<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 March 31, 1997.
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 (IRS Employer Identification
incorporation or organization) Number)
4105 Sorrento Valley Blvd., San Diego, CA 92121
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(Address of principal executive offices)
Registrant's telephone number including area code
(619) 623-0830
---------------------------------------------------------------
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 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 May 9, 1997, there were 73,450,644 shares of common stock
outstanding.
<PAGE>
PART 1. FINANCIAL INFORMATION
American Film Technologies, Inc.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
------------ -----------
Assets (unaudited)
<S> <C> <C>
Current Assets:
Cash $191,554 $338,669
Other current assets 181,829 106,254
------------ -----------
Total current assets 373,383 444,923
Equipment and software, at cost, net 374,179 444,459
Film library, net 225,000 337,500
Reorganization value in excess of identifiable assets, net 5,768,255 6,017,772
------------ -----------
$6,740,817 $7,244,654
============ ===========
Liabilities and stockholders' equity:
Current Liabilities:
Notes payable:
Current portion of long-term notes payable $405,307 $0
Other loans 104,225 31,357
Accounts payable and accrued expenses 472,797 480,471
Accrued compensation 138,327 220,058
------------ -----------
Total current liabilities 1,120,656 731,886
Long-term notes payable 1,315,921 1,634,404
------------ -----------
Total liabilities 2,436,577 2,366,290
Stockholders' equity:
Preferred stock, $.001 par value:
Authorized shares - 25,000,000 at March 31, 1997 and
10,000,000 at June 30, 1996: issued and outstanding shares -
0 at March 31, 1997 and June 30, 1996 0 0
Common stock, $.002 par value:
Authorized shares - 225,000,000 at March 31, 1997 and
90,000,000 at June 30, 1996: issued and outstanding shares -
73,450,644 at March 31, 1997 and 69,567,310 at June 30, 1996 146,902 139,135
Capital in excess of par value 8,036,686 7,264,453
Deferred compensation (900,000) (1,080,000)
Accumulated deficit (2,979,348) (1,445,224)
------------ -----------
Total stockholders' equity 4,304,240 4,878,364
------------ -----------
$6,740,817 $7,244,654
============ ===========
</TABLE>
See accompanying notes.
1
<PAGE>
American Film Technologies, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three months ended March 31, 1997 and For the Nine months ended March 31, 1997 and
March 31, 1996 March 31, 1996
Successor Successor Successor Successor Predecessor
Company Company Company Company Company
----------- ----------- ------------ ------------ ------------
October 17, July 1,
1995 to 1995 to
March 31, March 31, March 31, March 31, October 16,
1997 1996 1997 1996 1995
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Distribution revenues $0 $0 $0 $0 $0
----------- ----------- ------------ ------------ ------------
0 0 0 0 0
Expenses:
Compensation and benefits -
administrative and officers 98,382 46,222 298,800 83,335 263,829
General and administrative 286,858 274,197 722,696 527,430 97,108
Interest expense, net 31,759 26,124 93,507 40,261 33,132
Depreciation and amortization 139,707 139,707 419,121 253,154 238,273
Reorganization items:
Fresh start adjustments 0 0 0 0 (6,326,258)
Professional fees 0 0 0 0 65,430
U.S. Trustee fees 0 0 0 0 1,250
----------- ----------- ------------ ------------ ------------
556,706 486,250 1,534,124 904,180 (5,627,236)
----------- ----------- ------------ ------------ ------------
Net income/(loss) ($556,706) ($486,250) ($1,534,124) ($904,180) $5,627,236
=========== =========== ============ ============ ============
Net income/(loss) per share ($0.01) ($0.01) ($0.02) ($0.01) $0.17
=========== =========== ============ ============ ============
Shares used in per share computation 73,417,311 69,563,977 71,924,718 69,560,946 32,232,802
=========== =========== ============ ============ ============
</TABLE>
See accompanying notes.
2
<PAGE>
American Film Technologies, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Successor Successor Predecessor
Company Company Company
----------------- ------------------ ------------------
Nine months October 17, July 1,
ended 1995 to 1995 to
March 31, March 31, October 16,
CASH FLOWS FROM OPERATING ACTIVITIES: 1997 1996 1995
----------------- ------------------ ------------------
<S> <C> <C> <C>
Net income/(loss) ($1,534,124) ($904,180) $5,627,236
Adjustments to reconcile net income (loss) to net cash
(used) by operating activities:
Depreciaiton and amortization 419,121 253,154 238,273
Amortization of deferred compensation 180,000
Fresh start adjustments (6,326,258)
Changes in assets and liabilities:
Restricted cash 0 0 15,322
Other current assets (75,575) (120,019) 86,913
Accounts payable and accrued expenses (89,405) (1,430,139) 210,651
Adjustment to long-term notes payable 52,400
Adjustment to Reorganization value in excess of
identifable asset account (61,821)
----------------- ------------------ ------------------
Net cash (used) by operating activities (1,099,983) (2,210,605) (147,863)
Cash Flows From Financing Activities:
Principal payments on notes payable - bank 0 (348,385) (250,000)
Principal payments on notes payable - other (133,976) (374,063)
Proceeds from notes payable - other 206,844 140,289 503,000
Proceeds from L/T notes payable 100,000
Issuance of common stock to settle accounts payable 2,520
Proceeds from common stock subscriptions 125,000 2,960,200
Proceeds from sale of common stock 580,000
Proceeds from option fee for stock option 200,000
Principal payment on L/T debt (4,500)
----------------- ------------------ ------------------
Net cash provided (used) by financing activities 952,868 (459,139) 3,213,200
Net increase (decrease) in cash (147,115) (2,669,744) 3,065,337
Cash, beginning of period 338,669 3,075,921 10,584
----------------- ------------------ ------------------
Cash, end of period $191,554 $406,177 $3,075,921
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $63,889 $151,842
Reduction of long-term notes payable written down against
Reorganization value in excess of identifiable assets $13,176
</TABLE>
See accompanying notes.
