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As filed with the Securities and Exchange Commission on February 4, 2000
Registration No. __________
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
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.[ ]
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
========================================= ===================== =============== ================ ================
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) 3,260,870 shares $0.43 $ 1,402,174 $ 370.17
========================================= ===================== =============== ================ ================
Common Stock, $0.001 par value 50,000 shares $0.43 $ 21,500 $ 5.68
========================================= ===================== =============== ================ ================
Common Stock, $0.001 par value (3) 1,650,000 shares $0.43 $ 709,500 $ 187.31
========================================= ===================== =============== ================ ================
Total 4,960,870 shares $ 2,133,174 $ 563.16
- ----------------------------------------- --------------------- --------------- ---------------- ----------------
</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 various convertible debentures. This is not
intended to constitute a prediction as to the number of shares of common stock
into which the convertible 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 or similar transactions.
(3) Issuable upon exercise of warrants to purchase shares of common stock.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
securities act of 1933 or until the registration statement shall become
effective on such date as the commission, acting pursuant to said section 8(a),
may determine.
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SUBJECT TO COMPLETION; DATED FEBRUARY 4, 2000
PROSPECTUS
4,960,870 SHARES OF COMMON STOCK
AMERICAN TECHNOLOGIES GROUP INC.
The 4,960,870 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 19. We will not receive
any of the proceeds from this offering.
Our common stock is quoted on the OTC Bulletin Board under the symbol
"ATEG." On February 2, 2000, the closing sale price of the common stock on the
OTC Bulletin Board was $0.42.
INVESTING IN OUR COMMON STOCK INVOLVES SUBSTANTIAL RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE 8.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED
UPON THE ADEQUACY OR ACCURACY OF THE PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is February 4, 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
ABOUT American Technologies ...................................................................................4
Business Summary .........................................................................................4
Current Financing ........................................................................................6
Proposed Merger with Commodore Separation Technologies Inc ...............................................7
RISK FACTORS ..................................................................................................8
Financial Risk Factors ........................................................................................8
We have a History of Losses Which Will Continue Through
the End of the Current Fiscal Year ...................................................................8
We have Experienced Substantial Difficulty Generating Sufficient Working
Capital ..............................................................................................8
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 ..................................9
Lack of Listing on a Major Exchange May Make It Difficult for Investors to
Dispose of Our Common Stock .........................................................................10
Because Our Common Stock is a "Penny Stock," Trading in it is Subject to
the Penny Stock Rules Which Could Affect Your Ability to Resell the
Stock in the Market .................................................................................10
Business Risk Factors ........................................................................................11
We May Not Find Customers for Our Products ..............................................................11
There May Be Unforeseen Regulatory Requirements which Impede the Marketing
and Sale of Our Products ............................................................................11
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 ..........................................................................14
FORWARD-LOOKING STATEMENTS ...................................................................................15
</TABLE>
2
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<TABLE>
<S> <C>
DESCRIPTION OF COMMON STOCK ..................................................................................15
USE OF PROCEEDS FROM SALE OF COMMON STOCK ....................................................................16
USE OF PROCEEDS FROM SALE OF DEBENTURES ......................................................................16
USE OF PROCEEDS FROM EXERCISE OF WARRANTS ....................................................................16
SELLING SECURITYHOLDERS ......................................................................................16
PLAN OF DISTRIBUTION .........................................................................................19
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES ...............................................................20
EXPERTS ......................................................................................................21
LEGAL MATTERS ................................................................................................21
</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- (Catalyst) Technology
- Water Purification
- Particle Beams
Our IE (Catalyst) 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.
Independent researchers observe these water clusters by different
standard research tools including:
- Laser autocorrelation
- Electron microscope
- Atomic force microscope
- UV spectroscopy
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American Technologies sells these water solutions for use in several
product lines including household cleaning products. We also use them in our
combustion enhancers.
Our laboratory results on various applications of our IE (Catalyst)
Technology to combustion have been confirmed by independent tests conducted by a
variety of potential customers. These tests include positive results in a gas
turbine electric generation power plant, successful testing by a foreign company
of the combustion catalyst with ethanol directly into gasoline, and positive
results over five months of testing at a diesel electric power generation
facility in China.
During the fiscal year ended July 31, 1999, revenue from the sale of
these water solutions for use in products manufactured by others was nominal
and revenue from the sale of The Force-Registered Trademark- combustion
enhancer was $248,000. During the same period, American Technologies had
incurred net losses of approximately $10.8 million.
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 the spring of 2000. Our vacuum distiller utilizes a
proprietary method to provide the principal advantage of vacuum distillers -
boiling water at low temperatures which avoids mineral deposits and scaling -
without the need for expensive and noisy vacuum pumps. We are currently
soliciting bids for the manufacturing of the distiller.
The third technology is the particle beam project which produces a beam
of heavy particles. 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 $6,000,000 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
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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 or precision cutting of metals without distortion or excessive
heat. No evidence exists to substantiate these potential applications.
Current Financing
On January 14, 2000 we entered into a Securities Purchase Agreement
with two private investors, Bank Insinger De Beaufort N.V. and Connaught Global
Ltd., for the purchase of a total of $250,000 principal amount of convertible
debentures and warrants to purchase a total of 500,000 shares of our common
stock. The convertible debentures bear interest at the rate of seven percent per
year and are due on January 14, 2003. The debentures are convertible into common
stock at the lower of $0.23 per share and a Variable Conversion Price as
described on page 17 under the caption "Selling Securityholders - Variable
Conversion Price." The warrants are exercisable at the lower of $0.174 per share
and the Variable Conversion Price. We are obligated to register with the SEC
prior to April 13, 2000, 1.5 times the number of shares of common stock issuable
on conversion of the debentures and exercise of the warrants. If the
registration statement is not declared effective by the SEC within the required
period, we must make payments to the debenture holders at the rate of 2% of the
principal amount of the debentures per month.
Provided the trading price of our common stock is at least $0.15 during
the ten trading days prior to the effective date of the registration statement
of which this prospectus forms a part, the investors are each required to
purchase for $125,000 an additional $125,000 principal amount of debentures and
a warrant to purchase 250,000 shares of common stock, for an aggregate of
$250,000 in debentures and warrants to purchase 500,000 shares of common stock.
These additional debentures are convertible into common stock at the lower of
$0.345 per share and a variable conversion price. The additional warrants are
exercisable at the lower of (i) the average of the lowest three trading prices
during the ten trading days immediately prior to the date of exercise and (ii)
the lower of $0.23 and the average of the lowest three trading prices during the
ten trading days immediately prior to the date of issuance of the additional
warrants.
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Bristol Capital LLC acted as a finder for the sale of the $500,000
principal amount of debentures and the warrants. Bristol was paid a 10% cash
finder's fee and issued a warrant to purchase 50,000 shares of common stock.
Upon the payment for the second $250,000 principal amount of debentures
Bristol will receive an additional 10% cash fee and a warrant to purchase
50,000 shares of common stock. The 10% finder's fee also applies to any
proceeds received by American Technologies upon the exercise of warrants by
the selling securityholders. The terms of Bristol's warrants are the same as
the terms for the warrants issued to the investors at the same time.
We have also entered into a letter of intent with Bristol for the
establishment of a $12 million equity line of credit. The recent sale of the
debentures and the equity line of credit have replaced the prior financing
arrangements with First Liberty Securities, Ltd. and Security Capital Trading
Inc.
Proposed Merger with Commodore Separation Technologies Inc.
In February, 1999, we signed a letter of intent which contains terms
for our acquisition of Commodore Separation 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 discussed terms of the agreement, American
Technologies will acquire all of securities of Commodore Separation Technologies
(approximately 87%) owned by Commodore Environmental Services Inc. in exchange
for 8% of the outstanding stock of the Company up to a value of $3,000,000.
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RISK FACTORS
You should carefully consider the risks described below before making
an investment decision. The risks and uncertainties described below are the only
material risks facing us of which we are currently aware. Additional risks and
uncertainties not presently known to us or that we currently deem immaterial may
also impair our business operations.
If any of the following risks actually occur, our business, financial
condition or results of operations could be materially adversely affected. In
such case, the trading price of our common stock could decline, and you may lose
all or part of your investment.
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
three months ended October 31, 1999 were approximately 1.8 million and for the
fiscal year ended July 31, 1999 were approximately $10.8 million. Net losses for
the fiscal year ended July 31, 1998 were approximately $9.44 million. At October
31, 1999 we had an accumulated deficit of approximately $49 million.
Net cash used in operations declined by over $1.1 million from fiscal
1998 to fiscal 1999. We anticipate that we will be able to continue our reduced
cash out flow during fiscal 2000, except to the extent of expenses associated
with marketing and production of products. 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 our Form 10-KSB.
WE HAVE EXPERIENCED SUBSTANTIAL DIFFICULTY GENERATING SUFFICIENT WORKING CAPITAL
American Technologies has been experiencing difficulty in maintaining
sufficient working capital needed to ensure stability and continued existence.
Only a small portion of the capital expended to date has come from actual
revenue
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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 to accomplish this end, there can be no
guarantee that these plans will prove to be successful.
Our current cash monthly operating expenses are approximately $250,000.
We believe our current cash reserves plus the $250,000 due upon the
effectiveness of the registration statement of which this prospectus forms a
part, the $12 million equity line of credit to be obtained pursuant to a letter
of intent dated December 10, 1999, along with anticipated minimum projected
revenues of $2,000,000 for fiscal 2000, will be sufficient for us to operate in
the normal course for the next 12 months. However, if revenues are less than
projected or the equity line of credit is not finalized, our ability to continue
operations will be dependent upon additional financing activities, of which
there can be no assurance.
The report by Corbin & Wertz on our financial statements for the
fiscal year ended July 31, 1999 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.
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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 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 18 firms making a market in our common stock,
although there can be no assurance that any or all of them will continue to do
so in the future. The current market makers are:
M. H. Meyerson & Co., Inc. Knight Securities, L.P.
Wm. V. Frankel & Co., Incorporated Sharpe Capital, Inc.
Speer, Leeds & Kellogg Capital Markets Olsen Payne & Company
Hill Thompson Magid & Co. Inc. Wien Securities Corp.
Herzog, Heine, Geduld, Inc. Wilson-Davis & Co., Inc.
Phillip Louis Trading Co. Mayer & Schweitzer, Inc.
North American Institutional Brokers GVR Company
South Beach Securities Paragon Capital Corp.
Pacific Continental Securities Corp.
USCC Trading, a Division of Fleet Securities
BECAUSE OUR COMMON STOCK IS A "PENNY STOCK," TRADING IN IT IS SUBJECT TO THE
PENNY STOCK RULES WHICH COULD AFFECT YOUR ABILITY TO RESELL THE STOCK IN THE
MARKET.
The Securities Enforcement and Penny Stock Reform Act of 1990 imposes
restrictions when making trades in any stock such as our common stock which is
defined as a "penny stock." The SEC's regulations generally define a penny stock
as an equity security that has a price of less than $5.00 per share, other than
securities which are traded on markets such as the New York Stock Exchange, the
American Stock Exchange or the Nasdaq Stock Market. As a result of being a penny
stock, the market liquidity for our common stock may be adversely affected since
the regulations on penny stocks could limit the ability of broker-dealers to
sell our common stock and thus your ability to sell
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our common stock in the secondary market. The regulations restricting trades in
penny stock include:
- a requirement that stock brokers deliver to their customers, prior to
any transaction involving a penny stock, a disclosure schedule explaining the
penny stock market and the risks associated with the penny stock market; and
- a requirement that broker-dealers who recommend penny stocks to
persons other than their established customers and a limited class of accredited
investors must make a special written suitability determination for the
purchaser and receive the purchaser's written agreement to the transaction prior
to the sale of the securities.
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.
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
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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 in the United States. Extensive testing is required to meet these
industry regulations prior to domestic sale of the additive and there is no
guarantee that our bulk additive products can meet all of these industry
regulations.
Foreign markets have only recently begun to impose significant regulations on
the petroleum industry to lessen the industry's effect on the environment. With
less testing required for the sale of new products, we are able to introduce our
products in the market place quicker. We are therefore directing a substantial
marketing effort towards these foreign markets.
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 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 catalyst 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 Catalyst 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.
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- Vacuum Distiller
We have been granted 1 U.S. patent on the vacuum distiller technology
and there are 2 U.S. patent applications pending. Foreign applications
to protect the technology are also in process.
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.
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document we file at
the SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available to the public
from our web site at www.ateg.com or at the SEC's web site at www.sec.gov.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and later information that we file
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings made
with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Securities
Exchange Act of 1934 until the selling securityholders sell all the shares. This
prospectus is part of a registration statement we filed with the SEC
(Registration No. 333-____).
The following documents are hereby incorporated by reference in this
Registration Statement:
- - Annual Report on Form 10-KSB for the year ended July 31, 1999.
- - Quarterly Report on Form 10-QSB for the three months ended October 31, 1999.
- - Current Report on Form 8-K dated August 30, 1999.
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.
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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.
DESCRIPTION OF COMMON STOCK
We have 100,000,000 shares of common stock authorized of which
36,884,178 shares are outstanding as of February 1, 2000. The holders of shares
of common stock are entitled to dividends when and as declared by the Board of
Directors from funds legally available therefore, and, upon liquidation, are
entitled to share pro rata in any distribution to holders of common stock. There
are no preemptive, conversion or redemption privileges, nor sinking fund
provisions with respect to the common stock, however, our Articles of
Incorporation, as amended, provide that "Each shareholder shall have the same
rights as any individual to purchase said stock [shares of Common Stock], but
shall not have any pre-emptive rights as that term is defined under NRS 78.265."
All of the outstanding shares of common stock are duly authorized, validly
issued, fully paid and non-assessable. Under Nevada law, the law of the state of
incorporation of American Technologies, and the our Articles of Incorporation,
each holder of a share of common stock is entitled to one vote for each matter
submitted for a vote. Additionally, under Nevada law cumulative voting is
allowed for the election of directors, if provided for in the Articles of
Incorporation. The our Articles of Incorporation do not provide for cumulative
voting. However, California law requires companies meeting certain requirements,
which we meet, to permit shareholders to elect to cumulate their votes for
directors.
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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
To date, we have received $250,000 from the sale of the debentures and
within 15 days of the effected date of the registration statement we will
receive an additional $250,000.
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 for which the underlying shares of common stock
are included in this prospectus are exercised, we will receive a maximum of
$299,970 in net proceeds. 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 securityholders 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>
Bank Insinger De Beaufort N.V. $ 250,000 500,000
Connaught Global Ltd. $ 250,000 500,000
Bristol Capitol LLC - 100,000
</TABLE>
In addition to the above selling debenture holders, MacCaughern Trade
Development is offering 50,000 shares of common stock.
16
<PAGE>
Conversion of Debentures and Exercise of Warrants
The above identified selling securityholders may convert or exchange
their debentures for shares of our common stock by giving written notice to us.
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 $0.23 as to $250,000 principal amount of debentures and a
maximum conversion price of $0.345 for the second $250,000 principal amount of
debentures. There is no minimum conversion price. The warrants as to 550,000
shares of common stock are exercisable at the lower of $0.174 per share and the
Variable Conversion Price. Warrants as to the remaining 550,000 shares of common
stock are exercisable at the lower of (i) the average of the lowest three
trading prices during the ten trading days immediately prior to the date of
exercise and (ii) the lower of $0.23 and the average of the lowest three trading
prices during the ten trading days immediately prior to the date the
registration statement is declared effective.
Variable Conversion Price
The Variable Conversion Price is the lesser of
- The maximum applicable fixed conversion or exercise price; or
- 72.5% of the average of the lowest three trading prices during the
ten trading days immediately prior to conversion of the debentures or
exercise of the warrants.
Estimate of Shares Issuable Upon Conversion
If the $500,000 principal amount of debentures were converted on
February 3, 2000, the variable conversion price would be in excess of the
maximum fixed conversion price and the total number of shares of common stock
issued would be 2,173,913. This does not include any shares of common stock
issuable as interest due on the debentures. The debentures bear interest at 7%
per annum.
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 the date hereof, and the number of shares which may be
offered for resale under this prospectus. The number of shares set forth in the
table represents an estimate of the number of shares of common stock to be
offered by the selling securityholder. The actual number of shares of common
stock issuable upon conversion
17
<PAGE>
of the debentures and exercise of the warrants is indeterminate, is subject to
adjustment and could be materially different than such estimated number
depending on factors which cannot be predicted by us at this time, including
among other factors the future market price of the common stock.
The information included in the table below 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>
Bank Insinger 2,380,435 2,380,435 0
De Beaufort N.V.
Herengtecht 551
1017 BW Amsterdam
Connaught Global Ltd. 2,380,435 2,380,435 0
Westaway Chambers
39 Don Street
St. Helier
Jersey JE4 8UA
Channel Islands
Bristol Capitol LLC. 150,000 150,000 0
11777 San Vicente Bd., #702
Los Angeles, CA 90049
MacCaughern Trade Development 97,000 50,000 47,000
19401 Wunder Trail
TRABUCO CANYON, CA 92679
</TABLE>
(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. 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 trading price of the common stock on or about the
actual date of conversion of the debentures.
(3) Assumes the sale of all shares offered.
18
<PAGE>
Registration Rights
In connection with the sale of the debentures and the warrants, we
entered into a registration rights agreement which requires us to register with
the SEC 1.5 times the number of 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 selling securityholders no longer own any
shares, whichever occurs first.
The registration rights agreement provides for certain payments 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.
PLAN OF DISTRIBUTION
The selling securityholders and their pledgees, donees, transferees and
other successors in interest may offer the shares of common stock received upon
conversion of the debentures or exercise of the warrants at various times in one
or more of the following 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;
- through the writing of options or short 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 such other prices as the
selling securityholders determine from time to time.
19
<PAGE>
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.
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.
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 bylaws, as amended, 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.
20
<PAGE>
EXPERTS
Our audited financial statements as of and for the year ended July 31, 1999
incorporated by reference in this prospectus and elsewhere in this registration
statement have been audited by Corbin & Wertz, 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.
Our audited financial statements as of and for the year ended July 31, 1998
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 report. 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.
21
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*
<TABLE>
<S> <C>
SEC Registration Fee $ 563.16
Accountant's Fees and Expenses $ 6,000.00
Financial Printers $ 2,500.00
Miscellaneous $ 200.00
----------
Total $ 9,263.16
==========
</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.
22
<PAGE>
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION
- ------- -----------
<S> <C>
4.1 Form of Convertible Debenture.
4.2 Form of Warrant.
4.3 Securities Purchase Agreement dated January 14, 2000 between the Registrant and Bank
Insinger De Beaufort N.V. and Connaught Global Ltd.
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.
23.3 Consent of Corbin & Wertz.
24.1 Power of Attorney (included on page 25)
</TABLE>
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement to include any
material information with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change to such
information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act (and, where
23
<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 2nd day of
February, 2000.
AMERICAN TECHNOLOGIES GROUP, INC.
