THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF
THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT
AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO AMERICAN TECHNOLOGIES GROUP, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED.
AMENDED AND RESTATED
SECURED CONVERTIBLE TERM NOTE B
FOR VALUE RECEIVED, each of AMERICAN TECHNOLOGIES GROUP, INC.,
a Nevada corporation (the "Parent"), and the other Companies listed on Exhibit A
attached hereto (such other companies together with the Parent, each a "Company"
and collectively, the "Companies"), jointly and severally, promises to pay to
LAURUS MASTER FUND, LTD., c/o M&C Corporate Services Limited, P.O. Box 309 GT,
Xxxxxx House, South Church Street, Xxxxxx Town, Grand Cayman, Cayman Islands,
Fax: 000-000-0000 (the "Holder") or its registered assigns or successors in
interest, the sum of Two Million Dollars ($2,000,000), together with any accrued
and unpaid interest hereon, on May 7, 2007 (the "Maturity Date") if not sooner
paid.
This Amended and Restated Secured Convertible Term Note B
(this "Note") is intended to be a registered obligation within the meaning of
Treasury Regulation Section 1.871-14(c)(1)(i) and each Company (or its agent)
shall register this Note (and thereafter shall maintain such registration) as to
both principal and any stated interest. Notwithstanding any document, instrument
or agreement relating to this Note to the contrary, transfer of this Note (or
the right to any payments of principal or stated interest thereunder) may only
be effected by (i) surrender of this Note and either the reissuance by the
Company of this Note to the new holder or the issuance by the Company of a new
instrument to the new holder, or (ii) transfer through a book entry system
maintained by the Company (or its agent), within the meaning of Treasury
Regulation Section 1.871-14(c)(1)(i)(B).
Capitalized terms used herein without definition shall have
the meanings ascribed to such terms in that certain Xxxxxxx and Restated
Security Agreement dated as of January 31, 2007 by and among the Companies and
the Holder (as amended, restated, modified and/or supplemented from time to
time, the "Security Agreement").
The following terms shall apply to this Note:
ARTICLE I
CONTRACT RATE AND AMORTIZATION
1.1 Contract Rate. Subject to Sections 4.2 and 5.10, interest payable on
the outstanding principal amount of this Note (the "Principal Amount") shall
accrue at a rate per annum equal to eighteen percent (18%) (the "Contract
Rate"). Interest shall be (i) calculated on the basis of a 360 day year, and
(ii) payable monthly, in arrears, commencing on October 1, 2005 on the first
business day of each consecutive calendar month thereafter through and including
the Maturity Date, and on the Maturity Date, whether by acceleration or
otherwise.
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1.2 Principal Payments. The total outstanding Principal Amount together
with any accrued and unpaid interest and any and all other unpaid amounts which
are then owing by the Companies to the Holder under this Note, the Security
Agreement and/or any other Ancillary Agreement shall be due and payable on the
Maturity Date. ARTICLE II CONVERSION AND REDEMPTION 2.1 Payment of Principal
Xxxxxx.
(a) Payment in Cash or Common Stock. If the Principal Amount (or a
portion of the Principal Amount if not all of the Principal Amount may be
converted into shares of Common Stock pursuant to Section 3.2) is required to be
paid in cash pursuant to Section 2.1(b), then the Companies shall, jointly and
severally, pay the Holder an amount in cash equal to 100% of the Principal
Amount (or such portion of the Principal Amount to be paid in cash) due and
owing to the Holder on the Maturity Date. If the Principal Amount (or a portion
of the Principal Amount if not all of the Principal Amount may be converted into
shares of Common Stock pursuant to Section 3.2) is required to be paid in shares
of Common Stock pursuant to Section 2.1(b), the number of such shares to be
issued by the Parent to the Holder on the Maturity Date (in respect of such
portion of the Principal Amount converted into shares of Common Stock pursuant
to Section 2.1(b)), shall be the number determined by dividing (i) the portion
of the Principal Amount converted into shares of Common Stock, by (ii) the then
applicable Fixed Conversion Price. For purposes hereof, subject to Section 3.6
hereof, the initial "Fixed Conversion Price" means $0.333.
