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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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)
May 16, 2006
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Applied Spectrum Technologies, Inc.
(Exact name of registrant as specified in charter)
Delaware
(State or other Jurisdiction of Incorporation or Organization)
0-16397 41-2185030
(Commission File Number) (IRS Employer Identification No.)
936A Beachland Boulevard, Suite 13
Vero Beach, FL 32963
(Address of Principal Executive
Offices and zip code)
(772) 231-7544
(Registrant's telephone
number, including area code)
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 registrant under any of the
following provisions:
[_] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[_] Soliciting material pursuant to Rule 14a-12(b) under the Exchange Act (17
CFR 240.14a-12(b))
[_] 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))
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Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
Information included in this Form 8-K may contain forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
This information may involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements of
Applied Spectrum Technologies, Inc. ("Applied") and Pro-Stars, Inc.
("Pro-Stars") (collectively, Applied and Pro-Stars are referred to herein as the
"Companies") to be materially different from future results, performance or
achievements expressed or implied by any forward-looking statements.
Forward-looking statements, which involve assumptions and describe future plans,
strategies and expectations of the Companies, are generally identifiable by use
of the words "may," "will," "should," "expect," "anticipate," "estimate,"
"believe," "intend" or "project" or the negative of these words or other
variations on these words or comparable terminology. Forward-looking statements
are based on assumptions that may be incorrect, and there can be no assurance
that any projections or other expectations included in any forward-looking
statements will come to pass. The actual results of the Companies could differ
materially from those expressed or implied by the forward-looking statements as
a result of various factors. Except as required by applicable laws, Applied
undertakes no obligation to update publicly any forward-looking statements for
any reason, even if new information becomes available or other events occur in
the future.
Item 1.01 Entry into a Material Definitive Agreement.
On May 16, 2006, Applied Spectrum Technologies, a Delaware corporation
("Applied"), entered into an agreement and plan of merger ("Merger Agreement")
with Pro-Stars, Inc., a Nevada corporation ("Pro-Stars") and APSP Acquisition,
Inc., a Delaware corporation and wholly-owned subsidiary of Applied ("Merger
Sub").
Under the Merger Agreement, Applied and Pro-Stars will enter into a
business combination transaction by means of a merger ("Merger") between Merger
Sub and Pro-Stars in which Pro-Stars will merge with Merger Sub and be the
surviving entity, through an exchange of all the issued and outstanding shares
of common stock of Pro-Stars for shares of Series A Convertible Preferred Stock,
par value $0.001 per share, of Applied ("Preferred Stock"). Following the
closing of the Merger ("Closing"), Pro-Stars will continue as a wholly-owned
subsidiary of Applied.
The Merger Agreement is included as Exhibit 2.1 to this Current Report and
is the legal document that governs the Merger and the other transactions
contemplated by the Merger Agreement. The discussion of the Merger Agreement set
forth herein is qualified in its entirety by reference to this Exhibit 2.1.
In connection with the Merger, (i) each outstanding share of Pro-Stars
common stock will be converted into the right to receive 0.043656 shares of
Preferred Stock; and (ii) each outstanding option and warrant to purchase one
(1) share of Pro-Stars common stock will be assumed by Applied and converted
into an option or warrant to purchase 4.39879 shares of Applied common stock
(with the exercise price being adjusted accordingly). The exchange ratios set
forth above assume $15,000,000 in gross proceeds to be received by Applied in
the Equity Financing (defined below) and are subject to change depending on the
actual amount of gross proceeds received by Applied in the Equity Financing and
the actual pre-money valuation of Applied (after giving effect to the Merger
with Pro-Stars).
2
The consummation of the Merger is contingent on a minimum of $10,000,000
(or such lesser amount as mutually agreed to by Applied and Pro-Stars) being
subscribed for, and funded into escrow, by certain accredited and institutional
investors ("Investors") for the purchase of either Preferred Stock or common
stock of Applied promptly after the closing of the Merger under terms and
conditions approved by Applied's board of directors immediately following the
Merger ("Equity Financing"). The closing of the Equity Financing will be
contingent on the closing of the Merger, and the Merger will be contingent on
the closing of the Equity Financing.
