<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, for the Quarter Ended September 30, 1999.
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934, for the Transition Period from July 1, 1999 to September 30, 1999
Commission file number 1-9748
AMERICAN FILM TECHNOLOGIES, INC.
(Exact name of registrant as specified its charter)
Delaware 23-2359277
(State or other jurisdiction of (IRS Employer Identification Number)
incorporated or organization)
300 Park Avenue, 17th Floor, New York, New York 10022
-----------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number including area code: (212) 572-6370
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes X No
---
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
---
As of September 30, 1999, there were 141,469,437 shares of common stock
outstanding.
<PAGE> 2
Part 1 - FINANCIAL INFORMATION
American Film Technologies, Inc.
Condensed Consolidated Balance Sheet
<TABLE>
<CAPTION>
September 30,
1999 June 30,
(Unaudited) 1999
------------- --------
<S> <C> <C>
Assets
Current Assets:
Cash $ 238,504 $ 27,528
Other current assets 4,320 4,320
Total current assets 242,824 31,848
Equipment and software, at cost, net 139,911 163,338
Other long-term assets
Notes receivable 160,000 -
$ 542,735 $ 195,186
============ ============
Liabilities and stockholders' equity (deficit)
Current Liabilities:
Notes payable: current portion $ 1,873,770 $ 1,880,770
Accounts payable and accrued expenses 1,013,367 769,347
Total current liabilities 2,887,137 2,650,117
Long -Term notes payable 799,000 49,000
Total Liabilities 3,686,137 2,699,117
Stockholders' Equity (Deficit)
Common stock, and $.002 par value
Authorized Shares - 225,000,000; issued
and outstanding shares 141,469,437
and 92,902,770 at September 30, 1999 and
June 30, 1999, respectively 282,939 185,806
Capital in excess of par value 17,547,649 17,147,782
Deferred compensation (802,000) (862,000)
Accumulated deficit (20,171,990) (18,975,519)
Total stockholders' equity (deficit) (3,143,402) (2,503,931)
Total Liabilities and Stockholders' Equity
(deficit) $ 542,735 $ 195,186
============ ============
See accompanying notes to financial statements.
</TABLE>
<PAGE> 3
American Film Technologies, Inc.
Condensed Consolidated Statements of Operations
For the Three months ended September 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
September 30, September 30,
1999 1998
---- ----
<S> <C> <C>
Revenues: $ - $ -
- -
Expenses:
Compensation and benefits - administrative
and officers 60,000 71,600
Selling, general and administrative 340,271 87,067
Interest expense 22,703 23,620
Depreciation and amortization 23,427 60,927
Change of control expense 750,000 -
1,196,401 243,214
Net loss $ (1,196,401) $ (243,214)
============= =============
Net loss per share- basic $ (0.01) $ 0.00
Net loss per share - diluted $ (0.01) $ 0.00
Shares used in the calculation of net income
(loss) per common share:
Basic 141,469,437 85,036,100
Diluted 184,516,147 157,899,477
See acompanying notes to financial statements.
</TABLE>
<PAGE> 4
American Film Technologies, Inc.
Condensed Consolidated Statements of Cash Flows
For the Three months ended September 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
September 30, September 30,
1999 1998
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss $(1,196,401) $(243,214)
Adjustments to reconcile net (loss) to net cash
(used) by operating activities:
Depreciation and Amortization 23,427 60,927
Amortization of Deferred Compensation 60,000 60,000
Changes in Assets and liabilities:
Other long-term assets (160,000) -
Accounts payable and accrued expenses 243,950 29,800
Issuance of senior secured debt 750,000 -
Net cash used by operating activities (279,024) (92,487)
Cash Flows From Financing Activities:
Principal payments on notes payable - other (57,000) -
Proceeds from sale of common stock 497,000 83,000
Proceeds from sale of convertible debentures 50,000 -
Net cash provided by financing activities 490,000 83,000
Net increase (decrease) in cash 210,976 (9,487)
Cash - beginning of period 27,528 23,336
Cash - end of period $ 238,504 $ 13,849
=========== =========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ - $ 880
See accompanying notes to financial statements.
</TABLE>
<PAGE> 5
AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
1. The consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have
been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that these
consolidated financial statements be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's latest annual report on Form 10-K.
