<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ______
Commission file number 1-9748
------
AMERICAN FILM TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 23-2359277
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
4105 Sorrento Valley Blvd., San Diego, CA 92121
---------------------------------------------------
(Address of Principal executive offices) (Zip Code)
(619) 623-0830
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No _____
As of November 10, 1996, there were 73,400,644 shares of Common Stock
outstanding.
<PAGE>
PART 1. FINANCIAL INFORMATION
American Film Technologies, Inc.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30,
1996 June 30,
Assets (unaudited) 1996
----------- -----------
<S> <C> <C>
Current Assets:
Cash $ 263,288 $ 338,669
Other current assets 56,344 106,254
----------- -----------
Total current assets 319,632 444,923
Equipment and software, at cost, net 421,032 444,459
Film library, net 300,000 337,500
Reorganization value in excess of identifiable assets, net 5,925,816 6,017,772
----------- -----------
$ 6,966,480 $ 7,244,654
=========== ===========
Liabilities and stockholders' equity/(deficit):
Current Liabilities:
Notes payable:
Other loans $ 12,300 $ 31,357
Accounts payable and accrued expenses 468,307 480,471
Accrued compensation 213,327 220,058
----------- -----------
Total current liabilities 693,934 731,886
Long term notes payable 1,621,228 1,634,404
----------- -----------
Total liabilities 2,315,162 2,366,290
Stockholders' equity/(deficit):
Preferred stock, $.001 par value:
Authorized shares - 10,000,000 at September 30, 1996 and
June 30, 1996: issued and outstanding shares 0 at
September 30, 1996 and June 30, 1996 0 0
Common stock, $.002 par value:
Authorized shares - 90,000,000 at September 30, 1996 and
June 30, 1996: issued and outstanding shares 70,900,644
at September 30, 1996 and 69,567,310 at June 30, 1996 141,802 139,135
Capital in excess of par value 7,461,785 7,264,453
Deferred compensation (1,020,000) (1,080,000)
Accumulated deficit (1,932,269) (1,445,224)
----------- -----------
Total stockholders' equity/(deficit) 4,651,318 4,878,364
----------- -----------
$ 6,966,480 $ 7,244,654
=========== ===========
</TABLE>
See accompanying notes
1
<PAGE>
American Film Technologies, Inc.
Condensed Consolidated Statements of Operations
For the Three months ended September 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Successor Predecessor
Company Company
------------------ -----------------
September 30, September 30,
1996 1995
------------------ -----------------
<S> <C> <C>
Revenues: $ 0 $ 0
------------ ------------
0 0
Expenses:
Compensation and benefits - administrative
and officers 99,600 34,159
Selling, general and administrative 216,764 76,828
Interest expense 30,974 26,779
Depreciation and amortization 139,707 238,273
Reorganization items:
Professional fees 0 48,930
U.S. Trustee fees 0 1,250
------------ ------------
487,045 426,219
------------ ------------
Net loss ($ 487,045) ($ 426,219)
============ ============
Net loss per share ($ 0.01) ($ 0.01)
============ ============
Shares used in per share computation 69,789,532 30,410,802
============ ============
</TABLE>
See accompanying notes.
2
<PAGE>
American Film Technologies, Inc.
Condensed Consolidated Statements of Cash Flows
For the Three months ended September 30, 1 996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Successor Predecessor
Company Company
-------------- --------------
September 30, September 30,
CASH FLOWS FROM OPERATION ACTIVITIES: 1996 1995
------------- -------------
<S> <C> <C>
Net (loss) ($ 487,045) ($426,219)
Adjustments to reconcile net (loss) to net cash
(used) by operating activities:
Depreciaiton and amortization 139,707 238,273
Amortization of Deferred compensation 60,000
Changes in assets and liabilities:
Restricted cash -- (2,735,692)
Other current assets 49,910 (3,357)
Accounts payable and accrued expenses (12,165) 28,118
Accrued compensation (6,731) --
----------- -----------
Net cash fused) by operating activities (256,324) (2,898,877)
Cash Flows From Investing Activities: -- --
----------- -----------
Net cash provided (used) by investing activities 0 0
Cash Flows From Financing Activities:
Principal payments on notes payable - bank -- (250,000)
Principal payments on notes payable - other (119,057) --
Proceeds from notes payable - other -- 503,000
Proceeds from sale of common stock 200,000 --
Proceeds from common stock subscriptions -- 2,739,100
----------- -----------
Net cash provided by financing activities 180,943 2,992,100
Net increaseAdecrease) in cash (75,381) 93,223
Cash, beginning of period 338,669 10,584
----------- -----------
Cash, end of period $ 263,288 $ 103,807
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 4,708 $ 0
Reduction of Long term debt written down against
Reorganization value in excess of identifiable assets $ 13,176 $ 0
</TABLE>
See accompanying notes.
3
<PAGE>
AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 (UNAUDITED)
1. Reorganization Under Chapter 11
Bankruptcy Proceedings and Basis of Presentation
On October 15, 1993, the Company filed for protection from creditors under
Chapter 11 of the United States Bankruptcy Code. The Chapter 11 filing was the
result of continuing defaults related to the Company's loans, recurring
operating losses and cash flow problems. The filing of a Chapter 11 petition
operates as a stay of, among other actions, the commencement or continuation of
a judicial, administrative or other action or proceeding against a debtor that
was or could have been initiated before the commencement of a Chapter 11 case or
the enforcement against the debtor or against the property of the estate or a
judgment obtained before the commencement of the case. Under Chapter 11,
substantially all pre-petition liabilities of debtors are subject to settlement
under a plan of reorganization. The consummation of a plan of reorganization is
dependent upon the satisfaction of numerous conditions, including, among other
things, the acceptance by several classes of interests and confirmation by the
Bankruptcy Court.
On October 6, 1995, the Company's Plan of Reorganization (the "Plan") was
approved by the bankruptcy court and became effective October 17, 1995. The
accompanying consolidated financial statements have been prepared in conformity
with principles of accounting applicable to a going concern. As discussed below
(see H. J. Meyers Agreement), the Company completed a private placement for
$3,460,200 and management intends to raise additional funds to finance its
future operations. See the Management's Discussion and Analysis of Financial
Condition and Results of Operations section for additional fund raising
activities during and subsequent to the quarter ended September 30, 1996. While
management believes it will be successful in its efforts, there are no
assurances whether sufficient financing or equity will be available to fund the
operations through June 30, 1997. No adjustments have been made to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result if the Company is
unable to continue as a going concern.
Further, the accompanying consolidated financial statements do not reflect any
adjustments relating to settlement of the claims of any class of creditors that
are provided for in the Company's Plan of Reorganization. Any adjustments
relating to such settlements will be recorded at such time as the Bankruptcy
Court enters a final order relating to these settlements. See discussion under
"Fresh Start Reporting" below. The only effect of the bankruptcy proceedings
reflected in the accompanying financial statements as of September 30, 1995 is
that "Reorganization items" (including professional fees) have been specifically
identified on the Consolidated Statements of Operations.
4
<PAGE>
AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 (UNAUDITED)
Plan of Reorganization
Under the terms of the Plan, the following is a summary of
the treatment of each of the major classes of creditors and stockholders:
<TABLE>
<CAPTION>
Estimated
Class of Amount of
claims claim Distribution under the Plan Status
- --------- ---------- --------------------------- ------
<S> <C> <C> <C>
Class 1 - $86,000 Cash payment in full on effective Unimpaired
Employee date.
Priority claim
Class 2 - $80,000 Cash payment on Distribution Date or, at Unimpaired
Priority the Company's discretion, over six years
Claims plus interest
Class 3 - $623,000 Cash payment on the effective date plus Unimpaired
Comerica interest and reasonable legal fees
Claims
Class 4 - $500,000 Cash payment plus interest on the effective Unimpaired
Secured date
Claims
Class 5 - $122,000 $110,000 cash payment plus accrued interest Impaired
DIP on effective date and remainder in one year
Financing note.
Claims
Class 6 - $ 6,000 Cash payment in full on effective date Unimpaired
Convenience
Claims
Class 7 - $1,650,000 Unsecured five year notes in full amount of Impaired
Unsecured allowed claim, with interest at 7%.
Claims
Class 8 - N/A $10 cash on effective date. Unexercised Impaired
Preferred Series B and the Series C and D voting
Stock convertible preferred stock interests will
Interests be canceled
</TABLE>
5
<PAGE>
AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Estimated
Class of Amount of
claims claim Distribution under the Plan Status
- --------- ---------- --------------------------- ------
<S> <C> <C> <C>
Class 9 - N/A Retained, subject to dilution Impaired
Common
Stock Interests
Class 10 - N/A Canceled Impaired
Other Equity
Interests
</TABLE>
The above Class 7 unsecured Claim does not include the Class 7 Claim of Joseph
Taritero which has been compromised pursuant to the provisions of a prior
Stipulation and Order (see Note 4).
A claim becomes impaired when the legal, contractual or equitable right of such
claim is altered, modified or changed by the proposed treatment under the Plan.
H. J. Meyers Agreement
On May 3, 1995, the Company executed an agreement with H. J. Meyers and Co.,
Inc. ("Meyers") pursuant to which Meyers purchased an exclusive 90 day option,
as of May 30, 1995, to purchase common stock from the Company for $3,000,000
which would provide Meyers up to 51% of the outstanding shares. Upon approval of
the agreement by the Bankruptcy Court, on May 30, 1995, Meyers paid the Company
a non-refundable fee of $150,000 for the option. The agreement required Meyers
to pay $3,000,000 to the Company upon the effective date of the Company's Plan.
Through a subsequent amendment to that agreement, Meyers agreed to use its best
efforts to increase the proceeds of the offering to $4,000,000 which would
result in net proceeds of $3,480,000 to the Company. In exchange for this
possible increase, the Company agreed to issue an additional 3,800,000 shares to
Meyers and its assignees. Meyers raised the money through a private placement of
the Company's common stock to "accredited investors", as that term is defined by
the Securities Act of 1933. The proceeds to the Company totaled $3,460,200,
including the conversion of a $300,000 bridge loan discussed below.
The Company agreed to grant a one-time demand and piggy back registration right.
For a period of two years from the effective date, (upon demand by at least 25%
of the new stockholders) the new stockholders can demand the Company file a
registration statement with the SEC covering the reoffer and resale of its
shares (up to 38,982,508). Notwithstanding the foregoing, if at any time prior
to exercise of the demand registration right the Company receives a Letter of
Intent from an underwriter for a public equity offering of at least $5,000,000
of the Company's securities, then the demand registration right shall terminate.
On March 28, 1996, the Company entered into a letter of intent with H. J. Meyers
(the "Meyers Letter of Intent") under which Meyers confirmed its interest in
underwriting on a firm commitment basis a public offering of shares of the
6
<PAGE>
AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 (UNAUDITED)
Company's common stock. The Meyers Letter of Intent contemplates the negotiation
and execution of formal agreements relating to the proposed offering and
provides, among other things, that the Company will apply for listing on the
Nasdaq Small Cap Market and use its best reasonable efforts to maintain such
listing for not less than five years; that the Company, if requested, obtain
"key man" life insurance on the lives of designated officers of the Company and
that the Company shall have entered into a joint venture, business alliance or
business combination with an owner of content on terms acceptable to Meyers.
The new stockholders also have a right to register their shares in any offering
of the Company stock (a "piggy-back" right). The amount of stock the new
shareholders may register and sell is subject to pro-rata reduction or
elimination at the sole discretion of the underwriter. The existence of these
rights could adversely impact the future price of the common stock or the
ability of the Company to raise additional equity capital.
To enable the Company to fund certain obligations prior to the effective date of
the Plan, on July 28, 1995 Meyers arranged a $500,000 bridge loan to the Company
with interest at 8% plus common stock at the rate of one half share for every
dollar of bridge loan. The loans were convertible into common stock at the same
rate as the private placement to the accredited investors. On the effective
date, $300,000 of the bridge loan was converted into the Company's common stock
and the remaining $200,000 was repaid. The $500,000 bridge loan is included in
Class 4 - Secured Claims mentioned above.
Fresh Start Reporting
Under the provision of Statement of Position (SOP) 90-7, "Financial Reporting by
Entities in Reorganization under the Bankruptcy Code," issued in November 1990
by the American Institute of Certified Public Accountants, the Company has
prepared the accompanying pro forma balance sheet as of the effective date,
October 17, 1995 on the basis of "fresh start" reporting since the
reorganization value, as defined, was less than the total of all post-petition
liabilities and prepetition claims, and holders of voting shares immediately
before confirmation of the Plan received less than fifty percent of the voting
shares of the emerging entity. Under this concept, all assets and liabilities
are restated to reflect the reorganization value of the reorganized entity,
which approximates its fair value at the date of reorganization. In addition,
the accumulated deficit of the Company was eliminated and its capital structure
was recast in conformity with the Plan. As such, the accompanying consolidated
pro forma balance sheet as of October 17, 1995 represents that of a successor
company which, in effect, is a new entity with assets, liabilities and a capital
structure having carrying values not comparable with prior periods and with no
beginning retained earnings or deficit.
7
<PAGE>
AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 (UNAUDITED)
The Company estimated the fair value of the reorganized entity based on the
proceeds received from the private placement of 56% of its common stock which
was completed on the effective date. While the estimated reorganization value of
the Company has been primarily allocated to specific asset categories pursuant
to Fresh Start Reporting, the effects of such are subject to further refinement
or adjustment. Current assets have been recorded at their book value, which the
Company believes approximates fair value. Equipment, software and film library
have been recorded at their approximate fair value. Long term debt consists of
pre-petition liabilities and will be paid out subject to the terms of the Plan.
