<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
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 (S) 240.14a-11(c) or (S) 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:
-------------------------------------------------------------------------
Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
<PAGE>
Preliminary
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
4710 BELLAIRE BOULEVARD, SUITE 301
BELLAIRE, TEXAS 77401
May __, 1999
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, June 29, 1999 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 one (1) director to
serve until the 2002 Annual Meeting of Stockholders or until his successor is
elected and qualified; to approve the Company's 1999 Stock Incentive Plan (the
"Plan"); to approve the issuance and sale of the Company's common stock, a new
class of the Company's preferred stock, or convertible debt at the discretion of
the Board of Directors (the "Private Placement") in accordance with the
limitations described in the accompanying Proxy Statement; to approve an
amendment to the Company's Restated Certificate of Incorporation to effect a
reduction in the number of authorized shares of the Company's Common Stock from
100,000,000 to 50,000,000; to ratify the appointment of BDO Seidman, LLP as the
Company's independent auditors for the fiscal year ending December 31, 1999; 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 the director,
FOR the approval of the Company's Stock Incentive Plan, FOR the approval of the
Private Placement, FOR the approval of the amendment to the Company's Restated
Certificate of Incorporation to reduce the number of authorized shares of its
Common Stock; 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 31,1998 is
enclosed for your information. No material contained in the Annual Report is to
be considered a part of the proxy solicitation material.
We wish to thank our stockholders for their participation and support.
Sincerely,
Henry W. Sullivan
Chief Executive Officer
<PAGE>
Preliminary
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held June 29, 1999
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, June 29, 1999, at 10:00 A.M. central time, for the following purposes:
(1) to elect one (1) director to serve until the 2002 Annual Meeting of
Stockholders or until his successor is elected and qualified;
(2) to approve the Company's 1999 Stock Incentive Plan;
(3) to approve the issuance and sale of up to $5,000,000 of common stock,
convertible preferred stock or convertible debt (including sales pursuant to
Proposal 4) at a fixed price in one or more private placement transactions at
the discretion of the Board of Directors provided that the transactions conform
to the limitations described in the accompanying Proxy Statement;
(4) to approve the issuance and sale of up to $5,000,000 of common stock,
convertible preferred stock or convertible debt (including sales pursuant to
Proposal 3) at a floating price in one or more private placement transactions at
the discretion of the Board of Directors provided that the transactions conform
to the limitations described in the accompanying Proxy Statement;
(5) to approve an amendment to the Company's Restated Certificate of
Incorporation to effect a reduction in the number of authorized shares of the
Company's Common Stock from 100,000,000 to 50,000,000, as described in the
accompanying Proxy Statement;
(6) to ratify the appointment of BDO Seidman, LLP as independent auditors
for the Company for the fiscal year ending December 31, 1999; and
(7) 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, 1998 is
enclosed for your information. No material contained in the Annual Report is to
be considered a part of the proxy solicitation material.
Only stockholders of record as of the close of business on Wednesday, May
12, 1999 will be entitled to vote at the Meeting and any adjournment(s) or
postponement(s) thereof.
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,
Houston, Texas Judith Knight Shields
May __, 1999 Secretary
YOUR VOTE IS IMPORTANT
YOU ARE URGED TO SIGN, DATE AND PROMPTLY
RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE.
<PAGE>
Preliminary
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 of the Company to be held at The Houstonian
Hotel, 111 North Post Oak Lane, Houston, Texas on Tuesday, June 29, 1999 at
10:00 A.M. central time, and at any adjournment(s) or postponement(s) thereof
(the "Meeting") for the purposes set forth in the accompanying Notice of Annual
Meeting of Stockholders. The proxy solicitation materials were mailed on or
about May 24, 1999 to all stockholders entitled to vote at the Meeting.
RECORD DATE AND SHARE OWNERSHIP
Stockholders of record at the close of business on May 12, 1999 (the
"Record Date") are entitled to notice of and to vote at the Meeting. At the
Record Date, 3,604,548 shares of the common stock, $0.001 par value per share
(the Common Stock"), 106,554 shares of the Cumulative Convertible Preferred
Stock, Series F, $0.001 par value per share (the "Series F Shares"), 17,397
shares of Cumulative Convertible Preferred Stock, Series G - Subseries I, $0.001
par value per share (the "Series G-I Shares"), 21,265 shares of Cumulative
Convertible Preferred Stock, Series G -Subseries II (the "Series G-II Shares),
$0.001 par value per share and 4,190 shares of Cumulative Convertible Preferred
Stock, Series G - Subseries III, $0.001 par value per share (the "Series G-III
Shares") (collectively, the "Preferred Stock"), were issued and outstanding.
The Preferred Stock is entitled to vote on an "as converted" basis on all items
presented to the Meeting. As of the Record Date, the shares of Preferred Stock
were entitled to the following votes per Share; Series F Shares: 22.15; Series
G-I Shares: 38.56; Series G-II Shares: 115.44; Series G-III Shares: 66.67.
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 Secretary 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, 1998 accompanies this Proxy Statement. No material contained in the Annual
Report 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.
VOTING AND SOLICITATION
On all matters each share of Common Stock is entitled to one vote. The
Preferred Stock is entitled to vote on an "as converted" basis on all items
presented to the Meeting. As of the Record Date, the shares of Preferred Stock
were entitled to the following votes per Share; Series F Shares: 22.15; Series
G-I Shares: 38.56; Series G-II Shares: 115.44; Series G-III Shares: 66.67.
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
Preferred Stock is required to approve an amendment (the "Amendment") to the
Company's Restated Certificate of Incorporation to effect a reduction in the
number of authorized shares of the Company's Common Stock from 100,000,000 to
50,000,000. The affirmative vote of a majority of the shares of stock present
in person or by proxy is required to approve the Company's 1999 Stock Incentive
Plan (the "Plan"); to approve the issuance and sale of the Company's
<PAGE>
common stock, a new class of the Company's preferred stock, or convertible debt
at the discretion of the Board of Directors (the "Private Placement") in
accordance with the limitations described in Proposals 3 and 4 of this Proxy
Statement; 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 the Proxy Statement, the Board of Directors recommends a
vote FOR the election of the director, FOR the approval of the Plan, FOR the
Private Placement, FOR the approval of the Amendment; 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 Amended and Restated 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, the approval of the Company's Stock
Incentive Plan, the approval of the Private Placement, the amendment of the
Company's Certificate of Incorporation to reduce the number of authorized Shares
of Common Stock or in the ratification of the Company's independent auditors.
2
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
NOMINEES FOR CONSIDERATION AT THE MEETING
The Bylaws currently provide that the Board of Directors shall be composed
of four directors, which shall be reduced to three upon the expiration of the
term of Tim B. Tarrillion at the commencement of the Annual Meeting. The Board
of Directors is 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 nominee named below, to serve as a director until
the 2002 Annual Meeting of Stockholders or until his successor is elected and
qualified. Douglas C. Williamson has been nominated by the Board of Directors
and shall be identified as a Class III director. The Company is not aware of
any reason that the 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 the Board of Directors.
CLASS III DIRECTORS
Directors Whose Terms Year in Which
Expire at the 1999 Service as a
Annual Meeting Principal Occupation Director Began
- -------------------------------------------------------------------------------
Douglas C. Williamson, 48 Senior Vice President and Managing 1996
Director of Bank of America Capital
Investors
- -------------------------------------------------------------------------------
DOUGLAS C. WILLIAMSON
Mr. Williamson was elected to the Board of Directors in 1996. Mr.
Williamson is currently a Managing Director and Senior Vice President of Bank of
America Capital Investors (one of the equity investment groups affiliated with
the recently merged NationsBank/Bank of America organization, which includes
NationsBanc Capital Corporation, ("BCI")). Mr. Williamson joined NationsBanc
Capital Corporation in 1989. Prior to that, he had eight years of experience in
senior management with two operating companies (including roles as president)
and six years of experience in corporate finance and corporate lending with
Rotan Mosle, W.R. Grace and Cleveland Trust. Mr. Williamson serves on the
boards of directors of the following companies: 3DX Technologies, Inc. (an oil
and gas company focusing on the exploration of domestic properties using the
combination of 3D seismic data and the latest computer aided software and
technology); CallWare Technologies, Inc. (develops and markets open architecture
computer telephony software solutions); Empirical Software, Inc. (develops
software targeted for the market of client/server performance and reliability
management tools); GX Technology Corporation (software developer and imaging
services company that is a leading independent supplier of 2D and 3D seismic
modeling, imaging software products, and imaging services used in oil and gas
exploration); HAHT Software, Inc. (provides enterprise Web application software
development solutions); Med Solutions, Inc. (provides radiology utilization
management services for the health care industry); Memorial Operations Company
(acquires and manages cemeteries and funeral homes); Takeout Taxi Holdings, Inc.
(provides restaurant delivery services through company-owned and franchised
stores); and Z-Tel Technologies, Inc. (provider of telephony-related services to
retail customers, such as inexpensive long-distance, voice-mail and "follow-me"
services). Mr. Williamson earned his MBA from Columbia University and his BA
from Denison University and later earned his CPA. Mr. Williamson serves on the
Company's Board of Directors as a nominee of the holders of the Preferred Stock.
3
<PAGE>
OTHER MEMBERS OF THE BOARD OF DIRECTORS
The following is an identification and business experience of the Company's
directors who are not being voted upon at the Meeting.
CLASS I DIRECTORS
Directors Whose Terms Year in Which
Expire at the 2000 Service as a
Annual Meeting Principal Occupation Director Began
- -------------------------------------------------------------------------
Edwin H. Knight, 45 General Manager of Harrison 1996
Interests, Ltd.
- --------------------------------------------------------------------------
EDWIN H. KNIGHT
Mr. 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 Company's Board of Directors as a
nominee of the holders of the Preferred Stock.
CLASS II DIRECTORS
Directors Whose Terms Year in Which
Expire at the 2001 Service as a
Annual Meeting Principal Occupation Director Began
- ---------------------------------------------------------------------------
Henry W. Sullivan, 59 President and Chief Executive 1997
Officer of the Company;
President of TieTek, Inc.;
Director of the Company
- ---------------------------------------------------------------------------
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 1996 and
President of TieTek, Inc. in December 1997. In January 1999, Dr. Sullivan
assumed the additional positions of President and Chief Executive Officer of the
Company. Prior to joining the Company, Dr. Sullivan was employed by Shell Oil
Company where he spent twenty-three years in various positions and, in 1984, was
named Vice President of Shell Chemical Company. Dr. Sullivan joined Huntsman
Petrochemical Corporation in 1988 as its President, and became Vice Chairman of
its parent company, Huntsman Chemical Corporation, a year later. From 1991 to
1995 he was President and Chief Executive Officer of GAIA Holdings, Inc., until
joining the Company as President of GAIA Technologies, Inc. and later TieTek,
Inc. Dr. Sullivan has served as Chairman and Director of several companies and
organizations in manufacturing and polymer technology, including the Executive
Committee of the Society of the Plastics Industry. He currently serves as a
Director of the Sarkeys Energy Center at the University of Oklahoma. Dr.
