EX10-7














	




EXHIBIT 10.7 



SUBSCRIPTION AGREEMENT




Dear Subscriber: 



     You
(the “Subscriber”) hereby agree to purchase, and American Technologies Group, Inc., a
Nevada corporation (the “Company”) hereby agrees to issue and to sell to the Subscriber,
8% Convertible Notes (the “Notes”) convertible in accordance with the terms thereof into
shares of the Company’s $.001 par value common stock (the “Company Shares”) for the
aggregate consideration as set forth on the signature page hereof (“Purchase Price”). The
form of Convertible Note is annexed hereto as Exhibit A. (The Company Shares included in
the Securities (as hereinafter defined) are sometimes referred to herein as the “Shares”
or “Common Stock”). (The Notes, the Company Shares, Common Stock Purchase Warrants
(“Warrants”) issuable to the recipients identified on Schedule B hereto, the Common Stock
issuable upon exercise of the Warrants, and the Put Securities (as herein defined) are
collectively referred to herein as, the “Securities”). Upon acceptance of this Agreement
by the Subscriber, the Company shall issue and deliver to the Subscriber the Note against
payment, by federal funds (U.S.) wire transfer of the Purchase Price. 



     The
following terms and conditions shall apply to this subscription. 



     1.
Subscriber’s Representations and Warranties. The Subscriber hereby represents and
warrants to and agrees with the Company that: 








	 	
     (a)
Information on Company. The Subscriber has been furnished with the Company’s Form 10-KSB
for the year ended July 31, 1999 as filed with the Securities and Exchange Commission
(the “Commission”) together with all subsequently filed forms 10-QSB and a registration
statement on Form S-3 filed with the Commission on May 26, 2000 (hereinafter referred to
as the “Reports”). In addition, the Subscriber has received from the Company such other
information concerning its operations, financial condition and other matters as the
Subscriber has requested, and considered all factors the Subscriber deems material in
deciding on the advisability of investing in the Securities (such information in writing
is collectively, the “Other Written Information”).






	 	
     (b)
Information on Subscriber. The Subscriber is an “accredited investor”, as such term is
defined in Regulation D promulgated by the Commission under the Securities Act of 1933,
as amended (the “1933 Act”), is experienced in investments and business matters, has made
investments of a speculative nature and has purchased securities of United States
publicly-owned companies in private placements in the past and, with its representatives,
has such knowledge and experience in financial, tax and other business matters as to
enable the Subscriber to utilize the information made available by the Company to
evaluate the merits and risks of and to make an informed investment decision with respect
to the proposed purchase, which represents a speculative investment. The Subscriber has
the authority and is duly and legally qualified to purchase and own the Securities. The
Subscriber is able to bear the risk of such investment for an indefinite period and to
afford a complete loss thereof. The information set forth on the signature page hereto
regarding the Subscriber is accurate.






	 	
     (c)
Purchase of Note. On the Closing Date (hereinafter defined) the Subscriber will purchase
the Note for its own account and not with a view to any distribution thereof.






	 	
     (d)
Compliance with Securities Act. The Subscriber understands and agrees that the Securities
have not been registered under the 1933 Act, by reason of their issuance in a transaction
that does not require registration under the 1933 Act (based in part on the accuracy of
the representations and warranties of Subscriber contained herein), and that such
Securities must be held unless a subsequent disposition is registered under the 1933 Act
or is exempt from such registration. Resales of the Common Stock by the Subscriber will
be made in compliance with the 1933 Act.

















	 	
     (e)
Company Shares Legend. The Company Shares, and the shares of Common Stock issuable upon
the exercise of the Warrants, shall bear the following legend:






	 	“THE
SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES
ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO AMERICAN TECHNOLOGIES GROUP, INC.
THAT SUCH REGISTRATION IS NOT REQUIRED.”






	 	
     (f)
Warrants Legend. The Warrants shall bear the following legend:






	 	“THIS
WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT AND THE COMMON
SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED
OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT
UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO AMERICAN TECHNOLOGIES
GROUP, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.”






	 	
     (g)
Note Legend. The Note shall bear the following legend:






	 	“THIS
NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. 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 OR
AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO AMERICAN TECHNOLOGIES GROUP, INC. THAT
SUCH REGISTRATION IS NOT REQUIRED.”






	 	
     (h)
Communication of Offer. The offer to sell the Securities was directly communicated to the
Subscriber. At no time was the Subscriber presented with or solicited by any leaflet,
newspaper or magazine article, radio or television advertisement, or any other form of
general advertising or solicited or invited to attend a promotional meeting otherwise
than in connection and concurrently with such communicated offer.






	 	
     (i)
Share Ownership. The Subscriber represents that as of the date of this Subscription
Agreement, the Subscriber does not have a beneficial interest (as defined in Section
13(d) of the Securities Exchange Act of 1934) in any of the Common Stock of the Company.






	




2 























	 	
     (j)
Correctness of Representations. The Subscriber represents that the foregoing
representations and warranties are true and correct as of the date hereof and, unless the
Subscriber otherwise notifies the Company prior to the Closing Date, shall be true and
correct as of the Closing Date. The foregoing representations and warranties shall
survive the Closing Date.






     2.
Company Representations and Warranties. The Company represents and warrants to and agrees
with the
Subscriber that: 



	 	
     (a)
Due Incorporation. The Company and each of its subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the respective
jurisdictions of their incorporation and have the requisite corporate power to own their
properties and to carry on their business as now being conducted. The Company and each of
its subsidiaries is duly qualified as a foreign corporation to do business and is in good
standing in each jurisdiction where the nature of the business conducted or property
owned by it makes such qualification necessary, other than those jurisdictions in which
the failure to so qualify would not have a material adverse effect on the business,
operations or prospects or condition (financial or otherwise) of the Company.






	 	
     (b)
Outstanding Stock. All issued and outstanding shares of capital stock of the Company and
each of its subsidiaries has been duly authorized and validly issued and are fully paid
and non-assessable.






	 	
     (c)
Authority; Enforceability. This Agreement has been duly authorized, executed and
delivered by the Company and is a valid and binding agreement enforceable in accordance
with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting creditors’
rights generally and to general principles of equity; and the Company has full corporate
power and authority necessary to enter into this Agreement and to perform its obligations
hereunder and all other agreements entered into by the Company relating hereto.






	 	
     (d)
Additional Issuances. There are no outstanding agreements or preemptive or similar rights
affecting the Company’s common stock or equity and no outstanding rights, warrants or
options to acquire, or instruments convertible into or exchangeable for, or agreements or
understandings with respect to the sale or issuance of any shares of common stock or
equity of the Company or other equity interest in any of the subsidiaries of the Company,
except as described in the Reports or Other Written Information.






	 	
     (e)
Consents. No consent, approval, authorization or order of any court, governmental agency
or body or arbitrator having jurisdiction over the Company, or any of its affiliates, the
NASD, NASDAQ or the Company’s Shareholders is required for execution of this Agreement,
and all other agreements entered into by the Company relating thereto, including, without
limitation issuance and sale of the Securities, and the performance of the Company’s
obligations hereunder.






	 	
     (f)
No Violation or Conflict. Assuming the representations and warranties of the Subscriber
in Paragraph 1 are true and correct and the Subscriber complies with its obligations
under this Agreement, neither the issuance and sale of the Securities nor the performance
of its obligations under this Agreement and all other agreements entered into by the
Company relating thereto by the Company will:







	 	
     (i)
violate, conflict with, result in a breach of, or constitute a default (or an event which
with the giving of notice or the lapse of time or both would be reasonably likely to
constitute a default) under (A) the articles of incorporation, charter or bylaws of the
Company or any of its affiliates, (B) to the Company’s knowledge, any decree, judgment,
order, law, treaty, rule, regulation or determination applicable to the Company or any of
its affiliates of any court, governmental agency or body, or arbitrator having
jurisdiction over the Company or any of its affiliates or over the properties or assets
of the Company or any of its affiliates, (C) the terms of any bond, debenture, note or
any other evidence of indebtedness, or any agreement, stock option or other similar plan,
indenture, lease, mortgage, deed of trust or other instrument to which the Company or any
of its affiliates is a party, by which the Company or any of its affiliates is bound, or
to which any of the properties of the Company or any of its affiliates is subject, or (D)
the terms of any “lock-up” or similar provision of any underwriting or similar agreement
to which the Company, or any of its affiliates is a party; or






	





3 

















	 	
     (ii)
result in the creation or imposition of any lien, charge or encumbrance upon the
Securities or any of the assets of the Company, or any of its affiliates.