By:/s/ Lawrence J. Brady
---------------------
Lawrence J. Brady
Chairman of the Board and
Chief Executive Officer
24
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints, jointly and severally, Lawrence J. Brady
and Charles McCarthy, and each one of them, individually and without the other,
his attorney-in-fact, each with full power of substitution, for him in any and
all capacities, to sign any and all amendments to this Registration Statement on
From S-3, and to file the same, with the exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Lawrence J. Brady Chairman of the Board, February 2, 2000
- --------------------- Chief Executive Officer
LAWRENCE J. BRADY
/s/ Yan Lin Acting Chief Financial February 2, 2000
- ----------- Officer and Treasurer
YAN LIN (Principal Financial and
Accounting Officer)
/s/ Shui Yin Lo Director of Research and February 2, 2000
- --------------- Development and a Director
SHUI YIN LO
/s/ Charles Mccarthy Director February 2, 2000
- --------------------
CHARLES MC CARTHY
/s/ William Odom Director February 2, 2000
- ----------------
WILLIAM ODOM
/s/ Larry Pressler Director February 2, 2000
- ------------------
LARRY PRESSLER
Director , 2000
- ---------------
ALAN BROOKS
Director , 2000
- ----------------
JAMES HENNEN
/s/ Lawrence Schad Director February 2, 2000
- ------------------
LAWRENCE SCHAD
</TABLE>
25
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION
- ------- -----------
<S> <C>
4.1 Form of Convertible Debenture.
4.2 Form of Warrant.
4.3 Securities Purchase Agreement dated January 14, 2000
between the Registrant and Bank Insinger De Beaufort
N.V. and Connaught Global Ltd.
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.
23.3 Consent of Corbin & Wertz.
24.1 Power of Attorney (included on page 25)
</TABLE>
26
<PAGE>
Exhibit 4.1
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT").
THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND
SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS
THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR UNLESS SOLD
PURSUANT TO RULE 144 UNDER SAID ACT.
CONVERTIBLE DEBENTURE
Monrovia, California
January 14, 2000 $___________
FOR VALUE RECEIVED, AMERICAN TECHNOLOGIES GROUP, INC., a Nevada
corporation (hereinafter called the "BORROWER"), hereby promises to pay to
the order of _______________________________________ or registered assigns
(the "HOLDER") the sum of ______________________________ Dollars, on January
14, 2003 (the "MATURITY DATE"), and to pay interest on the unpaid principal
balance hereof at the rate of seven percent (7%) per annum from January 14,
2000 (the "ISSUE DATE") until the same becomes due and payable, whether at
maturity or upon acceleration or by prepayment or otherwise. Any amount of
principal or interest on this Debenture which is not paid when due shall bear
interest at the rate of fifteen percent (15%) per annum from the due date
thereof until the same is paid ("DEFAULT INTEREST"). Interest shall commence
accruing on the issue date, shall be computed on the basis of a 365-day year
and the actual number of days elapsed and shall be payable at the time of
conversion of the principal to which such interest relates in accordance with
Article I below. All payments due hereunder (to the extent not converted
into common stock, par value $0.001 per share, of the Borrower (the "COMMON
STOCK") in accordance with the terms hereof) shall be made in lawful money of
the United States of America. All payments shall be made at such address as
the Holder shall hereafter give to the Borrower by written notice made in
accordance with the provisions of this Debenture. Whenever any amount
expressed to be due by the terms of this Debenture is due on any day which is
not a business day, the same shall instead be due on the next succeeding day
which is a business day and, in the case of any interest payment date which
is not the date on which this Debenture is paid in full, the extension of the
due date thereof shall not be taken into account for purposes of determining
the amount of interest due on such date. As used in this Debenture, the term
"business day" shall mean any day other than a Saturday, Sunday or a day on
which commercial banks in the city of New York, New York are authorized or
required by law or executive order to remain closed. Each capitalized term
used herein, and not otherwise defined, shall have the meaning ascribed
<PAGE>
thereto in that certain Securities Purchase Agreement, dated January14, 2000,
pursuant to which this Debenture was originally issued (the "PURCHASE
AGREEMENT").
The following terms shall apply to this Debenture:
ARTICLE I. CONVERSION RIGHTS
1.1 CONVERSION RIGHT.
The Holder shall have the right from time to time, and at any
time on or prior to the earlier of (i) the Maturity Date and (ii) the date of
payment of the Default Amount (as defined in Article III) pursuant to Section
1.6(a) or Article III, the Optional Prepayment Amount (as defined in Section
5.1) or any payments pursuant to Section 1.7, each in respect of the
remaining outstanding principal amount of this Debenture, to convert all or
any part of the outstanding and unpaid principal amount of this Debenture
into fully paid and non-assessable shares of Common Stock, as such Common
Stock exists on the Issue Date, or any shares of capital stock or other
securities of the Borrower into which such Common Stock shall hereafter be
changed or reclassified at the conversion price (the "CONVERSION PRICE")
determined as provided herein (a "CONVERSION"); PROVIDED, HOWEVER that in no
event shall the Holder be entitled to convert any portion of this Debenture
in excess of that portion of this Debenture upon conversion of which the sum
of (1) the number of shares of Common Stock beneficially owned by the Holder
and its affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion of the
Debentures or the unexercised or unconverted portion of any other security of
the Borrower (including, without limitation, the warrants issued by the
Borrower pursuant to the Purchase Agreement) subject to a limitation on
conversion or exercise analogous to the limitations contained herein) and (2)
the number of shares of Common Stock issuable upon the conversion of the
portion of this Debenture with respect to which the determination of this
proviso is being made, would result in beneficial ownership by the Holder and
its affiliates of more than 4.9% of the outstanding shares of Common Stock.
For purposes of the proviso to the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulations 13D-G
thereunder, except as otherwise provided in clause (1) of such proviso. The
holder of this Warrant may waive the limitations set forth herein by written
notice to the Company. The number of shares of Common Stock to be issued
upon each conversion of this Debenture shall be determined by dividing the
Conversion Amount (as defined below) by the applicable Conversion Price then
in effect on the date specified in the notice of conversion, in the form
attached hereto as Exhibit A (the "NOTICE OF CONVERSION"), delivered to the
Borrower by the Holder in accordance with Section 1.4 below; provided that
the Notice of Conversion is submitted by facsimile (or by other means
resulting in, or reasonably expected to result in, notice) to the Borrower or
its transfer agent before Midnight, New York City time on such conversion
date (the "CONVERSION DATE"). The term "CONVERSION AMOUNT" means, with
respect to any conversion of this Debenture, the sum of (1) the principal
amount of this Debenture to be converted in such conversion PLUS (2) accrued
and unpaid interest, if any, on such principal amount at the interest rates
provided in this Debenture to the Conversion Date PLUS (3) Default Interest,
if any, on the amounts referred to in the immediately preceding clauses (1)
and/or (2) PLUS (4) at the
-2-
<PAGE>
Holder's option, any amounts owed to the Holder pursuant to Sections 1.3 and
1.4(g) hereof or pursuant to Section 2(c) of that certain Registration Rights
Agreement, dated as of January 14, 2000, executed in connection with the
initial issuance of this Debenture and the other Debentures issued on the
Issue Date (the "REGISTRATION RIGHTS AGREEMENT").
1.2 CONVERSION PRICE.
(a) CALCULATION OF CONVERSION PRICE. The Conversion Price
shall be the lesser of (i) the Variable Conversion Price (as defined herein)
and (ii) the Fixed Conversion Price (as defined herein) (subject, in each
case, to equitable adjustments for stock splits, stock dividends or rights
offerings by the Borrower relating to the Borrower's securities or the
securities of any subsidiary of the Borrower, combinations, recapitalization,
reclassifications, extraordinary distributions and similar events). The
"VARIABLE CONVERSION PRICE" shall mean the Applicable Percentage (as defined
herein) multiplied by the Market Price (as defined herein). "MARKET PRICE"
means the average of the lowest three (3) Trading Prices (as defined below)
for the Common Stock during the ten Trading Day period ending one Trading Day
prior to the date the Conversion Notice is sent by the Holder to the Borrower
via facsimile (the "CONVERSION DATE"). "TRADING PRICE" means, for any
security as of any date, any price at which a sale of the Common Stock is
effected on the Over-the-Counter Bulletin Board (the "OTCBB") as reported by
Bloomberg Financial Markets or an equivalent, reliable reporting service
mutually acceptable to and hereafter designated by Holders of a majority in
interest of the Debentures and the Borrower ("BLOOMBERG") or, if the OTCBB is
not the principal trading market for such security, the trading price of such
security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg. "TRADING DAY" shall
mean any day on which the Common Stock is traded for any period on the OTCBB,
or on the principal securities exchange or other securities market on which
the Common Stock is then being traded. "APPLICABLE PERCENTAGE" shall mean
72.5%. The "FIXED CONVERSION PRICE" shall mean $0.23.
(b) CONVERSION PRICE DURING MAJOR ANNOUNCEMENTS.
Notwithstanding anything contained in Section 1.2(a) to the contrary, in the
event the Borrower (i) makes a public announcement that it intends to
consolidate or merge with any other corporation (other than a merger in which
the Borrower is the surviving or continuing corporation and its capital stock
is unchanged) or sell or transfer all or substantially all of the assets of
the Borrower or (ii) any person, group or entity (including the Borrower)
publicly announces a tender offer to purchase 50% or more of the Borrower's
Common Stock (or any other takeover scheme) (the date of the announcement
referred to in clause (i) or (ii) is hereinafter referred to as the
"ANNOUNCEMENT DATE"), then the Conversion Price shall, effective upon the
Announcement Date and continuing through the Adjusted Conversion Price
Termination Date (as defined below), be equal to the lower of (x) the
Conversion Price which would have been applicable for a Conversion occurring
on the Announcement Date and (y) the Conversion Price that would otherwise be
in effect. From and after the Adjusted Conversion Price Termination Date, the
Conversion Price shall be determined as set forth in this Section 1.2(a).
For purposes hereof, "ADJUSTED CONVERSION PRICE TERMINATION DATE" shall
mean, with respect to any proposed transaction or tender offer (or takeover
scheme) for which a public announcement as contemplated by this Section
1.2(b) has been made, the date upon which the Borrower (in the case of clause
(i) above) or the person, group or entity (in the case of clause (ii) above)
consummates or
-3-
<PAGE>
publicly announces the termination or abandonment of the proposed transaction
or tender offer (or takeover scheme) which caused this Section 1.2(b) to
become operative.
1.3 AUTHORIZED SHARES. The Borrower covenants that during the
period the conversion right exists, the Borrower will reserve from its
authorized and unissued Common Stock a sufficient number of shares, free from
preemptive rights, to provide for the issuance of Common Stock upon the full
conversion of this Debenture and the other Debentures issued pursuant to the
Purchase Agreement. As of the date of issuance of this Debenture, a
sufficient number of authorized and unissued shares of Common Stock have been
duly reserved for issuance upon conversion of this Debenture and the other
Debentures issued pursuant to the Purchase Agreement (the "RESERVED AMOUNT").
The Reserved Amount shall be increased from time to time in accordance with
the Borrower's obligations pursuant to Section 4(h) of the Purchase
Agreement. The Borrower represents that upon issuance, such shares will be
duly and validly issued, fully paid and non-assessable. In addition, if the
Borrower shall issue any securities or make any change to its capital
structure which would change the number of shares of Common Stock into which
the Debentures shall be convertible at the then current Conversion Price, the
Borrower shall at the same time make proper provision so that thereafter
there shall be a sufficient number of shares of Common Stock authorized and
reserved, free from preemptive rights, for conversion of the outstanding
Debentures. The Borrower (i) acknowledges that it has irrevocably instructed
its transfer agent to issue certificates for the Common Stock issuable upon
conversion of this Debenture and (ii) agrees that its issuance of this
Debenture shall constitute full authority to its officers and agents who are
charged with the duty of executing stock certificates to execute and issue
the necessary certificates for shares of Common Stock in accordance with the
terms and conditions of this Debenture.
If, at any time a Holder of this Debenture submits a Notice of
Conversion, and the Borrower does not have sufficient authorized but unissued
shares of Common Stock available to effect such conversion in accordance with
the provisions of this Article I (a "CONVERSION DEFAULT"), subject to Section
4.8, the Borrower shall issue to the Holder all of the shares of Common Stock
which are then available to effect such conversion. The portion of this
Debenture which the Holder included in its Conversion Notice and which
exceeds the amount which is then convertible into available shares of Common
Stock (the "EXCESS AMOUNT") shall, notwithstanding anything to the contrary
contained herein, not be convertible into Common Stock in accordance with the
terms hereof until (and at the Holder's option at any time after) the date
additional shares of Common Stock are authorized by the Borrower to permit
such conversion, at which time the Conversion Price in respect thereof shall
be the lesser of (i) the Conversion Price on the Conversion Default Date (as
defined below) and (ii) the Conversion Price on the Conversion Date
thereafter elected by the Holder in respect thereof. In addition, the
Borrower shall pay to the Holder payments ("CONVERSION DEFAULT PAYMENTS") for
a Conversion Default in the amount of (x) the SUM OF (1) the then
outstanding principal amount of this Debenture PLUS (2) accrued and unpaid
interest on the unpaid principal amount of this Debenture through the
Authorization Date (as defined below) PLUS (3) Default Interest, if any, on
the amounts referred to in clauses (1) and/or (2), MULTIPLIED BY (y) .24,
MULTIPLIED BY (z) (N/365), where N = the number of days from the day the
holder submits a Notice of Conversion giving rise to a Conversion Default
(the "CONVERSION DEFAULT DATE") to the date (the "AUTHORIZATION DATE") that
the Borrower authorizes a sufficient number of shares of Common Stock to
effect conversion of the full outstanding principal balance of this
Debenture. The Borrower shall
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use its best efforts to authorize a sufficient number of shares of Common
Stock as soon as practicable following the earlier of (i) such time that the
Holder notifies the Borrower or that the Borrower otherwise becomes aware
that there are or likely will be insufficient authorized and unissued shares
to allow full conversion thereof and (ii) a Conversion Default. The Borrower
shall send notice to the Holder of the authorization of additional shares of
Common Stock, the Authorization Date and the amount of Holder's accrued
Conversion Default Payments. The accrued Conversion Default Payments for
each calendar month shall be paid in cash or shall be convertible into Common
Stock (at such time as there are sufficient authorized shares of Common
Stock) at the applicable Conversion Price, at the Holder's option, as follows:
(a) In the event Holder elects to take such payment in cash,
cash payment shall be made to Holder by the fifth day of the month following
the month in which it has accrued; and
(b) In the event Holder elects to take such payment in Common
Stock, the Holder may convert such payment amount into Common Stock at the
Conversion Price (as in effect at the time of conversion) at any time after
the fifth day of the month following the month in which it has accrued in
accordance with the terms of this Article I (so long as there is then a
sufficient number of authorized shares of Common Stock).
The Holder's election shall be made in writing to the Borrower at
any time prior to 6:00 p.m., California time, on the third day of the month
following the month in which Conversion Default payments have accrued. If no
election is made, the Holder shall be deemed to have elected to receive cash.
Nothing herein shall limit the Holder's right to pursue actual damages (to
the extent in excess of the Conversion Default Payments) for the Borrower's
failure to maintain a sufficient number of authorized shares of Common Stock,
and each holder shall have the right to pursue all remedies available at law
or in equity (including degree of specific performance and/or injunctive
relief).
1.4 METHOD OF CONVERSION.
(a) MECHANICS OF CONVERSION. Subject to Section 1.1, this
Debenture may be converted by the Holder in whole or in part (provided such
partial conversion is at least $50,000, or such lesser amount as shall remain
unpaid at the time of the conversion (together with accrued and unpaid
interest thereon)) at any time from time to time after the Issue Date, by (A)
submitting to the Borrower a Notice of Conversion (by facsimile or other
reasonable means of communication dispatched on the Conversion Date prior to
6:00 p.m., California time) and (B) subject to Section 1.4(b), surrendering
this Debenture at the principal office of the Borrower.
(b) SURRENDER OF DEBENTURE UPON CONVERSION. Notwithstanding
anything to the contrary set forth herein, upon conversion of this Debenture
in accordance with the terms hereof, the Holder shall not be required to
physically surrender this Debenture to the Borrower unless the entire unpaid
principal amount of this Debenture is so converted. The Holder and the
Borrower shall maintain records showing the principal amount so converted and
the dates of such conversions or shall use such other method, reasonably
satisfactory to the Holder and the Borrower,
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so as not to require physical surrender of this Debenture upon each such
conversion. In the event of any dispute or discrepancy, such records of the
Borrower shall be controlling and determinative in the absence of manifest
error. Notwithstanding the foregoing, if any portion of this Debenture is
converted as aforesaid, the Holder may not transfer this Debenture unless the
Holder first physically surrenders this Debenture to the Borrower, whereupon
the Borrower will forthwith issue and deliver upon the order of the Holder a
new Debenture of like tenor, registered as the Holder (upon payment by the
Holder of any applicable transfer taxes) may request, representing in the
aggregate the remaining unpaid principal amount of this Debenture. The
Holder and any assignee, by acceptance of this Debenture, acknowledge and
agree that, by reason of the provisions of this paragraph, following
conversion of a portion of this Debenture, the unpaid and unconverted
principal amount of this Debenture represented by this Debenture may be less
than the amount stated on the face hereof.
(c) PAYMENT OF TAXES. The Borrower shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issue and delivery of shares of Common Stock or other securities or property
on conversion of this Debenture in a name other than that of the Holder (or
in street name), and the Borrower shall not be required to issue or deliver
any such shares or other securities or property unless and until the person
or persons (other than the Holder or the custodian in whose street name such
shares are to be held for the Holder's account) requesting the issuance
thereof shall have paid to the Borrower the amount of any such tax or shall
have established to the satisfaction of the Borrower that such tax has been
paid.
(d) DELIVERY OF COMMON STOCK UPON CONVERSION. Upon receipt by
the Borrower from the Holder of a facsimile transmission (or other reasonable
means of communication) of a Notice of Conversion meeting the requirements
for conversion as provided in this Section 1.4, the Borrower shall issue and
deliver or cause to be issued and delivered to or upon the order of the
Holder certificates for the Common Stock issuable upon such conversion within
two (2) business days after such receipt (and, solely in the case of
conversion of the entire unpaid principal amount hereof, surrender of this
Debenture) (such second business day being hereinafter referred to as the
"DEADLINE") in accordance with the terms hereof and the Purchase Agreement
(including, without limitation, in accordance with the requirements of
Section 2(g) of the Purchase Agreement that certificates for shares of Common
Stock issued on or after the effective date of the Registration Statement
upon conversion of this Debenture shall not bear any restrictive legend).
(e) OBLIGATION OF BORROWER TO DELIVER COMMON STOCK. Upon
receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed
to be the holder of record of the Common Stock issuable upon such conversion,
the outstanding principal amount and the amount of accrued and unpaid
interest on this Debenture shall be reduced to reflect such conversion, and,
unless the Borrower defaults on its obligations under this Article I, all
rights with respect to the portion of this Debenture being so converted shall
forthwith terminate except the right to receive the Common Stock or other
securities, cash or other assets, as herein provided, on such conversion. If
the Holder shall have given a Notice of Conversion as provided herein, the
Borrower's obligation to issue and deliver the certificates for Common Stock
shall be absolute and unconditional, irrespective of the absence of any
action by the Holder to enforce the same, any waiver or consent with respect
to any provision thereof, the recovery of any judgment against any person or
any action
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to enforce the same, any failure or delay in the enforcement of any other
obligation of the Borrower to the holder of record, or any setoff,
counterclaim, recoupment, limitation or termination, or any breach or alleged
breach by the Holder of any obligation to the Borrower, and irrespective of
any other circumstance which might otherwise limit such obligation of the
Borrower to the Holder in connection with such conversion. The Conversion
Date specified in the Notice of Conversion shall be the Conversion Date so
long as the Notice of Conversion is received by the Borrower or its transfer
agent before 6:00 p.m., California time, on such date.
