<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2)
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
North American Technologies Group, Inc.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------------------
(4) Date Filed:
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Notes:
<PAGE>
PRELIMINARY COPY
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
4710 BELLAIRE BOULEVARD, SUITE 301
BELLAIRE, TEXAS 77401
April 3, 1998
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders (the
"Meeting") of North American Technologies Group, Inc. (the "Company") which will
be held at The Houstonian Hotel, 111 North Post Oak Lane, Houston, Texas, on
Tuesday, May 12, 1998 at 10:00 A.M. central time. Your Board of Directors and
management look forward to personally greeting those stockholders able to
attend.
At the Meeting, stockholders will be asked to elect two (2) directors to
serve until the 2001 Annual Meeting of Stockholders or until their successors
are elected and qualified, to approve an amendment to the Company's Restated
Certificate of Incorporation to effect a reverse stock split in order to bring
the Company into compliance with The Nasdaq SmallCap Market minimum maintenance
standards (the "Reverse Stock Split"), to approve the issuance and sale of up to
$2 million of cumulative convertible preferred stock in a private placement
transaction (the "Private Placement"), to ratify the appointment of BDO Seidman,
LLP as the Company's independent auditors for the fiscal year ending December
31, 1998 and to consider such other matters as may be properly brought before
the Meeting or at any adjournment(s) or postponement(s) thereof. These matters
are discussed in greater detail in the accompanying Proxy Statement.
Your Board of Directors recommends a vote FOR the election of directors,
FOR the amendment to effect the Reverse Stock Split, FOR the approval of the
Private Placement and FOR the ratification of BDO Seidman, LLP as the Company's
independent auditors.
Regardless of the number of shares you own or whether you plan to attend,
it is important that your shares be represented and voted at the Meeting. You
are requested to sign, date and mail the enclosed proxy promptly.
A copy of the Annual Report for the fiscal year ended December 31, 1997
together with a description of the Company's railroad crosstie business is
enclosed for your information. No material contained in the Annual Report or
the brochure is to be considered a part of the proxy solicitation material.
We wish to thank our stockholders for their participation and support.
Sincerely,
______________________
Tim B. Tarrillion
Chairman of the Board
and Chief Executive Officer
<PAGE>
PRELIMINARY COPY
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 12, 1998
To the Stockholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Meeting") of North American Technologies Group, Inc. (the "Company") will be
held at The Houstonian Hotel, 111 North Post Oak Lane, Houston, Texas, on
Tuesday, May 12, 1998, at 10:00 A.M. central time, for the following purposes:
(1) to elect two (2) directors to serve until the 2001 Annual Meeting of
Stockholders or until their successors are elected and qualified;
(2) to approve an amendment to the Company's Restated Certificate of
Incorporation to effect a reverse stock split according to a formula described
in the accompanying Proxy Statement (if approved, the outstanding shares of
Common Stock will be converted into a smaller number of shares based on the
formula described in the accompanying Proxy Statement and the conversion ratios
of the outstanding shares of preferred stock will be proportionately adjusted);
(3) to approve the issuance and sale of up to $2 million of cumulative
convertible preferred stock in a private placement transaction upon the terms
described in the accompanying Proxy Statement;
(4) to ratify the appointment of BDO Seidman, LLP as independent auditors
for the Company for the fiscal year ending December 31, 1998; and
(5) to transact such other business as may properly be brought before the
Meeting and at any adjournment(s) or postponement(s) thereof.
A copy of the Annual Report for the fiscal year ended December 31, 1997
together with a description of the Company's railroad crosstie business is
enclosed for your information. No material contained in the Annual Report or
the brochure is to be considered a part of the proxy solicitation material.
Only stockholders of record as of the close of business on March 31, 1998
will be entitled to vote at the Meeting and any adjournment(s) or
postponement(s) thereof.
<PAGE>
All stockholders are cordially invited to attend the Meeting. However, to
assure your representation at the Meeting, you are urged to complete, sign, date
and return the enclosed proxy card as promptly as possible in the postage-
prepaid envelope enclosed for that purpose. Any stockholder attending the
Meeting may vote in person even if he or she has returned a proxy.
By Order of the Board of Directors,
______________________
Tim B. Tarrillion
Chairman of the Board and
Chief Executive Officer
Houston, Texas
April 3, 1998
YOUR VOTE IS IMPORTANT
YOU ARE URGED TO SIGN, DATE AND PROMPTLY
RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE.
<PAGE>
PRELIMINARY COPY
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
4710 BELLAIRE BOULEVARD, SUITE 301
BELLAIRE, TEXAS 77401
PROXY STATEMENT
The enclosed proxy is solicited on behalf of the Board of Directors of
North American Technologies Group, Inc. (the "Company") to be voted at the
Annual Meeting of Stockholders (the "Meeting") of the Company to be held at The
Houstonian Hotel, 111 North Post Oak Lane, Houston, Texas on Tuesday, May 12,
1998 at 10:00 A.M. central time, and at any adjournment(s) or postponement(s)
thereof for the purposes set forth in the accompanying Notice of Annual Meeting
of Stockholders. The proxy solicitation materials were mailed on or about April
3, 1998 to all stockholders entitled to vote at the Meeting.
RECORD DATE AND SHARE OWNERSHIP
Stockholders of record at the close of business on March 31, 1998 (the
"Record Date") are entitled to notice of and to vote at the Meeting, and at any
adjournment(s) or postponement(s) thereof. At the Record Date, 31,318,726 shares
of Common Stock, $0.001 par value per share (the "Common Stock"), 100,046 shares
of Series F Cumulative Convertible Preferred Stock, $0.001 par value per share
(the "Series F Preferred Stock"), and 15,318 shares of Series G- Subseries I
Cumulative Convertible Preferred Stock, $0.001 par value per share (the "Series
G Preferred Stock" and together with the Series F Preferred Stock, the "Series F
and G Preferred Stock"), were issued and outstanding.
REVOCABILITY OF PROXIES
The execution of a proxy will not affect a stockholder's right to attend
the Meeting and vote in person. Any proxy given pursuant to this solicitation
may be revoked by the person giving it at any time before it is used at the
Meeting by filing with the Chief Financial Officer of the Company either (i) a
written notice of revocation; (ii) a proxy bearing a later date than the most
recently submitted proxy; or (iii) by attendance at the Meeting and voting in
person. Attendance at the Meeting will not, by itself, revoke a proxy.
ANNUAL REPORT
A copy of the Company's Annual Report for the fiscal year ended December
31, 1997 accompanies this Proxy Statement together with a brochure relating to
the Company's railroad crosstie business. No material contained in the Annual
Report or the brochure is to be considered a part of the proxy solicitation
material.
The mailing address of the Company's executive office is 4710 Bellaire
Boulevard, Suite 301, Bellaire, Texas 77401.
<PAGE>
VOTING AND SOLICITATION
On all matters submitted to stockholders at the Meeting, each share of
Common Stock is entitled to one (1) vote, each share of Series F Preferred Stock
is entitled to approximately 117.2 votes and each share of Series G Preferred
Stock is entitled to approximately 224.7 votes. No fractional votes will be
permitted and any fractional votes of any stockholder will be rounded to the
nearest whole number. The Common Stock and the Series F and G Preferred Stock
vote as a single class.
Nominees receiving a plurality of the votes cast will be elected as
directors. The affirmative vote of a majority of the outstanding shares of
Common Stock and Series F and G Preferred Stock is required to approve an
amendment (the "Amendment") to the Company's Restated Certificate of
Incorporation to effect a reverse stock split according to a formula described
herein (the "Reverse Stock Split"). The affirmative vote of a majority of the
shares of Common Stock and Series F and G Preferred Stock present in person or
by proxy is required to approve the issuance of up to $2 million of cumulative
convertible preferred stock in a private placement transaction (the "Private
Placement") and to ratify the appointment of BDO Seidman, LLP as independent
auditors for the Company.
Proxies which are validly executed by stockholders and which are received
by the Company no later than the business day preceding the Meeting will be
voted in accordance with the instructions contained thereon. If no instructions
are given, the proxy will be voted in accordance with the recommendations of the
Board of Directors and in the discretion of the persons named in the proxy, if
granted, on all other matters presented to the Meeting. For the reasons set
forth in more detail in this Proxy Statement, the Board of Directors recommends
a vote FOR the election of directors, FOR the Amendment to effect the Reverse
Stock Split, FOR the approval of the Private Placement and FOR the ratification
of BDO Seidman, LLP as the Company's independent auditors.
The cost of this proxy solicitation will be borne by the Company. In
addition to the use of mail, proxies may be solicited in person or by telephone
by employees of the Company without additional compensation. The Company will
reimburse brokers and other persons holding stock in their names or in the names
of nominees for their expenses incurred in sending proxy material to principals
and obtaining their proxies.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The Company's bylaws (the "Bylaws") provide that the stockholders holding a
majority of the shares entitled to vote on the Record Date must be present in
person or represented by proxy at the Meeting in order to constitute a quorum
for the transaction of business. Abstentions and broker non-votes will be
counted for the purpose of determining a quorum but will not be counted in the
election of directors, in the approval of the Amendment to effect the Reverse
Stock Split, in the approval of the Private Placement or in the ratification of
the Company's independent auditors.
2
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
NOMINEES FOR CONSIDERATION AT THE MEETING
The Company's Amended and Restated Certificate of Incorporation, Bylaws and
certain Board resolutions provide that the Board of Directors shall be composed
of six directors divided into three classes. The directors are elected to serve
staggered three year terms, with the term of one class of directors expiring
each year. The three classes of directors are identified as Class I, Class II
and Class III based on the expiration of the terms of the directors in each
class. Except with respect to vacancies caused by the resignation or removal of
nominees of holders of the Series F and G Preferred Stock which shall be filled
by persons selected by such holders, vacancies in the Board of Directors may be
filled by the Board of Directors and any director chosen to fill a vacancy shall
hold office until the next election of the class for which such director has
been chosen. See "AGREEMENTS WITH HOLDERS OF PREFERRED STOCK."