	 	
     (g)
The Securities. The Securities upon issuance:






	 	
     (i)
are, or will be, free and clear of any security interests, liens, claims or other
encumbrances, subject to restrictions upon transfer under the 1933 Act and State laws;






	 	
     (ii)
have been, or will be, duly and validly authorized and on the date of issuance and on the
Closing Date, as hereinafter defined, and the date the Note is converted, and the
Warrants are exercised, the Securities will be duly and validly issued, fully paid and
nonassessable (and if registered pursuant to the 1933 Act, and resold pursuant to an
effective registration statement will be free trading and unrestricted, provided that the
Subscriber complies with the Prospectus delivery requirements);






	 	
     (iii)
will not have been issued or sold in violation of any preemptive or other similar rights
of the holders of any securities of the Company; and






	 	
     (iv)
will not subject the holders thereof to personal liability by reason of being such
holders.






	 	
     (h)
Litigation. There is no pending or, to the best knowledge of the Company, threatened
action, suit, proceeding or investigation before any court, governmental agency or body,
or arbitrator having jurisdiction over the Company, or any of its affiliates that would
affect the execution by the Company or the performance by the Company of its obligations
under this Agreement, and all other agreements entered into by the Company relating
hereto.






	 	
     (i)
Reporting Company. The Company is a publicly-held company whose common stock is
registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended
(the “1934 Act”). The Company’s common stock is trading on the NASD OTC Bulletin Board.
Pursuant to the provisions of the 1934 Act, the Company has timely filed all reports and
other materials required to be filed thereunder with the Securities and Exchange
Commission during the preceding twelve months.






	 	
     (j)
No Market Manipulation. The Company has not taken, and will not take, directly or
indirectly, any action designed to, or that might reasonably be expected to, cause or
result in stabilization or manipulation of the price of the common stock of the Company
to facilitate the sale or resale of the Securities or affect the price at which the
Securities may be issued.






	 	
     (k)
Information Concerning Company. The Reports and Other Written Information contain all
material information relating to the Company and its operations and financial condition
as of their respective dates which information is required to be disclosed therein. Since
the date of the financial statements included in the Reports, and except as modified in
the Other Written Information, there has been no material adverse change in the Company’s
business, financial condition or affairs not disclosed in the Reports. The Reports and
Other Written Information do not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading.






	




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     (l)
Dilution. The number of Shares issuable upon conversion of the Note may increase
substantially in certain circumstances, including, but not necessarily limited to, the
circumstance wherein the trading price of the Common Stock declines prior to conversion
of the Note. The Company’s executive officers and directors have studied and fully
understand the nature of the Securities being sold hereby and recognize that they have a
potential dilutive effect. The board of directors of the Company has concluded, in its
good faith business judgment that such issuance is in the best interests of the Company.
The Company specifically acknowledges that its obligation to issue the Shares upon
conversion of the Note and exercise of the Warrants is binding upon the Company and
enforceable, except as otherwise described in this Subscription Agreement or the Note,
regardless of the dilution such issuance may have on the ownership interests of other
shareholders of the Company.






	 	
     (m)
Stop Transfer. The Securities are restricted securities as of the date of this Agreement.
The Company will not issue any stop transfer order or other order impeding the sale and
delivery of the Securities, except as may be required by federal securities laws.






	 	
     (n)
Defaults. Neither the Company nor any of its subsidiaries is in violation of its Articles
of Incorporation or ByLaws. Neither the Company nor any of its subsidiaries is (i) in
default under or in violation of any other material agreement or instrument to which it
is a party or by which it or any of its properties are bound or affected, which default
or violation would have a material adverse effect on the Company, (ii) in default with
respect to any order of any court, arbitrator or governmental body or subject to or party
to any order of any court or governmental authority arising out of any action, suit or
proceeding under any statute or other law respecting antitrust, monopoly, restraint of
trade, unfair competition or similar matters, or (iii) to its knowledge in violation of
any statute, rule or regulation of any governmental authority which violation would have
a material adverse effect on the Company.






	 	
     (o)
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 of any
security or solicited any offers to buy any security under circumstances that would cause
the offering of the Securities pursuant to this Agreement to be integrated with prior
offerings by the Company for purposes of the 1933 Act which would prevent the Company
from selling the Securities pursuant to Rule 506 under the 1933 Act, or any applicable
exchange-related stockholder approval provisions. Nor will the Company or any of its
affiliates or subsidiaries take any action or steps that would cause the offering of the
Securities to be integrated with other offerings.






	 	
     (p)
No General Solicitation. Neither the Company, nor any of its affiliates, nor to its
knowledge, any person acting on its or their behalf, has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D under the Act) in
connection with the offer or sale of the Securities.






	 	
     (q)
Listing. The Company’s Common Stock is listed for trading on the NASD OTC Bulletin Board
and satisfies all requirements for the continuation of such listing. The Company has not
received any notice that its common stock will be delisted from the NASD OTC Bulletin
Board or that the Common Stock does not meet all requirements for the continuation of
such listing.






	




5 




















	 	
     (r)
Correctness of Representations. The Company represents that the foregoing representations
and warranties are true and correct as of the date hereof in all material respects, will
be true and correct as of the Closing Date, and, unless the Company otherwise notifies
the Subscriber prior to the Closing Date, shall be true and correct in all material
respects as of the Closing Date. The foregoing representations and warranties shall
survive the Closing Date.






	

     3.
Exempt Offering. This Offering is being made pursuant to the exemption from the
registration provisions of the Securities Act of 1933, as amended, afforded by Rule 506
of Regulation D promulgated thereunder or Section 4(2). On the Closing Date, the Company
will provide an opinion acceptable to Subscriber from the Company’s legal counsel opining
on the availability of the exemption as it relates to the offer and issuance of the
Securities. A form of the legal opinion is annexed hereto as Exhibit C. The Company will
provide, at the Company’s expense, such other legal opinions in the future as are
reasonably necessary for the conversion of the Note and exercise of the Warrants. 



     4.
Reissuance of Securities. The Company agrees to reissue certificates representing the
Securities without the legends set forth in Sections 1(e) and 1(f) above at such time as
(a) the holder thereof is permitted to dispose of such Securities pursuant to Rule 144(k)
under the Act, or (b) upon resale subject to an effective registration statement after
the Securities are registered under the Act. The Company agrees to cooperate with the
Subscriber in connection with all resales pursuant to Rule 144(d) and Rule 144(k) and
provide legal opinions necessary to allow such resales provided the Company and its
counsel receive reasonably requested representations from the Subscriber and selling
broker, if any. If the Company fails to remove any legend as required by this Section 4
(a “Legend Removal Failure”), then beginning on the tenth (10th) day following such
failure, the Company continues to fail to remove such legend, the Company shall pay to
each Subscriber or assignee holding shares subject to a Legend Removal Failure an amount
equal to one percent (1%) of the Purchase Price of such Shares then held by such
Subscriber or assignee per day that such failure continues. If during any twelve (12)
month period, the Company fails to remove any legend as required by this Section 4 for an
aggregate of thirty (30) days, each Subscriber or assignee holding shares subject to a
Legend Removal Failure may, at its option, require the Company to purchase all or any
portion of the Shares held by such Subscriber or Assignee at a price per share equal to
130% of the per Share Purchase Price. 



     5.
Redemption. The Company may not redeem the Securities without the consent of the holder
of the Securities except as otherwise described herein. 



     6.
Fees/Warrants. 









	 	
     (a)
The Company shall pay to counsel to the Subscriber its fees, up to a maximum of $25,000
(of which $7,500 has been paid) for services rendered to Subscribers in connection with
this Agreement and the other Subscription Agreements for aggregate subscription amounts
of up to $500,000 (the “Initial Offering”) and acting as escrow agent for the Initial
Offering. The Company will pay a cash fee in the amount of ten percent (10%) of the
Purchase Price and Put Purchase Price defined in Section 11.1(a) hereto, and set forth on
the signature page hereto (“Finder’s Fee”) and of the actual cash proceeds received by
the Company in connection with the exercise of the Warrants issued in connection with the
Initial Offering (“Initial Warrants”), and Warrants issuable in connection with the Put
(“Put Warrants”) (“Warrant Exercise Compensation”) to the Finders identified on Schedule
B hereto. Collectively, the Initial Warrants and Put Warrants are referred to herein as
Warrants. The Finder’s Fee must be paid each Closing Date and Put Closing Date with
respect to the Notes issued on such date. The Warrant Exercise Compensation must be paid
within ten (10) days of Warrant exercise to the Finders identified on Schedule B hereto.
The Finder’s Fee and legal fees will be payable out of funds held pursuant to a Funds
Escrow Agreement to be entered into by the Company, Subscriber and an Escrow Agent.