(f) DELIVERY OF COMMON STOCK BY ELECTRONIC TRANSFER. In lieu
of delivering physical certificates representing the Common Stock issuable
upon conversion, provided the Borrower's transfer agent is participating in
the Depository Trust Company ("DTC") Fast Automated Securities Transfer
("FAST") program, upon request of the Holder and its compliance with the
provisions contained in Section 1.1 and in this Section 1.4, the Borrower
shall use its best efforts to cause its transfer agent to electronically
transmit the Common Stock issuable upon conversion to the Holder by crediting
the account of Holder's Prime Broker with DTC through its Deposit Withdrawal
Agent Commission ("DWAC") system.
(g) FAILURE TO DELIVER COMMON STOCK PRIOR TO DEADLINE.
Without in any way limiting the Holder's right to pursue other remedies,
including actual damages and/or equitable relief, the parties agree that if
delivery of the Common Stock issuable upon conversion of this Debenture is
more than three (3) days after the Deadline (other than a failure due to the
circumstances described in Section 1.3 above, which failure shall be governed
by such Section) the Borrower shall pay to the Holder $2,000 per day in cash,
for each day beyond the Deadline that the Borrower fails to deliver such
Common Stock. Such cash amount shall be paid to Holder by the fifth day of
the month following the month in which it has accrued or, at the option of
the Holder (by written notice to the Borrower by the first day of the month
following the month in which it has accrued), shall be added to the principal
amount of this Debenture, in which event interest shall accrue thereon in
accordance with the terms of this Debenture and such additional principal
amount shall be convertible into Common Stock in accordance with the terms of
this Debenture.
1.5 CONCERNING THE SHARES. The shares of Common Stock issuable
upon conversion of this Debenture may not be sold or transferred unless (i)
such shares are sold pursuant to an effective registration statement under
the Act or (ii) the Borrower or its transfer agent shall have been furnished
with an opinion of counsel (which opinion shall be in form, substance and
scope customary for opinions of counsel in comparable transactions) to the
effect that the shares to be sold or transferred may be sold or transferred
pursuant to an exemption from such registration or (iii) such shares are sold
or transferred pursuant to Rule 144 under the Act (or a successor rule)
("RULE 144") or (iv) such shares are transferred to an "affiliate" (as
defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer
the shares only in accordance with this Section 1.5 and who is an Accredited
Investor (as defined in the Purchase Agreement). Except as otherwise
provided in the Purchase Agreement (and subject to the removal provisions set
forth below), until such time as the shares of Common Stock issuable upon
conversion of this Debenture have been registered under the Act as
contemplated by the Registration Rights Agreement or otherwise may be sold
pursuant to Rule 144 without any restriction as to the number of securities
as of a particular date that can then be immediately sold, each certificate
for shares of Common Stock issuable upon
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conversion of this Debenture that has not been so included in an effective
registration statement or that has not been sold pursuant to an effective
registration statement or an exemption that permits removal of the legend,
shall bear a legend substantially in the following form, as appropriate:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
SAID ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE
CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT UNLESS SOLD PURSUANT
TO RULE 144 UNDER SAID ACT."
The legend set forth above shall be removed and the Borrower shall
issue to the Holder a new certificate therefor free of any transfer legend if
(i) the Borrower or its transfer agent shall have received an opinion of
counsel, in form, substance and scope customary for opinions of counsel in
comparable transactions, to the effect that a public sale or transfer of such
Common Stock may be made without registration under the Act and the shares
are so sold or transferred, (ii) such Holder provides the Borrower or its
transfer agent with reasonable assurances that the Common Stock issuable upon
conversion of this Debenture (to the extent such securities are deemed to
have been acquired on the same date) can be sold pursuant to Rule 144 or
(iii) in the case of the Common Stock issuable upon conversion of this
Debenture, such security is registered for sale by the Holder under an
effective registration statement filed under the Act or otherwise may be sold
pursuant to Rule 144 without any restriction as to the number of securities
as of a particular date that can then be immediately sold. Nothing in this
Debenture shall (i) limit the Borrower's obligation under the Registration
Rights Agreement or (ii) affect in any way the Holder's obligations to comply
with applicable prospectus delivery requirements upon the resale of the
securities referred to herein.
1.6 EFFECT OF CERTAIN EVENTS.
(a) EFFECT OF MERGER, CONSOLIDATION, ETC. At the option of
the Holder, the sale, conveyance or disposition of all or substantially all
of the assets of the Borrower, the effectuation by the Borrower of a
transaction or series of related transactions in which more than 50% of the
voting power of the Borrower is disposed of, or the consolidation, merger or
other business combination of the Borrower with or into any other Person (as
defined below) or Persons when the Borrower is not the survivor shall either:
(i) be deemed to be an Event of Default (as defined in Article III) pursuant
to which the Borrower shall be required to pay to the Holder upon the
consummation of and as a condition to such transaction an amount equal to the
Default Amount (as defined in Article III) or (ii) be treated pursuant to
Section 1.6(b) hereof. "PERSON" shall mean any individual, corporation,
limited liability company, partnership, association, trust or other entity or
organization.
(b) ADJUSTMENT DUE TO MERGER, CONSOLIDATION, ETC. If, at any
time when this Debenture is issued and outstanding and prior to conversion of
all of the Debentures, there
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shall be any merger, consolidation, exchange of shares, recapitalization,
reorganization, or other similar event, as a result of which shares of Common
Stock of the Borrower shall be changed into the same or a different number of
shares of another class or classes of stock or securities of the Borrower or
another entity, or in case of any sale or conveyance of all or substantially
all of the assets of the Borrower other than in connection with a plan of
complete liquidation of the Borrower, then the Holder of this Debenture shall
thereafter have the right to receive upon conversion of this Debenture, upon
the basis and upon the terms and conditions specified herein and in lieu of
the shares of Common Stock immediately theretofore issuable upon conversion,
such stock, securities or assets which the Holder would have been entitled to
receive in such transaction had this Debenture been converted in full
immediately prior to such transaction (without regard to any limitations on
conversion set forth herein), and in any such case appropriate provisions
shall be made with respect to the rights and interests of the Holder of this
Debenture to the end that the provisions hereof (including, without
limitation, provisions for adjustment of the Conversion Price and of the
number of shares issuable upon conversion of the Debenture) shall thereafter
be applicable, as nearly as may be practicable in relation to any securities
or assets thereafter deliverable upon the conversion hereof. The Borrower
shall not effect any transaction described in this Section 1.6(b) unless (a)
it first gives, to the extent practicable, thirty (30) days prior written
notice (but in any event at least fifteen (15) days prior written notice) of
the record date of the special meeting of stockholders to approve, or if
there is no such record date, the consummation of, such merger,
consolidation, exchange of shares, recapitalization, reorganization or other
similar event or sale of assets (during which time the Holder shall be
entitled to convert this Debenture) and (b) the resulting successor or
acquiring entity (if not the Borrower) assumes by written instrument the
obligations of this Section 1.6(b). The above provisions shall similarly
apply to successive consolidations, mergers, sales, transfers or share
exchanges.
(c) ADJUSTMENT DUE TO DISTRIBUTION. If the Borrower shall
declare or make any distribution of its assets (or rights to acquire its
assets) to holders of Common Stock as a dividend, stock repurchase, by way of
return of capital or otherwise (including any dividend or distribution to the
Borrower's shareholders in cash or shares (or rights to acquire shares) of
capital stock of a subsidiary (i.e., a spin-off)) (a "DISTRIBUTION"), then
the Holder of this Debenture shall be entitled, upon any conversion of this
Debenture after the date of record for determining shareholders entitled to
such Distribution, to receive the amount of such assets which would have been
payable to the Holder with respect to the shares of Common Stock issuable
upon such conversion had such Holder been the holder of such shares of Common
Stock on the record date for the determination of shareholders entitled to
such Distribution.
(d) PURCHASE RIGHTS. If, at any time when any Debentures are
issued and outstanding, the Borrower issues any convertible securities or
rights to purchase stock, warrants, securities or other property (the
"PURCHASE RIGHTS") pro rata to the record holders of any class of Common
Stock, then the Holder of this Debenture will be entitled to acquire, upon
the terms applicable to such Purchase Rights, the aggregate Purchase Rights
which such Holder could have acquired if such Holder had held the number of
shares of Common Stock acquirable upon complete conversion of this Debenture
(without regard to any limitations on conversion contained herein)
immediately before the date on which a record is taken for the grant,
issuance or sale of such
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Purchase Rights or, if no such record is taken, the date as of which the
record holders of Common Stock are to be determined for the grant, issue or
sale of such Purchase Rights.
(e) NOTICE OF ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price as a result of the events
described in this Section 1.6, the Borrower, at its expense, shall promptly
compute such adjustment or readjustment and prepare and furnish to the Holder
of a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. The
Borrower shall, upon the written request at any time of the Holder, furnish
to such Holder a like certificate setting forth (i) such adjustment or
readjustment, (ii) the Conversion Price at the time in effect and (iii) the
number of shares of Common Stock and the amount, if any, of other securities
or property which at the time would be received upon conversion of the
Debenture.
1.7 TRADING MARKET LIMITATIONS. Unless permitted by the applicable
rules and regulations of the principal securities market on which the Common
Stock is then listed or traded, in no event shall the Borrower issue upon
conversion of this Debenture and the other Debentures issued pursuant to the
Purchase Agreement more than the maximum number of shares of Common Stock
that the Borrower can issue pursuant to any rule of the principal United
States securities market on which the Common Stock is then traded (the
"MAXIMUM SHARE AMOUNT"), which, as of the Issue Date shall be 7,313,178
shares (19.99% of the total shares outstanding on the Issue Date), subject to
equitable adjustment from time to time for stock splits, stock dividends,
combinations, capital reorganizations and similar events relating to the
Common Stock occurring after the date hereof. Once the Maximum Share Amount
has been issued (the date of which is hereinafter referred to as the "MAXIMUM
CONVERSION DATE"), if the Borrower fails to eliminate any prohibitions under
applicable law or the rules or regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization with jurisdiction over
the Borrower or any of its securities on the Borrower's ability to issue
shares of Common Stock in excess of the Maximum Share Amount (a "TRADING
MARKET PREPAYMENT EVENT"), in lieu of any further right to convert this
Debenture, and in full satisfaction of the Borrower's obligations under this
Debenture, the Borrower shall pay to the Holder, within fifteen (15) business
days of the Maximum Conversion Date (the "TRADING MARKET PREPAYMENT DATE"),
an amount equal to 130% TIMES the SUM of (a) the then outstanding principal
amount of this Debenture immediately following the Maximum Conversion Date,
PLUS (b) accrued and unpaid interest on the unpaid principal amount of this
Debenture to the Trading Market Prepayment Date, PLUS (c) Default Interest,
if any, on the amounts referred to in clause (a) and/or (b) above, PLUS (d)
any optional amounts that may be added thereto at the Maximum Conversion Date
by the Holder in accordance with the terms hereof (the then outstanding
principal amount of this Debenture immediately following the Maximum
Conversion Date, PLUS the amounts referred to in clauses (b), (c) and (d)
above shall collectively be referred to as the "REMAINING CONVERTIBLE
AMOUNT"). With respect to each Holder of Debentures, the Maximum Share
Amount shall refer to such Holder's PRO RATA share thereof determined in
accordance with Section 4.8 below. In the event that the sum of (x) the
aggregate number of shares of Common Stock issued upon conversion of this
Debenture and the other Debentures issued pursuant to the Purchase Agreement
PLUS (y) the aggregate number of shares of Common Stock that remain issuable
upon conversion of this Debenture and the other Debentures issued pursuant to
the Purchase Agreement, represents at least one hundred percent (100%) of the
Maximum Share Amount (the "TRIGGERING EVENT"), the
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Borrower will use its best efforts to seek and obtain Stockholder Approval
(or obtain such other relief as will allow conversions hereunder in excess of
the Maximum Share Amount) as soon as practicable following the Triggering
Event and before the Maximum Conversion Date. As used herein, "STOCKHOLDER
APPROVAL" means approval by the stockholders of the Borrower to authorize the
issuance of the full number of shares of Common Stock which would be issuable
upon full conversion of the then outstanding Debentures but for the Maximum
Share Amount.
1.8 STATUS AS STOCKHOLDER. Upon submission of a Notice of
Conversion by a Holder, (i) the shares covered thereby (other than the
shares, if any, which cannot be issued because their issuance would exceed
such Holder's allocated portion of the Reserved Amount or Maximum Share
Amount) shall be deemed converted into shares of Common Stock and (ii) the
Holder's rights as a Holder of such converted portion of this Debenture shall
cease and terminate, excepting only the right to receive certificates for
such shares of Common Stock and to any remedies provided herein or otherwise
available at law or in equity to such Holder because of a failure by the
Borrower to comply with the terms of this Debenture. Notwithstanding the
foregoing, if a Holder has not received certificates for all shares of Common
Stock prior to the tenth (10th) business day after the expiration of the
Deadline with respect to a conversion of any portion of this Debenture for
any reason, then (unless the Holder otherwise elects to retain its status as
a holder of Common Stock by so notifying the Borrower) the Holder shall
regain the rights of a Holder of this Debenture with respect to such
unconverted portions of this Debenture and the Borrower shall, as soon as
practicable, return such unconverted Debenture to the holder or, if the
Debenture has not been surrendered, adjust its records to reflect that such
portion of this Debenture has not been converted. In all cases, the Holder
shall retain all of its rights and remedies (including, without limitation,
(i) the right to receive Conversion Default Payments pursuant to Section 1.3
to the extent required thereby for such Conversion Default and any subsequent
Conversion Default and (ii) the right to have the Conversion Price with
respect to subsequent conversions determined in accordance with Section 1.3)
for the Borrower's failure to convert this Debenture.
ARTICLE II. CERTAIN COVENANTS
2.1 DISTRIBUTIONS ON CAPITAL STOCK. So long as the Borrower shall
have any obligation under this Debenture, the Borrower shall not without the
Holder's written consent (a) pay, declare or set apart for such payment, any
dividend or other distribution (whether in cash, property or other
securities) on shares of capital stock other than dividends on shares of
Common Stock solely in the form of additional shares of Common Stock or (b)
directly or indirectly or through any subsidiary make any other payment or
distribution in respect of its capital stock.
2.2 RESTRICTION ON STOCK REPURCHASES. So long as the Borrower
shall have any obligation under this Debenture, the Borrower shall not
without the Holder's written consent redeem, repurchase or otherwise acquire
(whether for cash or in exchange for property or other securities or
otherwise) in any one transaction or series of related transactions any
shares of capital stock of the Borrower or any warrants, rights or options to
purchase or acquire any such shares; provided that the foregoing covenant
shall not apply to cashless exercises with respect to convertible securities
outstanding on the date hereof.
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ARTICLE III. EVENTS OF DEFAULT
If any of the following events of default (each, an "EVENT OF DEFAULT")
shall occur:
3.1 FAILURE TO PAY PRINCIPAL OR INTEREST. The Borrower fails to pay
the principal hereof or interest thereon when due on this Debenture, whether
at maturity, upon mandatory prepayment pursuant to Section 1.7, upon
acceleration or otherwise.
3.2 CONVERSION AND THE SHARES. The Borrower fails to issue shares of
Common Stock to the Holder (or announces or threatens that it will not honor
its obligation to do so) upon exercise by the Holder of the conversion rights
of the Holder in accordance with the terms of this Debenture (for a period of
at least sixty (60) days, if such failure is solely as a result of the
circumstances governed by Section 1.3 and the Borrower is using its best
efforts to authorize a sufficient number of shares of Common Stock as soon as
practicable), fails to transfer or cause its transfer agent to transfer
(electronically or in certificated form) any certificate for shares of Common
Stock issued to the Holder upon conversion of this Debenture as and when
required by this Debenture or the Registration Rights Agreement, or fails to
remove any restrictive legend (or to withdraw any stop transfer instructions
in respect thereof) on any certificate for any shares of Common Stock issued
to the Holder upon conversion of this Debenture as and when required by this
Debenture or the Registration Rights Agreement (or makes any announcement,
statement or threat that it does not intend to honor the obligations
described in this paragraph) and any such failure shall continue uncured (or
any announcement, statement or threat not to honor its obligations shall not
be rescinded in writing) for ten (10) days after the Borrower shall have been
notified thereof in writing by the Holder.
3.3 FAILURE TO EFFECT REGISTRATION. The Borrower fails to obtain
effectiveness with the Securities and Exchange Commission of the Registration
Statement prior to May 14, 2000 or such Registration Statement lapses in
effect (or sales cannot otherwise be made thereunder effective, whether by
reason of the Borrower's failure to amend or supplement the prospectus
included therein in accordance with the Registration Rights Agreement or
otherwise) for more than thirty (30) consecutive days or sixty (60) days in
any twelve month period after the Registration Statement becomes;
3.4 BREACH OF COVENANTS. The Borrower breaches any material covenant
or other material term or condition contained in Sections 1.3, 1.6 or 1.7 of
this Debenture, or Sections 4(c), 4(e), 4(h), 4(i), 4(j) or 5 of the Purchase
Agreement and such breach continues for a period of ten (10) days after
written notice thereof to the Borrower from the Holder;
3.5 BREACH OF REPRESENTATIONS AND WARRANTIES. Any representation or
warranty of the Borrower made herein or in any agreement, statement or
certificate given in writing pursuant hereto or in connection herewith
(including, without limitation, the Purchase Agreement and the Registration
Rights Agreement), shall be false or misleading in any material respect when
made and the breach of which has (or with the passage of time will have) a
material adverse effect
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on the rights of the Holder with respect to this Debenture, the Purchase
Agreement or the Registration Rights Agreement;
3.6 RECEIVER OR TRUSTEE. The Borrower or any subsidiary of the
Borrower shall make an assignment for the benefit of creditors, or apply for
or consent to the appointment of a receiver or trustee for it or for a
substantial part of its property or business, or such a receiver or trustee
shall otherwise be appointed;
3.7 JUDGMENTS. Any money judgment, writ or similar process shall be
entered or filed against the Borrower or any subsidiary of the Borrower or
any of its property or other assets for more than $100,000, and shall remain
unvacated, unbonded or unstayed for a period of twenty (20) days unless
otherwise consented to by the Holder, which consent will not be unreasonably
withheld;
3.8 BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any
law for the relief of debtors shall be instituted by or against the Borrower
or any subsidiary of the Borrower; or
3.9 DELISTING OF COMMON STOCK. The Borrower shall fail to maintain
the listing of the Common Stock on at least one of the OTCBB, the Nasdaq
National Market, the Nasdaq SmallCap Market, the New York Stock Exchange, or
the American Stock Exchange;
3.10 DEFAULT UNDER OTHER DEBENTURES. An Event of Default has occurred
and is continuing under any of the other Debentures issued pursuant to the
Purchase Agreement.
then, upon the occurrence and during the continuation of any Event of Default
specified in Section 3.1, 3.2, 3.3, 3.4, 3.5, 3.7, 3.9, or 3.10, at the
option of the Holders of a majority of the aggregate principal amount of the
outstanding Debentures issued pursuant to the Purchase Agreement exercisable
through the delivery of written notice to the Borrower by such Holders (the
"DEFAULT NOTICE"), and upon the occurrence of an Event of Default specified
in Section 3.6 or 3.8, the Debentures shall become immediately due and
payable and the Borrower shall pay to the Holder, in full satisfaction of its
obligations hereunder, an amount equal to the greater of (i) 130% TIMES the
SUM of (w) the then outstanding principal amount of this Debenture PLUS (x)
accrued and unpaid interest on the unpaid principal amount of this Debenture
to the date of payment (the "MANDATORY PREPAYMENT DATE") PLUS (y) Default
Interest, if any, on the amounts referred to in clauses (w) and/or (x) PLUS
(z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof
or pursuant to Section 2(c) of the Registration Rights Agreement (the then
outstanding principal amount of this Debenture to the date of payment PLUS
the amounts referred to in clauses (x), (y) and (z) shall collectively be
known as the "DEFAULT SUM") or (ii) the "parity value" of the Default Sum to
be prepaid, where parity value means (a) the highest number of shares of
Common Stock issuable upon conversion of such Default Sum in accordance with
Article I, treating the Trading Day immediately preceding the Mandatory
Prepayment Date as the "Conversion Date" for purposes of determining the
lowest applicable Conversion Price, unless the Default Event arises as a
result of a breach in respect of a specific Conversion Date in which case
such Conversion Date shall be the Conversion Date), MULTIPLIED BY (b) the
highest Closing Price for the Common Stock during the period beginning
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<PAGE>
on the date of first occurrence of the Event of Default and ending one day
prior to the Mandatory Prepayment Date (the "DEFAULT AMOUNT") and all other
amounts payable hereunder shall immediately become due and payable, all
without demand, presentment or notice, all of which hereby are expressly
waived, together with all costs, including, without limitation, legal fees
and expenses, of collection, and the Holder shall be entitled to exercise all
other rights and remedies available at law or in equity.
