-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Vv1E+URJ7ExZ6o6EnX+YjGdOaJ9j5KH03PDKZ4YG2fbnQk8Mmm3LdajcU/i5GYFr MoJfrYqaM7swm+0xLK3h8Q== 0000899243-01-500511.txt : 20010515 0000899243-01-500511.hdr.sgml : 20010515 ACCESSION NUMBER: 0000899243-01-500511 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTH AMERICAN TECHNOLOGIES GROUP INC /MI/ CENTRAL INDEX KEY: 0000808013 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL ORGANIC CHEMICALS [2860] IRS NUMBER: 330041789 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-16217 FILM NUMBER: 1632696 BUSINESS ADDRESS: STREET 1: 14315 WEST HARDY ROAD STREET 2: SUITE 301 CITY: HOUSTON STATE: TX ZIP: 77060 BUSINESS PHONE: 281-847-0029 MAIL ADDRESS: STREET 1: 14315 WEST HARDY ROAD STREET 2: SUITE 301 CITY: HOUSTON STATE: TX ZIP: 77060 FORMER COMPANY: FORMER CONFORMED NAME: MAIL BOXES COAST TO COAST INC DATE OF NAME CHANGE: 19920703 10QSB 1 d10qsb.txt FORM 10-Q FOR PERIOD ENDED MARCH 31, 2001 U. S. SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________ Commission File Number: 0-16217 NORTH AMERICAN TECHNOLOGIES GROUP, INC. (Exact name of small business issuer as specified in its charter) DELAWARE 33-0041789 (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification No.) 14315 WEST HARDY ROAD, HOUSTON, TEXAS 77060 (Address of principal executive offices) (Zip Code) (281) 847-0029 (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes ________ No ________ APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of the issuer's classes of common equity, as of the latest practicable date: 6,738,909 common shares outstanding as of April 30, 2001 TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): Yes No X --- --- NORTH AMERICAN TECHNOLOGIES GROUP, INC. INDEX
Page No. -------- PART I. FINANCIAL INFORMATION: ITEM 1. FINANCIAL STATEMENTS: Consolidated Balance Sheets March 31, 2001 (unaudited) and December 31, 2000 3 Consolidated Statements of Operations Three months ended March 31, 2001 and 2000 (unaudited) 4 Consolidated Statements of Cash Flows Three months ended March 31, 2001 and 2000 (unaudited) 5 Notes to Consolidated Financial Statements 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 11 ITEM 2. CHANGES IN SECURITIES 11 ITEM 3. DEFAULTS UPON SENIOR SECURITIES 11 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 11 ITEM 5. OTHER INFORMATION 11 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
NORTH AMERICAN TECHNOLOGIES GROUP, INC. CONSOLIDATED BALANCE SHEETS As of March 31, 2001 and December 31, 2000
MARCH 31, DECEMBER 31, 2001 2000 ----------- ----------- (unaudited) (audited) ASSETS ------ Current Assets: Cash and cash equivalents............................... $ 10,490 $ 145,229 Accounts receivable..................................... 38,147 72,884 Inventory .............................................. 200,665 261,776 Current portion of notes receivable..................... 15,000 7,503 Prepaid expenses and other.............................. 41,041 36,447 ------------ ---------- Total Current Assets................................... 305,343 523,839 Notes receivable......................................... 37,496 52,497 Property and equipment, less accumulated depreciation.... 1,813,495 1,834,199 Patents and purchased technologies, less accumulated amortization of $478,417 and $456,171 ................. 1,279,336 1,301,582 Goodwill, less accumulated amortization of $1,187,815 and $1,160,866............................... 1,592,202 1,619,151 Other.................................................... 174,030 166,184 ------------ ------------ $ 5,201,902 $ 5,497,452 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current Liabilities: Notes payable........................................... $ 1,179,250 $ 1,029,250 Accounts payable........................................ 343,080 167,225 Accrued compensation.................................... - 250,440 Other accrued expenses.................................. 154,769 220,085 ------------ ----------- Total Current Liabilities ............................... 1,677,099 1,667,000 Deferred dividends payable on preferred stock, including accrued interest ............................. 109,325 106,168 ------------ ----------- Total Liabilities....................................... 1,786,424 1,773,168 ------------ ----------- Commitments and Contingencies Stockholders' Equity: Preferred stock, $.001 par value, 10,000,000 shares authorized; 138,543 and 140,265 shares issued.......... 13,854,348 14,026,478 Common stock, $.001 par value, 50,000,000 shares authorized; 6,738,909 and 6,393,054 shares issued....... 6,739 6,393 Additional paid-in capital.............................. 33,658,502 33,161,412 Accumulated deficit..................................... (44,104,111) (43,469,999) ------------ ------------ Total Stockholders' Equity.............................. 3,415,478 3,724,284 ------------ ------------ $ 5,201,902 $ 5,497,452 ============ ============
3 NORTH AMERICAN TECHNOLOGIES GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS For the Three Months Ended March 31, 2001 and 2000 (Unaudited)
Three Months Ended March 31, ---------------------------- 2001 2000 ---------- ---------- Product revenues ..................................... $ 323,699 $ 2,542 Cost of product ...................................... 604,744 2,835 ---------- ---------- Gross loss ......................................... (281,045) (293) Selling, general and administrative expenses ......... 242,306 361,371 Depreciation and amortization......................... 90,680 56,571 ---------- ---------- Operating loss...................................... (614,031) (418,235) ---------- ---------- Other income (expense): Interest income ..................................... 286 11,019 Interest expense .................................... (59,599) (51,902) Other ............................................... 85,380 1,175 ---------- ---------- Total other income (expense) - net.................. 26,067 (39,708) ---------- ---------- Net loss ............................................. $ (587,964) $ (457,943) ========== ========== Computation of net loss per share: Net loss before dividends on preferred stock ......... $ (587,964) $ (457,943) Dividends on preferred stock ......................... (46,148) (242,124) Deemed dividends on preferred stock................... - (40,918) ---------- ---------- Net loss applicable to common stockholders ........... $ (634,112) $ (740,985) ========== ========== Weighted average number of common shares outstanding .................................. 6,451,352 4,573,188 ========== ========== Net loss per share - basic and assuming dilution ..... ($.10) ($.16) ========== ==========
4 NORTH AMERICAN TECHNOLOGIES GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended March 31, 2001 and 2000 (Unaudited) Increase (Decrease) in Cash and Cash Equivalents
Three Months Ended March 31, ---------------------------- 2001 2000 --------- --------- Net cash used in operating activities ..................... $(266,701) $(508,846) --------- --------- Cash flows from investing activities: Purchase of property and equipment ....................... (20,000) (15,000) Decrease in notes receivable ............................. 7,503 - --------- --------- Net cash used in investing activities ..................... (12,497) (15,000) --------- --------- Cash flows from financing activities: Sale of preferred stock .................................. - 757,000 Proceeds from convertible note payable.................... 150,000 165,000 Payment of costs and fees of equity issuances ............ (5,541) (18,210) --------- --------- Net cash provided by financing activities ............... 144,459 903,790 --------- --------- Net increase (decrease) in cash and cash equivalents ...... (134,739) 379,944 Cash and cash equivalents, beginning of period ............ 145,229 284,498 --------- --------- Cash and cash equivalents, end of period .................. $ 10,490 $ 664,442 ========= =========
