CONVERTIBLE TERM NOTE

 

 

                                                                    EXHIBIT 4.22

 

THIS NOTE AND THECOMMON   SHARES   ISSUABLE UPON   CONVERSION OF THIS NOTE HAVE NOT

BEEN   REGISTERED   UNDER THE   SECURITIES   ACT OF 1933,   AS AMENDED,   OR ANY STATE

SECURITIES   LAWS.   THIS NOTE AND THE COMMON SHARES   ISSUABLE UPON   CONVERSION OF

THIS NOTE MAY NOT BE SOLD,   OFFERED   FOR SALE,   PLEDGED OR   HYPOTHECATED   IN THE

ABSENCE OF AN   EFFECTIVE   REGISTRATION   STATEMENT AS TO THIS NOTE UNDER SAID ACT

AND ANY APPLICABLE   STATE   SECURITIES   LAWS OR AN OPINION OF COUNSEL   REASONABLY

SATISFACTORY TO AMERICAN   TECHNOLOGIES GROUP, INC. THAT SUCH REGISTRATION IS NOT

REQUIRED.

 

                              CONVERTIBLE TERM NOTE

 

      FOR VALUE RECEIVED,   each of AMERICAN   TECHNOLOGIES   GROUP, INC., a Nevada

corporation (the "Parent"), and the other Companies listed on Exhibit A attached

hereto (such other   companies   together   with the Parent,   each a "Company"   and

collectively,   the "Companies"),   jointly and severally, promises to pay to GSSF

MASTER   FUND   L.P.,    c/o    ____________________________________________,    Fax:

______________   (the   "Holder")   or its   registered   assigns   or   successors   in

interest,   the sum of Two Hundred Fifty Thousand   Dollars   ($250,000),   together

with any accrued   and unpaid   interest   hereon,   on   _______________,   2006 (the

"Maturity Date") if not sooner paid.

 

      This   Convertible   Term Note (this   "Note") is intended to be a registered

obligation within the meaning of Treasury   Regulation Section   1.871-14(c)(1)(i)

and each Company (or its agent) shall register this Note (and   thereafter   shall

maintain   such   registration)   as to both   principal   and any   stated   interest.

Notwithstanding   any document,   instrument or agreement relating to this Note to

the   contrary,   transfer of this Note (or the right to any payments of principal

or stated   interest   thereunder)   may only be effected by (i)   surrender of this

Note and either the   reissuance by the Company of this Note to the new holder or

the   issuance by the   Company of a new   instrument   to the new   holder,   or (ii)

transfer   through a book entry system   maintained by the Company (or its agent),

within the meaning of Treasury Regulation Section 1.871-14(c)(1)(i)(B).

 

      The   following   terms   shall   apply to this Note.   Capitalized   terms used

herein without definition shall have the meanings ascribed to such terms in that

certain   Security   Agreement   dated   as of the   date   hereof   by and   among   the

Companies and the Holder (as amended,   modified and/or supplemented from time to

time, the "Security Agreement").

 

                                    ARTICLE I

                         CONTRACT RATE AND AMORTIZATION

 

      1.1 Contract Rate.   Subject to Sections 4.2 and 5.10,   interest payable on

the outstanding   principal   amount of this Note (the   "Principal   Amount") shall

accrue at a rate per annum equal to twelve percent (12%) (the "Contract   Rate").

Interest   shall   be (i)   calculated   on the   basis of a 360 day   year,   and (ii)

payable   monthly,   in   arrears,   commencing   on   September   1, 2005 on the first

business day of each consecutive calendar month thereafter through and including

the   Maturity   Date,   and on the   Maturity   Date,   whether   by   acceleration   or

otherwise.

 

 

 

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      1.2 Principal   Payments.   The total outstanding   Principal Amount together

with any accrued and unpaid   interest and any and all other unpaid amounts which

are then owing by the   Companies   to the Holder   under this Note,   the   Security

Agreement   and/or any other Ancillary   Agreement shall be due and payable on the

Maturity Date.

