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As filed with the Securities and Exchange Commission on July 22, 1999
Registration No. 333-68327
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
Amendment No. 4 to
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)
Nevada 95-4307525
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
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)
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
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this Registration Statement becomes effective.
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
<TABLE>
<CAPTION>
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Proposed Proposed
Maximum Maximum
Offering Aggregate Amount of
Amount to be Price per Offering Registration
Title of Securities to be Registered Registered Share (1) Price (1) Fee
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.001 par value (2) 2,500,000 shares $0.65 $ 1,625,000 $ 451.75 (5)
- -----------------------------------------------------------------------------------------------------------------
Common Stock, $0.001 par value (2) 2,500,000 shares $0.36 $ 900,000 $ 250.20
- -----------------------------------------------------------------------------------------------------------------
Common Stock, $0.001 par value (3) 440,000 shares $0.58 $ 255,200 $ 70.95 (5)
- -----------------------------------------------------------------------------------------------------------------
Common Stock, $0.001 par value 700,000 shares $0.51 $ 357,000 $ 99.25 (5)
- -----------------------------------------------------------------------------------------------------------------
Common Stock, $0.001 par value (4) 527,500 shares $0.75 $ 395,625 $ 109.99 (6)
- -----------------------------------------------------------------------------------------------------------------
Common Stock, $0.001 par value (3) 620,000 shares $0.50 $ 310,000 $ 86.18 (5)
- -----------------------------------------------------------------------------------------------------------------
Total 7,287,500 shares $ 3,842,825 $ 1,068.32 (7)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(c).
(2) Includes shares of Common Stock owned by certain stock holders and shares
issuable upon the conversion of the 6% Convertible Debentures and the Secured
Convertible Debentures. 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 as a result of stock splits, stock dividends and anti-dilution
provisions.
(3) Issuable upon the conversion of the 3% Convertible Debentures. 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 as a result of stock splits, stock
dividends and anti-dilution provisions.
(4) Issuable upon exercise of warrants evidencing the right to purchase shares
of Common Stock.
(5) This amount was previously paid.
(6) $44.31 of this amount was paid with the previous filings of this
Registration Statement. An additional fee of $109.99 is paid herewith to cover
an additional 315,000 shares of Common Stock.
(7) $1,002.64 of this amount was paid with the previous filings of this
Registration Statement. An additional fee of $65.68 is paid herewith to cover an
additional 315,000 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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7,287,500 SHARES OF COMMON STOCK
AMERICAN TECHNOLOGIES GROUP INC.
The 7,287,500 shares of common stock being offered by this prospectus are
being offered by certain selling securityholders. See "Selling Securityholders"
on page 16.
The selling securityholders may offer these shares from time to time in
transactions on the OTC Bulletin Board or in privately negotiated transactions
as described under the "Plan of Distribution" on page 21. We will not receive
any of the proceeds.
Our common stock is quoted on the OTC Bulletin Board under the symbol
"ATEG." On July 19, 1999, the closing sale price of the common stock on the OTC
Bulletin Board was $0.70.
INVESTING IN OUR COMMON STOCK INVOLVES SUBSTANTIAL RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE 8.
Weither 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 July 22, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ABOUT American Technologies..................................................4
Business Summary........................................................4
Current Financing.......................................................6
Recent Financing........................................................7
Proposed Merger with Commodore Separation Technologies Inc..............7
Resignation of Chief Operating Officer/
Chief Financial Officer.............................................8
RISK FACTORS.................................................................8
Financial Risk Factors.......................................................9
We have a History of Losses Which Will Continue Through
the End of the Current Fiscal Year..................................9
We have Experienced Substantial Difficulty Generating
Sufficient Working Capital..........................................9
Our Sales of Securities Convertible into Common Stock at
a Discount to the Market Price May Cause the Market
Value of Our Common Stock to Drop..................................10
Lack of Listing on a Major Exchange May Make It
Difficult for Investors to Dispose of Our Common
Stock..............................................................10
We May become a Penny Stock Resulting in Reduced
Willingness of Broker-Dealers to Trade Our
Common Stock.......................................................11
Business Risk Factors.......................................................11
We May Not Find Customers for Our Products.............................11
The Scientific Community May Not Provide Sufficient
Validation of Our Products to Encourage Sales......................12
There May Be Unforeseen Regulatory Requirements which
Impede the Marketing and Sale of Our Products......................12
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We May Not Be Able to Obtain the Patents or Trademarks
Needed to Protect the Value of Our Technologies....................12
WHERE YOU CAN FIND MORE INFORMATION.........................................13
FORWARD-LOOKING STATEMENTS..................................................15
USE OF PROCEEDS FROM SALE OF COMMON STOCK...................................15
USE OF PROCEEDS FROM SALE OF DEBENTURES.....................................15
USE OF PROCEEDS FROM EXERCISE OF WARRANTS...................................16
SELLING SECURITYHOLDERS.....................................................16
PLAN OF DISTRIBUTION........................................................21
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES..............................22
EXPERTS.....................................................................23
LEGAL MATTERS...............................................................23
</TABLE>
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ABOUT AMERICAN TECHNOLOGIES
Business Summary
American Technologies develops and sells products based upon on our
patented and proprietary technologies. The goal of our efforts is to develop
products that have a positive impact on the environment. Our address and
telephone number are: 1017 South Mountain Avenue, Monrovia, California 91016,
(626) 357-5000.
We concentrate on technology discovery and development efforts in three
areas:
- IE(TM) Technology
- Water Purification
- Particle Beams
Our IE Technology refers to a proprietary process which produces water
solutions containing water clusters that are stable at room temperature. The
clusters are groups of water molecules configured in such a way so as to produce
relatively large plus/minus polarity. We believe this polarity is what gives the
clusters their catalytic properties. We can produce different kinds of water
solutions for different applications.
Tests indicate that these water clusters improve the performance of various
chemical, physical and biological processes, including combustion enhancement,
descaling, enzyme processes and de-coking. For example, in internal combustion
engines the clusters attract hydrocarbons and oxygen resulting in a more
complete burning of the fuel. This results in improved efficiency and reduced
carbon deposits in the combustion chamber.
In certain biological applications related to enzyme production, the
clusters have been shown to significantly improve enzyme yield or rate of enzyme
production. In one instance enzyme cultures utilizing IE Technology water
solutions required 97 fewer hours to achieve the same growth level as comparable
cultures utilizing distilled water. Not all tests have achieved such results.
Substantial additional testing remains to be conducted to determine the effects
of IE Technology on different enzymes and if the use of IE Technology in enzyme
production on a commercial scale is viable. The increased enzyme production rate
that may be achieved utilizing IE
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Technology water solutions may result in cost savings to the enzyme production
industry.
Independent researchers observe these water clusters by different standard
research tools including:
- Laser autocorrelation
- Electron microscope
- Atomic force microscope
- UV spectroscopy
American Technologies sells these water solutions for use in several
product lines including household cleaning products. We also use them in our
combustion enhancers.
During the fiscal year ended July 31, 1998, revenue from the sale of
these water solutions for use in products manufactured by others was
approximately $117,000 and revenue from the sale of The Force -Registered
Trademark- combustion enhancer was $591,000. During the same period, American
Technologies had incurred net losses of approximately $9.64 million.
Kinetics Technology International Corporation has conducted field tests on
the use of IE Technology as a coke formation suppresser. Kinetics Technology has
funded the testing and, if the testing is successful, will have financial
responsibility for commercialization of the final product. The initial test
program implemented by Kinetics Technology had favorable results. Kinetics
Technology is now developing a marketing strategy for the use of our IE
Technology in various coking applications.