The effect of the Plan on the Company's consolidated balance sheet at
October 17, 1995 (the Effective Date) is as follows:
<TABLE>
<CAPTION>
(1) (2)
H.J Meyers Fresh Reorganized
Prior to Private Start Balance
Assets Reorganization Placement Adjustments Sheet
--------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Current Assets:
Cash $ 115,721 $ 2,960,200 $ 0 $ 3,075,921
Restricted cash 2,960,200 (2,960,200) 0 0
Accounts receivables 0 0 0
Other current assets 36,493 36,493
------------ ------------ ------------ ------------
Total current assets 3,112,414 0 0 3,112,414
Equipment and software, at cost, net 755,253 (305,253) 450,000
Leasehold improvement, net 64,740 64,740
Film library, net 55,380 394,620 450,000
------------ ------------ ------------ ------------
Property and equipment, net 875,373 0 89,367 964,740
Reorganization value in excess of
identifiable assets 0 6,237,264 6,237,264
------------ ------------ ------------ ------------
Total assets $ 3,987,787 $ 0 $ 6,326,631 $ 10,314,418
============ ============ ============ ============
Liabilities and stockholders' equity/(deficit)
Current Liabilities:
Notes payable:
Bank Loans - in default $ 348,385 $ 348,385
Other loans 622,300 (300,000) 322,300
Accounts payable and accrued expenses 1,470,705 350 1,471,055
Accrued compensation 729,376 729,376
------------ ------------ ------------ ------------
Total current liabilities 3,170,766 (300,000) 350 2,871,116
Notes payable 0 1,642,234 1,642,234
Liabilities subject to compromise 1,642,211 (1,642,211) 0
Stockholders'equity/(deficit):
Preferred stock 695 (695) 0
Common stock 60,821 78,294 139,115
Capital in excess of par value 13,526,768 3,181,906 (11,046,721) 5,661,953
Accumulated deficit (17,373,674) 17,373,674 0
Subscription payable 2,960,200 (2,960,200) 0
------------ ------------ ------------ ------------
Total liabilities and stockholders' equity/(deficit) $ 3,987,787 $ 0 $ 6,326,631 $ 10,314,418
============ ============ ============ ============
</TABLE>
(1) To record the effects of the H. J. Meyers Private Placement Plan.
Subsequent to October 17, 1995, the Company received an additional $200,000
from subscriptions related to the Private Placement.
(2) To record assets, liabilities and capital at their fair value pursuant to
Fresh Start Reporting and eliminate any retained deficit.
8
<PAGE>
AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 (UNAUDITED)
2. Summary of Significant Accounting Policies
The Company's principal business is the production of color versions of motion
pictures and television programs originally produced in black-and-white. The
Company has produced colorized films for its own library and owns the copyrights
on eleven such films. These films are available for sale and or distribution.
Consolidation
The consolidated financial statements include the accounts of Midtech de Mexico,
S.A. de C.V., the Company's wholly-owned Mexican subsidiary. All intercompany
transactions have been eliminated in consolidation.
Revenue Recognition
The Company recognizes revenue from coloring films on the completed contract
method. It is the Company's experience that the production cycle for coloring a
film is less than ninety days. Financial position and results of operations do
not vary significantly from those which would result using the
percentage-of-completion method. If the production cycle exceeds 90 days, the
Company recognizes revenue using the percentage of completion method, as
measured by the percentage of costs incurred to total estimated costs. A feature
film is considered complete upon acceptance by the customer.
The Company recognizes revenue on its distribution business on the accrual
basis. Based on the ratings received, revenue projections received from the
distributors and experience, the Company estimates the revenue to be recognized
each quarter.
Depreciation and Amortization
Depreciation and amortization are provided over the estimated useful lives of
the underlying assets using primarily the straight line method over a five-year
period. Leasehold improvements are amortized over the life of the lease or the
estimated useful life of the assets. Reorganization value in excess of
identifiable assets is being amortized over twenty years.
Production Costs - Excluding Depreciation and Amortization
Cost of sales includes direct salaries and related benefits of production
personnel and an allocation of overhead and material costs used in the coloring
and animation processes.
9
<PAGE>
AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 (UNAUDITED)
Film Library
Costs incurred in creating the Film Library include direct salaries and related
benefits of production personnel charged to specific coloring projects, an
allocation of overhead and costs of materials used in the coloring process.
Costs are charged to Film Library using the same system the Company maintains
for calculating cost of coloring films for customers. The Film Library is being
amortized using the straight line method over a three year period.
Loss per Share
Loss per share has been calculated by dividing the net loss applicable to common
stock by the weighted average number of common stock outstanding for the periods
indicated. For the quarters ended September 30, 1996 and 1995, no exercise of
stock options was assumed because the exercise of such equivalents would be
anti-dilutive.
Income Taxes
Income taxes have been provided for in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." That
standard requires companies to account for deferred taxes using the asset and
liability method. Accordingly, deferred income taxes are provided to reflect
temporary differences between financial and tax reporting.
Stock Options
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its employee stock options.
3. Reorganization value in excess of identifiable assets
In accordance with Statement of Position (SOP) 90-7, upon the effective date,
$6,237,264 of the reorganization value of the Company was not attributable to
specific tangible or identified intangible assets and has been classified as an
intangible asset. While the estimated reorganization value of the Company has
been preliminarily allocated to specific asset categories pursuant to Fresh
Start Reporting, the effects of such are subject to further refinement, which
will cause this "reorganization value" account to be adjusted accordingly.
Furthermore, any adjustment relating to the settlement of a disputed prepetition
claim by the Bankruptcy Court will also cause this "reorganization value"
account to be adjusted accordingly. Reorganization value in excess of
identifiable assets is as follows:
10
<PAGE>
AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 (UNAUDITED)
September 30, 1996
------------------
Reorganization value in excess of identifiable assets $6,214,676
less accumulated amortization 288,860
----------
$5,925,816
==========
The related amortization for the quarter ended September 30, 1996 was $78,780.
4. Lawsuit Settlement
In January 1993, a suit was instituted against the Company by Joseph M. Taritero
in the Superior Court of the State of California for the County of Los Angeles
alleging breach of contract and fraud and seeking damages of $892,000. The
Company has settled with Mr. Taritero for an amount totaling $275,000. In
accordance with the terms of the Plan, $125,000 was paid on the effective date,
$75,000 was paid in April 1996 and the remaining $75,000 was paid in October
1996.
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This discussion should be read in conjunction with the consolidated
financial statements, related notes and management's discussion and analysis of
financial conditions and results of operations included in the Company's annual
report on Form 10-K for the year ended June 30, 1996.
Overview and Reorganization.
On October 15, 1993, the Company filed for protection under Chapter 11
of the Bankruptcy Code in the Bankruptcy Court for the District of Delaware. On
October 6, 1995, the Company's Plan of Reorganization (the "Plan") was approved
by the Bankruptcy Court and became effective October 17, 1995 (the "Effective
Date"). In connection with the Plan, the Company raised $3.46 million in new
capital in exchange for the issuance of common stock representing approximately
56% if its total outstanding common stock. The Company emerged from bankruptcy
under Fresh Start Reporting as promulgated by Statement of Position No. 90-7,
Financial Reporting by Entities in Reorganization under the Bankruptcy Code. For
a detailed discussion of the bankruptcy proceedings, see Note 1 in the Notes To
Condensed Consolidated Financial Statements.
From the filing of the bankruptcy to October 1995, AFT was funded
principally from the conversion of all of its Series A Preferred Stock and
64,750 shares of its Series B Preferred Stock into 15,237,500 shares of Common
Stock. The conversion generated $638,000 in additional capital. In addition, Mr.
Gerald Wetzler, AFT's principal shareholder during the bankruptcy period, and
Mr. Robert Bernhard, pursuant to a debtor in possession secured lending
arrangement, in their discretion, could make available to AFT up to an aggregate
of $150,000 (the "DIP Financing"). The maximum outstanding at any time under
the DIP Financing was $122,000 in July 1995.
The Company's production facility in Tijuana, Mexico initially closed
down in October 1993 due to a strike of its employees. It currently remains
closed because the Company has not resumed operations. In June 1995, the
Company's new subsidiary, Midtech de Mexico, renegotiated the lease of its
production facility in Tijuana. Current management believes a Mexican production
facility is advantageous to the strategic plan of the Company.
Success of the Company will, among other things, depend upon the
resumption of production in Mexico. That will require reemployment of selected
former Mexican employees. Since the Mexican operation was suspended in October
1993, the Company believes most of the former employees have found other jobs.
If Midtech is unable to rehire certain former employees, it will have to recruit
12
<PAGE>
and train a new work force. That would delay the resumption of production and
increase the cost of production. As such, it could have a materially adverse
effect on the Company. Although the Company expects to benefit from the
devaluation of the peso, there is no assurance of how long those expected
benefits will last.
Since emerging from bankruptcy, the Company has actively pursued new
product development and opportunities, as well as strategic alliances, partners
and other sources of financing. Related to those efforts, during the quarter
ended September 30, 1996 the Company issued 1,333,334 shares of its Common Stock
for an aggregate cash purchase price of $200,000. Subsequent to the quarter
ended September 30, 1996, the Company issued 2,500,000 shares of its Common
Stock for an aggregate cash purchase price of $375,000.
The Company is in discussions with other potential investors regarding
the purchase of equity securities or other investments in the Company, however,
there can be no assurance that any transaction can be negotiated or, if
negotiated, that such a transaction can be consummated.
On March 28, 1996, the Company entered into a letter of intent with
Meyers (the "Meyers Letter of Intent") under which Meyers confirmed its interest
in underwriting on a firm commitment basis a public offering of shares of the
Company's common stock. The Meyers Letter of Intent contemplates the negotiation
and execution of formal agreements relating to the proposed offering and
provides, among other things, that the Company will apply for listing on the
Nasdaq Small Cap Market and use its best reasonable efforts to maintain such
listing for not less than five years; that the Company, if requested, obtain
"key man" life insurance on the lives of designated executive officers of the
Company; and that the Company shall have entered into a joint venture, business
alliance or business combination with an owner of content on terms acceptable to
Meyers.
Results of Operations.
The operations of the Company for the periods ended September 30, 1996
(Successor Company) and September 30, 1995 (Predecessor Company) were
significantly affected by the cessation of production operations of the Company.
As a result, the financial results of the Company for each of the periods
addressed by this report do not reflect the earnings capacity of the Company.
The financial data for the period ended September 30, 1996 reflects the adoption
of Fresh Start Accounting. As such, the financial data is considered that of a
Successor Company and is not comparable to prior periods.
Since the filing under Chapter 11 in October, 1993, the Company has not
generated any income from film colorization, animation or fee for service
orders. For the quarters ended September 30, 1996 and 1995, the Company recorded
net interest expense of approximately $31,000 and $27,000 respectively. The
total for the period ended September 30, 1996 includes $2,000 of interest
income.
13
<PAGE>
For the quarters ended September 30, 1996 and 1995, the Company
recorded compensation and benefits for its administration and officers of
approximately $100,000 and $34,000 respectively. The increase for the period
ended September 30, 1996 is primarily due to $60,000 of amortization expense
related to the Deferred Compensation under Gerald Wetzler's compensation
agreement.
For the quarters ended September 30, 1996 and 1995, the Company
recorded selling, general and administrative expenses of approximately $217,000
and $77,000 respectively. The increase at September 30, 1996 is primarily due to
insurance, legal fees related to the Company's patents, a reduction of an
accrued legal fee in the September 30, 1995 period and a sales tax refund
received in the September 30, 1995 period which was netted against expenses.
For the quarters ended September 30, 1996 and 1995, the Company
recorded depreciation and amortization expense of approximately $140,000 and
$238,000 respectively. Depreciation expense for the period ended September 30,
1996 is based on Fresh Start Accounting, which among other things, includes a
restatement of all assets and liabilities to approximate their fair value as of
the date of reorganization.
For the quarters ended September 30, 1996 and 1995, the Company had a
net loss of approximately $487,000 and $426,000 respectively, or $0.01 cent per
share for each period.
Liquidity and Capital Resources.
In connection with the Plan, the Company completed a private placement
of $3.46 million. During the fiscal year ended June 30, 1996, the Company
entered into a stock option agreement with Gerald Wetzler, its Chairman and CEO,
whereby Mr. Wetzler purchased for a fee of $200,000 (which was deemed fair
value) an option to acquire the Company's common stock, or in the alternative,
preferred stock convertible into common stock.
During the quarter ended September 30, 1996, the Company issued
1,333,334 shares of its Common Stock for an aggregate cash purchase price of
$200,000. Subsequent to the quarter ended September 30, 1996, the Company issued
2,500,000 shares of its Common Stock for an aggregate cash purchase price of
$375,000. The Company believes these funds will be sufficient to last through
February 1997.
The funds raised in the private placements, as well as the additional
funds raised are essential for the Company to continue operations. The Company
will be required to raise additional financing to fund operations past February
1997 and no assurances can be made that such additional financing will occur. As
noted above, the Company has entered into a Letter of Intent with H. J. Meyers &
Co., Inc. for the purpose of raising additional capital through a public
offering.
14
<PAGE>
PART II : OTHER INFORMATION
Item 1. Legal Proceedings
Taritero Claim. The Company's former Chief Executive Officer, Joseph
Taritero, sued the Company and certain of its former directors and officers in
the Superior Court of the State of California for the County of Los Angeles
alleging breach of contract and fraud and seeking damages "in excess of
$686,000." Mr. Taritero and the Company had executed a three year Employment
Agreement in December 1991 and Mr. Taritero served as Chief Executive Officer of
the Company from that time until his resignation in November 1992.
The Company had no funds to defend the action and had not retained
counsel to do so, and in May 1995, a default judgment was entered against the
Company for compensatory damages of $892,000 on a breach of contract. In
accordance with the Stipulation and Order from the Bankruptcy Court, the Company
agreed to a full and final settlement with Mr. Taritero for an amount totaling
$275,000. In accordance with the terms of the Plan, $125,000 was paid on the
Effective Date, $75,000 was paid in April 1996 and the remaining $75,000 was
paid in October 1996. The Company and Mr. Taritero have executed mutual general
releases each in favor of the other. Mr. Taritero also received a compensatory
damage award of $892,000 and a punitive damage award of $8,125,000 for fraud
solely against the former directors and officers of the Company. The Company
does not intend to report on this matter any further.
Item 2. Changes In Securities
Sale of Unregistered Securities - In September 1996, the Company issued
1,333,334 shares of its Common Stock (the "Shares") in a private placement to
two investors for an aggregate purchase price of $200,000. The Shares were
issued without the benefit of an effective registration statement under the
Securities Act of 1933, as amended (the "Act") in reliance upon the private
placement exemptions under Section 4(2) of the Act. Subsequent to the quarter
ended September 30, 1996, the Company issued in a private placement an
additional 2,500,000 shares of Common Stock to two investors for an aggregate
purchase price of $375,000. These sales were also consummated without the
benefit of an effective registration statement under the Act based upon the
private placement exemptions issued under Section 4(2) of the Act.
Item 3. Defaults Upon Senior Securities
None.
15
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
As a result of the Plan, as of the Effective Date of the Plan, the
Company adopted "fresh start" accounting, which reflects the payment or
discharge of certain debts in accordance with the Plan. "Fresh start accounting"
allows a reorganized entity to reflect its reorganization value, which
approximates its fair value at the date of reorganization. In addition, the
accumulated deficit of the Company is eliminated and its capital structure is
recast in conformity with the Plan.