No assurances can be given that the Equity Financing or the Merger will be
completed. Further, in the event the Equity Financing is completed, there can be
no assurance that that the gross proceeds will be at least $10,000,000.
The exchange ratios set forth above are also subject to adjustment to
reflect appropriately the effect of any stock split, stock dividend,
reorganization, recapitalization, reclassification, combination or other like
change with respect to the capital stock of Applied or Pro-Stars (or any options
or warrants with respect to the foregoing) occurring on or after May 16, 2006
and through the Closing.
For purposes of this Report, it is assumed that the Equity Financing will
be completed with gross proceeds of $15,000,000 and, as such, the Merger is
completed without any adjustment to the exchange ratios.
As of May 16, 2006, Pro-Stars common stock, options and warrants
outstanding were as follows:
o 22,906,350 shares of common stock.
o Options to purchase 4,325,000 shares of common stock at an exercise
price of $1.00 per share.
o Warrants to purchase 2,177,550 shares of common stock at an exercise
price of $1.00 per share, warrants to purchase 100,000 shares of
common stock at an exercise price of 110% of the common stock share
price in the Equity Financing and warrants to purchase 100,000
shares of common stock at an exercise price of 120% of the common
stock share price in the Equity Financing.
Assuming no Pro-Stars' stockholder elects dissenters' rights, the
Pro-Stars stockholders will be issued 1,000,000 shares of Preferred Stock in the
Merger. Each share of Preferred Stock will be convertible into 100.760204 shares
of Applied's common stock. Accordingly, upon completion of the Merger and the
Equity Financing, the Pro-Stars stockholders will own 1,000,000 shares of
Preferred Stock (equivalent to 100,760,204 shares of Applied's common stock on
an as-converted basis), the Investors will receive 72,350,555 shares of
Applied's common stock (or, if the Equity Financing is structured as Preferred
Stock, 718,047 shares of Preferred Stock convertible into 72,350,555 shares of
Applied's common stock), and the current Applied stockholders will own 5,353,941
shares of Applied's common stock. Upon conversion of the Preferred Stock, the
Pro-Stars stockholders together with the Investors will own approximately 97% of
the total outstanding shares of Applied's common stock, and the current Applied
stockholders will own approximately 3% of the total outstanding shares of
Applied's common stock.
3
The issuance of the shares of Preferred Stock to the Pro-Stars
stockholders in the Merger (and, upon conversion, the shares of Applied common
stock underlying such shares of Preferred Stock) and the issuance of shares of
Preferred Stock or Applied's common stock in the Equity Financing are intended
to be exempt from registration under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to Section 4(2) thereof and such other available
exemptions. As such, the shares of Applied's common stock, the shares of
Preferred Stock and the shares of Applied's common stock underlying the
Preferred Stock may not be offered or sold in the United States unless they are
registered under the Securities Act, or an exemption from the registration
requirements of the Securities Act is available. No registration statement
covering these securities has been filed with the United States Securities and
Exchange Commission ("Commission") or with any state securities commission in
respect of the Merger or the Equity Financing. However, as a condition to the
Equity Financing, it is expected that Applied will agree to register for public
re-sale the shares of common stock (or the shares of common stock underlying the
Preferred Stock) issued to the Investors in the Equity Financing. In addition,
Applied has agreed to register for public re-sale after the Merger: (i)
2,400,000 shares of Applied's common stock (on a pre-Reverse Split basis), the
holders of which have piggyback registration rights, (ii) 2,281,302 shares of
Applied's common stock (on a pre-Reverse Split basis) held by KI Equity Partners
III, LLC, and (iii) shares of common stock underlying certain shares of
Preferred Stock issued in the Merger.