In the water purification area, our low pressure vacuum distillation system
is undergoing tooling design for a home use version for introduction to the
marketplace in late 1999. Our vacuum distiller utilizes a proprietary method to
provide the advantages of vacuum distillers without the need for expensive and
noisy vacuum pumps.
Under our agreement with Sunpentown, Ltd. for the tooling design and
manufacturing of the distiller, they are responsible for all design costs and
the cost of producing the tooling. Our marketing plan for the distiller involves
establishing relationships with distributors experienced in this type of
product. We do not anticipate incurring significant marketing costs for this
product.
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The third technology is the particle beam project which produces a beam of
heavy particles. As a beam of particles, it functions in much the same way as
the common laser. The important difference is that it is composed of heavy
particles rather than light.
The development of the particle beam has been conducted through an American
Technologies sponsored research program with the California Institute of
Technology. The development of this technology is likely to require a minimum of
three to five years and expenditure of substantial sums of money, likely to be
in excess of $10,000,000, on research and development. We submitted a proposal
to the Department of Energy for a $5,000,000 joint venture grant to produce a
small pilot plant based on the current prototype located at CalTech. The
proposal describes the potential of our particle beam to turn harmful nuclear
waste into harmless components. The DOE has reviewed the proposal and
discussions are underway regarding funding of the project. The particle beam
project has been on hold pending receipt of significant funding to continue its
development
Dr. Lo, our Director of Research and Development, has developed certain
particle beam theories. According to these theories, the proposed particle beam
may be able to break down molecules or even atoms and their nuclei, or be used
for rock drilling, medical surgery or precision cutting of metals without
distortion or excessive heat. No evidence exists to substantiate these potential
applications.
Current Financing
One of the investors who has purchased an aggregate of $1,700,000 of
convertible debentures in the past 8 months has agreed to purchase an additional
$500,000 principal amount of Secured Convertible Debenture upon the effective
date of this registration statement. The debentures will bear interest at the
prime rate plus 1/2%. We have the right to redeem the debentures prior to
December 31, 1999 at 135% of their principal amount.
In July, 1999 we entered into an Underwriting Agreement with First Liberty
Securities, Ltd. for the firm commitment underwriting of 1,000,000 units at
$4.00 per unit with each unit consisting of one Class A Convertible Revenue
Sharing Bond and 1 warrant to purchase a share of common stock at $10.00. The
bonds mature on the earlier of receipt of $20.00 in
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disbursements or December 31, 2009. Revenue disbursement are to be paid to the
bond holders at the rate of 2.5% of our gross sales revenue. At maturity, the
bonds are redeemable at our option for $4.00 per bond or 1 share of common stock
for 5 bonds. During the first year after issuance, each bond is also convertible
into common stock on a 0.80 for 1 basis or four bonds for 5 shares of common
stock. However, once the bond holders have received $4.00 in revenue
disbursements per bond, the bonds are no longer convertible. Sale of the units
are anticipated to be made outside of the United States and to start in
September, 1999.
On April 12, 1999, we received a letter of intent for a firm commitment
offering of $10,000,000 of American Technologies' preferred stock to be
underwritten by Security Capital Trading Inc. The preferred stock will be
offered at $10.00 per share and carry a $10.00 per share liquidation
preference. The preferred stock will be convertible into common stock at
between approximately 120% to 130% of the closing bid price of the common
stock immediately prior to sale of the preferred stock. In addition, holders
of the preferred stock will receive a cumulative cash dividend at the rate of
10% per annum, payable semi-annually. The appropriate integration of this
financing opportunity with the financing through First Liberty Securities has
yet to be evaluated by management or the Board of Directors.
Recent Financing
From October, 1998, through July, 1999, we sold to 8 investors $2,750,000
principal amount of debentures in a private placement. In connection with the
sale of $1,050,000 principal amount of the debentures we are obligated to
register with the SEC within 90 days the shares of common stock issuable on
conversion of the debentures and exercise of the warrants issued with the
debentures. If the registration statement is not declared effective by the SEC
within this 90 day period, we must pay liquidated damages to certain of the
investors. For the first 30 days we are late the damages are 2% of the principal
amount invested. Starting 120 days after the purchase of the debentures the
damages are 3% per month. Through July 12, 1999, we have incurred approximately
$127,800 in liquidated damages.
Proposed Merger with Commodore Separation Technologies Inc.
In February, 1999, we signed a letter of intent which effectuates our
acquisition of Commodore Separation
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Technologies, although the transaction is structured as a merger. Commodore
Separation Technologies is commercializing a proprietary separation technology
and recovery system known as SLiM(-TM-). SLiM stands for Supported Liquid
Membrane. SLiM can selectively remove from water valuable substances for reuse
or toxic materials for safe disposal.
Negotiations on the terms of the definitive acquisition agreement have
been temporarily deferred while we attempted to secure operating capital on
acceptable terms. As a result of the delay in finalizing the definitive
agreement, there can be no absolute assurance that a final agreement can be
reached with Commodore Separation Technologies along terms previously
negotiated. Under the most recent draft of the agreement, Commodore Separation
Technologies will merge into a newly formed subsidiary of American Technologies.
Our existing shareholders will retain ownership of approximately 80.1 percent of
American Technologies and the shareholders of Commodore Separation Technologies
will own approximately 19.9 percent of American Technologies. American
Technologies will own 100% of the common stock of the new subsidiary and the
Commodore Separation Technologies shareholders will own preferred stock of the
subsidiary entitling them to receive 38% of the net profits, after taxes, of the
existing business of Commodore Separation Technologies.
One of the conditions to the completion of the transaction is our
receipt of $10 million from the sale of securities. See "Current Financing"
above for additional information on American Technologies' current financing
activities.
Resignation of Chief Operating Officer/Chief Financial Officer
Harold Rapp, who has served as our Chief Operating Officer and Chief
Financial officer since 1997 has resigned to pursue other opportunities. Yan
Lin, our controller, has been appointed as Acting Chief Financial Officer while
a search is made for a permanent Chief Financial Officer. We will not appoint a
new Chief Operating Officer and the duties of that position will be shared by
the existing executives.
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
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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.
Financial Risk Factors
WE HAVE A HISTORY OF FINANCIAL LOSSES WHICH WILL CONTINUE THROUGH THE END OF THE
CURRENT FISCAL YEAR
We have operated at a loss throughout our history. Net losses for the
nine months ended April 30, 1999 were approximately 6.22 million and for the
fiscal year ended July 31, 1998 were approximately $9.44 million. Net losses for
the fiscal year ended July 31, 1997 were approximately $9.64 million. At July
31, 1998 we had an accumulated deficit of $36.56 million.
We anticipate that with the disposal of our publishing and mining
operations and other expense reductions that our cash to be used in operating
activities will be less for the year ending July 31, 1999 compared to the
prior year. However, the amount of net losses and the time required to reach
profitability are uncertain. There can be no assurance that we will ever be
able to generate sufficient revenue from our products now ready for market or
from those under development to achieve profitability on a sustained basis.
See the Management's Discussion and Analysis section of Amendment No. 2 to
our Form 10-KSB/A.
WE HAVE EXPERIENCED SUBSTANTIAL DIFFICULTY GENERATING SUFFICIENT WORKING CAPITAL
American Technologies 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 we find it increasingly difficult to raise investment
capital. We are at a critical juncture in our history. It is absolutely
essential to begin to generate significant revenues in order to maintain our
existence. While plans are in place and being executed directed at accomplishing
this end, there can be no guarantee that these plans will prove to be
successful.