	




6 




















	 	
     (b)
The Company will also issue and deliver to the Warrant Recipients identified on Schedule
B hereto, Warrants in the amounts designated on Schedule B hereto in connection with the
Initial Offering and exercise of the Put. A form of Warrant is annexed hereto as Exhibit
D. The per share “Purchase Price” of Common Stock as defined in the Warrant shall be
equal to one hundred percent (100%) of the average of the three lowest closing bid prices
of the Common Stock for the ten (10) trading days preceding but not including the Closing
Date or Put Closing Date, as the case may be, as reported on the NASD OTC Bulletin Board,
NASDAQ SmallCap Market, NASDAQ National Market System, American Stock Exchange, or New
York Stock Exchange (whichever of the foregoing is at the time the principal trading
exchange or market for the Common Stock, the “Principal Market”), or such other principal
market or exchange where the Common Stock is listed or traded. The Company shall issue
common stock purchase warrants in connection with the Section 11.2(e) Put Amount
(sometimes referred to herein as “Initial Put Warrants”). The aggregate number of Common
Shares purchasable upon exercise of the Initial Put Warrants is set forth on Schedule B
hereto. The number of Common Shares issuable upon exercise of the balance of the Put
Warrants is equal to 12% of the Common Shares to be issued upon conversion of the final
$3,000,000 of Put Notes issued in the aggregate to Subscribers to the Initial Offering.
The Initial Warrants must be delivered at the Closing Date. The Put Warrants issuable in
connection with the Section 11.2(e) Amount must be issued and delivered no later than the
date the corresponding Section 11.2(e) Amount Put Notes are delivered. The remaining Put
Warrants must be delivered no later than the Delivery Date (defined in Section 9.1(b)
hereof) in relation to the relevant Conversion Date. Failure to timely deliver the
Warrant Exercise Compensation, the Warrants or Finder’s Fee shall be deemed an Event of
Default as defined in Article III of the Note and Put Note.






	 	
     (c)
The Finder’s Fee and legal fees will be paid to the Finders and attorneys only when, as,
and if a corresponding subscription amount is released from escrow to the Company and out
of the escrow proceeds. All the representations, covenants, warranties, undertakings, and
indemnification, other rights including but not limited to registration rights, and
rights in Section 9 hereof, made or granted to or for the benefit of the Subscriber are
hereby also made and granted to the Warrant Recipients in respect of the Warrants and
Company Shares issuable upon exercise of the Warrants.






	 	
     (d)
The holders of the Warrants are granted all the rights, undertakings, remedies,
liquidated damages and indemnification granted to the Subscriber in connection with the
Note, including but not limited to, the rights and procedures set forth in Section 9
hereof and the registration rights described in Section 10 hereof.






	


     7.1.
Covenants of the Company. The Company covenants and agrees with the Subscriber as follows: 









	 	
     (a)
The Company will advise the Subscriber, promptly after it receives notice of issuance by
the Securities and Exchange Commission, any state securities commission or any other
regulatory authority of any stop order or of any order preventing or suspending any
offering of any securities of the Company, or of the suspension of the qualification of
the Common Stock of the Company for offering or sale in any jurisdiction, or the
initiation of any proceeding for any such purpose.






	 	
     (b)
The Company shall promptly secure the listing of the Company Shares, and Common Stock
issuable upon the exercise of the Warrants 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 shall maintain such listing so long as any
other shares of Common Stock shall be so listed. The Company will maintain the listing of
its Common Stock on a Principal Market, 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 will provide the Subscriber copies of all notices it receives notifying the
Company of the threatened and actual delisting of the Common Stock from any Principal
Market.






	


7 





















	 	
     (c)
The Company shall notify the SEC, NASD and applicable state authorities, in accordance
with their requirements, of the transactions contemplated by this Agreement, and shall
take all other necessary action and proceedings as may be required and permitted by
applicable law, rule and regulation, for the legal and valid issuance of the Securities
to the Subscriber and promptly provide copies thereof to Subscriber.






	 	
     (d)
Until at least two (2) years after the effectiveness of the Registration Statement on
Form SB-2 or such other Registration Statement described in Section 10.1(iv) hereof, the
Company will (i) cause its Common Stock to continue to be registered under Sections 12(b)
or 12(g) of the Exchange Act, (ii) comply in all respects with its reporting and filing
obligations under the Exchange Act, (iii) comply with all reporting requirements that is
applicable to an issuer with a class of Shares registered pursuant to Section 12(g) of
the Exchange Act, and (iv) comply with all requirements related to any registration
statement filed pursuant to this Agreement. The Company will not take any action or file
any document (whether or not permitted by the Act or the Exchange Act or the rules
thereunder) to terminate or suspend such registration or to terminate or suspend its
reporting and filing obligations under said Acts until the later of (y) two (2) years
after the effective date of the Registration Statement on Form SB-2 or such other
Registration Statement described in Section 10.1(iv) hereof, or (z) the sale by the
Subscribers of all the Company Shares issuable by the Company pursuant to this Agreement,
upon which such final sale the Subscriber shall notify the Company. Until at least two
(2) years after the Warrants have been exercised, the Company will use its commercial
best efforts to continue the listing of the Common Stock on the NASD Bulletin Board and
will comply in all respects with the Company’s reporting, filing and other obligations
under the bylaws or rules of the NASD and NASDAQ.






	 	
     (e)
The Company undertakes to use the proceeds of the Subscriber’s funds for working capital
purposes generally, and as may be determined by the Company’s Board of Directors, acting
in their fiduciary capacity on behalf of the Company, and expenses of this offering.






	


     8.
Covenants of the Company and Subscriber Regarding Idemnification. 









	 	
     (a)
The Company agrees to indemnify, hold harmless, reimburse and defend Subscriber,
Subscriber’s officers, directors, agents, affiliates, control persons, and principal
shareholders, against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon Subscriber
or any such person which results, arises out of or is based upon (i) any
misrepresentation by Company or breach of any warranty by Company in this Agreement or in
any Exhibits or Schedules attached hereto; or (ii) after any applicable notice and/or
cure periods, any breach or default in performance by the Company of any covenant or
undertaking to be performed by the Company hereunder, or any other agreement entered into
by the Company and Subscribers relating hereto.






	 	
     (b)
Subscriber agrees to indemnify, hold harmless, reimburse and defend the Company and each
of the Company’s officers and directors at all times against any claim, cost, expense,
liability, obligation, loss or damage (including reasonable legal fees) of any nature,
incurred by or imposed upon the Company or any such person which results, arises out of
or is based upon (i) any misrepresentation by Subscriber in this Agreement or in any
Exhibits or Schedules attached hereto; or (ii) after any applicable notice and/or cure
periods, any breach or default in performance by Subscriber of any covenant or
undertaking to be performed by Subscriber hereunder, or any other agreement entered into
by the Company and Subscribers relating hereto.






	


8 






















	 	
     (c)
The procedures set forth in Section 10.6 shall apply to the indemnifications set forth in
Sections 8(a) and 8(b) above.






	


     9.1.
Conversion of Note. 









	 	
     (a)
Upon the conversion of the Note or part thereof, the Company shall, at its own cost and
expense, take all necessary action (including the issuance of an opinion of counsel) to
assure that the Company’s transfer agent shall issue stock certificates in the name of
Subscriber (or its nominee) or such other persons as designated by Subscriber and in such
denominations to be specified at conversion representing the number of shares of common
stock issuable upon such conversion. The Company warrants that no instructions other than
these instructions have been or will be given to the transfer agent of the Company’s
Common Stock and that the Shares will be unlegended, free-trading, and freely
transferable, and will not contain a legend restricting the resale or transferability of
the Company Shares provided the Shares are being sold pursuant to an effective
registration statement covering the Shares to be sold or are otherwise exempt from
registration when sold.