Sullivan holds a Bachelor's degree in Chemical Engineering from Cooper Union and
Master's and PhD. degrees in Chemical Engineering from New York University.
BOARD MEETINGS AND COMMITTEES
During the fiscal year ended December 31, 1998, the Board of Directors met
four times. All directors attended at least 75% of the meetings of the Board
and committees of which they were a member.
The Board of Directors has established two 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
4
<PAGE>
committees will make recommendations to the Board as necessary. The committees
that were established and the current directors assigned to each committee are
as follows:
Financial Audit:
Douglas C. Williamson
Edwin H. Knight
Compensation:
Douglas C. Williamson
Edwin H. Knight
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: reviewing with the Company's Chief Financial Officer 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.
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. The Financial Audit Committee met once during
1998.
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. 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 did not
meet during 1998.
DIRECTORS' COMPENSATION
The directors of the Company receive no cash compensation in connection
with their services as directors. In 1999, Messrs. Williamson and Knight were
each granted options to purchase 10,000 shares of Common Stock under the Plan.
Mr. Williamson assigned his options to his employer, BCI.
AGREEMENTS WITH HOLDERS OF PREFERRED STOCK
Pursuant to agreements relating to the purchase of the Preferred Stock (the
"Purchase Agreements") between the Company, BCI and certain other investors
(collectively, with BCI, the "Investors"), the Company has agreed to nominate to
the Board of Directors, for so long as the 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 Preferred Stock taken
together as a group, at least one (1) of whom shall be designated by BCI so long
as BCI owns at least fifty percent (50%) of the 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 Preferred Stock taken together as a group. The
requisite holders of the Preferred Stock have agreed that for so long as the
number of Directors constituting the Board shall be six, three (3) directors
will be
5
<PAGE>
designated by the Investors and three (3) will be designated by the holders of
the Common Stock. Currently, pursuant to the Purchase Agreements, the Investors'
nominees are: Douglas C. Williamson and Edwin H. Knight. As a result of the
recent changes to the Board of Directors, the Company and the principal holders
of the Preferred Stock are in discussions regarding revisions to this agreement,
although as of the date of the mailing of this Proxy, no such revised agreement
has been reached.
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 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 BCI.
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 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 shall be designees
of BCI.
EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation paid or
accrued for the fiscal years ended December 31, 1996, 1997 and 1998 by the
Company to or for the benefit of its former Chairman, President and Chief
Executive Officer.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
-------------------------------------------------------------------------------------
Annual Compensation Awards Payouts
-------------------------------------------------------------------------------------
Name
and Other Restricted Stock
Principal Annual Stock Options/ LTIP All Other
Position Year(s) Salary($) Bonus($) Compensation($) Award(s) ($) SARS (#) Payouts($) Compensation($)
- ---------- ------- --------- -------- --------------- ------------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tim B. 1998 $193,275 - - - - - 3,504(2)
Tarrillion 1997 184,833 - - - 55,555(1) - 6,951(2)
Former Chief 1996 185,903 - - - - - 5,940(2)
Executive
Officer and
President
=============================================================================================================================
</TABLE>
___________________________
(1) Consists of options granted during fiscal year ended December 31, 1995
which were repriced as of July 10, 1997 and December 23,1998.
(2) Represents life insurance premiums paid by the Company on policies on the
executive's life and matching contributions to the Company's 401-K plan.
STOCK OPTIONS
During the 1998 fiscal year, the Company did not grant any stock options to
the named executive officer. In 1999, options were granted pursuant to the Plan
and certain outstanding options were repriced. See "1999 Stock Incentive Plan
and Repricing of Certain Outstanding Options." No stock appreciation rights
have been granted to employees.
6
<PAGE>
The following table sets forth for the named executive officer information
regarding stock options exercised by such officer during the 1998 fiscal year,
together with the number and value of stock options held at 1998 fiscal year-
end, each on an aggregated basis.
<TABLE>
<CAPTION>
Aggregated Option Exercises in the 1998 Fiscal Year
and Fiscal Year-End Option Value
Value of
Unexercised
Number of In-the-Money
Unexercised ------------
Options at Options at
Fiscal Year-End Fiscal Year-End
Number of --------------- ---------------
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable (1)
---- --------------- -------- --------------- -------------------
<S> <C> <C> <C> <C>
Tim B. Tarrillion -- -- 44,444/11,111 $0/$0
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
___________________
(1) The last sales price of the Company's Common Stock as reported on the
NASDAQ SmallCap Market on December 31, 1998 was $3.25, which was lower than
the exercise price of the options.
EMPLOYMENT AGREEMENTS
Effective December 23, 1998, the Company entered into an agreement with Mr.
Tarrillion in full settlement of his employment contract. The agreement
provides for the resignation of Mr. Tarrillion's officer positions as of January
22, 1999, with the continuation of his employment as a full-time consultant
through March 31, 1999. From April 1 through December 31, 1999, Mr. Tarrillion
will be available on an "as-needed" basis and his salary and benefits will
continue through such date. Mr. Tarrillion's current annual salary is
approximately $190,000. As part of the agreement, the exercise price of 55,555
options was reduced from $9.00 to $4.50. Of these options, 44,444 are currently
vested and 11,111 will vest on December 31, 1999. In addition, Mr. Tarrillion
agreed that he will not seek re-election to the Board of Directors when his term
expires at the Meeting.
In February 1995 the Company entered into an employment agreement with Ms.
Shields. 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 33,333 shares of the Company's Common Stock which vest over four years
commencing on March 31, 1996. Her agreement is for a term of five years. 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
Prior to the adoption of the Plan, the Company had no formal stock option
plan. However, through December 1998 the Company has outstanding options to
purchase 338,889 shares of the Company's Common Stock. Of these, 330,556 are
outstanding to current and former employees, have option prices ranging from
$4.50 to $22.50, vest 20% to 25% per year and expire through June 2006. As
noted above, the exercise price for Mr. Tarrillion's options was reduced from
$9.00 to $4.50 per share in December 1998, and, in 1999, certain outstanding
options previously granted to Dr. Sullivan and Ms. Knight were also repriced to
$4.50. The remaining options were granted to current or past note holders, have
an exercise price of $6.75 and expire through September 1999. Included in these
options to employees are 202,776 granted to current or former directors of the
Company and 33,333 granted to other executive officers of the Company.
7
<PAGE>
1999 STOCK INCENTIVE PLAN AND REPRICING OF CERTAIN OUTSTANDING OPTIONS
Subsequent to year-end, the Compensation Committee of the Board of
Directors approved, subject to stockholder approval, the Company's 1999 Stock
Incentive Plan (the "Plan"). The Plan authorizes the Compensation Committee to
grant options in the maximum amount of 10% of the total issued and outstanding
shares of the Company or reserved for issuance upon the conversion or exercise
of outstanding convertible securities. Of these options, up to a maximum of
1,000,000 shares may be issued pursuant to incentive stock options granted under
the Plan. Additional information about the Plan is provided in Proposal 2.
The Compensation Committee approved, subject to stockholder approval of the
Plan, new grants of ten-year options under the Plan to Henry Sullivan, President
and Chief Executive Officer (40,000 shares), Judith Knight Shields, Chief
Financial Officer (10,000 shares), and each of the outside directors of the
Company (10,000 shares each). All such options are subject to vesting
provisions and have an exercise price of $3.00.
The Compensation Committee also approved a reduction in the exercise price
of an aggregate of 55,555 outstanding options previously granted to Henry
Sullivan and Judith Shields from $9.00 to $4.50. All other terms of the options
remained in effect.
8
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following tables set forth as of May 12, 1999 certain information with
respect to the beneficial ownership of the Company's Common Stock and Series F,
Series G-I, Series G-II, and Series G-III Shares 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 May 12, 1999, there were 3,604,548 outstanding
shares of Common Stock, 106,554 outstanding Series F Shares, 17,397 outstanding
Series G-I Shares, 21,265 outstanding Series G-II Shares, and 4,190 outstanding
Series G-III Shares.
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 Capital Corporation 3,873,397(2) 51.8%
(now an affiliate of
Bank of America Capital Investors)
901 Main Street, 22nd Floor
Dallas, Texas 75202
The CCG Charitable 426,791(3) 10.6%
Remainder Unitrust #1
14450 T.C. Jester Boulevard, Suite 170
Houston, Texas 77014
David S. Holland 362,586(4) 9.1%
1 Riverway, Suite 1700
Houston, Texas 77056
Harrison Interests, Ltd. 262,305(5) 6.8%
Texas Commerce Bank Bldg., Suite 1900
Houston, Texas 77002
Henry W. Sullivan 229,890(6) 6.4%
4710 Bellaire Boulevard, Suite 301
Bellaire, Texas 77401
Pecaut Capital Investors, LP 209,844(7) 5.5%
511 6th Street
Sioux City, Iowa 51101
William T. Aldrich 190,739(8) 5.3%
10406 Memorial Drive
Houston, Texas 77024
Tim B. Tarrillion 185,167(9) 5.0%
4710 Bellaire Boulevard, Suite 301
Bellaire, Texas 77401
</TABLE>
___________________________
9
<PAGE>
(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
Preferred Stock) within sixty (60) days of March 31, 1999.
(2) Includes 3,317,841 shares of Common Stock issuable upon conversion of
Series F, Series G-I and Series G-II Shares. Includes 555,556 shares of
Common Stock which may be acquired upon exercise of Common Stock purchase
warrants. Does not include 10,000 shares of Common Stock issuable upon
exercise of options granted to Mr. Williamson in his capacity as Director
which were assigned to BCI and which will vest upon his attendance at
future board meetings.
(3) Includes 343,458 shares of Common Stock issuable upon conversion of Series
F, Series G-I, Series G-II, and Series G-III Shares. Includes 83,333
shares of Common Stock which may be acquired upon exercise of Common Stock
purchase warrants.
