THIS OPTION AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS OPTION
HAVE NOT BEEN  REGISTERED  UNDER THE SECURITIES ACT OF 1933, AS AMENDED,  OR ANY
STATE  SECURITIES  LAWS. THIS OPTION AND THE COMMON STOCK ISSUABLE UPON EXERCISE
OF THIS OPTION MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE  REGISTRATION STATEMENT AS TO THIS OPTION 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.

                  Right to Purchase up to 140,250,000 Shares of
                Common Stock of American Technologies Group, Inc.
                   (subject to adjustment as provided herein)

                                     OPTION

No. _________________                              Issue Date: September 7, 2005

      AMERICAN  TECHNOLOGIES GROUP, INC., a corporation organized under the laws
of the  State of  Nevada  (the  "Company"),  hereby  citifies  that,  for  value
received,  GSSF MASTER  FUND,  L.P.,  or assigns  (the  "Holder"),  is entitled,
subject to the terms set forth  below,  to purchase  from the  Company  from and
after  the  Issue  Date of this  Option,  up to the  numbers  of fully  paid and
nonassessable shares of Common Stock (as hereinafter defined), at the applicable
Exercise Price per share (as defined  below) as shall be determined  pursuant to
Section  1.1.  The number and  character  of such shares of Common Stock and the
applicable  Exercise  Price per share are  subject  to  adjustment  as  provided
herein.

      As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:

            (a) "Company" means American Technologies Group, Inc. and any person
      or entity which shall  succeed,  or assume the  obligations  of,  American
      Technologies Group, Inc. hereunder.

            (b) "Common Stock" means (i) the Company's  Common Stock,  par value
      $0.001 per share;  and (ii) any other  securities  into which or for which
      any  of the  securities  described  in the  preceding  clause  (i)  may be
      converted   or   exchanged   pursuant  to  a  plan  of   recapitalization,
      reorganization, merger, sale of assets or otherwise.

            (c) "Exercise Price" means $0.00001.

            (d) "Other Securities" means any stock (other than Common Stock) and
      other  securities  of  the  Company  or any  other  person  (corporate  or
      otherwise) which the holder of the Option at any time shall be entitled to
      receive, or shall have received, on the exercise of the Option, in lieu of
      or in addition to Common Stock,  or which at any time shall be issuable or
      shall have been issued in exchange for or in  replacement  of Common Stock
      or Other Securities pursuant to Section 4 or otherwise.

<PAGE>

            (e) "Security Agreement" means that certain Security Agreement dated
      as of the date  hereof  among the Holder,  the  Company  and the  Eligible
      Subsidiaries  named  and  as  defined  therein,   as  amended,   restated,
      supplemented and/or modified from time to time.

            1. Exercise of Option.

                  1.1 Number of Shares  Issuable upon  Exercise.  From and after
the date hereof through and including the  Expiration  Date, the Holder shall be
entitled  to  receive,  upon  exercise  of this  Option in whole or in part,  by
delivery of an original or fax copy of an exercise  notice in the form  attached
hereto as Exhibit A (the "Exercise Notice"),  140,250,000 shares of Common Stock
of the Company, subject to adjustment pursuant to Section 4.

                  1.2 Fair Market Value. For purposes  hereof,  the "Fair Market
Value" of a share of Common  Stock as of a particular  date (the  "Determination
Date") shall mean:

                  (a) If the  Company's  Common  Stock is traded on the American
      Stock Exchange or another  national  exchange or is quoted on the National
      or SmallCap Market of The Nasdaq Stock Market, Inc.  ("Nasdaq"),  then the
      closing or last sale price,  respectively,  reported for the last business
      day immediately preceding the Determination Date.

                  (b)  If the  Company's  Common  Stock  is  not  traded  on the
      American Stock Exchange or another national  exchange or on the Nasdaq but
      is traded on the NASD Over the Counter  Bulletin  Board,  then the mean of
      the  average of the  closing bid and asked  prices  reported  for the last
      business day immediately preceding the Determination Date.