	 	
     (b)
Subscriber will give notice of its decision to exercise its right to convert the Note or
part thereof by telecopying an executed and completed Notice of Conversion (as defined in
the Note) to the Company. The Subscriber will not be required to surrender the Note until
the Note has been fully converted or satisfied. Each date on which a Notice of Conversion
is telecopied to the Company in accordance with the provisions hereof shall be deemed a
Conversion Date. The Company will or cause the transfer agent to transmit the Company’s
Common Stock certificates representing the Shares issuable upon conversion of the Note
(and provided the original Note has been surrendered, a Note representing the balance of
the Note not so converted, if requested by Subscriber) to the Subscriber via express
courier for receipt by such Subscriber within five (5) business days after receipt by the
Company of the Notice of Conversion (the “Delivery Date”). To the extent that a
Subscriber elects not to surrender a Note for reissuance upon partial payment or
conversion, the Subscriber hereby indemnifies the Company against any and all loss or
damage attributable to a third-party claim in an amount in excess of the actual amount
then due under the Note.






	 	
     (c)
The Company understands that a delay in the delivery of the Shares in the form required
pursuant to Section 9 hereof, or the Mandatory Redemption Amount described in Section 9.2
hereof, beyond the Delivery Date or Mandatory Redemption Payment Date (as hereinafter
defined) could result in economic loss to the Subscriber. As compensation to the
Subscriber for such loss, the Company agrees to pay late payments to the Subscriber for
late issuance of Shares in the form required pursuant to Section 9 hereof upon Conversion
of the Note or late payment of the Mandatory Redemption Amount, in the amount of $100 per
business day after the Delivery Date or Mandatory Redemption Payment Date, as the case
may be, for each $10,000 of Note principal amount being converted or redeemed. The
Company shall pay any payments incurred under this Section in immediately available funds
upon demand. Furthermore, in addition to any other remedies which may be available to the
Subscriber, in the event that the Company fails for any reason to effect delivery of the
Shares by the Delivery Date or make payment by the Mandatory Redemption Payment Date, the
Subscriber will be entitled to revoke all or part of the relevant Notice of Conversion or
rescind all or part of the notice of Mandatory Redemption by delivery of a notice to such
effect to the Company whereupon the Company and the Subscriber shall each be restored to
their respective positions immediately prior to the delivery of such notice, except that
late payment charges described above shall be payable through the date notice of
revocation or rescission is given to the Company.






	 	
     (d)
Nothing contained herein or in any document referred to herein or delivered in connection
herewith 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 or dividends required to be paid or other charges hereunder exceed the
maximum permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Company to the Subscriber and thus refunded to the Company.






	


9 


















	




     9.2.
Mandatory Redemption. In the event the Company is prohibited from issuing Shares or fails
to timely deliver Shares on a Delivery Date for any reason other than pursuant to the
limitations set forth in Section 9.3 hereof, then at the Subscriber’s election, the
Company must pay to the Subscriber five (5) business days after request by the Subscriber
or on the Delivery Date (if requested by the Subscriber) a sum of money determined by
multiplying the principal amount of the Note designated by the Subscriber by 130%,
together with accrued but unpaid interest thereon (“Mandatory Redemption Payment”). The
Mandatory Redemption Payment must be received by the Subscriber on the same date as the
Company Shares otherwise deliverable or within five (5) business days after request,
whichever is sooner (“Mandatory Redemption Payment Date”). Upon receipt of the Mandatory
Redemption Payment, the corresponding Note principal and interest will be deemed paid and
no longer outstanding. 



     9.3.
Maximum Conversion. The Subscriber shall not be entitled to convert on a Conversion Date
that amount of the Note in connection with that number of shares of Common Stock which
would be in excess of the sum of (i) the number of shares of Common Stock beneficially
owned by the Subscriber and its affiliates on a Conversion Date, and (ii) the number of
shares of Common Stock issuable upon the conversion of the Note with respect to which the
determination of this proviso is being made on a Conversion Date, which would result in
beneficial ownership by the Subscriber and its affiliates of more than 4.99% of the
outstanding shares of Common Stock of the Company on such Conversion Date. For the
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 Regulation 13d-3 thereunder. Subject to the foregoing, the Subscriber shall
not be limited to aggregate conversions of only 4.99%. The Subscriber may void the
conversion limitation described in this Section 9.3 upon 75 days prior notice to the
Company. The Subscriber may allocate which of the equity of the Company deemed
beneficially owned by the Subscriber shall be included in the 4.99% amount described
above and which shall be allocated to the excess above 4.99%. 



     9.4.
Injunction — Posting of Bond. In the event a Subscriber shall elect to convert a Note or
part thereof, the Company may not refuse conversion based on any claim that such
Subscriber or any one associated or affiliated with such Subscriber has been engaged in
any violation of law, or any other reason, unless, an injunction from a court, on notice,
restraining and or enjoining conversion of all or part of said Note shall have been
sought and obtained and the Company posts a surety bond for the benefit of such
Subscriber in the amount of 130% of the amount of the Note, which is subject to the
injunction, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable to such
Subscriber to the extent it obtains judgment. 



     9.5.
Buy-In. In addition to any other rights available to the Subscriber, if the Company fails
to deliver to the Subscriber such shares issuable upon conversion of a Note by the
Delivery Date and if after the Delivery Date the Subscriber purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by
such Subscriber of the Common Stock which the Subscriber anticipated receiving upon such
conversion (a “Buy-In”), then the Company shall pay in cash to the Subscriber (in
addition to any remedies available to or elected by the Subscriber) the amount by which
(A) the Subscriber’s total purchase price (including brokerage commissions, if any) for
the shares of Common Stock so purchased exceeds (B) the aggregate principal and/or
interest amount of the Note for which such conversion was not timely honored, together
with interest thereon at a rate of 15% per annum, accruing until such amount and any
accrued interest thereon is paid in full (which amount shall be paid as liquidated
damages and not as a penalty). For example, if the Subscriber purchases shares of Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an
attempted conversion of $10,000 of note principal and/or interest, the Company shall be
required to pay the Subscriber $1,000, plus interest. The Subscriber shall provide the
Company written notice indicating the amounts payable to the Subscriber in respect of the
Buy-In. 





10 

















	




     10.1.
Registration Rights. The Company hereby grants the following registration rights to
holders of the Securities. 










	 	
     (i)
On one occasion, for a period commencing 91 days after the Closing Date, but not later
than four years after the Closing Date (“Request Date”), the Company, upon a written
request therefor from any record holder or holders of more than 50% of the aggregate of
the Company’s Shares issued and issuable upon Conversion of the Note and the Put Notes
which are actually issued (the Common Stock issued or issuable upon conversion or
exercise of the Securities, Put Securities and securities issued or issuable by virtue of
ownership of the Securities and Put Securities, being, the “Registrable Securities”),
shall prepare and file with the SEC a registration statement under the Act covering the
Registrable Securities which are the subject of such request, unless such Registrable
Securities are the subject of an effective registration statement. In addition, upon the
receipt of such request, the Company shall promptly give written notice to all other
record holders of the Registrable Securities that such registration statement is to be
filed and shall include in such registration statement Registrable Securities for which
it has received written requests within 10 days after the Company gives such written
notice. Such other requesting record holders shall be deemed to have exercised their
demand registration right under this Section 10.1(i). As a condition precedent to the
inclusion of Registrable Securities, the holder thereof shall provide the Company with
such information as the Company reasonably requests. The obligation of the Company under
this Section 10.1(i) shall be limited to one registration statement.






	 	
     (ii)
If the Company at any time proposes to register any of its securities under the Act for
sale to the public, whether for its own account or for the account of other security
holders or both, except with respect to registration statements on Forms S-4, S-8 or
another form not available for registering the Registrable Securities for sale to the
public, provided the Registrable Securities are not otherwise registered for resale by
the Subscriber or Holder pursuant to an effective registration statement, each such time
it will give at least 30 days’ prior written notice to the record holder of the
Registrable Securities of its intention so to do. Upon the written request of the holder,
received by the Company within 30 days after the giving of any such notice by the
Company, to register any of the Registrable Securities, the Company will cause such
Registrable Securities as to which registration shall have been so requested to be
included with the securities to be covered by the registration statement proposed to be
filed by the Company, all to the extent required to permit the sale or other disposition
of the Registrable Securities so registered by the holder of such Registrable Securities
(the “Seller”). In the event that any registration pursuant to this Section 10.1(ii)
shall be, in whole or in part, an underwritten public offering of common stock of the
Company, the number of shares of Registrable Securities to be included in such an
underwriting may be reduced by the managing underwriter if and to the extent that the
Company and the underwriter shall reasonably be of the opinion that such inclusion would
adversely affect the marketing of the securities to be sold by the Company therein;
provided, however, that the Company shall notify the Seller in writing of any such
reduction. Notwithstanding the forgoing provisions, or Section 10.4 hereof, the Company
may withdraw or delay or suffer a delay of any registration statement referred to in this
Section 10.1(ii) without thereby incurring any liability to the Seller.






