Document:

Form of 7% Convertible Debenture

 Exhibit 10.2 
  
 NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES. 
  
 Original Issue Date: July 7, 2005 
 Original Conversion Price (subject to adjustment herein): $0.22 
  
 $                     
  
 7% CONVERTIBLE DEBENTURE 
 DUE July 7,
2006 
  
 THIS 7% CONVERTIBLE DEBENTURE is one of a series of
duly authorized and issued 7% Convertible Debentures of North American Technologies Group, Inc., a Delaware corporation, having a principal place of business at 14315 West Hardy Road, Houston, TX 77060 (the “Company”), designated as
its 7% Convertible Debenture, due July 7, 2006 (this debenture, the “Debenture” and collectively with the other such series of debentures, the “Debentures”). 
  
 FOR VALUE RECEIVED, the Company promises to pay to
                                        
or its registered assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the principal sum of
$                     by July 7, 2006, or such earlier date as this Debenture is required or permitted to be repaid as provided hereunder (the
“Maturity Date”), and to pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Debenture in accordance with the provisions hereof. This Debenture is subject to the following additional
provisions: 
  
 Section 1. Definitions. For the purposes
hereof, in addition to the terms defined elsewhere in this Debenture: (a) capitalized terms not otherwise defined herein have the meanings given to such terms in the Purchase Agreement, and (b) the following terms shall have the following meanings:

  
 “Alternate Consideration”
shall have the meaning set forth in Section 5(d). 

 “Base Conversion Price” shall have the meaning set forth in Section
5(b). 
  
 “Business Day” means
any day except Saturday, Sunday and any day which shall be a federal legal holiday in the United States or a day on which banking institutions in the State of New York are authorized or required by law or other government action to close.

  
 “Buy-In” shall have the
meaning set forth in Section 4(d)(v). 
  
 “Change of Control Transaction” means the occurrence after the date hereof of any of (i) 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 Company, by contract or otherwise) of in excess of 50% of the voting securities of the Company other than by a Purchaser
or its Affiliates, or (ii) the Company merges into or consolidates with any other Person, or any Person merges into or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately prior to
such transaction own less than 50% of the aggregate voting power of the Company or the successor entity of such transaction, or (iii) the Company sells or transfers its assets, as an entirety or substantially as an entirety, to another Person and
the stockholders of the Company immediately prior to such transaction own less than 50% of the aggregate voting power of the acquiring entity immediately after the transaction, (iv) a replacement at one time or within a three year period of more
than one-half of the members of the Company’s board of directors which is not approved by a majority of those individuals who are members of the board of directors on the date hereof (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 the board of directors who are members on the date hereof), or (v) the execution by the Company of an agreement to which the
Company is a party or by which it is bound, providing for any of the events set forth above in (i) or (iv). 
  
 “Common Stock” means the common stock, par value $0.001 per share, of the Company and stock of any other class of
securities into which such securities may hereafter have been reclassified or changed into. 
  
 “Common Stock Equivalents” shall mean any debt, equity or equity equivalent securities exercisable, convertible,
exchangeable or payable in shares of Common Stock. 
  
 “Conversion Date” shall have the meaning set forth in Section 4(a). 
  
 “Conversion Price” shall have the meaning set forth in Section 4(b). 
  
 “Conversion Shares” means the shares of
Common Stock issuable upon conversion of this Debenture or as payment of interest in accordance with the terms hereof. 
  

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 “Debenture Register” shall have the meaning set forth in Section 2(b).

  
 “Dilutive Issuance” shall
have the meaning set forth in Section 5(b). 
  
 “Dilutive Issuance Notice” shall have the meaning set forth in Section 5(b). 
  
 “Effectiveness Period” shall have the meaning given to such term in the Registration Rights Agreement. 
  
 “Enforcement Action” shall mean (a) to take
from or for the account of the Company by set-off or in any other manner, the whole or any part of any monies which may now or hereafter be owing by the Company with respect to the Debenture, (b) to sue for payment of, or to initiate or participate
with others in any suit, action or proceeding against the Company to (i) enforce payment of or to collect the whole or any part of the Debenture or (ii) commence judicial enforcement of any of the rights and remedies under the Debenture or
applicable law with respect to the Debenture, (c) to accelerate the Debenture, (d) to cause the Company to honor any conversion or mandatory prepayment obligation under the Debenture or (e) to take any action under the provisions of any state or
federal law, including, without limitation, the Uniform Commercial Code, or under any contract or agreement to enforce, foreclose upon, take possession of or sell any property or assets of the Company. 
  
 “Event of Default” shall have the meaning
set forth in Section 8. 
  
 “Exchange
Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. 
  
 “Fundamental Transaction” shall have the meaning set forth in Section 5(d). 
  
 “Interest Conversion Rate” means the lesser
of (a) the Conversion Price and (b) the 100% of the lesser of (i) the average of the 20 VWAPs immediately prior to the applicable Interest Payment Date or (ii) the average of the 20 VWAPs immediately prior to the date the applicable interest payment
shares are issued and delivered if after the Interest Payment Date. 
  
 “Interest Payment Date” shall have the meaning set forth in Section 2(a). 
  
 “Interest Share Amount” shall have the meaning set forth in Section 2(a). 
  
 “Late Fees” shall have the meaning set
forth in Section 2(c). 
  
 “Mandatory
Default Amount” shall equal the sum of (i) the greater of: (A) 110% of the principal amount of this Debenture to be prepaid, plus all accrued and unpaid interest thereon, or (B) the principal amount of this Debenture to be prepaid, plus all
other accrued and unpaid interest hereon, divided by the Conversion Price on (x) the date the Mandatory Default Amount is demanded or otherwise due or (y) the date the Mandatory Default Amount is paid in full, whichever is less, multiplied by the
VWAP on (x) the date the Mandatory Default Amount is demanded or otherwise due or (y) the date the Mandatory Default Amount is paid in full, whichever is greater, and (ii) all other amounts, costs, expenses and liquidated damages due in respect of
this Debenture. 
  

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 “New York Courts” shall have the meaning set forth in Section 9(d).

  
 “Notice of Conversion” shall
have the meaning set forth in Section 4(a). 
  
 “Obligations” means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any indebtedness. 
  
 “Opus” means Opus 5949 LLC, a Texas limited
liability company, formerly known as TIE Investors, LLC. 
  
 “Opus Loan” means that certain loan by Opus to TIETEK LLC, a Delaware limited liability company, TIETEK Technologies, Inc., a Texas corporation, North American Technologies Group, Inc., a Delaware
corporation, in the original principal amount of $14,000,000 as evidenced by that certain Construction Loan Agreement, dated as of February 5, 2004, as amended, supplemented, extended, refinanced or otherwise modified from time to time, and the
Promissory Note and security agreements executed pursuant thereto, as amended, replaced or restated from time to time. 
  
 “Original Issue Date” shall mean the date of the first issuance of the Debentures regardless of the number of transfers
of any Debenture and regardless of the number of instruments which may be issued to evidence such Debenture. 
  
 “Person” means a corporation, an association, a partnership, organization, a business, an individual, a government or
political subdivision thereof or a governmental agency. 
  
 “Purchase Agreement” means the Securities Purchase Agreement, dated as of July 7, 2005, to which the Company and the original Holder are parties, as amended, modified or supplemented from time to time
in accordance with its terms. 
  
