EXHIBIT 99.1
CONVERSION AGREEMENT
THIS CONVERSION AGREEMENT (the "Agreement") is entered into as of May
14, 2002 by and between NORTH AMERICAN TECHNOLOGIES GROUP, INC., a Delaware
corporation (the "Company"), and XXXXX XXXXXXXX, an individual residing in
Xxxxxx County, Texas ("Lender").
RECITALS
1. In order to obtain working capital for general corporate purposes
and to finance the Company's business plan, the Company and the Lender entered
into a Loan Agreement dated as of December 31, 1999 and amended as of December
31, 2000 ("Loan Agreement").
2. Pursuant to the Loan Agreement, the Lender made a loan to the
Company in the original principal amount of $250,000.00, which loan was
evidenced by a promissory note ("Note") dated December 31, 1999.
3. The Company and the Lender desire to convert the Note to shares of
preferred stock of the Company ("5% Preferred Stock") and to enter into this
Agreement which shall supersede the Loan Agreement in its entirety.
NOW, THEREFORE, in consideration of the premises hereof and the
agreements set forth herein below, the Company and the Lender agree as follows:
1. Conversion.
(a) Conversion of Note to 5% Preferred Stock. On the terms and
conditions hereof, effective as of May 14, 2002 ("Closing Date"), the Company
issues and the Lender irrevocably accepts, 625,974 shares of 5% Preferred Stock
of the Company, in exchange for all of the Lender's right, title and interest in
and to the Note, a true and correct copy of which is attached hereto as Exhibit
A, subject to possible increase in such number of shares of 5% Preferred Stock
as provided in Section (2) below.
(b) Private Placement and Restricted Securities. The Lender and the
Company agree and acknowledge that the Securities are offered as private
placement transactions pursuant to Section 4(2) and Regulation D of the Act by
the Company. The 5% Preferred Stock and the shares of Common Stock issuable upon
conversion of the 5% Preferred Stock (collectively, the "Securities") are
"restricted securities" as that term is defined in Rule 144 of the Securities
Act of 1933, as amended (the "Act"), and, accordingly, may not be offered for
sale or sold or otherwise transferred in a transaction which would constitute a
sale thereof within the meaning of the Act unless (i) such security has been
registered under the Act and
registered or qualified under applicable state securities laws relating to the
offer and sale of securities; or (ii) exemptions from the registration
requirements of the Act and the registration or qualification requirements of
all such state securities laws are available and the Company shall have received
an opinion of counsel that the proposed sale or other disposition of such
Securities may be effected without registration under the Act and would not
result in any violation of any applicable state securities laws relating to the
registration or qualification of securities for sale, such counsel and such
opinion to be satisfactory to the Company.
(c) Description of the 5% Preferred Stock.
(i) The rights, preferences and limitations of the shares of
5% Preferred Stock are set forth in the Certificate of Designation attached
hereto as Exhibit B. Pursuant to the Certificate of Designation, each share of
5% Preferred Stock is initially convertible, at the option of the Lender, into
one share of Common Stock.
(ii) The Company has agreed to cause the authorization of a
sufficient number of shares of Common Stock for issuance upon conversion of the
5% Preferred Stock.
(iii) Except as otherwise required by law, the holders of all
the 5% Preferred Stock issued and outstanding, in the aggregate, shall be
entitled to the number of votes equal to the number of shares of Common Stock
into which shares of the 5% Preferred Stock are convertible on any record date,
or, if no such record date is established, at the date such vote is taken or any
written consent of stockholders is solicited, such votes to be counted together
with all other shares of stock of the Company having general voting power and
not separately as a class. Fractional votes by the holders of the 5% Preferred
Stock shall not, however, be permitted, and any fractional voting rights shall
(aggregating all shares into which shares of the 5% Preferred Stock held by each
holder could be converted) be rounded to the nearest lower whole number.
2. Incremental Antidilution Right. The Company agrees and acknowledges
that the Lender shall have the right, exercisable at any time but only once and
not later than the close of business on December 31, 2003 ("Antidilution
Right"), to require the Company to issue to the Lender additional shares of 5%
Preferred Stock as an incremental part of the conversion of the Note, in an
amount, if any, determined by the following formula: 625,974 multiplied by a
fraction for which the numerator is the positive difference between $0.50 and
the Dilution Price (defined below) and the denominator is the Dilution Price,
and rounding up to the nearest whole share. "Dilution Price" shall mean a price
that is less than $.50 per share and which is the lower of (x) the lowest price
for any share of Common Stock issued by the Company after the Closing Date and
on or before December 31, 2003, or the lowest price for any share of Common
Stock that is set or agreed to for any option, warrant, conversion right or
other stock issue right on or before December 31, 2003, whichever is lower; or
(y) the lowest closing price for any share on any trading day of the Common
Stock sold in the public market on or before December 31, 2003 and as reported
by an authoritative source agreed between Lender and the Company; provided,
however, that the Lender and his affiliates may not offer for sale or sell any
Common Stock during the 15 trading days
preceding the date upon which the Lender exercises his Antidilution Right, if
the number of additional shares to be issued pursuant to this incremental
Antidilution Right is to be set by reference to a price within such 15-day
period. The foregoing provisions (i) are incremental and in addition to the
Rights specified in the Certificate of Designation and (ii) shall be adjusted
appropriately if the Company shall effect any stock split, reverse stock split,
stock dividend, recapitalization, reorganization or other transaction affecting
the Common Stock.