If the Borrower fails to pay the Default Amount within five (5) business
days of written notice that such amount is due and payable, then the Holder
shall have the right at any time, so long as the Borrower remains in default
(and so long and to the extent that there are sufficient authorized shares),
to require the Borrower, upon written notice, to immediately issue, in lieu
of the Default Amount, the number of shares of Common Stock of the Borrower
equal to the Default Amount divided by the Conversion Price then in effect.
ARTICLE IV. MISCELLANEOUS
4.1 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part
of the Holder in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise
of any such power, right or privilege preclude other or further exercise
thereof or of any other right, power or privileges. All rights and remedies
existing hereunder are cumulative to, and not exclusive of, any rights or
remedies otherwise available.
4.2 NOTICES. Any notice herein required or permitted to be given
shall be in writing and may be personally served or delivered by courier or
sent by United States mail and shall be deemed to have been given upon
receipt if personally served (which shall include telephone line facsimile
transmission) or sent by courier or three (3) days after being deposited in
the United States mail, certified, with postage pre-paid and properly
addressed, if sent by mail. For the purposes hereof, the address of the
Holder shall be as shown on the records of the Borrower; and the address of
the Borrower shall be 1017 South Mountain Avenue, Monrovia, CA 91016,
facsimile number: 626-357-6551). Both the Holder and the Borrower may change
the address for service by service of written notice to the other as herein
provided.
4.3 AMENDMENTS. This Debenture and any provision hereof may only be
amended by an instrument in writing signed by the Borrower and the Holder.
The term "Debenture" and all reference thereto, as used throughout this
instrument, shall mean this instrument (and the other Debentures issued
pursuant to the Purchase Agreement) as originally executed, or if later
amended or supplemented, then as so amended or supplemented.
4.4 ASSIGNABILITY. This Debenture shall be binding upon the Borrower
and its successors and assigns, and shall inure to be the benefit of the
Holder and its successors and assigns. Each transferee of this Debenture
must be an "accredited investor" (as defined in Rule 501(a) of the 1933 Act).
Notwithstanding anything in this Debenture to the contrary, this Debenture
may be pledged as collateral in connection with a BONA FIDE margin account or
other lending arrangement.
-14-
<PAGE>
4.5 COST OF COLLECTION. If default is made in the payment of this
Debenture, the Borrower shall pay the Holder hereof costs of collection,
including reasonable attorneys' fees.
4.6 GOVERNING LAW. This Debenture shall be governed by the internal
laws of the State of California, without regard to the principles of conflict
of laws. The Company hereby submits to the exclusive jurisdiction of the
United States Federal Courts located in Los Angeles, California with respect
t any dispute arising hereunder. The party which does not prevail in any
dispute arising under this Debenture shall be responsible for all fees and
expenses, including attorneys' fees, incurred by the prevailing party in
connection with such dispute.
4.7 CERTAIN AMOUNTS. Whenever pursuant to this Debenture the Borrower
is required to pay an amount in excess of the outstanding principal amount
(or the portion thereof required to be paid at that time) plus accrued and
unpaid interest plus Default Interest on such interest, the Borrower and the
Holder agree that the actual damages to the Holder from the receipt of cash
payment on this Debenture may be difficult to determine and the amount to be
so paid by the Borrower represents stipulated damages and not a penalty and
is intended to compensate the Holder in part for loss of the opportunity to
convert this Debenture and to earn a return from the sale of shares of Common
Stock acquired upon conversion of this Debenture at a price in excess of the
price paid for such shares pursuant to this Debenture. The Borrower and the
Holder hereby agree that such amount of stipulated damages is not plainly
disproportionate to the possible loss to the Holder from the receipt of a
cash payment without the opportunity to convert this Debenture into shares of
Common Stock.
4.8 ALLOCATIONS OF MAXIMUM SHARE AMOUNT AND RESERVED AMOUNT. The
Maximum Share Amount and Reserved Amount shall be allocated pro rata among
the holders of Debentures based on the principal amount of such Debentures
issued to each holder. Each increase to the Maximum Share Amount and
Reserved Amount shall be allocated pro rata among the holders of Debentures
based on the principal amount of such Debentures held by each holder at the
time of the increase in the Maximum Share Amount or Reserved Amount. In the
event a holder shall sell or otherwise transfer any of such holder's
Debentures, each transferee shall be allocated a pro rata portion of such
transferor's Maximum Share Amount and Reserved Amount. Any portion of the
Maximum Share Amount or Reserved Amount which remains allocated to any person
or entity which does not hold any Debentures shall be allocated to the
remaining holders of Debentures, pro rata based on the principal amount of
such Debentures then held by such holders.
4.9 DAMAGES SHARES. The shares of Common Stock that may be issuable
to the Holder pursuant to Sections 1.3 and 1.4(g) hereof and pursuant to
Section 2(c) of the Registration Rights Agreement ("DAMAGES SHARES") shall
be treated as Common Stock issuable upon conversion of this Debenture for all
purposes hereof and shall be subject to all of the limitations and afforded
all of the rights of the other shares of Common Stock issuable hereunder,
including without limitation, the right to be included in the Registration
Statement filed pursuant to the Registration Rights Agreement. For purposes
of calculating interest payable on the outstanding principal amount hereof,
except as otherwise provided herein, amounts convertible into Damages Shares
("DAMAGES AMOUNTS") shall not bear interest but must be converted prior to
the conversion of any outstanding principal amount hereof, until the
outstanding Damages Amounts is zero.
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<PAGE>
4.10 DENOMINATIONS. At the request of the Holder, upon surrender of
this Debenture, the Borrower shall promptly issue new Debentures in the
aggregate outstanding principal amount hereof, in the form hereof, in such
denominations of at least $100,000 as the Holder shall request.
4.11 PURCHASE AGREEMENT. By its acceptance of this Debenture, each
Holder agrees to be bound by the applicable terms of the Purchase Agreement.
4.12 NOTICE OF CORPORATE EVENTS. Except as otherwise provided below,
the Holder of this Debenture shall have no rights as a Holder of Common Stock
unless and only to the extent that it converts this Debenture into Common
Stock. The Borrower shall provide the Holder with prior notification of any
meeting of the Borrower's shareholders (and copies of proxy materials and
other information sent to shareholders). In the event of any taking by the
Borrower of a record of its shareholders for the purpose of determining
shareholders who are entitled to receive payment of any dividend or other
distribution, any right to subscribe for, purchase or otherwise acquire
(including by way of merger, consolidation, reclassification or
recapitalization) any share of any class or any other securities or property,
or to receive any other right, or for the purpose of determining shareholders
who are entitled to vote in connection with any proposed sale, lease or
conveyance of all or substantially all of the assets of the Borrower or any
proposed liquidation, dissolution or winding up of the Borrower, the Borrower
shall mail a notice to the Holder, at least twenty (20) days prior to the
record date specified therein (or thirty (30) days prior to the consummation
of the transaction or event, whichever is earlier), of the date on which any
such record is to be taken for the purpose of such dividend, distribution,
right or other event, and a brief statement regarding the amount and
character of such dividend, distribution, right or other event to the extent
known at such time. The Borrower shall make a public announcement of any
event requiring notification to the Holder hereunder substantially
simultaneously with the notification to the Holder in accordance with the
terms of this Section 4.12.
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<PAGE>
ARTICLE V. OPTIONAL PREPAYMENT
5.1. OPTIONAL PREPAYMENT. Notwithstanding anything to the contrary
contained in this Article V, so long as (i) no Event of Default or Trading
Market Prepayment Event shall have occurred and be continuing, (ii) the
Registration Statement is then in effect and has been in effect and sales can
be made thereunder for at least twenty (20) days prior to the Optional
Prepayment Date (as defined below) and (iii) the Borrower has a sufficient
number of authorized shares of Common Stock reserved for issuance upon full
conversion of the Debentures, then at any time after the Issue Date, the
Borrower shall have the right, exercisable on not less than ten (10) Trading
Days prior written notice to the Holders of the Debentures (which notice may
not be sent to the holders of the Debentures until the Borrower is permitted
to prepay the Debentures pursuant to this Section 5.1), to prepay all of the
outstanding Debentures in accordance with this Section 5.1. Any notice of
prepayment hereunder (an "OPTIONAL PREPAYMENT") shall be delivered to the
Holders of the Debentures at their registered addresses appearing on the
books and records of the Borrower and shall state (1) that the Borrower is
exercising its right to prepay all of the Debentures issued on the Issue Date
and (2) the date of prepayment (the "OPTIONAL PREPAYMENT NOTICE"). On the
date fixed for prepayment (the "OPTIONAL PREPAYMENT DATE"), the Borrower
shall make payment of the Optional Prepayment Amount (as defined below) to or
upon the order of the Holders as specified by the Holders in writing to the
Borrower at least one (1) business day prior to the Optional Prepayment Date.
If the Borrower exercises its right to prepay the Debentures, the Borrower
shall make payment to the holders of an amount in cash (the "OPTIONAL
PREPAYMENT AMOUNT") equal to 130% multiplied by the sum of (w) the then
outstanding principal amount of this Debenture PLUS (x) accrued and unpaid
interest on the unpaid principal amount of this Debenture to the Optional
Prepayment Date PLUS (y) Default Interest, if any, on the amounts referred to
in clauses (w) and (x) PLUS (z) any amounts owed to the Holder pursuant to
Sections 1.3 and 1.4(g) hereof or pursuant to Section 2(c) of the
Registration Rights Agreement (the then outstanding principal amount of this
Debenture to the date of payment PLUS the amounts referred to in clauses (x),
(y) and (z) shall collectively be known as the "OPTIONAL PREPAYMENT SUM").
Notwithstanding notice of an Optional Prepayment, the Holders shall at all
times prior to the Optional Prepayment Date maintain the right to convert all
or any portion of the Debentures in accordance with Article I and any portion
of Debentures so converted after receipt of an Optional Prepayment Notice and
prior to the Optional Prepayment Date set forth in such notice and payment of
the aggregate Optional Prepayment Amount shall be deducted from the principal
amount of Debentures which are otherwise subject to prepayment pursuant to
such notice. If the Borrower delivers an Optional Prepayment Notice and
fails to pay the Optional Prepayment Amount due to the Holders of the
Debentures within two (2) business days following the Optional Prepayment
Date, the Borrower shall forever forfeit its right to redeem the Debentures
pursuant to this Section 5.1.
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<PAGE>
IN WITNESS WHEREOF, Borrower has caused this Debenture to be signed in
its name by its duly authorized officer this 14th day of January, 2000.
AMERICAN TECHNOLOGIES GROUP, INC.
By:
------------------------------------
Lawrence J. Brady
Chairman and Chief Executive Officer
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<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
OF CONVERTIBLE DEBENTURE
TO: AMERICAN TECHNOLOGIES GROUP, INC.
(1) Pursuant to the terms of the attached Convertible Debenture
(the "DEBENTURE"), the undersigned hereby elects to convert $ __________
principal amount of the Debenture into shares of Common Stock of American
Technologies Group, Inc., a Nevada corporation (the "BORROWER"). Capitalized
terms used herein and not otherwise defined herein have the respective
meanings provided in the Debenture.
(2) The Borrower shall electronically transmit the Common Stock
issuable pursuant to this Notice of Conversion to the account of the
undersigned or its nominee with DTC through its Deposit Withdrawal Agent
Commission system ("DWAC TRANSFER").
Name of DTC Prime Broker:
--------------------------------
Account Number:
------------------------------------------
/ / In lieu of receiving shares of Common Stock issuable pursuant to this
Notice of Conversion by way of a DWAC Transfer, the undersigned hereby
requests that the Borrower issue a certificate or certificates for the
number of shares of Common Stock set forth above (which numbers are
based on the Holder's calculation attached hereto) in the name(s)
specified immediately below or, if additional space is necessary, on an
attachment hereto:
Name:
-----------------------------------
Address:
--------------------------------
--------------------------------
(3) Holder acknowledges and affirms that the Common Stock issued
pursuant to this Notice of Conversion has been or will be sold in accordance
with the requirements of the 1933 Act, if applicable, or pursuant to an
exemption under the 1933 Act.
Date:
------------------- ------------------------------------
Signature of Registered Holder
(must be signed exactly as name
appears in the Debenture, if
applicable).
<PAGE>
Exhibit 4.2
THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. EXCEPT AS OTHERWISE SET FORTH HEREIN OR IN A
SECURITIES PURCHASE AGREEMENT DATED AS OF JANUARY __, 2000, NEITHER
THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
SUCH SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM,
SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE
TRANSACTIONS, THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR
UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.
Right to
Purchase
500,000
Shares
of
Common
Stock,
par
value
$0.001
per share
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, __________________, or its
registered assigns, is entitled to purchase from American Technologies Group,
Inc., a Nevada corporation (the "Company"), at any time or from time to time
during the period specified in Paragraph 2 hereof, Five Hundred Thousand
(500,000) fully paid and nonassessable shares of the Company's Common Stock,
par value $0.001 per share (the "Common Stock"), at an exercise price equal
to the lesser of (i) $__________ and (ii) the average of the lowest three (3)
Trading Prices (as defined below) during the ten (10) Trading Days (as
defined below) immediately prior to exercise (the "Exercise Price"). The
term "Trading Price" means any price at which a sale of the Common Stock is
effected on the Over-the-Counter Bulletin Board (the "OTC BB") as reported by
Bloomberg Financial Markets or an equivalent, reliable reporting service
mutually acceptable to and hereafter designated by holders of a majority in
interest of the Debentures and the Borrower ("Bloomberg") or, if the OTC BB
is not the principal trading market for such security, the trading price of
such security on the principal securities exchange or trading market where
such security is listed or traded as reported by Bloomberg. "Trading Day"
shall mean any day on which the Common Stock is traded for any period on the
OTC BB, or on the principal securities exchange or other securities market on
which the Common Stock is then being traded. The term "Warrant Shares," as
used herein, refers to the shares
<PAGE>
of Common Stock purchasable hereunder. The Warrant Shares and the Exercise
Price are subject to adjustment as provided in Paragraph 4 hereof. The term
"Warrants" means this Warrant and the other warrants issued pursuant to that
certain Securities Purchase Agreement, dated as of January 14, 2000, by and
among the Company and the Buyers listed on the execution page thereof,
including any warrants issuable pursuant to Section 4(I) thereof (the
"Securities Purchase Agreement").
This Warrant is subject to the following terms, provisions, and
conditions:
1. MANNER OF EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
Subject to the provisions hereof, this Warrant may be exercised by the holder
hereof, in whole or in part, by the surrender of this Warrant, together with
a completed exercise agreement in the form attached hereto (the "Exercise
Agreement"), to the Company during normal business hours on any business day
at the Company's principal executive offices (or such other office or agency
of the Company as it may designate by notice to the holder hereof), and upon
(i) payment to the Company in cash, by certified or official bank check or
by wire transfer for the account of the Company of the Exercise Price for the
Warrant Shares specified in the Exercise Agreement or (ii) if the resale of
the Warrant Shares by the holder is not then registered pursuant to an
effective registration statement under the Securities Act of 1933, as amended
(the "Securities Act"), delivery to the Company of a written notice of an
election to effect a "Cashless Exercise" (as defined in Section 11(c) below)
for the Warrant Shares specified in the Exercise Agreement. The Warrant
Shares so purchased shall be deemed to be issued to the holder hereof or such
holder's designee, as the record owner of such shares, as of the close of
business on the date on which this Warrant shall have been surrendered, the
completed Exercise Agreement shall have been delivered, and payment shall
have been made for such shares as set forth above. Certificates for the
Warrant Shares so purchased, representing the aggregate number of shares
specified in the Exercise Agreement, shall be delivered to the holder hereof
within a reasonable time, not exceeding three (3) business days, after this
Warrant shall have been so exercised. The certificates so delivered shall be
in such denominations as may be requested by the holder hereof and shall be
registered in the name of such holder or such other name as shall be
designated by such holder. If this Warrant shall have been exercised only in
part, then, unless this Warrant has expired, the Company shall, at its
expense, at the time of delivery of such certificates, deliver to the holder
a new Warrant representing the number of shares with respect to which this
Warrant shall not then have been exercised.
Notwithstanding anything in this Warrant to the contrary, in no event
shall the holder of this Warrant be entitled to exercise a number of Warrants
(or portions thereof) in excess of the number of Warrants (or portions
thereof) upon exercise of which the sum of (i) the number of shares of Common
Stock beneficially owned by the holder and its affiliates (other than shares
of Common Stock which may be deemed beneficially owned through the ownership
of the unexercised Warrants and the unexercised or unconverted portion of any
other securities of the Company (including the Debentures (as defined in the
Securities Purchase Agreement)) subject to a limitation on conversion or
exercise analagous to the limitation contained herein) and (ii) the number of
shares of Common Stock issuable upon exercise of the Warrants (or portions
thereof) with respect to which the determination described herein is being
made, would result in beneficial ownership by the holder and its affiliates
of more than 4.9% of the outstanding shares of Common Stock. For purposes of
the immediately preceding sentence, beneficial ownership shall be determined
in accordance with
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<PAGE>
Section 13(d) of the Securities Exchange Act of 1934, as amended, and
Regulation 13D-G thereunder, except as otherwise provided in clause (i) of
the preceding sentence.
2. PERIOD OF EXERCISE. This Warrant is exercisable at any time or
from time to time on or after the date on which this Warrant is issued and
delivered pursuant to the terms of the Securities Purchase Agreement and
before 5:00 p.m., New York City time on the third (3rd) anniversary of the
date of issuance (the "Exercise Period").
3. CERTAIN AGREEMENTS OF THE COMPANY. The Company hereby covenants
and agrees as follows:
(a) SHARES TO BE FULLY PAID. All Warrant Shares will, upon
issuance in accordance with the terms of this Warrant, be validly issued,
fully paid, and nonassessable and free from all taxes, liens, and charges
with respect to the issue thereof.
