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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 3, 1998
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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AMERICAN TECHNOLOGIES GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
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NEVADA 95-4307525
(State or Other Jurisdiction (I.R.S. Employer
of Identification
Incorporation or Organization) No.)
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1017 SOUTH MOUNTAIN AVENUE
MONROVIA, CALIFORNIA 91016
(626) 357-5000
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
LAWRENCE J. BRADY
CHIEF EXECUTIVE OFFICER
AMERICAN TECHNOLOGIES GROUP, INC.
1017 SOUTH MOUNTAIN AVENUE
MONROVIA, CALIFORNIA 91016
(626) 357-5000
(Name, Address, and Telephone Number, Including Area Code, of Agent for Service)
------------------------------
COPIES TO:
JOHN M. DAB, ESQ.
GENERAL COUNSEL
AMERICAN TECHNOLOGIES GROUP, INC.
1017 SOUTH MOUNTAIN AVENUE
MONROVIA, CALIFORNIA 91016
(626) 357-5000
TELECOPY: (626) 357-4464
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
TITLE OF SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
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Common Stock, $0.001 par value (2).......... 1,256,039 shares $0.65 $816,425.35 $226.97
Common Stock, $0.001 par value (3).......... 97,500 shares $0.75 $73,125.00 $20.33
Total................................. 1,353,539 shares $889,550.35 $247.30
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(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(c).
(2) Issuable upon the conversion of the 6% Convertible Debentures (the
'Debentures'), which is estimated based on conversion terms of the
Debentures and is subject to adjustment and could be materially more or less
than such estimated amount depending upon factors that cannot be predicted
by the Company at this time, including, among others, the future market
price of the Common Stock. This is not intended to constitute a prediction
as to the number of shares of Common Stock into which the Debentures will be
converted. In addition to the shares set forth in the table, pursuant to
Rule 416 under the Securities Act of 1933, as amended, this Registration
Statement also covers an indeterminate number of additional shares of Common
Stock as may become issuable upon conversion of or in respect of the
Debentures, as such number may be adjusted as a result of stock splits,
stock dividends and antidilution provisions (including floating rate
conversion prices).
(3) Issuable upon exercise of warrants evidencing the right to purchase shares
of Common Stock.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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1,353,539 SHARES OF COMMON STOCK
AMERICAN TECHNOLOGIES GROUP INC.
The 1,353,539 shares of Common Stock, par value $0.001 per share ("Common
Stock"), being offered by this Prospectus are being offered by the holders of
$650,000 principal amount of 6% Convertible Debentures (the "Debentures") of
American Technologies Group, Inc. (the "Company" or "ATG") and the holders of
97,500 warrants to purchase Common Stock ("Warrants"). See "Selling
Securityholders" beginning on page 8. These shares are issuable upon conversion
of the Debentures, payment of interest on the Debentures and exercise of the
Warrants.
The Selling Securityholders may offer these shares from time to time in
transactions on the NASD OTC Bulletin Board (or any other exchange or automated
quotation system in which our Common Stock may then be listed) or in privately
negotiated transactions. These sales may take place at market prices prevailing
at the time of sale or at other negotiated prices. 1,256,039 of the shares are
estimated to be issuable upon conversion of the Debentures based on conversion
terms of the Debentures and is subject to adjustment and could be materially
more or less than such estimated amount depending upon factors that cannot be
predicted by the Company at this time, including the future market price of the
Common Stock and 97,500 of the shares are issuable upon exercise of the
Warrants. The Debentures and Warrants were issued in private placement
transactions exempt from the registration requirements of the Securities Act of
1933, as amended, under Section 4(2) of that act. See "Plan of Distribution" on
page 10.
ATG will not receive any proceeds from the sale of the shares offered by
this Prospectus, however, ATG will receive cash upon exercise of the Warants. We
will, however, pay all expenses incurred in registering the shares, but each
Selling Securityholder will be responsible for all selling and other expenses
incurred by him or her. ATG and the Selling Securityholders have each agreed to
indemnify each other against certain liabilities, including certain liabilities
under the Securities Act.
Our Common Stock is quoted on the NASD OTC Bulletin Board under the symbol
"ATEG." On December 1, 1998, the closing sale price of the Common Stock on the
NASD OTC Bulletin Board was $0.64.
INVESTING IN ATG COMMON STOCK INVOLVES SUBSTANTIAL RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 5.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is December 3, 1998.
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TABLE OF CONTENTS
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PAGE
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WHERE YOU CAN FIND MORE INFORMATION........................................................................ 3
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS................................................................. 3
ABOUT ATG.................................................................................................. 3
Business Summary......................................................................................... 3
Business Strategy........................................................................................ 4
Current Financing........................................................................................ 4
Registration Rights...................................................................................... 4
RISK FACTORS............................................................................................... 5
Financial Risk Factors..................................................................................... 5
Lack of Operating History................................................................................ 5
History of Losses; Uncertainty of Future Profitability................................................... 6
Poor Financial Position.................................................................................. 6
Illiquidity of Trading Market............................................................................ 6
Future Capital Requirements and Uncertainty of Future Funding............................................ 7
Business Risk Factors...................................................................................... 7
Customer Acceptance of Products.......................................................................... 7
Scientific Acceptance.................................................................................... 7
Regulatory Impediments................................................................................... 7
Intellectual Property Protection......................................................................... 8
USE OF PROCEEDS FROM SALE OF COMMON STOCK.................................................................. 8
USE OF PROCEEDS FROM SALE OF DEBENTURES.................................................................... 8
SELLING SECURITYHOLDERS.................................................................................... 8
PLAN OF DISTRIBUTION....................................................................................... 10
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES........................ 10
EXPERTS.................................................................................................... 10
LEGAL MATTERS.............................................................................................. 11
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2
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available to the public
from our web site at www.ateg.com or at the SEC's web site at www.sec.gov.
The SEC allows us to "incorporate by reference" the information we file with
them, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is considered
to be part of this prospectus, and later information that we file with the SEC
will automatically update and supersede this information. We incorporate by
reference the documents listed below and any future filings made with the SEC
under Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934
until the Selling Securityholder sells all the shares. This prospectus is part
of a registration statement we filed with the SEC (Registration No. ).
The following documents are hereby incorporated by reference in this
Registration Statement:
- Amendment Number 1 to our Annual Report on Form 10-KSB/A for the year
ended July 31, 1998 filed with the Securities and Exchange Commission (the
"Commission") on November 13, 1998;
- The section of our Registration Statement on Form 10, filed with the
Commission on January 24, 1994, entitled "Description of Securities," as
amended by Amendment Nos. 1, 2, 3 and 4 filed with the Commission on
February 22, 1994, June 17, 1994, July 5, 1994 and July 15, 1994,
respectively.
You may request a copy of these filings, at no cost, by writing or telephoning
us at the following address:
Corporate Secretary
American Technologies Group, Inc.
1017 South Mountain Avenue
Monrovia, California 91016
(626) 357-5000
You should rely only on the information incorporated by reference or provided in
this Prospectus or any supplement. We have not authorized anyone else to provide
you with different information. The Selling Securityholder will not make an
offer of these shares in any state where the offer is not permitted. You should
not assume that the information in this Prospectus or any supplement is accurate
as of any date other than the date on the front of such documents.
FORWARD-LOOKING STATEMENTS
We have made-forward-looking statements in this Prospectus (and in the
documents that are incorporated by reference) that are subject to risks and
uncertainties. Forward-looking statements include information concerning
possible or assumed future results of our operations. Also, when we use such
words as "believes," "expects," "anticipates" or similar expressions, we are
making forward-looking statements. You should note that an investment in our
securities involves certain risks and uncertainties that could affect our future
financial results. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in "Risk Factors" and elsewhere in this Prospectus.
ABOUT ATG
BUSINESS SUMMARY
American Technologies Group, Inc., a Nevada corporation (the "Company" or
"ATG") formed September 27, 1988, is engaged in the development,
commercialization and sale of products and systems
3
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using its patented and proprietary technologies. Our address and telephone
number are: 1017 South Mountain Avenue, Monrovia, California 91016, (626)
357-5000.
The Company concentrates its technology discovery and development processes
in three core technology areas: 1. IE-TM- Technology, 2. Water Purification, and
3. High Energy Particle Beams. The resulting products are intended to offer
cost-effective solutions to reduce, and in some cases eliminate, hazardous
chemical by-products or emissions resulting from industrial and combustion
processes. Additionally, many commercial products may be improved through IE
Technology including detergents, cosmetics and nutritional supplements.
The Company's efforts with IE Technology have yielded commercial
applications including household cleaning products and combustion enhancers. ATG
anticipates a coke formation suppresser and a descaler will be commercialized in
fiscal 1999, although there can be no assurance to this affect. In the water
purification area, the Company's low pressure vacuum distillation system is
undergoing tooling design for a home use version for introduction to the
marketplace in mid-1999.
The third core technology is the high energy particle beam which is proposed
to produce a beam of heavy particles. This beam functions in much the same way
as the common laser. The important difference is that the high energy particle
beam is composed of particles rather than light. By accelerating the beam,
extremely high energy levels are possible. The development of the high energy
particle beam is being conducted through an ATG sponsored research program with
the California Institute of Technology.
BUSINESS STRATEGY
ATG's focus is on research, new technology, and product development. ATG
pursues technologies at a rate that is consistent with the Company's available
economic and human resources. Once a technology is nearing commercialization,
the Company determines if the marketing, production and operational
responsibility for the product should be borne by the Company or shifted to a
marketing and manufacturing partner. As a result, ATG explores licensing
strategies or joint venture opportunities to commercialize its developed
technologies with existing companies that have the sales, marketing, production
and distribution expertise in the product industries to determine the best
strategy for long-term growth and value.
CURRENT FINANCING
During late October through November, 1998, pursuant to a private placement,
the Company sold to 4 investors $650,000 principal amount of the Debentures and
pursuant to such private placement may sell an additional $350,000 principal
amount of the Debentures. The investors may convert the Debentures into Common
Stock. The exact number of shares that will be issued on the conversion of the
Debentures will depend on the market price of the Common Stock on the date of
conversion and is not now known. In connection with such private placement, the
Company issued Warrants to purchase 97,500 shares of Common Stock and may issue
up to 52,500 additional warrants if the aforementioned private placement are
fully consummated. The Company is currently negotiating for a commitment from
International Investment Group to purchase additional Debentures in the
aggregate principal amount of up to $5,000,000. There can be no assurance that
the Company will obtain such commitment.