3. Registration Rights.
(a) If at any time the Company intends to file on or before December
31, 2003 a registration statement under the Act for a public offering of its
securities (other than a registration statement covering any shares of stock of
the Company being offered pursuant to any employee stock option or employee
benefit plan and other than in connection with an acquisition or merger),
whether or not underwritten and whether or not sold for the account of the
Company ("Piggyback Registration Statement"), the Company shall promptly give
written notice of the proposed Piggyback Registration Statement to the Lender at
least 30 days before such Piggyback Registration Statement is planned to be
filed. The Lender shall be entitled to include in such Piggyback Registration
Statement any or all shares of Common Stock that are issued to the Lender upon
conversion of his shares of 5% Preferred Stock ("Registrable Securities"), by
giving written notice to the Company within ten days after receipt of the notice
from the Company above specified, such notice stating the number of shares of 5%
Preferred Stock that the Lender will convert to Registrable Securities and the
number of shares of Registrable Securities the Lender desires to include in such
Piggyback Registration Statement. The Lender's rights hereunder are subject to
the following conditions:
(i) The Lender must agree to execute and deliver the underwriting
agreement, if any, and the registration rights agreement, if any, to be executed
and delivered by the other sellers in connection with such registration.
(ii) In the event that the investment banking firm that is managing any
underwritten offering reasonably believes and so advises the Company that the
inclusion of the Registrable Securities would adversely affect the offering,
then the Lender shall be entitled to include under such Piggyback Registration
Statement the number of shares of Registrable Securities that the investment
banking firm determines would not adversely affect the offering.
(b) If the Company does not file a Piggyback Registration Statement
with a reasonably anticipated effective date occurring on or before December 31,
2003, then the Company shall use all reasonable efforts to prepare and file with
the Securities and Exchange Commission ("SEC") a registration statement with a
reasonably anticipated effective date that is not later than December 31, 2003
and which permits the public offering and resale of the Registrable Securities
("Demand Registration Statement"). Notwithstanding anything to the contrary, if
the Lender elects not to include all Registrable Securities in a Piggyback
Registration Statement with an effective date occurring on or before December
31, 2003 (except for the reason stated in subparagraph 3(a)(ii) above), then the
Lender shall not be
entitled to include Registrable Securities in any subsequent registration
statement filed by the Company and the Company shall have no obligation to file
a Demand Registration Statement. If the Lender elects to include the Registrable
Securities in a Piggyback Registration Statement with an effective date on or
before December 31, 2003 and the investment banking firm that manages the
offering advises the Company under subparagraph 3(a)(ii) that some or all of the
Registrable Securities should not be included in the Piggyback Registration
Statement, then the Company shall be obligated under this paragraph 3(b) to
prepare and file a Demand Registration Statement, and the Lender shall have the
right to include the balance of the Registrable Securities in such Demand
Registration Statement.
4. Representations and Warranties of the Company. The Company
represents and warrants to the Lender as follows:
(a) Organization and Standing of the Company. The Company is a duly
organized and validly existing corporation in good standing under the laws of
the State of Delaware with adequate power and authority to conduct the business
in which it is now engaged and has the corporate power and authority to enter
into this Agreement.
(b) Corporate Power and Authority. The execution and delivery of this
Agreement and each of the Exhibits attached hereto and the transactions
contemplated thereby have been duly authorized by the Board of Directors of the
Company. No other corporate act or proceeding on the part of the Company is
necessary to authorize this Agreement or any of the Exhibits attached hereto or
the consummation of the transactions contemplated thereby. When duly executed
and delivered by the parties hereto, this Agreement will constitute a valid and
legally binding obligation of the Company enforceable against it in accordance
with its terms, except as such enforceability may be limited by (i) bankruptcy,
insolvency, moratorium, reorganization or other similar laws and legal and
equitable principles limiting or affecting the rights of creditors generally;
and/or (ii) general principles of equity, regardless of whether considered in a
proceeding in equity or at law.
