UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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): December 10, 2004
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
Florida 000-30486 65-0738251
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(State or Other (Commission (IRS Employer
Jurisdiction of File Number) Identification
Incorporation) Number)
420 Lexington Avenue, New York, New York 10170
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (646) 227-1600
N/A
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 1.01 Entry into a Material Definitive Agreement
Item 3.02 Unregistered Sales of Equity Securities
On December 10, 2004, Advanced Communications Technologies, Inc. (the
"Company") entered into a Stock Purchase Agreement with Theodore S. Li and Hui
Cynthia Lee (collectively, the "Stockholders") pursuant to which the Company has
agreed to purchase from the Stockholders, and the Stockholders have agreed to
sell to the Company, an aggregate of 6,454,300 shares of the common stock of
Pacific Magtron International Corp. (the "PMIC Shares") for the aggregate
purchase price of $500,000 (the "Stock Purchase Agreement"). The PMIC Shares
represent 61.56% of the currently issued and outstanding common stock of Pacific
Magtron International Corp. ("PMIC"). PMIC is primarily engaged in the business
of distributing computer peripheral products, such as components and multimedia
and systems networking products, through its wholly-owned subsidiaries. PMIC's
common stock trades on the Over the Counter Bulletin Board, and PMIC files
periodic reports with the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended.
The Stock Purchase Agreement contemplates that payment of the purchase
price for the PMIC Shares will be made pursuant to the terms of two convertible
promissory notes (the "Notes") in the principal amounts of $166,889 and $333,111
to be delivered by the Company to Mr. Li and Ms. Lee, respectively, at the
closing of the transactions contemplated by the Stock Purchase Agreement (the
"Closing"). The Notes will mature on the first anniversary of the Closing and no
principal or interest payments will be required prior to such date. The Notes
will bear interest at 6.0% per annum. Upon the occurrence and during the
continuation of any event of default (as specified in the Notes), the interest
rate will increase to 10.0% per annum. The Company will be able to redeem all or
a portion of Mr. Li's Note on or prior to the maturity date at 110.0% of the
principal amount redeemed, plus all accrued and unpaid interest thereon. The
Company will be able to redeem all or a portion of Ms. Lee's Note prior to the
six month anniversary of the Closing at 105.0% of the principal amount redeemed
or thereafter prior to the maturity date at 110.0% of the principal amount
redeemed, in each case, plus all accrued and unpaid interest thereon. The
holders of the Notes, at their option, will be able to convert, at any time and
from time to time, until payment in full of all amounts due and owing under
their Note, any unpaid principal amount of their Note into shares of common
stock of the Company at a conversion price per share of $0.01. If the Notes were
converted in full, this would result in the issuance of an aggregate of
50,000,000 shares of the Company's common stock. The conversion ratio is,
however, subject to adjustment for stock splits, reverse stock splits and other
recapitalizations effected by the Company. The Company's payment obligations
under the Notes will be secured by the PMIC Shares pursuant to a Custodial and
Stock Pledge Agreement to be entered into among the Company, the Stockholders
and Quarles & Brady Streich Lang LLP (the "Pledge Agreement").
The Stock Purchase Agreement contains customary representations,
warranties, covenants and indemnities of the parties, and the Closing is subject
to the satisfaction or waiver of various conditions, including (i) receipt of
certain third-party consents and approvals; (ii) the Company's satisfaction with
its due diligence investigation and review of the financial condition, business
and operations of PMIC; (iii) entry into employment agreements by Theodore S. Li
and Hui Cynthia Lee with the Company, Encompass Group Affiliates, Inc., a
wholly-owned subsidiary of the Company ("Encompass"), and PMIC, pursuant to
which Mr. Li and Ms. Lee would be employed by PMIC following the Closing (the
"Employment Agreements"); (iv) execution and delivery by the Company and
Encompass of an Indemnity Agreement with Mr. Li and Ms. Lee and their respective
spouses pursuant to which the Company and Encompass would agree to indemnify Mr.
Li, Ms. Lee and their respective spouses against certain liabilities Mr. Li and
Ms. Lee may incur in connection with personal guaranties they have given
relating to PMIC's inventory financing facility (the "Indemnity Agreement"); (v)
execution and delivery of the Pledge Agreement; (vi) execution and delivery by
Mr. Li and Ms. Lee of a Release (the "Release"); (vii) execution and delivery of
resignations of certain officers and directors of PMIC; and (viii) closing of
the transaction contemplated by that certain agreement, dated December 10, 2004,
between PMIC and the holder of the Series A Redeemable Convertible Preferred
Stock of PMIC, whereby the terms of the Series A Preferred Stock will be
modified, including a reduction in the principal amount of the Series A
Preferred Stock.