REGISTRATION RIGHTS
In connection with the Company's private placement of $650,000 principal
amount of the Debentures during late October through November, 1998, the Company
is obligated to use its best efforts to cause this registration statement to
become effective and to keep the registration statement effective for two years
or until the Selling Securityholders may sell all registerable securities under
Rule 144 or until the Selling Securityholders no longer own any registerable
securities, whichever occurs first. The Company is further obligated to register
and qualify the registerable shares under such state securities laws as the
Selling Securityholders may request subject to specified limitations. The
Company will bear the reasonable
4
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expenses of the registration and qualification of the shares under the
Securities Act and state securities laws other than any underwriting discounts
and commissions and the expenses of counsel for the Selling Securityholders.
If the Registration Statement is not effective by January 24, 1999 (the
"Initial Date"), then the Company must make certain payments to the Selling
Securityholders as liquidated damages. The amount to be paid by the Company to
the Selling Securityholders shall be determined as of each Computation Date, and
such amount shall be equal to two percent (2%) per month commencing 90 days and
ending 120 days after October 26, 1998 and 3% per month thereafter until the
Registration Statement is declared effective by the SEC.
In connection with the Company's private placement of $650,000 principal
amount of Debentures, the Company has issued Warrants to purchase 65,000 shares
of Common Stock to the Selling Securityholders and Warrants to purchase 32,500
shares of Common Stock to the Company's selling agent for the Debentures, at
$0.75, for a period of 5 years. The Company may issue an additional 802,500
Warrants if both private placements are fully consummated.
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing our Company. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also impair our business
operations.
If any of the following risks actually occur, our business, financial
condition or results of operations could be materially adversely affected. In
such case, the trading price of our Common Stock could decline, and you may lose
all or part of your investment.
This Prospectus also contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including the risks faced by us described below and elsewhere in this
Prospectus.
FINANCIAL RISK FACTORS
LACK OF OPERATING HISTORY
In spite of the fact that the Company has been in operation for
approximately seven years, up to the present time it has been almost entirely a
research and development entity. In late 1997, the focus of the Company was
shifted by its new management to reflect both the availability of marketable
products and the need for the Company to generate revenue from the sale of those
products.
Prospective investors must look beyond the fact that the Company does have a
history of generating revenue to the fact that it is now essentially a startup
entity with products to sell. There can be no guarantee that the products being
offered for sale by the Company will meet with market acceptance. Similarly,
there can be no guarantee that, even if there proves to be a market for the
products, the market will be able to sustain the profitability requirements of
the Company and its shareholders.
None of the Company's current products enjoy widespread distribution or
customer acceptance. While the Company does have a number of products that are
past the development stage, the Company has yet to establish major, stable
markets for them. Although the Company believes it has the expertise to
commercialize such products, any or all of the Company's products may fail to
prove to have widespread customer appeal. Various marketing strategies and
alliances are now in place, but the likelihood of success of any of these
strategies and alliances can not be predicted.
5
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HISTORY OF LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY
Due to its limited operating history, the Company is subject to the
uncertainties and risks associated with any new business. Having no
commercialized products until recently, the Company has experienced significant
operating losses every year since its incorporation. Net losses for the fiscal
years ended July 31, 1998 and 1997 were approximately $9.44 million and $9.64
million, respectively, and the Company had an accumulated deficit of $36.56
million at July 31, 1998.
While it is anticipated that the Company will begin to reduce the level of
its operating losses by the end of the fiscal year ending July 31, 1999, there
can be no guarantees that this will occur. The amount of net losses and the time
required by the Company to reach profitability are uncertain. There can be no
assurance that the Company will ever be able to generate revenue from its
products now ready for market or those under development or achieve
profitability on a sustained basis.
POOR FINANCIAL POSITION
The Company has been experiencing difficulty in maintaining sufficient
working capital needed to insure stability and continued existence. Only a small
portion of the capital expended to date has come from actual revenue generation,
and the Company is finding it increasingly difficult to raise investment
capital. The Company is at a critical juncture in its history, finding it
absolutely essential to begin to generate significant revenues in order to
guarantee its ability to survive. While plans are in place and being executed
directed at accomplishing this end, there can be no guarantees that these plans
will prove to be successful.
Future capital requirements depend on numerous factors, including the amount
of revenues generated from operations, cost of sales and marketing activities
and the progress of the Company's research and development activities. The
Company is currently seeking funding and will most likely seek additional
funding within the next twelve months. There can be no assurance that such
funding will be available on acceptable terms, or at all, when it is required.
If additional funding is not available when needed, it is possible that the
Company would have to reduce or suspend operations, seek an acquisition partner,
or sell securities on terms that might be highly dilutive or otherwise
disadvantageous to investors. The Company has experienced and might continue to
experience operational difficulties and delays in product development due to
working capital constraints. Any such difficulties might materially adversely
affect the Company, its financial condition and results of operations.
The Company's auditors' report on the Company's financial statement for the
fiscal year ending July 31, 1998 contains an explanatory paragraph indicating
that there were operating losses which raised substantial doubt about the
ability of the Company to continue as a going concern. This explanatory
paragraph may adversely affect relationships with prospective customers and
suppliers and, therefore, may materially adversely affect the Company, its
financial condition and results of operations.
ILLIQUIDITY OF TRADING MARKET
Shares of the Company's common stock are quoted on the NASD OTC Bulletin
Board system. The NASD OTC Bulletin Board generally supports quotations for
companies that do not meet the NASDAQ SmallCap Market listing requirements. As a
result, investors may find it more difficult to dispose of or to obtain accurate
price quotations of the Company's common stock than they would if the stock were
quoted on the SmallCap Market. In addition, quotation on the bulletin board
depends on the willingness of broker-dealers to make a market in the Company's
common stock. There can be no assurance that the stock will continue to be
quoted on the bulletin board or that there will continue to be a market for the
buying and selling of the Company's common stock.
Furthermore, if the Company's net tangible assets fall below $2 million at
July 31, 1999 or if the Company otherwise fails to meet certain criteria of the
Commission, the common stock will become
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subject to so-called "penny stock" rules that impose additional sales practice
and market making requirements on broker-dealers who sell and/or make a market
in such securities. Such rules may discourage the ability or willingness of
broker-dealers to sell and/or make a market in the Company's common stock.
FUTURE CAPITAL REQUIREMENTS AND UNCERTAINTY OF FUTURE FUNDING
The Company expects that its current cash and cash equivalents and existing
financing agreements will be sufficient to fund the Company's operations through
the end of the calendar year. During this time it is essential that the Company
obtain additional financing or be successful in commercialization of its
products, and there is no guarantee that this will occur. Revenues during the
fiscal year ended July 31, 1998 were approximately $916,700. In order to achieve
viability, management currently estimates that revenues will have to increase to
at least $4.2 million annually, based upon the Company's anticipated working
capital and cash flow requirements. Management believes that this minimum level
of sales will not be sufficient to achieve current profitability, but will allow
the Company to continue operations without obtaining immediate additional debt
or equity financing.
BUSINESS RISK FACTORS
As the Company is engaged in the development and marketing of products based
on new technologies, there are significant risks associated with its potential
success.
CUSTOMER ACCEPTANCE OF PRODUCTS
The Company's success depends entirely on its ability to make its products
well known and wanted by its potential customers. While the Company believes
that its strategies aimed at marketing its products are proper and will be
effective, there is no guarantee that this is the case, and the possibility
exists that its marketing strategies will fail.
SCIENTIFIC ACCEPTANCE
There is no guarantee that the new technologies developed by the Company
will be accepted as valid by the scientific community. To a great extent,
scientific validation of the technologies is essential to acceptance of the
products by the marketplace. Historically, the scientific community has been
resistant to new ideas and technologies, and, although we believe that we have
been successful in establishing working relationships with many renowned
scientists at prestigious academic institutions, there is no guarantee that this
will lead to acceptance of its technologies by the scientific community as a
whole. Failure to achieve such acceptance could be materially detrimental to the
efforts of the Company to establish markets for its products.
REGULATORY IMPEDIMENTS
Because many of the Company's products are marketed directly to consumers,
it is likely that the Company and its products will be subject to review or
approval by various regulatory agencies such as the Federal Trade Commission and
the consumer affairs departments of the various states. While the Company
believes that it can validate all claims which it makes for its products, there
can be no guarantee that such validation will be accepted by these agencies, and
there is significant risk that the Company will not be permitted to sell its
products.
In addition to the consumer-related regulation referenced above, it is
possible that certain of the Company's products will require approval by such
regulatory agencies as the US Environmental Protection Agency and the California
Air Resources Board. While the one product which the Company has had on the
market for several years has been registered by both of these agencies, there
can be no guarantees that future products can be successfully registered.
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INTELLECTUAL PROPERTY PROTECTION
Our success will depend, in part, on whether we can obtain patent and
trademark protection for our technologies and products. We cannot guarantee that
we will be able to secure these protections. If we fail to do so, there is no
guarantee that our technologies will not be subject to copying by other
entities. This would result in a level of competition which could well prevent
us from being successful. Although we have taken steps, including entering into
confidentiality agreements with our employees and third parties to protect our
trade secrets and unpatented know-how, other third parties may still be able to
obtain such information.
USE OF PROCEEDS FROM SALE OF COMMON STOCK
None of the proceeds from the sale of the Common Stock registered hereunder
will accrue to the Company.
USE OF PROCEEDS FROM SALE OF DEBENTURES
Through a private placement, we have obtained $650,000 of financing in the
form of the Debentures and may receive an additional $350,000 from such
offering.
We have used the net proceeds from the sale of the Debentures and will use
the net proceeds from the anticipated sale of an additional $350,000 in
principal amount of Debentures for working capital and the payment of existing
liabilities.
