SECURED NOTE PURCHASE AGREEMENT
This SECURED NOTE PURCHASE AGREEMENT ("Agreement") is entered
into as of this 3rd day of February, 1997 between American Film Technologies,
Inc., 000 Xxxx Xxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000 (the "Company"), and
Xxxxx Xxxxxx, x/x Xxxxxx, Xxxxxx & Xxxxxxx, 00 Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx
00000 ("Lender").
W I T N E S S E T H:
WHEREAS, the Company is in need of additional capital to
continue to finance its operations and to continue its business; and
WHEREAS, Lender is willing to lend to the Company and the
Company is willing to borrow an aggregate amount of One Hundred Thousand Dollars
($100,000) pursuant to a two-year promissory note secured by all of the assets
of the Company, bearing interest at a rate of Two Percent (2%) per annum and
convertible into common stock of the Company at a rate of Nine cents ($.09) per
share, substantially in the form of Exhibit A hereto (the "Note"); and
WHEREAS, the Company is willing to sell to the Lender the Note
pursuant to the terms thereof and such other terms and conditions as set forth
herein; and
NOW, THEREFORE, in consideration of the foregoing, the mutual
promises contained herein and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the Company and Lender agree as
follows:
1. Purchase and Sale of the Note. Upon satisfaction of the
conditions set forth in Sections 2 and 3 below, the Company shall sell to Lender
and Lender shall purchase from the Company the Note (the "Loan").
2. Registration Undertaking. The Company agrees to grant
Lender "piggyback" registration rights with respect to the One Million One
Hundred Eleven Thousand One Hundred and Eleven (1,111,111) shares of the
Company's common stock into which the Note is convertible (the "Shares") in
accordance with the "Registration Undertaking" attached hereto and made a part
hereof as Exhibit "B".
3. Conditions Precedent, Delivery of the Note.
(a) The obligations of the Company hereunder shall be
subject to and conditioned upon the satisfaction of all of the following
conditions:
(i) The approval by the Company's Board of Directors
of this Agreement and the transactions contemplated
hereby;
(ii) The execution of this Agreement by the parties
hereto;
(iii) The completion, execution and delivery by the
Lender to the Company of the Lender's Questionnaire,
attached hereto as Exhibit "C";
(iv) The delivery by the Lender to the Company of the
principal amount of the Note; and
(v) All of the representations and warranties of the
Lender contained herein remain true and correct.
(b) Upon satisfaction of all of the conditions precedent
set forth in Section 3(a) above, the Company shall cause to be delivered to the
Lender at the address set forth in Section 8(b) below the Note containing a
restrictive legend substantially similar to that set forth in Section 7 below,
the Registration Undertaking and a security agreement and related documents to
grant to the Lender a first priority security interest on all of the existing
assets of the Company substantially in the form as attached hereto as Exhibit
"D" (the "Security Agreement"); provided that such security interest shall rank
pari passu with a security interest granted or to be granted by Payor to secure
repayment of an additional $100,000 note issued by Payor and containing terms
substantially identical to the Note (the "Additional Security Interest").
4. Representations of the Company. The Company represents and
warrants that:
(a) upon issuance, the Note will be (i) validly issued,
fully paid and nonassessable; and (ii) free of any liens or encumbrances;
(b) the Loan has been duly authorized and approved; and
(c) the consummation of the Loan as contemplated by this
Agreement does not violate the terms of the Company's Certificate of
Incorporation or By-Laws.
(d) upon the execution of this Agreement, the Security
Agreement, and the filing with the appropriate governmental bodies of such other
security documents as may be necessary Lender shall receive a first priority
security interest on all of the Company's existing assets which shall rank pari
passu with the Additional Security Interest pursuant to the terms of a security
agreement entered into by the Company and the Additional Holder.
Except as expressly set forth above, the Company makes no
representations or warranties of any kind or nature to the Lender.
5. Representations of Lender. Lender represents and warrants
in favor of the Company that:
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(a) Lender is acquiring the Note and the Shares for its own
account, for investment purposes only, and not with a view to or for the Loan,
distribution or assignment thereof, in whole or in part;
(b) that the offer and Loan of the Note and the Shares is
intended to be exempt from registration under the Securities Act of 1933, as
amended (the "Act"), and under the laws of any other jurisdiction; that the
Company does not intend and is under no obligation to so register the Note or
the Shares, except as expressly set forth in the Registration Undertaking; that
the Note and the Lender will not sell, assign, pledge or otherwise transfer the
Shares unless they are subsequently registered under the Act or pursuant to an
exemption therefrom; and that legends to the foregoing effect will be placed on
the Certificates evidencing the Notes and the Shares;
(c) Lender has the financial ability to bear the economic
risk of its investment in the Company, including its possible loss, has adequate
means of providing for his current needs and personal contingencies and has no
need for liquidity with respect to its investment in the Company;
(d) Lender has the knowledge and experience in financial
and business matters as to be capable of evaluating the merits and risks of an
investment in the Shares and has obtained, in its judgment, sufficient
information from the Company to evaluate the merits and risks of an investment
in the Note and the Shares;
(e) Lender is an "accredited investor" as such term is
defined in Rule 501(a) of Regulation D, promulgated under the Securities Act of
1933, as amended;
(f) Lender has been provided an opportunity to obtain
information concerning the offering, the Company and all other information to
the extent the Company or its representatives possess such information or can
acquire it without unreasonable effort or expense;
(g) Lender has been given the opportunity to ask questions
of and receive answers from the representatives of the Company concerning the
Company, the Note and the Shares, the terms and conditions of the Loan and other
matters pertaining to this investment, and has been given the opportunity to
obtain additional information necessary to verify the accuracy of the
information provided in order for it to evaluate the merits and risks of an
investment in the Company to the extent the representatives possess such
information or can acquire it without unreasonable effort or expense, and has
not been furnished any offering literature or prospectus except the SEC
Documents, as hereinafter defined;
(h) Lender has determined that its investment in the
Company through its purchase of the Note is a suitable investment for it and
that at this time it can bear a complete loss of its investment;
(i) In making his decision to invest in the Company through
the purchase of the Note the Lender has relied solely upon independent
investigations made by it;
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(j) Lender has reached the age of majority in the state in
which it resides and is a bona fide resident and domiciliary of the state set
forth on the signature page.