(b) Principal Amount Conversion Conditions. Subject to Sections
2.1(a), 2.2, and 3.2 hereof, the Holder shall convert into shares of Common
Stock all or a portion of the Principal Amount due on the Maturity Date if the
following conditions (the "Conversion Criteria") are satisfied: (i) the average
closing price of the Common Stock as reported by Bloomberg, L.P. on the
Principal Market for the five (5) trading days immediately preceding the
Maturity Date shall be greater than or equal to 120% of the Fixed Conversion
Price and (ii) the amount of such conversion does not exceed twenty-five percent
(25%) of the aggregate dollar trading volume of the Common Stock for the period
of twenty-two (22) trading days immediately preceding the Maturity Date. If
subsection (i) of the Conversion Criteria is met but subsection (ii) of the
Conversion Criteria is not met as to the entire Principal Amount, the Holder
shall convert only such part of the Principal Amount that meets subsection (ii)
of the Conversion Criteria. Any portion of the Principal Amount due on the
Maturity Date that the Holder has not been able to convert into shares of Common
Stock due to the failure to meet the Conversion Criteria, shall be paid in cash
by the Companies on the Maturity Date at the rate of 100% of the Principal
Amount otherwise due on the Maturity Date.
2.2 No Effective Registration. Notwithstanding anything to the contrary
herein, none of the Companies' obligations to the Holder may be converted into
Common Stock unless (a) either (i) an effective current Registration Statement
(as defined in the Registration Rights Agreement) covering the shares of Common
Stock to be issued in connection with satisfaction of such obligations exists or
(ii) an exemption from registration for resale of all of the Common Stock issued
and issuable is available pursuant to Rule 144 of the Securities Act and (b) no
Event of Default (as hereinafter defined) exists and is continuing, unless such
Event of Default is cured within any applicable cure period or otherwise waived
in writing by the Holder.
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2.3 Optional Redemption in Cash. The Companies may prepay this Note
("Optional Redemption") by paying to the Holder a sum of money equal to one
hundred percent (100%) of the Principal Amount outstanding at such time together
with accrued but unpaid interest thereon and any and all other sums due, accrued
or payable to the Holder arising under this Note (the "Redemption Amount")
outstanding on the Redemption Payment Date (as defined below). The Companies
shall deliver to the Holder a written notice of redemption (the "Notice of
Redemption") specifying the date for such Optional Redemption (the "Redemption
Payment Date"), which date shall be seven (7) business days after the date of
the Notice of Redemption (the "Redemption Period"). A Notice of Redemption shall
not be effective with respect to any portion of this Note for which the Holder
has previously delivered a Notice of Conversion (as hereinafter defined) or for
conversions elected to be made by the Holder pursuant to Section 3.3 during the
Redemption Period. The Redemption Amount shall be determined as if the Holder's
conversion elections had been completed immediately prior to the date of the
Notice of Redemption. On the Redemption Payment Date, the Redemption Amount must
be paid in good funds to the Holder. In the event the Companies fail to pay the
Redemption Amount on the Redemption Payment Date as set forth herein, then such
Redemption Notice will be null and void.
ARTICLE III
HOLDER'S CONVERSION RIGHTS
3.1 Optional Conversion. Subject to the terms set forth in this Article
III, the Holder shall have the right, but not the obligation, to convert all or
any portion of the issued and outstanding Principal Amount and/or accrued
interest and fees due and payable into fully paid and nonassessable shares of
Common Stock at the Fixed Conversion Price. The shares of Common Stock to be
issued upon such conversion are herein referred to as, the "Conversion Shares."
3.2 Conversion Limitation. Notwithstanding anything contained herein to
the contrary, the Holder shall not be entitled to convert pursuant to the terms
of this Note an amount that would be convertible into that number of Conversion
Shares which would exceed the difference between (i) 4.99% of the issued and
outstanding shares of Common Stock and (ii) the number of shares of Common Stock
beneficially owned by the Holder For purposes of the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Exchange Act and Regulation 13d-3 thereunder. The Conversion Share
limitation described in this Section 3.2 shall automatically become null and
void following notice to the Company upon the occurrence and during the
continuance of an Event of Default, or upon 75 days prior notice to the Parent.
