<PAGE>
As filed with the Securities and Exchange Commission on April 30, 1997
Registration No. 333-_______________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
___________________
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
___________________________
Delaware 33-0041789
- ------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
4710 Bellaire Boulevard., Suite 301
Bellaire, Texas 77401
Telephone: (713) 662-2699
__________________________
(Address, including zip code, and telephone number,
including area code of registrant's principal executive office and principal
place of business)
__________________________
Mr. Tim B. Tarrillion
Chief Executive Officer
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
4710 Bellaire Boulevard, 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:
Joseph P. Galda, Esquire
Buchanan Ingersoll Professional Corporation
11 Penn Center, 14th Floor
1835 Market Street
Philadelphia, PA 19103
(215) 665-3879
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable following the date on which this Registration Statement
becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box: [X]
______________________________
The Company hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Company 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 this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER PROPOSED MAXIMUM REGISTRATION
REGISTERED REGISTERED SHARE/(1)/ AGGREGATE OFFERING PRICE FEE/(2)/
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Common Stock, 31,159,360/(3)/ $ .5625 $ 17,527,140 $ 5,311.25
$.001 par value
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/(1)/ Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
/(2)/ Fee calculated upon the basis of the closing price of the Company's Common
Stock on April 25 1997 of $.5625, which date is within five (5)
business days prior to the date of filing of this Registration Statement.
/(3)/ Represents shares of the Company's Common Stock which may be offered by
certain Selling Security Holders. See "SELLING SECURITY HOLDERS."
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
PRELIMINARY SUBJECT TO COMPLETION
PROSPECTUS DATED APRIL 30, 1997
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
31,159,360 Shares of Common Stock
offered by certain Selling Security Holders, subject to
adjustment as described herein.
_______________________
This Prospectus relates to the sale of 31,159,360 shares, subject to
adjustment as described under "SELLING SECURITY HOLDERS" below, of common stock,
$.001 par value per share (the "Common Stock"), of North American Technologies
Group, Inc. (the "Company"), all of which are offered by the holders thereof
identified as "Selling Security Holders" in this Prospectus including 20,138,105
shares being offered by certain directors, executive officers and principal
stockholders. The shares of Common Stock offered hereby include: (i)
5,122,396 outstanding shares of Common Stock; (ii) 11,655,687 shares of Common
Stock, subject to adjustment, which may be issued upon the conversion, if at
all, of the Company's outstanding Cumulative Convertible Preferred Stock, Series
F (the "Series F Shares"); (iii) 3,644,444 shares of Common Stock, subject to
adjustment, which may be issued upon conversion, if at all, of the Company's
outstanding Cumulative Convertible Preferred Stock, Series G, Subseries I (the
"Series G Shares"); (iv) 10,403,500 shares of Common Stock which may be issued,
if at all, upon the exercise of certain outstanding options and warrants (the
"Options"); and (v) 333,333 shares of Common Stock which may be issued upon the
conversion, if at all, of a $500,000 principal amount convertible promissory
note (the "Convertible Note"). The shares of Common Stock, Series F Shares,
Series G Shares, Options and Convertible Note were previously issued by the
Company in private placement transactions. See "SELLING SECURITY HOLDERS" and
"DESCRIPTION OF SECURITIES."
The Shares of Common Stock may be offered by the Selling Security Holders
identified in this Prospectus or by donees, pledgees, transferees, or other
successors in interest, for sale from time to time by the holders in regular
brokerage transactions on NASDAQ, either directly or through brokers or to
dealers, in private sales or negotiated transactions, or otherwise, at prices
related to then prevailing market prices. The Company will not receive any of
the proceeds of the sale of Shares of Common Stock by the Selling Security
Holders. All expenses of the registration of such securities will be borne by
the Company. The Selling Security Holders, and not the Company, will pay or
assume all applicable brokerage commissions or other costs of sale as may be
incurred in the sale of such securities. See "SELLING SECURITY HOLDERS."
The Company will assume no responsibility for the sale of the shares of
Common Stock of the Selling Security Holders, nor can there be any assurances
that a liquid trading market will exist for the sale of the shares of Common
Stock to be offered by the Selling Security Holders. See "RISK FACTORS."
The Company's Common Stock is included on the NASDAQ SmallCap Market/SM/
under the symbol "NATK." The closing price of the Company's Common Stock as
reported by NASDAQ on April 25, 1997 was $.5625.
No person is authorized to give any information or to make any
representations, other than as contained herein, in connection with the offer
made in this Prospectus, and any information or representation not contained
herein must not be relied upon as having been authorized by the Company or the
Selling Security Holders. This Prospectus does not constitute an offer to sell
or a solicitation of an offer to buy any security other than the Common Stock
offered by this Prospectus, nor does it constitute an offer to sell or a
solicitation of any offer to buy any shares of Common Stock offered hereby to
any person in any jurisdiction where it is unlawful to make such an offer or
solicitation to such person. Neither the delivery of this Prospectus nor any
sale hereunder shall under any circumstances create any implication that
information contained herein is correct as of any time subsequent to the date
hereof.
________________________
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 12 OF THIS PROSPECTUS.
________________________
THESE SECURITIES 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
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
________________________
<TABLE>
<CAPTION>
Price to Underwriting Discounts Proceeds to the Selling
Class of Security Public and Commissions Security Holders
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares of Common Stock $ .5625 (1) $ 17,527,140(2)
==========================================================================================
</TABLE>
(1) Does not give effect to ordinary brokerage commissions or other costs of
sale that will be borne solely by the Selling Security Holders.
(2) Represents the anticipated sale by the Selling Security Holders at $.5625,
the closing price on April 25 , 1997. There can be no assurances,
however, that the Selling Security Holders will be able to sell their
shares of Common Stock at this price, or that a liquid market will exist
for the Company's Common Stock. The Company will realize no proceeds upon
the sale of shares of Common Stock by the Selling Security Holders.
_____________________
The date of this Prospectus is May __, 1997.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports and other information with the Securities and Exchange Commission (the
"Commission"). Copies of these reports may be inspected and copied at the
Public Reference Facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
at 7 World Trade Center, Suite 1300, New York, New York 10048 and at Northwest
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-
2511. Copies of such materials can be obtained upon written request addressed
to the Commission's Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, the Commission
maintains a Web site at http://www.sec.gov containing reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission, including the Company. The Common Stock is
listed on NASDAQ and reports and other information concerning the Company may
also be inspected at the offices of the National Association of Securities
Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006.
In addition, the Company will provide without charge to each person to whom
this Prospectus is delivered, upon either the written or oral request of such
person, a copy of any or all of the documents incorporated herein by reference,
other than exhibits to such documents. See "INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE." Such requests should be directed to Mr. Tim B. Tarrillion, Chief
Executive Officer, North American Technologies Group, Inc., 4710 Bellaire Blvd.,
Suite 301, Bellaire, Texas 77401, telephone (713) 662-2699.
The Company has filed with the Commission a registration statement (herein,
together with all amendments and exhibits, referred to as the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act").
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information, reference
is hereby made to the Registration Statement.
PRIVATE SECURITIES LITIGATION
REFORM ACT SAFE HARBOR STATEMENT
When used in or incorporated by reference into this Prospectus, the words
"estimate," "project," "intend," "expect" and similar expressions are intended
to identify forward-looking statements regarding events and financial trends
which may affect the Company's future operating results and financial position.
Such statements are subject to risks and uncertainties that could cause the
Company's actual results and financial position to differ materially. Such
factors are described in detail below under "RISK FACTORS" and in the Company's
reports filed with the Commission under the Exchange Act which are incorporated
herein by reference. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date made. The Company
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements to reflect events or circumstances after the
date made or to reflect the occurrence of unanticipated events.
2
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-KSB for the year ended
December 31, 1996 filed on March 24, 1997 by the Company with the Commission
(file No. 0-16217 pursuant to the Exchange Act is incorporated herein by
reference.
All other documents filed by the Company pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of the Common Stock by the Selling
Security Holders shall be deemed to be incorporated by reference in this
Prospectus.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any document subsequently filed with the Commission which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will furnish without charge to each person, including any
beneficial owner, to which a copy of this Prospectus is delivered, on the
written or oral request of such person to the Company, 4710 Bellaire Blvd.,
Suite 301, Bellaire, Texas 77401, telephone (713) 662-2699, Attention: Mr. Tim
B. Tarrillion, Chief Executive Officer, a copy of any or all of the documents
described above and incorporated herein by reference (not including exhibits
thereto unless such exhibits are specifically incorporated by reference into the
information that the Registration Statement incorporates).
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information and financial statements (including the notes thereto) appearing
elsewhere in or incorporated by reference into this Prospectus.
THE COMPANY
North American Technologies Group, Inc. ("NATK" or the "Company")
conducts business through five principal business groups: EET, Inc.
(manufactures, distributes and uses chemical extraction products for the
environmental decontamination of buildings and equipment, removal of stains from
concrete, and the descaling of industrial deposits utilizing EET's patented
TECHXTRACT technology), Industrial Pipe Fittings, Inc. (manufactures and
distributes transition fittings for high-density polyethylene ("HDPE") pipe),
GAIA Technologies, Inc. (manufactures and distributes products made from
recycled plastics and rubber), Riserclad International, Inc. (formulates and
markets a corrosion protection system for steel structures in marine
applications), and other businesses/technologies owned by NATK but not separated
into distinct subsidiaries (development of a proprietary hydrocarbon upgrading
technology and other environmentally related technologies). 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
Mail Boxes Coast to Coast, Inc. as of December 24, 1986 under the laws of the
State of Delaware and in 1993 changed its name to its present name following
divestiture of its predecessor business. The principal executive offices of
the Company are located at 4710 Bellaire Boulevard, Suite 301, Bellaire, Texas
77401, telephone (713) 662-2699.
THE OFFERING
Securities Being Offered: This Prospectus relates to the sale of
31,159,360 shares, subject to adjustment as
described under "SELLING SECURITY HOLDERS"
below, of common stock, $.001 par value per
share (the "Common Stock"), of the Company, all
of which are offered by the holders thereof
identified as "Selling Security Holders" in
this Prospectus, including 20,138,105 shares
being offered by certain directors, executive
officers and principal stockholders. The shares
of Common Stock offered hereby include: (i)
5,122,396 outstanding shares of Common Stock;
(ii) 11,655,687 shares of Common Stock, subject
to adjustment, which may be issued upon the
conversion, if at all, of the Company's
Cumulative Convertible Preferred Stock, Series
F (the "Series F Shares"); (iii) 3,644,444
shares of Common Stock, subject to adjustment,
which may be issued upon the conversion, if at
all, of the Company's Cumulative Convertible
Preferred Stock, Series G, Subseries I (the
"Series G Shares"); (iv) 10,403,500 shares of
Common Stock which may be issued , if at all,
upon the exercise of certain outstanding
options and warrants (the "Options"); and (iv)
333,333 shares of Common Stock which may be
issued upon the
4
<PAGE>
conversion of a $500,000 principal amount
convertible promissory note (the "Convertible
Note"). The shares of Common Stock, Series F
Shares, Series G Shares, Options and
Convertible Note were previously issued by the
Company in private placement transactions. See
"SELLING SECURITY HOLDERS" and "DESCRIPTION OF
SECURITIES."
The shares of Common Stock offered by the
Selling Security Holders may be offered for
sale from time to time by the holders thereof
in regular brokerage transactions, either
directly or through brokers or to dealers, in
private sales or negotiated transactions, or
otherwise, at prices related to then prevailing
market prices. The Company will not receive any
proceeds from the sale of shares of Common
Stock by the Selling Security Holders. All
expenses of the registration of such securities
are, however, being borne by the Company. The
Selling Security Holders, and not the Company,
will pay or assume such brokerage commissions
and transaction costs as may be incurred in the
sale of their securities.
The Common Stock is traded on the NASDAQ
SmallCap Market/SM/ under the symbol "NATK." On
April 25, 1997, the closing bid price on NASDAQ
was $.5625.
Number of shares of
Common Stock outstanding 28,102,618
Number of shares of Common Stock
which may be issued upon the conversion
of the Series F Shares, Series G Shares and Convertible
Note and exercise of the Options 26,036,964/(2)/
Total number of shares of Common Stock
outstanding assuming the conversion of the
Series F Shares, Series G Shares and Convertible Note and
exercise of the Options 54,139,582/(2)/
Total number of shares of
Common Stock being offered
by Selling Security Holders 31,159,360/(1)/
_____________________
/(1)/ The number of shares issuable upon the conversion of the Series F Shares
and Series G Shares may be subject to increase based upon adjustment and
payment-in-kind dividend features contained within the instrument. See
"SELLING SECURITY HOLDERS - Adjustment Features of the Series F Shares,
Series G Shares and Series F Warrants."
5
<PAGE>
(2) Does not include approximately 1,000,000 shares of Common Stock issuable
upon the conversion, if at all, of shares of the Company's outstanding
Series E Convertible Preferred Stock (See "DESCRIPTION OF SECURITIES"),
whose resale is not covered by this Prospectus. Also does not include
approximately 6,600,000 shares of Common Stock issuable upon the exercise,
if at all, of additional common stock options and warrants (See
"DESCRIPTION OF SECURITIES"), whose resale is also not covered by this
Prospectus.
______________________
6
<PAGE>
Use of Proceeds: The Company will not receive any of the
proceeds of the sale of any of the shares of
Common Stock by the Selling Security Holders.
The net proceeds realized by the Company upon
the exercise of the Options will be used to
offset the general working capital requirements
of the Company. Inasmuch as the Company has
received no firm commitments for the exercise
of the Options, however, there can be no
assurances as to the amount of the net proceeds
to be realized by the Company.
Risk Factors: The Common Stock offered hereby involves a high
degree of risk. See "RISK FACTORS."
Trading Symbol: Common Stock-NATK
7
<PAGE>
RISK FACTORS
An investment in the Common Stock involves a high degree of risk. Prior to
making an investment decision with respect to the Common Stock offered by this
Prospectus, prospective investors should carefully consider, along with the
other matters discussed in or incorporated by reference into this Prospectus,
the following risk factors:
1. LACK OF OPERATING REVENUE AND PROFITS. Until the acquisitions in 1995
of EET, Inc. ("EET") Industrial Pipe Fittings, Inc. ("IPF") and GAIA
Technologies, Inc. ("GAIA"), 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 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 and fiscal 1995 from non-EET and IPF
products. While it is anticipated that the operations of EET, IPF, GAIA, and
Riserclad will begin to generate operating profits during fiscal 1997, such
operating profits are unlikely to result in profitable operations of the Company
on a consolidated basis in the short term.
The Company has incurred an accumulated deficit from its inception to
December 31, 1996 of $25,902,116. 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.
2. CAPITAL NEEDS; GOING CONCERN EXPLANATORY PARAGRAPH. Through the
year ended December 31, 1996, the Company incurred operating losses which
could continue for the near term at expected levels of between
$200,000 and $300,000 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. In April 1997, the Company obtained $1,640,000 in additional financing
which it expects will be sufficient to fund its operating requirements until it
can achieve profitable operations. However, if management's expectations are
incorrect and the losses continue at historic rates, the Company will likely
need to secure additional capital. There can be no assurance that such capital
will be available, if at all, on terms attractive to the Company. Due to these
uncertainties, the report of the Company's independent auditors for the year
ended December 31, 1996 contains an explanatory paragraph as to the substantial
doubt about the Company's ability to continue as a going concern. The Company's
long-term viability and growth will depend upon the successful commercialization
of its technologies and its ability to obtain adequate financing, as to which
there can be no assurances.
3. SUBSTANTIAL DILUTION FROM CONVERTIBLE SECURITIES. The Company is
presently authorized to issue 100,000,000 shares of Common Stock, of which
28,102,618 shares are outstanding as of the date of this Prospectus. The Company
may in the future be caused to issue up to approximately 35 million additional
shares
8
<PAGE>
of its Common Stock upon the conversion of its outstanding Series E Convertible
Preferred Stock (the "Series E Shares"), and Series F Shares, the Series G
Shares and Convertible Note and upon the exercise of its outstanding options and
warrants. See "DESCRIPTION OF SECURITIES." This could conceivably result in an
increase in the Company's outstanding shares of Common Stock from 28,102,618 to
63,102,618. Issuance of this many shares is likely to have an extremely dilutive
effect upon the existing stockholders. Furthermore, sales of substantial amounts
of the Company's common stock in the public market (made possible by the resale
of 26,036,964 additional shares permitted by this Prospectus) could have an
adverse effect upon the market price of the Company's Common Stock and make it
more difficult for the Company to sell its equity securities in the future and
at prices its deems appropriate.
4. 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.
5. EFFECT OF OUTSTANDING PREFERRED SHARES, OPTIONS AND WARRANTS. The
holders of the Series E Shares, Series F Shares and Series G Shares and
outstanding options and warrants thereof are given an opportunity to profit from
a rise in the trading price of the Company's Common Stock, with a resulting
dilution in the interest of the other stockholders. The holders of such
preferred stock may choose to exercise their rights of conversion and the
holders of such options and warrants may chose to exercise these instruments,
each at prices below the current trading price of the Company's Common Stock and
at a time when the Company might be able to obtain additional capital through a
new offering of securities at prevailing market prices. The terms on which the
Company may obtain additional financing during this period may be adversely
affected by the existence of such below market convertible securities.
6. 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 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.
9
<PAGE>
7. 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
noncompliance are and will continue to be a principal factor affecting demand
for some of 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, some of the
businesses of the Company could be materially and adversely affected.
8. 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 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.
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.
9. 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 affect the Company's ability to
field test and market its services and products.
10
<PAGE>
10. DEPENDENCE ON THIRD PARTIES; MANUFACTURING DIFFICULTIES. The Company,
at times, is dependent on third parties for the production of its products,
equipment and the production of certain enzymes/chemicals used in its
technologies. There can be no assurance that these parties will meet the
Company's requirements for quality, quantity and timeliness, or that the Company
would be able to find substitutes if necessary. The Company has had particular
difficulty in identifying manufacturers for its A/C pad business.
11. SALES AND MARKETING. The Company intends to market certain products in
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.
Until recently, the management of the Company has had very limited experience in
sales, marketing and distribution. However, within the last two years the
Company has added management personnel with extensive experience in sales and
marketing.
12. PROPOSED REVISIONS TO NASDAQ LISTING STANDARDS; POSSIBLE RESTRICTIONS
ON TRADING ACTIVITIES. On November 6, 1996, NASDAQ approved changes to its
listing standards which may adversely affect the Company's continued listing on
the NASDAQ Small Cap Market/SM./. If these rules go into effect as proposed and
the Company's shares fail to maintain a minimum bid price of $1.00, the Company
could be subject to delisting and would instead trade in the less liquid OTC
Electronic Bulletin Board and trading in the Common Stock would be subject to
certain rules under the Exchange Act which apply to lower-priced securities,
otherwise defined as "penny stocks."
To the extent the Company's securities constitute "penny stocks", Rule
15g-9 promulgated under the Exchange Act will impose limitations upon trading
activities which would make sale of the shares more difficult than in the case
of securities which were not "penny stocks." Rule 15g-9 restricts the
solicitation of sales of "penny stocks" by broker-dealers unless first the
broker: (i) obtains from the purchaser information concerning his financial
situation, investment experience and investment objectives; (ii) reasonably
determines that the purchaser has sufficient knowledge and experience in
financial matters that the person is capable of evaluating the risks of
investing in "penny stocks"; and (iii) delivers and receives back from the
purchaser a manually signed written statement acknowledging the purchaser's
investment experience and financial sophistication.
Furthermore, Rules 15g-2 through 15g-6 promulgated under the Exchange
Act provide a series of additional rules requiring broker-dealers engaging in
transactions in "penny stocks" to first provide to their customers a series of
disclosures and documents, including: (i) a standardized risk disclosure
document identifying the risks inherent in investing in "penny stocks"; (ii) all
compensation received by the broker-dealer in connection with the transaction;
(iii) current quotation prices and other relevant market data; and (iv) monthly
account statements reflecting the fair market value of the securities.
"Penny stocks" are defined at Rule 3a51-1 as a security other than a
security that: (i) is listed on any national securities exchange or The NASDAQ
Stock Market/TM/; (ii) has a price of $5.00 or more per share or whose issuer is
not a "blank check" company; or (iii) whose issuer has net tangible assets in
excess of
11
<PAGE>
$2,000,000, (if the issuer has been in business for at least three (3) years) or
$5,000,000 (if the issuer has been in business for less than three (3) years).
Under the Securities Act, and the regulations thereunder, any person
engaged in a distribution of the shares offered hereby may not simultaneously
engage in market making activities with respect to the Common Stock of the
Company during the applicable "cooling off" periods prior to the commencement of
such distribution. In addition, and without limiting the foregoing, each
stockholder will be subject to applicable provisions of the Exchange Act and the
rules and regulations thereunder including, without limitation, Rule 15g-9, and
Rules 10b-6 and 10b-7, which provisions may limit the timing of purchases and
sales of Common Stock by stockholders.
13. 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. The Company maintains keyman life insurance
naming the Company as the beneficiary on Mr. Tarrillion and certain other key
individuals.
14. 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.
15. CLASSIFIED BOARD; DELAWARE ANTI-TAKEOVER LAW. The Company has
classified the Board of Directors into three classes, with the members of one
class (or one-third of the Board) elected each year to serve a three-year term.
A director may be removed only for cause by a vote of the holders of two-thirds
of the voting power of the Company's outstanding securities. The classified
Board of Directors makes it more difficult to change majority control of the
Board, which may discourage attempts by third parties to make a tender offer or
otherwise obtain control of the Company, even if such attempt would be
beneficial to the Company and its stockholders.
The Company is governed by the provisions of Section 203 of the
General Corporation Law of the State of Delaware (the "GCL"), an anti-takeover
law. 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. An
"interested stockholder" is a person who, together with its affiliates and
associates, owns (or, within three years, did own) 15% or more of the
corporation's voting stock. The supermajority voting provisions in the
Company's bylaws and the provisions regarding certain business combinations
under the GCL could have the effect of delaying, deferring or preventing a
change in control of the Company or the removal of existing management. A
takeover transaction frequently affords stockholders the opportunity to sell
their shares at a premium over current market prices. See "DESCRIPTION OF
SECURITIES."
12
<PAGE>
16. AUTHORIZATION AND DISCRETIONARY ISSUANCE OF PREFERRED STOCK. The
Company's Certificate of Incorporation authorizes the issuance of up to an
aggregate of 10,000,000 shares of "blank check" preferred stock with such
designations, rights and preferences as may be determined from time to time by
the Board of Directors. Accordingly, the Board of Directors is empowered,
without stockholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting or other rights which would adversely affect the
voting power or other rights of the holders of the Company's Common Stock. In
the event of issuance, the preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company, which could have the effect of discouraging bids for the
Company and thereby prevent stockholders from receiving the maximum value for
their shares. The Company has no present agreement to issue any additional
shares of its preferred stock. However, there can be no assurance that the
preferred stock of the Company will not be issued at some time in the future.
USE OF PROCEEDS
The Company will not realize any proceeds from the sale of shares of Common
Stock by the Selling Security Holders. Other than with respect to ordinary
brokerage commissions or other costs of sale, the costs of this offering,
including among others, printing, blue sky and professional fees, estimated at
$35,000, will be borne entirely by the Company. See "SELLING SECURITY HOLDERS."
Of the 31,159,360 shares covered by this Prospectus, 10,403,500 of such
shares are issuable, if at all, upon the exercise of the Options. Although the
Company will not realize any proceeds from the resale of the shares by the
Selling Security Holders, gross proceeds will be realized by the Company to the
extent that such shares have been issued upon the exercise of outstanding
Options. The gross proceeds which may be realized by the Company upon the
exercise of one hundred (100%) percent of the Options will be $9,849,000.
Inasmuch as the Company has received no firm commitments for their exercise,
there can be no assurance that any or a substantial portion of the Options will
be exercised.
Management cannot predict with any certainty the amount of proceeds, if
any, which may be generated from the exercise of the Options. The net proceeds
which may be realized by the Company, if any, upon the exercise of the Options
will not be utilized for any specific purpose other than to contribute to the
Company's working capital and be used to continue the operations of the Company
in accordance with the business strategy identified by management from time to
time.
13
<PAGE>
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue 100,000,000 shares of Common Stock, of
which 28,102,618 were outstanding as of the date of this Prospectus.
Holders of Common Stock have equal rights to receive dividends when 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 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 pre-emptive or similar rights. All
outstanding shares of Common Stock are fully paid and non-assessable.
PREFERRED STOCK
Within the limits and restrictions contained in the Certificate of
Incorporation, the Board of Directors has the authority, without further action
by the stockholders, to issue up to 10,000,000 shares of preferred stock, $.001
par value per share (the "Preferred Stock"), in one or more series. As of the
date of this Prospectus, 13 Series E Shares, 101,404 Series F Shares, and 16,400
Series G Shares were outstanding.
Shares of Preferred Stock issued by the Board of Directors could be
utilized, under certain circumstances, to make an attempt to gain control of the
Company more difficult or time consuming. For example, shares of Preferred
Stock could be issued with certain rights which might have the effect of
diluting the percentage of Common Stock owned by a significant stockholder or
issued to purchasers who might side with management in opposing a takeover bid
which the Board of Directors determines is not in the best interest of the
Company and its stockholders. This provision may be viewed as having possible
anti-takeover effects. A takeover transaction frequently affords stockholders
the opportunity to sell their shares at a premium over current market prices.
SERIES E SHARES
In February and March 1996, the Company received net proceeds of $1,218,750
from the issuance of 50 shares of Series E Convertible Preferred Stock ("Series
E Shares"). The holders of the Series E Shares have certain liquidation
preferences and are not entitled to any dividends. At the option of the holder,
the Series E Shares may be converted into the Company's Common Stock using a
conversion rate computed as the lesser of (a) a calculated value utilizing a
discount to the market price, as defined, of the Company's Common Stock, or (b)
$1.50 per share. At March 31, 1997, 13 Series E Shares remained outstanding.
These become available for conversion in May 1997.
14
<PAGE>
SERIES F SHARES AND SERIES G SHARES
During April and May, 1996, the Company issued 92,500 Series F Shares and
warrants to acquire 9,250,000 shares of the Company's Common Stock (the "Series
F Warrants"). Cash proceeds of $6,500,000 were received for 65,000 of the
Series F Shares and 6,500,000 Series F Warrants. The remaining 27,000 Series F
Shares and 2,700,000 Series F Warrants were issued in exchange for the surrender
of previously issued notes and note warrants. The Series F Warrants have an
exercise price of $1.00 per share, subject to certain adjustments, and expire
during April and May, 2004.
In March 1997, the Board of Directors designated shares of Preferred Stock
as Cumulative Convertible Preferred Stock, Series G (the "Series G Preferred
Stock"), which are issuable in subseries with terms substantially identical to
the Series F Shares, except for the initial conversion rate. At the same time,
the Board designated shares of Series G Preferred Stock as Series G Shares. At
the same time, the Board designated 60,000 shares of Series G Preferred Stock as
Series G Shares. In April 1996 the Company issued 16,400 Series G Shares for
cash proceeds of $1,640,000.
Dividends accrue on the Series F Shares and Series G Shares at a per annum
rate of $13.50 per share and are payable semi-annually. The Company may elect
to defer and accrue dividend payments until April 1999 in which case, each
holder may elect to receive payment of the dividend in the form of additional
Series F Shares or Series G Shares, as the case may be. The holders of the
Series F Shares and Series G Shares have certain liquidation preferences. The
Series F Shares and Series G Shares may be converted into Company Common Stock
at the option of the holder using a conversion rate, subject to certain
adjustments, of $1.00 per share and $.45 per share, respectively. On or after
April 8, 2001, the Series F Shares and Series G Shares can be converted at the
holder's option at the lower of (a) the then-current conversion price, or (b) a
calculated value utilizing a discount to the market price of the Company' s
Common Stock. The Company may redeem the Series F Shares and Series G Shares at
face value on or after April 8, 2004.
Each Series F Share and Series G Share entitles the holder thereof to the
number of votes equal to the number of shares of Common Stock into which such
Share may be converted from time to time. In addition, the Company has agreed
to cause its Board of Directors to consist of eight positions, four of which may
be filled by nominees selected by the holders of the Series F Shares and the
Series G Shares.
The agreements relating to the purchase of the Series F Shares and the
Series G Shares (the "Purchase Agreements") and the Certificates of Designation
for the Series F Shares and Series G Shares contain covenants which, if breached
by the Company, provide for certain remedies. Certain of these covenants are
considered outside of the Company's control. These covenants include, among
other things, that the Company obtain a minimum net worth, as defined in the
Purchase Agreements, by December 31, 2000. For breach of these covenants that
are outside of the Company's control the remedy allows the Series F and Series G
holders to convert their shares into the Company's Common Stock using a
conversion rate computed as the lesser of (a) the conversion price, as adjusted;
or (b) a calculated value utilizing a discount to the market price, as defined.
