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): August 11, 2006
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
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(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
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N/A
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(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))
Forward-Looking Statements
This Current Report on Form 8-K contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995, which are
subject to the safe harbors created thereby. These forward-looking statements
are based on current expectations and projections about future events. The words
and phrases "would", "will," "expect" and similar words or expressions are
intended to identify forward-looking statements. In addition, any statements
that refer to expectations or other characterizations of future events or
circumstances are forward-looking statements. The forward-looking statements are
subject to risks, uncertainties and assumptions that could cause actual results
to differ materially from those described in the forward-looking statements,
including the effectuation of the plans of reorganization of Pacific Magtron
International Corp. ("PMIC") and its subsidiaries and the consummation of the
merger of PMIC with Herborium, Inc. The Company undertakes no obligation to
publicly update or revise any forward-looking statements because of new
information, future events or otherwise.
Item 1.01 Entry into a Material Definitive Agreement.
Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant.
As previously disclosed in the Quarterly Report for the period ended March 31,
2006 on Form 10-QSB (the "Form 10-QSB") filed by Advanced Communications
Technologies, Inc. ("ACT" or the "Company") with the Securities and Exchange
Commission on May 19, 2006, the Company and Theodore S. Li and Hui "Cynthia" Lee
entered on April 12, 2006 into a binding letter agreement with respect to the
settlement of certain litigation proceedings, including the termination of Mr.
Li's and Ms. Lee's employment contracts, involving: (i) the Company; (ii)
Encompass Group Affiliates, Inc. ("Encompass"), a wholly-owned subsidiary of the
Company; (iii) Pacific Magtron International Corp., a majority-owned subsidiary
of the Company ("PMIC"); (iv) Martin Nielson, PMIC's CEO; (v) Wayne Danson, the
Company's CEO and CFO; (vi) Mr. Li; and (vii) Ms. Lee. The Mutual Settlement
Agreement and Release (the "Settlement Agreement") attached to this Current
Report on Form 8-K as Exhibit 10.1 incorporates the material provisions of the
binding letter agreement as disclosed under Part I, Item 2 - Management's
Discussion and Analysis of Plan of Operation - Liquidity and Capital Resources -
Li/Lee Settlement Agreement of the Company's Form 10-QSB.
On August 11, 2006, the Settlement Agreement became effective upon the entry of
the order (the "Confirmation Order") of the United States Bankruptcy Court for
the District of Nevada ("the "Court"), which is jointly administering the
voluntary petitions filed by PMIC and its wholly-owned subsidiaries to
reorganize their businesses under Chapter 11 of the United States Bankruptcy
Code (the "Bankruptcy Proceedings"). On that date, the Court confirmed the
Fourth Amended Plans of Reorganization of PMIC and its wholly-owned subsidiary,
LiveWarehouse, Inc. (collectively, the "Plan"), which incorporates the terms of
the Settlement Agreement. At such time, the Settlement Agreement became
enforceable by and against the Company.
Background
On December 10, 2004, Mr. Li and Ms. Lee, the holders of a collective majority
interest in PMIC, entered into a Stock Purchase Agreement (the "Stock Purchase
Agreement") with ACT, pursuant to which ACT agreed to purchase from them an
aggregate of 6,454,300 shares of the common stock of PMIC for the aggregate
purchase price of $500,000, which shares represented 61.56% of the then
currently issued and outstanding common stock of PMIC. ACT satisfied the
purchase price by delivering two convertible promissory notes (the "Convertible
Notes") in the principal amounts of $166,889 and $333,111 to Mr. Li and Ms. Lee,
respectively. The transactions contemplated by the Stock Purchase Agreement
closed on December 30, 2004.
In connection with the above-mentioned transaction, Mr. Li and Ms. Lee entered
into employments agreements (the "Employment Agreements") with ACT, PMIC and
Encompass to serve as PMIC's Chief Financial Officer and Senior Vice President,
respectively. In addition to base salaries and other compensation, the
Employment Agreements provided for payment of a signing bonus of $225,000 to
each of them on or before January 29, 2005. No part of these bonuses was
previously paid by PMIC.
2
On or about May 10, 2005, PMIC terminated the Employment Agreements of Mr. Li
and Ms. Lee. On or about May 11, 2005, ACT filed a complaint in the United
States District Court for the Southern District of New York against Mr. Li and
Ms. Lee for the recovery of damages and costs for securities fraud, breach of
contract, fraudulent inducement, fraud and deceit (the "New York Action").