The accompanying unaudited consolidated financial statements contain all
adjustments (consisting of only normal recurring items) necessary to
present fairly the financial position as of September 30, 1999 and June
30, 1999, and the results of operations and cash flows for the three
months ended September 30, 1999 and 1998. The results of operations for
the three months ended September 30, 1999 and 1998, are not necessarily
indicative of the results to be expected for the full year.
2. REORGANIZATION UNDER CHAPTER 11
On October 16, 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.
The Company's Plan of Reorganization (the "Plan") was approved by the
Bankruptcy Court on October 6, 1995 and became effective on October 17,
1995.
<PAGE> 6
AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
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.
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.
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.
Loss per Share
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share".
SFAS 128 replaced the previously reported primary and fully diluted
earnings per share with basic and diluted earnings per share. Basic
earnings per share are calculated utilizing weighted average shares
outstanding and exclude any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share include the effect of
dilutive securities outstanding. All earnings per share amounts for all
period presented, where necessary, have been restated to conform to the
SFAS 128 requirements.
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.
<PAGE> 7
AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
On December 30, 1999, the Board of Directors voted to grant 2,000,000
options to purchase shares of Common Stock of the Company at an option
price of $0.05 per share to Company's counsel, Martin & Taub, LLP. The
Board of Directors also voted to approve similar options in the amount of
1,000,000 shares to each of the Company's directors.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This discussion should be read in conjunction with the consolidated
financial statements, related notes and management's discussion and
analysis of financial conditions and results of operations included in the
Company's annual report on Form 10-K for the year ended June 30, 1999.
Overview and Reorganization.
As stated previously, the Company's Plan of Reorganization (the "Plan")
was approved by the Bankruptcy Court and became effective October 17,
1995. Success of the Company will, among other things, depend upon the
resumption of production in Mexico. That will require reemployment of
selected former Mexican employees. Since the Mexican operation was
suspended in October 1993, the Company believes most of the former
employees have found other jobs. If the Company is unable to rehire
certain former employees, it will have to recruit and train a new work
force. That would delay the resumption of production and increase the cost
of production. As such, it could have a materially adverse effect on the
Company. Although the Company expects to benefit from the devaluation of
the peso, there is no assurance of how long those expected benefits will
last.
Since emerging from bankruptcy, the Company has actively pursued new
product development and opportunities, as well as strategic alliances,
partners and other sources of financing. The Company is in discussions
with other potential investors regarding the purchase of equity securities
or other investments in the Company, however, there can be no assurance
that any transaction can be negotiated or, if negotiated, that such a
transaction can be consummated.
Results of Operations.
The financial results of the Company for each of the periods addressed by
this report do not reflect the earnings capacity of the Company. The
financial data for the periods ending September 30, 1999 and 1998 reflects
the adoption of Fresh Start Accounting. As such, the financial data is
considered that of a Successor Company and is not comparable to prior
periods.
<PAGE> 8
AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
Since the filing under Chapter 11 in October, 1993, the Company has not
generated any income from film colorization, animation or fee for service
orders. For the quarter ended September 30, 1999 the Company recorded net
interest expense of approximately $23,000 as compared to $23,000 for the
period ended September 30, 1998.
For the quarters ended September 30, 1999 and 1998 the Company recorded
compensation and benefits for its administration and officers of
approximately $60,000 and $72,000 respectively.
For the quarters ended September 30, 1999 and 1998, the Company recorded
selling, general and administrative expenses of approximately $340,000 and
$87,000 respectively.
For the quarters ended September 30, 1999 and 1998, the Company recorded
depreciation and amortization expense of approximately $23,000 and $61,000
respectively.
For the quarters ended September 30, 1999 and 1998, the Company had a net
loss of approximately $1,200,000 and $243,000 respectively, or less than
$0.01 cent per share for each period.
Liquidity and Capital Resources.
During fiscal 1999, the Company's operations were financed almost entirely
through the sale of its securities in private placements to accredited
investors. During this period $ 49,000 in secured convertible notes were
issued in a private placement. Between July 1, 1999 and February 26, 2000
an additional $50,000 in secured convertible notes were issued in a
private placement.
