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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the fiscal year ended June 30, 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.
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(Exact name of registrant as specified in its charter)
Delaware 23-2359277
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State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization
4105 Sorrento Valley Boulevard, San Diego, California 92121
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 619-623-0830
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.002 Par Value
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
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State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing. The
aggregate market value is approximately $8,563,396, based on 40,778,078 shares
of Common Stock held by non-affiliates at the last trading price of $0.21 per
share as of September 15, 1997.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed
all documents and reports required to be filed by Section 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court. YES NO X
--- ---
APPLICABLE ONLY TO CORPORATE REGISTRANTS: Indicate the number of shares
outstanding of each of the registrant's classes of common stock, as of the
latest practicable date: As of September 15, 1997 there were 73,700,576 shares
of Common Stock of the Registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: List hereunder the following documents if
incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II,
etc.) into which the document is incorporated: (1) Any annual report to security
holders; (2) Any proxy or information statement; and (3) Any prospectus filed
pursuant to Rule 424(b) or (c) under the Securities Act of 1933. The listed
documents should be clearly described for identification purposes (e.g., annual
report to security holders for fiscal year ended December 24, 1980). Not
Applicable
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PART I
THE INFORMATION CONTAINED HEREIN SHOULD BE READ IN CONJUNCTION
WITH AMERICAN FILM TECHNOLOGIES, INC.'S CONSOLIDATED FINANCIAL STATEMENTS AND
NOTES THERETO INCLUDED IN THIS FORM 10-K. EXCEPT FOR THE HISTORICAL INFORMATION
CONTAINED HEREIN, THE DISCUSSION IN THIS FORM 10-K CONTAINS CERTAIN FORWARD
LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES, SUCH AS STATEMENTS OF
THE COMPANY'S PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. THE CAUTIONARY
STATEMENTS MADE IN THIS FORM 10-K SHOULD BE READ AS BEING APPLICABLE TO ALL
RELATED FORWARD-LOOKING STATEMENTS WHEREVER THEY APPEAR IN THIS FORM 10-K. THE
COMPANY'S RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HERE. FACTORS
THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, WITHOUT LIMITATION,
THE "RISK FACTORS" SET FORTH BELOW.
RISK FACTORS
Any investment in AFT is speculative and involves a high degree
of risk. Prospective investors should carefully consider the following
investment considerations.
Start-Up Operations: As a result of AFT's financial difficulties
and bankruptcy proceedings it has not engaged in ongoing operations for almost
four years. In addition to hiring qualified personnel, the expense and the time
required to recommence operations may be greater than anticipated.
History of Operating Losses: In spite of the past profitability
of AFT's colorization fee-for-service business, AFT has not entered into an
agreement to render such services for over five years. It cannot state with any
degree of certainty whether it will be able to obtain contracts for fee for
services work and if so upon economically viable terms. In addition, AFT
incurred a net operating loss for each of the last two years prior to its filing
for bankruptcy. Accordingly, AFT expects to continue to operate at a substantial
net loss while it is building its colorized film library.
Technological Obsolescence: AFT's business plan is to a great
extent driven by it being the low cost provider of colorization services. AFT
also believes its colorization process can produce more volume of product than
any other process of which it is aware. Developments in computer hardware and
software are very rapid, resulting in more sophisticated technology available at
lower cost. There is no assurance AFT's current technology will continue to
produce colorized product that is technically acceptable to broadcasters and
viewers or that if acceptable will be provided at competitive prices. If that
should occur AFT would have to upgrade its technology. There is no assurance AFT
will have the financial or technical resources to do so.
Patent Protection: AFT's success will be largely dependent upon
its technology and its ability to maintain patent protection on the technology
it develops. AFT has obtained patents for certain aspects of its colorized
software and will take steps to obtain other and future patents on all
patentable devices and processes which it has developed. There can be no
guarantee that patents will be granted in each or any instance. It is also
possible that patents granted to AFT may be successfully challenged or that
AFT's patents may infringe upon other patents which would
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cause additional unexpected costs and delays. A former competitor of AFT,
formerly known as CST Entertainment ("CST") has in the past, unsuccessfully
challenged AFT's patents. AFT also attempts to protect its proprietary products
and processes by relying upon trade secret laws and nondisclosure and
confidentiality agreements with its employees and certain persons who have been
given access to its proprietary products and processes. Despite this protection,
no assurance can be given that others will not independently develop a colorized
process and compete with AFT.
Competition in Colorization: In recent years, AFT has had only
one competitor, CST. CST has more sophisticated hardware and software than AFT,
but at present AFT believes it will be the low-cost producer. In addition, CST
operated for over three years without competition from AFT while AFT was
attempting to reorganize. Towards the end of 1996 and the early months on 1997,
CST experienced significant financial difficulties and filed for protection
under Chapter 7 of the Bankruptcy Code. AFT has been advised that CST's assets
were purchased by a group including former officers and directors of CST and one
or more investors. This group may have access to greater financial resources
than the Company. It has been reported in the press that this new entity has
been engaged to do certain colorization projects. AFT does not know whether this
information is true at this time, and if true, what impact, if any, the
operations of the successor to CST will have on AFT. The lure of the
entertainment industry, technological advances in computers, software and
related hardware, and the decline in the cost of new equipment all have an
effect on potential competitors' decisions to enter the colorization industry.
Many entertainment companies are better established, have substantially greater
financial resources and larger research and development staffs and facilities
than AFT. Such companies may develop their own colorization process and
facilities that would compete for third party colorization work. Such companies
may also prove to be more successful in the production and distribution of
colorized product. In addition, it is possible that a competitor may colorize
and seek to obtain a copyright for a television or theatrical film product from
the public domain which it colorizes subsequent to AFT.
Need for Additional Financing: With the proceeds of the October
1997 Financing (see "Business - Subsequent Developments"), AFT has sufficient
working capital to operate until February 1998. The success of AFT's plan to
commence the building of a valuable colorized film and television library will
require substantial additional financing of no less than $5,000,000 - $8,000,000
in order for AFT to upgrade its technology and recommence operations. There can
be no assurance that such financing would be available on acceptable terms, if
at all. The failure by AFT to secure such additional financing to fund the
operations of AFT could have a material adverse effect on AFT.
Motion Picture and Television Industry: The industry is highly
speculative and historically has involved a substantial degree of risk. The
success of a particular film, TV program or video cassette depends upon
unpredictable and changing factors, including the success of promotional
efforts, the availability of alternative forms of entertainment and leisure time
activities, general economic conditions, public acceptance and other tangible
and intangible factors, many of which are beyond AFT's control. There can be no
assurance that colorized motion pictures and television programs will find
acceptance among broadcasters or consumers. There is intense competition to
provide broadcast quality material for television, satellite and cable
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and for the attention of the television movie-viewing audience. There can be no
assurances of future demand for colorized movies and television series.
Market Demand for Colorized Television and Theatrical Product:
Although the colorization of black and white theatrical and television
programming has been ongoing for a decade or more, it has only represented a
minuscule percentage of the total amount of programming produced during that
time period. The U.S. television market is currently supplied with network
programming, theatrical and television motion pictures, syndicated and other
forms of programming. In addition, virtually all of the distribution of
colorized theatrical and television programming has been handled by a small
group of major production companies. AFT cannot state with certainty that the
market will accept any increase in the amount of product available nor that AFT
will be able to distribute its product on economically feasible terms.
Market Demand for Colorization Services: AFT historically
generated almost all its revenue from providing its colorization services to
third party owners of films and television shows. Since 1992, when AFT's major
customer, Turner Entertainment, decided to stop colorizing its library, there
has been very little demand for colorization. Although AFT intends to
concentrate on building its own colorized film library, it may require revenue
from its colorization services to sustain its operations. To the extent this
requirement develops, the lack of demand for colorization on a fee-for-service
basis could have a material adverse effect upon AFT's ability to continue in
business.
Retail Sales of Video Cassettes: The sale of AFT's home video
cassettes will depend upon the willingness of retailers to display and sell the
merchandise. Because of competition for shelf space, there is no assurance this
will occur.
Availability of Suitable Product: The success of AFT is
contingent upon finding and acquiring an economically feasible terms enough
product for its library or in joint ventures suitable for colorization. AFT
cannot predict with certainty that sufficient product will be available and if
so whether such product will be available at economically feasible terms.
Lack of Distribution Experience: AFT has no experience in the
distribution of film and television product, a highly competitive business. The
success of AFT will depend in great part on its ability to hire qualified
personnel to perform distribution, or in the alternative, to negotiate joint
venture or other favorable distribution agreements with established distribution
companies. There is no assurance AFT can accomplish this.
Regulations: In 1988, the United States Congress enacted
legislation addressing change and modification of motion pictures which included
colorized films. The legislation created the "National Film Preservation Board"
which is empowered to select 25 "classic" films per year. The alteration of
these films, including colorization, must carry a label stating that they have
been "altered and/or modified" without the participation of the principal
director, screenwriter and other creators of the original film. AFT does not
believe that this legislation has had any impact (positive or negative) on its
business. Members of the film making community continue to lobby for additional
governmental restrictions that could restrict colorization.
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Therefore, there can be no guarantee that further legislation will not be
enacted in the United States or other countries which may have an adverse impact
on AFT's business.
Creative Opposition: Most of the larger and better libraries in
the United States are owned by film production companies. Because of vocal
opposition from certain actors, writers, directors and other creative personnel
in the film community, several of the major studios have been reluctant to
colorize their libraries. There is no assurance this reluctance will not
continue. To the extent it limits supply of commercially viable product, this
creative opposition could have an adverse material effect upon AFT's business.
Need to Locate and Retain Senior Management: In September 1997,
Harvey Finkel resigned from his position as AFT's Chief Financial and Accounting
Officer because he accepted another position. Accordingly, AFT will need to
locate a new Chief Financial Officer. In the future, the success of AFT will
largely be dependent upon it being able to locate and retain certain executive
officers of AFT, in particular operational, marketing and distribution
executives. Should AFT be unable to locate and retain such executives in a
timely manner or any of these key employees cease to be affiliated with AFT for
any reason before a qualified replacement could be found, this could have a
material adverse effect on AFT's business and prospects. AFT has not obtained
key man life insurance on the life of any of its officers.
Risk of Operations in Mexico: AFT's status as the low-cost
provider of colorized product is dependent upon its ability to resume production
operations in Mexico. AFT's former work force in Mexico has not been employed by
AFT since October 1993. Most of these employees have found other jobs. The
success of AFT may depend on its ability to rehire certain former employees. If
AFT has to recruit and train an entirely new work force, it could have a
material adverse effect on AFT. AFT expects to benefit from the recent
devaluation of the peso in the form of lower operating costs in Mexico. There is
no assurance its employees will not demand wage increases to offset partially or
completely the effect of devaluation.
Ability to Rehire Key Personnel: Certain key former employees of
AFT, specifically senior design, network and post production personnel were laid
off in mid-1994. Most or all of them have found other employment. The resumption
of production by AFT will depend, in great part, on its ability to rehire most
of these key employees. There is no assurance AFT can do so. In that event,
there is a material risk AFT will not be able to resume colorization operations.
Price of Common Stock, Market for Common Stock: As a result of
its bankruptcy proceedings, the shares of the Company's $.002 par value common
stock (the "Common Stock") have been delisted from NASDAQ. Accordingly, there
has been no regular trading market of the common stock since such time. In
addition, due to AFT's financial difficulties it has not engaged in active
operations since October 1993. The current market price of the Common Stock does
not meet certain minimum per share prices designated by NASDAQ and state "blue
sky" regulations. Accordingly, unless the per share price increases
dramatically, the trading price of the shares may further restrict AFT's ability
to list the shares on NASDAQ and to publicly trade in certain states.
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Future Sales/Dilution: The trading price of the Common Stock may
also be adversely affected by the significant overhang of securities issued by
AFT. Approximately 138,309,786 shares of Common Stock are outstanding or subject
to options or issuance upon conversion of the Company's debentures. Certain of
these shares are not freely tradeable and are subject to restrictions on the
reoffer or resale imposed by the Act and applicable state securities laws. The
issuance of additional shares upon the exercise of the Company's options and the
conversion of the Company's debentures could have a dilutive effect on the
ownership interest of existing shareholders.
Dividends Unlikely: AFT has not paid any dividends on its Common
Stock to date and does not intend to pay dividends in the near future. The
payment of dividends after creation of the film library will be contingent upon
AFT's revenues and earnings, if any, capital requirements and general financial
condition. The payment of any dividends will be within the discretion of AFT's
then Board of Directors. It is the present intention of the Board of Directors
to retain all earnings, if any, for use in AFT's business operations and,
accordingly, the Board does not anticipate declaring any dividends in the
foreseeable future.
ITEM 1. BUSINESS.
General
American Film Technologies, Inc.'s ("AFT" or the "Company")
principal business has been the production of color versions of motion pictures
and television programs originally produced in black and white. AFT was
incorporated in Delaware in 1985 and completed its first project in November
1987. AFT completed a public offering of its common stock in August 1987. Since
its organization, AFT has colorized over 200 motion pictures, 170 television
programs and 90 animated cartoons. Through its filing for protection under
Chapter 11 of the Bankruptcy Code, AFT believes it had accounted for
approximately 70% of the global colorized production of black and white films.
During the year ended 1993, AFT completed COLORIMAGED versions of 43 full length
motion pictures, 7 episodes of a one-half hour television series and 5 short
cartoons, a theatrical animated short, an animated half-hour special for
television, a half-hour video introducing a new board game and portions of the
ink and paint and special effects work for the Amblin Entertainment full-length
animated motion picture "We're Back."
While most of AFT's colorization activities have been for
customers on a fee basis, AFT has also produced colorized films for its own
library. The Company owns the copyrights on eleven colorized films, including
four Sherlock Holmes films starring Basil Rathbone; "The Scarlett Pimpernel"
starring Leslie Howard, Merle Oberon and Raymond Massey; three Bela Lugosi
horror films; "Outpost in Morocco" starring George Raft; "Gung Ho" starring
Robert Mitchum and Randolph Scott; and "Eternally Yours" starring David Niven.
AFT's film products are based on AFT's proprietary technology
for the creation of color versions of motion picture and television programs
originally produced in black-and- white, called COLORIMAGED films, as well as
animation ink and paint and special effects. The
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AFT-owned COLORIMAGED films may be licensed for television broadcast, cable
television, and for sale in home video markets.
AFT's colorization business continued to grow and prosper during
the late 1980's with the development of significant customers such as 20th
Century Fox, Republic Pictures and Turner Entertainment. By 1990, Turner
accounted for more than 75% of AFT's colorization business. In 1991, AFT's
founding investor and principal shareholder, George R. Jensen, decided to step
down to pursue other business opportunities. At the time, the Board determined
it would be in AFT's best interests to diversify its operations through entry
into the computer animation and ink and paint (the process of putting color into
animated film) which utilized similar technology.
In the early 1990's, AFT experienced a slowdown in its
colorization activities. In response, AFT increased its animation activities,
which required significant cash investments and resulted in a decrease in AFT's
available cash reserves. Ultimately, AFT was forced to file for protection under
Chapter 11 of the United States Bankruptcy Code in October 1993. AFT emerged
from bankruptcy in October 1995. Since that time, AFT has explored means of
product development and sought financial and strategic partners.
History of AFT
Pre-Bankruptcy Events
In 1991, AFT engaged Joseph Taritero, formerly Chief Executive
Officer of Marvel Production ("Marvel") as its Chief Executive Officer. Mr.
Taritero's business plan was to raise additional capital to fund the purchase
and development of additional hardware and software for animation, to establish
an offshore animation studio for AFT so that it could operate competitively and
to enter into agreements for the production of animation products.
During 1991 and 1992, AFT incurred significant additional
expenses in acquiring the required equipment and technology for animation
production. As a result, it incurred significant losses on its animation
operations. At the same time, competitive factors and increasing reliance on fee
colorization business from Turner Entertainment led to reduced fees and narrowed
profit margins in colorization operations, the only area of AFT's business that
had positive cash flow. These problems were further exacerbated by concentrating
AFT's resources on computer animation and ink and paint. AFT was also doing
small projects such as music videos, animated shorts and interactive game
projects.
At the end of 1992, Turner Entertainment announced its intention
to terminate its film colorization program. AFT was faced with declining
revenues and had depleted its cash reserves through the cost of, and losses
incurred in connection with, its animation and ink and paint operations. In
addition, it had failed to capitalize on its market dominance by broadening its
customer base in the colorization business. Accordingly, its back orders dropped
significantly. As a result of the foregoing, by the end of 1992, AFT was faced
with the depletion of its remaining cash within a few months. In response to
this crisis, the Board terminated Mr. Taritero
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and appointed Arthur Hartel as its President and Chief Executive Officer. Mr.
Hartel had previously served as the General Counsel and Secretary to the
Company. Mr. Hartel's principal objective was to locate additional capital for
AFT.
Pre-Petition Investor. During early 1993, efforts were made to
find a major investor to inject new capital into AFT. An investor group led by
minister and broadcaster Pat Robertson entered into an agreement to purchase
control of AFT. In August 1993, the Robertson Group failed to close the
transaction.
On September 28, 1993, AFT entered into an agreement with Gerald
M. Wetzler pursuant to which Mr. Wetzler became the majority stockholder through
the purchase of equity interests in AFT.
During the second half of fiscal 1993 and the first quarter of
fiscal year 1994, in order to lengthen the amount of time available for it to
obtain new business and to secure additional capital, AFT implemented a program
of cost reductions to go along with its program to extend the time period over
which its contractual film coloring would be produced. The principal areas in
which AFT reduced its costs were in the number of employees and in the amount of
its leased space. AFT's reduced film coloring schedule negatively impacted AFT's
earnings, principally due to its inability to cover such non-cash items as
depreciation; however, it extended AFT's available cash over a longer period of
time.
Mr. Wetzler's management team immediately commenced
restructuring the Company, suspending operations of the unprofitable animation
and ink and paint divisions. In October 1993, the employees of the Company's
subsidiary's principal production facility in Tijuana went on strike.
Comerica. During the quarter ended September 30, 1992, AFT
refinanced its bank debt with a California bank, which later became Comerica
Bank - California ("Comerica"). The refinancing replaced approximately
$1,008,000 of existing bank debt and provided AFT additional available lines of
credit of $400,000 in short term financing and up to $450,000 to finance 70% of
the cost of new equipment.
Because of the operating losses in fiscal 1993, AFT was in
violation of covenants of its lending agreement with Comerica relating to
tangible net worth, fixed charges, working capital, debt ratio and current
ratio. During this period AFT and Comerica entered into three forbearance
agreements, the last of which expired on September 30, 1993.
As a result of AFT's financial difficulties, Comerica required
AFT to reduce the outstanding principal balance on this loan by approximately
$445,000, from $1,068,000 as of June 30, 1993, to approximately $623,000 on
October 8, 1993. On September 8, 1993 in order to obtain a forbearance agreement
until October 1, 1993, AFT granted the bank a security interest in AFT's patents
and copyrights as additional collateral. During early October 1993, Comerica
refused to allow AFT to utilize certain funds which AFT had believed would be
available to it. As a result of the bank's actions, AFT did not meet its
obligations to third parties, including payroll for its Mexican subsidiary. On
October 8, 1993, Comerica advised AFT that it would file
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a motion in the Superior Court of the State of California for the County of Los
Angeles seeking the appointment of a receiver for AFT and an order restricting
its use of cash. AFT filed for relief under the Bankruptcy Code on October 15,
1993.
AFT Bankruptcy
On October 15, 1993, AFT filed for relief under Chapter 11 of
the United States Bankruptcy Code. AFT has not generated any new film
colorization or animation service orders since the filing under Chapter 11.
From the filing of the bankruptcy to October 1995, AFT was
funded principally from equity investments by its principal shareholder, Mr.
Wetzler, and certain other individuals. In addition, pursuant to a debtor in
possession secured lending arrangement, Mr. Wetzler and Mr. Robert Bernhard, in
their discretion, were authorized to make available to AFT up to an aggregate of
$150,000 (the "DIP Financing"). The maximum outstanding at any time under the
DIP Financing was $122,300 in July 1995.
Although AFT reduced its overhead and operating expenses
significantly since the filing of the Chapter 11 proceeding, the lack of capital
and film colorization contracts made it impossible for AFT to resume operations
and to generate sufficient revenues to cover its ongoing overhead and
administrative expenses. In order to preserve its resources, AFT reduced its
overhead by laying off substantially all of its employees and by reducing the
amount of space it leases in San Diego. In January 1995, AFT ceased its
post-petition operations.
1995 Financing Events
H.J. Meyers Private Placement. On May 3, 1995, the Company
entered into an option agreement with H.J. Meyers & Co., Inc. ("Meyers")
pursuant to which the Company granted Meyers a ninety-day option (beginning May
30, 1995) to purchase up to 51% of the Company's common stock, or 35,182,508
shares, for $3,000,000 (the "Meyers Placement"). Upon approval of the Meyers
Placement by the Bankruptcy Court on May 30, 1995, Meyers paid the Company a
nonrefundable fee of $150,000 for the Meyers option. The Agreement required
Meyers to pay the Company $3,000,000 on the effective date of the Plan. Through
a subsequent amendment to that agreement, Meyers agreed to use its best efforts
to increase the proceeds of the offering to $4,000,000 which would result in net
proceeds of $3,480,000 to the Company. In exchange for this possible increase,
the Company agreed to issue an additional 3,800,000 shares to Meyers and its
assignees. Meyers raised the money through a private placement of the Common
Stock to "accredited investors," as that term is defined by the Securities Act
of 1933, as amended (the "Meyers Shareholders"). As of October 31, 1995, the
termination date for the sale, Meyers had sold subscriptions totaling $3,460,200
for the purchase of the Company's stock. As of June 30, 1996, the net proceeds
to the Company totaled $3,460,200, including the conversion of a $300,000 bridge
loan described below. In consideration for, among other things, funding the
$150,000 price of the Meyers Placement, the Placement Agent agreed to assign
14,345,854 shares of Common Stock to L&R Holdings, Inc. and 10,545,854 shares of
Common Stock to JCV Capital Corp.
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The stockholders from the Meyers Placement also have a right to
register their stock in any offering of the Company's stock. The amount of stock
these shareholders may register and sell is subject to pro-rata reduction or
elimination at the sole discretion of the underwriter. However, the
non-affiliate Meyers Shareholders can sell their shares under Rule 144 without
any volume or manner of sale limitations on or after October 17, 1997. The
potential influx into the public marketplace of approximately 10,000,000 shares
of Common Stock in October 1997 and the existence of the registration rights
could adversely impact the price of the Common Stock or the ability of the
Company to raise additional equity capital.
Meyers Loan. On July 28, 1995, Meyers arranged for a $500,000
bridge loan (the "Meyers Loan") to the Company bearing an interest of eight
percent (8%) per annum to fund certain obligations of the Company prior to the
effective date of the Plan. In addition to interest, the accredited investors
received common stock at the rate of one-half share for every dollar of bridge
loan. On the effective date of the Plan, $300,000 of the bridge loan was
converted into the Common Stock and the remaining $200,000 was repaid. Proceeds
from the Meyers Loan were utilized as follows: (1) $250,000 to the outstanding
principal balance due on the Comerica Bank loan; (2) $100,000 to pay the
remaining balance on the purchase agreement with the employees at the Company's
Mexican facility (See Properties, below); and (3) $150,000 for the Company's
general administrative expenses.
Plan of Reorganization. In July 1995, AFT proposed a plan of
reorganization to raise sufficient new capital to recommence operations.
Pursuant to the proposed plan, AFT contemplated raising up to $4 million in new
equity, including the Meyers Placement, described above. 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 approximately $3.4 million in new
equity capital.
Under the terms of the Plan, the following is a summary of the
treatment of each of the major classes of creditors and stockholders:
<TABLE>
<CAPTION>
Estimated
Class of Amount
Claims of Claim Distribution under the Plan Status
------ -------- --------------------------- ------
<S> <C> <C> <C>
Class 1 $86,000 Cash payment in full on effective date Unimpaired
Employee
Priority Claim
Class 2 $80,000 Cash payment on Distribution Date or, at Unimpaired
Priority Claim the Company's discretion, over six years
plus interest
Class 3 $623,000 Cash payment on the effective date plus Unimpaired
Comerica interest and reasonable legal fees
Claims
Class 4 $500,000 Cash payment plus interest on the Unimpaired
Secured Claims effective date
</TABLE>
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<TABLE>
<S> <C> <C> <C>
Class 5 DIP $122,000 $110,000 cash payment plus accrued Impaired
Financing interest on effective date and remainder
Claims in one year note
Class 6 $6,000 Cash payment in full on effective date. Unimpaired
Convenience
Claims
Class 7 $1,650,000* Unsecured five year notes in full amount Impaired
Unsecured of allowed claim, with interest at 7%
Claims
Class 8 N/A $10 cash on effective date. Unexercised Impaired
Preferred Series B and the Series C and D voting
Stock Interest convertible interest were canceled
Class 9 N/A Retained, subject to dilution Impaired
Common Stock
Interest
Class 10 N/A Canceled Impaired
Other Equity
Interests
</TABLE>
- -----------
* Does not include the Class 7 claim of Joseph Taritero, which was compromised
pursuant to the terms of a prior stipulation and order and has been paid in
full by the Company.
In October 1995, AFT completed the Meyers Placement pursuant to
which it has received approximately $3.4 million of new capital in exchange for
the issuance of shares representing approximately 54% of its total outstanding
common stock, including funds received in exchange for the Meyers Loan.
Since emerging from bankruptcy, the Company has actively pursued
new strategic alliances and partners.
Subsequent Financing
During fiscal 1997, the Company's operations were financed
almost entirely by remaining working capital, proceeds from private placements
of its securities and purchases and option exercises by Gerald Wetzler.
In September 1996, the Company issued 1,333,334 shares of Common
Stock for an aggregate cash purchase price of $200,000. The issuance of shares
was made in a private offering to accredited investors. In October 1996, the
Company issued an additional 2,500,000 shares of Common Stock for an aggregate
purchase price of $375,000 to two accredited investors in a private placement.
In January 1997, the Company issued a $100,000 principal amount
Senior Secured Convertible Debenture to an accredited investor in a private
placement (the "January Debenture"). The investor converted this January
Debenture into 1,111,111 shares of the Company's Common Stock pursuant to its
terms.
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<PAGE> 13
In addition, in January 1997, May 1997 and June 1997, the
Company raised an additional $420,000 through the sale of Director stock options
to purchase 15,500,000 shares to Gerald Wetzler. These options plus an option
purchased by Mr. Wetzler for $200,000 in June 1996 to purchase 20,000,000 shares
of Common Stock were terminated by Mr. Wetzler in two separate transactions in
September 1997. See "Certain Transactions."
Operations
Colorized Films. Historically, AFT has created color imaged
films which are color versions of motion pictures originally produced in black
and white. The first color version of a full length motion picture was completed
by AFT in late November 1987.
Prior to embarking on its attempt to enter into the animation
business in 1991, AFT was operating profitably from its colorization operations.
As recently as its fiscal year ended June 30, 1990, it generated $3.1 million of
net income on revenues of $18.5 million. After a poor year in 1991 when revenues
dropped by almost 50% as compared to the prior year, AFT was again profitable in
fiscal 1992, generating $0.9 million of net income on revenues of $14.1 million.
During the year ended June 30, 1992, AFT completed color versions of 40 full
length motion pictures, 71 episodes of a one-half hour television series and 25
short cartoons. During the year ended June 30, 1993, AFT completed 43 full
length motion pictures. For the six month period ended December 31, 1993, AFT
completed seven COLORIMAGED motion pictures.
Traditionally, Turner has been the most active studio in
colorizing its black and white library, principally the old MGM library. During
fiscal 1993, AFT's agreement with Turner amounted to approximately 65% of the
work completed in the year ended June 30, 1993. Turner announced its intention
to terminate its film colorization program at the end of 1992. Subsequently, it
has not ordered any new films colorized by AFT beyond those which have been
completed. AFT does not know when, if ever, Turner will resume its colorization
activities. However, AFT believes that other studios and media companies,
principally Universal, Columbia, Fox, Warner Brothers, and Viacom all have
significant black and white film and television libraries that have not been
colorized. AFT also believes that substantial foreign film and television
libraries exist which have not been colorized.
Under a typical contract, AFT could decline to colorize a
particular film if the elements (print or negative) of the film were not
acceptable to AFT. Each customer otherwise selected the films for which color
versions are to be made, has final approval on color selection, aesthetic
approach, etc., and owns all rights in the final product. AFT received partial
payments of its fees at various points in the production process.
Film Library. Prior to 1993, in addition to colorizing movies
for other owners, AFT created colorized films for its own library from movies in
the public domain. By doing this, AFT acquired a new 75 year copyright in the
colorized version of the motion picture. Among the films owned in whole or in
part were "It's a Wonderful Life," "The Scarlet Pimpernel," and four Sherlock
Holmes films, and others. As of June 30, 1997, AFT's library consisted of the
following eleven completed films:
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<PAGE> 14
"Terror By Night," "Dressed to Kill," "Woman in Green" and
"Sherlock Holmes and the Secret Weapon" starring Basil Rathbone;
"Outpost in Morocco" starring George Raft;
"Gung Ho" starring Randolph Scott and Robert Mitchum;
"Eternally Yours" starring David Niven and Loretta Young;
"The Scarlet Pimpernel" starring Leslie Howard, Merle Oberon and
Raymond Massey; and
"Black Dragons," "Scared To Death," and "White Zombie" starring
Bela Lugosi.
In the first quarter of fiscal 1993, AFT sold its joint venture
interest in five films (including "It's a Wonderful Life") it held in agreement
with Republic Pictures to Republic for $600,000. This price was in excess of the
carrying value of these films.
The four Sherlock Holmes films were distributed through
Multimedia Entertainment as part of a two program agreement. Each three-hour
program consisted of two Sherlock Holmes films. AFT's recognized revenues of
$190,000 related to the showing of the first of these programs during fiscal
1989. In fiscal 1990 AFT recognized $191,000 in revenues from broadcast of the
second film program.
AFT has received copyrights on the color versions of the films
in its library. Since June 1987, the Copyright Office of the Library of Congress
has been accepting registrations for copyright protection for a 75-year period
on certain colorized versions of black and white motion pictures.
The distribution business is highly competitive. The most
important factors are price, quality, dependability, audience appeal of the
product and marketing skills. There are numerous domestic and foreign
competitors, many of whom have resources substantially greater than AFT. These
competitors include major motion picture studios and other production and
distribution companies which distribute their own programs and films as well as
those produced by others.
The Company cannot state with any degree of certainty what
revenues could be derived at this time from the exploitation of its current
library.
Animation. During the years ended June 30, 1989 and 1990, AFT
engaged in a research and development project to produce a computer generated,
paperless animation process and ink and paint (the process of putting color in
animated films) which would be competitive with
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<PAGE> 15
existing traditional and computer animated systems with respect to both the
perceived production values and costs.
During fiscal 1992, AFT completed a short theatrical cartoon for
Twentieth Century Fox. AFT also animated a 30-minute prime time television
special, a Ronald McDonald's Storybook Theater presentation titled "The Magic
Paintbrush," for Marvel Production and CBS Television. AFT has also used its
high resolution computer and film based ink, paint and compositing technology on
the full-length animated feature film "We're Back" for Universal Pictures. AFT's
computer process colors traditional animation cells and outputs the final
product to 35mm film. "We're Back" was completed for Amblin Entertainment during
September 1993 to meet a theatrical release date of November 1993.
Although AFT developed significant technology in this area, it
was not able to match its competitors' prices. Accordingly, AFT produced only
few significant projects and has incurred significant losses in producing
certain of those projects. AFT's business plan upon reorganization focuses on
the core colorization business. While AFT has proven animation technology,
profit margins in animation were minimal due to lower cost foreign animation
competition. In addition, technological advances in computer hardware and
software have surpassed AFT's technology. AFT also believes that substantial
resources would be required in order for it to compete effectively and to attain
full-scale production. See "History of AFT."
Mexican Subsidiary. The Company performed much of its
colorization work through its wholly-owned subsidiary, American Film
Technologies de Mexico, S.A., a Mexican corporation. AFT loaned a significant
amount of its colorization, animation and ink and paint equipment to the
subsidiary. Due to restraints on the utilization of its cash imposed by Comerica
Bank, the subsidiary missed its payroll on October 8, 1993 and the subsidiary's
employees began a work stoppage. As a result of the strike, the Mexican
employees filed a lien against AFT's equipment located at the Mexico production
facility. Since the equipment is owned by AFT and the labor claim is against the
subsidiary, AFT has challenged the validity of the lien, and in August, 1994, a
Mexican court ruled in favor of the workers, validating their lien on the
equipment. This equipment was subsequently repurchased by the Company.
In December, 1994, the subsidiary negotiated a settlement of the
strike. The settlement called for a schedule of payments to its employees.
Subsequently, the subsidiary failed to make payments. In March, 1995, the
Mexican Labor Board allowed the employees to execute their lien and granted them
title to the equipment. Subsequently, AFT has organized a new Mexican
subsidiary, Midtech de Mexico, S.A. de C.V. ("Midtech"). Midtech negotiated a
purchase agreement with the owners of AFT's former equipment. The agreement
required a purchase price of $215,000, which has been paid.