Applied is presently authorized under its Certificate of Incorporation to
issue 150,000,000 shares of common stock, $0.001 par value per share, and
5,000,000 shares of preferred stock, par value $0.001 per share. Of the
5,000,000 shares of preferred stock authorized, 2,000,000 shares will be
designated as Series A Convertible Preferred Stock pursuant to a certificate of
designations ("Certificate of Designations"), which will be approved by
Applied's board of directors, and filed with and accepted by, the Secretary of
State of the State of Delaware prior to the Closing of the Merger. Currently,
Applied has 5,353,941 shares of common stock outstanding and no shares of
preferred stock outstanding.
Each share of Preferred Stock will be convertible into 100.760204 shares
of Applied's common stock (the "Conversion Rate"). The Preferred Stock will
immediately and automatically be converted into shares of Applied's common stock
(the "Mandatory Conversion") upon the approval by a majority of Applied's
stockholders (voting together on an as-converted-to-common-stock basis),
following the Merger, of a 1 for 15 reverse stock split of Applied's outstanding
common stock ("Reverse Split").
The holders of shares of Preferred Stock will be entitled to vote together
with the holders of Applied's common stock, as a single class, upon all matters
submitted to holders of common stock for a vote. Each share of Preferred Stock
will carry a number of votes equal to the number of shares of common stock
issuable as if converted at the record date. As such, immediately following the
Merger, the Pro-Stars stockholders and the Investors will have approximately 97%
of the total combined voting power of all classes of Applied stock entitled to
vote.
4
In connection with the Reverse Split, Applied's board of directors may, in
its discretion, provide special treatment to certain Applied stockholders to
preserve round lot holders (i.e., holders owning at least 100 shares prior to
the Reverse Split) after the Reverse Split. Applied's board of directors may
elect, in its discretion, to provide such special treatment to the record
holders of Applied's common stock only on a per certificate basis or more
generally to the beneficial holders of Applied's common stock. For example, if
Applied's board determines to provide such special treatment to record holders
only, the record holders of Applied's common stock holding a certificate
representing 1,500 or fewer shares of common stock but at least 100 shares of
common stock would receive 100 shares of common stock after the Reverse Split
with respect to each such certificate, and record holders holding a certificate
representing 100 shares of common stock or fewer would not be affected and would
continue to hold a certificate representing the same number of shares as such
stockholders held before the Reverse Split. In the alternative, if Applied's
board determines to provide such special treatment to beneficial holders
generally, the beneficial holders of Applied's common stock beneficially holding
1,500 or fewer shares of common stock but at least 100 shares of common stock
would receive 100 shares of common stock after the Reverse Split, and persons
beneficially holding 100 shares of common stock or fewer would not be affected
by the Reverse Split and would continue to hold the same number of shares as
such stockholders held before the Reverse Split. The terms and conditions of
special treatment afforded to Applied stockholders to preserve round lot
stockholders, if any, including the record dates for determining which
stockholders may be eligible for such special treatment, will be established in
the discretion of Applied's board of directors.
Effective as of the Closing of the Merger, and subject to applicable
regulatory requirements, including the preparation, filing and distribution to
the Applied stockholders of a Schedule 14(f)-1 Notice to Stockholders at least
ten (10) days prior to Closing, Kevin R. Keating, Applied's current sole officer
and director will resign such positions and will appoint as directors:
o Sam Battistone, the Chairman and CEO of Pro-Stars
o Sean Goodchild, the President, Secretary and a director of Pro-Stars
o Dale Larsson, the Chief Financial Officer and a director of
Pro-Stars
o Klaus Moeller, a director of Pro-Stars
As a condition to the Closing of the Merger, the holders of Applied's
capital stock representing a majority of Applied's voting power immediately
after Closing (including KI Equity Partners III, LLC, Applied's current majority
stockholder) will agree to vote their shares of Applied's voting securities to
approve the Reverse Split, the assumption of and amendment to, Pro-Stars' 2005
equity incentive plan, and the change of Applied's corporate name (collectively,
the "Actions").