(b) RESERVATION OF SHARES. During the Exercise Period, the
Company shall at all times have authorized, and reserved for the purpose of
issuance upon exercise of this Warrant, a sufficient number of shares of
Common Stock to provide for the exercise of this Warrant.
(c) LISTING. The Company shall promptly secure the listing of
the shares of Common Stock issuable upon exercise of the Warrant upon each
national securities exchange or automated quotation system, if any, upon
which shares of Common Stock are then listed (subject to official notice of
issuance upon exercise of this Warrant) and shall maintain, so long as any
other shares of Common Stock shall be so listed, such listing of all shares
of Common Stock from time to time issuable upon the exercise of this Warrant;
and the Company shall so list on each national securities exchange or
automated quotation system, as the case may be, and shall maintain such
listing of, any other shares of capital stock of the Company issuable upon
the exercise of this Warrant if and so long as any shares of the same class
shall be listed on such national securities exchange or automated quotation
system.
(d) CERTAIN ACTIONS PROHIBITED. The Company will not, by
amendment of its charter or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any
other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms to be observed or performed by it hereunder, but will at
all times in good faith assist in the carrying out of all the provisions of
this Warrant and in the taking of all such action as may reasonably be
requested by the holder of this Warrant in order to protect the exercise
privilege of the holder of this Warrant against dilution or other
impairment, consistent with the tenor and purpose of this Warrant. Without
limiting the generality of the foregoing, the Company (i) will not increase
the par value of any shares of Common Stock receivable upon the exercise of
this Warrant above the Exercise Price then in effect and (ii) will take all
such actions as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common Stock
upon the exercise of this Warrant.
-3-
<PAGE>
(e) SUCCESSORS AND ASSIGNS. This Warrant will be binding upon
any entity succeeding to the Company by merger, consolidation, or acquisition
of all or substantially all the Company's assets.
4. ANTIDILUTION PROVISIONS. During the Exercise Period, the Exercise
Price and the number of Warrant Shares shall be subject to adjustment from
time to time as provided in this Paragraph 4.
In the event that any adjustment of the Exercise Price as required
herein results in a fraction of a cent, such Exercise Price shall be rounded
up to the nearest cent.
(a) ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES UPON
ISSUANCE OF COMMON STOCK. Except as otherwise provided in Paragraphs 4(c)
and 4(e) hereof, if and whenever on or after the date of issuance of this
Warrant, the Company issues or sells, or in accordance with Paragraph 4(b)
hereof is deemed to have issued or sold, any shares of Common Stock for no
consideration or for a consideration per share (before deduction of
reasonable expenses or commissions or underwriting discounts or allowances in
connection therewith) less than the Market Price (as hereinafter defined) on
the date of issuance (a "Dilutive Issuance"), then immediately upon the
Dilutive Issuance, the Exercise Price will be reduced to a price determined
by multiplying the Exercise Price in effect immediately prior to the Dilutive
Issuance by a fraction, (i) the numerator of which is an amount equal to the
sum of (x) the number of shares of Common Stock actually outstanding
immediately prior to the Dilutive Issuance, plus (y) the quotient of the
aggregate consideration, calculated as set forth in Paragraph 4(b) hereof,
received by the Company upon such Dilutive Issuance divided by the Market
Price in effect immediately prior to the Dilutive Issuance, and (ii) the
denominator of which is the total number of shares of Common Stock Deemed
Outstanding (as defined below) immediately after the Dilutive Issuance.
(b) EFFECT ON EXERCISE PRICE OF CERTAIN EVENTS. For purposes of
determining the adjusted Exercise Price under Paragraph 4(a) hereof, the
following will be applicable:
(i) ISSUANCE OF RIGHTS OR OPTIONS. If the Company in any
manner issues or grants any warrants, rights or options, whether or not
immediately exercisable, to subscribe for or to purchase Common Stock or
other securities convertible into or exchangeable for Common Stock
("Convertible Securities") (such warrants, rights and options to purchase
Common Stock or Convertible Securities are hereinafter referred to as
"Options") and the price per share for which Common Stock is issuable upon
the exercise of such Options is less than the Market Price on the date of
issuance or grant of such Options, then the maximum total number of shares of
Common Stock issuable upon the exercise of all such Options will, as of the
date of the issuance or grant of such Options, be deemed to be outstanding
and to have been issued and sold by the Company for such price per share.
For purposes of the preceding sentence, the "price per share for which Common
Stock is issuable upon the exercise of such Options" is determined by
dividing (i) the total amount, if any, received or receivable by the Company
as consideration for the issuance or granting of all such Options, plus the
minimum aggregate amount of additional consideration, if any, payable to the
Company upon the exercise of all such Options, plus, in the case of
Convertible Securities issuable upon the exercise of such Options, the
minimum aggregate amount of additional
-4-
<PAGE>
consideration payable upon the conversion or exchange thereof at the time
such Convertible Securities first become convertible or exchangeable, by (ii)
the maximum total number of shares of Common Stock issuable upon the exercise
of all such Options (assuming full conversion of Convertible Securities, if
applicable). No further adjustment to the Exercise Price will be made upon
the actual issuance of such Common Stock upon the exercise of such Options or
upon the conversion or exchange of Convertible Securities issuable upon
exercise of such Options.
(ii) ISSUANCE OF CONVERTIBLE SECURITIES. If the Company in
any manner issues or sells any Convertible Securities, whether or not
immediately convertible (other than where the same are issuable upon the
exercise of Options) and the price per share for which Common Stock is
issuable upon such conversion or exchange is less than the Market Price on
the date of issuance, then the maximum total number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities
will, as of the date of the issuance of such Convertible Securities, be
deemed to be outstanding and to have been issued and sold by the Company for
such price per share. For the purposes of the preceding sentence, the "price
per share for which Common Stock is issuable upon such conversion or
exchange" is determined by dividing (i) the total amount, if any, received or
receivable by the Company as consideration for the issuance or sale of all
such Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or exchange
thereof at the time such Convertible Securities first become convertible or
exchangeable, by (ii) the maximum total number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities.
No further adjustment to the Exercise Price will be made upon the actual
issuance of such Common Stock upon conversion or exchange of such Convertible
Securities.
(iii) CHANGE IN OPTION PRICE OR CONVERSION RATE. If there
is a change at any time in (i) the amount of additional consideration payable
to the Company upon the exercise of any Options; (ii) the amount of
additional consideration, if any, payable to the Company upon the conversion
or exchange of any Convertible Securities; or (iii) the rate at which any
Convertible Securities are convertible into or exchangeable for Common Stock
(other than under or by reason of provisions designed to protect against
dilution), the Exercise Price in effect at the time of such change will be
readjusted to the Exercise Price which would have been in effect at such time
had such Options or Convertible Securities still outstanding provided for
such changed additional consideration or changed conversion rate, as the case
may be, at the time initially granted, issued or sold.
(iv) TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED
CONVERTIBLE SECURITIES. If, in any case, the total number of shares of
Common Stock issuable upon exercise of any Option or upon conversion or
exchange of any Convertible Securities is not, in fact, issued and the rights
to exercise such Option or to convert or exchange such Convertible Securities
shall have expired or terminated, the Exercise Price then in effect will be
readjusted to the Exercise Price which would have been in effect at the time
of such expiration or termination had such Option or Convertible Securities,
to the extent outstanding immediately prior to such expiration or termination
(other than in respect of the actual number of shares of Common Stock issued
upon exercise or conversion thereof), never been issued.
-5-
<PAGE>
(v) CALCULATION OF CONSIDERATION RECEIVED. If any Common
Stock, Options or Convertible Securities are issued, granted or sold for
cash, the consideration received therefor for purposes of this Warrant will
be the amount received by the Company therefor, before deduction of
reasonable commissions, underwriting discounts or allowances or other
reasonable expenses paid or incurred by the Company in connection with such
issuance, grant or sale. In case any Common Stock, Options or Convertible
Securities are issued or sold for a consideration part or all of which shall
be other than cash, the amount of the consideration other than cash received
by the Company will be the fair value of such consideration, except where
such consideration consists of securities, in which case the amount of
consideration received by the Company will be the Market Price thereof as of
the date of receipt. In case any Common Stock, Options or Convertible
Securities are issued in connection with any acquisition, merger or
consolidation in which the Company is the surviving corporation, the amount
of consideration therefor will be deemed to be the fair value of such portion
of the net assets and business of the non-surviving corporation as is
attributable to such Common Stock, Options or Convertible Securities, as the
case may be. The fair value of any consideration other than cash or
securities will be determined in good faith by the Board of Directors of the
Company.
(vi) EXCEPTIONS TO ADJUSTMENT OF EXERCISE PRICE. No
adjustment to the Exercise Price will be made (i) upon the exercise of any
warrants, options or convertible securities granted, issued and outstanding
on the date of issuance of this Warrant; (ii) upon the grant or exercise of
any stock or options which may hereafter be granted or exercised under any
employee benefit plan of the Company now existing or to be implemented in the
future, so long as the issuance of such stock or options is approved by a
majority of the independent members of the Board of Directors of the Company
or a majority of the members of a committee of independent directors
established for such purpose; (iii) upon the exercise of the Warrants; or
(iv) upon the issuance of securities pursuant to that certain Proposed Term
Sheet for a Structured Equity Line of Flexible Financing dated December 10,
1998.
(c) SUBDIVISION OR COMBINATION OF COMMON STOCK. If the
Company at any time subdivides (by any stock split, stock dividend,
recapitalization, reorganization, reclassification or otherwise) the shares
of Common Stock acquirable hereunder into a greater number of shares, then,
after the date of record for effecting such subdivision, the Exercise Price
in effect immediately prior to such subdivision will be proportionately
reduced. If the Company at any time combines (by reverse stock split,
recapitalization, reorganization, reclassification or otherwise) the shares
of Common Stock acquirable hereunder into a smaller number of shares, then,
after the date of record for effecting such combination, the Exercise Price
in effect immediately prior to such combination will be proportionately
increased.
(d) ADJUSTMENT IN NUMBER OF SHARES. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Paragraph 4, the number
of shares of Common Stock issuable upon exercise of this Warrant shall be
adjusted by multiplying a number equal to the Exercise Price in effect
immediately prior to such adjustment by the number of shares of Common Stock
issuable upon exercise of this Warrant immediately prior to such adjustment
and dividing the product so obtained by the adjusted Exercise Price.
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<PAGE>
(e) CONSOLIDATION, MERGER OR SALE. In case of any
consolidation of the Company with, or merger of the Company into any other
corporation, or in case of any sale or conveyance of all or substantially all
of the assets of the Company other than in connection with a plan of complete
liquidation of the Company, then as a condition of such consolidation, merger
or sale or conveyance, adequate provision will be made whereby the holder of
this Warrant will have the right to acquire and receive upon exercise of this
Warrant in lieu of the shares of Common Stock immediately theretofore
acquirable upon the exercise of this Warrant, such shares of stock,
securities or assets as may be issued or payable with respect to or in
exchange for the number of shares of Common Stock immediately theretofore
acquirable and receivable upon exercise of this Warrant had such
consolidation, merger or sale or conveyance not taken place. In any such
case, the Company will make appropriate provision to insure that the
provisions of this Paragraph 4 hereof will thereafter be applicable as nearly
as may be in relation to any shares of stock or securities thereafter
deliverable upon the exercise of this Warrant. The Company will not effect
any consolidation, merger or sale or conveyance unless prior to the
consummation thereof, the successor corporation (if other than the Company)
assumes by written instrument the obligations under this Paragraph 4 and the
obligations to deliver to the holder of this Warrant such shares of stock,
securities or assets as, in accordance with the foregoing provisions, the
holder may be entitled to acquire.
(f) DISTRIBUTION OF ASSETS. In case the Company shall
declare or make any distribution of its assets (including cash) to holders of
Common Stock as a partial liquidating dividend, by way of return of capital
or otherwise, then, after the date of record for determining stockholders
entitled to such distribution, but prior to the date of distribution, the
holder of this Warrant shall be entitled upon exercise of this Warrant for
the purchase of any or all of the shares of Common Stock subject hereto, to
receive the amount of such assets which would have been payable to the holder
had such holder been the holder of such shares of Common Stock on the record
date for the determination of stockholders entitled to such distribution.
(g) NOTICE OF ADJUSTMENT. Upon the occurrence of any event
which requires any adjustment of the Exercise Price, then, and in each such
case, the Company shall give notice thereof to the holder of this Warrant,
which notice shall state the Exercise Price resulting from such adjustment
and the increase or decrease in the number of Warrant Shares purchasable at
such price upon exercise, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based. Such
calculation shall be certified by the Chief Executive Officer of the Company.
(h) MINIMUM ADJUSTMENT OF EXERCISE PRICE. No adjustment of
the Exercise Price shall be made in an amount of less than 1% of the Exercise
Price in effect at the time such adjustment is otherwise required to be made,
but any such lesser adjustment shall be carried forward and shall be made at
the time and together with the next subsequent adjustment which, together
with any adjustments so carried forward, shall amount to not less than 1% of
such Exercise Price.
(i) NO FRACTIONAL SHARES. No fractional shares of Common
Stock are to be issued upon the exercise of this Warrant, but the Company
shall pay a cash adjustment in respect of any fractional share which would
otherwise be issuable in an amount equal to the same fraction of the Market
Price of a share of Common Stock on the date of such exercise.
-7-
<PAGE>
(j) OTHER NOTICES. In case at any time:
(i) the Company shall declare any dividend upon the
Common Stock payable in shares of stock of any class or make any other
distribution (including dividends or distributions payable in cash out of
retained earnings) to the holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata
to the holders of the Common Stock any additional shares of stock of any
class or other rights;
(iii) there shall be any capital reorganization of the
Company, or reclassification of the Common Stock, or consolidation or merger
of the Company with or into, or sale of all or substantially all its assets
to, another corporation or entity; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a
record shall be taken for determining the holders of Common Stock entitled to
receive any such dividend, distribution, or subscription rights or for
determining the holders of Common Stock entitled to vote in respect of any
such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding-up and (b) in the case of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, notice of the date (or, if not then known, a
reasonable approximation thereof by the Company) when the same shall take
place. Such notice shall also specify the date on which the holders of
Common Stock shall be entitled to receive such dividend, distribution, or
subscription rights or to exchange their Common Stock for stock or other
securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 30 days
prior to the record date or the date on which the Company's books are closed
in respect thereto. Failure to give any such notice or any defect therein
shall not affect the validity of the proceedings referred to in clauses (i),
(ii), (iii) and (iv) above.
(k) CERTAIN EVENTS. If any event occurs of the type
contemplated by the adjustment provisions of this Paragraph 4 but not
expressly provided for by such provisions, the Company will give notice of
such event as provided in Paragraph 4(g) hereof, and the Company's Board of
Directors will make an appropriate adjustment in the Exercise Price and the
number of shares of Common Stock acquirable upon exercise of this Warrant so
that the rights of the holder shall be neither enhanced nor diminished by
such event.
-8-
<PAGE>
(l) CERTAIN DEFINITIONS.
(i) "COMMON STOCK DEEMED OUTSTANDING" shall mean the
number of shares of Common Stock actually outstanding (not including shares
of Common Stock held in the treasury of the Company), plus (x) pursuant to
Paragraph 4(b)(i) hereof, the maximum total number of shares of Common Stock
issuable upon the exercise of Options, as of the date of such issuance or
grant of such Options, if any, and (y) pursuant to Paragraph 4(b)(ii) hereof,
the maximum total number of shares of Common Stock issuable upon conversion
or exchange of Convertible Securities, as of the date of issuance of such
Convertible Securities, if any.
(ii) "MARKET PRICE," as of any date, (i) means the
average of the last reported sale prices for the shares of Common Stock on
the OTC BB for the five (5) trading days immediately preceding such date as
reported by Bloomberg, or (ii) if the OTC BB is not the principal trading
market for the shares of Common Stock, the average of the last reported sale
prices on the principal trading market for the Common Stock during the same
period as reported by Bloomberg, or (iii) if market value cannot be
calculated as of such date on any of the foregoing bases, the Market Price
shall be the fair market value as reasonably determined in good faith by (a)
the Board of Directors of the Corporation or, at the option of a
majority-in-interest of the holders of the outstanding Warrants, by (b) an
independent investment bank of nationally recognized standing in the
valuation of businesses similar to the business of the corporation. The
manner of determining the Market Price of the Common Stock set forth in the
foregoing definition shall apply with respect to any other security in
respect of which a determination as to market value must be made hereunder.
(iii) "COMMON STOCK," for purposes of this Paragraph 4,
includes the Common Stock, par value $0.001 per share, and any additional
class of stock of the Company having no preference as to dividends or
distributions on liquidation, provided that the shares purchasable pursuant
to this Warrant shall include only shares of Common Stock, par value $0.001
per share, in respect of which this Warrant is exercisable, or shares
resulting from any subdivision or combination of such Common Stock, or in the
case of any reorganization, reclassification, consolidation, merger, or sale
of the character referred to in Paragraph 4(e) hereof, the stock or other
securities or property provided for in such Paragraph.
5. ISSUE TAX. The issuance of certificates for Warrant Shares upon
the exercise of this Warrant shall be made without charge to the holder of
this Warrant or such shares for any issuance tax or other costs in respect
thereof, provided that the Company shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than the holder of this Warrant.
6. NO RIGHTS OR LIABILITIES AS A SHAREHOLDER. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a
shareholder of the Company. No provision of this Warrant, in the absence of
affirmative action by the holder hereof to purchase Warrant Shares, and no
mere enumeration herein of the rights or privileges of the holder hereof,
shall give rise to any liability of such holder for the Exercise Price or as
a shareholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.
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<PAGE>
7. TRANSFER, EXCHANGE, AND REPLACEMENT OF WARRANT.
(a) RESTRICTION ON TRANSFER. This Warrant and the rights granted
to the holder hereof are transferable, in whole or in part, upon surrender of
this Warrant, together with a properly executed assignment in the form
attached hereto, at the office or agency of the Company referred to in
Paragraph 7(e) below, provided, however, that any transfer or assignment
shall be subject to the conditions set forth in Paragraph 7(f) hereof and to
the applicable provisions of the Securities Purchase Agreement. Until due
presentment for registration of transfer on the books of the Company, the
Company may treat the registered holder hereof as the owner and holder hereof
for all purposes, and the Company shall not be affected by any notice to the
contrary. Notwithstanding anything to the contrary contained herein, the
registration rights described in Paragraph 8 are assignable only in
accordance with the provisions of that certain Registration Rights Agreement,
dated as of January 14, 2000, by and among the Company and the other
signatories thereto (the "Registration Rights Agreement").
(b) WARRANT EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This
Warrant is exchangeable, upon the surrender hereof by the holder hereof at
the office or agency of the Company referred to in Paragraph 7(e) below, for
new Warrants of like tenor representing in the aggregate the right to
purchase the number of shares of Common Stock which may be purchased
hereunder, each of such new Warrants to represent the right to purchase such
number of shares as shall be designated by the holder hereof at the time of
such surrender.
(c) REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and
amount to the Company, or, in the case of any such mutilation, upon surrender
and cancellation of this Warrant, the Company, at its expense, will execute
and deliver, in lieu thereof, a new Warrant of like tenor.