On or about January 19, 2006, Mr. Li and Ms. Lee brought suit in the California
Superior Court, Santa Clara County, against ACT and Encompass and certain of
their officers (the "California Action") alleging, among other things, fraud,
intentional misrepresentation, breach of contract, breach of implied covenant of
good faith and fair dealing, violation of the California Labor Code, violation
of the Business of Professions Code of California, and defamation. In addition,
Mr. Li and Ms. Lee filed proofs of claim in the Bankruptcy Proceedings relating
to their Employment Agreements.
Terms and Conditions of Settlement Agreement
Following is a summary of the material terms and conditions of the Settlement
Agreement entered into among the Company (on its own behalf and as the Estate
Representative of the liquidating estates of Pacific Magtron, Inc. and Pacific
Magtron (GA), Inc.), PMIC, LiveWarehouse, Inc., Encompass, Messrs. Danson and
Nielson, Mr. Li and Ms. Lee.
o Within one business day of the closing of the merger of PMIC into
Herborium, Inc. (the "PMIC/Herborium Merger") and in accordance with the
Plan, ACT will pay Mr. Li and Ms. Lee (referred to collectively as the
"Terminated Executives") $325,000 in cash. To the extent permissible, PMIC
will reimburse ACT for this payment using available cash or other assets
remaining in the PMIC bankruptcy estate after final distribution under the
Plan.
o Within one business day of the closing of the PMIC/Herborium Merger and in
accordance with the Plan, PMIC will issue the Terminated Executives an
aggregate of 1,750,000 shares of Herborium common stock ("Herborium
Stock") out of the total distribution of Herborium Stock otherwise due to
ACT stockholders under the Plan, which shares will have a minimum value of
$.10 per share subject to the following conditions:
(a) such shares will be subject to a lock-up period of 150 days after
issuance during which the Terminated Executives may only sell the
shares for $.10 per share or greater; if the price per share is less
than $.10 per share at the end of the lock-up period, then ACT will
"top up" the value provided to the Terminated Executives by
delivering, in ACT's sole discretion, either:
(i) cash equal to $.10 minus the average of the closing prices of
shares of Herborium Stock on the OTCBB on the 15 trading days
prior to the 150th day following the closing of the
PMIC/Herborium Merger multiplied by the number of shares still
held, or
(ii) additional shares of Herborium Stock which would otherwise be
issued to ACT stockholders under the Plan having a value equal
to said the same amount described in (i) above;
(b) ACT's obligation to "top up" the Terminated Executives' shares of
Herborium Stock shall be collateralized by 1,750,000 shares of
Herborium Stock, which are otherwise due to ACT stockholders as a
distribution under the Plan and which will remain in escrow until
the expiration of the lock-up period or the Terminated Executives'
sale of the Herborium Stock prior thereto;
(c) in the event that the PMIC/Herborium Merger does not occur, ACT will
pay the Terminated Executives on the 76th days following the
execution of the Settlement Agreement (i) a total of $325,000 in
cash, for which payment, to the extent permissible, PMIC will
reimburse ACT using available cash or other assets remaining in the
PMIC bankruptcy estate after final distribution under the Plan, and
(ii) $175,000 worth of shares of the common stock of ACT ("ACT
Stock"), which will be based upon the average closing price of ACT
Stock on the OTCBB for the 15 trading days prior to the 76th day
following execution of the Settlement Agreement.
3
To secure ACT's obligation to issue ACT Stock, within one business
day of the Court's entry of an order approving the Settlement
Agreement, ACT has issued instructions to its transfer agent to
issue 87,500,000 restricted shares of ACT Stock to be placed in
escrow. If on the date released from escrow the price per share of
the ACT Stock is less than $.002 per share (based upon the closing
prices of the ACT Stock on the OTCBB for the 15 trading days prior
to the 76th day following the execution of the Settlement
Agreement), ACT will "top up" the aggregate value of the shares to
$.002 per share, not to exceed a total aggregate value of $175,000
for all ACT Stock by either, as determined in ACT's sole discretion:
(i) delivering cash equal to (x) the difference between $.002 per
share and the actual price per share of ACT stock as
determined by the average of the closing prices of ACT Stock
on the OTCBB for the 15 trading days prior to the 76th day
following the execution of the Settlement Agreement multiplied
by (y) the number of shares held in escrow (the "ACT Stock
Shortfall") or
(ii) providing additional shares of ACT Stock having a value equal
to the ACT Stock Shortfall.
In the event that the ACT Stock held in escrow has a per share value
of more than $.002 based upon the average of the closing prices of
ACT Stock on the OTCBB for the 15 trading days prior to the 76th day
following the execution of the Settlement Agreement, the portion of
the escrowed shares with a value in excess of $175,000 will be
returned to ACT. If the PMIC/Herborium Merger occurs, then the
escrowed ACT Stock will be returned to ACT upon the closing of the
PMIC/Herborium Merger.