Current management believes a Mexican production facility is
advantageous to the strategic plan of the Company. However, the Company has not
operated for four years, and although historically, the Company was able to
achieve significant cost savings through its Mexican operations as compared to
the U.S., it is uncertain as to whether such cost savings can be achieved in the
future. Should the Company resume operations at this time it would anticipate
reestablishing operations in Mexico, which will require reemployment of selected
former
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<PAGE> 16
employees of the Company's former subsidiary. Since the Mexican operation was
suspended in October, 1993, most of the former employees have found other jobs.
The success of the Company will depend upon Midtech's ability to rehire certain
former employees. If Midtech is unable to do so, 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 recent
devaluation of the peso, there is no assurance its future employees or vendors
will not demand increases in wages or prices to offset the effect of
devaluation.
Intellectual Property
The Company holds three United States patents pertaining to
colorizing monochrome images, which will expire in January 2008, March 2009 and
July 2013. AFT also holds a patent pertaining to the animation process, which
will expire in October 2010. AFT's success will be largely dependent upon its
technology and its ability to maintain patent protection on the technology it
develops. See "Risk Factors -- Patent Protection."
Employees
At present, the Company has two full-time employees and uses
certain former employees on an as-needed basis. The Company will add employees
as necessary in phases as it commences design work on films, then production of
colorized films and, finally, distribution and exploitation of the colorized
films.
Subsequent Developments
By Letter Agreement dated September 24, 1997, AFT entered into
an agreement with a group of proposed lenders who committed to lend AFT $500,000
through the purchase of one-year senior secured convertible notes bearing
interest at 10% per annum and convertible into Common Stock of AFT at eight
cents ($.08) per share. The Letter Agreement provided that this financing close
on or before October 1, 1997. However, the proposed lenders breached the terms
of the Letter Agreement and refused to consummate this financing pursuant to the
terms set forth in the Letter Agreement. As a result of the foregoing, AFT was
required to seek other sources of funding and to terminate the Letter Agreement
on October 10, 1997.
On and after October 10, 1997, AFT received commitments from a
new group of Lenders, including Gerald Wetzler, the Company's Chairman of the
Board and Chief Executive Officer, pursuant to which such investors committed to
provide at least $710,000, up to an aggregate amount of $1,000,000, of new
financing to AFT through the purchase of two-year Senior Secured Convertible
Notes bearing no interest and convertible into Common Stock of the Company at a
rate of three cents ($.03) per share (the "October 1997 Financing"). The initial
phase of the funding of this offering aggregating to $600,000 was completed on
October 14, 1997. The proceeds of the October 1997 Financing will principally be
utilized to make the principal and interest payments due on the Company's
Bankruptcy Notes and to fund the Company's working capital requirements.
-14-
<PAGE> 17
ITEM 2. PROPERTIES.
AFT's COLORIMAGED film production, animation and ink and paint
services are currently located at 4105 Sorrento Valley Boulevard, San Diego,
California 92121. AFT has approximately 8,400 square feet of leased office and
production space in San Diego. This property is currently leased for a period
expiring October 31, 2000.
AFT's old Mexican subsidiary, AFT de Mexico, leased 15,800
square feet in a facility located at Ave Corporativo #6J, Parque Industrial Int.
Tijuana, Mesa de Otay, Tijuana, B.C. 22390. AFT's new Mexican subsidiary,
Midtech de Mexico, has completed renegotiating a new lease pursuant to which it
will lease approximately 11,300 square feet at the same location for a
three-year term expiring June 30, 1998. This new lease incorporates repayment of
unpaid rent from a prior lease.
AFT leases office space in New York, New York located at 300
Park Avenue, New York, New York 10022. The lease is renewable on a yearly basis.
ITEM 3. LEGAL PROCEEDINGS.
There are currently no pending claims against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company has not submitted any matters to a vote of its
security holders during the fourth quarter of the fiscal year covered by this
report.
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<PAGE> 18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock trades on a limited basis on the
"pink sheets" under the symbol "AFTC." Stock price ranges for each full
quarterly period during the two most recent fiscal years ended June 30, 1996 and
June 30, 1997 are listed below:
Common Stock Price Ranges
<TABLE>
<CAPTION>
Quarter
Ended High Low
----- ---- ---
<S> <C> <C>
09/95 $0.63 $0.17
12/95 $0.31 $0.18
03/96 $0.29 $0.16
06/96 $0.60 $0.16
09/96 $1.20 $0.18
12/96 $1.03 $0.30
03/97 $0.64 $0.21
06/97 $0.48 $0.20
</TABLE>
- ----------
* The Company filed for protection under Chapter 11 of the Bankruptcy code on
October 16, 1993.
According to the records of the Company's transfer agent on September
23, 1997, the Company had 1,326 shareholders of record. On September 15, 1997,
the last trading price of the Common Stock was reported at $.21 per share.
The Company has not declared dividends on the Common Stock since it
became a public company. The Company does not intend to pay dividends in the
foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA.
The tables below set forth certain selected consolidated financial data
of the Company for each year of the five-year period ended June 30, 1997 and
should be read in conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and "RISK FACTORS," and with the
financial statements included elsewhere herein. All data for the period ended
June 30, 1997 is reported on a fresh start basis of accounting in accordance
with the Statement of Position (SOP) 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code," issued in November 1990 by the
Institute of Certified Public Accountants and includes activity from October 17,
1995 (the Effective Date) to June 30, 1997. Under this concept, all assets and
liabilities are restated to reflect the reorganization value of the reorganized
entity, which approximates its fair value at the
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<PAGE> 19
date of reorganization. In addition, the accumulated deficit of the Company was
eliminated and its capital structure was recast in conformity with the Plan. As
such, the accompanying financial data as of June 30, 1996 and 1997 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.
SUMMARY OF FINANCIAL INFORMATION
(000's omitted except for per share numbers)
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------------------------------------------
INCOME STATEMENT DATA 1997 1996* 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(Successor) (Successor) (Predecessor) (Predecessor) (Predecessor)
<S> <C> <C> <C> <C> <C>
Revenues -- -- $ 22 $ 2,369 $ 11,889
Net Income (Loss) $ (15,414) $ (1,445) $ (1,642) $ (3,082) $ (3,470)
Income (Loss) per share $ (0.21) $ (0.02) $ (0.06) $ (0.15) $ (0.32)
</TABLE>
<TABLE>
<CAPTION>
June 30,
-------------------------------------------------------------------------
BALANCE SHEET DATA 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(Successor) (Successor) (Predecessor) (Predecessor) (Predecessor)
<S> <C> <C> <C> <C> <C>
Total Assets $ 821 $ 7,245 $ 1,263 $ 2,111 $ 4,610
Long-Term Debt, net of current portion $ 1,870 $ 1,634 -- -- --
Total Liabilities $ 2,995 $ 2,566 $ 4,349 $ 3,875 $ 3,932
Stockholders' Equity (Deficit) $ (2,174) $ 4,678 $ (3,086) $ (1,765) $ 678
</TABLE>
- ----------
* Includes the period from October 17, 1995 (the effective date) to June 30,
1996.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
General
The operations of AFT for the fiscal years ended June 30, 1996 and
1997 (Successor Company) as compared to, June 30, 1995 and 1994 (Predecessor
Company) were significantly affected by the reduction and, in fiscal year 1994,
the cessation of production operations of the Company. As a result, the
financial results of the Company for each of the three fiscal years addressed by
this report do not reflect any earnings capacity of the Company. The financial
data for the period ended June 30, 1996 and 1997 reflects the adoption of Fresh
Start Accounting and includes the period from October 17, 1995 (the Effective
Date) to June 30, 1996. As such the financial data is considered that of a
Successor Company and is not comparable to prior periods.
In general, the Company's revenues from the production of colorized
films is recognized only when a film is completed. However, the Company receives
payments from its
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<PAGE> 20
customers prior to the completion of a project. During fiscal 1993, the
Company's agreement with Turner was significant in that it amounted to
approximately 65% of the work completed in the year ended June 30, 1993. Turner
has not notified the Company that it will colorize additional films in the
foreseeable future.
The opinion of the Company's auditors, Ernst & Young, LLP, which
accompanies the Company's financial statements, contains an emphasis paragraph
as to the Company's ability to continue as a going concern.
Year Ended June 30, 1997 compared to June 30, 1996 (October 17, 1995
to June 30, 1996).
The Company did not record any revenues during either period.
The Company recorded expense of $5,689,000 relating to the write-off
of its asset, "Reorganization Value in Excess of Identifiable Assets". This
write-off was required due to the uncertainty of its recoverability.
Total expenses before the write-off of the reorganization value and
the non cash compensation expense during the fiscal year ended June 30, 1997
amount to $1,856,361. The Company recorded compensation and benefits for its
administration and officers of approximately $8,002,000 for the period ended
June 30, 1997 as compared to $244,000 for the period ended June 30, 1996. The
increase in compensation is primarily due to the value of options granted to
consultants for their services during the fiscal year ended June 30, 1997 and to
the increase in the number of options granted to certain directors which have
required that the Company record a charge against operations in accordance with
the requirements of APB 25. For further information, see "Footnote 2--Summary of
Significant Accounting Policies" and "Footnote 11--Stockholders Equity
(Deficit)" to the Consolidated Financial Statements. The remaining expenses are
comparable to fiscal 1996 (October 17, 1995 to June 30, 1996) since fiscal year
1997 is for a full twelve month period and fiscal 1996 was only a partial year.
Year ended June 30, 1996 (October 17, 1995 to June 30, 1996) compared
to June 30, 1995. AFT did not record any revenues for the period ended June 30,
1996 as compared to $22,000 recorded for the period ended June 30, 1995, which
were derived from distribution revenues.
The Company recorded no production costs for the period ended June
30, 1996 and June 30, 1995. The Company recorded depreciation and amortization
expenses of approximately $402,000 during the period ended June 30, 1996 and
$927,000 during the period ended June 30, 1995, reflecting the revaluation of
the assets due to the adoption of Fresh Start Reporting.
The Company recorded compensation and benefits for its administration
and officers of approximately $244,000 for the period ended June 30, 1996 as
compared to $103,000 for the period ended June 30, 1995. Selling, general and
administrative expenses increased to $730,000 during the period ended June 30,
1996 compared to $319,000 during the period ended June 30, 1995. The increases
are primarily due to the decreased level of activity in fiscal year 1995 when
all employees were laid off for six months and most financial activity ceased
during the same six months. Interest expense remained relatively constant at
approximately $70,000 in fiscal year 1996 as compared to $71,000 in fiscal year
1995.
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<PAGE> 21
The Company recorded a net loss of approximately $1,445,000 during
the period ended June 30, 1996 or 2 cents per share, compared to a net loss of
approximately $1,642,000 during the period ended June 30, 1995, or 6 cents per
share. The reduction in net loss per share was due to an increase in the
outstanding shares used in this computation from 29,286,000 in fiscal year 1995
to 69,563,000 in fiscal year 1996.
Financial Condition and Liquidity. During the fiscal year ended June
30, 1997 the Company financed its activities principally through the sale of its
securities in private placements to accredited investors. In October 1996, the
Company issued an additional 2,500,000 shares of Common Stock for an aggregate
purchase price of $375,000 to two accredited investors in a private placement.
In January 1997, the Company raised $100,000 through the issuance of the January
1997 Debenture. In September 1997, the January 1997 Debenture was converted by
the debentureholder into 1,111,111 shares of Common Stock in accordance with its
terms. In addition, in January 1997, May 1997 and June 1997, the Company in
three separate transactions raised an additional $420,000 through the sale of
Director stock options to purchase 15,500,000 shares to Gerald Wetzler. As of
June 30, 1997 the Company had current assets of approximately $283,000 available
to finance its operations through the middle of September.
Subsequent to the end of fiscal 1997, the Company has continued to
finance its activities through the sale of its securities in private placements
to accredited investors and the exercise of previously granted options. In
August 1997, Mr. Wetzler exercised a portion of his 20,000,000 share option
grant of June 1996 option for 250,000 shares of Common Stock, at an exercise
price of $0.12 per share or $30,000. On September 12, 1997, Mr. Wetzler
purchased two-year options to purchase 30,000,000 shares of Common Stock at one
cent ($.01) per share for $130,000, in order to finance the Company's activities
during September and October of 1997. In connection with this option purchase,
Mr. Wetzler terminated the remaining 29,750,000 of his outstanding June 1996 and
January 1997 options, which options were purchased by Mr. Wetzler for an
aggregate purchase price of $400,000. In addition, in order to facilitate
additional financing for the Company, on September 19, 1997, Mr. Wetzler
terminated the outstanding options to purchase 5,500,000 shares of Common Stock
pursuant to the Company's May and June 1997 option grants, which options were
purchased by Mr. Wetzler for an aggregate purchase price of $220,000.
On and after October 10, 1997, AFT received commitments from a new
group of lenders, including Gerald Wetzler, the Company's Chairman of the Board
and Chief Executive Officer, pursuant to which such investors committed to
provide at least $710,000, up to an aggregate amount of $1,000,000, of new
financing to AFT through the purchase of two year Senior Secured Convertible
Notes bearing no interest and convertible into Common Stock of the Company at a
rate of three cents ($.03) per share (the "October 1997 Financing"). The
initial phase of the funding of this offering aggregating to $600,000 was
completed on October 14, 1997. The proceeds of the October 1997 Financing will
principally be utilized to make the October, 1997 principal and interest
payments due on the Company's Bankruptcy Notes and to fund the Company's working
capital requirements. The October 1997 Financing replaced the anticipated
$500,000 funding from the September Letter Agreement. (For further discussion of
the October 1997 Financing, see "Business - Subsequent Developments" and
"Certain Transactions". For further discussion of the September Letter
Agreement, see "Business - Subsequent Developments").
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<PAGE> 22
As of October 14, 1997, the Company had approximately $673,000 in
cash to satisfy the October 1997 principal and interest payments due on the
Bankruptcy Notes and for its operating requirements. The Company believes that
these funds along with certain overhead reductions will be sufficient to finance
the Company until February 1998. The Company is in discussions with other
potential investors regarding the purchase of convertible debentures 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. See "Certain Transactions."
In addition, the Company had engaged in discussions with strategic
partners and investors in connection with their providing funding sufficient to
enable the Company to become operational again, although, the amount of funding
required is contingent on a number of variables such as the speed of the start
up and initial production capacity required; the Company believes that the
minimum amount required (including working capital) would be approximately
$6,500,000. There can be no assurance as to when, if ever, the Company will be
able to negotiate a transaction for such funding or, if negotiated, that such a
transaction can be consummated.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
<TABLE>
<S> <C>
Report of Independent Auditors ......................................... F-1
Consolidated Balance Sheets ............................................ F-3
Consolidated Statements of Operations .................................. F-4
Consolidated Statements of Stockholders' Equity (Deficit) .............. F-5
Consolidated Statements of Cash Flows .................................. F-6
Notes to Consolidated Financial Statements ............................. F-7
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
-20-
<PAGE> 23
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position with Company
---- --- ---------------------
<S> <C> <C>
Gerald M. Wetzler 58 Chairman, Director, Chief Executive Officer
Harvey Finkel 51 Director
Daniel Schwartz 30 Director
Eric Illowsky 39 Director
Larry King 63 Director
Robert Frome 60 Director
Leonard White 58 Director
</TABLE>
The directors serve until the next annual meeting of shareholders and
the election and qualification of their successors. The officers are elected by
the directors and serve at the discretion of the Board of Directors. See
"Certain Transactions."
GERALD M. WETZLER
Mr. Wetzler was elected Chairman of the Board of Directors and Chief
Executive Officer of the Company on October 26, 1993, following his purchase of
the controlling interest in the Company. Prior to 1993, Mr. Wetzler had been a
private investor since 1975. Mr. Wetzler received a Juris Doctor degree from
Columbia Law School and a Master of Laws degree from Harvard Law School. He
practiced law with Cahill, Gordon & Reindel from 1962 to 1966. He worked in the
corporate finance department of Lehman Brothers for five years and served as
General Counsel for Beker Industries, Corp. , a New York Stock Exchange company.
HARVEY FINKEL
Mr. Finkel was elected to the Company's Board of Directors in
November 1996. Mr. Finkel has served as Senior Vice President and Chief
Financial Officer of New World Entertainment, Ltd. since 1994. Previously, Mr.
Finkel worked for Twentieth Century Fox from 1983 to 1994 in various executive
capacities, most recently as Senior Vice President, Finance and Administration
from 1988 to 1994.
DANIEL SCHWARTZ
Mr. Schwartz was elected to the Company's Board of Directors in
January 1997. Since 1993, he has been a Director of Research and a Managing
Director of York Capital Management, an investor partnership company. From July
1990 to March 1993, he was an associate
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<PAGE> 24
at Morgan Stanley & Co., Inc. spending two years in the Investment Banking
Division, and subsequently as a member of the Global Equity Derivatives
department.
ERIC ILLOWSKY
Mr. Illowsky was elected to the Company's Board of Directors in
January 1997. Since August of 1994, he has been President of Cable Network
Insights, a cable television network development company. From April 1992 to
July 1994, Mr. Illowsky served as Vice President of the USA Network, a cable
channel operator. From September 1990 to April 1992, Mr. Illowsky served as
Senior Vice President of Programming and Development for the Sci-Fi Channel, a
cable company broadcasting science fiction films.
LARRY KING
Mr. King was elected to the Company's Board of Directors in February
1996. Mr. King is the host of CNN's "Larry King Live" and Mutual Radio's "Larry
King Show" and is a columnist for USA Today. Among his many honors are Ace
Awards, a Peabody Award, and the Broadcaster of the Year from the International
Radio and Television Society.
ROBERT FROME
Mr. Frome was elected to the Company's Board of Directors in October
1997. For more than ten years, Mr. Frome has been a senior partner of Olshan
Grundman Frome & Rosenzweig, a New York City law firm. Mr. Frome is also a
director of Health Care Services Group, a provider of cleaning, maintenance and
laundry services to nursing homes, and NuCo2, a provider of bulk carbon dioxide
to restaurants, fast food outlets and convenient stores.
LEONARD WHITE
Mr. White was elected to the Company's Board of Directors in October
1997. Mr. White is currently a private investor. Mr. White served as President
and Chief Executive Officer of Orion Pictures Corporation, a motion picture
production, distribution and media company, from 1992 until November 1995,
and as President and Chief Executive Officer of Metromedia Entertainment
Group from November 1995 until July 1997. Mr. White is also a director of
Metromedia International Group, Inc., Metromedia Fiber Network, Inc., and
Odyssey Communications, Inc. He is a member of the Academy of Motion Picture
Arts and Sciences.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the Company's officers and directors and the holders of more than
ten percent of the company's outstanding common stock to file reports of
ownership with the Securities and Exchange Commission ("SEC") and to furnish the
Company with copies of these reports. Based solely on a review of the forms it
has received and on written representations from certain reporting persons that
no such forms were required from them, the Company believes that, except as set
forth below, during the fiscal year ended June 30, 1997 all Section 16(a) filing
requirements applicable to its officers, directors and 10% beneficial owners
were complied with by such persons.
Mr. Wetzler filed his Form 4 with respect to a transaction occurring
in April 1997 after the date prescribed under Section 16(a). Each of Messrs.
Finkel, Schwartz and Illowsky filed the Form 3 after the date prescribed under
Section 16(a).
-22-
<PAGE> 25
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth the compensation of the officers of
the Company. For the fiscal year ended June 30, 1997, neither Mr. Wetzler nor
any of the other executive officers received compensation over $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
- ---------------------------------------------------------------------------------------------------------------------
Securities
Name and Restricted Stock Underlying Options
Principal Position Year Salary ($) Bonus($) Awards ($) /SARs(#)
- -------------------- ------ ---------- ---------- ---------------- ------------------
<S> <C> <C> <C> <C> <C>
Gerald M. Wetzler 1997 -0- -0- -0- -0-
Chairman, Director,
Chief Executive
Officer
1996 -0- $125,000* -0- 10,000,000(1)
1995 -0- -0- -0- -0-
1994 -0- -0- -0- -0-
</TABLE>
- ----------
* Upon confirmation of the Plan in October 1995, Mr. Wetzler received a bonus
of $125,000, in accordance with the terms of the Reorganization Plan.
(1) Does not include options to purchase 30,000,000 shares of Common Stock of
the Company which were terminated by Mr. Wetzler in connection with his
purchase of options to acquire 30,000,000 shares of Common Stock of the
Company on September 12, 1997. See "Certain Transactions."
In addition to the above, Mr. Wetzler has purchased options in
connection with his providing working capital to the Company, See "Certain
Transactions."
Options
During the fiscal year ended June 30, 1997, the Company granted the
following options to Mr. Wetzler:
Options
<TABLE>
<CAPTION>
Amount of Exercise Purchase
Date of Grant Underlying Shares Price Per Share Price of Option
- ------------- ----------------- --------------- ---------------
<S> <C> <C> <C>
June 1996 20,000,000 $ .12 $ 200,000
January 1997 10,000,000 $ .07 $ 200,000
May 1997 4,000,000 $ .09 $ 160,000
June 1997 1,500,000 $ .09 $ 60,000
</TABLE>
-23-
<PAGE> 26
In addition, on September 12, 1997, Mr. Wetzler purchased 30,000,000
options for an aggregate purchase price of $130,000 in connection with his
providing working capital to the Company. Simultaneously with the purchase of
the September 1997 options, Mr. Wetzler agreed, to the extent that they had not
been exercised, to terminate the June 1996 options as well as the January 1997
options. As of the termination date, Mr. Wetzler had only exercised 250,000 of
the 20,000,000 options granted to him in June of 1996. None of the January 1997
options had been exercised. In addition, as of September 18, 1997, Mr. Wetzler
terminated the May 1997 options as well as the June 1997 options, none of which
had been exercised by Mr. Wetzler. For further discussion of the above, see
"Certain Transactions."
Compensation of Directors
During the pendency of the Company's bankruptcy proceedings,
directors of the Company were not separately compensated for service on the
Board of Directors. The current directors receive options to purchase 50,000
shares of Common Stock of the Company upon joining the Board. In addition to the
foregoing options, Mr. Finkel has received option grants in April, 1997 and
August 1997 for 200,000 and 100,000 shares, respectively, at an exercise price
of $.05 per share, in connection with his services as chief financial and
accounting officer.
Employment Contracts
Wetzler Employment Agreement. Effective January 1, 1996, the Company
entered into an employment agreement with Mr. Wetzler (the "Employment
Agreement") to serve as the Chief Executive Officer of the Company. The
Agreement provides for a term of five years, subject to termination as provided
in the Agreement, and provides that, as sole compensation under the Agreement,
Mr. Wetzler will receive an option to purchase 10,000,000 shares of the
Company's $.002 par value common stock, at an exercise price of twelve cents
less than the average trading price in the Company's common stock for the twenty
trading days prior to and including January 18, 1996, which has been calculated
as $.0628 per share, pursuant to the terms of a Stock Option Agreement
(described below). The Employment Agreement provides for no cash compensation,
but does entitle Mr. Wetzler to fringe benefits, including health insurance, on
terms which may be agreed to from time to time by the Company and Mr. Wetzler.
The Employment Agreement obligates the Company to indemnify Mr.
Wetzler from and against third party claims in accordance with the Company's
Certificate of Incorporation and By-Laws.
Mr. Wetzler is entitled to terminate the Employment Agreement on the
occurrence of certain events, including a breach by the Company or a change in
control of the Company, as defined in the Employment Agreement. If the
Employment Agreement is terminated because of a breach of the Employment
Agreement by the Company, Mr. Wetzler is entitled to receive, as liquidated
damages, a termination payment equal to $250,000, multiplied by the number of
years, including partial years, remaining on the original term of the Employment
Agreement. If the Employment Agreement is terminated in connection with a change
in control of the Company, Mr. Wetzler is entitled to receive an amount equal to
2.99 multiplied by the greater of (a) the average annual gross compensation
received by Mr. Wetzler from the Company from all sources
-24-
<PAGE> 27
during the five years prior to and including the year in which the event giving
rise to termination occurs or (b) $250,000.
Compensation Committee Interlocks and Insider Participation; Board Compensation
Committee Report on Executive Compensation
The Company elected a Compensation Committee during the January 26,
1997 shareholders' meeting, consisting of Mr. Harvey Finkel and Mr. Daniel
Schwartz. The only executive officer compensation considered during the 1997
fiscal year was that of Mr. Finkel who during such fiscal year received 200,000
options in addition to his 50,000 options received in connection with his
serving as a director. All options were approved by the entire Board of
Directors of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
As of September 15, 1997 the only class of voting securities issued
and outstanding was 73,700,576 shares of the Company's common stock.
The following sets forth information as of September 15, 1997, with
respect to the shares of the Company's common stock beneficially owned by (i)
each person who is known by the Company to beneficially own more than 5% of any
class of the Company's voting securities, (ii) the five highest paid officers
including the Chief Executive Officer, (iii) each director of the Company, and
(iv) all directors and officers as a group.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent
beneficial owner(1) beneficial ownership Class(2)
- ----------------------------- --------------------- --------
<S> <C> <C>
Gerald M. Wetzler 43,143,667(3) 40.44%
(Chairman of the Board and
Chief Executive Officer)
Harvey Finkel (Director) 350,000(4) *
JCV Capital Corp. 10,380,854 14.13%
P.O. Box 22719
Rochester, NY 14692
L&R Holdings, Inc. 12,145,854 16.54%
130 Shore Road
Port Washington, NY 11050
Larry King (Director) 1,000,000(4) 1.34%
Eric Illowsky (Director) 50,000(4) *
Daniel Schwartz (Director) 105,000(4)(5) *
Officers and Directors as a Group 44,648,667 41.28%
</TABLE>
- ----------
* Less than one percent.
(1) Except as otherwise indicated and subject to applicable community property
and similar laws, the Company assumes that each named person has the sole
voting and investment power with respect to his or her shares (other than
shares subject to options).
-25-
<PAGE> 28
(2) Percent of class is based on the number of shares outstanding as of
September 15, 1997. In addition, shares which a person had the right to
acquire within 60 days are also deemed outstanding in calculating the
percentage ownership of the person but not deemed outstanding as to any
other person. Does not include shares issuable upon exercise of any
warrants, options, or other convertible rights issued by the Company which
are not exercisable within 60 days from the date hereof. Ownership of less
than 1% is indicated by an asterisk.
(3) Does not include 6,333,333 shares subject to options which are not
exercisable within the next 60 days. Does not include 13,333,333 shares
issuable upon conversion of the Senior Secured Convertible Note, which note
was purchased by Mr. Wetzler in October. Includes 32,997,877 shares subject
to options which are exercisable within the next 60 days. See "Certain
Transactions."
(4) All shares subject to currently exercisable options.
(5) Includes 55,000 shares held of record by Mr. Schwartz's minor children.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On September 12, 1997, Mr. Gerald Wetzler purchased options to
acquire 30,000,000 shares of Common Stock of the Company for an aggregate
purchase price of $130,000. Pursuant to these options, shares of Common Stock of
the Company may be purchased at an exercise price of $0.01 per share. Such
options are currently exercisable, provided that Mr. Wetzler does not sell or
transfer the shares of Common Stock issuable upon such exercise for a period of
six months from the date of grant. These options terminate on September 12,
1999. The Board of Directors granted Mr. Wetzler these options in part to enable
the Company to have sufficient working capital to operate through October 1997
so that the Company could either obtain additional financing or proceed with an
orderly liquidation. Simultaneously with the purchase of the foregoing options,
Mr. Wetzler agreed, to the extent that they had not been exercised, to terminate
certain June, 1996 options to purchase 20,000,000 shares of Common Stock of the
Company at an exercise price of $0.12 per share, as well as certain January,
1997 options to purchase 10,000,000 shares of Common Stock of the Company at an
exercise price of $0.07 per share. Such options were purchased by Mr. Wetzler
for an aggregate price of $400,000. As of the termination date, Mr. Wetzler had
only exercised 250,000 of the 20,000,000 options granted to him in June of 1996.
In addition, as of September 18, 1997, Mr. Wetzler terminated certain
May, 1997 options to purchase 4,000,000 shares of Common Stock of the Company at
an exercise price of $0.09 per share, as well as certain June 1997 options to
purchase 1,500,000 shares of Common Stock of the Company at an exercise price of
$0.09 per share. Such options were purchased by Mr.
Wetzler for an aggregate price of $220,000.
On October 10, 1997, Mr. Wetzler committed to provide $400,000 of new
financing to AFT through the purchase of two-year Senior Secured Convertible
Notes bearing no interest and convertible into Common Stock of the Company at a
rate of three cents ($.03) per share. See "Business - Subsequent Developments."
-26-
<PAGE> 29
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
a. Consolidated Financial Statements filed herewith as required under Item 8
of this Annual Report on Form 10-K includes consolidated balance sheets at
June 30, 1997 and 1996 and consolidated statements of operations,
consolidated statements of cash flows, and consolidated statements of
stockholders' equity (deficit) for each of the three years ended
June 30, 1997.
The consolidated financial statement schedules of American Film
Technologies, Inc. are omitted since they are neither required, not
applicable, or the relevant information is otherwise included.
b. None.
c. The following exhibits are included in this report or incorporated by
reference:
3.1 Certificate of Incorporation, as amended.
3.2 Bylaws, as amended.
10.1 Option Agreement dated May 3, 1995 between the Company and
H.J. Meyers & Co., Inc. is incorporated by reference to
Exhibit 10.3 to the Company's Annual Report Form 10-K for the
Fiscal Year ended June 30, 1995.
10.2 Amendment No. 1 to Option Agreement between the Company and
H.J. Meyers & Co., Inc., dated July 11, 1995 is incorporated
by reference to Exhibit 10.4 to the Company's Annual Report
Form 10-K for the Fiscal Year ended June 30, 1995.
10.3 Selling Agency Agreement between the Company and H.J. Meyers &
Co., Inc., dated as of July 12, 1995 is incorporated by
reference to Exhibit 10.5 to the Company's Annual Report Form
10-K for the Fiscal Year ended June 30, 1995.
10.4 Amendment No. 2 to Selling Agency Agreement between the
Company and H.J. Meyers & Co., Inc., dated October 5, 1995 is
incorporated by reference to Exhibit 10.6 to the Company's
Annual Report Form 10-K for the Fiscal Year ended June 30,
1995.
10.5 Consulting Agreement, dated December 20, 1995, between Adasar
Group, Inc. and the Company is incorporated by reference to
Exhibit 10.7 to the
-27-
<PAGE> 30
Company's Annual Report Form 10-K for the Fiscal Year ended
June 30, 1995.
10.6 Employment Agreement dated as of January 1, 1996 between the
Company and Gerald M. Wetzler is incorporated by reference to
Exhibit 10.8 to the Company's Annual Report Form 10-K for the
Fiscal Year ended June 30, 1995.
10.7 Stock Option Agreement dated as of January 1, 1996 between the
Company and Gerald M. Wetzler is incorporated by reference to
Exhibit 10.9 to the Company's Annual Report Form 10-K for the
Fiscal Year ended June 30, 1995.
10.8 Stock Option Agreement dated as of February 23, 1996, between
the Company and Larry King is incorporated by reference to
Exhibit 10.10 to the Company's Annual Report Form 10-K for the
Fiscal Year ended June 30, 1995.
10.9 Letter Agreement dated as of February 23, 1996, between the
Company and Larry King is incorporated by reference to Exhibit
10.11 to the Company's Annual Report Form 10-K for the Fiscal
Year ended June 30, 1995.
10.10 Transactional Stock Option Agreement, dated as of February 23,
1996, between the Company and Larry King is incorporated by
reference to Exhibit 10.11 to the Company's Annual Report Form
10-K for the Fiscal Year ended June 30, 1995.
10.11 Registration Undertaking dated as of February 23, 1996 between
the Company and Larry King is incorporated by reference to
Exhibit 10.12 to the Company's Annual Report Form 10-K for the
Fiscal Year ended June 30, 1995.
10.12 Letter of Intent dated March 28, 1996 between the Company and
H.J. Meyers & Co., Inc. is incorporated by reference to
Exhibit 10.13 to the Company's Annual Report Form 10-K for the
Fiscal Year ended June 30, 1995.
10.13 Lease for San Diego Office is incorporated by reference to
Exhibit 10.14 to the Company's Annual Report Form 10-K for the
Fiscal Year ended June 30, 1995.
10.14 Lease for New York Office is incorporated by reference to
Exhibit 10.15 to the Company's Annual Report Form 10-K for the
Fiscal Year ended June 30, 1995.
-28-
<PAGE> 31
10.15 Consulting Agreement between the Company and Harvey Finkel
dated April 22, 1997.
10.16 Stock Option Agreement between the Company and Harvey Finkel
dated April 22, 1997.
10.17 Stock Option Agreement between the Company and Harvey Finkel
dated August 15, 1997.
10.18 Stock Option Agreement between the Company and Gerald M.
Wetzler dated June 17, 1996.