Unless otherwise specified, each properly executed proxy received will be
voted for the election of the nominees named below to serve as directors until
the 2001 Annual Meeting of Stockholders or until his successor is elected and
qualified. Donovan W. Boyd and Henry W. Sullivan have been nominated by the
Board of Directors and shall be identified as Class II directors. The Company
is not aware of any reason that either nominee will be unable or will decline to
serve as a director. In the event that any nominee is unable to serve or will
not serve as a director, it is intended that the proxies solicited hereby will
be voted for such other person or persons as may be nominated by management.
CLASS II DIRECTORS
<TABLE>
<CAPTION>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------
Directors Whose Terms Year in Which
Expire at the 1998 Service as a
Annual Meeting Principal Occupation Director Began
- ------------------------------------------------------------------------------------------------
Donovan W. Boyd, 44 Vice President - Gulf Coast 1995
Area, HydroChem Industrial
Services, Inc.
Henry W. Sullivan, 58 Vice President of Technology 1997
of the Company; President of
TieTek, Inc.
- ------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
DONOVAN W. BOYD
Donovan W. Boyd was elected to the Board of Directors in 1995. In December
1997, Mr. Boyd accepted a position as Vice President - Gulf Coast Area of
HydroChem Industrial Services, Inc. From April 1995 to December 1997, he was
Senior Vice President and Chief Operating Officer of the Company. Prior to his
position with the Company, Mr. Boyd was Vice President of Sales and Marketing
for the Industrial Services division of Rust International. In that capacity he
was responsible for more than $400 million in annual sales throughout the United
States. Prior to joining Rust International, Mr. Boyd was a Regional Vice
President with EnClean, Inc. He holds a Bachelor's Degree in Chemical
Engineering from Tulane University and an MBA from Harvard University.
HENRY W. SULLIVAN
Dr. Sullivan was elected to the Board of Directors in April 1997. Dr.
Sullivan became Vice President of Technology of the Company in July 1997 and
President of TieTek, Inc. in December 1997. Upon the Company's acquisition of
certain assets of GAIA Holdings, Inc. in December 1995, Dr. Sullivan became the
President of the Company's subsidiary, GAIA Technologies, Inc. Prior to
holding these positions, Dr. Sullivan was the President and Chief Executive
Officer of GAIA Holdings, Inc. (1991 to 1995). He holds a Bachelor's degree in
Chemical Engineering from Cooper Union and Master's and Ph.D. degrees in
Chemical Engineering from New York University.
OTHER MEMBERS OF THE BOARD OF DIRECTORS
The following is an identification and description of the business
experience of the Company's directors who are not being voted upon at the
Meeting.
CLASS III DIRECTORS
<TABLE>
<CAPTION>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------
Directors Whose Terms Year in Which
Expire at the 1999 Service as a
Annual Meeting Principal Occupation Director Began
- ------------------------------------------------------------------------------------------------
Tim B. Tarrillion, 47 Chief Executive Officer and 1995
President of the Company
Douglas C. Williamson, 46 Senior Vice President 1996
NationsBanc Capital Corporation
- ------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
TIM B. TARRILLION
Tim B. Tarrillion became Chief Executive Officer, President and a Director
of the Company on March 7, 1995. Mr. Tarrillion was most recently the Founder
and President of EET, Inc. ("EET") (1993 to 1995). Prior to starting EET, Mr.
Tarrillion was co-founder, President and Chief Operating Officer of EnClean,
Inc. (1984 to 1993). EnClean provided industrial and environmental cleaning
services to companies in the refining, petrochemical, steel, paper and utility
industries, and was acquired by Rust International in 1993. Mr. Tarrillion
holds an MBA from Harvard University and a Master's Degree and Bachelor's Degree
in Chemical Engineering from Rice University. Mr. Tarrillion received the 1991
Merrill Lynch, Inc. Magazine's Entrepreneurial award for the Houston area in
connection with his role in building EnClean from $1 million in sales in 1984 to
more than $100 million in 1992.
DOUGLAS C. WILLIAMSON
Douglas C. Williamson was elected to the Board of Directors in 1996. Mr.
Williamson is a Senior Vice President of NationsBanc Capital Corporation
("NBCC"), a position he has held since 1989. In this position, Mr. Williamson
manages venture capital investments. Mr. Williamson earned his MBA from
Columbia University and his Bachelor's Degree from Denison University. Mr.
Williams serves on the Board as a nominee of the holders of the Series F and G
Preferred Stock.
CLASS I DIRECTORS
<TABLE>
<CAPTION>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------
Directors Whose Terms Year in Which
Expire at the 2000 Service as a
Annual Meeting Principal Occupation Director Began
- ------------------------------------------------------------------------------------------------
Richard L. Davis, 45 Chief Executive Officer of CCG 1997
Venture Partners, LLC.
Edwin H. Knight, 44 General Manager, 1996
Harrison Interests, Ltd.
- ------------------------------------------------------------------------------------------------
</TABLE>
RICHARD L. DAVIS
Richard L. Davis was elected to the Board of Directors in 1997 and is the
CEO of CCG Venture Partners, LLC. Prior to heading CCG, Mr. Davis founded
NightRider Overnight Copy Service, a photocopying company based in Houston,
Texas catering to the legal profession. Mr. Davis led NightRider through its
start-up and expansion phases and sold the company to Alco Standard Corporation
in 1992 when it had grown to $60 million in annual revenue. Mr. Davis remained
CEO of NightRider through early 1994 and grew the company to $100 million while
facilitating the ownership transition to Alco. Mr. Davis earned a Bachelor of
Arts Degree from Washington & Lee University in 1974. Mr. Davis serves on the
Board as a nominee of the holders of the Series F and G Preferred Stock.
5
<PAGE>
Edwin H. Knight
Edwin H. Knight was elected to the Board of Directors in 1996. Mr. Knight
manages Harrison Interests, Ltd., a privately held Texas limited partnership
whose lines of business are oil and gas exploration and production, real estate
and cattle ranching. He has managed Harrison Interests, Ltd. for thirteen years
and holds a Bachelor's Degree from Louisiana State University and is a certified
public accountant. Mr. Knight serves on the Board as a nominee of the holders
of the Series F and G Preferred Stock.
BOARD MEETINGS AND COMMITTEES
During the fiscal year ended December 31, 1997, the Board of Directors met
seven times. All directors attended at least 75% of the meetings of the Board
and committees of which they were a member.
In late 1996, the Board of Directors established three standing committees
to allow the Board to focus specific attention on critical areas of the Board's
management and monitoring of the Company's business. From time to time, the
committees will make recommendations to the Board as necessary. The three
committees that were established and the current directors assigned to each
committee are as follows:
Financial Audit:
Donovan W. Boyd
Edwin H. Knight
Merger and Acquisition Review:
Tim B. Tarrillion
Henry W. Sullivan
Douglas C. Williamson
Compensation:
Richard L. Davis
Douglas C. Williamson
The purpose of the Financial Audit Committee is to oversee the financial
reporting procedures of the Company, insure adequate financial and internal
controls, review the scope of the Company's annual audit and recommend the
selection of independent auditors. The primary responsibilities of this
committee include: meeting with the Company's Chief Financial Officer on a
quarterly basis to review the adequacy of quarterly and annual SEC filings;
reviewing and consulting with the Company's independent auditors regarding their
reports of audit and accompanying management letters; reviewing all financial
statements, financial controls, internal controls and accounting practices of
the Company; evaluating the performance and cost of the Company's independent
auditors; recommending to the Board of Directors the selection of the Company's
auditors for the upcoming year; and monitoring compliance by the Company's
management and employees with major Company policies and financial controls.
6
<PAGE>
The membership of the Financial Audit Committee is designed to include a
minimum of two directors. The Company's Chief Financial Officer serves as an
ex-officio member of the committee and attends all meetings except the annual
review of the Company's financial controls and accounting procedures with the
Company's independent auditors. Regular meetings of the committee are held
quarterly just prior to the regularly scheduled Board meetings. The Financial
Audit Committee met four times during 1997.
The purpose of the Merger and Acquisition Review Committee is to monitor
and review the Company's policies and strategies regarding mergers and
acquisitions and to review the structure and terms of acquisitions proposed and
negotiated by the Company's senior management. The primary responsibilities of
this committee include: establishing key criteria for the Company's acquisition
strategy; advising management with respect to the recommended structure and
terms for proposed acquisitions; reviewing proposed acquisitions; making
recommendations to the Board of Directors for approval or rejection of
proposals; monitoring the assimilation of completed acquisitions into the
Company; making recommendations to management for improvements when needed; and
establishing policies and procedures for merger and tender offers received by
the Company.
The membership of the Merger and Acquisition Review Committee is designed
to include the Company's Chief Executive Officer and at least two additional
directors. Meetings are held as needed to evaluate any proposed acquisition.
The Merger and Acquisition Review Committee did not meet during 1997.
The purpose of the Compensation Committee is to recommend compensation
policies for the Company's senior management and to establish and administer the
Company's stock-based compensation plans and employee stock purchase plan. The
primary responsibilities of this committee include: reviewing all new employment
agreements with senior management and key employees of the Company; establishing
criteria for annual incentive bonus plans for the Company and senior management
(in concert with the recommendations of the Company's Chief Executive Officer)
and recommending amounts and payment of annual bonuses earned in accordance with
those criteria; recommending the issuance of incentive stock options to key
management personnel; assisting with and reviewing the establishment of an
employee stock option plan and director stock option plan when and if requested
by the Board of Directors; and monitoring and reviewing the Company's
compensation policies for all employees.