(4) Includes 362,586 shares of Common Stock issuable upon conversion of Series
G-II and G-III Shares.
(5) Includes 206,749 shares of Common Stock issuable upon conversion of Series
F and Series G-I Shares. Includes 55,556 shares of Common Stock which may
be acquired upon exercise of Common Stock purchase warrants.
(6) Dr. Sullivan is deemed to beneficially own 176,851 shares of Common Stock
by virtue of his position as a principal executive officer of GAIA
Holdings, Inc., which owns 61,728 shares of Common Stock, and Thor
Ventures, L.C. which owns 115,123 shares of Common Stock. Includes 29,455
shares of Common Stock issuable upon the conversion of Series G-II Shares.
Includes 4,585 shares owned through a profit sharing plan for the benefit
of Dr. Sullivan and 16,666 shares which may be acquired upon exercise of
options. Does not include 45,555 shares issuable upon exercise of options
which have not vested.
(7) Includes 165,400 shares of Common Stock issuable upon conversion of shares
of Series F and Series G-I Shares. Includes 44,444 shares of common stock
which may be acquired upon exercise of Common Stock purchase warrants.
(8) Mr. Aldrich is deemed to beneficially own 176,851 shares of Common Stock by
virtue of his position as principal executive officer of GAIA Holdings,
Inc. which owns 61,728 shares of Common Stock, and Thor Ventures, L.C.
which owns 115,123 shares of Common Stock. Also includes 13,888 shares
which may be acquired upon exercise of options.
(9) Includes 58,944 shares of Common Stock and 5,555 Common Stock purchase
warrants received by Mr. Tarrillion in conjunction with a merger
transaction between the Company and EET in March 1995. Includes 45,658
shares owned through a profit sharing plan for the benefit of Mr.
Tarrillion and 44,444 shares which may be acquired upon exercise of
options. Includes 29,455 shares of Common Stock issuable upon the
conversion of Series G-II Shares. Does not include 11,111 shares issuable
upon exercise of options which do not vest until December 31, 1999. Does
not include 16,534 shares owned by trusts on behalf of Mr. Tarrillion's
minor children which are held by an independent trustee as to which Mr.
Tarrillion disclaims any beneficial ownership.
10
<PAGE>
SERIES F AND SERIES G PREFERRED STOCK
<TABLE>
<CAPTION>
Amount and Nature of Amount and Nature of
Name and address of Series F Percentage Series G Percentage
Beneficial Owner Ownership of Class(1) Ownership Of Class(1)
--------------------- --------------------- ----------- --------------------- -------------
<S> <C> <C> <C> <C>
NationsBanc Capital 71,444 67.0% 23,406 54.6%
Corporation (now an affiliate of
Bank of America Capital Investors)
901 Main Street, 66th Floor
Dallas, Texas 75202
The CCG Venture Partners 10,717(2) 10.1% 2,386(2) 5.6%
14450 T.C. Jester Boulevard
Suite 170
Houston, Texas 77014
Harrison Interests, Ltd. 7,144 6.7% - -
Texas Commerce Bank Bldg.
Suite 1990
Houston, Texas 77002
Pecaut Capital Investors, LP 5,715 5.4% - -
511 6th Street
Sioux City, Iowa 51101
David S. Holland - - 3,457 8.1%
1 Riverway, Suite 1700
Houston, Texas 77056
</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, Series G-I, Series G-II and Series G-III Shares) within sixty
(60) days of March 15, 1999. Calculations were made using the conversion
prices as of April 30, 1999 as follows: Series F - $4.514172; Series G-I -
$2.593675; Series G-II - $.86625 and Series G-III - $1.50.
(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.
11
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth as of May 12, 1999 the beneficial ownership
of the Company's Common Stock by (i) the executive officer 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, 1999, there were 3,604,548 outstanding shares of Common Stock, 106,554
outstanding Series F Shares, 17,397 outstanding Series G- I Shares, 21,265
outstanding Series G-II Shares, and 4,190 outstanding Series G-III Shares.
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Percentage
Name and Address of Beneficial Owner Ownership(1) of Class(1)
- ------------------------------------ ----------------- -----------
<S> <C> <C>
Henry W. Sullivan 229,890(2) 6.4%
4710 Bellaire Boulevard, Suite 301
Houston, Texas 77401
Tim B. Tarrillion 185,167(3) 5.0%
4710 Bellaire Boulevard, Suite 301
Bellaire, Texas 77401
Douglas C. Williamson -(4) -
901 Main Street, 22nd Floor
Dallas, Texas 75202
Edwin H. Knight -(5) -
707 Travis, Suite 1900
Houston, Texas 77002
All officers and directors as a group 485,801 12.9%
(5) persons
</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
Preferred Stock) within sixty (60) days of March 31, 1999.
(2) Dr. Sullivan is deemed to beneficially own 176,851 shares of Common Stock
by virtue of his position as a principal executive officer of GAIA
Holdings, Inc., which owns 61,728 shares of Common Stock, and Thor
Ventures, L.C. which owns 115,123 shares of Common Stock. Includes 29,455
shares of Common Stock issuable upon the conversion of Series G-II Shares.
Includes 4,585 shares owned through a profit sharing plan for the benefit
of Dr. Sullivan and 16,666 shares which may be acquired upon exercise of
options. Does not include 45,555 shares issuable upon exercise of options
which have not vested.
(3) Includes 58,944 shares of Common Stock and 5,555 Common Stock purchase
warrants received by Mr. Tarrillion in conjunction with a merger
transaction between the Company and EET in March 1995. Includes 45,658
shares owned through a profit sharing plan for the benefit of Mr.
Tarrillion and 44,444 shares which may be acquired upon exercise of
options. Includes 29,455 shares of Common Stock issuable upon the
conversion of Series G-II Shares. Does not include 11,111 shares issuable
upon exercise of options which do not vest until December 31, 1999. Does
not include 16,534 shares owned by trusts on behalf of Mr. Tarrillion's
minor children which are held by an independent trustee as to which Mr.
Tarrillion disclaims any beneficial ownership.
(4) Mr. Williamson is a Senior Vice President at BCI. Does not include
3,317,841 shares of Common Stock issuable to BCI upon conversion of its
holdings of Series F, Series G-I and Series G-II Shares. Does not include
555,555 shares of Common Stock which may be acquired by BCI upon exercise
of Common Stock
12
<PAGE>
purchase warrants. Does not include 10,000 shares of Common Stock issuable
upon the exercise of options granted to Mr. Williamson in his capacity as
Director which were assigned to BCI and which will vest upon his attendance
at future board meetings.
(5) Mr. Knight manages Harrison Interests Ltd. Does not include 206,749 shares
of Common Stock issuable to Harrison Interests, Ltd. upon conversion of its
holdings of Series F, Series G-I and Series G-II Shares. Does not include
55,555 shares of Common Stock which may be acquired by Harrison Interests,
Ltd. upon exercise of Common Stock purchase warrants. Does not include
10,000 shares of Common Stock issuable upon the exercise of options granted
to Mr. Harrison in his capacity as Director which will vest upon his
attendance at future board meetings.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In May 1998, BCI purchased 10,000 Series G-II Shares for cash proceeds of
$1,000,000. Mr. Williamson, Chairman of the Board and Director of the Company
is a Managing Director and Senior Vice President of BCI. In November 1998, Mr.
Sullivan, Mr. Tarrillion and Ms. Shields purchased 250, 250 and 200 shares of
the Company's Series G-II Shares for cash proceeds of $25,000, $25,000 and
$20,000, respectively. These transactions were completed on terms identical to
those negotiated with third-party investors.
Effective December 23, 1998 the Company entered into an agreement in full
settlement of Mr. Tarrillion's employment contract. See "Executive
Compensation- Employment Agreements."
VOTE REQUIRED FOR APPROVAL
A plurality of votes cast by holders of shares of Common Stock and
Preferred Stock, voting together, at the Meeting is required to elect a nominee
as a director.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEE TO THE
BOARD OF DIRECTORS
13
<PAGE>
PROPOSAL 2
PROPOSAL TO APPROVE THE 1999 STOCK INCENTIVE PLAN
On February 22, 1999, the Board of Directors of the Company adopted (and
recommended for submission to the stockholders for their approval) the 1999
Stock Incentive Plan (the "Plan"). The Plan provides for the granting of
incentive stock options, nonqualified stock options and restricted stock awards.
The purposes of the Plan are to: (i) better align the interests of
stockholders with the interest of officers, directors and key employees by
creating a direct linkage between participants' rewards and the performance of
the Company and its subsidiaries; (ii) encourage stock ownership and proprietary
interests in the Company stock; and (iii) assist the Company in attracting and
retaining highly competent directors and key employees vital to its success.
Executive officers and directors are eligible to receive awards under the
Plan and therefore have a personal interest in the adoption of the Plan.
SUMMARY OF THE PLAN
The following general description is a summary of the Stock Incentive Plan.
The complete text appears as Exhibit A to the Proxy Statement and the following
description is qualified in its entirety by reference to Exhibit A.
Term
The Plan will become effective once it is approved by the stockholders.
Although the Plan has no fixed expiration date, new awards will not be granted
after February 21, 2009.
Administration
The Plan is to be administered by the full Board of Directors or by the
Compensation Committee of the Board (the Board of Directors or the Compensation
Committee shall hereinafter be referred to as the "Committee"). That Committee
has the exclusive authority to make awards under the Plan and to make
interpretations and determinations involving the Plan.
Participation and Award Estimates
Officers, directors and other key employees of the Company and its
subsidiaries who are selected by the Committee are eligible for participation in
the Plan. Participants in the Plan are also eligible to participate in other
incentive plans of the Company. Awards under the Plan are made at the discretion
of the Committee or, in the case of nonemployee directors, at the discretion of
the full Board. As a result, it is not possible to identify who will receive
awards or the amount of those awards.
Types of Awards
Awards under the Plan may be in the form of stock options (including
incentive stock options that meet the requirements of Section 422 of the
Internal Revenue Code ("ISOs")) and stock awards.