 “Registration Rights Agreement” means the Registration Rights Agreement as amended and restated as of the date of the Purchase Agreement, among the Company, the original Holder and certain other investors in the Company, as
may be amended, modified or supplemented from time to time. 
  
 “Registration Statement” means a registration statement meeting the requirements set forth in the Registration Rights Agreement, covering among other things the resale of the Conversion Shares and
naming the Holder as a “selling stockholder” thereunder. 
  
 “Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. 
  
 “Subsidiary” shall have the meaning given to such term in the Purchase Agreement.

  

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 “Trading Day” means a day on which the Common Stock is traded on a
Trading Market. 
  
 “Trading
Market” means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the Nasdaq SmallCap Market, the American Stock Exchange, the New York Stock Exchange or the Nasdaq National
Market or the OTC Bulletin Board. 
  
 “Transaction Documents” shall have the meaning set forth in the Purchase Agreement. 
  
 “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 Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading 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 to 4:02 p.m. Eastern Time); (b) if the Common Stock is not then listed or quoted on a Trading 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 (or the 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 Pink Sheets, LLC (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 (c) in
all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holder and reasonably acceptable to the Company. 
  
 Section 2. Interest. 
  
 a) Payment of Interest in Kind. The Company shall pay interest to the Holder on the aggregate unconverted and then outstanding
principal amount of this Debenture at the rate of 7% per annum, payable quarterly on January 1, April 1, July 1 and October 1, beginning on the first such date after the Original Issue Date, on each Conversion Date (as to that principal amount then
being converted) and on the Maturity Date (except that, if any such date is not a Business Day, then such payment shall be due on the next succeeding Business Day) (each such date, an “Interest Accrual Date”), in shares of Common
Stock at the Interest Conversion Rate (the amount to be paid in shares, the “Interest Share Amount”). As to such Interest Accrual Date, within 3 Trading Days of such Interest Accrual Date (each such date, an “Interest
Payment Date”), the Company shall have delivered to the Holder’s account with The Depository Trust Company (if registered for resale, and otherwise to the Holder) a number of shares of Common Stock equal to the quotient of (x) the
applicable Interest Share Amount divided by (y) the then Interest Conversion Price. 
  
 b) Interest Calculations. Interest shall be calculated on the basis of a 360-day year and shall accrue daily commencing on the
Original Issue Date until payment in full of the principal sum, together with all accrued and unpaid interest and other amounts 
  

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 which may become due hereunder, has been made. Payment of interest in shares of Common Stock shall
otherwise occur pursuant to Section 4(d)(ii) and the Interest Payment Date shall be deemed the Conversion Date. Interest shall cease to accrue with respect to any principal amount converted, provided that the Company in fact delivers the Conversion
Shares within the time period required by Section 4(d)(ii). Interest hereunder will be paid to the Person in whose name this Debenture is registered on the records of the Company regarding registration and transfers of Debentures (the
“Debenture Register”). 
  
 c)
Late Fee. All overdue accrued and unpaid interest to be paid hereunder shall entail a late fee at the rate of 18% per annum (or such lower maximum amount of interest permitted to be charged under applicable law) (“Late Fees”)
which will accrue daily, from the date such interest is due hereunder through and including the date of payment. Notwithstanding anything to the contrary contained herein, if on any Interest Payment Date the Company is not able to pay accrued
interest in the form of Common Stock because it does not then satisfy the conditions for payment in the form of Common Stock set forth above, then, at the option of the Holder, the Company, in lieu of delivering shares of Common Stock pursuant to
this Section 2, shall deliver, within three Trading Days of each applicable Interest Payment Date, an amount in cash equal to the product of the number of shares of Common Stock otherwise deliverable to the Holder in connection with the payment of
interest due on such Interest Payment Date and the highest VWAP during the period commencing on the Interest Payment Date and ending on the Trading Day prior to the date such payment is made. 
  
 d) Prepayment. Except as otherwise set forth in this
Debenture and except pursuant to a Return Request as set forth in Article III of the Purchase Agreement, the Company may not prepay any portion of the principal amount of this Debenture without the prior written consent of the Holder. 
  
 Section 3. Registration of Transfers and Exchanges.

  
 a) Different Denominations. This
Debenture is exchangeable for an equal aggregate principal amount of Debentures of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be made for such registration of transfer or exchange.

  
 b) Investment Representations. This
Debenture has been issued subject to certain investment representations of the original Holder set forth in the Purchase Agreement and may be transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and state
securities laws and regulations. 
  
 c)
Reliance on Debenture Register. Prior to due presentment to the Company for transfer of this Debenture, the Company and any agent of the Company may treat the Person in whose name this Debenture is duly registered on the Debenture Register as
the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary. 
  

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 Section 4. Conversion. 
  
 a) Voluntary Conversion. At any time after the Original Issue Date until this Debenture is no longer
outstanding, this Debenture shall be convertible into shares of Common Stock at the option of the Holder, in whole or in part at any time and from time to time (subject to the limitations on conversion set forth in Section 4(c) hereof). The Holder
shall effect conversions by delivering to the Company the form of Notice of Conversion attached hereto as Annex A (a “Notice of Conversion”), specifying therein the principal amount of this Debenture to be converted and the
date on which such conversion is to be effected (a “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is provided hereunder. To
effect conversions hereunder, the Holder shall not be required to physically surrender this Debenture to the Company unless the entire principal amount of this Debenture plus all accrued and unpaid interest thereon has been so converted. Conversions
hereunder shall have the effect of lowering the outstanding principal amount of this Debenture in an amount equal to the applicable conversion. The Holder and the Company shall maintain records showing the principal amount converted and the date of
such conversions. The Company shall deliver any objection to any Notice of Conversion within 1 Business Day of receipt of such notice. In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in
the absence of manifest error. The Holder and any assignee, by acceptance of this Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Debenture, the unpaid and unconverted
principal amount of this Debenture may be less than the amount stated on the face hereof. 
  
 b) Conversion Price. The conversion price in effect on any Conversion Date shall be equal to $0.22 (subject to adjustment herein)
(the “Conversion Price”). 
  
 c)
Conversion Limitations. 
  
 i.
RESERVED. 
  
 ii. Holder’s
Restriction on Conversion. The Company shall not effect any conversion of this Debenture, and the Holder shall not have the right to convert any portion of this Debenture, pursuant to Section 4(a) or otherwise, to the extent that after giving
effect to such conversion, the Holder (together with the Holder’s affiliates), as set forth on the applicable Notice of Conversion, 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 the foregoing 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
this Debenture with respect to which the determination of 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 portion of this Debenture
beneficially owned 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 Company (including, without limitation, any other Debentures or the Warrants) subject
to a limitation on conversion or exercise analogous 
  

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 to the limitation contained herein beneficially owned by the Holder or any of its affiliates. Except as
set forth in the preceding sentence, for purposes of this Section 4(c)(ii), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act. To the extent that the limitation contained in this section applies, the
determination of whether this Debenture is convertible (in relation to other securities owned by the Holder) and of which a portion of this Debenture is convertible shall be in the sole discretion of such Holder. To ensure compliance with this
restriction, the Holder will be deemed to represent to the Company each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Company shall have no obligation to
verify or confirm the accuracy of such determination. For purposes of this Section 4(c)(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 (x)
the Company’s most recently filed Form 10-QSB or Form 10-KSB, as the case may be, (y) a more recent public announcement by the Company or (z) any other notice by the Company or the Company’s Transfer Agent setting forth the number of
shares of Common Stock outstanding. Upon the written or oral request of the Holder, the Company 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, the number
of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Debenture, by the Holder or its affiliates since the date as of which such number of outstanding
shares of Common Stock was reported. The provisions of this Section 4(c) including the limitation set forth in the first sentence of subsection (ii) may be waived by the Holder, at the election of the Holder, upon not less than sixty-one (61)
days’ prior notice to the Company, and the provisions of this Section 4(c) shall continue to apply until such sixty-first day (or such later date, as determined by the Holder, as may be specified in such notice of waiver). 
  