10.19 Stock Option Agreement between the Company and Gerald M.
Wetzler dated September 12, 1997.
21 Subsidiaries of Registrant
27 Financial Data Schedule
d. Schedules filed herewith include:
All schedules for which provision is made in Regulation S-X of the
Commission are not required under the related instructions or are not applicable
and therefore have been omitted.
-29-
<PAGE> 32
Pursuant to the requirements of Section 13 or 15(d) 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.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C> <C>
By: /s/ Gerald M. Wetzler Director, November 19, 1997
-------------------------- Chief Executive
Gerald M. Wetzler Officer, Acting Chief
Financial and Accounting
Officer
</TABLE>
-30-
<PAGE> 33
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C> <C>
By: /s/ Gerald M. Wetzler Director, November 19, 1997
-------------------------- Chief Execu-
Gerald M. Wetzler tive Officer,
Acting Chief
Financial and
Accounting
Officer
By: /s/ Eric Illowsky Director and November 23, 1997
-------------------------- Secretary
Eric Illowsky
By: /s/ Daniel A. Schwartz Director November 19, 1997
-------------------------
Daniel A. Schwartz
By: Director
------------------------- -----------------
Larry King
By: /s/ Harvey Finkel Director November 19, 1997
-------------------------
Harvey Finkel
By: /s/ Robert Frome Director November 24, 1997
-------------------------
Robert Frome
By: /s/ Leonard White Director November 20, 1997
-------------------------
Leonard White
</TABLE>
GARK
-31-
<PAGE> 34
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors...............................................F-2
Consolidated Balance Sheets..................................................F-3
Consolidated Statements of Operations........................................F-4
Consolidated Statements of Stockholders' Equity (Deficit)....................F-5
Consolidated Statements of Cash Flows........................................F-6
Notes to Consolidated Financial Statements...................................F-7
</TABLE>
F-1
<PAGE> 35
Report of Independent Auditors
The Board of Directors and Stockholders
American Film Technologies, Inc.
We have audited the accompanying consolidated balance sheets of American Film
Technologies, Inc. as of June 30, 1997 and June 30, 1996, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for of the years ended June 30, 1997 (Successor), June 30, 1996
(Successor) and June 30, 1995 (Predecessor). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
American Film Technologies, Inc. at June 30, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended June 30, 1997, in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
that American Film Technologies, Inc. will continue as a going concern. As more
fully described in Note 1, the Company filed a voluntary petition for
reorganization under Chapter 11 of the United States Bankruptcy Code on October
15, 1993. The filing was the result of continuing defaults related to the
Company's loans, recurring operating losses and insufficient cash flows. The
Company's Plan of Reorganization was approved by the Bankruptcy Court on October
6, 1996; however, the Company must raise additional funds to finance its ongoing
operations. These conditions raise substantial doubt about the Company's ability
to continue as a going concern. The consolidated financial statements do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from this uncertainty.
ERNST & YOUNG LLP
San Diego, California
September 19,1997
F-2
<PAGE> 36
American Film Technologies, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
JUNE 30,
1997 1996
------------ -----------
<S> <C> <C>
Assets
Current assets:
Cash $ 159,730 $ 338,669
Other current assets 122,787 106,254
------------ -----------
Total current assets 282,517 444,923
Equipment and software, net 350,754 444,459
Film library, net 187,500 337,500
Reorganization value in excess of identifiable assets, net -- 6,017,772
------------ -----------
$ 820,771 $ 7,244,654
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable:
Current portion of notes payable $ 405,307 $ --
Other loans 35,274 31,357
Accounts payable and accrued expenses 549,869 480,471
Accrued compensation 134,580 220,058
------------ -----------
Total current liabilities 1,125,030 731,886
Notes payable 1,250,213 1,634,404
Stock option subscriptions subject to repurchase 620,000 200,000
Stockholders' equity (deficit):
Common stock, $.002 par value: Authorized shares -
225,000,000; issued and outstanding shares -
73,700,644 and 69,567,310 at June 30, 1997 and
1996, respectively 147,402 139,135
Capital in excess of par value 15,879,186 7,064,453
Deferred compensation (1,342,000) (1,080,000)
Accumulated deficit (16,859,060) (1,445,224)
------------ -----------
Total stockholders' equity (deficit) (2,174,472) 4,678,364
------------ -----------
$ 820,771 $ 7,244,654
============ ===========
</TABLE>
See accompanying notes
F-3
<PAGE> 37
American Film Technologies, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
--------------------------------- ---------------------------------
YEAR ENDED OCTOBER 17, JULY 1, 1995 TO YEAR ENDED
JUNE 30, 1995 TO JUNE 30, OCTOBER 16, JUNE 30,
1997 1996 1995 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Distribution revenues $ -- $ -- $ -- $ 22,343
Costs and expenses:
Depreciation and amortization 558,827 402,273 238,273 927,400
Compensation and benefits -
administrative and officers 8,001,943 243,835 263,829 102,554
Selling, general and administrative 1,022,453 729,530 97,108 319,281
Interest expense, net 141,138 69,586 33,132 70,789
Reorganization items:
Professional fees -- -- 65,430 242,143
U.S. Trustee fees -- -- 1,250 1,750
Write-off (recognition) of
reorganization value in excess of
identifiable assets 5,689,475 -- (6,326,258) --
------------ ------------ ------------ ------------
15,413,836 1,445,224 (5,627,236) 1,663,917
------------ ------------ ------------ ------------
Net income (loss) $(15,413,836) $ (1,445,224) $ 5,627,236 $ (1,641,574)
============ ============ ============ ============
Net income (loss) per share $ (0.21) $ (0.02) $ 0.17 $ (0.06)
============ ============ ============ ============
Shares used in per share computation 72,008,051 69,563,192 32,232,802 29,285,802
============ ============ ============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE> 38
American Film Technologies, Inc.
Consolidated Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
--------------------- -------------------- TOTAL
SHARES SHARES CAPITAL IN STOCKHOLDERS'
ISSUED AND PREFERRED ISSUED AND EXCESS OF DEFERRED ACCUMULATED EQUITY
OUTSTANDING STOCK OUTSTANDING AMOUNT PAR COMPENSATION DEFICIT (DEFICIT)
----------- --------- ----------- -------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PREDECESSOR
Balance at June 30, 1994 695,250 $ 695 26,010,802 $ 52,022 $ 13,215,567 $ -- $(15,033,075) $ (1,764,791)
Net loss -- -- -- -- -- -- (1,641,574) (1,641,574)
Issuance of common stock at
.04 per share -- -- 1,000,000 2,000 38,000 -- -- 40,000
Issuance of common stock at
.09 per share -- -- 1,000,000 2,000 88,000 -- -- 90,000
Issuance of common stock at
.01 per share -- -- 2,000,000 4,000 16,000 -- -- 20,000
Issuance of common stock at
.05 per share -- -- 400,000 800 19,200 -- -- 20,000
Option related to H. J. Meyers
refinancing plan -- -- -- -- 150,000 -- -- 150,000
-------- ----- ---------- -------- ------------ ----------- ------------ ------------
Balance at June 30, 1995 695,250 695 30,410,802 60,822 13,526,767 -- (16,674,649) (3,086,365)
Net income - July 1, 1996 to
October 16, 1996 -- -- -- -- -- -- 5,627,236 5,627,236
Private placement -- -- 38,982,508 77,965 3,181,907 -- -- 3,259,872
Issuance of stock to
employees -- -- 164,000 328 -- -- -- 328
Recapitalization of Company
due to Fresh Start Reporting
under Reorganization Plan (695,250) (695) -- -- (11,046,721) -- 11,047,413 (3)
-------- ----- ---------- -------- ------------ ----------- ------------ ------------
SUCCESSOR:
Balance at October 16, 1995 -- -- 69,557,310 139,115 5,661,953 -- -- ,801,068
Net loss - October 17, 1997
to June 30, 1997 -- -- -- -- -- -- (1,445,224) (1,445,224)
Issuance of stock to pay
vendor -- -- 10,000 20 2,500 -- -- 2,520
Receipt of additional
subscription money -- -- -- -- 200,000 -- -- 200,000
Deferred compensation related
to issuance of stock option -- -- -- -- 1,200,000 (1,200,000) -- --
Amortization of deferred
compensation -- -- -- -- -- 120,000 -- 120,000
-------- ----- ---------- -------- ------------ ----------- ------------ ------------
Balance at June 30, 1996 -- -- 69,567,310 139,135 7,064,453 (1,080,000) (1,445,224) 4,678,364
Net loss -- -- -- -- -- -- (15,413,836) (15,413,836)
Issuance of stock -- -- 3,833,334 7,667 567,333 -- -- 575,000
Exercise of stock options -- -- 300,000 600 34,400 -- -- 35,000
Deferred compensation related
to issuance of stock options -- -- -- -- 3,298,000 (3,298,000) -- --
Amortization of deferred
compensation -- -- -- -- -- 3,036,000 -- 3,036,000
Compensation expense related
to issuance of stock options -- -- -- -- 4,832,000 -- -- 4,832,000
Convertible debt discount -- -- -- -- 83,000 -- -- 83,000
-------- ----- ---------- -------- ------------ ----------- ------------ ------------
Balance at June 30, 1997 -- $ -- 73,700,644 $147,402 $ 15,879,186 $(1,342,000) $(16,859,060) $ (2,174,472)
======== ===== ========== ======== ============ =========== ============ ============
</TABLE>
See accompanying notes.
F-5
<PAGE> 39
American Film Technologies, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
-------------------------------- -----------------------------
YEAR ENDED OCTOBER 17, JULY 1, 1995 YEAR ENDED
JUNE 30, 1995 TO JUNE 30, TO OCTOBER 16, JUNE 30,
1997 1996 1995 1995
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operating activities
Net income (loss) $(15,413,836) $(1,445,224) $ 5,627,236 $(1,641,574)
Adjustments to reconcile net (loss) to net
cash used by operating activities:
Depreciation and amortization 558,827 402,273 237,920 927,400
Amortization of deferred compensation 3,036,000 120,000 -- --
Amortization of debt discount 17,291 -- -- --
Loss on disposal of assets in Mexico -- -- -- 65,546
Write-off (recognition) of reorganization
value in excess of identifiable assets 5,689,475 -- (6,326,258) --
Compensation expense 4,832,000 -- -- --
Changes in assets and liabilities:
Restricted cash -- -- 15,322 51,412
Accounts receivable -- -- 23,692 (184)
Other current assets (16,533) (69,761) 63,221 3,028
Accounts payable and accrued expenses 69,398 (988,064) (17,277) 652,576
Liabilities subject to compromise -- -- -- 150,273
Accrued compensation (85,478) (509,318) 228,281 (333,173)
------------ ----------- ----------- -----------
Net cash used in operating activities (1,312,856) (2,490,094) (147,863) (124,696)
INVESTING ACTIVITIES
Purchase of equipment and software -- -- -- (215,000)
------------ ----------- ----------- -----------
Net cash used by investing activities -- -- -- (215,000)
FINANCING ACTIVITIES
Principal payments on notes payable - bank -- (348,385) (250,000) (25,000)
Principal payments on notes payable -
equipment and other -- (431,232) -- --
Principal payments on long-term debt -- (7,830) -- --
Proceeds from notes payable - other 103,917 140,289 503,000 29,300
Proceeds from common stock subscriptions -- 200,000 2,960,200 --
Stock option subscriptions subject
to repurchase 420,000 200,000 -- --
Proceeds from sale of common stock 610,000 -- -- --
Proceeds from sale of common stock -- -- -- 170,000
Proceeds from options on refinancing plan -- -- -- 150,000
------------ ----------- ----------- -----------
Net cash provided (used) by financing
activities 1,133,917 (247,158) 3,213,200 324,300
------------ ----------- ----------- -----------
Net increase (decrease) in cash (178,939) (2,737,252) 3,065,337 (15,396)
Cash at beginning of period 338,669 3,075,921 10,584 25,980
------------ ----------- ----------- -----------
Cash at end of period $ 159,730 $ 338,669 $ 3,075,921 $ 10,584
============ =========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period
for interest $ 50,246 $ 158,319 $ -- $ --
============ =========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock/warrants
in connection with debt $ 83,000 $ -- $ 300,000 $ --
============ =========== =========== ===========
Issuance of common stock to pay vendor $ -- $ -- $ 2,520 $ --
============ =========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 40
American Film Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 1997
1. REORGANIZATION UNDER CHAPTER 11
BANKRUPTCY PROCEEDINGS AND BASIS OF PRESENTATION
On October 15, 1993, the Company filed for protection from its creditors under
Chapter 11 of the United States Bankruptcy Code. The Chapter 11 filing was the
result of continuing defaults related to the Company's loans, recurring
operating losses and cash flow problems. The filing of a Chapter 11 petition
operates as a stay of, among other actions, the commencement or continuation of
a judicial administrative or other action or proceeding against a debtor that
was or could have been initiated before the commencement of a Chapter 11 case or
the enforcement against the debtor or against the property of the estate or a
judgment obtained before the commencement of the case. Under Chapter 11,
substantially all prepetition liabilities of debtors are subject to settlement
under a plan of reorganization. The consummation of a plan of reorganization is
dependent upon the satisfaction of numerous conditions, including, among other
things, the acceptance by several classes of interests and confirmation by the
Bankruptcy Court.
On October 6, 1995, the Company's Plan of Reorganization (the "Plan") was
approved by the Bankruptcy Court and became effective October 17, 1995. The
accompanying consolidated financial statements have been prepared in conformity
with principles of accounting applicable to a going concern. As discussed below
(see H. J. Meyers Agreement), the Company completed a private placement for
$3,460,200 and the Company must raise additional funds to finance its future
operations. While management believes it will be successful in its efforts,
there are no assurances whether sufficient financing or equity will be available
to fund the operations through June 30, 1997. No adjustments have been made to
reflect the possible future effects on the recoverability and classification of
assets or the amount 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 or 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 Accounting" below. The only effects of the bankruptcy proceedings
reflected in the accompanying financial statements as of June 30, 1996 are
"Liabilities subject to compromise", which are
F-7
<PAGE> 41
American Film Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
1. REORGANIZATION UNDER CHAPTER 11 (CONTINUED)
impaired prepetition liabilities in accordance with the Plan and "Reorganization
items" (including professional fees) have been specifically identified on the
Consolidated Statement of Operations.
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
"Effective Date"). Under the terms of the Plan, the following is a summary of
treatment of each of the major classes of creditors and stockholders:
<TABLE>
<CAPTION>
ESTIMATED
CLASS OF AMOUNT OF
CLAIMS CLAIM DISTRIBUTION UNDER THE PLAN STATUS
- ---------------- ------------ ------------------------------------ -------------
<S> <C> <C> <C>
Class 1 - $86,000 Cash payment in full on effective Unimpaired
Employee date.
Priority Claim
Class 2 - $80,000 Cash payment on Distribution Date Unimpaired
Priority Claims or, at the Company's discretion,
over six years plus interest
Class 3 - $623,000 Cash payment on the effective date Unimpaired
Comerica plus interest and reasonable legal
Claims fees
Class 4 - $500,000 Cash payment plus interest on the Unimpaired
Secured effective date
Claims
Class 5 - DIP $122,000 $110,000 cash payment plus accrued Impaired
Financing interest on effective date and
Claims remainder in one year note.
Class 6 - $6,000 Cash payment in full on effective Unimpaired
Convenience date.
Claims
</TABLE>
F-8
<PAGE> 42
American Film Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
1. REORGANIZATION UNDER CHAPTER 11 (CONTINUED)
<TABLE>
<CAPTION>
ESTIMATED
CLASS OF AMOUNT OF
CLAIMS CLAIM DISTRIBUTION UNDER THE PLAN STATUS
- ---------------- ------------ ------------------------------------ -------------
<S> <C> <C> <C>
Class 7 - $1,650,000 Unsecured five year notes in full Impaired
Unsecured amount of allowed claim, with
Claims interest at 7%.
Class 8 - N/A $10 cash on effective date. Impaired
Preferred Unexercised Series B and the Series
Stock Interest C and D voting convertible preferred
stock interest will be canceled
Class 9 - N/A Retained, subject to dilution Impaired
Common
Stock Interest
Class 10 - N/A Cancelled Impaired
Other Equity
Interests
</TABLE>
The above Class 7 Unsecured Claims does not include the Class 7 Claim of Joseph
Taritero which has been compromised pursuant to the provisions of a prior
Stipulation and Order (see Note 11).
A claim becomes impaired when the legal, contractual or equitable right of such
claim is altered, modified or changed by the proposed treatment under the Plan.
H. J. MEYERS AGREEMENT
On May 3, 1995, the Company executed an agreement with H. J. Meyers and Co.,
Inc. ("Meyers") pursuant to which Meyers purchased an exclusive 90 day option as
of May 30, 1995, to purchase common stock from the Company for $3,000,000 which
would provide Meyers up to 51% of the outstanding shares. Upon approval of the
agreement by the Bankruptcy Court, on May 30, 1995, Meyers paid the Company a
non-refundable fee
F-9
<PAGE> 43
American Film Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
1. REORGANIZATION UNDER CHAPTER 11 (CONTINUED)
of $150,000 for the option. The agreement required Meyers to pay the $3,000,000
to the Company upon the Effective Date of the Company's Plan. Through a
subsequent amendment to that agreement, Meyers agreed to use its best efforts to
increase the proceeds of the offering to $4,000,000 which would result in net
proceeds of $3,480,000 to the Company. In exchange for this possible increase,
the Company agreed to issue an additional 3,800,000 shares to Meyers and its
assignees. Meyers raised the money through a private placement of the Company's
common stock to "accredited investors", as that term is defined by the
Securities Act of 1933. The net proceeds to the Company totaled $3,460,200,
including the conversion of the $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, the new stockholder can
demand (upon demand by at least 25% of the new stockholders) the Company file a
registration statement with the Securities and Exchange Commission (SEC)
covering the reoffer and resale of its shares (up to 38,982,508).
Notwithstanding the foregoing, if at any time prior to exercise of the demand
registration right the Company receives a Letter of Intent from an underwriter
for a public equity offering of at least $5,000,000 of the Company's securities,
then the demand registration right shall terminate. On March 28, 1995, the
Company entered into a letter of intent with H. J. Meyers (the "Meyers Letter of
Intent") under which Meyers confirmed its interest in underwriting on a firm
commitment basis a public offering of shares of the Company's common stock. The
Meyers Letter of Intent contemplates the negotiation and execution of formal
agreements relating to the proposed offering and provides, among other things,
that the Company will apply for listing on the NASDAQ Small Cap Market and use
its best reasonable efforts to maintain such listing for not less than five
years; that the Company, if requested, will obtain "key man" life insurance on
the lives of designated officers of the Company and that the Company shall have
entered into a joint venture, business alliance or business combination with an
owner of content on terms acceptable to Meyers.
The new stockholders also have a right to register their shares in any offering
of the Company stock (a "piggy-back" right). The amount of stock the new
stockholders 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.
F-10
<PAGE> 44
American Film Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
1. REORGANIZATION UNDER CHAPTER 11 (CONTINUED)
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 are convertible into common stock at the
same rate as the private placement to the accredited investors. On the Effective
Date, $300,000 of the bridge loan was converted into the Company's common stock
and the remaining $200,000 was repaid. The $500,000 bridge loan is included in
Class 4 - Secured Claims mentioned above.
FRESH START REPORTING
Under the provision of Statement of Position (SOP) 90-7, Financial Reporting by
Entities in Reorganization under the Bankruptcy Code, issued in November 1990 by
the American Institute of Certified Public Accountants, the Company has prepared
the accompanying consolidated pro forma balance sheet as of the Effective Date,
October 17, 1995 on the basis of "fresh start" reporting since the
reorganization value, as defined, was less than the total of all post-petition
liabilities and prepetition claims, and holders of voting shares immediately
before confirmation of the Plan received less than fifty percent of the voting
shares of the emerging entity. Under this concept, all assets and liabilities
are restated to reflect the reorganization value of the reorganized entity,
which approximates its fair value at the date of reorganization. In addition,
the accumulated deficit of the Company was eliminated and its capital structure
was recast in conformity with the Plan. As such, the accompanying consolidated
pro forma balance sheet as of October 17, 1995 represents that of a successor
company which, in effect, is a new entity with assets, liabilities and a capital
structure having carrying values not comparable with prior periods and with no
beginning retained earnings or deficit.
The Company estimated the fair value of the reorganized entity based on the
proceeds received from the private placement for 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 fair value as estimated by management after
considering replacement cost or potential sales value. Long-term debt consists
of prepetition liabilities and will be paid out subject to the terms of the
Plan.
F-11
<PAGE> 45
American Film Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
1. REORGANIZATION UNDER CHAPTER 11 (CONTINUED)
The effect of the Plan on the Company's consolidated balance sheet at October
17, 1995 (the Effective Date) is as follows:
<TABLE>
<CAPTION>
(1)
H.J MEYERS (2) REORGANIZED
PRIOR TO PRIVATE FRESH START BALANCE
ASSETS REORGANIZATION PLACEMENT ADJUSTMENTS SHEET
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Current assets:
Cash $ 115,721 $ 2,960,200 $ -- $ 3,075,921
Restricted cash 2,960,200 (2,960,200) -- --
Accounts receivable -- -- -- --
Other current assets 36,493 -- -- 36,493
------------ ----------- ------------ -----------
Total current assets 3,112,414 -- -- 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 -- 89,367 964,740
Reorganization value in excess of
identifiable assets -- -- 6,237,264 6,237,264
------------ ----------- ------------ -----------
Total assets $ 3,987,787 $ -- $ 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 -- -- 1,642,234 1,642,234
Liabilities subject to compromise 1,642,211 -- (1,642,211) --
Stockholders' equity (deficit):
Preferred stock 695 -- (695) --
Common stock 60,822 78,293 -- 139,115
Capital in excess of par value 13,526,767 3,181,907 (11,046,721) 5,661,953
Accumulated deficit (17,373,674) -- 17,373,674 --
Subscription payable 2,960,200 (2,960,200) -- --
------------ ----------- ------------ -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (825,190) 300,000 6,326,258 5,801,068
------------ ----------- ------------ -----------
$ 3,987,787 $ -- $ 6,326,631 $10,314,418
============ =========== ============ ===========
</TABLE>
F-12
<PAGE> 46
American Film Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
1. REORGANIZATION UNDER CHAPTER 11 (CONTINUED)
(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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICES
CONSOLIDATION
The consolidated financial statements include the accounts of Midtech de Mexico,
S.A., the Company's wholly-owned inactive Mexican subsidiary. All intercompany
transactions have been eliminated in consolidation.
REVENUE RECOGNITION
The Company's 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.
The Company recognizes revenue from coloring films on the completed contract
method. It is the Company's experience that the production cycle for coloring a
film is less than ninety days. Financial position and results of operations do
not vary significantly from those which would result using the
percentage-of-completion method. If the production cycle exceeds 90 days, the
Company recognizes revenue using the percentage of completion method, as
measured by the percentage of costs incurred to total estimated costs. A feature
film is considered complete upon acceptance by the customer.
The Company recognizes revenue on its distribution business on the accrual
basis. Based on the ratings received, revenue projections received from the
distributors and experience, the Company estimates the revenue to be recognized
in each quarter.
F-13
<PAGE> 47
American Film Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICES (CONTINUED)
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. The Film Library is being amortized over a three-year period. Leasehold
improvements are amortized over the life of the lease or the estimated useful
life of the assets.
PRODUCTION COSTS - EXCLUDING DEPRECIATION AND AMORTIZATION
Cost of sales includes direct salaries and related benefits of production
personnel and an allocation of overhead and materials costs used in the coloring
and animation processes.
LOSS PER SHARE
Loss per share has been calculated by dividing the net loss applicable to common
stock for the period by the weighted average number of common stock and common
stock equivalents outstanding for the periods indicated. For the years ended
June 30, 1997, 1996 and 1995, no exercise of stock equivalents was assumed
because 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. Under APB 25, for those Company
employee stock options issued with an exercise price not less than the market
price of the underlying stock on the date of grant, no compensation expense is
recognized.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
NEW ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share (FAS 128), which is
required to be adopted on December 31, 1997. At that time, the Company will be
F-14
<PAGE> 48
American Film Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICES (CONTINUED)
required to change the method currently used to compute the net income (loss)
per share and to restate all prior periods. Under the new requirements for
calculating primary new income (loss) per share, the dilutive effect of stock
options will be excluded. The impact of FAS 128 will not be material.
3. FILM LIBRARY
The Company's film library, consists of 11 films held for distribution and or
sale, and are stated as follows:
<TABLE>
<CAPTION>
JUNE 30,
1997 1996
-------- --------
<S> <C> <C>
Estimated fair value $450,000 $450,000
Less accumulated amortization 262,500 112,500
-------- --------
$187,500 $337,500
======== ========
</TABLE>
The related amortization of the Film Library for the year ended June 30, 1997,
the period ended June 30, 1996, (October 17, 1995 to June 30, 1996), and the
year ended June 30, 1995 was $150,000, $112,500 and $74,000, respectively.
4. EQUIPMENT AND SOFTWARE
Equipment and software consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
1997 1996
-------- --------
<S> <C> <C>
Assets:
Equipment $426,241 $430,000
Software 20,000 20,000
Leasehold improvements 64,740 64,740
-------- --------
510,981 514,740
Accumulated depreciation and amortization:
Equipment 147,666 64,500
Software 7,000 3,000
Leasehold improvements 5,561 2,781
-------- --------
160,227 70,281
-------- --------
$350,754 $444,459
======== ========
</TABLE>
F-15
<PAGE> 49
American Film Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
5. REORGANIZATION VALUE IN EXCESS OF IDENTIFIABLE ASSETS
In accordance with Statement of Position (SOP) 90-7, upon the Effective Date,
$6,326,258 of the reorganization value of the Company was not attributable to
identifiable tangible or intangible assets and accordingly has been classified
as an intangible asset. While the estimated reorganization value of the Company
has been allocated to specific asset categories pursuant to Fresh Start
Reporting, the allocation may be 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.
Since the Effective Date through June 30, 1997, the Company has not been able to
restart its operations. Due to the Company's financial position and uncertainty
in estimating future cash flows, at June 30, 1997, the Company wrote off the
reorganization value in excess of identifiable assets as recoverability of the
asset is uncertain.
6. DEBTOR IN POSSESSION SECURED FINANCING
On May 22, 1994, the Company obtained from the Bankruptcy Court a final order
granting the motion for debtor-in-possession secured financing with certain
stockholders as the lenders which permitted the Company to borrow up to $150,000
with interest at 4% per annum. A total of $122,300 was borrowed, of which
$110,000 was repaid in accordance with the Plan of Reorganization and the
remaining balance of $12,300 has been classified as current in the accompanying
consolidated financial statements.
7. NOTES PAYABLE
At June 30, 1996, liabilities are reported in accordance with SOP 90-7, which
requires that the balance sheet of an entity in Chapter 11 distinguish
prepetition liabilities subject to compromise from those that are not (such as
fully secured liabilities that are expected not to be compromised) and
postpetition liabilities. Liabilities that may be affected by the Plan should be
reported at the amounts expected to be allowed, even if they may be settled for
lesser amounts. As of the Effective Date, liabilities subject to compromise were
reclassified to long-term notes payable in accordance with the repayment terms
of the Plan of Reorganization.
F-16
<PAGE> 50
American Film Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
7. NOTES PAYABLE (CONTINUED)
Principal categories of notes payable at June 30, 1997 and 1996 consist of the
following:
<TABLE>
<CAPTION>
JUNE 30,
1997 1996
----------- ----------
<S> <C> <C>
Trade and other claims $ 1,346,487 $1,360,363
Accrued compensation 96,542 95,841
Billings on uncompleted contracts 178,200 178,200
Notes payable to shareholder, net of debt
discount of $65,709 34,291 --
----------- ----------
1,655,520 1,634,404
Less current portion of notes payable (405,307) --
----------- ----------
$ 1,250,213 $1,634,404
=========== ==========
</TABLE>
The amounts at June 30, 1996 have been converted to notes payable under the Plan
and bear interest at 7%. Accrued interest payable at June 30, 1997 and 1996 are
$114,179 and $82,532, respectively.
Included in notes payable above is a $100,000 loan from a shareholder. On
February 3, 1997, the Company signed a two-year convertible note payable secured
by the Company's assets and bearing interest at 9% per annum. The note converts,
at the option of the of the holder, into common stock of the Company at a rate
of $0.09 per share, a discount of $83,000 from the market price of common stock
on that date. The estimated value of this discounted conversion term has been
recorded to reduce the carrying value of the note and as capital in excess of
par. The debt discount will be amortized as a component of interest expense over
the term of the note. At June 30, 1997, $17,291 has been amortized to interest
expense.
Annual aggregate maturities of long-term debt for each of the five years
subsequent to June 30, 1997 are:
<TABLE>
<S> <C>
1998 $ 405,307
1999 505,307
2000 405,307
2001 405,308
----------
$1,721,229
==========
</TABLE>
F-17
<PAGE> 51
American Film Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
8. OPERATING LEASES
The Company leases its facilities under the terms of three operating leases
expiring at various dates through June 2001. Annual future minimum rental
commitments under noncancelable operating leases as of June 30, 1997 are as
follows:
<TABLE>
<S> <C>
1998 $207,389
1999 125,988
2000 66,933
2001 21,168
--------
$421,478
========
</TABLE>
Rent expense for 1997, 1996 (October 17, 1996 to June 30, 1997 and July 1, 1996
to October 16, 1996) and 1995 was $139,146, $98,093, $31,927 and $278,449,
respectively.
9. INCOME TAXES
At June 30, 1997, the Company had net operating loss carryforwards of
approximately $18,501,000 for federal income tax purposes and approximately
$9,439,000 for state income tax purposes. These carryforwards will begin
expiring in 1998 unless previously utilized. In addition, the Company has
federal research and development credits of approximately $136,000 which expire
in 2004 and 2008. The use of these carryforwards in any one year will be limited
as a result of changes in ownership, as defined by Section 382 and 383 of the
Internal Revenue Code, of the Company during fiscal 1993 and 1996.
As a result of these changes, the net operating losses incurred and tax credits
generated prior to the first date of change will be subject to an annual
limitation of approximately $6,500 and those generated prior to the second date
of change will be subject to an annual limitation of approximately $146,000. As
a result of these limitations, approximately $14,799,000 of federal and
$7,739,000 of state net operating losses, and $136,000 of credits will not be
utilized.
F-18
<PAGE> 52
American Film Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
9. INCOME TAXES (CONTINUED)
The significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
JUNE 30,
1997 1996
----------- -----------
<S> <C> <C>
Depreciation $ 45,000 $ --
Film library amortization 228,000 250,000
Reserves 42,000 105,000
Net operating loss carryforwards 1,353,000 584,000
Other 111,0000 202,000
----------- -----------
Total deferred tax assets 1,779,000 1,141,000
Valuation allowance for deferred tax assets (1,779,000) (1,141,000)
----------- -----------
Net deferred tax asset $ -- $ --
=========== ===========
</TABLE>
10. LAWSUIT SETTLEMENT
In January 1993, a suit was instituted against the Company by Joseph M. Taritero
in the Superior Court of the State of California for the County of Los Angeles
alleging breach of contract and fraud and seeking damages of $892,000. The
Company has settled with Mr. Taritero for an amount totaling $275,000. In
accordance with the terms of the Plan, $125,000 was paid on the Effective Date,
$75,000 was paid in April 1996 and the remaining $75,000 was paid in October
1997.
11. STOCKHOLDERS' EQUITY (DEFICIT)
STOCK OPTIONS
In accordance with the terms of the Plan, all prepetition stock options were
canceled. Subsequent to filing Chapter 11, the Board of Directors granted
options to purchase common stock totaling 51,700,000 shares as of June 30, 1997
and 35,700,000 shares as of June 30, 1996.
F-19
<PAGE> 53
American Film Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
11. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
The following table summarizes stock option activity for the two years ended
June 30, 1997:
<TABLE>
<CAPTION>
WEIGHTED -
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
---------- ----------
<S> <C> <C>
Outstanding at June 30, 1995 2,650,000 $.06
Granted 33,050,000 .10
---------- ----
Outstanding at June 30, 1996 35,700,000 .10
Granted 16,300,000 .11
Exercised (300,000) .12
---------- ----
Outstanding at June 30, 1997 51,700,000 $.10
==========
</TABLE>
The following is a table that summaries information concerning outstanding and
exercisable stock options at June 30, 1997:
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE WEIGHTED
AVERAGE REMAINING AVERAGE
RANGE OF NUMBER EXERCISE CONTRACTUAL NUMBER EXERCISE
EXERCISE OUTSTANDING PRICE LIFE EXERCISABLE PRICE
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
.01 - .20 51,500,000 $0.10 4.19 26,866,667 $0.11
.21 - .40 -- -- -- -- --
.41 - .62 200,000 0.62 4.25 200,000 0.62
----------------------------------------------------------------------
51,700,000 $0.10 4.03 27,066,667 $0.11
</TABLE>
In January 1996, the Company granted options pursuant to an employment agreement
with Gerald Wetzler, the Company's Chief Executive Officer. Under terms of the
employment agreement, in lieu of cash compensation, the Company granted an
option to purchase 10,000,000 shares of the Company's $0.002 par value common
stock at an exercise price of $0.12. The options become exercisable on a
cumulative at the rate of 1 and 2/3% per month. At June 30, 1997, 3,000,000
options were vested and exercisable. The options terminate on January 1, 2006.