Notwithstanding anything contained herein to the contrary, the provisions of
this Section 3.2 are irrevocable and may not be waived by the Holder or the
Parent.
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3.3 Mechanics of Xxxxxx's Conversion. In the event that the Holder elects
to convert this Note into Common Stock, the Holder shall give notice of such
election by delivering an executed and completed notice of conversion in
substantially the form of Exhibit B hereto (appropriate completed) ("Notice of
Conversion") to the Parent and such Notice of Conversion shall provide a
breakdown in reasonable detail of the Principal Amount, accrued interest and
fees that are being converted. On each Conversion Date (as hereinafter defined)
and in accordance with its Notice of Conversion, the Holder shall make the
appropriate reduction to the Principal Amount, accrued interest and fees as
entered in its records and shall provide written notice thereof to the Parent
within two (2) business days after the Conversion Date. Each date on which a
Notice of Conversion is delivered or telecopied to the Parent in accordance with
the provisions hereof shall be deemed a Conversion Date (the "Conversion Date").
Pursuant to the terms of the Notice of Conversion, the Parent will issue
instructions to the transfer agent accompanied by an opinion of counsel within
one (1) business day of the date of the delivery to the Parent of the Notice of
Conversion and shall cause the transfer agent to transmit the certificates
representing the Conversion Shares to the Holder by crediting the account of the
Holder's designated broker with the Depository Trust Corporation ("DTC") through
its Deposit Withdrawal Agent Commission ("DWAC") system within three (3)
business days after receipt by the Parent of the Notice of Conversion (the
"Delivery Date"). In the case of the exercise of the conversion rights set forth
herein the conversion privilege shall be deemed to have been exercised and the
Conversion Shares issuable upon such conversion shall be deemed to have been
issued upon the date of receipt by the Parent of the Notice of Conversion. The
Holder shall be treated for all purposes as the record holder of the Conversion
Shares, unless the Holder provides the Parent written instructions to the
contrary.
3.4 Late Payments. Each Company understands that a delay in the delivery
of the Conversion Shares in the form required pursuant to this Article beyond
the Delivery Date could result in economic loss to the Holder. As compensation
to the Holder for such loss, in addition to all other rights and remedies which
the Holder may have under this Note, applicable law or otherwise, the Companies
shall, jointly and severally, pay late payments to the Holder for any late
issuance of Conversion Shares in the form required pursuant to this Article II
upon conversion of this Note, in the amount equal to $500 per business day after
the Delivery Date. The Company shall make any payments incurred under this
Section in immediately available funds upon demand.
3.5 Conversion Mechanics. The number of shares of Common Stock to be
issued upon each conversion of this Note shall be determined by dividing that
portion of the principal and interest and fees to be converted, if any, by the
then applicable Fixed Conversion Price.
3.6 Adjustment Provisions. The Fixed Conversion Price and number and kind
of shares or other securities to be issued upon conversion determined pursuant
to this Note shall be subject to adjustment from time to time upon the
occurrence of certain events during the period that this conversion right
remains outstanding, as follows:
4
(a) Reclassification. If the Parent at any time shall, by
reclassification or otherwise, change the Common Stock into the same or a
different number of securities of any class or classes, this Note, as to the
unpaid Principal Amount and accrued interest thereon, shall thereafter be deemed
to evidence the right to purchase an adjusted number of such securities and kind
of securities as would have been issuable as the result of such change with
respect to the Common Stock (i) immediately prior to or (ii) immediately after,
such reclassification or other change at the sole election of the Holder.
(b) Stock Splits, Combinations and Dividends. If the shares of
Common Stock are subdivided or combined into a greater or smaller number of
shares of Common Stock, or if a dividend is paid on the Common Stock or any
preferred stock issued by the Parent in shares of Common Stock, the Fixed
Conversion Price shall be proportionately reduced in case of subdivision of
shares or stock dividend or proportionately increased in the case of combination
of shares, in each such case by the ratio which the total number of shares of
Common Stock outstanding immediately after such event bears to the total number
of shares of Common Stock outstanding immediately prior to such event.