3
<PAGE>
AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 (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. Under Chapter 11, substantially all
pre-petition liabilities of debtors are subject to settlement under a plan of
reorganization. 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 funded its emergence
from bankruptcy through a private placement for $3,460,200 in October, 1995 (the
"Meyers Private Placement). Subsequent thereto, the Company has funded its
operations and overhead costs through the sale of equity and debt securities.
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 March 31, 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 is for the period July 1,
1995 to October 16, 1995. "Reorganization items" (including professional fees)
have been specifically identified on the Consolidated Statements of Operations.
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
<PAGE>
AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 (UNAUDITED)
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. The Meyers Private Placement raised an aggregate of
$3,460,200 through the sale 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 the
shares purchased by the new shareholders (up to an aggregate amount of
38,982,508 shares). 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.
The Company received a letter of intent from Meyers in March, 1996.
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.
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 following 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
<PAGE>
AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 (UNAUDITED)
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 following consolidated 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.
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 includes
pre-petition liabilities and will be paid out subject to the terms of the Plan.
The effect of the Plan on the Company's audited consolidated balance sheet at
October 17, 1995 (the Effective Date) was as follows:
<PAGE>
AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 (UNAUDITED)
<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
Accounts receivables 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.
<PAGE>
AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 (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.
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.
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 March 31, 1997 and 1996 , no exercise of stock
options was assumed because the exercise of such equivalents would be
anti-dilutive.
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.
<PAGE>
AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 (UNAUDITED)
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 preliminary 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:
March 31, 1997
--------------
Reorganization value in excess of identifiable assets $6,214,676
less accumulated amortization 446,421
----------
$5,768,255
==========
The related amortization for the quarter ended and nine month period ended March
31, 1997 was $78,780 and $236,340, respectively.
4. Long Term Debt
During the quarter ended March 31, 1997, the Company borrowed $100,000 pursuant
to a two-year promissory note secured by all of the assets of the Company,
bearing interest at a rate of 2% per annum and convertible into common stock of
the Company at a rate of $.09 per share.
<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.
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
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 funded its pursuit of
new product development and opportunities, as well as strategic alliances,
partners and other sources of financing through the proceeds of the Meyers
Private Placement as well as the sale of equity and debt securities. During the
quarter ended March 31, 1997 the Company received $200,000 from the grant of
Director stock options. The Company also received $5,000 related to the exercise
of outstanding options for 50,000 shares of the Company's common stock. The
Company also received $100,000 from a promissory note as described in Note 4 of
the Notes to Consolidated Financial Statements.
<PAGE>
Subsequent to the end of the first quarter, the Company raised an
additional $190,000 through the grant to Gerald Wetzler of director options and
the exercise of outstanding options.
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.
Results of Operations.
The operations of the Company for the period ended March 31, 1997
(Successor Company), for the period October 17, 1995 to March 31, 1996
(Successor Company) and for the period July 1, 1995 to October 16, 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 March 31, 1997
and for the period October 17, 1995 to March 31, 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.
Liquidity and Capital Resources.
In connection with the Plan, the Company completed the Meyers 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 March 31, 1997, the Company entered into an additional stock option
agreement with Mr. Wetzler, whereby Mr. Wetzler purchased for a fee of $200,000
(which was deemed fair value) an option to acquire up to 10 million shares of
the Company's common stock.
During the quarter ended March 31, 1997, the Company issued 50,000
shares of its Common Stock related to the exercise of options for an aggregate
cash purchase price of $5,000.
Subsequent to the end of the first quarter, the Company raised an
additional $190,000 through the grant to Gerald Wetzler of director options and
the exercise of outstanding options.
The Company believes the funds received during and subsequent to the
quarter ended March 31, 1997 will be sufficient to last through July, 1997.
<PAGE>
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 July,
1997 and to enable it to pay the October, 1997 installment of principal and
interest due on the notes arising from the Plan of Reorganization and no
assurances can be made that such additional financing will occur.
PART II : OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes In Securities
In January, 1997, the Company granted options to purchase 10,000,000
shares of Common Stock at seven cents per share for a purchase price of $200,000
to its CEO, Gerald Wetzler. In addition, in February, 1997, the Company issued
$100,000 principal amount of Senior Secured Convertible Notes in a private
placement to an "accredited investor". These sales were 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.
Item 4. Submission of Matters to a Vote of Security Holders
Annual Meeting of Stockholders - On February 26, 1997, the
stockholders of the Company approved an amendment of the Company's Certificate
of Incorporation to increase the capital stock of the Company to 250,000,000
shares, consisting of 225,000,000 shares of common stock and 25,000,000 shares
of preferred stock. 44,536,799 shares were voted in favor of the proposed
amendment, 1,194,217 against and 108,728 shares abstained.
The stockholders also elected five directors; Harvey Finkel, Eric
Illowsky, Larry King, Daniel Schwartz and Gerald Wetzler to the Board of
Directors who will serve until the 1997 Annual Meeting of Stockholders.
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
<PAGE>
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.
Item 6. Exhibits and Reports on Form 8-K
10.21 Stock purchase agreement dated October 21, 1996 between the
Company and Porter Bibb.
10.22 Registration undertaking agreement dated October 21, 1996 between
the Company and Porter Bibb.
10.23 Stock purchase agreement dated October 28, 1996 between the
Company and AFT Investments, a California general partnership.
10.24 Registration undertaking agreement dated October 28, 1996 between
the Company and AFT Investments, a California general partnership.
10.25 Five year stock option agreement dated October 17, 1996 between
the Company and Ed Payne.
10.26 Five year stock option agreement dated October 17, 1996 between
the Company and Steven Lefkowitz.