Deferred compensation for the estimated fair value of the options granted of
$1,200,000 was recorded during 1996 and compensation expense of $240,000 and
$120,000 was recognized in 1997 and 1996, respectively, related to these
options.
F-20
<PAGE> 54
American Film Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
11. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
Also included in 1996, Mr. Wetzler purchased, for a fee of $200,000, an option
to acquire the Company's common stock, or in the alternative, preferred stock
convertible into common stock, subject to approval of the shareholders, which
occurred in February 1997. The option gives the right to purchase up to
20,000,000 shares of the Company's common stock at an exercise price of $0.12
per share. In accordance with APB 25, the difference between the exercise price
and fair value of $4,600,000 was recorded as compensation. The option expires on
June 17, 1998. In 1997, the Company received proceeds of $30,000 related to the
exercise price of 250,000 options at $.13 per share by Mr. Wetzler.
On January 3, 1997, May 12, 1997 and June 5, 1997, Mr. Wetzler purchased, for
$200,000, $160,000 and $60,000 respectively, options to purchase up to
10,000,000, 4,000,000 and 1,500,000 shares of the Company's common stock at
exercise prices of $0.09, $0.13 and $0.13, respectively. The options vest over
six months and expire on January 3, 2000, May 12, 2001 and May 12, 2001,
respectively. In accordance with APB 25, the difference between the exercise
price and the fair value on the date of grant of $3,298,000 is recorded as
deferred compensation, which is then amortized over the vesting period.
In the event the Company undergoes a reorganization, merger or other form of a
change in control, Mr. Wetzler can obligate the Company to redeem his options at
the average market price during the five business days immediately preceding the
change in control, less the option exercise price. Consequently, the amounts
paid to acquire the options are reported as a long-term liability ("Stock option
subscriptions subject to repurchase") in the accompanying balance sheets.
On February 9, 1996, the Company granted an option to purchase 2,000,000 shares
of the Company's $0.002 par value common stock at an exercise price of $0.01 to
Larry King, a member of the Board of Directors. The options vest and become
exercisable upon consummation of a financing arrangement within a two-year
period from the date of grant. At June 30, 1997, no options were vested or
exercisable. The options terminate on February 9,1998. Upon consummation of a
financing arrangement in accordance with the terms of the agreement, the fair
value of the option at the grant date ($220,000) will be treated as a financing
cost.
Also in 1996, the Company granted an option to purchase 1.0 million shares of
common stock to Larry King at an exercise price of $0.18 per share. One-third of
the options vest immediately and the rest annually over two years and expire on
February 23, 2006.
F-21
<PAGE> 55
American Film Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
11. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
In accordance with APB 25, of the 800,000 options granted in 1997, the Company
recorded $161,000 of compensation expense. The options were granted at exercise
prices ranging from $0.05 per share to $0.62 per share (weighted-average
exercise price of $0.23 per share). In accordance with the terms of the related
option agreements, all options are fully vested at June 30, 1997 and are
exercisable for a period of two years.
Pro forma information regarding net loss and net loss per share is required by
Statement 123, and has been determined as if the Company has accounted for its
employee stock options and employee stock purchase plan shares under the fair
value method of that statement. The fair value of these options or employee
stock purchase rights was estimated at the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions for 1997
and 1996, respectively; risk-free interest rates of 6.0%; dividend yield of 0%;
volatility factors of the expected market price of the Company's common stock of
75% and a weighted average life of the options of 2.0 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over their respective vesting periods. The effects of
applying Statement 123 for pro forma disclosure purposes are not likely to be
representative of the effects on pro forma net income in future years because
they do not take into consideration pro forma compensation expense related to
grants made prior to 1996. The Company's pro forma information follows:
<TABLE>
<CAPTION>
JUNE 30
----------------------------
1997 1996
----------------------------
<S> <C> <C>
Pro forma net income $(16,005,610) $(1,389,113)
Pro forma net income per share $0.22 $0.02
Weighted-average fair value of
options ranted during the year $0.24 $0.20
</TABLE>
F-22
<PAGE> 56
American Film Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
F-23
<PAGE> 57
American Film Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
11. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
POST-PETITION EMPLOYEE STOCK GRANTS
As inducement and compensation to certain key employees, (who were first put on
reduced work and compensation schedules and later put on administrative leave),
the Company agreed to issue common stock as compensation to discourage these key
employees from seeking other employment. The agreement which became effective
with the approval of the Plan, called for an initial grant of 10,000 shares per
employee, plus an additional 2,000 shares per employee per week up to a maximum
of 36 weeks. These shares vested immediately and will be issued only if the
employee is asked to return to the Company and does so. If the employee is not
asked to return to the Company, the shares will be subsequently issued to the
employee. As of June 30, 1997, 742,000 shares have been set aside, of which
164,000 of these shares were issued as of the Effective Date of the Plan.
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
As discussed above, the Company recorded compensation expense (at June 30, 1997)
in accordance with APB 25 on options granted to the Company's CEO. The
compensation expense should have been recorded on the measurement date which
would change the Company's results of operations reported for the three and nine
months ended March 31, 1997 as follows:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1997 1997
--------------------------------
<S> <C> <C>
Net loss:
As reported $ (556,706) $(1,534,124)
As restated (6,456,706) (7,434,124)
Net loss per share:
As reported $ (0.01) $ (0.02)
As restated $ (0.09) $ (0.10)
</TABLE>
F-24
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
AMERICAN FILM PRODUCTIONS, INC.
1. The name of the corporation is AMERICAN FILM PRODUCTIONS, INC.
2. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
3. The nature of the business or purposes to be conducted or promoted
is: Motion picture and television productions and to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
4. The total number of shares of stock which the corporation shall
have authority to issue is Twenty-Five Million Twenty-Five Thousand (25,025,000)
of which stock Twenty-Five Million (25,000,000) shares of the par value of One
Mill ($.001) each, amounting in the aggregate to Twenty-Five Thousand Dollars
($25,000) shall be common stock and of which Twenty-Five Thousand (25,000)
shares of the par value of One Hundred Dollars ($100.00) each, amounting in the
aggregate to Two Million Five Hundred Thousand Dollars ($2,500,000.00) shall be
preferred stock.
<PAGE> 2
The designation and the powers, preferences and rights, and
qualifications, limitations or restrictions of the preferred stock shall be
fixed by a resolution or resolutions of the Board of Directors.
5. The name and mailing address of each incorporator is as follows:
NAME MAILING ADDRESS
D. A. Hampton Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
S. M. Fraticelli Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
S. J. Eppard Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
6. The corporation is to have perpetual existence.
7. In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized:
To make, alter or repeal the bylaws of the corporation.
8. Elections or directors need not be by written ballot unless the
bylaws of the corporation shall so provide.
Meetings of stockholders may be held within or without the State of
Delaware, as the bylaws may provide. The books of the corporation may be kept
(subject to any provision contained int he statutes) outside the State of
Delaware at such place of places as may be designated from time to time by the
board of directors or in the bylaws of the corporation.
2
<PAGE> 3
9. The corporation reserves the right to amend, alter, change or
repeal any provision contained in this certificate of incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to his reservation.
WE, THE UNDERSIGNED, being each of the incorporators hereinbefore
named, for the purpose of forming a corporation pursuant to the General
Corporation Law of the State of Delaware, do make this certificate, hereby
declaring and certifying that this is our act and deed and the facts herein
stated are true, and accordingly have hereunto set our hands this 2nd day of
July, 1985.
/s/ D.A. HAMPTON
-------------------------------------------------
D. A. Hampton
/s/ S.M. FRATICELLI
-------------------------------------------------
S. M. Fraticelli
/s/ S.J. EPPARD
-------------------------------------------------
S. J. Eppard
3
<PAGE> 4
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
American Film Productions, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, at a meeting
duly held, adopted a resolution proposing and declaring advisable the following
amendment to the Certificate of Incorporation of said corporation:
RESOLVED, that the Certificate of Incorporation of American Film
Productions, Inc. be amended by changing the Fourth Article thereof
so that, as amended, said Article shall be and read as follows:
"The total number of shares of stock which the corporation shall have
authority to issue is Twenty-Six Million (26,000,000) of which stock
Twenty-Five Million shares of the par value of One Mill ($.001) each
shall be common stock and of which One Million (1,000,000) shares of
the par value of One Mill ($.001) each shall be preferred stock."
SECOND: That in lieu of a meeting and vote of stockholders, the
stockholders have given unanimous written consent to said amendment in
accordance with the provisions of section 228 of the General Corporation Law of
the State of Delaware.
THIRD: That the aforesaid amendment was duly adopted in accordance
with the applicable provisions of sections 242 and 228 of the General
Corporation Law of the State of Delaware.
<PAGE> 5
IN WITNESS WHEREOF, said American Film Productions, Inc. has caused
this certificate to be signed by George R. Jensen, Chairman of the Board of
Directors and attested by Arthur P. Hartel, Jr., its Secretary, this 30th day of
September, 1985.
AMERICAN FILM PRODUCTIONS, INC.
By: /s/ GEORGE R. JENSEN
---------------------------------------------
Chairman of the Board of Directors
ATTEST:
By: /s/ ARTHUR P. HARTEL
-----------------------------
Secretary
2
<PAGE> 6
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
American Film Productions, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, at a meeting
duly held, adopted a resolution proposing and declaring advisable the following
amendment to the Certificate of Incorporation of said corporation:
RESOLVED, that the Certificate of Incorporation of American Film
Productions, Inc. be amended by changing the First Article thereof so
that, as amended, said Article shall be and read as follows:
The name of the corporation is:
"AMERICAN FILM TECHNOLOGIES, INC."
SECOND: That in lieu of a meeting and vote of stockholders, the
stockholders have given written consent to said amendment in accordance with the
provisions of section 228 of the General Corporation Law of the State of
Delaware.
THIRD: That the aforesaid amendment was duly adopted in accordance
with the applicable provisions of section 242 and 228 of the General Corporation
Law of the State of Delaware.
<PAGE> 7
IN WITNESS WHEREOF, said American Film Productions, Inc. has caused
this certificate to be signed by George R. Jensen, Chairman of the Board of
Directors and attested by Arthur P. Hartel, Jr., its Secretary, this 25th day of
March, 1987.
AMERICAN FILM PRODUCTIONS, INC.
By: /s/ GEORGE R. JENSEN
--------------------------------------------
Chairman of the Board of Directors
ATTEST:
By: /s/ ARTHUR P. HARTEL
------------------------------
Secretary
2
<PAGE> 8
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
American Film Technologies, Inc. a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, at a meeting
duly held, adopted a resolution proposing and declaring advisable the following
amendment to the Certificate of Incorporation of said corporation:
RESOLVED, that the Certificate of Incorporation of American Film
Productions, Inc. be amended by changing the Fourth Article thereof
so that, as amended, said Article shall be and read as follows:
4. The total number of shares of stock which the corporation shall have
authority to issue is Sixteen Million (16,000,000) of which stock Fifteen
Million shares of the par value of Two Mills ($.002) each shall be common stock
and of which One Million (1,000,000) shares of the par value of One Mill ($.001)
each shall be preferred stock.
SECOND: That at a meeting of stockholders held March 1, 1990, the
stockholders approved said amendment in accordance with the provisions of
section 228 of the General Corporation Law of the State of Delaware.
THIRD: That the aforesaid amendment was duly adopted in accordance
with the applicable provisions of sections 242 and 228 of the General
Corporation Law of the State of Delaware.
<PAGE> 9
IN WITNESS WHEREOF, said American Film Technologies, Inc. has caused
this certificate to be signed by George R. Jensen, Chairman of the Board of
Directors and attested by Arthur P. Hartel, Jr., its Secretary, this 12th day of
March, 1990.
AMERICAN FILM TECHNOLOGIES, INC.
By: /s/ GEORGE R. JENSEN
--------------------------------------------
Chairman of the Board of
Directors
ATTEST:
By: /s/ ARTHUR P. HARTEL, JR.
-------------------------------
Secretary
2
<PAGE> 10
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
American Film Technologies, Inc. a corporation organized and existing
under and by virtue or the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, at a meeting
duly held, adopted resolutions proposing and declaring advisable the following
amendment to the Certificate of Incorporation of said corporation:
RESOLVED, that the Certificate of Incorporation of the corporation be
amended by changing the fourth paragraph thereof so that, as amended,
said fourth paragraph shall read as follows:
4. The total number of shares of stock which the corporation shall
have authority to issue is Sixteen Million (16,000,000) of which
stock Fifteen Million shares of the par value of Two Mills ($.002)
each shall be common stock and of which One Million (1,000,000)
shares of the par value of One Mill ($.001) each shall be preferred
stock.
The designations and the powers, preferences and rights, including
voting rights, if any, and the qualifications, limitations or
restrictions of the preferred stock shall be fixed by a resolution or
resolutions of the Board of Directors of the corporation.
Upon the filing in the Office of the Secretary of State of Delaware
of this Certificate of Amendment, each two issued and outstanding
shares of common stock shall thereby and thereupon be combined into
one share of common stock. Each certificate that theretofore
represented shares of common stock prior to the filing of this
Certificate of Amendment shall thereafter represent the number of
shares of common stock into which the shares of common stock
represented by such Certificate shall be combined. The Corporation
shall not issue fractional shares as a result of this combination but
shall pay in cash the fair value of fractional interests as permitted
by Section 155 of the General Corporation Law of the State of
Delaware.
<PAGE> 11
SECOND: That at a meeting of stockholders held March 1, 1990, the
stockholders approved said amendment in accordance with the provisions of
section 242 of the General Corporation Law of the State of Delaware.
THIRD: That the aforesaid amendment was duly adopted in accordance
with the applicable provisions of section 242 of the General Corporation Law of
the State of Delaware.
FOURTH: That the aforesaid amendment shall become effective at 5:00
pm Eastern Standard Time on Friday, March 16, 1990.
IN WITNESS WHEREOF, said American Film Technologies, Inc. has caused
this Certificate to be signed by George R. Jensen, Chairman of the Board of
Directors and attested by Arthur P. Hartel, Jr., its Secretary, this 14th day of
March, 1990.
AMERICAN FILM TECHNOLOGIES, INC.
By: /s/ GEORGE R. JENSEN
--------------------------------------------
Chairman of the Board of Directors
ATTEST:
By: /s/ ARTHUR P. HARTEL
-------------------------------
Secretary
2
<PAGE> 12
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
American Film Technologies, Inc. a corporation organized and existing
under and by virtue or the General Corporation Law of the state of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, at meetings
duly held, adopted resolutions proposing and declaring advisable the following
amendments to the Certificate of Incorporation of said corporation:
RESOLVED, that the Certificate of Incorporation of the corporation be
amended by changing Article Four thereof so that, as amended, said
Article Four shall read as follows:
"4. The total number of shares of stock which the corporation shall
have authority to issue is Twenty-six Million (26,000,000) of which
stock Twenty-Five Million (25,000,000) shares of the par value of Two
Mills ($.002) each shall be common stock and of which One Million
(1,000,000) shares of the par value of One Mill ($.001) each shall be
preferred stock.
The designations and the powers, preferences and rights, including
voting rights, if any, and the qualifications, limitations or
restrictions of the preferred stock shall be fixed by a resolution or
resolutions of the Board of Directors of the corporation."
RESOLVED, that the Certificate of Incorporation of the Corporation be
amended by adding thereto Article Ten which shall read as follows:
"10. A director of this corporation shall not be personally liable to
the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director; provided, however, that this shall
not exempt a director from liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law, (iii) under
Section 174 of the General Corporation Law of the
1
<PAGE> 13
state of Delaware, or (iv) for any transaction from which the
director derived an improper personal benefit."
SECOND: That at a meeting of stockholders held March 11, 1993, the
stockholders approved said amendments in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
THIRD: That the aforesaid amendments were duly adopted in accordance
with the applicable provisions of Section 242 of the General Corporation Law of
the State of Delaware.
IN WITNESS WHEREOF, said American Film Technologies, Inc. has caused
this Certificate to be signed by Arthur P. Hartel, Jr., as President and Chief
Executive Officer, and attested by G. Jay Johnson, its Secretary.
AMERICAN FILM TECHNOLOGIES, INC.
By: /s/ ARTHUR P. HARTEL
--------------------------------------------
Arthur P. Hartel, Jr.
President and Chief Executive Officer
ATTEST:
By: /s/ G. JAY JOHNSON
-------------------------------
Secretary
2
<PAGE> 14
CERTIFICATE OF THE DESIGNATIONS,
POWERS, PREFERENCES AND RIGHTS OF
SERIES A, B, C AND D VOTING
CONVERTIBLE PREFERRED STOCK OF
AMERICAN FILM TECHNOLOGIES, INC. AND
THE QUALIFICATIONS, LIMITATIONS OR
RESTRICTIONS THEREOF WHICH HAVE NOT
BEEN SET FORTH IN THE CERTIFICATE OF
INCORPORATION.
-------------------------
(PURSUANT TO SECTION 151
OF THE GENERAL CORPORATION
LAW OF THE STATE OF DELAWARE)
-------------------------
We, the undersigned, Arthur P. Hartel, Jr. and G. Jay Johnson,
President and Secretary, respectively, of American Film Technologies, Inc. a
corporation organized and existing under the laws of the State of Delaware, do
hereby certify that the Board of Directors have duly adopted the following
resolutions:
RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors of the Corporation by the provisions of its
Certificate of Incorporation, this Board of Directors hereby creates a series of
Preferred Stock of the Corporation to consist of One Million (1,000,000) shares
of Preferred Stock which the Corporation is now authorized to issue, and that
the Board of Directors hereby fixes the designations, powers, preferences and
relative, participating, optional or other special rights and the
qualifications, limitations or restrictions of the shares of such series to the
extent the same are not stated and expressed in the Certificate of Incorporation
of the Corporation, as follows:
(1) Designation. One Million (1,000,000) authorized shares of
Preferred Stock, $.001 par value, none of which has been issued, shall be issued
in series to be designated as follows, each to have the respective number of
authorized shares:
Series A Voting Convertible Preferred Stock, $.001 par value (the
"Series A Preferred Stock") consisting of 240,000 shares; and
Series B Voting Convertible Preferred Stock, $.001 par value (the
"Series B Preferred Stock") consisting of 400,000 shares; and
Series C Voting Convertible Preferred Stock, $.001 par value (the
"Series C Preferred Stock") consisting of 200,000 shares; and
Series D Voting Convertible Preferred Stock, $.001 par value (the
"Series D Preferred Stock") consisting of 160,000 shares.
<PAGE> 15
(2) Dividends and Distributions. The holders of the Preferred Stock
shall not be entitled to receive any dividends.
(3) Liquidation and Dissolution. In the event of any liquidation,
dissolution or winding up of the affairs of the corporation, whether voluntary
or involuntary, then out of the assets of the Corporation available for
distribution to the stockholders, before any distribution or payment to the
holders of the common stock, or any other class or series of the Corporation's
capital stock, the holders of Preferred Stock shall be entitled to be paid the
sum set forth below per each series of Preferred Stock:
<TABLE>
<CAPTION>
Series Liquidation Payment Per Series
------ ------------------------------
<S> <C>
A $240
B $400
C $200
D $160
</TABLE>
If the assets of the Corporation available for distribution to its stockholders
shall be insufficient to permit payment in full to the holders of the Preferred
Stock of the preferential sums which all such holders are entitled to receive,
then all of the assets available for distribution to the stockholders shall be
distributed among and paid to the holders of the Preferred Stock ratably in
proportion to the respective preferential amounts that would be payable per
share if such assets were sufficient to permit payment in full. The
consolidation or merger of the Corporation with or into any other corporation or
corporations or the sale or transfer of all or substantially all of the assets
of the Corporations, shall not be deemed a liquidation, dissolution or winding
up of the affairs of the Corporation within the meaning of this Paragraph (3).
(4) Voting Rights. Except as expressly provided by law, the holders
of shares of Preferred Stock together with the holders of shares of Common
Stock, all voting as one class, shall possess all voting power for the election
of directors and for all other purposes. Each holder of shares of Preferred
Stock shall be entitled to fifteen (15) votes per share of Preferred Stock
registered in such holders name, provided, however, that if all outstanding
shares of Series A Preferred Stock and Series B Preferred Stock have not been
converted to Common Stock by the Series B conversion Deadline Date as set forth
in paragraph 5 hereof, then the Preferred Stock of all Series shall thereafter
have no voting rights.
(5) Conversion.
(a) Each share of Series A Preferred Stock shall be convertible
at the option of the holder into shares of Common Stock at the rate of fifty
(50) shares of the Corporation's Common Stock for each share of Series A
Preferred Stock at any time up to and including October 31, 1993 (such date for
conversion of the Series A Preferred Shares being referred to as the Series A
Conversion Deadline Date) provided the holder shall pay or caused to be paid
into the capital of the Corporations an additional Fifty Cents ($0.50) for each
share of Series A Preferred Stock being converted.
2
<PAGE> 16
(b) Each share of Series B Preferred Stock shall be convertible
at the option of the holder into shares of Common Stock at the rate of fifty
(50) shares of the Corporation's Common Stock for each share of Series B
Preferred Stock at any time up to and including 120 business days after the
Series A Conversion Deadline Date (such date for conversion of the series B
Preferred Shares being referred to as the Series B Conversion Deadline Date)
provided the holder shall pay or caused to be paid into the capital of the
Corporation an additional Eight Dollars ($8.00) for each share of Series B
Preferred Stock being converted.
(c) Each share of Series C Preferred Stock shall be convertible
at the option of the holder into shares of Common Stock at the rate of fifty
(50) shares of the Corporation's Common Stock for each share of Series C
Preferred Stock at any time up to and including 190 business days after the
Series B Conversion Deadline Date (such date for conversion of the Series C
Preferred Shares being referred to as the Series C Conversion Deadline Date),
provided the holder shall pay or cause to be paid into the capital of the
Corporation an additional Eighty Dollars ($80.00) for each share of series C
Preferred Stock being converted.
(d) Each share of Series D preferred Stock shall be convertible
at the option of the holder into shares of Common Stock at the rate of fifty
(50) shares of the Corporation's Common Stock for each share of Series D
Preferred Stock at any time up to and including 210 days after the Series C
Conversion Deadline Date, provided the holder shall pay or cause to be paid into
the capital of the Corporation an additional One Hundred Eighty Dollars ($180)
for each share of Series D Preferred Stock being converted.
(e) In the event that the corporation shall at any time
subdivide its outstanding shares of Common Stock into a greater number of shares
(whether by stock dividend, stock split or otherwise), the conversion rate in
effect hereunder to such subdivision shall be proportionately reduced, and
conversely, in case the outstanding shares of Common Stock of the Corporation
shall be combined into a smaller number of shares, the conversion rate in effect
immediately prior to such combination shall be proportionately increased.
(f) If any capital reorganization or reclassification of the
capital stock of the Corporation, or consolidation or merger of the Corporation
with another corporation, or the sale of all or substantially all of its assets
to another corporation shall be affected, then as a condition of such
reorganization, reclassification, consolidation, merger or sale, lawful,
equitable and adequate provision shall be made whereby the holders of the
Preferred Stock shall thereafter have the right, upon conversion hereunder, to
receive upon the basis and upon the terms and conditions specified herein and in
lieu of the Common Stock theretofore receivable upon such conversion, such
shares of stock, securities or assets as may be issued or payable with respect
to or in exchange for a number of outstanding shares with respect to or in
exchange for a number of shares of Common Stock theretofore receivable upon such
conversion had such reorganization, reclassification, consolidation, merger or
sale not taken p lace, and in any such case appropriate provision shall be made
with respect to the
3
<PAGE> 17
rights and interests of the holders of the Preferred Stock to the end that the
provisions hereof (including, without limitation, provisions for adjustment of
the conversion rate and of the number of shares issuable upon conversion of the
Preferred Stock) shall thereafter be applicable, as nearly as may be, in
relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise hereof.
(g) The Corporation agrees that during the period within which
the Preferred Stock may be converted, the Corporation will at all times have
authorized and in reserve, and will keep available, solely for delivery upon the
conversion of Preferred Stock, shares of the Common Stock and other securities
as from time to time shall be receivable upon the conversion of the Preferred
Stock free and clear of all restrictions on sale or transfer and free and clear
of all preemptive rights. The Corporation agrees that each share of Common Stock
issued upon conversion of Preferred Stock shall, at the time of such issuance,
be deemed to be validly issued and outstanding, fully paid and non-assessable.
Upon request at any time or from time to time made by the holders of a majority
of shares of Preferred Stock issued and outstanding, the Corporation shall duly
recommend to its stockholders, at a meeting duly called for such purpose or by
written consent of holders of the necessary number of voting securities of the
Corporation, an Amendment to its Certificate of Incorporation to increase its
authorized Common Stock, par value $.001 per share, to such number which is
sufficient to allow the conversion of the Preferred Stock in its entirety.
(h) In each case of an adjustment or readjustment of the
conversion rate, the Corporation will furnish each holder of Series A Preferred
Stock with a certificate showing such adjustment or readjustment and stating in
detail the facts upon which such adjustment or readjustment is based.
(i) Upon the conversion as provided in Paragraph 5 above, a
holder of Preferred Stock shall surrender the certificate(s) representing the
shares being converted to the Corporation at its principal office along with
written evidence of payment of the required additional capital as indicated in
Paragraph 5 above. The holder shall also provide the name(s) (with addres(es))
in which the certificate(s) for shares of Common Stock issuable upon such
conversion shall be issued. The certificate(s) for shares of Preferred Stock
surrendered for conversion shall be accompanied by proper assignment thereof to
the Corporation or in blank. The date of surrender of the certificate shall be
the "Conversion Date." As promptly as practicable after the Conversion Date, the
corporation shall issue and shall deliver to the holder of the shares of
Preferred Stock being converted certificate(s) as he may request for the number
of shares of Common Stock issuable upon the conversion of such shares of
Preferred Stock in accordance with the provisions of this Paragraph (5). Such
conversion shall be deemed to have been effected as of the close of business on
the Conversion Date, and at such time the rights of the holder as holder of the
converted shares of Preferred Stock shall cease and the person(s) in whose
name(s) any certificate(s) for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become the holder(s) of record of the
shares of Common Stock represented thereby.
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(j) No fractional shares of Common Stock shall be issued upon
conversion of Preferred Stock. Instead of any fractional shares of Common Stock
which would otherwise be issuable upon conversion of Preferred Stock, the
Corporation shall issue the number of whole shares determined by rounding any
fractional share to the nearest whole number of shares.
(k) The period for exercise of any rights of conversion as set
forth above shall be extended by the duration of any voluntary or involuntary
proceeding under any Federal or state bankruptcy, insolvency or similar laws in
which the Company or creditors of the Company may seek relief or enforcement of
their rights.
(6) No Redemption Rights. No holder of any shares of the Preferred
Stock shall be subject to redemption of the Preferred Stock.
(7) No Preemptive Rights. No holder of any shares of Preferred Stock
shall have any preemptive right to purchase or subscribe to any issue of the
same or any other stock of the Corporation.
(8) Restriction on Issuance of Senior Stock. As long as any shares of
Preferred Stock remain outstanding, the Corporation shall not, without the vote
or written consent of holders of at least a majority of the then outstanding
shares of the Preferred Stock, authorize or issue, or obligate itself to issue,
any class of equity security which is senior or equal in ranking to the
Preferred Stock.
IN WITNESS WHEREOF, the undersigned, Arthur P. Hartel, Jr. has made
this Certificate under the seal of said American Film Technologies, Inc.
attested by G. Jay Johnson, its Secretary, and has signed the same as President
of said American film Technologies, Inc. this 30th day of September, 1993.
By: /s/ ARTHUR P. HARTEL
--------------------------------------------
Arthur P. Hartel, Jr.
President
Attest:
By: /s/ G. JAY JOHSON
-------------------------------
G. Jay Johnson, Secretary
CERTIFICATE OF AMENDMENT
OF
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<PAGE> 19
CERTIFICATE OF INCORPORATION
American Film Technologies, Inc. a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, at a meeting
duly held, adopted resolutions proposing and declaring advisable the following
amendment to the Certificate of Incorporation of said corporation:
RESOLVED, that the Certificate of Incorporation of the corporation be
amended by changing Article Four thereof so that, as amended, said
Article Four shall read as follows:
"4. The total number of shares of stock which the corporation shall
have authority to issue is One Hundred Million (100,000,000) of which
Ninety Million (90,000,000) shares of the par value of Two Mills
($.002) each shall be Common Stock and of which Ten Million
(10,000,000) shares of the par value of One Mill ($.001) each shall
be Preferred Stock.
The designations and the powers, preferences and rights, including
voting rights, if any, and the qualifications, limitations or
restrictions of the Preferred Stock shall be fixed by a resolution or
resolutions of the Board of Directors of the corporation."
SECOND: That the aforesaid amendment was duly adopted in accordance
with the applicable provisions of Section 228 of the General Corporation Law of
the State of Delaware by written consent signed by the holder of outstanding
stock having not less than the minimum number of votes that would be necessary
to adopt such amendment at a meeting at which all shares entitled to vote
thereon were present and voted.
THIRD: That written notice of such action has been given as provided
in Section 228 of the said General Corporation Law.
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<PAGE> 20
IN WITNESS WHEREOF, said American Film Technologies, Inc. has caused
this Certificate to be signed by Gerald M. Wetzler, its Chairman and Chief
Executive Officer, and attested by Lee Weisel, its Secretary this 10th day of
January, 1994.
AMERICAN FILM TECHNOLOGIES, INC.
By: /s/ Gerald M. Wetzler
--------------------------------------------
Gerald M. Wetzler
Chairman and Chief Executive
Officer
ATTEST:
By: /s/ LEE WEISEL
-------------------------------
LEE WEISEL
Secretary
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<PAGE> 21
AMERICAN FILM TECHNOLOGIES, INC.
Action by Consent in Writing
January 10, 1994
The undersigned, as the holder of a majority of the outstanding
shares of each class of stock of American Film Technologies, Inc., a Delaware
corporation, pursuant to the authority contained in Section 228 of the General
Corporation Law of the State of Delaware, does hereby consent to the following
action of this corporation:
RESOLVED, that the Certificate of Incorporation of the corporation be
amended by changing Article Four thereof so that, as amended, said
Article Four shall read as follows:
"4. The total number of shares of stock which the corporation shall
have authority to issue is One Hundred Million (100,000,000) of which
Ninety Million (90,000,000) shares of the par value of Two Mills
($.002) each shall be Common Stock and of which Ten Million
(10,000,000) shares of the par value of One Mill ($.001) each shall
be Preferred Stock.
The designations and the powers, preferences and rights, including
voting rights, if any, and the qualifications, limitations or
restrictions of the Preferred Stock shall be fixed by a resolution or
resolutions of the Board of Directors of the corporation."
January 10, 1994
/s/ GERALD M. WETZLER
-------------------------------------------------
Gerald M. Wetzler
Holder of a Majority of the Outstanding Shares of
Each Class
<PAGE> 22
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
AMERICAN FILM TECHNOLOGIES, INC.
PURSUANT TO SECTION 242
American Film Technologies, Inc. a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
does hereby certify as follows:
FIRST: That the Board of Directors of said corporation, at a meeting
duly held, adopted resolutions proposing and declaring advisable the following
amendment to the Certificate of Incorporation of said corporation:
RESOLVED, that the Certificate of Incorporation of the corporation be
amended by changing Article Four thereof so that, as amended, said
Article Four shall read as follows:
"4. The total number of shares of stock which the corporation shall
have authority to issue is Two Hundred and Fifty Million
(250,000,000) of which Two Hundred and Twenty Five Million
(225,000,000) shares of the par value of Two Mills ($.002) each shall
be Common Stock and of which Twenty Five Million (25,000,000) shares
of the par value of One Mill ($.001) each shall be Preferred Stock.
The designations and the powers, preferences and rights, including
voting rights, if any, and the qualifications, limitations or
restrictions of the Preferred Stock shall be fixed by a resolution or
resolutions of the Board of Directors of the corporation."
SECOND: That the aforesaid amendment was duly adopted in accordance
with the applicable provisions of Section 242 of the General Corporation Law of
the State of Delaware at a meeting of the Board of Directors held on November
20, 1996, and at a meeting of the stockholders held on February 26, 1997, by a
majority vote of the outstanding stock of each class entitled to vote thereon as
a class.
<PAGE> 23
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by John Karl, its Secretary, this 26th day of February,
1997.
AMERICAN FILM TECHNOLOGIES, INC.
By: /s/ JOHN KARL
--------------------------------------------
John Karl, Secretary
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<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
AMERICAN FILM TECHNOLOGIES, INC.
ARTICLE I. OFFICES
Section 1. Registered Office. The registered office shall be at 15 E. North
Street, City of Dover, State of Delaware, and the name of the registered agent
in charge thereof shall be The Corporation Trust Company.