In October 1996, the Company elected Porter Bibb to its Board of
Directors to fill an existing vacancy created by the resignation of David
Abraham. Mr. Bibb is a Managing Director at Ladenburg, Thalman & Co., Inc., a
New York based investment banking concern. A senior investment banker
specializing in media, entertainment and technology, Mr. Bibb is also the author
of It Ain't As Easy As It Looks, a best selling biography of Ted Turner. He is
currently writing a history of the Bronfman family dynasty for William Morrow &
Co.
Item 6. Exhibits and Reports on Form 8-K
10.17 Stock purchase agreement dated September 18, 1996 between the
Company and Morris Himmel.
10.18 Registration undertaking agreement dated September 18, 1996
between the Company and Morris Himmel.
10.19 Stock purchase agreement dated September 18, 1996 between the
Company and James Inglis.
10.20 Registration undertaking agreement dated September 18, 1996
between the Company and James Inglis.
16
<PAGE>
Signatures
In accordance with 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, thereunto duly authorized.
AMERICAN FILM TECHNOLOGIES, INC.
Date: November 10, 1996 By: /s/ Gerald M. Wetzler //
-------------------- -------------------------
Gerald M. Wetzler,
Chairman, Chief Executive Officer
Date: November 10 , 1996 By: /s/ John J. Karl //
------------------- --------------------
John J. Karl,
Principal Accounting Officer
17
<PAGE>
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT ("Agreement") is
entered into as of this ____ day of September, 1996 between American Film
Technologies, Inc., 300 Park Avenue, 17th Floor, New York, New York 10022 (the
"Company"), and Morry Himmel ("Purchaser").
W I T N E S S E T H:
WHEREAS, the Company is in need of additional
capital to continue to finance its operations and to continue its business; and
WHEREAS, Purchaser is willing to acquire from the
Company Six Hundred and Sixty Six Thousand Six Hundred and Sixty Seven (666,667)
shares of $.002 par value per share common stock of the Company (the "Common
Stock") (the "Purchased Shares") for an aggregate purchase price of One Hundred
Thousand Dollars ($100,000) (the "Purchase Price");
WHEREAS, the Company is willing to sell to the
Purchaser the Shares for the Purchare Price and such other terms and conditions
as set forth herein; and
NOW, THEREFORE, in consideration of the foregoing,
the mutual promises contained herein and other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the Company and
Purchaser agree as follows:
1. Purchase and Sale of the Shares. Upon
satisfaction of the conditions set forth in Sections 2 and 3 below, the Company
shall sell to Purchaser and Purchaser shall purchase from the Company the Shares
for the Purchase Price (the "Sale").
2. Approval of the Board of Directors. The Company's
obligations hereunder are subject to and conditioned upon the approval by the
Company's the Board of Directors on or before September 25, 1996 of the Sale and
the authorization of the issuance of the Shares by the Company in connection
with the Sale ("Board Approval").
3. Conditions Precedent, Delivery of the Shares.
(a) The obligations of the Company hereunder
shall be subject to and conditioned upon the satisfaction of all
of the following conditions:
i. The execution of this Agreement
by the parties hereto;
ii. Board Approval;
<PAGE>
iii. The completion, execution and
delivery by the Purchaser to the Company of the Purchaser's Questionnaire,
attached hereto as Exhibit "A";
iv. The delivery by the Purchaser to
the Company of the Purchase Price; and
v. All of the representations and
warranties of the Purchaser contained herein remain true and correct.
(b) Upon satisfaction of all of the
conditions precedent set forth in Section 3(a) above, the Company shall cause to
be delivered to the Purchaser at the address set forth in Section 8(b) below a
stock certificate representing the Shares. Said stock certificate shall contain
a restrictive legend substantially similar to that set forth in Section 7 below
(the "Certificate").
4. Representations of the Company. The Company
represents and warrants that:
(a) upon issuance, the Shares will be (i)
validly issued, fully paid and nonassessable; and (ii) free of any liens or
encumbrances;
(b) the Sale has been duly authorized and
approved; and
(c) the consummation of the Sale as
contemplated by this Agreement does not violate the terms of the Company's
Certificate of Incorporation or By-Laws.
Except as expressly set forth above, the Company makes no representations or
warranties of any kind or nature to the Purchaser.
5. Representations of Purchaser.
Purchaser represents and warrants in favor
of the Company that:
(a) it is acquiring the Shares for its own
account, for investment purposes only, and not with a view to or for the resale,
distribution or assignment thereof, in whole or in part;
(b) it understands that the offer and sale
of the Shares is intended to be exempt from registration under the Securities
Act of 1933, as amended (the "Act"), and under the laws of any other
jurisdiction; that the Company does not intend and is under no obligation to so
register the Shares; that the Shares may not therefore be sold, assigned,
pledged or otherwise transferred unless subsequently registered under the Act or
pursuant to an exemption therefrom; and that legends to the foregoing effect
will be placed on the Certificate evidencing the Shares;
2
<PAGE>
(c) Purchaser has the financial ability to
bear the economic risk of its investment in the Company, including its possible
loss, has adequate means of providing for his current needs and personal
contingencies and has no need for liquidity with respect to its investment in
the Company;
(d) Purchaser has the knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of an investment in the Shares and has obtained, in its
judgment, sufficient information from the Company to evaluate the merits and
risks of an investment in the Shares;
(e) Purchaser is an "accredited investor" as
such term is defined in Rule 501(a) of Regulation D, promulgated under the
Securities Act of 1933, as amended;
(f) Purchaser will not sell, assign, pledge
or otherwise transfer the Shares unless such action is registered under the Act
or is exempt from registration pursuant to an exemption therefrom, and
acknowledges that the Company is under no obligation whatsoever to register the
Shares under the Act or to assist the Purchaser in any way to secure an
exemption from registration;
(g) Purchaser has been provided an
opportunity to obtain information concerning the offering, the Company and all
other information to the extent the Company or its representatives possess such
information or can acquire it without unreasonable effort or expense;
(h) Purchaser has been given the opportunity
to ask questions of and receive answers from the representatives of the Company
concerning the Company, the Shares, the terms and conditions of the Sale and
other matters pertaining to this investment, and has been given the opportunity
to obtain additional information necessary to verify the accuracy of the
information provided in order for it to evaluate the merits and risks of an
investment in the Company to the extent the representatives possess such
information or can acquire it without unreasonable effort or expense, and has
not been furnished any offering literature or prospectus except the SEC Reports,
as hereinafter defined;
(i) Purchaser has determined that its
investment in in the Company through its purchase of the Shares is a suitable
investment for it and that at this time it can bear a complete loss of its
investment;
(j) In making his decision to invest in the
Company through the purchase of the Shares the Purchaser has relied solely upon
independent investigations made by it;
3
<PAGE>
(k) Purchaser has reached the age of
majority in the state in which it resides and is a bona fide resident and
domiciliary of the state set forth on the signature page.
(l) Purchaser represents and acknowledges
that it has received, read and understood the following documents:
i. The Company's Form 10-K Report
for its fiscal year ended June 30, 1995;
ii. The Company's Form 10-Q Reports
for the fiscal quarters ended September 30, 1995, December 31, 1995 and March
31, 1996; and
iii. The Company's draft Form 10-K
Report for the fiscal year ended June 30, 1996. Purchaser agrees to keep
confidential and not to disclose any non-public information contained in such
Report prior to its filing with the Securities and Exchange Commission (the
"SEC").
(Said documents included in i, ii and iii above are hereinafter collectively
referred to as the "SEC Reports").
(l) Purchaser is not subscribing as a result
of or subsequent to:
i. any advertisement, article,
notice or other communication published in any newspaper, magazine or similar
media or broadcast over television or radio; or
ii. any seminar or meeting whose
attendees, including the Purchaser, had been invited as result of, subsequent to
or pursuant to any of the foregoing.
(m) Any information which the Purchaser has
heretofore furnished to the Company with respect to its financial position and
business experience, including without limitation its Purchaser Questionnaire,
attached hereto as Exhibit "A", is complete and correct as of the date of this
Agreement and if there should be any material change in such information at any
time prior to or after acceptance of the Sale, the Purchaser will immediately
furnish such revised or corrected information to the Company.
(n) Purchaser and/or Purchaser's investment
advisors, if any, have carefully read and reviewed this Agreement, Exhibit A
hereto and the SEC Documents and understand the risks of, and other
considerations relating to, a purchase of Sale, including, but not limited to,
the risks set forth under "Risk Factors" in the Company's draft 1996 Form 10-K
Report. In connection therewith, Purchaser is aware of the fact that the Company
has recently emerged from a Chapter 11 Bankruptcy proceeding, has not engaged in
ongoing business operations in over thirty (30) months and will need additional
financing in
4
<PAGE>
order to remain in business and significant additional financing thereafter to
implement its business plan.
(o) Purchaser will be the only person with a
direct or indirect interest in the Shares purchased pursuant to this Agreement.
(p) Purchaser acknowledges, represents,
agrees and is aware that:
i. no Federal or state agency has
passed upon the Sale or the Shares issuable in connection therewith or made any
findings or determinations as to the fairness of this investment;
ii. there are substantial risks of
loss of investment incidental to the purchase of the Shares;
iii. the investment is an illiquid
investment;
iv. the representations, warranties,
agreements, undertakings and acknowledgments made by the Purchaser in this
Agreement are made with the intent that they be relied upon by the Company and
its officers in determining his suitability as a purchaser of the Shares, and
shall survive the acceptance by the Company of this subscription, In addition,
the Purchaser agrees to notify the Company immediately of any change in any
representation, warranty or other information relating to the undersigned set
forth herein;
v. Purchaser has read and understood
the SEC Documents.
(q) Purchaser represents, warrants and
agrees in favor of the Company that Purchaser has determined to make this
investment based on its own investigation of the Company and its prospects, that
neither the Company nor any of its officers, directors, employees, agents,
representatives or attorneys have made any representations to Purchaser
concerning the business or prospects of the Company, that Purchaser has the
business sophistication to determine on its own whether or not to make this
investment.
6. Indemnification.
The Purchaser understands the meanings and legal
consequences of the representations and warranties contained in this Agreement
and agrees to indemnify and hold harmless the Company and its officers and
directors from and against any loss, damage, liability, claim and expense
whatsoever, including but not limited to any and all legal expenses, due to or
arising out of a breach of any representation or warranty of the Purchaser,
whether contained in this Agreement or the Purchaser's Questionnaire, or any
failure by the undersigned to fulfill any covenants or agreements set forth
herein or therein or arising out of the sale or distribution by the Purchaser of
any Shares in violation of the Act or any applicable state Securities laws.
5
<PAGE>
Notwithstanding any of the representations, warranties, acknowledgments or
agreements made herein by the Purchaser, the Purchaser does not thereby or in
any other manner waive any rights granted to the Purchaser under Federal or
state securities laws.
7. Legend
Purchaser agrees that all Certificates representing the
Shares shall have endorsed thereon the following legend:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER UNITED STATES FEDERAL OR STATE SECURITIES LAWS, INCLUDING BUT
NOT LIMITED TO THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") NOR APPROVED
BY ANY FEDERAL OR STATE REGULATORY AGENCY, INCLUDING BUT NOT LIMITED TO THE
SECURITIES AND EXCHANGE COMMISSION, AND MAY NOT BE OFFERED FOR SALE, SOLD OR
OTHERWISE TRANSFERRED OR ASSIGNED FOR VALUE, DIRECTLY OR INDIRECTLY, NOR MAY THE
SECURITIES BE TRANSFERRED ON THE BOOKS OF THE CORPORATION, WITHOUT REGISTRATION
OF SUCH SECURITIES UNDER ALL APPLICABLE UNITED STATES FEDERAL OR STATE
SECURITIES LAWS, INCLUDING BUT NOT LIMITED TO THE ACT, OR COMPLIANCE WITH AN
APPLICABLE EXEMPTION THEREFROM, SUCH COMPLIANCE, AT THE DISCRETION OF THE
CORPORATION, TO BE EVIDENCED BY AN OPINION OF SHAREHOLDER'S COUNSEL, IN FORM
ACCEPTABLE TO THE CORPORATION, THAT NO VIOLATION OF SUCH REGISTRATION OR
QUALIFICATION PROVISIONS WOULD RESULT FROM ANY PROPOSED TRANSFER OR ASSIGNMENT."
8. MISCELLANEOUS.
a. Finders Fees. Wetzler and Purchaser each
acknowledges that he or it has not, directly or indirectly, dealt with anyone
acting as a broker, finder or in a similar capacity, or has incurred any
obligation for any brokerage, finders' or similar fee or commission in
connection with this Agreement or any of the transactions contemplated hereby.
b. Notices. All notices and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been given (i) upon delivery, if personally delivered, sent by
commercial over night courier (e.g. Federal Express or DHL), or telefaxed with
confirmation copy sent the same day by first class U.S. mail (postage prepaid);
or (ii) upon the expiration of the fifth (5th) business day after deposit, if
mailed by first-class, registered or certified U.S. mail, postage prepaid. All
notices shall be addressed to each party at the following address:
6
<PAGE>
If to the Company:
Gerald M. Wetzler
Chief Executive Officer
300 Park Avenue
17th Floor
New York, New York 10022
Fax No. (212) 572-6460
With a copy to:
Barry Burten, Esq.
Jeffer, Mangel, Butler & Marmaro, LLP
2121 Avenue of the Stars
10th Floor
Los Angeles, CA. 90067
Fax No. (310) 785-5384
If to Purchaser:
Morry Himmel
10065 N. 78th Place
Scottsdale, Arizona 85258
Fax No. (___) ___-____
or to such other address as the addressee shall have furnished to the other
parties hereto in the manner prescribed by this section.
c. Entire Agreement. This Agreement,
together with any related documents referred to in this Agreement, constitutes
the entire agreement among the parties with respect to the subject matter hereof
and supersedes all prior agreements and understandings between them or any of
them as to such subject matter. No amendment, change or modification of this
Agreement be valid unless in writing and signed by all of the parties hereto.
d. Waiver. No reliance upon or waiver of one
or more provisions of this Agreement shall constitute a waiver of any other
provisions hereof.
e. Severability. In case any one or more of
the provisions contained in this Agreement shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement and such
invalid, illegal and unenforceable provision shall be reformed
7
<PAGE>
and construed so that it will be valid, legal and enforceable to the maximum
extent permitted by law.
f. Counterparts. This Agreement may be
executed in two or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
g. Section Headings. The headings contained
in this Agreement are for reference purposes only and shall not in any way
affect the meaning or interpretation of this Agreement. Should there be any
conflict between any such heading and the section at the head of which it
appears, the section and not such heading shall control.
h. Governing Law. This Agreement shall be
governed by and construed and enforced in accordance with the laws of the State
of California. The parties hereby consent to the exclusive jurisdiction of the
state or federal courts located in the State of California for the resolution of
any disputes arising out of this Agreement.
i. Successors and Assigns. All of the terms
and provisions contained herein shall inure to the benefit of and shall be
binding upon the parties hereto and their respective heirs, legal or personal
representatives, successors and assigns.
j. Further Assurances. Each of the parties
hereto shall execute and deliver any and all additional papers, documents, and
other assurances, and shall do any and all acts and things reasonably necessary
in connection with the performance of their obligations hereunder and to carry
out the intent of the parties hereto.
