NORTH AMERICAN TECHNOLOGIES GROUP, INC.
CERTIFICATE OF DESIGNATION OF PREFERENCES,
RIGHTS AND LIMITATIONS
SERIES CC CONVERTIBLE PREFERRED STOCK
PURSUANT TO SECTION 151 OF THE
DELAWAREGENERAL CORPORATION LAW
NORTH AMERICAN TECHNOLOGIES GROUP,INC., a Delaware corporation (the Corporation) hereby certifies that:
1. The Corporation is authorized to issue 20,000,000 shares of preferred stock, 7,000 of which are issued and outstanding as Series AA preferred stock and 2,500 of which are issued and outstanding as Series BBpreferred Stock.
2. The following resolutions, establishingand designating a series of shares and fixing and determining the designations, preferences, limitations and relative rights thereof, were duly adopted by the Board of Directors of the Corporation or an authorized committee thereof on November 8,2004:
WHEREAS, the Certificate of Incorporation of theCorporation provides for a class of its authorized stock known as preferred stock, comprised of 20,000,000 shares, $.001 par value, issuable from time to time in one or more series;
WHEREAS, the Board of Directors of the Corporation is authorized to fix the dividend rights, dividend rate, voting rights,conversion rights, rights and terms of redemption and liquidation preferences of any wholly unissued series of preferred stock and the number of shares constituting any Series and the designation thereof, of any of them; and
WHEREAS, it is the desire of the Board of Directors of the Corporation,pursuant to its authority as aforesaid, to fix the rights, preferences, restrictions and other matters relating to a series of the preferred stock, which shall consist of up to 63,522 shares of the preferred stock which the corporation has theauthority to issue, as follows:
NOW, THEREFORE, BE ITRESOLVED, that the Board of Directors does hereby provide for the issuance of a series of preferred stock for cash or exchange of other securities, rights or property and does hereby fix and determine the rights, preferences, restrictions and othermatters relating to such series of preferred stock as follows:
TERMS OF PREFERRED STOCK
Section 1. Designation, Amount and Par Value. The series of preferred stock shall be designated as its 0% Series CCConvertible Preferred Stock (the Preferred Stock) and the number of shares so designated shall be 63,522 (which shall not be subject to increase without the consent of all of the holders of the Preferred Stock (each, aHolder and collectively, the Holders)). Each share of Preferred Stock shall have a par value of $0.001 per share and a stated value equal to $1,000 (the Stated Value). Capitalized terms nototherwise defined herein shall have the meaning given such terms in Section 8 hereof.
Section 2. Dividends.
(a) The Preferred Stock shall not have the right to receive any dividends, except that the Preferred Stock shall participate on an as-converted basis with any dividends declared on the Common Stock.
(b) So long as any Preferred Stock shall remain outstanding,neither the Corporation nor any subsidiary thereof shall redeem, purchase or otherwise acquire directly or indirectly any Junior Securities. So long as any Preferred Stock shall remain outstanding, neither the Corporation nor any subsidiary thereofshall directly or indirectly pay or declare any dividend or make any distribution upon, nor shall any distribution be made in respect of, any Junior Securities so long as any dividends due on the Preferred Stock remain unpaid, nor shall any moniesbe set aside for or applied to the purchase or redemption (through a sinking fund or otherwise) of any Junior Securities or shares pari passu with the Preferred Stock.
(c) The Corporation acknowledges and agrees that the capital of the Corporation (as such term is used inSubchapter V of the General Corporation Law of Delaware) in respect of the Preferred Stock and any future issuances of the Corporations capital stock shall be equal to the aggregate par value of such Preferred Stock or capital stock, as thecase may be, and that, on or after the date of the Purchase Agreement, it shall not increase the capital of the Corporation with respect to any shares of the Corporations capital stock issued and outstanding on such date. The Corporation alsoacknowledges and agrees that it shall not create any special reserves under Section 171 of the General Corporation Law of Delaware without the prior written consent of each Holder.