10.27 Five year stock option agreement dated October 17, 1996 between
the Company and Porter Bibb.
10.28 Five year stock option agreement dated October 15, 1996 between
the Company and Milton Rich.
10.29 Five year stock option agreement dated October 15, 1996 between
the Company and Sheldon Jacobs.
10.30 Stock option agreement dated January 3, 1997 between the Company
and Gerald Wetzler.
10.31 (Intentionally left blank)
10.32 Five year stock option agreement dated November 20, 1996 between
the Company and Harvey Finkel.
10.33 Secured Note Purchase Agreement and Security Agreement each dated
February 3, 1997 between the Company and Floyd Abrams and the $100,000
Convertible Secured Promissory Note dated February 3, 1997 to Floyd Abrams.
<PAGE>
10.34 Registration undertaking dated February 3, 1997 between the
Company and Floyd Abrams.
<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: May 13, 1997 By: /s/ Gerald M. Wetzler //
-------------------- --------------------------------
Gerald M. Wetzler,
Chairman, Chief Executive Officer
Date: May 13, 1997 By: /s/ Harvey S. Finkel//
--------------------- --------------------------------
Harvey S. Finkel,
Chief Financial Officer and Principal
Accounting Officer
<PAGE>
SECURED NOTE PURCHASE AGREEMENT
This SECURED NOTE PURCHASE AGREEMENT ("Agreement") is entered
into as of this 3rd day of February, 1997 between American Film Technologies,
Inc., 300 Park Avenue, 17th Floor, New York, New York 10022 (the "Company"), and
Floyd Abrams, c/o Cahill, Gordon & Reindel, 80 Pine Street, New York, New York
10005 ("Lender").
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, Lender is willing to lend to the Company and the
Company is willing to borrow an aggregate amount of One Hundred Thousand Dollars
($100,000) pursuant to a two-year promissory note secured by all of the assets
of the Company, bearing interest at a rate of Two Percent (2%) per annum and
convertible into common stock of the Company at a rate of Nine cents ($.09) per
share, substantially in the form of Exhibit A hereto (the "Note"); and
WHEREAS, the Company is willing to sell to the Lender the Note
pursuant to the terms thereof 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 Lender agree as
follows:
1. Purchase and Sale of the Note. Upon satisfaction of the
conditions set forth in Sections 2 and 3 below, the Company shall sell to Lender
and Lender shall purchase from the Company the Note (the "Loan").
2. Registration Undertaking. The Company agrees to grant
Lender "piggyback" registration rights with respect to the One Million One
Hundred Eleven Thousand One Hundred and Eleven (1,111,111) shares of the
Company's common stock into which the Note is convertible (the "Shares") in
accordance with the "Registration Undertaking" attached hereto and made a part
hereof as Exhibit "B".
3. Conditions Precedent, Delivery of the Note.
(a) The obligations of the Company hereunder shall be
subject to and conditioned upon the satisfaction of all of the following
conditions:
(i) The approval by the Company's Board of Directors
of this Agreement and the transactions contemplated
hereby;
(ii) The execution of this Agreement by the parties
hereto;
<PAGE>
(iii) The completion, execution and delivery by the
Lender to the Company of the Lender's Questionnaire,
attached hereto as Exhibit "C";
(iv) The delivery by the Lender to the Company of the
principal amount of the Note; and
(v) All of the representations and warranties of the
Lender 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
Lender at the address set forth in Section 8(b) below the Note containing a
restrictive legend substantially similar to that set forth in Section 7 below,
the Registration Undertaking and a security agreement and related documents to
grant to the Lender a first priority security interest on all of the existing
assets of the Company substantially in the form as attached hereto as Exhibit
"D" (the "Security Agreement"); provided that such security interest shall rank
pari passu with a security interest granted or to be granted by Payor to secure
repayment of an additional $100,000 note issued by Payor and containing terms
substantially identical to the Note (the "Additional Security Interest").
4. Representations of the Company. The Company represents and
warrants that:
(a) upon issuance, the Note will be (i) validly issued,
fully paid and nonassessable; and (ii) free of any liens or encumbrances;
(b) the Loan has been duly authorized and approved; and
(c) the consummation of the Loan as contemplated by this
Agreement does not violate the terms of the Company's Certificate of
Incorporation or By-Laws.
(d) upon the execution of this Agreement, the Security
Agreement, and the filing with the appropriate governmental bodies of such other
security documents as may be necessary Lender shall receive a first priority
security interest on all of the Company's existing assets which shall rank pari
passu with the Additional Security Interest pursuant to the terms of a security
agreement entered into by the Company and the Additional Holder.
Except as expressly set forth above, the Company makes no
representations or warranties of any kind or nature to the Lender.
5. Representations of Lender. Lender represents and warrants
in favor of the Company that:
2
<PAGE>
(a) Lender is acquiring the Note and the Shares for its own
account, for investment purposes only, and not with a view to or for the Loan,
distribution or assignment thereof, in whole or in part;
(b) that the offer and Loan of the Note and 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 Note or
the Shares, except as expressly set forth in the Registration Undertaking; that
the Note and the Lender will not sell, assign, pledge or otherwise transfer the
Shares unless they are subsequently registered under the Act or pursuant to an
exemption therefrom; and that legends to the foregoing effect will be placed on
the Certificates evidencing the Notes and the Shares;
(c) Lender 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) Lender 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 Note and the Shares;
(e) Lender 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) Lender 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;
(g) Lender has been given the opportunity to ask questions
of and receive answers from the representatives of the Company concerning the
Company, the Note and the Shares, the terms and conditions of the Loan 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
Documents, as hereinafter defined;
(h) Lender has determined that its investment in the
Company through its purchase of the Note is a suitable investment for it and
that at this time it can bear a complete loss of its investment;
(i) In making his decision to invest in the Company through
the purchase of the Note the Lender has relied solely upon independent
investigations made by it;
3
<PAGE>
(j) Lender 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.
