The Registrant also issued 900,000 shares of
new Common Stock and 900,000 warrants to various creditors of the Company. Each
warrant grants the right to purchase one share of new Common Stock at $1.25 per
share. The warrants are callable by the Company if the market price of the
Common Stock exceeds 130% of the exercise price for a specified period of time.
The warrants expire on March 31, 2002. The remaining 300,000 shares of new
Common Stock were issued to holders of record of Preferred Stock and Common
Stock immediately prior to the Effective Time (excluding the Company, the holder
of treasury shares, and certain other holders). Such holders received .0546
shares of new Common Stock for each cancelled share of old Common Stock and old
Preferred Stock. All options and rights to purchase Common Stock outstanding
immediately prior to the Effective Time were cancelled at the Effective Time. As
described below, at the Effective Time, the Registrant granted to FMIC an option
to purchase 3,000,000 shares of Common Stock of the Registrant.
On the same date, pursuant to the Plan and the Acquisition Agreement, the
Registrant engaged in certain transactions with FMIC. The Registrant sold to
FMIC an office building and the land on which the building sat located at 5425
Martindale, Shawnee, Kansas (the "Property") in exchange for $1,030,000, less
certain settlement charges (the "Purchase Price"). FMIC paid the Purchase Price
by:
(i) Assuming as its own obligation all the principal and accrued interest
through the Closing Date due under the first mortgage on the Property
held by Citizen's National Bank, located at 7900 Quivira Lenexa,
Kansas 66215 (the "Assumed Mortgage"); and
(ii) Paying an amount of cash equal to the difference between the Purchase
Price and the Assumed Mortgage.
After payment of closing costs and assumption by FMIC of the first mortgage on
the Property, the Registrant realized net proceeds of $213,058 from the sale of
the Property to FMIC. The proceeds remaining after payment of the administrative
expenses of the Registrant's bankruptcy proceeding will be distributed to
creditors pursuant to the Plan.
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As described above, the Registrant issued to FMIC 1,800,000 shares of its
Common Stock in the recapitalization, in complete satisfaction and release of
AFIM's obligations to FMIC under a second mortgage on the Property. The
Registrant also granted FMIC an option to purchase 3,000,000 shares of Common
Stock pursuant to a Stock Option Agreement dated February 19, 1999. The option
is currently exercisable and the exercise price is $0.50 per Share payable in
cash or certified funds or by contribution of one or more business units at fair
market value. The option expires February 19, 2000, provided that FMIC may
extend the option under certain circumstances until February 19, 2001. The Stock
Option Agreement is attached hereto as Exhibit 10.1 and incorporated herein by
reference.
As previously reported pursuant to the March 4, 1999 Form 8-K, on February
17, 1999 and as part of the recapitalization, the Bankruptcy Court entered an
Order Approving Amended Motion for Authorization to Enter into Agreement of
Reorganization ("Cannon Order"). The Cannon Order authorized, under an amendment
to the Acquisition Agreement, FMIC to grant of a line of credit in the amount of
$875,000 to the Registrant and the Registrant to agree to draw upon the line of
credit in accordance with the schedule set forth in the Cannon Order. The line
of credit was issued by FMIC to the Registrant on February 19, 1999. 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 the March 4, 1999 Form 8-K, which is incorporated
by reference herein.
The consideration exchanged under the Acquisition Agreement was negotiated
at "arms length" among the preconfirmation Registrant, FMIC, the Registrant's
unsecured creditors committee and Citizen's National Bank and was approved by
the Bankruptcy Court pursuant to the Confirmation Order. The board of directors
of the preconfirmation Registrant determined in good faith that the
consideration was reasonable under the circumstances.
Prior to the Effective Time, FMIC was a secured creditor of AFIM and held a
second mortgage on the Property. As reported in Item 1 hereof, (a) Philip J.
Holtgraves and his son, Charles A. Holtgraves, became directors of the
Registrant on November 13, 1998 and (b) in connection with the recapitalization
of the Registrant on February 19, 1999, Philip J. Holtgraves, the Trust and FMIC
acquired beneficial ownership of 64% of the outstanding Common Stock of the
Registrant.
(b) Not Applicable
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).
4
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) Not Applicable
(b) Not Applicable
(c) Exhibits
*2.1 First Amended Joint Plan of Reorganization dated July 29, 1998 of
Advanced Financial, Inc. and AFI Mortgage Corp. (Exhibit 2.1 to the
Current Report on Form 8-K filed with the Securities and Exchange
Commission on November 25, 1998).
*2.3 Acquisition Agreement dated November 13, 1998 by and between First
Mortgage Investment Co. and Advanced Financial, Inc. (Exhibit 2.3 to
the Current Report on Form 8-K filed with the Securities and Exchange
Commission on November 25, 1998).
10.1 Stock Option Agreement dated February 19, 1999 between Advanced
Financial, Inc. and First Mortgage Investment Co.
*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
(Exhibit 99.2 to the Current Report on Form 8-K filed with the SEC on
March 4, 1999).
99.3 Press Release of Advanced Financial, Inc. dated February 22, 1999
Announcing Completion of Recapitalization.
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*99.4 Press Release of Advanced Financial, Inc. dated February 22, 1999
Announcing $875,000 Line of Credit (Exhibit 99.4 to the Current Report
on Form 8-K filed with the SEC on March 4, 1999).
* 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 8, 1999
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EXHIBIT INDEX
Assigned
Exhibit
Number Description of Exhibit
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*2.1 First Amended Joint Plan of Reorganization dated July 29, 1998 of
Advanced Financial, Inc. and AFI Mortgage Corp. (Exhibit 2.1 to the
Current Report on Form 8-K filed with the Securities and Exchange
Commission on November 25, 1998).
*2.3 Acquisition Agreement dated November 13, 1998 by and between First
Mortgage Investment Co. and Advanced Financial, Inc. (Exhibit 2.3 to
the Current Report on Form 8-K filed with the Securities and Exchange
Commission on November 25, 1998).
10.1 Stock Option Agreement dated February 19, 1999 between Advanced
Financial, Inc. and First Mortgage Investment Co.
*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
(Exhibit 99.2 to the Current Report on Form 8-K filed with the SEC on
March 4, 1999).
99.3 Press Release of Advanced Financial, Inc. dated February 22, 1999
Announcing Completion of Recapitalization.
*99.4 Press Release of Advanced Financial, Inc. dated February 22, 1999
Announcing $875,000 Line of Credit (Exhibit 99.4 to the Current Report
on Form 8-K filed with the SEC on March 4, 1999).
* Incorporated by reference as indicated.
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