The Company is continuing to experience cash flow difficulties. The
Company was required to make payments in October 1998 and October 1999,
each of approximately $405,000 plus interest to unsecured creditors in
connection with its 1995 bankruptcy reorganization but has not made such
payment. No creditor has filed a complaint or objection or instituted any
legal action to date because of such failure. The Rudy Group invested
$250,000.00 in or about September 1999. This amount is being used to fund
the operations of the Company and to pay certain of the Company's
expenses. This amount is not sufficient to pay off a significant portion
of the Company's debt, and these funds will be substantially exhausted
after the payment of past due expenses and other fees due and owing by the
Company. To the extent outside financing is not obtained in the immediate
future, the Company will be liquidated or the Company may seek further
relief in the previously initiated bankruptcy proceeding. In the event of
liquidation, the shareholders in all likelihood will receive nothing in
respect of their stock.
In addition, the Company needs funding sufficient to enable it to become
operational again. The amount of funding required is contingent on a
number of variables such as the speed
<PAGE> 9
AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
of the start up and initial production capacity required. The Company
believes that the minimum amount of funding required (including working
capital) would be approximately $4,000,000.
<PAGE> 10
AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
On June 9, 1999, four stockholders of the Company filed suit in the
Newcastle County, Delaware Chancery Court against Mr. Gerald Wetzler,
Chairman and Chief Executive Officer of the Company, and the Company as a
nominal defendant, seeking, on various grounds, to abrogate a stock option
agreement and secured convertible note previously granted and issued by
the Company in 1997 to Mr. Wetzler, as previously disclosed at that time,
and to terminate Mr. Wetzler's 1996 employment agreement with the Company.
The action also sought, among other things, to compel the Company to hold
an annual meeting of shareholders to elect directors as required by
Delaware law. Mr. Wetzler vigorously prosecuted his defense of this action
and filed a motion for summary judgment with the Court based on terms of
all of the agreements in question which require exclusive jurisdiction in
the courts of California for all disputes arising out of or relating to
these agreements. The Court, by order dated July 6, 1999, denied a motion
by Mr. Wetzler to dismiss the action on various grounds, and set an August
16, 1999 date for a hearing on all matters then outstanding before the
Court in the case, including the motion for summary judgment. The Court
also set September 1, 1999 as the date on which the annual meeting of
stockholders to elect directors was to be held and also set July 15, 1999
as the record date for stockholders of record entitled to notice of and to
vote at such meeting. The annual meeting was held on September 13, 1999.
Pursuant to the terms of a settlement agreement ("Settlement Agreement")
dated December 30, 1999, this litigation was settled. The mutual terms of
the Settlement Agreement provide for the payment of $1,140,000 on or
before September 30, 2000, to Gerald M. Wetzler for an option to purchase
all or substantially all of his holdings in the Company and for a further
payment of $900,000 on or before January 1, 2001. In consideration of the
foregoing, Mr. Wetzler agreed to extend the due date for the payment of
all his Senior Secured Notes to January 1, 2001. At such time as the
Company exercises the option to purchase Mr. Wetzler's holdings, it
intends to retire a significant portion of the shares or options for
shares which Mr. Wetzler holds. As further consideration for this
agreement, the Company agreed to ratify Mr. Wetzler's employment agreement
and a Senior Secured Note in the amount of $750,000 issued to Mr. Wetzler
pursuant thereto. In addition, the Company has paid the sum of $100,000 to
the law firm which represented Mr. Wetzler in this litigation and agreed
to pay sums to prior counsel for the Company. At the present time, Mr.
Wetzler claims a direct and indirect interest in 81,720,000 shares of the
Company's common stock. This interest includes approximately 29 million
shares which he presently claims to own or have beneficial control of, and
the balance consisting of individual interests as outlined in the
Settlement Agreement. In the event that the option is exercised by the
Company, Mr. Wetzler will remain with approximately 9 million shares of
the Company's common stock.
