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
GRYPHON 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 March 6, 2007 (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.

<PAGE>

            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.


                                       2
<PAGE>

            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.

            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") through
its  Deposit  Withdrawal  Agent  Commission  ("DWAC")  system  within  three (3)
business  days after  receipt by the  Parent of the  Notice of  Conversion  (the
"Delivery Date"). In the case of the exercise of the conversion rights set forth
herein the conversion  privilege  shall be deemed to have been exercised and the
Conversion  Shares  issuable upon such  conversion  shall be deemed to have been
issued upon the date of receipt by the Parent of the Notice of  Conversion.  The
Holder shall be treated for all purposes as the record holder of the  Conversion
Shares,  unless  the Holder  provides  the Parent  written  instructions  to the
contrary.


                                       3
<PAGE>

            3.4 Late  Payments.  Each  Company  understands  that a delay in the
delivery of the Conversion  Shares in the form required pursuant to this Article
beyond the  Delivery  Date  could  result in  economic  loss to the  Holder.  As
compensation  to the Holder for such loss,  in addition to all other  rights and
remedies which the Holder may have under this Note, applicable law or otherwise,
the Companies shall, jointly and severally,  pay late payments to the Holder for
any late  issuance of Conversion  Shares in the form  required  pursuant to this
Article  II upon  conversion  of this  Note,  in the  amount  equal  to $500 per
business  day after the  Delivery  Date.  The  Company  shall make any  payments
incurred under this Section in immediately available funds upon demand.

            3.5 Conversion Mechanics. The number of shares of Common Stock to be
issued upon each  conversion  of this Note shall be  determined by dividing that
portion of the principal  and interest and fees to be converted,  if any, by the
then applicable Fixed Conversion Price.

            3.6 Adjustment Provisions. The Fixed Conversion Price and number and
kind of  shares or other  securities  to be issued  upon  conversion  determined
pursuant to this Note shall be subject to adjustment  from time to time upon the
occurrence  of  certain  events  during the period  that this  conversion  right
remains outstanding, as follows:

                  (a)  Reclassification.  If the  Parent at any time  shall,  by
reclassification  or  otherwise,  change  the  Common  Stock  into the same or a
different  number of  securities  of any class or classes,  this Note, as to the
unpaid Principal Amount and accrued interest thereon, shall thereafter be deemed
to evidence the right to purchase an adjusted number of such securities and kind
of  securities  as would have been  issuable  as the result of such  change with
respect to the Common Stock (i) immediately prior to or (ii) immediately  after,
such reclassification or other change at the sole election of the Holder.


                                       4
<PAGE>

                  (b) Stock Splits, Combinations and Dividends. If the shares of
Common  Stock are  subdivided  or combined  into a greater or smaller  number of
shares of Common  Stock,  or if a dividend  is paid on the  Common  Stock or any
common  stock  issued  by the  Parent  in  shares  of  Common  Stock,  the Fixed
Conversion  Price shall be  proportionately  reduced in case of  subdivision  of
shares or stock dividend or proportionately increased in the case of combination
of shares,  in each such case by the ratio  which the total  number of shares of
Common Stock outstanding  immediately after such event bears to the total number
of shares of Common Stock outstanding immediately prior to such event.

                  (c) Share Issuances. Subject to the provisions of this Section
3.6, if the Parent  shall at any time prior to the  conversion  or  repayment in
full of the  Principal  Amount  issue any shares of Common  Stock or  securities
convertible  into  Common  Stock to a Person  other than the Holder  (except (i)
pursuant to Sections 3.6(a) or (b) above; (ii) pursuant to options, warrants, or
other obligations to issue shares outstanding on the date hereof as disclosed to
the Holder in writing; or (iii) pursuant to options that may be issued under any
employee  incentive  stock option and/or any qualified stock option plan adopted
by the Parent) for a  consideration  per share (the "Offer Price") less than the
Fixed  Conversion  Price in effect at the time of such issuance,  then the Fixed
Conversion  Price  shall be  immediately  reset to such lower Offer  Price.  For
purposes hereof,  the issuance of any security of the Parent convertible into or
exercisable  or  exchangeable  for Common Stock shall result in an adjustment to
the Fixed Conversion Price upon the issuance of such securities.

