<PAGE>
As filed with the Securities and Exchange Commission on October 13, 1995
Registration No. 33-82112
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
AMENDMENT NO. 1
to
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
----------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware
--------------------------
(State of Incorporation)
2860
--------------------------------------------------------
(Primary Standard Industrial Classification Code Number)
33-0041789
----------------------------------------
(I.R.S. Employer Identification No.)
4710 Bellaire Blvd., Suite 301
Bellaire, Texas 77401
(713) 662-2699
- --------------------------------------------------------------------------------
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive office)
Mr. Tim B. Tarrillion
CHIEF EXECUTIVE OFFICER
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
4710 Bellaire Blvd., Suite 301
Bellaire,Texas 77401
(713) 662-2699
----------------------------------------------------------------
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
copy to:
Stephen M. Cohen, Esquire
Clark, Ladner, Fortenbaugh & Young
One Commerce Square
2005 Market Street
Philadelphia, PA 19103
(215) 241-1800
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practical after the effective date of this Registration Statement.
<PAGE>
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and then in compliance with
General Instruction G, please check the following box: [ ]
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
- --------------------------------------------------------------------------------
<PAGE>
Cross-Reference Sheet to Form S-4 of
North American Technologies Group, Inc.
PART I. INFORMATION REQUIRED IN THE PROSPECTUS
A. INFORMATION ABOUT THE TRANSACTION
<TABLE>
<CAPTION>
Item of Form S-4 Caption in Information Statement and Prospectus
- ---------------- -----------------------------------------------
<S> <C>
1. Forepart of Registration Statement and Outside Facing Page; Cross-Reference Sheet; Outside Front
Front Cover Page of Prospectus.................... Cover Page of Information Statement and Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus........................................ Available Information; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information............................. Risk Factors; Summary
4. Terms of the Transaction............................. Summary; The Merger; Exhibit A
5. Pro Forma Financial Information...................... The Merger
6. Material Contracts with the Company Being
Acquired.......................................... The Merger
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be
Underwriters...................................... Resale of Company Common Stock
8. Interests of Named Experts and Counsel............... Legal Opinions; Experts
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities....................................... Part II; Item 20 - Indemnification of Directors and Officers
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Registrants..........
11. Incorporation of Certain Information by
Reference......................................... *
12. Information with Respect to S-2 or S-3
Registrants....................................... *
13. Incorporation of Certain Information by
Reference......................................... *
14. Information with Respect to Registrants
Other than S-3 or S-2
Registrants......................................... The Business of the Company and NAE; Financial Statements
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to
S-3 Companies..................................... *
16. Information with Respect to S-2 or S-3
Companies......................................... *
17. Information with Respect to Companies other
than S-3 or S-2
Companies......................................... The Business of the Company and NAE; Financial Statements
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Authorizations
are to be Solicited............................... *
19. Information if Proxies, Consents or Authorizations
are not to be Solicited in an Exchange
Offer............................................. Voting and the Special Meeting; Management of the
Company and NAE; Security Ownership of Certain
Beneficial Owners and Management of the Company and NAE
</TABLE>
_________________
* Omitted since the answer is negative or the Item is not applicable.
<PAGE>
NORTH AMERICAN ENVIRONMENTAL GROUP, INC.
4710 Bellaire Blvd., Suite 301
Bellaire, Texas 77401
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON ________, 1995
Dear Stockholder:
A Special Meeting of Stockholders of North American Environmental Group,
Inc., a Delaware corporation ("NAE"), will be held at the offices of Clark,
Ladner, Fortenbaugh & Young, One Commerce Square, 2005 Market Street, 22nd
Floor, Philadelphia, Pennsylvania 19103 on ________________ at 10:00 A.M.
E.D.T. for the following purpose:
To consider, adopt and approve an Agreement and Plan of Merger, dated as of
_______, 1995 (the "Merger Agreement"), by and among North American Technologies
Group, Inc., a Delaware corporation (unless otherwise specified, referred to
hereafter as the "Company"), Daily Mail, Inc., a Delaware corporation and
wholly-owned subsidiary of the Company ("DM"), and NAE, pursuant to which, among
other things, NAE will be merged with and into DM (the "Merger"). As a result
of the Merger, the shares of common stock of NAE, par value $.01 ("NAE Common
Stock"), outstanding immediately prior to the effective time of the Merger (the
"Effective Date") (other than shares with respect to which dissenters' rights
are perfected in accordance with Delaware law and shares held directly or
indirectly by the Company and DM or held in NAE's treasury, which shall be
cancelled) shall be converted into shares of common stock, $.001 par value, of
the Company ("Company Common Stock"), as follows: each share of NAE Common
Stock outstanding immediately prior to the Effective Date shall be converted
into and become exchangeable for one share of Company Common Stock. The text of
the Merger Agreement is set forth as Exhibit A to the attached Information
Statement.
The affirmative vote of the holders of a majority of the outstanding shares
of NAE as of the record date is required to approve the Merger Agreement. The
Company and the Company's wholly-owned subsidiary, DM, own 350,000 and
10,408,333 shares of NAE Common Stock, respectively, representing an aggregate
of approximately eighty-nine percent (89%) of the issued and outstanding shares
of NAE Common Stock. DM and the Company have informed NAE by written consent
that they intend to vote their shares in favor of the Merger. Accordingly, in
recognition of the affirmative vote of the Company and DM, collectively the
holders of an aggregate of eighty-nine percent (89%) of the issued and
outstanding shares of NAE Common Stock, the Merger will be approved at the
Special Meeting and NAE is not soliciting proxies and stockholders are requested
not to send proxies to NAE.
Stockholders may, however, attend the Special Meeting to vote their shares
of NAE Common Stock or to exercise their dissenters' rights. See "VOTING AND THE
SPECIAL MEETING - Dissenters' Rights" in the attached Information Statement and
Prospectus for a description of the procedures required to be followed to
perfect appraisal or dissenters' rights. Stockholders of NAE who do not vote in
favor of the Merger Agreement and who dissent to the Merger in compliance with
the requirements of Section 262 of the Delaware General Corporation Law will
have, when the Merger is consummated, the right to appraisal of their shares of
NAE Common Stock.
The accompanying Information Statement and Prospectus provides a
description of the proposal to be presented at the Special Meeting and extensive
information concerning the Company and NAE. Please give the information your
careful attention.
<PAGE>
WE ARE NOT SOLICITING PROXIES AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
Stockholders of record at the close of business on _________ ___, 1995 will
be entitled to notice of, and to vote at, the meeting and any adjournment or
adjournments thereof.
By Order of the Board of
Directors,
/s/Tim B. Tarrillion
-------------------------
Dated: _________________, 1995 Chief Executive Officer
<PAGE>
INFORMATION STATEMENT AND PROSPECTUS
North American Environmental Group, Inc.
4710 Bellaire Blvd., Suite 301
Bellaire, Texas 77401
_______________
Special Meeting of North American Environmental Group, Inc.
Stockholders to be Held ________ ___ , 1995
_________________
This Information Statement and Prospectus, and the accompanying notice, are
being furnished to the stockholders of North American Environmental Group, Inc.
("NAE"), in connection with the Special Meeting of Stockholders of NAE to be
held on ________ __, 1995, at the offices of Clark, Ladner, Fortenbaugh & Young,
One Commerce Square, 2005 Market Street, 22nd Floor, Philadelphia, Pennsylvania
19103, at 10:00 A.M. E.D.T., and at any adjournments or postponements thereof
(the "Special Meeting").
This Information Statement and Prospectus is furnished to the holders of
shares of common stock of NAE, par value $.01 ("NAE Common Stock"), in
connection with the adoption by the Board of Directors of NAE of a resolution
approved as of ____________ __, 1995, which was also approved by the Board of
Directors of North American Technologies Group, Inc., a Delaware corporation
(the "Company"), and Daily Mail, Inc., a Delaware corporation and a wholly-owned
subsidiary of the Company ("DM"), which resolutions authorize the Agreement and
Plan of Merger, dated ____ __, 1995 (the "Merger Agreement"), by and among NAE
and the Company and DM. The Merger Agreement is attached to this Information
Statement and Prospectus as Exhibit A. The affirmative vote of the holders of a
majority of the outstanding shares of NAE Common Stock as of the record date is
required to approve and adopt the Merger Agreement. The Company and the
Company's wholly-owned subsidiary, DM, own 350,000 and 10,408,333 shares of NAE
Common Stock, respectively, representing an aggregate of approximately eighty-
nine percent (89%) of the issued and outstanding shares of NAE Common Stock. DM
and the Company have informed NAE by written consent that they intend to vote
their shares in favor of the Merger. Accordingly, in recognition of the
affirmative vote of the Company and DM, collectively the holders of eighty-nine
(89%) of the issued and outstanding shares of NAE Common Stock, the Merger will
be approved at the Special Meeting. Pursuant to the Merger Agreement, NAE will
be merged with and into DM and each outstanding share of NAE Common Stock (other
than shares with respect to which dissenters' rights are perfected in accordance
with Delaware law and shares held directly or indirectly by the Company and DM
or held in NAE's treasury, which shall be cancelled) will be converted into one
share of common stock (the "Merger Consideration"), par value $.001, of the
Company ("Company Common Stock"), as described in this Information Statement and
Prospectus.
The Board of Directors of NAE knows of no business that will be presented
at the Special Meeting, other than the matters described in this Information
Statement and Prospectus.
The Company has filed a Registration Statement on Form S-4 (the
"Registration Statement") pursuant to the Securities Act of 1933, as amended
(the "Securities Act"), covering the shares of Company Common Stock to be issued
in connection with the Merger. This Information Statement, along with the
materials which are incorporated by reference, also constitutes the Prospectus
of the Company filed as part of the Registration Statement.
The descriptions of all documents in this Information Statement and
Prospectus are qualified by reference to the text of those documents, including
but not limited to, those documents attached as exhibits to this Information
Statement and Prospectus.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS."
1
<PAGE>
No person is authorized to give any information or to make any
representation not contained in this Information Statement and Prospectus, and,
if given or made, such information or representation should not be relied upon
as having been authorized. This Information Statement and Prospectus does not
constitute an offer to sell, or a solicitation of an offer to purchase the
securities offered by the Information Statement and Prospectus, or the
solicitation of a proxy, in any jurisdiction to or from any person to whom it is
unlawful to make such offer, or solicitation of an offer or proxy, in such
jurisdiction. Neither the delivery of this Information Statement and Prospectus
nor any distribution of the securities offered pursuant to this Information
Statement and Prospectus shall create an implication that there has been no
change in the affairs of NAE or the Company since the date of this Information
Statement and Prospectus.
_______________
THE SECURITIES TO BE ISSUED PURSUANT TO THIS INFORMATION STATEMENT AND
PROSPECTUS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
INFORMATION STATEMENT AND PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This Information Statement and Prospectus is dated and was first mailed
or given to NAE stockholders on or about __________, 1995.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
AVAILABLE INFORMATION.......................................... 8
SUMMARY........................................................ 9
RISK FACTORS................................................... 14
VOTING AND THE SPECIAL MEETING................................. 18
THE MERGER..................................................... 20
Terms of the Merger....................................... 20
Reasons for the Merger.................................... 20
Exchange of Certificates.................................. 20
Effective Date and Termination............................ 21
Expenses.................................................. 21
Resale of Company Common Stock............................ 21
Interest of Certain Persons in Merger..................... 21
Federal Income Tax Consequences........................... 21
Proforma Effects of the Merger............................ 21
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY.................... 23
MARKET PRICE OF AND DIVIDENDS
ON THE NAE AND COMPANY COMMON STOCK............................ 25
BUSINESS OF THE COMPANY AND NAE................................ 26
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............... 39
MANAGEMENT OF THE COMPANY AND NAE.............................. 43
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF THE COMPANY AND NAE.......................... 48
LEGAL OPINIONS................................................. 52
EXPERTS........................................................ 52
FINANCIAL STATEMENTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS FOR
NORTH AMERICAN TECHNOLOGIES GROUP, INC.................... F-1
REPORT OF INDEPENDENT AUDITORS FOR EET, INC............... F-3
NORTH AMERICAN TECHNOLOGIES GROUP, INC., CONSOLIDATED
BALANCE SHEETS AS OF DECEMBER 31, 1994 AND 1993........... F-4
NORTH AMERICAN TECHNOLOGIES GROUP, INC., CONSOLIDATED
STATEMENTS OF OPERATIONS FOR EACH OF THE THREE
YEARS IN THE PERIOD ENDED DECEMBER 31, 1994............... F-6
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR EACH OF THE
THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1994......... F-8
NORTH AMERICAN TECHNOLOGIES GROUP, INC. CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY FOR EACH OF THE
THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1994......... F-10
NORTH AMERICAN TECHNOLOGIES GROUP, INC. SUMMARY
OF ACCOUNTING POLICIES.................................... F-14
NORTH AMERICAN TECHNOLOGIES GROUP, INC. NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS......................... F-16
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1994
AND JUNE 30, 1995 (UNAUDITED)............................. F-35
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS FOR
THE SIX MONTH PERIODS ENDED
JUNE 30, 1995 AND JUNE 30, 1994 (UNAUDITED)............... F-37
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 1994 AND JUNE 30, 1995 (UNAUDITED)............... F-38
NORTH AMERICAN TECHNOLOGIES GROUP, INC. NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)............. F-40
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
FOR NORTH AMERICAN ENVIRONMENTAL GROUP, INC............... F-44
REPORT OF INDEPENDENT AUDITORS' FOR NORTH
AMERICAN ENVIRONMENTAL GROUP, INC......................... F-46
NORTH AMERICAN ENVIRONMENTAL GROUP, INC. CONSOLIDATED
BALANCE SHEETS AS OF DECEMBER 31, 1993 AND 1994........... F-47
NORTH AMERICAN ENVIRONMENTAL GROUP, INC. CONSOLIDATED
STATEMENTS OF OPERATIONS FOR THE PERIOD FROM
INCEPTION (MAY 7, 1991) TO DECEMBER 31, 1991,
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993
AND 1994, AND CUMULATIVE FROM INCEPTION
(MAY 7, 1991) THROUGH DECEMBER 31, 1994................... F-49
NORTH AMERICAN ENVIRONMENTAL GROUP, INC. CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY (CAPITAL DEFICIT)
FOR THE PERIOD FROM INCEPTION (MAY 7, 1991) TO
DECEMBER 31, 1991, AND FOR THE YEARS ENDED
DECEMBER 31, 1992, 1993 AND 1994.......................... F-50
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
NORTH AMERICAN ENVIRONMENTAL GROUP, INC. CONSOLIDATED
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
1992, 1993 AND 1994 AND CUMULATIVE FROM INCEPTION
(MAY 7, 1991) THROUGH DECEMBER 31, 1994................... F-51
NORTH AMERICAN ENVIRONMENTAL GROUP, INC.
SUMMARY OF ACCOUNTING POLICIES............................ F-52
NORTH AMERICAN ENVIRONMENTAL GROUP, INC. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS...................... F-54
NORTH AMERICAN ENVIRONMENTAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1994
AND JUNE 30, 1995 (UNAUDITED)............................. F-60
NORTH AMERICAN ENVIRONMENTAL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS FOR
THE SIX MONTH PERIODS ENDED JUNE 30, 1994
AND JUNE 30, 1995, AND CUMULATIVE
FROM INCEPTION (MAY 7, 1991) THROUGH
JUNE 30, 1995 (UNAUDITED)................................. F-61
NORTH AMERICAN ENVIRONMENTAL GROUP, INC. -
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
SIX MONTH PERIODS ENDED JUNE 30, 1994
AND JUNE 30, 1995, AND CUMULATIVE
FROM INCEPTION (MAY 7, 1991) THROUGH
JUNE 30, 1995 (UNAUDITED)................................. F-63
NORTH AMERICAN ENVIRONMENTAL GROUP, INC.
SUMMARY OF ACCOUNTING POLICIES............................ F-64
</TABLE>
5
<PAGE>
EXHIBITS TO INFORMATION STATEMENT AND PROSPECTUS
Exhibit A Agreement and Plan of Merger dated as of _______ __, 1995 by and
among NAE and the Company and DM
Exhibit B Section 262 of the Delaware General Corporation Law
Exhibit C Tax Opinion of Clark, Ladner, Fortenbaugh & Young
6
<PAGE>
AVAILABLE INFORMATION
The Company has filed a Registration Statement with the Securities and
Exchange Commission (the "SEC") covering the shares of Company Common Stock to
be issued in connection with the Merger. The Registration Statement may be
inspected and copied at the principal office of the SEC at 450 Fifth Street,
N.W., Washington, D.C. 20549, and copies of the Registration Statement can be
obtained from the SEC at prescribed rates by writing to the SEC at such address.
For further information, reference is made to the Registration Statement and its
exhibits. Statements in the Information Statement and Prospectus concerning any
document are not necessarily complete and, in each instance, reference is made
to the copy of such document filed as an exhibit to the Registration Statement.
Each such statement is qualified in its entirety by such reference.
NAE and the Company are subject to the informational requirements of
the Securities Exchange Act of 1934, as amended ("Exchange Act"), and are
required to file periodic reports, proxy statements and other information with
the SEC relating to their business, financial statements and other matters.
Such reports, proxy statements and other information may be inspected and copied
at the public reference facilities maintained by the SEC at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Regional Offices of the SEC
located at 7 World Trade Center, Suite 1300, New York, NY 10048, and at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, IL 60661-2511. Copies of
such material can also be obtained from the SEC at prescribed rates from the
Public Reference Section of the SEC at 450 Fifth Street, N.W. Washington, D.C.
20549.
7
<PAGE>
SUMMARY
The following is a summary of information which appears in more detail
elsewhere in this Information Statement and Prospectus. This summary is not
complete and is qualified by reference to the detailed information appearing
elsewhere in the Information Statement and Prospectus, including the financial
statements and the notes thereto. Stockholders should review carefully the
entire Information Statement and Prospectus, including the exhibits and other
documents referred to in this Information Statement and Prospectus.
THE COMPANY
Prior to the acquisitions of EET, Inc. ("EET") and Industrial Pipe
Fitting, Inc. ("IPF") described below, North American Technologies Group, Inc.
("NATK" or the "Company") had been a development-stage company engaged in the
development, acquisition and application of technologies which management
believes may have applications in various industries including environmental
services. As a result of those acquisitions and previous development work, the
Company now owns or has the right to several technologies that include a
patented chemical decontamination process, enzyme and chemical solutions,
mechanical soil washing systems, bioremedial technologies and a patented
oleofilter. Applications of these technologies could include environmental
services (including the cleanup of contaminated soils and waters),
decontamination of buildings and equipment, treatment of oil field drilling
production waste, and the upgrading of crude oils. The business of the Company
was expanded during 1995 with Company's acquisition by merger of EET, an
environmental decontamination technologies and process company, and IPF, a
manufacturer and distributor of proprietary and standard thermoplastic fittings
for the mining, environmental and water works industries. Unless the context
requires otherwise, the term "Company" refers to North American Technologies
Group, Inc. and its subsidiaries and affiliates. The Company was organized as
of December 24, 1986 under the laws of the State of Delaware.
Prior to June 30, 1992, the Company's principal business was operated
under the name "Mail Boxes Coast-to-Coast, Inc." as an exclusive area franchisee
in Los Angeles County, California for Mail Boxes Etc. U.S.A., Inc. ("MBE"), a
franchisor of postal business, packaging and communication service centers. As
an MBE area franchisee, the Company sold franchises for MBE service centers on
behalf of MBE and provided subsequent operational assistance to the individual
MBE service center franchisees.
In an effort to maximize stockholder value in recognition of the
depressed market price of the Company's outstanding publicly traded securities,
during the first quarter of 1992, management elected to restructure the
operations of the Company. Such a restructuring was concluded by management to
include a divestiture of the Company's existing business and the identification
of potential business combinations intended to develop a new line of business
for the Company.
Restructuring of the Company commenced during the second quarter of
1992, when, effective as of April 1, 1992, the Company sold substantially all of
the assets related to the MBE area franchise to certain individuals consisting
of the former principal stockholders, directors and officers for approximately
$1,550,000.
In further conjunction with this restructuring, the Company acquired
on June 30, 1992 controlling share interests in two publicly-held affiliated
companies, North American Technologies, Inc., a Canadian corporation ("NAT"),
and North American Environmental Group, Inc., a Delaware corporation ("NAE").
NAT and NAE were each involved in the development and marketing of environmental
remediation technologies. NAT and NAE were acquired in stock for stock
transactions characterized for financial accounting purposes as a "reverse
acquisition" pursuant to which the historic stockholders of NAT and NAE acquired
a controlling interest in the Company and subsequently renamed the Company
"North American Technologies Group, Inc."
Acquisition of the remaining minority interest of NAT was completed
during November 1993 pursuant to a Plan of Arrangement in which the Company
issued approximately 5.5 million shares of Company Common Stock (on the basis of
one share of NATK for each two shares of NAT). Through the merger transaction
covered by this Prospectus,
8
<PAGE>
the Company intends to further consolidate its holdings through a proposed
acquisition of the remaining 11% minority interest of NAE for 1,380,000 shares
of newly issued Company Common Stock.
Principal executive offices of the Company and NAE are located at 4710
Bellaire Blvd., Suite 301, Bellaire, TX 77401, telephone: (713) 662-2699
THE SPECIAL MEETING
The Special Meeting will be held _________, 1995 at 10:00 A.M. E.D.T.,
at the offices of Clark, Ladner, Fortenbaugh & Young, One Commerce Square, 2005
Market Street, 22nd Floor, Philadelphia, PA 19103. The purpose of the Special
Meeting is to consider and vote upon a proposal to approve the Merger Agreement
and the transactions contemplated thereunder.
Only holders of record of shares of NAE Common Stock at the close of
business on _______, 1995 will be entitled to notice of and to vote at the
Special Meeting. At the close of business on such date, there were
approximately 12,138,333 shares of NAE Common Stock issued and outstanding. The
affirmative vote of the holders of a majority of the outstanding shares of NAE
Common Stock as of the record date is required to approve the Merger Agreement.
The Company and DM, a wholly-owned subsidiary of the Company, collectively own
an aggregate of 10,758,333 shares of NAE Common Stock, representing
approximately eighty-nine percent (89%) of the issued and outstanding shares of
NAE Common Stock. The Board of Directors of the Company and DM have approved
the Merger Agreement and the Merger. In addition, the Company and DM intend to
vote the shares of NAE Common Stock in favor of the Merger. Thus the Merger
will be approved at the Special Meeting. NAE is not soliciting proxies and
stockholders are requested not to send proxies to NAE. See "VOTING AND THE
SPECIAL MEETING."
Under Delaware law, appraisal rights are available to holders of NAE
Common Stock who dissent from approving the Merger Agreement and Merger and take
the other actions specified herein to perfect such appraisal rights. See
"VOTING AND THE SPECIAL MEETING - Dissenters' Rights."
THE MERGER
The Board of Directors of NAE believes that the Merger is in the best
interest of NAE and its stockholders and it recommends that the NAE stockholders
vote for the approval of the Merger Agreement and the transactions contemplated
thereby. The primary reasons for the Merger are to eliminate the complexity
presented by having multiple corporations with varying degrees of overlapping
minority ownership as well as to decrease the overall costs of regulatory
compliance if NAE were to remain a publicly-traded company. Since there is no
material trading market in the shares of NAE Common Stock, the Board of
Directors of NAE believes that the Merger is advantageous to NAE stockholders
primarily because of the valuation being accorded to NAE Common Stock in the
Merger and the possible greater market liquidity of the Company Common Stock,
although there can be no assurances that such liquidity will continue.
Upon the Effective Date of the Merger ("Effective Date"), each
outstanding share of NAE Common Stock will be converted into and exchangeable
for one share of Company Common Stock. Subsequent to the Merger, a holder of
NAE Common Stock will not be able to receive dividends or other distributions on
Company Common Stock or to vote those shares until the holder exchanges the
holder's NAE Common Stock certificate for a Company Common Stock certificate.
After the Effective Date, Continental Stock Transfer and Trust Company, New
York, New York, the Company's transfer agent, will send transmittal forms to NAE
stockholders for their use in exchanging these certificates.
The Board of Directors of NAE consists of John Parrott, who is a
former director and executive officer of the Company. The Boards of Directors
of the Company and NAE considered the value of NAE's assets and its earnings
potential and the relative market values of NAE and Company Common Stock in
determining the Merger Consideration. However, the Merger Consideration was not
determined by arms-length negotiation and there was no formal valuation of the
Company and NAE, either by the Company or NAE or an independent third party.
Neither the Company nor NAE have obtained a fairness opinion by an investment
banking firm or other qualified appraiser.
9
<PAGE>
Federal Income Tax Consequences
The Merger is intended to constitute a "reorganization" within the
meaning of Section 368 of the Internal Revenue Code of 1986, as amended. No
gain or loss will be recognized by a stockholder of NAE who exchanges NAE Common
Stock solely for Company Common Stock. See "THE MERGER - Federal Income Tax
Consequences."
RISK FACTORS
The securities offered hereby involve a high degree of risk and
prospective investors should carefully consider the factors specified under
"RISK FACTORS" before electing to invest. See "RISK FACTORS."
MARKET PRICE OF COMMON STOCK
The Company Common Stock is reported on The NASDAQ SmallCap Market/SM/
under the symbol "NATK". NAE Common Stock has traded in the over-the-counter
market under the symbol "NAME". See "Market Price of and Dividends on the NAE
and Company Common Stock."
10
<PAGE>
SELECTED FINANCIAL DATA OF THE COMPANY/(1)/
The following table sets forth historical financial information for
the Company and should be read in conjunction with the Financial Statements and
the Notes thereto and Management's Discussion of Financial Condition and Results
of Operations which are contained elsewhere in this Information Statement and
Prospectus.
<TABLE>
<CAPTION>
================================================================================================================================
Six Six
Months Months
Ended Ended
Year Year Year Year Year June 30, June, 30,
1994/(4)/ 1995/(4)/
1990 1991 1992 1993 1994
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
Revenue $ 0 $ 0 $ 0 $ 269,073 $ 1,945,697 $ 671,510 $ 1,172,573
- -------------------------------------------------------------------------------------------------------------------------------
Net loss $ (169,309) $ (376,735) $(2,481,206) $ (1,503,502) ($4,936,330) $(1,563,889) $(2,002,571)
- -------------------------------------------------------------------------------------------------------------------------------
Net loss per share $(.03)/(2)/ $(.04)/(2)/ $(.37) $ (.25) $(.35) $(.12) $(.12)
- -------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 621,352 $ 987,447 $ 2,383,445 $6,515,883/(3)/ $ 8,190,676 $ 8,030,263 $ 6,178,142
- -------------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity $ 564,454 $ 713,517 $ 1,648,155 $ 4,272.312 $ 5,007,443 $ 5,194,372 $ 4,161,868
- -------------------------------------------------------------------------------------------------------------------------------
Convertible Debenture -0- -0- $ 250,000 $ 250,000 $ 750,000 $ 250,000 $ 750,000
===============================================================================================================================
</TABLE>
/(1)/ Selected financial data of the Company at December 31, 1992, 1993 and 1994
after recapitalization; Selected financial data of NAT at all other dates.
See Note 1 to the Consolidated Financial Statements of the Company.
/(2)/ Figures based on one for fifteen reverse stock split.
/(3)/ Increase over prior period is principally due to the exercise of options
for NAT common stock and investment of proceeds in a note receivable. See
Note 5 to the Consolidated Financial Statements of the Company.
/(4)/ Unaudited.
11
<PAGE>
SELECTED FINANCIAL DATA OF NAE
The following table sets forth historical financial information for NAE and
should be read in conjunction with the Financial Statements and the Notes
thereto which are contained elsewhere in this Information Statement and
Prospectus.
<TABLE>
<CAPTION>
=================================================================================================================================
Period From Six Six Cumulative
Inception Months Months From Inception
(May 7, 1991) Ended Ended (May 7, 1991)
to June 30, June 30, to June 30,
December 31, Year Year Year 1994 1995 1995
1991 (unaudited) (unaudited) (unaudited)
1992 1993 1994
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Revenue $ 0 $ 0 $ 0 $ 13,542 $ 13,542 -0- $ 1,3542
- ----------------------------------------------------------------------------------------------------------------------------------
Net loss ($299,689) ($337,464) ($1,359,971) ($870,756) ($683,222) ($66,217) ($2,934,095)
- ----------------------------------------------------------------------------------------------------------------------------------
Net loss per share ($.03) ($.03) ($.11) ($.07) ($.06) $ -
------------
- ----------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 194,582 $1,096,084 $ 613,910 $ 109,683 $ 399,842 $ 58,430
- ----------------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity $ 169,587 $ 367,949 ($992,022) ($1,862,778) $1,675,244 ($1,928,995)
- ----------------------------------------------------------------------------------------------------------------------------------
Convertible Debenture -0- $ 250,000 $ 250,000 $ 250,000 $ 250,000 $ 250,000
==================================================================================================================================
</TABLE>
12
<PAGE>
RISK FACTORS
Holding or making an investment in shares of Company Common Stock
entails a high degree of risk. In addition to the other information appearing
elsewhere in this Information Statement and Prospectus, the following factors
should be considered carefully in evaluating holding or making an investment in
Company Common Stock.
LACK OF OPERATING REVENUE AND PROFITS
Until the recent acquisitions of EET and IPF, the Company remained a
development stage company with limited revenues and substantial losses. Although
the Company believed that most of its technologies were sufficiently developed
so as to permit commercial sales, the new management of the Company is in the
process of reevaluating the Company's product portfolio. Substantially all of
the Company's revenues generated prior to the acquisition of EET and IPF were
from demonstration projects resulting in no material commercial sales.
Furthermore, management's prior expectations of commercial sales during 1994
were not met and the Company realized no revenues during fiscal 1994 nor is
expecting commercial sales from non-EET and IPF products in fiscal 1995. While
it is anticipated that the operations of EET and IPF will generate operating
revenues during fiscal 1995, such revenues are unlikely to result in profitable
operations of the Company on a consolidated basis in the short term.
The Company has incurred cumulative losses since inception of
$14,457,142. Further, until the Company is able to generate material revenues
from the commercialization of its technologies, there can be no assurances that
profitable operation can be attained or maintained in the short term, if at all.
Should losses continue at their historic rate, there can be no assurances that
the Company can remain viable as a going concern for more than the short term.
See "Capital Needs; Going Concern Qualifications."
CAPITAL NEEDS; GOING CONCERN QUALIFICATIONS
Through the six months ended June 30, 1995, the Company incurred
operating losses which are anticipated to continue for the near term at expected
levels of between $200,000 and $250,000 per month. The Company has historically
met its working capital requirements through the license of its technologies,
issuance of convertible debentures and financing transactions involving the
private placement of equity securities or equity equivalents. Operating revenues
have not historically provided a meaningful source of working capital for the
Company. The Company does not expect that revenues from operations will at any
time within the short term be sufficient to offset the Company's costs of
operations. There can be no assurances that the Company will be able to continue
to secure sources of working capital from financing transactions or sources
other than operations for an indefinite period. If adequate funds are not
available and the losses continue at historic rates, the Company will be
unlikely to continue as a going concern for more than the short term.
Accordingly, the Company's independent auditors have noted in their
opinion on the Company's consolidated financial statement for the year ended
December 31, 1994 that these factors raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments relating to the recoverability and classification of assets
carrying amounts or the amount and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
COMPETITION AND RISK OF TECHNOLOGICAL OBSOLESCENCE
The industries in which the Company participates, particularly the
environmental remediation industry, are highly competitive and subject to rapid
and significant technological change. Others may independently develop
technologies similar or superior to those of the Company, which may result in
the Company's processes or systems becoming less competitive or obsolete.
Competition from other companies, as well as universities, research institutions
and others, may increase as advances in technology are made. Most of the
Company's competitors have substantially greater financial and marketing
resources and capabilities than the Company. In addition, some competitors due
to
13
<PAGE>
a broader product line may be able to offer a more complete solution to a
client's problems than the Company will be able to offer. See "BUSINESS OF THE
COMPANY AND NAE."
RELIANCE ON ENVIRONMENTAL REGULATION
Federal, state and local legislation and regulations that require
substantial expenditures to meet minimum environmental quality standards and
that impose penalties for non-compliance are and will continue to be a principal
factor affecting demand for the systems and services being developed or offered
by the Company. In addition, the level of enforcement activities by federal,
state and local environmental protection agencies will also affect demand. To
the extent that the scope or enforcement of such laws and regulations may be
eased, the business of the Company could be materially and adversely affected.
See "BUSINESS OF THE COMPANY AND NAE."
TECHNOLOGY RIGHTS
Although the Company owns or has the right to several patents on its
technologies, the Company intends to rely primarily on confidentiality
agreements to maintain the proprietary nature of its technology. In addition,
the Company may also seek patent protection in certain situations in the future,
but the Company does not believe that patents are critical to the successful
development of commercially viable processes. In general, the application of
the patent laws to the Company's potential products is undergoing a developing
and evolving process and, due to the difficulty and expense of enforcing
patents, the Company may not be able to protect those patents which have been
issued. If the Company is unable to maintain the proprietary nature of its
technologies, the Company's financial condition and results of operations could
be materially and adversely affected. See "BUSINESS OF THE COMPANY AND NAE -
Description of Technologies" and "Patents and Proprietary Rights."
In addition, the Company may seek licenses to other party's technology
in order to develop, manufacture and market certain technologies in the future.
However, the Company may not be able to obtain necessary licenses or such
licenses may not be available on commercially acceptable terms. Even if such
licenses are available, the patents or proprietary rights underlying the
licenses may prove to be invalid or unenforceable.
GOVERNMENTAL REGULATIONS AND APPROVALS
Technologies and products under development by the Company and the
application of such may be subject to regulation by various federal, state and
local agencies either in general or on a project-by-project basis. Such
regulation applies to all stages of field testing and to the manufacture and use
of the Company's technologies and products. Prior to the manufacture, sale and
use of its technologies, the Company may be required to conduct extensive
testing to demonstrate safety and environmental effectiveness. The regulatory
process may be costly and time consuming and may delay or prevent production or
marketing of the Company's technologies. Failure to comply with environmental or
other related laws could result in the Company facing fines or penalties which
could be material in amount or injunctive relief which could materially and
adversely affect the business of the Company. Furthermore, the Company may
encounter objections to the use of its technologies and products by special
interest groups which could deter governmental agencies from granting the
requisite approvals or doing so on a timely basis or otherwise might adversely
effect the Company's ability to field test and market its services and products.
DEPENDENCE ON THIRD PARTIES
The Company, at times, is dependent on third parties for the production
of its processes, equipment and the production of certain enzymes/chemicals used
in its technologies. Although the Company does not anticipate any difficulty in
obtaining any of its supplies from third parties, no assurance can be given that
the Company can continue to obtain such products in the future.
14
<PAGE>
SALES AND MARKETING
Until recently, the management of the Company, has had very limited
experience in sales, marketing and distribution. The Company intends to market
certain products in Canada and the United States as well as other parts of the
world. To do so, the Company must either develop a substantial sales force with
technical expertise, or license distribution rights to third parties with such
expertise. There can be no assurance that the Company will be able to build such
a sales force or find appropriate licensees or that sales and marketing efforts
will be successful. However, the Company has recently added management personnel
with extensive experience in sales and marketing of environmental services. See
"BUSINESS OF THE COMPANY AND NAE" and "MANAGEMENT."
RISKS OF OUTSTANDING LITIGATION
The Company is a defendant in several legal actions any of which, if
decided against the Company, would have a material adverse effect on the
financial condition of the Company. See "THE BUSINESS OF THE COMPANY AND NAE -
Material Outstanding Litigation."
CONTROL BY EXISTING STOCKHOLDERS
After the Merger, Gold Spinners International, Inc. ("GSI"), will
beneficially own in the aggregate 3,625,000 shares of the outstanding shares of
Company Common Stock which will represent approximately seventeen percent (17%)
of the issued and outstanding shares of Company Common Stock. This stockholder
will continue to be able to exert significant influence over the election of the
Company's board of directors and significant corporate actions. See "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF THE COMPANY AND NAE."
VOLATILITY OF SHARE PRICE - RECENT DECLINE IN MARKET VALUE
The market prices of securities of technology companies, including those
of the Company, have been historically volatile. Future announcements concerning
the Company or its competitors, including the results of testing, technological
innovations or commercial products, government regulations, developments
concerning proprietary rights, litigation and public concern as to the safety of
the Company's products may have a significant impact on the market price of the
shares of the Company Common Stock. In addition, the Company's share price may
be affected by sales by existing stockholders. See "Shares Eligible for Future
Sale." Although it is impossible to predict market influences and prospective
values of securities, it is possible that, in and of itself, the substantial
increase in the number of shares available for sale upon the registration of the
shares of Common Stock under this Prospectus may have a depressive effect upon
the market value of the Company's Common Stock. Because of these factors, the
market price of the Company's Common Stock following the date of this Prospectus
may be highly volatile.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of the Company Common Stock in the public
market could have an adverse effect on the market price of the Company Common
Stock and may make it more difficult for the Company to sell its equity
securities in the future at times and at prices it deems appropriate. As of July
31, 1995, there were 21,058,695 shares of Company Common Stock outstanding, and
an additional 6,278,916 shares, subject to options or warrants, which may be
eligible for public trading. Upon completion of the distribution of shares
covered by this Prospectus, 1,380,000 additional outstanding shares of Company
Common Stock will have been registered under the Securities Act or will then be
eligible for resale under Rule 144 under the Securities Act or otherwise. Such
shares eligible for trading will constitute approximately 6% of the outstanding
shares of Company Common Stock upon completion of the distribution of shares
covered by this Prospectus.
15
<PAGE>
DEPENDENCE ON KEY PERSONNEL
To a material extent, the Company's future success is dependent upon the
continued efforts of its Chief Executive Officer, Mr. Tim B. Tarrillion, and
other executive officers. While the Company currently has employment agreements
with certain executive officers, including Mr. Tarrillion, the loss of their
services would likely have a material adverse effect on the Company's business.
See "MANAGEMENT - Employment Agreements."
DIVIDEND POLICY
To date, the Company has paid no dividends on its shares of Common Stock
and does not intend to pay dividends in the foreseeable future.
16
<PAGE>
VOTING AND THE SPECIAL MEETING
RECORD DATE; REQUIRED VOTE; NO SOLICITATION
Holders of record of shares of NAE Common Stock at the close of business
on _______, 1995 will be entitled to notice of and to vote at the Special
Meeting and any adjournment or adjournments thereof. At the close of business on
that date, there were approximately 12,138,333 shares of NAE Common Stock issued
and outstanding held by approximately 75 holders of record.
Stockholders of record on the record date are entitled to one vote per
share on any matter that may properly come before the Special Meeting. The
presence, either in person or by proxy, of the holders of a majority of the
outstanding shares of NAE Common Stock is necessary to constitute a quorum at
the Special Meeting. The affirmative vote of the holders of a majority of the
outstanding shares of NAE Common Stock as of the record date is required to
approve and adopt the Merger Agreement and the transactions contemplated
thereby.
The Merger Agreement was adopted and approved by the Boards of Directors
of the Company, DM and NAE as of ___________, 1995. The affirmative vote of the
holders of a majority of the outstanding shares of NAE Common Stock as of the
record date is required to approve the Merger Agreement. The Company and the
Company's wholly-owned subsidiary, DM, own 350,000 and 10,408,333 shares of NAE
Common Stock, respectively, representing an aggregate of approximately eighty-
nine percent (89%) of the issued and outstanding shares of NAE Common Stock. The
Board of Directors of the Company and DM have approved the Merger Agreement and
the Merger. The Company and DM have notified NAE that they intend to vote their
shares of NAE Common Stock in favor of the Merger. Accordingly, in recognition
of the affirmative vote of the Company and DM, collectively the holders of an
aggregate of eighty-nine percent (89%) of the issued and outstanding shares of
NAE Common Stock, the Merger will be approved at the Special Meeting and NAE is
not soliciting proxies and stockholders are requested not to send proxies to
NAE.
Stockholders may, however, attend the Special Meeting to vote their
shares of NAE Common Stock or to exercise their dissenters' rights. Stockholders
of NAE who do not vote in favor of the Merger Agreement and who dissent to the
Merger in compliance with the requirements of Section 262 of the Delaware
General Corporation Law will have, if the Merger is consummated, the right to
appraisal of their shares of NAE Common Stock.
WE ARE NOT SOLICITING PROXIES AND YOU ARE REQUESTED NOT TO SEND US A PROXY
DISSENTERS' RIGHTS
Stockholders have the right to seek a determination of the "fair value"
of their shares (exclusive of any element of value arising from the
accomplishment or expectation of the Merger) if they (i) deliver a written
demand for appraisal of their shares to NAE prior to the Effective Date of the
Merger, (ii) do not vote their shares in favor of the Merger, and (iii)
otherwise comply with the provisions of Section 262 of the Delaware General
Corporation Law ("GCL") regarding appraisal rights.
The following is a brief summary of Section 262 which sets forth the
procedures for dissenting from the Merger and demanding statutory appraisal
rights. This summary is qualified in its entirety by reference to Section 262,
the text of which is attached hereto as Exhibit B.
Stockholders of record who desire to exercise their appraisal rights
must satisfy all of the conditions contained in Section 262. A written demand
for appraisal must be delivered to NAE before the taking of the vote on the
Merger Agreement. This written demand for appraisal must be in addition to and
separate from any proxy or vote abstaining from or against the Merger. Neither
voting against, nor abstaining from voting nor failing to vote on the Merger
will constitute a demand for appraisal within the meaning of Section 262.
Stockholders electing to exercise their appraisal rights under Section 262 must
not vote for approval and adoption of the Merger Agreement.
17
<PAGE>
A demand for appraisal must be executed by or for the stockholder of
record, fully and correctly, as such stockholder's name appears on his or her
NAE Common Stock certificates. If the shares of NAE Common Stock are owned of
record in a fiduciary capacity, such as by a trustee, guardian, or custodian,
such demand must be executed by the fiduciary. If the shares of NAE Common Stock
are owned of record by more than one person, as in a joint tenancy or tenancy in
common, such demand must be executed by all joint owners. An authorized agent,
including an agent for two or more joint owners, may execute the demand for
appraisal for a stockholder of record; however, the agent must identify the
record owner and expressly disclose the fact that in exercising the demand, he
or she is acting as agent for the record owner.
A record owner, such as a broker, who holds shares of NAE Common Stock
as a nominee for others may exercise his or her right of appraisal with respect
to the shares held for all or less than all the beneficial owners of shares as
to which he or she is the record owner. In such case, the written demand must
set forth the number of shares covered by such demand. Where the number of
shares is not expressly stated, the demand will be presumed to cover all shares
of NAE Common Stock outstanding in the same name of such record owner.
Stockholders who elect to exercise appraisal rights should mail or
deliver their written demands to the Secretary of the Company at 9818 Wilcrest
Drive, Houston, Texas 77099. The written demand for appraisal should specify the
stockholder's name and mailing address, the number of shares owned, and that the
stockholder is thereby demanding appraisal of his or her shares. It is the
responsibility of each stockholder electing appraisal rights to ensure that the
written demand is received by NAE before the taking of the vote at the Special
Meeting. Within ten days after the Effective Date of the Merger, NAE must
provide notice of the Effective Date of the Merger to all stockholders who have
complied with Section 262 and have not voted for adoption of the Merger
Agreement.
Within 120 days after the Effective Date of the Merger, any stockholder
who has complied with the required conditions of Section 262 may file a petition
in the Delaware Court demanding a determination of the fair value of the shares
of the dissenting stockholders. If a petition for appraisal is timely filed,
after a hearing on such petition, the Delaware Court will determine which
stockholders are entitled to appraisal rights and will appraise the shares owned
by such stockholders, determining the fair value of such shares, exclusive of
any element of value arising from the accomplishment or expectation of the
Merger, together with a fair rate of interest to be paid, if any, upon the
amount determined to be the fair value. In determining fair value, the Court is
to take into account all relevant factors. In Weinberger v. UOP, Inc. et al.,
decided February 1, 1983, the Delaware Supreme Court expanded the considerations
that could be considered in determining fair value in an appraisal proceeding,
stating that "proof of value by any techniques or methods which are generally
considered acceptable in the financial community and otherwise admissible in
court" should be considered, and that "fair price obviously requires
consideration of all relevant factors involving the value of a company...."
Accordingly, the Delaware Supreme Court has stated that in making this
determination of fair value the court must consider market value, asset value,
dividends, earnings prospects, the nature of the enterprise and any other facts
which would be ascertained as of the date of the merger which throw any light on
future prospects of the merged corporation. Section 262 provides that fair
value is to be "exclusive of any element of value arising from the
accomplishment or expectation of the merger." In Weinberger, the Delaware
Supreme Court held that "elements of future value, including the nature of the
enterprise, which are known or susceptible of proof as of the date of the merger
and not the product of speculation, may be considered."
Stockholders considering seeking appraisal should keep in mind that the
fair value of their shares determined under Section 262 could be more, the same
or less than the Merger Consideration they are entitled to receive pursuant to
the Merger Agreement. The cost of the appraisal proceeding may be determined by
the Delaware Court and taxed against the parties as the Delaware Court deems
equitable in the circumstances. Upon application of a dissenting stockholder,
the Court may order that all or a portion of the expenses incurred by any
dissenting stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorneys' fees and the fees and expenses of
experts, be charged pro rata against the value of all shares entitled to
appraisal. In the absence of such a determination or assessment, each party
bears its own expenses.
Any stockholder who has duly demanded appraisal in compliance with
Section 262 will not, after the Effective Date, be entitled to vote for any
purpose the shares subject to such demand or to receive payment of dividends or
18
<PAGE>
other distributions on such shares, except for dividends or distributions
payable to stockholders of record at a date prior to the Effective Date.
At any time within 60 days after the Effective Date, any former holder
of shares of NAE Common Stock shall have the right to withdraw his or her demand
for appraisal and to accept the terms offered in the Merger; after this period
such holder may withdraw his or her demand for appraisal only with the consent
of NAE. If no petition for appraisal is filed with the Delaware Court within 120
days after the Effective Date, stockholders' rights to appraisal shall cease and
all stockholders shall be entitled to receive the Merger Consideration as
provided for in the Merger Agreement. Inasmuch as NAE (or DM) has no obligation
to file such a petition, and has no present intention to do so, any stockholder
who desires such a petition to be filed is advised to file it on a timely basis.
However, no petition timely filed in the Delaware Court demanding appraisal
shall be dismissed as to any stockholder without the approval of the Delaware
Court, and such approval may be conditioned upon such terms as the Delaware
Court deems just.
The provisions of Section 262 are technical in nature and complex.
Stockholders desiring to exercise appraisal rights and to obtain appraisal of
the fair value of their shares should consult counsel, since the failure to
comply strictly with the provisions of Section 262 may defeat their appraisal
rights.
THE MERGER
TERMS OF THE MERGER
Set forth below is a brief description of the material provisions of the
Merger Agreement and the Merger. This description does not purport to be
complete and is qualified in its entirety by reference to the Merger Agreement.
The full text of the Merger Agreement is attached as Exhibit A to this
Information Statement and Prospectus and is incorporated herein by reference.
The Merger Agreement provides that NAE will be merged with and into DM,
a wholly-owned subsidiary of the Company. In conjunction with the Merger, DM
will change its name to "North American Environmental Group, Inc." Pursuant to
the Merger, on the Effective Date, each outstanding share of NAE Common Stock
(other than shares with respect to which dissenters' rights are perfected in
accordance with Delaware law and shares held directly or indirectly by the
Company and DM or held in NAE's treasury, which shall be cancelled) will be
converted into one share of Company Common Stock. DM will be the surviving
corporation after the Merger and remain a wholly-owned subsidiary of the
Company.
REASONS FOR THE MERGER
The Board of Directors of NAE believes that the Merger is in the best
interest of NAE and its stockholders and it recommends that the NAE stockholders
vote for the approval of the Merger Agreement and the transactions contemplated
thereby. The primary reasons for the Merger are to eliminate the complexity
presented by having multiple corporations with varying degrees of overlapping
minority ownership as well as to decrease the overall costs of regulatory
compliance necessitated were NAE to remain as a publicly-traded company. Since
there is no material trading market in the shares of NAE Common Stock, the Board
of Directors of NAE believes that the Merger is advantageous to NAE stockholders
primarily because of the valuation being accorded to NAE Common Stock in the
Merger and the possible greater market liquidity of the Company Common Stock,
although there can be no assurances that such liquidity will continue.
The Board of Directors of NAE consists of Mr. John Parrott, who is a
former director and executive officer of the Company. The Boards of Directors of
the Company and NAE considered the value of NAE's assets and its earnings
potential and the relative market values of NAE and Company Common Stock in
determining the Merger Consideration. However, the Merger Consideration was not
determined by arms-length negotiation and there was no formal valuation of the
Company and NAE, either by the Company or NAE or an independent third party.
Neither the Company nor NAE have obtained a fairness opinion by an investment
banking firm or other qualified appraiser.
19
<PAGE>
EXCHANGE OF CERTIFICATES
After the Effective Date, each outstanding certificate, which prior to
the Merger represented shares of NAE Common Stock, will be deemed to evidence
the right to receive that number of shares of Company Common Stock. A holder of
NAE Common Stock will not be able to receive dividends or other distributions on
Company Common Stock or to vote those shares until the holder exchanges the
holder's NAE Common Stock certificate for a Company Common Stock certificate.
When that exchange occurs, the Company will pay to the holder all dividends and
other distributions (without interest) which were payable prior to the exchange
with respect to the shares of Company Common Stock delivered to the holder as a
result of the exchange.
If any Company Common Stock certificate is to be issued in a name other
than that of the registered owner, the person requesting the issuance must pay
all applicable transfer and other taxes before the Company will be obligated to
issue the certificate, unless that person establishes to the satisfaction of the
Company or its agent that the taxes have been paid. The Company and NAE will not
be liable to any NAE stockholder for any Company Common Stock certificate, cash
or related property delivered to any government official under any applicable
abandoned property or similar law.
After the Effective Date, the Company's transfer agent will send
transmittal forms to NAE stockholders for their use in forwarding NAE
certificates to the transfer agent. Shares should not be surrendered for
exchange prior to receipt of the transmittal forms after completion of the
Merger.
EFFECTIVE DATE AND TERMINATION
Once the Merger is approved by NAE's stockholders, the Merger will
become effective as soon as NAE and the Company files the Merger Agreement with
the Secretary of State of the State of Delaware in accordance with the Delaware
General Corporation Law (the "Effective Date"). The Merger Agreement provides
that the Company and NAE will make this filing on the first business day after
all of the conditions to completion of the Merger are satisfied or waived.
EXPENSES
The Company has agreed to bear the expenses related to the Merger.
RESALE OF COMPANY COMMON STOCK
All shares of Company Common Stock received by NAE stockholders in the
Merger will be freely transferable, except those shares of Company Common Stock
received by NAE stockholders who are deemed to be "affiliates" of NAE prior to
the Merger may be resold by them only in transactions permitted by the resale
provisions of SEC Rule 145 (or SEC Rule 144 in the case of such persons who
become affiliates of the Company) or as otherwise permitted under the Securities
Act.
INTEREST OF CERTAIN PERSONS IN MERGER
Mr. Parrott is a director and officer of NAE. In addition, Mr. Parrott
is a director and an owner of approximately 25% of the outstanding voting stock
of GSI. GSI beneficially owns 17% of the issued outstanding shares of Company
Common Stock.
As noted above, the Company and DM collectively own an aggregate of
10,758,333 shares of NAE Common Stock, representing approximately eighty-nine
percent (89%) of the outstanding shares of NAE Common Stock.
20
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
The Company has requested and received an opinion of its counsel, Clark,
Ladner, Fortenbaugh & Young ("Counsel"), as to federal tax consequences of the
Merger to the Company and the NAE Stockholders. Such opinion is attached hereto
as Exhibit C.
The following is a discussion of certain material federal income tax
consequences under the Internal Revenue Code of 1986 (the "Code") to holders of
NAE Common Stock who receive Company Common Stock as a result of the Merger.
The discussion is based upon present federal tax law. All NAE stockholders
should consult their own tax advisors regarding the federal income tax
consequences of the Merger and the holding and disposing of the Company Common
Stock received in the Merger. Tax advisors should also be consulted with regard
to the tax consequences of the Merger arising under the laws of any state or
other jurisdiction.
The Internal Revenue Service in Rev. Proc. 77-85 has stated it will not
issue rulings on whether a merger qualifies as a tax free acquisition and,
consequently, the Company is not seeking and will not receive such an opinion.
The Company has been advised by Counsel that based upon certain
assumptions and subject to certain qualifications, the Merger, if carried out in
the manner set forth in the Merger Agreement and based on certain assumptions
and qualifications, will constitute a reorganization as defined in Sections
368(a)(1)(A) and 368(a)(2)(D) of the Code. Accordingly, among other things the
following federal income tax consequences will result:
(a) No gain or loss will be recognized by NAE.
(b) No gain or loss will be recognized by the holders of NAE
Common Stock with respect to the receipt of Company Common Stock
pursuant to the Merger.
(c) The aggregate tax basis of the Company Common Stock received
by each stockholder of NAE in the Merger will be the same as the
aggregate tax basis of NAE Common Stock surrendered in exchange
therefor.
(d) The holding period of the Company Common Stock received by
each stockholder of NAE will include the period for which the NAE Common
Stock surrendered in exchange therefor was considered to be held,
provided the Company Common Stock so surrendered was held as a capital
asset at the time of the Merger.
Under Section 382 of the Code, the Company's ability following the
Merger to utilize existing net operating loss carryforwards of NAE and certain
other tax attributes to reduce its tax liability may be limited. See "Note 16 to
the Company's Consolidated Financial Statement for the fiscal year ended
December 31, 1994."
THE DISCUSSION SET FORTH ABOVE DOES NOT ADDRESS THE STATE, LOCAL OR
FOREIGN TAX ASPECTS OF THE MERGER, WHICH LOCAL AND STATE LAWS MAY IMPOSE A TAX
ON THE MERGER TO AN NAE STOCKHOLDER. THE DISCUSSION IS BASED ON CURRENTLY
EXISTING PROVISIONS OF THE CODE, EXISTING AND PROPOSED TREASURY REGULATIONS
THEREUNDER AND CURRENT ADMINISTRATIVE RULINGS AND COURT DECISIONS. ALL OF THE
FOREGOING ARE SUBJECT TO CHANGE AND ANY SUCH CHANGE COULD AFFECT THE CONTINUING
VALIDITY OF THIS DISCUSSION. EACH NAE STOCKHOLDER SHOULD CONSULT HIS OR HER OWN
TAX ADVISOR WITH RESPECT TO SPECIFIC TAX CONSEQUENCES OF THE MERGER TO HIM OR
HER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN
TAX LAWS.
PROFORMA EFFECTS OF THE MERGER
The acquisition of the minority interest of NAE will be accounted for
using the purchase method of accounting. The consideration given of 1,380,000
shares of Company common stock will be valued using information relating to the
market price of the Company's common stock, the volatility of the market price,
and the liquidity of a large block of shares. Given effect to the preceding, the
purchase price would be approximately $900,000, which would be
21
<PAGE>
assigned to goodwill. The Company will amortize the goodwill over a three year
period. On an unaudited pro forma basis, after giving effect to the
amortization, the Company's net loss would have been $(5,236,330) and
$(2,152,571) for the year ended December 31, 1994 and for the six months ended
June 30, 1995, respectively; loss per share would have been $(.34) and $(.12),
respectively.
22
<PAGE>
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
COMMON STOCK
The Company is authorized to issue 50,000,000 shares of Company Common
Stock, $.001 par value, of which 21,058,695 are outstanding as of July 31, 1995.
Holders of Company Common Stock have equal rights to receive dividends
when, as and if declared by the Board of Directors, out of funds legally
available therefor. Holders of Common Stock have one vote for each share held of
record and do not have cumulative voting rights.
Holders of Company Common Stock are entitled upon liquidation of the
Company to share ratably in the net assets available for distribution, subject
to the rights, if any, of holders of any Preferred Stock then outstanding.
Shares of Common Stock are not redeemable and have no preemptive or similar
rights. All outstanding shares of Company Common Stock are, and the shares of
Company Common Stock to be issued in the Merger will, upon issuance, be fully
paid and non-assessable.
In addition to the shares of Common Stock presently outstanding, the
Company has reserved a total of 6,278,916 shares of Common Stock issuable upon
the exercise of outstanding stock options and common stock purchase warrants.
SHARES OF COMMON STOCK SUBJECT TO ESCROW
GSI owns of record 3,625,000 shares of the Company's Common Stock, which
were acquired in connection with the acquisition of NAT by the Company on or
about June 30, 1992. Of the 3,625,000 shares of Company Common Stock owned by
GSI, 1,625,000 shares are contingent escrow shares ("Class II Escrow Shares").
For financial statement purposes, 1,625,000 shares of the Company's Common Stock
which were subject to escrow ("Class I Escrow Shares") were deemed surrendered
as of December 31, 1994.
The Class II Escrow Shares shall be released to the owner thereof if,
and only if, the Company shall have, during any of the fiscal years ending
December 31, 1992, December 31, 1993, December 31, 1994 or December 31, 1995,
annual after-tax earnings (determined in accordance with GAAP) of at least
$12,500,000, or if the Company shall be acquired prior to December 31, 1996
(whether by merger, share exchange involving more than 80% of its outstanding
securities, or a sale of all or substantially all of its assets) for a purchase
price exceeding $250,000,000.
DIVIDEND POLICY
The Company has not paid any cash dividends and does not anticipate
paying cash dividends on Company Common Stock in the foreseeable future.
PREFERRED STOCK
Within the limitations and restrictions contained in the Certificate of
Incorporation, the Board of Directors has authority, without further action by
the stockholders, to issue up to 10,000,000 shares of Preferred Stock, $.001 par
value, in one or more series of which none are outstanding as of the date
hereof.
Under Delaware law and under the terms of the amended Certificate of
Incorporation, the Company's Preferred Stock may be issued in series established
from time to time by the Board of Directors. In this connection, the Board of
Directors has broad discretion to set the terms of the Preferred Stock, and, if
it decided to, may fix for each series, without further stockholder approval,
(1) the rate of the dividend, (2) the price at which and the terms and
conditions on which shares may be redeemed, (3) the amount payable upon shares
in the event of voluntary or involuntary liquidation, (4) sinking fund
provisions, if any, for the redemption by the Company or purchase of shares, (5)
the terms
23
<PAGE>
and conditions on which shares may be converted, if the shares of any series are
issued with the privilege of conversion, and (6) voting rights, if any.
The Board of Directors may fix the number of votes to which each share
of Preferred Stock is entitled, or deny voting rights to the shares of any
series, except to the extent voting rights are expressly granted by applicable
law. Depending upon the terms or voting rights granted to any series of
Preferred Stock, issuance thereof could result in a reduction in the voting
power of the holders of Company Common Stock or other Preferred Stock.
It is not possible to state the actual effect of the Preferred Stock or
other classes of stock upon the rights of holders of Company Common Stock until
the Board determines the respective rights of the holders of one or more series
of the Preferred Stock. However, such effects might include without limitation:
(a) restrictions on dividends on Company Common Stock if Preferred Stock is
issued with a preferential (and possibly cumulative) dividend right and
dividends on the Preferred Stock are in arrears; (b) substantial dilution of the
voting power of the Company Common Stock to the extent that the Preferred Stock
has voting rights or to the extent that any Preferred Stock is given conversion
rights into Company Common Stock; and (c) the holders of Company Common Stock
not being entitled to share in the Company's assets upon liquidation or
dissolution until satisfaction of any liquidation preference granted to the
Preferred Stock, which the Board can set at its discretion. The Board could also
authorize holders of the Preferred Stock to vote, either separately as a class
or with the holders of Company Common Stock, on any merger, sale or exchange of
assets by the Company or other extraordinary corporate transaction. Shares of
Preferred Stock could also be privately placed with purchasers who might ally
themselves with the Board in opposing a hostile takeover bid, diluting the stock
ownership or voting power of persons seeking to obtain control of the Company.
In addition, the Company may be affected to the extent that Preferred
Stock is issued which is, by its terms, redeemable, either at the option of the
Company or the holder of Preferred Stock, in accordance with such terms and
conditions as may be designated by the Board of Directors in creating such
series. The amount payable by the Company upon redemption of the Preferred Stock
will be the redemption price fixed for the shares of each series by the Board of
Directors and may also include payment of all accumulated and unpaid dividends.
There are many other potential effects not mentioned here.
Shares of Preferred Stock could be used to impede a takeover attempt
since new shares could be issued to dilute the stock ownership of a person
attempting to acquire control of the Company. Any provision which discourages
the acquisition of Company stock by a person seeking control could be beneficial
to the stockholders generally to the extent that it (i) provides for greater
stability and continuity of management, (ii) protects stockholders against
unfair or inequitable mergers or tender offers, and (iii) helps discourage or
prevent a takeover by an acquiror seeking to obtain control in order to break up
and auction off the Company's component parts or otherwise act in nonbeneficial
ways with respect to the Company or its assets. However, such provisions could
also have the effect of discouraging, making costlier or more difficult, or
preventing a merger or a tender offer which would be beneficial to the Company's
stockholders. Moreover, the issuance of Preferred Stock may have the effect of
assisting the Company's management in retaining its position, even if removal
would be beneficial to the stockholders generally. Consequently, management
would be in a better position to resist changes that might benefit stockholders
generally, but that might be disadvantageous to management.
TRANSFER AGENT
Continental Stock Transfer and Trust Company, New York, New York serves
as transfer agent for the Company Common Stock.
DELAWARE ANTI-TAKEOVER LAW
The Company is be governed by the provisions of Section 203 of the
General Corporation Law of the State of Delaware. In general, the law prohibits
a public Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. "Business Combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the stockholder.
24
<PAGE>
An "interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of the
corporation's voting stock.
25
<PAGE>
MARKET PRICE OF AND DIVIDENDS
ON THE NAE AND COMPANY COMMON STOCK
The Company Common Stock is currently traded on The NASDAQ SmallCap
Market/SM/ under the symbol "NATK." The NAE Common Stock has traded on the over-
the-counter market under the symbol "NAME." The following table sets forth, for
the periods indicated, the range of high and low bid prices of the Common Stock
of the Company and NAE as reported by the National Quotation Bureau. These
quotations represent prices between dealers and do not include retail markups,
markdowns or commissions and do not necessarily represent actual transactions.
The number of record holders of the Company's Common Stock as of July 31, 1995
was approximately 2,400. The number of record holders of the NAE Common Stock as
of July 31, 1995 was approximately 75.
<TABLE>
<CAPTION>
Company NAE
Common Stock Common Stock
------------ ------------
High Bid Low Bid High Bid Low Bid
-------- ------- -------- -------
<S> <C> <C> <C> <C>
1993
- ----
First Quarter $11.38 $ 9.75 (*) (*)
Second Quarter 11.75 8.50 7.00 2.00
Third Quarter 11.13 7.00 5.00 .50
Fourth Quarter 7.63 3.13 1.00 .25
1994
- ----
First Quarter $ 5.25 $ 3.00 (*) (*)
Second Quarter 4.25 2.50 1.00 .125
Third Quarter 3.25 1.25 1.50 1.50
Fourth Quarter 2.75 1.25 1.25 .0625
1995
- ----
First Quarter $3.125 $1.625 2.00 .0625
Second Quarter 1.94 .94 1.25 .75
</TABLE>
(*) No Trading Activity.
