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):
November 13, 1998
ADVANCED FINANCIAL, INC.
------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 0-19485 84-1069416
- -------------- ------------ ---------------
(State of (Commission (IRS Employer
Incorporation) File Number) Identification
Number)
5425 Martindale, Shawnee, Kansas 66218
-------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(913) 441-2466
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Not Applicable
----------------------------------------------------
(Former name or former address, if changed since last report)
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Item 1. Changes in Control of Registrant
As described in Item 3 hereof, on November 13, 1998, the United States
Bankruptcy Court for the District of Kansas entered an order confirming the
First Amended Joint Plan of Reorganization dated July 29, 1998 of Advanced
Financial, Inc. and its wholly-owned subsidiary, AFI Mortgage, Corp. ("Plan").
Under the terms of the Plan, the members of the Board of Directors of
Advanced Financial, Inc. were changed upon the confirmation of the Plan on
November 13, 1998.
Prior to confirmation of the Plan, the members of the Board of Directors
of Advanced Financial, Inc. were William B. Morris, Richard Schoenfeld and
Daniel Starczewski.
The Plan designates members of an interim Board of Directors of Advanced
Financial, Inc. to take office upon confirmation of the Plan. The members of the
interim Board of Directors are Philip Holtgraves, Charles Holtgraves and William
B. Morris.
Philip Holtgraves is Chairman of the Board of First Mortgage Investment
Co. and beneficially owns a majority of its outstanding stock. Charles
Holtgraves is the son of Philip Holtgraves and is a senior vice president of
First Mortgage Investment Co. The Plan provides that, in connection with the
consummation of certain transactions contemplated by the Plan, First Mortgage
Investment Co. will receive 1,800,000 shares of new Common Stock of the
reorganized company, constituting 60% of its outstanding shares, and an option
to acquire an additional 3,000,000 shares of new Common Stock. The consummation
of such transactions is subject to a number of conditions. For a summary of the
terms of the Plan and the transactions involving First Mortgage Investment Co.
pursuant to the Plan, see Item 3 hereof.
Item 3. Bankruptcy or Receivership
(b) Order Confirming Plan of Reorganization
(1) - (2) On November 13, 1998, the United States Bankruptcy Court for the
District of Kansas ("Bankruptcy Court") entered an order (the "Confirmation
Order") confirming the First Amended Joint Plan of Reorganization dated July 29,
1998 of
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Advanced Financial, Inc. ("Advanced") and its wholly-owned subsidiary, AFI
Mortgage, Corp. (the "Plan").
(3) A summarization of the material features of the Plan is set forth in
Article III of the First Amended Disclosure Statement dated July 29, 1998 of AFI
Mortgage, Corp. and Advanced (the "Disclosure Statement"), under the caption
"Summary of the Joint Plan of Reorganization." The Plan and the Disclosure
Statement are filed as Exhibits 2.1 and 2.2 to this Form 8-K, and are
incorporated herein by reference. The Plan was amended in numerical paragraphs
9, 10, 11, 12 and 20 of the Confirmation Order. A copy of the Confirmation Order
is filed as Exhibit 99.1 to this Form 8-K and is incorporated herein by
reference.
(4) As of November 13, 1998, there were 5,836,476 shares of Common Stock
and 363,000 shares of Series B Preferred Stock of Advanced outstanding. All of
the outstanding shares of stock of Advanced will be cancelled in connection with
the reorganization of Advanced under the Plan.
A total of 7,049,999 shares of new Common Stock of Reorganized
Advanced are reserved for issuance pursuant to the Plan. Under the Plan, (i)
3,000,000 shares of new Common Stock are reserved for issuance to creditors and
to holders of stock interests pursuant to the Plan, (ii) an additional 3,000,000
shares of new Common Stock are reserved for issuance upon exercise of an option
issued to First Mortgage Investment Co. pursuant to the Plan, (iii) 900,000
shares of new Common Stock are reserved for issuance upon exercise of warrants
to be issued to certain unsecured creditors pursuant to the Plan and (iv)
149,999 shares of new Common Stock are reserved for issuance upon exercise of a
stock option to be issued to an employee of Reorganized Advanced pursuant to the
Plan.
(5) Information as to the assets and liabilities of Advanced and AFI
Mortgage, Corp. is incorporated by reference from Sections E, H and I of Article
II of the Disclosure Statement and from Article III of the Disclosure Statement.
The Disclosure Statement is filed as Exhibit 2.2 to this Form 8-K.
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-
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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 Advanced 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 Advanced 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 Reorganized
Advanced; the ability of the Company to acquire an ongoing business on
reasonable terms; the ability of the Company to successfully integrate and
operate 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
(c) Exhibits
2.1 First Amended Joint Plan of
Reorganization of AFI Mortgage, Corp.
and Advanced Financial, Inc. dated
July 29, 1998.
2.2 First Amended Joint Disclosure Statement
of AFI Mortgage, Corp and Advanced
Financial, Inc. dated July 29, 1998.
2.3 Acquisition Agreement dated
November 13, 1998 by and between
First Mortgage Investment Co. and
Advanced Financial, Inc.
99.1 Bankruptcy Court Order dated
November 13, 1998 Confirming
First Amended Joint Plan of
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Reorganization Under Chapter 11 of the
United States Bankruptcy Code.
99.2 Press Release of Advanced Financial,
Inc. dated October 5, 1998.
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: November 23, 1998
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EXHIBIT INDEX
Assigned
Exhibit
Number Description of Exhibit
- ------ ----------------------
2.1 First Amended Joint Plan of
Reorganization of AFI Mortgage, Corp.
and Advanced Financial, Inc. dated
July 29, 1998.
2.2 First Amended Joint Disclosure Statement
of AFI Mortgage, Corp and Advanced
Financial, Inc. dated July 29, 1998.
2.3 Acquisition Agreement dated
November 13, 1998 by and between
First Mortgage Investment Co. and
Advanced Financial, Inc.
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.
99.2 Press Release of Advanced Financial,
Inc. dated October 5, 1998.
EXHIBIT 2.1
IN THE UNITED STATES BANKRUPTCY COURT
DISTRICT OF KANSAS
AT TOPEKA
IN RE: )
)
AFI MORTGAGE CORP. ) Case No. 97-43122-11-JAP
) Chapter 11
Debtors )
)
)
IN RE )
)
ADVANCED FINANCIAL, INC. ) Case No. 98-41228-11-JAP
) Chapter 11
Debtors. )
)
FIRST AMENDED
JOINT PLAN OF REORGANIZATION
OF
AFI MORTGAGE, CORP.
AND
ADVANCED FINANCIAL, INC.
DATED JULY 29, 1998
Thomas M. Mullinix, KS #7309
Joanne B. Stutz, KS #12365; MO #30820
EVANS & MULLINIX, P.A.
15301 West 87th Street Parkway, Ste. 220
Lenexa, KS 66219-1428
(913) 541-1200; (913) 541-1010 (FAX)
ATTORNEYS FOR AFI MORTGAGE, CORP. and
ADVANCED FINANCIAL, INC.
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TABLE OF CONTENTS
ARTICLE I
DEFINITIONS...................................................................1
1.1. Administrative Claims..............................................1
1.2. AFI................................................................1
1.3. Advanced Bar Date..................................................1
1.4. Advanced Estate....................................................1
1.5. Advanced Petition..................................................1
1.6. Advanced Petition Date.............................................1
1.7. Advanced Proceedings...............................................1
1.8. AFIM...............................................................1
1.9. Bar Date...........................................................1
1.10. AFIM Estate........................................................2
1.11. AFIM Petition......................................................2
1.12. AFIM Petition Date.................................................2
1.13. AFIM Proceedings...................................................2
1.14. Allowed Claim......................................................2
1.15. Allowed Prepetition Unsecured Claim................................2
1.16. Allowed Administrative Claim.......................................2
1.17. Allowed Secured Claim..............................................2
1.18. Allowed Undersecured Claim.........................................3
1.19. Argo...............................................................3
1.20. Available Cash.....................................................3
1.21. Bankruptcy Code....................................................3
1.22. Bankruptcy Court or Court..........................................3
1.23. Bankruptcy Rules...................................................3
1.24. Cash Basis.........................................................3
1.25. Causes of Action...................................................3
1.26. CFB................................................................3
1.27. Claim..............................................................3
1.28. Claimant...........................................................3
1.29. Class..............................................................4
1.30. CNB................................................................4
1.31. Confirmation.......................................................4
1.32. Confirmation Date..................................................4
1.33. Confirmation Order.................................................4
1.34. Creditor...........................................................4
1.35. Debtors............................................................4
1.36. Debtor's or Debtors'Counsel........................................4
1.37. Disputed Claim.....................................................4
1.38. Disputed Claims Reserve............................................4
1.39. Effective Date.....................................................4
1.40. Estates............................................................4
1.41. Final Order........................................................4
1.42. FMIC...............................................................5
1.43. FMIC Transaction...................................................5
1.44. Holdback Funds.....................................................5
1.45. Impaired Class.....................................................5
1.46. Initial Distribution...............................................5
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1.47. IRC................................................................5
1.48. IRS................................................................5
1.49. Lien...............................................................5
1.50. NOL................................................................5
1.51. Order..............................................................5
1.52. Petition Dates.....................................................5
1.53. Plan...............................................................5
1.54. Plan Period........................................................5
1.55. Pro Rata...........................................................5
1.56. Proceedings........................................................6
1.57. Professionals......................................................6
1.58. Proponents.........................................................6
1.59. Reorganized Advanced...............................................6
1.60. Reorganized Debtors................................................6
1.61. Scheduled..........................................................6
1.62. Schedules or Schedules of Assets and Liabilities...................6
ARTICLE II
GENERAL DESCRIPTION OF THE JOINT PLAN OF REORGANIZATION.......................6
A. Assumptions.............................................................6
B. The FMIC Transaction....................................................7
ARTICLE III
DESIGNATION OF CLASSES OF CLAIMS AND INTERESTS................................9
3.1 AFIM...............................................................9
3.2. Advanced...........................................................9
ARTICLE IV
TREATMENT OF CLAIMS AND INTERESTS UNDER THE PLAN.............................10
A. General Matters Regarding Classification and Treatment of Claims.......10
1. Distribution Date................................................10
2. Classification of Claims and Interests...........................10
3. Treatment of Stock Options.......................................10
4. Cancellation of Interests........................................10
B. Unclassified Claims....................................................11
1. Administrative Claims............................................11
2. Allowed Priority Tax Claims......................................12
C. Classified Claims of AFIM..............................................12
1. Secured Claims...................................................12
4.1. Class 1: (The Allowed Secured Claim of Argo Federal
Savings)...................................................12
4.2. Class 2: (The Allowed Secured Claim of Citizen's
National Bank).............................................12
4.3. Class 3: (The Allowed Secured Claim of Commercial
Federal Bank)..............................................13
4.4. Class 4: (Allowed Secured Claim of First Mortgage
Investment Co.)............................................13
2. Allowed Unsecured Claims Without Priority........................13
4.5. Class 5: (Allowed Prepetition Unsecured Claims
without Priority and Allowed Undersecured Claims)..........13
3. Allowed Interests of AFIM........................................15
4.6. Class 6: (The Allowed Interests of AFIM)...................15
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D. Classified Claims of Advanced..........................................15
3. Allowed Secured Claims...........................................15
4.7. Class 7: (The Allowed Secured Claim of Bank Midwest).......15
4.8. Class 8: (The Allowed Secured Claim of Citizen's
National Bank).............................................15
4.9. Class 9: (The Allowed Secured Claim of First Mortgage
Investment Co.)............................................16
4.10. Class 10: (Allowed Prepetition Unsecured Guaranty
Claims)....................................................16
4.11. Class 11: (Allowed Prepetition Unsecured Claims
without Priority and Allowed Undersecured Claims)..........16
4. Allowed Interests of Advanced....................................17
4.12. Class 12: (The Allowed Interests of Holders of
Preferred Stock in Advanced.)..............................17
4.13. Class 13: (The Allowed Interests of Holders of
Common Stock in Advanced.).................................18
5. Impaired Classes:................................................18
E. Satisfaction of Claims.................................................18
ARTICLE V
MEANS OF EXECUTION OF THIS PLAN AND MISCELLANEOUS PROVISIONS.................19
A. Means..................................................................19
B. Miscellaneous Plan Provisions..........................................19
5.1. Events Occurring on or Before Confirmation.......................19
5.2. Events Occurring on or after the Effective Date..................20
5.3. Disputed Claims..................................................20
5.4. Documents........................................................21
5.5. Record Date......................................................21
5.6. Payments.........................................................21
5.7. Causes of Action.................................................21
5.8. Reservation of Rights Under Section 1129(b)......................21
ARTICLE VI
PROVISIONS FOR THE ASSUMPTION OR REJECTION OF EXECUTORY
CONTRACTS OR UNEXPIRED LEASES................................................22
6.1. Rejection........................................................22
6.2. Reservation of Rights............................................22
6.3. Proofs of Claim..................................................22
ARTICLE VII
PROCEDURES FOR RESOLVING CONTESTED CLAIMS....................................23
ARTICLE VIII
RETENTION OF JURISDICTION....................................................23
ARTICLE IX
MODIFICATION OF THE PLAN.....................................................24
ARTICLE X
AMENDMENT OF CLAIMS AFTER BAR DATE...........................................25
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ARTICLE XI
EFFECT OF CONFIRMATION.......................................................25
ARTICLE XII
GENERAL PROVISIONS...........................................................25
11.1. Extension of Payment Dates.......................................25
11.2. Governing Law....................................................25
11.3. Headings.........................................................25
11.4. Notices..........................................................25
11.5. Severability.....................................................26
11.6. Successors and Assigns...........................................26
11.7. Trustee Fees.....................................................26
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DEBTORS' JOINT
PLAN OF REORGANIZATION
The Debtors hereby file this Joint Plan of Reorganization pursuant to the
provisions of Chapter 11 of the United States Bankruptcy Code.
ARTICLE I
DEFINITIONS
The following capitalized terms shall have the following meanings when
used in the Plan, which meanings shall be equally applicable to both the
singular and plural forms of such terms. Any term in the Plan that is not
defined herein but that is used in the Bankruptcy Code or the Bankruptcy Rules
shall have the meaning assigned to such term in the Bankruptcy Code or the
Bankruptcy Rules.
1.1. Administrative Claims - shall mean (i) Claims unpaid on the Effective
Date arising out of operation of Debtors' businesses during the Proceedings and
which are scheduled for payment in the ordinary course of ongoing business
operations of the Debtors, or (ii) Claims of Professionals employed by the
Debtors for fees and expenses which have not yet been approved by the Court or
which are scheduled for payment upon Court approval.
1.2. Advanced - shall mean Advanced Financial, Inc, the Debtor in case
number 98-41228-11-JAP.
1.3. Advanced Bar Date - shall mean July 24, 1998, the date set by the
Bankruptcy Court as the last day for filing Proofs of Claim against Advanced.
1.4. Advanced Estate - shall mean the estate created by ss. 541 of the
Bankruptcy Code upon the filing of the Chapter 11 Petition with the Bankruptcy
Court in Advanced's Proceedings.
1.5. Advanced Petition - shall mean the Chapter 11 petition filed on the
Advanced Petition Date.
1.6. Advanced Petition Date - shall mean May 8, 1998.
1.7. Advanced Proceedings - shall mean the case for reorganization filed
by Advanced.
1.8. AFIM - shall mean AFI Mortgage, Corp., the Debtor in case number
97-43122-11-JAP.
1.9. AFIM Bar Date - shall mean January 26, 1998, the date set by the
Bankruptcy Court as the last day for filing Proofs of Claim against AFIM.
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1.10. AFIM Estate - shall mean the estate created by ss. 541 of the
Bankruptcy Code upon the filing of the Chapter 11 Petition with the Bankruptcy
Court in the AFIM Proceedings.
1.11. AFIM Petition - shall mean the Chapter 11 petition filed on the AFIM
Petition Date.
1.12. AFIM Petition Date - shall mean November 7, 1997.
1.13. AFIM Proceedings - shall mean the case for reorganization filed
by AFIM.
1.14. Allowed Claim - shall mean a Claim against either Advanced or AFIM
that (i) is allowed by a Final Order, (ii) is scheduled as liquidated,
undisputed and non-contingent by the Debtors in their Schedules of Assets and
Liabilities filed with the Bankruptcy Court as they may be amended or
supplemented (collectively, the "Schedules") or (iii) is timely filed with the
Clerk of the Bankruptcy Court and no objection has been made to the allowance
thereof within a time fixed by the Bankruptcy Court and the Claim is not
otherwise a Disputed Claim.
1.15. Allowed Prepetition Unsecured Claim - shall mean an Allowed Claim
against AFIM or Advanced which arose or which is deemed to have arisen prior to
the filing of the Petition commencing the AFIM Proceedings or the Advanced
Proceedings, whichever is appropriate and as to which the Claimant has not
asserted, or as to whom it is determined by Final Order does not hold, a valid,
perfected and enforceable lien, security interest or other interest in or
encumbrance against property of AFIM or Advanced or a right of setoff to secure
the payment of such Claim, but excluding unsecured Claims previously paid in the
Proceedings pursuant to agreements approved by the Bankruptcy Court.
1.16. Allowed Administrative Claim - shall mean an Allowed Claim for which
a Claimant asserts and is determined to be entitled to priority pursuant to
Sections 503 and 507(a)(l) of the Bankruptcy Code, except Administrative Trade
Claims.
1.17. Allowed Priority Tax Claim - shall mean an Allowed Claim for which
a Claimant asserts and is determined to be entitled to priority under Section
507(a)(8) of the Bankruptcy Code.
1.18. Allowed Secured Claim - shall mean an Allowed Claim for which a
Claimant asserts, or upon objection is determined by a Final Order to hold, a
valid, perfected and enforceable lien, security interest or other interest or
encumbrance in property in which AFIM or Advanced has an interest not subject to
avoidance or subordination under the Bankruptcy Code or applicable
non-bankruptcy law, or an Allowed Claim for which a Claimant asserts a setoff
under Section 553 of the Bankruptcy Code, but in any event only to the extent of
the value, determined in accordance with Section 506(a) of the Bankruptcy Code,
of the Claimant's interest in AFIM's or Advanced's interest in the property or
to the extent of the amount subject to such setoff as the case may be.
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1.19. Allowed Undersecured Claim - shall mean the amount of a
prepetition secured Claim that exceeds the value of the collateral securing that
Claim and is therefore unsecured.
1.20. Argo - shall mean Argo Federal Savings.
1.21. Available Cash - shall mean all cash on hand and on deposit in
the Debtors' accounts on the Effective Date.
1.22. Bankruptcy Code - shall mean the United States Bankruptcy Code,
11 U.S.C ss. 101 et seq. and all amendments thereto.
1.23. Bankruptcy Court or Court - shall mean the United States
Bankruptcy Court for the District of Kansas, Topeka Division, in which the
Proceedings were filed or such other court as may hereafter have jurisdiction of
and act with respect to the Proceedings.
1.24. Bankruptcy Rules - shall mean the Federal Rules of Bankruptcy
Procedure applicable to cases or proceedings pending before the Court, now
existing or as hereafter amended.
1.25. Cash Basis - shall mean the method of accounting whereby income is
reported in the taxable year in which the income is received.
1.26. Causes of Action - shall be used in its broadest sense and shall
include all causes of action of the Debtors and all causes of action which a
Trustee would have if the proceedings were converted on the Confirmation Date to
a proceeding under Chapter 7 of the Code and a Trustee were appointed. Causes of
Action shall include all rights or causes of action, whether they be legal or
equitable; whether they arise under the Code or under other federal or state
laws or under judicial decisions; whether or not they are the subject of
presently pending litigation; and whether they arise before or after the
Confirmation Date, and rights belonging to the Debtors pursuant to Sections 506,
510, 544, 545, 547, 548, 549 or 550 of the Bankruptcy Code.
1.27. CFB - shall mean Commercial Federal Bank.
1.28. Claim - shall mean any right to payment against the Debtors, or right
to an equitable remedy against the Debtors for breach of performance if such
breach gives rise to a right to payment, whether or not such right to payment or
right to an equitable remedy is reduced to judgment, or whether liquidated or
unliquidated, fixed or contingent, matured or unmatured, disputed or undisputed,
secured or unsecured.
1.29. Claimant - shall mean the holder of a Claim.
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1.30. Class - shall mean any group of substantially similar Claims or
interests as classified in Articles 3 and 4 of the Plan pursuant to Section
1123(a)(1) of the Bankruptcy Code.
1.31. CNB - shall mean Citizen's National Bank.
1.32. Confirmation - shall mean the entry of an Order of the Bankruptcy
Court confirming this Plan.
1.33. Confirmation Date - shall mean the date upon which the Confirmation
Order is entered by the Court after a hearing conducted pursuant to Section 1128
of the Bankruptcy Code.
1.34. Confirmation Order - shall mean the order of the Bankruptcy Court
confirming the Plan.
1.35. Creditor - shall have the meaning set forth in Section 101(10) of the
Bankruptcy Code.
1.36. Debtors - shall mean AFI Mortgage, Corp. and Advanced Financial,
Inc. as debtors and the debtors-in-possession in their respective Proceedings.
1.37. Debtor's or Debtors' Counsel - shall mean the firm of Evans &
Mullinix, P.A.
1.38. Disputed Claim - shall mean any Claim which is scheduled as disputed
or as to which an objection has been filed but has not been resolved by order of
the Bankruptcy Court prior to the Effective Date.
1.39. Disputed Claims Reserve - shall mean the reserve of cash to be
disbursed pursuant to this Plan, established pursuant to this Plan for Disputed
Claims in each Class of Claims which will receive cash under this Plan.
1.40. Effective Date - shall mean the first day occurring on or after the
tenth (10th) day following the Confirmation Date, unless the Confirmation Order
is stayed pending appeal, in which case the Effective Date shall be the first
business day after the stay is vacated, or as soon thereafter as is practicable.
1.41. Estates - shall mean the estates created by ss. 541 of the
Bankruptcy Code upon the filing of the Chapter 11 Petitions with the Bankruptcy
Court in the Proceedings.
1.42. Final Order - shall mean an Order or a judgment that has not been
reversed, stayed, modified or amended and as to which (i) the time to appeal or
seek review, reargument or rehearing has expired and no appeal or petition for
certiorari review or rehearing is pending, or (ii) if appeal, review,
reargument, rehearing or certiorari of the Order has been sought, the Order has
been affirmed or the
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request for review, reargument, rehearing or certiorari has been denied and the
time to seek a further appeal, review, reargument, rehearing, or certiorari has
expired, as a result of which such Order shall have become final and
nonappealable in accordance with applicable law.
1.43. FMIC - shall mean First Mortgage Investment Co.
1.44. FMIC Transaction - shall mean the transaction contemplated by the
Plan.
1.45. Holdback Funds - shall mean the funds withheld by Matrix for a period
of one year after the purchase of loan servicing rights from AFIM.
1.46. Impaired Class - shall have the meaning set forth in 11 U.S.C.
ss. 1124(a). A Class is impaired if the legal, equitable and contractual rights
to which the Claim or interest is entitled are altered.
1.47. Initial Distribution - shall mean the initial payment to each Class.
1.48. IRC - shall mean the Internal Revenue Code.
1.49. IRS - shall mean the Internal Revenue Service.
1.50. Lien - shall mean any charge against or interest in property to
secure payment of an Allowed Claim and includes, without limitation, any
judicial lien, security interest, mortgage, deed of trust and statutory lien as
defined in the Bankruptcy Code or in any applicable state or federal law.
1.51. NOL - shall mean net operating loss, as that term is defined in the
Internal Revenue Code.
1.52. Order - shall mean an Order or judgment of the Bankruptcy Court as
entered on the docket.
1.53. Petition Dates - shall mean both the AFIM Petition Date and the
Advanced Petition Date.
1.54. Plan - shall mean this Joint Plan of Reorganization as it may be
further amended or modified and all addenda, exhibits, schedules or other
attachments.
1.55. Plan Period - shall mean the period of time required to make the
disbursements contemplated in the Plan.
1.56. Pro Rata - shall mean the proportion an Allowed Claim in a
particular Class bears to the aggregate amount of all Allowed Claims in such
Class except as otherwise specified herein.
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1.57. Proceedings - shall mean the cases for reorganization of the Debtors
pending in the Bankruptcy Court.
1.58. Professionals - shall mean entities retained or to be compensated
pursuant to sections 326, 327, 328, 330, 331, 503(b) and 1103 of the Bankruptcy
Code.
1.59. Proponents - shall mean the Debtors, AFI Mortgage, Corp. and Advanced
Financial, Inc.
1.60. Reorganized Advanced - shall mean Advanced in its restructured and
reorganized form as of and after the Effective Date.
1.61. Reorganized Debtors - shall mean the Debtors in their restructured
and reorganized forms as of and after the Effective Date.
1.62. Scheduled - shall mean set forth in the Schedules of Assets and
Liabilities.
1.63. Schedules or Schedules of Assets and Liabilities - shall mean the
Schedules of Assets and Liabilities filed by the Debtors with the Bankruptcy
Court, as the same have been or may be amended from time to time prior to the
Effective Date.
ARTICLE II
GENERAL DESCRIPTION OF THE JOINT
PLAN OF REORGANIZATION
This Plan is the result of lengthy and detailed examinations of the
Debtors, their businesses and the various alternatives available to them for
reorganization. The Debtors believe this Plan offers the best and most
appropriate opportunity for the Creditors to realize the full value of their
Claims. The following description of the Plan is intended as a summary only and
each Creditor should make reference to later Articles of this Plan for details
concerning the treatment of Claims.
A. Assumptions
It is presumed for the purposes of the Plan that AFIM's debt to FMIC is
"qualified indebtedness" meaning that the debt was held by FMIC for at least 18
months prior to the filing of the bankruptcy or the debt arose in the ordinary
course of business and was at all times held by FMIC. If neither of these facts
is accurate then the proposed Plan cannot be accomplished; however, based on the
information available to the Debtors and their advisors, the Debtors believe
FMIC satisfies the test.
AFIM's reorganization will consist of a simple liquidation of its assets
in combination with its Creditors' exchange of debt for common stock in
Advanced. If the Plan is not accepted by the Creditors, the Creditors will
realize only their Pro Rata portions of the value of AFIM's liquid assets,
currently
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estimated to be approximately $100,000.00, net of FMIC's secured mortgage debt
and Chapter 11 and 7 administrative expenses. FMIC, as a secured creditor of
AFIM, holds a superior and preferential position relative to all of AFIM's other
unsecured Creditors.
B. The FMIC Transaction
FMIC is, like AFIM, in the Mortgage Lending and Servicing business and
intends to continue AFIM's core operating business. FMIC has also expressed
interest in gaining access to the public capital markets; however, the cost of
taking a company public is expensive. Should FMIC choose to go public on its own
a significant portion of its cash flow would be constrained during the public
offering process. Thus, FMIC's willingness to enter into the FMIC Transaction is
contingent, in part, on the retention of Advanced's shareholder base, a
contingency which can be met only through the issuance of stock in the
Reorganized Advanced to the existing shareholders.
Assuming that FMIC is successful in this endeavor, FMIC anticipates that
Advanced will be able to obtain additional expansion capital from the public
capital markets. Significant savings for FMIC can be achieved by the Plan which
preserves
Advanced as a public company and grants FMIC a quick and inexpensive
vehicle to the public capital markets. These savings will be beneficial to the
unsecured Creditors who will receive stock in a strong going concern. Advanced
and AFIM also believe that the preservation of AFIM's Net Operating Loss
Carry-Forward (NOL) is necessary to attain the maximum benefits for the
Creditors of both Debtors. To accomplish this goal Advanced filed the Advanced
Proceedings. Because both Advanced and AFIM are now in bankruptcy, it will be
possible to preserve AFIM's NOL in accordance with the Bankruptcy Exception to
the change of Ownership Rules under Internal Revenue Code Section 382(b).
The Plan contemplates that FMIC will purchase AFIM's office building (the
Property) and relinquish its secured Claim against the Property for the benefit
of AFIM's Creditors, thereby increasing the value of AFIM's liquid assets by
approximately $150,000.00. AFIM's unsecured Creditors will receive a Pro Rata
distribution of AFIM's net liquid assets and both AFIM's and Advanced's
unsecured Creditors will receive a Pro Rata distribution of a portion of
Advanced's common stock in final satisfaction of their outstanding Claims. FMIC,
which has held mortgage debt from AFIM for more than eighteen (18) months prior
to the bankruptcy, will exchange this "qualified indebtedness" for a majority of
Advanced's stock. The Debtors anticipate that FMIC will receive at least 60% of
Advanced's stock in exchange for its release of its secured mortgage Claim
against AFIM.
Advanced will then be owned by FMIC, AFIM's and Advanced's unsecured
Creditors and Advanced's previous shareholders. Because FMIC and the Creditors
of AFIM and Advanced are "qualified creditors" who would own at least 50% of the
new Advanced following the bankruptcy
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reorganization, the proposed Plan appears to meet the "bankruptcy exception" to
the NOL limitation rules of IRC ss. 382(b).
To encourage FMIC's performance and further investment under the Plan,
Advanced has allowed FMIC to enter into a Stock Option Agreement pursuant to
which FMIC will be granted an option to acquire additional shares of Advanced's
common stock, thereby increasing FMIC's ownership interest from sixty percent
(60%) to a maximum of eighty percent (80%) if the terms and conditions for the
exercise of the option are met. Payment for said option, if exercised, shall
consist of the transfer to Advanced of one or more operating business units
and/or cash having an aggregate fair market value of approximately
$1,500,000.00. The Debtors anticipate that this will, in turn, increase the
value of the stock distributed pursuant to the Plan. FMIC will also not object
to the disbursement of all cash in AFIM's Estate for payment of administrative
expenses and distributions to Creditors.
The transfer of the Property to FMIC on the Closing Date, as that term is
defined in the Acquisition Agreement, shall, to the full extent allowed by the
Bankruptcy Code and the authority and jurisdiction of the Court, and with the
exception of the Lien of CNB, be free and clear of any and all liens, claims,
liabilities, encumbrances and interests thereof and thereagainst of whatever
type or description, including, without limitation, "claims", as defined in 11
U.S.C. ss. 101(5), restrictions on or conditions to transfer or assignment,
mortgages, security interests, pledges, equities and other claims or interests
(Claim/Interest), having arisen, existed or accrued prior to and through the
Closing Date, whether direct or indirect, absolute or contingent, matured or
unmatured, liquidated or unliquidated, of, by or against AFIM or the Property.