                  (c) Except as provided in clause (d) below,  if the  Company's
      Common  Stock is not publicly  traded,  then as the Holder and the Company
      agree or in the absence of agreement by arbitration in accordance with the
      rules then in effect of the  American  Arbitration  Association,  before a
      single  arbitrator  to be  chosen  from a panel of  persons  qualified  by
      education and training to pass on the matter to be decided.

                  (d) If the  Determination  Date is the date of a  liquidation,
      dissolution  or  winding  up,  or any event  deemed  to be a  liquidation,
      dissolution  or winding up pursuant  to the  Company's  charter,  then all
      amounts to be payable per share to holders of the Common Stock pursuant to
      the charter in the event of such  liquidation,  dissolution or winding up,
      plus all other  amounts to be  payable  per share in respect of the Common
      Stock in liquidation under the charter,  assuming for the purposes of this
      clause  (d) that all of the  shares of Common  Stock  then  issuable  upon
      exercise of the Option are outstanding at the Determination Date.


                                       2
<PAGE>

                  1.3 Company  Acknowledgment.  The Company will, at the time of
the exercise of this Option,  upon the request of the holder hereof  acknowledge
in writing  its  continuing  obligation  to afford to such  holder any rights to
which  such  holder  shall  continue  to be  entitled  after  such  exercise  in
accordance with the provisions of this Option.  If the holder shall fail to make
any such request, such failure shall not affect the continuing obligation of the
Company to afford to such holder any such rights.

                  1.4  Trustee for Option  Holders.  In the event that a bank or
trust  company  shall have been  appointed  as trustee  for the  holders of this
Option pursuant to Subsection 3.2, such bank or trust company shall have all the
powers and duties of a Option agent (as hereinafter described) and shall accept,
in its own name for the account of the Company or such  successor  person as may
be  entitled  thereto,  all  amounts  otherwise  payable to the  Company or such
successor,  as the case may be, on  exercise  of this  Option  pursuant  to this
Section 1.

            2. Procedure for Exercise.

                  2.1  Delivery of Stock  Certificates,  Etc. on  Exercise.  The
Company  agrees that the shares of Common Stock  purchased upon exercise of this
Option  shall be deemed to be issued to the Holder as the  record  owner of such
shares as of the close of business  on the date on which this Option  shall have
been  surrendered  and payment made for such shares in accordance  herewith.  As
soon as practicable after the exercise of this Option in full or in part, and in
any event within three (3) business days thereafter,  the Company at its expense
(including  the payment by it of any  applicable  issue  taxes) will cause to be
issued in the name of and  delivered  to the  Holder,  or as such  Holder  (upon
payment  by  such  Holder  of any  applicable  transfer  taxes)  may  direct  in
compliance with applicable  securities  laws, a certificate or certificates  for
the number of duly and validly issued,  fully paid and  nonassessable  shares of
Common  Stock (or Other  Securities)  to which such Holder  shall be entitled on
such exercise,  plus, in lieu of any fractional share to which such holder would
otherwise be entitled,  cash equal to such fraction  multiplied by the then Fair
Market  Value  of one  full  share,  together  with  any  other  stock  or other
securities and property  (including cash, where applicable) to which such Holder
is entitled upon such exercise pursuant to Section 1 or otherwise.