Additional information concerning Messrs. Battistone, Goodchild, Larsson
and Moeller will be included in the Schedule 14(f)-1 Notice to Stockholders
which will be filed with the SEC and mailed to stockholders at least ten (10)
days prior to the Closing of the Merger.
At or prior to the Closing, Applied will also enter into a certain
financial advisory agreement with Keating Securities, LLC ("Keating
Securities"), a registered broker-dealer, under which Keating
5
Securities will be compensated by Applied for its advisory services
rendered to Applied in connection with the Merger. The transaction advisory fee
will be $500,000, with the payment thereof being subject to the Closing of the
Merger.
Applied and Pro-Stars have each agreed to continue to operate their
business in the ordinary course prior to the Merger.
Under the Merger Agreement, each of Applied and Pro-Stars have agreed to
do certain things, some of which are conditions to the Merger transaction. Each
company is obligated to (a) obtain all necessary approvals for various aspects
of the transaction, (b) give the other access to the records and personnel to
complete due diligence review, (c) proceed expeditiously to undertake all
actions so as to be able to consummate the Merger, (d) in the case of Pro-Stars,
deliver audited financial statements including a balance sheet as of December
31, 2004 and 2005 and statements of operations, cash flows and stockholders'
equity for the years then ended, and unaudited financial statements including a
balance sheet as of March 31, 2005 and 2006 and statements of operations, cash
flows and stockholders' equity for the three months then ended, and (e) refrain
from soliciting or initiating proposals from, providing information to or
holding discussions with any party concerning any sale of assets or any material
portion of any capital stock or any merger, consolidation, business combination,
liquidation or similar transaction, subject to the fiduciary obligations of
directors generally.
Consummation of the Merger is also contingent upon (i) preparation, filing
and distribution to the Applied stockholders of a Schedule 14(f)-1 Notice to
Stockholders, (ii) continued quotation of Applied's common stock on the
Over-the-Counter Bulletin Board, (iii) the completion of the Equity Financing,
and (iv) Applied's entry into an investor relations agreement.
The representations and warranties of the parties to the Merger Agreement
generally do not survive the Closing.
The Merger Agreement may be terminated as follows: (i) by mutual consent,
(ii) by either party if the Merger is not consummated by June 30, 2006, (iii) by
either party if the Merger is prohibited by issuance of an order, decree or
ruling, or (iv) by either party if the other is in material breach of any
representation, warranty, covenant or agreement. In the event of termination,
both parties are responsible for their own expenses. If the Merger Agreement is
terminated by Applied as a result of Pro-Stars' failure to satisfy the
conditions precedent to Closing that are applicable to it or as a result of a
breach or misrepresentation by Pro-Stars, the $50,000 deposit paid to Applied by
Pro-Stars may be retained by Applied as liquidated damages and as its sole
source of damages for any breach or termination of the Merger Agreement.
The directors of Applied have approved the Merger Agreement and the
transactions contemplated thereunder. The directors of Pro-Stars have approved
the Merger Agreement and the transactions contemplated thereunder. The Merger
Agreement and the transactions contemplated thereunder require the approval of
Pro-Stars' stockholders before the Merger can be consummated. The parties expect
the closing of the transactions under the Merger Agreement to occur on or about
June 30, 2006. However, there can be no assurances that the Merger or Equity
Financing will be completed.
6
On March 28, 2006, in its Current Report on Form 8-K dated March 27, 2006,
Applied reported the execution of a letter of intent to acquire Pro-Stars.
Kevin R. Keating is the father of Timothy J. Keating, the principal member
of Keating Investments, LLC. Keating Investments, LLC is the managing member of
KI Equity Partners III, LLC ("KI Equity"), which is the current majority
stockholder of Applied, and Keating Securities, LLC, the registered
broker-dealer affiliate of Keating Investments, LLC. Kevin R. Keating is not
affiliated with and has no equity interest in Keating Investments, LLC, KI
Equity or Keating Securities, LLC and disclaims any beneficial interest in the
shares of Applied's common stock owned by KI Equity. Similarly, Keating
Investments, LLC, KI Equity and Keating Securities, LLC disclaim any beneficial
interest in the shares of Applied's common stock currently owned by Kevin R.