(c) Issuance of Securities. Upon their issuance, the shares of 5%
Preferred Stock shall be duly and validly issued, fully paid and nonassessable,
and upon the conversion of the 5% Preferred Stock into Common Stock, the shares
of such Common Stock will be duly and validly issued, fully paid and
nonassessable shares of the Company's common stock. The requisite number of
shares of Common Stock of the Company issuable upon conversion of the 5%
Preferred Stock has been duly authorized and reserved for issuance upon the
Company's receipt and acceptance of proper payment therefor, and no further
corporate action is required for the valid issuance of such shares.
(d) SEC Filings; Absence of Certain Events. The Company has timely
filed all reports required to be filed with the SEC pursuant to the Securities
Act or the Securities Exchange Act of 1934, as amended, and the rules
promulgated thereunder (the "Exchange Act"), and has previously advised the
Lender of the availability of true and complete copies of such SEC Filings. Such
SEC Filings, as of their respective dates, complied in all material respects
with the applicable requirements of the Securities Act and the Exchange Act, as
the case may be, and none of such SEC Filings contained any untrue statement of
a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. Except as set forth in the SEC Filings, there has not
been any fact, event, circumstance or change affecting or relating to the
Company which has had or is reasonably likely to have, individually or in the
aggregate, a material adverse effect on the Company; provided, however, that a
material adverse effect shall not include any adverse effect following the date
of this Agreement which is solely attributable to (i) the announcement or
pendency of the transactions contemplated by this Agreement or (ii) changes in
national economic conditions or industry conditions generally.
5. Representations and Warranties of the Lender.
(a) Status of Note. The Lender holds the Note converted hereunder free
from any setoff, claim, restriction, lien, security interest or encumbrance by
any third party and has not assigned any right to or interest in the Note to any
person.
(b) Accredited Investor. The Lender has such knowledge and experience
in business and financial matters that he is capable of evaluating the merits
and risk of converting the Note to the 5% Preferred Stock and the conversion of
the 5% Preferred Stock into Common Stock. The Lender is an "accredited investor"
as that term is defined in Rule 501 of Regulation D of the Securities Act and
satisfies the suitability standards described in Section 7 hereof.
(c) Loss of Investment. The Lender's overall commitment to investments
which are not readily marketable is not disproportionate to his net worth, and
his investment in the Company will not cause such overall commitment to become
excessive.
(d) Investment Intent.
(i) The Lender has been advised that neither the 5% Preferred
Stock nor the Common Stock into which the 5% Preferred Stock may be converted
has been registered with, or reviewed by, the SEC because such conversions
("Conversions") are intended to be nonpublic offerings pursuant to Section 4(2)
and Rule 506 of Regulation D of the Act. The Lender represents that the
Securities are being and will be acquired for the Lender's own account and not
on behalf of any other person, for investment purposes only and not with a view
towards distribution or resale to others. The Lender agrees that the Lender will
not attempt to sell, transfer, assign, pledge or otherwise dispose of all or any
portion of the Securities unless the Securities are registered under the Act or
unless in the opinion of counsel an exemption from such registration is
available, such counsel and such opinion to be satisfactory to the Company. The
Lender understands that the Securities have not been registered under the
Securities Act by reason of a claimed exemption under the provisions of the
Securities Act which depends, in part, upon the Lender's investment intention;
and
(ii) the Securities and any certificates issued in replacement
therefor shall bear the following legend, in addition to any legend required by
law or otherwise:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES
REPRESENTED BY THIS CERTIFICATE HAVE BEEN TAKEN BY THE REGISTERED OWNER
FOR INVESTMENT, AND WITHOUT A VIEW TO RESALE OR DISTRIBUTION THEREOF,
AND MAY NOT BE TRANSFERRED OR DISPOSED OF WITHOUT AN OPINION OF COUNSEL
SATISFACTORY TO THE ISSUER THAT SUCH TRANSFER OR DISPOSITION DOE S NOT
VIOLATE THE SECURITIES ACT OF 1933, AS AMENDED, OR THE RULES AND
REGULATIONS THEREUNDER."
(e) State Securities Laws. The Lender understands that no securities
administrator of any state has made any finding or determination relating to the
fairness of this investment and that no securities administrator of any state
has recommended or endorsed, or will recommend or endorse, the offering of the
Securities.
(f) No General Solicitation. The Lender acknowledges that no general
solicitation or general advertising (including communications published in any
newspaper, magazine or other broadcast) has been received by him and that no
public solicitation or advertisement with respect to the offering of the
Securities has been made to him.