Also, the Purchase Agreements contain certain covenants that are considered
within the control of the Company. These covenants, among other things, require
the delivery of financial information and restrict the Company from incurring
additional debt if, immediately upon incurrence of such debt, the Company's debt
to equity ratio exceeds a certain ratio, as defined by the agreement. For
breach of these covenants that are within the
15
<PAGE>
Company's control the remedies allow the Series F and Series G holders to elect
a majority of the Company's Board of Directors and to either (1) convert their
shares into the Company's Common Stock using a conversion rate computed as the
lesser of (a) the conversion price, as adjusted: or (b) a calculated value
utilizing a discount to the market price, as defined; or (2) request the Company
to redeem their shares. If the Series F and Series G holders elect redemption,
the shares will be redeemed at the greater of (a) the fair market value, as
defined; or (b) the initial purchase price, plus unpaid dividends and interest,
if any. At the Company's option, the shares may be redeemed with cash or a three
year promissory note.
As a condition precedent to the closing of the sale of the Series F Shares
and Series G Shares under the Purchase Agreements, certain of the Company's
directors and officers and holders of the Series F Shares and Series G Shares
entered into a Stockholders' Agreement which regulated the resale of shares of
Common Stock issued or issuable to these holders. See "PLAN OF DISTRIBUTION."
CONVERTIBLE SECURITIES
CONVERTIBLE INDEBTEDNESS
During 1994, the Company issued and sold in a private placement transaction
a $500,000 convertible Promissory Note (the "Convertible Note") that matures on
August 8, 1999. Interest is payable on a semi-annual basis at the rate of 8%
per annum. At the option of the lender (the "Lender"), the Convertible Note is
convertible at any time prior to the maturity date into shares of Common Stock
of the Company at the rate of $1.50 per share.
OPTIONS AND WARRANTS
The Company currently has outstanding 17,003,916 options and warrants that
were issued in connection with a variety of financing and acquisition
transactions, as well as to employees, former employees and consultants for
services rendered. The shares of Common Stock issuable upon the exercise, if at
all, of 10,403,500 of these options and warrants (the "Options") are covered by
this Prospectus and are subject to the following terms:
POSSIBLE
EXPIRATION EXERCISE SHARES PROCEEDS
ISSUE DATE DATE PRICE ISSUABLE TO THE COMPANY
- --------------------------------------------------------------------------------
April - May 1996 April - May, 2004 $ 1.00/(1)/ 9,250,000 $ 8,047,500
- --------------------------------------------------------------------------------
March 1995 December 31, 1999 $ 1.50 71,000 $ 106,500
- --------------------------------------------------------------------------------
July 1995 July 1998 $ 1.50 127,500 $ 191,250
- --------------------------------------------------------------------------------
September 1995 September 1998 $ .75 130,000 $ 97,500
- --------------------------------------------------------------------------------
December 1996 April 2004 $ 1.00/(1)/ 100,000 $ 100,000
- --------------------------------------------------------------------------------
May 1992 November 30, 1997 $ 1.50 300,000 $ 450,000
- --------------------------------------------------------------------------------
May 1992 November 30, 1997 $ 2.50 300,000 $ 750,000
- --------------------------------------------------------------------------------
September 1994 December 31, 1998 $ 1.00 50,000 $ 50,000
/(2)/
- --------------------------------------------------------------------------------
September 1994 September 1999 $ .75 75,000 $ 56,250
- --------------------------------------------------------------------------------
Total 10,403,500 $ 9,849,000
- --------------------------------------------------------------------------------
16
<PAGE>
/(1)/ Subject to price protection features that have, to date, resulted in a
reduction of the exercise price to $.87, and may result in further
reductions to the exercise price. See "SELLING SECURITY HOLDERS -
Adjustment Features of the Series F Shares and Warrants."
/(2)/ The later of December 31, 1998 or two years from the date of this
Prospectus.
_____________________________
Of the Options identified in the foregoing table, 71,000 were issued in
conjunction with the Company's acquisition of EET, Inc. during March 1995;
9,250,000 were issued in conjunction with the Series F Shares; 127,500 were
issued in consideration for certain consulting services rendered; 100,000 were
paid in connection with advising on certain aspects of the transaction that
resulted in the issuance of the Series F Shares; 130,000 were issued in
conjunction with a private placement investment made during August and
September, 1995; and 725,000 were issued in conjunction within certain debt
placements.
RESERVATION OF SHARES
The Company has reserved a total of 35,000,000 shares of Common Stock
issuable upon the conversion of the Convertible Note, as well as exercise of
outstanding Series E Shares, Series F Shares and Series G Shares conversion
rights, and all outstanding options and warrants.
TRANSFER AGENT
Continental Stock Transfer and Trust Company of New York, New York, serves
as transfer agent for the Common Stock.
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION, THE BY-LAWS AND
DELAWARE LAW.
The Company has a classified Board of Directors pursuant to which the
Board is divided into three classes. The term of office of one class expires in
each year.
The Company is governed by the provisions of Section 203 of the General
Company Law of the State of Delaware (the "GCL"), an anti-takeover law. 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. An "interested
stockholder" is a person who, together with its affiliates and associates, owns
(or within three years, did own) fifteen percent or more of the Company's voting
stock.
The classified Board of Directors, the provisions authorizing the Board to
issue Preferred Stock without stockholder approval, and the provisions regarding
certain business combinations in the Certificate of Incorporation and under the
GCL could have the effect of delaying, deferring or preventing a change in
control of the Company or the removal of existing management. A takeover
transaction frequently affords stockholders the opportunity to sell their shares
at a premium over current market prices.
17
<PAGE>
The Company has adopted the provisions of Section 102(b)(7) of the GCL
which eliminate or limit the personal liability of a director to the Company or
its stockholders for monetary damages for breach of fiduciary duty under certain
circumstances. Furthermore, under Section 145 of the GCL, the Company may
indemnify each of its directors and officers against his expenses (including
reasonable costs, disbursements and counsel fees) in connection with any
proceeding involving such person by reason of his having been an officer or
director to the extent he acted in good faith and in a manner reasonably
believed to be in, or not opposed to the best interest of the Company, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful. The determination of whether indemnification is
proper under the circumstances, unless made by a court, shall be determined by
the Board of Directors.
18
<PAGE>
SELLING SECURITY HOLDERS
The shares of Common Stock of the Company offered by this Prospectus are
being sold for the account of the selling security holders identified in the
following table (the "Selling Security Holders").
The Selling Security Holders are offering for sale outstanding shares of
Common Stock as well as shares of Common Stock to be issued upon conversion, if
at all, of the Series F Shares and Series G Shares and/or Convertible Note, and
exercise, if at all of the Options.
The following table sets forth the number of shares of Common Stock being
held of record or beneficially (to the extent known by the Company) by such
Selling Security Holders and provides (by footnote reference) any material
relationship between the Company and such Selling Security Holder, all of which
is based upon information currently available to the Company.
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES TO NUMBER OF SHARES PERCENTAGE BEFORE PERCENTAGE AFTER
BEFORE BE OFFERED AFTER OFFERING/(1)/ OFFERING/(2)/ OFFERING/(2)/
OFFERING/(1)/ IN OFFERING/(1)/
<S> <C> <C> <C> <C> <C>
Antonoff, Robert B. 40,000 40,000 0 * 0
Aucion, Donald 10,000 10,000 0 * 0
Bakkum, Gene 30,000 30,000 0 * 0
Bell, William Reed , Jr. 10,000 10,000 0 * 0
Bonem, Joe M. and Diane R. 13,000 13,000 0 * 0
Bonem, Michael W./(3)/ 238,500 238,500 0 * 0
Borah, Ronald E. and 165,000 165,000 0 * 0
Margaret R./(3)/
Borenstein, Lawrence 30,000 30,000 0 * 0
CCG Charitable Remainder 2,030,101 2,030,101 0 6.7 0
Unitrust #1/(4)/
R. Chaney & Partners - 3,383,501 3,383,501 0 10.8 0
1993 L.P. /(5)/
Childree, Hugh Wayne & 10,000 10,000 0 * 0
Mardi
Clark, Mark D. 350,000 350,000 0 1.2 0
Cureton, Stewart Jr. 60,000 60,000 0 * 0
Daniels, David M. /(6)/ 1,115,164 600,000 415,164 3.6 1.5
Donovan Family Trust U/A/D 10,000 10,000 0 * 0
4-10-92 David T. Donovan
& Rose M. Donovan
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES TO NUMBER OF SHARES PERCENTAGE BEFORE PERCENTAGE AFTER
BEFORE BE OFFERED AFTER OFFERING/(1)/ OFFERING/(2)/ OFFERING/(2)/
OFFERING/(1)/ IN OFFERING/(1)/
<S> <C> <C> <C> <C> <C>
Dwyer, Thomas 25,000 25,000 0 * 0
EET, Inc. Profit Sharing 338,525 338,525 0 1.2 0
Plan
Evans, Katherine S. 224,986 224,986 0 * 0
Farr, Norman 75,000 75,000 0 * 0
George, Carolyn 15,000 15,000 0 * 0
George, Marshall and Joyce 20,000 20,000 0 * 0
Greenlee, Robert 224,986 224,986 0 * 0
Gouldin, Edmund N. 230,000 230,000 0 * 0
Haar, Natalie Z. 135,340 135,340 0 * 0
Harrison Interests, 1,353,400 1,353,340 0 4.6 0
Ltd./(7)/
Hedge Trading Fund Limited 90,000 90,000 0 * 0
Partners, ltd.
Helis, William G., Estate of 135,340 135,340 0 * 0
GAIA Holdings, Inc./(12)/ 555,556 555,556 0 2 0
Heptagon Investments Ltd. 554,479 554,479 0 2 0
Jones, III, Robert D. 350,000 350,000 0 1.2 0
Jones, Thomas N. 5,000 5,000 0 * 0
Kohanchi, Chiam 25,000 25,000 0 * 0
Levens, Rolfe K. and Ursula 10,000 10,000 0 * 0
Lightner, Scott 21,000 21,000 0 * 0
Loosemore, Rodney 10,000 10,000 0 * 0
Malcolm Waddell and 52,632 52,632 0 * 0
Suzanne Bruce
Mansfield, Charles 25,000 25,000 0 * 0
NationsBanc Capital 13,534,004 13,534,004 0 32.5 0
Corporation/(8)/
Novelli, Michael E. and 21,052 21,052 0 * 0
Mary O.
The Parade Fund 224,986 224,986 0 * 0
Pecaut Capital Investors,L.P. 1,082,720 1,082,720 0 3.7 0
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES TO NUMBER OF SHARES PERCENTAGE BEFORE PERCENTAGE AFTER
BEFORE BE OFFERED AFTER OFFERING/(1)/ OFFERING/(2)/ OFFERING/(2)/
OFFERING/(1)/ IN OFFERING/(1)/
<S> <C> <C> <C> <C> <C>
Pecaut Partners, A Limited 270,680 270,680 0 * 0
Partnership
Profit Sharing Plan and 99,000 99,000 0 * 0
Trust for Employees of
Jim Pardick Real Estate,
Inc.
Rosenwasser, Jerry 12,500 12,500 0 * 0
Roser Partnership II, Ltd. 1,124,928 1,124,928 0 3.8 0
/(9)/
Schuchard, Charles, 10,000 10,000 0 * 0
Custodian for Charles S.
Schuchard under the UGMA,
Texas
Schuchard, Charles, 10,000 10,000 0 * 0
Custodian for Mary M.
Schuchard under the UGMA,
Texas
Schuchard, Charles and 10,000 10,000 0 * *
Robbie - Joint Tenant
Shields, Bruce K. and 217,500 10,000 207,500 * *
Judith Knight/(10)/
Tarrillion, Charles and 11,000 11,000 0 * 0
Marion, Revocable Living
Trust
Tarrillion, Madeline 17,000 17,000 0 * 0
McNeil - 1989 Trust
Tarrillion, Margot Leigh - 17,000 17,000 0 * 0
1989 Trust
Tarrillion, Marion 17,000 17,000 0 * 0
Michelle - 1989 Trust
Tarrillion, Tim B./(11)/ 981,630 580,500 401,130 3.4 1.4
Thor Ventures, L.C./(12)/ 1,111,111 1,111,111 0 4 0
Tyree, Warren M. 6,000 6,000 0 * 0
Universal Remediation 600,000 600,000 0 2.1 0
Services, Inc.
Weckstein, Donnie 30,000 30,000 0 * 0
Wehner, Mark 10,000 10,000 0 * 0
Wilen, Ron 408,333 408,333 0 1.4 0
Wright, William E. 78,948 78,948 0 * 0
Wright, William M. and 10,572 10,572 0 * 0
William E. and Paul W. -
IND-ttes uad 1-17-83
Catherine W. Wright
Family Trust
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES TO NUMBER OF SHARES PERCENTAGE BEFORE PERCENTAGE AFTER
BEFORE BE OFFERED AFTER OFFERING/(1)/ OFFERING/(2)/ OFFERING/(2)/
OFFERING/(1)/ IN OFFERING/(1)/
<S> <C> <C> <C> <C> <C>
Wilwerding, Joe 100,000 100,000 0 * 0
Zampino, Ana 12,500 12,500 0 * 0
Zampino, Sarah 12,500 12,500 0 * 0
Zinn, Robert L. 270,680 270,080 0 * 0
TOTAL 31,159,360
</TABLE>
___________________________________
* Less than 1%.
(1) As to each holder, includes outstanding shares of Common Stock, as well as
shares of Common Stock issuable upon conversion of the Series F Shares,
Series G Shares or Convertible Note, and shares of Common Stock issuable
upon exercise of the Options.
(2) Based upon the total of 28,102,618 shares of Common Stock outstanding and
26,036,964 shares of Common Stock subject to conversion rights and Options
as of the date of this filing.
(3) Officer
(4) Mark E. Leyerle is a director of the Company and is a principal of CCG
Venture Partners, LLC which provides investment management services to CCG
Charitable Remainder Unitrust #1. Mark E. Leyerle disclaims any beneficial
ownership of these shares.
(5) Robert H. Chaney is a director of the Company and is the beneficial owner
of these shares.
(6) David Daniels is a director and officer of the Company. Includes 600,000
shares of Common Stock received by Mr. Daniels in conjunction with a merger
transaction in June 1995. Includes 10,164 shares of Common Stock owned
through a profit sharing plan for the benefit of Mr. Daniels and options to
purchase 340,000 shares of Common Stock. Does not include options to
purchase 60,000 shares which do not commence vesting until January 1, 1998
or options to purchase 100,000 shares that do not commence vesting until
March 31, 1998.
(7) Edwin H. Knight is a director of the Company and is the "general manager"
of Harrison Interests, Ltd. Mr. Knight is not deemed the beneficial owner
of these shares.
(8) Douglas C. Williamson is a director of the Company and is a senior vice-
president of NationsBanc Capital Corporation, however, Mr. Williamson is
not deemed the beneficial owner of these shares.
(9) Christopher Roser is a former director of the Company and is the
general partner of the identified Selling Security Holder.
(10) Judith Knight Shields is the Chief Financial Officer of the Company.
Includes 10,000 shares received by Ms. Shields and her husband in
connection with a merger transaction in March 1995 and options to purchase
200,000 shares of Common Stock. Does not include options to purchase
100,000 shares that do not commence vesting until March 31, 1998.
22
<PAGE>
(11) Tim B. Tarrillion is a director and Chief Executive Officer of the Company.
Includes 530,500 shares of Common Stock and 50,000 common stock purchase
warrants received by Mr. Tarrillion in conjunction with a merger
transaction in March 1995. Includes 81,130 shares owned through a profit
sharing plan for the benefit of Mr. Tarrillion and options to purchase
300,000 shares of Common Stock. Does not include options to purchase
200,000 shares which do not commence vesting until March 31, 1998. Also
does not include 51,000 shares received by trusts on behalf of Mr.
Tarrillion's minor children which are held by an independent trustee as to
which Mr. Tarrillion disclaims any beneficial ownership.
(12) The shares of the Thor Ventures, L.C. ("Thor") and GAIA Holdings, Inc.
("GHI") may be deemed beneficially owned by William T. Aldrich and Henry W.
Sullivan. Mr. Aldrich is the a principal executive officer of Thor and GHI
By virtue of his personal and family holdings in Thor and GHI, Mr. Aldrich
and his family have a direct pecuniary interest in an aggregate of 397,633
shares of Common Stock and disclaims beneficial ownership of all remaining
shares. Dr. Sullivan is a principal executive officer of Thor and GHI. Dr.
Sullivan has a direct pecuniary interest in 527,889 shares of Common Stock
and disclaims beneficial ownership of all remaining shares.
___________________________________
ADJUSTMENT FEATURES OF THE SERIES F SHARES, SERIES G SHARES AND SERIES F
WARRANTS.
The Series F Shares and Series F Warrants contain certain price protection
and adjustment features which, during the terms of such instruments, are likely,
in the case of the Series F Shares and Series G Shares to result in the issuance
of additional securities upon conversion, and in the case of the Series F
Warrants, result in a reduction in the exercise price.
The price protection features require the Company to reduce the conversion
ratio of the Series F Shares and Series G Shares and reduce the exercise price
of the Series F Warrants, in the event that following the issue date thereof,
the Company issues additional securities for consideration per share less than
the then existing conversion price or exercise price.
The price protection features have already resulted in an increase in the
number of shares issuable upon the conversion of the Series F Shares by virtue
of a reduction in the conversion price from $1.00 to $.87, and a similar
reduction in the exercise price of the Series F Warrants from $1.00 to $.87.
Additional reductions in the conversion price and exercise price are
possible upon certain covenant defaults contained within the Purchase Agreement
and Certificate of Designation. See "DESCRIPTION OF SECURITIES - PREFERRED
STOCK - SERIES F SHARES."
The number of Series F Shares and Series G Shares may be subject to
increase since accrued and deferred dividends are to be paid to the holders "in
kind" in the form of additional Series F Shares and Series G Shares, as the case
may be. Since the date of issuance, 8,904 additional Series F Shares have been
issued as a dividend "in kind."
23
<PAGE>
PLAN OF DISTRIBUTION
Subject to the stockholder arrangements discussed below, the Common Stock
may be sold from time to time by the Selling Security Holders or by their
pledgees, donees, transferees or other successors in interest. Such sales may
be made on NASDAQ, on the over-the-counter market or otherwise at prices and at
terms then prevailing or at prices related to the then current market price, or
in negotiated transactions. The Common Stock may be sold by one or more of the
following: (a) a block trade in which the broker or dealer so engaged will
attempt to sell the shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction; (b) purchases by a broker or
dealer for its account pursuant to this Prospectus; and (c) ordinary brokerage
transactions and transactions in which the broker solicits purchases. In
effecting sales, brokers or dealers engaged by the Selling Security Holders may
arrange for other brokers or dealers to participate. Brokers or dealers will
receive commissions or discounts from Selling Security Holders in amounts to be
negotiated immediately prior to the sale. Such brokers or dealers and any other
participating brokers or dealers may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In addition, any
securities covered by this Prospectus which qualify for sale pursuant to Rule
144 may be sold under Rule 144 rather than pursuant to this Prospectus. The
Company will not receive any of the proceeds from the sale of these shares,
although it has paid the expenses of preparing this Prospectus and the related
Registration Statement. The Selling Security Holders have been advised that
they are subject to the applicable provisions of the Exchange Act, including
without limitation, Regulation M thereunder.
The Company will use its best efforts to file, during any period in which
offers or sales are being made, one or more post-effective amendments to the
Registration Statement of which this Prospectus is a part to describe any
material information with respect to the plan of distribution not previously
disclosed in this Prospectus or any material change to such information in this
Prospectus.
In conjunction with the transaction that resulted in the issuance of the
Series F Shares and Series G Shares, certain of the Company's directors and
officers (the "Management Stockholders") and holders of the Series F Shares and
Series G Shares (the "Series F and G Holders") entered into a Stockholders'
Agreement with the Company pursuant to which each of the Management Stockholders
and Series F and G Holders agreed to certain mutual rights of first refusal and
rights of co-participation in connection with future transfers or sales of their
shares of the Company's Common stock. Rights of co-participation are not
effective upon a "public market transaction," defined as a public sale executed
in a "brokers' transaction" or in a transaction directly with a "market maker"
covered by Rule 144(f), promulgated under the Securities Act.
Without prior written consent of the holders of a majority-in-interest of
the shares issued or issuable to the Series F and G Holders, during the term of
the Stockholders' Agreement, no Management Stockholder may sell in any one year
the greater of 15% of their common stock holdings at the beginning of such year
or 30,000 shares, but in no event more than 50% on a cumulative basis of such
Management Stockholder's shares during the term of the Agreement. Only shares
owned by the Management Stockholders as of April 5, 1996 are subject to the
Stockholders' Agreement. The Stockholders' Agreement shall terminate upon the
earliest to occur of:
(i) an agreement in writing by the Company, Management Stockholders,
Series F Holders and Series G Holders;
24
<PAGE>
(ii) the consolidation, merger or sale of substantially all of the assets
of the Company;
(iii) 2004; or
(iv) as to each Management Stockholder only, upon the termination of his
employment with the Company.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Buchanan Ingersoll Professional Corporation, Eleven Penn Center, 14th
Floor, 1835 Market Street, Philadelphia, Pennsylvania 19103.
STATEMENT OF INDEMNIFICATION
The Company has adopted the provisions of Section 102(b)(7) of the Delaware
General Corporation Act (the "Delaware Act") which eliminates or limits the
personal liability of a director to the Company or its stockholders for monetary
damages for breach of fiduciary duty under certain circumstances. Furthermore,
under Section 145 of the Delaware Act, the Company may indemnify each of its
directors and officers against his expenses (including reasonable costs,
disbursements and counsel fees) in connection with any proceeding involving such
person by reason of his having been an officer or director to the extent he
acted in good faith and in a manner reasonably believed to be in, or not opposed
to the best interest of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
determination of whether indemnification is proper under the circumstances,
unless made by a court, shall be determined by the Board of Directors. Insofar
as indemnification for liabilities arising under the Act may be permitted to
directors, officers or persons controlling the Company pursuant to the foregoing
provisions, the Company has been informed 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.
EXPERTS
The financial statements of the Company for the fiscal years ended
December 31, 1996 and 1995 which are incorporated by reference into this
Prospectus from the Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1996, have been audited by BDO Seidman, LLP, independent certified
public accountants, to the extent and for the periods set forth in their report
incorporated herein by reference, and is incorporated herein in reliance upon
such report given upon the authority of said firm as experts in accounting and
auditing. The report of the BDO Seidman, LLP on the foregoing financial
statements contains an explanatory paragraph that states that the Company's
recurring losses from operations raise substantial doubt about the Company's
ability to continue as going concern. The financial statements do not include
any adjustments that might result from the outcome of that uncertainty.
25
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-3 with respect to the Common Stock being
registered hereby. This Prospectus does not contain all the information
contained in such Registration Statement, as permitted by the Rules and
Regulations of the Securities and Exchange Commission. The Registration
Statement, including exhibits thereto, may be inspected without charge, and
copies of all or any part thereof may be obtained from the Commission's
principal office in Washington, D.C. at Room 1024, 450 Fifth Street N.W.,
Washington, D.C. 20549, and at the Commission's regional offices at 7 World
Trade Center, Suite 1300, New York, New York 10048 and Northwest Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of
such materials can be obtained upon written request addressed to the Commission,
Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. In addition, the Commission maintains a Web site at
http://www.sec.gov containing reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission, including the Company. For further information with respect to the
Company, the Common Stock being registered hereby and the contents of any
contract or document referred to herein, reference is made to the Registration
Statement and the exhibits filed as a part thereof.
26
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH
THIS OFFERING TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN
THOSE CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER OR A SOLICITATION IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE CIRCUMSTANCES OF THE COMPANY OR
THE FACTS HEREIN SET FORTH SINCE THE DATE HEREOF.
______________________
TABLE OF CONTENTS 31,159,360 SHARES OF COMMON
STOCK OFFERED BY CERTAIN
PAGE SELLING STOCKHOLDERS, (SUBJECT
---- TO ADJUSTMENT AS DESCRIBED
HEREIN)
AVAILABLE INFORMATION
THE COMPANY
RISK FACTORS
USE OF PROCEEDS NORTH AMERICAN TECHNOLOGIES
SELLING STOCKHOLDERS GROUP, INC.
PLAN OF DISTRIBUTION
LEGAL MATTERS
STATEMENT OF INDEMNIFICATION
EXPERTS
INCORPORATION OF DOCUMENTS BY ____________________
REFERENCE
ADDITIONAL INFORMATION PRELIMINARY
PROSPECTUS
____________________
MAY, 1997
<PAGE>
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
A. INDEX OF FINANCIAL STATEMENTS
None
B. FINANCIAL STATEMENT SCHEDULES
None
C. EXHIBITS
PLAN OF ACQUISITION,
REORGANIZATION,
ARRANGEMENTS, LIQUIDATION
OR SUCCESSION:
2.1 Agreement and Plan of Incorporated by reference to
Merger between the the Company's Current Report
Company and EET, Inc. on Form 8-K filed under the
dated February 7, 1995 Securities Exchange Act of
1934 on March 22, 1995 (the
"March 22, 1995 8-K")
2.2 Agreement and Plan of Incorporated by reference to
Merger between Industrial the Company's Registration
Pipe Fittings, Inc. and Statement on Form S-4,
the Company dated Commission File No. 33-82112
June 22, 1995 (the "Form S-4")
2.3 Asset Purchase Agreement Incorporated by reference to
between Gaia Technologies, the Company's Current Report
Inc., Gaia Holdings, Inc., on Form 8-K filed January 12,
Thor Ventures, L.C. and 1996 ("January 12, 1996 8-K")
Thor Industries, Inc. and
the Company dated
December 29, 1995
INSTRUMENTS DEFINING THE
RIGHTS OF SECURITY HOLDERS:
4.1 Restated Certificate of Incorporated by reference to
Incorporation the Company's Quarterly Report
on Form 10-QSB for the
quarter ended June 30, 1996
4.2 Amended and Restated Bylaws Incorporated by reference to
the Form S-4
<PAGE>
4.3 Master Certificate of Included herein
Designation of Cumulative
Convertible Preferred
Stock, Series G
4.4 Certificate of Included herein
Designation of Cumulative
Convertible Preferred
Stock, Series G -
Subseries I
5.1 Opinion of Buchanan Included herein
Ingersoll Professional
Corporation
MATERIAL CONTRACTS
10.1 Amended Line of Credit Incorporated by reference
Agreement with reference to the Form S-4
Euro-Scotia effective
January 1, 1995
10.2 Stock Option Agreement Incorporated by reference
between John Parrott and to the Form S-4
the Company dated
February 7, 1995
10.3 Stock Option Agreement Incorporated by reference
between Tim B. Tarrillion to the Form S-4
and the Company dated
February 7, 1995
10.4 Stock Option Agreement Incorporated by reference
between David Daniels and to the Form S-4
the Company dated
February 7, 1995
10.5 Stock Option Agreement Incorporated by reference
between Judith Shields to the Form S-4
and the Company dated
February 23, 1995
10.6 Stock Option Agreement Incorporated by reference
between the Company and to the Form S-4
Donovan W. Boyd dated
February 28, 1995
10.7 EET 401(k) Plan Incorporated by reference
to the Form S-4
10.8 Amendment to Stock Option Incorporated by reference
Agreement of Tim Tarrillion to the Company's Annual
dated December 1, 1995 Report on Form 10-K for the
fiscal year ended December 31,
1995 (the "1995 Form 10-K")
10.9 Amendment to Stock Option Incorporated by reference
Agreement of Donovan W. to the 1995 Form 10-K
Boyd dated December 1, 1995
<PAGE>
10.10 Amendment to Stock Option Agreement Incorporated by reference to
Judith Knight Shields dated the 1995 Form 10-K
December 1, 1995
10.11 Employment Agreement of John Parrott Incorporated by reference to
dated February 7, 1995 the March 22, 1995 8-K
10.12 Employment Agreement of Tim Tarrillion Incorporated by reference to
dated February 7, 1995 the March 22, 1995 8-K
10.13 Employment Agreement of David Daniels Incorporated by reference to
dated February 7, 1995 the March 22, 1995 8-K
10.14 Employment Agreement of Judith Shields Incorporated by reference to
dated February 23, 1995 the March 22, 1995 8-K
10.15 Employment Agreement of Incorporated by reference to
Donovan W. Boyd the Form S-4
10.16 Consulting Agreement with Incorporated by reference to
John W. Parrott dated July 28, 1995 the Form S-4
10.17 Promissory Note, Security Agreement Incorporated by reference to
and Pledge, in the principal amount the January 12, 1996 8-K
of $1,050,000 issued by the Company
and Gaia Technologies, Inc., in favor
of Gaia Holdings, Inc., dated
December 29, 1995
10.18 Gaia/Thor Royalty Agreement entered Incorporated by reference to
into as December 29, 1995, by and the January 12, 1996 8-K
among Gaia Technologies Inc., Gaia
Holdings, Inc., Thor Ventures, L.C.
and the Company
10.19 Gaia-Tie Tek License Agreement, Incorporated by reference to
entered into as of December 29, 1995, the January 12, 1996 8-K
by and between Gaia Technologies, Inc.
and Tie Tek, Inc.