The membership of the Compensation Committee is designed to include at
least two outside (non-employee) directors. The Compensation Committee met once
during 1997.
DIRECTORS' COMPENSATION
The directors of the Company receive no fees or other compensation in
connection with their services as directors.
EXECUTIVE OFFICERS
Tim B. Tarrillion, Henry W. Sullivan and Judith Knight Shields are the only
executive officers of the Company. A description of the business experience of
Messrs. Tarrillion and Sullivan appears elsewhere in this Proxy Statement.
Below is a brief description of the business experience of Ms. Shields.
7
<PAGE>
JUDITH KNIGHT SHIELDS, 40, joined the Company in March 1995. Ms. Shields
currently holds the position of Senior Vice President-Finance, Chief Financial
Officer and Treasurer. Prior to her current position with the Company, Ms.
Shields was Vice President of Mergers and Acquisitions and subsequently
Controller, with EnClean. Her ten years of experience prior to joining EnClean
were in public accounting and venture capital. She graduated summa cum laude
from Texas A&M University with a Bachelors Degree in Accounting and is a
Certified Public Accountant.
AGREEMENTS WITH HOLDERS OF PREFERRED STOCK
Pursuant to agreements relating to the purchase of the Series F and G
Preferred Stock (the "Purchase Agreements") between the Company, NBCC and
certain other investors (collectively, with NBCC, the "Investors"), the Company
has agreed to nominate to the Board of Directors, for so long as the Series F
and G Preferred Stock are owned by the Investors or permitted assignees or
permitted transferees, (i) four (4) members designated by the holders of a
majority in interest of the Series F and G Preferred Stock taken together as a
group, at least one (1) of whom shall be designated by NBCC so long as NBCC owns
at least fifty percent (50%) of the Series F and G Preferred Stock; (ii) four
(4) members designated by the holders of Common Stock; and (iii) one (1) member
designated jointly by the holders of the Common Stock and the holders of a
majority in interest of the Series F and G Preferred Stock taken together as a
group. The requisite holders of the Series F and G Preferred Stock have agreed
that for so long as the number of Directors constituting the Board shall be six,
three (3) directors will be designated by the Investors and three (3) will be
designated by the holders of the Common Stock. Pursuant to the Purchase
Agreements, the Investors' nominees are: Douglas C. Williamson, Richard L.
Davis and Edwin H. Knight.
If the Company shall breach any of the covenants or obligations set forth
in the Purchase Agreements and such breach remains uncured, the holders of a
majority in interest of the Series F and G Preferred Stock 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
majority shall be designees of NBCC.
CHANGES IN CONTROL
If the Company breaches any of its covenants or obligations set forth in
the Purchase Agreements and such breach were to remain uncured, the holders of a
majority in interest of the Series F and G Preferred Stock taken together as a
group would 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
majority shall be designees of NBCC.
8
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation paid or
accrued for the fiscal years ended December 31, 1995, 1996 and 1997 by the
Company to or for the benefit of the named executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
==================================================================================================================================
Long Term Compensation
----------------------------------
Annual Compensation Awards Payouts
- ---------------------------------------------------------------------------------------------------------------------------------
Name Other
and Annual Restricted Stock All Other
Principal Compen- Stock Options/ LTIP Compen-
Position Year(s) Salary($) Bonus($) sation($) Awards($) SARS (#) Payouts($) sation($)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tim B. 1997 184,833 - - 400,000(1) - 6,951(2)
Tarrillion
1996 185,903 - - - - 5,940(2)
Chief
Execuitive 1995 146,537(3) - 25,000(4) - 100,000(5) - -
Officer,
President and
Director
- ---------------------------------------------------------------------------------------------------------------------------------
Henry W. 1997(6) 90,000 - - - 200,000(1) - 2,970(2)
Sullivan
Vice President -
Technology and
Director
- ---------------------------------------------------------------------------------------------------------------------------------
Judith K. 1997 106,214 - - - 200,000(1) - 2,954(2)
Shields
1996 122,602 - - - - - 2,662(2)
Senior Vice 1995 92,308(7) - - - 100,000(5) - -
President-
Finance, CFO
and Treasurer
==================================================================================================================================
</TABLE>
___________________________
(1) Consists of options granted during fiscal year ended December 31, 1995
which were repriced as of July 10, 1997. See "REPORT OF REPRICING OF
OPTIONS."
(2) Represents life insurance premiums paid by the Company on policies on the
executives' lives and matching contributions to the Company's 401-K plan.
(3) Mr. Tarrillion became Chief Executive Officer, President and a Director of
the Company on March 7, 1995.
(4) Payments received in January and February 1995 as a consultant to the
Company.
(5) Does not include options granted during fiscal year ended December 31, 1995
which were repriced as of July 10, 1997. See note 3 above and "REPORT ON
REPRICING OF OPTIONS."
(6) Dr. Sullivan's employment began in December 1995. He became Vice President
- Technology, President of TieTek and a Director of the Company in 1997.
(7) Ms. Shield's employment began on March 20, 1995.
9
<PAGE>
The following table sets forth for each of the named executive officers
information regarding grants of Stock Options/SARs made by the Company to or for
the benefit of the named executive officers during the fiscal year ended
December 31, 1997.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
====================================================================================================================
Individual Grants
- --------------------------------------------------------------------------------------------------------------------
% of Total
Options/SARs
Granted to Exercise or
Options/SARs Employees in Base Price Expiration
Name Granted (#)/(1)/ Fiscal Year/(2)/ ($/Sh) Date
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tim B. Tarrillion 400,000/(3)/ 20.4% $1.00 June 30,
2006
Chief Executive Officer, President
and Director
- --------------------------------------------------------------------------------------------------------------------
Henry W. Sullivan 200,000/(4)/ 10.2% $1.00 June 30,
2006
Vice President - Technology and
Director
- --------------------------------------------------------------------------------------------------------------------
Judith K. Shields 200,000/(3)/ 10.2% $1.00 June 30,
2006
Senior Vice President - Finance,
CFO and Treasurer
====================================================================================================================
</TABLE>
/(1)/ The options included in the table consist of options granted during the
fiscal year ended December 31, 1995 at an exercise price of $2.50 per
share which were repriced to $1.00 per share as of July 10, 1997. See
"REPORT ON REPRICING OF OPTIONS."
/(2)/ Percentages are presented after rounding to the nearest tenth.
/(3)/ The options vest in ratable installments over the four (4) year period
commencing March 31, 1996.
/(4)/ The options vest in ratable installments over the four (4) year period
commencing December 29, 1996.
10
<PAGE>
The following table sets forth for each of the named executive officers
information regarding stock options exercised by such officers during the 1997
fiscal year, together with the number and value of stock options held at 1997
fiscal year-end, each on an aggregated basis.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Aggregated Option Exercises in the 1997 Fiscal Year
and Fiscal Year-End Option Value
- --------------------------------------------------------------------------------------------------
Value of
Number of Unexercised
Unexercised In-the-Money
Number of Options at Options at
Shares Fiscal Year-End Fiscal Year-End
Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable /(1)/
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tim B. Tarrillion -- -- 300,000/200,000/(2)/ $0/$0
Henry W. Sullivan -- -- 100,000/100,000 $0/$0
Judith K. Shields -- -- 200,000/100,000/(3)/ $0/$0
- --------------------------------------------------------------------------------------------------
</TABLE>
__________
<TABLE>
<CAPTION>
<C> <S> <C>
/(1)/ The last sales price of the Company's Common Stock as reported on the NASDAQ SmallCap Market (SM) on December
31, 1997 was $0.125 which was lower than the exercise price of the options.
/(2)/ As of the date of this Proxy Statement, 400,000 options are exercisable and 100,000 are unexercisable.
/(3)/ As of the date of this Proxy Statement, 250,000 options are exercisable and 50,000 are unexercisable.
</TABLE>
Notwithstanding anything to the contrary set forth in any of the Company's
filings under the Securities Act of 1933, as amended (the "Securities Act") or
the Securities Exchange Act of 1934 (the "Exchange Act"), that might incorporate
the Company's filings, including this Proxy Statement, in whole or in part, the
following report shall not be incorporated by reference into any such filings,
nor shall it be deemed to be soliciting material or deemed filed with the
Securities and Exchange Commission under the Securities Act or the Exchange Act.
REPORT ON REPRICING OF OPTIONS
On July 10, 1997, upon recommendation of the Board of Directors, the
Company reduced the exercise price of certain options previously granted to
employees of the Company, including named executive officers Tim B. Tarrillion,
Henry W. Sullivan and Judith Knight Shields, during the fiscal year ended
December 31, 1995. These options had an exercise price of $2.50 per share.
Subsequent to the grant of these options, the price of the Company's Common
Stock remained substantially lower than the exercise price. As a result, these
options were not serving their primary purpose of motivating and rewarding the
employees of the Company. Accordingly, on July 10, 1997 the Company reduced the
exercise price of these options to $1.00 per share and extended their expiration
dates from 2004 to June 30, 2006 in consideration of each employee agreeing to
waive any right to receive any salary increase or bonus during 1997.
11
<PAGE>
On July 10, 1997, the last sales price of the Company's Common Stock as
reported on The Nasdaq SmallCap Market was $0.375. In reducing the exercise
price to $1.00, the Board of Directors sought to retain some premium to the
market price while still providing meaningful incentive to the Company's
employees and executive officers to enhance the Company's performance.
By The Board of Directors
EMPLOYMENT AGREEMENTS
In February 1995, the Company entered into employment agreements with Mr.
Tarrillion and Ms. Shields.
Mr. Tarrillion's employment agreement provides for a base salary of
$180,000, plus bonuses and cost of living increases, and options to purchase
500,000 shares of the Company's Common Stock which vest over four years
commencing on March 31, 1996. His agreement expires in December 1999.