(g) Advice of Tax and Legal Advisors. The Lender has relied solely upon
the advice of its own tax and legal advisors with respect to the tax and other
legal aspects of this investment.
(h) Access to Information. The Lender or his representative has had
access to all material and relevant information concerning the Company, its
management, financial condition, capitalization, market information, properties
and prospects necessary to enable Lender to make an informed investment decision
with respect to his investment in the Securities. The Lender has carefully read
and reviewed, and is familiar with and understands the contents thereof and
hereof, including, without limitation, the risk factors described in this
Agreement. The Lender acknowledges that he has had the opportunity to ask
questions of and receive answers from, and to obtain additional information
from, representatives of the Company concerning the terms and conditions of the
acquisition of the Securities and the present and proposed business and
financial condition of the Company, and has had all such questions answered to
its satisfaction and has been supplied all information requested.
(i) SEC Reports. The Lender acknowledges that he has been advised of
the availability of a copy of the Company's Annual Report on Form 10-KSB for the
year ended December 31, 2001, its Proxy Statement filed with the SEC on or about
November 27, 2001 and its Proxy Statement filed with the SEC on or about April
30, 2002 (collectively, the "SEC Filings").
(j) Understanding of Investment Risks. The Lender acknowledges that the
Securities offered hereby have not been approved or disapproved by the
Securities and
Exchange Commission, or any state securities commissions, nor has the Securities
and Exchange Commission or any state securities commission passed upon the
adequacy or accuracy of this Agreement or any exhibit hereto. Prior to entering
into this Agreement, the Lender has fully considered, among other things, the
business risks discussed in the Company's SEC Filings.
6. SUITABILITY STANDARDS
INVESTMENT IN THE SECURITIES INVOLVES A HIGH DEGREE OF RISK AND IS
SUITABLE ONLY FOR PERSONS OF SUBSTANTIAL FINANCIAL RESOURCES WHO HAVE NO NEED
FOR LIQUIDITY IN THEIR INVESTMENT.
7. Notices. All notices, requests, consents or other communications
required or permitted hereunder shall be in writing and shall be hand delivered
or mailed first class postage prepaid, registered or certified mail, or sent by
a nationally recognized overnight courier such as federal express, to the
following addresses:
If to the Company:
North American Technologies, Inc.
00000 Xxxx Xxxxx Xxxx
Xxxxxxx, Xxxxx 00000
Telephone: (000)000-0000
Facsimile: (000)000-0000
With a copy to:
Xxxxxx X. Xxxxx
Xxxxxxxx & Xxxxx, P.C.
0000 Xxxx Xxx Xxxxxxxxx
Xxxxxxx, Xxxxx 00000
Telephone: (000)000-0000
Facsimile: (000)000-0000
In the case of Lender:
000 Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000-0000
Attention: Xx Xxxxxx
Telephone:
Facsimile:
Unless specified otherwise, such notices and other
communications shall for all purposes of this Agreement be treated as
being effective upon being delivered personally or, if sent by mail,
five days after the same has been deposited in a regularly maintained
receptacle for the deposit of United States mail, addressed as set
forth above, and postage prepaid or, if sent by a nationally recognized
overnight courier, on the next business day after the date of mailing,
addressed as set forth above.
8. Survival of Representations and Warranties. Representations and
warranties contained herein shall survive the execution and delivery of this
Agreement.
9. Parties in Interest. All the terms and provisions of this Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
respective successors and permitted assigns of the parties hereto, provided that
this Agreement and the interests herein may not be assigned by either party
without the express written consent of the other party.
10. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas.
11. Sections and Other Headings. The section and other headings
contained in this Agreement are for the convenience of reference only, do not
constitute part of this Agreement or otherwise affect any of the provisions
hereof.
12. Counterpart and Facsimile Signatures. This Agreement may be signed
in counterparts and all counterparts together shall become effective only when
the counterpart(s) have been executed and delivered by and on behalf of the
Company and the Lender. Facsimile signatures to this Agreement shall be deemed
to be original signatures.
13. Entire Agreement. This Agreement, the exhibits and schedules hereto
and the documents delivered or to be delivered pursuant to this Agreement,
contain or will contain the entire agreement among the parties with respect to
the subject matter hereof and shall supercede all previous oral or written and
all contemporaneous oral negotiations, commitments or understandings.
IN WITNESS WHEREOF, intending to be legally bound, the parties hereto
have caused this Exchange Agreement to be signed by their duly authorized
officers.
LENDER
/s/ Xxxxx Xxxxxxxx
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XXXXX XXXXXXXX
COMPANY:
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
By: /s/ Xxxxx X. Xxxxxxxx
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Xxxxx X. Xxxxxxxx
President and Chief Executive Officer