5 NORTH AMERICAN TECHNOLOGIES GROUP, INC. Notes to Consolidated Financial Statements (1) BASIS OF PRESENTATION The interim financial statements of North American Technologies Group, Inc. and its subsidiaries (the "Company") which are included herein are unaudited and have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB. In the opinion of management, these interim financial statements include all the necessary adjustments to fairly present the results of the interim periods, and all such adjustments are of a normal recurring nature. The interim financial statements should be read in conjunction with the audited financial statements for the two years ended December 31, 2000 included in the Company's Annual Report on Form 10-KSB for the year then ended. The report of the Company's independent auditors for the year ended December 31, 2000 contains an explanatory paragraph as to the substantial doubt of the Company's ability to continue as a going concern. No adjustments have been made to the accompanying financial statements to give effect to this uncertainty. The interim results reflected in the accompanying financial statements are not necessarily indicative of the results of operations for a full fiscal year. The basic net loss per common share is computed by dividing the net loss, plus the dividends on preferred stock, by the weighted average number of common shares outstanding. Preferred stock dividends include: (i) dividends stated in the respective certificate of designations; and (ii) dividends deemed to have been issued by virtue of a conversion price that is computed at the date of conversion using a discount to the market price of the Company's Common Stock. Diluted net loss per common share is computed by dividing the net loss, adjusted on an as if converted basis, by the weighted average number of common shares outstanding plus potential dilutive securities. For the three months ended March 31, 2001 and 2000 potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share. These securities include options, warrants, convertible debt, and Preferred Stock convertible into an aggregate of approximately 9,565,253 shares of Common Stock. In accordance with FAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", management reviews long-lived assets and intangible assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be fully recoverable. Any adjustment would be included in the continuing operations for that period. (2) STOCKHOLDERS' EQUITY In March 2000, the Company issued 7,752 shares of its Series H Convertible Preferred Stock (Series H) for cash proceeds of $757,000. The Series H earns a dividend of 10% per annum, is convertible into the Company's Common Stock at $1.85 per share and has certain liquidation preferences. In connection with the sale of the Series H shares in March 2000, the Company recognized deemed dividends of $40,918. In the first quarter of 2001, holders of the Company's Series F and G Cumulative Convertible Preferred Stock converted 1,721 Series F and G shares into 215,422 shares of the Company's Common Stock. 6 NORTH AMERICAN TECHNOLOGIES GROUP, INC. Notes to Consolidated Financial Statements In the first quarter of 2000, holders of the Company's Series F and G Cumulative Convertible Preferred Stock converted 20,330 Series F and G shares into 636,564 shares of the Company's Common Stock. At March 31, 2001, the conversion rates of the Company's Series F, Series G-I, II and III, Series H and Series I Convertible Preferred Stock were $3.15, $2.10, $0.87, $1.39 and $2.00, respectively. In March 2001, the Company authorized the issuance of 106,433 of its shares of Common Stock to its former chief financial officer in exchange for services performed and 24,000 shares of its Common Stock to its President in conjunction with a restricted stock grant that was made in January 2000. (3) LICENSING AGREEMENTS On March 6, 2001, the Company entered into two agreements to develop the market in India for the TieTek(TM) technology. The Company executed a letter of intent with Owens Corning of India to jointly market the TieTek(TM) technology in that country. In addition, the Company entered into a Memorandum of Understanding with ISCO Track Sleepers Ltd. (ISCO). Under the terms of the agreement, ISCO agreed to work with TieTek on an exclusive basis to obtain government approval of the TieTek(TM) Crosstie in India. No assurance can be given that such an approval is or will be attainable. On May 4, 2001, the Company entered into a licensing agreement to develop the market for the TieTek(TM) Crosstie in Australia and New Zealand. Under the terms of the agreement, the Company sold certain equipment constituting the Company's pilot manufacturing plant. The Company may receive future milestone payments for each full-scale facility installed in the licensed territory and may also receive royalties based on sales volumes of crossties using the TieTek(TM) technology. In addition, the Company has an option to purchase an equity or profit interest in a joint venture that may be established to produce and market the TieTek(TM) Crossties in Australia and New Zealand. There can be no certainty at this time that the Company will generate any revenue from activities under the agreement. 7 NORTH AMERICAN TECHNOLOGIES GROUP, INC. ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Except for historical information, the material contained in Management's Discussion and Analysis of Financial Condition and Results of Operations is forward-looking. For the purpose of the safe harbor provisions for forward- looking statements of the Private Securities Litigation Reform Act of 1995, readers are urged to review the Company's Annual Report on Form 10-KSB for the year ended December 31, 2000 for a list of certain important factors that may cause actual results to differ materially from those described below. The Company is currently focused on the production of the TieTek(TM) Composite Railroad Crosstie through its wholly owned subsidiary, TieTek, Inc. (TieTek). In addition, the Company has begun and expects to continue to license the TieTek(TM) technology internationally. RESULTS OF OPERATIONS REVENUES During the third quarter of 2000, the Company commenced production of its crossties at its manufacturing facility in Houston, Texas. Most of its production is being sold to Union Pacific Railroad ("UPRR") under a contract for the sale of up to 250,000 crossties. Through May 2, 2001, TieTek has sold 10,224 crossties to UPRR. As of December 31, 2000, the Company had produced approximately 3,500 crossties from this facility. During the quarter ended March 31, 2001, the Company produced approximately 6,000 crossties from this facility. Revenues for the three months ended March 31, 2001 from production of crossties were $323,699. As of March 31, 2001, the Company had an inventory of 1,161 crossties. During the three months ended March 31, 2000, the Company had revenues of $2,542 from the sale of crossties. GROSS LOSS During the three months ended March 31, 2001, the production and sale of TieTek(TM) Crossties resulted in a negative gross margin, reflecting the small scale and labor intensive nature of this activity. Currently, the Company is producing approximately 3,500 crossties per month, most of which are being sold to UPRR. The Company believes the current capacity of its existing production line is approximately 7,500 crossties per month. The Company estimates that production of 8,000 crossties per month would result in plant profit, 13,000 ties per month would result in positive EBITDA (earnings before interest, taxes, depreciation and amortization) and 18,000 crossties per month would result in pretax income. There can be no assurance these estimates are achievable. Cost of product consists of raw materials, direct costs, including wages and benefits, supplies and maintenance and utilities and equipment leasing, and plant burden including salaries and benefits, facility costs and insurance and other. The Company expects these expenses to increase in dollar amount, but decrease on a per tie basis as the volume of production increases. 