(k) Lender 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, 1996;
(ii) The Company's Form 10-Q Report for the fiscal
quarter ended September 30, 1996; and
(iii) The Investment Considerations attached hereto.
(Said documents included in (i), (ii) and (iii) above are hereinafter
collectively referred to as the "SEC Documents", attached hereto and made a part
hereof as Exhibit "E").
(l) Lender 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 Lender, had been invited as result of, subsequent to or pursuant to any of
the foregoing.
(m) Any information which the Lender has heretofore
furnished to the Company with respect to its financial position and business
experience, including without limitation its Lender Questionnaire, attached
hereto as Exhibit "C", 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 Loan, the Lender will immediately furnish such
revised or corrected information to the Company.
(n) Lender and/or Lender's investment advisors, if any,
have carefully read and reviewed this Agreement, Exhibit "C" hereto and the SEC
Documents and understand the risks of, and other considerations relating to, a
purchase of Loan, including, but not limited to, the risks set forth under
"Investment Considerations" contained therein. In connection therewith, Lender
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 almost
three years and will need additional financing in order to remain in business
and significant additional financing thereafter to implement its business plan.
(o) Lender will be the only person with a direct or
indirect interest in the Note or the Shares purchased pursuant to this
Agreement.
(p) Lender acknowledges, represents, agrees and is aware
that:
4
<PAGE>
(i) no Federal or state agency has passed upon the
Loan or the Note 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 Note and the Shares;
(iii) the investment is an illiquid investment;
(iv) the representations, warranties, agreements,
undertakings and acknowledgments made by the Lender 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 Lender of the Note and the Shares, and shall
survive the acceptance by the Company of this subscription, In addition, the
Lender agrees to notify the Company immediately of any change in any
representation, warranty or other information relating to the undersigned set
forth herein;
(v) Lender has read and understood the SEC Documents.
(q) Lender represents, warrants and agrees in favor of the
Company that Lender 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 Lender concerning the business or prospects of
the Company, that Lender has the business sophistication to determine on its own
whether or not to make this investment.
6. Indemnification. Lender 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 Lender, whether
contained in this Agreement or the Lender's Questionnaire, or any failure by the
Lender to fulfill any covenants or agreements set forth herein or therein or
arising out of the Loan or distribution by the Lender of the Note or any Shares
in violation of the Act or any applicable state Securities laws. Notwithstanding
any of the representations, warranties, acknowledgments or agreements made
herein by the Lender, the Lender does not thereby or in any other manner waive
any rights granted to the Lender under Federal or state securities laws.
7. Legend. Lender 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
5
<PAGE>
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. The Company and the Lender each
acknowledge 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 U.S. mail (postage prepaid); or (ii) upon the expiration of the
fifth (5th) business day after deposit, if mailed by , registered or certified
U.S. mail return receipt requested, 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
With a copy to:
Barry L. Burten, Esq.
Jeffer, Mangels, Butler & Marmaro LLP
2121 Avenue of the Stars
10th Floor
Los Angeles, CA. 90067
6
<PAGE>
If to Lender:
Floyd Abrams, Esq.
c/o Cahill, Gordon & Reindel
80 Pine Street
New York, New York 10005
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 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
7
<PAGE>
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: /s/ Gerald M. Wetzler
-------------------------------------
Gerald M. Wetzler
Chief Executive Officer
By: /s/ Floyd Abrams
-------------------------------------
Floyd Abrams
8
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement"), dated as of
February 3, 1997, is entered into between AMERICAN FILM TECHNOLOGIES, INC., a
Delaware corporation ("Debtor"), with offices at 300 Park Avenue, 17th Floor,
New York, New York 10022, and Floyd Abrams ("Secured Party"), with an address of
c/o Cahill, Gordon & Reindel, 80 Pine Street, New York, New York 10005.
The parties agree as follows:
1. DEFINITIONS
In addition to the definitions set forth above, the
following terms as used in this Agreement shall have the following definitions:
1.1 The term "Accounts" means and includes all presently
existing and hereafter arising accounts, contract rights, instruments, notes,
drafts, documents, chattel paper and all other forms of obligations owing to
Debtor arising out of the sale or lease of goods either presently owned by
Debtor or acquired with the proceeds received from the issuance of the Note (as
defined below) (the "Note Proceeds"), or arising out of the rendition of
services by Debtor, whether or not earned by performance, and any and all credit
insurance, guaranties and other security therefor, as well as all merchandise
returned to or reclaimed by Debtor.
1.2 The term "the Code" means and refers to the California
Uniform Commercial Code, and any and all terms used in this Agreement which are
defined in the Code shall be construed and defined in accordance with the
meaning and definition ascribed to such terms under the Code.
1.3 The term "Collateral" means and includes each and all
of the following owned by the Debtor as of the date hereof or acquired with the
proceeds of the Note:
A. Accounts;
B. Equipment;
C. General Intangibles;
D. Inventory;
E. any money, deposit accounts or other assets of Debtor in
which Secured Party receives a security interest or which hereafter come into
the possession, custody or control of Secured Party; and
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<PAGE>
F. all proceeds of any of the foregoing.
1.4 The term "Equipment" means and includes all of Debtor's
present machinery, machine tools, motors, equipment, furniture, furnishings,
fixtures, motor vehicles, tools, parts, dies, jigs, goods, and any interest in
any of the foregoing, and all attachments, accessories, accessions,
replacements, substitutions, additions and improvements thereto, wherever
located, along with any of such types of assets acquired by Debtor from the Note
Proceeds.
1.5 The term "Event of Default" means the occurrence of any
one of the events set forth in Section 4 of this Agreement.