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Our current cash monthly operating expenses are approximately
$250,000. We believe our current cash reserves plus the $500,000 due upon the
effectiveness of the registration statement of which this prospectus forms a
part, along with anticipated minimum projected revenues of $2,000,000 for
fiscal 2000, are sufficient for the Company to operate in the normal course
for the next 12 months. However, if revenues are less than projected, the
Company's ability to continue operations will be dependent upon additional
financing activities including the sale of the Revenue Bonds by First
Liberty, of which there can be no assurance.
Our auditors' report on our financial statements 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
American Technologies to continue as a going concern. This going concern
qualification may adversely affect our perception by prospective customers and
suppliers.
OUR SALES OF SECURITIES CONVERTIBLE INTO COMMON STOCK AT A DISCOUNT TO THE
MARKET PRICE MAY CAUSE THE MARKET VALUE OF OUR COMMON STOCK TO DROP
As a result of our poor financial condition, several times over the
past few years we have sold securities that are convertible into our common
stock at a discount to the market price for the common stock. This has resulted
in the issuance of a significant amount of additional shares of common stock at
prices below market. It is possible that this method of financing operations has
contributed to the decline in the market price of the common stock. If we need
to obtain financing in the future in the same manner, this may again have an
adverse affect on the market price for our common stock.
LACK OF LISTING ON A MAJOR EXCHANGE MAY MAKE IT DIFFICULT FOR INVESTORS TO
DISPOSE OF OUR COMMON STOCK
Our common stock is quoted on the OTC Bulletin Board system. The 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 our
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
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market in our 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 our common stock.
There are currently 14 firms making a market in our common stock. The
firms are:
M. H. Meyerson & Co., Inc. Knight Securities, L.P.
Wm. V. Frankel & Co., Incorporated Sharpe Capital, Inc.
Speer, Leeds & Kellogg Capital Markets Nash, Weiss % Co.
Hill Thompson Magid & Co. Inc. Wien Securities Corp.
Herzog, Heine, Geduld, Inc. Wilson-Davis & Co., Inc.
First Level Capital Inc. Mayer & Schweitzer, Inc.
Israel Securities Center Corp. GVR Company
WE MAY BECOME A PENNY STOCK RESULTING IN REDUCED WILLINGNESS OF BROKER-DEALERS
TO TRADE OUR COMMON STOCK
If our net tangible assets fall below $2 million at July 31, 1999 or if
we otherwise fail to meet certain criteria of the Commission, the common stock
becomes 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. These rules may discourage the ability or willingness
of broker-dealers to sell and/or make a market in our common stock.
Business Risk Factors
As American Technologies is engaged in the development and marketing of
products based on new technologies, there are significant risks associated with
its potential success.
WE MAY NOT FIND CUSTOMERS FOR OUR PRODUCTS
None of our current products enjoy widespread distribution or customer
acceptance. While we do have a number of products that are past the development
stage, we have yet to establish major, stable markets for them. Although we
believe we have the expertise to commercialize these products, any or all of our
products may fail to prove to have widespread customer appeal. Various marketing
strategies and alliances are now in place. Current significant distributors
include Hungarofek and Market One. Kinetics Technology is developing a marketing
strategy for the use of our IE Technology in various coking applications.
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THE SCIENTIFIC COMMUNITY MAY NOT PROVIDE SUFFICIENT VALIDATION OF OUR PRODUCTS
TO ENCOURAGE SALES
Our technologies have not received broad acceptance by the general
scientific community. To a great extent, scientific validation of our
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 scientists at prestigious academic
institutions, there is no guarantee that this will lead to acceptance of our
technologies by the scientific community as a whole. Failure to achieve such
acceptance could be materially detrimental to our efforts to establish markets
for our products.
THERE MAY BE UNFORESEEN REGULATORY REQUIREMENTS WHICH IMPEDE THE MARKETING AND
SALE OF OUR PRODUCTS
Most of our current products are being sold directly to the consumer in
markets that are not generally regulated by government agencies. In the case of
consumer products for enhancing engine performance, such as The Force or the
F420 fuel additive, registration of these products with CARB (California Air
Resources Board) and EPA (Environmental Protection Agency) is required and has
been done.
Since the F420 additive's chemical contents fall within the
restrictions of the EPA regulations, there are no known impediments to
maintaining this registration. We have also registered The Force airborne
combustion enhancer as an add-on device with CARB. There is no known reason why
CARB would withdraw that registration.
In the case of bulk fuel additives, there are strong industry
regulations. Extensive testing is required to meet these industry regulations
prior to sale of the additive and there is no guarantee that our bulk additive
products can meet all of these industry regulations.
WE MAY NOT BE ABLE TO OBTAIN THE PATENTS OR TRADEMARKS NEEDED TO PROTECT THE
VALUE OF OUR TECHNOLOGIES
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
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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.
We have applied for a number of patents on our particle beam, vacuum
distiller and IE technologies. Some have been approved. The status is as
follows:
- Particle Beam Approved Patents
We are maintaining 7 granted U.S. patents and 9 foreign patents issued
on particle beam technology. Additionally, there are 3 U.S. and 6
foreign patent applications pending.
- IE Technology
We have been granted 1 U.S. patent on the IE Technology and 7 U.S.
patent applications are in various stages of prosecution. Foreign
patent applications to protect this technology are also in progress.
- Vacuum Distiller
There are 3 U.S. patent applications pending on the vacuum distiller
technology. Foreign applications to protect the technology are also in
process. No patents have been granted yet.
All of our products currently offered for sale are protected by patents
in the U.S. The group of patent applications currently in process have
sufficient overlap to offer protection to our current commercial applications.
We file applications with the U.S. Patent and Trademark Office once we perceive
a new significant commercial application, and prior to public disclosure of the
technology.
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
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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 securityholders sell all the shares. This
prospectus is part of a registration statement we filed with the SEC
(Registration No. 333-6827).
The following documents are hereby incorporated by reference in this
Registration Statement:
- Annual Report on Form 10-KSB for the year ended July 31, 1998.
- Amendment Number 1 to our Annual Report on Form 10-KSB/A for the year
ended July 31, 1998.
- Amendment Number 2 to our Annual Report on Form 10-KSB/A for the year
ended July 31, 1998.
- Amendment Number 3 to our Annual Report on Form 10-KSB/A for the year
ended July 31, 1998.
- Amendment Number 4 to our Annual Report on Form 10-KSB/A for the year
ended July 31, 1998.
- Quarterly Report on Form 10-QSB for the three months ended October 31,
1998.
- Amendment Number 1 to our Quarterly Report on Form 10-QSB/A for the
three months ended October 31, 1998.
- Quarterly Report on Form 10-QSB for the three months ended January 31,
1999.
- Quarterly Report on Form 10-QSB for the three months ended April 30,
1999.
- Current Report of Form 8-K dated January 5, 1999.
- The section of our Registration Statement on Form 10, filed on January
24, 1994, entitled "Description of Securities," as amended by
Amendment Nos. 1, 2, 3 and 4.
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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 securityholders 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. Forward-looking statements are
subject to risks and uncertainties and include information concerning possible
or assumed future results of our operations. When we use words such 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.
USE OF PROCEEDS FROM SALE OF COMMON STOCK
American Technologies will not receive any of the proceeds from the
sale of the shares of common stock by the selling securityholders.
USE OF PROCEEDS FROM SALE OF DEBENTURES
We have received $2,750,000 from the sale of the debentures.
15
<PAGE>
We have used and will continue to use the net proceeds from the sale of
the debentures for working capital and the payment of existing liabilities.
