<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 December 31, 1999.
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934, for the Transition Period from October 1, 1999 to December 31, 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 December 31, 1999, there were 141,469,437 shares of common stock
outstanding
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Part 1 - FINANCIAL INFORMATION.
American Film Technologies, Inc.
Condensed Consolidated Balance Sheet
<TABLE>
<CAPTION>
December 31,
1999 June 30,
(Unaudited) 1999
----------- ----
<S> <C> <C>
Assets
Current Assets:
Cash $ 36,509 $ 27,528
Other current assets 53,490 4,320
Total current assets 89,999 31,848
Equipment and software, at cost, net 116,484 163,338
Other long-term assets
Notes receivable 160,000 -
$ 366,483 $ 195,186
============ ============
Liabilities and stockholders' equity (deficit)
Current Liabilities:
Notes payable: current portion $ 1,886,770 $ 1,880,770
Accounts payable and accrued expenses 882,058 769,347
Total current liabilities 2,768,828 2,650,117
Long -Term notes payable 786,000 49,000
Total Liabilities 3,554,828 2,699,117
Stockholders' Equity (Deficit)
Common stock, $0.02 par value:
Authorized shares - 225,000,000; issued
and outstanding shares 141,469,437
and 92,902,770 at December 31, 1999 and
June 30, 1999, respectively 282,939 185,806
Capital in excess of par value 17,547,649 17,147,782
Deferred compensation (742,000) (862,000)
Accumulated deficit (20,276,933) (18,975,519)
Total stockholders' equity (deficit) (3,188,345) (2,503,931)
Total Liabilities & Stockholder's
Equity (deficit) $ 366,483 $ 195,186
</TABLE>
<PAGE> 3
American Film Technologies, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three For the Six
Months Ended Months Ended
December 31, December 31
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues: $ - $ - $ - $ -
Expenses:
Compensation and benefits -
administrative and officers 60,000 64,582 120,000 136,182
Selling, general and administrative (1,223) 36,188 339,048 123,255
Interest expense 22,739 22,739 45,442 46,359
Depreciation and amortization 23,427 23,427 46,854 84,354
Change of control expense - - 750,000 -
104,943 146,936 1,301,344 390,150
Net loss (104,943) $ (146,936) $ (1,301,344 $ (390,150)
============== ============== ============== ==============
Net loss per share- basic $ (0.00) $ (0.00) $ (0.00) $ (0.00)
Net loss per share - diluted $ (0.00) $ (0.00) $ (0.00) $ (0.00)
Shares used in the calculation of net
income (loss) per common share:
Basic 141,469,437 85,036,100 141,469,437 85,036,100
Diluted 213,682,814 157,916,144 184,516,147 157,907,500
</TABLE>
See accompanying notes to financial statements.
3
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American Film Technologies, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the six
months ended
December 31,
1999 1998
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss $(1,301,344) $ (390,150)
Adjustments to reconcile net (loss) to net cash
(used) by operating activities:
Depreciation and Amortization 46,854 84,354
Amortization of Deferred Compensation 120,000 120,000
Changes in Assets and liabilities:
Other current assets and liabilities (49,240) -
Other long-term assets (160,000) -
Accounts payable and accrued expenses 112,711 66,207
Issuance of senior secured debt 750,000 -
Net cash used by operating activities (481,019) (119,589)
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 23,000
Net cash provided by financing activities 490,000 106,000
Net increase (decrease) in cash 8,981 (13,589)
Cash - beginning of period 27,528 23,336
Cash - end of period $ 36,509 $ 9,747
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ - $ 880
</TABLE>
See accompanying notes to financial statements
4
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AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 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 December 31, 1999 and June 30, 1999, and the
results of operations and cash flows for the six months ended December 31, 1999
and 1998. The results of operations for the six months ended December 31, 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
on October 6, 1995, Court and became effective on October 17, 1995.
5
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AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 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.
6
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AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 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 December 31, 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.
7
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AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(UNAUDITED)
8
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AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 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 December 31, 1999 the Company recorded net
interest expense of approximately $23,000 as compared to $23,000 for the period
ended December 31, 1998.
For the quarters ended December 31, 1999 and 1998 the Company recorded
compensation and benefits for its administration and officers of approximately
$60,000 and $65,000 respectively.
For the quarters ended December 31, 1999 and 1998, the Company
recorded selling, general and administrative expenses of
approximately $(1,223) and $36,000 respectively.
For the quarters ended December 31, 1999 and 1998, the Company recorded
depreciation and amortization expense of approximately $23,000 and $23,000
respectively.
For the quarters ended December 31, 1999 and 1998, the Company had a net loss of
approximately $1,300,000 and $147,000 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 at this time. 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 objections or instituted any legal action to date
because of such failure. The Rudy Group invested $250,000 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 may be liquidated or the Company may seek further relief in
the previously instituted bankruptcy proceeding. In the event of liquidation,
the shareholders in all likelihood will receive nothing with respect of their
stock.
9
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AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(UNAUDITED)
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 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.
10
<PAGE> 11
AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 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 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.
11
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AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 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.
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
12
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AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(UNAUDITED)
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
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,
13
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AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(UNAUDITED)
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:
Shares
<TABLE>
<S> <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)
</TABLE>
14
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AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<S> <C> <C>
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 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
15
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AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(UNAUDITED)
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 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:
16
<PAGE> 17
AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(UNAUDITED)
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.
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.
17
<PAGE> 18
AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(UNAUDITED)
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, 17th 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
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.
18
<PAGE> 19
AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(UNAUDITED)
15. This Agreement cannot be changed, terminated or amended orally. All
prioragreements, 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.
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
19
<PAGE> 20
AMERICAN FILM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(UNAUDITED)
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
As a result of the Plan, as of the Effective Date of the Plan, the Company
adopted "fresh start" accounting, which reflects the payment or discharge of
certain debts in accordance with the plan. "Fresh start accounting" allows a
reorganized entity to reflect its reorganization value, which approximates its
fair value at the date of reorganization. In addition, the accumulated deficit
of the Company is eliminated and its capital structure is recast in conformity
with the Plan.
PART 11 : OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) NONE
20
<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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