1.6 The term "General Intangibles" means and includes all
of Debtor's present general intangibles and all other presently owned intangible
personal property of Debtor (including, without limitation, any and all
franchise agreements, rights under franchise agreements, choses or things in
action, goodwill, patents, trade names, trademarks, blueprints, drawings,
purchase orders, customer lists, monies due or recoverable from pension funds,
route lists, infringement claims, computer programs, computer discs, computer
tapes, literature, reports, catalogs, deposit accounts, tax refunds and tax
refund claims) other than Accounts, along with any of such types of assets
acquired by Debtor from the Note Proceeds.
1.7 The term "Insolvency Proceeding" means and includes any
proceeding commenced by or against any person or entity under any provision of
the federal Bankruptcy Code, as amended, or under any other bankruptcy or
insolvency law, including, but not limited to, assignments for the benefit of
creditors, formal or informal moratoriums, compositions or extensions generally
with its creditors.
1.8 The term "Inventory" means and includes all of Debtor's
present inventory in which Debtor has any interest, including, but not limited
to, goods held for sale or lease or to be furnished under a contract of service
and all of Debtor's present and future raw materials, work in process, finished
goods, and packing and shipping materials, wherever located, and any documents
of title representing any of the above, along with any such types of assets
acquired by Debtor from the Note Proceeds.
1.9 The term "Note" means and refers to that certain
Convertible Secured Promissory Note (the "Note"), of even date herewith, in the
original principal amount of $100,000, executed by Debtor to the order of
Secured Party, and any amendments, modifications, substitutions or restatements
of the Note.
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<PAGE>
1.10 The term "Obligations" means and refers to the
obligations evidenced by the Note and all Secured Party Expenses which Debtor is
required to pay or reimburse by this Agreement.
1.11 The term "Secured Party Expenses" means and includes:
costs, fees (including reasonable attorneys' fees) and expenses incurred by
Secured Party to correct any default or enforce any provision of this Agreement
or the Note, or in gaining possession of, maintaining, handling, preserving,
storing, shipping, selling, preparing for sale and/or advertising to sell the
Collateral, whether or not a sale is consummated.
2. CREATION OF SECURITY INTEREST
2.1 Debtor hereby grants to Secured Party a continuing
first priority security interest in all of the Collateral in order to secure
prompt repayment of any and all Obligations; provided that such security
interest shall rank pari passu with a security interest granted or to be granted
by Payor to secure repayment of an additional $100,000 note issued by Payor (the
"Additional Note"), such security interest issued or to be issued pursuant to a
security agreement containing terms substantially identical to this Agreement
(the "Additional Security Agreement").
2.2 Until the occurrence of an Event of Default by Debtor
under this Agreement, Debtor may, subject to the provisions hereof and
consistent herewith, sell the Inventory, but only in the ordinary course of
Debtor's business.
2.3 Debtor shall execute and deliver to Secured Party,
concurrent with Debtor's execution of this Agreement, and at any time or times
hereafter at the request of Secured Party, all financing statements,
continuation financing statements, fixture filings, security agreements,
assignments, endorsements of certificates of title, applications for title,
notices, schedules of accounts, letters of authority and all other documents
that Secured Party may reasonably request, in form satisfactory to Secured
Party, to perfect and maintain perfected Secured Party's security interest in
the Collateral.
3. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an
Event of Default by Debtor under this Agreement:
3.1 Any Event of Default by Debtor under the Note;
3.2 If Debtor, within five (5) days following written
notice to Debtor, fails to cure any default in payment, when due and payable or
when declared due and payable, of all or any portion of the Obligations owing to
Secured Party;
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<PAGE>
3.3 If Debtor, within thirty (30) days following written
notice to Debtor, fails to cure any breach of any term, provision, condition,
covenant, agreement, warranty or representation contained in this Agreement; or
3.4 Any Event of Default by Debtor under the Additional
Note or the Additional Security Agreement.
4. SECURED PARTY'S RIGHTS AND REMEDIES
4.1 Upon the occurrence of an Event of Default by Debtor
under this Agreement, Secured Party may, at its election, do any one or more of
the following, all of which are authorized by Debtor:
A. Declare all Obligations immediately due and
payable;
B. Require Debtor to assemble the Collateral and to
make the Collateral available to Secured Party as Secured Party may designate.
Debtor authorizes Secured Party to enter the premises where the Collateral is
located, take and maintain possession of the Collateral or any part of it, and
to pay, purchase, contest or compromise any encumbrance, charge or lien which in
the opinion of Secured Party appears to be prior or superior to its security
interest and to pay all expenses incurred in connection therewith;
C. Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale and sell (in the manner provided
for herein) the Collateral;
D. Sell the Collateral at either a public or private
sale, or both, by way of one or more contracts or transactions, for cash or on
terms, in such manner and at such places (including Debtor's premises) as is
commercially reasonable in the opinion of Secured Party.
4.2 Secured Party shall give notice of the disposition of
the Collateral as follows:
A. Secured Party shall give Debtor and each holder of
a security interest in the Collateral who has filed with Secured Party a written
request for notice, as well as the holder of the Additional Note, a notice in
writing of the time and place of public sale, or, if the sale is a private sale
or some other disposition other than a public sale is to be made of the
Collateral, the time on or after which the private sale or other disposition is
to be made;
B. The notice shall be personally delivered or mailed,
postage prepaid, to Debtor as provided in Section 6 of this Agreement, at least
fifteen (15) calendar days before the date fixed for the sale, or at least
fifteen (15) calendar days
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<PAGE>
before the date on or after which the private sale or other disposition is to be
made. Notice to persons other than Debtor claiming an interest in the Collateral
shall be sent to such addresses as they have furnished to Secured Party;
C. If the sale is to be a public sale, Secured Party
shall also give notice of the time and place by publishing a notice one time at
least fifteen (15) calendar days before the date of the sale in a newspaper of
general circulation in the county in which the sale is to be held.