Section 2. Principal Office. The principal office of the corporation is hereby
fixed at 4105 Sorrento Valley Boulevard, San Diego, California 92121. The Board
of Directors (herein called the "Board") is hereby granted full power and
authority to change said principal office from one location to another. Any such
change shall be noted on the bylaws opposite this Section, or this Section may
be amended to state the new location.
Section 3. Other Offices. The corporation may also have offices at such other
places both within and without the State of Delaware as the Board may from time
to time determine or as the business of the corporation may require.
ARTICLE II. STOCKHOLDERS
Section 1. Place of Meetings. Meetings of stockholders shall be held at such
places, within or without the State of Delaware, as may be designated from time
to time by the person or persons calling the respective meeting and specified in
the respective notices or waivers of notice thereof or, if not so designated, at
the principal office of the corporation.
Section 2. Annual Meetings. Annual meetings of stockholders for the purpose of
electing directors and for the transaction of such proper business as may come
before such meetings shall be held at such time and date as the Board shall
determine by resolution and state in the notice of the meeting.
Section 3. Special Meetings. Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called at any time by the Board, the
Chairman of the Board, the President, or by the holders of shares entitled to
cast not less than thirty-five percent (35%) of the votes at such meeting. Upon
request in writing to the Chairman of the Board, the President, any Vice
President or to the Secretary by any person (other than the Board) entitled to
call a special meeting of the stockholders, the officer forthwith shall cause
notice to be given to the stockholders entitled to
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vote that a meeting will be held at a time requested by the person or persons
calling the meeting, not less than 35 nor more than 60 days after receipt of the
request. If the notice is not given within 20 days after receipt of the request,
the persons entitled to call the meeting may give the notice. Such request shall
state the purpose or purposes of the proposed meeting. Business transacted at
any special meeting of stockholders shall be limited to the purposes stated in
the notice.
Section 4. Notice of Meeting. Except as otherwise required by law, written
notice of each meeting of the stockholders, whether annual or special, shall be
given to each stockholder entitled to vote at such meeting not less than ten nor
more than sixty days before the date of the meeting. Such notice shall state the
place, date, and hour of the meeting and (a) in the case of a special meeting,
the general nature of the business to be transacted, and no other business may
be transacted, or (b) in the case of the annual meeting, those matters which the
Board, at the time of the mailing of the notice, intends to present for action
by the stockholders, but subject to the provisions of applicable law, any proper
matter may be presented at the meeting for such action. The notice of any
meeting at which directors are to be elected shall include the names of nominees
intended at the time of the notice to be presented by management for election.
Notice of a meeting of the stockholders shall be given either personally
or by first-class mail, or by other means of written communication, addressed to
the stockholder at the address of such stockholder appearing on the records of
the corporation or given by the stockholder to the corporation for the purpose
of notice. Notice by mail shall be deemed to have been given at the time a
written notice is deposited in the United States mails, postage prepaid. Any
other written notice shall be deemed to have been given at the time it is
personally delivered to the recipient or is delivered to a common carrier for
transmission, or actually transmitted by the person giving the notice by
electronic means, to the recipient.
Section 5. Quorum. The holders of a majority of the shares of stock entitled to
vote at any meeting of the stockholders of the corporation, present in person or
represented by proxy, shall constitute a quorum for the transaction of business
thereat or any adjournment thereof, except as otherwise provided by statute or
by the Certificate of Incorporation. If, however, such quorum shall not be
present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or represented by proxy, shall have
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. If the adjournment is for more than thirty days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting.
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<PAGE> 3
Section 6. Voting.
(a) The stockholders entitled to notice of any meeting or to vote at any
such meeting shall be only persons in whose name shares stand on the stock
records of the corporation on the record date determined in accordance with
Section 7 of this Article.
(b) Shares of its own stock belonging to the corporation or to another
corporation, if a majority of the shares entitled to vote in the election of
directors in such other corporation is held, directly or indirectly, by the
corporation, shall neither be entitled to vote nor be counted for quorum
purposes. Persons holding stock of the corporation in a fiduciary capacity shall
be entitled to vote such stock. Persons whose stock is pledged shall be entitled
to vote, unless in the transfer by the pledgor on the books of the corporation
the pledgor shall have expressly empowered the pledgee to vote thereon, in which
case only the pledgee, or the proxy of the pledgee, may represent such stock and
vote thereon. Stock having voting power standing of record in the names of two
or more persons, whether fiduciaries, members of a partnership, joint tenants in
common, tenants by entirety or otherwise, or with respect to which two or more
persons have the same fiduciary relationship, shall be voted in accordance with
the provisions of the General Corporation Law of the State of Delaware.
(c) Any such voting rights may be exercised by the stockholder entitled
thereto in person or by the stockholder's proxy appointed by an instrument in
writing in accordance with Section 10 of this Article. The attendance at any
meeting of a stockholder who may theretofore have given a proxy shall not have
the effect of revoking the same unless the stockholder shall in writing so
notify the Secretary of the meeting prior to the voting of the proxy.
(d) At any meeting of the stockholders all matters, except as otherwise
provided in the Certificate of Incorporation, in these bylaws or by law, shall
be decided by the vote of a majority in voting interest of the stockholders
present in person or by proxy and entitled to vote thereat and thereon, a quorum
being present. The vote at any meeting of the stockholders on any questions need
not be by ballot, unless so directed by the chairman of the meeting. On a vote
by ballot each ballot shall be signed by the stockholder voting, or by his
proxy, if there be such proxy, and each ballot shall state the number of shares
voted.
Section 7. Record Date. The Board may fix, in advance, a record date for the
determination of the stockholders entitled to notice of any meeting or to vote
or entitled to receive payment of any dividend or other distribution, or any
allotment of rights, or to exercise rights in respect of any other lawful
action. The record date so fixed shall be not more than 60 nor less than 10 days
prior to the date of the meeting nor more than 60 days prior to any other
action. When a record date is so fixed, only stockholders of record on that date
are entitled to notice of and to vote at the meeting or to receive the dividend
distribution, or allotment of rights, or to exercise of the rights, as the case
may be,
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notwithstanding any transfer of shares on the books and the corporation
after the record date. A determination of stockholders shall apply to any
adjournment of the meeting unless the Board fixes a new record date for the
adjourned meeting.
If no record date is fixed by the Board, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the ay next preceding the day on which notice is
given or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held. The record date for determining
stockholders for any purpose other than one set forth in this Section 7 of this
Article shall be at the close of business on the day on which the Board adopts
the resolution relating thereto, or the sixtieth day prior to the date of such
other action, whichever is later.
Section 8. Consent of Absentees. The transaction of any meeting of stockholders,
however called and noticed, and wherever held, is as valid as though had at a
meeting duly held after regular call and notice, if a quorum is present either
in person or by proxy, and if, either before or after the meeting, each of the
persons entitled to vote, not present in person or by proxy, signs a written
waiver of notice, or a consent to the holding of the meeting or an approval of
the minutes thereof. All such waivers, consents, or approvals shall be filed
with the corporate records or made a part of the minutes of the meeting.
Attendance of a person at a meeting shall constitute a waiver of notice of and
presence at such meeting, except when the person objects, at the beginning of
the meeting, to the transaction of any business because the meeting is not
lawfully called or convened and except that attendance at a meeting is not a
waiver of any right to object to the consideration of matters required by the
Delaware General Corporation law to be included in the notice but not so
included, if such objection is expressly made at the meeting. Neither the
business to be transacted at nor the purpose of any regular or special meeting
of stockholders need be specified in any written waiver of notice, except as may
be provided in the Delaware General Corporation Law.
Section 9. Action without Meeting. Unless otherwise proscribed by statute or the
Certificate of Incorporation, any action which may be taken at any annual or
special meeting of stockholders may be taken without a meeting and without prior
notice if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding shares having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Unless a record date for voting purposes be fixed as provided in Section 7 of
this Article, the record date for determining stockholders entitled to give
consent pursuant to this Section 9, when no prior action by the Board has been
taken, shall be the day on which the first written consent is given.
Section 10.Proxies. Every person entitled to vote shares has the right to do so
either in person or by one or more persons authorized by a written proxy
executed by such stockholder and filed with the Secretary. Any proxy duly
executed is not revoked and continues in full force and effect until revoked by
the person executing it prior to the vote pursuant thereto by a writing
delivered to the corporation stating that the proxy is revoked or by a
subsequent proxy
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<PAGE> 5
executed by the person executing the prior proxy and presented to the meeting,
or as to any meeting by attendance at such meeting and voting in person by the
person executing the proxy; provided, however, that no proxy shall be valid
after the expiration of 11 months from the date of its execution unless
otherwise provided in the proxy.
Section 11. Inspectors of Election. In advance of any meeting of stockholders,
the Board may appoint any persons, other than nominees for office, as inspectors
of elections to act at such meetings and any adjournment thereof. If inspectors
of elections are not so appointed or if any person so appointed fails to appear
or refuses to act, the chairman of any such meeting may, and on the request of
any stockholder or stockholder's proxy shall, make such appointment at the
meeting. The number of inspectors shall be either one or three. If appointed at
a meeting on the request of one or more stockholders or proxies, the majority of
shares present shall determine whether one or three inspectors are to be
appointed.
The duties of such inspectors shall be as prescribed by the Board and
shall include determining the number of shares outstanding and the voting power
of each; the shares represented at the meeting; the existence of a quorum; the
authenticity, validity, and effect of proxies; receiving votes, ballots, or
consents; hearing and determining all challenges and questions in any way
arising in connection with the right to vote; counting and tabulating all votes
or consents; determining when the polls shall close; determining the result; and
doing such acts as may be proper to conduct the election or vote with fairness
to all stockholders. If there are three inspectors of election, the decision,
act, or certificate of a majority is effective in all respects as the decision,
act, or certificate of all.
Section 12. Conduct of Meeting. The Chairman of the Board shall preside as
chairman at all meetings of the stockholders. If the Chairman of the Board is
unavailable to act as chairman, the Chief Executive Officer shall act in such
capacity. The chairman shall conduct each such meeting in a businesslike and
fair manner, but shall not be obligated to follow any technical, formal, or
parliamentary rules or principles of procedure. The chairman's rulings on
procedural matters shall be conclusive and binding on all stockholders, unless
at the time of a ruling a request for a vote is made to the stockholders
entitled to vote and represented in person or by proxy at the meeting, in which
case the decision of a majority of such shares shall be conclusive and binding
on all stockholders. Without limiting the generality of the foregoing, the
chairman shall have all of the powers usually vested in the chairman of a
meeting of stockholders.
Section 13. Preparation of Stockholder List. The officer who has charge of the
stock ledger of the corporation shall prepare and make, at least ten days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so
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specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
ARTICLE III. DIRECTORS
Section 1. Powers. Subject to the limitations of the Certificate of
Incorporation or these bylaws, and the Delaware General Corporation Law relating
to action required to be approved by the stockholders or by the outstanding
shares, the business and affairs of the corporation shall be managed and all
corporate powers shall be exercised by or under the direction of the Board. The
Board may delegate the management of the day-to-day operation of the business of
the corporation to a management company or other person provided that the
business and affairs of the corporation shall be managed and all corporate
powers shall be exercised under the ultimate direction of the Board. Without
prejudice to such general powers, but subject to the same limitations, it is
hereby expressly declared that the Board shall have the following powers in
addition to the other powers enumerated in these bylaws:
(a) To select and remove all the other officers, agents, and employees of
the corporation, prescribe the powers and duties for them as may not be
inconsistent with law, or with the Certificate of Incorporation or these bylaws,
fix their compensation, and require of them security for faithful service.
(b) To conduct, manage, and control the affairs and business of the
corporation and to make such rules and regulations therefor not inconsistent
with law, or with the Certificate of Incorporation or these bylaws, as they may
deem best.
(c) To adopt, make, and use a corporate seal, and to prescribe the forms
of certificates of stock, and to alter the form of such seal and of such
certificates from time to time as in their judgement they may deem best.
(d) To authorize the issuance of shares of stock of the corporation from
time to time, upon such terms and for such consideration as may be lawful.
(e) To borrow money and incur indebtedness for the purposes of the
corporation, and to cause to be executed and delivered therefor, in the
corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages,
pledges, hypothecations, or other evidences of debt and securities therefor.
Section 2. Number of Directors. The authorized number of directors shall be no
less than 3 and no more than 9, with the exact number to be determined from time
to time by a resolution adopted by a majority of the Board or by the affirmative
vote of the holders of not less than a majority of the total voting power of all
outstanding shares of voting stock of the Corporation. Each of the directors of
the Corporation shall hold office until his successor shall
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have been duly elected and shall qualify or until he shall resign or shall have
been removed in the manner hereinafter provided.
Section 3. Vacancies. Any director may resign effective upon giving written
notice to the Chairman of the Board, the President, Secretary, or the Board,
unless the notice specifies a later time for the effectiveness of such
resignation. If the resignation is effective at a future time, a successor may
be elected to take office when the resignation becomes effective. Vacancies and
newly created directorships resulting from any increase in the authorized number
of directors may be filled by a majority of the directors then in office, though
less than a quorum, or by a sole remaining director, and the directors so chosen
shall hold office until the next annual election and until their successors are
duly elected and shall qualify, unless sooner displaced. If there are no
directors in office, then an election of directors may be held in the manner
provided by statute.
A vacancy or vacancies in the Board shall be deemed to exist in case of
the death, resignation, or removal of any director, or if the authorized number
of directors is increased, or if the stockholders fail, at any annual or special
meeting of stockholders at which any director or directors are elected, to elect
the full authorized number of directors to be voted for at that meeting.
The stockholders may elect a director or directors at any time to fill any
vacancy or vacancies not filled by the directors. Any such election by written
consent other than to fill a vacancy created by removal requires the consent of
a majority of the outstanding shares entitled to vote. If the Board accepts the
resignation of any director tendered to take effect at a future time, the Board
or the stockholders shall have the power to elect a successor to take office
when the resignation is to become effective.
No reduction of the authorized number of directors shall have the effect
of removing any director prior to the expiration of the director's term of
office.
Section 4. Election and Term of Office. The directors shall be elected at each
annual meeting of stockholders but if any such annual meeting is not held or the
directors are not elected thereat, the directors may be elected at any special
meeting of stockholders held for that purpose. Each director shall hold office
until expiration of the term for which elected and until a successor has been
elected and qualified or until any such director is removed or resigns. The
persons receiving the greatest number of votes, up to the number of directors to
be elected, shall be the directors.
Section 5. Place of Meeting. Regular or special meetings of the Board shall be
held at any place within or without the State of Delaware which has been
designated from time to time by the Board. In the absence of such designation,
regular meetings shall be held at the principal office of the corporation.
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Section 6. Regular Meetings. Immediately following each annual meeting of
stockholders the Board shall hold a regular meeting without call or notice for
the purpose of organization, election of officers, and the transaction of other
business. Other regular meetings of the Board shall be held as specified by the
Board.
Section 7. Special Meetings. Special meetings of the Board for any purpose or
purposes may be called at any time by the Chairman of the Board, the President,
or the Secretary or by any two directors.
Notice by mail shall be deemed to have been given at the time a written
notice is deposited in the United States mails, postage prepaid. Any other
written notice shall be deemed to have been given at the time it is personally
delivered to the recipient or is delivered to a common carrier for transmission,
or actually transmitted by the person giving the notice by electronic means, to
the recipient. Oral notice shall be deemed to have been given at the time it is
communicated, in person or by telephone or wireless, to the recipient or to a
person at the office of the recipient who the person giving the notice has
reason to believe will promptly communicate it to the recipient.
Notice of all special meetings of the Board shall be given to each
director:
(a) by first-class mail, postage prepaid, deposited in the
United States mail in the city where the principal executive office of the
Corporation is located at least five (5) days before the date of such meeting;
or
(b) by telegram, charges prepaid, such notice to be transmitted
by the telegraph company in the city of the principal executive office of the
Corporation at least forty-eight (48) hours before the time of holding such
meeting; or
(c) by personal delivery or telecopier, or orally in person or
by telephone, at least twenty-four (24) hours prior to the time of holding such
meeting.
Notice given in accordance with paragraph (a) above shall
conclusively be deemed to be given to a director if addressed to the director at
the address the person giving the notice has reason to believe will result in
actual notice to the director prior to the time of the meeting. Notice given in
accordance with paragraph (b) or (c) above shall conclusively be deemed to be
given to a director if delivered in writing or communicated orally either to the
director or to a person whom the person giving the notice has reason to believe
will deliver or communicate it to the director prior to the time of the meeting.
Notice given in accordance with paragraph (a), (b) or (c) above shall
conclusively be deemed given to a director if mailed or delivered to the last
address provided by the director to the Secretary of the Corporation for such
purpose. The notice need not specify the purpose of the meeting, nor need it
specify the place of the meeting if the meeting is to be held at the principal
executive office of the Corporation.
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Such notice may be waived by any director and any meeting shall
be a legal meeting without notice having been given if all the directors shall
be present thereat or those not present shall, either before or after the
meeting, sign a written waiver of notice of, or a consent to, such meeting or
shall after the meeting sign the approval of the minutes thereof. All such
waivers, consents or approvals shall be filed with the Corporation's records or
be made a part of the minutes of the meeting.
Section 8. Quorum. Except as may be otherwise specifically provided in these
bylaws, by statute or by the Certificate of Incorporation, at all meetings of
the Board a majority of the authorized number of directors shall constitute a
quorum for the transaction of business, and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board. A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for such
meetings.
Section 9. Action by Consent. Unless otherwise restricted by the Certificate of
Incorporation or these bylaws, any action required or permitted to be taken at
any meeting of the Board or of any committee thereof may be taken without a
meeting, if all members of the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
Section 10. Participation in Meetings by Conference Telephone. Unless otherwise
restricted by the Certificate of Incorporation or these bylaws, members of the
Board, or any committee designated by the Board, may participate in a meeting of
the Board, or any committee, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
Section 11. Waiver of Notice. Notice of a meeting need not be given to any
director who signs a waiver of notice of or a consent to holding of the meeting
or an approval of the minutes thereof, whether before or after the meeting, or
who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to such director. All such waivers, consents,
and approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
Section 12. Adjournment. A majority of the directors present, whether or not a
quorum is present, may adjourn any meeting of directors to another time and
place. If the meeting is adjourned for more than 24 hours, notice of any
adjournment to another time or place shall be given prior to the time of the
adjourned meeting to the directors who were not present at the time of the
adjournment.
Section 13. Fees and Compensation. Directors and members of committees may
receive such compensation, if any, for their services, and such reimbursement
for expenses, as may be fixed or determined by the Board; provided that nothing
herein contained shall be construed to
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preclude any director from serving the corporation in any other capacity and
receiving compensation therefor.
Section 14. Rights of Inspection. Every director shall have the absolute right
at any reasonable time to inspect and copy all books, records, and documents of
every kind and to inspect the physical properties of the corporation and also of
its subsidiary corporations, domestic or foreign. Such inspection by a director
may be made in person or by agent or attorney and includes the right to copy and
obtain extracts.
Section 15. Committees.
(a) The Board may appoint one or more committees, each consisting of
two or more directors, and delegate to such committees any of the authority of
the Board except with respect to:
(i) The approval of any action for which the Delaware General
Corporation Law also requires stockholders' approval or approval of the
outstanding shares;
(ii) The filling of vacancies on the Board or on any committee;
(iii) The fixing of compensation of the directors for serving on
the Board or on any committee;
(iv) The amendment or repeal of bylaws or the adoption of new
bylaws;
(v) The amendment or repeal of any resolution of the Board which
by its express terms is not so amendable or repealable;
(vi) A distribution to the stockholders of the corporation
except at a rate or in a periodic amount or within a price range determined by
the Board; or
(vii) The appointment of other committees of the Board or the
members thereof.
Any such committee must be appointed by resolution adopted by a majority
of the authorized number of directors and may be designated an Executive
Committee or by such other name as the Board shall specify. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent member at any meeting of the committee. The appointment of
members or alternate members of a committee requires the vote of a majority of
the authorized number of directors. The Board shall have the power to prescribe
the manner in which proceedings of any such committee shall be conducted. In the
absence of any such prescription, such committee shall have the power to
prescribe the manner in which its proceedings shall be conducted. Unless the
Board or such committee shall
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provide, the regular and special meetings of any such committee shall be
governed by the provisions of this Article applicable to meetings and actions of
the Board. Minutes shall be kept of each meeting of each committee.
Section 16. Removal of Directors. Unless otherwise restricted by the Certificate
of Incorporation or by law, any director or the entire Board may be removed at
any time, with or without cause, by the affirmative vote of the stockholders
having a majority of the voting power of the corporation.
Section 17. Chairman of the Board. The Board shall elect one of the directors as
the Chairman of the Board who shall preside at all meetings of the Board and all
meetings of stockholders and exercise and perform such other powers and duties
as may be from time to time assigned by the Board.
ARTICLE IV. OFFICERS
Section 1. Officers. The officers of the corporation shall be a chief executive
officer, president, a chief financial officer, and a secretary. The corporation
may also have, at the discretion of the Board, one or more vice presidents, a
treasurer, one or more assistant treasurers, one or more assistant secretaries
and such other officers as may be elected or appointed in accordance with the
provisions of Section 3 of this Article. Any number of offices may be held by
the same person, unless the Certificate of Incorporation or these bylaws
otherwise provide.
Section 2. Election. The officers of the corporation, except such officers as
may be elected or appointed in accordance with the provisions of Section 3 or
Section 5 of this Article, shall be chosen annually by, and shall serve at the
pleasure of, the Board, and shall hold their respective offices until their
resignation, removal, or other disqualification from service, or until their
respective successors shall be elected.
Section 3. Subordinate Officers. The Board may elect, and may empower the
President to appoint, such other officers and agents as it or he shall deem
necessary who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board.
Section 4. Compensation. The compensation of all officers and agents of the
corporation shall be fixed from time to time by the Board. No officer shall be
prevented from receiving such compensation by reason of the fact that the
officer is also a director of the corporation. Nothing contained herein shall
preclude any officer from serving the corporation, or any subsidiary
corporation, in any other capacity and receiving compensation therefor.
Section 5. Election, Removal, Resignation, and Vacancies. The officers of the
corporation shall hold office until their successors are chosen and qualify or
until any such officer is removed or resigns. Any officer may be removed, either
with or without cause, by the Board
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at any time, or, except in the case of an officer chosen by the Board, by any
officer upon whom such power of removal may be conferred by the Board. Any such
removal shall be without prejudice to the rights, if any, of the officer under
any contract of employment of the officer.
Any officer may resign at any time by giving written notice to the
corporation, but without prejudice to the rights, if any, of the corporation
under any contract to which the officer is a party. Any such resignation shall
take effect at the date of the receipt of such notice or at any later time
specified therein; and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
A vacancy in any office because of death, resignation, removal,
disqualification, or any other cause shall be filled in the manner prescribed in
these bylaws for regular election or appointment to such office.
Section 6. The Chief Executive Officer. Subject to such supervisory powers, if
any, as may be given by the Board to the Chairman of the Board, if there is such
an officer, the Chief Executive Officer, subject to the control of the Board,
shall have general supervision, control and management of the business and
affairs of the Corporation, and general charge and supervision of all officers,
agents and employees of the Corporation; shall see that all orders and
resolutions of the Board are carried into effect; in general shall exercise all
powers and perform all duties usually vested in the office of chief executive
officer of a corporation; and shall have such other powers and duties as may
from time to time be assigned to him by the Board or as may be prescribed by
these Bylaws or applicable law. He may execute and deliver in the name of the
Corporation all deeds, mortgages, bonds, contracts and other instruments, except
where required by law or these Bylaws to be otherwise executed and delivered or
when such execution and delivery shall be expressly delegated by him or the
Board to some other officer or agent of the Corporation. In the absence of the
Chairman of the Board, or if there is none, the Chief Executive Officer shall
preside at all meetings of the stockholders and, if he is a director, the Board.
He shall be an ex-officio member of all the standing committees, including the
executive committee, if any. The Board may appoint Co-Chief Executive Officers.
Section 7. President. The president is the chief operating officer of the
corporation and has, subject to the control of the Board, general supervision,
direction, and control of the operations and officers of the corporation. The
president has the general powers and duties of management usually vested in the
office of president and chief operating officer of a corporation, and such other
powers and duties as may be prescribed by the Board. In the absence of the
Chairman of the Board, the president, if present, shall preside at all meetings
of the Board and all meetings of stockholders.
Section 8. Vice Presidents. In the absence or disability of the President, the
Vice President (or in the event there be more than one Vice President, the Vice
Presidents in the order designated by the Board) shall perform all the duties of
the President, and when so
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acting shall have all the powers of, and be subject to all the restrictions
upon, the President. The Vice Presidents shall perform such other duties and
have such other powers as the Board, the Chairman of the Board and/or the
President, respectively, may from time to time prescribe.
Section 9. Secretary. The Secretary shall keep or cause to be kept, at the
principal office and such other places as the Board may order, a book of minutes
of all meetings of stockholders, the Board, and its committees, with the time
and place of holding, whether regular or special, and, if special, how
authorized, the notice thereof given, the names of those present at Board and
committee meetings, the number of shares present or represented at stockholders'
meetings, and the proceedings thereof. The Secretary shall keep, or cause to be
kept, a copy of the bylaws of the corporation at the principal office of the
corporation.
The Secretary shall keep, or cause to be kept, at the principal office or
at the office of the corporation's transfer agent or registrar, if one be
appointed, a share register, or a duplicate share register, showing the names of
stockholders and their addresses, the number and classes of shares held by each,
the number and date of certificates issued for the same, and the number and date
of cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all the meetings
of the stockholders and of the Board and of any committees thereof required by
these bylaws or by law to be given, shall keep the seal of the corporation in
safe custody, and shall have such other powers and perform such other duties as
may be prescribed by the Board.
Section 10. Chief Financial Officer. The Chief Financial Officer of the
corporation shall keep and maintain, or cause to be kept and maintained,
adequate and correct accounts of the properties and business transactions of the
corporation, and shall send or cause to be sent to the stockholders of the
corporation such financial statements and reports as are by law or these by-laws
required to be sent to them. The books of the account shall at all times be open
to inspection by any director.
The Chief Financial Officer shall deposit all monies and other valuables
in the name and to the credit of the corporation with such depositaries as may
be designated by the Board. The Chief Financial Officer shall disburse the funds
of the corporation as may be ordered by the Board, shall render to the President
and directors, whenever they request it, an account of all transactions as Chief
Financial Officer and of the financial condition of the corporation and shall
have such other powers and perform such other duties as may be prescribed by the
Board.
ARTICLE V. SHARES AND THEIR TRANSFER
Section 1. Certificates for Stock.
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(a) The shares of the corporation shall be represented by certificates,
provided that the Board may provide by resolution or resolutions that some or
all of any or all classes or series of its stock shall be uncertificated shares.
Any such resolution shall not apply to shares represented by a certificate until
such certificate is surrendered to the corporation. Notwithstanding the adoption
of such a resolution by the Board, every holder of stock represented by
certificates and upon request every holder of uncertificated shares shall be
entitled to have a certificate, in such form as the Board shall prescribe,
signed by, or in the name of, the corporation by the Chairman of the Board or
the President or Vice President, and by the Treasurer or an Assistant Treasurer
or the Secretary or an Assistant Secretary of the corporation, representing the
number of shares registered in certificate form. Any of or all of the signatures
on the certificates may be a facsimile. In case any officer, transfer agent or
registrar who has signed, or whose facsimile signature has been placed upon, any
such certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is used, such certificate may nevertheless be
issued by the corporation with the same effect as though the person who signed
such certificate, or whose facsimile signature shall have been placed thereupon,
were such officer, transfer agent or registrar at the date of issue.
(b) A record shall be kept of the respective names of the persons, firms
or corporations owning the stock represented by such certificates, the number
and class of shares represented by such certificates, respectively, and the
respective dates thereof, and in case of cancellation, the respective dates of
cancellation. Every certificate surrendered to the corporation for exchange or
transfer shall be cancelled, and no new certificate or certificates shall be
issued in exchange for any existing certificate until such existing certificate
shall have been so cancelled, except in cases provided for in Section 4 of this
Article.
Section 2. Transfers of Stock. Transfer of shares of stock of the corporation
shall be made only on the books of the corporation by the registered holder
thereof, or by such holder's attorney thereunto authorized by power of attorney
duly executed and filed with the Secretary, or with a transfer clerk or a
transfer agent appointed as provided in Section 3 of this Article, and upon
surrender of the certificate or certificates for such shares properly endorsed
and the payment of all taxes thereon. The person in whose name shares of stock
stand on the books of the corporation shall be deemed the owner thereof for all
purposes as regards the corporation. Whenever any transfer of shares shall be
made for collateral security, and not absolutely, such fact shall be so
expressed in the entry of transfer if, when the certificate or certificates
shall be presented to the corporation for transfer, both the transferor and the
transferee request the corporation to do so.
Section 3. Regulations. The Board may make such rules and regulations as it may
deem expedient, not inconsistent with these bylaws, concerning the issue,
transfer and registration of certificates for shares of the stock of the
corporation. It may appoint, or authorize any officer or officers to appoint,
one or more transfer clerks or one or more transfer agents and one or more
registrars, and may require all certificates for stock to bear the signature or
signatures of any of them.
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Section 4. Lost, Stolen, Destroyed, and Mutilated Certificates. In any case of
loss, theft, destruction, or mutilation of any certificate of stock, another may
be issued in its place upon proof of such loss, theft, destruction, or
mutilation and upon the giving of a bond of indemnity to the corporation in such
form and in such sum as the Board may direct; provided, however, that a new
certificate may be issued without requiring any bond when, in the judgment of
the Board, it is proper so to do.
ARTICLE VI. OTHER PROVISIONS
Section 1. Endorsement of Documents; Contracts. Subject to the provisions of
applicable law, any note, mortgage, evidence of indebtedness, contract, share
certificate, conveyance, or other instrument in writing and any assignment or
endorsements thereof executed or entered into between this corporation and any
other person, when signed by the President or any Vice President, and the
Secretary, any Assistant Secretary, the Treasurer, or any Assistant Treasurer of
this corporation shall be valid and binding on this corporation in the absence
of actual knowledge on the part of the other person that the signing officer did
not have authority to execute the same. Any such instrument may be signed by any
other person or persons and in such manner as from time to time shall be
determined by the Board and, unless so authorized by the Board, no officer,
agent, or employee shall have any power or authority to bind the corporation by
any contract or engagement or to pledge its credit or to render it liable for
any purpose or amount.
Section 2. Representation of Shares of Other Corporations. The President, any
Vice President or any other officer or officers authorized by the Board or by
the President are each authorized to vote, represent, and exercise on behalf of
the corporation all rights incident to any and all shares of any other
corporation or corporations standing in the name of the corporation. The
authority herein granted may be exercised either by any such officer in person
or by any other person authorized to do so by proxy or power of attorney duly
executed by said officer.
Section 3. Stock Purchase Plans. The corporation may adopt and carry out a stock
purchase plan or agreement or stock option plan or agreement providing for the
issue and sale for such consideration as may be fixed of its unissued shares, or
of issued shares acquired or to be acquired, to one or more of the employees or
directors of the corporation or of a subsidiary or to a trustee on their behalf
and for the payment for such shares in installments or at one time, and may
provide for aiding any such person in paying for such shares by compensation for
services rendered, promissory notes, or otherwise.
Any such stock purchase plan or agreement or stock option plan or
agreement may include, among other features, the fixing of eligibility for
participation therein, the class and price of shares to be issued or sold under
the plan or agreement, the number of shares which may be subscribed for, the
method of payment therefor, the effect of the termination of employment and
option or obligation on the part of the corporation to repurchase the shares
upon termination of employment, restrictions upon the transfer of the shares,
the time limits of
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and termination of the plan or the agreement, and any other matters, not in
violation of applicable law, as may be included in the plan or the agreement as
approved or authorized by the Board or any committee of the Board.
Section 4. Accounting Year. The accounting year of the corporation shall be the
calendar year or such other fiscal year as may be subsequently fixed by
resolution of the Board.
Section 5. Amendments. These bylaws, or any of them, may be altered, amended or
repealed, and new bylaws may be made, (i) by the Board, by vote of a majority of
the number of directors then in office as directors, acting at any meeting of
the Board, or (ii) by the stockholders, at any annual meeting of stockholders,
without previous notice, or at any special meeting of stockholders, provided
that notice of such proposed amendment, modification, repeal or adoption is
given in the notice of special meeting. Any bylaws made or altered by the
stockholders may be altered or repealed by either the Board or the stockholders.
ARTICLE VII. INDEMNIFICATION
Section 1. Scope of Indemnification. The corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such person is or
was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding to the fullest extent permitted
by Delaware law and the Certificate of Incorporation.