 d) Mechanics of Conversion 
  
 i. Conversion Shares Issuable Upon Conversion of
Principal Amount. The number of shares of Common Stock issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Debenture to be converted by (y) the Conversion
Price. 
  
 ii. Delivery of Certificate Upon
Conversion. Not later than ten Trading Days after any Conversion Date, the Company will deliver or cause to be delivered to the Holder a certificate or certificates representing the Conversion Shares which shall be free of restrictive legends
and trading restrictions (other than those required by the Purchase Agreement) representing the number of shares of Common Stock being acquired upon the conversion of this Debenture (including, shares of Common Stock representing the payment of
accrued interest otherwise determined pursuant to Section 2(a). The Company shall, if available and if allowed under applicable securities laws, use its best efforts to deliver any certificate or certificates required to be delivered by the Company
under this Section electronically through the Depository Trust Corporation or another established clearing corporation performing similar functions. 
  

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 iii. Failure to Deliver Certificates. If in the case of any Notice of Conversion
such certificate or certificates are not delivered to or as directed by the applicable Holder by the tenth Trading Day after a Conversion Date, the Holder shall be entitled by written notice to the Company at any time on or before its receipt of
such certificate or certificates thereafter, to rescind such conversion, in which event the Company shall immediately return the certificates representing the principal amount of this Debenture tendered for conversion. 
  
 iv. Obligation Absolute; Partial Liquidated Damages.
If the Company fails for any reason to deliver to the Holder such certificate or certificates pursuant to Section 4(d)(ii) by the tenth Trading Day after the Conversion Date, the Company shall pay to such Holder, in cash, as liquidated damages and
not as a penalty, for each $1000 of principal amount being converted, $10 per Trading Day (increasing to $20 per Trading Day after 5 Trading Days after such damages begin to accrue) for each Trading Day after such tenth Trading Day until such
certificates are delivered. The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this Debenture in accordance with the 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 to enforce 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 Company or any violation or alleged violation of law by the Holder or any other person, and irrespective of any other circumstance which might otherwise limit such
obligation of the Company to the Holder in connection with the issuance of such Conversion Shares; provided, however, such delivery shall not operate as a waiver by the Company of any such action the Company may have against the
Holder. In the event the Holder of this Debenture shall elect to convert any or all of the outstanding principal amount hereof, the Company may not refuse conversion based on any claim that the Holder or any one associated or affiliated with the
Holder has been engaged in any violation of law, agreement or for any other reason, unless, an injunction from a court, on notice, restraining and or enjoining conversion of all or part of this Debenture shall have been sought and obtained and the
Company posts a surety bond for the benefit of the Holder in the amount of 150% of the principal amount of this Debenture outstanding, which is subject to the injunction, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable to such Holder to the extent it obtains judgment. In the absence of an injunction precluding the same, the Company shall issue Conversion Shares or, if applicable,
cash, upon a properly noticed conversion. Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 8 herein for the Company’s failure to deliver Conversion Shares within the
period specified herein and such Holder shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall
not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law. 
  
 v. Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In addition to any other rights available to
the Holder, if the Company fails 
  

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 for any reason to deliver to the Holder such certificate or certificates pursuant to Section 4(d)(ii) by
the tenth Trading Day after the Conversion Date, and if after such tenth Trading Day the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise) Common Stock to deliver in satisfaction of a sale by such
Holder of the Conversion Shares which the Holder anticipated receiving upon such conversion (a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in addition to any remedies available to or elected by the Holder) the
amount by which (x) the Holder’s 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 anticipated
receiving from the conversion at issue multiplied by (2) the actual sale price of the Common Stock at the time of the sale (including brokerage commissions, if any) giving rise to such purchase obligation and (B) at the option of the Holder, either
reissue (if surrendered) this Debenture in a principal amount equal to the principal amount of the attempted conversion or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with
its delivery requirements under Section 4(d)(ii). For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Debenture with respect to which the actual
sale price of the Conversion Shares at the time of the sale (including brokerage commissions, if any) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Company shall be
required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In. Notwithstanding anything contained herein to the contrary, if a Holder requires the Company
to make payment in respect of a Buy-In for the failure to timely deliver certificates hereunder and the Company timely pays in full such payment, the Company shall not be required to pay such Holder liquidated damages under Section 4(d)(iv) in
respect of the certificates resulting in such Buy-In. 
  
 vi. Reservation of Shares Issuable Upon Conversion. The Company covenants that it will at all times after the Authorized Share Effective Date reserve and keep available out of its authorized and unissued shares of Common Stock solely
for the purpose of issuance upon conversion of this Debenture and payment of interest on this Debenture, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of persons other than the Holder (and the
other holders of the Debentures), not less than such number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section
5) upon the conversion of the outstanding principal amount of this Debenture and payment of interest hereunder. The Company covenants that all shares of Common Stock that shall be so issuable after the Authorized Share Effective Date shall, upon
issue, be duly and validly authorized, issued and fully paid, nonassessable and, if the Registration Statement is then effective under the Securities Act, registered for public sale in accordance with such Registration Statement. 
  
 vii. Fractional Shares. Upon a conversion hereunder
the Company shall not be required to issue stock certificates representing fractions of shares of the Common Stock, but may if otherwise permitted, make a cash payment in respect of any final fraction of a 
  

 10 

 share based on the VWAP at such time. If the Company elects not, or is unable, to make such a cash
payment, the Holder shall be entitled to receive, in lieu of the final fraction of a share, one whole share of Common Stock. 
  
 viii. Transfer Taxes. The issuance of certificates for shares of the Common Stock on conversion of this Debenture shall be made
without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificate, provided that the Company 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 Holder of this Debenture so converted and the Company shall not be required to issue or deliver such certificates unless
or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. 
  
 Section 5. Certain Adjustments. 
  
 a) Stock Dividends and Stock Splits. If the Company,
at any time while this Debenture is outstanding: (A) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which,
for avoidance of doubt, shall not include any shares of Common Stock issued by the Company pursuant to this Debenture, including as interest thereon), (B) subdivides outstanding shares of Common Stock into a larger number of shares, (C) combines
(including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (D) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then the Conversion Price shall
be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock
outstanding immediately 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 and shall become
effective immediately after the effective date in the case of a subdivision, combination or re-classification. 
  
 b) Subsequent Equity Sales. If the Company or any Subsidiary thereof, as applicable, at any time while this Debenture is
outstanding, shall offer, sell, grant any option to purchase or offer, sell or grant any right to reprice its securities, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common
Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock, at an effective price per share less than the then Conversion Price (such lower price, the “Base Conversion Price” and such issuances
collectively, a “Dilutive Issuance”), as adjusted hereunder, then the Conversion Price shall be reduced in accordance with the following formula: 
  

							
	Base Conversion Price    	  	=	  	Conversion Price     x	  	X + Y
	 	  	 	  	 	  	X + Z

  

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 Where: 
  
 X  =  those shares of Common Stock outstanding immediately before the Dilutive Issuance; 
 Y  =  shares of Common Stock issuable at the Conversion Price for the total consideration received in the Dilutive Issuance; and

 Z  =  those shares issued in the Dilutive Issuance 
  
 For purposes of the foregoing, if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time,
whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to
receive shares of Common Stock at an effective price per share which is less than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the Dilutive Issuance. 
  