No Claim/Interest shall attach to the proceeds of the sale of the Property to
FMIC. Said Claim/Interest shall include, without limitation the following:
a. Claims/Interests arising through the Closing Date, if any, of any
governmental unit for taxes, excepting real property taxes accruing for
calendar year 1998, and subsequent years;
b. Claims/Interests arising through the Closing Date relating to any
executory contract or lease affecting or in any way relating to the
Property, including, without limitation, Claims/Interests of AFIM
Creditors arising from AFIM's failure to perform its obligations to said
parties whether such failure occurred prior to or on the Closing Date;
c. Claims/Interests arising through the Closing Date which relate to
work performed by any contractor or materialman and which may give rise to
a mechanic's lien or similar Claim/Interest against the Property,
excepting any such Claims/Interests arising from work performed at the
request of FMIC.
The FMIC Transaction shall not be construed as or constitute the
assumption by FMIC of the Debtors' operations as a successor in any respect of
the Debtors' businesses within the meaning of any
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laws, rules or regulations relating to any revenue, pension ERISA, tax,
environmental, labor or products liability matters. Furthermore, FMIC shall, to
the full extent allowed by the Bankruptcy Code and the authority and
jurisdiction of the Court, have no liability under any federal, state or local
environmental laws by virtue of FMIC's purchase of the Property; provided,
however, the Acquisition Agreement shall not change FMIC's liability under such
statutes as an owner of the Property or operator of the Property for such
periods as FMIC has operated, occupied or continues to operate or occupy the
Property
ARTICLE III
DESIGNATION OF CLASSES OF CLAIMS AND INTERESTS
All Claims and interests against the Debtors of whatever nature, whether
or not scheduled, liquidated or unliquidated, absolute or contingent, including
all Claims arising from transactions of the Debtors or rejection of executory
contracts and/or unexpired leases and all interests arising from the ownership
of the Debtors, whether resulting in an Allowed Claim or not, shall be bound by
the provisions of the Plan.
A. AFIM
Classification of Claims against and interests in AFIM, with the exception
of Administrative Claims and priority tax Claims which are unclassified pursuant
to 11 U.S.C. ss. 1123(a)(1), shall be classified as follows:
Class l: Allowed Secured Claim of Argo Federal Savings.
Class 2: Allowed Secured Claim of Citizen's National Bank.
Class 3: Allowed Secured Claim of Commercial Federal Bank
Class 4: Allowed Secured Claim of First Mortgage Investment Co.
Class 5: Allowed Unsecured Prepetition Claims without Priority and Allowed
Undersecured Claims.
Class 6: The Allowed Interests of AFIM.
B. Advanced
Classification of Claims against and interests in Advanced, with the
exception of Administrative Claims and priority tax Claims which are
unclassified pursuant to 11 U.S.C. ss. 1123(a)(1), shall be classified as
follows:
Class 7: Allowed Secured Claim of Bank Midwest.
Class 8: Allowed Secured Claim of Citizen's National Bank.
Class 9: Allowed Secured Claim of First Mortgage Investment Co.
Class 10: Allowed Unsecured Guaranty Claims.
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Class 11: Allowed Unsecured Prepetition Claims without Priority and
Allowed Undersecured Claims.
Class 12: The Allowed Interests of the Holders of Preferred Stock in
Advanced.
Class 13:The Allowed Interests of the Holders of Common Stock in Advanced.
ARTICLE IV
TREATMENT OF CLASSES
CLASSIFICATION AND TREATMENT OF CLAIMS
AND INTERESTS UNDER THE PLAN
A. General Matters Regarding Classification and Treatment of Claims
a. Distribution Date. Except as otherwise provided in this Plan,
property to be distributed under this Plan to an Impaired Class (i) shall
be distributed on or as soon as practicable after the Effective Date to
each holder of an Allowed Claim or interest that is an Allowed Claim or
interest of the Class as of the Effective Date and (ii) shall be
distributed to each holder of an Allowed Claim or interest of that Class
that is allowed after the Effective Date, to the extent allowed and as
soon as practicable after the Order allowing the Claim or interest becomes
a Final Order. Property to be distributed under this Plan to a Class that
is not impaired or on account of a Claim of a kind described in Bankruptcy
Code Section 507(a)(1) shall be distributed on the later of (i) the later
of the two dates specified in the preceding sentence or (ii) the date on
which the distribution to the holder of the Claim would have been due and
payable in the ordinary course of business or under the terms of the Claim
in the absence of the Proceedings.
b. Classification of Claims and Interests. Under this Plan a Claim
or interest is classified in a particular Class only to the extent that
such Claim or interest qualifies within the description of that Class and
is classified in a different Class to the extent that any remainder of the
Claim or interest qualifies within the description of such different
Class. A Claim or interest is classified in a particular Class under this
Plan only to the extent that the Claim or interest in that Class has not
been paid, released or otherwise satisfied before the Effective Date.
c. Treatment of Stock Options. Any stock option outstanding and
unexercised, relating to stock in Advanced or AFIM, shall be deemed to
have rejected as of the Petition Dates and shall have no further force or
effect.
d. Cancellation of Interests. On the Effective Date all stock
interests in Advanced or AFIM shall be deemed cancelled and of no further
force or effect except as evidence of such holder's entitlement to a
distribution, if any, under the Plan. On the Effective Date any holder of
a stock interest asserting an entitlement to a distribution must deliver
to Debtors' Counsel proof
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of such entitlement in the form of the original stock certificate. Stock
interests held in a street name shall be issued through the appropriate
broker or transfer agent.
B. Unclassified Claims.
In accordance with 11 U.S.C. ss. 1123(a)(1) Administrative Claims and
Allowed Priority Tax Claims of the kinds specified in Sections 507(a)(1),
507(a)(7) and 507(b) of the Bankruptcy Code, respectively, have not been
classified in this Plan and are excluded from the Classes discussed in this
Plan. Such unclassified Claims will be treated as described below.
a. Administrative Claims. Subject to the Bar Date and certain other
provisions contained in this Plan, as described in this subsection, each
holder of an Allowed Claim for administrative costs and expenses of the
kind specified in Sections 507(a)(1) or 507(b) of the Bankruptcy Code,
shall receive, on account of and in full satisfaction of such Allowed
Claim, cash equal to the amount of such Allowed Claim, unless the holder
agrees to a less favorable treatment of such Claim. Without limiting the
foregoing, all fees payable under 28 U.S.C. ss. 1930 that have not
theretofore been paid shall be paid on the Effective Date. All Allowed
Claims for administrative costs and expenses shall be paid by the
Reorganized Debtors.
There are two possible types of Administrative Claims in the
Proceedings. The first consists of Administrative Claims incurred by the
Debtors in the ordinary course of their affairs since the Petition Dates,
including taxes and ordinary business expenses. Payment on these
Administrative Claims will not be made until such payment otherwise would
have become due in the ordinary course of the Debtors' business or under
the terms governing the Claim in the absence of the Proceedings.
The second type of Administrative Claim consists of fees and
expenses as allowed by Order of the Bankruptcy Court (i) for the services
of professionals employed by the Debtors and (ii) for expenses incurred by
other parties in interest making a "substantial contribution" in the
Proceedings. The Debtors are not presently aware of the extent, if any, to
which any party in interest will seek reimbursement for expenses in making
a "substantial contribution" in the Proceedings. Neither do the Debtors
believe any such request will be made.
Under this Plan, all applications for final compensation of
Professionals for services rendered and for reimbursement of expenses
incurred on or before the Effective Date (including, without limitation,
any compensation requested by any Professional or any other entity for
making a substantial contribution in the Proceedings) and all other
requests for payment of administrative costs and expenses incurred before
the Effective Date under ss.ss. 507(a)(1) or 507(b) of the Bankruptcy Code
(except for Claims for trade debt incurred in the ordinary course of
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business and Claims under 28 U.S.C. ss. 1930) shall be filed no later than
thirty days after the Effective Date, unless such date is extended by the
Bankruptcy Court and on notice to the Reorganized Debtors. Any such Claim
that is not filed within this deadline shall be forever barred and any
holders of Administrative Claims who are required to file a request for
payment of such Claims and who do not file such request by the applicable
deadline shall be forever barred from asserting such Claims against the
Debtors, the Reorganized Debtors or any of their property.
The Debtors anticipate that Administrative Claims will not exceed
$100,000.00.
b. Allowed Priority Tax Claims. The Allowed Priority Tax Claims
consist of the tax Claims of the Johnson County treasurer in the amount
$4,529.62, for personal property taxes. The priority portion of these
Claims will be paid in full and to the extent that they are
nondischargeable from the sale of AFIM's office building. The
dischargeable portion of these Claims shall be treated as a Class 5 Claim.
C. Classified Claims of AFIM.
1. Secured Claims.
The Plan classifies AFIM's secured Claims into the following four (4)
Classes:
4.1. Class 1: (The Allowed Secured Claim of Argo Federal Savings).
Class 1 consists of the prepetition Secured Claim of Argo in the amount of
approximately $80,000.00 as of the Petition Date. The Class 1 Claim is
secured by one-half of the Holdback Funds, having an approximate value of
$53,906.48.
AFIM is currently reviewing Argo's loan documentation to determine
the validity of Argo's Lien. The Class 1 Claim shall be paid in full on or
before the Effective Date, or as soon as practicable thereafter, unless
AFIM has previously contested the secured nature of this Claim. To the
extent this Class 1 Creditor's Claim is undersecured, the Allowed
Undersecured Claim shall be paid in accordance with the treatment provided
for the Class 5 Creditors.
Class 1 is impaired under this Plan.
4.2. Class 2: (The Allowed Secured Claim of Citizen's National
Bank). Class 2 consists of the prepetition Secured Claim of CNB in the
amount of approximately $731,176.66 as of the AFIM Petition Date. The
Class 2 Claim is secured by a first mortgage on AFIM's office building in
Shawnee, Kansas, having an approximate value of $1,030,000.00. During the
course of these Proceedings the Class 2 Creditor has continued to receive
its regular monthly mortgage payments. AFIM believes the Class 2 Allowed
Secured Claim is fully secured by the collateral.
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This Class 2 Claim shall be paid in full from the sale of the office
building to FMIC, which shall assume the first mortgage indebtedness. Upon
FMIC's assumption of the debt owed the Class 2 Creditor, the Class 2
Creditor shall release AFIM from any further obligation to the Class 2
Creditor. The Class 2 Claimant will retain its security interest in the
collateral pending that sale.
Class 2 is impaired under this Plan.
4.3. Class 3: (The Allowed Secured Claim of Commercial Federal
Bank). Class 3 consists of the Secured Claim of CFB in the amount of
approximately $460,000.00 as of the Petition Date. The Class 3 Claim is
secured by one-half of the Holdback Funds, having an approximate value of
$53,906.48.
AFIM is currently reviewing CFB's loan documentation to determine
the validity of CFB's Lien. The Class 3 Claim shall be paid in full on or
before the Effective Date, or as soon as practicable thereafter, unless
AFIM has previously contested the secured nature of this Claim. To the
extent this Class 3 Creditor's Claim is undersecured, the Allowed
Undersecured Claim shall be paid in accordance with the treatment provided
for the Class 5 Creditors.
Class 3 is impaired under this Plan.
4.4. Class 4: (Allowed Secured Claim of First Mortgage Investment
Co.). Class 4 consists of the Secured Claim of FMIC in the amount of
approximately $152,170.71 as of the Petition Date. The Class 4 Creditor is
secured by a second mortgage in AFIM's office building, located in
Shawnee, Kansas, having a value of $1,030,000.00.
The Class 4 Creditor shall release its mortgage interest and convert
its debt to equity in Advanced.
Class 4 is impaired under the Plan.
2. Allowed Unsecured Claims Without Priority.
4.5. Class 5: (Allowed Prepetition Unsecured Claims without Priority
and Allowed Undersecured Claims). Class 5 consists of the Allowed
Prepetition Unsecured Claims without Priority and Allowed Undersecured
Claims, with Claims aggregating approximately $3,000,000.00. Each Class 5
Creditor shall receive its Pro Rata share of a cash dividend, which may
approximate eleven percent (11%) of its Claim, on the Effective Date or as
soon as is practicable thereafter. Said dividend shall be paid from
Available Cash. If assets remain to be liquidated or collected, the cash
generated by that liquidation will be distributed after receipt but no
more often than on a calendar quarterly basis.
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The Class 5 Creditors shall also share with the Class 11 Creditors
in a Pro Rata distribution of 900,000 shares of common stock in the
Reorganized Advanced, resulting in an approximate aggregate 30% ownership
interest in Advanced. No fractional shares will be issued and the new
shares of stock issued shall be rounded to the nearest whole share. As the
value of fractional shares will be less than $0.10 (ten cents), no cash
payments will be made for fractional shares. Any shareholder who would
receive less than one half share of stock in the Reorganized Advanced will
receive nothing in this exchange AFIM anticipates that with appreciation
in value of the stock, the Class 5 Creditors may potentially receive more
than payment in full of their Claims.
Each Class 5 Creditor shall also be entitled to receive one Warrant
for each share of stock in the Reorganized Advanced distributed to such
Creditor. The Warrant shall be a detachable Class A Warrant, with a fixed
termination date of March 31, 2002, and may be separately transferred.
Each Class A Warrant will entitle the holder to purchase one share of
common stock in the Reorganized Advanced at a price of $1.25 at any time
on or before March 31, 2002. The Board of Directors of the Reorganized
Advanced shall have the right, at any time after the bid price of the
common stock is at least 120% of the exercise price and remains at such
price for a period of twenty (20) consecutive trading days, to call any or
all of such Warrants for redemption at a par value price of $.001 per
warrant upon thirty (30) days' written notice to the warrantholders,
provided that the bid price is at least 120% of the exercise price on the
call date. Any Warrants which are called will expire and be of no further
value of not exercised by the holders on or before the call date. The
Warrants shall not be redeemable until and unless a current registration
statement is in effect. The Reorganized Advanced may, in its sole
discretion, extend the expiration date of the Warrants and/or reduce the
exercise price of the Warrants.
Each Warrant shall bear a restrictive legend prohibiting its
transfer or exercise in the event such transfer would diminish the number
of shares FMIC would otherwise receive pursuant to the Stock Option
Agreement. Pursuant to the Option, FMIC is entitled to receive 3,000,000
shares of stock in Advanced, provided that the number of shares which FMIC
may receive is limited to no more than or one (1) share less than the
number of shares which, when taken together with all other transactions
relevant to a "change of control" under Section 382(g) of the IRC would
trigger such a "change in control". The legend in the Warrant is intended
to prohibit a transfer which would otherwise trigger such limitation
Class 5 is impaired under this Plan.
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3. Allowed Interests of AFIM
4.6. Class 6: (The Allowed Interests of AFIM). Advanced is the sole
shareholder of AFIM. As a condition to the FMIC Transaction, FMIC has
insisted that the existing shareholders receive a portion of the stock in
the Reorganized Advanced under this Plan. Therefore, as this Plan
contemplates the infusion of capital in the form of stock from Advanced,
thereby altering its ownership, Advanced shall be deemed to have made a
substantial contribution to this Plan and shall be entitled to retain its
ownership interest in the Reorganized AFIM.
Class 6 is impaired under this Plan.
B. Classified Claims of Advanced
1. Allowed Secured Claims.
The Plan classifies Advanced's secured Claims into the following three (3)
Classes:
4.7. Class 7: (The Allowed Secured Claim of Bank Midwest). Class 7
consists of the prepetition Secured Claim of Bank Midwest in the amount of
approximately $38,352.69 as of the Advanced Petition Date. The Class 7
Claim is secured by common stock in both Advanced and AFIM, having an
approximate value of $900.00.
The Class 7 Creditor shall receive a payment of $900.00 on the
Effective Date, or as soon thereafter as is practicable, in full
satisfaction of this Class 7 Claim. To the extent this Class 7 Creditor's
Claim is undersecured, the Allowed Undersecured Claim shall be paid in
accordance with the treatment provided for the Class 11 Creditors.
Class 7 is impaired under this Plan.
4.8. Class 8: (The Allowed Secured Claim of Citizen's National
Bank). Class 8 consists of the prepetition Secured Claim of CNB in the
amount of approximately $727,691.49 as of the Advanced Petition Date. The
Class 8 Claim is secured by a first mortgage on AFIM's office building in
Shawnee, Kansas, having an approximate value of $1,030,000.00. During the
course of AFIM's Proceedings the Class 8 Creditor has continued to receive
its regular monthly mortgage payments. Advanced believes the Class 8
Allowed Secured Claim is fully secured by the collateral.
This Class 8 Claim shall be paid in full from the sale of the office
building to FMIC, which shall assume the first mortgage indebtedness. Upon
FMIC's assumption of the debt owed the Class 8 Creditor, the Class 8
Creditor shall release AFIM from any further obligation to the
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Class 8 Creditor. The Class 8 Claimant will retain its security interest
in the collateral pending that sale.
Class 8 is impaired under this Plan.
4.9. Class 9: (The Allowed Secured Claim of First Mortgage
Investment Co.). Class 9 consists of the Secured Claim of FMIC in the
amount of approximately $151,179.60 as of the Advanced Petition Date. The
Class 9 Creditor is secured by a second mortgage in AFIM's office
building, located in Shawnee, Kansas, having a value of $1,030,000.00.
The Class 9 Creditor shall release its mortgage interest and convert
its debt to equity in Advanced.
Class 9 is impaired under the Plan.
2. Allowed Unsecured Claims Without Priority.
4.10. Class 10: (Allowed Prepetition Unsecured Guaranty Claims).
Class 10 consists of the Allowed Prepetition Unsecured Guaranty Claims,
with Claims aggregating approximately $546,789.12. Each Class 10 Creditor
is a member of Class 5 and shall be treated in accordance with the
treatment accorded the Class 5 Claimants.
Class 10 is impaired under this Plan.
4.11. Class 11: (Allowed Prepetition Unsecured Claims without
Priority and Allowed Undersecured Claims). Class 11 consists of the
Allowed Prepetition Unsecured Claims without Priority and Allowed
Undersecured Claims, with Claims aggregating approximately $488,478.32, of
which $167,666.10 consists of an intercompany trade payable owed to AFIM.
Each Class 11 Creditor shall share with Classes 5 and 10 in a Pro Rata
distribution of 900,000 shares of common stock in the Reorganized
Advanced, resulting in an initial approximate aggregate 30% ownership
interest in Advanced. No fractional shares will be issued and the new
shares of stock issued shall be rounded to the nearest whole share. As the
value of fractional shares will be less than $0.10 (ten cents), no cash
payments will be made for fractional shares. Any shareholder who would
receive less than one half share of stock in the Reorganized Advanced will
receive nothing in this exchange.
The number of shares each Class 11 Creditor may receive will be
determined once all Disputed Claims have been resolved and all cash
distributions to the Class 5 Creditors have been made. Advanced
anticipates that with appreciation in value of the stock, the Class 11
Creditors may potentially receive more than payment in full of their
Claims.
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Each Class 11 Creditor shall also be entitled to receive one Warrant
for each share of stock in the Reorganized Advanced distributed to such
Creditor. The Warrant shall be a detachable Class A Warrant, with a fixed
termination date of March 31, 2002, and may be separately transferred.
Each Class A Warrant will entitle the holder to purchase one share of
common stock in the Reorganized Advanced at a price of $1.25 at any time
on or before March 31, 2002. The Board of Directors of the Reorganized
Advanced shall have the right, at any time after the bid price of the
common stock is at least 120% of the exercise price and remains at such
price for a period of twenty (20) consecutive trading days, to call any or
all of such Warrants for redemption at a par value price of $.001 per
warrant upon thirty (30) days' written notice to the warrantholders,
provided that the bid price is at least 120% of the exercise price on the
call date. Any Warrants which are called will expire and be of no further
value of not exercised by the holders on or before the call date. The
Warrants shall not be redeemable until and unless a current registration
statement is in effect. The Reorganized Advanced may, in its sole
discretion, extend the expiration date of the Warrants and/or reduce the
exercise price of the Warrants.
Each Warrant shall bear a restrictive legend prohibiting its
transfer or exercise in the event such transfer would diminish the number
of shares FMIC would otherwise receive pursuant to the Stock Option
Agreement. Pursuant to the Option, FMIC is entitled to receive 3,000,000
shares of stock in Advanced, provided that the number of shares which FMIC
may receive is limited to no more than or one (1) share less than the
number of shares which, when taken together with all other transactions
relevant to a "change of control" under Section 382(g) of the IRC would
trigger such a "change in control". The legend in the Warrant is intended
to prohibit a transfer which would otherwise trigger such limitation.
Class 11 is impaired under this Plan.
3. Allowed Interests of Advanced.
4.12. Class 12: (The Allowed Interests of Holders of Preferred Stock
in Advanced.). Class 12 consists of the Allowed Interests of the Holders
of the Preferred Stock in Advanced. There are currently approximately
363,000 shares of Series B Preferred Stock outstanding, held by
approximately 19 shareholders. As a condition to the FMIC Transaction,
FMIC has insisted that the existing shareholders receive a portion of the
stock in the Reorganized Advanced under this Plan. Therefore, the Class 12
Creditors shall be deemed to have converted their preferred stock
interests in Advanced to a like number of shares of common stock interests
in Advanced. Each Class 12 Creditor shall receive a Pro Rata distribution
with Class 13 in the
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form of common stock in the Reorganized Advanced, resulting in an
approximate aggregate 10% ownership interest in Advanced.
Class 12 is impaired under this Plan.
Class 13: (The Allowed Interests of Holders of Common Stock in Advanced.). Class
13 consists of the Allowed Interests of the Holders of the Preferred and
Common Stock in Advanced. There are currently approximately 5,836,476
shares of Common Stock outstanding, held by approximately 187
shareholders. As a condition to the FMIC Transaction, FMIC has insisted
that the existing shareholders receive a portion of the stock in the
Reorganized Advanced under this Plan. Therefore, with the exception of the
common stock interest held by William B. Morris, the Class 13 Creditors
shall, with the Class 12 Creditors, receive its Pro Rata share of 300,000
shares of common stock in the Reorganized Advanced, resulting in an
approximate aggregate 10% ownership interest in Advanced. William B.
Morris shall relinquish and release any and all stock interests, excepting
any shares held by or in retirement plans, in consideration for the
options described in section I.M. of the Disclosure Statement.
The Debtors anticipate that there will be 5,693,913 shares of common
stock outstanding after conversion of the preferred stock held by the
Class 12 Creditors and the release of the stock held by William Morris.
This will, in turn, convert to approximately 0.05269 shares of common
stock in the Reorganized Advanced. No fractional shares will be issued and
the new shares of stock issued shall be rounded to the nearest whole
share. As the value of fractional shares will be less than $0.10 (ten
cents), no cash payments will be made for fractional shares. Any
shareholder who would receive less than one half share of stock in the
Reorganized Advanced will receive nothing in this exchange.
Class 13 is impaired under this Plan.
D. Impaired Classes: Classes 1 through 13 are impaired under this Plan.
E. Satisfaction of Claims.
The treatment of the holders of Claims and interests pursuant to this
Article 4 of the Plan shall be in full satisfaction, release and discharge of
their respective Claims against or interests in the Debtors, the Estates and the
property of the Estates.
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ARTICLE V
MEANS OF EXECUTION OF THIS PLAN
AND MISCELLANEOUS PROVISIONS
A. Means.
Consummation of the Plan will require approximately three steps:
Step One: AFIM must complete its audits and bring its SEC filings
current before FMIC will complete the FMIC Transaction. The
completion of the audits are also necessary to determine the
final amount of the NOL. Therefore, AFIM shall retain the
following professionals whose services are necessary to
consummate the FMIC Transaction:
1. A securities attorney to assist with the necessary
filings required by the Securities and Exchange
Commission (SEC). The retention of this counsel has
already been approved by the Court.
2. The accounting firm of Grant Thornton to complete the
March 31, 1997, and March 31, 1998, audited financial
statements and tax returns. Retention of Grant Thornton
shall occur following confirmation of the Plan.
Step Two: Upon approval of the Plan FMIC will purchase the office
building from AFIM and convert its second mortgage into stock
of Advanced. This will provide an additional $150,000.00 of
cash, which will be distributed to the administrative
Claimants and Creditors of AFIM.
Step Three: Upon approval of the Plan FMIC, AFIM and Advanced will proceed
toward consummation of the FMIC Transaction and issuance of
the common stock in Advanced to FMIC and the unsecured
Creditors.
The Reorganized Debtors will retain all property of the Estates, excepting
property which is to be sold or otherwise disposed of as provided for herein,
executory contracts which are rejected pursuant to this Plan, and property
transferred to Creditors of the Debtors pursuant to the expressed terms hereof.
(Further details concerning the nature and scope of the Debtors' future business
operations may be found in the Disclosure Statement which accompanies this
Plan). The particulars of the foregoing are set forth herein below.
B. Miscellaneous Plan Provisions.
5.1. Events Occurring on or Before Confirmation. The following events
shall occur on or before the Confirmation Date:
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The Debtors shall enter into the Acquisition Agreement with FMIC and
shall, if feasible, continue to investigate the SEC regulations which must
be complied with to effectuate the Plan.
5.2. Events Occurring on or after the Effective Date. The following events
shall occur on or after the Effective Date:
a. The Debtors shall tender any initial payment due or deliver
possession of property to the Class 1, 3, 5 and 7 Claimants, and shall
tender any initial payments due Creditors holding Allowed Administrative
Claims. The Debtors shall also consummate the FMIC Transaction and
complete the sale of the office building to FMIC.
b. William Morris was instrumental in negotiating the terms of the
FMIC Transaction. In consideration for these extra ordinary services Mr.
Morris shall be granted an option to purchase 149,999 shares of common
stock in the Reorganized Advanced at an exercise price of $.25 per share
upon the following terms, which shall commence two (2) years after
Confirmation and continue for a period of ten (10) years thereafter:
1. Once the stock has attained and maintained a bid price of $1.00
for twenty (20) consecutive trading days, Mr. Morris shall have the
option to purchase 37,499.75 shares of common stock;
2. Once the stock has attained and maintained a bid price of $2.00
for twenty (20) consecutive trading days, Mr. Morris shall have the
option to purchase an additional 37,499.75 shares of common stock;
3. Once the stock has attained and maintained a bid price of $3.00
for twenty (20) consecutive trading days, Mr. Morris shall have the
option to purchase an additional 37,499.75 shares of common stock;
4. Once the stock has attained and maintained a bid price of $4.00
for twenty (20) consecutive trading days, Mr. Morris shall have the
option to purchase the remaining 37,499.75 shares of common stock.
In exchange for this option Mr. Morris shall relinquish his right to
participate in the distributions to the Class 13 Creditors under the Plan.
c. The Articles of Incorporation for Advanced shall be amended
pursuant to Delaware Code Section 303. The capital structure of the
Reorganized Advanced shall be modified to authorize ten million
(10,000,000) shares of common stock at a par value of $0.001 per share and
one million (1,000,000) shares of blank check preferred stock at a par
value of $0.005 per share.
5.3. Disputed Claims. At the time the Debtors distribute payment to a
Class in which a member holds a disputed claim, the Debtors shall deposit into
an escrow account the amount to which a
20
<PAGE>
disputed Claimant would be entitled if its Claim were allowed in full. Within
thirty days after a disputed Claim becomes an allowed Claim, the Pro Rata
distribution which should have been disbursed to that Claimant had such Claim
been an allowed Claim on the date of distribution, shall be paid to such
Claimant. Once all disputed Claims have been adjudicated, to the extent that the
amounts reserved for payment relating to those Claims exceeds the amount of such
Claims as ultimately allowed, such excess shall be paid, Pro-Rata, to the Class
5, 10, 11, 12 and 13 Claimants, if such excess payment is not diminimis ($5.00).
5.4. Documents. All necessary documents for the implementation of this
Plan shall be executed and delivered by the Debtors, when possible, on or as
soon as practicable after the Effective Date. To the extent that the Debtors or
any party in interest herein is unable to agree on the form or substance of such
documents, such unresolved issues shall be submitted to the Court. Upon
execution and delivery all such documents shall be binding on the Debtors and
all other parties thereto.
5.5. Record Date. For the purpose of establishing the ownership of Claims
and Interests arising out of the ownership of stock in Advanced and in order to
determine to whom distributions shall be made under the Plan, the Debtors shall
establish a record date for all Claims and Interests. Such Record Date is
expected to be the fifth business day after entry of the Confirmation Order.
5.6. Payments. On or as soon as practicable after the Effective Date, the
Debtors shall pay all amounts required to be paid on the Effective Date as
provided in Section 4 of this Plan.
5.7. Causes of Action. All rights and Causes of Action pursuant to (i)
ss.ss. 502, 542, 544, 545, 546, 550 and 553 of the Bankruptcy Code; (ii)
preference claims pursuant to ss. 547 of the Bankruptcy Code; (iii) fraudulent
transfer claims pursuant to ss. 548 of the Bankruptcy Code; (iv) claims relating
to post-petition transactions pursuant to ss. 549 of the Bankruptcy Code; (v)
and all claims and causes of action held against third parties as of the
Confirmation Date, are preserved for the benefit of the Creditors. The Debtors
have investigated whether any preferential or fraudulent transfers were made and
do not believe any such transfers exist or, if they do exist, could be
successfully or economically prosecuted. Therefore, the Debtors do not expect to
initiate any actions for the recovery of such transfers.
5.8. Reservation of Rights Under Section 1129(b). The Debtors expressly
reserve the right, pursuant to Section 1129(b) of the Bankruptcy Code, to
request the Court to confirm this Plan if all of the applicable requirements of
section 1129(a) of the Bankruptcy Code have been met, other than those of
Section 1129(a)(8). Section 1129(b) of the Bankruptcy Code provides that the
Plan may be confirmed by the Court despite not being accepted by every impaired
Class if (i) at least one impaired Class of Claims has accepted the Plan, and
(ii) the Court finds that the Plan does not discriminate unfairly and is fair
and
21
<PAGE>
equitable to the rejecting Classes. Among other things, such a finding would
require a determination by the Court that no holder of an Allowed Claim or
interest junior to the rejecting Class will receive or retain any property or
payment under the Plan.