Section 3. Voting Rights. Except as otherwise provided herein and as otherwise required by law, each Holder of thePreferred Stock shall have the same voting rights as a holder of Common Stock having a number of shares of Common Stock equal to the number of Conversion Shares issuable upon conversion of such Holders Preferred Stock in full, subject to thelimitations on conversion set forth in Section 5(a)(ii), if then in effect as to such Holder. So long as any shares of Preferred Stock are outstanding, the Corporation shall not, without the affirmative vote of the Holders of the shares of thePreferred Stock then outstanding, (a) alter or change adversely the powers, preferences or rights given to the Preferred Stock or alter or amend this Certificate of Designation, (b) authorize or create any class of stock ranking as to dividends,
redemption or distribution of assets upon a Liquidation (as defined in Section 4) senior to or otherwise pari passu withthe Preferred Stock, (c) amend its certificate of incorporation or other charter documents so as to affect adversely any rights of the Holders, (d) increase the authorized number of shares of Preferred Stock, or (e) enter into any agreement withrespect to the foregoing.
Section 4. Liquidation. Uponany liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a Liquidation), the Holders shall be entitled to receive out of the assets of the Corporation, whether such assets are capital orsurplus, for each share of Preferred Stock an amount equal to the amount per share paid to the holders of the Common Stock on an as-converted basis. A Fundamental Transaction or Change of Control Transaction shall not be treated as a Liquidation.The Corporation shall mail written notice of any such Liquidation, not less than 45 days prior to the payment date stated therein, to each record Holder.
Section 5. Conversion.
(a) (i) Conversions at Option of Holder. Each share of Preferred Stock shall be convertible into that number of shares of Common Stock (subject tothe limitations set forth in Section 5(a)(ii)) determined by dividing the Stated Value of such share of Preferred Stock by the Set Price, at the option of the Holder, at any time and from time to time from and after the Original Issue Date. Holdersshall effect conversions by providing the Corporation with the form of conversion notice attached hereto as Annex A (a Conversion Notice). Each Conversion Notice shall specify the number of shares of Preferred Stock to beconverted, the number of shares of Preferred Stock owned prior to the conversion at issue, the number of shares of Preferred Stock owned subsequent to the conversion at issue and the date on which such conversion is to be effected, which date maynot be prior to the date the Holder delivers such Conversion Notice to the Corporation by facsimile (the Conversion Date). If no Conversion Date is specified in a Conversion Notice, the Conversion Date shall be the date that suchConversion Notice to the Corporation is deemed delivered hereunder. The calculations and entries set forth in the Conversion Notice shall control in the absence of manifest or mathematical error.
(ii) Beneficial Ownership Limitation. TheCorporation shall not effect any conversion of the Preferred Stock, and the Holder shall not have the right to convert any portion of the Preferred Stock, to the extent that after giving effect to such conversion, the Holder (together with theHolders affiliates), as set forth on the applicable Conversion Notice, would beneficially own in excess of 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to such conversion. For purposes of theforegoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its affiliates shall include the number of shares of Common Stock issuable upon conversion of the Preferred Stock with respect to which the determinationof such sentence is being made, but shall exclude the number of shares of Common Stock which would be
issuable upon (A) conversion of the remaining, nonconverted Stated Value of Preferred Stock beneficiallyowned by the Holder or any of its affiliates and (B) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Corporation subject to a limitation on conversion or exercise analogous to the limitation containedherein beneficially owned by the Holder or any of its affiliates. Except as set forth in the preceding sentence, for purposes of this Section 5(a)(ii), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act. Tothe extent that the limitation contained in this Section 5(a)(ii) applies, the determination of whether the Preferred Stock are convertible (in relation to other securities owned by the Holder together with any affiliates) and of which shares ofPreferred Stock are convertible shall be in the sole discretion of such Holder, and the submission of a Conversion Notice shall be deemed to be such Holders determination of whether the shares of Preferred Stock may be converted (in relationto other securities owned by such Holder) and which shares of the Preferred Stock are convertible, in each case subject to such aggregate percentage limitations. To ensure compliance with this restriction, the Holder will be deemed to represent tothe Corporation each time it delivers a Conversion Notice that such Conversion Notice has not violated the restrictions set forth in this paragraph and the Corporation shall have no obligation to verify or confirm the accuracy of such determination.For purposes of this Section 5(a)(ii), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as reflected in the most recent of the following: (A) theCorporations most recent Form 10-QSB or Form 10-KSB, as the case may be, (B) a more recent public announcement by the Corporation or (C) any other notice by the Corporation or the Corporations transfer agent setting forth the number ofshares of Common Stock outstanding. Upon the written or oral request of the Holder, the Corporation shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, thenumber of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Corporation, including the Preferred Stock, by the Holder or its affiliates since the date as of which suchnumber of outstanding shares of Common Stock was reported. The provisions of this Section 5(a)(ii) may be waived by a Holder at the election of a Holder (A) if prior to the Original Issue Date, such Holder elects in writing to the Corporation thatthis provision does not apply to such Holder and (B) upon not less than 61 days prior notice to the Corporation, and the provisions of this Section 5(a)(ii) shall continue to apply until such 61st day (or such later date, as determined by the Holder, as may be specified in such notice of waiver).