 The adjustment required under this Section 5(b) shall be made whenever such
Common Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing, no adjustment will be made under this Section 5(b) in respect of an Exempt Issuance. The Company shall notify the Holder in writing, no later than the Business Day
following the issuance of any Common Stock or Common Stock Equivalents subject to this section, indicating therein the applicable issuance price, or of applicable reset price, exchange price, conversion price and other pricing terms (such notice the
“Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 5 (b), upon the occurrence of any Dilutive Issuance, after the date of such Dilutive
Issuance the Holder is entitled to receive a number of Conversion Shares based upon the Base Conversion Price regardless of whether the Holder accurately refers to the Base Conversion Price in the Notice of Conversion. 
  
 c) Pro Rata Distributions. If the Company, at any
time while this Debenture is outstanding, shall distribute to all holders of Common Stock (and not to the holders of the Debenture) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or
purchase any security, then in each such case the Conversion Price shall be adjusted by multiplying such Conversion 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 date mentioned above, and of which the numerator shall be such VWAP on such record date less the then fair market value at such record date of the portion of such
assets or evidence of indebtedness so distributed applicable to one outstanding share 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 Holder
of the portion of assets or evidences of indebtedness so distributed or such subscription 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. 
  

 12 

 d) Fundamental Transaction. If, at any time while this Debenture is outstanding,
(A) the Company effects any merger or consolidation of the Company with or into another Person, (B) the Company 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 Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (D) the Company effects any reclassification of the
Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “Fundamental Transaction”), then upon any
subsequent conversion of this Debenture, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the same kind and
amount of securities, cash or property as it would 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”). For purposes of any such conversion, the determination of the Conversion 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 such Fundamental Transaction, and the Company shall apportion the Conversion 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 Stock are 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 this Debenture following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to
the Holder a new debenture consistent with the foregoing provisions and evidencing the Holder’s right to convert such debenture into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected
shall include terms requiring any such successor or surviving entity to comply with the provisions of this paragraph (d) and insuring that this Debenture (or any such replacement security) will be similarly adjusted upon any subsequent transaction
analogous to a Fundamental Transaction. 
  
 e)
Calculations. All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and
outstanding 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. 
  
 f) Notice to the Holder. 
  
 i. Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any of this Section 5, the Company shall
promptly mail to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. If the Company issues a variable rate security the Company shall be deemed to
have issued Common Stock or Common Stock Equivalents at the lowest possible conversion or exercise price at which such securities may be converted or exercised. 
  

 13 

 ii. Notice to Allow Conversion by Holder. If (A) the Company shall declare a
dividend (or any other distribution) on the Common Stock; (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock; (C) the Company shall authorize the granting to all holders of the Common Stock
rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights; (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any
consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property;
(E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company; then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of
conversion of this Debenture, and shall cause to be mailed to the Holder at its last addresses as it shall appear upon the stock books of the Company, 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 the Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the
date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale,
transfer or share exchange; provided, that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice. The Holder is entitled
to convert this Debenture during the 20-day period commencing the date of such notice to the effective date of the event triggering such notice. 
  
 Section 6. The Opus Loan. 
  
 a) Payment Restrictions. The Company hereby agrees that it may not make, and the Holder hereby agrees that it will not
accept, any payment or distribution with respect to the Debenture (other than the Interest Share Amount) until the Opus Loan is indefeasibly paid in full in cash.  
  
 b) Standstill Provisions. Until the Opus Loan is indefeasibly paid in full in cash, Holder shall not,
without the prior written consent of Opus, take any Enforcement Action with respect to the Debenture. Notwithstanding the foregoing, (a) Holder may file proofs of claim against the Company in any bankruptcy, reorganization, insolvency, receivership
or similar proceeding relating to the Company or its property and (b) Holder may accelerate the Debenture to the extent the Opus Loan has been accelerated; provided, that if the acceleration of the Opus Loan has been rescinded, Holder shall
be deemed to have automatically rescinded its acceleration of the Debenture. Any payments or 
  

 14 

 distributions or other proceeds of any Enforcement Action obtained by Holder in violation of the
foregoing prohibition shall in any event be held in trust by Holder for the benefit of Opus and promptly paid or delivered to Opus in the form received until the Opus Loan is indefeasibly paid in full in cash. 
  
 c) When Distribution Must Be Paid Over. In the event
that the Holder receives any payment of any Obligations not permitted to be made by the Company or accepted by the Holder with respect to this Debenture, such payment shall not be commingled with any of the assets of the Holder, shall be held in
trust by such Holder for the benefit of Opus and shall be paid forthwith over and delivered to Opus as their interests may appear or any representative of Opus for application to the payment of all Obligations with respect to the Opus Loan remaining
unpaid to the extent necessary to pay such Obligations in full in accordance with their terms, after giving effect to any concurrent payment or distribution to or for Opus. 
  
 d) Relative Rights. This Section 6 defines the relative rights of the Holder and Opus. Nothing in
this Debenture will: 
  
 i. impair, as between
the Company and the Holder, the obligation of the Company, which is absolute and unconditional, to pay principal of and interest on this Debenture in accordance with its terms; or 
  
 ii. affect the relative rights of the Holder and creditors of the Company other than their rights in
relation to Opus. 
  
 e) Modification,
Renewal, Sale or Release of the Opus Loan. Opus may, at any time and from time to time, without the consent of or notice to the Holder, without incurring responsibility to the Holder and without impairing or releasing the Obligations hereunder
of the Holder, do any one or more of the following: (a) change the manner, place or terms of payment or extend the time or payment of, or renew or alter, the Opus Loan or any instrument evidencing the same or any agreement under which the Opus Loan
is outstanding; (b) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing the Opus Loan; (c) release any Person in any manner for the collection of the Opus Loan; and (d) exercise or refrain from
exercising any rights against the Company or any other Person. 
  
 f) Benefit. The provisions of this Section 6 are for the benefit of Opus. 
  
 g) Amendments. The provisions of this Section 6 may not be amended or modified without the written consent of Opus. 
  
 Section 7. Negative Covenants. So long as any portion of this
Debenture is outstanding, the Company will not and will not permit any of its Subsidiaries to directly or indirectly: 
  
 a) enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money of any kind, including but not
limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom; provided, however, the Holder acknowledges that the Opus Loan is
senior to this Debenture in right of repayment; 
  

 15 

 b) enter into, create, incur, assume or suffer to exist any liens of any kind, on or with
respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom other than Permitted Liens; 
  

c) amend its certificate of incorporation, bylaws or other charter documents so as to materially and adversely affect any rights of the
Holder, but in no event shall an amendment of the Company’s certificate of incorporation to increase the number of authorized shares of Common Stock be prohibited by the terms of this Debenture; 
  
 d) repay, repurchase or offer to repay, repurchase or
otherwise acquire more than a de minimis number of shares of its Common Stock or Common Stock Equivalents other than as to the Conversion Shares to the extent permitted or required under the Transaction Documents or as otherwise permitted by
the Transaction Documents;  
  
 e) enter
into any agreement with respect to any of the foregoing; or 
  
 f) pay cash dividends or distributions on any equity securities of the Company other than as required by the Company’s Series AA Preferred Stock. 
  