The Debtors further expressly reserve the right, pursuant to Section
1129(b) of the Bankruptcy Code, to request the Court to confirm this Plan if all
of the applicable requirements of Section 1129(a) of the Bankruptcy Code have
been met except for the requirement of acceptance by every impaired Class. In
connection with such request, the Debtors may seek permission to modify the
Plan. Further, the Debtors reserve the right, pursuant to Section 1126(e) of the
Bankruptcy Code, to request that the Court strike any rejection of the Plan by
any holder of a Claim or interest where such rejection is not in good faith.
ARTICLE VI
PROVISIONS FOR THE ASSUMPTION OR REJECTION OF
EXECUTORY CONTRACTS OR UNEXPIRED LEASES
8.1. Rejection. The Debtors believe all leases and executory contracts
have been rejected prior to the Petition Dates excepting the non-residential
lease of real property between AFIM and FMIC, which lease was assumed during the
AFIM Proceedings.. Any executory contracts or unexpired leases of the Debtors
entered into prior to the Petition Dates which are not expressly assumed by the
Debtors pursuant to this Plan or application filed by the Debtors on or prior to
the Confirmation Date shall be deemed to have been rejected by the Debtors on
the Confirmation Date, in accordance with the provisions of Section 365 of the
Bankruptcy Code. On the Effective Date all stock interests in Advanced or AFIM
shall be deemed cancelled and of no further force or effect except as evidence
of such holder's entitlement to a distribution, if any, under the Plan.
8.2. Reservation of Rights. The Debtors reserve the right to file
applications for the assumption or rejection of any executory contract or
unexpired lease at any time prior to the Confirmation Date and to prosecute any
such application to entry of a Final Order anytime thereafter.
8.3. Proofs of Claim. Each entity that is a party to an executory contract
or unexpired lease rejected pursuant to this Plan, and only such entity, shall
be entitled to file, not later than thirty (30) days after the Confirmation
Date, a proof of claim for damages alleged to arise from the rejection of the
contract or lease to which such entity is a party.
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<PAGE>
ARTICLE VII
PROCEDURES FOR RESOLVING CONTESTED CLAIMS
The Debtors may contest Claims by filing with the Court objections to
Claims and serving such objections upon the respective holders of the Claims to
which objections are lodged. The service and prosecution of such objections
shall be subject to the Federal Rules of Bankruptcy Procedure and the Local
Bankruptcy Rules for the United States District Court for the District of
Kansas.
ARTICLE VIII
RETENTION OF JURISDICTION
The Bankruptcy Court shall retain jurisdiction of the Proceedings pursuant
to the provisions of the Bankruptcy Code until the Proceedings are closed and
further with respect to the following matters:
8.1. To classify, allow or disallow Claims, direct distributions under the
Plan, and adjudicate all controversies concerning classification or allowance of
any Claim or interest.
8.2. To enforce performance of the Plan against the Debtors, Claimants or
any other entity.
8.3. To hear and determine all Claims arising from the rejection of
executory contracts and unexpired leases and to consummate the rejection and
termination thereof. To hear and determine all matters relating to the
assumption of executory contracts and unexpired leases and the assumption and
assignment of executory contracts and unexpired leases.
8.4. To liquidate damages or estimate Claims in connection with any
disputed, contingent or unliquidated Claim.
8.5. To adjudicate all Claims to an ownership interest in any property of
the Debtors, the Estates or any proceeds thereof.
8.6. To adjudicate all Claims or controversies arising out of any
purchase, sale or contract made or undertaken by the Debtors during the pendency
of the Proceedings.
8.7. To recover all assets and properties of the Debtors wherever located.
8.8. To hear and determine matters concerning state, local and federal
taxes pursuant to Sections 346, 505, 525 and 1146 of the Bankruptcy Code.
8.9. To hear and determine any action or proceeding brought by the Debtors
or other party-in-interest under Sections 510, 542, 543, 544, 545, 547, 548,
549, 550, 551, 553 and 363(h) of the Bankruptcy Code.
23
<PAGE>
8.10. To hear and determine all actions and proceedings brought by the
Debtors or other party-in-interest arising in or related to the Proceedings or
arising under the Bankruptcy Code.
8.11. To determine the validity, extent and priority of all liens against
property of the Debtors' Estates.
8.12. To consider any modification of the Plan under Section 1127 of the
Bankruptcy Code, or under Rule 3020 of the Federal Rules of Bankruptcy
Procedure, and/or modification of the Plan after Substantial Consummation as
defined in Section 1101(2) of the Bankruptcy Code.
8.13. To hear and determine all controversies, suits and disputes that may
arise in connection with the interpretation or enforcement of the Plan.
8.14. To hear and determine all requests for compensation and/or
reimbursement of expenses of Professionals that may be made after the
Confirmation Date.
8.15. To hear and determine such matters and make such orders as are
consistent with the Plan and as may be necessary or desirable to carry out the
provisions thereof.
8.16. If the Bankruptcy Court abstains from exercising or declines to
exercise jurisdiction or is otherwise without jurisdiction over any matter
arising out of the Proceedings, including the matters set forth herein, or if a
party-in-interest elects to bring an action in any other forum, this Article 8
shall have no effect upon and shall not control, prohibit or limit the exercise
of jurisdiction by any other court having jurisdiction with respect to such
matter.
ARTICLE IX
MODIFICATION OF THE PLAN
The Debtors may propose amendments or modifications to the Plan at any
time prior to the Confirmation Date with leave of the Bankruptcy Court. After
the Confirmation Date, parties-in-interest may, with Bankruptcy Court approval
and so long as it does not materially or adversely affect the interests of
Creditors, remedy any defect or omission or reconcile any inconsistencies in the
Plan or in the Confirmation Order in such manner as may be necessary to carry
out the purposes and intent of the Plan.
24
<PAGE>
ARTICLE X
AMENDMENT OF CLAIMS AFTER BAR DATE
Claimants shall not be permitted to amend or otherwise modify any Claim
after the Bar Date without leave of the Bankruptcy Court, unless the Claimant
has specifically reserved a right to amend its Claim.
ARTICLE XI
EFFECT OF CONFIRMATION
Upon the Effective Date, all of the provisions of this Plan, including all
appendices and other exhibits hereto, shall be binding on the Debtors, the
Estates, the Reorganized Debtors, all Creditors, and all other entities who are
affected (or whose interests are affected) in any manner by the Plan.
Confirmation of the Plan shall constitute the requisite corporate shareholder
authority, under the laws of the State of Delaware, for the recapitalization of
Advanced, which is provided for by the Plan.
As of the Effective Date, all property of the Estates, including all
causes of action and the proceeds thereof and any property or interest in
property acquired by the Estates after the Effective Date shall be vested in the
Reorganized Debtors. All of such property shall be free and clear of all Claims
and interests except the Claims of Classes as treated in Article 4 of this Plan.
ARTICLE XII
GENERAL PROVISIONS
12.1. Extension of Payment Dates. If any payment under this Plan falls due
on a Saturday, Sunday or other day that is not a Business Day, then such due
date shall be extended to the next following Business Day.
12.2. Governing Law. Except to the extent that the Bankruptcy Code is
applicable, the rights and obligations arising under this Plan and any
documents, agreements and instruments executed in connection with this Plan
(except to the extent such documents, agreements and instruments designate
otherwise) shall be governed by, construed and enforced in accordance with the
laws of the State of Kansas.
12.3. Headings. The Article and Section headings used in this Plan are
inserted for convenience and reference only and neither constitute a part of
this Plan nor in any manner affect the terms, provisions or interpretations of
this Plan.
25
<PAGE>
12.4 Notices. All notices required to be made in or under this Plan shall
be in writing and to the following:
If to Debtors:
Brad Morris
AFI Mortgage, Corp.
P.O. Box 860006
Shawnee, KS 66226
with a copy to Debtors' Counsel:
Thomas M. Mullinix
Joanne B. Stutz
Evans & Mullinix, P.A.
l530l W. 87th Street Pkwy., Suite 220
Lenexa, KS 662l9-l428
(Tel) 9l3-54l-l200
(Fax) 9l3-54l-l0l0
or at such other address as a party may have designated as its address for such
purpose or at any address of any such party appearing in the records of the
party giving notice.
12.5. Severability. Should any term or provision in this Plan be
determined to be unenforceable, such determination shall in no way limit or
affect the enforceability and operative effect of any other term or provision of
this Plan.
12.6. Successors and Assigns. Except as may be otherwise provided in this
Plan, the rights and obligations of any entity named or referred to herein shall
be binding upon, and shall inure to the benefit of, the successors and assigns
of each such entity.
12.7. Trustee Fees. The Reorganized Debtors shall be responsible for
timely payment of fees incurred pursuant to 28 U.S.C. ss. 1930(a)(6). After
Confirmation the Reorganized Debtors shall file with the Court and serve on the
United States Trustee a quarterly disbursement report for each quarter, or
portion thereof, until a Final Decree has been entered or the Proceedings
dismissed or converted to another chapter, in a format prescribed by and
provided to the Debtors by the United States Trustee.
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This First Amended Plan of Reorganization, dated the 29th day of July,
1998, is hereby approved by the undersigned.
AFI MORTGAGE, CORP.
/s/ William B. Morris
---------------------------------------
BY: William B. Morris, Vice President
Case No. 97-43122-11-JAP
ADVANCED FINANCIAL, INC.
/s/ William B. Morris
----------------------------------------
BY: William B. Morris, Sr. Vice President
SUBMITTED BY:
EVANS & MULLINIX, P.A.
/s/ Joanne B. Stutz
- ----------------------------
Thomas M. Mullinix KS #7309
Joanne B. Stutz KS #12365; MO #30810
Evans and Mullinix, P.A.
15301 W. 87th Street Pkwy., Ste. 220
Lenexa, KS 66219-1428
913-541-1200; 913-541-1010 (Fax)
ATTORNEYS FOR AFI MORTGAGE, CORP. and
ADVANCED FINANCIAL, INC.
EXHIBIT 2.2
IN THE UNITED STATES BANKRUPTCY COURT
DISTRICT OF KANSAS
AT TOPEKA
IN RE: )
)
AFI MORTGAGE CORP. ) Case No. 97-43122-11-JAP
) Chapter 11
Debtors )
)
)
IN RE )
)
ADVANCED FINANCIAL, INC. ) Case No. 98-41228-11-JAP
) Chapter 11
Debtors. )
)
FIRST AMENDED
JOINT DISCLOSURE STATEMENT
OF
AFI MORTGAGE, CORP.
AND
ADVANCED FINANCIAL, INC.
DATED JULY 29, 1998
Thomas M. Mullinix, KS #7309
Joanne B. Stutz, KS #12365; MO #30820
EVANS & MULLINIX, P.A.
15301 West 87th Street Parkway, Ste. 220
Lenexa, KS 66219-1428
(913) 541-1200; (913) 541-1010 (FAX)
ATTORNEYS FOR AFI MORTGAGE, CORP. and
ADVANCED FINANCIAL, INC.
<PAGE>
TABLE OF CONTENTS
ARTICLE I
INTRODUCTION.................................................................1
A. The Disclosure Statement...............................................1
B. Brief Explanation of Chapter 11........................................2
C. Voting on the Plan.....................................................2
1. Creditors and Shareholders Entitled to Vote........................3
2. General Voting Instructions........................................3
D. The Confirmation Hearing...............................................4
E. Confirmation...........................................................4
ARTICLE II..
GENERAL BACKGROUND INFORMATION...............................................5
A Description of Advanced's Business.....................................5
B. Description of AFIM's Business.........................................5
1. Investment Policies................................................6
a. Investments in Real Estate Mortgages...........................6
b. Description of Real Estate.....................................6
2. Loan Servicing.....................................................6
a. Servicing Capability...........................................7
3. Loan Originations..................................................7
4. Loan Processing....................................................8
5. Types of Loans.....................................................9
6. Markets and Competition............................................9
7. Regulation.........................................................9
C. Events Leading to The Proceedings.....................................10
D. Operations During the Proceedings.....................................11
1. AFIM..............................................................11
2. Advanced..........................................................13
E. Assets and Sources for Repayment of Claims............................14
1. Cash and Cash Equivalents.........................................14
2. Office Building...................................................15
3. Receivables.......................................................15
F. Liquidation Analysis..................................................15
1. The Liquidation Analysis..........................................16
G. Plan Confirmation Analysis............................................17
H. Scheduled Claims......................................................17
1. AFIM..............................................................17
a. Priority Claims...............................................17
b. Secured Claims................................................18
c. General Unsecured Claims......................................18
d. Executory Contracts and Leases................................18
2. Advanced..........................................................18
a. Priority Claims...............................................18
b. Secured Claims................................................18
c. General Unsecured Claims......................................18
d. Executory Contracts and Leases................................18
<PAGE>
I. Real and Personal Property............................................18
1. AFIM..............................................................18
2. Advanced..........................................................19
J. Books and Records.....................................................19
K. Tax Aspects of the Plan...............................................19
1. Tax Consequences to the Debtors...................................20
a. General.......................................................20
b. Net Operating Losses..........................................20
c. Cancellation of Debt..........................................21
d. Debt Restructuring............................................21
e. Attribute Reduction...........................................21
f. Change of Ownership - I.R.C. - 382............................22
2. Tax Consequences to the Creditors.................................22
L. Litigation............................................................22
M. Management of the Debtors.............................................23
N. Information Obtained by Plan Proponents...............................23
ARTICLE III.
SUMMARY OF THE JOINT PLAN OF REORGANIZATION.................................24
A. General Description of the Joint Plan of Reorganization...............24
1. Assumptions.......................................................24
2. The FMIC Transaction..............................................24
B. Designation of Classes of Claims and Interests........................26
1. AFIM..............................................................26
2. Advanced..........................................................27
Treatment of Stock Options............................................27
Cancellation of Interests.............................................27
C. Details of the Plan...................................................28
1. Unclassified Claims...............................................28
a. Administrative Claims.........................................28
b. Priority Claims...............................................28
2. Classified Claims of AFIM.........................................29
a. Allowed Secured Claims........................................29
b. Allowed Unsecured Claims Without Priority.....................30
c. Allowed Interests of AFIM.....................................31
3. Classified Claims of Advanced.....................................32
a. Allowed Secured Claims........................................32
b. Allowed Unsecured Claims Without Priority.....................33
c. Allowed Interests of Advanced.................................34
D. Means of Execution of the Plan........................................35
E. Modification of the Plan..............................................36
F. Amendment of Claims After Bar Date....................................36
ii
<PAGE>
EXHIBITS
Exhibit A: Summary of AFI Mortgage, Corp. Income Statements From 11/7/97 to
6/30/98
Exhibit B: Liquidation Analysis
Exhibit C: Proposed Acquisition Agreement and Stock Option Agreement with
FMIC
Exhibit D: Claims Analysis
iii
<PAGE>
Article I
INTRODUCTION
A. The Disclosure Statement
The Debtors, AFI Mortgage, Corp. and Advanced Financial, Inc., pursuant to
Section 1125 of the Bankruptcy Code, submit this Disclosure Statement to all
known Creditors and holders of Claims and interests against the Debtors for the
purpose of disclosing that information which the Bankruptcy Court has determined
to be material and important for Claimants to make an informed decision in
exercising their right to vote on the Plan. Reorganization pursuant to Chapter
11 of the Bankruptcy Code depends upon the receipt of a sufficient number of
votes in favor of reorganization. Your vote, therefore, is important.
This Disclosure Statement describes various transactions contemplated
under the Plan. A copy of the Plan accompanies this Disclosure Statement.
Defined terms are capitalized in both the Plan and the Disclosure Statement. See
Definition of Terms, Article 1.
THIS DISCLOSURE STATEMENT HAS BEEN APPROVED BY THE BANKRUPTCY COURT AS
CONTAINING ADEQUATE INFORMATION TO ENABLE CREDITORS TO MAKE AN INFORMED JUDGMENT
ABOUT THE PLAN. SUCH APPROVAL DOES NOT CONSTITUTE A RECOMMENDATION OR
ENDORSEMENT OF THE PLAN BY THE BANKRUPTCY COURT. NO REPRESENTATIONS CONCERNING
THE DEBTORS' ASSETS AND LIABILITIES (INCLUDING THOSE RELATING TO THE FUTURE
BUSINESS OPERATIONS OR THE VALUE OF ANY ASSETS, PROPERTY, CREDITORS' CLAIMS OR
SECURITIES TO BE ISSUED UNDER THE PLAN) INCONSISTENT WITH ANYTHING CONTAINED
HEREIN HAVE BEEN AUTHORIZED. ANY REPRESENTATIONS OR INDUCEMENTS MADE TO SECURE
YOUR VOTE IN FAVOR OF ACCEPTANCE OR REJECTION OF THE PLAN OTHER THAN THAT
CONTAINED IN THIS DISCLOSURE STATEMENT SHOULD NOT BE RELIED UPON BY YOU IN
ARRIVING AT YOUR DECISION
This Disclosure Statement has not been approved or disapproved by the
Securities and Exchange Commission: nor has the Securities and Exchange
Commission passed upon the accuracy or adequacy of the statements contained
herein. There has been no independent audit of the financial information
contained in this Disclosure Statement except as expressly indicated in this
Disclosure Statement.
You are urged to study the Plan in full and to consult with your counsel
about the Plan and its effect, including possible tax consequences, upon your
legal rights. Please read this Disclosure Statement carefully before voting on
the Plan.
Not all of the financial information contained herein is covered by a
certified audit of independent public accountants. For this reason, and because
of the complexity of the Debtors' financial affairs, the
<PAGE>
Debtors are unable to represent that the information contained in this
Disclosure Statement is without inaccuracy, although reasonable efforts have
been made to present the information fairly and accurately. Additional financial
information can be found in the Debtors' Statements of Financial Affairs,
Schedules of Assets and Liabilities on file with the Bankruptcy Court, and
Monthly Financial Reports filed with the Bankruptcy Court. Except as otherwise
expressly indicated herein, the portions of this Disclosure Statement describing
the Debtors, their business and the Plan have been prepared from information
furnished by Debtors' management.
THE DEBTORS BELIEVE CONFIRMATION OF THE PLAN IS IN THE BEST INTERESTS OF
THE DEBTORS' CREDITORS AND SHAREHOLDERS. CONSEQUENTLY, THE DEBTORS RECOMMEND
THAT ALL CREDITORS AND EQUITY SHAREHOLDERS VOTE TO ACCEPT THE PLAN.
B. Brief Explanation of Chapter 11
Chapter 11 is the principal reorganization chapter of the Bankruptcy Code.
Pursuant to Chapter 11, the Debtors are authorized to reorganize their business
for their benefit and for the benefit of Creditors and Interest Holders. Upon
the filing of a petition under Chapter 11, actions by Creditors and other
Claimants attempting to collect on pre-petition Claims or to foreclose upon any
of the Debtors' property are automatically stayed during the pendency of the
Chapter 11 case.
In these cases the Debtors have continued in possession of their property
as Debtors-in-Possession. Thus, pursuant to Section 1107(a) of the Bankruptcy
Code, the Debtors are vested with substantially the same powers as a trustee
under the Bankruptcy Code.
C. Voting on the Plan
Formulation of a plan of reorganization is the principal purpose of a
Chapter 11 reorganization proceeding. The Plan is the vehicle for satisfying
Claims of the Debtors' Creditors. Each Creditor entitled to vote on the Plan may
cast its vote for or against the Plan by completing, dating, and signing the
Ballot Form accompanying this Disclosure Statement. The Bankruptcy Court has
ordered that Ballots and Objections to Confirmation of the Plan, must be
received no later than 5:00 p.m. on the 24th day of August, 1998, at the offices
of Debtors' Counsel, EVANS & MULLINIX, P.A., 15301 W. 87th Street Parkway, Suite
220, Lenexa, Kansas 66219-1428.
This Disclosure Statement is intended to assist Creditors in evaluating the
Plan and in determining whether to accept the Plan. UNDER THE BANKRUPTCY CODE,
YOUR VOTE FOR ACCEPTANCE OR REJECTION MAY NOT BE SOLICITED UNLESS YOU RECEIVE A
COPY OF
2
<PAGE>
THIS DISCLOSURE STATEMENT PRIOR TO, OR CONCURRENTLY WITH, SUCH SOLICITATION. THE
SOLICITATION OF VOTES ON THE PLAN IS GOVERNED BY THE PROVISIONS OF SECTION
1125(b) OF THE BANKRUPTCY CODE, THE VIOLATION OF WHICH MAY RESULT IN SANCTIONS
BY THE COURT, INCLUDING DISALLOWANCE OF THE SOLICITED VOTE AND LOSS OF THE "SAFE
HARBOR" PROVISIONS OF SECTION 1125(e) OF THE BANKRUPTCY CODE.
1. Creditors and Shareholders Entitled to Vote
Only the votes of Creditors in the Classes that are impaired by the Plan
will be counted to determine if the Plan is accepted by Creditors. In this case
Classes 1 through 13 are impaired by the Plan and, therefore, will have their
votes counted. Votes on the Plan will only be counted for those Claims that are
not listed as disputed, contingent or unliquidated, and only for those Claims
for which a proof of Claim was filed before the Bar Date, providing such Claim
has not been disallowed or suspended prior to computation of the vote, or which
have been estimated for voting purposes pursuant to an Order of the Court. The
Ballot provided for voting on the Plan does not constitute a proof of Claim.
2. General Voting Instructions
A ballot is enclosed with the Disclosure Statement, which has been mailed
to each Creditor and equity security holder on the Court's mailing matrix. This
includes Creditors listed in the Debtors' Schedules, Creditors who have filed a
Proof of Claim and the known transfer agents for the publicly traded securities
of Advanced. Creditors and equity security holders must complete and sign the
ballot and return it to Debtors' Counsel as instructed on the ballot, in the
Order accompanying this Disclosure Statement and the Plan or in the letter which
may accompany this Disclosure Statement and Plan. Ballots should be returned to:
Joanne B. Stutz
Evans & Mullinix, P.A.
15301 W. 87th Street, Ste 220
Lenexa, KS 66219
Ballots which are not signed, which do not indicate an acceptance or
rejection of the Plan or which indicate both an acceptance and rejection of the
Plan will not be counted. Any Creditor or equity security holder holding two or
more Claims against either AFIM or Advanced must complete a separate ballot for
each Claim. The ballot which accompanies the Disclosure Statement and Plan may
be duplicated for this purpose.
PLEASE DO NOT RETURN THE STOCK OR STOCK CERTIFICATES REPRESENTING YOUR
SECURITIES WITH YOUR BALLOT.
3
<PAGE>
D. The Confirmation Hearing
The Bankruptcy Court has scheduled a hearing on Confirmation of the Plan to
determine if the Plan has been accepted by the requisite number of Creditors and
whether the other requirements necessary to Confirmation have been satisfied.
The Confirmation Hearing is scheduled for August 26, 1998, at 1:30 p.m. Each
Claimant will receive, either with this Disclosure Statement or separately, the
Bankruptcy Court's Notice of Hearing on Confirmation of the Plan.
E. Confirmation
At the Confirmation Hearing, the Bankruptcy Court will determine, among
other things, whether the Plan has been accepted by each impaired Class of
Creditors. Under Section 1126 of the Bankruptcy Code, an impaired Class is
deemed to have accepted the Plan if at least two-thirds in amount and more than
one-half in number of Allowed Claims in such Class voting to accept or reject
the Plan have voted in favor of acceptance.
There are two methods by which the Plan can be confirmed: (i) the
"acceptance" method, in which all impaired Classes have voted to accept the Plan
as described above; and (ii) the "non-acceptance" method, in which the Plan is
not accepted by one or more of the impaired Classes, provided the Bankruptcy
Court finds that the Plan does not discriminate unfairly and is fair and
equitable to such Class or Classes. For a Plan to be confirmed under the
"non-acceptance" method, it must be accepted by at least one Class of claims or
Interests which is impaired by the Plan. The Debtors may choose to rely upon the
"non-acceptance" method to seek Confirmation of the Plan if it is not accepted
by all impaired Classes of Creditors.
Section 1129(b) of the Bankruptcy Code provides that the Bankruptcy Court
may confirm the Plan notwithstanding its rejection by one or more impaired
Classes if the Bankruptcy Court finds that the Plan is fair and equitable with
respect to each impaired Class which does not accept the Plan. With respect to
Classes of secured Creditors, the fair and equitable test requires that a
secured Creditor (i) retain its lien(s) and receive cash payments having a
present value equal to its Allowed Secured Claim, (ii) receive the proceeds from
the sale of its collateral, or (iii) realize the indubitable equivalent of its
Claim. With respect to a Class of unsecured Claims, the fair and equitable test
requires that if each Claimant in such Class does not receive property having a
present value equal to the amount of such Claimant's Allowed Claim, no Class
junior can receive any property on account of such junior Claim or Interest.
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Thus, Classes 6, 12 and 13 may not be entitled to participate in the
distributions under the Plan if Classes 1 through 5 and 7 through 10 do not vote
to accept the Plan. Likewise, class 13 may not be entitled to participate in the
distributions under the Plan if Class 12 does not vote to accept the Plan.
If the Bankruptcy Court orders Confirmation of the Plan, then pursuant to
Section 1141(d) of the Bankruptcy Code, the Debtors are discharged from all
pre-Confirmation debts except as provided in the Plan. Confirmation makes the
Plan binding upon the Debtors, all Creditors, Interest Holders, and other
parties-in-interest, regardless of whether they voted to accept the Plan.
Article II
GENERAL BACKGROUND INFORMATION
The following is a general discussion of the business of AFI Mortgage, Corp.
(AFIM) and it's parent, Advanced Financial, Inc. (Advanced), (collectively "the
Debtors"), the events leading to the Proceedings, and the Debtors' operations
during the Proceedings.
A. Description of Advanced's Business
Advanced is a publicly traded company, incorporated under the laws of
Delaware in September, 1986. Originally named Weincor Financial Corporation,
Advanced was a shell corporation which did not conduct any business. In June,
1988, Weincor changed its name to Advanced Medical Dynamics, Inc. (AMDI) and
entered into the business of selling medical equipment. At approximately the
same time Advanced also began publicly trading its stock.
In July, 1990, Advanced's principals perceived a business opportunity for
expansion into the mortgage servicing industry due to the collapse of the
savings and loan industry. In furtherance of this decision, on March 29, 1991,
Advanced acquired Creative Financing, Inc. (CFI), a Nebraska corporation founded
in February, 1982, which operated as a mortgage banker, originating and
servicing one to four (1-4) family mortgages. CFI became the wholly owned
subsidiary of Advanced and Advanced ceased operating as an active business,
transforming itself into a holding company. In 1992, CFI's name was changed to
Continental Mortgage, Inc. The name was again changed to AFI Mortgage, Corp. in
November, 1994. In 1997 AFIM discontinued all of its mortgage operations and
neither Advanced nor AFIM have any active business at this time.
B. Description of AFIM's Business
AFIM is the wholly owned subsidiary of Advanced. The following is a
description of the key components of AFIM's previous business affairs.
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1. Investment Policies
a. Investments in Real Estate Mortgages
AFIM, as an essential part of its core business, invested in real estate
mortgages by acting as a loan originator. Primarily all mortgage originations
were first mortgages on single family dwellings. A general description of each
type of mortgage activity in which AFIM engaged, such as origination, servicing
and warehousing, and the portfolio turnover rate is contained in the following
sections.
b. Description of Real Estate
The only real estate owned by or in which AFIM has an investment interest
is AFIM's headquarters building, which was built to house AFIM's administrative
arm and which has been occupied since June, 1993. AFIM currently leases its
office building to FMIC, which has expressed an interest in purchasing the
building from AFIM, and subleases back a small portion for its own office.
AFIM owns the building and land in fee simple subject to a first and second
mortgage. The first mortgage has a principal balance of approximately
$725,000.00, which accrues interest at a fixed rate of 11.75% percent, payable
monthly, with the entire balance due and payable October 1, 1998. The balance
may be prepaid at any time without penalty. In the fourth quarter of fiscal
1996, AFIM incurred a $350,000.00 second mortgage that is also due on October 1,
1998. From the sale of its mortgage servicing operations, AFIM repaid
$200,000.00 of the second mortgage.
2. Loan Servicing
Starting in 1991, AFIM, using capital raised through Advanced, purchased
mortgage servicing rights primarily from the Resolution Trust Corporation.
Between 1991 and 1994 AFIM bought and sold several servicing portfolios. At its
peak AFIM serviced approximately $750 million in mortgage servicing rights with
borrowers in all fifty (50) States.
Prior to fiscal 1997 AFIM serviced substantially all the mortgage loans
that it originated or purchased from failed institutions. During fiscal 1997
AFIM sold substantially all of its originated mortgage loans servicing
operations. Loan servicing included collecting and remitting loan payments,
making advances when required, accounting for principal and interest, holding
escrow (impound) funds for payment of taxes and insurance, making inspections of
the mortgage premises, contacting delinquent mortgagors, supervising
foreclosures and property dispositions in the event of unremedied defaults and
generally administering the loans. AFIM received fees for servicing mortgage
loans owned by investors. These fees were calculated on the outstanding
principal balances of the loans serviced and were recorded as income when
earned. Other fee income consisted of ancillary income (late charges, fax fees,
insurance commissions, etc.) associated with loan servicing and was recorded as
income when collected.
AFIM's servicing portfolio was subject to reduction by normal amortization
and prepayment or foreclosure of loans. In addition AFIM sold portions of its
loan servicing rights portfolio. In general the decision to buy or sell
servicing rights was based upon management's assessment of AFIM's cash
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requirements, AFIM's debt to equity ratio and other significant financial
ratios, the market value of servicing rights and AFIM's current and future
earnings objectives. Due to AFIM's continued losses management made the decision
to sell the entire servicing portfolio to satisfy as much related indebtedness
as possible, enabling AFIM to significantly reduce its cash flow needs
immediately.
a. Servicing Capability
A nonaffiliated third party provided electronic data processing through
AFIM's IBM AS/400. This relationship and service has been terminated and AFIM no
longer has the ability to service mortgage servicing rights.
3. Loan Originations
In January, 1992, AFIM expanded its mortgage banking operations to include
the ability to refinance mortgage loans. This was intended to enhance AFIM's
servicing portfolio in several respects. First, it allowed AFIM to retain a
portion of its payoffs as new loans. Previously, the refinanced loans enhanced
the value of AFIM's portfolio because the new loan had a lower note rate and a
longer servicing life. During fiscal 1997, originated and refinanced mortgage
loans, as well as the service rights for those loans, were sold, which increased
cash flow and revenues. Second, the revenues and earnings provided by the loan
originations also allowed AFIM to diversify its potential revenue producing
business away from loan servicing.