 

                                   ARTICLE II

                            CONVERSION AND REDEMPTION

 

      2.1 Payment of Principal Amount.

 

            (a) Payment in Cash or Common Stock.   If the Principal   Amount (or a

portion   of the   Principal   Amount   if not all of the   Principal   Amount   may be

converted   into shares of Common   Stock,   par value   $0.001,   of the Parent (the

"Common Stock") pursuant to Section 3.2) is required to be paid in cash pursuant

to Section   2.1(b),   then the Companies   shall,   jointly and severally,   pay the

Holder an amount in cash equal to 100% of the Principal   Amount (or such portion

of the   Principal   Amount to be paid in cash) due and owing to the Holder on the

Maturity Date. If the Principal   Amount (or a portion of the Principal Amount if

not all of the   Principal   Amount may be   converted   into shares of Common Stock

pursuant   to   Section   3.2) is   required   to be paid in shares   of Common   Stock

pursuant to Section 2.1(b), the number of such shares to be issued by the Parent

to the Holder on the Maturity   Date (in respect of such portion of the Principal

Amount converted into shares of Common Stock pursuant to Section 2.1(b)),   shall

be the number   determined   by dividing (i) the portion of the   Principal   Amount

converted   into   shares   of   Common   Stock,   by (ii) the then   applicable   Fixed

Conversion   Price.   For   purposes   hereof,   subject to Section 3.6   hereof,   the

initial "Fixed Conversion Price" means $ 0.00111.

 

            (b)   Principal   Amount   Conversion   Conditions.   Subject to Sections

2.1(a),   2.2,   and 3.2 hereof,   the Holder   shall   convert into shares of Common

Stock all or a portion of the   Principal   Amount due on the Maturity Date if the

following conditions (the "Conversion Criteria") are satisfied:   (i) the average

closing   price of the   Common   Stock   as   reported   by   Bloomberg,   L.P.   on the

Principal   Market   for the five   (5)   trading   days   immediately   preceding   the

Maturity   Date   shall be greater   than or equal to 120% of the Fixed   Conversion

Price and (ii) the amount of such conversion does not exceed twenty-five percent

(25%) of the aggregate   dollar trading volume of the Common Stock for the period

of twenty-two   (22) trading days   immediately   preceding   the Maturity   Date. If

subsection   (i) of the   Conversion   Criteria is met but   subsection   (ii) of the

Conversion   Criteria is not met as to the entire   Principal   Amount,   the Holder

shall convert only such part of the Principal   Amount that meets subsection (ii)

of the   Conversion   Criteria.   Any   portion of the   Principal   Amount due on the

Maturity Date that the Holder has not been able to convert into shares of Common

Stock due to the failure to meet the Conversion Criteria,   shall be paid in cash

by the   Companies   on the   Maturity   Date at the   rate of 100% of the   Principal

Amount otherwise due on the Maturity Date.

 

      2.2 No Effective   Registration.   Notwithstanding   anything to the contrary

herein,   none of the Companies'   obligations to the Holder may be converted into

Common Stock unless (a) either (i) an effective current   Registration   Statement

(as defined in the Registration   Rights Agreement) covering the shares of Common

Stock to be issued in connection with satisfaction of such obligations exists or

(ii) an exemption from registration for resale of all of the Common Stock issued

and issuable is available   pursuant to Rule 144 of the Securities Act and (b) no

Event of Default (as hereinafter defined) exists and is continuing,   unless such

Event of Default is cured within any applicable cure period or otherwise   waived

in writing by the Holder.