(k) Lender represents and acknowledges that it has
received, read and understood the following documents:
(i) The Company's Form 10-K Report for its fiscal year
ended June 30, 1996;
(ii) The Company's Form 10-Q Report for the fiscal
quarter ended September 30, 1996; and
(iii) The Investment Considerations attached hereto.
(Said documents included in (i), (ii) and (iii) above are hereinafter
collectively referred to as the "SEC Documents", attached hereto and made a part
hereof as Exhibit "E").
(l) Lender is not subscribing as a result of or subsequent
to:
(i) any advertisement, article, notice or other
communication published in any newspaper, magazine or similar media or broadcast
over television or radio; or
(ii) any seminar or meeting whose attendees, including
the Lender, had been invited as result of, subsequent to or pursuant to any of
the foregoing.
(m) Any information which the Lender has heretofore
furnished to the Company with respect to its financial position and business
experience, including without limitation its Lender Questionnaire, attached
hereto as Exhibit "C", is complete and correct as of the date of this Agreement
and if there should be any material change in such information at any time prior
to or after acceptance of the Loan, the Lender will immediately furnish such
revised or corrected information to the Company.
(n) Lender and/or Lender's investment advisors, if any,
have carefully read and reviewed this Agreement, Exhibit "C" hereto and the SEC
Documents and understand the risks of, and other considerations relating to, a
purchase of Loan, including, but not limited to, the risks set forth under
"Investment Considerations" contained therein. In connection therewith, Lender
is aware of the fact that the Company has recently emerged from a Chapter 11
Bankruptcy proceeding, has not engaged in ongoing business operations in almost
three years and will need additional financing in order to remain in business
and significant additional financing thereafter to implement its business plan.
(o) Lender will be the only person with a direct or
indirect interest in the Note or the Shares purchased pursuant to this
Agreement.
(p) Lender acknowledges, represents, agrees and is aware
that:
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(i) no Federal or state agency has passed upon the
Loan or the Note or the Shares issuable in connection therewith or made any
findings or determinations as to the fairness of this investment;
(ii) there are substantial risks of loss of investment
incidental to the purchase of the Note and the Shares;
(iii) the investment is an illiquid investment;
(iv) the representations, warranties, agreements,
undertakings and acknowledgments made by the Lender in this Agreement are made
with the intent that they be relied upon by the Company and its officers in
determining his suitability as a Lender of the Note and the Shares, and shall
survive the acceptance by the Company of this subscription, In addition, the
Lender agrees to notify the Company immediately of any change in any
representation, warranty or other information relating to the undersigned set
forth herein;
(v) Lender has read and understood the SEC Documents.
(q) Lender represents, warrants and agrees in favor of the
Company that Lender has determined to make this investment based on its own
investigation of the Company and its prospects, that neither the Company nor any
of its officers, directors, employees, agents, representatives or attorneys
have made any representations to Lender concerning the business or prospects of
the Company, that Lender has the business sophistication to determine on its own
whether or not to make this investment.
6. Indemnification. Lender understands the meanings and legal
consequences of the representations and warranties contained in this Agreement
and agrees to indemnify and hold harmless the Company and its officers and
directors from and against any loss, damage, liability, claim and expense
whatsoever, including but not limited to any and all legal expenses, due to or
arising out of a breach of any representation or warranty of the Lender, whether
contained in this Agreement or the Lender's Questionnaire, or any failure by the
Lender to fulfill any covenants or agreements set forth herein or therein or
arising out of the Loan or distribution by the Lender of the Note or any Shares
in violation of the Act or any applicable state Securities laws. Notwithstanding
any of the representations, warranties, acknowledgments or agreements made
herein by the Lender, the Lender does not thereby or in any other manner waive
any rights granted to the Lender under Federal or state securities laws.