Ms. Shields' employment agreement provides for a base salary of $120,000,
plus bonuses and cost of living increases, as well as options to purchase
300,000 shares of the Company's Common Stock which vest over four years
commencing on March 31, 1996. Her agreement expires in December 1999. In
September 1997, the Company and Ms. Shields entered into an amendment to her
employment agreement whereby she is compensated on a hourly basis, using a rate
computed from her salaried compensation. This agreement was entered into due to
the decreased administrative duties required of Ms. Shields as the Company's
technologies were either sold or licensed, and as a further reduction of the
Company's overhead costs. This voluntary arrangement may be terminated at any
time by either party, in which case the provisions of Ms. Shields' original
employment agreement would be in effect.
STOCK OPTIONS AND WARRANTS
The Company presently has no formal stock option plan. However, through
December, 1997 the Company has outstanding options to purchase 3,100,000 shares
of the Company's Common Stock. Of these options, 2,975,000 are outstanding to
current and former employees, have option prices ranging from $0.75 to $2.50,
vest 20% to 25% per year and expire through June, 2006. Included in these
options to employees are 1,825,000 granted to current or former directors of the
Company and 300,000 granted to other executive officers of the Company. The
remaining options were granted to current or past note holders, have option
prices ranging from $0.75 to $1.00 and expire through September 1999.
12
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following tables set forth as of March 31, 1998 certain information
with respect to the beneficial ownership of the Company's Common Stock and
Series F and G Preferred Stock by any person (including any "group' as that term
is used in Section 13(d)(3) of the Exchange Act) known by the Company to be the
beneficial owner of more than five percent (5%) of any class of the Company's
voting securities based upon filings with the Securities and Exchange
Commission. As of March 31, 1998, there were 31,318,726 outstanding shares of
Common Stock, 100,046 outstanding shares of Series F Preferred Stock and 15,318
outstanding shares of Series G Preferred Stock.
COMMON STOCK
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Percentage
Name and Address of Beneficial Owner Ownership/(1)/ of Class/(1)/
- ------------------------------------ ----------------- -----------
<S> <C> <C>
NationsBanc 14,828,067/(2)/ 32.1%
Capital Corporation
901 Main Street
66th Floor
Dallas, Texas 75202
Robert H. Chaney 2,963,785/(3)/ 8.6%
R. Chaney & Partners, 1993 L.P.
909 Fannin, Suite 1275
Two Houston Center
Houston, Texas 77010-1006
The CCG Charitable 2,224,210/(4)/ 6.6%
Remainder Unitrust #1
14450 T.C. Jester Boulevard
Suite 170
Houston, Texas 77014
Henry W. Sullivan 1,753,709/(5)/ 5.6%
4710 Bellaire Boulevard
Suite 301
Bellaire, Texas 77401
William T. Aldrich 1,716,667/(6)/ 5.5%
10406 Memorial Drive
Houston, Texas 77024
</TABLE>
___________________________
/(1)/ Calculated in accordance with Item 403 of Regulation S-B and Rule 13d-
3(d) as promulgated under the Exchange Act. Includes shares of Common
Stock which the
13
<PAGE>
holder has the right to acquire upon exercise or conversion of
outstanding options, warrants or other convertible securities (such as
the Series F and G Preferred Stock) within sixty (60) days of March 31,
1998. Percentages are presented after rounding to the nearest tenth.
/(2)/ Consists of 9,828,067 shares of Common Stock issuable upon conversion of
shares of Series F and G Preferred Stock and 5,000,000 shares of Common
Stock which may be acquired upon exercise of Common Stock purchase
warrants.
/(3)/ Includes 1,250,000 shares of Common Stock which may be acquired upon
exercise of Common Stock purchase warrants.
/(4)/ Consists of 1,474,210 shares of Common Stock issuable upon conversion of
shares of Series F and G Preferred Stock and 750,000 shares of Common
Stock which may be acquired upon exercise of Common Stock purchase
warrants.
/(5)/ Dr. Sullivan is deemed to beneficially own 1,591,667 shares of Common
Stock by virtue of his position as a principal executive officer of GAIA
Holdings, Inc., which owns 555,556 shares of Common Stock, and Thor
Ventures, L.C. ("Thor") which owns 1,036,111 shares of Common Stock. Also
includes 41,042 shares owned through a profit sharing plan for the
benefit of Dr. Sullivan and 100,000 shares which may be acquired upon
exercise of options. Does not include 100,000 shares issuable upon
exercise of options which do not commence vesting until December 29,
1998.
/(6)/ Mr. Aldrich is deemed to beneficially own 1,591,667 shares of Common
Stock by virtue of his position as principal executive officer of Thor
which owns 1,036,111 shares of Common Stock and GAIA Holdings, Inc. which
owns 555,556 shares of Common Stock. Also includes 125,000 shares which
may be acquired upon exercise of options.
14
<PAGE>
SERIES F AND G PREFERRED STOCK
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Percentage
Name and Address of Beneficial Owner Ownership/(1)/ of Class/(1)/
- ------------------------------------ -------------------- -------------
<S> <C> <C>
NationsBanc 62,694 Series F 62.7%
Capital Corporation 11,035 Series G 72.0%
901 Main Street
66th Floor
Dallas, Texas 75202
The CCG Venture Partners, LLC 9,404/(2)/ Series F 9.4%
14450 T.C. Jester Boulevard 1,655/(2)/ Series G 10.8%
Suite 170
Houston, Texas 77014
Harrison Interests, Ltd. 6,269 Series F 6.2%
Texas Commerce Bank Bldg. 1,103 Series G 7.2%
Suite 1900
Houston, Texas 77002
Pecaut Capital Investors, LP 5,015 Series F 5.0%
511 6th Street 882 Series G 5.8%
Sioux City, Iowa 51101
Roser Partnership II, Ltd. 6,203 Series F 6.2%
1105 Spruce Street 0 Series G --
Boulder, Colorado 80302
</TABLE>
_____________________
/(1)/ Calculated in accordance with Item 403 of Regulation S-B and Rule 13d-
3(d) as promulgated under the Exchange Act. Includes shares of Common
Stock which the holder has the right to acquire upon exercise or
conversion of outstanding options, warrants or other convertible
securities (such as the Series F and G Preferred Stock) within sixty (60)
days of March 31, 1998. Percentages are presented after rounding to the
nearest tenth.
/(2)/ Registered in the name of The CCG Charitable Remainder Unitrust No. 1 for
which CCG Venture Partners, LLC provides investment management services.
CCG Venture Partners, LLC disclaims beneficial ownership of these shares.
15
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth as of March 31, 1998 the beneficial
ownership of the Company's Common Stock by (i) each of the executive officers
identified in the Summary Compensation Table appearing herein; (ii) each
director and nominee for director; and (iii) all directors and executive
officers as a group. As of March 31, 1998, there were 31,318,726 outstanding
shares of Common Stock, 100,046 outstanding shares of Series F Preferred Stock
and 15,318 outstanding shares of Series G Preferred Stock.
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Percentage
Name and Address of Beneficial Owner Ownership/(1)/ of Class/(1)/
- ------------------------------------ ----------------- -------------
<S> <C> <C>
Tim B. Tarrillion 1,081,630/(2)/ 3.4%
10102 Cedar Creek
Houston, Texas 77042
Henry W. Sullivan 1,753,709/(3)/ 5.6%
4710 Bellaire Boulevard, Suite 301
Houston, Texas 77401
Donovan W. Boyd 202,468/(4)/ /*/
4710 Bellaire Boulevard, Suite 301
Houston, Texas 77401
Richard L. Davis 2,224,210/(5)/ 6.6%
14450 T.C. Jester Boulevard
Suite 170
Houston, Texas 77014
Douglas C. Williamson(6) 0 -
901 Main Street
66th Floor
Dallas, Texas 75202
Edwin H. Knight(7) 0 -
707 Travis
Suite 1900
Houston, Texas 77002
Judith Knight Shields 267,500/(8)/ /*/
4710 Bellaire Boulevard, Suite 301
Houston, Texas 77401
All officers and directors as a group 5,529,517 16.0%
(7) persons
</TABLE>
_____________________
16
<PAGE>
/*/ Less than 1%.
/(1)/ Calculated in accordance with Item 403 of Regulation S-B and Rule 13d-
3(d) as promulgated under the Exchange Act. Includes shares of Common
Stock which the holder has the right to acquire upon exercise or
conversion of outstanding options, warrants or other convertible
securities (such as the Series F and G Preferred Stock) within sixty (60)
days of March 31, 1998. Except as otherwise indicated, percentages are
presented after rounding to the nearest tenth.
/(2)/ Includes 530,500 shares of Common Stock and 50,000 Common Stock purchase
warrants received by Mr. Tarrillion in conjunction with a merger
transaction between the Company and EET in March, 1995. Also includes
91,130 shares owned through a profit sharing plan for the benefit of Mr.
Tarrillion and 400,000 shares which may be acquired upon exercise of
options. Does not include 100,000 shares issuable upon exercise of
options which do not commence vesting until March 31, 1999. Also does not
include 51,000 shares received by trusts on behalf of Mr. Tarrillion's
minor children in connection with the EET merger which are held by an
independent trustee as to which Mr. Tarrillion disclaims any beneficial
ownership.
/(3)/ Dr. Sullivan is deemed to beneficially own 1,591,667 shares of Common
Stock by virtue of his position as a principal executive officer of GAIA
Holdings, Inc. which owns 555,556 shares of Common Stock, and Thor which
owns 1,036,111 shares of Common Stock. Includes 41,042 shares owned
through a profit sharing plan for the benefit of Dr. Sullivan and 100,000
shares which may be acquired upon exercise of options. Does not include
100,000 shares issuable upon exercise of options which do not commence
vesting until December 29, 1998.