__________________________
The Company has not paid any cash dividends and does not anticipate doing
so in the near future. NAE has not paid any cash dividends since its inception.
26
<PAGE>
BUSINESS OF THE COMPANY AND NAE
GENERAL-BACKGROUND
Prior to the recent acquisitions of EET and IPF, North American
Technologies Group, Inc. ("NATK" or the "Company") had been a development-stage
company engaged in the development, acquisition and application of technologies
which management believes may have applications in various industries including
environmental services. As a result of those acquisitions and previous
development work, the Company now owns or has the right to several technologies
that include a patented chemical decontamination process, enzyme and chemical
solutions, mechanical soil washing systems, bioremedial technologies and a
patented oleofilter. Applications of these technologies could include
environmental services (including the cleanup of contaminated soils and waters),
decontamination of buildings and equipment, treatment of oil field drilling
production waste, and the upgrading of crude oils. Unless the context requires
otherwise, the term "Company" refers to North American Technologies Group, Inc.
and its subsidiaries and affiliates. The Company was organized as of December
24, 1986 under the laws of the State of Delaware.
Prior to June 30, 1992, the Company's principal business was operated under
the name "Mail Boxes Coast-to-Coast, Inc." as an exclusive area franchisee in
Los Angeles County, California for Mail Boxes Etc. U.S.A., Inc. ("MBE"), a
franchisor of postal business, packaging and communication service centers. As
an MBE area franchisee, the Company sold franchises for MBE service centers on
behalf of MBE and provided subsequent operational assistance to the individual
MBE service center franchisees.
In an effort to maximize stockholder values in recognition of the depressed
market price of the Company's outstanding publicly traded securities, during the
first quarter of 1992, management elected to restructure the operations of the
Company. Such a restructuring was concluded by management to include a
divestiture of the Company's existing business and the identification of
potential business combinations intended to develop a new line of business for
the Company.
Restructuring of the Company commenced during the second quarter of 1992,
when, effective as of April 1, 1992, the Company sold substantially all of the
assets related to the MBE area franchise to certain individuals consisting of
the former principal stockholders, directors and officers for approximately
$1,550,000.
In further conjunction with this restructuring, the Company acquired on
June 30, 1992 controlling share interests in two publicly-held affiliated
companies, North American Technologies, Inc., a Canadian corporation ("NAT"),
and North American Environmental Group, Inc., a Delaware corporation ("NAE").
NAT and NAE were each involved in the development and marketing of environmental
remediation technologies. NAT and NAE were acquired in stock for stock
transactions characterized for financial reporting purposes as a "reverse
acquisition" pursuant to which the historic stockholders of NAT and NAE acquired
a controlling interest in the Company and subsequently renamed the Company
"North American Technologies Group, Inc."
Acquisition of the remaining minority interest of NAT was completed during
November 1993 pursuant to a Plan of Arrangement pursuant to which the Company
issued approximately 5.5 million shares of Company Common Stock on the basis of
one share of NATK for each two shares of NAT). Through the merger transaction
covered by this Prospectus the Company intends to further consolidate its
holdings through a proposed acquisition of the remaining 11% minority interest
of NAE for 1,380,000 shares of newly issued Company Common Stock.
The business of the Company was expanded during the first quarter of 1995
with the Company's acquisition by merger of EET. The Company issued 1,770,729
shares of Company Common Stock and 71,000 common stock purchase warrants (to
replace EET's outstanding stock purchase warrants) in connection with the
merger. EET was formed in 1993 when it completed the purchase of certain patents
and proprietary environmental decontamination technologies and processes from
EnClean, Inc., a Texas-based public company. According to its most recent
audited financial statements, EET incurred a loss of $880,822 on revenues of
$1,426,748 for the year ended December 31, 1994. The acquisition of EET has been
accounted for as a "pooling of interests." Accordingly, the Company's
consolidated financial statements have been restated to include the accounts of
EET from its inception, August 23, 1993. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
27
<PAGE>
Mr. Tim Tarrillion, the Chief Executive Officer and principal stockholder
of EET, had prior to 1993 served as the President of EnClean, Inc. Mr.
Tarrillion became Chief Executive Officer of the Company effective upon
completion of the merger with EET on March 7, 1995. See "MANAGEMENT OF THE
COMPANY AND NAE."
Further expansion of its business has also been accomplished by the
Company's acquisition of IPF. In June 1995, the Company acquired by merger IPF,
a Houston, Texas, based manufacturer and distributor of proprietary and standard
thermoplastic fittings for the mining, environmental and water works industries
owned by David Daniels, a director and officer of the Company and two other
unrelated individuals. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
The Company issued 1,300,000 of Company Common Stock in connection with the
merger. IPF has been in business since 1994 and according to internally
generated financial statements provided to the Company for due diligence review,
had revenues in 1994 of approximately $500,000. The acquisition of IPF has been
accounted for as a "pooling of interests." Accordingly, the Company's
consolidated financial statements have been restated to include the accounts of
IPF from its inception, January 1, 1994. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
Description of Technologies
Through its subsidiaries and affiliates, the Company has developed,
licensed, or acquired, a number of technologies that may have broad application
in the environmental industry and in the treatment and processing of heavy or
sulfurous crude oils.
Certain of these technologies have been fully developed from an operational
perspective, while others remain in the development stage. With the exception
of the TechXtract/TM/ Process obtained in the recent merger with EET and the
Oleofilter/TM/ technology and the thermoplastic fittings sold by IPF, none of
the Company's technologies have been subject to any material commercial
application.
The following chart provides a list of the Company's technologies, together
with their respective operational functions and status of development.
28
<PAGE>
<TABLE>
<CAPTION>
================================================================================
PRODUCTS, BUSINESSES FUNCTION STAGE OF DEVELOPMENT
TECHNOLOGIES
<S> <C> <C>
- --------------------------------------------------------------------------------
Extraction of Technology is
EET's TechXtract /TM/ radionuclides, PCB's, patented, commercial
Process heavy metals and other projects are on-going,
contaminants and market development
in progress.
- --------------------------------------------------------------------------------
EET's Waste Management Specialized waste Commercial projects
Group management and are ongoing in Central
remediation services Texas market
- --------------------------------------------------------------------------------
Bio Treat/TM/ System Biological remediation of Technology is
oil-contaminated soils developed, but some
enhancements are still
required, additional
demonstration projects
in short term.
- --------------------------------------------------------------------------------
Terrazyme/TM/ System Mechanical separation of Technology is
oil and sludge from developed, but some
oil-contaminated soils. enhancements are still
required. First
commercial project is
underway.
- --------------------------------------------------------------------------------
Oleofilter/TM/ System Mechanical separation of Technology is patented
oil from contaminated and developed, market
waters. development is
beginning and
commercial projects
are expected soon.
- --------------------------------------------------------------------------------
BioCat/TM/ Hydrocarbon Treatment and processing Laboratory
Process of crude oils verification and
testing are in
progress.
- --------------------------------------------------------------------------------
Industrial Pipe Fittings Manufacture and Products are being
distribute transition manufactured and sold.
pipe fittings.
================================================================================
</TABLE>
TechXtract/TM/ Process
During March 1995, the Company acquired a decontamination process known
as TechXtract/TM/ in connection with its acquisition of EET. TechXtract/TM/ is a
patented technology that permits the extraction of subsurface contaminants
without destroying the surface or substrate. Management believes that this
technology is unique in its ability to remediate contaminated porous surfaces
where surface cleaning is ineffective or insufficient, and physical
(destructive) processes are unacceptable or uneconomical.
The TechXtract/TM/ technology can be used to remove a wide variety of
contaminants from porous surfaces and substrates. This is made possible through
tailoring of the chemistry and process for individual contaminant(s) and other
project-specific factors. Although the technology has focused on those
contaminants which are particularly difficult to remove and which have extremely
low acceptable levels for clean-up, the Company believes that modifications can
be made in the technology to treat other types of contaminants.
The technology has been utilized in removing all types of
Polychlorinated Biphenyls ("PCBs") from an array of substrates. When other
processes plateau at unacceptable levels, the contaminant extraction process has
frequently succeeded in achieving levels of extraction deemed acceptable to the
United States Environmental Protection Agency ("EPA").
The technology has also demonstrated its ability to extract radioactive
contaminants for the Department of Energy and several other customers. EET has
either demonstrated or developed chemistry and applications for the deradiation
of concrete floors and walls, metal working equipment, tools, lead
bricks/shielding, clothing, internal piping, evaporation basins, and holding
tanks. Deradiation has been effective on both surface and fixed contaminants,
as verified by surface smears and by alpha, beta/gamma, and x-ray detectors.
29
<PAGE>
Heavy metal contamination is prevalent throughout industry and is
particularly problematic due to the low levels of contamination which are
required to avoid classification as "hazardous." The TechXtract/TM/ heavy metal
extraction formulas and process have been developed to deal with the most
challenging constituents, including lead, arsenic, and mercury.
In addition to the other categories of contaminants, EET has
successfully modified its technology to address the other hazardous constituents
on the EPA's list. As with the other contaminants, the process is most
applicable when reduction to below regulatory levels will result in substantial
economic benefits to the customer due to opportunities for "delisting" or
nonhazardous disposal.
EET's patent application for the TechXtract/TM/ Process has recently
received approval from the United States Patent and Trademark Office. In
addition, EET is seeking patent protection for several chemical formulations
associated with the TechXtract/TM/ process. See "Patents and Proprietary
Rights." EET has developed certain base blends which are effective for a wide
range of contaminants, but can make special formula modifications if required.
When TechXtract/TM/ is used, liability is reduced for the customer in
two ways. First, the low volume of waste produced in itself decreases liability.
Second, if the customer's other remediation option is total disposal, then
incineration of solids is not an alternative. With incineration of the waste
liquids from the TechXtract/TM/ Process, hydrocarbon based contaminants are
completely destroyed and the generator receives a "certificate of destruction"
from the licensed incinerator. Furthermore, once the contaminants are removed
from the facility or piece of equipment, they may be able to be delisted as a
hazardous waste and therefore, only the site may be able to be given a clean
closure status by the EPA or appropriate state regulatory agency. The
TechXtract/TM/ process has been used with approval of or has been used as
evidence given to several EPA regions to meet PCB cleanup standards. The
TechXtract/TM/ process was recently included in the remediation plan relating to
a consent decree to cleanup PCBs from a series of gas compressor stations owned
and operated a major U.S. gas transmission company.
Management believes the TechXtract/TM/ Process compares favorably to
competing processes. The chemicals used in some surface cleaning processes are
inherently hazardous, tend to require much higher volumes, and are ineffective
on subsurface contamination. Scarification and other physical processes produce
large volumes of waste (particularly if there is significant subsurface
contamination), create airborne hazards, and therefore, only move the problem to
another location.
The TechXtract/TM/ Process has been employed in a number of commercial
projects. Prior to its acquisition by the Company, the TechXtract/TM/ Process
had been used in over 200 successful projects. Using this technology, EET has
generated aggregate revenues of approximately $1,000,000. The projects range
from the removal of PCB contamination from concrete floors and walls of a major
steel company in the Midwest, to the deradiation of fixed radionuclides at the
DOE Nuclear Production and Research Facility in Oak Ridge, Tennessee. In
addition, the TechXtract/TM/ process has been selected for a test demonstration
by the EPA as part of the EPA's Superfund Innovative Technology Evaluation
(Site) Program.
Oleofilter/TM/ System
The Oleofilter/TM/ System is a patented system developed by Exxon
Research and Engineering Corp. ("Exxon") in conjunction with SEREP a French
engineering company. Recently the Company and Exxon executed a licensing
agreement whereby the Company has full future rights to the Oleofilter/TM/
System in exchange for a one-time licensing fee paid to Exxon. Prior to this
license arrangement, the Company's rights to the Oleofilters/TM/ were derived
from a sublicense between the Company and an affiliate of a former director and
officer. In addition, the Company has negotiated an agreement with SEREP to
provide the Company with drawings, filter material and other commercial and
technical know-how which should assist the Company to manufacture and market the
Oleofilter/TM/ System.
The Oleofilter/TM/ System is a patented oil/water separation system
based on combining an amine-coated ceramic chip technology with a gravimetric
separator design that permits both separation of mechanical oil/water emulsions
and provides reduction and recovery of dissolved hydrocarbons. The
Oleofilter/TM/ System has various applications, including the treatment of
contaminated ground water, bilge and ballast waters, water produced from off-
shore drilling platforms and other oil/water mixtures. The Oleofilter/TM/ System
competes with many other products/companies designed to meet the requirements of
this market. Before selection, each system is judged on its ability to meet
specific cleanup standards, complexity of operations, cost of operations,
flexibility to changing conditions and initial capital cost of the system.
Management believes the Oleofilter/TM/ System compares favorably to other
competing products, especially in the areas of meeting cleanup standards, ease
of operation, low maintenance cost and flexibility to adapt to changing inlet
conditions.
30
<PAGE>
The Company began extensive testing of the Oleofilter/TM/ System during
the fourth quarter of 1994. Application of the Oleofilter/TM/ System was also
successfully demonstrated by the Company in 1994 in conjunction with tests at a
superfund site administered by the EPA as part of the EPA's Superfund Innovative
Technology Evaluation ("SITE") Program. These test results indicated a positive
application of this technology in connection with the removal of emulsified oils
from water.
Other testing efforts have validated the efficacy of the Oleofilter/TM/
System. The U.S. Coast Guard currently certifies a number of the Company's
models as compliant with international standards for filtration of offshore
discharge, as well as applicable U.S. law. In addition, test results from an
internationally recognized water test center indicate a high degree of
confidence in oil/water separation within certain input parameters.
Although the Company had limited success in selling units directly
through its prior sublicense arrangement, there are many such units that are in
use throughout the world that were sold by prior licensees. Management believes
that the Oleofilter/TM/ System can accomplish its stated technical objectives
and that the Company can market the system on a commercial basis under its new
agreement with Exxon. Marketing efforts undertaken during 1994 indicated
interest by potential customers. However, to date, the Company has been unable
to yield any revenues from the sale or application of its Oleofilter/TM/ System.
BioTreat/TM/ System
The Company's BioTreat/TM/ System, Terrazyme/TM/ System and Biocat/TM/
Hydrocarbon Process rely to varying extents upon enzyme technologies. The
principal objective of most of these technologies is, through the use of novel
or proprietary systems and application of specific enzymes, to secure the
remediation of hydrocarbon contaminated soils and treatment of hydrocarbons.
The Biotreat/TM/ System involves the treatment of soils in a variety of
methods and multiple steps that ultimately rely on microbes and other bacteria
to destroy hydrocarbons (oil) contained in the contaminated soils. This is done
in conjunction with a mechanical process that involves tilling the soils to
achieve maximum penetration and concentration of the microbes and bacteria, and
provide microbes with sufficient oxygen and nutrients to live and reproduce.
A key to the BioTreat/TM/ System involves the use of enzymes and other
chemicals for pretreatment of the soils to enhance the successful introduction
of the appropriate bacteria for the particular contaminant. The enzymes, when
applied with water, are believed to help the soil particles to separate from
each other. As a result, any contaminants that are caught within the layers of
soil are exposed to the bacteria. Other chemicals and solutions are applied to
kill non-essential bacteria and to make the contaminants more suitable as food
for the bacteria. When applied to the soils that have been treated with the
enzymes and other solutions, the bacteria can identify the hydrocarbons as a
desired food source. The bacteria, which is a microbe, consumes the hydrocarbon
molecule and turns into a fatty acid which, in turn, fertilizes the previously
contaminated soil. Management believes that this combination of steps,
chemistries, and sequential methods of treatment distinguish the BioTreat/TM/
System from standard bioremediation techniques by providing faster, more
predictable, and ultimately, lower cost results.
The Company's BioTreat/TM/ System can be used to treat soil in a totally
enclosed, plastic-lined treatment cell, which is referred to as a "biocell."
The alternative treatment method is "in situ," which means a treating the soil
in place. However, specific cleanup criteria and regulatory approval is
specific to each project, location, type of contaminant and controlling
regulatory authority.
The Company's BioTreat/TM/ System has been successfully tested by the
Company in a number of demonstration projects in which this system achieved
environmental clean-up in significantly less time than industry averages.
Notwithstanding such positive test applications, to date, the Company has been
unable to generate any material revenues from the application of its BioTreat
System/TM/. In addition, no testing or validation of this technology has been
conducted by independent laboratory or agency. Nonetheless, management believes
that the BioTreat System/TM/ has been fully developed and field proven, and
attributes the absence of commercial success to sales, marketing, and
competitive issues. See "Sales, Marketing & Joint Venture Agreements" and
"Competition."
Terrazyme/TM/ System
The Terrazyme/TM/ System is a mechanical system that uses enzymes and/or
other chemistries in conjunction with a process developed by the Company to
separate hydrocarbons and segregate different size fractions of soils and
sludges. Contaminated soils are fed into the machinery through a mechanical
screw or augur feed. As the contamination material travels up the screw feed it
is sprayed with a mixture of enzymes, water and/or other chemicals.
31
<PAGE>
The enzymes are believed to assist in separating the soil particles from
each other. The enzymes continue to act as the soils are mixed in the machine.
The mixing action allows free oil that has been separated from the soil to float
to the surface where it can be skimmed off. This portion of the process can
effect a significant reduction in the levels of contamination. Once the free oil
has been skimmed off, the soils which are mixed with the enzymes, water and/or
other chemicals, are treated with different chemistries in a second tank. The
intent of the second phase is to introduce chemistries that will attack specific
types of contamination found on the soils. The chemistries used in the Terrazyme
System/TM/ vary based on the particular level and nature of the contamination.
The wash solution is finally drained from the soils before the treated soils are
discharged from the machine. The wash solution is then recirculated for reuse in
the machine.
The technology differs from traditional soil washing techniques as it
involves a continuous flow, ambient temperature, water-mechanical process using
a recycled cross flow of enzymes and other solutions. In addition, it allows for
the simultaneous segregation and recovery of different sized fractions of solid
material. The combination of segregation and washing allows for maximum recovery
of products with commercial value and minimum waste disposal. The ability to
introduce additional chemistries and washing steps for removal of specific
contaminants also differentiates the system from traditional soil washing
technologies.
The Company's Terrazyme/TM/ System has been used in a number of pilot
projects with mixed results. In certain instances, the technology was deployed
successfully, however, at a cost that was greater than more conventional means
of disposal. In other instances, the technology failed to perform up to
management's expectations. However, a current pilot project at a landfill site
in South Texas has shown the system to be effective in cleaning certain wastes
for recycle and reuse. The technology has not been tested and/or validated by
any independent laboratory or agency. The Company is continuing to test this
system to verify its technical, regulatory and commercial effectiveness.
Biocatalytic Hydrocarbon Upgrade Process
The Biocatalytic Hydrocarbon Upgrade Process (the "Biocat/TM/
Hydrocarbon Process") is based on enzyme technologies that the Company believes
may catalytically alter the molecular structure of long chain hydrocarbons and
simultaneously reduce the sulphur and metal content of the treated hydrocarbons.
Development of this technology to date has focused on the upgrading of heavy,
sulfurous crude oils. Although other companies are pursuing technologies to
biologically upgrade crude oil and/or other petroleum fractions, management
believes that the manner in which the Biocat/TM/ Hydrocarbon Process uses the
catalytic properties of enzymes distinguishes itself from other competing
processes. However, given that the specifics of competing processes are not well
defined and are not known to the general industry, the Company cannot completely
judge the effectiveness of Biocat/TM/ versus these other processes.
Presently, a significant amount of the world's known crude oil reserves
are heavy hydrocarbons that have a low API Gravity in the range of 8 to 18.
Typically, heavy crude oils also contain higher concentrations of sulphur and
heavy metals. "API" gravity refers to the American Petroleum Institute standard
of measuring the gravity of crude oils. A higher API gravity number designates a
"lighter" crude oil, which will typically contain more light hydrocarbons, less
sulphur and less metals and are thus more valuable crude oils. West Texas
Intermediate Crude, for example may have an API Gravity higher than 25, whereas
heavy, sour (sulphur containing) crude or tar sand crude oil may range from 8 to
18 API gravity. As a result, West Texas Intermediate Crude may command a spot
price significantly higher per barrel than that of heavy or sour crude oils. If
developed to the point of being operationally effective, the Company's
Biocat/TM/ Hydrocarbon Process could provide significant opportunity for
upgrading the value of these heavy, sour crude oils.
Numerous tests have been performed on the Biocat/TM/ Hydrocarbon
Process. These tests comprise work done by the Company and also work done by
independent third party laboratories. The tests performed by these laboratories
involved processing crude oils from a variety of sources in laboratory bench
scale tests using enzymes and mixing equipment designed to simulate a possible
commercial mechanical system. The treated samples were then analyzed to
determine changes in the viscosity, gravity, sulfur and metal content, as well
as any change in the temperature at which the treated oils would flow.
Through this testing the Company has found that in certain cases its
BioCat/TM/ Hydrocarbon Process has been effective in reducing viscosity, sulfur
and metals content, while increasing the API gravity of certain crude oils. It
is important to note, however, that this testing is in an early stage and this
process has not been effective on every crude oil that has been tested. The
Company is continuing to develop this process and is testing it, in its own
laboratories, on a variety of crude oils to determine the optimum operating
parameters and to identify which type of crude oils may respond effectively to
this treatment.
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The BioCat/TM/ Hydrocarbon Process has not reached the stage of
development that is ready for commercial application. The process has only been
tested in laboratory settings and in very limited processing situations. Even
though certain of these tests have provided some evidence of the technology's
potential effectiveness, management realizes that to perfect this type of
process, if at all possible, will require significant additional laboratory and
field testing and the allocation of significant capital resources. There can be
no assurances that this process can be developed sufficiently to justify the
allocation of resources likely to be required to achieve commercial
effectiveness, if at all possible. In addition, there has been no attempt by the
Company to determine if this technology will need or receive regulatory approval
before it can be introduced as a commercial process.
Limitations on Effectiveness of the Company's Technologies
Each of the Company's technologies and systems have been used in a
variety of projects or field tests over the last several years. In most cases,
the technologies have shown some effectiveness, have performed technically and
have met the expectations of the Company. It should be noted, however, each of
these technologies have certain limits and parameters within which they are
either effective or ineffective. Thus, until further field work is performed on
a commercial basis, each project or potential application must be approached on
a job-by-job basis to determine efficacy.
The Company has attempted to test its technologies in various operating
field and laboratory (internal and external) situations. In some cases the
technologies have achieved the desired results. In other cases, the technologies
have not achieved the desired levels of performance. This information has been
extremely helpful, however, in redesigning the mechanical systems and adapting
the chemistries to achieve better and more consistent results. As an example,
recent modifications in the mechanical design in the Terrazyme/TM/ System have
resulted in successes in a January 1995 field demonstration at a large landfill
in South Texas.
Other than the TechXtract/TM/ technology and despite the fact that the
Company has tested the environmental technologies in a variety of demonstration
projects, the Company has yet to achieve more than minimal revenues from the
commercial application of its other technologies. Management of the Company
believes that the failure of the other technologies to achieve commercial
acceptance is not a reflection of the viability of its technologies, but rather
the result of marketing factors, some of which are beyond the Company's control.
See "Sales, Marketing and Joint Venture Agreements." Nonetheless, until the
Company is able to successfully apply all of its technologies in a commercial
setting, there can be no assurance that management's expectations for the
technologies will be fulfilled.
Competition
The environmental services business is highly competitive. Competition
is provided by a number of traditional waste removal and disposal companies,
operators of landfills as well as companies that offer a variety of remediation
services that treat rather than remove contaminated soils. The Company believes
that the principal competitive factors in its business are the ability to
satisfy applicable environmental laws relating to clean-up, the reduction of
waste that requires ultimate disposal, price and efficiency of service. Other
factors include quality, safety record, reputation, amount of insurance coverage
and knowledge of the customer's operations.
The Company competes with a large number of companies in substantially
all of the regions in which it bids for projects. These competitors tend to be
different for each of the Company's technologies. Many of these competitors are
local operations servicing a limited geographic area; however, in various
service lines, there are a few large national and regional competitors which
have significantly greater resources than the Company.
As an example, it is estimated that there are over 1,000 companies
directly involved in providing some type of environmental remediation services
in the United States. These companies would compete (to varying extents) with
the Company in areas of TechXtract/TM/, BioTreat/TM/ and Terrazyme/TM/. Further,
it is estimated that 35 of these companies account for 65% of the revenue
generated in this business segment. Clearly, this market is dominated by
companies with significantly larger resources than the Company, including Rust
International, Bectel, Fluor, OHM, Morrison Knudson and many others. Similar
competition and competitor profiles exist for all of the Company's technologies
and businesses.
Governmental Regulations
State and federal governments have enacted and amended numerous
environmental protection laws in response to public concerns about the
environment. The operations of the Company and its customers are subject to
these evolving laws and related regulations. The principal federal environmental
laws that the Company believes are applicable to itself and its customers
include The
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Clean Water Act, The Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 ("CERCLA"), The Resource Conservation and Recovery Act of
1976 ("RCRA"), The Pollution Prevention Act of 1990, and the Superfund
Amendments and Reauthorization Act ("SARA"). Most of these laws have state
counterparts which are generally at least as stringent as federal laws. The
Company believes that this regulatory framework creates the demand for products
that control the release of hazardous substances into the environment or
facilitate the clean-up of contaminated soils and waters.
The Clean Water Act or its state counterparts permit the discharge of
pollutants into the waters of the United States only in accordance with the
terms of a National Pollutant Discharge Elimination System Permit. Similarly,
the discharge of pollutants by generators into a sanitary sewer system that
leads to a local Publicly Owned Treatment Works ("POTW") is regulated by state
and local laws and by local permitting requirements, as are the discharges by
the POTW's themselves of their waste streams onto land or into surface water
bodies.
RCRA provides a comprehensive framework for the regulation of the
generation and transportation of solid and hazardous waste, as well as for the
treatment, storage and disposal of such waste. RCRA is intended to provide a
"cradle to grave" system for the control of hazardous waste; that is, regulation
of wastes from the time they are generated until they are properly disposed of.
Both civil and criminal liability may be imposed on parties that fail to comply
with RCRA's requirements. RCRA requires that hazardous waste generators,
transporters or operators of hazardous waste treatment, storage and disposal
facilities, meet strict standards set by governmental agencies, and in certain
instances, obtain and comply with RCRA permits.
The Pollution Prevention Act of 1990 establishes pollution prevention as
a national objective, naming it a primary goal wherever feasible. According to
this Act, where pollution cannot be prevented, material should be recycled,
reduced or minimized in an environmentally safe manner.
CERCLA and SARA (the "Superfund" laws) provide for the investigation and
remediation of hazardous waste sites. Under Superfund, parties who own or
operate sites or facilities contaminated by hazardous substances or who have
generated hazardous substances or which have arranged for the transportation or
disposal of hazardous substances may be subject to strict, joint and several
liability for the investigation and remediation of contamination associated with
those hazardous substances. Superfund's remedy selection process includes a
preference for innovative technology as well as technology which reduces the
volume of waste materials. Regulations under Superfund require that any
hazardous substances remaining on-site meet: (i) applicable; and (ii) relevant
and appropriate regulatory requirements. This may create an incentive to utilize
technologies that can potentially recycle hazardous waste, transform such waste
into non-hazardous by-products or reduce waste volumes. Under SARA, parties
engaged in Superfund or RCRA remedial actions may, in certain circumstances, be
able to use an environmental technology without the need to conform with all
aspects of the permit application procedures that would otherwise be required
under RCRA, the Clean Air Act, or other applicable environmental laws.
Many of the same federal and state laws and regulations that affect the
Company's customers may also directly regulate the Company's own operations or
create potential liabilities for the Company. With respect to permits and
permitting requirements, the Company's own operations include the use of small
amounts of various hazardous substances, both in the use of its processes and
the testing of those processes on various waste streams and the testing and
maintenance of the Company's processes and technologies in the field. Because
the handling, use, treatment and storage of disposal of hazardous substances and
waste are a highly regulated activity, many of these activities require the
procurement of federal, state or local government permits and approvals.
Obtaining and maintaining these permits and approvals generally require
strict compliance with exacting regulatory requirements. Accordingly, permit
applications are subject to denials, and the permits themselves are subject to
suspension, modification or revocation for failure to meet applicable
requirements. The failure by the Company to obtain a permit or to comply with
permit requirements in its operations could potentially subject the Company to
liabilities under the various federal, state, or environmental laws. Similarly,
the failure by the Company's customers to obtain such permits or approvals, or
to comply with permit requirements could subject them to environmental
liabilities as well and could affect the demand for the Company's services and
products. If existing environmental laws and regulations are amended,
interpreted or enforced differently than at present, or if new environmental
laws or regulations are enacted or promulgated, the Company or its customers may
be required to obtain additional permits or approvals or modify their handling,
use, treatment, storage or disposal of hazardous substances or waste. Failure to
comply with such laws could have a material impact on the demand for the
Company's products and services or could subject the Company or its customers to
unanticipated and material penalties.
Although the Company does not generate streams of waste, the Company,
like its customers, may be potentially subject to environmental liabilities with
respect to the investigation or clean-up of hazardous waste sites. Regulatory
agencies may argue, for
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example, that in instances where the Company's system is utilized to treat
hazardous waste, the Company would be potentially liable under the Superfund
law, as an "owner" or "operator" of a "facility" for any releases of hazardous
substances from that system, even if the Company did not cause the release, and
even if the Company was not negligent. Although the Company believes that the
risk is minimal that the Company would ever be found by a court or regulatory
agency to be liable for the investigation or clean-up of a hazardous waste site,
the cost associated with such a finding could be substantial.
In addition, the Company is also potentially liable for damages suffered
by its customers or others under environmental laws and regulations,
indemnification provisions of certain contracts with customers, or various tort
or contract law theories in the event that there are liabilities arising from
the failure or malfunction of the design, construction or operation of any of
the Company's systems or processes. Although the Company does maintain liability
insurance, there can be no assurances that such insurance would cover any or all
environmental tort or contract liabilities that could potentially be imposed on
the Company. There can be no assurance that the Company will not be adversely
affected by a claim by a governmental agency or by a private party regarding
environmental or related liabilities.
The Company has developed plans to take appropriate measures to reduce
its exposure to Superfund liability, including, implementing strict operational
guidelines for the handling and disposal of contaminated waste, as well as
seeking contractual protections from its customers.
Sales, Marketing and Joint Venture Agreements
With the exception of EET's TechXtract/TM/ Process and IPF's
thermoplastic transition fittings, the Company has been unable to develop a
marketing strategy that has permitted successful commercialization of any of its
proprietary technologies or processes.
Historically, the Company has attempted to market its technologies
through teaming arrangements and joint ventures with select partners in
specified geographic regions. In addition, through its officers, directors and
consultants, the Company actively engaged in ad hoc sales and marketing efforts
directed towards governmental agencies, branches of the defense department and
private industry. The Company's limited capital resources have, in the past,
precluded the ability to finance the development and staffing of an internal
sales force.
The Company's marketing strategy had been devised on two premises that
have, in hindsight, proven unsuccessful. First, management assumed that
commercialization of the Company's technologies would be motivated by customer
demand, which in turn would be motivated by regulatorily-required clean-up
requirements. Management has determined, however, that notwithstanding public
pronouncements of broad-based environmental remediation programs, the regulatory
requirements of states have in most instances permitted contaminated sites to
remain subject to contamination for longer periods than anticipated by the
Company. Second, management viewed the application of its technologies as a more
environmentally sound means of remediation, and thus, assumed that property
owners would resort to these type of clean-up solutions over traditional means
(removing and dumping contaminated soils in a landfill). This strategy was
developed several years ago in view of escalating dumping costs, increased
dumping regulations and scarce landfill space. Subsequently, however, dumping
costs have been dramatically reduced and landfill space is more available than
anticipated. In some instances the costs of landfill disposal are less expensive
than solutions offered by the Company. Accordingly, even though many of the
Company's technologies appear to perform successfully, management must devise
strategies that either reduce the cost of these services, otherwise convince
land owners of the benefits of remediation, or target certain situations where
the Company's technologies provide significant value and efficiency.
In an effort to avoid the cost of building an internal sales staff, the
Company had attempted to market its technologies through teaming arrangements
and joint ventures. Customarily, a subsidiary of the Company would enter into an
agreement with a third party to market particular services in a specified
geographic region. Although the Company has entered into many such agreements,
no material work has been undertaken pursuant to such arrangements. As noted
above, in an effort to address this issue the Company has recently completed the
acquisition of an operating environmental company, EET, with personnel
experienced in directly marketing environmental services.
The Company's joint ventures and teaming arrangements have also been
motivated as a financing strategy. In certain instances, joint venture partners
have paid the Company for the exclusive right to market its technologies in
specified areas. Since the Company's resources have remained somewhat limited
since inception, these arrangements were often undertaken as a means to secure
additional working capital for the Company. In other cases, no advance payments
were made, however, the joint venture partner agreed to fund
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certain operating or other expenses of the ventures. In either event, the
Company's joint venture arrangements have, to date, generated no material
revenues or made any technical progress.
The Company is presently operating subject to five (5) joint venture or
teaming arrangements. Two (2) of these arrangements, which cover marketing
rights in certain areas in Canada, are expected to terminate shortly, having
made no material contributions to the Company. Three (3) other arrangements
remain active and may offer some potential benefits to the Company.
In conjunction with an agreement with Universal Remediation Services,
Inc. ("Universal"), in May 1992 the Company obtained financing in the form of a
convertible debenture. Repayment of the debenture has been extended twice and is
now scheduled for June 15, 1996. As part of the original agreements, Universal
was given certain rights, which include, among others, half of the operating
profits generated from projects that use the Company's BioTreat/TM/ and
Terrazyme/TM/ technologies in the states of Illinois and Indiana. There is no
termination date for these marketing rights.
During February 1993, the Company entered into a Joint Venture Agreement
with Canadian Crude Separators, Inc. ("CCSI"). CCSI, which was once affiliated
with certain of the former officers and directors of the Company (See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS"), owns and operates waste treatment
facilities in the Provinces of Alberta and Saskatchewan, Canada. Under the terms
of this arrangement, a joint venture between the Company and CCSI was formed
which has the exclusive right to market and utilize the Company's technologies
in the Provinces of Alberta and Saskatchewan in Canada. The Company and CCSI
would be entitled to evenly split the profits from any projects or receive a
percentage of the projects revenues undertaken by the joint venture. The Company
received shares of the common stock of CCSI upon execution of these
arrangements. These shares are subject to escrow provisions and only may be
"earned" by the Company on the basis of cash flow generated by the joint
venture.
In July 1993, the Company entered into a joint venture with Oil Waste
Treatment, Inc. ("OWT") to jointly develop the Terrazyme/TM/ System and other
Company technologies as they pertain to fixed site facilities within an area
encompassing Texas, Louisiana, Mississippi, Alabama, Florida and the Gulf of
Mexico. Under the terms of this joint venture agreement, the Company agreed to
contribute its technologies to a joint venture in exchange for OWT contributing
rights to an environmental processing facility that it had permitted in South
Texas. Concurrently, OWT agreed to prepare equipment for a demonstration project
with a major environmental company and potential joint venture partner. This
demonstration project, which commenced in early 1995, has shown the
Terrazyme/TM/ System to be effective in cleaning certain wastes for recycle and
reuse. To date, no revenues have been generated. Profits and losses of the joint
venture are split equally.
In recognition of the absence of sales generated through the Company's
historical sales and marketing program and in view of the recent acquisition of
EET, the Company intends to change the direction of its sales and marketing
strategies. Joint ventures and teaming arrangements will no longer be utilized
as the primary means of marketing. The Company intends to hire and develop its
own sales and marketing personnel. As such, direct sales strategies and goals
will be developed and implemented by experienced sales personnel. Joint ventures
and teaming arrangements will be relegated to a lesser corporate priority but
still used when appropriate to achieve specific marketing and sales objectives.
Patents and Proprietary Rights
The Company is the beneficiary of patent protection on the
Oleofilter/TM/ and TechXtract/TM/ Process. In addition, EET holds four other
patents on environmental treatment technologies that may have commercial value
but have not yet produced any significant revenue. There is no patent protection
for any other owned or licensed technologies. While the Company believes it
possesses proprietary rights to its other technologies including unpatented
trade secrets and know-how, and that its continuing technological innovations
will enable it to maintain a competitive position in the manufacture and use of
its products and services, no assurances can be given that others will not
independently develop substantially equivalent proprietary information and
technology or otherwise gain access to the Company's trade secrets or disclose
such technology, nor can the Company assure that it can meaningfully protect its
unpatented trade secrets. As used in this context and throughout this
Prospectus, "proprietary information" refers to technology, mechanical
configurations, chemical information or formulations, processes, applications
techniques and/or other know-how developed by the Company and its employees or
consultants.
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Warranty
Typically, the Company provides its services and technologies on a "best
efforts" basis. As such, no warranty is expressed or implied. However, in some
cases, EET provides its TechXtract/TM/ services on a "guaranteed results" basis.
That is, EET must decontaminate to a preset, verifiable level or the customer
will not be required to pay. However, once the cleanup standard is met, no
future guarantee is given or required. In only one instance has EET not been
paid for the work in connection with this guarantee and that was for a project
bid at less than $10,000. Although the Company has not developed a warranty
policy for its Oleofilter/TM/, it is likely that some type of limited mechanical
warranty may be required. Once commercial success is achieved with its
Biotreat/TM/ and Terrazyme/TM/ technology, the Company anticipates that projects
will either be done on an hourly rate and cost of material basis or on a fixed-
price bid either lump sum or per unit volume if the perimeters of the project
can be well defined. In any fixed-price bid situation, there is an implied
guarantee to meet the required cleanup specifications, but these are usually
negotiated based on the conditions that arise during the project. To date, most
of the Company's demonstration projects are for a negotiated price and done on a
"best efforts" basis.
Human Resources
The Company currently employs 42 full-time employees and consultants.
Six of the employees are in management, six in administrative and accounting,
four in research and development, four in sales, and twenty-two in operations.
Nine of the Company's employees have employment agreements. None of its
employees are covered by collective bargaining agreements. All of the Company's
personnel, as well as companies with which it has an ongoing relationship,
however, are covered by non-circumvention, non-disclosure agreements over the
Company's technologies. The Company believes that its relations with its
employees are good.
DESCRIPTION OF BUSINESS OF INDUSTRIAL PIPE FITTINGS, INC.
The Business
NATK has recently acquired Industrial Pipe Fittings, Inc. ("IPF") a
privately-held Houston-based manufacturing and distribution company. IPF
manufactures and distributes both proprietary and standard thermoplastic
fittings for the high density polyethylene pipe business. In its first year of
operation (1994), IPF generated over $500,000 in revenues and realized a profit
of $24,000. IPF principally markets to the industrial, mining and water works
industries. The acquisition was accounted for as a pooling of interests by the
Company effective June 30, 1995 and, as such, historical financial statements of
the Company have been restated to include the financial effects of IPF from the
date of its inception, January 1, 1994.
The Products
IPF manufactures and distributes products that relate primarily to the
High Density Polyethylene ("HDPE") market. IPF currently fabricates metallic
connectors for various HDPE applications. It also manufacturers four types of
quick connect fittings (Victaulic, Gheen, Camlock, Bauer) as well as threaded,
weld-end and flanged adaptor fittings. IPF also stocks and distributes related
thermoplastic products which complement the use of its existing line of
manufactured fittings. IPF management believes that IPF can expand its product
line to include high end items such as fabrications of large elbows, tees and
wyes, specialized fusion and molded fittings as well as other high margin
products. Although IPF does not actively pursue sales of HDPE pipe and liners,
IPF is an OEM distributor for three different polyethylene pipe manufacturers.
The Market
The domestic market for HDPE pipe resins is currently estimated by
industry trade organizations to exceed $6 billion annually. The domestic market
for HDPE related fittings and supplies exceeds $1.5 billion. Because of the
number of applications of polyethylene, the market is expanding world wide,
particularly in Central and South America.
IPF currently markets its products within a two tier plan. First, IPF
has alliances with 93 distributors that cover most of the North and South
American Continents. IPF management believes that this creates greater marketing
capacity than could be realized through inside sales efforts only. Secondly, IPF
offers customized engineering and specification writings for many end-user
applications. At times, this gives IPF exclusivity on large projects that use
many of IPF's currently existing product lines.
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Manufacturing
IPF currently utilizes a modular based assembly procedure for
manufacturing. Most individual components are made from raw materials in-house
and are stocked in appropriate quantities based on demand. Final assembly for
large orders is typically done on a per order basis with most shipments of
finished goods occurring within days after receipt of a purchase order. IPF
management is committed to expanding manufacturing capacity through increased
integration and automation. Depending upon the availability of capital, IPF's
expansion plans over the next twelve months include one Computer Numerically
Controlled ("CNC") lathe, one YTL machine for producing large fabricated wyes,
tees and elbows, a Vertical Turret Lathe ("VTL"), and other additional
fabrication machinery. IPF estimates that the total cost for upgrading the
production facility to be approximately $750,000.
DESCRIPTION OF PROPOSED ACQUISITION OF CERTAIN ASSETS OF THOR VENTURES, LC AND
GAIA TECHNOLOGIES, INC.
On June 30, 1995, the Company entered into a letter of intent with Thor
Ventures, LC, a Texas limited liability company ("Thor"), Thor Industries, Inc.,
a Texas Corporation ("ThorInc") and GAIA Technologies, Inc., a Delaware
corporation ("GAIA"), to negotiate and execute a definitive agreement regarding
the purchase and sale of certain assets. The letter of intent may be terminated
by either party with or without cause and will terminate automatically in the
event that a definitive agreement is not executed by September 29, 1995 or such
later date as the parties may mutually agree.
Specifically, the Company will acquire all of the technologies, know-
how, patents, contracts, receivables, equipment, business and other assets,
whether tangible or intangible of Thor, ThorInc and GAIA (collectively "seller")
other than those assets of the seller relating exclusively to the development
and production of railroad crossties (the "crosstie business assets") or a
certain judgment obtained by GAIA and all proceeds and recoveries thereof.
In exchange for these assets, the Company will pay $2,500,000 to the
seller consisting of a $2,000,000 cash payment and the forgiveness of an
outstanding $500,000 loan from the Company to the seller. The Company will also
issue seller an aggregate of 1,666,667 shares of NATK common stock.
The Company will also have the exclusive right and option to purchase
the seller's crosstie business assets during the two year period following the
closing of the definitive agreement. In consideration of this option, the
Company will agree to loan $1,500,000 to the seller to be used exclusively for
expenses incurred or to be incurred in connection with the commercial
development of the railroad crosstie technology.
MATERIAL OUTSTANDING LITIGATION
Kellert et al. v. Mail Boxes Etc., USA, Inc., et al is an action
commenced in November 1988 in the New York State Supreme Court for New York
County by one of the former franchisees of MBE against the Company, MBE and
several individual officers and former officers of the Company. Plaintiff
alleges that the Company failed to provide plaintiff with an offering prospectus
in violation of New York State franchise law and made false representations
regarding revenues, earnings and profits from both existing and new franchise
centers. Plaintiff seeks damages in excess of $425,000. The defendants believe
the suit is without merit and will vigorously defend against it.
Winch v. North American Technologies, Inc., et al. On or about April 23,
1993, Douglas Winch commenced an action against North American Technologies,
Inc. ("NAT"), a wholly owned Canadian subsidiary of the Company, Peter W.
Fisher, a former officer and director of NAT's predecessor corporation, John H.
McPhedran and J.H. & J.K.M. Corporation, Ltd. This is an action for specific
performance of an alleged agreement between NAT and the plaintiff for the
delivery of 200,000 common shares of NAT and damages for failure to provide such
shares on a timely basis.
The plaintiff has claimed against all defendants damages in the amount
of Cdn. $1.5 million, punitive and exemplary damages in the amount of Cdn.
$200,000 and an interlocutory injunction to prevent the defendants from trading
in the shares of NAT pending a final disposition of the action. The proceeding
is pending as of the date of this Report. The plaintiff has indicated that he
intends to amend his Statement of Claim. Because the outcome of this matter
cannot presently be determined, no adjustments have been made to the
consolidated financial statements.
Thomas W. Reid v. North American Gold Corp. and Karr Capital, Inc., is a
matter commenced in July 1993 in the 134th Judicial District Court of Dallas
County, Texas, by Thomas Reid against North American Gold Corp., which was the
corporate predecessor of NAT,
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a wholly owned subsidiary of the Company. Mr. Reid alleges in his complaint that
he was denied the right to purchase 350,000 shares of stock of North American
Gold Corp. for $.50 per share. The shares of North American Gold Corp., and
therefore subsequently NAT, were subject to an exchange agreement whereby the
holders could receive 175,000 shares of NATK. Mr. Reid sued for conveyance of
the stock or alternatively for damages, plus attorneys' fees. Mr. Reid's claim
is based upon a letter dated July 17, 1991, purportedly signed by Mr. Robert
Ciccarelli as President of Karr Capital, an unrelated Canadian corporation. No
discovery or other activity has occurred in the case, and management cannot
evaluate the Company's exposure at this time.
North American Technologies Group, Inc. v. BioTrace International, Inc.
is an arbitration proceeding before the American Arbitration Association.
BioTrace first brought an action against Richardson Greenshields Ltd., a
brokerage firm in Canada, in the federal district court for the Northern
District of Illinois in Chicago, in September 1993. BioTrace alleged that,
pursuant to the provision of a License Agreement entered into by BioTrace and
NATK on January 15, 1992, Richardson, Greenshields was the escrow agent holding
approximately 90,000 shares of NATK stock for the benefit of BioTrace and that
the stock was to be tendered to BioTrace on July 15, 1993.
Prior to July 15, 1993, NATK learned of various material breaches of the
License Agreement committed by BioTrace and/or its agents. Based upon the
material breaches of the License Agreement, a tender of the 90,000 shares of
NATK stock was not made to BioTrace by Richardson, Greenshields on July 15,
1993. This License Agreement was an exclusive agreement under which BioTrace
agreed to provide NATK with a certain proprietary stabilized enzyme. However,
BioTrace violated the exclusive agreement by selling or making available the
enzyme to various NATK competitors. In addition, BioTrace's claims that the
enzyme was non-toxic to the environment proved false. In response to this
violation of the exclusive agreement and because the enzyme proved to be
ineffective for NATK's purposes, the Company abandoned the agreement.
In October 1993, Richardson, Greenshields brought NATK into the case as
a third-party defendant arguing that Richardson, Greenshields had no stake in
the dispute over the ownership of the NATK stock and that the true dispute was
between BioTrace and NATK over the License Agreement. NATK filed a motion to
stay the federal court proceedings and to compel arbitration before the American
Arbitration Association in Chicago. On March 7, 1994, NATK's motion was granted
and the federal court case was terminated.
However, at present there is a proceeding on this matter before the
American Arbitration Association upon the Company's claims that BioTrace
materially breached the License Agreement by selling a certain proprietary
stabilized enzyme to its competitors. NATK is requesting reimbursement for
approximately $200,000 previously forwarded to BioTrace, return of the 90,000
shares of NATK stock and other consequential damages.
On March 14, 1994, the Company had a preliminary hearing before an
arbitrator of the American Arbitration Association in Chicago. Various pleadings
were filed with the arbitrator, including several motions for summary judgment.
The Company also amended its complaint to include claims based on a theory of
fraudulent inducement to enter into the transaction. In February 1995, the
Company received results of independent toxicity tests on the ingredients used
in the BioTrace enzyme formula. The report from the independent California
testing laboratory reported that the ingredients used in required concentrations
in the BioTrace enzymes made it toxic to aquatic life, which is a standard
environmental test for toxicity.
The Company has responded to the BioTrace claim by vigorously asserting
its defenses to that claim and its claims for damages due to BioTrace's
contractual breaches. While this matter may still be resolved short of an
arbitration hearing, NATK has dedicated the time and resources to aggressively
pursuing its arbitration claim against BioTrace.
North American Technologies Group, Inc. and North Environmental Group,
Inc. v. James E. Impero, Robyn Impero, Val Weaver and The Impero Family Trust.
On April 10, 1995, the Company and its subsidiary, North American Environmental
Group, Inc., filed a lawsuit in the District Court of Harris County, Texas
against James Impero, a former officer and director of the Company and Val
Weaver, an officer of a subsidiary of the Company. The Company is seeking a
temporary restraining order, permanent injunction and substantial monetary
damages based on claims against Mr. Impero which include breaches of his
fiduciary duties of care, loyalty and obedience, tortious acts against the
Company and defamation of the Company's business reputation. The Company's
claims against Mr. Weaver include the breach of his fiduciary duties of care,
loyalty and tortious acts against the Company based on his alleged aid to Impero
in many of Impero's activities. The Company alleges that Mr. Impero usurped
corporate opportunities, diverted business from the Company, and subsequent to
his resignation, he has made damaging statements about the Company. In apparent
response to this lawsuit, Mr. Impero filed a lawsuit against the Company and
other parties in June 1995 in the U.S. District Court in Maryland. No answer or
other
39
<PAGE>
response is due or has been made. Company's counsel is of the opinion that
Maryland lacks jurisdiction of these claims, and management intends to contest
the case vigorously.
If the foregoing litigation is decided against the Company, it would
have a material adverse effect on the financial condition of the Company. See
"RISK FACTORS."
40
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BACKGROUND AND BASIS OF PRESENTATION
Effective as of April 1, 1992, the Company sold its historic operating
business, principally the exclusive right to sell franchises for MBE in Los
Angeles County, California, to certain former directors and principal
stockholders of the Company.
On June 30, 1992, the Company acquired controlling share ownership
interests in two related development-stage companies, NAT and NAE. The
transactions in which the Company acquired controlling share ownership interests
in NAT and NAE have been accounted for as a recapitalization of NAT. As a
consequence, the historical values of assets and liabilities of NAT and NAE and
their results of operations are carried over in the Company's financial
statements. On November 5, 1993, the Company acquired the remaining shares of
NAT not owned by it in a Plan of Arrangement under the Alberta Business
Corporations Act.
Since inception, NAT and NAE have remained development stage companies
with limited revenues and substantial losses. Although the Company believes that
most of its technologies are now sufficiently developed so as to permit
commercial sales, there can be no assurances to this effect. To date,
substantially all of the Company's revenues have been generated from
demonstration projects resulting in no material commercial sales. Furthermore,
management's prior expectations of commercial sales during 1994, have not been
met.
The likelihood of the Company realizing commercial sales within the
short term has been enhanced by virtue of its acquisitions on March 7, 1995 of
EET and on June 30, 1995 of IPF. Both acquisitions were accomplished through
mergers pursuant to which an aggregate of 3,070,729 shares of Company Common
Stock and 71,000 common stock purchase warrants were issued to the former EET
and IPF security holders. EET's TechXtract/TM/ Process has been used in over 200
successful projects and has generated for EET revenues of approximately
$1,000,000 since 1993. In addition, EET generated revenues of approximately
$500,000 from environmental services in 1994 which were not related to the
TechXtract/TM/ Process. IPF generated revenues of $500,000 during its first year
of operations in 1994. Both of these transactions have been accounted for as a
pooling of interests. Accordingly, the Company's consolidated financial
statements have been restated to include the accounts of EET and IPF from their
respective dates of inception.
Until the Company is able to generate material revenues from the
commercialization of its technologies, there can be no assurance that profitable
operations can be attained in the short term, if at all. Should losses continue
at their historic rate, there can be no assurances that the Company can remain
viable as a going concern. See "RISK FACTORS."
RESULTS OF OPERATIONS
ANALYSIS OF YEARS ENDED DECEMBER 31, 1993 ("1993") AND DECEMBER 31, 1994
("1994")
The total net loss for 1994 of $4,936,000 reflects an increase of
$3,433,000 from the 1993 net loss of $1,503,000. This increase in losses
occurred despite increased revenues and gross profits and decreased expenses due
to the significant decrease in the other income and expense category.
Specifically, revenues increased $1,676,000, generating an increase in gross
profits of $551,000; expenses decreased $165,000; other income decreased
$4,002,000; and loss from discontinued operations increased $124,000. These
changes are addressed individually below.
REVENUES AND GROSS PROFIT
The increase of $1,676,000 in 1994 reflects increased volume from (i) a
full year of operations of EET, and (ii) the operations of IPF, which began its
business in January 1994. The increase in sales volumes from 1993 to 1994
generated an increase in gross profits for 1994 of $551,000. The gross margin
percentage increased from 29% in 1993 to 32% in 1994, reflecting the impact of
the margins contributed by IPF.
EXPENSES
41
<PAGE>
Expenses decreased $165,000 in 1994, consisting of an increase in
selling, general and administrative expenses of $155,000 and a decrease in
research and development expenses of $320,000.
OTHER INCOME AND EXPENSE
Other income and expense decreased $4,002,000 from income of $3,161,00
in 1993 to expense of $841,000 in 1994. Of this decrease, (i) $2,068,000 can be
attributed to a reduction in investment and interest income relating to the
Company's investment with Euro Scotia Funding (Barbados) Limited ("ESF"); (ii)
$1,200,000 relates to the change from recognition of $600,000 income in 1993
from the sale of certain marketing rights to the recognition of $600,000 as
write-off of investment in 1994 when the stock received in consideration for the
marketing rights was determined to be worthless; and (iii) $751,000 relates to
the increase in loss from the abandonment of mining properties in 1994.
DISCONTINUED OPERATIONS
In 1994, EET entered into a formal plan to dispose of its analytical
operations. These discontinued operations contributed a loss of $116,000 in
1994, compared to a gain of $7,000 in 1993.
ANALYSIS OF YEARS ENDED DECEMBER 31, 1992 ("1992") AND DECEMBER 31, 1993
("1993")
The total net loss for 1993 of $1,503,000 reflects a decrease of
$978,000 from the 1992 net loss of $2,481,000. This decrease in losses occurred
primarily due to the significant positive increases in other income categories
in combination with an increase in total expenses. Specifically, revenues
increased $269,000, generating an increase in gross profits of $77,000; expenses
increased $2,876,000; other income increased $3,769,000; and discontinued
operations generated an increase in income of $7,000. These changes are
addressed individually below.
REVENUES AND GROSS PROFITS
The increase in revenues of $269,000 and gross profits of $77,000 in
1993 is attributed totally to four months of operations of EET, which began its
business in September 1993.
EXPENSES
Expenses increased $2,876,000 in 1993, consisting of an increase in
selling, general and administrative of $1,649,000 and an increase in research
and development expenses of $1,227,000. The increase in selling, general and
administrative expenses can be attributed to increases in the following: (i)
office and administrative expenses, (ii) consulting and personnel costs, (iii)
legal and professional expenses, and (iv) the selling, general and
administrative expenses associated with EET's four months of operations
beginning in September 1993. The increase in research and development expense
can be attributed to an increase in testing and lab fees and R&D related
consulting fees.
OTHER INCOME AND EXPENSE
Other income and expenses increased $3,769,000 from an expense of
$608,000 in 1992 to income of $3,161,000 in 1993. Of this increase, (i)
$2,686,000 can be attributed to the increase in investment and interest income
relating to the Company's investment with ESF; and (ii) 600,000 can be
attributed to the recognition of income relating to the sale of certain
marketing rights, which was later written off in 1994.
ANALYSIS OF PERIODS ENDED JUNE 30, 1994 AND 1995
The results of operations for the six months ended June 30, 1994 and
1995 have been restated to include the historical financial results of EET and
IPF.
Revenues increased $501,000 for the six month period ended June 30, 1995
compared to the same period of the previous year. This increase is the result of
increased sales volume by both IPF and EET. IPF'S continuing growth in monthly
shipments is reflected in
42
<PAGE>
its revenue increase of $320,000 for the six months ended June 30,1995. EET
contributed to the balance of the revenue growth by increasing sales of its
services $193,000 for the six months ended June 30, 1995. Management anticipates
that there will continue to be an increase in volume for the products and
services of the Company during the third quarter.
The increase in sales volume generated an increase in gross profits for
the six months ended June 30,1995 of $130,000, or 57%, as compared with the same
period of the previous year. This increase in gross profit occurred despite a
decrease in gross profit percentages of approximately 4% for the six months
ended June 30, 1995 from 34.1% to 30.6%. This decrease was caused primarily by
larger travel expenses related to certain projects and higher than anticipated
costs on a few projects undertaken by EET in 1995 as compared with 1994.
Selling, general and administrative expenses for the six month period
ended June 30, 1995 increased $333,000 over the same period of the previous
year. The main factors contributing to this increase are (i) an increase in
legal and accounting fees of $350,000, (ii) a decrease in travel and
entertainment expense of $100,000, and (iii) an increase of $70,000 in salaries
due to two new officers who began their employment in April 1995.
The legal and professional fees for the six month period ended June 30,
1995 include approximately $145,000 relating to the acquisition of EET and IPF.
Since both acquisitions were accounted for as pooling-of-interests, all expenses
relating to the merger, were expensed currently in the financial statements.
Other increased legal fees are the result of management actively pursuing the
resolution of several outstanding lawsuits, including the arbitration hearings
that have occurred and are continuing relating to BioTrace International Inc.
and the activity relating to the lawsuit against a former officer and director
of the Company. It is management's intention to resolve as many of these issues
as prudently possible during the current fiscal year without prejudicing the
Company's rights in these matters.
Research and development expense for the six month period ended June 30,
1995 decreased $227,000 from the same period of the previous year. This is
primarily the result of decreased lab testing fees and chemical costs, and the
termination or completion of various consulting arrangements.
Other income and expense decreased from income of $499,105 for the six
months ended June 30, 1994 to expense of $10,902 for the six months ended June
30, 1995. This was primarily due to a decrease in investment income from
$512,312 to $0 for the same periods. Investment income had been derived from the
investment of the proceeds of a note receivable executed by ESF in various
market transactions. In April 1994, the Company instructed ESF to invest in less
speculative investments, and thereafter the Company has recognized only interest
income from the note receivable.
The equity in loss from joint venture represents the Company's share of
the losses for the six month period ended June 30, 1995 in its joint venture
arrangement with a privately owned company. The Company contributed equipment
valued at $200,000 and cash of $145,000 for the first six months of 1995. The
equipment was contributed at book value, which approximated fair value, and
therefore no gain or loss was recognized on the transaction. See also the Notes
to the Consolidated Financial Statements. The Company's share of the joint
venture's losses is $131,998 for the six months ended June 30, 1995. The joint
venture has substantially completed a demonstration project for a major landfill
facility in South Texas. The joint venture has entered into discussions with the
representatives of this facility regarding the results of the demonstration
project, and pricing arrangements for future processing at the current facility
or at another facility owned by the same company. Under the terms of the joint
venture agreement, profits and losses are shared equally.
Discontinued operations for the six months ended June 30, 1994 reflect
the results of operations for the analytical services division of EET which was
discontinued in July 1994. See also the Notes to Consolidated Financial
Statements.
LIQUIDITY AND CAPITAL RESOURCES
Through June 30, 1995, the Company incurred operating losses that are
anticipated to continue for the near term, notwithstanding recent increases in
revenues. The operations of IPF, which have been profitable, and EET, which is
currently experiencing increase in demand for its core products and services,
will also require additional short-term infusions of capital to finance
equipment purchases and other operating needs. Management currently anticipates
the Company's operating cash needs to continue during the short term at levels
in the range of $200,000 to $250,000 per month, not including certain legal and
other professional fees and expenses. These estimates also do not include
additional amounts needed to fund the proposed acquisition of the assets of GAIA
(as defined hereafter) and the operation of its related businesses.
43
<PAGE>
Since its inception, the Company has financed its operations primarily
through private placements of its equity securities and convertible debentures,
short-term loans and proceeds received upon the exercise of its warrants and
options to acquire its securities. The Company's long-term viability and growth
will depend upon a combination of the successful commercialization of its
technologies and products, and its ability to continue to obtain adequate
financing (whether debt or equity). There can be no assurances that the Company
will be able to continue to secure sources of working capital from financing
transactions or sources other than operations for an indefinite period, or in
the event the financings are completed, they may be at per share prices that are
lower than the current market price of the Company Common Stock, and they may
contain provisions for future contingent consideration in the event the market
price of the Company Common Stock changes over a period of time. If adequate
funds are not available and operating losses continue at current rates, the
Company would be unlikely to continue as a going concern for more than the short
term. The Company's independent auditors have noted in their opinion on the
Company's consolidated financial statements for the year ended December 31, 1994
that these factors raise substantial doubt about the Company's ability to
continue as a going concern.
As of June 30, 1995 the Company had cash of $776,000 and net working
capital of $326,000. The Company is currently working on private placements of
securities consisting of shares of common stock and common stock purchase
warrants and convertible debentures or common stock warrants. If successful,
these offerings would provide adequate capital to complete the acquisition of
GAIA and to fund the Company's operations for the twelve months from the date of
the latest balance sheet included in this prospectus (June 30, 1995). If these
Offerings are not successful, the Company would be required to scale back
operations and may be unable to continue as a going concern.
During 1994, the Company's, cash requirements from operations increased
to $2,864,419 from $1,862,422 in 1993 and $2,400,627 in 1992. The Company's
financing activities provided the cash need for operations as follows.
The Company received approximately $5,700,000 in net cash proceeds from
the sale of approximately 1,940,000 shares of its Common Stock and 220 shares of
its preferred stock (subsequently converted to Company Common Stock) during
1994. An additional $478,000 was obtained through borrowing from ESF which was
offset against the note receivable from ESF, described below. An additional
$1,675,000 has been received from the sale of 2,382,000 shares of its Common
Stock from January 1, 1995 through August 15, 1995. The Company has also
received $100,000 from the proceeds of note agreements since January 1, 1995. In
May 1995 the Company renegotiated the maturity of its $250,000 outstanding note.
This note is now due in June 1996.
In connection with the merger with EET and IPF, since January 1, 1995
the Company has issued an aggregate of 3,070,729 shares of its Common Stock and,
with respect to the acquisition of EET, warrants to purchase 71,000 shares of
its common stock. The warrants were issued to replace EET's outstanding common
stock purchase warrants.
In connection with the merger of EET in March 1995, the Company advanced
cash to EET for it to repay (i) an outstanding line of credit obligation of
$300,000, (ii) debt obligations of $212,500, (iii) notes payable to certain
former shareholders of EET of $100,000, and (iv) certain accounts payable and
other accrued expenses. In addition, EET redeemed its outstanding preferred
stock of $305,000 and paid preferred stock dividends of $5,432.
In connection with the merger of IPF in June 1995, the Company entered
into non-compete agreements with the three former shareholders of IPF, all of
whom continue to be active in the on-going operations of IPF. These non-compete
agreements required a one-time payment of $35,000 per individual, and provide
for non-competition during the term of each individual's employment and for a
three year period thereafter. Amortization of these agreements over seven-and-
one-half years will begin in July 1995.
In July 1995 the Company provided $500,000 to GAIA Technologies, Inc.
and to certain of its affiliates (collectively "GAIA") under the terms of a
promissory note security agreement, and option to purchase certain assets (the
"$500,000 Note"). The Company is obligated to provide additional funds of up to
$1,000,000 to GAIA for approved expenditures relating to the development of the
business prior to closing of the exercise of the option. As of August 15, 1995
the Company had advanced approximately $100,000 for such purposes. In the event
a closing does not occur, all the funds advanced as described in this paragraph
will become due and payable on July 1, 1998. Upon the closing of the
transaction, the $500,000 Note will be forgiven as partial payment of the
purchase price, and the other funds advanced would be treated as an increase in
the purchase price. Both of these loans are secured by a lien on the assets,
patents, and technologies of GAIA. These notes bear interest at 10% annually,
with interest payments due quarterly.