<PAGE> 11
AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
Notwithstanding certain provisions in the Settlement Agreement, if a
party introduced by Mr. Wetzler makes an investment in the Company in an
amount equal to or greater than 4 million dollars, Mr. Wetzler will have
the right to either accept full payment of the option exercise payment or
to reject the payment and convert all of his Senior Secured Notes in
accordance with the terms provided therein. Mr. Wetzler's exercise of
this right will be valid for a period of twelve months following the
closing of the investment. In accordance with their fiduciary duties, the
Board of Directors of the Company will have the right to reject any such
proposed investment.
On December 6, 1999, a Judgment was entered against the Company in the
amount of $45,724.46. In addition, an arbitration award was granted
against the Company in the amount of $36,693.41 in January, 2000. The
Company will attempt to negotiate a settlement of this Judgment and
arbitration award and to arrange for a reasonable payout.
Item 2. Changes In Securities
Sale of Unregistered Securities - Between July 1, 1999 and February 26,
2000 an additional $50,000 in Secured Convertible Notes were issued in a
private placement. The Notes were issued without the benefit of an
effective registration statement under the Securities Act of 1933, as
amended (the "Act") in reliance upon the private placement exemptions
under Section 4(2) of the Act.
Issuance of Unregistered Securities
On September 13, 1999, Mr. Gerald Wetzler received a $750,000 Senior
Secured promissory note (convertible at $.03 per share into 25,000,000
shares of common stock) in lieu of cash, payable upon a change in control
as defined in Mr. Wetzler's Employment Agreement dated January 1, 1996.
<PAGE> 12
AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
Exercise of Options - On July 8, 1999, Gerald M. Wetzler, Chairman and
Chief Executive Officer, exercised an option to purchase 20,000,000 shares
of Common Stock, $.002 per value at a price of $0.01 per share by paying
$40,000 cash and a promissory note for $160,000. As of February 26, 2000
the payment on the promissory note has been postponed in agreement by both
parties. No default by either party has occurred.
Subsequent Events
SETTLEMENT AGREEMENT
AGREEMENT made and entered into the 30th day of December,
1999, by and between the undersigned parties.
WHEREAS, Fred S. Rudy ("Rudy"), A. J. Nassar ("Nassar"),
Joseph J. Jillson ("Jillson") and J. Michael Nixon ("Nixon"),
individually and on behalf of American Film Technologies, Inc. ("AFTC" or
"the Company"), commenced an action in the Court of Chancery of the State
of Delaware against Gerald M. Wetzler ("Wetzler"), Leslie Trager
("Trager"), Thomas Hennigan ("Hennigan") and Jeffrey Yapp ("Yapp"), and
also naming AFTC as a nominal defendant ("Delaware Action"); and
WHEREAS, among other things, the plaintiffs in the Delaware
Action alleged that Wetzler breached his fiduciary duties to the Company
and its shareholders and committed fraud and waste, and
WHEREAS, Wetzler denies all of the allegations in the
Delaware Action; and
WHEREAS, all matters in the Delaware Action have previously
been settled against all defendants except as to defendant Wetzler; and
WHEREAS, Wetzler has asserted a claim for indemnification
related to legal fees incurred by him in connection with his defense of
the Delaware Action; and
WHEREAS, Wetzler filed a Counterclaim against Rudy and a
Cross-claim against AFTC; and
<PAGE> 13
AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
WHEREAS, in addition to the foregoing, Wetzler has asserted
that he has further claims relating to alleged defamation allegedly
committed by certain parties, including, but not limited to, the
plaintiffs in this action, Seth Fireman, Olympia Partners, LLC, counsel
for AFTC, Malcolm S. Taub and the firm of Martin & Taub, LLP, and Dennis
Levine and other shareholders of AFTC; and
WHEREAS, the parties hereto wish to resolve all issues
pertaining to the foregoing litigation and all other claims existing
between the parties;
NOW, THEREFORE, IT IS AGREED AS FOLLOWS:
1. All parties to the Delaware Action will exchange General Releases in
the form annexed hereto as Exhibit A. In addition, General Releases will
be exchanged between L&R Holding, Inc., Malcolm S. Taub, Martin & Taub,
LLP, Seth Fireman, Dennis Levine, Olympia Partners, LLC, and Wetzler, and
between AFTC and Wetzler's counsel, pertaining to any claims which the
parties may have against each other, including, but not limited to, any
claims of breach of professional duty, breach of fiduciary duty, fraud,
waste, or defamation arising out of statements made to the press by AFTC
or the plaintiffs in the Delaware Action or anyone acting on their behalf
or in conjunction with them. Delivery of such releases shall be
conditioned upon the execution of this Agreement.