8 During the three months ended March 31, 2001, gross loss for the Company was $281,045, compared to a gross loss of $293 for the three months ended March 31, 2000. The periods are not comparable, as the Company had not reached commercial production volumes during the period in 2000. SELLING, GENERAL & ADMINISTRATIVE EXPENSES (SGA) SGA expenses decreased 33% to $242,306 for the three months ended March 31, 2001 compared to the three months ended March 31, 2000. This decrease was caused by significant allocation of such expenses to cost of product resulting from production of crossties during 2001. The Company anticipates that SGA will increase as production of the TieTek(TM) Crossties increases. The Company anticipates an increase in staff to support TieTek's manufacturing plant throughout 2001 as it ramps up production. The Company currently has seventeen employees and utilizes approximately twenty additional contract employees. OTHER INCOME AND (EXPENSE) Total other income increased to $26,067 in the first quarter of 2001 due to $25,000 of income recorded for payment received on a note receivable that was previously written off and $40,000 of income from a lease obligation that has expired, partially offset by decreased interest income and increased deemed interest on dividends and convertible notes. LIQUIDITY AND CAPITAL RESOURCES For the three months ended March 31, 2001, the Company continued to incur a cash flow deficit from operations averaging $175,000 per month. This deficit reflects primarily the negative margins from production of the TieTek(TM) Crosstie and corporate overhead. As of March 31, 2001, the Company had a deficit working capital balance of $1,371,756 including a cash balance of $10,490. The Company has made significant progress towards maximum production of the TieTek(TM) Crosstie from the first manufacturing line at its existing facility, including the production of approximately 6,000 crossties during the first quarter of 2001. The Company anticipates increasing production capacity during the second quarter 2001 to approximately 7,500 crossties per month primarily through improvements to material handling abilities and to the process of texturing of crossties for UPRR. During the first quarter of 2001, the Company borrowed $150,000 from an investor in three separate transactions in which the Company issued three unsecured convertible notes bearing interest at 10% and maturing in one year from date of issuance. The notes are convertible at the lender's option into shares of the Company's Common Stock at $1.25 per share. In addition, the Company renewed two unsecured notes convertible into shares of the Company's Common Stock for a one year period and adjusted the conversion price under the notes to $1.25 per share. The Company estimates that its current capital needs to achieve positive cash flow and profitability total between $4,500,000 and $5,000,000, comprised of approximately $500,000 for improvements to its initial production line, approximately $3,500,000 to install its second production line in its Houston facility and additional working capital of between $500,000 and $1,000,000. Subsequent to fully funding those needs, the Company will need to raise or finance through internal or other sources an additional $3,500,000 to install a third production line, resulting in what management believes to be optimum total production capacity at the Houston facility of 30,000 ties per month. As of this date, the Company has no commitments for additional financing and there can be no assurance that the Company will be able to obtain financing on terms acceptable to the Company, if at all. 9 During the three months ended March 31, 2001, the Company used $266,701 in cash for its operating activities, reflecting primarily the net loss for the quarter of $587,964 adjusted for net non-cash expenses which were $369,180. During the three months ended March 31, 2000, the Company used $508,846 in cash for its operating activities, reflecting primarily the net loss for the quarter of $457,943 adjusted for net non-cash expenses which were $64,914. Due to those uncertainties regarding the Company's ability to obtain the additional capital necessary to expand production, the report of the Company's independent public accountants for the year ended December 31, 2000 contains an explanatory paragraph as to the substantial doubt about the Company's ability to continue as a going concern. 10 NORTH AMERICAN TECHNOLOGIES GROUP, INC. PART II: OTHER INFORMATION ITEM 1: LEGAL PROCEEDINGS: None ITEM 2: CHANGES IN SECURITIES: In January 2001, the Company issued a promissory note in the amount of $150,000 to the Chairman of the Board of Directors of the Company. The note is convertible at the lender's option into Common Stock of the Company at $1.25 per share. Additionally, it can be converted, at the lender's option, into any class of Preferred Shares issued by the Company in the future that are convertible into Common Stock of the Company. The convertible note was issued pursuant to the exemption from the registration requirements of the Securities Act of 1933, as amended, provided by Section 4(2) thereof and the rules and regulations promulgated thereunder. During the first quarter 2001, the Company borrowed $150,000 from an investor and issued three notes payable due in one year which are convertible into shares of the Company's Common Stock at $1.25 per share. The convertible notes were issued to an accredited investor pursuant to the exemption from the registration requirements of the Securities Act of 1933, as amended, provided by Section 4(2) thereof and the rules and regulations promulgated thereunder. In March 2001, the Company authorized the issuance of 106,433 shares of its Common Stock to its former chief financial officer in exchange for services performed and 24,000 shares of its Common Stock to its President in conjunction with a restricted stock grant that was made in January 2000. The Common Stock was issued pursuant to the exemption from the registration requirements of the Securities Act of 1933, as amended, provided by Section 4(2) thereof and the rules and regulations promulgated thereunder. ITEM 3: DEFAULTS UPON SENIOR SECURITIES: Given the Company's expected financial condition, it is unlikely the Company will be in a position to pay cash dividends on its Preferred Stock in the near future. Therefore, these dividends will accumulate, and must be paid, together with interest thereon, prior to the payment of any distributions to the common stockholders. The Company does not anticipate any such distributions in the foreseeable future. As of March 31, 2000, approximately $3,800,000 of accrued dividends and interest were in arrears on all series of the Company's Preferred Stock. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS: None ITEM 5: OTHER INFORMATION: None 11 ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS: EXHIBIT NO. DESCRIPTION OF EXHIBIT MANNER OF FILING ----------------- ---------------------- --------------------- 10.1 Loan Agreement dated Filed herewith as of January 1, 2001 between the Company and Douglas C. Williamson 10.2 Convertible Promissory Filed herewith Note from the Company to Douglas C. Williamson dated as of January 1, 2001 (b) REPORTS ON FORM 8-K: None 12 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. North American Technologies Group, Inc. Date: May 14, 2001 /s/ Henry W. Sullivan --------------------------------------------- Henry W. Sullivan President and Chief Executive Officer Date: May 14, 2001 /s/ John N. Bingham --------------------------------------------- John N. Bingham Acting Chief Financial Officer 13 EXHIBIT INDEX ------------- EXHIBIT NO. DESCRIPTION OF EXHIBIT ----------- ---------------------- 10.1 Loan Agreement dated as of January 1, 2001 between the Company and Douglas C. Williamson 10.2 Convertible Promissory Note from the Company to Douglas C. Williamson dated as of January 1, 2001 14 EX-10.1 2 dex101.txt LOAN AGREEMENT LOAN AGREEMENT LOAN AGREEMENT, dated as of January 1, 2001 between NORTH AMERICAN TECHNOLOGIES GROUP, INC., a Delaware corporation, (the "Borrower" or "NATK"), and DOUGLAS C. WILLIAMSON, with an address c/o Bank of America Capital Investors, 901 Main Street, 66th Floor, Dallas, Texas 75202-3714 (the "Lender"). W I T N E S S E T H: WHEREAS, the Borrower has requested that the Lender make the Loan (as hereinafter defined) and the Lender has agreed to make the Loan on and subject to the terms and conditions hereof; NOW, THEREFORE, each of the parties hereto, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, hereby agree as follows: A G R E E M E N T: 1. GENERAL DEFINITIONS 1.1. Definitions. When used herein, the following terms shall have the following meanings: Agreement shall mean this Loan Agreement as the same may be amended, extended, supplemented, modified, restated or replaced from time to time. Borrower shall mean North American Technologies Group, Inc., a Delaware corporation. Business Day shall mean a day that is not a Saturday, a Sunday or a day on which banks are required or permitted to be closed in the State of Texas. Unless specifically denoted "Business Days" herein, references to "days" shall mean calendar days. Closing Date shall mean the date of initial issuance of a Note. The closing shall take place on the Closing Date at the offices of Buchanan Ingersoll Professional Corporation at such time or at such other place as the parties agree. Common Stock shall mean common stock, par value $0.001 per share, of North American Technologies Group, Inc., a Delaware corporation. Default Rate shall mean the rate or rates determined from time to time pursuant to Section 4.2. Equity Securities shall mean any equity securities of Borrower (including preferred and common stock), any rights, options or warrants to acquire such securities, and any debt instrument convertible or exercisable into such securities. Event of Default shall mean any of the Events of Default described in Section 7.1. Financials shall mean the audited financial statements of the Borrower for the fiscal years ended December 31, 1998 and 1999, and the unaudited financial statements of the Borrower for the quarter ended September 30, 2000. GAAP shall mean generally accepted accounting principles as are in effect from time to time and applied on a consistent basis (except for changes in application in which the Borrower's independent certified public accountants concur) both as to classification and amounts. Law shall mean any law (including common law), constitution, statute, treaty, regulation, rule, ordinance, opinion, release, ruling, order, injunction, writ, decree or award of any national, federal, state, local or other government or political subdivision or any agency, authority, bureau, central bank, commission, department or instrumentality of either, or any court, tribunal, grand jury or arbitrator, in each case whether foreign or domestic. Lender shall mean each holder, from time to time, of a Note or Notes, including successors and assigns. Lien shall mean any mortgage, pledge, security interest, encumbrance, lien, charge, or claim upon property of any kind, whether or not voluntarily given (including, without limitation, any agreement to give any of the foregoing, any conditional sale or other title retention agreement, any lease in the nature thereof, the filing of or agreement to give any financing statement under the Uniform Commercial Code of any jurisdiction, and the recording of or agreement to provide any instrument for recording under the recording or other laws of any state or other jurisdiction). Loan shall mean the loan made pursuant to Section 2.1. Loan Documents shall mean all agreements, instruments and documents whether heretofore, now or hereafter executed by or on behalf of the Borrower with respect to or in connection with this Agreement including, without limitation, the Notes. Maturity Date shall mean January 1, 2002. Note shall mean a Note or Notes made by the Borrower to the Lender pursuant to Section 2.1 in the form of Exhibit "A". Original Issue Date shall mean the date on which the first Note was issued. Uniform Commercial Code shall mean the Uniform Commercial Code of the State of Texas or any other applicable jurisdiction, as amended from time to time. 2 1.2. Construction. Unless the context of this Agreement otherwise clearly requires, references to the plural include the singular, the singular the plural and the part the whole; "or" has the inclusive meaning represented by the phrase "and/or," and "including" has the meaning represented by the phrase "including without limitation." References in this Agreement to "determination" of or by the Lender shall be deemed to include good faith estimates by the Lender (in the case of quantitative determinations) and good faith beliefs by the Lender (in the case of qualitative determinations). Whenever the Lender are granted the right herein to act in their sole discretion or to grant or withhold consent, such right shall be exercised in good faith. The words "hereof," "herein," "hereunder" and similar terms in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. The section and other headings contained in this Agreement and the Table of Contents preceding this Agreement are for reference purposes only and shall not control or affect the construction of this Agreement or the interpretation thereof in any respect. Section, subsection, schedule and exhibit references are to this Agreement unless otherwise specified. 1.3. Accounting Principles. Except as otherwise provided in this Agreement, all computations and determinations as to accounting or financial matters and all financial statements to be delivered pursuant to this Agreement shall be made and prepared in accordance with GAAP (including principles of consolidation where appropriate), and all accounting or financial terms shall have the meanings ascribed to such terms by GAAP. 2. LOAN 2.1. The Loan. (a) Subject to the terms and conditions hereof, the Lender hereby agrees to make a loan (the "Loan") to the Borrower in the aggregate principal amount advanced by the Lender of $150,000. 2.2. Repayment of Loan; Evidence of Debt. (a) The Borrower hereby unconditionally promises to pay to the Lender the full outstanding principal amount of the Loan, together with all unpaid interest thereon and all other outstanding unpaid amounts owing to Lender under or in connection with the Loan Documents, on the Maturity Date (or on such earlier date that the Loan becomes due and payable pursuant to Section 7). The Borrower hereby agrees to pay interest on the unpaid principal amount of the Loan and unpaid overdue interest from time to time outstanding, from the issuance of the Note until payment in full thereof at the rates per annum, on the dates, and in the form and manner set forth herein. (b) The Loan shall be evidenced by the Note or Notes. The Note or Notes shall (i) be dated the date of the issuance of the first Note, (ii) be payable in full on the Maturity Date (or such earlier date that the Loan becomes due and payable pursuant to Section 7) and (iii) provide for the accrual of interest for the period from the date thereof until paid in full on the 3 unpaid principal amount time to time outstanding at the rates per annum, on the dates, and in the form and manner set forth herein. 