14
<PAGE>
Shares Available for Awards and Closing Quotation
The number of shares of Common Stock which may be issued pursuant to the
Plan is set at 10% of the total number of shares of Common Stock issuable and
outstanding, on a fully diluted basis; provided, however, that the foregoing
formula shall never result in a reduction of the shares available for issuance
under the Plan. The Company estimates that the aggregate amount of shares that
will be subject to the Plan in 1999 will be approximately 1,129,602. As of
March 31, 1999, options to purchase 91,111 shares of Common Stock have been
granted under the Plan. The aggregate number of shares of Common Stock that may
be covered by stock option awards granted to any single individual under the
Plan may not exceed 500,000 shares per calendar year. All of the shares of
Common Stock may be awarded in the form of stock options or stock awards,
however, in no event will more than an aggregate or 1,000,000 Incentive Stock
Options be issued pursuant to the Plan. In addition, the following shares are
available for issuance under the Plan: (i)any shares of common stock that are
forfeited or otherwise not payable under the Plan; (ii) any shares of Common
Stock tendered in satisfaction of tax withholding or other obligations relating
to proposed awards under the Plan; and (iii) shares of Common Stock repurchased
by the Company that have been designated for allocation to the Plan.
As of March 31, 1999, the last reported sales price of the Company's Common
Stock, as reported on the NASDAQ, was $2.00.
Stock Options
The term of options granted under the Plan is determined by the Committee,
but the term of an option may not exceed ten years. The per share option price
for any shares which may be purchased under any option will be determined by the
Committee, but it will not be less than 50% of the fair market value of the
shares on the date the option is granted (100% for Incentive Stock Options, or
110% in the case of certain principal stockholders). Each option will become
exercisable at the time determined by the Committee. Each option will be
exercisable, in full or in part, by payment of the option price in cash, shares
of common stock, third-party cash-less exercise transactions or any combination
of these methods. Shares of common stock delivered in payment of the exercise
price must have been owned by the participant for at least six months.
Stock Awards
The Committee may make stock awards on the terms and conditions it
determines. A stock award entitles a participant to shares of common stock
which, at the determination of the Committee, may be subject to a restriction
period. In determining whether to make stock awards subject to such a
restriction, the Committee may consider circumstances such as a participant's
termination of employment, or the failure of the Company or a participant to
attain specified performance goals. None of the shares subject to a restriction
may be assigned, transferred, pledged or sold until they are delivered to the
holder of the stock award.
When a participant is granted a restricted stock award, the Company shall
register a stock certificate in the participant's name representing the number
of shares of common stock designated by the Committee. This certificate shall be
held in custody by the Company for the participant's account. The participant
shall generally have the rights and privileges of a stockholder as to the shares
awarded pursuant to a restricted stock award, including the right to vote,
except that the shares will remain in the custody of the Company until all
restrictions have lapsed.
If, during a restriction period, a participant terminates employment for
any reason other than death, disability or retirement, the participant will
forfeit all rights to the payment of any restricted stock award, unless
otherwise provided by the Committee. If, during a restriction period, a
participant's termination is due to death, disability or retirement, the
participant or beneficiary will be entitled to receive a pro-rata portion of the
restricted stock award, such portion based on the portion of the restriction
period that the participant was employed, provided that the participant had
completed a minimum of one year of employment during the restriction period.
15
<PAGE>
Stock Adjustments
In the event of any stock dividend or split, recapitalization,
reorganization, merger, or other change in the capitalization of the Company, or
similar event affecting the Company's common stock, the Committee will, as it
deems equitable, adjust the number of shares that may be available under the
Stock Incentive Plan or the terms or number of shares pertaining to any
outstanding award.
Change in Control
In the event of a change in control: (i) all outstanding options become
immediately exercisable; and (ii) all restrictions imposed on restricted shares
will immediately lapse. A change in control is defined to have occurred if any
of the following occur: (A) the direct or indirect sale or exchange by the
stockholders of the Company of all or substantially all of the stock of the
Company; (B) a merger or consolidation in which the Company is merged or
consolidated with another corporation or entity, other than a corporation or
entity that is an "affiliate" of the Company (as such term is defined in Rule
144(a) promulgated under the Securities Act of 1933, as amended); (C) the sale,
exchange, or transfer of all or substantially all of the assets of the Company
(other than a sale, exchange, or transfer to one (1) or more subsidiary
corporations of the Company); or (D) a liquidation or dissolution of the
Company.
Amendment and Termination
The Board of Directors may modify, amend, or terminate the Plan at any time
except that, to the extent then required by law, approval of the holders of a
majority of shares of Common Stock and Preferred Stock voting together as a
single class, represented in person or by proxy at a meeting of the stockholders
will be required to increase the maximum number of shares of Common Stock
available for distribution under the Plan (other than increases due to
adjustments in accordance with the Plan). No modification, amendment, or
termination of the Plan can adversely affect the rights of a participant under a
grant previously made without the participant's consent.
Other Provisions
The Committee may also offer participants the right to defer the receipt of
all or any portion of their performance restricted shares, restricted stock or
stock award. However, awards may be forfeited if a participant is terminated for
deliberate or gross misconduct. Awards may also be forfeited within three years
following a participant's termination of employment, the participant engages in
conduct that, in the Committee's discretion, is directly or indirectly
competitive with the Company.
Tax Withholding
Whenever shares are to be issued or cash is to be paid under the Plan, the
Company shall have the right to require the participant to remit to the Company
an amount sufficient to satisfy federal, state and local tax withholding
requirements. Such withholding requirements may be paid (i) in cash; (ii) in
the discretion of the Committee, through the delivery to the Company of
previously-owned shares of Common Stock having an aggregate Fair Market Value
equal to the tax obligation provided that the previously owned shares delivered
in satisfaction of the withholding obligations must have been held by the
participant for at least six (6) months; or (iii) in the discretion of the Plan
Administrator, through a combination of the procedures set forth in subsections
(i) and (ii) above.
Federal Income Tax Consequences
Nonqualified Options
Under the current applicable provisions of the Internal Revenue Code, the
recipient of an option will not pay any tax at the time of grant provided that
the exercise price of the option is equal to or greater than Fair Market Value
of the Common Stock on the date of grant. When a nonqualified option is
exercised, any excess of the fair market value of the affected shares over the
total option price of those shares will be treated for federal tax purposes as
ordinary income. Any profit or loss realized on the sale or exchange of any
share actually received will be treated
16
<PAGE>
as a capital gain or loss. If the fair market value on the date of exercise of
the shares with respect to which the option was exercised exceeds the exercise
price, the Company is entitled to deduct that amount.
Incentive Stock Options
With respect to an ISO, no taxable gain or loss generally will be
recognized when the option is granted or exercised. ISOs exercised more than
three months after termination of employment will be taxed in the same manner as
nonqualified options described above. Generally, when an ISO is exercised, the
spread between the fair market value and the exercise price will be an item of
tax preference for purposes of the alternative minimum tax.
If the shares acquired when an ISO is exercised are held for at least two
years from the grant of the options and one year from the exercise of the
options, any gain or loss realized upon their sale will be treated as long-term
capital gain or loss. In such a case, the Company will not be entitled to a
deduction. If the shares are not held for the two-year and one-year periods,
ordinary income will be recognized in an amount equal to the difference between
the exercise price and the fair market value of the common stock on the date the
option was exercised. The Company will be entitled to a deduction equal to the
amount of any ordinary income recognized in this manner. If the shares are not
held for the one-year period and the amount realized upon sale is less than the
grant price, the difference will be a capital loss.
VOTE TO REQUIRED FOR APPROVAL
The affirmative vote of a majority of the shares voting at the meeting is
required for approval of this proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE 1999 STOCK
INCENTIVE PLAN.
17
<PAGE>
PROPOSALS RELATED TO THE ISSUANCE OF SECURITIES
The Board of Directors has unanimously approved and determined to submit to
the stockholders of the Company for approval two Proposals related to the
issuance and sale of up to a maximum of $5,000,000 of any combination of the
Company's Common Stock, a new class of the Company's preferred stock, or
convertible debt in one or more private placements at the discretion of the
Board of Directors (each, a "Private Placement" and collectively, the "Private
Placements") in accordance with the limitations described in Proposals 3 and 4.
The Private Placements are being submitted to the stockholders in accordance
with NASDAQ rules requiring stockholder approval of issuances, and potential
issuances, of more than 20% of the Company's outstanding Common Stock.
Due to a combination of the need to complete the financing in an expedient
manner and the substantial amount of time required to solicit stockholder
approval, the Board is submitting Proposals 3 and 4 to the stockholders prior to
the receipt of a binding commitment by an investor to provide the necessary
financing. Advance approval by the stockholders would provide the Company with
the ability to timely complete the financing and aid in the completion of the
Company's manufacturing plant without the delay associated with circulating a
proxy to stockholders while the financing is pending. Of course, the
stockholders will not have the opportunity to assess the precise terms of any
Private Placement. After careful consideration, the Board of Directors
concluded that it was in the best interest of the Company and its stockholders
to obtain advance approval of the issuance of Company securities as contemplated
by proposals 3 and 4.
REASONS FOR A PRIVATE PLACEMENT
The Company has authorized the Private Placements in order to obtain
financing necessary to enable the Company to effectuate its plan to build its
own manufacturing facility for the Company's proprietary railroad crosstie (the
"TieTek Crosstie"). The TieTek Crosstie was developed as an attractive
replacement for wood crossties, but with a longer life and with several
environmental advantages. It has been successfully tested by a number of
independent groups, including a major U.S. railroad. Since its first track
installation in March 1996, several thousand TieTek Crossties have been
installed under track in a variety of load and environmental conditions where
they continue to meet performance expectations. The Company is now executing a
manufacturing strategy which will further expand the entrance of the TieTek
Crosstie into the market in 1999.
The Company has recently received an order to manufacture 20,000 TieTek
Crossties, and believes that current market demand will exceed the capacity of
the Company to manufacture TieTek Crossties through third-party tolling
arrangements or a single line manufacturing plant. In order to execute the
Company's manufacturing strategy and fill existing and anticipated orders, the
Company is completing plans to build a permanent production facility to produce
TieTek Crossties in Houston, Texas. In November 1998 the Company leased a
23,000 square foot manufacturing facility on three acres of land in Houston,
Texas. The Company has also issued purchase orders with an aggregate value of
approximately $1,200,000 for the key process equipment necessary to produce the
TieTek Crossties and has made cash payments of approximately $800,000 relating
to these purchase orders. In addition, the Company has contracted with
engineers to develop a plant layout and install the equipment. Based upon the
Company's expenditures to date, and its current cash resources, the Company
anticipates that it will require additional financing for the completion of the
facility.
NASDAQ SHAREHOLDER APPROVAL REQUIREMENT
The NASDAQ SmallCap Market ("NASDAQ") maintenance requirements contain
certain corporate governance provisions, including a requirement that
stockholders 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 Company anticipates that a Private Placement may involve the issuance
and sale of the Company's Common Stock, a new class of the Company's preferred
stock, or convertible debt which exceeds or is convertible into greater than 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 a private
placement such as the one contemplated by the Company be approved by the
Company's stockholders.