AFIM had developed an important expertise which allowed it to close new
loans in several states by using closing agents and title companies without the
necessity to invest in branch office overhead. This expertise was critical to
the ability to place desktop installations in real estate offices nationwide.
AFIM believes it was at the forefront of the industry to implement an electronic
national network of convenient origination locations with transaction costs well
below the traditional branch office approach. All processing and underwriting
was centralized at AFIM headquarters. Eighteen desktop terminals were in
operation during the fourth quarter of fiscal 1997. The system included core
software capabilities which ran on a desktop or personal computer. AFIM had
in-house computer oriented employees trained on the software to perform
necessary software modifications as well as its installation.
AFIM anticipated completed installations (terminals installed and
operational, including the staffing of a loan officer on AFIM's payroll) of
seventy (70) locations by the end of fiscal 1997. Unfortunately AFIM did not
reach its goal, although it did have forty-five (45) locations at its peak. For
various reasons several of these locations did not meet AFIM's profitability
projections and were subsequently closed. Eighteen (18) locations were in place
when AFIM sold its production platform on February 3, 1997. AFIM estimated the
initial set-up cost of an office for the first ninety (90) days, including the
monthly cost of licenses and equipment, office supplies, etc., to be
approximately $7,000.00 per location.
The system was initially targeted for placement in real estate brokerage
companies with high residential growth. It was designed to be operated on-site
by an AFIM loan representative with "expert
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systems" feedback to the borrower, providing an evaluation of loan balances and
repayment options. Information was electronically transmitted by modem to AFIM's
administrative offices, where the actual processing and underwriting was
performed. The system offered the convenience of one-stop shopping for the home
buyer in addition to productivity advantages for the agents. The "Step 1
Pre-Approval Process" provided the potential home buyer with a formal written
pre-approval for a monthly mortgage payment based on the application in
approximately forty-eight (48) hours. This allowed the home buyer and real
estate agent the advantage of knowing financing opportunities prior to the
negotiation of a potential contract.
As another method of increasing mortgage loan originations, in July 1994,
AFIM began mortgage production operations in the State of Washington, hiring
some of the staff of a Seattle area mortgage broker. AFIM's desktop terminals
were installed in two offices as a means of enhancing operating efficiencies.
The predecessor organization developed an active business in non-conforming loan
originations which did not meet industry standard credit, loan to value or other
criteria. However, due to the high cost of the operation - $576,000.00 for the
eight months in operation in fiscal 1994, - AFIM decided to sell the operation
in October, 1995.
4. Loan Processing
In connection with the origination of each loan, AFIM processed the loan
application, prepared mortgage documentation, conducted credit checks, had the
property valued by appraisers and funded the loan. Loan applications were
approved by AFIM's underwriting department for compliance with underwriting
criteria, including the loan-to-value ratio, the borrower's income qualification
and necessary insurance. After approval AFIM's policy was to obtain pre-closing
commitments from investors to purchase substantially every loan to be originated
or purchased by AFIM. In the case of loans to be sold to private investors, AFIM
submitted the loan file to a prospective investor for its approval.
FNMA and FHLMC did not review individual loan files prior to issuance of
commitments to purchase loans. Upon receipt of a commitment from an investor to
purchase a loan or loans from AFIM once closed, AFIM issued a commitment to the
prospective borrower specifying the amount of the loan, the prevailing interest
rate, the fees to be paid to AFIM and the date on which AFIM's commitment
expired. The actual interest rate of the loan was established prior to loan
closing based upon the then prevailing interest rate, unless the borrower had
purchased a "rate lock," which guaranteed a specified rate for a designated
period. The normal interval of time between AFIM's issuing its commitment and
the closing of a loan was one to three weeks.
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5. Types of Loans
Approximately half of the loans serviced by AFIM were conventional loans.
AFIM emphasized the origination of "conforming" loans, which are conventional
loans having principal amounts within the maximum amounts eligible for sale to
FNMA and FHLMC (currently $203,150.00 for a one-family property) and which
otherwise comply with FNMA and FHLMC requirements. AFIM also originated "jumbo"
loans (conventional loans that exceed the maximum amounts qualifying for sale to
FNMA or FHLMC but that otherwise generally comply with FNMA or FHLMC
requirements and other loans that do not comply with FNMA or FHLMC requirements)
but that complied with requirements for sale to private investors. It was AFIM's
policy to obtain a title insurance policy on every mortgage loan. In addition
substantially all of AFIM's originated loans were first mortgage loans. During
the fourth quarter of fiscal 1995, AFIM did introduce a second mortgage loan
program for which the originated loans were sold to private investors.
6. Markets and Competition
The loan origination market share is somewhat diversified with a few large
players and many small players. As a whole, the industry is incorporating
technology and pursuing point of sale strategies to generate mortgage loan
originations. AFIM believes that it was more technologically advanced than most
of its peers with the exception of a few of the largest industry players. AFIM
also believes that its strategies for implementing its technology and point of
sale originations was unique and should have allowed it to compete even with its
largest competitors. Unfortunately, due to the shortage and availability of
experienced loan officers, caused by the industry's increased production
volumes, AFIM was unable to attract and hire experienced loan originators to
operate its desktop locations. This meant that AFIM had to hire and train less
experienced personnel, creating a much longer than anticipated time frame for
loan origination volumes to meet projected goals. In many cases AFIM's shortage
of capital prevented AFIM from keeping the locations open in anticipation of
future loan production.
7. Regulation
AFIM's mortgage banking business was subject to the rules and regulations
of FHA, VA, FNMA, FHLMC and GNMA with respect to originating, processing,
selling and servicing mortgage loans. Those rules and regulations, among other
things, prohibit discrimination, provide for inspections and appraisals, require
credit reports on prospective borrowers, fix maximum loan amounts and, with
respect to VA loans, fix maximum interest rates. Moreover, FHA lenders such as
AFIM were required annually to submit to the Federal Housing Commissioner
audited financial statements. FNMA, FHLMC and GNMA required the maintenance of
specified minimum net worth levels (which vary depending on the amount of the
portfolio serviced). AFIM was subject to examination by the Federal Housing
Commissioner at all times to assure compliance with FHA regulations, policies
and procedures. Mortgage origination activities were subject to the Equal Credit
Opportunity Act, Federal Truth-in Lending Act and the Real Estate Settlement
Procedures
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Act and the regulations promulgated thereunder, which prohibit discrimination
and require the disclosure of certain basic information to mortgagors concerning
credit and settlement costs.]
Additionally, there were various state laws and regulations affecting
AFIM's mortgage banking operations. AFIM was licensed as a mortgage banker or
retail installment lender in those states requiring such a license and in which
AFIM conducted business. Conventional mortgage operations may also be subject to
state usury statutes. FHA and the VA are exempt from the effect of such
statutes.
C. Events Leading to The Proceedings
AFIM was a full service residential mortgage company and had all approvals
necessary to service mortgages for the Federal National Mortgage Association
(FNMA), Federal Home Loan Mortgage Corporation (FHLMC) and Government National
Mortgage Association (GNMA). Due to the collapse of the savings and loan
industry, a significant amount of servicing was being offered by the Resolution
Trust Corporation (RTC). This created an opportunity for AFIM to purchase
servicing portfolios at historically low prices. Between fiscal 1992 and fiscal
1995 AFIM invested it's capital mainly in the purchase of mortgage servicing
portfolios from the RTC and during that period it's servicing portfolio reached
a principal balance of approximately $750 million.
The servicing portfolio was AFIM's primary source of revenue and cash
flows. However, in March of 1994 AFIM's management determined that it needed to
enter the retail origination market to increase its servicing portfolio through
the origination of new loans rather than bulk purchases, which would require
raising additional capital. Management also determined that it needed to find an
origination concept and strategy that would not require the capital necessary to
implement a traditional branch office operation. Management wanted to take
advantage of the many new technologies which had recently became available to
the mortgage industry. It was at this time that AFIM initiated its concept of
putting a loan officer directly in an established real estate office.
During March and April, 1994, AFIM proceeded to invest a significant amount
of its capital into both systems and personnel in an effort to implement this
new origination strategy. AFIM had anticipated marketing this new concept in
May, 1994. Unfortunately, technical problems encountered in meshing the
technologies for its Desk Top Origination units delayed marketing until January,
1995. During 1995, AFIM was very successful in establishing its strategy in
several real estate offices around the country.
Although, AFIM was successful in locating real estate offices in which to
implement its Desk Top Origination System, it was not nearly as successful in
hiring experienced and qualified loan officers to operate the locations. The
inability to hire experienced loan originators caused AFIM to fall significantly
short of its loan production goals and projections. Therefore, AFIM was unable
to generate from its loan production operations the revenue and cash flow
necessary to support the infrastructure
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which was in place to handle much higher, anticipated volumes. This led to
significant losses during fiscal 1996 and fiscal 1997.
In an effort to generate the capital necessary to support the loan
production operations, AFIM sold its servicing portfolio, anticipating that loan
production would increase sufficiently to offset the lost revenue and cash flow
previously realized from the servicing operations. Unfortunately, loan
production did not increase as anticipated and AFIM had to close several of its
nonproductive locations. Ultimately AFIM found itself in a situation where
revenues and cash flow were insufficient to continue to support current
operations and in January, 1997, AFIM decided to discontinue its operations and
liquidate its remaining assets to satisfy creditors.
On February 3, 1997, AFIM entered into an Agreement to sell its remaining
loan production operations to First Mortgage Investment, Co. (FMIC). This
allowed AFIM to eliminate the costs related to those operations. At that time
AFIM still had approximately $150,000,000.00 of GNMA mortgage servicing rights,
from which it derived some revenue.
Unfortunately, due to the nature of the servicing portfolio and AFIM's lack
of capital, AFIM was unable to service the portfolio properly within GNMA's
guidelines. Thus, in April, 1997, AFIM advised GNMA of its deteriorating
financial condition and requested approval for the sale of the remaining GNMA
servicing rights to a third party. AFIM also advised GNMA that if the
transaction was consummated under the proposed terms, AFIM anticipated having a
shortage of approximately $350,000.00 to $400,000.00 in AFIM's mortgage
custodial accounts. However, GNMA chose to seize the servicing portfolio instead
of approving the sale. As a result, AFIM was left with no ongoing operations.
D. Operations During the Proceedings
1. AFIM
As a result of its problems, on November 7, 1997, AFIM filed for relief
under Chapter 11 of Title 11. On December 8, 1997, AFIM filed an Application
seeking to employ the firm of Evans and Mullinix, P.A. as bankruptcy counsel
(Debtor's Counsel). The Application also sought Court approval of an arrangement
for payment to Debtor's Counsel providing for the full payment of the monthly
billing statements with the proviso that a sum equal to 25% of the fees be held
in the firm's trust account, pending further Orders of the Court. The Order
approving the Application and the fee arrangement was entered January 16, 1998.
Applications to employ other professionals were also filed. AFIM sought
employment of (i) Allen Reeves, as special counsel, with expertise as a
securities attorney; (ii) Grant Thornton, to prepare the Fiscal Year 1997
consolidated tax returns for Advanced and AFIM; and (iii) Thomas Carew, a tax
specialist, whose services have been instrumental in formulating the Plan. The
Court has not yet ruled on
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the Applications to employ Grant Thornton and Allen Reeves due to issues
regarding the necessity for their employment until a Plan is confirmed and AFI
no longer desires to employ the services of Mr. Reeves. On April 14, 1998,
AFIM's application to employ Thomas Carew was approved, as was his fee
arrangement, which is similar to that approved for Debtor's Counsel.
On December 2, 1997, the United States Trustee conducted a Section 341
Meeting. At that time the Trustee determined that there was insufficient
interest for an unsecured creditors' committee to be formed. Therefore, the AFIM
Proceedings progressed without that additional expense until shortly after May,
1998, at which time a committee was formed by Commercial Federal Bank, Argo
Federal Savings and Blackwell Sanders.
Shortly after the filing of the AFIM Proceedings, on December 10, 1997,
AFIM filed a motion requesting that the Court set a final date for the filing of
proofs of Claim. The Court, by Order dated December 12, 1997, set that final
date as January 26, 1998 (the Bar Date).
On January 29, 1998, a Motion to Extend the Exclusive Periods for Filing
Disclosure Statement and Plan was filed. While the United States Trustee and
Commercial Federal Bank initially objected, they subsequently approved an Agreed
First Order Increasing AFIM's Exclusive Periods. This Order was entered by the
Court on April 14, 1998, extending the exclusive period for filing the
Disclosure Statement to April 27, 1998, and extending the exclusive period for
obtaining Confirmation to June 27, 1998. A Disclosure Statement was filed in
accordance with that Order. This Joint Disclosure Statement is now filed in
conjunction with the Advanced Proceedings.
During the course of the AFIM Proceedings, various additional pleadings
have been filed, seeking relief intended to enable AFIM to maintain the status
quo with minimal disruptions. These motions sought and obtained the following
relief:
1. AFIM was authorized to compromise a contingent receivable owed by Ben
Barrett in Lincoln, Nebraska, under a Net Branch Agreement. Pursuant to the
compromise, Mr. Barrett's debt was reduced from $14,840.86 to $9,008.53.
2. Matrix Financial was ordered to pay to AFIM's Estate the amount of
$53,906.48, owed as Holdback Funds due under a contract for the sale of certain
of AFIM's loan servicing rights to Matrix. These funds may be subject to the
secured Claims of Argo and CFB.
3. AFIM was authorized to borrow $15,000.00 from FMIC to fund the prepa-
ration of the 1098 returns for 1997. Had this not been approved, the penalties
assessed for failure to file the returns, which numbered in excess of 9,000,
would have been prohibitive.
4. FMIC and AFIM requested approval of an agreement whereby FMIC tendered a
final payment due under its Asset Purchase Agreement for the purchase of
Mortgage Pipeline Loans from AFIM. The $15,000.00 loan was to be repaid as an
offset against this final payment, resulting in a net payment to AFIM's Estate
of $27,206.00. Objections to this request were raised by CFB and the US Trustee;
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however, those objections were resolved and the Order approving the final
payment was entered on May 20, 1998.
5. AFIM sold its Florida mortgage lender's license for $15,000.00 to
the Ark Group, Inc.
6. AFIM filed a complaint against US Mortgage, to recover $25,343.00
due from its purchase of servicing rights from AFIM in June, 1997. US Mortgage
paid the sums owing and the complaint has been dismissed.
AFIM subleases an office from FMIC, the lessee of its building, and has
only one employee, William Morris, who receives a monthly salary of $5,416.67.
Although there are no actual operations Mr. Morris continues to work daily on
issues related to AFIM's past mortgage banking operations. These issues include
the signing of mortgage releases, assignments, forwarding documentation to
investors who purchased loans from AFIM and generally addressing former
borrowers' problems which occurred while their loans were serviced with AFIM. In
addition Mr. Morris has been instrumental in negotiating the terms of the FMIC
Transaction, which forms the basis of the Debtors' Plan, and has been
responsible for maintaining compliance with the requirements of the AFIM
Proceedings. The cost to operate is approximately $7,000.00 per month, which
includes Mr. Morris' salary.
During the AFIM Proceedings, AFIM has explored various possibilities for
reorganizing its business. The Plan represents the best option and the one which
will provide Creditors with the optimum recover on their claims. For a
description of the Plan see the Section of this Disclosure Statement entitled
"Summary of the Joint Plan of Reorganization".
Attached hereto as "Exhibit "A" is a copy of the relevant portions of
AFIM's monthly financial reports for the periods November 7, 1997, through June
30, 1998.
2. Advanced
On May 8, 1998, Advanced filed for relief under Chapter 11 of Title 11. On
that same date, Advanced filed an Application seeking to employ the firm of
Evans and Mullinix, P.A. as bankruptcy counsel (Debtor's Counsel). The
Application also sought Court approval of an arrangement for payment to Debtor's
Counsel providing for the full payment of the monthly billing statements with
the proviso that a sum equal to 25% of the fees be held in the firm's trust
account, pending further Orders of the Court. The US Trustee objected to the fee
arrangement as Advanced lacks resources with which to pay these expenses.
Debtor's Counsel agreed that no payment would be expected until payment of
administrative expenses pursuant to a confirmed Plan. The Order approving the
Application was entered by the Court on July 2, 1998.
Applications to employ other professionals were also filed. Advanced sought
employment of (i) James Swenson, as special counsel, whose expertise as a
securities attorney is required for consummation of the Plan. The time for
objecting to Mr. Swenson's employment expired without objection and the Order
authorizing his employment was entered on July 1, 1998; and (ii) Thomas Carew, a
tax specialist, whose
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services have been instrumental in formulating the Plan. The Order approving Mr.
Carew's employment has been submitted to the Court.
On June 9, 1998, the United States Trustee conducted a Section 341 Meeting.
At that time the Trustee advised that although an unsecured creditors' committee
was initially formed, the members of the committee had agreed to disband.
Therefore, the Advanced Proceedings have progressed without that additional
expense.
Shortly after the filing of the Advanced Proceedings, on June 9, 1998,
Advanced filed a motion requesting that the Court set a final date for the
filing of proofs of Claim. The Court, by Order dated June 12, 1998, set that
final date as July 24, 1998 (the Bar Date).
During the course of the Advanced Proceedings, various additional pleadings
have been filed, seeking relief intended to enable Advanced to maintain the
status quo with minimal disruptions. These motions sought and obtained the
following relief:
1. On May 8, 1998, a motion requesting the administrative consolidation
of the AFIM Proceedings and the Advanced Proceedings was filed in both cases. An
objection filed by R.F. Bearden Associates, Inc., was overruled and the Order
authorizing the consolidation was entered on July 2, 1998.
2. On June 1, 1998, Advanced filed a Notice of Election to be Treated as
Small Business and Request for an Order that Committees of Creditors not be
Appointed. The Notice of Election is effective upon its filing and no further
action of the Court is required.
E. Assets and Sources for Repayment of Claims
The Debtors intend to finance the Plan payments from the cash on hand,
additional cash infusions contemplated by the Plan, liquidation of non-liquid
assets and issuance of stock in Advanced. The Debtors' projections for the Plan
are included in the Liquidation Analysis, attached hereto as Exhibit "B". These
projections are not as accurate as the Debtors would like as the Debtors must
employ professionals to assist it in consummating the FMIC Transaction. The
Court has denied the Debtors' request to hire these professionals out of concern
for the unsecured Creditors as the anticipated expenses may exceed $100,000.00.
The Court believes the Creditors should be afforded the opportunity to vote on
the Plan before the professionals' costs are incurred.
1. Cash and Cash Equivalents
As of June 30, 1998, AFIM had approximately $131,892.00 in its Debtor in
Possession checking account. This includes the proceeds from a $100,000.00 CD,
which was held in an escrow account with Bank One, Texas, which CD was
collateral for Bank One's agreement to indemnify Matrix Financial for any losses
it may incur pursuant to the agreement under which Matrix purchased servicing
rights from the
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Debtors. Both the indemnification and the escrow expired on May 1, 1998, at
which time the CD was released to AFIM, there being no claims made against it.
2. Office Building
AFIM owns a 20,000 square foot office building located at 5425 Martindale,
Shawnee, Kansas. FMIC has offered to purchase the building for $1,030,000.00,
the net proceeds of which would satisfy the first mortgage. FMIC also holds the
second mortgage against the building. This mortgage will be released and
converted to equity in accordance with the Joint Plan of Reorganization.
3. Receivables
AFIM is owed approximately $6,000.00-$10,000.00 from Matrix Financial as
recovery of costs, pursuant to Matrix's purchase of certain of AFIM's loan
servicing rights. AFIM also alleges that FNMA owes $29,454.00 for funds advanced
by AFIM for the benefit of FNMA, which advances are subject to recovery from
FNMA. Finally, AFIM is due approximately $165,000.00 from Advanced through an
inter-company receivable. The Advanced receivable will be deemed collected when
Advanced issues stock to AFIM'S Creditors. Otherwise, AFIM does not believe this
debt is collectible.
F. Liquidation Analysis
The Debtors believe that the Plan provides its Creditors with the greatest
possible value that can be realized on their respective Claims. If the Plan is
not confirmed or consummated, the theoretical alternatives include, in addition
to dismissal of the proceedings, (a) liquidation of the Debtors under Chapter 7
of the Bankruptcy Code, (b) liquidation of the Debtors under Chapter 11 of the
Bankruptcy Code, or (c) an alternative plan of reorganization. After studying
these alternatives the Debtors believe that this Plan is the best alternative
and will maximize recoveries by holders of Claims.
If no Plan is confirmed, the Debtors' Chapter 11 proceedings may be
converted to cases under Chapter 7 of the Bankruptcy Code. Trustees would then
be appointed to liquidate the assets of the Debtors for distribution to their
separate Creditors in accordance with the priorities established by the
Bankruptcy Code. The Debtors believe that liquidation under Chapter 7 would
result in smaller distributions to Creditors because of various factors,
including: (a) additional administrative expenses in both cases resulting from
the appointment of two trustees, attorneys and other professionals to assist the
trustees; (b) additional federal and state income taxes, which would be entitled
to priority payment, to the extent that property sold or distributed by the
trustees has a value in excess of the tax basis in such property; (c) additional
expenses and claims generated during the liquidation and from the rejection of
leases and other executory contracts in connection with the cessation of the
Debtors' operations; and (d) failure to realize the greater going-concern value
of the Debtors' assets, including the loss of the approximate $7 million NOL.
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If the Plan is not confirmed, the Debtors or, subject to the provisions of
the Bankruptcy Code, any other party in interest, could attempt to formulate and
propose a different plan or plans of reorganization. It is unlikely that the
Debtors could propose a substantially different plan that would receive any
greater support from or provide greater value to Creditors. Even if it would be
possible to formulate a consensus regarding a substantially different plan, the
Debtors believe that it would take a long time to do so and that the prospects
for a larger distribution to Creditors are remote.
The Debtors have proposed this Plan as the most practical means of
providing a reasonable and expeditious distribution to the Creditors. As
described herein, the aggregate distributions to impaired Classes receiving
distributions under the Plan will be far greater than distributions which
Creditors might receive under a liquidation of the Debtors. Confirmation and
consummation of the Plan is preferable to the alternatives described above.
1. The Liquidation Analysis
Upon liquidation of the Debtors, the following would occur:
l. All assets of the Debtors, not otherwise exempt by applicable State
and Federal law, would be converted into cash by either selling or surrendering
tangible property to the respective properly secured Creditors and by collecting
any accounts receivable.
2. Creditors with valid, non-avoidable liens, would be paid from the net
sale proceeds or the value of the surrendered assets, in the amounts of their
respective claims, not to exceed in any instance, the amount of the creditor's
interest in the property in which they have a security interest.
3. Debts incurred, if any, during the Chapter 11 Proceedings, would be
paid.
4. Costs of administration would be paid.
5. Priority Creditors would be paid all available funds on a Pro Rata
basis up to the amounts of their respective Claims.
6. The balance, if any, would be paid to unsecured Creditors.
It is the Debtors' position that the approximate net value of the Estates
upon liquidation will be minimal for unsecured Creditors.
THE DEBTORS BELIEVE THAT LIQUIDATION OF THE DEBTORS WOULD NOT BE IN THE
BEST INTERESTS OF THE DEBTORS, THE ESTATE OR THE CREDITORS AS LIQUIDATION WILL
NOT ALLOW THE CREDITORS TO MAXIMIZE THEIR RECOVERIES.
A copy of the Debtors' liquidation analysis, a comparison of the potential
recovery under the Plan to that of Chapter 7 liquidation, is attached hereto as
Exhibit "B".
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G. Plan Confirmation Analysis
Upon confirmation of the Plan payments will be paid to secured Creditors,
administrative expense Claimants and priority Creditors as outlined herein in
the Section entitled Summary of Joint Plan of Reorganization.
The Delaware Corporation Law Annotated ss. 303., entitled "Reorganization
Under a Statute of the United States, Effectuation," provides that a plan of
reorganization, confirmed by the order of a court of competent jurisdiction, may
be put into effect without further action by the corporation's directors or
stockholders. The corporation may therefore, in reliance on the Confirmation
Order, take the following actions, which list is not intended to be
all-encompassing:
1. Alter, amend or repeal by-laws;
2. Constitute or reconstitute and classify or reclassify the board of
directors;
3. Amend the certificate of incorporation;
4. Change the capital or capital stock;
5. Make any other amendment, change or alteration authorized by the
Delaware corporation statutes.
Thus, Confirmation shall be deemed authorization of the shareholders for
the purpose of compliance with the Delaware statutes. As soon as practicable
after Confirmation, Advanced shall filed with the Secretary of State of Delaware
the appropriate Certificate of Amendment, evidencing its recapitalization and
reorganization.
H. Scheduled Claims
(ANY STATEMENTS REGARDING PROJECTED AMOUNTS OF CLAIMS ARE ESTIMATES OF THE
DEBTORS BASED ON CURRENTLY AVAILABLE INFORMATION AND ARE NOT A REPRESENTATION
THAT SUCH AMOUNTS WILL ULTIMATELY PROVE CORRECT).
1. AFIM
The Schedules, filed on November 7, 1997, as amended on December 10, 1997,
and January 5, 1998, reflect the assets and liabilities of AFIM as of the filing
date, November 7, 1997. The following sections summarize the information
contained in the Schedules. Creditors should refer to the Schedules for more
complete information.
a. Priority Claims. AFIM scheduled one unsecured priority Claim
totaling $20,700.00, owing to the IRS for 1098/1099 penalties. The IRS has
determined that full abatement of this Claim is appropriate.
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b. Secured Claims. AIFM scheduled four (4) secured Creditors, with
claims totaling $1,423,347.37. These Creditors are identified as Argo
Federal Savings, Citizens National Bank, Commercial Federal Bank and First
Mortgage Investment Co.
c. General Unsecured Claims. Claims of the unsecured Creditors are
scheduled in the approximate amount of $1,168,654.80 and are comprised
primarily of trade debts related to AFIM's business.
d. Executory Contracts and Leases. AFIM listed three (3) leases and
service contracts as of the AFIM Petition Date. However, the property
subject to these leases had been repossessed or returned to the lessors
prior to the AFIM Petition Date.
2. Advanced
The Schedules, filed on May 8, 1998, reflect the assets and liabilities of
Advanced as of the filing date, May 8, 1998. The following sections summarize
the information contained in the Schedules. Creditors should refer to the
Schedules for more complete information.
a. Priority Claims. Advanced scheduled no priority Claims.
b. Secured Claims. Advanced scheduled three (3) secured Creditors,
with claims totaling $917,223.78. These Creditors are identified as Bank
Midwest, Citizens National Bank (CNB) and First Mortgage Investment Co.
(FMIC); however, only Bank Midwest is secured by assets of Advanced. The
debts due CNB and FMIC are guarantees of indebtedness of AFIM and are
secured by assets of AFIM.
c. General Unsecured Claims. Claims of the unsecured Creditors are
scheduled in the approximate amount of $997,814.75 and are comprised
primarily of trade debts related to the Advanced's business.
d. Executory Contracts and Leases. Advanced listed no leases or
service contracts.
I. Real and Personal Property
1. AFIM
As of the date of the filing of the Chapter 11 Bankruptcy Petition, AFIM
listed four (4) tracts of real property with an aggregate value of
$1,042,500.00. AFIM's interest in three (3) of the tracts was as lienholder. The
fourth tract is AFIM's office building in Shawnee, Kansas.
The following personal property was scheduled in the approximate aggregate
amounts:
1. Deposits of money with banking institutions: $107,676.00
2. Stock Interests: $4,542.00.
3. Accounts Receivable: $351,503.00.
4. Contingent Claims: $65,847.00.
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Further detail regarding the scheduled Claims and any administrative Claims
incurred during the AFIM Proceedings may be found in AFIM's court files which
are available for inspection at the Bankruptcy Court or at the offices of
Debtor's Counsel. Those secured Creditors whose security has a value less than
the amount of their Claim may be able to assert a Claim as an unsecured Creditor
in addition to their secured Claim.
2. Advanced
As of the date of the filing of the Chapter 11 Bankruptcy Petition,
Advanced had no interest in any real property. The only personal property was
$22.00 on deposit in a checking account at CNB.
Further detail regarding the scheduled Claims and any administrative Claims
incurred during the Advanced Proceedings may be found in Advanced's court files
which are available for inspection at the Bankruptcy Court or at the offices of
Debtor's Counsel. Those secured Creditors whose security has a value less than
the amount of their Claim may be able to assert a Claim as an unsecured Creditor
in addition to their secured Claim.
J. Books and Records
During the two years immediately preceding the filing of the petition, none
of the Debtors' books and records relating to the affairs of the business have
been destroyed, lost or disposed of, to the best knowledge of Debtors'
management. The Debtors have employed the accrual method of accounting since the
filing of the petition. The Debtors file consolidated tax returns for a fiscal
year end of March 31.
The Debtors have been responsible for the preparation of monthly financial
reports filed in the AFIM Proceedings and the Advanced Proceedings. The Debtors
have also filed complete federal and state income tax returns for all years in
which such returns are required, with the exception of 1996 and 1997, which will
be prepared once the Court approves the expenditure of funds for this purpose.
K. Tax Aspects of the Plan
The following is a general summary of certain material tax issues that may
affect the Debtors. These issues include potential changes of corporate
ownership and the resulting limitation of net operating losses cancellation of
debt ("COD"), modification of debt deemed to be COD, accrual of interest or
original issue discount ("OID") on such debt, excludability of COD income and
the corresponding required reduction (mainly net operating loss and basis).
Bankruptcy is by its nature very dynamic and subject to change. Bankruptcy
taxation is likewise dynamic and projected results may change significantly,
depending upon actions by creditors, shareholders and other factors, all of
which may be outside the control of the Debtors. The Debtors' strategy is to
maximize tax benefits and minimize tax costs coming out of bankruptcy.
Necessarily, the Debtors must alter their strategy to react
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to the actions of others throughout the bankruptcy. Accordingly, this discussion
will attempt to describe the areas set forth above.
It is impractical to comment on all aspects of federal, state and local tax
laws which may affect the Debtors, Creditors or interest holders. The following
discussion is merely a summary of some of the general income tax principles
applicable to the Debtors and does not purport to be a complete analysis or
listing of all potential tax issues or risks. It is based, in part, on predicted
future events which may not occur as predicted. There are a number of tax issues
to which there are no definite answers under existing law, or which are actually
based on certain facts. Moreover, other tax risks or issues may arise in the
future which are unforeseen at the present time because of changes and factual
circumstances affecting the Debtors and changes in legislation or statutory
interpretation. IN VIEW OF THE COMPLEXITIES AND TAX LAWS, INTERESTS HOLDERS AND
CREDITORS ARE ENCOURAGED TO CONSULT THEIR OWN ADVISORS WITH RESPECT TO TAX
ISSUES AFFECTING THEM AND THE DEBTORS. THIS SUMMARY DISCUSSION IS NOT INTENDED
AS A SUBSTITUTE FOR CAREFUL TAX ANALYSIS OF EACH INTEREST HOLDER OR CREDITOR.