SELLING SECURITYHOLDERS
The Selling Securityholders whose shares of Common Stock are being
registered hereby are IIG Equity Fund, NV ("IIG"), Venezuela Recovery Fund
("Venezuela Fund"), Britannica Associates Limited ("Britannica"), JRT Holdings
("JRT") and Spiga Limited ("Spiga").
As of the date of this Prospectus, IIG owned $200,000 principal amount of
the Debentures, Venezuela Fund owned $50,000 principal amount of the Debentures,
Britannica owned $375,000 principal amount of the Debentures and JRT owned
$25,000 principal amount of the Debentures. In addition IIG owned 20,000
Warrants, Venezuela Fund owned 5,000 Warrants, Britannica owned 37,500 Warrants,
JRT owned 2,500 Warrants and Spiga owned 32,500 Warrants.
The Company has agreed to register the public offering of the Selling
Securityholders shares of Common Stock under the Securities Act and to pay all
expenses in connection therewith other than brokerage commissions and discounts
in connection with the sale of the Conversion Shares and the expenses of
counsel. The total number of shares that may be offered and sold pursuant to
this Prospectus by the Selling Securityholders will be determined by how many
shares are issued upon conversion of the Debentures, which will be determined by
the applicable conversion price.
The conversion price will be
(i) the lesser of 115% of the average closing bid price for the Common
Stock during the five trading days preceding the issuance of the
Debenture(the "Issuance Date Price"); or
(ii) 75% of the average closing bid price for the Common Stock during
the five trading days ending one day prior to conversion of the debenture
(the "Conversion Date Price").
As of December 1, 1998, $650,000 in principal amount of Debentures have been
issued with an Issuance Date Price of $0.62. Assuming that the Conversion Date
Price is $0.5175 (which is the Conversion Date Price calculated as of December
1, 1998) with respect to all the Debentures, and that all the Debentures are
converted, the total number of shares of Common Stock issued would be 1,256,039
(excluding any shares of common Stock issued with respect to accrued interest on
the Debentures at the time of conversion).
The following table sets forth the names of the Selling Securityholders, the
number of shares of Common Stock owned beneficially by each of the Selling
Securityholders as of December 1, 1998, and the
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number of shares which may be offered for resale pursuant to this Prospectus.
For the purpose of stating the number of shares of Common Stock beneficially
owned by the Selling Securityholders in the following table, the number of
shares of Common Stock calculated to be issuable in connection with the
conversion of the Debentures assumes the Debentures were converted on December
1, 1998. This calculation results in a hypothetical estimate of the number of
shares of Common Stock issuable upon conversion of $650,000 principal amount of
the Debentures. The actual number of shares issuable upon conversion of the
Debentures cannot be predicted at this time insofar as it will be based on the
future market price of the Common Stock. The use of such hypothetical number of
shares of Common Stock is not intended to constitute a prediction as to the
number of shares of Common Stock into which the Debentures will be converted.
The information included in the following table is based upon information
provided by the Selling Securityholders. Because the Selling Securityholders may
offer all, some or none of their Common Stock, no definitive estimate as to the
number of shares thereof that will be held by the Selling Securityholders after
such offering can be provided and the following table has been prepared on the
assumption that all shares of Common Stock offered under this Prospectus will be
sold.
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SHARES OF SHARES OF
COMMON STOCK COMMON STOCK
BENEFICIALLY SHARES OF BENEFICIALLY
OWNED PRIOR TO COMMON STOCK OWNED AFTER
NAME AND ADDRESS OFFERING(1)(2) BEING OFFERED OFFERING(3)
- ----------------------------------------------------- ------------------- ----------------- -------------------------
<S> <C> <C> <C>
IIG ................................................. 406,473 406,473 0
17 State Street
NY, NY 10004
Venezuela Fund ...................................... 101,618 101,618 0
c/o International Investment Group
17 State Street
NY, NY 10004
Brittanica .......................................... 762,138 762,138 0
c/o International Investment Group
17 State Street
NY, NY 10004
JRT ................................................. 50,809 50,809 0
c/o Astor Capital
9300 Wilshire Blvd.,
Suite 308
Beverly Hills, CA 90212
Spiga ............................................... 32,500 32,500 0
17 State Street
NY, NY 10004
</TABLE>
- ------------------------
(1) Each of the parties listed has sole voting and investment power with respect
to all shares of Common Stock indicated.
(2) As required by regulations of the Securities and Exchange Commission, the
number of shares shown as beneficially owned includes shares which can be
purchased within 60 days after December 2, 1998. The actual number of shares
shown as beneficially owned is subject to adjustment and could be materially
less or more than the estimated amount indicated depending upon factors
which cannot be predicted by the Company at this time such as the market
price of the Common Stock prevailing at the actual date of conversion of the
Debentures.
(3) Assumes the sale of all shares offered hereby.
9
<PAGE>
PLAN OF DISTRIBUTION
The Company has been advised by each Selling Securityholder that it or its
transferees intend to sell all or a portion of the Shares offered hereby from
time to time on the NASD OTC Bulletin Board (or any other exchange or automated
quotation system in which our Common Stock may then be listed), in privately
negotiated transactions or otherwise, and that sales will be made at fixed
prices that may be changed, at market prices prevailing at the times of such
sales, at prices related to such market prices or at negotiated prices. Such
Selling Securityholder or its transferees may also make private sales directly
or through a broker or brokers, who may act as agent or as principal. In
connection with any sales, such Selling Securityholder or transferees and any
brokers participating in such sales may be deemed to be underwriters within the
meaning of the Securities Act.
Any broker-dealer participating in such transactions as agent may receive
commissions from a Selling Securityholder or its transferees (and, if they act
as agent for the purchaser of such Shares, from such purchaser). Brokerage fees
may be paid by the Selling Securityholder or transferees, which may be in excess
of usual and customary brokerage fees. Broker-dealers may agree with a Selling
Securityholder or transferees to sell a specified number of Shares at a
stipulated price, and, to the extent such a broker-dealer is unable to do so
acting as agent for a Selling Stockholder or transferees, to purchase as
principal any unsold Shares at the price required to fulfill the broker-dealer's
commitment to such Selling Securityholders or transferees. Broker-dealers who
acquire Shares as principal may thereafter resell such Shares from time to time
in transactions (which may involve crosses and block transactions and which may
involve sales to and through other broker-dealers, including transactions of the
nature described above) on the NASD OTC Bulletin Board, in negotiated
transactions or otherwise at market prices prevailing at the time of sale or at
negotiated prices, and in connection with such resales may pay to or receive
from the purchasers of such Shares commissions computed as described above.
Any Shares covered by this Prospectus which qualify for sale pursuant to
Rule 144 under the Securities Act may be sold under that Rule rather than
pursuant to this Prospectus.
There can be no assurance that any Selling Securityholder will sell any or
all of the Shares offered by it hereunder.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The Company's Amended and Restated Bylaws provide that the Company shall
indemnify its directors and officers to the fullest extent permitted by Nevada
law, including circumstances in which indemnification is otherwise discretionary
under Nevada law.
In addition, the Company and each Selling Stockholder have agreed to
indemnify each other against certain liabilities, including certain liabilities
under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
EXPERTS
The Company's financial statements as of and for the years ended July 31,
1998 and 1997 incorporated by reference in this Prospectus and elsewhere in this
Registration Statement have been audited by Arthur Andersen LLP, Independent
Public Accountants, as indicated in their report with respect thereto, and are
incorporated herein by reference in reliance upon the authority of said firm as
experts in giving such reports. Reference is made to said report, which includes
an explanatory paragraph with respect to the uncertainty regarding the Company's
ability to continue as a going concern as discussed in Note 1 to the financial
statements.
10
<PAGE>
LEGAL MATTERS
John M. Dab, our General Counsel, will issue an opinion about the legality
of the shares for us and for the Selling Securityholders.
11
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*
<TABLE>
<S> <C>
SEC Registration Fee............................................ $ 247.30
Accountant's Fees and Expenses.................................. $6,000.00
Miscellaneous................................................... $4,000.00
---------
Total........................................................... $10,247.30
---------
---------
</TABLE>
- ------------------------
* Represents expenses relating to the distribution by the Selling
Securityholders pursuant to the Prospectus prepared in accordance with the
requirements of Form S-3. These expenses will be borne by the Company on
behalf of the Selling Securityholders. All amounts are estimates except for
the SEC Registration Fee.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
1. Section 78.751 of the Nevada Revised Statutes permits the
indemnification of officers, directors, employees and agents of the Registrant
and requires indemnification in certain instances. Such provision reads as
follows:
78.751. INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS;
ADVANCEMENT OF EXPENSES.
1. A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative
or investigative, except an action by or in the right of the
corporation, by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with the action, suit or
proceeding if he acted in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, does not, of itself, create a
presumption that the person did not act in good faith and in a manner
which he reasonably believed to be in or not opposed to the best
interests of the corporation, and that, with respect to any criminal
action or proceeding, he had reasonable cause to believe that his
conduct was unlawful.
2. A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against expenses, including amounts paid in
settlement and attorneys' fees actually and reasonably incurred by
him in connection with the defense or settlement of the action or
suit if he acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the
corporation. Indemnification may not be made for any claim, issue or
matter as to which such a person
II-1
<PAGE>
has been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable to the corporation
or for amounts paid in settlement to the corporation, unless and only
to the extent that the court in which the action or suit was brought
or other court of competent jurisdiction determines upon application
that in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for such expenses as the
court deems proper.
3. To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense
of any action, suit or proceeding referred to in subsections 1 and 2,
or in defense of any claim, issue or matter therein, he must be
indemnified by the corporation against expenses, including attorneys'
fees, actually and reasonably incurred by him in connection with the
defense.
4. Any indemnification under subsections 1 and 2, unless ordered by a
court or advanced pursuant to subsection 5, must be made by the
corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee
or agent is proper in the circumstances. The determination must be
made:
(a) By the stockholders;
(b) By the board of directors by majority vote of a quorum
consisting of directors who were not parties to the act, suit or
proceeding;
(c) If a majority vote of a quorum consisting of directors who
were not parties to the act, suit or proceeding so orders, by
independent legal counsel in a written opinion; or
(d) If a quorum consisting of directors who were not parties to
the act, suit or proceeding cannot be obtained, by independent legal
counsel in a written opinion.