(iii) [INTENTIONALLY OMITTED]
(iv) Notwithstanding anything herein to the contrary, ifafter the Effective Date the VWAP for each of any 10 consecutive Trading Days (Threshold Period), which 10 consecutive Trading Day period shall have commenced only after the Effective Date, exceeds the then effective Set Price
(defined below) by 15%, the Corporation may, within 2 Trading Days after any such Threshold Period,deliver a notice to all Holders (a Forced Conversion Notice and the date such notice is received by the Holders, the Forced Conversion Notice Date) to cause the Holders to immediately convert all or part of thethen outstanding shares of Preferred Stock pursuant to Section 5 and the Holders shall surrender (if all Preferred Stock is converted) their respective shares of Preferred Stock to the Corporation for conversion within 5 Trading Days of the ForcedConversion Notice Date. Any Forced Conversion Notices shall be applied ratably to all of the Holders in proportion to each Holders initial purchases of Preferred Stock hereunder.
(b) (i) Not later than three Trading Days after each Conversion Date (the Share Delivery Date), theCorporation shall deliver to the Holder (A) a certificate or certificates which, after the Effective Date, shall be free of restrictive legends and trading restrictions (other than those required by the Securities Act of 1933 or any applicable statesecurities law) representing the number of shares of Common Stock being acquired upon the conversion of shares of Preferred Stock, and (B) a bank check in the amount of accrued and unpaid dividends (if the Corporation has elected or is required topay accrued dividends in cash). After the Effective Date, the Corporation shall, upon request of the Holder, deliver any certificate or certificates required to be delivered by the Corporation under this Section electronically through the DepositoryTrust Corporation or another established clearing corporation performing similar functions. If in the case of any Conversion Notice such certificate or certificates are not delivered to or as directed by the applicable Holder by the third TradingDay after the Conversion Date, the Holder shall be entitled to elect by written notice to the Corporation at any time on or before its receipt of such certificate or certificates thereafter, to rescind such conversion, in which event the Corporationshall immediately return the certificates representing the shares of Preferred Stock tendered for conversion.
(ii) The Corporations obligations to issue and deliver the Conversion Shares upon conversion of Preferred Stock in accordance withthe terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action toenforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Corporation or any violation or alleged violation of law by the Holderor any other person, and irrespective of any other circumstance which might otherwise limit such obligation of the Corporation to the Holder in connection with the issuance of such Conversion Shares. If the Corporation fails to deliver to the Holdersuch certificate or certificates pursuant to Section 5(b)(i) by the Share Delivery Date applicable to such conversion, the Corporation shall pay to such Holder, in cash, as liquidated damages and not as a penalty, for each $5,000 of Stated Value ofPreferred Stock being converted, $50 per Trading Day (increasing to $100 per Trading Day after 3 Trading Days and increasing to $200 per Trading
Day 6 Trading Days after such damages begin to accrue) for each Trading Day after the Share DeliveryDate until such certificates are delivered. Nothing herein shall limit a Holders right to pursue actual damages for the Corporations failure to deliver certificates representing shares of Common Stock upon conversion within the periodspecified herein, and such Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.