7. Legend. Lender agrees that all Certificates representing
the Shares shall have endorsed thereon the following legend:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER UNITED STATES FEDERAL OR STATE SECURITIES LAWS, INCLUDING BUT NOT LIMITED
TO THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") NOR APPROVED BY ANY
FEDERAL OR STATE REGULATORY AGENCY, INCLUDING BUT NOT LIMITED TO THE SECURITIES
AND EXCHANGE COMMISSION, AND MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE
TRANSFERRED OR ASSIGNED FOR VALUE, DIRECTLY OR INDIRECTLY, NOR MAY THE
SECURITIES BE TRANSFERRED ON THE BOOKS OF
5
THE CORPORATION, WITHOUT REGISTRATION OF SUCH SECURITIES UNDER ALL APPLICABLE
UNITED STATES FEDERAL OR STATE SECURITIES LAWS, INCLUDING BUT NOT LIMITED TO THE
ACT, OR COMPLIANCE WITH AN APPLICABLE EXEMPTION THEREFROM, SUCH COMPLIANCE, AT
THE DISCRETION OF THE CORPORATION, TO BE EVIDENCED BY AN OPINION OF
SHAREHOLDER'S COUNSEL, IN FORM ACCEPTABLE TO THE CORPORATION, THAT NO VIOLATION
OF SUCH REGISTRATION OR QUALIFICATION PROVISIONS WOULD RESULT FROM ANY PROPOSED
TRANSFER OR ASSIGNMENT."
8. MISCELLANEOUS.
(a) Finders Fees. The Company and the Lender each
acknowledge that he or it has not, directly or indirectly, dealt with anyone
acting as a broker, finder or in a similar capacity, or has incurred any
obligation for any brokerage, finders' or similar fee or commission in
connection with this Agreement or any of the transactions contemplated hereby.
(b) Notices. All notices and other communications required
or permitted hereunder shall be in writing and shall be deemed to have been
given (i) upon delivery, if personally delivered, sent by commercial over night
courier (e.g. Federal Express or DHL), or telefaxed with confirmation copy sent
the same day by U.S. mail (postage prepaid); or (ii) upon the expiration of the
fifth (5th) business day after deposit, if mailed by , registered or certified
U.S. mail return receipt requested, postage prepaid. All notices shall be
addressed to each party at the following address:
If to the Company:
Xxxxxx X. Xxxxxxx
Chief Executive Officer
000 Xxxx Xxxxxx
00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
With a copy to:
Xxxxx X. Xxxxxx, Esq.
Jeffer, Mangels, Xxxxxx & Xxxxxxx LLP
2121 Avenue of the Stars
10th Floor
Los Angeles, CA. 90067
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If to Lender:
Xxxxx Xxxxxx, Esq.
x/x Xxxxxx, Xxxxxx & Xxxxxxx
00 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
or to such other address as the addressee shall have furnished to the other
parties hereto in the manner prescribed by this section.
(c) Entire Agreement. This Agreement, together with any
related documents referred to in this Agreement, constitutes the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all prior agreements and understandings between them or any of them
as to such subject matter. No amendment, change or modification of this
Agreement be valid unless in writing and signed by all of the parties hereto.
(d) Waiver. No reliance upon or waiver of one or more
provisions of this Agreement shall constitute a waiver of any other provisions
hereof.
(e) Severability. In case any one or more of the provisions
contained in this Agreement shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement and such invalid, illegal
and unenforceable provision shall be reformed and construed so that it will be
valid, legal and enforceable to the maximum extent permitted by law.
(f) Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(g) Section Headings. The headings contained in this
Agreement are for reference purposes only and shall not in any way affect the
meaning or interpretation of this Agreement. Should there be any conflict
between any such heading and the section at the head of which it appears, the
section and not such heading shall control.
(h) Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of California.
The parties hereby consent to the exclusive jurisdiction of the state or federal
courts located in the State of California for the resolution of any disputes
arising out of this Agreement.
(i) Successors and Assigns. All of the terms and provisions
contained herein shall inure to the benefit of and shall be binding upon the
parties hereto and their respective heirs, legal or personal representatives,
successors and assigns.
(j) Further Assurances. Each of the parties hereto shall
execute and deliver any and all additional papers, documents, and other
assurances, and shall do any and
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all acts and things reasonably necessary in connection with the performance of
their obligations hereunder and to carry out the intent of the parties hereto.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed as of the day and year first set forth above.
AMERICAN FILM TECHNOLOGIES, INC.
By: /s/ Xxxxxx X. Xxxxxxx
-------------------------------------
Xxxxxx X. Xxxxxxx
Chief Executive Officer
By: /s/ Xxxxx Xxxxxx
-------------------------------------
Xxxxx Xxxxxx
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SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement"), dated as of
February 3, 1997, is entered into between AMERICAN FILM TECHNOLOGIES, INC., a
Delaware corporation ("Debtor"), with offices at 000 Xxxx Xxxxxx, 00xx Xxxxx,
Xxx Xxxx, Xxx Xxxx 00000, and Xxxxx Xxxxxx ("Secured Party"), with an address of
x/x Xxxxxx, Xxxxxx & Xxxxxxx, 00 Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000.