18
<PAGE>
DESCRIPTION OF THE PRIVATE PLACEMENTS
The Company has recently engaged in preliminary discussions with several
potential sources of funding in order to establish the likely terms of a Private
Placement. Based upon these discussions and the Company's past capital raising
experiences, the Company anticipates that a Private Placement will be completed
through the issuance of the Company's Common Stock, a new class of the Company's
preferred stock, or convertible debt (preferred stock and debt instruments shall
be referred to collectively herein as "Convertible Securities") in one or more
private placements which are expected to occur within twelve (12) months of the
Annual Meeting. The aggregate dollar amount of the Private Placement will not
exceed $5,000,000. Given the parameters explained below, the Private Placement
will never result in Common Stock being issued below $1.00 per share, resulting
in a maximum potential issuance of 5,000,000 shares of Common Stock. More
specifically, the Private Placement will take one or more of the following
possible forms:
(a) the issuance of Common Stock at a fixed price of not less than (i) an
amount between $1.50 and $2.50 or (ii) an amount equal to 80% of a low
bid price of the Company's Common Stock during the thirty (30) days
preceding the date of issuance provided that in no event shall such
calculated amount be less than $1.00; or
(b) the issuance of Convertible Securities which are convertible at a
fixed price of not less than (i) an amount between $1.50 and $2.50 or
(ii) an amount equal to 80% of a low bid price of the Company's Common
Stock during the thirty (30) days preceding the date of issuance
provided that in no event shall such calculated amount be less than
$1.00; or
(c) the issuance of Convertible Securities which are convertible at a
floating price of not less than an amount equal to 80% of the average
bid price of the Company's Common Stock during the twenty (20) trading
days preceding the date of conversion provided that in no event shall
such calculated amount be less than $1.00.
Proposal 3 further describes the potential of the issuance of Common
Stock or Convertible Securities as described in (a) and (b) above (a "Fixed
Price Security"), while Proposal 4 further describes the issuance of preferred
stock or debentures as described in (c) above (a "Future Priced Security"). The
Board of Directors believes that it is in the best interest of the Company to
raise the funds necessary to complete the production facility through a Private
Placement. The exact terms of the Private Placement are still subject to
negotiation and there can be no assurance that the Private Placement will be
consummated on the terms discussed below, if at all.
CONSEQUENCES IF STOCKHOLDER APPROVAL IS NOT OBTAINED
If the stockholder approval sought hereby is not obtained, the Company will
be prohibited under the terms of its listing agreement with NASDAQ from issuing
any combination of securities, or securities convertible into, more than 20% of
the outstanding shares of Common Stock of the Company. Such a limitation will
likely cause the Company to resubmit a final proposal to its stockholders upon
the conclusion of negotiations with potential investors. The failure to obtain
shareholder approval may therefore constrain the Company's ability to obtain
financing in an expedient manner and would result in the delay of both the
receipt of the financing and the commencement of the Company's manufacturing of
the TieTek Crosstie. Alternatively, the Company may be required to seek other
forms of financing which do not involve the issuance of securities which
represent or are convertible into Common Stock on terms which require
stockholder approval under applicable NASDAQ rules, or curtail its plans to
complete the facility.
THE BOARD OF DIRECTORS IS SEEKING THE APPROVAL OF BOTH PROPOSALS 3 AND 4 IN
ORDER TO (I) ALLOW THE COMPANY THE MAXIMUM POSSIBLE AMOUNT OF FLEXIBILITY IN
REACHING FINAL TERMS FOR FINANCING BY INVESTORS AND (II) TO EXPEDITE THE ABILITY
OF THE COMPANY TO RECEIVE THE PROCEEDS OF THE FINANCING NEEDED TO COMPLETE THE
MANUFACTURING FACILITY.
19
<PAGE>
VOTE TO REQUIRED FOR APPROVAL OF PROPOSALS 3 AND 4
The affirmative vote of a majority of the shares of Common Stock and
Preferred Stock voting together as a single class present, in person or by
proxy, at the Meeting is required for the approval of a Private Placement of a
Future Priced Security.
20
<PAGE>
PROPOSAL 3
AUTHORITY TO ISSUE UP TO $5,000,000 OF COMMON STOCK OR CONVERTIBLE SECURITIES IN
A PRIVATE PLACEMENT OF A FIXED PRICE SECURITY
DESCRIPTION OF THE FIXED PRICE SECURITIES
The final terms of a Private Placement are still subject to negotiation;
however, one of the potential structures of a Private Placement is the issuance
of a Fixed Price Security. The Private Placement of a Fixed Price Security
could involve the issuance of Common Stock, a new class of preferred stock or a
debt instrument. The Company expects that the terms of a Private Placement of a
Fixed Price Securities will have the terms and features set forth below.
Common Stock
Any issuances of Common Stock will be made at a price of not less than (i)
an amount between $1.50 and $2.50 or (ii) an amount equal to 80% of a low bid
price of the Company's Common Stock during the thirty (30) days preceding the
date of issuance provided that in no event shall such calculated amount be less
than $1.00.
Convertible Preferred Stock or Convertible Debentures
One of the principal features of a Convertible Security will be that it is
convertible into shares of Common Stock at any time at the option of the holder
thereof. Each Convertible Security will be initially convertible, at the option
of the holder thereof, into that number of shares of Common Stock which results
from dividing not less than (i) an amount between $1.50 and $2.50 or (ii) an
amount equal to 80% of a low bid price of the Company's Common Stock during the
thirty (30) days preceding the date of issuance provided that in no event shall
such calculated amount be less than $1.00, into a previously determined
conversion value (the "Conversion Value"). For example, if 80% of a low bid
price of the Company's Common Stock during the thirty days preceding the date of
issuance (the "Thirty Day Period") was $2.25, the Company could elect to issue
Convertible Securities with a price between $1.50 and $2.50. If 80% of a low
bid price of the Company's Common Stock for the Thirty Day Period was $1.20, the
Company could elect to issue shares with a price of $1.20. If 80% of a low bid
price of the Company's Common Stock for the Thirty Day Period was $.80, the
Company could elect to issue shares with a price of $1.00. Given these
examples, if the Conversion Value was established as $100, the number of Common
Shares to be issued upon the conversion of each Convertible Security could range
from 40 to 100 shares. The preceding example is intended for demonstration
purposes only and is not necessarily indicative of future price performance.
ADDITIONAL TERMS
Any Convertible Securities issued as part of a Private Placement will
provide for additional powers, preferences, rights and the qualifications,
limitations, or restrictions terms and conditions as determined by the Board of
Directors of the Company. Any debt instruments will have preferences senior to
those of the holder of Common Stock and it is likely that any additional classes
of preferred stock will also have preferences senior to those of the holder of
Common Stock.
EFFECTS OF ISSUANCE OF FIXED PRICE SECURITIES
In the event that an investor and the Company determine to structure the
investment as a Fixed Priced Security, the exact number of shares issuable upon
conversion will be established as of the issuance. However, such Fixed Price
Securities will likely be issued at a discount to the Current Market Price of
the Common Stock. The current holders of Common Stock will therefore be diluted
by Private Placement issuances.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL
OF A PRIVATE PLACEMENT TRANSACTION INVOLVING
FIXED PRICE SECURITIES.
21
<PAGE>
PROPOSAL 4
AUTHORITY TO ISSUE UP TO $5,000,000 OF COMMON STOCK OR CONVERTIBLE SECURITIES IN
A PRIVATE PLACEMENT OF A FUTURE PRICED SECURITY
DESCRIPTION OF THE FUTURE PRICED SECURITIES
The final terms of a Private Placement are still subject to negotiation,
however, one of the potential structures of the Private Placement is as a Future
Priced Security. The Private Placement of a Future Priced Security could
involve the issuance of a new class of preferred stock or a debt instrument.
The Company expects that the terms of the Private Placement of a Future Priced
Securities will have the terms and features set forth below.
Convertible Preferred Stock or Convertible Debentures
One of the principal features of a Convertible Security will be that it is
convertible into shares of Common Stock at any time at the option of the holder
thereof. Each Convertible Security will be convertible, at the option of the
holder thereof, into that number of shares of Common Stock which results from
dividing not less than an amount equal to 80% of the average closing bid price
of the Company's Common Stock during the twenty (20) trading days preceding the
date of conversion, provided that in no event shall such calculated amount be
less than $1.00, into the Conversion Value. The following examples assume that
the Conversion Value is established at $100 for each Convertible Security. If
80% of the average closing bid price for the Company's Common Stock during the
twenty trading days preceding the date of conversion (the "Twenty Day Period")
was $2.25, the Convertible Securities would each be convertible into a maximum
of 44 shares of Common Stock. If 80% of the average closing bid price for the
Company's Common Stock during the Twenty Day Period was $5.00, the Convertible
Securities would each be convertible into a maximum of 20 shares of Common
Stock. If 80% of the average closing bid price for the Company's Common Stock
during the Twenty Day Period was $.80, the Convertible Securities would each be
convertible into a maximum of 100 shares of Common Stock. The preceding example
is intended for demonstration purposes only and is not necessarily indicative of
future price performance.
ADDITIONAL TERMS
Any Convertible Securities issued as part of a Private Placement will
provide for additional powers, preferences, rights and the qualifications,
limitations, or restrictions terms and conditions as determined by the Board of
Directors of the Company. Any debt instruments will have preferences senior to
those of the holder of Common Stock and it is likely that any additional classes
of preferred stock will also have preferences senior to those of the holders of
Common Stock.
EFFECTS OF ISSUANCE OF FUTURE PRICED SECURITIES
In the event that an investor and the Company determine to structure the
investment as a Future Priced Security, the exact number of shares of Common
Stock issuable upon consummation of the Private Placement issuances cannot be
estimated because the conversion is subject to adjustment mechanisms which cause
the number of shares of Common Stock issuable to be dependent on future events,
principally consisting of the future trading prices of the Common Stock in the
marketplace and the conversion decisions made by holders. The application of
the conversion formulas applicable to such securities will cause the number of
shares of Common Stock to be issued to vary inversely with the market price of
the Common Stock.