4.3 Debtor shall pay all Secured Party Expenses incurred in
connection with Secured Party's enforcement and exercise of any of its rights
and remedies as herein provided.
4.4 Any deficiency which exists after disposition of the
Collateral as provided above will be paid by Debtor. Any excess will be returned
to Debtor by Secured Party.
4.5 Secured Party's rights and remedies under this
Agreement and all other agreements shall be cumulative. No exercise by Secured
Party of one right or remedy shall be deemed an election, and no waiver by
Secured Party of any default on Debtor's part shall be deemed a continuing
waiver. No delay by Secured Party shall constitute a waiver, election or
acquiescence by it.
5. NOTICES
All notices or demands by any party relating to the Note or
this Agreement shall be in writing and either personally served or sent by
regular United States mail, postage prepaid, to Debtor or Secured Party at their
respective addresses set forth in the first paragraph of this Agreement, as the
case may be. The parties hereto may change the address at which they are to
receive notices hereunder, by notice in writing in the foregoing manner given to
the other. All notices or demands sent in accordance with this Section 6 shall
be deemed received on the earlier of the date of actual receipt or three (3)
days after the deposit thereof in the mail.
6. CHOICE OF LAW
The validity of this Agreement, its construction,
interpretation and enforcement, and the rights of the parties hereunder and
concerning the Collateral, shall be determined under, governed by, and construed
in accordance with the laws of the State of California.
7. GENERAL PROVISIONS
7.1 This Agreement shall bind and inure to the benefit of
the respective successors and assigns of each of the parties; provided, however,
that Debtor may not assign this
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<PAGE>
Agreement or any rights hereunder without Secured Party's prior written consent.
7.2 Section headings and section numbers have been set
forth herein for convenience only. Unless the contrary is compelled by the
context, everything contained in each section applies equally to this entire
Agreement.
7.3 Each provision of this Agreement shall be severable
from every other provision of this Agreement for the purpose of determining the
legal enforceability of any specific provision.
7.4 This Agreement cannot be changed or terminated orally.
All prior agreements, understandings, representations, warranties and
negotiations, if any, are merged into this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first hereinabove written.
DEBTOR:
AMERICAN FILM TECHNOLOGIES,
INC., a California corporation
By: /s/ Gerald M. Wetzler
----------------------------------
Name: GERALD M. WETZLER
--------------------------------
Title: CHAIRMAN & CEO
-------------------------------
SECURED PARTY:
/s/ Floyd Abrams
-----------------------------
FLOYD ABRAMS
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<PAGE>
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.
CONVERTIBLE SECURED PROMISSORY NOTE
Dated as of February 3, 1997 $100,000.00
FOR VALUE RECEIVED, the undersigned ("Payor") promises to pay
to the order of Floyd Abrams ("Payee"), at c/o Cahill, Gordon & Reindel, 80 Pine
Street, New York, New York 10005 or at such other address as the holder of this
Note shall from time to time designate, upon presentation of this Note, the
principal sum of ONE HUNDRED THOUSAND DOLLARS AND NO CENTS ($100,000.00), plus
accrued and unpaid interest, on January __, 1999 (the "Maturity Date"). Except
as provided herein, this Note shall bear interest from the date hereof on the
unpaid principal amount until paid in full (or until such time as this Note has
been converted in full into shares of Payor's Common Stock ("Common Stock")
pursuant to the conversion provisions contained elsewhere herein) at the rate of
two percent (2%) per annum (the "Note Rate"). The undersigned agrees to pay all
accrued interest on the outstanding principal amount of this Note on each of
December 31, 1997 and December 31, 1998, and to pay all remaining accrued
interest and unpaid principal on the Maturity Date.
This Note is made pursuant to that certain Secured Note
Purchase Agreement (the "Purchase Agreement"), dated as of January __, 1997, by
and among Payor and Payee. Capitalized terms, which are used herein but not
defined herein, shall have the meanings ascribed to them in the Agreement.
<PAGE>
This Note shall be subject to the rights of the following
existing and/or future creditors of Payor, each of which Payor hereby
acknowledges the existence of:
(i) holders of Unsecured Creditor Notes issued by
Payor to Class 7 creditors pursuant to Payor's Third Amended Chapter 11 Plan of
Reorganization dated August 21, 1995 (the "Plan Noteholders");
(ii) all currently existing trade creditors of Payor
or any such creditor existing prior to the Maturity Date (collectively, with the
"Plan Noteholders," the "Senior Creditors").
Nothing contained herein shall prevent Payor from making any
payments owed to the Senior Creditors when due or any payment to be made to the
Senior Creditors upon the voluntary election of Payor; provided that no
voluntary prepayment of any obligations owed to the Senior Creditors shall be
made during the occurrence of an Event of Default under this Note.
Payor shall have the right to prepay all or any portion of the
principal sum hereof at any time without penalty; provided that Payor provide
Payee with a notice of any such prepayment (a "Prepayment Notice") by personal
delivery or first-class mail no later than five (5) business days prior to such
prepayment and that Payee has not delivered to Payor a notice of conversion (a
"Conversion Notice") with respect to any or all of such amount to be prepaid by
personal delivery or first-class mail no later than three (3) business days
after receipt of the Prepayment Notice. To the extent that Payee elects only to
convert into Common Stock a portion of the amount that Payor elects to prepay
pursuant to the Prepayment Notice, Payor shall be entitled to prepay all
remaining amounts not to be so converted into Common Stock by Payee.
Each payment shall be credited first to accrued interest and
the remainder to principal. Principal and interest, whether prepaid or paid on
the Maturity Date, shall be payable in lawful money of the United States of
America.