2. Simultaneously with the exchange of the foregoing General Releases,
Wetzler's Crossclaim shall be resolved in accordance with Paragraph 8, and
all other claims in the Delaware Action shall be dismissed, with
prejudice.
3. Subject to the terms and conditions of the Settlement Agreement, the
current Board of Directors of AFTC will simultaneously confirm as valid
and binding all prior agreements between Wetzler and AFTC, and will
execute any necessary documents to effectuate same.
4. (a) In connection with the foregoing, Wetzler represents that the
following constitute all of his present holdings and/or contractual
relationships with AFTC:
<PAGE> 14
AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Shares
------
<S> <C> <C>
10,000,000 options from Employment Agreement
exercisable @ $0.0628 per share 10,000,000
(indirect)
$522,000 (1) of Senior Notes and related Purchase
and Security Agreements (includes $30,000 of
Notes securing option exercise payment) convertible
@ $0.03 per share 17,400,000
(indirect)
$750,000 Senior Note and related Purchase and
Security Agreements issued upon change in
control convertible at $0.03 per share 25,000,000
(indirect)
26,620,000 shares (includes 20,000,000 shares
issued on recent option exercise and securing
related $160,000 Promissory Note), certificates in
the possession of Lee Mermelstein, Esquire, and
Option Exercise Agreement relating to purchase
of 20,000,000 shares 26,620,000 (direct)
Wetzler Schwab Account Approximately 2,700,000 (direct)
Total 81,720,000
</TABLE>
----------------
(1) $40,000.00 of the $522,000.00 was used to exercise the option
discussed in Paragraph 6.
(b) The Company affirms the validity of the foregoing
obligations, including, but not limited to, all First Priority Senior
Secured Convertible Notes listed above (the "Senior Notes") and
Employment Agreement between Wetzler and the Company, dated January 1996,
and the amendments thereto.
5. Wetzler agrees to extend the payment date of his Senior Note due as of
November 1, 1999 and any other Senior Note which may be due or come due
until January 1, 2001 (the "Final Payment Date"). Notwithstanding the
foregoing, all payments due pursuant to such Senior Notes shall
immediately become due and payable in the event AFTC files a Chapter 7,
Chapter 11 or other bankruptcy proceedings, or such proceedings are
instituted against AFTC by creditors of the Company. If an involuntary
bankruptcy is dismissed, this
<PAGE> 15
AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
Settlement Agreement shall remain in full force and effect. The Company
shall give Wetzler not less than fourteen (14) business days prior
written notice of any intended filing by the Company of a Chapter 7 or
Chapter 11 bankruptcy proceeding.
6. In consideration for the foregoing agreement by Wetzler to extend the
due date of the foregoing obligations and Notes, AFTC will agree to
extend the payment date of Wetzler's $160,000.00 Promissory Note, now due
November 7, 1999, in connection with the exercise of his option for
20,000,000 shares, to a date which is one (1) month beyond the Final
Payment Date, and Wetzler agrees not to pay the $160,000.00 during such
period in order to retain such 20,000,000 shares which were used as
partial security for said Note. In addition to the foregoing, Wetzler
agrees not to sell or otherwise encumber or hypothecate the
above-mentioned 20,000,000 shares.
7. (a) In further consideration for the promises of Wetzler contained
herein, AFTC agrees to pay to him on September 30, 2000, the sum of One
Million One Hundred Forty Thousand Dollars ($1,140,000.00). Upon the
payment of the foregoing sum, AFTC or a party designated by it shall have
the right to purchase Wetzler's entire holdings in AFTC, as set forth
above ("Option"), excluding only the sum of approximately 9,000,000
shares. If the foregoing payment is not made to Wetzler when due,
Wetzler's Senior Notes and above payments will become immediately due and
payable without further notice.