2.3. Conversion; Prepayments (a) Notwithstanding any term to the contrary contained herein, each Lender may elect at any time while any Note remains unpaid to convert all or any portion of the principal of and all accrued but unpaid interest on any Note into shares of Common Stock or other Equity Securities in accordance with Article 4 hereof by providing written notice to the Borrower to such effect at least five (5) days prior to the date for such payment, which notice shall be irrevocable once given (unless such exercise is conditioned upon the closing of the sale of such Equity Securities). (b) All or any portion of the principal of any Note may be prepaid by the Borrower in cash, in whole or in part, at any time on thirty (30) days' prior written notice, which notice shall be irrevocable once given. Following the Lender's receipt of such a notice, and without limiting Section 2.3(a) above, the Lender may, at any time within twenty-five (25) days of its receipt of such a notice, notify the Borrower that it elects to convert all or any portion of the principal amount of and accrued and unpaid interest on the Note as provided in subsection (a) of this Section 2.3, which notice shall be irrevocable once given (unless such exercise is conditioned upon the closing of the sale of such Equity Securities). 2.4. Interest Rates. (a) The Loan shall bear interest at a rate equal to ten percent (10%) per annum. (b) Upon the occurrence of an Event of Default hereunder and until such Event of Default is cured by Borrower or waived by Lender hereunder, the outstanding principal amount of the Loan and all accrued but unpaid interest on such principal and any other amounts payable by the Borrower shall to the fullest extent permitted by law, bear interest at a rate of twelve percent (12%) per annum, in each case from the date of such non-payment until such amount is paid in full (as well as before judgment and during the pendency of any bankruptcy, insolvency or similar proceeding). (c) Interest on the outstanding principal amount of the Note shall accrue and shall be payable upon the earlier to occur of (i) prepayment of the Note under Section 2.3(b) hereof, (ii) conversion of the Note under Section 4.1 hereof, except to the extent that any accrued but unpaid interest is converted into shares of Common Stock, and (iii) the Maturity Date, provided that interest accruing pursuant to paragraph (b) of this subsection shall be payable from time to time on demand. 2.5. Computation of Interest (a) Interest shall be calculated on the basis of a 360 day year for the actual number of days elapsed. 4 (b) Notwithstanding any other provisions of any of the Loan Documents, the Borrower shall not be required to make any payments of interest or other amounts hereunder or under any other Loan Document to the extent such payments would cause the rate of interest charged hereunder to exceed the highest rate permitted under applicable law. Any such payments which are received by Lender may, at Lender's option, be applied against payment of principal of the Loan or other obligations payable to Lender hereunder or returned to Borrower. 2.6. Payments, Etc. All payments (including prepayments) to be made by the Borrower hereunder or under any other Loan Document, whether on account of principal, interest or otherwise, shall be made without set off or counterclaim and shall be made prior to 12:00 Noon, Houston local time, on the due date thereof (whether at the stated maturity, on a prepayment date or by acceleration or otherwise) to the Lender to its address shown herein or such other account or place as Lender may from time to time designate, in Dollars. If any payment hereunder becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day, and, interest thereon shall be payable at the then applicable rate during such extension. 3. CONDITIONS OF LENDING. Notwithstanding any other provision of this Agreement or any other Loan Document and without affecting in any manner the rights of the Lender under this Agreement, it is understood and agreed that the Lender shall have no obligation at any time under Article 2 of this Agreement unless and until the following conditions have been and continue to be satisfied, all in form and substance satisfactory to the Lender and its counsel: 3.1. The Loan. (A) The Lender shall have received, on or prior to a Closing Date, the following documents: (i) this Agreement, duly executed and delivered; (ii) the Note in the form of Exhibit "A", duly executed and delivered; (iii) a certificate dated the Closing Date and signed by the Secretary or Assistant Secretary of the Borrower, certifying as to (a) the Borrower's organizational documents including its articles or certificate of incorporation and bylaws and good standing of the Borrower in each state in which it is organized or qualified to do business, (b) certified copies of the resolutions of the Board of Directors of the Borrower authorizing the execution and delivery of this Agreement and the other Loan Documents by specified officers of the Borrower, and (c) the names of the Borrower's officers, the offices that each holds and the authenticity of their signatures; and 5 (iv) such other documents and certificates as to the transactions contemplated by this Agreement and the other Loan Documents as the Lender may reasonably request. (B) The representations and warranties of the Borrower contained in Article 5 hereof shall be true on and as of each Closing Date; the Borrower shall have complied with all covenants and conditions hereof; there shall exist on the Closing Date no Event of Default; and the Borrower shall have delivered to the Lender a certificate of its Chief Executive Officer, President and Chief Financial Officer dated the Closing Date, to each such effect. (C) All legal details and proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incident thereto shall be satisfactory in substance and form to the Lender and its counsel, and the Lender and its counsel shall have received all such counterpart originals or certified or other copies of such documents as the Lender or its counsel may reasonably request. 4. CONVERSION PRIVILEGE. 4.1. Right To Convert: (a) Common Stock. Subject to the provisions for adjustment hereinafter set forth, the principal of and all accrued but unpaid interest on any Note shall, at the option of any Lender, at any time, be convertible in the manner hereinafter set forth into fully paid and nonassessable shares of Common Stock at a rate (the "Conversion Rate") equal to $1.25 per share (subject to adjustment as provided in Section 4.1(d)). (b) Equity Securities or Common Stock Issued in Transaction with a Strategic Investor. In the event the Borrower shall (i) issue any Equity Securities after the date hereof (other than upon exercise or conversion of any Equity Securities of the Borrower outstanding on the date hereof) or (ii) enter into a transaction with a strategic partner in which the Borrower issues Common Stock at a per share price below the then-current Conversion Rate, then, in addition to the Lender's right to convert to Common Stock, the Lender shall have the right (y) in the case of the issuance by the Borrower of Equity Securities, to convert the principal of and all accrued but unpaid interest on any Note into shares of such Equity Securities on the basis of one dollar of converted principal and/or interest on a Note for each dollar of the initial purchase price for such Equity Securities, and (z) in the case of a transaction with a strategic partner, to convert the principal of and all accrued and unpaid interest on any Note to Common Stock at the same price as the stock issued to the strategic partner. (c) Notice of Certain Transactions. Borrower shall provide notice to Lender of any issuance of Equity Securities, specifying all of the terms and conditions of such securities and offering in order to permit Lender to determine whether Lender will convert its Note and 6 accrued interest into such