The Company entered into an agreement with its former Chairman of the
Board in July 1995 which provides for, among other things, a payment of $250,000
in settlement of his five-year employment contract, due no later than December
31, 1995.
44
<PAGE>
In 1993 and prior years, the Company derived a significant amount of its
working capital from a Note Receivable executed by ESF. Income from this Note
through April 1994 had been generated from the management by ESF of investments
in various market transactions involving the United States and other
governmental debt securities, currency forward contracts and certain corporate
debt and equity securities. Under the terms of the Note, and Company and ESF
shared equally in trading profits. Beginning in the second quarter of 1994, the
Company instructed ESF to invest in less speculative investments, and therefore,
for the last three quarters of 1994 the Company received only interest income
from the Note. This change in the investment portfolio objectives accounts for
the decrease in trading profits from approximately $2,170,000 in 1993 to
approximately $512,000 in 1994 and the decrease in interest income from
approximately $520,000 in 1993 to approximately $85,000 in 1994.
The Company and ESF have entered into a new note agreement which
provides for the outstanding principal balance at December 31, 1994 of
$3,270,857 to be repaid in ten (10) semi-annual payments of $327,885, plus
interest at 10% per annum, beginning July 1, 1995. The agreement allows ESF to
prepay as of December 31, 1994 the earliest payments using amounts owed to it by
the Company under the line of credit agreement and for services rendered. ESF
elected to prepay these amounts as of December 31, 1994, thereby offsetting the
principal balance by a total of $478,094. Because of this prepayment, the first
payment due under the note agreement will be January 1, 1996 of $177,676, plus
accrued interest on the outstanding net balance at December 31, 1994 of
$2,800,763. Payments thereafter will be $327,885 plus accrued interest. In
addition, the line of credit agreement previously in place with ESF has been
terminated.
The Company is a defendant in several legal actions which, if decided
against the Company, could have a material adverse effect on the financial
condition of the Company.
EFFECTS OF INFLATION
Management does not believe the effects of inflation is material to its
operations at this time.
MANAGEMENT OF THE COMPANY AND NAE
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The Directors and Executive Officers of the Company and NAE are listed
below.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
John W. Parrott 46 Chief Executive Officer, President and
Director of NAE
Tim B. Tarrillion 44 Chief Executive Officer, President
and Director of the Company
Donovan W. Boyd 42 Senior Vice President, Chief
Operating Officer, and Director of
the Company
David M. Daniels 38 Executive Vice President, Secretary and Director
of the Company; and President of IPF
Judith Knight Shields 38 Senior Vice President-Finance, Chief Financial Officer
and Treasurer of the Company
</TABLE>
All directors of the Company hold office until the next annual meeting
of stockholders or until their successors are duly elected and qualified. There
are currently no committees of the Board. Executive officers hold office at the
pleasure of the Board of Directors.
45
<PAGE>
JOHN W. PARROTT
John W. Parrott was Chairman of the Company from March 7, 1995 until
July 28, 1995. Prior to that he served as President and Director of the Company
and NAE and after June 17, 1994 he also became Interim Chief Executive Officer
and Treasurer of the Company. Prior to joining the Company and NAE, Mr. Parrott
served since 1987 in various capacities with natural resource companies
including St. Genevieve Resources, Ltd. of Montreal, Quebec.
Mr. Parrott is an attorney who previously practiced law in Michigan from
1981 to 1987 and served as a tax specialist with the public accounting firm of
Coopers & Lybrand. He has maintained his license to practice law in the State of
Michigan and is licensed to practice before the United States Supreme Court. He
holds a Bachelor of Arts (with Highest Honors) from the University of Arizona
where he was inducted into the Phi Beta Kappa and Phi Kappa Phi Honor Societies.
He also holds a Master of Arts Degree from George Washington University and a
Juris Doctor from Wayne State University Law School.
TIM B. TARRILLION
Mr. Tim B. Tarrillion became Chief Executive Officer, President and a
Director of the Company on March 7, 1995. Mr. Tarrillion was most recently the
President and Founder of EET. Prior to starting EET, Mr. Tarrillion was co-
founder, President and Chief Operating Officer of EnClean, Inc., a public
company which was listed on NASDAQ. EnClean provided industrial and
environmental cleaning services to companies in the refining, petrochemical,
steel, paper and utility industries. After growing to over $100 million in
revenue with 40 locations nationwide, EnClean was bought by and merged into Rust
Industries in 1992.
Mr. Tarrillion holds an MBA from Harvard University and a Masters Degree
and Bachelors Degree in Chemical Engineering from Rice University. Mr.
Tarrillion has significant experience in the environmental field. Mr. Tarrillion
received the 1991 Merrill Lynch, Inc. Magazine's Entrepreneurial award for the
Houston area in connection with his role in building EnClean from $1 million in
sales in 1984 to more than $100 million in 1992.
DONOVAN W. BOYD
Mr. Donovan W. Boyd joined the Company as Senior Vice President in April
1995, and was appointed Chief Operating Officer in July, 1995. Prior to his
position with the Company, Mr. Boyd was Vice President of Sales and Marketing
for Rust International, Industrial Services. In that capacity he was responsible
for more than $400 million in annual sales throughout the United States. Before
Rust, Mr. Boyd was a Regional Vice President with EnClean, Inc. He holds a
Bachelor's Degree in Chemical Engineering from Tulane University and an MBA from
Harvard University.
DAVID M. DANIELS
Mr. David M. Daniels joined the Company in August 1994 and currently
holds the position of Executive Vice President, Secretary and Director. Mr.
Daniels also serves as President of IPF. Prior to his current position with the
Company, Mr. Daniels was previously employed by Dean Witter Reynolds for 10
years, of which he held the position of Vice President for 8 years. Mr. Daniels
holds a Bachelors Degree in Finance from the University of Houston, as well as
an Associate Degree from Georgia Military Academy.
JUDITH KNIGHT SHIELDS
Ms. Judith Knight Shields joined the Company in March 1995. Ms. Shields
currently holds the position of Senior Vice President-Finance, Chief Financial
Officer and Treasurer. Prior to her current position with the Company, Ms.
Shields was Vice President of Mergers and Acquisitions and subsequently
Controller, with EnClean, Inc. Her ten years of experience prior to joining
EnClean, Inc. were in public accounting and venture capital. She graduated summa
cum laude from Texas A&M University with a Bachelors Degree in Accounting and is
a Certified Public Accountant.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
To the best of the Company's knowledge, there have been no events under
any state or federal bankruptcy laws, no criminal proceedings, no judgments,
orders, decrees or injunctions entered against any officer or director, and no
violations of federal
46
<PAGE>
or state securities or commodities laws material to the ability and integrity of
any director or executive officer during the past five years.
EXECUTIVE COMPENSATION OF THE COMPANY
The following table sets forth a summary of the compensation paid or
accrued for the years 1992 through 1994 by the Company or for the benefit of the
named executive officers. No options were granted by the Company to management
during the fiscal year ending December 31, 1993. See "Stock Options and
Warrants."
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE/1/
==================================================================================================================================
Long Term Compensation
Annual -----------------------------------------
Compensation Awards Payouts
- -----------------------------------------------------------------------------------------------------------------------------------
Other Restricted Stock
Name Annual Stock Options/ All Other
and Compen- Award(s) ($) SARS(#) LTIP Compen-
Principal Position Year(s Salary($) Bonus($) sation($) Payouts($) sation($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John Parrott/(2)/ 1994 150,000 - - - - - -
Former Chairman and 1993 - - - - - - -
Director 1992 - - - - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Tim B. Tarrillion/(3)/ 1994 - - - - - - -
Chief Executive Officer, 1993 - - - - - - -
President and Director 1992 - - - - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
David M. Daniels/(4)/ 1994 125,000 - - - - - -
Executive Vice President, 1993 60,000 - - - - - -
Secretary and Director 1992 - - - - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
James Impero/(5)/ 1994 100,000 - - - - - -
Former President NAE and 1993 100,000 - - - - - -
Director 1992 100,000 - - - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Thom E. Robinson/(6)/ 1994 - - - - - - -
Former Chief 1993 - - - - - - -
Executive Officer 1992 - - - - - - -
==================================================================================================================================
</TABLE>
___________________________
/(1)/ Based upon the fiscal years ended December 31, 1994, 1993 and 1992.
/(2)/ Mr. Parrott resigned as Chairman and Director on July 28, 1995.
/(3)/ Mr. Tarrillion became Chief Executive Officer, President and a Director of
the Company on March 7, 1995. Does not reflect terms of an employment
agreement entered into in February 1995. See "Employment Agreements."
47
<PAGE>
/(4)/ Mr. Daniels became a Director during August 1994 and became an Executive
Vice President, and Secretary of the Company during January 1995. Does not
reflect terms of an employment agreement entered into in February 1995, as
amended June 1995. See "Employment Agreements."
/(5)/ A former director and officer of the Company and NAE who resigned from
such positions on January 23, 1995.
/(6)/ Mr. Robinson resigned as Chief Executive Officer and Director during
August 1994.
STOCK OPTIONS
The following table sets forth for each of the named executive officers
regarding the grant of stock options by the Company in the 1994 fiscal year and
their potential realizable values. No stock appreciation rights have been
granted to employees.
<TABLE>
<CAPTION>
Option Grants in the 1994 Fiscal Year
- -----------------------------------------------------------------------------------------------------------------
Potential
Realizable Value at
Assumed Annual
Rates of Stock Price
Appreciation
Individual Grants for Option Term
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
% of
No. of Total
Securities Options
Underlying Granted to Exercise
Options Employees or Base
Granted in Fiscal Price Expiration 5% (Price 10% (Price
Name (#) Year ($/Sh) Date = 3.05) = 4.863
- -----------------------------------------------------------------------------------------------------------------
All stockholders N/A N/A $ N/A $45,234,864./(1)/ $72,123,653.08/(1)/
- -----------------------------------------------------------------------------------------------------------------
J. Parrott 300,000 21% $1.25 2000 $ 541,200 $ 1,083,900
T.B. Tarrillion - - - - - -
D.D. Daniels 300,000 21% $1.25 2003 $ 541,200 $ 1,083,900
J. Impero 300,000/(2)/ 21% $1.25 2000 $ 541,200 $ 1,083,900
T.E. Robinson - - - - - -
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
_______________________
/(1)/ The aggregate value of the 14,831,103 outstanding shares of Common Stock
of the Company on December 31, 1994, assuming a share price of $1.875 on
December 31, 1994, was approximately $27,800,000. If the Common Stock
appreciates at a compound rate of 5% per year over the option term, the
aggregate value of all such shares would be approximately $45,235,000, an
increase of $17,435,000 for all stockholders. Similarly, if the Common
Stock appreciates at a compound rate of 10% per year over the ten-year
option term, the aggregate value of all such shares would be
approximately $72,124,000, an increase of $44,324,000 for all
48
<PAGE>
stockholders. The purpose of providing this information is to indicate
the total potential stockholder gain over the term of the options
comparable to the potential gain shown for the options.
/(2)/ Mr. Impero's right to these options may be subject to challenge by the
Company by virtue of legal proceedings recently involved by the Company
against Mr. Impero. See "BUSINESS OF THE COMPANY AND NAE - Material
Outstanding Litigation."
49
<PAGE>
The following table sets forth for each of the named executive officers
information regarding stock options exercised by such officers during the 1994
fiscal year, together with the number and value of stock options held at 1994
fiscal year-end, each on an aggregated basis.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Aggregated Option Exercises in the 1994 Fiscal Year
and Fiscal Year-End Option Value
- ------------------------------------------------------------------------------------
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options at
Fiscal Year-End Fiscal Year-End /1/
Number of --------------- -------------------
Shares Acquired Value
Name on Exercise Realized Exercisable/ Exercisable/
Unexercisable Unexercisable
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John Parrott -- -- 240,000/60,000 $150,000/37,500
Tim B. Tarrillion -- -- -- __
David M. Daniels -- -- 120,000/180,000 $75,000/112,500
James Impero -- -- 180,000/120,000 $112,500/75,000
Thom E. Robinson -- -- -- __
- ------------------------------------------------------------------------------------
</TABLE>
- --------------------------
/1/ Market value of underlying securities at year-end ($1.875), minus the
exercise price.
50
<PAGE>
EMPLOYMENT AGREEMENTS
In February 1995, the Company entered into employment agreements with
Mr. Tarrillion, Mr. Boyd, Mr. Daniels and Ms. Shields.
Mr. Tarrillion's employment agreement provides for a base salary of
$180,000, plus bonuses and cost of living increases, and stock options to
purchase 400,000 shares of the Company's Common Stock which vest over four years
commencing on March 31, 1996. His agreement has a term of five years.
Mr. Boyd's employment agreement provides for a base salary of $135,000,
plus bonuses and cost of living increases, as well as options to purchase
200,000 shares of the Company's Common Stock which vest over a period of four
years commencing March 31, 1996. His agreement has a term of five years.
Mr. Daniels' employment agreement provides for a base salary of
$135,000, plus bonuses and cost of living increases, as well as options to
purchase 200,000 shares of the Company's Common Stock which vest over a period
of four years commencing March 31, 1996. His agreement has a term of five years.
Ms. Shields' employment agreement provides for a base salary of
$120,000, plus bonuses and cost of living increases, as well as options to
purchase 200,000 shares of the Company's Common Stock which vest over a period
of four years, commencing on March 31, 1996. Her employment is for a term of
five years.
STOCK OPTIONS AND WARRANTS
The Company presently has no formal stock option plan. However, through
September 1995 the Company has granted options to purchase 3,960,000
shares of the Company's common stock. Of these 3,110,000 are outstanding to
current and former employees, have option prices ranging from $1.25 to $2.50,
vest 20% to 25% per year, and have terms ranging from four to five years after
vesting. The remaining options were granted to current or past note holders.
Options to purchase 600,000 shares relate to one certain note agreement, have
option prices ranging from $1.50 to $2.50, and expire in November 1997. The
remaining options have prices ranging from $.75 to $1.375 and expire September
1996 through September 1999.
Included in these options to employees are 1,900,000 granted to current
or former directors of the Company and 200,000 granted to other executive
officers of the Company.
In addition, the Company has outstanding warrants to purchase
approximately 5,280,000 shares of the Company's common stock. These originated
from debt and equity placements, the merger with EET, and certain consulting
arrangements. Of these warrants, 2,700,000 have a $1.00 warrant price and expire
in September 2000; 1,900,000 have a $2.00 warrant price and expire in December
1997; 200,000 have a warrant price of $1.50 and expire July 1998 through
December 1999; 75,000 have a warrant price of $2.25 and expire in June 1996;
75,000 have a warrant price of $3.30 and expire in April 1996; 50,000 have
warrant prices of $4.50 to $6.00 and expire in January 1998; 130,000 have a
warrant price of $.75 and expire in December 1998; and 150,000 have a warrant
price of $1.00 and expire in August 1998.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF THE COMPANY AND NAE
The following table sets forth information with respect to the
securities holdings of all persons which the Company, by virtue of filings with
the Securities and Exchange Commission, has reason to believe may be deemed the
beneficial owners of more than 5% of the Company's outstanding common stock as
of July 31, 1995. Also set forth in the table is the beneficial ownership of all
of the Company's outstanding common stock as of such date by all officers and
directors, individually and as a group.
51
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature Percentage
Name and Address of Beneficial Owner of Beneficial of Class/(1)/
- --------------------------------------- Ownership -------------
-----------------
<S> <C> <C>
John W. Parrott/(2)/ 1,206,250 5.7
10021 N. 42nd Street
Phoenix, AR 85028
Tim B. Tarrillion/(3)/ 671,630 3.2
10102 Cedar Creek
Houston, TX 77042
Donovan W. Boyd - -
4014 N. Beechwood Ct.
Houston, TX 77059
David M. Daniels/(4)/ 795,000 3.8
7940 Drove Ridge Drive
Houston, TX 77061
Judith Knight Shields/(5)/ 12,500 ___
4710 Bellaire Boulevard, Suite 300
Bellaire, TX 77401
Gold Spinners International, Inc/(6)/ 3,625,000 17.2
5201 S. Mission Road
Mt. Pleasant, MI 48858
All officers and directors as a group 2,685,380 12.7
(4) persons
</TABLE>
_____________________
/(1)/ Based upon 21,058,695 shares outstanding at July 31, 1995.
/(2)/ Includes options to purchase 300,000 shares of the Company's Common Stock.
Does not include options to purchase 200,000 shares which will not vest
until December 31, 1995 and his satisfaction of material conditions in his
consulting agreement. See MANAGEMENT OF THE COMPANY AND NAE - Executive
Compensation of the Company." Also, Mr. Parrott is a director and 25%
stockholder of GSI. The foregoing table reflects Mr. Parrott's
proportionate interest in 906,250 shares owned by GSI. Mr. Parrott
disclaims beneficial ownership as to all other shares of the Company's
Common Stock owned by GSI.
/(3)/ Includes 530,500 shares and 50,000 common stock purchase warrants received
by Mr. Tarrillion in conjunction with a merger transaction between the
Company and EET in March, 1995. Also includes 91,130 shares owned through
a profit sharing plan for the benefit of Mr. Tarrillion. Does not include
options to purchase 400,000 shares of the Company's common stock which
will not commence vesting until March 31, 1996, which were received in
conjunction with the EET merger. Also does not include 51,000 shares
received by trusts on behalf of Mr. Tarrillion's minor children in
connection with the EET merger which are held by an independent trustee as
to which Mr. Tarrillion disclaims any beneficial ownership. See
"MANAGEMENT OF THE COMPANY AND NAE -Executive Compensation of the
Company."
52
<PAGE>
/(4)/ Includes 600,000 shares received by Mr. Daniels in conjunction with a
merger transaction between the company and IPF in June 1995. Includes
options to purchase 120,000 shares of the Company's common stock. Does not
include options to purchase 180,000 shares which do not commence vesting
until January 1, 1996 or options to purchase 200,000 shares that do not
commence vesting until March 31, 1996. See "MANAGEMENT OF THE COMPANY AND
NAE - Executive Compensation of the Company."
/(5)/ Includes 10,000 shares received by Ms. Shields and her husband in
connection with the merger transaction between the Company and EET in
March, 1995, but does not include options to purchase 200,000 shares that
do not commence vesting until March 31, 1996. See "MANAGEMENT OF THE
COMPANY AND NAE - Executive Compensation of the Company."
/(6)/ Of these shares, 1,625,000 are "contingent escrow shares" which may be
cancelled if certain performance criteria are not met. Although these
shares have been treated as outstanding for purposes of this schedule,
they shall be released to the owner thereof, if, and only if, the Company
shall have, during any of the fiscal years in the period ending December
31, 1995, annual after-tax earnings (determined in accordance with
generally accepted accounting principles) of at least $12,500,000, or if
the Company shall be acquired prior to December 31, 1996 (whether by
merger, share exchange involving more than 80% of its outstanding
securities, or a sale of all or substantially all of its assets) for a
purchase price exceeding $250,000,000.
53
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Advances From Directors, Officers and Certain Affiliates.
Mr. John W. Parrott, former Chairman of the Company and the President
and director of NAE, and Mr. Thom Robinson, former chief executive officer and
director of the Company, each own 25% of the issued and outstanding shares of
GSI. From its inception through 1992, the Company was advanced an aggregate of
$42,600 from GSI. During 1993, the Company repaid $40,000 of the advances and
was advanced an additional $281,381, resulting in aggregate unpaid advances of
$281,382. During 1994, the Company repaid all of the advances to GSI.
Through a corporate affiliate, Mr. Robinson also advanced the Company
$670,000 during 1993, of which the Company repaid $493,500, leaving aggregate
unpaid advances of $176,500 at the end of 1993. During 1994, this affiliate
provided additional advances of $335,000 to the Company and was repaid $522,500
of the advances, thus, leaving a balance of $11,000 as of December 31, 1994.
Mr. Parrott advanced the Company $30,000 for expenses during 1994, all
of which was repaid by the end of 1994.
Consulting Agreement with John W. Parrott
Effective as of July 28, 1995, John W. Parrott terminated his employment
agreement with the Company and entered into a consulting agreement (the
"Consulting Agreement"). The Consulting Agreement provides that Mr. Parrott will
provide advice to the Company with respect to the Company's transition in
management and certain litigation and financing matters through December 31,
1995. Pursuant to the Consulting Agreement, Mr. Parrott will receive $15,000 a
month through December 31, 1995 for his consulting services, and a payment in
settlement of his five-year employment contract of $250,000 due no later than
December 31, 1995. In addition, the stock options granted to Mr. Parrott in
connection with his employment agreement in February 1995 (representing 200,000
shares of Common Stock at an exercise price of $2.50 per share) shall vest on
December 31, 1995 and remain exercisable through December 31, 2005, provided
that a dispute involving a certain individual is resolved favorably to the
Company.
Transactions with Directors, Officers and Certain Affiliates
Certain corporate affiliates of James Impero, a former officer and
director of the Company, entered into a sublicense agreement with the Company
during March 1994 pursuant to which these affiliates assigned and conveyed to
the Company the exclusive marketing rights to the Oleofilter/TM/ System that
such affiliates had directly licensed from Exxon. Pursuant to that sublicense,
the Company paid those affiliates a license fee of $50,000 during 1994 and
$50,000 in January 1995.
During 1993, Mr. John Parrott and Mr. Thom Robinson were directors,
officers and minority stockholders of an inactive Canadian public company,
International Technologies, Inc. ("ITI"). In April 1993, ITI acquired CCSI in a
"reverse acquisition" whereby the former CCSI stockholders received a
controlling interest in stock of ITI and ITI was subsequently renamed CCSI. CCSI
entered in a joint venture agreement with the Company and Messrs. Parrott and
Robinson resigned from all positions with, and relinquished their stock
ownership in CCSI. See "BUSINESS OF THE COMPANY AND NAE - Sales, Marketing and
Joint Venture Agreements."
In June 1995, the Company acquired by merger IPF, a company owned by Mr.
David Daniels, a director and officer of the Company and two other individuals
who were subsequently hired by the Company. The Company issued 1,300,000 shares
of the Company's Common Stock in conjunction with the merger, 600,000 of which
were issued to Mr. Daniels. Mr. Daniels was also released from a personal
guaranty of certain debts of IPF in the amount of $50,000. The Company also
agreed to repay certain outstanding loans made by Mr. Daniels to IPF on or
before December 31, 1995. The outstanding balance of such loans were
approximately $118,000 as of June 30, 1995. Further, Mr. Daniels entered into an
amendment to his existing employment agreement with the Company to serve as
President of IPF.
54
<PAGE>
The Company has employment agreements with Messrs. Tarrillion, Boyd and
Daniels, and Ms. Shields. See "MANAGEMENT OF THE COMPANY AND NAE - Employment
Agreements."
The Company has granted certain options and warrants to directors and
officers of the Company. See "MANAGEMENT - Stock Options and Warrants."
LEGAL OPINIONS
Clark, Ladner, Fortenbaugh & Young has passed upon the validity of the
shares of Company Common Stock to be issued in connection with the Merger and
certain tax consequences of the Merger.
EXPERTS
The financial statements included in this registration statement have
been audited by BDO Seidman, LLP, and Shoemaker & Wilson, independent certified
public accountants, to the extent and for the periods set forth in the
respective reports of such firms contained in the registration statement and are
included in reliance upon such reports given upon the authority of such firms as
experts in accounting and auditing. The reports of BDO Seidman, LLP, contain an
additional paragraph regarding the Company's and NAE's ability to continue as
going concerns.
The financial statements of EET, Inc. appearing in Form 8K filed by
North American Technologies Group, Inc. dated March 7, 1995, have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference. Such financial statements
are incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
55
<PAGE>
Article IX of the Restated Certificate of Incorporation states that
directors of the registrant shall not be liable for monetary damages for breach
of fiduciary duty "to the full extent permitted by the General Corporation Law
of Delaware as the same exists or may hereafter be amended." The registrant is
also empowered by Section 102(b) of the Delaware General Corporation Law to
include a provision in the Certificate of Incorporation which would limit a
director's liability to the registrant or its stockholders for monetary damages
for breaches of fiduciary duty as a director. Article VIII of the Certificate of
Incorporation provides such a limitation. As Delaware law now exists, directors
will remain liable for damages for (i) breach of their duty of loyalty to the
registrant and its stockholders; (ii) their failure to act in good faith; (iii)
their intentional misconduct or knowing violation of law; (iv) improper dividend
payments, stock repurchases or redemptions; and (v) any transaction from which
the director derived an improper personal benefit.
56
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors
North American Technologies Group, Inc.
We have audited the accompanying consolidated balance sheets of North American
Technologies Group, Inc. and subsidiaries as of December 31, 1993 and 1994 and
the related consolidated statements of operations, cash flows and stockholders'
equity for each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of EET, Inc., which
statements reflect total assets of $1,686,212 and $1,366,425, respectively as of
December 31, 1993 and 1994 and total revenues of $269,073 and $1,426,748 for the
years then ended. Those statements were audited by other auditors whose report
has been furnished to us, and our opinion, insofar as it relates to the amounts
included for EET, Inc. is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based upon our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of North American
Technologies Group, Inc. and subsidiaries as of December 31, 1993 and 1994 and
the consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1994 in conformity with generally
accepted accounting principles.
F-1
<PAGE>
We previously audited and reported on the consolidated financial statements of
North American Technologies Group, Inc. and subsidiaries for the years ended
December 31, 1993 and 1994, prior to their restatement for the 1995 pooling of
interests. We have audited the combination of the accompanying financial
statements for the years ended December 31, 1993 and 1994, after restatement for
the 1995 pooling of interests; in our opinion, such consolidated financial
statements have been properly combined on a basis described in note 4 to the
consolidated financial statements.
As discussed in Note 5 to the consolidated financial statements, the Company is
involved in several legal matters, the ultimate outcome of which cannot
presently be determined, and, therefore, the consolidated financial statements
do not include any adjustments that might result from the outcome of these
uncertainties.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in notes 5 and 22 to the
consolidated financial statements, the Company's attainment of profitable
operations are dependent upon future events, including obtaining adequate
financing to fulfill its development activities, achieving a level of sales
adequate to support the Company's cost structure, and favorable resolution of
certain litigation. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans with regard to these
matters are discussed in Note 22. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
/s/ BDO SEIDMAN LLP
BDO SEIDMAN LLP
Philadelphia, Pennsylvania
April 13, 1995, except for
Note 6, as to which the
date is April 24, 1995
and Notes 4 and 21, as
to which the date is
September 22, 1995
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
EET, Inc.
We have audited the accompanying balance sheets of EET, Inc., a development
stage company, as of December 31, 1994 and 1993, and the related statements of
operations, shareholders' equity, and cash flows for the period from August 23,
1993 (inception) through December 31, 1994, for the year ended December 31,
1994, and for the period from August 23, 1993 (inception) through December 31,
1993 (not presented separately herein). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of EET, Inc., at December 31, 1994
and 1993, and the results of its operations and its cash flows for the period
from August 23, 1993 (inception) through December 31, 1994, for the year ended
December 31, 1994, and for the period from August 23, 1993 (inception) through
December 31, 1993, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Houston, Texas
February 9, 1995
F-3
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
December 31, 1993 1994
- ----------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current
Cash $ 286,904 $3,266,518
Accounts receivable, less allowance for doubtful
accounts of $30,000 in 1994 351,892 424,626
Note receivable 2,931,580 -
Advance payments 216,500 45,812
Prepaid expenses and other current assets 62,324 165,730
Advances to related parties - 30,890
- ----------------------------------------------------------------------------------
Total current assets 3,849,200 3,933,576
Note receivable - 2,800,763
Property and equipment, net of accumulated depreciation
of $46,146 in 1993 and $140,696 in 1994 512,447 592,858
Investment, at cost 600,000 -
Mining assets 794,315 -
Purchased technologies, net of accumulated amortization
of $25,000 in 1993 and $75,000 in 1994 225,000 175,000
Goodwill, net of accumulated amortization
of $7,936 in 1993 and $31,744 in 1994 468,231 444,422
Other 66,690 244,058
- ----------------------------------------------------------------------------------
$6,515,883 $8,190,677
- ----------------------------------------------------------------------------------
</TABLE>
F-4
<PAGE>
North American Technologies Group, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
December 31, 1993 1994
- ----------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current
<S> <C> <C>
Line of credit $ - $ 300,000
Current maturities of long-term debt 75,000 562,500
Accounts payable and accrued expenses 796,357 1,201,019
Notes payable to stockholders 350,000 213,302
Advances from related parties 487,582 3,142
Accrued interest payable 39,156 68,959
- ----------------------------------------------------------------------------------
Total current liabilities 1,748,095 2,348,922
- ----------------------------------------------------------------------------------
Long-term debt 462,500 500,000
- ----------------------------------------------------------------------------------
Minority interest 32,976 334,312
- ----------------------------------------------------------------------------------
Commitments and contingencies
Stockholders' equity
Preferred stock, $.001 par value
10,000,000 shares authorized, none and 80 issued - -
Common stock, $.001 par value
50,000,000 shares authorized
15,834,719 and 18,692,489 issued 15,835 18,692
Additional paid-in capital 11,882,695 17,613,667
Deficit (7,518,242) (12,454,572)
Less notes receivable for the purchase of stock (75,000) (138,032)
Treasury stock, at cost - 900,000 and 803,000 shares (32,976) (32,312)
- ----------------------------------------------------------------------------------
Total stockholders' equity 4,272,312 5,007,443
- ----------------------------------------------------------------------------------
$6,515,883 $8,190,677
- ----------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and
notes to consolidated financial statements.
F-5
<PAGE>
North American Technologies Group, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Year Ended December 31, 1992 1993 1994
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ - $ 269,073 $1,945,697
Cost of revenues - 191,310 1,317,171
- ----------------------------------------------------------------------------------
Gross margin - 77,763 628,526
- ----------------------------------------------------------------------------------
Expenses
Research and development expenses
(including $120,000 paid to related
parties in 1992) 598,665 1,826,089 1,506,073
Selling, general and administrative
expenses 1,274,393 2,923,659 3,078,743
- ----------------------------------------------------------------------------------
Total expenses 1,873,058 4,749,748 4,584,816
- ----------------------------------------------------------------------------------
Operating loss (1,873,058) (4,671,985) (3,956,290)
- ----------------------------------------------------------------------------------
</TABLE>
F-6
<PAGE>
North American Technologies Group, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Year Ended December 31, 1992 1993 1994
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Other income (expense)
Investment income $ - $2,169,672 $ 512,312
Interest income 6,624 523,623 112,897
Interest expense (6,545) (37,102) (121,986)
Minority interest in net loss
(income) of subsidiary 180,122 182,009 (22,532)
Equity in net (loss) income
of affiliate - (233,846) 50,000
Recapitalization costs (788,349) - -
Sale of marketing rights - 600,000 -
Loss on write-off of investment - - (600,000)
Loss on abandonment of mining properties - (43,251) (794,314)
- ----------------------------------------------------------------------------------
Total other income (expense) (608,148) 3,161,105 (863,623)
- ----------------------------------------------------------------------------------
Loss from continuing operations (2,481,206) (1,510,880) (4,819,913)
- ----------------------------------------------------------------------------------
Discontinued operations
Revenues - 138,975 291,588
Costs of services rendered - 131,597 408,005
- ----------------------------------------------------------------------------------
Gain (loss) from operations of
discontinued segment - 7,378 (116,417)
- ----------------------------------------------------------------------------------
Net loss $(2,481,206) $(1,503,502) $(4,936,330)
- ----------------------------------------------------------------------------------
Loss per common and common
equivalent share $(.37) $(.25) $(.35)
- ----------------------------------------------------------------------------------
Weighted average number of
common shares outstanding 6,772,297 5,986,711 13,994,515
- ----------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and
notes to consolidated financial statements.
F-7
<PAGE>
North American Technologies Group, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Year ended December 31, 1992 1993 1994
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $(2,481,206) $(1,503,502) $(4,936,330)
Adjustments to reconcile net loss to
net cash (used) in operating activities
Stock received in exchange for sale
of marketing rights - (600,000) -
Minority interest in net loss of
subsidiary (180,122) (182,009) -
Depreciation and amortization - 79,416 238,609
Provision for bad debts - - 30,000
Stock of subsidiary issued for
services 450,000 - -
Accrued interest on notes receivable,
stockholder - - (8,032)
Stock issued for services - - 31,260
Loss on abandonment of mining
properties - 43,251 794,315
Loss on write-off of investment - - 600,000
Decrease (increase) in assets
Accounts receivable - (338,873) (102,734)
Advance payments (538,526) 322,026 170,688
Prepaid expenses and other
current assets (1,200) (52,491) 8,068
Advances to related parties - - (30,890)
Other assets (5,100) (6,670) (11,327)
Increase (decrease) in liabilities
Accounts payable and accrued expenses 348,982 354,055 319,019
Accrued interest payable 6,545 22,375 43,080
- ------------------------------------------------------------------------------------
Net cash (used) in operating activities (2,400,627) (1,862,422) (2,854,274)
- ------------------------------------------------------------------------------------
</TABLE>
F-8
<PAGE>
North American Technologies Group, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Year ended December 31, 1992 1993 1994
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from investing activities
Increase in note receivable $ - $(2,931,580) $(130,817)
Purchase of business,
net of cash acquired - (923,827) -
Decrease in advances receivable 54,500 - -
Collection of notes receivable 667,910 175,000 -
Purchase of technology - (250,000) -
Payment of organization costs - (49,136) (29,957)
Payments relating to patent - (2,703) (12,467)
Purchase of property and equipment - (75,331) (480,302)
- ------------------------------------------------------------------------------------
Net cash provided (used) by investing
activities 722,410 (4,057,577) (653,543)
- ------------------------------------------------------------------------------------
Cash flows from financing activities
Proceeds from notes payable
to stockholder - 350,000 40,000
Issuance of common stock - 1,754,809 3,623,569
Issuance of preferred stock - - 2,024,000
Issuance of preferred stock
of subsidiary 350,000 - 15,000
Issuance of common stock
of subsidiaries 1,307,989 2,554,859 -
Purchase of treasury stock - - (3,000)
Line of credit borrowings - - 634,000
Issuance of debt 756,000 729,782 724,508
Repayment of debt - (12,500) (570,646)
- ------------------------------------------------------------------------------------
Net cash provided by financing
activities 2,413,989 5,376,950 6,487,431
- ------------------------------------------------------------------------------------
Net increase (decrease) in cash 735,772 (543,049) 2,979,614
Cash, at beginning of year 94,181 829,953 286,904
- ------------------------------------------------------------------------------------
Cash, at end of year $829,953 $286,904 $3,266,518
- ------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and
notes to consolidated financial statements.
F-9
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Preferred Common Stock
Shares Shares Amount
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1992 - 13,120,333 $13,120
Issuance of common stock in exchange
for all outstanding shares of EET, Inc. - 1,568,617 1,569
Sale of common stock - 111,143 111
Issuance of common stock of subsidiary
upon exercise of options - - -
Issuance of common stock and treasury stock in
exchange for minority interest of subsidiary - 1,034,626 1,035
Notes receivable from stockholders - - -
Net loss for the year - - -
- ------------------------------------------------------------------------------------------
Balance, at December 31, 1993 - 15,834,719 15,835
Issuance of common stock in exchange for all outstanding
shares of Industrial Pipe Fittings, Inc. - 1,300,000 1,300
Sale of common stock - 1,943,019 1,942
Issuance of common stock in connection with financing - 200,000 200
Issuance of Series A convertible preferred stock 220 - -
Issuance of common stock upon conversion
of Series A preferred stock (170) 1,219,751 1,220
Issuance of Series B convertible preferred stock 15 - -
Issuance of Series C convertible preferred stock 15 - -
Issuance of common stock for services - 20,000 20
Issuance of common stock from treasury - - -
Purchase of treasury stock - - -
Retirement of Series I Escrow shares - (1,625,000) (1,625)
Cancellation of common stock - (200,000) (200)
Notes receivable from stockholders - - -
Net loss for the year - - -
- ------------------------------------------------------------------------------------------
Balance, December 31, 1994 80 18,692,489 $18,692
- ------------------------------------------------------------------------------------------
</TABLE>
F-10
<PAGE>
North American Technologies Group, Inc.
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Additional Notes
Paid-In Treasury Stock Receivable
Capital Deficit Shares Amount Stockholder Total
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$7,844,883 $(6,014,740) 5,343,147 $(195,108) $ - $ 1,648,155
1,078,240 - - - - 1,079,809
749,889 - - - - 750,000
1,629,833 - - - - 1,629,833
579,850 - (4,443,147) 162,132 - 743,017
- - - - (75,000) (75,000)
- (1,503,502) - - - (1,503,502)
- ----------------------------------------------------------------------------------
11,882,695 (7,518,242) 900,000 (32,976) (75,000) 4,272,312
- - - - - 1,300
3,675,327 - - - - 3,677,269
649,800 - - - - 650,000
2,024,000 - - - - 2,024,000
(1,220) - - - - -
- - - - - -
- - - - - -
31,240 - - - - 31,260
- - (100,000) 3,664 - 3,664
- - 3,000 (3,000) - (3,000)
1,625 - - - - -
(649,800) - - - - (650,000)
- - - - (63,032) (63,032)
- (4,936,330) - - - (4,936,330)
- ----------------------------------------------------------------------------------
$17,613,667 $(12,454,572) 803,000 $(32,312) $(138,032) $5,007,443
- ----------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and
notes to consolidated financial statements.
F-11
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Preferred Common Stock
Shares Shares Amount
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1, 1992 - 21,527,251 $ 4,241,368
Issuance of common stock of subsidiary
in exchange for cancellation of debt - - -
Sale of common stock of subsidiary - - -
Issuance of common stock of subsidiary in
exchange for investment in common stock
of MBCC - - -
Adjustment arising from recapitalization,
1 for 1.73 share reverse stock split and
change from no par value to $.001 per share - (9,105,942) (4,228,947)
Acquisition of treasury stock through issuance
of preferred stock of subsidiary and
resultant creation of minority interest - - -
Issuance of common stock of subsidiary as
payment for services - - -
Sale of common stock of subsidiary - - -
Sale of preferred stock of subsidiary and
conversion into common stock of the Company - 70,000 70
Issuance of common stock of subsidiary upon
exercise of options - - -
Issuance of common stock in exchange for
net assets of MBCC - 561,820 562
Issuance of common stock for conversion
of debenture - 67,204 67
Net loss for the year - - -
- -------------------------------------------------------------------------------------
Balance, at December 31, 1992 - 13,120,333 $13,120
- -------------------------------------------------------------------------------------
</TABLE>
F-12
<PAGE>
North American Technologies Group, Inc.
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Additional Notes
Paid-In Treasury Stock Receivable
Capital Deficit Shares Amount Stockholder Total
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 15,683 $(3,533,534) - $ - $(10,000) $713,517
175,000 - - - - 175,000
250,000 - - - - 250,000
334,950 - - - - 334,950
4,218,947 - - - 10,000 -
- - 5,343,147 (195,108) - (195,108)
450,000 - - - - 450,000
994,153 - - - - 994,153
349,930 - - - - 350,000
45,846 - - - - 45,846
510,441 - - - 511,003
499,933 - - - 500,000
- (2,481,206) - - (2,481,000)
- ----------------------------------------------------------------------------------
$7,844,883 $(6,014,740) 5,343,147 $(195,108) $ - $1,648,155
- ----------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and
notes to consolidated financial statements.
F-13
<PAGE>
North American Technologies Group, Inc.
Summary of Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include the accounts of North
American Technologies Group, Inc. ("NATK") and the accounts of subsidiaries in
which the corporation directly or indirectly owns more than 50% of the voting
stock as of the end of each year. Investments in other companies in which less
than a majority interest is held are generally accounted for by the equity
method. All significant intercompany accounts and transactions have been
eliminated. North American Technologies Group, Inc., its subsidiaries and
affiliates are referred to herein as the "Company".
As a result of the acquisitions of EET, Inc. and Industrial Pipe Fittings, Inc.
(See note 4), the consolidated financial statements which had previously been
presented as a development stage enterprise have been restated and reclassified
to conform the prior years' data to the current presentation.
The Company
The Company is engaged in the development, acquisition and application of
technologies which management believes have applications in various industries,
including environmental services and energy resource reclamation. The
technologies include enzyme processes, mechanical systems and bioremedial
technologies.
Cash Equivalents
The Company considers all highly liquid instruments purchased with a maturity of
three months or less to be cash equivalents.
Goodwill
Goodwill is stated at cost, net of accumulated amortization. The Company
amortizes goodwill over a period of 20 years.
Property, Equipment and Depreciation
Property and equipment are stated at cost. Leasehold improvements are amortized
over the term of the lease. Fixed assets are depreciated on the straight line
basis over their estimated useful lives, generally three to seven years.
F-14
<PAGE>
North American Technologies Group, Inc.
Summary of Accounting Policies
Income Taxes
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes". Under this method, deferred
tax assets or liabilities result from temporary differences between the tax
basis of an asset or liability and its reported amount in the financial
statements that will result in taxable or deductible amounts in future years.
This change in accounting method had no effect upon the consolidated financial
statements.
Prior to 1993, the Company utilized the deferred method to compute income taxes
as required by Accounting Principles Board Opinion No. 11.
Research and Development
Expenditures for research and development of products and processes and for the
operation of pilot projects are charged to expense as incurred. The Company
reclassified $213,761 and $82,721 previously reported by the Company as revenue
in the years ended December 31, 1992 and 1993 as an offset against research and
development expenses since these amounts represent a reimbursement of cost.
Loss Per Common Share
The loss per common share is computed by dividing the loss applicable to common
stock by the weighted average number of common shares outstanding and common
stock equivalents, if dilutive.
Revenue Recognition
Service revenues are recognized as services are performed. Such revenues also
include the cost of services subcontracted to third parties that are reimbursed
to the Company by its customers. Product revenues are recognized when the
products are shipped.
F-15
<PAGE>
North American Technologies Group, Inc.
Notes to Consolidated Financial Statements
1. Recapitalization and Other Significant Corporate Matters
From its initial public offering in 1987 until March 31, 1992, the Company's
predecessor, Mail Boxes Coast to Coast, Inc. ("MBCC"), acted as exclusive area
franchisee for Mail Boxes, Etc. U.S.A., Inc. ("MBE") and, in that capacity, sold
franchises on behalf of MBE and provided subsequent operational assistance to
the individual MBE service center franchisees. During that period, MBCC incurred
significant operating losses and in 1991 it sold its Manhattan, New York
exclusive MBE area franchise to concentrate on its Los Angeles, California MBE
area franchise and to reduce expenses associated with maintaining operations on
both the East and West coasts. However, operating losses continued and MBCC was
in danger of losing its NASDAQ listing. After considering various alternatives,
the Board of Directors concluded that it was in the best interest of MBCC's
stockholders for the Company to reorganize and restructure to maximize the value
of the Company as a public corporation. As a result, between March and June,
1992, the Company undertook a series of transactions that resulted in the
disposition of all of the operating assets and liabilities of MBCC, and the
acquisition of 58.7 percent of the outstanding common stock of North American
Technologies, Inc. ("NAT"), a company engaged in developing technologies
relating to the environmental clean-up industry and reclamation of natural
resources.
At the time of the combination with NAT, MBCC had sold to its existing
management and principal stockholders the operating assets in exchange for
98,711 shares of MBCC's common stock and other consideration. As a result, MBCC
had no operations. Additionally, the stockholders of NAT received MBCC shares
which, after considering the conversion of convertible preferred stock issued in
the combination, gave them voting control over the combined companies.
Accordingly, for accounting purposes, NAT is considered the continuing entity,
and the transactions are accounted for as a recapitalization of NAT followed by
the issuance of new NAT shares of common stock for the net assets of MBCC.
The following describes both the legal form and the financial statement
treatment of each of the transactions in the combination of the two companies:
(a) An MBCC subsidiary (Daily Mail, Inc.) issued 55,360 shares of convertible
preferred stock, which were subsequently converted into 5,536,000 shares of
MBCC common stock, in exchange for 10,840,958 shares, representing 50.3% of
the outstanding common stock of NAT.
F-16
<PAGE>
North American Technologies Group, Inc.
Notes to Consolidated Financial Statements
Additionally, an MBCC subsidiary issued 266,617 shares of convertible
preferred stock, which were subsequently converted into 1,542,162 shares of
MBCC common stock, in exchange for 10,662,633 shares, representing 91.2% of
the outstanding common stock of North American Environmental Group, Inc.
("NAE"), a NAT subsidiary.
(b) In connection with the NAE transaction, Daily Mail, Inc. issued to NAT
50,000 shares of convertible preferred stock, which were subsequently
converted into 5,000,000 shares of MBCC common stock, in exchange for NAT's
investment in NAE; this transaction has been eliminated in consolidation and
the 5,000,000 common shares are considered to have been retired for
financial statement purposes.
(c) An MBCC subsidiary (522728 Alberta Ltd.) issued 9,000 shares of $3.50
convertible preferred stock (convertible into 900,000 shares of MBCC common
stock) for 1,800,000 shares, representing 8.4% of the outstanding common
stock of NAT. This is accounted for as the purchase of 900,000 treasury
shares in exchange for a preferred stock minority interest in a subsidiary,
recorded at the book value of the treasury shares acquired.
(d) 8,886,293 shares, representing 41.3 percent of the outstanding common stock
of NAT, were not acquired by MBCC in the transactions. This has been
recorded, at the book value, as the repurchase of 4,443,147 shares of
treasury stock in exchange for a 41.3 percent minority interest in a
subsidiary. During 1993, the Company acquired those shares on the basis of
one NATK common share for two NAT shares.
(e) The effect of the transactions in (a) through (d) above have been accounted
for as a reverse stock split whereby 21,527,251 previously outstanding NAT
common shares become 12,421,309 outstanding common shares.
(f) The 561,820 previously outstanding shares of MBCC became 561,820 outstanding
shares of North American Technologies Group, Inc. ("NATK") as a result of
the change in MBCC's name to NATK. This is accounted for as the issuance by
NAT of 561,820 shares of common stock for the net assets, recorded at book
value, of MBCC.
F-17
<PAGE>
North American Technologies Group, Inc.
Notes to Consolidated Financial Statements
At the conclusion of these transactions, NATK, the parent company, had
outstanding 12,983,129 shares of common stock (including the shares issued on
the conversion of the preferred stock referred to in (a) above), and NATK owned
58.7 percent of the common equity of NAT.
Before and after June 30, 1992, subsidiaries sold common or preferred stock for
cash or in exchange for services or the cancellation of debt (see Note 3).
On August 10, 1992, MBCC effected a 1 for 15 share reverse stock split. All
references to MBCC shares give effect to this transaction as if it had occurred
on January 1, 1992.
The Company entered a Plan of Arrangement with NAT, pursuant to which the
minority stockholders of NAT would receive one share of the Company's common
stock in exchange for two shares of NAT owned by them. The transaction was
consummated on November 5, 1993 and has been accounted for as the issuance of
4,443,147 shares of treasury stock and 1,034,626 shares of newly-issued common
stock for the minority interest, recorded at book value, of NAT.
2. Shares of Common Stock Subject to Escrow
5,250,000 of the shares of the Company's common stock issued upon conversion of
the convertible preferred stock were issued to Gold Spinners International, Inc.
("GSI"), a former principal stockholder of NAT. GSI owned, prior to the
reorganization of the Company, 10,280,958 shares or approximately 48% of NAT.
These shares were acquired in connection with the transaction described in
Note 1.
Of the 5,250,000 shares of Company common stock issued to GSI, 3,250,000 shares
were subject to escrow; 1,625,000 shares are "Class I Escrow Shares" and
1,625,000 shares are "Class II Escrow Shares." These shares are treated as
contingent shares, and accordingly, have been excluded from weighted average
shares in the computation of loss per common share.
"Class I Escrow Shares" were to be released if, and only if, the Company had,
during either of the fiscal years ending December 31, 1993 or December 31, 1994,
annual after-tax earnings of at least $5,000,000, or if the Company was acquired
prior to December 31, 1994 for a purchase price exceeding $150,000,000. Since
neither event occurred, the "Class I Escrow Shares" were retired for financial
reporting purposes effective December 31, 1994.
F-18
<PAGE>
North American Technologies Group, Inc.
Notes to Consolidated Financial Statements
"Class II Escrow Shares" shall be released to the owner thereof if, and only if,
the Company shall have, during any of the fiscal years in the period ending
December 31, 1995, annual after-tax earnings of at least $12,500,000, or if the
Company shall be acquired prior to December 31, 1996 for a purchase price
exceeding $250,000,000.
3. Minority Interest and Capital Transactions of Subsidiaries
In addition to the transactions described in Note 1, subsidiaries of the parent
had the following transactions involving the issuance of shares of their common
or preferred stock:
(a) During 1992, 175,000 shares of the common stock of NAE, representing 1.5%
of the ownership of NAE, were issued to retire debt.
(b) During 1992, 450,000 shares of NAE, representing 3.7% of the ownership of
NAE, were issued in exchange for services recorded at $450,000.
(c) During 1992, 366,572 shares of NAT, representing 1.8% of the ownership of
NAT, were issued for cash in the aggregate (net of offering costs) of
$1,011,176.
(d) During 1992, 30,000 shares of NAT, representing 0.1% of the ownership of
NAT and during 1993, 1,660,679 shares representing 7.0% of the ownership of
NAT, were issued on the exercise of options.
(e) During 1992, 100,000 shares of $3.50 convertible preferred stock
(convertible into 70,000 shares of NATK common stock) were issued by Daily
Mail, Inc. for cash of $350,000.
(f) During 1994, 305,000 shares of Series A, $1.00 par value, redeemable
preferred stock were issued by EET, Inc. in exchange for the cancellation
of $290,000 notes payable and cash of $15,000.
Common stock issued by subsidiaries may be issued at per share amounts that
differ from the per share book value of its subsidiary. Any resulting increase
or decrease in the parent's investment in the subsidiary is credited or charged
directly to stockholders' equity.
F-19
<PAGE>
North American Technologies Group, Inc.
Notes to Consolidated Financial Statements
The minority interest shown on the consolidated balance sheet is comprised of:
<TABLE>
<CAPTION>
December 31, 1993 1994
- -----------------------------------------------------------------------------
<S> <C> <C>
Preferred shares
522728 Alberta Ltd.
$3.50 convertible preferred
9,000 shares and
8,000 shares outstanding in
1993 and 1994, respectively $32,976 $29,312
- -----------------------------------------------------------------------------
EET, Inc.
Preferred stock $1.00 par value, cumulative;
305,000 shares outstanding in 1994 - 305,000
- -----------------------------------------------------------------------------
$32,976 $334,312
- -----------------------------------------------------------------------------
</TABLE>
The holders of the preferred stock of EET, Inc. are entitled to receive
cumulative preferential dividends at a rate of 10% per annum per share. On
March 7, 1995, all of the outstanding shares were redeemed for a payment of
$305,000. See Note 4 for additional information.
At December 31, 1993 and 1994, NAE has a capital deficit and, accordingly, the
minority interest in its common equity has been eliminated.
4. Acquisitions
On March 7, 1995, the Company acquired EET, Inc., ("EET") a Texas corporation,
pursuant to an Agreement and Plan of Merger dated February 7, 1995. On June 30,
1995, the Company acquired Industrial Pipe Fittings, Inc., ("IPF") a Texas
corporation, pursuant to an Agreement and Plan of Merger dated June 22, 1995. To
effect these acquisitions, the Company issued an aggregate of 3,070,729 shares
of the Company's common stock and warrants (issued to replace EET's outstanding
stock purchase warrants) to purchase up to 71,000 shares of
the Company's common stock.
F-20
<PAGE>
North American Technologies Group, Inc.
Notes to Consolidated Financial Statements
Each transaction was accounted for as a pooling of interests and, accordingly,
each of the accompanying consolidated financial statements for the years ended
December 31, 1993 and 1994 have been restated.
Operating results of the separate companies for the years prior to the merger
were:
<TABLE>
<CAPTION>
December 31, 1993 1994
- ----------------------------------------------------------------------
<S> <C> <C>
Revenue as previously reported $ - $ 13,542
Revenue of EET 269,073 1,426,748
Revenue of IPF - 505,407
- ----------------------------------------------------------------------
$ 269,073 $ 1,945,697
- ----------------------------------------------------------------------
Net loss as previously reported $(1,377,679) $(4,057,098)
Net loss of EET (125,823) (880,822)
Dividends on EET preferred stock - (22,532)
Net income of IPF - 24,122
- ----------------------------------------------------------------------
$(1,503,502) $(4,936,330)
- ----------------------------------------------------------------------
Net loss per share as previously
reported $ (.25) $ (.37)
Effect of EET - .02
Effect of IPF - -
- ----------------------------------------------------------------------
$ (.25) $ (.35)
- ----------------------------------------------------------------------
</TABLE>
The dividends paid on EET preferred stock are reflected as minority interest in
net loss (income) of subsidiary in the consolidated statement of operations for
the year ended December 31, 1994.
F-21
<PAGE>
North American Technologies Group, Inc.
Notes to Consolidated Financial Statements
On August 31, 1993, EET acquired certain assets and assumed certain liabilities
from Enclean, Inc., at a total cost of $924,227. The acquisition was accounted
for as a purchase and, accordingly, the operations of the acquired business are
included in the Company's results of operations from August 31, 1993. The
accounts of the acquired business are included in the Company's balance sheet at
the fair market value of the assets acquired net of liabilities assumed as of
the purchase date. The excess of cost over the fair market value of the net
assets acquired has been assigned to goodwill and is being amortized over 20
years on a straight-line basis commencing with the date of acquisition.
5. Legal Matters
In connection with the transaction described in Note 1, the Company has agreed
to continue the defense, and to remain liable for any liabilities which may
arise from the outcome of certain lawsuits against MBCC. The suits allege, among
other things, that the Company violated state franchise laws and breached
certain franchise agreements. The suits claim damages in excess of $425,000. The
Company believes that the suits are without merit and intends to vigorously
defend against them.
In April 1993, an individual brought an action against NAT and other parties,
which seeks delivery of 200,000 shares of common stock of NAT and damages
amounting to $1.7 million for failure to provide the shares on a timely basis.
The Company believes that the shares in question were validly issued in
accordance with the plaintiff's written instructions to a corporate purchaser
and that the claims, inasmuch as they pertain to NAT, are without merit. The
Company intends to vigorously defend against this action.
In July 1993, an individual brought action against North American Gold Corp.
(predecessor to NAT) and the brokerage for the stock for conveyance of 350,000
shares of North American Gold Corp. for $.50 per share or alternatively, for
damages and attorney fees. The claim is based upon a letter dated July 17, 1991,
purportedly signed by the president of the brokerage named in the suit. The
Company believes that this letter is a forgery and was not authorized by any
parties to the suit. The Company intends to vigorously defend against this
action.
In 1991, NAT and Drexel Oilfield Services, Inc. ("DOSI") formed North American
Drilling Technologies, Inc. ("NADT") to pursue the remediation of oil and gas
processing, exploration or production waste. NAT and DOSI each owned 50% of the
voting shares of NADT. Each stockholder agreed to provide operating capital, in
equal amounts when required, up to a maximum of $100,000. In October 1993, DOSI
terminated the agreement, and
F-22
<PAGE>
North American Technologies Group, Inc.
Notes to Consolidated Financial Statements
commenced legal action against the Company. In June 1994, the Company and DOSI
settled their differences and formally terminated the joint venture agreement.
In connection with the settlement, the Company purchased equipment from DOSI for
cash amounting to $337,500.
Under a 1992 license agreement, NAT received exclusive rights to purchase a
certain proprietary stabilized enzyme. During the second quarter of 1993,
management discovered that the licensor had violated the agreement by selling
the enzyme to NAT's competitors. In response to this violation and because the
enzyme proved to be ineffective for NAT's purposes, the Company abandoned the
agreement. In September 1993, the licensor brought suit in federal court for
delivery of 90,000 common shares of NATK which were being held in escrow under
the terms of the license agreement. NAT filed a motion to stay the federal court
proceedings and to compel arbitration before the American Arbitration
Association in Chicago. On March 7, 1994, NAT's motion was granted and the
federal court case was terminated.
At present, there is a proceeding on this matter before the American Arbitration
Association upon NAT's claims that the licensor materially breached the License
Agreement. NAT is requesting reimbursement of approximately $200,000 paid to the
licensor, return of the 90,000 shares of NATK stock and other consequential
damages. Because the outcome of this matter can not presently be determined, no
adjustments have been made to the consolidated financial statements.
On April 10, 1995, the Company filed a lawsuit against a former officer and
director of the Company. In late 1994, the Company commenced an investigation of
this former director's activities, and on January 23, 1995, requested and
received his resignation. The Company's claims against him are based on actions
taken both before and after his resignation that include breaches of duties owed
by him to the Company, torts against the Company and defamation of the Company's
business reputation. The Company has requested relief in the form of a temporary
restraining order, injunction and damages.
F-23
<PAGE>
North American Technologies Group, Inc.
Notes to Consolidated Financial Statements
6. Note Receivable
In April 1993, the Company invested $2,554,859 with Euro Scotia Funding Limited
("ESF") in exchange for a secured note receivable, which the Company could call
upon 30 days notice to ESF. Through April 1994, income from the note was
generated from the management, by ESF, of investments in various margin
transactions involving U.S. and other governmental debt securities, currency
forward exchange contracts and certain corporate debt and equity securities.
Under the terms of the note, the Company and ESF shared equally in trading
profits. For the years ended December 31, 1993 and 1994, the Company recognized
interest income amounting to $523,623 and $85,832, respectively, and trading
profits (included in investment income in the consolidated financial statement
of operations) amounting to $2,169,672 and $512,312, respectively. At December
31, 1993, the note had a principal balance of $2,931,580 and was secured by
marketable securities amounting to $6,000,000 which were being held in an
irrevocable trust.
Effective December 31, 1994, the Company renegotiated the terms of the note
receivable from ESF. Under the new agreement, ESF will repay the note in ten
semi-annual payments of $327,885, plus interest at 10% per annum, commencing
July 1, 1995. ESF elected, as permitted under the agreement, to prepay as of
December 31, 1994 the earliest payments using amounts owed to it by the Company
for borrowings under the line of credit agreement (see Note 12) and for services
rendered. At December 31, 1994, the face value of the original note plus accrued
interest receivable amounted to $3,278,857, borrowings under the line of credit
plus accrued interest payable amounted to $356,473, and amounts owed to ESF for
services amounted to $121,621. The net balance of $2,800,763 has been reflected
on the consolidated balance sheet at December 31, 1994.
As part of the new agreement, ESF has deposited $3.2 million in U.S. Treasury
Obligations ("Collateral") in an account with a third-party brokerage firm for
the benefit of NATK. ESF has signed an irrevocable power of attorney to NATK
giving it the ability to seize the Collateral in the event of a default,
provided that such default is not cured within thirty days after written notice.
In addition, there are irrevocable instructions provided to the brokerage firm
stating that ESF shall be allowed to trade the securities constituting the
Collateral, so long as the securities are substituted with U.S. Treasury
obligations and that the Collateral does not fall below the Minimum Value,
defined in the note agreement as the lesser of $3.2 million or 110% of the
outstanding principal balance on the note.
F-24
<PAGE>
North American Technologies Group, Inc.
Notes to Consolidated Financial Statements
7. Property and Equipment
Major classes of property and equipment consist of:
<TABLE>
<CAPTION>
December 31, 1993 1994
- ------------------------------------------------------------------
<S> <C> <C>
Machinery and equipment $ 34,789 $492,855
Automobiles 62,351 60,514
Furniture and office equipment 412,570 131,153
Leasehold improvements 48,883 49,032
- ------------------------------------------------------------------
558,593 733,554
Less accumulated depreciation 46,146 140,696
- ------------------------------------------------------------------
$512,447 $592,858
- ------------------------------------------------------------------
</TABLE>
8. Investment - Sale of Marketing Rights
In February 1993, the Company sold rights to market its environmental
technologies throughout Canada, excluding the Provinces of Alberta and
Saskatchewan. In exchange, the Company received 600,000 common shares of Katlor
Environmental Technologies, Inc. ("Katlor"), a publicly traded Canadian
corporation. Such shares were restricted for a period of one year from the date
of the transaction. At the time of the transaction, unrestricted common shares
of Katlor had a quoted market value of Canadian $2.32 per share (U.S. $1.83).
Because the shares received represent such a large percentage (8.1%) of the
outstanding common shares of Katlor and because the shares could not be sold for
a period of one year, management of the Company assigned a value of U.S.
$600,000 (U.S. $1.00 per share) to the transactions. The quoted market price of
unrestricted common shares of Katlor at December 31, 1993 was Canadian $1.83
(U.S. $1.37 or $822,000). The investment has been reflected in the consolidated
balance sheet as of December 31, 1993 and the value of the shares was recognized
as revenues in the consolidated statement of operations for the year ended
December 31, 1993.
During the fourth quarter of 1994, the market price of the Katlor shares
experienced a dramatic decline and, subsequently, Katlor filed for bankruptcy
protection. There has been no public trading in Katlor common stock since
December 31, 1994. Due to the current bankruptcy filing and because management
believes it is unlikely that the Company will be able to recognize any proceeds
from its investment, the balance of $600,000 was written off as of December 31,
1994.
F-25
<PAGE>
North American Technologies Group, Inc.
Notes to Consolidated Financial Statements
9. Mining Assets
Mining assets consisted of:
<TABLE>
<CAPTION>
<S> <C> <C>
December 31, 1993 1994
- -----------------------------------------------------------------
Harquahala Project, Arizona $794,315 $ -
- -----------------------------------------------------------------
</TABLE>
During 1993, the Company abandoned its claim to certain properties in Canada
and, accordingly, wrote off its investment in those properties amounting to
$43,251. In 1994, the Company decided not to pursue further development of any
of its mining properties and, accordingly, wrote off the remainder of its
investment in those properties amounting to $794,315.
10. Purchased Technologies
In July 1993, the Company acquired a proprietary dry oxidation process for a
purchase price of $250,000. Through the use of this proprietary process,
contaminants are removed from the soil by chemical reduction. The Company is
amortizing this cost over a five year period.
11. Related Parties
At December 31, 1993 and 1994, the Company has balances payable to related
parties amounting to $487,582 and $3,142, respectively. There are no specific
repayment terms.
The Company paid $120,000 for supplies and certain operating expenses (included
in research and development expenses) to a corporation owned by two directors
during 1992.
The Company paid $110,000 for commissions related to certain equity transactions
to two corporations owned by a director during 1992.
In 1994, the Company paid royalties amounting to $50,000 to a company owned by a
former director.
12. Line of Credit
The Company's subsidiary, EET, has a $500,000 revolving line of credit with a
bank. The line of credit, which expired in March 1995, is secured by accounts
receivable and is guaranteed by the stockholders of EET. Interest is charged at
the bank's prime rate plus 2% per annum. The balance at December 31, 1994 was
$300,000. As part of the acquisition of EET, the line of credit was paid in full
by the Company.
F-26
<PAGE>
North American Technologies Group, Inc.