 Section 8. Events of Default. 
  
 a) “Event of Default”, wherever used
herein, means any one of the following events (whatever the reason and whether it shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any
administrative or governmental body): 
  
 i. any
default in the payment of (A) the principal amount of any Debenture, or (B) interest (including Late Fees) on, or liquidated damages in respect of, any Debenture, as and when the same shall become due and payable (whether on a Conversion Date or the
Maturity Date or by acceleration or otherwise) which default, solely in the case of an interest payment or other default under clause (B) above, is not cured, within ten Trading Days; 
  
 ii. the Company shall fail to observe or perform any other covenant or agreement contained in this Debenture
or any other Debenture (other than a breach by the Company of its obligations to deliver shares of Common Stock to the Holder upon conversion which breach is addressed in clause (xi) below) which failure is not cured, if possible to cure, within the
earlier to occur of (A) 5 Trading Days after notice of such default sent by the Holder or by any other Holder and (B)10 Trading Days after the Company shall become or should have become aware of such failure; 
  
 iii. a default or event of default (subject to any grace or
cure period provided for in the applicable agreement, document or instrument) shall occur under (A) any of the Transaction Documents, or (B) any other material agreement, lease, document or instrument to which the Company or any Subsidiary is bound;

  

 16 

 iv. any representation or warranty made herein, in any other Transaction Documents, in
any written statement pursuant hereto or thereto, or in any other report, financial statement or certificate made or delivered to the Holder or any other holder of Debentures shall be untrue or incorrect in any material respect as of the date when
made or deemed made; 
  
 v. (i) the Company or
any of its Subsidiaries shall commence a case, as debtor, or there shall be commenced against the Company or any such Subsidiary, a case under any applicable bankruptcy or insolvency laws as now or hereafter in effect or any successor thereto, or
the Company or any Subsidiary commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect
relating to the Company or any Subsidiary thereof or (ii) there is commenced against the Company or any Subsidiary thereof any such bankruptcy, insolvency or other proceeding which remains undismissed for a period of 60 days; or (iii) the Company or
any Subsidiary thereof is adjudicated by a court of competent jurisdiction insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or (iv) the Company or any Subsidiary thereof suffers any
appointment of any custodian or the like for it or any substantial part of its property which continues undischarged or unstayed for a period of 60 days; or (v) the Company or any Subsidiary thereof makes a general assignment for the benefit of
creditors; or (vi) the Company shall fail to pay, or shall state that it is unable to pay, or shall be unable to pay, its debts generally as they become due; or (vii) the Company or any Subsidiary thereof shall call a meeting of its creditors with a
view to arranging a composition, adjustment or restructuring of its debts; or (viii) the Company or any Subsidiary thereof shall by any act or failure to act expressly indicate its consent to, approval of or acquiescence in any of the foregoing; or
(ix) any corporate or other action is taken by the Company or any Subsidiary thereof for the purpose of effecting any of the foregoing; 
  
 vi. the Company or any Subsidiary shall default in any of its obligations under any mortgage, credit agreement or other facility,
indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement of the
Company in an amount exceeding $150,000, whether such indebtedness now exists or shall hereafter be created and such default shall result in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise
become due and payable; 
  
 vii. the Company
shall be a party to any Change of Control Transaction or Fundamental Transaction, shall agree to sell or dispose of all or in excess of 33% of its assets in one or more transactions (whether or not such sale would constitute a Change of Control
Transaction) or shall redeem or repurchase more than a de minimis number of its outstanding shares of Common Stock or other equity securities of the Company (other than redemptions of Conversion Shares and repurchases of shares of Common Stock or
other equity securities of departing officers and directors of the Company; provided such repurchases shall not exceed $100,000, in the aggregate, for all officers and directors during the term of this Debenture) except that the foregoing in this
subsection (vii) shall not constitute an Event of Default if consented to by each Holder; or 
  

 17 

 viii. after September 1, 2005, the Company shall fail for any reason to deliver
certificates to a Holder prior to the third Trading Day after a Conversion Date pursuant to and in accordance with Section 4(d) or the Company shall provide notice to the Holder, including by way of public announcement, at any time, of its intention
not to comply with requests for conversions of any Debentures in accordance with the terms hereof. 
  
 ix. the Company shall fail to comply with its obligation to hold a meeting of its shareholders for the purpose of approving an amendment
to the Company’s certificate of incorporation which will increase the number of authorized shares of Common Stock to a number that is sufficient for the Company to issue authorized shares of Common Stock to each holder of Common Stock
Equivalents upon the exercise or Conversion thereof plus the Required Minimum, as set forth in Section 5.12(b) of the Purchase Agreement. 
  
 b) Remedies Upon Event of Default. If any Event of Default occurs, the full principal amount of this Debenture, together with
interest and other amounts owing in respect thereof, to the date of acceleration shall become, at the Holder’s election, immediately due and payable in cash. The aggregate amount payable upon an Event of Default shall be equal to the Mandatory
Default Amount. Commencing 5 days after the occurrence of any Event of Default that results in the eventual acceleration of this Debenture, the interest rate on this Debenture shall accrue at the rate of 18% per annum, or such lower maximum amount
of interest permitted to be charged under applicable law. Upon the payment in full of the Mandatory Default Amount on this entire Debenture the Holder shall promptly surrender this Debenture to or as directed by the Company. The Holder need not
provide and the Company hereby waives any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other
remedies available to it under applicable law. Such declaration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a Debenture holder until such time, if any, as the full payment
under this Section shall have been received by it. No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon. 
  
 Section 9. Miscellaneous. 
  

a) Notices. Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without
limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth above, facsimile number (281) 847-1791,
Attn: President, or such other address or facsimile number as the Company may specify for such purposes by notice to the Holder delivered in accordance with this Section. Any and all notices or other communications or deliveries to be provided by
the Company hereunder shall be in writing and delivered personally, by facsimile, sent by a nationally recognized overnight 
  

 18 

 courier service addressed to each Holder at the facsimile telephone number or address of such Holder
appearing on the books of the Company, or if no such facsimile telephone number or address appears, at the principal place of business of the Holder. Any notice or other communication or deliveries 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 5:30 p.m. (New York City time), (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 5:30 p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City time) on such date,
(iii) the second Business Day following the date of mailing, if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. 
  
 b) Absolute Obligation. Except as expressly provided
herein, no provision of this Debenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, interest and liquidated damages (if any) on, this Debenture at the time, place, and rate, and
in the coin or currency, herein prescribed. This Debenture is a direct debt obligation of the Company. This Debenture ranks pari passu with all other Debentures now or hereafter issued under the terms set forth herein. 
  
 c) Lost or Mutilated Debenture. If this Debenture
shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost, stolen or destroyed Debenture, a new
Debenture for the principal amount of this Debenture so mutilated, lost, stolen or destroyed but only upon receipt of evidence of such loss, theft or destruction of such Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company. 
  