                  2.2 Exercise.

                  (a) Payment may be made (i) either in cash or by  certified or
      official  bank  check  payable  to the order of the  Company  equal to the
      applicable  aggregate  Exercise Price, (ii) by delivery of Common Stock of
      the Company having a Fair Market Value equal to the Exercise Price,  (iii)
      by delivery of this Option,  or shares of Common Stock and/or Common Stock
      receivable upon exercise of this Option in accordance with the formula set
      forth in  subsection  (b) below,  or (iv) by a  combination  of any of the
      foregoing  methods,  for the  number of Common  Shares  specified  in such
      Exercise  Notice (as such exercise number shall be adjusted to reflect any
      adjustment  in the total number of shares of Common Stock  issuable to the
      Holder per the terms of this  Option) and the Holder  shall  thereupon  be
      entitled  to  receive  the  number  of duly  authorized,  validly  issued,
      fully-paid and non-assessable shares of Common Stock (or Other Securities)
      determined as provided herein.


                                       3
<PAGE>

                  (b) Notwithstanding any provisions herein to the contrary,  if
      the Fair  Market  Value of one share of Common  Stock is greater  than the
      Exercise Price (at the date of calculation as set forth below), in lieu of
      exercising  this Option for cash,  the Holder may elect to receive  shares
      equal to the value (as  determined  below) of this  Option (or the portion
      thereof  being  exercised)  by surrender  of this Option at the  principal
      office of the Company together with the properly  endorsed Exercise Notice
      in which event the Company shall issue to the Holder a number of shares of
      Common Stock computed using the following formula:

      X =                  Y(A-B)
                            ------

                              A

      Where X =  the number of shares of Common Stock to be issued to the Holder

      Y =        the number of shares of Common Stock purchasable under this
                 Warrant or, if only a portion of this  Warrant is being
                 exercised,  the portion of this Warrant being exercised (at the
                 date of such calculation)

      A =        the Fair Market Value of one share of the Company's Common
                 Stock (at the date of such calculation)

      B =        the Exercise Price per share (as adjusted to the date of such
                 calculation)

            3. Effect of Reorganization, Etc.; Adjustment of Exercise Price.

                  3.1 Reorganization, Consolidation, Merger, Etc. In case at any
time or from time to time,  the Company shall (a) effect a  reorganization,  (b)
consolidate  with or  merge  into  any  other  person,  or (c)  transfer  all or
substantially all of its properties or assets to any other person under any plan
or arrangement  contemplating the dissolution of the Company, then, in each such
case,  as a condition  to the  consummation  of such a  transaction,  proper and
adequate  provision  shall be made by the Company  whereby  the  Holder,  on the
exercise  hereof as provided in Section 1 at any time after the  consummation of
such  reorganization,  consolidation  or  merger or the  effective  date of such
dissolution,  as the case may be, shall receive, in lieu of the Common Stock (or
Other  Securities)  issuable on such exercise prior to such consummation or such
effective date, the stock and other securities and property  (including cash) to
which  such  Holder  would  have  been  entitled  upon such  consummation  or in
connection  with such  dissolution,  as the case may be, if such  Holder  had so
exercised  this  Option,  immediately  prior  thereto,  all  subject  to further
adjustment thereafter as provided in Section 4.

                  3.2  Dissolution.  In  the  event  of any  dissolution  of the
Company  following the transfer of all or substantially all of its properties or
assets, the Company,  concurrently with any distributions made to holders of its
Common  Stock,  shall at its  expense  deliver or cause to be  delivered  to the
Holder  the stock and other  securities  and  property  (including  cash,  where
applicable)  receivable by the Holder pursuant to Section 3.1, or, if the Holder
shall so instruct  the  Company,  to a bank or trust  company  specified  by the
Holder and having its principal  office in New York, New York as trustee for the
Holder (the "Trustee").


                                       4
<PAGE>

                  3.3   Continuation   of   Terms.   Upon  any   reorganization,
consolidation,  merger or transfer (and any dissolution  following any transfer)
referred  to in this  Section 3, this  Option  shall  continue in full force and
effect and the terms hereof shall be applicable to the shares of stock and other
securities  and property  receivable on the exercise after the  consummation  of
such   reorganization,   consolidation  or  merger  or  the  effective  date  of
dissolution  following  any such  transfer,  as the case  may be,  and  shall be
binding upon the issuer of any such stock or other securities, including, in the
case of any such transfer,  the person acquiring all or substantially all of the
properties  or assets of the  Company,  whether  or not such  person  shall have
expressly  assumed  the terms as provided in Section 4. In the event this Option
does not  continue  in full  force  and  effect  after the  consummation  of the
transactions  described in this  Section 3, then the  Company's  securities  and
property  (including  cash, where  applicable)  receivable by the Holder will be
delivered to the Holder or the Trustee as contemplated by Section 3.2.