Section 2. Advance of Expenses. Costs and expenses (including attorneys' fees)
incurred by or on behalf of a director, officer, employee or agent in defending
or investigating any action, suit, proceeding or investigation shall be paid by
the corporation in advance of the final disposition of such matter, if such
director, officer, employee or agent shall undertake in writing to repay any
such advances in the event that it is ultimately determined that he is not
entitled to indemnification. Notwithstanding the foregoing, no advance shall be
made by the corporation if a determination is reasonably and promptly made by
the Board by a majority vote of a quorum of disinterested directors, or (if such
a quorum is not obtainable or, even if obtainable, a quorum of disinterested
directors so directs) by independent legal counsel, that based upon the facts
known to the Board or counsel at the time such determination is made, (a) the
director, officer, employee or agent acted in bad faith or deliberately breached
his duty to the corporation or its stockholders, and (b) as a result of such
actions by the director, officer, employee or agent, it is more likely than not
that it will ultimately be determined that such director, officer, employee or
agent is not entitled to indemnification.
Section 3. Other Rights and Remedies. The indemnification and advancement of
expenses provided by, or granted pursuant to, the other subsections of this
Article shall not be deemed
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exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaws, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office.
Section 4. Continuation of Indemnification and Advancement of Expenses. The
indemnification and advancement of expenses provided by, or granted pursuant to,
this Article shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and administrators
of such a person.
Section 5. Insurance. Upon resolution passed by the Board, the corporation may
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against such person and incurred by such person
in any such capacity, or arising out of such person's status as such, whether or
not the corporation would have the power to indemnify such person against such
liability under the provisions of this Article.
ARTICLE VIII. EMERGENCY PROVISIONS
Section 1. General. The provisions of this Article shall be operative only
during a national emergency declared by the President of the United States or
the person performing the President's functions, or in the event of a nuclear,
atomic, or other attack on the United States or a disaster making it impossible
or impracticable for the corporation to conduct its business without recourse to
the provisions of this Article. Said provisions in such event shall override all
other bylaws of this corporation in conflict with any provisions of this
Article, and shall remain operative so long as it remains impossible or
impracticable to continue the business of the corporation otherwise, but
thereafter shall be inoperative; provided that all actions taken in good faith
pursuant to such provisions shall thereafter remain in full force and effect
unless and until revoked by action taken pursuant to the provisions of the
bylaws other than those contained in this Article.
Section 2. Unavailable Directors. All directors of the corporation who are not
available to perform their duties as directors by reason of physical or mental
incapacity or for any other reason or who are unwilling to perform their duties
or whose whereabouts are unknown shall automatically cease to be directors, with
like effect as if such persons had resigned as directors, so long as such
unavailability continues.
Section 3. Authorized Number of Directors. The authorized number of directors
shall be the number of directors remaining after eliminating those who have
ceased to be directors pursuant to Section 2, or the minimum number required by
law, whichever is greater.
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Section 4. Quorum. The number of directors necessary to constitute a quorum
shall be one-third of the authorized number of directors as specified in the
foregoing Section, or such other minimum number as, pursuant to the law or
lawful decree then in force, it is possible for the bylaws of a corporation to
specify.
Section 5. Creation of Emergency Committee. In the event the number of directors
remaining after eliminating those who have ceased to be directors pursuant to
Section 2 is less than the minimum number of authorized directors required by
law, then until the appointment of additional directors to make up such required
minimum, all the powers and authorities which the Board could by law delegate,
including all powers and authorities which the Board could delegate to a
committee, shall be automatically vested in an emergency committee, and the
emergency committee shall thereafter manage the affairs of the corporation
pursuant to such powers and authorities and shall have all such other powers and
authorities as may by law or lawful decree be conferred on any person or body of
persons during a period of emergency.
Section 6. Constitution of Emergency Committee. The emergency committee shall
consist of all the directors remaining after eliminating those who have ceased
to be directors pursuant to Section 2, provided that such remaining directors
are not less than three in number. In the event such remaining directors are
less than three in number, the emergency committee shall consist of three
persons, who shall be the remaining director or directors and either one or two
officers or employees of the corporation, as the remaining director or directors
may in writing designate. If there is no remaining director, the emergency
committee shall consist of the three most senior officers of the corporation who
are available to serve, and if and to the extent that officers are not
available, the most senior employees of the corporation. Seniority shall be
determined in accordance with any designation of seniority in the minutes of the
proceedings of the Board, and in the absence of such designation, shall be
determined by rate of remuneration. In the event that there are no remaining
directors and no officers or employees of the corporation available, the
emergency committee shall consist of three persons designated in writing by the
stockholder owning the largest number of shares of record as of the date of the
last record date.
Section 7. Powers of Emergency Committee. The emergency committee, once
appointed, shall govern its own procedures and shall have power to increase the
number of members thereof beyond the original number, and in the event of a
vacancy or vacancies therein, arising at any time, the remaining member or
members of the emergency committee shall have the power to fill such vacancy or
vacancies. In the event at any time after its appointment all members of the
emergency committee shall die or resign or become unavailable to act for any
reason whatsoever, a new emergency committee shall be appointed in accordance
with the foregoing provisions of this Article.
Section 8. Directors Becoming Available. Any person who has ceased to be a
director pursuant to the provisions of Section 2 and who thereafter becomes
available to serve as a director shall automatically become a member of the
emergency committee.
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Section 9. Election of Board of Directors. The emergency committee shall, as
soon after its appointment as is practicable, take all requisite action to
secure the election of a board of directors, and upon such election all the
powers and authorities of the emergency committee shall cease.
Section 10. Termination of Emergency Committee. In the event, after the
appointment of an emergency committee, a sufficient number of persons who ceased
to be directors pursuant to Section 2 become available to serve as directors, so
that if they had not ceased to be directors as aforesaid, there would be enough
directors to constitute the minimum number of directors required by law, then
all such persons shall automatically be deemed to be reappointed as directors
and the powers and authorities of the emergency committee shall be at an end.
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EXHIBIT 10.15
American Film Technologies, Inc.
4105 Sorrento Valley Blvd.
San Diego, CA 92121
April 22, 1997
Personal and Confidential
Mr. Harvey S. Finkel
Consultant
20th Century Fox
2121 Avenue of the Stars
4th Floor
Los Angeles, CA 90067
Re: American Film Technologies, Inc. ("AFT")-
Consulting Agreement (the "Agreement")
Dear Harvey:
This will confirm our understanding that subject to the terms and
conditions, set forth below, the Company has offered to you (the "Consultant")
and Consultant have agreed to accept and to serve as a consultant to the Company
on a part time non-exclusive basis as its Executive Vice President, Chief
Financial Officer and Chief Accounting Officer:
(i) Consulting Services: Consultant's services shall be rendered on an
as-needed basis as requested by the Company and shall be such duties and
responsibilities shall be subject to the direction and supervision of the
Company's Chief Executive Officer ("CEO") and/or the Board of Directors. Such
duties shall be consistent with:
A. those functions typically associated with the positions of the
Chief Financial officer and Chief Accounting Officer. Without limiting the
generality of the foregoing, Consultant's duties shall include, but not be
limited to, the preparation and review of financial statements and Securities
and Exchange Commission reports); and
B. such additional services as may be necessary to assist the CEO in
the Company's financing activities and in discussions with potential strategic
or financial partners.
<PAGE> 2
For the purposes of this Agreement the services set forth in a. and above shall
hereinafter be referred to as the "Consulting Services". Consultant may render
these services from consultant's existing offices or such other place as
consultant deems appropriate in the Los Angeles metropolitan area.
Notwithstanding the foregoing, the parties hereto recognize that Consultant may
be required from time to time to travel outside of Los Angeles to the Company's
offices and/or facilities in San Diego and Tijuana or to other locations. In the
event travel the consultant is required the Company agrees to give Consultant
such prior notice as may be practicable and to schedule such travel if possible
at a mutually convenient time.
(ii) Term: The term of this Agreement shall commence upon Board Approval,
as hereinafter defined, and shall terminate upon the first to occur (the
"Expiration Date") of either: a) written termination by the Company for any
reason, with or without cause; or b) July 31, 1997. Except for the Compensation,
Expenses and Indemnification required pursuant to this Agreement the Company
shall have no further obligations to Consultant in the event it elects to
terminate Consultant's Consulting Services at any time prior to July 31,1997.
(iii)Compensation: In consideration for entering into this Agreement and
performing the Consulting Services, the Consultant and the Company agree, that
Consultant's sole compensation shall be the grant of additional stock options to
purchase Two Hundred Thousand (200,000) shares of the Company's common stock, at
$.O5 per share, which options shall be immediately vested and shall have a five
year term, pursuant to the terms of Stock Option Agreement, a form of which is
attached hereto as "Exhibit "A".
(iv) Expenses: Consultant shall be entitled to prompt reimbursement for
all reasonable out of packet expenses incurred by Consultant in the performance
of Consultant's Consulting Services hereunder upon submission of appropriate
voucher, receipts or other reasonable substantiation thereof, including but not
limit to travel, hotel, entertainment, telephone, postage, photocopying and
other expenses.
(v) Independent Contractor. Consultant shall, at all times, render the
Consulting Services pursuant to this Agreement as an independent contractor and
not as an employee, agent or servant of the Company, nor shall Consultant be
deemed, by reason of this Agreement or the services performed pursuant hereto,
to be an employee of the Company for purposes of withholding, employee payroll
taxes, contributions pensions or otherwise.
(vi) No Benefits: Except as expressly set forth herein, Consultant shall
not as a result of the Consultant Services to be rendered by him pursuant to
this Agreement, be eligible to receive and/or participate in the any of the
employee benefits available to employees of the Company, including, without
limitation, health or life insurance or benefits, vacation pay, severance pay or
bonus pools.
(vii) Confidentiality and Proprietary Information: Consultant agrees that:
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<PAGE> 3
A. Consultant shall not at any time (during or after the term of this
Agreement) disclose or use, except in pursuit of the business of the company
permission, any Proprietary Information of the Company acquired during the term
of this Agreement. For purposes of this Agreement the phrase "Proprietary
Information" means all information which is known or intended to be known only
to Consultant or employees or directors of the Company, any document, record or
other information of the Company or others in a confidential relationship with
the Company which relates to specific business matters ouch as patents, patent
applications, trade secrets, secret processes, proprietary knowhow, information
of the Company's business, and identity of suppliers or customers or accounting
procedures of the Company. Consultant agree not to remove from the premises of
the Company except in the pursuit of business of the Company any document,
record or other information of the Company. Consultant recognize that all such
documents, records or other information, whether developed by Consultant or by
someone else for the Company are the exclusive, property of the Company; and
B. The sale or unauthorized use or disclosure of any Proprietary
Information by any means whatsoever and any time before, during or after
Consultant's provision of services to the Company shall constitute Unfair
Competition. Consultant agree that Consultant shall not engage in Unfair
Competition either during the time Consultant are engaged as an independent
contractor by the Company or at any time thereafter.
(viii) Board Approval: The Company's obligations hereunder are subject to
and conditioned upon the Company's Board of Directors approving this Agreement,
authorizing the grant of the Options and the share of the Company's common stock
issuable in connection with the exercise thereof and the election of Consultant
as Executive Vice President, Chief Financial Officer and Chief Accounting
Officer of the Company on or before April 21, 1997 (the "Board Approval").
(ix) Non-Exclusive Agreement, Consultant's Obligations to Fox, Inc.: The
parties to this Agreement agree that Consultant's Consulting Services rendered
hereby shall be of a non-exclusive nature and nothing contained herein shall
prohibit Consultant from engaging in any other business enterprise. In addition
to the foregoing, the parties hereto acknowledge and agree that the consulting
Services which Consultant render to the Company may not violate the satisfaction
of Consultant's existing consulting obligations and responsibilities to Fox,
Inc. or any of its subsidiary or affiliated entities.
(x) Severability: In the event that any one or more of the provisions
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, then to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument. If any covenant should be deemed
invalid, illegal or unenforceable because its scope is considered excessive,
such covenant shall be modified so that the scope of the covenant is reduced
only to the minimum extent necessary to render the modified covenant valid,
legal and enforceable. The parties agree that there is separate
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<PAGE> 4
consideration for each provision of this Agreement and that all of the
provisions of this Agreement are severable.
(xi) Entire Agreement: This Agreement is intended to set forth the entire
agreement regarding Consultant's position as an independent contractor with the
Company and cannot be changed or terminated orally. This Agreement supersedes
all prior negotiations or agreements, whether oral or written, regarding the
terms and conditions of consultant's position as an independent contractor with
the company (including but in no way limited to compensation and duration).
(xii) No Waiver: No waiver by any party hereto of a breach of any
provision of this Agreement shall constitute a waiver of any preceding or
succeeding breach of the same or any other provision hereof.
(xiii) Governing Law: This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of California, without
regard to the conflicts of laws principles thereof with respect to contracts
wholly-negotiated and to be performed in the Sate of California.
(xiv) Non-Availability by Consultant: This Agreement, and Consultant's
rights and obligations hereunder, may not be assigned by Consultant. The Company
may assign its rights, together with its obligations, hereunder to any
affiliate, provided that the obligations of the Company hereunder shall be
binding on its successors or assigns.
If this Agreement sets forth the terms of your understanding with the
Company regarding the subject matter hereof, please execute two copies of this
Agreement and return one fully-executed copy to the Company.
Sincerely,
American Film Technologies, Inc.
By: /s/ GERALD M. WETZLER
--------------------------------------------
Gerald M. Wetzler
Chief Executive Officer
Agreed to on this __ day
of April, 1997
/s/ Harvey S. Finkel
- -------------------------------
Harvey S. Finkel
4
<PAGE> 1
EXHIBIT 10.16
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement") is entered into, effective
as of April 22, 1997 (the "Effective Date"), by and between American Film
Technologies, Inc., a Delaware corporation (the "Company"), and Harvey S. Finkel
(the "Holder").
R E C I T A L S
WHEREAS, the Company has elected Holder and the Holder has concurrently
herewith agreed to serve as Executive Vice President, Chief Financial Officer
and Chief Accounting Officer of the Company; and
WHEREAS, Consultant has agreed to render consulting services to the
Company pursuant to the terms of that certain Consulting Agreement dated April
22, 1997 (the "Agreement").
WHEREAS, as the sole and exclusive consideration to be paid to the Holder
for agreeing to be so served as Executive Vice President, Chief Financial
Officer and Chief Accounting Officer of the Company and to render consulting
services pursuant to the Agreement, the Company has agreed to grant the stock
option provided for herein to the Holder.
NOW, THEREFORE, the Company and the Holder covenant and agree as follows:
1. Grant of the Option. For good and valuable consideration, the receipt
of which is hereby acknowledged, the Company hereby grants to the Holder a stock
option (the "Option") to acquire from the Company, from time to time on the
terms and conditions set forth herein, all or any portion of an aggregate of Two
Hundred Thousand (200,000) shares of the Company's $.002 par value common stock
(the "Common Stock"), at the price equal to the $.05 per share (the "Exercise
Price"). Each of the number of shares of Common Stock into which the Common
Stock is exercisable and the Exercise Price is subject to adjustment as provided
in Section 4 hereof.
2. Term of the Option. Subject to the provisions of Section 8 hereof, the
Option will commence on the date hereof and will terminate on April 17, 2002
(the "Expiration Date").
<PAGE> 2
3. Vesting; Exercise. The Holder's right to exercise all or any portion of
the Option and receive the shares of Common Stock represented thereby shall
become exercisable immediately as of the date hereof.
4. Adjustments Upon Changes in Capitalization or Other Significant Events.
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 the Option 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 the Option is
exercisable and to the Exercise 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 exercise price applicable in the
event the Holder elected to exercise the Option in full (except for any change
in the aggregate exercise price resulting from rounding-off of share quantities
or prices).
5. Exercise of the Option. To exercise all or any portion of the Option,
the Holder must do the following:
5.1 deliver to the Company a written notice, in the form of Exhibit
"A" attached hereto and made a part hereof, specifying the number of shares of
Common Stock for which the Option is being exercised;
5.2 surrender the Agreement to the Company upon complete exercise of
the Option;
5.3 tender payment, either in cash or by cashiers or certified check
of the aggregate exercise price for the shares of Common Stock for which the
Option is being exercised;
5.4 pay, or make arrangements satisfactory to the Board for payment
to the Company of, all federal, state and local taxes, if any, required to be
withheld by the Company in connection with the exercise of the Option or the
relevant portion thereof; and
5.5 execute and deliver to the Company any other documents required
from time to time by the Company in order to promote compliance with the
Securities Act of 1933, as amended (the "1933 Act"), applicable state securities
laws, or any other applicable law, rule or regulation.
6. Delivery of Share Certificate. As soon as practicable after the Option
or any portion thereof has been duly exercised, the Company will deliver to the
Holder a certificate
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for the shares of Common Stock for which the Option was exercised. Unless the
Option has expired or been exercised in full, the Company and the Holder agree
that the Company may affix to this Agreement an appropriate notation indicating
the number of shares for which the Option was exercised and return this
Agreement to the Holder. If any law or regulation of the Securities and Exchange
Commission (the "SEC") or of any other federal or state governmental body having
jurisdiction shall require the Company or the Holder to take any action prior to
issuance to the Holder of the shares of Common Stock specified in the written
notice of exercise, or if any listing agreement between the Company and any
national securities exchange requires such shares to be listed prior to
issuance, the date for the delivery of such shares shall be adjourned until the
completion of such action and/or such listing.
7. Fractional Shares. In no event shall the Company be required to issue
fractional shares upon the exercise of any portion of the Option.
8. Adjustments to Term and Exercisability of the Option by the Company.
The Holder may not exercise all or any portion of the Option and the term of the
Option shall expire upon occurrence of the following events:
8.1 The expiration of thirty (30) days from the date of terminating
the Agreement solely as the result of Holder's material breach thereof; or
8.2 In the event the Agreement terminates as a result of Holder's
death, the expiration of one (1) year from the date of Holder's death.
9. Nontransferability. The Option is not transferable other than (a) by
operation of law, (b) to one or more trusts of which the Holder is a trustor, or
(c) by will or the laws of descent and distribution. The Option may be exercised
during the lifetime of the Holder only by the Holder or his or her
court-appointed legal representative.
10. Warranties and Representations of the Holder. By executing this
Agreement, the Holder accepts the Option and represents and warrants to the
Company and covenants and agrees with the Company as follows:
10.1 THE SECURITIES OFFERED BY THIS INSTRUMENT HAVE NOT BEEN
REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE, AND ANY SALE OF SUCH SECURITIES IS SUBJECT TO
COMPLIANCE WITH, OR THE AVAILABILITY OF EXEMPTIONS FROM COMPLIANCE WITH, THE
REGISTRATION AND QUALIFICATION REQUIREMENTS OF SUCH ACT AND ANY APPLICABLE STATE
SECURITIES LAWS. THIS INSTRUMENT DOES NOT CONSTITUTE AN OFFER OR SOLICITATION TO
ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION MAY NOT LAWFULLY
BE MADE. TRANSFER OF THIS INSTRUMENT AND THE SECURITIES OFFERED HEREBY IS
RESTRICTED AS PROVIDED IN SECTIONS 9 AND 12 HEREOF.
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10.2 The Holder acknowledges that no registration statement under the
1933 Act or under any state securities law has been filed and that the Company
has no obligation to file such a registration statement in the future with
respect to the Option or, any shares of Common Stock that may be acquired upon
exercise of the Option or any portion thereof.
10.3 The Holder warrants and represents that the Option and any
shares of Common Stock acquired upon exercise of the Option or any portion
thereof will be acquired and held by the Holder for the Holder's own account,
for investment purposes only, and not with a view towards the distribution or
public offering thereof or with any present intention of reselling or
distributing the same at any particular future time.
10.4 The Holder agrees not to sell, transfer or otherwise voluntarily
dispose of any shares of Common Stock that may be acquired upon exercise of the
Option or any portion thereof unless (i) there is an effective registration
statement under the 1933 Act covering the proposed disposition and compliance
with governing state securities laws, (ii) the Holder delivers to the Company,
at the Holder's expense, a "no-action" letter or similar interpretative opinion,
satisfactory in form and substance to the Company, from the staff of each
appropriate securities agency, to the effect that such shares may be disposed of
by the Holder in the manner proposed, or (iii) the Holder delivers to the
Company, an opinion of counsel reasonably satisfactory to the Company, to the
effect that the proposed disposition is exempt from registration under the 1933
Act and governing state securities laws.
10.5 The Holder acknowledges and consents to the appearance of a
restrictive legend, in substantially the following form:
NOTICE: RESTRICTIONS ON TRANSFER
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, OR ANY STATE SECURITIES
LAWS, AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, ENCUMBERED, OR
OTHERWISE DISPOSED OF EXCEPT UPON SATISFACTION OF CERTAIN CONDITIONS.
INFORMATION CONCERNING THESE RESTRICTIONS MAY BE OBTAINED FROM THE
CORPORATION. ANY OFFER OR DISPOSITION OF THESE SECURITIES WITHOUT
SATISFACTION OF SAID CONDITIONS WILL BE WRONGFUL AND WILL NOT ENTITLE
THE TRANSFEREE TO REGISTER OWNERSHIP OF THE SECURITIES WITH THE
CORPORATION.
10.6 The Holder agrees not to sell, transfer or otherwise dispose of
the Option, except as specifically permitted by this Agreement and any
applicable securities laws.
11. Warranties and Representations of the Company.
11.1 The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware.
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11.2 The grant of the Option to the Holder has been duly authorized
by all requisite corporation action on the part of the Company and the shares of
Common Stock represented by the Option have been properly reserved for issuance.
11.3 The number of shares of Common Stock represented by the Option
(when coupled with all shares currently outstanding and all shares to be issued
upon the exercise of all other currently outstanding options granted by the
Company which may be exercised absent an increase in the number of authorized
shares of common stock) does not exceed the number of shares of Common Stock
currently authorized for issuance by the Company's Certificate of Incorporation,
as amended (the "Certificate").
11.4 No consents, approvals or permits are required to be obtained
from any third person, including, without limitation, any securities commission,
before the grant of the Option, nor do any conditions precedent exist (other
than those specifically identified herein) that would impair the Company's
ability to grant the Option hereunder.
11.5 No consents, approvals, nor permits are required to be obtained
from any third person, other those which may be required under applicable
securities laws, before the issuance of Common Stock upon the exercise of all or
any portion of the Option.
12. Procedures Upon Permitted Transfer. Before any sale, transfer or other
disposition of any of the shares of Common Stock acquired upon exercise of the
Option, the Holder agrees to give written notice to the Company of his or her
intention to effect such disposition. The notice must describe the circumstances
of the proposed transfer in reasonable detail and must specify the manner in
which the requirements of Section 10(d) above will be satisfied in connection
with the proposed disposition. After (a) legal counsel to the Company has
determined in good faith that the requirements of Section 10(d) above will be
satisfied and (b) the Holder has executed such documentation as may be necessary
to effect the proposed disposition, the Company will, as soon as practicable,
transfer such shares in accordance with the terms of the notice. Any stock
certificate issued upon such transfer will bear a restrictive legend, in the
form set forth in Section 10(e) of this Agreement, unless in the opinion of the
Company's legal counsel such legend is not required. Compliance with the
foregoing procedures is in addition to compliance with any separate requirements
applicable to the Holder under the Certificate or otherwise.
13. Rights as Stockholder. The Option, in and of itself, does not create
rights in the Holder as a stockholder of the Company; provided that upon any
such exercise of the Option or any portion thereof that complies with the
requirements of this Agreement, the Holder shall immediately be vested with all
the rights afforded to other stockholders of the Company, regardless of when the
Company actually delivers certificates representing Common Stock to the Holder.
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14. Further Assurances. The Holder and the Company agree, from time to
time, to execute such additional documents as the other party hereto may
reasonably require to effectuate the purposes of this Agreement.
15. Binding Effect. This Agreement shall be binding upon the Holder, the
Company, the Holder's heirs, successors and assigns, and any corporation or
other entity that succeeds to the rights and liabilities of the Company.
16. Cost of Litigation. In any action at law or in equity or any
arbitration to enforce any of the provisions or rights under this Agreement, the
unsuccessful party to such litigation, as determined by the court or arbitrator
in a final judgment or decree, shall pay the successful party or parties all
costs, expenses and reasonable attorneys' fees incurred by the successful party
or parties (including without limitation costs, expenses and fees on any
appeals), and if the successful party recovers judgment in any such action or
proceeding, such costs, expenses and attorneys' fees shall be included as part
of the judgment.
17. Entire Agreement; Modifications. This Agreement constitutes the entire
agreement and understanding between the Company and the Holder regarding the
subject matter hereof. No modification of the Option or this Agreement, or
waiver of any provision of this Agreement, shall be valid unless in writing and
duly executed by the Company and the Holder. The failure of any party to enforce
any of that party's rights against the other party for breach of any of the
terms of this Agreement shall not be construed as a waiver of such rights as to
any continued or subsequent breach.
18. Governing Law. This Agreement shall be governed by and interpreted
under the law of the State of California applicable to agreements wholly
negotiated, executed and to be performed in that state.
19. Notices. Any notices that either party to this Agreement is required
or may desire to give to the other shall be given by sending the same to the
other at the address below, or at such other address as may be designated in
writing by any party in a notice to the other given in the manner prescribed in
this Section 19. All such notices shall be in writing and delivered by telex,
facsimile, personal delivery or if sent by mail, certified or registered mail,
return receipt requested deposited so addressed, postage prepaid. If sent by
mail notices shall be deemed delivered five (5) business days after deposit in
the mail. The addresses to which any such notices shall be given are the
following:
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To Holder:
Mr. Harvey Finkel
5950 Nora Lynn Drive
Woodland Hills, CA 91367
To the Company:
Gerald M. Wetzler
c/o American Film Technologies, Inc.
300 Park Avenue, 17th Floor
New York, New York 10022
Facsimile No. (212) 572-6460
With copy to:
Barry L. Burten, Esq.
Jeffery, Mangels, Butler & Marmaro LLP
2121 Avenue of the Stars, 10th Floor
Los Angeles, California 90067
20. Severability. Whenever possible, each provision of this Agreement
shall be interpreted so as to be effective and valid under applicable law. If
any provision of this Agreement is prohibited or deemed invalid under any
applicable law, however, such provision shall be ineffective only to the extent
of such prohibition or invalidity, and neither the remainder of such provision
nor this Agreement shall be invalidated as a result.
21. Counterparts. This Agreement may be executed by the parties in one or
more counterparts, all of which taken together shall constitute one instrument.
22. Jurisdiction. The parties hereto agree to submit to the exclusive
jurisdiction of the Superior Court of the State of California, County of Los
Angeles, 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.
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<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
"Company" American Film Technologies, Inc.
By: /s/ Gerald M. Wetzler
--------------------------------------------
Gerald M. Wetzler
Chief Executive Officer
"Holder" /s/ Harvey S. Finkel
-------------------------------------------------
Harvey S. Finkel
8
<PAGE> 1
EXHIBIT 10.17
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement") is entered into, effective
as of August 15, 1997 (the "Effective Date"), by and between American Film
Technologies, Inc., a Delaware corporation (the "Company"), and Harvey S. Finkel
(the "Holder").
R E C I T A L S
WHEREAS, Consultant has agreed to continue to render consulting services
to the Company pursuant to the terms of that certain Amendment No. 1 to
Consulting Agreement dated as of August 1, 1997 between Holder and the Company
(the "Amendment No. 1").
WHEREAS, the Holder has agreed to continue to serve as Executive Vice
President, Chief Financial Officer and Chief Accounting Officer of the Company
pursuant to the terms of the Amendment No. 1; and
WHEREAS, as the sole and exclusive consideration to be paid to the Holder
for agreeing to be so served as Executive Vice President, Chief Financial
Officer and Chief Accounting Officer of the Company and to render consulting
services as specified by Amendment No. 1 during the term of Amendment No. 1, the
Company has agreed to grant the stock option provided for herein to the Holder.
NOW, THEREFORE, the Company and the Holder covenant and agree as follows:
1. Grant of the Option. For good and valuable consideration, the receipt
of which is hereby acknowledged, the Company hereby grants to the Holder a stock
option (the "Option") to acquire from the Company, from time to time on the
terms and conditions set forth herein, all or any portion of an aggregate of One
Hundred Thousand (100,000) shares of the Company's $.002 par value common stock
(the "Common Stock"), at the price equal to the $.05 per share (the "Exercise
Price"). Each of the number of shares of Common Stock into which the Common
Stock is exercisable and the Exercise Price is subject to adjustment as provided
in Section 4 hereof.
<PAGE> 2
2. Term of the Option. Subject to the provisions of Section 8 hereof, the
Option will commence on the date hereof and will terminate at 12:00 noon New
York time on August 15, 2002 (the "Expiration Date").
3. Vesting; Exercise. The Holder's right to exercise all or any portion of
the Option and receive the shares of Common Stock represented thereby shall
become exercisable immediately as of the date hereof.
4. Adjustments Upon Changes in Capitalization or Other Significant Events.
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 the Option 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 the Option is
exercisable and to the Exercise 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 exercise price applicable in the
event the Holder elected to exercise the Option in full (except for any change
in the aggregate exercise price resulting from rounding-off of share quantities
or prices).
5. Exercise of the Option. To exercise all or any portion of the Option,
the Holder must do the following:
(a) deliver to the Company a written notice, in the form of Exhibit
"A" attached hereto and made a part hereof, specifying the number of shares of
Common Stock for which the Option is being exercised;
(b) surrender the Agreement to the Company upon complete exercise of
the Option;
(c) tender payment, either in cash or by cashiers or certified check
of the aggregate exercise price for the shares of Common Stock for which the
Option is being exercised;
(d) pay, or make arrangements satisfactory to the Board for payment
to the Company of, all federal, state and local taxes, if any, required to be
withheld by the Company in connection with the exercise of the Option or the
relevant portion thereof; and
(e) execute and deliver to the Company any other documents required
from time to time by the Company in order to promote compliance with the
Securities Act of 1933, as amended (the "1933 Act"), applicable state securities
laws, or any other applicable law, rule or regulation.
6. Delivery of Share Certificate. As soon as practicable after the Option
or any portion thereof has been duly exercised, the Company will deliver to the
Holder a certificate
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for the shares of Common Stock for which the Option was exercised. Unless the
Option has expired or been exercised in full, the Company and the Holder agree
that the Company may affix to this Agreement an appropriate notation indicating
the number of shares for which the Option was exercised and return this
Agreement to the Holder. If any law or regulation of the Securities and Exchange
Commission (the "SEC") or of any other federal or state governmental body having
jurisdiction shall require the Company or the Holder to take any action prior to
issuance to the Holder of the shares of Common Stock specified in the written
notice of exercise, or if any listing agreement between the Company and any
national securities exchange requires such shares to be listed prior to
issuance, the date for the delivery of such shares shall be adjourned until the
completion of such action and/or such listing.
7. Fractional Shares. In no event shall the Company be required to issue
fractional shares upon the exercise of any portion of the Option.
8. Adjustments to Term and Exercisability of the Option by the Company.
The Holder may not exercise all or any portion of the Option and the term of the
Option shall expire upon occurrence of the following events:
(a) The expiration of thirty (30) days from the date of the
termination of the Agreement solely as the result of Holder's material breach
thereof; or
(b) In the event the Agreement terminates as a result of Holder's
death, the expiration of one (1) year from the date of Holder's death.
9. Nontransferability. The Option is not transferable other than (a) by
operation of law, (b) to one or more trusts of which the Holder is a trustor, or
(c) by will or the laws of descent and distribution. The Option may be exercised
during the lifetime of the Holder only by the Holder or his or her
court-appointed legal representative.
10. Warranties and Representations of the Holder. By executing this
Agreement, the Holder accepts the Option and represents and warrants to the
Company and covenants and agrees with the Company as follows:
(a) THE SECURITIES OFFERED BY THIS INSTRUMENT HAVE NOT BEEN
REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE, AND ANY SALE OF SUCH SECURITIES IS SUBJECT TO
COMPLIANCE WITH, OR THE AVAILABILITY OF EXEMPTIONS FROM COMPLIANCE WITH, THE
REGISTRATION AND QUALIFICATION REQUIREMENTS OF SUCH ACT AND ANY APPLICABLE STATE
SECURITIES LAWS. THIS INSTRUMENT DOES NOT CONSTITUTE AN OFFER OR SOLICITATION TO
ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION MAY NOT LAWFULLY
BE MADE. TRANSFER OF THIS INSTRUMENT AND THE SECURITIES OFFERED HEREBY IS
RESTRICTED AS PROVIDED IN SECTIONS 9 AND 12 HEREOF.
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(b) The Holder acknowledges that no registration statement under the
1933 Act or under any state securities law has been filed and that the Company
has no obligation to file such a registration statement in the future with
respect to the Option or, any shares of Common Stock that may be acquired upon
exercise of the Option or any portion thereof.
(c) The Holder warrants and represents that the Option and any shares
of Common Stock acquired upon exercise of the Option or any portion thereof will
be acquired and held by the Holder for the Holder's own account, for investment
purposes only, and not with a view towards the distribution or public offering
thereof or with any present intention of reselling or distributing the same at
any particular future time.