 d)
Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Debenture shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard
to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party
hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”). Each
party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with
respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, or such
New York Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Debenture and agrees that such service 
  

 19 

 shall constitute good and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding
arising out of or relating to this Debenture or the transactions contemplated hereby. If either party shall commence an action or proceeding to enforce any provisions of this Debenture, then the prevailing party in such action or proceeding shall be
reimbursed by the other party for its attorneys fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding. 
  
 e) Waiver. Any waiver by the Company or the Holder of a breach of any provision of this Debenture
shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Debenture. The failure of the Company or the Holder to insist upon strict adherence to any term of this
Debenture on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Debenture. Any waiver must be in writing. 
  
 f) Severability. If any provision of this Debenture
is invalid, illegal or unenforceable, the balance of this Debenture shall remain in effect, and if any provision is inapplicable to any person or circumstance, it shall nevertheless remain applicable to all other persons and circumstances. If it
shall be found that any interest or other amount deemed interest due hereunder violates applicable laws governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum permitted rate of interest.
The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would
prohibit or forgive the Company from paying all or any portion of the principal of or interest on this Debenture as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of
this indenture, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impeded the execution of any power
herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted. 
  
 g) Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such
payment shall be made on the next succeeding Business Day. 
  
 h) Headings. The headings contained herein are for convenience only, do not constitute a part of this Debenture and shall not be deemed to limit or affect any of the provisions hereof. 
  
 i) Assumption. Any successor to the Company or
surviving entity in a Fundamental Transaction shall (i) assume in writing all of the obligations of the Company under this Debenture and the other Transaction Documents pursuant to written 
  

 20 

 agreements in form and substance satisfactory to the Holder (such approval not to be unreasonably
withheld or delayed) prior to such Fundamental Transaction and (ii) to issue to the Holder a new debenture of such successor entity evidenced by a written instrument substantially similar in form and substance to this Debenture, including, without
limitation, having a principal amount and interest rate equal to the principal amounts and the interest rates of the Debentures held by the Holder and having similar ranking to this Debenture, and satisfactory to the Holder (any such approval not to
be unreasonably withheld or delayed). The provisions of this Section 9(i) shall apply similarly and equally to successive Fundamental Transactions and shall be applied without regard to any limitations of this Debenture. 
  
 ********************* 
  

 21 

 IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by a duly authorized
officer as of the date first above indicated. 
  

			
	NORTH AMERICAN TECHNOLOGIES GROUP, INC.
		
	By:	 	  

	Name:	 	 
	Title:	 	 

 ANNEX A 
  
 NOTICE OF CONVERSION 
  
 The undersigned hereby elects to convert principal under the 7% Convertible Debenture of North American Technologies Group, Inc., a Delaware corporation
(the “Company”), due on July 7, 2006, into shares of common stock, par value $0.001 per share (the “Common Stock”), of the Company according to the conditions hereof, as of the date written below. If shares are to
be issued in the name of a person other than the 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 Company in accordance
therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any. 
  
 By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed
the amounts determined in accordance with Section 13(d) of the Exchange Act, specified under Section 4 of this Debenture. 
  
 The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the
aforesaid shares of Common Stock. 
  
 Conversion calculations:

  

	
	 Date to Effect Conversion:

	
	 Principal Amount of Debenture to be Converted:

	
	 $             of Interest Accrued on Account of Conversion at
Issue.

	
	 Number of shares of Common Stock to be issued:

	
	 Signature:

	
	 Name:

	
	 Address:

 Schedule 1 
  

CONVERSION SCHEDULE 
  
 The 7% Convertible Debentures due on July 7, 2006, in the aggregate principal amount of
$                     issued by North American Technologies Group, Inc., a Delaware corporation. This Conversion Schedule reflects conversions
made under Section 4 of the above referenced Debenture. 
  
 Dated: 
  

							
	 Date of Conversion
 (or for first entry,
 Original Issue Date)

	 	 Amount of
 Conversion

	 	 Aggregate Principal
 Amount Remaining
 Subsequent to Conversion
 (or original Principal Amount)

	  	Company AttestForm of Warrant

 Exhibit 10.3 
  
 NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES. 
  
 COMMON STOCK PURCHASE WARRANT 
  
 To Purchase                      Shares of Common Stock of 
  
 NORTH AMERICAN TECHNOLOGIES GROUP, INC. 
  
 THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received,
                                       
 (the “Holder”), is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date hereof (the “Initial Exercise Date”) and on
or prior to the close of business on the three year anniversary of the Initial Exercise Date (the “Termination Date”) but not thereafter, to subscribe for and purchase from North American Technologies Group, Inc., a Delaware
corporation (the “Company”), up to                              shares (the
“Warrant Shares”) of Common Stock, par value $0.001 per share, of the Company (the “Common Stock”). The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined
in Section 2(b). 
  
 Section 1. Definitions.
Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase Agreement”), dated July 7, 2005, among the Company and the purchasers signatory
thereto. 
  
 Section 2. Exercise. 
  
 a) Exercise of Warrant. Exercise of the purchase
rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed facsimile copy of the Notice of
Exercise Form annexed hereto (or such other office or agency of the Company as it may designate by notice in writing to the 
  

 1 

 registered Holder at the address of such Holder appearing on the books of the Company); provided,
however, within 5 Trading Days of the date said Notice of Exercise is delivered to the Company, the Holder shall have surrendered this Warrant to the Company and the Company shall have received payment of the aggregate Exercise Price of the
shares thereby purchased by wire transfer or cashier’s check drawn on a United States bank. 
  
 b) Exercise Price. The exercise price of the Common Stock under this Warrant shall be $0.24, subject to adjustment hereunder (the
“Exercise Price”). 
  
 c)
Cashless Exercise. If at any time after one year from the date of issuance of this Warrant there is no effective Registration Statement registering, or no current prospectus available for, the resale of the Warrant Shares by the Holder, then
this Warrant may also be exercised at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a certificate for the number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by
(A), where: 
  

			
	(A) =	 	the VWAP on the Trading Day immediately preceding the date of such election;
		
	(B) =	 	the Exercise Price of this Warrant, as adjusted; and
		
	(X) =	 	the number of Warrant Shares issuable upon exercise of this Warrant in accordance with the terms of this Warrant by means of a cash exercise rather than a cashless exercise.

  
 Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c). 
  
 d) Exercise Limitations; Holder’s Restrictions. A Holder shall not have the right to
exercise any portion of this Warrant, pursuant to Section 2(c) or otherwise, to the extent that after giving effect to such issuance after exercise, such Holder (together with such Holder’s affiliates), as set forth on the applicable Notice of
Exercise, would beneficially own in excess of 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to such issuance. For purposes of the foregoing sentence, the number of shares of Common Stock beneficially
owned by such Holder and its affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which the determination of such sentence is being made, but shall exclude the number of shares of
Common Stock which would be issuable upon (A) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by such Holder or any of its affiliates and (B) exercise or conversion of the unexercised or nonconverted portion of any
other securities of the Company (including, without limitation, any other shares of Debentures or Warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by such Holder or any of
its affiliates. Except as set forth in the preceding sentence, for purposes of this Section 2(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act, it being acknowledged 
  