(d) CANCELLATION; PAYMENT OF EXPENSES. Upon the surrender of
this Warrant in connection with any transfer, exchange, or replacement as
provided in this Paragraph 7, this Warrant shall be promptly canceled by the
Company. The Company shall pay all taxes (other than securities transfer
taxes) and all other expenses (other than legal expenses, if any, incurred by
the holder or transferees) and charges payable in connection with the
preparation, execution, and delivery of Warrants pursuant to this Paragraph 7.
(e) REGISTER. The Company shall maintain, at its principal
executive offices (or such other office or agency of the Company as it may
designate by notice to the holder hereof), a register for this Warrant, in
which the Company shall record the name and address of the person in whose
name this Warrant has been issued, as well as the name and address of each
transferee and each prior owner of this Warrant.
(f) EXERCISE OR TRANSFER WITHOUT REGISTRATION. If, at the time
of the surrender of this Warrant in connection with any exercise, transfer,
or exchange of this Warrant, this Warrant (or, in the case of any exercise,
the Warrant Shares issuable hereunder), shall not be registered under
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<PAGE>
the Securities Act of 1933, as amended (the "Securities Act") and under
applicable state securities or blue sky laws, the Company may require, as a
condition of allowing such exercise, transfer, or exchange, (i) that the
holder or transferee of this Warrant, as the case may be, furnish to the
Company a written opinion of counsel, which opinion and counsel are
acceptable to the Company, to the effect that such exercise, transfer, or
exchange may be made without registration under said Act and under applicable
state securities or blue sky laws, (ii) that the holder or transferee execute
and deliver to the Company an investment letter in form and substance
acceptable to the Company and (iii) that the transferee be an "accredited
investor" as defined in Rule 501(a) promulgated under the Securities Act;
provided that no such opinion, letter or status as an "accredited investor"
shall be required in connection with a transfer pursuant to Rule 144 under
the Securities Act. The first holder of this Warrant, by taking and holding
the same, represents to the Company that such holder is acquiring this
Warrant for investment and not with a view to the distribution thereof.
8. REGISTRATION RIGHTS. The initial holder of this Warrant (and
certain assignees thereof) is entitled to the benefit of such registration
rights in respect of the Warrant Shares as are set forth in Section 2 of the
Registration Rights Agreement.
9. NOTICES. All notices, requests, and other communications required
or permitted to be given or delivered hereunder to the holder of this Warrant
shall be in writing, and shall be personally delivered, or shall be sent by
certified or registered mail or by recognized overnight mail courier, postage
prepaid and addressed, to such holder at the address shown for such holder on
the books of the Company, or at such other address as shall have been
furnished to the Company by notice from such holder. All notices, requests,
and other communications required or permitted to be given or delivered
hereunder to the Company shall be in writing, and shall be personally
delivered, or shall be sent by certified or registered mail or by recognized
overnight mail courier, postage prepaid and addressed, to the office of the
Company at 1017 South Mountain Avenue, Monrovia, California 91016, Attention:
Chief Executive Officer, or at such other address as shall have been
furnished to the holder of this Warrant by notice from the Company. Any such
notice, request, or other communication may be sent by facsimile, but shall
in such case be subsequently confirmed by a writing personally delivered or
sent by certified or registered mail or by recognized overnight mail courier
as provided above. All notices, requests, and other communications shall be
deemed to have been given either at the time of the receipt thereof by the
person entitled to receive such notice at the address of such person for
purposes of this Paragraph 9, or, if mailed by registered or certified mail
or with a recognized overnight mail courier, upon deposit with the United
States Post Office or such overnight mail courier, if postage is prepaid and
the mailing is properly addressed, as the case may be.
10. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA
WITHOUT REGARD TO THE BODY OF LAW CONTROLLING CONFLICTS OF LAW. The Company
hereby submits to the exclusive jurisdiction of the United States Federal
Courts located in Los Angeles, California with respect to any dispute arising
hereunder. The party which does not prevail in any dispute arising under
this Warrant shall be responsible for all fees and expenses, including
attorneys' fees, incurred by the prevailing party in connection with such
dispute.
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<PAGE>
11. MISCELLANEOUS.
(a) AMENDMENTS. This Warrant and any provision hereof may only be
amended by an instrument in writing signed by the Company and the holder
hereof.
(b) DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Warrant are inserted for purposes of reference only, and
shall not affect the meaning or construction of any of the provisions hereof.
(c) CASHLESS EXERCISE. Notwithstanding anything to the contrary
contained in this Warrant, if the resale of the Warrant Shares by the holder
is not then registered pursuant to an effective registration statement under
the Securities Act, this Warrant may be exercised by presentation and
surrender of this Warrant to the Company at its principal executive offices
with a written notice of the holder's intention to effect a cashless
exercise, including a calculation of the number of shares of Common Stock to
be issued upon such exercise in accordance with the terms hereof (a "Cashless
Exercise"). In the event of a Cashless Exercise, in lieu of paying the
Exercise Price in cash, the holder shall surrender this Warrant for that
number of shares of Common Stock determined by multiplying the number of
Warrant Shares to which it would otherwise be entitled by a fraction, the
numerator of which shall be the difference between the then current Market
Price per share of the Common Stock and the Exercise Price, and the
denominator of which shall be the then current Market Price per share of
Common Stock.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
AMERICAN TECHNOLOGIES GROUP, INC.
By:
------------------------------------
Lawrence J. Brady
Chairman and Chief Executive Officer
Dated as of January 14, 2000
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<PAGE>
FORM OF EXERCISE AGREEMENT
Dated: , 200
------------- -
To: American Technologies Group, Inc.
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to purchase ________ shares of Common Stock covered by
such Warrant, and makes payment herewith in full therefor at the price per
share provided by such Warrant in cash or by certified or official bank check
in the amount of, or, if the resale of such Common Stock by the undersigned
is not currently registered pursuant to an effective registration statement
under the Securities Act of 1933, as amended, by surrender of securities
issued by the Company (including a portion of the Warrant) having a market
value (in the case of a portion of this Warrant, determined in accordance
with Section 11(c) of the Warrant) equal to $_________. Please issue a
certificate or certificates for such shares of Common Stock in the name of
and pay any cash for any fractional share to:
Name:
------------------------------
Signature:
------------------------------
Address:
------------------------------
------------------------------
Note: The above signature should
correspond exactly with the
name on the face of the within
Warrant, if applicable.
and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Wa rrant, a new Warrant is to be issued in the
name of said undersigned covering the balance of the shares purchasable
thereunder less any fraction of a share paid in cash.
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all the rights of the undersigned under the within Warrant, with respect to
the number of shares of Common Stock covered thereby set forth hereinbelow,
to:
Name of Assignee Address No of Shares
- ---------------- ------- ------------
, and hereby irrevocably constitutes and appoints _____________________________
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Dated: , 200
------------------- -
In the presence of:
- -----------------------------------
Name:
------------------------------
Signature:
------------------------------
Title of Signing Officer or Agent (if any):
------------------------------
Address:
------------------------------
------------------------------
Note: The above signature should
correspond exactly with the
name on the face of the within
Warrant, if applicable.
<PAGE>
Exhibit 4.3
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of January
14, 2000, by and among American Technologies Group, Inc., a Nevada corporation,
with headquarters located at 1017 South Mountain Avenue, Monrovia, California
91016 (the "COMPANY"), and each of the purchasers set forth on the signature
pages hereto (the "BUYERS").
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration under
Section 4(2) of the Securities Act of 1933, as amended (the "1933 ACT");
B. Buyers desire to purchase and the Company desires to issue and
sell, upon the terms and conditions set forth in this Agreement (i)
convertible debentures of the Company, in the form attached hereto as EXHIBIT
"A", in the aggregate principal amount of Two Hundred Fifty Thousand Dollars
($250,000) (together with any debenture(s) issued in replacement thereof or
as a dividend thereon or otherwise with respect thereto in accordance with
the terms thereof, the "DEBENTURES"), convertible into shares of common
stock, $0.001 par value per share, of the Company (the "COMMON STOCK"), upon
the terms and subject to the limitations and conditions set forth in such
Debentures and (ii) warrants, in the form attached hereto as EXHIBIT "B", to
purchase Five Hundred Thousand (500,000) shares of Common Stock (the
"WARRANTS");
C. Each Buyer wishes to purchase, upon the terms and conditions
stated in this Agreement, such principal amount of Debentures and number of
Warrants as is set forth immediately below its name on the signature pages
hereto; and
D. Contemporaneous with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration
Rights Agreement, in the form attached hereto as EXHIBIT "C" (the
"REGISTRATION RIGHTS AGREEMENT"), pursuant to which the Company has agreed to
provide certain registration rights under the 1933 Act and the rules and
regulations promulgated thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and each of the Buyers severally (and not
jointly) hereby agree as follows:
1. PURCHASE AND SALE OF DEBENTURES AND WARRANTS.
a. PURCHASE OF DEBENTURES AND WARRANTS. On the Closing Date
(as defined below), the Company shall issue and sell to each Buyer and each
Buyer severally agrees to purchase from the Company such principal amount of
Debentures and number of Warrants as is set forth immediately below such
Buyer's name on the signature pages hereto.
<PAGE>
b. FORM OF PAYMENT. On the Closing Date (as defined below),
(i) each Buyer shall pay the purchase price for the Debentures and the
Warrants to be issued and sold to it at the Closing (as defined below) (the
"PURCHASE PRICE") by wire transfer of immediately available funds to the
Company, in accordance with the Company's written wiring instructions,
against delivery of the Debentures in the principal amount equal to the
Purchase Price and the number of Warrants as is set forth immediately below
such Buyer's name on the signature pages hereto, and (ii) the Company shall
deliver such Debentures and Warrants duly executed on behalf of the Company,
to such Buyer, against delivery of such Purchase Price.
c. CLOSING DATE. Subject to the satisfaction (or waiver) of
the conditions thereto set forth in Section 6 and Section 7 below, the date
and time of the issuance and sale of the Debentures and the Warrants pursuant
to this Agreement (the "CLOSING DATE") shall be 12:00 noon Eastern Standard
Time on January 14, 2000 or such other mutually agreed upon time. The closing
of the transactions contemplated by this Agreement (the "CLOSING") shall
occur on the Closing Date at the offices of Bristol Capital, LLC, 11777 San
Vicente Blvd., Suite 702, Los Angeles, California 90049 or at such other
location as may be agreed to be the parties.
2. BUYERS' REPRESENTATIONS AND WARRANTIES. Each Buyer severally (and
not jointly) represents and warrants to the Company solely as to such Buyer
that:
a. INVESTMENT PURPOSE. As of the date hereof, the Buyer is
purchasing the Debentures and the shares of Common Stock issuable upon
conversion of or otherwise pursuant to the Debentures (including, without
limitation, such additional shares of Common Stock, if any, as are issuable
as a result of the events described in Sections 1.3 and 1.4(g) of the
Debentures and Section 2(c) of the Registration Rights Agreement, such shares
of Common Stock being referred to herein as the "CONVERSION SHARES") and the
Warrants and the shares of Common Stock issuable upon exercise thereof (the
"WARRANT SHARES" and, collectively with the Debentures, Warrants and
Conversion Shares, the "SECURITIES") for its own account and not with a
present view towards the public sale or distribution thereof, except pursuant
to sales registered or exempted from registration under the 1933 Act;
PROVIDED, HOWEVER, that by making the representations herein, the Buyer does
not agree to hold any of the Securities for any minimum or other specific
term and reserves the right to dispose of the Securities at any time in
accordance with or pursuant to a registration statement or an exemption under
the 1933 Act.
b. ACCREDITED INVESTOR STATUS. The Buyer is an
"accredited investor" as that term is defined in Rule 501(a) of Regulation
D (an "ACCREDITED INVESTOR").
c. RELIANCE ON EXEMPTIONS. The Buyer understands that the
Securities are being offered and sold to it in reliance upon specific
exemptions from the registration requirements of United States federal and
state securities laws and that the Company is relying upon the truth and
accuracy of, and the Buyer's compliance with, the representations,
warranties, agreements, acknowledgments and understandings of the Buyer set
forth herein in order to determine the availability of such exemptions and
the eligibility of the Buyer to acquire the Securities.
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<PAGE>
d. INFORMATION. The Buyer and its advisors, if any, have
been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Securities which have been requested by the Buyer or its advisors. The Buyer
and its advisors, if any, have been afforded the opportunity to ask questions
of the Company. Neither such inquiries nor any other due diligence
investigation conducted by Buyer or any of its advisors or representatives
shall modify, amend or affect Buyer's right to rely on the Company's
representations and warranties contained in Section 3 below. The Buyer
understands that its investment in the Securities involves a significant
degree of risk.
e. GOVERNMENTAL REVIEW. The Buyer understands that no
United States federal or state agency or any other government or governmental
agency has passed upon or made any recommendation or endorsement of the
Securities.
f. TRANSFER OR RE-SALE. The Buyer understands that (i)
except as provided in the Registration Rights Agreement, the sale or re-sale
of the Securities has not been and is not being registered under the 1933 Act
or any applicable state securities laws, and the Securities may not be
transferred unless (a) the Securities are sold pursuant to an effective
registration statement under the 1933 Act, (b) the Buyer shall have delivered
to the Company an opinion of counsel (which opinion shall be in form,
substance and scope customary for opinions of counsel in comparable
transactions) to the effect that the Securities to be sold or transferred may
be sold or transferred pursuant to an exemption from such registration, (c)
the Securities are sold or transferred to an "affiliate" (as defined in Rule
144 promulgated under the 1933 Act (or a successor rule) ("RULE 144")) of the
Buyer who agrees to sell or otherwise transfer the Securities only in
accordance with this Section 2(f) and who is an Accredited Investor, or (d)
the Securities are sold pursuant to Rule 144; (ii) any sale of such
Securities made in reliance on Rule 144 may be made only in accordance with
the terms of said Rule and further, if said Rule is not applicable, any
re-sale of such Securities under circumstances in which the seller (or the
person through whom the sale is made) may be deemed to be an underwriter (as
that term is defined in the 1933 Act) may require compliance with some other
exemption under the 1933 Act or the rules and regulations of the SEC
thereunder; and (iii) neither the Company nor any other person is under any
obligation to register such Securities under the 1933 Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder (in each case, other than pursuant to the Registration Rights
Agreement). Notwithstanding the foregoing or anything else contained herein
to the contrary, the Securities may be pledged as collateral in connection
with a BONA FIDE margin account or other lending arrangement.
g. LEGENDS. The Buyer understands that the Debentures and
the Warrants and, until such time as the Conversion Shares and Warrant Shares
have been registered under the 1933 Act as contemplated by the Registration
Rights Agreement or otherwise may be sold pursuant to Rule 144 without any
restriction as to the number of securities as of a particular date that can
then be immediately sold, the Conversion Shares and Warrant Shares may bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of the certificates for such Securities):
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"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The
securities may not be sold, transferred or assigned in the
absence of an effective registration statement for the
securities under said Act, or an opinion of counsel, in form,
substance and scope customary for opinions of counsel in
comparable transactions, that registration is not required
under said Act or unless sold pursuant to Rule 144 under said
Act."
The legend set forth above shall be removed and the Company
shall issue a certificate without such legend to the holder of any Security upon
which it is stamped, if, unless otherwise required by applicable state
securities laws, (a) such Security is registered for sale under an effective
registration statement filed under the 1933 Act or otherwise may be sold
pursuant to Rule 144 without any restriction as to the number of securities as
of a particular date that can then be immediately sold, or (b) such holder
provides the Company with an opinion of counsel, in form, substance and scope
customary for opinions of counsel in comparable transactions, to the effect that
a public sale or transfer of such Security may be made without registration
under the 1933 Act and such sale or transfer is effected or (c) such holder
provides the Company with reasonable assurances that such Security can be sold
pursuant to Rule 144. The Buyer agrees to sell all Securities, including those
represented by a certificate(s) from which the legend has been removed, in
compliance with applicable prospectus delivery requirements, if any.
h. AUTHORIZATION; ENFORCEMENT. This Agreement and the
Registration Rights Agreement have been duly and validly authorized. This
Agreement has been duly executed and delivered on behalf of the Buyer, and
this Agreement constitutes, and upon execution and delivery by the Buyer of
the Registration Rights Agreement, such agreement will constitute, valid and
binding agreements of the Buyer enforceable in accordance with their terms.
i. RESIDENCY. The Buyer is a resident of the jurisdiction
set forth immediately below such Buyer's name on the signature pages hereto.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Buyer that:
a. ORGANIZATION AND QUALIFICATION. The Company and each of
its Subsidiaries (as defined below), if any, is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated, with full power and authority (corporate and other)
to own, lease, use and operate its properties and to carry on its business as
and where now owned, leased, used, operated and conducted. The Company's only
Subsidiary is New Concept Mining, Inc. The Company and each of its
Subsidiaries is duly qualified as a foreign corporation to do business and is
in good standing in every jurisdiction in which its ownership or use of
property or the nature of the business conducted by it makes such
qualification necessary except where the failure to be so qualified or in
good standing would not have a MATERIAL ADVERSE EFFECT. "MATERIAL ADVERSE
EFFECT" means any material adverse effect
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on the business, operations, assets, financial condition or prospects of the
Company or its Subsidiaries, if any, taken as a whole, or on the transactions
contemplated hereby or by the agreements or instruments to be entered into in
connection herewith. "SUBSIDIARIES" means any corporation or other
organization, whether incorporated or unincorporated, in which the Company
owns, directly or indirectly, any equity or other ownership interest.
b. AUTHORIZATION; ENFORCEMENT. (i) The Company has all
requisite corporate power and authority to enter into and perform this
Agreement, the Registration Rights Agreement, the Debentures and the Warrants
and to consummate the transactions contemplated hereby and thereby and to
issue the Securities, in accordance with the terms hereof and thereof, (ii)
the execution and delivery of this Agreement, the Registration Rights
Agreement, the Debentures and the Warrants by the Company and the
consummation by it of the transactions contemplated hereby and thereby
(including without limitation, the issuance of the Debentures and the
Warrants and the issuance and reservation for issuance of the Conversion
Shares and Warrant Shares issuable upon conversion or exercise thereof) have
been duly authorized by the Company's Board of Directors and no further
consent or authorization of the Company, its Board of Directors, or its
shareholders is required, (iii) this Agreement has been duly executed and
delivered by the Company, and (iv) this Agreement constitutes, and upon
execution and delivery by the Company of the Registration Rights Agreement,
the Debentures and the Warrants, each of such instruments will constitute, a
legal, valid and binding obligation of the Company enforceable against the
Company in accordance with its terms.
c. CAPITALIZATION. As of the date hereof, the authorized
capital stock of the Company consists of (i) an aggregate of 100,000,000
shares of Common Stock, of which 1,600,125 shares are reserved for issuance
pursuant to the Company's stock option plans, 7,964,773 shares are reserved
for issuance upon exercise of other options and warrants, shares reserved for
issuance pursuant to certain debentures issued by the Company (other than the
Debentures), as set forth on SCHEDULE 3(c) and 3,873,563 (2x currently
required) shares are reserved for issuance upon conversion of the Debentures
and exercise of the Warrants (subject to adjustment pursuant to the Company's
covenant set forth in Section 4(h) below) ; and (ii) an aggregate of
50,000,000 shares of blank check preferred stock, par value $0.001 per share,
of which (a) 10,000,000 shares have been designated as Series A Convertible
Preferred Stock, (b) 500,000 shares have been designated as Series B
Convertible Preferred Stock and (c) 2,000 shares have been designated as
Series C Convertible Preferred Stock. As of the date hereof, an aggregate of
36,584,178 shares of Common Stock and 378,061 shares of Series A Preferred
Stock were issued and outstanding, and no shares of Series B or Series C
Preferred Stock were issued and outstanding. All of such outstanding shares
of capital stock are, or upon issuance will be, duly authorized, validly
issued, fully paid and nonassessable. No shares of capital stock of the
Company are subject to preemptive rights or any other similar rights of the
stockholders of the Company or any liens or encumbrances imposed through the
actions or failure to act of the Company. Except as disclosed in SCHEDULE
3(c), as of the effective date of this Agreement, (i) there are no
outstanding options, warrants, scrip, rights to subscribe for, puts, calls,
rights of first refusal, agreements, understandings, claims or other
commitments or rights of any character whatsoever relating to, or securities
or rights convertible into or exchangeable for any shares of capital stock of
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the Company or any of its Subsidiaries, or arrangements by which the Company
or any of its Subsidiaries is or may become bound to issue additional shares
of capital stock of the Company or any of its Subsidiaries, (ii) there are no
agreements or arrangements under which the Company or any of its Subsidiaries
is obligated to register the sale of any of its or their securities under the
1933 Act (except the Registration Rights Agreement) and (iii) there are no
anti-dilution or price adjustment provisions contained in any security issued
by the Company (or in any agreement providing rights to security holders)
that will be triggered by the issuance of the Debentures, the Warrants, the
Conversion Shares or Warrant Shares. The Company has furnished to the Buyer
true and correct copies of the Company's Certificate of Incorporation as in
effect on the date hereof ("CERTIFICATE OF INCORPORATION"), the Company's
By-laws, as in effect on the date hereof (the "BY-LAWS"), and the terms of
all securities convertible into or exercisable for Common Stock of the
Company and the material rights of the holders thereof in respect thereto.