 

 

 

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      2.3   Optional   Redemption   in Cash.   The   Companies   may prepay   this Note

("Optional   Redemption")   by   paying to the   Holder a sum of money   equal to one

hundred percent (100%) of the Principal Amount outstanding at such time together

with accrued but unpaid interest thereon and any and all other sums due, accrued

or payable   to the Holder   arising   under   this Note (the   "Redemption   Amount")

outstanding on the   Redemption   Payment Date (as defined   below).   The Companies

shall   deliver   to the Holder a written   notice of   redemption   (the   "Notice of

Redemption")   specifying the date for such Optional   Redemption (the "Redemption

Payment   Date"),   which date shall be seven (7) business   days after the date of

the Notice of Redemption (the "Redemption Period"). A Notice of Redemption shall

not be   effective   with respect to any portion of this Note for which the Holder

has previously   delivered a Notice of Conversion (as hereinafter defined) or for

conversions   elected to be made by the Holder pursuant to Section 3.3 during the

Redemption   Period. The Redemption Amount shall be determined as if the Holder's

conversion   elections had been   completed   immediately   prior to the date of the

Notice of Redemption. On the Redemption Payment Date, the Redemption Amount must

be paid in good funds to the Holder.   In the event the Companies fail to pay the

Redemption Amount on the Redemption Payment Date as set forth herein,   then such

Redemption Notice will be null and void.

 

                                    ARTICLE III

                           HOLDER'S CONVERSION RIGHTS

 

      3.1   Optional   Conversion.   Subject to the terms set forth in this Article

III, the Holder shall have the right, but not the obligation,   to convert all or

any   portion of the issued   and   outstanding   Principal   Amount   and/or   accrued

interest   and fees due and payable into fully paid and   nonassessable   shares of

Common   Stock at the Fixed   Conversion   Price.   The shares of Common Stock to be

issued upon such conversion are herein referred to as, the "Conversion Shares."

 

      3.2 Conversion   Limitation.   Notwithstanding   anything contained herein to

the contrary,   the Holder shall not be entitled to convert pursuant to the terms

of this Note, an amount that would be convertible into that number of Conversion

Shares   which would   exceed the   difference   between (i) 4.99% of the issued and

outstanding shares of Common Stock and (ii) the number of shares of Common Stock

beneficially   owned by the   Holder For   purposes   of the   immediately   preceding

sentence,   beneficial   ownership   shall be determined in accordance with Section

13(d) of the Exchange Act and Regulation 13d-3 thereunder.   The Conversion Share

limitation   described   in this Section 3.2 shall   automatically   become null and

void   following   notice   to the   Company   upon the   occurrence   and   during   the

continuance of an Event of Default,   or upon 75 days prior notice to the Parent.

Notwithstanding   anything   contained   herein to the contrary,   the provisions of

this   Section   3.2 are   irrevocable   and may not be waived by the   Holder or the

Parent.

 

 

 

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      3.3 Mechanics of Holder's Conversion.   In the event that the Holder elects

to convert   this Note into Common   Stock,   the Holder   shall give notice of such

election by   delivering   an   executed   and   completed   notice of   conversion   in

substantially the form of Exhibit B hereto   (appropriate   completed) ("Notice of

Conversion")   to the   Parent   and such   Notice   of   Conversion   shall   provide a

breakdown in reasonable   detail of the Principal   Amount,   accrued   interest and

fees that are being converted.   On each Conversion Date (as hereinafter defined)

and in   accordance   with its Notice of   Conversion,   the   Holder   shall make the

appropriate   reduction to the   Principal   Amount,   accrued   interest and fees as

entered in its records and shall provide   written   notice   thereof to the Parent

within two (2) business   days after the   Conversion   Date.   Each date on which a

Notice of Conversion is delivered or telecopied to the Parent in accordance with

the provisions hereof shall be deemed a Conversion Date (the "Conversion Date").

Pursuant   to the terms of the   Notice   of   Conversion,   the   Parent   will   issue

instructions   to the transfer agent   accompanied by an opinion of counsel within

one (1)   business day of the date of the delivery to the Parent of the Notice of

Conversion   and shall   cause the   transfer   agent to transmit   the   certificates

representing the Conversion Shares to the Holder by crediting the account of the

Holder's designated broker with the Depository Trust Corporation ("DTC")