(iii) If the Corporation fails to deliver to the Holdersuch certificate or certificates pursuant to Section 5(b)(i) by a Share Delivery Date, and if after such Share Delivery Date the Holder purchases (in an open market transaction or otherwise) Common Stock to deliver in satisfaction of a sale by suchHolder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a Buy-In), then the Corporation shall pay in cash to the Holder the amount by which (x) theHolders total purchase price (including brokerage commissions, if any) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that such Holder was entitled to receive from the conversionat issue multiplied by (2) the price at which the sell order giving rise to such purchase obligation was executed. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to anattempted conversion of shares of Preferred Stock with respect to which the aggregate sale price giving rise to such purchase obligation is $10,000, under clause (A) of the immediately preceding sentence, the Corporation shall be required to pay theHolder $1,000. The Holder shall provide the Corporation written notice indicating the amounts payable to the Holder in respect of the Buy-In, together with applicable confirmations and other evidence reasonably requested by the Corporation. Nothingherein shall limit a Holders right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Corporationsfailure to timely deliver certificates representing shares of Common Stock upon conversion of the shares of Preferred Stock as required pursuant to the terms hereof.
(c) (i) The conversion price shall equal $1.08 (the Set Price), subject to adjustment below.
(ii) If the Corporation, at any time whilethe Preferred Stock is outstanding: (A) shall pay a stock dividend or otherwise make a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock, (B) subdivideoutstanding shares of Common Stock into a larger number of shares, (C) combine (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (D) issue by reclassification of shares of the CommonStock any shares of capital stock of the Corporation, then the Set Price shall be multiplied by a fraction of which the numerator shall be the number of
shares of Common Stock Outstanding before such event and of which the denominator shall be the number ofshares of Common Stock Outstanding after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution andshall become effective immediately after the effective date in the case of a subdivision, combination or reclassification.
(iii) if the Corporation, at any time while the Preferred Stock is outstanding, shall issue rights, options or warrants to all holders ofCommon Stock (and not to Holders) entitling them to subscribe for or purchase shares of Common Stock at a price per share less than the VWAP at the record date mentioned below, then the Set Price shall be multiplied by a fraction, of which thedenominator shall be the number of shares of the Common Stock Outstanding on the date of issuance of such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the numerator shallbe the number of shares of the Common Stock Outstanding on the date of issuance of such rights or warrants plus the number of shares which the aggregate offering price of the total number of shares so offered (assuming receipt by the Corporation infull of all consideration payable upon exercise of such rights, options or warrants) would purchase at such VWAP. Such adjustment shall be made whenever such rights or warrants are issued, and shall become effective immediately after the record datefor the determination of stockholders entitled to receive such rights, options or warrants.
(iv) [INTENTIONALLY OMITTED].
(v) if the Corporation, at any time while the Preferred Stock is outstanding, shall distribute to all holders of Common Stock (and not toHolders) evidences of its indebtedness or assets or rights or warrants to subscribe for or purchase any security other than the Common Stock (which shall be subject to Section 5(c)(iii), then in each such case the Set Price shall be adjusted bymultiplying the Set Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the VWAP determined as of the record datementioned above, and of which the numerator shall be such VWAP on such record date less the then per share fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstandingshare of the Common Stock as determined by the Board of Directors in good faith. In either case the adjustments shall be described in a statement provided to the Holders of the portion of assets or evidences of indebtedness so distributed or suchsubscription rights applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.
(vi) All calculations under this Section 5(c) shall be madeto the nearest cent or the nearest 1/100th of a share, as the case may be. The number of shares of
Common Stock outstanding at any given time shall not include shares owned or held by or for the accountof the Corporation, and the disposition of any such shares shall be considered an issue or sale of Common Stock. For purposes of this Section 5(c), the number of shares of Common Stock deemed to be outstanding (the Common StockOutstanding) as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.
(vii) Notwithstanding anything to the contrary herein, no adjustment shall be made hereunder in connection with an Exempt Issuance.
(viii) Whenever the Set Price is adjustedpursuant to this Section the Corporation shall promptly mail to each Holder a notice setting forth the Set Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.
Section 6. Redemption Upon Maturity.
(a) Maturity Redemption. On the 20th anniversary of the Original Issue Date (the Maturity Redemption Date), the Corporation shall redeem all ofthe then outstanding Preferred Stock, for an amount in cash equal to the Maturity Redemption Amount (such redemption, the Maturity Redemption). The Corporation covenants and agrees that it will honor all Conversion Noticestendered up until such amounts are paid in full.