Notes to Consolidated Financial Statements
In January 1994, NATK and NAT entered into an agreement which provided for a
line of credit of up to $18,000,000. As additional consideration for the loan,
NATK issued to the lender (ESF) 200,000 shares of its common stock with a quoted
market price of $650,000. During 1994, the Company borrowed $334,000.
Effective December 31, 1994, the Company and the lender agreed to terminate the
agreement, cancel the related common shares and offset all outstanding
borrowings plus accrued interest aggregating $356,473 against the note
receivable owed to the Company by the lender (see Note 6).
13. Long-Term Debt
Long-term debt is as follows:
<TABLE>
<CAPTION>
December 31, 1993 1994
- -----------------------------------------------------------------
<S> <C> <C>
Convertible debenture, prime rate
plus 2% (11% at December 31, 1994),
due May 1995 (a). $ 250,000 $ 250,000
Convertible debenture, 8%, due
August 1999 (b). - 500,000
Note payable, 6%, due January 1995 (c). - 100,000
Note payable, prime plus 2.5% (11.5% at
December 31, 1994, due June 1996 (d). 287,500 212,500
- -----------------------------------------------------------------
537,500 1,062,500
Less current maturities 75,000 562,500
- -----------------------------------------------------------------
$ 462,500 $ 500,000
- -----------------------------------------------------------------
</TABLE>
(a) The debentures are convertible into the Company's common stock by dividing
the principal balance by 75% of the average trading price of the stock
during the ten days preceding conversion.
(b) In August 1994, the Company borrowed $500,000, bearing interest at 8% per
annum, from an individual lender. The loan matures in August 1999. The
Company may prepay the loan with a penalty amounting to 2% of the principal
balance for each year the prepayment precedes the
F-27
<PAGE>
North American Technologies Group, Inc.
Notes to Consolidated Financial Statements
scheduled maturity date. The loan is convertible into shares of the
Company's common stock at $1.50 per share which exceeded the fair market
value at the date of the agreement. However, if the Company elects to
prepay the loan when the market price is below $1.50 per share, the lender
has the option to convert the loan into shares of common stock at a 15%
discount from the then-current market price.
(c) In September 1994, the Company borrowed $100,000, bearing interest at 6%
per annum, from an individual lender. The loan was repaid in January 1995.
(d) As required under the terms of the merger with EET, the Company repaid all
loans outstanding and, accordingly, all amounts outstanding will be
reflected as current liabilities.
14. Notes Payable - Stockholders
Notes payable stockholders consist of various notes payable to the stockholders
of EET and IPF. The notes are due on demand and bear interest at 8% per annum.
In 1994, $290,000 notes payable to the stockholders of EET were converted to
preferred stock (see Note 3). In 1995, as a result of the acquisition of each
company, the loans were paid in full.
15. Discontinued Operations
Effective July 29, 1994, EET entered into a formal plan to dispose of its
analytical services operations. On July 29, 1994, EET sold the fixed assets of
the analytical division to a third party. All remaining assets and liabilities,
which consisted of accounts receivable and accrued liabilities, were retained by
the Company. This is considered a discontinued operation. No gain or loss on the
disposal of the discontinued segment was incurred because the analytical
services operations did not continue beyond July 29, 1994 and there was no gain
or loss on the disposal of the assets.
F-28
<PAGE>
16. Income Taxes
At December 31, 1994, the Company has net operating loss carryforwards for
federal income tax purposes amounting to approximately $8,008,000 which, if not
utilized, will expire as follows:
<TABLE>
<CAPTION>
Year ended December 31,
- --------------------------------------------------------------
<S> <C>
1999 $ 162,000
2000 32,000
2001 102,000
2002 391,000
2003 376,000
2004 457,000
2005 169,000
2006 559,000
2007 594,000
2008 1,242,000
2009 3,924,000
- --------------------------------------------------------------
$8,008,000
- --------------------------------------------------------------
</TABLE>
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS 109). SFAS 109 requires a
change from the deferred method to an asset/liability method of computing
deferred income taxes.
The components of deferred income taxes were as follows:
<TABLE>
<CAPTION>
December 31, 1993 1994
- ----------------------------------------------------------------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforward $ 1,590,000 $ 2,685,000
Other 9,000 4,000
- ----------------------------------------------------------------
Gross deferred tax assets 1,599,000 2,689,000
Valuation allowance 1,599,000 2,689,000
- ----------------------------------------------------------------
Net deferred income taxes $ - $ -
- ----------------------------------------------------------------
</TABLE>
F-29
<PAGE>
North American Technologies Group, Inc.
Notes to Consolidated Financial Statements
The figures above are stated on a consolidated basis. Federal tax laws only
permit the use of net operating loss carryforwards by the individual entities
that originally sustained the losses.
17. Stockholders' Equity
In May, 1994, the Company issued 220 shares of Series A convertible preferred
stock, which were issued at $10,000 per share. Net proceeds to the Company
amounted to $2,024,000 after payment of the placement agent's fee. Each share of
Series A convertible preferred stock is convertible into a number of shares of
Company common stock equal to $10,000 divided by 77% of the closing bid price of
Company common stock on the conversion date. The convertible preferred shares
were issued with limitations on the timing and amount of shares to be converted,
however, these restrictions lapsed and all shares became convertible after
September 19, 1994. As of September 21, 1994, the holder had converted 90 shares
of Series A preferred stock into 711,448 shares of common stock. On October 7,
1994, the holder converted 15 shares of Series A preferred stock into 86,580
shares of common stock, and the Company issued 15 shares of its Series B
convertible preferred stock to the Series A holder as an inducement not to
convert any further Series A shares until after November 15, 1994. On November
29, 1994, the holder converted 15 shares of the Series A preferred stock into
86,580 shares of common stock, and the Company issued 15 shares of its Series C
convertible preferred stock to the holder as an inducement not to convert any
further preferred shares until after December 9, 1994. The Series B and Series C
preferred stock were issued with conversion terms identical to those of the
Series A preferred stock. The Company realized no proceeds from the issuance of
the Series B and Series C preferred stock. By December 31, 1994, an additional
50 shares of the Series A preferred stock had been converted into 335,143 shares
of Company common stock, and by January 26, 1995, the remaining shares of the
Series A, and all of the Series B and Series C shares have been converted into
424,506 shares of Company common stock.
F-30
<PAGE>
North American Technologies Group, Inc.
Notes to Consolidated Financial Statements
In July, 1994, the Company issued 100,000 shares of its common stock from its
treasury stock in exchange for 1,000 shares of $3.50 convertible preferred stock
of its subsidiary, 522728 Alberta Ltd. This is a continuation of a transaction
previously recorded at book value (see Note 1(c)).
At various times during 1994, the Company sold 1,750,250 shares of its common
stock for cash amounting to $3,484,500. In the largest of these private
placements, the Company sold at a price of $2.50 each, units consisting of one
common share and one warrant to purchase one common share at $2.00 per share.
These warrants expire at various dates in 1997. As of December 31, 1994, the
Company had sold 1,425,000 units and has realized net proceeds of $3,348,750
after payment of commissions and fees.
18. Stock Options
The Company has not adopted a formal stock option plan, however, since its
inception and through April 13, 1995 it has granted the following: approximately
3,200,000 options to directors, officers and employees, and approximately
2,000,000 options and warrants to consultants and in connection with financing
transactions and joint venture arrangements. In addition, the Company has
granted approximately 1,800,000 warrants to purchase common stock at a price of
$2.00 per share in connection with the private placement of Units that occurred
during the fourth quarter.
All of the options to directors, officers and employees bear exercise prices
that range from $1.25 to $2.50, which equates to the average trading price of
the Company's common stock at the time granted. These options generally vest
over a four or five year period and expire five years after vesting.
A significant portion of the options and warrants granted to consultants and in
connection with financing transactions and joint venture arrangements bear
exercise prices that are significantly in excess of the current market price of
the Company's common stock. Most of these options and warrants expire in 1995
and 1996.
In connection with the acquisition of EET, warrants to acquire 71,000 shares of
the Company's common stock were issued. The warrants are exercisable at $1.50
per share and expire in June 1999.
F-31
<PAGE>
North American Technologies Group, Inc.
Notes to Consolidated Financial Statements
19. Commitments
The Company rents equipment and office space under operating leases on both long
and short term bases. Rent expense amounted to approximately $56,000, $259,000
and $156,000 for the years ended December 31, 1992, 1993 and 1994, respectively.
Minimum annual rentals under non-cancellable operating leases of more than one
year in duration are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
- ----------------------------------------------------------------------
<S> <C>
1995 $144,494
1996 112,750
1997 79,173
1998 22,609
Thereafter -
- ----------------------------------------------------------------------
$359,026
- ----------------------------------------------------------------------
</TABLE>
Subsequent to December 31, 1994, the Company entered into employment contracts
that provide for payments of approximately $1,050,000 annually through 1999.
20. Supplemental Cash Flow Information
Due to its operating losses, the Company pays no income taxes. Under the terms
of its borrowing agreements, the Company is not required to, and does not pay
interest currently.
During 1992, North American Environmental Group, Inc., a subsidiary of the
Company, issued 450,000 shares of its common stock for services rendered in
connection with the recapitalization (see Note 1) of the Company. The shares
were valued at $450,000.
In 1993, the Company sold marketing rights (see Note 8) in exchange for common
stock valued at $600,000.
In 1993, the Company acquired the remaining minority interest in NAT through the
issuance of 4,443,147 common shares held in the treasury and 1,034,626 newly
issued common shares. The transaction was recorded at net book value or
$743,017.
F-32
<PAGE>
North American Technologies Group, Inc.
Notes to Consolidated Financial Statements
21. Subsequent Events
Effective July 28, 1995, John W. Parrott resigned from his position as Chairman
of the Board of Directors and as a director of North American Technologies
Group, Inc. Mr. Parrott will continue to serve the Company in the capacity of an
independent consultant pursuant to a short-term consulting agreement that
provides him with, among other things, a payment in settlement of his five-year
employment contract of $250,000 due no later than December 31, 1995.
From January 1, 1995 through August 31, 1995, the Company:
(i) issued 424,506 shares of common stock upon the conversion of the remaining
80 shares of the Company's Series A, Series B and Series C convertible preferred
stock;
(ii) issued 2,554,700 shares of common stock for proceeds to the Company, net of
all related fees, of $1,798,000;
(iii) issued from treasury stock 350,000 shares that had been reserved for the
conversion of preferred stock of a subsidiary of the Company; and
(iv) received $100,000 from the issuance of a convertible note, due within six
months.
On June 9, 1995, and subsequently amended on June 30, 1995, the Company signed a
letter of intent to purchase certain tangible and intangible assets of Thor
Industries, Inc., Thor Ventures, L. C. and GAIA Technologies, Inc. (collectively
"GAIA") for $2,500,000, issuance of 1,666,667 shares of the Company's common
stock and various other contingent payments in the form of licensing and royalty
fees over the next five and fifteen years, respectively. The $2,500,000 payment
to GAIA will consist of a $2,000,000 cash payment and the forgiveness of a
$500,000 loan. The Company also has agreed to provide an additional $1,000,000
loan, the proceeds of which will be used to purchase equipment and provide
working capital. The Company is currently performing its due diligence review.
The letter of intent terminates on October 31, 1995 or such later date as the
parties may mutually agree on.
The agreement also stipulates that upon closing, the Company will have the
exclusive right and option for two years from that date to purchase all of the
remaining tangible and intangible assets relating to GAIA's railroad crosstie
business. In exchange for the option, the Company has agreed to loan $1,500,000
at various dates, the proceeds of which shall be used exclusively
F-33
<PAGE>
North American Technologies Group, Inc.
Notes to Consolidated Financial Statements
for expenses incurred in connection with the development of railroad crosstie
technology. GAIA will pledge as security for the loans, 666,667 shares of the
common stock of NATK received as part of the initial acquisition. NATK has the
right to extend the option period for up to one additional year.
Upon expiration of the letter of intent, all loans will be due and payable on
July 1, 1998. The loans bear interest at 10% per annum and are collateralized by
a lien on all equipment, technologies, know-how, patents and working capital of
GAIA.
In September 1995, the Company sold $2,700,000 of convertible, subordinated
notes bearing interest at 13.5% per annum to a small group of investment firms.
After one year, the notes are convertible into shares of the Company's common
stock at the rate of $1 per share. The Company also issued warrants to purchase
shares of its common stock at a price of $1 per share. The notes, maturing in
September 2000, provide for the deferral of interest payments for three years.
22. Going Concern
The Company has not achieved sales necessary to support operations. The Company
has incurred an accumulated deficit of $12,454,572 through December 31, 1994. It
can be expected that operating expenses will increase as the Company incurs
expenses to market its technologies and to build an operating structure which
can provide products and services to its customers. Until the Company is able to
generate sufficient revenues from its technologies and businesses, there can be
no assurance that profitable operations can be attained.
To the extent that funds generated from operations and existing capital
resources are insufficient, the Company will have to raise additional funds. No
assurance can be given that additional financing will be available, or if
available, will be available on acceptable terms. If adequate funds are not
available, the Company may be required to curtail its operations.
These factors raise substantial doubt about the Company's ability to continue as
a going concern. The financial statements do not include any adjustments
relating to the recoverability and classification of asset carrying amounts or
the amount and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern.
F-34
<PAGE>
North American Technologies Group, Inc.
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
Assets (Unaudited)
- -----------------------------------------------------------------------------------
<S> <C> <C>
Current
Cash $ 776,803 $3,266,518
Accounts receivable, less allowance for
doubtful accounts of $32,606 in 1995
and $30,000 in 1994 555,020 501,328
Inventory 119,309 64,254
Current portion of financing lease 83,547 78,797
Accrued interest receivable 142,136 -
Notes receivable, related parties 79,000 -
Prepaids and other current assets 69,498 22,679
---------- ----------
Total current assets 1,825,313 3,933,576
Note receivable 2,800,763 2,800,763
Property and equipment, net of accumulated depreciation
of $203,362 in 1995 and $140,696 in 1994 376,192 592,858
Investment in financing lease, net of
current portion 97,231 140,781
Investment in joint venture 212,984 -
Goodwill, net of accumulated amortization
of $43,648 in 1995 and $31,744 in 1994 432,518 444,421
Purchased technologies, net of accumulated amortization
of $100,000 in 1995 and $75,000 in 1994 150,000 175,000
Non-compete agreements 105,000 -
Organizational costs, net of accumulated amortization
of $24,685 in 1995 and $16,698 in 1994 54,087 62,627
Patent and patent rights, net of accumulated amortization
of $11,005 in 1995 and $1,032 in 1994 85,562 16,498
Other assets 38,492 24,152
--------- ----------
$6,178,142 $8,190,676
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-35
<PAGE>
North American Technologies Group, Inc.
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
Liabilities and Stockholders' Equity (Unaudited)
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Current
Line of credit $ - $ 300,000
Current portion of long-term debt 250,000 562,500
Notes payable to officers 117,922 213,302
Accounts payable 650,342 692,998
Accrued expenses 398,068 511,162
Accrued interest payable 83,454 68,959
------------ ------------
Total current liabilities 1,499,786 2,348,921
Long-term debt 500,000 500,000
Minority interest 16,488 334,312
Commitment and contingencies
Stockholders' equity
Preferred stock, $.001 par value;
10,000,000 shares authorized; 80 issued in 1994 -
Common stock, $.001 par value; 50,000,000 shares
authorized; 20,529,338 and 18,692,489 issued 20,529 18,692
Additional paid-in capital 18,756,923 17,613,667
Accumulated deficit (14,457,142) (12,454,572)
------------ ------------
4,320,310 5,177,787
Less treasury stock, at cost - 450,000 and 803,000 shares (16,488) (32,312)
Less notes receivable for purchase of stock (141,954) (138,032)
------------ ------------
Total stockholders' equity 4,161,868 5,007,443
------------ ------------
$ 6,178,142 $ 8,190,676
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-36
<PAGE>
North American Technologies Group, Inc.
Consolidated Statement of Operations
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six months ended
June 30,
1995 1994
----------- ------------
<S> <C> <C>
Revenues $ 1,172,573 $ 671,510
Cost of services rendered 813,266 442,729
----------- -----------
Gross margin 359,307 228,781
Selling, general and administrative 1,938,735 1,605,447
Research and development 412,240 639,530
----------- -----------
Total expenses 2,350,975 2,244,977
----------- -----------
Operating loss (1,991,668) (2,016,196)
Other income (expense):
Investment income - 512,312
Interest income 167,045 29,222
Interest expense (47,222) (42,429)
Equity in net loss of joint venture (131,998) -
Minority interest in net (income) loss
of subsidiary (5,432) -
Other income (expense) 6,705 -
----------- -----------
(10,902) 499,105
----------- -----------
Loss from continuing operations (2,002,571) (1,517,091)
Discontinued operations:
Revenues - 237,607
Costs of services rendered - 284,405
----------- -----------
Loss from discontinued operations - (46,798)
----------- -----------
Net Loss $(2,002,571) $(1,563,889)
=========== ===========
Loss per common and
common share equivalent $(.12) $(.12)
Weighted average number of
common shares outstanding 16,983,973 13,590,689
</TABLE>
See Notes to Consolidated Financial Statements.
F-37
<PAGE>
North American Technologies Group, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six months ended
June 30, June 30,
1995 1994
---------- ----------
OPERATING ACTIVITIES
<S> <C> <C>
Net Loss $(2,002,571) $(1,563,889)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization 138,082 118,049
Provision for bad debts 2,606
Equity in net loss of joint venture 131,998
Accrued interest income on notes receivable
from original shareholders of EET, Inc. (3,922) (4,019)
Stock received from sale of marketing rights
Minority interest in net income (loss) of
subsidiary 5,432
Stock of subsidiary issued for services
Stock issued for services
Loss on abandonment of mining properties
Loss on write-off of investment
Loss on abandonment of equipment
Changes in operating assets and liabilities:
Accounts receivable (56,298) (97,787)
Inventory (55,055) (34,886)
Prepaid expenses and other current assets (46,819) (7,292)
Accrued interest receivable (142,136) (600)
Advance payments (462,982)
Other assets (14,340) (257,072)
Accounts payable (42,656) 25,091
Accrued expenses (113,094) 21,791
Accrued interest payable 14,495 18,859
Advances from related parties (30,860)
----------- -----------
Net cash used in operating activities (2,184,278) (2,275,597)
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-38
<PAGE>
North American Technologies Group, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six months ended
June 30, June 30,
1995 1994
------------ -----------
<S> <C> <C>
INVESTING ACTIVITIES
Payments received from finance lease $ 38,800 $
Payment of organizational costs (29,635)
Payments relating to patent and patent rights (79,037) (10,798)
Purchase of property and equipment (66,000) (39,099)
Payment for non-compete agreements (105,000)
Increase in note receivable (240,121)
Increase in notes receivable - related parties (79,000)
Increase in notes receivable from original
shareholders of EET, Inc. (55,000)
Cash invested in joint venture (144,982)
----------- ----------
Net cash used in investing activities (435,219) (374,653)
----------- ----------
FINANCING ACTIVITIES
Issuance of common stock 1,148,094 2,344,108
Redemption of preferred stock (305,000)
Payment of dividends on preferred stock of
subsidiary (5,432) (7,375)
Proceeds from notes payable to shareholders 4,620 116,296
Net borrowings on line of credit 254,000
Repayment of line of credit (300,000)
Repayments of long term debt (412,500) 177,500
----------- ----------
Net cash used in financing activities 129,782 2,884,529
----------- ----------
Increase (decrease) in cash (2,489,715) 234,279
Cash at beginning of period 3,266,518 286,904
----------- ----------
Cash at end of period $ 776,803 $ 521,183
=========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-39
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
Notes to Consolidated Financial Statements
1. BASIS OF PRESENTATION
The interim financial information of North American Technologies Group, Inc. and
its subsidiaries (the "Company") which is included herein is unaudited and has
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. 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 years ended December 31, 1994 and 1993.
Certain reclassifications have been made to the accompanying financial
statements to conform them to the June 30, 1995 consolidated financial statement
presentation. The interim results reflected in the accompanying financial
statements are not necessarily indicative of the results of operations for a
full fiscal year.
The accompanying financial statements have been restated retroactively to
include the historical financial results of EET, Inc. ("EET") which was acquired
in March 1995, and Industrial Pipe Fittings, Inc. ("IPF") which was acquired on
June 30, 1995. Both of these transactions are accounted for as a pooling-of-
interests. Accordingly, the consolidated financial statements for all periods
prior to the acquisitions have been restated to combine the previously separate
entities. See also Note 2.
The loss per common share is computed by dividing the loss applicable to common
stock by the weighted average number of shares outstanding and common stock
equivalents, if dilutive.
2. ACQUISITION OF EET, INC. AND INDUSTRIAL PIPE FITTINGS, INC.
On March 7, 1995 the Company acquired EET, Inc., a Texas corporation, pursuant
to an Agreement and Plan of Merger dated February 7, 1995. On June 30, 1995 the
Company acquired Industrial Pipe Fittings, Inc., a Texas corporation, pursuant
to an Agreement and Plan of Merger dated June 22, 1995. In each transaction, a
newly formed subsidiary of the Company acquired the respective entity by merger
in consideration for the issuance of newly issued shares of the Company's common
stock and, in the case of EET, warrants. To effect these acquisitions, the
Company issued an aggregate of 3,070,729 shares of the Company's common stock
and warrants to purchase up to 71,000 shares of Company's common stock. The
newly formed subsidiaries will continue as the surviving corporations with the
names of EET, Inc. and Industrial Pipe Fittings, Inc., respectively. The
transactions meet the requirements of a pooling-of-interests, and as such the
financial statements of the Company have been restated retroactively to include
the historical financial results of EET and IPF.
F-40
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
Notes to Consolidated Financial Statements
EET had revenues of $1,426,748 and $269,073 for the years ended December 31,
1994 and 1993, respectively. IPF had revenues of $505,407 for its first year of
operations in 1994. Combined with the previously reported revenues of North
American Technologies Group, Inc., the pro forma revenues for 1994 and 1993
would have been $1,945,697 and $351,794. EET reported losses before
discontinued operations of $764,405 and $133,201 for the years ended December
31, 1994 and 1993, respectively. IPF reported net income of $24,221 for 1994.
Combined with the previously reported losses of North American Technologies
Group, Inc., the pro forma losses before discontinued operations for 1994 and
1993 would have been $4,797,381 and $1,510,880.
As part of the acquisition of IPF, the Company entered into non-compete
agreements with the three shareholders of IPF. All three shareholders are
active in the on-going operations of IPF. The non-compete agreements provide for
a one-time payment of $35,000 per individual and provide for non-competition
during the term of each individual's employment and for a three year period
thereafter. The total amount paid of $105,000 has been included as an intangible
asset on the balance sheet at June 30, 1995.
3. RELATED PARTY TRANSACTIONS
At June 30, 1995 the Company had notes receivable in the aggregate of $79,000
outstanding to an officer of the Company and a corporate joint venture partner.
The note receivable to the officer arose in connection with his relocation to
Texas and was provided for by the terms of his employment agreement. The notes
bear interest at 6% and 10%, respectively, and have a term of one year or less.
The notes receivable included in the equity section of $141,954 and $138,032 at
June 30, 1995 and December 31, 1994, respectively, include the unpaid portion of
the original EET shareholders' capital contributions from the formation of EET,
and from new shares issued in 1994 in exchange for notes receivable.
Additionally, the balances include approximately $12,000 and $8,000 in accrued
interest income at June 30, 1995 and December 31, 1994, respectively. The notes
bear interest at 6% per annum and are due upon one of the following events: (i)
EET pays dividends to its shareholders, but only to the extent of the dividends,
(ii) the maker sells his or her shares, or (iii) there is a payment from a
defined bonus pool, but only to the extent of such bonus.
Included in notes payable to officers at June 30, 1995 and December 31, 1994 is
$117,922 and $113,302, respectively, that is payable to an officer and director
of the Company who was also a shareholder of IPF prior to its acquisition by the
Company. The officer advanced money to IPF under the terms of a note agreement,
and subsequent to the acquisition this note remains in effect. Interest is
accrued monthly at 8% and the full amount is due and payable on or before
December
F-41
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
Notes to Consolidated Financial Statements
31, 1995. The remaining balance in notes payable to officers at December 31,
1994 relates to amounts owed to the former shareholders of EET who became
officers of the Company in March 1995. Those notes were repaid as part of the
acquisition of EET.
4. INVESTMENT IN JOINT VENTURE
During the first six months of 1995 the Company contributed equipment valued at
$200,000 and cash of $145,000 to its joint venture with a private company. The
joint venture is working on a demonstration project for a major environmental
processing facility in South Texas. The Company uses the equity method to
record its share of the earnings and losses of the joint venture, and
accordingly has recognized $131,998 as its share of the joint venture's losses
for the first six months of 1995 on its statement of operations and as a
reduction of the Company's investment in the joint venture.
5. DISCONTINUED OPERATIONS
Effective July 29, 1994, EET entered into a formal plan to dispose of its
analytical services operations. On July 29, 1994, EET entered into a direct
financing lease to sell the fixed assets and the analytical division to a third
party. All remaining assets and liabilities, which consisted of accounts
receivable and accrued liabilities, were retained by EET. The results of such
discontinued operations have been separated from the continuing operations on
the income statement. The balance sheet reflects the current and non-current
balance on the financing lease receivable.
6. MINORITY INTEREST
EET issued 305,000 shares of preferred stock in 1994 for $305,000 which has been
reflected as minority interest on the consolidated balance sheet at December 31,
1994. The preferred stock was redeemed in March 1995 in connection with the
acquisition by the Company of EET, and dividends of $5,432 were paid. The
dividends have been reflected as minority interest in net income of subsidiary
on the accompanying consolidated statement of operations for the six months
ended June 30, 1995.
7. STOCKHOLDERS' EQUITY
During the six months ended June 30, 1995, the Company:
(i) issued 3,070,729 shares of common stock for the acquisition of EET and
IPF;
(ii) issued 424,506 shares of common stock upon the conversion of the remaining
80 shares of the Company's Series A, Series B and Series C convertible
preferred stock;
(iii) entered into agreements requiring the placement of 1,587,000 shares of
common stock for
F-42
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
Notes to Consolidated Financial Statements
proceeds to the Company, net of all related fees, of $1,160,000; all cash
proceeds were received by June 30, 1995; 1,415,000 shares were issued by
June 30, 1995 and 172,000 shares were issued in July 1995.
(iv) issued from treasury stock 350,000 shares that had been reserved for the
conversion of preferred stock of a subsidiary of the Company.
8. SUBSEQUENT EVENT
Effective July 28, 1995, John W. Parrott resigned from his position as Chairman
of the Board of Directors and as a director of North American Technologies
Group, Inc. Mr. Parrott will continue to serve the Company in the capacity of
an independent consultant pursuant to a short-term consulting agreement that
provides him with, among other things, a payment in settlement of his five-year
employment contract of $250,000 due no later than December 31, 1995.
F-43
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
North American Environmental Group, Inc.
We have audited the consolidated balance sheets of North American
Environmental Group, Inc. (a development stage enterprise) and subsidiaries
as of December 31, 1993 and 1994, and the related consolidated statements of
operations, and cash flows for each of the three years in the period ended
December 31, 1994 and from the date of inception (May 7, 1991) to December
31, 1994 and the consolidated statements of stockholders' equity (capital
deficit) for each of the three years in the period ended December 31, 1994.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the consolidated
statements of operations, stockholders' equity (capital deficit), and cash
flows of North American Environmental Group, Inc. and subsidiaries from the
date of inception (May 7, 1991) to December 31, 1991. Those statements were
audited by other auditors and our opinion, insofar as it relates to the
amounts included for the period from the date of inception (May 7, 1991) to
December 31, 1991, is based solely on the report of other auditors dated
November 18, 1992 (the "1992 report").
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the 1992
report of other auditors provide a reasonable basis for our opinion.
As discussed in Note 1 to the consolidated financial statements, the Company
entered into a series of transactions which have been accounted for as a
recapitalization.
F-44
<PAGE>
In our opinion, based upon our audits and the 1992 report of other auditors,
the consolidated financial statements referred to above present fairly, in
all material respects, the consolidated financial position of North American
Environmental Group, Inc. and subsidiaries as of December 31, 1993 and 1994
and the consolidated results of its operations and its cash flows for each
of the three years in the period ended December 31, 1994 and from the date
of inception (May 7, 1991) to December 31, 1994 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is in the development
stage as of December 31, 1994. As discussed in Note 2 to the consolidated
financial statements, successful completion of the Company's development
program, and ultimately, the attainment of profitable operations is
dependent upon future events, including obtaining adequate financing to
fulfill its development activities, and achieving a level of sales adequate
to support the Company's cost structure. These conditions raise substantial
doubt about the Company's ability to continue as a going concern.
Management's plans, with regard to these matters, is discussed in Note 2.
The financial statements do not include any adjustments that might result
from the outcome of these uncertainties.
/s/ BDO SEIDMAN LLP
BDO SEIDMAN LLP
Philadelphia, Pennsylvania
April 13, 1995
F-45
<PAGE>
SHOEMAKER AND WILSON, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
POINTE SOUTH EXECUTIVE BUILDING
P.O. BOX 444
5201 S. MISSION
MT. PLEASANT, MICHIGAN 48804-0444
(517) 773-6449
INDEPENDENT AUDITORS' REPORT
Officers and Directors
North American Environmental Group, Inc.
(a development stage enterprise)
Mt. Pleasant, Michigan
We have audited the accompanying consolidated statements of operations and
deficit accumulated during the development stage, changes in stockholders'
equity, and cash flows of North American Environmental Group, Inc. (a
development stage enterprise) and subsidiaries for the period from the date of
inception (May 7, 1991) to December 31, 1991. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
North American Environmental Group, Inc. and subsidiaries for the period from
the date of inception (May 7, 1991) to December 31, 1991, in conformity with
generally accepted accounting principles.
/s/ SHOEMAKER & WILSON, P.C.
SHOEMAKER & WILSON, P.C.
Certified Public Accountants
November 18, 1992
F-46
<PAGE>
<TABLE>
<CAPTION>
December 31, 1993 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current
Cash $ 1,170 $ 1,001
Advance payments 216,500 44,500
Due from affiliate 347,343 33,328
Accrued interest receivable 3,600 -
- ---------------------------------------------------------------------------------
Total current assets 568,613 78,829
Property and equipment, net of accumulated depreciation of
$10,269 in 1993 and $24,712 in 1994 42,597 28,154
Deposits 2,700 2,700
- ---------------------------------------------------------------------------------
$613,910 $109,683
- ---------------------------------------------------------------------------------
</TABLE>
F-47
<PAGE>
North American Environmental Group, Inc.
(A Development Stage Enterprise)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31, 1993 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Capital Deficit
Current
Accounts payable $ 431,594 $ 5,035
Due to affiliates 885,182 1,660,521
Convertible debenture - 250,000
Accrued interest payable 39,156 56,905
- --------------------------------------------------------------------------------
Total current liabilities 1,355,932 1,972,461
- --------------------------------------------------------------------------------
Convertible debenture 250,000 -
- --------------------------------------------------------------------------------
Commitments and contingencies
Capital deficit
Preferred stock, $.001 par value
Authorized 1,000,000 shares
Issued shares - none - -
Common stock, $.01 par value
Authorized 20,000,000 shares
Issued and outstanding 12,138,333 shares 121,383 121,383
Additional paid-in capital 883,719 883,719
Deficit accumulated during the development stage (1,997,124) (2,867,880)
- --------------------------------------------------------------------------------
Total capital deficit (992,022) (1,862,778)
- --------------------------------------------------------------------------------
$ 613,910 $ 109,683
- --------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-48
<PAGE>
North American Environmental Group, Inc.
(A Development Stage Enterprise)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Cumulative
from Inception
(May 7, 1991)
Year ended December 31, through
------------------------------- December 31,
1992 1993 1994 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales of environmental services $ - $ - $ 13,542 $ 13,542
- ---------------------------------------------------------------------------------------
Expenses
Research and development
expenses 95,701 882,742 373,026 1,306,369
Consulting fees 1,600 115,910 226,539 437,632
Travel and promotion 31,872 93,702 50,723 240,288
Legal and professional fees 74,010 20,479 93,020 224,140
General and administrative
expenses 128,936 225,880 118,085 526,510
Management fees - - - 50,000
- ---------------------------------------------------------------------------------------
Total expenses 332,119 1,338,713 861,393 2,784,939
- ---------------------------------------------------------------------------------------
Operating loss (332,119) (1,338,713) (847,851) (2,771,397)
- ---------------------------------------------------------------------------------------
Other income (expense)
Interest income 1,200 1,200 - 3,600
Interest expense (6,545) (22,458) (22,905) (60,083)
Write-off of goodwill - - - (40,000)
- ---------------------------------------------------------------------------------------
Total other income (expense) (5,345) (21,258) (22,905) (96,483)
- ---------------------------------------------------------------------------------------
Net loss $(337,464) $(1,359,971) $(870,756) $(2,867,880)
- ---------------------------------------------------------------------------------------
Loss per common share $(0.03) $(0.11) $(0.07)
- ---------------------------------------------------------------------------------------
Weighted average number of
common shares outstanding 11,865,804 12,138,333 12,138,333
- ---------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-49
<PAGE>
North American Environmental Group, Inc.
(A Development Stage Enterprise)
Consolidated Statements of Stockholders' Equity (Capital Deficit)
<TABLE>
<CAPTION>
Additional Stock
Common Stock Paid-In Subscriptions
Shares Amount Capital Deficit Receivable
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Stock issued at inception (May 7, 1991) 50,000 $ 50,000 $ - $ - $(50,000)
Adjustment arising from recapitalization, 180 for 1 stock
split and change in the par value per share
from $1.00 par value to $.01 (November 11, 1991) 8,950,000 40,000 - - 50,000
Stock issued for net assets of Rittenhouse
Capital Corp. (November 11, 1991) 2,130,000 21,300 15,802 - -
Stock issued for services (November 14, 1991) 300,000 3,000 - - -
Net loss for year - - - (299,689) -
- ------------------------------------------------------------------------------------------------------------------------
Balance, at December 31, 1991 11,430,000 114,300 15,802 (299,689) -
Stock issued in exchange for cancellation of
debt (January 23, 1992) 175,000 1,750 173,250 - -
Stock issued for cash (March 3, 1992) 83,333 833 249,167 - -
Stock issued for services (July 21, 1992) 450,000 4,500 445,500 - -
Net loss for year - - (337,464) -
- ------------------------------------------------------------------------------------------------------------------------
Balance, at December 31, 1992 12,138,333 121,383 883,719 (637,153) -
- ------------------------------------------------------------------------------------------------------------------------
Net loss for year - - - (1,359,971) -
- ------------------------------------------------------------------------------------------------------------------------
Balance, at December 31, 1993 12,138,333 121,383 883,719 (1,997,124) -
Net loss for year - - - (870,756) -
- ------------------------------------------------------------------------------------------------------------------------
Balance, at December 31, 1994 12,138,333 $121,383 $883,719 $(2,867,880) $ -
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-50
<PAGE>
North American Environmental Group, Inc.
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Cumulative
from
Inception
(May 7,
1991)
through
Year ended December 31, December 31,
1992 1993 1994 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net loss $(337,464) $(1,359,971) $(870,756) $(2,867,880)
Adjustments to reconcile net
loss to net cash (used) in
operating activities
Depreciation and amortization (5,309) 10,269 14,443 18,602
Stock issued for services 450,000 - - 453,000
Write-off of goodwill - - - 40,000
Decrease (increase) in assets
Advance payments (484,025) 322,025 172,000 (32,500)
Accrued interest (1,200) (1,200) 3,600 -
Deposits - (2,700) - (2,700)
Increase (decrease) in liabilities
Accounts payable 87,898 269,740 (426,559) (285)
Accrued interest payable 6,545 22,375 17,749 54,844
- --------------------------------------------------------------------------------------------
Net cash (used in) operating
activities (283,555) (739,462) (1,089,523) (2,336,919)
- --------------------------------------------------------------------------------------------
Cash flows from investing activities
Cash received in acquisition of
subsidiary - - - 58,593
Purchase of property and equipment - (52,866) - (52,866)
- --------------------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities - (52,866) - 5,727
- --------------------------------------------------------------------------------------------
Cash flows from financing activities
Issuance of convertible debenture 750,000 - - 750,000
Issuance of common stock 250,000 - - 250,000
Increase in notes payable - - - 175,000
Increase in amounts due to
affiliates (766,833) 765,004 1,089,354 1,157,193
- --------------------------------------------------------------------------------------------
Net cash provided by financing
activities 233,167 765,004 1,089,354 2,332,193
- --------------------------------------------------------------------------------------------
Net increase (decrease) in cash (50,388) (27,324) (169) 1,001
Cash, at beginning of period 78,882 28,494 1,170 -
- --------------------------------------------------------------------------------------------
Cash, at end of period $28,494 $ 1,170 $ 1,001 $ 1,001
- --------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-51
<PAGE>
North American Environmental Group, Inc.
(A Development Stage Enterprise)
Summary of Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include the accounts of North
American Environmental Group, Inc. and the accounts of its subsidiaries all of
which are wholly-owned. All significant intercompany accounts and transactions
have been eliminated. North American Environmental Group, Inc., and its
subsidiaries are referred to herein as the "Company". Through December 31, 1994,
the Company had received only minimal revenues from its operations at certain
test projects. Because the Company has not yet utilized its various technologies
on a commercial scale, management believes it is appropriate to present the
accompanying consolidated financial statements as those of a development stage
enterprise.
The statement of operations for the years ended December 31, 1992 and 1993 and
from the date of inception (May 7, 1991) to December 31, 1994 have been
reclassified to conform to the current year's presentation.
The Company
The Company has developed and acquired certain proprietary technologies, which
have applications in environmental clean-up services through elimination of
hydrocarbon contamination of soil and water.
Property, Equipment and Depreciation
Property and equipment are stated at cost. Depreciation is provided on the
straight-line method over the estimated useful lives of the assets. Machinery
and equipment are depreciated over periods ranging from five to seven years.
Leasehold improvements are amortized over the life of the lease.
Income Taxes
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes". Under this method, deferred
tax assets or liabilities result from temporary differences between the tax
basis of an asset or liability and its reported amount in the financial
statements that will result in taxable or deductible amounts in future years.
This change in accounting method had no effect upon the consolidated financial
statements.
Research and Development
Expenditures for research and development of products and processes and for the
operation of pilot projects are charged to expense as incurred. The Company
reclassified $212,899 and $77,721 previously reported by the Company as revenue
in the years ended December 31, 1992 and 1993 as an off-set against research and
development expenses since these amounts represent a reimbursement of cost.
F-52
<PAGE>
North American Environmental Group, Inc.
(A Development Stage Enterprise)
Summary of Accounting Policies
Loss Per Common Share
The loss per common share is computed by dividing the loss applicable to common
stock by the weighted average number of common shares outstanding and common
stock equivalents, if dilutive.
F-53
<PAGE>
North American Environmental Group, Inc.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
1. Recapitalization and Other Significant Corporate Matters
From its incorporation in February 1988 to November 11, 1991, Rittenhouse
Capital Corp. ("Rittenhouse"), a development stage enterprise, evaluated
possible merger and acquisition partners to enhance stockholder value, but
engaged in no material operations until entering into a Plan of Reorganization
among North American Technologies, Inc. ("NAT"), North American Environmental
Corporation ("NAEC"), and James E. Impero ("Impero"). NAT and Impero were sole
stockholders of NAEC, which in turn had a wholly-owned subsidiary, Inplant
Bioremedial Services, Inc. ("Inplant"). Pursuant to the Plan of Reorganization,
Rittenhouse acquired 100% of the outstanding stock of NAEC in exchange for the
issuance of 9,000,000 new shares, representing 80.9% of the common stock of
Rittenhouse. Because the stockholders of NAEC obtained voting control over the
combined entities, for accounting purposes, NAEC is considered the continuing
entity, and the transactions are accounted for as a recapitalization of NAEC
followed by the issuance of new NAEC shares of common stock for the net assets
of Rittenhouse.
The 2,130,000 previously outstanding shares of Rittenhouse became 2,130,000
outstanding shares of North American Environmental Group, Inc. ("NAE") as a
result of the change in Rittenhouse's name to NAE. This is accounted for as the
issuance by NAEC of 2,130,000 shares of common stock for the net assets,
recorded at book value, of Rittenhouse.
On November 11, 1991, Rittenhouse effected a 1 for 10 share reverse stock split.
All references to Rittenhouse shares give effect to this transaction as if it
had occurred on May 7, 1991, the date of inception of NAEC.
The consolidated financial statements for the year ended December 31, 1992 have
been restated to give effect to the recapitalization described above.
During 1992, a related corporation, North American Technologies Group, Inc.
("NATK"), through a series of transactions, obtained control over 10,758,333
shares, representing 88.6% of the outstanding common shares of NAE. NATK intends
to acquire the remaining outstanding common shares of the Company.
F-54
<PAGE>
North American Environmental Group, Inc.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
2. Going Concern
The Company is in the development stage and, accordingly, has not achieved sales
necessary to support operations. The Company has a working capital deficit of
$1,893,632 and a capital deficit of $1,862,778 at December 31, 1994 and has
incurred an accumulated deficit of $2,867,880 through December 31, 1994.
Although the Company believes that its technologies are now sufficiently
developed to begin commercial operations, substantially all revenues to date
have been derived from demonstration projects. Further, it can be expected that
operating expenses will increase as the Company incurs expenses associated with
the fabrication of equipment and the training and other costs of personnel to be
deployed at project sites as it commences commercial operations. Until the
Company is able to generate sufficient revenues from its technologies, there can
be no assurance that profitable operations can be attained.
The Company believes that it has sufficient capital and available sources of
financing to fully develop its proprietary technologies into commercially viable
products and services. However, to the extent that funds generated from
operations and existing capital resources are insufficient, the Company may have
to raise additional funds. No assurance can be given that additional financing
will be available, or if available, will be available on acceptable terms. If
adequate funds are not available, the Company may be required to curtail its
operations.
These factors raise substantial doubt about the Company's ability to continue as
a going concern. The financial statements do not include any adjustments
relating to the recoverability and classification of asset carrying amounts or
the amount and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern.
F-55
<PAGE>
North American Environmental Group, Inc.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
3. Advance Payments
Advance payments consist of:
December 31, 1993 1994
- ----------------------------------------------------------
Prepaid commissions $160,000 $ -
Travel advances and other 56,500 44,500
- ----------------------------------------------------------
$216,500 $ 44,500
==========================================================
4. Property and Equipment
Major classes of property and equipment consist of:
December 31, 1993 1994
- ---------------------------------------------------------
Machinery and equipment $ 30,945 $ 30,945
Furniture and office equipment 3,844 3,844
Leasehold improvements 18,077 18,077
- ---------------------------------------------------------
52,866 52,866
Less accumulated depreciation and
amortization 10,269 24,712
- ---------------------------------------------------------
Net property and equipment $ 42,597 $ 28,154
=========================================================
5. Balances with Affiliates
Balances with affiliates consists of:
December 31, 1993 1994
- ---------------------------------------------------------
Due from affiliates
North American Technologies, Inc. $347,343 $ -
Inplant Systems, Inc. - 22,328
Brookstone - 11,000
- ---------------------------------------------------------
$347,343 $33,328
=========================================================
F-56
<PAGE>
North American Environmental Group, Inc.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1993 1994
- ------------------------------------------------------------------
<S> <C> <C>
Due to affiliates
North American Technologies Group, Inc. $622,500 $ 809,025
North American Technologies, Inc. - 851,496
Gold Spinners International, Inc. 59,882 -
Brookstone 176,500 -
Other 26,300 -
- -------------------------------------------------------------------
$885,182 $1,660,521
===================================================================
</TABLE>
There are no specific repayment terms associated with the above balances.
6. Convertible Debenture
During 1992, the Company issued two debentures convertible into shares of the
common stock of NATK, the Company's majority stockholder. The debentures had
principal amounts of $500,000 and $250,000 and original maturities of two years
from the date of issuance, unless sooner redeemed or converted by the holders.
The holder of the $250,000 debenture granted a one-year extension of the
maturity date to May 22, 1995.
On December 31, 1992, a holder converted the $500,000 debenture into shares of
NATK's common stock.
The balance outstanding consists of:
<TABLE>
<CAPTION>
<S> <C> <C>
December 31, 1993 1994
- -----------------------------------------------------------------
Convertible debenture, prime rate
plus 2% (11% at December 31, 1994),
due May 22, 1995 $ 250,000 $ 250,000
Less current maturities - 250,000
- -----------------------------------------------------------------
Long-term debt $ 250,000 $ -
=================================================================
</TABLE>
7. Commitments
The Company rents equipment and office space under operating leases on both long
and short term basis. Rent expense amounted to approximately $39,000, $53,000
and $30,000 for the years ended December 31, 1992, 1993 and 1994, respectively.
F-57
<PAGE>
North American Environmental Group, Inc.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Minimum annual rentals under non-cancelable operating leases of more than one
year in duration are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
- -----------------------------
<S> <C>
1995 $44,832
1996 20,245
1997 2,601
1998 -
1999 -
Thereafter -
- ------------------------------
$67,678
==============================
</TABLE>
8. Income Taxes
At December 31, 1994, the Company has net operating loss carryforwards for
federal income tax purposes amounting to approximately $2,726,000 which, if not
utilized, will expire as follows:
<TABLE>
<CAPTION>
Year ending December 31,
- -----------------------------
<S> <C>
2004 $ 2,000
2005 56,000
2006 260,000
2007 337,000
2008 1,360,000
2009 711,000
- ------------------------------
$2,726,000
==============================
</TABLE>
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS 109). SFAS 109 requires a
change from the deferred method to an asset/liability method of computing
deferred income taxes.
F-58
<PAGE>
North American Environmental Group, Inc.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
The components of deferred income taxes were as follows:
<TABLE>
<CAPTION>
December 31, 1993 1994
- --------------------------------------------------------------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforwards $685,100 $926,840
Other 1,050 -
- --------------------------------------------------------------
Gross deferred tax assets 686,150 926,840
Valuation allowance 686,150 926,840
- --------------------------------------------------------------
Net deferred income taxes $ - $ -
- --------------------------------------------------------------
</TABLE>
9. Warrants
During the first quarter of 1992, the Company issued 83,333 shares of restricted
common stock for $250,000. Each common share had a class "C" warrant attached,
entitling the holder to purchase one share of common stock at the exercise price
of $7.00 per share. The class "C" warrants expire on March 1, 1997.
10. Supplemental Cash Flow Information
Due to its operating losses, the Company pays no income taxes. Under the terms
of its borrowing agreements, the Company is not required to, and does not pay
interest currently.
During 1992, the Company issued 450,000 shares of its common stock for services
rendered in connection with the recapitalization (see Note 1) of the Company.
The shares were valued at $450,000. During 1991, the Company issued 300,000
shares of its common stock for services valued at $3,000. In January 1992,
certain lenders converted loans amounting to $175,000 into 175,000 shares of the
Company's common stock.
F-59
<PAGE>
North American Environmental Group, Inc.
(A Development Stage Enterprise)
Consolidated Balance Sheet
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
December 31, June 30,
1994 1995
(Unaudited)
<S> <C> <C>
Assets
Current
Cash $ 1,001 $ 333
Advance payments 44,500 -
Due from affiliate 33,328 33,328
- ---------------------------------------------------------------------------------------
Total current assets 78,829 33,661
Property and equipment, net of accumulated
depreciation of $24,712 in 1994 and $30,797 in 1995 28,154 22,069
Deposits 2,700 2,700
- ---------------------------------------------------------------------------------------
$ 109,683 $ 58,430
- ---------------------------------------------------------------------------------------
Liabilities and Capital Deficit
Current
Accounts payable $ 5,035 $ 5,035
Due to affiliates 1,660,521 1,663,270
Convertible debenture 250,000 250,000
Accrued interest payable 56,905 69,120
- ---------------------------------------------------------------------------------------
Total current liabilities 1,972,461 1,987,425
- ---------------------------------------------------------------------------------------
Commitments and contingencies
Capital deficit
Preferred stock, $.001 par value
Authorized 1,000,000 shares
Issued shares - none - -
Common stock, $.01 par value
Authorized 20,000,000 shares
Issued and outstanding 12,138,333 shares 121,383 121,383
Additional paid-in capital 883,719 883,719
Deficit accumulated in development stage (2,867,880) (2,934,097)
- ---------------------------------------------------------------------------------------
Total capital deficit (1,862,778) (1,928,995)
- ---------------------------------------------------------------------------------------
$ 109,683 $ 58,430
- ---------------------------------------------------------------------------------------
</TABLE>
F-60
<PAGE>
North American Environmental Group, Inc.
(A Development Stage Enterprise)
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Cumulative from
Inception
Six Months Six Months (May 7, 1991)
ended ended through
June 30, June 30, June 30,
1994 1995 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales of environmental services $ 13,542 $ - $ 13,542
- ---------------------------------------------------------------------------------------
Expenses
Research and development expenses 334,275 - 1,306,369
Consulting fees 102,140 - 437,632
Management fees - - 50,000
Travel and promotion 50,722 - 240,288
Legal and professional fees 93,020 - 224,140
General and administrative expenses 106,020 54,002 580,512
- ---------------------------------------------------------------------------------------
Total expenses 686,177 54,002 2,838,941
- ---------------------------------------------------------------------------------------
Operating loss (672,635) (54,002) (2,825,399)
- ---------------------------------------------------------------------------------------
Other income (expense)
Interest income 600 - 3,600
Interest expense (11,187) (12,215) (72,298)
Write-off of goodwill - - (40,000)
- ---------------------------------------------------------------------------------------
Total other (expense) (10,587) (12,215) (108,698)
- ---------------------------------------------------------------------------------------
Net loss $(683,222) $(66,217) $(2,934,097)
- ---------------------------------------------------------------------------------------
Loss per common share $(0.06) $ -
- ---------------------------------------------------------------------------------------
Weighted average number of common
shares outstanding 12,138,333 12,138,333
- ---------------------------------------------------------------------------------------
</TABLE>
F-61
<PAGE>
North American Environmental Group, Inc.
(A Development Stage Enterprise)
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Three Months Three Months
ended ended
June 30, June 30,
1994 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Sales of environmental services $ - $ -
Expenses
Research and development expenses 156,689 -
Consulting fees 65,297 -
Travel and promotion 27,728 -
Legal and professional fees 73,208 -
General and administrative expenses 57,058 4,638
- -------------------------------------------------------------------------------
Total expenses 379,980 4,638
- -------------------------------------------------------------------------------
Operating loss (379,980) (4,638)
- -------------------------------------------------------------------------------
Other income (expense)
Interest income 300 -
Interest expense (5,593) (5,444)
- -------------------------------------------------------------------------------
Total other (expense) (5,293) (5,444)
- -------------------------------------------------------------------------------
Net loss $ (385,273) $ (10,082)
- -------------------------------------------------------------------------------
Loss per common share $ (0.03) $ -
- -------------------------------------------------------------------------------
Weighted average number of common
shares outstanding 12,138,333 12,138,333
- -------------------------------------------------------------------------------
</TABLE>
F-62
<PAGE>
North American Environmental Group, Inc.
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Cumulative from
Inception
Six Months Six Months (May 7, 1991)
ended ended through
June 30, June 30, June 30,
1994 1995 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $(683,222) $(66,217) $(2,934,097)
Adjustments to reconcile net loss to net
cash (used) in operating activities
Depreciation and amortization 7,222 6,085 24,687
Stock issued for services - - 453,000
Write-off of goodwill - - 40,000
Decrease (increase) in assets
Advance payments (22,328) 44,500 12,000
Accrued interest (600) - -
Deposits - - (2,700)
Increase (decrease) in liabilities
Accounts payable (117,250) - (285)
Accrued interest payable 11,187 12,215 67,059
- ------------------------------------------------------------------------------------------------
Net cash (used) in operating activities (804,991) (3,417) (2,340,336)
- ------------------------------------------------------------------------------------------------
Cash flows from investing activities
Cash received in acquisition of subsidiary - - 58,593
Purchase of property and equipment (30,000) - (52,866)
- ------------------------------------------------------------------------------------------------
Net cash (used) provided by investing activities (30,000) - 5,727
- ------------------------------------------------------------------------------------------------
Cash flows from financing activities
Issuance of convertible debenture - - 750,000
Issuance of common stock - - 250,000
Increase in notes payable - - 175,000
Increase in amounts due to affiliates 848,556 2,749 1,159,942
- ------------------------------------------------------------------------------------------------
Net cash provided by financing activities 848,556 2,749 2,334,942
- ------------------------------------------------------------------------------------------------
Net increase in cash 13,565 668 333
- ------------------------------------------------------------------------------------------------
Cash, at beginning of period 1,170 1,001 -
- ------------------------------------------------------------------------------------------------
Cash, at end of period $ 14,735 $ 333 $ 333
- ------------------------------------------------------------------------------------------------
</TABLE>
F-63
<PAGE>
North American Environmental Group, Inc.
(A Development Stage Enterprise)
Summary of Accounting Policies
- --------------------------------------------------------------------------------
Basis of Presentation
The financial information has been prepared in accordance with the Company's
customary accounting practices and with the instructions for Form 10-Q, and has
not been audited. Readers of the information should refer to the Company's
audited financial statements as of December 31, 1994, because certain footnote
disclosures which would substantially duplicate those contained in such audited
financial statements have been omitted from this report. In the opinion of
management, the information presented reflects all adjustments necessary for a
fair statement of interim results. All such adjustments are of a normal and
recurring nature. The foregoing interim results are not necessarily indicative
of the results of operations for a full fiscal year.
F-64
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger, approved as of _______, 1995 by
NORTH AMERICAN TECHNOLOGIES GROUP, INC., a Delaware corporation ("NATK"), by
resolution duly adopted by its Board of Directors on said date, and by NORTH
AMERICAN ENVIRONMENTAL GROUP, INC., a Delaware corporation ("NAE"), approved on
__________, 1995 by resolution duly adopted by its Board of Directors on said
date, and by DAILY MAIL, INC, a Delaware corporation ("Daily Mail"), approved on
___________, 1995 by resolution duly adopted by its Board of Directors and sole
stockholder on said date. This Agreement and Plan of Merger constitutes a plan
of merger and an agreement of merger pursuant to the provisions of the Delaware
General Corporation Law:
1. The constituent corporation, NAE, shall, pursuant to the
provisions of Section 251 of the Delaware General Corporation Law, be merged
into Daily Mail, a wholly-owned subsidiary of NATK ("Surviving Corporation"),
which shall be the surviving corporation upon the effective date of the merger
and its name will be changed to "North American Environmental Group, Inc.", and
which shall continue to exist under the provisions of the laws of the state of
Delaware. Upon the effective date of the merger, all assets and liabilities of
NAE shall become assets and liabilities of Daily Mail and the separate corporate
existence of NAE shall cease.
2. The Articles of Incorporation of Daily Mail shall be the Articles
of Incorporation of the Surviving Corporation and shall be amended on the
effective date of the merger to reflect "North American Environmental Group,
Inc." as the name of the Surviving Corporation.
<PAGE>
3. The present bylaws of Daily Mail shall be the bylaws of the
Surviving Corporation and will continue in full force and effect until altered
or amended as therein provided under the authority of the laws of the state of
Delaware.
4. The directors and officers of Daily Mail upon the effective date
of the merger shall be the members of the Board of Directors and the officers of
the Surviving Corporation, all of whom shall hold their directorships and
offices until the election and qualification of their respective successors or
until their tenure is otherwise terminated in accordance with the bylaws of the
Surviving Corporation.
5. The manner of providing for the exchange and cancellation of all
the shares of stock of NAE issued and outstanding at the effective date, by
virtue of the merger, shall be as follows:
(a) At the effective date and only upon consummation of the merger,
each of the shares of common stock of NAE outstanding immediately prior to the
merger, other than shares of common stock that are Dissenting Shares (as such
term is defined in Section 6) shall be automatically converted and exchanged for
one share of common stock of NATK, and thereupon all of the issued shares of NAE
shall be surrendered, cancelled and extinguished;
(b) At the effective date, each share of common stock of NAE held,
directly or indirectly by Daily Mail or NATK or any direct or indirect
subsidiary or parent of Daily Mail or NATK or held in NAE's treasury shall be
cancelled and retired without payment of any consideration therefor; and
(c) At the effective date, the shares of the Surviving Corporation
shall not be converted, but each share of Daily Mail which is issued as of the
effective date of the merger shall continue to represent one issued share of the
Surviving Corporation.
6. Notwithstanding anything in this Agreement to the contrary, NAE
Shares that are outstanding immediately prior to the effective date and are held
by stockholders (other than Daily Mail or NATK) who shall not have voted such
shares in favor of adoption of this Agreement and who shall have delivered to
the Company a written demand for appraisal of such shares in the manner provided
in Section 262 of the Delaware General Corporation Law ("Dissenting Shares")
shall not be converted into the right to receive, or be exchangeable for, the
shares of NATK, but the holders thereof shall be entitled to payment of the
appraised value of such shares in accordance with the provisions of such Section
262; provided, however, that (i) if any holder of Dissenting Shares shall
subsequently deliver a written withdrawal of his demand for appraisal of such
Dissenting Shares (within the written approval of the Surviving Corporation, if
such withdrawal is not tendered within 60 days after the Effective Time), or
(ii) if any holder fails to establish his entitlement to appraisal rights as
provided in such Section 262, or (iii) if neither any holder of Dissenting
Shares nor the Surviving Corporation has filed a petition demanding a
determination of the value of all Dissenting Shares within the time provided in
such Section 262, such holders (as the case may be) shall forfeit the right to
appraisal of such Dissenting Shares and such Dissenting Shares shall thereupon
be deemed to have been converted into the right to receive and to have become
exchangeable for, as of the Effective Time, the Merger Consideration.
7. This Agreement and Plan of Merger shall be submitted to the
stockholders of NAE for their approval or rejection in the manner prescribed by
the Delaware General Corporation Law. This Agreement and Plan of Merger shall
be submitted to the stockholder of Daily Mail for its approval or rejection in
the manner prescribed by the Delaware General Corporation Law. Pursuant to
Section 251 of the Delaware General Corporation Law, the approval of the
stockholders of NATK to this Agreement and Plan of Merger is not required.
8. In the event that this Agreement and Plan of Merger shall be
approved by the stockholders of NAE and Shareholder of Daily Mail in accordance
with the provisions of Delaware law, Daily Mail, as the Surviving Corporation,
agrees that it will cause to be executed and filed and recorded any document or
documents prescribed by the laws of the State of Delaware, and it will cause to
be performed all necessary acts within the State of Delaware and elsewhere to
effectuate the merger.
9. The Board of Directors, the Chairman, the President, any Vice
President, the Secretary, and any Assistant Secretary, and any other proper
officers of NATK, NAE and Daily Mail respectively, are hereby authorized,
empowered, and directed to do any and all acts and things, and to make, execute,
deliver, file and record any and all
<PAGE>
instruments, papers and documents which shall be or become necessary, proper or
convenient to carry out or put into effect any of the provisions of this
Agreement and Plan of Merger or of the merger herein provided for.
10. The merger herein provided for shall be effective as soon as NAE
and the Company files the Merger Agreement with the Secretary of State of the
State of Delaware in accordance with the Delaware General Corporation Law
("Effective Time").
IN WITNESS WHEREOF, NAE, Daily Mail, and NATK, by their duly
authorized officers, have executed this Agreement and Plan of Merger as of the
date first above written.
NORTH AMERICAN ENVIRONMENTAL GROUP, INC.
Attest:
/s/ David M. Daniels By: /s/ John Parrott
- ------------------------- --------------------------------
David M. Daniels John Parrott, President
Secretary
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
Attest:
/s/ David M. Daniels By: /s/ Tim B. Tarrillion
- ------------------------- ---------------------------------
David M. Daniel Tim B. Tarrillion, Chief
Secretary Executive Officer
DAILY MAIL, INC.
Attest:
/s/ David M. Daniels By: /s/ Tim B. Tarrillion
- ------------------------- ---------------------------------
David M. Daniel Tim B. Tarrillion, Chief
Secretary Executive Officer
<PAGE>
EXHIBIT B
SECTION 262. APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to the provisions of
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with the provisions of subsection (d) of this Section and
who has neither voted in favor of the merger or consolidation nor consented
thereto in writing pursuant to (S)228 of this Chapter shall be entitled to an
appraisal by the Court of Chancery of the fair value of his shares of stock
under the circumstances described in subsections (b) and (c) of this Section.
As used in this Section, the word "stockholder" means a holder of record of
stock in a stock corporation and also a member of record of a non-stock
corporation; the words "stock" and "share" mean and include what is ordinarily
meant by those words and also membership or membership interest of a member of a
non-stock corporation.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Sections 251, 252, 254, 257, 258 or 263 of this Chapter;
(1) provided, however, that no appraisal rights under this Section
shall be available for the shares of any class or series of stock which, at the
record date fixed to determine the stockholders entitled to receive notice of
and to vote a the meeting of stockholders to act upon the agreement of the
merger or consolidation, were either (i) listed on a national securities
exchange or (ii) held of record by more than 2,000 stockholders; and further
provided that no appraisal rights shall be available for any shares of stock of
the constituent corporation surviving a merger if the merger did not require for
its approval the vote of the stockholders of the surviving corporation as
provided in subsection (f) of Section 251 of this Chapter.
(2) Notwithstanding the provisions of subsection (b)(1) of this
Section, appraisal rights under this Section shall be available for the shares
of any class or series of stock of a constituent corporation if the holders
thereof are required by the terms of an agreement of merger or consolidation
pursuant to Sections 251, 251, 254, 257, and 258 of this Chapter to accept for
such stock anything except (i) shares of stock of the corporation surviving or
resulting from such merger or consolidation; (ii) shares of stock of any other
corporation which at the effective date of the merger or consolidation will be
either listed on a national securities exchange or held of record by more than
2,000 stockholders; (iii) cash in lieu of fractional shares of the corporations
described in the foregoing clauses (i) and (ii); or (iv) any combination of the
shares of stock and cash in lieu of fractional shares described in the foregoing
clauses (i), (ii) and (iii) of this subsection.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this chapter is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this Section shall be available for the shares of
any class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this Section, including those set forth in subsections (d) and
(e), shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this Section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsections (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this
<PAGE>
Section. Each stockholder electing to demand the appraisal of his shares shall
deliver to the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
his shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must do so
by a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation who
has complied with the provisions of this subsection and has not voted in favor
of or consented to the merger or consolidation of the date that the merger or
consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section
228 or Section 253 of this Chapter, the surviving or resulting corporation,
either before the effective date of the merger or consolidation or within 10
days thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that appraisal
rights are available for any or all of the shares of the constituent
corporation, and shall include in such notice a copy of this Section. The
notice shall be sent by certified or registered mail, return receipt requested,
addressed to the stockholder at his address as it appears on the records of the
corporation. Any stockholder entitled to appraisal rights may, within 20 days
after the date of mailing of the notice, demand in writing from the surviving or
resulting corporation the appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with the provisions of subsections (a) and (d) hereof and who is
otherwise entitled to appraisal rights, may file a petition in the Court of
Chancery demanding a determination of the value of the stock of all such
stockholders. Notwithstanding the foregoing, at any time within 60 days after
the effective date of the merger or consolidation, any stockholder shall have
the right to withdraw his demand for appraisal and to accept the terms offered
upon the merger or consolidation. With 120 days after the effective date of the
merger or consolidation, any stockholder who has complied with the requirements
of subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after his written request for such a statement is received by the surviving
or resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by one or more publications at
least one week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with the provisions of this Section and who have
become entitled to appraisal rights. The Court may require the stockholders who
have demanded an appraisal for their shares and who hold stock represented by
certificates to submit their certificates of stock to the Register in Chancery
for notation thereon of the pendency of the appraisal proceedings; and if any
stockholder fails to comply with such direction, the Court may dismiss the
proceedings as to such stockholder.