This Note is secured by that certain Security Agreement (the
"Security Agreement"), of even date herewith, by and among Payor, as pledgor,
and Payee, as pledgee, pursuant to which Payor has secured its obligations to
Payee under this Note by granting to Payee a first priority security interest in
all of its assets owned as of the date hereof, any proceeds received from the
disposition thereof, and any assets acquired with the proceeds received from the
issuance of this Note (and all proceeds thereof); provided that such security
interest shall rank pari passu with a security interest granted or to be granted
by Payor to secure repayment of an additional $100,000 note issued by Payor and
containing terms substantially identical to this Note.
The holder of this Note shall have the right, at such holder's
option, at any time (subject to Payor's right to prepay all or any portion of
this Note described elsewhere herein),
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<PAGE>
to convert all of any portion of the outstanding principal and accrued and
unpaid interest of this Note into such number of fully paid and nonassessable
shares of Common Stock as shall be provided herein. The holder of this Note may
exercise such conversion right by giving a Conversion Notice to Payor of the
exercise of such right, in whole or in part, and stating the name or names in
which the stock certificate or stock certificates for the shares of Common Stock
are to be issued and the address to which such certificates shall be delivered.
The Conversion Notice shall be accompanied by this Note. The number of shares of
Common Stock that shall be issuable upon conversion of this Note shall equal the
amount of the outstanding principal and accrued interest for which a Conversion
Notice is given, divided by a conversion price (the "Conversion Price") equal to
$.09 per share.
No fractional shares of Common Stock shall be issued upon
conversion of this Note. In lieu of any fractional shares to which the holder
would otherwise be entitled, Payor shall round up to the nearest whole share. In
the case of a dispute as to the calculation of the number of shares of Common
Stock into which this Note or any portion thereof shall be converted (the
"Conversion Rate") upon the receipt of a Conversion Notice, Payor's calculation
shall be deemed conclusive absent manifest error. In order to convert this Note
into full shares of Common Stock, the holder shall surrender this Note, duly
endorsed, by overnight courier to the office of Payor, together with the
Conversion Notice that it elects to convert the same, the amount of principal
and interest to be so converted, and a calculation of the Conversion Rate (with
an advance copy of the certificate(s) and the notice by facsimile); provided,
however, that Payor shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon such conversion unless either this Note is
delivered to Payor as provided above, or the holder notifies Payor that this
Note has been lost, stolen or destroyed and executes an agreement satisfactory
to Payor to indemnify Payor from any loss incurred by it in connection with this
Note.
Payor shall issue and deliver to Payee promptly after delivery
to it of this Note, to such holder at the address of the holder on the records
of Payor, a certificate or certificates for the number of shares of Common Stock
to which it shall be entitled as aforesaid. The date on which notice of
conversion is given (the "Date of Conversion") shall be deemed to be the date
set forth in such notice of conversion provided that this Note to be converted
is received by Payor within five (5) business days thereafter and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on such date. If this Note is not received by Payor
within five (5) business days after the Date of Conversion, the notice of
conversion shall become null and void.
Payor shall at all times reserve and keep available, free from
preemptive rights, unissued or treasury shares of Common Stock sufficient to
effect the conversion of this Note; and if at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to effect the
conversion of all then outstanding principal and accrued and unpaid interest of
this Note, Payor will take such corporate action as may be necessary to increase
its
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<PAGE>
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purposes.
In the event of any increase or decrease in the number of the
issued shares of Common Stock by reason of a stock dividend, stock split,
reverse stock split or consolidation or combination of shares and the like at
any time or from time to time throughout the term of this Note such that the
holders of outstanding Common Stock shall have had an adjustment made, without
payment therefor, in the number of shares of Common Stock owned by them or shall
have become entitled or required to have had an adjustment made in the number of
shares of Common Stock owned by them, without payment therefor, there shall be a
corresponding adjustment as to the number of shares of Common Stock into which
this Note is exercisable and to the Conversion Price, with the result that the
holder's proportionate share of Common Stock shall be maintained as before the
occurrence of such event without change in the aggregate conversion price
applicable in the event the holder elected to convert this Note in full (except
for any change in the aggregate conversion price exercise price resulting from
rounding-off of share quantities or prices).
In the event of any reclassification or change of outstanding
shares of Common Stock issuable upon conversion of this Note (other than a
change in par value, or from par value to no par value, or from no par value to
par value), or in case of a consolidation or merger of Payor with or into
another corporation (other than a merger or consolidation in which Payor is the
continuing corporation and which does not result in a reclassification or change
of outstanding shares of Common Stock of the class issuable upon the conversion
of this Note except where the security holders of Payor are entitled to receive
securities of another issuer), or in case of any sale or conveyance to another
corporation of the property of Payor as an entirety or substantially as an
entirety (any of such events hereinafter referred to as a "Restructuring
Event"), Payor shall provide Payee with thirty (30) days prior written notice of
the Restructuring Event. Payee shall have the right to convert this Note into
shares of Common Stock by delivering a Conversion Notice to Payor no later than
five (5) business days prior to the Restructuring Event. In the event Payee
fails to deliver the Conversion Notice by such time, Payor shall remain
obligated to make any remaining payments owed under this Note and Payee shall
retain the right to receive the kind and amount of shares of stock and other
securities and property of Payor receivable upon such Restructuring Event by the
holder of the number of shares of Common Stock of Payor into which this Note
might have been converted immediately prior to such Restructuring Event (to the
extent such Restructuring Event does not involve the corporate dissolution or
disappearance of Payor), but Payee shall not, absent an express agreement to the
contrary with any successor corporation, have the right to receive the kind and
amount of shares of stock and other securities and property of any such
successor corporation receivable upon such Restructuring Event by the holder of
the number of shares of Common Stock of Payor into which this Note might have
been converted immediately prior to such Restructuring Event. Any such interest
shall provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for herein. The foregoing provisions of
this Note shall similarly apply to successive
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<PAGE>
reclassifications and changes of shares of Common Stock and to successive
consolidations, mergers, sales, or conveyances.