	 	
     (iii)
If, at the time any written request for registration is received by the Company pursuant
to Section 10.1(i), the Company has determined to proceed with the actual preparation and
filing of a registration statement under the 1933 Act in connection with the proposed
offer and sale for cash of any of its securities for the Company’s own account, such
written request shall be deemed to have been given pursuant to Section 10.1(ii) rather
than Section 10.1(i), and the rights of the holders of Registrable Securities covered by
such written request shall be governed by Section 10.1(ii).






	




11 




















	 	
     (iv)
The Company shall file with the Commission within 30 days of the Closing Date (the
“Filing Date”), and use its reasonable commercial efforts to cause to be declared
effective a Form SB-2 registration statement (or such other form that it is eligible to
use) within 90 days of the Closing Date in order to register the Registrable Securities
for resale and distribution under the Act. The registration statement described in this
paragraph must be declared effective by the Commission within 90 days of the Closing Date
(as defined herein) (“Effective Date”). The Company will register not less than a number
of shares of Common Stock in the aforedescribed registration statement that is equal to
200% of the Company Shares issuable at the Conversion Price that would be in effect on
the Closing Date or the date of filing of such registration statement (employing the
Conversion Price which would result in the greater number of Shares), assuming the
conversion of 100% of the Notes and all the Put Notes which are issuable, and one share
of common stock for each common share issuable upon exercise of the Initial Warrants and
Put Warrants which are issuable in connection with the Put, employing the Conversion
Price that would result in the greater number of Shares. The Registrable Securities shall
be reserved and set aside exclusively for the benefit of the Subscriber and Warrant
Recipients, as the case may be, and not issued, employed or reserved for anyone other
than the Subscriber and Warrant Recipients. Such registration statement will be promptly
amended or additional registration statements will be promptly filed by the Company as
necessary to register additional Company Shares to allow the public resale of all Common
Stock included in and issuable by virtue of the Registrable Securities. No securities of
the Company other than the Registrable Securities will be included in the registration
statement described in this Section 10.1(iv).






	


     10.2.
Registration Procedures. If and whenever the Company is required by the provisions hereof
to effect the registration of any shares of Registrable Securities under the Act, the
Company will, as expeditiously as possible: 









	 	
     (a)
prepare and file with the Commission a registration statement with respect to such
securities and use its best efforts to cause such registration statement to become and
remain effective for the period of the distribution contemplated thereby (determined as
herein provided), and promptly provide to the holders of Registrable Securities copies of
all filings and Commission letters of comment;






	 	
     (b)
prepare and file with the Commission such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be necessary to keep
such registration statement effective until the latest of: (i) six months after the
latest exercise period of the Warrants; (ii) twelve months after the Maturity Date of the
Note or Put Note; or (iii) two years after the Closing Date, and comply with the
provisions of the Act with respect to the disposition of all of the Registrable
Securities covered by such registration statement in accordance with the Seller’s
intended method of disposition set forth in such registration statement for such period;






	 	
     (c)
furnish to the Seller, and to each underwriter if any, such number of copies of the
registration statement and the prospectus included therein (including each preliminary
prospectus) as such persons reasonably may request in order to facilitate the public sale
or their disposition of the securities covered by such registration statement;






	 	
     (d)
use its best efforts to register or qualify the Seller’s Registrable Securities covered
by such registration statement under the securities or “blue sky” laws of such
jurisdictions as the Seller and in the case of an underwritten public offering, the
managing underwriter shall reasonably request, provided, however, that the Company shall
not for any such purpose be required to qualify generally to transact business as a
foreign corporation in any jurisdiction where it is not so qualified or to consent to
general service of process in any such jurisdiction;






	




12 




















	 	
     (e)
list the Registrable Securities covered by such registration statement with any
securities exchange on which the Common Stock of the Company is then listed;






	 	
     (f)
immediately notify the Seller and each underwriter under such registration statement at
any time when a prospectus relating thereto is required to be delivered under the Act, of
the happening of any event of which the Company has knowledge as a result of which the
prospectus contained in such registration statement, as then in effect, includes an
untrue statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in light of the
circumstances then existing;






	 	
     (g)
make available for inspection by the Seller, any underwriter participating in any
distribution pursuant to such registration statement, and any attorney, accountant or
other agent retained by the Seller or underwriter, all publicly available,
non-confidential financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company’s officers, directors and employees to
supply all publicly available, non-confidential information reasonably requested by the
seller, underwriter, attorney, accountant or agent in connection with such registration
statement.






	


     10.3.
Provision of Documents. 









	 	
     (a)
At the request of the Seller, provided a demand for registration has been made pursuant
to Section 10.1(i) or a request for registration has been made pursuant to Section
10.1(ii), the Registrable Securities will be included in a registration statement filed
pursuant to this Section 10.






	 	
     (b)
In connection with each registration hereunder, the Seller will furnish to the Company in
writing such information and representation letters with respect to itself and the
proposed distribution by it as reasonably shall be necessary in order to assure
compliance with federal and applicable state securities laws. In connection with each
registration pursuant to Section 10.1(i) or 10.1(ii) covering an underwritten public
offering, the Company and the Seller agree to enter into a written agreement with the
managing underwriter in such form and containing such provisions as are customary in the
securities business for such an arrangement between such underwriter and companies of the
Company’s size and investment stature.







	


     10.4.
Non-Registration Events. The Company and the Subscriber agree that the Seller will suffer
damages if any registration statement required under Section 10.1(i) or 10.1(ii) above is
not filed within 60 days after written request by the Holder and not declared effective
by the Commission within 120 days after such request [or the Filing Date and Effective
Date, respectively, in reference to the Registration Statement on Form SB-2 or such other
form described in Section 10.1(iv)], and maintained in the manner and within the time
periods contemplated by Section 10 hereof, and it would not be feasible to ascertain the
extent of such damages with precision. Accordingly, if (i) the Registration Statement
described in Sections 10.1(i) or 10.1(ii) is not filed within 60 days of such written
request, or is not declared effective by the Commission on or prior to the date that is
120 days after such request, or (ii) the registration statement on Form SB-2 or such
other form described in Section 10.1(iv) is not filed on or before the Filing Date or not
declared effective on or before the sooner of the Effective Date, or within five days of
receipt by the Company of a communication from the Commission that the registration
statement described in Section 10.1(iv) will not be reviewed, or (iii) any registration
statement described in Sections 10.1(i), 10.1(ii) or 10.1(iv) is filed and declared
effective but shall thereafter cease to be effective (without being succeeded immediately
by an additional registration statement filed and declared effective) for a period of
time which shall exceed 30 days in the aggregate per year but not more than 20
consecutive calendar days (defined as a period of 365 days commencing on the date the
Registration Statement is declared effective) (each such event referred to in clauses
(i), (ii) and (iii) of this Section 10.4 is referred to herein as a “Non-Registration
Event”), then, for so long as such Non-Registration Event shall continue, the Company
shall pay in cash as Liquidated Damages to each holder of any Registrable Securities an
amount equal to two (2%) percent per month or part thereof during the pendency of such
Non-Registration Event, of (i) the principal of the Notes issued in connection with the
Initial Offering, whether or not converted; (ii) the principal amount of Put Notes
actually issued, whether or not converted, then owned of record by such holder or
issuable as of or subsequent to the occurrence of such Non-Registration Event. Payments
to be made pursuant to this Section 10.4 shall be due and payable immediately upon demand
in immediately available funds. In the event a Mandatory Redemption Payment is demanded
from the Company by the Holder pursuant to Section 9.2 of this Subscription Agreement,
then the Liquidated Damages described in this Section 10.4 shall no longer accrue on the
portion of the Purchase Price underlying the Mandatory Redemption Payment, from and after
the date the Holder receives the Mandatory Redemption Payment. It shall be deemed a
Non-Registration Event only to the extent of the Common Stock underlying the Registrable
Securities not included in an effective registration statement as of and after the
Effective Date at the Conversion Prices in effect from and after the Effective Date. 