IN WITNESS WHEREOF, the parties have caused this
Agreement to be executed as of the day and year first set forth above.
AMERICAN FILM TECHNOLOGIES, INC.
By:
-------------------------------
Gerald M. Wetzler
Chief Executive Officer
-----------------------------------
Morry Himmel
8
<PAGE>
PURCHASER QUESTIONNAIRE
You are being requested to answer questions in connection with
the proposed offer and sale, pursuant to an exemption from the registration
provisions of the Securities Act of 1933, as amended (the "Act") and in
particular, Rule 505 of Regulation D, of shares of the Common Stock, $.002 par
value per share (the "Shares') of American Film Technologies, Inc, a Delaware
corporation (the "Company"). The availability of the exemption depends, in part,
on a determination that each purchaser is an "accredited investor" as defined in
Rule 501(a) of Regulation D.
The information supplied will be used in determining whether
the sale of the Shares meets such criteria. The information will be kept
confidential and will not be disclosed except to the Company, its counsel, and
if required, to governmental and regulatory authorities.
Please PRINT your response to each question; and, where the
answer to any question if "None" or "Not Applicable" please so state.
I, (we), _______________________________________, understand
the Shares are being issued WITHOUT registration under the Act in reliance upon
the private offering exemption contained in Rule 505 of Regulation D promulgated
under Section 4(2) of the Securities Act, and that such reliance is based in
part on the information herein supplied. For the foregoing reasons, and to
induce the Company to issue and deliver the Shares to me, I represent and
warrant that the information stated herein is true, accurate and complete to the
best of my knowledge and belief, and I agree to notify and supply corrective
information promptly if, prior to the consummation of my purchase of the Shares,
any of such information becomes inaccurate and incomplete.
INDIVIDUAL AND JOINT PURCHASERS SHOULD COMPLETE SECTION A
CORPORATIONS, BUSINESS TRUSTS AND PARTNERSHIPS SHOULD COMPLETE
SECTION B
9
<PAGE>
A. INDIVIDUAL AND JOINT PURCHASERS
1. Personal
a. Full Name: -----------------------------
b. Social Security No.: -----------------------------
c. Residence Address: -----------------------------
-----------------------------
d. Occupation: -----------------------------
e. Employer: -----------------------------
f. Business Address: -----------------------------
-----------------------------
g. Telephone: Business: _____________ Home: _________
h. Position or Title: -----------------------------
i. Are You (Check One):
Married ______ Single _______
j. Do You File Joint
Tax Returns(Check One):
Yes __________ No ___________
2. Bank References
a. Bank: -----------------------------
b. Bank Address: -----------------------------
-----------------------------
c. Bank Telephone No.: -----------------------------
d. Name of Bank
Representative: -----------------------------
3. Income, Net Worth and Financial Standing
a. Did your annual income during each of 1994 and 1995 exceed $200,000,
or, did your joint income together with your spouse exceed $300,000 during each
of 1994 and 1995, and do you reasonably expect your annual income during 1996 to
exceed $200,000, or your joint income together with your spouse to exceed
$300,000?
Yes _____________ No _______________
10
<PAGE>
b. Does your individual net worth, or your joint net worth
together with your spouse, exceed $1,000,000?
Yes _______ No _________ Not Applicable __________
c. Gross income for the most recently
ended tax year: $___________
d. Anticipated gross income for
the year 1996: $___________
e. Do you anticipate that your income over the next five
years will:
Increase _______ Decrease _______ Remain Same ________
f. Is your net worth, excluding home, furnishings and
automobiles (Check One):
Over $200,000 ___ Over $300,000 ___ Over $400,000 ___
Over $________ (State Amount)
g. What percentage of your net worth are liquid assets
(cash or assets readily convertible to cash) (Check One:)
over 15% _____ over 25% _____ over 35% _____ over 50% ____
h. Do you have any debts or other obligations, or are
there any reasonably foreseeable circumstances likely in the
future to require you to dispose of the Shares?
Yes ________ No ________ (If yes, please describe
briefly below)
---------------------------------------------------------
----------------------------------------------------------
4. Investment Experience
Describe briefly your prior investment experience in both marketable
and unmarketable securities. If none, please so state.
---------------------------------------------------------
---------------------------------------------------------
11
<PAGE>
5. Education
Describe your educational background (schools attended and degrees
obtained):
---------------------------------------------------------
---------------------------------------------------------
6. What is your profession, if any? _______________________
7. Investment Advice
a. In connection with your proposed purchase of Shares, will you or did
you seek advice from any lawyer, accountant, investment advisor or other person
or persons?
Yes _________ No ___________
If Yes, please set forth the name, profession or occupation
and business address of each such advisor or prospective advisor and, if more
than one, explain briefly the division of responsibilities between them:
---------------------------------------------------------
---------------------------------------------------------
b. Do you or any of your advisors, or any of your or their respective
affiliates, now have or contemplate having, or have they had, during the past
two years, any relationship with the Company and/or any of its officers,
directors, or their affiliates; or, any of your advisors or affiliates the
beneficial owner of 10% or more of any class of equity securities or 10% or more
of the equity interest in the Company or affiliates of the Company;
Yes ____________ No _____________
If Yes, please describe such relationship and/or ownership.
---------------------------------------------------------
B. CORPORATE PURCHASERS, BUSINESS TRUST OR PARTNERSHIP PURCHASERS
1. Name of Corporation, Business Trust or Partnership:
- ------------------------------------------------------------
2. Name and Title of Executive Officer Executing Questionnaire:
------------------------------------------------------------
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<PAGE>
3. Business Address: ___________________________________________
___________________________________________
4. Telephone Number: ___________________________________________
5. Representations and Warranties
The undersigned represents and warrants as follows:
a. The corporation, business trust or partnership, as the case
may be, has been duly incorporated if a corporation, formed if a business trust
or partnership, and is validly existing as a corporation, business trust or
partnership, in good standing under the laws of the jurisdiction of its
incorporation or formation, with full power and authority to enter into the
transactions contemplated by the offering documents.
b. (i) The officers or partners of the undersigned who, on
behalf of the undersigned, have considered the purchase of the Shares and the
advisors, if any, of the corporation, business trust or partnership, as the case
may be, in connection with such consideration are named below and such officers
and advisors or partners were duly authorized to act for the corporation,
business trust or the partnership in reviewing such investment;
(ii) The names and positions of the officers or
partners of the undersigned who, on its behalf, have reviewed the
purchase of the Shares are as follows:
---------------------------------------------------------
(iii) In evaluating the merits and risks of the
purchase of the Shares, the corporation, business trust or the partnership, as
the case may be, intends to rely upon, or has relied upon, the advice of, or
will consult with, or has consulted with, the following persons:
---------------------------------------------------------
c. The officers of the corporation, business trust or the partners of
the partnership who, on its behalf, have considered the purchase of the Shares,
and the advisors, if any, of the corporation or the corporation, business trust
or partnership in connection with such consideration, together have such
knowledge and experience in financial and business matters that such officer(s),
partner(s) and such advisor(s), if any, together are capable of evaluating the
merits and risks of purchase of the Shares and of making an informed investment
decision;
d. Together with any corporation or group of corporations with which it
files a consolidated federal income tax return, the undersigned (i) expects to
have adequate taxable income to
13
<PAGE>
realize the economic and potential tax benefits from ownership of the Shares,
and (ii) has reserves and/or net worth adequate to permit it to satisfy any tax
or other liabilities arising from its personal liability with respect to the
investment and operation thereof;
e. The total assets of the corporation, business trust or
partnership are in excess of $_______________.
f. The net worth of the corporation, business trust or the
partnership is in excess of $_____________.
g. The corporation, business trust or the partnership has had, during
each of the past two tax years, gross income from all sources of $_____________
and $_______________, respectively.
h. The undersigned expects the corporation, business trust
or the partnership to have during the current and next tax year,
gross income from all sources of at least $____________; and
i. The undersigned knows of no pending or threatened
litigation the outcome of which could adversely affect the answer
to any question hereunder.
j. Indicate the following if a partnership purchaser:
(i) The date the partnership was formed:
(ii) The names of each partner in the partnership. Please have
each individual partner execute a separate questionnaire or forward to the
Company a letter indicating whether or not each partner is sophisticated and has
a sufficient net worth or salary level to be deemed an "accredited investor"
under Rule __________ promulgated under the Securities Act.
---------------------------------------------------------
---------------------------------------------------------
The undersigned warrants and represents that the foregoing statements
are true and accurate to the best of the information and belief of the
undersigned and the undersigned will promptly notify the Company of any changes
in the foregoing answers.
FOR INDIVIDUALS
Purchaser
Dated: __________, 1996 ------------------------------
Signature
------------------------------
Signature (If Joint)
14
<PAGE>
FOR CORPORATIONS
Dated: ___________, 1996 ------------------------------
Name of Company
------------------------------
Executive Officer
------------------------------
Signature of Officer
FOR BUSINESS TRUSTS
Dated: _____________, 1996 ------------------------------
Name of Business Trust
------------------------------
Name of Trustee Executing
Questionnaire
------------------------------
Signature of Trustee
FOR PARTNERSHIPS
Dated: _______________, 1996 ------------------------------
Name of Partnership
------------------------------
Name of Partner Executing
Questionnaire
------------------------------
Signature of Partner
15
<PAGE>
FOR PENNSYLVANIA RESIDENTS:
The undersigned hereby agrees not to sell any of the
securities acquired hereunder for a period of 12 months from the date he
acquires such securities.
By:
------------------------------
Signature
---------------------------------
Printed Name
---------------------------------
Date
---------------------------------
Street
---------------------------------
City, State Zip
---------------------------------
Social Security Number or Federal
ID No.
---------------------------------
Telephone No. of Subscriber
AGREED AND ACCEPTED BY:
AMERICAN FILM TECHNOLOGIES, INC.
By:
--------------------------------
Duly Authorized
Date:
--------------------------------
Gerald M. Wetzler
16
<PAGE>
REGISTRATION UNDERTAKING
This Registration Undertaking (this "Agreement") is made and
entered into as of September 18, 1996 by American Film Technologies, Inc., a
Delaware corporation (the "Company") for the benefit of Morris Himmel (the
"Holder") in connection with that certain Stock Purchase Agreement dated as of
September 18, 1996 between the Company and the Holder (the "Purchase
Agreement").
NOW, THEREFORE, in consideration of the mutual
representations, covenants and agreements contained herein, the Company hereto
agrees and undertakes as follows:
1. Piggyback Registration.
(a) Registrable Securities: The term "Registrable
Securities" means each of the following:
(i) the Shares as such term is defined in
the Purchase Agreement; and
(ii) any other shares or securities or
distributions resulting from a reverse split, stock split, stock dividend,
reclassification of the capital stock of the Company, consolidation or
reorganization of the Company, and any shares or other securities of the Company
or of any successor company which the Holder may receive by virtue of their
ownership of the Shares;
provided, however, that any of the securities described in the foregoing clauses
(i) and (ii) shall be treated as Registrable Securities only if and so long as
(x) they are held by the Holder or the Holder's Family Trust, estate or
legatee(s), (y) have not been sold or disposed of, pursuant to a registration
statement covering such Registrable Securities which has been declared effective
pursuant to the Securities Act of 1933, as amended (the "Act") or if such
securities have not been sold or disposed of such registration statement
including the Registrable Securities remains effective; or (z) have not been
sold or disposed of to the public pursuant to Rule 144 (or any similar provision
then in force) promulgated under the Act.
(b) Piggyback Registration Rights. Subject to the
terms and conditions contained in this Agreement, during the Piggyback Period,
as hereinafter defined, the Holder shall be entitled to include in any Piggyback
Registration Statement, as hereinafter defined, all Registrable Securities .
(c) Piggyback Period. Except as otherwise provided
herein, the Holder shall be entitled to include all or any portion of the
Registrable Securities held by Holder in a Piggyback Registration Statement, as
such term is hereinafter
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<PAGE>
defined, during the period commencing as of the date hereof and ending on the
first to occur of: (i) September 19, 1999; (ii) all of the Registrable
Securities which Holder desires to sell can be sold in one sale pursuant to Rule
144(k) or any successor rule of similar provision; or (iii) the sale of the
Registrable Securities have been or could have been included as part of a
Registration Statement which has been declared effective by the Securities and
Exchange Commission (the "SEC") and if the Registrable Securities are included
therein, the effectiveness thereof is not terminated prior to the contemplated
distribution period (the "Piggyback Period").
(d) Notice of Registration. In the event that during
the Piggyback Period the Company proposes to file a registration statement to
register under the Act, the sale or other transfer of any class of its
securities of which the Registrable Securities are a part: (i) by the Company
(the "Company Securities"); or (ii) by any other present or future holder of the
Company's securities (the "Shareholder Securities") (the Company Securities and
Shareholder Securities hereinafter collectively referred to as the Registration
Securities), the Company shall deliver to the Holder, at least twenty (20) days
prior to the filing with the Commission of the registration statement covering
such Registration Securities (the "Piggyback Registration Statement"), a written
notice (a "Registration Notice") of its intention so to register such offering
of Registration Securities and the manner in which such Registration Securities
are proposed to be sold.
(e) Supplemental Notice. In the event that a
Registration Notice shall have been delivered, the Holder may elect to include
in the offering covered by the Piggyback Registration Statement all or a portion
of the Registrable Securities by delivering notice to the Company (the
"Supplemental Notice") on or before the tenth (10th) day after delivery of the
Registration Notice specifying the number of shares of Registrable Securities
(the "Piggyback Securities") proposed to be sold or otherwise transferred by the
Holder. In the event the Holder fails to notify the Company of its election to
include all or any portion of the Registrable Securities in such Piggyback
Registration Statement in a timely manner; Holder's Piggyback Registration
Rights pursuant to this Agreement shall automatically terminate as to that
portion of the Registrable Securities with respect to which a notice has not
been received.