The Company shall provide the Buyer with a written update of this
representation signed by the Company's Chief Executive or Chief Financial
Officer on behalf of the Company as of the Closing Date.
d. ISSUANCE OF SHARES. The Conversion Shares and Warrant
Shares are duly authorized and reserved for issuance and, upon conversion of
the Debentures and exercise of the Warrants in accordance with their
respective terms, will be validly issued, fully paid and non-assessable, and
free from all taxes, liens, claims and encumbrances with respect to the issue
thereof and shall not be subject to preemptive rights or other similar rights
of stockholders of the Company and will not impose personal liability upon
the holder thereof.
e. ACKNOWLEDGMENT OF DILUTION. The Company understands and
acknowledges the potentially dilutive effect to the Common Stock upon the
issuance of the Conversion Shares and Warrant Shares upon conversion of the
Debenture, or exercise of the Warrants. The Company further acknowledges that
its obligation to issue Conversion Shares and Warrant Shares upon conversion
of the Debentures or exercise of the Warrants in accordance with this
Agreement, the Debentures and the Warrants is absolute and unconditional
regardless of the dilutive effect that such issuance may have on the
ownership interests of other stockholders of the Company.
f. NO CONFLICTS. The execution, delivery and performance of
this Agreement, the Registration Rights Agreement, the Debentures and the
Warrants by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation,
the issuance and reservation for issuance of the Conversion Shares and
Warrant Shares) will not (i) conflict with or result in a violation of any
provision of the Certificate of Incorporation or By-laws or (ii) violate or
conflict with, or result in a breach of any provision of, or constitute a
default (or an event which with notice or lapse of time or both could become
a default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture, patent, patent
license or instrument to which the Company or any of its Subsidiaries is a
party, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws and
regulations and regulations of any self-regulatory organizations to which the
Company or its securities are subject) applicable to the Company or any of
its Subsidiaries or by which any property or asset of the Company or any of
its Subsidiaries is bound or affected (except for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as
would not, individually or in the aggregate, have a Material Adverse Effect).
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<PAGE>
Neither the Company nor any of its Subsidiaries is in violation of its
Certificate of Incorporation, By-laws or other organizational documents and
neither the Company nor any of its Subsidiaries is in default (and no event
has occurred which with notice or lapse of time or both could put the Company
or any of its Subsidiaries in default) under, and neither the Company nor any
of its Subsidiaries has taken any action or failed to take any action that
would give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company
or any of its Subsidiaries is a party or by which any property or assets of
the Company or any of its Subsidiaries is bound or affected, except for
possible defaults as would not, individually or in the aggregate, have a
Material Adverse Effect. The businesses of the Company and its Subsidiaries,
if any, are not being conducted, and shall not be conducted so long as a
Buyer owns any of the Securities, in violation of any law, ordinance or
regulation of any governmental entity. Except as specifically contemplated by
this Agreement and as required under the 1933 Act and any applicable state
securities laws, the Company is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any
court, governmental agency, regulatory agency, self regulatory organization
or stock market or any third party in order for it to execute, deliver or
perform any of its obligations under this Agreement, the Registration Rights
Agreement, the Debentures or the Warrants in accordance with the terms hereof
or thereof or to issue and sell the Debentures and Warrants in accordance
with the terms hereof and to issue the Conversion Shares upon conversion of
the Debentures and the Warrant Shares upon exercise of the Warrants. Except
as disclosed in SCHEDULE 3(f), all consents, authorizations, orders, filings
and registrations which the Company is required to obtain pursuant to the
preceding sentence have been obtained or effected on or prior to the date
hereof. The Company is not in violation of the listing requirements of the
Over-the-Counter Bulletin Board (the "OTCBB") and does not reasonably
anticipate that the Common Stock will be delisted by the OTCBB in the
foreseeable future. The Company and its Subsidiaries are unaware of any facts
or circumstances which might give rise to any of the foregoing.
g. SEC DOCUMENTS; FINANCIAL STATEMENTS. Since July 31,
1998, the Company has timely filed all reports, schedules, forms, statements
and other documents required to be filed by it with the SEC pursuant to the
reporting requirements of the Exchange Act of 1934, as amended (the "1934
ACT") (all of the foregoing filed prior to the date hereof and all exhibits
included therein and financial statements and schedules thereto and documents
(other than exhibits to such documents) incorporated by reference therein,
being hereinafter referred to herein as the "SEC DOCUMENTS"). The Company has
delivered to each Buyer true and complete copies of the SEC Documents, except
for such exhibits and incorporated documents. As of their respective dates,
the SEC Documents complied in all material respects with the requirements of
the 1934 Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time
they were filed with the SEC, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. None of the
statements made in any such SEC Documents is, or has been, required to be
amended or updated under applicable law (except for such statements as have
been amended or updated in subsequent filings prior to the date hereof). As
of their respective dates, the financial statements of the Company included
in the SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto. Such financial
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<PAGE>
statements have been prepared in accordance with United States generally
accepted accounting principles, consistently applied, during the periods
involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed
or summary statements) and fairly present in all material respects the
consolidated financial position of the Company and its consolidated
Subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). Except as set
forth in the financial statements of the Company included in the SEC
Documents, the Company has no liabilities, contingent or otherwise, other
than (i) liabilities incurred in the ordinary course of business subsequent
to July 31, 1999 and (ii) obligations under contracts and commitments
incurred in the ordinary course of business and not required under generally
accepted accounting principles to be reflected in such financial statements,
which, individually or in the aggregate, are not material to the financial
condition or operating results of the Company.
h. ABSENCE OF CERTAIN CHANGES. Since July 31, 1999, there
has been no material adverse change and no material adverse development in
the assets, liabilities, business, properties, operations, financial
condition, results of operations or prospects of the Company or any of its
Subsidiaries.
i. ABSENCE OF LITIGATION. There is no action, suit, claim,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its Subsidiaries, threatened against or
affecting the Company or any of its Subsidiaries, or their officers or
directors in their capacity as such, that could have a Material Adverse
Effect. SCHEDULE 3(i) contains a complete list and summary description of any
pending or threatened proceeding against or affecting the Company or any of
its Subsidiaries, without regard to whether it would have a Material Adverse
Effect. The Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.
j. PATENTS, COPYRIGHTS, ETC.
(i) The Company and each of its Subsidiaries owns
or possesses the requisite licenses or rights to use all patents, patent
applications, patent rights, inventions, know-how, trade secrets, trademarks,
trademark applications, service marks, service names, trade names and
copyrights ("INTELLECTUAL PROPERTY") necessary to enable it to conduct its
business as now operated (and, except as set forth in SCHEDULE 3(j) hereof,
to the best of the Company's knowledge, as presently contemplated to be
operated in the future); there is no claim or action by any person pertaining
to, or proceeding pending, or to the Company's knowledge threatened, which
challenges the right of the Company or of a Subsidiary with respect to any
Intellectual Property necessary to enable it to conduct its business as now
operated (and, except as set forth in SCHEDULE 3(j) hereof, to the best of
the Company's knowledge, as presently contemplated to be operated in the
future); to the best of the Company's knowledge, the Company's or its
Subsidiaries' current and intended products, services and processes do not
infringe on any Intellectual Property or other rights held by any person; and
the Company is unaware of any facts or circumstances which might give rise to
any of the foregoing. The
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<PAGE>
Company and each of its Subsidiaries have taken reasonable security measures
to protect the secrecy, confidentiality and value of their Intellectual
Property.
(ii) All of the Company's computer software and computer
hardware, and other similar or related items of automated, computerized or
software systems that are used or relied on by the Company in the conduct of
its business or that were, or currently are being, sold or licensed by the
Company to customers (collectively, "INFORMATION TECHNOLOGY"), are Year 2000
Compliant. For purposes of this Agreement, the term "YEAR 2000 COMPLIANT"
means, with respect to the Company's Information Technology, that the
Information Technology is designed to be used prior to, during and after the
calendar Year 2000 A.D., and the Information Technology used during each such
time period will accurately receive, provide and process date and time data
(including, but not limited to, calculating, comparing and sequencing) from,
into and between the 20th and 21st centuries, including the years 1999 and
2000, and leap-year calculations, and will not malfunction, cease to
function, or provide invalid or incorrect results as a result of the date or
time data, to the extent that other information technology, used in
combination with the Information Technology, properly exchanges date and time
data with it. The Company has delivered to the Buyers true and correct copies
of all analyses, reports, studies and similar written information, whether
prepared by the Company or another party, relating to whether the Information
Technology is Year 2000 Compliant.
k. NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the
Company nor any of its Subsidiaries is subject to any charter, corporate or
other legal restriction, or any judgment, decree, order, rule or regulation
which in the judgment of the Company's officers has or is expected in the
future to have a Material Adverse Effect. Neither the Company nor any of its
Subsidiaries is a party to any contract or agreement which in the judgment of
the Company's officers has or is expected to have a Material Adverse Effect.
l. TAX STATUS. Except as set forth on SCHEDULE 3(l), the
Company and each of its Subsidiaries has made or filed all federal, state and
foreign income and all other tax returns, reports and declarations required
by any jurisdiction to which it is subject (unless and only to the extent
that the Company and each of its Subsidiaries has set aside on its books
provisions reasonably adequate for the payment of all unpaid and unreported
taxes) and has paid all taxes and other governmental assessments and charges
that are material in amount, shown or determined to be due on such returns,
reports and declarations, except those being contested in good faith and has
set aside on its books provisions reasonably adequate for the payment of all
taxes for periods subsequent to the periods to which such returns, reports or
declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of
the Company know of no basis for any such claim. The Company has not executed
a waiver with respect to the statute of limitations relating to the
assessment or collection of any foreign, federal, statue or local tax. Except
as set forth on SCHEDULE 3(l), none of the Company's tax returns is presently
being audited by any taxing authority.
m. CERTAIN TRANSACTIONS. Except as set forth in the SEC
Documents and except for arm's length transactions pursuant to which the
Company or any of its Subsidiaries makes payments in the ordinary course of
business upon terms no less favorable
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than the Company or any of its Subsidiaries could obtain from third parties
and other than the grant of stock options disclosed on SCHEDULE 3(c), none of
the officers, directors, or employees of the Company is presently a party to
any transaction with the Company or any of its Subsidiaries (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or
otherwise requiring payments to or from any officer, director or such
employee or, to the knowledge of the Company, any corporation, partnership,
trust or other entity in which any officer, director, or any such employee
has a substantial interest or is an officer, director, trustee or partner.
n. DISCLOSURE. All information relating to or concerning
the Company or any of its Subsidiaries set forth in this Agreement and
provided to the Buyers pursuant to Section 2(d) hereof and otherwise in
connection with the transactions contemplated hereby is true and correct in
all material respects and the Company has not omitted to state any material
fact necessary in order to make the statements made herein or therein, in
light of the circumstances under which they were made, not misleading. No
event or circumstance has occurred or exists with respect to the Company or
any of its Subsidiaries or its or their business, properties, prospects,
operations or financial conditions, which, under applicable law, rule or
regulation, requires public disclosure or announcement by the Company but
which has not been so publicly announced or disclosed (assuming for this
purpose that the Company's reports filed under the 1934 Act are being
incorporated into an effective registration statement filed by the Company
under the 1933 Act).
o. ACKNOWLEDGMENT REGARDING BUYERS' PURCHASE OF SECURITIES.
The Company acknowledges and agrees that the Buyers are acting solely in the
capacity of arm's length purchasers with respect to this Agreement and the
transactions contemplated hereby. The Company further acknowledges that no
Buyer is acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to this Agreement and the transactions
contemplated hereby and any statement made by any Buyer or any of their
respective representatives or agents in connection with this Agreement and
the transactions contemplated hereby is not advice or a recommendation and is
merely incidental to the Buyers' purchase of the Securities. The Company
further represents to each Buyer that the Company's decision to enter into
this Agreement has been based solely on the independent evaluation of the
Company and its representatives.
p. NO INTEGRATED OFFERING. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales in any security or solicited any offers
to buy any security under circumstances that would require registration under
the 1933 Act of the issuance of the Securities to the Buyers. The issuance of
the Securities to the Buyers will not be integrated with any other issuance
of the Company's securities (past, current or future) for purposes of any
stockholder approval provisions applicable to the Company or its securities.
q. NO BROKERS. The Company has taken no action which would
give rise to any claim by any person for brokerage commissions, finder's fees
or similar payments
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relating to this Agreement or the transactions contemplated hereby, except for
dealings with Bristol Capital, LLC, whose commissions and fees will be paid for
by the Company.
r. PERMITS; COMPLIANCE. The Company and each of its
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its properties and
to carry on its business as it is now being conducted (collectively, the
"COMPANY PERMITS"), and there is no action pending or, to the knowledge of
the Company, threatened regarding suspension or cancellation of any of the
Company Permits. Neither the Company nor any of its Subsidiaries is in
conflict with, or in default or violation of, any of the Company Permits,
except for any such conflicts, defaults or violations which, individually or
in the aggregate, would not reasonably be expected to have a Material Adverse
Effect. Since July 31, 1999, neither the Company nor any of its Subsidiaries
has received any notification with respect to possible conflicts, defaults or
violations of applicable laws, except for notices relating to possible
conflicts, defaults or violations, which conflicts, defaults or violations
would not have a Material Adverse Effect.
s. ENVIRONMENTAL MATTERS.
(i) Except as set forth in SCHEDULE 3(s), there are, to the
Company's knowledge, with respect to the Company or any of its Subsidiaries
or any predecessor of the Company, no past or present violations of
Environmental Laws (as defined below), releases of any material into the
environment, actions, activities, circumstances, conditions, events,
incidents, or contractual obligations which may give rise to any common law
environmental liability or any liability under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 or similar
federal, state, local or foreign laws and neither the Company nor any of its
Subsidiaries has received any notice with respect to any of the foregoing,
nor is any action pending or, to the Company's knowledge, threatened in
connection with any of the foregoing. The term "ENVIRONMENTAL LAWS" means all
federal, state, local or foreign laws relating to pollution or protection of
human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants contaminants, or toxic or
hazardous substances or wastes (collectively, "HAZARDOUS MATERIALS") into the
environment, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials, as well as all authorizations, codes, decrees, demands
or demand letters, injunctions, judgments, licenses, notices or notice
letters, orders, permits, plans or regulations issued, entered, promulgated
or approved thereunder.
(ii) Other than those that are or were stored, used or
disposed of in compliance with applicable law, no Hazardous Materials are
contained on or about any real property currently owned, leased or used by
the Company or any of its Subsidiaries, and no Hazardous Materials were
released on or about any real property previously owned, leased or used by
the Company or any of its Subsidiaries during the period the property was
owned, leased or used by the Company or any of its Subsidiaries, except in
the normal course of the Company's or any of its Subsidiaries' business.
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(iii) Except as set forth in SCHEDULE 3(S), there are no
underground storage tanks on or under any real property owned, leased or used
by the Company or any of its Subsidiaries that are not in compliance with
applicable law.
t. TITLE TO PROPERTY. The Company and its Subsidiaries have
good and marketable title in fee simple to all real property and good and
marketable title to all personal property owned by them which is material to
the business of the Company and its Subsidiaries, in each case free and clear
of all liens, encumbrances and defects, except such as are described in
SCHEDULE 3(t) or such as would not have a Material Adverse Effect. Any real
property and facilities held under lease by the Company and its Subsidiaries
are held by them under valid, subsisting and enforceable leases with such
exceptions as would not have a Material Adverse Effect.
u. INSURANCE. The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against such
losses and risks and in such amounts as management of the Company believes to
be prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has any
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not have a Material Adverse Effect.
v. INTERNAL ACCOUNTING CONTROLS. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's board of directors, to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as
necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
w. FOREIGN CORRUPT PRACTICES. Neither the Company, nor any of
its Subsidiaries, nor any director, officer, agent, employee or other person
acting on behalf of the Company or any Subsidiary has, in the course of his
actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses
relating to political activity; made any direct or indirect unlawful payment
to any foreign or domestic government official or employee from corporate
funds; violated or is in violation of any provision of the U.S. Foreign
Corrupt Practices Act of 1977, as amended, or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.
x. NO INVESTMENT COMPANY. The Company is not, and upon the
issuance and sale of the Securities as contemplated by this Agreement will
not be an "investment
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company" required to be registered under the Investment Company Act of 1940
(an "INVESTMENT COMPANY"). The Company is not controlled by an Investment
Company.