THE TAX CONSEQUENCES TO INDIVIDUAL CREDITORS AND INTEREST HOLDERS MAY VARY.
1. Tax Consequences to the Debtors
a. General
The corporation in bankruptcy is treated as a continuation of the
pre-bankruptcy entity. There is generally little or no differentiation between
pre and post bankruptcy earnings and loss. The Debtors will continue to operate
in essentially the same manner as they did prior to bankruptcy for tax purposes.
The Debtors will continue to file all tax returns during the pendency of the
bankruptcy. Post petition income taxes are generally administrative expenses.
The bankruptcy filing will cause no direct impact on the shareholders of
the Debtors as the Debtors are "C" corporations. No taxable event will occur
until stock is disposed of or becomes worthless. At such time, the difference
between the stockholders' basis in the stock and any proceeds received would
create taxable gain or loss. The effect of the proposed Plan on Creditors is
less certain and depends upon the specific modification proposed regarding each
Creditor's debt and manner in which the Creditors have previously accounted for
such debt. Accordingly, each Creditor must individually analyze the impact of
the proposed Plan on its debt.
b. Net Operating Losses
The Debtors are a fiscal year taxpayer with a March 31 year end. If the
Debtors have incurred significant tax losses for prior tax years, the net
operating losses may be carried back three (3) years and carried forward fifteen
(15) years.
The amount of the tax loss that could be carried back or carried forward is
currently being analyzed by the Debtors. The Debtors anticipate the net
operating loss to approximate $7 million. The
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future utilization of these losses may be limited due to current and potential
"changes of ownership" of the Debtors, although the Debtors believe the proposed
Plan significantly reduces this possibility. More importantly, losses will be
eliminated due to attribute reduction resulting from COD income exclusion. To
the extent possible, the Debtors will attempt to maximize the future benefit of
any future net operating losses.
c. Cancellation of Debt
COD income is generally defined as the excess of the "adjusted" issue
price of the outstanding debt over the amount paid to repurchase such debt. The
Internal Revenue Code ("I.R.C.") Section 108 sets forth the rules involving COD
income. Under I.R.C. 108 COD income is excluded from gross income to the extent
that a taxpayer is insolvent before and after the COD, or it is excluded in full
without regard to insolvency if the taxpayer/debtor is in Chapter 11. Under the
Plan, all of AFIM's unsecured Creditors will share Pro Rata in any funds
remaining after payment to the priority, Secured and other senior Classes of
Creditors. Any amount that is not received by both AFIM's and Advanced's
unsecured Creditors or that may be received by them if stock is issued,
constitutes COD income which may be excluded from taxation under I.R.C. 108.
d. Debt Restructuring
A restructuring of debt, even if the face amount of the debt is unchanged,
may also create COD income, depending on the nature and extent of modifications.
If the modifications of debt are sufficiently material in the aggregate under
IRS promulgations and case law, then the old debt instruments will be deemed to
be exchanged for new instruments, creating a taxable event.
e. Attribute Reduction
The "price" for exclusion of COD income is the reduction of tax
attributes. Under I.R.C. Section 108(b) tax attributes, to the extent of
excluding COD income, are reduced in the following order:
(a) Net operating losses for the current taxable year and the Debtors'
NOL carryovers on a dollar for dollar basis.
(b) Business tax credits (multiplied by three to create a loss
equivalency);
(c) Minimum tax credits;
(d) Capital loss carryovers;
(e) Basis reduction for real and personal property;
(f) Passive activity loss and credit carryovers; and
(g) Foreign tax carryovers;
The net operating losses projected may be reduced by projected COD income,
but the exact amount of this attribute reduction cannot be determined until the
tax returns are completed and the amount of cancellation of debt income becomes
more crystallized.
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f. Change of Ownership - I.R.C. - 382
I.R.C. Section 382 was created to avoid "trafficking in losses". This
Section provides that if there is a change of ownership involving a 5%
shareholder, and a change of more than 50 percentage points within a three year
moving period, then the annual utilization of net operating losses will be
limited to the product of the value of the stock of the company and the "long
term tax exempt rate". Once the change occurs, income or loss for the year of
the change is pro rated on a daily basis to determine the pre and post change
loss utilization. There may be a change of ownership contingent upon attracting
an acquisition partner, so that there could be an issue under I.R.C. Section 382
concerning the use of the net operating losses or their elimination. However,
the Debtors believe the restructuring of both AFIM and Advanced in Chapter 11
Proceedings will avoid the ramifications of IRC ss. 382.
There are numerous potential combinations of stock issuance that may, or
may not, cause a change of ownership, and it is not currently possible to
predict with certainty at this time how this potential change of ownership may,
in fact, impair the ability of the Debtors to use net operating loss carry
forwards.
2. Tax Consequences to the Creditors
Both secured and unsecured Creditors may be either required to recognize
income or allowed a deduction as a result of the implementation of the Plan. The
exact tax treatment depends on each Creditor's method of accounting, the nature
of each Creditor's Claim, the property being received and exchanged for such
Claim, if any, and upon whether and to what extent such Creditor has taken a bad
debt deduction in prior taxable years with respect to a particular debt owed to
it by the Debtors. EACH HOLDER OF A SECURED CLAIM AND AN UNSECURED CLAIM IS
URGED TO CONSULT WITH ITS TAX ADVISORS REGARDING THE PARTICULAR TAX CONSEQUENCES
OF THE TREATMENT OF ITS CLAIM UNDER THIS PLAN.
L. Litigation
At the time the Debtors filed their Chapter 11 Proceedings, they were
engaged in litigation over loan defaults and disputes over contracts and leases.
Upon confirmation of the Plan all suits against the Debtors shall be dismissed
with prejudice by the plaintiffs in those actions.
M. Management of the Debtors
At the time of the filing of these Proceedings William B. Morris was AFIM's
only employee and officer. Mr. Morris holds the office of Sr. Vice President and
Secretary. AFIM also has three directors, Daniel Starczewski, William B. Morris
and Richard Schoenfeld; however, only Mr. Morris and Mr. Starczewski have
remained active board members, continuing to serve in this capacity without
compensation. The Debtors contemplate that Mr. Morris will continue his
employment with the Reorganized Debtors.
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Mr. Morris was instrumental in negotiating the terms of the FMIC
Transaction. In consideration for these extra ordinary services Mr. Morris shall
be granted an option to purchase 149,999 shares of common stock in the
Reorganized Advanced at an exercise price of $.25 per share upon the following
terms, which shall commence two (2) years after Confirmation and continue for a
period of ten (10) years thereafter:
1. Once the stock has attained and maintained a bid price of $1.00 for
twenty (20) consecutive trading days, Mr. Morris shall have the option
to purchase 37,499.75 shares of common stock;
2. Once the stock has attained and maintained a bid price of $2.00 for
twenty (20) consecutive trading days, Mr. Morris shall have the option
to purchase an additional 37,499.75 shares of common stock;
3. Once the stock has attained and maintained a bid price of $3.00 for
twenty (20) consecutive trading days, Mr. Morris shall have the option
to purchase an additional 37,499.75 shares of common stock;
4. Once the stock has attained and maintained a bid price of $4.00 for
twenty (20) consecutive trading days, Mr. Morris shall have the option
to purchase the remaining 37,499.75 shares of common stock.
In exchange for this option Mr. Morris shall relinquish his right to
participate in the distributions to the Class 13 Creditors under the Plan.
Upon Confirmation an interim Board of Directors, consisting of Philip
Holtgraves, Charles Holtgraves and William Morris will conduct the business of
the Reorganized Debtors until a new Board of Directors is. The Reorganized
Advanced's Board will be elected by its shareholders, a portion of which will
include AFIM's unsecured Creditors. The new Board will be responsible for
selecting a management team.
The Reorganized Debtors' business will be conducted for the benefit of
their Creditors, thereby creating the possibility that the unsecured Creditors
will receive more than they would receive upon liquidation.
N. Information Obtained by Plan Proponents
The Plan Proponents compiled this Disclosure Statement after reviewing the
court files, the monthly financial reports, the audited and unaudited financial
reports, the appraisals of the assets, if any, and other related documents
available to all Creditors and parties in interest.
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Article III
SUMMARY OF THE JOINT PLAN OF REORGANIZATION
A. General Description of the Joint Plan of Reorganization
1. Assumptions
It is presumed for the purposes of the Plan that AFIM's debt to FMIC is
"qualified indebtedness" meaning that the debt was held by FMIC for at least 18
months prior to the filing of the bankruptcy or the debt arose in the ordinary
course of business and was at all times held by FMIC. If neither of these facts
is accurate then the proposed Plan cannot be accomplished; however, based on the
information available to the Debtors and their advisors, the Debtors believe
FMIC satisfies the test.
AFIM's reorganization will consist of a simple liquidation of its assets in
combination with its Creditors' exchange of debt for common stock in Advanced.
If the Plan is not accepted by the Creditors, the Creditors will realize only
their Pro Rata portions of the value of AFIM's liquid assets, currently
estimated to be approximately $100,000.00, net of FMIC's secured mortgage debt
and Chapter 11 and 7 administrative expenses. FMIC, as a secured creditor of
AFIM, holds a superior and preferential position relative to all of AFIM's other
unsecured Creditors.
2. The FMIC Transaction
FMIC is, like AFIM, in the Mortgage Lending and Servicing business and
intends to continue AFIM's core operating business. FMIC has also expressed
interest in gaining access to the public capital markets; however, the cost of
taking a company public is expensive. Should FMIC choose to go public on its own
a significant portion of its cash flow would be constrained during the public
offering process. Thus, FMIC's willingness to enter into the FMIC Transaction is
contingent, in part, on the retention of Advanced's shareholder base, a
contingency which can be met only through the issuance of stock in the
Reorganized Advanced to the existing shareholders.
Assuming that FMIC is successful in this endeavor, FMIC anticipates that
Advanced will be able to obtain additional expansion capital from the public
capital markets. Significant savings for FMIC can be achieved by the Plan which
preserves Advanced as a public company and grants FMIC a quick and inexpensive
vehicle to the public capital markets. These savings will be beneficial to the
unsecured Creditors who will receive stock in a strong going concern.
Advanced and AFIM also believe that the preservation of AFIM's Net
Operating Loss Carry-Forward (NOL) is necessary to attain the maximum benefits
for the Creditors of both Debtors. To accomplish this goal Advanced filed the
Advanced Proceedings. Because both Advanced and AFIM are now in bankruptcy, it
will be possible to preserve AFIM's NOL in accordance with the Bankruptcy
Exception to the change of Ownership Rules under Internal Revenue Code Section
382(b).
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The Plan contemplates that FMIC will purchase AFIM's office building (the
Property) and relinquish its secured Claim against the Property for the benefit
of AFIM's Creditors, thereby increasing the value of AFIM's liquid assets by
approximately $150,000.00. AFIM's unsecured Creditors will receive a Pro Rata
distribution of AFIM's net liquid assets and both AFIM's and Advanced's
unsecured Creditors will receive a Pro Rata distribution of a portion of
Advanced's common stock in final satisfaction of their outstanding Claims. FMIC,
which has held mortgage debt from AFIM for more than eighteen (18) months prior
to the bankruptcy, will exchange this "qualified indebtedness" for a majority of
Advanced's stock. The Debtors anticipate that FMIC will receive at least 60% of
Advanced's stock in exchange for its release of its secured mortgage Claim
against AFIM.
Advanced will then be owned by FMIC, AFIM's and Advanced's unsecured
Creditors and Advanced's previous shareholders. Because FMIC and the Creditors
of AFIM and Advanced are "qualified creditors" who would own at least 50% of the
new Advanced following the bankruptcy reorganization, the proposed Plan appears
to meet the "bankruptcy exception" to the NOL limitation rules of IRC ss.
382(b).
To encourage FMIC's performance and further investment under the Plan,
Advanced has allowed FMIC to enter into a Stock Option Agreement pursuant to
which FMIC will be granted an option to acquire additional shares of Advanced's
common stock, thereby increasing FMIC's ownership interest from sixty percent
(60%) to a maximum of eighty percent (80%) if the terms and conditions for the
exercise of the option are met. Payment for said option, if exercised, shall
consist of the transfer to Advanced of one or more operating business units
and/or cash having an aggregate fair market value of approximately
$1,500,000.00. The Debtors anticipate that this will, in turn, increase the
value of the stock distributed pursuant to the Plan. FMIC will also not object
to the disbursement of all cash in AFIM's Estate for payment of administrative
expenses and distributions to Creditors.
The transfer of the Property to FMIC on the Closing Date, as that term is
defined in the Acquisition Agreement, shall, to the full extent allowed by the
Bankruptcy Code and the authority and jurisdiction of the Court, and with the
exception of the Lien of CNB, be free and clear of any and all liens, claims,
liabilities, encumbrances and interests thereof and thereagainst of whatever
type or description, including, without limitation, "claims", as defined in 11
U.S.C. ss. 101(5), restrictions on or conditions to transfer or assignment,
mortgages, security interests, pledges, equities and other claims or interests
(Claim/Interest), having arisen, existed or accrued prior to and through the
Closing Date, whether direct or indirect, absolute or contingent, matured or
unmatured, liquidated or unliquidated, of, by or against AFIM or the Property.
No Claim/Interest shall attach to the proceeds of the sale of the Property to
FMIC. Said Claim/Interest shall include, without limitation the following:
a. Claims/Interests arising through the Closing Date, if any, of any
governmental unit for taxes, excepting real property taxes accruing for
calendar year 1998, and subsequent years;
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b. Claims/Interests arising through the Closing Date relating to any
executory contract or lease affecting or in any way relating to the
Property, including, without limitation, Claims/Interests of AFIM Creditors
arising from AFIM's failure to perform its obligations to said parties
whether such failure occurred prior to or on the Closing Date;
c. Claims/Interests arising through the Closing Date which relate to
work performed by any contractor or materialman and which may give rise to
a mechanic's lien or similar Claim/Interest against the Property, excepting
any such Claims/Interests arising from work performed at the request of
FMIC.
The FMIC Transaction shall not be construed as or constitute the assumption
by FMIC of the Debtors' operations as a successor in any respect of the Debtors'
businesses within the meaning of any laws, rules or regulations relating to any
revenue, pension ERISA, tax, environmental, labor or products liability matters.
Furthermore, FMIC shall, to the full extent allowed by the Bankruptcy Code and
the authority and jurisdiction of the Court, have no liability under any
federal, state or local environmental laws by virtue of FMIC's purchase of the
Property; provided, however, the Acquisition Agreement shall not change FMIC's
liability under such statutes as an owner of the Property or operator of the
Property for such periods as FMIC has operated, occupied or continues to operate
or occupy the Property.
The terms and conditions of the FMIC Transaction are fully set forth in the
proposed Acquisition Agreement and Stock Option Agreement, which are
incorporated fully herein and attached hereto as Exhibit "C".
B. Designation of Classes of Claims and Interests
All Claims and interests against the Debtors of whatever nature, whether or
not scheduled, liquidated or unliquidated, absolute or contingent, including all
Claims arising from transactions of the Debtors or rejection of executory
contracts and/or unexpired leases and all interests arising from the ownership
of the Debtors, whether resulting in an Allowed Claim or not, shall be bound by
the provisions of the Plan.
1. AFIM
Classification of Claims against and interests in AFIM, with the exception
of Administrative Claims and priority tax Claims which are unclassified pursuant
to 11 U.S.C. ss. 1123(a)(1), shall be classified as follows:
Class l: Allowed Secured Claim of Argo Federal Savings.
Class 2: Allowed Secured Claim of Citizen's National Bank.
Class 3: Allowed Secured Claim of Commercial Federal Bank
Class 4: Allowed Secured Claim of First Mortgage Investment Co.
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Class 5: Allowed Unsecured Prepetition Claims without Priority and
Allowed Undersecured Claims.
Class 6: The Allowed Interests of AFIM.
2. Advanced
Classification of Claims against and interests in Advanced, with the
exception of Administrative Claims and priority tax Claims which are
unclassified pursuant to 11 U.S.C. ss. 1123(a)(1), shall be classified as
follows:
Class 7: Allowed Secured Claim of Bank Midwest.
Class 8: Allowed Secured Claim of Citizen's National Bank.
Class 9: Allowed Secured Claim of First Mortgage Investment Co.
Class 10: Allowed Unsecured Guaranty Claims.
Class 11: Allowed Unsecured Prepetition Claims without Priority and
Allowed Undersecured Claims.
Class 12: The Allowed Interests of the Holders of Preferred Stock in
Advanced.
Class 13: The Allowed Interests of the Holders of Common Stock in
Advanced.
Impaired Classes: Classes 1 through 13 are impaired by this Plan.
Treatment of Stock Options. Any stock option outstanding and unexercised,
relating to stock in Advanced or AFIM, shall be deemed to have rejected as of
the Petition Dates and shall have no further force or effect.
Cancellation of Interests. On the Effective Date all stock interests in
Advanced or AFIM shall be deemed cancelled and of no further force or effect
except as evidence of such holder's entitlement to a distribution, if any, under
the Plan. On the Effective Date any holder of a stock interest asserting an
entitlement to a distribution must deliver to Debtors' Counsel proof of such
entitlement in the form of the original stock certificate. Stock interests held
in a street name shall be issued through the appropriate broker or transfer
agent.
C. Details of the Plan
For further detail concerning the treatment of the Classes identified
herein and the means of execution of the Plan, Creditors are urged to review the
Joint Plan of Reorganization, filed simultaneously herewith, in its entirety.
1. Unclassified Claims
In accordance with 11 U.S.C. ss. 1123(a)(1) Administrative Claims and
Allowed Priority Tax Claims of the kinds specified in Sections 507(a)(1),
507(a)(7) and 507(b) of the Bankruptcy Code, respectively, have not been
classified in the Plan and are excluded from the Classes discussed in the
Disclosure Statement. Such unclassified Claims will be treated as described
below.
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a. Administrative Claims. Subject to the Bar Date and certain other
provisions contained in this Plan, as described in this subsection, each
holder of an Allowed Claim for administrative costs and expenses of the
kind specified in Sections 507(a)(1) or 507(b) of the Bankruptcy Code,
shall receive, on account of and in full satisfaction of such Allowed
Claim, cash equal to the amount of such Allowed Claim, unless the holder
agrees to a less favorable treatment of such Claim. Without limiting the
foregoing, all fees payable under 28 U.S.C. ss. 1930 that have not
theretofore been paid shall be paid on the Effective Date. All Allowed
Claims for administrative costs and expenses shall be paid by the
Reorganized Debtors.
There are two possible types of Administrative Claims in the
Proceedings. The first consists of Administrative Claims incurred by the
Debtors in the ordinary course of their affairs since the Petition Dates,
including taxes and ordinary business expenses. Payment on these
Administrative Claims will not be made until such payment otherwise would
have become due in the ordinary course of the Debtors' business or under
the terms governing the Claim in the absence of the Proceedings.
The second type of Administrative Claim consists of fees and expenses
as allowed by Order of the Bankruptcy Court (i) for the services of
professionals employed by the Debtors and (ii) for expenses incurred by
other parties in interest making a "substantial contribution" in the
Proceedings. The Debtors are not presently aware of the extent, if any, to
which any party in interest will seek reimbursement for expenses in making
a "substantial contribution" in the Proceedings. Neither do the Debtors
believe any such request will be made.
Under this Plan, all applications for final compensation of
Professionals for services rendered and for reimbursement of expenses
incurred on or before the Effective Date (including, without limitation,
any compensation requested by any Professional or any other entity for
making a substantial contribution in the Proceedings) and all other
requests for payment of administrative costs and expenses incurred before
the Effective Date under ss.ss. 507(a)(1) or 507(b) of the Bankruptcy Code
(except for Claims for trade debt incurred in the ordinary course of
business and Claims under 28 U.S.C. ss. 1930) shall be filed no later than
thirty days after the Effective Date, unless such date is extended by the
Bankruptcy Court and on notice to the Reorganized Debtors. Any such Claim
that is not filed within this deadline shall be forever barred and any
holders of Administrative Claims who are required to file a request for
payment of such Claims and who do not file such request by the applicable
deadline shall be forever barred from asserting such Claims against the
Debtors, the Reorganized Debtors or any of their property.
The Debtors anticipate that Administrative Claims will not exceed
$100,000.00.
b. Priority Claims. The Allowed Priority Tax Claims consist of the tax
Claims of the Johnson County treasurer in the amount of $4,529.62, for
personal property taxes. The priority
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portion of these Claims will be paid in full and to the extent that they
are nondischargeable from the sale of AFIM's office building. The
dischargeable portion of these Claims shall be treated as a Class 5 Claim.
2. Classified Claims of AFIM
a. Allowed Secured Claims.
The Plan classifies AFIM's Allowed Secured Claims into the following four
(4) Classes:
Class 1: (The Allowed Secured Claim of Argo Federal Savings). Class 1
consists of the prepetition Secured Claim of Argo in the amount of
approximately $80,000.00 as of the AFIM Petition Date. The Class 1 Claim is
secured by one-half of the Holdback Funds, having an approximate value of
$53,906.48.
AFIM is currently reviewing Argo's loan documentation to determine the
validity of Argo's Lien. The Class 1 Claim shall be paid in full on or
before the Effective Date, or as soon as practicable thereafter, unless
AFIM has previously contested the secured nature of this Claim. To the
extent this Class 1 Creditor's Claim is undersecured, the Allowed
Undersecured Claim shall be paid in accordance with the treatment provided
for the Class 5 Creditors.
Class 1 is impaired under this Plan.
Class 2: (The Allowed Secured Claim of Citizen's National Bank). Class
2 consists of the prepetition Secured Claim of CNB in the amount of
approximately $731,176.66 as of the AFIM Petition Date. The Class 2 Claim
is secured by a first mortgage on AFIM's office building in Shawnee,
Kansas, having an approximate value of $1,030,000.00. During the course of
these Proceedings the Class 2 Creditor has continued to receive its regular
monthly mortgage payments. AFIM believes the Class 2 Allowed Secured Claim
is fully secured by the collateral.
This Class 2 Claim shall be paid in full from the sale of the office
building to FMIC, which shall assume the first mortgage indebtedness. Upon
FMIC's assumption of the debt owed the Class 2 Creditor, the Class 2
Creditor shall release AFIM from any further obligation to the Class 2
Creditor. The Class 2 Claimant will retain its security interest in the
collateral pending that sale.
Class 2 is impaired under this Plan.
Class 3: (The Allowed Secured Claim of Commercial Federal Bank). Class
3 consists of the Secured Claim of CFB in the amount of approximately
$460,000.00 as of the AFIM Petition Date.. The Class 3 Claim is secured by
one-half of the Holdback Funds, having an approximate value of $53,906.48.
AFIM is currently reviewing CFB's loan documentation to determine the
validity of CFB's Lien. The Class 3 Claim shall be paid in full on or
before the Effective Date, or as soon as
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practicable thereafter, unless AFIM has previously contested the secured
nature of this Claim. To the extent this Class 3 Creditor's Claim is
undersecured, the Allowed Undersecured Claim shall be paid in accordance
with the treatment provided for the Class 5 Creditors.
Class 3 is impaired under this Plan
Class 4: (Allowed Secured Claim of First Mortgage Investment Co.).
Class 4 consists of the Secured Claim of FMIC in the amount of
approximately $152,170.71 as of the AFIM Petition Date. The Class 4
Creditor is secured by a second mortgage in AFIM's office building, located
in Shawnee, Kansas, having a value of $1,030,000.00.
The Class 4 Creditor shall release its mortgage interest and convert
its debt to equity in Advanced.
Class 4 is impaired under the Plan.
b. Allowed Unsecured Claims Without Priority.
Class 5: (Allowed Prepetition Unsecured Claims without Priority and
Allowed Undersecured Claims). Class 5 consists of the Allowed Prepetition
Unsecured Claims without Priority and Allowed Undersecured Claims, with
Claims aggregating approximately $3,000,000.00. Each Class 5 Creditor shall
receive its Pro Rata share of a cash dividend, which may approximate eleven
percent (11%) of its Claim, on the Effective Date or as soon as is
practicable thereafter. Said dividend shall be paid from Available Cash. If
assets remain to be liquidated or collected, the cash generated by that
liquidation will be distributed after receipt but no more often than on a
calendar quarterly basis.
The Class 5 Creditors shall also share with the Class 11 Creditors in
a Pro Rata distribution of 900,000 shares of common stock in the
Reorganized Advanced, resulting in an approximate aggregate 30% ownership
interest in Advanced. No fractional shares will be issued and the new
shares of stock issued shall be rounded to the nearest whole share. As the
value of fractional shares will be less than $0.10 (ten cents), no cash
payments will be made for fractional shares. Any shareholder who would
receive less than one half share of stock in the Reorganized Advanced will
receive nothing in this exchange AFIM anticipates that with appreciation in
value of the stock, the Class 5 Creditors may potentially receive more than
payment in full of their Claims.
Each Class 5 Creditor shall also be entitled to receive one Warrant
for each share of stock in the Reorganized Advanced distributed to such
Creditor. The Warrant shall be a detachable Class A Warrant, with a fixed
termination date of March 31, 2002, and may be separately transferred. Each
Class A Warrant will entitle the holder to purchase one share of common
stock in the Reorganized Advanced at a price of $1.25 at any time on or
before March 31, 2002. The
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Board of Directors of the Reorganized Advanced shall have the right, at any
time after the bid price of the common stock is at least 120% of the
exercise price and remains at such price for a period of twenty (20)
consecutive trading days, to call any or all of such Warrants for
redemption at a par value price of $.001 per warrant upon thirty (30) days'
written notice to the warrantholders, provided that the bid price is at
least 120% of the exercise price on the call date. Any Warrants which are
called will expire and be of no further value of not exercised by the
holders on or before the call date. The Warrants shall not be redeemable
until and unless a current registration statement is in effect. The
Reorganized Advanced may, in its sole discretion, extend the expiration
date of the Warrants and/or reduce the exercise price of the Warrants.
Each Warrant shall bear a restrictive legend prohibiting its transfer
or exercise in the event such transfer would diminish the number of shares
FMIC would otherwise receive pursuant to the Stock Option Agreement.
Pursuant to the Option, FMIC is entitled to receive 3,000,000 shares of
stock in Advanced, provided that the number of shares which FMIC may
receive is limited to no more than or one (1) share less than the number of
shares which, when taken together with all other transactions relevant to a
"change of control" under Section 382(g) of the IRC would trigger such a
"change in control". The legend in the Warrant is intended to prohibit a
transfer which would otherwise trigger such limitation.
Class 5 is impaired under this Plan.
c. Allowed Interests of AFIM.
Class 6: (The Allowed Interests of AFIM). Advanced is the sole
shareholder of AFIM. As a condition to the FMIC Transaction, FMIC has
insisted that the existing shareholders receive a portion of the stock in
the Reorganized Advanced under this Plan. Therefore, as this Plan
contemplates the infusion of capital in the form of stock from Advanced,
thereby altering its ownership, Advanced shall be deemed to have made a
substantial contribution to this Plan and shall be entitled to retain its
ownership interest in the Reorganized AFIM.
Class 6 is impaired under this Plan..
3. Classified Claims of Advanced
a. Allowed Secured Claims.
The Plan classifies Advanced's secured Claims into the following three (3)
Classes:
Class 7: (The Allowed Secured Claim of Bank Midwest). Class 7 consists
of the prepetition Secured Claim of Bank Midwest in the amount of
approximately $38,352.69 as of the Advanced Petition Date. The Class 7
Claim is secured by common stock in both Advanced and AFIM, having an
approximate value of $900.00.
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The Class 7 Creditor shall receive a payment of $900.00 on the
Effective Date, or as soon thereafter as is practicable, in full
satisfaction of this Class 7 Claim. To the extent this Class 7 Creditor's
Claim is undersecured, the Allowed Undersecured Claim shall be paid in
accordance with the treatment provided for the Class 11 Creditors.
Class 7 is impaired under this Plan.
Class 8: (The Allowed Secured Claim of Citizen's National Bank). Class
8 consists of the prepetition Secured Claim of CNB in the amount of
approximately $727,691.49 as of the Advanced Petition Date. The Class 8
Claim is secured by a first mortgage on AFIM's office building in Shawnee,
Kansas, having an approximate value of $1,030,000.00. During the course of
AFIM's Proceedings the Class 8 Creditor has continued to receive its
regular monthly mortgage payments. Advanced believes the Class 8 Allowed
Secured Claim is fully secured by the collateral.
This Class 8 Claim shall be paid in full from the sale of the office
building to FMIC, which shall assume the first mortgage indebtedness. Upon
FMIC's assumption of the debt owed the Class 8 Creditor, the Class 8
Creditor shall release AFIM from any further obligation to the Class 8
Creditor. The Class 8 Claimant will retain its security interest in the
collateral pending that sale.
Class 8 is impaired under this Plan.
Class 9: (The Allowed Secured Claim of First Mortgage Investment Co.).
Class 9 consists of the Secured Claim of FMIC in the amount of
approximately $151,179.60 as of the Advanced Petition Date. The Class 9
Creditor is secured by a second mortgage in AFIM's office building, located
in Shawnee, Kansas, having a value of $1,030,000.00.
The Class 9 Creditor shall release its mortgage interest and convert
its debt to equity in Advanced.
Class 9 is impaired under the Plan.
b. Allowed Unsecured Claims Without Priority.
Class 10: (Allowed Prepetition Unsecured Guaranty Claims). Class 10
consists of the Allowed Prepetition Unsecured Guaranty Claims, with Claims
aggregating approximately $546,789.12. Each Class 10 Creditor is a member
of Class 5 and shall be treated in accordance with the treatment accorded
the Class 5 Claimants.
Class 10 is impaired under this Plan.