                  (d)  Computation  of   Consideration.   For  purposes  of  any
computation respecting  consideration received pursuant to Section 3.6(c) above,
the following shall apply:

                        (i) in the case of the  issuance  of  shares  of  Common
      Stock for  cash,  the  consideration  shall be the  amount  of such  cash,
      provided that in no case shall any deduction be made for any  commissions,
      discounts or other expenses incurred by the Parent for any underwriting of
      the issue or otherwise in connection therewith;

                        (ii) in the case of the  issuance  of  shares  of Common
      Stock  for a  consideration  in  whole or in part  other  than  cash,  the
      consideration  other than cash shall be deemed to be the fair market value
      thereof  as  determined  in good  faith by the Board of  Directors  of the
      Parent (irrespective of the accounting treatment thereof); and

                        (iii)   upon   any   such   exercise,    the   aggregate
      consideration  received  for such  securities  shall be  deemed  to be the
      consideration  received by the Parent for the issuance of such  securities
      plus the additional minimum  consideration,  if any, to be received by the
      Parent upon the conversion or exchange thereof (the  consideration in each
      case to be  determined in the same manner as provided in  subsections  (i)
      and (ii) of this Section 3.6(d)).

            3.7  Reservation of Shares.  During the period the conversion  right
exists,  the Parent will reserve from its authorized and unissued Common Stock a
sufficient  number of shares to provide for the  issuance of  Conversion  Shares
upon the full  conversion  of this Note,  the  Warrants  and the  Options.  Each
Company  represents that upon issuance,  the Conversion  Shares will be duly and
validly  issued,  fully paid and  non-assessable.  Each Company  agrees that its
issuance of this Note shall  constitute full authority to its officers,  agents,
and transfer agents who are charged with the duty of executing and issuing stock
certificates to execute and issue the necessary  certificates for the Conversion
Shares upon the conversion of this Note.


                                       5
<PAGE>

            3.8 Registration  Rights.  The Holder has been granted  registration
rights with respect to the  Conversion  Shares as set forth in the  Registration
Rights Agreement.

            3.9 Issuance of New Note. Upon any partial  conversion of this Note,
a new Note  containing the same date and  provisions of this Note shall,  at the
request  of the  Holder,  be  issued  by the  Companies  to the  Holder  for the
principal  balance of this Note and interest which shall not have been converted
or paid.  Subject to the provisions of Article IV of this Note, no Company shall
pay any costs, fees or any other  consideration to the Holder for the production
and issuance of a new Note.

                                   ARTICLE IV
                                EVENTS OF DEFAULT

            4.1 Events of Default.  The  occurrence of an Event of Default under
the Security Agreement shall constitute an event of default ("Event of Default")
hereunder.

            4.2  Default  Interest.  Following  the  occurrence  and  during the
continuance of an Event of Default,  the Companies shall, jointly and severally,
pay additional interest on the outstanding  principal balance of this Note in an
amount  equal to the  Contract  Rate plus ten percent  (10%) per annum,  and all
outstanding  Obligations,  including unpaid  interest,  shall continue to accrue
interest at such additional interest rate from the date of such Event of Default
until the date such Event of Default is cured or waived.

            4.3  Default  Payment.  Following  the  occurrence  and  during  the
continuance  of an Event of  Default,  the  Holder,  at its  option,  may demand
repayment  in full of all  Obligations  and/or may  elect,  along with any other
rights and  remedies of the Holder under the  Security  Agreement  and any other
Ancillary  Agreement and all  Obligations  of the  companies  under the Security
Agreement and the other Ancillary  Agreements,  to require the Company to make a
Default Payment  ("Default  Payment").  The Default Payment shall be 130% of the
outstanding principal amount of the Note, plus accrued but unpaid interest,  all
other fees then remaining unpaid, and all other amounts payable  hereunder.  The
Default Payment shall be applied first to any fees due and payable to the Holder
pursuant  to the Note,  the  Security  Agreement,  and/or  the  other  Ancillary
Agreements,  then to accrued and unpaid interest due on the Note and then to the
outstanding  principal balance of the Note. The Default Payment shall be due and
payable  immediately  on the date  that the  Holder  has  exercised  its  rights
pursuant to this Section 4.3.