USE OF PROCEEDS FROM EXERCISE OF WARRANTS
If all of the warrants are exercised, we will receive $395,625. We
intend to use these funds for working capital and the payment of existing
liabilities.
SELLING SECURITYHOLDERS
Selling Securityholders
The following table identifies certain selling security-holders along
with the principal amount of debentures and the number of warrants they own.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF NUMBER OF
NAME DEBENTURES WARRANTS
------ ------------ ----------
<S> <C> <C>
International Investment $ 200,000 20,000
Group Equity Fund, NV
Venezuela Recovery Fund $ 50,000 5,000
Britannia Associates Limited $ 375,000 37,500
JRT Holdings $ 25,000 2,500
Target Growth Fund Ltd. $ 250,000 25,000
Intermediazioni $ 50,000 5,000
Internazionali S.A.
Spiga Limited $ 100,000 62,500
Gaines P. Campbell, Jr. $1,550,000 355,000
James Hennen $ 75,000 7,500
Michael David Fort $ 75,000 7,500
</TABLE>
16
<PAGE>
In addition to the above selling debenture holders, the following
stockholders are offering the number of shares adjacent to their names:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
------ ------------------
<S> <C>
MacCaughern Trade Development 500,000
Boru Enterprises 200,000
William R. Rogers, Jr. 600,000
George Garcy 50,000
Comtrad Industries, Inc. 489,738
National Financial Communications Corp. 100,000
</TABLE>
Conversion of Debentures
The above identified selling debenture holders may convert or exchange
their debentures for shares of our common stock by giving written notice to us.
$1,050,000 of the debentures are convertible at a variable conversion price
depending upon the market price for our common stock on the date of conversion.
There is a maximum conversion price of $0.62 but no minimum conversion price.
$250,000 of debentures have a fixed conversion price of $0.58, $450,000 of
debentures have a fixed conversion price of $0.50 and $1,000,000 of debentures
have a fixed conversion price of $0.30.
Variable Conversion Price
The variable conversion price is the lesser of
- $0.62; or
- 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.
Estimate of Shares Issuable Upon Conversion
If all of the debentures were converted on July 19, 1999, the variable
conversion price would be $0.45 the total number of shares of common stock
issued would be 2,333,333. This does not
17
<PAGE>
include any shares of common stock issued as interest due on the debentures.
$1,050,000 in principal amount of the debentures bear interest at 6% per annum,
$700,000 in principal amount of the debentures bear interest at 3% per annum and
$1,000,000 in principal amount of the debentures bear interest at 8.5%.
The following table contains the names of the selling securityholders,
the number of shares of common stock owned beneficially by each of the selling
securityholders as of July 19, 1999, and the number of shares which may be
offered for resale under 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 July 19, 1999. This calculation results in an
estimate of the number of shares of common stock issuable upon conversion of the
debentures.
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 that will be held by the selling
securityholders after the 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.
<TABLE>
<CAPTION>
SHARES OF SHARES OF
COMMON STOCK COMMON STOCK
BENEFICIALLY SHARES OF BENEFICIALLY
NAME AND OWNED PRIOR TO COMMON STOCK OWNED AFTER
ADDRESS OFFERING (1)(2) BEING OFFERED OFFERING (3)
-------- ----------------- -------------- ------------
<S> <C> <C> <C>
Int'l Investment (4) 464,444 464,444 0
Group Equity Fund
Venezuela Fund (4) 116,111 116,111 0
Britannia Associates (4) 870,833 870,833 0
JRT Holdings 58,056 58,056 0
c/o Astor Capital
9300 Wilshire Blvd., Suite 308
Beverly Hills, CA 90212
Target Growth Fund Ltd.(4) 555,581 555,581 0
- --------------------------
Footnotes on page 20.
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
SHARES OF SHARES OF
COMMON STOCK COMMON STOCK
BENEFICIALLY SHARES OF BENEFICIALLY
NAME AND OWNED PRIOR TO COMMON STOCK OWNED AFTER
ADDRESS OFFERING (1)(2) BEING OFFERED OFFERING (3)
----------- ---------------- ------------ --------------
<S> <C> <C> <C>
Intermediazioni 116,111 116,111 0
Internazionali S.A.
Pasea Estate, Road Town
Tortola BVI
Spiga Ltd. 284,722 284,722 0
Skelton Building
Road Town, Tortola BVI
Gaines P. Campbell, Jr. 6,386,034 (5) 4,719,367 1,666,667 (5)
1341 Birmingham Highway
Chattanooga, TN 37419
MacCaughern Trade Development 500,000 500,000 0
5263 Heather Lane
Park City, Utah 84098
Boru Enterprises 300,000 200,000 100,000
62 S.E. 6th Avenue
Delray Beach, FL 33483
James Hennen 150,000 150,000 0
2 Woodhill
Lookout Mountain, TN 37350
Michael David Fort 150,000 150,000 0
Route #1, Box 792
Twisp, Washington 98856
William R. Rogers, Jr. 700,000 600,000 100,000
140 Broadway 46th Floor
New York, New York 10005
George Garcy 50,000 50,000 0
9025 Wilshire Blvd.
Penthouse 500
Beverly Hills, CA 90211
Comtrad Industries, Inc. 489,738 489,738 0
2820 Waterford Lake Drive
Midlothian, Virginia 23112
National Financial 100,000 100,000 0
Communications Corp.
1040 Great Plain Avenue
Needham, Massachusetts 02492
- -----------------------------
Footnotes on next page.
</TABLE>
19
<PAGE>
Footnotes from preceeding pages.
(1) Each of the parties listed has sole voting and investment power for all of
the shares of common stock indicated.
(2) As required by the regulations of the SEC, the number of shares shown as
beneficially owned includes shares which can be purchased within 60 days after
July 19, 1999. The actual number of shares shown is subject to adjustment and
could be materially less or more than the estimated amount indicated depending
upon factors which we cannot predict such as the market price of the common
stock on the actual date of conversion of the debentures.
(3) Assumes the sale of all shares offered.
(4) The address of each of these selling securityholders is c/o International
Investment Group, 17 State Street, NY, NY 10004
(5) Assuming the conversion of Mr. Campbell's debentures and exercise of his
warrants, prior to the offering, and upon completion of the sale by Mr. Campbell
of the shares offered by him, Mr. Campbell owns 18.3% and 4.8%, respectively.
Registration Rights
The subscription agreements for the sale of the debentures require us
to register with the SEC the public offering of the shares of common stock
issuable on conversion of the debentures and exercise of the warrants. We are
also obligated to register and qualify the shares under such state securities
laws as the selling securityholders may request.
We are obligated to use our best efforts to cause the 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 debenture holders no longer own any
shares, whichever occurs first.
The subscription agreements for $1,050,000 principal amount of
debentures provide for liquidated damages to the debenture holders if we are
unable to have the registration statement declared effective by the SEC within
90 days from the date of sale of the debentures. The amount due in liquidated
damages is approximately $127,800 payable in cash or common stock valued at the
lower of current market value or $0.62.
20
<PAGE>
In connection with our private placement of $2,750,000 principal amount
of debentures, we issued warrants to purchase 475,000 shares of Common Stock to
the debenture holders and warrants to purchase 52,500 shares of common stock to
Spiga Ltd., our selling agent, at $0.75, all for a period of 5 years. Spiga also
purchased $100,000 principal amount of debentures.