/(4)/ Consists of 2,468 shares of Common Stock owned through a profit sharing
plan for the benefit of Mr. Boyd and 200,000 shares which may be acquired
upon exercise of options.
/(5)/ Mr. Davis is CEO of CCG Venture Partners, LLC which provides investment
management services to CCG Charitable Remainder Unitrust No. 1. Consists
of 1,474,210 shares of Common Stock issuable to The CCG Charitable
Remainder Unitrust No. 1 upon conversion of shares of Series F and G
Preferred Stock and 750,000 shares of Common Stock which may be acquired
by The CCG Charitable Remainder Unitrust No. 1 upon exercise of Common
Stock purchase warrants.
/(6)/ Mr. Williamson is a Senior Vice President at NBCC. Does not include
9,828,067 shares of Common Stock issuable to NBCC upon conversion of
shares of Series F and G Preferred Stock and 5,000,000 shares of Common
Stock which may be acquired by NBCC upon exercise of Common Stock
purchase warrants.
/(7)/ Mr. Knight manages Harrison Interests Ltd. Does not include 982,807
shares of Common Stock issuable to Harrison Interests, Ltd. upon
conversion of shares of Series F and G Preferred Stock and 500,000 shares
of Common Stock which may be acquired by Harrison Interests, Ltd. upon
exercise of Common Stock purchase warrants.
/(8)/ Includes 10,000 shares received by Ms. Shields and her husband in
connection with the merger transaction between the Company and EET in
March, 1995 and 250,000 shares which may be acquired upon exercise of
options. Does not include options to purchase 50,000 shares that do not
commence vesting until March 31, 1999.
17
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In January 1996, Mr. Tarrillion loaned $250,000 to Industrial Pipe
Fittings, Inc. ("IPF"), a subsidiary of the Company, under the terms of a 13%
promissory note with a maturity in January 1999. Proceeds from the note were
used by IPF to purchase a machine for fabricating wyes, tees and els. The
equipment purchased served as collateral for the note. In October 1997,
proceeds from the sale of the net assets of IPF were used to repay this note in
full. During 1997 IPF paid $21,426 in interest to Mr. Tarrillion in respect of
this note.
IPF also had a 12% unsecured note payable due to Mr. Tarrillion in the
principal amount of $120,000 as of December 31, 1996. A principal payment of
$20,000 was made in April 1997. The remaining principal balance of $100,000 was
paid in full in October 1997 in connection with the sale of the net assets of
IPF. During 1997, IPF paid $10,700 in interest to Mr. Tarrillion in respect of
this note.
Effective November 1, 1997, Mr. Boyd resigned as Chief Operating Officer
and Senior Vice President of the Company. He entered into a consulting
agreement with the Company to provide services on an as-needed basis through
December 31, 1998 for compensation of $35,000. Mr. Boyd remains a director of
the Company.
Effective December 31, 1997, the Company and David M. Daniels, a former
director of the Company, entered into an agreement in full settlement of his
employment contract with the Company. The agreement provides for payments to
Mr. Daniels through December 1998 totaling $90,000, vesting of 100,000 options
to purchase Common Stock which would have vested through March 1999 and a
reduction in the exercise price of certain options to purchase 300,000 shares of
Common Stock from $1.25 to $0.75. Mr. Daniels also resigned his position as a
director of the Company. An accrual for $90,000 has been included in the
Company's consolidated financial statements for the year ended December 31,
1997.
The Company has employment agreements with Mr. Tarrillion and Ms. Shields.
See "EMPLOYMENT AGREEMENTS."
The Company has granted certain options and warrants to directors and
officers of the Company and repriced certain of these options during 1997. See
"REPORT ON REPRICING OF OPTIONS."
VOTE REQUIRED
A plurality of votes cast by holders of shares of Common Stock and Series
F and G Preferred Stock at the Meeting is required to elect a nominee as a
director.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF
THE TWO NOMINEES TO THE BOARD OF DIRECTORS
18
<PAGE>
PROPOSAL 2
AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION TO
EFFECT THE REVERSE STOCK SPLIT
The Company's Board of Directors has unanimously approved and determined
to submit to the stockholders of the Company an amendment (the "Amendment") to
the Company's Restated Certificate of Incorporation to effect a reverse stock
split (the "Reverse Stock Split"). A true and correct copy of the proposed
Amendment is attached hereto as Exhibit "A." A true and correct copy of the
resolutions adopted by the Board of Directors are attached hereto as Exhibit
"B." The statements made in this Proxy Statement regarding the Amendment and
the Reverse Stock Split should be read in conjunction with and are qualified in
their entirety by reference to Exhibits "A" and "B."
DESCRIPTION OF THE REVERSE STOCK SPLIT
The Reverse Stock Split will be effected in accordance with a formula
based upon the higher of a fixed conversion rate or a rate based on the trading
price of the Company's Common Stock. Under this formula, the Reverse Stock
Split will be effected pursuant to a conversion rate equal to the higher of (i)
5 (five) shares of the Company's presently outstanding Common Stock being
converted into one (1) new share of the Company's Common Stock (the "New Common
Stock"); or (ii) that number of shares obtained by dividing $1.50 by the average
of the low bid prices of the Company's Common Stock as reported on the Nasdaq
SmallCap Market (the "SmallCap Market") during the ten (10) trading days prior
to the filing of the Amendment. See Exhibit "B." In the event that this ratio
results in a fractional number, it will be rounded to the closest whole number;
provided, however, if the fraction is .5 it shall be rounded up to the next
whole number. The following three examples are intended to provide an
illustration of how this formula will be applied to effectuate the Reverse Stock
Split:
(1) If the average of the low bid prices of the Company's Common
Stock during the ten (10) trading days prior to the filing of the
Amendment was $0.25 per share, resulting in a ratio of six (6), the
Reverse Stock Split will result in each six (6) shares of the
Company's presently outstanding Common Stock being converted into one
(1) share of New Common Stock.
(2) If the average of the low bid prices of the Company's Common
Stock during the ten (10) trading days prior to the filing of the
Amendment was $0.20 per share, resulting in a conversion ratio of 7.5,
the Reverse Stock Split will result in each eight (8) shares of the
Company's presently outstanding Common Stock being converted into one
(1) share of New Common Stock.
(3) If the average of the low bid prices of the Company's Common
Stock during the ten (10) trading days prior to the filing of the
Amendment was $0.35 per share, resulting in a ratio of four (4), the
Reverse Stock Split will result in each five (5) shares of the
Company's presently outstanding Common Stock being converted into one
(1) share of New Common Stock.
19
<PAGE>
The Reverse Stock Split shall not affect the number of shares of Series F and G
Preferred Stock outstanding, although the conversion rates of the Series F and G
Preferred Stock into Common Stock will be proportionately adjusted.
The Company is currently authorized to issue 100,000,000 shares of Common
Stock, of which 31,318,726 were outstanding on the Record Date. If the Reverse
Stock Split is effected, the number of authorized shares will remain the same,
but the number of outstanding shares will be proportionately decreased based on
the conversion ratio calculated pursuant to the formula described above. For
example, if the Reverse Stock Split results in each six (6) shares of the
Company's presently outstanding Common Stock being converted into one (1) share
of New Common Stock, the number of outstanding shares would be decreased to
approximately 5,219,787. The relative rights and preferences of the Common
Stock and Series F and G Preferred Stock would not be affected by the Reverse
Stock Split.
Each stockholders' percentage ownership of the Company and the number of
stockholders should not materially change as a result of the Reverse Stock
Split. The par value per share of Common Stock will remain at $0.001 following
the Reverse Stock Split; as a consequence, the aggregate capital in excess of
par value attributable to the outstanding Common Stock for statutory and
accounting purposes will be increased.
NASDAQ $1.00 MINIMUM BID REQUIREMENT AND REASONS FOR THE REVERSE STOCK SPLIT
The Board of Directors is recommending this action primarily to allow the
Company's Common Stock to continue to comply with the maintenance requirements
approved by the Board of Directors of The Nasdaq Stock Market, Inc. ("Nasdaq"),
as well as to improve the liquidity of the Company's Common Stock. One of the
maintenance standards of the SmallCap Market had required that the Company's
Common Stock have a minimum bid price of $1.00 per share (the "$1.00 Minimum
Bid") or, in the alternative, the market value of the Company's public float
equal at least $1,000,000 and the capital and surplus equal at least $2,000,000
(the "Alternative to the $1.00 Minimum Bid"). In past years, the Company
maintained its listing on the SmallCap Market by compliance with the Alternative
to the $1.00 Minimum Bid. Recently, Nasdaq enacted new maintenance standards
for the SmallCap Market which became effective February 23, 1998 whereby the
Alternative to the $1.00 Minimum Bid was eliminated. As a continuing company on
the SmallCap Market, the Company must now comply with the $1.00 Minimum Bid by
May 24, 1998 or be subject to delisting by Nasdaq.
The Board of Directors believes that a delisting from the SmallCap Market
could, among other things, adversely affect the Company's ability to attract new
investors and to make acquisitions by issuing shares of Common Stock. A
delisting would also decrease the liquidity of the outstanding shares of Common
Stock and consequently, reduce the trading price and increase the transaction
costs of trading such shares. The Board of Directors believes that if the
Reverse Stock Split is approved, the bid price will likely increase over the
$1.00 Minimum Bid which should permit the Company to maintain its listing on the
SmallCap Market.
POTENTIAL EFFECTS OF THE REVERSE STOCK SPLIT
If this proposal is approved by the Company's stockholders, one (1) share
of New Common Stock will be issued for a multiple number of presently
outstanding shares of Common Stock based upon the conversion rate calculated
using the formula described above.