3.7 Reservation of Shares. During the period the conversion right exists,
the Parent will reserve from its authorized and unissued Common Stock a
sufficient number of shares to provide for the issuance of Conversion Shares
upon the full conversion of this Note, the Warrants and the Options. Each
Company represents that upon issuance, the Conversion Shares will be duly and
validly issued, fully paid and non-assessable. Each Company agrees that its
issuance of this Note shall constitute full authority to its officers, agents,
and transfer agents who are charged with the duty of executing and issuing stock
certificates to execute and issue the necessary certificates for the Conversion
Shares upon the conversion of this Note.
3.8 Registration Rights. The Holder has been granted registration rights
with respect to the Conversion Shares as set forth in the Registration Rights
Agreement.
3.9 Issuance of New Note. Upon any partial conversion of this Note, a new
Note containing the same date and provisions of this Note shall, at the request
of the Holder, be issued by the Companies to the Holder for the principal
balance of this Note and interest which shall not have been converted or paid.
Subject to the provisions of Article IV of this Note, no Company shall pay any
costs, fees or any other consideration to the Holder for the production and
issuance of a new Note.
ARTICLE IV
EVENTS OF DEFAULT
4.1 Events of Default. The occurrence of an Event of Default under the
Security Agreement shall constitute an event of default ("Event of Default")
hereunder.
4.2 Default Interest. Following the occurrence and during the continuance
of an Event of Default, the Companies shall, jointly and severally, pay
additional interest on the outstanding principal balance of this Note in an
amount equal to the Contract Rate plus ten percent (10%) per annum, and all
outstanding Obligations, including unpaid interest, shall continue to accrue
interest at such additional interest rate from the date of such Event of Default
until the date such Event of Default is cured or waived.
5
4.3 Default Payment. Following the occurrence and during the continuance
of an Event of Default, the Holder, at its option, may demand repayment in full
of all Obligations and/or may elect, in addition to all rights and remedies of
the Holder under the Security Agreement and the other Ancillary Agreements and
all Obligations of the Companies under the Security Agreement and the other
Ancillary Agreements, to require the Company to make a Default Payment ("Default
Payment"). The Default Payment shall be 130% of the outstanding principal amount
of the Note, plus accrued but unpaid interest, all other fees then remaining
unpaid, and all other amounts payable hereunder. The Default Payment shall be
applied first to any fees due and payable to the Holder pursuant to the Notes,
the Security Agreement, and/or the other Ancillary Agreements, then to accrued
and unpaid interest due on the Notes and then to the outstanding principal
balance of the Notes. The Default Payment shall be due and payable immediately
on the date that the Holder has exercised its rights pursuant to this Section
4.3.
ARTICLE V
MISCELLANEOUS
5.1 Conversion Privileges. The conversion privileges set forth in Article
III shall remain in full force and effect immediately from the date hereof until
the date this Note is indefeasibly paid in full and irrevocably terminated.
5.2 Cumulative Remedies. The remedies under this Note shall be cumulative.
5.3 Failure or Indulgence Not Waiver. No failure or delay on the part of
the Holder hereof in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
5.4 Notices. Any notice herein required or permitted to be given shall be
in writing and provided in accordance with the terms of the Security Agreement.
5.5 Amendment Provision. The term "Note" and all references thereto, as
used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented, and any successor instrument as such successor instrument may be
amended or supplemented.
5.6 Assignability. This Note shall be binding upon each Company and its
successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder in accordance with the
requirements of the Security Agreement. No Company may assign any of its
obligations under this Note without the prior written consent of the Holder, any
such purported assignment without such consent being null and void.
6
5.7 Cost of Collection. In case of any Event of Default under this Note,
the Companies shall, jointly and severally, pay the Holder reasonable costs of
collection, including reasonable attorneys' fees.
5.8 Governing Law, Jurisdiction and Waiver of Jury Trial.
(a) THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAW.