The parties agree as follows:
1. DEFINITIONS
In addition to the definitions set forth above, the
following terms as used in this Agreement shall have the following definitions:
1.1 The term "Accounts" means and includes all presently
existing and hereafter arising accounts, contract rights, instruments, notes,
drafts, documents, chattel paper and all other forms of obligations owing to
Debtor arising out of the sale or lease of goods either presently owned by
Debtor or acquired with the proceeds received from the issuance of the Note (as
defined below) (the "Note Proceeds"), or arising out of the rendition of
services by Debtor, whether or not earned by performance, and any and all credit
insurance, guaranties and other security therefor, as well as all merchandise
returned to or reclaimed by Debtor.
1.2 The term "the Code" means and refers to the California
Uniform Commercial Code, and any and all terms used in this Agreement which are
defined in the Code shall be construed and defined in accordance with the
meaning and definition ascribed to such terms under the Code.
1.3 The term "Collateral" means and includes each and all
of the following owned by the Debtor as of the date hereof or acquired with the
proceeds of the Note:
A. Accounts;
B. Equipment;
C. General Intangibles;
D. Inventory;
E. any money, deposit accounts or other assets of Debtor in
which Secured Party receives a security interest or which hereafter come into
the possession, custody or control of Secured Party; and
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F. all proceeds of any of the foregoing.
1.4 The term "Equipment" means and includes all of Debtor's
present machinery, machine tools, motors, equipment, furniture, furnishings,
fixtures, motor vehicles, tools, parts, dies, jigs, goods, and any interest in
any of the foregoing, and all attachments, accessories, accessions,
replacements, substitutions, additions and improvements thereto, wherever
located, along with any of such types of assets acquired by Debtor from the Note
Proceeds.
1.5 The term "Event of Default" means the occurrence of any
one of the events set forth in Section 4 of this Agreement.
1.6 The term "General Intangibles" means and includes all
of Debtor's present general intangibles and all other presently owned intangible
personal property of Debtor (including, without limitation, any and all
franchise agreements, rights under franchise agreements, choses or things in
action, goodwill, patents, trade names, trademarks, blueprints, drawings,
purchase orders, customer lists, monies due or recoverable from pension funds,
route lists, infringement claims, computer programs, computer discs, computer
tapes, literature, reports, catalogs, deposit accounts, tax refunds and tax
refund claims) other than Accounts, along with any of such types of assets
acquired by Debtor from the Note Proceeds.
1.7 The term "Insolvency Proceeding" means and includes any
proceeding commenced by or against any person or entity under any provision of
the federal Bankruptcy Code, as amended, or under any other bankruptcy or
insolvency law, including, but not limited to, assignments for the benefit of
creditors, formal or informal moratoriums, compositions or extensions generally
with its creditors.
1.8 The term "Inventory" means and includes all of Debtor's
present inventory in which Debtor has any interest, including, but not limited
to, goods held for sale or lease or to be furnished under a contract of service
and all of Debtor's present and future raw materials, work in process, finished
goods, and packing and shipping materials, wherever located, and any documents
of title representing any of the above, along with any such types of assets
acquired by Debtor from the Note Proceeds.
1.9 The term "Note" means and refers to that certain
Convertible Secured Promissory Note (the "Note"), of even date herewith, in the
original principal amount of $100,000, executed by Debtor to the order of
Secured Party, and any amendments, modifications, substitutions or restatements
of the Note.
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1.10 The term "Obligations" means and refers to the
obligations evidenced by the Note and all Secured Party Expenses which Debtor is
required to pay or reimburse by this Agreement.
1.11 The term "Secured Party Expenses" means and includes:
costs, fees (including reasonable attorneys' fees) and expenses incurred by
Secured Party to correct any default or enforce any provision of this Agreement
or the Note, or in gaining possession of, maintaining, handling, preserving,
storing, shipping, selling, preparing for sale and/or advertising to sell the
Collateral, whether or not a sale is consummated.
2. CREATION OF SECURITY INTEREST
2.1 Debtor hereby grants to Secured Party a continuing
first priority security interest in all of the Collateral in order to secure
prompt repayment of any and all Obligations; provided that such security
interest shall rank pari passu with a security interest granted or to be granted
by Payor to secure repayment of an additional $100,000 note issued by Payor (the
"Additional Note"), such security interest issued or to be issued pursuant to a
security agreement containing terms substantially identical to this Agreement
(the "Additional Security Agreement").
2.2 Until the occurrence of an Event of Default by Debtor
under this Agreement, Debtor may, subject to the provisions hereof and
consistent herewith, sell the Inventory, but only in the ordinary course of
Debtor's business.
2.3 Debtor shall execute and deliver to Secured Party,
concurrent with Debtor's execution of this Agreement, and at any time or times
hereafter at the request of Secured Party, all financing statements,
continuation financing statements, fixture filings, security agreements,
assignments, endorsements of certificates of title, applications for title,
notices, schedules of accounts, letters of authority and all other documents
that Secured Party may reasonably request, in form satisfactory to Secured
Party, to perfect and maintain perfected Secured Party's security interest in
the Collateral.
3. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an
Event of Default by Debtor under this Agreement:
3.1 Any Event of Default by Debtor under the Note;
3.2 If Debtor, within five (5) days following written
notice to Debtor, fails to cure any default in payment, when due and payable or
when declared due and payable, of all or any portion of the Obligations owing to
Secured Party;
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3.3 If Debtor, within thirty (30) days following written
notice to Debtor, fails to cure any breach of any term, provision, condition,
covenant, agreement, warranty or representation contained in this Agreement; or
3.4 Any Event of Default by Debtor under the Additional
Note or the Additional Security Agreement.
4. SECURED PARTY'S RIGHTS AND REMEDIES
4.1 Upon the occurrence of an Event of Default by Debtor
under this Agreement, Secured Party may, at its election, do any one or more of
the following, all of which are authorized by Debtor:
A. Declare all Obligations immediately due and
payable;
B. Require Debtor to assemble the Collateral and to
make the Collateral available to Secured Party as Secured Party may designate.
Debtor authorizes Secured Party to enter the premises where the Collateral is
located, take and maintain possession of the Collateral or any part of it, and
to pay, purchase, contest or compromise any encumbrance, charge or lien which in
the opinion of Secured Party appears to be prior or superior to its security
interest and to pay all expenses incurred in connection therewith;
C. Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale and sell (in the manner provided
for herein) the Collateral;
D. Sell the Collateral at either a public or private
sale, or both, by way of one or more contracts or transactions, for cash or on
terms, in such manner and at such places (including Debtor's premises) as is
commercially reasonable in the opinion of Secured Party.
4.2 Secured Party shall give notice of the disposition of
the Collateral as follows:
A. Secured Party shall give Debtor and each holder of
a security interest in the Collateral who has filed with Secured Party a written
request for notice, as well as the holder of the Additional Note, a notice in
writing of the time and place of public sale, or, if the sale is a private sale
or some other disposition other than a public sale is to be made of the
Collateral, the time on or after which the private sale or other disposition is
to be made;
B. The notice shall be personally delivered or mailed,
postage prepaid, to Debtor as provided in Section 6 of this Agreement, at least
fifteen (15) calendar days before the date fixed for the sale, or at least
fifteen (15) calendar days
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before the date on or after which the private sale or other disposition is to be
made. Notice to persons other than Debtor claiming an interest in the Collateral
shall be sent to such addresses as they have furnished to Secured Party;
C. If the sale is to be a public sale, Secured Party
shall also give notice of the time and place by publishing a notice one time at
least fifteen (15) calendar days before the date of the sale in a newspaper of
general circulation in the county in which the sale is to be held.
4.3 Debtor shall pay all Secured Party Expenses incurred in
connection with Secured Party's enforcement and exercise of any of its rights
and remedies as herein provided.
4.4 Any deficiency which exists after disposition of the
Collateral as provided above will be paid by Debtor. Any excess will be returned
to Debtor by Secured Party.
4.5 Secured Party's rights and remedies under this
Agreement and all other agreements shall be cumulative. No exercise by Secured
Party of one right or remedy shall be deemed an election, and no waiver by
Secured Party of any default on Debtor's part shall be deemed a continuing
waiver. No delay by Secured Party shall constitute a waiver, election or
acquiescence by it.
5. NOTICES
All notices or demands by any party relating to the Note or
this Agreement shall be in writing and either personally served or sent by
regular United States mail, postage prepaid, to Debtor or Secured Party at their
respective addresses set forth in the first paragraph of this Agreement, as the
case may be. The parties hereto may change the address at which they are to
receive notices hereunder, by notice in writing in the foregoing manner given to
the other. All notices or demands sent in accordance with this Section 6 shall
be deemed received on the earlier of the date of actual receipt or three (3)
days after the deposit thereof in the mail.
6. CHOICE OF LAW
The validity of this Agreement, its construction,
interpretation and enforcement, and the rights of the parties hereunder and
concerning the Collateral, shall be determined under, governed by, and construed
in accordance with the laws of the State of California.
7. GENERAL PROVISIONS
7.1 This Agreement shall bind and inure to the benefit of
the respective successors and assigns of each of the parties; provided, however,
that Debtor may not assign this
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Agreement or any rights hereunder without Secured Party's prior written consent.
7.2 Section headings and section numbers have been set
forth herein for convenience only. Unless the contrary is compelled by the
context, everything contained in each section applies equally to this entire
Agreement.
7.3 Each provision of this Agreement shall be severable
from every other provision of this Agreement for the purpose of determining the
legal enforceability of any specific provision.
7.4 This Agreement cannot be changed or terminated orally.
All prior agreements, understandings, representations, warranties and
negotiations, if any, are merged into this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first hereinabove written.