<PAGE>
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair
rate of the interest, the Court may consider all relevant factors, including the
rate of interest which the surviving or resulting corporation would have had to
pay to borrow money during the pendency of the proceeding. Upon application by
the surviving or resulting corporation or by any stockholder entitled to
participate in the appraisal proceeding, the Court may, in its discretion,
permit discovery or other pretrial proceedings and may proceed to trial upon the
appraisal prior to the final determination of the stockholder entitled to an
appraisal. Any stockholder whose names appears on the list filed by the
surviving or resulting corporation pursuant to subsection (f) of this Section
and who has submitted his certificates of stock to the Register in Chancery, if
such is required, may participate fully in all proceedings until it is finally
determined that he is not entitled to appraisal rights under this Section.
(i) The Court shall direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple or
compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and in
the case of holders of shares represented by certificates upon the surrender to
the corporation of the certificates representing such stock. The Court's decree
may be enforced as other decrees in the Court of Chancery may be enforced,
whether such surviving or resulting corporation be a corporation of this State
or of any other state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all of
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded his appraisal rights as provided in subsection
(d) of this Section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this Section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand of
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this Section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation into which
the shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have status of authorized and
unissued shares of the surviving or resulting corporation.
<PAGE>
EXHIBIT C
[THIS LETTER CONSTITUTES THE PROPOSED OPINION
OF COUNSEL TO BE SUBMITTED AT CLOSING
CONCURRENT WITH THE EFFECTIVE DATE OF THE MERGER]
September ___, 1995
North American Technologies Group, Inc.
4710 Bellaire Blvd., Suite 301
Bellaire, Texas 77401
Gentlemen:
You have requested our opinion as to whether the proposed merger (the
"Merger") of North American Environmental Group, Inc. ("NAE"), a Delaware
corporation, which is an eighty-nine percent (89%) owned second-tier subsidiary
of North American Technologies Group, Inc., a Delaware corporation (the
"Company") with and into Daily Mail, Inc. ("DM"), a Delaware corporation, which
is a direct, wholly owned subsidiary of the Company, in which DM will survive
the Merger, to be effected pursuant to an Agreement and Plan of Merger dated
_____, 1995 and the provisions of 8 Del. C. Section 251, qualifies as a
reorganization within the meaning of Section 368(a)(1)(A) and 368(a)(2)(D) of
the Internal Revenue Code of 1986, as amended (the "Code").
Our opinion is conditioned upon the accuracy of the following facts,
that we have assumed without independent investigation:
1. In the Merger, the minority shareholders of NAE will surrender all
of their NAE stock in exchange for the voting common stock of the Company (the
"Company's common stock") with a fair market value at the effective date of the
Merger (the "Effective Date") approximately equal to the fair market value of
the shares of stock surrendered in NAE./1/
2. DM, On the Effective Date, will own at least eighty percent (80%)
of the outstanding voting common stock of NAE (the "NAE common stock") which is
the only class of NAE stock outstanding.
3. The shareholders of NAE (other than DM) will receive only the
Company's common stock in consideration for the transfer of their NAE common
stock in the Merger and will not receive shares of any class of stock of DM.
4. The Merger of NAE into DM, and the distribution of NAE's assets to
DM, will occur within a single taxable year of NAE and DM.
5. NAE, will cease to function on a going concern basis, and its
activities shall cease, except to conclude its affairs, pay its debts and
distribute its assets to DM, which will continue NAE's business.
/1/ We note that the fair market value of such a thinly traded company is an
inherently factual issue. If the Internal Revenue Service were to contend
successfully that these assumed values for the Company's common stock or the NAE
common stock are too high, satisfaction of the continuity of interest
requirement (discussed below) could be jeopardized.
<PAGE>
North American Technologies Group, Inc.
September __, 1995
6. No shares of any class of stock of DM or NAE have been redeemed
during the three years preceding the Effective Date.
7. NAE has not acquired any assets in a non-taxable transaction,
except for acquisitions occurring more than three years prior to the Effective
Date.
8. Since January 1, 1995, no assets of NAE have been or will be,
sold, transferred, distributed, or disposed of by NAE except for (i)
dispositions in the ordinary course of business; (ii) dispositions occurring
more than three years prior to the Effective Date; or (iii) transfers in
connection with the Merger. Neither DM nor the Company have any intention to
dispose of NAE's assets after the Merger, except in the ordinary course of
business. The Merger of NAE into DM will not be preceded or followed by the re-
incorporation into or transfer or sale to, a recipient of the businesses or
assets of NAE, if such person, directly or indirectly, holds more than twenty
percent in the value of the stock received. For the purposes of this
representation, ownership will be determined by application of the constructive
ownership rules of Section 318(a) of the Code as modified by Section 304(c)(3).
9. NAE will be an insolvent corporation as that term is used in
Treasury Regulation Section 1.332-2(b) on the Effective Date.
10. DM's acquisition of NAE occurred more than three years prior to
the Effective Date of the Merger.
11. There is no intercompany debt between DM and NAE that would be
extinguished in the Merger.
12. The Company's common stock to be received by the NAE shareholders,
as a group, will be equal in value, as of the Effective Date, to at least fifty
percent of the value of all the consideration transferred in the Merger as of
the Effective Date.
13. DM will receive substantially all of the assets of NAE in the
Merger./2/
14. There is no plan or intention by the shareholders of NAE who own
five percent or more of NAE's common stock, and to the best of the knowledge of
the management of NAE, there is no plan or intention on the part of the
remaining shareholders of NAE to sell, exchange or otherwise dispose of a number
of shares of the Company's stock received in the transaction that would reduce
the NAE shareholders' ownership of the Company stock to a number of shares
having a value, as of the date of the Merger, of less than fifty percent of the
value of all of the formerly outstanding stock of NAE as of the same date.
15. To the best of the knowledge of the Company's, NAE's and DM's
management, no NAE common stock is to be exchanged for cash or other property.
Our opinion is also based and conditioned on the assumption that the
representations set forth in Exhibits A, B and C hereto shall be validly and
accurately given by the Company, NAE or DM, respectively, as of the Effective
Date. For purposes of this opinion, we have relied upon the representations
made in Exhibits A, B and C without independent investigation thereof, and,
consequently, if there are any changes to any representation or the factual
assumptions made herein, the opinions given herein will no longer be valid and
may not be relied upon.
Generally, the receipt of stock in a transaction which qualifies as a
reorganization within the meaning of Section 368 of the Code (a
"Reorganization") is not taxable. Under Section 368(a)(1)(A) of the Code, a
statutory merger is included within the definition of a Reorganization. Under
Section 368(a)(2)(D) of the Code, a merger in which the consideration is stock
of a corporation directly controlling the acquiring corporation qualifies as a
Reorganization if the acquiring corporation acquires substantially all of the
properties of the acquired corporation, no stock of the acquiring corporation is
used in the transaction, and the transaction would have qualified under Section
368(a)(1)(A) of the Code had the merger been into the controlling corporation.
NAE will be merged under state law into DM, satisfying the initial
test under Code Section 368(a)(1)(A) of the Code. Since the Company's common
stock will be given to the shareholders of NAE, the requirements of Code
/2/Substantially all shall mean at least seventy percent of the fair market
value of the gross assets and ninety percent of the net assets of NAE. Amounts
paid by NAE to its shareholders or for the expenses of NAE in connection with
the Merger prior to the Effective Date shall be included as assets of NAE prior
to the Effective Date.
<PAGE>
North American Technologies Group, Inc.
September __, 1995
Section 368(a)(2)(D) of the Code must be satisfied in order for the Company to
be a party to the Reorganization. DM will acquire substantially all of the
assets of NAE in the Merger. No stock of DM will be transferred to the
shareholders of NAE in consideration for the stock of NAE surrendered since the
sole consideration is the Company's common stock, which is stock of the
corporation directly controlling DM. Finally, if NAE was merged directly into
the Company, the transaction would qualify as a Reorganization under Code
Section 368(a)(1)(A). Thus, the proposed merger of NAE into DM satisfies the
technical requirements of a Code Section 368(a)(2)(D) Reorganization and the
Company will be considered a party to the Reorganization. See Rev. Rul. 64-73
1964-1 C.B. 142.
In addition to the foregoing statutory requirements, in order for the
Merger to qualify under Section 368(a)(1)(A) and Section 368(a)(2)(D) of the
Code as a tax-free reorganization, certain judicially developed requirements
must be satisfied, including but not limited to the "Continuity of Interest
Test"; the "Business Purpose Test" and the "Continuity of Business Enterprise
Test".
The "Continuity of Interest Test" provides that the shareholders of
the acquired corporation must maintain a continuing interest in the acquiring
corporation. Ordinarily, the Internal Revenue Service (the "Service") will not
rule that a merger is a Reorganization unless the acquired corporation's
shareholders, as a group, have a continuing stock interest in the acquiring
corporation equal in value, as of the effective date of the merger, to at least
fifty percent of the value of the formerly outstanding stock of the acquired
corporation as of the same date./3/ See, Rev. Proc. 77-37, 1977-2 C.B. 568.
The Service's "fifty percent ruling policy" is not substantive law; however, in
instances in which continuing interest of the target shareholders is below fifty
percent, there is a risk that the Service will challenge the satisfaction of the
continuity of interest requirement.
Despite the Service's ruling position, the U.S. Supreme Court, in
Nelson Co. v. Helvering, 36-1 USTC (P)9019 (S.Ct 1935), held that thirty-eight
percent continuity of interest was sufficient to satisfy the test, and the U.S.
Court of Appeals for the Sixth Circuit in Miller v. Commissioner, 36-2 USTC
(P)9032 (6th Circuit 1936), held that twenty-five percent continuity of interest
was sufficient. However, these cases are more than fifty years old. More
recently in, Kass v. Commissioner, 60 TC 218 (1973), aff'd 491 F.2d 749 (1974),
the United States Tax Court, in a decision confirmed by the United States Court
of Appeals for the Third Circuit, held that sixteen percent continuity was
inadequate. Thus, between twenty-five and fifty percent (25% and 50%) is
necessary to satisfy the continuity of interest test.
In the Merger, all the NAE shareholders (other then DM) will receive
the Company's common stock. If the NAE stock of DM is included with the NAE
minority shareholders receipt of the Company's common stock in determining if
the continuity of interest test is satisfied, one hundred percent of the former
shareholders of NAE will have a continuing interest in the Company and the
continuity of interest test will be satisfied. The court in Kass v.
Commissioner, supra, held, in dicta, that "old-and-cold" stock previously
acquired by the acquiring corporation as well as equity newly acquired, will be
aggregated in determining whether the continuity of interest rule is satisfied.
See also, GCM 39404 (September 14, 1985) and Rev. Rul. 85-107, 1985-2 C.B. 121.
In GCM 39404, the Service found that the prior stock interest of a parent in an
upstream merger of a seventy-nine percent owned subsidiary into that parent in a
Section 368(a)(1)(A) reorganization will be aggregated with the other
shareholders' stock in determining whether the continuity of interest test is
satisfied, assuming the parent's prior stock interest is "old-and-cold", since
the parent's original investment remains at the risk of the acquired business.
In the instant case, DM is converting its stock interest in NAE into a direct
holding of NAE's assets. Thus, DM's original investment continues to remain at
the risk of the NAE business, since the NAE business will be continued by DM.
See, Rev. Rul. 69-17, 1969-2 C.B. 57, (the Service held that P's ownership of
more than eighty percent of the stock of S does not prevent the transfer of the
assets of S to P from qualifying as a statutory merger, where the assets were
transferred to another subsidiary and the remaining minority shareholders
received stock in the parent corporation). Thus, in the instant case, since DM
holds more than eighty-nine percent of NAE, termination of DM's interest in NAE
in the Merger, will count toward satisfaction of the fifty percent continuity of
interest test, when included with the NAE minority shareholders' stock. As a
result, when the DM interest is combined with the NAE minority shareholders'
receipt of the Company's common stock, all of the consideration consists of the
Company's common stock, far exceeding the fifty percent required.
Every Reorganization must be undertaken for a valid business purpose.
The Company, NAE and DM have all represented to counsel that there are valid
business purposes for the Merger. Thus, based upon and in reliance on the
representations of the Company, DM and NAE, the "business purpose test" is
satisfied. For example, one express
/3/ Sales of stock made after the Effective Date of the Merger but pursuant to
an intention to sell which existed on the Effective Date would reduce the stock
counting toward satisfying the continuity of interest test.
<PAGE>
North American Technologies Group, Inc.
September __, 1995
business purpose for the Merger is the Company's desire to consolidate its
affairs and eliminate several tiers of duplicate structure in an effort to
reduce administrative costs.
The "continuity of business enterprise test" of Regulation Section
1.368-1(d) provides that the historic business of the acquired company must be
continued. It has been represented to counsel, by officers of the Company, DM
and NAE that the historic business of NAE will be continued by DM. Thus, based
upon and in reliance on such representations, the "Continuity of Business
Enterprise Test" will be satisfied.
Generally, a statutory merger of an eighty-nine percent owned
subsidiary (NAE) into its parent corporation (DM) (a so called "upstream
merger") constitutes both a Section 368(a)(1)(A) reorganization and a
liquidation under Code Section 332. Code Section 332 overrides the
reorganization rules to the extent that the two overlap. Regs. (S)(S)1.332-2(d)
and 1.332-2(c). However, in the instant case, Code Section 332 will not apply
since NAE will be insolvent at the time of the merger. Regs. (S)1.332-2(b).
Thus, even though the Merger will not constitute a tax-free liquidation under
Code Section 332, it still should be a Reorganization since (i) the liquidation
is effected by a statutory merger, and (ii) DM's stock ownership of NAE is "old-
and-cold". See Kass v. Commissioner, 60 T.C. 218 (1973), aff'd without an
opinion, 491 F.2d 749 (3rd Cir., 1974), and Rev. Rul. 69-17, 1969-2 C.B. 57.
Pursuant to Code Section 361(a), no gain or loss is recognized by a
corporation if such corporation is a party to a Reorganization and it exchanges
property, pursuant to a plan of reorganization, solely for stock or securities
in another corporation that is a party to the Reorganization. Thus, under Code
Section 361(a), no gain or loss should be recognized by NAE upon NAE's transfer
of its assets to DM solely in exchange for the Company's common stock (which is
a party to the Reorganization under Code Section 368(a)(2)(D)) and the
distribution thereof to NAE shareholders.
Under Code Section 354, no gain or loss is recognized if stock or
securities in a corporation that is a party to a Reorganization are, pursuant to
the plan of reorganization, exchanged solely for stock or securities in such
corporation or in another corporation a party to the Reorganization. The effect
of Code Section 354 is to provide nonrecognition treatment to shareholders of an
acquired corporation to the extent that the shareholders of the acquired
corporation receive stock or securities of the acquiring corporation or the
corporation that controls the acquiring corporation. Thus, under Code Section
354, no gain or loss should be recognized by the NAE shareholders in the Merger.
Our opinion is based and conditioned on the assumptions made herein,
that the Merger will be undertaken as described herein with appropriate
corporate authorization and approval, and upon current law and rulings.
Accordingly, subject to the foregoing and provided that (a) the Merger qualifies
as a statutory merger under applicable state law, (b) after the Merger DM will
hold substantially all NAE's properties and assets, (c) solely the Company's
common stock will be issued as consideration for the assets received from NAE,
and (d) the Company is the sole shareholder of DM, it is our opinion that, it is
more likely than not, if the transaction were litigated, a court of law, would
hold that the Merger would constitute a Reorganization and that the federal
income tax consequences to NAE and its shareholders will be as follows:
(1) No gain or loss will be recognized by NAE upon its transfer of
substantially all of its assets to DM solely in exchange for the Company's
common stock and the assumption by DM of NAE's liabilities under Code Sections
361(a) and 357(a);
(2) No gain or loss will be recognized by the NAE shareholders on the
exchange of their NAE stock solely in exchange for the Company's common stock
under Code Sections 368(a)(1)(A), 368(a)(2)(D) and 354(a)(1);
(3) The aggregate tax basis of the Company's common stock received by
each NAE shareholder in the Merger will be the same as the aggregate tax basis
of such NAE shareholder in the NAE common stock surrendered in the exchange,
decreased by the amount of any cash or other property received, and increased by
the amount of any gain recognized under Code Section 358(a)(1); and
<PAGE>
North American Technologies Group, Inc.
September __, 1995
(4) The holding period of the NAE shareholders in the Company's common
stock received will include the holding period of the NAE shareholders in their
NAE stock exchanged therefor. Code Section 1223(1).
The conclusions made in this opinion are based upon the provisions of
the Code, applicable regulations thereunder, judicial authority and current
administrative rulings and practice, all as in effect as of the date hereof (the
"Applicable Law"). In the event of any change in the Applicable Law, these
conclusions may no longer apply.
This opinion is limited to those provisions of the Code discussed
herein and we express no opinion with the respect to the applicability of any
other Code provisions or the tax consequences of the Merger under any state,
local or other taxing jurisdiction, whether foreign or domestic. The opinions
relating to the NAE shareholders are made solely in their capacity as
shareholders of NAE and we express no opinion with respect to the tax
consequences of any payments or other consideration received by any NAE
shareholder that such shareholder receives in his capacity as an employee or
creditor of NAE. We also express no opinion on the tax treatment on any other
aspects of the Merger.
The opinions expressed herein are solely for the benefit of the
Company and its shareholders and may not be relied upon by any other person or
entity including, but without limitation, any other party to the Merger.
Sincerely,
CLARK, LADNER, FORTENBAUGH & YOUNG
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
The registrant, a Delaware corporation, is empowered by Section 145 of
the Delaware General Corporation Law, subject to the procedures and limitations
stated therein, to indemnify any person against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in the defense of any threatened, pending or completed action,
suit or proceeding with which such person is made a party by reason of his being
or having been a director or officer of the registrant. The statute provides
that indemnification pursuant to its provisions is not exclusive of other rights
of indemnification to which a person may be entitled under any bylaw, agreement,
vote of stockholders or disinterested directors, or otherwise.
Article IX of the Restated Certificate of Incorporation states that
directors of the registrant shall not be liable for monetary damages for breach
of fiduciary duty "to the full extent permitted by the General Corporation Law
of Delaware as the same exists or may hereafter be amended." The registrant is
also empowered by Section 102(b) of the Delaware General Corporation Law to
include a provision in the Certificate of Incorporation which would limit a
director's liability to the registrant or its stockholders for monetary damages
for breaches of fiduciary duty as a director. Article VIII of the Certificate of
Incorporation provides such a limitation. As Delaware law now exists, directors
will remain liable for damages for (i) breach of their duty of loyalty to the
registrant and its stockholders; (ii) their failure to act in good faith; (iii)
their intentional misconduct or knowing violation of law; (iv) improper dividend
payments, stock repurchases or redemptions; and (v) any transaction from which
the director derived an improper personal benefit.
<PAGE>
Item 21. Exhibits
The following Exhibits are filed as part of this Registration Statement.
<TABLE>
<CAPTION>
Number Description Method of Filing
- ------ ----------- ----------------
<C> <S> <C>
1 Agreement and Plan of Merger Included as
Exhibit A to the
Information
Statement and
Prospectus
2 Section 262 of the Delaware General Corporate Law Included as
Exhibit B to the
Information
Statement and
Prospectus
4 Instruments defining the rights of security
holders:
4.1 Certificate of Incorporation of Registrant. Incorporated by
reference to
Exhibit A to the
Company's
Form S-4.
4.2 Certificate of Amendment of Certificate of Incorporated by
Incorporation of the Company as of August 10, 1993 reference to
Exhibit B to the
Company's
Form S-4.
4.3 Certificate of Amendment of Certificate of Incorporated by
Incorporation of the Company as of reference to
January 29, 1993 Exhibit C to the
Company's
Form S-4.
4.7 Bylaws of Registrant Incorporated by
reference to the
Company's
Registration
Statement on
Form S-18
(File
No. 33-10845).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Number Description Method of Filing
- ------ ----------- ----------------
<C> <S> <C>
5 Opinion of Clark, Ladner, Fortenbaugh & Young To be filed by
Amendment
8 Tax Opinion of Clark, Ladner, Fortenbaugh & Young Included as
Exhibit C to the
Information
Statement and
Prospectus
10 Material Contracts
10.1 Joint Venture Agreement Among Environmental Incorporated by
Resource Corporation, BioTrace International and reference to
Implant Bioremedial Services, dated June 29, 1991. Exhibit 10.1 to
the Company's
Form S-4.
10.2 License Agreement Between Gold Spinners Incorporated by
International, Inc. and BioTrace reference to
International, Inc. Exhibit 10.2 to
the Company's
Form S-4.
10.3 Assignment of License Agreement Between Gold Incorporated by
Spinners International and BioTrace International, reference to
Inc. by Gold Spinners International, Inc. to North Exhibit 10.3 to
American Environmental Group and North American the Company's
Technologies, Inc. Form S-4.
10.4 Plan of Arrangement Incorporated by
reference to
Exhibit 10.4 to
the Company's
Annual Report
on Form 10-K
for the Fiscal
Year ended
December 31, 1993
("1993 10-K")
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Number Description Method of Filing
- ------ ----------- ----------------
<C> <S> <C>
10.5 Stock Option Agreement between John Parrott and Incorporated by
the Company dated February 7, 1993 reference to
the Company's
1994 10-K.
10.6 Stock Option Agreement between Tim B. Tarrillion Incorporated by
and the Company dated February 7, 1995 reference to
Exhibit 10.7 to
the Company's
1994 10-K.
10.7 Stock Option Agreement between David Daniels and Incorporated by
the Company dated February 7, 1995 reference to
Exhibit 10.8 to
the Company's
1994 10-K.
10.8 Stock Option Agreement between Judith Shields and Incorporated by
the Company dated February 23, 1995 reference to
Exhibit 10.9 to
the Company's
1994 10-K.
10.9 Stock Option Agreement between Donovan W. Boyd Filed herewith
and the Company dated February 23, 1995
10.10 EET 401(k) Plan Incorporated by
reference to
Exhibit 10.10 to
the Company's
1994 10-K.
10.11 Employment Agreement of John Parrott dated Incorporated by
February 7, 1995 reference to
Exhibit 10.1 the
Company's Current
Report on Form
8-K dated
March 22, 1995
("8-K").
10.12 Employment Agreement of Tim Tarrillion dated Incorporated by
February 7, 1995 reference to
Exhibit
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Number Description Method of Filing
- ------ ----------- ----------------
<C> <S> <C>
10.2 to
the 8-K.
10.13 Employment Agreement of David Daniels dated Incorporated by
February 7, 1995 reference to
Exhibit 10.3 to
the 8-K.
10.14 Employment Agreement of Judith Shields dated Incorporated by
February 23, 1995 reference to
Exhibit 10.5 to
the 8-K.
10.15 Employment Agreement of Donovan W. Boyd dated Filed herewith
February 23, 1995
10.16 Amended Joint Venture Agreement between Oil Waste Incorporated by
Treatment, Inc. and the Company dated reference to
February 3, 1994 Exhibit 10.16 to
the Company's
1994 10-K.
10.17 Joint Venture Agreement between the Company and Incorporated by
Canadian Crude Separators, Inc. dated reference to
February 4, 1994 Exhibit 10.17 to
the Company's
1994 10-K.
10.18 Sublicense Agreement between the Company and Oil Incorporated by
Water Separator Systems, Inc., a wholly owned reference to
subsidiary of Implant Systems, Inc. dated Exhibit 10.18 to
March 2, 1994 the Company's
1994 10-K.
10.19 Agreement and Plan of Merger between Industrial Filed herewith.
Pipe Fittings, Inc. and the Company dated
June 22, 1995
10.20 Consulting Agreement with John W. Parrott dated Filed herewith.
July 28, 1995.
22 Subsidiaries of Registrant Incorporated by
reference to
Exhibit 22 to the
Company's
1994 10-K.
24 Consents of Experts
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Number Description Method of Filing
- ------ ----------- ----------------
<C> <S> <C>
24.1 Consents of BDO Seidman, LLP, with respect to Filed
the North American Technologies Group, Inc. herewith
24.2 Consent of BDO Seidman, LLP, with respect to Filed
North American Environmental Group, Inc. herewith
24.3 Consent of Ernst and Young, LLP, with respect to Filed
EET, Inc. herewith
24.4 Consent of Shoemaker & Wilson with respect to Filed
North American Environmental Group, Inc. herewith
24.5 Consent of Clark, Ladner, Fortenbaugh & Young Included within
Exhibit 5 hereto.
99 Financial Statement of EET, Inc.
99.1 REPORT OF INDEPENDENT AUDITORS OF EET, INC. Incorporated by
reference to 8K
99.2 EET, INC. BALANCE SHEETS AS OF DECEMBER 31, 1993 Incorporated by
AND 1994 reference to 8K
99.3 EET, INC. STATEMENTS OF OPERATIONS FOR THE PERIOD Incorporated by
FROM INCEPTION (AUGUST 23, 1993) TO DECEMBER 31, reference to 8K
1993,FOR THE YEAR ENDED DECEMBER 31, 1994 AND
CUMULATIVE FROM INCEPTION (AUGUST 23, 1993)
THROUGH DECEMBER 31, 1994
99.4 EET, INC. STATEMENT OF STOCKHOLDERS' EQUITY FOR Incorporated by
THE PERIOD FROM INCEPTION (AUGUST 23, 1993) TO reference to 8K
DECEMBER 31, 1993, FOR THE YEAR ENDED
DECEMBER 31, 1994
99.5 EET, INC. STATEMENTS OF CASH FLOWS FOR THE PERIOD Incorporated by
ENDED FROM INCEPTION (AUGUST 23, 1993) TO reference to 8K
DECEMBER 31, 1993, AND CUMULATIVE FROM INCEPTION
FOR THE (AUGUST 23, 1993) THROUGH DECEMBER 31, 1994
99.6 EET, INC. NOTES TO FINANCIAL STATEMENTS Incorporated by
reference to 8K
</TABLE>
<PAGE>
Item 22. Undertakings
(1) Insofar as indemnification for liabilities arising under the
Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised
that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In
the event that a claim for indemnification is against such
liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection
with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed
in the Act and will be governed by the final adjudication of
such issue.
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-4 and has duly caused this Amendment
No. 1 to the Registration Statement on Form S-4 to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Houston, State of
Texas on the 13th day of October, 1995.
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
By: /s/ Tim B. Tarrillion
----------------------------------
Tim B. Tarrillion
Chief Executive Officer
By: /s/ Judith Knight Shields
----------------------------------
Judith Knight Shields
Senior Vice President Finance
and Chief Financial Officer
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned North American
Technologies Group, Inc., a corporation organized and existing under the laws of
the State of Delaware ("NATK"), and the undersigned directors and officers of
NATK hereby constitute and appoint Tim B. Tarrillion its and his true and lawful
attorney and agent at any time and from time to time to do any and all acts and
things and execute in his name (whether on behalf of NATK or by attesting the
seal of NATK or otherwise), any and all instruments and documents which said
attorneys and agents, or any of them, may deem necessary or advisable and may be
required to enable NATK to comply with the Securities Act of 1933, as amended
("Act"), and any rules, regulations or requirements of the Securities and
Exchange Commission ("Commission") in respect thereof, in connection with shares
of Common Stock of NATK offered pursuant to or in connection with a plan of
merger, including specifically, but without limiting the generality of the
foregoing, this power of attorney to sign the name of NATK and affix the
corporate seal and to sign the names of the undersigned directors and officers
to all registration statements, and all amendments and supplements thereto, on
Form S-4 or on any other appropriate Form, hereafter filed with the Commission
and all instruments or documents filed as a part thereof or in connection
therewith, and each of the undersigned hereby ratifies and confirms all that
said attorneys, agents, or any of them, shall do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, each of the undersigned has subscribed to these
presents as of the 13th day of October, 1995.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Tim B. Tarrillion Chief Executive Officer, October 13, 1995
--------------------- and Director of the Company
Tim B. Tarrillion
/s/ Donovan W. Boyd Senior Vice President October 13, 1995
---------------------- Chief Operating Officer,
Donovan W. Boyd and Director of the Company
/s/ David M. Daniels Executive Vice President, October 13, 1995
---------------------- Secretary and Director
David M. Daniels
</TABLE>
<PAGE>
EXHIBIT 10.9
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT ("Agreement"), dated as of February 23, 1995,
is by and between NORTH AMERICAN TECHNOLOGIES GROUP, INC., a Delaware
corporation (the "Company"), and DONOVAN BOYD ("Employee").
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which
are hereby acknowledged, the Company and the Employee hereby agree as follows:
1. Grant of Option; Vesting Schedule.
(a) Grant of Option. The Company hereby grants to Employee an option the
("Option") to purchase, subject to the terms and conditions hereof, from the
Company two hundred thousand (200,000) shares (the "Option Shares") of Common
Stock, par value $0.001 per share, of the Company (the "Common Stock") beginning
on the Commencement Date (as defined below) and ending at 5:00 p.m. Eastern
Standard Time, on March 31, 2004 (the "Termination Date"), at an exercise price
equal to $2.50 per share of Common Stock. As used herein, the term
"Commencement Date" shall mean the date of the beginning of the "Term" of that
certain Employment Agreement ("Employment Agreement") by and between the Company
and Employee, dated as of the date of this Agreement, as the word "Term" is
defined in Paragraph 2.a. of such Employment Agreement. The number of Option
Shares and the exercise price per share shall be subject to adjustment from time
to time upon the occurrence of certain events as set forth below. The shares of
Common Stock or any other shares or other units of stock or other securities or
property, or any combination thereof then receivable upon exercise of the
Option, as adjusted from time to time, are sometimes referred to hereinafter as
"Exercise Shares." The exercise price per share as from time to time in effect
is referred to hereinafter as the "Exercise Price." The Option is not an
"incentive stock option" as described in Section 422A of the Internal Revenue
Code of 1986, as amended.
(b) Vesting Schedule. Following the Commencement Date, the Option shall
vest and be exerciseable (unless earlier terminated as provided herein) on March
31 in the years set forth below and in the amounts set forth below:
Number of
March 31 Shares
1996 50,000
1997 50,000
1998 50,000
1999 50,000
-------
Total 200,000
1
<PAGE>
; provided, however, that (i) the Option to acquire such shares shall vest on
the date set forth above only in the event that Employee is in the employ of the
Company or any of its subsidiaries in any capacity on such date and (ii) the
Option to acquire any Exchange Shares, if not earlier terminated by the terms of
this Agreement, shall terminate on the 5th annual anniversary date of the date
on which the Option to acquire such Exchange Shares vested as provided in this
clause (b). The period beginning on the Commencement Date and ending on the
Termination Date is sometimes referred to herein as the Option Period. If
Employee is not in the employ of the Company or any of its subsidiaries in any
capacity on any of the various vesting dates set forth above, regardless of the
reason therefore, then the Option with respect to such year shall not vest.
2. Exercise of Option. The Option may be exercised, so long as it is then
valid and outstanding, from time to time in whole (as to Option Shares then
exercisable) or in part, and if in part, on as many occasions during the Option
Period as Employee shall desire, subject to the terms and provisions of this
Agreement. The Option may be exercised upon delivery on any business day to the
Company at its address set forth below (or such other office of the Company, if
any, as shall theretofore have been designated by the Company by written notice
to the Employee) of the following:
(a) a completed and executed Notice of Option Exercise in the form set
forth in Appendix A hereto and made a part hereof; and
(b) payment of the full Exercise Price for the number of Exercise Shares
set forth in the Notice of Option Exercise, in lawful money of the United States
of America, by certified check or cashier's check made payable to the order of
the Company (or with the consent of the Company, the purchase price therefor may
be paid in whole or in part by the delivery to the Company of certificates
representing shares of Common Stock held by Employee, duly endorsed for transfer
or accompanied by blank stock, each of which shares shall be valued at a price
equal to its then Current Market Value, as defined below).
In the event that Employee is no longer in the employ of the Company or any of
its subsidiaries in any capacity, Employee shall be entitled to exercise this
Option, according to the terms and conditions set forth herein, to purchase only
that number of Option Shares in which Employee has become vested prior to the
termination of such employment.
3. Issuance of Exercise Shares; Delivery of Stock Certificate. The Company
shall, within ten (10) business days (or as soon thereafter as is practicable)
of the exercise of this Option, issue in the name of and cause to be delivered
to the Employee (or such other person or persons, if any, as the Employee shall
have designated in the Notice of Option Exercise) one or more certificates
representing the Exercise Shares to which the Employee (or such other person or
persons) shall be entitled upon such exercise under the terms hereof. Such
certificate or certificates shall be deemed to have been issued and the Employee
(or such other person or persons so designated) shall be deemed to have
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become the record holder of the Exercise Shares as of the date of the due
exercise of this Option.
4. Exercise Shares Fully Paid and Non-assessable. The Company agrees and
covenants that all Exercise Shares issuable upon the due exercise of the Option
will, upon issuance of a certificate therefor in accordance with the terms
hereof, be duly authorized, validly issued, fully paid and non-assessable and
free and clear of all taxes (other than taxes which, pursuant to this Agreement,
the Company shall not be obligated to pay) or liens, charges, and security
interests created by the Company with respect to the issuance thereof.
5. Reservation of Exercise Shares. At the time of or before taking any
action which would cause an adjustment pursuant to this Agreement increasing the
number of shares of capital stock constituting the Exercise Shares, the Company
will take any corporate action which may be necessary in order that the Company
have remaining, after such adjustment, a number of shares of such capital stock
unissued and unreserved for other purposes sufficient to permit the exercise of
all the then vested Options under this Agreement of like tenor immediately after
such adjustment. The Company will also from time to time take action to
increase the authorized amount of its capital stock constituting the Exercise
Shares if at any time the number of shares of capital stock authorized but
remaining unissued and unreserved for other purposes shall be insufficient to
permit the exercise of the Options under this Agreement then vested. The
Company may but shall not be limited to reserve and keep available, out of the
aggregate of its authorized but unissued shares of capital stock, for the
purpose of enabling it to satisfy any obligation to issue Exercise Shares upon
exercise of Options, through the Termination Date, the number of Exercise Shares
deliverable upon the full exercise of this Option. At the time of or before
taking any action which would cause (pursuant to the provisions of this Section
5) an adjustment resulting in a reduction of the Exercise Price below the then
par value (if any) of the Exercise Shares issuable upon exercise of the Options,
the Company will take any corporate action which may be necessary in order to
assure that the par value per share of the Exercise Shares is at all times equal
to or less than the Exercise Price per share and so that the Company may validly
and legally issue fully paid and non-assessable Exercise Shares at the Exercise
Price, as so adjusted. The Company will also from time to time take similar
action if at any time the Exercise Price is below the then par value of the
Exercise Shares.
6. Fractional Shares. The Company shall not be required to issue
fractional shares of capital stock upon the exercise of this Option or to
deliver stock certificates which evidence fractional shares of capital stock.
In the event that any fraction of an Exercise Share would, except for the
provisions of this Section 6, be issuable upon the exercise of this Option, the
Company shall pay to the Employee an amount in cash equal to such fraction
multiplied by the Current Market Value (as defined herein) of the Exercise
Share. For purposes of this subparagraph, the "Current Market Value" shall
mean, and be determined, as follows:
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(a) if the type of securities representing the Exercise Shares are traded
in the over-the-counter market and not on any national securities exchange and
not in the NASDAQ Reporting System, the average of the mean between the last bid
and asked prices per share, as reported by the National Quotation Bureau, Inc.,
or another generally accepted reporting service, for the last business day prior
to the date on which this Option is exercised, or if not so reported, the
average of the closing bid and asked prices for an Exercise Share as furnished
to the Company by any member of the National Association of Securities Dealers,
Inc., selected by the Company for that purpose;
(b) if the type of securities representing the Exercise Shares are listed
or traded on a national securities exchange or in the NASDAQ National Market
System, the closing price on the principal national securities exchange on which
they are so listed or traded or in the NASDAQ National Market System, as the
case may be, on the last business day prior to the date of the exercise of this
Option. The closing price referred to in this clause (b) shall be the last
reported sales price or, in case no such reported sale takes place on such day,
the average of the reported closing bid and asked prices, in either case, on the
national securities exchange on which the Exercise Shares are then listed or in
the NASDAQ Reporting System; or
(c) if no such closing price or closing bid and asked prices are
available, as determined in any reasonable manner as may be prescribed by the
Board of Directors of the Company.
7. Payment of Taxes. The Company will pay all documentary stamp taxes, if
any, attributable to the issuance of Exercise Shares upon the exercise of this
Option; provided, however, that the Company shall not be required to pay any tax
or taxes which may be payable in respect of any transfer involved in the issue
of any certificates representing the Exercise Shares in a name other than that
of the Employee, and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
8. Rights of Employee. The Employee shall not, by virtue of anything
contained in this Agreement or otherwise, be entitled to any right whatsoever,
either in law or equity, of a stockholder of the Company, including without
limitation, the right to receive dividends or to vote or to consent or to
receive notice as a shareholder in respect of the meetings of shareholders or
the election of directors of the Company or any other matter, with respect to
any Exercise Shares prior to the acquisition of such Exercise Shares on the
exercise of this Option as provided in this Agreement .
9. Adjustment of Exercise Shares and Exercise Price. The Exercise Price
and the number and kind of Exercise Shares purchasable upon the exercise of this
Option shall be subject to adjustment from time to time upon the happening of
certain events as provided in this Section 9. The Exercise Price in effect at
any time and the number and
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kind of securities purchasable upon exercise of this Option also shall be
subject to adjustment as hereinafter provided.
(a) In the case the Company shall (i) pay a dividend or make a
distribution on its shares of Common Stock in shares of Common Stock, (ii)
subdivide or classify its outstanding Common Stock into a greater number of
shares or (iii) combine or reclassify its outstanding Common Stock into a
smaller number of shares, the Exercise Price in effect at the time of the record
date for such dividend or distribution or of the effective date of such
subdivision, classification, combination or reclassification shall be
proportionally adjusted so that the Employee, upon any exercise of this Option
immediately thereafter shall be entitled to receive the aggregate number and
kind of shares which, if this Option had been exercised by such Employee
immediately prior to such date, he would have owned upon such exercise and been
entitled to receive upon such dividend, subdivision, classification, combination
or reclassification. For example, if the Company declares a 2 for 1 stock
dividend or stock split and the Exercise Price immediately prior to such event
was $5.00 per share, the adjusted Exercise Price immediately after such event
would be $2.50 per share. Such adjustment shall be made successively whenever
any event listed above shall occur.
(b) In case the Company shall hereafter issue rights or warrants to all
holders of its Common Stock entitling them to subscribe for or purchase shares
of Common Stock (or securities convertible into Common Stock) at a price (or
having a conversion price per share) less than the current market price of the
Common Stock (as defined in the subsection (d) below) on the record date
mentioned below, the Exercise Price shall be adjusted so that the same shall
equal the price determined by multiplying the Exercise Price in effect
immediately prior to the date of such issuance by a fraction, the numerator of
which shall be the sum of the number of shares of Common Stock outstanding on
the record date mentioned below and the number of additional shares of Common
Stock which the aggregate offering price of the total number of shares of Common
Stock so offered (or the aggregate conversion price of the convertible
securities so offered) would purchase at such current market price per share of
the Common Stock, and the denominator of which shall be the sum of the number of
shares of Common Stock outstanding on such record date and the number of
additional shares of Common Stock offered for subscription or purchase (or into
which the convertible securities so offered are convertible). Such adjustment
shall be made successively whenever such rights or warrants are issued and shall
become effective immediately after the record date for the determination of
shareholders entitled to receive such rights or warrants; and to the extent that
shares of Common Stock are not delivered (or securities convertible into Common
Stock are not delivered) after the expiration of such rights or warrants the
Exercise Price shall be readjusted to the Exercise Price which would then be in
effect had the adjustments made upon the issuance of such rights or warrants
been made upon the basis of delivery of only the number of shares of Common
Stock (or securities convertible into Common Stock) actually delivered.
(c) Whenever the Exercise Price payable upon exercise of this Option is
adjusted pursuant to the provisions of (a) or (b) above, the number of Exercise
Shares purchasable
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<PAGE>
upon exercise of this Option shall simultaneously be adjusted by multiplying the
number of Exercise Shares initially issuable upon exercise of this Option by the
Exercise Price in effect on the date hereof and dividing the product so obtained
by the Exercise Price, as adjusted.
(d) For the purpose of any computation under the subsection above, the
current market price per share of Common Stock at any date shall be deemed to be
the average of the daily closing prices for 30 consecutive business days before
such date. The closing price for each day shall be the last sale price (regular
way) or, in case no such reported sale takes place on such day, the average of
the last reported bid and lowest reported asked prices as reported by NASDAQ, or
other similar organization if NASDAQ is no longer reporting such information, or
if not so available, the fair market price as determined by the Board of
Directors.
(e) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least one cent ($0.01) in
such price; provided, however, that any adjustments which by reason of the
provisions of this sentence are not required to be made shall be carried forward
and taken into account in any subsequent adjustment required to be made
hereunder. All calculations under this Section 9 shall be made to the nearest
cent or to the nearest one-hundredth of a share, as the case may be. Anything
in this section to the contrary notwithstanding, the Company shall be entitled,
but shall not be required, to make such changes in the Exercise Price, in
addition to those required by this Section 9 as it, in its sole discretion,
shall determine to be advisable in order that any dividend or distribution in
shares of Common Stock, subdivision, classification, reclassification or
combination of Common Stock, issuance of warrants or options or other rights to
acquire Common Stock or distribution of evidences of indebtedness or other
assets (excluding cash dividends) referred to hereinabove in this Section 9
hereafter made by the Company to the holders of its Common Stock shall not
result in any tax to the holders of its Common Stock or securities convertible
into Common Stock.
(f) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly cause a notice setting forth the adjusted Exercise Price
and adjusted number of Shares issuable upon exercise of this Option to be mailed
to the Employee, at the address set forth in this Agreement for notice, and
shall cause a certified copy thereof to be mailed to its transfer agent, if any.
The Company may retain a firm of independent certified public accountants
selected by the Board of Directors (who may be the regular accountants employed
by the Company) to make any computation required by this Section 9, and a
certificate signed by such firm shall be conclusive evidence of the correctness
of such adjustment.
(g) In the event that at any time, as a result of an adjustment made
pursuant to this Section 9, the Employee thereafter shall become entitled to
receive any Exercise Shares of the Company other than Common Stock, thereafter
the number of such other shares so receivable upon exercise of this Option shall
be subject to adjustment from time to time in
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a manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Common Stock contained in this Section 9.
10. Restrictions on Exercise and Transferability. This Option, and the
rights of Employee under this Agreement, shall be exerciseable only by the
Employee or, upon his death or disability, by his estate or any duly appointed
guardian, executor, administrator, trustee or other legal representative(s), and
shall not be transferred or assigned to any other party other than Employee's
estate upon his death.
11. Restrictive Legends. So long as an exemption therefrom is then
available, the Company shall not be required by the terms of this Agreement to
register, under the Securities Act of 1933, as amended (the "Act"), or under
applicable state securities laws (together with the Act, the "Securities Laws"),
any of the Exercise Shares issued or to be issued upon the exercise of the
Option. In addition, in the event that any such Exercise Shares are not so
registered, Employee consents to the placement on the certificate or
certificates representing such Exercise Shares a legend or legends to the effect
that, among other things, neither such certificate or certificates nor the
Exercise Shares evidenced thereby have been registered under any Securities Laws
and that no sale, transfer or other disposition thereof or any interest therein
may be made or shall be recognized unless in the satisfactory written opinion of
counsel for, or satisfactory to, the Company, such transaction would not violate
or required registration under such Securities Laws. The Company may also place
on such certificate or certificates any other legend it deems necessary or
desirable in order to conform to any of the Securities Laws.
12. Certain Registration Rights. If at any time prior to the Termination
Date the Company registers under the Act any shares of Common Stock to be issued
to an executive officer of the Company or any of its subsidiaries upon exercise
of an option (a "Management Option") to acquire such shares of Common Stock
granted in connection with such person's employment with the Company or any of
its subsidiaries as an executive officer, then the Company shall offer in
writing to Employee a corresponding right to receive shares of Common Stock that
are registered under the Act upon the exercise of any of Employee's then vested
and unexercised shares of Common Stock under this Agreement upon similar terms
and provisions as those offered to such other executive officer. In addition,
if at any time prior to the Termination Date the Company offers to register any
of such other executive officer's outstanding shares of Common Stock that were
issued to him upon exercise of a Management Option, then the Company shall offer
in writing to Employee at the same time a corresponding right to cause the
Company to register any of the Employee's then outstanding shares of Common
Stock that were issued to him upon exercise of the Option granted under this
Agreement. The rights granted in favor of Employee under this Section 12: (a)
shall be as equal in nature to the rights granted in favor of such other
executive officer as is reasonably practicable, (b) shall relate to a
proportionate number of Employee's shares of Common Stock as the Board of
Directors of the Company deems reasonable and (c) shall be subject to such other
reasonable terms and conditions as the Board of Directors of the Company may
then impose.
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13. Notices. All notices or other communications under or relating to
this Agreement shall be in writing and shall be deemed to have been given if
delivered by hand or mailed by certified mail, postage prepaid, return receipt
request, addressed as follows:
If to the Company: North American Technologies Group, Inc.
9818 Wilcrest
Houston, Texas 77099
Attention: Corporate Secretary
If to the Employee: Donovan Boyd
P.O. Box 2151
Valparaiso, Indiana 46384
Either of the Company or the Employee may from time to time change the
address to which notices to it are to be mailed hereunder by notice in
accordance with the provisions of this Section.
14. Amendments. This Agreement may be amended or supplement only by a
writing signed by both parties hereto.
15. Successors and Assigns. Subject to the provisions of Section 10
hereof, this Agreement shall inure to the benefit of and be binding on the
respective successors, assigns and legal representatives of the Employee and the
Company.
16. Severability. If for any reason any provision, paragraph or terms of
this Agreement is held to be invalid or unenforceable, all other valid
provisions herein shall remain in full force and effect and all terms,
provisions and Sections of this Agreement shall be deemed to be severable.
17. Governing Law. To the full extent controllable by stipulation of the
Company and Employee, this Agreement shall be interpreted and enforced under
Texas law.
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18. Headings. Headings used herein are included herein for convenience of
reference only and shall not affect the construction of this Agreement or
constitute a part of this Agreement for any other purpose.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed the day and year first set out above.
"Company" NORTH AMERICAN TECHNOLOGIES
GROUP, INC.
By: /s/ John W. Parrott
------------------------------------
John W. Parrott
President
"Employee" DONOVAN BOYD
/s/ Donovan Boyd
----------------------------------------
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APPENDIX A
NOTICE OF STOCK OPTION EXERCISE
Pursuant to that certain Stock Option Agreement, dated as of ____________,
1995, as amended to date (the "Agreement"), by and between North American
Technologies Group, Inc., a Delaware corporation (the "Company"), and the
undersigned, and subject to the vesting periods set forth therein, the
undersigned hereby irrevocably elects to exercise an option to acquire
________________ shares of _____________________________, at an exercise price
of $____ per share, or an aggregate purchase price of $__________. Enclosed
herewith is a certified check or cashier's check made payable to the order of
the Company in the amount of the aggregate purchase price set forth in the
preceding sentence [or, if, applicable: "; provided, however, that $________ of
such purchase price therefor is hereby paid by the delivery to the Company of
______ shares of Common Stock represented by certificate no(s) ___________, duly
endorsed for transfer or accompanied by a blank stock power, all in accordance
with the terms and provisions of the Agreement"]. Each capitalized terms used
herein, unless otherwise defined, has the meaning given such term in the
Agreement.
The undersigned hereby represents and agrees that the Exercise Shares
purchased pursuant hereto are being purchased for investment and not with a view
to the distribution or resale thereof, and that the undersigned understands that
said Exercise Shares have not been registered under the Securities Laws.
The undersigned requests that a certificate for the Exercise Shares be
issued in the name of: ______________________________________
______________________________________
______________________________________
[Please print name, address]
Address of Employee (if different from above):
_________________________________
_________________________________
_________________________________
Dated:___________________________
Name of Employee: ________________________________
Employee's Signature: _______________________________
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EXHIBIT 10.15
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered into on this
23rd day of February, 1995, by and between NORTH AMERICAN TECHNOLOGIES GROUP,
INC., a Delaware corporation (the "Company"), and DONOVAN BOYD, an individual
("Executive").
WHEREAS, the Company desires to employ Executive to serve as an executive
officer of the Company, and Executive desires to accept such employment, upon
the terms and conditions of this Agreement; and
NOW, THEREFORE, in consideration of the provisions hereinafter described,
Company and Executive agree as follows:
1. DUTIES OF EXECUTIVE. During the Term (as defined below) of this
Agreement, Executive shall be employed by the Company as its Sr. Vice President
- - Operations. In such capacity, Executive shall perform all functions and
duties consistent with such position, in an efficient, trustworthy and
professional manner, as reasonably required by the Board of Directors of the
Company. Executive's primary functions and duties shall include all those
duties customarily undertaken by a senior vice president - operations of a
company similar to the Company. Executive agrees to devote substantially all of
his working time and energy to the performance of his duties hereunder during
the Term of this Agreement so long as his employment under this Agreement is
continued by the Company.
2. TERM OF AGREEMENT; TERMINATION.
a. Term of Agreement. Unless terminated sooner or extended in accordance
with provisions of this Agreement, the Company shall employ Executive, and
Executive accepts such employment, as set forth herein for a term (the "Term"):
(i) beginning on the first Monday following the consummation of the acquisition
(the "Acquisition"), if any, of EET, Inc. ("EET") by the Company pursuant to
that certain Agreement and Plan of Merger, dated as of February 7, 1995, by and
among NATK, EET and NATK SUB, INC., a Texas corporation and wholly-owned
subsidiary of NATK, and (ii) ending upon the close of business on December 31,
1999. Notwithstanding the foregoing, if this Agreement is not terminated in
accordance with the provisions herein on or before the expiration of its Term,
the Term of this Agreement shall be extended for an additional twelve (12)
months unless, at least ninety (90) days prior to the expiration of the initial
Term of the Agreement, or ninety (90) days prior to the expiration of a
subsequent twelve (12) month extended Term, either Executive or the Company
gives the other party written notice of its intent to terminate the Agreement at
the end of such Term.
b. Termination. In the event the Acquisition is not consummated on or
before March 31, 1995, this Agreement and all rights and obligations of the
parties
<PAGE>
under this Agreement shall immediately terminate on March 31, 1995, unless
extended in a writing signed by both of the parties hereto. In addition, subject
to the Company's performance of its obligations under this Agreement to be
performed upon Termination of Executive's Service (as defined below), the
Company shall have the right to terminate this Agreement for Cause, and this
Agreement shall automatically terminate upon Executive's death or Disability.
Except as expressly provided in Paragraph 2.a. and this Paragraph 2.b., the
Company shall have no right to terminate this Agreement. Executive shall have
the right to voluntarily terminate his Service under this Agreement at any time
upon not less than thirty (30) days' prior written notice.
3. DEFINITIONS. For purposes of this Agreement, the following terms as
used herein shall have the meanings set forth in this Paragraph 3:
a. "Annual Base Salary" or "Base Salary" shall mean the annual base salary
rate in effect for Executive from time to time during the Term of this Agreement
in accordance with the provisions of Paragraph 4.a. of this Agreement.
b. "Annual Bonus" or "Bonus" shall mean a cash payment available annually
to Executive in addition to Base Salary of which payment is contingent upon the
performance of the Company and Executive during the fiscal year as determined in
accordance with Paragraph 4.b. of this Agreement.
c. "Cause" shall mean:
(i) Willful refusal by Executive to follow a written order of Executive's
immediate supervisor at the Company, unless (x) Executive's refusal is based on
his good faith belief that to follow such written order would constitute a
violation of his fiduciary duties to the Company or a violation of any
applicable law, rule or regulation or (y) such order is outside the scope of the
obligations or duties of the Executive as set forth in Paragraph 1 of this
Agreement;
(ii) Executive's willful engagement in conduct materially injurious to the
Company; or
(iii) Executive's willful continued failure to perform his duties under
this Agreement (except due to Executive's incapacity as a result of physical or
mental illness) for a period of at least ninety (90) consecutive days after
written notice is delivered to Executive from the Board of Directors of the
Company specifically identifying the manner in which Executive has failed to
perform his duties.
For purposes of clauses (i), (ii) and (iii) of this definition, no act, or
failure to act, on Executive's part shall be deemed "willful" unless done, or
omitted to be done, by Executive in bad faith.
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d. "Constructive Termination" shall mean Executive's voluntary Termination
of Service within one hundred twenty (120) days following the occurrence of one
or more of the following events, except if such event is approved in writing by
Executive prior to its occurrence:
(i) A failure by the Company to abide by any part of this Agreement that
is not remedied within thirty (30) days after receiving written notification by
Executive of such failure, including without limitation any violation of
Executive's rights as described in Paragraph 4 of this Agreement, unless such
rights are replaced by rights of essentially equal value;
(ii) A material reduction in Executive's title or responsibilities; or
(iii) Relocation of Executive's primary place of work to an area other
than Houston, Texas.
e. "Disability" shall be deemed to have occurred if Executive makes
application for or is otherwise eligible for disability benefits under any
Company-sponsored long-term disability program covering Executive, and Executive
qualifies for such benefits. In the absence of a Company-sponsored long-term
disability program covering Executive, "Disability" shall mean Executive's total
and permanent disability as determined by the Company's Board of Directors based
on the Board's review of a medical opinion satisfactory to the Board certifying
that Executive is permanently unable to perform his normal duties under this
Agreement as a result of a physical or mental condition.
f. "Long-Term Incentive Plan" shall mean any stock option plan or any
other form of equity (real or phantom) or other long-term incentive plan
introduced by the Company.
g. "Management Bonus Plan" shall mean the annual cash bonus plan approved
by the Board of Directors and amended from time to time. Participants in the
Management Bonus Plan shall be eligible to receive annual cash payments based on
Board assessment of performance which may be totally discretionary or based
partially or totally on specific objectives established by the Board for the
Company and Executive for the fiscal year.
h. "Service" shall mean Executive's full-time or substantially full-time
employment with the Company, or any affiliated organization, including any leave
of absence approved by the Company's Board of Directors.
i. "Termination of Service" or "Termination of Executive's Service" shall
mean the termination of Executive's Service under this Agreement for any reason
whatsoever, including without limitation: (a) death, (b) Disability, (c) Cause,
(d) the expiration of the Term of this Agreement (i.e., as a result of either
Executive or the Company giving notice of termination under Paragraph 2.a. of
this Agreement), and (e) Constructive Termination. Such termination shall not
include a termination of this Agreement as a result of the
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Acquisition not being consummated as provided in the first sentence of Paragraph
2.b. of this Agreement.
4. EXECUTIVE'S RIGHTS WHILE EMPLOYED BY THE COMPANY. During the Term of
this Agreement, the Company shall provide to Executive the following rights and
benefits:
a. Base Salary. During the Term of this Agreement, the Company shall pay
to Executive the Base Salary set forth in this Paragraph 4.a. The minimum
Annual Base Salary payable to Executive by the Company shall be One Hundred
Thirty-Five Thousand Dollars ($135,000.00). Such Base Salary shall be paid in
equal semi-monthly installments on the Company's normal payroll dates.
Beginning March 1, 1996, and on each January 1 thereafter during the Term of
this Agreement (each such date being termed the "Anniversary Date"), Executive's
Base Salary shall be adjusted to reflect the increase, if any (but not any
decrease, if any) during the prior year in the Consumer Price Index for Houston,
Texas published by the United States Department of Labor, Bureau of Labor
Statistics (the "Index").
If the Index published for any Anniversary Date (the "Comparison Index")
has increased over the index published for December 31, 1994 (the "Base Index"),
then Executive's Base Salary for the following year shall be established by
multiplying One Hundred Thirty-Five Thousand Dollars ($135,000.00) by a
fraction, the numerator of which shall be the Comparison Index and the
denominator of which shall be the Base Index. Any such adjustments to
Executive's Base Salary shall be retroactive to the Anniversary Date to account
for delays in reporting the Index. If the Index ceases to be published, or if
material changes are made to the process by which the Index is computed,
Executive's increase in Base Salary, if any, shall be computed on the basis of
any change in the most nearly comparable index then being computed and published
by the United States government or an agency of the United States government.
Notwithstanding the foregoing, Executive's Base Salary shall be reviewed by
the Board of Directors of the Company on an annual basis during the Term of this
Agreement and may be increased (but not decreased) based on an assessment of
Executive's performance and external market factors. Executive's Base Salary as
determined above shall constitute Executive's minimum Base Salary during the
Term of this Agreement.
b. Annual Bonus. Executive shall also be eligible to receive an Annual
Bonus pursuant to any Management Bonus Plan adopted by the Company, subject to
the terms and provisions of this Paragraph b. The amount of Annual Bonus earned
by Executive for each fiscal year shall be determined by Executive's immediate
supervisor at the Company based upon, among other factors, the performance of
the Company during such fiscal year. Any Annual Bonus earned by Executive shall
be paid in cash within one hundred twenty (120) days following the completion of
the Company's fiscal year then ending.
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<PAGE>
c. Long-Term Incentives. Executive shall be entitled to participate in
any Long-Term Incentive Plan that may be provided to other senior executives of
the Company during the Term of this Agreement. Grants to Executive under such
Long-Term Incentive Plan shall be no less favorable in amount and other key
design features, including vesting restrictions, than grants provided to other
senior executives of the Company with comparable levels of responsibility to
Executive.
d. Fringe Benefits. The Company shall provide Executive with the
following:
(i) Such benefits and perquisites, including but not limited to disability
income, life and health insurance, deferred compensation and any form of savings
or retirement plan, as may from time to time be provided to other executives of
the Company with a similar level of Base Salary and responsibilities. Such
benefits and perquisites shall be provided at the same proportional cost to
Executive as that paid by other comparable executives in the Company who
participate in such programs;
(ii) Reasonable vacation each year during the Term of this Agreement, but
not less than four (4) weeks. Said vacation shall not reduce Executive's
compensation under this Agreement;
(iii) A health and dental insurance policy or policies (and the Company
shall pay all premiums associated therewith) reasonably selected by the Company
for Executive and other executive officers of the Company with a similar level
of Base Salary and responsibilities;
(iv) Directors and officers liability insurance for Executive (to the
extent that such insurance can be obtained at commercially reasonable rates),
the premiums and other amounts due with respect to which shall be paid by the
Company;
(v) Payment of dues for such clubs, societies and professional
associations of which Executive is a member that benefit the Company; and
(vi) A term life insurance policy (and the Company shall pay all premiums
associated therewith) that pays not less than $500,000 to Executive's designee,
on the death of Executive, with rights in favor of Executive to purchase such
policy on termination of this Agreement, so long as the annual premiums therefor
do not exceed $5,000.
e. Stock Options. The Company shall grant to Executive the right to
exercise the options to acquire shares of common stock, par value $0.001 per
share, of the Company as set forth in that certain Stock Option Agreement, a
copy of which is attached hereto as Annex 1 and made a part hereof, which Stock
Option Agreement shall be executed and delivered by the Company and Executive
simultaneously with the execution of this Agreement.
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f. Expense Reimbursement. The Company shall promptly reimburse Executive
for all out-of-pocket fees and expenses (including without limitation travel
expenses) incurred by him in connection with the performance of his obligations
under this Agreement so long as Executive provides reasonable documentation
evidencing such fees and expenses.
g. Reimbursement and Loan Provisions Relating to Executive's Relocation to
Houston, Texas.
(i) Subject to the terms and provisions of this Section 4.g., the Company
agrees to reimburse Executive for the Relocation Costs (as defined below) in
connection with Executive's relocation from Indiana to the Houston, Texas area.
(ii) "Relocation Costs" shall mean and include: (A) real estate broker
fees and other closing costs relating to the sale of Executive's principal
residence in Indiana; (B) closing costs (not including any down payment or
insurance costs), and costs incurred in connection with up to two loan
applications, relating to a purchase of a home in the Houston, Texas area to be
used by Executive as his principal residence, so long as such costs are incurred
within the first twelve (12) months of the Term of Employment; (C) costs of
moving Executive's personal effects from Indiana to Houston, Texas; and (D) an
amount necessary to cover the federal income tax consequences, if any, of
Executive's receipt of amounts from the Company representing such Relocation
Expenses.
(iii) Notwithstanding the foregoing, in the event of Termination of
Executive's Service, at any time during the first twelve (12) months of the Term
of Employment, as a result of Executive's voluntary termination of this
Agreement not constituting Constructive Termination, Employee shall be obligated
to repay, and shall repay, to the Company, on or before the 90th day following
such Termination of Executive's Service all amounts received by him from the
Company representing Relocation Costs.
(iv) The Company agrees to loan to Executive up to $70,000, upon
Executive's written request, at any time during the first six (6) months of the
Term of Employment, the proceeds of which loan shall be used by Executive to
satisfy certain obligations of Executive in connection with a residential lot in
Indiana on which Executive intended to build his principal residence. Such loan
shall bear interest at six percent (6%) per annum, and shall be repaid, together
with all accrued interest thereon, on the earlier to occur of (A) the day that
is one year from the first day of the Term of Employment or (B) the sale of such
residential lot. In the event such loan is repaid as a result of the provisions
of clause (B) of the preceding sentence, and such residential lot is sold to an
unrelated party for an amount less than the sum of the then-outstanding
principal and accrued and unpaid interest on such loan, then Executive shall be
required only to repay such amount as is equal to the proceeds of such sale, and
the remainder, if any, of the amount due with respect to the loan shall be
forgiven by the Company. Executive agrees to use reasonable efforts to cause
such residential lot to be resold at the highest price available.