(f) Registration of Supplemental Registration
Securities. Subject to the terms, conditions, restrictions and limitations
contained elsewhere herein, from and after receipt of a Supplemental Notice, the
Company shall use its best efforts to cause the Piggyback Securities to be
registered under the Act pursuant to the Piggyback Registration Statement,
subject to the sale or other transfer thereof prior to the effectiveness of the
Piggyback Registration Statement, and to effect and to comply with all
qualifications, compliances and requirements necessary
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<PAGE>
to permit the sale or other transfer of the Piggyback Securities pursuant to the
Piggyback Registration Statement, including, without limitation, qualifications
under the applicable blue sky or other state securities laws.
(g) Priorities.
(i) Underwritten Offerings by the Company.
If, in the case of delivery of a Supplemental Notice relating to an underwritten
offering of securities proposed to be made by the Company, the managing
underwriter shall make a determination, in its sole discretion, in a writing
delivered to the Company and the Holder that inclusion of some or all of the
Piggyback Securities together with the Registration Securities, which are to be
included in such Piggyback Registration Statement would have an adverse effect
on the proposed distribution of the Company Securities ("Adverse Distribution
Effect"), then the Company shall, upon written notice to the Holder and to all
holders of Shareholder Securities included in such Piggyback Registration
Statement only the number of securities other than Company Securities which, in
the sole discretion of the managing underwriter, can be sold without any such
Adverse Distribution Effect, selected from the Holder and the holders of
Shareholder Securities seeking to exercise piggyback registration rights, on a
pro rata basis in proportion to the number of securities sought to be included
in such Piggyback Registration Statement.
(ii) Underwritten Offerings of Shareholder
Securities. If, in the case of delivery of a Supplemental Notice by the Holder
relating to an underwritten offering of Shareholder Securities in connection
with a demand registration right by such holders, where the managing underwriter
shall make a determination, in its sole discretion, in a writing delivered to
the Company and the Holder and holders of Shareholder Securities included in
such Piggyback Registration Statement that inclusion of some or all of the
Registrable Securities would have an Adverse Distribution Effect on the proposed
sale of the Shareholder Registration Securities then the Company shall, upon
written notice to the Holder and holders of such Shareholder Securities, include
in such registration only the number of Securities which, in the sole discretion
of the managing underwriter, can be sold without an Adverse Distribution Effect
on the proposed sale of the Shareholder Securities covered by the Demand
Registration Right, selected from the Holder and the holders of Shareholder
Securities seeking to exercise piggyback registration rights, on a pro rata
basis in proportion to the number of securities sought to be included in such
Piggyback Registration Statement.
(iii) Non-Underwritten Offerings. The Holder
shall have the right to include all Registrable Securities in a Piggyback
Registration Statements of non-underwritten offerings of securities of the
Company.
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<PAGE>
(h) Underwriters. In the case of Piggyback
Registration Statements, the underwriter designated by the initiating party
shall serve as the managing underwriter for the entire offering. Holder shall be
entitled to utilize any other underwriter in connection with the sale of its
securities unless the managing underwriter reasonably determines participation
by such underwriter in the offering would materially delay or otherwise be
materially adverse to the transaction.
(i) Exceptions. The provisions of this Section shall
not apply to (i) any registration statement on Form S-8 or Form S-4, or any
successor form, or (ii) any registration statement covering only securities
proposed to be issued in exchange for securities or assets of another
corporation.
2. Restrictions on Public Sale by the Holder. Notwithstanding
anything contained herein to the contrary, if the Holder has received a
Registration Notice during the Piggyback Period, for so long as the Holder holds
one percent (1%) or more, on a fully diluted basis of such Registrable
Securities, the Holder agrees not to effect any public sale or distribution of
any such securities during the fifteen (15) days prior to, and during the 90-day
period beginning on, the effective date of such registration statement (or until
its termination or abandonment, if earlier), except for a sale pursuant to such
registration statement, if permitted.
3. Registration Procedures.
(a) The Holder shall provide to the Company such
information regarding the distribution of the Piggyback Securities and such
other information relating to the Holder and his or her ownership of securities
of the Company as the Company may from time to time reasonably request in
writing.
(b) Notwithstanding anything contained herein to the
contrary, the SEC may issue a "stop order" or refuse to allow the effectiveness
of any Piggyback Registration Statement or the Company, may in its sole
discretion terminate any Piggyback Registration Statement at any time prior to
or after the effectiveness thereof without liability to the Holder. In such
event, the Company shall promptly notify the Holder thereof.
(c) The Holder agrees, upon receipt of any notice
from the Company of the happening of any event of the kind described in Section
3(b) hereof, he or she will forthwith discontinue distribution of Piggyback
Securities.
4. Registration Expenses
All expenses incident to the Company's performance
of or compliance with this Agreement including, without
limitation (i) all registration and filing fees, all fees and
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<PAGE>
expenses associated with filings required to be made with the NASD, as may be
required by rules and regulations of the NASD (other than fees required in
excess of fees which would otherwise pertain in the event that the Holder is a
member of the NASD), fees and expenses of compliance with securities or blue sky
laws (including fees and disbursements of counsel in connection with blue sky
qualifications for the Registrable Securities), rating agency fees, printing
expenses (including expenses of printing certificates for the Registrable
Securities in a form eligible for deposit with the Depository Trust Company and
of printing prospectuses if the printing of prospectuses is reasonably requested
by the holders of a Majority Amount), messenger and delivery expenses, (ii)
internal expenses (including, without limitation, all salaries and expenses of
their officers and employees performing legal or accounting duties), securities
acts liability insurance (if the Company elects to obtain such insurance), (iii)
fees and expenses of counsel for the Company and its independent certified
public accountants (including the expenses of any special audit or "cold
comfort" letters required by or incident to such performance), (iv) fees and
expenses of any special experts retained by the Company in connection with such
registration, and (v) fees and expenses of other persons retained by the
Company, (all such expenses being herein called "Registration Expenses"), shall
be allocated between the Company (and, if applicable holders of other
Shareholder Securities) and the Holder on a pro-rata basis based upon the total
number of shares included in the Piggyback Registration Statement and the
Piggyback Securities, provided that in no event shall Registration Expenses
include (A) any underwriting discounts or commissions attributable to the sale
of the Registrable Securities, (B) any fees and expenses of counsel for the
Holder if such counsel is different than counsel for the Company or any
accountant or other professional engaged by the Holder, or (C) any direct
out-of-pocket expenses of the Holder.
In the event that following effectiveness of a
Piggyback Registration Statement, pursuant to which the Holder is a selling
stockholder, it becomes necessary for the Company to prepare and file a
supplemental prospectus or amended prospectus in order to maintain the
effectiveness of such registration statement, the cost thereof shall be
apportioned as set forth above.
5. Indemnification; Contribution
(a) Indemnification by the Company. To the extent
that any Piggyback Securities are included in a Piggyback Registration Statement
pursuant to the terms hereof, the Company agrees to indemnify, to the full
extent permitted by law, the Holder, and any agent therefor against all losses,
claims, damages, liabilities and expenses (including reasonable legal fees and
expenses) arising out of or based upon any such untrue statement or alleged
untrue statement of a material fact contained in any registration statement,
prospectus or
-5-
<PAGE>
preliminary prospectus, or any amendment thereof or supplement thereto, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein (in the case of a
prospectus or preliminary prospectus, in light of the circumstances under which
they are made) not misleading, except insofar as such losses, claims, damages
arise out of or are based upon an untrue statement or omission so made in
reliance upon and in conformity with information with respect to the Holder
furnished in writing to the Company by the Holder or its representatives
expressly for use therein or any acts of negligence or misfeasance by Holder.
(b) Indemnification by the Holder. In connection
with any Piggyback Registration Statement in which the Holder is a selling
stockholder, the Holder agrees to indemnify, to the extent permitted by law, the
Company, its directors, officers, employees and agents and each person who
controls the Company (within the meaning of applicable federal and state
securities laws), and any investment advisor thereof or agent therefor against
any losses, claims, damages, liabilities and expenses (including reasonable
legal fees and expenses) resulting from (i) any untrue statement or alleged
untrue statement of a material fact contained in the registration statement,
prospectus or preliminary prospectus, or any amendment thereof or supplement
thereto, or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein (in
the case of a prospectus or prelimi nary prospectus, in the light of the
circumstances under which they were made) not misleading, to the extent, but
only to the extent, that such untrue statement or omission is made in reliance
upon and in conformity with or failed to be contained in any information with
respect to the Holder furnished in writing by the Holder or its representatives
specifically for inclusion therein; (ii) Holder's negligence; or (iii) Holder's
misfeasance. In no event shall the liability of the Holder hereunder be greater
in amount than the dollar amount of the proceeds received by the Holder upon the
sale of the Registrable Securities giving rise to such indemnification
obligation.
(c) Conduct of Indemnification Proceedings. Any
person entitled to indemnification hereunder agrees to give prompt written
notice to the indemnifying party after the receipt by such person of any written
notice of the commencement of any action, suit or proceeding against such person
or investigation thereof made in writing or for which such person will claim
indemnification or contribution pursuant to this Agreement, but the failure so
to give written notice to the indemnifying party shall not relieve it from any
liability which it may have to any indemnified party hereunder except if and to
the extent such indemnifying party is materially prejudiced by such failure nor
shall it relieve the indemnifying party from any liability which it may have to
any indemnified party other than under this Agreement. The indemnified party
shall permit the indemnifying party to assume the defense of such claim with
counsel reasonably
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<PAGE>
satisfactory to such indemnified party; provided, however, that if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be defenses available to it that are different from or additional
to those available to the indemnifying party or if the interests of the
indemnified party may reasonably be deemed to conflict with the interests of the
indemnifying party, the indemnified party shall have the right to select a
separate counsel and to control the defense of such action, with the reasonable
fees and expenses of such separate counsel to be reimbursed by the indemnifying
party. If the indemnifying party is not entitled to, or does not, assume the
defense of a claim, it will not be obligated to pay the fees and expenses of
more than one counsel (and any required local counsel) with respect to such
claim. No indemnified party will be required to consent to entry of any judgment
or enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party of a
release from all liability in respect to such claim or litigation. The
indemnifying party will not be subject to any liability for any settlement made
without its consent, which shall not be unreasonably withheld.
(d) Conflict with Underwriting Agreement. In the
event that any provision of any indemnification clause in the underwriting
agreement to which the Company and the Holder are parties in connection with the
registration statement or prospectus in question differs from a provision in
this Section 5, such provision in the underwriting agreement shall determine the
Holder's rights in respect thereof.
6. Participation in Underwritten Registrations
The Holder may not participate in any underwritten
registration hereunder unless it (a) agrees to sell the Piggyback Securities, as
the case may on be, the basis provided in the underwriting arrangements approved
by it, (b) completes and executes all questionnaires, powers of attorneys,
indemnities, underwriting agreements and other documents reasonably required
under the terms of such underwriting arrangements and (c) agrees to pay all
underwriting discounts and commissions on the Piggyback Securities sold under
such underwriting arrangements.
7. Miscellaneous
(a) Entire Agreement. This Agreement contains the
entire agreement among the parties hereto and except as set forth herein,
supersedes all prior oral or written agreements, promises, representations,
commitments or understandings with respect to the matters provided for herein.
(b) Amendment. This Agreement may be modified or
amended only by a writing duly executed by the parties hereto.
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<PAGE>
(c) Assignment and Binding Effect. This Agreement
and the rights and obligations of any party hereunder may not be assigned by any
party without the prior written consent of the other party hereto. All
covenants, agreements, and indemnities in this Agreement by and on behalf of any
of the parties hereto shall be binding on and inure to the benefit of their
respective successors and permitted assigns.
(d) Waivers. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provision hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver. No waiver shall be binding unless executed in writing by the
party making the waiver.
(e) Notices. Unless applicable law requires a
different method of giving notice, any and all notices, demands or other
communications required or desired to be given hereunder by any party shall be
in writing. Assuming that the contents of a notice meet the requirements of the
specific Section of this Agreement which mandates the giving of that notice, a
notice shall be validly given or made to another party if served either
personally or if deposited in the United States mail, certified or registered,
postage prepaid, or if transmitted by telegraph, telecopy or other electronic
written transmission device or if sent by overnight courier service, and if
addressed to the applicable party as set forth below. If such notice, demand or
other communication is served personally, service shall be conclusively deemed
given at the time of such personal service. If such notice, demand or other
communication is given by mail, service shall be conclusively deemed given
seventy-two (72) hours after the deposit thereof in the United States mail. If
such notice, demand or other communication is given by overnight courier, or
electronic transmission, service shall be conclusively given at the time of
confirmation of delivery. The addresses for the parties are as follows:
(i) If to the Holder:
Morris Himmel
10065 78th Place
Scottsdale, Arizona
Telecopier No.: (602) 991-5399
(ii) If to the Company:
American Film Technologies, Inc.
Attention: Gerald M. Wetzler
300 Park Avenue, 17th Floor
New York, New York 10022
Telecopier No.: (212) 572-6460
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<PAGE>
with a copy (which shall not constitute notice) to:
Jeffer, Mangels, Butler & Marmaro
2121 Avenue of the Stars, 10th Floor
Los Angeles, California 90067
Attention: Barry L. Burten, Esq.
Telecopier No.: (310) 203-0567
Any party hereto may change its address for the purpose of
receiving notices, demands and other communications as herein provided, by a
written notice given in the aforesaid manner to the other parties hereto.
(f) Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York, without
regard to conflicts of law principles.
(g) Jurisdiction. The parties hereto agree to submit
to the exclusive jurisdiction of the Superior Court, Los Angeles County any
controversy, claim or dispute arising out of or relating to this Agreement or
the method and manner of performance thereof or the breach thereof.
(h) Cost of Litigation. Should any party hereto
institute any action or proceeding at law or in equity to enforce any provision
of this Agreement, including an action for declaratory relief, or for damages by
reason of an alleged breach of any provision of this Agreement, or otherwise in
connection with this Agreement, or any provision hereof, the Court shall
apportion the costs and fees thereof (including all attorneys' fees between the
parties based on its determination of the merits of their respective positions
in the proceeding prevailing party shall be entitled to recover from the losing
party or parties reasonable attorneys' fees and costs for services rendered to
the prevailing party in such action or proceeding.
(i) Interpretation. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
(j) Severability. If any provisions of this
Agreement shall under any circumstances be deemed invalid or inoperative, this
Agreement shall be construed with the invalid or inoperative provision deleted
and the rights and obligations of the parties shall be construed and enforced
accordingly.