DEBTOR:
AMERICAN FILM TECHNOLOGIES,
INC., a California corporation
By: /s/ Xxxxxx X. Xxxxxxx
----------------------------------
Name: XXXXXX X. XXXXXXX
--------------------------------
Title: CHAIRMAN & CEO
-------------------------------
SECURED PARTY:
/s/ Xxxxx Xxxxxx
-----------------------------
XXXXX XXXXXX
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THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER UNITED
STATES FEDERAL OR STATE SECURITIES LAWS, INCLUDING BUT NOT LIMITED TO
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") NOR APPROVED BY ANY
FEDERAL OR STATE REGULATORY AGENCY, INCLUDING BUT NOT LIMITED TO THE
SECURITIES AND EXCHANGE COMMISSION, AND MAY NOT BE OFFERED FOR SALE,
SOLD OR OTHERWISE TRANSFERRED OR ASSIGNED FOR VALUE, DIRECTLY OR
INDIRECTLY, NOR MAY THE SECURITIES BE TRANSFERRED ON THE BOOKS OF THE
CORPORATION, WITHOUT REGISTRATION OF SUCH SECURITIES UNDER ALL
APPLICABLE UNITED STATES FEDERAL OR STATE SECURITIES LAWS, INCLUDING
BUT NOT LIMITED TO THE ACT, OR COMPLIANCE WITH AN APPLICABLE EXEMPTION
THEREFROM, SUCH COMPLIANCE, AT THE DISCRETION OF THE CORPORATION, TO BE
EVIDENCED BY AN OPINION OF SHAREHOLDER'S COUNSEL, IN FORM ACCEPTABLE TO
THE CORPORATION, THAT NO VIOLATION OF SUCH REGISTRATION OR
QUALIFICATION PROVISIONS WOULD RESULT FROM ANY PROPOSED TRANSFER OR
ASSIGNMENT.
CONVERTIBLE SECURED PROMISSORY NOTE
Dated as of February 3, 1997 $100,000.00
FOR VALUE RECEIVED, the undersigned ("Payor") promises to pay
to the order of Xxxxx Xxxxxx ("Payee"), at c/o Xxxxxx, Xxxxxx & Xxxxxxx, 00 Xxxx
Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 or at such other address as the holder of this
Note shall from time to time designate, upon presentation of this Note, the
principal sum of ONE HUNDRED THOUSAND DOLLARS AND NO CENTS ($100,000.00), plus
accrued and unpaid interest, on January __, 1999 (the "Maturity Date"). Except
as provided herein, this Note shall bear interest from the date hereof on the
unpaid principal amount until paid in full (or until such time as this Note has
been converted in full into shares of Payor's Common Stock ("Common Stock")
pursuant to the conversion provisions contained elsewhere herein) at the rate of
two percent (2%) per annum (the "Note Rate"). The undersigned agrees to pay all
accrued interest on the outstanding principal amount of this Note on each of
December 31, 1997 and December 31, 1998, and to pay all remaining accrued
interest and unpaid principal on the Maturity Date.
This Note is made pursuant to that certain Secured Note
Purchase Agreement (the "Purchase Agreement"), dated as of January __, 1997, by
and among Payor and Payee. Capitalized terms, which are used herein but not
defined herein, shall have the meanings ascribed to them in the Agreement.
This Note shall be subject to the rights of the following
existing and/or future creditors of Payor, each of which Payor hereby
acknowledges the existence of:
(i) holders of Unsecured Creditor Notes issued by
Payor to Class 7 creditors pursuant to Payor's Third Amended Chapter 11 Plan of
Reorganization dated August 21, 1995 (the "Plan Noteholders");
(ii) all currently existing trade creditors of Payor
or any such creditor existing prior to the Maturity Date (collectively, with the
"Plan Noteholders," the "Senior Creditors").
Nothing contained herein shall prevent Payor from making any
payments owed to the Senior Creditors when due or any payment to be made to the
Senior Creditors upon the voluntary election of Payor; provided that no
voluntary prepayment of any obligations owed to the Senior Creditors shall be
made during the occurrence of an Event of Default under this Note.
Payor shall have the right to prepay all or any portion of the
principal sum hereof at any time without penalty; provided that Payor provide
Payee with a notice of any such prepayment (a "Prepayment Notice") by personal
delivery or first-class mail no later than five (5) business days prior to such
prepayment and that Payee has not delivered to Payor a notice of conversion (a
"Conversion Notice") with respect to any or all of such amount to be prepaid by
personal delivery or first-class mail no later than three (3) business days
after receipt of the Prepayment Notice. To the extent that Payee elects only to
convert into Common Stock a portion of the amount that Payor elects to prepay
pursuant to the Prepayment Notice, Payor shall be entitled to prepay all
remaining amounts not to be so converted into Common Stock by Payee.
Each payment shall be credited first to accrued interest and
the remainder to principal. Principal and interest, whether prepaid or paid on
the Maturity Date, shall be payable in lawful money of the United States of
America.
This Note is secured by that certain Security Agreement (the
"Security Agreement"), of even date herewith, by and among Payor, as pledgor,
and Payee, as pledgee, pursuant to which Payor has secured its obligations to
Payee under this Note by granting to Payee a first priority security interest in
all of its assets owned as of the date hereof, any proceeds received from the
disposition thereof, and any assets acquired with the proceeds received from the
issuance of this Note (and all proceeds thereof); provided that such security
interest shall rank pari passu with a security interest granted or to be granted
by Payor to secure repayment of an additional $100,000 note issued by Payor and
containing terms substantially identical to this Note.