Equity Securities, and contemporaneously with any notice delivered under Section 2.3(b). (d) Reservation of Stock Issuable Upon Conversion. The Borrower shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the Notes, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding Notes. If at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding Notes, the Borrower will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. (e) Adjustments. In case the Borrower shall, at any time while a Note is outstanding (i) pay a stock dividend in shares of Common Stock, (ii) make a distribution on shares of its capital stock in shares of Common Stock or other capital stock, (iii) issue rights or warrants to holders of Common Stock entitling them to subscribe for or purchase any shares of capital stock, including Common Stock, (iv) distribute to holders of Common Stock any assets or evidence of indebtedness, (v) declare and/or pay cash dividends on Common Stock, (vi) reclassify or reorganize the Common Stock or other shares of capital stock, (vii) merge, consolidate, sell substantially all its assets or participate in a share exchange, or (viii) convert Borrower into any other type of entity, then an appropriate adjustment to the terms of conversion shall be made so as to preserve for Lender all of the economic and other values attributable to Lender's rights to convert a Note. 5. REPRESENTATIONS AND WARRANTIES. 5.1. General Representations and Warranties. The Borrower represents and warrants to the Lender that: (A) Organization, Qualification and Capitalization; Subsidiaries. The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware; the Borrower has the lawful power to own or lease its properties and to engage in the business it presently conducts and contemplates conducting. The Borrower's authorized capital stock consists of (i) 50,000,000 shares of common stock, par value $0.001 per share, of which 13,735,352 shares would be issued and outstanding on a fully diluted basis assuming the exercise of all outstanding warrants or securities convertible into Common Stock and options exercisable or to purchase Common Stock; and (ii) 10,000,000 shares of Preferred Stock, par value $0.001 per share, of which 140,265 shares are issued, outstanding and designated as the Borrower's Series F Cumulative Convertible Preferred Stock; Series G Cumulative Convertible Preferred Stock, Subseries I; Series G Cumulative Convertible Preferred Stock, Subseries II; and Series G Convertible Preferred Stock, Subseries III, Series H Convertible Preferred Stock and Series I Convertible Preferred Stock. 7 (B) Power and Authority. The Borrower has the corporate power and authority to make and carry out this Agreement and the other Loan Documents, to execute and deliver this Agreement and the other Loan Documents, and to make the borrowings contemplated hereby and to perform its obligations under this Agreement and the other Loan Documents, all such actions have been duly authorized by all necessary corporate proceedings on its part. (C) Validity and Binding Effect; Consents. This Agreement and the other Loan Documents have been duly and validly executed and delivered by the Borrower. This Agreement and the other Loan Documents constitute legal, valid and binding obligations of the Borrower and any other parties thereto, enforceable in accordance with their respective terms, except to the extent that enforceability of the foregoing may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforceability of creditors' rights generally or by laws or judicial decisions limiting the right of specific performance. (D) Financials. The Financials have been prepared in accordance with GAAP applied on a consistent basis and fairly present the assets, liabilities and financial condition and results of operations and cash flows of the Borrower at and as of the dates thereof; there are no material liabilities, direct or indirect, fixed or contingent, of the Borrower which are not reflected in the Financials nor omissions of other facts or circumstances which are or may be material. (E) Absence of Certain Developments. Except as disclosed in the Borrower's publicly-filed reports with the Securities and Exchange, including without limitation its Annual Report on Form 10-KSB for the year ended December 31, 1999 and its Quarterly Report on Form 10-QSB for the quarter ended September 30, 2000, since the date of the latest Financials, (i) there has been no material adverse change in the financial condition, results of operations or cash flows of Borrower, (ii) the Borrower has not incurred any material liabilities or material contingent liabilities, (iii) the Borrower has not declared any dividends or purchased any of its capital stock, (iv) the Borrower has not entered into any material transactions outside the ordinary course of business, (v) the Borrower has not made a loan or sold any assets to any officer, director, employee or shareholder of Borrower, or any agreement or commitment therefor, (vi) the Borrower has not had any material loss, destruction or damage to any property, whether or not insured, (vii) the Borrower has not had any acquisition or disposition of any assets (or any contract or arrangement therefore), or any other transaction otherwise than for fair value in the ordinary course of business, and (viii) the Borrower has not committed itself to any of (i) through (vii) above. (F) The Borrower has reserved from its authorized but unissued capital stock a sufficient number of shares of Common Stock issuable upon the 8 conversion of the principal of and interest on the Loan (assuming interest will accrue at 10% per annum to the Maturity Date). (G) When issued upon the conversion of the principal of and interest on any Note, the Common Stock issued will be duly issued, fully paid and nonassessable. 6. COVENANTS AND CONTINUING AGREEMENTS. 6.1. Affirmative Covenants. From the date hereof and thereafter until the termination of the Loan and until the principal of and all interest on the Notes has been paid in full, the Borrower covenants and agrees as follows: (A) Preservation of Existence, etc. The Borrower shall maintain its corporate existence and its license or qualification and good standing in each jurisdiction in which its ownership or lease of property or the nature of its business makes such license or qualification necessary. (B) Keeping of Records and Books of Account. The Borrower shall maintain and keep proper books of record and account which enable the Borrower to issue financial statements in accordance with GAAP and as otherwise required by applicable law, and in which full, true and correct entries shall be made in all material respects of all its dealings and business and financial affairs. 7. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT. 7.1. Events of Default. The occurrence or existence of any of the following events, conditions, acts or omissions and failure by the Borrower to cure such an event, condition, act or omission within ten days of the Borrower's receipt of a notice from the Lender with respect thereto or, if such event, condition, act or omission is not susceptible to cure within such period the failure of the Borrower to commence within such period and thereafter diligently pursue a cure of such event, condition, act or omission, shall constitute an "Event of Default" hereunder unless waived by the Lender: (A) The Borrower fails to pay any principal of or interest on the Loan when due and payable; (B) Any representation, warranty, statement, report, financial statement or certificate made or delivered by the Borrower to the Lender shall prove to have been false or misleading in any material respect as of the time it was made or furnished; (C) The Borrower fails to perform, keep or observe any term, provision, condition or covenant contained in this Agreement or in any other Loan Document, which is required to be performed, kept or observed by the Borrower; 9 (D) Any of the Loan Documents shall cease to be legal, valid and binding agreements enforceable against the party executing the same or such party's successors and assigns (as permitted under the Loan Documents) in accordance with the respective terms thereof or shall in any way be terminated (except in accordance with its terms) or become or be declared ineffective or inoperative or shall in any way be challenged or contested or cease to give or provide the respective interests, rights, remedies, powers or privileges intended to be created thereby; (E) An application is made by the Borrower for the appointment of a receiver, trustee or custodian for any of the Borrower's assets; or a petition under any section or chapter of the federal Bankruptcy Code or any similar law shall be filed by the Borrower; or the Borrower makes an assignment for the benefit of its creditors or any case or proceeding is filed by the Borrower for its dissolution, liquidation or termination; or (F) The Borrower ceases to conduct its business as now conducted; or the Borrower is enjoined, restrained or in any way prevented by court order from conducting all or any material part of its business affairs and such injunction, restraint or other preventive order is not dismissed within thirty (30) days after the entry thereof; or a petition under any section or chapter of the federal Bankruptcy Code or any similar law is filed against the Borrower or any case or proceeding is filed against the Borrower for its dissolution or liquidation, and such petition, case or proceeding is not dismissed within thirty (30) days after the filing thereof. 7.2. Acceleration of Liabilities. Upon the occurrence and continuation of an Event of Default mentioned in any of Sections 7.1(A) through 7.1(F), all of the outstanding principal of and accrued and unpaid interest on the Loan may, at the option of the Lender and without demand, notice or legal process of any kind, be declared, and immediately shall become, due and payable. 7.3. Remedies. Upon and after an Event of Default, the Lender shall have in addition to all of the rights and remedies contained in this Agreement or in any other Loan Document or other applicable law, all of which rights and remedies shall be cumulative and non-exclusive, to the extent permitted by law. 8. MISCELLANEOUS 8.1. Modification of Agreement; Sale of Interest. This Agreement and the other Loan Documents may not be modified, altered or amended, except by an agreement in writing signed by the Borrower and the Lender holding a majority in principal amount of the Notes then outstanding. 10 8.2. No Implied Waivers; Cumulative Remedies; Writing Required. No course of dealing and no delay or failure of the Lender in exercising any right, power, remedy or privilege under this Agreement or any other Loan Document shall affect any other or future exercise thereof or operate as a waiver thereof; nor shall any single or partial exercise thereof or any abandonment or discontinuance of steps to enforce such a right, power, remedy or privilege preclude any further exercise thereof or any other right, power, remedy or privilege. The rights and remedies of the Lender under this Agreement and the other Loan Documents are cumulative and not exclusive of any rights or remedies which they would otherwise have. Any waiver, permit, consent or approval of any kind or character on the part of the Lender of any provision of, or any breach or default under, this Agreement or any other Loan Document must be in writing and shall be effective only to the extent specifically set forth in such writing. 8.3. Severability. The provisions of this Agreement are intended to be severable. If any provision of this Agreement shall be held invalid or unenforceable in whole or in part in any jurisdiction, such provision shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without in any manner affecting the validity or enforceability thereof in any other jurisdiction or the remaining provisions hereof in any jurisdiction. 8.4. Successors and Assigns. This Agreement and the other Loan Documents shall be binding upon and inure to the benefit of the successors and assigns of the Borrower and the Lender. 8.5. Governing Law; Submission to Jurisdiction. This Agreement has been delivered at Houston, Texas and shall be deemed to have been made at Houston, Texas, and shall be interpreted, and the rights and liabilities of the parties hereto shall for all purposes be governed by and construed and enforced, in accordance with the internal laws of the State of Texas applicable to agreements executed, delivered and performed within such state without giving effect to the principles of conflicts of laws of such state. As part of the consideration for new value this day received, Borrower hereby consents to the jurisdiction of any state or federal court located within the County of Harris, State of Texas, and waives personal service of any and all process upon Borrower, and consents that all such service of process be made by registered mail directed to Borrower at the address stated on the first page hereof (or such other address as may be duly designated by Borrower pursuant to section 8.6 hereof) and service so made shall be deemed to be completed upon actual receipt thereof. 8.6. Notice. Except as otherwise provided herein, any notice or other written communication required hereunder shall be in writing, and shall be deemed to have been validly served, given or delivered (i) upon deposit in the United States mail, with proper postage prepaid, (ii) by hand delivery, (iii) by overnight express mail courier, or (iv) by telecopier, and addressed to the party to be notified at the address set forth below or to such other address as each party may designate for itself in writing by like notice, provided notices to the Lender shall not be effective until received. 11 To the Lender: Douglas C. Williamson c/o Bank of America Capital Investors 901 Main Street, 66th Floor Dallas, TX 75202-3714 Telecopier: (214) 209-0979 To the Borrower: North American Technologies Group, Inc. 14315 W. Hardy Road Houston, TX 77061 Attention: Henry Sullivan, President Telecopier: (281) 847-1791 with a copy to: Buchanan Ingersoll Professional Corporation Eleven Penn Center 1835 Market Street, 14th Floor Philadelphia, PA 19103 Attention: John F. Reilly, Esquire Telecopier: (215) 665-8760 8.7. Section Titles. The article and section titles contained in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. 8.8. Prior Understanding. This Agreement supersedes all prior understandings and agreements, whether written or oral, between the parties hereto and thereto relating to the transactions provided for herein or therein, including any prior proposal or commitment letters. 8.9. Duration; Survival. All representations and warranties of the Borrower contained herein or made in connection herewith shall survive the making of the Loan and shall not be waived by the execution and delivery of this Agreement, any investigation by the Lender or payment in full of the Loan. All covenants and agreements of the Borrower contained in Articles 7 and 9 herein shall continue in full force and effect from and after the date hereof so long as the Borrower may borrow hereunder and until termination of this Agreement and payment in full of the Loans. All covenants and agreements of the Borrower contained herein relating to the payment of principal, interest, additional compensation or expenses, fees or expenses and indemnification shall survive payment in full of the Loan and termination of this Agreement. 12 8.10. Exceptions to Covenants. The representations, warranties and covenants contained herein shall be independent of each other and no exception to any representation, warranty or covenant shall be deemed to be an exception to any other representation, warranty or covenant contained herein unless expressly provided, nor shall any such exceptions be deemed to permit any action or omission that would be in contravention of applicable law. 8.11. Holiday Payments. If any payment to be made to the Lender hereunder shall become due on a date not a Business Day, such payment shall be made on the next succeeding Business Day and interest shall accrue on any principal amount of such payment until the date on which such principal amount is paid to the Lender. 8.12. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 13 IN WITNESS WHEREOF, and intending to be legally bound hereby, this Agreement has been duly signed, sealed and delivered by the undersigned as of the day and year specified at the beginning hereof. ATTEST: BORROWER NORTH AMERICAN TECHNOLOGIES GROUP, INC. __________________________ By: /s/ Henry W. Sullivan Title: Henry W. Sullivan President and Chief Executive Officer LENDER WITNESS: DOUGLAS C. WILLIAMSON ___________________________ By: /s/ Douglas C. Williamson Name: 14 TABLE OF CONTENTS