(k) Neuter and Gender. Whenever in this Agreement
the context may require, the neuter shall be deemed to include the feminine or
masculine and vice versa.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed on its behalf on the date first above written.
AMERICAN FILM TECHNOLOGIES, INC.
By
---------------------------------
Gerald M. Wetzler,
Chief Executive Officer
AGREED TO AND ACCEPTED
THIS ____ DAY OF SEPTEMBER 1996
- -------------------------------
Morris Himmel
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<PAGE>
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT ("Agreement") is
entered into as of this ____ day of September, 1996 between American Film
Technologies, Inc., 300 Park Avenue, 17th Floor, New York, New York 10022 (the
"Company"), and James W. Inglis (the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Company is in need of additional capital
to continue to finance its operations and to continue its business; and
WHEREAS, Purchaser is willing to acquire from the
Company Six Hundred and Sixty Six Thousand Six Hundred and Sixty Seven (666,667)
shares of $.002 par value per share common stock of the Company (the "Common
Stock") (the "Purchased Shares") for an aggregate purchase price of One Hundred
Thousand Dollars ($100,000) (the "Purchase Price");
WHEREAS, the Company is willing to sell to the
Purchaser the Shares for the Purchase Price and such other terms and conditions
as set forth herein; and
NOW, THEREFORE, in consideration of the foregoing,
the mutual promises contained herein and other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the Company and
Purchaser agree as follows:
1. Purchase and Sale of the Shares. Upon satisfaction
of the conditions set forth in Sections 2 and 3 below, the Company shall sell to
Purchaser and Purchaser shall purchase from the Company the Shares for the
Purchase Price (the "Sale").
2. Approval of the Board of Directors. The Company's
obligations hereunder are subject to and conditioned upon the approval by the
Company's the Board of Directors on or before September 25, 1996 of the Sale and
the authorization of the issuance of the Shares by the Company in connection
with the Sale ("Board Approval").
3. Conditions Precedent, Delivery of the Shares.
(a) The obligations of the Company hereunder
shall be subject to and conditioned upon the satisfaction of all of the
following conditions:
i. The execution of this Agreement
by the parties hereto;
ii. Board Approval;
<PAGE>
iii. The completion, execution and
delivery by the Purchaser to the Company of the Purchaser's Questionnaire,
attached hereto as Exhibit "A";
iv. The delivery by the Purchaser to
the Company of the Purchase Price; and
v. All of the representations and
warranties of the Purchaser contained herein remain true and correct.
(b) Upon satisfaction of all of the
conditions precedent set forth in Section 3(a) above, the Company shall cause to
be delivered to the Purchaser at the address set forth in Section 8(b) below a
stock certificate representing the Shares. Said stock certificate shall contain
a restrictive legend substantially similar to that set forth in Section 7 below
(the "Certificate").
4. Representations of the Company. The Company
represents and warrants that:
(a) upon issuance, the Shares will be (i)
validly issued, fully paid and nonassessable; and (ii) free of any liens or
encumbrances;
(b) the Sale has been duly authorized and
approved; and
(c) the consummation of the Sale as
contemplated by this Agreement does not violate the terms of the Company's
Certificate of Incorporation or By-Laws.
Except as expressly set forth above, the Company makes no representations or
warranties of any kind or nature to the Purchaser.
5. Representations of Purchaser.
Purchaser represents and warrants in favor
of the Company that:
(a) it is acquiring the Shares for its own
account, for investment purposes only, and not with a view to or for the resale,
distribution or assignment thereof, in whole or in part;
(b) it understands that the offer and sale
of the Shares is intended to be exempt from registration under the Securities
Act of 1933, as amended (the "Act"), and under the laws of any other
jurisdiction; that the Company does not intend and is under no obligation to so
register the Shares; that the Shares may not therefore be sold, assigned,
pledged or otherwise transferred unless subsequently registered under the Act or
pursuant to an exemption therefrom; and that legends to the foregoing effect
will be placed on the Certificate evidencing the Shares;
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<PAGE>
(c) Purchaser has the financial ability to
bear the economic risk of its investment in the Company, including its possible
loss, has adequate means of providing for his current needs and personal
contingencies and has no need for liquidity with respect to its investment in
the Company;
(d) Purchaser has the knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of an investment in the Shares and has obtained, in its
judgment, sufficient information from the Company to evaluate the merits and
risks of an investment in the Shares;
(e) Purchaser is an "accredited investor" as
such term is defined in Rule 501(a) of Regulation D, promulgated under the
Securities Act of 1933, as amended;
(f) Purchaser will not sell, assign, pledge
or otherwise transfer the Shares unless such action is registered under the Act
or is exempt from registration pursuant to an exemption therefrom, and
acknowledges that the Company is under no obligation whatsoever to register the
Shares under the Act or to assist the Purchaser in any way to secure an
exemption from registration;
(g) Purchaser has been provided an
opportunity to obtain information concerning the offering, the Company and all
other information to the extent the Company or its representatives possess such
information or can acquire it without unreasonable effort or expense;
(h) Purchaser has been given the opportunity
to ask questions of and receive answers from the representatives of the Company
concerning the Company, the Shares, the terms and conditions of the Sale and
other matters pertaining to this investment, and has been given the opportunity
to obtain additional information necessary to verify the accuracy of the
information provided in order for it to evaluate the merits and risks of an
investment in the Company to the extent the representatives possess such
information or can acquire it without unreasonable effort or expense, and has
not been furnished any offering literature or prospectus except the SEC Reports,
as hereinafter defined;
(i) Purchaser has determined that its
investment in in the Company through its purchase of the Shares is a suitable
investment for it and that at this time it can bear a complete loss of its
investment;
(j) In making his decision to invest in the
Company through the purchase of the Shares the Purchaser has relied solely upon
independent investigations made by it;
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<PAGE>
(k) Purchaser has reached the age of
majority in the state in which it resides and is a bona fide resident and
domiciliary of the state set forth on the signature page.
(l) Purchaser represents and acknowledges
that it has received, read and understood the following documents:
i. The Company's Form 10-K Report
for its fiscal year ended June 30, 1995;
ii. The Company's Form 10-Q Reports
for the fiscal quarters ended September 30, 1995, December 31, 1995 and March
31, 1996; and
iii. The Company's draft Form 10-K
Report for the fiscal year ended June 30, 1996. Purchaser agrees to keep
confidential and not to disclose any non-public information contained in such
Report prior to its filing with the Securities and Exchange Commission (the
"SEC").
(Said documents included in i, ii and iii above are hereinafter collectively
referred to as the "SEC Reports").
(l) Purchaser is not subscribing as a result
of or subsequent to:
i. any advertisement, article,
notice or other communication published in any newspaper, magazine or similar
media or broadcast over television or radio; or
ii. any seminar or meeting whose
attendees, including the Purchaser, had been invited as result of, subsequent to
or pursuant to any of the foregoing.
(m) Any information which the Purchaser has
heretofore furnished to the Company with respect to its financial position and
business experience, including without limitation its Purchaser Questionnaire,
attached hereto as Exhibit "A", is complete and correct as of the date of this
Agreement and if there should be any material change in such information at any
time prior to or after acceptance of the Sale, the Purchaser will immediately
furnish such revised or corrected information to the Company.
(n) Purchaser and/or Purchaser's investment
advisors, if any, have carefully read and reviewed this Agreement, Exhibit A
hereto and the SEC Documents and understand the risks of, and other
considerations relating to, a purchase of Sale, including, but not limited to,
the risks set forth under "Risk Factors" in the Company's draft 1996 Form 10-K
Report. In connection therewith, Purchaser is aware of the fact that the Company
has recently emerged from a Chapter 11 Bankruptcy proceeding, has not engaged in
ongoing business operations in over thirty (30) months and will need additional
financing in
4
<PAGE>
order to remain in business and significant additional financing thereafter to
implement its business plan.
(o) Purchaser will be the only person with a
direct or indirect interest in the Shares purchased pursuant to this Agreement.
(p) Purchaser acknowledges, represents,
agrees and is aware that:
i. no Federal or state agency has
passed upon the Sale or the Shares issuable in connection therewith or made any
findings or determinations as to the fairness of this investment;
ii. there are substantial risks of
loss of investment incidental to the purchase of the Shares;
iii. the investment is an illiquid
investment;
iv. the representations, warranties,
agreements, undertakings and acknowledgments made by the Purchaser in this
Agreement are made with the intent that they be relied upon by the Company and
its officers in determining his suitability as a purchaser of the Shares, and
shall survive the acceptance by the Company of this subscription, In addition,
the Purchaser agrees to notify the Company immediately of any change in any
representation, warranty or other information relating to the undersigned set
forth herein;
v. Purchaser has read and understood
the SEC Documents.
(q) Purchaser represents, warrants and
agrees in favor of the Company that Purchaser has determined to make this
investment based on its own investigation of the Company and its prospects, that
neither the Company nor any of its officers, directors, employees, agents,
representatives or attorneys have made any representations to Purchaser
concerning the business or prospects of the Company, that Purchaser has the
business sophistication to determine on its own whether or not to make this
investment.
6. Indemnification.
The Purchaser understands the meanings and legal
consequences of the representations and warranties contained in this Agreement
and agrees to indemnify and hold harmless the Company and its officers and
directors from and against any loss, damage, liability, claim and expense
whatsoever, including but not limited to any and all legal expenses, due to or
arising out of a breach of any representation or warranty of the Purchaser,
whether contained in this Agreement or the Purchaser's Questionnaire, or any
failure by the undersigned to fulfill any covenants or agreements set forth
herein or therein or arising out of the sale or distribution by the Purchaser of
any Shares in violation of the Act or any applicable state Securities laws.
5
<PAGE>
Notwithstanding any of the representations, warranties, acknowledgments or
agreements made herein by the Purchaser, the Purchaser does not thereby or in
any other manner waive any rights granted to the Purchaser under Federal or
state securities laws.
7. Legends
Purchaser agrees that all Certificates
representing the Shares shall have endorsed thereon a legend in substantially
the following form:
(a) "THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER UNITED STATES FEDERAL OR STATE SECURITIES LAWS, INCLUDING BUT
NOT LIMITED TO THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") NOR APPROVED
BY ANY FEDERAL OR STATE REGULATORY AGENCY, INCLUDING BUT NOT LIMITED TO THE
SECURITIES AND EXCHANGE COMMISSION, AND MAY NOT BE OFFERED FOR SALE, SOLD OR
OTHERWISE TRANSFERRED OR ASSIGNED FOR VALUE, DIRECTLY OR INDIRECTLY, NOR MAY THE
SECURITIES BE TRANSFERRED ON THE BOOKS OF THE CORPORATION, WITHOUT REGISTRATION
OF SUCH SECURITIES UNDER ALL APPLICABLE UNITED STATES FEDERAL OR STATE
SECURITIES LAWS, INCLUDING BUT NOT LIMITED TO THE ACT, OR COMPLIANCE WITH AN
APPLICABLE EXEMPTION THEREFROM, SUCH COMPLIANCE, AT THE DISCRETION OF THE
CORPORATION, TO BE EVIDENCED BY AN OPINION OF SHAREHOLDER'S COUNSEL, IN FORM
ACCEPTABLE TO THE CORPORATION, THAT NO VIOLATION OF SUCH REGISTRATION OR
QUALIFICATION PROVISIONS WOULD RESULT FROM ANY PROPOSED TRANSFER OR
ASSIGNMENT."; and
(b) "THESE SECURITIES HAVE BEEN ISSUED OR SOLD IN RELIANCE ON
PARAGRAPH (13) OF CODE SECTION 10-5-9 OF THE 'GEORGIA SECURITIES ACT OF 1973,'
AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER
SUCH ACT OR PURSUANT TO AN EFFECTIVE REGISTRATION UNDER SUCH ACT."
8. MISCELLANEOUS.
a. Finders Fees. Wetzler and Purchaser each
acknowledges that he or it has not, directly or indirectly, dealt with anyone
acting as a broker, finder or in a similar capacity, or has incurred any
obligation for any brokerage, finders' or similar fee or commission in
connection with this Agreement or any of the transactions contemplated hereby.
b. Notices. All notices and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been given (i) upon delivery, if personally delivered, sent by
commercial over night courier (e.g. Federal Express or DHL), or telefaxed with
confirmation copy sent the same day by first class U.S. mail (postage prepaid);
or (ii) upon the expiration of the fifth (5th) business day after deposit, if
mailed by first-class, registered or
6
<PAGE>
certified U.S. mail, postage prepaid. All notices shall be addressed to each
party at the following address:
If to the Company:
Gerald M. Wetzler
Chief Executive Officer
300 Park Avenue
17th Floor
New York, New York 10022
Fax No. (212) 572-6460
With a copy to:
Barry Burten, Esq.
Jeffer, Mangel, Butler & Marmaro, LLP
2121 Avenue of the Stars
10th Floor
Los Angeles, CA. 90067
Fax No. (310) 785-5384
If to Purchaser:
James W. Inglis
4316 Columns Drive
Marietta, Georgia 30067
Fax No. (___) ___-____
or to such other address as the addressee shall have furnished to the other
parties hereto in the manner prescribed by this section.
c. Entire Agreement. This Agreement,
together with any related documents referred to in this Agreement, constitutes
the entire agreement among the parties with respect to the subject matter hereof
and supersedes all prior agreements and understandings between them or any of
them as to such subject matter. No amendment, change or modification of this
Agreement be valid unless in writing and signed by all of the parties hereto.
d. Waiver. No reliance upon or waiver of one
or more provisions of this Agreement shall constitute a waiver of any other
provisions hereof.
e. Severability. In case any one or more of
the provisions contained in this Agreement shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall
7
<PAGE>
not affect any other provision of this Agreement and such invalid, illegal and
unenforceable provision shall be reformed and construed so that it will be
valid, legal and enforceable to the maximum extent permitted by law.
f. Counterparts. This Agreement may be
executed in two or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
g. Section Headings. The headings contained
in this Agreement are for reference purposes only and shall not in any way
affect the meaning or interpretation of this Agreement. Should there be any
conflict between any such heading and the section at the head of which it
appears, the section and not such heading shall control.
h. Governing Law. This Agreement shall be
governed by and construed and enforced in accordance with the laws of the State
of California. The parties hereby consent to the exclusive jurisdiction of the
state or federal courts located in the State of California for the resolution of
any disputes arising out of this Agreement.
i. Successors and Assigns. All of the terms
and provisions contained herein shall inure to the benefit of and shall be
binding upon the parties hereto and their respective heirs, legal or personal
representatives, successors and assigns.
j. Further Assurances. Each of the parties
hereto shall execute and deliver any and all additional papers, documents, and
other assurances, and shall do any and all acts and things reasonably necessary
in connection with the performance of their obligations hereunder and to carry
out the intent of the parties hereto.