5. The certificate or articles of incorporation, the bylaws or an
agreement made by the corporation may provide that the expenses of
officers and directors incurred in defending a civil or criminal
action, suit or proceeding must be paid by the corporation as they
are incurred and in advance of the final disposition of the action,
suit or proceeding, upon receipt of an undertaking by or on behalf of
the director or officer to repay the amount if it is ultimately
determined by a court of competent jurisdiction that he is not
entitled to be indemnified by the corporation. The provisions of this
subsection do not affect any rights to advancement of expenses to
which corporate personnel other than directors or officers may be
entitled under any contract or otherwise by law.
6. The indemnification and advancement of expenses authorized in or
ordered by a court pursuant to this section:
(a) Does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under the
certificate or articles of incorporation or any bylaw, agreement,
vote of stockholders or disinterested directors or otherwise, for
either an action in his official capacity or an action in another
capacity while holding his office, except that indemnification,
unless ordered by a court pursuant to subsection 2 or for the
advancement of expenses made pursuant to subsection 5, may not be
made to or on behalf of any director or officer if a final
adjudication establishes that his acts or omissions involved
intentional misconduct, fraud or a knowing violation of the law and
was material to the cause of action.
(b) Continues for a person who has ceased to be a director,
officer, employee or agent and inures to the benefit of the heirs,
executors and administrators of such a person.
II-2
<PAGE>
2. Article VI INDEMNIFICATION of the Registrant's Amended and Restated
Bylaws provides in material part as follows:
"Section 1. DEFINITIONS. For the purposes of this Article, "agent" means
any person who is or was a director, officer, employee, or other agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, or other enterprise, or was
a director, officer, employee, or agent of a foreign or domestic corporation
or other enterprise which was a predecessor corporation of the corporation
or of another enterprise at the request of such predecessor corporation.
"Section 2. INDEMNIFICATION OF CORPORATE AGENTS. The corporation shall
indemnify any person who was or is a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise to the fullest extent permitted by Nevada law and permitted by,
or not inconsistent with, the Articles of Incorporation. The rights
conferred on any person above shall be not be exclusive of any other right
such person may have or hereafter acquire under any statute, provision of
the Articles of Incorporation, bylaw, agreement, vote of shareholders or
disinterested directors or otherwise.
"Section 3. ADVANCEMENT OF EXPENSES. The expenses of officers and
directors incurred in defending a civil or criminal action, suit or
proceeding must be paid by the corporation as they are incurred and in
advance of the final disposition of the action, suit or proceeding, upon
receipt of an undertaking by or on behalf of the director or officer to
repay the amount if it is ultimately determined by a court of competent
jurisdiction that he is not entitled to be indemnified by the corporation.
The provisions of this subsection do not affect any rights to advancement of
expenses to which corporate personnel other than directors or officers may
be entitled under any contract or otherwise by law.
"Section 4. INDEMNIFICATION CONTRACTS. The Board of Directors is
authorized to enter into a contract with any director, officer, employee or
agent of the corporation, or any person serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise,
including employee benefit plans, providing for indemnification rights
equivalent to, or if the Board of Directors so determines, greater than,
those provided in Section 2 of this Article VI.
"Section 5. INSURANCE. The corporation shall have [the] power to
purchase and maintain insurance or make other financial arrangements on
behalf of any agent of the corporation for any liability asserted against or
incurred by the agent in such capacity or arising out of the agent's status
as such whether or not the corporation would have the power to indemnify the
agent against such liability under the provisions of this Article. The other
financial arrangements made by the corporation may include, but shall not be
limited to, any of the arrangements set forth in the Nevada General
Corporation Law, as the same may be amended from time to time."
II-3
<PAGE>
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
4.1 Form of 6% Convertible Debenture issued to the Selling Securityholders.
4.2 Form of Warrant issued to the Selling Securityholders.
5.1 Opinion of John M. Dab.
23.1 Consent of John M. Dab (included in Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP.
24.1 Power of Attorney (included on page II-6)
</TABLE>
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement to include any
material information with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change to such
information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at the time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be an initial bona
fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Nevada Revised Statutes, the Certificate of
Incorporation of the Registrant, the Bylaws of the Registrant, Indemnification
Agreements entered into between the Registrant and it officers and directors, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by the controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of the such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Monrovia, State of California, on this 2nd day of
December, 1998.
AMERICAN TECHNOLOGIES GROUP, INC.
By: /s/ LAWRENCE J. BRADY
-----------------------------------------
Lawrence J. Brady
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
II-5
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints, jointly and severally, Lawrence J. Brady and
Harold Rapp, and each one of them, individually and without the other, his or
her attorney-in-fact, each with full power of substitution, for him or her in
any and all capacities, to sign any and all amendments to this Registration
Statement on From S-3, and to file the same, with the exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
or her substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ LAWRENCE J. BRADY Chairman of the Board,
- ------------------------------ Chief Executive Officer December 2, 1998
Lawrence J. Brady
Chief Operating Officer
/s/ HAROLD RAPP Treasurer (Principal)
- ------------------------------ Financial and Accounting December 2, 1998
Harold Rapp Officer)
/s/ SHUI YIN LO Director of Research and
- ------------------------------ Development and a December 2, 1998
Shui Yin Lo Director
/s/ CHARLES MC CARTHY Director
- ------------------------------ December 2, 1998
Charles Mc Carthy
/s/ WILLIAM ODOM Director
- ------------------------------ December 3, 1998
William Odom
Director
- ------------------------------
Terry Wachsner
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
4.1 Form of 6% Convertible Debenture issued to the Selling Securityholders.
4.2 Form of Warrant issued to the Selling Securityholders.
5.1 Opinion of John M. Dab.
23.1 Consent of John M. Dab (included in Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP.
24.1 Power of Attorney (included on page II-6)
</TABLE>
<PAGE>
EXHIBIT 4.1
AMERICAN TECHNOLOGIES GROUP, INC.
6% CONVERTIBLE SUBORDINATED DEBENTURE
DUE NOVEMBER 1, 2003
Number: _______________________
Principal : $______________________
Original Issue Date: ______________________________
Registered Holder(s): ______________________________
(name)
______________________________
(name)
American Technologies Group, Inc., a Nevada corporation (the "Company")
with principal offices at 1017 South Mountain Avenue, Monrovia, California
91016, for value received, hereby promises to pay the registered holder hereof
(the "Holder") the principal sum set forth above on November 1, 2003 (the
"Maturity Date"), in such coin or currency of the United States of America as at
the time of payment shall be the legal tender for the payment of public and
private debts, and to pay interest, less any amounts required by law to be
deducted or withheld, computed on the basis of a 360-day year, on the unpaid
principal balance hereof from the date hereof (the "Original Issue Date"), at
the rate of 6% per year, until such principal sum shall have become due and
payable, or has been converted by the Holder pursuant to Section 5, below.
Interest payments will be made in such number of shares of the Company's common
stock, $.001 par value ("Common Stock"), computed in accordance with Section 5.1
below and shall be paid semi-annually commencing May 1, 1999, or if the
principal of the Debenture is earlier converted, upon conversion pursuant to
Section 5, below. All references herein to dollar amounts refers to U.S.
dollars.
By acceptance and purchase of this Debenture, the registered holder hereof
agrees with the Company that the Debenture shall be subject to the following
terms and conditions:
1. AUTHORIZATION OF DEBENTURES. The Company has authorized the issue and
sale of its 6% Convertible Subordinated Debentures due November 1, 2003 (the
"Debentures," such term includes any debentures which may be issued in exchange
or in replacement thereof) in the aggregate principal amount of not more than
U.S. $1,000,000, issued in multiples of $50,000 in principal amount.
2. TRANSFER OR EXCHANGE. Prior to due presentation to the Company for
transfer of this Debenture, the Company and any agent of the Company may treat
the person in whose name
<PAGE>
this Debenture is duly registered on the Company's Debenture Register as the
owner hereof for the purpose of receiving payment as herein provided and for all
other purposes. The Debenture may not be offered, sold, pledged or otherwise
transferred unless and until registered under the Securities Act of 1933, as
amended (the "Act") or unless the Company has received an opinion of counsel
that such registration is not required.
3. CURRENT MARKET PRICE.
3.1 For purposes of this Debenture, "Current Market Price" of the
Common stock means:
(a) If traded on a securities exchange, the closing price of the
Common Stock on such exchange;
(b) If traded over the counter, the high closing bid price reported
by Bloomberg from the NASDAQ OTC Bulletin Board; or
In all other events, the market price determined by the Board of
Directors of the Company in good faith.
4. OPTIONAL REDEMPTION OF DEBENTURE.
4.1 OPTIONAL REDEMPTION OF DEBENTURE. The Company may redeem the
Debentures at any time, in whole or in part, pro rata, upon written notice given
not less than five (5) nor more than ten (10) business days prior to the
redemption date for 120% of the principal amount of the Debenture, plus any
accrued interest. In the event the Company defaults upon its obligation to pay
the redemption price on the date set for payment, the variable conversion rate
shall be reduced by 70% rather than the 75% set forth in Section 5 of the
Debenture.
4.2 CONVERSION. Any or all Debentures chosen for prepayment pursuant
to paragraph 4.1 above, shall nevertheless, at any time prior to 5:00 p.m., New
York time on the Redemption Date, be convertible into Common Stock of the
Company, pursuant to the provisions of Section 5 of the Debenture.
5. CONVERSION OF DEBENTURES.
5.1 RIGHT TO CONVERT THE DEBENTURE. Subject to Section 4 above, the
record holder of this Debenture shall be entitled, on or after the Date of
Original Issuance, at the option of the Holder, to convert this Debenture, in
whole or in part, into the number of fully-paid and non-assessable shares of
Common Stock determined in accordance with the Conversion Formula as set forth
below:
Number of shares issued upon conversion = (Principal + Interest)/Conversion
Price, where:
*Principal = the principal amount of the Debenture(s) to be converted;
2
<PAGE>
*Interest = the principal x (N/360) x .06 - (Interest paid prior to the
Date of Conversion), where N = the number of days between (i) the Original
Issuance Date and (ii) the applicable Date of Conversion for the Debenture for
which conversion is being elected (including such date of issuance but excluding
such date of conversion); and
*Conversion Price = the lesser of (A) a fixed conversion price equal to
1.15 of the average Current Market Price of the Common Stock during the five
trading days preceding the date of original issuance (the "Fixed Conversion
Price"), or (B) a variable conversion price equal to 0.75 of the average Current
Market Price during the five-day trading period ending one trading day preceding
the Conversion Date.