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5. EXECUTIVE'S RIGHTS UPON TERMINATION OF SERVICE.
a. Upon Termination Of Service For Reason Other Than Death, Disability,
Cause Or Voluntary Termination by Executive Not Constituting Constructive
Termination. In the event of Termination of Executive's Service for any reason
other than (a) death, (b) Disability, (c) Cause, or (d) voluntary termination of
this Agreement by Executive not constituting Constructive Termination, Executive
(or if Executive dies while benefits remain due under this Agreement,
Executive's beneficiaries as designated in accordance with the provisions of
Paragraph 9 herein) shall be entitled to receive for a period of thirty-six (36)
months following such Termination of Service:
(i) Executive's Base Salary in effect as of the date of Termination of
Executive's Service;
(ii) A bonus payable annually in cash equal to the average dollar bonus
earned by Executive during the Company's two fiscal years immediately prior to
Termination of Executive's Service (or if Executive has been employed for less
than such two fiscal year period, the dollar bonus earned by Executive for the
prior fiscal year, if any);
(iii) Continued participation in all fringe benefits as described in
paragraph 4.d.(i) herein, available to Executive immediately prior to
Termination of Executive's Service. If continued participation in one or more
of these fringe benefits is not possible due to legal or other constraints, the
Company shall provide Executive with sufficient funds on a monthly basis to
enable Executive to secure fringe benefits, on an after-tax basis, substantially
similar to those which Executive was entitled to immediately prior to
Termination of Executive's Service; and
b. Upon Termination Of Service For Reason Of Death, Disability, Cause Or
Voluntary Termination Not Constituting Constructive Termination. In the event
of Termination of Executive's Service for reason of (a) death, (b) Disability,
(c) Cause, or (d) voluntary termination of this Agreement by Executive not
constituting Constructive Termination, Executive shall be entitled to receive
following such Termination of Service:
(i) For a period of 90 days following such Termination the then-applicable
Base Salary and other benefits that Executive would have been entitled to
receive under this Agreement but for such Termination;
(ii) Payment of any death, Disability or other benefits provided to
Executive by the Company in accordance with the terms and conditions of such
benefits (but only in the event such Termination of Executive's Service was for
reason of death or Disability); and
(iii) Executive shall have the right to exercise (in accordance with the
terms thereof) any stock options, if any, previously granted to Executive under
any Long-Term Incentive Plan of the Company, provided such options have vested
in accordance with the
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provisions of the Plan or in accordance with any agreement between the Company
and Executive covering such options.
6. MITIGATION AND OFFSET REQUIREMENTS. Executive shall not be required to
mitigate the amount of any benefit provided for in this Agreement by actively
seeking alternative employment during the period in which such benefits are
paid. In addition, Executive shall not be required to offset any such benefits
provided for in this Agreement by amounts earned as a result of Executive's
employment or self-employment during the period in which Executive is entitled
to receive such benefits.
Notwithstanding the above, the Company's obligation to continue to provide
Executive with fringe benefits, as described in Paragraph 4.d.(i) of this
Agreement, shall cease if Executive becomes eligible to participate in fringe
benefits substantially similar to those provided for in this Agreement as a
result of Executive's employment during the period that Executive is entitled to
such fringe benefits.
7. BREACH OF CONFIDENTIALITY OR ENTERING INTO DIRECT COMPETITION.
Beginning on the first day of the Term of this Agreement and continuing during
the period in which this Agreement remains in force and only so long as
Executive is entitled to receive any compensation and/or benefits pursuant to
the provisions of Paragraph 4 or 5 hereof, and is receiving all such
compensation and/or benefits, Executive shall not, without prior written consent
of the Board of Directors except pursuant to and consistent with the order of
any court, legislative body or regulatory agency, (a) engage directly or
indirectly (including, by way of example only, as a principal, partner,
venturer, employee or agent), nor have any direct or indirect interest, in any
business which competes with the Company in any material way, or (b) disclose to
any third party, either directly or indirectly, any non-public information
regarding the Company's business, customers, financial condition, strategies or
operations the disclosure of which harms the Company in any material way.
Clause (a) above shall not apply to (1) any investment by Executive in the stock
of a publicly-traded corporation, provided such investment constitutes less than
one percent (1%) of the corporation's cumulative voting shares.
8. LIMITATION OF BENEFITS UNDER THIS AGREEMENT. In the event that the
payment of any benefit due to Executive under this Agreement (including any
early vesting of stock options) shall result in the Company's inability to
deduct such payment for Federal Income Tax purposes as a result of exceeding
limitations under Section 4999 of the Internal Revenue Code, as amended, the
cumulative payments due under this Agreement shall be reduced by the minimum
amount necessary to avoid exceeding such limitations. In such an event,
Executive may elect which benefit(s) to reduce and in which proportions in order
to conform with the provisions of this Paragraph.
9. DESIGNATION OF BENEFICIARIES. Executive shall have the right at any
time to designate any person(s) or trust(s) as beneficiaries to whom any
benefits
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payable under this Agreement shall be made in the event of Executive's death
prior to the distribution of all benefits due Executive under this Agreement.
Each beneficiary designation shall be effective only when filed in writing with
the Company during Executive's lifetime. If Executive designates more than one
beneficiary, distributions of cash payments shall be made in equal proportions
to each beneficiary unless otherwise provided for in Executive's beneficiary
designation. The filing of a new beneficiary designation shall cancel all
designations previously filed.
Any finalized marriage or divorce (other than a common law marriage) of
Executive subsequent to the date of filing a beneficiary designation shall
revoke such designation unless (a) in the case of divorce, the previous spouse
was not designated as beneficiary, and (b) in the case of marriage, Executive's
new spouse had previously been designated as beneficiary. Executive's spouse
shall join in any designation of a beneficiary other than Executive's spouse.
If Executive fails to designate a beneficiary as provided for above, or if the
beneficiary designation is revoked by marriage, divorce or otherwise without
execution of a new designation, or if the beneficiary designated by Executive
dies prior to distribution of the benefits due Executive under this Agreement,
the Board of Directors of the Company shall direct the distribution of any
benefits due under this Agreement to Executive's estate.
10. ADDITIONAL INDEMNIFICATION RIGHTS.
a. During the Term of this Agreement and for a period of three (3) years
thereafter, the Company shall use all reasonable efforts to cause to be
maintained in effect a policy of directors' and officers' insurance and
indemnification policy relating to actions, alleged actions, omissions and
alleged omissions of Executive occurring during the Term of this Agreement.
b. (1) If during the Term of this Agreement or for a three (3) year
period thereafter, Executive is made a party or is threatened to be made a party
to or is involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding"), by reason of the
fact that he is or was a director, officer or employee of the Company, or is or
was serving at the request of the Company as a director, officer or employee of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action or inaction in an official
capacity as a director, officer or employee or in any other capacity while
service as a director, officer or employee, then Executive shall be indemnified
and held harmless by the Company to the fullest extent authorized by the General
Corporation Law of the State of Delaware, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Company to provide broader indemnification rights than
such law permitted the Company to provide prior to such amendment) (the "GCL"),
against all expense, liability and loss (including attorneys' fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by Executive in connection
therewith, whether occurring before,
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during or after the Term of this Agreement, and such indemnification shall
continue as to Executive even if he shall have ceased to be a director, officer
or employee and shall inure to the benefit of his heirs, executors and
administrators; provided, however, that except as provided in this Paragraph b.,
the Company shall indemnify Executive in connection with a proceeding (or part
thereof) initiated by Executive only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Company. The right to
indemnification conferred in this Paragraph b., shall be a contract right and
shall include the right to be paid by the Company the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that, if the GCL requires, the payment of such expenses incurred by
Executive in his capacity as a director, officer or employee (and not in any
capacity in which service was or is rendered by Executive while a director or
officer or employee, including without limitation, service to any employee
benefit plan) in advance of the final disposition of a proceeding, shall be made
only upon delivery to the Company of an undertaking, by or on behalf of
Executive, to repay all amounts so advanced if it shall ultimately be determined
that Executive is not entitled to be indemnified under this Paragraph b. or
otherwise.
(2) If a claim under Paragraph b.(1) above is not paid in full by the
Company within 30 days after a written claim has been received by the Company,
Executive may at any time thereafter bring suit against the Company to recover
the unpaid amount of the claim, and, if successful in whole or in part,
Executive shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other than an action brought
to enforce a claim for expenses incurred in defending any proceeding in advance
of its final disposition where the required undertaking, if any is required, has
been tendered to the Company) that Executive has not met the standards of
conduct which made it permissible under the GCL for the Company to indemnify
Executive for the amount claimed, but the burden of proving such defense shall
be on the Company. Neither the failure of the Company (including its Board of
Directors, independent legal counsel or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
Executive is proper in the circumstances because he has met the applicable
standard of conduct set forth in the GCL, nor an actual determination by the
Company (including its Board of Directors, independent legal counsel or its
stockholders) that Executive has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that Executive has not
met the applicable standard of conduct.
11. SUCCESSORS. Except as provided for in Paragraph 9 above, the rights
and duties of a party hereunder shall not be assignable by that party; provided,
however, that this Agreement shall be binding upon and shall inure to the
benefit of and binding upon any successor of the Company, and any such successor
shall be deemed substituted for the Company under the terms of this Agreement.
The term "successor" as used herein shall include, without limitation, any
person, firm, corporation or other business entity which at any time, by merger,
purchase or otherwise, acquires all or a substantial portion of the assets or
business of the Company.
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12. ATTORNEYS' FEES UPON A DISPUTE. In any action at law or in equity to
enforce any of the provisions or rights under this Agreement, the unsuccessful
party to such litigation, as determined by the Court in a final judgment or
decree, shall pay the successful party all costs, expenses and reasonable
attorneys' fees incurred therein by such party (including without limitation
such costs, expenses and fees on any appeals), and if such successful party
shall recover judgment in any such action or proceeding, such costs, expenses
and attorneys' fees shall be included as part of such judgment.
13. ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the Company and Executive as to the terms of Executive's employment by
the Company and supersedes all prior written agreements, understandings and
commitments between the Company and Executive as to the terms of Executive's
employment by the Company. No amendments to this Agreement may be made except
by a written document signed by the Executive and approved in writing by the
Company's Board of Directors.
14. VALIDITY. In the event that any provision of this Agreement is held
to be invalid, void or unenforceable, the same shall not affect, in any respect
whatsoever, the validity of any other provision of this Agreement.
15. PARAGRAPHS AND OTHER HEADINGS. Paragraphs and other headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretations of this Agreement.
16. NOTICE. Any notice or demand required or permitted to be given under
this Agreement shall be made in writing and shall be deemed effective upon the
personal delivery thereof if delivered or, if mailed, forty-eight (48) hours
after having been deposited in the United States mail, postage prepaid, and
addressed in the case of the Company to the attention of the Board of Directors
at the Company's then principal place of business in Houston, Texas, and in the
case of Executive to his attention at P.O. Box 2151, Valparaiso, Indiana 46384.
Either party may change the address to which such notices are to be addressed by
giving the other party notice in the manner herein set forth.
17. WITHHOLDING TAXES AND OTHER DEDUCTIONS. To the extent required by
law, the Company shall withhold from any payments due Executive under this
Agreement any applicable federal, state or local taxes, and such other
deductions as are prescribed by law.
18. SURVIVAL OF CERTAIN PROVISIONS. The provisions of Paragraphs 5, 6, 7,
8, 9, and 10 through 19 of this Agreement shall survive termination of this
Agreement; provided, however, that the provisions of: (a) Paragraphs 5 and 8
hereof shall continue so long as any compensation is to be paid to Executive
under this Agreement as set forth in Paragraph 5 and (b) the provisions of
Paragraphs 7 and 10 shall survive such termination for the respective periods
provided therein. Notwithstanding the foregoing provisions, none of the
provisions of this Agreement shall survive the termination of this
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Agreement if this Agreement is terminated as provided in the first sentence of
Paragraph 2.b. of this Agreement.
19. APPLICABLE LAW. To the full extent controllable by stipulation of the
Company and Executive, this Agreement shall be interpreted and enforced under
Texas law.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
its duly authorized representative and Executive has affixed his signature as of
the date first written above.
COMPANY:
NORTH AMERICAN TECHNOLOGIES
GROUP, INC., a Delaware corporation
By /s/ John W. Parrott
-----------------------------------
John W. Parrott
Title: Chairman
EXECUTIVE:
/s/ Donovan Boyd
-------------------------------------
DONOVAN BOYD
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ANNEX 1 TO EMPLOYMENT AGREEMENT
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT ("Agreement"), dated as of February 23, 1995,
is by and between NORTH AMERICAN TECHNOLOGIES GROUP, INC., a Delaware
corporation (the "Company"), and DONOVAN BOYD ("Employee").
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which
are hereby acknowledged, the Company and the Employee hereby agree as follows:
1. Grant of Option; Vesting Schedule.
(a) Grant of Option. The Company hereby grants to Employee an option the
("Option") to purchase, subject to the terms and conditions hereof, from the
Company two hundred thousand (200,000) shares (the "Option Shares") of Common
Stock, par value $0.001 per share, of the Company (the "Common Stock") beginning
on the Commencement Date (as defined below) and ending at 5:00 p.m. Eastern
Standard Time, on March 31, 2004 (the "Termination Date"), at an exercise price
equal to $2.50 per share of Common Stock. As used herein, the term
"Commencement Date" shall mean the date of the beginning of the "Term" of that
certain Employment Agreement ("Employment Agreement") by and between the Company
and Employee, dated as of the date of this Agreement, as the word "Term" is
defined in Paragraph 2.a. of such Employment Agreement. The number of Option
Shares and the exercise price per share shall be subject to adjustment from time
to time upon the occurrence of certain events as set forth below. The shares of
Common Stock or any other shares or other units of stock or other securities or
property, or any combination thereof then receivable upon exercise of the
Option, as adjusted from time to time, are sometimes referred to hereinafter as
"Exercise Shares." The exercise price per share as from time to time in effect
is referred to hereinafter as the "Exercise Price." The Option is not an
"incentive stock option" as described in Section 422A of the Internal Revenue
Code of 1986, as amended.
(b) Vesting Schedule. Following the Commencement Date, the Option shall
vest and be exerciseable (unless earlier terminated as provided herein) on March
31 in the years set forth below and in the amounts set forth below:
Number of
March 31 Shares
1996 50,000
1997 50,000
1998 50,000
1999 50,000
Total 200,000
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; provided, however, that (i) the Option to acquire such shares shall vest on
the date set forth above only in the event that Employee is in the employ of the
Company or any of its subsidiaries in any capacity on such date and (ii) the
Option to acquire any Exchange Shares, if not earlier terminated by the terms of
this Agreement, shall terminate on the 5th annual anniversary date of the date
on which the Option to acquire such Exchange Shares vested as provided in this
clause (b). The period beginning on the Commencement Date and ending on the
Termination Date is sometimes referred to herein as the Option Period. If
Employee is not in the employ of the Company or any of its subsidiaries in any
capacity on any of the various vesting dates set forth above, regardless of the
reason therefore, then the Option with respect to such year shall not vest.
2. Exercise of Option. The Option may be exercised, so long as it is then
valid and outstanding, from time to time in whole (as to Option Shares then
exercisable) or in part, and if in part, on as many occasions during the Option
Period as Employee shall desire, subject to the terms and provisions of this
Agreement. The Option may be exercised upon delivery on any business day to the
Company at its address set forth below (or such other office of the Company, if
any, as shall theretofore have been designated by the Company by written notice
to the Employee) of the following:
(a) a completed and executed Notice of Option Exercise in the form set
forth in Appendix A hereto and made a part hereof; and
(b) payment of the full Exercise Price for the number of Exercise Shares
set forth in the Notice of Option Exercise, in lawful money of the United States
of America, by certified check or cashier's check made payable to the order of
the Company (or with the consent of the Company, the purchase price therefor may
be paid in whole or in part by the delivery to the Company of certificates
representing shares of Common Stock held by Employee, duly endorsed for transfer
or accompanied by blank stock, each of which shares shall be valued at a price
equal to its then Current Market Value, as defined below).
In the event that Employee is no longer in the employ of the Company or any of
its subsidiaries in any capacity, Employee shall be entitled to exercise this
Option, according to the terms and conditions set forth herein, to purchase only
that number of Option Shares in which Employee has become vested prior to the
termination of such employment.
3. Issuance of Exercise Shares; Delivery of Stock Certificate. The Company
shall, within ten (10) business days (or as soon thereafter as is practicable)
of the exercise of this Option, issue in the name of and cause to be delivered
to the Employee (or such other person or persons, if any, as the Employee shall
have designated in the Notice of Option Exercise) one or more certificates
representing the Exercise Shares to which the Employee (or such other person or
persons) shall be entitled upon such exercise under the terms hereof. Such
certificate or certificates shall be deemed to have been issued and the Employee
(or such other person or persons so designated) shall be deemed to have
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become the record holder of the Exercise Shares as of the date of the due
exercise of this Option.
4. Exercise Shares Fully Paid and Non-assessable. The Company agrees and
covenants that all Exercise Shares issuable upon the due exercise of the Option
will, upon issuance of a certificate therefor in accordance with the terms
hereof, be duly authorized, validly issued, fully paid and non-assessable and
free and clear of all taxes (other than taxes which, pursuant to this Agreement,
the Company shall not be obligated to pay) or liens, charges, and security
interests created by the Company with respect to the issuance thereof.
5. Reservation of Exercise Shares. At the time of or before taking any
action which would cause an adjustment pursuant to this Agreement increasing the
number of shares of capital stock constituting the Exercise Shares, the Company
will take any corporate action which may be necessary in order that the Company
have remaining, after such adjustment, a number of shares of such capital stock
unissued and unreserved for other purposes sufficient to permit the exercise of
all the then vested Options under this Agreement of like tenor immediately after
such adjustment. The Company will also from time to time take action to
increase the authorized amount of its capital stock constituting the Exercise
Shares if at any time the number of shares of capital stock authorized but
remaining unissued and unreserved for other purposes shall be insufficient to
permit the exercise of the Options under this Agreement then vested. The
Company may but shall not be limited to reserve and keep available, out of the
aggregate of its authorized but unissued shares of capital stock, for the
purpose of enabling it to satisfy any obligation to issue Exercise Shares upon
exercise of Options, through the Termination Date, the number of Exercise Shares
deliverable upon the full exercise of this Option. At the time of or before
taking any action which would cause (pursuant to the provisions of this Section
5) an adjustment resulting in a reduction of the Exercise Price below the then
par value (if any) of the Exercise Shares issuable upon exercise of the Options,
the Company will take any corporate action which may be necessary in order to
assure that the par value per share of the Exercise Shares is at all times equal
to or less than the Exercise Price per share and so that the Company may validly
and legally issue fully paid and non-assessable Exercise Shares at the Exercise
Price, as so adjusted. The Company will also from time to time take similar
action if at any time the Exercise Price is below the then par value of the
Exercise Shares.
6. Fractional Shares. The Company shall not be required to issue
fractional shares of capital stock upon the exercise of this Option or to
deliver stock certificates which evidence fractional shares of capital stock.
In the event that any fraction of an Exercise Share would, except for the
provisions of this Section 6, be issuable upon the exercise of this Option, the
Company shall pay to the Employee an amount in cash equal to such fraction
multiplied by the Current Market Value (as defined herein) of the Exercise
Share. For purposes of this subparagraph, the "Current Market Value" shall
mean, and be determined, as follows:
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(a) if the type of securities representing the Exercise Shares are traded
in the over-the-counter market and not on any national securities exchange and
not in the NASDAQ Reporting System, the average of the mean between the last bid
and asked prices per share, as reported by the National Quotation Bureau, Inc.,
or another generally accepted reporting service, for the last business day prior
to the date on which this Option is exercised, or if not so reported, the
average of the closing bid and asked prices for an Exercise Share as furnished
to the Company by any member of the National Association of Securities Dealers,
Inc., selected by the Company for that purpose;
(b) if the type of securities representing the Exercise Shares are listed
or traded on a national securities exchange or in the NASDAQ National Market
System, the closing price on the principal national securities exchange on which
they are so listed or traded or in the NASDAQ National Market System, as the
case may be, on the last business day prior to the date of the exercise of this
Option. The closing price referred to in this clause (b) shall be the last
reported sales price or, in case no such reported sale takes place on such day,
the average of the reported closing bid and asked prices, in either case, on the
national securities exchange on which the Exercise Shares are then listed or in
the NASDAQ Reporting System; or
(c) if no such closing price or closing bid and asked prices are
available, as determined in any reasonable manner as may be prescribed by the
Board of Directors of the Company.
7. Payment of Taxes. The Company will pay all documentary stamp taxes, if
any, attributable to the issuance of Exercise Shares upon the exercise of this
Option; provided, however, that the Company shall not be required to pay any tax
or taxes which may be payable in respect of any transfer involved in the issue
of any certificates representing the Exercise Shares in a name other than that
of the Employee, and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
8. Rights of Employee. The Employee shall not, by virtue of anything
contained in this Agreement or otherwise, be entitled to any right whatsoever,
either in law or equity, of a stockholder of the Company, including without
limitation, the right to receive dividends or to vote or to consent or to
receive notice as a shareholder in respect of the meetings of shareholders or
the election of directors of the Company or any other matter, with respect to
any Exercise Shares prior to the acquisition of such Exercise Shares on the
exercise of this Option as provided in this Agreement .
9. Adjustment of Exercise Shares and Exercise Price. The Exercise Price
and the number and kind of Exercise Shares purchasable upon the exercise of this
Option shall be subject to adjustment from time to time upon the happening of
certain events as provided in this Section 9. The Exercise Price in effect at
any time and the number and
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kind of securities purchasable upon exercise of this Option also shall be
subject to adjustment as hereinafter provided.
(a) In the case the Company shall (i) pay a dividend or make a
distribution on its shares of Common Stock in shares of Common Stock, (ii)
subdivide or classify its outstanding Common Stock into a greater number of
shares or (iii) combine or reclassify its outstanding Common Stock into a
smaller number of shares, the Exercise Price in effect at the time of the record
date for such dividend or distribution or of the effective date of such
subdivision, classification, combination or reclassification shall be
proportionally adjusted so that the Employee, upon any exercise of this Option
immediately thereafter shall be entitled to receive the aggregate number and
kind of shares which, if this Option had been exercised by such Employee
immediately prior to such date, he would have owned upon such exercise and been
entitled to receive upon such dividend, subdivision, classification, combination
or reclassification. For example, if the Company declares a 2 for 1 stock
dividend or stock split and the Exercise Price immediately prior to such event
was $5.00 per share, the adjusted Exercise Price immediately after such event
would be $2.50 per share. Such adjustment shall be made successively whenever
any event listed above shall occur.
(b) In case the Company shall hereafter issue rights or warrants to all
holders of its Common Stock entitling them to subscribe for or purchase shares
of Common Stock (or securities convertible into Common Stock) at a price (or
having a conversion price per share) less than the current market price of the
Common Stock (as defined in the subsection (d) below) on the record date
mentioned below, the Exercise Price shall be adjusted so that the same shall
equal the price determined by multiplying the Exercise Price in effect
immediately prior to the date of such issuance by a fraction, the numerator of
which shall be the sum of the number of shares of Common Stock outstanding on
the record date mentioned below and the number of additional shares of Common
Stock which the aggregate offering price of the total number of shares of Common
Stock so offered (or the aggregate conversion price of the convertible
securities so offered) would purchase at such current market price per share of
the Common Stock, and the denominator of which shall be the sum of the number of
shares of Common Stock outstanding on such record date and the number of
additional shares of Common Stock offered for subscription or purchase (or into
which the convertible securities so offered are convertible). Such adjustment
shall be made successively whenever such rights or warrants are issued and shall
become effective immediately after the record date for the determination of
shareholders entitled to receive such rights or warrants; and to the extent that
shares of Common Stock are not delivered (or securities convertible into Common
Stock are not delivered) after the expiration of such rights or warrants the
Exercise Price shall be readjusted to the Exercise Price which would then be in
effect had the adjustments made upon the issuance of such rights or warrants
been made upon the basis of delivery of only the number of shares of Common
Stock (or securities convertible into Common Stock) actually delivered.
(c) Whenever the Exercise Price payable upon exercise of this Option is
adjusted pursuant to the provisions of (a) or (b) above, the number of Exercise
Shares purchasable
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<PAGE>
upon exercise of this Option shall simultaneously be adjusted by multiplying the
number of Exercise Shares initially issuable upon exercise of this Option by the
Exercise Price in effect on the date hereof and dividing the product so obtained
by the Exercise Price, as adjusted.
(d) For the purpose of any computation under the subsection above, the
current market price per share of Common Stock at any date shall be deemed to be
the average of the daily closing prices for 30 consecutive business days before
such date. The closing price for each day shall be the last sale price (regular
way) or, in case no such reported sale takes place on such day, the average of
the last reported bid and lowest reported asked prices as reported by NASDAQ, or
other similar organization if NASDAQ is no longer reporting such information, or
if not so available, the fair market price as determined by the Board of
Directors.
(e) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least one cent ($0.01) in
such price; provided, however, that any adjustments which by reason of the
provisions of this sentence are not required to be made shall be carried forward
and taken into account in any subsequent adjustment required to be made
hereunder. All calculations under this Section 9 shall be made to the nearest
cent or to the nearest one-hundredth of a share, as the case may be. Anything
in this section to the contrary notwithstanding, the Company shall be entitled,
but shall not be required, to make such changes in the Exercise Price, in
addition to those required by this Section 9 as it, in its sole discretion,
shall determine to be advisable in order that any dividend or distribution in
shares of Common Stock, subdivision, classification, reclassification or
combination of Common Stock, issuance of warrants or options or other rights to
acquire Common Stock or distribution of evidences of indebtedness or other
assets (excluding cash dividends) referred to hereinabove in this Section 9
hereafter made by the Company to the holders of its Common Stock shall not
result in any tax to the holders of its Common Stock or securities convertible
into Common Stock.
(f) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly cause a notice setting forth the adjusted Exercise Price
and adjusted number of Shares issuable upon exercise of this Option to be mailed
to the Employee, at the address set forth in this Agreement for notice, and
shall cause a certified copy thereof to be mailed to its transfer agent, if any.
The Company may retain a firm of independent certified public accountants
selected by the Board of Directors (who may be the regular accountants employed
by the Company) to make any computation required by this Section 9, and a
certificate signed by such firm shall be conclusive evidence of the correctness
of such adjustment.
(g) In the event that at any time, as a result of an adjustment made
pursuant to this Section 9, the Employee thereafter shall become entitled to
receive any Exercise Shares of the Company other than Common Stock, thereafter
the number of such other shares so receivable upon exercise of this Option shall
be subject to adjustment from time to time in
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a manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Common Stock contained in this Section 9.
10. Restrictions on Exercise and Transferability. This Option, and the
rights of Employee under this Agreement, shall be exerciseable only by the
Employee or, upon his death or disability, by his estate or any duly appointed
guardian, executor, administrator, trustee or other legal representative(s), and
shall not be transferred or assigned to any other party other than Employee's
estate upon his death.
11. Restrictive Legends. So long as an exemption therefrom is then
available, the Company shall not be required by the terms of this Agreement to
register, under the Securities Act of 1933, as amended (the "Act"), or under
applicable state securities laws (together with the Act, the "Securities Laws"),
any of the Exercise Shares issued or to be issued upon the exercise of the
Option. In addition, in the event that any such Exercise Shares are not so
registered, Employee consents to the placement on the certificate or
certificates representing such Exercise Shares a legend or legends to the effect
that, among other things, neither such certificate or certificates nor the
Exercise Shares evidenced thereby have been registered under any Securities Laws
and that no sale, transfer or other disposition thereof or any interest therein
may be made or shall be recognized unless in the satisfactory written opinion of
counsel for, or satisfactory to, the Company, such transaction would not violate
or required registration under such Securities Laws. The Company may also place
on such certificate or certificates any other legend it deems necessary or
desirable in order to conform to any of the Securities Laws.
12. Certain Registration Rights. If at any time prior to the Termination
Date the Company registers under the Act any shares of Common Stock to be issued
to an executive officer of the Company or any of its subsidiaries upon exercise
of an option (a "Management Option") to acquire such shares of Common Stock
granted in connection with such person's employment with the Company or any of
its subsidiaries as an executive officer, then the Company shall offer in
writing to Employee a corresponding right to receive shares of Common Stock that
are registered under the Act upon the exercise of any of Employee's then vested
and unexercised shares of Common Stock under this Agreement upon similar terms
and provisions as those offered to such other executive officer. In addition,
if at any time prior to the Termination Date the Company offers to register any
of such other executive officer's outstanding shares of Common Stock that were
issued to him upon exercise of a Management Option, then the Company shall offer
in writing to Employee at the same time a corresponding right to cause the
Company to register any of the Employee's then outstanding shares of Common
Stock that were issued to him upon exercise of the Option granted under this
Agreement. The rights granted in favor of Employee under this Section 12: (a)
shall be as equal in nature to the rights granted in favor of such other
executive officer as is reasonably practicable, (b) shall relate to a
proportionate number of Employee's shares of Common Stock as the Board of
Directors of the Company deems reasonable and (c) shall be subject to such other
reasonable terms and conditions as the Board of Directors of the Company may
then impose.
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13. Notices. All notices or other communications under or relating to
this Agreement shall be in writing and shall be deemed to have been given if
delivered by hand or mailed by certified mail, postage prepaid, return receipt
request, addressed as follows:
If to the Company: North American Technologies Group, Inc.
9818 Wilcrest
Houston, Texas 77099
Attention: Corporate Secretary
If to the Employee: Donovan Boyd
P.O. Box 2151
Valparaiso, Indiana 46384
Either of the Company or the Employee may from time to time change the
address to which notices to it are to be mailed hereunder by notice in
accordance with the provisions of this Section.
14. Amendments. This Agreement may be amended or supplement only by a
writing signed by both parties hereto.
15. Successors and Assigns. Subject to the provisions of Section 10
hereof, this Agreement shall inure to the benefit of and be binding on the
respective successors, assigns and legal representatives of the Employee and the
Company.
16. Severability. If for any reason any provision, paragraph or terms of
this Agreement is held to be invalid or unenforceable, all other valid
provisions herein shall remain in full force and effect and all terms,
provisions and Sections of this Agreement shall be deemed to be severable.
17. Governing Law. To the full extent controllable by stipulation of the
Company and Employee, this Agreement shall be interpreted and enforced under
Texas law.
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<PAGE>
18. Headings. Headings used herein are included herein for convenience of
reference only and shall not affect the construction of this Agreement or
constitute a part of this Agreement for any other purpose.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed the day and year first set out above.
"Company" NORTH AMERICAN TECHNOLOGIES
GROUP, INC.
By:
------------------------------------
John W. Parrott
President
"Employee" DONOVAN BOYD
----------------------------------------
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APPENDIX A
NOTICE OF STOCK OPTION EXERCISE
Pursuant to that certain Stock Option Agreement, dated as of ____________,
1995, as amended to date (the "Agreement"), by and between North American
Technologies Group, Inc., a Delaware corporation (the "Company"), and the
undersigned, and subject to the vesting periods set forth therein, the
undersigned hereby irrevocably elects to exercise an option to acquire
________________ shares of _____________________________, at an exercise price
of $____ per share, or an aggregate purchase price of $__________. Enclosed
herewith is a certified check or cashier's check made payable to the order of
the Company in the amount of the aggregate purchase price set forth in the
preceding sentence [or, if, applicable: "; provided, however, that $________ of
such purchase price therefor is hereby paid by the delivery to the Company of
______ shares of Common Stock represented by certificate no(s) ___________, duly
endorsed for transfer or accompanied by a blank stock power, all in accordance
with the terms and provisions of the Agreement"]. Each capitalized terms used
herein, unless otherwise defined, has the meaning given such term in the
Agreement.
The undersigned hereby represents and agrees that the Exercise Shares
purchased pursuant hereto are being purchased for investment and not with a view
to the distribution or resale thereof, and that the undersigned understands that
said Exercise Shares have not been registered under the Securities Laws.
The undersigned requests that a certificate for the Exercise Shares be
issued in the name of: ______________________________________
______________________________________
______________________________________
[Please print name, address]
Address of Employee (if different from above):
_________________________________
_________________________________
_________________________________
Dated:___________________________
Name of Employee: ________________________________
Employee's Signature: _______________________________
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EXHIBIT 10.19
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), is made and entered
into as of June 22, 1995, by and among NORTH AMERICAN TECHNOLOGIES GROUP, INC.,
a Delaware corporation ("NATK"), NATK SUB, INC., a Texas corporation and wholly-
owned subsidiary of NATK ("Sub"), INDUSTRIAL PIPE FITTINGS, INC., a Texas
corporation ("IPF"), DAVID M. DANIELS ("Daniels"), ROBERT D. JONES III ("Jones")
and MARK D. CLARK ("Clark;" collectively, Daniels, Jones and Clark sometimes
being referred to herein as the "Shareholders").
Recitals
The parties hereto wish to provide for the merger of IPF with and into the
Sub on the terms and conditions set forth in this Agreement, and certain other
matters as described herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
MERGE OF IPF WITH AND INTO SUB AND RELATED MATTERS
1.1 The Merger (a) Upon the terms and conditions of this Agreement, at
the Effective Time (as defined herein), IPF shall be merged with and into the
Sub (the "Merger'') in accordance with the provisions of the Texas Business
Corporation Act (the "TBCA"), and the separate corporate existence of IPF shall
cease and the Sub shall continue as the surviving corporation under the laws of
the State of Texas with the corporate name, "INDUSTRIAL PIPE FITTINGS, INC." (as
the corporation surviving the Merger, the "Surviving Corporation").
(b) The Merger shall become effective as of the issuance of a certificate
of merger (the "Certificate of Merger") by the Secretary of State of Texas in
accordance with Article 5.05 of the TBCA, following filing with the Secretary of
State of Texas of articles of merger, substantially in the form of Exhibit A,
attached hereto and made a part hereof (the "Articles of Merger"), in accordance
with the provisions of Article 5.04 of the TBCA. The Articles of Merger shall
be filed by the Sub and IPF on the Closing Date (as defined herein). The date
and time when the Merger shall become effective is referred to herein as the
"Effective Time."
(c) At the Effective Time:
(i) the Sub shall continue its existence under the laws of the State of
Texas as the Surviving Corporation;
(ii) the separate corporate existence of IPF shall cease;
(iii) all rights, title and interests to all real estate and other
property owned by Sub and by IPF shall be allocated to and vested in the
Surviving Corporation without reversion or impairment, without further act or
deed, and without any transfer or assignment having occurred, but subject to any
existing liens or other encumbrances thereon, and all liabilities and
obligations
<PAGE>
of Sub and of IPF shall be allocated to the Surviving Corporation which shall be
the primary obligor therefor and, except as otherwise provided by law or
contract, no other party to the Merger, other than the Surviving Corporation,
shall be liable therefor;
(iv) the Articles of Incorporation of the Sub as in effect immediately
prior to the consummation of the Merger, other than the name of the Sub which
shall be changed to "INDUSTRIAL PIPE FITTINGS, INC." in connection with the
Merger, shall be the Articles of Incorporation of the Surviving Corporation,
until thereafter amended as provided by law and such Articles of Incorporation;
(v) the Bylaws of the Sub, as in effect immediately prior to the
consummation of the Merger, shall be the Bylaws of the Surviving Corporation
until thereafter amended as provided by law and such Bylaws; and
(vi) the officers and directors of the Surviving Corporation shall be as
set forth below, each of which persons whose names are set forth below shall
hold the offices set forth next to her or his respective name below until her or
his respective successors shall have been elected or appointed in accordance
with the Bylaws of the Surviving Corporation or until she or he shall have
sooner been removed or shall have resigned in accordance with such Bylaws:
Name Office
---- ------
David M. Daniels Director, President
Robert D. Jones III Vice President - Sales and Marketing
Mark D Clark Vice President - Operations
Tim B. Tarrillion Director
Judith Knight Shields Director, Secretary and Treasurer
1.2 Conversion of Stock. At the Effective Time, and without any action on
the part of the parties hereto, the shareholders of IPF or any other party:
(a) each share of common stock, par value $0.01 per share ("IPF Common
Stock"), of IPF that is issued and outstanding as of the Effective Time (other
than Dissenting Shares, as defined herein) shall, by virtue of the Merger and
without any action on the part of any holder thereof, be converted into and
represent the right to receive, and shall be exchangeable for, one thousand
(1,000) fully paid and non-assessable shares of common stock, par value $.001
per share, of NATK ("NATK Common Stock"), each of which shares of NATK Common
Stock shall be free of any mortgage, lien, pledge, charge or security interest
of any kind ("Encumbrance"), and such shares shall appear immediately thereafter
as issued and outstanding on the books and records of NATK;
(b) each share of capital stock of IPF held in treasury, if any, as of the
Effective Time shall, by virtue of the Merger, be canceled without payment of
any consideration therefor and without any conversion thereof; and
(c) each share of common stock of the Sub that is issued and outstanding
as of the Effective Time shall continue to represent one share of common stock
of the Surviving
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Corporation after the Merger, which shares shall thereafter constitute all of
the issued and outstanding shares of capital stock of the Surviving Corporation.
1.3 Merger Consideration (a) At the Effective Time, upon tendering to
the Surviving Corporation a certificate or certificates representing shares of
IPF Common Stock, the holder thereof shall be entitled to receive immediately
therefor, and NATK shall cause to be issued, a certificate or certificates
representing 1,000 shares of NATK Common Stock for each share of IPF Common
Stock tendered (or an aggregate of 1,300,000 shares of NATK Common Stock for all
of the shares of IPF Common Stock).
(b) NATK shall pay all charges and expenses, including those of any
exchange agent and the National Association of Securities Dealers, Inc., if any,
in connection with the issuance or exchange of the shares of NATK Common Stock
for IPF Common Stock in the Merger.
(c) From and after the Effective Time, there shall be no transfers on the
stock transfer books of the Surviving Corporation of shares of IPF capital stock
(or any warrants or other rights to acquire any of the same) that were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, certificates for shares of IPF capital stock (or any warrants or other
rights to acquire any of the same) that were outstanding immediately prior to
the Effective Time are presented to the Surviving Corporation, they shall be
canceled and exchanged for the consideration to be received therefor in
connection with the Merger as provided in this Agreement.
1.4 Dissenting Shares (a) Notwithstanding anything in this Agreement to
the contrary, none of the shares of IPF capital stock that are outstanding
immediately prior to the Effective Time and that are held by shareholders of IPF
who shall have filed with IPF, prior to the IPF shareholder meeting at which a
vote is to be taken with respect to a proposal to approve this Agreement, a
written objection to such proposed action, as required by Article 5.12A(1)(a) of
the TBCA in order for such shareholder to perfect the right to dissent from such
proposed action (each such shareholder being referred to herein as a "Dissenting
Shareholder" and the shares of IPF capital stock of such shareholder being
referred to as "Dissenting Shares"), shall be converted into the right to
receive, or be exchangeable for, shares of NATK Common Stock (with respect to
Dissenting Shares of IPF Common Stock), but instead, each such Dissenting
Shareholder shall be entitled to receive the fair value of such Dissenting
Shares in accordance with the provisions of Article 5.12 of the TBCA.
(b) Notwithstanding the foregoing:
(i) if any Dissenting Shareholder who has demanded payment for such
Dissenting Shareholder's Dissenting Shares withdraws such demand at any time
before payment for such Dissenting Shares, before any petition has been filed
pursuant to Article 5.12 of the TBCA asking for a finding and determination of
the fair value of such Dissenting Shares, or (with the consent of the Surviving
Corporation) after any such petition has been filed, or
(ii) if the Surviving Corporation shall terminate the Dissenting
Shareholder's rights under Article 5.12 of the TBCA, or
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<PAGE>
(iii) if no petition asking for a finding and determination of fair value
of such Dissenting Shareholder's Dissenting Shares by a court shall have been
filed within the time provided in Article 5.12 of the TBCA, or
(iv) if, after the hearing of a petition filed pursuant to Article 5.12 of
the TBCA, the court shall determine that such Dissenting Shareholder is not
entitled to the relief provided for by such Article 5.12;
then, among other things, the right of such Dissenting Shareholder to be paid
the fair value of his Dissenting Shares shall cease and such Dissenting
Shareholder shall be entitled to receive the consideration provided for by
Article 5.13 of the TBCA.
1.5 No Further Rights or Transfers. At and after the Effective Time, the
shares of capital stock of IPF outstanding immediately prior to the Effective
Time shall cease to provide the holders thereof with any rights as a shareholder
of the Surviving Corporation, except for the right to surrender the certificate
or certificates representing such shares and to receive the consideration to be
received therefor in connection with the Merger as provided in this Agreement.
ARTICLE II
THE CLOSING
2.1 Closing Date. The closing ("Closing") of the Merger shall take place
at the offices of counsel for NATK, Theodore J. Lee, 3104 Edloe, Suite 204,
Houston, Texas 77027, at 10:00 a.m., local time, on June 28, 1995, or at such
other time and place and on such other date as NATK and IPF shall agree, but in
no event shall such date be later than July 31, 1995, unless such date is
extended by the mutual written agreement of NATK and IPF. The date of the
Closing is referred to herein as the "Closing Date."
2.2 Closing Transactions. At the Closing:
(a) each of the holders of IPF Common Stock (other than Dissenting
Shareholders) shall surrender and deliver the certificate or certificates
representing all of such shareholder's shares of IPF Common Stock. All of such
shares shall be free and clear of any Encumbrance;
(b) each of the Shareholders shall execute and deliver to NATK a copy of
that certain Shareholder Representation Letter in the form of Exhibit D,
attached hereto and made a part hereof ("Shareholder Representation Letter").
(c) NATK shall deliver to each of the holders of IPF Common Stock (other
than a Dissenting Shareholder) a certificate or certificates representing the
number of shares of NATK Common Stock as such holder is entitled to receive in
connection with the Merger;
(d) IPF, on the one hand, and each of Daniels, Jones and Clark, on the
other hand, shall terminate their employment arrangements with IPF that were in
place immediately prior to the date of this Agreement;
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<PAGE>
(e) NATK shall agree in writing with Daniels to pay (or cause to be paid)
to Daniels on or before December 31, 1995 (such payment date to be selected by
NATK), all outstanding amounts owed to Daniels by IPF with respect to any and
all loans made by Daniels to IPF (the "Daniels Loans");
(f) NATK shall cancel and terminate that certain Guaranty Agreement, dated
as of March 15, 1995 (as amended to date, if any), by and between NATK and
Daniels, pursuant to which Daniels guaranteed to NATK certain obligations of IPF
under a promissory note (as amended to date, if any) issued by IPF in favor of
NATK in the original principal amount of $50,000, which promissory note is of
even date with such Guaranty Agreement, and NATK shall return to Daniels its
original of such Guaranty Agreement marked "CANCELED;"
(g) NATK shall fund each of the $35,000 amounts due with respect to the
non-compete provisions in the employment agreements, as amended to date on or
before the Closing (the "Employment Agreements") between NATK, on the one hand,
and each of Daniels, Jones and Clark, on the other hand;
(h) Each of IPF and the Sub shall execute and deliver (either by telefax
or by overnight courier, but in either case, in accordance with the applicable
law), and file or caused to be filed with the Secretary of State of Texas on the
Closing Date, the Articles of Merger, with such amendments thereto as the
parties hereto shall deem mutually acceptable; and
(i) The Secretary of State of Texas shall issue the Certificate of Merger.
ARTICLE III
CERTAIN CORPORATE ACTION
3.1 IPF and the Shareholders. IPF and each Shareholder shall use such
party's best efforts to cause to occur all shareholder and other corporate
action necessary on behalf of any of them to effect the Merger and consummate
the other transactions contemplated hereby. Without limiting the generality of
the foregoing, each of the Shareholders agrees, subject to his review of a
prospectus referred to below delivered to him by NATK, to vote his shares of
capital stock of IPF in favor of the approval and adoption of this Agreement and
the Merger. In addition, IPF and each Shareholder shall use such party's best
efforts to obtain and furnish the information relating to IPF as NATK shall
reasonably request to be included in the prospectus referred to in the
Shareholder Representation Letter in order that the offer and sale of the shares
of NATK Common Stock to be issued in connection with the Merger shall comply
with the provisions of Rule 505 and other related provisions promulgated by the
Securities and Exchange Commission under the Securities Act of 1933, as amended
to date (the "Securities Act").
3.2 NATK and the Sub. NATK and the Sub shall cause to occur all corporate
action necessary on behalf of either of them to effect the Merger and consummate
the other transactions contemplated hereby.
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<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of IPF and the Shareholders. IPF and
each of the Shareholders represent and warrant, jointly and severally, to NATK
and the Sub as set forth on Exhibit B, attached hereto and made a part hereof.
4.2. Representations and Warranties of NATK and the Sub. NATK and the Sub
represent and warrant, jointly and severally, to IPF and each Shareholder as set
forth on Exhibit C, attached hereto and made a part hereof.
ARTICLE V
COVENANTS
5.1 Disclosure Documents. IPF and each Shareholder shall supply to NATK
the necessary information in writing, or cause the necessary information to be
supplied in writing, relating to IPF or the Shareholders for inclusion in any
documents to be filed with the Securities and Exchange Commission or any
regulatory agency in connection with the transactions contemplated by this
Agreement.
5.2 Access to Information. At all times prior to the Effective Time or the
earlier termination of this Agreement in accordance with the provisions of
Article VII, each of the parties hereto shall provide to the other parties (and
the other parties' authorized representatives) full access during normal
business hours to the premises, properties, books, records, assets, liabilities,
operations, contracts, personnel, financial information and other data and
information of or relating to such party (including without limitation all
written proprietary and trade secret information and documents, and other
written information and documents relating to intellectual property rights and
matters), and will cooperate with the other party in conducting its due
diligence investigation of such party.
5.3 Confidentiality. (a) Confidentiality of NATK-Related Information.
With respect to information concerning NATK or the Sub that is made available to
IPF pursuant to the provisions of Section 5.2, each of the Shareholders and IPF
agrees that such party shall hold such information in strict confidence, shall
not use such information except for the sole purpose of evaluating the Merger
and the related transactions and shall not disseminate or disclose any of such
information other than to IPF's directors, officers, employees, shareholders,
affiliates, agents and representatives who need to know such information for the
sole purpose of evaluating the Merger and the related transactions (each of whom
shall be informed in writing by IPF of the confidential nature of such
information and directed by IPF in writing to treat such information
confidentially). If this Agreement is terminated pursuant to the provisions of
Article VII, all such information, all copies thereof and all information
prepared by IPF, any Shareholder or any other party related to IPF or any
Shareholder based upon the same, shall immediately be returned to NATK upon
NATK's request; provided, however, that one copy of all such material may be
retained by IPF's outside legal counsel for purposes only of resolving any
disputes under this Agreement. The above limitations on use, dissemination and
disclosure shall not apply to information that (i) is learned by IPF or a
Shareholder (other than Daniels) from a third party
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<PAGE>
entitled to disclose it; (ii) becomes known publicly other than through IPF, any
Shareholder or any party who received the same through IPF or any Shareholder;
(iii) is required by law or court order to be disclosed by IPF or a Shareholder;
or (iv) is disclosed with the express prior written consent thereto of NATK. IPF
and each Shareholder shall undertake all necessary steps to ensure that the
secrecy and confidentiality of such information will be maintained in accordance
with the provisions of this paragraph (a).
(b) Confidentiality of IPF-Related Information. With respect to
information concerning IPF that is made available to NATK or the Sub pursuant to
the provisions of Section 5.2, NATK and the Sub jointly and severally agree that
they shall hold such information in strict confidence, shall not use such
information except for the sole purpose of evaluating the Merger and the related
transactions and shall not disseminate or disclose any of such information other
than to their directors, officers, employees, shareholders, affiliates, agents
and representatives who need to know such information for the sole purpose of
evaluating the Merger and the related transactions (each of whom shall be
informed in writing by NATK or the Sub, as appropriate, of the confidential
nature of such information and directed by such party in writing to treat such
information confidentially). If this Agreement is terminated pursuant to the
provisions of Article VII, NATK and the Sub jointly and severally agree to
return immediately all such information, all copies thereof and all information
prepared by either of them based upon the same, upon IPF's request; provided,
however, that one copy of all such material may be retained by NATK's outside
legal counsel for purposes only of resolving any disputes under this Agreement.
The above limitations on use, dissemination and disclosure shall not apply to
information that (i) is learned by NATK or the Sub from a third party entitled
to disclose it; (ii) becomes known publicly other than through NATK or the Sub
or any party who received the same through either of them; (iii) is required by
law or court order to be disclosed by NATK or the Sub; or (iv) is disclosed with
the express prior written consent thereto of IPF. NATK and the Sub jointly and
severally agree to undertake all necessary steps to ensure that the secrecy and
confidentiality of such information will be maintained in accordance with the
provisions of this paragraph (b).
(c) Nondisclosure. Neither NATK, the Sub, IPF nor any Shareholder shall
disclose to the public or to any third party the existence of this Agreement or
the transactions contemplated hereby or any other material non-public
information concerning or relating to any other party hereto, other than with
the express prior written consent of such other party, except as may be required
by law or court order or to enforce the rights of such disclosing party under
this Agreement, in which event the contents of any proposed disclosure shall be
discussed with the other party before release; provided, however, that
notwithstanding anything to the contrary contained in this Agreement, any party
hereto may disclose this Agreement to any of its directors, officers, employees,
shareholders, affiliates, agents and representatives who need to know such
information for the sole purpose of evaluating the Merger, and to any party
whose consent is required in connection with the Merger or this Agreement. The
parties anticipate issuing a mutually acceptable, joint press release announcing
the execution of this Agreement and the consummation of the Merger.
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5.4 Interim Operations. During the period from the date of this Agreement
and continuing until the Effective Time:
(a) Interim Operations of IPF. IPF and the Shareholders agree (except as
expressly contemplated by this Agreement, including any Exhibits and Schedules
hereto, or to the extent that NATK shall otherwise consent in writing, and with
respect to each Shareholder, such party's obligations under this Section 5.4(a)
shall be limited to using such party's best efforts) that:
(i) Ordinary Course. Except to the extent that either (A) IPF shall have
received the prior written consent thereto of the Chief Executive Officer of
NATK or (B) IPF shall have notified NATK of any breach of the provisions of this
clause (i) and such breach could not reasonably be expected to have a Material
Adverse Effect on IPF, IPF shall carry on its business in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted and, to
the extent consistent with such business, use all reasonable efforts to preserve
intact its present business organization, keep available the services of its
present officers and employees and preserve its relationships with customers,
suppliers and others having business dealings with it;
(ii) Dividends; Changes in Stock. IPF shall not and shall not propose to
(a) declare or pay any dividend on, or make other distribution in respect of,
any of its capital stock, (b) split, combine or reclassify any of its capital
stock or issue, authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for shares of capital stock of IPF or
(c) repurchase or otherwise acquire any shares of capital stock of IPF.
(iii) Issuance of Securities. IPF shall not sell, issue, authorize or
propose the sale or issuance of, or purchase or propose the purchase of, any
shares of its capital stock of any class or securities convertible into, or
rights, warrants or options to acquire, any such shares or other convertible
securities (other than the issuance of shares of IPF Common Stock upon the
exercise of conversion, if any, of currently outstanding stock options).
(iv) Governing Documents. IPF shall not amend its Articles of
Incorporation or its Bylaws.
(v) No Acquisition. IPF shall not acquire or agree to acquire by merging
or consolidation with, or by purchasing a substantial portion of the assets or
securities of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof or
otherwise acquire or agree to acquire any assets that are material, individual
or in the aggregate, to IPF.
(vi) No Dispositions. IPF shall not sell, lease or otherwise dispose of,
or agree to sell, lease or otherwise dispose of, any of its assets that are
material, individually or in the aggregate, to IPF, except in the ordinary
course of business consistent with prior practice.
(vii) Indebtedness. IPF shall not incur any indebtedness for borrowed
money or guarantee any such indebtedness or issue or sell any debt securities of
IPF or guarantee any debt securities of others other than in the ordinary course
of business consistent with prior practice (other than any indebtedness for
money borrowed from NATK). The provisions of this clause (vii) shall not
prevent IPF from incurring ordinary accounts payable for supplies, materials or
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inventory, or other customary trade payables in the ordinary course of its
business consistent with its past practice.
(viii) Benefit Plans, Etc. IPF shall not adopt or amend in any material
respect any collective bargaining agreement or Employee Benefit Plan (as defined
herein).
(ix) Executive Compensation. IPF shall not grant to any executive officer
any increase in compensation or in severance or termination pay, or enter into
any employment agreement with any executive officer.
(x) Other Actions. IPF shall not enter into any agreement or arrangement
to do any of the foregoing. IPF shall not take any action, or fail to take any
action, that is reasonably likely to result in any of the representations and
warranties of IPF set forth in this Agreement becoming untrue.
(b) Interim Operations of NATK and Sub. NATK and Sub jointly and
severally agree (except as expressly contemplated by this Agreement, including
any Exhibits and Schedules hereto, or to the extent that IPF shall otherwise
consent in writing) that:
(i) Ordinary Course. NATK shall carry on its business in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted and, to the extent consistent with such business, use all reasonable
efforts to preserve intact its present business organization (provided that such
obligation shall not relate to the officers and employees of NATK or any of its
subsidiaries including the Sub) and preserve its relationships with customers,
suppliers and others having business dealings with it. The Sub shall conduct no
business activity other than in connection with the transactions contemplated by
this Agreement in connection with the Merger.
(ii) Dividends; Changes in Stock. Neither NATK nor the Sub shall (and
shall not propose to) (a) declare or pay any dividend on, or make other
distribution in respect of, any of its capital stock or (b) split, combine or
reclassify any of its capital stock or issue, authorize or propose the issuance
of, any other securities in respect of, in lieu of or in substitution for shares
of its capital stock.
(iii) Governing Documents. Neither NATK nor the Sub shall amend its
Certificate of Incorporation (or Articles of Incorporation, with respect to the
Sub) or its Bylaws.
(iv) Other Actions. Neither NATK nor the Sub shall enter into any
agreement or arrangement to do any of the foregoing. Neither NATK nor the Sub
shall take any action, or fail to take any action, that is reasonably likely to
result in any of their representations and warranties set forth in this
Agreement becoming untrue.
Notwithstanding anything in this Section 5.4(b) to the contrary, NATK may, at
its option, borrow monies from one or more parties other than an affiliate of
NATK and/or offer or sell any of its equity or debt securities or other rights
to acquire its securities for such consideration, and upon such terms and
conditions, as NATK shall determine in its sole discretion; provided, however,
that it shall be an additional condition to the obligations of IPF and the
Shareholders to
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consummate the transactions contemplated by this Agreement that the Board of
Directors of IPF shall not have determined, in the exercise of its good faith
judgment, that any such borrowing or offer or sale of securities or such other
rights referred to in this sentence will have a Material Adverse Effect on NATK.
5.5 Consents. NATK, the Sub, IPF and each Shareholder shall cooperate and
use their best efforts to obtain, prior to the Closing Date, all licenses,
permits, consents, approvals, authorizations, qualifications and orders of
governmental authorities and parties to contracts with IPF as are necessary for
the consummation of the transactions contemplated by this Agreement; provided,
however, that the parties shall not be required to seek the consent, approval or
authorization of the landlords under, or otherwise amend the written agreements
relating to, the lease agreements pursuant to which IPF leases any real or
personal property. In addition and not by way of limitation of the foregoing,
each of IPF and Daniels agrees to execute a written amendment to that certain
lease by and between Daniels, as lessors, and IPF, as lessee, pursuant to which
Daniels shall agree that such lease shall continue notwithstanding the Merger
and the transactions relating thereto as provided in this Agreement, and that
such Merger and other transactions shall not constitute a default under such
lease.
5.6 Filings. NATK, the Sub and IPF shall, as promptly as practicable,
make any required filings, and NATK, the Sub and IPF shall promptly make any
other required submissions, under any law, statute, order, rule or regulation
with respect to the Merger and the related transactions and shall cooperate with
each other with respect to the foregoing.
5.7 All Reasonable Efforts. Subject to the terms and conditions of this
Agreement and to the fiduciary duties and obligations of the board of directors
of NATK, the Sub and IPF, each of the parties to this Agreement shall use all
reasonable efforts to take, or cause to be taken, all action and to do, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations, or to remove any injunctions or other impediments or delays, legal
or otherwise, as soon as reasonably practicable, to consummating the Merger and
the other transactions contemplated by this Agreement.
5.8 Public Announcements. NATK and IPF shall consult with each other
before issuing any press release or otherwise making any public statements with
respect to the Merger, this Agreement or the other transactions contemplated by
this Agreement and shall not issue any other press release or make any other
public statement relating to the same without prior consultation with the other
parties, except as may be required by law or, with respect to NATK, by
obligations pursuant to any listing agreement with an national securities
exchange.
5.9 Notification of Certain Matters. IPF and the Shareholders shall give
prompt notice to NATK, and NATK and the Sub shall give prompt notice to IPF, of
(a) the occurrence or non-occurrence of any event, the occurrence or non-
occurrence of which would cause any of its representations or warranties in this
Agreement to be untrue or inaccurate in any material respect at or prior to the
Effective Time, and (b) any material failure of IPF, on the one hand, or NATK or
the Sub, on the other hand, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement; provided, however, the delivery of any notice pursuant to this
Section shall not limit or otherwise affect the remedies available to the party
receiving such notice under this Agreement.
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5.10 Expenses. Except as otherwise expressly provided herein, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses whether
or not the Merger is consummated.
5.11 Officers and Directors' Insurance; Indemnification. If during the
three year-period following the Effective Time of the Merger, any person who is
or was a director of IPF or the Surviving Corporation and any person who, while
a director or officer of IPF or the Surviving Corporation, is or was serving at
the request of IPF or the Surviving Corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent, or similar functionary of
another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise (a
"Director"), is, or is threatened to be, made a named defendant or respondent in
a Proceeding (as defined below) because the person is or was a Director, then
the Surviving Corporation shall indemnify such person against all judgments,
penalties (including excise and similar taxes), fines, settlements, and
reasonable expenses actually incurred by the person in connection with the
Proceeding if it is determined that the person:
(a) conducted himself in good faith;
(b) reasonably believed: (i) in the case of conduct in his official
capacity as a director of IPF or the Surviving Corporation, that his conduct was
in IPF's or the Surviving Corporation's best interests; and (ii) in all other
cases, that his conduct was at least not opposed to its best interests; and
(c) Except to the extent permitted by the next succeeding sentence, a
Director shall not be indemnified under this Section 5.11 by the Surviving
Corporation in respect of a proceeding (i) in which the person is found liable
on the basis that personal benefit was improperly received by him, whether or
not the benefit resulted from an action taken in the person's official capacity;
or (ii) in which the person is found liable to IPF or the Surviving Corporation.
Notwithstanding the foregoing, if the person is found liable to IPF or the
Surviving Corporation or is found liable on the basis that personal benefit was
improperly received by the person, the indemnification shall be limited to
reasonable expenses actually incurred by the person in connection with the
proceeding and shall not be made in respect of any proceeding in which the
person shall have been found liable for willful or intentional misconduct in the
performance of his duty to IPF or the Surviving Corporation. As used in this
Section 5.11, (x) the term "Proceeding" means any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
arbitrative, or investigative, any appeal in such an action, suit, or
proceeding, and any inquiry or investigation that could lead to such an action,
suit, or proceeding and (y) the term "expenses" means includes without
limitation court costs and attorney's fees. For purposes of this Section 5.11,
IPF or the Surviving Corporation is deemed to have requested a Director to serve
an employee benefit plan whenever the performance by him of his duties to IPF or
the Surviving Corporation also imposes duties on or otherwise involves services
by him to the plan or participants or beneficiaries of the plan, and action
taken or omitted by him with respect to an employee benefit plan in the
performance of his duties for a purpose reasonably believed by him to be in the
interest of the participants and beneficiaries of the plan is deemed to be for a
purpose which is not opposed to the best interests of IPF or the Surviving
Corporation.
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Reasonable expenses incurred by a Director who was, is, or is threatened to
be made a named defendant or respondent in a proceeding shall be paid or
reimbursed (at the option of the Director) by the Surviving Corporation, in
advance of the final disposition of the proceeding and without the determination
required under this Section 5.11, after the Surviving Corporation receives a
written affirmation by the Director of his good faith belief that he has met the
standard of conduct necessary for indemnification under this Section 5.11 and a
written undertaking by or on behalf of the Director to repay the amount paid or
reimbursed if it is ultimately determined that the Director has not met the
standard or it is ultimately determined that indemnification of the director
against expenses incurred by him in connection with that Proceeding is
prohibited as provided above.
NATK hereby assumes and guarantees the timely performance of the Surviving
Corporation's obligations under this Section 5.11.
5.12. Registration Rights. (a) Conditional Right to Piggyback.
Subject to the provisions and conditions of this Section 5.12, if NATK proposes
to register shares of NATK Common Stock under the Securities Act and the
registration form to be used may be used for the registration of the shares of
NATK Common Stock to be received by the Shareholders in connection with the
Merger as provided in Section 1.2(a) of this Agreement (the "Merger Shares")
(such registration event being referred to herein as a "Piggyback
Registration"), NATK shall give prompt written notice to each of the
Shareholders and will include in such Piggyback Registration, subject to the
allocation provisions below, all Merger Shares with respect to which NATK has
received written requests (from the Shareholders owning of record such Merger
Shares) for inclusion within 20 days after NATK's mailing of such notice. The
rights granted to the Shareholders under this Section 5.12(a) shall be
exerciseable by any of them only during the period beginning six (6) months
following the Effective Time (and shall apply to any then-pending registration
statement, which registration statement NATK agrees to amend so as to permit the
Shareholders to exercise their rights as provided in this Section 5.12 if the
other conditions of this Section 5.12 are then met) and ending three (3) years
after the Effective Time.
(b) Expenses. NATK will pay the Registration Expenses (as defined below),
but the Underwriting Commissions (as defined below) will be shared by NATK and
the holders of the Merger Shares that are included in the Piggyback Registration
in proportion to any securities included on their behalf.
(c) Priority on Primary Registrations. If a Piggyback Registration is an
underwritten primary registration on behalf of NATK, and the managing
underwriters advise NATK that in their opinion the number of shares of NATK
Common Stock requested to be included in such registration exceeds the number
that can be sold in such offering, at a price reasonably related to fair value,
NATK will allocate the shares of Common Stock to be included as follows: first,
the securities NATK proposes to sell on its own behalf; and second, other shares
of NATK Common Stock (including without limitation the Merger Shares owned of
record by the Shareholders) requested by any shareholders or other parties (with
rights against NATK relating to such registration) to be included in such
registration, pro rata on the basis of the number of shares of NATK Common Stock
owned of record by the parties (other than NATK) desiring to have their shares
so included (or, at the sole option and in the discretion of NATK, any other
reasonable
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method it deems equitable, so long as such equitable method is determined by
NATK in good faith, primarily taking into account any contractual or other legal
obligations of NATK with respect thereto).
(d) Priority on Secondary Registrations. If a Piggyback Registration is
initiated as an underwritten secondary registration on behalf of holders of NATK
Common Stock, and the managing underwriters advise NATK in writing that in their
opinion the number of shares of NATK Common Stock requested to be included in
such registration exceeds the number that can be sold in such offering, at a
price reasonably related to fair value, NATK will allocate the securities to be
included as follows: first, the shares of NATK Common Stock requested to be
included by the holders initiating such registration; and second, other shares
of NATK Common Stock (including without limitation the Merger Shares owned of
record by the Shareholders) requested by any shareholders or other parties (with
rights against NATK relating to such registration) to be included in such
registration, pro rata on the basis of the number of shares of NATK Common Stock
owned of record by the parties (other than NATK) desiring to have their shares
so included (or, at the sole option and in the discretion of NATK, any other
reasonable method it deems equitable, so long as such equitable method is
determined by NATK in good faith, primarily taking into account any contractual
or other legal obligations of NATK with respect thereto).
(e) Selection of Underwriters. In any Piggyback Registration, the
selection of investment banks(s), underwriters and manager(s), and the other
decisions regarding the underwriting arrangements and related matters for the
offering, shall be made exclusively by NATK.