(b) EACH COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR
FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE
EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN ANY
COMPANY, ON THE ONE HAND, AND THE HOLDER, ON THE OTHER HAND, PERTAINING TO THIS
NOTE OR ANY OF THE OTHER ANCILLARY AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR
RELATED TO THIS NOTE OR ANY OF THE ANCILLARY AGREEMENTS; PROVIDED, THAT EACH
COMPANY ACKNOWLEDGES THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY
A COURT LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF NEW YORK; AND
FURTHER PROVIDED, THAT NOTHING IN THIS NOTE SHALL BE DEEMED OR OPERATE TO
PRECLUDE THE HOLDER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER
JURISDICTION TO COLLECT THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY
OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT
ORDER IN FAVOR OF THE HOLDER. EACH COMPANY EXPRESSLY SUBMITS AND CONSENTS IN
ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT
AND EACH COMPANY HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK
OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. EACH COMPANY
HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS
ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS,
COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO THE COMPANY AT THE ADDRESS SET FORTH IN THE SECURITY AGREEMENT AND
THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF THE COMPANY'S
ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER
POSTAGE PREPAID.
(c) EACH COMPANY DESIRES THAT ITS DISPUTES BE RESOLVED BY A JUDGE
APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE
BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, EACH COMPANY HERETO WAIVES
ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO
RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN THE
HOLDER AND/OR ANY COMPANY ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL
TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS NOTE, ANY
OTHER ANCILLARY AGREEMENT OR THE TRANSACTIONS RELATED HERETO OR THERETO.
7
5.9 Severability. In the event that any provision of this Note is invalid
or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law. Any such provision which may prove invalid or unenforceable under any law
shall not affect the validity or enforceability of any other provision of this
Note.
5.10 Maximum Payments. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest required to be paid or other charges hereunder exceed the maximum rate
permitted by such law, any payments in excess of such maximum rate shall be
credited against amounts owed by the Companies to the Holder and thus refunded
to the Companies.
5.11 Security Interest. The Holder has been granted a security interest
(i) in certain assets of the Companies as more fully described in the Security
Agreement, (ii) pursuant to the Stock Pledge Agreement dated as of the date
hereof and (iii) in certain real property of the Term Loan B Guarantors.
5.12 Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Note and, therefore, stipulates that the
rule of construction that ambiguities are to be resolved against the drafting
party shall not be applied in the interpretation of this Note to favor any party
against the other.
5.13 Amendment and Restatement. This Note amends and restates in its
entirety (and is given in substitution for but not in satisfaction of) that
certain (a) $2,000,000 Secured Convertible Term Note B dated as of September 7,
2005 executed by the Companies in favor of the Holder and (b) $2,000,000 Secured
Convertible Term Note B effecctive as of September 7, 2005 and amended and
restated on January 31, 2007 executed by the Companies in favor of the Holder
(collectively, the "Prior Notes"). This Note does not effect a refinancing of
all or any portion of the Obligations heretofore evidenced by the Prior Notes,
it being the intention of the Companies and the Holder to avoid effectuating a
novation of such Obligations.
[Balance of page intentionally left blank; signature page follows]
8
IN WITNESS WHEREOF, each Company has caused this Amended and
Restated Secured Convertible Term Note to be signed in its name on the 23rd day
of March, 2007 and effective as of the 7th day of September, 2005.
AMERICAN TECHNOLOGIES GROUP, INC.
/s/ Dr, Xxxx Xxxxx, CFO & Chairman
NORTH TEXAS STEEL COMPANY, INC.
/s/ X. Xxxxx Xxxxx, President
OMAHA HOLDINGS CORP.
/s/ Xxxxxxx X. Xxxxxx, Sole Director
9
EXHIBIT A
OTHER COMPANIES
North Texas Steel Company, Inc., a Texas corporation
Omaha Holdings Corp., a Delaware corporation
EXHIBIT B
NOTICE OF CONVERSION
(To be executed by the Holder in order to convert
all or part of the Secured Convertible Term
Note into Common Stock)
[Name and Address of Company]
The undersigned hereby converts $_________ of the principal due on
[specify applicable Repayment Date] under the Amended and Restated Secured
Convertible Term Note B effective as of September 7, 2005 (the "Note") issued by
American Technologies Group, Inc. (the "Parent") and the other Companies named
and as defined therein by delivery of shares of Common Stock of the Parent
("Shares") on and subject to the conditions set forth in the Note.
1. Date of Conversion _______________________
2. Shares To Be Delivered: _______________________
AMERICAN TECHNOLOGIES GROUP, INC.
By:_______________________________
Name:_____________________________
Title:______________________________