The holder of this Note shall have the right, at such holder's
option, at any time (subject to Payor's right to prepay all or any portion of
this Note described elsewhere herein),
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to convert all of any portion of the outstanding principal and accrued and
unpaid interest of this Note into such number of fully paid and nonassessable
shares of Common Stock as shall be provided herein. The holder of this Note may
exercise such conversion right by giving a Conversion Notice to Payor of the
exercise of such right, in whole or in part, and stating the name or names in
which the stock certificate or stock certificates for the shares of Common Stock
are to be issued and the address to which such certificates shall be delivered.
The Conversion Notice shall be accompanied by this Note. The number of shares of
Common Stock that shall be issuable upon conversion of this Note shall equal the
amount of the outstanding principal and accrued interest for which a Conversion
Notice is given, divided by a conversion price (the "Conversion Price") equal to
$.09 per share.
No fractional shares of Common Stock shall be issued upon
conversion of this Note. In lieu of any fractional shares to which the holder
would otherwise be entitled, Payor shall round up to the nearest whole share. In
the case of a dispute as to the calculation of the number of shares of Common
Stock into which this Note or any portion thereof shall be converted (the
"Conversion Rate") upon the receipt of a Conversion Notice, Payor's calculation
shall be deemed conclusive absent manifest error. In order to convert this Note
into full shares of Common Stock, the holder shall surrender this Note, duly
endorsed, by overnight courier to the office of Payor, together with the
Conversion Notice that it elects to convert the same, the amount of principal
and interest to be so converted, and a calculation of the Conversion Rate (with
an advance copy of the certificate(s) and the notice by facsimile); provided,
however, that Payor shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon such conversion unless either this Note is
delivered to Payor as provided above, or the holder notifies Payor that this
Note has been lost, stolen or destroyed and executes an agreement satisfactory
to Payor to indemnify Payor from any loss incurred by it in connection with this
Note.
Payor shall issue and deliver to Payee promptly after delivery
to it of this Note, to such holder at the address of the holder on the records
of Payor, a certificate or certificates for the number of shares of Common Stock
to which it shall be entitled as aforesaid. The date on which notice of
conversion is given (the "Date of Conversion") shall be deemed to be the date
set forth in such notice of conversion provided that this Note to be converted
is received by Payor within five (5) business days thereafter and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on such date. If this Note is not received by Payor
within five (5) business days after the Date of Conversion, the notice of
conversion shall become null and void.
Payor shall at all times reserve and keep available, free from
preemptive rights, unissued or treasury shares of Common Stock sufficient to
effect the conversion of this Note; and if at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to effect the
conversion of all then outstanding principal and accrued and unpaid interest of
this Note, Payor will take such corporate action as may be necessary to increase
its
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authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purposes.
In the event of any increase or decrease in the number of the
issued shares of Common Stock by reason of a stock dividend, stock split,
reverse stock split or consolidation or combination of shares and the like at
any time or from time to time throughout the term of this Note such that the
holders of outstanding Common Stock shall have had an adjustment made, without
payment therefor, in the number of shares of Common Stock owned by them or shall
have become entitled or required to have had an adjustment made in the number of
shares of Common Stock owned by them, without payment therefor, there shall be a
corresponding adjustment as to the number of shares of Common Stock into which
this Note is exercisable and to the Conversion Price, with the result that the
holder's proportionate share of Common Stock shall be maintained as before the
occurrence of such event without change in the aggregate conversion price
applicable in the event the holder elected to convert this Note in full (except
for any change in the aggregate conversion price exercise price resulting from
rounding-off of share quantities or prices).
In the event of any reclassification or change of outstanding
shares of Common Stock issuable upon conversion of this Note (other than a
change in par value, or from par value to no par value, or from no par value to
par value), or in case of a consolidation or merger of Payor with or into
another corporation (other than a merger or consolidation in which Payor is the
continuing corporation and which does not result in a reclassification or change
of outstanding shares of Common Stock of the class issuable upon the conversion
of this Note except where the security holders of Payor are entitled to receive
securities of another issuer), or in case of any sale or conveyance to another
corporation of the property of Payor as an entirety or substantially as an
entirety (any of such events hereinafter referred to as a "Restructuring
Event"), Payor shall provide Payee with thirty (30) days prior written notice of
the Restructuring Event. Payee shall have the right to convert this Note into
shares of Common Stock by delivering a Conversion Notice to Payor no later than
five (5) business days prior to the Restructuring Event. In the event Payee
fails to deliver the Conversion Notice by such time, Payor shall remain
obligated to make any remaining payments owed under this Note and Payee shall
retain the right to receive the kind and amount of shares of stock and other
securities and property of Payor receivable upon such Restructuring Event by the
holder of the number of shares of Common Stock of Payor into which this Note
might have been converted immediately prior to such Restructuring Event (to the
extent such Restructuring Event does not involve the corporate dissolution or
disappearance of Payor), but Payee shall not, absent an express agreement to the
contrary with any successor corporation, have the right to receive the kind and
amount of shares of stock and other securities and property of any such
successor corporation receivable upon such Restructuring Event by the holder of
the number of shares of Common Stock of Payor into which this Note might have
been converted immediately prior to such Restructuring Event. Any such interest
shall provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for herein. The foregoing provisions of
this Note shall similarly apply to successive
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reclassifications and changes of shares of Common Stock and to successive
consolidations, mergers, sales, or conveyances.