	


13 
















	




     10.5.
Expenses. All expenses incurred by the Company in complying with Section 10, including,
without limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel and independent public accountants for the Company, fees and
expenses (including reasonable counsel fees) incurred in connection with complying with
state securities or “blue sky” laws, fees of the National Association of Securities
Dealers, Inc., transfer taxes, fees of transfer agents and registrars, and costs of
insurance are called “Registration Expenses”. All underwriting discounts and selling
commissions applicable to the sale of Registrable Securities, including any fees and
disbursements of any special counsel to the Seller, are called “Selling Expenses”. The
Seller shall pay the fees of its own additional counsel, if any. 



     The
Company will pay all Registration Expenses in connection with the registration statement
under Section 10. All Selling Expenses in connection with each registration statement
under Section 10 shall be borne by the Seller and may be apportioned among the Sellers in
proportion to the number of shares sold by the Seller relative to the number of shares
sold under such registration statement or as all Sellers thereunder may agree. 



     10.6.
Indemnification and Contribution. 










	 	
     (a)
In the event of a registration of any Registrable Securities under the Act pursuant to
Section 10, the Company will indemnify and hold harmless the Seller, each officer of the
Seller, each director of the Seller, each underwriter of such Registrable Securities
thereunder and each other person, if any, who controls such Seller or underwriter within
the meaning of the 1933 Act, against any losses, claims, damages or liabilities, joint or
several, to which the Seller, or such underwriter or controlling person may become
subject under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any registration
statement under which such Registrable Securities was registered under the Act pursuant
to Section 10, any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the Seller,
each such underwriter and each such controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company shall not be
liable to the Seller to the extent that any such damages arise out of or are based upon
an untrue statement or omission made in any preliminary prospectus if (i) the Seller
failed to send or deliver a copy of the final prospectus delivered by the Company to the
Seller with or prior to the delivery of written confirmation of the sale by the Seller to
the person asserting the claim from which such damages arise, (ii) the final prospectus
would have corrected such untrue statement or alleged untrue statement or such omission
or alleged omission, or (iii) to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission so made in conformity with information furnished by any
such Seller, or any such controlling person in writing specifically for use in such
registration statement or prospectus.






	





14 





















	 	
     (b)
In the event of a registration of any of the Registrable Securities under the Act
pursuant to Section 10, the Seller will indemnify and hold harmless the Company, and each
person, if any, who controls the Company within the meaning of the Act, each officer of
the Company, each director of the Company, each underwriter and each person who controls
any underwriter within the meaning of the Act, against all losses, claims, damages or
liabilities, joint or several, to which the Company or such officer, director,
underwriter or controlling person may become subject under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any material
fact contained in the registration statement under which such Registrable Securities were
registered under the Act pursuant to Section 10, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereof, or arise out of or
are based upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading, and will
reimburse the Company and each such officer, director, underwriter and controlling person
for any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action, provided,
however, that the Seller will be liable hereunder in any such case if and only to the
extent that any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with information pertaining to such Seller, as such,
furnished in writing to the Company by such Seller specifically for use in such
registration statement or prospectus, and provided, further, however, that the liability
of the Seller hereunder shall be limited to the gross proceeds received by the Seller
from the sale of Registrable Securities covered by such registration statement.







	 	
     (c)
Promptly after receipt by an indemnified party hereunder of notice of the commencement of
any action, such indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party hereunder, notify the indemnifying party in writing
thereof, but the omission so to notify the indemnifying party shall not relieve it from
any liability which it may have to such indemnified party other than under this Section
10.6(c) and shall only relieve it from any liability which it may have to such
indemnified party under this Section 10.6(c), except and only if and to the extent the
indemnifying party is prejudiced by such omission. In case any such action shall be
brought against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate in and, to
the extent it shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying party to
such indemnified party of its election so to assume and undertake the defense thereof,
the indemnifying party shall not be liable to such indemnified party under this Section
10.6(c) for any legal expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of investigation and of
liaison with counsel so selected, provided, however, that, if the defendants in any such
action include both the indemnified party and the indemnifying party and the indemnified
party shall have reasonably concluded that there may be reasonable defenses available to
it which are different from or additional to those available to the indemnifying party or
if the interests of the indemnified party reasonably may be deemed to conflict with the
interests of the indemnifying party, the indemnified parties shall have the right to
select one separate counsel and to assume such legal defenses and otherwise to
participate in the defense of such action, with the reasonable expenses and fees of such
separate counsel and other expenses related to such participation to be reimbursed by the
indemnifying party as incurred.







	




15 



















	 	
     (d)
In order to provide for just and equitable contribution in the event of joint liability
under the Act in any case in which either (i) the Seller, or any controlling person of
the Seller, makes a claim for indemnification pursuant to this Section 10.6 but it is
judicially determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last right of
appeal) that such indemnification may not be enforced in such case notwithstanding the
fact that this Section 10.6 provides for indemnification in such case, or (ii)
contribution under the Act may be required on the part of the Seller or controlling
person of the Seller in circumstances for which indemnification is provided under this
Section 10.6; then, and in each such case, the Company and the Seller will contribute to
the aggregate losses, claims, damages or liabilities to which they may be subject (after
contribution from others) in such proportion so that the Seller is responsible only for
the portion represented by the percentage that the public offering price of its
securities offered by the registration statement bears to the public offering price of
all securities offered by such registration statement, provided, however, that, in any
such case, (y) the Seller will not be required to contribute any amount in excess of the
public offering price of all such securities offered by it pursuant to such registration
statement; and (z) no person or entity guilty of fraudulent misrepresentation (within the
meaning of Section 10(f) of the Act) will be entitled to contribution from any person or
entity who was not guilty of such fraudulent misrepresentation.






	





     11.1.
Obligation To Purchase. 









	 	
     (a)
The Subscriber agrees to purchase from the Company convertible notes (“Put Notes”) in up
to the principal amount set forth on the signature page hereto for up to the aggregate
amount of Put Note principal (“Put Purchase Price”) designated on the signature page
hereto (the “Put”). Collectively the Put Notes, Warrants issuable in connection with the
Put, and Common Stock issuable upon conversion of the Put Notes and exercise of the
Warrants are referred to as the “Put Securities”.) The Warrants issuable in connection
with the Put Notes are referred to herein as Warrants or Put Warrants. Except as
described in Section 11.1(c) hereof, each Put Note will be identical to the Note except
that the Maturity Date will be two years from each Put Closing Date (as hereinafter
defined). The Holders of the Put Securities are granted all the rights, undertakings,
remedies, liquidated damages and indemnification granted to the Subscriber in connection
with the Note, including but not limited to, the rights and procedures set forth in
Section 9 hereof and the registration rights described in Section 10 hereof.






	 	
     (b)
The agreement to purchase the Put Notes is contingent on the following any, some or all
of which may be waived by the Subscriber:






	 	
     (i)
As of a Put Date and Put Closing Date (as hereinafter defined), the Common Shares
issuable upon conversion of a Put Note and exercise of Put Warrants must be included in
an effective registration statement described in Section 10 hereof.






	 	
     (ii)
As of a Put Date and Put Closing Date, the Company will be a reporting company with the
class of Shares registered pursuant to Section 12(g) of the Securities Exchange Act of
1934.






	 	
     (iii)
No material adverse change in the Company’s business or business prospects shall have
occurred after the date of the most recent financial statements included in the Reports.
Material adverse change is defined as any effect on the business, operations, properties,
prospects, or financial condition of the Company that is material and adverse to the
Company and its subsidiaries and affiliates, taken as a whole, and/or any condition,
circumstance, or situation that would prohibit or otherwise interfere with the ability of
the Company to enter into and perform any of its obligations under this Agreement, or any
other agreement entered into or to be entered into in connection herewith, in any
material respect. There shall not have been a material negative restatement of the
Company’s financial statements included in the Reports.






	


16 




















	 	
     (iv)
An Event of Default as described in Article III of the Note shall not have occurred.






	 	
     (v)
The execution and delivery to the Subscriber of a certificate signed by its chief
executive officer representing the truth and accuracy of all the Company’s
representations and warranties contained in this Subscription Agreement as of the Put
Date, and Put Closing Date and confirming the undertakings contained herein, and
representing the satisfaction of all contingencies and conditions required for the
exercise of the Put.






	 	
     (vi)
The Company’s listing on, and compliance with the listing requirements of the Principal
Market.






	 	
     (vii)
The Company’s not having received notice from the NASD OTC Bulletin Board (or any
Principal Market) that the Company is not in compliance with the requirements for
continued listing.