(f) Registration Procedures. Whenever a Shareholder exercises its rights
under this Section 5.12 (each an "Exercising Shareholder"), NATK will, as
expeditiously as possible:
(i) furnish to each Exercising Shareholder such number of copies of the
applicable registration statement, each amendment and supplement thereto and the
prospectus included in such registration statement (including each preliminary
prospectus), and such other documents as such Exercising Shareholder may
reasonably request in order to facilitate the disposition of the Merger Shares
owned of record by such Exercising Shareholder to be included in such
registration statement;
(ii) use its best efforts to register or qualify such Merger Shares under
such other securities or blue sky laws of such jurisdictions as the managing
underwriter(s) may request; and
(iii) cause such Merger Shares to be listed or included on securities
exchanges on which shares of NATK Common Stock are then listed or included.
(g) Indemnification.
(i) NATK will indemnify, to the extent permitted by law, each Exercising
Shareholder against all losses, claims, damages, liabilities and expenses
arising out of or resulting from any untrue or alleged untrue statement of
material fact contained in any registration statement, prospectus or preliminary
prospectus or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
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not misleading, except insofar as the same are caused by or contained in any
information furnished in writing to NATK by such Exercising Shareholder
expressly for use therein or by any such Exercising Shareholder's failure to
deliver a copy of the registration statement or prospectus or any amendments or
supplements thereto after NATK has furnished such Exercising Shareholder with a
sufficient number of copies of the same.
(ii) In connection with any registration statement in which an Exercising
Shareholder is participating, each such Exercising Shareholder will furnish to
NATK in writing such information as is reasonably requested by NATK for use in
any such registration statement or prospectus and will indemnify, to the extent
permitted by law, NATK, its directors and officers and each person who controls
NATK (within the meaning of the Securities Act) against any losses, claims,
damages, liabilities and expenses resulting from any untrue or alleged untrue
statement of material fact or any omission or alleged omission of a material
fact required to be stated in the registration statement or prospectus or any
amendment thereof or supplement thereto or necessary to make the statements
therein not misleading, but only to the extent that such untrue statement or
omission is contained in, or omitted from, information so furnished in writing
by such holder specifically for use in preparing the registration statement.
Notwithstanding the foregoing, the liability of an Exercising Shareholder under
this subsection (g)(ii) shall be limited to an amount equal to the net proceeds
actually received by such Exercising Shareholder from the sale of such
Exercising Shareholder's Merger Shares covered by the registration statement.
(iii) Any party entitled to indemnification under this subsection (g)
will: (x) give prompt notice to the indemnifying party of any claim with
respect to which such indemnified party seeks indemnification and (y) unless in
such indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist with respect to such claim,
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such defense is assumed,
the indemnifying party will not be subject to any liability for any settlement
made without its consent (but such consent will not be unreasonably withheld).
An indemnifying party who is not entitled, or elects not, to assume the defense
of a claim will not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with respect to
such claim, unless in the reasonable judgment of any indemnified party a
conflict of interest may exist between such indemnified party and any other of
such indemnified parties with respect to such claim, in which case such
indemnifying party shall pay the fees and expenses of a sufficient number of
counsel so that such conflicts are resolved.
(h) Compliance with Underwriting Arrangements. No Shareholder may
participate in any Piggyback Registration unless such Shareholder: (i) agrees
to sell his Merger Shares on the basis provided in any underwriting arrangements
approved by NATK and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements.
(i) Limitations on NATK's Obligations. In connection with its obligations
to register any of the Merger Shares as provided in this Section 5.12, NATK
shall have no obligation (i) to assist or cooperate in the offering or
disposition of such Merger Shares, (ii) except as expressly provided in this
Section 5.14, to indemnify any Shareholder, (iii) to obtain a commitment from an
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underwriter relative to the sale of such Merger Shares, or (iv) to include such
Merger Shares within an underwritten offering of NATK conducted on a firm basis.
(j) Definitions. As used in this Section 5.12, (x) "Registration
Expenses" means all expenses incident to NATK's performance of or compliance
with the provisions of this Section 5.12 and the registration of any other
securities in connection therewith, including without limitation all
registration and filing fees, fees and expenses of compliance with securities or
blue sky laws, printing expenses, messenger and delivery expenses, expenses and
fees for listing the securities to be registered on exchanges, and fees and
disbursements of counsel for NATK and all independent certified public
accountants, underwriters (other than Underwriting Commissions) and other
persons retained by NATK in connection therewith, and (y) "Underwriting
Commissions" means all underwriting discounts or commissions relating to the
sale of securities of NATK, but excludes any expenses reimbursed to
underwriters.
(k) Limited Transferability or Assignability of Registration Rights.
Notwithstanding anything in this Section 5.12 or elsewhere in this Agreement to
the contrary, none of the rights granted to a Shareholder under this Section
5.12 shall be assignable or transferable by such Shareholder, nor shall any such
rights inure to the benefit of such Shareholder's assigns or beneficiaries or
any other party, including without limitation any subsequent beneficial or
record holder of any of the Merger Shares or any interest therein, without the
prior written consent thereto of NATK (which consent shall not be unreasonably
withheld); provided, however, that such rights may be transferred or assigned
without the prior written consent thereto of NATK to such Shareholder's spouse
or children, to any trust the sole beneficiaries of which are any of such
Shareholder's spouse or children, and upon the death of such Shareholder, to his
estate; and provided further, that such rights may not be further transferred or
assigned to any other party or parties.
ARTICLE VI
CONDITIONS TO CONSUMMATION OF THE MERGER
6.1 Conditions to IPF's and the Shareholders' Obligations. The
obligations of IPF and the Shareholders to consummate the Merger and the other
transactions contemplated to be consummated by it at the Closing are subject to
the satisfaction (or waiver by IPF) at or prior to the Effective Time (or at
such other time prior thereto as may be expressly provided in this Agreement) of
each of the following conditions:
(a) NATK shall have entered into binding employment agreements that have
not been terminated by NATK as of the Closing with each of Daniels, Jones and
Clark.
(b) IPF shall have had the opportunity to conduct a due diligence review
of the books, records, operations, physical plant and facilities, contracts and
other documents of NATK and nothing shall have come to its attention that would
reasonably be expected to have a Material Adverse Effect on NATK on and after
the Closing.
(c) IPF shall be satisfied that the receipt of the shares of NATK Common
Stock by the holders of IPF Common Stock in connection with the Merger is a tax-
free sale or exchange to such holders.
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(d) The representations and warranties of NATK and the Sub set out in this
Agreement shall be true and correct in all material respects, and no fact or
circumstance shall have come to the attention of IPF that is not disclosed in
this Agreement or any document or other writing delivered by NATK to IPF prior
to the date of this Agreement that could reasonably be expected to have a
Material Adverse Effect on NATK or the consideration to be received by the
Shareholders in connection with the Merger.
(e) Each of NATK and the Sub shall have complied in a timely manner and in
all material respects with their respective covenants and agreements set out in
this Agreement.
(f) All directors', shareholders', lenders', lessors' and other parties'
consents and approvals, as well as all filings with, and all necessary consents
or approvals of, all federal, state and local governmental authorities and
agencies, as are required under this Agreement, applicable law or any applicable
contract or agreement (other than as contemplated by this Agreement) to complete
the Merger shall have been secured, including without limitation that this
Agreement shall have been approved by the affirmative vote of the shareholders
of IPF by the requisite vote in accordance with the TBCA.
(g) No statute, rule, regulation, executive order, decree, injunction or
restraining order shall have been enacted, entered, promulgated or enforced by
any court of competent jurisdiction or governmental authority that prohibits or
restricts the consummation of the Merger or the related transactions.
(h) The Closing shall have occurred not later than June 28, 1995, unless
such date is extended by the mutual written agreement of NATK, the Sub and IPF.
(i) Before the Closing, NATK shall have raised not less than $1 million in
cash in connection with one or more offerings of its equity or debt securities
or other rights to acquire its equity or debt securities.
6.2 Conditions to NATK's and the Sub's Obligations. The obligations of
NATK and the Sub to consummate the Merger and the other transactions
contemplated to be consummated by it at the Closing are subject to the
satisfaction (or waiver by NATK) at or prior to the Effective Time (or at such
other time prior thereto as may be expressly provided in this Agreement) of each
of the following conditions:
(a) Each of Daniels, Jones and Clark shall have entered into binding
employment agreements with NATK that have not been terminated as of the Closing
by any such person.
(b) NATK shall have had the opportunity to conduct a due diligence review
of the books, records, operations, physical plant and facilities, contracts and
other documents of IPF and nothing shall have come to its attention that would
reasonably be expected to have a Material Adverse Effect on IPF on and after the
Closing.
(c) None of the Shareholders shall have filed with IPF, prior to the time
a vote of the shareholders of IPF is taken with respect to a proposal to approve
this Agreement, a written
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objection to such proposed action, as required by Article 5.12A(1)(a) of the
TBCA in order for such shareholder to perfect the right to dissent from such
proposed action.
(d) In addition to the other financial statements provided to NATK, not
less than four (4) days preceding the Closing Date, IPF shall have provided to
NATK a copy of the following financial statements/information relating to IPF:
An unaudited balance sheet as of a date not more than 30 days preceding the
Closing Date
An unaudited income statement for the period beginning on January 1, 1995
and ending on the date of such balance sheet
(e) NATK shall be satisfied that the acquisition of IPF pursuant to the
Merger is a tax-free transaction to NATK under the Code (as defined in this
Agreement).
(f) The representations and warranties of IPF and the Shareholders set out
in this Agreement shall be true and correct in all material respects, and no
fact or circumstance that is not disclosed in this Agreement or any document or
other writing delivered by IPF or any Shareholder to NATK prior to the date of
this Agreement shall have come to the attention of NATK that could reasonably be
expected to have a Material Adverse Effect on IPF.
(g) IPF and each Shareholder shall have complied in a timely manner and in
all material respects with their covenants and agreements set out in this
Agreement.
(h) All directors', shareholders', lenders', lessors' and other parties'
consents and approvals, as well as all filings with, and all necessary consents
or approvals of, all federal, state and local governmental authorities and
agencies, as are required under this Agreement, applicable law or any applicable
contract or agreement (other than as contemplated by this Agreement) to complete
the Merger shall have been secured, including without limitation that this
Agreement shall have been approved by the affirmative vote of the shareholders
of IPF by the requisite vote in accordance with the TBCA.
(i) No statute, rule, regulation, executive order, decree, injunction or
restraining order shall have been enacted, entered, promulgated or enforced by
any court of competent jurisdiction or governmental authority that prohibits or
restricts the consummation of the Merger or the related transactions.
(j) The Closing shall have occurred not later than June 28, 1995, unless
such date is extended by the mutual written agreement of NATK, the Sub and IPF.
(k) NATK shall be satisfied that the offer and issuance of the shares of
NATK Common Stock to the holders of shares of IPF Common Stock in connection
with the Merger is exempt from the registration provisions of the Securities Act
and similar provisions under applicable state securities laws.
(l) Before the Closing, NATK shall have raised not less than $1 million in
cash in connection with one or more offerings of its equity or debt securities
or other rights to acquire its equity or debt securities.
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(m) NATK shall have received a written valuation report of an independent
appraiser selected by it to determine the fair market value of IPF, and such
written valuation report shall include a determination that the fair market
value of IPF is not less than the amount of the consideration to be paid by NATK
for the acquisition of IPF pursuant to this Agreement.
ARTICLE VII
TERMINATION
7.1 Termination. This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, whether before or after the
vote of the shareholders of IPF contemplated by Section 3.1:
(a) by mutual written consent of the board of directors of NATK, the Sub
and IPF;
(b) by any of NATK, the Sub or IPF:
(i) if the Effective Time shall not have occurred on or before June 28,
1995, unless such date is extended by the mutual written agreement of the
parties NATK and IPF, and in such event, only until the date the Effective Time
has been so extended; provided, however, that the right to terminate this
Agreement under this Section 7.1(b)(i) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before that date;
or
(ii) if any court of competent jurisdiction, or any governmental body,
regulatory or administrative agency or commission having appropriate
jurisdiction shall have issued an order, decree or ruling or taken any other
action restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement and such order, decree, ruling or other action
shall have become final and non-appealable; or
(iii) if the board of directors of IPF or the Sub, in the exercise of its
fiduciary duties and after consultation with counsel, shall have withdrawn its
recommendation to such corporation's shareholders that they approve of this
Agreement.
7.2 Notice and Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 7.1, written notice thereof
shall forthwith be given to the other party or parties specifying the provision
pursuant to which such termination is made, and this Agreement shall forthwith
become void and have no effect without any liability on the part of any party or
its directors, officers or shareholders, except for the provisions of this
Section 7.2 and Sections 5.3, 5.8 and 5.10, which shall survive any termination
of this Agreement. Nothing contained in this Section 7.2 shall relieve any
party from any liability for any breach of this Agreement.
7.3 Extension; Waiver. Any time prior to the Effective Time, the parties
may (a) extend the time for the performance of any of the obligations or other
acts of any other party under or relating to this Agreement; (b) waive any
inaccuracies in the representations or warranties by any other party; or (c)
waive compliance with any of the agreements of any other party or with any
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conditions to its own obligations. Any agreement on the part of any other party
to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
7.4 Amendment and Modification. This Agreement may not be amended except
by an instrument in writing signed by all of the parties hereto.
ARTICLE VIII
MISCELLANEOUS
8.1 Survival of Representations and Warranties. The respective
representations and warranties of the parties hereto shall not be deemed waived
or otherwise affected by any investigation made by any other party hereto. Each
representation and warranty shall continue for a period of three (3) years after
the Effective Time of the Merger. The provisions of this Section shall have no
effect upon any other obligation of the parties, whether to be performed before
or after the Effective Time.
8.2 Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if delivered personally
or mailed, certified or registered mail with postage prepaid, or sent by telex,
telegram or telecopier, as follows (or at such other address or facsimile number
for a party as shall be specified by like notice):
(a) if to IPF or any Shareholder, at: with a copy to:
Industrial Pipe Fittings, Inc. Gordon & Gordon
5717 Hogue 1800 Bering Drive, Suite 650
Houston, Texas 77087 Houston, Texas 77057
Attention: Robert D. Jones III Attn: Hal R. Gordon
Fax: (713) 645-1756 Fax: (713) 974-0096
(b) if to NATK or the Sub, at: with a copy to:
North American Technologies Theodore J. Lee
Group, Inc. 3104 Edloe, Suite 204
9818 Wilcrest Houston, Texas 77027
Houston, Texas 77099 Fax: (713) 623-0990
Attention: Tim B. Tarrillion
Fax: (713) 495-3434
8.3 Entire Agreement; Assignment. This Agreement, including all Exhibits
and Schedules hereto, (a) constitutes the entire agreement among the parties
with respect to its subject matter and supersedes all prior agreements and
understandings, both written and oral, among the parties or any of them with
respect to such subject matter and (b) shall not be assigned by operation of law
or otherwise, provided that, subject to any approvals required by applicable
law, NATK or the Sub may assign its respective rights and obligation to any
majority-owning or
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owned, direct or indirect, parent, subsidiary or subsidiaries of NATK, but no
such assignment shall relieve NATK or the Sub of its obligations under this
Agreement.
8.4 Binding Effect; Benefit. This Agreement shall inure to the benefit of
and be binding upon the parties and their respective successors and assigns.
Nothing in this Agreement is intended to confer on any person other than the
parties to this Agreement or their respective successors and assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
8.5 Headings. The descriptive headings of the articles, sections,
subsections, exhibits and schedules of this Agreement are inserted for
convenience only, do not constitute a part of this Agreement and shall not
affect in any way the meaning or interpretation of this Agreement.
8.6. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, and all of which
together shall be deemed to be one and the same instrument.
8.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas, without regard to the laws that
might otherwise govern under principles of conflicts of laws applicable thereto.
8.8 Arbitration. (a) If a dispute, controversy or claim arises between
any of the parties to this Agreement including without limitation any dispute,
controversy or claim that arises out of or relates to this Agreement, or the
breach, termination or invalidity of the Agreement, AND including but not
limited to a claim based on or arising out of a claim for tortious interference
or other tortious or statutory claims arising before, during or after
termination, and if said dispute cannot be settled through direct discussions,
the parties agree to first endeavor to settle the dispute in an amicable manner
by mediation administered by the American Arbitration Association under its
Commercial Mediation Rules, before resorting to arbitration; provided, that
nothing contained herein shall preclude any party from commencing arbitration if
said mediation is not completed within 30 days of such party requesting or
agreeing to mediation. Thereafter, any unresolved dispute, controversy or claim
arising between the parties, including without limitation any dispute,
controversy or claim that arises out of or relates to this Agreement, or breach
thereof, AND including but not limited to a claim for tortious interference or
other tortious or statutory claims arising before, during or after termination,
shall be settled by arbitration administered by the American Arbitration
Association in accordance with its Commercial Arbitration Rules (the "Rules"),
and judgment upon any award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof. Any mediation or arbitration hereunder shall
be pursuant to the applicable rules of the American Arbitration Association as
set out above except to the extent expressly provided otherwise in this
Agreement.
(b) The parties hereto expressly agree that any court with jurisdiction
may order the consolidation of any arbitrable dispute, controversy or claim
under this Agreement with any related arbitrable dispute, controversy or claim
not arising under this Agreement, as the court may deem necessary in the
interests of justice or efficiency or on such other grounds as the court may
deem appropriate.
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(c) The site of the mediation and, if necessary, the arbitration shall be
in Houston, Texas, and shall take place in the offices of the American
Arbitration Association or such other place as the parties may agree.
(d) The parties agree that the federal and state courts located in Harris
County, Texas shall have exclusive jurisdiction over an action brought to
enforce the rights and obligations created in or arising from this agreement to
arbitrate, and each of the parties hereto irrevocably submits to the
jurisdiction of said courts. Notwithstanding the above, application may be made
by a party to any court of competent jurisdiction wherever situated for
enforcement of any judgment and the entry of whatever orders are necessary for
such enforcement.
(e) Process in any action arising out of or relating to this Agreement may
be served on any party to this Agreement anywhere in the world by delivery in
person against receipt or by registered or certified mail, return receipt
requested.
(f) Neither party nor the arbitrators may disclose the existence, content,
or results of any arbitration hereunder without the prior written consent of
both parties.
(g) The parties agree that all questions concerning the arbitrator's
jurisdiction shall be decided by the arbitrator.
(h) All fees and expenses of the arbitration (exclusive of filing fees for
claims and counterclaims) shall be borne by the parties equally. Each party
shall bear the expense of its own counsel, experts, witnesses and presentation
of proofs.
(i) This agreement to arbitrate is intended to be binding upon the
signatories hereto, their principals, successors, assigns, subsidiaries or
affiliates.
(j) The arbitrator shall determine the rights and obligations of the
parties according to the substantive laws of the State of Texas (excluding
conflicts of laws principles).
(k) The arbitrator is directed to consider any defense that all or part of
the claim is not timely by reason of laches or statute of limitations as a
preliminary issue and to render an award determining the merits of such claim
before considering the substantive merits of the arbitration claim, unless the
arbitrator determines that the merits of such claim of laches or statute of
limitations is so intertwined with the substantive merits of the arbitration
claim as to make impractical the determination of the claim of laches or
limitations as a preliminary matter.
(l) The arbitrator shall hear and determine any preliminary issue of law
asserted by a party to be dispositive of any claim, in whole or part, in the
manner of a court hearing a motion to dismiss for failure to state a claim or
for summary judgment, pursuant to such terms and procedures as the arbitrator
deems appropriate.
(m) It is the intent of the parties that, barring extraordinary
circumstances, any arbitration shall be concluded within three months of the
date the statement of claim is received by the arbitrator. Unless the parties
otherwise agree, once commenced, hearings shall be held five days a
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week, four weeks a month, with each hearing day to being at 9:00 A.M. and to
conclude at 5:00 P.M. These time limits can be extended or altered by an
agreement by the parties or by a determination by the arbitrator that such
extension or alteration is in the interests of justice. The arbitrator shall use
his or her best efforts to issue the final award or awards within a period of
thirty days after closure of the proceedings. Failure to do so shall not be a
basis for challenging the award.
(n) The procedures to be followed in any arbitration hereunder shall be as
prescribed herein and in such directives that shall be issued by the arbitrator
following consultation with the parties. Unless otherwise agreed by the
parties, the procedures shall provide for the submission of briefs by the
parties the introduction of documents and the oral testimony of witnesses,
cross-examination of witnesses, oral arguments, the closure of the proceedings
and such other matters as the arbitrator may deem appropriate. Further, the
arbitrator shall regulate all matters relating to the conduct of the arbitration
not otherwise provided for in this Agreement or in the Rules.
(o) In the event a party, having been given notice and opportunity, shall
fail or shall refuse to appear or participate in an arbitration hereunder or in
any stage thereof, the proceedings shall nevertheless be conducted to conclusion
and final award. Any award rendered under such circumstances shall be as valid
and enforceable as if both parties had appeared and participated fully at all
stages.
(p) The parties agree that discovery shall be limited and shall be handled
expeditiously. Discovery procedures available in litigation before the courts
shall not apply in an arbitration conducted pursuant to this Agreement.
However, each party shall produce relevant and non-privileged documents or
copies thereof requested by the other parties within the time limits set and to
the extent required by order of the arbitrator. All disputes regarding
discovery shall be promptly resolved by the arbitrator.
(q) It is the intent of the parties that the testimony of witnesses be
subject to cross-examination. It is agreed that the direct testimony of a
witness may be submitted by sworn affidavit, provided that such affiant be
subject to cross-examination.
(r) Strict rules of evidence shall not apply in an arbitration conducted
pursuant to this Agreement. The parties may offer such evidence as they desire
and the arbitrator shall accept such evidence as the arbitrator deems relevant
to the issues and accord it such weight as the arbitrator deems appropriate.
(s) No witness or party may be required to waive any privilege recognized
by law.
8.9 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction or other authority to be
invalid, void, unenforceable or against its regulatory policy, the remainder of
this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
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8.10 Certain Definitions. As used herein:
(a) "affiliate" shall have the meanings ascribed to such term in Rule 12b-
2 of the General Rules and Regulations under the Securities Exchange Act of
1934, as amended to date (the "Exchange Act");
(b) "business day" shall mean any day other than a Saturday, Sunday or a
day on which federally chartered financial institutions are not open for
business in the City of Houston, Texas;
(c) "Material Adverse Effect" shall mean any adverse effect on the
business, condition (financial or otherwise) or results of operation of the
relevant party and its subsidiaries, if any, which is material to such party and
its subsidiaries, if any, taken as a whole;
(d) "Person" means any individual, corporation, partnership, association,
trust or other entity or organization, including a governmental or political
subdivision or any agency or institution thereof; and
(e) "subsidiary" shall mean, when used with reference to an entity, any
corporation, a majority of the outstanding voting securities of which is owned
directly or indirectly, or a majority of the board of directors of which may be
elected, by such entity.
IN WITNESS WHEREOF, each of the parties have caused this Agreement to be
duly executed by or on behalf of such party, all as of the date first written
above.
NORTH AMERICAN TECHNOLOGIES
GROUP, INC.
By: /s/ T. B. Tarrillion
Name: Tim B. Tarrillion
Title: President and CEO
NATK SUB, INC.
By: /s/ T. B. Tarrillion
Name: Tim B. Tarrillion
Title: President
DAVID M. DANIELS
/s/ David M. Daniels
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ROBERT D. JONES III
/s/ Robert D. Jones III
MARK D. CLARK
/s/ Mark D. Clark
INDUSTRIAL PIPE FITTINGS, INC.
By: /s/ Robert W. Jones III
Name: Robert W. Jones III
Title: Vice President
Exhibit A Articles of Merger
Exhibit B Representations and Warranties of IPF and the Shareholders
Exhibit C Representations and Warranties of NATK and the Sub
Exhibit D Shareholder Representation Letter
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EXHIBIT A
ARTICLES OF MERGER
Pursuant to the provisions of article 5.04 of the Texas Business
Corporation Act, the undersigned corporations adopt the following articles of
merger for the purpose of effecting a merger in accordance with the provisions
of article 5.01 of the Texas Business Corporation Act.
1. A Plan of Merger, adopted in accordance with the provisions of article 5.04
of the Texas Business Corporation Act providing for the merger of INDUSTRIAL
PIPE FITTINGS, INC., a Texas corporation, with and into NATK SUB, INC., a
Texas corporation, resulting in NATK SUB, INC. being the surviving
corporation in the merger, is attached hereto as Exhibit A and is hereby
incorporated herein by reference.
2. The merger will become effective on June 30, 1995, at 5:01 p.m. in
accordance with the provisions of article 10.03 of the Texas Business
Corporation Act.
3. As to each corporation, the approval of whose shareholders is required, the
number of outstanding shares of each class or series of stock of such
corporation entitled to vote, with other shares or as a class, on the Plan
of Merger, are as follows:
Number of Number of Shares
Name of Shares Designation of Entitled to Vote as
Corporation Outstanding Class or Series a Class or Series
INDUSTRIAL PIPE
FITTINGS, INC. 1,300 Common Stock, (All shares of
par value $0.01 Common Stock
per share vote as one class)
NATK SUB,
INC. 1,000 Common Stock, (All shares of
par value $0.01 Common Stock
per share vote as one class)
4. As to each corporation, the approval of whose shareholders is required, the
number of shares, not entitled to vote only as a class, voted for and
against the Plan of Merger, respectively, and, if the shares of any class or
series are entitled to vote as a class, the number of shares of each such
class or series voted for and against the Plan of Merger, are as follows:
<PAGE>
Name of Designation of Number of Shares
Corporation Class or Series Voted For Voted Against
INDUSTRIAL PIPE
FITTINGS, INC. Common Stock,
par value $0.01
per share 1,300 0
NATK SUB, INC. Common Stock,
par value $0.01
per share 1,000 0
Dated: June 28, 1995.
INDUSTRIAL PIPE FITTINGS, INC. NATK SUB, INC.
By: By:
--------------------------- -------------------------
Its: President Its: President
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EXHIBIT A
TO ARTICLES OF MERGER
PLAN OF MERGER
1. Parties to the Merger. The name of each domestic corporation that is a
party to the merger is INDUSTRIAL PIPE FITTINGS, INC. and NATK SUB, INC. The
name of the domestic corporation that will survive the merger is NATK SUB, INC.
There are no other parties to the merger; there are no other parties that will
survive the merger; and there are no other entities that will be created by the
merger.
2. Terms and Conditions of the Merger.
(a) All rights, title and interests to all real estate and other property
owned by each of INDUSTRIAL PIPE FITTINGS, INC. and NATK SUB, INC. shall be
allocated to and vested in NATK SUB, INC. in connection with the merger.
(b) The name of corporation surviving the merger that is to be obligated
for the payment of the fair value of any shares held by a shareholder of either
INDUSTRIAL PIPE FITTINGS, INC. or NATK SUB, INC. who has complied with the
requirements of Article 5.12 of the Texas Business Corporation Act for the
recovery of the fair value of his or her shares is NATK SUB, INC.
(c) All other liabilities and obligations of each of INDUSTRIAL PIPE
FITTINGS, INC. and NATK SUB, INC. shall be allocated to NATK SUB, INC., as the
corporation surviving the merger.
3. Conversion of Shares. The manner and basis of converting the shares of
capital stock of each of INDUSTRIAL PIPE FITTINGS, INC. and NATK SUB, INC. in
the merger shall be as follows:
(a) Shares of Capital Stock of INDUSTRIAL PIPE FITTINGS, INC.
(i) Each share of common stock, par value $0.01 per share, of INDUSTRIAL
PIPE FITTINGS, INC. that is issued and outstanding as of the time of the merger
shall be convertible into one thousand (1,000) fully paid and non-assessable
shares of common stock, par value $.001 per share, of North American
Technologies Group, Inc., a Delaware corporation.
(ii) Each share of capital stock of INDUSTRIAL PIPE FITTINGS, INC. held in
treasury as of the time of the merger shall be canceled without payment of any
consideration therefor.
(b) Shares of Capital Stock of NATK SUB, INC.: Each share of common
stock, par value $0.01 per share, of NATK SUB, INC. that is issued and
outstanding as of the
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time of the merger shall continue to represent one share of common stock, par
value $0.01 per share, of NATK SUB, INC., as the corporation surviving the
merger, which shall thereafter constitute all of the issued and outstanding
shares of capital stock of NATK SUB, INC., as the corporation surviving the
merger.
4. Articles of Incorporation of the Surviving Corporation. The Articles
of Incorporation of NATK SUB, INC., as in effect immediately preceding the
merger, other than the name of NATK SUB, INC., which shall be changed to
"INDUSTRIAL PIPE FITTINGS, INC." in connection with the merger, shall be the
Articles of Incorporation of the corporation surviving the merger, until
thereafter amended as provided by law and such Articles of Incorporation.
4
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EXHIBIT B
REPRESENTATIONS AND WARRANTIES
OF IPF AND THE SHAREHOLDERS
For purposes hereof, capitalized terms used herein and not otherwise
defined herein have the meanings ascribed to such terms in the Agreement.
1. Corporate Existence and Power. IPF is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Texas, and
has all corporate powers and all governmental licenses, authorizations, consents
and approvals required to carry on its business as now conducted, except where
the failure to have any of the foregoing would not have a Material Adverse
Effect or would not constitute a felony. IPF is duly qualified to do business
as a foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except for those jurisdictions where the
failure to be so qualified would not, individually or in the aggregate, have a
Material Adverse Effect. IPF has heretofore delivered to NATK true and complete
copies of IPF's Articles of Incorporation and Bylaws as currently in effect.
IPF has no subsidiaries.
2. Corporate Authorization. The execution, delivery and performance by
IPF of this Agreement and the consummation by IPF of the transactions
contemplated hereby are within IPF's corporate powers and, except for any
required approval by IPF's shareholders in connection with the consummation of
the Merger, have been duly authorized by all necessary corporate action. The
execution, delivery and performance by each Shareholder of this Agreement and
the consummation by such Shareholder of the transactions contemplated hereby
have been duly authorized by such Shareholder. This Agreement has been duly
executed by IPF and each of the Shareholders. The Agreement constitutes a valid
and binding agreement of the IPF and each Shareholder, enforceable in accordance
with its terms. As of the Closing all corporate action on the part of IPF and
the Shareholders required under applicable law in order to consummate the Merger
will have occurred. None of the information provided to NATK by IPF or any
Shareholder to be included in a prospectus, if any, with respect to the shares
of NATK Common Stock to be received in connection with the Merger, insofar as
such information relates to IPF or a Shareholder, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which there are made, not misleading.
3. No Contravention. The execution and delivery of the Agreement does
not, and the consummation of the transactions contemplated hereby will not,
conflict with or result in any violation of or default (with or without notice
or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of an right or obligation or to loss or a benefit
under, any provision of the Articles of Incorporation or Bylaws of IPF or any
loan or credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to IPF or any
Shareholder or any of their properties or assets, or result in the creation or
imposition of any Encumbrance on any asset of IPF or any Shareholder, except
such as is not reasonably likely to have a Material Adverse Effect or materially
and adversely affect the ability of
B-1
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IPF or such Shareholder to consummate the transactions contemplated by this
Agreement. No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign, is
required by or with respect to IPF or any Shareholder in connection with the
execution and delivery of this Agreement by IPF or such Shareholder or the
consummation by IPF or any Shareholder of the transactions contemplated hereby,
except (i) where the failure to obtain such consent, approval, order or
authorization, or to effect such registration, declaration or filing is not
reasonably likely to have a Material Adverse Effect or materially and adversely
affect the ability of IPF, any Shareholder, NATK or the Sub to consummate the
transactions contemplated by the Agreement, and (ii) the filing of the Articles
of Merger with the Secretary of State of Texas.
4. Capitalization; Daniels Loans. The authorized capital stock of the IPF
consists solely of 1,000,000 shares of common stock, par value $0.01 per share
("IPF Common Stock"), of which 1,300 shares are issued and outstanding (such
issued and outstanding shares being referred to as the "IPF Shares"). There are
no treasury shares of capital stock of IPF, nor are there any outstanding
subscriptions, options, warrants, convertible securities, calls, commitments,
agreements or rights (contingent or otherwise) of any character to purchase or
otherwise acquired from IPF or any Shareholder any shares of, or any securities
convertible into, the capital stock of IPF. All of the IPF Shares have been
duly authorized and validly issued, are fully paid and non-assessable, were not
issued in violation of the terms of any agreement or other understanding binding
upon IPF and were issued in compliance with all applicable charter documents of
IPF and all applicable federal, state and foreign securities laws, rules and
regulations. There are, and have been, no preemptive rights with respect to the
issuance of the IPF Shares or any other capital shares of IPF. IPF does not
directly or indirectly own any stock of, or any equity or other investment
interest in, any corporation, association, partnership, joint venture or legal
entity, except bank, checking and money market accounts and other cash
equivalent investments. There are no outstanding accrued or unpaid dividends on
any of the IPF Shares. The Daniels Loan or Loans (as defined in Section 2.2(d)
of the Agreement) are in the aggregate principal amount of $______, as of
______________, and bear interest at an annual rate equal to 8%. As of March
31, 1995, the amount of outstanding principal on the Daniels Loans, together
with all accrued interest thereon, was equal to $115,583.16. There are no
other costs, fees, expenses or other amounts due or to become due with respect
to the Daniels Loan or Loans other than as provided in the preceding sentence.
5. Financial Statements.
(a) True, correct and complete copies of the following unaudited financial
statements ("Unaudited Financial Statements") of IPF have been delivered to NATK
on or before the date hereof: Balance Sheets dated December 31, 1994 and March
31, 1995, Statements of Earnings and Retained Earnings for the year ended
December 31, 1994, the two (2) months ended February 28, 1995 and the three (3)
months ended March 31, 1995, and Statement of Cash Flows for the year ended
December 31, 1994, the two (2) months ended February 28, 1995 and three (3)
months ended March 31, 1995. The financial statements referred to in the
preceding sentence as of and for the year ended December 31, 1994, were reviewed
and accompanied by a written report and accompanying Notes to Financial
Statements prepared by Fortson & Company, P.C., a copy of which written report
and Notes to Financial Statements was delivered to NATK on or
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before the date hereof. In addition, true, correct and complete copies of a
Balance Sheet dated February 28, 1995 (the "February 1995 Audited Financial
Statement") of IPF, which was audited by Fortson & Company, P.C., Houston,
Texas, together with the written report (without qualification) as of the date
of such balance sheet of, and accompanying Notes to Financial Statement prepared
by, Fortson & Company, P.C., have been delivered to NATK on or before the date
hereof.
(b) The Unaudited Financial Statements and the February 1995 Audited
Statement (including without limitation all notes, comments, schedules and
supplemental data that may be contained in or annexed to such statements) are
true, accurate, complete and in accordance with the books and records of IPF and
fairly present the financial position, assets and liabilities of IPF as of the
date thereof and the results of IPF's operations and changes in IPF's financial
position or cash flows, as the case may be, for the period then ended.
6. Conflicts of Interest. Except for the lease of real property between
IPF and Daniels referred to in Section 11 of this Exhibit B, neither (a) any
past or present officer, director, employee or shareholder of IPF, nor (b) to
the knowledge of IPF or any Shareholder, any relative of any past or present
officer, director, employee, shareholder or salesperson of IPF, nor (c) to the
knowledge of IPF or any Shareholder, any corporation, partnership, trust or
other entity of which any such past or present officer, director, employee or
shareholder has a direct or indirect interest or is a director, officer,
shareholder, partner or trustee, is or has ever been a party, directly or
indirectly, to any transaction with IPF, including without limitation any
agreement or other arrangement providing for the furnishing of goods or services
by or to IPF or the sale or rental of any property from or to IPF or otherwise
requiring or contemplating any payments by or to IPF.
7. Accounts Receivable. The accounts receivable included in the Unaudited
Financial Statements (less an allowance for doubtful accounts of $14,000) will
be collected in full within 180 days of the Closing. All accounts receivable
included in the Unaudited Financial Statements are usual and normal receivables
representing billings actually made in the ordinary course of business, and
neither IPF nor any Shareholder has any knowledge of any fact, circumstance,
contingency or reason that such accounts receivable would not reasonably be
expected to be collected in the ordinary course of business.
8. Inventory and Equipment. All inventory and equipment of IPF reflected
on the Unaudited Financial Statements, and all inventory and equipment owned by
IPF as of the date hereof, (a) was acquired in accordance with the regular
business practices of IPF, (b) consists of items of a quality and quantity
useable in the ordinary course of IPF's business consistent with past practice,
subject to normal wear and tear and routine maintenance, (c) was and is valued
in conformity with generally accepted accounting principles applied on a
consistent basis and (d) conforms to all applicable laws, ordinances, codes,
rules and regulations relating thereto and to the construction, use, operation
and maintenance thereof (except for such failures to conform as do not have a
Material Adverse Effect on the IPF). No significant amount of such inventory or
equipment is obsolete or has been maintain in any manner other than in the
accordance with the regular business practices of IPF.
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9. Absence of Undisclosed Liabilities.
(a) Except as disclosed on Schedule B-9 hereto, IPF is not liable for or
subject to any liability except for:
(i) those liabilities and obligations reflected on the balance sheet
included in the Unaudited Financial Statements (the "Unaudited Balance Sheet")
and not heretofore paid or discharged;
(ii) those liabilities and obligations arising in the ordinary course of
its business consistent with past practice under any contract, commitment or
agreement specifically disclosed on any Schedule to this Exhibit B or not
required to be disclosed thereon because of the term or amount involved or
otherwise; and
(iii) those liabilities and obligations incurred, consistent with its past
practice, in the ordinary course of its business and either not required to be
shown on the Unaudited Balance Sheet or arising since the date of such Unaudited
Balance Sheet, which liabilities and obligations in the aggregate are of a
character and magnitude consistent with its past practice.
For purposes of this Section, the term "liabilities" shall include without
limitation any direct or indirect liability, indebtedness, guaranty,
endorsement, claim, loss, damage, deficiency, cost, expense, obligation or
responsibility, either accrued, absolute, contingent or otherwise and whether
known or unknown, fixed or unfixed, choate or inchoate, liquidated or
unliquidated, secured or unsecured.
(b) IPF does not provide or maintain, and is not required under applicable
law to provide or maintain, for its employees, itself or any other person any
pension, retirement, profit-sharing or other plan or policy for the benefit of
employees, itself, or any other person who is required to comply with, and IPF
is not in violation of any provision of, the federal Employees Retirement Income
Security Act of 1974, as amended ("ERISA"). Furthermore, IPF has no liability
for any dividends or distributions to any shareholder, including without
limitation any of the Shareholders, in respect of its capital shares, nor has it
redeemed, purchased or otherwise acquired any of its capital shares or agreed to
do any of the same.
10. Absence of Certain Changes. Since the date of the IPF Unaudited
Balance Sheet, and except as set forth on Schedule B-9 hereto, IPF has conducted
its business in the ordinary course consistent with past practice and there has
not been:
(a) any event, occurrence or development of a state of circumstances or
facts, including without limitation, any change in its business, operations,
assets, properties or prospects, that has had or is reasonably likely to have a
Material Adverse Effect;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of IPF or any
repurchase, redemption or other acquisition by IPF of any outstanding shares of
capital stock or other securities of, or other ownership interests in, IPF;
B-4
<PAGE>
(c) any amendment of any term of any outstanding security of IPF;
(d) any incurrence, assumption or guarantee by IPF of any indebtedness for
borrowed money or any such indebtedness incurred, assumed or guaranteed since
the date of the Unaudited Balance Sheet, in the ordinary course of business
consistent with past practice (other than amounts borrowed from NATK);
(e) any creation or assumption by IPF of any Encumbrance on any material
asset other than in the ordinary course of business consistent with past
practice;
(f) any making of any loan, advance or capital contribution to or
investment in any Person other than loans or advances made in the ordinary
course of business consistent with past practice;
(g) any damage, destruction or other casualty loss (whether or not covered
by insurance) affecting the business or assets of IPF which, individually or in
the aggregate, has had or is reasonably likely to have a Material Adverse
Effect;
(h) any transaction or commitment made, or any contract or agreement
entered into, by IPF relating to its assets or business (including acquisition
or disposition of any assets) or any relinquishment by IPF of any contract or
other right, in either case, material to IPF, other than transactions and
commitments in the ordinary course of business consistent with past practice and
those contemplated by the Agreement;
(i) any change in any method of accounting or accounting practice by IPF,
except for any such change required by reason of a concurrent change in
generally accepted accounting principles;
(j) any (i) grant of any severance or termination pay to any director,
officer or employee of IPF, (ii) entering into any employment (other than at
will), deferred compensation (other than severance) or other similar agreement
(or any amendment to any such exiting agreement) with any director, officer or
employee of IPF, (iii) material increase in benefits payable under any existing
severance or termination pay policies or employment agreements or (iv) increase
in compensation, bonus or other benefits payable to directors, officers or
employees of IPF, other than in the ordinary course of business consistent with
past practice;
(k) any (i) labor dispute, lockout, strike, slowdown, work stoppage or
threat thereof by or with respect to any employees of IPF or (ii) activity or
proceeding by a labor union or representative thereof to organize any such
employees, to the knowledge of IPF or any Shareholder; or
(l) any sale, assignment or transfer of any of its assets or properties
except in the ordinary course of its business consistent with past practice.
11. Properties. (a) IPF currently leases real property pursuant to that
certain lease between IPF, as lessee, and Daniels, as lessor, a copy of which
has been delivered to NATK on or before the date hereof. IPF does not directly
or indirectly own or lease any other real estate.
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<PAGE>
None of the leasehold interests held by IPF is subject to any Encumbrance,
except (i) liens for ad valorem taxes not yet due or being contested in good
faith; or (ii) contractual or statutory mechanics or materialmen's liens or
other statutory or common law Encumbrances relating to obligations of IPF that
are not delinquent or are being contested in good faith.
(b) IPF has not received any written notice from any governmental entity
having jurisdiction over IPF or over any of the real property leased by IPF of
any violation by IPF of any law, regulation or ordinance relating to zoning,
environmental matters, local building or fire codes or similar matters relating
to any of the real property leased by IPF, and neither IPF nor any of the
Shareholders is aware of any such violation.
(c) Except such as has not had and is not reasonably likely to have a
Material Adverse Effect, all of the buildings leased by IPF, all furniture,
fixtures, leasehold improvements and other material items of tangible personal
property owned or used by IPF, in each case other than inventory and equipment
(which is the subject of Section 8 of this Exhibit B), are in good operating
condition and repair, subject to normal wear and tear and routine maintenance,
are useable in the regular and ordinary course of business and conform to all
applicable laws, ordinances, codes, rules and regulations relating thereto and
to the construction, use, operation and maintenance thereof (except for such
failures to conform as would not reasonably be expected to have a Material
Adverse Effect on IPF). IPF neither owns nor leases any truck or other vehicle.
12. No Contingent Liabilities. Except as set forth on the financial
statements referred to in Section 5 of this Exhibit B, normal year-end
adjustments and amounts that would be required to be set forth on the unaudited
financial statements included therein had the same been prepared in accordance
with generally accepted accounting principles, there are no contingent or other
liabilities of IPF, except for any of the same as have not had and are not
reasonably likely to have a Material Adverse Effect on IPF.
13. Litigation. There is no action, dispute, suit, investigation or
proceeding (or, to the best knowledge of IPF or any Shareholder, any basis
therefor) pending against, or to the best knowledge of IPF or any Shareholder
threatened or contemplated, against or affecting IPF or any of its properties
before any court or arbitrator or any governmental body, agency or official that
is reasonably likely to have a Material Adverse Effect or that in any manner
challenges or seeks to prevent, enjoin, alter or materially delay the Merger or
any of the other transactions contemplated by the Agreement. Neither IPF nor
any Shareholder has any knowledge of any condition or state of facts or the
occurrence of any event that might reasonably form the basis of any proceeding
against IPF. To the knowledge of IPF and each Shareholder, IPF is not a party
to the provisions of any judgment, order, writ, injunction or decree of any
court, arbitrator or governmental or regulatory official, body or authority.
14. Taxes. IPF has filed all tax returns required to be filed by it on or
before the date hereof and has paid, or has set up an adequate reserve for the
payment of, all taxes required to be paid in respect of the periods covered by
such returns, and the IPF Unaudited Financial Statements reflect an adequate
reserve for all taxes payable by IPF accrued through the date of such financial
statements, except such non-filings, non-payments or non-reserves as are not, in
the aggregate, reasonably likely to have a Material Adverse Effect. IPF is not
delinquent in the
B-6
<PAGE>
payment of any material tax, assessment or governmental charge. No material
deficiencies for any taxes have been proposed, asserted or assessed against IPF.
For the purposes of this Agreement, the term "tax" shall include all federal,
state, local and foreign income, property, sales, excise and other taxes of any
nature whatsoever. Neither IPF nor any member of any affiliated or combined
group of which IPF is or has been a member has granted any extension or waiver
of the limitation period applicable to any tax returns. There are no
Encumbrances for taxes upon the assets of IPF, except Encumbrances for current
taxes not yet due or that could not reasonably be expected to have a Material
Adverse Effect. IPF will not be required under Section 481(c) of the Internal
Revenue Code of 1986, as amended (the "Code"), to include any material
adjustment in taxable income for any period subsequent to the Merger. IPF has
delivered to NATK copies of its federal, state and local income and franchise
tax returns for its fiscal year ended December 31, 1994. IPF has not been a
United States real property holding corporation within the meanings of Section
897(c)(2) of the Code during the applicable period specified in such Section of
the Code. IPF has disclosed on its federal income tax returns all positions
taken therein that could give rise to a material liability relating to a
substantial understatement of federal income tax within the meaning of Section
6662 of the Code. IPF is not a party to any tax allocation or sharing agreement.
IPF (a) has not been a member of an affiliated group filing a consolidated
federal income tax return and (b) has no liability for the taxes of any person
(other than IPF) under Treasury Regulation Section 1.1502-6 (or any similar
provision of state, local or foreign law), as a transferee or successor, by
contract or otherwise.
15. Material Contracts. IPF has provided NATK a list, which IPF will
confirm at the Closing, identifying each agreement, contract, lease, arrangement
or commitment to which IPF is a party (other than customer contracts) relating
to the purchase, sale or lease of real property, materials, supplies, equipment
or other goods or providing or receiving services that is not terminable upon 90
or fewer days' notice or that involves annual payments by IPF, or providing of
services by IPF the annual fair market value of which is in excess of $50,000.
All such contracts are valid and binding agreements of IPF and are in full force
and effect (other than as may be affected by defaults of parties thereto other
than IPF), and neither IPF nor, to the best knowledge of IPF or any Shareholder,
any other party thereto is in default in any material respect under the terms of
any such agreement, contract, plan, lease, arrangement or commitment.
16. Insurance Coverage. IPF has made available to NATK true and complete
copies of all insurance policies covering the assets, business, equipment,
properties, operations, employees, officers and directors of IPF, all of which
policies are on a "claims made" ["occurrence"?] basis and are currently in full
force and effect. IPF has not received from any such insurance carrier who
provides any such policy or any other party any notice of termination or
threatened termination of any such policy, nor has it received from any party
any claim or notice of claim under or with respect to such policies. Except as
is not reasonably likely to have a Material Adverse Effect, there is no claim by
IPF pending under any of such policies as to which coverage has been questioned,
denied or disputed by the underwriters of such policies. All premiums due and
payable based upon an assumption of the loss development of known claims have
been adequately provided for on IPF's books, and IPF is otherwise in full
compliance with the terms and conditions of all such policies, except such as is
not reasonably likely to have a Material Adverse Effect.
B-7
<PAGE>
17. Compliance with Laws. To the best knowledge of IPF and each
Shareholder, IPF is not in violation of, and has not violated, any applicable
provisions of any laws, statues, ordinances or regulations, other than as would
not be reasonably likely to have a Material Adverse Effect or constitute a
felony. To the best of the knowledge of IPF and each Shareholder, no such laws,
statutes, ordinances or regulations require or are reasonably expected to
require capital expenditures by IPF that are reasonably likely to have a
Material Adverse Effect.
18. Investment Banking Fees. There is no investment banker, broker,
finder or other similar intermediary which has been retained by, or is
authorized by, IPF or any Shareholder to act on the behalf of IPF or any
Shareholder who might be entitled to any fee or commission from IPF, any
Shareholder, NATK or the Sub or any of their respective affiliates upon
consummation of the transactions contemplated by this Agreement.
l9. Intellectual Property. (a) IPF has made available to NATK a list of
all material inventions that are the subject of issued letters patent or an
application therefor, all trade and service marks that have been registered or
for which an application for registration is pending and all writings for which
a claim for copyright has been recorded or is pending, in each case which are
owned by and used by IPF (collectively, the "IPF Intellectual Property Rights").
(b) IPF has not been sued or charged in writing with or been a defendant
in any claim, suit, action or proceeding relating to its business involving a
claim of infringement of any patents, trademarks, service marks or copyrights.
Neither IPF nor any Shareholder has any knowledge of any other claim of
infringement in connection with the use of the IPF Intellectual Property Rights.
Neither IPF nor any Shareholder has any knowledge of any continuing infringement
by any other Person of any IPF Intellectual Property Rights. No IPF
Intellectual Property Right is subject to any outstanding order, judgment,
decree, stipulation or agreement restricting the use thereof by IPF or
restricting the licensing thereof by IPF to any Person. IPF has not entered
into any agreement to indemnify any other Person against any charge of
infringement of any patent, trademark, service mark or copyright.
20. Employees. IPF has provided a list to NATK identifying all of the
IPF's employees, the title of each such employee, the annual compensation
payable or paid each such employee during 1994 and 1995 and the benefits each
such person is currently entitled to from or on behalf of IPF. IPF has not
entered into any written employment agreement or any oral or written consulting
agreement with any person or party.
21. Environmental Compliance. To the best of the knowledge of IPF, and
except in all cases as in the aggregate have not had and are not reasonably
likely to have a Material Adverse Effect or constitute a felony, IPF: (a) has
obtained all permits, licenses and other authorizations that are required under
federal, state or local laws relating to pollution or protection of the
environment, including laws relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants, or hazardous or toxic materials
or wastes into ambient air, surface water, ground water, or land or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants or hazardous or
toxic materials or wastes; (b) is in compliance with all terms and conditions of
such required permits, licenses and authorizations, and also is in compliance
with other applicable limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and
B-8
<PAGE>
timetables contained in such laws or contained in any applicable regulation,
code, plan, order, decree, judgment, notice or demand letter issued, entered,
promulgated or approved thereunder; (c) as of the date of the Agreement, is not
aware of nor has received notice of any event, condition, circumstance,
activity, practice, incident, action or plan that is reasonably likely to
interfere with or prevent continued compliance or that would give rise to any
common law or statutory liability, or otherwise form the basis of any claim,
action, suit or proceeding, based on or resulting from IPF's manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handing or the emission, discharge or release into the environment, of any
pollutant, contaminant or hazardous or toxic material or waste; and (d) has
taken all actions necessary under applicable requirements of federal, state or
local laws, rules or regulations to register any products or materials required
to be registered thereunder.
22. Ownership of IPF Shares. Each of the Shareholders is the lawful owner
of record and beneficially of the number of IPF Shares set forth below, which
shares are represented by the certificate number(s) set forth below:
Shareholder Number of IPF Shares Certificate(s) Number
Daniels 600 1 and 4
Jones 350 2
Clark 350 3
Total 1,300
Each of the Shareholders owns such shares shown above, free and clear of any
Encumbrance of any kind.
23. Other Shareholder Matters. Each of the Shareholders represents,
warrants and acknowledges for, with respect to and on behalf of such Shareholder
(and not for, with respect to or on behalf of any other Shareholder, and
provided that the matters in this Section 23 shall not be deemed to be joint
representations, warranties or acknowledgments of any Shareholder with respect
to another Shareholder, and shall not be deemed to be representations,
warranties or acknowledgments of IPF) that:
(a) In connection with the Merger, such Shareholder's IPF Shares will be
converted into and represent the right to receive 1,000 shares of NATK Common
Stock per share of IPF Common Stock held of record by such Shareholder and that,
at the Closing, by such Shareholder's presentation and delivery of the
certificate or certificate(s) representing such IPF Shares, such Shareholder
will have delivered and conveyed, to the extent required by applicable law, to
the Surviving Corporation the certificates representing such Shareholder's IPF
Shares in order to cause such IPF Shares to be converted into and exchangeable
for such shares of NATK Common Stock in connection with the Merger; and
(b) Such Shareholder is acquiring the shares of NATK Common Stock to be
received in connection with the Merger solely for such Shareholder and not for
any other person or party; and
B-9
<PAGE>
(c) The shares of NATK Common Stock to be received by such Shareholder in
connection with the Merger have not been registered under the Securities Act of
1933, as amended (the "1933 Act"), or under applicable state securities laws
(together with the 1933 Act, "Securities Laws"); and
(d) The shares of NATK Common Stock to be received by such Shareholder in
connection with the Merger are not being registered under the Securities Laws in
reliance upon exemptions from applicable Securities Laws that are predicated, in
part, on the representations, warranties and agreements of such Shareholder
contained herein; and
(e) Such Shareholder's right to transfer the shares of NATK Common Stock
to be received by such Shareholder in connection with the Merger will be
restricted by such Securities Laws, and that, in addition to any other
limitations with respect thereto, neither such shares nor any interest therein
shall be sold, transferred or otherwise disposed of without registration under
applicable Securities Laws or an exemption therefrom; and
(f) Such Shareholder must bear the economic risk of an investment in the
shares of NATK Common Stock to be received by such Shareholder in connection
with the Merger for an indefinite period of time because such shares have not
been registered under applicable Securities Laws and therefore cannot be sold
unless they are subsequently registered under such Securities Laws or an
exemption from such registration is available, and that such shares must be held
indefinitely unless the transfer thereof is so registered or such an exemption
exists with respect thereto; and
(g) Such Shareholder is an experienced and sophisticated investor in
investments, including investments similar to shares of NATK Common Stock, and
such Shareholder either alone or with his purchaser representative(s), has such
knowledge and experience in financial and business matters that such Shareholder
is, either alone or together with such purchaser representative(s), capable of
evaluating the merits and risks, and has evaluated the merits and risks, of the
prospective acquisition of the shares of NATK Common Stock in the Merger and has
the capacity to protect his interests in connection with the acquisition of such
shares in the Merger; and
(h) A legend will be placed on the certificate or certificates evidencing
the shares of NATK Common Stock to be received by such Shareholder in connection
with the Merger to the effect that, among other things, the shares evidenced
thereby have not been registered under the 1933 Act and may not be sold,
transferred, pledged, hypothecated or otherwise disposed of in the absence of
(i) an effective registration statement for such shares under the 1933 Act or
(ii) an opinion of NATK's counsel that such registration is not required.
24. Information Supplied. None of the information supplied or to be
supplied by IPF or any Shareholder insofar as it relates to IPF, a Shareholder
or the Merger, will contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which there are
made, not misleading.
B-10
<PAGE>
25. Full Disclosure. There is no fact known to IPF or any Shareholder
that is not disclosed or referred to in this Agreement that could reasonably be
excepted to have a Material Adverse Effect on IPF or prevent or interfere in any
way with the ability of IPF to conduct its business after the date hereof in
substantially the same manner as such business has heretofore been conducted by
IPF. This information provided and statements made by IPF and each Shareholder
in this Agreement (including without limitation this Exhibit B) do not contain
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained herein, in light of the
circumstances under which they were made, misleading.
B-11
<PAGE>
IPF SCHEDULE B-9
Exhibit B-9
Section 9. Absence of Undisclosed Liabilities
The following is Industrial Pipe Fittings, Inc. ("IPF") list of undisclosed
potential liabilities or obligations that could have a material impact on the
company should there progress further.
1. On or about December 12, 1994, IPF received a letter from Poly-Cam, a
competitor in the transition fitting market, addressing the infringement of a
patent pertaining to a specific fitting that both companies are marketing. IPF
took this matter very seriously and immediately retained the law firm of Arnold,
White, & Durkee to represent IPF in this matter. After an extensive review, it
was determined by our attorney that in no way did we violate Poly-Cam's patent;
furthermore, Arnold, White & Durkee sent a letter to Poly-Cam demanding a letter
of apology, as well as a letter to all customers of IPF where Poly-Cam
misrepresented the truth. IPF's attorneys stated that there was a potential
violation of certain Fair Trade laws as well as possible tortuous interference
by Poly-Cam. No further communication has been established with either party in
this matter. IPF believes that the situation has run its course and that no
future instances are likely to occur pertaining to this matter.
2. During the month of April, 1995, IPF was informed of a situation in
Maryland where a contractor was installing brass transition fittings for a water
works project. The contractor, Schummer, Inc., alleged that the fittings were
defective due to leakage and therefore should be replaced under warranty. IPF
immediately had fittings sent to the company's facility for testing. After
testing approximately 40 fittings, it was determined that the fittings were
structurally fine and that perhaps the cause of the situation was due to
improper installation. IPF sent Robert Jones to the job site in Maryland to
determine the cause of the problem. While Mr. Jones was installing a fitting
himself, the distributor of the fitting was videotaping the installation. It was
determined that after proper installation, the brass fitting in question was
adequate and that Schummer was not properly laying the pipe on a supportive bed
of stone as required by Plexco, the pipe manufacturer. Furthermore, Schummer
tried to break the fitting with a sledge hammer and was unable to effect the
structural integrity of the fitting. Although IPF felt that it had gone beyond
the scope of proper service, the company offered to replace the fittings in
question at no cost to the contractor. To date, Schummer has not accepted this
offer. No legal action has been taken regarding this matter; however, the
potential exist for a lawsuit which could have an impact on IPF. The approximate
cost of replacing the fittings, as well as installing them could range between
$15,000.00 and $50,000.00. IPF strongly believes that it has taken every
reasonable step to resolve this situation. The company's distributor has said
that we went above and beyond what he expected and was quite pleased with our
efforts.
<PAGE>
EXHIBIT C
REPRESENTATIONS AND WARRANTIES OF NATK AND THE SUB
For purposes hereof, capitalized terms used herein and not otherwise
defined herein have the meanings ascribed to such terms in the Agreement.
1. Corporate Existence and Power. NATK is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, and the Sub is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Texas. Each of NATK and the
Sub has all corporate powers and all governmental licenses, authorizations,
consents and approvals required to carry on its business as now conducted,
except where the failure to have any of the foregoing would not have a Material
Adverse Effect or would not constitute a felony. Each of NATK and the Sub is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction where the character of the property owned or leased by it
or the nature of its activities makes such qualification necessary, except for
those jurisdictions where the failure to be so qualified would not, individually
or in the aggregate, have a Material Adverse Effect. NATK has heretofore
delivered to IPF true and complete copies of each of NATK's Certificate of
Incorporation, the Sub's Articles of Incorporation and NATK's and the Sub's
Bylaws as currently in effect. NATK owns all of the issued and outstanding
shares of capital stock of the Sub, and their are no other rights or obligations
of NATK or the Sub to issue any other shares of capital stock of the Sub. The
Sub has conducted no business activity other than in connection with the
transactions contemplated by this Agreement.
2. Corporate Authorization. The execution, delivery and performance by
each of NATK and the Sub of this Agreement and the consummation by each of them
of the transactions contemplated hereby are within such organization's corporate
powers and, except for any required approval by the Sub's shareholder in
connection with the consummation of the Merger, have been duly authorized by all
necessary corporate action. This Agreement has been duly executed by each of
NATK and the Sub, and constitutes a valid and binding agreement of NATK and the
Sub, enforceable in accordance with its terms. As of the Closing all corporate
action on the part of NATK and the Sub required under applicable law in order to
consummate the Merger will have occurred. None of the information to be
included by NATK or the Sub in the prospectus to be delivered to each of the
Shareholders in connection with the shares of NATK Common Stock to be received
by them in the Merger, insofar as such information relates to NATK or the Sub,
will contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which there are made,
not misleading.
3. No Contravention. The execution and delivery of the Agreement does
not, and the consummation of the transactions contemplated thereby will not,
conflict with or result in any violation of or default (with or without notice
or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of an right or obligation or to loss or a benefit
under, any provision of the Certificate of Incorporation of NATK, the Articles
of Incorporation of the Sub, the Bylaws of NATK or the Sub or any loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to NATK, the Sub or
either of
C-1
<PAGE>
such party's properties or assets, or result in the creation or imposition of
any Encumbrance on any asset of NATK or the Sub, except such as is not
reasonably likely to have a Material Adverse Effect or materially and adversely
affect the ability of NATK or the Sub to consummate the transactions
contemplated by this Agreement. No consent, approval, order or authorization of,
or registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, is required by or with respect to NATK or the Sub in connection with
the execution and delivery of this Agreement by either of them or the
consummation by either of them of the transactions contemplated hereby, except
(i) where the failure to obtain such consent, approval, order or authorization,
or to effect such registration, declaration or filing is not reasonably likely
to have a Material Adverse Effect or materially and adversely affect the ability
of IPF, NATK or the Sub to consummate the transactions contemplated by the
Agreement, and (ii) the filing of the Articles of Merger with the Secretary of
State of Texas.
4. Capitalization.
(a) The authorized capital stock of the NATK consists solely of 50,000,000
shares of common stock, par value $.001 per share ("NATK Common Stock"), and
10,000,000 shares of preferred stock, par value $.001 per share ("NATK Preferred
Stock"). Except as provided otherwise in the next succeeding sentence, there
are currently outstanding, or obligations to issue, not more than (i) 25,000,000
shares of NATK Common Stock, (ii) no shares of NATK Preferred Stock and (iii)
options, warrants or other rights to acquire an aggregate of not more than
6,200,000 shares of NATK Common Stock (which number of shares is subject to
certain adjustments based on a number of events), and certain written debt
obligations of NATK that may be converted by the holder or beneficiary of such
obligations into the number of shares of NATK Common Stock (which number of
shares is subject to certain adjustments based on a number of events). Schedule
C-4 hereto sets forth, to the best knowledge of management of NATK, a
reconciliation of the outstanding shares as provided on NATK's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1995, and the number of shares
outstanding as of June 16, 1995, together with certain anticipated issuances or
cancellations of shares. All shares of NATK Preferred Stock that were
previously issued have been converted, prior to the date hereof, into shares of
NATK Common Stock, and such shares of Preferred Stock have been retired to
treasury. All outstanding shares of capital stock of NATK have been duly
authorized and validly issued and are fully paid and nonassessable, and upon the
issuance of the shares of NATK Common Stock to be issued in the Merger, such
shares will be duly authorized, validly issued, fully paid and nonassessable
shares of NATK Common Stock. NATK currently may issue, at or before the
Closing, up to 5,000,000 additional shares, and/or options, warrants and/or
convertible shares or debt instruments to acquire all or a portion of such
5,000,000 additional shares, of NATK Common Stock in connection with certain
financings. In addition, NATK may issue additional shares, and/or options or
warrants to acquire additional shares to Gaia Technologies, Inc., Thor Ventures,
L.C. and/or certain controlling persons of such entities in connection with a
possible acquisition of assets of such entities and related transactions
(collectively, the "Gaia/Thor Proposed Transactions").
(b) NATK has a sufficient number of its authorized but unissued shares of
NATK Common Stock to permit it to issue the number of shares of NATK Common
Stock due in connection with the Merger and the related transactions (including
without limitation the exercise
C-2
<PAGE>
by the parties thereto of all stock option agreements, if any, entered into or
to be entered into between NATK, on the one hand, and any of Daniels, Jones and
Clark, on the other hand), as well as all of NATK's other obligations to issue
shares of NATK Common Stock upon exercise of any option, warrant or other right
to acquire the same.