10.20 Employment Agreement entered into Incorporated by reference to
as of December 29, 1995, between the January 12, 1996 8-K
Gaia Technologies, Inc. and
Henry W. Sullivan
10.21 Employment Agreement entered into Incorporated by reference to
as of December 29, 1995, between the January 12, 1996 8-K
Gaia Technologies, Inc. and
William T. Aldrich
<PAGE>
10.22 Stock Option Agreement between Incorporated by reference to
Henry W. Sullivan and the Company the January 12, 1996 8-K
dated December 29, 1995
10.23 Stock Option Agreement between Incorporated by reference to
William T. Aldrich and the Company the January 12, 1996 8-K
dated December 29, 1995
10.24 Crosstie Purchase Option and Loan Incorporated by reference to
Agreement by and among the Company the January 12, 1996 8-K
and TieTek, Inc., William T. Aldrich,
J. Denny Bartell and Henry W. Sullivan
dated December 29, 1995
10.25 Promissory Note, Security Agreement Incorporated by reference to
and Pledge in the principal amount of the 1995 Form 10-K
$1,500,000, issued by Tie Tek, Inc. in
favor of the Company, dated
December 29, 1995
10.26 Stock and Warrant Purchase Agreement Incorporated by reference to
dated April 5, 1996 between the the 1995 Form 10-K
Company, NationsBanc Capital
Corporation and certain Investors
10.27 Stockholders' Agreement dated April 5, Incorporated by reference to
1996 between the Company, Tim B. the 1995 Form 10-K
Tarrillion, Judith Knight Shields,
David M. Daniels and Donovan Boyd and
certain holders of the Company's
Series F Shares (the "Stockholders'
Agreement")
10.28 Warrant dated as of April 5, 1996 Incorporated by reference to
granted to purchasers of the Company's the 1995 Form 10-K
Series F Shares
10.29 Stock Purchase Agreement dated Included herein
March 31, 1997 between the Company,
NationsBanc Capital Corporation, and
certain investors
10.30 Amendments to the Stockholders' Included herein
Agreement
<PAGE>
23.1 Consent of Buchanan Ingersoll Included in Exhibit 5.1
Professional Corporation
23.2 Consent of BDO Seidman, LLP Included herein
<PAGE>
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses in connection with the offering of shares pursuant to
that portion of the Registration Statement on Form S-3 are listed below.
The Company will pay each of these expenses.
Filing Fee - Securities and Exchange Commission..... $ 5,311.25
Accountants' Fees and Expenses...................... $ 5,000.00*
Fees and Expenses of the Company's Counsel.......... $20,000.00*
Printing and Engraving Expenses..................... $ 2,500.00*
Miscellaneous Expenses.............................. $ 2,188.75*
TOTAL...................................... $35,000.00
______________________________
/*/ Estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company has adopted the provisions of Section 102(b)(7) of the
Delaware General Corporation Act (the "Delaware Act") which eliminate or
limit the personal liability of a director to the Company or its
stockholders for monetary damages for breach of fiduciary duty under
certain circumstances. Furthermore, under Section 145 of the Delaware Act,
the Company may indemnify each of its directors and officers against his
expenses (including reasonable costs, disbursements and counsel fees) in
connection with any proceeding involving such person by reason of his
having been an officer or director to the extent he acted in good faith and
in a manner reasonably believed to be in, or not opposed to the best
interest of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
The determination of whether indemnification is proper under the
circumstances, unless made by a court, shall be determined by the Board of
Directors.
<PAGE>
ITEM 16 - EXHIBITS.
See Item 13.
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned Company hereby undertakes:
(1) To file, during any period in which offers or sales are being made of
the securities registered hereby, a post-effective amendment to this
Registration Statement:
1. To include any prospectus required by Section 10(a)(3) of the
Securities Act;
2. To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement;
3. To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in this Registration Statement;
provided, however, that the undertakings set forth in paragraphs (1)(i) and
(1)(ii) above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic
reports filed by the Company pursuant to Section 13 or Section 15(d) of the
Exchange Act that are incorporated by reference in this Registration
Statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) That, for the purposes of determining any liability under the
Securities Act, each filing of the Company's annual report pursuant to Section
13(a) or Section 15(d) of the Exchange Act that is incorporated by reference in
the Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to the initial bona fide offering thereof.
(5) The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the Prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to stockholders that is incorporated by
reference in the Prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Exchange Act; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X is not set forth in the Prospectus, to deliver, or cause to be
delivered to each person to whom the Prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
(6) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
<PAGE>
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company 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 Company 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 Securities Act and will be governed by the final
adjudication of such issue.
<PAGE>
SIGNATURES
In accordance with 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 of filing on Form S-3 and authorized this Registration
Statement on Form S-3 to be signed on its behalf by the undersigned, on
April 30, 1997.
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
BY: /s/ Tim B. Tarrillion
-------------------------
Tim B. Tarrillion
Chief Executive Officer
BY: /s/ Judith Knight Shields
-------------------------
Judith Knight Shields
Principal Financial Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below under the heading "Signature" constitutes and appoints TIM B. TARRILLION
his true and lawful attorney-in-fact and agent with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities to sign any or all amendments to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or his substitute or substitutes, may all that said attorney-in-fact and agent
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Signature Title Date
- --------- ----- ----
/s/ Tim B. Tarrillion Chief Executive Officer, April 30, 1997
- ------------------------- President and Director
Tim B. Tarrillion
/s/ Donovan W. Boyd Senior Vice President, April 30, 1997
- ------------------------- Chief Operating Officer
Donovan W. Boyd and Director
/s/ David M. Daniels Executive Vice President, April 30, 1997
- ------------------------- Secretary and Director
David M. Daniels
/s/ Douglas C. Williamson Director April 30, 1997
- -------------------------
Douglas C. Williamson
<PAGE>
/s/ Mark E. Leyerle Director April 30, 1997
- -------------------------
Mark E. Leyerle
/s/ Robert H. Chaney Director April 30, 1997
- -------------------------
Robert H. Chaney
/s/ Edwin H. Knight Director April 30, 1997
- -------------------------
Edwin H. Knight
/s/ Henry W. Sullivan Director April 30, 1997
- -------------------------
Henry W. Sullivan
<PAGE>
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
EXHIBIT INDEX
NUMBER DESCRIPTION
------ -----------
PLAN OF ACQUISITION,
REORGANIZATION,
ARRANGEMENTS, LIQUIDATION
OR SUCCESSION:
2.1 Agreement and Plan of Incorporated by reference to
Merger between the the Company's Current Report
Company and EET, Inc. on Form 8-K filed under the
dated February 7, 1995 Securities Exchange Act of
1934 on March 22, 1995 (the
"March 22, 1995 8-K")
2.2 Agreement and Plan of Incorporated by reference to
Merger between Industrial the Company's Registration
Pipe Fittings, Inc. and Statement on Form S-4,
the Company dated Commission File No. 33-82112
June 22, 1995 (the "Form S-4")
2.3 Asset Purchase Agreement Incorporated by reference to
between Gaia Technologies, the Company's Current Report
Inc., Gaia Holdings, Inc., on Form 8-K filed January 12,
Thor Ventures, L.C. and 1996 ("January 12, 1996 8-K")
Thor Industries, Inc. and
the Company dated
December 29, 1995
INSTRUMENTS DEFINING THE
RIGHTS OF SECURITY HOLDERS:
4.1 Restated Certificate of Incorporated by reference to
Incorporation the Company's Quarterly Report
on Form 10-QSB for the
quarter ended June 30, 1996
4.2 Amended and Restated Bylaws Incorporated by reference to
the Form S-4
4.3 Master Certificate of Included herein
Designation of Cumulative
Convertible Preferred
Stock, Series G
4.4 Certificate of Included herein
Designation of Cumulative
Convertible Preferred
Stock, Series G -
Subseries I
5.1 Opinion of Buchanan Included herein
Ingersoll Professional
Corporation
<PAGE>
NUMBER DESCRIPTION
- ------ -----------
MATERIAL CONTRACTS
10.1 Amended Line of Credit Incorporated by reference
Agreement with reference to the Form S-4
Euro-Scotia effective
January 1, 1995
10.2 Stock Option Agreement Incorporated by reference
between John Parrott and to the Form S-4
the Company dated
February 7, 1995
10.3 Stock Option Agreement Incorporated by reference
between Tim B. Tarrillion to the Form S-4
and the Company dated
February 7, 1995
10.4 Stock Option Agreement Incorporated by reference
between David Daniels and to the Form S-4
the Company dated
February 7, 1995
10.5 Stock Option Agreement Incorporated by reference
between Judith Shields to the Form S-4
and the Company dated
February 23, 1995
10.6 Stock Option Agreement Incorporated by reference
between the Company and to the Form S-4
Donovan W. Boyd dated
February 28, 1995
10.7 EET 401(k) Plan Incorporated by reference
to the Form S-4
10.8 Amendment to Stock Option Incorporated by reference
Agreement of Tim Tarrillion to the Company's Annual
dated December 1, 1995 Report on Form 10-K for the
fiscal year ended December 31,
1995 (the "1995 Form 10-K")
10.9 Amendment to Stock Option Incorporated by reference
Agreement of Donovan W. to the 1995 Form 10-K
Boyd dated December 1, 1995
10.10 Amendment to Stock Option Agreement Incorporated by reference to
Judith Knight Shields dated the 1995 Form 10-K
December 1, 1995
10.11 Employment Agreement of John Parrott Incorporated by reference to
dated February 7, 1995 the March 22, 1995 8-K
10.12 Employment Agreement of Tim Tarrillion Incorporated by reference to
dated February 7, 1995 the March 22, 1995 8-K
<PAGE>
NUMBER DESCRIPTION
- ------ -----------
10.13 Employment Agreement of David Daniels Incorporated by reference to
dated February 7, 1995 the March 22, 1995 8-K
10.14 Employment Agreement of Judith Shields Incorporated by reference to
dated February 23, 1995 the March 22, 1995 8-K
10.15 Employment Agreement of Incorporated by reference to
Donovan W. Boyd the Form S-4
10.16 Consulting Agreement with Incorporated by reference to
John W. Parrott dated July 28, 1995 the Form S-4
10.17 Promissory Note, Security Agreement Incorporated by reference to
and Pledge, in the principal amount the January 12, 1996 8-K
of $1,050,000 issued by the Company
and Gaia Technologies, Inc., in favor
of Gaia Holdings, Inc., dated
December 29, 1995
10.18 Gaia/Thor Royalty Agreement entered Incorporated by reference to
into as December 29, 1995, by and the January 12, 1996 8-K
among Gaia Technologies Inc., Gaia
Holdings, Inc., Thor Ventures, L.C.
and the Company
10.19 Gaia-Tie Tek License Agreement, Incorporated by reference to
entered into as of December 29, 1995, the January 12, 1996 8-K
by and between Gaia Technologies, Inc.
and Tie Tek, Inc.
10.20 Employment Agreement entered into Incorporated by reference to
as of December 29, 1995, between the January 12, 1996 8-K
Gaia Technologies, Inc. and
Henry W. Sullivan
10.21 Employment Agreement entered into Incorporated by reference to
as of December 29, 1995, between the January 12, 1996 8-K
Gaia Technologies, Inc. and
William T. Aldrich
10.22 Stock Option Agreement between Incorporated by reference to
Henry W. Sullivan and the Company the January 12, 1996 8-K
dated December 29, 1995
10.23 Stock Option Agreement between Incorporated by reference to
William T. Aldrich and the Company the January 12, 1996 8-K
dated December 29, 1995
10.24 Crosstie Purchase Option and Loan Incorporated by reference to
Agreement by and among the Company the January 12, 1996 8-K
and TieTek, Inc., William T. Aldrich,
J. Denny Bartell and Henry W. Sullivan
dated December 29, 1995
<PAGE>
NUMBER DESCRIPTION
- ------ -----------
10.25 Promissory Note, Security Agreement Incorporated by reference to
and Pledge in the principal amount of the 1995 Form 10-K
$1,500,000, issued by Tie Tek, Inc. in
favor of the Company, dated
December 29, 1995
10.26 Stock and Warrant Purchase Agreement Incorporated by reference to
dated April 5, 1996 between the the 1995 Form 10-K
Company, NationsBanc Capital
Corporation and certain Investors
10.27 Stockholders' Agreement dated April 5, Incorporated by reference to
1996 between the Company, Tim B. the 1995 Form 10-K
Tarrillion, Judith Knight Shields,
David M. Daniels and Donovan Boyd and
certain holders of the Company's
Series F Shares (the "Stockholders'
Agreement")
10.28 Warrant dated as of April 5, 1996 Incorporated by reference to
granted to purchasers of the Company's the 1995 Form 10-K
Series F Shares
10.29 Stock Purchase Agreement dated Included herein
March 31, 1997 between the Company,
NationsBanc Capital Corporation, and
certain investors
10.30 Amendments to the Stockholders' Included herein
Agreement
23.1 Consent of Buchanan Ingersoll Included in Exhibit 5.1
Professional Corporation
23.2 Consent of BDO Seidman, LLP Included herein
<PAGE>
EXHIBIT 4.3
MASTER CERTIFICATE OF DESIGNATION OF CUMULATIVE
CONVERTIBLE PREFERRED STOCK, SERIES G
Tim B. Tarrillion and Judith Knight Shields do hereby certify that
they are the President and Assistant Secretary, respectively, of NORTH AMERICAN
TECHNOLOGIES GROUP, INC., a Delaware corporation (hereinafter referred to as the
"Corporation" or the "Company"); that, pursuant to the Corporation's Certificate
of Incorporation and Section 151 of the Delaware General Corporation Law, the
Board of Directors of the Corporation adopted the following resolutions on March
31, 1997; and that none of the Series G Cumulative Convertible Preferred Stock
has been issued:
WHEREAS, the Corporation has an outstanding series of preferred stock
designated as Cumulative Convertible Preferred Stock, Series F (the "Series F
Preferred") with such preferences, voting powers, relative, participating,
optional or other special rights and privileges and the qualifications,
limitations and restrictions as provided in that certain Certificate of
Designation filed with the Secretary of State of the State of Delaware on April
8,1996 (the "Series F Designation"); and
WHEREAS, the Series F Designation requires the approval of the holders
of at least a majority in interest of the Series F Preferred in order to create
a new class or series of shares of the Company's capital stock having a
preference over, or on parity with, the Series F Preferred; and
WHEREAS, the Corporation has obtained the written consent of the
holders of a majority in interest of the Series F Preferred to the adoption of
the following resolutions.
There is hereby created a series of preferred stock designated as
Cumulative Convertible Preferred Stock, Series G (the "Series G Preferred"),
which will consist of 60,000 shares. The Series G Preferred shall consist of one
or more subseries of the Series G Preferred (each, a "Subseries"), each
Subseries to be separately designated with the preferences, voting powers,
relative, participating, optional or other special rights and privileges, and
the qualifications, limitations and restrictions as provided below and as
specified in a separate Certificate of Designation of Subseries in the form
attached as Exhibit A (with all blanks appropriately completed):
(1) DIVIDENDS AND DISTRIBUTIONS.
(a) The holders of shares of Series G Preferred (regardless of
Subseries) shall be entitled to receive dividends at a rate of thirteen and one-
half percent (13.5 %) of the Series G Conversion Value (as defined in SECTION
(3)(A) below) per annum per share of Series G Preferred, which shall be fully
cumulative, prior and in preference to any declaration or payment of any
dividend (payable other than in Common Stock) or other distribution on any other
class or series of Preferred Stock or the Common Stock of the Corporation other
than with respect to dividends declared or paid with respect to shares of Series
F Preferred (and excluding any stock
<PAGE>
splits and subdivisions for which an adjustment is made under SECTION
(3)(D)(VI)(1) below). If the dividends on the Series F Preferred and the Series
G Preferred cannot legally be paid in full, dividends shall be paid, to the
maximum permissible extent, to the holders of the Series F Preferred and the
Series G Preferred, parri passu. The dividends on the Series G Preferred
(regardless of Subseries) shall accrue from the date of issuance of each share
and shall be payable semi-annually on June 30 and December 31 of each year (each
a "Dividend Date"), commencing on June 30, 1997, except that if any such date is
a Saturday, Sunday or legal holiday (a "Non-Business Day") then such dividend
shall be payable on the next day that is not a Saturday, Sunday or legal holiday
on which banks in the State of Texas are permitted to be closed (a "Business
Day") to holders of record as they appear on the stock books of the Corporation
on the applicable record date, which shall be not more than 60 nor less than 10
days preceding the payment date for such dividends, as fixed by the Board of
Directors (the "Record Date"). The dividends on the Series G Preferred shall be
payable only when, as and if declared by the Board of Directors out of funds
legally available therefor. The dividends shall, at the option of the
Corporation, either (1) be payable in cash, or (2) accrue, if prior to April 5,
1999, and thereafter shall be payable in cash; provided, however, that no
dividends shall be paid in cash to holders of Series G Preferred in respect of
any period if holders of Series F Preferred have not received dividends per
share in cash in respect of such period equal to or greater than the dividends
per share to be paid to holders of Series G Preferred for such period. Subject
to the provisions of the preceding sentence and the next paragraph, in the
absence of an election by the Board of Directors within 10 days of each Dividend
Date to pay dividends in cash, the dividends shall accrue. The amount of
dividends payable for any period that is shorter or longer than a full dividend
shall be computed on the basis of a 360-day year of twelve 30-day months. All
accrued but unpaid dividends shall accrue interest after each Dividend Date at a
rate of thirteen and one-half percent (13.5%) per annum (compounded on a semi-
annual basis) from each Dividend Date, computed on the basis of a 360-day year
of twelve 30-day months.
(b) Each holder of Series G Preferred may, by written notice to the
Corporation, within twenty (20) days of each Dividend Date, elect (the "Series G
Dividend Election") to receive the dividends which, pursuant to the preceding
paragraph, have accrued for such period on such Dividend Date in shares of the
same Subseries of Series G Preferred for which the dividend is declared (the
"Series G Payments-in-Kind") rather than have such dividends accrue. A Series G
Dividend Election for any particular Dividend Date shall operate only for such
Dividend Date. Series G Payments-in-Kind shall be payable as of the Dividend
Date of each period for which the election is made, except that if such date is
a Non-Business Day then such Series G Payment-in-Kind shall be payable as of the
next Business Day to holders of record as they appear on the stock books of the
Corporation on the applicable Record Date. Each Series G Payment-in-Kind shall
be equal in amount to that number of shares of the Subseries of Series G
Preferred for which the dividend is paid that is equal in number to the
aggregate cash dividends payable on any such dividend date divided by the Series
G Conversion Value (as defined in SECTION (3)(A) below), and shall be payable to
each holder who makes a Series G Divided Election. Certificates representing
the shares of the Subseries of Series G Preferred issuable on payment of any
Series G Payment-in-Kind shall be delivered to each holder entitled to receive
such Series G Payment-in-Kind (in appropriate denominations) on or before the
forty-fifth (45th)
2
<PAGE>
day following the Dividend Date for which such Series G Payment-in-Kind is
elected to be received hereunder. If a Series G Payment-in-Kind is not made in
compliance with the terms hereof, the Corporation shall be obligated to pay the
cash dividends under the procedures in the previous paragraph.
(2) LIQUIDATION RIGHTS. In the event of any liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary,
distributions shall be made to the holders of Series G Preferred (regardless of
Subseries) in respect of such Series G Preferred, in the following manner:
(A) SERIES G PREFERRED. The holders of the Series G Preferred
(regardless of Subseries), the Series F Preferred and the Series E Convertible
Preferred Stock (the "Series E Preferred") shall be entitled to be paid first
out of the assets of the Corporation available for distribution to holders of
its capital stock, on a pro rata basis, in proportion to the consideration paid
for such shares by each holder thereof to the aggregate consideration paid for
all such shares by all holders thereof (in contrast to distributions made by
numbers of shares, due to the difference in the price per share of each series),
to the maximum extent allowable by law, including all enforceable waivers and
agreements. The Series G Preferred liquidation preference shall be equal to (i)
the Series G Conversion Value (as defined in SECTION A(3)(A) below), as
appropriately adjusted to reflect any stock split, stock dividend, combination,
recapitalization and the like (collectively a "Recapitalization") of the Series
G Preferred, plus (ii) all accrued or declared but unpaid dividends (including
any interest accrued thereon calculated through the date of liquidation). The
liquidation preference of the Series F Preferred and the Series E Preferred
liquidation preference shall be as stated in their respective Certificates of
Designation. If, upon the occurrence of a liquidation, dissolution or winding
up, the assets and funds thus distributed among the holders of the Series G
Preferred, the Series F Preferred and the Series E Preferred shall be
insufficient to permit the payment to such holders of their full liquidation
preferences, then the entire assets and funds of the Corporation legally
available for distribution to the holders of capital stock shall be distributed
ratably among the holders of the Series G Preferred, the Series F Preferred and
the Series E Preferred.
(B) REMAINING ASSETS. If assets are remaining after payment of the
full preferential amount with respect to the Series G Preferred, the Series F
Preferred and the Series E Preferred set forth in SECTION (2)(A) above, then the
holders of any other class or series of Preferred Stock, if any, shall be
entitled to their respective preferential amounts on liquidation, and thereafter
the holders of the Common Stock shall be entitled to share ratably in all such
remaining assets and surplus funds based on the number of shares of Common Stock
held by each.
(C) EVENTS DEEMED A LIQUIDATION. For purposes of this SECTION (2),
the holders of a majority of the Series G Preferred of all Subseries then
outstanding, voting together as a single class, may elect to have treated as a
liquidation, dissolution or winding up of the Corporation, the consolidation or
merger of the Corporation with or into any other corporation or
3
<PAGE>
the sale or other transfer in a single transaction or a series of related
transactions of all or substantially all of the assets of the Corporation, or
any other reorganization of the Corporation.
(D) VALUATION OF SECURITIES AND PROPERTY. In the event the
Corporation proposes to distribute assets other than cash in connection with any
liquidation, dissolution or winding up of the Corporation, the value of the
assets to be distributed to the holders of shares of Series G Preferred of all
Subseries shall be determined in good faith by the Board of Directors. Any
securities not subject to investment letter or similar restrictions on free
marketability shall be valued as follows:
(i) If traded on a national securities exchange or the NASDAQ
National Market System ("NASDAQ/NMS"), the value shall be deemed to be the
average of the security's closing prices on such exchange or NASDAQ/NMS
over the thirty (30) calendar day period ending three (3) days prior to the
distribution;
(ii) If actively traded over-the-counter (other than NASDAQ/NMS),
the value shall be deemed to be the average of the closing bid prices over
the thirty (30) calendar day period ending three (3) days prior to the
distribution; and
(iii) If there is no active public market, the value shall be
the fair market value thereof as determined in good faith by the Board of
Directors.
The method of valuation of securities subject to investment letter or other
restrictions on free marketability shall be adjusted to make an appropriate
discount from the market value determined as above in clauses (i), (ii) or (iii)
to reflect the fair market value thereof as determined in good faith by the
Board of Directors. The holders of at least 50% of the outstanding Series G
Preferred of all Subseries shall have the right to challenge any determination
by the Board of Directors of fair market value pursuant to this SECTION (2)(D),
in which case the determination of fair market value shall be made by an
independent appraiser selected jointly by the Board of Directors and the
challenging parties, the cost of such appraisal to be borne equally by the
Corporation and the challenging parties.
(3) CONVERSION. The holders of the Series G Preferred have conversion
rights as follows (the "Conversion Rights"):
(A) RIGHT TO CONVERT.
(i) Each share of Series G Preferred of a Subseries shall initially be
convertible, at the option of the holder thereof, at any time at the principal
office of the Corporation or any transfer agent for the Subseries of the Series
G Preferred, into the number of fully paid and nonassessable shares of Common
Stock which results from dividing the Subseries Conversion Price (as hereinafter
specified) per share in effect for such series at the time of conversion into
the per share Series G Conversion Value (as hereinafter specified) of such
series. The initial Conversion Price of a Subseries of the Series G Preferred
(the "Subseries Conversion
4
<PAGE>
Price") shall be as stated in the applicable Certificate of Designation of
Subseries and the Conversion Value of the Series G Preferred of all Subseries
(the "Series G Conversion Value") shall be $100.00 per share. The initial
Subseries Conversion Price shall be subject to adjustment from time to time as
provided in SECTION (3)(C) hereof. The Series G Conversion Value shall not be
subject to adjustment (except in connection with a Recapitalization). Upon
conversion, all accrued or declared but unpaid dividends (including any interest
accrued thereon calculated as of the date of conversion) on the Subseries of
Series G Preferred shall either be paid in cash, to the extent permitted by
applicable law or, at the option of the holder of the Subseries of Series G
Preferred, converted into the number of fully paid and nonassessable shares of
Common Stock which results from dividing the Subseries Conversion Price in
effect at such time into the aggregate of all such accrued or declared but
unpaid dividends (including any interest accrued thereon calculated as of the
date of conversion).
(ii) On and after April 5, 2001, each share of a Subseries of Series G
Preferred shall be convertible, at the option of the holder thereof, at any time
at the principal office of the Corporation or any transfer agent for the
Subseries of the Series G Preferred, into the number of fully paid and
nonassessable shares of Common Stock which results from dividing the lower of
(1) the then applicable Subseries Conversion Price and (2) ninety percent (90%)
of the applicable Market Price (as defined herein) per share of Common Stock
into the per share Series G Conversion Value of such series. Upon conversion,
all accrued or declared but unpaid dividends (including any interest accrued
thereon calculated as of the date of conversion) on the Subseries of the Series
G Preferred shall either be paid in cash, to the extent permitted by applicable
law or, at the option of the holder of the Subseries of the Series G Preferred,
converted into the number of fully paid and nonassessable shares of Common Stock
which results from dividing the lower of (1) and (2) above in effect at such
time into the aggregate of all such accrued or declared but unpaid dividends
(including any interest accrued thereon calculated as of the date of
conversion). The "Market Price" per share of Common Stock shall be the average
closing bid price per share of Common Stock during the twenty (20) trading days
immediately preceding the date of determination , as such bid price is reported
by NASDAQ/NMS, or the average closing bid price in the over-the-counter market
if other than NASDAQ/NMS, or in the event the Common Stock is listed on a stock
exchange, the Market Price shall be the average closing bid price on such
exchange, as reported in the Wall Street Journal.
(iii) Notwithstanding anything else contained herein to the contrary,
if the Corporation shall default in its obligations pursuant to the terms of
SECTION 4.16 of that certain Stock Purchase Agreement pursuant to which the
shares of Series G Preferred were issued (as the same may be amended, modified
or restated from time to time, the "Series G Stock Purchase Agreement"), then
during the term of such default each share of a Subseries of the Series G
Preferred shall be convertible, at the option of the holder thereof, at any time
at the principal office of the Corporation or any transfer agent for the
Subseries of the Series G Preferred, into the number of fully paid and
nonassessable shares of Common Stock which results from dividing the lower of
(1) the then applicable Subseries Conversion Price and (2) seventy-five percent
(75%) of the applicable Market Price per share of Common Stock into the per
share Series G Conversion Value of such series. Upon conversion, all accrued or
declared but unpaid dividends
5
<PAGE>
(including any interest accrued thereon calculated as of the date of conversion)
on the Subseries of the Series G Preferred shall either be paid in cash, to the
extent permitted by applicable law or, at the option of the holder of the
Subseries of the Series G Preferred, converted into the number of fully paid and
nonassessable shares of Common Stock which results from dividing the lower of
(1) and (2) above in effect at such time into the aggregate of all such accrued
or declared but unpaid dividends (including any interest accrued thereon
calculated as of the date of conversion).
(B) MECHANICS OF CONVERSION. Before any holder of a Subseries of
the Series G Preferred shall be entitled to convert the same into shares of
Common Stock and to receive certificates therefor, such holder shall surrender
the certificate or certificates therefor, duly endorsed, at the principal office
of the Corporation or of any transfer agent for the Subseries of the Series G
Preferred, and shall give written notice to the Corporation at such office that
such holder elects to convert the same. The Corporation shall, as soon as
practicable after such delivery, issue and deliver at such office to such holder
of the Subseries of the Series G Preferred, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled as
aforesaid and a check payable to such holder in the amount of any unconverted
accrued or declared but unpaid dividends (including any interest accrued thereon
calculated as of the date of conversion) payable pursuant to SECTION (1) hereof,
if any. Such conversion shall be deemed to have been made immediately prior to
the close of business on the date of such surrender of the shares of the
Subseries of the Series G Preferred to be converted, and the holder or holders
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock on such date. If the Corporation fails to pay all such
dividends (and interest thereon), if any, within twenty (20) days of the date of
conversion, the holder entitled to such dividends (and interest thereon) may
elect to have the Corporation issue to such holder, in lieu of such cash
payment, additional shares of Common Stock calculated by dividing the total
amount payable on such date by the applicable Subseries Conversion Price,
determined pursuant to SECTION (3)(A) above.
(C) ADJUSTMENTS TO SUBSERIES CONVERSION PRICE.