The current holders of Common Stock will likely be diluted by a Private
Placement issuances and, in the event a Future Priced Security is issued, may be
very substantially diluted depending on the market price of the Common Stock
during such period, and the conversion formulas applicable to the Convertible
Securities at the time of conversion. If, however, the market price of the
Common Stock were to increase significantly prior to the date any of the
Convertible Securities is converted, the current holders of Common Stock would
benefit relative to a placement at market prices prevailing on the date of
issuance. On April 30, 1999, the closing bid price of the Common Stock on the
SmallCap Market was $3.18 per share. If such market price were used to
determine the number of shares of Common Stock issuable as of the first date on
which the Convertible Securities may be converted, the Company could issue a
total of not more than approximately 1,965,000 shares of Common Stock if all
such shares were converted at such time.
22
<PAGE>
Since there is no public market for the Convertible Securities, 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 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 additional Convertible Securities.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL
OF A PRIVATE PLACEMENT TRANSACTION INVOLVING
FUTURE PRICED SECURITIES.
23
<PAGE>
PROPOSAL 5
AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION TO DECREASE THE NUMBER
OF AUTHORIZED SHARES OF COMMON STOCK FROM 100,000,000 TO 50,000,000
The Board of Directors has unanimously adopted a resolution setting forth a
proposed amendment to the Certificate to decrease the number of Shares of Common
Stock which the Company is authorized to issue from 100,000,000 shares to
50,000,000 shares. A true and correct copy of the proposed amendment is
attached hereto as "Exhibit B" The statements made in this Proxy Statement
regarding the amendment to the Certificate to decrease the number of authorized
shares of Common Stock should be read in conjunction with and are qualified in
their entirety by reference to Exhibit "B"
The Company is currently authorized to issue 100,000,000 shares of Common
Stock, of which 3,604,548 were outstanding as of March 31, 1999. If the
proposed amendment to the Certificate is effected, the number of outstanding
shares will remain the same, but the number of authorized shares will be reduced
to 50,000,000. The rights and preferences of the Common Stock and Preferred
Stock would not be affected by the amendment.
REASON FOR THE DECREASE IN THE NUMBER OF SHARES OF COMMON STOCK
In 1998, based upon 100,000,000 authorized shares of its Commons Stock, the
Company paid $38,000 in franchise taxes to the state of Delaware. In an effort
to reduce the amount of franchise taxes paid by the Company, the Board of
Directors has unanimously approved a proposal to amend the Company's Certificate
of Incorporation to decrease the number of shares of authorized Common Stock
from 100,000,000 to 50,000,000. This amendment and action will result in a
significant reduction in the fees paid by the Company to the state of Delaware.
The Board of Directors believes that the number of authorized shares of Common
Stock, post-amendment, will provide sufficient reserves for (i) future issuances
of Common Stock upon the conversion of authorized and currently outstanding
options, warrants and Preferred Stock and (ii) the Company's anticipated future
capital raising needs.
VOTE REQUIRED FOR APPROVAL
A plurality of votes cast by holders of shares of Common Stock and
Preferred Stock at the Meeting is required to approve the amendment to the
Company's Certificate of Incorporation to decrease the number of authorized
shares of common stock from 100,000,000 to 50,000,000.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT TO
THE COMPANY'S CERTIFICATE OF INCORPORATION TO DECREASE THE NUMBER OF AUTHORIZED
SHARES OF COMMON STOCK FROM 100,000,000 TO 50,000,000
24
<PAGE>
PROPOSAL 6
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, 1999. 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.
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, 1999.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF BDO SEIDMAN, LLP AS
THE COMPANY'S INDEPENDENT AUDITORS FOR THE 1999 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 Securities Exchange Act of 1934, as amended, requires
directors and certain officers of the Company, as well as persons who own more
than 10% of a registered class of the Company's equity securities ("Reporting
Persons"), to file reports with the Securities and Exchange Commission. The
Company believes that during the year ended December 31, 1998, all Reporting
Persons timely complied with all filing requirements applicable to them, except
for a Form 4 for Mr. Tim B. Tarrillion in connection with the repricing of
certain options which was subsequently filed with the Securities and Exchange
Commission.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
The Company currently intends to hold its 2000 Annual Meeting of
Stockholders in June 2000 and to mail proxy statements relating to such meeting
in May 2000. In order for proposals of stockholders to be considered for
inclusion in the proxy statement and form of proxy relating to the Company's
2000 Annual Meeting of Stockholders, such proposals must be received by the
Company no later than January 23, 2000 and must otherwise be in compliance with
all applicable laws and regulations.
By Order of the Board of Directors
Douglas C. Williamson
Chairman of the Board
Dated: May ____, 1999
25
<PAGE>
EXHIBIT A
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
1999 STOCK INCENTIVE PLAN
1. Purpose. The North American Technologies Group, Inc. 1999 Stock
Incentive Plan (the "Plan") is established to attract, retain and reward persons
providing services to North American Technologies Group, Inc. and any successor
corporation thereto (the "Company") and to motivate such persons to contribute
to the growth and profits of the Company in the future.
The following terms shall be defined as set forth below:
"Act" means the Securities Exchange Act of 1934, as amended.
"Award" or "Awards," except where referring to a particular category of
grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock
Options, and Restricted Stock Awards.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
"Effective Date" means the date on which the Plan is approved by the
stockholders as set forth in Section 13.
"Fair Market Value" of the Stock on any given date means (i) if the Stock
is admitted to quotation on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"), the Fair Market Value on any given date
shall be the average of the highest bid and lowest asked prices of the Stock
reported for such date or, if no bid and asked prices were reported for such
date, for the last day preceding such date for which such prices were reported,
or (ii) if the Stock is admitted to trading on a United States securities
exchange or the NASDAQ National Market System, the Fair Market Value on any date
shall be the closing price reported for the Stock on such exchange or system for
such date or, if no sales were reported for such date, for the last day
preceding such date for which a sale was reported; (iii) if the Fair Market
Value cannot be determined on the basis previously set forth in this definition
on the date that Fair Market Value is to be determined, The Board shall in good
faith determine the Fair Market Value of the Stock on such date.
"Incentive Stock Option" means any Stock Option designated and qualified as
an "incentive stock option" as defined in Section 422 of the Code.
<PAGE>
"Independent Director" means a member of the Board who is not an employee
or officer of the Company or any Subsidiary.
"Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
"Option" or "Stock Option" means any Option to purchase shares of Stock
granted pursuant to Section 6.
"Stock Award" means any Award granted pursuant to Section 7.
"Stock" means the Common Stock, par value $.001 per share, of the Company,
subject to adjustments pursuant to Section 8.
"Subsidiary" means any corporation or other entity (other than the Company) in
any unbroken chain of corporations or other entities, beginning with the
Company, if each of the corporations or entities (other than the last
corporation or entity in the unbroken chain) owns stock or other interests
possessing 50% or more of the economic interest or the total combined voting
power of all classes of stock or other interests in one of the other
corporations or entities in the chain.
2. Administration. The Plan shall be administered by the full Board of
Directors of the Company or a committee of such Board of Directors comprised of
two or more "Non-Employee Directors" within the meaning of Rule 16b-3(a)(3)
promulgated under the Act (the "Plan Administrator"). Subject to the provisions
of the Plan, the Plan Administrator is authorized to:
(a) construe the Plan and any Award under the Plan;
(b) select the directors, officers, employees and consultants of the
Company and its Subsidiaries to whom Awards may be granted;
(c) determine the number of shares of Stock to be covered by any Award;
(d) determine and modify from time to time the terms and conditions,
including restrictions, of any Award and to approve the form of written
instrument evidencing Awards;
(e) accelerate at any time the exercisability or vesting of all or any
portion of any Award and/or to include provisions in awards providing for such
acceleration;
(f) impose limitations on Awards, including limitations on transfer and
repurchase provisions;
(g) extend the exercise period within which Stock Options may be
exercised; and
(h) determine at any time whether, to what extent, and under what
circumstances Stock and other amounts payable with respect to an Award shall be
deferred either automatically or at the election of the participant and whether
and to what extent the Company shall pay or credit amounts constituting interest
(at rates determined by the Plan Administrator) or dividends or deemed dividends
on such deferrals.
The determination of the Plan Administrator on any such matters shall be
conclusive.
-2-
<PAGE>
3. Eligibility. Awards may be granted only to employees (including
officers and directors who are also employees) and directors of the Company or
its subsidiaries or to individuals who are rendering services as consultants,
advisors or independent contractors to the Company. The Board, in its sole
discretion, shall determine which persons shall be granted Awards (a
"Participant") and, in accordance with subsection (b), which type of Award each
Participant is to receive. Eligible persons may be granted more than one Award.
4. Options and Stock to be Issued under the Plan.
(a) General. Awards may be either incentive stock options ("Incentive
Stock Options") as defined in section 422 of the Internal Revenue Code of 1986,
as amended (the "Code") or nonqualified stock options ("Nonqualified Stock
Options"). Incentive Stock Options and Nonqualified Stock Options are
hereinafter referred to as "Options". Issuances of Common Stock under the Plan
("Stock Awards") and/or common stock issued upon exercise of Options may be
subject to the terms and conditions of stock restriction provisions, including
vesting and repurchase provisions, which provisions may be part of the awardee's
Award agreement or may be part of a separate agreement. Options and/or Stock
Awards are hereinafter referred to as "Awards".
(b) Type of Award Which May Be Granted. Nonqualified Stock Options may
be granted to any employee or prospective employee of the Company. Incentive
Stock Options may be granted only to employees of the Company. A director of the
Company may not be granted an Incentive Stock Option unless the director is also
a employee of the Company. An individual who is rendering services as a
director, consultant, advisor or independent contractor may be granted only a
Nonqualified Stock Option and may not be granted an Incentive Stock Option.
Stock Awards may be granted to any eligible person.
5. Shares Subject to the Plan. The number of shares of Stock which may
be issued pursuant to the Plan shall be 10% of the total number of shares of
Stock issuable and outstanding, on a fully diluted basis; provided, however,
that the foregoing formula shall never result in a decrease in the maximum
number of shares available under this Plan at the time of its approval by the
Board. For purposes of the foregoing limitation, the shares of Stock underlying
any Awards which are forfeited, canceled, reacquired by the Company, satisfied
without the issuance of Stock or otherwise terminated (other than by exercise)
shall be added back to the number of shares of Stock available for issuance
under the Plan. Notwithstanding the foregoing, on and after the date that the
Plan is subject to Section 162(m) of the Code, Stock Options with respect to no
more than 500,000 shares of Stock may be granted to any one individual
participant during any one calendar year period. Common Stock to be issued
under the Plan may be either authorized and unissued shares or shares held in
treasury by the Company. In no event shall more than 1,000,000 Incentive Stock
Options be issued pursuant to the Plan.