                                       6
<PAGE>

                                    ARTICLE V
                                  MISCELLANEOUS

            5.1 Conversion  Privileges.  The conversion  privileges set forth in
Article  III shall  remain in full  force and effect  immediately  from the date
hereof  until the date this Note is  indefeasibly  paid in full and  irrevocably
terminated.

            5.2  Cumulative  Remedies.  The  remedies  under  this Note shall be
cumulative.

            5.3 Failure or  Indulgence  Not  Waiver.  No failure or delay on the
part of the  Holder  hereof in the  exercise  of any power,  right or  privilege
hereunder  shall  operate as a waiver  thereof,  nor shall any single or partial
exercise  of any  such  power,  right or  privilege  preclude  other or  further
exercise  thereof  or of any other  right,  power or  privilege.  All rights and
remedies existing  hereunder are cumulative to, and not exclusive of, any rights
or remedies otherwise available.

            5.4  Notices.  Any notice  herein  required or permitted to be given
shall be in writing and  provided in  accordance  with the terms of the Security
Agreement.

            5.5 Amendment Provision. The term "Note" and all references thereto,
as used  throughout  this  instrument,  shall mean this instrument as originally
executed,  or  if  later  amended  or  supplemented,   then  as  so  amended  or
supplemented,  and any successor  instrument as such successor instrument may be
amended or supplemented.

            5.6 Assignability.  This Note shall be binding upon each Company and
its successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder in accordance with the
requirements  of the  Security  Agreement.  No  Company  may  assign  any of its
obligations under this Note without the prior written consent of the Holder, any
such purported assignment without such consent being null and void.

            5.7 Cost of  Collection.  In case of any Event of Default under this
Note,  the Companies  shall,  jointly and severally,  pay the Holder  reasonable
costs of collection, including reasonable attorneys' fees.

            5.8 Governing Law, Jurisdiction and Waiver of Jury Trial.

                  (a) THIS NOTE SHALL BE GOVERNED BY AND  CONSTRUED AND ENFORCED
IN  ACCORDANCE  WITH  THE LAWS OF THE  STATE  OF NEW  YORK,  WITHOUT  REGARD  TO
PRINCIPLES OF CONFLICTS OF LAW.

                  (b) EACH COMPANY HEREBY  CONSENTS AND AGREES THAT THE STATE OR
FEDERAL COURTS  LOCATED IN THE COUNTY OF NEW YORK,  STATE OF NEW YORK SHALL HAVE
EXCLUSIVE  JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN ANY
COMPANY, ON THE ONE HAND, AND THE HOLDER, ON THE OTHER HAND,  PERTAINING TO THIS
NOTE OR ANY OF THE OTHER ANCILLARY AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR
RELATED TO THIS NOTE OR ANY OF THE  ANCILLARY  AGREEMENTS;  PROVIDED,  THAT EACH
COMPANY  ACKNOWLEDGES THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY
A COURT  LOCATED  OUTSIDE  OF THE  COUNTY  OF NEW YORK,  STATE OF NEW YORK;  AND
FURTHER  PROVIDED,  THAT  NOTHING  IN THIS NOTE  SHALL BE DEEMED OR  OPERATE  TO
PRECLUDE THE HOLDER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER
JURISDICTION  TO COLLECT THE  OBLIGATIONS,  TO REALIZE ON THE  COLLATERAL OR ANY
OTHER  SECURITY  FOR THE  OBLIGATIONS,  OR TO ENFORCE A JUDGMENT  OR OTHER COURT
ORDER IN FAVOR OF THE HOLDER.  EACH  COMPANY  EXPRESSLY  SUBMITS AND CONSENTS IN
ADVANCE TO SUCH  JURISDICTION  IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT
AND EACH COMPANY  HEREBY WAIVES ANY OBJECTION  WHICH IT MAY HAVE BASED UPON LACK
OF PERSONAL JURISDICTION,  IMPROPER VENUE OR FORUM NON CONVENIENS.  EACH COMPANY
HEREBY  WAIVES  PERSONAL  SERVICE OF THE SUMMONS,  COMPLAINT  AND OTHER  PROCESS
ISSUED IN ANY SUCH  ACTION OR SUIT AND  AGREES  THAT  SERVICE  OF SUCH  SUMMONS,
COMPLAINT  AND  OTHER  PROCESS  MAY BE  MADE BY  REGISTERED  OR  CERTIFIED  MAIL
ADDRESSED TO THE COMPANY AT THE ADDRESS SET FORTH IN THE SECURITY  AGREEMENT AND
THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF THE COMPANY'S
ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER
POSTAGE PREPAID.