(c) To the best knowledge of NATK, all notes receivable set forth on the
financial statements of NATK included in NATK's quarterly report on Form 10-Q
for the quarter ended March 31, 1995 are collectible in full in the ordinary
course of business.
5. SEC Filings. (a) NATK has made available to IPF: (i) NATK's annual
report on Form 10-K for its fiscal year ended December 31, 1994 (the "1994 Form
10-k"), (ii) its quarterly report on Form 10-Q for its fiscal quarter ended
March 31, 1995, and (iii) all of its other reports, statements, schedules and
registration statements filed with the Securities and Exchange Commission since
January 1, 1995, but only such pre-effective amendments to such registration
statements as contain material information not fully reflected in any subsequent
amendment to such registration statements (or to any prospectus included
therein) made available to IPF. The documents referred to in the preceding
sentence are sometimes referred to herein as the "SEC Documents."
(b) As of its filing date, each such report or statement filed pursuant to
the Securities Exchange Act of 1934, as amended to date, did not contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading.
(c) Each such registration statement (if any) as amended or supplement if
applicable, filed pursuant to the Securities Act of 1933, as amended to date, as
of the date such statement or amendment became effective, did not contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in light of the circumstances
under which they were made in the case of prospectuses, not misleading.
6. Absence of Certain Changes. Since December 31, 1994, and except as set
forth in the 1994 Form 10-k, NATK's quarterly report on Form 10-Q for the
quarter ended March 31, 1995, or on Schedule C-6 hereto, NATK has conducted its
business in the ordinary course consistent with past practice and there has not
been:
(a) any event, occurrence or development of a state of circumstances or
facts that has had or is reasonably likely to have a Material Adverse Effect;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of NATK or any
repurchase, redemption or other acquisition by NATK of any outstanding shares of
capital stock or other securities of, or other ownership interests in, NATK;
(c) any amendment of any term of any outstanding security of NATK;
C-3
<PAGE>
(d) any incurrence, assumption or guarantee by NATK of any indebtedness
for borrowed money or any such indebtedness incurred, assumed or guaranteed
since December 31, 1994, except in the ordinary course of business consistent
with past practice;
(e) any creation or assumption by NATK or any of its subsidiaries of any
Encumbrance on any material asset other than in the ordinary course of business
consistent with past practice;
(f) any making of any loan, advance or capital contribution to or
investment in any Person by NATK or any of its subsidiaries other than loans or
advances made in the ordinary course of business consistent with past practice,
certain transactions entered into in connection with the acquisition by NATK of
EET, Inc., a Texas corporation, a loan or loans made by NATK to IPF and certain
other loans made to officers or employees of NATK (none of which loans to
officers or employees of NATK individually is in excess of $100,000); provided,
however, that NATK may make one or more loans in connection with the Gaia/Thor
Proposed Transactions;
(g) any damage, destruction or other casualty loss (whether or not covered
by insurance) affecting the business or assets of NATK or any of its
subsidiaries which, individually or in the aggregate, has had or is reasonably
likely to have a Material Adverse Effect;
(h) any (i) labor dispute, lockout, strike, slowdown, work stoppage or
threat thereof by or with respect to any employees of NATK or any of its
subsidiaries, or (ii) activity or proceeding by a labor union or representative
thereof to organize any such employees, to the knowledge of NATK; or
(i) any litigation or any imposition of any tax that is not disclosed in
the documents referred to under Section 5 of this Exhibit C that is reasonably
likely to have a Material Adverse Effect on NATK, nor (to the knowledge of NATK)
has there been any claim made by the SEC or any other party relating to any such
documents referred to under Section 5 of this Exhibit C that is reasonably
likely to have a Material Adverse Effect on NATK.
7. Availability of Funds. Neither NATK nor the Sub is insolvent on the
date of this Agreement. NATK currently intends to have, and to make available,
sufficient cash, cash equivalents or immediately available financing through one
or more financing arrangements in order to pay all amounts that may be due to be
paid by or on behalf of NATK in connection with the Merger as provided in or
contemplated by this Agreement and to assure that, immediately after payment of
all such amounts, the Surviving Corporation's assets shall exceed its
liabilities, and it shall not be insolvent. There are no facts, circumstances
or events known to NATK or the Sub that would cause any amount payable or paid
as provided in the preceding sentence to constitute a fraudulent transfer under
applicable federal or state laws, rules or regulations.
8. Compliance with Laws. To the best knowledge of NATK and Sub, neither
NATK nor any of its subsidiaries is in violation of, and has not violated, any
applicable provisions of any laws, statues, ordinances or regulations, other
than as would not be reasonably likely to have a Material Adverse Effect on NATK
and its subsidiaries, taken as a whole, or constitute a felony. No such laws,
statutes, ordinances or regulations require or are reasonably expected to
require capital expenditures that are reasonably likely to have a Material
Adverse Effect on NATK and its subsidiaries, taken as a whole. Notwithstanding
the foregoing, NATK did not file a tax return for
C-4
<PAGE>
the years 1992, 1993 or 1994, and to its knowledge, no tax is owed with respect
to any such year. In addition, NATK did not hold a stockholder's meeting during
1994 or deliver to its stockholders any documents in connection therewith that
may have been required under applicable securities laws, and does not currently
anticipate holding a stockholder's meeting in 1995.
9. Investment Banking Fees. There is no investment banker, broker, finder
or other similar intermediary which has been retained by, or is authorized by,
either NATK or the Sub to act on its behalf who might be entitled to any fee or
commission from IPF, NATK or the Sub or any of their respective affiliates upon
consummation of the transactions contemplated by this Agreement.
10. Environmental Compliance. To the best knowledge of NATK and Sub, and
except in all cases as in the aggregate have not had and are not reasonably
likely to have a Material Adverse Effect on NATK and its subsidiaries, taken as
a whole, or constitute a felony, each of NATK and each of its subsidiaries: (a)
has obtained all permits, licenses and other authorizations that are required
under federal, state or local laws relating to pollution or protection of the
environment, including laws relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants, or hazardous or toxic materials
or wastes into ambient air, surface water, ground water, or land or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants or hazardous or
toxic materials or wastes; (b) is in compliance with all terms and conditions of
such required permits, licenses and authorizations, and also is in compliance
with other applicable limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
such laws or contained in any applicable regulation, code, plan, order, decree,
judgment, notice or demand letter issued, entered, promulgated or approved
thereunder; (c) as of the date of the Agreement, is not aware of nor has
received notice of any event, condition, circumstance, activity, practice,
incident, action or plan that is reasonably likely to interfere with or prevent
continued compliance or that would give rise to any common law or statutory
liability, or otherwise form the basis of any claim, action, suit or proceeding,
based on or resulting from NATK's or any of its subsidiaries' manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handing or the emission, discharge or release into the environment, of any
pollutant, contaminant or hazardous or toxic material or waste; and (d) has
taken all actions necessary under applicable requirements of federal, state or
local laws, rules or regulations to register any products or materials required
to be registered thereunder.
11. Information Supplied. None of the information supplied or to be
supplied by NATK or the Sub insofar as it relates to NATK, the Sub or the
Merger, will contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which there are
made, not misleading.
12. Full Disclosure. There is no fact known to NATK or the Sub that is
not disclosed or referred to in this Agreement that could reasonably be excepted
to have a Material Adverse Effect on NATK or prevent or interfere in any way
with the ability of NATK to conduct its business after the date hereof in
substantially the same manner as such business has heretofore been conducted by
NATK. This information provided and statements made by NATK in this Agreement
(including without limitation this Exhibit C) do not contain any untrue
statement of a
C-5
<PAGE>
material fact or omit to state a material fact necessary in order to make the
statements contained herein, in light of the circumstances under which they were
made, misleading.
C-6
<PAGE>
Schedule C-4
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
Reconciliation of Outstanding Shares for March 31, 1995 Form 10-Q
June 16, 1995
<TABLE>
<S> <C> <C>
Issued "New" shares per transfer agent as of April 7, 1995 23,949,244
Issued "Old" shares per transfer agent as of April 7, 1995
(1,495,531 subject to 1:15 reverse split) 99,745
----------
24,048,989
Less NAT shares to be cancelled (5,000,000)
Less GSI escrow shares to be canceled (1,625,000)
----------
Amount disclosed as issued and outstanding on 10-K 17,423,989
Less EuroScotia shares to be canceled (200,000)
Plus shares to be issued to Karr Capital for services rendered 20,000
Adjustments relating to "Old" MBCC shares above
Less total amount shown (99,745)
Plus amount not owned by NATK that has not been tendered 7,024
-----------
(97,721)
Adjustments relating to Daily Mail
NAT, Inc. Common outstanding per transfer agent 12,327,092
Less amount owned by NATK (12,080,958)
-----------
Amount remaining to be tendered 246,134
Amount of shares of NATK to be received 1:2 exchange 123,070
----------
Issued and outstanding shares disclosed on Form 10-Q 17,274,338
==========
Issued shares disclosed in the equity section at March 31, 1995 17,924,338
Less treasury shares at March 31, 1995 (650,000)
----------
Issued and outstanding shares disclosed in the equity section 17,274,338
==========
Additional share information since 10Q for 3/31/95 and as of
June 16, 1995:
GSI escrow shares expected to be canceled (1,625,000)
Shares issued thru 6/14/95 in connection with equity placement 905,000
Shares expected to be issued upon closing of Thor/GAIA transaction 1,666,667
Shares to be issued for minority interest of NAEG 1,380,005
Shares to be issued to Wilwerding and Zampino 125,000
Shares to be issued to Defiglio's for interest payment 66,140
Treasury shares reserved for issuance upon the conversion of
preferred shares of subsidiary 650,000
</TABLE>
NOTE: There are also approximately 175,000 shares that have not been issued to
two individuals which are under dispute; the Company does not believe it has an
obligation to issue these shares.
1 of 2
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
<TABLE>
<CAPTION> Expiration
Name Warrant # Shares Start Date Price Date
- -------------------------------------------------------------------------------------------------------------------
OPTIONS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
100,000 09/01/91 1.25
100,000 04/01/92 1.25
300,000 08/01/91 1.25
300,000 01/01/93 1.25
100,000 08/01/93 1.25
100,000 06/01/92 1.25
300,000 08/01/90 1.25
20,000 04/01/93 1.25
20,000 05/01/93 1.25
50,000 01/01/94 1.25
400,000 03/31/95 2.50 03/31/04
200,000 03/31/95 2.50 03/31/04
50,000 03/31/95 2.50 03/31/02
400,000 03/31/95 2.50 03/31/04
200,000 03/31/95 2.50 03/31/04
150,000 03/31/95 2.50 03/31/04
200,000 03/31/95 2.50 03/31/04
200,000 03/31/95 2.50 03/31/04
----------------------
20,000 from MBCC acquisition
13,333 from MBCC acquisition
13,333 from MBCC acquisition
----------------------
300,000 05/22/92 1.50 11/30/97
300,000 05/22/92 2.50 11/30/97
125,000 07/31/94 2.00 07/31/96
75,000 09/23/94 0.75 09/23/99
50,000 09/22/94 1.375 09/22/96
4,086,666
30,000 no written agreement
30,000 no written agreement
25,000 no written agreement
12,500 no written agreement
30,000 no written agreement
4,214,166
- -------------------------------------------------------------------------------------------------------------------
WARRANTS
- -------------------------------------------------------------------------------------------------------------------
1994-01 25,000 06/27/94 2.25 06/17/96
1994-02 25,000 06/27/94 2.25 06/17/96
1994-03 25,000 06/27/94 2.25 06/17/96
1994-04 40,000 06/27/94 3.30 04/19/96
1994-05 23,000 06/27/94 3.30 06/17/96
1994-06 1,000 06/27/94 3.30 06/17/96
1994-07 1,000 06/27/94 3.30 06/17/96
1994-08 1,000 06/27/94 3.30 04/19/96
1994-09 1,000 06/27/94 3.30 04/19/96
1994-10 1,000 06/27/94 3.30 04/19/96
1994-11 1,000 06/27/94 3.30 04/19/96
1994-12 500 06/27/94 3.30 04/19/96
1994-13 500 06/27/94 3.30 04/19/96
1994-14 5,000 06/27/94 3.30 04/19/96
1994-15 600,000 12/20/94 2.00 12/19/97
1994-17 75,000 12/20/94 2.00 12/19/97
1994-18 40,000 12/20/94 2.00 12/19/97
500,000 12/20/94 2.00 12/19/97
110,000 12/20/94 2.00 12/19/97
90,000 12/20/94 2.00 12/19/97
100,000 12/20/94 2.00 12/19/97
8,000 12/20/94 2.00 12/19/97
50,000 03/07/95 1.50 12/31/99
8,000 03/07/95 1.50 12/31/99
1,000 03/07/95 1.50 12/31/99
1,000 03/07/95 1.50 12/31/99
1,000 03/07/95 1.50 12/31/99
10,000 03/07/95 1.50 12/31/99
233,060 need to verify
1,977,060
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Additional options expected to be issued in connection with Thor/GAIA
transaction:
400,000 options with a purchase price of $2.50 per share
Page 2 of 2 Pages
<PAGE>
EXHIBIT D
FORM OF SHAREHOLDER REPRESENTATION LETTER
The undersigned party ("Shareholder") represents, warrants, acknowledges
and covenants to North American Technologies Group, Inc., a Delaware corporation
("NATK"), NATK SUB, INC., a Texas corporation ("Sub"), and Industrial Pipe
Fittings, Inc., a Texas corporation ("IPF"), that:
1. The undersigned Shareholder is the lawful owner of record and
beneficially of the number of shares set forth below of common stock, par value
$0.01 per share, of IPF (the "IPF Shares"), which IPF Shares are represented by
the certificate number(s) set forth below, and are owned by the undersigned
Shareholder free and clear of any mortgage, lien, pledge, charge or security
interest of any kind:
(please place an "X" by the appropriate line)
Shareholder Number of IPF Shares Certificate(s) Number
____ Daniels 600 1 and 4
____ Jones 350 2
____ Clark 350 3
2. Prior to the execution of this Shareholder Representation Letter, the
Shareholder: (i) has received a copy of that certain Prospectus, dated June __,
1995, of NATK relating to the shares of Common Stock, par value $0.001 per share
("NATK Common Stock"), of NATK to be received by the undersigned Shareholder in
connection with the merger (the "Merger") of IPF, with and into the Sub, with
Sub being the corporation surviving the Merger, which document included as
exhibits thereto, among other things, a copy of the Annual Report on Form 10-k
of NATK for the fiscal year ended December 31, 1994, and a Quarterly Report on
Form 10-Q of NATK for the fiscal quarter ended March 31, 1995, (ii) has reviewed
such documents with such investment, financial, legal and other advisors as such
Shareholder has elected, (iii) has had an opportunity to ask questions and
receive answers from NATK regarding such documents and the documents described
therein, the shares of NATK Common Stock to be received by such Shareholder in
connection with the Merger and the terms and conditions of the Merger, (iv) has
had an opportunity to obtain any additional information and documents requested
by the undersigned Shareholder relating to the investment in the shares of NATK
Common Stock, and (iv) based on such review, has elected to approve of the
Merger Agreement (as defined in the Prospectus) and to participate in the Merger
as provided for in the Merger Agreement.
Executed this __________________, 1995.
--------------------------------------
Printed Name:
-------------------------
<PAGE>
Agreement as to Definition of "Effective Time"
The undersigned parties agree that, for all purposes, the "Effective Time,"
as defined in Section 1.1(b) of that certain Agreement and Plan of Merger, dated
as of June 22, 1995, by and among the undersigned parties, shall be as provided
in paragraph 2 of the Articles of Merger, a copy of which is attached hereto as
Exhibit A, notwithstanding anything to the contrary contained in such Agreement
and Plan of Merger or any exhibit, schedule or attachment thereto.
Dated as of June 28, 1995
NORTH AMERICAN TECHNOLOGIES
GROUP, INC., a Delaware corporation
By: /s/ T. B. Tarrillion
--------------------------------------
Tim B. Tarrillion
President and Chief Executive Officer
NATK SUB, INC.,
a Texas corporation
By: /s/ T. B. Tarrillion
--------------------------------------
Tim B. Tarrillion
President
INDUSTRIAL PIPE FITTINGS, INC.,
a Texas corporation
By: /s/ Robert D. Jones III
--------------------------------------
Robert D. Jones III
Vice President
DAVID M. DANIELS
/s/ David M. Daniels
--------------------------------------
ROBERT D. JONES III
/s/ Robert D. Jones III
--------------------------------------
MARK D. CLARK
/s/ Mark D. Clark
--------------------------------------
<PAGE>
EXHIBIT 10.20
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT, dated as of July 28, 1995, is by and between
NORTH AMERICAN TECHNOLOGIES GROUP, INC., a Delaware corporation (the "Company"),
and JOHN W. PARROTT ("Consultant").
Recitals
The parties hereto have entered into that certain Employment Agreement (the
"Employment Agreement"), dated as of February 7, 1995, in connection with which
the Company employs Consultant, and Consultant serves the Company, as its
Chairman of the Board. Consultant also serves as a director of the Company.
The parties hereto have also entered into that certain Stock Option
Agreement (the "Stock Option Agreement"), dated as of February 7, 1995, in
connection with which the Company has issued to Consultant options to acquire an
aggregate of 400,000 shares of common stock, par value $.001 per share ("Common
Stock"), of the Company, at an exercise price of $2.50 per share, a portion of
which options vest during the month of March in of each of the years 1996 -
1999. In addition, Consultant currently has outstanding options to acquire an
additional 300,000 shares of Common Stock at a purchase price of $1.25, all or a
portion of which options are currently vested and all of which options shall be
fully vested on the date hereof, which options are not currently subject to a
written agreement between the Company and Consultant (the "300,000 Options").
The Company desires to engage Consultant, and Consultant desires to serve
the Company, as an independent consultant to the Company to provide certain
consulting services as set out in this Agreement and on the terms and conditions
of this Agreement. In connection therewith, the parties desire to terminate the
Employment Agreement and amend the Stock Option Agreement, to reduce to writing
the provisions earlier agreed to between the Company and Consultant with respect
to the 300,000 Options, to cause Consultant's employment as Chairman of the
Board and his serving as a director of the Company to terminate and to enter
into certain other agreements, all as set forth in, and on the terms and
conditions of, this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound,
the parties hereto hereby agree as follows:
1. Engaging of Consultant; Responsibilities.
(a) Upon the terms and conditions of this Agreement, the Company hereby
engages Consultant, and Consultant hereby agrees to serve the Company, as an
independent consultant to the Company to perform the Consulting Services set out
in Section 1(b) below for and on behalf of the Company, upon the terms and
conditions of this Agreement.
<PAGE>
(b) During the Term (as defined below) of this Agreement, Consultant shall,
in the capacity of an independent contractor, act as a consultant and advisor to
the management of the Company, and in connection therewith, upon the reasonable
written request of the Company from time to time, Consultant shall furnish his
good faith assistance, advice, judgment, knowledge and information to the
Company relating to or in connection with:
(i) any litigation or potential litigation, arbitration or other claim,
controversy or dispute involving the Company that exists or existed on or before
the date hereof, including without limitation any of the same relating to the
matters generally referred to by the Company as or involving: (1) Biotrace, (2)
Jim Impero, (3) Tom Reid, (4) Jim/Ewan Cannon, (5) Pierre Grotz, (6) Katlor, (7)
Universal Remediation (Defiglio), (8) Canadian Crude, (9) Euroscotia and (10)
any other such matter expressly referenced in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994;
(ii) the transition of current management and the newly-appointed or
elected directors and officers of the Company into such positions; and
(iii) such other special projects, including without limitation,
additional financings and special management/personnel, client/customer/supplier
and other business matters as are reasonably requested by the Company and agreed
to by Consultant.
Such services and duties are referred to in this Agreement as the "Consulting
Services."
(c) Consultant shall devote, from time to time as reasonably requested by
the Company, the number of hours that are reasonably necessary to perform the
Consulting Services that are assigned to him. Consultant agrees that during the
Term of this Agreement, the Company shall have first call on Consultant's
services; provided, however, that in any month during which Consultant provides
more than 100 hours of Consulting Services, then Consultant shall have no
obligation to provide any additional Consulting Services described under
Sections 1(b)(ii) or 1(b)(iii). Consultant agrees to perform such Consulting
Services promptly upon a reasonable written request by the Company and to do the
same in accordance with the provisions of this Section; provided, however, that
in the event Consultant has a non-cancelable prior commitment preventing him
from immediately performing such services and duties, he shall perform such
Consulting Services as soon as practicable.
2. Compensation. In exchange for and as full payment for Consultant's
performance of the Consulting Services and his performance of Consultant's other
agreements and covenants set forth in this Agreement, the Company agrees to and
shall:
(a) Pay to Consultant (i) on the date hereof $4,253.85 (which shall
represent unpaid amounts due Consultant as an employee of the Company, less
customary withholdings and federal/state payroll and other taxes, and the amount
due Consultant in connection with his performance of Consulting Services under
this Agreement for the
<PAGE>
month of July 1995), and (ii) $15,000 per month during each of the months of
August 1995 through and including December, 1995, such August-December monthly
amount to be paid to Consultant during each such month in two semi-monthly
payments of $7,500 each, the first such semi-monthly payment to be due and
payable on the 15th calendar day of each such month, and the second such semi-
monthly payment to be due and payable on the last calendar day of the month (or
if either such day is not a business day, then on the next succeeding business
day);
(b) Pay to Consultant a lump sum amount of $250,000, such amount to be paid
to Consultant on or before December 31, 1995;
(c) Pay to Consultant a lump sum bonus in the amount of $75,000 relating to
certain prior services rendered by Consultant to the Company, such payments to
be paid by the Company as follows: (i) $25,000 of such amount shall be paid to
Consultant on or before August 4, 1995, and (ii) the remaining $50,000 of such
amount shall be paid to Consultant on or before the earlier to occur of December
31, 1995, or the fifth (5th) business day following the consummation of a
financing transaction in which the Company receives net cash proceeds of not
less than $2 million from the sale by the Company of shares of its Common Stock
or its other securities, or any combination thereof, or from any other financing
sources (other than any proceeds received by the Company from Thor Ventures,
L.C., Gaia Technologies, Inc. or their affiliates as repayment of amounts loaned
or otherwise extended, from time to time, to any such party by the Company);
(d) Promptly reimburse Consultant for all reasonable, documented out-of-
pocket costs and expenses incurred by Consultant in connection with his
performance of the Consulting Services during the Term of this Agreement in
accordance with the Company's standard policies relating to reimbursement of
costs and expenses, which costs and expenses shall include, without limitation,
long-distance telephone charges incurred on behalf of the Company (provided,
however, that the Company shall not be obligated to pay any other cellular or
other telephone equipment rental charges, monthly services charges or other
similar charges, other than the monthly charges incurred during the Term of this
Agreement relating to the dedicated NATK telephone and fax lines in Phoenix,
Arizona currently used by Consultant for Company-related matters). Any travel
on behalf of the Company shall be pre-approved by the Company. Further, in the
event any particular cost or expense shall exceed $500, it shall be a condition
to the Company's obligation to reimburse Consultant for such cost or expense
that Consultant shall have secured the general approval of the Company to the
incurrence of such cost or expense prior to the time he incurs the same, which
approval the Company shall not unreasonably withhold. The Company further
agrees to promptly reimburse Consultant for all costs and expenses incurred by
Consultant prior to the date hereof by or on behalf of the Company in accordance
with the Company's standard policies relating to reimbursement of costs and
expenses, which costs and expenses shall include, without limitation, the costs
of his air fare, hotel and incidental, related out-of-pocket expenses incurred
in connection with his travel to Houston, Texas, from Phoenix, Arizona on or
about July 26-27, 1995;
<PAGE>
(e) During the Term of this Agreement through and including December 31,
1995, continue to reimburse Consultant in the same amounts and at the same times
for the health and dental policy with respect to which the Company currently
reimburses Consultant;
(f) Execute and deliver to Consultant on the date hereof, a bill of sale,
in form reasonably acceptable to Consultant, evidencing the sale and conveyance
by the Company of any and all of its interest in any and all office furniture,
equipment and supplies (including without limitation any of the same owned by
the Company in the desk, chair(s), computer equipment, telefax machine and other
office equipment) (it being understood that no representation or warranty is
being made in this document that any of the same, other than certain computer
and computer-related equipment, was purchased by the Company) currently located
in Consultant's Phoenix, Arizona, office and/or home; provided, however, that
Consultant agrees to provide to the Company in a reasonably timely manner a copy
of all files and computer-stored data included in the foregoing, at the expense
of the Company.
All payments required to be paid in this Section shall be made by good and
sufficient check written off the accounts of the Company.
3. Term. The term of this Agreement ("Term") during which the Consultant
shall provide the Consulting Services shall begin on the date first above
written, and shall continue until, and terminate on, December 31, 1995;
provided, however, that:
(a) Consultant shall have the right to immediately terminate his obligation
to perform the Consulting Services in the event that the Company fails to pay to
Consultant in full and in a timely manner any payment due Consultant under this
Agreement, so long as Consultant has provided the Company with written notice
identifying the payment that has not been so paid, and the Company fails to pay
such amount on or before the fifth (5th) day following receipt of such notice;
(b) Company shall have the right to immediately terminate its obligations
under this Agreement in the event that Consultant:
(i) willfully refuses to follow a written request of the Company made
during the Term of this Agreement that he provide Consulting Services in
accordance with the provisions of this Agreement, unless Consultant's refusal is
based on his good faith belief that to follow such written order would
constitute a violation of any fiduciary duty he may have to the Company or a
violation of any applicable law, rule or regulation or such written request is
outside the scope of the obligations or duties of Consultant as set forth in
Section 1 of this Agreement; or
(ii) continually fails to perform his duties under this Agreement (except
due to Consultant's incapacity as a result of physical or mental illness) during
the Term of this Agreement for a period of at least ninety (90) consecutive days
after written notice is
<PAGE>
delivered to Consultant from the Board of Directors of the Company specifically
identifying the manner in which Consultant has failed to perform his duties.
For purposes of Section 3(b) (i) and (ii), no act, or failure to act, on
Consultant's part shall be deemed 'willful" unless done, or omitted to be done,
by Consultant in bad faith. For purposes of Section 3(a) and this Section 3(b),
a written request or a written notice shall require notice to be sent to the
receiving party by nationally recognized air courier service or U.S. certified
mail, postage prepaid, return receipt requested; and
It is further understood and agreed that no action or failure to act by
Consultant as an officer, director or representative of the Company or any of
its affiliates or subsidiaries prior to the date of this Agreement shall
constitute a default hereunder or otherwise entitle the Company to terminate
this Agreement or constitute a basis for denying performance of any obligation
of the Company (other than the obligations of the Company set out in Section 8
hereof) hereunder.
(c) Upon the reasonable advance written request of the Company, Consultant
agrees to provide Consulting Services during the calendar year 1996 for up to
five (5) days per month, and in exchange therefor, the Company shall pay
Consultant $1,000 per day of Consulting Services so requested by the Company and
provided by Consultant, and shall reimburse Consultant for all costs and
expenses incurred by Consultant in connection therewith in accordance with the
terms and provisions of Section 2(d) of this Agreement (other than the monthly
charges for the NATK dedicated telephone and fax lines). The parties agree to
negotiate in good faith as to the particular days, if any, during which such
Consulting Services shall be provided.
4. Independent Contractor. It is expressly understood and agreed that
Consultant shall act exclusively as an independent contractor in the undertaking
of all Consulting Services under this Agreement, and that, in connection with
this Agreement and the Consulting Services, no employee-employer relationship
shall exist between the Company and Consultant. Accordingly, and without
limiting the generality of the foregoing:
(a) Consultant shall have no right to be covered under any of the employee
benefit plans or programs maintained by the Company for its employees (except as
otherwise expressly provided in this Agreement or otherwise agreed to in writing
on or after the date hereof by the parties hereto);
(b) The Company shall have no responsibility to withhold from Consultant's
consultation fees any federal income tax withholding, Social Security taxes,
unemployment taxes or other taxes or amounts required to be withheld from the
compensation of employees under any applicable local, state or federal law, rule
or regulation; provided, however, that (i) such applicable amounts shall be
withheld with respect to the payments due Consultant as provided in Sections
2(b) and 2(c) (and provided further that the Company agrees to withhold the
percentage of such payments to be withheld as is selected/elected by Consultant
to the extent permitted by law); and (ii) the Company shall
<PAGE>
provide to Consultant in a timely manner one or more Forms W-9 or other
applicable form required by the Internal Revenue Service to evidence his
performance of the Consulting Services and the payments by the Company under
this Agreement; and
(c) In connection with his performing the Consulting Services, Consultant
shall have no express or implied authority to enter into, and Consultant shall
not enter into, any written or oral contract, agreement, undertaking or other
arrangement or understanding on behalf of the Company that would bind the
Company in any way except to the extent he is specifically and expressly
authorized in writing to do so by the Board of Directors or President of the
Company.
5. Resignation. Consultant hereby agrees to execute and deliver to the
Company, contemporaneously with the execution and delivery of this Agreement,
the letter of resignation attached to this Agreement as Exhibit A and made a
part hereof. In addition, Consultant agrees, upon the request of the Company,
to resign from any other position as an officer, director or employee of the
Company or any of its affiliates, and to assist the Company in appointing or
electing other officers or directors (as requested by the Company) of any such
affiliate as to which Consultant currently serves as a director. Consultant
also agrees to use good faith efforts and to take all reasonable actions within
his control: (a) to cause Consultant to remain as a director and officer of
North American Environmental Group, Inc. until the Company completes an
acquisition, whether through a merger, subsidiary merger or other form of
acquisition, of all shares of capital stock of North American Environmental
Group, Inc. and (b) to assist the Company, as the Company may request, in
completing such acquisition (so long as such assistance does not require
Consultant to incur any out-of-pocket expenses not reimbursed by the Company),
the obligations included in clauses (a) and (b) of this sentence to survive the
termination of this Agreement and to continue until December 31, 1995.
6. Termination of Employment Agreement; Amendment of Stock Option
Agreement; Agreement Relating to 300,000 Options; and Certain Matters Relating
to Euroscotia.
(a) By their execution of this Agreement, the parties hereto hereby
terminate in full, and agree that (notwithstanding any provision therein to the
contrary) neither party shall have any further or continuing obligation or right
under or with respect to, the Employment Agreement, as such document may have
been amended or modified on or before the date hereof, and to the extent of any
obligation or right that arises or continues thereunder upon termination of such
Employment Agreement, the party entitled to enforce the same hereby waives
forever compliance with such obligation and any such right and releases forever
the other party from the obligations under such Employment Agreement.
(b) By their execution of this Agreement, the parties hereto hereby amend
the Stock Option Agreement such that, notwithstanding any provision of the Stock
Option Agreement to the contrary (including without limitation the provisions of
Section 1(b) thereof), the Options scheduled to vest during the months of March
1996 and March 1997 in favor of Consultant (relating to an aggregate of 200,000
shares of Common Stock at a
<PAGE>
purchase price of $2.50 per share) shall instead vest on December 31, 1995, and
shall be exerciseable for a period beginning on December 31, 1995 and ending on
December 31, 2000 (such period constituting the "Option Period" under the Stock
Option Agreement); provided, however, that such Options to acquire such 200,000
shares shall vest only in the event that, on or before December 31, 1995, either
Consultant or an entity other than the Company shall have transferred to an
affiliate of, or a party related to or represented/advised by, Pierre Grotz,
100,000 shares of Company Common Stock for the purpose of resolving the current
controversy involving Goldspinners, Inc., Mr. Grotz and certain parties commonly
referred to by the Company as the "Nycal-related parties." In addition, in the
event the Company decreases the $2.50 per share exercise price of any of those
certain options to acquire shares of Company Common Stock that were granted by
the Company to various Company management personnel and approved by the Board of
Directors of the Company by written consent dated as of March 6, 1995, then the
$2.50 per share at which the options described in this Section 6(b) are
exerciseable shall automatically, and without further action on the part of the
Company or Consultant, be decreased in a corresponding and same amount.
(c) The Company and Consultant hereby agree to execute and deliver to each
other, contemporaneously with the execution and delivery of this Agreement, the
Stock Option Agreement attached to this Agreement as Exhibit B and made a part
hereof, to evidence the agreement of the parties hereto with respect to the
300,000 Options.
(d) By its execution of this Agreement, as between the Company, on the one
hand, and that group consisting of Thom Robinson, John W. Parrott, Lee Smith,
Carl Davies, James Impero, Brad Youmans and Norman Brewster (collectively the
"Entitled Parties"), all current/former employees, officers and directors of the
Company, on the other hand, the Company hereby waives (in favor of such Entitled
Parties) any rights it may have in, to or with respect to receiving any funds
that may be due the Company or any of the Entitled Parties in connection with
the matters commonly refereed to by the Company as the "Wilson recoveries,"
which relate to Euroscotia, and the Company agrees to execute whatever documents
are reasonably required to confirm such wavier to third parties.
Notwithstanding anything in this Section to the contrary, it is expressly
understood and agreed that the Company does not, in any manner, waive any rights
it may have against Euroscotia or any other party relating to the liability
currently carried on the Company's books and records as a "note receivable"
involving Euroscotia.
7. Confidentiality and Non-Competition Agreements and Covenants of
Consultant. During the Term of this Agreement and for a period of five (5)
years thereafter, Consultant agrees that he shall not, without prior written
consent of the Board of Directors of the Company and except pursuant to and
consistent with the order of any court, legislative body or regulatory agency,
(a) engage directly or indirectly (including, by way of example only, as a
principal, partner, venturer, employee or agent), nor have any direct or
indirect interest, in any business which competes with the Company in any
material way, or (b) disclose to any third party, either directly or indirectly,
any non-public information regarding the Company's business, customers,
financial condition, strategies or operations the disclosure of which could harm
the Company in any material way.
<PAGE>
Section 7(a) above shall not apply to any investment by Consultant in the stock
of a publicly-traded corporation, provided such investment constitutes less than
one percent (1%) of the corporation's cumulative voting shares. The provisions
of this Section shall not prevent Consultant from contacting investors, brokers,
dealers and fund managers in connection with business matters and opportunities
not involving the Company and its business so long as Consultant does not
otherwise violate the provisions of clauses (a) or (b) hereof in connection
therewith.
8. Indemnification Rights. (a) If during the Term of this Agreement or
for a three (3) year period thereafter, Consultant is made a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that: (i) he was, prior to
the date hereof, a director, officer or employee of the Company, (ii) he was,
prior to the date hereof, serving at the request of the Company as a director,
officer or employee of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans, or (iii) he was, during the Term of this Agreement, serving as a
consultant to the Company or, at the request of the Company, serving as a
director, officer or employee of North American Environmental Group, Inc. or any
other corporation, partnership, joint venture, trust or other enterprise
pursuant to the terms of this Agreement, in any such case, whether the basis of
such proceeding is alleged action or inaction in an official capacity as a
director, officer, employee or consultant, then Consultant shall be indemnified
and held harmless by the Company to the fullest extent authorized by the General
Corporation Law of the State of Delaware (it being understood that Consultant
will be treated in a manner similar to a director, officer or employee with
respect to the indemnification obligations of Company in Consultant's capacity
as a consultant), as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Company to provide broader indemnification rights than such law permitted the
Company to provide prior to such amendment) (the "GCL"), against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by Consultant in connection therewith, whether occurring
before, during or after the Term of this Agreement, and such indemnification
shall inure to the benefit of his heirs, executors and administrators; provided,
however, that except as provided in this Section, the Company shall indemnify
Consultant in connection with a proceeding (or part thereof) initiated by
Consultant only if such proceeding (or part thereof) was authorized by the Board
of Directors of the Company. The right to indemnification conferred in this
Section shall be a contract right and shall include the right to be paid by the
Company the expenses incurred in defending any such proceeding in advance of its
final disposition; provided, however, that, if the GCL requires, the payment of
such expenses incurred by Consultant in his capacity as a director, officer,
employee or consultant (and not in any capacity in which service was or is
rendered by Consultant while a director, officer, employee or consultant to any
employee benefit plan) in advance of the final disposition of a proceeding,
shall be made only upon delivery to the Company of an undertaking, by or on
behalf of Consultant, to repay all amounts so advanced if it shall ultimately be
determined that Consultant is not entitled to be indemnified under this Section
or otherwise.
<PAGE>
(b) If a claim under Section 8(a) above is not paid in full by the Company
within 30 days after a written claim has been received by the Company,
Consultant may at any time thereafter bring suit against the Company to recover
the unpaid amount of the claim, and, if successful in whole or in part,
Consultant shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other than an action brought
to enforce a claim for expenses incurred in defending any proceeding in advance
of its final disposition where the required undertaking, if any is required, has
been tendered to the Company) that Consultant has not met the standards of
conduct which made or make it permissible under the GCL for the Company to
indemnify Consultant for the amount claimed, but the burden of proving such
defense shall be on the Company. Neither the failure of the Company (including
its Board of Directors, independent legal counsel or its stockholders) to have
made a determination prior to the commencement of such action that
indemnification of Consultant is proper in the circumstances because he has met
the applicable standard of conduct set forth in the GCL, nor an actual
determination by the Company (including its Board of Directors, independent
legal counsel or its stockholders) that Consultant has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that Consultant has not met the applicable standard of conduct.
9. Successors. The rights and duties of a party hereunder shall not be
assignable by that party; provided, however, that this Agreement shall inure to
the benefit of Consultant's heirs, executors and estate upon his death
(including, without limitation, the obligation of the Company to pay Consultant
all sums due hereunder regardless of his death), and provided further, that this
Agreement shall be binding upon and shall inure to the benefit of any successor
of the Company, and any such successor shall be deemed substituted for the
Company under the terms of this Agreement. The term "successor" as used herein
shall include, without limitation, any person, firm, corporation or other
business entity which at any time, by merger, purchase or otherwise, acquires
all or a substantial portion of the assets or business of the Company.
10. Attorneys' Fees Upon a Dispute. In any action at law or in equity to
enforce any of the provisions or rights under this Agreement, the unsuccessful
party to such litigation, as determined by the Court in a final judgment or
decree, shall pay the successful party all costs, expenses and reasonable
attorneys' fees incurred therein by such party (including without limitation
such costs, expenses and fees on any appeals), and if such successful party
shall recover judgment in any such action or proceeding, such costs, expenses
and attorneys' fees shall be included as part of such judgment.
11. Entire Agreement. This Agreement contains the entire agreement
between the Company and Consultant as to the terms of Consultant's services in
any capacity to the Company and the Company's obligations in connection
therewith, and this supersedes all prior written agreements, understandings and
commitments between the Company and Consultant relating to any of the same,
including without limitation the Employment Agreement. No amendments to this
Agreement may be made except by a
<PAGE>
written document signed by the Consultant and approved in writing by the
Company's Board of Directors.
12. Validity. In the event that any provision of this Agreement is held
to be invalid, void or unenforceable, the same shall not affect, in any respect
whatsoever, the validity of any other provision of this Agreement.
13. Section and Other Headings. Section and other headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretations of this Agreement.
14. Notices. Any notice or demand required or permitted to be given under
this Agreement shall be made in writing and shall be deemed effective: (a) upon
the personal delivery thereof if delivered, (b) if mailed, forty-eight (48)
hours after having been deposited in the United States mail, certified, return
receipt requested, postage prepaid, and addressed in the case of the Company to
the attention of the Board of Directors at the Company's then principal place of
business in Houston, Texas, and in the case of the Consultant to his attention
at 1021 N. 42nd Street, Phoenix, Arizona 85028, or (c) if transmitted by
telecopy or facsimile, upon receipt of confirmation of such transmission,
addressed as provided above and transmitted as follows: if to the Company:
(713) 495-3434; and if to Consultant: (602) 494-7606. Either party may change
the address (and telecopy/facsimile number) to which such notices are to be
addressed by giving the other party notice in the manner herein set forth.
15. Withholding Taxes and Other Deductions. To the extent required by
law, the Company shall withhold from any payments due Consultant under this
Agreement any applicable federal, state or local taxes, and such other
deductions as are prescribed by law.
16. Survival of Certain Provisions. The provisions of Sections 5, 6, 7,
8, 9, 10, 14 and 17 shall survive the termination of this Agreement; provided,
however, that the provisions of Sections 7, 8 and the last sentence of Section 5
shall survive such termination for the respective periods provided therein.
17. Applicable Law; Consent to Jurisdiction in Federal Court Located in
Harris County, Texas. This Agreement was negotiated and entered into in
Houston, Harris County, Texas. This Agreement and the provisions hereof shall
be governed by and construed in accordance with the substantive laws of the
State of Texas without giving effect to the principles of conflicts of law
thereof. The parties hereto hereby consent to the jurisdiction of the Federal
courts located in Harris County, Texas, as the exclusive forum to hear and
resolve any claim, controversy, dispute or disagreement between the parties
relating to the subject matter of this Agreement, and each such party hereby
waives any objection such party may have relating to the jurisdiction of such
courts over such party or to hear or resolve such claim, controversy, dispute or
disagreement.
<PAGE>
18. Multiple Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which,
together shall constitute one and the same instrument, effective as of the date
first above written. Facsimile counterparts executed by either party hereto
shall be deemed an original for all purposes.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
its duly authorized representative and Consultant has affixed his signature as
of the date first written above.
COMPANY:
NORTH AMERICAN TECHNOLOGIES
GROUP, INC., a Delaware corporation
By /s/ Tim B. Tarrillion
-------------------------------------
Tim B. Tarrillion
President and Chief Executive Officer
CONSULTANT:
/s/ John W. Parrott
---------------------------------------
John W. Parrott
<PAGE>
Exhibit A
To: The Board of Directors of
North American Technologies Group, Inc.
I hereby resign, effective as of ______ __. m. on the date written below,
as Chairman of the Board and as a director of North American Technologies Group,
Inc., a Delaware corporation ("NATK"). I confirm that I do not hold any other
executive officer or other employee position of NATK, and that there are no
other outstanding written or oral agreements or payment obligations owed to me
by NATK, other than as provided in that certain Consulting Agreement, dated as
of the date hereof, by and between NATK and the undersigned. To the extent any
other such obligation exists (other than as provided in such Consulting
Agreement), I hereby release NATK from the performance or payment of the same.
Dated as of July 28, 1995
----------------------------------
John W. Parrott
<PAGE>
Exhibit B
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT ("Agreement"), dated as of July 28,1995, is by
and between NORTH AMERICAN TECHNOLOGIES GROUP, INC., a Delaware corporation (the
"Company"), and JOHN W. PARROTT ("Optionee").
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which
are hereby acknowledged, the Company and the Optionee hereby agree as follows:
1. Grant of Option; Vesting and Other Provisions. The Company hereby
evidences its grant to Optionee of an option (the "Option") to purchase, subject
to the terms and conditions hereof, from the Company three hundred thousand
(300,000) shares (the "Option Shares") of Common Stock, par value $0.001 per
share, of the Company (the "Common Stock"), all of which Option Shares have
vested on or before the date hereof (and, to the extent any of the same may not
have vested on or before the date hereof, the parties hereby agree that such
Option Shares shall be vested on the date hereof). All vested Option Shares
shall be exerciseable during the period (the "Option Period") beginning on the
date hereof and continuing until and including December 31, 2000 (the
"Termination Date"). The exercise price of each such option shall be equal to
$1.25 per Option Share. The number of Option Shares and the exercise price per
Option Share shall be subject to adjustment from time to time upon the
occurrence of certain events as set forth below. The shares of Common Stock or
any other shares or other units of stock or other securities or property, or any
combination thereof then receivable upon exercise of the Option, as adjusted
from time to time, are sometimes referred to hereinafter as "Exercise Shares."
The exercise price per share as from time to time in effect is referred to
hereinafter as the "Exercise Price." The Option is not an "incentive stock
option" as described in Section 422A of the Internal Revenue Code of 1986, as
amended.
2. Exercise of Option. The Option may be exercised, so long as it is then
valid and outstanding, from time to time in whole (as to Option Shares then
exercisable) or in part, and if in part, on as many occasions during the Option
Period as Optionee shall desire, subject to the terms and provisions of this
Agreement. The Option may be exercised upon delivery on any business day to the
Company at its address set forth below (or such other office of the Company, if
any, as shall theretofore have been designated by the Company by written notice
to the Optionee) of the following:
(a) a completed and executed Notice of Option Exercise in the form set
forth in Appendix A hereto and made a part hereof; and
(b) payment of the full Exercise Price for the number of Exercise Shares
set forth in the Notice of Option Exercise, in lawful money of the United States
of America, by certified check or cashier's check made payable to the order of
the Company (or with the consent of the Company, the purchase price therefor may
be paid in whole or in part by
<PAGE>
the delivery to the Company of certificates representing shares of Common Stock
held by Optionee, duly endorsed for transfer or accompanied by blank stock, each
of which shares shall be valued at a price equal to its then Current Market
Value, as defined below).
3. Issuance of Exercise Shares; Delivery of Stock Certificate. The Company
shall, within ten (10) business days (or as soon thereafter as is practicable)
of the exercise of this Option, issue in the name of and cause to be delivered
to the Optionee (or such other person or persons, if any, as the Optionee shall
have designated in the Notice of Option Exercise) one or more certificates
representing the Exercise Shares to which the Optionee (or such other person or
persons) shall be entitled upon such exercise under the terms hereof. Such
certificate or certificates shall be deemed to have been issued and the Optionee
(or such other person or persons so designated) shall be deemed to have become
the record holder of the Exercise Shares as of the date of the due exercise of
this Option.
4. Exercise Shares Fully Paid and Non-assessable. The Company agrees and
covenants that all Exercise Shares issuable upon the due exercise of the Option
will, upon issuance of a certificate therefor in accordance with the terms
hereof, be duly authorized, validly issued, fully paid and non-assessable and
free and clear of all taxes (other than taxes which, pursuant to this Agreement,
the Company shall not be obligated to pay) or liens, charges, and security
interests created by the Company with respect to the issuance thereof.
5. Reservation of Exercise Shares. At the time of or before taking any
action which would cause an adjustment pursuant to this Agreement increasing the
number of shares of capital stock constituting the Exercise Shares, the Company
will take any corporate action which may be necessary in order that the Company
have remaining, after such adjustment, a number of shares of such capital stock
unissued and unreserved for other purposes sufficient to permit the exercise of
all the then vested Options under this Agreement of like tenor immediately after
such adjustment. The Company will also from time to time take action to
increase the authorized amount of its capital stock constituting the Exercise
Shares if at any time the number of shares of capital stock authorized but
remaining unissued and unreserved for other purposes shall be insufficient to
permit the exercise of the Options under this Agreement then vested. The
Company may but shall not be limited to reserve and keep available, out of the
aggregate of its authorized but unissued shares of capital stock, for the
purpose of enabling it to satisfy any obligation to issue Exercise Shares upon
exercise of Options, through the Termination Date, the number of Exercise Shares
deliverable upon the full exercise of this Option. At the time of or before
taking any action which would cause (pursuant to the provisions of this Section
5) an adjustment resulting in a reduction of the Exercise Price below the then
par value (if any) of the Exercise Shares issuable upon exercise of the Options,
the Company will take any corporate action which may be necessary in order to
assure that the par value per share of the Exercise Shares is at all times equal
to or less than the Exercise Price per share and so that the Company may validly
and legally issue fully paid and non-assessable Exercise Shares at the Exercise
Price, as so adjusted. The Company will also from time to time take similar
action if at any time the Exercise Price is below the then par value of the
Exercise Shares.
2
<PAGE>
6. Fractional Shares. The Company shall not be required to issue
fractional shares of capital stock upon the exercise of this Option or to
deliver stock certificates which evidence fractional shares of capital stock.
In the event that any fraction of an Exercise Share would, except for the
provisions of this Section 6, be issuable upon the exercise of this Option, the
Company shall pay to the Optionee an amount in cash equal to such fraction
multiplied by the Current Market Value (as defined herein) of the Exercise
Share. For purposes of this subparagraph, the "Current Market Value" shall
mean, and be determined, as follows:
(a) if the type of securities representing the Exercise Shares are traded
in the over-the-counter market and not on any national securities exchange and
not in the NASDAQ Reporting System, the average of the mean between the last bid
and asked prices per share, as reported by the National Quotation Bureau, Inc.,
or another generally accepted reporting service, for the last business day prior
to the date on which this Option is exercised, or if not so reported, the
average of the closing bid and asked prices for an Exercise Share as furnished
to the Company by any member of the National Association of Securities Dealers,
Inc., selected by the Company for that purpose;
(b) if the type of securities representing the Exercise Shares are listed
or traded on a national securities exchange or in the NASDAQ National Market
System, the closing price on the principal national securities exchange on which
they are so listed or traded or in the NASDAQ National Market System, as the
case may be, on the last business day prior to the date of the exercise of this
Option. The closing price referred to in this clause (b) shall be the last
reported sales price or, in case no such reported sale takes place on such day,
the average of the reported closing bid and asked prices, in either case, on the
national securities exchange on which the Exercise Shares are then listed or in
the NASDAQ Reporting System; or
(c) if no such closing price or closing bid and asked prices are
available, as determined in any reasonable manner as may be prescribed by the
Board of Directors of the Company.
7. Payment of Taxes. The Company will pay all documentary stamp taxes, if
any, attributable to the issuance of Exercise Shares upon the exercise of this
Option; provided, however, that the Company shall not be required to pay any tax
or taxes which may be payable in respect of any transfer involved in the issue
of any certificates representing the Exercise Shares in a name other than that
of the Optionee, and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
8. Rights of Optionee. The Optionee shall not, by virtue of anything
contained in this Agreement or otherwise, be entitled to any right whatsoever,
either in law or equity, of a stockholder of the Company, including without
limitation, the right to receive
3
<PAGE>
dividends or to vote or to consent or to receive notice as a shareholder in
respect of the meetings of shareholders or the election of directors of the
Company or any other matter, with respect to any Exercise Shares prior to the
acquisition of such Exercise Shares on the exercise of this Option as provided
in this Agreement.
9. Adjustment of Exercise Shares and Exercise Price. The Exercise Price
and the number and kind of Exercise Shares purchasable upon the exercise of this
Option shall be subject to adjustment from time to time upon the happening of
certain events as provided in this Section 9. The Exercise Price in effect at
any time and the number and kind of securities purchasable upon exercise of this
Option also shall be subject to adjustment as hereinafter provided.
(a) In the case the Company shall (i) pay a dividend or make a
distribution on its shares of Common Stock in shares of Common Stock, (ii)
subdivide or classify its outstanding Common Stock into a greater number of
shares or (iii) combine or reclassify its outstanding Common Stock into a
smaller number of shares, the Exercise Price in effect at the time of the record
date for such dividend or distribution or of the effective date of such
subdivision, classification, combination or reclassification shall be
proportionally adjusted so that the Optionee, upon any exercise of this Option
immediately thereafter shall be entitled to receive the aggregate number and
kind of shares which, if this Option had been exercised by such Optionee
immediately prior to such date, he would have owned upon such exercise and been
entitled to receive upon such dividend, subdivision, classification, combination
or reclassification. For example, if the Company declares a 2 for 1 stock
dividend or stock split and the Exercise Price immediately prior to such event
was $5.00 per share, the adjusted Exercise Price immediately after such event
would be $2.50 per share. Such adjustment shall be made successively whenever
any event listed above shall occur.
(b) In case the Company shall hereafter issue rights or warrants to all
holders of its Common Stock entitling them to subscribe for or purchase shares
of Common Stock (or securities convertible into Common Stock) at a price (or
having a conversion price per share) less than the current market price of the
Common Stock (as defined in the subsection (d) below) on the record date
mentioned below, the Exercise Price shall be adjusted so that the same shall
equal the price determined by multiplying the Exercise Price in effect
immediately prior to the date of such issuance by a fraction, the numerator of
which shall be the sum of the number of shares of Common Stock outstanding on
the record date mentioned below and the number of additional shares of Common
Stock which the aggregate offering price of the total number of shares of Common
Stock so offered (or the aggregate conversion price of the convertible
securities so offered) would purchase at such current market price per share of
the Common Stock, and the denominator of which shall be the sum of the number of
shares of Common Stock outstanding on such record date and the number of
additional shares of Common Stock offered for subscription or purchase (or into
which the convertible securities so offered are convertible). Such adjustment
shall be made successively whenever such rights or warrants are issued and shall
become effective immediately after the record date for the determination of
shareholders entitled to receive such rights or warrants; and to the extent
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that shares of Common Stock are not delivered (or securities convertible into
Common Stock are not delivered) after the expiration of such rights or warrants
the Exercise Price shall be readjusted to the Exercise Price which would then be
in effect had the adjustments made upon the issuance of such rights or warrants
been made upon the basis of delivery of only the number of shares of Common
Stock (or securities convertible into Common Stock) actually delivered.
(c) Whenever the Exercise Price payable upon exercise of this Option is
adjusted pursuant to the provisions of (a) or (b) above, the number of Exercise
Shares purchasable upon exercise of this Option shall simultaneously be adjusted
by multiplying the number of Exercise Shares initially issuable upon exercise of
this Option by the Exercise Price in effect on the date hereof and dividing the
product so obtained by the Exercise Price, as adjusted.
(d) For the purpose of any computation under the subsection above, the
current market price per share of Common Stock at any date shall be deemed to be
the average of the daily closing prices for 30 consecutive business days before
such date. The closing price for each day shall be the last sale price (regular
way) or, in case no such reported sale takes place on such day, the average of
the last reported bid and lowest reported asked prices as reported by NASDAQ, or
other similar organization if NASDAQ is no longer reporting such information, or
if not so available, the fair market price as determined by the Board of
Directors.
(e) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least one cent ($0.01) in
such price; provided, however, that any adjustments which by reason of the
provisions of this sentence are not required to be made shall be carried forward
and taken into account in any subsequent adjustment required to be made
hereunder. All calculations under this Section 9 shall be made to the nearest
cent or to the nearest one-hundredth of a share, as the case may be. Anything
in this section to the contrary notwithstanding, the Company shall be entitled,
but shall not be required, to make such changes in the Exercise Price, in
addition to those required by this Section 9 as it, in its sole discretion,
shall determine to be advisable in order that any dividend or distribution in
shares of Common Stock, subdivision, classification, reclassification or
combination of Common Stock, issuance of warrants or options or other rights to
acquire Common Stock or distribution of evidences of indebtedness or other
assets (excluding cash dividends) referred to hereinabove in this Section 9
hereafter made by the Company to the holders of its Common Stock shall not
result in any tax to the holders of its Common Stock or securities convertible
into Common Stock.
(f) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly cause a notice setting forth the adjusted Exercise Price
and adjusted number of Shares issuable upon exercise of this Option to be mailed
to the Optionee, at the address set forth in this Agreement for notice, and
shall cause a certified copy thereof to be mailed to its transfer agent, if any.
The Company may retain a firm of independent certified public accountants
selected by the Board of Directors (who may be the regular
5
<PAGE>
accountants employed by the Company) to make any computation required by this
Section 9, and a certificate signed by such firm shall be conclusive evidence of
the correctness of such adjustment.
(g) In the event that at any time, as a result of an adjustment made
pursuant to this Section 9, the Optionee thereafter shall become entitled to
receive any Exercise Shares of the Company other than Common Stock, thereafter
the number of such other shares so receivable upon exercise of this Option shall
be subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Common Stock
contained in this Section 9.
10. Restrictions on Exercise and Transferability. This Option, and the
rights of Optionee under this Agreement, shall be exerciseable only by the
Optionee or, upon his death or disability, by his estate or any duly appointed
guardian, executor, administrator, trustee or other legal representative(s), and
shall not be transferred or assigned to any other party other than Optionee's
estate upon his death.
11. Restrictive Legends. So long as an exemption therefrom is then
available, the Company shall not be required by the terms of this Agreement to
register, under the Securities Act of 1933, as amended (the "Act"), or under
applicable state securities laws (together with the Act, the "Securities Laws"),
any of the Exercise Shares issued or to be issued upon the exercise of the
Option. In addition, in the event that any such Exercise Shares are not so
registered, Optionee consents to the placement on the certificate or
certificates representing such Exercise Shares a legend or legends to the effect
that, among other things, neither such certificate or certificates nor the
Exercise Shares evidenced thereby have been registered under any Securities Laws
and that no sale, transfer or other disposition thereof or any interest therein
may be made or shall be recognized unless in the satisfactory written opinion of
counsel for, or satisfactory to, the Company, such transaction would not violate
or required registration under such Securities Laws. The Company may also place
on such certificate or certificates any other legend it deems necessary or
desirable in order to conform to any of the Securities Laws.
12. Certain Registration Rights.
(a) If at any time prior to the Termination Date the Company registers
under the Act any shares of Common Stock to be issued to an executive officer of
the Company or any of its subsidiaries upon exercise of an option (a "Management
Option") to acquire such shares of Common Stock granted in connection with such
person's employment with the Company or any of its subsidiaries as an executive
officer, then the Company shall offer in writing to Optionee a corresponding
right to receive shares of Common Stock that are registered under the Act upon
the exercise of any of Optionee's then vested and unexercised shares of Common
Stock under this Agreement upon similar terms and provisions as those offered to
such other executive officer. In addition, if at any time prior to the
Termination Date the Company offers to register any of such other executive
officer's outstanding shares of Common Stock that were issued to him upon
exercise of a Management Option, then the Company shall offer in writing to
Optionee at the same time
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<PAGE>
a corresponding right to cause the Company to register any of the Optionee's
then outstanding shares of Common Stock that were issued to him upon exercise of
the Option granted under this Agreement. The rights granted in favor of Optionee
under this Section 12(b): (i) shall be as equal in nature to the rights granted
in favor of such other executive officer as is reasonably practicable, (ii)
shall relate to a proportionate number of Optionee's shares of Common Stock as
the Board of Directors of the Company deems reasonable and (iii) shall be
subject to such other reasonable terms and conditions as the Board of Directors
of the Company may then impose.
13. Notices. All notices or other communications under or relating to
this Agreement shall be in writing and shall be deemed to have been given if
delivered by hand or mailed by certified mail, postage prepaid, return receipt
request, addressed as follows:
If to the Company: North American Technologies Group, Inc.
9818 Wilcrest
Houston, Texas 77099
Attention: Corporate Secretary
If to the Optionee: John W. Parrott
1021 N. 42nd Street
Phoenix, Arizona 85028
Either of the Company or the Optionee may from time to time change the
address to which notices to it are to be mailed hereunder by notice in
accordance with the provisions of this Section.
14. Amendments. This Agreement may be amended or supplement only by a
writing signed by both parties hereto.
15. Successors and Assigns. Subject to the provisions of Section 10
hereof, this Agreement shall inure to the benefit of and be binding on the
respective successors, assigns and legal representatives of the Optionee and the
Company.
16. Severability. If for any reason any provision, paragraph or terms of
this Agreement is held to be invalid or unenforceable, all other valid
provisions herein shall remain in full force and effect and all terms,
provisions and Sections of this Agreement shall be deemed to be severable.
17. Governing Law. To the full extent controllable by stipulation of the
Company and Optionee, this Agreement shall be interpreted and enforced under
Texas law.
18. Headings. Headings used herein are included herein for convenience of
reference only and shall not affect the construction of this Agreement or
constitute a part of this Agreement for any other purpose.
7
<PAGE>
19. Multiple Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and both of which
together shall constitute one and the same instrument, effective as of the date
first above written. Facsimile counterparts executed by either party hereto
shall be deemed an original for all purposes.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed the day and year first set out above.
"Company" NORTH AMERICAN TECHNOLOGIES
GROUP, INC.
By:
-------------------------------------
Tim B. Tarrillion
President and Chief Executive Officer
"Optionee" JOHN W. PARROTT
----------------------------------------
8
<PAGE>
APPENDIX A
NOTICE OF STOCK OPTION EXERCISE
Pursuant to that certain Stock Option Agreement, dated as of ____________,
1995, as amended to date (the "Agreement"), by and between North American
Technologies Group, Inc., a Delaware corporation (the "Company"), and the
undersigned, and subject to the vesting periods set forth therein, the
undersigned hereby irrevocably elects to exercise an option to acquire
________________ shares of _____________________________, at an exercise price
of $____ per share, or an aggregate purchase price of $__________. Enclosed
herewith is a certified check or cashier's check made payable to the order of
the Company in the amount of the aggregate purchase price set forth in the
preceding sentence [or, if, applicable: "; provided, however, that $________ of
such purchase price therefor is hereby paid by the delivery to the Company of
______ shares of Common Stock represented by certificate no(s) ___________, duly
endorsed for transfer or accompanied by a blank stock power, all in accordance
with the terms and provisions of the Agreement"]. Each capitalized terms used
herein, unless otherwise defined, has the meaning given such term in the
Agreement.
The undersigned hereby represents and agrees that the Exercise Shares
purchased pursuant hereto are being purchased for investment and not with a view
to the distribution or resale thereof, and that the undersigned understands that
said Exercise Shares have not been registered under the Securities Laws.
The undersigned requests that a certificate for the Exercise Shares be
issued in the name of: ______________________________________
______________________________________
______________________________________
[Please print name, address]
Address of Optionee (if different from above):
_________________________________
_________________________________
_________________________________
Dated:___________________________
Name of Optionee: _________________________________
Optionee's Signature: ________________________________
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<PAGE>
EXHIBIT 24.1
Consent of Independent Certified Public Accountants
North American Technologies Group, Inc.
Houston, Texas
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated April 13, 1995, except for Note 6, as
to which the date is April 24, 1995 and Notes 4 and 21, as to which the date is
September 22, 1995, relating to the consolidated financial statements of North
American Technologies Group, Inc., which is contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO SEIDMAN, LLP
BDO SEIDMAN,LLP
Philadelphia, Pennsylvania
October 9, 1995
<PAGE>
EXHIBIT 24.2
Consent of Independent Certified Public Accountants
North American Technologies Group, Inc.
Houston, Texas
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated April 13, 1995, relating to the
consolidated financial statements of North American Environmental Group, Inc.,
which is contained in that Prospetus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO SEIDMAN, LLP
BDO SEIDMAN,LLP
Philadelphia, Pennsylvania
October 9, 1995
<PAGE>
EXHIBIT 24.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in Amendment
No. 1 to the Registration Statement (Form S-4 No. 33-82112) of North American
Technologies Group, Inc. for the registration of 1,380,000 shares of its Common
Stock and to the use herein and the incorporation by reference therein of our
report dated February 9, 1995, with respect to the financial statements of EET,
Inc. included in Form 8K filed with the Securities and Exchange Commission by
North American Technologies Group, Inc. on March 7, 1995.
[Signature of Ernst & Young LLP]
ERNST & YOUNG LLP
Houston, Texas
October 9, 1995
<PAGE>
EXHIBIT 24.4
SHOEMAKER AND WILSON, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
POINTE SOUTH EXECUTIVE BUILDING
P.O. BOX 444
5201 S. MISSION
MT. PLEASANT, MICHIGAN 48804-0444
(517) 773-6449
North American Technologies Group, Inc.
Houston, Texas
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated November 18, 1992, relating to the
consolidated financial statements of North American Environmental Group, Inc.,
which is contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
[Signature of Shoemaker &
Wilson, P.C. appears here]
SHOEMAKER & WILSON, P.C.
Certified Public Accountants
October 9, 1995