5.2 EXERCISE OF CONVERSION PRIVILEGE. In order to exercise the
conversion privilege, the Holder shall surrender such Debenture, together with
the Notice of Conversion annexed hereto as Exhibit 1 appropriately endorsed to
the Company at its principal office, accompanied by written notice to the
Company (a) stating that the Holder elects to convert the Debenture or a portion
thereof, and if a portion, the amount of such portion in multiples of $1,000 in
principal amount, and (b) setting forth the name or names (with address) in
which the certificate or certificates for shares of Common Stock issuable upon
such conversion shall be issued. Provided the Debenture is received properly
endorsed promptly by the Company, the date of conversion of such Debenture shall
be deemed to be the date of receipt of Notice of Conversion, even if the
Company's stock transfer books are at that time closed, and the converting
Holder shall be deemed to have become, on the date of conversion, the record
holder of the shares of Common Stock deliverable upon such conversion. If the
Debenture is not received, properly endorsed by the fifth business day following
the date the Company receives Notice of Conversion, the date of conversion shall
be deemed to be the date the Debenture is received, provided that such later
receipt will not lower the Conversion Price stated in the Notice of Conversion.
Within three business days after the date of conversion, the Company
shall issue and deliver to such converting Holder a certificate or certificates
for the number of shares of Common Stock due on such conversion. No adjustments
in respect of interest or cash dividends shall be made upon the conversion of
any Debenture or Debentures.
Upon conversion of the Debenture in part, the Company shall execute
and deliver to the Holder thereof, at the expense of the Company, a new
Debenture, in aggregate principal amount equal to the unconverted portion of
such Debenture. such new Debenture shall have the same terms and provisions
other than the principal amount as the Debenture or Debentures surrendered for
conversion.
5.3 DURATION OF CONVERSION PRIVILEGE. The right to subscribe for
and purchase shares of Common Stock pursuant to the conversion privilege
granted herein shall commence on the Original Issue Date and shall expire at
5:00 p.m., New York time on November 1, 2003.
5.4 STOCK FULLY PAID; NOT RESTRICTED. The Company covenants and
agrees that:
3
<PAGE>
(a) all shares which may be issued upon the exercise of the
conversion privilege granted herein will, upon issuance in
accordance with the terms hereof, be fully paid, nonassessable,
and free from all taxes, liens and charges (except for taxes, if
any, upon the income of the Holder) with respect to the issue
thereof, and that the issuance thereof shall not give rise to any
preemptive rights on the part of the stockholders;
(b) all shares issued after the effective date of the Registration
Statement (defined below) which will be issued upon the
conversion privilege granted herein will be free of all
restrictions under the Securities Act of 1933; and will not bear
any legends or be the subject of any stop transfer restrictions;
and
(c) the failure of the Company to issue shares upon the conversion of
the Debenture will cause the holder immediate irreparable harm.
5.5 ANTIDILUTION PROVISIONS. The following provisions apply to the
Debenture:
(a) In case the Company shall (i) pay a dividend or make a
distribution in shares of Common Stock, (ii) subdivide its
outstanding shares of Common Stock into a greater number of
shares of Common Stock, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock,
(iv) make a distribution on its Common Stock in shares of its
capital stock other than Common Stock, or (v) issue by
reclassification of its Common Stock other securities of the
Company, the conversion privilege of the Debenture and the
Conversion Price then in effect immediately prior thereto shall
be adjusted so that the Holder shall be entitled to receive the
kind and number of shares of Common Stock and other securities of
the Company which it would have owned or would have been entitled
to receive after the happening of any of the events described
above, had the Debenture been converted immediately prior to the
happening of such event or any record date with respect thereto.
Any adjustment made pursuant to this paragraph (a) shall become
effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.
(b) In case the Company shall issue rights, options, warrants or
convertible securities to all holders of its Common stock,
without any charge to such holders, entitling them to subscribe
for or to purchase shares of Common Stock at a price per share
which is lower at the record date mentioned below than the then
current Conversion Price, the Conversion Price thereafter shall
be determined by multiplying the then current conversion Price by
a fraction (but in no event greater than 1), of which the
denominator shall be (i) the number of shares of the common stock
outstanding immediately prior to the issuance of such rights,
options, warrants or convertible securities plus (ii) the number
of additional shares
4
<PAGE>
of Common Stock offered for subscription or purchase, and of
which the numerator shall be (x) the number of shares of Common
Stock outstanding immediately prior to the issuance of such
rights, options, warrants or convertible securities plus (y) the
number of shares which the aggregate offering price of the total
number of shares offered would convert at the higher of the then
current Market Price, or then current Conversion Price. Such
adjustment shall be made whenever such rights, options, warrants
or convertible securities are issued, and shall become effective
immediately and retroactively after the record date for the
determination of stockholders entitled to receive such rights,
options, warrants or convertible securities.
(c) In case the Company shall distribute to all holders of its shares
of Common Stock (i) debt securities or other evidences of its
indebtedness which are not convertible into Common Stock or (ii)
assets (excluding cash dividends or distributions out of
earnings), then the Conversion Price shall be determined by
dividing the then current Conversion Price by a fraction, of
which the numerator shall be the higher of the then Current
Market Price, or the Conversion Price on the date of such
distribution, and of which the denominator shall be such Current
Market Price, or such Conversion Price on such date minus the
then fair value of the portion of the assets or evidences of
indebtedness so distributed applicable to one share of Common
Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective on the date of
distribution retroactive to the record date for the determination
of stockholders entitled to receive such distribution. The fair
value of such assets shall be determined in good faith by the
Board of Directors of the Company.
(d) To the extent not covered by paragraphs (b) or (c) hereof, in
case the Company shall sell or issue shares of Common Stock, or
rights, options, warrants or convertible securities containing
the right to subscribe for or purchase shares of Common Stock, at
a price per share (determined, in the case of such rights,
options, warrants or convertible securities, by dividing (i) the
total amount received or receivable by the Company in
consideration of the sale or issuance of such rights, options,
warrants or convertible securities, plus the total consideration
payable to the Company upon exercise or conversion thereof, by
(ii) the total number of shares covered by such rights, options,
warrants or convertible securities) lower than the Conversion
Price in effect immediately prior to such sale or issuance, then
the Conversion Price shall be reduced to a price (calculated to
the nearest cent) determined by dividing (I) an amount equal to
the Conversion Price multiplied by the sum of (A) the number of
shares of Common Stock outstanding immediately prior to such sale
or issuance plus (B) the number of shares which could have been
purchased at the Conversion Price with the consideration received
by the Company upon such sale or issuance by (II) the total
number of shares of Common Stock
5
<PAGE>
outstanding immediately after such sale or issuance. For the
purposes of such adjustments, the shares of Common Stock, which
the holders of any such rights, options, warrants or convertible
securities shall be entitled to subscribe for or purchase, shall
be deemed issued and outstanding as of the date of such sale or
issuance and the consideration received by the Company therefor
shall be deemed to be the consideration received by the Company
for such rights, options, warrants or convertible securities,
plus the consideration or premiums stated in such rights,
options, warrants or convertible securities to be paid for the
shares of Common Stock covered thereby. In case the Company shall
sell or issue shares of Common Stock, or rights, optios, warrants
or convertible securities containing the right to subscribe or
purchase shares of Common Stock for a consideration consisting,
in whole or in part, of property other than cash or its
equivalent, then in determining the "price per share" of shares
of Common Stock, any underwriting discounts or commissions shall
not be deducted from the price received by the Company for sales
of securities registered under the Act.
(e) No adjustment in the Conversion Price shall be required in the
following events:
(i) If the amount of such adjustment would be less than $.05 per
share; provided, however, that any adjustment which by
reason of this paragraph 5.5(e)(i) is not required to be
made immediately shall be carried forward and taken into
account in any subsequent adjustment; or
(ii) The issuance of options under the Company's existing stock
option plans and future stock option plans approved by the
Company's shareholders.
(f) When the number of shares of Common Stock or the Conversion Price
is adjusted as herein provided, the Company shall cause to be
promptly mailed to the Holder by first class mail, postage
prepaid, notice of such adjustment or adjustments and a
certificate from the Company's Chief Financial Officer setting
forth the number of shares of Common Stock and the Conversion
Price after such adjustment, a brief statement of the facts
requiring such adjustment and the computation by which such
adjustment was made.
(g) For the purpose of this Section 5.5, the following shall apply:
(i) The term "Common Stock" shall mean (A) the class of stock
designated as the Common Stock of the Company at the date of
this Debenture or (B) any other class of stock resulting
from successive changes or reclassification of such Common
Stock consisting solely of changes in par value, or from par
value to no
6
<PAGE>
par value, or from no par value to par value. In the event
that at any time, as a result of an adjustment made pursuant
to this Section 5.5, the Holder shall become entitled to
receive any securities upon conversion of the Company other
than shares of Common Stock thereafter the number of such
other securities and the Conversion Price of such securities
shall be subject to adjustment from time to time in a manner
and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in
this Section 5.5.
(ii) If the Common Stock is traded on a securities exchange or
over the counter, the "Current Market Price" for purposes of
this section 5.5 shall mean the average of the Current
Market Prices for the five consecutive trading days
immediately prior to the date of the event which
necessitates an adjustment to the Conversion Price.