Assuming the aforementioned payment occurs in accordance with the terms of
this Paragraph, the exercise of the Option and payment therefore shall be
consummated no later than the Final Payment Date. The purchase price for
the exercise of the foregoing Option shall be the payment of an additional
Nine Hundred Thousand Dollars ($900,000.00) (the "Option Exercise
Payment"), which shall be paid by AFTC at any time prior to the Final
Payment Date. If the Option Exercise Payment is not paid to Wetzler by the
Final Payment Date, Wetzler's Senior Notes will become immediately due and
payable. At such time as Wetzler is paid the total sum of Two Million
Forty Thousand Dollars ($2,040,000.00) as set forth above and the payments
required by Paragraph 8 below are made, he shall assign to AFTC, or its
designee, all of his right, title and interest in and to all of the
assets, securities, Senior Notes or any other interest which he may have
in AFTC, as set forth in Paragraph 4(a), other than the approximately
9,000,000 shares described above ("Retained Shares"). Upon the occurrence
of the foregoing, Wetzler shall relinquish all of his other rights held in
and to AFTC, including, but not limited to, any rights which Wetzle'r may
have pursuant to the terms of any employment agreement or stock option
agreement entered into with AFTC, and such agreements shall be deemed to
be terminated, and AFTC shall be released of any claims by Wetzler against
it for any obligation under such agreements, except for any valid requests
for advancement or indemnification for fees and expenses incurred in
proceedings commenced after the execution of this Agreement. In the event
that Wetzler and his brother, Leonard Wetzler, have posted shares as
collateral for the $160,000.00 Promissory Note, those Retained
<PAGE> 16
AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
Shares shall be delivered to Wetzler and his brother free and clear of
lien. However, the 20,000,000 share of stock which were posted as further
collateral for said Note shall be transferred to AFTC or its designee. In
the event of the sale of all, or substantially all, of the assets of AFTC
or the merger of AFTC into or with another corporation, prior to the
Final Payment Date, in order for AFTC to retain the Option, all sums due
to Wetzler pursuant to this Agreement shall become immediately due and
payable and must be paid. The payment dates in this Paragraph may be
extended with the consent of Wetzler.
(b) Notwithstanding Subsection 7(a), if a
party introduced by Wetzler makes an investment in AFTC in an amount
equal to or greater than Four Million Dollars ($4,000,000.00), Wetzler
shall have the right to either accept full payment of the Option Exercise
Payment or to reject said payment and convert all of his Senior Notes in
accordance with the terms provided therein. Wetzler's exercise of such
right shall be valid for a period of twelve (12) months following the
closing of the investment. In accordance with their fiduciary duties, the
Board of Directors of AFTC shall have the right to reject any such
proposed investment.
8. As further consideration for the agreements set forth herein, on
December 30, 1999, the law firm of Blank Rome Comisky & McCauley LLP
("Blank Rome") shall be paid the sum of One Hundred Thousand Dollars ($
100,000.00), representing indemnification by partial payment of legal
fees and expenses incurred by Wetzler in connection with the defense of
the Delaware Action. The payment to Blank Rome shall be made by wire
transfer to the following:
Bank: Commerce Bank of New Jersey
ABA# 031201360
Account Name: CBPA
Account Number: 28208000
Memo: FCO BRMC LLP
Acct#360443766
In addition, AFTC shall enter into a stipulated judgment with Wetzler,
providing him with a judgment on his Cross-claim for indemnification in
the amount of $140,000.00, to which the aforementioned payment of
$100,000.00 shall be credited and the remaining forty thousand dollars
($40,000.00) of which Wetzler will forego payment by the Company until
September 30, 2000. If the remaining $40,000.00 is not paid by September
30,2000, the stipulated judgment shall be filed and recorded without
objection by AFTC. Further, the Company shall pay the firm of Jacobson,
Mermelstein & Squire LLP the sum of $35,000 in respect of partial payment
of their fees for legal services to the Company on or before June 30,
2000.
<PAGE> 17
AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
9. At such time as any payments are made to Wetzler pursuant to the
Agreement, AFTC may (immediately preceding or after such payments) issue
senior secured debt that is pari passu to Wetzler's senior secured debt,
in such amount as is equal to and no greater than the amount of such
payments to Wetzler and Wetzler will execute such documents as are
reasonably necessary to ensure that such additional debt is pari passu
with Wetzler's Senior Notes set forth in paragraph 4(a) above. AFTC may
not issue any senior debt except as provided herein. Provided further,
however, that in exchange for an investment in AFTC of Two Million
Dollars ($2,000,000.00) or more, AFTC may issue senior secured debt that
is pari passu to Wetzler's Senior Notes, in such amount as is equal to
and no greater than the amount of the investment.