(i) SPECIAL DEFINITIONS. For purposes of this SECTION (3)(C),
the following definitions shall apply:
(1) "OPTIONS" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities.
(2) "CONVERTIBLE SECURITIES" shall mean any evidences of
indebtedness, shares or other securities convertible into or exchangeable
for Common Stock.
6
<PAGE>
(3) "ADDITIONAL SHARES OF COMMON STOCK" shall mean all shares of
Common Stock issued (or, pursuant to SECTION 3(C)(III), deemed to be
issued) by the Corporation after the Series G Original Issue Date (as
defined herein), other than shares of Common Stock issued or issuable:
(A) upon conversion of shares of Series F Preferred and Series
G Preferred (regardless of Subseries);
(B) pursuant to a stock grant, option plan or purchase plan,
other employee stock incentive program or agreement approved by the Board
of Directors and pursuant to the terms of SECTION 4.13 of the Series G
Stock Purchase Agreement (as adjusted for Other Adjustments under SECTION
3(C)(VI)) (the "Option Pool");
(C) in a transaction described in SECTION (3)(C)(VI);
(D) pursuant to the terms of any stock grant, option, warrant,
employment agreement or other written obligation, agreement or commitment
to which the Company was a party as of the Series G Original Issue Date and
which was disclosed in the Series G Stock Purchase Agreement; or
(E) by way of dividend or other distribution on shares of
Common Stock excluded from the definition of Additional Shares of Common
Stock by the foregoing clauses (A), (B), (C) or (D).
(4) "SERIES G ORIGINAL ISSUE DATE" shall mean the date on which
the first share of Series G Preferred (regardless of Subseries) was issued.
(ii) NO ADJUSTMENT OF SUBSERIES CONVERSION PRICE. No adjustment
in a Subseries' Conversion Price shall be made in respect of the issuance
of Additional Shares of Common Stock unless the consideration per share for
an Additional Share of Common Stock issued or deemed to be issued by the
Corporation is less than the Subseries Conversion Price in effect on the
date of, and immediately prior to, such issue.
(iii) DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON STOCK.
(1) OPTIONS AND CONVERTIBLE SECURITIES. In the event the
Corporation at any time or from time to time after the Series G Original
Issue Date shall issue any Options (other than the issuance of Options
pursuant to the Option Pool) or Convertible Securities or shall fix a
record date for the determination of holders of any class of securities
entitled to receive any such Options or Convertible Securities, then the
maximum number of shares (as set forth in the instrument relating thereto
without regard to any provisions contained therein for a subsequent
adjustment of such number) of Common Stock issuable upon the exercise of
such Options or, in the case of Convertible
7
<PAGE>
Securities and Options therefor, the exercise of such Options and
conversion or exchange of such Convertible Securities shall be deemed to be
Additional Shares of Common Stock issued as of the time of such issue or,
in case such a record date shall have been fixed, as of the close of
business on such record date, provided that Additional Shares of Common
Stock shall not be deemed to have been issued unless the consideration per
share (determined pursuant to SECTION (3)(C)(V) hereof) of such Additional
Shares of Common Stock would be less than the Subseries Conversion Price in
effect on the date of and immediately prior to such issue, or such record
date, as the case may be, and provided further that in any such case in
which Additional Shares of Common Stock are deemed to be issued:
(A) except as provided in SECTION (3)(C)(III)(1)(B), no further
adjustment in the Subseries Conversion Price shall be made upon the
subsequent issue of Convertible Securities or shares of Common Stock upon
the exercise of such Options or conversion or exchange of such Convertible
Securities;
(B) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any change in the
consideration payable to the Corporation, or change in the number of shares
of Common Stock issuable, upon the exercise, conversion or exchange thereof
(other than under or by reason of provisions designed to protect against
dilution), the Subseries Conversion Price computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto) and
any subsequent adjustments based thereon, shall, upon any such increase or
decrease becoming effective, be recomputed to reflect such increase or
decrease insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities; and
(C) no readjustment pursuant to clause (B) above shall have the
effect of increasing the Subseries Conversion Price to an amount which
exceeds the lower of (1) the Subseries Conversion Price on the original
adjustment date or (2) the Subseries Conversion Price that would have
resulted from any issuance of Additional Shares of Common Stock between the
original adjustment date and such readjustment date.
(iv) ADJUSTMENT OF SUBSERIES CONVERSION PRICE UPON ISSUANCE OF
ADDITIONAL SHARES OF COMMON STOCK. In the event the Corporation shall
issue Additional Shares of Common Stock without consideration or for a
consideration per share less than the Subseries Conversion Price in effect
on the date of and immediately prior to such issue, then and in each such
event the Subseries Conversion Price shall be reduced to a price
(calculated to the nearest cent) determined by multiplying such Subseries
Conversion Price by a fraction, the numerator of which shall be the number
of shares of Common Stock outstanding immediately prior to such issue plus
the number of shares of Common Stock which the aggregate consideration
received by the Corporation for the total number of Additional Shares of
Common Stock so issued would
8
<PAGE>
purchase at such Subseries Conversion Price; and the denominator of which
shall be the number of shares of Common Stock outstanding immediately prior
to such issue plus the number of such Additional Shares of Common Stock so
issued.
(v) DETERMINATION OF CONSIDERATION. For purposes of this SECTION
(3)(C), the consideration received by the Corporation for the issuance of
any Additional Shares of Common Stock shall be computed as follows:
(1) CASH AND PROPERTY: Such consideration shall:
(A) insofar as it consists of cash, be computed at
the aggregate amount of cash received by the Corporation;
(B) insofar as it consists of property other than
cash, be computed at the fair value thereof at the time of such issue, as
determined by the Board of Directors in the good faith exercise of its
reasonable business judgment; and
(C) in the event Additional Shares of Common Stock
are issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A) and (B)
above, as determined by the Board of Directors in the good faith exercise
of its reasonable business judgment.
(2) OPTIONS AND CONVERTIBLE SECURITIES. The
consideration per share received by the Corporation for Additional Shares
of Common Stock deemed to have been issued pursuant to SECTION
(3)(C)(III)(1), relating to Options and Convertible Securities, shall be
determined by dividing
(A) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such
Options or Convertible Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent
adjustment of such consideration) payable to the Corporation upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities, or in the case of Options for Convertible Securities, the
exercise of such Options for Convertible Securities and the conversion or
exchange of such Convertible Securities, by
(B) the maximum number of shares of Common Stock
(as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or the conversion or exchange of
such Convertible Securities.
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(vi) OTHER ADJUSTMENTS.
(1) SUBDIVISIONS, COMBINATIONS, OR CONSOLIDATIONS OF COMMON
STOCK. In the event the outstanding shares of Common Stock shall be
subdivided, combined or consolidated, by stock split, stock dividend,
combination or like event, into a greater or lesser number of shares of
Common Stock, the Subseries Conversion Price in effect immediately prior to
such subdivision, combination, consolidation or stock dividend shall,
concurrently with the effectiveness of such subdivision, combination or
consolidation, be proportionately adjusted.
(2) RECLASSIFICATIONS. In the case, at any time after the date
hereof, of any capital reorganization or any reclassification of the stock
of the Corporation (other than as a result of a stock dividend or
subdivision, split-up or combination of shares), or the consolidation or
merger of the Corporation with or into another person (other than a
consolidation or merger (A) in which the Corporation is the continuing
entity and which does not result in any change in the Common Stock or (B)
which is treated as a liquidation pursuant to SECTION (2)(C)), the shares
of the Series G Preferred shall, after such reorganization,
reclassification, consolidation or merger be convertible into the kind and
number of shares of stock or other securities or property of the
Corporation or otherwise to which such holder would have been entitled if
immediately prior to such reorganization, reclassification, consolidation
or merger such holder had converted its shares of the Series G Preferred
into Common Stock. The provisions of this SECTION (3)(C)(VI)(3) shall
similarly apply to successive reorganizations, reclassifications,
consolidations or mergers.
(D) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Subseries Conversion Price pursuant to this
SECTION (3), the Corporation at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and furnish to
each holder of each Subseries of the Series G Preferred so adjusted a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Corporation
shall, upon the written request at any time of any holder of a Subseries of the
Series G Preferred, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, (ii) the
Subseries Conversion Price at the time in effect, and (iii) the number of shares
of Common Stock and the amount, if any, of other property which at the time
would be received upon the conversion of the Subseries of the Series G
Preferred.
(E) STATUS OF CONVERTED STOCK. In case any shares of a Subseries of
the Series G Preferred shall be converted pursuant to SECTION (3) hereof, the
shares so converted shall, at the option of the Corporation, be canceled, and,
if not canceled, shall not be reissuable as shares of Series G Preferred but
shall be part of the authorized but unissued capital stock of the Corporation.
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(F) FRACTIONAL SHARES. In lieu of any fractional shares to which the
holder of a Subseries of the Series G Preferred would otherwise be entitled upon
conversion, the Corporation shall pay cash equal to such fraction multiplied by
the fair market value of one share of Common Stock as determined by the Board of
Directors in the good faith exercise of its reasonable business judgment.
(G) MISCELLANEOUS.
(i) All calculations under this SECTION (3) shall be made to the
nearest cent or to the nearest one hundredth (1/100) of a share, as the
case may be.
(ii) The holders of at least 50% of the outstanding Series G
Preferred of all Subseries shall have the right to challenge any
determination by the Board of Directors of fair market value pursuant to
this SECTION (3), in which case such determination of fair market value
shall be made by an independent appraiser selected jointly by the Board of
Directors and the challenging parties, the cost of such appraisal to be
borne equally by the Corporation and the challenging parties.
(iii) No adjustment in the Subseries Conversion Price need be
made if such adjustment would result in a change in such Subseries
Conversion Price of less than $0.01. Any adjustment of less than $0.01
which is not made shall be carried forward and shall be made at the time of
and together with any subsequent adjustment which, on a cumulative basis,
amounts to an adjustment of $0.01 or more in the Subseries Conversion
Price.
(H) NO IMPAIRMENT. The Corporation will not, through any
reorganization, recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Corporation, but will at all times in good faith
assist in the carrying out of all the provisions of this SECTION (3) and in the
taking of all such action as may be necessary or appropriate in order to protect
the conversion rights of the holders of the Subseries of Series G Preferred
against impairment.
(I) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of all Subseries of the Series G Preferred, such number of its shares
of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of all Subseries of the Series G Preferred.
If at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all then outstanding shares
of all Subseries of the Series G Preferred, the Corporation will take such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purpose.
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(4) REDEMPTION.
(a) The Corporation may redeem, on the first day subsequent to April
5, 2004, all or a portion of the shares of all Subseries of the Series G
Preferred then outstanding on the Redemption Date (as defined below) out of
funds legally available therefor, pro rata on the basis of the number of shares
held by each holder. The Corporation shall pay in cash therefor a sum per share
equal to one hundred dollars ($100) together with all accrued or declared but
unpaid dividends (including any interest accrued thereon) calculated as of the
Redemption Date (collectively the "Redemption Value").
(b) Any notice of redemption (the "Notice of Redemption") given by the
Corporation shall be delivered by mail, first class postage prepaid, to each
holder of record (at the close of business on the business day preceding the day
on which notice is given) of all Subseries of the Series G Preferred, at the
address last shown on the records of the Corporation for such holder or given by
the holder to the Corporation, for the purpose of notifying such holder of the
redemption to be effected. The Notice of Redemption shall specify a date (the
"Redemption Date") between 45 and 75 days after the mailing of the Notice of
Redemption on which all Subseries of the Series G Preferred then outstanding
shall be redeemed and the place at which payment may be obtained, which shall be
the principal offices of the Corporation or such other place as shall be
mutually agreeable to the Corporation and holders of a majority of the aggregate
number of then outstanding shares of all Subseries of the Series G Preferred.
The Notice of Redemption shall call upon each holder of Series G Preferred
(regardless of Subseries) to either (i) surrender to the Corporation, in the
manner and at the place designated, such holder's certificate or certificates
representing the shares to be redeemed or (ii) convert such Subseries of the
Series G Preferred into Common Stock prior to the Redemption Date in accordance
with the provisions of SECTION (3) above; provided, however, that if the Market
Price as of the Redemption Date is greater than or equal to the then applicable
Subseries Conversion Price (without regard to the adjustments to be made to the
Subseries Conversion Price pursuant to the terms of SECTION (3)(A)(II)) then the
holders of the Subseries of Series G Preferred shall have the absolute right to
convert such Subseries of the Series G Preferred into Common Stock prior to the
Redemption Date in accordance with the provisions of SECTION (3), and; provided,
further, however, that if the Market Price as of the Redemption Date is less
than the then applicable Subseries Conversion Price (without regard to the
adjustments to be made to the Subseries Conversion Price pursuant to the terms
of SECTION(3)(A)(II)) then the Corporation shall have the absolute right to
redeem the Subseries of the Series G Preferred in accordance with the provisions
of this SECTION (4). If the Corporation elects to redeem shares pursuant to
this SECTION (4) and defaults or fails to perform its redemption obligations
pursuant to this SECTION (4) in connection therewith, the holders of the
Subseries of the Series G Preferred shall then have the absolute right to
convert such Subseries of the Series G Preferred into Common Stock in accordance
with the provisions of SECTION (3).
(c) On the Redemption Date, the Corporation shall pay by cash or check
to the order of the person whose name appears on the certificate or certificates
of all Subseries of the Series G Preferred that (i) shall not have been
converted pursuant to SECTION (3) hereof and
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<PAGE>
(ii) shall have been surrendered to the Corporation in the manner and at the
place designated in the Notice of Redemption, the Redemption Value, and
thereupon each surrendered certificate shall be canceled.
(d) If the funds of the Corporation legally available for redemption
of the Subseries of the Series G Preferred are insufficient to redeem the total
number of shares of all Subseries of the Series G Preferred outstanding on the
Redemption Date, the Series G Preferred of all Subseries shall be redeemed (on a
pro rata basis from the holders of all Subseries of the Series G Preferred from
time to time), to the extent the Corporation is legally permitted to do so, and
the redemption obligations of the Corporation hereunder will be a continuing
obligation until the Corporation's redemption of all Subseries of the Series G
Preferred.
(e) From and after the Redemption Date, unless there shall have been a
default in payment of the Redemption Value, all rights of the holders of shares
of all Subseries of the Series G Preferred (except the right to receive the
Redemption Value subsequent to the Redemption Date upon surrender of their
certificate or certificates) shall cease with respect to such shares, and such
shares shall not thereafter be transferred on the books of the Corporation or be
deemed to be outstanding for any purpose whatsoever.
(5) VOTING RIGHTS.
(A) GENERAL. Except as otherwise required by law or by SECTION (8),
the holders of all each Subseries of the Series G Preferred issued and
outstanding, in the aggregate, shall be entitled to the number of votes equal to
the number of shares of Common Stock into which shares of such Subseries of
Series G Preferred are convertible on any record date, or, if no such record
date is established, at the date such vote is taken or any written consent of
stockholders is solicited, such votes to be counted together with all other
shares of stock of the Corporation having general voting power and not
separately as a class. Fractional votes by the holders of a Subseries of the
Series G Preferred shall not, however, be permitted, and any fractional voting
rights shall (after aggregating all shares into which shares of Series G
Preferred held by each holder could be converted) be rounded to the nearest
whole number. Notwithstanding the foregoing, the holders of Series G Preferred
shall be subject to the terms of SECTION 4.11 of the Series G Stock Purchase
Agreement.
(6) NOTICES OF RECORD DATE. In the event of any taking by the Corporation
of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, any right to subscribe for, purchase or otherwise acquire
any shares of stock of any class or any other securities or property, or to
receive any other right, the Corporation shall mail to each holder of all
Subseries of the Series G Preferred, at least twenty (20) days prior to the date
specified therein, a notice specifying the date on which any such record is to
be taken for the purpose of such dividend, distribution or right, and the amount
and character of such dividend distribution or right.
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<PAGE>
(7) NOTICES. Any notice required by the provisions of the Certificate to
be given to the holders of all Subseries of the Series G Preferred shall be
deemed given when deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his or her address appearing on the books
of the Corporation, or upon actual receipt when personally delivered or sent by
overnight or other courier delivery.
(8) PROTECTIVE PROVISIONS. So long as any shares of any Subseries of the
Series G Preferred are outstanding, the Corporation shall not, without first
obtaining the approval of the holders of at least a majority of the aggregate
number of then outstanding shares of all Subseries of the Series G Preferred
then outstanding, voting as a separate class, take any action that:
(i) alters the rights, preferences or privileges of the Series G
Preferred;
(ii) increases or decreases the authorized number of shares of
Series G Preferred of the Corporation;
(iii) creates any new class or series of shares that has a
preference over or is on a parity with the Series G Preferred with respect to
voting, dividends or liquidation preferences, or any other rights and/or
remedies;
(iv) reclassifies stock into shares having a preference over or
parity with the Series G Preferred with respect to voting, dividends or
liquidation preferences, or any other rights and/or remedies; or
(v) authorizes any dividend or other distribution other than with
respect to the Series G Preferred (except as required pursuant to the terms of
the Series E Preferred or Series F Preferred).
(9) SPECIFIC ENFORCEMENT. The Company agrees that the rights created by
this designation are unique, and that the loss of any such right is not
susceptible to monetary quantification. Consequently, the Company agrees that
an action for specific performance (including for temporary and/or permanent
injunctive relief) of the obligations created by this designation is a proper
remedy for the breach of the provisions of this designation, without the
necessity of proving actual damages. If any holder of any Subseries of the
Series G Preferred is forced to institute legal proceedings to enforce its
rights in accordance with the provisions hereof, such holder, if he prevails,
shall be entitled to recover from the Company his reasonable expenses, including
attorneys' fees, incurred in connection with any such action.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Master Certificate of
Designation to be duly executed by its President and attested to by its
Assistant Secretary, hereto, this 2nd day of April, 1997.
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
Date: April 2, 1997 /s/ Tim B. Tarrillion
-----------------------------------------------------
Tim B. Tarrillion
President and Chief Executive Officer
Date: April 2, 1997 /s/ Judith Knight Shields
------------------------------------------------------
Judith Knight Shields
Assistant Secretary
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<PAGE>
EXHIBIT 4.4
CERTIFICATE OF DESIGNATION OF CUMULATIVE CONVERTIBLE
PREFERRED STOCK, SERIES G - SUBSERIES I
Tim B. Tarrillion and Judith Knight Shields do hereby certify that they are
the President and Assistant Secretary, respectively, of North American
Technologies Group, Inc., a Delaware corporation (hereinafter referred to as the
"Corporation" or the "Company"); that, pursuant to the Corporation's Restated
Certificate of Incorporation, Section 151 of the Delaware General Corporation
Law and the Master Certificate of Designation relating to the Company's
Cumulative Convertible Preferred Stock, Series G (the "Master Certificate of
Designation"); the Board of Directors of the Corporation adopted the following
resolutions on March 31, 1997; and that none of the Series G Cumulative
Convertible Preferred Stock - Subseries I has been issued.
Pursuant to the terms of the Master Certificate of Designation, there is
hereby created a subseries of Preferred Stock designated as Cumulative
Convertible Preferred Stock, Series G - Subseries I (the "Series G Preferred -
Subseries I"), which shall consist of 21,000 shares. The Series G Preferred-
Subseries I shall have the preferences, voting powers, relative, participating,
optional or other special rights and privileges, and the qualifications,
limitations and restrictions as provided below and as provided in the Master
Certificate of Designation.
The initial conversion price (the "Conversion Price") of the Series G
Preferred - Subseries I shares shall be $.45. The Conversion Price shall be
subject to adjustment pursuant to the terms of the Master Certificate of
Designation.
IN WITNESS WHEREOF, the Company has caused this Certificate of Designation
of Subseries to be duly executed by its President and attested to by its
Assistant Secretary, this 2nd day of April, 1997.
NORTH AMERICAN TECHNOLOGIES, GROUP, INC.
/s/ Tim B. Tarrillion
_____________________________________
DATE: April 2, 1997 Tim B. Tarrillion,
_______________ President and Chief Executive Officer
DATE: April 2, 1997 /s/ Judith Knight Shields
______________ _____________________________________
Judith Knight Shields,
Assistant Secretary
<PAGE>
[Letterhead of Buchanan Ingersoll
Professional Corporation]
April 30, 1997
North American Technologies Group, Inc.
4710 Bellaire Boulevard
Suite 301
Bellaire, Texas 77401
RE: THE COMPANY'S REGISTRATION STATEMENT ON FORM S-3
Gentlemen:
We have participated in the preparation of the Registration Statement
on Form S-3 (the "Registration Statement") to be filed with the Securities and
Exchange Commission by North American Technologies Group, Inc. (the "Company")
for the purpose of registering for resale under the Securities Act of 1933,
shares of Common Stock of the Company, $.001 par value (collectively referred to
as the "Shares"), as follows: (i) 5,122,396 shares of Common Stock previously
issued by the Company; (ii) 11,655,687 shares of Common Stock, subject to
adjustment, which may be issued upon the conversion, if at all, of the Company's
outstanding Cumulative Convertible Preferred Stock, Series F (the "Series F
Shares"); (iii) 3,644,444 shares of Common Stock, subject to adjustment, which
may be issued upon conversion, if at all, of the Company's outstanding
Cumulative Convertible Preferred Stock, Series G, Subseries I (the "Series G
Shares"); (iv) 10,403,500 shares of Common Stock, which may be issued, if at
all, upon the exercise of certain outstanding options and warrants (the
"Options"), and (v) 333,333 shares of Common Stock which may be issued upon the
conversion, if at all, of a $500,000 principal amount convertible promissory
note (the "Convertible Note"). As counsel to the Company, we have examined such
corporate records, certificates and other documents as we considered to be
relevant and necessary to express the opinion hereinafter set forth.
<PAGE>
April 30, 1997
Page -2-
On the basis of the foregoing and of our consideration of such other
legal and factual matters as we have deemed appropriate, we are of the opinion
(1) that the Shares have been duly authorized; (2) that the Shares which are
outstanding as of the date of this opinion are validly issued, fully-paid and
non-assessable; (3) that upon conversion of the Series F Shares and Series G
Shares in accordance with the terms thereof, the Shares issuable thereunder will
be validly issued, fully-paid and non-assessable; (4) that upon exercise of the
Options in accordance with the terms thereof, including payment of the
applicable exercise price, the Shares issued thereunder will be validly issued,
fully paid and non-assessable; and (5) that upon conversion of the Convertible
Note in accordance with the terms thereof, the Shares issuable thereunder will
be validly issued, fully-paid and non-assessable.
This opinion is being delivered to you in compliance with Item 601(b)
(5) (i) of Regulation S-B of the Securities and Exchange Commission. We consent
to the filing of this opinion as an exhibit to the Registration Statement and
the reference to this firm made under the caption "Legal Matters" in the
Prospectus contained therein.
Very truly yours,
/s/ Joseph P. Galda
Joseph P. Galda
Buchanan Ingersoll Professional
Corporation
<PAGE>
EXHIBIT 10.29
THE SECURITIES PURCHASED PURSUANT TO THE TERMS OF THIS AGREEMENT HAVE NOT BEEN
REGISTERED UNDER EITHER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"),
OR APPLICABLE STATE SECURITIES LAWS (THE "STATE ACTS"), AND SHALL NOT BE SOLD,
PLEDGED, HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED (WHETHER OR NOT FOR
CONSIDERATION) BY THE HOLDER EXCEPT BY REGISTRATION OR PURSUANT TO AN EXEMPTION
FROM REGISTRATION UPON THE ISSUANCE TO THE COMPANY OF A FAVORABLE OPINION OF
COUNSEL OR OTHER EVIDENCE REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT
THAT ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE 1933 ACT AND THE STATE
ACTS.
STOCK PURCHASE AGREEMENT
North American Technologies Group, Inc., a Delaware corporation (the
"Company"), its Operating Subsidiaries (as defined herein) signatory hereto (for
purposes of SECTION 2 only), NationsBanc Capital Corporation, a Texas
corporation ("NBCC"), and the other parties signatory hereto (the "Initial
Investors") or who may become a signatory hereto after the date hereof pursuant
to SECTION 1.3 (the "Additional Investors"), enter into this Agreement, dated as
of March 31, 1997, relating to the issuance by the Company of certain of its
securities. NBCC, the Initial Investors and the Additional Investors are
hereinafter each individually referred to as an "Investor" and collectively as
the "Investors."
SECTION 1. DESCRIPTION OF TRANSACTIONS.
1.1 DESCRIPTION OF SECURITIES. The Company agrees to issue as provided
herein to the Investors, and the Investors severally but not jointly agree to
purchase from the Company, shares of subseries (each, a "Subseries") of the
Company's authorized but unissued Series G Preferred Stock, $.001 par value per
share (the "Series G Shares," which shall include any Series G Shares issued as
stock dividends and/or payments-in-kind), at the times and from time to time as
provided herein. The Series G Shares will be convertible into shares of the
Company's Common Stock, $.001 par value per share (the "Common Stock"), as
provided in the Master Certificate of Designation with respect to the Series G
Shares in the form of Exhibit 1 attached hereto and a Designation of Subseries
filed with the Secretary of State of Delaware pursuant thereto. The purchase
price per share of each Subseries shall be $100 per share and the terms of each
Subseries shall be identical except that the number of securities of the Company
issued or issuable upon conversion of Series G Shares in each Subseries and the
initial Conversion Price for each Subseries shall be as set forth in the
applicable Designation of Subseries. Any securities of the Company issued or
issuable upon conversion of the Series G Shares (and any Common Stock issued as
stock dividends and/or payments-in-kind on the Series G Shares) are referred to
as "Conversion Shares."
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1.2 INITIAL CLOSING; ISSUANCE OF SUBSERIES I SHARES. The initial
closing (the "Initial Closing") of the purchase and sale of Series G Shares,
which shall be designated as Series G Preferred Stock, Subseries I (the
"Subseries I Shares"), shall take place at the principal offices of the Company
located in Bellaire, Texas, at 1:00 p.m., on the date of this Agreement, or such
other time and place as agreed to by the parties (the "Initial Closing Date").
At the Initial Closing, the Company will deliver the Subseries I Shares being
acquired by the Initial Investors upon payment of the purchase price by the
Initial Investors to the Company by either (a) wire transfer or (b) certified or
bank cashier's check. The Company will not be obligated to issue any Subseries I
Shares unless the Initial Investors purchase all of the Subseries I Shares
indicated on Exhibit 2 to be purchased at the Initial Closing.
1.3 PURCHASE OF ADDITIONAL SUBSERIES BY ADDITIONAL INVESTORS. Subject
to: (i) any preemptive rights and/or rights of first refusal, and (ii) no Event
of Default (as defined in SECTION 4.1(D) of this Agreement) being in existence,
the Company may, at its election, sell and issue additional shares of Subseries
of Series G Shares to Additional Investors (who may also be Initial Investors
and who shall be deemed Additional Investors), at one or more closings selected
by the Company (hereinafter referred to as an "Additional Closing"), on the
following terms and subject to the following conditions:
(a) the Company shall provide to each Additional Investor and the
Initial Investors a written request, substantially in the form of Exhibit 3, not
less than thirty (30) days preceding the date of such Additional Closing, which
shall set forth among other things (i) the time, date and place (each an
"Additional Closing Date" and with the Initial Closing Date, each a "Closing
Date") of such Additional Closing (which shall be the then principal offices of
the Company in the State of Texas, unless the Company and the Additional
Investors purchasing such additional Subseries agree otherwise), (ii) the
designation and number of shares of the Subseries to be purchased by and sold to
such Additional Investor and the aggregate number of shares of the Subseries to
be purchased by and sold to all Additional Investors at such Additional Closing,
and (iii) the proposed initial Conversion Price on which the conversion
privilege of the Subseries shall be based;
(b) unless any such Initial Investor agrees otherwise, such Initial
Investor shall be able to purchase a number of shares of the Subseries of the
Series G Shares to be sold at such Additional Closing at least equal to the
total number of shares of the Subseries of the Series G Shares to be sold at
such Additional Closing multiplied by the proportion that the number of shares
of all Subseries of Series G Shares owned of record by such Initial Investor
bears to the total number of all Subseries of Series G Shares outstanding
immediately prior to the notice delivered pursuant to the terms of Section
1.3(a) above;
(c) the aggregate purchase price for the Subseries to be purchased and
sold at such Additional Closing shall be not less than $250,000;
(d) no such Additional Closings shall occur after March 31, 1999, and
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<PAGE>
(e) At each Additional Closing, the Company will deliver the
certificates for the Subseries of Series G Shares being sold to each Additional
Investor, upon payment of the purchase price by the Additional Investors to the
Company by either (a) wire transfer or (b) certified or bank cashier's check.