Class 11: (Allowed Prepetition Unsecured Claims without Priority and
Allowed Undersecured Claims). Class 11 consists of the Allowed Prepetition
Unsecured Claims without Priority and Allowed Undersecured Claims, with
Claims aggregating approximately $488,478.32,
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of which $167,666.10 consists of an intercompany trade payable owed to
AFIM. Each Class 11 Creditor shall share with Classes 5 and 10 in a Pro
Rata distribution of 900,000 shares of common stock in the Reorganized
Advanced, resulting in an initial approximate aggregate 30% ownership
interest in Advanced. No fractional shares will be issued and the new
shares of stock issued shall be rounded to the nearest whole share. As the
value of fractional shares will be less than $0.10 (ten cents), no cash
payments will be made for fractional shares. Any shareholder who would
receive less than one half share of stock in the Reorganized Advanced will
receive nothing in this exchange.
Each Class 11 Creditor shall also be entitled to receive one Warrant
for each share of stock in the Reorganized Advanced distributed to such
Creditor. The Warrant shall be a detachable Class A Warrant, with a fixed
termination date of March 31, 2002, and may be separately transferred. Each
Class A Warrant will entitle the holder to purchase one share of common
stock in the Reorganized Advanced at a price of $1.25 at any time on or
before March 31, 2002. The Board of Directors of the Reorganized Advanced
shall have the right, at any time after the bid price of the common stock
is at least 120% of the exercise price and remains at such price for a
period of twenty (20) consecutive trading days, to call any or all of such
Warrants for redemption at a par value price of $.001 per warrant upon
thirty (30) days' written notice to the warrantholders, provided that the
bid price is at least 120% of the exercise price on the call date. Any
Warrants which are called will expire and be of no further value of not
exercised by the holders on or before the call date. The Warrants shall not
be redeemable until and unless a current registration statement is in
effect. The Reorganized Advanced may, in its sole discretion, extend the
expiration date of the Warrants and/or reduce the exercise price of the
Warrants.
Each Warrant shall bear a restrictive legend prohibiting its transfer
or exercise in the event such transfer would diminish the number of shares
FMIC would otherwise receive pursuant to the Stock Option Agreement.
Pursuant to the Option, FMIC is entitled to receive 3,000,000 shares of
stock in Advanced, provided that the number of shares which FMIC may
receive is limited to no more than or one (1) share less than the number of
shares which, when taken together with all other transactions relevant to a
"change of control" under Section 382(g) of the IRC would trigger such a
"change in control". The legend in the Warrant is intended to prohibit a
transfer which would otherwise trigger such limitation.
The number of shares each Class 11 Creditor may receive will be
determined once all Disputed Claims have been resolved and all cash
distributions to the Class 5 Creditors have been made. Advanced anticipates
that with appreciation in value of the stock, the Class 11 Creditors may
potentially receive more than payment in full of their Claims.
Class 11 is impaired under this Plan.
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c. Allowed Interests of Advanced.
Class 12: (The Allowed Interests of Holders of Preferred Stock in
Advanced.). Class 12 consists of the Allowed Interests of the Holders of
the Preferred Stock in Advanced. There are currently approximately 363,000
shares of Series B Preferred Stock outstanding, held by approximately 19
shareholders. As a condition to the FMIC Transaction, FMIC has insisted
that the existing shareholders receive a portion of the stock in the
Reorganized Advanced under this Plan. Therefore, the Class 12 Creditors
shall be deemed to have converted their preferred stock interests in
Advanced to a like number of shares of common stock interests in Advanced.
Each Class 12 Creditor shall receive a Pro Rata distribution with Class 13
in the form of common stock in the Reorganized Advanced, resulting in an
approximate aggregate 10% ownership interest in Advanced.
Class 12 is impaired under this Plan..
Class 13: (The Allowed Interests of Holders of Common Stock in
Advanced.). Class 13 consists of the Allowed Interests of the Holders of
the Preferred and Common Stock in Advanced. There are currently
approximately 5,836,476 shares of Common Stock outstanding, held by
approximately 187 shareholders. As a condition to the FMIC Transaction,
FMIC has insisted that the existing shareholders receive a portion of the
stock in the Reorganized Advanced under this Plan. Therefore, with the
exception of the common stock interest held by William B. Morris, the Class
13 Creditors shall, with the Class 12 Creditors, receive its Pro Rata share
of 300,000 shares of common stock in the Reorganized Advanced, resulting in
an approximate aggregate 10% ownership interest in Advanced. William B.
Morris shall relinquish and release any and all stock interests, excepting
any shares held by or in retirement plans, in consideration for the options
described in section I.M.., supra.
The Debtors anticipate that there will be 5,693,913 shares of common
stock outstanding after conversion of the preferred stock held by the Class
12 Creditors and the release of the stock held by William Morris. This
will, in turn, convert to approximately 0.05269 shares of common stock in
the Reorganized Advanced. No fractional shares will be issued and the new
shares of stock issued shall be rounded to the nearest whole share. As the
value of fractional shares will be less than $0.10 (ten cents), no cash
payments will be made for fractional shares. Any shareholder who would
receive less than one half share of stock in the Reorganized Advanced will
receive nothing in this exchange.
Class 13 is impaired under this Plan.
Attached hereto as Exhibit "D" is a Claims Analysis, setting forth the
Claims of Creditors by Class and in the amounts on which payments pursuant to
the Plan have been calculated.
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<PAGE>
D. Means of Execution of the Plan
Consummation of the Plan will require approximately three steps:
Step One: AFIM must complete its audits and bring its SEC filings
current before FMIC will complete the FMIC Transaction. The
completion of the audits are also necessary to determine the
final amount of the NOL. Therefore, AFIM shall retain the
following professionals whose services are necessary to
consummate the FMIC Transaction:
1. A securities attorney to assist with the necessary
filings required by the Securities and Exchange Commission
(SEC). The retention of this counsel has already been
approved by the Court.
2. The accounting firm of Grant Thornton to complete the
March 31, 1997, and March 31, 1998, audited financial
statements and tax returns. Retention of Grant Thornton
shall occur following confirmation of the Plan.
Step Two: Upon approval of the Plan FMIC will purchase the office
building from AFIM and convert its second mortgage into
stock of Advanced. This will provide an additional
$150,000.00 of cash, which will be distributed to the
administrative Claimants and Creditors of AFIM.
Step Three: Upon approval of the Plan FMIC, AFIM and Advanced will
proceed toward consummation of the FMIC Transaction and
issuance of the common stock in Advanced to FMIC and the
unsecured Creditors.
The particulars of the foregoing are set forth in the Plan.
E. Modification of the Plan
The Debtors may propose amendments or modifications to the Plan at any time
prior to the Confirmation Date with leave of the Bankruptcy Court. After the
Confirmation Date, parties-in-interest, including the Debtors, may, with
Bankruptcy Court approval and so long as it does not materially or adversely
affect the interest of Creditors, remedy any defect or omission or reconcile any
inconsistencies in the Plan or in the Confirmation Order, in such manner as may
be necessary to carry out the purposes and intent of the Plan.
F. Amendment of Claims After Bar Date
Claimants shall not be permitted to amend or otherwise modify any Claim
after the Bar Date without leave of the Bankruptcy Court, unless the Claimant
has specifically reserved a right to amend its Claim.
This First Amended Joint Disclosure Statement, dated the 29th day of July,
1998, is hereby approved by the undersigned.
35
<PAGE>
AFI MORTGAGE, CORP. ADVANCED FINANCIAL, INC.
/s/ William B, Morris /s/ William B, Morris
- ------------------------------------- -------------------------------------
BY: William B. Morris, Vice President BY: William B. Morris, Vice President
Case No. 97-43122-11-JAP Case No. 97-41228-11-JAP
SUBMITTED BY:
EVANS & MULLINIX, P.A.
/s/ Joanne B. Stutz
- -------------------------------------
Thomas M. Mullinix KS #7309
Joanne B. Stutz KS #12365; MO #30810
Evans and Mullinix, P.A.
15301 W. 87th Street Pkwy., Ste. 220
Lenexa, KS 66219-1428
913-541-1200; 913-541-1010 (Fax)
ATTORNEYS FOR AFI MORTGAGE, CORP. and
ADVANCED FINANCIAL, INC.
36
<PAGE>
EXHIBITS
Exhibit A: Summary of AFI Mortgage, Corp. Income Statements From 11/7/97 to
6/30/98*
Exhibit B: Liquidation Analysis*
Exhibit C: Proposed Acquisition Agreement and Stock Option Agreement with
FMIC**
Exhibit D: Claims Analysis*
- -------------
*Pursuant to Item 601(b)(2) of Regulation S-K under the Securities Act of 1933,
as amended, these exhibits have been omitted from this filing. The registrant
agrees to furnish supplementally a copy of such omitted exhibits to the
Commission upon request.
**This exhibit is being filed as Exhibit 2.3 to the Form 8-K.
EXHIBIT 2.3
ACQUISITION AGREEMENT
FIRST MORTGAGE INVESTMENT CO.
AND
ADVANCED FINANCIAL, INC.
1
<PAGE>
Table of Contents
1 Definitions............................................................1
2 Sale of Property.......................................................3
2.1 Purchase Price...................................................3
2.2 Settlement Charges...............................................4
2.3 Assumption of First Mortgage.....................................4
2.4 Title and Survey Requirements....................................4
2.5 Disclosure of Information Related to Real Estate.................5
2.6 Representations and Warranties of AFIM...........................5
2.7 Instruments of Transfer..........................................7
3 Recapitalization and Cancellation of Second Mortgage in Exchange for AFI
Stock..................................................................7
3.1 Conditions.......................................................7
3.2 Recapitalization.................................................8
3.3 Instruments of Transfer..........................................8
4 Option.................................................................9
5 Representations and Warranties of AFI and AFIM.........................9
5.1 Authority........................................................9
5.2 Title to Property and Assets.....................................9
5.3 Good Standing....................................................9
6 Representations and Warranties of FMIC.................................9
7 Covenants of AFI, AFIM and FMIC........................................9
7.1 Cooperation.....................................................10
8 Conditions Precedent to the Obligations of AFI and AFIM...............10
8.1 FMIC Representations True At Closing............................10
8.2 FMIC Performance Prior to Closing...............................10
8.3 Plan Confirmed..................................................10
9 Conditions Precedent to the Obligations of FMIC.......................10
9.1 AFI Representations True At Closing.............................10
9.2 AFI Performance Prior to Closing................................10
9.3 Plan Confirmed..................................................10
9.4 Contents of Confirmation Order..................................10
9.5 Completeness of Confirmation Order.............................11
9.6 Good Standing...................................................11
9.7 Subsidiary......................................................11
9.8 Independent Audit...............................................11
9.9 Securities and Exchange Commission Filings......................11
i
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10 Termination...........................................................11
10.1 By Mutual Consent...............................................11
10.2 By FMIC.........................................................12
10.3 By AFI..........................................................12
10.4 No Liability....................................................12
11 Miscellaneous.........................................................12
11.1 Time............................................................12
11.2 Notice..........................................................12
11.3 Survival........................................................12
11.4 Entire Agreement................................................12
11.5 Binding Effect..................................................12
11.6 Amendments......................................................12
11.7 Expenses........................................................13
11.8 Headings........................................................13
11.9 Construction of Agreement.......................................13
11.10 Counterparts. ..................................................13
11.11 No Assumption of AFI's or AFIM's Liabilities....................13
Table of Exhibits...........................................................15
ii
<PAGE>
ACQUISITION AGREEMENT
THIS AGREEMENT is made as of the 13th day of November, 1998, by and among
FIRST MORTGAGE INVESTMENT CO., a Missouri corporation ("FMIC"), ADVANCED
FINANCIAL, INC., a Delaware corporation ("AFI") and AFI MORTGAGE, INC., a
Nebraska corporation ("AFIM").
RECITALS:
WHEREAS, AFI, a publicly traded company, is a debtor-in-possession in Case
No. 98-41228-11-JAP ("AFI Bankruptcy Proceeding") pending in the United States
Bankruptcy Court for the District of Kansas (the "Bankruptcy Court");
WHEREAS, AFIM, a wholly owned subsidiary of AFI, is a debtor-in-possession
in Case No. 97-43122-11-JAP ("AFIM Bankruptcy Proceeding") pending in the
Bankruptcy Court;
WHEREAS, the AFI Bankruptcy Proceeding and the AFIM Bankruptcy Proceeding
have been consolidated for administrative purposes by the Bankruptcy Court;
WHEREAS, FMIC is a secured creditor of AFIM holding a promissory note and
second mortgage, on certain real estate owned by AFIM, a copy of which second
mortgage is attached hereto as Exhibit A ("Second Mortgage");
WHEREAS, AFI, AFIM and FMIC desire to accomplish the following
transactions:
(i) AFIM will sell the Property as defined in Section 1.12 below to
FMIC;
(ii) FMIC will contribute the Second Mortgage Note held by FMIC to the
capital of AFI and will cancel the Second Mortgage held by FMIC in
exchange for stock in AFI representing sixty percent (60%) ownership
of all issued and outstanding common capital stock of AFI
immediately after the cancellation of FMIC's Second Mortgage and the
issuance of such stock in exchange thereof; and
(iii) AFI will grant an option to FMIC to acquire additional stock in AFI,
which option, if exercised to its fullest extent, would permit FMIC
to own eighty percent (80%) of the total issued and outstanding
common capital stock of AFI immediately after exercise of the
option.
NOW THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and intending to be legally bound, the parties hereto do
hereby agree as follows:
1 Definitions. As used in this Agreement, terms defined in the preamble and
recitals of this Agreement shall have the meaning set forth therein and the
following terms shall have the meanings set forth below.
1
<PAGE>
1.1 "Joint Plan of Reorganization" shall mean that certain joint plan of
reorganization adopted and confirmed by the Bankruptcy Court in the AFI
Bankruptcy Proceeding and the AFIM Bankruptcy Proceeding in substantially the
same form as Exhibit 1.1 attached hereto.
1.2 "Agreement" shall mean this Acquisition Agreement and all Exhibits
hereto, as the same may from time to time be amended.
1.3 "Closing" shall mean the closing of the transactions contemplated by
this Agreement to be held at the offices of Hillix, Brewer, Hoffhaus, Whittaker
& Wright, L.L.C., 2420 Pershing Road - 4th Floor, Kansas City, Missouri, 64108,
or other such place as is mutually agreed to in writing by the parties to this
Agreement.
1.4 "Closing Date" shall mean the date on the Closing and shall be
September 15, 1998 or such other date as the parties may agree.
1.5 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.6 "Confirmation Date" shall mean the date upon which the Confirmation
Order is entered by the Bankruptcy Court after a hearing conducted pursuant to
ss. 1128 of the Bankruptcy Code.
1.7 "Confirmation Order" shall mean the order of the Bankruptcy Court
confirming the Plan of Reorganization.
1.8 "Effective Date" shall mean the first day occurring on or after the
tenth (10th) day following the Confirmation Date, unless the Confirmation Order
is stayed pending appeal, in which case the Effective Date shall be the first
business day after the stay is vacated, or as soon thereafter as is practicable.
1.9 "First Mortgage" shall mean the promissory note and first mortgage
on the Property held by Citizen's National Bank, located at 7900 Quivira,
Lenexa, KS. 66215, attn:
Don Hidgon, copies of which are attached hereto as Exhibit 1.9.
1.10 "Improvements" shall mean all improvements on the Property
including, without limitation, the building (the "Building") that is currently
located on the Property and all personal property used in the operations of the
Building including, without limitation, all mechanical systems, fixtures and
equipment, other than leased equipment.
1.11. "Liabilities" shall mean all debts, liabilities, taxes, obligations
under contracts, leases, agreements and commitments, and other obligations of
every kind and character of AFI or AFIM as the same may exist at the Closing
Date, whether accrued, absolute, contingent or otherwise, and whether due, to
become due or which may arise in the future based upon events or a state of
facts existing at the Closing Date.
1.12. "Property" shall mean that certain real property ("Land") as
described by Exhibit 1.12 attached hereto and made a part hereof and the
Improvements, together with all of Sellers' right, title and interest in
and to (a) any and all roads, easements, streets and ways bounding the
2
<PAGE>
Land, and (b) any rights of ingress and egress, development rights, zoning
rights and applications, air rights, water rights and sewer rights relating to
the Land and any strips or gores of land adjoining the Land; (c) all site plans,
surveys, soil and substrata studies, architectural renderings, plans and
specifications, engineering plans and studies, floor plans, environmental
audits, landscape plans and other plans, diagrams or studies of any kind, if
any, in Sellers' possession which relate to the Land or the Improvements; and
(d) all other rights, privileges and appurtenances owned by Sellers and any
rights privileges, easements, appurtenances and immunities belonging thereto or
in any way pertaining thereto.
1.13 "Purchase Price" shall have the meaning indicated in Paragraph 2.1
hereof; and
1.14 "Record Date" shall mean the date upon which the shareholders of
record shall be determined for purposes of issuing stock pursuant to Paragraph
3.2 hereof.
1.15 "Settlement Charges" shall, except as otherwise provided by this
Agreement, mean costs of unpaid taxes, liens and the value of real estate
commissions avoided of the Property adjusted through the Closing Date.
1.16 "Title Commitment" shall mean a commitment for issuance of title
insurance as provided in Paragraph 2.4.1 hereof.
1.17 "Title Company" shall mean Columbian National Title Insurance
Company of Johnson County, Inc, located at 201 N. Cherry, Olathe, KS 66061.
1.18 "Title Policy" shall mean the title insurance policy required in
Paragraph 2.4.1 hereof.
2 Sale of Property. AFIM agrees to sell, transfer, assign, convey and deliver to
FMIC, or its assigns, and FMIC agrees to purchase, accept and acquire from AFIM,
the Property, free and clear from any and all security interests, liens, and
encumbrances of every type and nature whatsoever including, but not limited to,
leases, tenancies or possessory rights of any kind, except as specifically
provided for herein.
2.1 Purchase Price. FMIC agrees to pay for the Property the sum of
One Million Thirty Thousand and No/100 Dollars ($1,030,000.) less
Settlement Charges as defined at paragraph 2.2 as follows:
2.1.1 An amount equal to the principal and accrued interest through
the Closing Date due and owing on the First Mortgage shall be paid by assumption
of such First Mortgage provided in Paragraph 2.3 below; and,
2.1.2 Cash or certified funds payable on the Closing Date in an
amount equal to the difference between the Purchase Price and the principal
balance plus accrued interest through the Closing Date due and owing on the
First Mortgage.
3
<PAGE>
2.2 Settlement Charges. All Settlement Charges due hereunder shall be
paid from or credited against the cash otherwise payable to AFIM at Closing as
defined in Paragraph 2.1 above.
2.3 Assumption of First Mortgage. FMIC agrees to assume all of AFIM's
obligations under the First Mortgage and FMIC agrees to at all times save
harmless AFI and AFIM against all claims, demands, actions, proceedings, costs
and expenses by reason of or growing out of obligations under the First
Mortgage. Except as specifically provided for herein, FMIC shall not assume or
become liable for any of AFI's or AFIM's Liabilities now or hereafter existing.
2.4 Title and Survey Requirements.
2.4.1 Title Commitment. AFI and AFIM (collectively "Sellers") shall,
as soon as possible but not later than ten (10) business days from the date
hereof and at Sellers' expense, cause to be furnished to FMIC a current ACTA
1992 commitment for an owner's policy of title insurance (the "Title
Commitment") on the Property issued by the Title Company in an amount not less
than the Purchase Price together with copies of all documents identified on the
Title Commitment as Schedule B exceptions. The Title Commitment shall: (i)
describe the Property; (ii) name FMIC as the party to be insured thereunder;
(iii) commit to insure FMIC with indefeasible, good and marketable title; and
(iv) satisfy the title policy requirements set forth on Exhibit 2.4.1, attached
hereto and incorporated herein by this reference. The Title Commitment shall
also commit to issue such endorsements as FMIC in its sole and absolute
discretion shall deem advisable including but not limited to an access
endorsement and a zoning endorsement.
2.4.2 Survey. Sellers shall, as soon as possible but not later than
twenty (20) business days from the date hereof and at Sellers' expense, cause to
be prepared and furnished to FMIC and the Title Company a current survey
prepared by a Registered Public Surveyor acceptable to FMIC and to the Title
Company (the "Survey") of the Property. The Survey at a minimum shall meet the
standards and requirements set forth on Exhibit 2.4.2 attached hereto and
incorporated herein by this reference. Sellers shall provide to the surveyor a
copy of Exhibit 2.4.1 when the Survey is ordered. The Survey shall be
satisfactory to the Title Company so as to permit the Title Company to delete
the standard printed survey and boundary exceptions in the Owner's Title Policy
to be issued to FMIC as required herein. Sellers covenant and agree that they
shall, at their expense, cause to be effected a lot split, replat or other
subdivision of the real property containing the Property such that the
conveyance of the Property to FMIC hereunder complies with the applicable
subdivision ordinance or municipal development plan, if required.
2.4.3 Review of Title and Survey. FMIC shall have twenty (20) days
after the receipt of both the Survey and the Title Commitment in which to notify
Sellers of any objections FMIC has to any matters with respect to the Title
Commitment or the Survey. Any title encumbrances or exceptions which are set
forth in the Title Commitment or the Survey and to which FMIC does not timely
object shall be deemed to be permitted exceptions to the status of Sellers'
title (the "Permitted Exceptions"). With regard to items to which FMIC does
timely object, Sellers shall cure such matters within twenty (20) days from the
date of FMIC's notice (the "Cure Period"), provided that Sellers shall be
obligated, as of the Closing Date, to cause to be fully paid and discharged, and
either released of record or insured over, all deeds of trust and other
financing documents of record encumbering the Property or any part thereof
(collectively, "Mortgage Documents"), excepting only the First Mortgage which
Buyer has agreed to assume
4
<PAGE>
hereunder. Any matter to which FMIC objects shall be deemed cured if Sellers
obtain the agreement of the Title Company to issue the Owner's Title Policy to
FMIC without making exception for such matter or to provide affirmative
insurance acceptable to FMIC, in FMIC's sole discretion, against such matter. If
Sellers fail to cure such objections within the Cure Period, FMIC, at FMIC's
option, may waive the objections not cured or terminate this Contract by notice
to Sellers. If, as of 5:00 P.M. on the last day of the Cure Period, any such
objection of FMIC remains uncured and FMIC has not waived the title objection in
writing, then FMIC shall be irrevocably deemed to have canceled the Contract.
2.5 Disclosure of Information Related to Real Estate. Sellers shall, as
soon as possible and not later than twenty (20) days from the date hereof,
deliver to FMIC legible, accurate and complete copies of the following, to the
extent that such items exist and are within Sellers' possession (the "Delivery
Items"):
2.5.1 the most recent ad valorem tax statements from all taxing
authorities having jurisdiction over the Property; and
2.5.2 site plans, surveys, soil and substrata studies, architectural
renderings, as built plans and specifications, engineering plans and studies,
floor plans, landscape plans and the plans, diagrams or studies of any kind, if
any, in Sellers' possession, which relate to the Land or the Improvements,
together with all documents relating or pertaining to all warranties and
guaranties of construction, if any, in Sellers' possession;
2.5.3 Schedule of repairs/replacements during the past 36 months;
2.5.4 Disclosure as to who is responsible for maintenance and
repairs to ingress-egress easements to the Property;
2.5.5 Copy of the construction and building plans for the Property;
2.5.6 Copy of any existing Phase I Environmental Report on the
Property. FMIC and their authorized representatives shall have the right to
inspect the Property.
2.6 Representations and Warranties of AFIM. AFIM hereby represents and
warrants as of the date hereof and as of the Closing Date that, to the best of
its knowledge and belief:
2.6.1 There are no contracts of employment, management, maintenance,
service, supply or rental outstanding which affect any portion of the Property
or its operation.
2.6.2 There is no pending condemnation or similar proceeding
affecting the Property or any portion thereof, and Sellers have not received any
written notice that any such proceeding is contemplated.
2.6.3 The Property is not in violation of any federal, state, county
or municipal law, ordinance, order, regulation or requirement and no written
notice of any such violation has been issued to Sellers by any governmental
authority.
5
<PAGE>
2.6.4 The Property does not contain any of the following
(collectively, "Hazardous Materials"): (a) urea formaldehyde foam insulation;
(b) transformers or other equipment which contain dielectric fluid containing
polychlorinated biphenyls; (c) pesticides or herbicides; or (d) any other
chemical, material or substance to which exposure is prohibited, limited or
regulated by any federal, state, county, regional or local authority.
2.6.5 The Property is not now being used nor has it been used during
the period of Sellers' ownership for any activities involving, directly or
indirectly, the use, generation, treatment, storage or disposal of any Hazardous
Materials.
2.6.6 The Property has access to and from one or more publicly
dedicated streets, highways or roads.
2.6.7 No work has been performed or is in progress by Sellers at the
Property and no materials have been furnished to the Property or any portion
thereof by or for Sellers, which might give rise to mechanic's, materialman's or
other liens against the Property or any portion thereof.
2.6.8 Sellers are not a party to any contracts or other obligations
outstanding for the sale, exchange or transfer of the Property or any portion
thereof.
2.6.9 Sellers are not foreign persons selling property as described
in the Foreign Investment in Real Property Tax Act and agree to deliver an
affidavit at Closing reflecting that Sellers are not such foreign persons and
providing Sellers' tax identification numbers ("Tax Affidavit").
2.6.10 There are no actions, suits, claims, proceedings or
causes of action which are pending or have been threatened or asserted against,
or are affecting, Sellers or the Property or any part thereof in any court or
before any arbitrator, board or governmental or administrative agency or other
person or entity which might have an adverse effect on the Property.
2.6.11 No zoning, building or similar law, ordinance or
regulation is, or as of the Closing will be, violated by the continued
maintenance, operation or use of the Property.
To the best of Seller's knowledge, all information created or
generated by Seller and given to FMIC with respect to the Property, or the
operations thereon, is true and correct in all respects and fully and accurately
depicts the matters set forth therein. To the best of Seller's knowledge, there
are no facts or other information concerning the condition of the Property which
have not been disclosed fully to FMIC and which could reasonably be expected to
have a material bearing upon FMIC's decision to enter into this Agreement.
2.7 Instruments of Transfer.
2.7.1 AFIM's Deliveries. At the Closing, AFIM shall deliver to FMIC:
(a) A special warranty deed for the Property.
6
<PAGE>
(b) The Title Policy insuring the Property as provided by
Paragraph 2.4.1 above, issued at the expense of AFIM.
(c) Such other instrument or instruments necessary to
complete the sale of the Property contemplated under this Agreement.
2.7.2 FMIC's Deliveries. At the Closing, FMIC shall deliver to AFIM:
(a) Cash or certified funds required under Paragraph 3
above; and
(b) Such other instrument or instruments necessary to
complete the sale of the Property contemplated under this Agreement.
3 Recapitalization and Cancellation of Second Mortgage in Exchange for AFI
Stock. AFI agrees to issue to FMIC, and FMIC agrees to accept in complete
satisfaction and release of AFIM's obligations to FMIC under the Second
Mortgage, the number of shares of AFI's common capital stock which equals sixty
percent (60%) of its total issued and outstanding common capital immediately
after said issuance. Under the terms of the AFI and AFIM Joint Plans of
Reorganization, such number of shares is expected to be one million eight
hundred thousand (1,800,000) shares.
3.1 Conditions. FMIC's obligation to cancel the Second Mortgage in
exchange for receipt of AFI stock shall be subject to the following conditions:
3.1.1 All existing stock options or stock warrants, if any, of
either AFI or AFIM will be terminated; and
3.1.2 AFI shall have only one class of stock.
3.1.3 AFI and AFIM shall have no liabilities, obligations, contracts
or other commitments of any kind or nature except as set forth in the AFI and
AFIM Joint Plan of Reorganization.
3.2 Recapitalization. As part of the Joint Plan of Reorganization, AFI
shall:
3.2.1 Cancel all outstanding common and preferred stock, as of the
Closing Date, and replace said canceled stock with one class of common capital
stock as described in Paragraph 3.2.2 below; and
3.2.2 In replacement of the stock canceled as described in Paragraph
3.2.1, issue common capital stock aggregating ten percent (10%) of AFI's total
outstanding common capital stock to the canceled common and preferred stock
shareholders, on a pro rata basis to their respective common and preferred stock
ownership in AFI as of the Record Date as set forth in the AFI Plan of
Reorganization. It is now anticipated that this ten percent (10%) shall be
represented by three hundred thousand (300,000) shares; and
7
<PAGE>
3.2.3 Issue common capital stock aggregating thirty percent (30%) of
its common capital stock to all the creditors, excluding FMIC, of AFI and AFIM,
on a pro rata basis of each respective creditor's outstanding receivables from
AFI and AFIM as set forth in the AFI and AFIM Plan of Reorganization. It is now
anticipated that this thirty percent (30%) shall be represented by nine hundred
thousand (900,000) shares.
3.2.4 It is now anticipated that AFI's stock ownership after the
recapitalization and exchange of the Second Mortgage for stock shall be as
follows:
Shares Percent
(a) Pre-transaction Shareholders 300,000. (10.%)
(b) AFI and AFIM Creditors 900,000. (30.%)
(c) FMIC 1,800,000. (60.%)
(d) Total Anticipated Shares 3,000,000. (100.%)
3.2.5 The Articles of Incorporation of AFI shall be amended to
provide for capital of Ten Million (10,000,000) shares of common stock, $0.001
par value, and One Million (1,000,000) shares of Preferred Stock, $0.005 par
value. The Articles shall provide that the terms and conditions of each series
of the Preferred Stock shall be established from time to time by the Board of
Directors as provided by Section 151 of the Delaware General Corporation Law.
3.3 Instruments of Transfer.
3.3.1 AFI's Deliveries. At the Closing, AFI shall deliver to FMIC;
(a) Stock certificate or certificates in the name of FMIC as
owner representing that number of shares in AFI's common stock equal to sixty
percent (60%) of AFI's total outstanding common stock immediately after the
issuance of stock contemplated in Paragraph 3 above. Such shares shall be
lawfully issued, validly authorized, fully paid and non assessable.
(b) Such other instrument or instruments necessary to complete
the recapitalization and issuance of stock to FMIC contemplated under this
Agreement or required by the AFI Joint Plan of Reorganization.
3.3.2 FMIC's Deliveries. At the Closing FMIC shall deliver to AFI or
AFIM:
(a) All documents and instruments necessary to effect FMIC's
complete satisfaction and release of AFIM's obligations under the Second
Mortgage; and
(b) Such other instrument or instruments necessary to complete
the recapitalization and issuance of stock to FMIC contemplated under this
Agreement or required by the Joint Plans of Reorganization.