20
<PAGE>
Decrease in Aggregate Market Value of Common Stock. Although the Reverse
Stock Split will not, by itself, impact the Company's assets or prospects, the
Reverse Stock Split could result in a decrease in the aggregate market value of
the Company's equity capital. The Board of Directors believes that this risk is
outweighed by the benefit of compliance with the SmallCap Market maintenance
requirements and by increasing the per share price, may make an investment in
the Common Stock more attractive for certain investors. There can, however, be
no assurance that approval of the Reverse Stock Split will succeed in raising
the bid price of the Company's Common Stock above $1.00, that such price, if
achieved, would be maintained, or if maintained that the Company's Common Stock
would not be delisted by Nasdaq for other reasons.
Increase in Shares Available For Future Issuance. The increase in the
number of authorized shares which would be unissued and available for future
issuance after the Reverse Stock Split (the "Increased Available Shares") could
be used for any proper corporate purpose approved by the Board of Directors of
the Company. The Increased Available Shares will provide the Board with
additional flexibility to issue shares in connection with future financing
transactions.
Since the Reverse Stock Split will result in the Increased Available
Shares, it may be construed as having an anti-takeover effect. Although neither
the Board of Directors nor the management of the Company views this proposal as
an anti-takeover measure, the Company could use the Increased Available Shares
to frustrate persons seeking to effect a takeover or otherwise gain control of
the Company. For example, the Company could privately place shares with
purchasers who might side with the Board of Directors in opposing a hostile
takeover bid or issue shares to a holder which would, thereafter, have
sufficient voting power to assure that any proposal to amend or repeal the
Bylaws or certain provisions of the Restated Certificate of Incorporation would
not receive the requisite vote.
OUTSTANDING SHARES OF COMMON STOCK
As of March 31, 1998, there were outstanding (i) 31,318,726 shares of
Common Stock; (ii) 100,046 shares of Series F Preferred Stock; (iii) 15,318
shares of Series G Preferred Stock; (iv) 3,100,000 options granted and not
expired, canceled nor exercised; and (v) warrants to purchase 12,778,916 shares
of Common Stock. As of March 31, 1998, pursuant to the terms of outstanding
convertible instruments, options, warrants and other obligations, the Company
may be required to issue up to approximately 31,412,249 additional shares of
Common Stock. As the conversion rates and anti-dilution adjustments of some of
these convertible instruments are influenced by the market price of the
Company's Common Stock at any given time, the number of shares of Common Stock
issuable upon conversion of such instruments will be affected by fluctuations in
the market price of the Company's Common Stock.
NOTIFICATION OF STOCKHOLDERS AND EXCHANGE OF STOCK CERTIFICATES
If the Amendment is approved by the Company's stockholders, the Board of
Directors in consultation with the Company's Chief Financial Officer and
independent auditors will determine the Reverse Stock Split ratio and the
Company will file the Amendment to its Restated Certificate of Incorporation
with the Secretary of State of Delaware. The Reverse Stock Split will become
effective on the date of the filing of the Amendment (the "Effective Date").
21
<PAGE>
As soon as practicable after the Effective Date, stockholders will be
notified and requested to surrender their certificates. The Company's transfer
agent will act as the Company's exchange agent (the "Exchange Agent") for
holders of Common Stock to exchange their certificates representing shares of
the Company's Common Stock. Beginning on the Effective Date, each certificate
representing shares of the Company's Common Stock will be deemed for all
corporate purposes to evidence ownership of shares of New Common Stock. To the
extent a stockholder holds a number of shares not evenly divisible by the ratio
used with respect to the Reverse Stock Split, the Company shall pay such
stockholder in cash the fair market value of such fractional share interest
based upon the average of the low bid prices of the Company's Common Stock as
reported on the SmallCap Market during the ten (10) days prior to the Effective
Date of the Amendment.
FRACTIONAL SHARES
No fractional shares will be issued. Any fractional shares remaining
after aggregating all fractional shares held by a stockholder will be paid out
in cash at the fair market value of such fractional share interest. For
example, if a stockholder held 644 shares of Common Stock prior to the Reverse
Stock Split and each six (6) shares of presently outstanding Common Stock is
converted into one (1) share of New Common Stock, after the Effective Date such
stockholder will hold 107 shares of New Common Stock and, assuming the average
of the low bid prices of the Company's Common Stock during the ten (10) days
trading prior to the date of the Meeting is $0.25, be paid $0.50.
FEDERAL INCOME TAX CONSEQUENCES
The following description of federal income tax consequences is based on
the Internal Revenue Code of 1986, as amended (the "Code"), the applicable
Treasury Regulations promulgated thereunder, judicial authority and current
administrative rulings and practices in effect on the date of this Proxy
Statement. This discussion is for general information only and does not discuss
the federal income tax consequences which may apply to non-resident aliens,
broker-dealers, stockholders who receive Common Stock in compensatory
transactions or insurance companies. This discussion does not address any
foreign, state or local tax consequences that may be relevant to the Company's
stockholders. Accordingly, stockholders are urged to consult their own tax
advisors to determine the particular consequences to them of the Reverse Stock
Split.
The exchange of shares of Common Stock for shares of New Common Stock will
not result in recognition of gain or loss, except to the extent cash is paid
with respect to fractional shares. The holding period of the shares of New
Common Stock will include the stockholder's holding period for the shares of
Common Stock exchanged therefor, provided that the shares of Common Stock were
held as a capital asset. The adjusted basis of the shares of New Common Stock
will be the same as the adjusted basis of the Common Stock exchanged therefor.
NO DISSENTER'S RIGHTS
Under Delaware law, stockholders are not entitled to dissenter's rights of
appraisal with respect to the proposed Amendment to the Company's Restated
Certificate of Incorporation to effect the Reverse Stock Split.
22
<PAGE>
VOTE REQUIRED FOR APPROVAL
Under Delaware law and the Restated Certificate of Incorporation, approval
of the Reverse Stock Split requires the affirmative vote of at least a majority
of the outstanding shares of Common Stock and Series F and G Preferred Stock
voting together as a single class. An abstention or failure to vote on this
proposal is not an affirmative vote and, therefore, will have the same effect as
a negative vote on this proposal at the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL TO
EFFECT THE REVERSE STOCK SPLIT AND THE RELATED AMENDMENT TO
THE RESTATED CERTIFICATE OF INCORPORATION
PROPOSAL 3
ISSUANCE AND SALE OF UP TO $2,000,000 OF CUMULATIVE CONVERTIBLE
PREFERRED STOCK IN A PRIVATE PLACEMENT TRANSACTION
The Board of Directors has unanimously approved and determined to submit
to the stockholders of the Company for approval this proposal to issue and sell
up to $2 million of cumulative convertible preferred stock in a private
placement transaction (the "Private Placement").
The cumulative convertible preferred stock will be issued under the terms
of a Master Certificate of Designation of Cumulative Convertible Preferred
Stock, Series G (the "Master Certificate of Designation") and a Designation of
Subseries ("Designation of Subseries") and will be designated as Cumulative
Convertible Preferred Stock, Series G- Subseries II (the "Subseries II Shares").
The Master Certificate of Designation sets forth the general rights and
preferences of the Subseries II Shares. A true and correct copy of the Master
Certificate of Designation is attached hereto as Exhibit "C". The Designation
of Subseries sets forth the number of Subseries II Shares and the initial
conversion price. A true and correct copy of the Designation of Subseries is
attached hereto as Exhibit "D." The statements made in this Proxy Statement
regarding the Private Placement and the description of the Subseries II Shares
should be read in conjunction with and are qualified in their entirety by
reference to Exhibits "C" and "D."
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NASDAQ SHAREHOLDER APPROVAL REQUIREMENT; EFFECT OF SHAREHOLDER APPROVAL
As explained in Proposal 2, Nasdaq recently approved several changes to
the listing and maintenance requirements for securities listed on the SmallCap
Market. Among the recent changes was the adoption of certain corporate
governance provisions including a requirement that shareholders approve any
private placement transaction involving the issuance or sale of securities
convertible into common stock equal to or exceeding 20% or more of an issuer's
currently outstanding shares. As more fully explained below, the Subseries II
Shares will be initially convertible into shares of Common Stock at a stated
conversion price equal to the lesser of (i) 90 % of the average of the closing
bid prices of the Company's Common Stock as reported on the SmallCap Market
during the ten (10) trading days preceding and including June 12, 1998; or (ii)
a fixed value which as of the date of this Proxy Statement is approximately
$0.45. See "DESCRIPTION OF SUBSERIES II SHARES." Since the conversion of the
Subseries II Shares may result in the issuance of Common Stock exceeding 20% of
the Company's currently outstanding shares at a discount to the trading price of
the Company's Common Stock, applicable Nasdaq rules require that the Private
Placement be approved by the Company's shareholders.
The Company is seeking stockholder approval for the Private Placement
solely to comply with the Nasdaq shareholder approval rule described in the
preceding paragraph. Although the Company believes that the Private Placement
will be completed on substantially the terms described herein, negotiation of
definitive agreements has not been completed. The Company reserves the right to
amend the terms of the Private Placement without obtaining further stockholder
approval unless required to do so by applicable Nasdaq rules or applicable law.
DESCRIPTION OF THE SUBSERIES II SHARES
The Subseries II Shares are a newly designated subseries of the Company's
Series G Preferred Stock. All shares of Series G Preferred Stock are issued in
subseries pursuant to a Master Certificate of Designation which sets forth the
general rights and preferences applicable to all shares of Series G Preferred
Stock and a certificate of designation of subseries applicable to the specific
subseries. One of the principal features of the Series G Preferred Stock is
that they are convertible into shares of Common Stock at any time at the option
of the holder thereof. The Conversion Value of all shares of Series G Preferred
Stock (the " Series G Conversion Value") is $100 per share. The Series G
Conversion Value shall not be subject to adjustment (except in connection with a
recapitalization). The initial conversion price applicable to a particular
subseries of Series G Preferred Stock (the "Subseries Conversion Price") is set
forth in the applicable certificate of designation of subseries. The Subseries
Conversion Price is subject to adjustment for, among other things, additional
issuances of Common Stock or securities convertible into Common Stock for
consideration less than the Subseries Conversion Price in effect at the time of
the issuance of such Common Stock or securities, stock splits, stock dividends
and reclassifications.