            4.  Extraordinary  Events  Regarding Common Stock. In the event that
the Company shall (a) issue additional  shares of the Common Stock as a dividend
or other  distribution on outstanding Common Stock or any preferred stock issued
by the Company,  (b) subdivide its  outstanding  shares of Common Stock,  or (c)
combine  its  outstanding  shares of the Common  Stock into a smaller  number of
shares of the Common  Stock (each of the  preceding  clauses  (a)  through  (c),
inclusive, an "Event"), then, in each such event, the number of shares of Common
Stock that the Holder shall  thereafter,  on the exercise  hereof as provided in
Section 1, be entitled to receive  shall be adjusted to a number  determined  by
multiplying the number of shares of Common Stock that would immediately prior to
such Event be issuable  upon the  exercise of this Option by a fraction of which
(a) the numerator is the number of issued and outstanding shares of Common Stock
immediately after such Event and (b) the denominator is the number of issued and
outstanding shares of Common Stock immediately prior to such Event. The Exercise
price, as so adjusted, shall be readjusted in the same manner upon the happening
of any successive event or events described herein in this Section 4. The number
of shares of Common  Stock that the Holder  shall  thereafter,  on the  exercise
hereof as provided in Section 1, be entitled to receive shall be adjusted to the
number determined by multiplying the number of shares of Common Stock that would
otherwise  (but  for the  provisions  of this  Section  4) be  issuable  on such
exercise by a fraction of which (a) the  numerator  is the  Exercise  Price that
would otherwise (but for the provisions of this Section 4) be in effect, and (b)
the  denominator  is the Exercise  Price in effect on the date of such  exercise
(taking into account the provisions of this Section 4).

            5. Certificate as to Adjustments.  In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable on the
exercise of this  Option,  the Company at its expense  will  promptly  cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or  readjustment  in  accordance  with the terms of this  Option  and  prepare a
certificate  setting forth such adjustment or readjustment and showing in detail
the facts upon which such  adjustment  or  readjustment  is based,  including  a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold,  (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding,  and (c) the Exercise Price
and the number of shares of Common  Stock to be received  upon  exercise of this
Option,  in effect  immediately  prior to such adjustment or readjustment and as
adjusted or  readjusted as provided in this Option.  The Company will  forthwith
mail a copy of each such  certificate  to the Holder and any Option agent of the
Company (appointed pursuant to Section 11 hereof).


                                       5
<PAGE>

            6. Reservation of Stock,  Etc.,  Issuable on Exercise of Option. The
Company will at all times  reserve and keep  available,  solely for issuance and
delivery  on the  exercise  of this  Option,  shares of  Common  Stock (or Other
Securities) from time to time issuable on the exercise of this Option.

            7.  Assignment;  Exchange  of  Option.  Subject to  compliance  with
applicable securities laws, this Option, and the rights evidenced hereby, may be
transferred  by any  registered  holder hereof (a  "Transferor")  in whole or in
part.  On the  surrender  for  exchange of this  Option,  with the  Transferor's
endorsement  in  the  form  of  Exhibit  B  attached  hereto  (the   "Transferor
Endorsement  Form") and together with evidence  reasonably  satisfactory  to the
Company  demonstrating  compliance with applicable  securities laws, which shall
include,  without  limitation,  the  provision  of  a  legal  opinion  from  the
Transferor's  counsel (at the  Company's  expense)  that such transfer is exempt
from the registration requirements of applicable securities laws, the Company at
its expense  (but with  payment by the  Transferor  of any  applicable  transfer
taxes) will issue and deliver to or on the order of the Transferor thereof a new
Option of like tenor,  in the name of the  Transferor  and/or the  transferee(s)
specified in such Transferor Endorsement Form (each a "Transferee"),  calling in
the  aggregate  on the face or faces  thereof for the number of shares of Common
Stock  called  for on the face or  faces of the  Option  so  surrendered  by the
Transferor.

