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 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
<PAGE>

      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.

      3.4 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.


                                       7
<PAGE>

            (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.

            (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:
                                    -----------------------

                                       GSSF MASTER FUND L.P.

                                       By:
                                             -----------------------------------
                                       Name:
                                             -----------------------------------
                                       Title:
                                             -----------------------------------