8
<PAGE>
IN WITNESS WHEREOF, the parties have caused this
Agreement to be executed as of the day and year first set forth above.
AMERICAN FILM TECHNOLOGIES, INC.
By:
--------------------------------
Gerald M. Wetzler
Chief Executive Officer
-----------------------------------
James W. Inglis
9
<PAGE>
PURCHASER QUESTIONNAIRE
You are being requested to answer questions in connection with
the proposed offer and sale, pursuant to an exemption from the registration
provisions of the Securities Act of 1933, as amended (the "Act") and in
particular, Rule 505 of Regulation D, of shares of the Common Stock, $.002 par
value per share (the "Shares') of American Film Technologies, Inc, a Delaware
corporation (the "Company"). The availability of the exemption depends, in part,
on a determination that each purchaser is an "accredited investor" as defined in
Rule 501(a) of Regulation D.
The information supplied will be used in determining whether
the sale of the Shares meets such criteria. The information will be kept
confidential and will not be disclosed except to the Company, its counsel, and
if required, to governmental and regulatory authorities.
Please PRINT your response to each question; and, where the
answer to any question if "None" or "Not Applicable" please so state.
I, (we), __________________________________, understand the
Shares are being issued WITHOUT registration under the Act in reliance upon the
private offering exemption contained in Rule 505 of Regulation D promulgated
under Section 4(2) of the Securities Act, and that such reliance is based in
part on the information herein supplied. For the foregoing reasons, and to
induce the Company to issue and deliver the Shares to me, I represent and
warrant that the information stated herein is true, accurate and complete to the
best of my knowledge and belief, and I agree to notify and supply corrective
information promptly if, prior to the consummation of my purchase of the Shares,
any of such information becomes inaccurate and incomplete.
INDIVIDUAL AND JOINT PURCHASERS SHOULD COMPLETE SECTION A
CORPORATIONS, BUSINESS TRUSTS AND PARTNERSHIPS SHOULD COMPLETE
SECTION B
10
<PAGE>
A. INDIVIDUAL AND JOINT PURCHASERS
1. Personal
a. Full Name: ___________________________
b. Social Security No.: ___________________________
c. Residence Address: ___________________________
---------------------------
d. Occupation: ___________________________
e. Employer: ___________________________
f. Business Address: ___________________________
---------------------------
g. Telephone: Business: ___________ Home: _________
h. Position or Title: ___________________________
i. Are You (Check One):
Married ______ Single _______
j. Do You File Joint
Tax Returns(Check One):
Yes __________ No ___________
2. Bank References
a. Bank: ___________________________
b. Bank Address: ___________________________
---------------------------
c. Bank Telephone No.: ___________________________
d. Name of Bank
Representative: ___________________________
3. Income, Net Worth and Financial Standing
a. Did your annual income during each of 1994 and 1995 exceed $200,000,
or, did your joint income together with your spouse exceed $300,000 during each
of 1994 and 1995, and do you reasonably expect your annual income during 1996 to
exceed $200,000, or your joint income together with your spouse to exceed
$300,000?
Yes _____________ No _______________
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<PAGE>
b. Does your individual net worth, or your joint net worth
together with your spouse, exceed $1,000,000?
Yes _______ No _________ Not Applicable __________
c. Gross income for the most recently
ended tax year: $___________
d. Anticipated gross income for
the year 1996: $___________
e. Do you anticipate that your income over the next five
years will:
Increase _______ Decrease _______ Remain Same ________
f. Is your net worth, excluding home, furnishings and
automobiles (Check One):
Over $200,000 ___ Over $300,000 ___ Over $400,000 ___
Over $________ (State Amount)
g. What percentage of your net worth are liquid assets
(cash or assets readily convertible to cash) (Check One:)
over 15% _____ over 25% _____ over 35% _____ over 50% ____
h. Do you have any debts or other obligations, or are
there any reasonably foreseeable circumstances likely in the
future to require you to dispose of the Shares?
Yes ________ No ________ (If yes, please describe
briefly below)
---------------------------------------------------------
----------------------------------------------------------
4. Investment Experience
Describe briefly your prior investment experience in both marketable
and unmarketable securities. If none, please so state.
---------------------------------------------------------
---------------------------------------------------------
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<PAGE>
5. Education
Describe your educational background (schools attended and degrees
obtained):
---------------------------------------------------------
---------------------------------------------------------
6. What is your profession, if any? _______________________
7. Investment Advice
a. In connection with your proposed purchase of Shares, will you or did
you seek advice from any lawyer, accountant, investment advisor or other person
or persons?
Yes _________ No ___________
If Yes, please set forth the name, profession or occupation
and business address of each such advisor or prospective advisor and, if more
than one, explain briefly the division of responsibilities between them:
---------------------------------------------------------
---------------------------------------------------------
b. Do you or any of your advisors, or any of your or their respective
affiliates, now have or contemplate having, or have they had, during the past
two years, any relationship with the Company and/or any of its officers,
directors, or their affiliates; or, any of your advisors or affiliates the
beneficial owner of 10% or more of any class of equity securities or 10% or more
of the equity interest in the Company or affiliates of the Company;
Yes ____________ No _____________
If Yes, please describe such relationship and/or ownership.
---------------------------------------------------------
B. CORPORATE PURCHASERS, BUSINESS TRUST OR PARTNERSHIP
PURCHASERS
1. Name of Corporation, Business Trust or Partnership:
- ------------------------------------------------------------
2. Name and Title of Executive Officer Executing Questionnaire:
------------------------------------------------------------
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<PAGE>
3. Business Address: ________________________________________
________________________________________
4. Telephone Number: ________________________________________
5. Representations and Warranties
The undersigned represents and warrants as follows:
a. The corporation, business trust or partnership, as the case
may be, has been duly incorporated if a corporation, formed if a business trust
or partnership, and is validly existing as a corporation, business trust or
partnership, in good standing under the laws of the jurisdiction of its
incorporation or formation, with full power and authority to enter into the
transactions contemplated by the offering documents.
b. (i) The officers or partners of the undersigned who, on
behalf of the undersigned, have considered the purchase of the Shares and the
advisors, if any, of the corporation, business trust or partnership, as the case
may be, in connection with such consideration are named below and such officers
and advisors or partners were duly authorized to act for the corporation,
business trust or the partnership in reviewing such investment;
(ii) The names and positions of the officers or
partners of the undersigned who, on its behalf, have reviewed the
purchase of the Shares are as follows:
---------------------------------------------------------
(iii) In evaluating the merits and risks of the
purchase of the Shares, the corporation, business trust or the partnership, as
the case may be, intends to rely upon, or has relied upon, the advice of, or
will consult with, or has consulted with, the following persons:
---------------------------------------------------------
c. The officers of the corporation, business trust or the partners of
the partnership who, on its behalf, have considered the purchase of the Shares,
and the advisors, if any, of the corporation or the corporation, business trust
or partnership in connection with such consideration, together have such
knowledge and experience in financial and business matters that such officer(s),
partner(s) and such advisor(s), if any, together are capable of evaluating the
merits and risks of purchase of the Shares and of making an informed investment
decision;
d. Together with any corporation or group of corporations with which it
files a consolidated federal income tax return, the undersigned (i) expects to
have adequate taxable income to
14
<PAGE>
realize the economic and potential tax benefits from ownership of the Shares,
and (ii) has reserves and/or net worth adequate to permit it to satisfy any tax
or other liabilities arising from its personal liability with respect to the
investment and operation thereof;
e. The total assets of the corporation, business trust or
partnership are in excess of $_______________.
f. The net worth of the corporation, business trust or the
partnership is in excess of $_____________.
g. The corporation, business trust or the partnership has had, during
each of the past two tax years, gross income from all sources of $_____________
and $_______________, respectively.
h. The undersigned expects the corporation, business trust
or the partnership to have during the current and next tax year,
gross income from all sources of at least $____________; and
i. The undersigned knows of no pending or threatened
litigation the outcome of which could adversely affect the answer
to any question hereunder.
j. Indicate the following if a partnership purchaser:
(i) The date the partnership was formed:
(ii) The names of each partner in the partnership. Please have
each individual partner execute a separate questionnaire or forward to the
Company a letter indicating whether or not each partner is sophisticated and has
a sufficient net worth or salary level to be deemed an "accredited investor"
under Rule __________ promulgated under the Securities Act.
---------------------------------------------------------
---------------------------------------------------------
The undersigned warrants and represents that the foregoing statements
are true and accurate to the best of the information and belief of the
undersigned and the undersigned will promptly notify the Company of any changes
in the foregoing answers.
FOR INDIVIDUALS
Purchaser
Dated: __________, 1996 ______________________________
Signature
------------------------------
Signature (If Joint)
15
<PAGE>
FOR CORPORATIONS
Dated: ___________, 1996 ______________________________
Name of Company
------------------------------
Executive Officer
------------------------------
Signature of Officer
FOR BUSINESS TRUSTS
Dated: _____________, 1996 ______________________________
Name of Business Trust
------------------------------
Name of Trustee Executing
Questionnaire
------------------------------
Signature of Trustee
FOR PARTNERSHIPS
Dated: _______________, 1996 ______________________________
Name of Partnership
------------------------------
Name of Partner Executing
Questionnaire
------------------------------
Signature of Partner
16
<PAGE>
FOR PENNSYLVANIA RESIDENTS:
The undersigned hereby agrees not to sell any of the
securities acquired hereunder for a period of 12 months from the date he
acquires such securities.
By:____________________________
Signature
-------------------------------
Printed Name
--------------------------------
Date
--------------------------------
Street
--------------------------------
City, State Zip
---------------------------------
Social Security Number or Federal
ID No.
---------------------------------
Telephone No. of Subscriber
AGREED AND ACCEPTED BY:
AMERICAN FILM TECHNOLOGIES, INC.
By:______________________________
Duly Authorized
Date:____________________________
Gerald M. Wetzler
17
<PAGE>
REGISTRATION UNDERTAKING
This Registration Undertaking (this "Agreement") is made and
entered into as of September 18, 1996 by American Film Technologies, Inc., a
Delaware corporation (the "Company") for the benefit of James W. Inglis (the
"Holder") in connection with that certain Stock Purchase Agreement dated as of
September 18, 1996 between the Company and the Holder (the "Purchase
Agreement").
NOW, THEREFORE, in consideration of the mutual
representations, covenants and agreements contained herein, the Company hereto
agrees and undertakes as follows:
1. Piggyback Registration.
(a) Registrable Securities: The term
"Registrable Securities" means each of the following:
(i) the Shares as such term is defined in
the Purchase Agreement; and
(ii) any other shares or securities or
distributions resulting from a reverse split, stock split, stock dividend,
reclassification of the capital stock of the Company, consolidation or
reorganization of the Company, and any shares or other securities of the Company
or of any successor company which the Holder may receive by virtue of their
ownership of the Shares;
provided, however, that any of the securities described in the foregoing clauses
(i) and (ii) shall be treated as Registrable Securities only if and so long as
(x) they are held by the Holder or the Holder's estate or legatee(s), (y) have
not been sold or disposed of, pursuant to a registration statement covering such
Registrable Securities which has been declared effective pursuant to the
Securities Act of 1933, as amended (the "Act") or if such securities have not
been sold or disposed of such registration statement including the Registrable
Securities remains effective; or (z) have not been sold or disposed of to the
public pursuant to Rule 144 (or any similar provision then in force) promulgated
under the Act.
(b) Piggyback Registration Rights. Subject to
the terms and conditions contained in this Agreement, during the Piggyback
Period, as hereinafter defined, the Holder shall be entitled to include in any
Piggyback Registration Statement, as hereinafter defined, all Registrable
Securities .
(c) Piggyback Period. Except as otherwise
provided herein, the Holder shall be entitled to include all or any portion of
the Registrable Securities held by Holder in a Piggyback Registration Statement,
as such term is hereinafter
-1-
<PAGE>
defined, during the period commencing as of the date hereof and ending on the
first to occur of: (i) September 19, 1999; (ii) all of the Registrable
Securities which Holder desires to sell can be sold in one sale pursuant to Rule
144(k) or any successor rule of similar provision; or (iii) the sale of the
Registrable Securities have been or could have been included as part of a
Registration Statement which has been declared effective by the Securities and
Exchange Commission (the "SEC") and if the Registrable Securities are included
therein, the effectiveness thereof is not terminated prior to the contemplated
distribution period (the "Piggyback Period").
(d) Notice of Registration. In the event that
during the Piggyback Period the Company proposes to file a registration
statement to register under the Act, the sale or other transfer of any class of
its securities of which the Registrable Securities are a part: (i) by the
Company (the "Company Securities"); or (ii) by any other present or future
holder of the Company's securities (the "Shareholder Securities") (the Company
Securities and Shareholder Securities hereinafter collectively referred to as
the Registration Securities), the Company shall deliver to the Holder, at least
twenty (20) days prior to the filing with the Commission of the registration
statement covering such Registration Securities (the "Piggyback Registration
Statement"), a written notice (a "Registration Notice") of its intention so to
register such offering of Registration Securities and the manner in which such
Registration Securities are proposed to be sold.
(e) Supplemental Notice. In the event that a
Registration Notice shall have been delivered, the Holder may elect to include
in the offering covered by the Piggyback Registration Statement all or a portion
of the Registrable Securities by delivering notice to the Company (the
"Supplemental Notice") on or before the tenth (10th) day after delivery of the
Registration Notice specifying the number of shares of Registrable Securities
(the "Piggyback Securities") proposed to be sold or otherwise transferred by the
Holder. In the event the Holder fails to notify the Company of its election to
include all or any portion of the Registrable Securities in such Piggyback
Registration Statement in a timely manner; Holder's Piggyback Registration
Rights pursuant to this Agreement shall automatically terminate as to that
portion of the Registrable Securities with respect to which a notice has not
been received.
(f) Registration of Supplemental Registration
Securities. Subject to the terms, conditions, restrictions and limitations
contained elsewhere herein, from and after receipt of a Supplemental Notice, the
Company shall use its best efforts to cause the Piggyback Securities to be
registered under the Act pursuant to the Piggyback Registration Statement,
subject to the sale or other transfer thereof prior to the effectiveness of the
Piggyback Registration Statement, and to effect and to comply with all
qualifications, compliances and requirements necessary
-2-
<PAGE>
to permit the sale or other transfer of the Piggyback Securities pursuant to the
Piggyback Registration Statement, including, without limitation, qualifications
under the applicable blue sky or other state securities laws.