-3-
<PAGE>
6. Options.
(a) Time for Granting Options. All options shall be granted, if at all,
within ten (10) years from the earlier of the date the Plan is adopted by the
Board or the date the Plan is duly approved by the Stockholders of the Company.
(b) Terms, Conditions and Form of Options. Subject to the provisions of
the Plan, the Board shall determine for each Option (which need not be
identical) the number of shares of Stock for which the Option shall be granted,
the exercise price of the Option, the timing and terms of exercisability and
vesting of the Option, whether the Option is to be treated as an Incentive Stock
Option or as a Nonqualified Stock Option and all other terms and conditions of
the Option not inconsistent with the Plan. Options granted pursuant to the Plan
shall be evidenced by written agreements specifying the number of shares of
Common Stock covered thereby, in such form as the Board shall from time to time
establish, which agreements may incorporate all or any of the terms of the Plan
by reference and shall comply with and be subject to the following terms and
conditions:
(i) Exercise Price. The exercise price for each option shall be
established in the sole discretion of the Board; provided, however, that (i) the
exercise price per share for an Incentive Stock Option shall be not less than
the fair market value (as defined below) of a share of Stock on the date of the
granting of the Option, (ii) the exercise price per share for a Nonqualified
Stock Option shall not be less than fifty percent (50%) of the fair market value
of a share of Common Stock on the date of the granting of the Option and (iii)
no Incentive Stock Option granted to a Participant who at the time the Incentive
Stock Option is granted owns stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company within the
meaning of section 422(b)(6) of the Code (a "Ten Percent Owner Optionee") shall
have an exercise price per share less than one hundred ten percent (110%) of the
fair market value of a share of Stock on the date of the granting of the Option.
Notwithstanding the foregoing, an option (whether an Incentive Stock Option or a
Nonqualified Stock Option) may be granted with an exercise price lower than the
minimum exercise price set forth above if such option is granted pursuant to an
assumption or substitution for another option in a manner qualifying with the
provisions of section 424(a) of the Code.
(c) Exercise Period of Options. The Board shall have the power to set
the time or times within which each option shall be exercisable or the event or
events upon the occurrence of which all or a portion of each option shall be
exercisable and the term of each option; provided, however, that (i) no
Incentive Stock Option shall be exercisable after the expiration of ten (10)
years after the date such option is granted, and (ii) no Incentive Stock Option
granted to a Ten Percent Owner Optionee shall be exercisable after the
expiration of five (5) years after the date such Option is granted (such period
or periods being hereinafter referred to as the "Option Period") and provided
further that, unless the option agreement provides otherwise:
(i) If a Participant shall cease to be employed by the Company or
to serve as a director or consultant, as the case may be, all Options to which
the Participant is then
-4-
<PAGE>
entitled to exercise may be exercised only within three months after the date of
termination and within the Option Period or, if such termination was due to
disability or retirement (as hereinafter defined), within one year after
termination of employment and within the Option Period. Notwithstanding the
foregoing: (a) in the event that any termination of employment shall be for
Cause (as defined herein) or the Participant becomes an officer or director of,
a consultant to or employed by a Competing Business (as defined herein), during
the Option Period, then any and all Options held by such Board participant shall
forthwith terminate; and (b) the Board may, in its sole discretion, extend the
Option Period of any Option for up to five years from the date of termination of
employment regardless of the original Option Period. For purposes of the Plan,
retirement shall mean the termination of employment with the Company or service
on the Board other than for Cause, at any time after the age 65.
(ii) For purposes of this Plan, the term "Cause" shall mean (a)
with respect to an individual who is party to a written agreement with the
Company which contains a definition of "cause" or "for cause" or words of
similar import for purposes of termination of employment thereunder by the
Company, "cause" or "for cause" as defined in such agreement; (b) in all other
cases (I) the willful commission by an employee of a criminal or other act that
causes substantial economic damage to the Company or substantial injury to the
business reputation of the Company; (II) the commission of an act of fraud in
the performance of such person's duties to or on behalf of the Company; or (III)
the continuing willful failure of a person to perform the duties of such person
to the Company (other than a failure to perform duties resulting from such
person's incapacity due to illness) after written notice thereof (specifying the
particulars thereof in reasonable detail) and a reasonable opportunity to cure
such failure are given to the person by the Board of Directors of the Company.
For purposes of the Plan, no act, or failure to act, on the part of any person
shall be considered "willful" unless done or omitted to be done by the person
other than in good faith and without reasonable belief that the person's action
or omission was in the best interest of the Company.
(iii) For purposes of this Plan, the term "Competing Business"
shall mean: any person, corporation or other entity engaged in the business of
selling or attempting to sell any product or service which is the same as or
similar to products or services sold by the Company within the last year prior
to termination of such person's employment, consultant relationship or
directorship, as the case may be, hereunder.
(d) Payment of Exercise Price. The Option exercise price of each share
purchased pursuant to an Option shall be paid in full at the time of each
exercise (the "Payment Date") of the Option (I) in cash; (II) by delivering to
the Company a notice of exercise with an irrevocable direction to a broker-
dealer registered under the Act to sell a sufficient portion of the shares and
deliver the sale proceeds directly to the Company to pay the exercise price;
(III) in the discretion of the Plan Administrator, through the delivery to the
Company of previously-owned shares of Common Stock having an aggregate Fair
Market Value equal to the Option exercise price of the shares being purchased
pursuant to the exercise of the Option; provided, however, that shares of Common
Stock delivered in payment of the Option price must have been held by the
participant for at least six (6) months in order to be utilized to pay the
Option price;
-5-
<PAGE>
or (IV) in the discretion of the Plan Administrator, through any combination of
the payment procedures set forth in subsections (I)-(III) of this Section
6(c)(iv).
(e) Standard Forms of Stock Option Agreement.
(i) Nonqualified Stock Options. Unless otherwise provided for by
the Board at the time an Option is granted, an Option designated as a
"Nonqualified Stock Option" shall comply with and be subject to the terms and
conditions set forth in the form of Nonqualified Stock Option agreement attached
hereto as Exhibit A and incorporated herein by reference.
(ii) Incentive Stock Options. Unless otherwise provided for by the
Board at the time an Option is granted, an Option designated as an "Incentive
Stock Option" shall comply with and be subject to the terms and conditions set
forth in a form of Incentive Stock Option agreement attached hereto as Exhibit B
and incorporated herein by reference.
(f) Fair Market Value Limitation. To the extent that the aggregate fair
market value (determined at the time the option is granted) of Common Stock with
respect to which Incentive Stock Options are exercisable by a Participant for
the first time during any calendar year (under all stock option plans of the
Company, including the Plan) exceeds One Hundred Thousand Dollars ($100,000),
such Options shall be treated as Nonqualified Stock Options. For purposes of
this Plan, the fair market value of the shares of Common Stock subject to an
Award shall be determined in good faith by the Board; provided, however, that
(i) if the Stock is admitted to quotation on the National Association of
Securities Dealers Automated Quotation System ("NASDAQ"), the fair market value
on any given date shall be the average of the highest bid and lowest asked
prices of the Stock reported for such date or, if no bid and asked prices were
reported for such date, for the last day preceding such date for which such
prices were reported, or (ii) if the Stock is admitted to trading on a United
States securities exchange or the NASDAQ National Market System, the fair market
value on any date shall be the closing price reported for the Stock on such
exchange or system for such date or, if no sales were reported for such date,
for the last day preceding such date for which a sale was reported.
Notwithstanding the foregoing, the Board of Directors may provide at the time an
Award is made that the fair market value of a share of Common Stock shall be
determined on an alternative basis based upon the advice of the Company's
independent public accountants and counsel.
7. Stock Awards.
(a) The Board may grant Stock Awards to any officer, employee, director
or consultant of the Company and its subsidiaries. A Stock Award entitles the
recipient to acquire shares of Common Stock subject to such restrictions and
conditions as the Board may determine at the time of grant. Conditions may be
based on continuing employment (or other business relationship) and/or
achievement of pre-established performance goals and objectives.
(b) Upon execution of a written instrument setting forth the Stock Award
and paying any applicable purchase price, a Participant shall have the rights of
a shareholder with
-6-
<PAGE>
respect to the Stock subject to the Stock Award, including, but not limited to
the right to vote and receive dividends with respect thereto. Unless the Board
shall otherwise determine, certificates evidencing the Stock Award shall remain
in the possession of the Company until such Common Stock is vested as provided
in Section 7(c) below.
(c) The Board at the time of grant shall specify the date or dates and/or
the attainment of pre-established performance goals, objectives and other
conditions on which Stock Awards shall become vested, subject to such further
rights of the Company or its assigns as may be specified in the instrument
evidencing the Stock Award. If the grantee or the Company, as the case may be,
fails to achieve the designated goals or the grantee's relationship with the
Company is terminated prior to the expiration of the vesting period, the grantee
shall forfeit all shares of Common Stock subject to the Stock Award which have
not then vested.
(d) Unvested Stock Awards may not be sold, assigned transferred, pledged or
otherwise encumbered or disposed of except as specifically provided herein or in
the written instrument evidencing the Stock Award.
8. Effect of Change in Stock Subject to Plan. Any other provision of the
Plan notwithstanding:
(a) If, through or as a result of any merger, consolidation, sale of all or
substantially all of the assets of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar transaction, the outstanding shares of Stock are
increased or decreased or are exchanged for a different number or kind of shares
or other securities of the Company, or additional shares or new or different
shares or other securities of the Company or other non-cash assets are
distributed with respect to such shares of Stock or other securities, the Plan
Administrator shall make an appropriate or proportionate adjustment in (i) the
number of Stock Options that can be granted to any one individual participant,
(ii) the number and kind of shares or other securities subject to any then
outstanding Awards under the Plan, and (iii) the price for each share subject to
any then outstanding Stock Options under the Plan, without changing the
aggregate exercise price (i.e., the exercise price multiplied by the number of
shares) as to which such Stock Options remain exercisable. The adjustment by the
Plan Administrator shall be final, binding and conclusive.
(b) In the event that, by reason of a corporate merger, consolidation,
acquisition of property or stock, separation, reorganization or liquidation, the
Board of Directors shall authorize the issuance or assumption of a stock Option
or stock Options in a transaction to which Section 424(a) of the Code applies,
then, notwithstanding any other provision of the Plan, the Plan Administrator
may grant an Option or Options upon such terms and conditions as it may deem
appropriate for the purpose of assumption of the old Option, or substitution of
a new Option for the old Option, in conformity with the provisions of Code
Section 424(a) and the rules and regulations thereunder, as they may be amended
from time to time.