PLAN OF DISTRIBUTION
The selling securityholders may offer the shares of common stock
received upon conversion of the debentures or exercise of the warrants at
various times in transactions:
- in the over-the-counter market;
- on any exchange where our common stock is then listed;
- with broker-dealers or third parties other than in the over-the-
counter market or on an exchange, including block sales; or
- involving a combination of such methods or other methods.
The selling securityholders may sell their shares at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, at negotiated prices, at fixed prices or at a combination of such
prices.
The selling securityholders may use dealers, agents or underwriters to
sell their shares. If this happens, the dealers, agents or underwriters may
receive compensation in the form of discounts or commissions from the selling
securityholders or from the purchasers of shares or from both. The compensation
to a particular broker may be in excess of customary compensation.
The selling securityholders and any dealers, agents or underwriters
that participate with the selling securityholders in the distribution of the
shares may be deemed to be "underwriters" as this term is defined in the
Securities Act. Any commissions paid or any discounts or concessions allowed to
any such persons, and any profits received on the resale of the shares of our
common stock offered by this prospectus, may be deemed to be underwriting
commissions or discounts under the Securities Act.
21
<PAGE>
Broker-dealers may agree with a selling securityholder to sell a
specified number of shares at a stipulated price, and, to the extent the
broker-dealer is unable to do so acting as agent for the selling securityholder,
to purchase as principal any unsold shares at the price required to fulfill the
broker-dealer's commitment to the selling securityholder. Broker-dealers who
acquire shares as principal may thereafter resell the shares in transactions on
the OTC Bulletin Board, in negotiated transactions or otherwise at market prices
prevailing at the time of sale or at negotiated prices. These transactions may
involve crosses and block transactions or sales to and through other
broker-dealers. In connection with these resales broker-dealers may pay to or
receive commissions from the purchasers of the shares.
We will pay most expenses related to the offer and sale of the shares
offered by the selling securityholders using this prospectus. The selling
securityholders, however, will pay any underwriting discounts and selling
commissions and the fees of their own attorneys.
Any shares covered by this prospectus which qualify for sale under Rule
144 of the Securities Act may be sold under that Rule rather than under this
prospectus.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our Amended Bylaws provide that we shall indemnify our directors and
officers to the fullest extent permitted by Nevada law, including circumstances
in which indemnification is otherwise discretionary under Nevada law.
In addition, American Technologies and each selling securityholder 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 may be permitted to our directors, officers and controlling persons, we 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.
22
<PAGE>
EXPERTS
Our audited 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 said reports. Reference is made to said report, which includes
an explanatory paragraph with respect to the uncertainty regarding our ability
to continue as a going concern as discussed in Note 1 to the financial
statements.
LEGAL MATTERS
For the purpose of this offering, John M. Dab, our General Counsel, is
giving his opinion on the validity of the shares.
23
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*
<TABLE>
<S> <C>
SEC Registration Fee $ 1,068.32
Accountant's Fees and Expenses $ 7,000.00
Financial Printers $ 4,500.00
Miscellaneous $ 500.00
----------
Total $13,068.32
- ------------- ==========
</TABLE>
- -------------------------
* Represents expenses relating to the distribution by the selling
securityholders under this prospectus prepared in accordance with the
requirements of Form S-3. These expenses will be borne by us on behalf of the
selling securityholders. All amounts are estimates except for the SEC
Registration Fee.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by Section 78.751 of the Nevada General Corporation Law,
Article VI of our Amended Bylaws provides for the indemnification by American
Technologies, including suits brought by or on behalf of American Technologies,
of each director, officer, employee or agent thereof to the fullest extent
permitted by Nevada law.
As permitted by the Nevada General Corporation Law and Article VI of
our Amended Bylaws, maintains director's and officer's liability for its
directors and officers against certain liabilities.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
Exhibit
Numbers Description
- ------- -----------
<S> <C>
4.1 Form of 6% Convertible Debenture issued to certain Selling
Securityholders.(1)
4.2 Form of Warrant issued to certain Selling Securityholders.(1)
4.3 Form of 3% Convertible Debenture issued to a Selling
Securityholder.(2)
24
<PAGE>
4.4 Form of Secured Convertible Debenture issued to a Selling
Securityholder.
4.5 Form Secured Redeemable Convertible Debenture issued to a Selling
Securityholder.
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(1)
</TABLE>
- ---------------------
1 Previously filed as an exhibit to the Company's Registration Statement
on Form S-3 filed with the Securities and Exchange Commission on
December 3, 1998.
2 Previously filed as an exhibit to Amendment No. 1 to the Company's
Registration Statement on Form S-3 filed with the Securities and
Exchange Commission on February 10, 1999.
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
25
<PAGE>
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.
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 20th day of
July, 1999.
AMERICAN TECHNOLOGIES GROUP, INC.
By: /s/Lawrence J. Brady
-----------------------------
Lawrence J. Brady
Chairman of the Board and
Chief Executive Officer
26
<PAGE>
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.
<TABLE>
<CAPTION>
Signature Title Date
------------ ------- ------
<S> <C> <C>
/s/Lawrence J. Brady Chairman of the Board, July 20, 1999
- -------------------- Chief Executive Officer
Lawrence J. Brady
/s/ Yan Lin Chief Financial Officer July 20, 1999
- -------------------- Treasurer (Principal
YAN LIN Financial and Accounting
Officer)
/s/ Shui Yin Lo
- --------------------- Director of Research and July 21, 1999
SHUI YIN LO Development and a Director
/s/ Charles McCarthy* Director July 20, 1999
- ---------------------
CHARLES MC CARTHY
/s/ William Odom Director July 20, 1999
- ----------------------
WILLIAM ODOM
Director
- ----------------------
Larry Pressler
Director
- -----------------------
Alan Brooks
</TABLE>
*By: /s/Lawrence J. Brady
----------------------
Lawrence J. Brady
Attorney-in-Fact
27
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Numbers Description
- ------- -----------
<S> <C>
4.1 Form of 6% Convertible Debenture issued to the Selling Securityholders.
(1)
4.2 Form of Warrant issued to the Selling Securityholders.(1)
4.3 Form of 3% Convertible Debenture issued to a Selling
Securityholders.(2)
4.4 Secured Convertible Debenture issued to a Selling Securityholder.
4.5 Form of Secured Redeemable Convertible Debenture issued to a Selling
Securityholder.
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(1)
</TABLE>
- -------------------
1 Previously filed as an exhibit to the Company's Registration Statement
on Form S-3 filed with the Securities and Exchange Commission on
December 3, 1998.
2 Previously filed as an exhibit to Amendment No. 1 to the Company's
Registration Statement on Form S-3 filed with the Securities and
Exchange Commission on February 10, 1999.
28
<PAGE>
Exhibit 4.4
AMERICAN TECHNOLOGIES GROUP, INC.
SECURED CONVERTIBLE DEBENTURE
DUE JUNE 30, 2003
Number: 1
Principal : $1,000,000
Original Issue Date: July 13, 1999
Registered Holder(s):
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 June 30, 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
8.5% per year, until such principal sum shall have become due and payable,
provided the Debenture has not been converted by the Holder pursuant to Section
5. 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 this Secured Convertible Debenture due June 30, 2003 (the "Initial
Debenture," such term includes any debentures which may be issued in exchange or
in replacement thereof).
2. TRANSFER OR EXCHANGE. Prior to due presentation to the Company for
transfer of this Initial Debenture, the Company and any agent of the Company may
treat the person in whose name this Initial 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 Initial 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;
<PAGE>
(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 INITIAL DEBENTURE.