                                       7
<PAGE>

                  (c) EACH  COMPANY  DESIRES  THAT ITS DISPUTES BE RESOLVED BY A
JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE,  TO ACHIEVE THE BEST COMBINATION
OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF  ARBITRATION,  EACH COMPANY HERETO
WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO
RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN THE
HOLDER AND/OR ANY COMPANY ARISING OUT OF, CONNECTED WITH,  RELATED OR INCIDENTAL
TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS NOTE OR THE
TRANSACTIONS RELATED HERETO OR THERETO.

            5.9  Severability.  In the event that any  provision of this Note is
invalid or unenforceable  under any applicable statute or rule of law, then such
provision  shall  be  deemed  inoperative  to the  extent  that it may  conflict
therewith  and shall be deemed  modified to conform with such statute or rule of
law. Any such provision which may prove invalid or  unenforceable  under any law
shall not affect the validity or  enforceability  of any other provision of this
Note.

            5.10 Maximum  Payments.  Nothing contained herein shall be deemed to
establish  or require  the  payment of a rate of  interest  or other  charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest  required to be paid or other charges hereunder exceed the maximum rate
permitted  by such law,  any  payments in excess of such  maximum  rate shall be
credited  against  amounts owed by the Companies to the Holder and thus refunded
to the Companies.


                                       8
<PAGE>

            5.11  Security  Interest.  The  Holder  has been  granted a security
interest (i) in certain  assets of the Companies as more fully  described in the
Security  Agreement,  and (ii) in  certain  real  property  of the  Term  Loan B
Guarantors.

            5.12  Construction.  Each party  acknowledges that its legal counsel
participated in the preparation of this Note and, therefore, stipulates that the
rule of construction  that  ambiguities are to be resolved  against the drafting
party shall not be applied in the interpretation of this Note to favor any party
against the other.

            5.12 Subordination. The Obligations and liabilities of the Companies
to the Holder are subordinated in favor of Laurus Master Fund, Ltd.  pursuant to
the terms and conditions of certain Subordination Agreement dated as of the date
hereof, as the same may be amended, modified and supplemented from time to time.

       [Balance of page intentionally left blank; signature page follows]






                                       9
<PAGE>

            IN WITNESS WHEREOF,  the Companies have caused this Convertible Term
Note to be signed in its name effective as of this ______ day of _______________
2005.

                                            AMERICAN TECHNOLOGIES GROUP, INC.


                                            By: ________________________________
                                            Name: ______________________________
                                            Title: _____________________________

WITNESS:

___________________________________

                                            NORTH TEXAS STEEL COMPANY, INC.


                                            By: ________________________________
                                            Name: ______________________________
                                            Title: _____________________________

WITNESS:

___________________________________


                                            OMAHA HOLDINGS CORP.


                                            By: ________________________________
                                            Name: ______________________________
                                            Title: _____________________________

WITNESS:

___________________________________


                                       10
<PAGE>

                                    EXHIBIT A


                                 OTHER COMPANIES


              North Texas Steel Company, Inc., a Texas corporation

                  Omaha Holdings Corp., a Delaware corporation

<PAGE>

                                    EXHIBIT B

                              NOTICE OF CONVERSION

        (To be executed by the Holder in order to convert all or part of
                  the Convertible Term Note into Common Stock)

[Name and Address of Company]

      The  undersigned  hereby  converts  $_________  of  the  principal  due on
[specify applicable  Repayment Date] under the Convertible Term Note dated as of
_______________________ 2005 (the "Note") issued by American Technologies Group,
Inc. (the  "Parent")  and the other  Companies  named and as defined  therein by
delivery of shares of Common  Stock of the Parent  ("Shares")  on and subject to
the conditions set forth in the Note.

1.    Date of Conversion      _______________________

2.    Shares To Be Delivered: _______________________


                                            GRYPHON MASTER FUND L.P.


                                            By: ________________________________
                                            Name: ______________________________
                                            Title: _____________________________