Page ---- 1. GENERAL DEFINITIONS.................................................. 1 1.1. DEFINITIONS.................................................. 1 1.2 CONSTRUCTION................................................. 3 1.3 ACCOUNTING PRINCIPLES........................................ 3 2. LOAN................................................................. 3 2.1 THE LOAN..................................................... 3 2.2. REPAYMENT OF LOAN; EVIDENCE OF DEBT.......................... 3 2.3. CONVERSION; PREPAYMENTS...................................... 4 2.4. INTEREST RATES............................................... 4 2.5. COMPUTATION OF INTEREST...................................... 4 2.6. PAYMENTS, ETC................................................ 5 3. CONDITIONS OF LENDING................................................ 5 3.1. THE LOAN..................................................... 5 4. CONVERSION PRIVILEGE................................................. 6 4.1. RIGHT TO CONVERT............................................. 6 5. REPRESENTATIONS AND WARRANTIES....................................... 7 5.1. GENERAL REPRESENTATIONS AND WARRANTIES....................... 7 6. COVENANTS AND CONTINUING AGREEMENTS.................................. 9 6.1. AFFIRMATIVE COVENANTS........................................ 9 7. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT.................... 9 7.1. EVENTS OF DEFAULT............................................ 9 7.2. ACCELERATION OF LIABILITIES.................................. 10
i 7.3. REMEDIES..................................................... 10 8. MISCELLANEOUS........................................................ 10 8.1. MODIFICATION OF AGREEMENT; SALE OF INTEREST.................. 10 8.2. NO IMPLIED WAIVERS; CUMULATIVE REMEDIES; WRITING REQUIRED.... 11 8.3. SEVERABILITY................................................. 11 8.4. SUCCESSORS AND ASSIGNS....................................... 11 8.5. GOVERNING LAW; SUBMISSION TO JURISDICTION.................... 11 8.6. NOTICE....................................................... 11 8.7. SECTION TITLES............................................... 12 8.8. PRIOR UNDERSTANDING.......................................... 12 8.9. DURATION; SURVIVAL........................................... 12 8.10. EXCEPTIONS TO COVENANTS...................................... 13 8.11. HOLIDAY PAYMENTS............................................. 13 8.12. COUNTERPARTS................................................. 13
ii EX-10.2 3 dex102.txt CONVERTIBLE PROMISSORY NOTE THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW AND MAY NOT BE TRANSFERRED OR SOLD WITHOUT AN OPINION OF COUNSEL SATISFACTORY TO THE BORROWER THAT SUCH TRANSFER OR SALE DOES NOT VIOLATE THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, OR ANY APPLICABLE STATE SECURITIES LAW. NOTE $150,000 Houston, Texas January 1, 2001 FOR VALUE RECEIVED, NORTH AMERICAN TECHNOLOGIES GROUP, INC., a Delaware corporation (the "Borrower"), hereby promises to pay to the order of DOUGLAS C. WILLIAMSON, with an address at ____________________________ (the "Lender"), the principal sum of One Hundred Fifty Thousand Dollars (U.S. $150,000) payable in accordance with the provisions of that certain Loan Agreement dated January 1, 2001 between the Borrower and the Lender (as it may hereafter be amended, restated, modified or supplemented from time to time, the "Loan Agreement"). All capitalized terms used herein shall, unless otherwise defined herein, have the same meanings given to such terms in the Loan Agreement. The Borrower shall pay interest on the unpaid principal balance hereof at the rate of 10% per annum, subject to the provisions of Section 2.4(b) of the Loan Agreement, at the times and in the manner provided in the Loan Agreement. Upon the occurrence and during the continuation of an Event of Default, Lender shall have the right to accelerate payment of the entire unpaid principal and accrued interest due hereunder and the Borrower shall pay interest on the entire principal amount of the Loan then outstanding evidenced by this Note at a rate per annum equal to twelve percent (12%) per annum. Such interest rate will accrue before and after any judgment has been entered. All payments of both principal and interest shall be made without setoff, counterclaim or other deduction of any nature to the Lender as provided in the Loan Agreement, in lawful money of the United States of America in immediately available funds. The Borrower waives presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note and the Loan Agreement. All interest shall be based on a year of 360 days and actual days elapsed. The entire principal amount due hereunder shall be paid on the Maturity Date or earlier acceleration hereof. If any payment or action to be made or taken hereunder shall be stated to be or become due on a day which is not a Business Day, such payment or action shall be made or taken on the next following Business Day and such extension of time shall be included in computing interest or fees, if any, in connection with such payment or action. The principal of this Note and accrued and unpaid interest thereon are convertible into shares of Common Stock of the Borrower as provided in the Loan Agreement. This Note is the Note referred to in, and is entitled to the benefits of, the Loan Agreement and other Loan Documents, including the representations, warranties, covenants and conditions contained therein. The Loan Agreement, among other things, contains provisions for redemption, prepayment in full or in part and for acceleration of the maturity hereof upon the happening of certain stated events prior to maturity upon the terms and conditions therein specified. This Note shall bind the Borrower and its successors and assigns, and the benefits hereof shall inure to the benefit of the Lender and its successors and assigns. All references herein to the "Borrower" and the "Lender" shall be deemed to apply to the Borrower and the Lender, respectively, and their respective successors and assigns. This Note and any other documents delivered in connection herewith and the rights and obligations of the parties hereto and thereto shall for all purposes be governed by and construed and enforced in accordance with the internal laws of the State of Texas without giving effect to its conflicts of law principles. IN WITNESS WHEREOF, the undersigned, intending to be legally bound hereby, has executed this Note as of the date first written above with the intention that this Note shall constitute a sealed instrument. ATTEST: NORTH AMERICAN TECHNOLOGIES, GROUP, INC. ______________________________ By: /s/ Henry W. Sullivan Title: Henry W. Sullivan President and Chief Executive Officer [Corporate Seal] 2 -----END PRIVACY-ENHANCED MESSAGE-----