(h) Upon the expiration of any unexercised rights, options, warrants
or conversion privileges, the Conversion Price shall be
readjusted and shall thereafter be such as it would have been had
it been originally adjusted (or had the original adjustment not
been required, as the case may be) on the basis of (i) the fact
that the only shares of Common Stock so issued were the shares of
Common Stock, if any, actually issued or sold upon the exercise
of such rights, options, warrants or conversion rights and (ii)
the fact that such shares of Common Stock, if any, were issued or
sold for the consideration actually received by the Company upon
such exercise plus the consideration, if any, actually received
by the Company for the issuance, sale or grant of all such
rights, options, warrants or conversion rights whether or not
exercised; provided. however, that no such readjustment shall
have the effect of increasing the Conversion Price by an amount
in excess of the amount of the adjustment initially made in
respect of the issuance, sale or grant of such rights, options,
warrants or conversion privileges.
5.6 NO ADJUSTMENT FOR DIVIDENDS. Except as provided in Section 5.5,
no adjustment in respect to any dividends paid shall be made during the term of
the Debenture or upon the exercise of the Debenture.
5.7 PRESERVATION OF PURCHASE RIGHTS UPON RECLASSIFICATION
CONSOLIDATION. ETC. In the case of any consolidation of the Company with or
merger of the Company into another corporation or in the case of any sale or
conveyance to another corporation of all or substantially all of the property,
assets or business of the Company, the Company or such successor or purchasing
corporation, as the case may be, shall provide that the Holder shall have the
right thereafter upon payment of the Conversion Price in effect immediately
prior to such action to purchase upon conversion of the Debenture the kind and
amount of shares and other securities and property which the Holder would have
owned or have been entitled to receive after the happening of such
consolidation, merger, sale or conveyance had the Debenture been converted
7
<PAGE>
immediately prior to such action. such agreement shall provide for adjustments,
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Section 5. The provisions of this Section 5.7 shall
similarly apply to successive consolidations, mergers, sales or conveyances.
5.8 PAR VALUE OF COMMON STOCK. Before taking any action which would
cause an adjustment reducing the Conversion Price below the then par value of
the shares of Common Stock issuable upon conversion of the Debenture, the
Company will take any corporate action which may, in the opinion of its counsel,
be necessary in order that the Company may validly and legally issue fully paid
and nonassessable shares of Common Stock at such adjusted Conversion Price.
5.9 STATEMENT ON DEBENTURE CERTIFICATES. Irrespective of any
adjustments in the Conversion Price or the number of securities convertible,
this Debenture certificate or any certificates hereafter issued may continue to
express the same price and number of securities as are stated in this Debenture
certificate. However, the Company may at any time in its sole discretion (which
shall be conclusive) make any change in the form of the Debenture certificate
that it may deem appropriate and that does not affect the substance thereof; and
any Debenture certificate thereafter issued, whether upon registration or
transfer of, or in exchange or substitution for, an outstanding Debenture
certificate, may be in the form so changed.
6. REGISTRATION RIGHTS: LIQUIDATED DAMAGES. The Holder will be entitled
to registration rights in respect of the shares of Common Stock issuable upon
conversion of the Debentures and exercise of the Warrants (the terms of which
are set forth below) as follows: (1) The Company shall prepare and file, within
30 days of the initial Closing Date, Registration Statement on Form S-3 (the
"Registration Statement") with the Securities and Exchange Commission (the
"Commission") covering the resale of the shares of Common Stock issuable upon
conversion of the Debentures and issuable upon the exercise of the Warrants.
The Company shall use its best efforts to cause the Registration Statement to
be declared effective by the Commission no later than 90 days following the
initial Closing Date and shall promptly deliver to Purchaser copies of all
amendments to such Registration Statement and correspondence with the Commission
with respect thereto. The Company shall maintain the effectiveness of the
Registration Statement until all of the Common Stock issuable or issued upon
conversion or exercise of the Warrants has been sold. The Company shall pay all
expenses of registration (other than underwriting fees and discounts in respect
of shares of Common Stock offered and sold under such Registration Statement by
the Purchaser, if any). (2) If the Registration Statement is not declared
effect by the Commission during the 90 day period mentioned above, the Company
shall pay promptly in cash or free trading common stock valued at the lesser of
the Current Market Price or the Fixed Conversion Price, as hereinafter defined,
to the Purchaser, as liquidated damages and not as a penalty, an amount equal to
two percent (2%) per month commencing 90 and ending 120 days after the initial
Closing of the outstanding principal amount of the Debentures, in the event that
the Registration Statement is not declared effective by the Commission by the
120th day, liquidated damages shall be increased to three percent (3%) per month
from 120 days after the Closing date until the Registration Statement is
declared effective.
8
<PAGE>
7. FRACTIONAL SHARES. No fractional shares of Common Stock will be issued
in connection with any conversion hereunder but in lieu of such fractional
shares, the Company shall make a cash payment therefor equal in amount to the
product of the applicable fraction multiplied by the Conversion Price then in
effect.
8. SUBORDINATION. Any right of the Holder to payment of principal or
interest from the Company shall be subordinated to the claims and rights of the
holders of the Senior Debt ("Senior Debt Holders"). "Senior Debt" means all
Indebtedness of the Company other than the Debentures, whether outstanding on
the date of execution of this Debenture or thereafter created, incurred or
assumed, except (x) any such Indebtedness that by the terms of the instrument or
instruments by which such Indebtedness was created, assumed or incurred
expressly provides that it (i) is junior in right of payment to the Debentures
or (ii) ranks PARI PASSU in right of payment with the Debentures and (y) any
amendments, modifications or supplements to, or any renewals, extensions,
deferrals, refinancing and refunding of, any of the foregoing. Any cash payment
of principal or interest to the Holder shall be collected, enforced or received
by the Holder as trustee for the Senior Debt Holders and paid over to the Senior
Debt Holders. The Holder agrees that in the event of any payment of principal or
interest by the Company to the Holder by reason of any receivership, insolvency
or bankruptcy proceeding, or proceeding for reorganization or readjustment of
the Company or its properties, or otherwise, then, in any such event, the Senior
Debt Holders shall be preferred in the payment of their claims over the claim of
the Holder to payment of principal or interest against the Company or its
properties, and the claims of the Senior Debt Holders shall be first paid and
satisfied in full before any payment or distribution of any kind or character,
whether in cash or property, shall be made to the Holder. Provided, however,
that this Section 7 shall not apply to any payment of principal or interest made
to the Holder while the Company is solvent and not in default with respect to
its Senior Debt.
9. REPLACEMENT OF DEBENTURE CERTIFICATE. Upon receipt of evidence
satisfactory to the Company of the certificate loss, theft, destruction or
mutilation of the Debenture certificate and, in the case of any such loss, theft
or destruction, upon delivery of a bond of indemnity satisfactory to the
Company, or, in the case of any such mutilation, upon surrender and cancellation
of the Debenture certificate, the Company will issue a new Debenture
certificate, of like tenor, in lieu of such lost, stolen, destroyed or mutilated
Debenture certificate.
10. COVENANTS OF THE COMPANY. So long as any of the Debentures remain
outstanding, the Company shall not, without the consent of the holder hereof,
which consent will not be unreasonably withheld:
(a) At all times keep reserved the total number of shares of Common
Stock necessary for the conversion of all of the then outstanding
Debentures at the then current Conversion Rate;
(b) Not pay any dividends in cash and/or property or other assets of
the Company in respect of its Common Stock or otherwise.
9
<PAGE>
(c) Not issue any debentures of the Company other than the Debentures
unless the rights of the holders of such debentures are
subordinated to the Debentures, in which event the terms of the
subordination provision shall be similar to the terms set forth
in Section 7 of this Debenture;
(d) Not enter into a loan secured by the property and/or assets of
the Company or any of its subsidiaries with (i) any director,
officer or 5% stockholder of the Company, (ii) any entity in
which a director, officer or 5% stockholder has an interest as an
officer, director, partner, beneficiary of a trust or is a 5% or
more equity holder of such entity, or (iii) any parent, spouse,
child or grandchild of an officer, director or 5% stockholder of
the Company upon terms no less favorable to the Company than
those which could be obtained from an "arms-length" lender; and
(e) Not redeem, repurchase or otherwise acquire any shares of the
common or preferred stock of the Company.
11. DEFAULT. If any of the following events (herein called "Events of
Default") shall occur:
(a) if the Company shall default in the payment or prepayment of any
part of the principal of any of the Debentures after the same
shall become due and payable, whether at maturity or at a date
fixed for prepayment or by acceleration or otherwise, and such
default shall continue for more than 30 days; or
(b) if the Company shall default in the payment of any installment of
interest on any of the Debentures for more than 30 days after the
same shall become due and payable; or
(c) if the Company shall make an assignment for the benefit of
creditors or shall be unable to pay its debts as they become due;
or
(d) if the Company shall dissolve; terminate its existence; become
insolvent on a balance sheet basis; commence a voluntary case
under the federal bankruptcy laws or under any other federal or
state law relating to insolvency or debtor's relief; permit the
entry of a decree or order for relief against the Company in an
involuntary case under the federal bankruptcy laws or under any
other applicable federal or state law relating to insolvency or
debtor's relief; permit the appointment or consent to the
appointment of a receiver, trustee, or custodian of the Company
or of any of the Company's property; make an assignment for the
benefit of creditors; or admit in writing to be failing generally
to pay its debts as such debts become due;
(e) if the Company shall default in the performance of or compliance
with any agreement, condition or term contained in this Debenture
or any of the
10
<PAGE>
other Debentures and such default shall not have been cured
within 30 days after such default,
(f) Any of the representations or warranties made by the Company
herein, in the Subscription Agreement, or in any certificate or
financial or other statements heretofore or hereafter furnished
by or on behalf of the Company in connection with the execution
and delivery of this Debenture or the Subscription Agreement
shall be false or misleading in any material respect at the time
made; or
(g) Any money judgment, writ or warrant of attachment, or similar
process not covered by insurance in excess of Two Hundred Fifty
Thousand Dollars ($250,000) in the aggregate shall be entered or
filed against the Company or any of its properties or other
assets and shall remain unpaid, unvacated, unbonded or unstayed
for a period of thirty (30) days or in any event later than ten
(10) days prior to the date of any proposed sale thereunder; or
(h) The Company shall have its Common Stock suspended from an
exchange or over-the-counter market,
then and in any such event the Holder of this Debenture shall have the option
(unless the default shall have theretofore been cured) by written notice to the
Company to declare the Debenture to be due and payable, whereupon the Debenture
shall forthwith mature and become due and payable, at the applicable prepayment
price on the date of such notice, without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived, anything
contained in this Debenture to the contrary notwithstanding. Upon the occurrence
of an Event of Default, the Company shall promptly notify the Holder of this
Debenture in writing setting out the nature of the default in reasonable detail.