Each Additional Investor agrees jointly but not severally to pay such purchase
price for the Subseries of Series G Shares to be sold to such Additional
Investor at such Additional Closing. The Company shall not be obligated to issue
any shares of such Subseries of Series G Shares at such Additional Closing
unless the Additional Investors purchase all the shares of such Subseries of
Series G Shares contemplated to be purchased and sold at such Additional
Closing. At each Additional Closing, by its payment of the purchase price for
the shares of Subseries of Series G Shares to be purchased by it, each
Additional Investor severally but not jointly shall be deemed to have made to
the Company, as of the date of the Additional Closing, the representations and
warranties with respect to such Additional Investor as are set forth in SECTION
3 of this Agreement; and each such Additional Investor who has not previously
executed this Agreement shall execute and deliver a copy of this Agreement.
1.4 CONDITIONS TO CLOSING. The obligation of each Investor to purchase
and pay for the Series G Shares to be purchased by each Investor at the Initial
Closing or any Additional Closing (each, a "Closing") is subject to the
satisfaction at or prior to such Closing of each of the following conditions:
(a) the Company shall have duly authorized and filed a Master
Certificate of Designation with the Secretary of State of the State of Delaware
substantially in the form attached hereto as Exhibit 1, and a Designation of
Subseries for the Subseries to be issued as provided therein;
(b) each of the Investors not already a party thereto shall have
entered into that certain Stockholders' Agreement, by and between the Company,
Tim B. Tarrillion, Judith Knight Shields, David M. Daniels and Donovan W. Boyd,
and certain other shareholders of the Company who own shares of the Series F
Preferred Shares of the Company (the "Stockholders' Agreement");
(c) Buchanan Ingersoll Professional Corporation, Philadelphia,
Pennsylvania, counsel for the Company, shall have delivered to each Investor a
legal opinion, dated as of the Closing Date, in form and substance reasonably
satisfactory to the Investors;
(d) at each Closing where NBCC is an Investor, the Company shall have
delivered to NBCC the information required by the Small Business Administration
(the "SBA"), including SBA Forms 480 (Size Status Declaration), 652 (Assurance
of Compliance for Nondiscrimination) and 1031 (Portfolio Financing Report), that
is requested by NBCC;
(e) the Company shall have delivered to each Investor the financial
statements referred to in SECTION 2.7 below; and
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(f) the Company shall have delivered to each Investor:
(i) the Certificate of Incorporation of the Company and all
amendments thereto, certified by the Secretary of State of Delaware;
(ii) (A) copies of the Company's and each Operating Subsidiary's
resolutions of the Board of Directors authorizing and approving this
Agreement and all of the transactions and agreements contemplated
hereby and thereby, (B) the Bylaws of the Company and (C) the names of
the officer or officers of the Company and each Operating Subsidiary
authorized to execute this Agreement and any and all documents,
agreements and instruments contemplated herein, all certified by the
Secretary of the Company to be true, correct, complete and in full
force and effect and unmodified as of such Closing Date;
(iii) a good standing certificate for the Company and each
Operating Subsidiary from the Secretary of State of the jurisdiction
of organization of each and a certificate from each state where the
Company and each Operating Subsidiary is required (as provided in
SECTION 2.1 hereof) to be qualified as a foreign corporation showing
such qualification, dated as of a date within ten (10) days of such
Closing Date;
(iv) the latest available consolidated budget/operating forecast
of the Company and the Subsidiaries;
(v) a certificate of the President of the Company and of an
authorized executive officer of each Operating Subsidiary, dated as of
such Closing Date, stating that (i) there has been no Event of Default
(as defined in SECTION 4.1(D)), other than any of the same that has
been waived as provided in the first sentence of SECTION 9.1 hereof,
and (ii) the representations and warranties set out in this Agreement
are true, complete and accurate as of the date of such Closing Date,
other than any changes thereto reflected in any Quarterly Report on
Form 10-Q or 10-QSB (or other appropriate form then in use), any
Annual Report on Form 10-K or 10-KSB (or other appropriate form then
in use), any amendment thereto, or any other report or registration
statement of the Company filed with the Securities and Exchange
Commission (the "Commission") since the date of this Agreement, a copy
of which was delivered to each Investor prior to such Investor's
agreement to purchase any such Subseries of Series G Shares; and (y)
such other matters as may be set out in such Certificate, none of
which could have a material adverse effect on the Company and the
Operating Subsidiaries, taken as a whole, in the discretion of the
Investors; and
(vi) such other documents, instruments, and certificates as the
Investors may reasonably request.
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<PAGE>
SECTION 2. REPRESENTATIONS OF THE COMPANY. As part of the basis of this
Agreement, the Company (which such representations of the Company for the
purposes of this SECTION 2 shall be deemed to be both with respect to the
Company itself and with respect to the Company and the Subsidiaries, taken as a
whole) and each Operating Subsidiary signatory hereto, jointly and severally,
represent to the Investors on the date hereof and on each Closing Date that:
2.1 ORGANIZATION. Each of the Company and EET, Inc., Industrial Pipe
Fittings, Inc., GAIA Technologies, Inc. and Riserclad International, Inc.
(collectively, the "Operating Subsidiaries" and each an "Operating Subsidiary"
and, with the other entities listed in Schedule 2.16 hereto, collectively, the
"Subsidiaries" and each a "Subsidiary") is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization, and except as described in Schedule 2.1, is not required to be
qualified to do business as a foreign corporation in any other jurisdiction
where the failure to so qualify would have a material adverse effect on the
Company and the Operating Subsidiaries. Schedule 2.1 sets forth the
jurisdictions in which the Company and each Operating Subsidiary is qualified.
2.2 CORPORATE POWER. The Company and each Operating Subsidiary have all
required corporate power and authority to own their respective properties and to
carry on their respective businesses as presently conducted and as proposed to
be conducted. The Company and each Operating Subsidiary have all required
corporate power and authority to enter into, deliver and perform this Agreement
and to fully carry out the transactions contemplated by this Agreement. The
copies of the Certificate or Articles, as applicable, of Incorporation and
Bylaws of the Company and each Operating Subsidiary, as amended to date, which
have been furnished to counsel for the Investors, are true, correct and
complete.
2.3 AUTHORIZATION. This Agreement and all documents executed pursuant to
this Agreement are valid and binding obligations of the Company and the
Operating Subsidiaries, as the case may be, enforceable according to their
terms, except as may be limited by (a) applicable bankruptcy, insolvency,
reorganization or other similar laws of general application relating to or
affecting the enforcement of creditor rights, (b) laws and judicial decisions
regarding indemnification for violations of federal securities laws, and (c) the
availability of specific performance or other equitable remedies. The
execution, delivery and performance of this Agreement and the issuance of the
Series G Shares and the Conversion Shares have been duly authorized by all
necessary corporate action of the Company and the Operating Subsidiaries, as the
case may be.
2.4 GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENTS. Except as may have
been obtained, no approval, consent, exemption, authorization, or other action
by, or notice to, or filing with, any governmental authority or any other
individual, corporation, partnership, trust, incorporated or unincorporated
association, joint venture, joint stock company, government (or an agency or
political subdivision thereof) or other entity of any kind is necessary or
required in connection with the execution, delivery, performance or enforcement
against the Company and
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the Operating Subsidiaries of this Agreement, or any other documents executed
pursuant to this Agreement, except for federal and state securities filings.
2.5 CAPITALIZATION. The authorized and issued capital stock of the Company
and each Operating Subsidiary is as set forth in Schedule 2.5. All of the
presently outstanding shares of capital stock of the Company and each Subsidiary
have been validly authorized and issued and are fully paid and nonassessable.
The Series G Shares have been validly authorized and, when delivered and paid
for pursuant to this Agreement, will be validly issued, fully paid and
nonassessable, and free of all encumbrances and restrictions, except
restrictions on transfer imposed by applicable securities laws, the Certificate
of Incorporation, the Stockholders' Agreement and/or this Agreement. The
relative rights, preferences, restrictions and other provisions relating to the
Series G Shares are as set forth in the Master Certificate of Designation and
the Designation of Subseries. The Company has authorized and reserved for
issuance upon conversion of the Series G Shares not less than 6,000,000 shares
of its Common Stock, and the Conversion Shares will be, when and if issued in
accordance with the terms of the Master Certificate of Designation and
applicable Designation of Subseries, validly authorized and issued, fully paid
and nonassessable, and free of all encumbrances and restrictions, except
restrictions on transfer imposed by applicable securities laws, the Certificate
of Incorporation, the Stockholders' Agreement and/or this Agreement. Except as
provided in Schedule 2.5, neither the Company nor any Subsidiary has issued any
other shares of its capital stock and there are no outstanding subscriptions,
warrants, options, calls, commitments, or other rights to purchase or acquire,
or securities convertible into or exchangeable for, any capital stock of the
Company or any Subsidiary. Except as disclosed on Schedule 2.5 or as
contemplated under this Agreement (and the other agreements executed in
connection herewith), there are no agreements to which the Company or any
Subsidiary is a party or has knowledge regarding the issuance, registration,
voting, transfer of or obligation (contingent or otherwise) of the Company or
any Subsidiary to repurchase or otherwise acquire or retire or redeem any of its
outstanding shares of capital stock.
2.6 PREEMPTIVE RIGHTS. There are no preemptive rights affecting the
issuance or sale of the Company's capital stock, except as described in
SECTION 7 hereof and the Stockholders' Agreement.
2.7 FINANCIAL STATEMENTS. The Financial Statements (as defined below) have
been prepared in accordance with generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the periods indicated and with
each other, except that the unaudited Financial Statements do not contain
footnotes required by GAAP. The Financial Statements fairly present the
consolidated financial condition and operating results of the Company as of the
dates, and for the periods, indicated therein, subject in the case of the
unaudited Financial Statements to normal year-end and quarter-end adjustments.
Except as set forth in the Financial Statements, neither the Company nor any
Operating Subsidiary has any liabilities, contingent or otherwise, other than
(a) obligations under contracts and commitments incurred in the ordinary course
of business and not required under GAAP to be reflected in the Financial
Statements and which, individually or in the aggregate, are not material to the
financial condition or operating
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results of the Company or any Operating Subsidiary or (b) as set forth on
Schedule 2.7 hereto or as otherwise disclosed in this SECTION 2 or any Schedule
hereto. Except as disclosed in the Financial Statements, on Schedule 2.7 hereto
and for inter-company transactions with or between Operating Subsidiaries,
neither the Company nor any Subsidiary has any indebtedness for borrowed money
and none of them is a guarantor or indemnitor of any indebtedness of any other
person, firm or corporation. The Company and the Subsidiaries maintain and will
continue to maintain a standard system of accounting established and
administered in accordance with GAAP. With regard to the Initial Closing,
Financial Statements shall mean the Company's audited financial statements as of
December 31, 1996 as filed with the Commission. With regard to any Additional
Closing, Financial Statements shall mean the Company's most recent year end
audited financial statements, as filed with the Commission prior to the date of
any such Additional Closing, and any quarterly unaudited financial statements,
as filed with the Commission prior to the date of any such Additional Closing,
for all periods subsequent to the date of the most recent year end audited
financial statements.
2.8 ABSENCE OF CERTAIN DEVELOPMENTS. Except as disclosed in Schedule 2.8 or
in the Financial Statements, since the date of the latest Financial Statements,
(a) there has been no material adverse change in the financial condition of
either the Company or any of the Operating Subsidiaries, (b) neither the Company
nor any Operating Subsidiary has incurred any material liabilities or material
contingent liabilities, (c) the Company has not declared any dividends or
purchased any of its capital stock, (d) neither the Company nor any Operating
Subsidiary has entered into any material transactions outside the ordinary
course of business, (e) neither the Company nor any Operating Subsidiary has
waived a valuable right or cancelled any debt or claim held by the Company or
any Operating Subsidiary, (f) neither the Company nor any Operating Subsidiary
has made a loan to any officer, director, employee or shareholder of the
Company, or any agreement or commitment therefor, (g) neither the Company nor
any Operating Subsidiary has had or committed to any increase, direct or
indirect, in the compensation paid or payable to any officer, director, employee
or agent of the Company or any Operating Subsidiary, except as required by
written employment agreements to which the Company or any Operating Subsidiary
is a party (and which such increases are described in Schedule 2.8), (h) neither
the Company nor any Operating Subsidiary has had any material loss, destruction
or damage to any property, whether or not insured, (i) neither the Company nor
any Operating Subsidiary has had any change in personnel or the terms and
conditions of their employment, (j) neither the Company nor any Operating
Subsidiary has had any acquisition or disposition of any assets (or any contract
or arrangement therefor), or any other transaction otherwise than for fair value
in the ordinary course of business, and (k) neither the Company nor any
Operating Subsidiary has committed itself to any of (a) through (j) above.
2.9 TAX MATTERS. All required tax returns of the Company and each
Subsidiary have been accurately prepared in all material respects and filed
(including applicable extensions), and all taxes and penalties required to be
paid with respect to the periods covered by such returns have been timely paid.
Neither the Company nor any Subsidiary is delinquent in the payment of any tax,
assessment or governmental charge, has had any tax deficiency proposed or
assessed
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against it that is still outstanding, or has executed any waiver still in effect
of any statute of limitations on the assessment or collection of any tax. None
of the federal or state income tax returns or state franchise tax returns of
either the Company or any Subsidiary has ever been audited by governmental
authorities. There is no pending dispute with any taxing authority that, if
determined adversely to the Company or any Operating Subsidiary, would result in
the assertion by any taxing authority of any material tax deficiency, and
neither the Company nor any Operating Subsidiary has any knowledge of a proposed
liability for any tax to be imposed upon the Company's or any Subsidiary's
properties or assets for which there is not an adequate reserve reflected in the
Financial Statements.
2.10 TITLE TO ASSETS; CONDITION OF ASSETS. Except as disclosed in the notes
to the latest Financial Statements, if any, and on Schedule 2.10, the Company
and the Operating Subsidiaries have good and indefeasible title to their
respective assets, including, without limitation, those reflected on the
Financial Statements (other than those since disposed of in the ordinary course
of business), free and clear of all security interests, liens, charges and other
encumbrances, except for (a) liens for taxes not yet due and payable or being
contested in good faith in appropriate proceedings, and (b) encumbrances that
are incidental to the conduct of their respective businesses or ownership of
property, not incurred in connection with the borrowing of money or the
obtaining of credit, and which do not in the aggregate materially detract from
the value of the assets affected or materially impair their use by the Company
or such Operating Subsidiary, as the case may be. With respect to the assets of
the Company and each Operating Subsidiary that are leased, the Company or such
Operating Subsidiary, as the case may be, is in compliance with all material
provisions of such leases. The equipment and other tangible assets of the
Company and the Operating Subsidiaries are in good operating condition (except
for reasonable wear and tear), and have been reasonably maintained.
2.11 PROPRIETARY RIGHTS. Except as set forth in Schedule 2.11, the Company
and the Subsidiaries have ownership of all material copyrights, trademarks,
service marks and other proprietary rights used in their respective businesses
(collectively the "Intellectual Property"). Such copyrights, trademarks, service
marks and other proprietary rights are sufficient for its business as now
conducted and as proposed to be conducted without any conflict with, or
infringement of, the rights of others. The present products and services of the
Company and the Operating Subsidiaries do not infringe any patent, copyright,
trademark or other proprietary rights of others, neither the Company nor any
Operating Subsidiary believes the Company or any Operating Subsidiary is
utilizing the inventions of any employee (or person currently intended to be
hired) created prior to his employment with the Company or such Operating
Subsidiary, as the case may be, which the Company or such Operating Subsidiary,
as the case may be, does not have rights to use, and neither the Company nor any
Operating Subsidiary has received any notice from any third party of any such
alleged infringement by the Company or such Operating Subsidiary. The Company
and the Operating Subsidiaries have taken all necessary steps to establish and
preserve their respective ownership, licenses or rights of use of all material
trademarks, service marks, copyrights, trade secrets and other proprietary
rights with respect to their products, services and technology. Neither the
Company nor any Operating Subsidiary is
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aware of any infringement by others of its respective Intellectual Property.
Except as set forth on Schedule 2.11, there are no outstanding options,
licenses, or agreements of any kind relating to the Intellectual Property, nor
is the Company or any Operating Subsidiary bound by or a party to any options,
licenses, or agreements of any kind with respect to the patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses, information and
proprietary rights and processes of any other person or entity. None of the
agreements referred to in Schedule 2.11 gives the other parties thereto any
rights or interests in or to the Intellectual Property of the Company or any
Operating Subsidiary other than to use such Intellectual Property solely in
connection with the internal operations of their business and neither they nor
any other third party have the right to license, sublicense, distribute or
market all or part of the Company's or any Operating Subsidiary's products,
except as described on Schedule 2.11. Neither the execution nor delivery of this
Agreement, nor the carrying on of the Company's and each Operating Subsidiary's
business by the employees of the Company and each Operating Subsidiary, nor the
conduct of the Company's and each Operating Subsidiary's business as proposed,
will, to the best of the Company's and each Operating Subsidiary's knowledge,
conflict with or result in a material breach of the terms, conditions, or
provisions of, or constitute a material default under, any contract, covenant or
instrument under which any such employee is now obligated.
2.12 MANUFACTURING AND MARKETING RIGHTS. Except as set forth in
Schedule 2.12, neither the Company nor any Operating Subsidiary has granted
rights to manufacture, produce, assemble, license, market or sell its products
to any other person and is not bound by any agreement that affects the Company's
or any Operating Subsidiary's exclusive right to develop, manufacture, assemble,
distribute, market or sell its products.
2.13 EFFECT OF TRANSACTIONS; COMPLIANCE WITH OBLIGATIONS. The Company's and
each Operating Subsidiary's execution and delivery of this Agreement, and its
performance of the transactions contemplated by this Agreement, will not violate
any judgment, decree or order, or any material contract or obligation of the
Company or any Operating Subsidiary, as the case may be, or, to such entity's
knowledge, any statute, rule or regulation of any federal, state or local
government or agency applicable to the Company or any Operating Subsidiary, or
any material contract to which any employee of the Company or any Operating
Subsidiary is bound. Based upon the representations of the Investors, the offer
and sale of the Series G Shares will be in compliance with all applicable
federal and state securities laws. No consent, approval or filing with any
regulatory agency is required to be taken by the Company or any Operating
Subsidiary in connection with the transactions contemplated by this Agreement,
except those which the Company or any Operating Subsidiary has obtained or made
in a timely manner, and except for any filing of Form D or any applicable state
blue sky filing that may be made by the Company after the relevant Closing.
2.14 LITIGATION. Except as disclosed in the Company's Commission Documents
(as defined herein) and/or the latest Financial Statements, there is no
litigation, arbitration or governmental proceeding or investigation pending or,
to the knowledge of the Company or any Operating Subsidiary, threatened (a)
against the Company or any Subsidiary, (b) affecting any of
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the properties or assets of the Company or any Subsidiary, (c) that questions
the validity of this Agreement, or the right of the Company or any Operating
Subsidiary to enter into this Agreement or to consummate the transactions
contemplated hereby, or (d) against any officer, director, shareholder or
employee of the Company or any Subsidiary in such capacity or relating to his
prior employment relationships. Neither the Company nor any Operating Subsidiary
is aware of any unasserted claim that is likely to result in any litigation,
arbitration or legal or administrative proceeding against it or any other
Subsidiary.
2.15 LEGAL COMPLIANCE. The Company and the Operating Subsidiaries have all
material franchises, permits, licenses and other rights and privileges necessary
to permit them to own their respective properties and to conduct their
respective businesses as presently conducted and as proposed to be conducted.
The business and operations of the Company and each Operating Subsidiary have
been, are being and will be conducted in all material respects in accordance
with all applicable laws, rules and regulations, and neither the Company nor any
Operating Subsidiary is in violation of any judgment, or to such entity's
knowledge, any law or regulation, the violation of which could reasonably be
expected to result in a material adverse effect on the Company or such Operating
Subsidiary.
2.16 SUBSIDIARIES; JOINT VENTURES. Except as described in Schedule 2.16
hereto or in the Commission Documents, the Company does not have any direct or
indirect subsidiaries, nor any interests in partnerships, joint ventures,
limited liability companies, or other business entities. The Operating
Subsidiaries are the only Subsidiaries of the Company which either individually
or in the aggregate, have any material assets, liabilities or operations and
which constitute "significant subsidiaries" as defined in Rule 1-02 of
Regulation S-X promulgated under the Securities Act of 1933, as amended (the
"Securities Act"). Each Subsidiary named in Schedule 2.16 hereto is wholly owned
by the Company, except as set forth in Schedule 2.16 hereto, and the Company has
no present intention of (a) disposing of any of the capital stock of any such
Subsidiary presently owned by the Company or (b) allowing any Subsidiary to sell
or otherwise dispose of any material portion of such Subsidiary's assets, except
for normal dispositions in the ordinary course of business.
2.17 NO DEFAULTS; MATERIAL CONTRACTS. The Company and the Operating
Subsidiaries have in all respects performed all obligations required to be
performed by them and are not in default under any contract, commitment or
instrument, and no event or condition has occurred which, with the giving of
notice or passage of time, or both, would constitute such a default, except
where the failure to perform any such obligation, or except where any such
default, would not reasonably be expected to have a material adverse effect on
the business, assets, results of operations, condition (financial or otherwise),
or prospects of the Company and its Operating Subsidiaries taken as a whole.
Schedule 2.17 contains an accurate list of all agreements, and any contracts or
commitments, oral or written, of the Company and each Operating Subsidiary, that
require the expenditure by the Company or such Operating Subsidiary of more than
$100,000 over the term of such contract or commitment, or that are not
terminable by the Company or such Operating Subsidiary without penalty prior to
the first anniversary of this Agreement.
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Except as indicated on Schedule 2.17, (a) neither the Company nor any Operating
Subsidiary is under any material obligation that cannot be performed by it on
time and without substantial or unusual expenditure of money and effort, or (b)
any party having material contracts with the Company or any Operating Subsidiary
are, to the knowledge of such entity, in compliance with such agreements in all
material respects.
2.18 INSURANCE. The Company and the Subsidiaries maintain insurance
coverages which are adequate for the businesses being conducted, and the
properties owned or leased, by the Company and the Subsidiaries. The Company has
provided access to the Investors to correct and complete copies of all such
insurance policies of the Company and the Subsidiaries.
2.19 EMPLOYEE MATTERS; AFFILIATE TRANSACTIONS. Except as disclosed in
Schedule 2.19 or in the Commission Documents or as described in this Agreement,
(a) neither the Company nor any Operating Subsidiary has in effect or any
obligation to put into effect any employment agreements, deferred compensation,
pension or retirement agreements or arrangements, bonus, incentive or profit-
sharing plans or arrangements, or labor or collective bargaining agreements, (b)
there are no existing or proposed loans, leases, licenses or other such
agreements or arrangements between the Company or any Operating Subsidiary, on
the one hand, and any officer, director or stockholder of the Company or any
Operating Subsidiary, on the other hand, and (c) neither the Company nor any
Operating Subsidiary (i) is a party to any contract with any labor union or
organization representing any employee, or any other employee representative, or
(ii) has had at any time during the past five years, nor to the knowledge of
such entity is there now threatened, any walkout, strike, picketing, work
stoppage or any other similar occurrence which has had or would have a material
adverse effect on the assets, business, prospects or operations of the Company
and the Operating Subsidiaries. The Company has made available to the Investors
a true and correct summary of the policies, if any, followed by the Company and
each Operating Subsidiary regarding confidentiality of sensitive information and
ownership of patents, know-how and other such matters relating to the business
of the Company and each Operating Subsidiary. Except as disclosed in Schedule
2.19, to the knowledge of the Company and the Operating Subsidiaries, (A) no
officer or other key employee of the Company or any Operating Subsidiary has any
present intention of terminating his employment with the Company or such
Operating Subsidiary, and (B) no key employee is bound by any agreement with any
other employer (past or present) that adversely affects the performance of his
duties as an employee of the Company or any such Operating Subsidiary or the
businesses of the Company or any such Operating Subsidiary.
2.20 BROKERAGE. Except as listed in Schedule 2.20, there are no claims for
brokerage commissions, finder's fees or similar compensation in connection with
the transactions contemplated by this Agreement based on any arrangement or
agreement made by the Company or any Subsidiary, for which any of the Investors
are or could under any circumstance be liable.
2.21 DISCLOSURE. This Agreement, including the exhibits and schedules
hereto, and the other documents and certificates furnished by the Company and/or
any Subsidiary to the
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Investors or their counsel do not contain any untrue statement of material fact
or, when taken as a whole, omit any material fact necessary in order to make the
statements not misleading. There is no fact known to the Company or any
Operating Subsidiary that has not been disclosed in the Commission Documents or
that the Company and the Operating Subsidiaries have not disclosed to the
Investors prior to the date of this Agreement or any Additional Closing, as
applicable, that materially adversely affects the business, assets, properties,
prospects or condition (financial or otherwise) of the Company or any Operating
Subsidiary or the ability of the Company or any Operating Subsidiary to perform
under this Agreement or to consummate the transactions contemplated hereby.
2.22 EMPLOYEE BENEFIT PLANS. Except as set forth in Schedule 2.22 hereto,
neither the Company nor any Operating Subsidiary maintains, sponsors, or
contributes to any program or arrangement that is an "employee pension benefit
plan," an "employee welfare benefit plan," or a "multiemployer plan," as those
terms are defined in Sections 3(2), 3(1), and 3(37) of the Employee Retirement
Security Act of 1974, as amended. Except as listed in Schedule 2.22, neither the
Company nor any Operating Subsidiary has any incentive or benefit arrangements.
2.23 ENVIRONMENTAL.
(a) Except for items which could not reasonably be expected to have a
material adverse effect on the Company or any Subsidiary, no part of the
Company's or any of its Subsidiaries' assets, including, without limitation, any
real property owned or, to the knowledge of such entity after diligent and
appropriate inquiry by the officers of such entity, leased by any such entity,
is contaminated by any substance or material presently identified to be toxic, a
pollutant, a contaminant or a hazardous substance according to any Applicable
Environmental Law. Neither the Company nor any Subsidiary has caused or
suffered to occur any material discharge, release, spillage, emission,
uncontrolled loss, seepage or filtration of oil or petroleum or chemical liquids
or solids, liquid or gaseous products or hazardous waste or hazardous substance
at, from, upon, and under or within any real property owned or leased by the
Company or any Subsidiary, or any contiguous real property. Neither the Company
nor any Subsidiary has been and none of such entities has committed any acts or
omissions which could reasonably be expected to lead to the imposition on the
Company or any Subsidiary of material liability, or creation of a lien on the
Company's or any Subsidiary's assets, under any Applicable Environmental Law.
(b) For purposes of this Section, "Applicable Environmental Law" shall mean
any law affecting real or personal property owned, operated or leased by the
Company or any Subsidiary or any other operation of the Company or any
Subsidiary in any way pertaining to health, safety, or the environment,
including, without limitation, (i) the Comprehensive Environmental Response,
Conservation and Liability Act of 1980, as amended by the Superfund Amendments
and Reauthorization Act of 1986 (as amended from time to time, herein referred
to as "CERCLA"), (ii) the Resource Compensation and Recovery Act of 1976, as
amended by the Used Oil Recycling Act of 1980, the Solid Waste Disposal Act of
1980, and the Hazardous and
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Solid Waste Amendments of 1984 (as amended from time to time, herein referred to
as "RCRA"), (iii) the Safe Drinking Water Act, as amended from time to time,
(iv) the Toxic Substances Control Act, as amended from time to time, (v) the
Clean Air Act, as amended from time to time, (vi) the Occupational Safety and
Health Act, as amended from time to time, and (vii) any laws which may now or
hereafter require removal of asbestos or other hazardous wastes or impose any
liability related to asbestos or other hazardous wastes. The terms "hazardous
substance", "petroleum", "release", and "threatened release" have the meanings
specified in CERCLA, and the terms "solid waste" and "disposal" (or "disposed")
have the meanings specified in RCRA; provided, however, that in the event either
CERCLA or RCRA is amended so as to broaden the meaning of any term defined
thereby, such broader meaning shall apply subsequent to the effective date of
such amendment with respect to all provisions of this Agreement; and provided
further, however, that to the extent the laws of any nation, province, state or
political subdivision thereof in which any real or personal property owned,
operated or leased by the Company or any Subsidiary is located or in which the
Company or any Subsidiary conducts operations establish a meaning for "hazardous
substance", "petroleum", "release", "solid waste" or "disposal" which is broader
than that specified in either CERCLA or RCRA such broader meaning shall apply.
2.24 AFFILIATED TRANSACTIONS. Schedule 2.24 hereto and the Commission
Documents contain a complete listing of all compensation and other agreements of
the Company and each Subsidiary with or for the benefit of any of their
respective affiliates, any shareholder of the Company and the Subsidiaries,
respectively, or any affiliate of any shareholder of the Company and the
Subsidiaries, respectively, other than inter-company transactions with or
between Operating Subsidiaries. Except for the employment contracts listed on
Schedule 2.24 hereto or in the Commission Documents, copies of which have been
provided to the Investors, neither the Company nor any Operating Subsidiary
have, as of the Closing Date, any written employment contracts.