(b) Redemption Procedure. The payment of cash pursuant to a Maturity Redemption shall be made on the Maturity Redemption Date. If any portion of the cash payment for a Maturity Redemption shall not be paid by the Corporation by therespective due date, interest shall accrue thereon at the rate of 18% per annum (or the maximum rate permitted by applicable law, whichever is less) until such payment, plus all amounts owing thereon, is paid in full.
Section 7. Intentionally Omitted.
Section 8. Definitions. For the purposes hereof, the following termsshall have the following meanings:
Change of Control Transaction means the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an individual or legal entity or group (as described in Rule 13d-5(b)(1)promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Corporation, by contract or otherwise) of in excess of 33% of the voting securities of the Corporation, or (b) areplacement at one time or within a one year period of more than one-half of the members of the Corporations board of directors which is not approved by a majority of those individuals who are members of the board of directors on the datehereof (or by those individuals who are serving as members of the board of directors on
any date whose nomination to the board of directors was approved by a majority of the members of theboard of directors who are members on the date hereof), or (c) the execution by the Corporation of an agreement to which the Corporation is a party or by which it is bound, providing for any of the events set forth above in (a) or (b).
Commission means the Securities andExchange Commission.
CommonStock means the Corporations common stock, par value $0.001 per share, and stock of any other class into which such shares may hereafter have been reclassified or changed.
Common Stock Outstanding shall have themeaning set forth in Section 5(c)(vi).
Conversion Amount means the sum of the Stated Value at issue.
Conversion Date shall have the meaning set forth in Section 5(b)(i).
Conversion Shares means, collectively,the shares of Common Stock into which the shares of Preferred Stock are convertible in accordance with the terms hereof.
Conversion Shares Registration Statement means a registration statement that meets the requirements of the RegistrationRights Agreement and registers the resale of all Conversion Shares by the Holder, who shall be named as a selling stockholder thereunder, all as provided in the Registration Rights Agreement.
Effective Date means the date that theConversion Shares Registration Statement is declared effective by the Commission.
Exchange Act means the Securities Exchange Act of 1934, as amended.
Exempt Issuance means the issuance of anyCompany securities in connection with (i) the granting of options to employees, officers, directors, or key consultants of the Company pursuant to any stock option plan duly adopted by a majority of the independent members of the Board of Directorsof the Company or a committee of independent directors established for such purpose, (ii) the exercise or the conversion of any convertible securities, options or warrants of the Company that are issued and outstanding as of the date hereof,provided that such securities have not been amended since the date hereof, (iii) that certain Exchange Agreement dated as of November 8, 2004, (iv) acquisitions or strategic investments, the primary purpose of which is not to raise capital, or (v)the exercise of any warrants issued in connection with borrowings from financial institutions.
Fundamental Transaction means the occurrence after the date hereof of any of (a) the Corporation effects any merger orconsolidation of the Corporation with or into another Person, (b) the Corporation effects any sale of all or substantially all of its assets
in one or a series of related transactions, (c) any tender offer or exchange offer (whether by the Corporation or another Person) is completed pursuant towhich holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (d) the Corporation effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which theCommon Stock is effectively converted into or exchanged for other securities, cash or property.
Holder shall have the meaning given such term in Section 1 hereof.
Junior Securities means the Common Stockand all other equity or equity equivalent securities of the Corporation other than those securities that are (a) outstanding on the Original Issue Date and (b) which are explicitly senior in rights or liquidation preference to the Preferred Stock.
Maturity Redemption shallmean the redemption of the Preferred Stock pursuant to Section 6(a).
Maturity Redemption Amount shall mean the sum of (i) 100% of the aggregate Stated Value then outstanding, (ii) accrued but unpaid dividends and (iii) all liquidated damages and other amounts due inrespect of the Preferred Stock.
Maturity Redemption Date shall have the meaning set forth in Section 6(a).
Original Issue Date shall mean the date of the first issuance of any shares of the Preferred Stock regardless of thenumber of transfers of any particular shares of Preferred Stock and regardless of the number of certificates which may be issued to evidence such Preferred Stock.
Person means a corporation, an association, a partnership, an organization, a business,an individual, a government or political subdivision thereof or a governmental agency.