            8.  Replacement  of  Option.  On  receipt  of  evidence   reasonably
satisfactory  to the Company of the loss,  theft,  destruction  or mutilation of
this  Option  and, in the case of any such loss,  theft or  destruction  of this
Option,   on  delivery  of  an  indemnity   agreement  or  security   reasonably
satisfactory  in form and  amount  to the  Company  or,  in the case of any such
mutilation,  on surrender and  cancellation  of this Option,  the Company at its
expense will execute and deliver, in lieu thereof, a new Option of like tenor.

            9.  Registration   Rights.  The  Holder  has  been  granted  certain
registration rights by the Company. These registration rights are set forth in a
Registration Rights Agreement entered into by the Company and Holder dated as of
the date hereof, as the same may be amended,  modified and/or  supplemented from
time to time.

            10. Maximum Exercise.  Notwithstanding  anything contained herein to
the  contrary,  the Holder  shall not be  entitled  to  exercise  this Option in
connection  with that number of shares of Common  Stock  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 the  purposes  of the  immediately  preceding  sentence,  beneficial
ownership  shall be determined in accordance  with Section 13(d) of the Exchange
Act, as amended,  and Regulation  13d-3  thereunder.  The conversion  limitation
described in this Section 10 shall automatically  become null and void following
notice to the Company upon the occurrence and during the continuance of an Event
of Default under and as defined in the Security Agreement, or upon 75 days prior
notice to the Company.


                                       6
<PAGE>

            11.  Option  Agent.  The Company may, by written  notice to the each
Holder of the Option,  appoint an agent for the purpose of issuing  Common Stock
(or Other  Securities)  on the  exercise of this  Option  pursuant to Section 1,
exchanging this Option pursuant to Section 7, and replacing this Option pursuant
to  Section  8, or any of the  foregoing,  and  thereafter  any  such  issuance,
exchange  or  replacement,  as the case may be,  shall be made at such office by
such agent.

            12.  Transfer  on  the  Company's   Books.   Until  this  Option  is
transferred  on the books of the Company,  the Company may treat the  registered
Holder hereof as the absolute owner hereof for all purposes, notwithstanding any
notice to the contrary.

            13.  Notices,  Etc.  All notices and other  communications  from the
Company to the Holder  shall be mailed by first class  registered  or  certified
mail, postage prepaid, at such address as may have been furnished to the Company
in writing by such Holder or, until any such Holder  furnishes to the Company an
address, then to, and at the address of, the last Holder who has so furnished an
address to the Company.

            14.  Miscellaneous.  This Option and any term hereof may be changed,
waived,  discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. THIS OPTION 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 CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS OPTION SHALL
BE BROUGHT ONLY IN THE STATE COURTS OF NEW YORK OR IN THE FEDERAL COURTS LOCATED
IN THE STATE OF NEW YORK; PROVIDED, HOWEVER, THAT THE HOLDER MAY CHOOSE TO WAIVE
THIS  PROVISION  AND  BRING  AN  ACTION  OUTSIDE  THE  STATE  OF NEW  YORK.  The
individuals  executing  this Option 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 attorneys' fees
and  costs.  In the  event  that any  provision  of this  Option 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 Option. The
headings in this Option are for purposes of reference  only, and shall not limit
or otherwise affect any of the terms hereof. The invalidity or  unenforceability
of any provision hereof shall in no way affect the validity or enforceability of
any  other  provision  hereof.  The  Company  acknowledges  that  legal  counsel
participated in the preparation of this Option 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  Option to
favor any party against the other party.