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The proposed Employment Agreements with Mr. Li and Ms. Lee each
contemplate a signing bonus of $225,000 and other bonus and earn-out provisions
which may be paid in shares of common stock of the Company. While any bonus paid
in Company common stock will be at the discretion of the Compensation Committee
of the Company's Board of Directors, the earn-out provisions are set forth in
the Employment Agreements and are based on achievement of certain financial
milestones. Under the earn-out provisions, Mr. Li and Ms. Lee may earn the right
to receive up to 66,666,666 shares and 33,333,333 shares of the Company's common
stock, respectively, which share amounts are subject to adjustment for any stock
splits or other recapitalizations effected by the Company; provided that, the
percentage of the outstanding common stock that Mr. Li or Ms. Lee would have had
the right to receive prior to the adjustment shall not be changed by any such
adjustment. Upon earning the earn-out shares, the earn-out shares will be placed
in escrow, pursuant to the terms of an escrow agreement to be entered into among
the Company, Mr. Li and Ms. Lee. In the event that Mr. Li's or Ms. Lee's
employment is terminated for "cause" (as defined in the applicable Employment
Agreement) prior to the expiration of the initial term of the applicable
Employment Agreement, all of the earn-out shares earned or to be earned by Mr.
Li or Ms. Lee, as applicable, will be forfeited. If, however, Mr. Li's or Ms.
Lee's employment is terminated for other than "cause" prior to the expiration of
the initial term of the applicable Employment Agreement, Mr. Li and Ms. Lee, as
the case may be, will be entitled to receive any of the earn-out shares earned
and placed in escrow prior to such termination.
The Company currently expects that Martin Nielson, Senior Vice
President-Acquisitions and a director of the Company, will become a director and
Chief Executive Officer of PMIC following the Closing and that the company will
consolidate the financial results of PMIC with those of the Company and its
other subsidiaries.
The Stock Purchase Agreement may be terminated (i) by mutual consent of
the parties or (ii) by either the Company or the Stockholders (as a group) if
(a) a default or breach shall be made by the other party with respect to the due
and timely performance of any of its covenants and agreements in the Stock
Purchase Agreement, or with respect to the due compliance with any of its
representations warranties and covenants, and such default cannot be cured and
has not been waived; (b) if all conditions specified in the Stock Purchase
Agreement to be performed by the other party shall not have been satisfied at
the time the Closing would otherwise occur or if satisfaction of such condition
becomes impossible, other that through failure of the terminating party to
comply fully with its obligations under the Stock Purchase Agreement, and shall
not have been waived by the terminating party on or before such date; or (c) if
the Closing does not occur, other than through the failure of the terminating
party to fulfill its obligations under the Stock Purchase Agreement, on or
before January 10, 2005 or such later date as may be agreed upon in writing by
the parties.
To the extent that entry into the Stock Purchase Agreement may be deemed
to be sale of the Notes, the shares of Company common stock into which the Notes
may be converted or the shares of Company common stock that may be issued under
the Employment Agreements, such sales were exempt from the registration
provisions of the Securities Act of 1933, as amended, under Section 4(2) thereof
and Regulation D thereunder as none of the transactions involved a public
offering, the intended recipients of such securities are all "accredited
investors," as defined in Regulation D, and each intended recipient has
represented to the Company that he or she will be acquiring the securities for
his or her own account and not with a view to their distribution.
The foregoing summary of the Stock Purchase Agreement and the transactions
contemplated thereby is qualified in its entirety by reference to the Stock
Purchase Agreement, a copy of which is filed as Exhibit 2.1 to this Report on
Form 8-K and incorporated herein by reference.
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Item 9.01. Financial Statements and Exhibits
(c) Exhibits
Exhibit
No. Description of Exhibit
2.1 Stock Purchase Agreement, dated as of December 10, 2004, among
Advanced Communications Technologies, Inc., Theodore S. Li and Hui
Cynthia Lee.
99.1 Press Release dated December 10, 2004.
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Forward-Looking Statements
Certain statements in this Form 8-K constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and
are protected under the safe harbor created thereby. Forward looking statements
are typically identified by words such as "will," "would" and "expects" and
similar expressions. In addition, any statements that refer to expectations or
other characterizations of future events or circumstances are forward-looking
statements. Readers are cautioned that any such forward-looking statements
involve known and unknown risks, uncertainties and other factors that may cause
actual events to be materially different from any future events expressed or
implied by such forward-looking statements. Such factors include the various
conditions to Closing discussed above and in the Exhibits hereto. The Company
undertakes no obligation to publicly update any forward-looking statements,
whether as a result of new information, future events or otherwise.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
Dated: December 14, 2004 By: /s/ Wayne I. Danson
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President and Chief Financial Officer
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Exhibit Index
Exhibit No. Description
2.1 Stock Purchase Agreement, dated as of December 10, 2004, among
Advanced Communications Technologies, Inc., Theodore S. Li and Hui
Cynthia Lee.
99.1 Press Release dated December
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