Principal Market initially means the NASDAQ Small-Cap Market and shall also include the American Stock Exchange, theNew York Stock Exchange, or the NASDAQ National Market, whichever is at the time the principal trading exchange or market for the Common Stock, based upon share volume.
Purchase Agreement means the Securities Purchase Agreement, dated as of the OriginalIssue Date, to which the Corporation and the original Holders are parties, as amended, modified or supplemented from time to time in accordance with its terms.
Registration Rights Agreement means the Registration Rights Agreement, dated as of the Original Issue Date, to whichthe Corporation and the original Holders are parties, as amended, modified or supplemented from time to time in accordance with its terms.
Securities Act means the Securities Act of 1933, as amended.
Set Price shall have the meaning set forth in Section 5(c)(i).
Trading Day shall mean anyday during which the Principal Market shall be open for business.
VWAP means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Principal Market, the daily volume weightedaverage price of the Common Stock for such date (or the nearest preceding date) on the Principal Market on which the Common Stock is then listed or quoted as reported by Bloomberg Financial L.P. (based on a Trading Day from 9:30 a.m. Eastern Time to4:02 p.m. Eastern Time); (b) if the Common Stock is not then listed or quoted on a Principal Market and if prices for the Common Stock are then quoted on the OTC Bulletin Board, the volume weighted average price of the Common Stock for such date (orthe nearest preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then listed or quoted on the OTC Bulletin Board and if prices for the Common Stock are then reported in the Pink Sheets published by the NationalQuotation Bureau Incorporated (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported; or (d) in all other cases, the fair market value of a share ofCommon Stock as determined by an independent appraiser selected in good faith by the Purchasers and reasonably acceptable to the Corporation.
Section 9. Fundamental Transactions and Change of Control Transactions. If a Fundamental Transaction occurs, then upon any subsequent conversion ofshares of Preferred Stock, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion absent such Fundamental Transaction, the same kind and amount of securities, cash or property as itwould have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of one share of Common Stock (the Alternate Consideration). Forpurposes of any such conversion, the determination of the Set Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in suchFundamental Transaction, and the Corporation shall apportion the Set Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stockare given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of shares of Preferred Stockfollowing such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Corporation or surviving entity in such Fundamental Transaction shall issue to the Holder new preferred stock consistentwith the foregoing provisions and evidencing the Holders right to convert such preferred stock into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring anysuch successor or surviving entity to comply with the provisions of this Section 9 and insuring that the Preferred Stock (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a
Fundamental Transaction or Change of Control Transaction. In the event of a Fundamental Transaction or a Change of Control Transaction, then at the requestof the Holder delivered before the 90th day after such Fundamental Transaction, the Corporation (or any such successor or surviving entity) will purchase the Preferred Stock from the Holder for a purchase price, payable in cash within five TradingDays after such request (or, if later, on the effective date of the Fundamental Transaction), equal to the Conversion Amount on such date.
Section 10. Miscellaneous.
(a) If (i) the Corporation shall declare a dividend (or any other distribution) on the Common Stock, (ii) the Corporation shall declare aspecial nonrecurring cash dividend on or a redemption of the Common Stock, (iii) the Corporation shall authorize the granting to all holders of Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class orof any rights, (iv) the approval of any stockholders of the Corporation shall be required in connection with any Fundamental Transaction or Change of Control Transaction, or (v) the Corporation shall authorize the voluntary or involuntarydissolution, liquidation or winding up of the affairs of the Corporation; then the Corporation shall file a press release or Current Report on Form 8-K to disclose such occurrence and notify the Holders at their last addresses as they shall appearupon the stock books of the Corporation, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution,redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date onwhich any such Fundamental Transaction or Change of Control Transaction is expected to become effective or close, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their Common Stock forsecurities, cash or other property deliverable upon any such Fundamental Transaction or Change of Control Transaction. Holders are entitled to convert the Conversion Amount of Preferred Stock during the 20-day period commencing the date of suchnotice to the effective date of the event triggering such notice.