4.1 OPTIONAL REDEMPTION OF INITIAL DEBENTURE. Subject to Section 5 and
the Company entering into an underwriting agreement with First Liberty
Securities for an underwritten offering of $4,000,000 or a comparable offering,
the Company may redeem the Initial Debenture prior to December 31, 1999, in
whole or in part up to a maximum principal amount of $400,000, upon written
notice given not less than five (5) nor more than ten (10) business days prior
to the redemption date for 135% of the principal amount of the Initial Debenture
to be redeemed, plus any accrued interest.
5. CONVERSION OF INITIAL DEBENTURE.
5.1 RIGHT TO CONVERT THE INITIAL DEBENTURE. Subject to Section 4
above, the record holder of this Initial Debenture shall be entitled, at any
time as to $600,000 of principal amount and after December 31, 1999 as to
$400,000 of principal amount at the option of the Holder, to convert this
Initial Debenture, in whole or in part, into fully-paid and non-assessable
shares of Common Stock based on a Conversion Price of $0.30 per share, provided
however if the redeemable portion of the Initial Debenture is not so redeemed,
the Conversion Price for such portion shall be $0.25 per share.
5.2 EXERCISE OF CONVERSION PRIVILEGE. In order to exercise the
conversion privilege, the Holder shall surrender such Initial 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 Initial
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 Initial
Debenture is received properly endorsed promptly by the Company, the date of
conversion of such Initial Debenture shall be deemed to be the date of receipt
of the 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 Initial Debenture is not received
properly endorsed by the fifth business day following the date the Company
receives the Notice of Conversion, the date of conversion shall be deemed to be
the date the Initial 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.
2
<PAGE>
Upon conversion of the Initial Debenture in part, the Company shall
execute and deliver to the Holder thereof, at the expense of the Company, a new
Initial Debenture, in aggregate principal amount equal to the unconverted
portion of such Initial Debenture such new Initial Debenture shall have the same
terms and provisions other than the principal amount as the Initial Debenture
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 June 30, 2003.
5.4 STOCK FULLY PAID; NOT RESTRICTED. The Company covenants and
agrees that:
(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 Initial 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 Initial 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 Initial Debenture been converted
immediately prior to the happening of such event or any record
date with respect
3
<PAGE>
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 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) In the event that after the date hereof but prior to the
conversion of the Initial Debenture, the Company issues shares of
Common Stock other than
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upon the conversion of any currently outstanding convertible
securities or upon the exercise of any currently outstanding
options or warrants (a "Dilutive Event"), then the Conversion
Price will be adjusted in accordance with the following:
Fully Diluted Outstanding Shares ("FDS") means the number of
shares of Common Stock outstanding on the date hereof plus all
shares of Common Stock issuable (i) upon the conversion of any
currently outstanding convertible security, including this
Initial Debenture, (ii) upon the exercise of any currently
outstanding option or warrants or (iii) in satisfaction of
obligations under any existing agreement to which the Company is
bound.
Holder Shares means, at any particular time, the total number of
shares of Common Stock issuable upon conversion of the Initial
Debenture, the Secured Redeemable Convertible Debenture
anticipated to be issued to Holder in the near future (the
"Second Debenture") and the $550,000 principal amount of 3%
Convertible Subordinated Debentures due December 1, 2003
(collectively, the "Debentures"), to the extent not previously
converted or redeemed.
Initial Holder Percentage is the percentage determined by
dividing the number of Holder Shares on the date hereof by FDS.
Holder Percentage is the percentage determined by dividing the
number of Holder Shares at any time by FDS.
Upon a Dilutive Event, the Conversion Price of the Initial
Debenture shall be reduced, but to not less than $0.01, so that
the number of shares issuable upon the conversion of the
Debentures, to the extent not previously converted, divided by
FDS plus the number of shares issuable upon the Dilutive Event
equals the Holder Percentage at that time. Adjustments in the
Conversion Price under this provision shall be effected in
coordination with the similar provision in the Second Debenture
to achieve the intended result, i.e. the Holder's ownership in
the Company based solely upon conversion of the Debentures is not
effected by Dilutive Events, to the extent that the Debentures
have not been converted.
(e) To the extent not covered by paragraphs (b), (c) or (d) 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
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<PAGE>
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 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,
options, 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.
(f) 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 (f)(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.
(g) 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
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<PAGE>
requiring such adjustment and the computation by which such
adjustment was made.
(h) 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 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.
(i) 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 Initial Debenture or upon the exercise of the Initial Debenture.
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<PAGE>
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 Initial 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 Initial Debenture been
converted 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 INITIAL DEBENTURE CERTIFICATES. Irrespective of any
adjustments in the Conversion Price or the number of securities convertible,
this Initial Debenture certificate or any certificates hereafter issued may
continue to express the same price and number of securities as are stated in
this Initial 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
Initial Debenture certificate that it may deem appropriate and that does not
affect the substance thereof; and any Initial Debenture certificate thereafter
issued, whether upon registration or transfer of, or in exchange or substitution
for, an outstanding Initial Debenture certificate, may be in the form so
changed.
6. INTEREST. Interest due hereunder shall be payable in cash monthly
on the last day of each month commencing on August 31, 1999.
7. REGISTRATION RIGHTS. The Company shall amend its Registration
Statement on Form S-3 (the "Registration Statement") currently on file with the
Securities and Exchange Commission (the "Commission") to cover the resale of the
shares of Common Stock issuable upon conversion of the Initial Debenture and
will cause such registration statement to be declared effective on or before
October 1, 1999. 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).
8. 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
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shall make a cash payment therefor equal in amount to the product of the
applicable fraction multiplied by the Conversion Price then in effect.
9. SECURITY INTEREST. As security for the obligations of the Company
hereunder and the obligations which may arise under the Second Debenture, the
Company hereby grants the Holder a first security interest in and to all of the
Company's intellectual property related to its IE(-TM-) technology and
applications thereof, including such as is embodied in the patents and patent
applications set forth on Exhibit 2, attached hereto and incorporated herein as
though set forth in full, and represented by the trademarks set forth on Exhibit
3, attached hereto and incorporated herein as though set forth in full, all as
contained in the UCC-1 Financing Statement attached hereto as Exhibit 4. The
Company shall file the Financing Statement with the California Secretary of
State as soon as practical after the date hereof and the Company shall further
perform all acts and execute all documents in form suitable for filing with the
United States Paten and Trademark Office or any similar office or agency of the
United States or any State thereof, or any country, as are reasonably necessary
to evidence, perfect, maintain, record and enforce the security interest granted
herein and evidenced by the Patent and Trademark Security Agreement by and
between the Company and the Holder, dated July 13, 1999. As further security,
the Company hereby grants the Holder in the real property located at 1009, 1013
and 1017 South Mountain Avenue, Monrovia California (collectively, the
"Property"), subject to the existing security interests thereon, except as
hereinafter provided. Said security interest shall be implemented through a deed
of trust in favor of the Holder recorded on the Property which shall be recorded
as soon as practical after the date hereof. The existing junior deed of trust in
the amount of $135,000 shall be subordinated to the deed of trust referred to
hereinabove. In addition to the foregoing junior deed of trust, there is a first
deed of trust on the property in the amount of $877,500 and a judgment lien in
the amount of approximately $40,000. The Company agrees that it will not sell
any of the foregoing collateral without the prior written consent of the Holder
and that, upon any such approved sale, the net proceeds shall be paid to Holder
as a full or partial redemption, as applicable, of either this Initial Debenture
or of the Second Debenture, as directed by the Holder and the Holder shall no
longer have a security interest to the extent of such proceeds.