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Each share of Series G Preferred Stock is initially convertible, at the
option of the holder thereof, into that number of shares of Common Stock which
results from dividing the Subseries Conversion Price in effect for such series
at the time of conversion into the Series G Conversion Value. For example, if
on the date of conversion the Subseries Conversion Price was $0.25, each
Subseries II Share would be convertible into 400 shares of Common Stock.
Commencing April 5, 2001, each share of Series G Preferred Stock is convertible,
at the option of the holder thereof, into that number of shares of Common Stock
which results from dividing the lesser of (i) the Subseries Conversion Price in
effect for such series at the time of conversion and (ii) 90% of the average
closing bid prices of the Company's Common Stock as reported on the SmallCap
Market during the twenty (20) days preceding the date of conversion into the
Series G Conversion Value. For example, if on the date of conversion the
Subseries Conversion Price was $0.25, and 90% of the average closing bid prices
of the Company's Common Stock as reported on the SmallCap Market during the
twenty (20) days preceding the date of conversion was $0.20, each Subseries II
Share would be convertible into 500 shares of Common Stock.
Upon conversion, all accrued or declared but unpaid dividends (including
any interest accrued thereon calculated as of the date of conversion) on the
Series G Preferred Stock shall either be paid in cash, to the extent permitted
by applicable law or, at the option of the holder, converted into the number of
shares of Common Stock which results from dividing the Subseries Conversion
Price in effect at such time into the aggregate of all accrued or declared but
unpaid dividends (including any interest accrued thereon calculated as of the
date of conversion).
The Series G Preferred Stock are issued at the Series G Conversion Value
of $100 per share and are entitled to a cumulative dividend at a rate of 13.5%
of the Series G Conversion Value payable semi-annually. The Company may elect to
defer the dividend payments until April 1999, in which case, each holder may
elect to either have such deferred dividends accrue interest at a per annum rate
of 13.5%, or receive payment of the dividend in the form of additional shares of
Series G Preferred Stock. Commencing April 5, 2004, outstanding shares of Series
G Preferred Stock are redeemable at the option of the Company by payment to the
holder thereof the Series G Conversion Value plus any and all accrued and
declared but unpaid dividends.
Pursuant to the Designation of Subseries, up to 25,000 shares of Series G
Preferred Stock will be designated as the Subseries II Shares. The initial
Subseries Conversion Price for the Series II Shares shall be calculated to be
the lesser of (i) 90% of the average of the closing bid prices of the Company's
Common Stock as reported on the SmallCap Market during the ten (10) trading days
preceding and including June 12, 1998; or (ii) the Subseries Conversion Price
for the Series G Preferred Stock-Subseries I in effect on the date the Subseries
II Shares are issued. As of the date of this Proxy Statement, the applicable
Subseries Conversion Price for the Series G Preferred Stock-Subseries I is
approximately $0.45. As explained below, the Subseries II Shares will be sold
in the Private Placement at $100 per share for aggregate gross proceeds of up to
$2 million.
BACKGROUND OF THE PRIVATE PLACEMENT
Pursuant to negotiations between the Company and certain holders (the
"Holders") of the Series F and G Preferred Stock, the Company anticipates
obtaining a loan (the "Loan") from the Holders in the aggregate principal amount
of up to $2 million. The Loan would bear interest at a rate of 13.5% per annum
and would be due and payable on June 30, 1998. The Holders and the Company have
agreed, subject to the approval of the Company's stockholders, to cancel the
Loan
25
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through the issuance of Subseries II Shares on the terms and conditions herein.
Each Subseries II Share is issuable upon cancellation of $100 of principal
amount and accrued interest due under the Loan. If the Company's stockholders do
not approve the Private Placement at the Meeting, the Loan will remain
outstanding and be due and payable on June 30, 1998.
REASONS FOR PRIVATE PLACEMENT
The Company is currently focusing its efforts on the commercialization of
its proprietary railroad crosstie business. More specifically, the Company is
completing plans to build and operate a permanent small-scale production
facility to produce the crossties. This plan requires the Company to obtain
immediate financing of approximately $2 million. If the Company is unable to
obtain the financing to build and operate the crosstie production facility, it
will be unable to proceed with the commercialization of its railroad crosstie
business in the short term. Any such delay could be material to the Company's
ability to successfully commercialize this product. The Board of Directors,
therefore, believes that this financing is critical to the commercialization of
the Company's crosstie business.
The Company anticipates obtaining the necessary financing through the
proceeds of the Loan prior to the Meeting and subject to stockholder approval,
converting the Loan into equity through the issuance of the Subseries II Shares.
The conversion would permit the Company to pay dividends in additional Subseries
II Shares rather than make interest payments in cash thereby improving the
Company's cash flow. Additionally, upon conversion of the Loan, the Company
will no longer be obligated to repay or refinance the principal amount of the
Loan at maturity. Since the Board of Directors believes that the Company will
not be able to service the Loan or a similar credit facility, it has concluded
that the best way to obtain the necessary financing is to complete the Private
Placement by converting the Loan into Subseries II Shares. For these reasons,
the Board of Directors believes that the issuance of the Subseries II Shares is
in the best interest of the Company and recommends that stockholders approve the
Private Placement.
26
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EFFECTS OF ISSUANCE OF CUMULATIVE CONVERTIBLE PREFERRED STOCK
The Private Placement will result in the initial issuance of up to 20,000
Subseries II Shares which upon conversion into Common Stock will result in
substantial dilution of each shareholder's relative ownership interest in the
Company. For example, if at the time of conversion the Company's common shares
are trading at $0.25, then 20,000 Subseries II Shares would be convertible into
at least 8,000,000 shares of Common Stock. Since there is no public market for
the Subseries II Shares and the Company has agreed to register the resale of the
Common Stock issuable upon conversion of the Subseries II Shares, it is likely
that the additional shares of Common Stock will be issued and ultimately sold on
the SmallCap Market. Such sales could result in a decrease of the trading price
of the Company's Common Stock below the $1.00 Minimum Bid which would subject
the Company to delisting from the SmallCap Market. Given the large number of
additional shares of Common Stock issuable upon conversion of currently
outstanding shares of Series F and G Preferred Stock which may be resold on the
SmallCap Market pursuant to a currently effective registration statement, the
Company is already subject to the risk of a decline in the market price of its
Common Stock regardless of the issuance of the Subseries II Shares.
In addition, the Series F and G Preferred Stock contain certain anti-
dilution provisions which provide for a reduction in the applicable Subseries
Conversion Price upon issuances of Common Stock, or securities convertible into
Common Stock (such as the Subseries II Shares) at prices below the Subseries
Conversion Prices in effect at the time of such issuance. Accordingly, to the
extent the Subseries Conversion Price of the Subseries II Shares is less than
the Subseries Conversion Prices of the Series F Preferred Stock and Series G
Preferred Stock-Subseries I in effect at the time the Subseries II Shares are
issued, the Subseries Conversion Prices applicable to the Series F Preferred
Stock and Series G Preferred Stock-Subseries I would be reduced. Any such
reduction would cause each share of Series F Preferred Stock and Series G
Preferred Stock-Subseries I to be converted into a greater number of shares of
Common Stock resulting in additional dilution of each shareholder's relative
ownership interest in the Company.
VOTE TO REQUIRED FOR APPROVAL
The affirmative vote of a majority of the shares of Common Stock and
Series F and G Preferred Stock voting together as a single class present, in
person or by proxy, at the Meeting is required for the approval of the Private
Placement.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL
OF THE PRIVATE PLACEMENT TRANSACTION.
PROPOSAL 4
RATIFICATION OF THE COMPANY'S INDEPENDENT AUDITORS
BDO Seidman, LLP has audited the Company's financial statements since
1992. BDO Seidman, LLP has been selected by the Board of Directors and the
Financial Audit Committee to serve as the independent auditors for the Company
for the fiscal year ending December 31, 1998. Representatives of BDO Seidman,
LLP are expected to be present at the Meeting to make a statement if they so
desire and will be available to respond to appropriate questions.
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The Board of Directors shall consider the selection of another accounting
firm to serve as the Company's independent auditors in the event that the
stockholders do not approve the selection of BDO Seidman, LLP as the Company's
independent auditors.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of a majority of the shares of Common Stock and
Series F and G Preferred Stock voting together as a single class present, in
person or by proxy, at the Meeting is required for ratification of BDO Seidman,
LLP as the Company's independent auditors for the fiscal year ending December
31, 1998.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF
BDO SEIDMAN, LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE
1998 FISCAL YEAR
OTHER MATTERS
The Board of Directors does not know of any other matter which is intended
to be brought before the Meeting, but if such matter is presented, the persons
named in the enclosed proxy intend to vote the same according to their best
judgment.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than ten percent (10%) of a class of the
Company's equity securities registered under the Exchange Act to file reports of
ownership on Form 3 and changes in ownership on Form 4 or 5 with the Securities
and Exchange Commission (the "SEC") and the National Association of Securities
Dealers, Inc. Such officers, directors and ten percent (10%) stockholders are
also required by SEC rules to furnish the Company with copies of all forms that
they file pursuant to Section 16(a). Based solely on its review of the copies
of such forms received by it, or written representations from such persons that
no other reports were required for such persons, the Company believes that all
Section 16(a) filing requirements applicable to the Company's officers,
directors and ten percent (10%) stockholders were complied with in a timely
fashion during the fiscal year ended December 31, 1997, except that Richard L.