Each of the following shall be deemed an "Event of Default":
(a) If Payor fails to pay when due, all or any
portion of this Note or the other Obligations (as defined in the Security
Agreement) owing to Payee (whether for principal, interest, taxes, reimbursement
of Payee's expenses, or otherwise), and as to any of the foregoing, such failure
continues for five (5) calendar days after written notice from Payee to Payor;
(b) If Payor fails or neglects to perform, keep or
observe any other term, provision, condition, covenant, agreement, warranty or
representation contained in this Note, the Security Agreement, the Purchase
Agreement, the Registration Undertaking or any other present or future agreement
related to the Secured Obligations between Payor and Payee, and as to any of the
foregoing, such failure continues for thirty (30) calendar days after written
notice from Payee to Payor;
(c) If Payor sells or transfers a material portion of
its existing assets outside of the ordinary course of its business without
applying the net proceeds from such sale to reduce the outstanding accrued and
unpaid interest and principal balance due on this Note;
(d) If Payor commences any Insolvency Proceeding (as
defined below); or
(e) If any Insolvency Proceeding is commenced against
Payor and which is not dismissed within forty-five (45) days of the date of
filing.
As used herein, the term "Insolvency Proceeding"
means and includes any proceeding commenced by or against any person or entity
under any provision of the federal Bankruptcy Code, as amended, or under any
other bankruptcy or insolvency law, including, but not limited to, assignments
for the benefit of creditors, formal or informal moratoriums, compositions or
extensions generally with its creditors.
Upon the occurrence of an Event of Default, the whole
principal sum (along with any accrued and unpaid interest) shall become
immediately due at the option of the holder hereof. Without limiting the
foregoing, and in addition thereto, upon the occurrence of an Event of Default,
this Note shall thereafter bear interest at an annual rate equal to three
percent (3%) above the Note Rate (the "Default Rate"), which sum the parties
agree represents a reasonable liquidation of the damages which will be suffered
by the holder as a result of late payment.
Without limiting the foregoing, and in addition thereto, Payor
shall prepay the entire outstanding principal amount of this Note (along with
any accrued and unpaid interest to
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such date), within five (5) business days from the date that Payor raises
proceeds in an amount equal to or in excess of $1,500,000 through the offering
by Payor of any equity or debt securities to any third party or parties (an
"Offering"), whether such Offering is conducted through any underwriter or other
intermediary or directly by Payor; provided that Payor shall provide Payee with
a Prepayment Notice by personal delivery or first-class mail no later than two
(2) business days following the completion of such Offering and shall not make
such prepayment unless Payee has not delivered to Payor a Conversion Notice with
respect to any or all of such amount to be prepaid by personal delivery or
first-class mail no later than three (3) business days after receipt of the
Prepayment Notice. To the extent that Payee elects only to convert into Common
Stock a portion of the entire outstanding principal and accrued interest of this
Note that Payor is obligated to prepay as a result of the Offering, Payor shall
remain obligated to prepay all remaining amounts not to be so converted into
Common Stock by Payee.
In the event the holder brings suit to enforce its rights
under this Note, the prevailing party in such suit shall pay all costs and
expenses (including without limitation reasonable attorneys' fees) in connection
therewith.
No failure to exercise, and no delay in exercising, any right,
power or remedy hereunder or under any document delivered to the holder hereof
shall impair any right, power or remedy which the holder may have. The rights
and remedies of the holder hereof are cumulative and not exclusive of any rights
or remedies which the holder would otherwise have. This Note and Payee's rights
thereunder shall not be transferable or assignable without the expressed written
consent of the Payor.
No waiver or modification of any of the terms or provisions of
this Note shall be valid or binding unless set forth in a writing signed by the
holder of this Note and Payor and then only to the extent therein specifically
set forth.
If any one of the provisions of this Note shall be invalid,
illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby.
This Note and all transactions hereunder and/or evidenced
hereby shall be governed by, construed under and enforced in accordance with the
laws of the State of California. Payor hereby: (i) agrees that all actions or
proceedings relating directly or indirectly hereto shall be litigated in courts
located within the State of California, and that, at the option of the holder,
the exclusive venue therefor shall be Los Angeles County; (ii) consents to the
jurisdiction and venue of any such court and consents to the service of process
in any such action or proceeding by personal delivery, by certified or
registered mail directed to Payor at the address set forth below, or by any
other method permitted by law; and (iii) waives any and all rights Payor may
have to object to the jurisdiction of any such court, or to transfer or change
the venue of any such action or proceeding.
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AMERICAN FILM TECHNOLOGIES, INC. a
California corporation
By: /s/ Xxxxxx X. Xxxxxxx
--------------------------------
Name:
------------------------------
Title: CHIEF EXECUTIVE OFFICER
----------------------------
000 Xxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
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