(g) Priorities.
(i) Underwritten Offerings by the Company.
If, in the case of delivery of a Supplemental Notice relating to an underwritten
offering of securities proposed to be made by the Company, the managing
underwriter shall make a determination, in its sole discretion, in a writing
delivered to the Company and the Holder that inclusion of some or all of the
Piggyback Securities together with the Registration Securities, which are to be
included in such Piggyback Registration Statement would have an adverse effect
on the proposed distribution of the Company Securities ("Adverse Distribution
Effect"), then the Company shall, upon written notice to the Holder and to all
holders of Shareholder Securities included in such Piggyback Registration
Statement only the number of securities other than Company Securities which, in
the sole discretion of the managing underwriter, can be sold without any such
Adverse Distribution Effect, selected from the Holder and the holders of
Shareholder Securities seeking to exercise piggyback registration rights, on a
pro rata basis in proportion to the number of securities sought to be included
in such Piggyback Registration Statement.
(ii) Underwritten Offerings of Shareholder
Securities. If, in the case of delivery of a Supplemental Notice by the Holder
relating to an underwritten offering of Shareholder Securities in connection
with a demand registration right by such holders, where the managing underwriter
shall make a determination, in its sole discretion, in a writing delivered to
the Company and the Holder and holders of Shareholder Securities included in
such Piggyback Registration Statement that inclusion of some or all of the
Registrable Securities would have an Adverse Distribution Effect on the proposed
sale of the Shareholder Registration Securities then the Company shall, upon
written notice to the Holder and holders of such Shareholder Securities, include
in such registration only the number of Securities which, in the sole discretion
of the managing underwriter, can be sold without an Adverse Distribution Effect
on the proposed sale of the Shareholder Securities covered by the Demand
Registration Right, selected from the Holder and the holders of Shareholder
Securities seeking to exercise piggyback registration rights, on a pro rata
basis in proportion to the number of securities sought to be included in such
Piggyback Registration Statement.
(iii) Non-Underwritten Offerings. The Holder
shall have the right to include all Registrable Securities in a Piggyback
Registration Statements of non-underwritten offerings of securities of the
Company.
-3-
<PAGE>
(h) Underwriters. In the case of Piggyback
Registration Statements, the underwriter designated by the initiating party
shall serve as the managing underwriter for the entire offering. Holder shall be
entitled to utilize any other underwriter in connection with the sale of its
securities unless the managing underwriter reasonably determines participation
by such underwriter in the offering would materially delay or otherwise be
materially adverse to the transaction.
(i) Exceptions. The provisions of this Section
shall not apply to (i) any registration statement on Form S-8 or Form S-4, or
any successor form, or (ii) any registration statement covering only securities
proposed to be issued in exchange for securities or assets of another
corporation.
2. Restrictions on Public Sale by the Holder. Notwithstanding
anything contained herein to the contrary, if the Holder has received a
Registration Notice during the Piggyback Period, for so long as the Holder holds
one percent (1%) or more, on a fully diluted basis of such Registrable
Securities, the Holder agrees not to effect any public sale or distribution of
any such securities during the fifteen (15) days prior to, and during the 90-day
period beginning on, the effective date of such registration statement (or until
its termination or abandonment, if earlier), except for a sale pursuant to such
registration statement, if permitted.
3. Registration Procedures.
(a) The Holder shall provide to the Company such
information regarding the distribution of the Piggyback Securities and such
other information relating to the Holder and his or her ownership of securities
of the Company as the Company may from time to time reasonably request in
writing.
(b) Notwithstanding anything contained herein to
the contrary, the SEC may issue a "stop order" or refuse to allow the
effectiveness of any Piggyback Registration Statement or the Company, may in its
sole discretion terminate any Piggyback Registration Statement at any time prior
to or after the effectiveness thereof without liability to the Holder. In such
event, the Company shall promptly notify the Holder thereof.
(c) The Holder agrees, upon receipt of any
notice from the Company of the happening of any event of the kind described in
Section 3(b) hereof, he or she will forthwith discontinue distribution of
Piggyback Securities.
4. Registration Expenses
All expenses incident to the Company's performance
of or compliance with this Agreement including, without
limitation (i) all registration and filing fees, all fees and
-4-
<PAGE>
expenses associated with filings required to be made with the NASD, as may be
required by rules and regulations of the NASD (other than fees required in
excess of fees which would otherwise pertain in the event that the Holder is a
member of the NASD), fees and expenses of compliance with securities or blue sky
laws (including fees and disbursements of counsel in connection with blue sky
qualifications for the Registrable Securities), rating agency fees, printing
expenses (including expenses of printing certificates for the Registrable
Securities in a form eligible for deposit with the Depository Trust Company and
of printing prospectuses if the printing of prospectuses is reasonably requested
by the holders of a Majority Amount), messenger and delivery expenses, (ii)
internal expenses (including, without limitation, all salaries and expenses of
their officers and employees performing legal or accounting duties), securities
acts liability insurance (if the Company elects to obtain such insurance), (iii)
fees and expenses of counsel for the Company and its independent certified
public accountants (including the expenses of any special audit or "cold
comfort" letters required by or incident to such performance), (iv) fees and
expenses of any special experts retained by the Company in connection with such
registration, and (v) fees and expenses of other persons retained by the
Company, (all such expenses being herein called "Registration Expenses"), shall
be allocated between the Company (and, if applicable holders of other
Shareholder Securities) and the Holder on a pro-rata basis based upon the total
number of shares included in the Piggyback Registration Statement and the
Piggyback Securities, provided that in no event shall Registration Expenses
include (A) any underwriting discounts or commissions attributable to the sale
of the Registrable Securities, (B) any fees and expenses of counsel for the
Holder if such counsel is different than counsel for the Company or any
accountant or other professional engaged by the Holder, or (C) any direct
out-of-pocket expenses of the Holder.
In the event that following effectiveness of a
Piggyback Registration Statement, pursuant to which the Holder is a selling
stockholder, it becomes necessary for the Company to prepare and file a
supplemental prospectus or amended prospectus in order to maintain the
effectiveness of such registration statement, the cost thereof shall be
apportioned as set forth above.
5. Indemnification; Contribution
(a) Indemnification by the Company. To the
extent that any Piggyback Securities are included in a Piggyback Registration
Statement pursuant to the terms hereof, the Company agrees to indemnify, to the
full extent permitted by law, the Holder, and any agent therefor against all
losses, claims, damages, liabilities and expenses (including reasonable legal
fees and expenses) arising out of or based upon any such untrue statement or
alleged untrue statement of a material fact contained in any registration
statement, prospectus or
-5-
<PAGE>
preliminary prospectus, or any amendment thereof or supplement thereto, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein (in the case of a
prospectus or preliminary prospectus, in light of the circumstances under which
they are made) not misleading, except insofar as such losses, claims, damages
arise out of or are based upon an untrue statement or omission so made in
reliance upon and in conformity with information with respect to the Holder
furnished in writing to the Company by the Holder or its representatives
expressly for use therein or any acts of negligence or misfeasance by Holder.
(b) Indemnification by the Holder. In connection
with any Piggyback Registration Statement in which the Holder is a selling
stockholder, the Holder agrees to indemnify, to the extent permitted by law, the
Company, its directors, officers, employees and agents and each person who
controls the Company (within the meaning of applicable federal and state
securities laws), and any investment advisor thereof or agent therefor against
any losses, claims, damages, liabilities and expenses (including reasonable
legal fees and expenses) resulting from (i) any untrue statement or alleged
untrue statement of a material fact contained in the registration statement,
prospectus or preliminary prospectus, or any amendment thereof or supplement
thereto, or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein (in
the case of a prospectus or prelimi nary prospectus, in the light of the
circumstances under which they were made) not misleading, to the extent, but
only to the extent, that such untrue statement or omission is made in reliance
upon and in conformity with or failed to be contained in any information with
respect to the Holder furnished in writing by the Holder or its representatives
specifically for inclusion therein; (ii) Holder's negligence; or (iii) Holder's
misfeasance. In no event shall the liability of the Holder hereunder be greater
in amount than the dollar amount of the proceeds received by the Holder upon the
sale of the Registrable Securities giving rise to such indemnification
obligation.
(c) Conduct of Indemnification Proceedings. Any
person entitled to indemnification hereunder agrees to give prompt written
notice to the indemnifying party after the receipt by such person of any written
notice of the commencement of any action, suit or proceeding against such person
or investigation thereof made in writing or for which such person will claim
indemnification or contribution pursuant to this Agreement, but the failure so
to give written notice to the indemnifying party shall not relieve it from any
liability which it may have to any indemnified party hereunder except if and to
the extent such indemnifying party is materially prejudiced by such failure nor
shall it relieve the indemnifying party from any liability which it may have to
any indemnified party other than under this Agreement. The indemnified party
shall permit the indemnifying party to assume the defense of such claim with
counsel reasonably
-6-
<PAGE>
satisfactory to such indemnified party; provided, however, that if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be defenses available to it that are different from or additional
to those available to the indemnifying party or if the interests of the
indemnified party may reasonably be deemed to conflict with the interests of the
indemnifying party, the indemnified party shall have the right to select a
separate counsel and to control the defense of such action, with the reasonable
fees and expenses of such separate counsel to be reimbursed by the indemnifying
party. If the indemnifying party is not entitled to, or does not, assume the
defense of a claim, it will not be obligated to pay the fees and expenses of
more than one counsel (and any required local counsel) with respect to such
claim. No indemnified party will be required to consent to entry of any judgment
or enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party of a
release from all liability in respect to such claim or litigation. The
indemnifying party will not be subject to any liability for any settlement made
without its consent, which shall not be unreasonably withheld.
(d) Conflict with Underwriting Agreement. In the
event that any provision of any indemnification clause in the underwriting
agreement to which the Company and the Holder are parties in connection with the
registration statement or prospectus in question differs from a provision in
this Section 5, such provision in the underwriting agreement shall determine the
Holder's rights in respect thereof.
6. Participation in Underwritten Registrations
The Holder may not participate in any underwritten
registration hereunder unless it (a) agrees to sell the Piggyback Securities, as
the case may on be, the basis provided in the underwriting arrangements approved
by it, (b) completes and executes all questionnaires, powers of attorneys,
indemnities, underwriting agreements and other documents reasonably required
under the terms of such underwriting arrangements and (c) agrees to pay all
underwriting discounts and commissions on the Piggyback Securities sold under
such underwriting arrangements.
7. Miscellaneous
(a) Entire Agreement. This Agreement contains the
entire agreement among the parties hereto and except as set forth herein,
supersedes all prior oral or written agreements, promises, representations,
commitments or understandings with respect to the matters provided for herein.
(b) Amendment. This Agreement may be modified or
amended only by a writing duly executed by the parties hereto.
-7-
<PAGE>
(c) Assignment and Binding Effect. This Agreement and
the rights and obligations of any party hereunder may not be assigned by any
party without the prior written consent of the other party hereto. All
covenants, agreements, and indemnities in this Agreement by and on behalf of any
of the parties hereto shall be binding on and inure to the benefit of their
respective successors and permitted assigns.
(d) Waivers. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provision hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver. No waiver shall be binding unless executed in writing by the
party making the waiver.
(e) Notices. Unless applicable law requires a
different method of giving notice, any and all notices, demands or other
communications required or desired to be given hereunder by any party shall be
in writing. Assuming that the contents of a notice meet the requirements of the
specific Section of this Agreement which mandates the giving of that notice, a
notice shall be validly given or made to another party if served either
personally or if deposited in the United States mail, certified or registered,
postage prepaid, or if transmitted by telegraph, telecopy or other electronic
written transmission device or if sent by overnight courier service, and if
addressed to the applicable party as set forth below. If such notice, demand or
other communication is served personally, service shall be conclusively deemed
given at the time of such personal service. If such notice, demand or other
communication is given by mail, service shall be conclusively deemed given
seventy-two (72) hours after the deposit thereof in the United States mail. If
such notice, demand or other communication is given by overnight courier, or
electronic transmission, service shall be conclusively given at the time of
confirmation of delivery. The addresses for the parties are as follows:
(i) If to the Holder:
James W. Inglis
4316 Columns Drive
Marietta, Georgia 30067
Telecopier No.: (770) 951-9905
(ii) If to the Company:
American Film Technologies, Inc.
Attention: Gerald M. Wetzler
300 Park Avenue, 17th Floor
New York, New York 10022
Telecopier No.: (212) 572-6460
-8-
<PAGE>
with a copy (which shall not constitute notice) to:
Jeffer, Mangels, Butler & Marmaro LLP
2121 Avenue of the Stars, 10th Floor
Los Angeles, California 90067
Attention: Barry L. Burten, Esq.
Telecopier No.: (310) 203-0567
Any party hereto may change its address for the purpose of
receiving notices, demands and other communications as herein provided, by a
written notice given in the aforesaid manner to the other parties hereto.
(f) Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York, without
regard to conflicts of law principles.
(g) Jurisdiction. The parties hereto agree to submit
to the exclusive jurisdiction of the Superior Court, Los Angeles County any
controversy, claim or dispute arising out of or relating to this Agreement or
the method and manner of performance thereof or the breach thereof.
(h) Cost of Litigation. Should any party hereto
institute any action or proceeding at law or in equity to enforce any provision
of this Agreement, including an action for declaratory relief, or for damages by
reason of an alleged breach of any provision of this Agreement, or otherwise in
connection with this Agreement, or any provision hereof, the Court shall
apportion the costs and fees thereof (including all attorneys' fees between the
parties based on its determination of the merits of their respective positions
in the proceeding prevailing party shall be entitled to recover from the losing
party or parties reasonable attorneys' fees and costs for services rendered to
the prevailing party in such action or proceeding.
(i) Interpretation. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
(j) Severability. If any provisions of this Agreement
shall under any circumstances be deemed invalid or inoperative, this Agreement
shall be construed with the invalid or inoperative provision deleted and the
rights and obligations of the parties shall be construed and enforced
accordingly.
(k) Neuter and Gender. Whenever in this Agreement the
context may require, the neuter shall be deemed to include the feminine or
masculine and vice versa.
-9-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed on its behalf on the date first above written.
AMERICAN FILM TECHNOLOGIES, INC.
By
------------------------------
Gerald M. Wetzler,
Chief Executive Officer
AGREED TO AND ACCEPTED
THIS ____ DAY OF FEBRUARY, 1996
- -------------------------------
James W. Inglis
-10-
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<NAME> AMERICAN FILM TECHNOLOGIES, INC.
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<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
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