10. REPLACEMENT OF INITIAL DEBENTURE CERTIFICATE. Upon receipt of
evidence satisfactory to the Company of the certificate loss, theft, destruction
or mutilation of the Initial 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 Initial
Debenture certificate, of like tenor, in lieu of such lost, stolen, destroyed or
mutilated Initial Debenture certificate.
11. COVENANTS OF THE COMPANY. So long as the Initial Debenture
remain outstanding, the Company shall not, without the consent of the holder
hereof, which consent will not be unreasonably withheld:
9
<PAGE>
(a) At all times keep reserved the total number of shares of Common
Stock necessary for the conversion of all of the then outstanding
Initial 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; and
(c) 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.
12. DEFAULT. If any of the following events (herein called "Events of
Default") shall occur:
(a) if the Company shall make an assignment for the benefit of
creditors or shall be unable to pay its debts as they become due;
(b) 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;
(c) if the Company shall default in the performance of or compliance
with any agreement, condition or term contained in this Initial
Debenture and such default shall not have been cured within 30
days after such default,
(d) 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 Initial Debenture or the Subscription
Agreement shall be false or misleading in any material respect at
the time made;
10
<PAGE>
(e) 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;
(f) The Company shall have its Common Stock suspended from an
exchange or over-the-counter market,
(g) The Company shall fail to make an interest payment when due, or
(h) The Company fails to cause the Registration Statement to be
declared effective on or before October 1, 1999,
then and in any such event the Holder of this Initial Debenture shall have the
option (unless the default shall have theretofore been cured) by written notice
to the Company to (i) convert the Initial Debenture or (ii) declare the Initial
Debenture to be due and payable in full in the amount of 120% of its face value,
whereupon the Initial Debenture shall forthwith mature and become due and
payable without presentment, demand, protest or further notice of any kind, all
of which are hereby expressly waived, anything contained in this Initial
Debenture to the contrary notwithstanding. Upon the occurrence of an Event of
Default, the Company shall promptly notify the Holder of this Initial Debenture
in writing setting out the nature of the default in reasonable detail.
13. REMEDIES ON DEFAULT. In case any one or more of the Events of
Default shall occur, the Holder may proceed to protect and enforce his 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.
14. CHANGES, WAIVERS. ETC. Neither this Initial 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.
15. ENTIRE AGREEMENT. This Initial 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.
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<PAGE>
(a) It is the intention of the parties that the laws of the State of
California govern the validity of this Initial 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 Initial Debenture, the same shall be
submitted to arbitration before a panel of three arbitrators in
Chattanooga, Tennessee, 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 Chattanooga, Tennessee 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.
(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 Initial 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.
By:
--------------------------
Lawrence Brady, CEO
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ATTEST:
By
----------------------------
John M. Dab, Secretary
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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.
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Exhibit 4.5
AMERICAN TECHNOLOGIES GROUP, INC.
SECURED REDEEMABLE CONVERTIBLE DEBENTURE
DUE DECEMBER 31, 2003
Number: 1
Principal : $500,000
Original Issue Date: ________, 1999
Registered Holder(s):
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 December 31, 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 prime rate of interest as reported on the date hereof in the Wall Street
Journal plus 1/2% per year, until such principal sum shall have become due and
payable, provided the Debenture has not been converted by the Holder pursuant to
Section 5. 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 this Secured Convertible Redeemable Debentures due December 31, 2003
(the "Second Debenture," such term includes any debentures which may be issued
in exchange or in replacement thereof).
2. TRANSFER OR EXCHANGE. Prior to due presentation to the Company for
transfer of this Second Debenture, the Company and any agent of the Company may
treat the person in whose name this Second 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 Second 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:
<PAGE>
(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 SECOND DEBENTURE.
4.1 OPTIONAL REDEMPTION OF SECOND DEBENTURE. Subject to Section 5
and the Company entering into a underwriting agreement with First
Liberty Securities for an underwritten offering of $4,000,000 or
a comparable offering, the Company may redeem the Second
Debenture prior to December 31, 1999, in whole or in part, upon
written notice given not less than five (5) nor more than ten
(10) business days prior to the redemption date for 135% of the
principal amount of the Second Debenture to be redeemed, plus any
accrued interest.
5. CONVERSION OF SECOND DEBENTURE.
5.1 RIGHT TO CONVERT THE SECOND DEBENTURE. Subject to Section 4
above, the record holder of this Second Debenture shall be entitled, at any time
after December 31, 1999, to convert this Second Debenture, in whole or in part,
into fully-paid and non-assessable shares of Common Stock based at a Conversion
Price of $0.25 per share.
5.2 EXERCISE OF CONVERSION PRIVILEGE. In order to exercise the
conversion privilege, the Holder shall surrender such Second 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 Second 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 Second Debenture is
received properly endorsed promptly by the Company, the date of conversion of
such Second Debenture shall be deemed to be the date of receipt of the 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 Second Debenture is not received properly endorsed by
the fifth business day following the date the Company receives the Notice of
Conversion, the date of conversion shall be deemed to be the date the Second
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.
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Upon conversion of the Second Debenture in part, the Company shall
execute and deliver to the Holder thereof, at the expense of the Company, a new
Second Debenture, in aggregate principal amount equal to the unconverted portion
of such Second Debenture such new Second Debenture shall have the same terms and
provisions other than the principal amount as the Second Debenture 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 December 31, 2003.
5.4 STOCK FULLY PAID; NOT RESTRICTED. The Company covenants and
agrees that:
(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 Second Debenture will cause the holder immediate irreparable
harm.
5.5 ANTIDILUTION PROVISIONS. The following provisions apply to the
Second 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 Second 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 Second Debenture been converted immediately prior
to the happening of such event or any record date with respect
thereto. Any adjustment made pursuant to
3
<PAGE>
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 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) In the event that after the date hereof but prior to the
conversion of the Second Debenture, the Company issues shares of
Common Stock other than upon the conversion of any currently
outstanding convertible securities or upon the exercise of any
currently outstanding options or warrants (a
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<PAGE>
"Dilutive Event"), then the Conversion Price will be adjusted in
accordance with the following:
Fully Diluted Outstanding Shares ("FDS") means the number of
shares of Common Stock outstanding on the date hereof plus all
shares of Common Stock issuable (i) upon the conversion of any
currently outstanding convertible security, including this Second
Debenture, (ii) upon the exercise of any currently outstanding
option or warrants or (iii) in satisfaction of obligations under
any existing agreement to which the Company is bound.
Holder Shares means, at any particular time, the total number of
shares of Common Stock issuable upon conversion of the Secured
Convertible Debenture issued on July 13, 1999 (the "Initial
Debenture,") the Second Debenture and the $550,000 principal
amount of 3% Convertible Subordinated Debentures due December 1,
2003 (collectively, the "Debentures"), to the extent not
previously converted or redeemed.
Initial Holder Percentage is the percentage determined by
dividing the number of Holder Shares on the date hereof by FDS.
Holder Percentage is the percentage determined by dividing the
number of Holder Shares at any time by FDS.
Upon a Dilutive Event, the Conversion Price of the Second
Debenture shall be reduced, but to not less than $0.01, so that
the number of shares issuable upon the conversion of the
Debentures, to the extent not previously converted, divided by
FDS plus the number of shares issuable upon the Dilutive Event
equals the Holder Percentage at that time. Adjustments in the
Conversion Price under this provision shall be effected in
coordination with the similar provision in the Initial Debenture
to achieve the intended result, i.e. the Holder's ownership in
the Company based solely upon conversion of the Debentures is not
effected by Dilutive Events, to the extent that the Debentures
have not been converted.
(e) To the extent not covered by paragraphs (b), (c) or (d) 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
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<PAGE>
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 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,options, 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.