(b) The Corporation covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock solely for the purpose of issuance upon conversion of Preferred Stock, eachas herein provided, free from preemptive rights or any other actual contingent purchase rights of persons other than the Holders, not less than such number of shares of Common Stock as shall be issuable upon the conversion of all outstanding sharesof Preferred Stock. The Corporation covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly and validly authorized, issued and fully paid and nonassessable.
(c) Upon a conversion hereunder the Corporation shall not berequired to issue stock certificates representing fractions of shares of Common Stock, but may if otherwise permitted, make a cash payment in respect of any final fraction of a share based on the VWAP at such time. If any fraction of a ConversionShare would, except for the
provisions of this Section, be issuable upon a conversion hereunder, the Corporation shall pay an amount in cash equal to the VWAP immediately prior to theapplicable conversion multiplied by such fraction.
(d) The issuance of certificates for Common Stock on conversion of Preferred Stock shall be made without charge to the Holders thereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery ofsuch certificate, provided that the Corporation shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holderof such shares of Preferred Stock so converted.
(e) To effect conversions of shares of Preferred Stock, a Holder shall not be required to surrender the certificate(s) representing such shares of Preferred Stock to the Corporation unless all of the shares of Preferred Stock representedthereby are so converted, in which case the Holder shall deliver the certificate representing such share of Preferred Stock promptly following the Conversion Date at issue. Shares of Preferred Stock converted into Common Stock or redeemed inaccordance with the terms hereof shall be canceled and may not be reissued.
(f) Any and all notices or other communications or deliveries to be provided by the Holders of the Preferred Stock hereunder, including, without limitation, any Conversion Notice, shall be in writing and deliveredpersonally, by facsimile or sent by a nationally recognized overnight courier service, addressed to the attention of the Chief Financial Officer of the Corporation addressed to Chief Financial Officer, Fax Number: (281) 847-1791 or to such otheraddress or facsimile number as shall be specified in writing by the Corporation for such purpose. Any and all notices or other communications or deliveries to be provided by the Corporation hereunder shall be in writing and delivered personally, byfacsimile or sent by a nationally recognized overnight courier service, addressed to each Holder at the facsimile telephone number or address of such Holder appearing on the books of the Corporation, which address shall initially be the address ofsuch Holder set forth on the signature pages of the Purchase Agreement, or such other address as the Corporation or a Holder may designate by ten days advance written notice to the other parties hereto. Any notice or other communication ordeliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Section prior to 6:30 p.m. (NewYork City time) (with confirmation of transmission), (ii) the date after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Section later than 6:30 p.m. (New YorkCity time) on any date and earlier than 11:59 p.m. (New York City time) on such date (with confirmation of transmission), (iii) five days after having been sent by registered or certified mail, return receipt requested, postage prepaid, (iv) one dayafter deposit with a nationally recognized overnight courier service, specifying next day delivery, with written verification of service, or (v) upon actual receipt by the party to whom such notice is required to be given.
(g) For purposes hereof, a share of Preferred Stock is outstanding until such date as theHolder shall have received the Conversion Shares issuable or payable to it in accordance with this Certificate of Designations.
RESOLVED, FURTHER, that the Chairman, the president or any vice-president, of the Corporation be and theyhereby are authorized and directed to prepare and file a Certificate of Designation of Preferences, Rights and Limitations in accordance with the foregoing resolution and the provisions of Delaware law.
IN WITNESS WHEREOF, the undersigned has executed this Certificate this 18thday of February, 2005.
/s/ Henry W. Sullivan
|Name:||Henry W. Sullivan|
|Title:||President and Chief Executive Officer|
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to convert shares of Preferred Stock)
The undersigned hereby elects to convert the number of shares of Convertible Preferred Stock indicated below, into shares of common stock,par value $0.001 per share (the Common Stock), of North American Technologies Group, Inc., a Delaware corporation (the Corporation), according to the conditions hereof, as of the date written below. If sharesare to be issued in the name of a person other than undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Corporation inaccordance therewith. No fee will be charged to the Holder for any conversion, except for such transfer taxes, if any.
Date to Effect Conversion
Number of shares of Preferred Stock owned prior to Conversion
Number of shares of Preferred Stock to be Converted
Stated Value of shares of Preferred Stock to be Converted
Number of shares of Common Stock to be Issued
Applicable Set Price
Number of shares of Preferred Stock subsequent to Conversion