8
<PAGE>
4 Option. AFI agrees to grant to FMIC an option in the form of the Option
Agreement attached hereto as Exhibit 4 to acquire additional stock in AFI
5 Representations and Warranties of AFI and AFIM. Except as expressly provided
herein, the purchase of the Property herein and the acquisition by FMIC of AFI's
common stock as contemplated herein is "as is-where is." Notwithstanding the
foregoing AFI and AFIM represent and warrant to FMIC as follows:
5.1 Authority. Each individual executing this Agreement on behalf of AFI
and AFIM has authority to execute and deliver this Agreement, and the terms
hereof are binding and enforceable upon AFI and AFIM in accordance with its
terms.
5.2 Title to Property and Assets. At Closing, AFIM will have authority to
transfer good and marketable title to the Property in accordance with the terms
and conditions of this Agreement, free and clear of any mortgage, pledge, lien,
security interest, lease, charge, encumbrance or conditional sale or other title
retention agreement, except as otherwise expressly provided herein.
5.3 Good Standing. AFI and AFIM are duly organized and in good standing in
their respective states of incorporation.
6 Representations and Warranties of FMIC. FMIC represents and warrants that each
individual executing this Agreement and any other agreements contemplated hereby
on behalf of FMIC is a duly authorized officer of FMIC and that each such
individual has authority to execute and deliver this Agreement and any other
agreements contemplated hereby on behalf of FMIC, and that the terms hereof are
binding and enforceable upon FMIC in accordance with their respective terms.
FMIC is duly organized and in good standing in the State of Missouri.
7 Covenants of AFI, AFIM and FMIC. AFI, AFIM and FMIC covenant and agree that,
prior to the Closing Date, except as otherwise consented to in writing by the
other parties or as permitted by this Agreement:
7.1 Cooperation. AFI, AFIM and FMIC shall use their best efforts to obtain
all consents and authorizations of third parties and make all filings with and
give all notices to third parties which may be necessary or reasonably required
in order to effect the sale and adoption of the Joint Plans of Reorganization
contemplated by this Agreement and take such additional actions so that the
transactions contemplated by this Agreement may be expeditiously consummated.
8 Conditions Precedent to the Obligations of AFI and AFIM. All obligations of
either AFI or AFIM under this Agreement are subject to the fulfillment, at or
prior to the Closing Date, of each of the following conditions, which conditions
may be waived only by both AFI and AFIM:
8.1 FMIC Representations True At Closing. The representations and
warranties of FMIC herein contained shall be true and correct in all material
respects as of the date hereof and shall continue to be true and correct as of
the Closing Date with the same force and effect as though made as of the Closing
Date.
9
<PAGE>
8.2 FMIC Performance Prior to Closing. FMIC shall have performed or
complied with all its obligations, agreements and covenants contained herein
that are required to be performed by it prior to the Closing.
8.3 Plan Confirmed. Entry of the Confirmation Order and expiration or the
appeal period for such Order without an appeal having been perfected.
9 Conditions Precedent to the Obligations of FMIC. All obligations of FMIC under
this Agreement are subject to the fulfillment, at or prior to the Closing Date,
of each of the following conditions, which conditions may be waived only by
FMIC:
9.1 AFI Representations True At Closing. The representations and
warranties of both AFI and AFIM herein contained shall be true and correct as of
the date hereof and shall continue to be true and correct as of the Closing Date
with the same force and effect as though made as of the Closing Date.
9.2 AFI Performance Prior to Closing. AFI and AFIM shall have performed or
complied with all the obligations, agreements and covenants of AFI and AFIM
herein contained to be performed by them prior to or as of the Closing Date.
9.3 Plan Confirmed. Entry of the Confirmation Order and expiration of the
appeal period for such Order without an appeal having been perfected.
9.4 Contents of Confirmation Order. The Confirmation Order shall contain:
9.4.1 approval of AFI's cancellation of all existing stock and
warrants.
9.4.2 approval of the recapitalization of AFI's outstanding common
and preferred stock as described herein.
9.4.3 approval of AFI's issuance of sixty percent (60%) of its
common capital stock, as measured immediately after such issuance, to FMIC in
complete satisfaction and release of AFIM's obligations to FMIC under the Second
Mortgage.
9.4.4 approval of AFI's issuance of thirty percent (30%) of its
common capital stock, as measured immediately after such issuance, in complete
satisfaction and release of AFIM's obligations to its creditors under the AFIM
Bankruptcy Proceeding and AFI obligations to its creditors under the AFI
Bankruptcy Proceeding.
9.4.5 approval that ten percent (10%) of AFI's outstanding common
capital stock be reallocated, as measured immediately after such reallocation,
to its pre-recapitalization common and preferred shareholders on a pro rata
basis.
9.4.6 approval of Amendment of Articles of Incorporation.
9.4.7 approval of AFI's issuance of the Option, as provided in
Paragraph 4 above and Exhibit 4, to FMIC.
10
<PAGE>
9.4.8 approval of AFI's sale of the real property to FMIC.
9.5 Completeness of Confirmation Order. The Confirmation Order shall not
omit any term or condition deemed reasonably necessary by FMIC to obtain the
benefits of the bargain of this agreement nor shall it contain any term which,
in the reasonable opinion of FMIC, causes a material adverse change in this
agreement
9.6 Good Standing. At the Closing Date, AFI and AFIM will be good standing
in their respective states of incorporation and in any other jurisdiction where
they are required to be qualified to do business.
9.7 Subsidiary. AFIM has remained a wholly owned subsidiary of AFI.
9.8 Independent Audit. Completion of an audit by an independent certified
public accountant verifying the amount, expiration schedule and other pertinent
details of AFI's net operating loss carry forward, as defined under the Code.
9.9 Securities and Exchange Commission Filings. Completion and filing, by
AFI, of all of its Security and Exchange Commission filings required to be filed
as of the Closing Date.
10 Termination. Notwithstanding anything to the contrary herein, this Agreement
may be terminated and the transactions contemplated hereby may be abandoned:
10.1 By Mutual Consent. By the mutual consent of AFI, AFIM and FMIC
at any time prior to the Closing Date;
10.2 By FMIC. By FMIC if there exists a material breach of any
representation or warranty made to FMIC or any covenant or agreement to be
performed by AFI or AFIM, or if any condition to the obligation of FMIC
hereunder becomes impossible to fulfill or remains unfulfilled on the Closing
Date, as such may have been extended by mutual written consent of the parties;
or
10.3 By AFI. By AFI or AFIM if there exists a material breach of any
representation or warranty made to either AFI or AFIM, or any covenant or
agreement to be performed by FMIC, or if any condition to the obligation of AFI
hereunder becomes impossible to fulfill or remains unfulfilled on the Closing
Date, as such may have been extended by mutual written consent of the parties.
10.4 No Liability. Upon the termination of this Agreement under this
Paragraph 11, no party hereto shall have any further liability or obligation to
any other party hereunder.
11 Miscellaneous. It is further agreed as follows:
11.1 Time. Time is of the essence of this Agreement.
11
<PAGE>
11.2 Notice. All notices required hereunder will be in writing and served
by certified mail, return receipt requested, postage prepaid or by an overnight
express mail courier and addressed to the parties at the addresses set forth
below:
11.2.1 FMIC's Address. Charles A. Holtgraves, Vice President, First
Mortgage Investment Co., 5425 Martindale, Shawnee, Kansas 66218. With a copy to:
Steven H. Goodman, Shughart, Thomson & Kilroy, P.C., Twelve Wyandotte Plaza, 120
West 12th Street, Kansas City, Missouri 64105.
11.2.2 AFI's Address. Mr. William B. Morris, Senior Vice
President, Advanced Financial Inc., 5425 Martindale, Shawnee, Kansas 66218.
With copies to: Thomas E. Carew, Hillix, Brewer, Hoffhaus, Whittaker and
Wright, L.L.C., 2420 Crown Center - Fourth Floor, Kansas City, Missouri 64108;
Thomas M. Mullinix, Evans and Mullinix, P.A.,15031 West 87th Street, Lenexa,
Kansas 66219
11.3 Survival. The covenants, representations and warranties of AFI, AFIM
and FMIC herein contained will be effective on the date hereof and on the
Closing Date and will survive Closing.
11.4 Entire Agreement. This Agreement and all Exhibits hereto constitutes
the entire agreement and understanding between FMIC and AFI and AFIM with regard
to the subject matter hereof and supersedes any prior agreements,
understandings, warranties or representations between AFI, AFIM and FMIC except
as set forth herein.
11.5 Binding Effect. This Agreement will inure to the benefit of and bind
the respective successors and assigns of the parties.
11.6 Amendments. This Agreement may be amended, modified and supplemented
only by written agreement executed by the parties at any time with respect to
any of the terms contained herein and, if prior to the entry of the Confirmation
Order, upon approval by appropriate order of the Bankruptcy Court.
11.7 Expenses. Each of the parties will be responsible for payment of its
own expenses (including legal fees) incurred in connection with the transactions
contemplated by this Agreement, regardless of whether or not such transactions
are consummated.
11.8 Headings. The headings provided in this Agreement are for convenience
only and have no legal significance.
11.9 Construction of Agreement. This Agreement shall be governed by and
interpreted and construed under and by virtue of the laws of the State of
Kansas, regardless of the domicile of either AFI, AFIM or FMIC.
11.10 Counterparts. For the convenience of the parties, this Agreement may
be executed in several counterparts, which are in all respects identical and
each of which shall be deemed to be complete in itself so that any one may be
introduced in evidence or used for any other purpose without the production of
the other counterparts.
12
<PAGE>
11.11 No Assumption of AFI's or AFIM's Liabilities. Except as expressly
provided herein, FMIC is acquiring only the Property from AFIM and common
capital stock and the Option from AFI and is not the successor of either AFI or
AFIM. FMIC does not assume or agree to pay, or indemnify either AFI, AFIM or any
other person or entity against, any liability, obligation or expense of either
AFI or AFIM.
IN WITNESS WHEREOF, the parties have hereunto set their hands in duplicate
the day and year first above written.
FMIC
FIRST MORTGAGE INVESTMENT CO., a Missouri corporation.
By: /s/Charles A. Holtgraves
-------------------------------------
Charles A. Holtgraves, Vice President
AFI
ADVANCED FINANCIAL, INC., a Delaware corporation.
By: /s/William B. Morris
--------------------------------------
William B. Morris, Senior Vice President
AFIM
AFI MORTGAGE, INC., a Nebraska corporation.
By: /s/William B. Morris
---------------------------------------
NAME, TITLE
13
<PAGE>
Table of Exhibits
A. Second Mortgage*
1.1 AFI Plan of Reorganization**
1.9 First Mortgage*
1.12 Real Property Description
2.4.1 Title Insurance Requirements
2.4.2 Survey Requirements
4 Option Agreement for FMIC
- -------------
*Pursuant to Item 601(b)(2) of Regulation S-K under the Securities Act of 1933,
as amended, these exhibits have been omitted from this filing. The registrant
agrees to furnish supplementally a copy of such omitted exhibits to the
Commission upon request.
**This exhibit is being filed as Exhibit 2.1 to the Form 8-K.
14
<PAGE>
Exhibit 1.12
REAL PROPERTY
Property Description:
"Lot 1, Block 2, MILLWOOD BUSINESS PARK FIRST PLAT, a subdivision in the
City of Shawnee, Johnson County, Kansas."
1
<PAGE>
Exhibit 2.4.1
Title Commitment Requirements
1. The Title Commitment shall show that the policy will be issued on an
ALTA Extended Coverage Owner's form, revised 1992 naming Buyer as the
prospective insured and showing as the policy amount the total purchase price
for the Property.
2. The Title Commitment shall contain a legal description of the Property,
which description must be identical with the description of the Property
included in the Survey submitted to Buyer. The legal description shall show as
separately insured parcels any off-premises easements that benefit the Property.
3. The Title Commitment shall list and identify by reference to volume and
page, where recorded, all easements, rights-of-way and other instruments or
matters affecting title to the Property.
4. The Title Commitment must separately from the matters set forth in 3
above, and identify by reference to the volume and page where recorded, all
instruments or matters affecting title to any off-premises easements that
benefit the Property.
5. Legible copies of all instruments affecting title to the Property shall
be submitted with the Commitment.
6. All easements, rights-of-way, set-back requirements, etc., listed as
exceptions to title shall appear on the Survey submitted to Buyer.
7. Additional endorsements (which may take the form of affirmative
insurance covering, for example, restrictive covenants, encroachments, etc.) may
be required, depending upon the state in which the Property is located and the
status of title as shown in the Title Commitment. An ALTA Form 100 endorsement
shall be required where restrictions affect the Property. An ALTA Form 100.29 or
100.30 shall be required where mineral exceptions appear on Schedule B of the
Title Commitment.
8. With regard to the standard printed exceptions and other common
exceptions generally included in Title Commitments, (i) there shall be no
exceptions for "any lien", or right to a lien, for services, or material
heretofore or hereafter furnished, imposed by law and now shown by the public
records," (ii) the exception for ad valorem taxes or special assessments shall
reflect only taxes and special assessments for the current year and shall be
annotated "Net yet due and payable", (iii) the exception for survey or
"encroachments, overlaps, boundary line disputes, and any other matters which
would be disclosed by an accurate survey and inspection of the Premises" shall
be deleted, (iv) there shall be no exception for "easements or claims of
easements not shown by the public records" or the like (although exception may
be made to a specified unrecorded exception shown on a specified
survey), (v) there shall be no exception for "rights of parties in
<PAGE>
possession not shown by the public records" although there may be an exception
for "rights of tenants under unrecorded leases, as tenant only", and (vi) any
restrictive covenants shown on the Title Commitment shall provide affirmative
insurance that "there are no current violations of any covenants and/or
restrictions and any future violation shall not result in a forfeiture of
Buyer's title.
<PAGE>
Exhibit 2.4.2
Survey Requirements
The Survey shall be prepared by a licensed surveyor and shall show the
following:
(a) The boundary line of the Property and all appurtenant easements
by courses and distances showing the area of the Property, and each parcel
thereof, in square feet. If the Property is composed of all or portions of
several lots or other legal subdivisions, the boundaries of each shall be
indicated by dotted lines and the proper lot number or legal subdivision
designation shown. If the survey comprises more than one parcel, it shall
show interior lines and facts sufficient to insure contiguity. Points of
beginning used in the description of the Property shall be identified.
(b) The location of all easements and rights-of-way affecting or
benefiting the Property (each of which shall be identified by reference to
the volume and page where recorded).
(c) The location of all building set-back lines on the Property.
(d) All encroachments, conflicts, or protrusions and specifically
listing such items on the Survey.
(e) All abutting dedicated public streets providing access to the
Property, showing the width, the location of the right-of-way lines, and
the name thereof and all sidewalks, parkways, curbs, and driveways
adjoining the Property. All street address numbers shall be shown where
they exist.
(f) All fences (both perimeter and cross) and all walls and other
improvements along the property lines with dimensions. All party walls or
buildings or other structures on the property line indicating the
thickness of the portions thereon on each side of the Property and the
nature of the use of said walls on each side.
(h) All wires and cables crossing, entering or leaving the Property,
indicating the amount of cross arm or wire overhand and all anchors and or
guy wires affecting the Property.
(i) A legal description (monuments, courses and distances) of the
Property which shall coincide with the boundaries shown on the survey and
which shall be identical with the description of the Property contained in
the Title Commitment.
(k) All utilities serving the Property, including electric, gas,
water and sewer.
(l) The boundaries and dimensions of any flood plain, flood prone
area or a flooding of any body of water.
<PAGE>
(m) A certification signed and sealed by the surveyor, which shall
be in substantially the following form:
-----------------------------------------------------------------------
I hereby certify that on the _____ day of ____________________, 1995.
(a) this survey was made on the ground as per the field notes shown
on this survey and correctly shows (i) the boundaries and areas of the
Property, (ii) the location of all rights-of-way, easements, and any other
matters of record (or of which I have knowledge or have been advised
whether or not of record) affecting or benefiting the Property, (iii) all
abutting dedicated public streets providing access to the Property,
together with the width and name thereof, and (iv) all other significant
items of the Property;
(b) except as specifically set forth below, there are no (i)
encroachments upon the Property by improvements on adjacent property, (ii)
encroachments on any easements or on adjacent streets, or alleys by any
improvements on the Property, (iii) party walls, (iv) conflicts or
protrusions. The exceptions to the above statements are as follows: (if
not, so state).
(c) Adequate ingress to and egress from the Property is provided by
(name of streets), the same being paved, dedicated public right(s)-of-way
maintained by (name of maintaining authority).
(d) All required building set-back lines on the Property are located
as shown hereon.
(e) A statement as to whether or not the Property is located within
a flood plain or flood prone area. If the Property is located within a
flood prone area, the statement shall also identify the official maps from
which the flood plan or flood prone area was taken.
(f) This survey is made in accordance with the "Minimum Standard
Detail Requirements for Land Title Surveys, jointly established and most
recently adopted by ALTA and ASCM."
-----------------------------------
Signature of Surveyor
Registered Public Surveyor
Registration No. __________________
(Name, address, telephone number and
job number of Surveyor)
(Seal of Surveyor)
<PAGE>
EXHIBIT 4
<PAGE>
STOCK OPTION AGREEMENT
BETWEEN
FIRST MORTGAGE INVESTMENT CO.
AND
ADVANCED FINANCIAL, INC.
<PAGE>
Table of Contents
1. Capitalized Terms......................................................1
2. Grant of Option........................................................1
3. Option Exercise Price..................................................2
4. Exercise of Option.....................................................3
5. Term of Option.........................................................3
6. Expiration.............................................................4
7. Manner of Exercise.....................................................4
8. Stockholder Rights of Holder...........................................5
9. Amendment and Termination..............................................5
10. Transferability........................................................5
11. Adjustments of Shares Purchasable and Option Price.....................6
12. Rights of Holders and the Corporation..................................8
13. Other Provisions Relating to Rights of the Option Holder...............9
14. Dissolution or Liquidation............................................11
15. Compliance with Securities Act........................................11
16. Notices...............................................................11
17. Binding Effect........................................................12
18. Governing Law.........................................................12
19. Entire Agreement......................................................12
20. Modification..........................................................12
Table of Exhibits...........................................................15
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ADVANCE FINANCIAL, INC.
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT is made and entered into as of the ___ day of
_________, 1998, by and between ADVANCED FINANCIAL INC., a Delaware corporation
(hereinafter sometimes referred to as "AFI" or the "Corporation") and FIRST
MORTGAGE INVESTMENT CO, a Missouri Corporation, (hereinafter sometimes referred
to as "FMIC" or the "Holder"). The Recitals are an integral part of this Stock
Option Agreement (hereinafter sometimes referred to as "Agreement").
RECITALS
WHEREAS, Corporation is entering a Plan of Reorganization under Chapter
11 of Title 11 of the United States Code;
WHEREAS, the parties are simultaneously entering into an Acquisition
Agreement;
WHEREAS, as a condition of the Plan of Reorganization, the Corporation
hereby grants Holder an Option to acquire voting common stock in the
Corporation;
WHEREAS, upon confirmation of the Plan of Reorganization, it is expected
and anticipated that the Corporation will have issued and outstanding the sum of
3,000,000 Common Shares, being the only class of stock of Corporation, of which
FMIC will own 1,800,000 shares;
NOW THEREFORE, in consideration of the premises and of the respective
covenants and agreements of the parties herein contained, and of other good and
valuable consideration, the sufficiency of which is hereby acknowledged, the
parties, intending legally to be bound, agree as follows:
1. Capitalized Terms. Capitalized terms not otherwise defined herein have
the meaning given them under the Acquisition Agreement.
2. Grant of Option. For value received, the Corporation hereby grants Holder a
voting common stock Option (hereinafter sometimes referred to as "Option")
subject to the terms set forth below, to subscribe for and purchase from the
Corporation the number of shares determined in this paragraph, each of which
shares shall be fully paid and non-assessable shares (hereinafter sometimes
referred to as "Option Shares"), of voting common stock of the Corporation.
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2.1 FMIC is granted the right to acquire that number of shares of AFI's
common capital stock necessary to increase FMIC's ownership from sixty percent
(60%) to eighty percent (80%) of the issued and outstanding shares of common
capital stock of AFI. Assuming that upon Confirmation of the Plan of
Reorganization, the then aggregate outstanding stock totals 3,000,000 shares and
that FMIC then owns 1,800,000 shares, as set forth in the recitals, then such
Option shall grant FMIC the right to acquire an additional Three Million
(3,000,000) shares, to increase its ownership from one million eight hundred
thousand (1,800,000) shares to four million eight hundred thousand shares
(4,800,000), thereby increasing the percentage of issued and outstanding shares
owned by FMIC from 60% to 80%; provided however,
2.2 The number of shares provided in paragraph 2.1 above shall be limited
to that number of shares of AFI's common stock which, when taken together with
all other transactions relevant to a "change of control" under ss. 382(g) of the
Internal Revenue Code, would be one share less than that number which would
trigger such a "change in control."
2.3 The number of Option Shares and the Option Price per Option Share are
subject to adjustment pursuant to paragraph 11 of this Agreement.
2.4 This Option shall be registered in the Holder's name on the books of
the Corporation at its principal executive office to be maintained by the
Corporation and such Option shall be transferable only as provided herein. Until
this Option is transferred on the books of the Corporation, the Corporation
shall treat the registered Holder hereof as absolute owner of this Option for
all purposes, notwithstanding any notice to the contrary.
3. Option Exercise Price. The Option Exercise Price for the Option Shares shall
be One Million Five Hundred Thousand and No/100 Dollars ($1,500,000) for the
number of shares described in paragraph 2.1 above. Such price may be payable in
whole or in part as follows:
3.1 In the form of one or more business units which had an accumulated net
fair market value at their respective dates of contribution of One Million Five
Hundred Thousand and No/100 Dollars ($1,500,000.00); or
3.2 By cash or certified funds equal the difference between One Million
Five Hundred Thousand and No/100 Dollars ($1,500,000.00) and the fair market
value of any business units, Option payments or the Extension Consideration
previously contributed by FMIC to AFI or AFIM.
3.3 In the event FMIC contributes one or more businesses with an aggregate
net fair market value less than One Million Five Hundred Thousand and No/100
Dollars ($1,500,000), then FMIC shall receive a pro rata portion of the maximum
number of shares available under paragraph 2.1 above. Such pro rata portion
shall include pro rata portion of stock for the Extension Consideration, if any
was paid pursuant to paragraph 5.2.2 below.
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3.4 In the event FMIC contributed cash in exercise of the Option, no
appraisal shall be required. In the event FMIC acquired one or more business
units in an arms length acquisition within sixty (60) days of contribution, no
appraisal shall be required. The amount paid for such business shall be its fair
market value for the purpose of determining net fair market value. In the event
FMIC contributes a business unit which it did not purchase in an arm's length
transaction within sixty (60) days of such contribution, an appraisal of such
business unit shall be obtained at FMIC's expense to determine net fair market
value.
3.5 In the event that the fair market value of a business unit contributed
by FMIC shall, when taken in conjunction with all prior transfers of cash and/or
business units pursuant to the Option Agreement, exceed $1,500,000, then AFI
shall issue its promissory note to FMIC for the difference between the actual
fair market value of property and cash contributed and $1,500,000.
The terms of such a note, if any, shall be as follows;
3.5.1 It shall be for a term of five years, with interest payable
quarterly in arrears for the first two years and thereafter principal and
interest payments quarterly which are sufficient to amortize the balance of the
note by the end of its term.
3.5.2 It shall bear interest at the prime rate of NationsBank for
its best 90 day commercial borrowers plus two percent, said rate to be adjusted
on the first day of each calendar quarter to the rate prevailing at the close of
NationsBank's business on the immediately preceding business day.
3.5.3 It shall be secured by a lien against the assets which were
transferred which gave rise to the existence of the note.
4. Exercise of Option. This Option is exercisable at any time during its term
and before its expiration at 5:00 p.m., Kansas City, Missouri time on the date
determined under paragraph 6 below, upon tender of the Option Exercise Form,
attached as Exhibit A, and payment thereof of the Option Exercise Price as set
forth in paragraph 3.
This Option may be exercised in whole or in part at any time during its
term. Upon partial exercise, the number of shares represented by the
consideration tendered shall be issued as provided herein.
5. Term of Option. The term of the Option shall be as follows:
5.1 During a one year period commencing upon the Closing Date, ("First
Option Year") FMIC may exercise the Option, or any part thereof, upon payment of
the relevant Option Exercise Price as set forth in paragraph 3.
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5.2 FMIC may extend the term of the Option for one additional year
("Second Option Year") if during the First Option Year, it has done one of the
following:
5.2.1 Under the terms described herein, FMIC has contributed to AFI
or AFIM a business unit with a fair market value of not less than Five Hundred
Thousand Dollars ($500,000); or
5.2.2 FMIC has contributed One Hundred Thousand Dollars ($100,000)
in cash or certified funds to AFI or AFIM as non-refundable consideration
("Extension Consideration") to extend the Option for one additional year.
6. Expiration. The Option shall expire by its terms if it has not been exercised
during the First Option Year, or if extended, during the Second Option Year.
7. Manner of Exercise. Within ten (10) business days of the exercise of all or
any part of this Option by the Holder, as herein provided, the Corporation shall
cause to be issued in the name of and delivered to the Holder a certificate or
certificates for the Option Shares of voting common stock so purchased. The
Corporation covenants and agrees that all the Option Shares of the voting common
stock which may be issued and delivered upon the due exercise of this Option by
the Holder shall, upon such issuance and delivery, be fully paid and
non-assessable. The Corporation agrees at all times to reserve and hold
available a sufficient number of Option Shares of the authorized but unissued
voting common stock of the Corporation, or the voting common stock of the
Corporation held as treasury stock, to cover the Option Shares of the voting
common stock issuable upon the exercise of this Option.
The Holder by acceptance of this Option hereby agrees that at the
time of any exercise of this Option he will sign a written agreement with the
Corporation in which he represents that he is then purchasing the Option Shares
of the voting common stock being thus purchased for investment and not with a
view to the offer for sale or the distribution thereof and agrees not to assign,
hypothecate, pledge, sell or otherwise transfer with or without consideration
such Option Shares except pursuant to an effective registration statement (which
shall be effective with the United States Securities and Exchange Commission
and/or any applicable laws of any State) or in a transaction which is exempt
from registration.
In order to enforce the restrictions imposed upon any Option Shares
issued by the Corporation pursuant to this Agreement, the Corporation may cause
a legend(s) to be placed on any certificate representing Option Shares, which
legend(s) shall make appropriate reference to the restrictions imposed upon the
Option Shares. The legend(s) shall substantially conform to the following
legend:
THE HOLDER OF THESE SHARES ACKNOWLEDGES AND AGREES THAT HE HAS REQUESTED
AND HAS RECEIVED ALL FINANCIAL AND OTHER INFORMATION ON THE CORPORATION
WHICH HOLDER DEEMS NECESSARY; THAT HE IS ACQUIRING SHARES FOR HIS OWN
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ACCOUNT FOR INVESTMENT AND NOT WITH A VIEW TO THE DISTRIBUTION OR RESALE
THEREOF; THAT THE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 OR ANY STATE BLUE SKY LAWS; THAT THE SHARES MAY NOT BE SOLD,
PLEDGED, ASSIGNED OR TRANSFERRED EXCEPT UPON THE TERMS AND THE CONDITIONS
OF THE VOTING COMMON STOCK OPTION AGREEMENT BETWEEN CORPORATION AND HOLDER
AND UNLESS EITHER SUCH SHARES ARE REGISTERED UNDER THE SECURITIES ACT OF
1933 AND THE APPROPRIATE STATE BLUE SKY LAWS OR, IN THE OPINION OF
COUNSEL, SATISFACTORY TO THE CORPORATION, SUCH TRANSACTION INVOLVING THE
SHARES IS EXEMPT FROM THE REGISTRATION PROVISIONS OF SUCH LAWS.
An Option shall be exercisable by delivery of (1) a duly signed
subscription form in writing, generally conforming to the notice set out in
Exhibit A which is incorporated herein by reference, to such effect and (2) the
full purchase price of the number of Option Shares being purchased pursuant to
the exercise of the Option to the treasurer of the Corporation or to any other
officer of the Corporation appointed for the purpose of receiving the same;
provided, however, that this Option may not be exercised at any time when the
exercise thereof violates any law or governmental order or regulation.
8. Stockholder Rights of Holder. The Holder does not have any rights or
privileges of a stockholder of the Corporation with respect to any Option Shares
issuable upon the exercise of such Option until certificates representing such
Option Shares shall have been issued and delivered to such person.
9. Amendment and Termination. In the event that this Option has not been
exercised on or before two years from the date of the Closing, the Option shall
terminate and shall no longer be exercisable. In no event may the Option be
exercised after the expiration of this term.
The termination of the Option shall not affect any restrictions previously
imposed on Option Shares issued pursuant to the Option.
10. Transferability. The transferability of the Option and Option Shares are
governed by the provisions of this paragraph 10.
10.1 This Option shall be freely transferable provided the Transferee
honors all terms and conditions hereof and provided that the Transferee may not
obtain any more shares than FMIC would have been entitled to. The Corporation
may treat the registered Holder of this Option as the absolute owner hereof for
all purposes notwithstanding any notice to the contrary.
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11. Adjustments of Shares Purchasable and Option Price. In order to prevent
dilution of the rights granted hereunder, the Option Price as set forth above
and the number of Option Shares shall be subject to adjustment from time to time
in accordance with this paragraph 11.
11.1 Appropriate and equitable adjustment shall be made in the number of
Option Shares of voting common stock subject to each outstanding Option or the
Option Price or both, in the event of any changes subsequent to the effective
date hereof in the outstanding voting common stock by reason of stock dividends,
stock splits, recapitalizations, reorganizations, mergers, or consolidations, it
being the purpose of this provision to insure that, in the event of an
occurrence of such nature, the terms of the Option shall be adjusted to give the
Holder, upon exercise of the Option, rights equivalent to the rights of a person
who had held Shares of the Corporation's voting common stock in the amount
subject to the Option immediately prior to the effective date of such
occurrence. This paragraph shall apply, if equitable, in addition to paragraph
11.3 with respect to any transaction described therein.
11.2 Upon any adjustment of the Option Price per share pursuant to
paragraph 11.1, this Option shall thereupon evidence the right to purchase that
number of Option Shares (calculated to the nearest hundredth) obtained by
multiplying the number of Option Shares immediately prior to such adjustment by
the Option Price per share in effect immediately prior to such adjustment and
dividing the product so obtained by the Option Price per share in effect
immediately after such adjustment.