12. REMEDIES ON DEFAULT; NOTICE TO OTHER HOLDERS. In case any one or more
of the Events of Default shall occur, the Holder may proceed to protect and
enforce his or her rights by a suit in equity, action at law or other
appropriate proceeding, whether, to the extent permitted by law, for the
specific performance of any agreement of the Company contained herein or in aid
of the exercise of any power granted hereby. If any Holder of one or more of the
Debentures shall declare the same due and payable or take any other action
against the Company in respect of an Event of Default, the Company will
forthwith give written notice to the Holder of this Debenture, specifying such
action and the nature of the default alleged.
13. AMENDMENTS. With the consent of the Holders of more than 50% in
aggregate principal amount of the Debentures at the time outstanding, the
Company, when authorized by a resolution of its Board of Directors, may enter
into a supplementary agreement for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Debenture or
of any supplemental agreement or modifying in any manner the rights and
obligations of the holders of Debentures or Common Stock issued upon conversion
of the Debentures, and of the Company, provided, however, that no such
supplemental agreement shall (a) extend the fixed maturity of any Debenture, or
reduce the principal amount thereof, or reduce
11
<PAGE>
the rate or extend the time of payment of interest thereon, or alter or impair
the right to convert the same into Common Stock at the rates and upon the terms
provided in this Debenture, without the consent of the Holder of each of the
Debentures so affected, or (b) reduce the aforesaid percentage of Debentures,
the Holders of which are required to consent to any supplemental agreement,
without the consent of the Holders of all Debentures then outstanding.
14. CHANGES, WAIVERS. ETC. Neither this Debenture nor any provisions
hereof may be changed, waived, discharged or terminated orally, but only by a
statement in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought, except to the extent
provided in Section 12 of this Debenture.
15. ENTIRE AGREEMENT. This Debenture embodies the entire agreement and
understanding between the Holder and the Company and supersedes all prior
agreements and understandings relating to the subject matter hereof.
16. GOVERNING LAW, JURISDICTION, ETC.
(a) It is the intention of the parties that the laws of the State of
New York shall govern the validity of this Debenture, the
construction of its terms and the interpretation of the rights
and duties of the parties.
(b) In the case of any dispute, question, controversy or claim
arising among the parties hereto which shall arise out of or in
connection with this Debenture, the same shall be submitted to
arbitration before a panel of three arbitrators in New York, New
York, in accordance with the rules of the American Arbitration
Association. One arbitrator shall be appointed by the party or
parties bringing the claims ("Claimant") and one arbitrator shall
be appointed by the party or parties defending the claim
("Respondent"). The arbitrators selected by such parties shall
be selected within thirty (30) days after notification by the
Claimant to the Respondent that it has determined to submit such
dispute, question, controversy or claim to arbitration. The two
arbitrators so selected shall select a third arbitrator within
thirty (30) days after the selection of the arbitrator selected
by such parties. Should a party fail to select an arbitrator
within the specified time period, or should the arbitrators
selected by the parties fail to select a third arbitrator, the
missing arbitrator or arbitrators shall be appointed by the New
York, New York office of the American Arbitration Association.
The decision of the panel shall be final and binding on the
parties and enforceable in any court of competent jurisdiction.
The costs of the arbitration will be imposed upon the Claimant
and Respondent as determined by the arbitration panel or, failing
such determination, will be borne equally by the Claimant and the
Respondent. The successful or prevailing party or parties shall
be entitled to recover reasonable attorneys fees in addition to
any other relief to which it may be entitled.
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<PAGE>
(c) In the event of any dispute, question, controversy or claim
arising among the parties hereto which shall arise out of or in
connection with this Debenture, the parties shall keep the
proceeding related to such controversy in strict confidence and
shall not disclose the nature of said dispute, the status of the
proceeding or any testimony, documents or information obtained or
exchanged in the course of said proceeding without the express
written consent of all parties to such dispute.
AMERICAN TECHNOLOGIES GROUP, INC.
[Corporate Seal]
By: ___________________________
Lawrence Brady, CEO
ATTEST:
By________________________________
, Secretary
Number:___________________________
Name of Holder:___________________
Principal: $______________________
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<PAGE>
EXHIBIT 1
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert $______________ of the
above Debenture No. _____ into ____________ shares of Common Stock of American
Technologies Group, Inc. (the "Company") according to the conditions set forth
in such Debenture, as of the date written below.
The undersigned confirms the representations and warranties set forth in
the Subscription Agreement.
__________________________________________
Date of Conversion*
__________________________________________
Applicable Conversion Price**
$
_______________________________________________
__________________________________________
Signature
__________________________________________
Name
__________________________________________
Address
__________________________________________
* The original Debenture and this Notice of Conversion must be received
by the Company within five business days following the date of
Conversion.
** Calculated as follows: .75 x ($___ + $___ + $___ + $___ + $___) / 5
or $__________.
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<PAGE>
EXHIBIT 4.2
AMERICAN TECHNOLOGIES GROUP, INC.
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF THIS
WARRANT ARE TRANSFERABLE ONLY IN ACCORDANCE WITH PARAGRAPH I HEREOF.
Void after 5:00 P.M., New York Time, on November 1, 2003
Warrant to Purchase
__________ Shares
of Common Stock
WARRANT TO PURCHASE COMMON STOCK
This is to Certify That, FOR VALUE RECEIVED, __________________________________,
a_____________________________________________________________, having an office
at ____________________________________________________________________________
(the "Holder") is entitled to purchase, subject to the provisions of this
Warrant, from American Technologies Group, Inc., a company organized under the
laws of the State of Nevada, having an office at 1017 South Mountain Avenue,
Monrovia, California 91016 (the "Company"), the number of shares set forth above
(the "Warrant Shares") of the Company's Common Stock, $.001 par value ("Common
Stock") at a price of $.75 per share (or such other price computed by applying
all adjustments made on or before November 1, 2003, in accordance with Section G
hereof, to $.75 as if it had been the initial Exercise Price per share
hereunder) at any time on or after November 1, 1998 until 5:00 P.M. New York
Time, on November 1, 2003. The number of shares of Common Stock to be received
upon the exercise of this Warrant and the price to be paid for a share of Common
Stock may be adjusted from time to time as hereinafter set forth. The shares of
Common Stock deliverable upon such exercise, and as adjusted from time to time,
are hereinafter sometimes referred to as "Warrant Shares" and the exercise price
of a share of Common Stock in effect at any time and as adjusted from time to
time is hereinafter sometimes referred to as the "Exercise Price."
The Warrants represented by the Certificate are part of an authorized class of
150,000 Warrants.
A. EXERCISE OF WARRANT. Subject to the following conditions precedent and the
provisions of Section I hereof, this Warrant may be exercised in whole or
in part at any time or from time to time on or after November 1, 1998, and
before 5:00 P.M. New York Time on November 1, 2003, or, if either such day
is a day on which banking institutions are authorized by law to close, then
on the next succeeding day which shall not be such a day, by presentation
and surrender hereof to the Company at any office maintained by it in
Monrovia, California, or at the office of its Warrant Agent, if any, with
the Purchase Form annexed hereto duly executed and accompanied by payment
of the Exercise Price for the number of shares specified in such form. If
this Warrant should be exercised in
<PAGE>
part only, the Company shall, upon surrender of this Warrant for
cancellation, execute and deliver a new Warrant evidencing the rights of
the Holder hereof to purchase the balance of the shares purchasable
hereunder. Upon receipt by the Company of this Warrant at its office, or
by the Warrant Agent of the Company at its office, in proper form for
exercise, the Holder shall be deemed to be the holder of record of the
shares of Common Stock issuable upon such exercise, notwithstanding that
the stock transfer books of the Company shall then be closed or that
certificate representing such shares of Common Stock shall not then be
actually delivered to the Holder.
B. CASHLESS EXERCISE. Unless there is an effective registration statement
under the Securities Act of 1933, as amended (the "Act") which would permit
the resale of the shares of Common Stock issuable upon the exercise of the
Warrants, at the option of the holder, the Warrant may be exercised on a
cashless basis. "Cashless basis" means that the Company will issue to the
holder upon surrender of the Warrants for cashless exercise that number of
shares determined by dividing the difference of the market price of the
shares of Common Stock issuable upon exercise of the Warrants and the
warrant exercise price by the market price of the Common Stock on the date
of Exercise. For example, if 100,000 Warrants are tendered for cashless
exercise at the time the market price of Common Stock is $1.50, the
difference would be $75,000 and therefore the number of shares to be issued
by the Company shall be 50,000.
C. RESERVATION OF SHARES. The Company hereby agrees that at all times there
shall be reserved for issuance and/or delivery upon exercise of this
Warrant such number of shares of its Common Stock as shall be required for
issuance of delivery upon exercise of this Warrant.
D. FRACTIONAL SHARES. No fractional shares or scrip representing fractional
shares shall be issued upon the exercise of this Warrant. With respect to
any fraction of a share called for upon exercise hereof, the Company shall
issue to the Holder the next whole share.
E. EXCHANGE, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is exchangeable,
without expense, at the option of the Holder, upon presentation and
surrender hereof to the Company or at the office of the Warrant Agent for
other Warrants of different denominations entitling the holder thereof to
purchase in aggregate the same number of shares of Common Stock purchasable
hereunder. The term Warrant as used herein includes any Warrants into
which this Warrant may be divided or exchanged. Upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction, or mutilation of this Warrant, and (in the case of loss, theft
or destruction) of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Warrant, if mutilated, the Company will
execute and deliver a new Warrant of like tenor and date. Any such new
warrant executed and delivered shall constitute an additional contractual
obligation on the part of the Company, whether or not this Warrant so lost
stolen, destroyed, or mutilated shall be at any time enforceable by anyone.
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<PAGE>
F. RIGHTS OF THE HOLDER. The Holder shall not, by virtue here of, be entitled
to any rights of a shareholder in the Company, either at law or equity, and
the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth
herein.