(c) No adjustment or substitution provided for in this Section 8 shall
require the Company to issue or to sell a fractional share under any stock
Option agreement or share
-7-
<PAGE>
award agreement and the total adjustment or substitution with respect to each
stock Option and share award agreement shall be limited accordingly.
(d) In the case of (i) the dissolution or liquidation of the Company, (ii)
a merger, reorganization or consolidation in which the Company is acquired by
another person or entity (other than a holding company formed by the Company),
(iii) the sale of all or substantially all of the assets of the Company to an
unrelated person or entity, or (iv) the sale of all of the stock of the Company
to a unrelated person or entity (in each case, a "Fundamental Transaction"), the
Plan and all Awards granted hereunder shall terminate, unless provision is made
in connection with the Fundamental Transaction for the assumption of the Awards
heretofore granted, or the substitution of such Awards with new awards of the
successor entity, with appropriate adjustment as to the number and kind of
shares and, if appropriate, the per share exercise price as provided in
Subsections (a) and (b) of this Section 8. In the event of such termination each
participant shall be notified of such proposed termination and permitted to
exercise for a period of at least 15 days prior to the date of such termination
all Options held by such participant which are then exercisable.
9. Transfer of Control. An "Ownership Change" shall be deemed to have
occurred in the event any of the following or any similar transaction occurs
with respect to the Company:
(a) The direct or indirect sale or exchange by the Stockholders of the
Company of all or substantially all of the stock of the Company;
(b) A merger or consolidation in which the Company is merged or
consolidated with another corporation or entity, other than a corporation or
entity that is an "affiliate" of the Company (as such term is defined in Rule
144(a) promulgated under the Securities Act of 1933, as amended);
(c) The sale, exchange, or transfer of all or substantially all of the
assets of the Company (other than a sale, exchange, or transfer to one (1) or
more subsidiary corporations of the Company); or
(d) A liquidation or dissolution of the Company.
In the event of an Ownership Change, all unvested shares underlying
outstanding Awards shall automatically become fully vested and in the case of
Options immediately exercisable, and shall be deemed to have attained such
status immediately prior to the Ownership Change. In the event of an Ownership
Change, any Options which are neither assumed or substituted for in connection
with the Ownership Change nor exercised as of the date of the Ownership Change
shall terminate and cease to be outstanding effective as of the date of the
Ownership Change, unless otherwise provided by the Board. In the event of an
Ownership Change, each Participant shall be given at least 15 days prior written
notice of such Ownership Change and shall be permitted to exercise any Options
during this 15 day period.
-8-
<PAGE>
10. Options Non-Transferable. During the lifetime of the Participant, the
Options shall be exercisable only by the Participant. No Option shall be
assignable or transferable by the Participant, except by will or by the laws of
descent and distribution.
11. Compliance with Governmental Regulations. Notwithstanding any
provision of the Plan or the terms of any agreement entered into pursuant to the
Plan, the Company shall not be required to issue any shares hereunder prior to
registration of the shares subject to the Plan under the Securities Act of 1933,
if such registration shall be necessary, or before compliance by the Company or
any Participant with any other provisions of either of those acts or of
regulations or rulings of the Securities and Exchange Commission thereunder, or
before compliance with other federal and state laws and regulations and rulings
thereunder, including the rules of The NASDAQ Stock Market. The Company shall
use its best efforts to effect such registrations and to comply with such laws,
regulations and rulings forthwith upon advice by its counsel that any such
registration or compliance is necessary.
12. Termination or Amendment of Plan or Awards. The Board, including any
duly appointed committee of the Board, may terminate or amend the Plan or any
Award at any time; provided, however, that no such action shall deprive any
person, without such person's consent, of any rights previously granted pursuant
to the Plan or Award.
13. Stockholder Approval. Option Awards and Stock Awards may be made as
of the date of approval of the Plan by the Board of Directors of the Company,
provided however, that no Option Awards or Stock Awards shall become vested
until such time as the Plan shall have received Stockholder approval. In the
event that the Stockholders of the Company shall not have approved the Plan
within twelve months of the date of Board approval of the Plan, any Option
Awards and Stock Awards outstanding shall become null and void.
14. Compliance with Section 16. With respect to persons subject to
Section 16 of the Securities Exchange Act of 1934, transactions under this Plan
are intended to comply with all applicable conditions of Rule 16b-3 (or its
successor rule and shall be construed to the fullest extent possible in a manner
consistent with this intent). To the extent that any Award fails to so comply,
it shall be deemed to be modified to the extent permitted by law and to the
extent deemed advisable by the Plan Administrator in order to comply with Rule
16b-3.
15. Tax Withholding.
(a) Whenever shares are to be issued or cash is to be paid under the
Plan, the Company shall have the right to require the participant to remit to
the Company an amount sufficient to satisfy federal, state and local tax
withholding requirements prior to the delivery of any certificate for shares or
any proceeds; provided, however, that in the case of a participant who receives
an Award of shares under the Plan which is not fully vested, the participant
shall remit such amount on the first business day following the Tax Date. The
"Tax Date" for purposes of this Section 15 shall be the date on which the amount
of tax to be withheld is determined. If a participant makes a disposition of
shares acquired upon the exercise of an Incentive Stock Option within either two
years after the Option was granted or one year after its
-9-
<PAGE>
exercise by the participant, the participant shall promptly notify the Company
and the Company shall have the right to require the participant to pay to the
Company an amount sufficient to satisfy federal, state and local tax withholding
requirements.
(b) A participant who is obligated to pay the Company an amount required to
be withheld under applicable tax withholding requirements may pay such amount
(i) in cash; (ii) in the discretion of the Plan Administrator, through the
delivery to the Company of previously-owned shares of Common Stock having an
aggregate Fair Market Value on the Tax Date equal to the tax obligation provided
that the previously owned shares delivered in satisfaction of the withholding
obligations must have been held by the participant for at least six (6) months;
or (iii) in the discretion of the Plan Administrator, through a combination of
the procedures set forth in subsections (i) and (ii) of this Section 15(b).
(c) A participant who is obligated to pay to the Company an amount required
to be withheld under applicable tax withholding requirements in connection with
either the exercise of a Non-Qualified Stock Option, or the receipt of a
Restricted Stock Award, Stock Award or Performance Share Award under the Plan
may, in the discretion of the Plan Administrator, elect to satisfy this
withholding obligation, in whole or in part, by requesting that the Company
withhold shares of stock otherwise issuable to the participant having a Fair
Market Value on the Tax Date equal to the amount of the tax required to be
withheld; provided, however, that shares may be withheld by the Company only if
such withheld shares have vested. Any fractional amount shall be paid to the
Company by the participant in cash or shall be withheld from the participant's
next regular paycheck.
(d) An election by a participant to have shares of stock withheld to
satisfy federal, state and local tax withholding requirements pursuant to
Section 15(c) must be in writing and delivered to the Company prior to the Tax
Date.
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that
the foregoing North American Technologies Group, Inc. 1999 Stock Incentive Plan
was duly adopted by the Board of Directors of the Company on the 22 day of
February, 1999.
/s/ Judith Knight Shields
-------------------------
Secretary
-10-
<PAGE>
PLAN HISTORY
__________________, 1999 Board of Directors adopts Plan with a share
reserve of [NUMBER] shares
__________________, 1999 Stockholders approve Plan with a share
reserve of [NUMBER] shares
-11-
<PAGE>
Exhibit B
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 written
consent 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 the number of shares of Common Stock, par value $0.001
per share, which the Corporation shall have the authority to issue pursuant
to the first paragraph of Article IV of the Corporation's Amended and
Restated Articles of Incorporation, shall be reduced from 100,000,000 to
50,000,000.
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 June 29, 1999.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by Henry Sullivan, its Chief Executive Officer, and
Judith Knight Shields, its Chief Financial Officer, this 29th day of June, 1999.
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
By:
----------------------------------------
Henry W. Sullivan
Chief Executive Officer
By:
----------------------------------------
Judith Knight Shields
Chief Financial Officer
<PAGE>
PRELIMINARY COPY
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Henry W. Sullivan 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 May
12, 1999 at the Annual Meeting of Stockholders of North American Technologies
Group, Inc. to be held on June 29, 1999 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
NOMINEE FOR DIRECTOR, FOR THE APPROVAL OF THE COMPANY'S 1999 STOCK INCENTIVE
PLAN, FOR THE APPROVAL OF THE ISSUANCE AND SALE OF UP TO $5 MILLION (INCLUDING
SALES PURSUANT TO PROPOSAL 4) OF FIXED PRICE SECURITIES IN A PRIVATE PLACEMENT
TRANSACTION, FOR APPROVAL OF THE ISSUANCE AND SALE OF UP TO $5 MILLION
(INCLUDING SALES PURSUANT TO PROPOSAL 3) OF FUTURE PRICED SECURITIES IN A
PRIVATE PLACEMENT TRANSACTION, FOR THE AMENDMENT TO THE RESTATED CERTIFICATE OF
INCORPORATION TO REDUCE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK., AND
FOR THE RATIFICATION OF BDO SEIDMAN, LLP AS INDEPENDENT AUDITORS FOR NORTH
AMERICAN TECHNOLOGIES GROUP, INC. FOR THE 1999 FISCAL YEAR.
_______________________________________________________________________________
1. Proposal 1
Election of Directors FOR WITHHELD
Douglas C. Williamson [ ] [ ]
2. Proposal 2
Approval of the Company's FOR AGAINST WITHHELD
1999 Stock Incentive Plan. [ ] [ ] [ ]
3. Proposal 3
Approval of the Issuance and FOR AGAINST WITHHELD
Sale of up to $5 million [ ] [ ] [ ]
(including sales pursuant to
Proposal 4) of Fixed Price
Securities in a Private
Placement Transaction.
4. Proposal 4
Approval of the Issuance and FOR AGAINST WITHHELD
Sale of up to $5 million [ ] [ ] [ ]
(including sales pursuant to
Proposal 3) of Future Priced
Securities in a Private
Placement Transaction.
5. Proposal 5
Approval of the Amendment to FOR AGAINST WITHHELD
the Restated Certificate of [ ] [ ] [ ]
Incorporation to reduce the
number of authorized shares
of Common Stock.
6 Proposal 6
Ratification of the FOR AGAINST WITHHELD
appointment 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)___________________________
__________________________________,1999
DATE