2.25 PRIVATE OFFERING. Neither the Company nor anyone acting on its behalf
has offered or will offer shares of the Company or any part thereof or any
similar securities for issuance or sale to, or solicit any offer to acquire any
of the same from, anyone so as to make the issuance and sale of the Series G
Shares not exempt from the registration requirements of Section 5 of the
Securities Act; provided, however, that with respect to the offer and sale
thereof to the Investors, the Company is relying on the representations,
warranties and agreements of the Investors set forth herein. All shares of
capital stock of the Company have been offered and sold in compliance with all
applicable federal and state securities laws. Assuming that each Investor's
representations and warranties contained in SECTION 3 of this Agreement are true
and correct on each Closing Date on which such Investor purchased any Series G
Shares, the offer, issuance and sale of the Series G Shares are and will be
exempt from the registration and prospectus delivery requirements of the
Securities Act, as then in effect, and have been or will be registered or
qualified (or are or will be exempt from registration and qualification) under
the registration, permit or qualification requirements of all applicable state
securities laws, as then in effect.
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2.26 COMMISSION DOCUMENTS. The Company has filed all registration
statements, proxy statements, reports and other documents required to be filed
by it under the Securities Act and the Exchange Act, and all amendments thereto;
and the Company has furnished to the Investors copies of all of such documents,
each as filed with the Commission, other than all exhibits thereto, since
January 1, 1996 (collectively, the "Commission Documents"), and has furnished
access to all other Commission Documents, and all exhibits thereto. Each
Commission Document (as finally amended) was true and accurate in all material
respects and was in material compliance with the requirements of its respective
report form at the time such document was filed.
2.27 HOLDING COMPANY AND INVESTMENT COMPANY STATUS. Neither the Company
nor any Subsidiary is a "holding company," or a "subsidiary company" of a
"holding company," or an "affiliate" of a "holding company," or a "public
utility," within the meaning of the Public Utility Holding Company Act of 1935,
as amended, or a "public utility" within the meaning of the Federal Power Act,
as amended. Neither the Company nor any Subsidiary is an "investment company"
or a company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, or an "investment adviser" within
the meaning of the Investment Advisers Act of 1940, as amended.
SECTION 3. REPRESENTATIONS OF THE INVESTORS
As part of the basis of this Agreement, each Investor, severally and not
jointly, hereby represents that on the date hereof and on each Closing Date:
3.1 AUTHORIZATION. The execution of this Agreement and the documents
executed by the Investor pursuant to this Agreement have been authorized by all
necessary action on the part of the Investor, have been executed and delivered,
and constitute valid, legal, binding and enforceable agreements of the Investor.
3.2 INVESTMENT PURPOSE. The Investor is acquiring the Series G Shares for
its own account, for investment, and not with a view to any "distribution"
within the meaning of the Securities Act. The Investor has no present intention
to make any transfer of the Series G Shares. No broker-dealer acted on behalf
of the Investor in connection with the offer or sale of the Series G Shares.
3.3 RESTRICTIONS ON TRANSFERABILITY. The Investor understands that
because the Series G Shares have not been registered under the Securities Act
and applicable state securities laws (based in part on the representations,
warranties and agreements of the Investor contained herein), it cannot dispose
of any of the Series G Shares or the Conversion Shares unless they are
subsequently registered under the Securities Act or exemptions from registration
are available and that the Investor must bear the economic risk of an investment
in such securities as a result thereof. The Investor acknowledges and
understands that, except as provided in SECTION 5 of this Agreement, it has no
registration rights. Although it may be possible in the future to make
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limited public sales of the Series G Shares and/or Conversion Shares without
registration under the Securities Act, Rule 144 is not now available and there
is no assurance that it will become available for such purpose. By reason of
these restrictions, the Investor understands that it may be required to hold the
Series G Shares and the Conversion Shares for an indefinite period of time. The
Investor understands that each certificate representing the Series G Shares and
the Conversion Shares will bear appropriate state "blue sky" legends and a
legend substantially to the effect that:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE SECURITIES MAY NOT BE
SOLD, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL OR OTHER EVIDENCE
SATISFACTORY TO THE CORPORATION THAT REGISTRATION IS NOT REQUIRED UNDER
APPLICABLE SECURITIES LAWS.
The Investor also acknowledges that appropriate stop transfer orders will be
noted on the Company's stock records for the securities bearing such legend.
3.4 STATUS OF INVESTOR. The Investor is knowledgeable and experienced in
making venture capital investments, including investments similar to those
securities to be acquired by it pursuant to this Agreement, and is able to bear
the economic risk of loss of its investment in the Company. The Investor is an
"accredited investor" as that term is defined in Rule 501(a) of Regulation D
under the Securities Act or is a "purchaser," as that term is defined in Rule
506(b)(2)(ii) of Regulation D of the Securities Act. The Investor's state of
incorporation, organization or residence and principal place of business, are
listed on Exhibit 2, and the Investor has not been organized for purposes of
investing in the Company.
3.5 BROKERAGE. There are no claims for brokerage commissions, finder's
fees or similar compensation in connection with the transactions contemplated by
this Agreement based on any arrangement or agreement made by the Investor,
except as may otherwise be provided in Exhibit 2, all of which claims shall be
paid entirely by such Investor.
3.6 OWN ACCOUNT. The Investor is acting on its own behalf in connection
with the investigation and examination of the Company and its decision to
execute these documents.
3.7 RECEIPT OF INFORMATION. The Investor has received and reviewed with
such investment, legal, financial and other advisors as the Investor has elected
a copy of each of the documents furnished to the Investor pursuant to SECTION
2.26 hereof. The Investor believes it has received all the information it
considers necessary or appropriate for deciding whether to purchase the Series G
Shares. The Investor further represents that it has had an opportunity to ask
questions and receive answers from the Company and each Subsidiary regarding the
terms and conditions of the offering of the Series G Shares and the business,
properties, prospects, and financial condition of the Company and each
Subsidiary and to obtain additional information (to
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the extent the Company or any such Subsidiary possessed such information or
could acquire it without unreasonable effort or expense) necessary to verify the
accuracy of any information furnished to it or to which it had access. The
foregoing, however, does not limit or modify the representations and warranties
in SECTION 2 of this Agreement or the right of the Investor to rely thereon.
SECTION 4. COVENANTS OF THE PARTIES.
The Company hereby covenants that, except as provided for below for so long
as (a) the Investors hold at least twenty percent (20%) of all Subseries of the
Series G Shares, with respect to the covenants contained in SECTIONS 4.4 through
4.22, excluding 4.7, and (b) the Investors hold any of the Series G Shares with
respect to the covenants contained in SECTIONS 4.1 through 4.3 and 4.7, unless
waived by at least two (2) holders of Series G Shares holding in the aggregate
at least a two-thirds interest in all of the Subseries of the Series G Shares
then outstanding, the Company will comply and will cause its Subsidiaries to
comply with the provisions of this SECTION 4.
4.1 FINANCIAL INFORMATION. The Company will maintain a system of accounts
in accordance with GAAP and procedures, will keep full and complete financial
records and will furnish to the Investors the following reports:
(a) within fifty-five (55) days after the end of each quarterly fiscal
period in each fiscal year of the Company (other than the last quarterly fiscal
period of each such fiscal year), duplicate copies of,
(i) a consolidated balance sheet of the Company and its Subsidiaries
as at the end of such quarter, and
(ii) consolidated statements of income, changes in shareholders'
equity and cash flows of the Company and its Subsidiaries, for such
quarter,
setting forth in each case in comparative form the figures for the corresponding
periods in the previous fiscal year, all in reasonable detail, prepared in
accordance with GAAP, applicable to quarterly financial statements generally,
and certified by a senior financial officer of the Company as fairly presenting,
in all material respects, the financial position of the companies being reported
on and their results of operations and cash flows, subject to changes resulting
from year-end adjustments; provided, that delivery within the time period
specified above of copies of the Company's Quarterly Report on Form l0-Q or 10-
QSB (or, if the Company files with the Commission a Form 12b-25 with respect to
a particular 10-Q or 10-QSB in accordance with the Exchange Act, no later than
five (5) days after the filing of such Form) prepared in compliance with the
requirements therefor and filed with the Commission shall be deemed to satisfy
the requirements of this Section;
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(b) within one hundred (100) days after the end of each fiscal year of the
Company, duplicate copies of,
(i) a consolidated balance sheet of the Company and its Subsidiaries,
as at the end of such year, and
(ii) consolidated statements of income, changes in shareholders'
equity and cash flows of the Company and its Subsidiaries, for such year,
setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail, prepared in accordance with GAAP and
accompanied by an opinion thereon of independent certified public accountants of
recognized national standing, which opinion shall state that such financial
statements present fairly, in all material respects, the financial position of
the companies being reported upon and their results of operations and cash flows
and have been prepared in conformity with GAAP, and the examination of such
accountants in connection with such financial statements has been made in
accordance with generally accepted auditing standards, and that such audit
provides a reasonable basis for such opinion in the circumstances; provided,
that delivery within the time period specified above (or, if the Company files
with the Commission a Form 12b-25 with respect to a particular Form 10-K or 10-
KSB in accordance with the Exchange Act, no later than fifteen (15) days after
the filing of such Form) of the Company's Annual Report on Form 10-K or 10-KSB
for such fiscal year, together with the Company's annual report to shareholders,
if any, prepared pursuant to Rule 14a-3 under the Exchange Act, prepared in
accordance with the requirements therefor and filed with the Commission, shall
be deemed to satisfy the requirements of this Section;
(c) promptly upon their becoming available, one copy of (i) each financial
statement, report, notice or proxy statement sent by the Company or any
Subsidiary to public securities holders generally, and (ii) each regular or
periodic report, each final registration statement (without exhibits except as
expressly requested by such holder), and each final prospectus and all
amendments thereto filed by the Company or any Subsidiary with the Commission
and of all press releases and other statements made available generally by the
Company or any Subsidiary to the public concerning developments that are
material;
(d) promptly, and in any event within ten (10) days after a Responsible
Officer (as defined below) becomes aware of the existence of any default in the
performance of any covenant, obligation or agreement of the Company hereunder or
pursuant to any other document executed pursuant to the terms of this Agreement
or any material breach of any representation made by the Company or any
Operating Subsidiary hereunder (each an "Event of Default") or that any person
has given any notice or taken any action with respect to a claimed Event of
Default, a written notice specifying the nature and period of existence thereof
and what action the Company is taking or proposes to take with respect thereto
(as used herein, the terms "Responsible Officer" shall mean any of the following
officers of the Company: the Chairman, the President, the Chief Executive
Officer, the Chief Operating Officer, the Chief Financial
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Officer, the Treasurer, and Senior or Executive Vice Presidents and the
controller or the chief accounting officer (and any person who performs one of
the same functions under a different title));
(e) promptly, and in any event within thirty (30) days of receipt thereof,
copies of any notice to the Company or any Subsidiary from any government entity
relating to any order, ruling, statute or other law or regulation that would
reasonably be expected to have a material adverse effect on the business,
assets, results of operations, condition (financial or otherwise), or prospects
of the Company and its Subsidiaries considered as a whole; and
(f) with reasonable promptness, such other data and information relating to
the business, operations, affairs, financial condition, assets or properties of
the Company or any Subsidiary or relating to the ability of the Company or any
Subsidiary to perform its obligations hereunder as from time to time may be
reasonably requested by any Investor.
4.2 ACCESS TO INFORMATION. The Company will permit any Investor to
inspect at the Investor's expense any of the properties or books and records of
the Company and any Subsidiary, to make copies of extracts from such books and
records at the Investor's expense and to discuss the affairs and condition of
the Company and the Subsidiaries with representatives of the Company and such
Subsidiaries, all to such reasonable extent and at such reasonable times and
intervals as such Investor may reasonably request. If any Investor exercises
the right to inspection it must, unless otherwise required by law, at the
request of the Company or a Subsidiary, as appropriate, sign an agreement to
hold in confidence any confidential information received as a result of such
inspection under circumstances indicating the confidentiality of such
information until such information has been publicly disclosed or until
disclosure is required by law or by court order.
4.3 USE OF PROCEEDS. The Company shall timely report to the SBA the use
of proceeds from the sale of any Subseries of the Series G Shares on SBA Form
1031 and will provide NBCC with a copy of such report as soon as practicable
after its filing with the SBA. In addition, the Company shall promptly provide
to NBCC or the SBA, as the case may be, all such information specified in (S)610
of the SBA regulations. The Company and each Subsidiary shall provide NBCC (in
addition to the rights granted pursuant to SECTION 4.2 hereof) and/or the SBA,
upon written request from NBCC or the SBA, as the case may be, access to the
Company's and each Subsidiary's, as the case may be, books and records to
confirm the use of proceeds reported by the Company to the SBA on SBA Form 1031.
The Company will use the proceeds from the sale of any Subseries of the Series G
Shares for only those purposes specified in such SBA Form 1031 and,
notwithstanding anything else to the contrary contained herein or therein, the
Company shall not use the proceeds from the sale of the Series G Shares for any
restricted or ineligible purpose, as set forth in (S)720 of the SBA regulations.
4.4 KEY MAN INSURANCE. The Company shall maintain key man term life
insurance in the amount of $2,000,000 on Tim B. Tarillion, $1,000,000 on Donovan
W. Boyd, $1,700,000
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on Ron Borah and $500,000 on each of Judith Knight Shields and Michael Bonem
during the respective period or periods that each such person is employed by the
Company or any Subsidiary, with the Company as the sole beneficiary of the
proceeds of the policies described herein.
4.5 INTELLECTUAL PROPERTY. From the date hereof, the Company and each
Subsidiary will use all reasonable efforts to keep confidential all know-how,
trade secrets, proprietary rights and other confidential intellectual property
and information which is material to the respective businesses or prospective
businesses of the Company and the Subsidiaries, and to provide the Company
and/or each Subsidiary with sufficient title to, ownership of, or rights to such
intellectual property as is or may become necessary for the conduct of their
respective businesses. From the date hereof, the Company and each Subsidiary
will use its best efforts to enter into such agreements with its respective
employees, consultants, licensees, customers and other third parties as may be
reasonably required to carry out its obligations under this SECTION 4.5.
4.6 PRESERVATION OF CORPORATE EXISTENCE AND PROPERTY. Except as otherwise
determined by the Board of Directors to be in the best interests of the Company,
the Company and each Subsidiary will preserve, protect, and maintain, (a) its
corporate existence, and (b) all rights, franchises, accreditation, privileges,
and properties the failure of which to preserve, protect, and maintain would
reasonably be expected to have a material adverse effect on the business,
affairs, assets, prospects, operations, or condition, financial or otherwise, of
the Company and its Subsidiaries.
4.7 SBA REPORTS. Within twenty (20) days after NBCC shall have made a
request therefor, the Company and each Subsidiary will furnish to NBCC in
writing all information reasonably available to the Company and the Subsidiaries
that NBCC shall request with respect to the Company, the Subsidiaries, or any
firm or corporation in which the Company or any Subsidiary may from time to time
have or have had any interest, which is needed in connection with the
preparation of SBA forms or any other report or form that NBCC may be required
to make to any governmental agency or regulatory authority in connection with
its purchase and/or ownership of shares of any Subseries of Series G Shares or
the Conversion Shares.
4.8 LIABILITY INSURANCE. The Company will use its best efforts to
maintain comprehensive liability insurance (including automobile liability
coverage) at regular premium rates with insurer(s) of recognized responsibility
in an amount which is commercially reasonable for the benefit of itself and the
Subsidiaries.
4.9 NO IMPAIRMENT. The Company and the Subsidiaries will observe and
honor in good faith all rights of the Investors, under the terms of this
Agreement or any other documents executed in connection herewith, and will take
no action that would impair or otherwise prejudice such rights.
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4.10 BOARD MEETINGS. The Company's Board of Directors shall meet at least
once in every fiscal quarter ending on the last day of March, June, September
and December of each year, beginning with the quarter ending on March 31, 1997.
The Chairman of the Board of Directors shall meet with the representatives of
the Investors not on the Board of Directors in a separate meeting to be held
immediately subsequent to each quarterly meeting of the Board of Directors of
the Company.
4.11 BOARD OF DIRECTORS.
(a) The Board of Directors of the Company shall consist of no more than
nine (9) members, composed of:
(i) four (4) members (three (3) members at such time as at least one-
third of the aggregate number of shares of the Company's Series F Preferred
stock $.001 par value per share (the "Series F Preferred Shares") and all
Subseries of the Series G Shares, taken together as a group, issued at or
before the date of such determination are no longer issued and outstanding)
designated by the holders of a majority of the aggregate number of then
outstanding shares of the Series F Preferred Shares and all Subseries of
the Series G Shares, taken as a group (at least one (1) of which shall be
designated by NBCC so long as NBCC owns at least fifty percent (50%) of the
aggregate number of Series F Preferred Shares and all Subseries of the
Series G Shares, taken together as a group, then outstanding); and
(ii) four (4) members designated by the holders of Common Stock (five
(5) members at such time as the holders of the Series F Preferred Shares
and all Subseries of the Series G Shares are entitled to designate three
(3) members pursuant to the terms of clause (i) above); and
(iii) one (1) member designated jointly by the holders of the Common
Stock and the holders of the Series F Preferred Shares and all Subseries of
the Series G Shares, taken together as a group. The size and composition
of the Board is subject to the right of the holders of the Series F
Preferred Shares and all Subseries of the Series G Shares to elect a
majority of the Board as provided hereunder.
(b) Except as provided below in SECTION 4.11(D), at any time that the
Company increases the size of its Board of Directors to a number greater than
nine (9), then (i) the holders of a majority of the aggregate number of then
outstanding Series F Preferred Shares and all Subseries of the Series G Shares,
taken together as a group, then issued and outstanding and (ii) the holders of
the Common Stock, shall each designate the same number of additional new
directors to fill any newly created vacancies on the Board of Directors
subsequent to the date of this Agreement.
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(c) The Company agrees to propose the designees of the holders of the
Series F Preferred Shares and the Series G Shares (and the designee(s) of NBCC)
as provided above for election to its Board of Directors and to take all such
action to effect such election as are within its power. The rights and
obligations under this SECTION 4.11 shall terminate at such time as at least
two-thirds, of the aggregate number of Series F Preferred Shares and all
Subseries of the Series G Shares, taken together as a group, issued at or before
the time such determination is made are no longer issued and outstanding;
provided, however, that a majority of the aggregate number of shares of Series F
Preferred Shares and all Subseries of the Series G Shares, taken together as a
group, then outstanding shall continue to have the right to designate one (1)
member of the Board of Directors of the Company so long as at least ten percent
(10%) of the aggregate number of Series F Preferred Shares and all Subseries of
the Series G Shares, taken together as a group, issued at or before the time
such determination is made remain outstanding (which shall be the designee of
NBCC in the event NBCC owns any of such remaining ten percent (10%)).
(d) If the Company shall breach any of the covenants or obligations set
forth in the Master Certificate of Designation or any of its obligations,
covenants and/or agreements contained in (a) SECTIONS 4.1 through 4.14, 4.16,
4.18, 4.19, 4.21, SECTION 5, SECTION 6, SECTION 7, or SECTION 8 herein, and such
breach remains uncured or unremedied for a period of ninety (90) days, (b)
SECTION 4.16 herein, and such breach remains uncured or unremedied for thirty
(30) days, (c) SECTION 4.15 herein, and such breach remains uncured for a period
of fifteen (15) days or (d) SECTION 4.22, then in any such event, the holders of
a majority of the aggregate number of then outstanding shares of all Subseries
of the Series G Shares, taken together as a group, shall be entitled then and
thereafter to nominate and elect a majority of directors to the Company's Board
of Directors (at least two (2) of which shall be designees of NBCC); provided,
however, that if there is, simultaneously with such breach, a breach by the
Company of any covenant or obligation set out in that certain Stock and Warrant
Purchase Agreement, dated as of April 5, 1996, pursuant to which the Company
issued and sold Series F Preferred Shares (as amended on or before the date
hereof, the "Series F Purchase Agreement"), and as a result thereof, the
provisions of the Series F Purchase Agreement granted to the holders of the
Series F Preferred Shares a similar right to nominate and elect a majority of
directors to the Company's Board of Directors, then the rights granted in this
SECTION 4.11(D) to the holders of a majority of the aggregate number of then
outstanding shares of the Series G Shares to nominate and elect a majority of
directors to the Company's Board of Directors shall instead be a right granted
in favor of the holders of a majority of the aggregate number of then
outstanding shares of the Series F Preferred Shares and the Series G Shares,
taken together as a group. Any vacancy on the Board of Directors occurring
because of the death, resignation or removal of a director elected by the
holders of the Series G Shares (or a majority of the aggregate number of then
outstanding shares of the Series F Preferred Shares and all Subseries of the
Series G Shares, taken as a group), as contemplated by this SECTION 4.11, shall
be filled by the vote or written consent of the holders of a majority of the
aggregate number of then outstanding shares of all Subseries of the Series G
Shares (or a majority of the aggregate number of then outstanding shares of the
Series F Preferred Shares and the Series G Shares, taken together as a group, as
appropriate); provided, however, that any designee of a particular holder of
Series F Preferred
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Shares or Series G Shares shall be replaced by such holder. A director may be
removed from the Board of Directors with or without cause by the vote or consent
of the holders of the outstanding class with voting power entitled to elect him
or her in accordance with the Delaware General Corporation Law. Any such
additional directors appointed pursuant to the terms of SECTION 4.11(D) shall
resign from the Board of Directors at the first regularly scheduled annual
meeting of the shareholders of the Company subsequent to the cure or remedy of
the breach giving rise to the holders of the majority of the aggregate number of
then outstanding shares of the Series G Shares (or a majority of the aggregate
number of then outstanding shares of the Series F Preferred Shares and all
Subseries of the Series G Shares, taken together as a group, as appropriate)
having the right to nominate and elect a majority of the directors of the Board
of Directors of the Company pursuant to this Section.
(e) In the event that the holders of Series G Preferred Shares (or the
holders of a majority of the aggregate number of then outstanding shares of the
Series F Preferred Shares and all Subseries of the Series G Shares, taken
together as a group, as appropriate) are entitled to a majority of seats on the
Company's Board of Directors, the Company agrees promptly to take all actions
necessary or appropriate (including, if necessary, amending the Company's
Certificate of Incorporation or Bylaws to increase the number of seats on the
Board of Directors) to nominate to the Company's Board of Directors, such number
of additional nominees designated by such holders as are required to give such
designees of such holders (and/or NBCC, as applicable) a majority of seats on
the Board of Directors.
(f) Any designees of the Investors serving on the Board of Directors
pursuant to this SECTION 4.11 shall have the right to be reimbursed, upon
reasonable notice and documentation of such costs and expenses to the Company,
for his or her reasonable costs of travel and out-of-pocket expenses incurred in
connection with his or her service on the Board of Directors.
4.12 DIRECTORS AND OFFICERS INSURANCE; INDEMNITY. The Company will use its
best efforts to maintain in full force and effect directors and officers
insurance at regular premium rates with insurers of recognized responsibility in
amounts and on terms comparable to other companies in the same industry as the
Company. The Company shall enter into indemnification agreements with the
designees of the Investors to the Company's Board of Directors, in form and
substance acceptable to such designees, on or prior to such designees becoming
members of the Board of Directors of the Company.
4.13 OPTION POOL. The Company shall not establish a stock grant, option
plan or purchase plan, other employee stock incentive program or agreement that
in the aggregate exceeds five percent (5%) of the fully diluted Common Stock of
the Company (excluding options and warrants in existence on the Closing Date) on
April 5, 1996 (the "Option Pool"). The provisions of this Section 4.13 shall be
in addition to, and not in any manner limit, obligations pursuant to any option,
warrant, employment agreement or other written obligation, agreement or
commitment of the Company or any Operating Subsidiary as of the date of this
Agreement (which such obligations shall be disclosed in Schedule 2.5).
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4.14 REVERSE STOCK SPLIT. Subsequent to April 5, 2001, upon the request of
the holders of a majority of the aggregate number of then outstanding shares of
Series F Preferred Shares and Subseries of Series G Shares, taken as a group,
the Company shall use its best efforts (which shall include, if required by law,
submitting such proposal to the stockholders of the Company) to implement a
reverse stock split which would, if consummated, create a Common Stock price in
excess of $12.00 per share, assuming that the average of the price earnings
ratio for the Company's Common Stock over the sixty (60) days prior to the
consummation of such reverse stock split is projected to remain unchanged or
improve after such reverse stock split.
4.15 RESTRICTED CORPORATE ACTIONS. Neither the Company nor any of the
Subsidiaries will, without the approval of the holders of a majority of the
aggregate number of shares of all Subseries of the Series G Shares then
outstanding, take any of the following actions:
(a) make any loans or advances to any officers, directors or affiliates of
the Company or any Subsidiary, other than travel or miscellaneous cash advances
in the ordinary course of business and as provided for in existing employment
agreements;
(b) incur any obligation, contingent or otherwise, to guarantee the debt or
any other obligations or liabilities of any other person or entity other than in
the normal and ordinary course of business (not including inter-company
transactions with or between Operating Subsidiaries);
(c) mortgage, pledge, hypothecate or otherwise encumber any assets or
properties if, as a result thereof, more than fifty percent (50%) of the
aggregate book value of the assets of the Company or such Subsidiary would be
subject to a mortgage, pledge, hypothecation or other encumbrance;
(d) create any new non-wholly owned subsidiary, or permit any Subsidiary to
issue any equity securities to anyone other than the Company or a wholly owned
Subsidiary of the Company;
(e) engage in any line or lines of business activity other than the
businesses in which they are engaged on the Initial Closing Date and lines of
business reasonably related thereto;
(f) directly or indirectly acquire (whether by acquisition of stock, assets
or license rights, or by entering into a joint venture, development agreement or
otherwise) the business or operations of any other corporation, person, or
entity;
(g) repurchase any shares of any employee or stockholder that would cause
the Investors not to qualify their Conversion Shares under Section 1202 of the
Internal Revenue Code of 1986, as amended, as qualified small business stock;
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(h) enter into any transaction, including, without limitation, the
purchase, sale, or exchange of property or the rendering of any service, with
any affiliate of the Company or such Subsidiary (not including inter-company
transactions with or between Operating Subsidiaries), except in the ordinary
course of and pursuant to the reasonable requirements of the Company's or such
Subsidiary's business and upon fair and reasonable terms no less favorable to
the Company or such Subsidiary than would be obtained in a comparable arms-
length transaction with a person not an affiliate of the Company or such
Subsidiary;
(i) incur any additional Debt (as defined below) if, immediately upon the
incurrence of such Debt, the ratio of Consolidated Debt (as defined below) to
Consolidated Net Worth (as defined below) would be equal to or greater than 1.0
to 1.0. As used in this SECTION 4.15(I), the term "Consolidated Debt" shall
mean, as of the date of determination, the total of all Debt of the Company and
its Subsidiaries outstanding on such date, after eliminating all offsetting
debits and credits between the Company and its Subsidiaries and all other items
required to be eliminated in the course of the preparation of consolidated
financial statements of the Company and its Subsidiaries in accordance with
GAAP. Notwithstanding anything contained herein to the contrary, Consolidated
Net Worth shall be deemed to include the shares outstanding from time to time of
the Company's Series E Convertible Preferred Stock, the Series F Preferred
Shares, the Series G Shares and any series of preferred stock issued subsequent
to the date hereof. As used in this SECTION 4.15(I), the term "Consolidated Net
Worth" shall mean, as of the date of determination, the total assets of the
Company and its Subsidiaries which would be shown as assets on a consolidated
balance sheet of the Company and its Subsidiaries as of such time prepared in
accordance with GAAP, after eliminating all amounts properly attributable to
minority interests, if any, in the stock and surplus of Subsidiaries, minus the
total liabilities of the Company and its Subsidiaries which would be shown on a
consolidated balance sheet of the Company and its Subsidiaries as of such time
prepared in accordance with GAAP. As used in this SECTION 4.15(I), the term
"Debt" shall mean, with respect to a particular person, without duplication, (i)
its liabilities for borrowed money, (ii) its liabilities for the deferred
purchase price of property acquired by such person (including, without
limitation, all liabilities created or arising under any conditional sale or
other title retention agreement with respect to such property), (iii) the amount
of any obligation under a capital lease which would, under GAAP, appear as a
liability on the balance sheet of such person, (iv) all liabilities for borrowed
money secured by a lien with respect to any property owned by such a person
(whether or not it has assumed or otherwise become liable for such liabilities),
(v) accrued but unpaid interest on any of the liabilities of the type described
in clauses (i) through (iv) above, and (vi) any guaranty of such person with
respect to the liabilities of the type described in clauses (i) through (v)
above;
(j) increase the number of shares under all stock option plans above
2,500,000 shares of Common Stock (on a fully diluted basis and as appropriately
adjusted for recapitalizations, stock splits and the like), excluding shares of
Common Stock issued or to be issued pursuant to obligations of the Company under
any option, warrant, employment agreement or other written obligation of the
Company or any Subsidiary as of April 5, 1996 (which such obligations shall be
disclosed in Schedule 2.5);
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(k) sell, lease, transfer, assign, license or pledge any material license,
intellectual property right, patent or trade secret, except in the ordinary
course of business to end users, manufacturers or distributors of its products
or services and except for security interests granted to lenders for money
borrowed;
(l) repurchase, redeem or retire any shares of capital stock of the Company
other than pursuant to (i) the Stockholders' Agreement, (ii) this Agreement,
(iii) as required by the Series E Convertible Preferred Stock Certificate of
Designation, (iv) as permitted by the Designations pursuant to which the Series
F Preferred Shares were issued or by the Master Certificate of Designation, (v)
any contractual rights to repurchase shares of Common Stock held by employees,
directors or consultants of the Company or the Subsidiaries upon termination of
their employment or services, (vi) the exercise of a contractual right of first
refusal held by the Company existing as of the date of this Agreement or
subsequently issued in connection with the Option Pool, (vii) any cashless
exercise provision of any option, warrant or right to purchase any securities of
the Company outstanding as of the date of this Agreement or (viii) as
contemplated by SECTION 6 hereof; or
(m) consolidate or merge with or into any other business entity or sell or
transfer in a single transaction or a series of related transactions all or
substantially all of the assets of the Company (or stock or assets of any
Subsidiary), or otherwise reorganize the Company (or any Subsidiary), unless
upon consummation of such merger or consolidation, the holders of voting
securities of the Company own directly or indirectly 51% or more of the voting
power to elect directors of the surviving, acquiring or consolidated
corporation, partnership or other entity.