10. It is understood and agreed that each of the parties will execute
such documents and do all things necessary to effectuate the reasonable
intent of this Agreement. This shall include, but shall not be limited
to, the execution and delivery of endorsed stock certificates, stock
powers and/or other agreements and estoppel certificates to investors of
the Company, confirming that Wetzler consents to the pari passu nature of
further investments in AFTC as set forth in Paragraph 9.
11. Immediately following the execution of this Agreement, AFTC will
issue a press release approved by Wetzler. Such release shall be
delivered to Bloomberg and all other members of the media who generally
receive information from the Company, including, but not limited to, The
New York Times, the New York Observer, and the L.A. Times. In the event
the substance of the press release is not published in The New York
Times, the New York Observer and the L.A. Times, the Company must pay
Wetzler the sum of $30,000.00, so that he can personally pay for the
publication of the press release in any or all such newspapers.
12. All notices or demands by any party relating to this Agreement shall
be in writing and either personally served or sent by regular United
States mail, postage prepaid, at the addresses set forth below or at such
other addresses as a party may designate in writing. All notices or
demands sent in accordance with this paragraph shall be deemed received
on the earlier of the date actually received or seven (7) days after the
deposit thereof in the mail.
If to American Film Technologies, Inc.: American Film Technologies. Inc.
300 Park Avenue, 17 th Floor
New York, New York 10022
With a copy to: Malcolm S. Taub, Esq.
Martin & Taub, LLP
1350 Avenue of the Americas
New York, New York 10019
<PAGE> 18
AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
If to Gerald M. Wetzler: Gerald M. Wetzler
32-04 171st Street
Flushing, New York 11358
With a copy to: Blank Rome Comisky
& McCauley LLP
Attn: John L. Reed, Esquire
1201 Market Street, Suite 2100
Wilmington, DE 19801
Cahill Gordon & Reindel
Attn: Floyd Abrams, Esquire
80 Pine Street
New York, New York 10005
13. The validity of this Agreement, its construction, interpretation and
enforcement and the right of the parties hereunder and concerning the matters
set forth herein shall be governed by and construed in accordance with the law
of the State of Delaware. All disputes at law relating to the Agreement shall be
submitted to the exclusive jurisdiction of the Superior Court of the State of
Delaware, and all disputes where equitable claims are made shall be submitted to
the exclusive jurisdiction of the Court of Chancery of the State of Delaware.
14. This Agreement will bind and inure to the benefit of the respective
successors and assigns of each of the parties.
15. This Agreement cannot be changed, terminated or amended orally. All prior
agreements, understandings, representations, warranties and negotiations, if
any, are merged into this Agreement.
16. This Agreement may be executed in counterparts, each of which, when so
executed and delivered, shall be an original; however, such counterparts
together shall constitute but one and the same Agreement.
<PAGE> 19
AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
AMERICAN FILM TECHNOLOGIES, INC.
By:
Fred S. Rudy
Chairman and Chief Executive Officer,
with approval and Consent of
AFTC's Board of Directors
Gerald M. Wetzler
A.J. Nassar
Joseph J. Jillson
J. Michael Nixon
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
<PAGE> 20
AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
Item 5. Other Information
As a result of the Plan, as of the Effective Date of the Plan, the Company
adopted "fresh start" accounting, which reflects the payment or discharge of
certain debts in accordance with the plan. "Fresh start accounting" allows a
reorganized entity to reflect its reorganization value, which approximates its
fair value at the date of reorganization. In addition, the accumulated deficit
of the Company is eliminated and its capital structure is recast in conformity
with the Plan.
Item 6. Exhibits and Reports on Form 8-K
(a) NONE
<PAGE> 21
Signatures
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN FILM TECHNOLOGIES, INC.
Date: March 3, 2000
/s/ [SIG]
By: /s/ Fred Rudy March 3, 2000
Fred Rudy
Chairman and Chief Executive Officer
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