Each of the following shall be deemed an "Event of Default":
(a) If Payor fails to pay when due, all or any
portion of this Note or the other Obligations (as defined in the Security
Agreement) owing to Payee (whether for principal, interest, taxes, reimbursement
of Payee's expenses, or otherwise), and as to any of the foregoing, such failure
continues for five (5) calendar days after written notice from Payee to Payor;
(b) If Payor fails or neglects to perform, keep or
observe any other term, provision, condition, covenant, agreement, warranty or
representation contained in this Note, the Security Agreement, the Purchase
Agreement, the Registration Undertaking or any other present or future agreement
related to the Secured Obligations between Payor and Payee, and as to any of the
foregoing, such failure continues for thirty (30) calendar days after written
notice from Payee to Payor;
(c) If Payor sells or transfers a material portion of
its existing assets outside of the ordinary course of its business without
applying the net proceeds from such sale to reduce the outstanding accrued and
unpaid interest and principal balance due on this Note;
(d) If Payor commences any Insolvency Proceeding (as
defined below); or
(e) If any Insolvency Proceeding is commenced against
Payor and which is not dismissed within forty-five (45) days of the date of
filing.
As used herein, the term "Insolvency Proceeding"
means and includes any proceeding commenced by or against any person or entity
under any provision of the federal Bankruptcy Code, as amended, or under any
other bankruptcy or insolvency law, including, but not limited to, assignments
for the benefit of creditors, formal or informal moratoriums, compositions or
extensions generally with its creditors.
Upon the occurrence of an Event of Default, the whole
principal sum (along with any accrued and unpaid interest) shall become
immediately due at the option of the holder hereof. Without limiting the
foregoing, and in addition thereto, upon the occurrence of an Event of Default,
this Note shall thereafter bear interest at an annual rate equal to three
percent (3%) above the Note Rate (the "Default Rate"), which sum the parties
agree represents a reasonable liquidation of the damages which will be suffered
by the holder as a result of late payment.
Without limiting the foregoing, and in addition thereto, Payor
shall prepay the entire outstanding principal amount of this Note (along with
any accrued and unpaid interest to
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<PAGE>
such date), within five (5) business days from the date that Payor raises
proceeds in an amount equal to or in excess of $1,500,000 through the offering
by Payor of any equity or debt securities to any third party or parties (an
"Offering"), whether such Offering is conducted through any underwriter or other
intermediary or directly by Payor; provided that Payor shall provide Payee with
a Prepayment Notice by personal delivery or first-class mail no later than two
(2) business days following the completion of such Offering and shall not make
such prepayment unless Payee has not delivered to Payor a Conversion Notice with
respect to any or all of such amount to be prepaid by personal delivery or
first-class mail no later than three (3) business days after receipt of the
Prepayment Notice. To the extent that Payee elects only to convert into Common
Stock a portion of the entire outstanding principal and accrued interest of this
Note that Payor is obligated to prepay as a result of the Offering, Payor shall
remain obligated to prepay all remaining amounts not to be so converted into
Common Stock by Payee.
In the event the holder brings suit to enforce its rights
under this Note, the prevailing party in such suit shall pay all costs and
expenses (including without limitation reasonable attorneys' fees) in connection
therewith.
No failure to exercise, and no delay in exercising, any right,
power or remedy hereunder or under any document delivered to the holder hereof
shall impair any right, power or remedy which the holder may have. The rights
and remedies of the holder hereof are cumulative and not exclusive of any rights
or remedies which the holder would otherwise have. This Note and Payee's rights
thereunder shall not be transferable or assignable without the expressed written
consent of the Payor.
No waiver or modification of any of the terms or provisions of
this Note shall be valid or binding unless set forth in a writing signed by the
holder of this Note and Payor and then only to the extent therein specifically
set forth.
If any one of the provisions of this Note shall be invalid,
illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby.
This Note and all transactions hereunder and/or evidenced
hereby shall be governed by, construed under and enforced in accordance with the
laws of the State of California. Payor hereby: (i) agrees that all actions or
proceedings relating directly or indirectly hereto shall be litigated in courts
located within the State of California, and that, at the option of the holder,
the exclusive venue therefor shall be Los Angeles County; (ii) consents to the
jurisdiction and venue of any such court and consents to the service of process
in any such action or proceeding by personal delivery, by certified or
registered mail directed to Payor at the address set forth below, or by any
other method permitted by law; and (iii) waives any and all rights Payor may
have to object to the jurisdiction of any such court, or to transfer or change
the venue of any such action or proceeding.
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<PAGE>
AMERICAN FILM TECHNOLOGIES, INC. a
California corporation
By: /s/ Gerald M. Wetzler
--------------------------------
Name:
------------------------------
Title: CHIEF EXECUTIVE OFFICER
----------------------------
300 Park Avenue, 17th Floor
New York, New York 10022
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<PAGE>
REGISTRATION UNDERTAKING
This Registration Undertaking (this "Agreement") is made and
entered into as of February 3, 1997 by American Film Technologies, Inc., a
Delaware corporation (the "Company") for the benefit of Floyd Abrams (the
"Holder") in connection with that certain Secured Note Purchase Agreement dated
as of February 3, 1997 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
or may be entitled to receive pursuant to the Purchase Agreement;
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
<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
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<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.
-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:
Floyd Abrams, Esq.
c/o Cahill, Gordon & Reindel
80 Pine Street
New York, New York 10005
Telecopier No.: (212) 269-5420
(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 /s/ Gerald M. Wetzler
-----------------------------------
Gerald M. Wetzler,
Chief Executive Officer
AGREED TO AND ACCEPTED
THIS 3RD DAY OF FEBRUARY 1997
/s/ Floyd Abrams
- -------------------------------
Floyd Abrams
-10-
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<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
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