Keating.
Business of Applied
Applied is currently a shell company with nominal assets whose sole
business has been to identify, evaluate and investigate various companies with
the intent that, if such investigation warrants, a reverse merger transaction be
negotiated and completed pursuant to which Applied would acquire a target
company with an operating business with the intent of continuing the acquired
company's business as a publicly held entity.
Business of Pro-Stars
Pro-Stars, Inc., a Nevada corporation ("Pro-Stars"), owns, either directly
or indirectly, a majority of the partnership interests in and to the following
limited partnerships: (i) CAEFOD, LP, a Nevada limited partnership ("CAEFOD");
(ii) RIOFOD, LP, a Nevada limited partnership ("RIOFOD"); (iii) SWFOD, LP, a
Nevada limited partnership ("SWFOD"); and (iv) MOAFOD, LP, a Nevada limited
partnership (collectively, the "Partnerships"). Each of the Partnerships has
entered into a franchise agreement with Dreams Franchise Corporation, a
California corporation (the "Franchisor") to operate a Field of Dreams(R) store
(collectively, the "Stores"). The Stores sell sports-related merchandise and
celebrity-oriented merchandise, sports collectibles, memorabilia, trading cards
and related merchandise and products. The Stores owned by CAEFOD, RIOFOD and
SWFOD are located in malls on the strip in Las Vegas while the Store owned by
MOAFOD is located in the Mall of America in Bloomington, Minnesota.
Pro-Stars also operates a Stars Live 365 store in the Showcase Mall in Las
Vegas. The Stars Live 365 concept emphasizes the presence at the store each day
of a celebrity personality from the sports, television, motion picture,
political or any other arena that has produced well-recognized individuals to
sign autographs, photographs or other pieces of memorabilia.
The corporate headquarters of Pro-Stars is located at Pro-Stars, Inc.,
2195 San Dieguito Drive, Suite 1, Del Mar, CA 92014.
The business of Pro-Stars involves a number of risks and uncertainties
that could cause the actual results of either company to differ materially from
those estimated by management from time to time. Potential risks and
uncertainties, include, but are not limited to, such factors as fluctuations in
demand for Pro-Stars' products, changes in the franchise arrangements for
Pro-Stars' current or future franchise store locations, the cost of inventory
purchased from Pro-Stars' franchisor and its affiliates, conditions and trends
in the retail market, additions or departures of key personnel, Pro-Stars'
ability to attract and maintain customers and strategic business relationships,
Pro-Stars' ability to identify, locate and construct new store locations on a
cost-effective basis, the impact of competitive products and pricing, growth in
target markets, the adequacy of Pro-Stars' liquidity and financial strength to
support its growth, and other information that may be detailed from time to time
in Applied's filings with the United States Securities and Exchange Commission
should the Merger transaction contemplated by the Merger Agreement be completed.
7
Item 9.01 Financial Statements and Exhibits.
(a) Financial statements of business acquired. None.
(b) Pro forma financial information. None.
(c) Exhibits.
2.1 Agreement and Plan of Merger by and between Applied Spectrum
Technologies, Inc., APSP Acquisition, Inc. and Pro-Stars, Inc.
dated May 16, 2006.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Applied Telecommunications, Inc. has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
Applied Spectrum Technologies, Inc.
Date: May 19, 2006 By: /s/ Kevin R. Keating
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Kevin R. Keating, President
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EXHIBIT INDEX
Exhibit Number Description of Exhibit
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2.1 Agreement and Plan of Merger by and between Applied Spectrum
Technologies, Inc., APSP Acquisition, Inc. and Pro-Stars, Inc.
dated May 16, 2006.
10