Davis did not timely file a Form 3 upon his appointment as a director in
December 1997.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
The Company currently intends to hold its 1999 Annual Meeting of
Stockholders in May 1999 and to mail proxy statements relating to such meeting
in April 1998. In order for proposals of stockholders to be considered for
inclusion in the proxy statement and form of proxy relating to the Company's
1999 Annual Meeting of Stockholders, such proposals must be received by the
Company no later than December 5, 1998 and must otherwise be in compliance with
all applicable laws and regulations.
By Order of the Board of Directors
____________________________________
Tim B. Tarrillion
Chairman of the Board and
Chief Executive Officer
Dated: April 3, 1998
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EXHIBIT A
FORM OF CERTIFICATE OF AMENDMENT
TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
The undersigned, desiring to amend the Certificate of Incorporation of
North American Technologies Group, Inc., a Delaware corporation (the
"Corporation"), pursuant to Section 242 of the Delaware General Corporation law,
DOES HEREBY CERTIFY:
FIRST: The Board of Directors of the Corporation, by unanimous approval at
a meeting of the directors, evidenced by board resolutions and
approval of the requisite vote of each class of stockholders, has duly
adopted the following resolution proposing and declaring advisable the
following amendment to the Restated Certificate of Incorporation:
RESOLVED, that Article IV of the Restated Certificate of Incorporation
of the Corporation, as amended to date, be amended to add the
following Section:
"All of the shares of Common Stock, $0.001 par value,
of the Corporation issued and outstanding, or held as treasury
shares, immediately prior to the time this Amendment becomes
effective shall be and are by this means automatically
reclassified and changed (without further act) into fully paid
and nonassessable shares of Common Stock, $0.001 par value, the
number of which shall equal the quotient derived from dividing
the number of such shares by __./1/ The shares of Common Stock
returned to the Corporation as a result of the reclassification
and change shall be returned to available capital. This
Amendment shall become effective without increasing or decreasing
the amount of stated capital or paid-in surplus of the
Corporation, and shall constitute a _____/1/ for one reverse
stock split, provided no fractional shares of less than one share
shall be issued. The holders of fractional share interests of
less than one share that occur as a result of the foregoing
reclassification and change shall be paid in cash by
- ----------------------
/1/ This number shall be calculated in accordance with the resolution adopted by
the Board of Directors of the Company on _________, 1998 which is included
herein as Exhibit "B" and explained in the accompanying Proxy Statement. See
"PROPOSAL 2 AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION TO EFFECT THE
REVERSE STOCK SPLIT."
29
<PAGE>
the Corporation the value of their fractional share based upon
the average of the low bid price of the Corporation's Common
Stock during the ten (10) trading days prior to the effective
date of the Amendment."
SECOND: That the aforesaid amendment has been duly adopted in accordance
with Section 242 of the Delaware General Corporation Law.
THIRD: That this amendment shall become effective on May 13, 1998.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by, Tim B. Tarrillion, its Chief Executive Officer, and
Judith Knight Shields, its Chief Financial Officer this 13th day of May, 1998.
NORTH AMERICAN TECHNOLOGIES
GROUP, INC.
By:_______________________________________
Tim B. Tarrillion
Chief Executive Officer
By:________________________________________
Judith Knight Shields
Chief Financial Officer
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<PAGE>
EXHIBIT B
The following resolution was adopted by unanimous written consent of the
Board of Directors of the Company on March __,1998:
RESOLVED, that, in order to comply with the Nasdaq SmallCap Market $1.00
Minimum Bid Requirement, each of the officers of the Corporation is hereby
authorized, empowered and directed, in the name and on behalf of the
Corporation, to declare and effect in the best interest of the Corporation the
Reverse Stock Split in accordance with a ratio equal to the higher of (i) five
(5) shares of the Corporation's presently outstanding shares of Common Stock
being converted into one (1) new share of Common Stock; or (ii) that number of
shares obtained by dividing $1.50 by the average of the low bid prices of the
Corporation's Common Stock as reported on the Nasdaq SmallCap Market during the
ten (10) trading days prior to the effective date of the Reverse Stock Split,
provided that if the ratio is a fractional number, such ratio shall be rounded
to the closest whole number and provided further that if the fraction is .5 it
shall be rounded up to the next whole number.
<PAGE>
EXHIBIT C
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
<PAGE>
declared or paid with respect to shares of Series F Preferred (and excluding any
stock 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) day following the Dividend Date for
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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 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.
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(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 a
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 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
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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 (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
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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.
(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);
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(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 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,
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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 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:
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(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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<PAGE>
(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.
(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
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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.
(4) REDEMPTION.
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(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 (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.
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(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.
(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.
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(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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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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EXHIBIT A
CERTIFICATE OF DESIGNATION OF CUMULATIVE CONVERTIBLE
PREFERRED STOCK , SERIES - G SUBSERIES __
_______________and ________________ 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 _____, 199_; and that none of the Series G Cumulative Convertible
Preferred Stock - Subseries _ 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 __ (the "Series G Preferred -
Subseries __"), which shall consist of _____ shares. The Series G Preferred-
Subseries __ 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 __ shares shall be $___. 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 ____ day of _____, 199_.
NORTH AMERICAN TECHNOLOGIES, GROUP, INC.
_________________________________________
DATE: ____________________ , President and Chief Executive Officer
DATE: ____________________ __________________________________________
, Assistant Secretary
-16-
<PAGE>
EXHIBIT D
FORM OF CERTIFICATE OF DESIGNATION OF CUMULATIVE CONVERTIBLE
PREFERRED STOCK, SERIES G - SUBSERIES II
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 _______, 1998; and that none of the Series G Cumulative
Convertible Preferred Stock - Subseries II 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 II (the "Series G Preferred -
Subseries II"), which shall consist of ________ /(1)/shares. The Series G
Preferred-Subseries II 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 II shares shall be $___./(2)/ 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 ____ day of ______, 1998.
NORTH AMERICAN TECHNOLOGIES, GROUP, INC.
DATE: ____________________ ________________________________________
Tim B. Tarrillion, President and Chief
Executive Officer
DATE: ____________________ ________________________________________
Judith Knight Shields, Assistant Secretary
- --------------------
/(1/) The number of shares which will be designated as the Subseries II Shares
shall not exceed 25,000 and will be based on the size of the Private Placement.
See "PROPOSAL 3 ISSUANCE AND SALE OF UP TO $2,000,000 OF CUMULATIVE CONVERTIBLE
PREFERRED STOCK IN A PRIVATE PLACEMENT TRANSACTION."
/(2)/ This number shall be calculated based on the lesser of (i) 90% of the
average of the closing bid prices of the Company's common stock as reported on
the Nasdaq SmallCap Market SM during the ten (10) trading days preceding and
including June 12, 1998; or (ii) the Subseries Conversion Price for the
outstanding shares of Series G Preferred Stock-Subseries I in effect on the date
the Subseries II Shares are issued. See "PROPOSAL 3 ISSUANCE AND SALE OF UP TO
$2,000,000 OF CUMULATIVE CONVERTIBLE PREFERRED STOCK IN A PRIVATE PLACEMENT
TRANSACTION."
<PAGE>
PRELIMINARY COPY
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Tim B. Tarrillion and Judith Knight Shields
and each of them proxies with power to appoint a substitute and hereby
authorizes either of them to represent and to vote all shares of Common Stock of
North American Technologies Group, Inc. held of record by the undersigned on
March 31, 1998 at the Annual Meeting of Stockholders of North American
Technologies Group, Inc. to be held on May 12, 1998 and at any adjournments or
postponements thereof, and to vote as directed on the reverse side of this form
and, in their discretion, upon such other matters not specified as may come
before said meeting.
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICE BY MARKING THE APPROPRIATE BOX (SEE
REVERSE SIDE), BUT YOU NEED NOT MARK ANY BOX IF YOU WISH TO VOTE IN ACCORDANCE
WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS.
THE PROXIES CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD
SEE REVERSE SIDE
<PAGE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE
NOMINEES FOR DIRECTOR, FOR THE AMENDMENT TO THE RESTATED CERTIFICATE OF
INCORPORATION TO EFFECT THE REVERSE STOCK SPLIT, FOR THE ISSUANCE AND SALE OF
UP TO $2 MILLION OF CUMULATIVE CONVERTIBLE PREFERRED STOCK IN THE PRIVATE
PLACEMENT TRANSACTION AND FOR THE RATIFICATION OF BDO SEIDMAN, LLP AS
INDEPENDENT AUDITORS FOR NORTH AMERICAN TECHNOLOGIES GROUP, INC. FOR THE 1998
FISCAL YEAR.
_______________________________________________________________________________
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1. Proposal 1
Election of Directors FOR WITHHELD
Donovan W. Boyd [ ] [ ]
Henry W. Sulllivan
For, except vote withheld from
the following nominee(s):
_______________________________
_______________________________
2. Proposal 2
Approval of the Amendment to the FOR AGAINST ABSTAIN
Restated Certificate of Incorporation to [ ] [ ] [ ]
Effect the Reverse Stock Split.
3. Proposal 3
Approval of the Issuance and Sale of FOR AGAINST ABSTAIN
up to $2 million of Cumulative [ ] [ ] [ ]
Convertible Preferred Stock in the Private
Placement Transaction.
4. Proposal 4
Ratification of the Appointment FOR AGAINST ABSTAIN
of BDO Seidman, LLP as Independent [ ] [ ] [ ]
Auditors for the Company.
PLEASE SIGN, DATE AND RETURN YOUR PROXY PROMPTLY IN THE ENCLOSED ENVELOPE. NO POSTAGE
REQUIRED IF MAILED IN THE UNITED STATES.
NOTE: Please sign name(s) exactly as printed hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.
SIGNATURE(S)___________________________________________________________________
__________________________________________________________________________,1998
DATE
</TABLE>