11.3 Change in Corporation or Shares.
11.3.1 In case of any consolidation with or merger of the
Corporation into another entity (other than a merger or consolidation in which
the Corporation is the continuing entity), such successor shall execute in favor
of the Holder hereof a supplement to this Option:
(a) providing that the Holder of this Option shall receive,
upon exercise of this Option, in lieu of each Option Share of the Corporation
deliverable upon such exercise immediately prior to such event, the kind and
amount of property (or securities or cash, if any) receivable upon such
consolidation or merger, by a holder of each share of the Corporation;
(b) setting forth the Option Price for the property (or
securities or cash, if any so receivable for each Option Share of the
Corporation, which (except as contemplated by paragraph 11.1) shall be an amount
equal to the Option Price per Option Share immediately prior to such event; and
(c) providing that such successor entity assumes the due
and punctual performance and observance of each and every covenant and condition
of this Option to be performed or observed by the Corporation (including,
without limitation, provisions for adjustment of the Option Price), as nearly as
may be in relation to any Option Shares of stock, securities, or property
thereafter deliverable upon the exercise hereof.
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11.3.2 In case of any reclassification or change of the shares or in
case of any consolidation or merger of another entity into the Corporation in
which the Corporation is the continuing entity and in which there is a
reclassification or change of the shares, the Corporation shall execute in favor
of the Holder hereof a supplement to this Option:
(a) providing that the Holder of this Option, upon exercise
of this Option, in lieu of each Option Share of the Corporation deliverable upon
such exercise immediately prior to such event, shall receive the kind and amount
of property (or securities or cash, if any) receivable upon such
reclassification, change, consolidation or merger by a holder of one share of
the Corporation; and
(b) setting forth the Option Price for the property (or
securities or cash, if any) so issuable for each Option Share of the
Corporation, which (except as contemplated by paragraph 11.1) shall be an amount
equal to the Option Price per Option Share immediately prior to such event.
11.3.3 A copy of the supplement referred to in subsections (a) and
(b) of this paragraph 11.3 shall be sent by the Corporation to the Holder of
this Option as soon as practicable but no longer than 60 days after the
execution thereof.
11.4 Whenever the Option is adjusted as herein provided, the Corporation
shall compute an adjusted Option Price and the adjusted number of Option Shares
in accordance with this paragraph 11 and prepare a certificate setting forth the
adjusted Option Price and the adjusted number of Option Shares based upon such
computation, showing in reasonable detail the facts (and computations) upon
which such adjustments are based, and the Corporation shall cause to be mailed
to the Holder hereof a notice stating that the Option Price and the number of
Option Shares have been adjusted, with a copy of such certificate attached. If
the Holder disagrees with the computations made by the Corporation, the Holder
may request a nationally recognized public accounting firm ("Holder's Accounting
Firm") to confirm such computations and to prepare and mail to the Corporation
and the Holder its results. In the event such results agree with the
Corporation's computations, the expense of the computations prepared by the
Holder's Accounting Firm shall be borne by the Holder. If the Holder's
Accounting Firm's computations disagree with the computations prepared by the
Corporation, the Corporation's regular public accounting firm ("Corporation's
Accounting Firm") and the Holder's Accounting Firm shall appoint another
nationally recognized public accounting firm ("Third Party Accounting Firm") to
verify the computations. The Third Party Accounting Firm decision shall be
final. If the Third Party Accounting Firm verifies the Corporation's
computations, the Holder shall be responsible for the expense of the
computations of the Holder's Accounting Firm and the Third Party Accounting
Firm. If, however, the Third Party Accounting Firm agrees with the computation
prepared by the Holder's Accounting Firm, the Corporation shall bear the expense
of the preparation of the computations by the Holder's Accounting Firm and the
Third Party Accounting Firm.
11.5 If at any time after the date of this Option:
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11.5.1 the Corporation shall declare a distribution on its shares,
other than a distribution of cash out of its undistributed net income paid at an
established annual or quarterly rate; or
11.5.2 the Corporation shall authorize the granting to the holders
of its shares of rights to subscribe for or purchase any shares of any class or
of any other rights; or
11.5.3 there is a reclassification of the shares, or any
consolidation or merger to which the Corporation is a party, or any lease, sale
or conveyance to another entity of the property of the Corporation as an
entirety or substantially as an entirety and for which approval of any
stockholders of the Corporation is required; or
11.5.4 there is a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation; or
11.5.5 the Corporation proposes to take any other action which would
require an adjustment of the Option Price pursuant to paragraph 11 hereof; then
the Corporation shall cause to be mailed to the Holder of this Option at least
twenty (20) days prior to any applicable record date specified by the
Corporation, a notice stating:
(a) the date on which a record is to be taken for the
purpose of such distribution or rights, or, if a record is not to be taken, the
date as of which the holders of shares of record to be entitled to such
distribution or rights are to be determined; or
(b) the date on which such distribution, reclassification,
consolidation, merger, lease, sale, conveyance, dissolution, liquidation or
winding up is expected to become effective; and
(c) the date as of which it is expected that holders of
shares as shown on registration books maintained by the Corporation shall be
entitled to receive such distribution or exchange their shares for securities
or other property, deliverable upon such distribution, reclassification,
consolidation, merger, lease, sale, conveyance, dissolution, liquidation or
winding up; and the date on which it shall be determined which stockholders of
record are entitled to vote on such transaction.
12. Rights of Holders and the Corporation. Except as provided in paragraph 11, a
Holder shall have no rights by reason of any subdivision, or consolidation of
shares of stock of any class of stock or the payment of any stock dividend or
any other increase or decrease in the number of shares of stock of any class or
by reason of any dissolution, liquidation, merger or consolidation or spin-off
of assets or stock of another corporation, and any issuance by the Corporation
of shares of stock of any class or securities convertible into shares of stock
of any class.
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The grant of an Option pursuant to this Agreement shall not affect in any
way the right or power of the Corporation to make adjustments, reclassification,
reorganizations, or changes in its capital or business structure or to merge,
consolidate, dissolve, liquidate, or sell or transfer all or any part of its
business or assets.
13. Other Provisions Relating to Rights of the Option Holder.
13.1 No Holder of this Option, as such, shall be entitled to vote, to
receive distributions or to be deemed the Holder of Option Shares of the
Corporation nor shall anything contained in this Option be construed to confer
upon the Holder hereof, as such, any of the rights of a stockholder of the
Corporation, except as specifically provided herein, or any right to vote for
the election of the board of directors of the Corporation or upon any matters
submitted to stockholders at any meeting thereof, or to give or withhold consent
to any action of the Corporation (whether upon any recapitalization, issue of
shares, reclassification of shares, consolidation, merger, sale, lease,
conveyance or otherwise), receive notice of meetings or other action affecting
stockholders (except for notices expressly provided for in this Option), receive
distribution or subscription rights, or otherwise (except as provided for in the
Option) until this Option shall have been exercised and the Option Shares shall
have been issued and delivered as provided in this Option; provided, however,
that the Corporation acknowledges the Option Holder's right to acquire voting
common stock of the Corporation pursuant to the terms hereof and agrees that
until the expiration, cancellation or exercise hereof the rights of such Holder
to acquire voting common stock of the Corporation shall be recognized and shall
entitle such Holder to the same general protections afforded a stockholder of
the Corporation against the breach of any fiduciary or other duty of good faith
and fair dealing owed to a stockholder of the Corporation, by the Corporation,
its officers or its directors.
13.2 Corporation Registration.
13.2.1 Tag Along Rights. If the Corporation determines to register
any of its securities either for its own account or the account of any security
holder or holders, other than a registration relating solely to employee benefit
plans, or a registration relating solely to a transaction pursuant to Rule 145
of the Commission (or substantially similar successor rule) or a registration on
any registration form which does not permit secondary sales or does not include
substantially the same information regarding the Corporation as would be
required to be included in a registration statement covering the sale of the
Option Shares, the Corporation will:
(a) promptly give to the Holder written notice thereof
(which shall include the name of the managing underwriter or underwriters, if
any, of the offering); and
(b) use its best efforts to include in such registration
all Option Shares, as specified in a written request or requests given by the
Holder of Option Shares within 15 days after such written notice from the
Corporation described in clause (i) above is given, except as set forth in
paragraph 13.2.2 below.
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13.2.2 Underwriting. The right of the Holder to include Option
Shares in a registration pursuant to paragraph 13.2 involving an underwritten
public offering shall be conditioned upon the inclusion of such securities in
the underwriting to the extent provided herein. Notwithstanding any other
provision of this paragraph 13.2, if the managing underwriter or underwriters
determine that marketing factors require a limitation on the number of shares to
be underwritten, the underwriter may exclude from such registration and
underwriting some or all of the Option Shares requested to be included by the
Holder. In such event, the Corporation shall so advise the Holder, and the
Option Shares held by the Holder shall, to the extent necessary, be excluded
from such registration. If the Holder disapproves of the terms of any such
underwriting, the Holder may elect to withdraw therefrom by written notice to
the Corporation and the underwriter. Any Option Shares excluded or withdrawn
from such underwriting shall be withdrawn from such registration.
13.2.3 Expenses of Registration. The Corporation shall bear all
registration expenses incurred in connection with all registrations pursuant to
paragraph 13.2, except expenses described as professional fees and related
expenses customarily paid for by such Shareholders who participate in such
registrations.
13.2.4 Information by Holders of Securities. The Holder shall
furnish to the Corporation such information regarding the Holder and the
proposed distribution, and execute any and all necessary documents and
indemnifications, as the Corporation may reasonably request in writing and as
shall be reasonably required in connection with any registration, qualification
or compliance referred to in paragraph 13.2.
13.2.5 Transfer of Registration Rights. The rights to cause the
Holder to register the Option Shares under paragraph 13.2 may be assigned by the
Holder to assignees of the Option Shares provided, however, that such assignees
in the aggregate must, after giving effect to such transfer, hold or demand to
hold at least Ten Thousand (10,000) shares of Option Shares; and provided,
further, that the Corporation is given written notice at the time of or within a
reasonable time after such transfer, stating the name and address of said
transferee or assignee and identifying the securities with respect to which such
registration rights are being assigned; and provided, further, that any such
transferee or assignee of such rights assumes the obligations of the transferor
under paragraph 13.2.
13.2.6 "Market Stand-Off" Agreement. The Holder, if requested by the
Corporation and the underwriter of any public offering of the Corporation, shall
agree not to sell or otherwise transfer or dispose of any Option Shares during a
reasonable period following the effective date of the registration statement
covering the public offering. Such agreements shall be in writing in a form
satisfactory to the Corporation and such underwriter. The Corporation may impose
stop-transfer instructions with respect to the securities subject to the
foregoing restrictions until the end of said period.
13.3 The Corporation shall at all times have reserved and kept available
an authorized number of Option Shares sufficient to permit the exercise in full
of this Option.
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13.4 Notwithstanding anything contained herein to the contrary, the
Corporation shall not be required to issue any fraction of an Option Share in
connection with the exercise of this Option. All fractional share amounts shall
be rounded off to the nearest whole share.
14. Dissolution or Liquidation. Except as otherwise provided herein, a
dissolution or liquidation of the Corporation shall cause each outstanding
Option to terminate. At least twenty (20) days notice of the record date for
determining stockholders entitled to participate in such liquidation or
dissolution shall be given the Holder as required in paragraph 11.5.5.
15. Compliance with Securities Act. Notwithstanding anything contained herein to
the contrary, no Option granted under this Agreement shall be exercised, and the
Corporation may postpone the issuance and delivery of shares upon any purported
exercise of an Option, until (a) the completion of a registration with the
Securities and Exchange Commission or other qualification of such shares under
any state or federal law, rule or regulation as the Corporation shall determine
to be necessary or advisable, or (b) counsel for the Corporation shall have
opined that the issuance of such Option Shares does not require registration
under any Federal Securities Act, and, insofar as any local Blue Sky law might
affect the issuance of such Option Shares, either the local Blue Sky
Commissioner shall have ruled or counsel for the Corporation shall have opined
that the issue is not subject to such local law or that such Option Shares shall
have been duly qualified under such law. Any person exercising an Option shall
make such representations and furnish such information as may in the opinion of
counsel for the Corporation be appropriate to permit the Corporation, in the
light of the then existence or non-existence of an effective Registration
Statement under the Securities Act of 1933, as from time to time amended, with
respect to such Option Shares, to issue the Option Shares in compliance with the
provisions of that or any comparable law. The Corporation shall not have any
liability with respect to any Option the exercise of which is delayed in good
faith by the provisions of this paragraph 15.
16. Notices. Any notice or other communication to the Corporation or to the
Holder of this Option shall be in writing and such notice or communication shall
be deemed duly given or made if mailed by registered or certified mail, return
receipt requested, postage prepaid and if to such Corporation to:
Advanced Financial, Inc.
5425 Martingale
Shawnee, Kansas 66218
or such other address as the Corporation may designate by notice to the Holder
and if to such Holder to:
First Mortgage Investment Co
5425 Martingale
Shawnee, Kansas 66218
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cc: Steven H. Goodman
Shughart Thomson & Kilroy, PC
120 W. 12th St.
Kansas City, MO 64105
or at such other address as the Holder may designate by notice to the
Corporation.
17. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the Corporation and Holder and his respective heirs, executors,
administrators, legal representatives and successors.
18. Governing Law. This Agreement shall be governed by and be construed in
accordance with the laws of the state of Delaware.
19. Entire Agreement. This Agreement constitutes the entire Agreement between
the parties, and supersedes all prior Agreements and understandings relating to
the subject matter of this Agreement.
20. Modification. This Agreement may be amended or modified only by written
instrument executed by both Corporation and Holder.
IN WITNESS WHEREOF, Corporation has caused this Agreement to be signed in
its corporate name under its corporate seal by its president and its corporate
seal to be hereunto affixed and the execution hereof to be attached by its
secretary as of this _____ day of ______________, 1998
ADVANCED FINANCIAL, INC.
ATTEST:
______________________________ By:______________________________
Secretary William B. Morris
Senior Vice President
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HOLDER:
ATTEST: FIRST MORTGAGE INVESTMENT CO
______________________________ By:__________________________
Secretary Charles Holtgraves,
Vice President
ACKNOWLEDGMENT
STATE OF ________________ )
) ss:
COUNTY OF ______________ )
On this ____ day of ________, 1998, before me, the undersigned, a Notary
Public in and for said County and State personally appeared William B. Morris
and ___________________________________, the Senior Vice President and
Secretary, respectively, of ADVANCED FINANCIAL, INC., known to me to be the
persons who executed the within instrument in behalf of said Corporation and
acknowledged to me that they executed the same for the purposes therein stated.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year last above written.
---------------------------------
Notary Public within and for said
My Commission Expires: County and State
- --------------------- ---------------------------------
Type Notary's Name Here
13 of 15
<PAGE>
ACKNOWLEDGMENT
STATE OF ________________ )
) ss:
COUNTY OF ______________ )
On this ____ day of ________, 1998, before me, the undersigned, a Notary
Public in and for said County and State personally appeared Charles A.
Holtgraves and ________________ _____________________, the Vice President and
Secretary, respectively, of FIRST MORTGAGE INVESTMENT CO, known to me to be the
persons who executed the within instrument in behalf of said Corporation and
acknowledged to me that they executed the same for the purposes therein stated.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year last above written.
---------------------------------
Notary Public within and for said
My Commission Expires: County and State
- --------------------- ---------------------------------
Type Notary's Name Here
14 of 15
<PAGE>
Table of Exhibits
4 Advance Financial, Inc. Stock Option Agreement
15 of 15
<PAGE>
EXHIBIT A
ELECTION TO PURCHASE
To be executed by the Holder only if he desires to exercise options
evidenced by the within Option Agreement.
TO: ADVANCED FINANCIAL, INC.
5425 Martingale
Shawnee, Kansas 66218
The undersigned hereby (1) irrevocably elects to exercise
the within Option, and to purchase thereunder _____________ Shares issuable upon
exercise of said Option, (2) makes payment in full of the Purchase Price of such
Shares in accordance with paragraph 3 of the Option (3) requests that
certificates for the Shares be issued in the name of:
-------------------------------------------------
Please print Social Security or Tax Identification Number:
- ------------------------------
- -----------------------------------------------------------------
(Please print name and address)
- -----------------------------------------------------------------
- -----------------------------------------------------------------
and (4)if said number of Options Shares shall not be all the Option Shares
subject to the within Option, the Holder requests that a new Option evidencing
the right to acquire any remaining Option Shares be issued in the name of and
delivered to:
- -----------------------------------------------------------------
(Please print name and address)
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Dated: __________________, 19___.
Signature:____________________________
1
<PAGE>
NOTICE: The above signature must correspond with the name as written upon
the face of the within Option Agreement in every particular,
without alteration or enlargement or any change whatsoever or if
signed by any other person a form of assignment must be duly
executed.
2
EXHIBIT 99.1
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS
IN RE: )
)
AFI MORTGAGE CORP. ) Case No. 97-43122-11-JAP
) Chapter 11
Debtors )
)
)
IN RE )
)
ADVANCED FINANCIAL, INC. ) Case No. 98-41228-11-JAP
) Chapter 11
Debtors. )
)
ORDER APPROVING DEBTORS' FIRST AMENDED DISCLOSURE
STATEMENT AND CONFIRMING DEBTORS' FIRST AMENDED JOINT PLAN
----------------------------------------------------------
On the 30th day of September, 1998, came on for consolidated hearing the
hearing on approval of the Debtors' First Amended Joint Disclosure Statement
Dated July 29, 1998, (Amended Disclosure Statement) and Confirmation of the
Debtors' First Amended Joint Plan of Reorganization Dated July 29, 1998, (the
"Amended Plan"). The Debtors appeared through their representative, William B.
Morris, and through their counsel, Thomas M. Mullinix and Joanne B. Stutz of
EVANS & MULLINIX, P.A. Other appearances were as follows: Tom O'Neal of SHUGHART
THOMSON & KILROY, counsel for FMIC; Tom Carew of HILLIX, BREWER, HOFFHAUS,
WHITTAKER & WRIGHT, L.L.C., special counsel for the Debtors; Ronald S. Weiss of
BERMAN, DELEVE, KUCHAN & CHAPMAN, L.C., counsel for Commercial Federal Bank; and
Tonya Wilson, Assistant US Attorney, counsel for the Internal Revenue Service.
After hearing the statements of counsel and William B. Morris and Charles
Holtgraves, witnesses for the Debtors, and reviewing the file and the Summary of
Ballots submitted by Debtors' counsel, the Court finds and it is hereby Ordered
as follows:
1
<PAGE>
1. The Amended Disclosure Statement and Amended Plan were duly transmitted
to creditors, parties in interest and equity security holders.
2. The court has fully considered the Amended Disclosure Statement and
notes that no objections were filed. Therefore, the Disclosure Statement is
found to contain adequate information as required pursuant to Title 11, U.S.C.
ss. 1125, The Bankruptcy Code.
Accordingly, IT IS ORDERED that the Disclosure Statement is approved.
1. The Amended Plan was duly transmitted to creditors, parties in interest
and equity security holders along with a copy of the First Amended Disclosure
Statement Dated July 29, 1998.
2. The Amended Plan has been accepted in writing by at least one impaired
Class of Creditors and equity security holders whose acceptance is required by
law.
3. The provisions of Chapter 11 of the Bankruptcy Code have been complied
with and the Amended Plan has been proposed in good faith and not by any means
forbidden by law.
4. Each holder of a Claim or interest accepting the Amended Plan will
receive or retain under the Amended Plan property of a value, as of the
effective date of the Amended Plan, that is not less than the amount that such
holder would receive or retain if the Debtors were liquidated under Chapter 7 of
the Code on such date.
5. All payments made or promised by the Debtors or by any person issuing
securities, if applicable, or acquiring property under the Amended Plan or by
any other person for services or for costs and expenses in, or in connection
with, the Amended Plan and incident to the case, have been fully disclosed to
the Court and are reasonable or, if to be fixed after Confirmation of the
Amended Plan, will be subject to the approval of the Court.
6. The identity, qualifications, and affiliations of the persons who are to
be directors or officers, or voting trustees, if any, of the Debtors after
Confirmation of the Amended Plan have been fully disclosed and the appointment
of such persons to such offices, or their continuance therein, is equitable, and
consistent with the interests of the Creditors and equity security holders and
with public policy.
7. The identity of any insider that will be employed or retained by the
Debtors and his compensation have been fully disclosed.
8. All payments made or promised by the Debtors in connection with the
Amended Plan have been fully disclosed to the Court and are reasonable.
2
<PAGE>
9. One objection to Confirmation of the Amended Plan has been filed with
the Court by Commercial Federal Bank (CFB). That objection has been resolved
through modification of the Amended Plan as follows:
a. Paragraphs 4.5 and 4.11 of the Amended Plan shall be modified to
reflect the following revision:
The Board of Directors of the Reorganized Advanced shall have
the right, at any time after the bid price of the common
stock is at least 130% of the exercise price and remains at
such price for a period of twenty (20) consecutive trading
days, to call any or all of such Warrants for redemption at a
par value price of $.001 per warrant upon thirty (30) days'
written notice to the warrantholders, provided that the bid
price is at least 130% of the exercise price on the call
date.
b. A member of the Unsecured Creditors' Committee may, at the Committee's
option, sit on the interim Board of Directors.
c. The Unsecured Creditors' Committee shall continue in existence after
Confirmation during the performance of the Plan with the same rights
and powers as provided in 11 U.S.C.ss. 1103. The committee shall have
the right to receive financial information relevant to the performance
of the Plan and shall have standing to bring whatever actions are
necessary and consistent with this Order and the Bankruptcy Code to
enforce the rights of the Unsecured Creditors' Class.
d. By the Effective Date the Debtors shall provide the Committee with
written opinions from tax counsel addressing the Committee's inquiries
regarding the repurchase terms of the stock warrants.
10. The Amended Plan shall be further amended as follows:
a. Section 5.2(a) shall be amended to reflect that the Debtors, as soon
as practicable after the Effective Date, shall consummate the FMIC
transaction and the sale of the building to FMIC. The Debtors
anticipate that distribution of the sale proceeds to Class 5, 10 and
11 Creditors shall occur by January 31, 1999.
b. Article IV(A)(d) shall be amended to provide that: (a) the stock
interests in Advanced shall be cancelled and of no further force and
effect on the
3
<PAGE>
date the FMIC Transaction is consummated, effective immediately prior
such consummation, (b) the distribution of common stock of Reorganized
Advanced to holders of stock interests in Advanced may be made without
requiring such holders to turn in their original stock certificates
evidencing such interests; (c) the holders of stock interests in
Advanced entitled to receive such distribution shall be the holders of
record of stock interests in Advanced on the record date for such
distribution; and (d) the original stock certificates representing
stock interests in Advanced shall be void and of no further force and
effect as of the time the stock interests are cancelled under the
Amended Plan.
c. Section 5.5 shall be amended to reflect that the record date for the
purpose of determining the holders of stock interests in Advanced
entitled to receive common stock of Reorganized Advanced shall be the
date on which the FMIC Transaction is consummated at the time
immediately prior to the time at which such stock interests are
cancelled under the Amended Plan.
11. In order to (a) implement the amendment to the Certificate of
Incorporation of Reorganized Advanced set forth in Section 5.2(c) of the Amended
Plan and (b) to include in the Certificate of Incorporation of Reorganized
Advanced the provision required to be included therein by Title 11, U.S.C.
Section 1123, The Bankruptcy Code; the amendments to the Certificate of
Incorporation of Reorganized Advanced set forth in Exhibit A attached hereto are
hereby approved. The officers of Advanced are authorized to execute and to make
all filings on behalf of Advanced with the Delaware Secretary of State which are
necessary to cause such amendments to become effective under Delaware law in
accordance with the Amended Plan.
12. The Unsecured Creditors' Committee was provided an opportunity, until
October 15, 1998, to review the sale of AFI's office building to FMIC and to
determine if the Committee desired to market the property. The Committee having
decided not to market the property, the Court finds that the sale of the AFI
office building to FMIC shall proceed as provided for in the Amended Plan.
13. The Court finds after hearing on notice pursuant to Fed. R. Bankr. P.
3019 that the proposed treatment set forth herein does not adversely change the
treatment of the Claim of any
4
<PAGE>
Creditor or the interest of any equity security holder who has not accepted in
writing the modifications and that such treatment shall be deemed accepted by
all Creditors and equity security holders who have not accepted the Amended
Plan.
14. Confirmation of the Amended Plan is not likely to be followed by the
liquidation or the need for further financial reorganization of the Debtors
under the Amended Plan.
15. The Amended Plan is feasible.
16. All fees due or payable pursuant to 28 U.S.C ss. 1930 have been paid or
will paid out of the bankruptcy Estates when appropriate.
17. Other than as provided in the Amended Plan, the Debtors are released
from any liability debts arising before the date of this Order Confirming
Debtors' First Amended Joint Plan and any debt of a kind specified in ss.
502(g), ss. 502(h), or of ss. 502(i) of Title 11, whether or not a proof of
Claim based on the debt is filed or deemed filed under ss. 501; such a Claim is
allowed under ss. 502; or the holder of such Claim has accepted the Amended
Plan.
18. Any judgment heretofore or hereafter obtained in any court other than
this Court is null and void as a determination of the liability of the Debtors
with respect to any Claims arising prior to entry of this Order.
19. All Creditors are enjoined from instituting or continuing any action or
employing any process or engaging in any act to collect such debts as
liabilities of the Debtors.
20. The Disclosure Statement shall be deemed incorporated into and a part
of the Amended Plan.
21. The First Amended Joint Plan of Reorganization Dated July 29, 1998,
should be and hereby is confirmed.
IT IS SO ORDERED.
/s/ James A. Pusateri
--------------------------------
Hon. James A. Pusateri
United States Bankruptcy Judge
5
<PAGE>
APPROVED BY:
EVANS & MULLINIX, P.A.
/s/ Joanne B. Stutz
- -------------------------------------
Joanne B. Stutz, Ks #12365; Mo #30810
15301 W. 87th Street Parkway, Suite 220
Lenexa, Ks 66219-1428
(913) 541-1200; (913) 541-1010 (FAX)
ATTORNEYS FOR AFI MORTGAGE CORP &
ADVANCED FINANCIAL, INC.
6
<PAGE>
EXHIBIT A
TO
ORDER APPROVING DEBTORS' FIRST AMENDED DISCLOSURE
STATEMENT AND CONFIRMING DEBTORS' FIRST AMENDED JOINT PLAN
----------------------------------------------------------
The Certificate of Incorporation of Advanced Financial, Inc., a Delaware
corporation, shall be amended as follows:
(1) By deleting the first sentence of Article IV of the Certificate of
Incorporation as the same now appears and substituting therefor the
following:
The total number of shares of all classes of capital stock which the
Corporation shall have the authority to issue is Eleven Million
(11,000,000) shares, which are divided into two classes as follows:
Ten Million (10,000,000) shares of Common Stock, $0.001 par
value per share ("Common Stock"), and
One Million (1,000,000) shares of Preferred Stock, $0.005 par
value per share ("Preferred Stock").
(2) By adding at the end of Article IV of the Certificate of Incorporation
the following:
Nonvoting Equity Securities
---------------------------
Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the Corporation will not issue
nonvoting equity securities to the extent prohibited by Chapter 11 of
Title 11 of the United States Code (the "Bankruptcy Code"); provided,
however, that this paragraph: (a) will have no further force and
effect beyond that required under the Bankruptcy Code, (b) will have
such force and effect, if any, only for so long as the prohibitions
imposed by the Bankruptcy Code are in effect and applicable to the
Corporation, and (c) in all events may be amended or eliminated in
accordance with applicable law from time to time in effect.
7
EXHIBIT 99.2
ADVANCED FINANCIAL INC.
Contact: Brad Morris News Release
(913) 441-2466 BB: AVFI
FOR IMMEDIATE RELEASE
ADVANCED FINANCIAL, INC. AND SUBSIDIARY
RECEIVE CONFIRMATION
OF JOINT PLAN OF REORGANIZATION
SHAWNEE, KANSAS, October 5, 1998 --- Advanced Financial, Inc. ("Advanced"
or the "Company") and its wholly owned subsidiary, AFI Mortgage, Corp. ("AFIM")
announced today that the U.S. Bankruptcy Court for the District of Kansas
confirmed their joint plan of reorganization on September 30, 1998.
Pursuant to the confirmed joint plan of reorganization, among other things:
(a) First Mortgage Investment, Co. (FMIC), a creditor of the Company, will
release its secured claims against, and acquire certain assets of,
Advanced and AFIM in exchange for 1,800,000 shares of common stock of the
Company, initially constituting 60% of the 3,000,000 new shares to be
issued as part of the Company's recapitalization and reorganization. In
addition FMIC has an option to acquire an additional 3,000,000 shares at
$.50 per share or $1.5 million increasing its ownership to 80% of the
outstanding shares of the Company.
(b) The Company will issue shares of common stock, warrants and make
partial payments, to certain other creditors of Advanced and AFIM in
exchange for a release of their claims. The creditors will receive 900,000
shares of common stock of the Company, constituting 30% of the 3,000,000
new shares to be issued as a part of the Company's recapitalization and
reorganization. The
P.O. Box 3217
Shawnee, Kansas 66203
<PAGE>
creditors will also receive 900,000 warrants allowing the holder to
purchase one share of common stock per warrant at a price of $1.25. The
warrants are callable by the Company at 130% of the strike price paid and
expire on March 31, 2002.
(c) Shares currently held by preferred and common shareholders of Advanced
will be canceled and they shall receive 300,000 shares of new common stock
of the Company, constituting 10% of the 3,000,000 new shares to be issued
as part of the Company's recapitalization and reorganization. Each
preferred and common shareholder shall receive approximately .05269 new
shares for each old share.
The completion of these transactions is subject to a number of conditions. The
Company currently anticipates that the transactions will be effected in
approximately 90 days, subject to satisfaction of all conditions precedent.
Upon implementation of the plan of reorganization, the Company intends to
acquire an ongoing business and/or build its business operations internally. The
Company believes that the reorganization and recapitalization will allow its
creditors and shareholders to potentially receive more value through the
appreciation of its shares than would have otherwise been realized had a plan of
reorganization not been pursued.
Some of the matters discussed in this press release constitute forward-looking
statements within the meaning of the securities laws. Actual results may differ
materially from those projected in such forward-looking statements as a result
of a variety of risks and uncertainties. Investors are cautioned that all
forward-looking statements involve risk and uncertainty.
2