Any ACT Stock issued to the Terminated Executives under the
Settlement Agreement will be effectuated by exercising the
conversion option of the Convertible Notes, which will be amended
and restated as necessary. Upon the issuance of such ACT Stock, the
Convertible Notes will be deemed to have been converted in full and
no longer outstanding.
o Each of the Terminated Executives will receive a reference letter from
PMIC that relates to the circumstances of the termination of their
employment with PMIC.
o Pursuant to the Settlement Agreement, the Terminated Executives granted
broad releases in favor of ACT, PMIC, Encompass, Messrs. Danson and
Nielson and each of their subsidiaries and their directors, employees,
heirs, insurers, attorneys and agents from any and all claims, including
but not limited to those that have or could have been brought in
connection with the Bankruptcy Proceedings, the New York Action, the
California Action or under the Stock Purchase Agreement, the Convertible
Notes, the Employment Agreements or any other document. ACT, PMIC,
Encompass and Messrs. Danson and Nielson and each of their subsidiaries
granted similar releases in favor of the Terminated Executives. The
Settlement Agreement expressly provides that it will not be construed as
an admission of liability by any party. The parties further agree not to
instigate or participate in any future litigation or proceeding against
any released party based upon events occurring prior to the execution of
the Settlement Agreement.
o The parties agree to cause any and all pending litigation between them to
be dismissed with prejudice as soon as practical upon consummation of the
Settlement Agreement.
o The Court will retain jurisdiction to resolve any disputes arising under
the Settlement Agreement.
o Each party will bear its own costs and attorneys' fees incurred in
connection with the Settlement Agreement and the pending litigation among
the parties except as follows: ACT has paid the mediation fees in the
amount of $9,500 incurred in connection with the parties' mediation on
April 12, 2006, and in the event of a breach of the Settlement Agreement,
the prevailing party in any ensuing litigation will be entitled to
reasonable attorneys' fees and costs.
4
The above description of the terms of the Settlement Agreement is qualified in
its entirety by the Settlement Agreement, which is filed as Exhibit 10.1 hereto
and is incorporated by reference herein.
As of June 30, 2006, the Company was carrying the note issued to Terminated
Executives in connection with the purchase of PMIC's stock as a current
liability at its face value of $500,000 plus accrued interest in the amount of
$45,083. Consummation of the settlement will reduce current liabilities by
$545,083. If Herborium stock is used to complete the settlement, the Company
expects to recognize $220,000 in cancellation of indebtedness income, the
difference between the $545,000 debt inclusive of accrued interest and the
$325,000 settlement. If ACT stock is used to complete the settlement, the
Company expects to recognize $45,000 of cancellation of indebtedness income as a
result of the settlement.
Item 8.01. Other Events.
Pursuant to the Plan as confirmed by the Court, PMIC will effect a reverse
merger with Herborium, Inc., a provider of proprietary, natural and
complimentary botanical healthcare products, and will be the surviving operating
entity post-merger. The Company, a 61.56% shareholder of PMIC, will contribute
up to $50,000 on behalf of PMIC's shareholders to effectuate the Plan. The
existing stock of PMIC will be canceled, and new stock will be issued. With
respect to the Company's equity interest in PMIC, new stock will be issued
directly to the Company's shareholders, subject to the dilution of such
interests upon the consummation of the Plan and the PMIC/Herborium merger. The
Company's shareholders, together with the Terminated Executives, are expected to
own 10.55% of post-merger PMIC/Herborium. The PMIC/Herborium merger is expected
to be consummated not later than 30 days after the August 11, 2006 Confirmation
Order. For more information about the Plan, see the Current Report on Form 8-K
filed by PMIC on August 16, 2006 to which the Plan, Confirmation Order, and
Order Approving the Settlement Agreement are attached as Exhibits 2.1, 2.2, and
10.1 respectively.
A copy of the press release issued by the Company announcing the Court's
confirmation of the Plan and the Settlement Agreement is furnished with this
Current Report as Exhibit 99.1.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
Exhibit
Number Description
10.1 Mutual Settlement Agreement and Release effective August 11, 2006
99.1 Joint Press Release between Pacific Magtron International Corp. and
Advanced Communications Technologies, Inc. dated August 16, 2006
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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: August 16, 2006 By: /s/ Wayne I. Danson
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Chief Executive Officer, President and
Chief Financial Officer
(principal financial officer)
EXHIBIT INDEX
Exhibit
Number Description
10.1 Mutual Settlement Agreement and Release effective August 11, 2006
99.1 Joint Press Release between Pacific Magtron International Corp. and
Advanced Communications Technologies, Inc. dated August 16, 2006