 2 

 by a Holder that the Company is not representing to such Holder that such calculation is in compliance
with Section 13(d) of the Exchange Act and such Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(d) applies, the determination of whether this
Warrant is exercisable (in relation to other securities owned by such Holder) and of which a portion of this Warrant is exercisable shall be in the sole discretion of a Holder, and the submission of a Notice of Exercise shall be deemed to be each
Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by such Holder) and of which portion of this Warrant is exercisable, in each case subject to such aggregate percentage limitation, and the
Company shall have no obligation to verify or confirm the accuracy of such determination. For purposes of this Section 2(d), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of
Common Stock as reflected in (x) the Company’s most recently filed Form 10-QSB or Form 10-KSB, as the case may be, (y) a more recent public announcement by the Company or (z) any other notice by the Company or the Company’s Transfer Agent
setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to such Holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by such Holder or its affiliates since the date as
of which such number of outstanding shares of Common Stock was reported. The provisions of this Section 2(d), including the limitation set forth in the first sentence of this Section 2(d), may be waived by such Holder, at the election of such
Holder, upon not less than sixty-one (61) days’ prior notice to the Company, and the provisions of this Section 2(d) shall continue to apply until such sixty-first day (or such later date, as determined by such Holder, as may be specified in
such notice of waiver). 
  
 e) Mechanics of
Exercise. 
  
 i. Authorization of Warrant
Shares. The Company covenants that following the Authorized Share Effective Date all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented
by this Warrant, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

  
 ii. Delivery of Certificates Upon
Exercise. Certificates for shares purchased hereunder shall be transmitted by the transfer agent of the Company to the Holder by crediting the account of the Holder’s prime broker with the Depository Trust Company through its Deposit
Withdrawal Agent Commission system if the Company is a participant in such system, and otherwise by physical delivery to the address specified by the Holder in the Notice of Exercise within ten (10) Trading Days from the delivery to the Company of
the Notice of Exercise Form, surrender of 

  

 3 

 
this Warrant and payment of the aggregate Exercise Price as set forth above (“Warrant Share Delivery Date”). This Warrant shall be deemed to
have been exercised on the date the Exercise Price is received by the Company. The Warrant Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record
of such shares for all purposes, as of the date the Warrant has been exercised by payment to the Company of the Exercise Price and all taxes required to be paid by the Holder, if any, pursuant to Section 2(e)(vii) prior to the issuance of such
shares, have been paid. 
  
 iii. Delivery of
New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates representing Warrant Shares, deliver to Holder a new Warrant evidencing the rights of
Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant. 
  
 iv. Rescission Rights. If the Company fails to cause its transfer agent to transmit to the Holder a certificate or certificates
representing the Warrant Shares pursuant to this Section 2(e)(iv) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise. 
  
 v. Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Exercise. In addition to
any other rights available to the Holder, if the Company fails to cause its transfer agent to transmit to the Holder a certificate or certificates representing the Warrant Shares pursuant to an exercise on or before the Warrant Share Delivery Date,
and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated
receiving upon such exercise (a “Buy-In”), then the Company shall (1) pay in cash to the Holder the amount by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock
so purchased exceeds (y) the amount obtained by multiplying (A) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (B) the price at which the sell order giving rise to
such purchase obligation was executed, and (2) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored or deliver to the Holder the number of shares of
Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect
to an attempted exercise of shares of Common Stock with an 

  

 4 

 
aggregate sale price giving rise to such purchase obligation of $10,000, under clause (1) of the immediately preceding sentence the Company shall be required
to pay the Holder $1,000. The Holder shall provide the Company 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 Company.
Nothing herein shall limit a Holder’s 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 Company’s
failure to timely deliver certificates representing shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof. 
  
 vi. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise
of this Warrant. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the
Exercise Price. 
  
 vii. Charges, Taxes and
Expenses. Issuance of certificates for Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be
paid by the Company, and such certificates shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event certificates for Warrant Shares are to be issued in a
name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder; and the Company may require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any transfer tax incidental thereto. 
  
 viii. Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof. 
  
 Section 3. Certain Adjustments. 
  
 a) Stock Dividends and Splits. If the Company, at any
time while this Warrant is outstanding: (A) pays a stock dividend or otherwise make a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities exercisable, convertible or payable in shares of
Common Stock (a “Common Stock Equivalent” which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company pursuant to this Warrant), (B) subdivides outstanding shares of Common Stock into a larger
number of shares, (C) combines (including by way of reverse stock split) outstanding shares of Common Stock into a 
  

 5 

 smaller number of shares, or (D) issues by reclassification of shares of the Common Stock any shares of
capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event
and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted. Any adjustment made pursuant to
this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a
subdivision, combination or re-classification. 
  
 b) Subsequent Equity Sales. If the Company or any Subsidiary thereof, as applicable, at any time while this Warrant is outstanding, shall offer, sell, grant any option to purchase or offer, sell or grant any right to reprice its
securities, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock, at an effective
price per share less than the then Exercise Price (such lower price, the “Base Share Price” and such issuances collectively, a “Dilutive Issuance”), as adjusted hereunder, then the Exercise Price shall be reduced in
accordance with the following formula: 
  

							
	Base Exercise Price	  	=	  	Exercise Price    x  	  	X + Y
	 	  	 	  	 	  	X + Z

  
 Where: 
  

			
	X  =	  	those shares of Common Stock outstanding immediately before the Dilutive Issuance;
		
	Y  =	  	shares of Common Stock issuable at the Conversion Price for the total consideration received in the Dilutive Issuance; and
		
	Z  =	  	those shares issued in the Dilutive Issuance

  
 For purposes of the foregoing, if the
holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or
rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share which is less than the Exercise Price, such issuance shall be deemed to have occurred for less than the
Exercise Price on such date of the Dilutive Issuance. 
  
 The adjustment required
under this Section 3(b) shall be made whenever such Common Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing, no adjustment will be made under this Section 3(b) in respect of an Exempt Issuance. The Company shall notify the
Holder in writing, no later than the Business Day following the issuance of any Common Stock or Common Stock Equivalents subject to this section, indicating therein the applicable issuance price, or of applicable reset price, exchange price,
conversion price and other pricing terms (such notice the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the 
  

 6 

 Company provides a Dilutive Issuance Notice pursuant to this Section 3(b), upon the occurrence of any Dilutive Issuance,
after the date of such Dilutive Issuance the Holder is entitled to receive a number of Warrant Shares based upon the Base Exercise Price regardless of whether the Holder accurately refers to the Base Exercise Price in the Notice of Conversion.

  
 c) Pro Rata Distributions. If the
Company, at any time prior to the Termination Date, shall distribute to all holders of Common Stock (and not to Holders of the Warrants) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe
for or purchase any security other than the Common Stock (which shall be subject to Section 3(b)), then in each such case the Exercise Price shall be adjusted by multiplying the Exercise 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 date mentioned 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 outstanding share 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 Holder of the portion of assets or evidences of indebtedness so distributed or such subscription 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. 
  
 d) Fundamental Transaction. If, at any time while this Warrant is outstanding, (A) the Company effects any merger or consolidation
of the Company with or into another Person, (B) the Company 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 Company or another Person) is
completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (D) the Company effects any reclassification of the Common Stock or any compulsory share exchange
pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder
shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder, upon exercise of this Warrant, the number of
shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and/or any additional consideration (the “Alternate Consideration”) receivable upon or as a result of such
reorganization, reclassification, merger, consolidation or disposition of assets by a Holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event. For purposes of any such exercise, the
determination of the Exercise 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 such Fundamental Transaction, and the
Company shall apportion the Exercise 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 Stock are 
  