	 	
     (viii)
The execution by the Company and delivery to the Subscriber of all required documents in
relation to the Put set forth in Section 11.2 below and such other documents which may be
reasonably requested by the Subscriber.






	 	
     (ix)
A Legend Removal Failure shall not have occurred.






	 	
     (x)
In addition to all other requirements and conditions for Put exercise, the Company may
give a Put Notice in connection with the Section 11.2(e) Put Amount (as hereinafter
defined) only if the average trading volume on a Principal Market for the twenty-two
consecutive trading days prior to the actual effective date of the registration statement
in which the Shares underlying the Put Note for the Section 11.2(e) Put Amount are
included (“Lookback Period”) is not less than 150,000 Common Shares and the closing price
of the Common Stock during each day during the Lookback Period is not less than $.25 per
Common Share.






	 	
     (xi)
No issuance of a SEC stop trade order.






	 	
     (xii)
The Company shall have no knowledge that any of the foregoing conditions shall not be
true and accurate as of a date fifteen days after a Put Closing Date.






	 	
     (c)
Subject to the adjustments set forth in the Note, the Conversion Price of the Put Note
shall be as follows:






	 	
     (i)
The Conversion Price of the initial one-third of the Put Note Purchase Price set forth on
the signature page hereto shall be the lesser of (i) 75% of the average of the three
lowest closing bid prices of the Common Stock on the Principal Market for the fifteen
(15) trading days prior to the Closing Date, or (ii) 80% of the average of the three
lowest closing bid prices of the Common Stock on the Principal Market for the ninety (90)
trading days prior to the Conversion Date, as defined in the Note. The Maturity Date of
the Put Notes shall be two years from the respective Put Closing Dates.






	




17 


















	 	
     (ii)
The Conversion Price of the balance of the Put Note Purchase Price shall be 82% of the
average of three lowest closing bid prices of the Common Stock on the Principal Market
for the ten (10) trading days prior to the Conversion Date.






	


     11.2.
Exercise of Put. 









	 	
     (a)
The Company’s right to exercise the Put commences on the actual effective date of the
registration statement described in Section 10.1(iv) hereof and expires three (3) years
after the Effective Date (“Put Exercise Period”).






	 	
     (b)
The Put may be exercised by the Company by giving the Subscriber written notice of
exercise (“Put Notice”) not more often than one time each calendar month during the Put
Exercise Period in relation to up to the maximum principal amount of Put Note that the
Subscriber has agreed to purchase subject to the limits described in this Agreement. The
date a Put Notice is given is a Put Date. Each Put Notice must be accompanied by (i) the
officer’s certificate described in Section 11.1(b)(v) above; (ii) a legal opinion
relating to the Put Securities in form reasonably acceptable to Subscriber substantially
similar to the opinion annexed hereto as Exhibit C; (iii) proof of effectiveness of the
registration statement described in Section 10 above, together with five copies of the
prospectus portion thereof; and (iv) such other documents and certificates reasonably
requested by the Subscriber.






	 	
     (c)
Unless otherwise agreed to by the Subscribers, Put Notices must be given to all
Subscribers in proportion to the amounts agreed to be purchased by all Subscribers
undertaking to purchase Put Notes in the Initial Offering.






	 	
     (d)
Payment by the Subscriber in relation to a Put Notice relating to a Put must be made
within five (5) business days after receipt of a Put Notice and the items set forth in
Section 11.2(b) above. Payment will be made against delivery to the Subscriber or an
escrow agent to be agreed upon by the Company and Subscriber, of the Put Securities, and
delivery to the Finders of the Put Commissions relating to the Put being exercised which
the Company may elect to be paid out of funds deposited with the escrow agent.






	 	
     (e)
The Company may exercise the Put subject to the following limitations:






	 	
     (i)
The Company may not give the Subscriber a Put Notice in connection with that amount of
Put Note which could be converted as of the Put Date into a number of shares of Common
Stock which would be in excess of the sum of (y) the number of shares of Common Stock
beneficially owned by the Subscriber and its affiliates on such Put Date, and (z) the
number of shares of Common Stock issuable upon the conversion of the Put Note with
respect to which the determination of this proviso is being made on a Put Date, which
would result in beneficial ownership by the Subscriber and its affiliates of more than
4.99% of the outstanding shares of Common Stock of the Company on such Put Date. For the
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 Regulation 13d-3 thereunder. Subject to the foregoing, the Subscriber shall
not be limited to aggregate conversions of only 4.99%. The Subscriber may revoke the
restriction described in this paragraph upon 75 days prior notice to the Company. The
Subscriber shall have the right to determine which of the equity of the Company deemed
beneficially owned by the Subscriber shall be included in the 4.99% described above and
which shall be allocated to the excess above 4.99%.






	 	
     (ii)
The aggregate amount of all Put Notices to all Subscribers of the Initial Offering may
not exceed $4,500,000. The aggregate maximum principal amount of Put Notes for which Put
Notices may be given during any calendar month to all Subscribers in the Initial Offering
may not exceed ten (10%) of the daily weighted average price of the Common Stock on the
Principal Market as reported by Bloomberg Financial using the AQR function for the thirty
calendar days prior to but not including the Put Date, multiplied by the reported daily
trading volume of the Common Stock for each such day (“Trading Volume Limitation”). The
foregoing Trading Volume Limitation notwithstanding and provided all other preconditions
to Put exercise are satisfied, the Company may exercise the Put for up to the amount
designated on the signature page hereto as “Section 11.2(e) Put Amount” during the first
thirty (30) days following the actual effective date of the registration statement
described in Section 10.1(iv) hereof.






	



18 




















	 	
     (iii)
Anything to the contrary herein notwithstanding, the Company may not exercise the Put for
aggregate Put amounts from Investors to the Initial Offering, or their assignees, in
excess of $1,500,000 during any calendar month.






	 	
     (f)
In the event the Company does not exercise the Put during the Put Exercise Period for the
entire Put amount, then the Subscriber may exercise the Put on behalf of the Company in
relation only to such Subscriber, by giving notice to the Company of such exercise during
the seven (7) business days following the Put Exercise Period.






	


     11.3.
Put Finders Fees. The Finders identified on Schedule B hereto shall receive on each Put
Closing Date aggregate Finder’s Fees as described in Section 6 hereof in connection with
the closing of each Put as set forth on Schedule B hereto. Put Finder’s Fees shall be
payable only in connection with the Put Purchase Price actually paid by a Subscriber. The
Put Finder’s Fees and reasonable legal fees for counsel to the Subscriber shall be paid
at each Put Closing. The legal fee to be paid by the Company to one counsel for the
Subscribers to the Initial Offering shall be $5,000 per Put Closing for the first two Put
Closings and $1,000 per Put Closing thereafter. 



     11.4.
Warrants. 










	 	
     (a)
The Company shall issue Put Warrants to the Warrant Recipients in the amounts designated
on Schedule B hereto and as described in Section 6 of this Subscription Agreement. The
Put Warrants will be in the form of Exhibit D hereto. The Put Warrants will be
exercisable immediately upon issuance and for five years thereafter.






	 	
     (b)
In the event, for any reason except for Subscriber’s unwillingness to purchase greater
amounts of Put Notes because of the beneficial ownership limitations of Section
11.2(e)(i), the Put in the amount of at least $1,500,000 of the Put Note Purchase Price
set forth on the signature page (“Initial Put Amount”) has not been exercised as of the
first anniversary of the Effective Date, then the Company will issue Put Warrants to the
Warrant Recipients in an amount determined by subtracting the actual amount of Put Note
Principal for which Put Notices have been validly given from the Initial Put Amount (the
result being the “Unexercised Put”) and issuing Put Warrants in connection with such
Unexercised Put as if the amount of Put Notes issuable in connection with the Unexercised
Put were actually issued and the first anniversary of the Closing Date was the Conversion
Date of such Put Notes.






	 	
     (c)
In the event, for any reason except for Subscriber’s unwillingness to purchase greater
amounts of Put Notes because of the beneficial ownership limitations of Section
11.2(e)(i), the Put in the amount of $3,000,000 of the Put Note Purchase Price set forth
on the signature page hereto (“Interim Put Amount”) has not been exercised as of the
second anniversary of the Effective Date, then the Company will issue Put Warrants to the
Warrant Recipients in an amount determined by subtracting the actual amount of Put Note
Principal for which Put Notices have been validly given and the amount of Put Note
Principal deemed converted pursuant to Section 11.4(b) above from the Interim Put Amount
(the result being the “Interim Unexercised Put”) and issuing Put Warrants in connection
with such Interim Unexercised Put as if the amount of Put Notes issuable in connection
with the Interim Unexercised Put were actually issued and the second anniversary of the
Closing Date was the Conversion Date of such Put Notes.