4.16 MINIMUM NET WORTH. The consolidated net worth of the Company, as
shown on the audited financial statements of the Company for the fiscal year
ended December 31, 2000, determined in accordance with GAAP, shall be greater
than or equal to $45,000,000.
4.17 RESERVATION OF SHARES. In the event that, on the date an Investor
exercises its right to receive shares of Common Stock in accordance with the
terms of a Subseries of the Series G Shares and, there is not then available a
sufficient number of unreserved shares of Common Stock or shares reserved for
issuance in connection with the Subseries to permit such conversion, then the
Company shall, in lieu thereof, issue as many shares of Common Stock so to be
received as are then available for conversion of the Subseries and immediately
pay to such exercising Investor in cash, an amount equal to the product of: (i)
the then current fair market value of a share of Common Stock less the then
existing conversion price for those shares of the Subseries which could not be
converted, multiplied by (ii) the number of shares of Common Stock that would
otherwise be required to have been delivered by the Company upon such conversion
but are then unavailable.
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4.18 AUDITED FINANCIAL STATEMENTS. On or before April 15, 1997, the
Company shall deliver to the Investors its audited financial statements as at
and for the year ended December 31, 1996, which shall not be materially
different from those in Schedule 2.7.
4.19 ADDITIONAL KEY MAN INSURANCE. [Intentionally Omitted]
4.20 OTHER PREFERRED STOCK. [Intentionally Omitted]
4.21 DELISTING. The Company shall use its best efforts not to allow the
shares of Common Stock to be delisted such that they are no longer listed on any
national securities exchange (including among others the NASDAQ Small-Cap
Market).
4.22 CHANGE OF CONTROL. The Company shall not allow one or more persons
acting in concert, together with all affiliates, to acquire in one or more
related transactions, more than fifty percent (50%) of the shares of capital
stock of the Company that are then entitled to vote for the election of the
directors of the Company.
SECTION 5. REGISTRATION RIGHTS
5.1 DEFINITIONS. When used in this Section, unless otherwise defined
herein, the following terms shall have the respective meanings assigned to them
in this Section or in the sections, subsections or other subdivisions or other
documents referred to below:
"Demand Registration" shall have the meaning assigned to it in SECTION 5.2.
"Holder" shall mean any Person that holds Registrable Securities.
"Lockup Period" shall mean the six-month period following the Initial
Closing Date. "Person" shall mean any individual, corporation, partnership,
joint venture, limited partnership, limited liability company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Piggyback Registration" shall have the meaning assigned to it in
SECTION 5.3.
"Registrable Securities" shall mean (i) the Conversion Shares, and (ii) any
securities issued or issuable with respect to the foregoing shares by way of a
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization.
"Registration Expenses" shall mean (i) all expenses incident to the
Company's performance of or compliance with the registration rights granted
hereunder, including (without limitation) all registration and filing fees, fees
and expenses of compliance with securities and blue sky laws, printing and
engraving expenses, messenger, telephone and delivery expenses, and
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fees and disbursements of counsel for the Company, all independent certified
public accountants and underwriters (excluding discounts and commissions) and
(ii) in connection with each registration hereunder, the reasonable fees and
disbursements of no more than one counsel chosen by the holders of a majority of
the Registrable Securities included in such registration in an amount not to
exceed $10,000; provided, that, Registration Expenses shall not include any
Selling Expenses.
"Registration Request" shall have the meaning assigned to it in
SECTION 5.2.
"Registration Rights Expiration Point" shall mean April 5, 2004.
"Selling Expenses" shall mean underwriting discounts or commissions and any
selling commissions attributable to sales of Registrable Securities.
5.2 MANDATORY REGISTRATION. If, on or after the Lockup Period but prior
to the Registration Rights Expiration Point, and provided that at least one year
has elapsed since the most recent Registration Request (as defined below), (a)
Holders of at least twenty-five percent (25%) of the Registrable Securities not
theretofore registered pursuant to this SECTION 5, so long as the aggregate
gross proceeds to be received from such proposed offering is expected to be not
less than $500,000, or (b) Holders of at least fifty percent (50%) of the
Registrable Securities not theretofore registered pursuant to this SECTION 5, so
long as the aggregate gross proceeds to be received from such proposed offering
is expected to be not less than $1,000,000, request in writing that the Company
register under the Securities Act at least 25% of the Registrable Securities not
theretofore registered pursuant to this SECTION 5 (a "Registration Request"),
the Company shall promptly give written notice of such Registration Request to
all holders of Registrable Securities and will, as expeditiously as possible,
use its best efforts to effect the registration under the Securities Act of (i)
the Registrable Securities which the Company has been requested to register for
disposition in accordance with the intended method of disposition described in
the Registration Request and (ii) the Registrable Securities of any Holder that
elects to join in the Registration Request within twenty (20) days after receipt
of the above written notice from the Company. The Company may include in any
such registration (x) similar securities held by other parties with registration
rights and (y) similar securities that the Company desires to register;
provided, that, in connection with an underwritten offering, such additional
similar securities shall be reduced to a number, if any, that in the reasonable
opinion of the managing underwriters of such offering, would not adversely
affect the marketability or offering price of the Registrable Securities to be
included in such offering. Notwithstanding anything herein to the contrary, any
registration requested pursuant to this SECTION 5.2 (a "Demand Registration")
will not be deemed to have been effected unless it has become effective and
remained effective no less than one hundred and eighty (180) days; provided,
further, that any such registration which does not become effective after the
Company has filed a registration statement in accordance with the provisions of
this SECTION 5.2 solely by reason of the refusal to proceed of the Holder or
Holders that have made or joined in the Registration Request, including failure
to comply with the provisions of this Agreement (other than any refusal to
proceed based
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upon the advice of counsel to such Holder or Holders that the registration
statement, or the prospectus contained therein, contains an untrue statement of
a material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances then existing, or that such registration statement or such
prospectus, or the distribution contemplated thereby, otherwise violates or
would, if such distribution using such prospectus took place, violate any
applicable state or federal securities law) shall be deemed to have been
effected by the Company at the request of such Holder or Holders. This SECTION
5.2 shall not apply to a request for registration on Form S-3 (or successor
form) which shall be governed by SECTION 5.4. The Holders of Registrable
Securities may make one (1) Demand Registration pursuant to the terms of clause
(a) above and two (2) Demand Registrations pursuant to the terms of clause (b)
above.
5.3 OPTIONAL REGISTRATIONS. If, on or after the Lockup Period but prior
to the Registration Rights Expiration Point, the Company proposes to register
any of its securities under the Securities Act other than (a) under employee
compensation or benefit programs, (b) an exchange offer or an offering of
securities solely to the existing stockholders or employees of the Company, and
(c) any registration conducted solely in connection with a proposed acquisition
by the Company or any of its Subsidiaries, and the registration form to be used
may be used for the registration of Registrable Securities, the Company will
give prompt written notice to all holders of Registrable Securities of its
intention to effect such a registration and will include in such registration
all Registrable Securities with respect to which the Company has received
written requests for inclusion therein within twenty (20) days after the receipt
of the Company's notice (a "Piggyback Registration"). The Company shall use its
best efforts to cause the managing underwriters of a proposed underwritten
offering to permit the Registrable Securities requested to be included in the
registration statement (or registration statements) for such offering to be
included therein on the same terms and conditions as any similar securities of
the Company included therein. Notwithstanding the foregoing, if the Company
gives notice of such a proposed registration, the total number of Registrable
Securities which shall be included in such registration shall be reduced pro
rata to such number, if any, as in the reasonable opinion of the managing
underwriters of such offering would not adversely affect the marketability or
offering price of all of the securities proposed to be offered by the Company in
such offering; provided, however, that (i) if such Piggyback Registration is
incident to a primary registration on behalf of the Company, and to the extent
not prohibited by any registration rights agreements existing as of the date
hereof, the securities to be included in the registration statement (or
registration statements) for any person other than the Holders or the holders of
Series F Preferred Shares and the Company shall be first reduced prior to any
such pro rata reduction, and (ii) if such Piggyback Registration is incident to
a secondary registration on behalf of holders of securities of the Company, the
securities to be included in the registration statement (or registration
statements) for any person not exercising "demand" registration rights other
than the Holders and the holders of the Series F Preferred Shares shall, to the
extent not prohibited by any registration rights agreements existing as of the
date hereof, be first reduced prior to any such pro rata reduction.
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5.4 FORM S-3. If, on or after the Lockup Period but prior to the
Registration Rights Expiration Point, the Company is eligible to effect a
registration of its securities under Form S-3 (or a successor form), the Holders
will have the right to request and have effected unlimited registrations of
shares of Registrable Securities on Form S-3 as long as the aggregate proposed
offering price is not less than $500,000 for such registration. Upon written
request of a Holder delivered to the Company, the Company will use all
reasonable efforts to cause the registration of all shares of Registrable
Securities on Form S-3 or such successor form to the extent requested by the
Holder. All expenses incurred in connection with such registration requested
pursuant to this SECTION 5.4 shall be borne by the Holder; provided, however,
that if the Company for its own account or any other holder of shares elects to
register its shares as permitted below, the expenses of such registration shall
be borne pro rata by all parties to the registration based upon the ratio that
the number of such shares registered by such entity bears to the total number of
shares to be registered. In connection with any such registration pursuant to
this SECTION 5.4, the Company will in good faith use its best efforts to keep
such expenses to be incurred by the Holders at a reasonable level (consistent
with registrations of a similar nature and form). Any registration statement
filed pursuant to this SECTION 5.4 may include other securities of the Company,
with respect to which "piggy back" registration rights have been granted, and
may include securities of the Company being sold for the account of the Company;
provided, however, that any cutback shall be dealt with in the same manner as
provided in SECTION 5.3.
5.5 PROCEDURE FOR REGISTRATION. In connection with any request that any
Registrable Securities be registered pursuant to this Agreement, the Company
will use its best efforts to effect the registration of the Registrable
Securities in accordance with the intended method of disposition thereof, and
pursuant thereto the Company will use its best efforts to as expeditiously as
possible:
(a) prepare and file with the Commission a registration statement on the
appropriate form with respect to such Registrable Securities and use its best
efforts to cause such registration statement to become effective (provided that
before filing a registration statement or prospectus or any amendments or
supplements thereto, the Company will furnish to the counsel, if any, selected
by the Holders of a majority of the Registrable Securities covered by such
registration statement copies of all such documents proposed to be filed)
(provided, however, that in connection with a Demand Registration, the Company
shall be deemed to have met its obligations under this paragraph (a) so long as
it files a registration statement within six (6) months of a Registration
Request);
(b) prepare and file with the Commission such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective for a period of
not less than six (6) months or such shorter period which will terminate when
Registrable Securities covered by such registration statement have been sold
(but not before the expiration of the applicable prospectus delivery period) and
comply with the provisions of the Securities Act with respect to the disposition
of all
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securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers thereof set
forth in such registration statement;
(c) furnish to each seller of Registrable Securities such number of copies
of such registration statement, each amendment and supplement thereto, the
prospectus included in such registration statement (including, without
limitation, each preliminary prospectus) and such other documents as such seller
may reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such seller;
(d) use its best efforts to register or qualify such Registrable Securities
under such other securities or blue sky laws of such jurisdictions within the
United States as any seller reasonably requests and do any and all other acts
and things which may be reasonably necessary or advisable to enable such seller
to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller (provided that the Company will not be required
to qualify generally to do business or subject itself to any general service of
process in any jurisdiction where it is otherwise not then so subject);
(e) notify each seller of such Registrable Securities, at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event of which the Company becomes aware which
requires the making of any change in the prospectus included in such
registration statement so that such document will not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and,
at the request of any such seller, the Company will prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the purchasers
of such Registrable Securities, such prospectus will not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading;
(f) use its best efforts to cause all such Registrable Securities to be
listed on each securities exchange or exchanges, automated quotation system or
over-the-counter market upon which securities of the Company of the same class
are then listed;
(g) enter into such customary agreements (including, without limitation,
underwriting agreements in customary form, substance, and scope) and take all
such other actions as the Holders of a majority of the Registrable Securities
being sold or the underwriters, if any, reasonably request in order to expedite
or facilitate the disposition of such Registrable Securities;
(h) otherwise use its best efforts to comply with all applicable rules and
regulations of the Commission and make generally available to its security
holders an earnings statement no later than ninety (90) days after the end of
the 12-month period beginning with the first day of the Company's first full
calendar quarter after the effective date of the registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder;
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(i) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the disqualification
of any common stock included in such registration statement for sale in any
jurisdiction, the Company will use its best efforts promptly to obtain the
withdrawal of such order; and
(j) use its best efforts to cause such Registrable Securities covered by
such registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the sellers
thereof to consummate the disposition of such Registrable Securities.
5.6 REGISTRATION EXPENSES. The Company shall pay all Registration
Expenses in connection with (a) the first three (3) Demand Registrations and (b)
each registration effected pursuant to SECTION 5.3 and, in any event, shall pay
its internal expenses (including, without limitation, all salaries and expenses
of its officers and employees performing legal and accounting duties, but
subject to the last sentence of this SECTION 5.6), the expense of any annual
audit and the fees and expenses incurred in connection with the listing of the
securities to be registered on each securities exchange on which similar
securities issued by the Company are then listed. All Registration Expenses in
connection with a Demand Registration other than the first three (3) Demand
Registrations shall be borne by the seller or sellers of Registrable Securities
pro rata based upon the number of Registrable Securities included in such
registration. All Selling Expenses incurred in connection with a registration
effected pursuant to the terms hereof shall be borne by the seller or sellers of
Registrable Securities pro rata based upon the number of Registrable Securities
included in such registration. Notwithstanding the foregoing, however, if, in
connection with any Demand Registration effected other than the first three (3)
Demand Registrations, the Company in good faith determines it is necessary to
hire or engage additional temporary employees or consultants in connection with
the preparation and consummation of such registration, the reasonable fees,
costs and expenses of such employees or consultants incurred by the Company
shall be borne by the seller or sellers of Registrable Securities pro rata based
upon the number of Registrable Securities included in such registration.
5.7 INDEMNIFICATION.
(a) The Company shall indemnify and hold harmless, with respect to any
registration statement filed by it, to the full extent permitted by law, each
holder of Registrable Securities covered by such registration statement, and
each other Person, if any, who controls such holder within the meaning of
Section 15 of the Securities Act (collectively, "Holder Indemnified Parties")
against all losses, claims, damages, liabilities and expenses, joint or several
to which any such Holder Indemnified Party may become subject under the
Securities Act, the Exchange Act, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon (i) any untrue statement or alleged untrue statement of a material fact
contained in
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any registration statement in which such Registrable Securities were included as
contemplated hereby or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, (ii) any untrue statement or alleged untrue statement of
a material fact contained in any preliminary, final or summary prospectus,
together with the documents incorporated by reference therein (as amended or
supplemented if the Company shall have filed with the Commission any amendment
thereof or supplement thereto), or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading, or (iii) any violation by the Company of any federal,
state or common law rule or regulation applicable to the Company and relating to
action of or inaction by the Company in connection with any such registration;
and in each such case, the Company shall reimburse each such Holder Indemnified
Party for any reasonable legal or other expenses incurred by any of them in
connection with investigating or defending any such loss, claim, damage,
liability, expense, action or proceeding; provided, however, that the Company
shall not be liable to any such Holder Indemnified Party in any such case to the
extent that any such loss, claim, damage, liability or expense (or action or
proceeding, whether commenced or threatened, in respect thereof) arises out of
or is based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement or amendment thereof or
supplement thereto or in any such preliminary, final or summary prospectus in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of any such Holder Indemnified Party for use in the
preparation thereof. Such indemnity and reimbursement of expenses and other
obligations shall remain in full force and effect regardless of any
investigation made by or on behalf of the Holder Indemnified Parties and shall
survive the transfer of such securities by such Holder Indemnified Parties.
(b) Each holder of Registrable Securities participating in any registration
hereunder shall severally (and not jointly or jointly and severally) indemnify
and hold harmless, to the fullest extent permitted by law, the Company, its
directors, officers, employees and agents, and each Person who controls the
Company (within the meaning of Section 15 of the Securities Act) (collectively,
"Company Indemnified Parties") against all losses, claims, damages, liabilities
and expenses to which any Company Indemnified Party may become subject under the
Securities Act, the Exchange Act, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions or proceedings,
whether commenced or threatened, in respect thereof) are caused by (i) any
untrue statement or alleged untrue statement of a material fact contained in any
registration statement in which such holder's Registrable Securities were
included or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, (ii) any untrue statement or alleged untrue statement of a material
fact contained in any preliminary, final or summary prospectus, together with
the documents incorporated by reference therein (as amended or supplemented if
the Company shall have filed with the Commission any amendment thereof or
supplement thereto), or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the
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circumstances under which they were made, not misleading to the extent in the
cases described in clauses (i) and (ii), that such untrue statement or omission
was furnished in writing by or on behalf of such holder for use in the
preparation thereof, or (iii) any violation by such holder of any federal, state
or common law rule or regulation applicable to such holder and relating to
action of or inaction by such holder in connection with any such registration.
Such indemnity obligation shall remain in full force and effect regardless of
any investigation made by or on behalf of the Company Indemnified Parties
(except as provided above) and shall survive the transfer of such securities by
such holder.
(c) Promptly after receipt by an indemnified party under SECTION 5.7(A) or
SECTION 5.7(B) of written notice of the commencement of any action, suit,
proceeding, investigation or threat thereof made in writing with respect to
which a claim for indemnification may be made pursuant to this SECTION 5, such
indemnified party shall, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the indemnifying party of the threat
or commencement thereof; provided, however, that the failure to so notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party except to the extent that the indemnifying party is
actually prejudiced by such failure to give notice. If any such claim or action
referred to under SECTION 5.7(A) or SECTION 5.7(B) is brought against any
indemnified party and it then notifies the indemnifying party of the threat or
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it wishes, jointly with any other indemnifying
party similarly notified, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party. After notice from the indemnifying
party to such indemnified party of its election so to assume the defense of any
such claim or action, the indemnifying party shall not be liable to such
indemnified party under this SECTION 5 for any legal expenses of counsel or any
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation unless the
indemnifying party has failed to assume the defense of such claim or action or
to employ counsel reasonably satisfactory to such indemnified party. Under no
circumstances will the indemnifying party be obligated to pay the fees and
expenses of more than one law firm for all indemnified parties. The
indemnifying party shall not be required to indemnify the indemnified party with
respect to any amounts paid in settlement of any action, proceeding or
investigation entered into without the written consent of the indemnifying
party, which consent shall not be unreasonably withheld. No indemnifying party
shall consent to the entry of any judgment or enter into any settlement without
the consent of the indemnified party unless (i) such judgment or settlement does
not impose any obligation or liability upon the indemnified party other than the
execution, delivery or approval thereof, and (ii) such judgment or settlement
includes as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a full release and discharge from all
liability in respect of such claim for all persons that may be entitled to or
obligated to provide indemnification or contribution under this SECTION 5.
(d) Indemnification similar to that specified in the preceding subsections
of this SECTION 5 (with appropriate modifications) shall be given by the Company
and each seller of
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Registrable Securities with respect to any required registration or
qualification of securities under any state securities or blue sky laws.
(e) If the indemnification provided for in this SECTION 5 is unavailable to
or insufficient to hold harmless an indemnified party under SECTION 5.7(A) or
SECTION 5.7(B), then each indemnifying party shall contribute to the amount paid
or payable by such indemnified party as a result of the losses, claims, damages,
liabilities or expenses (or actions or proceedings in respect thereof) referred
to in SECTION 5.7(A) or SECTION 5.7(B) in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand and the
indemnified party on the other in connection with the statements, omissions,
actions or inactions which resulted in such losses, claims, damages, liabilities
or expenses as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the indemnifying party or the
indemnified party, any action or inaction by any such party, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement, omission, action or inaction. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages,
liabilities or expenses (or actions or proceedings in respect thereof) pursuant
to this SECTION 5.7(E) shall be deemed to include, without limitation, any
reasonable legal or other expenses incurred by such indemnified party in
connection with investigating or defending any such action or claim (which shall
be limited as provided in SECTION 5.7(C) if the indemnifying party has assumed
the defense of any such action in accordance with the provisions thereof) which
is the subject of this SECTION 5.7(E). No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. Promptly after receipt by an indemnified party
under this SECTION 5.7(E) of written notice of the commencement of any action,
suit, proceeding, investigation or threat thereof made in writing with respect
to which a claim for contribution may be made against an indemnifying party
under this SECTION 5.7(E), such indemnified party shall, if a claim for
contribution in respect thereof is to be made against an indemnifying party,
give written notice to the indemnifying party of the commencement thereof (if
the notice specified in SECTION 5.6(C) has not been given with respect to such
action); provided, however, that the failure to so notify the indemnifying party
shall not relieve it from any obligation to provide contribution which it may
have to any indemnified party under this SECTION 5 except to the extent that the
indemnifying party is actually prejudiced by the failure to give notice. The
parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section were determined by pro rata allocation or by any other
method of allocation which does not take account of the equitable considerations
referred to in this paragraph. If indemnification is available under this
SECTION 5, the indemnifying parties shall indemnify each indemnified party to
the fullest extent provided in SECTIONS 5.7(A) and 5.7(B), without regard to the
relative fault of said indemnifying party or any other equitable consideration
provided for in this paragraph. The provisions of this paragraph shall be in
addition to any other rights to indemnification or contribution which any
indemnified party may have pursuant to law
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or contract, shall remain in full force and effect regardless of any
investigation made by or on behalf of any indemnified party, and shall survive
the transfer of securities by any such party. In connection with any
underwritten offering contemplated by this Agreement which includes Registrable
Securities, the Company and all sellers of Registrable Securities included in
any registration statement shall agree to customary provisions for
indemnification and contribution (consistent with the other provisions of this
SECTION 5) in respect of losses, claims, damages, liabilities and expenses of
the underwriters of such offering.
5.8 UNDERWRITING. If any registration effected pursuant to SECTION 5.2 is
an underwritten offering, or a best efforts underwritten offering, the
investment banker or investment bankers and manager or managers that will
administer the offering shall be mutually agreed upon by the Company and the
holders of a majority of the Registrable Securities to be included in such
offering. If any Piggyback Registration is an underwritten offering, the
Company shall have the right to select the investment banker or investment
bankers and manager or managers to administer the offering; provided, that such
investment bankers and managers must be reasonably satisfactory to the holders
of a majority of the Registrable Securities to be registered in such Piggyback
Registration, if any Person (other than the Company) has the right, in the case
of an underwritten secondary offering, to select the same.
5.9 RULE 144 REQUIREMENTS. The Company covenants to each Holder that, to
the extent that the Company shall be required to do so under the Exchange Act,
the Company shall (a) timely file the reports required to be filed by it under
the Exchange Act or the Securities Act (including, but not limited to, the
reports under Sections 13 and 15(d) of the Exchange Act referred to in
subparagraph (c)(l) of Rule 144 adopted by the Commission under the Securities
Act) and the rules and regulations adopted by the Commission thereunder, and (b)
take such further action as any Holder may reasonably request, all to the extent
required from time to time to enable such Holder to sell Registrable Securities
without registration under the Securities Act within the limitations of the
exemption provided by Rule 144 under the Securities Act, as such Rule may be
amended from time to time, or any similar rule or regulation hereafter adopted
by the Commission. Upon the request of any Holder, the Company shall deliver to
such Holder a written statement as to whether it has complied with such
requirements.
5.10 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the
date of this Agreement, the Company will not enter into any agreement with
respect to its securities which is inconsistent with or violates the rights
granted to the holders of Registrable Securities in this Agreement.
5.11 OBLIGATIONS OF HOLDERS IN A REGISTRATION. Each Holder agrees as
follows:
(a) If any Registrable Securities are included in a registration statement,
the holder thereof will not (until further notice) effect sales thereof after
receipt of telegraphic or written notice from the Company to suspend sales to
permit the Company to correct or update a registration statement or prospectus;
provided, that the obligations of the Company with respect
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to maintaining any registration statement current and effective shall be
extended by a period of days equal to the period said suspension is in effect.
(b) If any Registrable Securities are being registered in any registration
pursuant to this Agreement, the holder thereof will comply with all anti-
stabilization, manipulation and similar provisions of Section 10 of the Exchange
Act, as amended, and any rules promulgated thereunder by the Commission and, at
the request of the Company, will execute and deliver to the Company and to any
underwriter participating in such offering, an appropriate agreement to such
effect.
(c) At the end of any period during which the Company is obligated to keep
a registration statement current and effective as described herein, the holders
of Registrable Securities included in the registration statement shall
discontinue sales thereof pursuant to such registration statement.
(d) If any Registrable Securities are included in a registration statement,
the holder thereof will (i) furnish to the Company in writing such information
as is reasonably requested by the Company for use in the registration statement
(or any prospectus included therein), (ii) complete and execute all customary
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required by an underwriter relating to the terms of the
underwriting agreements and (iii) only sell such Registrable Securities on the
basis provided in any such underwriting agreements.
5.12 MISCELLANEOUS. In connection with its obligations under this
SECTION 5, the Company shall have no obligation (a) to assist or cooperate in
the offering or disposition of the Registrable Securities or (b) to obtain a
commitment from an underwriter relative to the sale of the Registrable
Securities.
SECTION 6. DEFAULT REMEDIES.
6.1 REMEDIES. At any time after an Event of Default (as defined in
SECTION 4.1(D) other than an Event of Default relating to SECTIONS 4.16 or
4.22), unless waived pursuant to the terms of SECTION 9.1, the Investors shall
have the right to sell ("Remedy") to the Company all or part of the Series G
Shares held by such Investors on the Remedy Date (as defined below) (the "Remedy
Securities") pursuant to the following terms:
(a) In the event Investors wish to exercise their right to sell the Remedy
Securities, the Investors shall notify the Company at least sixty (60) days
prior to the effective Remedy Date of their intention to exercise their Remedy
right, the number of the Remedy Securities, and their intended Remedy Date,
which date shall be no more than one hundred twenty (120) days from the date of
the notice; provided, however, that if a "fair market value" determination made
pursuant to SECTION 6.1(B) below extends beyond the effective Remedy Date as
specified in the notice above, then such effective Remedy Date shall be ten (10)
days after such "fair market
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value" determination. For purposes of this SECTION 6, the term "Remedy Date"
shall mean each date on which Investors exercise their right to Remedy pursuant
to this SECTION 6, and Investors shall be deemed to have exercised a Remedy
right only upon the closing of such Remedy right as specified in SECTION 6.1(E)
hereto.