G. STOCK DIVIDENDS, RECLASSIFICATION, REORGANIZATION, ANTI-DILUTION
PROVISIONS, ETC. This Warrant is subject to the following further
provisions:
1. In case, prior to the expiration of this Warrant by exercise or by its
terms, the Company shall issue any shares of its Common Stock as a
stock dividend or subdivide the number of outstanding shares of Common
Stock into a greater number of shares, then, in either of such cases,
the Exercise Price per share of the Warrant Shares purchasable
pursuant to this Warrant in effect at the time of such action shall be
proportionately reduced and the number of Warrant Shares at that time
purchasable pursuant to this Warrant shall be proportionately
increased; and conversely, in the event the Company shall contract the
number of outstanding shares of Common Stock by combining such shares
into a smaller number of shares, then, in such case, the Exercise
Price per share of the Warrant Shares purchasable pursuant to this
Warrant in effect at the time of such action shall be proportionately
increased and the number of Warrant Shares at that time purchasable
pursuant to this Warrant shall be proportionately decreased. PROVIDED
HOWEVER, the maximum Exercise Price shall not exceed $1.50 and the
corresponding minimum number of Warrant Shares issuable upon exercise
hereof shall equal the number determined by multiplying the initial
number of Warrant Shares which could be obtained upon exercise by $.75
and dividing the product so obtained by $1.50. Any dividend paid or
distributed upon the Common Stock in stock of any other class of
securities convertible into shares of Common Stock shall be treated as
a dividend paid in Common Stock to the extent that shares of Common
Stock are issuable upon the conversion thereof.
2. In case, prior to the expiration of this Warrant by exercise or by its
terms, the Company shall be recapitalized by reclassifying its
outstanding Common Stock, $.001 par value, into stock with a different
par value or by changing its outstanding Common Stock with par value
to stock without par, the Company or a successor corporation shall be
consolidated or merge with or convey all or substantially all of its
or of any successor corporation's property and assets to any other
corporation or corporations (any such corporation being included
within the meaning of the term successor corporation in the event of
any consolidation or merger of any such corporation with, or the sale
of all or substantially all of the property of any such corporation
to, another corporation or corporations), in exchange for stock or
securities of a successor corporation, the holder of this Warrant
shall thereafter have the right to purchase upon the terms and
conditions and during the time specified in this Warrant, in lieu of
the Warrant Shares theretofore purchasable upon the exercise of this
Warrant, the kind and amount of
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shares of stock and other securities receivable upon such
recapitalization or consolidation, merger or conveyance by a holder of
the number of shares of Common Stock which the holder of this Warrant
might have purchased immediately prior to such recapitalization or
consolidation, merger or conveyance.
3. Upon the occurrence of each event requiring an adjustment of the
Exercise Price and of the number of Warrant Shares purchasable at such
adjusted Exercise Price by reason of such event in accordance with the
provisions of this Section F., the Company shall compute the adjusted
Exercise Price and the adjusted number of Warrant Shares purchasable
at such adjusted Exercise Price by reason of such event in accordance
with the provisions of this Section G. and shall prepare a certificate
setting forth such adjusted Exercise Price and the adjusted number of
Warrant Shares and showing in detail the facts upon which such
conclusions are based. The Company shall mail forthwith to each holder
of this Warrant a copy of such certificate, and thereafter said
certificate shall be conclusive and shall be binding upon such holder
unless contested by such holder by written notice to the Company
within thirty (30) days after receipt of the certificate by such
holder.
4. In case:
(a) the Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend or
any other distribution in respect of the Common Stock (including
cash), pursuant to without limitation, any spin-off, split-off or
distribution of the Company's assets; or
(b) the Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to subscribe for or
purchase any shares of stock of any class or to receive any other
rights; or
(c) of any classification, reclassification or other reorganization
of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, or conveyance of
all or substantially all of the assets of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company;
then, and in any such case, the Company shall mail to the Holder, at
least twenty (20) days prior thereto, a notice stating the date or
expected date on which a record is to be taken for the purpose of such
dividend or distribution of rights, or the date on which such
classification, reclassification, reorganization, consolidation,
merger, conveyance, dissolution, liquidation, or winding up is to take
place, as the case may be. Such notice shall also specify the date or
expected
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date, if any is to be fixed, as of which holders of Common Stock of
record shall be entitled to participate in said dividend or
distribution of rights, or shall be entitled to exchange their shares
of Common stock for securities or other property deliverable upon such
classification, reclassification, reorganization, consolidation,
merger, conveyance, dissolution, liquidation, or winding up, as the
case may be. The failure to give such notice shall not affect the
validity of any such proceeding or transaction and shall not affect
the right of the holder of this Warrant to participate in said
dividend, distribution of rights, or any such exchange and acquire the
kind and amount of cash, securities or other property as the Holder
would have been entitled to acquire if it was the record holder of the
Warrant Shares which could be obtained upon the exercise of the
Warrants immediately before such proceeding or transaction; PROVIDED
THAT, the Holder exercises the Warrants within 30 days after discovery
that such action or proceeding has taken place.
5. In case the Company at any time while this Warrant shall remain
unexpired and unexercised, shall dissolve, liquidate, or wind up its
affairs, the holder of this Warrant may thereafter receive upon
exercise hereof in lieu of each share of Common Stock of the Company
which it would have been entitled to receive, the same kind and amount
of any securities or assets as may be issuable, distributable or
payable upon any such dissolution, liquidation or winding up with
respect to each share of Common Stock of the Company.
H. OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be adjusted as
required by the provisions of the foregoing Section, the Company shall
forthwith file in the custody of its Secretary at its principal office and
with the Warrant Agent, if any, an officer's certificate showing the
adjusted Exercise Price determined as therein provided, setting forth in
reasonable detail the facts requiring such adjustment, including a
statement of the number of additional shares of Common Stock, if any, the
consideration for such shares, determined as provided in such Section G,
and such other facts as shall be necessary to show the reason for and the
manner of computing such adjustment. Each such officer's certificate shall
be made available at all reasonable times for inspection by the holder and
the Company shall, forthwith after each such adjustment, mail a copy of
such certificate to the holder.
I. TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933. Neither this Warrant,
the Warrant Shares, nor any other security issued or issuable upon exercise
of this Warrant may be sold or otherwise disposed or except as follows:
1. to a person who, in the opinion of counsel reasonably satisfactory to
the Company, is a person to whom the Warrant or Warrant Shares may
legally be transferred without registration and without the delivery
of a current prospectus under the Securities Act of 1933, as amended
(the "Act") with respect thereto and then only against receipt of an
agreement of such person to comply with the
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provisions of this Section I. with respect to any resale or other
disposition of such securities; or
2. to any person upon delivery of a prospectus then meeting the
requirements of the Act relating to such securities and the offering
thereof for such sale or disposition.
J. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the holder as follows:
1. The Company is duly organized and, as of the date of the original
issuance hereof, validly existing and in good standing under the laws
of the State of Nevada.
2. The Company shall at all times reserve and keep available out of its
authorized shares of Common Stock, solely for the purpose of issuing
Warrant Shares upon the exercise of this Warrant, such shares as may
be issuable upon the exercise hereof.
3. Warrant Shares, when issued and paid for in accordance with the terms
of this Warrant, will be fully paid and not assessable.
4. This Warrant has been duly authorized and approved by all required
corporate action by the Company and does not violate the certificate
of incorporation or by-laws of the Company.
AMERICAN TECHNOLOGIES
GROUP, INC.
[CORPORATE SEAL]
By:
------------------------
Lawrence Brady, CEO
Dated:
ATTEST:
- ------------------------------
, Secretary
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PURCHASE FORM
TO BE EXECUTED
UPON EXERCISE OF WARRANTS
TO: American Technologies Group, Inc.
1017 South Mountain Avenue
Monrovia, California 91016
The undersigned hereby exercises, according to the terms and conditions
thereof, the right to purchase _____________ Shares of Common Stock, evidenced
by the within Warrant Certificate, and herewith makes payment of the purchase
price in full.
Dated:
----------------------------------
Name:
-----------------------------------
Address:
--------------------------------
Signature:
------------------------------
UPON EXERCISE OF THIS WARRANT PAYMENT SHOULD BE MADE TO THE ORDER OF
AMERICAN TECHNOLOGIES GROUP, INC.
The undersigned hereby irrevocably elects to exercise its rights under
Section B. to make a cash-less exercise.
Dated:
----------------------------------
Name:
-----------------------------------
Address:
--------------------------------
Signature:
------------------------------
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EXHIBIT 5.1
December 3, 1998
Board of Directors
American Technologies Group, Inc.
1017 S. Mountain Ave.
Monrovia, California 91016
Gentlemen:
As General Counsel for American Technologies Group, Inc. (the
"Company"), in connection with the Registration Statement on Form S-3 (the
"Registration Statement") to be filed with the Securities and Exchange
Commission on or about December 3, 1998 intended to register 1,256,039 shares
of the common stock of the Company issuable upon the conversion of $650,000
principal amount of its 6% convertible debentures and 97,500 shares of common
stock of the Company issuable upon the exercise of its common stock purchase
warrants (the "Shares"), as more fully described in the Registration
Statement, I have examined such corporate records and other documents and
such questions of law as I have considered necessary or appropriate for the
purposes of this opinion and, on the basis of such examination, advise you
that in my opinion the Shares will be, when issued as specified in the
Registration Statement, validly issued, fully paid and nonassessable.
I hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement. This consent is not to be construed as an admission
that I am a person whose consent is required to be filed with the Registration
Statement under the provisions of the Securities Act of 1933, as amended.
Very truly yours,
/s/ John M. Dab
John M. Dab
General Counsel
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To American Technologies Group, Inc.:
As independent public accountants, we hereby consent to the incorporation by
reference in this Form S-3 registration statement of our report dated
November 10, 1998 included in the Company's Form 10-KSB for the year ended
July 31, 1998 and to all references to our Firm included in this registration
statement.
/s/ ARTHUR ANDERSEN LLP
-----------------------
ARTHUR ANDERSEN LLP
Los Angeles, California
December 3, 1998