	 	
     (d)
In the event, for any reason except for Subscriber’s unwillingness to purchase greater
amounts of Put Notes because of the beneficial ownership limitations of Section
11.2(e)(i), the Put in the amount of $4,500,000 of the Put Note Purchase Price set forth
on the signature page hereto (“Final Put Amount”) has not been exercised as of the third
anniversary of the Effective Date, then the Company will issue Put Warrants to the
Warrant Recipients in an amount determined by subtracting the actual amount of Put Note
Principal for which Put Notices have been validly given and the amount of Put Note
Principal deemed converted pursuant to Sections 11.4(b) and (c) above from the Final Put
Amount (the result being the “Final Unexercised Put”) and issuing Put Warrants in
connection with such Final Unexercised Put as if the amount of Put Notes issuable in
connection with the Final Unexercised Put were actually issued and the third anniversary
of the Closing Date was the Conversion Date of such Put Notes.






	



19 




















	 	
     (e)
In the event the Company has properly given a Put Notice and the Subscriber has
wrongfully failed to comply with the Put Notice then Put Warrants will not be issuable in
connection with such defaulted amounts.






	 	
     (f)
Failure to timely pay Finder’s Fees, legal fees or deliver any Warrants issuable in
connection with the Initial Offering and Put shall be deemed an Event of Default under
the Note and a material breach of the Company’s obligations hereunder, for which no
notice to cure is required.






	


     11.5
Assignment of Put. Anything to the contrary herein notwithstanding, the Subscriber may
assign to another party, reasonably acceptable to the Company, either before or after
exercise of the Put by the Company, the Subscriber’s obligations and right to pay all or
some of the Put Purchase Price and receive the corresponding Put Securities. Such
assignment must be in writing. The assignment will be effective only if the assignee
consents in writing to be bound by all of the Subscriber’s obligations to the Company in
connection with such assignment. Upon an effective assignment, the assignee will succeed
to all of the Subscriber’s rights under this Subscription Agreement, and all other
agreements relating to the assigned portion of the Put. 



     11.6
Adjustments. The Conversion Price and amount of Shares issuable upon conversion of the
Notes and Put Notes shall be adjusted consistent with customary anti-dilution adjustments. 



     12.
(a) Right of First Refusal. Until the later of 120 days after the actual effective date
of the Registration Statement described in Section 10.1(iv) hereof, or one year after the
Closing Date, the Subscriber shall be given not less than ten (10) business days prior
written notice of any proposed sale by the Company of its common stock or other
securities or debt obligations except (i) as disclosed in the Reports or Other Written
Information, (ii) stock or stock options granted to employees or directors of the
Company, (iii) subject to the reasonable approval of Subscriber Common Stock issuable in
exchange for up to $250,000 of debt existing prior to the Closing Date, and (iv) subject
to the reasonable approval of Subscriber up to $100,000 of Common Stock issuable to
consultants after the Closing Date at the market price in effect at the date of issuance
(these exceptions hereinafter referred to as the “Excepted Issuances”). The Subscriber
shall have the right during the ten (10) business days following the notice to agree to
purchase an amount of Company Shares in the same proportion as being purchased in the
Initial Offering of those securities proposed to be issued and sold, in accordance with
the terms and conditions set forth in the notice of sale. In the event such terms and
conditions are modified during the notice period, the Subscriber shall be given prompt
notice of such modification and shall have the right during the original notice period or
for a period of ten (10) business days following the notice of modification, whichever is
longer, to exercise such right. In the event the right of first refusal described in this
Section is exercised by the Subscriber and the Company thereby receives net proceeds from
such exercise, then commissions and fees will be paid by the Company to the Finders in
the same amounts as would be payable in connection with the offering described in the
notice of sale. 



     (b)
Offering Restrictions. Except with respect to securities otherwise disclosed in the
Reports or Other Written Information or Excepted Issuances, the Company will not issue
any equity, convertible debt or other securities prior to the expiration of 180 days
after the actual effective date of the registration statement described in Section
10.1(iv) above (the “Exclusion Period”). 






20 


















	




     13.
Miscellaneous. 










	 	
     (a)
Notices. All notices or other communications given or made hereunder shall be in writing
and shall be personally delivered or deemed delivered the first business day after being
telecopied (provided that a copy is delivered by first class mail) to the party to
receive the same at its address set forth below or to such other address as either party
shall hereafter give to the other by notice duly made under this Section: (i) if to the
Company, to American Technologies Group, Inc., 1017 S. Mountain Avenue, Monrovia, CA
91016, telecopier number: (626) 357-4464, with a copy by telecopier only to John Dab,
Esq., 1017 S. Mountain Avenue, Monrovia, CA 91016, telecopier number: (626) 357-4464, and
(ii) if to the Subscriber, to the name, address and telecopy number set forth on the
signature page hereto, with a copy by telecopier only to Grushko & Mittman, P.C., 551
Fifth Avenue, Suite 1601, New York, New York 10176, telecopier number: (212) 697-3575.






	 	
     (b)
Closing. The consummation of the transactions contemplated herein shall take place at the
offices of Grushko & Mittman, P.C., 551 Fifth Avenue, Suite 1601, New York, New York
10176, upon the satisfaction of all conditions to Closing set forth in this Agreement.
The closing date shall be the date that subscriber funds representing the net amount due
the Company from the Purchase Price are transmitted by wire transfer to the Company (the
“Closing Date”). The closing date for the Put shall be the date on which Subscriber funds
representing the net amount due the Company from the Put Purchase Price is transmitted to
or on behalf of the Company (“Put Closing Date”).






	 	
     (c)
Entire Agreement; Assignment. This Agreement represents the entire agreement between the
parties hereto with respect to the subject matter hereof and may be amended only by a
writing executed by both parties. No right or obligation of either party shall be
assigned by that party without prior notice to and the written consent of the other party.






	 	
     (d)
Execution. This Agreement may be executed by facsimile transmission, and in counterparts,
each of which will be deemed an original.






	 	
     (e)
Law Governing this Agreement. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to principles of
conflicts of laws. Any action brought by either party against the other concerning the
transactions contemplated by this Agreement shall be brought only in the state courts of
New York or in the federal courts located in the state of New York. Both parties and the
individuals executing this Agreement and other agreements on behalf of the Company agree
to submit to the jurisdiction of such courts and waive trial by jury. The prevailing
party shall be entitled to recover from the other party its reasonable attorney’s fees
and costs. In the event that any provision of this Agreement or any other agreement
delivered in connection herewith 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 any agreement.






	 	
     (f)
Specific Enforcement, Consent to Jurisdiction. The Company and Subscriber acknowledge and
agree that irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement and to
enforce specifically the terms and provisions hereof or thereof, this being in addition
to any other remedy to which any of them may be entitled by law or equity. Subject to
Section 13(e) hereof, each of the Company and Subscriber hereby waives, and agrees not to
assert in any such suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of such court, that the suit, action or proceeding is brought
in an inconvenient forum or that the venue of the suit, action or proceeding is improper.
Nothing in this Section shall affect or limit any right to serve process in any other
manner permitted by law.






	



21 





















	 	
     (g)
Confidentiality. The Company agrees that it will not disclose publicly or privately the
identity of the Subscriber unless expressly agreed to in writing by the Subscriber or
only to the extent required by law.






	 	
     (h)
Automatic Termination. This Agreement shall automatically terminate without any further
action of either party hereto if the Closing shall not have occurred by the tenth (10th)
business day following the date this Agreement is accepted by the Subscriber.






	


     Please
acknowledge your acceptance of the foregoing Subscription Agreement by signing and
returning a copy to the undersigned whereupon it shall become a binding agreement between
us. 












			AMERICAN TECHNOLOGIES GROUP, INC.
A Nevada Corporation


By:_________________________________

Lawrence J. Brady
Chairman of the Board & CEO

Dated: _____________, 2000







	




Purchase Price: $____________ 




PUT 



Put Note Purchase Price
(including
Section 11.2(e) Put Amount): $_____ 



Section 11.2(e) Put Amount $_________ 





ACCEPTED: Dated as of
______________, 2000 





Subscriber
Address 




By:______________________________ 









22