(f) 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(f)(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.
(g) 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.
(h) For the purpose of this Section 5.5, the following shall apply:
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(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 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.
(i) 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 Second Debenture or upon the exercise of the Second 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
7
<PAGE>
payment of the Conversion Price in effect immediately prior to such action to
purchase upon conversion of the Second 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 Second Debenture been converted 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 SECOND DEBENTURE CERTIFICATES. Irrespective of any
adjustments in the Conversion Price or the number of securities convertible,
this Second Debenture certificate or any certificates hereafter issued may
continue to express the same price and number of securities as are stated in
this Second 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
Second Debenture certificate that it may deem appropriate and that does not
affect the substance thereof; and any Second Debenture certificate thereafter
issued, whether upon registration or transfer of, or in exchange or substitution
for, an outstanding Second Debenture certificate, may be in the form so changed.
6. INTEREST. Interest due hereunder shall be payable monthly in cash
commencing on the last day of the month following the month during which this
Debenture is issued.
7. INCIDENTAL REGISTRATION RIGHTS. If the Company at any time proposes
to file on its behalf or on behalf of any of its security holders a registration
statement covering shares of Common Stock under the Securities Act of 1933, as
amended (the "Securities Act"), on any form (other than a registration statement
on Form S-4 or S-8 or any successor form unless such forms are being used in
lieu of or as the functional equivalent of, registration rights), it will give
written notice setting forth the terms of the proposed offering and such other
information as the Holder may reasonably request at least thirty (30) days
before the initial filing with the Securities and Exchange Commission
("Commission") of such registration statement, and offer to include in such
filing the shares of Common Stock issuable upon conversion of the Second
Debenture as the Holder may request. If the Holder desires to have such shares
registered under this Section 7, the Holder will advise the Company in writing
within thirty (30) days after the date of receipt of such notice from the
Company, setting forth the amount of such shares for which registration is
requested. The Company will thereupon include in such filing such number of
shares for which registration is so requested, and will use its best efforts to
effect registration under the Securities Act of such shares.
Notwithstanding the foregoing, if the managing underwriter or underwriters,
if any, of such offering deliver a written opinion to the Holder that the
success of the offering would be materially
8
<PAGE>
and adversely affected by the inclusion of such shares requested to be included,
then the amount of securities to be offered for the accounts of the Holder will
be reduced pro rata to the extent necessary to reduce the total amount of
securities to be included in such offering to the amount recommended by such
managing underwriter or underwriters; PROVIDED, HOWEVER, that if securities are
being offered for the account of other persons as well as the Company, then with
respect to the shares intended to be offered by the Holder, the proportion by
which the amount of such class of securities intended to be offered by the
Holder is reduced will not exceed the proportion by which the amount of such
class of securities intended to be offered by such other persons (other than the
Company) is reduced.
8. 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.
9. SECURITY INTEREST. As security for the obligations of the Company
hereunder and the obligations under the Initial Debenture, the Company hereby
grants the Holder a first security interest in and to all of the Company's
intellectual property related to its IE-TM- technology and applications thereof,
including such as is embodied in the patents and patent applications set forth
on Exhibit 2, attached hereto and incorporated herein as though set forth in
full, and represented by the trademarks set forth on Exhibit 3, attached hereto
and incorporated herein as though set forth in full, all as contained in the
UCC-1 Financing Statement attached hereto as Exhibit 4. The Company shall file
the Financing Statement with the California Secretary of State as soon as
practical after the date hereof and the Company shall further perform all acts
and execute all documents in form suitable for filing with the United States
Paten and Trademark Office or any similar office or agency of the United States
or any State thereof, or any country, as are reasonably necessary to evidence,
perfect, maintain, record and enforce the security interest granted herein and
evidenced by the Patent and Trademark Security Agreement by and between the
Company and the Holder, dated July 13, 1999. As further security, the Company
hereby grants the Holder in the real property located at 1009, 1013 and 1017
South Mountain Avenue, Monrovia California (collectively, the "Property"),
subject to the existing security interests thereon, except as hereinafter
provided. Said security interest shall be implemented through a deed of trust
in favor of the Holder recorded on the Property which shall be recorded as soon
as practical after the date hereof. The existing junior deed of trust in the
amount of $135,000 shall be subordinated to the deed of trust referred to
hereinabove. In addition to the foregoing junior deed of trust, there is a
first deed of trust on the property in the amount of $877,500 and a judgment
lien in the amount of approximately $40,000. The Company agrees that it will
not sell any of the foregoing collateral without the prior written consent of
the Holder and that, upon any such approved sale, the net proceeds shall be paid
to Holder as a full or partial redemption, as applicable, of either this Initial
Debenture or of the Second Debenture, as directed by the Holder and the Holder
shall no longer have a security interest to the extent of such proceeds.
10. REPLACEMENT OF SECOND DEBENTURE CERTIFICATE. Upon receipt of evidence
satisfactory to the Company of the certificate loss, theft, destruction or
mutilation of the Second Debenture certificate and, in the case of any such
loss, theft or destruction, upon delivery of a bond of
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<PAGE>
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 Second Debenture certificate, of like tenor, in lieu of such lost,
stolen, destroyed or mutilated Second Debenture certificate.
11. COVENANTS OF THE COMPANY. So long as the Second Debenture 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
Second 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; and
(c) 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.
12. DEFAULT. If any of the following events (herein called "Events of
Default") shall occur:
(a) if the Company shall make an assignment for the benefit of
creditors or shall be unable to pay its debts as they become due;
(b) 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;
(c) if the Company shall default in the performance of or compliance
with any agreement, condition or term contained in this Second
Debenture and such default shall not have been cured within 30
days after such default,
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(d) 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 Second Debenture or the Subscription
Agreement shall be false or misleading in any material respect at
the time made;
(e) 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;
(f) The Company shall have its Common Stock suspended from an
exchange or over-the-counter market; or
(g) The Company shall fail to make an interest payment when due,
then and in any such event the Holder of this Second Debenture shall have the
option (unless the default shall have theretofore been cured) by written notice
to the Company to (i) convert the Second Debenture or (ii) declare the Second
Debenture to be due and payable in full in the amount of 120% of its face value,
whereupon the Second Debenture shall forthwith mature and become due and payable
without presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived, anything contained in this Second Debenture to the
contrary notwithstanding. Upon the occurrence of an Event of Default, the
Company shall promptly notify the Holder of this Second Debenture in writing
setting out the nature of the default in reasonable detail.
13. REMEDIES ON DEFAULT. In case any one or more of the Events of Default
shall occur, the Holder may proceed to protect and enforce his 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.
14. CHANGES, WAIVERS. ETC. Neither this Second 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.
15. ENTIRE AGREEMENT. This Second 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.
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(a) It is the intention of the parties that the laws of the State of
California govern the validity of this Second 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 Second Debenture, the same shall be
submitted to arbitration before a panel of three arbitrators in
Chattanooga, Tennessee, 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 Chattanooga, Tennessee 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.
(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 Second 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.
By:
------------------------------
Lawrence Brady, CEO
ATTEST:
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By
-----------------------
John M. Dab, Secretary
13
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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.
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EXHIBIT 5.1
July 21, 1999
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 July 21, 1999 intended to register 4,820,262 shares of
the common stock of the Company issuable upon the conversion of $2,750,000
principal amount of its convertible debentures, 527,500 shares of common
stock of the Company issuable upon the exercise of its common stock purchase
warrants and an additional 1,939,738 shares of common stock (collectively, 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
July 20, 1999