(d) The Holder agrees not to sell, transfer or otherwise voluntarily
dispose of any shares of Common Stock that may be acquired upon exercise of the
Option or any portion thereof unless (i) there is an effective registration
statement under the 1933 Act covering the proposed disposition and compliance
with governing state securities laws, (ii) the Holder delivers to the Company,
at the Holder's expense, a "no-action" letter or similar interpretative opinion,
satisfactory in form and substance to the Company, from the staff of each
appropriate securities agency, to the effect that such shares may be disposed of
by the Holder in the manner proposed, or (iii) the Holder delivers to the
Company, an opinion of counsel reasonably satisfactory to the Company, to the
effect that the proposed disposition is exempt from registration under the 1933
Act and governing state securities laws.
(e) The Holder acknowledges and consents to the appearance of a
restrictive legend, in substantially the following form:
NOTICE: RESTRICTIONS ON TRANSFER
The securities represented by this certificate have not been
registered under the Securities Act of 1933, or any state securities
laws, and may not be offered, sold, transferred, encumbered, or
otherwise disposed of except upon satisfaction of certain conditions.
Information concerning these restrictions may be obtained from the
corporation. Any offer or disposition of these securities without
satisfaction of said conditions will be wrongful and will not entitle
the transferee to register ownership of the securities with the
corporation.
(f) The Holder agrees not to sell, transfer or otherwise dispose of
the Option, except as specifically permitted by this Agreement and any
applicable securities laws.
11. Warranties and Representations of the Company.
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware.
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(b) The grant of the Option to the Holder has been duly authorized by
all requisite corporation action on the part of the Company and the shares of
Common Stock represented by the Option have been properly reserved for issuance.
(c) The number of shares of Common Stock represented by the Option
(when coupled with all shares currently outstanding and all shares to be issued
upon the exercise of all other currently outstanding options granted by the
Company which may be exercised absent an increase in the number of authorized
shares of common stock) does not exceed the number of shares of Common Stock
currently authorized for issuance by the Company's Certificate of Incorporation,
as amended (the "Certificate").
(d) No consents, approvals or permits are required to be obtained
from any third person, including, without limitation, any securities commission,
before the grant of the Option, nor do any conditions precedent exist (other
than those specifically identified herein) that would impair the Company's
ability to grant the Option hereunder.
(e) No consents, approvals, nor permits are required to be obtained
from any third person, other those which may be required under applicable
securities laws, before the issuance of Common Stock upon the exercise of all or
any portion of the Option.
12. Procedures Upon Permitted Transfer. Before any sale, transfer or other
disposition of any of the shares of Common Stock acquired upon exercise of the
Option, the Holder agrees to give written notice to the Company of his or her
intention to effect such disposition. The notice must describe the circumstances
of the proposed transfer in reasonable detail and must specify the manner in
which the requirements of Section 10(d) above will be satisfied in connection
with the proposed disposition. After (a) legal counsel to the Company has
determined in good faith that the requirements of Section 10(d) above will be
satisfied and (b) the Holder has executed such documentation as may be necessary
to effect the proposed disposition, the Company will, as soon as practicable,
transfer such shares in accordance with the terms of the notice. Any stock
certificate issued upon such transfer will bear a restrictive legend, in the
form set forth in Section 10(e) of this Agreement, unless in the opinion of the
Company's legal counsel such legend is not required. Compliance with the
foregoing procedures is in addition to compliance with any separate requirements
applicable to the Holder under the Certificate or otherwise.
13. Rights as Stockholder. The Option, in and of itself, does not create
rights in the Holder as a stockholder of the Company; provided that upon any
such exercise of the Option or any portion thereof that complies with the
requirements of this Agreement, the Holder shall immediately be vested with all
the rights afforded to other stockholders of the Company, regardless of when the
Company actually delivers certificates representing Common Stock to the Holder.
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14. Further Assurances. The Holder and the Company agree, from time to
time, to execute such additional documents as the other party hereto may
reasonably require to effectuate the purposes of this Agreement.
15. Binding Effect. This Agreement shall be binding upon the Holder, the
Company, the Holder's heirs, successors and assigns, and any corporation or
other entity that succeeds to the rights and liabilities of the Company.
16. Cost of Litigation. In any action at law or in equity or any
arbitration to enforce any of the provisions or rights under this Agreement, the
unsuccessful party to such litigation, as determined by the court or arbitrator
in a final judgment or decree, shall pay the successful party or parties all
costs, expenses and reasonable attorneys' fees incurred by the successful party
or parties (including without limitation costs, expenses and fees on any
appeals), and if the successful party recovers judgment in any such action or
proceeding, such costs, expenses and attorneys' fees shall be included as part
of the judgment.
17. Entire Agreement; Modifications. This Agreement constitutes the entire
agreement and understanding between the Company and the Holder regarding the
subject matter hereof. No modification of the Option or this Agreement, or
waiver of any provision of this Agreement, shall be valid unless in writing and
duly executed by the Company and the Holder. The failure of any party to enforce
any of that party's rights against the other party for breach of any of the
terms of this Agreement shall not be construed as a waiver of such rights as to
any continued or subsequent breach.
18. Governing Law. This Agreement shall be governed by and interpreted
under the law of the State of California applicable to agreements wholly
negotiated, executed and to be performed in that state.
19. Notices. Any notices that either party to this Agreement is required
or may desire to give to the other shall be given by sending the same to the
other at the address below, or at such other address as may be designated in
writing by any party in a notice to the other given in the manner prescribed in
this Section 19. All such notices shall be in writing and delivered by telex,
facsimile, personal delivery or if sent by mail, certified or registered mail,
return receipt requested deposited so addressed, postage prepaid. If sent by
mail notices shall be deemed delivered five (5) business days after deposit in
the mail. The addresses to which any such notices shall be given are the
following:
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<PAGE> 7
To Holder:
Mr. Harvey Finkel
5950 Nora Lynn Drive
Woodland Hills, CA 91367
To the Company:
Gerald M. Wetzler
c/o American Film Technologies, Inc.
300 Park Avenue, 17th Floor
New York, New York 10022
Facsimile No. (212) 572-6460
With copy to:
Barry L. Burten, Esq.
Jeffery, Mangels, Butler & Marmaro LLP
2121 Avenue of the Stars, 10th Floor
Los Angeles, California 90067
20. Severability. Whenever possible, each provision of this Agreement
shall be interpreted so as to be effective and valid under applicable law. If
any provision of this Agreement is prohibited or deemed invalid under any
applicable law, however, such provision shall be ineffective only to the extent
of such prohibition or invalidity, and neither the remainder of such provision
nor this Agreement shall be invalidated as a result.
21. Counterparts. This Agreement may be executed by the parties in one or
more counterparts, all of which taken together shall constitute one instrument.
22. Jurisdiction. The parties hereto agree to submit to the exclusive
jurisdiction of the Superior Court of the State of California, County of Los
Angeles, 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.
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<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
"Company" American Film Technologies, Inc.
By: /s/ Gerald M. Wetzler
--------------------------------------------
Gerald M. Wetzler
Chief Executive Officer
"Holder" /s/ Harvey S. Finkel
-------------------------------------------------
Harvey S. Finkel
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<PAGE> 1
EXHIBIT 10.18
THE SECURITIES OFFERED BY THIS INSTRUMENT HAVE NOT BEEN REGIS TERED OR QUALIFIED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE, AND ANY SALE OF SUCH SECURITIES IS SUBJECT TO COMPLIANCE WITH, OR THE
AVAILABILITY OF EXEMPTIONS FROM COMPLIANCE WITH, THE REGISTRATION AND
QUALIFICATION REQUIREMENTS OF SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
THIS INSTRUMENT DOES NOT CONSTITUTE AN OFFER OR SOLICITATION TO ANY PERSON IN
ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION MAY NOT LAWFULLY BE MADE.
TRANSFER OF THIS INSTRUMENT AND THE SECURITIES OFFERED HEREBY IS RESTRICTED AS
PROVIDED IN SECTIONS 11, 12 AND 14 BELOW.
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (the "Agreement") is entered into, effective
as of June 17, 1996 (the "Effective Date"), by and between American Film
Technologies, Inc., a Delaware corporation (the "Company"), and Gerald M.
Wetzler (the "Holder").
R E C I T A L S
WHEREAS, the Company wishes to obtain additional financing to fund its
operations through the sale of equity securities and the Holder desires to
invest in the Company; and
WHEREAS, the Company has agreed to sell to the Holder for Two Hundred
Thousand Dollars ($200,000) an Option to purchase either (i) 10,000,000 shares
of the Company's Class A Convertible Preferred Stock (the "Preferred Stock") at
an exercise price of Twenty Four Cents ($.24) per share or (ii) after the
occurrence of the Conversion Events, hereinafter defined, Twenty Million
(20,000,000) shares of the Company's, $.002 par value per share common stock
(the "Common Stock") at an exercise price of Twelve Cents ($.12) per share;
WHEREAS, the Company and the Holder have agreed that the Preferred Stock
shall carry a liquidation preference of Twenty Four Cents ($.24) per share and
will have four votes per share on all matters which come before the
shareholders;
WHEREAS, all issued and outstanding shares of Preferred Stock will
automatically convert into Common Stock upon shareholder approval of an increase
in the authorized Common Stock to no less than 125,000,000 shares (prior to the
effect of any reverse stock split) and the filing of an Amendment to the
Company's Certificate of Incorporation with
<PAGE> 2
respect to the aforementioned increase in number of authorized shares of Common
Stock (the "Conversion Events");
NOW, THEREFORE, the Company and the Holder covenant and agree as follows:
1. Grant of the Option. For the sum of Two Hundred Thousand Dollars
($200,000)(the "Option Price"), the receipt of which is hereby acknowledged, the
Company hereby grants to the Holder the Option to acquire from the Company, from
time to time on the terms and conditions set forth herein, all or any portion of
an aggregate of either (a) Ten Million (10,000,000) shares of Preferred Stock or
(b) after the occurrence of the Conversion Events into Twenty Million
(20,000,000) shares of Common Stock (the Preferred Stock or the Common Stock, as
the case may be, hereinafter referred to as the "Option Shares").
2. Exercise Price. The exercise price of the Option Shares shall be Twenty
Four Cents ($.24) per share for the Preferred Stock and after the occurrence of
the Conversion Events Twelve Cents ($.12) per share for the Common Stock (the
"Exercise Price"). Each of the number of Option Shares into which the Option
Shares is exercisable and the Exercise Price of the Option Shares is subject to
adjustment as provided in Section 5 hereof.
3. Term of the Option. Subject to the provisions of Section 11 hereof, the
Option will have a two year term (the "Option Term") commencing on the date
hereof and terminating as of 5:00 p.m. (New York time) on June 17, 1998 (the
"Expiration Date").
4. Vesting; Exercise. Subject to the provisions of Section 11 hereof,
during the Option Term the Holder shall have the right to exercise all or any
portion of the Option and receive the Option Shares represented thereby.
5. Adjustments Upon Changes in Capitalization or Other Significant Events.
(a) 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 the Option 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
the Preferred Stock is convertible or upon the occurrence of the Conversion
Events, the Option is exercisable and to the Exercise Price, with the result
that the Holder's proportionate share of Common Stock which the Option may
convert into shall be maintained as before the occurrence of such event without
change in the aggregate exercise price applicable in the event the Holder
elected to exercise the Option in full (except for any change in the aggregate
exercise price resulting from rounding-off of share quantities or prices).
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<PAGE> 3
(b) In the event the Company (or any other corporation, the
securities of which are receivable at the time upon exercise of the Option)
shall effect a plan of reorganization, recapitalization, reclassification or
other like capital transaction or shall merge or consolidate with or into
another corporation or shall convey all or substantially all of its assets to
another corporation (collectively, any such event being referred to as a
"Material Alteration Event") at any time or from time to time throughout the
term of the Option, then in each such case the Holder, upon any exercise of the
Option at any time after the consummation of such a Material Alteration Event
shall be entitled to receive (in lieu of the securities or other property to
which the Holder would have been entitled to receive upon exercise prior to such
consummation) the securities or other property to which the Holder would have
been entitled to have received upon consummation of the Material Alteration
Event without adjustment to the aggregate exercise price applicable in the event
the Holder elected to exercise the Option in full (except for any change in the
aggregate exercise price resulting from rounding-off of share quantities or
prices), and all subject to further adjustment as provided in Section 5(a)
hereof; provided that prior to consummating any Material Alteration Event, the
Company shall have complied with its obligations in Section 6 hereof.
6. Obligation to Redeem Option.
(a) In the event that the Company intends to consummate a Material
Alteration Event at any time during the term of the Option, in addition to any
rights granted to the holder by Section 5(b) hereof, it shall provide the Holder
with written notice thereof no less than thirty (30) days prior to the
consummation thereof. The Holder shall thereafter have the right, exercisable at
any time prior to the third (3rd) business day immediately preceding the
consummation of the Material Alteration Event, to obligate the Company to redeem
the Option in its entirety (but not only a portion thereof) at a price
equivalent to (a) the average of the daily closing prices per share of Common
Stock for the five (5) consecutive business days immediately preceding the
Material Alteration Event on the principal national securities exchange on which
the Common Stock is listed or admitted to trading or, if not so listed or
admitted, on the National Market System, as reported by NASDAQ, or if not
admitted to trading thereon, the average of the closing bid and listed prices in
the over-the-counter market as reported by NASDAQ less (b) the Exercise Price at
such time (as adjusted in accordance with Section 5 hereof), such resulting
amount multiplied by the aggregate number of shares of Common Stock into which
the Option is exercisable (or would be exercisable upon the occurrence of the
Conversion Events) at the time of such redemption.
(b) In the event that the Holder elects to have the Option redeemed,
it shall surrender the Option along with its notice of the election to redeem
the Option pursuant to 6(a) above. The Company shall pay to Holder the payment
calculated in Section 6(a) hereof, which payment shall be made within five (5)
days after the consummation of the Material Alteration Event.
(c) If the Company fails to notify the Holder of the intended
consummation of a Material Alteration Event, the Holder's right to obligate the
Company to redeem the
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<PAGE> 4
Option shall remain in full force and effect until the earlier of (i) the tenth
(10th) business day following the giving of proper notice by the Company to the
Holder as to the Material Alteration Event or (ii) the expiration of the Option,
in either case at the same price as would have been applicable to such
redemption if such notice had been duly delivered.
(d) If the Holder elects to have the Option redeemed and if the
Material Alteration Event is not consummated the Holder's redemption of the
Option shall be nullified, the Option shall be promptly returned to the Holder
and the Holder will continue to have all rights with respect to the Option as
set forth in this Agreement.
(e) If, as a result of any Material Alteration Event, the Company
ceases to exist, the Company shall have caused any successor corporation thereto
to assume the Option and the obligations under this Agreement, and such
successor corporation shall be bound by the provisions hereunder, including,
without limitation, this Section 6.
7. Exercise of the Option. To exercise all or any portion of the Option,
the Holder must do the following:
(a) deliver to the Company a written notice, in the form of the
attached Exhibit A, specifying the number of shares of Preferred Stock or Common
Stock for which the Option is being exercised;
(b) surrender the Agreement to the Company upon complete exercise of
the Option;
(c) tender payment, either in cash or in such other manner as the
Board of Directors of the Company (the "Board"), in its sole discretion, shall
approve, of the aggregate Exercise Price for the Option Shares for which the
Option is being exercised;
(d) pay, or make arrangements satisfactory to the Board for payment
to the Company of, all federal, state and local taxes, if any, required to be
withheld by the Company in connection with the exercise of the Option or the
relevant portion thereof; and
(e) execute and deliver to the Company any other documents required
from time to time by the Company in order to promote compliance with the
Securities Act of 1933, as amended (the "1933 Act"), applicable state securities
laws, or any other applicable law, rule or regulation.
8. Delivery of Share Certificate. As soon as practicable after the Option
or any portion thereof has been duly exercised, the Company will deliver to the
Holder a certificate representing the Option Share for which the Option was
exercised. Unless the Option has expired or been exercised in full, the Company
and the Holder agree that the Company may affix to this Agreement an appropriate
notation indicating the number and kind of Option Shares for which the Option
was exercised and return this Agreement to the Holder. If any
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<PAGE> 5
law or regulation of the Securities and Exchange Commission (the "SEC") or of
any other federal or state governmental body having jurisdiction shall require
the Company or the Holder to take any action prior to issuance to the Holder of
the Option Shares specified in the written notice of exercise, or if any listing
agreement between the Company and any national securities exchange requires such
shares to be listed prior to issuance, the date for the delivery of such shares
shall be adjourned until the completion of such action and/or such listing.
9. Fractional Shares. In no event shall the Company be required to issue
fractional shares upon the exercise of any portion of the Option.
10. Shareholders Approval. The Company agrees to recommend to its
shareholders an increase in the amount of its authorized share of Common Stock
to no less than 125,000,000 shares (before any reverse stock split) at its 1995
Annual Meeting of Shareholders (the "Annual Meeting"). The Company further
agrees to take such steps as may be necessary, including but not limited to the
filing of applicable proxy materials with the SEC and the mailing of such proxy
materials to its shareholders, in order to hold the Annual Meeting on or before
August 31, 1996. In the event the Company obtains the approval of the
shareholders for the increase in its authorized shares of Common Stock at the
Annual Meeting, it agrees to take such steps as may be necessary to consummate
all additional Conversion Events as soon thereafter as possible.
11. Piggy-back Registration Rights; Indemnification.
(a) After the occurrence of the Conversion Events, subject to Section
11(i) below, and so long as Holder holds or has the right to acquire any Option
Share, in the event the Company decides to file a registration statement
("Registration Statement") under the 1933 Act on SEC Forms S-1 or S-3 or any
other applicable form that covers the offer and sale by the Company or any
holders of Common Stock any of the Company's securities for money (a "Company
Registration"), the Company shall give written notice (a "Registration Notice")
thereof to the Holder. If the Company receives a written request to include in
the Company Registration all or a portion of the Holder's shares within thirty
(30) days after a Registration Notice is given, the Company shall include such
shares in the Company Registration. If the Company Registration is to cover an
underwritten offering, such shares shall be included in the underwriting on the
same terms and conditions as the securities otherwise being sold through the
underwriters.
(b) If in the good faith judgment of the managing underwriter of an
offering related to a Company Registration, to include any or all of the shares
requested to be registered by the Holder would interfere with the successful
marketing of the Company's securities or any other holder's securities, if such
Company Registration of such holder's securities is pursuant to a demand
registration right, then the amount of shares to be included in such public
offering shall be reduced to the amount allowed by the managing underwriter in
its good faith judgment. If such reduction occurs it shall be on a pro rata
basis with all other selling stockholders in such Company registration.
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<PAGE> 6
(c) The Company may decline to file a Registration Statement after
giving a Registration Notice, or withdraw a Registration Statement after filing
and after a Registration Notice, but prior to the effectiveness thereof;
provided (i) that the Company shall promptly notify the Holder, in writing, of
any such action; and (ii) that the Company shall bear all expenses incurred by
the Holder in connection with such withdrawn Registration Statement.
(d) 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 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 Holder's shares),
rating agency fees, printing expenses (including expenses of printing
certificates for the Holder's shares 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"), will be borne by the Company, provided that in no
event shall Registration Expenses include (A) any underwriting discounts or
commissions attributable to the sale of the Holder's shares, (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 Company Registration,
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 during the
period referred to in Section 9(e)(ii) hereof, the Company shall pay all
printing costs associated with the printing of such supplemental or amended
prospectus to be distributed in connection with sales of securities pursuant
thereto.
(e) If and whenever the Company elects to file a Registration
Statement and is hereby required in connection therewith to register the
Holder's shares, the Company will:
(i) Use its best efforts to effect such registration to permit
the sale of such shares in accordance with the intended plan of distribution
thereof, and pursuant thereto the Company will take the actions set forth below
as expeditiously as possible; provided,
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<PAGE> 7
however, that in all cases the Holder shall use its best efforts to cooperate
with and assist the Company in such registration.
(ii) Prepare and file with the SEC as soon as practicable a
Registration Statement with respect to such shares and use its best efforts to
cause such Registration Statement to become effective and remain effective until
the shares covered by such Registration Statement have been sold;
(iii) Prepare and file with the SEC such amendments and
post-effective amendments to the Registration Statement, and such supplements to
the prospectus, as may be requested by the Holder or any underwriter or as may
be required by the rules, regulations or instructions applicable to the
registration form used by the Company or by the 1933 Act or rules and
regulations thereunder to keep the Registration Statement effective until all
shares covered by such Registration Statement are sold in accordance with the
intended plan of distribution set forth in such Registration Statement or
supplement to the prospectus.
(iv) With respect to the following, promptly notify the Holder
and the managing underwriter, if any, and (if requested by any such person)
confirm such notice in writing:
(A) when any prospectus or any supplement or post-effective
amendment has been filed, and, with respect to the Registration Statement or any
post-effective amendment, when the same has become effective;
(B) of any request by the SEC for amendments or supplements
to the Registration Statement or the prospectus or for additional information;
(C) of the issuance by the SEC of any stop order suspending
the effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose;
(D) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the shares for sale in any
jurisdiction or the initia tion or threatening of any proceeding for such
purpose; and
(E) of the existence of any fact which results in the
Registration Statement, any prospectus or any document incorporated therein by
reference containing a misstatement.
(v) Make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of the Registration Statement at the earliest
possible time.
(vi) If requested by the managing underwriter, if any,
immediately incorporate in a supplement or post-effective amendment such
information as the managing
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<PAGE> 8
underwriter agrees should be included therein relating to the sale of the shares
including, without limitation, information with respect to the number of shares
being sold to any underwriters, the purchase price being paid therefor by such
underwriters and with respect to any other terms of the underwritten offering of
the shares to be sold in such offering; and make all required filings of such
supplement or post-effective amendment as soon as notified of the matters to be
incorporated in such supplement or post-effective amendment.
(vii) Furnish to the Holder and the managing underwriter, if
any, without charge, at least one signed copy of the Registration Statement and
any post-effective amendments thereto, including financial statements and
schedules, all documents incorporated therein by reference and all exhibits
(including those incorporated by reference).
(viii) Deliver to the Holder and any underwriters, without
charge, as many copies of each prospectus (and each preliminary prospectus) as
such persons may reasonably request (the Company hereby consenting to the use of
each such prospectus (or preliminary prospectus) by the Holder and any
underwriters in connection with the offering and sale of the shares covered by
such prospectus (or preliminary prospectus)).
(ix) Prior to any public offering of shares, register or qualify
or cooperate with any underwriters and their respective counsel in connection
with the registration or qualification of such shares for offer and sale under
the securities or blue sky laws of such jurisdictions and do anything else
necessary or advisable to enable the disposition of the shares covered by the
Registration Statement in such jurisdictions; provided, however, that the
Company shall not be required to qualify generally to do business in any
jurisdiction where it is not then so qualified or to take any action which would
subject it to general service of process in any such jurisdiction where it is
not then so subject.
(x) Cooperate with the managing underwriter, if any, to
facilitate the timely preparation and delivery of certificates that do not bear
any restrictive legends and that represent the shares to be sold and cause such
shares to be in such denominations and registered in such names as the managing
underwriter may request at least three business days prior to any sale of shares
to the underwriters.
(xi) Use its best efforts to cause the shares covered by the
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the seller or
sellers thereof or the underwriters, if any, to consummate the disposition of
such shares.
(xii) If the Registration Statement or any prospectus contains a
misstatement, prepare a supplement or post-effective amendment to the
Registration Statement or the related prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of the shares, the prospectus will not contain a
misstatement.
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<PAGE> 9
(xiii) Enter into such agreements (including an underwriting
agreement) and do anything else necessary or advisable in order to expedite or
facilitate the disposition of such shares and:
(A) make such representations and warranties to the
underwriters, if any, in form, substance and scope as are customarily made by
issuers to underwriters in primary underwritten offerings;
(B) obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the managing underwriter, if any) addressed to the
underwriter, if any, covering the matters customarily covered in opinions
delivered to underwriters in primary underwritten offerings and such other
matters as may be reasonably requested by such underwriters;
(C) obtain "cold comfort" letters and updates thereof from
the Company's independent certified public accountants addressed to the
underwriters, if any; such letters shall be in customary form and covering
matters of the type customarily covered in "cold comfort" letters by
underwriters in connection with primary underwritten offerings; and
(D) deliver such documents and certificates as may be
requested by the managing underwriter, if any, to evidence compliance with
clause (A) above and with any customary conditions contained in the underwriting
agreement or other agreement entered into by the Company.
(f) The Company agrees to indemnify and hold harmless the Holder from
and against all claims arising out of or based upon any misstatement or alleged
misstatement, except insofar as such misstatement or alleged misstatement was
based upon information furnished in writing to the Company by the Holder for use
in the document containing such misstatement or alleged misstatement.
(g) If any action or proceeding (including any governmental
investigation or inquiry) shall be brought or asserted against the Holder in
respect of which indemnity may be sought from the Company, the Holder shall
promptly notify the Company in writing, and the Company shall assume the defense
thereof, including the employment of counsel satisfactory to the Holder and the
payment of all expenses.
The Holder shall have the right to employ separate counsel in any
such action and to participate in the defense thereof, but the fees and expenses
of such separate counsel shall be the expense of the Holder unless (i) the
Company has agreed to pay such fees and expenses, (ii) the Company has failed to
assume the defense of such action or proceeding or has failed to employ counsel
satisfactory to the Holder in any such action or proceeding or (iii) the named
parties to any such action or proceeding (including any impleaded parties)
include both the Holder and the Company, and the Holder shall have been advised
by counsel that
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<PAGE> 10
there may be one or more legal defenses available to the Holder that are
different from or additional to those available to the Company.
If the Holder notifies the Company in writing that it elects to
employ separate counsel at the Company's expense as permitted by the provisions
of the preceding paragraph, the Company shall not have the right to assume the
defense of such action or proceeding on behalf of the Holder. The foregoing
notwithstanding, the Company shall not be liable for the reasonable fees and
expenses of more than one separate firm of attorneys at any time for the Holder
in connection with any one such action or proceeding or separate but
substantially similar or related actions or proceedings in the same jurisdiction
arising out of the same general allegations or circumstances.
(h) The Holder agrees to indemnify and hold harmless the Company, its
directors, officers, employees, agents and attorneys and each person, if any,
who controls the Company within the meaning of either Section 15 of the 1933 Act
or Section 20 of the Securities Exchange Act of 1934, as amended (the "1934
Act") to the same extent as the foregoing indemnity from the Company to the
Holder, with respect to information relating to the Holder furnished in writing
by the Holder for use in any Registration Statement, prospectus or preliminary
prospectus.
In case any action or proceeding shall be brought against the Company
or its directors or officers or any such controlling person, in respect of which
indemnity may be sought against the Holder, the Company or its directors or
officers or such controlling person shall have the rights and duties given to
the Holder by Sections 10(f) and 10(g) above.
(i) Holder's rights hereunder shall terminate at such time as Holder
may within any three-month period sell in the public marketplace all of the
Option Shares owned by Holder pursuant to Rule 144 promulgated under the 1933
Act or any successor rule or regulation.
12. Nontransferability. The Option is not transferable other than (a) by
operation of law, (b) to one or more trusts of which the Holder is a trustor, or
(c) by will or the laws of descent and distribution. The Option may be exercised
during the lifetime of the Holder only by the Holder or his court-appointed
legal representative.
13. Warranties and Representations of the Holder. By executing this
Agreement, the Holder accepts the Option and represents and warrants to the
Company and covenants and agrees with the Company as follows:
(a) The Holder acknowledges that no registration statement under the
1933 Act or under any state securities law has been filed and that the Company
has no obligation to file such a registration statement in the future with
respect to the Option or any Option Shares that may be acquired upon exercise of
the Option or any portion thereof, except as otherwise provided by Section 10
hereof.
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<PAGE> 11
(b) The Holder warrants and represents that the Option and any Option
Shares acquired upon exercise of the Option or any portion thereof will be
acquired and held by the Holder for the Holder's own account, for investment
purposes only, and not with a view towards the distribution or public offering
thereof or with any present intention of reselling or distributing the same at
any particular future time.
(c) The Holder agrees not to sell, transfer or otherwise voluntarily
dispose of any Option Shares that may be acquired upon exercise of the Option or
any portion thereof unless (i) there is an effective registration statement
under the 1933 Act covering the proposed disposition and compliance with
governing state securities laws, (ii) the Holder delivers to the
Company, at the Holder's expense, a "no-action" letter or similar interpretative
opinion, satisfactory in form and substance to the Company, from the staff of
each appropriate securities agency, to the effect that such shares may be
disposed of by the Holder in the manner proposed, or (iii) the Holder delivers
to the Company, or legal counsel designated by the Holder and reasonably
satisfactory to the Company, to the effect that the proposed disposition is
exempt from registration under the 1933 Act and governing state securities laws.
(d) The Holder acknowledges and consents to the appearance of a
restrictive legend, in substantially the following form:
NOTICE: RESTRICTIONS ON TRANSFER
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, OR ANY STATE SECURITIES
LAWS, AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, ENCUMBERED, OR
OTHERWISE DISPOSED OF EXCEPT UPON SATISFACTION OF CERTAIN CONDITIONS.
INFORMATION CONCERNING THESE RESTRICTIONS MAY BE OBTAINED FROM THE
CORPORATION. ANY OFFER OR DISPOSITION OF THESE SECURITIES WITHOUT
SATISFACTION OF SAID CONDITIONS WILL BE WRONGFUL AND WILL NOT ENTITLE
THE TRANSFEREE TO REGISTER OWNERSHIP OF THE SECURITIES WITH THE
CORPORATION.
(i) The Holder agrees not to sell, transfer or otherwise dispose of
the Option, except as specifically permitted by this Agreement and any
applicable securities laws.
14. Warranties and Representations of the Company.
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware.
(b) The grant of the Option to the Holder has been duly authorized by
all requisite corporation action on the part of the Company and the Preferred
Stock and upon the occurrence of the Conversion Events the shares of Common
Stock represented by the Option will have been properly reserved for issuance.
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<PAGE> 12
(c) The number of shares of Preferred Stock and upon the occurrence
of the Conversion Events the shares of Common Stock represented by the Option
(when coupled with all shares of Preferred Stock or Common Stock currently
outstanding and all Option Shares to be issued upon the exercise of all other
currently outstanding options granted by the Company) does not exceed the number
of shares of Preferred Stock or Common Stock, as the case may be, currently
authorized for issuance by the Company's Certificate of Incorporation, as
amended (the "Certificate").
(d) No consents, approvals or permits are required to be obtained
from any third person, including, without limitation, any securities commission,
before the grant of the Option, nor do any conditions precedent exist (other
than those specifically identified herein) that would impair the Company's
ability to grant the Option hereunder or issue the Option Shares upon the
exercise of all or any portion of the Option.
(e) No Registration Statement involving the Preferred Stock or Common
Stock is currently on file with the SEC.
15. Procedures Upon Permitted Transfer. Before any sale, transfer or other
disposition of any of Option Shares acquired upon exercise of the Option, the
Holder agrees to give written notice to the Company of his or her intention to
effect such disposition. The notice must describe the circumstances of the
proposed transfer in reasonable detail and must specify the manner in which the
requirements of Section 12(c) above will be satisfied in connection with the
proposed disposition. After (a) legal counsel to the Company has determined in
good faith that the requirements of Section 12(c) above will be satisfied and
(b) the Holder has executed such documentation as may be necessary to effect the
proposed disposition, the Company will, as soon as practicable, transfer such
shares in accordance with the terms of the notice. Any stock certificate issued
upon such transfer will bear a restrictive legend, in the form set forth in
Section 12(d) of this Agreement, unless in the opinion of the Company's legal
counsel such legend is not required. Compliance with the foregoing procedures is
in addition to compliance with any separate requirements applicable to the
Holder under the Certificate or otherwise.
16. Rights as Stockholder. The Option, in and of itself, does not create
rights in the Holder as a stockholder of the Company; provided that upon any
such exercise of the Option or any portion thereof that complies with the
requirements of this Agreement, the Holder shall immediately be vested with all
the rights afforded to other stockholders of the Company, regardless of when the
Company actually delivers certificates representing Option Shares to the Holder.
17. Further Assurances. The Holder and the Company agree, from time to
time, to execute such additional documents as the other party hereto may
reasonably require to effectuate the purposes of this Agreement.
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<PAGE> 13
18. Binding Effect. This Agreement shall be binding upon the Holder, the
Company, the Holder's heirs, successors and assigns, and any corporation or
other entity that succeeds to the rights and liabilities of the Company.
19. Cost of Litigation. In any action at law or in equity or any
arbitration to enforce any of the provisions or rights under this Agreement, the
unsuccessful party to such litigation, as determined by the court or arbitrator
in a final judgment or decree, shall pay the successful party or parties all
costs, expenses and reasonable attorneys' fees incurred by the successful party
or parties (including without limitation costs, expenses and fees on any
appeals), and if the successful party recovers judgment in any such action or
proceeding, such costs, expenses and attorneys' fees shall be included as part
of the judgment.
20. Entire Agreement; Modifications. This Agreement constitutes the entire
agreement and understanding between the Company and the Holder regarding the
subject matter hereof. No modification of the Option or this Agreement, or
waiver of any provision of this Agreement, shall be valid unless in writing and
duly executed by the Company and the Holder. The failure of any party to enforce
any of that party's rights against the other party for breach of any of the
terms of this Agreement shall not be construed as a waiver of such rights as to
any continued or subsequent breach.