                   [BALANCE OF PAGE INTENTIONALLY LEFT BLANK;
                             SIGNATURE PAGE FOLLOWS]








                                       7
<PAGE>

      IN WITNESS  WHEREOF,  the Company has executed  this Option as of the date
first written above.

WITNESS:                                    AMERICAN TECHNOLOGIES GROUP, INC.


                                            By: ________________________________
                                            Name: ______________________________
____________________________________        Title: _____________________________


                                       8
<PAGE>

                                    Exhibit A

                              FORM OF SUBSCRIPTION
                    (To Be Signed Only On Exercise Of Option)

TO:   American Technologies Group, Inc.

      _________________________________

      _________________________________

      Attention: Chief Financial Officer

      The  undersigned,  pursuant to the  provisions  set forth in the  attached
Option (No.____), hereby irrevocably elects to purchase (check applicable box):

            ________ ________ shares of the Common Stock covered by such Option;
      or

            ________  the maximum  number of shares of Common  Stock  covered by
      such  Option  pursuant to the  cashless  exercise  procedure  set forth in
      Section 2.

      The undersigned herewith makes payment of the full Exercise Price for such
shares  at  the  price  per  share  provided  for  in  such  Option,   which  is
$___________. Such payment takes the form of (check applicable box or boxes):

            ________ $__________ in lawful money of the United States; and/or

            ________ the  cancellation of such portion of the attached Option as
      is exercisable for a total of _______ shares of Common Stock (using a Fair
      Market  Value of $_______  per share for  purposes  of this  calculation);
      and/or

            ________ the  cancellation  of such number of shares of Common Stock
      as is necessary,  in accordance with the formula set forth in Section 2.2,
      to exercise  this Option with  respect to the maximum  number of shares of
      Common Stock purchasable  pursuant to the cashless exercise  procedure set
      forth in Section 2.

      The undersigned  requests that the  certificates for such shares be issued
in the name of, and delivered to  ______________________________________________
whose address is ______________________________________________________________.

      The  undersigned  represents  and Options that all offers and sales by the
undersigned of the securities  issuable upon exercise of the within Option shall
be made pursuant to registration of the Common Stock under the Securities Act of
1933,  as amended  (the  "Securities  Act") or  pursuant  to an  exemption  from
registration under the Securities Act.

Dated: __________                           ____________________________________
                                            (Signature must conform to name of
                                             holder as specified on the face of
                                             the Warrant)

                                            Address:____________________________

                                                    ____________________________


                                       9
<PAGE>

                                    Exhibit B

                         FORM OF TRANSFEROR ENDORSEMENT
                    (To Be Signed Only On Transfer Of Option)

      For value received,  the undersigned hereby sells,  assigns, and transfers
unto the  person(s)  named  below  under  the  heading  "Transferees"  the right
represented by the within Option to purchase the percentage and number of shares
of Common  Stock of American  Technologies  Group,  Inc.,  into which the within
Option relates specified under the headings "Percentage Transferred" and "Number
Transferred," respectively,  opposite the name(s) of such person(s) and appoints
each such  person  Attorney  to transfer  its  respective  right on the books of
American  Technologies  Group,  Inc.,  with full  power of  substitution  in the
premises.

                                             Percentage                Number
Transferees             Address              Transferred             Transferred
-----------             -------              -----------             -----------






Dated: __________                           ____________________________________
                                            (Signature must conform to name of
                                             holder as specified on the face of
                                             the Option)

                                            Address:____________________________

                                                    ____________________________

                                            SIGNED IN THE PRESENCE OF:


                                            ____________________________________
                                                           (Name)

ACCEPTED AND AGREED:
[TRANSFEREE]


________________________________
           (Name)