4. COVENANTS.
a. BEST EFFORTS. The parties shall use their best efforts to
satisfy timely each of the conditions described in Section 6 and 7 of this
Agreement.
b. BLUE SKY LAWS. The Company shall, on or before the Closing
Date, take such action as the Company shall reasonably determine is necessary
to qualify the Securities for sale to the Buyers at the applicable closing
pursuant to this Agreement under applicable securities or "blue sky" laws of
the states of the United States (or to obtain an exemption from such
qualification), and shall provide evidence of any such action so taken to
each Buyer on or prior to the Closing Date.
c. REPORTING STATUS; ELIGIBILITY TO USE FORM S-3. The
Company's Common Stock is registered under Section 12(g) of the 1934 Act. So
long as any Buyer beneficially owns any of the Securities, the Company shall
timely file all reports required to be filed with the SEC pursuant to the
1934 Act, and the Company shall not terminate its status as an issuer
required to file reports under the 1934 Act even if the 1934 Act or the rules
and regulations thereunder would permit such termination. The Company
currently meets, and will take all necessary action to continue to meet, the
"registrant eligibility" requirements set forth in the general instructions
to Form S-3.
d. USE OF PROCEEDS. The Company shall use the proceeds from
the sale of the Debentures and the Warrants for working capital and shall
not, directly or indirectly, use such proceeds for any loan to or investment
in any other corporation, partnership, enterprise or other person (except in
connection with its currently existing direct or indirect Subsidiaries).
e. ADDITIONAL EQUITY CAPITAL; RIGHT OF FIRST REFUSAL. Subject
to the exceptions described below, the Company will not, without the prior
written consent of a majority-in-interest of the Buyers, negotiate or
contract with any party to obtain additional equity financing (including debt
financing with an equity component) that involves (A) the issuance of Common
Stock at a discount to the market price of the Common Stock on the date of
issuance (taking into account the value of any warrants or options to acquire
Common Stock issued in connection therewith) or (B) the issuance of
convertible securities that are convertible into an indeterminate number of
shares of Common Stock or (C) the issuance of warrants during the period (the
"LOCK-UP PERIOD") beginning on the Closing Date and ending on the later of
(i) one hundred eighty (180) days from the Closing Date and (ii) one hundred
fifty (150) days from the date the Registration Statement (as defined in the
Registration Rights Agreement) is declared effective (plus any days in which
sales cannot be made thereunder). In addition, subject to the exceptions
described below, the Company will not conduct any equity financing (including
debt with an equity component) ("FUTURE OFFERINGS") during the period
beginning on the Closing Date and ending one hundred eighty (180) days after
the end of the Lock-up Period unless it shall have first delivered to each
Buyer, at least fifteen (15) business days prior to the closing of
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such Future Offering, written notice describing the proposed Future Offering,
including the terms and conditions thereof and proposed definitive
documentation to be entered into in connection therewith, and providing each
Buyer an option during the ten (10) day period following delivery of such
notice to purchase its pro rata share (based on the ratio that the aggregate
principal amount of Debentures purchased by it hereunder bears to the
aggregate principal amount of Debentures purchased hereunder) of the
securities being offered in the Future Offering on the same terms as
contemplated by such Future Offering (the limitations referred to in this
sentence and the preceding sentence are collectively referred to as the
"CAPITAL RAISING LIMITATIONS"). In the event the terms and conditions of a
proposed Future Offering are amended in any respect after delivery of the
notice to the Buyers concerning the proposed Future Offering, the Company
shall deliver a new notice to each Buyer describing the amended terms and
conditions of the proposed Future Offering and each Buyer thereafter shall
have an option during the ten (10) day period following delivery of such new
notice to purchase its pro rata share of the securities being offered on the
same terms as contemplated by such proposed Future Offering, as amended. The
foregoing sentence shall apply to successive amendments to the terms and
conditions of any proposed Future Offering. The Capital Raising Limitations
shall not apply to any transaction involving (i) issuances of securities in a
firm commitment underwritten public offering (excluding a continuous offering
pursuant to Rule 415 under the 1933 Act) or (ii) issuances of securities as
consideration for a merger, consolidation or purchase of assets, or in
connection with any strategic partnership or joint venture (the primary
purpose of which is not to raise equity capital), or in connection with the
disposition or acquisition of a business, product or license by the Company.
The Capital Raising Limitations also shall not apply (i) to the issuance of
securities upon exercise or conversion of the Company's options, warrants or
other convertible securities outstanding as of the date hereof, (ii) the
grant of additional options or warrants, or the issuance of additional
securities, under any Company stock option or restricted stock plan approved
by the Stockholders of the Company or (iii) the issuance of securities
pursuant to that certain Proposed Term Sheet for a Structured Equity Line of
Flexible Financing dated December 10, 1998.
f. EXPENSES. At the Closing, the Company shall reimburse
Buyers in the amount of $11,500 for expenses incurred by it in connection
with the negotiation, preparation, execution, delivery and performance of
this Agreement and the other agreements to be executed in connection
herewith, including, without limitation, attorneys' and consultants' fees and
expenses.
g. FINANCIAL INFORMATION. The Company agrees to send the
following reports to each Buyer until such Buyer transfers, assigns, or sells
all of the Securities: (i) within ten (10) days after the filing with the
SEC, a copy of its Annual Report on Form 10-K, its Quarterly Reports on Form
10-Q and any Current Reports on Form 8-K; (ii) within one (1) day after
release, copies of all press releases issued by the Company or any of its
Subsidiaries; and (iii) contemporaneously with the making available or giving
to the stockholders of the Company, copies of any notices or other
information the Company makes available or gives to such stockholders.
h. RESERVATION OF SHARES. The Company shall at all times have
authorized, and reserved for the purpose of issuance, a sufficient number of
shares of Common Stock to provide for the full conversion or exercise of the
outstanding Debentures and Warrants
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and issuance of the Conversion Shares and Warrant Shares in connection
therewith (based on the Conversion Price of the Debentures or Exercise Price
of the Warrants in effect from time to time). The Company shall not reduce
the number of shares of Common Stock reserved for issuance upon conversion of
Debentures and exercise of the Warrants without the consent of each Buyer.
The Company shall use its best efforts at all times to maintain the number of
shares of Common Stock so reserved for issuance at no less than two (2) times
the number that is then actually issuable upon full conversion of the
Debentures and exercise of the Warrants (based on the Conversion Price of the
Debentures or Exercise Price of the Warrants in effect from time to time). If
at any time the number of shares of Common Stock authorized and reserved for
issuance is below the number of Conversion Shares and Warrant Shares issued
and issuable upon conversion of the Debentures and exercise of the Warrants
(based on the Conversion Price of the Debentures or Exercise Price of the
Warrants then in effect), the Company will promptly take all corporate action
necessary to authorize and reserve a sufficient number of shares, including,
without limitation, calling a special meeting of stockholders to authorize
additional shares to meet the Company's obligations under this Section 4(h),
in the case of an insufficient number of authorized shares, and using its
best efforts to obtain stockholder approval of an increase in such authorized
number of shares.
i. LISTING. The Company shall promptly secure the listing of
the Conversion Shares and Warrant Shares upon each national securities
exchange or automated quotation system, if any, upon which shares of Common
Stock are then listed (subject to official notice of issuance) and, so long
as any Buyer owns any of the Securities, shall maintain, so long as any other
shares of Common Stock shall be so listed, such listing of all Conversion
Shares and Warrant Shares from time to time issuable upon conversion of the
Debentures or exercise of the Warrants. The Company will obtain and, so long
as any Buyer owns any of the Securities, maintain the listing and trading of
its Common Stock on the OTCBB, the Nasdaq National Market ("NASDAQ"), the
Nasdaq SmallCap Market ("NASDAQ SMALLCAP"), the New York Stock Exchange
("NYSE"), or the American Stock Exchange ("AMEX") and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the National Association of Securities Dealers ("NASD")
and such exchanges, as applicable. The Company shall promptly provide to each
Buyer copies of any notices it receives from the OTCBB and any other
exchanges or quotation systems on which the Common Stock is then listed
regarding the continued eligibility of the Common Stock for listing on such
exchanges and quotation systems.
j. CORPORATE EXISTENCE. So long as a Buyer beneficially owns
any Debentures or Warrants, the Company shall maintain its corporate
existence and shall not sell all or substantially all of the Company's
assets, except in the event of a merger or consolidation or sale of all or
substantially all of the Company's assets, where the surviving or successor
entity in such transaction (i) assumes the Company's obligations hereunder
and under the agreements and instruments entered into in connection herewith
and (ii) is a publicly traded corporation whose Common Stock is listed for
trading on the OTCBB, Nasdaq, Nasdaq SmallCap, NYSE or AMEX.
k. NO INTEGRATION. The Company shall not make any offers or
sales of any security (other than the Securities) under circumstances that
would require registration of
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<PAGE>
the Securities being offered or sold hereunder under the 1933 Act or cause
the offering of the Securities to be integrated with any other offering of
securities by the Company for the purpose of any stockholder approval
provision applicable to the Company or its securities.
l. SUBSEQUENT INVESTMENT. The Company and the Buyers agree
that, upon the declaration of effectiveness of the Registration Statement to
be filed pursuant to the Registration Rights Agreement (the "EFFECTIVE DATE
"), provided that the trading price of the Common Stock is at least $.15 for
the ten (10) consecutive trading days immediately preceding the Effective
Date, the Buyers will be obligated to purchase additional debentures
("ADDITIONAL DEBENTURES") in the aggregate principal amount of Two Hundred
Fifty Thousand Dollars ($250,000) and additional warrants ("ADDITIONAL
WARRANTS") to purchase an aggregate of 500,000 shares of Common Stock for an
aggregate purchase price of Two Hundred Fifty Thousand Dollars ($250,000),
with the closing of such purchase to occur as soon as possible but no later
than within fifteen (15) days of the Effective Date. The terms of the
Additional Debentures and the Additional Warrants shall be identical to the
terms of the Debentures and the Warrants to be issued on the Closing Date,
provided that the Fixed Conversion Price (as defined in the Debentures) for
the Additional Debentures shall be $0.345. The Common Stock underlying the
Additional Debentures and the Additional Warrants shall be Registrable
Securities (as defined in the Registration Rights Agreement) and shall be
included in the Registration Statement to be filed pursuant to the
Registration Rights Agreement.
m. SECURITY FOR DEBENTURES. The parties agree that, in the
event that any party currently having a security interest in the Company's
assets releases such assets from such security interest or is repaid by the
Company for the indebtedness relating to such security interest, the Company
will grant a security interest to the holders of the Debentures to secure the
indebtedness thereunder.
5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue
irrevocable instructions to its transfer agent to issue certificates,
registered in the name of each Buyer or its nominee, for the Conversion
Shares and Warrant Shares in such amounts as specified from time to time by
each Buyer to the Company upon conversion of the Debentures or exercise of
the Warrants in accordance with the terms thereof (the "IRREVOCABLE TRANSFER
AGENT INSTRUCTIONS"). Prior to registration of the Conversion Shares and
Warrant Shares under the 1933 Act or the date on which the Conversion Shares
and Warrant Shares may be sold pursuant to Rule 144 without any restriction
as to the number of Securities as of a particular date that can then be
immediately sold, all such certificates shall bear the restrictive legend
specified in Section 2(g) of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred
to in this Section 5, and stop transfer instructions to give effect to
Section 2(f) hereof will be given by the Company to its transfer agent and
that the Securities shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement and
the Registration Rights Agreement. Nothing in this Section shall affect in
any way the Buyer's obligations and agreement set forth in Section 2(g)
hereof to comply with all applicable prospectus delivery requirements, if
any, upon re-sale of the Securities. If a Buyer provides the Company with (i)
an opinion of counsel in form, substance and scope customary for opinions in
comparable transactions, to the effect that a public sale or transfer of such
Securities may be made without
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<PAGE>
registration under the 1933 Act and such sale or transfer is effected or (ii)
the Buyer provides reasonable assurances that the Securities can be sold
pursuant to Rule 144, the Company shall permit the transfer, and, in the case
of the Conversion Shares and Warrant Shares, promptly instruct its transfer
agent to issue one or more certificates, free from restrictive legend, in
such name and in such denominations as specified by such Buyer. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Buyers, by vitiating the intent and purpose of the
transactions contemplated hereby. Accordingly, the Company acknowledges that
the remedy at law for a breach of its obligations under this Section 5 will
be inadequate and agrees, in the event of a breach or threatened breach by
the Company of the provisions of this Section, that the Buyers shall be
entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate transfer, without the
necessity of showing economic loss and without any bond or other security
being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation
of the Company hereunder to issue and sell the Debentures and Warrants to a
Buyer at the Closing is subject to the satisfaction, at or before the Closing
Date of each of the following conditions thereto, provided that these
conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion:
a. The applicable Buyer shall have executed this Agreement
and the Registration Rights Agreement, and delivered the same to the Company.
b. The applicable Buyer shall have delivered the Purchase
Price in accordance with Section 1(b) above.
c. The representations and warranties of the applicable Buyer
shall be true and correct in all material respects as of the date when made
and as of the Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date), and the
applicable Buyer shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the applicable Buyer
at or prior to the Closing Date.
d. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority over the
matters contemplated hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The
obligation of each Buyer hereunder to purchase the Debentures and Warrants at
the Closing is subject to the satisfaction, at or before the Closing Date of
each of the following conditions, provided that these conditions are for such
Buyer's sole benefit and may be waived by such Buyer at any time in its sole
discretion:
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<PAGE>
a. The Company shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Buyer.
b. The Company shall have delivered to such Buyer duly
executed Debentures (in such denominations as the Buyer shall request) and
Warrants in accordance with Section 1(b) above.
c. The Irrevocable Transfer Agent Instructions, in form and
substance satisfactory to a majority-in-interest of the Buyers, shall have
been delivered to and acknowledged in writing by the Company's Transfer Agent.
d. The representations and warranties of the Company shall be
true and correct in all material respects as of the date when made and as of
the Closing Date as though made at such time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to the
Closing Date. The Buyer shall have received a certificate or certificates,
executed by the chief executive officer of the Company, dated as of the
Closing Date, to the foregoing effect and as to such other matters as may be
reasonably requested by such Buyer including, but not limited to certificates
with respect to the Company's Certificate of Incorporation, By-laws and Board
of Directors' resolutions relating to the transactions contemplated hereby.
e. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority over the
matters contemplated hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement.
f. The Conversion Shares and Warrant Shares shall have been
authorized for quotation on the OTCBB and trading in the Common Stock on the
OTCBB shall not have been suspended by the SEC or the OTCBB.
g. The Buyer shall have received an opinion of the Company's
counsel, dated as of the Closing Date, in form, scope and substance
reasonably satisfactory to the Buyer and in substantially the same form as
EXHIBIT "D" attached hereto.
h. The Buyer shall have received an officer's certificate
described in Section 3(c) above, dated as of the Closing Date.
8. GOVERNING LAW; MISCELLANEOUS.
a. GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of California without
regard to the principles of conflict of laws. The parties hereto hereby
submit to the exclusive jurisdiction of the United
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States Federal Courts located in Los Angeles, California with respect to any
dispute arising under this Agreement, the agreements entered into in
connection herewith or the transactions contemplated hereby or thereby. The
party which does not prevail in any dispute arising under this Agreement
shall be responsible for all fees and expenses, including attorneys' fees,
incurred by the prevailing party in connection with such dispute.
b. COUNTERPARTS; SIGNATURES BY FACSIMILE. This Agreement may
be executed in one or more counterparts, all of which shall be considered one
and the same agreement and shall become effective when counterparts have been
signed by each party and delivered to the other party. This Agreement, once
executed by a party, may be delivered to the other party hereto by facsimile
transmission of a copy of this Agreement bearing the signature of the party
so delivering this Agreement.
c. HEADINGS. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
d. SEVERABILITY. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this
Agreement in any other jurisdiction.
e. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Buyer
makes any representation, warranty, covenant or undertaking with respect to
such matters. No provision of this Agreement may be waived or amended other
than by an instrument in writing signed by the party to be charged with
enforcement.
f. NOTICES. Any notices required or permitted to be given
under the terms of this Agreement shall be sent by certified or registered
mail (return receipt requested) or delivered personally or by courier
(including a recognized overnight delivery service) or by facsimile and shall
be effective five days after being placed in the mail, if mailed by regular
United States mail, or upon receipt, if delivered personally or by courier
(including a recognized overnight delivery service) or by facsimile, in each
case addressed to a party. The addresses for such communications shall be:
If to the Company:
American Technologies Group, Inc.
1017 South Mountain Avenue
Monrovia, CA 91016
Attention: Chief Executive Officer
Facsimile: (626) 357-6551
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With copy to:
American Technologies Group, Inc.
1017 South Mountain Avenue
Monrovia, CA 91016
Attention: General Counsel
Facsimile: (626) 357-4464
If to a Buyer: To the address set forth immediately below
such Buyer's name on the signature pages hereto.
With copy to:
Bristol Capital, LLC
1177 San Vicente Blvd.
Suite 702
Los Angeles, CA 90049
Attention: Diana Derycz
Facsimile: (520) 222-0981
Each party shall provide notice to the other party of any
change in address.
g. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and
assigns. Neither the Company nor any Buyer shall assign this Agreement or any
rights or obligations hereunder without the prior written consent of the
other. Notwithstanding the foregoing, subject to Section 2(f), any Buyer may
assign its rights hereunder to any person that purchases Securities in a
private transaction from a Buyer or to any of its "affiliates," as that term
is defined under the 1934 Act, without the consent of the Company.
h. THIRD PARTY BENEFICIARIES. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors
and assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
i. SURVIVAL. The representations and warranties of the
Company and the agreements and covenants set forth in Sections 3, 4, 5 and 8
shall survive the closing hereunder notwithstanding any due diligence
investigation conducted by or on behalf of the Buyers. The Company agrees to
indemnify and hold harmless each of the Buyers and all their officers,
directors, employees and agents for loss or damage arising as a result of or
related to any breach or alleged breach by the Company of any of its
representations, warranties and covenants set forth in Sections 3 and 4
hereof or any of its covenants and obligations under this Agreement or the
Registration Rights Agreement, including advancement of expenses as they are
incurred.
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<PAGE>
j. PUBLICITY. The Company and each of the Buyers shall have
the right to review a reasonable period of time before issuance of any press
releases, SEC, OTCBB or NASD filings, or any other public statements with
respect to the transactions contemplated hereby; PROVIDED, HOWEVER, that the
Company shall be entitled, without the prior approval of each of the Buyers,
to make any press release or SEC, OTCBB (or other applicable trading market)
or NASD filings with respect to such transactions as is required by
applicable law and regulations (although each of the Buyers shall be
consulted by the Company in connection with any such press release prior to
its release and shall be provided with a copy thereof and be given an
opportunity to comment thereon).
k. FURTHER ASSURANCES. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out
the intent and accomplish the purposes of this Agreement and the consummation
of the transactions contemplated hereby.
l. NO STRICT CONSTRUCTION. The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied
against any party.
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<PAGE>
IN WITNESS WHEREOF, the undersigned Buyers and the Company
have caused this Agreement to be duly executed as of the date first above
written.
AMERICAN TECHNOLOGIES GROUP, INC.
By: /s/ Lawrence J. Brady
---------------------
Lawrence J. Brady
Chairman and Chief Executive Officer
BANK INSINGER DE BEAUFORT N.V.
By: /s/ J.J. Human /s/ Frans Kee
-------------- -------------
Name: J. J. Human Frans Kee
Title: Director Director
ADDRESS:
Herengtecht 551
1017 BW Amsterdam
Facsimile: (3120) 520 9539
Telephone: (3120) 520 9595
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Debentures: $125,000
Number of Warrants: 250,000
Aggregate Purchase Price: $125,000
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CONNAUGHT GLOBAL LTD.
By: /s/ Peter Anthony Barnes
------------------------
Name: Peter Anthony Barnes
Title: Director
ADDRESS:
Westaway Chambers
39 Don Street
St. Helier, Jersey
JE4 8UA
Channel Islands
Facsimile: 01536-733979
Telephone: 01536-872766
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Debentures: $125,000
Number of Warrants: 250,000
Aggregate Purchase Price: $125,000
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EXHIBIT 5.1
February 2, 2000
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 February 4, 2000 intended to register 3,260,870 shares
of the common stock of the Company issuable upon the conversion of $500,000
principal amount of its convertible debentures, 1,650,000 shares of common
stock of the Company issuable upon the exercise of its common stock purchase
warrants and an additional 50,000 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
February 4, 2000
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Form S-3
Registration Statement of our report dated November 9, 1999 included in
American Technologies Group Inc.'s Form 10K-SB for the year ended July 31,
1999. We also consent to all references to our firm included in this
Registration Statement.
CORBIN & WERTZ
Irvine, California
February 4, 2000