(b) The purchase price per share (the "Remedy Price") of the Remedy
Securities shall be the greater of (x) the "fair market value" (plus, if not
taken into account by the party or parties determining the fair market value
pursuant to (B)(I), (B)(II) or (B)(III) below, (A) any accrued or declared but
unpaid dividends payable on each of the Remedy Securities and (B) interest, if
any) of each of such Remedy Securities or (y) the initial purchase price per
Series G Share hereunder (plus any accrued or declared but unpaid dividends
payable on the Remedy Securities, plus interest, if any). For purposes of this
SECTION 6, the term "fair market value" shall mean the fair market value of such
security on the Remedy Date, determined as follows:
(i) by written agreement of the Company and the Investors exercising
such Remedy right; or
(ii) if the Company and the Investors exercising such Remedy right
fail to reach a written agreement within thirty (30) days after the notice
given by the Investors exercising such Remedy right pursuant to SECTION
6.1(A) above, the Company and the Investors exercising such Remedy right
shall together appoint an independent appraiser to determine the "fair
market value" of the Remedy Securities, which shall be binding on the
parties; or
(iii) if (x) the Company and the Investors are unable to agree upon
the choice of an independent appraiser under (ii) hereof within forty (40)
days after the notice given by the Investors pursuant to SECTION 6.1(A) or
(y) such appraiser, after being duly selected, fails to determine the "fair
market value" within thirty (30) days of being selected, then the Company,
on the one hand, and the Investors exercising such Remedy right, on the
other hand, shall each appoint, within ten (10) days following the
expiration of the applicable time period under (x) or (y) above, an
independent appraiser, and the two appraisers together shall determine the
"fair market value." If only one appraiser is appointed during the 10-day
period referred to above, then such appraiser shall alone determine the
"fair market value," which determination shall be binding on the Company
and the Investors exercising such Remedy right. If both appraisers are
appointed within such 10-day period, and within thirty (30) days after the
appointment of the second of the two appraisers, they cannot agree on the
"fair market value" of the Remedy Securities, then each appraiser shall
prepare a separate appraisal report of the fair market value ("FMV") of the
Company and the "fair market value" of the Remedy Securities within sixty
(60) days after the appointment of the second of the two appraisers, and if
the lower of the two FMVs of the Company is equal to at least 85% of the
higher FMV of the Company, then the "fair market value" of the Remedy
Securities shall be the average of the "fair market value" of the Remedy
Securities as determined by the two appraisers. If
37
<PAGE>
only one of the appraisers submits an appraisal report on or before such
60th day, then the "fair market value" of the Remedy Securities shall be
the "fair market value" of the Remedy Securities as determined by such
report; or
(iv) if neither of the appraisers submits an appraisal request on or
before such 60th day, or if both appraisers submit an appraisal report but
the averaging requirements set forth in (iii) above are not met, then the
two appraisers shall promptly appoint a third appraiser who shall determine
the "fair market value" of the Remedy Securities. If the two appraisers
fail to appoint a third appraiser as required hereunder, either party shall
have the right to submit the determination to arbitration under the rules
and procedures of the American Arbitration Association.
(c) The appraisers and arbitrators shall have access to all books and
records of the Company and the Subsidiaries and shall have the right to examine
all of its accounts, books, assets and equipment and do all things fully and
completely to enable them to arrive at the FMV of the Company and the "fair
market value" of the Remedy Securities. The cost of any appraisal proceedings
shall be paid one-half (1/2) by the Company and one-half (1/2) by the Investors
exercising such Remedy Right (pro rata). An appraiser making an appraisal
pursuant to this Agreement shall assume an all cash sale with respect to the
subject Remedy Securities and shall assume that the restrictions on transfer
specified in this Agreement, the Stockholders' Agreement and/or any applicable
federal or state securities law restrictions on transfer are not applicable to
such Remedy Securities. All appraisers appointed shall be experienced and
knowledgeable in the industry or industries in which the Company does business.
The "fair market value" determination pursuant to SECTION 6.1(B)(III) or SECTION
6.1(B)(IV) hereof, as the case may be, shall be binding on the Company and the
Investors exercising such Remedy Right.
(d) If the Company is unable to purchase all Remedy Securities required to
be purchased on a Remedy Date due to federal or state law restrictions or due to
any restriction imposed by any listing agreement with any securities exchange to
which the Company is then a party, Remedy Securities shall be repurchased (on a
pro rata basis from the holders of the Remedy Securities based upon the Common
Stock equivalents) from time to time, to the extent the Company is legally
permitted to do so, and the Remedy obligations of the Company under this SECTION
6 will be a continuing obligation until the Company's repurchase of all such
Remedy Securities.
(e) On each Remedy Date (including any subsequent purchase closing date if
multiple purchases result from the application of SECTION 6.1(D)), the Remedy
closing shall occur at the Company's principal office. At the Remedy closing,
to the extent applicable, the Investors exercising such Remedy Right shall
deliver the Remedy Securities being sold, duly endorsed in blank, accompanied by
such supporting documents as may be necessary to pass to the Company good title
to the Remedy Securities, free and clear of all liens (other than restrictions
under applicable securities laws and/or the Stockholders' Agreement). In
consideration therefor, the Company shall deliver to each of the Investors
exercising such Remedy Right (i) payment, by
38
<PAGE>
certified check, cashier's check or wire transfer, of the aggregate Remedy Price
or (ii) at the option of the Company, a full recourse promissory note or notes
evidencing the aggregate Remedy Price (the "Remedy Notes"). Each Remedy Note
shall be secured by a pledge from the Company of the Remedy Securities for which
the Remedy Note is executed, and the Company hereby agrees to take all actions
and execute all documents (in form reasonably satisfactory to the Investors
exercising such Remedy Right) necessary or appropriate to properly and fully
secure each Remedy Note with the Remedy Securities transferred in exchange
therefor. In addition, each Remedy Note shall be in form reasonably satisfactory
to the Investors exercising such Remedy Right and shall in any case, unless
otherwise agreed to by the parties, (i) have a term of three (3) years, (ii)
provide for repayment of the aggregate Remedy Price at a rate of no less than
one-third per year, with principal and interest payable in equal semi-annual
installments, (iii) provide that the unpaid balance of the Remedy Note shall
accrue simple interest at the rate of 13.5% per annum from the date of issuance
until full payment of the aggregate Remedy Price is made and (iv) provide that
all amounts due under such Remedy Note may be accelerated and declared
immediately payable upon a default in any payment by the Company under such
Remedy Note, which is not cured within sixty (60) days.
6.2 TRANSFER OF REMEDY RIGHT. The Remedy Right granted hereunder is not
assignable except by an Investor to any party who acquires at least fifty
percent (50%) of the Series G Shares originally issued to such Investor
hereunder (appropriately adjusted for recapitalizations, stock splits and the
like).
SECTION 7. RIGHT OF FIRST REFUSAL ON ISSUANCE OF NEW SECURITIES
7.1 GRANT OF RIGHT. The Company hereby grants to each Investor, for so
long as the Investors hold at least twenty percent (20%) of all Subseries of the
Series G Shares then outstanding, the right of first refusal to purchase its Pro
Rata Share (as defined below) of New Securities (as defined below) which the
Company may, from time to time, propose to sell and issue. A "Pro Rata Share,"
for purposes of this right of first refusal, is the ratio that (a) the sum of
the total number of shares of Common Stock which are then held or obtainable by
the Investor (including those which each such Investor has the right to obtain
pursuant to exercise or conversion of any option, warrant, right or convertible
security) bears to (b) the sum of the total number of shares of Common Stock
then outstanding and which are issuable pursuant to exercise or conversion of
any then outstanding options, warrants, rights or convertible securities.
7.2 NEW SECURITIES. Except as set forth below, "New Securities" shall
mean any shares of capital stock of the Company, including Common Stock and any
series of preferred stock, whether now authorized or not, and rights, options or
warrants to purchase said shares of Common Stock or preferred stock, and
securities of any type whatsoever that are, or may become, convertible into or
exchangeable for said shares of Common Stock or preferred stock.
Notwithstanding the foregoing, the term "New Securities" does not include (a)
the Conversion Shares, (b) securities issued pursuant to the acquisition of
another corporation by the Company by merger, purchase of all or substantially
all of the assets or other reorganization whereby the
39
<PAGE>
Company or its stockholders own more than seventy-five percent (75%) of the
voting power of the surviving or successor corporation, (c) securities issued or
sold in connection with the Option Pool, (d) securities issued pursuant to any
rights, agreements or convertible securities, including, without limitation,
options and warrants, provided that the rights of first refusal established by
this SECTION 7 applied with respect to the initial sale or grant by the Company
of such rights, agreements or convertible securities, (e) securities issued
pursuant to the conversion of shares of the Company's Series E Preferred Stock
or Series F Preferred Stock, (f) securities issued pursuant to any warrant,
option, agreement or convertible security of the Company outstanding as of the
date of this Agreement (and disclosed in Schedule 2.5), (g) securities exempt
from the registration requirements of the Securities Act as a result of
Regulation S promulgated under the Securities Act, (h) securities issued in
connection with any stock split, stock dividend or recapitalization by the
Company not involving new financing or (i) any additional shares of Subseries of
Series G Shares.
7.3 NOTICE. In the event the Company proposes to undertake an issuance or
sale of New Securities, it shall give the Investors written notice of its
intention, describing the amount and type of New Securities, and the price and
general terms upon which the Company proposes to issue the same. Each Investor
shall have thirty (30) days from the date of receipt of any such notice to agree
to purchase up to its respective Pro Rata Share of such New Securities for the
price and upon the general terms specified in the notice by giving written
notice to the Company and stating therein the quantity of New Securities to be
purchased.
7.4 ELIGIBLE SALES TO THIRD PARTIES. After giving the notice and
opportunity for each Investor to participate as required under SECTION 7.3
above, the Company shall have one hundred and twenty (120) days thereafter to
issue and sell the New Securities not elected nor eligible to be purchased by
the Investors at the price and upon the terms no more favorable to the
purchasers of such securities than specified in the Company's notice under
SECTION 7.3. In the event the Company has not sold such New Securities within
said one hundred and twenty (120) day period, the Company shall not thereafter
issue or sell any New Securities without first offering such securities in the
manner provided above.
7.5 ASSIGNMENT. The right of first refusal hereunder is not assignable
except by any Investor to any party who acquires at least fifty percent (50%) of
the Series G Shares originally issued to such Investor hereunder and/or
Conversion Shares (appropriately adjusted for recapitalizations, stock splits
and the like).
7.6 ACCREDITED INVESTOR. The rights granted to the Investors pursuant to
this SECTION 7 shall only be exercisable by an Investor who demonstrates, at the
time of exercise of such rights, to the reasonable satisfaction of the Company,
that (a) such Investor is an "accredited investor," as defined in Regulation D
promulgated under the Securities Act or (b) another exemption from the
registration requirements of the Securities Act is available.
40
<PAGE>
SECTION 8. SPECIAL DEFAULT
8.1 VIOLATION IN USE OF PROCEEDS. Notwithstanding anything herein to the
contrary, any breach by the Company of the reported use of proceeds pursuant to
SECTION 4.3 hereof (without the prior written consent of NBCC) shall give each
Investor the right, in its sole and absolute discretion, to demand (and receive,
upon thirty (30) days' notice of such demand) repayment by the Company of the
amounts paid by such Investor to the Company hereunder (plus interest thereon at
the highest legal rate permitted under applicable law or SBA regulation). All
such amounts due hereunder shall be paid to such Investor by certified check,
cashier's check or wire transfer. In the event an Investor demands and receives
such repayment, the Series G Shares issued to such Investor pursuant to this
Agreement (and the Conversion Shares into which such Series G Shares may from
time to time have been converted or exercised for) shall be surrendered by such
Investor to the Company, duly endorsed in blank, accompanied by such supporting
documents as may be necessary to pass to the Company good title to such
securities, free and clear of all liens (other than restrictions under
applicable securities laws and/or the Stockholders' Agreement) and, at the
option of the Company, canceled by the Company. Notwithstanding the foregoing,
however, to the extent that SBA regulations permit the Company to cure any
default under this SECTION 8.1, the Company may cure such default prior to the
expiration of the 30-day notice period above, and in such case the rights of the
Investors to require the Company to repurchase any of their Series G Shares and
Conversion Shares to the Company under this SECTION 8.1 shall cease with respect
to such default. Any such cure shall in no way be deemed to limit an Investor's
rights under this SECTION 8.1 with respect to any subsequent default. Nothing
in this SECTION 8.1 shall be construed to restrict or otherwise limit an
Investor's right to seek all other remedies available to it as provided
hereunder, or at law or in equity, including the remedy of specific performance.
The provisions of this SECTION 8.1 shall expire upon evidence satisfactory to
NBCC that the Company has utilized the proceeds received pursuant to this
Agreement in a manner that is consistent with their use reported to the SBA on
SBA Form 1031. The rights of an Investor pursuant to this SECTION 8 shall not
be transferable or assignable except to an affiliate of such Investor.
SECTION 9. GENERAL.
9.1 AMENDMENTS, WAIVERS AND CONSENTS. Except as otherwise provided
herein, any consents required and any waiver, amendment or other action of the
Investors or holders of the Series G Shares (or Conversion Shares) may be made
by consent(s) in writing signed by at least two (2) holders of Series G Shares
holding in the aggregate at least two-thirds of all Subseries of the Series G
Shares the outstanding (including, for such purposes, any Conversion Shares into
which any of the Series G Shares have been converted that have not been sold to
the public). Any amendment or waiver made according to this paragraph will be
binding upon each holder of any securities purchased under this Agreement at the
time outstanding (including securities into which such securities have been
converted) and each future holder. Any amendment or waiver by the Company must
be made in writing.
41
<PAGE>
9.2 SURVIVAL; ASSIGNABILITY OF RIGHTS. All representations of the parties
made in this Agreement and in the certificates, exhibits, schedules or other
written information delivered or furnished by one party to the other in
connection with this Agreement will survive the delivery of the Series G Shares
for a period of three (3) years. Except as otherwise expressly provided for
herein, all covenants and agreements made in this Agreement will survive the
Initial Closing Date, and will bind and inure to the benefit of the parties'
successors and assigns.
9.3 GOVERNING LAW. THIS AGREEMENT IS TO BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO THE
CHOICE OF LAW PROVISIONS THEREOF.
9.4 COUNTERPARTS. This Agreement may be executed simultaneously in any
number of counterparts, each of which will be taken to be an original, but such
counterparts will together constitute one document.
9.5 NOTICES AND DEMANDS. Any notice or demand which is permitted or
required hereunder will be deemed to have been sufficiently received (except as
otherwise provided herein) (a) upon receipt when personally delivered, (b) one
(1) day after sent by overnight delivery or telecopy providing confirmation or
receipt of delivery, or (c) three (3) days after being sent by certified or
registered mail, postage and charges prepaid, return receipt requested to the
following addresses: if to the Company or an Operating Subsidiary, at the
address as shown on the signature page of this Agreement, or at any other
address designated by such corporation to the Investors in writing; if to an
Investor, at its mailing address as shown on Exhibit 2, or at any other address
designated by the Investors to the Company in writing.
9.6 SEVERABILITY. If any provision of this Agreement is held invalid
under applicable law, such provision will be ineffective to the extent of such
invalidity, and such invalid provision will be modified to the extent necessary
to make it valid and enforceable. Any such invalidity will not invalidate the
remainder of this Agreement.
9.7 EXPENSES; SPECIFIC ENFORCEMENT. The Company will pay (a) all costs
and expenses that it incurs with respect to the negotiation, execution, delivery
and performance of this Agreement, and (b) the reasonable out-of-pocket expenses
of the Investors and the reasonable legal fees and disbursements incurred by one
counsel for the Investors (up to a maximum of $10,000) with respect to this
Agreement and the transactions contemplated hereby. The Investors, other than
Pecaut Capital Investors, L.P. and Pecaut Partners, a limited partnership,
designate Jenkens & Gilchrist, a Professional Corporation, as their counsel for
this transaction. The parties agree that the rights created by this Agreement
are unique and that the loss of any such right is not susceptible to monetary
quantification. Consequently, the parties agree that an action for specific
enforcement (including for temporary and/or permanent injunctive relief) is a
proper remedy for the breach of the provisions of this Agreement, without the
necessity of proving actual damages. If either party is required to take any
action to enforce its rights under
42
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this Agreement, the prevailing party shall be entitled to its reasonable
expenses, including attorneys' fees, in connection with any such action.
9.8 ENTIRE AGREEMENT. This Agreement (including the schedules and
exhibits hereto) and the agreements referenced as exhibits to this Agreement
constitute the entire agreement of the parties, and supersede any prior
agreements.
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The undersigned have executed this Agreement as of the day and year first
written above.
COMPANY:
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
By: /s/ Tim B. Tarrillion
____________________________________
Tim B. Tarrillion,
President and Chief Executive Officer
Address for notices:
4710 Bellaire Boulevard
Suite 301
Bellaire, Texas 77401
Telephone: (713) 662-2699
Telecopy: (713) 662-3728
Attention: Tim B. Tarrillion
OPERATING SUBSIDIARIES:
EET, INC.
By: /s/ Tim B. Tarrillion
____________________________________
Tim B. Tarrillion, Vice President
Address for notices:
4710 Bellaire Boulevard
Suite 301
Bellaire, Texas 77401
Telephone: (713) 662-2699
Telecopy: (713) 662-3728
Attention: Tim B. Tarrillion
44
<PAGE>
INDUSTRIAL PIPE FITTINGS, INC.
By: /s/ Tim B. Tarrillion
---------------------------------
Tim B. Tarrillion, Vice President
Address for notices:
4710 Bellaire Boulevard
Suite 301
Bellaire, Texas 77401
Telephone: (713) 662-2699
Telecopy: (713) 662-3728
Attention: Tim B. Tarrillion
GAIA TECHNOLOGIES, INC.
By: /s/ Tim B. Tarrillion
_________________________________
Tim B. Tarrillion, Vice President
Address for notices:
4710 Bellaire Boulevard
Suite 301
Bellaire, Texas 77401
Telephone: (713) 662-2699
Telecopy: (713) 662-3728
Attention: Tim B. Tarrillion
RISERCLAD INTERNATIONAL, INC.
By: /s/ Tim B. Tarrillion
_________________________________
Tim B. Tarrillion, Vice President
Address for notices:
4710 Bellaire Boulevard
Suite 301
Bellaire, Texas 77401
Telephone: (713) 662-2699
Telecopy: (713) 662-3728
Attention: Tim B. Tarrillion
45
<PAGE>
NBCC:
NATIONSBANC CAPITAL CORPORATION
By: /s/ Douglas C. Williamson
__________________________________
Douglas C. Williamson
Address for notices:
901 Main Street, 66th Floor
Dallas, Texas 75202-2911
Telephone: (214) 508-0979
Telecopy: (214) 508-0604
Attention: Douglas C. Williamson
46
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INVESTORS:
R. CHANEY & PARTNERS-1993 L.P.
By: R. CHANEY & CO., INC.
By: /s/ Robert H. Chaney
______________________________
Robert H. Chaney, President & CEO
Address for notices:
909 Fannin, Suite 1275
Two Houston Center
Houston, Texas 77010-1006
Telephone: (713) 753-1315
Telecopy: (713) 750-0021
Attention: Robert H. Chaney
47
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THE CCG CHARITABLE REMAINDER
UNITRUST #1
By: CCG VENTURE PARTNERS, LLC
By: /s/ Mark E. Leyerle
_______________________________
Mark E. Leyerle, Manager
Address for notices:
14450 T.C. Jester Blvd., #170
Houston, TX 77014
Telephone: (713) 893-8331
Telecopy: (713) 893-2420
Attention: Mark E. Leyerle
48
<PAGE>
HARRISON INTERESTS, LTD.
By: /s/ Ed Knight
_______________________________
Ed Knight, Attorney-in-Fact
Address for notices:
Texas Commerce Bank Bldg., Suite 1900
Houston, TX 77002-3299
Telephone: (713) 228-5911
Facsimile:: (713) 225-1565
Attention: Ed Knight
49
<PAGE>
ROBERT L. ZINN
/s/ Robert L. Zinn
_______________________________
Robert L. Zinn
Address for notices:
c/o Zinn Petroleum Co.
1200 Smith, Suite 2910
Houston, TX 77002
Telephone: (713) 655-9521
Facsimile: (713) 655-9525
Attention: Robert L. Zinn
50
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ESTATE OF WILLIAM G. HELIS,
A LOUISIANA PARTNERSHIP
By: /s/ David A. Kerstein
_______________________________
David A. Kerstein, General Agent
Address for notices:
228 St. Charles Avenue, Suite 912
New Orleans, LA 70130
Telephone: (504) 523-1831
Facsimile: (504) 522-6489
Attention: David A. Kerstein
51
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PECAUT CAPITAL INVESTORS, L.P.
By: /s/ Daniel Pecaut
_______________________________
Daniel Pecaut, General Partner
Address for notices:
511 6th Street
Sioux City, Iowa 51101
Telephone: (800) 779-7326
Telecopy: (712) 252-4996
Attention: Corey Wrenn
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<PAGE>
PECAUT PARTNERS, A LIMITED PARTNERSHIP
By: /s/ Daniel Pecaut
_______________________________
Daniel Pecaut, General Partner
Address for notices:
511 6th Street
Sioux City, Iowa 51101
Telephone: (800) 779-7326
Telecopy: (712) 252-4996
Attention: Corey Wrenn
53
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THE ROSER PARTNERSHIP II, LTD.
By: Christopher W. Roser,
member of the General Partner,
Roser Ventures, LLC
/s/ Christoper W. Roser
_______________________________
Christopher W. Roser
Address for notices:
1105 Spruce Street
Boulder, CO 80302
Telephone: (303) 443-7935
Telecopy: (303) 443-1885
54
<PAGE>
KATHERINE S. EVANS
By: /s/ Christopher W. Roser
_______________________________
Christopher W. Roser
Attorney-in Fact
Address for notices:
1105 Spruce Street
Boulder, CO 80302
Telephone: (303) 443-7935
Telecopy: (303) 443-1885
55
<PAGE>
THE PARADE FUND
By: /s/ E. J. Crawford, III
---------------------------------
Name: E. J. Crawford, III
Title: Managing Partner
Address for notices:
333 Texas Street, Suite 2300
Shreveport, LA 71101
Telephone:
Telecopy:
56
<PAGE>
ROBERT D. GREENLEE
By: /s/ Robert D. Greenlee
_______________________________
Robert D. Greenlee
Address for notices:
2060 Broadway, Suite 400
Boulder, CO 80302
Telephone: (303) 444-0206
Telecopy: (303) 444-7968
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NATALIE Z. HAAR
/s/ Robert L. Zinn
_______________________________
Robert L. Zinn, Attorney and
Agent-in-Fact for Natalie Z. Haar
Address for notices:
c/o Zinn Petroleum Co.
1200 Smith, Suite 2910
Houston, TX 77002
Telephone: (713) 655-9521
Facsimile: (713) 655-9525
Attention: Robert L. Zinn
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<PAGE>
EXHIBIT 10.30
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
AMENDMENT NO. 2 TO STOCKHOLDERS' AGREEMENT
------------------------------------------
This Amendment No. 2 to Stockholders' Agreement (this "Amendment") is made
and entered into by and among North American Technologies Group, Inc., a
Delaware corporation (the "Company"), the Management Stockholders holding at
least a majority of the outstanding shares of Common Stock held by the
Management Stockholders (the "Sufficient Management Holders") and the Investors
holding at least a majority of the outstanding shares of Common Stock,
Cumulative Convertible Preferred Stock, Series F and Warrants (counted on an as-
converted into Common Stock basis) held by the Investors (the "Sufficient
Investor Holders"). Capitalized terms used herein and not otherwise defined
herein shall have the meanings ascribed thereto in the Stockholders' Agreement
dated as of April 5, 1996, as amended by Amendment No. 1 to the Stockholders'
Agreement (the "Agreement").
WITNESSETH:
-----------
WHEREAS, Section 12 of the Agreement allows the Agreement to be amended by
a writing signed by the Company, the Sufficient Management Holders and the
Sufficient Investor Holders;
WHEREAS, in connection with the designation and sale of the Company's
Convertible Cumulative Preferred Stock, Series G (the "Series G Shares"), the
parties deem it advisable to amend certain provisions of the Agreement; and
WHEREAS, the parties hereto acknowledge that, but for their willingness to
enter into this Amendment, the sale of the Series G Shares would not occur and
that this Amendment is a condition to the occurrence of the issuance of the
Series G Shares.
NOW, THEREFORE, for and in consideration of the premises and the mutual
agreements and convenants contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
1. ADDITIONAL PARTIES. The persons identified on Exhibit 1 hereto, and
such Additional Investors, as such term is defined in the Stock Purchase
Agreement dated as of March 31, 1997 by and between the Company and the other
signatories thereto, shall be parties to the Agreement and shall be included
within the definition of "Investors."
2. AMENDMENT TO RECITAL A. Recital A of the Agreement is hereby deleted
and is amended to read in its entirety as follows:
"A. Each of the Stockholders is now or may hereafter be the owner of
shares of the Company's Common Stock, $.001 par value per share (the
"Common Stock"), Series F Preferred Stock, $.001 par value per share,
Series G Preferred Stock, $.001 par value per share (collectively the
"Preferred Stock"), and/or Warrants (as defined herein).
<PAGE>
3. AMENDMENT TO RECITAL B. Recital B of the Agreement is hereby deleted
and is amended to read in its entirety as follows:
"B. The Investors and the Company are parties to (i) that certain
Stock and Warrant Purchase Agreement, dated as of April 5, 1996 (the
"Purchase Agreement"); and/or (ii) that certain Stock Purchase
Agreement, dated as of March 31, 1997 (the "Series G Purchase
Agreement")."
4. AMENDMENT TO SECTION 4(A). Section 4(a) of the Agreement is hereby
deleted and is amended to read in its entirety as follows:
"(a) Investor Nominees. For so long as the Investors and the
Investors' Permitted Transferees or Permitted Assignees own any shares
of Preferred Stock, the Company agrees to nominate to, and the
Management Stockholders and their Permitted Transferees agree to use
their best efforts to cause to be elected to, the Company's Board of
Directors, such designees as are provided for in Section 4.11 of the
Series G Purchase Agreement."
5. EFFECTIVE DATE. The terms of this Amendment shall be effective as of
March 31, 1997.
6. COUNTERPARTS. This Amendment may be signed in any number of
counterparts, each of which when so executed and delivered shall be an original,
but all of which such counterparts shall together constitute one and the same
instrument.
7. NO OTHER CHANGE. Except as provided for herein, the Agreement shall
remain unchanged.
2
<PAGE>
IN WITNESS WHEREOF, this Amendment No. 2 to Stockholders' Agreement has been
duly executed by the undersigned as of this 31st day of March, 1997.
THE COMPANY:
NORTH AMERICAN TECHNOLOGIES
GROUP, INC.
By: /s/ Tim B. Tarrillion
----------------------------
Name: Tim B. Tarrillion
--------------------------
Title: President
-------------------------
3
<PAGE>
SUFFICIENT MANAGEMENT HOLDERS:
/s/ Tim B. Tarrillion
---------------------
Name: Tim B. Tarrillion
/s/ Judith Knight Shields
-------------------------
Name: Judith Knight Shields
/s/ David M. Daniels
--------------------
Name: David M. Daniels
/s/ Donovan W. Boyd
-------------------
Name: Donovan W. Boyd
4
<PAGE>
SUFFICIENT INVESTOR HOLDERS:
NATIONSBANC CAPITAL CORPORATION,
a Texas corporation
By: /s/ Douglas C. Williamson
-------------------------
Name: Douglas C. Williamson
Title: Senior Vice President
5
<PAGE>
R. CHANEY & PARTNERS - 1993 L.P.
By: R. Chaney & Co., Inc.
By: /s/ Robert H. Chaney
--------------------
Robert H. Chaney, President & CEO
6
<PAGE>
THE CCG CHARITABLE REMAINDER UNITRUST #1
By: CCG Venture Partners, LLC
By: /s/ Mark E. Leyerle
-------------------
Mark E. Leyerle, Manager
7
<PAGE>
HARRISON INTERESTS, LTD.
By: /s/ Ed Knight
-------------
Ed Knight, Attorney-in-Fact
8
<PAGE>
ROBERT L. ZINN
/s/ Robert L. Zinn
------------------
Robert L. Zinn
9
<PAGE>
ESTATE OF WILLIAM G. HELIS,
A LOUISIANA PARTNERSHIP
By: /s/ David A. Kerstein
---------------------
David A. Kerstein, General Agent
10
<PAGE>
PECAUT CAPITAL INVESTORS, L.P.
By: /s/ Daniel Pecaut
-----------------
Daniel Pecaut, General Partner
11
<PAGE>
PECAUT PARTNERS, A LIMITED PARTNERSHIP
By: /s/ Daniel Pecaut
-----------------
Daniel Pecaut, General Partner
12
<PAGE>
THE ROSER PARTNERSHIP II, LTD.
By: Christopher W. Roser,
member of the General Partner,
Roser Ventures, LLC
/s/ Christopher W. Roser
------------------------
Christopher W. Roser
13
<PAGE>
KATHERINE S. EVANS
By: /s/ Christopher W. Roser
------------------------
Christopher W. Roser
Attorney-in Fact
14
<PAGE>
THE PARADE FUND
By: /s/ E. J. Crawford, III
-----------------------
Name: E. J. Crawford, III
Title: Managing Partner
15
<PAGE>
ROBERT D. GREENLEE
By: /s/ Robert D. Greenlee
----------------------
Robert D. Greenlee
16
<PAGE>
NATALIE Z. HAAR
/s/ Robert L. Zinn
------------------
Robert L. Zinn, Attorney and
Agent-in-Fact for Natalie Z. Haar
17
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
North American Technologies
Group, Inc.
Houston, Texas
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement (S-3) of our report dated
February 7, 1997, except for Note 5(a), which is as of March 14, 1997, relating
to the consolidated financial statements of North American Technologies Group,
Inc. appearing in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1996. Our report contains an explanatory paragraph regarding the
Company's ability to continue as a going concern.
We also consent to the reference to us under the caption "Experts"in the
Prospectus.
/s/ BDO Seidman, LLP
___________________________
BDO Seidman, LLP
Houston, Texas
April 29, 1997