21. Governing Law. This Agreement shall be governed by and interpreted
under the law of the State of California applicable to agreements wholly
negotiated, executed and to be performed in that state.
22. Notices. Any notices that either party to this Agreement is required
or may desire to give to the other shall be given by sending the same to the
other at the address below, or at such other address as may be designated in
writing by any party in a notice to the other given in the manner prescribed in
this Section 21. All such notices shall be sufficiently given when deposited so
addressed, postage prepaid, in the United States mail. The addresses to which
any such notices shall be given are the following:
To Holder:
Gerald M. Wetzler
c/o American Film Technologies, Inc.
300 Park Avenue, 17th Floor
New York, New York 10022
With copy to:
Lee Mermelstein, Esq.
Jacobson & Mermelstein
52 Vanderbuilt Avenue
New York, New York 10017
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<PAGE> 14
To the Company:
4105 Sorrento Valley Boulevard
San Diego, California 92121
Attention: Chief Financial Officer
With copy to:
Barry L. Burten, Esq.
Jeffer, Mangels, Butler & Marmaro LLP
2121 Avenue of the Stars, 10th Floor
Los Angeles, California 90067
23. Severability. Whenever possible, each provision of this Agreement
shall be interpreted so as to be effective and valid under applicable law. If
any provision of this Agreement is prohibited or deemed invalid under any
applicable law, however, such provision shall be ineffective only to the extent
of such prohibition or invalidity, and neither the remainder of such provision
nor this Agreement shall be invalidated as a result.
24. Counterparts. This Agreement may be executed by the parties in one or
more counterparts, all of which taken together shall constitute one instrument.
25. Jurisdiction. The parties hereto agree to submit to the exclusive
jurisdiction of the Superior Court of the State of California, County of Los
Angeles, 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.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
"Company" American Film Technologies, Inc.
By: /s/ John Karl
--------------------------------------------
John Karl
Its: Chief Financial Officer
"Holder" /s/ Gerald M. Wetzler
--------------------------------------------
Gerald M. Wetzler
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<PAGE> 15
Form of Exercise of Option
EXHIBIT A
To: American Film Technologies, Inc.
4105 Sorrento Valley Boulevard
San Diego, California 92121
The undersigned holds an option (the "Option") represented by a Stock
Option Agreement (the "Agreement") effective as of June 17, 1996. The
undersigned hereby exercises [the Option] [a portion of the Option] and elects
to purchase ____________ shares of {Common Stock}{Preferred Stock} (as defined
in the Agreement) of American Film Technologies, Inc. pursuant to the Option.
This notice is accompanied by full payment of the Exercise Price for the shares
pursuant to Section 4 of the Agreement computed as follows:
__________ shares of Preferred Stock x $.24 per share = $________
__________ shares of Common Stock x $.12 per share = $________
The undersigned acknowledges that no registration statement under the
Securities Act of 1933, as amended, or under any state securities law has been
filed and that the Company has no obligation to file such a registration
statement in the future with respect to the Shares, except as provided in
Section 9 of the Agreement. The undersigned warrants and represents that the
undersigned is acquiring and will hold the shares for the undersigned's own
account, for investment purposes only, and not with a view towards the
distribution or public offering of the shares or with any present intention of
reselling or distributing the shares at any particular future time. The
undersigned consents to the appearance of a restrictive legend, in the form
required by Section 12(d) of the Agreement, on the certificate for the shares.
The undersigned agrees not to sell, transfer or otherwise dispose of the shares
except as specifically permitted by the Agreement or any applicable securities
law expressly permitting such a disposition.
Date: , .
-------------- -- ----
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<PAGE> 1
EXHIBIT 10.19
THE SECURITIES OFFERED BY THIS INSTRUMENT HAVE NOT BEEN REGIS TERED OR QUALIFIED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE, AND ANY SALE OF SUCH SECURITIES IS SUBJECT TO COMPLIANCE WITH, OR THE
AVAILABILITY OF EXEMPTIONS FROM COMPLIANCE WITH, THE REGISTRATION AND
QUALIFICATION REQUIREMENTS OF SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
THIS INSTRUMENT DOES NOT CONSTITUTE AN OFFER OR SOLICITATION TO ANY PERSON IN
ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION MAY NOT LAWFULLY BE MADE.
TRANSFER OF THIS INSTRUMENT AND THE SECURITIES OFFERED HEREBY IS RESTRICTED AS
PROVIDED IN SECTIONS 12, 13 AND 15 BELOW.
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (the "Agreement") dated September 12, 1997
(the "Effective Date") is entered into by and between American Film
Technologies, Inc., a Delaware corporation (the "Company"), and Gerald M.
Wetzler (the "Holder").
R E C I T A L S
WHEREAS, the Company and the Holder have entered into the Stock Option
Agreements dated June 17, 1996 (the "June 1996 Option") and January 3, 1997 (the
"January 1997 Option");
WHEREAS, in recognition of Holder's ongoing services on behalf of the
Company, the Company's deteriorating financial condition and Holder's desire to
further invest in the Company, the Holder and the Company wish to terminate the
June 1996 Option and the January 1997 Option and to enter into the Agreement;
WHEREAS, pursuant to the Agreement the Holder agrees to terminate the June
1996 Option and the January 1997 Option and Company has agreed to sell to the
Holder for One Hundred and Thirty Thousand Dollars ($130,000) an Option to
purchase Thirty Million (30,000,000) shares of the Company's, $.002 par value
per share common stock (the "Common Stock") at an exercise price of One Cent
($.01) per share;
NOW, THEREFORE, the Company and the Holder covenant and agree as follows:
<PAGE> 2
1. Termination of Options. As of the Effective Date, the June 1996 Option
and the January 1997 Option shall terminate and all unexercised options issuable
pursuant to the June 1996 Option and the January 1997 Option shall also
terminate and no longer be exercisable (the "Option Terminations").
2. Grant of the Option. In recognition of the Option Termination and for
the sum of One Hundred and Thirty Thousand Dollars ($130,000)(collectively the
"Option Price"), the receipt of which is hereby acknowledged, the Company hereby
grants to the Holder the Option to acquire from the Company, from time to time
on the terms and conditions set forth herein, all or any portion of an aggregate
of Thirty Million (30,000,000) shares of Common Stock (the "Option Shares").
3. Exercise Price. The exercise price of the Option Shares shall be One
Cent ($.01) per share (the "Exercise Price"). Each of the number of Option
Shares into which the Option Shares is exercisable and the Exercise Price of the
Option Shares is subject to adjustment as provided in Section 5 hereof.
4. Term of the Option. The Option will have a two year term (the "Option
Term") commencing on the date hereof and terminating as of 5:00 p.m. (New York
time) on September 12, 1999 (the "Expiration Date").
5. Vesting; Exercise. Commencing as of 5:00 p.m. (New York time) on April
12, 1998 (the "Vesting Date"), during remainder of the Option Term the Holder
shall have the right to exercise all or any portion of the Option and receive
the Option Shares represented thereby. Prior to the Vesting Date no portion of
the Option Shares may be exercised.
6. Adjustments Upon Changes in Capitalization or Other Significant Events.
(a) 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 the Option 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
the Preferred Stock is convertible or upon the occurrence of the Conversion
Events, the Option is exercisable and to the Exercise Price, with the result
that the Holder's proportionate share of Common Stock which the Option may
convert into shall be maintained as before the occurrence of such event without
change in the aggregate exercise price applicable in the event the Holder
elected to exercise the Option in full (except for any change in the aggregate
exercise price resulting from rounding-off of share quantities or prices).
(b) In the event the Company (or any other corporation, the
securities of which are receivable at the time upon exercise of the Option)
shall effect a plan of reorganization,
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<PAGE> 3
recapitalization, reclassification or other like capital transaction or shall
merge or consolidate with or into another corporation or shall convey all or
substantially all of its assets to another corporation (collectively, any such
event being referred to as a "Material Alteration Event") at any time or from
time to time throughout the term of the Option, then in each such case the
Holder, upon any exercise of the Option at any time after the consummation of
such a Material Alteration Event shall be entitled to receive (in lieu of the
securities or other property to which the Holder would have been entitled to
receive upon exercise prior to such consummation) the securities or other
property to which the Holder would have been entitled to have received upon
consummation of the Material Alteration Event without adjustment to the
aggregate exercise price applicable in the event the Holder elected to exercise
the Option in full (except for any change in the aggregate exercise price
resulting from rounding-off of share quantities or prices), and all subject to
further adjustment as provided in Section 6(a) hereof; provided that prior to
consummating any Material Alteration Event, the Company shall have complied with
its obligations in Section 7 hereof.
7. Obligation to Redeem Option.
(a) In the event that the Company intends to consummate a Material
Alteration Event at any time during the Option Term, in addition to any rights
granted to the holder by Section 6(b) hereof, it shall provide the Holder with
written notice thereof no less than thirty (30) days prior to the consummation
thereof. The Holder shall thereafter have the right, exercisable at any time
prior to the third (3rd) business day immediately preceding the consummation of
the Material Alteration Event, to obligate the Company to redeem the Option in
its entirety (but not only a portion thereof) at a price equivalent to (a) the
average of the daily closing prices per share of Common Stock for the five (5)
consecutive business days immediately preceding the Material Alteration Event on
the principal national securities exchange on which the Common Stock is listed
or admitted to trading or, if not so listed or admitted, on the National Market
System, as reported by NASDAQ, or if not admitted to trading thereon, the
average of the closing bid and listed prices in the over-the-counter market as
reported by NASDAQ less (b) the Exercise Price at such time (as adjusted in
accordance with Section 6 hereof), such resulting amount multiplied by the
aggregate number of shares of Common Stock into which the Option is exercisable
(or would be exercisable upon the occurrence of the Conversion Events) at the
time of such redemption.
(b) In the event that the Holder elects to have the Option redeemed,
it shall surrender the Option along with its notice of the election to redeem
the Option pursuant to 7(a) above. The Company shall pay to Holder the payment
calculated in Section 7(a) hereof, which payment shall be made within five (5)
days after the consummation of the Material Alteration Event.
(c) If the Company fails to notify the Holder of the intended
consummation of a Material Alteration Event, the Holder's right to obligate the
Company to redeem the Option shall remain in full force and effect until the
earlier of (i) the tenth (10th) business day following the giving of proper
notice by the Company to the Holder as to the Material Alteration Event or
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<PAGE> 4
(ii) the expiration of the Option, in either case at the same price as would
have been applicable to such redemption if such notice had been duly delivered.
(d) If the Holder elects to have the Option redeemed and if the
Material Alteration Event is not consummated the Holder's redemption of the
Option shall be nullified, the Option shall be promptly returned to the Holder
and the Holder will continue to have all rights with respect to the Option as
set forth in this Agreement.
(e) If, as a result of any Material Alteration Event, the Company
ceases to exist, the Company shall have caused any successor corporation thereto
to assume the Option and the obligations under this Agreement, and such
successor corporation shall be bound by the provisions hereunder, including,
without limitation, this Section 7.
8. Exercise of the Option. To exercise all or any portion of the Option,
the Holder must do the following:
(a) deliver to the Company a written notice, in the form of the
attached Exhibit A, specifying the number of shares of Preferred Stock or Common
Stock for which the Option is being exercised;
(b) surrender the Agreement to the Company upon complete exercise of
the Option;
(c) tender payment, either in cash or in such other manner as the
Board of Directors of the Company (the "Board"), in its sole discretion, shall
approve, of the aggregate Exercise Price for the Option Shares for which the
Option is being exercised;
(d) pay, or make arrangements satisfactory to the Board for payment
to the Company of, all federal, state and local taxes, if any, required to be
withheld by the Company in connection with the exercise of the Option or the
relevant portion thereof; and
(e) execute and deliver to the Company any other documents required
from time to time by the Company in order to promote compliance with the
Securities Act of 1933, as amended (the "1933 Act"), applicable state securities
laws, or any other applicable law, rule or regulation.
9. Delivery of Share Certificate. As soon as practicable after the Option
or any portion thereof has been duly exercised, the Company will deliver to the
Holder a certificate representing the Option Share for which the Option was
exercised. Unless the Option has expired or been exercised in full, the Company
and the Holder agree that the Company may affix to this Agreement an appropriate
notation indicating the number and kind of Option Shares for which the Option
was exercised and return this Agreement to the Holder. If any law or regulation
of the Securities and Exchange Commission (the "SEC") or of any other federal or
state governmental body having jurisdiction shall require the Company or the
Holder to take any action prior to
4
<PAGE> 5
issuance to the Holder of the Option Shares specified in the written notice of
exercise, or if any listing agreement between the Company and any national
securities exchange requires such shares to be listed prior to issuance, the
date for the delivery of such shares shall be adjourned until the completion of
such action and/or such listing.
10. Fractional Shares. In no event shall the Company be required to issue
fractional shares upon the exercise of any portion of the Option.
11. Piggy-back Registration Rights; Indemnification.
(a) Subject to Section 11(i) below, and so long as Holder holds or
has the right to acquire any Option Share, in the event the Company decides to
file a registration statement ("Registration Statement") under the 1933 Act on
SEC Forms S-1 or S-3 or any other applicable form that covers the offer and sale
by the Company or any holders of Common Stock any of the Company's securities
for money (a "Company Registration"), the Company shall give written notice (a
"Registration Notice") thereof to the Holder. If the Company receives a written
request to include in the Company Registration all or a portion of the Holder's
shares within thirty (30) days after a Registration Notice is given, the Company
shall include such shares in the Company Registration. If the Company
Registration is to cover an underwritten offering, such shares shall be included
in the underwriting on the same terms and conditions as the securities otherwise
being sold through the underwriters.
(b) If in the good faith judgment of the managing underwriter of an
offering related to a Company Registration, to include any or all of the shares
requested to be registered by the Holder would interfere with the successful
marketing of the Company's securities or any other holder's securities, if such
Company Registration of such holder's securities is pursuant to a demand
registration right, then the amount of shares to be included in such public
offering shall be reduced to the amount allowed by the managing underwriter in
its good faith judgment. If such reduction occurs it shall be on a pro rata
basis with all other selling stockholders in such Company registration.
(c) The Company may decline to file a Registration Statement after
giving a Registration Notice, or withdraw a Registration Statement after filing
and after a Registration Notice, but prior to the effectiveness thereof;
provided (i) that the Company shall promptly notify the Holder, in writing, of
any such action; and (ii) that the Company shall bear all expenses incurred by
the Holder in connection with such withdrawn Registration Statement.
(d) 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 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 Holder's shares),
rating agency fees, printing expenses (including
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<PAGE> 6
expenses of printing certificates for the Holder's shares 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"), will be borne by the Company, provided that in no
event shall Registration Expenses include (A) any underwriting discounts or
commissions attributable to the sale of the Holder's shares, (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 Company Registration,
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 during the
period referred to in Section 9(e)(ii) hereof, the Company shall pay all
printing costs associated with the printing of such supplemental or amended
prospectus to be distributed in connection with sales of securities pursuant
thereto.
(e) If and whenever the Company elects to file a Registration
Statement and is hereby required in connection therewith to register the
Holder's shares, the Company will:
(i) Use its best efforts to effect such registration to permit
the sale of such shares in accordance with the intended plan of distribution
thereof, and pursuant thereto the Company will take the actions set forth below
as expeditiously as possible; provided, however, that in all cases the Holder
shall use its best efforts to cooperate with and assist the Company in such
registration.
(ii) Prepare and file with the SEC as soon as practicable a
Registration Statement with respect to such shares and use its best efforts to
cause such Registration Statement to become effective and remain effective until
the shares covered by such Registration Statement have been sold;
(iii) Prepare and file with the SEC such amendments and
post-effective amendments to the Registration Statement, and such supplements to
the prospectus, as may be requested by the Holder or any underwriter or as may
be required by the rules, regulations or instructions applicable to the
registration form used by the Company or by the 1933 Act or rules and
regulations thereunder to keep the Registration Statement effective until all
shares covered by such Registration Statement are sold in accordance with the
intended plan of distribution set forth in such Registration Statement or
supplement to the prospectus.
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<PAGE> 7
(iv) With respect to the following, promptly notify the Holder
and the managing underwriter, if any, and (if requested by any such person)
confirm such notice in writing:
A. when any prospectus or any supplement or post-effective
amendment has been filed, and, with respect to the Registration Statement or any
post-effective amendment, when the same has become effective;
B. of any request by the SEC for amendments or supplements
to the Registration Statement or the prospectus or for additional information;
C. of the issuance by the SEC of any stop order suspending
the effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose;
D. of the receipt by the Company of any notification with
respect to the suspension of the qualification of the shares for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose; and
E. of the existence of any fact which results in the
Registration Statement, any prospectus or any document incorporated therein by
reference containing a misstatement.
(v) Make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of the Registration Statement at the earliest
possible time.
(vi) If requested by the managing underwriter, if any,
immediately incorporate in a supplement or post-effective amendment such
information as the managing underwriter agrees should be included therein
relating to the sale of the shares including, without limitation, information
with respect to the number of shares being sold to any underwriters, the
purchase price being paid therefor by such underwriters and with respect to any
other terms of the underwritten offering of the shares to be sold in such
offering; and make all required filings of such supplement or post-effective
amendment as soon as notified of the matters to be incorporated in such
supplement or post-effective amendment.
(vii) Furnish to the Holder and the managing underwriter, if
any, without charge, at least one signed copy of the Registration Statement and
any post-effective amendments thereto, including financial statements and
schedules, all documents incorporated therein by reference and all exhibits
(including those incorporated by reference).
(viii) Deliver to the Holder and any underwriters, without
charge, as many copies of each prospectus (and each preliminary prospectus) as
such persons may reasonably request (the Company hereby consenting to the use of
each such prospectus (or preliminary prospectus) by the Holder and any
underwriters in connection with the offering and sale of the shares covered by
such prospectus (or preliminary prospectus)).
7
<PAGE> 8
(ix) Prior to any public offering of shares, register or qualify
or cooperate with any underwriters and their respective counsel in connection
with the registration or qualification of such shares for offer and sale under
the securities or blue sky laws of such jurisdictions and do anything else
necessary or advisable to enable the disposition of the shares covered by the
Registration Statement in such jurisdictions; provided, however, that the
Company shall not be required to qualify generally to do business in any
jurisdiction where it is not then so qualified or to take any action which would
subject it to general service of process in any such jurisdiction where it is
not then so subject.
(x) Cooperate with the managing underwriter, if any, to
facilitate the timely preparation and delivery of certificates that do not bear
any restrictive legends and that represent the shares to be sold and cause such
shares to be in such denominations and registered in such names as the managing
underwriter may request at least three business days prior to any sale of shares
to the underwriters.
(xi) Use its best efforts to cause the shares covered by the
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the seller or
sellers thereof or the underwriters, if any, to consummate the disposition of
such shares.
(xii) If the Registration Statement or any prospectus contains a
misstatement, prepare a supplement or post-effective amendment to the
Registration Statement or the related prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of the shares, the prospectus will not contain a
misstatement.
(xiii) Enter into such agreements (including an underwriting
agreement) and do anything else necessary or advisable in order to expedite or
facilitate the disposition of such shares and:
F. make such representations and warranties to the
underwriters, if any, in form, substance and scope as are customarily made by
issuers to underwriters in primary underwritten offerings;
G. obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the managing underwriter, if any) addressed to the
underwriter, if any, covering the matters customarily covered in opinions
delivered to underwriters in primary underwritten offerings and such other
matters as may be reasonably requested by such underwriters;
H. obtain "cold comfort" letters and updates thereof from
the Company's independent certified public accountants addressed to the
underwriters, if any; such letters shall be in customary form and covering
matters of the type customarily covered in "cold comfort" letters by
underwriters in connection with primary underwritten offerings; and
8
<PAGE> 9
I. deliver such documents and certificates as may be
requested by the managing underwriter, if any, to evidence compliance with
clause (A) above and with any customary conditions contained in the underwriting
agreement or other agreement entered into by the Company.
(f) The Company agrees to indemnify and hold harmless the Holder from
and against all claims arising out of or based upon any misstatement or alleged
misstatement, except insofar as such misstatement or alleged misstatement was
based upon information furnished in writing to the Company by the Holder for use
in the document containing such misstatement or alleged misstatement.
(g) If any action or proceeding (including any governmental
investigation or inquiry) shall be brought or asserted against the Holder in
respect of which indemnity may be sought from the Company, the Holder shall
promptly notify the Company in writing, and the Company shall assume the defense
thereof, including the employment of counsel satisfactory to the Holder and the
payment of all expenses.
The Holder shall have the right to employ separate counsel in any
such action and to participate in the defense thereof, but the fees and expenses
of such separate counsel shall be the expense of the Holder unless (i) the
Company has agreed to pay such fees and expenses, (ii) the Company has failed to
assume the defense of such action or proceeding or has failed to employ counsel
satisfactory to the Holder in any such action or proceeding or (iii) the named
parties to any such action or proceeding (including any impleaded parties)
include both the Holder and the Company, and the Holder shall have been advised
by counsel that there may be one or more legal defenses available to the Holder
that are different from or additional to those available to the Company.
If the Holder notifies the Company in writing that it elects to
employ separate counsel at the Company's expense as permitted by the provisions
of the preceding paragraph, the Company shall not have the right to assume the
defense of such action or proceeding on behalf of the Holder. The foregoing
notwithstanding, the Company shall not be liable for the reasonable fees and
expenses of more than one separate firm of attorneys at any time for the Holder
in connection with any one such action or proceeding or separate but
substantially similar or related actions or proceedings in the same jurisdiction
arising out of the same general allegations or circumstances.
(h) The Holder agrees to indemnify and hold harmless the Company, its
directors, officers, employees, agents and attorneys and each person, if any,
who controls the Company within the meaning of either Section 15 of the 1933 Act
or Section 20 of the Securities Exchange Act of 1934, as amended (the "1934
Act") to the same extent as the foregoing indemnity from the Company to the
Holder, with respect to information relating to the Holder furnished in writing
by the Holder for use in any Registration Statement, prospectus or preliminary
prospectus.
9
<PAGE> 10
In case any action or proceeding shall be brought against the Company
or its directors or officers or any such controlling person, in respect of which
indemnity may be sought against the Holder, the Company or its directors or
officers or such controlling person shall have the rights and duties given to
the Holder by Sections 11(f) and 11(g) above.
(i) Holder's rights hereunder shall terminate at such time as Holder
may within any three-month period sell in the public marketplace all of the
Option Shares owned by Holder pursuant to Rule 144 promulgated under the 1933
Act or any successor rule or regulation.
12. Nontransferability. The Option is not transferable other than (a) by
operation of law, (b) to one or more trusts of which the Holder is a trustor, or
(c) by will or the laws of descent and distribution. The Option may be exercised
during the lifetime of the Holder only by the Holder or his court-appointed
legal representative.
13. Warranties and Representations of the Holder. By executing this
Agreement, the Holder accepts the Option and represents and warrants to the
Company and covenants and agrees with the Company as follows:
(a) The Holder acknowledges that no registration statement under the
1933 Act or under any state securities law has been filed and that the Company
has no obligation to file such a registration statement in the future with
respect to the Option or any Option Shares that may be acquired upon exercise of
the Option or any portion thereof, except as otherwise provided by Section 11
hereof.
(b) The Holder warrants and represents that the Option and any Option
Shares acquired upon exercise of the Option or any portion thereof will be
acquired and held by the Holder for the Holder's own account, for investment
purposes only, and not with a view towards the distribution or public offering
thereof or with any present intention of reselling or distributing the same at
any particular future time.
(c) The Holder agrees not to sell, transfer or otherwise voluntarily
dispose of any Option Shares that may be acquired upon exercise of the Option or
any portion thereof unless (i) there is an effective registration statement
under the 1933 Act covering the proposed disposition and compliance with
governing state securities laws, (ii) the Holder delivers to the Company, at the
Holder's expense, a "no-action" letter or similar interpretative opinion,
satisfactory in form and substance to the Company, from the staff of each
appropriate securities agency, to the effect that such shares may be disposed of
by the Holder in the manner proposed, or (iii) the Holder delivers to the
Company, or legal counsel designated by the Holder and reasonably satisfactory
to the Company, an opinion of such counsel to the effect that the proposed
disposition is exempt from registration under the 1933 Act and governing state
securities laws.
(d) The Holder acknowledges and consents to the appearance of a
restrictive legend, in substantially the following form:
10
<PAGE> 11
NOTICE: RESTRICTIONS ON TRANSFER
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, OR ANY STATE SECURITIES
LAWS, AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, ENCUMBERED, OR
OTHERWISE DISPOSED OF EXCEPT UPON SATISFACTION OF CERTAIN CONDITIONS.
INFORMATION CONCERNING THESE RESTRICTIONS MAY BE OBTAINED FROM THE
CORPORATION. ANY OFFER OR DISPOSITION OF THESE SECURITIES WITHOUT
SATISFACTION OF SAID CONDITIONS WILL BE WRONGFUL AND WILL NOT ENTITLE
THE TRANSFEREE TO REGISTER OWNERSHIP OF THE SECURITIES WITH THE
CORPORATION.
(e) The Holder agrees not to sell, transfer or otherwise dispose of
the Option, except as specifically permitted by this Agreement and any
applicable securities laws.
14. Warranties and Representations of the Company.
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware.
(b) The grant of the Option to the Holder has been duly authorized by
all requisite corporation action on the part of the Company and the Preferred
Stock and upon the occurrence of the Conversion Events the shares of Common
Stock represented by the Option will have been properly reserved for issuance.
(c) The number of shares of Preferred Stock and upon the occurrence
of the Conversion Events the shares of Common Stock represented by the Option
(when coupled with all shares of Preferred Stock or Common Stock currently
outstanding and all Option Shares to be issued upon the exercise of all other
currently outstanding options granted by the Company) does not exceed the number
of shares of Preferred Stock or Common Stock, as the case may be, currently
authorized for issuance by the Company's Certificate of Incorporation, as
amended (the "Certificate").
(d) No consents, approvals or permits are required to be obtained
from any third person, including, without limitation, any securities commission,
before the grant of the Option, nor do any conditions precedent exist (other
than those specifically identified herein) that would impair the Company's
ability to grant the Option hereunder or issue the Option Shares upon the
exercise of all or any portion of the Option.
(e) No Registration Statement involving the Preferred Stock or Common
Stock is currently on file with the SEC.
15. Procedures Upon Permitted Transfer. Before any sale, transfer or other
disposition of any of Option Shares acquired upon exercise of the Option, the
Holder agrees to give written notice to the Company of his or her intention to
effect such disposition. The notice must describe
11
<PAGE> 12
the circumstances of the proposed transfer in reasonable detail and must specify
the manner in which the requirements of Section 13(c) above will be satisfied in
connection with the proposed disposition. After (a) legal counsel to the Company
has determined in good faith that the requirements of Section 13(c) above will
be satisfied and (b) the Holder has executed such documentation as may be
necessary to effect the proposed disposition, the Company will, as soon as
practicable, transfer such shares in accordance with the terms of the notice.
Any stock certificate issued upon such transfer will bear a restrictive legend,
in the form set forth in Section 13(d) of this Agreement, unless in the opinion
of the Company's legal counsel such legend is not required. Compliance with the
foregoing procedures is in addition to compliance with any separate requirements
applicable to the Holder under the Certificate or otherwise.
16. Rights as Stockholder. The Option, in and of itself, does not create
rights in the Holder as a stockholder of the Company; provided that upon any
such exercise of the Option or any portion thereof that complies with the
requirements of this Agreement, the Holder shall immediately be vested with all
the rights afforded to other stockholders of the Company, regardless of when the
Company actually delivers certificates representing Option Shares to the Holder.
17. Further Assurances. The Holder and the Company agree, from time to
time, to execute such additional documents as the other party hereto may
reasonably require to effectuate the purposes of this Agreement.
18. Binding Effect. This Agreement shall be binding upon the Holder, the
Company, the Holder's heirs, successors and assigns, and any corporation or
other entity that succeeds to the rights and liabilities of the Company.
19. Cost of Litigation. In any action at law or in equity or any
arbitration to enforce any of the provisions or rights under this Agreement, the
unsuccessful party to such litigation, as determined by the court or arbitrator
in a final judgment or decree, shall pay the successful party or parties all
costs, expenses and reasonable attorneys' fees incurred by the successful party
or parties (including without limitation costs, expenses and fees on any
appeals), and if the successful party recovers judgment in any such action or
proceeding, such costs, expenses and attorneys' fees shall be included as part
of the judgment.
20. Entire Agreement; Modifications. This Agreement constitutes the entire
agreement and understanding between the Company and the Holder regarding the
subject matter hereof. No modification of the Option or this Agreement, or
waiver of any provision of this Agreement, shall be valid unless in writing and
duly executed by the Company and the Holder. The failure of any party to enforce
any of that party's rights against the other party for breach of any of the
terms of this Agreement shall not be construed as a waiver of such rights as to
any continued or subsequent breach.
12
<PAGE> 13
21. Governing Law. This Agreement shall be governed by and interpreted
under the law of the State of California applicable to agreements wholly
negotiated, executed and to be performed in that state.
22. Notices. Any notices that either party to this Agreement is required
or may desire to give to the other shall be given by sending the same to the
other at the address below, or at such other address as may be designated in
writing by any party in a notice to the other given in the manner prescribed in
this Section 21. All such notices shall be sufficiently given when deposited so
addressed, postage prepaid, in the United States mail. The addresses to which
any such notices shall be given are the following:
To Holder:
Gerald M. Wetzler
c/o American Film Technologies, Inc.
300 Park Avenue, 17th Floor
New York, New York 10022
With copy to:
Lee Mermelstein, Esq.
Jacobson & Mermelstein
52 Vanderbuilt Avenue
New York, New York 10017
To the Company:
4105 Sorrento Valley Boulevard
San Diego, California 92121
Attention: Chief Financial Officer
With copy to:
Barry L. Burten, Esq.
Jeffer, Mangels, Butler & Marmaro LLP
2121 Avenue of the Stars, 10th Floor
Los Angeles, California 90067
23. Severability. Whenever possible, each provision of this Agreement
shall be interpreted so as to be effective and valid under applicable law. If
any provision of this Agreement is prohibited or deemed invalid under any
applicable law, however, such provision shall be ineffective only to the extent
of such prohibition or invalidity, and neither the remainder of such provision
nor this Agreement shall be invalidated as a result.
13
<PAGE> 14
24. Counterparts. This Agreement may be executed by the parties in one or
more counterparts, all of which taken together shall constitute one instrument.
25. Jurisdiction. The parties hereto agree to submit to the exclusive
jurisdiction of the Superior Court of the State of California, County of Los
Angeles, 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.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
"Company" American Film Technologies, Inc.
By: /s/ Harvey S. Finkel
--------------------------------------------
Harvey Finkel
Its: Chief Financial Officer
"Holder" /s/ Gerald M. Wetzler
--------------------------------------------
Gerald M. Wetzler
14
<PAGE> 15
EXHIBIT A
Form of Exercise of Option
To: American Film Technologies, Inc.
4105 Sorrento Valley Boulevard
The undersigned holds an option (the "Option") represented by a Stock
Option Agreement (the "Agreement") effective as of September 12, 1997. The
undersigned hereby exercises [the Option] [a portion of the Option] and elects
to purchase ____________ shares of Common Stock (as defined in the Agreement) of
American Film Technologies, Inc. pursuant to the Option. This notice is
accompanied by full payment of the Exercise Price for the shares pursuant to
Section 8 of the Agreement computed as follows:
__________ shares of Common Stock x $.01 per share = $________
The undersigned acknowledges that no registration statement under the
Securities Act of 1933, as amended, or under any state securities law has been
filed and that the Company has no obligation to file such a registration
statement in the future with respect to the Shares, except as provided in
Section 11 of the Agreement. The undersigned warrants and represents that the
undersigned is acquiring and will hold the shares for the undersigned's own
account, for investment purposes only, and not with a view towards the
distribution or public offering of the shares or with any present intention of
reselling or distributing the shares at any particular future time. The
undersigned consents to the appearance of a restrictive legend, in the form
required by Section 13(d) of the Agreement, on the certificate for the shares.
The undersigned agrees not to sell, transfer or otherwise dispose of the shares
except as specifically permitted by the Agreement or any applicable securities
law expressly permitting such a disposition.
Date: , .
-------------- -- ----
-------------------------------------
<PAGE> 1
EXHIBIT 21
Subsidiary of the Registrant
<TABLE>
<CAPTION>
Name Jurisdiction of Organization
- ---- ----------------------------
<S> <C>
Midtech de Mexico, S.A. de C.V. Mexico
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1.0
<CASH> 159,730
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 187,500
<CURRENT-ASSETS> 282,517
<PP&E> 510,981
<DEPRECIATION> 160,227
<TOTAL-ASSETS> 820,771
<CURRENT-LIABILITIES> 1,125,030
<BONDS> 0
0
0
<COMMON> 147,402
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 820,771
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 15,413,836
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,413,836)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</TABLE>