 7 

 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 exercise of this Warrant following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the
Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new warrant consistent with the foregoing provisions and evidencing the Holder’s right to exercise such warrant into Alternate Consideration. The terms of
any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 3(d) and insuring that this Warrant (or any such replacement
security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction. 
  
 e) Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the
case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding 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. 
  
 f) Notice to Holders.

  
 i. Adjustment to Exercise Price.
Whenever the Exercise Price is adjusted pursuant to this Section 3, the Company shall promptly mail to each Holder a notice setting forth the Exercise Price after such adjustment and setting forth a brief statement of the facts requiring such
adjustment. If the Company issues a variable rate security the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion or exercise price at which such securities may be converted or
exercised. 
  
 ii. Notice to Allow Exercise
by Holder. If (A) the Company shall declare a dividend (or any other distribution) on the Common Stock; (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock; (C) the Company shall authorize
the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights; (D) the approval of any stockholders of the Company shall be required in connection with any
reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted
into other securities, cash or property; (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company; then, in each case, the Company shall cause to be mailed to the Holder at its
last address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date 

  

 8 

 
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 the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share
exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable
upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided, that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required
to be specified in such notice. The Holder is entitled to exercise this Warrant during the 20-day period commencing on the date of such notice to the effective date of the event triggering such notice. 
  
 Section 4. Transfer of Warrant. 
  
 a) Transferability. Subject to compliance with any
applicable securities laws and the conditions set forth in Sections 5(a) and 4(d) hereof and to the provisions of Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder are transferable, in whole or in part, upon surrender of
this Warrant at the principal office of the Company, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes
payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denomination or denominations specified
in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly assigned, may be exercised by a new holder
for the purchase of Warrant Shares without having a new Warrant issued. 
  
 b) New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and
denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and
deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. 
  
 c) Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the
“Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any
distribution to the Holder, and for all other purposes, absent actual notice to the contrary. 
  

 9 

 d) Transfer Restrictions. If, at the time of the surrender of this Warrant in
connection with any transfer of this Warrant, the transfer of this Warrant shall not be registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws, the Company may
require, as a condition of allowing such transfer (i) that the Holder or transferee of this Warrant, as the case may be, furnish to the Company a written opinion of counsel (which opinion shall be in form, substance and scope customary for opinions
of counsel in comparable transactions) to the effect that such transfer may be made without registration under the Securities Act and under applicable state securities or blue sky laws, (ii) that the holder or transferee execute and deliver to the
Company an investment letter in form and substance acceptable to the Company and (iii) that the transferee be an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8) promulgated under the Securities Act or
a qualified institutional buyer as defined in Rule 144A(a) under the Securities Act. 
  
 Section 5. Miscellaneous. 
  
 a) Title to Warrant. Prior to the Termination Date and subject to compliance with applicable laws and Section 4 of this Warrant, this Warrant and all rights hereunder are transferable, in whole or in part, at
the office or agency of the Company by the Holder in person or by duly authorized attorney, upon surrender of this Warrant together with the Assignment Form annexed hereto properly endorsed. The transferee shall sign an investment letter in form and
substance reasonably satisfactory to the Company. 
  
 b) No Rights as Shareholder Until Exercise. This Warrant does not entitle the Holder to any voting rights or other rights as a shareholder of the Company prior to the exercise hereof. Upon the surrender of this Warrant and the
payment of the aggregate Exercise Price (or by means of a cashless exercise), the Warrant Shares so purchased shall be and be deemed to be issued to such Holder as the record owner of such shares as of the close of business on the later of the date
of such surrender or payment. 
  
 c) Loss,
Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the
Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or
stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate. 
  
 d) Saturdays, Sundays, Holidays, etc. If the last or
appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a
Saturday, Sunday or legal holiday. 
  

 10 

 e) Authorized Shares. Following the Authorized Share Effective Date: 

 
 The Company covenants that during the period the Warrant
is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants
that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase
rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the
Trading Market upon which the Common Stock may be listed. 
  
 Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company
will (a) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (b) take all such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant, and (c) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant. 
  
 Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in
the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof. 
  
 f) Jurisdiction. All questions concerning the
construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement. 
  

g) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered,
will have restrictions upon resale imposed by state and federal securities laws. 
  
 h) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall
operate as a waiver of such right 
  

 11 

 or otherwise prejudice Holder’s rights, powers or remedies, notwithstanding the fact that all rights
hereunder terminate on the Termination Date. If the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to Holder such amounts as shall be
sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of
its rights, powers or remedies hereunder. 
  
 i) Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement. 

 
 j) Limitation of Liability. No provision hereof,
in the absence of any affirmative action by Holder to exercise this Warrant or purchase Warrant Shares, and no enumeration herein of the rights or privileges of Holder, shall give rise to any liability of Holder for the purchase price of any Common
Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 
  
 k) Remedies. Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to
waive the defense in any action for specific performance that a remedy at law would be adequate. 
  
 l) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby
shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant
and shall be enforceable by any such Holder or holder of Warrant Shares. 
  
 m) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and
the Holder. 
  
 n) Severability.
Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant. 
  
 o) Headings. The headings used in this Warrant are for the convenience of reference only and shall
not, for any purpose, be deemed a part of this Warrant. 
  
 ******************** 
  

 12 

 IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly
authorized. 
  
 Dated: July 7, 2005 
  

			
	NORTH AMERICAN TECHNOLOGIES GROUP,
INC.
		
	 By:
	 	  

	 Name:
	 	 
	 Title:
	 	 

  

 13 

 NOTICE OF EXERCISE 
  
 TO: NORTH AMERICAN TECHNOLOGIES GROUP, INC. 
  
 (1) The undersigned hereby elects to purchase              Warrant Shares of the
Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any. 
  
 (2) Payment shall take the form of (check applicable box): 
  
 [    ] in lawful money of the United States; or

  
 [    ] the cancellation of such number
of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in
subsection 2(c). 
  
 (3) Please issue a certificate or
certificates representing said Warrant Shares in the name of the undersigned or in such other name as is specified below: 
  
 _____________________________ 
  
 The Warrant Shares shall be delivered to the following: 
  
 _____________________________ 
  
 _____________________________ 
  
 _____________________________ 
  
 (4) Accredited Investor. The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of
1933, as amended. 
  
 [SIGNATURE OF HOLDER] 
  
 Name of Investing Entity:
                                        
                                        
                                        
                              
 Signature of Authorized Signatory of Investing Entity:
                                        
                                        
                         
 Name of
Authorized Signatory:
                                        
                                        
                                        
                     
 Title of Authorized Signatory:
                                        
                                        
                                        
                       
 Date:
                                        
                                        
                                        
                                        
                       

 ASSIGNMENT FORM 
  
 (To assign the foregoing warrant, execute 
 this form and supply required information. 
 Do not use this form to exercise the warrant.) 
  
 FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby
are hereby assigned to 
  
                                       
                                        
                   whose address is 
  
 ____________________________________________________________. 
  
  
 ____________________________________________________________ 
  
 Dated:
                    ,              
  

			
	Holder’s Signature:	 	  

		
	 Holder’s Address:
	 	  

		
	 	 	  

  

			
	 Signature Guaranteed:
	 	  

  
 NOTE: The signature to this Assignment
Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or
other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

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